Edgar Filing: NETSOL TECHNOLOGIES INC

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 21, 2005

REGISTRATION NO. 333-116512
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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POST-EFFECTIVE AMENDMENT NO. 8 TO

FORM SB-2

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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NETSOL TECHNOLOGIES, INC.
(Name of small business issuer in its charter)

Nevada 2834 95-4627685
(State or Other (Primary Standard (IRS Employer
Jurisdiction of Industrial Classification Identification
Incorporation "SIC" Code Number) Number)
or Organization)
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23901 Calabasas Road, Suite 2072
Calabasas, CA 91302
Phone: (818) 222-9195
Fax: (818) 222-9197
(Address including the zip code & telephone
number including area code, of
registrant's principal executive office)

NAEEM GHAURI
CHIEF EXECUTIVE OFFICER
NETSOL TECHNOLOGIES, INC.
23901 Calabasas Road, Suite 2072
Calabasas, CA 91302
Phone: (818) 222-9195
Fax: (818) 222-9197
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPIES TO:

PATTI L. W. MCGLASSON
MALEA FARSAI
GENERAL COUNSEL
NETSOL TECHNOLOGIES, INC.
23901 Calabasas Road, Suite 2072
Calabasas, CA 91302
Phone: (818) 222-9195
Fax: (818) 222-9197

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
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Proposed
Maximum Proposed
Title of Each Class Number of Offering Maximum Amount of
of Securities Shares to be Price Per Aggregate Registration
to be Registered Registered(1) (2) Share(1) (2) Offering Price Fee
----------------------------------------- ----------------- ------------ -------------- ------------

Shares of Common Stock, $.001 par value 481,557 $ 2.20 $ 1,059,425.40 $ 124.69

Shares of Common Stock, $.001 par value, 1,235,469 $ 2.20 $ 2.718,031.80 $ 319.91
underlying warrants and convertible
debentures(3)

TOTAL 1,717,026 $ 3,777,457.20 $ 444.60

(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(c).

(2) Pursuant to Rule 416 under the Securities Act of 1933, as amended, there
are also being registered such additional shares of common stock as may
become issuable pursuant to anti-dilution provisions of the warrants.

(3) 590,308 of the shares are issuable upon exercise of the warrants and
645,161 of the shares upon conversion of the convertible debentures

If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X ]

If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering.

[ ] ------------------

If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.

[ ] ------------------

If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.

[ ] ------------------

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING STOCKHOLDERS MAY NOT SELL THE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.

SUBJECT TO COMPLETION, DATED DECEMBER 21, 2005

PROSPECTUS

1,717,026 SHARES OF COMMON STOCK
OF
NETSOL TECHNOLOGIES, INC.

This prospectus relates to the offering for resale of NetSol Technologies, Inc.
common stock by certain selling stockholders, who will use this prospectus to
resell their shares of common stock. The shares of common stock being offered
include: shares of common stock acquired by the selling stockholders in a
private placement of such shares by NetSol; shares of common stock underlying
convertible debentures and warrants acquired by the selling stockholders in a
NetSol private placement. Such warrants and convertible debentures have not been
exercised or converted. In addition, certain shares of common stock were
acquired by selling stockholders in settlement of litigation against NetSol and
in exchange for settlement of a tax liability due by our subsidiary located in
Pakistan. A number of shares underlying warrants were acquired pursuant to a
placement agent agreement with the warrant holder. In this prospectus, we
sometimes refer to the common stock as the securities. In this prospectus, the
terms "NetSol," "we," or "us" will each refer to NetSol Technologies, Inc.

We will not receive any proceeds from sales of the shares of common stock by the
selling stockholders.

Our common stock is traded on the NASDAQ SmallCap Market under the symbol
"NTWK". The closing price of our common stock on December 19, 2005 was $1.94.

We will bear all expenses, other than selling commissions and fees, in
connection with the registration and sale of the shares being offered by this
prospectus.

INVESTING IN OUR SECURITIES INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 3

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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

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December 21, 2005

TABLE OF CONTENTS

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS 1

PROSPECTUS SUMMARY 1

RISK FACTORS 4

USE OF PROCEEDS 8

SELLING STOCKHOLDERS 9

PLAN OF DISTRIBUTION 12

LEGAL PROCEEDINGS 14

DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS 15

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 17

DESCRIPTION OF SECURITIES 18

DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES 18

DESCRIPTION OF BUSINESS 19

MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATIONS 34

DESCRIPTION OF PROPERTY 56

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 57

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 58

EXECUTIVE COMPENSATION 59

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE 63

WHERE YOU CAN FIND MORE INFORMATION 63

FINANCIAL STATEMENTS F-1
EXHIBITS 65
UNDERTAKING 69

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements under "Prospectus Summary," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Plan of Operation," and
"Description of Business" in this prospectus are forward-looking statements.
These statements involve known and unknown risks, uncertainties, and other
factors that may cause our or our industry's actual results, levels of activity,
performance, or achievements to be materially different from any future results,
levels of activity, performance, or achievements expressed or implied by
forward-looking statements. Such factors include, among other things, those
listed under "Risk Factors" and elsewhere in this prospectus.

In some cases, you can identify forward-looking statements by terminology such
as "may," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," "proposed," "intended," or "continue" or
the negative of these terms or other comparable terminology. You should read
statements that contain these words carefully, because they discuss our
expectations about our future operating results or our future financial
condition or state other "forward-looking" information. There may be events in
the future that we are not able to accurately predict or control. Before you
invest in our securities, you should be aware that the occurrence of any of the
events described in these risk factors and elsewhere in this prospectus could
substantially harm our business, results of operations and financial condition,
and that upon the occurrence of any of these events, the trading price of our
securities could decline and you could lose all or part of your investment.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, growth rates,
levels of activity, performance, or achievements. We are under no duty to update
any of the forward-looking statements after the date of this prospectus to
conform these statements to actual results.

PROSPECTUS SUMMARY

The following summary contains basic information about NetSol and this
prospectus. Because it is a summary, it does not contain all of the information
that you should consider before investing in our securities. For a more complete
understanding of the risks associated with investing in us, you should read the
entire prospectus carefully, including the "Risk Factors" starting on page 4.

We are an end-to-end information technology ("IT") and business consulting
services provider for the lease and finance, banking and financial services
industries. We operate on a global basis with locations in the U.S., Europe,
East Asia and Asia Pacific. We help our clients identify, evaluate, and
implement technology solutions to meet their most critical business challenges
and maximize their bottom line. Our products include sophisticated software
applications for the asset-based lease and finance industry. By utilizing our
worldwide resources, we believe we are able to deliver high quality,
cost-effective IT services, ranging from consulting and application development
to systems integration and outsourcing. We have achieved the ISO 9001 and SEI
(Software Engineering Institute) Capable Maturity Model ("CMM") Level 3
certifications. Additionally, through our IP Backbone, located in Karachi,
Pakistan, we offer a package of wireless broadband services, which include
high-speed Internet access, support and maintenance.

Our subsidiary, Network Technologies Pvt. Ltd., a Pakistan Limited
Company, ("NetSol PK"), develops the majority of our software. NetSol PK was the
first company in Pakistan to achieve the ISO 9001 and SEI CMM Level 4 software
development assessment. As maintained by the SEI, maturity levels measure the
maturity of a software company's methodology that in turn ensures enhanced
product quality resulting in faster project turn-a-round and a shortened time to
market.

During recent years, we have focused on developing software applications
for the leasing and financial service industries. In late 2002, we launched a
new suite of software products under the name LeaseSoft. The LeaseSoft suite is
comprised of four major integrated asset based leasing/financing software
applications. The suite, consisting of a Credit Application Creation System
(LeaseSoft.CAC), a Credit Application Processing System (LeaseSoft.CAP), a
Contract Activation & Management System (LeaseSoft.CAM) and a Wholesale Finance
System (LeaseSoft.WFS), whether used alone or together, provides the user with
an opportunity to address specific sub-domains of the leasing/financing cycle
from the credit approval process through the tracking of the finance contract
and asset.

In February 2005, We acquired 100% of CQ Systems Ltd., an IT products and
service company based in the UK. As a result of this acquisition, we have access
to a broad European customer base using IT solutions complementary to NetSol's
LeaseSoft product. We plan to leverage CQ Systems' knowledge base and strong
presence in the Asset Finance market to launch LeaseSoft in the UK and
continental Europe. CQ's strong sales and marketing capability would further
help us gain immediate recognition and positioning for the LeaseSoft suite of
products. CQ provides sophisticated accounting and administrative software,
along with associated services, to leasing and finance companies located in
Europe, Asia and Africa. The products include software modules for asset
finance, consumer finance, motor finance, general finance and insurance premium
finance. The modules provide an end-to-end contractual solution - from
underwriting, contract administration and accounting, through asset disposal and
remarketing. Customers include notable European companies such as Scania Finance
GB, DaimlerChrysler Services, Broadcastle PLC, Bank of Scotland Equipment
Finance and Deutsche Leasing Ltd. The acquisition closed on February 22, 2005
based on March 31, 2004 financial statements of CQ Systems Ltd. with the payment
of approximately $1.7 million in cash and 675,292 shares of Company common stock
based on a $2.46 per share cost basis. The final payment of consideration will
be made after the completion of CQ's March 31, 2006 fiscal year end.

With the acquisition of Pearl Treasury System, whose product offering is now
referred to as InBanking(TM), we expand our menu of software into the banking
and other financial areas. PTS was originally developed on two tier client
server technologies and was designed to provide full process automation and
decision support in the front, middle and back offices of treasury and capital
markets operations. On an internal review of PTS post acquisition, it was
decided to re-write the system within .NET technologies, bringing the system
into the leading edge n-tier/browser-based environment. The project name for
this program is InBanking(TM), and the Phase One deliverables are nearing
completion. InBanking(TM) has more than 70 person years of development effort
and $4 million already invested.

We market our software products worldwide to companies primarily in the
automobile finance, leasing and banking industries. In February 2003, we
successfully implemented our LeaseSoft.CAM for Daimler Chrysler Singapore and
received a fee in excess of $2 million. Some of our other customers include:
Mercedes Benz Finance - Japan; Yamaha Motors Finance - Australia; Tung-Yang
Leasing Company Taiwan; Debis Portfolio Systems - UK; DaimlerChrysler Services -
Australia; DaimlerChrysler Leasing - Thailand; DaimlerChrysler Services - Korea;
UMF Leasing Singapore; and, DaimlerChrysler Services New Zealand. In addition,
NetSol provides offshore development and customized I/T solutions to blue chip
customers such as Citibank Pakistan, DCD Holding UK and Habib Allied Bank UK.
With the acquisition of Altvia Technologies, Inc. (now NetSol USA) in June 2003,
we believe we acquired, as clients, some of the most well known higher education
and telecommunications associations based on the east coast of the United
States. We are also a strategic business partner for DaimlerChrysler Services
AG, which consists of a group of many companies, including some of the ones
referred to above. We have recently added a few new customers such as TIG of the
United Kingdom, AMF of Australia, Capital Stream from the United States and a
few other in the US and Asia. Additionally, new strategic relationships were
formed with Intel Pakistan and Hyundai IT of Korea

We were incorporated under the laws of the State of Nevada on March 18,
1997. Our principal executive offices are located at 23901 Calabasas Road, Suite
2072, Calabasas, California 91302. Our telephone phone number is (818) 222-9195
and our website address is http://www.netsoltek.com.

This prospectus relates to the offering for resale of NetSol Technologies,
Inc. common stock by the selling stockholders named in this prospectus, who will
use this prospectus to resell their shares of common stock. The shares of common
stock consist of shares of common stock, shares of common stock underlying
convertible debentures and shares of common stock underlying warrants which were
acquired by the selling stockholders in private placements and, those shares of
common stock underlying warrants issued to the placement agent as compensation
for services provided to NetSol in the aforementioned private placements, shares
of common stock issued to a shareholder as settlement of litigation against
NetSol, and shares issued to a selling stockholder who was issued shares in
exchange for the settlement of a tax liability owed by our subsidiary located in
Pakistan.. We will not receive any proceeds from sales of our common stock by
the selling stockholders. For further information about the selling
stockholders, see "Selling Stockholders."

THE OFFERING

Common Stock This prospectus relates to the offering of 1,717,026 shares of
Offered our common stock, which may be sold from time to time by the
selling stockholders named in this prospectus. Of the total
amount offered, 645,161 shares of common stock are issuable upon
the conversion of convertible debentures sold by NetSol in a
private placement in March 2004 and 322,581 shares of common
stock are issuable to such selling stockholders upon the exercise
of warrants issued in connection with that placement; 386,362
shares of common stock were issued in a private placement which
closed in May 2004, and 193,182 shares of common stock are
issuable to the selling stockholders upon the exercise of
warrants issued in connection with the private placement. Maxim
Group LLC served as NetSol's placement agent in connection with
such private placements and, its nominee, Maxim Partners, was
issued warrants to purchase up to 74,545 shares of common stock
in connection with their services. 50,000 shares of common stock
were acquired by an individual non-U.S. resident investor in
exchange for the payment of a tax liability owed by our Pakistani
subsidiary. 45,195 shares of common stock were acquired by a
selling stockholder in a settlement agreement between NetSol and
the selling stockholder entered into in October 2003. The shares
of our common stock are being registered to permit the selling
stockholders to sell the shares from time to time in the public
market. The selling stockholders will determine the timing and
amount of any sale.

Common Stock We had 14,093,711 shares of common stock issued and outstanding
outstanding as of December 16, 2005.

Use of We will not receive any of the proceeds from sale of shares of
Proceeds common stock offered by the selling stockholders.

Trading Our common stock is currently listed on the NASDAQ Capital Market
Market under the trading symbol "NTWK."

Risk Factors Investment in our common stock involves a high degree of risk.
You should carefully consider the information set forth in the
"Risk Factors" section of this prospectus as well as other
information set forth in this prospectus, including our financial
statements and related notes.

RISK FACTORS

An investment in our securities is extremely risky. You should carefully
consider the following risks, in addition to the other information presented in
this prospectus, before deciding to buy our securities. If any of the following
risks actually materialize, our business and prospects could be seriously harmed
and, as a result, the price and value of our securities could decline and you
could lose all or part of your investment. The risks and uncertainties described
below are intended to be the material risks that are specific to us and to our
industry.

RISKS RELATED TO OUR BUSINESS

We May Have Difficulty Raising Needed Capital in the Future, Which Could
Significantly Harm Our Business.

We will require additional financing in order to support further expansion,
develop new or enhanced services or products, respond to competitive pressures,
acquire complementary businesses or technologies or take advantage of
unanticipated opportunities. Our ability to arrange such financing in the future
will depend in part upon the prevailing capital market conditions, as well as
our business performance. There can be no assurance that we will be successful
in our efforts to arrange additional financing on satisfactory terms. If
additional financing is raised by the issuance of our securities, control of
NetSol may change and stockholders may suffer additional dilution. If adequate
funds are not available, or are not available on acceptable terms, we may not be
able to take advantage of opportunities, or otherwise respond to competitive
pressures and remain in business.

We Will Require Additional Financing; We May Not Achieve Profitability; We
Anticipate Continued Losses; Current Liabilities Exceed Current Assets.

As of the fiscal year ended June 30, 2004 and 2005, we had a positive working
capital of $410,991 and $3,458,300. We have current short-term bank notes of
$389,089 due within six months. We had a net loss of $2,137,506 in fiscal 2003,
a net loss of $2,577,058 in fiscal 2004, and a net income of $663,325 for the
year ended June 30, 2005. In addition, we continue to operate at a deficit on a
monthly basis, which is not expected to change in the foreseeable future, even
with the implementation of our current business plan. See "Management's
Discussion and Analysis and Plan of Operations" on page 30 of this prospectus
for further information about our current business plan. Notwithstanding that we
raised $2,050,000 in March through May 2004, we may need to raise additional
funds in the amount of at least $2.0 million to continue operations and to
expand and invest in the growth of our business for the next year. Additionally,
we required a minimum of $2,000,000 to close the acquisition of CQ Systems Ltd.
We cannot assure you that we can sustain or increase profitability. If revenues
grow slower than we anticipate, or if operating expenses exceed our expectations
or cannot be adjusted accordingly, our business, results of operations and
financial condition will be materially and adversely affected. Although we have
improved our financials steadily in last few quarters, no assurance can be given
that we will continue to improve our financial condition.

We May Not Be Able To Realize The Benefits Of Our Strategic Plan.

As discussed in "Description of Business" starting on page 39, after the
restructuring undertaken in fiscal year 2002 and fiscal year 2003, we have
undertaken a business plan designed to optimize this restructuring. Although our
management is confident about our ability to realize some benefits from the
restructuring, the level of benefits to be realized could be affected by a
number of factors including, without limitation: (a) our ability to raise
sufficient funds; (b) our ability to continue to operate as planned without
further stockholder hostile takeover attempts; (c) our ability to prosper given
the current uncertainty in the US technology industry; and, (d) our ability to
react effectively to the global political and business effects of the political
events around the world and particularly in Pakistan.

We Depend Heavily On A Limited Number Of Client Projects And The Loss Of Any
Such Projects Would Adversely Affect Our Operating Results.

As of the fiscal year ended June 30, 2005, we derived approximately 35%, of our
net revenues from DaimlerChrysler (which consists of a group of companies and
clients). DaimlerChrysler consists of a number of companies, each of which are
uniquely different customers and none of which represents greater than 10% of
our net revenues. We continue to enhance our relationship with DaimlerChrysler
to provide software and support services to them on a global basis. This may
increase our reliance on DaimlerChrysler as a revenue source. We also have other
significant clients whose business is critical to our success. The loss of any
of our principal clients for any reason, including as a result of the
acquisition of that client by another entity, could have an adverse effect on
our business, financial condition and results of operations.

If Any Of Our Clients Terminate Their Contracts With Us, Our Business Could Be
Adversely Affected.

Many of our clients have the ability to cancel certain of their contracts with
us with limited advance notice and without significant penalty. Any such
termination could result in a loss of expected revenues related to that client's
project. A cancellation or a significant reduction in the scope of a large
project could have a material adverse effect on our business, financial
condition and results of operations.

If We Are Unable To Protect Our Proprietary Software, Our Business Could Be
Adversely Affected.

Our success as a company depends, in part, upon our work product being deemed
proprietary software, along with other intellectual property rights. While both
the LeaseSoft and NetSol trade names and marks are copyrighted and trademarked
in Pakistan, and we have filed an application for the registration of the
inBanking trademark with the U.S. Patent and Trademark office, we have not
registered any trademarks or filed any copyrights in any other jurisdictions. We
rely on a combination of nondisclosure and other contractual arrangements, and
common law intellectual property, trade secret, copyright and trademark laws to
protect our proprietary rights. As a matter of course, we generally enter into
confidentiality agreements with our employees, and require that our consultants
and clients enter into similar agreements. We also limit access to our
proprietary information. There can be no assurance that these steps will be
adequate to deter misappropriation of proprietary information or that we will be
able to detect unauthorized use and take appropriate steps to enforce our
intellectual property rights. In addition, although we believe that our services
and products do not infringe on the intellectual property rights of others,
there can be no assurance that infringement claims will not be asserted against
us in the future, or that if asserted, any such infringement claim will be
successfully defended. The cost of defending any such suit will have a negative
impact, even if ultimately successful. A successful claim against us could
materially adversely affect our business, financial condition and results of
operations. If NetSol cannot protect its proprietary information, others could
copy our software and compete with us in providing both software and services.

We May Not Have The Right To Resell Or Reuse Software Developed For Specific
Clients.

A portion of our business involves the development of software for specific
client engagements. Ownership of these solutions is the subject of negotiation
and is frequently assigned to the client, although we may retain a license for
certain uses. Some clients have prohibited us from marketing the software
developed for them for specified periods of time or to specified third parties.
There can be no assurance that our clients will not demand similar or other
restrictions in the future. Issues relating to the ownership of and rights to
use our software solutions can be complicated and there can be no assurance that
potential disputes will not affect our ability to resell or reuse these software
solutions. While we have not incurred such expense in the past, limitations on
our ability to resell or reuse software solutions could require us to incur
additional expenses to develop new solutions for future projects.

International Expansion Of Our Business Could Result In Financial Losses Due To
Changes In Foreign Political And Economic Conditions Or Fluctuations In Currency
And Exchange Rates.

We expect to continue to expand our international operations. As well as the two
offices in the United States, we currently have offices in Pakistan, the UK and
Australia. Additionally, we have entered into an agreement to acquire CQ Systems
Ltd., a company organized and located in England. In fact, approximately 90% of
our revenue is generated by non-U.S. sources. Our international operations are
subject to other inherent risks, including:

o political uncertainty in Pakistan and the Southeast Asian Region,
particularly in light of the United States' war on terrorism and the
Iraq war;

o recessions in foreign countries;

o fluctuations in currency exchange rates, particularly the weakness
of the U.S. dollar and the effect this may have on U.S. off-shore
technology spending;

o difficulties and costs of staffing and managing foreign operations;

o reduced protection for intellectual property in some countries;

o political instability or changes in regulatory requirements or the
potential overthrowing of the current government in certain foreign
countries;

o U.S. imposed restrictions on the import and export of technologies;
and,

o U.S. imposed restrictions on the issuances of business and travel
visas to foreign workers primarily those from Middle Eastern or East
Asian countries.

We Are Controlled By and Are Dependent On Our Key Personnel.

Our management is currently controlled and operated by various members of the
Ghauri family. Our success will depend in large part upon the continued services
of those individuals including Messrs. Salim Ghauri, Najeeb Ghauri and Naeem
Ghauri. The death or loss of the services of any one of them or of any one or
more of our other key personnel could have a material adverse effect on our
business, financial condition and results of operations. We do not have key man
life insurance on these individuals. In addition, if one or more of our key
employees resigns to join a competitor or to form a competing company, the loss
of such personnel and any resulting loss of existing or potential clients to any
such competitor could have a material adverse effect on our business, financial
condition and results of operations. In the event of the loss of any key
personnel, there can be no assurance that we will be able to prevent the
unauthorized disclosure or use of our technical knowledge, practices or
procedures by such personnel. We entered into employment agreements with Messrs.
Salim, Najeeb and Naeem Ghauri effective January 1, 2004, for a period of three
(3) years. Messrs. Salim, Najeeb and Naeem Ghauri have non-competition and
anti-raid clauses in their employment agreements with us.

Certain Of Our Management Team Have Relationships Which May Potentially Result
In Conflicts Of Interests.

In fiscal year 2002, certain of our management team loaned approximately
$141,893 to our Pakistani subsidiary company for operating costs. This loan
accrued interest at the rate of 18% per annum and was to be repaid at such time
as the Company could afford to repay the loan or through other methods that did
not require a cash outlay by the Company, such as the exercise of options by the
management team. Also, since 2002 our management team has, in the interest of
improving the cash flow of the Company, elected to take only a portion of their
salaries, deferring the remainder. In November 2003, the management team
exercised options totaling $200,973 the consideration of which was offset
against funds due to the Company as repayment of the loan and as due but
deferred compensation. In March 2004, the management team exercised options
totaling $75,000 of which all but $24,512 was paid for with due but deferred
compensation. The remaining $24,511 was paid through the officers' normal salary
deferral by the end of August 2004. In December 2004, the officers exercised
options to acquire shares for which the officers mistakenly believed sufficient
deferred compensation existed to pay for these exercises. When it was discovered
that there was not sufficient deferred compensation, the shares were cancelled
by the agreement of the Company and the officers. While these transactions were
approved by the Board of Directors, which believes such transactions to be fair
in their terms, and such transactions have not resulted in the management team
choosing personal gain over Company gain, such transactions may have constituted
a potential conflict of interest between our management members' personal
interest and the interest of the Company in that management could be motivated
to repay debts owed to the management team rather than using that money for the
Company's growth. This, however, did not occur. Nevertheless, the errors related
to the March 2004 and December 2004 transactions may constitute violations of
Section 13(k)(1) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act") by the Company and/or the named officers. A possible violation
of Section 13(k)(1) of the Exchange Act may result in an investigation by the
SEC which may have a materially adverse effect on the Company. Violations of
Section 13(k) (1) of the Exchange Act may expose the Company and the named
officers to possible civil and criminal penalties.See "Certain Relationships and
Related Transactions" on page 39 for information about relationships between our
officers and/or directors which could result in a Conflict of Interest.

Certain Option Exercises May Result in a Violation of Section 13(k)(1)

As stated in the risk factor, "Certain of Our Management Team Have Relationships
Which May Potentially Result in Conflicts of Interest", officers of the Company
have routinely either loaned funds to or deferred the receipt of consideration
due to them at such times as the Company was in need of cash. These officers
have frequently used these funds due to them to exercise options to acquire
common stock of the Company. In March 2004, Najeeb and Naeem Ghauri exercised
options to acquire shares of common stock of the Company. At the time of the
exercise, they mistakenly believed that sufficient funds were due to them from
the Company and compensation deferral to pay for these options. However, there
was a deficit between the amount of funds due to the officers from the Company
and the exercise price of the options. This deficit was repaid through the
normal salary deferral to the Company by the end of May, in the case of Mr.
Naeem Ghauri and, the end of August 2004, in the case of Mr. Najeeb Ghauri. In
December 2004, certain officers exercised options against salary deferrals due
to them. Upon discovering that sufficient liabilities were not available to
offset the monies due for the exercise, these shares were immediately cancelled
by the Company. See Certain Relationships and Related Transactions on page 57.
Section 13(k)(1) of the Exchange Act prohibits companies from making loans to
officers. The SEC may view the difference between the exercise price due and the
amounts credited as a prohibited loan to these officers. The errors related to
the March 2004 and December 2004 transactions may constitute violations of
Section 13(k)(1) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act") by the Company and/or the named officers. A possible violation
of Section 13(k)(1) of the Exchange Act may result in an investigation by the
SEC which may have a materially adverse effect on the Company. Violations of
Section 13(k)(1) of the Exchange Act may expose the Company and the named
officers to possible civil and criminal penalties.

We Face Significant Competition In Markets That Are New And Rapidly Changing.

The markets for the services we provide are highly competitive. We principally
compete with strategy consulting firms, Internet professional services firms,
systems integration firms, software developers, technology vendors and internal
information systems groups. Many of the companies that provide services in the
markets we have targeted have significantly greater financial, technical and
marketing resources than we do, have greater name recognition and generate
greater revenues. Potential customers may also have in house employees that can
compete with or replace us. In addition, there are relatively low barriers to
entry into these markets and we expect to continue to face competition from new
entrants into these same markets. We believe that the principal competitive
factors in these markets include:

o our ability to integrate strategy, experience modeling, creative
design and technology services;

o quality of service, speed of delivery and price;

o industry knowledge;

o sophisticated project and program management capability; and,

o Internet technology expertise and talent.

We believe that our ability to compete also depends on a number of competitive
factors outside our control, including:

o ability of our competitors to hire, retain and motivate professional
staff;

o development by others of Internet services or software that is
competitive with our solutions; and

o extent of our competitors' responsiveness to client needs.

There can be no assurance that we will be able to compete successfully in these
markets.

RISKS RELATED TO INVESTING IN THIS OFFERING

Our Stock Price Has Historically Been Volatile; Our Stock Price After This
Offering Will Be Subject To Market Factors.

The trading price of our common stock has historically been volatile. The future
trading price of our common stock could be subject to wide fluctuations in
response to:

o quarterly variations in operating results and achievement of key
business metrics;

o changes in earnings estimates by securities analysts, if any;

o any differences between reported results and securities analysts'
published or unpublished expectations;

o announcements of new contracts or service offerings by NetSol or
competitors;

o market reaction to any acquisitions, joint ventures or strategic
investments announced by NetSol or competitors;

o demand for our services and products;

o changes of shares being sold pursuant to Rule 144 or upon exercise
of the warrants; and,

o general economic or stock market conditions unrelated to NetSol's
operating performance.

Potential Future Sales Pursuant To Rule 144 May Have A Depressive Effect On The
Trading Price Of Our Securities.

Certain shares of common stock presently held by officers, directors and certain
other stockholders are "restricted securities" as that term is defined in Rule
144, promulgated under the Act. Under Rule 144, a person (or persons whose
shares are aggregated) who has satisfied a one year holding period, may, under
certain circumstances sell within any three month period a number of shares
which does not exceed the greater of 1% of the then outstanding shares of common
stock, or the average weekly trading volume during the four calendar weeks prior
to such sale. Rule 144 also permits, under certain circumstances, including a
two-year holding period, the sale of shares by a person without any quantity
limitation. Such holding periods have already been satisfied in many instances.
Therefore, actual sales or the prospect of sales of such shares under Rule 144
in the future may depress the prices of our common stock.

Provisions of Our Bylaws Hinder Change in Control.

Our bylaws contain provisions that prevent actions being taken by shareholders
by written consent. Shareholders actions may only be taken at special meetings
called in accordance with our bylaws. Our bylaws limit the manner and timing of
calling such meetings by shareholders. These provisions may effectively prevent
shareholders from changing board composition and or management in a swift
manner.

USE OF PROCEEDS

We will not receive any of the proceeds from the offering of common stock for
sale by the selling stockholders. Proceeds received by us as a result of the
exercise of the warrants by the selling stockholders will be used for working
capital purposes.

SELLING STOCKHOLDERS

The following table and notes set forth the name of each selling stockholder,
the nature of any position, office, or other material relationship, if any,
which the selling stockholder has had, within the past three years, with NetSol
or with any of our predecessors or affiliates, the amount of shares of NetSol
common stock that are beneficially owned by such stockholder, the amount to be
offered for the stockholder's account and the amount to be owned by such selling
stockholder upon completion of the offering.

Number of
Number of Shares of
Shares of NetSol
NetSol Number of Common Stock
Common Stock Shares of to be
Beneficially NetSol Beneficially
Owned Prior Common Stock Owned Upon
Name of Selling to the Being Offered Completion of the
Stockholder(1) Offering(1) Hereby (1) Offering(1)(2)
--------------------------------- ------------ ------------- -----------------

Maxim Partners, LLC(3) 155,545 74,545 0

Natalie L. Khur Revocable 78,410(4) 78,410 0
Trust(4)

Richard E. Kent & Lara T 285,190(5) 285,190 0
Kent

Alfonse M. D'Amato Defined 148,826(6) 148,826 0
Benefit Plan(6)

Jay Youngerman & Toni 40,908(7) 40,908 0
Youngerman

Girish C Shah IRA(8) 34,090(9) 34,090 0

Douglas Friedenberg IRA 34,090(9) 34,090 0
Standard/SEP DTD 04/16/01(10)

Fred Arena 34,090(9) 34,090 0

Grossman Family Trust(11) 51,136(11) 51,136 0

Hugh Brook 34,090(9) 34,090 0

Michael K. Harley 40,323(12) 40,323 0

W. R. Savey 40,323(12) 40,323 0

Robert Stranczek 40,323(12) 40,323 0

The Viney Settlement Number 1(13) 120,967(13) 120,967 0

Ronald K. Marks 40,323(12) 40,323 0

Leonard Carinci 40,323(12) 40,323 0

Peter J. Jegou(14) 40,323(12) 40,323 0

Joseph Marotta & Nancy 40,323(12) 40,323 0
J. Marotta

D.G. Fountain 40,323(12) 40,323 0

Lee A. Pearlmutter Revocable 40,323(12) 40,323 0
Trust U/A dated 10/9/92 as
amended 2/28/96 (15)

Wayne Saker 40,323(12) 40,323 0

Donald Asher Family 40,323(12) 40,323 0
Trust dated 7/11/01(16)

Jeffrey Grodko 40,323(12) 40,323 0

Emeric R. Holderith 20,161(17) 20,161 0

John O'Neal Johnston 20,161(17) 20,161 0
trust u/a DTD 5/17/93(18)

Judith Barclay 40,323(12) 40,106 0

Allen W. Coburn & 20,161(17) 20,161 0
Maureen B. Coburn

John C. Moss 20,161(17) 20,161 0

Landing Wholesale Group 40,323(12) 40,323 0
Defined Benefit Plan(19)

Jerold Weigner & Lilli Weigner 40,323(12) 40,323 0

Mohammed Iqbal 50,000(20) 50,000 0

ACB Ltd.(21) 45,195(21) 45,195 0

TOTAL 1,798,026 1,717,026 0

(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to such securities.

(2) None of the Selling Stockholders has held an employment, officer or
director position with NetSol within the past three years. Assuming that
all shares being registered hereby will be sold, all debentures will be
converted and all warrants will be exercised, no selling stockholder will
hold a percentage interest in the shares of NetSol in excess of 1 percent
at the completion of the offering.

(3) Maxim Partners LLC owns 98% of Maxim Group LLC, a registered broker
dealer. MJR Holdings LLC owns 72% of Maxim Partners LLC. Mike Rabinowitz
is the principal manager of MJR Holdings and has principal voting and
dispositive power with respect to the securities owned by Maxim Partners
LLC. The number of shares beneficially owned include 74,545 warrants to
acquire common stock which are being registered hereby and warrants to
acquire 81,000 shares of common stock previously registered which were
issued as compensation to Maxim Partners, as nominee of Maxim Group, for
services provided to NetSol in its July 2003 private placement.

(4) Adam Kuhr, as trustee, is the beneficial owner of the Natalie L. Kuhr
Revocable Trust. The shares of common stock consist of 52,273 shares of
common stock and 26,137 shares of common stock underlying warrants
acquired in the May 2004 placement.

(5) Consisting of 190,127 shares of common stock of which 136,364 shares were
acquired in the May 2004 placement and 53,763 shares issuable upon
conversion of the principal dollar amount of its convertible debenture;
and, 95,063 shares of common stock underlying warrants of which 68,182 are
shares of common stock underlying warrants issued in the May 2004
placement and 26,881 are shares of common stock underlying warrants issued
in connection with the March 2004 private placement of convertible
debentures.

(6) Alfonse M. D'Amato is the beneficial owner of the Alfonse M. D'Amato
Defined Benefit plan. The shares of common stock consist of 99,217 shares
of common stock of which 45,454 shares were acquired in the May 2004
placement and 53,763 shares are issuable upon conversion of the principal
dollar amount of its convertible debenture; and, 49,609 shares of common
stock underlying warrants of which 22,727 shares of common stock underly
warrants issued in the May 2004 placement and 26,882 are shares of common
stock underlying warrants issued in connection with the March 2004 private
placement of convertible debentures.

(7) Consisting of 27,272 shares of common stock and 13,636 shares of common
stock underlying warrants acquired in the May 2004 private placement.

(8) Girish C. Shah is the beneficial owner of the Girish C. Shah IRA.

(9) Consisting of 22,727 shares of common stock and 11,363 shares of common
stock underlying warrants acquired in the May 2004 private placement.

(10) Douglas Friedenberg is the beneficial owner of the Douglas Friedenberg IRA
Standard/SEP DTE 04/16/01.

(11) Raphael Z. Grossman, as trustee, is the beneficial owner of the Grossman
Family Trust. The shares of common stock consist of 34,091 shares of
common stock and 17,045 shares of common stock underlying warrants
acquired in the May 2004 private placement.

(12) Consisting of 26,882 shares of common stock issuable upon conversion of
the principal dollar amount of its debenture and 13,441 shares of common
stock underlying warrants issued in connection with the March 2004
placement of convertible debentures.

(13) John Viney, as trustee, is the beneficial owner of the Viney Settlement
Number 1. Shares of common stock consist of 80,645 shares of common stock
issuable upon the conversion of the principal dollar amount of its
debenture and 40,332 shares of common stock underlying warrants issued in
connection with the March 2004 placement of convertible debentures.

(14) Peter J. Jegou is the beneficial holder of 26,882 shares issuable upon the
conversion of the principal dollar amount of his convertible debenture and
13,441 shares underlying warrants issued in connection with the March 2004
placement of convertible debentures.

(15) Lee A. Pearlmutter, as trustee, is the beneficial owner of the Lee A.
Pearlmutter Revocable Trust dated 10/9/92 as Amended 2/28/96.

(16) D.S. Asher, as trustee, is the beneficial owner of the Donald Asher Family
Trust.

(17) Consisting of 13,441 shares issuable upon conversion of the principal
dollar amount of its convertible debenture and 6,720 shares underlying
warrants issued in connection with the March 2004 placement of convertible
debentures.

(18) John O'Neal Johnston, as trustee, is the beneficial owner of the John
O'Neal Johnston Trust U/A DTD 05/17/93.

(19) Andrew Bellow Jr. is the beneficial owner of the Landing Wholesale Group
Defined Benefit Plan.

(20) Mr. Iqbal received his shares in a share purchase agreement whereby he
received 50,000 shares in exchange for satisfying a tax liability of
NetSol's Pakistani subsidiary. This agreement required NetSol to register
the shares of common stock in this offering.

(21) Tony De Nazareth, as managing director, is the beneficial owner of ACB
Ltd.

Certain selling stockholders shall receive their shares upon conversion of
convertible debentures which were offered to such stockholders in a private
placement of Series A 10% Convertible Debentures in March 2004. This private
placement resulted in the issuance of convertible debentures with a principal
value of $1,200,000. The debentures bear interest at the rate of 10% per annum
payable in common stock or cash, which at the option of NetSol will be paid in
cash upon conversion. The debentures are convertible at the rate of $1.86
principal value per share. Each debenture holder also received a warrant to
purchase fifty percent (50%) of the number of shares of common stock issuable at
conversion at the exercise price of $3.30 per share. These warrants may be
exercised until May 2009.

Certain of the selling stockholders received their shares in a private placement
of shares of common stock and warrants to acquire common stock in May 2004 in
which we sold 386,362 shares at $2.20 per share and warrants to acquire up to
193,182 shares of common stock at an exercise price of $3.30 per share. The
warrants may be exercised until May 2009.

The Company offered, to each of the warrant holders who acquired their warrants
in the Debenture offering and in the May 2004 private placement, the opportunity
to exercise such warrants at the reduced price of $2.00 per share. Such option
was available until March 17, 2005 and requires such warrant holders to provide
both the exercise notice and the full exercise price to the Company prior to
that date. Any warrants not exercised by that date reverted to the $3.30 per
share exercise price. Only 20,162 warrants were exercised at the reduced price.
The remaining warrants have reverted back to the $3.30 per share exercise price.

Pursuant to the placement agent agreements by and between NetSol and Maxim Group
LLC, Maxim Partners LLC, as nominee of Maxim Group LLC, received, as part of the
compensation for their services, warrants to purchase up to 74,545 shares of our
common stock at an exercise price of $2.20 per share. These warrants may be
exercised until May 2009.

Mr. Mohammed Iqbal received his shares pursuant to a share purchase agreement in
March 2004 whereby he paid $100,000 to the Pakistani taxing authorities to
satisfy the tax liability of our Pakistan subsidiary.

ACB, Ltd., formerly, Arab Commerce Bank, received its shares as part of a
settlement of a complaint against NetSol. The complaint sought damages for
breach of a note purchase agreement and note. The terms of the settlement
agreement required NetSol to issue to ACB shares of common stock of the Company
equal in value to $100,000 plus interest as of the effective date of the
agreement. The complaint was dismissed by virtue of this settlement on November
3, 2003. On December 16, 2003, 34,843 shares of the Company's common stock
valued at $100,000 were issued pursuant to the terms of the agreement. On
February 6 2004, NetSol issued an additional 10,352 shares valued at $35,135 as
interest due under the settlement agreement. The terms of the settlement
agreement require NetSol to register ACB Ltd's shares herein.

Because the selling stockholders may, under this prospectus, sell all or some
portion of their NetSol common stock, only an estimate can be given as to the
amount of NetSol common stock that will be held by the selling stockholders upon
completion of the offering. In addition, the selling stockholders identified
above may have sold, transferred or otherwise disposed of all or a portion of
their NetSol common stock after the date on which they provided information
regarding their shareholdings.

PLAN OF DISTRIBUTION

Selling stockholders may offer and sell, from time to time, the shares of our
common stock covered by this prospectus. The term selling stockholders includes
donees, pledgees, transferees or other successors-in-interest selling securities
received after the date of this prospectus from a selling stockholder as a gift,
pledge, partnership distribution or other non-sale related transfer. The selling
stockholders will act independently of us in making decisions with respect to
the timing, manner and size of each sale. Sales may be made on one or more
exchanges or in the over-the-counter market or otherwise, at prices and under
terms then prevailing or at prices related to the then current market price or
in negotiated transactions. The selling stockholders may sell their securities
by one or more of, or a combination of, the following methods:

o purchases by a broker-dealer as principal and resale by the
broker-dealer for its own account pursuant to this prospectus;

o ordinary brokerage transactions and transactions in which the broker
solicits purchasers;

o block trades in which the broker-dealer so engaged will attempt to
sell the securities as agent but may position and resell a portion
of the block as principal to facilitate the transaction;

o an over-the-counter sale;

o in privately negotiated transactions; and,

o in options transactions.

The shares of our common stock will be listed, and may be traded, on the NASDAQ
Small Cap Market under the symbol "NTWK". In addition, the selling stockholders
may sell pursuant to Rule 144 under the Securities Act or pursuant to an
exemption from registration. We have received confirmation from all selling
stockholders that they do not have any short positions and have reviewed
Regulation M.

To the extent required, we may amend or supplement this prospectus to describe a
specific plan of distribution. In connection with distributions of the
securities or otherwise, the selling stockholders may enter into hedging
transactions with broker-dealers or other financial institutions. In connection
with those transactions, broker-dealers or other financial institutions may
engage in short sales of shares of our common stock in the course of hedging the
positions they assume with selling stockholders. The selling stockholders may
also sell shares of our common stock short and redeliver the securities to close
out their short positions. The selling stockholders may also enter into option
or other transactions with broker-dealers or other financial institutions that
require the delivery to the broker-dealer or other financial institution of
securities offered by this prospectus, which securities the broker-dealer or
other financial institution may resell pursuant to this prospectus, as
supplemented or amended to reflect the transaction. The selling stockholders may
also pledge securities to a broker-dealer or other financial institution, and,
upon a default, the broker-dealer or other financial institution, may affect
sales of the pledged securities pursuant to this prospectus, as supplemented or
amended to reflect the transaction.

In effecting sales, broker-dealers or agents engaged by the selling stockholders
may arrange for other broker-dealers to participate. Broker-dealers or agents
may receive commissions, discounts or concessions from the selling stockholders
in amounts to be negotiated immediately prior to the sale.

In offering the securities covered by this prospectus, the selling stockholders
and any broker-dealers who execute sales for the selling stockholders may be
treated as "underwriters" within the meaning of the Securities Act in connection
with sales. Any profits realized by the selling stockholders and the
compensation of any broker-dealer may be treated as underwriting discounts and
commissions.

The selling stockholders and any other person participating in a distribution
will be subject to the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"). The Exchange Act rules include, without limitation, Regulation
M, which may limit the timing of purchases and sales of any of the securities by
the selling stockholders and other participating persons. In addition,
Regulation M may restrict the ability of any person engaged in the distribution
of the securities to engage in market-making activities with respect to the
particular security being distributed for a period of up to five business days
prior to the commencement of the distribution. This may affect the marketability
of the securities and the ability of any person or entity to engage in
market-making activities with respect to the securities. We have informed the
selling stockholders that the anti-manipulation rules of the SEC, including
Regulation M promulgated under the Exchange Act, may apply to their sales in the
market.

Additionally, we have informed the selling stockholders involved in the private
placements, through the offering documents of the following Telephone
Interpretation in the SEC Manual of Publicly Available Telephone Interpretations
(July 1997):

A.65. Section 5

An issuer filed a Form S-3 registration statement for a secondary offering
of common stock, which is not yet effective. One of the selling
shareholders wanted to do a short sale of common stock "against the box"
and cover the short sale with registered shares after the effective date.
The issuer was advised that the short sale could not be made before the
registration statement becomes effective, because the shares underlying
the short sale are deemed to be sold at the time such sale is made. There
would, therefore, be a violation of Section 5 if the shares were
effectively sold prior to the effective date.

The selling stockholder have represented and warranted that he/she/it had
complied with all applicable provisions of the Act, the rules and regulations
promulgated by the SEC thereunder, including Regulation M, and the applicable
state securities laws.

We will make copies of this prospectus available to the selling stockholders for
the purpose of satisfying the prospectus delivery requirements of the Securities
Act, which may include delivery through the facilities of the NASDAQ Small Cap
Market pursuant to Rule 153 under the Securities Act. We have agreed to
indemnify the selling stockholders against certain liabilities, including those
arising under the Securities Act, and to contribute to payments the selling
stockholders may be required to make in respect of such liabilities. The selling
stockholders may indemnify any broker-dealer that participates in transactions
involving the sale of the securities against certain liabilities, including
liabilities arising under the Securities Act.

At the time a particular offer of securities is made, if required, a prospectus
supplement will be distributed that will set forth the number of securities
being offered and the terms of the offering, including the name of any
underwriter, dealer or agent, the purchase price paid by any underwriter, any
discount, commission and other item constituting compensation, any discount,
commission or concession allowed or reallowed or paid to any dealer, and the
proposed selling price to the public.

LEGAL PROCEEDINGS

On July 26, 2002, NetSol was served with a Request for Entry of default by
Surrey Design Partnership Ltd. ("Surrey"). Surrey's complaint for damages sought
$288,743.41 plus interest at the rate of 10% above the Bank of England base rate
from January 12, 2002 until payment in full is received, plus costs. The parties
agreed to entry of a Consent Order whereby NetSol agreed to make payments
according to a payment schedule. NetSol made payments up to May of 2002 but was
unable to make payments thereafter. On September 25, 2002, the Company entered
into a settlement agreement with Adrian Cowler ("Cowler"), a principal of
Surrey, and Surrey. The Company agreed to pay Cowler (pound)218,000 or
approximately $320,460 including interest, which the Company has recorded as a
note payable in the consolidated financial statements. The agreement called for
monthly payments of (pound)3,000 per month until March 2004 and then
(pound)4,000 per month until paid. As of June 30, 2004, the balance was
$146,516. During the six months ended December 31, 2004, we paid (pound)12,000
or $21,997. In December 2004, the Company reached an agreement to pay the
balance in one lump-sum payment. Cowler agreed to accept (pound)52,000 or
$103,371 as payment in full.

On July 31, 2002, Herbert Smith, a law firm in England, which represented NetSol
in the Surrey matter filed claim for the sum of approximately $248,871 (which
represents the original debt and interest thereon) in the High Court of Justice
Queen's Bench Division. On November 28, 2002, a Consent Order was filed with the
Court agreeing to a payment plan, whereby we paid $10,000 on execution, $4,000 a
month for one year and $6,000 per month thereafter until the debt is paid. The
balance owing at March 31, 2005 was $143,321. In April 2005, an agreement was
reached with Herbert Smith whereby they accepted $135,000 as payment in full.
This final installment of this compromised amount was paid in May 2005.

On March 3, 2004 Uecker and Associates, Inc. as the assignee for the benefit of
the creditors of PGC Systems, Inc. formerly known as Portera Systems, Inc. filed
a request for arbitration demanding payment from NetSol for the amounts due
under a software agreement in the amount of $175,700. A settlement was reached
by and between the Company and Portera on November 11, 2004 whereby Portera
agreed to a settlement of any and all issues related to the claim in exchange
for one time payment of $75,000 which was paid by December 3, 2004.

DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

The following table sets forth the names and ages of the current directors and
executive officers of NetSol, the principal offices and positions with NetSol
held by each person and the date such person became a director or executive
officer of NetSol. The Board of Directors elects the executive officers
annually. Each year the stockholders elect the Board of Directors. The executive
officers serve terms of one year or until their death, resignation or removal by
the Board of Directors. In addition, there was no arrangement or understanding
between any executive officer and any other person pursuant to which any person
was selected as an executive officer.

The directors and executive officers NetSol are as follows:

Year First Elected
As an Officer Position Held
Name Or Director Age with the Registrant Family Relationship
--------------------- ------------------ --- ------------------------------------ ---------------------

Najeeb Ghauri 1997 51 Director and Chairman Brother to Naeem and
Salim Ghauri
Salim Ghauri 1999 49 President and Director Brother to Naeem and
Najeeb Ghauri
Naeem Ghauri 1999 47 Chief Executive Officer and Director Brother to Najeeb and
Salim Ghauri
Tina Gilger 2005 43 Chief Financial Officer None
Patti L. W. McGlasson 2004 40 Secretary None
Shahid Javed Burki 2000 65 Director None
Eugen Beckert 2001 58 Director None
Jim Moody 2001 68 Director None
Derek Soper 2005 67 Director None

Business Experience of Officers and Directors:

NAJEEB U. GHAURI has been a Director of NetSol since 1997. Mr. Ghauri served as
NetSol's CEO from 1999-2001 and as Chief Financial Officer from 2001 to 2005.
Currently, he is the Chairman of NetSol. During his tenure as CEO, Mr. Ghauri
was responsible for managing the day-to-day operations of NetSol, as well as
NetSol's overall growth and expansion plan. As the CFO of NetSol, Mr. Ghauri
sought financing for NetSol as well as oversaw the day-to-day financial position
of NetSol. Prior to joining NetSol, Mr. Ghauri was part of the marketing team of
Atlantic Richfield Company ("ARCO"), a Fortune 500 company, from 1987-1997. Mr.
Ghauri received his Bachelor of Science degree in Management/Economics from
Eastern Illinois University in 1979, and his M.B.A. in Marketing Management from
Claremont Graduate School in California in 1983. Mr. Ghauri serves on the boards
of the US Pakistan Business Council and Pakistan Human Development Fund, a
non-profit organization.

SALIM GHAURI has been with NetSol since 1999 as the President and Director of
NetSol. Mr. Ghauri is also the CEO of NetSol Technologies (Pvt.) Ltd., (F/K/A/
Network Solutions (Pvt.) Ltd.), a wholly owned subsidiary of NetSol located in
Lahore, Pakistan. Mr. Ghauri received his Bachelor of Science degree in Computer
Science from University of Punjab in Lahore, Pakistan. Before NetSol
Technologies (Pvt.) Ltd., Mr. Ghauri was employed with BHP in Sydney, Australia
from 1987-1995, where he commenced his employment as a consultant. Mr. Ghauri
was the original founder of Network Solutions, Pvt. Ltd in Pakistan founded in
1996. Built under Mr. Ghauri's leadership Network Solutions (Pvt) Ltd. gradually
built a strong team of I/T professionals and infrastructure in Pakistan and
became the first software house in Pakistan certified as ISO 9001 and CMM Level
4 assessed.

NAEEM GHAURI has been NetSol's CEO since August 2001. Mr. Ghauri has been a
Director of NetSol since 1999. Mr. Ghauri serves as the Managing Director of
NetSol (UK) Ltd., a wholly owned subsidiary of NetSol located in London,
England. Under Mr. Ghauri's direction, Pearl Treasury System Ltd. was acquired
and NetSol's entered into the banking and financial arenas. Prior to joining
NetSol, Mr. Ghauri was Project Director for Mercedes-Benz Finance Ltd., a
subsidiary of DaimlerChrysler, Germany from 1994-1999. Mr. Ghauri supervised
over 200 project managers, developers, analysis and users in nine European
Countries. Mr. Ghauri earned his degree in Computer Science from Brighton
University, England.

TINA GILGER jointed NetSol as Chief Financial Officer in July 2005. Ms. Gilger
has acted as a consultant to the Company of the past two years in the capacity
of controller. During the last three years, Ms. Gilger has acted as an audit
liaison for six reporting public companies, of which one was NetSol. From 2000
to 2002, Ms. Gilger acted as audit liaison for NewBridge Capital, a public
company specializing in reverse mergers for public companies listed on the
OTC:BB. Ms. Gilger received her degree in Accounting, with an emphasis in
Business Management from the University of Utah in 1990. Ms. Gilger was licensed
as a Certified Public Accountant by the State of California in 1992, passing all
four parts of the exam on the first attempt.

PATTI L. W. MCGLASSON joined NetSol as corporate counsel in January 2004 and was
elected to the position of Secretary in March 2004. Prior to joining NetSol, Ms.
McGlasson practiced law at Vogt & Resnick, law corporations, where her practice
focused on corporate, securities and business transactions. Ms. McGlasson was
admitted to practice in California in 1991. She received her Bachelor of Arts in
Political Science in 1987 from the University of California, San Diego and, her
Juris Doctor and Masters in Laws in Transnational Business from the University
of the Pacific, McGeorge School of Law, in 1991 and 1993 respectively.

EUGEN BECKERT was appointed to the Board of Directors in August 2001. A native
of Germany, Mr. Beckert has been with Mercedes-Benz AG/Daimler Benz AG since
1973, working in technology and systems development. In 1992, he was appointed
director of Global IT (CIO) for Debis Financial Services, the services division
of Daimler Benz. From 1996 to 2004, he acted as director of Processes and
Systems (CIO) for Financial Services of DaimlerChrysler in Asia-Pacific. Mr.
Beckert is currently a Vice President for DaimlerChrysler and his office is now
based in Stuttgart, Germany. Mr. Beckert is an independent director who serves
as chairman of the Nominating and Corporate Governance Committee and a member of
the Audit and Compensation Committee.

JIM MOODY was appointed to the Board of Directors in 2001. Mr. Moody served in
the United States Congress from 1983-1993 where he was a member of the Ways &
Means, Transportation and Public Works committees. Congressman Moody also served
on the subcommittees of Health, Social Security, Infrastructure and Water
Resources. After his tenure with the U.S. Congress, he was appointed Vice
President and Chief Financial Officer of International Fund for Agriculture
Development in Rome, Italy from 1995-1998 where he was responsible for
formulating and administering $50 million operating budget in support of $500
million loan program as well as managing a $2.2 billion reserve fund investment
portfolio. From 1998-2000, Congressman Moody served as the President and CEO of
InterAction, a coalition of 165 U.S. based non-profit organizations in disaster
relief, refugee assistance and economic development located in Washington, D.C.
Since April 2000, Congressman Moody has served as a Financial Advisor to Morgan
Stanley in Alexandria, VA where he is responsible for bringing institutional,
business and high net-worth individual's assets under management. Mr. Moody also
represents Morgan Stanley on the ATC Executive Board. Mr. Moody received his
B.A. from Haverford College; his M.P.A. from Harvard University and his Ph.D. in
Economics from U.C. Berkeley. Mr. Moody is the Chairman of the Audit Committee
and a member of the Nominating and Corporate Governance committee. Based on Mr.
Moody's experience, the board of directors has determined that Mr. Moody is
qualified to act as NetSol's audit committee financial expert. Mr. Moody is an
independent director.

SHAHID JAVED BURKI was appointed to the Board of Directors in February 2003. He
had a distinguished career with World Bank at various high level positions from
1974 to 1999. He was a Director of Chief Policy Planning with World Bank from
1974-1981. He was also a Director of International Relations from 1981-1987. Mr.
Burki served as Director of China Development from 1987-1994 and Vice President
of Latin America with World Bank from 1994-1999. In between, he briefly served
as the Finance Minister of Pakistan from 1996-1997. Mr. Burki also served as the
CEO of the Washington based investment firm EMP Financial Advisors from
1992-2002. Presently, he is the Chairman of Pak Investment & Finance
Corporation. He was awarded a Rhodes Scholarship in 1962 and M.A in Economics
from Oxford University in 1963. He also earned a Master of Public Administration
degree from Harvard University, Cambridge, MA in 1968. Most recently, he
attended Harvard University and completed an Executive Development Program in
1998. During his lifetime, Mr. Burki has authored many books and articles
including: China's Commerce (Published by Harvard in 1969) and Accelerated
Growth in Latin America (Published by World Bank in 1998). Mr. Burki is an
independent director. Mr. Burki is the Chairman of and a member of the
Compensation Committee and is a member of the Audit Committee.

DEREK SOPER was appointed to the Board of Directors in April 2005 to fill a
vacancy left by the departure of Mr. Shabir Randeree. Mr. Soper has both
established and managed many finance and leasing companies around the world
including Barclays Export and Finance Company in 1971, followed over the next
ten years by a number of de novo start and acquisitions to establish Barclays
subsidiaries across Europe, North America and South Africa. From 1981 to 1991 he
was the Director responsible for leasing, tax based products and structured
finance with Kleinwort Benson. In 1991 he was the founding member of AT&T
Capital in Europe where he served as Chairman until 1995. During that time
thirteen subsidiary companies were established across Europe. Following the
establishment of the European business of AT&T Capital he moved to Hong Kong, as
Chairman of the Asia Pacific Region, to establish the Company presence in that
Region of the World. Following retirement from AT&T Capital in 1998 and after
returning to the UK, he joined the Alta Group to establish their presence in
Europe. Derek sits on the Business Code of Conduct Committee of the Finance and
Leasing Association and is a Past Chairman of the Association. He is a Fellow of
the Institute of Directors and keeps in close touch with the US and European
Banking and Leasing community through membership of the Equipment Leasing
Association of the USA and Leaseurope in Brussels. He is the Author of the
leasing textbook "The Leasing Handbook" published by McGraw Hill. Mr. Soper
attended Scarborough College in England. Mr. Soper is an independent director
and is a member of the Compensation Committee.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the beneficial
ownership of NetSol's Common Stock, our only class of outstanding voting
securities as of December 16, 2005, by (i) each person who is known to NetSol to
own beneficially more than 5% of the outstanding Common Stock with the address
of each such person, (ii) each of NetSol's present directors and officers, and
(iii) all officers and directors as a group:

Percentage
Name and Number of Beneficially
Address Shares(1)(2) owned(3)
--------------------------- ------------ ------------

Najeeb Ghauri (4) 1,162,650 8.25%
Naeem Ghauri (4) 1,011,367 7.09%
Salim Ghauri (4) 1,127,416 7.99%
Jim Moody (4) 98,000 *
Eugen Beckert (4) 89,000 *
Shahid Javed Burki (4) 99,000 *
Derek Soper(4) 100,000 *
Tina Gilger (4) 31,731 *
Patti L. W. McGlasson (4) 80,000 *
Aqeel Karim Dhedhi(4) 1,000,000 7.09
All officers and directors
as a group (nine persons) 3,779,664 26.89 %

* Less than one percent

(1) Except as otherwise indicated, NetSol believes that the beneficial owners of
the common stock listed in this table, based on information furnished by such
owners, have sole investment and voting power with respect to such shares,
subject to community property laws where applicable. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and generally includes voting or investment power with respect to
securities.

(2) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect to
securities. Shares of common stock relating to options currently exercisable or
exercisable within 60 days of December 20, 2005 are deemed outstanding for
computing the percentage of the person holding such securities but are not
deemed outstanding for computing the percentage of any other person. Except as
indicated by footnote, and subject to community property laws where applicable,
the persons named in the table above have sole voting and investment power with
respect to all shares shown as beneficially owned by them.

(3) Percentage ownership is based on 14,093,711 shares issued and outstanding at
December 16, 2005.

(4) Address c/o NetSol Technologies, Inc. at 23901 Calabasas Road, Suite 2072,
Calabasas, CA 91302.

DESCRIPTION OF SECURITIES

The selling stockholders are offering for sale shares of our common stock, par
value $0.001 per share. We only have one class of common stock. Our capital
stock consists of 45,000,000 shares of common stock, par value $.001 per share
and 5,000,000 shares of preferred stock, $.001 par value. No shares of preferred
stock have been issued. The terms and rights of the preferred shares may be set
by the board of directors at their discretion. Each share of common stock is
entitled to one vote at annual or special stockholders meetings. There are no
pre-emption rights. We have never declared or paid any dividends on our common
stock or other securities and we do not intend to pay any cash dividends with
respect to our common stock in the foreseeable future. For the foreseeable
future, we intend to retain any earnings for use in the operation of our
business and to fund future growth. The terms of the warrant agreements between
the selling stockholders and NetSol contain standard anti-dilution protections.

EXPERTS

The audited financial statements for our company for the fiscal years June 30,
2005 and June 30, 2004 included in this prospectus are reliant on the reports of
Kabani & Company, Inc., independent certified public accountants, as stated in
their reports therein, upon the authority of that firm as experts in auditing
and accounting The audited financial statements for our company as of the fiscal
years ended June 30, 2005 and June 30, 2004 also included in this prospectus are
also reliant on the reports of Saeed Kamran Patel & Co., Chartered accountants,
as stated in their reports therein, upon the authority of that firm as experts
in auditing and accounting.

The audited financial statements for CQ Systems Ltd as of the year ended March
31, 2004 included in this prospectus are reliant on the reports of CMB
Partnership, as stated in their reports therein, upon the authority of that firm
as experts in auditing and accounting.

Malea Farsai, Esq., counsel for our Company, has passed on the validity of the
securities being offered hereby.

Kabani & Company, Inc. was not hired on a contingent basis, nor will it receive
a direct of indirect interest in the business of the issuer. Neither Kabani &
Company, Inc. nor its principals are, or will be, a promoter, underwriter,
voting trustee, director, officer or employee of NetSol. Saeed Kamran Patel &
Co., was not hired on a contingent basis, nor will it receive a director or
indirect interest in the business of the issuer. Neither Saeed Kamran Patel &
Co, nor its principals are, or will be, a promoter, underwriter, voting trustee,
director, officer of employee of NetSol. CMB Partnership was not hired on a
contingent basis by CQ, nor will it receive a direct or indirect interest in the
business of issuer. Neither CMB Partnership nor its principals are, or will be,
a promoter, underwriter, voting trustee, director, officer or employee of
NetSol. Malea Farsai, Esq. is an employee of NetSol. She has received, as part
of her compensation with NetSol, options to purchase and grants of shares of
common stock. As of December 20, 2005, Ms. Farsai is the holder of 55,120 shares
of common stock of NetSol and options to purchase 29,000 shares of common stock
at the exercise price of $.75 per share. These options expire on February 16,
2007. Ms. Farsai also holds options to purchase 10,000 shares at $2.05 per share
and 10,000 shares at an exercise price of $4.00 per share, both expiring in
February 2009. Ms. Farsai is not nor is it intended that she will be a promoter,
underwriter, voting trustee, director or officer of NetSol.

DISCLOSURE OF COMMISSION POSITION OF
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

We have indemnified each member of the board of directors and our executive
officers to the fullest extent authorized, permitted or allowed by law. Insofar
as indemnification for liabilities arising under the Securities Act of 1933 (the
"Act") may be permitted to directors, officers and controlling persons of the
small business issuer pursuant to the foregoing provisions, or otherwise, the
small business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.

For the purpose of determining any liability under the Act, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

DESCRIPTION OF BUSINESS

GENERAL

NetSol Technologies, Inc. (f/k/a NetSol International, Inc.) ("NetSol") is an
end-to-end information technology ("I/T") and business consulting services
provider for the lease and finance, banking and financial services industries.
Since we were founded in 1997, we have developed enterprise solutions that help
clients use I/T more efficiently in order to improve their operations and
profitability and to achieve business results. Our focus has remained the lease
and finance, banking and financial services industries. We operate on a global
basis with locations in the U.S., Europe, East Asia and Asia Pacific. By
utilizing our worldwide resources, we believe we have been able to deliver high
quality, cost-effective I/T services. NetSol Technologies Pvt. Ltd. ("NetSol
PK") develops the majority of the software for us. NetSol PK was the first
company in Pakistan to achieve the ISO 9001 accreditation. NetSol PK was the
first software company in Pakistan to achieve ISO 9001 accreditation in 1998 and
was again the first software company in Pakistan to obtain Carnegie Mellon's
Software Engineering Institute ("SEI") Capable Maturity Model ("CMM") Level 4
assessment in 2004. .

COMPANY BUSINESS MODEL

NetSol now offers a broad spectrum of I/T products and I/T services which
management believes deliver a high return on investment for its customers.
NetSol has perfected its delivery capabilities by continuously investing in its
software development and Quality Assurance ("QA") processes. NetSol believes its
key competitive advantage is its ability to build high quality enterprise
applications using its offshore development facility in Lahore, Pakistan. A
major portion of NetSol's revenues are derived from exports in general and
LeaseSoft in particular. The use of the facility in Pakistan as the basis for
software development, configuration and professional services represents a
cost-effective and economical cost arbitrage model that is based on the globally
acclaimed advantages of outsourcing and offshore development. NetSol management
believes that the use of this model will only further benefit the Company in its
penetration of European, developed and developing country markets.

Achieving Software Maturity and Quality Assurance.

NetSol, from the outset, invested heavily in creating a state of the art,
world-class software development capability. A series of QA initiatives have
delivered to NetSol the ISO 9001 certification as well as the CMM level 4
assessment. Achieving this CMM level 4 required dedication at all our corporate
levels.

SEI's CMM, which is organized into five maturity levels, has become a de facto
standard for assessing and improving software processes. Through the CMM, SEI
and the software development community have established an effective means for
modeling, defining, and measuring the maturity of the processes used by software
professionals. The CMM for software describes the principles and practices
underlying software process maturity and is intended to help software
organizations improve the maturity of their software processes in terms of an
evolutionary path from ad hoc, chaotic processes to mature, disciplined software
processes. Mature processes meet standardized software engineering methods and
integrable into a customer's system. Mature processes ensure enhanced product
quality resulting in faster project turn around and a shortened time-to-market.
In short, a mature process would, ideally, have fewer bugs and integrate better
into the customer's system.

We have always strived to improve quality in every aspect of our business. This
quality drive, based on our vision, trickles from the top to the lowest levels
in the organization. We believe that it is this quality focus that enabled our
software development facility to become the first ISO 9001 certified software
development facility in Pakistan in 1999. This accomplishment marked the
beginning of the Company's continuing long term program towards achieving the
higher challenges of SW-CMM. Thanks to the dedication of the Company's
employees, it was the first to reach CMM level 4 in Pakistan

Professional Services.

We offer a broad array of professional services to clients in the global
commercial markets and specialize in the application of advanced and complex I/T
enterprise solutions to achieve its customers' strategic objectives. Our service
offerings include bespoke software development, software analysis and design,
testing services, off shore as well as onsite quality assurance services,
consultancy in quality engineering and process improvement including assistance
in implementation of ISO and CMM quality standards, Business Process
Reengineering, Business Process Outsourcing systems reengineering, maintenance
and support of existing systems, technical research and development, project
management, market research and project feasibilities.

Outsourcing involves operating all or a portion of a customer's technology
infrastructure, including systems analysis, system design and architecture,
change management, enterprise applications development, network operations,
desktop computing and data center management.

Systems integration encompasses designing, developing, implementing and
integrating complete information systems.

I/T and management consulting services include advising clients on the strategic
acquisition and utilization of I/T and on business strategy, operations, change
management and business process reengineering.

The experience gained by us through its own software quality endeavors, has
enabled us to offer consultancy services in the areas of Software Quality,
Process Improvement, ISO Certification and SW-CMM Implementation. ISO
certification and CMM services include, but are not limited to GAP Analysis
against the standard ISO/CMM; Orientation Workshops; Guiding the Implementation
of the plan developed after the GAP Analysis; Training on Standard Processes;
Process implementation support off-site and on-site; assessment training; and
assistance through the final assessment (Certification Audit for ISO). NetSol
has been chosen by the Pakistan Software Export Board under the direction of the
Ministry of Information Technology and Telecommunication to provide consultancy
to local software houses. Management believes this demonstrates that NetSol has
not only led the way in setting standards for the IT industry in Pakistan, but
is instrumental in assisting local companies to achieve quality standards.

LeaseSoft

We also develop advanced software systems for the asset based lease and finance
industries. We have developed "LeaseSoft" a complete integrated lease and
finance package. LeaseSoft, a robust suite of four software applications, is an
end-to-end solution for the lease and finance industry. The four 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 and multi-manufacturer environments.

LeaseSoft is a result of more than six years of effort resulting in over 60
modules grouped in four comprehensive applications. These four applications are
complete systems in themselves and can be used independently to exhaustively
address specific sub-domains of the leasing/financing cycle. And, if used
together, they fully automate the entire leasing / financing cycle.

The constituent software applications are:

o LeaseSoft Electronic Point of Sale (LeaseSoft ePOS). LeaseSoft.ePOS is a
web-based point of sale system for the use of dealers, brokers, agents and sales
officers to initiate credit applications. It is a web-based system and, though
it can be used with equal efficiency on an intranet, the real ability is to
harness the power of the Internet to book sales. LeaseSoft.ePOS users create
quotations and financing applications (Proposals) for their customers using
predefined financial products. The application is submitted to the back office
system [such as LeaseSoft.CAP] for approval. After analysis, the application is
sent back to the LeaseSoft.ePOS system with a final decision.

o Credit Application Processing System (CAP Formally known as Proposal
Management System, PMS). LeaseSoft.CAP provides companies in the financial
sector an environment to handle the incoming credit applications from dealers,
agents, brokers and the direct sales force. LeaseSoft.CAP automatically gathers
information from different interfaces like credit rating agencies, evaluation
guides, contract management systems and scores the applications against defined
scorecards. All of this is done in a mechanized workflow culminating with credit
team members making their decisions more quickly and accurately. Implementation
of LeaseSoft.CAP dramatically reduces application-processing time in turn
resulting in greater revenue through higher number of applications finalized in
a given time. LeaseSoft.CAP is also an excellent tool to reduce probability of a
wrong decision thus again providing a concrete business value through minimizing
the bad debt portfolio.

o Contract Management System (CMS). LeaseSoft.CMS provides comprehensive
business functionality that enables its users to effectively and smoothly manage
and maintain a contract with the most comprehensive details throughout its life
cycle. It also provides interfaces with company banks and accounting systems.
LeaseSoft.CAM also effectively maintains details of all business partners that
do business with NetSol including, but not limited to, customers, dealers,
debtors, guarantors, insurance companies and banks. A number of leasing
consultants have provided their business knowledge to make this product a most
complete lease and finance product. NetSol's LeaseSoft.CAM provides business
functionality for all areas that are required to run an effective, efficient and
customer oriented lease and finance business.

o Wholesale Finance System (WFS). LeaseSoft.WFS automates and manages the
floor plan/bailment activities of dealerships through a finance company. The
design of the system is based on the concept of one asset/one loan to facilitate
asset tracking and costing. The system covers credit limit, payment of loan,
billing and settlement, stock auditing, online dealer and auditor access and
ultimately the pay-off functions.

Typically, NetSol's sales cycle for these products ranges between two to five
months. We derive our income both from selling the license to use the products
as well as from related software services. The related services include
requirement study/gap analysis, customization on the basis of gaps development,
testing, configuration, installation at the client site, data migration,
training, user acceptance testing, supporting initial live operations and,
finally, the long term maintenance of the system. Any changes or enhancement
done is also charged to the customer. In the requirements study/gaps analysis,
the NetSol LeaseSoft team goes to the client site to study the client's business
and functional requirements and maps them against the existing functionality
available in LeaseSoft. LeaseSoft has now reached a stage where hardly, if any
gaps, are identified as a result of such a study. In the customization phase,
the gaps are made part of LeaseSoft through a development cycle. This
development takes place in Lahore, Pakistan. Then the new as per requirement
system is thoroughly tested. This phase also takes place in Pakistan. LeaseSoft
is a highly parameterized configurable application and hence it is able to be
configured according to the business of the customer. This phase can take place
both onsite as well as in Lahore but is usually at least partially done in
Lahore. Next, follows the installation of the system at client site. If the
customer was using some other system and already has data in electronic form,
then NetSol's data migration team migrates this data from the old system to the
LeaseSoft database. Data migration is a mix of both client site and Lahore based
work. The client is also imparted training in the areas of business user
training, functional business training and system administration training.
Training is followed by user acceptance testing (UAT) where client nominated
staff and NetSol consultants test the system against the customer business
requirements. After UAT, the system is put in normal business use. LeaseSoft is
a mission critical software, and the whole business operations, from the asset
side of a finance/leasing company, hinge upon the performance of the system.
Hence in the early days after going live, NetSol consultants remain at the
client site to assist the company in smooth operations. After this phase, the
regular maintenance and support services phase for the implemented software
begins. In addition to the daily rate paid by the customer for each consultant,
the customer also pays for all the transportation related expenses, boarding of
the consultants, and a living allowance. These practices enable NetSol to
increase marginal revenue in a proportion larger than the marginal cost
incurred.

License fees can vary generally between $100,000 up to $1,000,000 per license
depending upon the size of the customer and the complexity of the customer's
business. There are various attributes which determine the level of complexity,
a few of which are: number of contracts; size of the portfolio; business
strategy of the company; number of business users; and, branch network of the
customer. The Company recognizes revenue from license contracts without major
customization when a non-cancelable, non-contingent license agreement has been
signed, delivery of the software has occurred, the fee is fixed or determinable,
and collectibility is probable. However, revenue from sale of licenses with
major customization, modification, and development is recognized on percent of
completion basis. Revenue from software services includes fixed price contracts
and is recognized in accordance with the percentage of completion method using
the output measure of "Unit of Work Completed." The annual maintenance fee,
which usually is an agreed upon percentage of overall monetary value of the
implementation, then becomes an ongoing revenue stream realized on a yearly
basis.

As a marketing strategy NetSol is preparing a lighter version of LeaseSoft to
target companies with simpler business models. LeaseSoft is highly modular.
Hence various sets of functionalities can be used against the restricted
requirements of the client. The first deployment of this lighter version is
currently being carried out in Maritius for Mauritius Commercial Bank.

Acquisition of CQ Systems Ltd., UK.

In February 2005, NetSol acquired 100% of CQ Systems Ltd., an IT products and
service company based in the UK. As a result of this acquisition, NetSol has
access to a broad European customer base using IT solutions complementary to
NetSol's LeaseSoft product. NetSol plans to leverage CQ Systems' knowledge base
and strong presence in the Asset Finance market to launch LeaseSoft in the UK
and continental Europe. CQ's strong sales and marketing capability would further
help NetSol gain immediate recognition and positioning for the LeaseSoft suite
of products.

NetSol has an active plan to gradually move some of the software production
activities at CQ Systems to its offshore development center in Lahore. This
transition is expected to last about twelve months, during which time most of
the quality assurance, documentation and some of the CQ products core software
development activities would transition to Lahore. While it is expected that a
gradual reduction in costs on a like for like basis at CQ Systems will occur
during the twelve month transition period, the expected growth in CQ Systems
business over the next eighteen months, may result in a personnel growth at CQ
Systems during that same period.

NetSol will continue to manage LeaseSoft pre-sales support and deliveries by
having two specialized pools of resources for each of the four products under
LeaseSoft. One group focuses on software development required for customization
and enhancements. The second group comprises of LeaseSoft consultants
concentrating on implementation and onsite support. Both groups are being
continually trained in the domain of finance and leasing, system functionality,
communication skills, organizational behavior and client management.

The Asian continent, Australia and New Zealand, from the perspective of
LeaseSoft marketing, are targeted by NetSol Technologies from its Lahore
subsidiary and its newly opened offices in Beijing. NetSol UK, both through its
base in London and its CQ Systems Ltd. offices located in Horsham, United
Kingdom, focuses on the European market. NetSol UK has also appointed a
representative in Denmark to further focus on Denmark as well as the neighboring
countries. The marketing for LeaseSoft in USA and Canada is carried out directly
by the Company. NetSol Technologies (Pvt.) Limited services and NetSol UK market
whenever and wherever required.

NetSol has established a strategy to aggressively market LeaseSoft in various
regions of the world. As part of the strategy, NetSol is forming alliances with
reputable IT companies and has already appointed distributors in Singapore and
Japan. NetSol has entered into a mutually non-exclusive agreement with Singapore
Computer Systems (SCS) that allows SCS to market LeaseSoft in the entire Asia
Pacific Region. Furthermore, NetSol is looking forward to developing partner
networks all across the world with reputable companies.

Launch of NetSol CQ office in Beijing, China

As part of the same strategy and focus on marketing LeaseSoft, NetSol has
recently established a new sales office in Beijing, China, which will act not
only as the sales and marketing front for NetSol in the People's Republic of
China but also act as the liaison office for its ongoing operations and
implementation services for DaimlerChrysler Services and other clients in the
country. The new Asia Pacific office is jointly managed by NetSol Technologies,
Inc. and its wholly owned U.K. subsidiary, CQ Systems Ltd.

Management believes that LeaseSoft has begun to be recognized as a unique,
world-class product offering. This belief is based on the following instances:

o Breakthrough with Toyota in Thailand and China

o Breakthrough in non-captive finance as evidenced by agreement with
Mauritius Commercial Bank in Mauritius

o It has been recognized as a Solution Blueprint by Intel Corporation.
Intel has very stringent technical and market potential criteria for
designating a solution as a "solution blueprint"

o Frame Agreement with DaimlerChrysler Services AG (DCS)

NetSol's Frame Agreement with DCS short lists LeaseSoft as a preferred software
provider for managing the wholesale and retail side of leasing and finance
business of DCS. DCS supports the sales of DaimlerChrysler vehicles through
financial services.

The current LeaseSoft client base includes DaimlerChrysler Services (Australia,
Japan, New Zealand, Singapore, South Korea, Thailand, China and Taiwan), Yamaha
Motors Finance Australia, Toyota Motors Finance China, Mercedes Benz Finance
Japan, Toyota Leasing Thailand and Mauritius Commercial Bank.

NetSol also maintains a LeaseSoft specific product website www.leasesoft.biz

Status of New Products and Services

inBanking(TM)

With the acquisition of Pearl Treasury System, whose product offering is now
referred to as InBanking(TM), the Company expands its menu of software into the
banking and other financial areas. In 2003, NetSol acquired the intellectual
property rights ("IPR") of Pearl Treasury System ("PTS"). PTS was developed to
70% completion in the late 1990s, led by its system designer who had 30 plus
years in banking through positions as Trader and Head of Trading, Treasury,
Risk, Operations and IT for banks such as Bankers' Trust and Mitsubishi Trust &
Banking.

PTS was originally developed on two tier client server technologies and was
designed to provide full process automation and decision support in the front,
middle and back offices of treasury and capital market operations. On an
internal review of PTS post-acquisition, it was decided to re-write the system
with in the .NET technologies, bringing the system into the n-tier/browser based
environment. The project name for this program is inBanking(TM), and the Phase
One deliverables are nearing completion. InBanking(TM) has more than 70 person
years of development effort and $4 million already invested.

The tremendous flexibility enabled by the comprehensive data model and
multi-tier architectural design of InBanking(TM) has been fully recognized,
identifying the potential to further develop InBanking(TM) beyond treasury and
capital markets. Additionally, inBanking(TM) is modular and can therefore be
implemented as solutions for, example, front office trading, middle office
credit or market risk, or back office settlement. InBanking(TM) can also be
implemented to support all these areas, plus others, as a single fully
integrated solution.

InBanking(TM) provides NetSol with the significant opportunity to gain a sizable
share of the treasury, capital markets and wholesale banking systems markets.
Following a lull in the banking solution purchase market, caused by Y2K and
disasters such as 9/11, market analysts, such as Celent and IBS Publishing, are
forecasting significant system replacement activity over the next few years,
particularly in the area of treasury management.

NetSol is currently and actively seeking a small number of banks and financial
institutions to be pilot development partners for the final stage of the Phase
One development program, implementing InBanking(TM) to support their specific
requirements.

TiG-NetSol

In November 2004, the Company entered into a joint venture agreement with The
Innovation Group ("TiG") whereby the TIG-NetSol (Pvt) Ltd., a Pakistani company,
now called Extended Innovation, provides support services enabling TiG to scale
solution delivery operations in key growth markets. TiG-NetSol operations are
centered in NetSol's IT Village in Lahore, Pakistan, with a back up facility in
Bangalore, India. NetSol owns 50.5 percent of the new venture, with TiG owning
the remaining 49.5 percent. The entities share equally in the revenues of the
joint venture. The outsourcing model between TiG and NetSol involves services
pertaining to business analyses, configuration, testing, software quality
assurance (SQA), as well as, technical communication for TiG software. Initiated
with a 10 person outsourcing team in Lahore in February 2005, this arrangement
has extended to a 35 person team in July 2005 with the additional resources
catering to the increased influx of outsourcing of configuration and testing
assignments from TiG. Backed up by a dedicated 4Mbps fiber optic link for
communication and teleconferencing, this arrangement will allow NetSol's human
resources to efficiently and effectively respond to additional outsourcing and
offshore configuration work.

Growth through Acquisition and Alliances

In Mid-2004, NetSol management identified mergers and acquisitions as potential
methods of capitalizing on the demand of the Company's flagship product,
LeaseSoft and assisting the Company in launching its treasury banking software
systems. This, together with the visible turnaround in the services and
outsourcing sectors in global markets, led to a growth strategy encompassing
both organic growth and mergers and acquisitions. While the calendar year 2004,
focused on capitalizing on organic growth and investing in building up the
Company's marketing and sales organization, the early part of 2005 saw a renewed
focus on mergers and acquisitions. In February 2005, the Company closed the
acquisition of CQ Systems Ltd., a UK based company. With a client network
reaching across Europe, CQ Systems provides a platform for the Company's
LeaseSoft products in the UK and continental Europe.

The Company continues to explore mergers and acquisition opportunities, both in
the USA and Europe. Management believes that great value can be added to the
Company by completing a series of acquisitions over the next five years. The
model of targeting well established, profitable product companies, within
NetSol's domain, management believes, has proven successful with the CQ
acquisition. Management believes this model can be replicated over the next five
years.

Growth through Establishing Partners Network

NetSol is well aware that market reach is essential to effectively market IT
products and services around the globe. For this purpose, the Company is looking
forward to establishing a network of partners worldwide. These companies will
represent NetSol in their respective countries and will develop business for
NetSol. Keeping these strategic objectives in view, NetSol has entered into a
mutually non-exclusive agreement with Singapore Computer Systems (SCS) that
allows SCS to market LeaseSoft in the entire Asia Pacific region.

Strategic Alliances

LeaseSoft is recognized as Solution Blueprint by Intel Corporation. Intel has
very stringent technical and market potential criteria for marking a solution as
solution blueprint. The document is also available online from Intel's website
http://www.intel.com/business/bss/solutions/blueprints/industry/finance/
index.htm

NetSol and Intel Corporation have a strategic relationship that would
potentially permit NetSol to market its core product, `LeaseSoft', through Intel
websites. In a joint press release made earlier in 2004, by both NetSol and
Intel, both companies would deliver a new Solution Blueprint for its core
leasing solution. With the collaboration to create a world-class blueprint for
the leasing and finance industry, deployment should become even faster and
smoother for our customers. Intel's website defines Intel's Solution Blueprints
as detailed technical documents that define pre-configured, repeatable solutions
based on successful real-world implementations. Built on Intel(R) architecture
and flexible building block components, these solutions help deliver increased
customer satisfaction, lower operating costs, and better productivity.

DaimlerChrysler Services Asia Pacific has established "Application Support
Center (ASC)" in Singapore to facilitate the regional companies in LeaseSoft
related matters. This support center is powered by highly qualified technical
and business personnel. ASC LeaseSoft in conjunction with NetSol Technologies
(Pvt.) Ltd. Lahore are supporting DCS companies in seven different countries in
Asia and this list can increase as other DCS companies from other countries may
also opt for LeaseSoft. In June 2004, the Company entered into a Frame Agreement
with DaimlerChrysler AG. This agreement, which serves as a base line agreement
for use of the LeaseSoft products by DaimlerChrysler Services AG companies and
affiliated companies, represents what management believes to be an endorsement
of the LeaseSoft product line and the capabilities of NetSol to worldwide
DaimlerChrysler Financial Services (DCFS) entities. This endorsement has had a
tremendous impact on our perspective customers, it has helped our sales and
Business Development personnel to market and sell our LeaseSoft solution to blue
chip customers around the world. This relationship has resulted in new
agreements with DCFS and has served as a marketing source which has resulted in
agreements with companies such as Toyota

With the recent deregulation of Pakistan's telecommunications sector and the
government's desire to attract investors to the country, while experiencing an
unprecedented increase in exports, Pakistan is keen to build a solid technology
infrastructure to support the growth expected over the next several years. The
areas within Pakistan expected to receive major information technology
investments by the government are education, public sector automation, railways
and the country's armed forces.

As compared to the previous year, NetSol (Pvt) Ltd. was able to materialize a
number of service contracts within the local Pakistani public and defense
sectors. An important aspect of these contracts is that not all of them focused
solely on software development and engineering. This year, NetSol has gone a
step further by providing both consultancy services to organizations so as to
improve their quality of operations and services and, wining strategically
important assignments with the E-Governance domains for organizations of
national significance in Pakistan including, but not limited to, the Prime
Minister's office and the lower and upper houses of Parliament. These clients
include private as well as public sector enterprises. Also, NetSol was
successful in consolidating its standing as one of the preferred solutions
providers for the Military sector and Defense organizations. The service
offerings of NetSol has now diversified into a comprehensive supply chain of end
to end services and solutions catering to private and public sectors,
consultancies, applications development, systems engineering integration as well
as other supporting processes for turnkey projects.

NetSol Akhter Pvt. Ltd., a subsidiary of the Company with ownership of 50.1% by
the Company and 49.9% by Akhter Group, is a company capitalizing on the high
growth of the telecommunications market in Pakistan. NetSol Akhter provides ISP
services to clients in the three major cities of Pakistan and is looking to
expand its service offerings. NetSol management took this strategic step to
maintain its focus in the core business of software development and IT services.

As a direct result of a delay in the PTCL privatization, the state owned
telecommunications monopoly, NetSol-Akhter has faced delays in finalizing cross
network pricing and infrastructure rollout. However, the recent completion of
the PTCL privatization process would provide some much needed impetus to the
rollout plans. A giant UAE based telecom group (Eitesalat) has acquired 26% of
PTCL for $2.6MN and will be taking over the management control of this state
owned telecom giant of Pakistan.

Technical Affiliations

We currently have technical affiliations as: a MicroSoft Certified Partner; a
member of the Intel Early Access Program; and, an Oracle Certified Partner.

MARKETING AND SELLING

The Marketing Program

NetSol management is optimistic that the Company will experience ever increasing
opportunities for its products offerings in 2006. The Company is aggressively
growing the marketing and sales organizations in the United Kingdom in
conjunction with CQ Systems Ltd., in Pakistan and the USA. Management believes
that the year 2006 will follow 2005 as a year for continued growth, the
launching of footprints in new markets, while penetrating in the established
markets such as Asia Pacific and Europe.

While affiliations and partnering result in potential growth for the Company,
marketing and selling remain essential to building Company revenue. The
objective of the Company's marketing program is to create and sustain preference
and loyalty for NetSol as a leading provider of enterprise solutions, e-services
consulting and software solutions. Marketing is performed at the corporate and
business unit levels. The corporate marketing department has overall
responsibility for communications, advertising, public relations and the website
and also engineers and oversees central marketing and communications programs
for use by each of the business units.

Our dedicated marketing personnel within the business units undertake a variety
of marketing activities, including sponsoring focused client events to
demonstrate our skills and products, sponsoring and participating in targeted
conferences and holding private briefings with individual companies. We believe
that the industry focus of our sales professionals and our business unit
marketing personnel enhances their knowledge and expertise in these industries
and will generate additional client engagements. As the US technology market
gradually improves, NetSol marketing teams are concentrating on the markets
overseas with cautious entry into the US market.

The Markets

NetSol provides its services primarily to clients in global commercial
industries. In the global commercial area, our service offerings are marketed to
clients in a wide array of industries including, automotive: chemical;
tiles/ceramics; Internet marketing; software; medical; banks; U.S. higher
education and telecommunication associations and, financial services.

Geographically, NetSol has operations on the West Coast of the United States,
Central Asia, Europe, and Asia Pacific regions.

During the last two fiscal years ended June 30, 2005, NetSol's revenue mix by
major markets was as follows:

2005 2004
---- ----

North American (NetSol USA) 2% 12%
Europe (CQ Systems Ltd., NetSol Technologies, UK Ltd.) 24% 6%
Other International (Abraxas, NetSol Technologies Pvt. Ltd., 74% 82%
NetSol Pvt., Ltd., NetSol Connect)

Total Revenues 100% 100%

Fiscal Performance Overview

We have effectively expanded our development base and technical capabilities by
training our programmers to provide customized I/T solutions in many other
sectors and not limiting ourselves to the lease and finance industry.

NetSol Technologies PVT Ltd.

Our subsidiary in Pakistan continues to perform strongly and has enhanced its
capabilities and expanded its sales and marketing activities. In May 2004,
NetSol inaugurated its newly built Technology Campus in Lahore, Pakistan. This
was followed by a formal inauguration on March 4, 2005, by the Prime Minister of
Pakistan, Shaukat Aziz. This state of the art, purpose-built and fully dedicated
IT and software development facility, is the first of its kind in Pakistan.
NetSol also signed a strategic alliance agreement with the IT ministry of
Pakistan to convert the technology campus into a technology park. By this
agreement, the IT ministry has invested nearly 10 million Rupees (approximately
$150,000) to install fiber optic lines and improve the bandwidth for the
facility. This facility currently houses over 400 employees and thus has become
the backbone of the NetSol business model providing world class IT talent and a
cost arbitrage that is attractive to its western customers.

The Lahore operation supports our worldwide customer base of the LeaseSoft suite
of products and all other product offerings. NetSol has continued to lend
support to the Lahore subsidiary to further develop its quality initiatives and
infrastructure. The major initiative in this area is the final stage of phase 1
of the development of the technology campus. The development facility in
Pakistan, being the engine, which drives NetSol, continues to be the major
source of revenue generation. The Pakistan operation has contributed nearly 53%
of 2005, with $6.6 million in revenues for the current year. This was
accomplished primarily through export of I/T Services and product licensed to
the overseas markets. The total revenue of NetSol Pakistan, including the
Pakistan domestic market, was $6.55 million with profit of $3.3 million.

Seeking to take further advantage of the bourgeoning Pakistani markets,
including the capital markets, the Company listed NetSol Technologies Ltd. on
the Karachi Stock Exchange ("KSE") in August 2005. The initial public offering
of stock, of NetSol Technologies Ltd., together with the pre-initial public
offering private placement, raised over $5.83 million. NetSol Technologies Ltd.
is listed on the KSE under the symbol "NETSOL". Trading of `NETSOL' on the KSE
commenced on August 26, 2005. The successful listing of the subsidiary in this
emerging capital markets, has increased visibility in Pakistan capturing the
interest of both public and private sectors for new business opportunities.
Furthermore, NetSol expects to leverage its position as one of the most reputed
software developer's in Pakistan with a much improved balance sheet to attract
major new projects and customers.

While available to support its product and services base on a world-wide basis,
NetSol Tecnologies PVT Ltd.'s selling and marketing efforts are focused on Asia.
Using the distribution channels in Lahore, Beijing and many client sites, we are
consolidating the Australian office and merging it with the Lahore facility. The
existing senior management from Australia will now be directed by the Lahore
operation which will serve the Australian-New Zealand markets. The Company
expects to save nearly $250,000 by this initiative.

NetSol has signed on new customers for LeaseSoft as well as bespoke development
services. For LeaseSoft the following new projects were earned by the Company:

o DaimlerChrysler Auto Finance China- Licensing and customization of
LeaseSoft CAP, CMS & WFS.

o Toyota Leasing Thailand (TLT) - Licensing, customization and
implementation of LeaseSoft CAP (formerly PMS), CMS & WFS.

o TLT is a volume leader in captive finance companies in Thailand.
NetSol considers it a big strategic break as delivering successfully
in Thailand will position NetSol to target Toyota Finance companies
around the world.

o Mercedes Benz Finance Japan-Licensing and implementation of
LeaseSoft WFS. o Toyota Motor Finance China- Licensing and
implementation of LeaseSoft WFS.

o Mauritius Commercial Bank, Mauritius- Licensing and implementation
of LeaseSoft CMS and LeaseSoft CAP.

o CMM Evaluation Consultancy Services for the Pakistan Software Export
Board (PSEB).

As a part of Ministry of Information Technology's efforts for the process
improvements in the operations of Pakistani software houses, NetSol, under the
auspices of PSEB, is actively undertaking exercises for these consultancy
services for different software companies. The key aspects of these services
would be CMM1 introduction, gap analyses for ISO 9001:2000 compliant procedures,
CMM Level 2/3 pre-assessments, consultancies, evaluations and tracking/analyses
of such improvements. The clientele for these NetSol professional services
includes: DPS Islamabad, Shaukat Khanum Memorial Trust (SKMT) Lahore, ProSol
Islamabad, GeoPac Islamabad, yEvolve Karachi, and Avanza Solutions, Karachi.

Management believes that NetSol has been identified as a premium IT company in
Pakistan and with its matured products and services, local demand is surging. A
few of the recently signed agreements in the private and public sectors are:

o Pakistan Administrative Staff College

o Government of Punjab (Motor Transport Management)

o Pakistan Software Export Board

o Ministry of Defense (multiple projects)

o All Pakistan Textiles Processing Mills Association (APTPMA)

o National Assembly and Senate of Pakistan (Electronic Government
Directorate)

o Prime Minister of Pakistan's Secretariat (Electronic Government
Directorate)

o Armed Forces Institute of Dentistry

There is a growing domestic business in Pakistan for the IT and IT enabled
services, as stated above, and NetSol is strategically positioned to support a
very stable and economically beneficial pipeline to win many more and major new
projects in the public and private sectors. NetSol will continue to strengthen
its position as a dominant IT solutions provider in this explosive growth
market.

NetSol IT Matrix (NITM) for Information Security and related services.

NetSol has entered into a joint venture agreement with IT Matrix, Saudi Arabia,
for the provision of information security and related consultancy services for
the growing IT services market in Pakistan. Realizing the already established
potential of information security strength of NetSol in Pakistan and the
capability/experience of IT Matrix Saudi Arabia, the organizations agreed to
form a new business entity in Pakistan (NITM) to jointly pursue the information
security business. IT Matrix is among the few companies in the region which has
built its Information Security solutions integrating hardware, software and
services. It is currently the leading Information Security solutions provider in
the Kingdom of Saudi Arabia, with corporate offices in Riyadh and one branch
office in Al-Khobar (Easter Province). The company has partnerships with a
number of leading information security vendors in the world and is the first
company in the region to have built its IT security technologies with 100% local
development in Saudi Arabia.

The business objectives of the joint venture will be to: develop intellectual
capital in the form of information security technologies; information security
professional consultancy services; methodologies for implementation and
maintenance; information security training and educational material with
delivery mechanism and sales of information security consulting services; NITM
developed information security technologies; support services for information
security technology (people and processes); information security training and
education; and, 24x7 security surveillance centers.

NetSol Technologies UK Ltd

NetSol Technologies Limited, the Company's UK subsidiary, was formed in Fiscal
2003. Located in the heart of the City of London, one of the world's major
banking and finance centers, the company is resourced with experts from the
financial services industry, including its chairman, Ed Holmes, with experience
such as Group Executive Europe and chairman/CEO of Citibank International Plc..
The UK subsidiary is responsible for the Company's activities in the UK, Europe
and Middle East and includes the spearheading of the sales and marketing efforts
for InBanking(TM), NetSol's treasury and wholesale banking solution; plus
ongoing marketing and sales of the LeaseSoft portfolio of leasing solutions and
NetSol's range of on and off-shore IT services.

With the acquisition of CQ Systems, Ltd., which is managed by NetSol UK, the
Company has added a complimentary suite of leasing products. CQ Systems Ltd. was
established in 1986 and provides robust, powerful, scalable and safe contract
management and accounting solutions for the installment credit, motor finance
and asset finance markets. The modules provide an end-to-end contractual
solution - from underwriting, contract administration and accounting through to
asset disposal and re-marketing. Today CQ has more than 55 banking, independent
and captive finance house clients in the UK, Europe, Africa and Asia. The
revenue generated by CQ Systems from the date of acquisition (Feb 21 to June 30,
2005) was $2.3 million, or 18% of the Company's total revenues. The net income
before tax reported for the same period was about $432,000. In terms of CQ
Systems stand alone revenues for year 2004-2005, the revenues exceeded $6
million.

Subsequent to the CQ Systems acquisition, it was decided to use NetSol UK as a
marketing arm of the Lahore subsidiary and mergers and acquisition arm of the
Company.

Depending solely upon organic growth, the UK company produced $688,000 in
revenue for the current fiscal year or 5.53% of the Company's total revenues.
The net income was reported approximately $159,900. The main focus of this
entity is to market the array of banking and leasing solutions in the heart of
the financial district in London and the rest of Europe.

Depending solely upon organic growth, the UK company produced $688,000 in
revenue for the current fiscal year or 5.53% of the Company's total revenues.
Net income of approximately $159,900 was reported. The main focus of this entity
is to market the array of banking and leasing solutions in the heart of the
financial district in London and the rest of Europe.

NetSol TIG, Joint Venture

As disclosed before, the newly formed outsourcing joint ventures of NetSol with
a UK based IT solutions provider TIG, Plc. contributed approximately $448,000 in
revenue in just five months or 3.6% of the Company's revenues. The total net
profit was $250,000 before adjusting the minority interest; NetSol owns 51%
while TIG owns 49% of the JV.

NetSol Connect

In August 2003, NetSol entered into an agreement with United Kingdom based
Akhter Group PLC (Akhter). Under the terms of the agreement, Akhter Group
acquired 49.9% of the Company's subsidiary; Pakistan based NetSol Connect Pvt
Ltd., an Internet service provider (ISP) in Pakistan. As part of this Agreement,
NetSol Connect changed its name to NetSol Akhter. A change in the ownership
structure in September 2003 and the consolidation and readjustment of the
revenue model caused revenue reduction in fiscal year 2004 as compared to the
fiscal year 2003. During the current fiscal year, NetSol Connect steadily grew
its presence in three cities (Karachi, Lahore and Islamabad) by acquiring a
small Internet online company called Raabta Online in early 2004. This created a
national presence for wireless broadband business in key markets that have
experienced explosive growth.. NetSol Akhter with its new laser and wireless
technologies has a potential to become a major brand in Pakistan. The
partnership with Akhter Computers is designed to rollout the services of
connectivity and wireless to the Pakistani national market.

Akhter, one of the oldest established computer companies in the UK, is well
recognized as a provider of managed Internet services, integrated networks, both
local area networks and wide area networks, as well as metropolitan area
networks within the UK. Akhter owned proprietary broadband technologies and
solutions will provide NetSol Connect a technologically strong platform for
strengthening its telecommunications infrastructure within Pakistan with a goal
of becoming a leading provider of broadband Internet access to both residential
and commercial users.

The initial stage of the agreement provides NetSol with an investment of up to
$1 million in cash to launch a broadband infrastructure in Karachi, the largest
business hub in Pakistan. The initial infrastructure will provide a 155MB
backbone and a 5MB broadband to customer premises using a proprietary broadband
technology and an infrastructure consisting of 20 hubs. After the successful
launch of the initial six-month beta program to Karachi's residential and
commercial customers, additional rollouts of the hubs are scheduled in Lahore
and Islamabad within a 12-month period. The second investment into the program
could provide up to $20 million to create the first Terabit backbone in
Pakistan. This will allow NetSol to provide data, voice, video and other
multi-media services to major cities within Pakistan.

NetSolConnect Pvt Ltd. will continue to aggressively seek revenues to growth.
The revenue contribution for NetSolConnect was $1.14 million or about 9.2% of
2005 revenues. The total net loss was $27,422 before adjusting the minority
interest.

NetSol USA

In February 2005, NetSol USA operations were merged with the parent company.
NetSol USA managed the successful completion and implementation of projects for
a Seattle based software company, Capital Stream. This contract was awarded at
the end of 2003 and was completed in the middle of fiscal year 2005. With NetSol
USA focusing on consulting services in areas not necessarily compatible with the
NetSol products and services base, and the completion of the Capital Stream
project the Company elected to consolidate the Maryland office into the
Company's headquarters in Calabasas, California. NetSol USA was responsible for
$295,000 in revenues or 2.4% of total revenues to the Company. The downsizing of
NetSol USA office would contribute to over $250,000 of annual savings.

LeaseSoft Sales

LeaseSoft received a major recognition when DaimlerChrysler Services (DCS) AG,
Germany signed a global frame agreement with NetSol for LeaseSoft. Under terms
of the open-ended global frame contract, LeaseSoft is named as one of the
strategic, asset-based, finance software solutions for DCS.

Within the DCS locations, the Global Frame Agreement was responsible for the
following additional sales of LeaseSoft in the year ended June 30, 2005:
licensing and implementation of LeaseSoft PMS, CMS and WFS for DaimlerChrysler
Auto Finance China; and, Licensing and Implementation of LeaseSoft WFS for
Mercedes Benz Finance Japan.

Other than DCS, NetSol was also successful in entering into agreements with new
customers in the region. A major breakthrough was Toyota Leasing Thailand
allowing NetSol to offer and provides services to another leader in the region's
automotive markets. This arrangement was later extended to a second Toyota
client in China (Toyota Motors Finance China (TMFCN)). New customers included:
licensing and implementation of WFS, CMS and PMS for Toyota Leasing Thailand;
licensing and implementation of LeaseSoft for Toyota Motors Finance China; and,
licensing and implementation of LeaseSoft PMS and CMS for Mauritius Commercial
Bank, Mauritius.

Technology Campus

We broke ground for our Technology Campus in January 2000 with a three-phase
plan of completion. Initially, we anticipated the completion of Phase One by
fall 2001, but due to the delay in financing, and other challenges we faced, the
completion was delayed. The Technology Campus was completed in May 2004 and the
Lahore operations relocated to the facilities in May 2004. By relocating the
entire Lahore operation from its previously leased premises to the Campus, the
Company saves approximately $150,000 annually. The campus is currently capable
of housing over 2,500 IT professionals in approximately three acres of land. The
campus site is located in Pakistan's second largest city, Lahore, with
population of six million. An educational and cultural center, the city is home
to most of the leading technology oriented academia of Pakistan including names
like LUMS, NU-FAST & UET. These institutions are also the source of quality IT
resources for the Company. Lahore is a modern city with very good communication
infrastructure and road network. The Technology campus is located at about a
5-minute drive from the newly constructed advanced and high-tech Lahore
International Airport. This campus is the first purpose built software building
with state of the art technology and communications infrastructure in Pakistan.
The Company has made this investment to attract contracts and projects from blue
chip customers from all over the world.

Employees

We believe we have developed a strong corporate culture that is critical to our
success. Our key values are delivering world-class quality software,
client-focused timely delivery, leadership, long-term relationships, creativity,
openness and transparency and professional growth. The services provided by
NetSol require proficiency in many fields, such as computer sciences,
programming, mathematics, physics, engineering, and communication and
presentation skills. Almost every one of our software developers is proficient
in the English language. English is the second most spoken language in Pakistan
and is mandatory in middle and high schools.

To encourage all employees to build on our core values, we reward teamwork and
promote individuals who demonstrate these values. NetSol offers all of its
employees the opportunity to participate in its stock option program. Also, we
have an intensive orientation program for new employees to introduce our core
values and a number of internal communications and training initiatives defining
and promoting these core values. We believe that our growth and success are
attributable in large part to the high caliber of our employees and our
commitment to maintain the values on which our success has been based. NetSol
worldwide is an equal opportunity employer. NetSol attracts professionals not
just from Pakistan, where it is very well known, but also I/T professionals
living overseas.

Management believes it has been successful in capitalizing on the "Reverse Brain
Drain" phenomenon whereby it has been able to attract and retain highly
qualified and suitably experienced IT and management professionals working
overseas and returning to Pakistan. These include senior management as well as
software development professionals that shall directly contribute to the
organization improvement of various engineering processes and procedures at
NetSol.

NetSol believes it has gathered, over the course of many years, a team of very
loyal, dedicated and committed employees. Their continuous support and belief in
the management has been demonstrated by their further investment of cash. Most
of these employees have exercised their stock options during very difficult
times for us. Management believes that its employees are the most valuable asset
of NetSol. The Company's survival in the most challenging times is due, in part,
to their dedication towards continuous achievement of highest quality standards
and customer satisfaction. With each acquisition, NetSol is able to combine both
work forces. For example, NetSol and CQ Systems have effectively and swiftly
integrated the culture, systems and processes creating an environment
satisfactory for its employees.

Overall, NetSol as a global IT company has over 25% female employees with the
biggest concentration in our development facility in Lahore. The Company is an
equal opportunity employer. Being a successful company with a well respected
name in the business community, NetSol encourages its employees to actively
participate and contribute to charitable contributions for catastrophic
tragedies such as Tsunami disaster and the Gulf Coast disaster caused by Katrina
Hurricane in the US.

There is significant competition for employees with the skills required to
perform the services we offer. We believe that we have been successful in our
efforts to attract and retain the highest level of talent available, in part
because of the emphasis on core values, training and professional growth. We
intend to continue to recruit, hire and promote employees who share this vision.

As of June 30, 2005, we had 530 employees; comprised of 410 IT project personnel
in Pakistan, UK and Australia and 125 non-IT personnel in Pakistan, UK,
Australia and US. This includes 40 employees in sales and marketing and 85 in
general and administration. There are a total of five part-time employees and
the rest are full time-employees. None of our employees are subject to a
collective bargaining agreement. Our telecom subsidiary NetSolConnect has over
99 full time employees based in Karachi, Pakistan

Competition

Neither a single company nor a small number of companies dominate the I/T market
in the space in which we compete. A substantial number of companies offer
services that overlap and are competitive with those offered by NetSol. Some of
these are large industrial firms, including computer manufacturers and computer
consulting firms that have greater financial resources than NetSol and, in some
cases, may have greater capacity to perform services similar to those provided
by NetSol.

Some of our competitors are International Decisions Systems, Inc., McCue
Systems, EDW, Data Scan, Inc., AIPAC, CHP, KPMG, LMK Resources, Systems
Innovations (Si3), Bearing Point, Kalsoft, Systems Limited, Oratech Pakistan,
Tech Access Pakistan and a few others These companies are scattered worldwide
geographically. In terms of offshore development, we are in competition with
some of the Indian companies such as Wipro, HCL, TCS, InfoSys, Satyam Infoway
and others. Many of the competitors of NetSol have longer operating history,
larger client bases, and longer relationships with clients, greater brand or
name recognition and significantly greater financial, technical, and public
relations resources than NetSol. Existing or future competitors may develop or
offer services that are comparable or superior to ours at a lower price, which
could have a material adverse effect on our business, financial condition and
results of operations.

Customers

Some of the customers of NetSol include: DaimlerChrysler Services AG;
DaimlerChrysler Asia Pacific - Singapore; Mercedes Benz Finance - Japan; Yamaha
Motors Finance - Australia; Debis Portfolio Systems - UK; DaimlerChrysler
Services - Australia; DaimlerChrysler Leasing - Thailand; DaimlerChrysler
Services - Korea; UMF Leasing Singapore; MCB Mauritius; Toyota Leasing Thailand;
Toyota Motors Finance, China; and, DaimlerChrysler Services New Zealand. In
addition, NetSol provides offshore development and customized I/T solutions to
blue chip customers such as Citibank Pakistan, DCD Holding UK, TIG Plc in UK
and, Habib Allied Bank UK. NetSol is also a strategic business partner for
DaimlerChrysler Services (which consists of a group of many companies), which
accounts for approximately 20% of our revenue. No other individual client
represents more than 10% of the revenue for the fiscal year ended June 30, 2005.

As compared to the previous year, NetSol (Pvt.) Ltd. was able to materialize a
number of services contracts within the local Pakistani public and defense
sectors. An important aspect of these contracts is that not all of them were
solely focusing on software development and engineering. This year, NetSol, has
gone a step further by providing consultancy services to organizations so as to
improve their quality of operations and services in addition to winning
strategically important assignments within the E-Governance domain for
organizations of national significance in Pakistan, including, Prime Minister's
office and the lower and upper houses of Parliament These clients include
private as well as public sector enterprises. Also, NetSol was successful in
consolidating its standing as one of the preferred solutions providers for the
Military sector and Defense organizations. The service offering portfolio of
NetSol has now diversified into a comprehensive supply chain of end to end
services and solutions catering to BPR, consultancies, applications development,
engineering as well as other supporting processes

New Local Customers are as follows:

o Pakistan Administrative Staff College

o Government of Punjab (Motor Transport Management)

o Pakistan Software Export Board

o Ministry of Defense (multiple projects)

o All Pakistan Textiles Processing Mills Association (APTPMA)

o Prime Minister of Pakistan's Secretariat (Electronic Government
Directorate)

o National Assembly and Senate of Pakistan (Electronic Government
Directorate)

o Armed Forces Institute of Dentistry

The Internet

We are committed to regaining and extending the advantages of our direct model
approach by moving even greater volumes of product sales, service and support to
the Internet. The Internet provides greater convenience and efficiency to
customers and, in turn, to us. We receive 150,000 hits per month to
www.netsoltek.com. We also maintain a product specific website for LeaseSoft at
www.leasesoft.biz.

NetSol's software development and SQA team as well as its clients use its web
based customer relationship management solution (HelpDesk) for timely and direct
communication during the support and maintenance phases of Through its Web
sites, customers, potential customers and investors can access a wide range of
information about the Company's product offerings, can configure and purchase
systems on-line, and can access volumes of support and technical information
about the Company. More details can be found on http://www.netsolhelp.com.

Operations

Our headquarters are in Calabasas, California. Nearly 80% of the production and
development is conducted at NetSol PK in Lahore, Pakistan. The other 20% of
development is conducted in the Proximity Development Center or "PDC" in
Horsham, UK to cater to the UK and continental European customers. The majority
of the marketing is conducted through NetSol Technologies, Pvt Ltd in Lahore,
Pakistan, NetSol UK, CQ Systems in the UK, and NetSol CQ in Beijing, China These
are the core operating companies engaged in developing and marketing IT
solutions and software development and marketing.

NetSol UK, together with CQ Systems Ltd., services and supports the clients in
the UK and continental Europe. NetSol PK services and supports the customers in
the Asia and South Asia regions.

A significant portion of our software is developed in Pakistan. Despite global
unrest, due to the Iraq war and international terrorism, as well as economic
pressure due to skyrocketing oil prices, the economy of Pakistan has made a
positive turn around. The economy of Pakistan has grown to over 8.6% in 2005 and
it is expected to sustain the same trend for years. For the first time in the
history of Pakistan, the foreign exchange reserve has exceeded $13.0 billion in
comparison with just below $2.0 billion in 2000. There has been a massive surge
in FDI or foreign direct investments in Pakistan by foreigners. These
investments have been in many sectors, to name a few: industrial infrastructure,
telecom, oil & gas, stock market and real estate. The stock market in Pakistan
is the most bullish in the Asia Pacific region with market growth over 600% year
to date (Karachi Stock Exchange on October 18, 2001 was at 1,103 points vs.
about 7,700 in recent times). Pakistan, now a close US ally, is recognized by
the western world as becoming very conducive and attractive for foreign
collaboration and investments. The breakthrough `thawing' of relationships
between Pakistan and its biggest democratic neighbor, India, has stabilized the
South East Asia region. This environment has raised the comfort and confidence
of foreign investors and major US and European corporations to enhance their
businesses in Pakistan. Due to many strategic measures and decisions by the
government of Pakistan, the telecom sector has been privatized. Several new
foreign telecom giants have made some serious investments in Pakistan. The
biggest example is an U.A.E. based Telecom giant `EITESALAAT' which acquired 26%
or management control of `PTCL' a government owned telecom company. This
reflects a true potential and tremendous growth opportunities in Pakistan.

The Company is in an extremely strong position to continue to use this offshore
model, which includes competitive price advantage to serve its customers. Due to
all major improvements economically, politically and regionally, Pakistan's
perception is improving drastically in recent months. A few major names such as
Microsoft, Oracle, Cisco, Tata Consulting Services (India) and many other major
names have recently signed agreements for collaboration and alliances with
Pakistani companies. NetSol's few major successes achieved in 2005 were:

* A successful acquisition of CQ systems of UK

* A successful JV of NetSol and TIG to use offshore development model

* A global frame agreement with Daimler Credit Services

* Adding blue chip customers such as Toyota Leasing Thailand.

Just recently Moody's International assessed Pakistan as less vulnerable than
many countries in the Asia Pacific region. Also, Standard & Poors rating on
Pakistan has been improved to positive. The present government has taken major
bold steps to attract new foreign investment and bolster the local economy. The
confidence of the local investors and foreign investors has been undoubtedly
enhanced resulting in stronger demand of new listing in the stock markets. Also
recently the telecom sector received a boost when the IT ministry was able to
successfully auction two new mobile phones licenses for a total of $592 million
to two European Telecom conglomerates. This was a landmark development and it
simply underscores the confidence and growing interest of foreign companies in
investing in Pakistan.

Organization

NetSol Technologies, Inc. (formerly NetSol International, Inc.) was founded in
1997 and is organized as a Nevada corporation. We amended our Articles of
Incorporation on March 20, 2002 to change our name to NetSol Technologies, Inc.

Our success, in the near term, will depend, in large part, on our ability to:
(a) continue to grow revenues and improve profits, (b) raise funds for continued
operations and growth; (c) make a major entry in the US market and, (d)
streamline sales and marketing efforts in the Asia Pacific region, Europe, Japan
and Australia. However, management's outlook for the continuing operations,
which has been consolidated and has been streamlined, remains optimistic and
bullish. With continued emphasis on a shift in product mix towards the higher
margin consulting services, the Company anticipates to be able to continue to
improve operating results at its core by reducing costs and improving gross
margins. Management is very excited and positive about a seamless transition and
integration of CQ Systems with NetSol front end and back end operations.

Intellectual Property

We rely upon a combination of nondisclosure and other contractual arrangements,
as well as common law trade secret, copyright and trademark laws to protect our
proprietary rights. We enter into confidentiality agreements with our employees,
generally require our consultants and clients to enter into these agreements,
and limits access to and distribution of our proprietary information. The NetSol
logo and name, as well as the LeaseSoft logo and product name have been
copyrighted and trademark registered in Pakistan. An application has been filed
in the US Patent and Trademark Office for the trademark "inBanking".

Governmental Approval and Regulation

Our current operations do not require specific governmental approvals. Like all
companies, including those with multinational subsidiaries, we are subject to
the laws of the countries in which we maintain subsidiaries and conduct
operations. Pakistani law allows a tax exemption on income from exports of IT
services and products up to 2016. While foreign based companies may invest in
Pakistan, repatriation of their investment, in the form of dividends or other
methods, requires approval of the State Bank of Pakistan. The present Pakistani
government has effectively reformed the policies and regulations effecting
foreign investors and multinational companies thus, making Pakistan an
attractive and friendly country in which to do business.

MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATIONS

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, 2005.

Forward-Looking Information.

This report contains certain forward-looking statements and information relating
to NetSol 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 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
incorrect, 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 ultimately is built. NetSol
does not intend to update these forward-looking statements.

PLAN OF OPERATIONS

Management has set the following new goals for NetSol's next 12 months.

Initiatives and Investment to Grow Capabilities

o Achieve CMM Level 5 Accreditation in 2005.

o Enhance Software Design, Engineering and Service Delivery
Capabilities by increasing investment in training.

o Enhance and invest in R&D or between 7-10% of yearly budgets in
financial, banking and various other domains within NetSol's core
competencies.

o Aggressively expand the sales and marketing organizations in all key
locations by hiring senior and successful personnel.

o Recruiting additional senior level managers in Lahore, China and, UK
offices to be able to support potential new customers from the North
American, Asian Pacific and European markets.

o Aggressively exploit the booming Chinese market by strengthening
NetSol's presence in China.

o Launch its marketing presence in the US markets through M&A
activities in the domain of our core competencies.

o Embark on a program of recruiting the best available talent in
Project and Program Management

o Increase Capex, to enhance Communications and Development
Infrastructure. Roll out a second phase of construction of
technology Campus in Lahore to respond to a growth of new orders and
customers.

o Launch new business development initiatives in hyper growth
economies such as China and Eastern Europe.

o Create new technology partnership with Oracle and strengthen our
relationship with Intel in Asia Pacific and in the USA.

o Aggressively market LeaseSoft especially in Asia Pacific, Europe and
globally.

o Forge a partnership with a US based telecom company for its telecom
division to fully exploit the explosive market potential in
Pakistan.

Top Line Growth through Investment in marketing organically and by mergers and
acquisition ("M&A") activities:

o Launch LeaseSoft into new markets by assigning new, well established
companies as distributors in Europe, Asia Pacific and North America.

o Aggressive marketing in China for LeaseSoft and related services.

o Expand relationships with key customers in the US, Europe and Asia
Pacific.

o Product Positioning through alliances and partnership.

o Joint Ventures.

o Direct Marketing of Services.

o Embark on roll up strategy by broadening M&A activities broadly in
the software development domain.

o Enhance the sales and marketing organization by hiring new key
executives in the US, UK and Asia.

o Effectively position and marketing campaign for `Inbanking' or PTS.
This is a potentially big revenue generator in the banking domain
for which NetSol has already invested significant time and resources
towards completing the development of this application.

o Explore new diversified opportunities in the areas of Business
process Outsourcing.

Funding and Investor Relations:

o Raise new capital from emerging markets without or limited usage of
NetSol securities to further strengthen the balance sheet and
capital resources.

o Attract long term institutional investors and partners both in the
US and in Asia.

o Infuse new capital from potential exercise of outstanding investors'
warrants and employees options for business development and
enhancement of infrastructures.

o Continuing to efficiently and prudently manage cash requirements and
raise capital from the markets only as it deems absolutely necessary
to execute the growth strategy.

o Enhance the visibility of company's stock to US based institutional
investors, funds and research analysts.

Improving the Bottom Line:

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

o Grow process automation.

o Profit Centric Management Incentives.

o More local empowerment and P&L Ownership in each Country Office.

o Improve productivity at the development facility and business
development activities.

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

o Integrate and centralize the US headquarters and Australian
operations and improve the costs and bottom line.

Management believes that NetSol is in a position to derive higher productivity
based on current capital employed.

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. Management believes that further leverage was provided by
the development `engine' of NetSol, which became CMM Level 2 in early 2002. In a
quest to continuously improve its quality standards, NetSol reached CMM Level 4
assessment in December 2004. According to the website of SEI of Carnegie Mellon
University, USA, only a few software companies in the world have announced their
assessment of level 4. Now, as a result of achieving CMM level 4, the Company is
experiencing a growing demand for its products and alliances from blue chip
companies worldwide. NetSol is now aiming for CMM level 5, the highest CMM
level, potentially as early as 2005. NetSol plans to further enhance its
capabilities by creating similar development engines in other Southeast Asian
countries with CMM levels quality standards. This would make NetSol much more
competitive in the industry and provide the capabilities for development in
multiple locations. Increases in the number of development locations with these
CMM levels of quality standards will provide customers with options and
flexibility based on costs and broader access to skills and technology.

MATERIAL TRENDS AFFECTING NETSOL

NetSol has identified the following material trends affecting NetSol

Positive trends:

o Outsourcing of services and software development is growing
worldwide.

o The Global IT budgets are estimated to exceed $1.2 trillion in 2004,
according to the internal estimates of Intel Corporation. About 50%
of this IT budget would be consumed in the U.S. market alone
primarily on the people and processes.

o Cost arbitrage, labor costs still very competitive and attractive
when compared with India.

o Overall economic expansion worldwide and explosive growth in the
merging markets specifically.

o Regional stability and improving political environment between
Pakistan and India.

o Economic turnaround in Pakistan including: a steady increase in
gross domestic product; much stronger dollar reserves, which is at
an all time high of over $13 billion; stabilizing reforms of
government and financial institutions; improved credit ratings in
the western markets, and elimination of corruption at the highest
level.

o Stronger ties between the US and Pakistan creating new investment
and trade opportunities.

o Robust growth in outsourcing globally and investment of major US and
European corporations in the developing countries.

o Chinese economic boom leading to new market opportunities.

Negative trends:

o The disturbance in Middle East and rising terrorist activities post
9/11 worldwide have resulted in issuance of travel advisory in some
of the most opportunistic markets. In addition, travel restrictions
and new immigration laws provide delays and limitations on business
travel.

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

o Skyrocketing oil prices and unfortunate affects of Hurricane Katrina
on US economy.

o Continuous impact of Iraq war on US and global economy.

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 tax able temporary differences.
Temporary differences are the differences between the reported amount of assets
and liabilities and their tax bases. 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. 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, 2005
and 2004, we estimated the allowance on net deferred tax assets to be one
hundred percent of the net deferred tax assets.

CHANGE IN MANAGEMENT AND BOARD OF DIRECTORS

Chief Financial Officer

In July 2005, Mr. Najeeb Ghauri resigned from his position of Chief Financial
Officer of the Company retaining his position as Chairman of the Board under an
Executive capacity. Ms. Tina Gilger a CPA and formerly the Company's controller
was appointed by the board of directors to replace Mr. Ghauri.

Board of Directors

At the 2005 Annual Shareholders Meeting a seven member board was elected. The
shareholders voted in an overwhelming majority for the new slate of directors.
The board now consists of Mr. Najeeb U. Ghauri, Mr. Jim Moody, Mr. Salim Ghauri,
Mr. Eugen Beckert, Mr. Naeem U. Ghauri, Mr. Shahid Burki, and Mr. Irfan Mustafa.
Mr. Shabir Randeree did not stand for reelection. Mr. Randeree's refusal to
stand for reelection is not of the result of any disagreement with NetSol
relating to our operations, policies or practices. Effective May 2, 2005, Mr.
Mustafa resigned from the board of directors. Mr. Mustafa will continue to serve
on the board of the Company's Pakistani subsidiary. Mr. Mustafa's decision to
resign from the board was due to personal conflicts and was not the result of
any disagreement with NetSol relating to our operations, policies or practices.
Effective April 27, 2005, Mr. Derek Soper was appointed to fill the vacancy in
the board left by Mr. Randeree's departure.

Committees

The Audit committee is made up of Mr. Jim Moody as chairman, Mr. Burki and Mr.
Beckert as members. The Compensation committee currently consists of Mr. Burki
as its chairman. The Nominating and Corporate Governance Committee currently
consists of Mr. Beckert as chairman and Mr. Moody as members. Additional members
of the Compensation committee will be appointed at the next board of directors
meeting.

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
PRO-FORMA FINANCIAL STATEMENTS
JUNE 30, 2004
(UNAUDITED)

The following unaudited Pro-Forma Statement of Financial Conditions and
Statement of Operations have been derived from the audited consolidated
financial statements of NetSol Technologies, Inc. ("NetSol") as of June 30, 2004
and the audited financial statements of CQ Systems Limited (a UK corporation)
("CQ Systems") as of March 31, 2004. The unaudited Pro Forma Statement of
Financial Conditions and Statement of Operations reflect the 100% acquisition of
CQ Systems by NetSol under a stock purchase agreement. The pro-forma Statement
of Financial Conditions assumes the acquisition was consummated as of June 30,
2004, and the pro-forma Statements of Operations assumes the acquisition was
consummated as of July 1, 2003, the beginning of NetSol Technologies fiscal
year.

The purchase price is (pound)3,576,335 or $6,730,382 of which one-half is due in
cash and shares of NetSol's common stock at closing. The other half is due after
the audited March 31, 2006 financial statements are prepared . The initial
purchase price is based on the March 31, 2005 audited financial statements of CQ
Systems. The final purchase price will be adjusted either up or down when the
audited March 31, 2006 financial statements are completed.

The Pro-Forma Statement of Financial Conditions and Statement of Operations
should be read in conjunction with the Consolidated Financial Statements of
NetSol, related Notes to the financial statements, and the Financial Statements
of CQ Systems. The Pro-Forma statements do not purport to represent what the
Company's financial condition and results of operations would actually have been
if the acquisition of CQ Systems had occurred on the date indicated or to
project the Company's results of operations for any future period or date. The
Pro-Forma adjustments, as described in the accompanying data, are based on
available information and the assumptions set forth in the notes below, which
management believes are reasonable.

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
CONSOLIDATED PRO-FORMA STATEMENT OF FINANCIAL CONDITIONS
FOR THE PERIOD ENDED JUNE 30, 2004
(UNAUDITED)

NetSol CQ Systems
as of 6/30/04 as of 3/31/04 Pro Forma Pro Forma
(Historical) (Historical) Adjustment Combined
------------- ------------- ----------- ------------

ASSETS

Current Assets $ 3,556,429 $ 2,337,549 $ (700,000) (1) $ 5,193,978
Property & equipment, net 4,203,580 260,517 -- 4,464,097
Intangible assets, net 4,218,039 -- 3,507,687 (1) 7,725,726

------------- ------------- ----------- ------------
Total assets $ 11,978,048 $ 2,598,066 $ 2,807,687 $ 17,383,801
============= ============= =========== ============

LIABILITIES & STOCKHOLDERS' EQUITY

Current liabilities $ 3,145,438 $ 1,600,914 $ -- $ 4,746,352
Obligations under capitalized leases,
less current maturities 27,604 70,424 -- 98,028
Deferred tax -- 5,366 -- 5,366
Notes payable 89,656 -- -- 89,656
Deferred liability -- -- 2,052,254 (1) 2,052,254
Convertible debenture 985,243 -- -- 985,243

------------- ------------- ----------- ------------
Total liabilities 4,247,941 1,676,704 2,052,254 7,976,899
Minority interest 410,728 -- -- 410,728

Stockholders' equity;

Common stock 9,483 159,210 (158,528) (1) 10,165
Additional paid in capital 38,885,878 -- 1,676,113 (1) 40,561,991
Stock subscription receivable (333,650) -- -- (333,650)
Treasury stock (21,457) -- -- (21,457)
Other comprehensive income (loss) (238,562) 138,784 (138,784) (1) (238,562)
Accumulated earnings (deficit) (30,982,313) 623,368 (623,368) (1) (30,982,313)

------------- ------------- ----------- ------------
Total stockholders' equity 7,319,379 921,362 755,433 8,996,174

------------- ------------- ----------- ------------
Total liabilities and stockholders' equity $ 11,978,048 $ 2,598,066 $ 2,807,687 $ 17,383,801
============= ============= =========== ============

NOTES:

(1) Elimination of Common stock and accumulated earnings of CQ Systems before
the acquisition and to record the purchase of CQ Systems by NetSol.

The initial purchase price is $6,730,382, of which one-half is due at closing in
cash and stock and the remaining half to be paid after the audited March 31,
2006 financials have been prepared. The initial purchase price and 1st
installment allocation is as follows:

1st
Purchase Price allocation: Initial Installment
Common Stock, 681,965 shares $ 682 $ 682
Additional paid in capital 1,676,113 1,676,113
Cash 700,000 700,000
Cash, provided by short-term notes 1,000,000 1,000,000
Additional consideration payable 3,353,587 1,052,254
---------- ----------
Total purchase price $6,730,382 $4,429,049
========== ==========

CQ equity (net assets and liabilities) $ 921,362 $ 921,362
Intangible assets:

Customer Lists 1,316,880 1,316,880
Licenses 2,190,807 2,190,807
Goodwill 2,301,333
----------- ----------
5,809,020 5,809,020 3,507,687
---------- ----------
$6,730,382 $4,429,049
========== ==========

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
CONSOLIDATED PRO-FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 2004
(UNAUDITED)

NetSol as CQ Systems
of 6/30/04 as of 3/31/04 Pro Forma Pro Forma
(Historical) (Historical) Adjustment Combined
------------ ------------- ---------- ------------

Net Revenue $ 5,749,062 $ 4,640,653 $ -- $ 10,389,715

Cost of revenue 2,699,675 1,833,994 -- 4,533,669

------------ ------------- ---------- ------------
Gross profit 3,049,387 2,806,659 -- 5,856,046

Operating expenses 5,757,405 1,895,988 701,537 (3) 8,354,927

------------ ------------- ---------- ------------
Income (loss) from operations (2,708,018) 910,671 (701,537) (2,498,881)

Other income and (expenses) (142,199) (214,819) -- (357,018)

------------ ------------- ---------- ------------
Income (loss) from continuing operations (2,850,217) 695,852 (701,537) (2,855,899)

Minority interest in subsidiary 273,159 -- -- 273,159

------------ ------------- ---------- ------------
Net income (loss) (2,577,058) 695,852 (701,537) (2,582,740)

Other comprehensive income (loss):
Translation adjustment (387,859) 110,837 -- (277,022)

------------ ------------- ---------- ------------
Comprehensive income (loss) $ (2,964,917) $ 806,689 $ (701,537) $ (2,859,762)
============ ============= ========== ============

EARNINGS PER SHARE

Weighted -average number of
shares outstanding 8,563,518 100,000 8,663,518
============ ============= ============

Income (loss) per share $ (0.30) $ 6.96 $ (0.30)
============ ============= ============

NOTES:

(1) Loss per share data shown above are applicable for both primary and fully
diluted.

(2) Weighted-average number of shares outstanding for the combined entity
includes all shares issued for the acquisition of 681,964 shares as if
outstanding as of July 1, 2003.

(3) Amortization of intangible assets acquired in acquisition

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
PRO-FORMA FINANCIAL STATEMENTS
JUNE 30, 2003
(UNAUDITED)

The following unaudited Pro-Forma Statement of Financial Conditions and
Statement of Operations has been derived from the audited consolidated financial
statements of NetSol Technologies, Inc. ("NetSol") as of June 30, 2003 and the
audited financial statements of CQ Systems Limited (a UK corporation) ("CQ
Systems") as of March 31, 2003. The unaudited Pro Forma Statement of Financial
Conditions and Statement of Operations reflect the 100% acquisition of CQ
Systems by NetSol under a stock purchase agreement. The pro-forma Statement of
Financial Conditions assumes the acquisition was consummated as of June 30,
2003, and the pro-forma Statements of Operations assumes the acquisition was
consummated as of July 1, 2002, the beginning of NetSol Technologies fiscal
year.

The purchase price is (pound)3,576,335 or $6,730,382 of which one-half is due in
cash and shares of NetSol's common stock at closing. The other half is due after
the audited March 31, 2006 financial statements have been prepared. The initial
purchase price is based on the March 31, 2005 audited financial statements of CQ
Systems. The final purchase price will be adjusted either up or down when the
audited March 31, 2006 financial statements are completed.

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
CONSOLIDATED PRO-FORMA STATEMENT OF FINANCIAL CONDITIONS
FOR THE PERIOD ENDED JUNE 30, 2003
(UNAUDITED)

NetSol CQ Systems
as of as of
6/30/03 3/31/03 Pro Forma Pro Forma
(Historical) (Historical) Adjustment Combined
------------ ------------ ----------- ------------

ASSETS

Current Assets $ 1,774,553 $ 1,470,485 $ (700,000) $ 2,545,038
Property & equipment, net 2,037,507 197,481 -- 2,234,988
Intangible assets, net 4,930,191 -- 3,507,687 (1) 8,437,877
------------ ------------ ----------- ------------
Total assets $ 8,742,251 $ 1,667,966 $ 2,807,687 $ 13,217,903
============ ============ =========== ============

LIABILITIES & STOCKHOLDERS' EQUITY

Current liabilities $ 3,533,614 $ 1,139,770 $ -- $ 4,673,384
Obligations under capitalized leases,
less current maturities 7,111 8,330 15,441
Deferred tax -- 1,892 1,892
Notes payable 126,674 -- 1,648,865 (1) 1,775,538
------------ ------------ ----------- ------------
Total liabilities 3,667,399 1,149,992 1,648,865 6,466,255

Stockholders' equity;
Common stock 5,757 159,210 (158,528)(1) 6,439
Additional paid in capital 33,409,953 -- 1,676,113 (1) 35,086,066
Stock subscription receivable (84,900) (84,900)
Other comprehensive income (loss) 149,297 27,947 (27,947)(1) 149,297
Accumulated earnings (deficit) (28,405,255) 330,816 (330,816)(1) (28,405,255)
------------ ------------ ----------- ------------
Total stockholders' equity 5,074,852 517,973 (2) 1,158,822 6,751,647

------------ ------------ ----------- ------------
Total liabilities and stockholders' equity $ 8,742,251 $ 1,667,965 $ 2,807,687 $ 13,217,902
============ ============ =========== ============

NOTES:

(1) Elimination of Common stock and accumulated earnings of CQ Systems before
the acquisition and to record the purchase of CQ Systems by NetSol.

1st
Purchase Price allocation: Initial Installment
Common Stock, 681,965 shares $ 682 $ 682
Additional paid in capital 1,676,113 1,676,113
Cash 700,000 700,000
Cash, provided by short-term notes 1,000,000 1,000,000
Additional consideration payable 3,353,587 648,865
---------- ----------
Total purchase price $6,730,382 $4,025,660
========== ==========

CQ equity (net assets and liabilities) $ 517,973 $ 517,973
Intangible assets:

Customer Lists 1,316,880 1,316,880
Licenses 2,190,807 2,190,807
Goodwill 2,704,722
------------ ----------
6,212,409 6,212,409 3,507,687

---------- ----------
$6,730,382 $4,025,660
========== ==========

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
CONSOLIDATED PRO-FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 2003
(UNAUDITED)

NetSol CQ Systems
as of 6/30/03 as of 3/31/03 Pro Forma Pro Forma
(Historical) (Historical) Adjustment Combined
------------- ------------- ---------- -----------

Net Revenue $ 3,745,386 $ 3,821,892 $ -- $ 7,567,278

Cost of revenue 1,778,993 1,654,608 -- 3,433,601

------------- ------------- ---------- -----------
Gross profit 1,966,393 2,167,284 -- 4,133,677

Operating expenses 4,434,643 2,013,685 701,537 (3) 7,149,862

------------- ------------- ---------- -----------
Income (loss) from operations (2,468,250) 153,599 (701,537) (3,016,185)

Other income and (expenses) (147,331) (34,560) -- (181,891)

------------- ------------- ---------- -----------
Income (loss) from continuing operations (2,615,581) 119,039 (701,537) (3,198,076)

Gain from discontinuation of a subsidiary 478,075 -- -- 478,075

------------- ------------- ---------- -----------
Net income (loss) (2,137,506) 119,039 (701,537) (2,720,001)

Other comprehensive income (loss):
Translation adjustment (380,978) 70,997 -- (309,981)

------------- ------------- ---------- -----------
Comprehensive income (loss) $ (2,518,484) $ 190,036 $ (701,537) $(3,029,982)
============= ============= ========== ===========

EARNINGS PER SHARE

Weighted -average number of
shares outstanding 5,194,167 100,000 5,294,167
============= ============= ===========

Income (loss) per share $ (0.41) $ 1.19 $ (0.51)
============= ============= ===========

NOTES:

(1) Loss per share data shown above are applicable for both primary and fully
diluted.

(2) Weighted-average number of shares outstanding for the combined entity
includes all shares issued for the acquisition of 681,964 as if
outstanding as ofJuly 1, 2002.

(3) Amortization of intangible assets acquired in acquisition

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
PRO-FORMA FINANCIAL STATEMENTS
DECEMBER 31, 2004
(UNAUDITED)

The following unaudited Pro-Forma Statement of Financial Conditions and
Statement of Operations have been derived from the unaudited consolidated
financial statements of NetSol Technologies, Inc. ("NetSol") for the six months
ending December, 2004 and the unaudited financial statements of CQ Systems
Limited (a UK corporation) ("CQ Systems") for the six months ending December 31,
2004. The unaudited Pro Forma Statement of Financial Conditions and Statement of
Operations reflect the 100% acquisition of CQ Systems by NetSol under a stock
purchase agreement. The Company has accounted for the acquisition under the
purchase method of accounting for business combinations. The pro-forma Statement
of Financial Conditions assumes the acquisition was consummated as of December
31, 2004, and the pro-forma Statements of Operations assumes the acquisition was
consummated as of July 1, 2003, the beginning of NetSol Technologies fiscal
year.

The purchase price is (pound)3,576,335 or $6,730,382 of which one-half is due in
cash and shares of NetSol's common stock at closing. The other half is due after
the audited March 31, 2006 financial statements have been prepared. The initial
purchase price is based on the March 31, 2005 audited financial statements of CQ
Systems. The final purchase price will be adjusted either up or down when the
audited March 31, 2006 financial statements are completed.

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
CONSOLIDATED PRO-FORMA STATEMENT OF FINANCIAL CONDITIONS
FOR THE PERIOD ENDED DECEMBER 31, 2004
(UNAUDITED)

NetSol CQ Systems
as of as of
12/31/04 12/31/04 Pro Forma Pro Forma
(Historical) (Historical) Adjustment Combined
------------ ------------ ----------- ------------

ASSETS

Current Assets $ 5,541,780 $ 2,013,642 $ (700,000)(1) $ 6,855,422
Property & equipment, net 4,276,307 339,527 -- 4,615,834
Intangible assets, net 4,003,151 -- 3,507,687 (1) 7,510,838

------------ ------------ ----------- ------------
Total assets $ 13,821,238 $ 2,353,169 $ 2,807,687 $ 18,982,094
============ ============ =========== ============

LIABILITIES & STOCKHOLDERS' EQUITY

Current liabilities $ 2,567,863 $ 1,467,228 $ -- $ 4,035,092
Obligations under capitalized leases,
less current maturities 56,910 124,803 -- 181,713
Deferred tax -- 5,442 -- 5,442
Deferred liability -- -- 1,886,588 (1) 1,886,587
Convertible debenture 130,292 -- -- 130,292

------------ ------------ ----------- ------------
Total liabilities 2,755,065 1,597,473 1,886,588 6,239,126
Minority Interest 99,752 -- -- 99,752

Stockholders' equity;
Common stock 12,254 159,210 (158,528)(1) 12,936
Additional paid in capital 43,072,118 -- 1,676,113 (1) 44,748,231
Common stock to be issued 254,800 -- -- 254,800
Stock subscription receivable (1,234,650) -- -- (1,234,650)
Treasury stock (27,197) -- -- (27,197)
Other comprehensive income (loss) (446,970) 43,149 (43,149)(1) (446,970)
Accumulated earnings (deficit) (30,663,934) 553,337 (553,337)(1) (30,663,934)

------------ ------------ ----------- ------------
Total stockholders' equity 10,966,421 755,696 921,099 12,643,216

------------ ------------ ----------- ------------
Total liabilities and stockholders' equity $ 13,821,238 $ 2,353,169 $ 2,807,687 $ 18,982,094
============ ============ =========== ============

NOTES:

(1) Elimination of Common stock and accumulated earnings of CQ Systems before
the acquisition and to record the purchase of CQ Systems by NetSol.

1st
Purchase Price allocation: Initial Installment
Common Stock, 681,965 shares $ 682 $ 682
Additional paid in capital 1,676,113 1,676,113
Cash 700,000 700,000
Cash, provided by short-term notes 1,000,000 1,000,000
Additional consideration payable 3,353,587 886,588
---------- ----------
Total purchase price $6,730,382 $4,263,383
========== ==========

CQ equity (net assets and liabilities) $ 755,696 $ 755,696
Intangible assets:

Customer Lists 1,316,880 1,316,880
Licenses 2,190,807 2,190,807
Goodwill 2,466,999
----------- ----------
5,974,686 5,974,686 3,507,687

---------- ----------
$6,730,382 $4,263,383
========== ==========

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
CONSOLIDATED PRO-FORMA STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 2004
(UNAUDITED)

NetSol CQ Systems
as of 12/31/04 as of 12/31/04 Pro Forma Pro Forma
(Historical) (Historical) Adjustment Combined
-------------- -------------- ---------- ------------

Net Revenue $ 4,781,532 $ 2,485,266 $ -- $ 7,266,798

Cost of revenue 1,601,655 1,550,006 -- 3,151,661

-------------- -------------- ---------- ------------
Gross profit 3,179,877 935,260 -- 4,115,137

Operating expenses 2,520,798 833,863 350,769 (3) 3,705,427

-------------- -------------- ---------- ------------
Income (loss) from operations 659,079 101,397 (350,769) 409,710

Other income and (expenses) (354,958) 6,782 -- (348,176)

-------------- -------------- ---------- ------------
Income (loss) from continuing operations 304,121 108,179 (350,769) 61,534

Minority interest in subsidiary 14,259 -- -- 14,259

-------------- -------------- ---------- ------------
Net income (loss) 318,380 108,179 (350,769) 75,793

Other comprehensive income (loss):
Translation adjustment (173,409) (95,635) -- (269,044)

-------------- -------------- ---------- ------------
Comprehensive income (loss) $ 144,971 $ 12,544 $ (350,769) $ (193,251)
============== ============== ========== ============

EARNINGS PER SHARE

Weighted -average number of
shares outstanding 10,755,918 100,000 10,855,918
============== ============== ============

Income (loss) per share $ 0.03 $ 1.08 $ 0.01
============== ============== ============

NOTES:

(1) Loss per share data shown above are applicable for primary

(2) Weighted-average number of shares outstanding for the combined entity
includes all shares issued for the acquisition of 681,964 shares as if
outstanding as of July 1, 2003.

(3) Amortization of intangible assets acquired in acquisition

RESULTS OF OPERATIONS

THE YEAR ENDED JUNE 30, 2005 COMPARED TO THE YEAR ENDED JUNE 30, 2004

Net revenues for the year ended June 30, 2005 were $12,437,653 as compared to
$5,749,062 for the year ended June 30, 2004. Net revenues are broken out among
the subsidiaries as follows:

2005 % 2004 %
----------- ----------
Netsol USA $ 295,725 2.38% $ 676,857 11.77%
Netsol Tech (1) 6,557,031 52.73% 3,190,049 55.49%
Netsol Private (2) 776,572 6.24% 483,788 8.42%
Netsol Connect 1,143,616 9.19% 778,598 13.54%
Netsol UK 687,620 5.53% 356,215 6.20%
Netsol-Abraxas Australia 217,470 1.75% 263,555 4.58%
CQ Systems 2,311,345 18.58% -- 0.00%
Netsol-TiG 448,274 3.60% -- 0.00%
----------- ------ ---------- ------
Total Net Revenues $12,437,653 100.00% $5,749,062 100.00%
=========== ====== ========== ======

(1) Refers to NetSol Technologies (Pvt.) Limited
(2) Refers to NetSol (Private) Limited

The total consolidated net revenue for fiscal year 2005 was $12,437,653 compared
to $5,749,062 in fiscal year 2004. This is a nearly 116% increase in revenue.
The increase is attributable to increased sales, the acquisition of CQ Systems
and the forming of the joint-venture with TiG.

The fiscal year ended June 30, 2005 was a very busy and exciting period for
NetSol worldwide. The Company added a few major new customers such as
DaimlerChrysler in China, Japan, and New Zealand and Toyota Leasing Thailand and
China. In addition, many new customers were added in Pakistan in both the public
and private sectors. NetSol signed many new alliances and partnerships in fiscal
year 2005. The most significant of all was the joint venture with a UK based
company, The Innovation Group ("TiG"). NetSol owns 51% of this new entity while
TIG owns 49%. The partnership is designed to outsource the global IT projects of
TiG to NetSol in Pakistan.

NetSol made a significant move by acquiring 100% of a UK based software company
CQ Systems Ltd. in February 2005. The acquisition of CQ Systems has provided
NetSol a very strong and seasoned management team with a mature, profitable,
business.

NetSol's global frame agreement with DaimlerChrysler Services ("DCS") qualifies
NetSol as a preferred vendor to DCS in 40 plus countries where DCS operates. As
a direct result of the successful implementations of some of our current systems
with DaimlerChrysler and the signing of the global frame agreement, we are
noticing a significant increase in demand for LeaseSoft. Although the sales
cycle for LeaseSoft is rather long, we are experiencing a 100% increase in
product demonstration, evaluation and assessment by blue chip companies in the
UK, Australia, Japan, Europe, North America and Pakistan. In fiscal year 2005,
NetSol raised the pricing of its LeaseSoft licenses significantly due primarily
to a surge in demand. In spring of 2005, one complete system was sold to Toyota
Leasing Thailand ("TLT") for nearly $2.3 million that includes over $1.2 million
for license fees.

A number of large leasing companies will be looking to renew legacy
applications. This places NetSol in a very strong position to capitalize on any
upturn in IT spending by these companies. NetSol is well positioned to sell
several new licenses in fiscal year 2006 that could potentially increase the
sales and bottom line. As the Company sells more of these licenses, management
believes it is possible that the margins could increase to upward of 70%. The
license prices of these products vary from $100,000 to an excess of $1,000,000
with additional charges for customization and maintenance of between 20%-30%
each year.

The gross profit was $7,682,904 for year ended June 30, 2005 as compared with
$3,049,387 for the same period of the previous year. This is a 152% increase.
The gross profit percentage was 62% for the current fiscal year and 53% in the
prior year. While the cost of sales and the cost of delivery of projects have
both been reduced in the current year, the Company maintained all its delivery
commitments and has won new business from existing and new customers. While
management is striving to negotiate better pricing on new agreements, the
Company has been required to react to overall general economic factors in
determining its present pricing structure. The gross profit margin was also
improved due to improved quality standards such as achieving the assessment of
CMM Level 4 in 2004.

Operating expenses were $6,618,199 for the year ended June 30, 2005 as compared
to $5,757,405 for the year ended June 30, 2004. During the years ended June 30,
2005 and 2004, the Company issued 188,972 and 48,613 restricted common shares in
exchange for services rendered, respectively. The Company recorded this non-cash
compensation expense of $246,650 and $48,240 for the years ended June 30, 2005
and 2004, respectively. Total professional service expense, including non-cash
compensation, was $604,192 and $464,332 for the years ended June 30, 2005 and
2004, respectively. During the years ended June 30, 2005 and 2004, the Company
recorded depreciation and amortization expense of $1,564,562 and $1,240,792,
included in this increase is the addition of the completion of the Lahore
facility. Salaries and wages expenses were $2,022,183 and $1,493,252 for the
years ended June 30, 2005 and 2004, respectively, or an increase of $528,931 or
35%. The addition of the new subsidiary, CQ Systems and the forming of the
joint-venture with TiG, as well as an increase in development, sales and
administration employees resulted in the increase. Approximately 250 new
employees were added throughout the Company during the current fiscal year.
General and administrative expenses were $1,588,456 and $1,759,607 for the years
ended June 30, 2005 and 2004, respectively, a decrease of $171,151. This
decrease is due to consolidation of US offices, streamlining of corporate
overheads and reduction of operating expenses in the Lahore facility due to
elimination of building rent. In the prior year, the general and administrative
expense included non-recurring expenses for moving both the headquarters office
and the Pakistan companies into the new facility, $105,608 in costs for placing
the convertible debenture and $122,500 for settlement of legal disputes. Also,
the Company had to incur extra costs for the annual shareholders meeting
including proxies mailing and other administrative related costs and travel
expenses.

Selling and marketing expenses increased to $782,488 for the year ended June 30,
2005 as compared to $253,701 for the year ended June 30, 2004, reflecting the
growing sales activity of the Company and the addition of the new subsidiary, CQ
Systems and the joint-venture, NetSol-TIG. The Company wrote-off, as
uncollectible, bad debts of $13,118 and $219,909, during the years ended June
30, 2005 and 2004, respectively.

The income from operations in fiscal year 2005 was $1,064,705 compared to a net
loss from operations of $2,708,018 in fiscal year 2004. Included in these
amounts are non-cash charges of depreciation and amortization of $1,564,562 and
$1,240,792, settlement expenses of $43,200 and $122,500 and bad debt expense of
$13,118 and $219,909, respectively. Net income in fiscal year 2005 was $663,325
compared to a net loss of $2,577,058 in fiscal year 2004 or 125.74% decrease.
The current fiscal year amount includes a net reduction of $111,073 compared to
an add-back of $273,159 in the prior year for the 49.9% minority interest in
NetSol Connect and NetSol-TiG owned by another party. The Company also
recognized non-recurring expenses including $209,848 and $137,230 expense for
the beneficial conversion feature on notes payable and convertible debenture, a
gain of $0 and $104,088, from writing off a note payable in one of the
subsidiaries that had been paid through the issuance of stock by the parent in
the prior year and, a gain of $404,136 and $216,230 from the settlement of a
debt, respectively. In addition, during the current fiscal year, the Company
recorded an expense of $255,130 for the fair market value of options and
warrants granted. The net income per share was $0.06 in 2005 compared to a loss
of $0.33 in 2004. The total weighted average of shares outstanding basic was
11.6 million and diluted was 14.8 million against basic and diluted 7.9 million
in 2004.

The net EBITDA income for fiscal 2005 was $2,454,164 compared to loss for fiscal
2004 of $1,029,751 after amortization and depreciation charges of $1,564,562 and
$1,240,792, income taxes of $10,416 and $76,638, and interest expense of
$215,861 and 229,877, respectively. Although the net EBITDA income is a non-GAAP
measure of performance we are providing it for the benefit of our investors and
shareholders to assist them in their decision-making process.

Liquidity And Capital Resources

The Company's cash position was $1,371,727 at June 30, 2005 compared to $871,161
at June 30, 2004. In addition the Company had $205,480 compared to $391,403 in
certificates of deposit. The total cash position, including the certificates of
deposits, was $1,577,207 as of June 30, 2005 compared to $1,262,564 as of June
30, 2004. Net cash provided by operating activities amounted to $243,872 for the
year ended June 30, 2005, as compared to used for $1,770,591 for the comparable
period last fiscal year. The decrease is mainly due to an increase in accounts
receivable and other assets offset by an increase in accounts payable.

Net cash used by investing activities amounted to $4,697,488 for the year ended
June 30, 2005, as compared to providing $3,406,964 for the comparable period
last fiscal year. The difference lies primarily in the purchase of CQ Systems
and the related increase in intangible assets acquired. During the prior fiscal
year, the Company had proceeds of $210,000 from the sale of a minority interest
in the Company's subsidiary NetSol Connect, whereas in the current fiscal year
the Company received $178,521 of additional capital from the minority interests.
In addition, the Company had net purchases of property and equipment of
$1,468,499 compared to $2,861,754 for the comparable period last fiscal year.
The majority of this reflects the capitalized costs of the Lahore facility of
approximately $1.37 million and $2.32 million, respectively.

Net cash provided by financing activities amounted to $4,826,927 and $5,774,256
for years ended June 30, 2005, and 2004, respectively. The current fiscal year
included the cash inflow of $1,512,000 from the sale of common stock and
$1,260,057 from the exercising of stock options and warrants, compared to
$1,848,750 and $1,445,392 in the prior year, respectively. In the current fiscal
year, the Company had net proceeds from loans of $1,247,351 as compared to
$1,301,571 in the comparable period last year. The Company also obtained a
$1,200,000 convertible debenture during the prior fiscal year. The short term
notes acquired during the current fiscal year were utilized to execute the
acquisition of CQ Systems.

As of June 30, 2005 the Company's working capital (current assets less current
liabilities) totaled $3,458,302 compared to $410,991 as of June 30, 2004, a
increase of $3,047,311. In the current fiscal year, the Company sold a total of
$1,512,000 of its common stock in private placements. In fiscal 2004, the
Company raised capital from financing with Maxim Group of $1.85 million, net of
expenses. In addition, $1.2 million in convertible debentures were issued during
the prior fiscal year and approximately $487,000 from the exercising of
warrants. The Company has over $3.9 million in accounts receivable and $1.96
million in revenues in excess of billings. The Company plans on pursuing various
and feasible means of raising new funding to expand its infrastructure, enhance
product offerings and beef up marketing and sales activities in strategic
markets. The strong growth in earnings and the signing of larger contracts with
Fortune 500 customers, largely depends on the financial strength of NetSol.
Generally, the bigger name clients and new prospects diligently analyze and take
into consideration a stronger balance sheet before awarding big projects to
vendors. Therefore, NetSol would continue its effort to further enhance its
financial resources in order to continue to attract large name customers and big
value contracts.

Management expects to continue to improve its cash position in the current and
future quarters due to the new business signed up in the last quarter. In
addition, the Company anticipates additional exercises of investor warrants and
employee stock options in the current and subsequent quarters. The Company has
consistently improved its cash position in last four quarters through investors'
exercise of warrants, employee options exercised, private placements and the
signing of new business. We anticipate this trend to continue in the current and
future quarters, further improving the cash resources and liquidity position.
Management is committed to implementing the growth business strategy that was
ratified by the board of directors in July 2005. The company would continue to
inject new capital towards expansion, grow sales and marketing and further
enhancement of delivery capabilities.

NetSol's Technology Campus in Lahore was completed in May 2004 and the staff was
relocated into this new building. The Phase One will easily hold up to 500
programmers, engineers and other related staff. NetSol has already experienced a
very positive response to this move from the business community, our existing
customers and prospective new customers worldwide. The completion of technology
campus is a major milestone for NetSol, employees, customers and the
shareholders. Due to its recent growth, management has already started the
planning of constructing a new phase by erecting another structure behind the
current building.

QUARTER ENDED SEPTEMBER 30, 2005 AS COMPARED TO THE QUARTER ENDED SEPTEMBER 30,
2004:

Net revenues for the quarter ended September 30, 2005 were $4,469,985 as
compared to $2,058,305 for the quarter ended September 30, 2004. Net revenues
are broken out among the subsidiaries as follows:

2005 2004
------------ -------------
Netsol USA $ -- $ 170,134
Netsol Tech 1,662,351 1,113,859
Netsol Private 477,186 302,809
Netsol Connect 252,337 268,334
Netsol-TiG 345,705 -
Netsol UK 238,672 172,261
CQ Systems 1,406,011 -
Netsol-Abraxas Australia 87,723 30,908
------------ -------------
Total Net Revenues $4,469,985 $2,058,305
============ =============

This reflects an increase of $2,411,680 or 117% in the current quarter as
compared to the quarter ended September 30, 2004. The increase is attributable
mostly to growth in services business, a full quarter of revenues attributed by
the newly acquired CQ Systems in UK, growing outsourcing business of NetSol-TIG
(JV) and additional maintenance work. The Company's biggest revenue growth was
achieved in all three of its Pakistan based subsidiaries, which generated sales
both domestically and internationally. The Company has experienced solid and
consistent demand for IT services in the domestic sectors of Pakistan.

The Company added a few major new customers such as DaimlerChrysler in China,
Japan, and New Zealand and Toyota Leasing Thailand and China. In addition, many
new customers were added in Pakistan in both the public and private sectors.
NetSol signed many new alliances and partnerships in fiscal year 2005. The most
significant of all was the joint venture with a UK based company, The Innovation
Group ("TiG"). NetSol owns 51% of this new entity while TIG owns 49%. The
partnership is designed to outsource the global IT projects of TiG to NetSol in
Pakistan.

A number of large leasing companies will be looking to renew legacy
applications. This places NetSol in a very strong position to capitalize on any
upturn in IT spending by these companies. NetSol is well positioned to sell
several new licenses in fiscal year 2006 that could potentially increase the
sales and bottom line. As the Company sells more of these licenses, management
believes it is possible that the margins could increase to upward of 70%. The
license prices of these products vary from $300,000 to an excess of $1,000,000
with additional charges for customization and maintenance of between 20%-30%
each year.

The gross profit was $2,802,635 in the quarter ending September 30, 2005 as
compared with $1,296,037 for the same quarter of the previous year for an
increase of $905,082. The gross profit percentage remains at approximately 63%
in the quarter ended September 30, 2005. In comparison to the prior quarter
ended June 30, 2005, the cost of sales decreased approximately $143,528 and
revenues increased $4,782 or an overall increase of 3% in gross profit.

Operating expenses were $2,130,429 for the quarter ending September 30, 2005 as
compared to $1,153,971, for the corresponding period last year. The increase is
mainly attributable to increased selling and marketing activities, additional
employees and an increase in overall activities due to our increased marketing
efforts. Depreciation and amortization expense amounted to $552,531 and $295,537
for the quarter ended September 30, 2005 and 2004, respectively, reflecting the
intangible assets purchased from the CQ Systems acquisition in February 2005.
Combined salaries and wage costs were $536,376 and $347,237 for the comparable
periods, respectively, or an increase of $189,139 from the corresponding period
last year. The addition of the new subsidiary, CQ Systems and the forming of the
joint-venture with TiG, as well as an increase in development, sales and
administration employees resulted in the increase. Approximately 250 new
employees were added throughout the Company during the last fiscal year.

Selling and marketing expenses were $318,864 and $119,348, in the quarter ended
September 30, 2005 and 2004, respectively, reflecting the growing sales activity
of the Company. Professional services expense increased slightly to $123,158 in
the quarter ended September 30, 2005, from $114,334 in the corresponding period
last year.

Income from operations was $672,206 compared to $142,066 for the quarters ended
September 30, 2005 and 2004, respectively. This represents an increase of
$530,140 or 373% for the quarter compared with the comparable period in the
prior year. This is directly due to improved sales activity.

Net income was $203,745 compared to $139,733 for the quarters ended September
30, 2005 and 2004, respectively. This is an increase of $151,786 or 45.81%
compared to the prior year. The current fiscal quarter amount includes a net
reduction of $367,213 compared to an add-back of $15,068 in the prior period for
the 49.9% minority interest in NetSol Connect and NetSol-TiG owned by another
party, and the 28.13% minority interest in NetSol PK. During the current
quarter, the Company also recognized an expense of $6,569 compared to $37,500
for the beneficial conversion feature on convertible debentures, an expense of
$9,489 compared to $28,024 for the fair market value of warrants issued and a
gain of $3,641 compared to $50,274 from the settlement of a debt. Net income per
share, basic and diluted, was $0.01 for the quarters ended September 30, 2005
and 2004.

The net EBITDA income was $897,407 compared to $458,359 after amortization and
depreciation charges of $552,531 and $295,537, income taxes of $62,108 and
$1,514, and interest expense of $79,023 and $21,575, respectively. Although the
net EBITDA income is a non-GAAP measure of performance we are providing it for
the benefit of our investors and shareholders to assist them in their
decision-making process. The increase in amortization and depreciation is mostly
attributed to the amortization of the intangible assets acquired in the purchase
of CQ Systems

LIQUIDITY AND CAPITAL RESOURCES

The Company's cash position was $1,469,154 at September 30, 2005 compared to
$204,850 at September 30, 2004. In addition the Company had $2,487,577 in
certificates of deposit in the form of short-term investment accounts. The total
cash position, including the certificates of deposits, was $3,956,731 as of
September 30, 2005.

Net cash used for operating activities amounted to $1,106,844 for the quarter
ended September 30, 2005, as compared to $1,062,227 for the comparable period
last fiscal year. The increase is mainly due to an increase in prepaid expenses
and other assets.

Net cash used by investing activities amounted to $3,220,571 for the quarter
ended September 30, 2005, as compared to provided by $236,614 for the comparable
period last fiscal year. The difference lies primarily in the increase in net
purchases of certificates of deposits in the current fiscal year of $2,282,097
compared to net proceeds of $250,000 in the prior year. In addition, the Company
had net purchases of property and equipment of $726,630 compared to $127,002 for
the comparable period last fiscal year.

Net cash provided by financing activities amounted to $4,410,299 and $137,329
for the quarters ended September 30, 2005, and 2004, respectively. The quarter
ended September 30, 2005 included the cash inflow of $0 compared to $220,000
from issuance of equity and $288,062 compared to $0 from the exercising of stock
options and warrants. In the current fiscal period, the Company had net proceeds
on loans and capital leases of $91,236 as compared to net payments of $30,967 in
the comparable period last year. In addition, the Company received net proceeds
of $4,031,001 from the sale of a subsidiary's common stock in an IPO on the
Karachi Stock Exchange.

The Company plans on pursuing various and feasible means of raising new funding
to expand its infrastructure, enhance product offerings and beef up marketing
and sales activities in strategic markets. The strong growth in earnings and the
signing of larger contracts with Fortune 500 customers largely depends on the
financial strength of NetSol. Generally, the bigger name clients and new
prospects diligently analyze and take into consideration a stronger balance
sheet before awarding big projects to vendors. Therefore, NetSol would continue
its effort to further enhance its financial resources in order to continue to
attract large name customers and big value contracts. Management feels that a
major requirement of institutional investors is a much stronger balance sheet
and a healthy cash position. Management expects to continue to improve its cash
position in the current and future quarters due to the new business signed up in
the last quarter. In addition, the Company anticipates additional exercises of
employee stock options in the current and subsequent quarters. The Company has
consistently improved its cash position in last four quarters through employees'
exercise of options, the IPO of the Pakistani subsidiary, private placements,
and the signing of new business. We anticipate this trend to continue in the
current and future quarters, further improving the cash resources and liquidity
position. Management is committed to implementing the growth business strategy
that was ratified by the board of directors in July 2005. The company would
continue to inject new capital towards expansion, grow sales and marketing and
further enhancement of delivery capabilities.

As a growing company, we have on-going capital expenditure needs based on our
short term and long term business plans. Although our requirements for capital
expenses vary from time to time, for the next 12 months, we have the following
capital needs:

o In next 6 months the final payment of CQ Systems would be due based
on the formula of 'earn out'. This could be in the range of $1.0MN
to $3.7MN

o Notes payable for approximately $800,000

o Working capital of $1.0 million for UK business expansion, new
business development activities and infrastructure enhancements.

While there is no guarantee that any of these methods will result in raising
sufficient funds to meet our capital needs or that even if available will be on
terms acceptable to the Company, we will consider raising capital through the
following methods: equity based financing; warrant and option exercises. We
would, however, use some of our internal cash flow to meet certain obligations
as mentioned above.

The methods of raising funds for capital needs may differ based on the
following:

o Stock volatility due to market conditions in general and NetSol
stock performance in particular. This may cause a shift in our
approach to raise new capital through other sources such as secured
long term debt.

o Analysis of the cost of raising capital in the U.S., Europe or
emerging markets. By way of example only, if the cost of raising
capital is high in one market and it may negatively affect the
company's stock performance, we may explore options available in
other markets.

Should global or other general macro economic factors cause an adverse climate,
we would defer new financing and use internal cash flow for capital
expenditures.

Dividends and Redemption

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

DESCRIPTION OF PROPERTY

Company Facilities

Our corporate headquarters in California consists of approximately 1,706
rentable square feet and a monthly rent of $4,317.75. The lease is a one-year
lease expiring in December 2006. Our current facilities are located at 23901
Calabasas Road, Suite 2072, Calabasas, California, 91302.

Other leased properties as of the date of this report are as follows:

Location/Approximate Square Feet Purpose/Use Monthly Rental Expense
-------------------------------- ----------- ----------------------

Australia.............. 1,140 Computer and General Office $ 1,380

Beijing................ 188 General Office $ 1,900

London................. 378 General Office $ 5,500

Horsham (CQ Systems)... 6,570 Computer and General Office $10,989

The Australian lease is a three-year lease that expires in September 2007. It is
rented at the rate of $1,380 per month. It is rented at the rate of $1,380 per
month. The Beijing lease is a one year lease that expires in June 2006. The
monthly rent is $2,280 per month with the first two months free bringing the
average monthly rent to $1,900 per month. The London operations of NetSol UK are
currently conducted in leased premises operating on a month-to-month basis with
current rental costs of approximately $5,500 per month. The CQ Systems
facilities, located in Horsham, United Kingdom are leased until June 23, 2011
for an annual rent of (pound)75,000 (approximately $131,871.15) with an early
termination option in June 2006.

Upon expiration of its leases, NetSol does not anticipate any difficulty in
obtaining renewals or alternative space.

Lahore Technology Campus

The newly built Technology Campus was inaugurated in Lahore, Pakistan in May
2004. This facility consists of 40,000 square feet of computer and general
office space. This facility is state of the art, purpose-built and fully
dedicated for IT and software development; the first of its kind in Pakistan.
Title to this facility is held by NetSol Technologies Pvt. Ltd. and is not
subject to any mortgages. The Company also signed a strategic alliance agreement
with the IT ministry of Pakistan to convert the technology campus into a
technology park. By this agreement, the IT ministry has invested early 10
million Rupees (approximately $150,000) to install fiber optic lines and improve
the bandwidth for the facility. NetSol has currently over 400 employees in this
new facility.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In 2002, Najeeb, Naeem and Salim Ghauri loaned $141,893 to the Company's
Pakistani subsidiary for business operations at the Pakistani subsidiary,
including but not limited to payroll and other office related expenses. At the
time of this loan, the Company was unable to borrow funds from any third party.
The loan accrues interest at 18% per annum and was understood to be due at such
time as the Company was able to repay it. The principal and accrued interest of
$57,776 was paid in full by offsetting funds due from the lenders as a result of
option exercises in the amount of $200,973 in November 2003.

Since 2002, Najeeb, Naeem and Salim Ghauri have deferred portions of their
salaries, receiving lower cash pay-outs. These deferred amounts have been used
by the officers to offset funds due for option exercises.

In January 2004, we entered into employment agreements with Najeeb Ghauri, Naeem
Ghauri, and Salim Ghauri. These agreements were amended effective April 1 2005.
Despite this amendment, which resulted in salary increases to all three named
employees, the employees have elected to defer the portion of the salary due for
option exercises. These agreements are discussed in the section entitled
"Executive Compensation" beginning on page 59.

In March 2004, Najeeb and Naeem Ghauri exercised options to acquire shares of
common stock of the Company. At the time of the exercise, they mistakenly
believed that sufficient funds were due to them from the Company and
compensation deferral to pay for these options. Upon the exercise, Mr. Najeeb
Ghauri owed $30,851.54 and Mr. Naeem Ghauri owed $7,249.30 to the Company. The
funds due were repaid through the normal salary deferral to the Company by the
end of May, in the case of Mr. Naeem Ghauri and, the end of August 2004, in the
case of Mr. Najeeb Ghauri

In December 2004, Najeeb, Naeem and Salim Ghauri exercised options to acquire
shares of the Company's common stock. At the time of the exercise, they
mistakenly believed that sufficient funds were due to them from compensation
deferral to pay for these options. Upon discovering that sufficient liabilities
were not available to offset the monies due for the exercise, these shares were
immediately cancelled by the Company.

In March 2005, Najeeb Ghauri executed notes dated November 28, 2003 for $80,417
and March 31, 2004 for $25,000 for the benefit of the Company to memorialize
funds due to the Company for option exercises made on November 28, 2003 and
March 31, 2004. In March 2005, Mr. Naeem Ghauri executed a note dated November
28, 2003 in the amount of $48,335 to memorialize funds due to the Company for
option exercises made on that date. In March 2005, Mr. Salim Ghauri executed a
note dated November 28, 2003 in the amount of $72,221 to memorialize funds due
to the Company for option exercises made on November 28, 2003. Messrs. Ghauri
executed these notes on the mistaken belief that these funds were due to the
Company for these option exercises. A subsequent review of funds loaned by the
officers to the Company and due to the officers for deferred compensation and
bonuses demonstrated that the amounts represented by these notes were not due by
these officers. Accordingly, as the notes do not reflect the amount owed, if
any, and are based on a mistaken belief of both the officers and the Company,
these notes have been voided effective July 2005.

In July 2005, the Company's Board of Directors approved compensation for service
on the Board. This compensation is discussed in the sections entitled "Executive
Compensation" and "Compensation of Directors" beginning on pages 53 and 56
respectively.

In July 2005, the Board also approved compensation for service on the Audit,
Compensation and Nominating and Corporate Governance Committees. This
compensation is discussed in sections entitled "Compensation of Directors"
beginning on page 56.

In July 2005, the independent members of the Board of directors awarded a
performance bonus of $50,000 each to Messrs. Najeeb, Naeem and Salim Ghauri in
connection with the Company's performance for the fiscal year ended June 30,
2005.

The Company's management believes that the terms of these transactions were no
less favorable to us than would have been obtained from an unaffiliated third
party in similar transactions. Certain of the transactions, such as the exercise
of options by Company employees against salary and other funds due are
unavailable to unaffiliated third parties. However, the Company believes that
such transactions are favorable to the Company in that the Company, which has
traditionally been in a cash poor position, has not been required to use cash
resources to pay salaries, expense reimbursements or loans. All future
transactions with affiliates will be on terms no less favorable than could be
obtained from unaffiliated third parties, and will be approved by a majority of
the disinterested directors. Nevertheless, the errors related to the March 2004
and December 2004 transactions may constitute violations of Section 13(k)(1) of
the Securities and Exchange Act of 1934, as amended (the "Exchange Act") by the
Company and/or the named officers. A possible violation of Section 13(k)(1) of
the Exchange Act may result in an investigation by the SEC. Violations of
Section 13(k) (1) of the Exchange Act may expose the Company and the named
officers to possible civil and criminal penalties.

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION - Common stock of NetSol Technologies, Inc. is listed and
traded on the NASDAQ SmallCap Market under the ticker symbol "NTWK."

The table shows the high and low intra-day prices of our common stock as
reported on the composite tape of the NASDAQ for each quarter during the last
two fiscal years. Per share stock prices have been adjusted to reflect the 1 for
5 reverse stock split which occurred in August 2003.

2003-04 2004-05 2005-06
----------- ----------- -----------
High Low High Low High Low
---- ---- ---- ---- ---- ----
1st (ended September 30) 5.50 1.94 1.99 1.09 2.36 1.65

2nd (ended December 31) 3.16 2.05 2.71 1.14

3rd (ended March 31) 3.15 2.07 2.67 1.82

4th (ended June 30) 3.09 2.01 2.15 1.84

RECORD HOLDERS - As of December 16, 2005, the number of holders of record of our
common stock was 165. As of December 16, 2005, there were 14,093,711 shares of
common stock issued and outstanding.

DIVIDENDS - We have not paid dividends on its Common Stock in the past and do
not anticipate doing so in the foreseeable future. We currently intend to retain
future earnings, if any, to fund the development and growth of its business.

EXECUTIVE COMPENSATION

The Summary Compensation Table shows certain compensation information for
services rendered in all capacities during each of the last three fiscal years
by the executive officers of NetSol who received compensation of, or in excess
of, $100,000 during the fiscal year ended June 30, 2005. The following
information for the officers includes the dollar value of base salaries, bonus
awards, the number of stock options granted and certain other compensation, if
any, whether paid or deferred.

SUMMARY COMPENSATION TABLE

Annual Compensation(1) Long Term Compensation
----------------------- ------------------------------
Long Term
Compensation
Awards (2) Securities
Fiscal Restricted Underlying
Year Stock Options/
Name and Principal Position Ended Salary Bonus Awards(3) SARs (4)
------------------------------------ ------ -------- -------- ------------- ----------

Najeeb U. Ghauri, Chairman, Director 2005 $250,000 -0- -0- 500,000(10)
500,000(11)

2004 $200,000 -0- -0- 50,000(5)
50,000(6)
25,000(7)
20,000(8)
30,000(9)

2003 $120,000 -0- -0- -0-

Naeem Ghauri, CEO, Director 2005 $280,000(12) -0- -0- 500,000(10)
500,000(11)

2004 $207,900 -0- -0- 50,000(5)
50,000(6)
25,000(7)
20,000(8)
30,000(9)

2003 $125,000 -0- -0- -0-

Salim Ghauri, President, Director 2005 $150,000 -0- -0- 500,000(10)
500,000(11)

2004 $110,000 -0- -0- 50,000(5)
50,000(6)
25,000(7)
20,000(8)
30,000(9)

2003 $100,000 -0- -0- -0-

Patti L. W. McGlasson, Secretary, 2005 $100,000 $10,000
Corporate Counsel
2004 $ 82,000 5,000(13) 5,000(14)
5,000(15)
20,000(8)
30,000(9)

(1) Other than as stated, no officers received any bonus or other annual
compensation other than salaries during fiscal 2005 or any benefits other than
those available to all other employees that are required to be disclosed. These
amounts are not inclusive of automobile allowances, where applicable.

(2) No officers received any long-term incentive plan (LTIP) payouts or other
payouts during fiscal years 2004, 2003 or 2002.

(3) All stock awards are shares of our Common Stock.

(4) All securities underlying options are shares of our Common Stock. We have
not granted any stock appreciation rights. No options were granted to the named
executive officers in fiscal year 2003. Options are reflected in post-reverse
split numbers. All options are currently exercisable or may be exercised within
sixty (60) days of the date of this prospectus and are fully vested.

(5) Includes options to purchase 50,000 shares of our common stock granted on
January 1, 2004 at the exercise price of $2.21 per share. These options must be
exercised within five years after the grant date.

(6) Includes options to purchase 50,000 shares of our common stock granted on
January 1, 2004 at the exercise price of $3.75 per share. These options must be
exercised within five years after the grant date.

(7) Includes options to purchase 12,500 shares of our common stock at $5.00 per
share. These options must be exercised within five years after the grant date.

(8) Includes options to purchase 20,000 shares of our common stock at $2.65 per
share. These options must be exercised within five years after the grant date.

(9) Includes options to purchase 30,000 shares of our common stock at $5.00 per
share. These options must be exercised within five years after the grant date.

(10) Includes options to purchase 500,000 shares of our common stock granted on
April 1, 2005 at the exercise price of $1.94 per share. 25% of these options
vest each quarter beginning on the quarter ended June 30, 2005. Options must be
exercised within five years after the grant date.

(11) Includes options to purchase 500,000 shares of our common stock granted on
April 1, 2005 at the exercise price of $2.91 per share. 25% of these options
vest each quarter beginning on the quarter ended June 30, 2005.

(12) Mr. Ghauri salary is 160,000 British Pounds Sterling. The total in this
table reflects a conversion rate of 1.75 dollars per pound.

(13) In May 2004, Ms. McGlasson received 5,000 shares of common stock as a
performance bonus arising out of her services as counsel for the Company.

(14) Includes options to purchase 5,000 shares of common stock at the exercise
price of the lesser of the $2.30 or the market price of the shares on the date
of exercise less $2.00.

(15) Includes options to purchase 5,000 shares of common stock at the exercise
price of $3.00 per share.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES

Number of Value of
Unexercised unexercised
Options/SARs in-the-money
at fiscal at fiscal
year end(##) year end($)
Shares Acquired Value Exercisable(2)/ Exercisable(2)/
Name on Exercise(#) Realized(1)($) Unexercisable Unexercisable
--------------------------- --------------- -------------- --------------- ---------------

Najeeb Ghauri, CFO , 120,000 $0.00 550,000/750,000 $0.00/$0.00
Director , Chairman

Salim Ghauri, President, 107,500 $0.00 550,000/750,000 $0.00/$0.00
Director

Naeem Ghauri, CEO, Director 102,770 $0.00 510,000/750,000 $0.00/$0.00

Patti L. W. McGlasson, 10,000 $0.00 60,000/0.00 $0.00/$0.00
Secretary
Corporate Counsel

(1) The closing price of the stock at the June 30, 2005, Fiscal Year End
was $1.879.
(2) All options are currently exercisable.

EMPLOYMENT AGREEMENTS

Effective January 1, 2004, we entered into an employment agreement with Naeem
Ghauri as our Chief Executive Officer. The agreement is for a base term of three
years, and continues thereafter on an at will basis until terminated by either
NetSol or Mr. Ghauri. The agreement provides for a yearly salary of 110,000
pounds sterling. The agreement also provides for such additional compensation as
the Board of Directors determines is proper in recognition of Mr. Ghauri's
contributions and services to us. In addition, the agreement provides Mr. Ghauri
with options to purchase up to 100,000 shares of common stock at an exercise
price of $2.21, 100,000 shares at an exercise price of $3.75 and 50,000 shares
at an exercise price of $5.00. These options vest at the rate of 25% per quarter
and are fully vested on December 31, 2004. These options expire on December 31,
2008. Mr. Ghauri also received options to purchase up to 20,000 shares at the
exercise price of $2.65 per share and options to purchase 30,000 shares at the
exercise price of $5.00 per share. These options vest immediately and are
exercisable until March 25, 2009. Effective April 1, 2005, Mr. Ghauri's
employment agreement was amended to increase his salary to (pound)160,000 per
annum (approximately $280,000 per annum based on a exchange rate of 1.75) and,
to grant him options to purchase up to 500,000 shares at the exercise price of
$1.94 per share and options to purchase 500,000 shares at the exercise price of
$2.91 per share. These options vest 25% per quarter commencing with the quarter
ending June 30, 2005.

Effective January 1, 2004, we entered into an employment agreement with Najeeb
Ghauri as Chief Financial Officer. The agreement is for a base term of three
years, and continues thereafter on an at will basis until terminated by either
NetSol or Mr. Ghauri. The agreement provides for a yearly salary of $200,000.
The agreement also provides for such additional compensation as the Board of
Directors determines is proper in recognition of Mr. Ghauri's contributions and
services to us. In addition, the agreement provides Mr. Ghauri with options to
purchase up to 100,000 shares of common stock at an exercise price of $2.21,
100,000 shares at an exercise price of $3.75 and 50,000 shares at an exercise
price of $5.00. These options vest at the rate of 25% per quarter and are fully
vested on December 31, 2004. These options expire on December 31, 2008. Mr.
Ghauri also received options to purchase up to 20,000 shares at the exercise
price of $2.65 per share and options to purchase 30,000 shares at the exercise
price of $5.00 per share. These options vest immediately and are exercisable
until March 25, 2009. Effective April 1, 2005, Mr. Ghauri's employment agreement
was amended to increase his salary to $250,000 per annum and to grant him
options to purchase up to 500,000 shares at the exercise price of $1.94 per
share and options to purchase 500,000 shares at the exercise price of $2.91 per
share. These options vest 25% per quarter commencing with the quarter ending
June 30, 2005.

Effective January 1, 2004, we entered into an employment agreement with Salim
Ghauri as the President and Chief Executive Officer our Pakistan subsidiary. The
agreement is for a base term of three years, and continues thereafter on an at
will basis until terminated by either us or Mr. Ghauri. The agreement provides
for a yearly salary of $110,000. The agreement also provides for such additional
compensation as the Board of Directors determines is proper in recognition of
Mr. Ghauri's contributions and services to us. In addition, the agreement
provides Mr. Ghauri with options to purchase up to 100,000 shares of common
stock at an exercise price of $2.21, 100,000 shares at an exercise price of
$3.75 and 50,000 shares at an exercise price of $5.00. These options vest at the
rate of 25% per quarter and are fully vested on December 31, 2004. These options
expire on December 31, 2008. Mr. Ghauri also received options to purchase up to
20,000 shares at the exercise price of $2.65 per share and options to purchase
30,000 shares at the exercise price of $5.00 per share. These options vest
immediately and are exercisable until March 25, 2009. Effective April 1, 2005,
Mr. Ghauri's employment agreement was amended to increase his salary to $150,000
per annum and to grant him options to purchase up to 500,000 shares at the
exercise price of $1.94 per share and options to purchase 500,000 shares at the
exercise price of $2.91 per share. These options vest 25% per quarter commencing
with the quarter ending June 30, 2005

Effective January 1, 2004, we entered into an employment agreement with Patti L.
W. McGlasson as legal counsel. Her agreement was amended effective May 1, 2005
to provide a yearly salary of $100,000. Ms. McGlasson also received options to
purchase up to 10,000 shares of common stock at an exercise price equal to the
lesser of $2.30 or the market price of the shares on the date of exercise less
$2.00. These options vest at the rate of 25% per quarter and are exercisable
until December 31, 2008. Effective March 26, 2004, Ms. McGlasson was elected to
the position of Secretary. In connection with her role as Secretary, Ms.
McGlasson received options to purchase up to 10,000 shares of common stock at
$3.00 per share. These options vest at the rate of 25% per quarter and are
exercisable until December 31, 2008. Ms. McGlasson also received options to
purchase up to 20,000 shares at the exercise price of $2.65 per share and
options to purchase 30,000 shares at the exercise price of $5.00 per share.
These options vest immediately and are exercisable until March 25, 2009.

All of the above agreements provide for certain paid benefits such as employee
benefit plans and medical care plans at such times as we may adopt them. The
agreements also provide for reimbursement of reasonable business-related
expenses and for two weeks of paid vacation. The agreements also provide for
certain covenants concerning non-competition, non-disclosure, indemnity and
assignment of intellectual property rights. NetSol currently has two incentive
and nonstatutory stock option plans in force for 2001, 2002 and 2003 and two
other plans from 1997 and 1999. No options have been issued under the 1997 and
1999 plans in the past two fiscal years.

The 2001 plan authorizes the issuance of up to 2,000,000 options to purchase
common stock of which 1,985,000 have been granted. The grant prices range
between $.75 and $2.50.

The 2002 plan authorizes the issuance of up to 2,000,000 options to purchase
common stock of which 1,418,000 options have been granted. The grant prices
range between $2.21 and $5.00.

In March 2004, our shareholders approved the 2003 stock option plan. This plan
authorizes up to 2,000,000 options to purchase common stock of which 876,500
have been granted. The grant prices range between $2.64 and $5.00.

In March 2005, our shareholders approved the 2004 stock option plan. This plan
authorizes up to 5,000,000 options to purchase common stock of which 3,109,833
have been granted. The grant prices range between $1.50 and $2.91.

COMPENSATION OF DIRECTORS

For the 2004 term, Non-Management members of the Board of Directors of the
Company receive cash compensation of $2,000 for each face to face meeting and
$1,000 for each board teleconference meeting with a minimum duration of two
hours. Each board member is to receive 2,000 shares of restricted common stock
upon completion of the 2004 term and options to purchase up to 20,000 shares at
the exercise price of $2.64 and options to acquire up to 30,000 shares at the
exercise price of $5.00 per share. The options vest and are exercisable
immediately.

For the 2004 term, Management members of the Board of Directors of the Company
receive no cash compensation for meeting attendance but are granted options to a
purchase up to 20,000 shares at the exercise price of $2.64 and options to
acquire up to 30,000 shares at the exercise price of $5.00 per share. The
options vest and are exercisable immediately.

For the 2005 term, Management members of the Board of Directors of the Company,
which includes Mr. Najeeb Ghauri, receive no compensation for meeting
attendance. However, non-management members of the Board receive cash
compensation of $5,000 and options to purchase 25,000 shares of common stock at
the exercise price of $1.93 and options to acquire up to 25,000 shares at the
exercise price of $2.89. The options vest and are exercisable immediately.

All directors are entitled to reimbursement of approved business expenses.

The Audit Committee Chairman receives $5,000 per quarter as earned, and 5,000
shares of restricted common stock issuable upon completion of the 2005 term. The
Compensation Committee Chairman receives $4,000 per quarter as earned, and 5,000
shares of restricted common stock issuable upon completion of the 2005 term. The
Nominating and Corporate Governance Chairman receives $3,000 per quarter as
earned, and 5,000 shares of restricted common stock issuable upon completion of
the 2005 term. Each member of the Audit, Nominating and Corporate Governance and
Compensation Committee shall also receive $1,250 per meeting.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

Kabani & Company's report on NetSol's financial statements for the fiscal years
ended June 30, 2004 and June 30, 2005, did not contain an adverse opinion or
disclaimer of opinion, and was not qualified or modified as to uncertainty,
audit scope, or accounting principles, except for a going concern uncertainty in
June 30, 2004.

In connection with the audit of NetSol's financial statements for the fiscal
years ended June 30, 2004 and June 30, 2005 there were no disagreements,
disputes, or differences of opinion with Kabani & Company on any matters of
accounting principles or practices, financial statement disclosure, or auditing
scope and procedures, which, if not resolved to the satisfaction of Kabani &
Company would have caused Kabani & Company to make reference to the matter in
its report.

Saeed Kamran Patel & Co.'s report on NetSol's financial statements for the
fiscal years ended June 30, 2004 and June 30, 2005, did not contain an adverse
opinion or disclaimer of opinion, and was not qualified or modified as to
uncertainty, audit scope, or accounting principles.

In connection with the audit of NetSol's financial statements for the fiscal
years ended June 30, 2004 and June 30, 2005 there were no disagreements,
disputes, or differences of opinion with Saeed Kamran Patel & Co. on any matters
of accounting principles or practices, financial statement disclosure, or
auditing scope and procedures, which, if not resolved to the satisfaction of
Saeed Kamran Patel & Co. would have caused it to make reference to the matter in
its report.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the Securities and Exchange Commission a registration
statement on Form SB-2 under the Securities Act, and the rules and regulations
promulgated thereunder, with respect to the common stock offered hereby. This
prospectus, which constitutes a part of the registration statement, does not
contain all of the information set forth in the registration statement and the
exhibits thereto. Statements contained in this prospectus as to the contents of
any contract or other document that is filed as an exhibit to the registration
statement are not necessarily complete and each such statement is qualified in
all respects by reference to the full text of such contract or document. For
further information with respect to us and the common stock, reference is hereby
made to the registration statement and the exhibits thereto, which may be
inspected and copied at the principal office of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, and copies of all or any part thereof may
be obtained at prescribed rates from the Commission's Public Reference Section
at such addresses. Also, the Commission maintains a World Wide Web site on the
Internet at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission.

We are in compliance with the information and periodic reporting requirements of
the Exchange Act and, in accordance therewith, will file periodic reports, proxy
and information statements and other information with the Commission. Such
periodic reports, proxy and information statements and other information will be
available for inspection and copying at the principal office, public reference
facilities and Web site of the Commission referred to above.

FINANCIAL STATEMENTS

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET -- SEPTEMBER 30, 2005
(UNAUDITED)

ASSETS

CURRENT ASSETS:
Cash and cash equivalents $ 1,469,154
Certificates of deposit 2,487,577
Accounts receivable, net of allowance for doubtful accounts of $80,000 4,029,616
Revenues in excess of billings 3,018,048
Other current assets 1,603,439
------------
Total current assets 12,607,834
PROPERTY AND EQUIPMENT, net of accumulated depreciation 5,655,543
INTANGIBLES:
Product licenses, renewals, enhancedments, copyrights,
trademarks, and tradenames, net 4,811,643
Customer lists, net 1,397,837
Goodwill 1,166,611
------------
Total intangibles 7,376,091
------------
TOTAL ASSETS $ 25,639,468
============

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 2,524,249
Current portion of notes and obligations under capitalized leases 1,087,110
Billings in excess of revenues 125,185
Due to officers 50,657
Deferred liability 313,397
Loans payable, bank 462,186
------------
Total current liabilities 4,562,784
OBLIGATIONS UNDER CAPITALIZED LEASES, less current maturities 142,647
CONVERTIBLE DEBENTURE 94,745
------------
TOTAL LIABILITIES 4,800,176
MINORITY INTEREST 1,067,406
COMMITMENTS AND CONTINGENCIES --

STOCKHOLDERS' EQUITY:
Common stock, $.001 par value; 25,000,000 share authorized;
13,953,266 issued and outstanding 13,953
Additional paid-in-capital 50,794,633
Treasury stock (27,197)
Accumulated deficit (30,115,240)
Stock subscription receivable (377,338)
Common stock to be issued 124,586
Other comprehensive loss (641,511)
------------
TOTAL STOCKHOLDERS' EQUITY 19,771,886
------------
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 25,639,468
============

See accompanying notes to the unaudited consolidated financial statements.

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

For the Three Months
Ended September 30,
2005 2004
------------ ------------
(restated)

NET REVENUES $ 4,469,985 $ 2,058,305
COST OF REVENUES 1,667,350 762,268
------------ ------------
GROSS PROFIT 2,802,635 1,296,037

OPERATING EXPENSES:
Selling and marketing 318,864 119,348
Depreciation and amortization 552,531 295,537
Settlement costs 15,953 --
Salaries and wages 536,376 347,237
Professional services, including non-cash
compensation 123,158 114,334
General and adminstrative 583,547 277,515
------------ ------------
Total operating expenses 2,130,429 1,153,971
------------ ------------
INCOME FROM OPERATIONS 672,206 142,066
OTHER INCOME AND (EXPENSES)
Gain (loss) on sale of assets 391 (620)
Beneficial conversion feature (6,569) (37,500)
Fair market value of options and warrants issued (9,489) (28,024)
Gain on forgiveness of debt 3,641 50,274
Interest expense (79,023) (21,575)
Interest income 84,412 --
Other income and (expenses) (32,503) 21,558
Income taxes (62,108) (1,514)
------------ ------------
Total other expenses (101,248) (17,401)
------------ ------------
NET INCOME BEFORE MINORITY INTEREST IN SUB SUBSIDIARY 570,958 124,665
MINORITY INTEREST IN SUBSIDIARY (367,213) 15,068
------------ ------------
NET INCOME 203,745 139,733
OTHER COMPREHENSIVE LOSS:
Translation adjustment (120,820) (118,378)
------------ ------------
COMPREHENSIVE INCOME $ 82,925 $ 21,355
============ ============

NET INCOME PER SHARE:
Basic $ 0.01 $ 0.01
============ ============
Diluted $ 0.01 $ 0.01
============ ============

Weighted average number of shares outstanding
Basic 13,897,883 9,504,789
Diluted 14,246,614 12,065,735

See accompanying notes to the unaudited consolidated financial statements.

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

For the Three Months
Ended September 30,
2005 2004
----------- -----------
(restated)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income from continuing operations $ 203,745 $ 139,733
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 644,733 374,199
Gain on settlement of debt (3,641) (50,274)
(Gain) loss on sale of assets (391) 620
Minority interest in subsidiary 367,213 (15,068)
Stock issued for services 60,856 25,745
Fair market value of warrants and stock options granted 9,489 28,024
Beneficial conversion feature 6,569 37,500
CHANGES IN OPERATING ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ASSETS:
Accounts receivable (123,256) (214,527)
Other current assets (1,731,193) (824,020)
DECREASE IN LIABILITIES:
Accounts payable and accrued expenses (540,968) (564,159)
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (1,106,844) (1,062,227)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (817,676) (213,990)
Sales of property and equipment 91,046 86,988
Purchases of certificates of deposit (2,282,097) --
Proceeds from sale of certificates of deposit -- 250,000
Increase in intangible assets - development costs (211,844) (77,990)
Capital investments in minority interest of subsidiary -- 191,606
Proceeeds from sale of minority interest of subsidiary -- --
----------- -----------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (3,220,571) 236,614
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock -- 220,000
Proceeds from the exercise of stock options 288,062 --
Capital contributed from sale of subsidiary stock 4,031,001 --
Purchase of treasury shares -- (51,704)
Proceeds from loans -- --
Capital lease obligations & loans 0 net 91,236 (30,967)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,410,299 137,329
EFFECT OF EXCHANGE RATE CHANGES IN CASH 14,543 21,973
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 97,427 (666,311)
Cash and cash equivalents, beginning of period 1,371,727 871,161
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,469,154 $ 204,850
=========== ===========

See accompanying notes to the unaudited consolidated financial statements.

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)

For the Three Months
Ended September 30,
2005 2004

SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest $ 57,398 $ 21,575
======== ========
Taxes $ -- $ 1,514
======== ========

NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued for services and compensation $ 60,855 $111,920
======== ========
Common stock issued for conversion of convertible debenture $ 50,000 $150,000
======== ========
Common stock issued for settlement of debt $ -- $ 45,965
======== ========

See accompanying notes to the unaudited consolidated financial statements.

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

The Company designs, develops, markets, and exports proprietary software
products to customers in the automobile finance and leasing, banking and
financial services industries worldwide. The Company also provides consulting
services in exchange for fees from customers.

The consolidated condensed interim financial statements included herein have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information presented not
misleading.

These statements reflect all adjustments, consisting of normal recurring
adjustments, which, in the opinion of management, are necessary for fair
presentation of the information contained therein. It is suggested that these
consolidated condensed financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's annual report
on Form 10-KSB for the year ended June 30, 2005. The Company follows the same
accounting policies in preparation of interim reports. Results of operations for
the interim periods are not indicative of annual results.

The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries, NetSol (Pvt), Limited ("PK Private"),
NetSol Technologies Limited ("UK"), NetSol-Abraxas Australia Pty Ltd.
("Abraxas"), NetSol Altvia, Inc. ("USA"), CQ Systems Limited ("CQ"), and its
majority-owned subsidiaries, NetSol Technologies (Pvt), Ltd.("PK Tech"), NetSol
Connect (Pvt), Ltd. ("Connect"), and TIG-NetSol (Pvt) Limited ("TIG"). All
material inter-company accounts have been eliminated in consolidation.

For comparative purposes, prior year's consolidated financial statements have
been reclassified to conform to report classifications of the current year.

NOTE 2 - USE OF ESTIMATES:

The preparation of financial statements in conformity with generally accepted
accounting principles in the United States, requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

NOTE 3 - NEW ACCOUNTING PRONOUNCEMENTS:

In December 2004, the FASB issued FASB Statement No. 123R, "Share-Based Payment,
an Amendment of FASB Statement No. 123" ("FAS No. 123R"). FAS No. 123R requires
companies to recognize in the statement of operations the grant- date fair value
of stock options and other equity-based compensation issued to employees. FAS
No. 123R is effective beginning in the Company's first quarter of fiscal 2006.
The Company is evaluating the effects adoption of SFAS 123R will have on its
financial statements.

In December 2004, the FASB issued SFAS Statement No. 153, "Exchanges of
Non-monetary Assets." The Statement is an amendment of APB Opinion No. 29 to
eliminate the exception for non-monetary exchanges of similar productive assets
and replaces it with a general exception for exchanges of non-monetary assets
that do not have commercial substance. The Company believes that the adoption of
this standard will have no material impact on its financial statements.

In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections." This statement applies to all voluntary changes in accounting
principle and requires retrospective application to prior period's financial
statements of changes in accounting principle, unless this would be
impracticable. This statement also makes a distinction between "retrospective
application" of an accounting principle and the "restatement" of financial
statements to reflect the correction of an error. This statement is effective
for accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005. The Company believes that the adoption of this standard
will have no material impact on its financial statements.

NOTE 4 - EARNINGS PER SHARE:

"Earnings per share" is calculated in accordance with the Statement of financial
accounting standards No. 128 (SFAS No. 128), "Earnings per share". Basic net
income per share is based upon the weighted average number of common shares
outstanding. Diluted net income per share is based on the assumption that all
dilutive convertible shares and stock options were converted or exercised.
Dilution is computed by applying the treasury stock method. Under this method,
options and warrants are assumed to be exercised at the beginning of the period
(or at the time of issuance, if later), and as if funds obtained thereby were
used to purchase common stock at the average market price during the period.

The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations:

---------------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005 NET INCOME SHARES PER SHARE
---------------------------------------------------------------------------------------------

Basic earnings per share: $ 203,745 13,897,883 $ 0.01
Net income available to common shareholders
Effect of dilutive securities
Stock options 347,064
Warrants 1,667
---------- ---------- ---------
Diluted earnings per share $ 203,745 14,246,614 $ 0.01
========== ========== =========

---------------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004 NET INCOME SHARES PER SHARE
---------------------------------------------------------------------------------------------
Basic earnings per share: $ 139,733 9,504,789 $ 0.01
Net income available to common shareholders
Effect of dilutive securities
Stock options 1,852,277
Warrants 708,668
---------- ----------- ---------
Diluted earnings per share $ 139,733 12,065,734 $ 0.01
========== =========== =========

NOTE 5 - FOREIGN CURRENCY:

The accounts of NetSol Technologies UK, Ltd., and CQ Systems Ltd. use the
British Pound; NetSol Technologies, (PVT), Ltd, NetSol (Pvt), Limited, NetSol
Connect PVT, Ltd., and NetSol-TiG, use Pakistan Rupees; and NetSol Abraxas
Australia Pty, Ltd. uses the Australian dollar as the functional currencies.
NetSol Technologies, Inc., and subsidiary NetSol USA, Inc., use the U.S. dollars
as the functional currencies. Assets and liabilities are translated at the
exchange rate on the balance sheet date, and operating results are translated at
the average exchange rate throughout the period. Accumulated translation losses
of $641,511 at September 30, 2005 are classified as an item of accumulated other
comprehensive loss in the stockholders' equity section of the consolidated
balance sheet. During the three months ended September 30, 2005 and 2004,
comprehensive loss in the consolidated statements of operation included
translation loss of $120,820 and $118,378, respectively.

NOTE 6 - OTHER CURRENT ASSETS

Other current assets consist of the following at September 30, 2005:

Prepaid Expenses $ 929,967
Advance Income Tax 159,670
Employee Advances 41,574
Security Deposits 68,018
Other Receivables 313,707
Other Assets 90,503

----------
Total $1,603,439
==========

In August 2004, the Company entered into a two-year consulting agreement with a
non-related third party whereby the Company agreed to pay the consultant a total
of 100,000 shares of its common stock valued at $111,920. This has been recorded
as a prepaid expense and is being amortized over the life of the service
agreement. During the quarter ended September 30, 2005 and 2004, $13,990 and
$6,995 was expensed, respectively.

NOTE 7 - DEBTS

NOTES PAYABLE

Notes payable as of September 30, 2005 consist of the following:

--------------------------------------------------------------------------
Balance at Current Long-Term
Name 9/30/05 Maturities Maturities
--------------------------------------------------------------------------
A. Zaman Settlement $ 16,300 $ 16,300 $ -
D&O Insurance 12,513 12,513 -
Noon Group 531,082 531,082 -
Gulf Crown 265,541 265,541 -
Maxim Group 102,453 102,453 -
Subsidiary Capital Leases 159,221 159,221 -

------------ ------------ --------------
1,087,110 1,087,110 -
============ ============ ==============

In June 2002, the Company signed a settlement agreement with a former employee
for payment of past services rendered. The Company agreed to pay the employee a
total of $75,000. The agreement calls for monthly payments of $1,500 per month
until paid. The balance owing at June 30, 2005 and September 30, 2005 was
$16,300. The entire balance has been classified as a current liability in the
accompanying consolidated financials statements.

In January 2005, the Company renewed its director's and officer liability
insurance for which the annual premium is $138,050. In February 2005, the
Company arranged financing with AFCO Credit Corporation with a down payment of
$27,610 with the balance to be paid in monthly installments. The balance owing
as of September 30, 2005 was $12,513 and is classified as a current liability in
the accompanying consolidated financials statements.

In February 2005, the Company received a loan from Noon Group in the amount of
$500,000. The note carries an interest rate of 9.75% per annum and is due in one
year. The maturity date of the loan may be extended at the option of the holder
for an additional year. During the quarter ended September 30, 2005, $12,288 of
accrued interest was recorded for this loan. Total accrued interest added to the
loan at September 30, 2005 was $31,082.

In February 2005, the Company received a loan from Gulf Crown Investments in the
amount of $250,000. The note carries an interest rate of 9.75% per annum and is
due in one year. The maturity date of the loan may be extended at the option of
the holder for an additional year. During the quarter ended September 30, 2005,
$6,144 of accrued interest was recorded for this loan. accrued interest added to
the loan at September 30, 2005 was $15,541.

In May 2005, the Company received a loan from Maxim Group, LLC in the amount of
$250,000. The note is due on July 25, 2005 and carries an interest rate of 12%
starting on the due date and increases 1.5% per month thereafter. The note
called for $150,000 to be paid with 80,214 shares the Company's common stock and
the balance of $100,000 to be paid in cash. In May 2005, the shares were issued.
During the quarter ended September 30, 2005, $2,453 of accrued interest was
recorded for this loan. Total accrued interest added to the loan at September
30, 2005 was $2,453.

In addition, the various subsidiaries had current maturities of capital leases
of $159,221 as of September 30, 2005.

BANK NOTE

The Company's Pakistan subsidiary, NetSol Technologies (Private) Ltd., has two
loans with a bank, secured by the Company's assets. These notes consist of the
following as of September 30, 2005:

TYPE OF MATURITY INTEREST BALANCE
LOAN DATE RATE USD
-----------------------------------------------------------------------

Export Refinance Every 6 months 8% $ 238,363
Line of Credit On Demand 12% 223,823

---------
Total $ 462,186
=========

DUE TO OFFICERS

The officers of the Company from time to time loan funds to the Company in
addition to deferring compensation. As of June 30, 2005, the officers had a
balance owing to them of $47,636. Two of the officers have deferred the increase
in their wages. During the three months ended September 30, 2005, $22,500 of
accrued wages was added to the balance due to officers. In addition, $19,479 was
reimbursed to one officer against the amounts owing to him. The balance owing as
of September 30, 2005 was $50,657.

NOTE 8 - STOCKHOLDERS' EQUITY:

EQUITY TRANSACTIONS

PRIVATE PLACEMENTS

In August 2004, the Company sold 190,476 shares of the Company's common stock
for $200,000 in a private placement. Of this amount $91,500 had been received
during the fiscal year ended June 30, 2005 and a total of 87,143 shares were
issued to the purchaser. The remaining balance of $108,500 or 103,333 shares are
shown as "Shares to Be Issued" on the accompanying financial statements.

SERVICES

During the quarter ended September 30, 2005, the Company issued 2,500 restricted
Rule 144 common shares in exchange for services rendered valued at $3,822.
Compensation expense was calculated based upon the fair market value of the
freely trading shares as quoted on NASDAQ over the service period.

In July 2004, the Board of Directors and officers were granted the right to
receive shares of the Company's common stock if certain conditions were met
during their 2004 - 2005 term of office. These conditions were met and a total
of 28,000 restricted Rule 144 common shares were issued in August 2005. In
addition, 11,000 shares were recorded as "Shares to be Issued" and are valued at
$16,088. The shares were valued at the fair market value at the date of grant of
$57,034 or $1.46 per share.

ISSUANCE OF SHARES FOR CONVERSION OF DEBT

During the quarter ended September 30, 2005, one of the convertible debenture
holders elected to convert their note into common stock. The total of the note
converted was $50,000 and the Company issued 26,882 shares of its common stock
to the note holder.

OPTIONS AND WARRANTS EXERCISED

During the quarter ended September 30, 2005, the Company issued 65,000 shares of
its common stock for the exercise of options valued at $48,750.

STOCK SUBSCRIPTION RECEIVABLE

Stock subscription receivable represents stock options exercised and issued that
the Company has not yet received the payment from the purchaser as they were in
processing when the quarter ended.

The balance at June 30, 2005 was $616,650. During the quarter ended September
30, 2005, the Company received a total of $239,312 as payment on the receivable.
The balance at September 30, 2005 was $377,338.

COMMON STOCK PURCHASE WARRANTS AND OPTIONS

From time to time, the Company issues options and warrants as incentives to
employees, officers and directors, as well as to non-employees.

Common stock purchase options and warrants consisted of the following during the
three months ended September 30, 2005:

Exercise Exercise
Options Price Warrants Price
---------- -------------- ----------- --------------

Outstanding and exercisable, June 30, 2005 5,038,000 $0.75 to $5.00 655,280 $0.50 to $5.00
Granted 320,000 $1.75 to $2.89 13,441 $ 3.30
Exercised (65,000) $ 0.75 --
Expired -- --
---------- -----------
Outstanding and exercisable, September 30, 2005 5,293,000 668,721

During the quarter ended September 30, 2005, a total of 320,000 options were
granted to employees of the company and are fully vested and expire ten years
from the date of grant unless the employee terminates employment, in which case
the options expire within 30 days of their termination. The exercise price of
the options ranges from $1.75 to $2.89.

There were no options granted during the quarter ended September 30, 2004.

In compliance with FAS No. 148, the Company has elected to continue to follow
the intrinsic value method in accounting for its stock-based employee
compensation plan as defined by APB No. 25 and has made the applicable
disclosures below.

Had the Company determined employee stock based compensation cost based on a
fair value model at the grant date for its stock options under SFAS 123, the
Company's net earnings per share would have been adjusted to the pro forma
amounts for quarter ended September 30, 2005 as follows:

2005
-----------
Net income (loss) - as reported $ 203,745
Stock-based employee compensation expense,
included in reported net loss, net of tax --

Total stock-based employee compensation
expense determined under fair-value-based
method for all rewards, net of tax (388,750)

-----------
Pro forma net loss $ (185,005)
===========

Earnings per share:
Basic, as reported 0.01
Diluted, as reported 0.01

Basic, pro forma (0.01)
Diluted, pro forma (0.01)

Pro forma information regarding the effect on operations is required by SFAS
123, and has been determined as if the Company had accounted for its employee
stock options under the fair value method of that statement. Pro forma
information using the Black-Scholes method at the date of grant based on the
following assumptions:

Risk-free interest rate 3.25%
Expected life 10 years
Expected volatility 54% - 57%
Dividend yield 0%

During the quarter ended September 30, 2005, one debenture holder converted
their note into common stock. As part of the conversion, warrants to purchase a
total of 13,441 common shares were issued to the note holder. The warrants
expire in five years and have an exercise price of $3.30 per share. The warrants
were valued using the fair value method at $9,489 or $0.71 per share and
recorded the expense in the accompanying consolidated financial statements. The
Black-Scholes option pricing model used the following assumptions:

Risk-free interest rate 3.25%
Expected life 5 years
Expected volatility 56%
Dividend yield 0%

NOTE 9 - INTANGIBLE ASSETS:

Intangible assets consist of product licenses, renewals, enhancements,
copyrights, trademarks, trade names, customer lists and goodwill. The Company
evaluates intangible assets, goodwill and other long-lived assets for
impairment, at least on an annual basis and whenever events or changes in
circumstances indicate that the carrying value may not be recoverable from its
estimated future cash flows. Recoverability of intangible assets, other
long-lived assets and, goodwill is measured by comparing their net book value to
the related projected undiscounted cash flows from these assets, considering a
number of factors including past operating results, budgets, economic
projections, market trends and product development cycles. If the net book value
of the asset exceeds the related undiscounted cash flows, the asset is
considered impaired, and a second test is performed to measure the amount of
impairment loss. Potential impairment of goodwill after July 1, 2002 has been
evaluated in accordance with SFAS No. 142.

As part of intangible assets, the Company capitalizes certain computer software
development costs in accordance with SFAS No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed." Costs incurred
internally to create a computer software product or to develop an enhancement to
an existing product are charged to expense when incurred as research and
development expense until technological feasibility for the respective product
is established. Thereafter, all software development costs are capitalized and
reported at the lower of unamortized cost or net realizable value.
Capitalization ceases when the product or enhancement is available for general
release to customers.

The Company makes on-going evaluations of the recoverability of its capitalized
software projects by comparing the amount capitalized for each product to the
estimated net realizable value of the product. If such evaluations indicate that
the unamortized software development costs exceed the net realizable value, the
Company writes off the amount by which the unamortized software development
costs exceed net realizable value. Capitalized and purchased computer software
development costs are being amortized ratably based on the projected revenue
associated with the related software or on a straight-line basis over three
years, whichever method results in a higher level of amortization.

Product licenses and customer lists were comprised of the following as of
September 30, 2005:

Product Licenses Customer Lists Total

Intangible asset - June 30, 2005 $ 8,799,323 $ 3,294,757 $ 12,094,080
Additions 228,597 -- 228,597
Effect of translation adjustment (14,750) (14,750)
Accumulated amortization (4,201,528) (1,896,920) (6,098,448)
------------ ------------ ------------
Net balance - September 30, 2005 $ 4,811,642 $ 1,397,837 $ 6,209,479
============ ============ ============

Amortization expense:
Three months ended Sept. 30, 2005 $ 345,754 $ 157,155 $ 502,909
Three months ended Sept. 30, 2004 $ 200,907 $ 78,916 $ 279,823

The above amortization expense includes amounts in "Cost of Goods Sold" for
capitalized software development costs of $18,875 and $10,621 for the quarters
ended September 30, 2005 and 2004, respectively.

At September 30, 2005 and 2004, product licenses, renewals, enhancements,
copyrights, trademarks, and tradenames, included unamortized software
development and enhancement costs of $1,572,675 and $1,013,791, respectively, as
the development and enhancement is yet to be completed. Software development
amortization expense was $27,755 and $10,621 for the quarters ended September
30, 2005 and 2004, respectively.

Amortization expense of intangible assets over the next five years is as
follows:

----------------------------------------------------------------------------------------------
FISCAL PERIOD ENDING
Asset 9/30/06 9/30/07 9/30/08 9/30/09 9/30/10 TOTAL
----------------------------------------------------------------------------------------------

Product Licences $1,101,966 $ 591,872 $ 591,872 $ 563,876 $ 240,416 $3,090,002
Customer Lists 497,969 263,376 263,376 263,376 109,740 1,397,837

---------- ----------
$1,599,935 $ 855,248 $ 855,248 $ 827,252 $ 350,156 $4,487,839
========== ==========

There were no impairments of the goodwill asset in the period ended September
30, 2005 and 2004.

NOTE 10 - SEGMENT INFORMATION

The following table presents a summary of operating information and certain
year-end balance sheet information for the three months ended September 30:

2005 2004
Revenues from unaffiliated customers:
North America $ -- $ 170,134
International 4,469,985 1,888,171
------------ ------------
Consolidated $ 4,469,985 $ 2,058,305
============ ============

Operating loss:
North America $ (913,708) $ (536,290)
International 1,585,914 678,356
------------ ------------
Consolidated $ 672,206 $ 142,066
============ ============

Identifiable assets:
North America $ 5,839,916 $ 3,606,534
International 19,799,552 8,406,877
------------ ------------
Consolidated $ 25,639,468 $ 12,013,411
============ ============

Depreciation and amortization:
North America $ 482,991 $ 263,503
International 161,742 110,696
------------ ------------
Consolidated $ 644,733 $ 374,199
============ ============

Capital expenditures:
North America $ -- $ --
International 817,676 213,990
------------ ------------
Consolidated $ 817,676 $ 213,990
============ ============

NOTE 11 - MINORITY INTEREST IN SUBSIDIARY

NetSol Connect:

In August 2003, the Company entered into an agreement with United Kingdom based
Akhter Group PLC ("Akhter"). Under the terms of the agreement, Akhter Group
acquired 49.9 percent of the Company's subsidiary; Pakistan based NetSol Connect
PVT Ltd. ("Connect"), an Internet service provider ("ISP"), in Pakistan through
the issuance of additional Connect shares. As part of this Agreement, Connect
changed its name to NetSol Akhter. The new partnership with Akhter Computers is
designed to rollout connectivity and wireless services to the Pakistani national
market. On signing of this Agreement, the Shareholders agreed to make the
following investment in the Company against issuance of shares of Connect.

Akhter US$ 200,000

The Company US$ 50,000

During the quarter ended September 30, 2003, the funds were received by Connect
and a minority interest of $200,000 was recorded for Akhter's portion of the
subsidiary. During the quarter ended December 31, 2003, Akhter paid an
additional $10,000 to the Company for this purchase. Per the agreement, it was
anticipated that Connect would require a maximum of $500,000 for expansion of
its business from each partner. Akhter was to meet the initial financial
requirements of the Connect until November 1, 2003. As of December 31, 2004,
both NetSol and Akhter had injected the majority of their committed cash to meet
the expansion requirement of the company. As of June 30, 2005, a total of
$751,356 had been transferred to Connect, of which $410,781 was from Akhter.

For the quarters ended September 30, 2005 and 2004, the subsidiary had net
income of $51,538 and net losses of $30,196, respectively, of which ($25,717)
and $15,068 respectively, was recorded against the minority interest. The
balance of the minority interest at September 30, 2005 was $349,655.

NetSol-TiG:

In December 2004, NetSol forged a formed a joint venture with with a UK based
public company TIG Plc. A new Joint Venture agreement was signed by the two
companies to create a new company, TiG NetSol Pvt Ltd. ("NetSol-TiG"), with
50.1% ownership by NetSol Technologies, Inc. and 49.9% ownership by TiG. The
agreement anticipates TiG's technology business to be outsourced to NetSol's
offshore development facility. Both companies, according to this agreement,
would invest a total of $1 million or $500,000 each in next few months for
infrastructure, dedicated personnel and systems in the NetSol IT campus in
Lahore.

During the year ended June 30, 2005, the Company invested $253,635 and TiG
invested $251,626 and the new subsidiary began operations.

For the quarter ended September 30, 2005, the subsidiary had net income of
$240,166, of which $119,843 was recorded against the minority interest. The
balance of the minority interest at September 30, 2005 was $496,098.

NetSol Technologies, Limited ("PK Tech")

In August 2005, the Company's wholly-owned subsidiary, NetSol Technologies
(Pvt), Ltd. ("PK Tech") became listed on the Karachi Stock Exchange in Pakistan.
The Initial Public Offering ("IPO") sold 9,982,000 shares of the subsidiary to
the public thus reducing the Company's ownership by 28.13%. Net proceeds of the
IPO were $4,890,224. As a result of the IPO, the Company is required to show the
minority interest of the subsidiary on the accompanying consolidated financial
statements.

For the quarter ended September 30, 2005, the subsidiary had net income of
$787,960, of which $221,653 was recorded against the minority interest. The
balance of the minority interest at September 30, 2005 was $221,653.

NOTE 12 - CONVERTIBLE DEBENTURE

On March 24, 2004, the Company entered into an agreement with several investors
to acquire Series A Convertible Debentures (the "Bridge Loan") whereby a total
of $1,200,000 in debentures were procured through Maxim Group, LLC. The Company
received a net of $1,049,946 after placement expenses. In addition, the
beneficial conversion feature of the debenture was valued at $252,257. The
Company has recorded this as a contra-account against the loan balance and is
amortizing the beneficial conversion feature over the life of the loan. The net
balance at September 30, 2005, is $94,745.

Under the terms of the Bridge Loan agreements, and supplements thereto, the
debentures bear interest at the rate of 10% per annum, payable on a quarterly
basis in common stock or cash at the election of the Company. The maturity date
is 24 months from the date of signing, or March 26, 2006. Pursuant to the terms
of a supplemental agreement dated May 5, 2004 between NetSol and the debenture
holders, the conversion rate was set at one share for each $1.86 of principal.

During the quarter ended September 30, 2005, one of the convertible debenture
holders elected to convert its note into common stock. The total of the note
converted was $50,000 and the Company issued 26,882 shares of its common stock
to the note holder.

In addition, each debenture holder is entitled to receive at the time of
conversion warrants equal to one-half of the total number of shares issued. The
total number of warrants that may be granted is 322,582. The warrants expire in
five years and have an exercise price of $3.30 per share. The fair value of the
warrants will be calculated and recorded using the Black-Scholes method at the
time of granting, when the debenture is converted. During the three months ended
September 30, 2005, one debenture holders converted its note into common stock.
As part of the conversion, warrants to purchase a total of 13,441 common shares
were issued to the note holders. The warrants were valued using the fair value
method at $9,489 and was recorded as an expense in the accompanying consolidated
financial statements.

NOTE 13 - GAIN ON SETTLEMENT OF DEBT

In September 2004, the Company transferred 24,004 of its treasury shares valued
at $45,965 to Brobeck Phleger & Harrison, LLC, in exchange of debt, as part of
the settlement agreement. The Company recorded a gain of $8,285 on the
settlement.

During the quarter ended September 30, 2004, the Company evaluated the
liabilities of its discontinued operations and determined that $41,989 was no
longer payable. The Company recorded a gain of $41,989 as a result of the
write-off of these liabilities from its financial statements.

NOTE 14 - ACQUISITION OF CQ SYSTEMS

The following is the proforma financial information of the Company for the three
months ended September 30, 2004 assuming the transaction had been consummated at
the beginning of the fiscal year ended June 30, 2005:

For the three
months ended
Sept. 30, 2004
(Unaudited)
STATEMENT OF OPERATIONS:
Revenues $3,188,757
Cost of Sales 1,503,358
----------
Gross Profit 1,685,399

Operating Expenses 1,567,915
----------
Income (loss) from operations 117,484

Other income and (expenses) 1,991
----------
Income (loss) before minority interest 119,475
Minority interest in subsidiary 15,068
----------
Net Income (loss) $ 134,543
==========

Earnings Per Share:
Basic $ 0.01
Diluted $ 0.01

NOTE 15 - SUBSEQUENT EVENTS

In October 2005, the note payable and related accrued interest to Maxim was
settled with $50,000 cash and 36,607 shares of the Company's common stock with a
fair market value of $68,453. In addition, 27,231 shares with a fair market
value of $50,923 was issued for the payment of past due invoices. There was no
gain or loss recorded on this transaction.

NOTE 16 - RESTATEMENT

Subsequent to the issuance of the Company's financial statements as of and for
the three months ended September 30, 2004, the Company determined that certain
transactions and presentation in the financial statements had not been accounted
for properly in the Company's financial statements. Specifically, the amount of
impairment of goodwill was over-recorded and classified as amortization expense.
In addition, the beneficial conversion feature of the convertible debenture was
overstated and loans to officers hadn't been properly reflected on the financial
statements and the exercise of options against these loans had been recorded as
receivables as of June 30, 2004.

The Company has restated its financial statements for these adjustments as of
September 30, 2004.

The effect of the correction of the error is as follows:

AS
PREVIOUSLY AS
REPORTED RESTATED
------------ ------------

BALANCE SHEET
As of September 30, 2004
Assets:
Other current assets $ 718,134 $ 708,773
Goodwill $ 831,594 $ 1,166,612
Total intangibles $ 3,731,015 $ 4,066,033
Total assets $ 11,687,755 $ 12,013,411

Liabilities:
Due to officers $ -- $ 35,969
Convertible debenture payable $ 825,000 $ 872,743
Total liabilities $ 3,674,844 $ 3,758,555

Stockholder's Equity:
Additional paid-in capital $ 39,621,500 $ 39,343,344
Stock subscription receivable $ (458,809) $ (313,650)
Other comprehensive loss $ (233,899) $ (357,250)
Accumulated deficit $(31,340,872) $(30,842,579)
Total stockholder's equity $ 7,826,296 $ 8,068,241

STATEMENT OF OPERATIONS:
For the three months ended
September 30, 2004
Cost of revenues $ 751,647 $ 762,268
Gross profit $ 1,306,658 $ 1,296,037
Depreciation and amortization $ 413,824 $ 295,537
Total operating expenses $ 1,272,258 $ 1,153,971

Income (loss) from operations $ 34,400 $ 142,066
Other income and (expense) $ 22,335 $ 20,044
Net income (loss) $ 34,358 $ 139,733

Net income (loss) per share:
Basic $ 0.00 $ 0.01
Diluted $ 0.00 $ 0.01

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Description Page
----------- ----

Report of Independent Registered Public Accounting Firm......................F-2

Auditor's Report to the Members..............................................F-3

Consolidated Balance Sheet as of June 30, 2005...............................F-6

Consolidated Statements of Operations for the Years
Ended June 30, 2005 and 2004.................................................F-4

Consolidated Statements of Stockholders' Equity for the Years
Ended June 30, 2005 and 2004.................................................F-5

Consolidated Statements of Cash Flows for the Years Ended
June 30, 2005 and 2004.......................................................F-7

Notes to Consolidated Financial Statements...................................F-9

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors
NetSol Technologies, Inc. and subsidiaries
Calabasas, California

We have audited the accompanying consolidated balance sheet of NetSol
Technologies, Inc. and subsidiaries as of June 30, 2005, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended June 30, 2005 and 2004. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We did
not audit the financial statements of NetSol Technologies (PVT) Limited, NetSol
(PVT) Limited and NetSol Connect (PVT) Limited, whose statements reflect
combined total assets of approximately $10,904,416as of June 30, 2005 and
combined total net revenues of $8,477,219 and $4,452,435 for the years ended
June 30, 2005 and 2004, respectively. Those statements were audited by other
auditors whose reports have been furnished to us, and in our opinion, insofar as
it relates to the amounts included for NetSol Technologies (PVT) Limited, NetSol
(PVT) Limited and NetSol Connect (PVT) Limited, for the years ended June 30,
2005 and 2004, is based solely on the report of the other auditors.

We conducted our audit of these statements in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit and the report of the other auditors provide a reasonable basis for our
opinion.

In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of NetSol Technologies,
Inc. and subsidiaries as of June 30, 2005 and the results of its consolidated
operations and its cash flows for the years ended June 30, 2005 and 2004 in
conformity with accounting principles generally accepted in the United States of
America.

/s/ Kabani & Company, Inc.
CERTIFIED PUBLIC ACCOUNTANTS

Los Angeles, California
August 18, 2005

F-2

INDEPENDENT AUDITOR'S REPORT

Board of Directors
NetSol Technologies, Inc. and subsidiaries
Calabasas, California

We have audited the balance sheet of TIG-NetSol (Private) Limited, a Pakistan
subsidiary of NetSol Technologies, Inc., as of June 30, 2005, and the related
statements of operations, and cash flows for the years ended June 30, 2005 and
2004. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

In our opinion, based on our audits, the financial statements referred to above
present fairly, in all material respects, the financial position of TIG-NetSol
(Private) Limited, a Pakistan subsidiaries of NetSol Technologies, Inc. as of
June 30, 2005 and the results of its consolidated operations and its cash flows
for the years ended June 30, 2005 and 2004 in conformity with accounting
principles generally accepted in the United States of America.

/s/ Saeed Kamran Patel & Co.
CHARTERED ACCOUNTANTS

Lahore, Pakistan
August 15, 2005

INDEPENDENT AUDITOR'S REPORT

Board of Directors
NetSol Technologies, Inc. and subsidiaries
Calabasas, California

We have audited the balance sheet of NetSol Connect (PVT) Limited, a Pakistan
subsidiary of NetSol Technologies, Inc., as of June 30, 2005, and the related
statements of operations, and cash flows for the years ended June 30, 2005 and
2004. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

In our opinion, based on our audits, the financial statements referred to above
present fairly, in all material respects, the financial position of the NetSol
Connect (PVT) Limited, a Pakistan subsidiaries of NetSol Technologies, Inc. as
of June 30, 2005 and the results of its operations and its cash flows for the
years ended June 30, 2005 and 2004 in conformity with accounting principles
generally accepted in the United States of America.

/s/ Saeed Kamran Patel & Co.
CHARTERED ACCOUNTANTS

Lahore, Pakistan
August 15, 2005

INDEPENDENT AUDITOR'S REPORT

Board of Directors
NetSol Technologies, Inc. and subsidiaries
Calabasas, California

We have audited the balance sheet of NetSol (PVT) Limited, a Pakistan subsidiary
of NetSol Technologies, Inc., as of June 30, 2005, and the related statements of
operations, and cash flows for the years ended June 30, 2005 and 2004. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, based on our audits, the financial statements referred to above
present fairly, in all material respects, the financial position of NetSol (PVT)
Limited, a Pakistan subsidiaries of NetSol Technologies, Inc. as of June 30,
2005 and the results of its consolidated operations and its cash flows for the
years ended June 30, 2005 and 2004 in conformity with accounting principles
generally accepted in the United States of America.

/s/ Saeed Kamran Patel & Co.
CHARTERED ACCOUNTANTS

Lahore, Pakistan
August 15, 2005

INDEPENDENT AUDITOR'S REPORT

Board of Directors
NetSol Technologies, Inc. and subsidiaries
Calabasas, California

We have audited the balance sheet of NetSol Technologies (PVT) Limited, a
Pakistan subsidiary of NetSol Technologies, Inc., as of June 30, 2005, and the
related statements of operations, and cash flows for the years ended June 30,
2005 and 2004. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

In our opinion, based on our audits, the financial statements referred to above
present fairly, in all material respects, the financial position of NetSol
Technologies (PVT) Limited, a Pakistan subsidiaries of NetSol Technologies, Inc.
as of June 30, 2005 and the results of its operations and its cash flows for the
years ended June 30, 2005 and 2004 in conformity with accounting principles
generally accepted in the United States of America.

/s/ Saeed Kamran Patel & Co.
CHARTERED ACCOUNTANTS

Lahore, Pakistan
August 15, 2005

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 2005

ASSETS

Current assets:
Cash and cash equivalents $ 1,371,727
Certificates of deposit 205,480
Accounts receivable, net of allowance for doubtful accounts of $80,000 3,906,360
Revenues in excess of billings 1,958,950
Other current assets 931,344
------------
Total current assets 8,373,861
Property and equipment, net of accumulated depreciation 5,114,776
Intangibles:
Product licenses, renewals, enhancedments, copyrights,
trademarks, and tradenames, net 4,915,794
Customer lists, net 1,554,992
Goodwill 1,166,611
------------
Total intangibles 7,637,397
------------
Total assets $ 21,126,034
============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,927,233
Current portion of notes and obligations under capitalized leases 1,089,192
Billings in excess of revenues 149,014
Due to officers 47,636
Deferred liability 313,397
Loans payable, bank 389,089
------------
Total current liabilities 4,915,561

Obligations under capitalized leases, less current maturities 122,426
Convertible debenture 138,175
------------
Total liabilities 5,176,162
Minority interest 700,320
Commitments and contingencies --

Stockholders' equity:
Common stock, $.001 par value; 25,000,000 share authorized;
13,830,884 issued and outstanding 13,831
Additional paid-in-capital 46,610,747
Treasury stock (27,197)
Accumulated deficit (30,318,988)
Stock subscription receivable (616,650)
Common stock to be issued 108,500
Other comprehensive loss (520,691)
------------
Total stockholders' equity 15,249,552
------------
Total liabilities and stockholders' equity $ 21,126,034
============

See accompanying notes to these consolidated financial statements.

F-3

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

For the Years
Ended June 30,
2005 2004
------------ ------------

Net revenues $ 12,437,653 $ 5,749,062
Cost of revenues 4,754,749 2,699,675
------------ ------------
Gross profit 7,682,904 3,049,387

Operating expenses:
Selling and marketing 782,488 253,701
Depreciation and amortization 1,564,562 1,240,792
Impairment of assets -- 203,312
Settlement costs 43,200 122,500
Bad debt expense 13,118 219,909
Salaries and wages 2,022,183 1,493,252
Professional services, including non-cash
compensation 604,192 464,332
General and adminstrative 1,588,456 1,759,607
------------ ------------
Total operating expenses 6,618,199 5,757,405
------------ ------------
Income (loss) from operations 1,064,705 (2,708,018)
Other income and (expenses)
Loss on sale of assets (2,082) (35,173)
Beneficial conversion feature (209,848) (137,230)
Fair market value of options and warrants (255,130) --
Gain on forgiveness of debt 404,136 320,318
Interest expense (215,861) (229,877)
Other income and (expenses) (1,106) 16,401
Income taxes (10,416) (76,638)
------------ ------------
Income (loss) before minority interest in subsidiary 774,398 (2,850,217)
Minority interest in subsidiary (income)/loss (111,073) 273,159
------------ ------------
Net income (loss) 663,325 (2,577,058)
Other comprehensive loss:
Translation adjustment (282,129) (387,859)
------------ ------------
Comprehensive income (loss) $ 381,196 $ (2,964,917)
============ ============
Net income (loss) per share:
Basic $ 0.06 $ (0.33)
============ ============
Diluted $ 0.04 $ (0.33)
============ ============
Weighted average number of shares outstanding:
Basic 11,597,625 7,881,554
============ ============
Diluted 14,776,323 7,881,554
============ ============

See accompanying notes to these consolidated financial statements.

F-4

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 2004 AND 2005

Common Stock Additional
------------- Paid-in Treasury
Shares Amount Capital Shares
----------------------------- ------------ -------------

Balance at June 30, 2003 5,757,175 $ 5,756 $ 33,409,954 $ --

Issuance of common stock for cash 1,413,187 1,414 1,616,923
Issuance of common stock for services 3,613 4 8,996
Excercise of common stock options 1,067,309 1,068 1,369,484
Excercise of common stock warrants 390,000 390 487,110
Issuance of common stock in
exchange for notes payable & interest 601,343 601 1,070,028
Issuance of common stock in
exchange for settlement 45,195 45 135,088
Issuance of common stock in
exchange for purchase of Altiva 100,000 100 (100)
Issuance of common stock in
exchange for purchase of Pearl 60,000 60 166,800
Issuance of common stock to directors
in exchange for services 45,000 45 39,195
Purchase of treasury shares (21,457)
Beneficial conversion feature -- -- 351,987
Fair market value of warrants issued -- -- 230,413
Foreign currency translation adjustments -- -- --
Net loss for the year -- -- --

------------ ------------ ------------ -------------
Balance at June 30, 2004 9,482,822 $ 9,483 $ 38,885,878 $ (21,457)
============ ============ ============ =============

Other
Compre-
Stock hensive Total
Subscriptions Income/ Accumulated Stockholders'
Receivable (Loss) Deficit Equity
------------- ------------- ------------- ------------

Balance at June 30, 2003 $ (84,900) $ 149,297 $ (28,405,255) $ 5,074,852

Issuance of common stock for cash 1,618,337
Issuance of common stock for services 9,000
Excercise of common stock options (248,750) 1,121,802
Excercise of common stock warrants 487,500
Issuance of common stock in
exchange for notes payable & interest 1,070,629
Issuance of common stock in
exchange for settlement 135,133
Issuance of common stock in
exchange for purchase of Altiva --
Issuance of common stock in
exchange for purchase of Pearl 166,860
Issuance of common stock to directors
in exchange for services 39,240
Purchase of treasury shares (21,457)
Beneficial conversion feature 351,987
Fair market value of warrants issued 230,413
Foreign currency translation adjustments (387,859) (387,859)
Net loss for the year (2,577,058) (2,577,058)
------------- ------------- ------------- ------------
Balance at June 30, 2004 $ (333,650) $ (238,562) $ (30,982,313) $ 7,319,379
============= ============= ============= ============

Continued

See accompanying notes to these consolidated financial statements.

F-5

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - Continued
FOR THE YEARS ENDED JUNE 30, 2004 AND 2005

Common Stock Additional
---------------------------- Paid-in Treasury
Shares Amount Capital Shares
------------ ------------ ------------ -------------

Balance at June 30, 2004 9,482,822 9,483 $ 38,885,878 $ (21,457)

Issuance of common stock for cash 1,477,619 1,478 1,540,022
Issuance of common stock for services 188,972 189 246,461
Excercise of common stock options 1,210,110 1,210 1,806,523
Excercise of common stock warrants 145,162 145 290,179
Issuance of common stock in
exchange for notes payable & interest 247,684 248 413,540
Issuance of common stock for
conversion of convertible debentures 564,519 564 1,049,436
Additional shares issued for the
purchase of PTS acquisition 40,000 40 91,560
Issuance of common stock in
exchange for purchase of CQ Systems 759,468 760 1,815,541
Issuance of common stock in
exchange for accrued expenses 34,528 34 49,934
Purchase of treasury shares (51,704)
Issuance of treasury shares for debt 45,964
Capital contribution from issuance of
subsidiary stock on foreign exchange 859,223
Fair market value of warrants issued -- -- 249,638
Fair market value of options issued 5,492
Cancellation of shares (320,000) (320) (692,680)
Foreign currency translation adjustments -- -- --
Net income for the year -- -- --

------------ ------------ ------------ -------------
Balance at June 30, 2005 13,830,884 $ 13,831 $ 46,610,747 $ (27,197)
============ ============ ============ =============

Other
Compre-
Stock hensive Total
Subscriptions Shares to Income/ Accumulated Stockholders'
Receivable be Issued (Loss) Deficit Equity
------------- ------------- ------------- ------------- ------------

Balance at June 30, 2004 $ (333,650) $ -- $ (238,562) $ (30,982,313) $ 7,319,379

Issuance of common stock for cash (138,000) 108,500 1,512,000
Issuance of common stock for services 246,650
Excercise of common stock options (838,000) 969,733
Excercise of common stock warrants 290,324
Issuance of common stock in
exchange for notes payable & interest 413,788
Issuance of common stock for
conversion of convertible debentures 1,050,000
Additional shares issued for the
purchase of PTS acquisition 91,600
Issuance of common stock in
exchange for purchase of CQ Systems 1,816,301
Issuance of common stock in
exchange for accrued expenses 49,968
Purchase of treasury shares (51,704)
Issuance of treasury shares for debt 45,964
Capital contribution from issuance of
subsidiary stock on foreign exchange 859,223
Fair market value of warrants issued 249,638
Fair market value of options issued 5,492
Cancellation of shares 693,000 --
Foreign currency translation adjustments (282,129) (282,129)
Net income for the year 663,325 663,325

------------- ------------- ------------- ------------- ------------
Balance at June 30, 2005 $ (616,650) $ 108,500 $ (520,691) $ (30,318,988) $ 15,249,552
============= ============= ============= ============= ============

See accompanying notes to these consolidated financial statements.

F-6

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years
Ended June 30,
2005 2004
----------- -----------

Cash flows from operating activities:
Net income (loss) from continuing operations $ 663,325 $(2,577,058)
Adjustments to reconcile net income (loss) to net cash
Provided by (used in) operating activities:
Depreciation and amortization 1,979,603 1,640,044
Impairment of assets -- 203,312
Gain on forgiveness of debt (404,136) (320,318)
Loss on sale of assets 2,082 35,173
Minority interest in subsidiary 111,073 (273,159)
Stock issued for settlement costs -- 135,133
Stock issued for services 183,695 9,000
Stock issued to directors for services -- 39,240
Fair market value of warrants and stock options granted 255,130 --
Beneficial conversion feature 209,848 137,230
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (3,644,646) (324,094)
Other current assets (1,587,132) (409,708)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 2,161,633 (65,386)
Deferred liabilities 313,397 --
----------- -----------
Net cash provided by (used in) operating activities 243,872 (1,770,591)
Cash flows from investing activities:
Purchases of property and equipment (1,468,499) (2,861,754)
Sales of property and equipment 88,736 75,490
Purchases of certificates of deposit (1,517,640) (3,241,403)
Proceeds from sale of certificates of deposit 1,703,563 2,850,000
Increase in intangible assets (3,827,466) (439,297)
Proceeeds from sale of minority interest of subsidiary -- 200,000
Capital investments in minority interest of subsidiary 178,521 10,000
Cash brought in at acquisition 145,297 --
----------- -----------
Net cash used in investing activities (4,697,488) (3,406,964)
Cash flows from financing activities:
Proceeds from sale of common stock 1,512,000 1,848,750
Proceeds from the exercise of stock options and warrants 1,260,057 1,445,392
Capital contributed from sale of subsidiary stock 859,223 --
Purchase of treasury shares (51,704) (21,457)
Proceeds from loans 1,533,690 1,685,781
Proceeds from convertible debenture -- 1,200,000
Payments on capital lease obligations & loans (286,339) (384,210)
----------- -----------
Net cash provided by financing activities 4,826,927 5,774,256
Effect of exchange rate changes in cash 127,255 59,970
----------- -----------
Net increase in cash and cash equivalents 500,566 656,671
Cash and cash equivalents, beginning of year 871,161 214,490
----------- -----------
Cash and cash equivalents, end of year $ 1,371,727 $ 871,161
=========== ===========

See accompanying notes to these consolidated financial statements.

F-7

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Continued

For the Years
Ended June 30,
2005 2004
------------- -------------
SUPPLEMENTAL DISCLOSURES:

Cash paid during the period for:
Interest $ 127,055 $ 229,877
============= =============
Taxes $ 41,182 $ 76,638
============= =============

NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued for services and compensation $ 246,650 $ 9,000
============= =============
Common stock issued for conversion of note payable and interest $ 413,788 $ 861,429
============= =============
Common stock issued for legal settlement $ -- $ 135,133
============= =============
Common stock issued for acquisition of product license $ 91,600 $ 166,860
============= =============
Common stock issued for settlement of debt $ 45,965 $ 209,200
============= =============
Common stock issued to directors for services $ -- $ 39,240
============= =============
Common stock issued for acquisition of subsidiary $ 1,816,301 $ --
============= =============
Common stock issued for conversion of debentures $ 1,050,000 $ --
============= =============

See accompanying notes to these consolidated financial statements.

F-8

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BUSINESS AND CONTINUED OPERATIONS

NetSol Technologies, Inc. and subsidiaries (the "Company"), formerly known as
NetSol International, Inc. and Mirage Holdings, Inc., was incorporated under the
laws of the State of Nevada on March 18, 1997. During November of 1998, Mirage
Collections, Inc., a wholly owned and non-operating subsidiary, was dissolved.

During April 1999, February 2000 and March 2000, the Company formed NetSol USA,
Inc., NetSol eR, Inc. and NetSol (PVT), Limited, respectively, as wholly owned
subsidiaries.

Business Combinations Accounted for Under the Purchase Method:

Network Solutions PVT, Ltd. and NetSol UK, Limited

On September 15, 1998 and April 17, 1999, the Company purchased from related
parties, 51% and 49%, respectively, of the outstanding common stock of Network
Solutions PVT, Ltd., a Pakistani Company, and 43% and 57% of the outstanding
common stock of NetSol UK, Limited, a United Kingdom Company, for the issuance
of 938,000 restricted common shares of the Company and cash payments of
$775,000, for an aggregate purchase price of approximately $12.9 million. These
acquisitions were accounted for using the purchase method of accounting, and
accordingly, the purchase price was allocated to the assets purchased and
liabilities assumed based upon their estimated fair values on the date of
acquisition, which approximated $300,000. Included in the accompanying
consolidated financial statements are other assets acquired at fair market value
consisting of product licenses, product renewals, product enhancements,
copyrights, trademarks, trade names and customer lists. At the date of
acquisition, the management of the Company allocated approximately $6.3 million
to these assets, based on independent valuation reports prepared for the
Company. The excess of the purchase prices over the estimated fair values of the
net assets acquired, was recorded as goodwill, and was being amortized by using
the straight-line method from the date of each purchase. Effective April 1,
2001, the management determined that the remaining useful life of all its
acquired intangible assets to be approximately five years, and accordingly,
accelerated the amortization of these intangibles. During June 2001, the
management decided to close its operations in the United Kingdom, and
accordingly, the Company recognized a loss from impairment of various intangible
assets related to NetSol UK, as recoverability of these assets (measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset) seemed highly unlikely. On March 18, 2002, the
final Winding-up Order was made relating to the liquidation of for NetSol UK on
the petition of a creditor in respect of services supplied presented to the
Court.

Mindsources, Inc.

On August 13, 1999, the Company through its wholly owned subsidiary, NetSol USA,
Inc. acquired 100% of the outstanding capital stock of Mindsources, Inc., a
Virginia and US based Company, through the issuance of 50,000 shares of Rule 144
restricted common shares of the Company for an aggregate purchase price of
approximately $1,260,000. This acquisition was accounted for using the purchase
method of accounting under APB Opinion No. 16, and accordingly, the purchase
price was allocated to the assets purchased and liabilities assumed based upon
their estimated fair values as determined by management on the date of
acquisition, which approximated $900,000. The management of the Company
allocated the entire purchase price to customer lists acquired, and is being
amortized by using the straight-line method from the date of acquisition. The
excess of the purchase prices over the estimated fair values of the net assets
acquired, approximately $360,000, was recorded as goodwill and is being
amortized using the straight-line method from the date of purchase. Effective
April 1, 2001, the management determined that the remaining useful life of all
its acquired intangible assets to be approximately five years, and accordingly,
accelerated the amortization of these intangibles.

F-9

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Network Solutions Group Limited and Subsidiaries

On August 18, 1999, the Company acquired 100% of the outstanding capital stock
of Network Solutions Group Limited and Subsidiaries, a United Kingdom Company,
through the issuance of 31,000 shares of Rule 144 restricted common shares of
the Company for an aggregate purchase price of approximately $940,000. This
acquisition was accounted for using the purchase method of accounting under APB
Opinion No. 16, and accordingly, the purchase price was allocated to the assets
purchased and liabilities assumed based upon their estimated fair values on the
date of acquisition, which approximated a deficit of $700,000. The management of
the Company allocated approximately $600,000 to customer lists, which are being
amortized by using the straight-line method from the date of acquisition. The
excess of the purchase price over the estimated fair values of the net assets
acquired, approximately $1,040,000, was recorded as goodwill, and was being
amortized by using the straight-line method over the estimated useful life from
the date of acquisition. Effective April 1, 2001, the management determined that
the remaining useful life of all its acquired intangible assets to be
approximately five years, and accordingly, accelerated the amortization of these
intangibles. During June 2001, the management decided to close its operations in
the United Kingdom, and accordingly, the Company recognized a loss from
impairment of various intangible assets related to these entities, as
recoverability of these assets (measured by a comparison of the carrying amount
of an asset to future net cash flows expected to be generated by the asset)
seemed highly unlikely.

Intereve Corporation

During March 2001, the Company acquired 100% of the outstanding capital stock of
Intereve Corporation for an aggregate purchase price of $245,000. This
acquisition was accounted for using the purchase method of accounting under APB
Opinion No. 16, and accordingly, the purchase price was allocated to the assets
purchased and liabilities assumed based upon their estimated fair values on the
date of acquisition, which equaled to zero. The management of the Company
allocated the entire purchase price of $245,000 to customer lists. During June
2001, the management ceased operations of this entity and consequently, the
Company recognized an impairment loss of $245,000 to customer list, as
recoverability of these assets (measured by a comparison of the carrying amount
of an asset to future net cash flows expected to be generated by the asset)
seemed highly unlikely.

Altvia Corporation

On May 20, 2003, the Company acquired 100% of the outstanding capital stock of
Altvia Technologies, Inc. for an aggregate purchase price of $257,000. This
acquisition was accounted for using the purchase method of accounting under APB
Opinion No. 16, and accordingly, the purchase price was allocated to the assets
purchased and liabilities assumed based upon their estimated fair values on the
date of acquisition, which equaled to $257,000. The management of the Company
allocated $30,000 of the purchase price to customer lists & $23,688 to property
and equipment. The excess of the purchase price over the estimated fair values
of the net assets acquired of $203,312 was recorded as goodwill. During the year
ended June 30, 2004, the goodwill was impaired.

Pearl Treasury System Ltd

On October 14, 2003, the Company executed an agreement to acquire the Pearl
Treasury System Ltd, a United Kingdom company ("Pearl"). This acquisition
required the Company to issue up to 60,000 shares of common stock to the
shareholders of Pearl Treasury System, Ltd. In addition, during the year ended
June 30, 2005, an additional 40,000 shares valued at $91,600 was issued to the
shareholders of Pearl for milestones reached in the development of the software.
After acquisition, all development activities of Pearl Treasury System, now
called InBanking were transferred to NetSol UK; therefore, there are no separate
financial statements for Pearl. The total acquisition value of $258,460 has been
recorded as an intangible asset and is included in "product licenses" on the
accompanying consolidated financial statements.

F-10

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Raabta Online

During the quarter ended March 31, 2004, the Company's subsidiary, NetSol
Connect, purchased Raabta Online, a Pakistani company, for a cash price of
10,000,000 rupees or $173,500 representing 100% of the value of Raabta. This
acquisition is expected to provide the Company with an established customer base
and strong technical expertise. The purchase price has been allocated to
property and equipment of the acquired entity. All activity of the acquired
entity was absorbed by NetSol Connect after the acquisition.

CQ Systems

On January 19, 2005, the Company entered into an agreement to acquire 100% of
the issued and outstanding shares of common stock of CQ Systems Ltd., a company
organized under the laws of England and Wales. The acquisition closed on
February 22, 2005. The initial purchase price was (pound)3,576,335 or
$6,730,382, of which one-half was due at closing payable in cash and stock and
the other half is due when the audited March 31, 2006 financial statements are
completed. On the closing date, $1.7 million was paid and 681,965 shares were
issued to the shareholders of CQ, valued at $1,676,795 at an average share price
of $2.46 was recorded. In addition, the agreement called for the accumulated
retained earnings amounting to (pound)423,711 or $801,915 of CQ Systems as of
the closing date to be paid to the shareholders in cash and stock. In April
2005, the additional cash of (pound)350,000 or $662,410 was paid and 77,503
shares of the Company's common stock valued at $139,505 were issued. The total
amount paid at closing was $4,178,710.

Business Combinations Accounted for Under the Pooling of Interest Method:

Abraxas Australia Pty, Limited

On January 3, 2000, the Company issued 30,000 Rule 144 restricted common shares
in exchange for 100% of the outstanding capital stock of Abraxas Australia Pty,
Limited, an Australian Company. This business combination was accounted for
using the pooling of interest method of accounting under APB Opinion No. 16.

Formation of Subsidiary:

During the period ended December 31, 2002, the Company formed a subsidiary in
the UK, NetSol Technologies Ltd., as a wholly-owned subsidiary of NetSol
Technologies, Inc. This entity serves as the main marketing and delivery arm for
services and products sold and delivered in the UK and mainland Europe.

During the period ended June 30, 2004, the Company formed a subsidiary in India,
NetSol Technology India, Limited, as a wholly-owned subsidiary of NetSol
Technologies, Inc. This entity is planned to serve as the main marketing and
delivery arm for services and products sold and delivered in India. As of the
date of this report, no operations have begun with this entity.

Joint Venture:

In January 2005, the Company formed TiG-NetSol (Pvt) Limited ("TiG-Netsol") as a
joint venture with a UK based public company TIG Plc., with 50.1% ownership by
NetSol Technologies, Inc. and 49.9% ownership by TiG. TiG-NetSol was
incorporated in Pakistan on January 12, 2005 under the Companies Ordinance, 1984
as a private company limited by shares. The business of the Company is export of
computer software and its related services developed in Pakistan.

F-11

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation:

The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries, NetSol Technologies (Pvt), Ltd.("PK
Tech"), NetSol (Pvt), Limited ("PK Private"), NetSol Technologies Limited
("UK"), NetSol-Abraxas Australia Pty Ltd. ("Abraxas"), NetSol Altvia, Inc.
("USA"), CQ Systems Limited ("CQ"), and its majority-owned subsidiaries, NetSol
Connect (Pvt), Ltd. ("Connect"), and TIG-NetSol (Pvt) Limited ("TIG"). All
material inter-company accounts have been eliminated in consolidation.

Company name change:

Effective February 8, 2002, the Company changed its name from NetSol
International, Inc. to NetSol Technologies, Inc. The name change was approved by
a majority of shareholders at the Company's annual shareholders meeting held on
January 25, 2002.

Business Activity:

The Company designs, develops, markets, and exports proprietary software
products to customers in the automobile finance and leasing industry worldwide.
The Company also provides consulting services in exchange for fees from
customers.

Use of Estimates:

The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

Effective April 1, 2001, the management determined that the remaining useful
life of all its acquired intangible assets to be approximately five years, and
accordingly, accelerated the amortization of these intangibles. This change in
estimate increased the depreciation and amortization expense by approximately
$700,000 for the year ended June 30, 2002 and $400,000 during the three months
ended June 30, 2001. Due to impairment losses recognized to intangibles, the
remaining net intangible balance of approximately $6,860,000 (including goodwill
of $1,950,000) at the date of change in estimation in 2001 has been amortized
over the remaining life of 57 months. The Company evaluates, on on-going basis,
the accounting effect arising from the recently issued SFAS No. 142, "Goodwill
and Other Intangibles" which became effective to the Company's financial
statements beginning July 1, 2002.

Cash and Cash Equivalents:

Equivalents

For purposes of the statement of cash flows, cash equivalents include all highly
liquid debt instruments with original maturities of three months or less which
are not securing any corporate obligations.

Concentration

The Company maintains its cash in bank deposit accounts, which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts.

F-12

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accounts Receivable:

The Company's customer base consists of a geographically dispersed customer
base. The Company maintains reserves for potential credit losses on accounts
receivable. Management reviews the composition of accounts receivable and
analyzes historical bad debts, customer concentrations, customer credit
worthiness, current economic trends and changes in customer payment patterns to
evaluate the adequacy of these reserves. Reserves are recorded primarily on a
specific identification basis.

Revenues in excess of billings:

"Revenues in excess of billings" represent the total of the project to be billed
to the customer over the life of the project. As each phase is completed and
billed to the customer, the corresponding percentage of completion amount is
transferred from this account to "Accounts Receivable."

Property and Equipment:

Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charged to earnings as incurred; additions, renewals and betterments
are capitalized. When property and equipment are retired or otherwise disposed
of, the related cost and accumulated depreciation are removed from the
respective accounts, and any gain or loss is included in operations.
Depreciation is computed using various methods over the estimated useful lives
of the assets, ranging from three to seven years.

The Company accounts for the costs of computer software developed or obtained
for internal use in accordance with Statement of Position 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use." The
Company capitalizes costs of materials, consultants, and payroll and
payroll-related costs for employees incurred in developing internal-use computer
software. These costs are included with "Computer equipment and software." Costs
incurred during the preliminary project and post-implementation stages are
charged to general and administrative expense.

Intangible Assets:

Intangible assets consist of product licenses, renewals, enhancements,
copyrights, trademarks, trade names, customer lists and goodwill. The Company
evaluates intangible assets, goodwill and other long-lived assets for
impairment, at least on an annual basis and whenever events or changes in
circumstances indicate that the carrying value may not be recoverable from its
estimated future cash flows. Recoverability of intangible assets, other
long-lived assets and, goodwill is measured by comparing their net book value to
the related projected undiscounted cash flows from these assets, considering a
number of factors including past operating results, budgets, economic
projections, market trends and product development cycles. If the net book value
of the asset exceeds the related undiscounted cash flows, the asset is
considered impaired, and a second test is performed to measure the amount of
impairment loss. Potential impairment of goodwill after July 1, 2002 is being
evaluated in accordance with SFAS No. 142. The SFAS No. 142 is applicable to the
financial statements of the Company beginning July 1, 2002.

F-13

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company makes on-going evaluations of the recoverability of its capitalized
software projects by comparing the amount capitalized for each product to the
estimated net realizable value of the product. If such evaluations indicate that
the unamortized software development costs exceed the net realizable value, the
Company writes off the amount which the unamortized software development costs
exceed net realizable value. Capitalized and purchased computer software
development costs are being amortized ratably based on the projected revenue
associated with the related software or on a straight-line basis over three
years, whichever method results in a higher level of amortization.

Statement of Cash Flows:

In accordance with Statement of Financial Accounting Standards No. 95,
"Statement of Cash Flows," cash flows from the Company's operations are
calculated based upon the local currencies. As a result, amounts related to
assets and liabilities reported on the statement of cash flows will not
necessarily agree with changes in the corresponding balances on the balance
sheet.

Revenue Recognition:

The Company recognizes its revenue in accordance with the Securities and
Exchange Commissions ("SEC") Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("SAB 101") and The American Institute of
Certified Public Accountants ("AICPA") Statement of Position ("SOP") 97-2,
"Software Revenue Recognition," as amended by SOP 98-4 and SOP 98-9, SOP 81-1,
"Accounting for Performance of Construction-Type and Certain Production-Type
Contracts," and Accounting Research Bulletin 45 (ARB 45) "Long-Term Construction
Type Contracts." The Company's revenue recognition policy is as follows:

License Revenue: The Company recognizes revenue from license contracts without
major customization when a non-cancelable, non-contingent license agreement has
been signed, delivery of the software has occurred, the fee is fixed or
determinable, and collectibilty is probable. Revenue from the sale of licenses
with major customization, modification, and development is recognized on a
percentage of completion method, in conformity with ARB 45 and SOP 81-1. Revenue
from the implementation of software is recognized on a percentage of completion
method, in conformity with Accounting Research Bulletin ("ARB") No. 45 and SOP
81-1. Any revenues from software arrangements with multiple elements are
allocated to each element of the arrangement based on the relative fair values
using specific objective evidence as defined in the SOPs. An output measure of
"Unit of Work Completed" is used to determine the percentage of completion which
measures the results achieved at a specific date. Units completed are certified
by the Project Manager and EVP IT/ Operations.

Services Revenue: Revenue from consulting services is recognized as the services
are performed for time-and-materials contracts. Revenue from training and
development services is recognized as the services are performed. Revenue from
maintenance agreements is recognized ratably over the term of the maintenance
agreement, which in most instances is one year.

Fair Value:

Unless otherwise indicated, the fair values of all reported assets and
liabilities, which represent financial instruments, none of which are held for
trading purposes, approximate carrying values of such amounts.

Advertising Costs:

The Company expenses the cost of advertising as incurred. Advertising costs for
the years ended June 30, 2005 and 2004 were $127,602 and $37,801, respectively.

F-14

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Net Loss Per Share:

Net loss per share is calculated in accordance with the Statement of financial
accounting standards No. 128 (SFAS No. 128), "Earnings per share." Basic net
loss per share is based upon the weighted average number of common shares
outstanding. Diluted net loss per share is based on the assumption that all
dilutive convertible shares and stock options were converted or exercised.
Dilution is computed by applying the treasury stock method. Under this method,
options and warrants are assumed to be exercised at the beginning of the period
(or at the time of issuance, if later), and as if funds obtained thereby were
used to purchase common stock at the average market price during the period.

The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations:

------------------------------------------------------------------------------------
For the year ended June 30, 2005 Net Income Shares Per Share
------------------------------------------------------------------------------------

Basic earnings per share: $ 663,325 11,597,625 $0.06
Net income available to common shareholders
Effect of dilutive securities
Stock options 2,515,114
Warrants 663,584
---------- ---------- -----
Diluted earnings per share $ 663,325 14,776,323 $0.04
========== ========== =====

The weighted average number of shares used to compute basic and diluted loss per
share is the same in these financial statements for the year ended June 30, 2004
since the effect of dilutive securities is anti-dilutive.

Reverse stock split:

On August 18, 2003, the Company affected a 1 for 5 reverse stock-split for all
the issued and outstanding shares of common stock. All historical share and per
share amounts in the accompanying consolidated financial statements have been
restated to reflect the 5:1 reverse stock split.

Other Comprehensive Income & Foreign Currency Translation:

SFAS 130 requires unrealized gains and losses on the Company's available for
sale securities, currency translation adjustments, and minimum pension
liability, which prior to adoption were reported separately in stockholders'
equity, to be included in other comprehensive income. The accounts of NetSol UK
and CQ Systems use British Pounds; NetSol Technologies (Pvt) Ltd., NetSol
Private, NetSol Connect, and TiG-Netsol use Pakistan Rupees; NetSol Abraxas uses
the Australian dollar as the functional currencies. NetSol Technologies, Inc.,
and NetSol Altvia, Inc., uses U.S. dollars as the functional currencies. Assets
and liabilities are translated at the exchange rate on the balance sheet date,
and operating results are translated at the average exchange rate throughout the
period. During the year ended June 30, 2005 and 2004, comprehensive income
included net translation loss of $282,129 and $387,859, respectively. Other
comprehensive loss, as presented on the accompanying consolidated balance sheet
in the stockholders' equity section amounted to $520,691 as of June 30, 2005.

Accounting for Stock-Based Compensation:

The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation, which
applies the fair-value method of accounting for stock-based compensation plans.
In accordance with this standard, the Company accounts for stock-based
compensation in accordance with Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees.

In March 2000, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 44 (Interpretation 44), "Accounting for Certain Transactions
Involving Stock Compensation." Interpretation 44 provides criteria for the
recognition of compensation expense in certain stock-based compensation
arrangements that are accounted for under APB Opinion No. 25, Accounting for
Stock-Based Compensation. Interpretation 44 became effective July 1, 2000, with
certain provisions that were effective retroactively to December 15, 1998 and
January 12, 2000. Interpretation 44 did not have any material impact on the
Company's financial statements.

F-15

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Income Taxes:

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 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.

As of June 30, 2005, the Company had net federal and state operating loss carry
forwards expiring in various years through 2025. During the year ended June 30,
2005, the valuation allowance increased by $651,617; primarily due to the
application of the current year net loss for the US companies to the net
operating loss carry forward. Deferred tax assets resulting from the net
operating losses are reduced by a valuation allowance, when in the opinion of
management, utilization is not reasonably assured.

A summary at June 30, 2005 is as follows:

Federal State Total
------------ ------------ ------------

Net operating loss carry forward - June 30, 2004 $ 22,479,286 $ 9,503,419
Net loss 3,245,957 3,245,957
------------ ------------
Net operating loss carry forward - June 30, 2005 25,725,243 12,749,376

Effective tax rate 32% 8%

------------ ------------
Deferred tax asset 8,232,078 1,019,950 9,252,028
Valuation allowance (6,672,078) (629,950) (7,302,028)
------------ ------------ ------------
Net deferred tax asset 1,560,000 390,000 1,950,000

Deferred tax liability arising from
non-taxable business combinations 1,560,000 390,000 1,950,000
------------ ------------ ------------
Net deferred tax liability $ (0) $ 0 $ (0)
============ ============ ============

The following is a reconciliation of the provision for income taxes at the U.S.
federal income tax rate to the income taxes reflected in the Consolidated
Statements of Operations:

For the years
ended June 30,
2005 2004
% %
Tax expense (credit) at statutory rate - federal 34 (34)
State tax expenses, net of federal tax (6) (6)
Valuation allowance - 16
Foreign tax rate differences (34) 18
Other 7 6
---------- ----------
Tax expense at actual rate 1 --
========== ==========

F-16

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Derivative Instruments:

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as
amended by SFAS No. 137, is effective for fiscal years beginning after June 15,
2000. SFAS No. 133 requires the Company to recognize all derivatives as either
assets or liabilities and measure those instruments at fair value. It further
provides criteria for derivative instruments to be designated as fair value,
cash flow and foreign currency hedges and establishes respective accounting
standards for reporting changes in the fair value of the derivative instruments.
After adoption, the Company is required to adjust hedging instruments to fair
value in the balance sheet and recognize the offsetting gains or losses as
adjustments to be reported in net income or other comprehensive income, as
appropriate. The Company has complied with the requirements of SFAS 133, the
effect of which was not material to the Company's financial position or results
of operations as the Company does not participates in such activities.

Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of:

Effective January 1, 2002, the Company adopted Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS 144"), which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets and supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," and the accounting and reporting provisions of APB Opinion No.
30, "Reporting the Results of Operations for a Disposal of a Segment of a
Business." The Company periodically evaluates the carrying value of long-lived
assets to be held and used in accordance with SFAS 144. SFAS 144 requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amounts. In
that event, a loss is recognized based on the amount by which the carrying
amount exceeds the fair market value of the long-lived assets. Loss on
long-lived assets to be disposed of is determined in a similar manner, except
that fair market values are reduced for the cost of disposal.

For goodwill not identifiable with an impaired asset, the Company establishes
benchmarks at the lowest level (entity level) as its method of assessing
impairment. In measuring impairment, unidentifiable goodwill is considered
impaired if the fair value at the lowest level is less than its carrying amount.
The fair value of unidentifiable goodwill is determined by subtracting the fair
value of the recognized net assets at the lowest level (excluding goodwill) from
the value at the lowest level. The amount of the impairment loss is equal to the
difference between the carrying amount of goodwill and the fair value of
goodwill. In the event that impairment is recognized, appropriate disclosures
are made.

Goodwill of a reporting unit is reviewed for impairment if events or changes in
circumstances indicate that the carrying amount of its goodwill or intangible
assets may not be recoverable. Impairment of reporting unit goodwill is
evaluated based on a comparison of the reporting unit's carrying value to the
implied fair value of the reporting unit. Conditions that indicate that an
impairment of goodwill exists include a sustained decrease in the market value
of the reporting unit or an adverse change in business climate.

On June 30, 2004, the Company evaluated the valuation of goodwill based upon the
performance and market value of NetSol USA. The Company determined the goodwill
was impaired and recorded the impairment of $203,312 at June 30, 2004, in the
accompanying consolidated financial statements.

Reporting segments:

Statement of financial accounting standards No. 131, Disclosures about segments
of an enterprise and related information (SFAS No. 131), which superceded
statement of financial accounting standards No. 14, Financial reporting for
segments of a business enterprise, establishes standards for the way that public
enterprises report information about operating segments in annual financial
statements and requires reporting of selected information about operating
segments in interim financial statements regarding products and services,
geographic areas and major customers. SFAS No. 131 defines operating segments as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performances. The Company
allocates its resources and assesses the performance of its sales activities
based upon geographic locations of its subsidiaries (see note 12).

F-17

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

New Accounting Pronouncements:

In March 2004, the Emerging Issues Task Force ("EITF") reached a consensus on
Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and its
Application to Certain Investments." The EITF reached a consensus about the
criteria that should be used to determine when an investment is considered
impaired, whether that impairment is other-than-temporary, and the measurement
of an impairment loss and how that criteria should be applied to investments
accounted for under SFAS No. 115, "Accounting in Certain Investments in Debt and
Equity Securities." EITF 03-01 also included accounting considerations
subsequent to the recognition of other-than-temporary impairment and requires
certain disclosures about unrealized losses that have not been recognized as
other-than-temporary impairments. Additionally, EITF 03-01 includes new
disclosure requirements for investments that are deemed to be temporarily
impaired. In September 2004, the Financial Accounting Standards Board (FASB)
delayed the accounting provisions of EITF 03-01; however, the disclosure
requirements remain effective for annual reports ending after June 15, 2004. The
Company believes that the adoption of this standard will have no material impact
on its financial statements.

Reclassifications:

For comparative purposes, prior year's consolidated financial statements have
been reclassified to conform with report classifications of the current year.

NOTE 3 - MAJOR CUSTOMERS

The Company is a strategic business partner for DaimlerChrysler (which consists
of a group of many companies), which accounts for approximately 20% of revenue
for the fiscal years ended June 30, 2005 and 2004 and Toyota Motors (which
consists of a group of many companies) accounts for approximately 35% of revenue
for the fiscal year ended June 30, 2005. Accounts receivable at June 30, 2005
for these companies was $539,761 and $1,165,183. No other individual client
represents more than 10% of the revenue for the fiscal years ended June 30, 2005
and 2004.

F-18

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 - OTHER CURRENT ASSETS

Other current assets consist of the following as of June 30, 2005:

Prepaid Expenses $ 494,315
Advance Income Tax 162,682
Employee Advances 11,342
Security Deposits 56,472
Other Receivables 187,613
Other Asset 18,920
----------------
Total $ 931,344
================

NOTE 5 - PROPERTY AND EQUIPMENT

Property and equipment, net, consist of the following at June 30, 2005:

Office furniture and equipment $ 858,273
Computer equipment 3,804,496
Assets under capital leases 623,008
Building 2,930,258
Construction in process 424,991
Land 185,760
Autos 138,226
Improvements 270,929
-----------------
Subtotal 9,235,941
Accumulated depreciation (4,121,165)
-----------------
$ 5,114,776
=================

For the years ended June 30, 2005 and 2004, fixed asset depreciation expense
totaled $654,584 and $520,750, respectively. Of these amounts, $415,042 and
$355,954, respectively, are reflected as part of cost of goods sold. Accumulated
depreciation and amortization for assets under capital leases amounted to
$363,433 and $335,156 at June 30, 2005 and 2004, respectively.

NOTE 6 - INTANGIBLE ASSETS

Intangible assets consist of the following at June 30, 2005:

F-19

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Product Customer
Licenses Lists Total
----------- ----------- -----------
Intangible asset - June 30, 2004 $ 5,450,357 $ 1,977,877 $ 7,428,234
Additions 3,376,728 1,316,880 4,693,608
Effect of translation adjustment (27,762) (27,762)
Accumulated amortization (3,883,529) (1,739,765) (5,623,294)
----------- ----------- -----------
Net balance - June 30, 2005 $ 4,915,794 $ 1,554,992 $ 6,470,786
=========== =========== ===========

Amortization expense:
Year ended June 30, 2005 $ 980,524 $ 403,457 $ 1,383,981
Year ended June 30, 2004 $ 803,629 $ 315,665 $ 1,119,294

The above amortization expense includes amounts in "Cost of Goods Sold" for
capitalized software development costs of $58,961 and $43,298 for the fiscal
years ended June 30, 2005 and 2004, respectively.

At June 30, 2005 and 2004, product licenses, renewals, enhancements, copyrights,
trademarks, and tradenames, included unamortized software development and
enhancement costs of $1,507,792 and $908,508, respectively, as the development
and enhancement is yet to be completed. Software development amortization
expense was $94,682 and $97,744 for the years ended June 30, 2005 and June 30,
2004, respectively.

Amortization expense of intangible assets over the next five years is as
follows:

----------------------------------------------------------------------------------------------------
FISCAL YEAR ENDING
Asset 6/30/06 6/30/07 6/30/08 6/30/09 6/30/10 TOTAL
----------------------------------------------------------------------------------------------------

Product Licences $1,271,996 $ 591,872 $ 591,872 $ 576,799 $ 375,463 $3,408,002
Customer Lists 551,204 301,454 263,376 263,376 175,583 1,554,993

---------- ---------- ---------- ---------- ---------- ----------
$1,823,200 $ 893,326 $ 855,248 $ 840,175 $ 551,046 $4,962,995
========== ========== ========== ========== ========== ==========

NOTE 7 - DEBTS

NOTES PAYABLE

Notes payable consist of the following at June 30, 2005:

-------------------------------------------------------------------------
Balance at Current Long-Term
Name 6/30/05 Maturities Maturities
-------------------------------------------------------------------------
A. Zaman Settlement $ 16,300 $ 16,300 $ --
First Funding 475 475 --
D&O Insurance 49,688 49,688 --
Noon Group 518,794 518,794 --
Gulf Crown 259,397 259,397 --
Maxim Group 100,000 100,000 --
Subsidiary Capital Leases 144,538 144,538 --
---------- ---------- ----------
$1,089,192 $1,089,192 $ --
========== ========== ==========

F-20

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On September 25, 2002 the Company signed a settlement agreement with Adrian
Cowler ("Cowler") and Surrey Design Partnership Ltd. The Company agreed to pay
Cowler (pound)218,000 pound sterling or approximately $320,460 USD including
interest, which the Company recorded as a note payable. The agreement called for
monthly payments of (pound)3,000 until March 2004 and then (pound)4,000 per
month until paid. As of June 30, 2004, the balance was $146,516. During the six
months ended December 31, 2004, the Company paid (pound)12,000 or $21,997. In
December 2004, the Company reached an agreement with Cowler to pay the balance
of the loan in one lump-sum payment. Cowler agreed to accept (pound)52,000 or
$103,371 as payment in full. As a result, the Company recorded a gain on
forgiveness of debt of $21,148 in the accompanying consolidated financial
statements.

In November 2002, the Company signed a settlement agreement with Herbert Smith
for (pound)171,733 or approximately $248,871, including interest. The Company
agreed to pay $10,000 upon signing of the agreement, $4,000 per month for twelve
months, and then $6,000 per month until paid. The balance owing at June 30, 2003
was $164,871. During the year ended June 30, 2004, the Company paid
(pound)41,044 or $73,000. In addition, the Company adjusted the amount due in
USD to reflect the change in exchange rates from when the settlement was reached
in 2002. As a result $107,450 was recorded to translation loss. As of June 30,
2004, the balance was $199,321. During the nine months ended March 31, 2005, the
Company paid $56,000. In April 2005, an agreement was reached with Herbert Smith
whereby they accepted $110,000 as payment in full. As a result, the Company
recorded a gain on forgiveness of debt of $33,321 in the accompanying
consolidated financial statements.

In December 2001, as part of the winding up of Network Solutions Ltd. the parent
agreed to assume the note payable of one of the major creditors, Barclay's Bank
PLC of (pound)130,000 or $188,500 USD. In November 2002, the parties agreed upon
a settlement agreement whereby the Company would pay (pound)1,000 per month for
twelve months and (pound)2,000 per month thereafter until paid. During the
fiscal year ended June 30, 2003, the Company paid approximately (pound)2,000 or
$3,336. The balance owing at June 30, 2003 was $185,164. During the year ended
June 30, 2004, the Company paid (pound)66,000 or $69,421. During the quarter
ended March 31, 2004, the Company entered into a settlement agreement with
Barclay's whereby Barclay's agreed to accept (pound)69,000 or $79,098 as payment
in full. As a result the Company recorded a gain on the reduction of debt in the
amount of $99,146. As of June 30, 2004, (pound)60,000 or $62,500 has been paid
on the settlement amount and the balance of (pound)9,000 or $16,598 was paid in
July, 2004.

In June 2002, the Company signed a settlement agreement with a former consultant
for payment of past services rendered. The Company agreed to pay the consultant
a total of $75,000. The agreement calls for monthly payments of $1,500 per month
until paid. The balance owing at June 30, 2004 was $26,300. During the current
fiscal year the Company paid $10,000. As of June 30, 2005, the balance was
$16,300. The entire balance has been classified as a current liability in the
accompanying consolidated financial statements.

In January 2005, the Company renewed its director's and officer liability
insurance for which the annual premium is $138,050. In February 2005, the
Company arranged financing with AFCO Credit Corporation with a down payment of
$27,610 with the balance to be paid in monthly installments. The balance owing
as of June 30, 2005 was $49,688 and is classified as a current liability in the
accompanying consolidated financials statements.

In October 2004, the Company renewed its professional liability insurance for
which the annual premium is $5,944. The Company has arranged for financing with
the insurance company with a down payment of $1,853 and nine monthly payment of
$480 each. During the six months ended March 31, 2005, the Company paid $4,529.
The balance owing at June 30, 2005 was $475 and is classified as a current
liability in the accompanying consolidated financials statements.

In February 2005, the Company received a loan from a current shareholder Sir
Gulam Noon in the amount of $500,000. The note carries an interest rate of 9.75%
per annum and is due in one year. The maturity date of the loan may be extended
at the option of the holder for an additional year. During the fiscal year ended
June 30, 2005, $18,794 of accrued interest was recorded for this loan.

F-21

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In February 2005, the Company received a loan from Gulf Crown Investments in the
amount of $250,000. The note carries an interest rate of 9.75% per annum and is
due in one year. The maturity date of the loan may be extended at the option of
the holder for an additional year. During the fiscal year ended June 30, 2005,
$9,397 of accrued interest was recorded for this loan.

In February 2005, the Company received a loan from a current shareholder Dr.
Omar Atiq in the amount of $300,000. The note carries an interest rate of 12%
per annum and is due on April 4, 2005. The maturity date of the loan may be
extended at the option of the holder. During the quarter ended June 30, 2005,
$150,000 cash was paid on the loan and 100,000 shares of the Company's common
stock was issued valued at $156,160 to pay the debt in full, including $7,453 of
accrued interest (see note 8). As a result, the Company recorded a gain on
forgiveness of debt of $1,293 in the accompanying consolidated financial
statements.

In May 2005, the Company received a loan from Maxim Group, LLC in the amount of
$250,000. The note carries an interest rate of 12% and is due July 25, 2005. The
note called for $150,000 to be paid with 80,214 shares the Company's common
stock and the balance of $100,000 to be paid in cash. The market value of the
shares issued was $152,968 (see Note 8). As a result, the Company recorded a
loss on forgiveness of debt of $2,968 in the accompanying consolidated financial
statements.

In addition, the various subsidiaries had current capital leases of $144,537 as
of June 30, 2005.

LOANS PAYABLE - BANK

The Company's Pakistan subsidiary, NetSol Technologies (Private) Ltd., has two
loans with a bank, secured by the Company's assets. These notes consist of the
following as of June 30, 2005:

TYPE OF MATURITY INTEREST BALANCE
LOAN DATE RATE USD
-------------------------------------------------------------------

Export Refinance Every 6 months 4% $ 367,401
Line of Credit On Demand 8% 21,688
----------
Total $ 389,089
==========

DUE TO OFFICERS

The officers of the Company from time to time loan funds to the Company. As of
June 30, 2004, the officers had loaned a total of $191,102, including $57,776 of
accrued interest and had accrued wages of $102,087. During the fiscal year ended
June 30, 2004, the officers exercised options against the amounts owing to them
in the amount of $275,973. The balance owing as of June 30, 2004 was $17,219.
During the current fiscal year, two officers deferred the increase in their
wages for a total of $32,500. In addition, one officer exercised options against
the amounts owing in the amount of $2,083. The balance owing as of June 30, 2005
was $47,636.

NOTE 8 - STOCKHOLDERS' EQUITY

Initial Public Offering:

F-22

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On September 15, 1998, the Company completed the sale of its minimum offering of
shares in its initial public offering which generated gross proceeds of
$1,385,647 from the sale of 50,200 shares of common stock and 929,825 warrants,
each warrant to purchase one share of the Company's common stock at an exercise
price of $6.50 for a term of five years. The remaining unexercised warrants of
51,890 expired on September 15, 2003.

Business Combinations:

Altvia Technologies, Inc.

On May 20, 2003, the Company issued 212,000 Rule 144 restricted common shares in
exchange for all the assets and certain liabilities of Altvia Technologies,
Inc., a Delaware corporation in an Asset Purchase Agreement. The shares were
valued at the time of the purchase at $212,000 or $1.00 per share.

In February 2004, an additional 100,000 shares were issued to Altvia as part of
the purchase agreement for sales milestones achieved.

Pearl Treasury System Ltd

In October 2003, the Company entered into an agreement to acquire the Pearl
Treasury System Ltd, a United Kingdom company ("Pearl"). This acquisition
required the Company to issue up to 60,000 shares of common stock to the
shareholders of Pearl Treasury System, Ltd. The shares were valued at the time
of the purchase at $166,860 or $2.78 per share. On December 16, 2003, the
initial shares of 41,700, valued at $115,968 due at the signing of the agreement
were issued by the Company. In April 2004, the remaining 18,300 shares were
issued upon the completion of the software delivery warranties valued at
$50,892. The shares used to acquire this asset were issued in reliance on an
exemption available from registration under Regulation S of the Securities Act
of 1933, as amended.

In January 2005, certain milestones, set forth in the purchase and sale
agreement by and between the Company and the former owners, were met in the
development of the Pearl. As such, the former owners of the product license were
due an additional 40,000 shares of the Company's common stock. The Company
recorded an addition to the product licenses in the amount of $91,600.

CQ Systems, Inc.

In February 2005, the Company completed the acquisition of CQ Systems, (see note
15). As part of this agreement, the Company issued 759,468 shares of its common
stock valued at $1,816,301 to the shareholders of CQ Systems.

Private Placements

In August 2004, the Company sold 190,476 shares of the Company's common stock
for $200,000 in a private placement. Of this amount $91,500 had been received
during the year and a total of 87,143 shares were issued to the purchaser. The
remaining balance of $108,500 or 103,333 shares are shown as "Shares to Be
Issued" on the accompanying financial statements.

During the quarter ended December 31, 2004, the Company sold 1,390,476 shares of
its common stock for $1,250,000 in private placement agreements.

In addition, the Company received $170,500 as payment on stock subscriptions
receivable during the fiscal year ended June 30, 2005.

F-23

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In July 2003, the Company sold 1,026,824 shares of the Company's common stock in
a private placement transaction. Maxim Group, LLC in New York acted as the
placement agent for the transaction. The total funds raised were $1,215,000 with
approximately $102,950 in placement fees, commissions, and other expenses paid
from the escrow of the sale for a net of $1,102,050. An SB-2 registration
statement was filed on October 15, 2003 to register the shares for the selling
shareholders in this transaction. The investors included 12 individual
accredited investors with no prior ownership of the Company's common stock.

In May 2004, the Company sold 386,363 shares of the Company's common stock in a
private placement transaction. Maxim Group, LLC in New York acted as the
placement agent for the transaction. The total funds raised were $850,000 with
approximately $103,300 in placement fees, commissions, and other expenses paid
from the escrow of the sale. In addition, the Company issued 243,182 warrants in
connection with the sale. The warrants expire in five years and have an exercise
price of $3.30 per share. The warrants were valued using the fair value method
at $230,413 or $1.41 per share and were recorded against the proceeds of the
financing in the accompanying consolidated financial statements. Net proceeds of
the financing were $516,287. The investors included 9 individual accredited
investors with no prior ownership of the Company's common stock. An SB-2 was
filed on June 15, 2004 to register these shares.

Services, Accrued Expenses and Payables

During the years ended June 30, 2005 and 2004, the Company issued 188,972 and
3,613 restricted Rule 144 common shares in exchange for services rendered,
respectively. The Company recorded an expense of $246,650 and $9,000 for the
years ended June 30, 2005 and 2004, respectively. Compensation expense was
calculated based upon the fair market value of the freely trading shares as
quoted on NASDAQ through 2005 and 2004, over the service period.

In November 2004, the Company entered into an agreement with a vendor whereby
the Company issued the vendor 20,000 shares valued at $22,968 for the payment of
outstanding invoices in the amount of $16,052. As a result, the Company recorded
a gain on settlement of debt in the amount of $6,916.

During the year ended June 30, 2005, the Company issued 14,528 shares of the
Company's common stock for accrued expenses valued at $27,000.

In February 2003, the Board of Directors and officers were granted the right to
receive 5,000 shares of the Company's common stock if certain conditions were
met during their 2003 - 2004 term of office. These conditions were met and a
total of 45,000 restricted Rule 144 common shares were issued in June 2004. The
shares were valued at the fair market value at the date of grant of $39,240 or
$0.87 per share.

Issuance of shares for Conversion of Debt and Settlement of Litigation

During the year ended June 30, 2005, nineteen of the convertible debenture
holders elected to convert their notes into common stock. The total of the notes
converted was $1,050,000 and the Company issued 564,519 shares of its common
stock to the note holders.

During the year ended June 30, 2005, a total of 180,214 shares of the Company's
common stock valued at $309,128 were issued for the payment of two notes payable
of $300,000 plus $7,453 (see Note 7). In addition, 67,470 shares valued at
$104,660 were issued to pay the debts of a subsidiary.

During the year ended June 30, 2004, a total of 123,350 shares of the Company's
common stock, valued at $209,200, were issued to three investors as
reimbursement for debts of the Company paid by the investors. In addition, three
convertible notes payable of $850,000 plus $11,429 of interest was converted
into 477,993 shares of the Company's common stock.

F-24

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During the year ended June 30, 2004, the Company issued 45,195 shares of common
stock valued at $135,135 in settlement of litigation.

Options and Warrants Exercised

During the year ended June 30, 2005, the Company issued 1,210,110 shares of its
common stock for the exercise of options valued at $1,807,733. Of these shares,
320,000 shares valued at $693,000 were cancelled. The Company received $969,733
in cash from the exercise of these options and recorded "Stock Subscription
Receivable" in the amount of $145,000.

During the year ended June 30, 2004, the Company issued 1,067,309 shares of its
common stock upon the exercise of stock options valued at $957,892; of this
amount $290,000 was included in "Stock Subscription Receivable" in the accompany
consolidated financial statements.

During the years ended June 30, 2005 and 2004, the Company issued 145,162 and
390,000 shares of its common stock upon the exercise of warrants valued at
$290,324and $487,500, respectively.

Stock Subscription Receivable

Stock subscription receivable represents stock options exercised and issued that
the Company has not yet received the payment from the purchaser as they were in
processing when the quarter ended.

At June 30, 2004, the Company had receivables from three employees and one
investor for options exercised totally $290,000. The total receivable at June
30, 2004, was $333,650.

During the year ended June 30, 2005, the Company recorded $874,500 in receivable
and collected $561,500. In addition, a purchaser (consultant) decided not to
complete the agreed purchase and therefore 20,000 shares were cancelled and the
related value of $30,000 was reversed from the receivable account. The balance
of the receivable at June 30, 2005 was $616,650.

Treasury Stock

During the year ended June 30, 2004, the Company purchased 10,000 shares of its
common stock on the open market for $21,457 as treasury shares.

During the year ended June 30, 2005, the Company purchased 30,000 shares of its
common stock on the open market for $51,704. The Company issued 24,004 of its
treasury shares valued at $45,964 in settlement of a debt. The balance at June
30, 2005 was $27,197.

Common Stock Purchase Warrants and Options

From time to time, the Company issues options and warrants as incentives to
employees, officers and directors, as well as to non-employees.

Common stock purchase options and warrants consisted of the following as of June
30, 2005:

F-25

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Exercise Exercise
Options Price Warrants Price
-------------- -------------- -------------- --------------

Outstanding and exercisable, June 30, 2004 1,862,277 $0.75 to $5.00 693,182 $0.50 to $5.00
Granted 3,994,833 $0.75 to $5.00 282,260 $ 3.30
Exercised (809,110) $0.75 to $2.21 (145,162) $ 2.00
Expired (10,000) $ 1.00 (175,000)
-------------- --------------
Outstanding and exercisable, June 30, 2005 5,038,000 655,280

During the year ended June 30, 2005, 3,596,333 options were granted to employees
of the company and are fully vested and expire ten years from the date of grant
unless the employee terminates employment, in which case the options expire
within 30 days of their termination. An expense of $5,492 was recorded for the
granting of these options.

During the year ended June 30, 2004, 2,087,578 options were granted to employees
and officers of the company and are fully vested and expire ten years from the
date of grant unless the employee terminates employment, in which case the
options expire within 30 days of their termination. In addition, on March 26,
2004, 250,000 option shares were granted to the members of the Board of
Directors. These options vest over a period of two years.

2005 2004
------------- -------------

Net income (loss) - as reported $ 663,325 $ (2,577,058)
Stock-based employee compensation expense,
included in reported net loss, net of tax -- --

Total stock-based employee compensation
expense determined under fair-value-based
method for all rewards, net of tax (4,533,825) (3,158,130)

------------- -------------
Pro forma net loss $ (3,870,500) $ (5,735,188)
============= =============

Earnings per share:
Basic, as reported 0.06 (0.33)
Diluted, as reported 0.04 (0.33)

Basic, pro forma (0.33) (0.73)
Diluted, pro forma (0.03) (0.73)

F-26

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2003 2004
Expected life (years) 10 years 10 years
Risk-free interest rate 3.25% 3.25%
Dividend yield - -
Volatility 100% 114%

During the year ended June 30, 2005, nineteen debenture holders converted their
notes into common stock. As part of the conversion, warrants to purchase a total
of 282,260 common shares were issued to the note holders. The warrants expire in
five years and have an exercise price of $3.30 per share. The warrants were
valued using the fair value method at $249,638 and ranged between $0.69 and
$0.92 per share and recorded the expense in the accompanying consolidated
financial statements. The Black-Scholes option pricing model used the following
assumptions:

Risk-free interest rate 3.25%
Expected life 5 years
Expected volatility 82%
Dividend yield 0%

During the year ended June 30, 2004, the Company issued 243,182 warrants in
connection with the sale of stock under a private placement agreement. The
warrants expire in five years and have an exercise price of $3.30 per share. The
warrants were valued using the fair value method at $230,413 or $1.41 per share
and were recorded against the proceeds of the financing in the accompanying
consolidated financial statements. The Black-Scholes option pricing model used
the following assumptions:

Risk-free interest rate 3.25%
Expected life 5 years
Expected volatility 100%
Dividend yield 0%

NOTE 9 - INCENTIVE AND NON-STATUTORY STOCK OPTION PLAN

The 1997 Plan

On April 1, 1997, the Company adopted an Incentive and Non-statutory Stock
Option Plan (the "1997 Plan") for its employees and consultants under which a
maximum of 100,000 options may be granted to purchase common stock of the
Company. Two types of options may be granted under the Plan: (1) Incentive Stock
Options (also known as Qualified Stock Options) which may only be issued to
employees of the Company and whereby the exercise price of the option is not
less than the fair market value of the common stock on the date it was reserved
for issuance under the Plan; and (2) Non-statutory Stock Options which may be
issued to either employees or consultants of the Company and whereby the
exercise price of the option is less than the fair market value of the common
stock on the date it was reserved for issuance under the plan. Grants of options
may be made to employees and consultants without regard to any performance
measures. All options listed in the summary compensation table ("Securities
Underlying Options") were issued pursuant to the Plan. An additional 4,000
Incentive Stock Options were issued to a non-officer-stockholder of the Company.
All options issued pursuant to the Plan vest over an 18 month period from the
date of the grant per the following schedule: 33% of the options vest on the
date which is six months from the date of the grant; 33% of the options vest on
the date which is 12 months from the date of the grant; and 34% of the options
vest on the date which is 18 months from the date of the grant. All options
issued pursuant to the Plan are nontransferable and subject to forfeiture.

F-27

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During the year ended June 30, 2004, all outstanding options in this plan
expired.

The 1999 Plan

On May 18, 1999, the Company enacted an Incentive and Non-statutory Stock Option
Plan (the "1999 Plan") for its employees, directors and consultants under which
a maximum of 1,000,000 options may be granted to purchase common stock of the
Company. Two types of options may be granted under the Plan: (1) Incentive Stock
Options (also known as Qualified Stock Options) which may only be issued to
employees of the Company and whereby the exercise price of the option is not
less than the fair market value of the common stock on the date it was reserved
for issuance under the Plan; and (2) Non-statutory Stock Options which may be
issued to either employees or consultants of the Company and whereby the
exercise price of the option is less than the fair market value of the common
stock on the date it was reserved for issuance under the plan. Grants of options
may be made to employees, directors and consultants without regard to any
performance measures. All options issued pursuant to the Plan are
nontransferable and subject to forfeiture.

Any Option granted to an Employee of the Corporation shall become exercisable
over a period of no longer than ten (10) years and no less than twenty percent
(20%) of the shares covered thereby shall become exercisable annually. No
Incentive Stock Option shall be exercisable, in whole or in part, prior to one
(1) year from the date it is granted unless the Board shall specifically
determine otherwise, as provided herein. In no event shall any Option be
exercisable after the expiration of ten (10) years from the date it is granted,
and no Incentive Stock Option granted to a Ten Percent Holder shall, by its
terms, be exercisable after the expiration of ten (10) years from the date of
the Option. Unless otherwise specified by the Board or the Committee in the
resolution authorizing such option, the date of grant of an Option shall be
deemed to be the date upon which the Board or the Committee authorizes the
granting of such Option.

During the year ended June 30, 2004, all outstanding options in this plan
expired.

The 2001 Plan

On March 27, 2002, the Company enacted an Incentive and Non-statutory Stock
Option Plan (the "2001 Plan") for its employees and consultants under which a
maximum of 2,000,000 options may be granted to purchase common stock of the
Company. Two types of options may be granted under the Plan: (1) Incentive Stock
Options (also known as Qualified Stock Options) which may only be issued to
employees of the Company and whereby the exercise price of the option is not
less than the fair market value of the common stock on the date it was reserved
for issuance under the Plan; and (2) Non-statutory Stock Options which may be
issued to either employees or consultants of the Company and whereby the
exercise price of the option is less than the fair market value of the common
stock on the date it was reserved for issuance under the plan. Grants of options
may be made to employees and consultants without regard to any performance
measures. All options issued pursuant to the Plan are nontransferable and
subject to forfeiture.

The number and exercise prices of options granted under the 2001 Plan for the
years ended June 30, 2005 and 2004 are as follows:

F-28

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Exercise Exercise
2005 Price 2004 Price
---------------------------- ---------------------------

Outstanding and exercisable, beginning of year 269,777 $0.75 to $2.50 398,408 $0.25 to $1.25
Granted 484,000 $0.75 to $2.50 635,913 $0.75 to $2.50
Exercised (632,777) $0.75 to $2.50 (764,544) $0.25 to $1.25
Expired (10,000) - - -
------------ -----------
Outstanding and exercisable, end of year 111,000 $0.75 to $2.50 269,777 $0.75 to $2.50

The 2002 Plan

In January 2003, the Company enacted an Incentive and Non-statutory Stock Option
Plan (the "2002 Plan") for its employees and consultants under which a maximum
of 2,000,000 options may be granted to purchase restricted Rule 144 common stock
of the Company. Two types of options may be granted under the Plan: (1)
Incentive Stock Options (also known as Qualified Stock Options) which may only
be issued to employees of the Company and whereby the exercise price of the
option is not less than the fair market value of the common stock on the date it
was reserved for issuance under the Plan; and (2) Non-statutory Stock Options
which may be issued to either employees or consultants of the Company and
whereby the exercise price of the option is less than the fair market value of
the common stock on the date it was reserved for issuance under the plan. Grants
of options may be made to employees and consultants without regard to any
performance measures. All options issued pursuant to the Plan are
nontransferable and subject to forfeiture.

The number and weighted average exercise prices of options granted under the
2002 Plan for the year ended June 30, 2005 and 2004 are as follows:

Exercise Exercise
2005 Price 2004 Price
---------------------------- ---------------------------

Outstanding and exercisable, beginning of year 1,142,500 $0.75 to $2.50 93,600 -
Granted 14,500 $1.00 to $5.00 1,351,665 $0.75 to $2.50
Exercised (17,500) $0.75 to $2.50 (302,765) $0.25 to $1.25
Expired - - - -
---------- ----------
Outstanding and exercisable, end of year 1,139,500 $0.75 to $5.00 1,142,500 $0.75 to $2.50

F-29

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The 2003 Plan

In March 2004, the Company enacted an Incentive and Non-statutory Stock Option
Plan (the "2003 Plan") for its employees and consultants under which a maximum
of 2,000,000 options may be granted to purchase restricted Rule 144 common stock
of the Company. Two types of options may be granted under the Plan: (1)
Incentive Stock Options (also known as Qualified Stock Options) which may only
be issued to employees of the Company and whereby the exercise price of the
option is not less than the fair market value of the common stock on the date it
was reserved for issuance under the Plan; and (2) Non-statutory Stock Options
which may be issued to either employees or consultants of the Company and
whereby the exercise price of the option is less than the fair market value of
the common stock on the date it was reserved for issuance under the plan. Grants
of options may be made to employees and consultants without regard to any
performance measures. All options issued pursuant to the Plan are
nontransferable and subject to forfeiture.

The number and weighted average exercise prices of options granted under the
2003 Plan for the year ended June 30, 2005 and 2004 are as follows:

Exercise Exercise
2005 Price 2004 Price
---------------------------- ---------------------------

Outstanding and exercisable, beginning of year 450,000 - - -
Granted 386,500 $1.00 to $5.00 450,000 $2.64 to $5.00
Exercised (49,000) $1.00 to $1.35 - -
Expired - - - -
------------ ----------
Outstanding and exercisable, end of year 787,500 $1.00 to $5.00 450,000 $2.64 to $5.00

The 2004 Plan

In March 2005, the Company enacted an Incentive and Non-statutory Stock Option
Plan (the "2004 Plan") for its employees and consultants under which a maximum
of 5,000,000 options may be granted to purchase restricted Rule 144 common stock
of the Company. Two types of options may be granted under the Plan: (1)
Incentive Stock Options (also known as Qualified Stock Options) which may only
be issued to employees of the Company and whereby the exercise price of the
option is not less than the fair market value of the common stock on the date it
was reserved for issuance under the Plan; and (2) Non-statutory Stock Options
which may be issued to either employees or consultants of the Company and
whereby the exercise price of the option is less than the fair market value of
the common stock on the date it was reserved for issuance under the plan. Grants
of options may be made to employees and consultants without regard to any
performance measures. All options issued pursuant to the Plan are
nontransferable and subject to forfeiture.

F-30

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The number and weighted average exercise prices of options granted under the
2004 Plan for the year ended June 30, 2005 are as follows:

Exercise
2005 Price
-------------------------------
Outstanding and exercisable, beginning of year - -
Granted 3,109,833 $1.50 to $2.91
Exercised (109,833) $1.50
Expired - -
--------------
Outstanding and exercisable, end of year 3,000,000 $1.50 to $2.91

NOTE 10 - CONVERTIBLE DEBENTURE

On March 24, 2004, the Company entered into an agreement with several investors
for a Series A Convertible Debenture (the "Bridge Loan") whereby a total of
$1,200,000 in debentures were procured through Maxim Group, LLC. The Company
received a net of $1,049,946 after placement expenses. The beneficial conversion
feature of the debenture was valued at $252,257. The Company has recorded this
as a contra-account against the loan balance and is amortizing the beneficial
conversion feature over the life of the loan. During the years ended June 30,
2005 and 2004, the Company amortized $37,500 and $202,932, respectively. The
unamortized balance at June 30, 2005 was $11,825.

In addition, each debenture holder is entitled to receive at the time of
conversion warrants equal to one-half of the total number of shares issued. The
total number of warrants that may be granted is 322,582. The warrants expire in
five years and have an exercise price of $3.30 per share. The fair value of the
warrants will be calculated and recorded using the Black-Scholes method at the
time of granting, when the debenture is converted. During the year ended June
30, 2005, nineteen debenture holders converted their notes into common stock. As
part of the conversion, warrants to purchase a total of 282,260 common shares
were issued to the note holders. The warrants were valued using the fair value
method at $249,638. The expense was recorded in the accompanying consolidated
financial statements.

NOTE 11 - COMMITMENTS AND CONTINGENCIES

Leases

In December 2003, the moved its headquarters from its previous facility to one
with approximately 1,919 rentable square feet and a monthly rent of $3,934 per
month. The term of the lease is for two years and expires on December 31, 2005.
A security deposit of $3,934 was made and is included in other current assets in
the accompanying consolidated financial statements.

F-31

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The facilities in Maryland were on a month-to-month basis rented at the rate of
$1,200 per month. In July 2004 the Maryland office moved to a new location to
one with approximately 1,380 rentable square feet and a monthly rent of $2,530.
The term of the lease is for three years and expires on June 30, 2007. A
security deposit of $2,530 was made and is included in other current assets in
the accompanying consolidated financial statements.

The Australia lease is a three-year lease that expires in September 2007 and
currently is rented at the rate of $1,380 per month. UK operations are currently
conducted in leased premises operating on a month-to-month basis with current
rental costs of approximately $5,500 per month. Our London, UK operations are
currently conducted in leased premises operating on a month-to-month basis with
current rental costs of approximately $5,500 per month. The CQ System
facilities, located in Horsham, United Kingdom, are leased until June 23, 2011
for an annual rent of (pound)75,000 (approximately $131,871.15) with an early
termination option in June 2006. In June 2005, the Company opened a sales office
in Beijing, China. The Beijing lease is a one year lease that expires in June
2006. The monthly rent is $2,280 per month with the first two months free
bringing the average monthly rent to $1,900 per month.

Upon expiration of its leases, the Company does not anticipate any difficulty in
obtaining renewals or alternative space. Rent expense amounted to $290,610 and
$220,261 for the years ended June 30, 2005 and 2004, respectively.

Lahore Technology Campus

The newly built Technology Campus was inaugurated in Lahore, Pakistan in May
2004. This facility consists of 40,000 square feet of computer and general
office space. This facility is state of the art, purpose-built and fully
dedicated for IT and software development; the first of its kind in Pakistan.
Title to this facility is held by NetSol Technologies Pvt. Ltd., and is not
subject to any mortgages. The Company also signed a strategic alliance agreement
with the IT ministry of Pakistan to convert the technology campus into a
technology park. By this agreement, the IT ministry would invest nearly 10
million Rupees (approximately $150,000) to install fiber optic lines and improve
the bandwidth for the facility. NetSol has relocated over 250 employees into
this new facility.

Employment Agreements

Effective January 1, 2004, the Company entered into an employment agreement with
Naeem Ghauri as Chief Executive Officer. The agreement is for a base term of
three years, and continues thereafter on an at will basis until terminated by
either NetSol or Mr. Ghauri. The agreement provides for a yearly salary of
110,000 pounds sterling. The agreement also provides for such additional
compensation as the Board of Directors determines is proper in recognition of
Mr. Ghauri's contributions and services to the Company. In addition, the
agreement provides Mr. Ghauri with options to purchase up to 100,000 shares of
common stock at an exercise price of $2.21, 100,000 shares at an exercise price
of $3.75 and 50,000 shares at an exercise price of $5.00. These options vest at
the rate of 25% per quarter and are fully vested on December 31, 2004. These
options expire on December 31, 2008. Mr. Ghauri also received options to
purchase up to 20,000 shares at the exercise price of $2.65 per share and
options to purchase 30,000 shares at the exercise price of $5.00 per share.
These options vest immediately and are exercisable until March 25, 2009.
Effective April 1, 2005, Mr. Ghauri's employment agreement was amended to
increase his salary to (pound)160,000 per annum (approximately $280,000 per
annum based on an exchange rate of 1.75) and, to grant him options to purchase
up to 500,000 shares at the exercise price of $1.94 per share and options to
purchase up to 500,000 shares at the exercise price of $2.91 per share. These
options vest 25% per quarter commencing with the quarter ending June 30, 2005.

Effective January 1, 2004, the Company entered into an employment agreement with
Najeeb Ghauri as Chief Financial Officer. The agreement is for a base term of
three years, and continues thereafter on an at will basis until terminated by
either NetSol or Mr. Ghauri. The agreement provides for a yearly salary of
$200,000. The agreement also provides for such additional compensation as the
Board of Directors determines is proper in recognition of Mr. Ghauri's
contributions and services to the Company. In addition, the agreement provides
Mr. Ghauri with options to purchase up to 100,000 shares of common stock at an
exercise price of $2.21, 100,000 shares at an exercise price of $3.75 and 50,000
shares at an exercise price of $5.00. These options vest at the rate of 25% per
quarter and are fully vested on December 31, 2004. These options expire on
December 31, 2008. Mr. Ghauri also received options to purchase up to 20,000
shares at the exercise price of $2.65 per share and options to purchase 30,000
shares at the exercise price of $5.00 per share. These options vest immediately
and are exercisable until March 25, 2009. Effective April 1, 2005, Mr. Ghauri's
employment agreement was amended to increase his salary to $250,000 per annum
and, to grant him options to purchase up to 500,000 shares at the exercise price
of $1.94 per share and options to purchase up to 500,000 shares at the exercise
price of $2.91 per share. These options vest 25% per quarter commencing with the
quarter ending June 30, 2005.

F-32

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Effective January 1, 2004, the Company entered into an employment agreement with
Salim Ghauri as the President and Chief Executive Officer the Company's Pakistan
subsidiary. The agreement is for a base term of three years, and continues
thereafter on an at will basis until terminated by either the Company or Mr.
Ghauri. The agreement provides for a yearly salary of $110,000. The agreement
also provides for such additional compensation as the Board of Directors
determines is proper in recognition of Mr. Ghauri's contributions and services
to the Company. In addition, the agreement provides Mr. Ghauri with options to
purchase up to 100,000 shares of common stock at an exercise price of $2.21,
100,000 shares at an exercise price of $3.75 and 50,000 shares at an exercise
price of $5.00. These options vest at the rate of 25% per quarter and are fully
vested on December 31, 2004. These options expire on December 31, 2008. Mr.
Ghauri also received options to purchase up to 20,000 shares at the exercise
price of $2.65 per share and options to purchase 30,000 shares at the exercise
price of $5.00 per share. These options vest immediately and are exercisable
until March 25, 2009. Effective April 1, 2005, Mr. Ghauri's employment agreement
was amended to increase his salary to $150,000 per annum and, to grant him
options to purchase up to 500,000 shares at the exercise price of $1.94 per
share and optins to purchase up to 500,000 shares at the exercise price of $2.91
per share. These options vest 25% per quarter commencing with the quarter ending
June 30, 2005.

Effective January 1, 2004, the Company entered into an employment agreement with
Patti L. W. McGlasson as legal counsel. The agreement provides for a yearly
salary of $82,000. Ms. McGlasson also received options to purchase up to 10,000
shares of common stock at an exercise price equal to the lesser of $2.30 or the
market price of the shares on the date of exercise less $2.00. These options
vest at the rate of 25% per quarter and are exercisable until December 31, 2008.
Effective March 26, 2004, Ms. McGlasson was elected to the position of
Secretary. In connection with her role as Secretary, Ms. McGlasson received
options to purchase up to 10,000 shares of common stock at $3.00 per share.
These options vest at the rate of 25% per quarter and are exercisable until
December 31, 2008. Ms. McGlasson also received options to purchase up to 20,000
shares at the exercise price of $2.65 per share and options to purchase 30,000
shares at the exercise price of $5.00 per share. These options vest immediately
and are exercisable until March 25, 2009.

All of the above agreements provide for certain Company-paid benefits such as
employee benefit plans and medical care plans at such times as the Company may
adopt them. The agreements also provide for reimbursement of reasonable
business-related expenses and for two weeks of paid vacation. The agreements
also provide for certain covenants concerning non-competition, non-disclosure,
indemnity and assignment of intellectual property rights.

Litigation

Herbert Smith, a former attorney representing the Company, commenced a
collection proceeding against the Company in the High Court of Justice, Queen's
Bench Division, on July 31, 2002, claiming the Company owed a sum certain to it.
The Company had signed an engagement letter dated October 18, 2000. Herbert
Smith ("HS") was hired to proceed against Surrey Design Partnership Ltd. HS
claimed the Company owed 171,733 pounds sterling or approximately $248,871 USD.
This sum includes interest in the amount of 8% per annum and had been recorded
as a note payable on the accompanying consolidated financial statements (see
note 7). On November 28, 2002, a Consent Order was filed with the Court agreeing
to a payment plan, whereby the Company is to pay $10,000 USD upon signing of the
agreement, $4,000 USD a month for one year and $6,000 USD, per month thereafter
until the debt is paid. During the years ended June 30, 2005 and 2004, the
Company paid $166,000 and $73,000. In April 2005, an agreement was reached with
Herbert Smith whereby they accepted $110,000 as payment in full. As a result,
the Company recorded a gain on forgiveness of debt of $33,321 in the
accompanying consolidated financial statements.

F-33

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On January 29, 2002, the Company reached a settlement with Adrian Cowler and The
Surrey Design Partnership Limited, the former owners of Network Solutions Group
Limited ("NSGL"). The settlement had the following terms; I) NetSol to pay
50,000 pounds sterling; II) 3,000 pounds sterling to be paid for 24 months
beginning 31, March 2002; III) 4,000 pounds sterling to be paid for 24 months
beginning March 31, 2004; IV) NetSol to release 155,000 shares in escrow; V)
650,000 144 shares to be issued to Surrey Design. NetSol made some of the
payments and issued all the shares. On June 11, 2002, Plaintiff filed an
enforcement of judgment in California Superior Court of Los Angeles to enforce
the judgment. A request for Entry of Default was filed on July 30, 2002. On
September 10, 2002 NetSol filed its Opposition to Plaintiff's request for Entry
of Judgment and on September 16, 2002, Plaintiff filed its Motion to Strike
NetSol's Opposition. On September 25, 2002, the Company and Surrey Design
entered into an Agreement to Stay Enforcement of Judgment. The terms of the
Agreement included (i) NetSol to pay 25,000 pounds sterling upon execution of
this Agreement; (ii) By February 20, 2003, NetSol to pay an addition 25,000
pounds sterling; (iii) From October 31, 2002 to February 28, 2003, NetSol to pay
3,000 pounds sterling; and (iv) from March 31, 2003 for a period of 24 months,
NetSol to pay 4,000 pounds sterling. The settlement amount had been recorded in
the accompanying consolidated financial statements as a note payable (see note
7). During the years ended June 30, 2005 and 2004, the Company paid $125,368 and
$86,857. In December 2004, the Company reached an agreement with Cowler to pay
the balance of the loan in one lump-sum payment. Cowler agreed to accept
(pound)52,000 or $103,371 as payment in full. As a result, the Company recorded
a gain on forgiveness of debt of $21,148 in the accompanying consolidated
financial statements.

On March 27, 2003, Arab Commerce Bank ("ACB") filed a complaint in the Supreme
Court of the State of New York (Index No. 600709/03) seeking damages for breach
of a Note Purchase Agreement and Note. ACB alleged that NetSol did not issue
stock in a timely manner in December 2000 resulting in compensatory damages in
the amount of $146,466.72. The litigation arises out of a transaction from late
1999 in which Arab Commerce Bank invested $100,000 in the Company's securities
through a private placement. ACB claimed that the removal of the legend on its
shares of common stock longer than contractually required. During this purported
delay, the market value of the Company's common shares decreased. Essentially,
the ACB complaint sought the lost value of its shares. In the event ACB was
unable to collect the amount sought, the complaint requested that NetSol repay
the principal sum of the Note of $100,000 and interest at the rate of 9% per
annum based on the maturity date of December 10, 2000. This matter has been
settled pursuant to the terms of a settlement agreement whereby NetSol agreed to
issue to ACB shares of common stock of the Company equal in value to $100,000
plus $39,178 of interest as of the effective date of the agreement. On December
16, 2003, the Company issued 34,843 shares of its common stock in satisfaction
of the principal amount due. On February 6, 2004, the Company issued 10,352
shares of its common stock for the accrued interest.

On March 3, 2004, Uecker and Associates, Inc. as the assignee for the benefit of
the creditors of PGC Systems, Inc. f.k.a. Portera Systems Inc. filed a request
for arbitration demanding payment from the Company for the amounts due under the
agreement in the amount of $175,700. On March 31, 2004, the Company filed an
Answering Statement to the Request of Uecker & Associates denying each and every
allegation contained in the Claim filed by Uecker & Associates and stating
NetSol's affirmative defenses. There was an administrative conference scheduled
with the case manager of the American Arbitration Association on March 17, 2004.
An arbitrator has been selected and the parties are selecting dates for
arbitration in this matter. A settlement was reached by and between the Company
and Portera on November 11, 2004 whereby Portera agreed to a settlement of any
and all issues related to the claim in exchange for one time payment of $75,000
which was paid by December 3, 2004.

F-34

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On June 24, 2004, the Company reached a settlement agreement with, Brobeck,
Phelger, et al, a vendor, for amounts in dispute. The vendor agreed to accept
$108,500 as payment in full to be paid in three installments totaling $54,250
and one payment of $54,250 to be paid either in cash or in the Company's common
stock. As of June 30, 2004, the Company recorded a gain of $102,119 from the
settlement of this debt in the accompanying consolidated financial statements.
In September 2004, the Company issued 24,004 of Treasury Shares valued at
$45,965 (see Note 8), as a result the Company recorded a gain of $8,285 from the
settlement of this debt in the accompanying consolidated financial statements.

On May 12, 2004, Merrill Corporation served an action against NetSol for account
stated, common counts, open book account and unjust enrichment alleging amounts
due of $90,415.33 together with interest thereon from August 23, 2001. On June
24, 2004, the parties reached a settlement agreement. The vendor agreed to
accept $75,450 as payment in full to be paid $10,450 at the time of signing the
agreement and the balance in five monthly installments of $13,000. The Company
recorded a gain of $14,965 from the settlement of this debt in the accompanying
consolidated financial statements. During the fiscal year ended June 30, 2005,
the monthly installments were paid as agreed.

NOTE 12 - SEGMENT AND GEOGRAPHIC AREAS

The following table presents a summary of operating information and certain
year-end balance sheet information for the years ended June 30, 2005 and 2004:

F-35

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2005 2004
Revenues from unaffiliated customers:
North America $ 295,725 $ 676,857
International 12,141,928 5,072,205
------------ ------------
Consolidated $ 12,437,653 $ 5,749,062
============ ============

Operating income (loss):
North America $ (2,810,508) $ (3,452,920)
International 3,875,213 744,902
------------ ------------
Consolidated $ 1,064,705 $ (2,708,018)
============ ============

Identifiable assets:
North America $ 6,373,169 $ 4,309,332
International 14,752,865 7,668,716
------------ ------------
Consolidated $ 21,126,034 $ 11,978,048
============ ============

Depreciation and amortization:
North America $ 1,324,098 $ 1,080,498
International 240,464 160,294
------------ ------------
Consolidated $ 1,564,562 $ 1,240,792
============ ============

Capital expenditures:
North America $ -- $ 55,986
International 1,468,499 2,805,768
------------ ------------
Consolidated $ 1,468,499 $ 2,861,754
============ ============

NOTE 13 - MINORITY INTEREST IN SUBSIDIARY

NetSol Connect:

In August 2003, the Company entered into an agreement with United Kingdom based
Akhter Group PLC ("Akhter"). Under the terms of the agreement, Akhter Group
acquired 49.9 percent of the Company's subsidiary; Pakistan based NetSol Connect
PVT Ltd. ("Connect"), an Internet service provider ("ISP"), in Pakistan through
the issuance of additional Connect shares. As part of this Agreement, Connect
changed its name to NetSol Akhter. The partnership with Akhter Computers is
designed to rollout connectivity and wireless services to the Pakistani national
market. On signing of this Agreement, the Shareholders agreed to make the
following investment in the Company against issuance of shares of Connect.

Akhter US$ 200,000
The Company US$ 50,000

F-36

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended June 30, 2005 and 2004, the subsidiary had net losses of
$27,422 and $689,000, respectively, of which $13,684 and $273,159 respectively,
was recorded against the minority interest. The balance of the minority interest
at June 30, 2005 was $323,938.

NetSol-TiG:

In December 2004, NetSol forged a new and a strategic relationship with a UK
based public company TIG Plc. A new Joint Venture was signed by the two
companies to create a new company, TiG NetSol Pvt Ltd. ("NetSol-TiG"), with
50.1% ownership by NetSol Technologies, Inc. and 49.9% ownership by TiG. The
agreement anticipates TiG's technology business to be outsourced to NetSol's
offshore development facility. Both companies, according to this agreement,
would invest a total of $1 million or $500,000 each in next few months for
infrastructure, dedicated personnel and systems in the NetSol IT campus in
Lahore.

During year ended June 30, 2005, the Company invested $253,635 and TiG invested
$251,626 and the new subsidiary began operations.

For the year ended June 30, 2005, the subsidiary had net income of $250,013, of
which $124,756 was recorded against the minority interest. The balance of the
minority interest at June 30, 2005 was $376,382.

NOTE 14 - GAIN ON SETTLEMENT OF DEBT

In September 2004, the Company transferred 24,004 of its treasury shares valued
at $45,965 to Brobeck Phleger & Harrison, LLP, in exchange of debt, as part of a
settlement agreement. The Company recorded a gain of $8,285 on the settlement.

In October 2004, the Company reached an agreement with a vendor to settle the
amounts owing. The vendor agreed to accept $29,642 as payment in full. As a
result, the Company recorded a gain on forgiveness of debt of $11,029.

In December 2004, the Company reached an agreement with Cowler to pay the
balance owing on the loan in one lump-sum payment (see note 7). Cowler agreed to
accept (pound)52,000 or $103,371 as payment in full. As a result, the Company
recorded a gain on forgiveness of debt of $21,148.

During the quarter ended December 31, 2004, a former officer of Abraxas, the
Company's Australian subsidiary, agreed to forgive amounts accrued to him for
long-term service leave prior to the Company's acquisition in 1999. The amounts
accrued were during the period of 1984 to 1999. As a result, the Company
recorded a gain on forgiveness of debt of $139,549.

In February 2005, the Company reached an agreement with a former vendor to
settle amounts owing. The vendor agreed to accept $27,580 as payment in full. As
a result, the Company recorded a gain on forgiveness of debt of $27,581.

In April 2005, the Company reached an agreement with Herbert Smith to pay the
balance owing on the loan in one lump-sum payment (see note 7). Smith agreed to
accept $135,000 as payment in full. As a result, the Company recorded a gain on
forgiveness of debt of $33,321.

F-37

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In June 2005, the Company reached an agreement with a former vendor to settle
amounts owing. The vendor agreed to accept $3,000 as payment in full. As a
result, the Company recorded a gain on forgiveness of debt of $1,958.

In May 2005, the Company issued shares of its common stock as payment for two
notes payable and accrued interest (see note 7). As a result, the Company
recorded a net loss on forgiveness of debt of $1,675.

During the year ended June 30, 2005, the Company wrote-off old invoices for
services under the statute of limitations. The vendors had not contacted the
Company in over four years and the original services were in dispute at the time
they were rendered. As a result, the Company recorded a gain on forgiveness of
debt of $120,951.

NOTE 15 - ACQUISITION OF CQ SYSTEMS

According to the terms of the Share Purchase Agreement, the Company acquired
100% of the issued and outstanding shares of CQ from CQ's current shareholders,
whose identity is set forth in the Share Purchase Agreement (the "CQ
Shareholders") at the completion date in exchange for a purchase price
consisting of: a) 50.1% of CQ's total gross revenue for the twelve month period
ending March 31, 2005 after an adjustment for any extraordinary revenue, i.e.
non-trading revenue ("LTM Revenue") multiplied by 1.3 payable: (i) 50% in shares
of restricted common stock of the Company at a per share cost basis of $2.313
and as adjusted by the exchange rate of U.S. Dollar to British Pound (at the
spot rate for the purchase of sterling with U.S. dollars certified by NatWest
Bank plc as prevailing at or about 11:00 a.m.) on January 19, 2005 and, (ii) 50%
in cash; and b) 49.9% of CQ's LTM Revenue for the period ending March 31, 2006
multiplied by 1.3 payable, at the Company's discretion: (i) wholly in cash; or
(ii) on the same basis and on the same terms as the initial payment provided,
however that the cost basis of the Company's common stock shall be based on the
20 day volume weighted average of the Company's shares of common stock as traded
on NASDAQ 20 days prior to March 31, 2005 and, provided that under no
circumstances shall the total number of shares of common stock issued to the CQ
Shareholders exceed 19% of the issued and outstanding shares of common stock,
less treasury shares, of the Company at January 19, 2005.

The initial purchase price was (pound)3,576,335 or $6,730,382, of which one-half
was due at closing payable in cash and stock and the other half is due when the
audited March 31, 2006 financial statements are completed. On the closing date,
$1.7 million was paid and 681,965 shares were issued to the shareholders of CQ,
valued at $1,676,795 at an average share price of $2.46 (see note 8) was
recorded. In addition, the agreement called for the accumulated retained
earnings amounting to (pound)423,711 or $801,915 of CQ Systems as of the closing
date to be paid to the shareholders in cash and stock. In April 2005, the
additional cash of (pound)350,000 or $662,410 was paid and 77,503 shares of the
Company's common stock valued at $139,505 were issued. The total amount paid at
closing was $4,178,710.

In accordance with SFAS 141, the Company has recognized the lesser of the
maximum amount of the contingent consideration based on earnings or the excess
of the fair market value of assets acquired over the purchase price as a
deferred liability. The deferred liability balance at June 30, 2005 was
$313,397. The purchase price has been allocated as follows:

F-38

NETSOL TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Purchase Price Allocation:
Purchase Price $ 7,532,297
Less contingent consideration (3,353,587)
--------------
Net purchase price $ 4,178,710
==============

Net tangible assets $ 984,420
Intangible Assets:
Product License 2,190,807
Customer Lists 1,316,880
Deferred liability (313,397)
--------------
Net purchase price $ 4,178,710
==============

The following is the proforma financial information of the Company assuming the
transaction had been consummated at the beginning of the fiscal years ended June
30, 2004 and 2005:

For the years
Ended June 30,
2005 2004

Statement of Operations:
Revenues $ 15,910,061 $ 10,389,715
Cost of Sales 6,684,419 4,533,669
-------------- --------------
Gross Profit 9,225,642 5,856,046

Operating Expenses 7,974,393 8,354,927
-------------- --------------
Income (loss) from operations 1,251,249 (2,498,881)

Other income and (expenses) (337,346) (357,018)
-------------- --------------
Income (loss) before minority interest 913,903 (2,855,899)
Minority interest in subsidiary (111,073) 273,159
-------------- --------------
Net Income (loss) $ 802,830 $ (2,582,740)
============== ==============

Earnings Per Share:
Basic $ 0.07 $ (0.30)
Diluted $ 0.05 $ (0.30)

NOTE 16 - SUBSEQUENT EVENTS

On July 31, 2005, the Company entered into an agreement with Butura Properties
to terminate the lease on the Maryland office space before the lease expiration.
The Company was required to pay $23,000 for accrued rent of $7,590 and $15,410
in early termination fees. In addition, the security deposit of $2,530 was
forfeited.

In August 2005, the Company listed its wholly-owned subsidiary, NetSol
Technologies Ltd. on the Karachi Stock Exchange ("KSE"). The initial public
offering of stock, of NetSol Technologies Ltd., together with the pre-initial
public offering private placement, raised over $5.83 million. NetSol
Technologies Ltd. is listed on the KSE under the symbol "NETSOL". Trading of
`NETSOL' on the KSE commenced on August 26, 2005.

F-39

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Indemnification of Directors and Officers

We are required by our Bylaws and Certificate of Incorporation to
indemnify, to the fullest extent permitted by law, each person that we are
permitted to indemnify. Our Bylaws it to indemnify such parties to the fullest
extent permitted by Nevada law.

Nevada corporation law permits us to indemnify our directors, officers,
employees, or agents against expenses, including attorneys fees, judgments,
fines and amounts paid in settlements actually and reasonably incurred in
relation to any action, suit, or proceeding brought by third parties because
they are or were directors, officers, employees, or agents of the corporation.
In order to be eligible for such indemnification, however, our directors,
officers, employees, or agents must have acted in good faith and in a manner
they reasonably believed to be in, or not opposed to, our best interests. In
addition, with respect to any criminal action or proceeding, the officer,
director, employee, or agent must have had no reason to believe that the conduct
in question was unlawful.

In derivative actions, we may only indemnify our officers, directors,
employees, and agents against expenses actually and reasonably incurred in
connection with the defense or settlement of a suit, and only if they acted in
good faith and in a manner they reasonably believed to be in, or not opposed to,
our best interests. Indemnification is not permitted in the event that the
director, officer, employee, or agent is actually adjudged liable to the
corporation unless, and only to the extent that, the court in which the action
was brought so determines.

Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to our controlling directors, officers,
or persons pursuant to the foregoing provisions, we have been informed that in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.

Expenses of Issuance and Distribution

The following is an estimate of the expenses that we expect to incur in
connection with this registration. We will pay all of these expenses, and the
selling stockholders will not pay any of them.

SEC Registration fee $ 478.85
Printing and engraving expenses $ 300.00*
Legal fees and expenses $1,500.00*
Accounting fees and expenses $ 0.00*
Miscellaneous $ 0.00*
---------

Total $2,278.85*
=========

* Estimate, and subject to future contingencies.

Recent Sale of Unregistered Securities

On December 16, 2003, we issued 34,843 shares, valued at $100,000, to ACB, Ltd.,
formerly Arab Commerce Bank, as part of a settlement of an action instituted by
ACB Ltd. against NetSol. The shares were issued in reliance on an exemption
available from registration under Regulation S of the Securities Act of 1933, as
amended.

On December 17, 2003, NetSol entered into a loan agreement with an accredited
non-U.S. investor, Noon Group. Under the terms of the loan, NetSol borrowed
$100,000 from the investor. The note has an interest rate of 6% per annum. The
note is due on a date that is six months from the issuance date. In the event of
default by NetSol only, the note is convertible into shares of common stock at
$1.95 per share, and 51,282 warrants at the exercise price of $3.25 per share
which expire one year from the conversion date. The note was issued in reliance
on an exemption available from registration under Regulation S of the Securities
Act of 1933, as amended. While the note was not automatically convertible except
in the case of a default, the company elected, prior to default and, with the
agreement of the note holder, to compromise the debt with stock rather than a
cash payment. On March 24, 2004, the loan was converted into 51,282 shares of
NetSol's common stock.

On December 24, 2003, NetSol entered into a loan agreement with an accredited
non-U.S. investor, Akhtar Group. Under the terms of the loan, NetSol borrowed
$250,000 from the investor. The note has an interest rate of 6% per annum. The
note is due on a date that is one hundred and twenty (120) days from the
issuance date. In the event of default by NetSol only, the note is convertible
into shares of common stock at $1.85 per share, and 135,135 warrants at the
exercise price of $3.00 per share which expire six months from the conversion
date. The note was issued in reliance on an exemption available from
registration under Regulation S of the Securities Act of 1933, as amended. While
the note was not automatically convertible except in the case of a default, the
company elected, prior to default and, with the agreement of the note holder, to
compromise the debt with stock rather than a cash payment. In addition, the
detachable warrants were cancelled at this time. Effective March 8, 2004, the
loan was converted into 135,135 shares of NetSol's common stock.

On February 6, 2004, NetSol issued an additional 10,352 shares valued at $35,135
for interest to ACB (formerly Arab Commerce Bank) pursuant to the terms of the
legal settlement dated November 3, 2003. These shares were issued as part of the
settlement agreement with Arab Commerce Bank and NetSol and were issued in
reliance on an exemption available from registration under Regulation S of the
Securities Act of 1933, as amended.

On March 26, 2004, NetSol issued debentures to 23 accredited investors in a
principal amount of one million two hundred thousand dollars ($1,200,000). The
debentures mature two years from the date of the debenture, or March 26, 2006
and bear interest at the rate of 10% per annum payable in common stock or cash
at NetSol's option, on a quarterly basis. Pursuant to the terms of a supplement
between NetSol and the debenture holders, the conversion rate was set at one
share for each $1.86 of principal. As part of that amendment, each debenture
holder is entitled to receive, only at conversion, warrants to purchase up to
50% of the shares issuable to the debenture holders at conversion at the
exercise price of $3.30 per share. These warrants expire in June 2009. These
debentures and warrants were issued in reliance on an exemption from
registration available under Regulation D of the Securities Act of 1933, as
amended.

On May 20, 2004, NetSol issued 386,362 shares of common stock and warrants to
acquire up to 193,182 shares of common stock at the exercise price of $3.30 per
share to 9 accredited investors. These shares and warrants were issued in
reliance on an exemption from registration available under Regulation D of the
Securities Act of 1933, as amended.

In June 2004, NetSol issued a total of 45,000 shares of common stock, valued at
$39,240, to its directors as compensation for board service completed in January
2004. These shares were issued in reliance on an exemption from registration
available under Regulation D and S of the Securities Act of 1933, as amended.

During the fiscal year ended June 30, 2004 and 2003, employees exercised options
to acquire 1,067,309 and 954,983 shares of common stock in exchange for a total
exercise price of $1,370,551 and $850,816, respectively.

Certain sales milestones were achieved for the NetSol Altvia subsidiary during
the current year. NetSol issued 100,000 shares to Altvia as agreed in the
acquisition agreement. These shares were issued in reliance on an exemption
available under Regulation D of the Securities Act of 1933, as amended.

During the year, a total of 123,350 shares of NetSol's common stock, valued at
$209,200, were issued to three investors as reimbursement for debts of NetSol
paid by the investors. These shares were issued in reliance on an exemption
available under Regulation S of the Securities Act of 1933, as amended.

In August 2004, the Company issued 50,000 shares valued at $55,960 to Westrock
Advisors for consulting services. These shares were issued in reliance on an
exemption from registration available under Regulation D of the Securities Act
of 1933, as amended.

In August and September 2004, three holders of $150,000 in convertible
debentures converted their notes into 80,645 shares of the Company's common
stock.

In December 2004, 16 holders of $900,000 in convertible debentures converted
their notes into 483,873 shares of the Company's common stock.

In the quarter ended December 31, 2004, the Company sold 1,250,000 shares of
common stock to 4 accredited non-U.S. investors. These shares were issued in
reliance on an exemption from registration available under Regulation S of the
Securities Act of 1933, as amended.

In the quarter ended March 31, 2005, 681,965 shares of the Company's common
stock valued at $1,676,795 was issued to ten individual United Kingdom based
shareholders to acquire CQ Systems, a UK company. The shares were issued to the
former CQ shareholders in reliance on an exemption from registration pursuant to
Regulation S of the Securities Act of 1933, as amended.

During the quarter ended March 31, 2005, the Company issued 20,162 shares of its
common stock for the exercise of warrants valued at $40,324. Such warrants were
acquired as part of a private placement conducted in May 2004. During the fiscal
years ended June 30, 2005 and 2004, employees exercised options to acquire
890,110 and 1,067,309 shares of common stock in exchange for a total exercise
price of $1,114,733and $957,892, respectively.

In August 2005, we issued 26,882 shares as conversion of a convertible debenture
originally issued to this investor in March 2004. The original issuance of the
convertible debenture and the issuance of these shares were made in reliance on
an exemption from registration available under Rule 506 of Regulation D of the
Securities Act of 1933, as amended (the "Act").

In August, 2005, we issued a total of 28,000 shares to 3 directors of the
Company as compensation for board service during the July 2004 to June 2005
period. Two of these directors are accredited U.S. residents and the issuance to
them was made in reliance on an exemption from registration under Section 4(2)
of the Act. One of the directors is an accredited non-U.S. resident and the
issuance to him was made in reliance on an exemption from registration available
under Regulation S of the Act.

In August 2005, we issued 2,500 shares to an employee and officer of the Company
as compensation for service rendered. The issuance to this employee was made in
reliance on an exemption from registration under Section 4(2) of the Act.

Exhibits and Financial Statement Schedules

(a) Exhibits

3.1 Articles of Incorporation of Mirage Holdings, Inc., a Nevada
corporation, dated March 18, 1997, incorporated by reference as
Exhibit 3.1 to NetSol's Registration Statement No. 333-28861 filed
on Form SB-2 filed June 10. 1997

3.2 Amendment to Articles of Incorporation dated May 21, 1999,
incorporated by reference as Exhibit 3.2 to NetSol's Annual Report
for the fiscal year ended June 30, 1999 on Form 10K-SB filed
September 28, 1999.

3.3 Amendment to the Articles of Incorporation of NetSol International,
Inc. dated March 20, 2002 incorporated by reference as Exhibit 3.3
to NetSol's Annual Report on Form 10-KSB/A filed on February 2,
2001.

3.4 Amendment to the Articles of Incorporation of NetSol Technologies,
Inc. dated August 20, 2003 incorporated by reference as Exhibit A to
NetSol's Definitive Proxy Statement filed June 27, 2003.

3.5 Amendment to the Articles of Incorporation of NetSol Technologies,
Inc. dated March 14, 2005 incorporated by reference as Exhibit 3 to
NetSol's Interim Report on Form 10-QSB filed on May 10, 2005.

3.6 Bylaws of Mirage Holdings, Inc., as amended and restated as of
November 28, 2000 incorporated by reference as Exhibit 3.3 to
NetSol's Annual Report for the fiscal year ending in June 30, 2000
on Form 10K-SB/A filed on February 2, 2001.

3.7 Amendment to the Bylaws of NetSol Technologies, Inc. dated February
16, 2002 incorporated by reference as Exhibit 3.5 to NetSol's
Registration Statement filed on Form S-8 filed on March 27, 2002.

4.1 Form of Common Stock Certificate.(1)

4.2 Form of Warrant.(1)

5.1 Opinion of Malea Farsai, counsel to NetSol, as to the legality of
the securities being registered.(*)

10.1 Lease Agreement for Calabasas executive offices dated December 3,
2003 incorporated by reference as Exhibit 99.1 to NetSol's Current
Report filed on Form 8-K filed on December 24, 2003.

10.2 Company Stock Option Plan dated May 18, 1999 incorporated by
reference as Exhibit 10.2 to the Company's Annual Report for the
Fiscal Year Ended June 30, 1999 on Form 10K-SB filed September 28,
1999.

10.3 Company Stock Option Plan dated April 1, 1997 incorporated by
reference as Exhibit 10.5 to NetSol's Registration Statement No.
333-28861 on Form SB-2 filed June 10, 1997.

10.4 Company 2003 Incentive and Nonstatutory incorporated by reference as
Exhibit 99.1 to NetSol's Definitive Proxy Statement filed February
6, 2004.

10.5 Employment Agreement, dated January 1, 2004, by and between NetSol
Technologies, Inc. and Naeem Ghauri incorporated by reference as
Exhibit 10.1 to NetSol's Quarterly Report for the Quarter ended
March 31, 2004 on Form 10Q-SB filed on May 12, 2004.

10.6 Employment Agreement, dated January 1, 2004, by and between NetSol
Technologies, Inc. and Najeeb Ghauri incorporated by reference as
Exhibit 10.2 to NetSol's Quarterly Report for the Quarter ended
March 31, 2004 on Form 10Q-SB filed on May 12, 2004.

10.7 Employment Agreement, dated January 1, 2004, by and between NetSol
Technologies, Inc. and Salim Ghauri incorporated by reference as
Exhibit 10.3 to NetSol's Quarterly Report for the Quarter ended
March 31, 2004 on Form 10Q-SB filed on May 12, 2004.

10.8 Company 2001 Stock Options Plan dated March 27, 2002 incorporated by
reference as Exhibit 5.1 to NetSol's Registration Statement on Form
S-8 filed on March 27, 2002.

10.9 Consulting Contract, dated September 1, 1999 by and between Irfan
Mustafa and NetSol International, Inc. incorporated by reference as
Exhibit 10.10 to NetSol's Annual Report for the Fiscal Year Ended
June 30, 2000 on Form 10K-SB filed on October 15, 2000.

10.10 Sublease Agreement between RPMC, Inc. and NetSol Technologies, Inc.
dated September 20, 2002 incorporated by reference as Exhibit 10.11
to NetSol's Annual Report for the Fiscal Year Ended June 30, 2002 on
Form 10K-SB filed on October 15, 2002.

10.11 Lease Agreement between Century National Insurance Company and
NetSol Technologies, Inc. dated December 15, 2003 incorporated by
reference as Exhibit 99.1 to Form 8-K filed on December 24, 2003.

10.12 Lease Agreement between Butera properties V, LLC and NetSol USA,
Inc. dated June 2004

10.13 Frame Agreement by and between DaimlerChrysler Services AG and
NetSol Technologies dated June 4, 2004

10.14 Promissory Note by and between NetSol Technologies, Inc. and Maxim
Partners, LLC.(1)

10.15 Amendment to Employment Agreement, dated April 1 ,2005, by and
between NetSol Technologies, Inc. and Naeem Ghauri. Incorporated by
reference as Exhibit 10.8 to form 10-KSB filed on September 15,
2005.

10.16 Amendment to Employment Agreement, dated April 1, 2005, by and
between NetSol Technologies, Inc. and Najeeb Ghauri. Incorporated by
reference as Exhibit 10.9 to form 10-KSB filed on September 15,
2005.

10.17 Amendment to Employment Agreement, dated April 1, 2005, by and
between NetSol Technologies, Inc. and Salim Ghauri and incorporated
by reference as Exhibit 10.10 to form 10-KSB filed on September 15,
2005.

10.18 Lease Agreement with Regus Business Services (Shanghai) Ltd.(1)
incorporated by reference as Exhibit 10.18 to form 10-KSB on
September 15, 2005.

21.1 A list of all subsidiaries of NetSol (1)

23.1 Consent of Kabani & Company (*)

23.2 Consent of CMB Partnership (*)

23.3 Consent of Saeed Kamran Patel (*)

*Filed Herewith
(1) Previously filed

Undertakings

Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

The undersigned registrant hereby undertakes:

(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:

(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933.

(ii) To reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement; and notwithstanding the forgoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in the volume and price represent no
more than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement.

(iii) To include any additional or changed material information on the
plan of distribution.

(2) For purposes of determining liability under the Securities Act, to treat
each post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.

(3) To file a post-effective amendment to remove from registration any of the
securities that remains unsold at the end of the offering.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and has duly caused this post-effective
amendment to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Calabasas, State of California on December 21, 2005.

NETSOL TECHNOLOGIES, INC.

By: /s/ Naeem Ghauri
--------------------------------------
Naeem Ghauri, Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned hereby
constitutes and appoints Naeem Ghauri, as his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him and on
his behalf to sign, execute and file this registration statement and any or all
amendments (including, without limitation, post-effective amendments) to this
registration statement, and to file the same, with all exhibits thereto and any
and all documents required to be filed with respect therewith, with the
Securities and Exchange Commission or any regulatory authority, granting unto
such attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done in connection
therewith and about the premises in order to effectuate the same as fully to all
intents and purposes as he might or could do if personally present, hereby
ratifying and confirming all that such attorney-in-fact and agent, or his
substitute or substitutes, may lawfully do or cause to be done.

Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated:

Name and Signature Title Date
------------------ ----- ----

/s/ Naeem Ghauri Director and Chief Executive December 21, 2005
---------------------- Officer

/s/ Najeeb U. Ghauri Director and Chairman December 21, 2005
----------------------

/s/Tina Gilger Chief Financial Officer December 21, 2005
----------------------

/s/ Derek Soper Director December 21, 2005
----------------------

/s/ Salim Ghauri Director and President December 21, 2005
----------------------

/s/ James Moody Director December 21, 2005
----------------------

/s/ Eugen Beckert Director December 21, 2005
----------------------

/s/ Shahid Javed Burki Director December 21, 2005
----------------------