f10k_091213.htm

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Description	Page

Report of Independent Registered Public Accounting Firm	F-2

Financial Statements
Consolidated Balance Sheets as of June 30, 2013 and 2012	F-3

Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended June 30, 2013 and 2012	F-4

Consolidated Statement of Equity for the Years Ended June 30, 2013 and 2012	F-5

Consolidated Statements of Cash Flows for the Years Ended June 30, 2013 and 2012	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 sheets of NetSol Technologies, Inc. and subsidiaries (The “Company”) as of June 30, 2013 and 2012, and the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity and cash flows for each of the years in the two-year period then ended. 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 conducted our audits 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 consolidated 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, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, 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, 2013 and 2012 and the results of their operations and their cash flows for each of the years in the two-year period then ended in conformity with accounting principles generally accepted in the United States of America.

Los Angeles, CA

September 12, 2013

F-2

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

As of June 30,

ASSETS	2013			2012
Current assets:
Cash and cash equivalents	$	7,874,318		$	7,599,607
Restricted cash		1,875,237			141,231
Accounts receivable, net		14,684,212			13,757,637
Revenues in excess of billings		15,367,198			12,131,329
Other current assets		2,273,314			2,648,302
Total current assets		42,074,279			36,278,106
Investment under equity method		545,483			-
Property and equipment, net		20,978,369			16,912,795
Intangible assets, net		29,452,654			28,502,983
Goodwill		9,653,330			9,653,330
Total assets	$	102,704,115		$	91,347,214

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	3,923,921		$	3,869,355
Current portion of loans and obligations under capitalized leases		3,326,465			1,631,687
Other payables - acquisitions		103,226			103,226
Unearned revenues		2,446,018			2,704,661
Convertible notes payable, current portion		-			2,809,093
Loans payable, bank		1,982,161			2,116,402
Common stock to be issued		88,325			105,575
Total current liabilities		11,870,116			13,339,999
Convertible notes payable less current maturities		-			936,364
Long term loans and obligations under capitalized leases; less current maturities		1,412,212			2,076,199
Total liabilities		13,282,328			16,352,562
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value; 15,000,000 shares authorized; 8,929,523 & 7,513,745 issued and outstanding as of June 30, 2013 and 2012		89,295			75,137
Additional paid-in-capital		114,292,510			106,101,165
Treasury stock		(415,425	)		(415,425	)
Accumulated deficit		(23,821,256	)		(31,684,399	)
Stock subscription receivable		(2,280,488	)		(2,119,488	)
Other comprehensive loss		(15,714,112	)		(12,361,759	)
Total NetSol stockholders' equity		72,150,524			59,595,231
Non-controlling interest		17,271,263			15,399,421
Total stockholders' equity		89,421,787			74,994,652
Total liabilities and stockholders' equity	$	102,704,115		$	91,347,214

The accompanying notes are an integral part of these consolidated financial statements.

F-3

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Statements of Operations and Comprehensive Income (Loss)

For the Years Ended June 30,

	2013			2012
Net Revenues:
License fees		17,756,447			13,369,701
Maintenance fees		9,550,471			7,866,930
Services		23,490,243			18,538,893
Total net revenues		50,797,161			39,775,524
Cost of revenues:
Salaries and consultants		13,051,360			10,236,109
Travel		1,710,561			1,273,259
Repairs and maintenance		485,070			373,359
Insurance		179,959			145,351
Depreciation and amortization		4,147,347			3,528,229
Other		3,379,636			2,721,716
Total cost of revenues		22,953,933			18,278,023
Gross profit		27,843,228			21,497,501
Operating expenses:
Selling and marketing		3,556,997			3,130,379
Depreciation and amortization		1,555,402			1,113,758
Bad debt expense		415,482			124,291
Salaries and wages		5,078,278			4,191,593
Professional services, including non-cash compensation		907,844			993,058
General and administrative		4,662,127			4,679,840
Total operating expenses		16,176,130			14,232,919
Income from operations		11,667,098			7,264,582
Other income and (expenses)
Gain (loss) on sale of assets		3,682			(18,979	)
Interest expense		(664,025	)		(823,684	)
Interest income		185,343			82,039
Gain on foreign currency exchange transactions		1,367,448			404,708
Share of net income (loss) from equity investment		482,664			(300,000	)
Amortization of financing costs		(635,882	)		(179,576	)
Other income		147,153			275,565
Total other income (expenses)		886,383			(559,927	)
Net income before income taxes		12,553,481			6,704,655
Income taxes		(465,426	)		(55,384	)
Net income after tax		12,088,055			6,649,271
Non-controlling interest		(4,224,912	)		(4,202,727	)
Net income attributable to NetSol		7,863,143			2,446,544

Other comprehensive income (loss):
Translation adjustment		(4,725,022	)		(5,308,958	)
Comprehensive income (loss)		3,138,121			(2,862,414	)
Comprehensive loss attributable to non-controlling interest		(1,372,669	)		(1,754,573	)
Comprehensive income (loss) attributable to NetSol		4,510,790			(1,107,841	)

Net income per share:
Basic	$	0.96		$	0.39
Diluted	$	0.95		$	0.39
Weighted average number of shares outstanding
Basic		8,201,247			6,217,842
Diluted		8,288,951			6,244,185

The accompanying notes are an integral part of these consolidated financial statements.

F-4

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Statement of Stockholders’ Equity

For the Years Ended June 30, 2013 and 2012

	Common Stock				Additional Paid-in		Treasury			Accumulated			Stock Sub- scriptions			Shares to			Other Compre- hensive			Non Controling			Total Stockholders'
	Shares		Amount		Capital		Shares			Deficit			Receivable			be Issued			Loss			Interest			Equity
Balance at June 30, 2011		5,553,186	$	55,532	$	97,886,492	$	(396,008	)	$	(34,130,944	)	$	(2,198,460	)	$	-		$	(8,805,922	)	$	12,500,484			64,911,174
Excercise of common stock options		231,259		2,312		964,465		-			-			78,972			(125,000	)		-			-			920,749
Common stock issued for:
Cash		1,667,500		16,675		5,503,067		-			-			-						-			-			5,519,742
Services		49,300		493		386,078		-			-			-			(170,125	)		-			-			216,446
Settlement of liabilities		12,500		125		49,875		-			-			-			-			-			-			50,000
Purchase of Treasury Shares		-		-		-		(19,417	)		-			-			-			-			-			(19,417	)
Equity component shown as current liability at
June 30, 2011		-		-		-		-			-			-			400,700			-			-			400,700
June 30, 2012		-		-		-		-			-			-			(105,575	)		-			-			(105,575	)
Fair market value of options issued		-		-		1,291,523		-			-			-			-			-			-			1,291,523
Acqusition of non controlling interest in subsidiary		-		-		-		-			-			-			-			-			792,351			792,351
Dividend to non controlling interest		-		-		-		-			-			-			-			-			(341,567	)		(341,567	)
Beneficial conversion feature		-		-		19,665		-			-			-			-			-			-			19,665
Foreign currency translation adjusts		-		-		-		-			-			-			-			(3,555,837	)		(1,754,573	)		(5,310,410	)
Net income for the year		-		-		-		-			2,446,545			-			-						4,202,726			6,649,271
Balance at June 30, 2012		7,513,745	$	75,137	$	106,101,165	$	(415,425	)	$	(31,684,399	)	$	(2,119,488	)	$	-		$	(12,361,759	)	$	15,399,421		$	74,994,652

The accompanying notes are an integral part of these consolidated financial statements.

F-5

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Statement of Stockholders’ Equity

For the Years Ended June 30, 2013 and 2012

	Common Stock					Additional Paid-in			Treasury			Accumulated			Stock Sub- scriptions			Shares to			Other Compre- hensive			Non Controling			Total Stockholders'
	Shares			Amount		Capital			Shares			Deficit			Receivable			be Issued			Loss			Interest			Equity
Balance at June 30, 2012		7,513,745		$	75,137	$	106,101,165		$	(415,425	)	$	(31,684,399	)	$	(2,119,488	)	$	-		$	(12,361,759	)	$	15,399,421			74,994,652
Excercise of common stock options		451,985			4,519		2,568,181			-			-			(161,000	)		-			-			-			2,411,700
Excercise of subsidiary common stock options		-			-		-			-			-			-			-			-			107,945			107,945
Excercise of common stock warrants		67,749			678		125,335			-			-			-			-			-			-			126,013
Common stock issued for:
Cash		-			-		-			-			-			-						-			-			-
Services		12,300			123		55,917			-			-			-			(17,250	)		-			-			38,790
Conversion of convertible note		811,360			8,114		3,991,886			-			-			-			-			-			-			4,000,000
Payment of interest on convertible note		72,428			724		390,387			-			-			-			-			-			-			391,111
Payment of Fractional shares		(44	)		-		(194	)		-			-			-			-			-			-			(194	)
Equity component shown as current liability at
June 30, 2012		-			-		-			-			-			-			105,575			-			-			105,575
June 30, 2013		-			-		-			-			-			-			(88,325	)		-			-			(88,325	)
Fair market value of options issued		-			-		678,494			-			-			-			-			-			-			678,494
Acqusition of non controlling interest in subsidiary		-			-		-			-			-			-			-			-			(699,349	)		(699,349	)
Dividend to non controlling interest		-			-		-			-			-			-			-			-			(388,997	)		(388,997	)
Beneficial conversion feature		-			-		381,339			-			-			-			-			-			-			381,339
Foreign currency translation adjusts		-			-		-			-			-			-			-			(3,352,353	)		(1,372,669	)		(4,725,022	)
Net income for the year		-			-		-			-			7,863,143			-			-						4,224,912			12,088,055
Balance at June 30, 2013		8,929,523		$	89,295	$	114,292,510		$	(415,425	)	$	(23,821,256	)	$	(2,280,488	)	$	-		$	(15,714,112	)	$	17,271,263		$	89,421,787

The accompanying notes are an integral part of these consolidated financial statements.

F-6

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the Years Ended June 30,

	2013			2012
Cash flows from operating activities:
Net income	$	12,088,055		$	6,649,271
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		5,702,749			4,641,987
Provision for bad debts		415,482			192,250
Gain on settlement of finance lease		-			(110,990	)
Share of net (income) loss from investment under equity method		(482,664	)		300,000
(Gain) loss on sale of assets		(3,682	)		18,979
Stock issued for interest on notes payable		211,111			-
Stock issued for services		38,790			216,446
Fair market value of warrants and stock options granted		678,494			453,100
Amortization of financing costs		635,882			179,577
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable		(2,124,884	)		1,774,837
Increase in other current assets		(3,590,104	)		(5,124,497	)
Increase (decrease) in accounts payable and accrued expenses		276,590			(1,078,245	)
Net cash provided by operating activities		13,845,819			8,112,715
Cash flows from investing activities:
Purchases of property and equipment		(8,958,876	)		(4,912,322	)
Sales of property and equipment		118,432			44,690
Purchase of treasury stock		-			(19,417	)
Investment under equity method		-			(100,000	)
Purchase of non-controlling interest in subsidiaries		(799,349	)		-
Acquisition, net of cash acquired		-			(253,192	)
Increase in intangible assets		(4,832,459	)		(6,167,105	)
Net cash used in investing activities		(14,472,252	)		(11,407,346	)
Cash flows from financing activities:
Proceeds from sale of common stock		-			5,743,300
Proceeds from the exercise of stock options and warrants		2,537,712			728,500
Payment to common shareholders against fractional shares		(194	)		-
Proceeds from exercise of subsidiary options		111,330			-
Proceeds from convertible notes payable		-			4,000,000
Payments on convertible notes payable		-			(2,758,330	)
Restricted cash		(1,734,006	)		5,558,769
Dividend Paid		(388,997	)		(341,657	)
Bank overdraft		-			59,913
Proceeds from bank loans		1,795,663			4,190,395
Payments on capital lease obligations and loans - net		(630,714	)		(8,089,139	)
Net cash provided by financing activities		1,690,794			9,091,751
Effect of exchange rate changes in cash		(789,650	)		(2,370,315	)
Net increase in cash and cash equivalents		274,711			3,426,805
Cash and cash equivalents, beginning of year		7,599,607			4,172,802
Cash and cash equivalents, end of year	$	7,874,318		$	7,599,607

The accompanying notes are an integral part of these consolidated financial statements.

F-7

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the Years Ended June 30,

	2013		2012
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest	$	510,026	$	822,267
Taxes	$	25,191	$	29,943

NON-CASH INVESTING AND FINANCING ACTIVITIES:
Stock issued against the payment of vendors	$	-	$	50,000
Stock issued for the conversion of convertible notes payable	$	4,000,000	$	-
Stock issued for the conversion of interest payable	$	391,111	$	-

The accompanying notes are an integral part of these consolidated financial statements.

F-8

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2013 and 2012

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

NetSol Technologies, Inc. and subsidiaries(collectively, 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 1998, Mirage Collections, Inc., a wholly owned and non-operating subsidiary, was dissolved.

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

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(A)	Principles of Consolidation

The accompanying consolidated financial statements include the accounts of NetSol Technologies, Inc. and subsidiaries (collectively, the “Company”) as follows:

Wholly-owned Subsidiaries

NetSol Technologies North America, Inc. (“NTNA”)

NetSol Technologies Limited (“NetSol UK”)

NetSol-Abraxas Australia Pty Ltd. (“Abraxas”)

NetSol Technologies Europe Limited (“NTE”)

NTPK (Thailand) Co. Limited (“NTPK Thailand”)

NetSol Connect (Private), Ltd. (“Connect”)

NetSol Technologies (Beijing) Co. Ltd. (NetSol Beijing)

Majority-owned Subsidiaries

NetSol Technologies, Ltd. (“NetSol PK”)

NetSol Innovation (Private) Limited (“NetSol Innovation”)

Vroozi, Inc. (“Vroozi”)

Virtual Lease Services Holdings Limited (“VLSH”)

Virtual Lease Services Limited (“VLS”)

Virtual Lease Services (Ireland) Limited (VLSIL) formerly Hanover Asset Finance (Ireland) Limited (“HAFL”)

The Company consolidates any variable interest entities of which it is the primary beneficiary. Equity investments through which the Company exercises significant influence over but does not control the investee and is not the primary beneficiary of the investee’s activities are accounted for using the equity method. Investments through which the Company is not able to exercise significant influence over the investee and which do not have readily determinable fair values are accounted for under the cost method. All material inter-company accounts have been eliminated in the consolidation.

F-9

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2013 and 2012

(B)	Basis of Presentation

The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).

(C)	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.

(D)	Cash and Cash Equivalents and Cash Concentrations

For purposes of the consolidated 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. 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.

(E)	Restricted Cash

The Company has certificates of deposits (“CDs”) in various configurations and maturity dates with Habib American Bank. A portion of these CDs are restricted as collateral to secure outstanding balances on an existing line of credit, and become unrestricted to the extent that they are not required for collateralization purposes. As of June 30, 2013, the outstanding balance on the line of credit was $1,785,237, with a corresponding restriction to the CDs balances. The line of credit has a maximum available balance of $2,000,000.

In addition, the Company has also placed $90,000 in saving account with HSBC as collateral against standby letter of credit issued in by the bank in favor of the landlord of the new office space.

One of Company’s subsidiary also has certificates of deposits with Habib American Bank. These CDs are restricted as collateral to secure outstanding balances on an existing line of credit, and become unrestricted to the extent that they are not required for collateralization purposes. As of June 30, 2013, the outstanding balance on the line of credit was $Nil, with a corresponding restriction to the CDs balances. The line of credit has a maximum available balance of $500,000.

(F)	Allowance for Doubtful Accounts

The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management regularly reviews the composition of accounts receivable and analyzes customer credit worthiness, customer concentrations, current economic trends and changes in customer payment patterns. Reserves are recorded primarily on a specific identification basis. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of June 30, 2013 and 2012, the Company had recorded allowance for doubtful accounts of $922,633 and $977,933, respectively.

F-10

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2013 and 2012

(G)	Revenues in Excess of Billings

Revenues in excess of billings represent the total of the project to be billed to the customer over the revenues recognized under the percentage of completion method. As the customer is billed under the terms of their contract, the corresponding amount is transferred from this account to “Accounts Receivable.”

(H)	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 twenty years.

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 as incurred.

(I)	Impairment of Long-Lived Assets

The Company tests long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value.

(J)	Intangible Assets

Intangible assets consist of product licenses, renewals, enhancements, copyrights, trademarks, trade names, and customer lists. Intangible assets with finite lives are amortized over the estimated useful life and are evaluated for impairment at least on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The Company assesses recoverability by determining whether the carrying value of such assets will be recovered through the undiscounted expected future cash flows. If the future undiscounted cash flows are less than the carrying amount of these assets, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets.

(K)	Software Development Costs

Costs incurred to internally develop computer software products or to enhance an existing product are recorded as research and development costs and expensed when incurred 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.

F-11

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2013 and 2012

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.

(L)

Goodwill

Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in a purchase businesses combination. Goodwill is reviewed for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the carrying amount of goodwill may be impaired. The goodwill impairment test is a two-step test. Under the first step, the fair value of the reporting unit is compared with its carrying value (including goodwill). If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and the enterprise must perform step two of the impairment test (measurement). Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Fair value of the reporting unit is determined using a discounted cash flow analysis. If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed.

(M)	Fair Value of Financial Instruments

The Company applies the provisions of ASC 820-10, “Fair Value Measurements and Disclosures.” ASC 820-10 defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. For certain financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, accounts payable and short-term debt, the carrying amounts approximate fair value due to their relatively short maturities. The carrying amounts of the long-term debt approximate their fair values based on current interest rates for instruments with similar characteristics.

The three levels of valuation hierarchy are defined as follows:

Level 1:

Valuations consist of unadjusted quoted prices in active markets for identical assets and liabilities and has the highest priority;

Level 2:

Valuations rely on quoted prices in markets that are not active or observable inputs over the full term of the asset or liability;

Level 3:

Valuations are based on prices or third party or internal valuation models that require inputs that are significant to the fair value measurement and are less observable and thus have the lowest priority.

F-12

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2013 and 2012

Management analyzes all financial instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities From Equity” and ASC 815, “Derivatives and Hedging.” Derivative liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjustments to fair value of derivatives. The effects of interactions between embedded derivatives are calculated and accounted for in arriving at the overall fair value of the financial instruments. In addition, the fair values of freestanding derivative instruments such as warrant and option derivatives are valued using the Black-Scholes model.

(N)	Revenue Recognition

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 collectability is probable. Revenue from the sale of licenses with major customization, modification, and development is recognized on a percentage of completion method. Revenue from the implementation of software is recognized on a percentage of completion method.

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.

(O)	Multiple Element Arrangements

The Company may enter into multiple element revenue arrangements in which a customer may purchase a number of different combinations of software licenses, consulting services, maintenance and support, as well as training and development (multiple-element arrangements).

Vendor specific objective evidence (“VSOE”) of fair value for each element is based on the price for which the element is sold separately. The Company determines the VSOE of fair value of each element based on historical evidence of the Company’s stand-alone sales of these elements to third-parties or from the stated renewal rate for the elements contained in the initial software license arrangement. When VSOE of fair value does not exist for any undelivered element, revenue is deferred until the earlier of the point at which such VSOE of fair value exists or until all elements of the arrangement have been delivered. The only exception to this guidance is when the only undelivered element is maintenance and support or other services, then the entire arrangement fee is recognized ratably over the performance period.

F-13

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2013 and 2012

(P)	Unearned Revenue

Unearned revenue represents billings in excess of revenue earned on contracts and are recognized on a pro-rata basis over the life of the contract. Unearned revenue was $2,446,018 and $2,704,661 as of June 30, 2013 and June 30, 2012, respectively.

(Q)	Advertising Costs

The Company expenses the cost of advertising as incurred. Advertising costs for the years ended June 30, 2013 and 2012 were $244,498 and $225,870, respectively.

(R)	Share-Based Compensation

The Company measures stock-based compensation cost at the grant date based on the fair value of the award and recognize it as expense over the applicable vesting period of the stock award (generally four to five years) using the straight-line method.

(S)	Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Applicable interest and penalties associated with unrecognized tax benefits are classified as additional income taxes in the statements of operations.

F-14

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2013 and 2012

(T)	Foreign Currency Translation

Assets and liabilities recorded in foreign currencies are translated at the exchange rate on the balance sheet date. Revenue and expenses are translated at average rates of exchange prevailing during the year. Translation adjustments resulting from this process are recorded to other comprehensive income.

(U)	Statement of Cash Flows

The Company's cash flows from 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.

(V)	Segment Reporting

The Company defines operating segments as components 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 on geographic locations of its subsidiaries (see Note 20).

(W)	Reclassifications

Certain 2012 balances have been reclassified to conform to the 2013 presentation.

(X)	New Accounting Pronouncements

Accounting Standards Update No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists: An unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. For example, an entity should not evaluate whether the deferred tax asset expires before the statute of limitations on the tax position or whether the deferred tax asset may be used prior to the unrecognized tax benefit being settled. The amendments in this Update do not require new recurring disclosures. ASU Topic No. 2013 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.

Accounting Standards Update No. 2013-05, Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity: This ASU addresses the accounting for the cumulative translation adjustment when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. ASU Topic No. 2013-05 is effective for our fiscal year 2014, although early adoption is permitted. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.

In July 2012, the Financial Accounting Standards Board issued Accounting Standards Update 2012-02 (“ASU 2012-02”), Intangibles — Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. The purpose of ASU 2012-02, which amends the guidance to Topic 350, Intangibles — Goodwill and Other, is to simplify the guidance for testing the decline in the realizable value (impairment) of indefinite-lived intangible assets other than goodwill. ASU 2012-02 allows an entity to perform a qualitative assessment to determine whether further impairment testing of indefinite-lived intangible assets is necessary, similar in approach to the qualitative goodwill impairment test. The amendments in ASU 2012-02 permit an entity to first assess qualitatively whether it is more likely than not (more than 50%) that an indefinite-lived intangible asset is impaired, thus necessitating that it perform the quantitative impairment test. An entity is not required to calculate the fair value of an indefinite lived intangible asset and perform the quantitative impairment test unless the entity determines that it is more likely than not that the asset is impaired. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012 and early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s financial statements.

In March 2013, the FASB issued guidance on a parent’s accounting for the cumulative translation adjustment upon derecognition of a subsidiary or group of assets within a foreign entity. This new guidance requires that the parent release any related cumulative translation adjustment into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. The new guidance will be effective for the Company beginning July 1, 2014. The adoption of this standard is not expected to have a material impact on the Company’s financial statements.

F-15

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2013 and 2012

In December 2011, the FASB issued ASU No. 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities.” This ASU requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. In January 2013, this guidance was amended by ASU 2013-01, “Clarifying the Scope of Disclosure about Offsetting Assets and Liabilities,” which limits the scope of ASU No. 2011-11 to certain derivatives, repurchase and reverse repurchase agreements, and securities borrowing and lending transactions. This guidance is effective for annual and interim reporting periods beginning on or after January 1, 2013. The adoption of this standard is not expected to have a material impact on the Company’s financial statements.

NOTE 3 – ACQUISITION

On October 4, 2011, NTE, a wholly owned subsidiary of the Company, entered into an agreement with Investec Asset Finance PLC (“Investec”) a UK corporation, in which the Company obtained a 51% controlling interest in a newly-formed entity, Virtual Lease Services Holdings Limited (“VLSH”), which in turn acquired a 100% interest in Virtual Lease Services Limited (“VLS”). The purchase price paid in this transaction was entirely in the form of cash in the amount of $1,008,859.

At the time of acquisition the fair value of assets and liabilities acquired were as follows:

Cash	$	755,667
Accounts Receivable		469,970
Fixed Assets		200,579
Customer List		248,320
Technology		242,702
Liabilities		(330,071	)
Noncontrolling interest		(792,351	)
Net Assets Acquired		794,815

Proceeds		1,008,859
Goodwill	$	214,044

The acquisition of VLS is in alignment with the Company’s strategic plans and contributes to the continued expansion into technology markets through membership and practice acquisitions.

NOTE 4 – EARNINGS PER SHARE

Basic earnings per share is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding stock options, warrants, and stock awards.

F-16

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2013 and 2012

The components of basic and diluted earnings per share were as follows:

For the year ended June 30, 2013	Net Income		Shares		Per Share
Basic income per share:
Net income available to common shareholders	$	7,863,143		8,201,247	$	0.96
Effect of dilutive securities
Stock options		-		47,168		-
Warrants		-		40,536		-
Diluted income per share	$	7,863,143		8,288,951	$	0.95

For the year ended June 30, 2012	Net Income		Shares		Per Share
Basic income per share:
Net income available to common shareholders	$	2,446,544		6,217,842	$	0.39
Effect of dilutive securities
Stock options		-		-		-
Warrants		-		26,343		-
Diluted income per share	$	2,446,544		6,244,185	$	0.39

NOTE 5 – OTHER COMPREHENSIVE INCOME AND FOREIGN CURRENCY

The accounts of NetSol UK, NTE, VLSH and VLS use the British Pound; VLSIL uses the Euro; NetSol PK, Connect, and NetSol Innovation use Pakistan Rupees; NTPK Thailand uses Thai Baht; Abraxas uses the Australian dollar; and NetSol Beijing uses Chinese Yuan as the functional currencies. NetSol Technologies, Inc., and its subsidiaries, NTNA and Vroozi, use the U.S. dollar as the functional currency. Assets and liabilities are translated at the exchange rate on the balance sheet date, whereas operating results are translated at the average exchange rate throughout the period. Accumulated translation losses classified as an item of accumulated other comprehensive loss in the stockholders’ equity section of the consolidated balance sheet were $15,714,112 and $12,361,759 as of June 30, 2013 and 2012, respectively. During the year ended June 30, 2013 and 2012, comprehensive loss in the consolidated statements of operations included NetSol’s share of translation loss of $3,352,353 and $3,555,837, respectively.

NOTE 6 – MAJOR CUSTOMERS

During fiscal year ended June 30, 2013, there was no single customer who represented 10% or more of the Company’s total revenue.

The Company is a strategic business partner for Daimler Financial Services (which consists of a group of many companies in different countries), which accounts for approximately 21.86% and 19.72% of revenue, Toyota Motors (which consists of a group of many companies in different countries) accounts for approximately 3.47% and 2.62% of revenue, and Nissan (which consists of a group of many companies in different countries) accounts for approximately 6.23% and 7.31% of revenue for the fiscal years ended June 30, 2013 and 2012, respectively. Accounts receivable at June 30, 2013 for these companies were $2,382,837, $388,759 and $1,040,248, respectively. Accounts receivable at June 30, 2012 for these companies were $4,016,335, $257,867 and $918,333, respectively.

F-17

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2013 and 2012

NOTE 7 – OTHER CURRENT ASSETS

Other current assets consisted of the following:

	As of June 30, 2013		As of June 30, 2012

Prepaid Expenses	$	559,217	$	596,180
Advance Income Tax		887,893		763,147
Employee Advances		43,794		24,026
Security Deposits		189,382		178,428
Tender Money Receivable		106,398		111,437
Other Receivables		222,609		511,466
Other Assets		197,915		463,618
Due From Related Party		66,106		-
Total	$	2,273,314	$	2,648,302

NOTE 8 – PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

	As of June 30, 2013			As of June 30, 2012

Office furniture and equipment	$	2,508,975		$	1,917,221
Computer equipment		19,987,480			14,986,148
Assets under capital leases		1,126,860			1,877,145
Building		2,391,550			2,133,174
Land		2,460,144			2,044,003
Capital work in progress		5,104,283			4,163,730
Autos		689,440			648,305
Improvements		513,044			230,759
Subtotal		34,781,776			28,000,485
Accumulated depreciation		(13,803,407	)		(11,087,690	)
Property and equipment, net	$	20,978,369		$	16,912,795

For the years ended June 30, 2013 and 2012, depreciation expense totaled $3,627,862 and $2,875,883, respectively. Of these amounts, $2,242,339 and $1,879,358 are reflected as part of cost of revenues for the years ended June 30, 2013 and 2012, respectively.

The Company’s capital work in progress consists of ongoing enhancements to its facilities and infrastructure as necessary to meet the Company’s expected long-term growth needs. The Company capitalized interest of $292,390 and $331,145 during the period ended June 30, 2013 and 2012, respectively.

Assets acquired under capital leases were $1,126,860 and $1,877,145 as of June 30, 2013 and 2012, respectively. Accumulated amortization related to these leases were $350,048 and $900,790 for the years ended June 30, 2013 and 2012, respectively.

F-18

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2013 and 2012

NOTE 9 – INTANGIBLE ASSETS

Intangible assets consisted of the following:

	As of June 30, 2013			As of June 30, 2012
Product licenses	$	44,837,558		$	42,072,045
Customer lists		6,052,377			6,052,377
Technology		242,702			242,702
		51,132,637			48,367,124
Accumulated amortization		(21,679,983	)		(19,864,141	)
Intangible assets, net	$	29,452,654		$	28,502,983

(A)	Product Licenses

Product licenses include internally-developed original license issues, renewals, enhancements, copyrights, trademarks, and trade names. Product licenses include unamortized software development and enhancement costs of $22,088,020. Product licenses are being amortized on a straight-line basis over their respective lives, which is currently a weighted average of approximately 8 years. Amortization expense for the years ended June 30, 2013 and 2012 was $1,905,008 and $1,536,819, respectively.

(B)	Customer Lists

On October 31, 2008, the Company entered into an agreement to purchase the rights to the customer list of Ciena Solutions, LLC, a California limited liability company (“Ciena”). Under the terms of the agreement, the total consideration for these rights included an initial payment of $350,000 (plus interest of $2,963), and deferred consideration to be paid in cash and the Company’s common stock based on the operational results of Ciena, and certain other factors, over a four-year fiscal period. Each fiscal period is measured from July 1 to June 30 with fiscal period one being the period from July 1, 2008 to June 30, 2009. No other assets or liabilities were acquired by the Company as a result of this transaction.

As a result of operational losses of Ciena in the first three fiscal periods, 2009, 2010 and 2011, respectively, the first three annual deferred consideration installment payments were determined to be zero.

On October 4, 2011, the Company entered into an agreement to acquire a UK based company “Virtual Leasing Services Limited” through one of its subsidiaries. As a result of this acquisition, the Company recorded $248,320 of an existing customer list.

Customer lists are being amortized based on a straight-line basis, which approximates the anticipated rate of attrition, which is currently a weighted average of approximately 5 years. Amortization expense for the years ended June 30, 2013 and 2012 was $120,804 and $145,808, respectively.

F-19

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2013 and 2012

(C)	Technology

On October 4, 2011, the Company entered into an agreement to acquire a UK based company, Virtual Leasing Services Limited, through one of its subsidiaries. As a result of this acquisition, the Company recorded $242,702 of existing technology. Technology assets are being amortized on a straight-line basis over their respective lives, which is currently a weighted average of approximately 5 years. Amortization expense for the years ended June 30, 2013 and 2012 was $49,075 and $36,405, respectively.

(D)	Future Amortization

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

Year ended:
June 30, 2014			1,871,509
June 30, 2015			1,483,795
June 30, 2016			989,890
June 30, 2017			776,539
June 30, 2018			746,068
Thereafter			23,584,853

NOTE 10 – GOODWILL

Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in prior period businesses combinations. Goodwill was comprised of the following amounts:

	As of June 30, 2013		As of June 30, 2012
Asia Pacific	$	1,303,372	$	1,303,372
Europe		3,685,858		3,685,858
North America		4,664,100		4,664,100

Total	$	9,653,330	$	9,653,330

The Company has determined that there was no impairment of the goodwill for either period presented.

NOTE 11 – INVESTMENT UNDER EQUITY METHOD

On April 10, 2009, the Company entered into an agreement to form a joint venture with the Atheeb Trading Company, a member of the Atheeb Group (“Atheeb”). The joint venture entity Atheeb NetSol Saudi Company Ltd. is a company organized under the laws of the Kingdom of Saudi Arabia. The venture was formed with an initial capital contribution of $268,000 by the Company and $266,930 by Atheeb with a profit sharing ratio of 50.1:49.9, respectively. The final formation of the company was completed on March 7, 2010. Since currently the Company does not have control over the operational and financial matters of Atheeb Netsol, therefore, it is considered as an associated company and accounted for under equity method.

F-20

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2013 and 2012

The Company's investment in equity for the years ended June 30, 2013 and 2012 is as follows:

Investment during the period		100,000
Net loss for the year ended June 30, 2012		(503,303	)
NetSol's share (50.1%)		(252,155	)
Unabsorbed losses brought forward		(51,502	)
Total loss		(303,657	)
Loss adjusted against investment		(100,000	)
Loss adjusted against advance to investee		(200,000	)
Net book value at June 30, 2012	$	-

Investment during the period		-
Net income for the year ended June 30, 2013		1,096,086
NetSol's share (50.1%)		549,140
Unabsorbed losses brought forward		(3,657	)
Total income		545,483
Income adjusted against investment		545,483
Net book value at June 30, 2013	$	545,483

NOTE 12 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following:

	As of June 30, 2013		As of June 30, 2012

Accounts Payable	$	825,025	$	1,278,452
Accrued Liabilities		2,055,066		1,778,414
Accrued Payroll		25,529		17,097
Accrued Payroll Taxes		218,084		158,626
Interest Payable		71,872		326,746
Deferred Revenues		937		32,463
Taxes Payable		727,408		277,557
Total	$	3,923,921	$	3,869,355

F-21

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2013 and 2012

NOTE 13 – DEBTS

(A)	Loans and Leases Payable

Notes and leases payable consisted of the following:

Name			As of June 30 2013		Current Maturities		Long-Term Maturities

D&O Insurance	(1	)	$	88,292	$	88,292	$	-
Habib Bank Line of Credit	(2	)		1,785,237		1,785,237		-
Bank Overdraft Facility	(3	)		312,139		312,139		-
HSBC Loan	(4	)		1,047,014		336,339		710,675
Term Finance Facility	(5	)		867,195		495,540		371,655
Subsidiary Capital Leases	(6	)		638,800		308,918		329,882
			$	4,738,677	$	3,326,465	$	1,412,212

Name				As of June 30 2012	Current Maturities		Long-Term Maturities

D&O Insurance	(1	)	$	89,996	$	89,996	$	-
Habib Bank Line of Credit	(2	)		51,231		51,231		-
Bank Overdraft Facility	(3	)		308,013		308,013		-
HSBC Loan	(4	)		1,367,644		345,203		1,022,441
Term Finance Facility	(5	)		1,058,201		264,550		793,651
Subsidiary Capital Leases	(6	)		832,801		572,694		260,107
			$	3,707,886	$	1,631,687	$	2,076,199

(1) The Company finances Directors’ and Officers’ (“D&O”) liability insurance as well as Errors and Omissions (“E&O”) liability insurance, for which the total balances are renewed on an annual basis and as such are recorded in current maturities. The interest rate on the insurance financing was 0.40% and 0.42% as of June 30, 2013 and 2012, respectively. Interest paid during the periods ended June 30, 2013 and 2012 was nominal.

(2) In April 2008, the Company entered into an agreement with Habib American Bank to secure a line of credit to be collateralized by Certificates of Deposit held at the bank. The interest rate on this line of credit is variable and was 1.5% and 1.99% as of June 30, 2013 and 2012, respectively. Interest paid during the years ended June 30, 2013 and 2012 was $26,702 and $41,140, respectively.

In February 2012, the Company entered into agreement with HSBC for the issuance of stand by letter of credit worth $90,000 in favor of landlord against the new office space. The Company has deposited $90,000 in a saving account with HSBC as collateral against this letter of credit.

In June 2012, the Company’s subsidiary, NTNA entered into an agreement with Habib American Bank to secure a line of credit up to $500,000 to be collateralized by Certificates of Deposit of same value held at the bank. The interest rate on this line of credit is variable and was 1.5% and 1.99% as of June 30, 2013 and 2012 respectively. Interest paid during the years ended June 30, 2013 and 2012 was $3,341 and Nil, respectively.

F-22

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2013 and 2012

(3) During the year ended June 30, 2008, the Company’s subsidiary, NTE entered into an overdraft facility with HSBC Bank plc whereby the bank would cover any overdrafts up to £200,000, or approximately $312,340. The annual interest rate is 4.7% over the bank’s sterling base rate, which was 5.2% and 5.20% as of June 30, 2013 and 2012, respectively.

(4) In October 2011, the Company’s subsidiary, NTE, entered into a loan agreement with HSBC Bank to finance the acquisition of 51% of controlling interest in Virtual Leasing Services Limited. HSBC Bank guaranteed the loan up to a limit of £1,000,000, or approximately $1,521,600 for a period of 5 years with monthly payments of £18,420, or approximately $28,028. The interest rate was 4% which is 3.5% above the bank sterling base rate. The loan is securitized agaisnt debenture comprising of fixed and floating charges over all the assets and undertaking of NTE including all present and future freehold and leasehold property book and other debts, chattels, goodwill and uncalled capital, both present and future. As of June 30, 3012, the subsidiary had used this facility up to $1,367,644, of which $1,022,441, was shown as long term and the remaining $345,203, as current maturity. As of June 30, 2013, the subsidiary has used this facility up to $1,047,015, of which $710,675, was shown as long term and the remaining $336,339, as current maturity. Interest expense, for the years ended June 30, 2013 and 2012, was $81,347 and $36,744, respectively.

(5) The Company’s subsidiary, NetSol PK, entered into two different term finance facilities from Askari Bank to finance the construction of a new building. The total aggregate amount of these facilities are Rs. 112,500,000 or approximately $1,114,965(secured by the first charge of Rs. 580 million or approximately $5.75 million over the land, building and equipment of the company). The interest rate is 2.75% above the six-month Karachi Inter Bank Offering Rate. As of the year ended June 30, 2012, the Company has used a total of Rs. 100,000,000 or approximately $1,058,201 of which $793,651 is shown as long term liabilities and the remainder of $264,550 as current maturity. As of the year ended June 30, 2013, the Company has used a total of Rs.87,500,000 or approximately $867,195 of which $371,655 is shown as long term liabilities and the remainder of $495,540 as current maturity.

Following table represents future payments of loans described in above sub notes 1 to 5

	As of June 30, 2013
Loan Payments
Due FYE 6/30/14	$	2,981,014
Due FYE 6/30/15		559,818
Due FYE 6/30/16		448,673
Due FYE 6/30/17		110,372
Total Loan Payments		4,099,877
Less: Current portion		(3,017,547	)
Non-Current portion	$	1,082,330

(6) The Company leases various fixed assets under capital lease arrangements expiring in various years through 2016. The assets and liabilities under capital leases are recorded at the lower of the present value of the minimum lease payments or the fair value of the asset. The assets are depreciated over the lesser of their related lease terms or their estimated useful lives and are secured by the assets themselves. Depreciation of assets under capital leases is included in depreciation expense for the years ended June 30, 2013 and 2012.

F-23

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2013 and 2012

Following is the aggregate minimum future lease payments under capital leases for the year-ended June 30, 2013:

	As of June 30, 2013
Minimum Lease Payments
Due FYE 6/30/14	$	364,325
Due FYE 6/30/15		231,434
Due FYE 6/30/16		86,368
Due FYE 6/30/17		11,926
Due FYE 6/30/18		35,777
Total Minimum Lease Payments		729,830
Interest Expense relating to future periods		(91,030	)
Present Value of minimum lease payments		638,800
Less: Current portion		(308,918	)
Non-Current portion	$	329,882

Following is a summary of property and equipment held under capital leases as of June 30, 2013 and 2012:

	As of June 30, 2013			As of June 30, 2012
Computer Equipment and Software	$	454,002		$	702,637
Furniture and Fixtures		951			403,439
Vehicles		671,907			468,853
Building Equipment		-			302,216
Total		1,126,860			1,877,145
Less: Accumulated Depreciation		(350,048	)		(900,790	)
Net	$	776,812		$	976,355

Interest expense for the years ended June 30, 2013 and 2012 was $79,098 and $69,236, respectively.

(B)	Loans Payable – Bank

The Company’s subsidiary, NetSol PK, has a loan with a bank, secured by the Company’s assets. The loan is a revolving loan that matures every six months. The balance of the loan at June 30, 2013 and 2012 was $1,982,161 and $2,116,402, respectively. The interest rate for the loans was 9.40% and 11.00% at June 30, 2013 and 2012, respectively. Interest expense for the years ended June 30, 2013, and 2012 was $180,407 and $228,875, respectively.

NOTE 14 – OTHER PAYABLE AND COMMON STOCK TO BE ISSUED

On June 30, 2006, the Company acquired McCue Systems, Inc. (“McCue”), a California corporation (subsequently renamed as NetSol Technologies North America, Inc.) The total purchase price was $7,080,385, including $3,784,635 of cash and 171,233 shares of the Company’s common stock. Of the total purchase price, the accompanying consolidated financial statements include certain amounts payable to McCue shareholders that have not been located as of the date of this report.

F-24

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2013 and 2012

As of the years ended June 30, 2013 and June 30, 2012, the remaining cash due of $103,226 is shown as “Other Payable” and the remaining stock to be issued of 4,670 shares at an average price of $18.90 is shown in “Common stock to be issued” in the accompanying consolidated financial statements.

NOTE 15 – CONVERTIBLE NOTE PAYABLE

On September 13, 2011, NetSol Technologies, Inc. entered into a purchase agreement to sell convertible notes with a total principal value of $4,000,000 and warrants to purchase shares of common stock to an investment fund managed by CIM Investment Management Limited and another accredited investor. The notes had a 2 year maturity date and were convertible into shares of common stock at the initial conversion price of $8.95 per share. The warrants entitled the investors to acquire a total of 140,845 shares of common stock, had a 5 year term, and had an initial exercise price of $8.95 per share. The convertible notes and warrant terms contained standard anti-dilution protection. The Company raised new capital through a follow on offering under its registered shelf offering on form S-3 in March 2012 and as a result, the conversion price of the convertible note and exercise price of warrants had been adjusted downward from $8.95 to $7.73. Resultantly, the number of warrants had also been increased to 163,021. The proceeds of the convertible note were assigned between warrants and convertible note per ASC 470-20. The Company recorded $401,648 as capitalized financing cost and discount of $19,665 on shares to be issued upon conversion of the convertible note into equity.

On September 13, 2012, the parties replaced the convertible note with a new convertible note for the same principal amount, an elimination of a shareholders’ receivable condition, a decrease in the interest rate and a decrease in the conversion price from $7.73 to $4.93.

From July 1, 2012 to the date of exchange, the Company accrued interest amounting to $144,000 at the default rate due to non-compliance of one of the convertible note provisions.

The Company amortized the remaining capitalized financing cost and discount of $254,543 related to the old convertible note at the date of replacement and recorded a further discount of $381,339 which would be amortized over the remaining life of new convertible note. Due to the reduction in conversion price, the number of warrants was adjusted to 168,943.

During the year ended June 30, 2013, the investors converted $4,000,000 of principal into 811,360 shares of common stock at the rate of $4.93. They also converted $391,111 of interest into 72,428 shares of common stock at the rate of $5.40. Upon the conversion of the new convertible note, the Company expensed the $381,339 of capitalized finance cost.

For the years-ended June 30, 2013 and 2012, total interest expensed on convertible notes was $251,278 and $461,262, respectively.

NOTE 16 – INCOME TAXES

The Company is incorporated in the State of Nevada and registered to do business in the State of California and has operations in primarily three tax jurisdictions - the United Kingdom (“UK”), Pakistan and the United States (“US”).

F-25

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2013 and 2012

Consolidated pre-tax income (loss) consists of the following:

	Years Ended June 30,
		2013			2012
US operations		(2,878,018	)		(3,614,853	)
Foreign operation		15,431,499			10,406,380
	$	12,553,481		$	6,791,527

The components of the provision for income taxes are as follows:

	Years Ended June 30,
	2013		2012
Current:
Federal	$	-	$	-
State and Local		-		-
Foreign		465,426		55,384

Deferred:
Federal		-		-
State and Local		-		-
Foreign		-		-
Provision for income taxes	$	465,426	$	55,384

A reconciliation of taxes computed at the statutory federal income tax rate to income tax expense (benefit) is as follows:

	Years Ended June 30,
	2013					2012
Income taxes at statutory rate		4,268,184		34.0	%		2,309,119		34.0	%
State income (benefit) taxes, net of federal tax benefit		(114,630	)	-0.91	%		418,384		6.2	%
Foreign earnings taxed at different rates		(4,781,284	)	-38.1	%		(3,615,004	)	-53.2	%
Change in valuation allowance for deferred tax assets		1,056,139		8.4	%		356,979		5.3	%
Other		37,017		0.3	%		585,906		8.6	%
Provision for income taxes		465,426		3.7	%		55,384		0.82	%

Deferred income tax assets and liabilities as of June 30, 2013 and 2012 consist of tax effects of temporary differences related to the following:

F-26

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2013 and 2012

	Years Ended June 30,
	2013			2012
Net operating loss carry forwards	$	11,396,640		$	10,493,537
Other		182,987			29,951
Net deferred tax assets		11,579,627			10,523,488
Valuation allowance for deferred tax assets		(11,579,627	)		(10,523,488	)
Net deferred tax assets	$	-		$	-

(A)	United States of America

The Company has established a full valuation allowance as management believes it is more likely than not that these assets will not be realized in the future. The valuation allowance increased by $1,056,139 for the year ended June 30, 2013 mainly due to adjusting the Company's net operating loss carry forwards for the current year operating loss.

At June 30, 2013, federal and state net operating loss carry forwards were $31,594,869 and $4,486,769 respectively. Federal net operating loss carry forwards begin to expire in 2020, while state net operating loss carry forwards begin to expire in 2014. Due to both historical and recent changes in the capitalization structure of the Company, the utilization of net operating losses may be limited pursuant to section 382 of the Internal Revenue Code.

As of June 30, 2013, the Company does not have any unrecognized tax benefits related to various federal and state income tax matters. The Company will recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense.

The Company is subject to U.S. federal income tax, as well as various state and foreign jurisdictions. The Company is currently open to audit under the statute of limitations by the federal and state jurisdictions for the years ending June 30, 2010 through 2012. The Company does not anticipate any material amount of unrecognized tax benefits within the next 12 months.

The cumulative amount of undistributed earnings of foreign subsidiaries that the Company intends to permanently invest and upon which no deferred US income taxes have been provided is $43,672,745 as of June 30, 2013. The additional US income tax on unremitted foreign earnings, if repatriated, would be offset in part by foreign tax credits. The extent of this offset would depend on many factors, including the method of distribution, and specific earnings distributed.

(B) Pakistan

As of June 30, 2013 the Company's Pakistan subsidiaries had net operating loss carry forwards which can be carried forward six years to offset future taxable income. The deferred tax assets for the Pakistan subsidiaries at June 30, 2013 and 2012 consists mainly of net operating loss carry forwards in which the Company established a full valuation allowance as the management believes it is more likely than not that these assets will not be realized in the future.

F-27

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2013 and 2012

Components of deferred tax asset - Pakistan
	Years Ended June 30,
	2013			2012
Net operating loss carry forwards	$	615,324		$	619,549
Total deferred tax assets		215,363			216,842
Less: valuation allowance		(215,363	)		(216,842	)
Net deferred tax asset	$	-		$	-

(C)	United Kingdom

As of June 30, 2013 the Company's UK subsidiaries had net operating loss carry forwards which can be carried forward indefinitely to offset future taxable income. The deferred tax assets for the UK subsidiaries at June 30, 2013 and 2012 consists mainly of net operating loss carry forwards in which the Company established a full valuation allowance as the management believes it is more likely than not that these assets will not be realized in the future.

Components of deferred tax asset - UK
	Years Ended June 30,
	2013			2012
Net operating loss carry forwards	$	278,993		$	438,900
Total deferred tax assets		83,698			131,670
Less: valuation allowance		(83,698	)		(131,670	)
Net deferred tax asset	$	-		$	-

NOTE 17 – STOCKHOLDERS’ EQUITY

(A)	Treasury Stock

On November 11, 2011, the Company announced that it had authorized a stock repurchase program permitting the Company to repurchase up to 250,000 of its shares of common stock over the following 6 months. The shares are to be repurchased from time to time in open market transactions or privately negotiated transactions in the Company’s discretion. The Company repurchased 4,430 shares of common stock from open market against cash consideration of $19,417 until December 31, 2012. The repurchase plan expired by its own terms in May, 2012. The balance as of June 30, 2013 and 2012 was $415,425.

(B)	Shares Issued for Services to Related Parties

During the year ended June 30, 2013 and 2012, the Company issued a total of 5,000 and 26,000 shares of restricted common stock for services rendered by the officers of the Company. The issuances were approved by both the compensation committee and the Board of Directors. These shares were valued at the fair market value of $25,200 and $159,325 as of June 30, 2013 and 2012, respectively.

F-28

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2013 and 2012

The Company recorded an expense of $13,700 and $133,250 against the services rendered by officers during the years ended June 30, 2013 and 2012.

During the year ended June 30, 2012, the Company issued a total of 16,000 shares of restricted common stock for services rendered by the independent members of the Board of Directors as part of their board compensation. The issuances were approved by both the compensation committee and the Board of Directors. These shares were valued at the fair market value of $173,600 as of June 30, 2012.

The Company recorded an expense of $40,000 for services rendered by the independent members of the Board of Directors as part of their board compensation during the year ended June 30, 2012.

During the years ended June 30, 2013 and 2012, the Company issued a total of 2,500 and 2,500 shares of its common stock to employees as required according to the terms of their employment agreements valued at $12,600 and $12,125, respectively.

The Company recorded an expense of $6,850 and $17,875 as part of compensation to employees as required according to the terms of their employment agreements during the years ended June 30, 2013 and 2012.

(C)	Share-Based Payment Transactions

During the years ended June 30, 2013 and 2012, the Company issued a total of 4,800 and 17,300 shares of its common stock for provision of services to unrelated consultants valued at $18,420 and $91,520, respectively.

(D)	SHARES ISSUED AGAINST CASH PAYMENTS

During the year ended June 30, 2012, the Company issued 1,667,500 new shares through a follow on offering under an S3 registration statement against net proceeds of $5,743,300. The shares were issued at the offering price of $4.0 per share. Aegis Capital Corp. acted as sole book-running manager and underwriters for the offering. The Company also offered Aegis Capital Corp. the right to exercise 5% warrants at an exercise price of 125% of the offering price.

(E)	REVERSE STOCK SPLIT

On August 6, 2012, the shareholders of the Company authorized the Board of Directors to conduct a reverse split of the common stock of the Company in a range from 5 to 15 shares into one. Pursuant to the authority granted, the Board approved the ratio of 10:1 for the reverse split which was effectuated on August 13, 2012. All figures have been presented on the basis of reverse split where ever applicable for all the periods presented in these financial statements.

F-29

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2013 and 2012

NOTE 18 – INCENTIVE AND NON-STATUTORY STOCK OPTION PLAN

Common stock purchase options and warrants consisted of the following:

OPTIONS:
Issued by the Company	# of shares			Weighted Ave Exericse Price		Weighted Average Remaining Contractual Life (in years)		Aggregated Intrinsic Value

Outstanding and exercisable, June 30, 2011		691,932		$	21.90		4.48	$	1,637,459
Granted		351,259		$	5.20
Exercised		(231,259	)	$	4.20
Expired / Cancelled		(8,499	)	$	19.30
Outstanding and exercisable, June 30, 2012		803,433		$	19.73		3.69	$	-
Granted		362,747		$	5.51
Exercised		(449,285	)	$	5.70
Expired / Cancelled		(405,433	)	$	25.87
Outstanding and exercisable, June 30, 2013		311,462		$	15.65		3.3	$	523,125

WARRANTS:
Outstanding and exercisable, June 30, 2011		17,823		$	6.60		3.69	$	219,119
Granted		246,396		$	6.80
Exercised		-			-
Expired		(2,500	)
Outstanding and exercisable, June 30, 2012		261,719		$	6.59		4.24	$	-
Granted / adjusted		5,922		$	0.27
Exercised		(104,517	)	$	5.12
Expired		-			-
Outstanding and exercisable, June 30, 2013		163,124		$	7.29		3.19	$	451,519

F-30

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2013 and 2012

The following table summarizes information about stock options and warrants outstanding and exercisable as of June 30, 2013:

Exercise Price			Number Outstanding and Exercisable		Weighted Average Remaining Contractual Life		Weighted Ave Exericse Price
OPTIONS:

$0.10	-	$9.90		183,462		3.96		7.21
$10.00	-	$19.90		15,000		2.56		18.07
$20.00	-	$29.90		95,000		2.64		25.27
$30.00	-	$50.00		18,000		0.65		48.89

Totals				311,462		3.30		15.65

WARRANTS:
$3.10	-	$7.73		163,124		3.19		7.29


Totals				163,124		3.19		7.29

All options and warrants granted are vested and are exercisable as of June 30, 2013. During the fiscal years 2013 and 2012, the company granted 362,747 and 351,259 stock options to its employees at the weighted average grant date fair value of $1.41 and $2.26, respectively.

(A)	Incentive and Non-Statutory Stock Option Plan

The Company maintains several Incentive and Non-Statutory Stock Option Plans (“Plans”) for its employees and consultants. Options granted under these Plans to an employee of the Company become exercisable over a period of no longer than ten (10) years and no less than twenty percent (20%) of the shares are exercisable annually. Options are not exercisable, in whole or in part, prior to one (1) year from the date of grant unless the board of directors specifically determines otherwise, as provided.

Two types of options may be granted under these Plans: (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-31

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2013 and 2012

Options

During the quarter ended September 30, 2012, the Company granted 28,572 options to two employees with an exercise price of $3.50 per share and an expiration date of 1 month, vesting immediately. Using the Black-Scholes method to value the options, the Company recorded $20,036 in compensation expense for these options in the accompanying consolidated financial statements. The Black-Scholes option pricing model used the following assumptions:

Risk-free interest rate - 0.07%

Expected life - 1 month

Expected volatility - 27.27%

Expected dividend - 0%

During the quarter ended September 30, 2012, the Company granted 16,350 options to one employee with an exercise price of $4.00 per share and an expiration date of 1 month, vesting immediately. Using the Black-Scholes method to value the options, the Company recorded $4,209 in compensation expense for these options in the accompanying consolidated financial statements. The Black-Scholes option pricing model used the following assumptions:

Risk-free interest rate - 0.08%

Expected life - 1 month

Expected volatility - 28.43%

Expected dividend - 0%

During the quarter ended September 30, 2012, the Company granted 50,000 options to two employees with an exercise price of $4.75 per share and an expiration date of 1 month, vesting immediately. Using the Black-Scholes method to value the options, the Company recorded $55,040 in compensation expense for these options in the accompanying consolidated financial statements. The Black-Scholes option pricing model used the following assumptions:

Risk-free interest rate - 0.1%

Expected life - 1 month

Expected volatility - 26.58%

Expected dividend - 0%

During the quarter ended December 31, 2012, the Company granted 70,000 options to six employees with an exercise price of $4.75 per share and an expiration date of 3 months, vesting immediately. Using the Black-Scholes method to value the options, the Company recorded $73,478 in compensation expense for these options in the accompanying consolidated financial statements. The Black-Scholes option pricing model used the following assumptions:

Risk-free interest rate - 0.11%

Expected life - 3 months

Expected volatility - 32.23%

Expected dividend - 0%

F-32

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2013 and 2012

During the quarter ended December 31, 2012, the Company granted 20,000 options to one employee with an exercise price of $5.00 per share and an expiration date of 3 months, vesting immediately. Using the Black-Scholes method to value the options, the Company recorded $16,860 in compensation expense for these options in the accompanying consolidated financial statements. The Black-Scholes option pricing model used the following assumptions:

Risk-free interest rate - 0.11%

Expected life - 3 months

Expected volatility - 32.23%

Expected dividend - 0%

During the quarter ended March 31, 2013, the Company granted 50,000 options to two employees with an exercise price of $4.50 per share and an expiration date of 3 months, vesting immediately. Using the Black-Scholes method to value the options, the Company recorded $82,542 in compensation expense for these options in the accompanying consolidated financial statements. The Black-Scholes option pricing model used the following assumptions:

Risk-free interest rate - 0.07%

Expected life - 3 months

Expected volatility - 18.72%

Expected dividend - 0%

During the quarter ended March 31, 2013, the Company granted 39,134 options to two employees with an exercise price of $6.00 per share and an expiration date of 3 months, vesting immediately. Using the Black-Scholes method to value the options, the Company recorded $12,139 in compensation expense for these options in the accompanying consolidated financial statements. The Black-Scholes option pricing model used the following assumptions:

Risk-free interest rate - 0.07%

Expected life - 3 months

Expected volatility - 18.72%

Expected dividend - 0%

During the quarter ended March 31, 2013, the Company granted 8,000 options to two employees with an exercise price of $7.00 per share and an expiration date of 3 months, vesting immediately. Using the Black-Scholes method to value the options, the Company recorded $188 in compensation expense for these options in the accompanying consolidated financial statements. The Black-Scholes option pricing model used the following assumptions:

Risk-free interest rate - 0.07%

Expected life - 3 months

Expected volatility - 18.72%

Expected dividend - 0%

F-33

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2013 and 2012

During the quarter ended March 31, 2013, the Company granted 8,000 options to one employee with an exercise price of $5.00 per share and an expiration date of 1 month, vesting immediately. Using the Black-Scholes method to value the options, the Company recorded $8,642 in compensation expense for these options in the accompanying consolidated financial statements. The Black-Scholes option pricing model used the following assumptions:

Risk-free interest rate - 0.07%

Expected life - 1 month

Expected volatility - 13.95%

Expected dividend - 0%

During the quarter ended March 31, 2013, the Company granted 1,200 options to one employee with an exercise price of $5.83 per share and an expiration date of 3 months, vesting immediately. Using the Black-Scholes method to value the options, the Company recorded $501 in compensation expense for these options in the accompanying consolidated financial statements. The Black-Scholes option pricing model used the following assumptions:

Risk-free interest rate - 0.07%

Expected life - 3 months

Expected volatility - 18.72%

Expected dividend - 0%

During the quarter ended March 31, 2013, the Company granted 10,364 options to one employee with an exercise price of $5.50 per share and an expiration date of 1 month, vesting immediately. Using the Black-Scholes method to value the options, the Company recorded $6,018 in compensation expense for these options in the accompanying consolidated financial statements. The Black-Scholes option pricing model used the following assumptions:

Risk-free interest rate - 0.05%

Expected life - 1 month

Expected volatility - 13.95%

Expected dividend - 0%

F-34

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2013 and 2012

During the quarter ended March 31, 2013, the Company granted 3,636 options to one employee with an exercise price of $5.50 per share and an expiration date of 3 months, vesting immediately. Using the Black-Scholes method to value the options, the Company recorded $2,251 in compensation expense for these options in the accompanying consolidated financial statements. The Black-Scholes option pricing model used the following assumptions:

Risk-free interest rate - 0.08%

Expected life - 3 months

Expected volatility - 18.55%

Expected dividend - 0%

During the quarter ended March 31, 2013, the Company granted 5,000 options to one employee with an exercise price of $7.00 per share and an expiration date of 1 month, vesting immediately. Using the Black-Scholes method to value the options, the Company recorded $19,202 in compensation expense for these options in the accompanying consolidated financial statements. The Black-Scholes option pricing model used the following assumptions:

Risk-free interest rate - 0.07%

Expected life - 1 month

Expected volatility - 31.27%

Expected dividend - 0%

During the quarter ended June 30, 2013, the Company granted 27,413 options to one employee with an exercise price of $9.12 per share and an expiration date of 1 month, vesting immediately. Using the Black-Scholes method to value the options, the Company recorded $111,036 in compensation expense for these options in the accompanying consolidated financial statements. The Black-Scholes option pricing model used the following assumptions:

Risk-free interest rate - 0.06%

Expected life - 1 month

Expected volatility - 33.22%

Expected dividend - 0%

During the quarter ended June 30, 2013, the Company granted 27,778 options to two employees with an exercise price of $9.00 per share and an expiration date of 1 month, vesting immediately. Using the Black-Scholes method to value the options, the Company recorded $110,844 in compensation expense for these options in the accompanying consolidated financial statements. The Black-Scholes option pricing model used the following assumptions:

Risk-free interest rate - 0.05%

Expected life - 1 month

Expected volatility - 29.50%

Expected dividend - 0%

F-35

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2013 and 2012

Warrants

During the quarter ended September 30, 2011, the Company entered into an agreement to issue convertible notes together with warrants to purchase 140,845 warrants of common stock at an initial exercise price of $8.95 per share with a life of five years. The convertible notes and warrants contained anti-dilution protection. The fair market value of these warrants was calculated as $446,480 by using the Black Scholes model. Using this value, the proceeds of the convertible notes were allocated between warrants and the convertible notes based on their relative fair values. The Company recorded $401,648 of capitalized financing cost which will be amortized over the life of the note. As a result of new capital raised under the shelf registration on form S-3, the conversion price of the convertible notes and the exercise price of the warrants was adjusted downward from $8.95 to $7.73 and the number of warrants has been increased to 163,021. Moreover, the Company also offered Aegis Capital Corp. the right to exercise 5% warrants at an exercise price of 125% of the offering price. On March 7, 2013, 72,300 of the outstanding 83,375 warrants were exercised.

On September 13, 2012, the parties replaced the note with a new note for the same principal amount, an elimination of a shareholders’ receivable condition, a decrease in the interest rate and a decrease in the conversion price from $7.73 to $4.93. Due to reduction in the note conversion price, the exercise price of warrants has been adjusted downward from $7.73 to $7.46 and the number of warrants has increased from 163,021 to 168,943.

(B)	Equity Incentive Plan

In May 2011, the shareholders approved the 2011 Equity Incentive Plan (the “2011 Plan”) which provides for the grant of equity-based awards, including options, stock appreciation rights, restricted stock awards or performance share awards or any other right or interest relating to shares or cash, to eligible participants. The aggregate number of shares reserved and available for award under the 2011 Plan is 500,000 (the Share Reserve). The 2011 Plan contemplates the issuance of common stock upon exercise of options or other awards granted to eligible persons under the 2011 Plan. Shares issued under the 2011 Plan may be both authorized and unissued shares or previously issued shares acquired by the Company. Upon termination or expiration of an unexercised option, stock appreciation right or other stock-based award under the 2011 Plan, in whole or in part, the number of shares of common stock subject to such award again becomes available for grant under the 2011 Plan. Any shares of restricted stock forfeited as described below will become available for grant. The maximum number of shares that may be granted to any one participant in any calendar year may not exceed 50,000 shares. All options issued pursuant to the Plan are nontransferable and subject to forfeiture.

F-36

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2013 and 2012

Stock Options

Options granted under the 2011 Plan are not generally transferable and must be exercised within 10 years, subject to earlier termination upon termination of the option holder's employment, but in no event later than the expiration of the option's term. The exercise price of each option may not be less than the fair market value of a share of the Company’s common stock on the date of grant (except in connection with the assumption or substitution for another option in a manner qualifying under Section 424(a) of the Internal Revenue Code of 1986, as amended (the Code). Incentive stock options granted to any participant who owns 10% or more of the Company’s outstanding common stock (a Ten Percent Shareholder) must have an exercise price equal to or exceeding 110% of the fair market value of a share of our common stock on the date of the grant and must not be exercisable for longer than five years. Options become vested and exercisable at such times or upon such events and subject to such terms, conditions, performance criteria or restrictions as specified by the Committee. The maximum term of any option granted under the 2011 Plan is ten years, provided that an incentive stock option granted to a Ten Percent Shareholder must have a term not exceeding five years.

Performance Awards

Under the 2011 Plan, a participant may also be awarded a "performance award," which means that the participant may receive cash, stock or other awards contingent upon achieving performance goals established by the Committee. The Committee may also make "deferred share" awards, which entitle the participant to receive the Company's stock in the future for services performed between the date of the award and the date the participant may receive the stock. The vesting of deferred share awards may be based on performance criteria and/or continued service with the Company. A participant who is granted a "stock appreciation right" under the Plan has the right to receive all or a percentage of the fair market value of a share of stock on the date of exercise of the stock appreciation right minus the grant price of the stock appreciation right determined by the Committee (but in no event less than the fair market value of the stock on the date of grant). Finally, the Committee may make "restricted stock" awards under the 2011 Plan, which are subject to such terms and conditions as the Committee determines and as are set forth in the award agreement related to the restricted stock. As of June 30, 2013, 16,950 shares have been issued under this plan to non- officers employees.

NOTE 19 – COMMITMENTS AND CONTINGENCIES

(A)	Non-cancellable operating leases

The Company’s headquarters is located in Calabasas, California in approximately 7,210 rentable square feet and a rent of $21,165 per month. The term of the lease is for five years and five months and expires on August 31, 2017. A security deposit of $23,821 was made and is included in other current assets in the accompanying consolidated financial statements.

The Australia lease was for six months expiring June 30, 2013 and is rented at the rate of $6,091 per month.

The Beijing lease is a three-year lease that expires in January 2014. The monthly rent is approximately $10,217.

The Bangkok lease is a three years lease expiring in November 2013 with monthly rent of approximately $8,140.

F-37

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2013 and 2012

The NetSol Europe facilities, located in Horsham, United Kingdom, are leased until June 23, 2021 for an annual rent of approximately $106,512.

VLS facilities, located in London, United Kingdom, are leased until October 2015 for an annual rent of approximately $53,256.

NTNA relocated to Alameda, California location. The Alameda lease is about to end in November 2013. The monthly rent is $8,759.

The NetSol Pindi office lease is a one year-lease that expires in April 2014 and currently is rented at the rate of approximately $591 per month.

Upon expiration of its leases, the Company does not anticipate any difficulty in obtaining renewals or alternative space. Rent expense amounted to $1,377,545 and $1,026,304 for the years ended June 30, 2013 and 2012, respectively.

The total annual lease commitment for the next five years is as follows:

FYE 6/30/14	$	645,087
FYE 6/30/15		421,367
FYE 6/30/16		393,711
FYE 6/30/17		384,042
FYE 6/30/18		237,529

(B)	Litigation

As of June 30, 2013, and to the best knowledge of the Company’s management and counsel, there is no material litigation pending or threatened against the Company.

NOTE 20 – SEGMENT INFORMATION AND GEOGRAPHIC AREAS

The Company has identified three global regions or segments for its products and services; North America, Europe, and Asia-Pacific. Our reportable segments are business units located in different global regions. Each business unit provides similar products and services; license fees for leasing and asset-based software, related maintenance fees, and implementation and IT consulting services. Separate management of each segment is required because each business unit is subject to operational issues and strategies unique to their particular regional location. We account for intercompany sales and expenses as if the sales or expenses were to third parties and eliminate them in consolidation.

F-38

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2013 and 2012

The following table presents a summary of operating information and certain year-end balance sheet information for the years ended June 30, 2013 and 2012:

	2013			2012
Revenues from unaffiliated customers:
North America	$	6,744,182		$	4,552,173
Europe		7,838,642			5,676,392
Asia - Pacific		36,060,287			29,546,959
Revenue from related party		154,050
Consolidated	$	50,797,161		$	39,775,524

Operating income (loss):
Corporate headquarters	$	(3,185,482	)	$	(3,408,483	)
North America		705,985			123,979
Europe		1,076,963			(90,689	)
Asia - Pacific		13,069,632			10,639,775
Consolidated	$	11,667,098		$	7,264,582

Net income (loss) after taxes and before non-controlling interest:
Corporate headquarters	$	(3,695,617	)	$	(4,470,462	)
North America		666,677			236,865
Europe		1,050,276			(57,655	)
Asia - Pacific		14,066,719			10,940,523
Consolidated	$	12,088,055		$	6,649,271

Identifiable assets:
Corporate headquarters	$	14,450,760		$	14,059,781
North America		2,997,145			2,814,769
Europe		5,366,611			5,740,244
Asia - Pacific		79,889,599			68,732,420
Consolidated	$	102,704,115		$	91,347,214

Depreciation and amortization:
Corporate headquarters	$	136,541		$	82,074
North America		646,076			397,508
Europe		860,485			638,830
Asia - Pacific		4,059,647			3,523,575
Consolidated	$	5,702,749		$	4,641,987

Capital expenditures:
Corporate headquarters	$	7,992		$	18,230
North America		51,741			24,693
Europe		491,226			608,226
Asia - Pacific		8,407,917			4,261,174
Consolidated	$	8,958,876		$	4,912,323

Interest expense:
Corporate headquarters	$	358,308		$	559,630
North America		42,293			964
Europe		184,447			119,963
Asia - Pacific		78,977			143,127
Consolidated	$	664,025		$	823,684

Income tax expense:
Europe	$	7,606		$	(21,640	)
Asia - Pacific		457,820			77,024
Consolidated	$	465,426		$	55,384

F-39

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2013 and 2012

Geographic Information

Disclosed in the table below is geographic information for each country that comprised greater than five percent of our total revenues for fiscal 2013 and 2012.

	June 30, 2013				June 30, 2012
	Revenue		Long-lived Assets		Revenue		Long-lived Assets

China	$	10,156,476	$	138,597	$	10,795,330	$	135,721
Thailand		7,104,115		520,652		5,639,182		665,542.00
USA		5,961,587		10,552,454		5,777,841		11,275,337
UK		6,882,417		1,492,607		6,544,662		1,904,000
Pakistan & India		2,731,951		47,379,603		2,214,905		41,087,552
Australia & New Zealand		6,030,646		440		1,914,654		956
Mexico		2,624,450		-		377,860		-
Other Countries		9,305,519		-		6,511,090		-
Total	$	50,797,161	$	60,084,353	$	39,775,524	$	55,069,108

NOTE 21 – NON-CONTROLLING INTEREST IN SUBSIDIARY

The Company had non-controlling interests in several of its subsidiaries. The balance of non-controlling interest as of June 30, 2013 and 2012 was as follows:

SUBSIDIARY	Non Controlling Interest %			Non-Controlling Interest at June 30, 2013

NetSol PK		34.81	%	$	15,593,585
NetSol-Innovation		49.90	%		1,161,649
VLS		49.00	%		481,121
Vroozi		9.09	%		34,908

Total				$	17,271,263

SUBSIDIARY	Non Controlling Interest %			Non-Controlling Interest at June 30, 2012

NetSol PK		39.48	%	$	13,600,492
NetSol-Innovation		49.90	%		1,076,833
VLS		49.00	%		722,096

Total				$	15,399,421

F-40

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2013 and 2012

(A)	NetSol Technologies, Limited (“NetSol PK”)

NetSol PK is majority owned by the Company. During the year ended June 30, 2013, the Company purchased 4,071,400 shares of NetSol PK from the open market against the value of $799,349. After this purchase, the non-controlling interest in NetSol PK was reduced from 39.48% to 34.81%. For the fiscal years ended June 30, 2013 and 2012, NetSol Technologies Ltd. (“NetSol PK”) had net income of $11,284,696 and $9,438,135. The related non-controlling interest was $3,967,678 and $3,736,175, respectively. For the same period the Comprehensive loss attributable to non-controlling interest was $1,283,182 and $1,657,376, respectively.

Employees of Netsol PK also exercised options to acquire 661,500 shares of the subsidiary valued at $107,945.

(B)	NetSol Innovation (Private) Limited (“NetSol Innovation”)

For the fiscal years ended June 30, 2013 and 2012, NetSol Innovation had net income of $1,108,214 and $1,102,318. The related non-controlling interest was $556,455 and $550,056, respectively. For the same period the Comprehensive loss attributable to non-controlling interest was $82,641 and $100,447 respectively.

During the fiscal year-ended June 2013, NetSol Innovation declared a cash dividend of $786,170, of which the Company’s interest was $397,173. The amount attributable to the non-controlling interest was $388,997 and is reflected in the accompanying consolidated financial statements.

(C)	VIRTUAL LEASE SERVICES “VLS”)

For the fiscal years ended June 30, 2013 and 2012, VLS had a net loss of $477,814 and $150,013. The related, non-controlling interest was $234,129 and $73,506, respectively. For the same period the comprehensive loss attributable to non-controlling interest was $6,846 and comprehensive income $4,582 respectively.

(D)	VROOZI, INC.

During the quarter ended March 31, 2013, the subsidiary company issued shares worth of $100,000 to one employee against his services. As a result, the status of the subsidiary has been changed from wholly owned subsidiary to majority owned subsidiary. For the year ended June 30, 2013, Vroozi had a net loss of $2,344,708 of which $65,092 has been recorded as non-controlling interest.

NOTE 22 – SUBSEQUENT EVENTS

The Company issued 6,500 shares of common stock to employees as required according to the terms of their employment agreement valued at $69,420.

Employees of the Company exercised options to acquire 72,500 shares of common stock valued at $580,000.

F-41

	NEVADA	95-4627685
	(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

PART I
		PAGE
Note About Forward-Looking Statements

Item 1	Business	1
Item 1A	Risk Factors	14
Item 2	Properties	14
Item 3	Legal Proceedings	15
Item 4	Intentionally Omitted/Not Applicable

PART II

Item 5	Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	16
Item 6	Selected Financial Data	17
Item 7	Management's Discussion of Financial Condition and Analysis and Plan of Operations	18
Item 7A	Quantitative and Qualitative Disclosures about Market Risk	28
Item 8	Financial Statements and Supplementary Data	28
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	29
Item 9A	Controls and Procedures	29
Item 9B	Other Information	30


PART III

Item 10	Directors, Executive Officers and Corporate Governance	31
Item 11	Executive Compensation	36
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	46
Item 13	Certain Relationships and Related Transactions, and Director Independence	47
Item 14	Principal Accountant Fees and Services	47

PART IV

Item 15	Exhibits and Financial Statement Schedules	49

Location/Approximate	Square Feet		Purpose/Use	Monthly Rental Expense

Alameda, CA		4,298	Computer & General Office	$	8,759

Beijing, China		3,012	General Office	$	10,217

Bangkok, Thailand		3,791	Computer and General Office	$	8,140

Horsham, UK (NetSol Europe)		6,570	Computer and General Office	$	8,876

London, UK (VLS)		2,100	Computer & General Office	$	4,438

NetSol Connect (Karachi Office)(1)		2,310	General Office	$	1,323

NetSol PK (Pindi Office)		2,250	General Office & Guest House	$	529

Sydney, Australia		200	General Office	$	2,000

		2012-2013				2011-2012
Fiscal
Quarter	High		Low		High		Low

1st (ended September 30)		6.95		4.00		17.80		5.60
2nd (ended December 31)		6.75		5.45		6.90		3.50
3rd (ended March 31)		13.74		5.88		9.50		3.60
4th (ended June 30)		14.01		9.14		6.10		3.70

	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)
Equity Compensation Plans approved by Security holders	474,586(1)	$12.78(2)	186,086(3)
Equity Compensation Plans not approved by Security holders	None	None	None
Total	474,586	$12.78	186,086

	Year Ended June 30,
	2009			2010		2011		2012		2013

Consolidated Statements of Income Data:
Revenues	$	26,448,177		$	36,779,897	$	36,547,574	$	39,775,524	$	50,797,161
Income (loss) from operations		(6,483,169	)		9,727,709		10,164,820		7,264,582		11,667,098
Net income		(8,181,448	)		1,394,120		5,728,088		2,446,545		7,863,143

Net income (loss) per share of common stock
Basic	$	(3.04	)	$	0.40	$	1.18	$	0.39	$	0.96

Diluted	$	(2.99	)	$	0.37	$	1.16	$	0.39	$	0.95

Reporting Units	Percentage by which fair value exceeds carrying value
Asia Pacific	14,274.72%
Europe	1,236.62%
North America	491.53%

	For the Year Ended June 30,
	2013			%			2012			%
Net Revenues:
License fees	$	17,756,447			34.96	%	$	13,369,701			33.61	%
Maintenance fees		9,550,471			18.80	%		7,866,930			19.78	%
Services		23,490,243			46.24	%		18,538,893			46.61	%
Total net revenues		50,797,161			100.00	%		39,775,524			100.00	%

Cost of revenues:
Salaries and consultants		13,051,360			25.69	%		10,236,109			25.73	%
Travel		1,710,561			3.37	%		1,273,259			3.20	%
Repairs and maintenance		485,070			0.95	%		373,359			0.94	%
Insurance		179,959			0.35	%		145,351			0.37	%
Depreciation and amortization		4,147,347			8.16	%		3,528,229			8.87	%
Other		3,379,636			6.65	%		2,721,716			6.84	%
Total cost of revenues		22,953,933			45.19	%		18,278,023			45.95	%
Gross profit		27,843,228			54.81	%		21,497,501			54.05	%
Operating expenses:
Selling and marketing		3,556,997			7.00	%		3,130,379			7.87	%
Depreciation and amortization		1,555,402			3.06	%		1,113,758			2.80	%
Bad debt expense		415,482			0.82	%		124,291			0.31	%
Salaries and wages		5,078,278			10.00	%		4,191,593			10.54	%
Professional services, including non-cash compensation		907,844			1.79	%		993,058			2.50	%
General and adminstrative		4,662,127			9.18	%		4,679,840			11.77	%
Total operating expenses		16,176,130			31.84	%		14,232,919			35.78	%

Income from operations		11,667,098			22.97	%		7,264,582			18.26	%
Other income and (expenses)
Gain (loss) on sale of assets		3,682			0.01	%		(18,979	)		-0.05	%
Interest expense		(664,025	)		-1.31	%		(823,684	)		-2.07	%
Interest income		185,343			0.36	%		82,039			0.21	%
Gain on foreign currency exchange transactions		1,367,448			2.69	%		404,708			1.02	%
Share of net loss from equity investment		482,664			0.95	%		(300,000	)		-0.75	%
Beneficial conversion feature		(635,882	)		-1.25	%		(179,576	)		-0.45	%
Other (expense)		147,153			0.29	%		275,565			0.69	%
Total other income (expenses)		886,383			1.74	%		(559,927	)		-1.41	%
Net income before income taxes		12,553,481			24.71	%		6,704,655			16.86	%
Income taxes		(465,426	)		-0.92	%		(55,384	)		-0.14	%
Net income after tax		12,088,055			23.80	%		6,649,271			16.72	%
Non-controlling interest		(4,224,912	)		-8.32	%		(4,202,727	)		-10.57	%
Net income attibutable to NetSol		7,863,143			15.48	%		2,446,544			6.15	%

	Payment due by period
Contractual Obligation	Total		Less than 1 year		1-3 Years		3-5 Years		More than 5 years

Debt Obligations
Term Finance Facility	$	867,195	$	495,540	$	371,655	$	-	$	-
HSBC Loan		1,047,014		336,339		672,678		37,997		-
D&O Insurance		88,292		88,292		-		-		-
Habib Bank Line of Credit		1,785,237		1,785,237		-		-		-
Bank Overdraft Facility		312,139		312,139		-		-		-
Bank Loan		1,982,161		1,982,161		-		-		-

Capital Lease Obligations										-
Subsidiary Capital Leases		638,800		308,918		318,197		11,685		-
										-
Operating Lease Obligations										-
Non-cancellable operating lease		2,401,272		645,087		815,078		621,571		319,536
										-
Total	$	9,122,110	$	5,953,713	$	2,177,608	$	671,253	$	319,536


(I)		Denotes an independent director.
(C) *		Denotes the Chairperson of the committee. The Company determined to adjust the number of directors from 5 to 7 members. Mr. Bilbrey was appointed to fill a vacancy in March 2013 and Mr. Salim Ghauri stood for election to the board in July 2013. The board continues to consist of a majority of independent members.

Name	Year First Elected As an Officer or Director	Age	Position Held with the Registrant	Family Relationship
Najeeb Ghauri	1997	59	Chief Executive Officer, Chairman and Director	Brother to Naeem & Salim Ghauri
Boo-Ali Siddiqui	2009	38	Chief Financial Officer*	None
Roger Almond	2013	48	Chief Financial Officer*	None
Patti L. W. McGlasson	2004	48	Sr. V.P., Legal and Corporate Affairs; Secretary, General Counsel	None
Naeem Ghauri	1999	56	Director	Brother to Najeeb & Salim Ghauri
Shahid Javed Burki	2000	74	Director	None
Salim Ghauri	1999**	58	Director	Brother to Najeeb & Naeem Ghauri
Eugen Beckert	2001	66	Director	None
Mark Caton	2002	64	Director	None
Jeffrey Bilbrey	2013	42	Director	None

Najeeb Ghauri	Chief Executive Officer
Boo Ali	Chief Financial Officer
Patti L. W. McGlasson	Sr. V.P. Legal and Corporate Affairs, Secretary and General Counsel

Name and Principle Position	Fiscal Year Ended	Salary ($)		Bonus ($)		Stock Awards ($) (1)		Option Awards ($)			All Other Compensation ($)			Total ($)
Najeeb Ghauri	2013	$	393,750	$	-	$	-	$	56,273	(2)	$	75,141	(3)	$	525,164
CEO & Chairman	2012	$	389,063	$	-	$	32,500	$	168,820	(2)	$	78,884	(3)	$	669,267
Boo-Ali Siddiqui	2013	$	92,400	$	-	$	6,850	$	-		$	-		$	99,250
Chief Financial Officer	2012	$	90,300	$	-	$	17,875	$	-		$	-		$	108,175
Patti L. W. McGlasson	2013	$	143,000	$	-	$	6,850	$	-	(2)	$	23,947	(4)	$	173,797
Secretary, General Counsel	2012	$	139,750	$	-	$	17,875	$	-	(2)	$	23,863	(4)	$	181,488

NAME	NUMBER OF SECURITIES UNDERLYING OPTIONS (#) EXERCISABLE		NUMBER OF SECURITIES UNDERLYING OPTIONS (#) UNEXERCISABLE	OPTION EXERCISE PRICE ($)		OPTION EXPIRATION DATE
Najeeb Ghauri		25,000			25.00	6/2/16
		30,000			6.50	2/12/19
		50,000			7.50	11/7/21

Boo-Ali Siddiqui		-			-
		-			-
Patti L. W. McGlasson		1,000			30.00	1/1/14
		2,000			26.40	3/26/14
		3,000			50.00	3/26/14
		2,000			16.50	7/7/15
		2,000			22.50	7/7/15
		1,000			16.00	7/23/17

BENEFITS AND PAYMENTS	CHANGE OF CONTROL		TERMINATION UPON DEATH OR DISABILITY		TERMINATION BY US WITHOUT CAUSE OR BY EXECUTIVE FOR GOOD REASON

Base Salary	$	1,181,250	$	-	$	1,181,250
Bonus		-
Salary Multiple Pay-out		1,177,313
Bonus or Revenue One-time Pay-Out		507,972
Net Cash Value of Options		1,195,000

Total	$	4,061,535	$	-	$	1,181,250

NAME	FEES EARNED OR PAID IN CASH ($)		SHARES AWARDS ($) (1)		TOTAL ($)
Eugen Beckert		31,250		-		31,250
Shahid Javed Burki		38,750		-		38,750
Mark Caton		35,000		-		35,000
Alexander Shakow		4,500		-		4,500
Jeffrey M. Bilbrey		6,000		-		6,000

BOARD ACTIVITY	CASH PAYMENTS
Board Member Fee	$	52,000
Committee Membership	$	18,500
Chairperson for Audit Committee	$	18,750
Chairperson for Compensation Committee	$	15,000
Chairperson for Nominating and Corporate Governance Committee	$	11,250

		Percentage

Najeeb Ghauri (3)	428,091		4.76	%
Naeem Ghauri (3)	262,315		2.92	%
Salim Ghauri (3)	306,144		3.41	%
Eugen Beckert (3)	32,800		*
Jeffrey Bilbrey	12		*
Shahid Javed Burki (3)	50,650		*
Mark Caton (3)	23,800		*
Patti L. W. McGlasson (3)	26,550		*
Boo-Ali Siddiqui (3)	12,000		*
Roger Almond	0		*
Newland Capital Management LLC (5)	665,905		7.41	%
The Tail Wind Fund Ltd. (6)	689,574		7.67	%
All officers and directors as a group (seven persons)	1,142,362		12.71	%

(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 filed 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 filed as Exhibit 3.0 to NetSol’s quarterly report filed on Form 10-QSB for the period ended March 31, 2005.*
3.6		Amendment to the Articles of Incorporation dated October 18, 2006 filed as Exhibit 3.5 to NetSol’s Annual Report for the fiscal year ended June 30, 2007 on Form 10-KSB.*
3.7		Amendment to Articles of Incorporation dated May 12, 2008*
3.8		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.*
3.9		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*
4.2		Form of Warrant*.
4.3		Form of Series A 7% Cumulative Preferred Stock filed as Annex E to NetSol’s Definitive Proxy Statement filed September 18, 2006*.
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		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.*
10.6		Company 2008 Equity Incentive Plan incorporated by reference as Annex A to NetSol’s Definitive Proxy Statement filed May 28, 2008.*
10.6		Frame Agreement by and between DaimlerChrysler Services AG and NetSol Technologies dated June 4, 2004 incorporated by reference as Exhibit 10.13 to NetSol’s Annual Report for the year ended June 30, 2005 on Form 10-KSB filed on September 15, 2005.*
10.7		Share Purchase Agreement dated as of January 19, 2005 by and between the Company and the shareholders of CQ Systems Ltd. incorporated by reference as Exhibit 2.1 to NetSol’s Current Report filed on form 8-K on January 25, 2005.*
10.8		Stock Purchase Agreement dated May 6, 2006 by and between the Company, McCue Systems, Inc. and the shareholders of McCue Systems, Inc. incorporated by reference as Exhibit 2.1 to NetSol’s Current Report filed on form 8-K on May 8, 2006.*
10.9		Employment Agreement by and between NetSol Technologies, Inc. and Patti L. W. McGlasson dated May 1, 2006 incorporated by reference as Exhibit 10.20 to NetSol’s Annual Report on form 10-KSB dated September 18, 2006.*
10.11.		Employment Agreement by and between the Company and Najeeb Ghauri dated January 1, 2007 filed as Exhibit 10.11 to the Company’s Annual Report filed on Form 10-KSB for the year ended June 30, 2007.*
10.12		Employment Agreement by and between the Company and Naeem Ghauri dated January 1, 2007 filed as Exhibit 10.11 to the Company’s Annual Report filed on Form 10-KSB for the year ended June 30, 2007.*
10.13		Employment Agreement by and between the Company and Salim Ghauri dated January 1, 2007 filed as Exhibit 10.11 to the Company’s Annual Report filed on Form 10-KSB for the year ended June 30, 2007.*
10.14		Employment Agreement by and between the Company and Tina Gilger dated August 1, 2007 filed as Exhibit 10.11 to the Company’s Annual Report filed on Form 10-KSB for the year ended June 30, 2007.*
10.15		Amendment to Employment Agreement by and between Company and Najeeb Ghauri dated effective January 1, 2007.*

10.16		Amendment to Employment Agreement by and between Company and Naeem Ghauri dated effective January 1, 2007. *
10.17		Amendment to Employment Agreement by and between Company and Salim Ghauri dated effective January 1,*
10.18		Lease Agreement by and between McCue Systems, Inc. and Sea Breeze 1 Venture dated April 29, 2003*.
10.19		Amendment to Lease Agreement by and between McCue Systems, Inc. and Sea Breeze 1 Venture dated June 25, 2007 filed as Exhibit 10.19 to the Company’s Annual Report filed on Form 10-KSB for the year ended June 30, 2007. *
10.20		Lease Agreement by and between NetSol Pvt Limited and Civic Centres Company (PVT) Limited dated May 28, 2001 incorporated by this reference as Exhibit 10.23 to NetSol’s Annual Report on form 10-KSB dated September 18, 2006.*
10.21		Lease Agreement by and between NetSol Pvt Limited and Mrs. Rameeza Zobairi dated December 5, 2005 incorporated by this reference as Exhibit 10.24 to NetSol’s Annual Report on form 10-KSB dated September 18, 2006.*
10.22		Lease Agreement by and between NetSol Pvt Limited and Mr. Nisar Ahmed dated May 4, 2006 incorporated by this reference as Exhibit 10.25 to NetSol’s Annual Report on form 10-KSB dated September 18, 2006.*
10.23		Lease Agreement by and between NetSol Technologies, Ltd. and Argyll Business Centres Limited dated April 28, 2006 incorporated by this reference as Exhibit 10. 26 to NetSol’s Annual Report on form 10-KSB dated September 18, 2006.*
10.24		Tenancy Agreement by and between NetSol Technologies, Ltd. and Beijing Lucky Goldstar Building Development Co. Ltd. dated June 26, 2007 filed as Exhibit 10.21 to the Company’s Annual Report filed on Form 10-KSB for the year ended June 30, 2007.*
10.25		Company 2005 Stock Option Plan incorporated by reference as Exhibit 99.1 to NetSol’s Definitive Proxy Statement filed on March 3, 2006.*
10.26		Company 2004 Stock Option Plan incorporated by reference as Exhibit 99.1 to NetSol’s Definitive Proxy Statement filed on February 7, 2005.*
10.27		Working area sublease by and between NetSol Technologies, Ltd. and Toyota Leasing (Thailand) Co. Ltd., dated June 21, 2007 filed as Exhibit 10.24 to the Company’s Annual Report filed on Form 10-KSB for the year ended June 30, 2007.*
10.28		Lease Agreement by and between NetSol Technologies, Inc. and NetSol Technologies North America, Inc. and NOP Watergate LLC dated April 3, 2008.*
10.29		Lease Amendment Number Three by and between NetSol Technologies, Inc. and Century National Properties, Inc. dated December 12, 2007. *
10.30		Rent Agreement by and between Mr. Tahir Mehmood Khan and NetSol Technologies Ltd. Dated January 21, 2008. *
10.31		Amendment to Employment Agreement by and between Company and Najeeb Ghauri dated effective January 1, 2010. *
10.32		Amendment to Employment Agreement by and between Company and Naeem Ghauri dated effective January 1, 2010.*
10.33		Amendment to Employment Agreement by and between Company and Salim Ghauri dated effective January 1, 2010.*
10.34		Lease Amendment No. 4 by and between NetSol Technologies, Inc. and Century National Properties, Inc. dated October 7, 2009.*
10.35		Office Lease by and between NetSol Technologies North America, Inc. and Legacy Partners I Alameda Mariner Loop, LLC dated November 27, 2009.*
10.36		Amendment to Employment Agreement by and between Company and Patti L. W. McGlasson dated effective April 1, 2010.*
10.37		Employment Agreement by and between Company and Boo-Ali Siddiqui dated effective April 1, 2010.*
10.38		Amendment to Employment Agreement between NetSol Technologies, Inc. and Najeeb Ghauri dated effective July 25, 2013.*
10.39		Amendment to Employment Agreement between NetSol Technologies, Inc. and Boo-Ali Siddiqui dated effective July 25, 2013.*
10.40		Amendment to Employment Agreement between NetSol Technologies, Inc. and Patti L.W. McGlasson dated effective July 25, 2013.*
10.41		Restated Charter of the Compensation Committee dated effective September 10, 2013(1)
10.42		Restated Charter of the Nominating and Corporate Governance Committee dated effective September 10, 2013.(1)
10.43		Restated Charter of the Audit Committee dated effective September 10, 2013(1)
10.44		Restated Code of Business Conduct & Ethics dated effective September 10, 2013(1)
10.45		Consulting Agreement between Roger Almond and NetSol Technologies, Inc. dated September 9, 2013.(1)

21.1		A list of all subsidiaries of the Company(1)
31.1		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (CEO) (1)
31.2		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (CFO) (1)
32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (CEO)(1)
32.2		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley act of 2002 (CFO)(1)

	NetSol Technologies, Inc.

Date: September 12, 2013	BY:	/S/ NAJEEB GHAURI
		Najeeb Ghauri
		Chief Executive Officer

Date: September 12, 2013	BY:	/S/ BOO-ALI SIDDIQUI
		Boo-Ali Siddiqui
		Chief Accounting Officer


Date: September 12, 2013	BY:	/S/ ROGER K. ALMOND
		Roger K. Almond
		Chief Financial Officer
		Principal Accounting Officer

Date: September 12, 2013	BY:	/S/ NAJEEB U. GHAURI
		Najeeb U. Ghauri
		Chief Executive Officer
		Director, Chairman

Date: September 12, 2013	BY:	/S/BOO-ALI SIDDIQUI
		Boo-Ali Siddiqui
		Chief Accounting Officer


Date: September 12, 2013	BY:	/S/ROGER K. ALMOND
		Roger K. Almond
		Chief Financial Officer
		Principal Accounting Officer

Date: September 12, 2013	BY:	/S/ NAEEM GHAURI
		Naeem Ghauri
		Director

Date: September 12, 2013	BY:	/S/ SALIM GHAURI
		Director

Date: September 12, 2013	BY:	/S/ EUGEN BECKERT
		Eugen Beckert
		Director

Date: September 12, 2013	BY:	/S/ SHAHID JAVED BURKI
		Shahid Javed Burki
		Director

Date: September 12, 2013	BY:	/S/ MARK CATON
		Mark Caton
		Director

Date: September 12, 2013	BY:	/S/ JEFFREY BILBREY
		Jeffrey Bilbrey
		Director