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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-QSB

For the quarterly period ended March 31, 2003

(  ) For the transition period from            to

Commission file number: 0-22773

NETSOL TECHNOLOGIES, INC.

24011 Ventura Boulevard, Suite 101, Calabasas, CA 91302
(Address of principal executive offices) (Zip Code)

(818) 222-9195 / (818) 222-9197
(Issuer’s telephone/facsimile numbers, including area code)

               Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

               The issuer had 25,511,909 shares of its $.001 par value Common Stock issued and outstanding as of March 31, 2003.

Transitional Small Business Disclosure Format (check one)

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NETSOL TECHNOLOGIES, INC.

INDEX

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NETSOL TECHNOLOGIES, INC. – 10QSB – Quarterly Report

PART I - FINANCIAL INFORMATION

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET – MARCH 31, 2003
(UNAUDITED)

See accompanying notes to consolidated financial statements.

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NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

See accompanying notes to consolidated financial statements

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NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

See accompanying notes to consolidated financial statements.

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NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)

See accompanying notes to consolidated financial statements.

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NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The following discussion is intended to assist in an understanding of the Company’s financial position and results of operations for the quarter ending March 31, 2003.

     Forward-Looking Information.

This report contains certain forward-looking statements and information relating to the Company that is based on the beliefs of its management as well as assumptions made by and information currently available to its management. When used in this report, the words “anticipate”, “believe”, “estimate”, “expect”, “intend”, “plan”, and similar expressions as they relate to the Company or its management, are intended to identify forward-looking statements. These statements reflect management’s current view of the Company with respect to future events and are subject to certain risks, uncertainties and assumptions. Should any of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this report as anticipated, estimated or expected. The Company’s realization of its business aims could be materially and adversely affected by any technical or other problems in, or difficulties with, planned funding and technologies, third party technologies which render the Company’s technologies obsolete, the unavailability of required third party technology licenses on commercially reasonable terms, the loss of key research and development personnel, the inability or failure to recruit and retain qualified research and development personnel, or the adoption of technology standards which are different from technologies around which the Company’s business ultimately is built. The Company does not intend to update these forward-looking statements.

GENERAL

NetSol Technologies, Inc. formally known as NetSol International, Inc. (“NetSol” or the “Company”), is a Nevada corporation founded in 1997. The Company is in the business of information technology (“I/T”) services. Since its inception, the Company has developed enterprise solutions that help clients use I/T more efficiently in order to improve their operations and profitability and to achieve business results. Network Solutions Pvt. Ltd., a company formed under the laws of the country of Pakistan, a subsidiary of NetSol (“NetSol PK”), develops the majority of the software for the Company. NetSol PK was the first company in Pakistan to achieve the ISO 9001 accreditation. In addition, NetSol PK is the first IT company in Pakistan to receive the coveted Software Engineering Institute Capability Maturity Model (“SEI CMM”) Level 2 software development assessment. This is one of the highest levels of recognition for quality and best practices a software company can achieve.

Company Business Model

The Company offers a broad array of professional services to clients in the global commercial markets and specializes in the application of advanced and complex I/T enterprise solutions to achieve its customers’ strategic objectives. Its service offerings include outsourcing, systems integration, customized IT solutions, project/program management and I/T management consultancy, as well as other professional services, including e-business solutions.

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

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

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

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The Company also develops sophisticated Leasing Software Systems for the asset based lease and finance industries. NetSol has developed a complete integrated Leasing Software Suite branded as LeaseSoft, which is a series of four applications that can be marketed and utilized in an integrated system. These applications are CAC, CAP, CAM These four applications form the full suite of the asset based lending. LeaseSoft is a culmination of over 6 years of development effort and has over 60 modules. LeaseSoft is now complete as a product after our first customer of the last application CAM, UMF Singapore gone live. We are getting repeat orders for different application within the main suite. Yamaha Motors Finance Australia needed LeaseSoft.WFS to be live in ten weeks. NetSol team of consultants was able to complete the implementation of a very complex application at the back end in record ten weeks. Our latest contract has come from DaimlerChrysler Services Korea for LeaseSoft.WFS.

LeaseSoft.CAC is a browser-based Credit Application Creation System that can be used by any front-end selling operation, including motor vehicle dealers and other outlets. CAC users create quotations and financing applications for the customers using predefined financial products. The proposal is submitted to Back Office (CAP) for credit approval. After analysis, the proposal is sent back to CAC system with a final decision.

Credit Application Process System (CAP) provides various finance/leasing companies with the ability to quickly assess the worthiness of an applicant applying for a loan or a lease. The core of the system is driven by a strong workflow management engine with integrated links to credit rating agencies and offers an automated point scoring strategy for automatic approval/rejection/referral. It can be customized to link to any Credit Application Creation , and it has the ability to integrate any vehicle data provider such as Glass’ Guide in Europe and Australia.

The LeaseSoft.WFS (Wholesale Finance System) is developed to automate and manage the Whole Sale Finance (Floor Plan) activities of a Finance Company. The design of the system is based on the concept of One Loan One Asset to facilitate Asset Tracking and Costing of an asset. The system covers Credit Limit Request, Payment of Loan, Billing, and Settlement, Auditing of Stocks, Dealer Information and ultimately the pay-off functions.

The LeaseSoft.CAM Contract Administration & Management System manages lease/finance contracts for financing of vehicles from inception until completion and creates all the required accounting entries to interface with a general ledger. The leasing company is able to establish, maintain and terminate such financial contracts. Contracts may include added value services such as vehicle maintenance and/or insurance premiums. It furthermore incorporates functional extensions such as litigation, remarketing of vehicles, securitization of a portfolio and post dated check management.

These are traditionally complex business applications and require a great deal of industry experience both in the development as well as implementation stages. NetSol, over the years, has developed core competencies in the asset based lending software space. These are sought after skills shared in a team of approximately 50 business consultants. NetSol is able to demand a premium for these consultants and leverages this competency when bidding for new business.

Typically, the sales cycle for these products is anywhere between six to twelve months and NetSol derives its income both from selling the license to use the products as well as extensive customization, implementation, support and maintenance. License fees can vary generally between $100,000 to $1,000,000 per license depending upon the size of the customer and the complexity of the customization. The revenue for the license and the customization flows in several phases and could take from one month to a year before its is fully recognized as income in accordance with generally accepted accounting principles.

STATUS OF ANY NEW PRODUCTS, CUSTOMERS OR SERVICES

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The Company has signed new contracts with Daimler Chrysler in Thailand, Daimler Chrysler South Korea and UMF in Singapore in the past quarter. Some of the new projects were initiated in late March, 2003, therefore we anticipate the revenues to be realized in the quarter ending June, 2003. The Company continues to sign new contracts in Pakistan, including a contract to provide Wireless Broadband Internet access to the Army Welfare Trust, through its wholly owned subsidiary NetSolConnect.

The Company has signed a non-binding Letter of Intent to acquire the intellectual property rights to a solution that delivers a banking treasury system via Straight Through Processing (STP). After the due diligence process, if the intellectual property meets with the Company’s expectations, the Company intends to further develop the solution and begin marketing around the last quarter of calendar year 2003. The treasury solution is targeted towards major banks, financial institutions as well as any major corporation with a treasury function.

The Company continues to enhance its existing solutions within the banking and Asset Based Leasing business sectors.

Marketing and Selling

The objective of the Company’s marketing program is to create and sustain preference and loyalty for NetSol as a leading provider of enterprise solutions, e-services consulting and software solutions provider. Marketing is performed at the corporate and business unit levels. The corporate marketing department has overall responsibility for communications, advertising, public relations and our website and also engineers and oversees central marketing and communications programs for use by each of our business units.

The Company grew its pre-sales and marketing team in the UK by two additional resources. As visibility has grown in the sales pipeline in the UK, it was timely to add more personnel to tackle the numerous steps in the sales process. The UK company has been invited to submit responses to a number of RFPs, which provides a better gauge of the conversion rate, as opposed to making general sales calls. NetSol UK operations have been successful in creating these new opportunities in the past three months and are in late stage of negotiations with various different prospects. The target industries to prospect in the UK are banks, financial institutions and large solution providers that need to outsource mission critical systems.

With the success of the business development initiatives taken in the UK, the Company is looking to replicate the model in the US. New marketing initiatives are expected to be launched in the current quarter in the US, leveraging our existing presence in the Washington DC area.

The Company generally enters into written commitment letters with clients at or around the time it commences work on a project. These commitment letters typically contemplate that NetSol and the client will subsequently enter into a more detailed agreement, although the client’s obligations under the commitment letter are not conditioned upon the execution of the later agreement. These written commitments and subsequent agreements contain varying terms and conditions and the Company does not generally believe it is appropriate to characterize them as consisting of backlog. In addition, because these written commitments and agreements often provide that the arrangement can be terminated with limited advance notice or penalty, the Company does not believe the projects in process at any one time are a reliable indicator or measure of expected future revenues.

NetSol provides its services primarily to clients in global commercial industries. In the global commercial area, the Company’s service offerings are marketed to clients in a wide array of industries including, automotive; chemical; tiles/ceramics; Internet marketing; software; medical, banks and financial services.

Geographically, NetSol has operations in North America, the Middle East and Asia Pacific region, with a newly launched presence in Europe.

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CHANGES IN FINANCIAL CONDITION:

Nine Month and Three Month Periods Ended March 31, 2003 as compared to the Nine Month and Three Month Periods Ended March 31, 2002

Net revenues were $2,513,914 and $914,258 for the nine months and three-month periods ended March 31, 2003, respectively. Net revenues were $2,841,749 and $854,979 for the nine months and three-month periods ended March 31, 2002, respectively. This reflects a decrease of $327,835 or 11% in the nine-month period but an increase of $59,279 or 7% in the three-month period ended March 31, 2003. There has been a tremendous upward momentum in demand for NetSol’s ‘niche’ lease and finance products as the Company has experienced 100% increase in product demonstration, evaluation and assessment by blue chip companies in the UK, Australia, Japan, Germany, Singapore, Thailand, South Korea and Pakistan. NetSol was awarded several new contracts from the companies in South Korea, Singapore and in Thailand in the last quarter for LeaseSoft systems such as CAM, CAP and WFS. As these products have gone live in many different customers sites in various countries the demand of these matured products or on the rise. The crown jewel of our product line “CMS’ (Contract Management System) which was sold to three companies of Daimler Chrysler Asia Pacific Region in 2001 for a combined value in excess of two million dollars went alive in January 27, 2003. Maturity of our key products has given rise to a very positive interest by many new blue chip customers globally. The world market size of leasing and financing industry is in excess of $500 Billion out which the Software sector represents over a Billion dollars. Number of large Leasing companies would be looking to renew legacy applications. This places NetSol in a very strong position to capitalize on any upturn in IT sending by these companies. NetSol is well positioned to sell several new licenses in 2003 that could potentially increase the sales and bottom line. As the Company sells more of these licenses it is possible that the margins increase to upward of 70%. The License prices of these products vary from $100,000 to $1000,000 with additional charges for customization and maintenance of between 20%-30% each year. The Company, in parallel, has developed banking applications software to boost its product line and these systems have been sold to Citibank and Askari Banks in Pakistan in 2002. New customers in the banking sector are also growing and company expects substantial growth in this area in the coming year. In the last quarter, NetSol signed quite a few new contracts with new customers in Australia, Japan, UK and Pakistan.

Due to the War in Iraq in March 2003, some of the contracts in the service sector pipeline were delayed by the customers. The Company now expects to close them in the last quarter ending June 2003. Despite of the geo-political unrest and Severe Acute Respiratory Syndrome (SARS) threat in the Asia Pacific Region, the pipeline for new contracts and customers continues to grow.

Operating expenses were $3,579,364 and $990,518 for the nine month and three month periods ending March 31, 2003 as compared to $4,728,780 and $1,369,704, respectively, for the corresponding periods last year. The decrease in the current fiscal year is largely attributable to the focus on reduction of all non-essential costs, reducing personals, and improving the productivity. The Company has streamlined its operations by consolidation, divestment and enhanced operating efficiencies. Depreciation and amortization expense amounted to $1,340,839 and $464,999 for the nine month and three month period ended March 31, 2003, respectively. Depreciation and amortization expense amounted $1,263,169 and $445,506 for the nine month and three-month period ended March 31, 2002, respectively. Combined general and administrative and salaries and wage costs were $1,695,372 and $449,621 for the nine month and three month period ended March 31, 2003, respectively, or a decrease of $490,189 or 22.4% and $341,842 or 43% from corresponding periods last year. This decrease is attributable to reduced operational expenses as the Company was in the process of working to reducing costs across the Company. Selling and marketing expenses decreased to $67,384 and $11,628 in the nine month and three month periods ended March 31, 2003 as compared to $168,840 and $42,753 in the nine month and three month periods ended March 31, 2002. The Company had settlement expenses of $389,860 in the fiscal 2002. No such expenses were incurred in the current quarter. The Company had no addition to the provision for bad debt expense in this quarter while the Company provided an allowance for bad debts of $167,733 in the period ended through December 31, 2002. Professional services expense decreased to $308,036 and $64,270 in the nine

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month and three month periods ended March 31, 2003 from $721,350 and $89,982 in the corresponding periods last year.

Loss from continued operations were $2,199,307 and $517,646 in the nine month and three month periods ended March 31, 2003 as compared to $4,354,873 and $1,121,998 for the corresponding periods last year. This is reduction of 49.5 % and 53.9% for the nine-month and three month periods, respectively, compared to prior year.

In the quarter ended March 31, 2003, the Company had no liability written off but in the quarter ended December 31, 2002, the Company wrote off debts pertaining to discontinued operations in UK amounting $478,075. This amount has been reflected as Gain from discontinuation of subsidiary in the Statement of Operations in the quarter ended December 31, 2002.

Net Losses were $1,721,232 and $517,646 in the nine month and three-month periods ended March 31, 2003 as compared to $4,354,873 and $1,121,998 for the corresponding periods last year. This is reduction of 60.5% and 53.9% for the nine-month and three periods, respectively, compared to prior year.

Net loss per share, basic and diluted, were $0.07 and $0.02 for the nine month and three month periods ended March 31, 2003 as compared with $0.30 and $0.07 for the corresponding periods last year.

LIQUIDITY AND CAPITAL RESOURCES

Net cash used for operating activities amounted to $1,009,155 for the nine months ended March 31, 2003, as compared to $717,189 for the nine months ended March 31, 2002, mainly due to increase in other assets and decrease of accounts payable and accrued expenses.

Net cash provided by investing activities amounted to $624,162 for the nine months ended March 31, 2003, as compared to $(55,789) for the nine months ended March 31, 2002, representing an improvement in cash provided by investing activities mainly due to proceeds from disposal of investments certificates of deposit of $714,334. The Company is actively exploring raising new capital in the emerging markets to adequately fund the Company for growth and enhancement in infrastructure. The cash position is projected to improve in the current and future quarters due to new business signed up in the last quarter.

Net cash provided by financing activities amounted to $797,409 for the nine months ended March 31, 2003, as compared to net cash provided by financing activities of $518,923 for the nine months ended March 31, 2002. The nine-month period ended March 31, 2002 included the cash inflow of $517,049 from issuance of equity and $170,705 from proceeds of loans as compared to $655,135 from issuance of equity and $227,667 from proceeds of loans in the period ended December 31, 2003.

The Company’s cash position was $499,330 at March 31, 2003 compared to $52,070 at March 31, 2002. The Company had a net increase of cash flow in the period ended March 31, 2003, amounting $412,416 as compared to a net decrease of $254,055 in the corresponding period last year.

ADDITIONAL RAISE OF CAPITAL

In April 2003, the Company reported it secured a $1 million revolving line of credit from United Kingdom-based DCD Trade Services Ltd., a subsidiary of DCD Holdings Ltd. In February 2003 DCD Holdings signed a $2.0 million investment agreement. DCD Holdings, one of NetSol’s largest investors, has worldwide representation and manages investments of approximately $650 million. The new line of credit was established to support new projects requiring an upfront cash outlay to begin the project.

In February 2003, DCD Holdings Ltd., a UK investment company, signed an agreement to acquire 1,350,000 Rule 144 restricted shares of NetSol Technologies, Inc., in a private placement. The agreement also includes warrants for underlying shares of restricted Rule 144 stock totaling 2,750,000 with an average price of $0.625. NetSol immediately received approximately $260,000. The board of NetSol ratified the agreement between the two companies.

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Certain employees exercised 1,000,000 stock options with exercise prices ranging from $0.10-$0.25 during this quarter, against salaries owed to them by the Company or loans made to the Company.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On April 8, 2003, Senn Palumbo Meulemans filed a complaint in the Orange County Superior Court seeking damages for breach of contract. Plaintiff alleges NetSol did not pay for services it received and claims damages in the amount of $26,226.81, which includes interest. NetSol intends to vigorously defend its position on this matter.

On March 27, 2003, Arab Commerce Bank filed a complaint in the Supreme Court of the State of New York (Index No.: 600709/03) on the first count seeking damages for breach of a Note Purchase Agreement and Promissory Note. Plaintiff alleges that NetSol did not issue stock in a timely manner in December 2000 resulting in compensatory damages in the amount of $146,466.72. In the event the Plaintiff is unable to collect the amount sought in the first count, it requests that NetSol pay its principal sum of $100,000 and interest at the rate of 9% per annum on the maturity date of December 10, 2000. NetSol plans to hire counsel in New York to vigorously defend its position on this matter.

On July 31, 2002, Herbert Smith, a law firm in England, which represented NetSol in the Surrey matter, filed claim for the sum of 171,732.72 pounds sterling ($267,901.92 as of October 11, 2002), plus interest in the High Court of Justice Queen’s Bench Division. On November 28, 2002, Herbert Smith filed a Consent Order to carry the terms of their mutually agreed settlement and payment schedule. If NetSol fails to maintain the terms of the Order, Herbert Smith will have to come to the US to enforce that judgment on NetSol.

On July 26, 2002, the Company was served with a Request for Entry of Default by Surrey Design Partnership Ltd. (“Surrey”). Surrey’s Complaint for Damages filed with the Request for Entry of Default in Superior Court of California, County of Los Angeles (Central District), the sum of $288,743.41 plus interest at the rate of 10% above Bank of England base rate from January 13, 2002 until payment in full is received, plus costs, was sought. On January 29, 2002, Surrey filed a Consent Order with the High Court of Justice, Queens Bench division stating that the action filed by Surrey would be stayed if 218,000 pounds sterling was paid in accordance to a payment schedule agreed to by both parties. NetSol made payments up to May of 2002, but because of cash flow difficulties, was unable to make payments thereafter. On September 25, 2002, the parties signed an Agreement to Stay Enforcement of Judgment whereby NetSol will make further payments to Surrey until the entire sum is paid. NetSol does not anticipate any further action on this matter. NetSol has paid 25,000 Pounds Sterling in September to be current on the settlement plan and will continue to maintain monthly payments of 3,000 Pounds Sterling from November 1, 2002.

On May 23, 2002, Allied Interstate, Inc. (“Allied” or “Plaintiff”) filed a complaint seeking damages from NetSol International, Inc. (“NetSol” or “Defendant”) for breach of contract; open book account; account stated and reasonable value in Superior Court of California, County of Los Angeles, West District (Case No. SC072237). NetSol filed an answer on July 5, 2002 stating its affirmative defenses to the complaint. Plaintiff and Defendant commenced discovery. On September 30, 2002, NetSol filed three Motions to Compel Discovery, as no responses were sent by Allied. Allied later served Discovery responses were insufficient and not in substantial compliance with California Code of Civil Procedure. On December 5, 2002, a hearing was held whereby Defendant NetSol requested that the Court grant the following three motions: Motion to Compel Responses to Interrogatories and Imposing Monetary Sanctions; Motion to Compel Responses and Production of Documents and imposing Monetary Sanctions; Order that Matters be Deemed Admitted and For Imposition of Monetary Sanctions. Plaintiff did not file opposition or make an appearance at the December 5th hearing. The Court granted Defendant all three motions. On December 20, 2002, Defendant Allied filed a Motion for Reconsideration of granting the Order. On January 16, 2002, the Parties attended a Court Ordered Mediation. The Parties were unable to resolve their differences. Plaintiff’s Motion for Reconsideration (of the Court’s Order regarding the three Motions to Compel granted in favor of the Defendant) is scheduled for February 11, 2003. Trial date has been set for May 7, 2003.

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ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     The Company held its annual General Meeting of Shareholders on February 11, 2003. The following matters were submitted to vote of the shareholders at the meeting.

1. Election of Directors at the General Annual Meeting.

          The following persons were elected directors of the Company to hold office until the next Annual General Meeting of the Shareholders:

The following sets forth the tabulation for each director.

2. Appointment of Auditors

     Kabani & Company Inc. were appointed as Auditors for the Company to hold office until the close of the next annual general meeting of the Company. The directors were authorized to fix the remuneration to be paid to the auditors. The following sets for the tabulation of shares voting for this matter.

3. Stock Option Plan

The Board of Directors of the Company adopted a stock option plan (the “Stock Option Plan”) effective December 5, 2002, subject to acceptance by the shareholders of the Company. This plan offers only restricted shares.

The purpose of the Stock Option Plan is to allow the Company to grant options to directors, officers, employees and service providers, as additional compensation, and as an opportunity to participate in the profitability of the Company. The granting of such options is intended to align the interests of such persons with that of the Company. Options will be exercisable over periods of up to ten years as determined by the board of directors of the Company and are required to have an exercise price no less than the fair market value on the day the option is granted. The total number of shares available under the 2002 Stock Option Plan is 10,000,000 restricted common shares. If an award of options expires or is canceled without having been fully exercised or vested, the unvested or canceled shares generally will be available again for grants under the awards.

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ITEM 5. OTHER INFORMATION

     None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

The Company filed reports on Form 8-K on February 27, 2003 during the quarter ended March 31, 2003 reporting terminating its engagement of Mezzanine Associates LLC. In the same filing the Company also reported the election of its officers at the annual meeting of shareholders which tool place on February 11, 2003.

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

NETSOL TECHNOLOGIES, INC.
(Registrant)

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