NTWK 2Q 2010

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Company Profile

Directors Review

Auditors Review Report

CONDENSED INTERIM FINANCIAL STATEMENTS

Balance Sheet

Profit & Loss Account

Cash Flow Statement

Statement of Changes in Equity

Notes to the Accounts

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheet

Consolidated Profit & Loss Account

Consolidated Cash Flow Statement

Consolidated Statement of Changes in Equity

Notes to the Consolidated Accounts

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NETSOL TECHNOLOGIES LIMITED

CONTENTS

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NETSOL TECHNOLOGIES LIMITED 3

BOARD OF DIRECTORS

Salim Ullah Ghauri

Chairman & Chief Executive

Najeeb Ullah GhauriNon-Executive Director

Naeem Ullah GhauriNon-Executive Director

Shahid Javed BurkiNon-Executive Director

Sajjad Hussain KirmaniExecutive Director

Zahid Bashir MirzaExecutive Director

Shahab-ud-Din GhauriExecutive Director

Vaseem AnvarNon-Executive Director

Rehmat Ullah GhauriAlternate Director

Ayub GhauriAlternate Director

AUDIT COMMITTEE

Shahab-ud-Din GhauriChairman

Vaseem AnvarMember

Sajjad Hussain Kirmani

Member

COMPANY SECRETARY

Boo-Ali Siddiqui

HEAD - INTERNAL AUDIT

Imran Ahmad

AUDITORS

Kabani Saeed Kamran Patel & Co.Chartered Accountants321 - Upper Mall, Lahore.

LEGAL ADVISORCorporate Law Associates1st Floor Queens Centre

Shahra-e-Fatima JinnahLahore

BANKERSAskari Bank LimitedUnited Bank LimitedBank Al Falah LimitedJS Bank LimitedIGI Investment Bank Ltd

SHARE REGISTRAR

Vision Consulting Limited3-C, LDA Flats, Lawrence Rd, Lahore.

CONTACT DETAILSRegistered OfficeSoftware Technology Park, NetSol AvenueMain Ghazi Road, Lahore Cantt, PakistanTel: +92-42-111-44-88-00, 35727096-7Fax: +92-42-35701046, 35726740

RAWALPINDI OFFICE

House NO. 26, Street No. 5, Safari VillasRawalpindi-46000.Tel: +92-51-5595377, 5595480Fax: +92-51-5595376

ISLAMABAD OFFICE3rd Floor, Software Technology Park,5-A, Constitution Avenue, Sector F-5/1Tel: +92-51-2829972Fax: +92-51-2828964

KARACHI OFFICEOffice-203, The Forum, Khayaban-e-JamiBlock-9 Clifton, Karachi 75600.Tel: +92-21-5301486-8Fax: +92-21-5301489

WEB [email protected]

COMPANY PROFILE

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HALF YEARLY FINANCIAL STATEMENTS4

On behalf of the Board of Directors of NetSol Technologies Limited, I feel immense pleasure to present the half yearly financialstatements of your company together with consolidated financial statements of NetSol Group for the period ended December 31,2009.

GENERAL OVERVIEWDuring the quarter under review, Pakistan's economy continues to remain exposed to the vagaries of international developments aswell as internal security environment. The dependence on external inflows needs some rationalization and to this end additionaldomestic resource mobilization is instrumental. Pakistan's economy has lost significant momentum in the last few years, one of theprime contributors to this derailing is Pakistan's proactive role in war against terror. The Public sector automation in Pakistanregistered a snail pace growth, hampering the growth of IT sector locally during the year 2009. Many public sector departmentshalted their plans to automate due to socio-economic instability, which affected the steadfast growth of IT industry on local front. TheTrade Policy ignored the IT industry altogether, which requires an immediate revision and urged the government to appoint an ITMinister forthwith to facilitate the IT industry, which is running from pillar to post to present itself to the federal cabinet as well as theparliament. The outgoing year 2009 would be remembered as 'mixed year' for the information Technology (IT) industry in Pakistan.In spite of above challenges, your company has been making gradual progress. We won a major contract in the area of informationSecurity with a leading mobile telecommunications company in Pakistan. This contract further strengthens our emerging practice ininformation security. We now have technical expertise and proven track in deploying large scale information security solutions forinformation sensitive organization. Besides, we managed to sell two licenses of our flagship product NetSol Financial Suite (NFS)(formerly known as LeaseSoft) to the world renowned companies in China. We are also expecting to generate incremental

revenues from these projects in future in terms of enhancements, support and maintenance charges. We were also awarded with anIT services contract by Atheeb Intergraph Saudi Company (AISC) of Saudi Arabia. The project is related to application developmentin Telecommunications domain for AISC and further strengthens NetSol's presence in the Middle East market. Furthermore, ouroutsourcing business with the UK based partner Innovation Group PLC is also stable. Though the massive downturn in the UKeconomy and insurance sector had also adversely affected the business of our partner, yet this short term decline has eventuallybeen overcome and this outsourcing business is stable and growing steadily.

FINANCIAL PERFORMANCEComparisons of consolidated un-audited results of the second quarter ended December 31, 2009 with the corresponding periodof 2008 and cumulative results for the half year ended December 31, 2009 with those of December 31, 2008 of the company aswell as of the group are given below:

RevenueGross ProfitNet ProfitNo. of outstanding sharesEPS basic & diluted

870,232536,219408,83377,910

5.25

718,629346,512291,80871,685

4.07

2009464,470293,769200,45777,910

2.57

258,32194,17413,21771,685

0.18

2009 2008 2008

CumulativeJuly-December

For the 2nd QuarterOctober-December

-------------------------- Rupees in 000 -------------------------

DIRECTORS REVIEW REPORT

During the quarter under review, the financial performance of the company remained quite good. Consolidated revenue for thequarter ended December 31, 2009 remained at Rs. 464 million compared with Rs. 258 million in same quarter last year. For the halfyear ended December 31, 2009, the company posted net revenues of Rs. 870 million against Rs. 719 million in the preceding period.This reflects an increase of 21% over the half year period. Net profit has increased to Rs. 200 million compared to only Rs. 13 millionin the corresponding period of last year. Consolidated earnings per share remained at Rs. 2.57 in comparison with Rs. 0.18 for thesame quarter last year. On the half yearly basis, EPS for the period ended December 31, 2009 was Rs. 5.25 compared to Rs. 4.07 inthe corresponding period.

FUTURE OUTLOOKThough the overall economic picture is not very encouraging, yet we believe that we would be able to maintain our momentum ofgrowth. The Chinese economy is expected to grow at around 8% during the FY 2009-10. As a result of the persistent growth in ITsector in China, we are now heavily focusing on the sales and marketing activities in China. Other non traditional markets like MiddleEast, Thailand and Australia also offer significant opportunities for our product as well as IT and consulting services.

ACKNOWLEDGEMENTThe Board of Directors places on record its appreciation for the support by its shareholders, valued customers, governmentagencies and financial institutions which enabled the company to achieve these tremendous results. The board would also like toexpress its appreciation for the services, loyalty and efforts being continuously rendered by the executives and all the staff membersof the company and hope that they will continue with these efforts in future.

On behalf of the Board

Lahore: February 03, 2010Chairman & Chief Executive

(SALIM ULLAH GHAURI)

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INDEPENDENT AUDITORS REPORT ON REVIEW OF CONDENSEDINTERIM FINANCIAL INFORMATION TO THE MEMBERS.

Introduction

We have reviewed the accompanying condensed interim balance sheet of NETSOLTECHNOLOGIES LIMITED as December 31, 2009 and the related condensed interim profitand loss account, condensed interim cash flow statement and condensed interim statementof changes in equity for the six-months period then ended, and a summary of significantaccounting policies and other explanatory notes (here-in-after referred to as the interimfinancial information). Management is responsible for the preparation and fair presentationof this interim financial information in accordance with the approved accounting standards asapplicable in Pakistan for interim reporting. Our responsibility is to express a conclusion onthis interim financial information based on our review.

Scope of Review

We conducted our review in accordance with International Standards on Review

Engagements 2410, Review of Interim Financial Information Performed by the IndependentAuditor of the Entity. A review of interim financial information consists of making inquiries,primarily of persons responsible for financial and accounting matters, and applyinganalytical and other review procedures. A review is substantially less in scope than an auditconducted in accordance with International Standards on Auditing and consequently doesnot enable us to obtain assurance that we would become aware of all significant matters thatmight be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that theaccompanying condensed interim financial information as at and for the six-monts periodended December 31, 2009, is not prepared in all material respects, in accordance with theapproved accounting standards as applicable in Pakistan relating to interim financialreporting.

KABANI SAEED KAMRAN PATEL &CO.

Kabani Saeed Kamran Patel & Co.

Chartered AccountantsMuhamamd Yousauf

February 3, 2010.Lahore.

CHARTERED ACCOUNTANTS

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CONDENSED INTERIM

FINANCIAL

STATEMENTSFOR THE HALF YEAR ENDED

DECEMBER-31, 2009

HALF YEARLY FINANCIAL STATEMENTS

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ASSETS

NON-CURRENT ASSETS

Property & equipment 6 519,424Intangible assets 7 871,832Capital work in progress 61,571Deferred employee compensation expense 8 --Long term investments 15,188

1,468,015

CURRENT ASSETS

Trade debts 623,499Current maturity of long term loans & advances 3,570

Deferred employee compensation expense 8 -Excess of revenue over billing 444,901Loans and advances 22,870Trade deposits & short term prepayments 16,177Other receivables 61,547Income tax 28,220Due from related parties 19,875Cash & bank balances 227,992

1,448,651

TOTAL ASSETS 2,916,666

EQUITY & LIABILITIES

SHARE CAPITAL & RESERVES

Authorized share capital150,000,000 ordinary shares of Rs.10/- each 9 1,500,000

Issued, subscribed and paid-up capital 9 779,102Share deposit money 13Reserves 10 1,599,803

2,378,918

NON-CURRENT LIABILITIES

Liabilities against assets subject to finance lease 11,691Long term loan 122,020Deferred income 1,333

135,044

CURRENT LIABILITIES

Trade and other payables 139,311Excess of billing over revenue 22,121Short term borrowings 200,000Current portion of long term liabilities 26,118Provision for taxation 15,154

402,704

CONTINGENCIES & COMMITMENTS 11 -

TOTAL EQUITY AND LIABILITIES 2,916,666

The annexed notes form an integral part of these financial statements.

465,9431,119,631

142,9243,052

15,188

1,746,738

684,048-

2,303544,78521,96912,84752,21122,14523,994

232,319

1,596,621

3,343,359

1,500,000

779,10213

2,001,835

2,780,950

11,997115,770

912

128,679

148,66543,804

200,00032,5908,671

433,730

-

3,343,359

Dec-09 Jun-09

Rupees in 000

Notes

CHIEF EXECUTIVE OFFICER DIRECTOR

CONDENSED INTERIM BALANCE SHEET - UNAUDITEDAS AT DECEMBER-31, 2009


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Revenue 12 204,541 574,017

Cost of revenue (131,376) (288,758)

Gross profit 73,165 285,259

Selling and promotion expenses (26,751) (49,941)

Administrative expenses (37,936) (99,331)

Other operating expenses (1,655) (13,931)

Other income 17,668 165,998

Dividend income 34,074 34,074

Operating profit 58,565 322,128

Finance cost (5,303) (10,529)

Profit before taxation 53,262 311,599

TaxationCurrent period (3,745) (4,252)Prior period - -

(3,745) (4,252)

Profit after taxation 49,517 307,347

Other comprehensive income - -

Total comprehensive income for the period 49,517 307,347


418,832 770,541

(137,859) (270,954)

280,973 499,587

(23,623) (36,643)

(45,160) (81,821)

(11,530) (15,299)

4,797 48,609

- -

205,457 414,433

(8,604) (17,617)

196,853 396,816

(882) (2,015)- 805

(882) (1,210)

195,971 395,606

- -

195,971 395,606

Oct-Dec2009

Oct-Dec2008

Rupees in 000Notes


CONDENSED INTERIM PROFIT & LOSS ACCOUNT - UNAUDITEDFOR THE HALF YEAR ENDED DECEMBER-31, 2009

Jul-Dec2008

Jul-Dec2009

Rupees in 000


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CASH FLOWS FROM OPERATING ACTIVITIES

Profit for the period before tax 311,599

Adjustments for non cash charges and other items:

Depreciation - own assets 33,115Amortization of leased assets 5,845Amortization of intangible assets 8,188Loss on disposal of fixed assets 13,931Amortization of deferred revenue (586)Exchange (gain) on debtors (155,642)Interest expense 9,950Interest income (1,481)Dividend income (34,074)

Deferred employee compensation expense -

(120,754)

Cash flows from operating activities before working capital 190,845

Decrease / (increase) in current assets & liabilities

Trade debts (17,994)Due from related parties 13,259Advances, prepayments and other receivables 31,106Creditors, accrued and other liabilities (56,844)

Cash used in operations (30,473)

Interest paid (9,975)Taxes paid (6,508)Dividend paid (26,007)

Net cash flow from operating activities 117,882

CASH FLOWS FROM INVESTING ACTIVITIES

Property and equipments purchased (85,838)Sales proceeds of fixed asset 138Intangible assets (171,020)Capital work in progress (22,008)Long term loan 4,264Long term payable (4,694)Interest received 1,481Dividend received 30,667

Net cash used in investing activities (247,010)

CASH FLOWS FROM FINANCING ACTIVITIES

Paid against obligation under capital lease (7,412)Received against obligation under capital lease -Long term finance 25,000Short term finance 106,198

Net cash inflow/(outflow) from financing activities 123,786

Net (decrease) / increase in cash and cash equivalents (5,342)

Cash and cash equivalents at the beginning of the period 127,933

Cash and cash equivalents at the end of the period 122,591


396,816

32,7394,390

13,9027,412(421)

(36,855)16,636(4,575)

-

1,071

34,299

431,115

(101,895)(4,119)13,7551,498

(90,761)

(8,775)(1,618)

(5)

329,956

(12,145)19,088

(259,704)(81,353)

3,570-

4,387-

(326,157)

(7,968)8,496

--

528

4,327

227,992

232,319


Jul-Dec2009

Jul-Dec2008

Rupees in 000

CONDENSED INTERIM CASH FLOW STATEMENT - UNAUDITEDFOR THE HALF YEAR ENDED DECEMBER-31, 2009


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RevenueReserve

Unapprop-riated profit

Total

Rupees in 000

Issued,subscribed

and

paid-upcapital


Balance at June 30, 2008 597,375 313 - 189,470 1,211,888 1,999,046

Net profit for the half year endedDecember 31, 2008 - - - - 307,347 307,347

Cash dividend (10%) final - - - - (59,737) (59,737)

Bonus shares issued (20%) final 119,475 - - - (119,475) -

Balance at December-31, 2008 716,850 313 - 189,470 1,340,023 2,246,656

Balance at June 30, 2009 779,102 13 - 273,016 1,326,787 2,378,918

Net profit for the half year endedDecember 31, 2009 - - - - 395,606 395,606

Effect of options granted to employee - - 6,426 - - 6,426


Balance at December-31, 2009 779,102 13 6,426 273,016 1,722,393 2,780,950

Sharedepositmoney

CapitalReserve

Sharepremium

CONDENSED INTERIM STATEMENT OF CHANGES IN EQUITY - UNAUDITEDFOR THE HALF YEAR ENDED DECEMBER-31, 2009

Employeeshare optioncompensa-

tionreserve


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1. LEGAL STATUS AND NATURE OF BUSINESS

NetSol Technologies Limited ("the Company") incorporated in Pakistan on August-22, 1996 under the Companies Ordinance,1984 as a private company limited by shares was later on converted into public limited company on November-05, 2004 .TheCompany was listed on Karachi Stock Exchange on August 26, 2005. The business of the Company is development and sale

of computer software and its related services in Pakistan as well as abroad. The registered office of the Company is situatedNetSol Avenue, Software Technology Park, Main Ghazi Road, Lahore Cantt. Pakistan.

2. BASIS OF PREPARATION

2.1 Statement of compliance

These condensed interim financial statements have been prepared in accordance with the requirements of InternationalAccounting Standard 34 "Interim Financial Reporting" and are being submitted to the shareholders as required bySection 245 of the Companies Ordinance, 1984.

These condensed interim financial statements are unaudited and do not include all the disclosures and informationrequired in the annual financial statements and should be read in conjunction with the preceding annual publishedfinancial statements of the company for the year ended June 30, 2009

2.2 Basis of measurement

These condensed interim financial statements have been prepared under the historical cost convention, except forrevaluation of certain financial instruments at fair value as disclosed in respective accounting notes.

2.3 Functional and presentation currencyThese condensed interim financial statements are presented in Pak Rupee, which is the Company's functional currency.All financial information presented in Pak Rupee has been rounded to the nearest thousand.

3. ACCOUNTING POLICIES

The accounting policies adopted for the preparation of these condensed interim financial statements are consistent with thoseapplied in the preparation of the preceding annual published financial statements of the company for the year ended June 30,2009.

4. Employees' share option scheme

The company operates an equity settled share based Employees Share Option Scheme ("Scheme"). At the grant date ofshare options ("Options") to the employees, the company initially recognises "Deferred Employee Compensation Expense"

with corresponding credit to equity as "Deferred Employee Compensation Reserve" at the fair value of option at the grant date.The fair value of options determined at the grant date is recognized as an employee compensation expense on a straight linebasis over the vesting period.

When an unvested option lapses by virtue of an employee not conforming to the vesting conditions after recognition of anemployee compensation expense in profit or loss, employee compensation expense in profit or loss will be reversed equal tothe amortized portion with a corresponding effect to deferred employee compensation reserve in the balance sheet. When avested option lapses on expiry of the exercise period, employee compensation expense already recognized in the profit or lossis reversed with a corresponding reduction to deferred employee compensation reserve in the balance sheet. When theoptions are exercised, deferred employee compensation reserve relating to these options is transferred to share capital andshare premium accounts. An amount equivalent to the face value of related shares is transferred to share capital. Any amountover and above the share capital is transferred to share premium account.

5. USE OF ESTIMATES AND JUDGMENTThe preparation of condensed interim financial statements requires the management to make judgments, estimates andassumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses.

The estimates and associated assumptions are based on historical experience and various other factors that are believed to bereasonable under the circumstances, the results of which form the basis of making judgments about the carrying values ofassets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

In preparing these condensed interim financial statements , the judgements, estimates and assumptions made by themanagement were the same as those that were applied to the preceding annual published financial statements of the companyfor the year ended June 30, 2009.

6. PROPERTY & EQUIPMENT

Opening Balance - net book value 522,553Additions: 127,502

650,055

Less:Disposals (31,466)Depreciation & amortization (99,165)

519,424

519,42412,145

531,569

(26,500)(39,126)

465,943

Dec-09 Jun-09

Rupees in 000

NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS - UNAUDITED


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6.1 Following is the detail of addition:

Land - freehold 56,197Building on freehold land 1,082Computers 20,522Air conditioners 1,781Furniture & fixture 970Office equipment 1,106Vehicles 14,502Generator 6,040Computer software 25,302

127,502

7. INTANGIBLE ASSETS

Opening Balance - net book value 435,688Additions: 452,518

888,206Less:Amortization (16,374)

871,832

7.1 Following is the detail of addition:SMART 6,092Fleet Management System (FMS) 168,459Blue Star 263,949HMIS 5,773Loan Origination System 4,711Business Intelligence Scoring Model & Risk Management 3,534

452,518

8. DEFERRED EMPLOYEE COMPENSATION EXPENSE

Fair value of options issued during the period -Amortisation for the period -

Balance at the end of the period -Current portion shown under current assets -

Long term portion of deferred employee compensation expense -

The Company uses Black Sholes pricing model to determine the fair value of options at the grant date. The fair value of theoptions as per model used and underlying assumptions are as follows.

Total number of options grantedPer option fair value at the grant dateAverage 30 days per share price preceding the date of grant

Exercise price per optionAnnual Volatility

9. SHARE CAPITAL

9.1 Authorised share capital

Jun-09Numbers of shares

150,000,000 Ordinary Shares of Rs. 10 each. 1,500,000

9.2 Issued, subscribed & paid-up capital

38,741,691 Ordinary Shares of Rs. 10 each fully 387,417paid in cash

39,168,512 Ordinary Shares of Rs. 10 each issued 391,685as fully paid bonus shares

77,910,203 779,102

--1,025

--

1498,496

-2,475

12,145

871,832261,701

1,133,533

(13,902)

1,119,631

-87,044

166,9632,5802,0573,057

261,701

6,426(1,071)

5,355(2,303)

3,052

4,350,000Rs. 1.48

Rs. 26.80

Rs. 16.4264.82%

Dec-09

150,000,000 1,500,000

38,741,691 387,417

39,168,512 391,685

77,910,203 779,102

Dec-09 Jun-09

Rupees in 000


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NetSol Technologies Inc. 23901, Suite 2072 Calabasas Road, Calabasas CA 91302, is the parent company holding majority ofissued capital of the Company.

10. RESERVES

Capital reservePremium on issue of ordinary shares 273,016

Revenue reserveUn - appropriated profit 1,326,787

Employee share option compensation reserve -

1,599,803

11. CONTINGENCIES & COMMITMENTS

The Company has no contingent liabilities & commitments outstanding as at December-31, 2009 except to the tune of Rs.86.578 million (June 30, 2009 Rs. 24.37 million) guarantees issued to various customers against sale of software and alliedservices.Term deposit amounting Rs.22.12 million was placed with a financial institution. The financial institution delayed the paymenton due date and there is a possibility that the amount may or may not be recovered as a whole or in part. However no provisionhas been made in the financial statements since the financial institute has confirmed the payment to be made to the Companyand management is of strong opinion that the amount will be recovered in full and commitments will be honoured.

12. REVENUE

Export Revenue

License 47,592 189,365Services 114,058 315,560Maintenance 24,705 43,206

Local RevenueLicense - 1,350Services 16,879 21,923Maintenance 1,307 2,613

204,541 574,017

13. TRANSACTION WITH RELATED PARTIES

Related parties comprise of holding company, associated undertakings, directors of the Company, key employees and staffretirement fund. The Company in the normal course of business carries out transactions with various related parties. Amounts

due from and to related parties are shown under receivables and payables. Parent, subsidiary and associated undertakingsalso have some common directorship.

Details of transactions with related parties, other than those which have been specifically disclosed elsewhere in thesesfinancial statements are as follows.

Relationship with the Company Nature of transactions

(i) Parent Management fee 11,071

(ii) Subsidiary Rental income 6,826Provision of services 2,550Mark-up income 361Mark-up expense 91

(iii) Associated undertaking Provision of services 20,085Purchase of services 600

(iv) There are no transactions with any key management personnel other than under the terms of employment.

273,016

1,722,393

6,426

2,001,835

154,650 359,981153,265 241,755

40,493 79,437

- -70,082 88,683

342 685

418,832 770,541

-

4,8932,610

623-

18,046900

Jul-Dec-09 Jul-Dec-08

Rupees in 000

Oct-Dec-09 Oct-Dec-08

Dec-09 Jun-09

Rupees in 000


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14. TAXATION

Income of the Company from export of computer software and its related services developed in Pakistan is exempt from tax upto 2016 as per clause 133 of the Second Schedule to the Income Tax Ordinance, 2001. However tax as per applicable rates is

charged to the income of the company generated from local business activities.

15. DATE OF AUTHORIZATION FOR ISSUE

These financial statements were authorized for issue on February-03, 2010 by the Board of Directors.

16. FIGURES

Figures have been rounded off to the nearest thousand rupee.



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NTWK 2Q 2010