Netsole Technologies Investment Report

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Report on Software

and Computer

services SectorNetSol Technologies, Inc.

Ali Gulzar

Contact No. +923336168083

E-mail: [email protected]



2Software and computer services

Table of Contents

Netsol Technologies

Introduction.

Bussiness Services..

Listed at SECP

Netsol Technologies IPO..

Board of Directors.

Meeting on 13-Apr-2010..

Preferred stock ..

Performance evaluation..

Market review.

Fundamental Analysis

Investment Conclusion.




Software and Computer Services

Software and computer services sector has only on company NETSOL Technologies. Now the

whole preview of netsol technology is following.

Netsol Technologies

Introduction

NTWK had its beginnings in Mirage Holdings, Inc. (MGHI), a small clothing business 50%-owned by

Aiesha Ghauri, the wife of NTWKs current Chairman and CEO, and founder of Mirage Holdings, Najeeb

Ghauri. In late 1995, Najeebs brothers - Salim and Naeem Ghauri - both of whom possessed computer

Science degrees and significant experience in managing software development projects, founded

Network

NetSol Technologies, Inc. was founded in the year 1995 by three brothers; Salim Ghauri, Najeeb

Ghauri, and Naeem Ghauri, each of whom was an accomplished professional in his own right.Having started with humble beginnings in the city of Lahore, NetSol soon grew to a sizable

business having operations in Australia, China, Pakistan, Thailand, UK, and a headquarters in

California, USA. In 1996 NetSol got its big break, when it was awarded a major offshore contract

with Mercedes Benz Thailand, many more such contracts were to follow. Focusing on quality

NetSol went on to attain the ISO 9001 and ISO 27001 certifications in 1998 and 2008

respectively, and in 2006 it achieved CMMI Level 5 certification, a distinction shared by fewer

than 100 companies worldwide. NetSol was also the first US Company to dual list on both the

NASDAQ Capital Market and the Dubai International Financial Exchange DIFX, which became

NASDAQ Dubai in 2008. He has been twice nominated in the United States for the Ernst &Young Entrepreneur of the Year, once in 2001 and again in 2008. The Company is engaged in

the development and sale of computer software and its related services. Its 50.52% owned

subsidiary, NetSol Innovation (Pvt) Limited, is engaged in providing online software

development services. The Company's services include systems integration, technology

outsourcing, business process outsourcing (BPO) - accounting outsourcing, customized

application development, IT consultancy and Business Process Reengineering (BPR),

information security, business intelligence, software process improvement and quality

engineering, products-based solutions, and defense solutions. The Company operates in the

leasing and assets hire/purchase management vertical through its Lease Soft suite of

applications. Lease Soft is an end-to-end automated solution for asset-based leasing and

finance industry. Lease Soft covers sectors, such as asset finance, consumer finance, loan

finance and motor finance.




Where we operate

Today NetSol Technologies has offices in the USA, UK, Pakistan, China, Australia and Thailand

and is at the development forefront of leasing software solutions, embracing new technologies

and building on its world class suite of applications - NetSol Financial Suite.

Who are our customers

NetSols list of clients encompasses blue-chip companies, the non-profit sector, technology and

telecommunications, and financial institutions including Fortune 500 manufacturers, global

automakers, financial institutions, utilities, technology providers, and government agencies.

Business Services

y Server Sales & Rollout

y Workstation Sales & Rollouty Virus and Spyware Removal

y Microsoft Exchange Server

y Web Server Configuration

y Microsoft IIS

y Router/Lease Line

y Firewall Implementation

y VPN Implementation

y Backup Systems

y Maintenance Programs

y Hardware Sales

Residential Services

y Virus Detection/Removal

y Spyware Removal

y Internet Connection Sharing

y System Clean up

y Software Installation

y Recovery of Lost Data

y Remote Access Setup

y Home Networking

y Email Problems

y Computer Upgrades

y Printer Setup and Sharing

y Home Systems




When be the part of SECP

Netsol technologies was approved by Securities and Exchange Commission of Pakistan (SECP) to list its

securities on the Karachi Stock Exchange (Guarantee) Limited (KSE). This was the final regulatory

approval required. Procedural formalities was commence on July 10, 2005, and will be completed by July

19, 2005. It is anticipated that the offering will be oversubscribed and in such an event, the KSE rules

require shares be allotted to successful applicant. NetSol Technologies is committed to keeping its

shareholders informed of all developments of the IPO process and will disseminate a public

announcement with the stock symbol, number of shares issued and effective date of trading as soon as

it is available.

The standard IPO on the KSE is traditionally priced at Rs.10, but AKD has priced NetSols IPO at Rs. 25, a

150 percent premium

NetSol Technologies IPO in 1998

He also spearheaded the successful listing of NetSol (NTWK) on the Nasdaq Capital Market(formerly known as Nasdaq Small Cap) in December 1999. At the time of its IPO, NetSol wasthe first IT company originated from Pakistan to be listed on Nasdaq. NetSol grew from just five people to almost 1000 in 2009 and grew from $100K revenue in 1998 to $37MN in 2008. Today, NetSol has nearly 200 customers worldwide and offices in six countries.




Board of directors

13-Apr-2010

On April 12, 2010, NetSol Technologies, Inc. (the "Company") convened its annual meeting of

shareholders.

The following persons were elected directors of the Company to hold office until the nextAnnual General Meeting of the Shareholders. A total of 28,430,492 shares were cast. Thefollowing sets forth the tabulation of the shares voted for each director:

Director For Withhold Broker Non-Votes % of Total

Voted

Najeeb Ghauri 18,382,750 718,483 9,329,259 64.65%

Naeem Ghauri 18,413,010 688,223 9,329,259 64.76%

Salim Ghauri 18,415,832 685,401 9,329,259 64.77%

Shahid Burki 18,408,802 692,431 9,329,259 64.75%

Eugen Beckert 18,416,222 685,011 9,329,259 64.77%

Mark Caton 18,402,131 699,102 9,329,259 64.72%

Alexander Shakow 18,414,071 687,162 9,329,259 64.76%

2. Ratification of Appointment of Auditors

Kabani & Company Inc. was appointed as Auditors for the Company for the fiscal year endedJune 30, 2010.

Purpose of Meeting

The meeting was also called for the purpose of approving an issuance of shares of common

stock and shares of common stock underlying warrants all issued as part of a financing which

closed in June 2007. Approval of this proposal requires the approval of a majority of the voting

power of the outstanding shares present and entitled to vote on this matter. Therefore,

abstentions and broker non-votes have the same effect as votes against such proposals. As of

the time of the meeting, approximately 48% of the votes cast had been cast in favor of the

proposal, with a substantial number of broker non-votes and other shares not represented in

the voting. After considering the importance of the matter, the number of votes not cast and

the fact that shareholders represented at the meeting were so closely divided on the proposal,shareholders present at the meeting approved a motion presented by management to adjourn

and reconvene the meeting to allow additional time to solicit proxies from those shareholders

who had not voted on the proposal.




PREFERRED STOCK

On October 30, 2006, the convertible notes payable were converted into 5,500 shares of Series

A 7% Cumulative Convertible Preferred Stock. The preferred shares are valued at $1,000 per

share or $5,500,000. The preferred shares are convertible into common stock at a rate of $1.65

per common share. The total shares of common stock that can be issued under these Series APreferred Stock is 3,333,333. On January 19, 2007, the Form S-3 statement to register the

underlying common stock and related dividends became effective. As of June 30, 2008 and

2007, 2,210 and 1,370 of the preferred shares had been converted into 1,339,392 and 830,302

shares of the Companys common stock, respectively. As of June 30, 2008 and 2007, there were

1,920 and 4,130 shares of preferred stock outstanding.

The Series A Convertible Preferred Stock carries certain liquidation and preferential rights. In

the event of any voluntary or involuntary liquidation, dissolution or winding up of the

Corporation, before any distribution of assets of the Corporation can be made to or set apart

for the holders of Common Stock, the holders of Convertible Preferred Stock shall be entitled to

receive payment out of such assets of the Corporation in an amount equal to $1,000 per share

of Convertible Preferred Stock then outstanding, plus any accumulated and unpaid dividends

thereon (whether or not earned or declared) on the Convertible Preferred Stock. In addition,

the Convertible Preferred Stock ranks senior to all classes and series of Common Stock and

existing preferred stock and to each other class or series of preferred stock established

hereafter by the Board of Directors of the Corporation, with respect to dividend rights,

redemption rights, rights on liquidation, winding-up and dissolution and all other rights in any

manner, whether voluntary or involuntary.




Total Shares outstanding are owned by the following

% of Shares Held by All Insider and 5% Owners: 14%

% of Shares Held by Institutional & Mutual Fund Owners: 16%

% of Float Held by Institutional & Mutual Fund Owners: 18%Number of Institutions Holding Shares: 14

Major Direct Holders

Holder Shares Reported

NAJEEB GHAURI 1,728,546 Dec 10, 2010

NAEEM GHAURI 1,148,151 Dec 10, 2010

SALIM GHAURI 1,086,425 May 14, 2010EUGEN BECKERT 118,900 Feb 23, 2010

SHAHID BURKI 89,000 Feb 23, 2010

Top Institutional Holders

Holder Shares % Out Value* Reported

Newland Capital Management LLC 3,093,599 6.32 4,980,694 Sep 30, 2010

BlackRock Institutional Trust Company,

N.A.1,010,960 2.06 1,627,645 Sep 30, 2010

FIRST WILSHIRE SECURITIES

MANAGEMENT INC833,807 1.70 1,342,429 Sep 30, 2010

RENAISSANCE TECHNOLOGIES, LLC 276,700 0.57 445,487 Sep 30, 2010

CALPERS (CALIFORNIA-PUBLIC

EMPLOYEES RETIREMENT SYSTEM)79,300 0.16 127,673 Sep 30, 2010

GEODE CAPITAL MANAGEMENT, LLC 74,179 0.15 119,428 Sep 30, 2010

Great Oaks Capital Management, LLC 74,100 0.15 119,301 Sep 30, 2010

Technical Financial Services LLC 60,100 0.12 96,761 Sep 30, 2010

NORTHERN TRUST CORPORATION 46,062 0.09 74,159 Sep 30, 2010

VANGUARD GROUP, INC. (THE) 44,930 0.09 72,337 Sep 30, 2010




Top Mutual Fund Holders

Holder Shares % Out Value* Reported

SPARTAN EXTENDED MARKET INDEX

FUND74,159 0.15 134,227 Oct 31, 2010

VANGUARD EXTENDED MARKET INDEX

FUND44,930 0.09 72,337 Sep 30, 2010

SPARTAN TOTAL MARKET INDEX FUND 20 0.00 36 Oct 31, 2010




Performance Evaluation

Division of this evaluation will be on basis of market analysis and fundamental analysis performance

evaluation.

Market review

Market price of the netsole technologies 1.96$ on the date 27 December 2010.

As fluctuation shows in the graph the market price of previous three months.Starts from the 9/27/10 with share price about more then 1.5 Dollars and now at 1.96 Dollars 12/3/2010.




These are the key stats of the company

Market cap of 78.81 million company is on its great position EPS .04 dollar per share and price earning

ratio of 21.78 is tremendous thing to be the part of KSE 100 Index.

Now the fundamental analysis in charts of netsol Technology is following.

1. Price to sales ratio

Price to sales ratio for March was .94 and for June 2010 was .74. Means declining trend. It was the graph

starts from June 2001 to June 2010. In these years peak price to sales ratio was in December 2003 4.24.

The price to sales ratio (PS ratio) is calculated by dividing stock price by the revenue per share. It is most

useful for comparing companies within a sector or industry because "normal" values for this ratio vary

from industry to industry. In general, low price to sales ratios are more appealing because they suggest

that a company is undervalued.




2. Price earning Ratio

Price earning ratio for 12/28/2010 was 21.78 and in September 2010 it was 17.89 and in June

2010 it was 18.25 and it was peak in June 2005 about 62.67.

The price to earnings ratio (PE Ratio) is the measure of the share price relative to the annual

net income earned by the firm per share. PE ratio shows current investor demand for a

company share. A high PE ratio generally indicates increased demand because investors

anticipate earnings growth in the future. The PE ratio has units of years, which can be

interpreted as the number of years of earnings to pay back purchase price.

3. Cash on hand

In 2010 June 9.77 Million and in March 2010 it was 9.27 Million. And in December 2009 it was

10.21Million. It was peak in December 2008 10.51 Million during previous ten years from 2000.




Cash on hand is cash or cash equivalents that a company possesses at any given time. Examples of cash

equivalents are: money market accounts, treasury bills, and short term government bonds. Cash and

cash equivalents are a business' most liquid assets. Cash on hand results from a positive cash flow

statement.

Investors look at cash on hand as a reflection of a company's solvency and liquidity.

4. Profit Margin

Profit margin ratio was 14.17% June 2010 and was 6.59% in March 2010.

Profit margin represents the percentage of revenue that a company keeps as profit after accounting forfixed and variable costs. It is calculated by dividing net income by revenue. The profit margin is mainly

used for internal comparisons, because acceptable profit margins vary between industries. In general,

narrow profit margins indicate increased volatility. For companies with significant fixed costs, wide profit

margins reduce the risk that a decline in sales will cause a net profit loss. For example, if a company has

a profit margin of 43%, the company keeps $.43 of each dollar of revenue.




5. Earning per share

In June and September 2010 its EPS was .04 Dollars and it was .02 Dollars in March 2010.

Earnings per share (EPS) the amount of income that "belongs" to each share of common stock. An

important tool for investors, EPS is often used in determining the value of a stock.

The average number of shares outstanding (the denominator of the EPS formula) is usually calculated by

averaging the number of shares at the beginning of the earning period and the number of shares at the

end of the period. For example, if a company earned $1 million in 2009 and had 900,000 shares at the

beginning of 2009 and 1.1 million shares at the end of 2009, the 2009 EPS would be $1 million/[(.9

million shares + 1.1 million shares)/2] = $1/share.

6. Market Cap




Market CAP in 27/12/2010 was 78.81 Million. In September 2010 it was 64.74 Million,

26.48 Million in June 2010 and in March 2010 it was 30.89 Million. It is now its peak as

compare to its previous ten years.

Market Capitalization (Market Cap) is a measurement of business value based on share

price and number of shares outstanding. It generally represents the market's view of acompany's stock value and is a determining factor in stock valuation.

For example, if a company has 1.5 million shares outstanding at a share price of $25, its

market cap is $37.5 million (1.5 million x $25). Companies can be categorized based

upon the size of their market capitalization.

There are five basic groups: mega-cap (market cap over $200B), large-cap ($10B

$200B), mid-cap ($2B$10B), small-cap ($300M$2B), and micro-cap ($50M-$300M).

Market cap is not always an accurate indication of value because it does not account for

debt and other factors.

7. Revenue

Its revenue on June 2010 was 10.71 Million and it was 8.93 Million in March. And now it is on its

peak as compare to its previous ten years.

Income that a company gains from business activities, calculated before any expenses are

subtracted. Includes all sales and other increases in owner's equity.




8. Gross profit Margin

In June 2010 its G.P.M was 69.45% and it was 61.38 in march. and it was on its

peak now.

Gross profit margin is the difference between sales and the cost of goods sold

divided by revenue. It expresses the relationship between gross profit (sales - cost of

goods sold) and sales revenue. More specifically, gross profit margin represents the

percentage of each dollar of a company's revenue that is available to cover fixed

costs after paying for the goods or services that were sold.

If a company produces widgets and earns $32 million in sales but pays $24 million for

the items sold, then the company's gross profit margin would be ($32m -$24m)/$32m = %25.

9. EPS Growth

On September 2010 its EPS Growth was 500% on June 2010 it was 233.33% and on March 2010

it was 110.53%.




EPS growth (earnings per share growth) illustrates the growth of earnings per share over time.

EPS growth rates help investors identify stocks that are increasing or decreasing in profitability.

If a company has an EPS of $5.00 in 2008 and EPS of $6.00 in 2009, the company has an EPS

growth rate of $6.00/$5.00 - 1 = 20% during fiscal year 2009.

10. Price to book value

On June 2010 it was .58, on March 2010 it was .73 and it was on its peak on March 2004 2.92.

The price to book value is a financial ratio used to compare a company's book value to its

current market price. Book value is an accounting term denoting the portion of the company

held by the shareholders at accounting value (not market value). In other words, book value is

the company's total tangible assets less its total liabilities.

In theory, if you purchased stock with a price to book value less than 1 and the company

immediately went bankrupt, you would gain money on your investment. In reality, this may not

be true since there are times when liquidation value, or the price at which a company's assets

can be sold, is less than the book value of those assets.

11. Current Ratio




On June 2010 its Current Ratio was 1.65 and on March 2010 it was 1.64. On march 2008 it was

on its peak 3.06.

The current ratio measures a company's ability to pay short-term debts and other current

liabilities (financial obligations lasting less than one year) by comparing current assets to

current liabilities. Current assets are cash and any assets expected to be converted into cash

within the next year. The ratio illustrates a company's ability to remain solvent.

A current ratio of 1 means that book value of current assets is exactly the same as book value of

current liabilities.

12. Total Assets

On September 2010 its Total Assets was39.76 on June it was 72.13 on March 69.37. On June it

was on its peak as compare to previous 10 years.

The sum of all current and long-term assets held by a company. An asset is any item with economic

value that is held by a company.

INVESTMENT CONCLUSION

We believe that NTWK merits a Strong Buy recommendation. Not only is it grossly undervalued

according to most metrics, but there are a variety of plausible scenarios that would result in the

Company surpassing expectations by an enormous margin.




Especially compelling evidence of the Companys value was provided on May 14 when the

Ghauris collectively purchased 1,034,383 shares of NTWK stock for 87 cents each through a

private transaction, Najeeb buying 375,000, Salim 350,000, and Naeem 309,383. Not only is this

a solid showing of confidence in the Company being exhibited by those who know it best, but it

is also confirmation of the alignment between management and shareholder interests.

Documents

Netsole Technologies Investment Report