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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
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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NETSOL TECHNOLOGIES LIMITED 5
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
NETSOL TECHNOLOGIES LIMITED 7
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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
The annexed notes form an integral part of these financial statements.
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
CHIEF EXECUTIVE OFFICER DIRECTOR
CONDENSED INTERIM PROFIT & LOSS ACCOUNT - UNAUDITEDFOR THE HALF YEAR ENDED DECEMBER-31, 2009
Jul-Dec2008
Jul-Dec2009
Rupees in 000
HALF YEARLY FINANCIAL STATEMENTS8
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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
The annexed notes form an integral part of these financial statements.
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
CHIEF EXECUTIVE OFFICER DIRECTOR
Jul-Dec2009
Jul-Dec2008
Rupees in 000
CONDENSED INTERIM CASH FLOW STATEMENT - UNAUDITEDFOR THE HALF YEAR ENDED DECEMBER-31, 2009
NETSOL TECHNOLOGIES LIMITED 9
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RevenueReserve
Unapprop-riated profit
Total
Rupees in 000
Issued,subscribed
and
paid-upcapital
CHIEF EXECUTIVE OFFICER DIRECTOR
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
The annexed notes form an integral part of these financial statements.
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
HALF YEARLY FINANCIAL STATEMENTS10
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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
NETSOL TECHNOLOGIES LIMITED 11
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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
HALF YEARLY FINANCIAL STATEMENTS12
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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.
CHIEF EXECUTIVE OFFICER DIRECTOR
HALF YEARLY FINANCIAL STATEMENTS14