NETSOL TECHNOLOGIES, INC. & ACTIVIDENTITY CORPORATION

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Hello Readers,

Thanks to the February 29 nosedive, the markets are pretty much at the same place they were a few weeks ago, which, for some, is considered a mini-triumph. We would have preferred a major sell-off, the kind that leaves us breathing into a paper bag. We could have finally said the bottom is here and that we are officially in a recession (psssst, we really are). Then, the only guesswork would have been when does the market begin its rebound. Instead, we must endure more waterboarding while the geniuses figure out what to screw up next. Where is J.P. Morgan? Remember 1907?

Overall, our Current Portfolio looks about the same as it did in mid-February, which isn’t good; but, as we have been saying for the last few months, it’s going to take a while to repair all of the damage. And, yes, we still feel this may be a good time to go bottom fishing.

Here are the headlines since the last Newsletter about companies in our Current Portfolio. Dates in parentheses are when we first recommended them.

Amicas (AMCS) (1/20/08). Year-end and quarterly numbers about the same as a year ago and sees about 8% to 10% revenue growth for 2008; balance sheet still looks strong.

NanophaseU (NANX) (1/20/08). To participate in online Q&A forum on SeekingAlpha.com on March 5.

Move, Inc. (MOVE) (1/5/08). FY and 4thQT revenues up a little but company shows losses; balance sheet still appears to be very strong. Says the Move network of websites had more than 10 million unique users in January, 2008, an 18% increase over 1/07.

Hollis-Eden PharmaceuticalsU (HEPH) (12/20/07). Announces filing of IND with APOTONE in hormone sensitive cancers to commence Phase I/II clinical trial in late-stage prostate cancer.

DigitalFxU (DXN) (12/5/07). Appoints new CFO. And, we haven’t much of a clue as to why the stock has become this beaten up.

SantarusU (SNTS) (11/20/07). Slates earnings call for March 3, the day we post this Newsletter. Launches ZEGERID products by GlaxoSmithKline in Puerto Rico and the U.S. Virgin Islands.

Linktone (LTON) (11/5/07). PT Media extends offer for 6 million shares at $3.80. Sets earnings release for March 27 and raises 4thQT revenue guidance.

Sunesis Pharmaceuticals (SNSS) (11/5/07). Receives milestone payment from J&J from inflammation collaboration.

Boots and Coots (WEL) (9/20/07). Sets earnings call for March 11.

XATA (XATA) (9/20/07). Shipping new in-cab color display that drivers can use for easier logging and communication.

SIGA Technologies (SIGA) (8/20/07). To present at Susquehanna healthcare confab on March 4.

Heska (HSKA) (7/5/07). FY numbers pretty good, but 4thQT showed a slight drop in revenue, which may have dampened stock a little; balance sheet still seems okay.

Pharmacyclics (PCYC) (6/20/07). Announces realignment and plans to cut 40% of its staff. Usually, not a good sign. Wait and see.

Encorium Group (ENCO) (5/20/07). Plans to realign senior management team.

Hana Biosciences (HNAB) (5/5/07). Reorganizes clinical and scientific advisory board.

ECTel (ECTX) (5/5/07). Mobile TeleSystems awards company multi-million dollar deal for its Integrated Revenue Management (IRM) solution for Ukraine operations. Year-end numbers down from a year ago, but company sees revenue increasing in 2008 to where it had been in 2006; balance sheet still looks good. Says it won 12 orders in 2007 for its IRM solutions.

Ore Pharmaceuticals (OREX) (4/20/07). Year-end balance sheet still looks good and that, for now, is the only reason we have not placed this on the “Endangered List”.

Immunicon (IMMC) (3/20/07). FDA clears CellSearch Circulating Tumor Cell Kit for monitoring patients with metastatic prostate cancer. This gave the stock a slight boost from the doldrums.

TTI Telecom (TTIL) (3/5/07). To provide service assurance solution to Bell Mobility. 4thQT numbers give the company three straight quarters of profitability; balance sheet still looks good. And, yes, with this sort of news, the stock should be higher, as is the case with many of our picks. But, in this market??????

Urologix (ULGX) (2/20/07). Names co-founder as chairman and CEO. Will this news help the stock? It already has, a little.

Endologix (ELGX) (1/20/07). FY2007 revenues nearly double those of 2006; balance sheet still looks good.

Neose Technologies (NTEC) (12/20/06). Sets earnings call for March 10. Faces NASDAQ delisting due to minimum bid requirement. This one is on the “Endangered List”.

Lantronix (LTRX) (12/5/06). Announces availability of ManageLinx. Names new president/CEO.

WJ Communications (WJCI) (12/5/06). Year-end results show revenue drop, but losses are pared a bit; balance sheet still looks good.

Proxim Wireless (PRXM) (11/5/06). Receives NASDAQ non-compliance notice due to minimum bid requirement, which, right now, doesn’t look insurmountable. Sets earnings call for March 4. Enables Wi-Fi access at the Daytona 500. Connects 25 rural communities in Scotland.

HealthStream (HSTM) (10/20/06). Releases what appears to be some very good revenue and net income numbers, both for the year and recent quarter; balance sheet could use a little more cash.

Hydrogenics (HYGS) (9/20/06). Slates earnings news for March 10. And, here’s another one that has received a NASDAQ notice about the minimum bid requirement, which, as we have said over the last several Newsletters, is indicative during this sort of market.

TVI Corp (TVIN) (9/5/06). Sets earnings call for March 11. Restructures its credit facility. Completes C2A1 filter canister first article testing. This is on the “Endangered List”.

Advanced Life Sciences (ADLS) (7/20/06). To present at Susquehanna healthcare conference on March 5. Announces successful thorough QT study of Cethromycin. Year-end balance sheet still looks good.

NTN Buzztime (NTN) (7/5/06). Announces partnership with Canadian Broadcasting Corp. to cross-promote Test The Nation on the Buzztime Network.

02Diesel (OTD) (5/20/06). Renews agreement with StarTran Transit for use of OTD fuel.

Tri-S Security (TRIS) (5/5/06). U.S. Social Security Administration awards company a 10-year $220 million contract. This news caused the stock to jump from $1.50, where it had sunk, to nearly a dollar in one day. A year or two ago, this sort of news would have probably caused the stock to double or triple. Hey, in this market, we’ll take handouts.

Pharmos Corp (PARS) (4/40/06). Year-end balance sheet okay. This is on the “Endangered List”.

ThermoGenesis (KOOL) (4/5/06). Subsidiary Vantus announces stem cell pact with UC Davis Center for Equine Health. Voluntarily recalls some lots of cord blood processing system.

Inventure Group (SNAK) (3/5/06). Year-end financials not bad; balance sheet still looks good.

Lipid Sciences (LIPD) (2/20/06). Eli Lilly’s Elanco exercises option for LIPD’s viral immunotherapy technology.

Adherex (ADH) (2/20/06). Receives FDA Orphan Drug designation for ADH-1 in melanoma. This is on the “Endangered List”.

MIND CTI (MNDO) (2/5/06). Announces 4thQT and FY2007 preliminary results and declares cash dividend.

Digital Angel (DIGA) (12/20/05). Several news releases on new orders. During our history with this company, it has always had streams of good news and the stock does nearly nothing except drift downward.

Westell Technologies (WSTL) (10/20/05). To present at Raymond James institutional investor confab on March 4.

RAE Systems (RAE) (10/5/05). Sets earnings call for March 6.

Vion Pharmaceuticals (VION) (5/20/06). Pulls what seems to be a sudden 1 for 10 reverse split, and, as we have said in the past, these seldom help current shareholders; however, in this case, share value hasn’t dropped, yet. Expect more of these reverse splits from companies who may be unable to meet the NASDAQ minimum $1 bid rule.

Nova Measuring (NVMI) (11/5/04). Nova and Sokudo integrate NovaScan CD metrology on RF3 track systems. Announces record 4thQT and full-year financial results; balance sheet still looks good. With these pieces of news we expected the stock to move, and, guess what? It didn’t.

TMNG Global (TMNG) (4/20/04). Puts up some pretty decent quarterly and year-end numbers; balance sheet still looks strong.

OpenTV (OPTV) (3/20/04). Posts good revenues and nice quarterly earnings; balance sheet still looks strong. Several news releases on customer gains. This is on the “Endangered List”, basically because of its longevity in the Current Portfolio. We keep expecting great things, but…

Our picks for this Newsletter are two software providers, both trading on NASDAQ.

NETSOL TECHNOLOGIES, INC. (NASDAQ: NTWK) – $1.95. Twelve-month hi-low has been $4.64 – $1.40. Based in Calabasas, CA, with about 500 employees, this application software developer has 25.2 million shares outstanding, $28.84 million in total current assets, $56.26 million in total assets, little debt, and $12.3 million in liabilities. Institutional ownership is around 5.5%. One analyst rates the stock a “strong” buy. www.netsoltek.com

For the last several months, we’ve been using the phrase “bottom fishing” a great deal. And, with NetSol Technologies, Inc. it may be time to drop the line in the water. The balance sheet looks pretty good, revenues have been growing, and losses seem to be receding. Also, this could be termed one of those “subprime/credit crunch plays”.

Founded in 1995, and public since 2000 when the stock hit $140 (those days were fun), NetSol designs, develops and markets software products to the automobile and leasing industries worldwide. Its primary product LeaseSoft comprises such programs as Credit Application Processing System that provides an environment to handle the incoming credit applications; Contract Management System that allows users to manage and maintain a contract; Wholesale Finance System that automates and manages the floor plan/bailment activities of dealerships; and Fleet Management System, which is designed to handle fleet management.

NetSol also offers InBanking that provides process automation and decision support in the front, middle, and back offices of treasury and capital markets operations; LeaseSoft Portal, which is used to support online access to proposals and for the foundation of Web-based origination systems; LeaseSoft Document Manager that automates production and distribution of proposal documentation; LeaseSoft Auto-Decision Engine that automates credit checking and underwriting for standards based financial products; LeaseSoft EDI Manager that facilitates process automation between business introducers and funders; and Evolve, which provides an entry level software package for own-book brokerages and small to mid-size funders. In addition, the company also provides LeasePak Productivity Suite with its components Channel IT that comprises a browser-based origination tool; Link IT, a toolkit of application interfaces; Doc IT that generates delivers, and archives letters and documents; View IT, a business intelligence toolset; Serv IT, a customer Web portal; and Acquire IT, a data management and business development tool.

Among those who have used NetSol services are Mercedes-Benz, Motorola, CitiGroup, BMW, Chrysler, Toyota, Yamaha, Quest Communications, and The Innovation Group. Intel has launched an “Intel Solution Blueprint” for LeaseSoft, the first of its kind in the leasing and asset based financing sector. NetSol also claims to be one of the few companies in the world with a SEI-CMMI Level 5 rating, which qualifies it as a global preferred software solutions provider.

At the end of January, NetSol announced a new LeaseSoft customer with one of Saudi Arabia’s largest leasing companies. Valued at $1.5 million, it is the company’s first win in the Middle East.

For the FY ending June 30, 2007, revenue was $29.28 million with $4.9 million in losses. During the first six month of FY2008, ending 12/31/07, revenue was $17 million with $2.86 million in net income (yes, profits).

Call it turning a corner, doing well in tough market conditions, call it whatever you want, NetSol seems to be doing it. The results of the current quarter should give us even a better indication of the future.

Our 24-month target for the stock is $3.50 to $3.75.

For more information, contact NTWK’s Tina Gilger at 818-222-9195, ext. 112.

ACTIVIDENTITY CORPORATION (NASDAQ: ACTI) – $3.05. Twelve-month hi-low has been $5.50 – $2.96. Based in Fremont CA with about 320 employees, this security software and services provider has 45.8 million shares outstanding, $138.4 million in total current assets, $185.26 million in total assets, little debt, and $29.2 million in total liabilities. Institutional ownership is around 51%. One analyst rates the stock a “strong buy”. www.actividentity.com

Yeah, we know, another ‘identity’ company. But, with ActivIdentity Corporation one has to like the balance sheet and the revenue growth, and, yes, we’d like to see the losses abate a little.

Founded 1985 and trading on NASDAQ for about eight years, ActivIdentity provides digital identity assurance solutions for the enterprise, government, healthcare, and financial services markets worldwide for employer-to-employee, business-to-consumer, and government-to-citizen solutions. The company claims to provide the only fully-integrated platform enabling organizations to issue, manage, and use identity devices and credentials for secure access, secure communications, legally binding transactions, as well as smart citizen services.

ActivIdentity’s products include SecureLogin SSO, which provides users a single, secure login for accessing corporate resources eliminating costs associated with remembering multiple complex passwords; ActivClient smart card middleware, a security software that allows business and government customers to use smart cards and USB tokens for various desktop, network security, and productivity applications; and ActivID Card Management System, a suite of device and credential management products that allows business and government customers to securely deploy and manage smart cards and USB tokens containing public key infrastructure certificates, one-time passwords, static passwords, and demographic data.

The company also offers 4TRESS AAA Server, a suite of authentication servers enabling two-factor security for remote access, Windows login, and Web authentication addressing the requirements of enterprise, banking and other service providers; one-time password (OTP) tokens; soft OTP tokens for mobile phone and PAs; and ActivKey USB tokens.

ACTI claims to have more than 15 million users and 4,000 customers worldwide relying on its solutions.

In early February, ACTI announced the availability of 4TRESS Authentication Server 3.6.1, which strengthens authentication offerings for financial services organizations.

For FY2007, ending 9/30/07, revenue was $59.55 million with $9.3 million in losses compared to FY2006 revenue of $53.37 million and $22.47 million in losses. During the 1stQT of FY2008, ending 12/31/07, revenue was $15.43 million with $3.95 million in losses.

This seems to be another company growing during turbulent times, and the stock is at the lower end of its trading range.

Our 24-month target for the stock is $5.50 to $6.00.

For more information, contact ACTI at 510-574-0100.

Look for the March 20, 2008 Newsletter to be posted on March 17 or March 18.

Thank you,
George

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