SOURCE: NetSol Technologies

September 25, 2006 10:00 ET

NetSol Technologies Meets Revenue Guidance of $18.7 Million, a 50 Percent Increase in Net Revenues for Fiscal 2006

Company Posts a 26 Percent Increase in Gross Profits for FYE 2006 as Acquisitions and Global Growth Dominate the Year

CALABASAS, CA -- (MARKET WIRE) -- September 25, 2006 -- NetSol Technologies, Inc., "NetSol" (NASDAQ: NTWK), a multinational provider of enterprise software and services for equipment financing, today announced financial results for its fiscal year end, June 30, 2006.

"Fiscal year 2006 was an exciting time in the history of NetSol and significant in our success was the support of our long-term investors and business partners," said NetSol CEO Naeem Ghauri. "In year over year comparables, the company's projected increase in net revenues is a positive indicator that our September 11, 2006 fiscal year 2007 guidance of approximately $30 million, a 60 percent increase in revenue growth, is on target."

In fiscal year 2006, NetSol successfully integrated one acquisition in the U.K., completed the acquisition of Silicon Valley-based McCue Systems, dramatically expanded the company's global footprint, and our development center, NetSol Technologies, Ltd., achieved the rare honor of a CMMI Level 5 rating by the Carnegie Mellon University Software Engineering Institute, a gold standard placing NetSol in a very selective group of 100 preferred global software providers.

"The financial challenge of investing in global growth inevitably shows a reflection on certain aspects of a company's bottom line," commented NetSol CFO Tina Gilger. "Considering the time and resources spent on the following activities during the year, our acquisition of McCue Systems and CQ Systems, a natural disaster in one of our key operating areas in the second quarter, the hiring of more than 90 technical personnel, the creation of five new business divisions and, the opening of several new sales offices in emerging markets including the People's Republic of China, we remain very confident in our September guidance for strong revenue growth and improved margins in 2007.

"The normal encumbrances of organic growth and the brand awareness campaigns for NetSol-U.K. and NetSol-U.S. combined with the expenses associated with enhancement procurements for the infrastructure of new operations, including our newly acquired development centers of CQ Systems in the U.K., and McCue Systems in the U.S., a support team in Beijing, China, and Adelaide, Australia, have produced some predictable short term losses," said CFO Gilger. "The additional costs of maintaining our corporate governance at the highest standard through training and increased third party audits were also expected in positioning the company as a true global provider."

2006 Fiscal Year End Highlights:

--  Net revenues for the year ended June 30, 2006 were $18,690,412, as
    compared to $12,437,653 for the year ended June 30, 2005, an approximate 50
    percent increase in net revenues year over year.
--  Gross profit was $9,669,894 for the year ended June 30, 2006, as
    compared to $7,682,904 for the fiscal year 2005, a 26 percent increase in
    year over year comparables.
--  Legacy applications: As the company sells more software licenses;
    management believes it is possible that the margins could increase as high
    as 70 percent.
--  The cash payment of $1,968,339 to CQ Systems' shareholders for the
    final payment of the acquisition was made on July 5, 2006.
"The dedication of NetSol management and financial resources in fiscal 2006 to grow beyond a regional presence in several countries to an enterprise provider that can service customers anywhere in the world has been a substantial task," said NetSol Technologies Chairman, Najeeb U. Ghauri, "Having gained our new, hard-earned status in the world marketplace, we are now committed in fiscal 2007 to a solidification of our assets and a refinement of our operations that will increase profitability and shareholder value. NetSol is now a global solution provider, with regional solutions for our customers in North America, Europe and Asia Pacific.

"NetSol is a strategic business partner for DaimlerChrysler Financial Services, which accounts for approximately 11 percent and 20 percent of revenue for our fiscal year end of 2006 and 2005, respectively, and Toyota Leasing which accounts for approximately 12 percent and 35 percent of revenue for our fiscal year end of 2006 and 2005, respectively," continued Chairman Ghauri. "While increasing our revenues from these partners year over year, the acquisitions of CQ Systems and McCue Systems have provided NetSol with a wide diversification of customers that further secures our business and makes us less dependent on any single partner to produce revenues and income."

2006 Year to Date Highlights for NetSol:

--  NetSol Chairman Najeeb U. Ghauri rings closing bell at NASDAQ before
    global audience.
--  NetSol featured in Lehman Brothers analytical Computer Services Sector
    Report of August 15, 2006.
--  NetSol integrates LeasePak at City National Bank.
--  NetSol implements end to end LeaseSoft solutions at Toyota Leasing
    Thailand and signed a new license agreement with Toyota and Daimler offices
    in China.
--  NetSol received coveted Level 5 rating by the Carnegie Institute
    honoring the company as a global preferred software provider. Less than 100
    companies in the world have achieved this distinction including IBM, GE,
    and Microsoft.
--  NetSol expands operations to include: the People's Republic of China,
    the United Kingdom, the United States, Pakistan, and penetrates new markets
    in South Africa, Europe, and the Asia-Pacific rim.
--  NetSol Technologies, Ltd. in Pakistan launched five new divisions to
    leverage its position and gain from the expansion of IT services due to
    privatization and economic growth.
--  NetSol founders purchase shares of stock in the open market.
--  NetSol acquires McCue Systems in the U.S.
--  NetSol integrates CQ Systems acquisition of 2005 into daily
--  NetSol assembles a formidable and highly seasoned management team
    across the globe both through acquisitions and new hiring.
--  NetSol attracted five new institutional investors representing
    approximately15 percent ownership in the company.
--  NetSol's Technology Campus, inaugurated in Lahore, Pakistan in May
    2004, which consists of 50,000 square feet of computer and general office
    space dedicated for IT and software development (the first of its kind in
    Pakistan), signed a strategic alliance agreement with the IT ministry of
    Pakistan to convert the technology campus into a technology park.
NetSol FYE and 4th Quarter Conference Call

NetSol management will host a conference call to discus the fiscal fourth quarter of 2006, the fiscal year end of 2006, and the company's mission statement for fiscal 2007 on Monday, September 25, at 11:00 a.m. Eastern (EDT). Shareholders and members of the investment community are invited to participate in the call. The conference call dial-in number for U.S. callers is toll-free 888.802.8579. The conference call dial-in number for international callers is 973.633.6740. The passcode is 7805813.

An audio replay of the conference call will be available from September 25 through October 2, 2006. To access the audio replay, U.S. callers can dial 877.519.4471 and international callers can dial 973.341.3080. The replay pin code is 7805813. Additionally, this call is being webcast by ViaVid Communications and can be accessed at NetSol's web site, or

About NetSol Technologies, Inc.

NetSol Technologies is a U.S.-based multinational provider of enterprise software and services for equipment finance. Headquartered in Calabasas, CA, NetSol Technologies, Inc. operates on a global basis with locations in the U.S., Europe, East Asia and Asia Pacific, including: London, Los Angeles, San Francisco, Sydney, Beijing, Toronto, and Lahore, Pakistan.

The NetSol family of products includes: the LeaseSoft Contract Management System, LeaseSoft Credit Application Processing, LeaseSoft Wholesale Finance System, LeaseSoft Premium Finance System, LeaseSoft EPO system, and the LeasePak system. NetSol clients include: Motorola, CitiGroup, BMW, Toyota, Yamaha, Quest Communications, and Investec. NetSol's largest customer: DaimlerChrysler Services, a division of DaimlerChrysler, the world's fifth-largest carmaker, ranks NetSol as a preferred vendor in 40-plus countries.

NetSol Technologies helps its clients identify, evaluate and implement technology solutions to meet their strategic business challenges and maximize their bottom line. By utilizing its worldwide resources, NetSol Technologies delivers high-quality, cost-effective equipment finance portfolio management solutions and IT services ranging from consulting and application development to systems integration and outsourcing. NetSol Technologies' commitment to quality is demonstrated by its achievement of both ISO 9001 and SEI (Software Engineering Institute) CMMl (Capability Maturity Model) Level 5 assessment. For more information, visit NetSol Technologies' web site at

Securities Exchange Act of 1934

This release is comprised of inter-related information that must be interpreted in the context of all the information provided; accordingly, care should be exercised not to consider portions of this release out of context. This release is provided in compliance with Commission Regulation FD and contains certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21B of the Securities Exchange Act of 1934. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, goals, assumptions or future events or performance, are not statements of historical fact and may be "forward-looking statements." Forward-looking statements are based on expectations, estimates and projections at the time the statements are made that involve a number of risks and uncertainties which could cause actual results or events to differ materially from those presently anticipated. Forward-looking statements in this action may be identified through the use of words such as "expects," "will," "anticipates," "estimates," "believes," or statements indicating certain actions "may," "could," or "might" occur. Such statements reflect the current views of NetSol Technologies with respect to future events and are subject to certain assumptions, including those described in this release. Should one or more of the underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed or expected. NetSol Technologies does not intend to update these forward-looking statements prior to announcement of quarterly or annual results.


                                                       For the Years
                                                       Ended June 30,
                                                    2006          2005
                                                ------------  ------------
        Licence fees                            $  5,192,371  $  5,146,175
        Maintenance fees                           2,444,075     1,040,733
        Services                                  11,053,966     6,250,745
                                                ------------  ------------
                Total revenues                    18,690,412    12,437,653
Cost of revenues:
         Salaries and consultants                  6,117,886     2,829,552
         Travel and entertainment                    756,880       560,265
         Communication                               129,741        76,347
         Depreciation and amortization               733,370       474,003
         Other                                     1,282,641       814,582
                                                ------------  ------------
                Total cost of sales                9,020,518     4,754,749
                                                ------------  ------------
Gross profit                                       9,669,894     7,682,904
Operating expenses:
        Selling and marketing                      1,789,349       782,488
        Depreciation and amortization              2,286,678     1,564,562
        Settlement costs                              15,953        43,200
        Bad debt expense                              30,218        13,118
        Salaries and wages                         2,557,648     2,022,183
        Professional services, including
         non-cash compensation                       607,706       604,192
        General and adminstrative                  2,641,689     1,588,456
                                                ------------  ------------
                Total operating expenses           9,929,241     6,618,199
                                                ------------  ------------
Income  from operations                             (259,347)    1,064,705
Other income and (expenses)
        Loss on sale of assets                       (35,090)       (2,082)
        Beneficial conversion feature                (14,389)     (209,848)
        Fair market value of warrants issued         (21,505)     (255,130)
        Gain on forgiveness of debt                    8,294       404,136
        Interest expense                            (442,887)     (215,861)
        Interest income                              280,276        22,248
        Other income and (expenses)                  191,736       (23,354)
        Income taxes                                (106,021)      (10,416)
                                                ------------  ------------
                Total other expenses                (139,586)     (290,307)
                                                ------------  ------------
Net income (loss) before minority interest in
 subsidiary                                         (398,933)      774,398
Minority interest in subsidiary                     (954,120)     (111,073)
                                                ------------  ------------
Net income (loss)                                 (1,353,053)      663,325
Other comprehensive (loss)/gain:
        Translation adjustment                       101,031      (282,129)
                                                ------------  ------------
Comprehensive income (loss)                     $ (1,252,022) $    381,196
                                                ============  ============

Net income per share:
        Basic                                   $      (0.09) $       0.06
                                                ============  ============
        Diluted                                 $      (0.09) $       0.04
                                                ============  ============
Weighted average number of shares outstanding
        Basic                                     14,567,007    11,597,625
        Diluted                                   14,567,007    14,776,323

                    CONSOLIDATED BALANCE SHEET — JUNE 30, 2006

Current assets:
   Cash and cash equivalents                    $  2,493,768
   Certificates of deposit                         1,739,851
   Restricted cash                                 4,533,555
   Accounts receivable, net of allowance for
    doubtful accounts of $106,090                  6,171,331
   Revenues in excess of billings                  4,469,069
   Other current assets                            2,822,869
      Total current assets                                      22,230,443
Property and equipment, net of accumulated
 depreciation                                                    6,472,038
   Product licenses, renewals, enhancements,
    copyrights, trademarks, and tradenames, net    5,120,213
   Customer lists, net                             3,109,548
   Goodwill                                        6,092,906
      Total intangibles                                         14,322,667
      Total assets                                            $ 43,025,148

Current liabilities:
   Accounts payable and accrued expenses        $  4,852,141
   Current portion of notes and obligations
    under capitalized leases                         768,935
   Other payables - acquisitions                   4,086,204
   Billings in excess of revenues                  1,094,013
   Due to officers                                    90,767
   Loans payable, bank                               662,800
      Total current liabilities                                 11,554,860
Obligations under capitalized leases, less
 current maturities                                                183,168
Convertible notes payable - net                                  3,505,137
      Total liabilities                                         15,243,165
Minority interest                                                1,637,045
Commitments and contingencies                                            -

Stockholders' equity:
   Common stock, $.001 par value; 45,000,000
    share authorized;
    16,160,875 issued and outstanding                 16,161
   Additional paid-in-capital                     57,106,542
   Treasury stock                                    (10,194)
   Accumulated deficit                           (31,672,041)
   Stock subscription receivable                    (299,250)
   Common stock to be issued                       1,749,979
   Capitalized finance costs of debt                (326,599)
   Other comprehensive loss                         (419,660)
      Total stockholders' equity                                26,144,938
      Total liabilities and stockholders' equity              $ 43,025,148

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