SOURCE: NetSol Technologies, Inc.

NetSol Technologies, Inc.

February 10, 2010 09:07 ET

NetSol Technologies Reports Second Quarter Fiscal Year 2010 Financial Results

Second Quarter Revenue Increased 81% Year-Over-Year to $9.5 Million; Gross Margin Improved to 62%; Second Quarter License Revenue Grew 412% Year-Over-Year

CALABASAS, CA--(Marketwire - February 10, 2010) - NetSol Technologies, Inc. "NetSol" (NASDAQ: NTWK) (NASDAQ DUBAI: NTWK), a U.S. corporation providing global business services and enterprise application solutions to private and public sector organizations worldwide, today announced second quarter financial results for fiscal year 2010, for the period ended December 31, 2009.

SECOND QUARTER FISCAL YEAR 2010 CONSOLIDATED FINANCIAL HIGHLIGHTS

--  Revenues totaled $9.5 million, up 81% year-over-year and 25%
    sequentially.
      -- Service fees totaled $4.4 million
      -- License fees totaled $3.3 million
      -- Maintenance fees totaled $1.8 million
--  Gross margin increased to 62% compared to 27% in the same period a
    year ago.
--  Operating income increased to $1.7 million as compared to an operating
    loss of $2.8 million in the same period a year ago.
--  GAAP net loss applicable to common shareholders of $0.4 million, or a
    loss of $0.01 per diluted share, compared to GAAP net loss applicable
    to common shareholders of $3.3 million, or a loss of $0.12 per diluted
    share, in the year ago period.
--  GAAP net loss applicable to common shareholders and operating income
    include the impact of $1.1 million in expense, or $0.03 per diluted
    share, related to the relocation of the Company's global and U.S.
    operating headquarters from Emeryville to Alameda, California and
    $0.6 million, or $0.02 per diluted share, in expense related to the
    beneficial conversion feature of convertible securities.
--  The relocation of NetSol's global and U.S. operating headquarters to
    Alameda, California is projected to provide savings of $5 million over
    a five year period.
--  EBITDA totaled $0.9 million, or $0.03 per diluted share, versus an
    EBITDA loss of $1.9 million, or a loss of $0.07 per diluted share,
    in the year ago period.
--  The Company reiterated guidance for fiscal year 2010 projecting
    revenues in the range of $33.0 million and $35.0 million, representing
    full year revenue growth of between 25% and 32% versus fiscal year
    2009.  The Company projects a return to GAAP net income for fiscal year
    2010, versus a GAAP net loss of $0.30 per diluted share for fiscal year
    2009. License revenues for fiscal year 2010 are projected to increase
    more than 100% versus fiscal year 2009.

Najeeb Ghauri, NetSol Technologies chairman and chief executive officer, commented, "Our fiscal second quarter 2010 financial results marked our third consecutive quarter of double-digit sequential revenue growth, highlighted by an 81% increase in sales versus the year ago period. NetSol also delivered material improvements in gross margin, operating income, GAAP net income, and EBITDA results versus the year ago period. These performance gains highlight the significant improvement in NetSol's core business as we continue to successfully convert our business pipeline to customer wins. Revenues from license fees resumed a pre-recession trajectory growing over 400% year-over-year as global customers began to further unlock spending and resume the purchase of large strategic software solutions, particularly in the automotive and financial sectors. Additionally, we continue to implement efficiency measures aimed at increasing our long-term profitability. Our efforts to continuously rationalize operating expenses included the relocation of our global and operating headquarters in the U.S., now under the leadership of Mr. Imran Haider, the recently appointed Chief Operating Officer of NetSol North America, Inc., to Alameda which is expected to save the company an estimated $5 million over a 5 year period.

"As NetSol continued to invest in its core NetSol Financial Suite (NFS)™ throughout the global economic downturn the company is well positioned to leverage the upturn in customer activity we continue to see, particularly in China, as NetSol begins the second half of its fiscal year 2010 with continued positive momentum. We are continuing to see increased interest among major customers as well as potential partners in the sector and see excellent opportunities for collaboration and strategic initiatives as we look ahead to the second half of our fiscal year 2010," concluded Mr. Ghauri.

NetSol reported consolidated revenues of $9.5 million for the second quarter of fiscal year 2010, representing an 81% increase as compared to the same period a year ago.

U.S. GAAP (Generally Accepted Accounting Principles) net loss applicable to common shareholders for the second quarter of fiscal year 2010 was approximately $0.4 million, or a loss of $0.01 per diluted share, which compares to GAAP net loss of applicable to common shareholders of $3.3 million, or $0.12 per diluted share, in the same period a year ago. U.S. GAAP net loss applicable to common shareholders for the second quarter fiscal year 2010 was primarily attributable to $1.1 million, or $0.03 per diluted share, in expense related to the relocation of NetSol's headquarters in California and the $0.6 million, or $0.02 per diluted share, in expense related to the beneficial conversion feature of convertible securities. The relocation of NetSol's global and U.S. corporate headquarters to Alameda, California is projected to provide savings of $5 million over a five year period.

NetSol reported EBITDA of $0.9 million, or $0.03 per diluted share, for the second quarter of fiscal year 2010 compared to an EBITDA loss of $1.9 million, or a loss of $0.07 per diluted share, in the year ago period.

EBITDA is defined as earnings before interest, taxes, depreciation and amortization. The Company uses EBITDA as a measure of the Company's operating trends. Investors are cautioned that EBITDA is not a measure of liquidity or of financial performance under Generally Accepted Accounting Principles (GAAP). The EBITDA numbers presented may not be comparable to similarly titled measures reported by other companies. EBITDA, while providing useful information, should not be considered in isolation or as an alternative to net income or cash flows as determined under GAAP. Consistent with the SEC Regulation G, the non-GAAP measures in this press release have been reconciled to the nearest GAAP measure, and this reconciliation is located under the financial table heading "Reconciliation to GAAP."

SECOND QUARTER FISCAL YEAR 2010 BUSINESS HIGHLIGHTS

--  NetSol global and U.S. operating headquarters relocated from Emeryville
    to Alameda, California
--  Mr. Imran Haider appointed as the new Chief Operating Officer of NetSol
    North America, Inc. bringing 8 years of product and sales expertise
    from NetSol Asia Pacific as the Company strengthens its U.S. based
    management team
--  Toyota Motor Finance China upgrades to a  NetSol Financial Suite™
    license
--  A major Chinese automotive finance company awarded NetSol a $2 million
    contract
--  Expanded sales and delivery capabilities in China, leveraging fast
    growing Chinese consumer and asset finance market
--  NetSol secured a major Information Security contract in the mobile
    telecommunications sector
--  BMW Group Financial Services awarded NetSol additional services
    contract
--  NetSol awarded IT Services contract in Saudi Arabia, further expanding
    presence in the Middle East market
--  United Kingdom based bank awarded NetSol a $1 million major software
    and IT services contract
--  NetSol IT Business Services awarded Information Security contract to
    implement a data center security project in conjunction with a leading
    solution integrator in Pakistan

FIRST HALF FISCAL YEAR 2010 CONSOLIDATED FINANCIAL HIGHLIGHTS

--  Revenues totaled $17.1 million, up 18% year-over-year.
      --  Service fees totaled $7.7 million
      --  License fees totaled $5.9 million
      --  Maintenance fees totaled $3.6 million
--  Gross margin increased to 58% compared to 42% in the same period a
    year ago.
--  Operating income increased to $2.8 million as compared to an operating
    loss of $1.7 million in the same period a year ago.
--  GAAP net loss applicable to common shareholders of $0.7 million, or a
    loss of $0.02 per diluted share, compared to GAAP net loss applicable
    to common shareholders of $2.2 million, or a loss of $0.08 per diluted
    share, in the year ago period.
--  GAAP net loss applicable to common shareholders and operating income
    include the impact of $1.1 million in expense, or $0.03 per diluted
    share, related to the relocation of the Company's global and U.S.
    operating headquarters from Emeryville to Alameda, California and
    $0.9 million, or $0.03 per diluted share, in expense related to the
    beneficial conversion feature of convertible securities.
--  EBITDA totaled $2.2 million, or $0.06 per diluted share, versus EBITDA
    of $0.4 million, or $0.02 per diluted share, in the year ago period.

CONFERENCE CALL & WEBCAST INFORMATION

Following the distribution of the fiscal second quarter 2010 financial results, NetSol will host a conference call today at 11:00 a.m. ET (8:00 a.m. PT) to review the quarterly financial and operational performance. Najeeb Ghauri, NetSol Technologies chairman and chief executive officer, will host the call, which will be webcast live. The webcast and a supporting slide presentation will be made available on the investor relations section of the NetSol corporate website at www.netsoltech.com. Telephone access to the conference call will be available in North America by dialing +1 (877) 407-0782 or internationally by dialing +1 (201) 689-8567.

An audio replay of the conference call will be available approximately two hours following the conclusion of the call and for the following 30 day period. To access the replay in North America, dial +1 (877) 660-6853 or, when calling internationally, dial +1 (201) 612-7415, using replay account code # 286 and conference ID # 344363. An archived replay of the conference webcast will also be available on the investor relations section of the NetSol corporate website at www.netsoltech.com.

About NetSol Technologies, Inc.

NetSol Technologies, Inc. (NASDAQ: NTWK) (NASDAQ DUBAI: NTWK) is a worldwide provider of global business services and enterprise application solutions. Since its inception in 1995, NetSol has used its BestShoring® practices and highly experienced resources in analysis, development, quality assurance, and implementation to deliver high-quality, cost-effective solutions. Specialized by industry, these product and services offerings include credit and finance portfolio management systems, hospital/healthcare information management systems (HIMS), SAP consulting and services, custom development, systems integration, and technical services for the global Financial, Healthcare, Insurance, Energy, and Technology markets. NetSol's commitment to quality is demonstrated by its achievement of the ISO 9001, ISO 27001, and SEI (Software Engineering Institute) CMMI (Capability Maturity Model) Maturity Level 5 assessments, a distinction shared by fewer than 100 companies worldwide. NetSol Technologies' clients include Fortune 500 manufacturers, global automakers, financial institutions, utilities, technology providers, and government agencies. With corporate headquarters in Calabasas, California, NetSol Technologies has operations and offices in Alameda, Adelaide, Bangkok, Beijing, Lahore, London, and San Pedro Sula.

To learn more about NetSol Technologies, Inc., visit www.netsoltech.com

To join the NetSol Technologies, Inc. email communications list, visit: http://www.b2i.us/irpass.asp?BzID=897&to=ea&s=0

NetSol Technologies, Inc. Forward-looking Statement

This press release may contain forward-looking statements relating to the development of the Company's products and services and future operation results, including statements regarding the Company that are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. The words "believe," "expect," "anticipate," "intend," variations of such words, and similar expressions, identify forward-looking statements, but their absence does not mean that the statement is not forward-looking. These statements are not guarantees of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict. Factors that could affect the Company's actual results include the progress and costs of the development of products and services and the timing of the market acceptance.

                   NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENT OF OPERATIONS
                                     (Unaudited)

                          For the Three Months       For the Six Months
                            Ended December 31,       Ended December 31,
                            2009         2008         2009         2008
                        -----------  -----------  -----------  -----------
Net Revenues:
  License fees          $ 3,318,936  $   647,979  $ 5,870,529  $ 3,177,787
  Maintenance fees        1,780,336    1,513,293    3,588,053    3,107,027
  Services                4,420,535    3,109,737    7,683,299    8,287,162
                        -----------  -----------  -----------  -----------
    Total revenues        9,519,808    5,271,009   17,141,881   14,571,976
Cost of revenues:
  Salaries and
   consultants            2,005,845    2,382,877    4,019,598    5,023,590
  Travel                    329,008      226,964      389,207      712,900
  Repairs and
   maintenance               69,112      102,235      136,723      208,900
  Insurance                  36,030       59,073       72,709       91,912
  Depreciation and
   amortization             573,267      532,429    1,071,772    1,083,754
  Other                     585,157      540,146    1,467,495    1,291,214
                        -----------  -----------  -----------  -----------
    Total cost of
     revenues             3,598,418    3,843,724    7,157,503    8,412,270
                        -----------  -----------  -----------  -----------
Gross profit              5,921,390    1,427,285    9,984,378    6,159,706
Operating expenses:
  Selling and marketing     526,751      880,846    1,020,381    1,850,364
  Depreciation and
   amortization             418,023      494,834      930,384      975,042
  Bad debt expense          212,840      648,470      212,840      648,470
  Salaries and wages        743,970      944,520    1,468,665    1,923,774
  Professional services,
   including non-cash
   compensation             210,795      312,940      306,901      619,826
  Lease abandonment
   charges                1,076,347            -    1,076,347            -
  General and
   administrative         1,042,172      962,711    2,132,183    1,830,828
                        -----------  -----------  -----------  -----------
    Total operating
     expenses             4,230,898    4,244,321    7,147,701    7,848,304
                        -----------  -----------  -----------  -----------
Income (loss) from
 operations               1,690,492   (2,817,036)   2,836,677   (1,688,598)
Other income and
 (expenses)
  Gain (loss) on sale
   of assets                (89,119)     (14,960)     (89,101)    (180,698)
  Interest expense         (372,273)    (296,578)    (840,887)    (500,470)
  Interest income            33,752       40,895      151,562       68,836
  Gain on foreign
   currency exchange
   rates                     (3,247)    (195,030)     380,577    1,812,852
  FMV of options &
   warrants issued                -      117,300            -            -
  Beneficial conversion
   feature                 (595,215)           -     (893,214)           -
  Other income/(expense)    (50,825)      15,686      (81,975)      32,140
                        -----------  -----------  -----------  -----------
    Total other income
     (expenses)          (1,076,927)    (332,687)  (1,373,038)   1,232,660
                        -----------  -----------  -----------  -----------
Net income (loss)
 before non-controlling
 interest in subsidiary     613,565   (3,149,723)   1,463,639     (455,938)
Non-controlling
 interest                (1,028,917)     (32,062)  (2,137,892)  (1,661,823)
Income taxes                (32,526)     (50,855)     (37,543)     (58,037)
                        -----------  -----------  -----------  -----------
Net loss                   (447,878)  (3,232,640)    (711,795)  (2,175,798)
Dividend required for
 preferred stockholders           -      (33,876)           -      (67,752)
                        -----------  -----------  -----------  -----------
Net loss applicable to
 common shareholders       (447,878)  (3,266,516)    (711,795)  (2,243,550)
Other comprehensive
 loss:
  Translation
   adjustment              (538,141)    (962,258)    (854,705)  (3,857,568)
                        -----------  -----------  -----------  -----------
Comprehensive income
 loss                   $  (986,019) $(4,228,774) $(1,566,500) $(6,101,118)
                        ===========  ===========  ===========  ===========

Net loss per share:
  Basic                 $     (0.01) $     (0.12) $     (0.02) $     (0.08)
                        ===========  ===========  ===========  ===========
  Diluted               $     (0.01) $     (0.12) $     (0.02) $     (0.08)
                        ===========  ===========  ===========  ===========
Weighted average number
 of shares outstanding
  Basic                  34,447,142   26,525,259   33,041,760   26,416,217
                        ===========  ===========  ===========  ===========
  Diluted                34,447,142   26,525,259   33,041,760   26,416,217
                        ===========  ===========  ===========  ===========




                   NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                  (Unaudited)
                                                  As of          As of
                                               December 31,     June 30,
                                                  2009           2009
                     ASSETS                     Unaudited       Audited
                                              -------------  -------------
Current assets:
  Cash and cash equivalents                   $   5,211,674  $   4,403,762
  Restricted Cash                                 5,000,000      5,000,000
  Accounts receivable, net of allowance
   for doubtful accounts                         11,085,142     11,394,844
  Revenues in excess of billings                  7,803,936      5,686,277
  Other current assets                            1,974,048      2,307,246
                                              -------------  -------------
    Total current assets                         31,074,801     28,792,129
Property and equipment, net of accumulated
 depreciation                                     9,063,503      9,186,163
Other assets, long-term                                   -        204,823
Intangibles:
  Product licenses, renewals, enhancements,
   copyrights, trademarks, and tradenames, net   15,679,647     13,802,607
  Customer lists, net                               961,401      1,344,019
  Goodwill                                        9,439,285      9,439,285
                                              -------------  -------------
    Total intangibles                            26,080,334     24,585,911
                                              -------------  -------------
    Total assets                              $  66,218,638  $  62,769,026
                                              =============  =============

      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable and accrued expenses       $   5,244,176  $   5,106,266
  Current portion of loans and obligations
   under capitalized leases                       6,564,633      6,207,830
  Other payables - acquisitions                     103,226        103,226
  Unearned revenues                               3,153,926      3,473,228
  Dividend to preferred stockholders payable              -         44,409
  Loans payable, bank                             2,386,549      2,458,757
  Convertible notes payable, current portion      1,131,115              -
                                              -------------  -------------
    Total current liabilities                    18,583,625     17,393,716
Obligations under capitalized leases, less
 current maturities                                 878,586      1,090,901
Convertible notes payable, less current
 maturities                                       4,227,517      5,809,508
Long term loans; less current maturities            969,536      1,113,832
Lease abandonment liability; long term            1,076,347              -
                                              -------------  -------------
    Total liabilities                            25,735,611     25,407,957
Commitments and contingencies                             -              -

Stockholders' equity:
  Preferred stock, 5,000,000 shares
   authorized; Nil; 1,920 issued and
   outstanding                                            -      1,920,000
  Common stock, $.001 par value; 95,000,000
   shares authorized; 35,436,777; 30,046,987
   issued and outstanding                            35,437         30,047
  Additional paid-in-capital                     84,702,035     78,198,523
  Treasury stock                                   (396,008)      (396,008)
  Accumulated deficit                           (41,940,459)   (41,253,152)
  Stock subscription receivable                  (2,347,930)      (842,619)
  Common stock to be issued                          88,325        220,365
  Other comprehensive loss                       (7,754,102)    (6,899,397)
  Non-controlling interest                        8,095,729      6,383,310
                                              -------------  -------------
    Total stockholders' equity                   40,483,027     37,361,069
                                              -------------  -------------
    Total liabilities and stockholders'
     equity                                   $  66,218,638  $  62,769,026
                                              =============  =============




                   NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES
                            STATEMENTS OF CASH FLOWS
                                  (Unaudited)
                                                    For the Six Months
                                                    Ended December 31,
                                                    2009          2008
                                                ------------  ------------
Cash flows from operating activities:
  Net loss                                      $   (711,795) $ (2,175,798)
  Adjustments to reconcile net loss to net
   cash provided by operating activities:
  Depreciation and amortization                    2,002,157     2,058,796
  Provision for bad debts                            212,840       648,470
  Loss on transaction of debt                         19,582             -
  Loss on sale of assets                              89,101       180,698
  Non controlling interest in subsidiary           2,137,892     1,661,823
  Stock issued for accrued interest on
   convertible notes                                  27,825             -
  Stock issued for services                          300,329       159,867
  Fair market value of warrants and stock
   options granted                                   651,018        89,700
  Beneficial conversion feature                      893,214             -
  Changes in operating assets and liabilities:
    Increase/ decrease in accounts receivable        237,431    (3,563,977)
    Increase/ decrease in other current assets    (1,632,327)    1,344,525
    Increase/ decrease in accounts payable and
     accrued expenses                                147,556       106,229
                                                ------------  ------------
  Net cash provided by operating activities        4,374,822       510,333
Cash flows from investing activities:
  Purchases of property and equipment             (1,085,787)   (1,551,217)
  Sales of property and equipment                    227,773        40,900
  Payments of acquisition payable                          -      (742,989)
  Purchase of treasury stock                               -      (360,328)
  Short-term investments held for sale                     -      (105,040)
  Increase in intangible assets                   (3,118,094)   (3,023,777)
                                                ------------  ------------
  Net cash used in investing activities           (3,976,108)   (5,742,451)
Cash flows from financing activities:
  Proceeds from sale of common stock                 514,539       150,000
  Proceeds from the exercise of stock options
   and warrants                                       33,750       520,569
  Purchase of subsidary stock in Pakistan                  -      (250,000)
  Proceeds from convertible notes payable          2,000,000     5,849,306
  Redemption of preferred stock                   (1,920,000)            -
  Restricted cash                                          -    (5,000,000)
  Dividend Paid                                      (44,090)            -
  Bank overdraft                                    (221,382)      130,436
  Proceeds from bank loans                         2,727,657     3,618,590
  Payments on bank loans                            (352,887)     (138,975)
  Payments on capital lease obligations &
   loans - net                                    (2,183,189)     (259,048)
                                                ------------  ------------
  Net cash provided by financing activities          554,399     4,620,878
Effect of exchange rate changes in cash             (145,201)     (247,696)
                                                ------------  ------------
Net increase/ (decrease) in cash and cash
 equivalents                                         807,912      (858,936)
Cash and cash equivalents, beginning of year       4,403,762     6,275,238
                                                ------------  ------------
Cash and cash equivalents, end of year          $  5,211,674  $  5,416,302
                                                ============  ============




                   NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES
                             RECONCILIATION TO GAAP
                                 (Unaudited)

                    Three Months  Three Months   Six Months    Six Months
                        Ended         Ended        Ended         Ended
                    December 31,  December 31,  December 31,  December 31,
                        2009          2008          2009          2008
                    ------------  ------------  ------------  ------------

Net Income (loss)
 before preferred
 dividend, per GAAP $   (447,878) $ (3,232,640) $   (711,795) $ (2,175,798)
  Income Taxes            32,526        50,855        37,543        58,037
  Depreciation and
   amortization          991,290     1,027,263     2,002,156     2,058,796
  Interest expense       372,273       296,578       840,887       500,470

                    ------------  ------------  ------------  ------------
EBITDA              $    948,211  $ (1,857,944) $  2,168,791  $    441,505
                    ============  ============  ============  ============

Weighted Average
 number of shares
 outstanding
Basic                 34,447,142    26,525,259    33,041,760    26,416,217
Diluted               35,833,351    26,525,259    34,427,969    27,308,220
                    ------------  ------------  ------------  ------------

Basic EBITDA        $       0.03  $      (0.07) $       0.07  $       0.02
                    ============  ============  ============  ============
Diluted EBITDA      $       0.03  $      (0.07) $       0.06  $       0.02
                    ------------  ------------  ------------  ------------

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