SOURCE: NetSol Technologies Inc.

February 12, 2007 16:01 ET

NetSol Technologies Reports Second Quarter Fiscal Year 2007 Financial Results

- Revenues Rise 60% Year/Year to $7.2 million; Operating Income Increases 36% to $375,000 -

CALABASAS, CA -- (MARKET WIRE) -- February 12, 2007 -- NetSol Technologies Inc. ("NetSol") (NASDAQ: NTWK), a multinational provider of enterprise software and IT services to the financial services industry, today announced financial results for the second quarter of fiscal year 2007, ending December 31, 2006.

Second Quarter FY 2007 Consolidated Financial Highlights

--  Revenues increased 60% to $7.2 million
--  Operating income rose 36% to $375 thousand
--  GAAP EPS was ($0.27) due to one-time, non-cash charge of $4.3 million
    relating to the financing for the acquisition of McCue Systems
--  EBITDA was $527 thousand, or $0.03 per basic and diluted share,
    excluding the one-time non-cash charge
--  Pro forma EPS was ($0.02) per basic and diluted share, excluding the
    one-time non-cash charge
    
NetSol Technologies, Inc. reported consolidated revenues of $7.2 million for the second quarter of fiscal year 2007, a 60% increase compared to the $4.5 million in revenues reported for the same period in fiscal year 2006. Consolidated gross profit for the second quarter was approximately $3.6 million, or 50%.

Net loss for the second quarter of fiscal year 2007 was approximately $4.6 million, or a loss of $0.27 per basic and diluted earnings per share, which compares to net income of $125 thousand, or $0.01 per basic and diluted earnings per share, reported in the second quarter of fiscal year 2006. The Company recorded a one-time, non-cash charge of $4.3 million relating to the financing for the acquisition of McCue Systems in June 2006. Excluding this one-time charge, NetSol would have reported EBITDA of $527 thousand, or $0.03 per basic and diluted share, and a net loss of $375 thousand, or a loss of $0.02 per basic and diluted share, for the second quarter of fiscal 2007.

Najeeb Ghauri, chairman and CEO, commented, "NetSol recorded strong revenue growth in the second quarter of fiscal 2007, driven by our ability to close contracts in the Asia Pacific and European markets. We also continued to make progress in the North American market, as the integration of McCue Systems proceeds according to plan. In addition, we are seeing strong growth in the Pakistan market, as evidenced by several, important non-traditional NetSol projects initiated with both the federal and Punjab governments.

"Our second quarter results also reflect a one-time, non-cash charge relating to the acquisition of McCue Systems in June 2006. With this charge, all costs relating to that acquisition are expensed and behind us, so we may now move forward aggressively in the North American market. We expect to have that division substantially integrated into the NetSol organization and leveraging our superior offshore capabilities by the end of this fiscal year."

Mr. Ghauri concluded, "Historically, NetSol posts its strongest results in the second half of the fiscal year. Our pipeline of orders for commercial finance products, particularly in the Chinese market and in Europe, indicate that this trend will continue. Moreover, our pipeline of business in Pakistan is stronger than ever. As a result, we continue to believe we can deliver revenues of approximately $30 million and improved operating profitability for fiscal year 2007."

Second Quarter Business Highlights

Asia-Pacific (APAC) Division

--  Signed two new multi-million dollar contracts for LeaseSoft with
    global, blue chip brand names in the Captive Finance sector - one in
    Australia, the other in China;
--  Continued to expand pipe line of opportunities in Australia, Thailand,
    New Zealand and China; and
--  Expanded client and market reach beyond traditional leasing market
    into local Pakistan market;
--  Successful implementation of Motor Transport Management Information
    System (or MTMIS) in Lahore, with an additional 28 districts to go live by
    the end of calendar year 2007.
    
Europe/Middle East (EMEA) Division
--  Completed major client projects on time and on budget to deliver
    record UK service revenue - one significant project was with Investec Asset
    Finance;
--  Introduced new products to support front and middle office operations
    of leasing companies, providing end-to-end contract management - three
    system implementations are currently scheduled or in progress, with
    significant interest generated; and
--  Recorded the first sale of the division's newest software offering,
    LeaseSoft Evolve, to broker Kennet Equipment Leasing for the management of
    its own equipment leasing portfolio.
    
North America Division
--  Delivered LeasePak 6.0, the largest and most comprehensive release of
    the product to date - receiving excellent customer response and reviews;
--  Initiated rollout of the IT Services line of business to the US
    commercial finance technology sector, and
--  Integration of McCue Systems into NetSol Technologies is on track and
    progressing well - with continued success in the leveraging of offshore
    resources, improved internal resource utilization and effective marketing
    efforts.
    
First Half FY 2007 Consolidated Financial Highlights
--  Revenues for the first half rose 46% to $13.1 million
--  GAAP EPS was ($0.34) due to one-time, non-cash charge of $5.0 million
    recorded for the first six months relating to the financing for the
    acquisition of McCue Systems
--  EBITDA for the first half was $911 thousand, or $0.05 per basic and
    diluted share, excluding the one-time non-cash charge
--  Pro Forma EPS of ($0.05), excluding the one-time non-cash charge
    
NetSol Technologies, Inc. reported consolidated revenues of $13.1 million for the first half of fiscal year 2007, a 46% increase compared to the $9.0 million in revenues reported for the same period in fiscal year 2006. Consolidated gross profit for the first six months was $6.6 million, or 50%.

Net loss for the first six months of fiscal year 2007 was approximately $5.9 million, or a loss of $0.34 per basic and diluted earning per share, which compares to net income of $328 thousand, or $0.02 per basic and diluted earnings per share in the same period of fiscal year 2006. The Company recorded a one-time, non-cash charge of $5.0 million relating to the financing for the acquisition of McCue Systems in June 2006. Excluding this one-time charge, NetSol would have reported EBITDA of $911 thousand, or $0.05 per basic and diluted share, and a net loss of $937 thousand, or a loss of $0.05 per basic and diluted share, for the first half of fiscal year 2007.

Conference Call Information

NetSol Technologies will host a conference call at 5:00 p.m. ET (2:00 p.m. PT) today to review these results. The call will be web cast live and may be accessed via http://audioevent.mshow.com/322520/, noting conference ID #7826805. Investors may also dial +1 (800) 374-2501 (U.S.) or +1 (706) 634- 2468 (international), noting conference ID #7826805.

An audio replay of the conference call will be available approximately one hour following the conclusion of the call through 5:00 p.m. ET on March 7, 2007. To access the replay, dial +1 (800) 642-1687 (US) or (706) 645-9291 (international), conference ID # 7826805. An archived replay of the conference web cast also will be available on the NetSol Technologies web site at http://www.netsoltek.com/investors/frame.html

About NetSol Technologies

NetSol Technologies is a multinational provider of enterprise software and IT services to the financial services industry. NetSol helps clients to identify, evaluate and implement technology solutions to meet their strategic business challenges and maximize their bottom line. By utilizing its worldwide resources, NetSol delivers high-quality, cost-effective equipment and vehicle finance portfolio management solutions. The Company also delivers managed IT services ranging from consulting and application development to systems integration and development outsourcing. NetSol's commitment to quality is demonstrated by its achievement of both ISO 9001 certification and SEI (Software Engineering Institute) CMMI (Capability Maturity Model) Level 5 assessment, a distinction shared by only 94 companies worldwide. The Company's clients include global automakers, financial institutions, technology companies and governmental agencies. NetSol's largest customer, DaimlerChrysler Services, ranks the Company as a preferred vendor in 40+ countries. Headquartered in Calabasas, CA, NetSol Technologies also has operations and/or offices in London, San Francisco, Adelaide, Beijing, Toronto, and Lahore and Karachi, Pakistan. To learn more about NetSol Technologies, visit the Company's web site at www.netsoltek.com.

Forward Looking Statements

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.

- Financial Tables Follow -

               NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES
         CONSOLIDATED STATEMENT OF OPERATIONS - DECEMBER 31, 2006
                            (UNAUDITED)


                       For the Three Months         For the Six Months
                        Ended December 31,          Ended December 31,
                        2006          2005          2006          2005
                    ------------  ------------  ------------  ------------
Revenues:
   Licence fees     $  2,718,795  $  1,699,760  $  4,297,207  $  2,162,238
   Maintenance fees    1,359,239       561,318     2,654,203     1,087,233
   Services            3,149,087     2,263,295     6,138,271     5,744,887
                    ------------  ------------  ------------  ------------
     Total revenues    7,227,121     4,524,373    13,089,681     8,994,358
Cost of revenues
    Salaries and
     consultants       2,441,724     1,345,283     4,373,797     2,486,817
    Travel               432,344        94,138       748,027       239,970
    Communication         38,935        28,705        81,000        52,509
    Depreciation and
     amortization        188,726       154,985       351,244       277,653
    Other                484,254       353,923       932,343       587,435
                    ------------  ------------  ------------  ------------
     Total cost of
      sales            3,585,983     1,977,034     6,486,411     3,644,384
                    ------------  ------------  ------------  ------------
Gross profit           3,641,138     2,547,339     6,603,270     5,349,974
Operating expenses:
   Selling and
    marketing            579,941       412,570       931,743       731,434
   Depreciation and
    amortization         489,004       564,855       968,867     1,117,386
   Bad debt expense       51,690         7,728       117,498         7,728
   Salaries and
    wages              1,183,184       552,714     2,271,451     1,089,090
   Professional
    services,
    including
    non-cash
    compensation         236,562       115,188       497,432       254,299
   General and
    adminstrative        725,679       619,455     1,572,285     1,190,546
                    ------------  ------------  ------------  ------------
     Total operating
      expenses         3,266,060     2,272,510     6,359,276     4,390,483
                    ------------  ------------  ------------  ------------
Income from operations   375,078       274,829       243,994       959,491
Other income and
 (expenses):
   Gain (loss) on
    sale of assets           (58)        4,219       (12,338)        4,610
   Beneficial
    conversion
    feature           (2,208,334)       (5,192)   (2,208,334)      (11,761)
   Amortization of
    debt discount
    and capitalized
    cost of debt      (2,069,033)            -    (2,803,691)            -
   Liquidation
    damages             (133,833)            -      (133,833)            -
   Fair market
    value of
    warrants issued            -             -             -        (9,489)
   Gain on
    forgiveness of
    debt                       -         3,335             -         6,976
   Interest expense     (211,615)      (86,862)     (461,406)     (165,885)
   Interest income       128,303        94,629       219,049       179,041
   Other income and
    (expenses)            39,192       (22,142)       80,392       (54,645)
   Income taxes          (13,741)        7,751       (66,565)      (66,811)
                    ------------  ------------  ------------  ------------
     Total other
      expenses        (4,469,119)       (4,262)   (5,386,726)     (117,964)
                    ------------  ------------  ------------  ------------
Net income (loss)
 before minority
 interest in
 subsidiary           (4,094,041)      270,567    (5,142,732)      841,527
Minority interest
 in subsidiary          (558,571)     (145,532)     (805,845)     (512,745)
                    ------------  ------------  ------------  ------------
Net income (loss)     (4,652,612)      125,035    (5,948,577)      328,782
Dividend required
 for preferred
 stockholders            (65,598)            -       (65,598)            -
                    ------------  ------------  ------------  ------------
Net income (loss)
 applicable to
 common
 shareholders         (4,718,210)      125,035    (6,014,175)      328,782
Other comprehensive
 gain:
   Translation
    adjustment           195,269       437,660       121,779       316,840
                    ------------  ------------  ------------  ------------
Comprehensive
 income (loss)      $ (4,522,941) $    562,695  $ (5,892,396) $    645,622
                    ============  ============  ============  ============

Net income (loss)
 per share:
   Basic            $      (0.27) $       0.01  $      (0.34) $       0.02
                    ============  ============  ============  ============
   Diluted          $      (0.27) $       0.01  $      (0.34) $       0.02
                    ============  ============  ============  ============
Weighted average
 number of shares
 outstanding
   Basic              17,514,634    14,064,968    17,280,675    13,981,426
   Diluted            17,514,634    14,793,396    17,280,675    14,546,887



                   NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES
                  CONSOLIDATED BALANCE SHEET - DECEMBER 31, 2006
                                 (UNAUDITED)

                         ASSETS
Current assets:
  Cash and cash equivalents                       $ 2,707,147
  Accounts receivable, net of allowance for
   doubtful accounts of $106,090                    8,305,346
  Revenues in excess of billings                    6,492,027
  Other current assets                              2,107,134
                                                  -----------
    Total current assets                                         19,611,654
Property and equipment, net of accumulated
 depreciation                                                     6,368,104
Intangibles:
  Product licenses, renewals, enhancements,
   copyrights, trademarks, and tradenames, net      5,794,466
  Customer lists, net                               2,774,727
  Goodwill                                          6,092,906
                                                  -----------
    Total intangibles                                            14,662,099
                                                               ------------
    Total assets                                               $ 40,641,857
                                                               ============

            LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable and accrued expenses           $ 5,095,034
  Current portion of notes and obligations under
   capitalized leases                                 712,816
  Other payables - acquisitions                        58,451
  Billings in excess of revenues                    1,290,255
  Due to officers                                     400,533
  Dividend to preferred stockholders payable           65,598
  Loans payable, bank                               1,229,911
                                                  -----------
    Total current liabilities                                     8,852,598
Obligations under capitalized leases, less
 current maturities                                                 219,014
                                                               ------------
    Total liabilities                                             9,071,612
Minority interest                                                 2,432,891
Commitments and contingencies                                             -

Stockholders' equity:
  Preferred stock, 5,000,000 shares authorized;
   5,500 issued and outstanding                     5,500,000
  Common stock, $.001 par value; 45,000,000
   shares authorized; 17,973,801 issued
   and outstanding                                     17,974
  Additional paid-in-capital                       62,280,151
  Treasury stock                                      (10,194)
  Accumulated deficit                             (37,686,216)
  Stock subscription receivable                      (944,750)
  Common stock to be issued                           278,270
  Other comprehensive loss                           (297,881)
                                                  -----------
    Total stockholders' equity                                   29,137,354
                                                               ------------
    Total liabilities and stockholders' equity                 $ 40,641,857
                                                               ============



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

                                                Three Months   Six Months
                                                    Ended         Ended
                                                  Dec. 31,      Dec. 31,
                                                    2006          2006
                                                ------------  ------------

Net loss per GAAP                               $ (4,652,612) $ (5,948,577)
  One-time, non-cash expenses:
    Beneficial conversion feature                  2,208,334     2,208,334
    Amortization of debt discount and
     capitalized cost of debt                      2,069,033     2,803,691
                                                ------------  ------------
                                                   4,277,367     5,012,025

Pro-forma loss                                  $   (375,245) $   (936,552)

Weighted average number of shares outstanding
  Basic and diluted                               17,514,634    17,280,675

                                                ------------  ------------
Pro-forma EPS                                   $      (0.02) $      (0.05)
                                                ============  ============


EBITDA - GAAP                                     (3,749,526)   (4,100,495)
  One-time, non-cash expenses:
    Beneficial conversion feature                  2,208,334     2,208,334
    Amortization of debt discount and
     capitalized cost of debt                      2,069,033     2,803,691
                                                ------------  ------------
                                                   4,277,367     5,012,025

                                                ------------  ------------
Pro-forma EBITDA                                $    527,841  $    911,530
                                                ============  ============

Weighted average number of shares outstanding
  Basic and diluted                               17,514,634    17,280,675

                                                ------------  ------------
Pro-forma EBITDA EPS                            $       0.03  $       0.05
                                                ============  ============

Contact Information

  • Contacts:
    NetSol Technologies, Inc.
    Andrew Lea
    Vice President, Marketing & Corporate Communications
    Tel: +1 650-348-0650, ext 1171
    Email: andrew.lea@netsoltek.com

    Investor Relations
    Christopher Chu
    The Global Consulting Group
    Tel: +1-646-284-9426
    Email: cchu@hfgcg.com