SOURCE: NetSol Technologies

May 13, 2008 06:01 ET

NetSol Technologies Reports Third Quarter Fiscal Year 2008 Financial Results

Revenues Increased 19% Year-Over-Year to $9.1 Million; Gross Margin Improved to 56%; Net Income Increased to $2.3 Million or $0.09 per Diluted Share; EBITDA Increased to $3.2 Million

CALABASAS, CA--(Marketwire - May 13, 2008) - NetSol Technologies Inc. ("NetSol") (NASDAQ: NTWK), a worldwide provider of global business services and enterprise application solutions, today announced financial results for the third quarter of fiscal year 2008, ending March 31, 2008.

Third Quarter Fiscal Year 2008 Consolidated Financial Highlights

--  Revenues increased 19% to $9.1 million
   --  Services increased 23% to $4.6 million
   --  License fees increased 17% to $3.0 million
   --  Maintenance fees increased 11% to $1.5 million
--  Gross margin increased to 56% compared to 48% in the same period a year
    ago
--  Operating income increased 245% year-over-year to $1.8 million
--  GAAP net income increased to $2.3 million, or $0.09 per diluted share,
    versus a loss of $229,000, or a loss of ($0.01) per diluted share, in
    the same period a year ago
--  EBITDA totaled $3.2 million, or $0.13 per diluted share, versus EBITDA
    of $676,000, or $0.04 per diluted share, in the same period a year ago
--  Company reiterated guidance for fiscal year 2008: Annual revenue growth
    between 25% to 30% and diluted earnings per share between $0.28 and
    $0.32

Najeeb Ghauri, chairman and chief executive officer, commented, "Our third quarter results provide an excellent start to the second half of fiscal 2008, which is historically NetSol's stronger half-year period. With double-digit year-over-year growth in services, licenses, and maintenance fees translating into a significant rise in profitability, we remain on track to achieve our full year top and bottom line financial objectives. Complementing our significant financial progress, we recently launched our new BestShoring™ strategic initiative that represents our best practices approach to delivering our customers the BestSolution™. Unlike traditional outsourcing offshore vendors, BestShoring™ reflects our ability to draw upon NetSol's global delivery infrastructure, expertise, and workforce to construct the best possible solution at the best possible price.

"Additionally, during the quarter we made key strategic investments in our North American operations to strengthen and expand our presence in the region, a critical market for NetSol's future growth. To support this effort we made several key North American management appointments, including Greg Brinton as head of sales and Morgan Rees as senior vice president of marketing, working under the leadership of Mitch Van Wye, our chief operating officer in the region. We see these additions to NetSol's management, as well as our investments in infrastructure, as critical to supporting our long-term growth throughout the Americas, as well as supporting our new globally-focused BestShoring™ customer solutions. We are offering BestShoring™ enterprise solutions and global business services to both new clients in various vertical markets and our 35 plus existing clients in North America.

"As a global enterprise, it is NetSol's goal to progress with our operational objectives for each division while sustaining profitability and delivering excellent financial results. NetSol's double-digit revenue growth and strong net income performance reflect broad-based success towards our objectives of improving margins, effectively leveraging our worldwide infrastructure, and improving operating efficiencies while expanding each of our division's revenue streams," concluded Mr. Ghauri.

NetSol reported consolidated revenues of $9.1 million for the third quarter of fiscal year 2008, a 19% increase compared to the $7.6 million in revenues reported for the same period a year ago. Consolidated gross profit for the third quarter was approximately $5.1 million, or 56% of revenues.

GAAP (Generally Accepted Accounting Principles) net income for the third quarter of fiscal year 2008 was approximately $2.3 million, or $0.09 per diluted share, which compares to GAAP net loss of $229,000, or a loss of $0.01 per diluted share, in the same period of fiscal year 2007. NetSol reported EBITDA of $3.2 million, or $0.13 per diluted share, for the third quarter of fiscal year 2008 compared to EBITDA of $0.7 million, or $0.04 per diluted share, in the same period a year ago.

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."

NetSol ended the third quarter of fiscal year 2008 with approximately $4.8 million in cash and cash equivalents.

Fiscal Third Quarter 2008 Business Highlights

--  Ranked in Software Magazine's Software 500 list of the world's largest
    software and service providers, joining the Software 500 list for the first
    time this year with a rank of 340 worldwide.
--  Had NetSol's Lahore-based IT development campus, "NetSol Village,"
    achieve ISO 27001 certification from the International Organization for
    Standardization (ISO), the world's largest developer and publisher of
    International Standards.
--  Secured a contract valued at approximately $1.5 million with one of
    the largest leasing companies in the Middle East.
--  Sold a new LeaseSoft license in China to a major European auto
    manufacturer, maintaining robust momentum in the Chinese market.
--  Awarded a contract for the implementation of a Land Record Management
    Information System (LRMIS) for the Islamabad Capital Territory, Pakistan,
    the second LRMIS project NetSol has been awarded.
--  Launched the new LeasePak "Asset Focus Module," giving vehicle finance
    and commercial equipment finance product managers a robust means for
    tracking the revenue performance of financed assets.
--  Successfully implemented the LeaseSoft product suite for Dongfeng-
    Nissan Automotive Finance (DNAF) China.
--  Had Venture Finance, a subsidiary of ABN Amro, go live with LeaseSoft
    for its Block Discounting portfolio.
    

First Nine Months of Fiscal Year 2008 Consolidated Financial Highlights

--  Revenues for the first nine months increased 26% to $26.1 million
    --  Service fees increased 40% to $13.8 million
    --  License fees increased 13% to $7.8 million
    --  Maintenance fees increased nearly 14% to $4.6 million
--  Gross margin improved to 58%, compared to 50% for the same nine months
    period a year ago

NetSol reported consolidated revenues of $26.1 million for the first nine months of fiscal year 2008, a 26% increase compared to the $20.7 million in revenues reported for the same period in fiscal year 2007. Consolidated gross profit for the first nine months was $15.1 million, or 58% of revenues.

GAAP net income for the first nine months of fiscal year 2008 was approximately $5.2 million, or $0.21 per diluted share, compared to a net loss of $6.2 million, or ($0.35) per diluted share, in the same period of fiscal year 2007. EBITDA increased to $8.0 million, or $0.33 per diluted share, as compared to an EBITDA loss of $3.4 million, or ($0.18) per diluted share, in the same period a year ago.

Conference Call & Webcast Information

NetSol will host a conference call at 11:00 a.m. ET (8:00 a.m. PT) to review the results. Najeeb Ghauri, chairman and chief executive officer, and Tina Gilger, chief financial officer, will host the call, which will be webcast live. The webcast and a supporting slide presentation will be made available online at http://www.netsoltek.com/investors/investor_relations.htm. Telephone access to the conference call is 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 one hour following the conclusion of the call and will be available for 30 days. 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 # 283654. An archived replay of the conference webcast will also be available on the NetSol Technologies web site at http://www.netsoltek.com/investors/investor_relations.htm.

About NetSol Technologies

NetSol Technologies (NASDAQ: NTWK) is a worldwide provider of global business services and enterprise application solutions. NetSol uses its BestShoring™ practices and highly-experienced resources in analysis, development, quality assurance, and implementation to deliver high-quality, cost-effective solutions. Organized into specialized practices, these product and services offerings include portfolio management systems for the financial services industry, consulting, custom development, systems integration, and technical services for the global Healthcare, Insurance, Real Estate and Technology markets. NetSol's commitment to quality is demonstrated by its achievement of the ISO 9001, ISO 279001, and SEI (Software Engineering Institute) CMMI (Capability Maturity Model) Level 5 assessments, a distinction shared by fewer than 100 companies worldwide. NetSol Technologies' clients include Fortune 50 manufacturers, global automakers, financial institutions, technology providers, and governmental agencies. Headquartered in Calabasas, California, NetSol Technologies has operations and offices in London, San Francisco, Sydney, Beijing, Bangkok and Lahore. To join the NetSol Technologies Inc. email distribution list please visit: http://www.b2i.us/irpass.asp?BzID=897&to=ea&s=0.

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.

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

                       For the Three Months        For the Nine Months
                          Ended March 31,             Ended March 31,
                        2008          2007          2008          2007
                    ------------  ------------  ------------  ------------
Net Revenues:
  Licence fees      $  2,998,867  $  2,554,289  $  7,769,226  $  6,851,496
  Maintenance fees     1,482,654     1,335,893     4,556,450     3,990,096
  Services             4,585,292     3,725,784    13,800,844     9,864,055
                    ------------  ------------  ------------  ------------
    Total revenues     9,066,813     7,615,966    26,126,520    20,705,647
Cost of revenues
  Salaries and
   consultants         2,620,722     2,234,809     7,342,743     6,608,606
  Travel                 394,841       447,288       972,998     1,195,315
  Repairs and
   maintenance            99,262       133,961       332,448       313,514
  Insurance               30,005        51,294       153,760       153,595
  Depreciation and
   amortization          316,652       279,405       847,288       693,703
  Other                  522,013       790,927     1,341,513     1,479,478
                    ------------  ------------  ------------  ------------
    Total cost of
     sales             3,983,495     3,937,684    10,990,750    10,444,211
                    ------------  ------------  ------------  ------------
Gross profit           5,083,318     3,678,282    15,135,770    10,261,436
Operating expenses:
  Selling and
   marketing             898,686       825,586     2,817,908     2,105,920
  Depreciation and
   amortization          477,630       483,801     1,422,181     1,389,704
  Bad debt expense             -          (231)        3,277       117,267
  Salaries and
   wages               1,034,784       915,481     2,758,434     2,914,707
  Professional
   services,
   including
   non-cash
   compensation          114,436       254,359       413,437       774,203
  General and
   adminstrative         792,499       687,881     2,287,693     2,202,182
                    ------------  ------------  ------------  ------------
    Total operating
     expenses          3,318,035     3,166,877     9,702,930     9,503,983
                    ------------  ------------  ------------  ------------
Income from
 operations            1,765,283       511,405     5,432,840       757,453
Other income and
 (expenses):
  Gain (loss) on
   sale of assets           (891)       (6,729)      (33,044)      (19,067)
  Beneficial
   conversion
   feature                     -             -             -    (2,208,334)
  Amortization of
   debt discount
   and capitalized
   cost of debt                -             -             -    (2,803,691)
  Liquidation
   damages                     -       (47,057)            -      (180,890)
  Fair market value
   of warrants
   issued                      -       (33,987)            -       (33,987)
  Interest expense      (121,651)      (83,819)     (544,597)     (543,342)
  Interest income         84,363        46,867       159,801       265,916
  Gain on sale of
   subsidiary
   shares              1,240,808             -     1,240,808             -
  Other income and
   (expenses)            447,889        10,081       709,113        88,935
                    ------------  ------------  ------------  ------------
    Total other
     income
     (expenses)        1,650,518      (114,644)    1,532,081    (5,434,460)
                    ------------  ------------  ------------  ------------
Net income (loss)
 before minority
 interest in
 subsidiary            3,415,801       396,761     6,964,921    (4,677,007)
Minority interest
 in subsidiary        (1,098,703)     (568,237)   (1,756,509)   (1,374,081)
Income taxes             (15,314)      (57,655)      (46,272)     (126,620)
                    ------------  ------------  ------------  ------------
Net income (loss)      2,301,784      (229,131)    5,162,140    (6,177,708)
Dividend required
 for preferred
 stockholders            (33,508)      (94,088)     (145,033)     (159,686)
Subsidiary dividend
 (minority holders
 portion)                      -             -      (817,173)            -
Bonus stock
 distribution
 (minority holders
 portion)                      -             -      (545,359)            -
                    ------------  ------------  ------------  ------------
Net income (loss)
 applicable to
 common
 shareholders          2,268,276      (323,219)    3,654,575    (6,337,394)
Other comprehensive
 gain:
  Translation
   adjustment           (910,838)       81,564    (1,401,831)      203,343
                    ------------  ------------  ------------  ------------
Comprehensive
 income (loss)      $  1,357,438  $   (241,655) $  2,252,744  $ (6,134,051)
                    ============  ============  ============  ============
Net income (loss)
 per share:
  Basic             $       0.09  $      (0.02) $       0.21  $      (0.36)
                    ============  ============  ============  ============
  Diluted           $       0.09  $      (0.01) $       0.21  $      (0.35)
                    ============  ============  ============  ============
Weighted average
 number of shares
 outstanding
  Basic               25,205,995    18,311,290    23,686,204    17,680,115
  Diluted             25,665,924    18,311,290    24,146,133    17,680,115




                 NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES
              CONSOLIDATED BALANCE SHEET – AS OF MARCH 31, 2008
                                 (UNAUDITED)


                       ASSETS
Current assets:
  Cash and cash equivalents                       $ 4,848,513
  Accounts receivable, net of allowance for
   doubtful accounts of $168,443                   10,227,903
  Revenues in excess of billings                   12,006,231
  Other current assets                              2,933,047
                                                  -----------
    Total current assets                                         30,015,694
Property and equipment, net of accumulated
 depreciation                                                     8,153,405
Other assets, long-term                                             800,435
Intangibles:
  Product licenses, renewals, enhancements,
   copyrights, trademarks, and tradenames, net      9,137,381
  Customer lists, net                               1,906,422
  Goodwill                                          7,786,032
                                                  -----------
    Total intangibles                                            18,829,835
                                                               ------------
    Total assets                                               $ 57,799,369
                                                               ============

      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable and accrued expenses           $ 3,323,046
  Current portion of loans and obligations under
   capitalized leases                                 605,551
  Other payables - acquisitions                        83,399
  Unearned revenues                                 3,616,555
  Due to officers                                     184,173
  Dividend to preferred stockholders payable           33,508
  Loans payable, bank                               1,977,689
                                                  -----------
    Total current liabilities                                     9,823,921
Obligations under capitalized leases, less
 current maturities                                                 270,927
Long term loans; less current maturities                            552,166
                                                               ------------
    Total liabilities                                            10,647,014
Minority interest                                                 5,834,732
Commitments and contingencies

Stockholders' equity:
  Preferred stock,  5,000,000 shares authorized;
   1,920 issued and outstanding                     1,920,000
  Common stock, $.001 par value; 45,000,000
   shares authorized; 25,247,568 issued and
   outstanding                                         25,248
  Additional paid-in-capital                       75,299,379
  Treasury stock                                      (35,681)
  Accumulated deficit                             (33,477,767)
  Stock subscription receivable                      (600,907)
  Common stock to be issued                            64,612
  Other comprehensive loss                         (1,877,261)
                                                  -----------
    Total stockholders' equity                                   41,317,623
                                                               ------------
    Total liabilities and stockholders' equity                 $ 57,799,369
                                                               ============




                 NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES
                          STATEMENTS OF CASH FLOWS
                                 (UNAUDITED)


                                                   For the Nine Months
                                                      Ended March 31,
                                                    2008          2007
                                                ------------  ------------
Cash flows from operating activities:
    Net income (loss) applicable to common
     shareholders                               $  5,162,140  $ (6,177,708)
    Adjustments to reconcile net income (loss)
     applicable to common
     shareholders to net cash provided by
     (used in) operating activities:
    Depreciation and amortization                  2,269,469     2,083,407
    Bad debt expense                                   3,277       117,267
    Loss on sale of assets                            33,044        19,067
    Gain on sale of subsidiary shares in
     Pakistan                                     (1,240,808)            -
    Minority interest in subsidiary                1,756,509     1,374,081
    Stock issued for services                         48,163        88,099
    Stock issued for convertible note payable
     interest                                              -       311,868
    Fair market value of warrants and stock
     options granted                                  24,320        33,987
    Beneficial conversion feature                          -     2,208,334
    Amortization of debt discount and
     capitalized cost of debt                              -     2,803,691
    Changes in operating assets and
     liabilities:
      Decrease/(increase) in accounts
       receivable                                 (2,087,736)   (1,913,135)
      Increase in other current assets            (4,885,181)   (2,793,410)
      (Decrease)/increase in accounts payable
       and accrued expenses                         (510,968)    1,716,251
                                                ------------  ------------
    Net cash provided by (used in) operating
     activities                                      572,229      (128,201)
Cash flows from investing activities:
    Purchases of property and equipment           (1,985,651)   (1,282,427)
    Sales of property and equipment                  120,436       208,419
    Net proceeds of certificates of deposit                -     1,737,481
    Payment for acquisition                         (879,007)   (4,027,753)
    Increase in intangible assets                 (2,219,673)   (2,001,502)
                                                ------------  ------------
    Net cash used in investing activities         (4,963,895)   (5,365,782)
Cash flows from financing activities:
    Proceeds from sale of common stock             1,500,000        30,093
    Proceeds from the exercise of stock options    2,800,917       704,250
    Proceeds from sale of subsidiary stock         1,765,615             -
    Finance costs incurred for sale of common
     stock                                           (10,000)            -
    Purchase of treasury stock                       (25,486)            -
    Reduction in restricted cash                           -     4,533,555
    Proceeds from loans from officers                      -       165,000
    Proceeds from bank loans                       3,862,759             -
    Payments on bank loans                        (1,245,846)            -
    Capital lease obligations & loans (net)       (3,462,334)      874,128
                                                ------------  ------------
    Net cash provided by financing activities      5,185,625     6,307,026
Effect of exchange rate changes in cash               44,390        76,159
                                                ------------  ------------
Net increase in cash and cash equivalents            838,349       889,202
Cash and cash equivalents, beginning of period     4,010,164     2,493,768
                                                ------------  ------------
Cash and cash equivalents, end of period        $  4,848,513  $  3,382,970
                                                ============  ============




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


                                               Three Months   Nine Months
                                                  Ended          Ended
                                              March 31, 2008 March 31, 2008
                                              -------------- --------------

Net income per GAAP (applicable to common
 shareholders)                                $    2,301,785 $    5,162,140
  Income taxes                                        15,314         46,272
  Depreciation and amortization                      794,282      2,285,985
  Interest expense                                   121,651        544,597
                                              -------------- --------------
    EBITDA income                             $    3,233,032 $    8,038,994
                                              ============== ==============


Weighted average number of shares outstanding
  Basic                                           25,205,995     23,686,204
  Diluted                                         25,665,924     24,146,133

                                              -------------- --------------
Basic EBITDA EPS                              $         0.13 $         0.34
                                              ============== ==============
Diluted EBITDA EPS                            $         0.13 $         0.33
                                              ============== ==============

Contact Information

  • Contacts:

    NetSol Technologies, Inc.
    Tina Gilger
    Chief Financial Officer
    Tel: +1 818-222-9195, x112

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