SOURCE: NetSol Technologies

May 06, 2005 09:45 ET

NetSol Technologies Revenue and Profit Growth Continues With Third Quarter Revenues Increasing 88 Percent

NetSol Issues New Guidance for Fiscal 2005 as Company Delivers Record Revenues and Three Consecutive Quarters of Earnings

CALABASAS, CA -- (MARKET WIRE) -- May 6, 2005 -- NetSol Technologies, Inc. (NASDAQ: NTWK), a developer of proprietary software applications and provider of information technology (IT) services, today reported revenue for its third quarter of fiscal 2005, ended March 31, 2005. Net revenue for the third quarter of fiscal 2005 was $3.2 million, an increase of 88.2 percent, compared to revenues of $1.7 million for the third quarter of fiscal 2004. Net income for the quarter was $135,194, or net income per weighted average diluted share of $0.01, compared to a net loss of $ < 295,885 > or a net loss per weighted average diluted share of $ < 0.04 > for the third quarter of fiscal 2004.

The net stockholders equity increased to over $15.2 million in the third quarter of fiscal 2005, compared to $10.5 million for the second quarter of fiscal 2005. Net cash balance improved to $2.7 million, from approximately $1.0 million in the second quarter of fiscal 2005. The consolidation of CQ's balance sheet with NetSol's has brought additional tangible value, as CQ's balance sheet carried no debt or long term liabilities, and has added cash and receivables of over $1 million to the NetSol consolidated balance sheet.

For the nine months ended March 31, 2005, the company reported revenue of $8.0 million, an increase of 105 percent, compared to revenue of $3.9 million for the nine months ended March 31, 2004. NetSol reported net income of $429,218, or net income per weighted diluted share of $0.04, for the nine-month period of fiscal 2005, versus a net loss of $ < 1.5 > million, or a net loss per weighted average diluted share of $ < 0.18 > for the comparable nine-month period of fiscal 2004.

Gross profit margins for both the third quarter of fiscal 2005 and the comparable 2004 quarter were approximately 59 percent. For the nine months ended March 31, 2005, gross profits rose to $5.1 million, with gross profit margins of 63.6 percent, compared to gross profits of $2.2 million, or gross profit margins of 57.6 percent for the comparable nine-month period. The increase in profit margin is due to a strict focus on managing operating expenses, along with increased sales of high-margin products and services.

NetSol's third quarter EBITDA (earnings before interest, tax, deprecation and amortization), a fundamental way to value a company's performance, was $586,178, compared to an EBITDA loss of $ < 26,380 > for the same period ended March 31, 2004. The EBITDA gain for the first nine months of fiscal 2005 was approximately $1.63 million, compared to the EBITDA loss of $ < 494,527 > for the comparable nine months of fiscal 2004.

"We are pleased with the significant increases in revenue and net income over the past three quarters, as the company-generated $1.5 million in free cash since our move to profitability in the first quarter of fiscal 2005 -- a stunning turnaround when compared to fiscal 2004," commented NetSol Technologies CEO Naeem Ghauri.

"Our LeaseSoft license sales are now consistently driving revenue, as evidenced by a recent contract for $2.1 million from a top five automotive finance company," continued Ghauri. "These recent LeaseSoft license agreements and exponential growth in our services business have resulted in a significant sales backlog. It is important to note that each LeaseSoft licensing agreement produces a recurring, high-gross-margined revenue stream for an average of five years."

"We fully expect our NetSol-TiG joint venture, which began operations in March 2005, along with our telecommunications subsidiary, NetSol-Akhter, and the newest member of the NetSol family, CQ Systems, to assist in propelling our robust revenue growth well into fiscal 2006, as the company executes on global marketing and sales initiatives and continues to leverage its strategic partnerships to drive a significant increase in sales," said NetSol Chairman Najeeb U. Ghauri.

Ghauri noted, "The traction in the market from our LeaseSoft product line will be augmented by CQ Systems' complementary product line and aggressive sales team. Our inBanking™ product has been significantly enhanced utilizing the n-Tier Architecture standard and is progressing well as a development-stage product. Based on our marketing information, we believe this product has the potential to be as successful, if not more so, than our flagship LeaseSoft product. We look forward to the commercialization of our inBanking product in late 2005."

Third Quarter Business Highlights:

--  NetSol awarded the first of what promises to be several Federal
    Government software development contracts from the Pakistan government;
    
--  NetSol adds five new Customers and 95 new employees including 45 from
    CQ Systems' acquisition;
    
--  NetSol's wholly owned subsidiary, NetSol Technologies Ltd., enters
    into underwriting agreement with AKD Securities and other blue chip
    institutions for IPO and listing on the KSE;
    
--  Filed listing application on KSE for subsidiary, expected to raise up
    to $6.0 million without using  (NASDAQ: NTWK) stock;
    
--  NetSol's state-of-the-art technology campus inauguration ceremony,
    presided over by Pakistan's Prime Minister Shaukat Aziz, while the World
    Economic Forum survey ranks Pakistan as second best in South Asia, using
    information technology to drive economic growth;
    
--  NetSol signs $2.1 million LeaseSoft contract with big five auto
    finance company;
    
--  NetSol completes acquisition of CQ Systems;
    
--  CQ Systems adds 55 new lease and finance customers to NetSol's
    portfolio;
    
--  CQ Systems reports revenues of $5.2 million and net income of
    $730,000;
    
--  E-Commerce Times News Network adopts NetSol as a case study entitled
    "Choosing a Software Business Model," discussing how business models such
    as NetSol's position companies for long term success;
    
--  NetSol's wholly owned subsidiary, CQ Systems, completes $650,000
    software implementation; and,
    
--  NetSol appoints leasing industry leader to its board of directors.
    
Guidance Fiscal Year End June 30, 2005
--  Revenues to exceed $11.0 million; previous guidance $10.0 million in
    revenues;
    
--  EPS to exceed $0.05;
    
--  More focus in Europe and penetration in Asia Pacific region.
    
Outlook For Fiscal Year 2005/06
--  Launching major initiative in China to target leasing and finance
    companies;
    
--  Revive US sales with new acquisition targets;
    
--  Begin Phase two of the IT Village expansion, with another 500 seat
    facility to accommodate sales backlog;
    
--  Projecting 600-plus headcount in Lahore;
    
--  New initiative in high end business process outsourcing (BPO) product
    for specific business verticals;
    
--  Expansion of CQ Systems into Central/Eastern Europe;
    
--  CMMi Level 5 certification.
    
About NetSol Technologies, Inc.

NetSol Technologies is a leading end-to-end solution provider for the lease and finance industry. Headquartered in Calabasas, CA, NetSol Technologies, Inc. operates on a global basis with locations in the U.S., Europe, East Asia and Asia Pacific. NetSol helps its clients identify, evaluate and implement technology solutions to meet their most critical business challenges and maximize their bottom line. By utilizing its worldwide resources, NetSol delivers high-quality, cost-effective IT services ranging from consulting and application development to systems integration and outsourcing. NetSol's commitment to quality is demonstrated by its achievement of both ISO 9001 and SEI (Software Engineering Institute) CMM (Capability Maturity Model) Level 4 assessment. For more information, visit NetSol Technologies' web site at www.netsoltek.com.

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.

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


                                   For the                  For the
                                 Three Months             Nine Months
                                Ended March 31,         Ended March 31,
                               2005        2004        2005        2004
                            ----------  ----------  ---------- -----------
                                        (restated)              (restated)

Net revenues                $3,190,918  $1,700,774  $7,972,450 $ 3,881,731
Cost of revenues             1,323,237     694,823   2,903,857   1,645,536
                            ----------  ----------  ---------- -----------
Gross profit                 1,867,681   1,005,951   5,068,593   2,236,195

Operating expenses:
  Selling and marketing        219,399      49,690     474,099      96,377
  Depreciation and
   amortization                403,628     294,486   1,026,769     903,182
  Settlement costs                   -      22,500      43,200     122,500
  Bad debt expense                   -      59,821           -     153,327
  Salaries and wages           453,226     408,840   1,248,447   1,003,289
  Professional services,
   including non-cash
   compensation                112,830      70,701     368,135     310,403
  General and administrative   462,421     490,936   1,032,687   1,239,420
                            ----------  ----------  ---------- -----------
    Total operating
     expenses                1,651,504   1,396,974   4,193,337   3,828,498
                            ----------  ----------  ---------- -----------
Income (loss) from
 operations                    216,177    (391,023)    875,256  (1,592,303)
Other income and (expenses)
  Gain (Loss) on sale
   of assets                         -         160        (620)    (33,759)
  Beneficial conversion
   feature                      (7,500)     (3,323)   (239,416)    (99,350)
  Fair market value of
   warrants issued                   -           -    (249,638)          -
  Gain on forgiveness
   of debt                      49,865      99,146     239,506     203,234
  Interest expense             (47,356)    (27,779)   (177,356)   (117,368)
  Other income and
   (expenses)                  (45,998)    (44,115)     (2,779)    (39,918)
                            ----------  ----------  ---------- -----------
    Total other expenses       (50,989)     24,089    (430,303)    (87,161)
Net income (loss) before
 minority interest in       ----------  ----------  ---------- -----------
 sub subsidiary                165,188    (366,934)    444,953  (1,679,464)
Minority interest in
 subsidiary                    (29,994)     71,049     (15,735)    164,387
                            ----------  ----------  ---------- -----------
Net income (loss)              135,194    (295,885)    429,218  (1,515,077)
Other comprehensive
 (loss)/gain:
    Translation adjustment     (11,252)    (53,590)   (184,661)   (160,797)
                            ----------  ----------  ---------- -----------
Comprehensive income (loss) $  123,942  $ (349,475) $  244,557 $(1,675,874)
                            ==========  ==========  ========== ===========

Net income (loss)
 per share:
    Basic                   $     0.01  $    (0.04) $     0.04 $     (0.18)
                            ==========  ==========  ========== ===========
    Diluted                 $     0.01  $    (0.04) $     0.03 $     (0.18)
                            ==========  ==========  ========== ===========

Weighted average number of
 shares outstanding
    Basic                   12,704,226   7,475,148  10,937,910   8,255,680
    Diluted                 15,642,431   7,475,148  13,750,981   8,255,680



              NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES
             CONSOLIDATED BALANCE SHEET - MARCH 31, 2005
                             (UNAUDITED)


                    ASSETS
Current assets:
  Cash and cash equivalents                    $   1,596,031
  Certificates of deposit                          1,083,450
  Accounts receivable, net of
   allowance for doubtful accounts
   of $80,000                                      3,699,180
  Revenues in excess of billings                   1,914,242
  Other current assets                             1,207,016
                                               -------------
    Total current assets                                         9,499,919
Property and equipment, net of accumulated
 depreciation                                                    4,809,751
Intangibles:
  Product licenses, renewals,
   enhancements, copyrights,
   trademarks, and tradenames, net                 4,658,299
  Customer lists, net                              1,699,752
  Goodwill                                         3,404,886
                                               -------------
    Total intangibles                                            9,762,937
                                                             -------------
    Total assets                                             $  24,072,607
                                                             =============

       LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable and accrued expenses        $   2,729,779
  Current portion of notes and
   obligations under capitalized leases            4,814,463
  Billings in excess of revenues                     218,200
  Loans payable, bank                                463,241
                                               -------------
    Total current liabilities                                    8,225,683
Obligations under capitalized leases, less
 current maturities                                                161,122
Convertible debenture                                              120,000
                                                             -------------
    Total liabilities                                            8,506,805
Minority interest                                                  379,752
Contingencies                                                            -

Stockholders' equity:
  Common stock, $.001 par value;
   25,000,000 share authorized;
   13,225,937 issued and outstanding                  13,226
  Additional paid-in-capital                      46,817,522
  Treasury stock                                     (27,197)
  Accumulated deficit                            (30,488,248)
  Stock subscription receivable                   (1,328,142)
  Common stock to be issued                          533,760
  Other comprehensive loss                          (334,871)
                                               -------------
    Total stockholders' equity                                  15,186,050
                                                             -------------
    Total liabilities and stockholders' equity               $  24,072,607
                                                             =============

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