NetSol Reports First Quarter Fiscal 2007 Results; Posts Non-GAAP Net Income of $273,846; And Revenue Grew by 31 Percent to $5.9 Million

NetSol Technologies, Inc. (NASDAQ: NTWK) ("NetSol"), a U.S.-based, multinational provider of enterprise software solutions and services for commercial finance, today announced financial results for its first quarter of fiscal 2007, ended September 30, 2006.

"While the first quarter shows a profit of $273,846 on a non-GAAP basis, several non-cash items impacted our net results. Our two successful acquisitions in the U.S. and the U.K. have created a sustainable business model that represents about 47 percent of NetSol's topline growth in the most significant markets," said Najeeb U. Ghauri, Chairman and new CEO of NetSol Technologies, Inc. "Our revenue guidance for FY 2007 for $30 million is reiterated and we anticipate an update to our guidance sometime in early calendar year 2007. I remain confident that we will continue to improve our gross margins from the previous period."

Net revenues for the quarter ended September 30, 2006 were $5,862,560, compared to $4,469,985 for the quarter ended September 30, 2005. This reflects an increase of $1,392,575, or 31 percent. The increase is attributable primarily to growth in NetSol's services business in the U.S. and Asia Pacific markets and the growing outsourcing business of NetSol-TiG. "We have spent the capital necessary to grow and have restructured our business to meet that growth, and certain areas of our budget are already beginning to respond to investments made for NetSol's global expansion," commented CEO Ghauri.

Gross profit was $3,051,000 in the first quarter ended September 30, 2006, compared to $2,802,635 for the same quarter of the previous year, for an increase of $248,365, reflecting an upward trend in growth. The gross profit percentage for the quarter decreased approximately 11 percent to 54 percent, when compared to the first quarter ended September 30, 2005. The increase in cost of sales in the current quarter played a significant role in the lower gross profit percentage. The net loss on the U.S. GAAP basis is, in part, the direct result of non-cash items associated with both U.K. and U.S. acquisitions and related financing in June 2006.

"We are delighted that both the U.K. and U.S. acquisitions have fared so well and met our expectations of integration while we are expeditiously working on leveraging NetSol's Center of Excellence CMMi Level 5 capability in Lahore," said CEO Ghauri. "The U.K. and U.S. acquisitions combined accounted for over 47 percent of our total revenues in the fiscal first quarter of 2007, and that's nearly half of our revenues. This is a result of our designed growth strategy to turn NetSol into a real global IT company with a solid presence in such strategic locations as China, the U.S., the U.K. and Asia Pacific, and NetSol gaining revenues from all around the world."

Net loss for the first quarter of fiscal 2007 was $1,295,964, or a net loss per basic and diluted share of $0.08, compared to net income of $203,745, or net income per basic and diluted share of $0.01, for the quarter ended September 30, 2005. EBITDA for the current quarter posted a loss of $342,188, or a net loss of earnings per share of $0.02, with a net non-GAAP income of $273,846, or an income of $0.01 earnings on basic and diluted shares.

"The cost of revenues and operating expenses showed increases on a quarter-to-quarter comparison for the first quarter of fiscal 2007," commented CEO Ghauri. "The increase is due in part to our expansion into the U.S. market through the acquisition of McCue Systems. Salaries substantially increased with the addition of approximately 40 employees. Our marketing expenses increased as we initiated our worldwide marketing and branding campaign throughout the entire company."

Ghauri continued, "Other increases, which were mostly capitalized, were in research and development as we are working on a new generation technology platform that would eventually provide one platform to our global customers in all three regions of North America, Europe and Asia Pacific. As we continue with the integration of McCue/NetSol Technologies U.S., we expect to see a significant reduction in the cost of revenue, reduced investment in research and development, and an increase in revenue per employee," added Ghauri.

"Even though the cost of sales weakened our earnings in the first quarter and we had a non-cash paper loss due to warrants being issued, our balance sheet remained strong with a cash position of $3,822,420, compared to $1,469,154 on September 30, 2005, and our working capital was $10,459,785," commented NetSol CFO Tina Gilger.