Investors expected little from NetSol Technologies' (NASDAQ:NTWK) fiscal fourth-quarter announcement yesterday. Boy, were they in for a surprise.

NetSol's exemplary results helped the stock surge as much as 40%, to $2.37, following the earnings release. The Q4 results suggest that NetSol's business is gaining traction. Revenue leapt 84%, to $8.6 million, with license revenue up 136.9% to $2.9 million. Gross margin increased from 34% to 62% over the past year, thanks to NetSol's integration of several acquisitions and its offshoring of talent to areas like Pakistan. Its improved revenue and margins helped NetSol post a net profit of $1.3 million, or $0.07 per share, compared to a year-ago net loss of $1.7 million, or $0.11 per share.

On the conference call, NetSol CEO Najeeb Ghauri sounded fairly bullish, predicting that the company can post revenue growth of 30% to 40% for the next year. Ghauri foresees particularly strong demand in markets like China.

NetSol provides an assortment of information technology (IT) solutions and services, including software applications for lease financing, to customers including Cisco (NASDAQ:CSCO), JPMorganChase (NYSE:JPM), and DaimlerChrysler (NYSE:DAI).

Despite having large clients, NetSol remains a tiny operation, with about $29 million in annual revenue and a market capitialization just north of $45 million. As such, it can face significant risks. NetSol sells its software to customers in developing nations, and it must crank out major contract signings to keep up its growth momentum -- no easy feat. Losing even a couple of major contracts can make a huge dent in its bottom line.

Be warned, Fools, and do your proper due diligence before investing in a company of this size. The risks here can be enormous.

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Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares mentioned in this article. He is currently ranked 4,015 out of more than 65,000 total participants in CAPS. The Fool has a disclosure policy.