UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended December 31, 2000
( ) For the transition period from __________ to __________
Commission file number: 333-28861
NETSOL INTERNATIONAL, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 95-4627685
(State or other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
24025 Park Sorrento, Suite 220, Calabasas, CA 91302
(Address of principal executive offices) (Zip Code)
(818) 222-9195 / (818)222-9197
(Issuer's telephone/facsimile numbers, including area code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
------- -------
The issuer had 11,316,505 shares of its $.001 par value Common Stock
issued and outstanding as of February 12, 2001.
Transitional Small Business Disclosure Format (check one)
Yes No X
------- -------
NETSOL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000
ASSETS
Current Assets:
Cash $ 1,258,744
Accounts receivable, less allowance for doubtful accounts of $420,000 3,421,205
Other current assets 360,127
----------------
Total Current Assets 5,040.076
----------------
Property and Equipment, net of accumulated
Depreciation and amortization 3,250,958
----------------
Other Assets 2,448,255
----------------
Intangibles:
Product license, renewals, enhancements and copyrights, net 4,494,223
Customer lists, net 2,411,952
Goodwill, net 6,661,288
----------------
Total Intangible Assets 13,567,463
----------------
$ 24,306,752
================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 2,257,817
Loan payable, stockholder 437,419
Current maturities of obligations under capital lease 89,335
----------------
Total Current Liabilities 2,784,571
Deferred Tax Liability 2,750,000
----------------
Obligations under capitalized leases, less current maturities 467,964
----------------
Stockholders' Equity:
Common stock; $.001 par value, 25,000,000 shares authorized,
11,051,385 shares issued and outstanding 11,051
Common stock receivable (68,650)
Additional paid-in capital 27,350,185
Other comprehensive loss (767,032)
Accumulated deficiency (8,221,337)
----------------
Total Stockholders' Equity $ 18,304,217
----------------
$ 24,306,752
================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
1
NETSOL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended December 31, 2000 & 1999 and
For the Six Months Ended December 31, 2000 & 1999
Three Months Ended Six Months Ended
December 31 December 31
-------------------------------------- -------------------------------------
2000 1999* 2000 1999*
------------------ ------------------ ----------------- ------------------
(unaudited) (unaudited) (unaudited) (unaudited)
Net revenues $ 2,140,449 $ 2,106,660 $ 4,258,355 $ 3,501,204
Cost of revenues 1,102,601 949,505 2,163,069 1,506,044
------------------ ------------------ ---------------- ------------------
Gross profit $ 1,037,848 $ 1,157,155 2,095,286 $ 1,995,160
Operating expenses:
Depreciation and amortization $ 304,575 $ 254,439 $ 638,364 $ 558,878
Professional Services 395,268 165,171 606,581 585,435
Provision for bad debts 395,402 10,500 425,402 12,750
General and administrative 1,318,757 1,546,710 2,552,353 2,494,971
------------------ ------------------ ---------------- ------------------
Total Operating Expenses $ 2,414,002 $ 1,976,820 $ 4,222,700 $ 3,652,034
Other income/(expense) $ 81,853 $ 288,029 125,020 288,029
------------------ ------------------ ---------------- ------------------
Net loss $ (1,294,301) $ (531,636) $ (2,002,394) $ (1,368,845)
================== ================== ================ ==================
Net loss per share:
Basic and diluted ($0.12) ($0.06) ($0.18) ($0.15)
Weighted average shares outstanding:
Basic and diluted 11,026,111 9,133,482 10,998,607 8,983,482
================== ================== ================ ==================
* Restated for business combinations accounted for under Pooling of Interest
method.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2
NETSOL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
For the Three Months Ended December 31, 2000 & 1999 and
For the Six Months Ended December 31, 2000 & 1999
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31 DECEMBER 31
----------------------------------- -----------------------------------
2000 1999 2000 1999
--------------- ------------- --------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (1,294,301) $ (531,636) $ (2,002,394) $ (1,368,845)
--------------- ------------- --------------- -----------------
ADJUSTMENTS TO RECONCILE INCOME
TO NET CASH PROVIDED BY OPERATIONS
Depreciation and amortization 349,850 438,936 683,639 649,436
Non-cash compensation expense 64,800 365,625 64,800 440,625
Bad debts 395,402 -0- 425,402 -0-
Foreign currency translation (380,914) -0- (789,879) -0-
(Increase) decrease in accounts receivable (40,205) (1,393,969) (1,078,571) (2,067,226)
(Increase) decrease in other current assets (78,697) (961,014) 629,105 (1,225,337)
(Increase) decrease in other assets (762,908) (165,632) (1,615,252) (308,989)
(Increase) decrease in A/P 317,715 1,766,635 184,841 2,771,281
--------------- ------------- --------------- -----------------
Net cash (used) provided by operating activities $ (1,429,258) (481,055) (3,498,309) (1,109,055)
--------------- ------------- --------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (127,395) (126,187) (654,015) (283,720)
Proceeds from certificates of deposits -0- -0- 1,000,000 -0-
--------------- ------------- --------------- -----------------
Net cash (used) provided in investing activities $ (127,395) (126,187) 345,985 (283,720)
--------------- ------------- --------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock and warrants, net 84,600 900,782 1,091,600 1,890,786
Principal payment on loan payable -0- -0- (75,000) -0-
Exercise of stock options, net 4,000 (100,000) 33,000 -0-
Proceeds from loans payable, stockholders (67,093) -0- 437,419 (44,750)
Proceeds from note payable (250,000) 102,327 -0- 102,327
Contribution of capital -0- 260,349 -0- 260,349
Principal payments on capital lease obligations (31,447) (10,415) (56,997) (15,200)
Stock subscription receivable -0- (25,000) -0- (25,000)
--------------- ------------- --------------- -----------------
Net cash (used) provided by financing activities $ (259,940) 1,128,043 1,430,022 2,168,512
--------------- ------------- --------------- -----------------
Net increase (decrease) in cash (1,816,593) 520,801 (1,722,302) 775,737
Cash and equivalents, beginning of period, restated 3,075,337 340,521 2,981,046 85,585
--------------- ------------- --------------- -----------------
Cash and equivalents, end of period $ 1,258,744 $ 861,322 $ 1,258,744 $ 861,322
=============== ============= =============== =================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENT
3
NETSOL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
Increase (Decrease) in Cash and Cash Equivalents
For the Three Months Ended December 31, 2000 & 1999 and
For the Six Months Ended December 31, 2000 & 1999
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31 DECEMBER 31
-------------------------------------- ------------------------------
2000 1999* 2000 1999*
------------------ ------------------ -------------- ---------------
Supplemental Cash Flow Information:
Cash paid during the period for interest: $ 36,945 $ 21,531 $ 68,588 $ 26,031
================== ================== ============== ===============
Cash paid during the period for income taxes: $ -0- $ -0- $ -0- $ -0-
================== ================== ============== ===============
Supplemental disclosure of non-cash investing and financing activities:
Issuance of 405,000 shares of common stock
per stock purchase agreements -- -- -- $ 1,453,698
================== ================== ============== ===============
Issuance of common stock shares
for services rendered $ 64,800 $ 365,625 $ 64,800 $ 440,625
================== ================== ============== ===============
Conversion of note payable to stock $ 100,000 -- $ 100,000 --
================== ================== ============== ===============
* Restated for business combinations accounted for under the Pooling of
Interest method.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
NETSOL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 2000 AND 1999 (UNAUDITED)
PRINCIPLES OF CONSOLIDATION: The accompanying consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries, Network
Solutions PVT, Ltd., NetSol UK, Ltd., Network Solutions Group Ltd. and
subsidiaries, NetSol Abraxas Australia Pty Ltd., NetSol Connect PVT, Ltd.,
NetSol eR, Inc., Supernet AG and NetSol USA. All material intercompany accounts
have been eliminated in consolidation.
BUSINESS ACTIVITY: The Company designs, develops, markets, and exports
proprietary software products to customers in the automobile finance and leasing
industry worldwide. The Company also provides consulting services in exchange
for fees from customers.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
BASIS OF PRESENTATION: The consolidated condensed interim financial statements
included herein have been prepared by the Company, without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading.
These statements reflect all adjustments, consisting of normal recurring
adjustments which, in the opinion of management, are necessary for fair
presentation of the information contained therein. It is suggested that these
consolidated condensed financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's annual report
on Form 10-KSB for the year ended June 30, 2000. The Company follows the same
accounting policies in preparation of interim reports.
Results of operations for the interim periods are not indicative of annual
results.
FOREIGN CURRENCY: The accounts of Network Solutions Group Ltd. and Subsidiaries
and NetSol UK, Limited use the British Pounds, Network Solutions PK, Ltd. and
NetSol Connect PVT, Ltd. use Pakistan Rupees, Netsol Abraxas Australia Pty, Ltd.
uses the Australian dollar, Supernet AG uses the German Mark, Netsol
International, Inc. and subsidiaries NetSol USA, Inc. and NetSol eR, Inc. use
the U.S. dollars as the functional currencies. Assets and liabilities are
translated at the exchange rate on the balance sheet date, and operating results
are translated at the average exchange rate throughout the period. Translation
losses of $767,032 at December 31, 2000 are classified as an item of other
comprehensive income in the stockholders' equity section of the consolidated
balance sheet.
5
PRIVATE PLACEMENT: The Company sold 63,666 shares of its
restricted Rule 144 common stock in the amount of $955,000 through a private
placement offering during the quarter ended September 30, 2000 pursuant to Rule
506 of Regulation D of the Securities and Exchange Act of 1933.
LOAN PAYABLE, STOCKHOLDER: A principal stockholder of the Company advanced
funds for working capital during the quarter ended September 30, 2000. The
loan is due on September 30, 2001. The loan bears no interest as the
Stockholder has waived any interest payments.
INTANGIBLES ASSETS: Accumulated depreciation at December 31, 2000 was $625,778
for products licenses, renewals, enhancements, copyrights, trademarks and
tradenames, $297,625 for customer lists and $974,002 for goodwill.
BUSINESS COMBINATIONS ACCOUNTED FOR UNDER THE POOLING OF INTEREST METHOD:
ABRAXAS AUSTRALIA PTY, LIMITED
On January 3, 2000, the Company issued 150,000 Rule 144 restricted common shares
in exchange for 100% of the outstanding capital stock of Abraxas Australia Pty,
Limited, an Australian Company. This business combination was accounted for
using the pooling of interest method of accounting under APB Opinion No. 16, and
accordingly, the accompanying financial statements have been restated to show
the results of operations as if the combination had occurred at the beginning of
all periods presented.
SUPERNET AKTIENGESELLSCHAFT
On May 2, 2000, the Company issued 425,600 Rule 144 restricted common shares in
exchange for 100% of the outstanding capital stock of SuperNet AG, a German
Company. This business combination was accounted for using the pooling of
interest method of accounting under APB Opinion No. 16, and accordingly, the
accompanying financial statements have been restated to show the results of
operations as if the combination had occurred at the beginning of all periods
presented.
OTHER EVENTS: Effective October 1, 2000, the Company entered into a rental lease
agreement to occupy office space. Pursuant to this agreement, the Company will
pay rent of approximately $12,500 per month through July 31, 2007. The Company
was required to secure an Irrevocable Stand-By Letter of Credit for the benefit
of the Landlord in the amount of $250,000, which is included in other assets on
the accompanying balance sheet. In the event the Company fails to renew the
Letter of Credit as set forth in the Letter of Credit Agreement, the Landlord
shall be entitled to draw on the Letter of Credit in full. The renewal of each
annual Letter of Credit will be reduced by $35,714 per annum.
During September 2000, the Company opened a certificate of deposit with Merrill
Lynch Bank USA in the amount of $500,000, as security for an Irrevocable Standby
Letter of Credit for the benefit of one of its customers. This letter of credit
expires by December 31, 2003 and is included in other assets on the accompanying
balance sheet.
On or about January 8, 2001, NetSol International, Inc. (the "Company")entered
into an agreement for equity financing with Knight Trading Group Inc.'s
subsidiary, Deephaven Capital Management ("Deephaven"). The initial investment
by Deephaven is
6
for two million dollars paid in two traunchs. The first traunch consists of
Deephaven purchasing 180,043 shares of common stock of the Company for one
million dollars at a price of $5.55 per share and 54,013 warrants with an
exercise price of $6.94 for a period of five years. The second traunch in the
amount of one million is to be paid to the Company by February 8, 2001. The
price per share investment shall be determined at a later time. Jesup and Lamont
Securities, an investment-banking firm based in New York, led the financing. The
Company will use the money received to accelerate growth through strengthening
and expanding its technology infrastructure and business development.
REVENUE RECOGNITION: Revenue is recognized when earned. The Company's revenue
recognition policies are in compliance with all applicable accounting
regulations, including American Institute of Certified Public Accountants
("AICPA") Statement of Position ("SOP") 97 2, Software Revenue Recognition,
as amended by SOP 98-4 and 98-9. Any revenues from software arrangements
with multiple elements are allocated to each element of the arrangement based
on the relative fair values using specific objective evidence as defined in
the SOPs. If no such objective evidence exists, revenues from the
arrangements are not recognized until the entire arrangement is completed and
accepted by the customer. Once the amount of the revenue for each element is
determined, the Company recognizes revenue as each element is completed and
accepted by the customer. For arrangements that require significant
production, modification or customization of software, the entire arrangement
is accounted for by the percentage of completion method, in conformity with
Accounting Research Bulletin ("ARB") No. 45 and SOP 81 1.
RECLASSIFICATIONS: Certain accounts balances from prior quarters have been
reclassified to conform with present quarter and year to date presentation.
7
PART I - FINANCIAL INFORMATION
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
NetSol International, Inc. ("NetSol" or the "Company") is in the
business of information technology ("I/T") services. The Company has helped
clients use I/T more efficiently in order to improve their operations and
profitability and to achieve business results. Network Solutions Pvt.
Ltd.("NetSol PK") develops the majority of the software for the Company. NetSol
PK was the first company in Pakistan to achieve the ISO 9001 accreditation. The
Company is in the process of attaining SEI CMM Level 3 accreditation. This is
one of the highest level of recognition for quality and best practices a
software house can achieve.
The Company offers a broad array of professional services to clients in the
global commercial markets and specializes in the application of advanced and
complex I/T to achieve its customers' strategic objectives. Its service
offerings include outsourcing, systems integration, and I/T and management
consulting and other professional services.
Outsourcing involves operating all or a portion of a customer's technology
infrastructure, including systems analysis, applications development, network
operations, desktop computing and data center management.
Systems integration encompasses designing, developing, implementing and
integrating complete information systems.
I/T and management consulting services include advising clients on the strategic
acquisition and utilization of I/T and on business strategy, operations, change
management and business process reengineering.
The Company also develops sophisticated software systems for the lease and
finance industry. NetSol has developed a fully integrated leasing and finance
package which is a series of five products that can be marketed in an integrated
system. These products are ePOS, PMS, SMS, CMS, and WFS. These five applications
form the full suite of asset based lending Enterprise Resource Planning
applications. These applications can run almost the entire operations of a
captive leasing company.
NetSol ePOS is a browser-based Point of Sale system that is used by the
dealership and other outlets. ePOS users create quotations and financing
applications for the customers using predefined Financial Products. The proposal
is submitted to Back Office (PMS) for approval. After analysis, the proposal is
sent back to ePOS system with a final decision.
Proposal Management System (PMS) provides Finance/Leasing Companies with the
ability to quickly assess the worthiness of an applicant applying for a loan or
a lease. The System is equipped with strong workflow management, integrated link
to Credit Rating Agencies, automated point scoring strategy for automatic
approval / rejection / referral, can be customized to link to any Point of Sale
System, ability to integrate any vehicle data provider such as Glass's Guide in
Europe and Australia.
8
The NetSol Wholesale Finance System (WFS) is developed to automate and manage
the Whole Sale Finance (Floor Plan) activities of a Finance Company. The design
of the system is based on the concept of One Loan One Asset to facilitate Asset
Tracking and Costing of an asset. The system covers from Credit Limit Request,
Payment of Loan, Billing, and Settlement, Auditing of Stocks, Dealer Information
and ultimately the pay-off functions.
Settlement Management System (SMS) verifies the signed document sent by the
dealer / broker / third party against the information stored in the Proposal
Management System database. Settlement Management System verifies all
calculations before loading the contract into the Contract Management System.
Other main features are collection of first rental, disbursement of funds to
dealers, Insurance Company and other third parties. Workflow software is part of
Settlement Management System and it enables the users of Settlement Management
System to communicate with Proposal Management workflow or within its own
workgroup.
The Contract Management System (CMS) manages lease contracts for financing of
vehicles from inception till completion. The leasing company is able to
establish, maintain and terminate such financial contracts. Contracts may
include added value services such as vehicle maintenance and/or insurance
premiums. It furthermore incorporates functional extensions such as litigation,
remarketing of vehicles, securitization of a portfolio and post dated check
management.
These are traditionally complex business applications and require a great deal
of industry experience both in the development as well as implementation stages.
NetSol, over the years, has developed core competencies in the asset based
lending software space. These are extremely sought after skills shared in a team
of approximately 30 business consultants. NetSol is able to demand a premium for
these consultants and leverages this competency when bidding for new business.
Typically, the sales cycle for these products is anywhere between six to twelve
months and NetSol derives its income both from selling the license to use the
products as well as through customization of the products. License fees can vary
between $75,000 to up to $1,000,000 per license depending upon the size of the
customer and the complexity of the customization.
MARKETING AND SELLING
The objective of the Company's marketing program is to create and sustain
preference and loyalty for NetSol as a leading e-services consulting and
software solutions provider. Marketing is performed at the corporate and
business unit levels. The corporate marketing department has overall
responsibility for communications, advertising, public relations and our website
and also engineer and oversees central marketing and communications programs for
use by each of our business units.
Our dedicated marketing personnel within the business units undertake a variety
of marketing activities, including sponsoring focused client events to
demonstrate our skills and products, sponsoring and participating in targeted
conferences and holding private briefings with individual companies. We believe
that the industry focus of our sales professionals and our business unit
marketing personnel enhances their knowledge and expertise in these industries
and will generate additional client engagements.
9
The Company generally enters into written commitment letters with clients at or
around the time it commences work on a project. These commitment letters
typically contemplate that NetSol and the client will subsequently enter into a
more detailed agreement, although the client's obligations under the commitment
letter are not conditioned upon the execution of the later agreement. These
written commitments and subsequent agreements contain varying terms and
conditions and the Company does not generally believe it is appropriate to
characterize them as consisting of backlog. In addition, because these written
commitments and agreements often provide that the arrangement can be terminated
with limited advance notice or penalty, the Company does not believe the
projects in process at any one time are a reliable indicator or measure of
expected future revenues.
NetSol provides its services primarily to clients in global commercial
industries. In the global commercial area, the Company's service offerings are
marketed to clients in a wide array of industries including schools; automotive;
chemical; tiles/ceramics; Internet marketing; software; banks and financial
services.
Geographically, NetSol continues to have operations throughout North America,
Europe and Asia Pacific region.
CHANGES IN FINANCIAL CONDITION
Net sales of $2,140,449 for the second quarter of fiscal 2001, which ended
December 31, 2000, were both comparable to the sales of the same quarter for the
previous year of $2,106,660 (restated due to pooling of interest accounting)and
for sales in the preceeding quarter of $2,117,906. Due to the maturity of the
lease and finance products, The Company is further positioning itself to market
these licenses to the North American and other global markets through NetSol
Professional Services. The Company anticipates that solid growth will occur in
the remainder of fiscal 2001 due to product maturity and market demand with
several existing customers, among them IDS Group, Inc., Daimler-Chrysler and
other leasing and finance companies.
The gross profit has remained strong and was $1,037,848 in the quarter ending
December 31, 2000 in comparison with $1,157,155 (restated) for the same quarter
the previous year. Cost of revenues for the quarter ending December 31, 2000 was
$1,102,601, in comparison with $949,505 (restated)for the same quarter in the
previous year. The Company is continuing to negotiate better pricing on its new
agreements which provides for higher margins. The decrease in the margins is
attributable to an increase of direct labor costs amongst certain subsidiaries.
Operating expenses were $2,414,002 for the quarter ending December 31, 2000.
This compares with $1,976,820(restated) for the quarter ending December 31,
1999. The increase in the current fiscal year is attributable to the
amortization of goodwill and other intangible assets,for an increase in
professional fees surrounding regulatory compliance matters and for a bad debt
provision. The Company's customer base has been negatively impacted from the
overall economic downturn which has resulted in making certain provisions for
potential uncollectable accounts. Operating results for the December 31, 1999
quarter were impacted as the Company applied pooling of interest accounting
rules to two of its four acquisitions - Abraxas in Australia and SuperNet AG of
Germany. Its consolidated statement of operations includes the operations of
both Abraxas and SuperNet AG for quarters ended December 31, 2000 and December
31, 1999 (restated).
10
Net loss was $1,294,301 for the quarter ended December 31, 2000 as compared to
$531,636 (restated) for the quarter ended December 31, 1999. This resulted in a
net loss per share, basic and diluted, of $0.12 for the quarter ended December
31, 2000 as compared with $0.06 (restated) for the quarter ended December 31,
1999. That is an increase of $0.06 loss per share on a quarter to quarter
comparative basis.
The Company's cash position was $2,008,744 at December 31, 2000. This is
presented on the financial statements as $1,258,744 cash and cash equivalents,
and a total $750,000 as certificates of deposit which is included in other
assets.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2000, the Company's working capital (current assets less
current liabilities) totaled $2.26 million, a decrease of $2.47 million since
June 30, 2000. The Company utilizes working capital to fund both existing
operations, for anticipated capital expenditures and further development of
new business. At December 31, 2000, the Company has not elected to set up a
revolving credit facility, but is evaluating various financing activities
which will enable the Company to execute it business plan and meet its
capital demands in the coming year. The Company's principle capital
requirements have been to fund acquisitions, working capital, and capital
expenditures. In the opinion of management, the Company believes that the
nature of their software sales contracts will have a material impact upon its
liquidity. Management does believe that its anticipated cash flows from
financing and investing activities, existing cash balances and any successful
newly sought after borrowings and private raises, will be sufficient for the
foreseeable future to manage the liquidity impact from the contracts, finance
anticipated working capital requirements and fund capital expenditures.
ADDITIONAL RAISE OF CAPITAL
The Company filed a Form S-3/A with the Securities and Exchange
Commission on February 2, 2001 to raise $30 million of its securities. These
securities may be offered and sold from time to time on behalf of NetSol in the
form of common stock and warrants to purchase common stock.
GENERAL DESCRIPTION OF SECURITIES
We may offer under our shares of common stock and warrants to purchase
common stock or any combination of the foregoing, either individually or as
units consisting of one or more securities as identified in the Form S-3/A. The
aggregate offering price of securities offered by us will not exceed
$30,000,000. Each time we offer these securities, we will provide a prospectus
supplement that will contain specific information about the terms of that
offering.
11
DESCRIPTION OF WARRANTS
We may issue warrants for the purchase of common stock. Warrants may be
issued independently or together with common stock and may be attached to or
separate from any offered securities. Each series of warrants will be issued
under a separate warrant agreement. It is anticipated that any warrants issued
pursuant to this prospectus will not be freely transferable pursuant to an
agreement between us and the holder. This summary of some provisions of the
warrants is not complete. You should refer to the warrant agreement relating to
the specific warrants being offered for the complete terms of the warrants. The
warrant agreements will be filed with the SEC in connection with the offering of
the specific warrants.
The particular terms of any issue of warrants will be described in the
prospectus supplement relating to the issue. Those terms may include:
(1) the number of shares of common stock purchasable upon the exercise
of warrants to purchase shares of common stock and the price at which such
number of shares of common stock may be purchased upon such exercise;
(2) the date on which the right to exercise the warrants will commence
and the date on which the right will expire;
(3) United States Federal income tax consequences applicable to the
warrants; and
(4) any other terms of the warrants.
Warrants for the purchase of common stock will be offered and
exercisable for U.S. dollars only. Warrants will be issued in registered form
only. Each warrant will entitle its holder to purchase the number of shares of
common stock at the exercise price set forth in, or calculable as set forth in,
the applicable prospectus supplement. The exercise price may be adjusted upon
the occurrence of certain events as set forth in the prospectus supplement.
After the close of business on the expiration date, unexercised warrants will
become void. We will specify the place or places where, and the manner in which,
warrants may be exercised in the applicable prospectus supplement.
Prior to the exercise of any warrants to purchase common stock, holders
of the warrants will not have any of the rights of holders of the common stock
purchasable upon exercise, including the right to vote or to receive any
payments of dividends on the common stock purchasable upon exercise.
PLAN OF DISTRIBUTION
The common stock or warrants offered under the S-3 Registration Statement will
be sold in any one or more of the following ways from time to time:
-Through the Company's agents,
-to or through underwriters,
-through dealers; and
-directly by the Company to purchasers.
Any variance from those placement terms will be disclosed in a prospectus
supplement and filed with the SEC.
12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is currently party to one dispute filed by a former
Officer, which involves litigation. The plaintiff filed a Complaint for
Declaratory Relief on May 9, 2000 in the Los Angeles Superior Court (Case No.
BC229642). The Plaintiff contends that, on or about May 29, 1998, he was granted
120,000 options at a $0.01 per share exercise price. The Company has responded
that options were originally granted by the Board to all board members but later
all of the directors agreed to forego such grant, and none of the directors
received such options as the Plaintiff claims were granted to him. The parties
are in the discovery stage of the proceeding. The Company denies the allegations
and is currently defending the action and believes it will win on its merits.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company did not receive any additional proceeds from its Public
Offering since its Annual Report. The Company has received $84,600 from 14,100
warrants exercised from the IPO in this quarter.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
None.
(b) REPORT ON FORM 8-K dated January 23, 2001.
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
13
NETSOL INTERNATIONAL, INC.
(Registrant)
Date: February 14, 2001 /s/ Najeeb U. Ghauri
-------------------------------------
NAJEEB U. GHAURI
CEO
/s/ Syed Husain
-------------------------------------
SYED HUSAIN
Chief Financial Officer
/s/ Rick Poole
------------------------------------
Rick Poole
Corporate Controller
14