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 September 30, 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 11,083,039 shares of its $.001 par value Common Stock
issued and outstanding as of November 9, 2000.
Transitional Small Business Disclosure Format (check one)
Yes No X
------- -------
Page 1
NETSOL INTERNATIONAL, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as of September 30, 2000
Comparative Unaudited Consolidated Statements of
Operations for the Three Months Ended September
30, 2000 and 1999
Comparative Unaudited Consolidated Statements of
Cash Flow for the Three Months Ended September 30,
2000 and 1999
Notes to the Unaudited Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(b) Reports on Form 8-K
Page 2
NETSOL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000
ASSETS
CURRENT ASSETS:
Cash $ 3,075,337
Accounts receivable, net of allowance of
$30,000 3,776,402
Other current assets 365,416
------------
Total current assets 7,217,155
------------
PROPERTY AND EQUIPMENT, net of accumulated
depreciation and amortization of $ 463,569 3,088,563
------------
OTHER ASSETS 1,736,141
------------
INTANGIBLES:
Product licenses, renewals, enhancements, copyrights,
Trademarks and tradenames, net 4,579,555
Customer lists,net 2,457,112
Goodwill,net 6,785,866
------------
Total intangibles, net 13,822,533
------------
$ 25,864,392
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,940,102
Note payable, bank 250,000
Loan payable, stockholder 504,512
Current maturities of obligations under capital lease 73,722
------------
Total current liabilities 2.768,336
------------
DEFERRED TAX LIABILITY 2,800,000
------------
OBLIGATIONS UNDER CAPITALIZED LEASES, less current maturities 471,343
------------
8% CONVERTIBLE NOTE PAYABLE 100,000
------------
STOCKHOLDERS' EQUITY:
Common stock; $.001 par value, 25,000,000 shares authorized,
11,003,791 shares issued and outstanding 11,004
Stock subscriptions receivable (68,650)
Additional paid-in capital 27,095,513
Other comprehensive income (386,118)
Accumulated deficit (6,927,036)
------------
Total stockholders' equity 19,724,713
------------
$ 25,864,392
============
See notes to consolidated financial statements.
Page 3
NETSOL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months Three months
ended ended
September 30, September 30,
2000 1999 *
------ ------
NET REVENUES $ 2,117,906 $ 1,394,544
COST OF REVENUES 910,468 556,539
----------------- -----------------
GROSS PROFIT 1,207,438 838,005
OPERATING EXPENSES 1,958,698 1,675,214
OTHER INCOME/(EXPENSE) 43,167 -
----------------- -----------------
NET LOSS $ (708,093) $(837,209)
================= =================
NET LOSS PER SHARE -
Basic and diluted ($0.06) ($0.10)
================= =================
WEIGHTED AVERAGE SHARES OUTSTANDING -
Basic and diluted 10,971,099 8,620,936
================= =================
* Restated for business combinations accounted for under the Pooling of Interest
method
See notes to consolidated financial statements.
Page 4
NETSOL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Three months Three months
ended ended
September 30, September 30,
2000 1999 *
-------- --------
CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Net loss $ (708.093) $ (837,209)
----------- -----------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY (USED FOR) OPERATING
ACTIVITIES:
Depreciation and amortization 333,789 210,500
Non-cash compensation expense - 75,000
Bad debt expense 30,000 -
Foreign currency translation (408,965) -
CHANGES IN ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ASSETS:
Accounts receivable (1,038,366) (673,257)
Other current assets 272,837 (264,323)
Other assets (417,379) (143,357)
INCREASE (DECREASE) IN LIABILITIES -
accounts payable and accrued expenses (132,874) 1,004,646
----------- -----------
Total adjustments (1,360,958) 209,209
----------- -----------
NET CASH USED FOR OPERATING ACTIVITIES (2,069,051) (628,000)
----------- -----------
CASH FLOWS PROVIDED BY (USED FOR) INVESTING ACTIVITIES:
Proceeds from certificate of deposit 1,000,000 -
Purchase of property, plant and equipment (526,620) (157,533)
----------- -----------
NET CASH USED FOR INVESTING ACTIVITIES 473,380 (157,533)
----------- -----------
CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
Issuance of common stock and warrants, net 1,007,000 990,004
Proceeds from (payments on) notes and loans payable,net 175,000 -
Payments on loan payable, related party 504,512 (44,750)
Exercise of stock options 29,000 100,000
Payments on capital lease obligations (25,550) (4,785)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,689,962 1,040,469
----------- -----------
NET INCREASE (DECREASE) IN CASH 94,921 254,936
CASH AND EQUIVALENTS, beginning of period 2,981,046 85,585
----------- -----------
CASH AND EQUIVALENTS, end of period $ 3,075,337 $ 340,521
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 31,643 $ 4,500
=========== ===========
Income taxes paid $ - $ -
=========== ===========
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 $ - $ 75,000
----------- -----------
* Restated for business combinations accounted for under the Pooling of Interest
method
See notes to consolidated financial statements.
Page 5
NETSOL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 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 $386,111 at September 30, 2000 are classified as an item of other
comprehensive income in the stockholders' equity section of the consolidated
balance sheet.
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.
NOTE PAYABLE: Effective September 28, 2000, NetSol eR, a subsidiary of the
Company, entered into a promissory note agreement with City National Bank in the
amount of $250,000. Interest is stated at 7.40%, and all outstanding principle
balance and accrued interest payments are due on November 27, 2000. The Company
has acted as a guarantor on the note.
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 September 30, 2000 was $540,444
for products licenses, renewals, enhancements, copyrights, trademarks and
tradenames, $252,465 for customer lists and $849,425 for goodwill.
BUSINESS COMBINATIONS ACCOUNTED FOR UNDER THE POOOLING 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,
Page 6
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
Aktiengesellschaft, 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.
The Company voluntarily requested from the Office of the Chief Accountant at
the SEC to review the accounting treatment for the acquisition of NetSol UK
Ltd. and Network Solutions PVT LTD. in April 1999. Any changes to the
Company's accounting treatment that may result could have material adverse
effect on its historical financial statement.
Page 7
PART I - FINANCIAL INFORMATION
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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, including e-business solutions.
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.
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.
Page 8
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 customization. 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. The revenue for the license and the
customization flows in several phases and could take from six months to two
years before its is fully recognized as income.
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 engineers 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.
In March 2000, the Company entered into a Software Distribution Agreement with
CFS Group PLC ("CFS") whereby the Company granted CFS the exclusive right to
market and sublicense certain software products of NetSol. The term of this
agreement is for three years. This agreement provided the Company with the
opportunity to expand its marketing efforts by offering its products to
customers of CFS and others in need of lease and finance software. CFS will pay
a minimum of $1.2 million regardless of the amount of actual sales achieved. The
minimum guarantee is for each twelve-month period beginning from the time NetSol
delivers the US version of the products.
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
Page 9
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.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2000 as compared to the Three Months Ended
September 30, 1999 (restated).
Net sales of $2,117,906 for the first quarter of fiscal 2000, which ended
September 30, 2000, were more than 50% greater than the sales of the same
quarter for the previous year of $1,394,544 (restated). The significant sales
increase is attributable largely to positive upward trends in most of the
subsidiaries. Due to the maturity of the lease and finance products, The Company
is positioning itself to market these licenses to the North American and other
global markets. The Company anticipates the growth pattern seen thus far in
fiscal 2001 for NetSol PK to continue to grow steadily in the remainder of this
fiscal year due to product maturity and market demand with several existing
customers, among them CFS, Daimler-Chrysler and other leasing and finance
companies.
The gross profit was $1,207,438 in the quarter ending September 30, 2000 in
comparison with $838,005 (restated) for the same quarter the previous year. Cost
of sale for the quarter ending September 30, 2000 was $910,468 in comparison
with $556,539 (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.
Operating expenses were $1,958,698 for the quarter ending September 30, 2000.
This compares with $1,675,214 (restated) for the quarter ending September 30,
1999. The increase in the current fiscal year is attributable to the
amortization of goodwill and other intangible assets and for higher salaries and
related costs primarily due to additional staff at all levels of the Company.
Operating results for the September 30, 1999 quarter was 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 September 30, 2000 and September 30, 1999 (restated).
Net loss was $708,093 for the quarter ended September 30, 2000 as compared to
$837,209 (restated) for the quarter ended September 30, 1999. This resulted in a
net loss per share, basic and diluted, of $0.06 for the quarter ended September
30, 2000 as compared with $0.10 (restated) for the quarter ended September 30,
1999. That is a reduction of $0.04 loss per share on a quarter to quarter
comparative basis.
The Company's cash position was $3,825,337 at September 30, 2000. This is
presented on the financial statements as $3,075,337 as cash and cash
equivalents, and a total $750,000 as certificates of deposit which is included
in other assets.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company's working capital (current assets less
current
Page 10
liabilities) totaled $4.44 million, a slight decrease of $280,097 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
September 30, 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. ER, a subsidiary of the Company, entered into a promissory note agreement
in this quarter to assist in its cash flow management for working capital needs.
The Company's principle capital requirements have been to fund acquisitions,
working capital, and capital expenditures. The Company does not believe that the
nature of their software sales contracts will have a negative material impact
upon its liquidity. In the opinion of management, the Company currently has
sufficient funds and adequate financial sources available to provide it with
liquidity to meet its current foreseeable cash needs for at least the next year.
Management believes 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
finance anticipated working capital requirements and capital expenditures.
ADDITIONAL RAISE OF CAPITAL
The Company filed a Form S-3 with the Securities and Exchange
Commission on November 13, 2000 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. 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.
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
Page 11
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
We have engaged Ladenburg Thalmann & Co, Inc. as our exclusive
placement agent for this offering on a best efforts basis. Ladenburg Thalmann
has agreed with us that it will seek to identify institutional investors who may
wish to purchase our common stock or warrants from time to time on specific
terms to be negotiated between us and such institutional investors. Ladenburg
Thalmann is not committed to purchase any of our securities, regardless of
whether Ladenburg Thalmann does or does not successfully identify others to
purchase our securities. Also, Ladenburg Thalmann has advised us that they will
not purchase any of our securities for their own account or for any
discretionary accounts managed by them.
We have agreed to pay Ladenburg Thalmann a placement fee equal to 5% of
the gross proceeds to NetSol from each such sale. We have also agreed to issue
Ladenburg Thalmann common stock purchase warrants at the closing of each
placement equal to 5% of the number of shares sold in each such placement. The
exercise price of each such warrant shall be equal to the greater of (a) 120% of
the offering price of the common stock in such particular placement or (b) the
exercise price of any warrants issued to any purchaser of common stock in such
particular placement.
We have also given Ladenburg Thalmann a $25,000 non-accountable expense
allowance and a right of first refusal for a period of one year from the
conclusion of this offering to provide additional financing to us. We have also
agreed to give Ladenburg and Ladenburg has agreed to give us customary
underwriter's indemnification against liabilities under the Securities Act.
Any variance from those placement terms will be disclosed in a
prospectus supplement and filed with the SEC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is currently party to one dispute filed by its former Chief
Executive Officer, which involves litigation. The Company is currently defending
the action and believes it will win on its merit.
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.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
Exhibit 27 Financial Data Schedule
(b) REPORTS ON FORM 8-K dated July 25, 2000 and October 25, 2000.
Page 12
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.
NETSOL INTERNATIONAL, INC.
(Registrant)
Date: November 13, 2000 /s/ Najeeb U. Ghauri
-------------------------------------
NAJEEB U. GHAURI
President
/s/ Syed Husain
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SYED HUSAIN
Chief Financial Officer
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