-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LxK/jDM7LtlldUkKafF9T5ktoX0IipfB+maydrAzhb0qRxcNd5zcX9vWGSgPNlM4 p0Ag+Bftx7H64ak3JsGNrw== 0000912057-01-508905.txt : 20010417 0000912057-01-508905.hdr.sgml : 20010417 ACCESSION NUMBER: 0000912057-01-508905 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010416 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NETSOL INTERNATIONAL INC CENTRAL INDEX KEY: 0001039280 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 954627685 STATE OF INCORPORATION: NV FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10QSB/A SEC ACT: SEC FILE NUMBER: 000-22773 FILM NUMBER: 1603246 BUSINESS ADDRESS: STREET 1: 24025 PARK SORRENTO STREET 2: SUITE 222 CITY: CALABASAS STATE: CA ZIP: 91302 BUSINESS PHONE: 8182229195 MAIL ADDRESS: STREET 1: TWO VENTURE PLAZA STE 380 CITY: IRVINE STATE: CA ZIP: 92618 FORMER COMPANY: FORMER CONFORMED NAME: MIRAGE HOLDINGS INC DATE OF NAME CHANGE: 19970519 10QSB/A 1 a2045260z10qsba.txt 10QSB/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-QSB/A (Amendment No. 1) (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: 0-22773 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 11,592,997 shares of its $.001 par value Common Stock issued and outstanding as of April 10, 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 3,262,105 Costs and recognized income not yet billed 159,100 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 and costs and recognized income not yet billed (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 was 6 for two million dollars paid in two traunchs. The first traunch consists of Deephaven purchasing 186,372 shares of common stock of the Company for one million dollars at an approximate price of $5.46 per share and 55,912 warrants with an approximate exercise price of $6.83 for a period of five years. The second traunch (including true up shares and warrants) consists of Deephaven purchasing 276,498 shares of common stock of the Company for one million dollars at an approximate price of 3.58 and 92,396 warrants with an approximate exercise price of 4.47 for a period of five years. 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 preceding 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 has taken recent action to re-focus on its profitable operations and scale back on loss making operations and anticipated capital expenditures. Two of the Company's profitable operating subsidiaries, NetSol eR and NetSol USA, will continue to expand their revenue base both by means of IT outsourcing and software development projects. The Company's very recent acquisition of Intereve Corporation, based in the Silicon Valley, has a history of generating positive cash flows. The Company anticipates that its revenue base will be enhanced through the leveraging of the contracts and resources that were acquired. The majority of the contracts for eR and USA are time and materials contracts which provides ample liquidity to fund specific working capital requirements. In generating this revenue growth, the Company anticipates that capital expenditures requirements can be kept at low levels. The Company estimates that it will be able to reduce its current monthly rate of using working capital beginning in its fiscal 4th quarter and into its 1st quarter of fiscal 2002 by as much as half. The Company has recently completed a $2 million round of financing with Deephaven Private Placement Trading Ltd. ("Deephaven"), provided that until Deephaven has sold the common stock it purchased from us in such financing, the Company may be obligated to repurchase such common stock from Deephaven upon the occurrence of certain conditions as set forth in the purchase agreement with Deephaven at a purchase price equal to the greater of the closing price of the stock at the time of the occurrence of the applicable condition or the original purchase price. In addition, the Company filed a Registration Statement on Form S-3/A with the Securities and Exchange Commission on February 2, 2001 for a proposed offering of $30 million from the sale of its securities. These securities are proposed to be offered and sold from time to time on behalf of the Company in the form of common stock and warrants to purchase common stock. The Company is pursuing the establishment of a $1 million revolving credit facility with two separate financial institutions and also currently negotiating various additional forms of debt financing surrounding the completion of the Company's IT campus in Lahore. The Company also has a history of raising capital through private placements and will consider this if and when it meets the capital requirements of the Company. In the opinion of management, the Company believes that the impact from certain software sales contracts will have a material impact upon its liquidity in the short term; however, management does believe that its anticipated positive cash flows from re-focusing on its profitable operations, a reduction in the Company's projected capital expenditure requirements for the next twelve months, and the numerous financing options being pursued, cash flows will be sufficient for the foreseeable future to manage the short term liquidity impact from certain software contracts, finance anticipated working capital requirements and fund limited capital expenditures. 11 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. The Company is currently involved in proceedings with Adrian Cowler and The Surrey Design Partnership Limited, the former owners of Network Solutions Group Limited ("NSGL"). By a written agreement dated 13th August 1999 the Claimants agreed to sell the entire issued share capital of NSGL to the Company. The consideration for the sale was specified newly issued shares in the Company. It was agreed that the Company's lawyers would hold these shares in escrow for one year and within seven days of the end of the one-year period the Company would deliver shares to the Claimants' solicitors. If the Company were to make any written claim (within the one year period) then the Company's lawyers were to withhold delivery of the consideration shares pending final adjudication of the claim. On August 11, 2000 NetSol delivered a written claim to the Claimants based on misrepresentation as to the financial information provided to the Company upon the acquisition and since that date the Company's lawyers have withheld delivery of the consideration shares. The Claimants have now commenced proceedings to seek delivery of the consideration shares and/or damages. The Company has counterclaimed and alleges that it was induced to enter into the agreement by pre-contractual misrepresentations as to financial information, customer base and goodwill. The Company's primary claim is for rescission of the agreement and, in the alternative, alleges that the Claimants were in breach of a series of warranties and failed to deliver draft figures for inclusion in the Completion Accounts (i.e., financial statements). The Claimants filed its Particulars of Claim on October 2, 2000 in the High Court of Justice, Queen bench Commercial Division, Commercial Court and the Company served its Defense and Counterclaim on December 13, 2000. The parties are currently in the disclosure stage of proceedings. 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. 12 NETSOL INTERNATIONAL, INC. (Registrant) Date: April 16, 2001 /s/ Najeeb U. Ghauri ------------------------------------- NAJEEB U. GHAURI CEO /s/ Syed Husain ------------------------------------- SYED HUSAIN Chief Financial Officer 13 -----END PRIVACY-ENHANCED MESSAGE-----