<PAGE>
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, 1999
( ) 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)
5000 North Parkway Calabasas, Suite 202, Calabasas, CA 91302
(Address of principal executive offices) (Zip Code)
(818) 222-9195 / (818) 222-9194
(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 8,531,189 shares of its $.001 par value Common Stock
issued and outstanding as of February 2, 2000.
Transitional Small Business Disclosure Format (check one)
Yes No X
--- ---
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NETSOL INTERNATIONAL, INC.
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
Item 1. Financial Statements
<S> <C>
Consolidated Balance Sheet as of December 31, 1999 3
Comparative Unaudited Consolidated Statements of
Operations for the six Months Ended December 31
1999 and 1998 4
Consolidated Statement of Stockholders; Equity 5
Unaudited Consolidated Statements of Cash Flows for the three
and six months ended December 31, 1999 and 1998 6-8
Notes to the Unaudited Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
</TABLE>
PART II. OTHER INFORMATION
<TABLE>
<S> <C> <C>
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits 12
(b) Reports on Form 8-K 12
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1
NETSOL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999
ASSETS
<TABLE>
<CAPTION>
<S> <C>
Current Assets:
Cash $ 421,371
Accounts receivable 2,578,245
Other current assets 959,965
----------------
Total Current Assets 3,959,581
----------------
Property and Equipment, at cost,
net of accumulated depreciation 513,938
----------------
Other Assets:
Deposits 7,620
Product license, renewals, enhancements and copyrights, net 6,223,150
Customer lists, net 1,640,102
Goodwill, net 3,287,775
----------------
Total Other Assets 11,158,647
----------------
Total Assets $ 15,632,166
================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 3,307,959
Current maturities of obligations under capital lease 21,375
Loan payable 7,000
----------------
Total Current Liabilities 3,336,334
----------------
Obligations under capitalized leases, less current maturities 88,606
----------------
Total Liabilities 3,424,940
----------------
Stockholders' Equity:
Common stock; $.001 par value, 25,000,000 shares authorized,
8,726,198 shares issued and outstanding 8,726
Common stock receivable (25,000)
Additional paid-in capital 15,866,662
Accumulated deficiency (3,643,162)
----------------
Total Stockholders' Equity 12,207,226
----------------
Total Liabilities and Stockholders' Equity $ 15,632,166
================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
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NETSOL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended December 31, 1999 & 1998 and
For the Six Months Ended December 31, 1999 & 1998
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31 December 31
-------------------------------------- -------------------------------------
1999 1998 1999 1998
------------------ ------------------ ----------------- -----------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net revenues $ 1,771,809 $ 1,186,989 $ 2,990,317 $ 2,523,823
Cost of revenues 570,301 -0- 974,845 -0-
------------------ ------------------ ---------------- ------------------
Gross profit 1,201,508 1,186,989 2,015,472 2,523,823
Operating expenses 1,640,660 1,767,241 3,128,173 3,081,497
Other income/(expense) (28,356) (59,469) (28,356) (34,272)
------------------ ------------------ ---------------- ------------------
Net loss before income allocated
to minority interest (467,508) (639,721) (1,141,058) (591,946)
Minority interest in subsidiaries earnings -0- (35,296) -0- (168,146)
------------------ ------------------ ----------------- ------------------
Net loss $ (467,508) $ (675,017) $ (1,141,058) $ (760,092)
================== ================== ================= ==================
Net loss per share:
Basic ($0.05) ($0.29) ($0.14) ($0.33)
Diluted ($0.05) ($0.20) ($0.14) ($0.23)
Weighted average shares outstanding:
Basic 8,557,882 2,337,180 8,089,132 2,337,180
Diluted 8,557,882 3,357,940 8,089,132 3,357,940
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
NETSOL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON Common
-------------------------
No. of $0.001 par stock
SHARES AMOUNT RECEIVABLE
------------------------- --------------
<S> <C> <C> <C>
Balance at June 30, 1998 1,774,065 $1,774 $-0-
Common stock and warrants sold through
Initial public offering 251,000 251 --
Issuance of common stock in exchange for
Services rendered 235,000 235 --
Common stock options granted for services -- -- --
Exercise of common stock options 105,000 105 --
Sale of common stock warrants -- -- --
Exercise of warrants to convert to common stock 397,000 397 --
Issuance of common stock relating to acquisition
of subsidiaries 4,690,000 4,690 --
Net loss for the year ended June 30, 1999 -- -- --
---------------------------------------
Balance at June 30, 1999 7,452,065 7,452 -0-
---------------------------------------
Sale of common stock through private placement 609,333 609 (25,000)
Issuance of common stock in exchange for services 247,500 248 --
Exercise of warrants to convert to common stock 12,300 12 --
Issuance of common stock relating to acquisition
of subsidiaries 405,000 405 --
Net loss for the six months ended
December 31, 1999 -- -- --
---------------------------------------
Balance at December 31, 1999 8,726,198 $8,726 $(25,000)
=======================================
<CAPTION>
========================================================================================================
Additional To
paid-in Accumulated stockholders'
CAPITAL (DEFICIENCY) EQUITY/(DEFICIENCY)
------- ------------ -------------------
<S> <C> <C> <C>
Balance at June 30, 1998 $ 542,061 $ (875,370) $ (331,535)
Common stock and warrants sold through
Initial public offering 987,733 -- 987,984
Issuance of common stock in exchange for
Services rendered 710,631 -- 710,866
Common stock options granted for services 199,844 -- 199,844
Exercise of common stock options 945 -- 1,050
Sale of common stock warrants 5,667 -- 5,667
Exercise of warrants to convert to common stock 294,952 -- 295,349
Issuance of common stock relating to acquisition
of subsidiaries 9,658,810 -- 9,663,500
Net loss for the year ended June 30, 1999 -- (1,626,734) (1,626,734)
---------------------------------------------
Balance at June 30, 1999 12,400,643 (2,502,104) 9,905,991
--------------------------------------------
Sale of common stock through private placement 1,880,403 -- 1,856,013
Issuance of common stock in exchange for services 440,378 -- 440,625
Exercise of warrants to convert to common stock 73,788 -- 73,800
Issuance of common stock relating to acquisition
of subsidiaries 1,071,450 -- 1,071,855
Net loss for the six months ended
December 31, 1999 -- (1,141,058) (1,141,058)
----------------------------------------------
Balance at December 31, 1999 $15,866,662 $(3,643,162) $ 12,207,226
==============================================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
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NETSOL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
For the Three Months Ended December 31, 1999 & 1998 and
For the Six Months Ended December 31, 1999 & 1998
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31 DECEMBER 31
---------------------------------- ---------------------------------
1999 1998 1999 1998
---------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (457,639) $ (675,017) $ (1,141,058) $ (760,092)
---------------------------------------------------------------------
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization 182,783 71,175 (12,800) 79,691
Non-cash compensation expense 365,625 566,000 440,625 566,000
Minority interest income -0- 35,296 -0- 168,146
(Increase) decrease in accounts receivable (1,497,806) 127,012 (2,059,139) (222,323)
(Increase) decrease other current assets (532,588) 11,778 (792,895) (15,160)
(Increase) decrease in deposits (3,205) (687) (3,205) (687)
Increase (decrease) in accounts
payable & accrued expenses 1,321,292 (270,037) 2,308,686 (114,153)
---------------------------------------------------------------------
Total adjustments (163,899) 540,537 (118,728) 461,514
---------------------------------------------------------------------
Net cash provided by (used for) operating
activities (631,407) (134,480) (1,259,785) (298,578)
---------------------------------------------------------------------
</TABLE>
6
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<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchase) sale of investments, net -0- 35,273 -0- (161,539)
Purchase of property, plant and equipment (126,186) (58,445) (283,720) (118,752)
----------------------------------------------------------------------------
Net cash provided by (used for) investing
activities (126,186) (23,172) (283,720) (280,291)
----------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock and warrants, net 900,782 27,716 1,890,786 1,009,989
Proceeds from (payments on) notes payable 2,327 (20,000) 102,327 (228,300)
Payments on loan payable, related party -0- -0- (44,750) (100,000)
Deferred offering costs -0- -0- -0- 203,813
Payments on capital lease obligations (10,415) -0- (15,200) (2,758)
----------------------------------------------------------------------------
Net cash provided by (used for) financing
activities 892,694 7,716 1,933,163 882,744
----------------------------------------------------------------------------
Net increase (decrease) in cash 135,101 (149,936) 389,658 303,875
Cash and equivalents, beginning of period 286,270 448,293 31,713 (5,518)
----------------- ------------------ ----------------- -----------------
Cash and equivalents, end of period $ 421,371 $ 298,357 $ 421,371 $ 298,357
================= ================== ================= =================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
7
<PAGE>
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, 1999 & 1998 and
For the Six Months Ended December 31, 1999 & 1998
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31 December 31
-------------------------------------- -------------------------------------
1999 1998 1999 1998
------------------ ------------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Supplemental Cash Flow Information:
Cash paid during the period for interest: $ 21,531 $ 2,912 $ 26,031 $ 12,294
================= ================== ================ =================
Cash paid during the period for income taxes: $ -0- $ -0- $ -0- $ -0-
================= ================== ================ =================
Supplemental disclosure of non-cash investing and financing activities:
Issuance of 490,000 shares of common stock
per stock purchase agreement -- -- -- $2,523,500
=============================================================================
Issuance of 175,000 shares of common stock
per stock purchase agreement -- $566,000 -- $566,000
=============================================================================
Issuance of 405,000 shares of common stock
per stock purchase agreements -- -- $1,071,855 --
=============================================================================
Issuance of common stock shares
for services rendered $365,625 -- $440,625 --
=============================================================================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
8
<PAGE>
NETSOL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998 (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., Netsol USA, Inc., (formerly Mindsources,
Inc.) and Network Solutions Group Limited. All material inter-company accounts
have been eliminated in consolidation.
PRIVATE PLACEMENT: The Company sold 101,833 shares and warrants restricted under
Rule 144 common stock in the amount of $866,009 through a private placement
offering pursuant to Regulation D of the Securities and Exchange Act of 1933 and
convertible promissory note placement.
UNAUDITED PROFORMA CONDENSED STATEMENT OF OPERATIONS:
As reported on Form 8K, the Company acquired Abraxas Software Pty. Ltd.
(Abraxas), a Company organized under the laws of the country of Australia. The
acquisition was recorded as a purchase acquisition on January 2, 2000, whereby
the Company acquired 100% of the outstanding capital stock of Abraxas in
exchange for 150,000 shares of the Company's restricted common shares. The
audited financial statements for the acquired subsidiary will be filed within
sixty days. Accordingly, the required proforma financial information, will be
presented in the next quarter.
9
<PAGE>
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company
NetSol International, Inc. ("Company") was incorporated under the laws of the
State of Nevada on March 18, 1997. The Company's address is 5000 North Parkway
Calabasas, Suite 202, Calabasas, California 91302 and its telephone number is
(818) 222-9195.
Effective September 15, 1998, the Company acquired 51% of the outstanding
capital stock of Network PVT Solutions Limited ("NetSol PVT"), a software
development company in Lahore, Pakistan. In addition, the Company purchased 43%
of the outstanding capital stock of NetSol (UK) Limited, a corporation organized
under the laws of the United Kingdom ("NetSol UK"), which is a sister company to
NetSol PVT. The Company paid a purchase price for the increased interest in
NetSol and the interest in NetSol UK of $500,000, plus 490,000 shares of common
stock of the Company. The Company already owned 10% of the outstanding capital
stock of NetSol PVT.
On April 17, 1999, the Company entered into an agreement with NetSol PVT and
NetSol UK to acquire the remaining 49% of NetSol PVT and 57% of NetSol UK in
exchange for 4.2 million shares of restricted common stock of the Company.
NetSol PVT was incorporated in Pakistan on August 22, 1996, under the companies
ordinance of 1984, as a private company limited by shares. NetSol PVT's
principle business is the design and development on new software applications
and designs.
NetSol PVT has developed several leasing and finance products creating a
market within the finance industry. Currently, NetSol PVT has developed a
fully integrated leasing and finance package, which is a series of seven
products that can be marketed in an integrated system. Mercedes Benz Finance
- - Singapore, Mercedes Benz Leasing - Thailand, Mercedes Benz Finance Ltd. -
United Kingdom and Mercedes Benz Finance - Australia are some of NetSol PVT's
customers which account for a majority of its revenues. In addition, NetSol
provides off shore development and customized Information Technology ("IT")
solutions and has blue chip customers such as ICI of UK, Fuzzy Informatik of
Germany, and 1st Net Technologies, Inc., USA. NetSol PVT has 200 employees,
90% of which specialized in IT. NetSol PVT is the first company in Pakistan
to achieve ISO 9001 accreditation.
NetSol UK was incorporated in December 1997 under the laws of the United
Kingdom. NetSol UK was established for service and support of customers in the
European markets. In addition, NetSol UK was established to function as a
marketing arm of the Company in Europe.
RESULTS OF OPERATIONS
Three Months Ended December 31, 1999, as compared to three Months Ended December
31, 1998.
NET SALES
Net sales of $1,771,809 for the second quarter ended December 31, 1999, were
greater than the sales of the same quarter, for the previous year of $1,186,989,
by $584,820. Likewise, net sales of $2,990,317 for the six months ended December
31, 1999, were greater than net sales for same six month period of the prior
year of $2,523,823, by $466,494. The augmented sales levels are due to the
acquisitions of the subsidiaries centralized in Europe and Asia.
10
<PAGE>
COST OF SALES AND GROSS PROFIT
The gross profit was $1,201,508 in the quarter ending December 31, 1999. This
favorably compares to a gross profit level of $1,186,989 for the corresponding
quarter of the previous fiscal year. Additionally, the gross profit for the
current quarter illustrates a $387,544 increase from the quarter ended September
30, 1999. Again, this increase is substantially due to the operations of the
subsidiaries in Europe and Asia.
OPERATING EXPENSES
Operating expenses were $1,640,660 during the quarter ended December 31, 1999.
This is $126,581 less than the operating expenses for the same quarter of the
previous fiscal year ended December 31, 1998, of $1,767,241. This reduction was
due to fewer acquisition expenses during the quarter, and increased efficiencies
in operations for the Company in the U.S. and worldwide.
The overall net loss per share for the quarter ended December 31, 1999, was
$0.05. This represented an improvement of $0.15 per share from the net loss per
share on a diluted basis in the same quarter of the previous year and a $0.03
improvement from the prior quarter ended September 30, 1999.
INTEREST
Net interest expenses paid were $21,531, during the quarter ended December 31,
1999. This compares with $2,912 for the same period in the previous fiscal year
and is due to an increase in capital lease obligations entered into by the
subsidiaries in Europe and Asia.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements are for operating expenses, including
the funding of accounts receivable, labor costs, and raw material purchases. The
Company also has cash requirements for capital expenditures and for the funding
of additional business acquisitions. The Company's primary sources of cash from
operations are from the operations in the United Kingdom and Pakistan.
For the quarter ended December 31, 1999, the overall increase in cash totaled
$135,101. This increase was attributable to sales of common shares and
exercising of warrants amounting to approximately $900,000, which was in excess
of the cash used for operating and investing activities. The net cash used for
operating activities of $631,407, resulted in large part from an increase in
receivables of $1,497,806 that was driven by business growth and a lesser,
corresponding increase in accounts payable of $1,321,292. The net cash used for
investing activities of $126,186 was solely due to the purchase of property,
plant and equipment.
For comparative purposes, the quarter ended December 31, 1998, resulted in a
decrease in cash of $149,936, which was substantially due to the net cash used
by operations of $134,480.
The Company's current plans require additional capital expenditures for the
remainder of the year of approximately $800,000 to support additional
acquisitions and fund additional increases in accounts receivable of the
subsidiaries. During the quarter ended December 31, 1999, the Company had cash
of $892,694 provided by financing activities and expects similar capital
infusions in the remaining quarters of this fiscal year.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
To the best knowledge of management and the Company's counsel, there is no
material litigation pending or threatened against the Company.
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
1.(a) The Annual Meeting of the Stockholders of the Company was held
at the Los Angeles Airport Hilton and Towers at 5711 West
Century Blvd., Los Angeles, CA 90045, on Friday November 5,
1999, at 10:00 AM (PST). Refer to Item 4. on previously filed
form 10Q-SB for period ending September 30, 1999.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K filed in January of 2000, for the acquisition of
Abraxas Australia.
SIGNATURES
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: February 3, 2000 Najeeb U. Ghauri
/s/ Najeeb Ghauri
---------------------------------
NAJEEB U. GHAURI
PRESIDENT, CHIEF FINANCIAL OFFICER
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 421,371
<SECURITIES> 0
<RECEIVABLES> 2,578,245
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,959,581
<PP&E> 513,938
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,632,166
<CURRENT-LIABILITIES> 3,336,334
<BONDS> 88,606
0
0
<COMMON> 8,726
<OTHER-SE> 12,198,500
<TOTAL-LIABILITY-AND-EQUITY> 15,632,166
<SALES> 1,771,809
<TOTAL-REVENUES> 1,771,809
<CGS> 570,301
<TOTAL-COSTS> 570,301
<OTHER-EXPENSES> 1,640,660
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,531
<INCOME-PRETAX> (467,508)
<INCOME-TAX> 0
<INCOME-CONTINUING> (467,508)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (467,508)
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
