Unassociated Document
UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, DC
20549
SCHEDULE 14A
(Rule 14a-101)
SCHEDULE 14A
INFORMATION
Proxy
Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment
No.)
Filed
by the Registrant þ
Filed by a Party other than the
Registrant o
Check the appropriate
box:
|
|
|
|
|
|
|
|
|
Preliminary
Proxy Statement
|
|
o
|
|
Confidential,
for Use of the Commission Only
|
þ
|
|
Definitive
Proxy Statement
|
|
|
|
(as
permitted by Rule 14a-6(e)(2))
|
o
|
|
Definitive
Additional Materials
|
|
|
|
|
o
|
|
Soliciting
Material Under Rule 14a-12
|
|
|
|
|
NetSol Technologies,
Inc.
(Name of
Registrant as Specified In Its Charter)
(Name of
Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment
of Filing Fee (Check the appropriate box):
þ
|
|
No fee required.
|
|
|
|
o
|
|
Fee computed on table below per
Exchange Act Rules 14a-6(i)(1) and 0-11.
|
|
1)
|
|
Title of each class of securities
to which transaction applies:
|
|
|
|
|
|
|
|
|
|
2)
|
|
Aggregate number of securities to
which transaction applies:
|
|
|
|
|
|
|
|
|
|
3)
|
|
Per unit price or other underlying
value of transaction computed pursuant to Exchange Act Rule 0-11 (set
forth the amount on which the filing fee is calculated and state how it
was determined):
|
|
|
|
|
|
|
|
|
|
4)
|
|
Proposed maximum aggregate value
of transaction:
|
|
|
|
|
|
|
|
|
|
5)
|
|
Total fee
paid:
|
o
|
|
Fee paid previously with
preliminary materials:
|
|
|
|
o
|
|
Check box if any part of the fee
is offset as provided by Exchange Act Rule 0-11(a)(2) and identify
the filing for which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the form or schedule
and the date of its filing.
|
|
1)
|
|
Amount previously
paid:
|
|
|
|
|
|
|
|
|
|
2)
|
|
Form, Schedule or Registration
Statement No.:
|
|
|
|
|
|
|
|
|
|
3)
|
|
Filing
Party:
|
|
|
|
|
|
|
|
|
|
4)
|
|
Date
Filed:
|
|
|
|
|
|
|
|
|
NOTICE OF
ANNUAL MEETING
And
PROXY
STATEMENT
Annual
Meeting of Stockholders
NetSol
Technologies, Inc.
23901
Calabasas Road, Suite 2072
Calabasas,
CA 91302
April 24,
2009
NetSol
Technologies, Inc.
23901
Calabasas Road, Suite 2072
Calabasas,
CA 91302
Phone:
(818) 222-9195
Fax:
(818) 222-9197
www.netsoltech.com
March 31,
2009
Dear
fellow NetSol shareholders:
I
cordially invite you to the NetSol Technologies, Inc. Annual Meeting, scheduled
for April 24, 2009, at our NetSol offices in Calabasas, California. At this
meeting, we will review the Company’s financial performance for fiscal year
2008, NetSol’s strategy and goals for fiscal year 2009, as well as, respond to
questions. Enclosed with this proxy statement are a proxy card, voting
instructions, and NetSol Technologies, Inc. fiscal year 2008 Form 10-KSB/A for
the year ended June 30, 2008.
Fiscal 2008 - The Year in
Review
In fiscal
2008, NetSol Technologies delivered an outstanding performance both financially
and from an operating perspective. For the full fiscal year, NetSol delivered
record revenue, operating income, GAAP (Generally Accepted Accounting
Principles) net income and EBITDA, as we met, or exceeded, our stated guidance
ranges. Our 25 percent year-over-year revenue growth was driven by double-digit
growth in license, service and maintenance revenues.
Operationally,
one of the most important strategic milestones in fiscal 2008 was the launch and
rollout of NetSol’s BestShoring™ and Global Business Services strategy,
representing an evolution of NetSol’s core business offerings that are being
leveraged across our range of international client delivery centers and our CMMi
Level 5 Center of Excellence. The BestShoring™ business model and Global
Business Services Platform reflect our continued focus on meeting our
international client’s needs for local market, information technology (IT)
services, and software expertise, matched with high quality, low cost, offshore
delivery capabilities. The BestShoring™ and Global Business Service strategies
form a key foundation for fiscal 2009 as we look to meet the increasingly
dynamic needs of NetSol clients and expand the breadth of our international
client base. Strategically, to create brand recognition in the most robust and
emerging economies of the UAE, we expanded our global capital markets presence
by becoming the first U.S. company ever to dual list its common shares for
trading on the NASDAQ Dubai exchange, opening new opportunities to attract
customers and shareholders in this dynamic and growing region. We are very
pleased with this initiative; as the response has been quite encouraging, and we
anticipate new business opportunities in the region.
Additionally,
as part of NetSol’s long-term growth strategy, we further diversified our IT
services market capabilities by establishing, or expanding, our presence in
verticals such as healthcare, e-government, defense, as well as adding global
financial accountancy, audit and BPO services verticals. The NetSol Financial
Suite (NFS) of products in fiscal 2009 also supports more integrated and
comprehensive functionality, aimed at the captive finance, leasing, loan, and
asset management markets including addressing attractive new areas such as
alternative and renewable energy-based equipment and products. In the new fiscal
year, NetSol launched a vibrant and global SAP Consulting Practice, providing
the company entrée into one of the largest markets for IT solutions and services
within the industry. These efforts are important for expanding the scope of
NetSol’s core presence into new, high growth areas, while remaining true to our
core strengths as a provider of global software applications and outsourced IT
services.
Leadership in Uncertain
Times
As the
first half of our fiscal year 2009 emerged, broad weakness in the global
macroeconomic environment was materially evident across geographic boundaries as
well as industry sectors, with the international financial markets, credit
markets, and auto manufacturing all experiencing significant
contractions. As a result, NetSol’s fiscal first half 2009 top and
bottom line financial results reflect the challenges seen in these markets as
customers lengthened purchasing decision cycles and deferred planned IT
investments. In light of this ongoing weakness in the global economy, NetSol
management team outlined a range of strategic and financial initiatives aimed at
helping NetSol navigate its way through the current economic
downturn.
Financially,
NetSol has established a comprehensive cost reduction program that includes
salary freezes as well as cuts, reductions in workforce, the closing of select
overseas satellite offices, a freeze in capital expenditures for the remainder
of fiscal 2009. The Company will take steps to consolidate our
California offices into our new U.S. global headquarters. The company is
repositioning its best human resources internally to manage its corporate sales,
compliance and delivery to our customers worldwide. Effective April
1, 2009, Mr. Boo Ali, NetSol Technologies Asia Pacific Region Senior Vice
President and Chief Financial Officer has been promoted to the role of NetSol
Technologies, Inc. group wide Chief Financial Officer, succeeding Mr. Dan Lee.
Mr. Ali has been with NetSol Technologies, Ltd. since 2004 as its Chief
Financial Officer. With more than twelve years of financial accounting
experience, he is a chartered accountant.
This
comprehensive cost reduction program is expected to yield annualized cost
savings of approximately $4.0 million, with the full quarterly impact of the
program expected to be reflected beginning in the fiscal quarter ending June 30,
2009. Strategically, we continue to see solid interest in our CMMi Level 5 based
IT solutions and services, particularly among multinational
customers. To that end, we are exploring the benefits of new joint
ventures, as well as partnerships, in order to better leverage our Center of
Excellence and deep pool of highly qualified IT engineers based around the
world. Overall, our primary financial goal is to return the Company to
profitability, while positioning NetSol to leverage our high-quality, cost
effective solutions to help our customers achieve their IT services and
enterprise software development objectives.
Bonuses
To
reaffirm our commitment, and belief in the long-term opportunities that we see
ahead for NetSol, the senior management team and I returned the earned fiscal
year 2008 performance based cash bonuses awarded to us, and directed those
funds, totaling approximately $0.4 million, back to the Company as an
appropriate reflection of our dedication to building true long-term shareholder
value as well as our confidence in the future.
Successfully Navigating the Road
Ahead
In
conclusion, fiscal 2008 was a solid year for NetSol from a financial and
strategic positioning perspective as we delivered on our stated objectives. As
we move through a challenging fiscal 2009, and address the truly historic and
difficult global economic conditions before us, we are focused on fiscal
responsibility as we evaluate on an ongoing basis our operating cost structure
and resources in order to properly align the business. Looking ahead,
I believe we are taking the actions necessary to adapt to the changing
environment, establishing the right foundation of growth drivers, managing our
cost structure, and most importantly continuing to deliver to our customers,
high quality software and services. These factors provide the
framework to help ensure NetSol exits the current economic downturn in a
position of strength to achieve long-term growth and profitability.
My
personal thanks go out to each of our global NetSol team members for their hard
work and dedication which made our fiscal year 2008 achievements possible. I
would also like to thank you for your support and encourage you to vote your
proxy as well as attend the Annual Meeting on April 24, 2009 at our offices in
Calabasas, California.
Sincerely,
Najeeb
U. Ghauri
NetSol
Technologies, Inc.
Chairman
& Chief Executive
Officer
NOTICE OF
ANNUAL MEETING OF STOCKHOLDERS
To be
held April 24, 2009
TO THE
STOCKHOLDERS OF NETSOL TECHNOLOGIES, INC.
NOTICE IS
HEREBY GIVEN that the Annual Meeting of Stockholders, including any adjournments
or postponements thereof, of NetSol Technologies, Inc. (the "Company"), will be
held on April 24, 2009, at 10:00 a.m., local time, at the headquarters of the
Company located at 23901 Calabasas Road, Suite 2072, Calabasas, CA 91302 for the
following purposes:
1.
|
To
consider and vote on the election of directors, each to hold office for a
term of one year ending in 2010 or when their successors are
elected;
|
2.
|
To
consider and vote upon the ratification of the appointment of Kabani &
Company as the Company’s independent auditors for the fiscal year 2009;
and
|
3.
|
To
consider such other matters as may properly come before the Annual
Meeting.
|
Only
stockholders of record as shown on the books of the Company at the close of
business on March 31, 2009, the record date and time fixed by the Board of
Directors, will be entitled to vote at the meeting and any adjournment
thereof.
By order
of the Board of Directors
NetSol
Technologies, Inc.
Najeeb
Ghauri
Chief
Executive Officer
March 31,
2009
Calabasas,
California
TO ASSURE
YOUR REPRESENTATION AT THE MEETING, PLEASE SIGN, DATE AND RETURN YOUR PROXY IN
THE ENCLOSED ENVELOPE WHETHER OR NOT YOU EXPECT TO ATTEND IN PERSON.
STOCKHOLDERS WHO ATTEND THE MEETING MAY REVOKE THEIR PROXIES AND VOTE IN PERSON
IF THEY DESIRE.
NetSol
Technologies, Inc.
23901
Calabasas Road Suite
2072
Calabasas,
CA 91302
TABLE
OF CONTENTS
PROXY
STATEMENT GENERAL INFORMATION
|
|
|
8 |
|
Solicitation
of Proxies
|
|
|
8 |
|
Voting
and Revocation of Proxies
|
|
|
8 |
|
Voting
Securities
|
|
|
8 |
|
Interests
of Certain Persons in Matters to be Acted Upon
|
|
|
9 |
|
Voting
at the Meeting
|
|
|
9 |
|
Returned
Proxy Cards Which Do Not Provide Voting Instructions
|
|
|
9 |
|
Shares
Held in Street Name
|
|
|
9 |
|
Changing
Your Vote
|
|
|
9 |
|
|
|
|
|
|
CORPORATE
GOVERNANCE, BOARD OF DIRECTORS, COMMITTEES
|
|
|
10 |
|
Board
Meetings and Board Committees
|
|
|
10 |
|
Director
Independence
|
|
|
12 |
|
Certain
Relationships and Related Party Transactions
|
|
|
12 |
|
Director
Compensation
|
|
|
13 |
|
Communications
Between Shareholders and Board of Directors
|
|
|
14 |
|
Code
of Ethics
|
|
|
14 |
|
|
|
|
|
|
BENEFICIAL
OWNERSHIP OF COMMON STOCK
|
|
|
14 |
|
|
|
|
|
|
ELECTION
OF DIRECTORS
|
|
|
16 |
|
Information
Regarding Nominees
|
|
|
16 |
|
|
|
|
|
|
RATIFICATION
OF APPOINTMENT OF KABANI & COMPANY, INC. AS THE COMPANY’S INDEPENDENT
AUDITORS FOR FISCAL 2009
|
|
|
19 |
|
Audit
Fees
|
|
|
19 |
|
Audit
Related Fees
|
|
|
19 |
|
Tax
Fees
|
|
|
19 |
|
All
Other Fees
|
|
|
19 |
|
Pre-Approval
Procedures
|
|
|
19 |
|
|
|
|
|
|
COMPENSATION
DISCUSSION AND ANALYSIS
|
|
|
21 |
|
|
|
|
|
|
DEADLINE
FOR SUBMISSION OF STOCKHOLDERS PROPOSALS FOR FISCAL 2009
|
|
|
36 |
|
|
|
|
|
|
FILINGS
UNDER SECTION 16(A)
|
|
|
36 |
|
|
|
|
|
|
VOTING
PROCEDURES
|
|
|
36 |
|
|
|
|
|
|
ANNUAL
REPORT ON FORM 10-KSB
|
|
|
36 |
|
|
|
|
|
|
OTHER
MATTERS
|
|
|
36 |
|
PROXY
STATEMENT GENERAL INFORMATION
SOLICITATION
OF PROXIES
This
Proxy Statement is furnished to holders of the common stock, par value $.001 per
share, of NetSol Technologies, Inc., a Nevada corporation (the "Company"), in
connection with the solicitation by the Company's Board of Directors of proxies
for use at the Company's Annual Meeting of Stockholders (the "Annual Meeting")
to be held on April 24, 2009 at 10:00 a.m. local time at the
Company’s headquarters located at 23901 Calabasas Road Suite 2072,
Calabasas, CA 91302 and any and all adjournments thereof. The purpose of the
Annual Meeting and the matters to be acted on there are set forth in the
accompanying Notice of Annual Meeting of Stockholders. For overnight
accommodations, Hilton Garden Inn located at 24150 Park Sorrento, Calabasas, CA
91302, telephone (818) 591-2300 is within a short walking distance of the
Company’s offices.
The
Annual Meeting has been called for the purpose of the following:
1.
|
To
consider and vote on the election of directors, each to hold office for a
term of one year ending in 2010 or when their successors are
elected;
|
2.
|
To
consider and vote upon the ratification of the appointment of Kabani &
Company as the Company’s independent auditors for the fiscal year 2009;
and
|
3.
|
To
consider such other matters as may properly come before the Annual
Meeting.
|
The board
of directors solicits the accompanying proxy to those stockholders of record as
of the close of business on March 31, 2009. These materials are expected to be
first mailed to stockholders on or about April 2, 2009. The cost of making the
solicitation includes the cost of preparing and mailing the Notice of Annual
Meeting, Proxy Statement, proxy card and the payment of charges made by
brokerage houses and other custodians, nominees and fiduciaries for forwarding
documents to stockholders. In certain instances, directors and officers of the
Company may make special solicitations of proxies either in person, telephone or
by mail. Expenses incurred in connection with special solicitations are expected
to be nominal. The Company will bear all expenses incurred in connection with
the solicitation of proxies for the Annual Meeting.
VOTING
AND REVOCATION OF PROXIES
A
stockholder, giving a proxy, on the enclosed form, may revoke it at any time
prior to the actual voting at the Annual Meeting by filing written notice of the
termination of the appointment with an officer of the Company, by attending the
Annual Meeting and voting in person, or by filing a new written appointment of a
proxy with an officer of the Company. The revocation of a proxy will not affect
any vote taken prior to the revocation. Unless a proxy is revoked or
there is a direction to abstain on one or more proposals, it will be voted on
each proposal and, if a choice is made with respect to any matter to be acted
upon, in accordance with such choice. If no choice is specified, the proxies
intend to vote the shares represented thereby to approve Proposals No. 1 and 2
as set forth in the accompanying Notice of Annual Meeting of Stockholders, and
in accordance with their best judgment on any other matters that may properly
come before the Annual Meeting.
VOTING
SECURITIES
As of
March 26, 2009, there were 26,666,987 shares of common stock issued and
outstanding and 1,920 shares of Series A 7% Cumulative Convertible Preferred
Stock (the “Preferred”). Each share of common stock is entitled to
one vote. The Preferred Stock bears voting rights in an amount equal to the
conversion value of the preferred stock into common stock, without giving effect
to any anti-dilution provisions of the Preferred Stock. Conversion of
the Preferred Stock is subject to beneficial ownership cap of 9.9% of the total
number of shares of common stock of the Company then issued and
outstanding. For purpose of this Annual Meeting, each share of
Preferred Stock is entitled to the equivalent of 606.06 common stock votes,
subject to the 9.9% cap.
INTERESTS OF CERTAIN PERSONS IN MATTERS
TO BE ACTED UPON
No
director of executive officer holds a substantial interest, either directly or
indirectly, in any matter to be acted upon.
VOTING
AT THE MEETING
Only
stockholders of record at the close of business on March 31, 2009 are entitled
to notice of and to vote at the Annual Meeting or any adjournments thereof. Each
share of Common Stock is entitled to one vote on the matters to be presented at
the Annual Meeting.
A
majority of the votes entitled to be cast on matters to be considered at the
Annual Meeting, present in person or by proxy, will constitute a quorum at the
Annual Meeting. If a share is represented for any purpose at the Annual Meeting,
it is deemed to be present for all other matters. Abstentions and broker
nonvotes will be counted for purposes of determining the presence or absence of
a quorum. "Broker nonvotes" are shares held by brokers or nominees which are
present in person or represented by proxy, but which are not voted on a
particular matter because instructions have not been received from the
beneficial owner. Under applicable Nevada law, the effect of broker nonvotes on
a particular matter depends on whether the matter is one as to which the broker
or nominee has discretionary voting authority. Under applicable
Nevada law, as it applies to the proposals presented to stockholders at this
annual meeting, Broker nonvotes shall be treated as an abstention and such
Broker nonvotes shall be included in the total shares voted for the purpose of
quorum requirements and determining whether a majority of stockholders have
approved the transactions. Treatment of Broker nonvotes as
abstentions results in these votes being treated as “no” votes in so far as a
majority of all votes cast, including broker nonvotes, must be voted in favor
for a proposal to be approved. A majority of votes in favor must be
acquired in order for the proposals to be approved.
RETURNED
PROXY CARDS WHICH DO NOT PROVIDE VOTING INSTRUCTIONS
Proxies
that are signed and returned will be voted in the manner instructed by a
stockholder. If you sign and return your proxy card with no instructions, the
proxy will be voted "For" with respect to the item set forth in the
Proposal.
SHARES
HELD IN “STREET NAME”
If your
shares are held in “street name”, your broker can vote your shares only if you
provide instructions on how to vote. You should instruct your broker
to vote your shares in accordance with directions provided by your
broker.
CHANGING
YOUR VOTE
You may
revoke your proxy at any time before the proxy is voted at the Annual Meeting.
In order to do this, you must:
- send us
written notice, stating your desire to revoke your proxy,
- send us
a signed proxy that bears a later date than the one you intend to revoke,
or,
- attend
the Annual Meeting and vote in person. In this case, you must notify the
Inspector of Elections or Secretary of the Company that you intend to vote in
person.
A list of
those stockholders entitled to vote at the Annual Meeting will be available for
a period of ten days prior to the Annual Meeting for examination by any
stockholder at the Company's principal executive offices, 23901 Calabasas Road,
Suite 2072, Calabasas, CA 91302, and at the Annual Meeting.
CORPORATE
GOVERNANCE, BOARD OF DIRECTORS, COMMITTEES
BOARD MEETINGS AND BOARD
COMMITTEES
During
the fiscal year ended June 30, 2008, the Board of Directors of the Company
met or acted by written consent three times with 100% attendance by all
directors. The Company requests that all board members attend annual
meetings of the board and all board members were present at the last annual
meeting of the board.
The Board
of Directors of the Company has an Audit Committee, a Compensation Committee,
and a Nominating and Corporate Governance Committee. The charters for
the Audit, Compensation and Nominating and Corporate Governance Committees are
posted on the Company’s web site at www.netsoltech.com
(select “About Us” then “Corporate Governance” and finally, the desired
committee charter). All committee members are appointed by the Board
of Directors. The Audit Committee met four times, the Compensation
Committee met two times, and the Nominating and Corporate Governance Committee
also met twice during fiscal year 2008.
Audit
Committee. The Audit Committee is comprised of Messrs.
Burki (Chairman), Beckert, Shakow and Caton, all of whom are independent within
the meaning of NASDAQ listing standards and Rule 10A-3(b) under the Securities
Exchange Act of 1934 (“34 Act”). The Audit
Committee met four times during fiscal 2008. The Audit Committee was
established by the Board for the purpose of overseeing the Company’s accounting
and financial reporting processes and the audits of the Company’s financial
statements and reviewing the financial reports and other financial information
provided by the Company to any governmental body or the public and the Company’s
systems of internal controls regarding finance, accounting, legal compliance,
and ethics. Its primary duties and responsibilities are to: (i) serve as an
independent and objective party to monitor the Company’s financial reporting
process, audits of the Company’s financial statements, and the Company’s
internal control system and (ii) appoint from time to time, evaluate, and, when
appropriate, replace the registered public accounting firm engaged for the
purpose of preparing or issuing an audit report or performing other audit,
review, or attest services for the Company, determine the compensation of such
“outside auditors” and the other terms of their engagement, and oversee the work
of the outside auditors. The Company’s outside auditors report directly to the
Audit Committee. The Audit Committee is also charged with establishing
procedures for the receipt, retention, and treatment of complaints received by
the Company regarding accounting, internal accounting controls, or auditing
matters and the confidential, anonymous submission by employees of the Company
of concerns regarding questionable accounting or auditing matters.
The Audit
Committee has reviewed and discussed the consolidated financial statements with
management and Kabani & Company, the Company’s independent auditors.
Management is responsible for the preparation, presentation and integrity of
NetSol’s financial statements; accounting and financial reporting principles;
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rule 13a-15(e)); establishing and maintaining internal control
over financial reporting (as defined in Exchange Act Rule 13a-15(f));
evaluating the effectiveness of disclosure controls and procedures; evaluating
the effectiveness of internal control over financial reporting; and evaluating
any change in internal control over financial reporting that has materially
affected, or is reasonably likely to materially affect, internal control over
financial reporting. Kabani & Company is responsible for performing an
independent audit of the consolidated financial statements and expressing an
opinion on the conformity of those financial statements with accounting
principles generally accepted in the United States of America, as well as
expressing an opinion on (i) management’s assessment of the effectiveness
of internal control over financial reporting and (ii) the effectiveness of
internal control over financial reporting.
The Audit
Committee has discussed with Kabani & Company the matters required to be
discussed by Statement on Auditing Standards No. 61, as amended,
“Communication with Audit Committees” and PCAOB Auditing Standard No. 2,
“An Audit of Internal Control Over Financial Reporting Performed in Conjunction
with an Audit of Financial Statements.” In addition, Kabani & Company has
provided the Audit Committee with the written disclosures and the letter
required by the Independence Standards Board Standard No. 1, as amended,
“Independence Discussions with Audit Committees,” and the Audit Committee has
discussed with Kabani & Company their firm’s independence.
Based on
the discussions above, the Audit Committee did recommend that the financial
statements be included in the Company’s Annual Report on Form 10-KSB/A for
filing with the Commission.
Compensation Committee. The
Compensation Committee is comprised of Messrs. Caton (Chairman), Shakow, Beckert
and Burki all of whom are independent within the meaning of the NASDAQ listing
standards and Rule 10A-3(b) under the 34 Act. The Compensation Committee met
twice during the 2008 fiscal year. The primary function of the Compensation
Committee is to assist the Board in fulfilling its oversight responsibilities
relating to officer and director compensation. Its primary duties and
responsibilities are to: (i) oversee the development and implementation of the
compensation policies, strategies, plans, and programs for the Company’s
executive officers and outside directors; (ii) review and determine the
compensation of the executive officers of the Company; and (iii) oversee the
selection and performance of the Company’s executive officers and succession
planning for key members of the Company’s management. The Compensation
Committee’s report is included below under “Compensation Discussion and
Analysis”.
Nominating & Corporate Governance
Committee. The Nominating & Corporate Governance Committee is
comprised of Messrs. Beckert (Chairman), Burki, Caton and Shakow all of whom are
independent within the meaning of the NASDAQ listing standards and Rule 10A-3(b)
under the 34 Act. Mr. Beckert is the Chairperson for the
Committee. This Committee met twice during the 2008 fiscal year. The
primary function of the Nominating Committee is to assist the Board in
fulfilling its responsibilities with respect to Board and committee membership
and shareholder proposals. Its primary duties and responsibilities are to:
(i) establish criteria for Board and committee membership and recommend to
the Board proposed nominees for election to the Board; and (ii) make
recommendations regarding proposals and nominees for director submitted by
shareholders of the Company.
The
Nominating & Corporate Governance Committee will consider director nominees
recommended by shareholders. A shareholder who wishes to recommend a person or
persons for consideration as a Company nominee for election to the Board of
Directors must send a written notice by mail to: Corporate Secretary, NetSol
Technologies, Inc., 23901 Calabasas Road, Suite 2072, Calabasas, CA, 91302 by
fax to: 818-222-9197, that sets forth (i) the name of each person whom the
shareholder recommends be considered as a nominee; (ii) a business address and
telephone number for each nominee (an e-mail address may also be included) and
(iii) biographical information regarding such person, including the person’s
employment and other relevant experience. Shareholder considerations will only
be considered if delivered or mailed and received at the principal
executive offices of the Company not less than ninety (90) days nor more than
one hundred and twenty (120) days prior to the anniversary date of the
immediately preceding annual meeting of Stockholders; provided, however, that in
the event that the annual meeting is called for a date that is not within sixty
(60) days before or after such anniversary date, notice by the Stockholder in
order to be timely must be so received not later than the close of business on
the tenth day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure of the date of the annual meeting
was made, which ever first occurs.
The Company’s nominating committee
recommends that a nominee for a position on the Company’s Board of Directors meet the following minimum
qualifications:
● He or she must be over 21 years of
age;
● He or she must be able to read and
understand basic financial statements;
● He or she must have experience in a
position with a high degree of responsibility in a business or other
organization;
● He or she must possess integrity and
have high moral character
● He or she must be willing to apply
sound, independent business judgment; and,
● He or she must have sufficient time to
devote to the Company.
The
Company’s nominating committee evaluates a potential nominee by considering
whether the potential nominee meets the minimum qualifications described above,
as well as by considering the following factors:
● whether
the potential nominee has leadership, strategic, or policy setting experience in
a complex organization, including any scientific, governmental, educational, or
other non-profit organization;
● whether
the potential nominee has experience and expertise that is relevant to the
Company’s business, including any specialized business experience, technical
expertise, or other specialized skills, and whether the potential nominee has
knowledge regarding issues affecting the Company;
● whether
the potential nominee is highly accomplished in his or her respective
field;
● in
light of the relationship of the Company’s business to the field of technology,
whether the potential nominee has received any awards or honors in the fields of
technology or engineering and whether he or she is recognized as a leader in
that field;
● whether
the addition of the potential nominee to the Board of Directors would assist the
Board of Directors in achieving a mix of Board members that represents a
diversity of background and experience, including diversity with respect to age,
gender, national origin, race, and competencies;
● whether
the potential nominee has high ethical character and a reputation for honesty,
integrity, and sound business judgment;
● whether
the potential nominee can work collegially with others;
● whether
the potential nominee is independent, as defined by NASDAQ listing standards,
whether he or she is free of any conflict of interest or the appearance of any
conflict of interest with the best interests of the Company and its
shareholders, and whether he or she is willing and able to represent the
interests of all shareholders of the Company; and
● Any
factor which would prohibit the potential nominee to devote sufficient time to
its business.
In
addition, with respect to an incumbent director whom the nominating committee is
considering as a potential nominee for re-election, the Company’s nominating
committee reviews and considers the incumbent director’s service to the Company
during his or her term, including the number of meetings attended, level of
participation, and overall contribution to the Company. The manner in which the
nominating committee evaluates a potential nominee will not differ based on
whether the potential nominee is recommended by a shareholder or the
Company.
The
Company did not pay any fee to any third party to identify or evaluate or assist
in identifying or evaluating potential nominees for director at the 2008 Annual
Meeting of Shareholders. The Company did not receive, by January 2, 2009 (the
120th
calendar day before the first anniversary of the date of the Company’s 2007
proxy statement), any recommended nominee from a shareholder who beneficially
owns more than 5% of the Company’s stock or from a group of shareholders who
beneficially own, in the aggregate, more than 5% of the Company’s
stock.
DIRECTOR INDEPENDENCE
Our board
of directors has determined that: Eugen Beckert, Shahid Javed Burki, Mark Caton
and Alexander Shakow are independent in accordance with the Rule 4200(a)(15) of
the NASDAQ listing standards and, that Najeeb Ghauri, Naeem Ghauri and Salim
Ghauri are not independent in accordance with Rule 4200(a)(15) of the NASDAQ
listing standards due to their employment with the Company and their family
relationship.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
During
fiscal year 2008, there were no material transactions between NetSol, any
director or executive officer of the Company, or any security holder known to
hold more than five percent (5%) of our common stock (a “5%
Holder”).
DIRECTOR
COMPENSATION
Director
Compensation Table
The
following table sets forth a summary of the compensation earned by our Directors
and/or paid to certain of our Directors pursuant to the Company's compensation
policies for the fiscal year ended June 30, 2008, other than Najeeb Ghauri,
Naeem Ghauri and Salim Ghauri who are executives and directors.
NAME
|
|
FEES EARNED OR PAID IN CASH
($)
|
|
|
OPTION AWARDS ($)
(1)
|
|
|
TOTAL ($)
|
|
Eugen
Beckert
|
|
|
23,000 |
|
|
|
- |
|
|
|
23,000 |
|
Shahid Javed
Burki
|
|
|
29,000 |
|
|
|
- |
|
|
|
29,000 |
|
Mark
Caton
|
|
|
26,000 |
|
|
|
- |
|
|
|
26,000 |
|
Alexander Shakow
(2)
|
|
|
16,000 |
|
|
|
- |
|
|
|
16,000 |
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
(1) There
were no options awarded during fiscal year ended June 30, 2008
(2)
|
Mr.
Shakow joined the board upon his election by the Board of Directors on
June 4, 2007.
|
Director
Compensation Policy
Messrs. Ghauri
are not paid any fees or other compensation for services as members of our Board
of Directors.
The
non-employee members of our Board of Directors received as compensation for
services as directors as well as reimbursement for documented reasonable
expenses incurred in connection with attendance at meetings of our Board of
Directors and the committees thereof. The Company paid the following amounts to
members of the Board of Directors for the activities shown during the fiscal
year ended June 30, 2008.
BOARD
ACTIVITY
|
|
CASH
PAYMENTS
|
|
Annual Cash
Retainer
|
|
$ |
10,000 |
|
Committee
Membership
|
|
$ |
2,000 |
|
Chairperson for Audit
Committee
|
|
$ |
15,000 |
|
Chairperson for Compensation
Committee
|
|
$ |
12,000 |
|
Chairperson for Nominating and
Corporate Governance Committee
|
|
$ |
9,000 |
|
Members
of our Board of Directors are also eligible to receive stock option and stock
grants both upon joining the Board of Directors and on an annual basis in line
with recommendations by the Compensation Committee, which grants are
non-qualified stock options under our Employee Stock Option Plans or NetSol
Technologies, Inc. 2008 Statutory and Nonstatutory Stock Option Plan.
Additionally, and from time to time, the non-employee members of the Board of
Directors are eligible to receive stock grants that may be granted if and only
if approved by the shareholders of the Company.
Compensation
Committee Interlocks and Insider Participation
The
current members of the Compensation Committee are Messrs. Caton (Chairman),
Mr. Beckert, Mr. Burki and Mr. Shakow. There were no other members of
the committee during the fiscal year ended June 30, 2008. All current members of
the Compensation Committee are "independent directors" as defined under the
NASDAQ Marketplace Rules. None of these individuals were at any time during the
fiscal year ended June 30, 2008, or at any other time, an officer or employee of
the Company.
No
executive officer of the Company serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee.
COMMUNICATIONS
BETWEEN SHAREHOLDERS AND BOARD OF DIRECTORS
The Board provides a process for
shareholders to send communications to the Board or any of the Directors. Shareholders may send written
communications to the Board or any one or more of the individual Directors by mail to: NetSol Technologies, Inc., Attention
Corporate Secretary,
23901 Calabasas Road, Suite
2072, Calabasas, CA 91302, or via fax to: 818-222-9197.
Such communications will be reviewed by our Secretary, who shall remove
communications relating to solicitations, junk mail, customer service concerns
and the like. All other shareholder communications shall be promptly forwarded
to the applicable member(s) of our board of directors or to the entire board of
directors, as requested in the shareholder communication.
CODE
OF ETHICS
The
Company has adopted a Code of Ethics that applies to all of the Company’s
employees, including but not limited to the Company’s chief executive officer
and principal financial and accounting officers and controller. The Company’s
Code of Ethics is posted on the Company’s web site at www.netsoltech.com
(Select “About Us,” then “Corporate Governance”, and, then “Code of
Ethics”).
BENEFICIAL
OWNERSHIP OF COMMON STOCK
The
following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock, its only class of outstanding voting
securities as of March 26, 2009, by (i) each person who is known to the Company
to own beneficially more than 5% of the outstanding common Stock with the
address of each such person, (ii) each of the Company's present directors and
officers, and (iii) all officers and directors as a group:
|
|
|
|
|
|
Percentage
|
|
Name
and
|
|
|
Number
of
|
|
|
Beneficially
|
|
Address
|
|
|
Shares(1)(2)
|
|
|
owned(4)
|
|
|
|
|
|
|
|
|
|
Najeeb
Ghauri (3)
|
|
|
|
2,643,137 |
|
|
|
9.9 |
% |
Naeem
Ghauri (3)
|
|
|
|
3,566,968 |
|
|
|
13.4 |
% |
Salim
Ghauri (3)
|
|
|
|
3,544,132 |
|
|
|
13.2 |
% |
Eugen
Beckert (3)
|
|
|
|
258,900 |
|
|
|
* |
|
Shahid
Javed Burki (3)
|
|
|
|
194,000 |
|
|
|
* |
|
Mark
Caton (3)
|
|
|
|
6,000 |
|
|
|
* |
|
Alexander
Shakow (3)
|
|
|
|
15,273 |
|
|
|
* |
|
Patti
McGlasson (3)
|
|
|
|
135,000 |
|
|
|
* |
|
Tina
Gilger (3)
|
|
|
|
81,731 |
|
|
|
* |
|
The
Tail Wind Fund Ltd.(5)(6)
|
|
|
|
2,780,989 |
|
|
|
9.9 |
% |
Tail
Wind Advisory Fund, Ltd. (5)(6)
|
|
|
|
2,780,989 |
|
|
|
9.9 |
% |
Newland
Capital Management (7)
|
|
|
|
2,544,971 |
|
|
|
9.54 |
% |
All
officers and directors as a group (nine persons)
|
|
|
|
18,283,901 |
|
|
|
65.84 |
% |
* Less
than one percent
(1) Except
as otherwise indicated, the Company believes that the beneficial owners of the
common stock listed below, based on information furnished by such owners, have
sole investment and voting power with respect to such shares, subject to
community property laws where applicable. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and
generally includes voting or investment power with respect to
securities.
(2) Beneficial
ownership is determined in accordance with the rules of the Commission and
generally includes voting or investment power with respect to securities. Shares
of common stock relating to options currently exercisable or exercisable within
60 days of March 24, 2009 are deemed outstanding
for computing the percentage of the person holding such securities but are not
deemed outstanding for computing the percentage of any other person. Except as
indicated by footnote, and subject to community property laws where applicable,
the persons named in the table above have sole voting and investment power with
respect to all shares shown as beneficially owned by them. Includes shares
issuable upon exercise of options exercisable within 60 days, as follows: Mr.
Najeeb Ghauri, 1,591,441; Mr. Naeem Ghauri, 1,651,441; Mr. Salim Ghauri,
1,661,441; Mr. Eugen Beckert, 170,000; Mr. Shahid Burki, 44,000; Ms. Tina
Gilger, 70,000; and Ms. Patti McGlasson, 110,000.
(3) Address
c/o NetSol Technologies, Inc. at 23901 Calabasas Road, Suite 2072, Calabasas, CA
91302.
(4) Shares
issued and outstanding as of March 24, 2009 were 26,666,987.
(5) Address: The
Bank of Nova Scotia Trust Company (Bahamas) Ltd., Windermere House, 404 East Bay
Street, P.O. Box SS-5539, Nassau, Bahamas. Tail Wind Advisory &
Management Ltd., a UK corporation authorized and regulated by the Financial
Services Authority of Great Britain (“TWAM”), is the investment manager for The
Tail Wind Fund Ltd., and David Crook is the CEO and controlling shareholder of
TWAM. Each of TWAM and David Crook expressly disclaims any equitable or
beneficial ownership of the shares being referred to hereunder and held by The
Tail Wind Fund Ltd.
(6) Tail Wind Fund (TWF) may be deemed to
beneficially own a total of 7,322,727 shares of Common Stock (the “TWF Shares”),
including (i) 1,109,965 shares of Common Stock held by TWF, (ii) 1,206,896
shares of Common Stock issuable upon conversion of $1,750,000 in liquidation
preference of the issuer’s Series A 7% Cumulative Convertible Preferred Stock
(“Preferred Stock”) issued to TWF at a conversion price of $1.45, (iii) 641,025
shares of Common Stock issuable upon exercise of warrants issued to TWF on June
29, 2007, (iv) 641,025 shares of Common Stock issuable upon exercise of warrants
issued to TWF on October 29, 2007 (together with the warrants issued on June 29,
2007, the “Warrants”), and (v) 3,723,816 shares of Common Stock issuable upon
conversion of $2,904,576.59 in principal amount of the issuer’s Convertible
Notes due July 31, 2011 issued to TWF on July 23, 2008 at a conversion price of
$0.78(the “TWF Notes”).
Subject
to the Ownership Limitation, Tail Wind Advisory Management (TWAM) may be deemed
to beneficially own a total of 8,198,919 shares of Common Stock (the “TWAM
Shares”), including (i) the TWF Shares, which it may be deemed to beneficially
own in its capacity as the investment manager for TWF, and (ii) 876,192 shares
of Common Stock issuable upon conversion of $683,429.79 in principal amount of
the issuer’s Convertible Notes due July 31, 2011 issued to TWAM on July 23, 2008
at a conversion price of $0.78 (together with the TWF Notes, the
“Notes”). Therefore, in accordance with the Ownership Limitation,
based upon 28,365,174 shares of common stock outstanding which includes
1,698,187 underlying shares in a note to TWF as of March 23, 2009, each of the
Reporting Persons beneficially owns 2,808,152 shares of Common Stock, TWF
disclaims beneficial ownership of 4,514,575 and TWAM disclaims beneficial
ownership of 5,390,767 shares of Common Stock.
(7) Address: Newland
Capital Management, LLC 350 Madison Avenue, 11th Floor,
New York, NY 10017. Newland Master Fund, Ltd. c/o Newland Capital Management
LLC, 350 Madison Avenue, 11th Floor,
New York, NY 10017, Newland Offshore Fund, Ltd. c/o Newland Capital Management
LLC,350 Madison Avenue, 11th Floor,
New York, NY 10017; Ken Brodkowitz c/o Newland Capital Management, LLC, 350
Madison Avenue, 11th Floor,
New York, NY 10017; Michael Vermut c/o Newland Capital Management LLC, 350
Madison Avenue, 11th Floor,
New York, NY 10017. Newland Capital Management holds 2,544,971 shares
of common stock or 9.5%; Newland Master Fund, Ltd. holds 2,544,971 shares of
common stock or 9.5%; Newland Offshore Fund, Ltd., holds 2,020,707 shares of
common stock or 7.6%; Ken Brodkowitz holds 2,544,971 shares of common stock or
9.5%; and Michael Vermut holds 2,578,871 shares of common stock
or 9.6%.
Proposal
No. One
ELECTION
OF DIRECTORS
The
Bylaws of the Company provide that the Company is authorized to have up to seven
directors, and that stockholders will elect the directors of the Company at each
annual meeting. Directors are elected to serve a one-year term. Directors being
elected at the Annual Meeting will serve until the Company's next annual meeting
of stockholders, or until their successors have been duly elected and qualified.
The Board of Directors does not contemplate that any of the persons it will
nominate will be unable or unwilling to serve as a director. However, if that
should occur, the Board of Directors reserves the right to name a substitute
nominee at the Annual Meeting and persons named as nominees may exercise their
discretion to vote for such nominee.
The board
is currently comprised of seven members. All of the seven members are standing
for re-election.
The seven
nominees receiving the highest number of affirmative votes of the shares present
in person or represented by proxy and entitled to vote for them, a quorum being
present, shall be elected as directors. Only votes cast for a nominee will be
counted, except that the accompanying proxy will be voted for all nominees in
the absence of instruction to the contrary. Abstentions, broker non-votes and
instructions on the accompanying proxy to withhold authority to vote for one or
more nominees will result in the respective nominees receiving fewer votes.
However, the number of votes otherwise received by the nominee will not be
reduced by such action.
INFORMATION
REGARDING NOMINEES
All
nominees have consented to serve if elected, but if any becomes unable to serve,
the persons named as proxies may exercise their discretion to vote for a
substitute nominee. The stockholders have previously elected all director
candidates. The name, age, business experience and offices held by
each director nominee are as follows:
Name
and Age
|
Director
Since
|
Current Position with
the Company
|
Najeeb
U. Ghauri (53)
|
1997
|
Chairman, Chief
Executive Officer, Director
|
Naeem
Ghauri (50)
|
1999
|
President,
Director
|
Salim
Ghauri (52)
|
1999
|
President,
Director
|
Eugen Beckert (63)
|
2001
|
Director
|
Shahid Burki
(67)
|
2003
|
Director
|
Mark Caton
(59)
|
2007
|
Director
|
Alexander Shakow (71)
|
2007
|
Director
|
NAJEEB U.
GHAURI is the Chief Executive Officer and Chairman of NetSol. He has
been a Director of the Company since 1997, Chairman since 2003 and Chief
Executive Officer since October 2006. Mr. Ghauri is the founder of
NetSol Technologies, Inc. He was responsible for NetSol listing on
NASDAQ in 1999, the NetSol subsidiary listing on KSE (Karachi Stock
Exchange) in 2005, and the NetSol listing on the Dubai International Financial
Exchange (“DIFX”) in 2008. Mr. Ghauri served as the Company's Chief
Executive Officer from 1999 to 2001 and as the Chief Financial Officer from 2001
to 2005. As CEO, Mr. Ghauri is responsible for managing the
day-to-day operations of the Company, as well as the Company's overall growth
and expansion plan. Prior to joining the Company, Mr. Ghauri was
part of the marketing team of Atlantic Richfield Company (ARCO) (now acquired by
BP), a Fortune 500 company, from 1987-1997. Prior to ARCO, he spent nearly five
years with Unilever as brand and sales managers. Mr. Ghauri received his
Bachelor of Science degree in Management/Economics from Eastern Illinois
University in 1979, and his M.B.A. in Marketing Management from Claremont
Graduate School in California in 1982. Mr. Ghauri was elected
Vice Chairman of US Pakistan Business Council in 2006, a Washington D.C. based
council of US Chamber of Commerce. He is also very active in several
philanthropic activities in emerging markets and is a founding director Pakistan
Human Development Fund, a non-profit organization, a partnership with UNDP to
promote literacy, health services and poverty alleviation in
Pakistan.
SALIM
GHAURI has been with the Company since 1999 as the President and Director of the
Company. Mr. Ghauri is currently the Chairman and CEO of NetSol Technologies
Limited and President of the Asia Pacific Region and CEO of Global Services
Group. Mr. Ghauri was the founder of Network Solutions (Pvt.) Ltd. in
1995, Later NetSol Technologies (Pvt.) Limited. Built under his
leadership, NetSol gradually built a strong team of IT professionals and
infrastructure in Pakistan and became the first software house in Pakistan
certified as ISO 9001 and CMMi Level 5 assessed. Mr. Ghauri received
his Bachelor of Science degree in Computer Science from University of Punjab in
Lahore, Pakistan. Before NetSol Technologies Ltd., Mr. Ghauri was employed with
BHP in Sydney, Australia from 1987-1995, where he commenced his employment as a
consultant. Mr. Ghauri was appointed in 2007 as an Honorary
Consul for Australia-Punjab Region.
NAEEM
GHAURI has been a Director of the Company since 1999 and was the Company’s Chief
Executive Officer from August 2001 to October 2006. Mr. Ghauri serves as the
Managing Director of NetSol (UK) Ltd., a wholly owned subsidiary of the Company
located in London, England. Mr. Ghauri was responsible for the launch of NetSol
Connect in Pakistan. Prior to joining the Company, Mr. Ghauri was
Project Director for Mercedes-Benz Finance Ltd., a subsidiary of
DaimlerChrysler, Germany from 1994-1999. Mr. Ghauri supervised over 200 project
managers, developers, analysis and users in nine European Countries. Mr. Ghauri
earned his degree in Computer Science from Brighton University,
England. Mr. Ghauri serves on the board of NetSol
Technologies Europe, Ltd., a subsidiary of the Company.
EUGEN
BECKERT was appointed to the Board of Directors in August 2001 to fill a vacancy
and continues to serve on the Board. A native of Germany, Mr. Beckert received
his masters in Engineering and Economics from the University of Karlsruhe,
Germany. Mr. Beckert was with Mercedes-Benz AG/Daimler Benz AG from 1973,
working in technology and systems development. In 1992, he was appointed
director of Global IT (CIO) for Debis Financial Services, the services division
of Daimler Benz. From 1996 to 2000, he acted as director of Processes and
Systems (CIO) for Financial Services of DaimlerChrysler Asia Pacific
Services. During this period he was instrumental to having the
LEASESOFT products of NetSol developed and introduced in several countries as a
pilot customer. From 2001 to 2004, he served as Vice President in the Japanese
company of DCS. Mr. Beckert retired from DaimlerChrysler in November
2006. Mr. Beckert is chairman of the Nominating and Corporate
Governance Committee and a member of the Audit and Compensation
Committees.
SHAHID
JAVED BURKI was appointed to the Board of Directors in February
2003. He had a distinguished career with World Bank at various high
level positions from 1974 to 1999. He was a Director of Chief Policy Planning
with World Bank from 1974-1981. He was also a Director of International
Relations from 1981-1987. Mr. Burki served as Director of China Development from
1987-1994 and, Vice President of Latin America with the World Bank from
1994-1999. In between, he briefly served as the Finance Minister of Pakistan
from 1996-1997. Mr. Burki also served as the CEO of the Washington based
investment firm EMP Financial Advisors from 1992-2002. Presently, he is the
Chairman of Pak Investment & Finance Corporation. He was awarded a Rhodes
scholarship in 1962 and M.A in Economics from Oxford University in 1963. He also
earned a Master of Public Administration degree from Harvard University,
Cambridge, MA in 1968. Most recently, he attended Harvard University and
completed an Executive Development Program in 1998. During his lifetime, Mr.
Burki has authored many books and articles including: China's Commerce (Published
by Harvard in 1969) and Accelerated Growth in Latin
America (Published by World Bank in 1998). Mr. Burki is a chairman of the
Compensation Committee and a member of the Audit and Nominating and Corporate
Governance Committees.
MARK
CATON joined the board of directors of NetSol on January 1, 2007 to fill a
vacancy and was elected to the board in June 2007. Mr. Caton is currently
President of Centela Systems, Inc. a distributor of computer peripheral
solutions in the multimedia and digital electronic market segment, a position he
has held since 2003. Prior to joining Centela, Mr. Caton was President of NetSol
Technologies USA, responsible for US sales, from June 2002 to December 2003. Mr.
Caton was employed by ePlus from 1997 to 2002 as Senior Account Representative.
He was a member of the UCLA Alumni Association Board of Directors and served on
the Board of Directors of NetSol from 2002-2003. Mr. Caton is a Chairman of the
Compensation Committee and a member of the Audit and Nominating Committees. Mr.
Caton received his BA from UCLA in psychology in 1971.
ALEXANDER
SHAKOW was elected to the board on June 4, 2007. Mr. Shakow had a
distinguished career with the World Bank where he held various high level
positions from 1981-2002. Since 2002, he has been an independent
consultant for various international organizations. From 1968-1981
Mr. Shakow held many senior positions at the United States Agency for
International Development, including Assistant Administrator for Program and
Policy; Director -Office of Development Planning, Bureau for
Asia; and, Director-Indonesia, Malaysia and Singapore Affairs. Mr. Shakow
was also a staff member of the United States Peace Corps from
1963-1968, including Director for Indonesia. Mr. Shakow received his PhD
from the London School of Economics and Political Science in 1962. He
earned his undergraduate degree with honors from Swarthmore College in
1958. Mr. Shakow is listed in Who’s Who in America, Who’s Who in the World
and Who’s Who in
Finance and Business; and currently is a member of the Board of Trustees
of EnterpriseWorks/VITA. Mr. Shakow is a member of the Audit, Compensation
and Nominating and Corporate Governance Committees.
Messrs. Najeeb Ghauri, Salim Ghauri and Naeem Ghauri are brothers.
No Arrangements of
Understandings
There are no arrangements or
understandings between any nominee for director and any other person(s) pursuant
to which such nominee was or is to be selected as a director or nominee.
Vote Required
The election of each director nominee requires the affirmative vote of a majority of the votes
cast in the election of directors.
THE
BOARD RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH OF THE DIRECTOR NOMINEES
NAMED ABOVE.
Proposal No. Two
RATIFICATION OF APPOINTMENT OF
KABANI & COMPANY, INC.
AS THE COMPANY’S INDEPENDENT AUDITORS FOR FISCAL
YEAR 2009
The Audit Committee along with the Board
of Directors has appointed Kabani &
Company, Inc. (“Kabani”) as independent auditors of the Company with
respect to its operations for fiscal year 2009, and has further directed that management submit such
appointment for ratification by the holders of the Common Stock at the annual
meeting of Stockholders. In taking this action, the members of the Audit
Committee along with the Board considered carefully Kabani’s reputation in
providing accounting services to other public and private companies in the
software and retail industries, its independence with respect to the services to
be performed, its general reputation for adherence to professional auditing
standards and the performance of Kabani during the audit of the Company's
consolidated financial statements for fiscal 2002 through
current.
Stockholder ratification of the
selection of Kabani as the Company's independent auditors is not
required by the Company's Bylaws or otherwise.
The Board, however, is submitting the selection of Kabani to the stockholders
for ratification as a matter of good corporate practice. Therefore, there will
be present at the Annual Meeting a proposal for the ratification of this
appointment, which the Board of Directors believes is advisable and in the
best interests of the stockholders. If the appointment of Kabani is not
ratified, the Board of Directors will consider the matter of the
appointment of independent public accountants.
Audit
Fees
Kabani
& Co. audited the Company’s financial statements for the fiscal years ended
June 30, 2008 and June 30, 2007. The aggregate fees billed by
Kabani & Co. for the annual audit and review of financial statements
included in the Company’s Form 10-KSB or services that are normally provided by
Kabani & Company that are normally provided by the accountant in connection
with statutory and regulatory filings or engagements for the year ended June 30,
2008 was $107,500, and for the year ended June 30, 2007 was
$105,500.
Audit Related
Fees
The
aggregate fees billed by Kabani & Co. during fiscal 2008 including
assurance and related audit services not covered in the preceding paragraph was
$37,500. These “Audit Related Fees” were primarily for services in connection
with the review of quarterly financial statements.. The aggregate fees billed by
Kabani & Company during fiscal 2007 including assurance and related audit
services not covered in the preceding paragraph was $52,500. These “Audit
Related Fees” were primarily for services in connection with the review of
quarterly financial statements and the Company’s filing of a Registration
Statement and amendments thereto on Form S-3.
Tax Fees
Tax fees
for fiscal year 2008 were $4,500 and consisted of the preparation of the
Company’s federal and state tax returns for the fiscal years 2007. Tax fees for
fiscal year 2007 were $12,500 and consisted of the preparation of the Company’s
federal and state tax returns for the fiscal year 2006.
All Other
Fees
There
were no other fees billed by Kabani & Co. or services rendered to
NetSol during the fiscal years ended June 30, 2008 and 2007, other than as
described above.
Pre-Approval
Procedures
The Audit
Committee and the Board of Directors are responsible for the engagement of the
independent auditors and for approving, in advance, all auditing services and
permitted non-audit services to be provided by the independent auditors. The
Audit Committee maintains a policy for the engagement of the independent
auditors that is intended to maintain the independent auditor’s independence
from NetSol. In adopting the policy, the Audit Committee considered the various
services that the independent auditors have historically performed or may be
needed to perform in the future. The policy, which is to be reviewed and
re-adopted at least annually by the Audit Committee:
|
(i)
|
Approves
the performance by the independent auditors of certain types of service
(principally audit-related and tax), subject to restrictions in some
cases, based on the Committee’s determination that this would not be
likely to impair the independent auditors’ independence from
NetSol;
|
|
(ii)
|
Requires
that management obtain the specific prior approval of the Audit Committee
for each engagement of the independent auditors to perform other types of
permitted services; and,
|
|
(iii)
|
Prohibits
the performance by the independent auditors of certain types of services
due to the likelihood that their independence would be
impaired.
|
Any
approval required under the policy must be given by the Audit Committee, by the
Chairman of the Committee in office at the time, or by any other Committee
member to whom the Committee has delegated that authority in writing. The Audit
Committee does not delegate its responsibilities to approve services performed
by the independent auditors to any member of management.
The
standard applied by the Audit Committee in determining whether to grant approval
of an engagement of the independent auditors is whether the services to be
performed, the compensation to be paid therefore and other related factors are
consistent with the independent auditors’ independence under guidelines of the
Securities and Exchange Commission and applicable professional standards.
Relevant considerations include, but are not limited to, whether the work
product is likely to be subject to, or implicated in, audit procedures during
the audit of NetSol’s financial statements; whether the independent auditors
would be functioning in the role of management or in an advocacy role; whether
performance of the service by the independent auditors would enhance NetSol’s
ability to manage or control risk or improve audit quality; whether performance
of the service by the independent auditors would increase efficiency because of
their familiarity with NetSol’s business, personnel, culture, systems, risk
profile and other factors; and whether the amount of fees involved, or the
proportion of the total fees payable to the independent auditors in the period
that is for tax and other non-audit services, would tend to reduce the
independent auditors’ ability to exercise independent judgment in performing the
audit.
Vote Required
An affirmative vote of a majority of the votes
cast at the Annual Meeting is required for ratification of KABANI &
COMPANY, INC. as our independent accountants for the year ending June 30,
2009.
THE BOARD RECOMMENDS A VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF KABANI & COMPANY, INC. AS THE COMPANY'S
INDEPENDENT AUDITORS FOR FISCAL YEAR 2009.
This
Compensation Discussion and Analysis will describe the Compensation Committee's
compensation objectives and policies for our Named Executive Officers, including
executive pay decisions and processes and all elements of NetSol Technologies’
executive compensation program.
NetSol Technologies’ Named Executive
Officers, a group comprised of the Chief Executive Officer, the Chief Financial
Officer, and three other executive officers in 2008, are the following five individuals:
Najeeb
Ghauri
|
|
Chief Executive
Officer
|
Salim
Ghauri
|
|
President of Asia Pacific and
Middle
East
Operations
|
Naeem
Ghauri
|
|
President of European
Operations
|
Tina Gilger
|
|
Chief Financial Officer
(1)
|
Dan Lee
|
|
Chief Financial Officer
(1)
|
Boo Ali
|
|
Chief Financial Officer
(1)
|
Patti L. W.
McGlasson
|
|
Secretary and General
Counsel
|
(1)
|
Ms.
Gilger resigned as the Chief Financial Officer of the Company effect
December 15, 2008 and Mr. Dan Lee is the Company’s new Chief Financial
Officer as of the same date. Mr. Lee tendered his resignation as of March
31, 2008. As of April 1, 2009, Mr. Boo Ali will assume the
position of Chief Financial Officer of the
Company.
|
Compensation
Philosophy and Objectives
The
Compensation Committee believes that the most effective executive compensation
program is one that is designed to reward the achievement of specific annual,
long-term and strategic goals by the Company, and which aligns executives’
interests with those of the stockholders by rewarding performance at or above
established goals, with the ultimate objective of increasing stockholder value.
The philosophy of the Compensation Committee is to evaluate both performance and
compensation to ensure that we maintain our ability to attract and retain
superior employees in key positions and that compensation provided to key
employees remains competitive relative to the compensation paid to similarly
situated executives of our peer companies. To that end, the Compensation
Committee believes executive compensation packages should include both cash and
equity-based compensation that reward performance as measured against
established goals.
Setting
Executive Compensation
Management
develops our compensation plans by utilizing publicly available compensation
data in the media services and technology industries. We believe that the
practices of these groups of companies provide us with appropriate compensation
benchmarks, because these groups of companies are in similar businesses and tend
to compete with us for executives and other employees. For benchmarking
executive compensation, we typically review the compensation data we have
collected from these groups of companies, as well as a subset of the data from
those companies that have a similar number of employees as the Company. For
purposes of determining executive compensation, we have not engaged consultants
to help us analyze this data or to compare our compensation programs with the
practices of the companies represented in the compensation data we
review.
Based on
management's analyses and recommendations, the Compensation Committee has
approved a pay-for-performance compensation philosophy, which is intended to
establish base salaries and total executive compensation (taking into
consideration the executive's experience and abilities) that are competitive
with those companies with a similar number of employees represented in the
compensation data we review.
We work
within the framework of this pay-for-performance compensation philosophy to
determine each component of an executive's initial compensation package based on
numerous factors, including:
• the
individual's particular background, track record and circumstances, including
training and prior relevant work experience;
• the
individual's role with us and the compensation paid to similar persons in the
companies represented in the compensation data that we review;
• the
demand for individuals with the individual's specific expertise and
experience;
•
performance goals and other expectations for the position; and,
•
uniqueness of industry skills.
The terms
of each executive officer's compensation are derived from employment agreements
negotiated between the Company and the executive. Each executive's employment
agreement is generally negotiated to cover a one to three-year period, and
prescribes the base salary and other annual payments, if any, to the executive.
Employment agreements for all executive officers are approved by the Board of
Directors and the Compensation Committee. Employment agreements for other
executives are approved by the Company's Chief Executive Officer.
2008
Executive Compensation Components
For the
fiscal year ended June 30, 2008, the principal components of compensation that
our named executive officers were eligible to receive were:
• Base
salary;
• Long
Term Equity Incentive Compensation;
•
Performance-based incentive compensation (discretionary bonus);
and,
•
Perquisites and other personal benefits.
Base
Salary
An
executive's base salary is evaluated together with components of the executive's
other compensation to ensure that the executive's total compensation is
consistent with our overall compensation philosophy.
The base
salaries were established in arms-length negotiations between the executive and
the Company, taking into account their extensive experience, knowledge of the
industry, track record, and achievements on behalf of the Company.
Base
salaries are adjusted annually by the Compensation Committee.
Annual
Bonus
During
our fiscal year ended 2008, Mr. Najeeb Ghauri was awarded a cash bonus of
$0. Ms. Gilger was awarded a cash bonus of $15,000. Ms. McGlasson was awarded a
cash bonus of $5,000. Mr. Salim Ghauri was awarded a cash bonus of $0 and Mr.
Naeem Ghauri was awarded a cash bonus of $0.
Long-Term
Equity Incentive Compensation
We
believe that long-term performance is achieved through an ownership culture that
encourages long-term participation by our executives in equity-based awards. Our
various Employee Stock Option Plans allow us to grant stock options to
employees. We currently make initial equity awards of stock options to new
executives and certain non-executive employees in connection with their
employment with the Company. Annual grants of options, if any, are approved by
the Compensation Committee.
Equity
Incentives. Executives and certain non-executive
employees who join us may be awarded stock option grants after they join the
Company. These grants have an exercise price equal to the fair market value of
our common stock on the grant date. The stock option awards are intended to
provide the executive with incentive to build value in the organization over an
extended period of time. The size of the stock option award is also reviewed in
light of the executive's track record, base salary, other compensation and other
factors to ensure that the executive's total compensation is in line with our
overall compensation philosophy. A review of all components of
compensation is conducted when determining equity awards to ensure that total
compensation conforms to our overall philosophy and objectives.
Perquisites
and Other Personal Benefits
We
provide named executive officers with perquisites and other personal benefits
that we and the Compensation Committee believe are reasonable and consistent
with our overall compensation program to better enable the Company to attract
and retain superior employees for key positions. The Compensation Committee
periodically reviews the levels of perquisites and other personal benefits
provided to executive officers.
We
maintain benefits and perquisites that are offered to all employees, including
health insurance and dental insurance. Benefits and perquisites
may vary in different country locations and are consistent with local practices
and regulations.
Termination
Based Compensation
Upon
termination of employment, all executive officers are entitled to receive
severance payments under their employment agreements. In determining whether to
approve, and as part of the process of setting the terms of, such severance
arrangements, the Compensation Committee recognizes that executives and officers
often face challenges securing new employment following termination. Further,
the Committee recognizes that many of the named executives and officers have
participated in the Company since its founding and that this participation has
not resulted in a return on their investments. Termination and Change in Control
Payments considered both the risk and the dedication of these executives’
service to the Company.
Our Chief
Executive Officer, CEO of NetSol Technologies, Ltd. and CEO of NetSol
Technologies Europe, Ltd. have employment agreements that provide, if his
employment is terminated without cause or if the executive terminates the
agreement with Good Reason, he is entitled to (a) all remaining salary to
the end of the date of termination, plus salary from the end of the employment
term through the end of the third anniversary of the date of termination, and
(b) the continuation by the Company of medical and dental insurance
coverage for him and his family until the end of the employment term and through
the end of the third anniversary of the date of termination. Provided, however,
if such benefits cannot be continued for this extended period, the Executive
shall receive cash (including a tax-equivalency payment for Federal, state and
local income and payroll taxes assuming Executive is in the maximum tax bracket
for all such purposes) where such benefits may not be continued. These
agreements further provide for vesting of all options and restrictive stock
grants, if any.
The CFO
of the Company has an employment agreement that provides, if she is terminated
without cause or if the executive terminates the agreement with Good Reason, she
is entitled to (a) all remaining salary to the end of the date of
termination, plus salary from the end of the employment term through the end of
six months of the date of termination, and (b) the continuation by the
Company of medical and dental insurance coverage for her and her family until
the end of the employment term and through the end of six months following the
date of termination. Provided, however, if such benefits cannot be continued for
this extended period, the Executive shall receive cash (including a
tax-equivalency payment for Federal, state and local income and payroll taxes
assuming Executive is in the maximum tax bracket for all such purposes) where
such benefits may not be continued. These agreements further provide for vesting
of all options and restrictive stock grants, if any.
Mr. Dan
Lee, CFO, does not have an employment agreement with the Company
and offered his resignation to the Company effective March 31,
2009. Mr. Boo Ali will take his place as the CFO of the Company
effective April 1, 2009.
The
Secretary of the Company has an employment agreement that provides, if she is
terminated without cause or if the executive terminates the agreement with Good
Reason, she is entitled to (a) all remaining salary to the end of the date
of termination, plus salary from the end of the employment term through the end
of the first anniversary of the date of termination, and (b) the
continuation by the Company of medical and dental insurance coverage for her and
her family until the end of the employment term and through the end of the first
anniversary of the date of termination. Provided, however, if such benefits
cannot be continued for this extended period, the Executive shall receive cash
(including a tax-equivalency payment for Federal, state and local income and
payroll taxes assuming Executive is in the maximum tax bracket for all such
purposes) where such benefits may not be continued. These agreements further
provide for vesting of all options and restrictive stock grants, if
any.
Tax
and Accounting Implications
Deductibility
of Executive Compensation
As part
of its role, the Compensation Committee reviews and considers the deductibility
of executive compensation under Section 162(m) of the Internal Revenue
Code, which provides that we may not deduct compensation of more than $1,000,000
that is paid to certain individuals. We believe that compensation paid under the
management incentive plans are generally fully deductible for federal income tax
purposes.
Accounting
for Stock-Based Compensation
Beginning
on July 1, 2006, we began accounting for stock-based payments, including awards
under our Employee Stock Option Plans, in accordance with the requirements of
Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment, or
SFAS 123(R).
Summary
Compensation Table
The
following table shows the compensation for the fiscal year ended June 30, 2008
earned by our Chairman and Chief Executive Officer, our Chief Financial Officer
who is our Principal Financial and Accounting Officer, and others considered to
be executive officers of the Company.
Name
and Principle Position
|
|
Fiscal Year
Ended
|
|
Salary ($)
|
|
Bonus ($)
|
|
Stock
Awards ($)
(1)
|
|
Option
Awards ($)
|
|
All Other
Compensation
($)
|
|
Total ($)
|
|
Najeeb
Ghauri
|
|
|
2008
|
|
$
|
287,500
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
(2)
|
$
|
51,701
|
(3)
|
$
|
339,201
|
|
Chief
Executive Officer,
|
|
|
2007
|
|
$
|
275,000
|
|
$
|
50,000
|
|
$
|
-
|
|
$
|
-
|
(2)
|
$
|
46,700
|
(3)
|
$
|
371,700
|
|
Chairman
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Naeem
Ghauri
|
|
|
2008
|
|
$
|
235,183
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
(2)
|
$
|
37,906
|
(4)
|
$
|
273,089
|
|
Chief
Executive Officer,
|
|
|
2007
|
|
$
|
220,282
|
|
$
|
50,000
|
|
$
|
-
|
|
$
|
-
|
(3)
|
$
|
34,660
|
(4)
|
$
|
304,942
|
|
Global
Products Division
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salim
Ghauri
|
|
|
2008
|
|
$
|
200,000
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
(2)
|
$
|
-
|
(5)
|
$
|
200,000
|
|
Chief
Executive Officer,
|
|
|
2007
|
|
$
|
175,000
|
|
$
|
50,000
|
|
$
|
-
|
|
$
|
-
|
(2)
|
$
|
-
|
(5)
|
$
|
225,000
|
|
Global
Services Division
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tina
Gilger
|
|
|
2008
|
|
$
|
128,917
|
|
$
|
15,000
|
|
$
|
-
|
|
$
|
12,160
|
(2)
|
$
|
12,846
|
(6)
|
$
|
168,923
|
|
Chief
Financial Officer (8)
|
|
|
2007
|
|
$
|
95,000
|
|
$
|
7,004
|
|
$
|
-
|
|
$
|
-
|
(2)
|
$
|
17,587
|
(6)
|
$
|
119,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patti
L. W. McGlasson
|
|
|
2008
|
|
$
|
128,333
|
|
$
|
5,000
|
|
$
|
-
|
|
$
|
12,160
|
(2)
|
$
|
-
|
(7)
|
$
|
145,493
|
|
Secretary,
General Counsel
|
|
|
2007
|
|
$
|
110,000
|
|
$
|
6,536
|
|
$
|
-
|
|
$
|
-
|
(2)
|
$
|
-
|
(7)
|
$
|
116,536
|
|
|
(1) No
stock was awarded to any officer during the fiscal year ended June 30, 2008 and
therefore, no expense was recognized in the consolidated financial
statements.
(2) For
the fiscal year ended June 30, 2008, the following options were granted to the
named officers: 10,000 options each to Ms. Tina Gilger and Ms. Patti McGlasson,
using the Black-Scholes model these were valued at $12,160 each and an expense
was recorded for this amount in the accompanying consolidated financial
statements. No options were awarded to any officer during the fiscal year ended
June 30, 2007 and therefore, no expense was recognized in the consolidated
financial statements.
(3)
Consists of $36,000 and $29,000 paid for automobile and travel allowance and
$15,701 and $17,856 paid for medical and dental insurance premiums paid by the
Company for participation in the health insurance program for the fiscal years
ended June 30, 2008 and 2007, respectively.
(4)
Consists of $24,149 and $31,876 paid for automobile and travel allowance and
$13,757 and $2,784 paid for private medical insurance premiums paid by the
Company for the fiscal years ended June 30, 2008 and 2007,
respectively.
(5) The
amount paid to the officer was in aggregate less than $10,000 for the fiscal
years ended June 30, 2008 and 2007, respectively.
(6)
Consists of $12,846 and $17,587 paid for medical and dental insurance premiums
paid by the Company for participation in the health insurance program for the
fiscal years ended June 30, 2008 and 2007, respectively.
(7) The
amount paid to the officer was in aggregate less than $10,000 for the fiscal
years ended June 30, 2008 and 2007, respectively.
(8) Ms
Gilger resigned her position as the Chief Financial Officer as of December 15,
2008. Mr. Dan Lee, Chief Financial Officer’s compensation is as
follows: salary $200,000 and 20,000 shares of stock as sign on
bonus.
Grants
of Plan-Based Awards
The
following options were granted to the named executives during the fiscal year
ended June 30, 2008: 10,000 options each to Ms. Tina Gilger and Ms. Patti
McGlasson, using the Black-Scholes model these were valued at $12,160 each and
an expense was recorded for this amount in the accompanying 10KSB filing’s
consolidated financial statements.
Discussion
of Summary Compensation Table
The terms
of our executive officers' compensation are derived from our employment
agreements with them and the annual performance review by our Compensation
Committee. The terms of Mr. Najeeb Ghauri, Mr. Naeem Ghauri and Mr. Salim
Ghauri’s employment agreements with the Company were the result of negotiations
between the Company and the executives and were approved by our Compensation
Committee and Board of Directors. The terms of Ms. McGlasson’s employment
agreement with the Company were the result of negotiations between our Chief
Executive Officer and Ms. McGlasson and were approved by our Compensation
Committee and Board of Directors. The terms of Ms. Gilger’s employment were
the result of negotiations between our Chief Executive Officer and
Ms. Gilger and were approved by our Compensation Committee and Board of
Directors.
Employment
Agreement with Najeeb Ghauri
Effective
January 1, 2007, the Company entered into an Employment Agreement with our Chief
Executive Officer, Najeeb Ghauri (the “CEO Agreement”). The CEO Agreement was
amended effective January 1, 2008. Pursuant to the CEO Agreement, as amended,
between Mr. Ghauri and the Company (the "CEO Agreement"), the Company
agreed to employ Mr. Ghauri as its Chief Executive Officer from the date of
the CEO Agreement through December 31, 2010. The term of employment
automatically renews for 36 additional months unless notice of intent to
terminate is received by either party at least 6 months prior to the end of the
term. Under the CEO Agreement, Mr. Ghauri is entitled to an annualized base
salary of $300,000 and is eligible for annual bonuses at the discretion of the
Compensation Committee. Pursuant to the terms of the amendment, Mr. Ghauri is
entitled to the following bonuses. Only upon the achievement of the Minimum
Bonus Benchmark (as defined below), Mr. Ghauri shall be granted stock options
for 750,000 shares of the common stock of the Company (the "Options") pursuant
to an option agreement (the "Option Agreement") issued pursuant to the Company’s
2005 Employee Stock Option Plan and shall vest equally over twenty four months
beginning on the grant date and will be exercisable based on the customary
provisions of such plan. The Option Agreement will have customary provisions
relating to adjustments for stock splits and similar events. The exercise price
of the Options will be $2.62 for 250,000 shares and, $3.90 for 500,000 shares.
Further, the compensation committee authorized the following bonus structure:
the bonus structure contemplates a bonus being awarded on the basis of a
benchmark and accelerators. A bonus of One Hundred Thousand Dollars ($100,000)
is payable upon achieving the minimum bonus benchmark of: company-wide revenue
of $32,230,000 for fiscal year 2007-2008; and, earnings per share of $0.22 (the
“Minimum Bonus Benchmark”). Additional bonuses may be earned if certain
“accelerator goals” are achieved. The bonus is accelerated to 200% of the bonus
amount if revenue of $35,000,000 is attained and earnings per share of $0.27;
and, to 300% if revenue of $40,000,000 and earnings per share $0.32. Once the
Minimum Bonus Benchmark is attained the additional bonus may be earned based on
a percentage of accelerator goals achieved.
The CEO
Agreement also includes provisions respecting severance, non-solicitation,
non-competition, and confidentiality obligations. Pursuant to the CEO Agreement,
if he terminates his employment for Good Reason (as described below), or, is
terminated prior to the end of the employment term by the Company other than for
Cause (as described below) or death, he shall be entitled to all remaining
salary from the termination date until 36 months thereafter, at the rate of
salary in effect on the date of termination, immediate vesting of all options
and, continuation of all health related plan benefits for a period of 36 months.
He shall have no obligation to seek other employment and any income so earned
shall not reduce the foregoing amounts. If he is terminated by the Company for
Cause (as described below), or at the end of the employment term, he shall not
be entitled to further compensation. Under the CEO Agreement, Good Reason
includes the assignment of duties inconsistent with his title, a material
reduction in salary and perquisites, the relocation of the Company's principal
office by 30 miles, if the Company asks him to perform any act which is illegal,
including the commission of a crime or act of moral turpitude, or a material
breach of the CEO Agreement by the Company. Under the CEO Agreement, Cause
includes conviction of crime involving moral turpitude, failure to perform his
duties to the Company, engaging in activities which are directly competitive to
or intentionally injurious to the Company, or any material breach of the CEO
Agreement by Mr. Ghauri.
The above
summary of the CEO Agreement is qualified in its entirety by reference to the
full text of the CEO, a copy of which was filed as an exhibit to the Company’s
10-KSB for the fiscal year ended June 30, 2007. The above summary of the
Amendment is qualified in its entirety by reference to the full text of the
Amendment, a copy of which was filed as an exhibit hereto.
Employment
Agreement with Naeem Ghauri
Effective
January 1, 2007, the Company entered into an Employment Agreement with our
President of NetSol Technologies Europe, Ltd. and Chief Executive Officer of our
EMEA Agreement, Naeem Ghauri (the “President EMEA Agreement”). The President
EMEA Agreement was amended effective January 1, 2008. Pursuant to the Employment
Agreement, as amended, the Company agreed to employ Mr. Ghauri as its
President of the EMEA region from the date of the President EMEA Agreement
through December 31, 2010. The term of employment automatically renews for 36
additional months unless notice of intent to terminate is received by either
party at least 6 months prior to the end of the term. Under the President EMEA
Agreement, Mr. Ghauri is entitled to an annualized base salary of £122,000
($243,439 at June 30, 2008) and is eligible for annual bonuses at the discretion
of the Compensation Committee. Pursuant to the terms of the Amendment, and only
upon the achievement of company-wide revenue of $32,230,000 for fiscal year
2007-2008; and, earnings per share of $0.22 (the “Minimum Bonus Benchmark”),
Executive shall be granted stock options for 525,000 shares of the common stock
of the Company (the "Options") pursuant to an option agreement (the "Option
Agreement") issued pursuant to the Company’s 2005 Employee Stock Option Plan and
shall vest equally over twenty four months beginning on the grant date and will
be exercisable based on the customary provisions of such plan. The Option
Agreement will have customary provisions relating to adjustments for stock
splits and similar events. The exercise price of the Options will be $2.62 for
175,000 shares and, $3.90 for 350,000 shares. Pursuant to the power granted to
the board to provide bonuses to the Executive in section 3.1 of this Agreement,
the compensation committee has authorized the following bonus structure. The
bonus structure contemplates a bonus being awarded on the basis of a benchmark
and accelerators. A bonus of Twenty-Four Thousand Two Hundred Fifty Dollars
($24,250) is payable upon achieving the minimum bonus benchmark of: company-wide
revenue of $32,230,000 for fiscal year 2007-2008; and, earnings per share of
$0.22 (the “Minimum Bonus Benchmark”). Additional bonuses may be earned if
certain “accelerator goals” are achieved. The bonus is accelerated to 200% of
the bonus amount if revenue of $35,000,000 is attained and earnings per share of
$0.27; and, to 300% if revenue of $40,000,000 and earnings per share $0.32. Once
the Minimum Bonus Benchmark is attained the additional bonus may be earned based
on a percentage of accelerator goals achieved. Additionally, so long as
Executive is the head of the mergers and acquisition team, Executive shall
receive a bonus of Twenty-Four Thousand Two Hundred Fifty Dollars ($24,250) per
successfully closed acquisition which involves minimal participation (with fees
of no more than $10,000) from mergers and acquisition advisors.
The
Company retained the right to increase the base compensation as it deems
necessary. In addition, Mr. Ghauri is entitled to participate in the
Company's stock option plans, is entitled to two weeks of paid vacation per
calendar year and is to receive a car allowance totaling $2,000 per month for
the term of the President EMEA Agreement. Finally, during the term of the
President EMEA Agreement, the Company shall pay the amount of premiums or other
costs incurred for the coverage of Mr. Ghauri, his spouse and dependent
family members under the Company's health and related benefit
plans.
The
President EMEA Agreement also includes provisions respecting severance,
non-solicitation, non-competition, and confidentiality obligations. Pursuant to
the President EMEA Agreement, if he terminates his employment for Good Reason
(as described below), or, is terminated prior to the end of the employment term
by the Company other than for Cause (as described below) or death, he shall be
entitled to all remaining salary from the termination date until 36 months
thereafter, at the rate of salary in effect on the date of termination,
immediate vesting of all options and, continuation of all health related plan
benefits for a period of 36 months. He shall have no obligation to seek other
employment and any income so earned shall not reduce the foregoing amounts. If
he is terminated by the Company for Cause (as described below), or at the end of
the employment term, he shall not be entitled to further compensation. Under the
President EMEA Agreement, Good Reason includes the assignment of duties
inconsistent with his title, a material reduction in salary and perquisites, the
relocation of the Company's principal office by 30 miles, if the Company asks
him to perform any act which is illegal, including the commission of a crime or
act of moral turpitude, or a material breach of the President EMEA Agreement by
the Company. Under the President EMEA Agreement, Cause includes conviction of
crime involving moral turpitude, failure to perform his duties to the Company,
engaging in activities which are directly competitive to or intentionally
injurious to the Company, or any material breach of the President EMEA Agreement
by Mr. Ghauri.
The above
summary of the President EMEA Agreement is qualified in its entirety by
reference to the full text of the President EMEA Agreement, a copy of which was
filed as an exhibit to the Company’s 10-KSB for the fiscal year ended June 30,
2007. The above summary of the Amendment is qualified in its entirety by
reference to the full text of the Amendment, a copy of which was filed as an
exhibit hereto.
Employment
Agreement with Salim Ghauri
Effective
January 1, 2007, the Company entered into an Employment Agreement with our
President of NetSol Technologies, Ltd., our wholly owned subsidiary in Lahore,
Pakistan and Chief Executive Officer of the APAC Region, Mr. Salim Ghauri (the
“President APAC Agreement”). Pursuant to the Employment Agreement, as amended, ,
the Company agreed to employ Mr. Ghauri as its President APAC and Chief
Executive Officer of the Global Services Division from the date of the President
APAC Agreement through December 31, 2010. The term of employment automatically
renews for 36 additional months unless notice of intent to terminate is received
by either party at least 6 months prior to the end of the term. Under the
President APAC Agreement, Mr. Ghauri is entitled to an annualized base
salary of $225,000 and is eligible for annual bonuses at the discretion of the
Compensation Committee. Pursuant to the amendment, and only upon the achievement
of the Minimum Bonus Benchmark (as defined below), Executive shall be granted
stock options for 525,000 shares of the common stock of the Company (the
"Options") pursuant to an option agreement (the "Option Agreement") issued
pursuant to the Company’s 2005 Employee Stock Option Plan and shall vest equally
over twenty four months beginning on the grant date and will be exercisable
based on the customary provisions of such plan. The Option Agreement will have
customary provisions relating to adjustments for stock splits and similar
events. The exercise price of the Options will be $2.62 for 175,000 shares and,
$3.90 for 350,000 shares. Pursuant to the power granted to the board to provide
bonuses to the Executive in section 3.1 of this Agreement, the compensation
committee has authorized the following bonus structure. The bonus structure
contemplates a bonus being awarded on the basis of a benchmark and accelerators.
A bonus of Fifty Thousand Dollars ($50,000) is payable upon achieving the
minimum bonus benchmark of: company-wide revenue of $32,230,000 for fiscal year
2007-2008; and, earnings per share of $0.22 (the “Minimum Bonus Benchmark”).
Additional bonuses may be earned if certain “accelerator goals” are achieved.
The bonus is accelerated to 200% of the bonus amount if revenue of $35,000,000
is attained and earnings per share of $0.27; and, to 400% if revenue of
$40,000,000 is attained and earnings per share of $0.32. Once the Minimum Bonus
Benchmark is attained the accelerator bonus shall be awarded proportionally to
the accelerator goals achieved.
The
Company retained the right to increase the base compensation as it deems
necessary. In addition, Mr. Ghauri is entitled to participate in the
Company's stock option plans, is entitled to two weeks of paid vacation per
calendar year. Finally, during the term of the President APAC Agreement, the
Company shall pay the amount of premiums or other costs incurred for the
coverage of Mr. Ghauri, his spouse and dependent family members under the
Company's health and related benefit plans.
The
President APAC Agreement also includes provisions respecting severance,
non-solicitation, non-competition, and confidentiality obligations. Pursuant to
the President APAC Agreement, if he terminates his employment for Good Reason
(as described below), or, is terminated prior to the end of the employment term
by the Company other than for Cause (as described below) or death, he shall be
entitled to all remaining salary from the termination date until 36 months
thereafter, at the rate of salary in effect on the date of termination,
immediate vesting of all options and, continuation of all health related plan
benefits for a period of 36 months. He shall have no obligation to seek other
employment and any income so earned shall not reduce the foregoing amounts. If
he is terminated by the Company for Cause (as described below), or at the end of
the employment term, he shall not be entitled to further compensation. Under the
President APAC Agreement, Good Reason includes the assignment of duties
inconsistent with his title, a material reduction in salary and perquisites, the
relocation of the Company's principal office by 30 miles, if the Company asks
him to perform any act which is illegal, including the commission of a crime or
act of moral turpitude, or a material breach of the President APAC Agreement by
the Company. Under the President APAC Agreement, Cause includes conviction of
crime involving moral turpitude, failure to perform his duties to the Company,
engaging in activities which are directly competitive to or intentionally
injurious to the Company, or any material breach of the President APAC Agreement
by Mr. Ghauri.
The above
summary of the President EMEA Agreement is qualified in its entirety by
reference to the full text of the President EMEA Agreement, a copy of which was
filed as an exhibit to the Company’s 10-KSB for the fiscal year ended June 30,
2007. The above summary of the Amendment is qualified in its entirety by
reference to the full text of the Amendment, a copy of which was filed as an
exhibit hereto.
Employment
Agreement with Patti L. W. McGlasson
Effective
May 1, 2006, the Company entered into an Employment Agreement with our Secretary
and General Counsel, Ms. Patti L. W. McGlasson. Pursuant to the Employment
Agreement between Ms. McGlasson and the Company (the "General Counsel
Agreement"), the Company agreed to employ Ms. McGlasson as its Secretary
and General Counsel from the date of the General Counsel Agreement through April
30, 2008. According to the terms of the General Counsel Agreement, the term of
the agreement automatically extends for an additional one year periods unless
notice of intent to terminate is received by either party at least 6 months
prior to the end of the term. Under the General Counsel Agreement,
Ms. McGlasson was entitled to an annualized base salary of $110,000 and is
eligible for annual bonuses at the discretion of the Chief Executive Officer.
Effective August 1, 2007, Ms. McGlasson’s annualized salary was raised to
$130,000. The Company retained the right to increase the base compensation as it
deems necessary. In addition, Ms. McGlasson is entitled to participate in
the Company's stock option plans and, is entitled to two weeks of paid vacation
per calendar year. Finally, during the term of the General Counsel Agreement,
the Company shall pay the amount of premiums or other costs incurred for the
coverage of Ms. McGlasson, her spouse and dependent family members under
the Company's health and related benefit plans.
The
General Counsel Agreement also includes provisions respecting severance,
non-solicitation, non-competition, and confidentiality obligations. Pursuant to
the General Counsel Agreement, if she terminates her employment for Good Reason
(as described below), or, is terminated prior to the end of the employment term
by the Company other than for Cause (as described below) or death, she shall be
entitled to all remaining salary from the termination date until 12 months
thereafter, at the rate of salary in effect on the date of termination,
immediate vesting of all options and, continuation of all health related plan
benefits for a period of 12 months. She shall have no obligation to seek other
employment and any income so earned shall not reduce the foregoing amounts. If
she is terminated by the Company for Cause (as described below), or at the end
of the employment term, she shall not be entitled to further compensation. Under
the General Counsel Agreement, Good Reason includes the assignment of duties
inconsistent with her title, a material reduction in salary and perquisites, the
relocation of the Company's principal office by 60 miles, if the Company
asks her to perform any act which is illegal, including the commission of a
crime or act of moral turpitude, or a material breach of the General Counsel
Agreement by the Company. Under the General Counsel Agreement, Cause includes
conviction of crime involving moral turpitude, failure to perform her duties to
the Company, engaging in activities which are directly competitive to or
intentionally injurious to the Company, or any material breach of the General
Counsel Agreement by Ms. McGlasson.
The above
summary of the General Counsel Agreement is qualified in its entirety by
reference to the full text of the General Counsel Agreement, a copy of which was
filed as an exhibit to the Company’s 10-KSB for the fiscal year ended June 30,
2006 on September 27, 2006.
Outstanding
Equity Awards at Fiscal Year-End
The
following table shows grants of stock options and grants of unvested stock
awards outstanding on June 30, 2008, the last day of our fiscal year, to each of
the individuals named in the Summary Compensation Table.
NAME
|
|
NUMBER OF
SECURITIES
UNDERLYING
OPTIONS (#)
EXERCISABLE
|
|
NUMBER OF
SECURITIES
UNDERLYING
OPTIONS (#)
UNEXERCISABLE
|
|
OPTION
EXERCISE
PRICE ($)
|
|
OPTION
EXPIRATION
DATE
|
|
Najeeb
Ghauri
|
|
|
100,000
|
|
|
-
|
|
|
2.21
|
|
|
1/1/14
|
|
|
|
|
100,000
|
|
|
|
|
|
3.75
|
|
|
1/1/14
|
|
|
|
|
50,000
|
|
|
|
|
|
5.00
|
|
|
1/1/14
|
|
|
|
|
20,000
|
|
|
|
|
|
2.64
|
|
|
3/26/14
|
|
|
|
|
30,000
|
|
|
|
|
|
5.00
|
|
|
3/26/14
|
|
|
|
|
374,227
|
|
|
|
|
|
1.94
|
|
|
4/1/15
|
|
|
|
|
500,000
|
|
|
|
|
|
2.91
|
|
|
4/1/15
|
|
|
|
|
167,214
|
|
|
|
|
|
1.83
|
|
|
6/2/16
|
|
|
|
|
250,000
|
|
|
|
|
|
2.50
|
|
|
6/2/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Naeem
Ghauri
|
|
|
100,000
|
|
|
-
|
|
|
2.21
|
|
|
1/2/14
|
|
|
|
|
100,000
|
|
|
|
|
|
3.75
|
|
|
1/2/14
|
|
|
|
|
50,000
|
|
|
|
|
|
5.00
|
|
|
1/2/14
|
|
|
|
|
20,000
|
|
|
|
|
|
2.64
|
|
|
3/26/14
|
|
|
|
|
30,000
|
|
|
|
|
|
5.00
|
|
|
3/26/14
|
|
|
|
|
10,000
|
|
|
|
|
|
2.50
|
|
|
2/16/12
|
|
|
|
|
374,227
|
|
|
|
|
|
1.94
|
|
|
4/1/15
|
|
|
|
|
500,000
|
|
|
|
|
|
2.91
|
|
|
4/1/15
|
|
|
|
|
217,214
|
|
|
|
|
|
1.83
|
|
|
6/2/16
|
|
|
|
|
250,000
|
|
|
|
|
|
2.50
|
|
|
6/2/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salim
Ghauri
|
|
|
100,000
|
|
|
-
|
|
|
2.21
|
|
|
1/2/14
|
|
|
|
|
100,000
|
|
|
|
|
|
3.75
|
|
|
1/2/14
|
|
|
|
|
50,000
|
|
|
|
|
|
5.00
|
|
|
3/26/14
|
|
|
|
|
20,000
|
|
|
|
|
|
2.64
|
|
|
3/26/14
|
|
|
|
|
30,000
|
|
|
|
|
|
5.00
|
|
|
3/26/14
|
|
|
|
|
20,000
|
|
|
|
|
|
2.50
|
|
|
2/16/12
|
|
|
|
|
374,227
|
|
|
|
|
|
1.94
|
|
|
4/1/15
|
|
|
|
|
500,000
|
|
|
|
|
|
2.91
|
|
|
4/1/15
|
|
|
|
|
217,214
|
|
|
|
|
|
1.83
|
|
|
6/2/16
|
|
|
|
|
250,000
|
|
|
|
|
|
2.50
|
|
|
6/2/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tina
Gilger
|
|
|
10,000
|
|
|
-
|
|
|
1.86
|
|
|
7/20/15
|
|
|
|
|
10,000
|
|
|
|
|
|
2.79
|
|
|
7/20/15
|
|
|
|
|
20,000
|
|
|
|
|
|
1.65
|
|
|
7/7/15
|
|
|
|
|
20,000
|
|
|
|
|
|
2.25
|
|
|
7/7/15
|
|
|
|
|
10,000
|
|
|
|
|
|
1.60
|
|
|
7/23/17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patti
L. W. McGlasson
|
|
|
10,000
|
|
|
-
|
|
|
3.00
|
|
|
1/1/14
|
|
|
|
|
20,000
|
|
|
|
|
|
2.64
|
|
|
3/26/14
|
|
|
|
|
30,000
|
|
|
|
|
|
5.00
|
|
|
3/26/14
|
|
|
|
|
20,000
|
|
|
|
|
|
1.65
|
|
|
7/7/15
|
|
|
|
|
20,000
|
|
|
|
|
|
2.25
|
|
|
7/7/15
|
|
|
|
|
10,000
|
|
|
|
|
|
1.60
|
|
|
7/23/17
|
|
Option
Exercises and Stock Vested
Mr.
Najeeb Ghauri exercised options to acquire 50,000 shares of common stock of the
Company at the exercise price of $1.83 per share during the last fiscal
year.
Pension
Benefits
We do not
have any qualified or non-qualified defined benefit plans.
Potential
Payments upon Termination or Change of Control
Generally,
regardless of the manner in which a named executive officer's employment
terminates, he is entitled to receive amounts earned during his term of
employment. Such amounts include the portion of the executive's base salary that
has accrued prior to any termination and not yet been paid and unused vacation
pay.
In
addition, we are required to make the additional payments and/or provide
additional benefits to the individuals named in the Summary Compensation Table
in the event of a termination of employment or a change of control, as set forth
below.
Change-in-Control
Payments
Najeeb
Ghauri, Chairman and Chief Executive Officer
In the
event that Mr. Ghauri is terminated as a result of a change in control (defined
below), he is entitled to all payments due in the event of a termination for
Cause or Good Reason and: (a) a onetime payment equal to the product of 2.99 and
his salary during the preceding 12 months; (b) a one-time payment equal to the
higher of (i) Executive’s bonus for the previous year and (ii) one percent of
the Company’s consolidated gross revenues for the previous twelve (12) months;
and, at the election of the Executive, (c) a one-time cash payment equal to the
cash value of all shares eligible for exercise upon the exercise of Executive’s
Options then currently outstanding and exercisable as if they had been exercised
in full (the “Change of Control Termination Payment”). In the event Executive
elects to receive the cash value of the shares underlying Executive’s options,
he shall so notify the Company of his intent.
The
following table summarizes the potential payments to Mr. Ghauri assuming
his employment with us was terminated or a change of control occurred on June
30, 2008, the last day of our most recently completed fiscal year.
BENEFITS
AND PAYMENTS
|
|
CHANGE
OF
CONTROL
|
|
|
TERMINATION
UPON DEATH
OR
DISABILITY
|
|
|
TERMINATION
BY US
WITHOUT
CAUSE OR BY
EXECUTIVE
FOR GOOD
REASON
|
|
|
|
|
|
|
|
|
|
|
|
Base
Salary
|
|
$ |
900,000 |
|
|
$ |
- |
|
|
$ |
953,103 |
|
Bonus
|
|
|
- |
|
|
|
|
|
|
|
|
|
Salary
Multiple Pay-out
|
|
|
897,000 |
|
|
|
|
|
|
|
|
|
Bonus
or Revenue One-time Pay-Out
|
|
|
366,422 |
|
|
|
|
|
|
|
|
|
Net
Cash Value of Options
|
|
|
4,190,506 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
6,353,928 |
|
|
$ |
- |
|
|
$ |
953,103 |
|
Naeem
Ghauri, President EMEA
In the
event that Mr. Ghauri is terminated as a result of a change in control (defined
below), he is entitled to all payments due in the event of a termination for
Cause or Good Reason and: (a) a onetime payment equal to the product of 2.99 and
his salary during the preceding 12 months; (b) a one-time payment equal to the
higher of (i) Executive’s bonus for the previous year and (ii) one percent of
the Company’s consolidated gross revenues for the previous twelve (12) months;
and, at the election of the Executive, (c) a one-time cash payment equal to the
cash value of all shares eligible for exercise upon the exercise of Executive’s
Options then currently outstanding and exercisable as if they had been exercised
in full (the “Change of Control Termination Payment”). In the event Executive
elects to receive the cash value of the shares underlying Executive’s options,
he shall so notify the Company of his intent.
The following table summarizes the
potential payments to Mr. Ghauri assuming his employment with us was
terminated or a change of control occurred on June 30, 2008, the last day of our
most recently completed fiscal year.
BENEFITS
AND PAYMENTS
|
|
CHANGE
OF
CONTROL
|
|
|
TERMINATION
UPON DEATH
OR
DISABILITY
|
|
|
TERMINATION
BY US
WITHOUT
CAUSE OR BY
EXECUTIVE
FOR GOOD
REASON
|
|
|
|
|
|
|
|
|
|
|
|
Base
Salary
|
|
$ |
735,000 |
|
|
$ |
- |
|
|
$ |
735,000 |
|
Bonus
|
|
|
- |
|
|
|
|
|
|
|
|
|
Salary
Multiple Pay-out
|
|
|
732,550 |
|
|
|
|
|
|
|
|
|
Bonus
or Revenue One-time Pay-Out
|
|
|
366,422 |
|
|
|
|
|
|
|
|
|
Net
Cash Value of Options
|
|
|
4,371,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
6,205,078 |
|
|
$ |
- |
|
|
$ |
735,000 |
|
Salim
Ghauri, President APAC
In the
event that Mr. Ghauri is terminated as a result of a change in control (defined
below), he is entitled to all payments due in the event of a termination for
Cause or Good Reason and: (a) a onetime payment equal to the product of 2.99 and
his salary during the preceding 12 months; (b) a one-time payment equal to the
higher of (i) Executive’s bonus for the previous year and (ii) one percent of
the Company’s consolidated gross revenues for the previous twelve (12) months;
and, at the election of the Executive, (c) a one-time cash payment equal to the
cash value of all shares eligible for exercise upon the exercise of Executive’s
Options then currently outstanding and exercisable as if they had been exercised
in full (the “Change of Control Termination Payment”). In the event Executive
elects to receive the cash value of the shares underlying Executive’s options,
he shall so notify the Company of his intent.
The
following table summarizes the potential payments to Mr. Ghauri assuming
his employment with us was terminated or a change of control occurred on June
30, 2008, the last day of our most recently completed fiscal year.
BENEFITS
AND PAYMENTS
|
|
CHANGE
OF
CONTROL
|
|
|
TERMINATION
UPON DEATH
OR
DISABILITY
|
|
|
TERMINATION
BY US
WITHOUT
CAUSE OR BY
EXECUTIVE
FOR GOOD
REASON
|
|
|
|
|
|
|
|
|
|
|
|
Base
Salary
|
|
$ |
675,000 |
|
|
$ |
- |
|
|
$ |
675,000 |
|
Bonus
|
|
|
- |
|
|
|
|
|
|
|
|
|
Salary
Multiple Pay-out
|
|
|
672,750 |
|
|
|
|
|
|
|
|
|
Bonus
or Revenue One-time Pay-Out
|
|
|
366,422 |
|
|
|
|
|
|
|
|
|
Net
Cash Value of Options
|
|
|
4,371,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
6,085,278 |
|
|
$ |
- |
|
|
$ |
675,000 |
|
In the
event that Ms. Gilger is terminated as a result of a change in control (defined
below), she is entitled to all payments due in the event of a termination for
Cause or Good Reason and: (a) a onetime payment equal to the product of 2.99 and
her salary during the preceding 6 months; (b) a one-time payment equal to the
higher of (i) Executive’s bonus for the previous year and (ii) one-half of one
percent of the Company’s consolidated gross revenues for the previous six (6)
months; and, at the election of the Executive, (c) a one-time cash payment equal
to the cash value of all shares eligible for exercise upon the exercise of
Executive’s Options then currently outstanding and exercisable as if they had
been exercised in full (the “Change of Control Termination Payment”). In the
event Executive elects to receive the cash value of the shares underlying
Executive’s options, she shall so notify the Company of her intent.
The
following table summarizes the potential payments to Ms. Gilger assuming
her employment with us was terminated or a change of control occurred on June
30, 2008, the last day of our most recently completed fiscal year.
BENEFITS
AND PAYMENTS
|
|
CHANGE
OF
CONTROL
|
|
|
TERMINATION
UPON
DEATH
OR
DISABILITY
|
|
|
TERMINATION
BY
US
WITHOUT
CAUSE
OR BY
EXECUTIVE
FOR
GOOD
REASON
|
|
|
|
|
|
|
|
|
|
|
|
Base
Salary
|
|
$ |
66,000 |
|
|
$ |
- |
|
|
$ |
66,000 |
|
Bonus
|
|
|
15,000 |
|
|
|
|
|
|
|
|
|
Salary
Multiple Pay-out
|
|
|
197,340 |
|
|
|
|
|
|
|
|
|
Bonus
or Revenue One-time Pay-Out
|
|
|
91,605 |
|
|
|
|
|
|
|
|
|
Net
Cash Value of Options
|
|
|
180,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
550,545 |
|
|
$ |
- |
|
|
$ |
66,000 |
|
Patti
L. W. McGlasson, Secretary and General Counsel
In the
event that Ms. McGlasson is terminated as a result of a change in control
(defined below), she is entitled to all payments due in the event of a
termination for Cause or Good Reason and: (a) a onetime payment equal to the
product of 2.99 and her salary during the preceding 12 months; (b) a one-time
payment equal to the higher of (i) Executive’s bonus for the previous year and
(ii) one-half of one percent of the Company’s consolidated gross revenues for
the previous twelve (12) months; and, at the election of the Executive, (c) a
one-time cash payment equal to the cash value of all shares eligible for
exercise upon the exercise of Executive’s Options then currently outstanding and
exercisable as if they had been exercised in full (the “Change of Control
Termination Payment”). In the event Executive elects to receive the cash value
of the shares underlying Executive’s options, she shall so notify the Company of
her intent.
The
following table summarizes the potential payments to Ms. McGlasson assuming
her employment with us was terminated or a change of control occurred on June
30, 2008, the last day of our most recently completed fiscal year.
BENEFITS
AND PAYMENTS
|
|
CHANGE
OF
CONTROL
|
|
|
TERMINATION
UPON
DEATH
OR
DISABILITY
|
|
|
TERMINATION
BY
US
WITHOUT
CAUSE
OR BY EXECUTIVE
FOR
GOOD
REASON
|
|
|
|
|
|
|
|
|
|
|
|
Base
Salary
|
|
$ |
130,000 |
|
|
$ |
- |
|
|
$ |
130,000 |
|
Bonus
|
|
|
5,000 |
|
|
|
|
|
|
|
|
|
Salary
Multiple Pay-out
|
|
|
388,700 |
|
|
|
|
|
|
|
|
|
Bonus
or Revenue One-time Pay-Out
|
|
|
183,211 |
|
|
|
|
|
|
|
|
|
Net
Cash Value of Options
|
|
|
283,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
990,711 |
|
|
$ |
- |
|
|
$ |
130,000 |
|
Director
Compensation
Director
Compensation Table
The
following table sets forth a summary of the compensation earned by our Directors
and/or paid to certain of our Directors pursuant to the Company's compensation
policies for the fiscal year ended June 30, 2008, other than Najeeb Ghauri,
Naeem Ghauri and Salim Ghauri who are executives and directors.
NAME
|
|
|
FEES
EARNED
OR
PAID
IN
CASH ($)
|
|
|
|
OPTION
AWARDS
($)
(1)
|
|
|
|
TOTAL
($)
|
|
Eugen
Beckert
|
|
|
23,000 |
|
|
|
- |
|
|
|
23,000 |
|
Shahid
Javed Burki
|
|
|
29,000 |
|
|
|
- |
|
|
|
29,000 |
|
Mark
Caton
|
|
|
26,000 |
|
|
|
- |
|
|
|
26,000 |
|
Alexander
Shakow
|
|
|
16,000 |
|
|
|
- |
|
|
|
16,000 |
|
(1) There were no options awarded during
fiscal year ended June 30, 2008
Director
Compensation Policy
Messrs. Ghauri
are not paid any fees or other compensation for services as members of our Board
of Directors.
The
non-employee members of our Board of Directors received as compensation for
services as directors as well as reimbursement for documented reasonable
expenses incurred in connection with attendance at meetings of our Board of
Directors and the committees thereof. The Company paid the following amounts to
members of the Board of Directors for the activities shown during the fiscal
year ended June 30, 2008.
BOARD
ACTIVITY
|
|
CASH
PAYMENTS
|
|
Annual
Cash Retainer
|
|
$
|
10,000
|
|
Committee
Membership
|
|
$
|
2,000
|
|
Chairperson
for Audit Committee
|
|
$
|
15,000
|
|
Chairperson
for Compensation Committee
|
|
$
|
12,000
|
|
Chairperson
for Nominating and Corporate Governance Committee
|
|
$
|
9,000
|
|
Members
of our Board of Directors are also eligible to receive stock option or stock
award grants both upon joining the Board of Directors and on an annual basis in
line with recommendations by the Compensation Committee, which grants are
non-qualified stock options under our Employee Stock Option Plans. Further, from
time to time, the non-employee members of the Board of Directors are eligible to
receive stock grants that may be granted if and only if approved by the
shareholders of the Company.
Compensation
Committee Interlocks and Insider Participation
The
current members of the Compensation Committee are Messrs. Caton (Chairman),
Mr. Beckert, Mr. Burki and Mr. Shakow. During the fiscal year ended June 30,
2007, the Chairman of the Compensation Committee was Mr. Beckert. There were no
other members of the committee during the fiscal year ended June 30, 2007. All
current members of the Compensation Committee are "independent directors" as
defined under the Nasdaq Marketplace Rules. None of these individuals were at
any time during the fiscal year ended June 30, 2008, or at any other time, an
officer or employee of the Company.
No
executive officer of the Company serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee.
Employee
Stock Option Plans
The 2001
plan authorizes the issuance of up to 2,000,000 options to purchase common stock
of which 2,000,000 have been granted. The grant prices range between $.75 and
$2.50.
The 2002
plan authorizes the issuance of up to 2,000,000 options to purchase common stock
of which 2,000,000 options have been granted. The grant prices range between
$.75 and $5.00.
In March
2004, our shareholders approved the 2003 stock option plan. This plan authorizes
up to 2,000,000 options to purchase common stock of which 1,159,606 have been
granted. The grant prices range between $1.00 and $5.00.
In March
2005, our shareholders approved the 2004 stock option plan. This plan authorizes
up to 5,000,000 options to purchase common stock of which 4,998,246 have been
granted. The grant prices range between $1.50 and $3.00.
In April
2006, our shareholders approved the 2005 stock option plan. This plan authorizes
up to 5,000,000 options to purchase common stock of which 1,780,000 have been
granted. The grant prices range between $1.70 and $2.55.
In May
2008, our shareholders approved the 2008 Equity Incentive Plan. This plan
authorizes grants of up to 1,000,000 options or stock awards of which none have
been granted.
Compensation Committee
Report
The
Compensation Committee of the Board of Directors has reviewed and discussed the
Compensation Discussion and Analysis required by Item 402(b) of
Regulation S-B and contained within this Proxy
Statement with management and, based on such review and discussions, the
Compensation Committee recommended to the Board of Directors that the Compensation Discussion
and Analysis be included in this Proxy Statement and incorporated into NetSol
Technologies, Inc. Annual Report on Form 10-KSB for the year ended June 30,
2008, as previously
filed.
Compensation
Committee
Mark Caton (Chair)
Eugen Beckert
Shahid Javed Burki
Alexander Shakow
DEADLINE FOR SUBMISSION OF STOCKHOLDER
PROPOSALS FOR FISCAL 2009
The Rules of the Securities and Exchange
Commission permit stockholders of the Company, after notice to the Company, to
present proposals for stockholder action in the Company's proxy statement where
such proposals are consistent with applicable law, pertain to matters
appropriate for stockholder action and are not properly omitted by Company
action in accordance with the proxy rules published by the Securities and
Exchange Commission. The Company's 2009 annual meeting of stockholders is
expected to be held on or about December 1, 2009 and proxy materials in connection with
that meeting are expected to be mailed on or about November 1, 2009. The Company must receive stockholder
proposals prepared in accordance with the proxy rules between September 1,
2009 and October 1, 2009.
FILINGS UNDER SECTION
16(A)
Section 16(a) of the Exchange Act
requires the Company's directors and officers, and persons holding
ten percent or more of a registered class of the Company's equity securities, to
file reports regarding their ownership and regarding their acquisitions and dispositions of the
Company's equity securities with the Securities and Exchange Commission.
Officers, directors and greater than ten-percent
beneficial owners are required by applicable regulations to furnish
the Company with copies of any Section 16(a) forms they
file.
Based
solely on copies of such forms furnished as provided above, or written
representations that no Forms 5 were required, the Company believes that during
the fiscal year ended June 30, 2008, all Section 16(a) filing requirements
applicable to its executive officers, directors and beneficial owners of more
than 10% of its Common Stock were complied with.
VOTING PROCEDURES
Tabulation of the
Votes: The votes
cast by proxy will be tabulated by Computershare LLC.
Effect of an
Abstention and Broker Non-Votes: A shareholder who abstains
from voting on any of or all of the proposals will be included in the number of
shareholders present at the meeting for the purpose of determining the presence
of a quorum. Abstentions and broker non-votes will not be counted
either in favor of or against the election of the nominees or other
proposals. Under the rules of the National Association of Securities
Dealers, brokers holding stock for the accounts of their clients who have not been given
specific voting instructions as to a matter by their clients may vote their client’s proxies in their own discretion.
A copy of
NetSol’s Annual Report on Form 10-KSB/A for the year ended June 30, 2008
which has been filed with the SEC pursuant to the Exchange Act will be furnished
to shareholders together with this Proxy Statement. Copies of the Annual Report
are available without charge to each shareholder, upon written request to the
Investor Relations department at our principal offices at 23901 Calabasas Road,
Suite 2072, Calabasas, CA 91302 or from the Internet on SEC’s Edgar database at
www.sec.gov.
Legal
Proceedings
There are no material proceedings to
which any director, officer or affiliate of the
registrant, any owner of record or beneficially of more than five percent of any
class of voting securities of the registrant, or any associate of any such
director, officer, affiliate of the
registrant, or security holder is a party adverse to the registrant or any of
its subsidiaries or has a material interest adverse to the registrant or any of
its subsidiaries also shall be described.
OTHER MATTERS
The Board of Directors of the Company does not intend to
present any business at the Annual Meeting other than the matters specifically
set forth in this Proxy Statement and knows of no other business to come before
the Annual Meeting. However, on all matters properly brought before the Annual
Meeting by the Board or by others, the persons named as proxies in the
accompanying proxy will vote in accordance with their best judgment.
ALL
SHAREHOLDERS ARE REQUESTED TO SIGN AND MAIL PROXIES OR VOTE VIA THE INTERNET
PROMPTLY.
Your
attendance at the Annual Meeting is desired whether your holdings are large or
small. We encourage shareholders to take an active interest in NetSol and we
would appreciate your vote on the enclosed proxy card or via the Internet
through our transfer agent Computershare by visiting the www.voteproxy.com
site and following the screen instructions. If you plan to vote at
the Annual Meeting by proxy, please either sign, date and mail your Proxy in the
enclosed envelope or at www.voteproxy.com,
as promptly as possible.
Dated: March 31, 2009
Calabasas, California
|
BY
ORDER OF THE BOARD OF DIRECTORS
Najeeb
Ghauri
Chairman and
CEO
|
![](proxy2.jpg)
![](proxy3.jpg)
![](proxy4.jpg)
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C.
20549
FORM 10-KSB/A
x ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF
1934
FOR THE FISCAL YEAR ENDED JUNE 30,
2008
or
o
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF
1934
Commission
File Number 0-22773
NETSOL TECHNOLOGIES,
INC.
(Name of
small business issuer as specified in its charter)
NEVADA
|
95-4627685
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
incorporation
or organization)
|
Identification
Number)
|
23901
Calabasas Road, Suite 2072,
Calabasas,
CA 91302
(Address
of principal executive offices) (Zip code)
(818)
222-9195 / (818) 222-9197
(Issuer's
telephone/facsimile numbers, including area code)
SECURITIES
REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT:
COMMON STOCK, $.001 PAR
VALUE
THE NASDAQ STOCK MARKET
LLC
SECURITIES
REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
COMMON STOCK, $.001 PAR
VALUE
NASDAQ CAPITAL
MARKET
Check
whether the issuer is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act. o
Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes x No
o
Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B, and no disclosure will be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.
x
Indicate
by check mark whether the registrant is a shell company (as defined in rule
12b-2 of the Exchange Act). Yes o No
x
Registrant's
revenues for the fiscal year ended June 30, 2008 were $36,642,175.
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates was $50,705,662 as of September 15, 2008.
As of
September 15, 2008, Registrant had 26,419,770 shares of its $.001 par value
Common Stock issued and outstanding and 1,920 shares of its Preferred Stock
issued and outstanding.
DOCUMENTS INCORPORATED BY
REFERENCE
(None)
Transitional
Small Business Disclosure Format (Check one): Yes o; No
x
This
Amendment to the Annual Report filed on form 10-KSB for the year ended June 30,
2008 is being made to correct the language of disclosures contained in Item 8A.
The changes in this amendment are contained in Item 8A only. There are no other
changes in the documents.
TABLE OF CONTENTS AND CROSS REFERENCE
SHEET
|
|
PAGE
|
|
|
|
PART
I
|
|
|
|
Item
1
|
Business
|
1
|
Item
2
|
Properties
|
23
|
Item
3
|
Legal
Proceedings
|
24
|
Item
4
|
Submission
of Matters to a Vote of Security Holders
|
24
|
|
|
|
PART
II
|
|
|
|
Item
5
|
Market
for Common Equity and Related Stockholder Matters and Small Business
Issuer Purchases of Equity Securities
|
25
|
Item
6
|
Management's
Discussion and Analysis and Plan of Operations
|
27
|
Item
7
|
Financial
Statements
|
38
|
Item
8
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
38
|
Item
8A
|
Controls
and Procedures
|
38
|
|
|
|
PART
III
|
|
|
|
Item
9
|
Directors,
Executive Officers, Promoters and Control Persons; Corporate Governance;
Compliance with Section 16(a) of the Exchange Act
|
39
|
Item
10
|
Executive
Compensation
|
41
|
Item
11
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
55
|
Item
12
|
Certain
Relationships and Related Transactions
|
56
|
|
|
|
PART
IV
|
|
|
|
Item
13
|
Exhibits
and Reports on Form 8-K
|
57
|
Item
14
|
Principal
Accountant Fees and Services
|
59
|
PART I
This Form
10-KSB contains forward looking statements relating to the development of the
Company's products and services and future operation results, including
statements regarding the Company that are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
projected. The words "believe," "expect," "anticipate," "intend," variations of
such words, and similar expressions, identify forward looking statements, but
their absence does not mean that the statement is not forward looking. These
statements are not guarantees of future performance and are subject to certain
risks, uncertainties and assumptions that are difficult to predict. Factors that
could affect the Company's actual results include the progress and costs of the
development of products and services and the timing of the market acceptance.
ITEM 1 - BUSINESS
GENERAL
NetSol
Technologies, Inc. (“NetSol” or the “Company”) (NasdaqCM: NTWK) (DIFX: NTWK) is
a worldwide provider of global business services and enterprise application
solutions. NetSol uses its BestShoring™ practices and highly-experienced
resources in analysis, development, quality assurance, and implementation to
deliver high-quality, cost-effective solutions. Organized into specialized
practices, these product and services offerings include portfolio management
systems for the financial services industry, consulting, custom development,
systems integration, and technical services for the global Healthcare,
Insurance, Real Estate, and Technology markets. NetSol's commitment to quality
is demonstrated by its achievement of the ISO 9001, ISO 279001, and SEI
(Software Engineering Institute, Carnegie Mellon University, USA) CMMi
(Capability Maturity Model) Level 5 assessments, a distinction shared by fewer
than 100 companies worldwide. NetSol’s clients include Fortune 500
manufacturers, global automakers, financial institutions, technology providers,
and governmental agencies.
Founded
in 1996, NetSol is headquartered in Calabasas, California. NetSol also has
operations and/or offices in: Horsham, United Kingdom; the San Francisco Bay
Area, California, USA; Sydney and Adelaide, Australia; Beijing, China; Lahore,
Islamabad, Rawalpindi and Karachi, Pakistan; and, Bangkok, Thailand.
OUR BUSINESS
In
today’s highly competitive marketplace, business executives with labor or
services-centric budgetary responsibilities are not just encouraged but are, in
fact, obliged to engage in “Make or Buy” decision process when contemplating how
to support and staff new development, testing, services support and delivery
activities. The Company has initiated the strategic evolution of it business
offerings that is a BestShoring™ solutions strategy. BestShoring ™ is simply
defined as NetSol Technologies’ ability to draw upon its global resource base
and construct the best possible solution and price for each and every customer.
Unlike traditional outsourcing offshore vendors, NetSol draws upon an
international workforce and delivery capability to ensure a “BestShoring™
delivers BestSolution™” approach.
NetSol
combines domain expertise, not only with lowest cost blended rates from its
design centers and campuses located around the world, but also with the
guarantee of localized program and project management while minimizing any
implementation risk associated with a single service center. Our BestShoring™
approach, which we consider a unique and cost effective global development
model, is leading the way into the 21st century,
providing value added Solutions for Global Business Services through a win-win
partnership, rather than the traditional outsourced vendor framework. Our focus
“Solutions” serves to ensure the most favorable pricing while delivering
in-depth domain experience. NetSol currently has locations in Bangkok, Beijing,
Lahore, London, the San Francisco Bay Area, and Sydney to best serve its clients
and partners worldwide. This provides NetSol customers with the optimum balance
of subject matter expertise, in-depth domain experience, and cost effective
labor, all merged into a scalable solution. In this way, “BestShoring delivers
BestSolution”.
Information
technology services are valuable only if they fulfill the business strategy and
project objectives set forth by the customer. NetSol’s expert consultants have
the technical knowledge and business experience to ensure the optimization of
the development process in alignment with basic business principles. 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 IT
enterprise solutions to achieve its customers' strategic objectives. Its service
offerings include IT Consulting & Services; NetSol Defense Division;
Business Intelligence, Information Security, Outsourcing Services and Software
Process Improvement Consulting; maintenance and support of existing systems;
and, project management.
In
addition to services, our product offerings are fashioned to provide a Best
Product for Best Solution model. Our offerings include our flagship global
solution, LeaseSoft. LeaseSoft, a robust suite of four software applications, is
an end-to-end solution for the lease and finance industry covering the complete
leasing and finance cycle starting from quotation origination through end of
contract. The four software applications under LeaseSoft have been designed and
developed for a highly flexible setting and are capable of dealing with
multinational, multi-company, multi-asset, multi-lingual, multi-distributor and
multi-manufacturer environments. Each application is a complete system in itself
and can be used independently to address specific sub-domains of the
leasing/financing cycle. LeaseSoft is a result of more than eight years of
effort resulting in over 60 modules grouped in four comprehensive applications.
These four applications are complete systems in themselves and can be used
independently to exhaustively address specific sub-domains of the
leasing/financing cycle. When used together, they fully automate the entire
leasing / financing cycle. NetSol recently added LeaseSoft Fleet Management
System (FMS). The Company has already signed an agreement for FMS with a major
automotive company in the Asia Pacific region. As with our service offerings,
LeaseSoft is complementary to and can be used with all of our regionally
developed solutions such as LeasePak in North America and LeaseSoft Asset in
Europe.
Beyond
LeaseSoft, our product offerings include LeasePak. LeasePak provides the leasing
technology industry with the development of Web-enabled and Web-based tools to
deliver superior customer service, reduce operating costs, streamline the lease
management lifecycle, and support collaboration with origination channel and
asset partners. LeasePak can be configured to run on HP-UX, SUN/Solaris or
Linux, as well as for Oracle and Sybase users. And for scalability, NetSol
Technologies North America offers the LeasePak Bronze, Silver and Gold Editions
for systems and portfolios of virtually all sizes and complexities. These
solutions provide the equipment and vehicle leasing infrastructure at leading
Fortune 500 banks and manufacturers, as well as for some of the industry’s
leading independent lessors.
Our
product offerings and services also include: inBanking, which provides full
process automation and decision support in the front, middle and back offices of
treasury and capital markets operations; LeaseSoft Portals and Modules through
our European operations; LeasePak 6.0b of our LeasePak product suite; enterprise
wide information systems, such as or LRMIS, MTMIS and Hospital Management
Systems; Accounting Outsourcing Services, and, NetSol Technology Institute, our
specialized career and technology program in Pakistan.
The
Company continues its efforts to reduce redundancy and cohesively present
services and product operations on a global basis. This consolidation enables
the Company to coordinate and streamline product, service and marketing while
taking further advantage of the cost arbitrage offered by our highly trained,
highly productive, Pakistani resources. This consolidation follows the
successful integration of the operations acquired in the United Kingdom and the
San Francisco Bay Area in California and facilitates the use of these regional
offices as platforms for presenting an expanding services offering, relying on
the experience and resources in Pakistan and our product offerings in North
America and Europe.
While the
company will no longer be divided into groups and regions, the Company will
continue to maintain regional offices in the San Francisco Bay Area, California
for North America and the parent headquarters in Calabasas, California; in
Horsham, United Kingdom, for Europe; a new office in Dubai, United Arab Emirates
for the Middle East; and, our “center of excellence” operations in Lahore,
Pakistan for Asia Pacific. The Company will continue to maintain country and/or
services or products specific sales offices in China, Australia, Thailand and
Pakistan.
Our
Services
IT Consulting &
Services
Information
technology services are valuable only if they fulfill the business strategy and
project objectives set forth by the customer. NetSol’s expert consultants have
the technical knowledge and business experience to ensure the optimization of
the development process in alignment with basic business principles. 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 IT
enterprise solutions to achieve its customers' strategic objectives. Its service
offerings include IT Consulting & Services; Global Business Services; NetSol
Defense Division; Business Intelligence, Information Security, Outsourcing
Services and Software Process Improvement Consulting; maintenance and support of
existing systems; and, project management.
As part
of the Company’s Global Business Services strategy, each subsidiary adheres to
the BestShoring provides BestSolutions™ model. Each subsidiary expounds on that
model by providing services unique to their client base. The development of
solutions for clients has resulted in the development of vertical offerings
catering to various industries and accordingly, diversifying NetSol’s offerings.
As an example, these verticals have been used successfully in Pakistan to
provide services for the Motor Transport Management System, Land Record
Management System, Legislature, Healthcare, computer based trainings/e-Learning,
E Government and Defense.
Business
Intelligence (BI) solution providers must have both the capability to service BI
customers using its own resources but also service the customers of
international affiliates in the APAC region. Typical BI projects run into
several years of phased implementation and rely on expensive international
resources with a very restricted and limited accessibility. As such, management
believes, that NetSol’s competitors compromise on quality by turning BI projects
into IT projects, which is a recipe for failure. Our strategy is simple; we
identify the business pains of our potential customer and involve our industry
domain experts directly with business managers at the client side. This results
in ownership of the project with the business group rather than the IT group
which is involved in the overall initiative only from a support and facilitation
standpoint.
NetSol’s
service capability has expanded to Basel II compliance. The Basel II Accord is a
mandate by the Bank for International Settlements (BIS) requiring banks around
the world to introduce processes and systems in their organization that will
more effectively control and manage their enterprise wide risk. Basel II has
introduced “risk differentiation” by allowing banks to hold capital reserves
directly proportional to the amount of credit risk they are taking. In addition,
the accord has introduced a capital charge for operational risk. NetSol won a
Basel II Consultancy Contract with a leading Bank in Pakistan, the contract
covers advisory services concerning conformity to the Basel II Capital Accord
Regulatory Framework development by the Bank for International Settlements
(BIS).
An ever
growing awareness of highly publicized IT Security problems, coupled with
greater demands by international business partners, has led the movement of
companies world-wide towards compliance with internationally recognized
Information Security Systems standards. Information Systems Security or
Information Assurance applies to all systems in all departments of an
organization whether on a computer disk, paper or in the heads of employees.
Information Security services is provided by NetSol’s INFOSEC Unit. This unit
provides services to secure all corporate information and its supporting
processes, systems and networks. NetSol’s Information Security Services is a
group of vendor-neutral, dedicated security consultants with real-life field
experience. The INFOSEC group utilizes industry standard security best practices
coupled with best-of-breed products to deliver proven and robust Information
Security Management Systems (ISMS). Services include: managed security services
provider; BS-7799/ISO 27001 Compliance Life-cycle services; information security
assessment; penetration testing and vulnerability assessment; disaster recovery
planning; and, network architecture design, deployment and management. The
INFOSEC group has launched a new project, Secure Pakistan. The project aims to
secure critical information, while in storage or in transfer, from theft. Secure
Pakistan is developing IT service labs for forensic investigation, CERT
(Computer Emergency Response Team), 24/7 security surveillance, and cyber crime
awareness training. NetSol has established partnerships with other global
information security consulting companies, including US based Business
Automation Consultants, Australia based IT Butler, and Pakistan based NIMIS.
INFOSEC is partnered with global giants including IBM Internet Security Systems
and Kaspersky Labs.
Software
Process Improvement Consulting is provided by NetSol to companies in Pakistan
through an independent division. The division provides quality engineering and
related consulting services to technology companies. The services include:
consultancy, facilitation services and implementation support for CMMi;
appraisal, including SCAMPI (Standard CMMi Appraisal Method for Process
Improvement), SCAMPI Appraisal Team Member Training and, Pre Appraisal; and,
training through training services, formal courses, workshops and seminars. All
of these activities are broadly developed under the guidelines of SEI based CMMi
processes as well as the information security consulting practices. Currently,
NetSol is the only company authorized by Pakistan Software Export Board (PSEB)
for BS7799/ISO 27001 consulting practices in Pakistan.
Our
Outsourcing Services have included two major initiatives: the joint venture with
Innovation Group PLC (previously referred to as “TiG”), known as NetSol
Innovation Pvt. Ltd, or Extended Innovation, and accounting outsourcing
services. The Extended Innovation model is discussed on page 12 of this report.
NetSol Accounting Services Division was established to take advantage of the
lucrative BPO market for accounting services. The division started operations
with a pilot project for a well established and high profile accountancy firm in
Australia. A proof of concept has been obtained, and NetSol is now in the
process of marketing and maturing leads from high profile clients in Australia,
North America and Europe.
The
NetSol Defense Division (NDD) was founded in 2005 to take advantage of its
coordination with the Pakistani Defense Sector. NDD specializes in providing
solutions for improvement and optimization of operations of the defense and
military forces. With a unique blend of experienced and highly skilled IT
specialists and managers, and most importantly the domain experts from the
Defense Sector itself, NDD has the critical task of ensuring that the solutions
provided are focused and need-specific to the requirements as well as the
technological advancements in the sector around the globe. Operating through the
NDD R&D Lab, which is strategically located in Rawalpindi, for closer
coordination with various defense organizations stakeholders and to establish an
operations center and simulation lab, NDD is involved in R&D activities, as
well as project management for various on-going and potential projects including
Command & Control Applications, Capacity Building projects, Infrastructure
development for multiple offices within the Ministry of Defense as well as GIS
based applications integration with different solutions. Projects currently
undertaken by NDD are: Unit Management System, an initiative for the automation
of administrative functions for the Pakistani Army, helping to realize the
Army’s key objective of improving productivity and efficacy of the units of the
Pakistani Army; Academy Information Management System for the Pakistan Military
Academy, one of the top rated military institutes in the world; and, Network
Centric Warfare (NCW) working to provide an information grid which provides a
seamless integration of sensors, weapons, and decision makers through a common
operating environment and mission applications built in compliance with laid
down inter-operability standards.
Our
Products
LeaseSoft
The
Company develops advanced software systems for the lease and finance industries.
In addition to services, our product offerings are fashioned to provide a Best
Product for Best Solution model. Our offerings include our flagship global
solution, LeaseSoft. This product is complementary to and can be used with all
of our regionally developed solutions such as LeasePak in North America and
LeaseSoft Asset in Europe.
LeaseSoft,
a robust suite of four software applications, is an end-to-end solution for the
lease and finance industry covering the complete leasing and finance cycle
starting from quotation origination through end of contract. The Company’s over
eight years of effort resulted in over 60 modules grouped in four comprehensive
applications. The four software applications under LeaseSoft have been designed
and developed for a highly flexible setting and are capable of dealing with
multinational, multi-company, multi-asset, multi-lingual, multi-distributor and
multi-manufacturer environments. Each application is a complete system in itself
and can be used independently to address specific sub-domains of the
leasing/financing cycle. When used together, they fully automate the entire
leasing / financing cycle.
The constituent software
applications are:
· Credit Application
Processing System (CAP).
LeaseSoft.CAP provides companies in the financial sector an environment to
handle the incoming credit applications from dealers, agents, brokers and the
direct sales force. LeaseSoft.CAP automatically gathers information from
different interfaces like credit rating agencies, evaluation guides, and
contract management systems and scores the applications against defined
scorecards. This automated workflow permits the credit team members to make
their decisions more quickly and accurately. Implementation of LeaseSoft.CAP
dramatically reduces application-processing time in turn resulting in greater
revenue through higher number of applications finalized in a given time.
LeaseSoft.CAP reduces the probability of a wrong decision thus, again, providing
a concrete business value through minimizing the bad debt portfolio.
LeaseSoft.CAP is a database independent online system developed in Microsoft's
..Net framework. Toyota Leasing Thailand and BMW Financial Services China are the
first two clients of LeaseSoft.CAP. It can be run from any PC with normal
specifications, which is a key benefit for clients.
· Contract Management System
(CMS).
LeaseSoft.CMS provides comprehensive business functionality that enables its
users to effectively and smoothly manage and maintain a contract with the most
comprehensive details throughout its life cycle. It provides interfaces with
company banks and accounting systems. LeaseSoft.CMS effectively maintains
details of all business partners that do business with the company including,
but not limited to, customers, dealers, debtors, guarantors, insurance companies
and banks. Developed with the input of a number of leasing consultants, this
product represents a complete lease and finance product. NetSol’s LeaseSoft.CMS
provides business functionality for all areas that are required to run an
effective, efficient and customer oriented lease and finance
business.
· Wholesale Finance System
(WFS).
LeaseSoft.WFS automates and manages the floor plan/bailment activities of
dealerships through a finance company. The design of the system is based on the
concept of one asset/one loan to facilitate asset tracking and costing. The
system covers credit limit, payment of loan, billing and settlement, stock
auditing, online dealer and auditor access, and ultimately the pay-off
functions. A separate online add-on module, Dealer & Auditor Access System
(DAS), allows dealers to view their outstanding limits and current asset-wise
balances through an interface with the finance company. LeaseSoft.WFS consists
of the following four modules: Credit Request Management Module (CRM); Loan
Management Module (LMS); Stock Auditing Module (SAS); and Billing &
Settlement Module (B&S).
· Fleet Management System
(FMS).
LeaseSoft.FMS is designed to efficiently handle all fleet management needs. FMS
is easily integrated with LeaseSoft.CMS and WFS as well as with any third party
contract management system to ensure a single comprehensive system. FMS’ key
features include: a detailed tracking information on every driver and vehicle;
customizable reports; periodic reporting on fleet related aspects; internet
based access to information; integration with third party software; and, linkage
to GPS for real time tracking. Although only recently added, NetSol has already
signed an agreement for FMS with a major automotive company in the Asia Pacific
region.
Implementation
Process
The
implementation process normally spans three to six months. NetSol derives its
income both from selling the license to use the products, as well as, from
related software services. The related services include requirement study/gap
analysis, customization on the basis of gaps development, testing,
configuration, installation at the client site, data migration, training, user
acceptance testing, supporting initial live operations and, finally, the long
term maintenance of the system. Any changes or enhancement done is also charged
to the customer. In the requirements study/gaps analysis, the NetSol LeaseSoft
team goes to the client site to study the client’s business and functional
requirements and maps them against the existing functionality available in
LeaseSoft. With the maturing of our products, free requirement studies tend to
yield few, if any gaps. The development cycle that follows the gaps analysis
takes place through our development facility in Lahore. The highly parameterized
LeaseSoft solutions are configured to meet the clients’ requirements. This is
followed by thorough testing, which takes place at our development facility,
while some of these steps may also be carried out at the clients’ locations.
Based on successful testing, the system is installed at the client’s site. When
required, this involves migration of date from an older system to the LeaseSoft
database. Successful installation is followed by user and administration
training. Both functional and business users are involved. After training, user
acceptance testing is conducted, where client’s nominated staff, along with
NetSol consultants, tests the system against business requirements. Upon
acceptance, the
systems in then considered ready for normal business use. LeaseSoft is a mission
critical software, and the entire business operations of our clients hinge on
successful performance of the system. Hence in the early days after going live,
NetSol consultants remain at the client site to assist the company in smooth
operations. After this phase, the regular maintenance and support services phase
for the implemented software begins. In addition to the daily rate paid by the
customer for each consultant, the customer also pays for all the transportation
related expenses, boarding of the consultants, and a living allowance. NetSol’s
involvement in all of the above steps is priced to bring value to our customers
and increase our profitability from our interactions.
Pricing and Revenue
Streams
The
company’s LeaseSoft revenue streams occur through the following three main
areas: product licensing, implementation related services, and maintenance and
support related services. License fees can vary generally between $500,000 up to
$1,000,000 per license per module. There are various attributes which determine
the level of complexity, a few of which are: number of contracts; size of the
portfolio; business strategy of the company; number of business users; and,
branch network of the customer. The Company recognizes revenue from license
contracts without major customization when a non-cancelable, non-contingent
license agreement has been signed, delivery of the software has occurred, the
fee is fixed or determinable, and collectability is probable. However, revenue
from sale of licenses with major customization, modification, and development is
recognized on a percent of completion basis. Implementation related services,
including gap analysis, user acceptance testing (UAT) and data migration (where
required). Maintenance and support related services are then provided on a
continued basis. Revenue from software services includes fixed price contracts
and is recognized in accordance with the percentage of completion method using
the output measure of “Unit of Work Completed.” The annual maintenance fee,
which usually is an agreed upon percentage of overall monetary value of the
implementation, then becomes an ongoing revenue stream realized on yearly
basis.
Growth Prospects for
LeaseSoft
As a
marketing strategy NetSol is preparing a lighter version of LeaseSoft to target
companies with simpler business models. LeaseSoft is highly modular. Hence
various sets of functionalities can be used against the restricted requirements
of the client. The first deployment of this lighter version is currently being
carried out in Mauritius, for Mauritius Commercial Bank. NetSol
has also provided the option of using its LeaseSoft application on monthly
rental basis to those organizations which are small in size or have small
turnover. This facility is initially provided to Australian Motor Finance (AMF).
AMF is a sub-prime lender in Australia. NetSol has provided them LeaseSoft
Proposal Management System and LeaseSoft Contract Management System.
An
important component of the growth strategy for LeaseSoft is to extend its
customer base to include newer geographic markets. The belief that it is a
highly flexible solution for the global markets is borne out by this year’s
major breakthrough of the product’s entry into the Middle East market with the
signing of a contract with one of the largest leasing companies in the region.
Al Amthal Leasing is the latest addition to our impressive customer list. The
Company sees this as a first major step in developing a market for LeaseSoft in
the Middle East. This will also help our product achieve a greater relevance to
this market by incorporating features that correspond to the Islamic/Arab
financial requirements.
In its
existing markets, LeaseSoft is already establishing itself as a leading product
catering to the business needs of major blue chip companies. Its current client
base includes Mercedes Benz Financial Services (Australia, Japan, New Zealand,
Singapore, South Korea, Thailand, China and Taiwan), Yamaha Motors Finance
Australia, Toyota Motors Finance China, Toyota Leasing Thailand, Finlease
Commercial Bank of Mauritius, CNH Capital Australia, Fiat Automotive Finance
China, Dongfeng Nissan Auto Finance China, BMW Financial Services in China and
Al Amthal Leasing Saudi Arabia.
In
addition to the confidence of its customers, the product has also won a major
regional award, the Asia Pacific ICT Alliance Award for the best financial
application for the year 2007. This prestigious award is testimony to the
maturity and quality of LeaseSoft.
NetSol
maintains a LeaseSoft specific product website www.leasesoft.biz. This
product website is also available in the Chinese and Thai languages at
http://www.leasesoft.biz/chinese and
http://www.leasesoft.biz/thai,
respectively.
Our Operations
NETSOL PK
Our
off-shore development center, and indeed the center of the Company’s services
and software operations, is headed by former President of NetSol and current
Chief Executive Officer of NetSol Technologies Limited (“NetSol PK”) (the
Company’s Pakistan subsidiary), Salim Ghauri. The Asian continent, Australia/New
Zealand, and the Middle East, from the perspective of LeaseSoft marketing, are
targeted by NetSol Technologies from its Lahore subsidiary, its offices in
Australia, Thailand and Beijing, China. NetSol PK has continued to grow its
service contracts within the local Pakistani public and defense sectors. An
important aspect of these contracts is that not all of them focused solely on
software development and engineering.
This
year, NetSol PK has continued to provide both consultancy services to
organizations so as to improve their quality of operations and services and,
winning strategically important assignments with the E-Governance domains for
organizations of national significance in Pakistan. These clients include
private as well as public sector enterprises.
IT Consulting &
Services
As part
of the Company’s Global Business Services strategy, each subsidiary adheres to
the BestShoring provides BestSolutions™ model. While NetSol PK is the center of
the Company’s global services offerings, the services provided by NetSol PK
further expound on that model and other services unique to NetSol PK. IT
Consulting & Services in Pakistan has included a first entrant advantage
into the e-government sector for both provincial and federal governments and
armed forces automation projects. Over the past four years, NetSol PK has been
actively involved in the e-government domain helping Federal & Provincial
Governments of Pakistan and other public sector organizations. Major projects
include: Electronic Credit Information Bureau; Office Automation of the National
Assembly & Senate and Prime Minister’s Secretariat; and such turn-key
solutions as the Automation of the Hajj wing, and, Automation of the Karachi
Patent Office. The development of solutions for clients has resulted in the
development of vertical offerings catering to various industries and
accordingly, diversifying NetSol’s offerings. These verticals have been used
successfully in Pakistan to provide services for the Motor Transport Management
System, Land Record Management System, Legislature, Healthcare, computer based
trainings/e-Learning, E Government and Defense.
Products
In
addition to LeaseSoft, which has a global reach, NetSol PK has developed several
products for use in Pakistan for the purpose of automating the country’s vital
processes. While developed for this particular market, the products may be used
in other countries or for other customers.
LRMIS
In an
agricultural country like Pakistan, land is the primary source of revenue. Land
records are currently maintained manually so there is no consistency, accuracy
and timely availability of the required record. According to a joint report by
National Database and Registration Authority (NADRA), Pakistan and World Food
Program (WFP), Pakistan, this existing land revenue management system is more
than two hundred years old and is not fulfilling the changing demands of time
and new local governance system of Devolution properly.
A well
planned solution requires easy identification, access, smooth data entry and
complete tracking of the entered transactions. With the growth and usage of "e"
in contemporary business practices, new challenges have emerged in managing
secure access to the authentic data and e-resources, which are scattered across
a wide range of internal and external computing systems. This challenge needs
quick address in today's competitive economic scenario wherein intellectual and
knowledge capital directly translates into exponential growth for the
country.
NetSol’s
LRMIS is a thin, client web based solution and developed after thorough
evaluations of existing manual system and client/user needs, detailed system
analysis and process flow definition. It ensures that only authentic employees
and individuals can access the application on the privileged areas assigned by
the administrator over the internet/Intranet. NetSol has obtained the pilot
project for LRMIS, a World Bank funded initiative. There is a major upside in
Punjab with implementations in 34 districts. Moreover, opportunities exist in
Sindh and Islamabad Capital Territory.
NetSol
understands the power of information and complexity of land record system and
the user/client needs. For this purpose, NetSol provides its LRMIS by combining
technical, operational and domain expertise with proven approaches of analysis,
plan, design and implementation to provide an effective solution using
IT-enablement in a field where its need its hugely felt.
MTMIS
A few
years ago, NetSol PK took the initiative to invest into the Motor Transport
domain. Starting with a small implementation, today NetSol has multiple
implementations in several parts of the country with ample opportunities
available in the future. MTMIS is a customized application envisioned and
developed wholly by NetSol as an end-to-end solution of citizens’ vehicles
security and information management. Project implementations include the
Provinces of Punjab, AJK and NWFP alongside Islamabad Capital Territory. Future
opportunities exist in Baluchistan and Sindh for this solution. The system has
provision for onsite access to the traffic police records via PDAs and smart
cards, onsite verification of any vehicle’s environmental friendly status and
road side authorization of driver licenses.
It is
significant to note that while in developed countries the elements of the system
lie in “islands of data” under the various Authorities and Geographical Domains
and have been linked together to create the central data warehouse; the NetSol
solution is the first concept and proven practical solution for the Emerging and
Developing countries. It enables an approach, which seeks to introduce and
implement the different elements or modules as an integrated and total solution,
in which modules have been clearly designed to work independently but enmesh and
provide the complete management and administration environment.
HOSPITAL
MANAGEMENT INFORMATION SYSTEM.
The
global healthcare industry is growing at a fast rate and is one of the areas
that have the most urgent need of automation. NetSol understands this need and
has developed a strategic collaboration with Shaukat Khanum Memorial Cancer
Hospital as part of a long term commitment for IT development in the global
Health Sector.
The
capability to overlay, analyze, design and reengineer the core of the healthcare
processes with a business process management (BPM) suite, encompassing the rules
and responsibilities in a manner which facilitates change, new rules, process
variations, and scale of deployment, best summarize our combined approach.
NetSol
regularly works to fulfill its role as a Technology Partner of the Shaukat
Khanum Memorial Cancer Hospital & Research Centre (SKMCH&RC) for a
solution that will act as an automated, secure and integrated solution for any
hospitals’ clinical, financial and management needs. First implementation is
currently underway for a hospital for the armed forces. NetSol’s system includes
a clinical module (including outpatient and inpatient management, physician and
order management, pharmacy management, radiology, nuclear medicine, pathology
and operation theater management); an administrative module; a financial module;
and, a research module.
Corporate Social
Responsibility
Literacy
Program--NetSol has launched a “Literacy Program” to educate low paid illiterate
employees of the organization. The main objective of this program is to enable
these resources to acquire basic reading, writing and arithmetic skills. The
first phase of the plan is nearing completion with astounding accomplishments;
the people who could not even write a single word are now able to write complete
letters within a span of 6 months. This initiative has been extremely successful
and NetSol intends to further support this program.
Noble
Cause Fund--A noble cause fund has been established to meet medical and
education expenses of the children of the low paid employees. NetSol employees
voluntarily contribute a fixed amount every month to the fund and the Company
matches the employee subscriptions with an equivalent amount contribution. A
portion of this fund is utilized to support social needs of certain institutions
and individuals, outside NetSol.
Day Care
Facility--NetSol’s human resources are its key assets and thus the company takes
numerous steps to ensure provision of maximum comforts. Recently, a Child Day
Care facility has been created in close proximity to work premises with all
essential staff and equipment. Married female employees are offered opportunity
to entrust complete care of their young ones to trained and experienced staff.
Child day care allows female employees to pay unhindered focused attention to
work requirements while their child remain safe and comfortable. Premises and
environment are neat and clean with all basic needs fulfilled to ensure complete
care of the children.
Preventative
Health Care Program--In addition to the comprehensive out-patient and in-patient
medical benefits, preventive health care has also been introduced. This phased
program focuses on vaccination of our employees against Hepatitis – A/B,
Tetanus, Typhoid and Flu, etc. This is a regular annual immunization program to
keep employees healthy.
NetSol
Corporate University--This year, NetSol undertook a new initiative by
establishing NetSol Corporate University (“NCU”) for developing human resources
at NetSol. A need was felt to further develop and retain the talent at hand
through strategic learning interventions to respond to growing competition and
challenges.
The
mission of NCU is:
|
§ |
To
discover, develop, and deploy the talent at
Netsol
|
|
§ |
To
nurture leadership in people and
processes
|
|
§ |
To
explore and develop capable backups for positions critical to
organizational continuity
|
NETSOL TECHNOLOGIES NORTH AMERICA,
INC.
The
operational assets of NetSol Technologies North America, Inc. (“NTNA”) were
initially integrated into the Company in 2006 as a result of the acquisition of
McCue Systems, Inc. The NTNA division has been headed by Mitch Van Wye as Chief
Operating Officer since October 2007. The division has been restructured and
reorganized both at the management and business levels with several new senior
sales and marketing personnel replacing less senior personnel in the third and
fourth quarters of 2008. With the formal integration and better positioning into
the global market complete, the Burlingame staff is now moving to newly leased
offices in Emeryville, California by Fall 2008.
NTNA
provides client requirement-based solutions across multiple technology
practices, in both the public and private sectors, with the largest practice
being the leasing technology vertical. NTNA offers development of Web-enabled
and Web-based tools to deliver superior customer service, reduce operating
costs, streamline the lease management lifecycle, and support collaboration with
origination channel and asset partners. NTNA’s product, LeasePak, can be
configured to run on HP-UX, SUN/Solaris or Linux, as well as for Oracle and
Sybase users. For scalability, NTNA offers LeasePak Editions for systems and
portfolios of virtually all sizes and complexities. These solutions provide the
equipment and vehicle leasing infrastructure at leading Fortune 500 banks and
manufacturers, as well as for some of the industry’s leading independent
lessors. NetSol customers include such companies as Hyundai, JP Morgan/Chase,
KeyCorp Leasing, City National Bank, Terex Corp., National City Capital Corp.,
ORIX, and Volkswagen Credit.
Services
NTNA has
released a full suite of Global Business Services outsourcing services and
customized development solutions, initially focused on the North American
equipment finance technology market. The services offering will leverage 30 plus
years of equipment leasing and lending experience. While the division's Client
Consulting Services department has long offered NTNA customers a range of
business process engineering services, the new offering package will greatly
expand the menu of available services to meet market needs. New services to be
offered will include customized application development, a full range of Quality
Assurance (QA) services, customized strategic report design, and business
intelligence tool development. Leveraging well-established relationships with
users of the division's flagship application, the Global Business Services team
will market to these existing customers, then to adjacent groups within customer
organizations, eventually building out to a full, industry-wide sales and
marketing strategy.
In
leveraging the Company’s global footprint, blue chip customer base and
BestShoring initiatives, we believe NTNA provides an integrated North American
presence to our global offering of software and services based solutions to the
lease and finance industry. Not only does this provide a U.S. base of operations
and footprint for NetSol, but makes NetSol the only company focusing on the
commercial and consumer lease/finance marketplace with actual live
implementations within nearly every region of the globe, including, U.S.,
Canada, Europe, Asia-Pacific and the Far East.
LeasePak
As part
of NetSol’s Financial Suite (NFS) of products, NTNA has and continues to develop
the LeasePak Productivity modules as an additional companion set of products to
operate in conjunction with the LeasePak licensed software. This toolset enables
the LeasePak user to leverage the power of the system to streamline
originations, integrate the dealer/vendor network, automate documentation,
enhance customer service, manage risk, and control infrastructure overhead. In
early 2008, LeasePak 6.0b was released for general availability and has gone
into production.
The
components of the LeasePak Productivity Suite include but not limited
to:
Channel
IT– A web-based front end origination channel manager, ChannelIT provides a
browser-based origination tool for use by the remote sales force as well as the
broker/dealer network and vendor partners. Using ChannelIT’s seamless interface
to LeasePak, contract originators and operational personnel have instant access
to credit information, terms, and conditions, reducing acceptance times and
eliminating costly data re-entry.
Link IT–
A toolkit of application interfaces to streamline the integration of the
LeasePak lease portfolio management system with best-of-breed third-party tools
and enterprise applications. Designed to work with web services as well as with
the client-server architecture, LinkIT streamlines application integration and
reduces version-maintenance overhead.
Doc IT–
The integrated document generation for LeasePak auto-generates the letters and
documents required to book and finalize a deal. Using customer private-label
graphics and customer existing document formatting, LeasePak generates letters
and documents, delivers them, and archives them for instant access throughout
the life of the contract, asset, and customer relationship.
View IT–
A complete business intelligence toolset to give the customer the information
required to monitor its lease/loan portfolios. ViewIT provides streamlined
strategic reporting, easy-to-use ad-hoc reporting, plus a data warehouse and
executive dashboard to identify trends, manage risk, and assure compliance for
using real-time strategic information.
Serv IT–
LeasePak’s customer web portal enables users to offer customers the convenience
of web-based account self-management. The lessor benefits from reduced help desk
costs as customers use the web to, amongst other tasks, check payments, update
account information, and request payoff quotes.
AcquireIT
– A powerful data management and business development tool that enhances the
ability of LeasePak users to generate business with each other. This add-on
allows equipment leasing entities to greatly reduce the overhead in time and
resources required to buy and sell aggregated contracts and/or portfolios,
giving LeasePak users a competitive advantage over users of other portfolio
management systems.
With the
release of LeasePak 6.0b, users have new options for navigation and reporting.
Additionally, new capabilities have been incorporated into the product: Business
Development Module which streamlines the exchange of aggregated finance contract
portfolios between LeasePak users; Commercial Lending Module which adds core
functionality for the management of commercial loans; and, Asset Focus Module
which provides new options for users to enhance asset accounting and reporting
options.
NETSOL TECHNOLOGIES EUROPE, LTD.
Headed by
Naeem Ghauri as President and as a director of NetSol, NetSol Technologies
Europe, Ltd (“NetSol Europe”) has been an integral part of the Company since
February 2005 when NetSol acquired 100% of CQ Systems Ltd., (“NTE”) an IT
products and service company based in the UK. As a result of this acquisition,
NetSol has access to a broad European customer base using IT solutions
complementary to NetSol’s LeaseSoft product. NetSol has leveraged NTE’s
knowledge base and strong presence in the Asset Finance market to launch
LeaseSoft in the UK and continental Europe. NTE’s strong sales and marketing
capability would further help NetSol gain immediate recognition and positioning
for the LeaseSoft suite of products.
Product
Portfolio
NTE’s
recent LeaseSoft win with a major European bank is a strong vindication of our
strategy to leverage our global expertise to develop and market regional
solutions while successfully servicing our clients’ specific needs. Our
LeaseSoft solutions, with enhanced business coverage for the European markets,
are geared to provide a quick return on investment to our clients as well as
generate a new revenue driver for the group. The new European LeaseSoft
multi-product portfolio has gathered strong initial traction, in a relatively
short time, and reflects the growing strength of our product and customer
presence in Europe.
A part of
NTE’s successful integration has included the continued leverage of the
Company’s high quality but lower cost resources in its offshore development
center in Lahore, Pakistan. This phase of the transition plan has been completed
whereby a dedicated team of software engineers and testers have been trained on
NTE product suite and most of the quality assurance, documentation and some of
the NTE products core software development activities have been transitioned to
Lahore. NTE has been able to implement significant productivity and cost
improvements which have included realizing the higher level of cost efficiencies
of using the Lahore offshore facility for software development and quality
assurance.
Like all
NetSol companies, NTE has seen its sales and revenues focus increasingly on
total client services rather than on a purely, one-off, product based model.
Roughly two-thirds of the new sales for NTE came from products which did not
exist when the company was purchased by NetSol. The total client services model
has seen an expansion from a solely back office based product to a greater front
office focus. This front office focus tends to be highly customized as the
initial interface for the customer. NTE’s auto decision component was developed
sooner than any competitors and together with its web-based portal, is one of
the many front ends solutions that NTE has implemented.
In
addition to offering all NetSol products, NTE products include: LeaseSoft
Portal- introduced to support online access to proposals and for the foundation
of web-based origination systems; LeaseSoft Document Manager- introduced to
facilitate the automation production and distribution of proposal documentation,
including indexation and branding of all outboard and inbound documents;
LeaseSoft Auto-Decision Engine- developed to provide automation of credit
checking and underwriting for standards based financial products; LeaseSoft EDI
Manager- introduced to facilitate process automation between business
introducers and funders; and, Evolve- launched to provide an entry level
software package for own book brokerages and small to medium size
funders.
NTE has
recently performed significant updates on the Core product and customer systems
to ensure compliance with the onerous CCA2006 legislation. NTE has further
implemented significant development enhancements, including a major development
for the collections module with significant automation of the arrears handling
and collections.
Enterprise
Services
Following
the establishment of NTNA’s recent services offering, NTE launched its
Enterprise Services division this year to leverage both its offshore IT and
Business Process Outsourcing capabilities. This move into outsourced services is
seen as strategic to the future growth of NetSol.
NetSol office in Beijing,
China
As part
of its growth strategy and in view of the desire to serve its markets better,
NetSol established a sales office in Beijing, China. This office is both a sales
and marketing location and a liaison office for the Company’s ongoing operations
and implementation services for Daimler Financial Services, BMW and other
clients in the country. The office is managed by NetSol PK.
NetSol’s office in Bangkok,
Thailand
To
further strengthen its presence in the Asia-Pacific market, and to provide
exclusive services to its clients, the company has recently established a
support office at a prime location in Bangkok, Thailand. The office has a
working area of 87 sq. m. Its core responsibilities are to enhance business
through targeting potential customers and providing technical support to the
company’s existing clients in Thailand.
NetSol Office in
Australia
NetSol
also maintains a presence in Australia to serve its customers such as Mercedes
Benz Financial Services, Yamaha, and few other Fortune 500 auto manufacturers in
Australia and New Zealand. Given the potential of this market, and the company’s
strategic focus on it, it plans to build a bigger presence through a permanent
office space.
NetSol Office in the United Arab
Emirates
As a
follow to NetSol’s recent listing of its shares of common stock on the Dubai
International Financial Exchange (the “DIFX”), NetSol has committed to opening
an office in the United Arab Emirates. The office will operate both as sales and
support office for the Company’s Middle East customers.
Status of New Products and Services
InBanking™
The
Company’s banking solution is currently being marketed in the European region by
NTE.
With the
acquisition of Pearl Treasury System in 2003-2004, whose product offering is now
referred to as InBanking™, the Company expands its menu of software into the
banking and other financial areas.
The Pearl
Treasury System (“PTS”) was originally developed on two tier client server
technologies and was designed to provide full process automation and decision
support in the front, middle and back offices of treasury and capital markets
operations. On an internal review of PTS post acquisition, it was decided to
re-write the system within .NET technologies, bringing the system into the
leading edge n-tier/browser-based environment. The project name for this program
is InBanking™.
The
tremendous flexibility enabled by the comprehensive data model and multi-tier
architectural design of InBanking™ has been fully recognized, identifying the
potential to further develop InBanking™ beyond treasury and capital markets.
Additionally, InBanking™ is modular and can therefore be implemented as
best-of-breed solutions for, as an example, front-office trading, middle office
credit or market risk, or back office settlement. InBanking™ can also be
implemented to support all these areas, plus others, as a single fully
integrated solution.
NetSol Technology Institute
Recently
started by the Company, and formerly NetSol Omni, the NetSol Technology
Institute (“NTI”) has been started with the goal of playing a vital role in the
transition phase of the Pakistan IT industry by creating a pool of skilled IT
human resources. NTI is aimed at building a strong educational base, initially
as an institute, then branching out either as a wholly owned chain or franchise.
NTI offers specialized career oriented trainings and workshops on the latest
tools and technologies. The curriculum is based on current and future industry
needs and resource requirements. The instructors are industry practitioners
sharing their personal experiences during the training. NTI delivers training on
different platforms including in-house training and third party arrangements. We
hope to enter into collaborations with international industry consortiums such
as the American Society for Quality for endorsement of our trainings.
To meet
the current supply shortage of IT technicians, NTI has initiated an innovative
certification called STC to bridge this divide between demand and supply. STC is
a fast track, 1 year certification aimed at producing technicians that can be
used by the IT industry.
Outsourcing
Services-NetSol-Innovation (EI)
In
November 2004, the Company entered into a joint venture agreement with the
Innovation Group (formerly referred to as TiG), (“TiG”) whereby the TIG-NetSol
(Pvt) Ltd., now NetSol-Innovation (Pvt) Ltd., (“EI”), a Pakistani company,
provides support services enabling TiG to scale solution delivery operations in
key growth markets. TiG-NetSol operations are centered in NetSol’s IT Village,
Lahore, Pakistan. NetSol owns a majority of the venture. The entities share in
the profits of the joint venture on the basis of their shareholding. The
outsourcing model between TiG and NetSol involves services pertaining to
business analyses, configuration, testing, software quality assurance (SQA),
technical communication as well as project management for TiG software. Today,
NetSol has developed extensive expertise across the insurance domain and has
become a center of excellence.
Initiated
with a 10 person outsourcing team in Lahore in February 2005, this arrangement
has extended to a 130 person team in June 2008 with the additional resources
catering to the increased influx of outsourcing of configuration and testing
assignments from Innovation Group. Prominent Innovation Group’s customers being
serviced from Lahore include Allstate Insurance Canada, Avis Budget Car Rental
Group USA, Norwich Union UK, Hertz UK, Aviva Canada, Erinaceous UK and many
others. Backed up by a dedicated 4Mbps fiber optic link and an additional 2Mbps
wireless backup link for communication and teleconferencing, this arrangement
allows NetSol's human resources to efficiently and effectively respond to
additional outsourcing and offshore configuration work.
Growth through Acquisition and
Alliance
The
acquisitions of CQ Systems, Ltd. in 2005 (now “NTE”) and McCue Systems, Inc. in
2006 (now “NTNA”), finalized the implementation of our mergers and acquisition
plan developed in mid-2004. In this plan, NetSol management identified mergers
and acquisitions as potential methods of capitalizing on the demand of the
Company’s flagship product, LeaseSoft, on infiltrating previously untapped or
under-tapped markets, and as a means of launching its treasury banking software
systems. The completion of these acquisitions provides NetSol with positioning
as the only software supplier in the leasing space with a global footprint of
installed customers in each geographic region throughout the world. This,
together with the visible turnaround in the services and outsourcing sectors in
global markets, led to a growth strategy encompassing both organic growth and
mergers and acquisitions.
The
Company continues to explore mergers and acquisition opportunities with a focus
on strategic acquisitions that provide immediate, strong, bottom line benefits.
Management believes that an ideal target will fulfill one or many of these
criteria: geographic synergy/providing a foot print in a market; unique and/or
complimentary product lines; provide additional, and cost effective development
hubs, or complimentary or target customers in a previously untapped market.
While there is no guaranty that an acquisition which appears to be sound will
ultimately benefit the Company, management continues to analyze the price, value
and market of any potential target. The model of targeting well established,
profitable product companies, within NetSol’s domain, management believes, has
proven successful with our recent acquisitions. Management believes this model
can be replicated over the next three years.
Growth through Establishing Partner
Networks
NetSol is
well aware that market reach is essential to effectively market IT products and
services around the globe. For this purpose, the Company is looking forward to
establishing a network of partners worldwide. These companies will represent
NetSol in their respective countries and will develop business for NetSol.
Keeping these strategic objectives in view, NetSol has entered into a mutually
non-exclusive agreement with Singapore Computer Systems (“SCS”) that allows SCS
to market LeaseSoft in the entire Asia Pacific region.
NetSol is
a member of the world’s largest equipment leasing association, the Equipment
Leasing and Finance Association of North America or ELFA. Boasting more than
1,000 members, the ELFA is a strong presence in the $250 billion North American
market.
Strategic Alliances
With its
leadership position in technology and software development in Pakistan, NetSol
has been actively involved in a number of partnerships with multiple
international entities and corporations. These include joint ventures, systems
integration, local services, as well as consulting for large enterprises. Some
of NetSol’s partners in Pakistan are:
|
· |
OracleMicrosoft
Gold Partner
|
|
· |
Daimler
Financial Services
|
|
· |
Innovation
Group PLC UK
|
|
· |
Software
Engineering Institute
|
|
· |
IBM-Internet
Security System
|
U.S. and
UK partners include Real Consulting, Field Solutions, Group 88 and Lease
Dimensions.
Daimler
Financial Services (“DFS”) Asia Pacific has established an “Application Support
Center (ASC)” in Singapore to facilitate the regional companies in LeaseSoft
related matters. This support center is powered by highly qualified technical
and business personnel. ASC LeaseSoft in conjunction with NetSol Technologies
Ltd. Lahore are supporting DFS companies in seven different countries in Asia
and this list can increase as other DFS companies from other countries may also
opt for LeaseSoft. In July, 2008, the Company entered into a new Frame Agreement
with Daimler Financial Services AG (“DFS”) for Asia Pacific and Africa region.
This agreement, which serves as a base line agreement for use of the LeaseSoft
products by DFS companies and affiliated companies, represents an endorsement of
the LeaseSoft product line and the capabilities of NetSol to worldwide
DFSentities. This continued endorsement has had a tremendous impact on our
perspective customers, it has helped our sales and Business Development
personnel to market and sell our LeaseSoft solution to blue chip customers
around the world. This relationship has resulted in new agreements with DFS and
has served as a marketing source which has resulted in agreements with companies
such as Toyota and BMW.
NTE’s
strategic relationship with Field Solutions provided the Company with the
opportunity to increase product sales of Evolve, particularly for brokers
looking to start their own book. The Field Solutions strategic relationship has
now been expanded through collaboration on Sales Pricing Tools to facilitate tax
based leasing operations in the middle to big ticket market segment, further
extending the regions’ product and market reach.
Technical Affiliations
The
Company currently has technical affiliations such as: a MicroSoft Certified GOLD
Partner; a member of the Intel Solution blueprint Program; IBM Business Partner
and, an Oracle Certified Partner.
Marketing and Selling
The Marketing
Program
NetSol
management continues its optimism that the Company will experience ever
increasing opportunities for its product and services offerings in 2008 and
beyond. The Company is aggressively growing the marketing and sales
organizations in the United Kingdom, in conjunction with NTE, in Pakistan with
NetSol PK and, with NTNA in the Americas. Management believes that the year 2009
will follow 2008 and 2007 as a year for continued growth, the launching of
footprints in new markets, such as the Middle East, South and Central America,
and penetration of established markets such as North America, Asia Pacific and
Europe.
While
affiliations and partnering resulted in potential growth for the Company,
marketing and selling remain essential to building Company revenue. The
objective of the Company's marketing program is to create and sustain preference
and loyalty for NetSol as a leading provider of enterprise solutions, e-services
consulting, software solutions and business process outsourcing. Marketing is
performed at the corporate and business unit levels. The corporate marketing
department has overall responsibility for communications, advertising, public
relations and the website and, also engineers and oversees central marketing and
communications programs for use by each of the business units.
A number
of new marketing initiatives have either been launched or are in the pipeline.
These programs are designed to create brand awareness and to deliver our message
directly to our target group. As the company has evolved in the past few years,
the number of solutions and service offerings has grown manifolds. The depth and
breadth of our products and services would be more effectively marketed by
participation in more industry events, advertising, holding seminars, delivering
keynote addresses and creating more channel distribution. Our key marketing
initiatives have been designed to transition the brand equity built by the NTNA
and NTE brands to the Company as a whole.
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.
The Markets
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, automotive, chemical, textiles,
Internet marketing, software, medical, banks, higher education and
telecommunication associations, and, financial services.
Geographically,
NetSol has operations on the West Coast of the United States, Central Asia,
Europe, and Asia Pacific regions and is planning to establish an office in the
United Arab Emirates as part of its Middle East strategy. NetSol took the
initiative as the first US Nasdaq listed company to dual list on the DIFX in
Dubai. This move was primarily to introduce NetSol to the potential of the very
rich Middle Eastern countries. By design, NetSol has increased its brand
recognition in one of the most vibrant and dynamically growing
regions.
NetSol
will continue to manage LeaseSoft pre-sales support and deliveries by having two
specialized pools of resources for each of the five products under LeaseSoft.
One group focuses on software development required for customization and
enhancements. The second group comprises of LeaseSoft consultants concentrating
on implementation and onsite support. Both groups are being continually trained
in the domain of finance and leasing, system functionality, communication
skills, organizational behavior and client management.
The Asian
continent, Australia and New Zealand, from the perspective of LeaseSoft
marketing, are targeted by NetSol Technologies from its Lahore subsidiary, its
offices in Beijing, and it’s newly opened business and technical support office
in Bangkok, Thailand. NetSol UK through its base in Horsham, United Kingdom,
focuses on the European market. The marketing for LeasePak and LeaseSoft in USA
and Canada is carried out directly by the North American division.
NetSol
has established a strategy to aggressively market LeaseSoft in various regions
of the world. As part of the strategy, NetSol has forged alliances with
reputable IT companies and has already appointed distributors in Singapore and
Greece. NetSol has entered into a mutually non-exclusive agreement with
Singapore Computer Systems (SCS) that allows SCS to market LeaseSoft in the
entire Asia Pacific Region. Furthermore, NetSol is looking forward to developing
partner networks all across the world with reputable companies.
During
the last two fiscal years, the Company's revenue mix by major markets was as
follows:
|
|
2008
|
|
2007
|
|
Asia
Pacific Region (NetSol PK, NetSol-Innvation, Abraxas)
|
|
|
66.01
|
%
|
|
61.04
|
%
|
Europe
(NTE, UK Ltd.)
|
|
|
20.95
|
%
|
|
18.72
|
%
|
North
America (NetSol Technologies, Inc., NTNA)
|
|
|
10.83
|
%
|
|
16.92
|
%
|
Telecom
Sector (NetSol Connect)
|
|
|
2.21
|
%
|
|
3.32
|
%
|
Total
Revenues
|
|
|
100.00
|
%
|
|
100.00
|
%
|
Fiscal Year 2007-2008 Performance
Overview
The
Company has effectively expanded its development base and technical capabilities
by training its programmers to provide customized IT solutions in many other
sectors and not limiting itself to the lease and finance industry.
NetSol Technologies Ltd. (“NetSol
PK”)
Our
off-shore development facility continues to perform strongly and has enhanced
its capabilities and expanded its sales and marketing activities. The Lahore
operation supports the worldwide customer base of the LeaseSoft suite of
products and all other product offerings. NetSol has continued to lend support
to the Lahore subsidiary to further develop its quality initiatives and
infrastructure. The programming and development facility in Pakistan, being the
engine which drives NetSol worldwide, continues to be the major source of
revenue generation. The Pakistan operation contributed 54% of the 2008 revenues
with $19.6 million in revenues for the current year with a net profit of $9.8
million before adjusting the minority interest. This was accomplished primarily
through export of IT services and product licensed to both the domestic and
overseas markets.
While
available to support its product and services base on a world-wide basis, NetSol
PK’s selling and marketing efforts are focused on Asia Pacific, China and Middle
East. In China, the company has established a business office in the capital
city of Beijing from which it expects to have more business in the future.
Business offices in Bangkok, Thailand and Australia have been added in order to
provide business and technical support for the Company’s customers.
NetSol
has signed on new customers for LeaseSoft as well as for bespoke development
services. For LeaseSoft the following new projects were earned by the Company:
|
·
|
11
new implementation contracts signed during the
year.
|
|
·
|
Of
these, 7 new contracts signed during the fourth
quarter.
|
|
·
|
New
names in the customer list, including Fiat Automotive Finance, CNH
Capital, and a large automotive blue chip company in
China.
|
|
·
|
The
addition of the Fleet Management System to the LeaseSoft
Suite.
|
Its
current client base includes Mercedes Benz Financial Services (Australia, Japan,
New Zealand, Singapore, South Korea, Thailand, China and Taiwan), Yamaha Motors
Finance Australia, Toyota Motors Finance China, Toyota Leasing Thailand,
Finlease Commercial Bank of Mauritius, CNH Capital Australia, Fiat Automotive
Finance China, Dongfeng Nissan Auto Finance China, BMW Financial Services in
China and Al Amthal Leasing Saudi Arabia.
Information
technology services are valuable only if they fulfill the business strategy and
project objectives set forth by the customer. NetSol’s expert consultants have
the technical knowledge and business experience to ensure the optimization of
the development process in alignment with basic business principles. 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 IT
enterprise solutions to achieve its customers' strategic objectives. Services
customers include:
Netsol Technologies Europe, Ltd.
(“NTE”)
In
February 2005, NetSol acquired 100% of CQ Systems Ltd., (now NetSol Technologies
Europe, Ltd. “NTE”) an IT products and service company based in the UK. As a
result of this acquisition, NetSol has access to a broad European customer base
using IT solutions complementary to NetSol’s LeaseSoft product. NetSol plans to
leverage NTE’s knowledge base and strong presence in the Asset Finance market to
launch LeaseSoft in the UK and continental Europe.
NTE’s
integration has included the continued leverage of the Company’s high quality
but lower cost resources in its offshore development center in Lahore, Pakistan.
This phase of the transition plan has been completed whereby a dedicated team of
software engineers and testers have been trained on the NTE product suite and
most of the quality assurance, documentation and some of the CQ products core
software development activities have been transitioned to Lahore. NTE has been
able to implement significant productivity and cost improvements which have
included realizing the higher level of cost efficiencies of using the Lahore
offshore facility for software development and quality assurance.
NetSol
Technologies Limited, the Company’s original UK subsidiary, is responsible for
the Company’s activities in the Middle East region; plus ongoing marketing and
sales of the LeaseSoft portfolio of leasing solutions and NetSol’s range of on
and off-shore IT services. The Company plans to integrate this entity with NTE
and merge the Mid East business with the upcoming Dubai operation.
The
combined NTE group contributed approximately $7.7 million in revenues during the
current fiscal year or 21% of the Company’s revenues. The total net income was,
approximately, $1.8 million.
A few of
NTE’s recent accomplishments include:
|
·
|
In
collaboration with its strategic partner Real Consulting Information
Systems S.A. of Athens, Greece ("Real Consulting S.A."), signed an
agreement with a major European Bank to implement LeaseSoft within its
growing financial leasing unit. The Bank is an international banking
organization that offers its products and services both through its
network of over 1,500 branches and points of sale and through alternative
distribution channels.
|
|
·
|
Kaupthing
Singer and Friedlander goes live in February 2008 with the full web based
proposal management and credit underwriting solution, a complete
replacement of the web front end with an NTE
product
|
|
·
|
BNP
Paribas LG NL goes live in May 2008 with
LSA
|
|
·
|
Venture
Finance goes live in December 2007
|
|
·
|
Execution
of a reseller’s agreement for LeaseSoft Asset with a strong software
provider in Africa
|
NetSol Technologies North America
(“NTNA”)
NTNA
provides the leasing technology industry in the development of Web-enabled and
Web-based tools to deliver superior customer service, reduce operating costs,
streamline the lease management lifecycle, and support collaboration with
origination channel and asset partners. NTNA customers include such companies as
Hyundai, JP Morgan/Chase, KeyCorp Leasing, City National Bank, Terex Corp.,
National City Capital Corp., ORIX, and Volkswagen Credit.
NTNA
contributed approximately $4.0 million in revenues during the current fiscal
year or 11% of the Company’s revenues. The total net loss was, approximately,
$910,000.
This
division underwent restructuring and reorganization in June 2008. Due to change
of senior management in 2008, the new business activity slowed down while the
maintenance revenue continued.
NetSol-Innovation
In
November 2004, the Company entered into a joint venture agreement with the
Innovation Group (formerly referred to as TiG, (“TiG”) whereby the TIG-NetSol
(Pvt) Ltd., now NetSol-Innovation (Pvt), Ltd., (“EI”), a Pakistani company,
provides support services enabling TiG to scale solution delivery operations in
key growth markets. TiG-NetSol operations are centered in NetSol’s IT Village,
Lahore, Pakistan. NetSol owns a majority of the venture. The entities share in
the profits of the joint venture on the basis of their shareholding. The
outsourcing model between TiG and NetSol involves services pertaining to
business analyses, configuration, testing, software quality assurance (SQA),
technical communication as well as project management for TiG software. Today,
Netsol has developed extensive expertise across the insurance domain and has
become a center of excellence with a 130 person team
The joint
venture, NetSol-Innovation, contributed approximately $4.2 million in revenue
during the current fiscal year or 11% of the Company’s revenues. The total net
profit was, approximately, $2.1 million before adjusting for the 49.9% minority
interest in earnings.
NetSol Connect (Pvt)
Limited
In August
2003, NetSol entered into an agreement with United Kingdom based Akhter Group
PLC (Akhter). Under the terms of the agreement, Akhter Group acquired 49.9% of
the Company’s subsidiary; Pakistan based NetSol Connect (Pvt) Ltd., an Internet
service provider (ISP) in Pakistan. In fiscal year 2004, NetSol Connect steadily
grew its presence in three cities (Karachi, Lahore and Islamabad) by acquiring a
small Internet online company called Raabta Online. This created a national
presence for wireless broadband business in key markets that have experienced
explosive growth. NetSol Connect with its new laser and wireless technologies
has a potential to become a major brand in Pakistan. The partnership with Akhter
Computers is designed to rollout the services of connectivity and wireless to
the Pakistani national market.
NetSol
Connect (Pvt) Ltd. will continue to seek to grow revenues. The revenue
contribution for NetSol Connect during the current fiscal year was $811,000 or
about 2% of revenues. The total net loss was $8,800 before adjusting the
minority interest in losses.
LeaseSoft Sales
NetSol
has signed on new customers for LeaseSoft as well as for bespoke development
services. For LeaseSoft the following new projects were earned by the Company:
|
·
|
11
new implementation contracts signed during the
year.
|
|
·
|
Of
these, 7 new contracts signed during the fourth
quarter.
|
|
·
|
New
names in the customer list, including Fiat Automotive Finance, CNH
Capital, and a large automotive blue chip company in
China.
|
|
·
|
The
addition of the Fleet Management System to the LeaseSoft
Suite.
|
The
current LeaseSoft client base includes Daimler Financial Services (Australia,
Japan, New Zealand, Singapore, South Korea, Thailand, China and Taiwan),
Mercedes-Benz Finance Japan, Yamaha Motors Finance Australia, Toyota Motors
Finance China, Toyota Leasing Thailand, Mauritius Commercial Bank, Finlease
Company Limited, CNH Capital Australia, Fiat Automotive Finance China, Large
Automotive Bluechip Company in China and BMW Financial Services in China.
Technology Campus
Due to
the Company’s global growth, the NetSol development infrastructure has required
expansion. Management and the Board have approved the construction of a new
structure behind the current NetSol tower in Lahore.
The
original Technology Campus was completed in May 2004 and the Lahore operations
relocated to the facilities in May 2004. The facility was formally inaugurated
by the former Prime Minister of Pakistan H.E. Shaukat Aziz on March 4, 2005. The
campus has been declared a Software Technology Park by the Government of
Pakistan. The Government has also financed the linking of the campus with the
high speed fiber optic backbone capable of providing 155 MB internet bandwidth.
The Internet bandwidth is effectively utilized to offer state of the art video
conferencing and VOIP (Voice over IP) facilities for effective and seamless
communication with our global customer base. Encompassing a covered area of more
than 55,000 square feet and housing over 600 professionals, this is one of the
largest such facilities for IT services in the region. During the current fiscal
year, NetSol PK needed to expand its space due to its growth. It has made
arrangements with the owner of the adjacent land to build an office to the
Company’s specifications and the Company agreed to help pay for the development
of the land in exchange for discounted rent for the next three
years. In
addition, NetSol PK has begun work on building a new building behind the current
one. The enhancement of infra-structure is necessary to meet the company’s
growth in local and international business. In
addition to being the headquarters for NetSol’s subsidiaries in Pakistan, it
also serves the NetSol group’s global services and products development
facility. The CMMi Level 5 rated facility ensures quality engineering practices
to its clients across the globe. The campus site is located in Pakistan's second
largest city, Lahore, with a population of six million. An educational and
cultural center, the city is home to most of the leading technology oriented
academia of Pakistan including names like LUMS, NU-FAST & UET. These
institutions are also the source of quality IT resources for the Company. Lahore
is a modern city with very good communication and solid infrastructure and road
network. The Technology campus is located at about a 5-minute drive from the
newly constructed advanced and high-tech Lahore International Airport. This
campus is the first purpose built software building with state of the art
technology and communications infrastructure in Pakistan. The investment made by
the company in developing this technology campus is proving to be highly
effective in attracting new business not only from global blue chip customers
but also from the fast developing Pakistan market.
People and Culture
The
Company believes it has developed a strong corporate culture that is critical to
its success. Its key values are delivering world-class quality software,
client-focused timely delivery, leadership, long-term relationships, creativity,
openness and transparency and professional growth. The services provided by
NetSol require proficiency in many fields, such as software engineering, project
management, business analysis, technical writing, sales and marketing,
communication and presentation skills. Every one of our software developers is
proficient in the English language. English is the second most spoken language
in Pakistan and is mandatory in middle and high schools.
To
encourage all employees to build on our core values, we reward teamwork and
promote individuals who demonstrate these values. NetSol offers all of its
employees the opportunity to participate in its stock option program. Also, the
Company has an intensive orientation program for new employees to introduce our
core values and a number of internal communications and training initiatives
defining and promoting these core values. We believe that our growth and success
are attributable in large part to the high caliber of our employees and our
commitment to maintain the values on which our success has been based. NetSol
worldwide is an equal opportunity employer. NetSol attracts professionals not
just from Pakistan, where it is very well known, but also IT professionals
living overseas.
Management
believes it has been successful in capitalizing on the “Reverse Brain Drain”
phenomenon whereby it has been able to attract and retain highly qualified and
suitably experienced IT and management professionals working overseas and
returning to Pakistan. These include senior management as well as software
development professionals that directly contribute to the organization’s
improvement of various engineering processes and procedures at NetSol.
NetSol
believes it has gathered, over the course of many years, a team of very loyal,
dedicated and committed employees. Their continuous support and belief in the
management has been demonstrated by their further investment of cash. Most of
these employees have exercised their millions of stock options . Management
believes that its employees are the most invaluable asset of NetSol.
Overall,
NetSol as a global IT company has over 20% female employees with the biggest
concentration in our development facility in Lahore and in the U.S.
headquarters. The Company is an equal opportunity employer. Being a successful
company with a well respected name in the business community, NetSol encourages
its employees to actively participate and contribute to charitable contributions
for catastrophic tragedies anywhere in the globe.
There is
significant competition for employees with the skills required to perform the
services we offer. The company runs an elaborate training program for different
cadre of employees ranging from technical knowledge, business domains as well as
communication, management and leadership skills. The Company believes that it
has been successful in its efforts to attract and retain the highest level of
talent available, in part because of the emphasis on core values, training and
professional growth. We intend to continue to recruit, hire and promote
employees who share this vision.
As of
June 30, 2008, we had 959 full-time employees and 38 part-time employees;
comprised of 775 IT project and technical personnel in Pakistan, UK, Australia,
and US; and 222 non-IT personnel in Pakistan, UK, Australia and US. The non-IT
personnel include 43 employees in management, 51 employees in sales and
marketing, 28 employees in accounting, 18 in customer support, and 82 in general
and administration. None of our employees are subject to a collective bargaining
agreement. Our telecom subsidiary NetSol Connect has 78 full time employees
based in Karachi, Pakistan, which are included in the total full-time employee
count.
Competition
Neither a
single company nor a small number of companies dominate the IT market in the
space in which the Company competes. A substantial number of companies offer
services that overlap and are competitive with those offered by NetSol. Some of
these are large industrial firms, including computer manufacturers and computer
consulting firms that have greater financial resources than NetSol and, in some
cases, may have greater capacity to perform services similar to those provided
by NetSol.
In the
LeaseSoft business space, the barriers to entry are getting higher. The products
are getting more cutting edge and richness in functionality is paramount. Older
companies have prolonged the life of their legacy products by creating web-based
front ends, while the core of the systems has not been re-engineered.
In the
case of LeaseSoft, we compete chiefly against leading suppliers of IT solutions
to the financial industry, including names such as Fimasys, International
Decision Systems (IDS), Data Scan, CHP Consulting, 3i Infotech, Finnone and
Nucleus Software. In the LeaseSoft business space, the barriers to entry are
getting higher. The products are getting more cutting-edge, and richness in
functionality is paramount. Older companies have prolonged the life of their
legacy products by creating web-based front ends, while the core of the systems
has not been re-engineered.
In the IT
based business services areas, we compete with both smaller local firms and many
global IT services providers, including names such as Wipro, InfoSys, Satyam
Infoway, HCL and TCS (Tata Consulting).
Our
competition mostly are based in high cost locations in the US, UK and Europe as
opposed to NetSol with its facility in Lahore. NetSol is now the only company in
the leasing and finance solution space that provides regional solutions in North
America, Europe and Asia Pacific. In addition, it is the only company in this
space that is publicly listed and provides an offshore development
infrastructure with CMMi level 5 accreditation.
Some of
the competitors of the Company are International Decisions Systems, EDW, Data
Scan, AIPAC, CHP, KPMG, LMK Resources, Systems Innovation (Si3), Bearing Point,
Kalsoft, Systems Limited, Oratech Pakistan, TechAccess Pakistan a few others.
These companies are scattered worldwide geographically. In terms of offshore
development, we are in competition with some of the Indian companies such as
Wipro, HCL, TCS, InfoSys, Satyam Infoway and others. Many of the competitors of
NetSol have longer operating history, larger client bases, and longer
relationships with clients, greater brand or name recognition and significantly
greater financial, technical, and public relations resources than NetSol.
Existing or future competitors may develop or offer services that are comparable
or superior to ours at a lower price, which could have a material adverse effect
on our business, financial condition and results of operations.
Customers
Some of
the customers of NetSol include: Mercedes Benz Financial Services (Australia,
Japan, New Zealand, Singapore, South Korea, Thailand, China and Taiwan), Yamaha
Motors Finance Australia, Toyota Motors Finance China, Toyota Leasing Thailand,
Finlease Commercial Bank Mauritius, CNH Capital Australia, Fiat Automotive
Finance China, Dongfeng Nissan Auto Finance China, BMW Financial Services China
and Al Amthal Leasing Saudi Arabia. Volkswagen Credit U.S. & Canada; Hyundai
Motor Finance; Keycorp Leasing; Chase Equipment Finance; National City
Commercial Credit; City National Bank; and, Terex Corporation In addition,
NetSol provides offshore development and testing services to The Innovation
Group Plc UK and their blue chip global insurance giants like Allstate, Cendent,
etc. The JV with The Innovation Group contributes to about 12% of NetSol’s
revenues. NetSol is also a strategic business partner for Daimler (which
consists of a group of many companies), which accounts for approximately 5% of
our revenue. Toyota Motors (which consists of a group of many companies)
accounts for approximately 3% of our revenues. Nissan Auto Finance (which
consists of a group of many companies) accounts for approximately 11% of our
revenues. However no single client represents more than 10% of the revenue for
the fiscal year ended June 30, 2008.
As
compared to the previous year, NetSol PK was able to materialize a number of
services contracts within the local Pakistani public and defense sectors. In
2008 NetSol PK has continued to make strides in the land recording sector by
winning two pilot projects in different cities of Pakistan. This year, NetSol,
has gone a step further by providing consultancy services to organizations so as
to improve their quality of operations and services in addition to winning
strategically important assignments within the E-Governance domain for
organizations of national significance in Pakistan, including the Ministry of
Health and Establishment Division. Also, Netsol was able to secure a major
defense sector hospital for its HMIS solution. Its clients include private as
well as public sector enterprises. Also, NetSol was successful in consolidating
its standing as one of the preferred solutions provider for the Military sector
and Defense organizations. The NetSol service portfolio has now diversified into
a comprehensive supply chain of end to end services and solutions catering to
BPR, consultancy, applications development, and systems engineering and
integration, as well as other supporting processes for turnkey projects.
Web Presence
The
Company is committed to regaining and extending the advantages of its direct
model approach by moving even greater volumes of product sales, service and
support to the Internet. The Internet provides greater convenience and
efficiency to customers and, in turn, to the Company. The company maintains two
corporate websites, www.NetSoltech.com and
www.NetSolpk.com for its
Global and Pakistani audience, respectively. The Company also maintains a
product specific website for LeaseSoft: www.leasesoft.biz.
NetSol’s
software development and SQA team as well as its clients use its web based
customer relationship management solution (HelpDesk) for timely and direct
communication, as part of providing ongoing support and maintenance services.
More details can be found on http://www.netsolhelp.com.
Through
the company’s web sites, its customers, both existing and potential, and
investors can access a wide range of information about its product offerings,
and support and technical matters.
Corporate Structure
The
Company's headquarters are in Calabasas, California. Nearly 70% of the
programming and development is carried out at NetSol’s technology campus in
Lahore, Pakistan. The other 30% of development is conducted in the Proximity
Development Center or "PDC" in Horsham, UK and the U.S. development facility
located in the San Francisco Bay Area of California. This signifies the newly
launched ‘BestShoring’ model by providing the best services at the most
efficient pricing model. The marketing effort is shared and coordinated between
the primary divisions operating at NetSol PK. in Lahore, Pakistan; NetSol UK,
NTE in the UK; and NTNA in the U.S. US marketing operations are conducted
through the parent and NTNA. These are the core operating companies engaged in
developing and marketing IT solutions and software development and marketing. An
initiative is underway to unify the look and feel of all advertising, branding
and marketing material.
NetSol
UK, together with NTE, services and supports the clients in the UK and Europe.
NetSol PK services and supports the customers in the Asia Pacific and South Asia
regions. NTNA, together with the parent, supports all of the North American
customers.
NetSol
has initiated the launch of Dubai based presence to promote and market its
business in one of the most vibrant and dynamic regions. The rationale of
approaching the Dubai-Mid East market is to leverage NetSol’s global footprint
and brand recognition. There is apparent appetite and loyalty of Middle East
businesses with Pakistan based IT resources and NetSol expects to see strong
traction in coming years.
Despite
numerous challenges facing Pakistan in 2008 due to political unrest and economic
pressure, according to reports from World Bank ranking, most rank Pakistan as
the 60th country
in the ease of doing business ahead of both China and India.
The IT
and telecommunication sector is the fastest growing sector in Pakistan mostly
due to growing privatization, relaxed policies and a 15 year tax holiday on IT
exports of services and products. These policies have strongly encouraged
companies, like NetSol, to enhance its infrastructure and develop a solid and
formidable team of IT professionals.
The
Company has seen noticeable demand from APAC and UAE region to use NetSol PK
development infrastructure that offers competitive price and technology
advantage to serve its customers.
A few of
NetSol’s major successes achieved in 2008 were:
|
* |
Adding
5 new clients in China in the last 18 months, continuing its status as the
Company’s biggest single market
|
|
* |
A
turnaround in our Australian market adding new names such as CNH Australia
|
|
* |
Launch
of Thailand office
|
|
* |
Robust
growth of NetSol’s joint venture with Innovation Group, over 130
programmers dedicated
|
|
*
|
Continued
addition of blue chip customers such as Terex Corp, Fiat, Toyota
Financial, blue chip names in the US and
Investec
|
From the
point of view of the interests of our foreign partners and customers in NetSol,
Pakistan remains a safe place to do business. The specific successes achieved
from the acquisitions of CQ Systems (NTE) and McCue Systems (NTNA) endorses the
fact that Pakistan is a safe place to do business when compared to many other
troubled spots in the globe. Our best and proven business case is the NetSol -
Innovation Group joint venture. This represents the best example of not only
NetSol’s capabilities but the ability of a Pakistan based company to achieve off
shore business model success for a Western based company. This joint venture
provides the major US and UK customers of Innovation Group in the UK with world
class service from NetSol Pakistan, enhancing the client’s productivity at much
more attractive prices. Under any geo-political challenges, the Company is quite
prepared in any contingency to use alternate development facilities located in
Beijing (China), Horsham (UK), Emeryville (USA) and Adelaide (Australia). These
locations mitigate any underlying risk due to any geopolitical crises.
Organization
NetSol
Technologies, Inc. (formerly NetSol International, Inc.) was founded in 1997 and
is organized as a Nevada corporation. The Company amended its Articles of
Incorporation on March 20, 2002 to change its name to NetSol Technologies,
Inc.
The
success of the Company, in the near term, will depend, in large part, on the
Company's ability to: (a) continue to grow revenues and improve profits, (b)
raise funds for continued operations and growth; (c) make a major entry in the
US market and, (d) streamline sales and marketing efforts in the Asia Pacific
region, Europe, the Middle East, Japan and Australia. However, management's
outlook for the continuing operations, which has been consolidated and has been
streamlined, remains optimistic and bullish. With continued emphasis on a shift
in product mix towards the higher margin consulting services, the Company
anticipates to be able to continue to improve operating results at its core by
reducing costs and improving gross margins. Management has effectively achieved
a seamless transition and integration of NTE and NTNA with NetSol front end and
back end operations.
Intellectual Property
The
Company relies upon a combination of nondisclosure and other contractual
arrangements, as well as common law trade secret, copyright and trademark laws
to protect its proprietary rights. The Company enters into confidentiality
agreements with its employees, generally requires its consultants and clients to
enter into these agreements, and limits access to and distribution of its
proprietary information. The NetSol logo and name, as well as the LeaseSoft logo
and product name have been copyrighted and trademark registered in Pakistan. The
Company intends to trademark and copyright its intellectual property as
necessary and in the appropriate jurisdictions.
Governmental Approval and Regulation
Current
Company operations do not require specific governmental approvals. Like all
companies, including those with multinational subsidiaries, we are subject to
the laws of the countries in which the Company maintains subsidiaries and
conducts operations. Pakistani law allows a tax exemption on income from exports
of IT services and products up to 2016. While foreign based companies may invest
in Pakistan, repatriation of their investment, in the form of dividends or other
methods, requires approval of the State Bank of Pakistan. The present Pakistani
government has effectively reformed the policies and regulations effecting
foreign investors and multinational companies thus, making Pakistan an
attractive and friendly country in which to do business.
Research and
Development
In
anticipation of an upcoming World Bank funded program, NetSol Pakistan has been
proactively undertaking a Research and Development exercise to develop a proof
of concept for “computerization of Land Records Management Information System
(LRMIS)”. NetSol’s LRMIS is developed after thorough evaluations of existing
manual system and client/user needs, detailed system analysis and process flow
definition. It automates various land record management registers and is
programmed to generate key reports on multiple parameters. Overall it provides
the benefits of timely data availability, data transparency and accuracy, cost
effectiveness, easy transaction tracking and better decision making using
IT-enablement in a field where its need is hugely felt. As of June 30, 2008, the
Company has invested approximately $1,044,389 on this project.
ITEM 2 - PROPERTIES
Company
Facilities
The
Company’s corporate headquarters have been located at 23901 Calabasas Road,
Suite 2072, Calabasas, CA 91302 since 2003. It is located in approximately 1,919
rentable square feet, with a monthly rent of $4,754. The lease is a two-year
lease expiring in December 2009.
Other
leased properties as of the date of this report are as follows:
|
|
|
|
Purpose/Use
|
|
Monthly
Rental Expense
|
|
|
|
|
|
|
|
|
|
Australia.
|
|
|
1,140
|
|
|
Computer
and General Office
|
|
$
|
1,380
|
|
|
|
|
|
|
|
|
|
|
|
|
Beijing,
China
|
|
|
431
|
|
|
General
Office
|
|
$
|
4,315
|
|
|
|
|
|
|
|
|
|
|
|
|
Burlingame,
CA (NetSol McCue)
|
|
|
8,089
|
|
|
Computer
and General Office
|
|
$
|
16,178
|
|
|
|
|
|
|
|
|
|
|
|
|
Emeryville,
CA (NTNA)
|
|
|
23,908
|
|
|
Computer
and General Office
|
|
$
|
77,880
|
|
|
|
|
|
|
|
|
|
|
|
|
Horsham,
UK (NetSol Europe)
|
|
|
6,570
|
|
|
Computer
and General Office
|
|
$
|
12,528
|
|
|
|
|
|
|
|
|
|
|
|
|
NetSol
PK (Karachi Office)
|
|
|
1,883
|
|
|
General
Office
|
|
$
|
1,726
|
|
|
|
|
|
|
|
|
|
|
|
|
NetSol
PK (Islamabad Office)
|
|
|
3,240
|
|
|
General
Office & Guest House
|
|
$
|
1,417
|
|
|
|
|
|
|
|
|
|
|
|
|
NetSol
(Rawalpindi Office)
|
|
|
6,200
|
|
|
General
Office
|
|
$
|
850
|
|
|
|
|
|
|
|
|
|
|
|
|
Thailand
|
|
|
936
|
|
|
Computer
and General Office
|
|
$
|
752
|
|
The
Australia lease is a month to month lease and is rented at the rate of $1,380
per month. The Beijing lease is a two year lease that expires in August 2009.
The monthly rent is $4,315 per month. The Bangkok lease is a one year lease with
monthly rent of $752. The NetSol Europe facilities, located in Horsham, United
Kingdom, are leased until June 23, 2011 for an annual rent of £75,000
(approximately $150,330). NTNA recently relocated to the Emeryville, California
location. The Emeryville lease is a ten year lease with monthly rent of $77,880.
NTNA’s former Burlingame, California, premises are leased until June 30, 2009
with a monthly rent of $16,178. NTNA is actively seeking to sublet the
Burlingame, California premises.
The
NetSol Karachi lease is a 3 year lease that expires on December 4, 2008 and
currently is rented at the rate of $1,726 per month. The NetSol Islamabad lease
is a 15 year lease that expires on August 31, 2016 and currently is rented at
the rate of $1,417 per month. The NetSol Rawalpindi lease is a 1 year lease that
expires in January 2009 and currently is rented at the rate of $850 per
month.
Upon
expiration of its leases, the Company does not anticipate any difficulty in
obtaining renewals or alternative space.
Lahore Technology Campus
The newly
built Technology Campus was inaugurated in Lahore, Pakistan in May 2004. This
facility consists of 50,000 square feet of computer and general office space.
This facility is state of the art, purpose-built and fully dedicated for IT and
software development; the first of its kind in Pakistan. Title to this facility
is held by NetSol Technologies Ltd. and is not subject to any mortgages. The
Company also signed a strategic alliance agreement with the IT ministry of
Pakistan to convert the technology campus into a technology park. By this
agreement, the IT ministry has invested nearly 10 million Rupees (approximately
$150,000) to install fiber optic lines and improve the bandwidth for the
facility. In order to cater for future business expansion and taking advantage
of depressing real estate market, the company purchased two new cottages
adjacent to its main building. Total covered area of these cottages is 4,900 sq
feet and it cost was approximately $250,000. The management has moved its
accounts, finance, internal audit, company secretariat and costing and budgeting
department into these cottages. For the recreation of its valuable human
resources, the management has also established a gymnasium there.
ITEM 3 - LEGAL PROCEEDINGS
To the
best knowledge of Company’s management and counsel, there is no material
litigation pending or threatened against the Company.
ITEM 4 - SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
NetSol
conducted its annual meeting of shareholders on May 2, 2008. The following are
the items that were voted upon.
1.
Election of Directors
The
following persons were elected directors of the Company to hold office until the
next Annual General Meeting of the Shareholders. The following sets for the
voting tabulation for each director:
Director
|
|
For
|
|
Withhold
|
|
Percent
of Total Voted
|
|
Total
Shares Voted
|
|
Najeeb
Ghauri
|
|
|
22,530,798
|
|
|
381,810
|
|
|
98.33
|
|
|
22,912,608
|
|
Naeem
Ghauri
|
|
|
22,527,198
|
|
|
385,410
|
|
|
98.31
|
|
|
22,912,608
|
|
Salim
Ghauri
|
|
|
22,496,507
|
|
|
416,101
|
|
|
98.18
|
|
|
22,912,608
|
|
Shahid
Burki
|
|
|
22,338,231
|
|
|
574,377
|
|
|
97.49
|
|
|
22,912,608
|
|
Eugen
Beckert
|
|
|
22,339,231
|
|
|
574,224
|
|
|
97.49
|
|
|
22,912,608
|
|
Mark
Caton
|
|
|
21,919,409
|
|
|
993,199
|
|
|
95.66
|
|
|
22,912,608
|
|
Alexander
Shakow
|
|
|
22,613,565
|
|
|
299,043
|
|
|
98.69
|
|
|
22,912,608
|
|
2.
Ratification of Appointment of Auditors
Kabani
& Company Inc. was appointed as Auditors for the Company to hold office
until the close of the next annual general meeting of the Company. The directors
were authorized to fix the remuneration to be paid to the auditors. The
following sets forth the tabulation of the shares voting for this
matter.
Total
Shares Voted
|
|
For
|
|
Against
|
|
Abstain
|
|
Percent
|
|
22,912,608
|
|
|
21,934,373
|
|
|
813,922
|
|
|
164,311
|
|
|
95.73
|
%
|
.
3.
Amendment of Articles of Incorporation to Increase Capital Stock
An
amendment of the articles of incorporation to increase the total capital stock
to 100,000,000 was approved of which 95,000,000 shall consist of common stock,
$.001 par value and 5,000,000 shall consist of preferred stock, $.001 par value.
The following sets forth the tabulation of the shares voting for this
matter.
Total
Shares Voted
|
|
For
|
|
Against
|
|
Abstain
|
|
Broker
Non-Vote
|
|
Percent
|
|
22,912,608
|
|
|
12,282,394
|
|
|
1,464,299
|
|
|
62,630
|
|
|
9,103,285
|
|
|
53.60
|
%
|
4.
Adoption of the 2008 Equity Incentive Plan
The 2008
Equity Incentive Plan which permits the grant, pursuant to the plan, of up to
1,000,000 shares of common stock of the Company was approved. The following sets
forth the tabulation of the shares voting for this matter.
Total
Shares Voted
|
|
For
|
|
Against
|
|
Abstain
|
|
Broker
Non-Vote
|
|
Percent
|
|
22,912,608
|
|
|
12,075,501
|
|
|
1,518,416
|
|
|
214,460
|
|
|
9,103,285
|
|
|
52.70
|
%
|
PART II
ITEM 5 - MARKET FOR REGISTRANT'S
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS; RECENT SALES OF UNREGISTERED
SECURITIES
(a)
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET
INFORMATION - Common stock of NetSol Technologies, Inc. is listed and traded on
NASDAQ Capital Market under the ticker symbol "NTWK."
The table
shows the high and low intra-day prices of the Company's common stock as
reported on the composite tape of the NASDAQ for each quarter during the last
two fiscal years.
|
|
2007-2008
|
|
2006-2007
|
|
Fiscal
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
|
|
|
|
|
|
|
|
|
|
1st
(ended September 30)
|
|
|
3.19
|
|
|
1.41
|
|
|
2.00
|
|
|
1.27
|
|
2nd
(ended December 31)
|
|
|
4.64
|
|
|
2.18
|
|
|
2.05
|
|
|
1.40
|
|
3rd
(ended March 31)
|
|
|
2.75
|
|
|
1.45
|
|
|
2.05
|
|
|
1.40
|
|
4th
(ended June 30)
|
|
|
3.06
|
|
|
1.90
|
|
|
2.05
|
|
|
1.40
|
|
Common
stock of NetSol Technologies, Inc. is also listed and traded on the Dubai
International Financial Exchange (“DIFX”) under the ticker symbol “NTWK”
beginning on June 16, 2008.
The table
shows the high and low intra-day prices of the Company’s common stock as
reported on the DIFX for each quarter during the last two fiscal years, as
applicable.
|
|
2007-2008
|
|
2006-2007
|
|
Fiscal
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
|
|
|
|
|
|
|
|
|
|
1st
(ended September 30)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
2nd
(ended December 31)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
3rd
(ended March 31)
|
|
|
—
|
|
|
—
|
|
|
—-
|
|
|
—
|
|
4th
(ended June 30)
|
|
|
2.94
|
|
|
2.67
|
|
|
—
|
|
|
—
|
|
RECORD
HOLDERS - As of September 15, 2008, the number of holders of record of the
Company's common stock was 247. As of September 15, 2008, there were 26,419,770
shares of common stock issued and outstanding and 1,920 shares of preferred
stock issued and outstanding..
DIVIDENDS
- The Company has not paid dividends on its Common Stock in the past two fiscal
years.
SECURITIES
AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLAN
The table
shows information related to our equity compensation plans as of June 30, 2008:
|
|
Number of
securities to
be issued
upon
exercise of
outstanding
options,
warrants
and rights
|
|
Weighted-average
exercise price of
outstanding
options, warrants
and rights
|
|
Number of securities
remaining
available for
future issuance
under equity
compensation
plans
(excluding
securities
reflected in
column (a))
|
|
Equity Compensation
Plans
approved by
Security
holders
|
|
|
8,064,739
|
(1)
|
$
|
2.48
|
(2)
|
|
4,162,148
|
(3)
|
Equity
Compensation
Plans
not approved by
Security
holders
|
|
|
None
|
|
|
None
|
|
|
None
|
|
Total
|
|
|
8,064,739
|
|
$
|
2.48
|
|
|
4,162,148
|
|
|
(1)
|
Consists
of 16,000 under the 2001 Incentive and Nonstatutory Stock Option Plan;
882,000 under the 2002 Incentive and Nonstatutory Stock Option Plan;
479,000 under the 2003 Incentive and Nonstatutory Stock Option Plan;
3,075,425 under the 2004 Incentive and Nonstatutory Stock Option Plan; and
1,620,000 under the 2005 Incentive and Nonstatutory Stock Option Plan.
|
|
(2)
|
The
weighted average of the options is
$2.59.
|
|
(3)
|
Represents
840,394 available for issuance under the 2003 Incentive and Nonstatutory
Stock Option Plan; 51,754 available for issuance under the 2004 Incentive
and Nonstatutory Stock Option Plan; and, 3,270,000 available for issuance
under the 2005 Incentive and Nonstatutory Stock Option Plan.
|
(b)
RECENT SALES OF UNREGISTERED SECURITIES
In April
2008, the Company issued 20,000 rule 144 restricted shares to an accredited
consultant in exchange for services rendered. These shares were issued in
reliance on an exemption from registration available under Regulation D of the
Securities Act of 1933, as amended.
In June
2008, the Company issued 8,750 rule 144 restricted shares to an employee in
exchange for services rendered. These shares were issued in reliance on an
exemption from registration available under Sections 4(2) of the Securities Act
of 1933, as amended.
In June
2008, the Company issued a total of 20,000 shares of common stock to an
accredited, non-US based consultant in exchange for services rendered. These
shares were not transferred to the consultant as of June 30, 2008 and are
therefore, not included in the shares outstanding. These shares were issued in
reliance on an exemption from registration available under Regulation D of the
Securities Act of 1933, as amended.
During
the quarter ended June 30, 2008, holders of our Series A 7% Cumulative
Convertible Preferred Stock received 18,764 shares of common stock as payment of
dividends due under the terms of the Certificate of Designation. These shares
were issued in reliance on exemptions from registration available under
Regulation S and D of the Securities Act of 1933, as amended.
During
the fiscal years ended June 30, 2008 and 2007, employees exercised options to
acquire 849,938 and 1,574,273 shares of common stock in exchange for a total
exercise price of $1,518,429 and $2,590,473.
(c) STOCK
REPURCHASE PLAN
The
repurchases provided in the table below were made during the quarter ended June
30, 2008:
Issuer Purchases of Equity Securities(1)
|
|
|
|
Total Number of Shares
Purchased
|
|
Average Price Paid per
Share
|
|
Total Number of shares
Purchased as Part of
Publicly Announced Plans
or Programs
|
|
Maximum Number of
Shares that may be
Purchase Under the Plans
or Programs
|
|
|
|
|
|
|
|
|
|
|
|
January
2008
|
|
|
-0-
|
|
$
|
0.00
|
|
|
-0-
|
|
|
-0-
|
|
February
2008
|
|
|
-0-
|
|
$
|
0.00
|
|
|
-0-
|
|
|
-0-
|
|
March
2008
|
|
|
13,600
|
|
$
|
1.87
|
|
|
13,600
|
|
|
986,400
|
|
June
2008
|
|
|
-0-
|
|
$
|
0.00
|
|
|
-0-
|
|
|
-0-
|
|
(1)
(1) |
On
March 24, 2008, the Company announced that it had authorized a stock
repurchase program permitting the Company to repurchase up to 1,000,000 of
its shares of common stock over the next 6 months. The shares are to be
repurchased from time to time in open market transactions or privately
negotiated transactions in the Company's
discretion.
|
ITEM 6 - MANAGEMENT'S DISCUSSION AND
ANALYSIS AND PLAN OF OPERATIONS
The
following discussion is intended to assist in an understanding of NetSol’s
financial position and results of operations for the year ended June 30,
2008.
Forward Looking
Information
This
report contains certain forward-looking statements and information relating to
NetSol that is based on the beliefs of management as well as assumptions made by
and information currently available to its management. When used in this report,
the words “anticipate”, “believe”, “estimate”, “expect”, “intend”, “plan”, and
similar expressions as they relate to NetSol or its management, are intended to
identify forward-looking statements. These statements reflect management’s
current view of NetSol with respect to future events and are subject to certain
risks, uncertainties and assumptions. Should any of these risks or uncertainties
materialize, or should underlying assumptions prove inaccurate, actual results
may vary materially from those described in this report as anticipated,
estimated or expected. NetSol’s realization of its business aims could be
materially and adversely affected by any technical or other problems in, or
difficulties with, planned funding and technologies, third party technologies
which render NetSol’s technologies obsolete, the unavailability of required
third party technology licenses on commercially reasonable terms, the loss of
key research and development personnel, the inability or failure to recruit and
retain qualified research and development personnel, or the adoption of
technology standards which are different from technologies around which the
Company’s business is built. NetSol does not intend to update these
forward-looking statements.
Management
has set the following new goals for NetSol for the next 12 months:
|
·
|
Expand
sales and marketing activities in China. In addition to the Beijing
office, we anticipate launching new sales and support offices in at least
1-2 more cities in China.
|
|
·
|
Grow
NetSol in the newest region in the UAE and Gulf states. Initially, a small
virtual office is being set up in Dubai area that could roll into a bigger
and stand alone presence in the
area.
|
|
·
|
Globalization
and diversification of development and programming capabilities, not
limited to Southeast Asia but exploration of emerging economies in Central
and South America to support the NTNA
business.
|
|
·
|
Most
strategic goal in 2009 is to establish the NTNA business by expanding the
existing operations. The move from a smaller office in Burlingame to a
much larger office in Emeryville will be a major event in NetSol history.
This strategy has strong potential of ramping up global business and
valuation for Netsol consistent with our stated
vision.
|
|
·
|
Actively
explore both opportunistic and synergistic alliances and partnerships in
Americas and Europe.
|
|
·
|
Improve
the quality of hiring of senior management personnel in key locations.
Further build a stronger middle management resource pool to deliver and
execute the growth and earnings envisioned by the management.
|
|
·
|
Introduce
and market two LeaseSoft modules: WSF and CAPS in the US
market.
|
|
·
|
Grow
into new business verticals including healthcare, insurance, and banking
in the US and European markets. The launch of Global Business Services
through these verticals is an important goal in 2009.
|
|
·
|
Enhance
software design, engineering and service delivery capabilities by
increasing investment in training.
|
|
·
|
Continue
to invest in research and development in an amount between 7-10% of yearly
budgets in both new developments and domains within NetSol’s core
competencies.
|
|
·
|
NetSol
technology campus to become much more cost efficient, enhanced
productivity and services to global clients and partners.
|
|
·
|
Market
aggressively on a regional basis
the Company’s tri–product solutions by broader marketing efforts for
LeaseSoft in APAC and untapped markets; aggressively grow LeasePak
solutions in North America; and, further establish NetSol Enterprise
solution in the European markets.
|
|
·
|
Broaden
value added investor base in the UAE region and US institutions. Also
attract technology focused analysts coverage to improve NetSol valuation
and multiples.
|
Top Line
Growth through Investment in organic marketing activities. NetSol marketing
activities will continue to:
|
·
|
Prompt
organic expansion in North America market by expanding the sales and
marketing team.
|
|
·
|
Diversify
in new verticals of services in North America such as insurance,
healthcare, public sectors.
|
|
·
|
Continue
sales momentum and pipeline of LeaseSoft in APAC, Europe and now in the
Americas.
|
|
·
|
Further
extending services offerings to existing 30 plus US
customers.
|
|
·
|
Penetrate
further into the Chinese market by adding new
locations.
|
|
·
|
Effectively
enter the UAE and regional markets for LeaseSoft and
services.
|
|
·
|
Further
penetrate in Australian market in captive and non-captive
sectors.
|
|
·
|
Fully
leverage NetSol’s reputable name in the UK and European markets within
banking, leasing and insurance
sectors.
|
|
·
|
Encourage
joint ventures and new alliances.
|
.
Funding
and Investor Relations:
|
·
|
Add
breadth and depth to the investor base in the US and UK by aggressively
presenting in various investors forums and analysts
meetings.
|
|
·
|
Grow
further institutional ownership from 20% to 40% by continuously presenting
the Company with a focus on the US /China / UAE business
expansion.
|
|
·
|
IR/PR
to expand media reach in 2009. NetSol has been interviewed by Fox Business
Network, Nasdaq site and many print publications in
2008.
|
|
·
|
NetSol
management was invited on June 24, 2008 to closing bell at NASDAQ Stock
Exchange.
|
|
·
|
Expand
the investor ownership in the UAE market to generate increased trading
volumes on the NASDAQ Capital Market and the DIFX
exchanges.
|
|
·
|
Continue
to encourage stock options exercises by officers and employees. Improve
internal cash flows through enhanced process of A/Rs collections and
explore most strategic investors with value add
perspectives.
|
|
·
|
Make
every effort to enhance NetSol’s market capitalization in the
US.
|
Improving
the Bottom Line:
|
·
|
Grow
topline, enhance gross profit margins to 62-65% by leveraging the low-cost
development facility in Lahore and Best Shoring
model.
|
|
·
|
Generate
much higher revenues per developer and service group, enhance productivity
and lower cost per employee
overall.
|
|
·
|
Consolidate
subsidiaries and integrate and combine entities to reduce overheads and
employ economies of scale.
|
|
·
|
Continue
to review costs at every level to consolidate and enhance operating
efficiencies.
|
|
·
|
Grow
process automation and leverage the best practices of CMMi level 5.
|
|
·
|
Cost
efficient management of every operation and continue further consolidation
to improve bottom line.
|
|
·
|
Initiated
steps to consolidate some of the new lines of services businesses to
improve both operating and net margins.
|
Management
continues to be focused on building its delivery capability and has achieved key
milestones in that respect. Key projects are being delivered on time and on
budget, quality initiatives are succeeding, especially in maturing internal
processes.
In a
quest to continuously improve its quality standards, NetSol is frequently
assessed to maintain its CMMi Level 5 quality certification. We believe that the
CMMi standards achievement is a key reason in NetSol’s demand surge worldwide.
We remain convinced that this trend will continue for all NetSol offerings
promoting further beneficial alliances and increasing the number and quality of
our global customers. The quest for quality standards is a key to NetSol overall
sustainability and success. In 2008 NetSol PK became ISO 27001 certified, a
global standard and a set of best practices for Information Security
Management
MATERIAL
TRENDS AFFECTING NETSOL
NetSol
has identified the following material trends affecting NetSol
Positive
trends:
|
·
|
Robust
worldwide shift towards cost redundancies, economies of scale and labor
arbitrage.
|
|
·
|
The
global economic pressures has shifted IT processes and technology to
utilize both offshore and onshore solutions providers, to control the
costs and improve ROIs.
|
|
·
|
New
trends in the most emerging and newest markets. There has been a
noticeable new demand of leasing and financing solutions as a result of
new buying habits and patterns in the Middle East, Eastern Europe and
Central America.
|
|
·
|
The
overall leasing and finance industry in North America has steadily grown
to over $260 billion despite the subprime crises, partly due to the
resulting lack of cash liquidity.
|
|
·
|
The
levy of Indian IT sector excise tax of 35% (NASSCOM) on software exports
is very positive for NetSol. In Pakistan there is a 15 year tax holiday on
IT exports of services. There are 10 more years remaining on this tax
incentive.
|
|
·
|
Cost
arbitrage, labor costs still very competitive and attractive when compared
with India. Pakistan is significantly under priced for IT services and
programmers as compared to India.
|
|
·
|
Pakistan
is one of the fastest growing IT destinations from emerging and new
markets.
|
|
·
|
Chinese
market is burgeoning and wide open for NetSol’s ‘niche’ products and
services. NetSol is gaining a strong foothold in this
market.
|
Negative
trends:
|
·
|
The
disturbance in Middle East, Afghanistan and Pakistan borders. Due to 9/11
events and global war on terrorism, the travel advisory of Americans
travel restrictions to Pakistan continue. In addition, travel restrictions
to the US and more stringent immigration laws are causing delays in travel
to the US.
|
|
·
|
Negative
perception and image created by extremism and terrorism in the South Asian
region.
|
|
·
|
Overall
slump in world markets, curtailing IT and spending
budgets.
|
|
·
|
Unstable
economic and political environment in Pakistan and the current volatility
of Pakistan’s capital markets.
|
|
·
|
Worry
of an expanding and unending credit crunch in the world economies due to
financial and banking sector
failures.
|
|
·
|
Overall
decline of auto sales due to higher oil prices and inflationary
pressure.
|
CRITICAL ACCOUNTING
POLICIES
Our
financial statements and related public financial information are based on the
application of accounting principles generally accepted in the United States
(“GAAP”). GAAP requires the use of estimates; assumptions, judgments and
subjective interpretations of accounting principles that have an impact on the
assets, liabilities, and expense amounts reported. These estimates can also
affect supplemental information contained in the external disclosures of NetSol
including information regarding contingencies, risk and financial condition.
Management believes our use of estimates and underlying accounting assumptions
adhere to GAAP and are consistently and conservatively applied. Valuations based
on estimates are reviewed for reasonableness and conservatism on a consistent
basis throughout NetSol. Primary areas where our financial information is
subject to the use of estimates, assumptions and the application of judgment
include our evaluation of impairments of intangible assets, and the
recoverability of deferred tax assets, which must be assessed as to whether
these assets are likely to be recovered by us through future operations. We base
our estimates on historical experience and on various other assumptions that we
believe to be reasonable under the circumstances. Actual results may differ
materially from these estimates under different assumptions or conditions. We
continue to monitor significant estimates made during the preparation of our
financial statements.
VALUATION OF LONG-LIVED AND
INTANGIBLE ASSETS
The
recoverability of these assets requires considerable judgment and is evaluated
on an annual basis or more frequently if events or circumstances indicate that
the assets may be impaired. As it relates to definite life intangible assets, we
apply the impairment rules as required by SFAS No. 121, “Accounting for the
Impairment of Long-Lived Assets and Assets to Be Disposed Of” which requires
significant judgment and assumptions related to the expected future cash flows
attributable to the intangible asset. The impact of modifying any of these
assumptions can have a significant impact on the estimate of fair value and,
thus, the recoverability of the asset.
INCOME TAXES
We
recognize deferred tax assets and liabilities based on the differences between
the financial statement carrying amounts and the tax bases of assets and
liabilities. Deferred income taxes are reported using the liability method.
Deferred tax assets are recognized for deductible temporary differences and
deferred tax liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts of assets
and liabilities and their tax bases. Deferred tax assets generated by the
Company or any of its subsidiaries are reduced by a valuation allowance when, in
the opinion of management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment. Deferred tax assets resulting from the net operating losses
are reduced in part by a valuation allowance. We regularly review our deferred
tax assets for recoverability and establish a valuation allowance based upon
historical losses, projected future taxable income and the expected timing of
the reversals of existing temporary differences. During the fiscal years ended
June 30, 2008 and 2007, we estimated the allowance on net deferred tax assets to
be one hundred percent of the net deferred tax assets.
CASH RESOURCES
We were
successful in improving our cash position by the end of our fiscal year, June
30, 2008 with $6.2 million in cash worldwide. In addition, $3.3 million was
injected by the exercise of options and warrants in 2008 and $1.5 million was
injected from a sale of restricted common stock in a private
placement.
CHANGE IN MANAGEMENT AND BOARD OF
DIRECTORS
Board of
Directors
At the
2008 Annual Shareholders Meeting a seven member board was elected. The
shareholders voted for the following slate of directors: Mr. Najeeb U. Ghauri,
Mr. Salim Ghauri, Mr. Eugen Beckert, Mr. Naeem U. Ghauri, Mr. Shahid Burki, Mr.
Mark Caton and Mr. Alexander Shakow.
Committees
The Audit
committee is made up of Mr. Shahid Burki as Chairman, Mr. Caton, Mr. Beckert and
Mr. Shakow as members. The Compensation committee consists of Mr. Caton as its
Chairman and Mr. Beckert, Mr. Burki, and Mr. Shakow as its members. The
Nominating and Corporate Governance Committee consists of Mr. Beckert as
chairman and Mr. Burki, Mr. Caton and Mr. Shakow as members.
RESULTS OF OPERATIONS
THE YEAR ENDED JUNE 30, 2008 COMPARED
TO THE YEAR ENDED JUNE 30, 2007
Net
revenues for the year ended June 30, 2008 were $36,642,175 as compared to
$29,282,086 for the year ended June 30, 2007. Net revenues are broken out among
the subsidiaries as follows:
|
|
2008
|
|
|
|
2007
|
|
|
|
North
America:
|
|
|
|
|
|
|
|
|
|
Netsol
Tech NA (NTNA)
|
|
$
|
3,969,521
|
|
|
10.83
|
%
|
$
|
4,953,083
|
|
|
16.92
|
%
|
|
|
|
3,969,521
|
|
|
10.83
|
%
|
|
4,953,083
|
|
|
16.92
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Netsol
UK
|
|
|
1,767,564
|
|
|
4.82
|
%
|
|
138,656
|
|
|
0.47
|
%
|
Netsol
Tech Europe (NTE)
|
|
|
5,908,661
|
|
|
16.13
|
%
|
|
5,344,316
|
|
|
18.25
|
%
|
|
|
|
7,676,225
|
|
|
20.95
|
%
|
|
5,482,972
|
|
|
18.72
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia-Pacific:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NetSol
PK
|
|
|
19,610,797
|
|
|
53.52
|
%
|
|
14,796,001
|
|
|
50.53
|
%
|
Netsol-Innovation
|
|
|
4,199,520
|
|
|
11.46
|
%
|
|
2,622,318
|
|
|
8.96
|
%
|
Netsol
Connect
|
|
|
811,232
|
|
|
2.21
|
%
|
|
972,095
|
|
|
3.32
|
%
|
Netsol-Omni
|
|
|
30,366
|
|
|
0.08
|
%
|
|
44,151
|
|
|
0.15
|
%
|
Netsol-Abraxas
Australia
|
|
|
344,514
|
|
|
0.94
|
%
|
|
411,466
|
|
|
1.41
|
%
|
|
|
|
24,996,429
|
|
|
68.22
|
%
|
|
18,846,031
|
|
|
64.36
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Net Revenues
|
|
$
|
36,642,175
|
|
|
100.00
|
%
|
$
|
29,282,086
|
|
|
100.00
|
%
|
The
following table sets forth the items in our consolidated statement of operations
for the years ended June 30, 2008 and 2007 as a percentage of
revenues.
|
|
For
the Year
|
|
|
|
Ended
June 30,
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
|
|
|
|
%
|
|
|
|
%
|
|
Net
Revenues:
|
|
|
|
|
|
|
|
|
|
License
fees
|
|
$
|
12,685,039
|
|
|
34.62
|
%
|
$
|
9,788,266
|
|
|
33.43
|
%
|
Maintenance
fees
|
|
|
6,306,321
|
|
|
17.21
|
%
|
|
5,441,339
|
|
|
18.58
|
%
|
Services
|
|
|
17,650,815
|
|
|
48.17
|
%
|
|
14,052,481
|
|
|
47.99
|
%
|
Total
revenues
|
|
|
36,642,175
|
|
|
100.00
|
%
|
|
29,282,086
|
|
|
100.00
|
%
|
Cost of
revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and consultants
|
|
|
10,071,664
|
|
|
27.49
|
%
|
|
8,812,934
|
|
|
30.10
|
%
|
Travel
|
|
|
1,719,743
|
|
|
4.69
|
%
|
|
1,529,796
|
|
|
5.22
|
%
|
Repairs
and maintenance
|
|
|
405,140
|
|
|
1.11
|
%
|
|
430,962
|
|
|
1.47
|
%
|
Insurance
|
|
|
239,043
|
|
|
0.65
|
%
|
|
211,897
|
|
|
0.72
|
%
|
Depreciation
and amortization
|
|
|
1,398,454
|
|
|
3.82
|
%
|
|
794,482
|
|
|
2.71
|
%
|
Other
|
|
|
1,890,100
|
|
|
5.16
|
%
|
|
1,914,440
|
|
|
6.54
|
%
|
Total
cost of sales
|
|
|
15,724,144
|
|
|
42.91
|
%
|
|
13,694,511
|
|
|
46.77
|
%
|
Gross
profit
|
|
|
20,918,031
|
|
|
57.09
|
%
|
|
15,587,575
|
|
|
53.23
|
%
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
and marketing
|
|
|
3,722,470
|
|
|
10.16
|
%
|
|
3,161,924
|
|
|
10.80
|
%
|
Depreciation
and amortization
|
|
|
1,939,502
|
|
|
5.29
|
%
|
|
1,846,790
|
|
|
6.31
|
%
|
Bad
debt expense
|
|
|
58,293
|
|
|
0.16
|
%
|
|
189,873
|
|
|
0.65
|
%
|
Salaries
and wages
|
|
|
3,703,836
|
|
|
10.11
|
%
|
|
3,696,501
|
|
|
12.62
|
%
|
Professional
services, including non-cash compensation
|
|
|
837,598
|
|
|
2.29
|
%
|
|
1,067,702
|
|
|
3.65
|
%
|
General
and adminstrative
|
|
|
3,447,113
|
|
|
9.41
|
%
|
|
2,977,917
|
|
|
10.17
|
%
|
Total
operating expenses
|
|
|
13,708,812
|
|
|
37.41
|
%
|
|
12,940,707
|
|
|
44.19
|
%
|
Income from
operations
|
|
|
7,209,219
|
|
|
19.67
|
%
|
|
2,646,868
|
|
|
9.04
|
%
|
Other income and
(expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
(loss) on sale of assets
|
|
|
(35,484
|
)
|
|
-0.10
|
%
|
|
(2,977
|
)
|
|
-0.01
|
%
|
Beneficial
conversion feature
|
|
|
-
|
|
|
0.00
|
%
|
|
(2,208,334
|
)
|
|
-7.54
|
%
|
Amortization
of debt discount and capitalized cost of debt
|
|
|
-
|
|
|
0.00
|
%
|
|
(2,803,691
|
)
|
|
-9.57
|
%
|
Liquidation
damages
|
|
|
-
|
|
|
0.00
|
%
|
|
(180,890
|
)
|
|
-0.62
|
%
|
Fair
market value of warrants issued
|
|
|
-
|
|
|
0.00
|
%
|
|
(68,411
|
)
|
|
-0.23
|
%
|
Interest
expense
|
|
|
(626,708
|
)
|
|
-1.71
|
%
|
|
(617,818
|
)
|
|
-2.11
|
%
|
Interest
income
|
|
|
195,103
|
|
|
0.53
|
%
|
|
339,164
|
|
|
1.16
|
%
|
Gain
on sale of subsidiary shares
|
|
|
1,240,808
|
|
|
3.39
|
%
|
|
-
|
|
|
0.00
|
%
|
Other
income and (expenses)
|
|
|
2,169,383
|
|
|
5.92
|
%
|
|
114,423
|
|
|
0.39
|
%
|
Total
other income (expenses)
|
|
|
2,943,102
|
|
|
8.03
|
%
|
|
(5,428,534
|
)
|
|
-18.54
|
%
|
Net income (loss) before
minority interest in subsidiary
|
|
|
10,152,321
|
|
|
27.71
|
%
|
|
(2,781,666
|
)
|
|
-9.50
|
%
|
Minority interest in
subsidiary
|
|
|
(5,038,115
|
)
|
|
-13.75
|
%
|
|
(2,832,985
|
)
|
|
-9.67
|
%
|
Income
taxes
|
|
|
(121,982
|
)
|
|
-0.33
|
%
|
|
(160,306
|
)
|
|
-0.55
|
%
|
Net income
(loss)
|
|
|
4,992,224
|
|
|
13.62
|
%
|
|
(5,774,957
|
)
|
|
-19.72
|
%
|
Dividend
required for preferred stockholders
|
|
|
(178,541
|
)
|
|
-0.49
|
%
|
|
(237,326
|
)
|
|
-0.81
|
%
|
Net income (loss) applicable
to common shareholders
|
|
|
4,813,683
|
|
|
13.14
|
%
|
|
(6,012,283
|
)
|
|
-20.53
|
%
|
The total
consolidated net revenue for fiscal year 2008 was $36,642,175 compared to
$29,282,086 in fiscal year 2007. This is a nearly 25% increase in revenue.
Maintenance fee revenue increased 16% from $5,441,339 to $6,306,321. Revenue
from services, which includes consulting and implementation, increased 26% from
$14,052,481 to $17,650,815. The increase is attributable mostly to growth in
services business, several new license sales of LeaseSoft in China, growing
outsourcing business of NetSol-TIG (JV) and additional maintenance work. In
addition, several new verticals have been formed in Lahore and are now producing
revenues. The Company has experienced solid and consistent demand for IT
services in the domestic sectors of Pakistan. NetSol in Pakistan has been
pre-qualified to participate in several public sector projects. The most
significant is the World Bank funded Land Record Management Information Systems
or LRMIS. This project has a World Bank grant of $300 million in Pakistan and
NetSol was given two pilot projects in the province of Punjab in 2007, and a
recent one in Islamabad. NetSol anticipates winning key projects in this area in
next few quarters.
The
fiscal year ended June 30, 2008 was a very busy and exciting period for NetSol
worldwide. The activity for NetSol’s new license sales for LeaseSoft is
increasingly on the rise. The current pipeline boasts over 30 plus captive auto
manufacturers and non-captives globally at an advance stage of closing or
decision making.
Several
new major customers were added in 2008 in APAC and the European markets. The
most significant license customers included Nissan in China, BMW in Hong Kong, a
major Italian auto manufacture in China, and a major European bank. Several
domestic projects and contracts were signed during the year.
Due to
the revision in our pricing policy, LeaseSoft license value in APAC is in the
range of $1.0 to $2.0 million, without factoring in services maintenance and
implementation fees. Normally, NetSol negotiates 18-20% yearly maintenance
contracts with customers. A number of large leasing companies will be looking to
renew legacy applications. This places NetSol in a very strong position to
capitalize on any upturn in IT spending by these companies. As the Company
continues to sell more of these licenses, management believes it is possible
that the margins could increase to upward of 60%.
During
the current year, our APAC division successfully implemented its LeaseSoft
product suite for two major automotive captives in Hong Kong and China. NetSol
has signed a contract with one of the largest leasing companies in Saudi Arabia
for LeaseSoft and this contract marks NetSol’s entry into the lucrative Middle
East region. In addition, a contract with a leading automobile manufacturer in
Australia was signed for the LeaseSoft product. NetSol won a contract with a
leading bank in Pakistan for Basel II advisory services this opportunity for
NetSol represents a new business sector vertical for the Company. A contract was
signed with a major public sector hospital in Pakistan to design and implement
an IT system. This represents a new vertical for NetSol in developing Hospital
Management Systems. In addition, NetSol has launched a new information security
management initiative in Pakistan, called “Secure Pakistan”. The project aims to
secure critical information, while in storage or transfer, from
theft.
NetSol
signed a new frame agreement with Mercedes Benz Financial Services AG Germany,
to service their needs in the Middle East, Africa, and the Asia-Pacific regions.
The frame agreement outlines the implementation of basic and general provisions,
regulations, and processes of existing and all future individual agreements for
the development and delivery of software or services to Mercedes Benz Financial
Services.
During
the current year, NetSol, lead by the North American division has launched
Global Services to bring our competencies in delivering IT services to the
global market and especially in North America. A new business model,
“BestShoring” was developed to deliver the best solution to the market using
both on-shore and off-shore resources.
The North
American division has introduced “consulting selling” to it market whereby the
clients requirements are being accessed, with requirements workshops, and
providing the best solution to meet the client’s needs with LeasePak and/or
LeaseSoft. North America is introducing the LeaseSoft product suite to its
market.
Our
joint-venture, NetSol-Innovation continues to grow overall. The total programmer
strength is over 130 people dedicated to the joint-venture projects. In
addition, two new projects in the United States of America were signed and
Innovation Group’s release management of five different countries has recently
been given to our Extended Innovation (“EI”) division which works with the
joint-venture.
Our EMEA
division (“NTE”) had two customers “go-live” during the current fiscal year and
had several contracts for data transfers as the market in Europe consolidated.
There were three new customers contracts signed during the current fiscal year,
using the full co-operation of the UK and Pakistan teams for the implementation,
with the UK staff doing the customer facing activities while Lahore provided the
technical and development input; a win for our “BestShoring” model.
The gross
profit was $20,918,031 for year ended June 30, 2008 as compared with $15,587,575
for the same period of the previous year. This is a 34% increase. The gross
profit percentage was 57% for the current fiscal year and 53% in the prior year.
The cost of sales was $15,724,144 in the current year compared to $13,694, 511
in the prior year. Although salaries and consultant fees increased $1,258,730
from $8,812,934 in the prior year to $10,071,664, as a percentage of sales, it
decreased 3% from 30% in the prior year to 27% in the current year. The gross
profit margin is expected to continue to improve as the integration of both the
operations in Horsham, UK and Burlingame, US are fully integrated and cost
savings are achieved. The Company has invested heavily in its infrastructure,
both in people and equipment during the current fiscal year as it situated
itself for increased growth organically.
Operating
expenses were $13,708,812 for the year ended June 30, 2008 as compared to
$12,940,707 for the year ended June 30, 2007, an increase of only 6% from the
prior year. The increase is mainly attributable to increased selling and
marketing activities, additional employees and an increase in overall activities
due to our increased marketing efforts. As a percentage of sales it decreased 7%
from 44% to 37%. Depreciation and amortization expense amounted to $1,939,502
and $1,846,790 for the year ended June 30, 2008 and 2007, respectively. Combined
salaries and wage costs were $3,703,836 and $3,696,501 for the comparable
periods, respectively, or an increase of only $7,335 from the corresponding
period last year. As a percentage of sales, these costs decreased slightly from
13% to 10%. General and administrative expenses were $3,447,113 and $2,977,917
for the years ended June 30, 2008 and 2007, respectively, an increase of
$469,196 or 16%. As a percentage of sales, these expenses were 9% in the current
year compared to 10% in the prior year. The
increase in costs is due to the three new sales offices in Pakistan, the sales
office in China, increased board fees, increased travel and other expenses that
supporting a large workforce entail. As of June 30, 2008, we had 997 employees
world-wide.
Selling
and marketing expenses increased to $3,722,470 for the year ended June 30, 2008,
as compared to $3,161,924 for the year ended June 30, 2007, reflecting the
growing sales activity of the Company. As a percentage of sales, these expenses
were 10.1% in the current year compared to 10.8% in the prior year. The Company
wrote-off, as uncollectible, bad debts of $58,293 and $189,873, during the years
ended June 30, 2008 and 2007, respectively.
The
income from operations in fiscal year 2008 was $7,209,219 compared to $2,646,868
in fiscal year 2007. This represents an increase of $4,562,351 or 172%. As a
percentage of sales, net income from operations was 19.7% in the current year
compared to 9.0% in the prior period.
Net
income in fiscal year 2008 was $4,813,683 compared to a loss of $6,012,283 in
fiscal year 2007 or an increase of $10,825,966. During
the years ended June 30, 2008 and 2007, the Company was required to pay a
dividend to the preferred stockholders of $178,541 and $237,326. The current
fiscal year amount includes a net reduction for the minority interest in
earnings of $5,038,115 compared to a reduction of $2,832,985 in the prior year
for the 49.9% minority interest in NetSol Connect and NetSol-Innovation, and the
41.32/39.42% minority interest in NetSol PK. The current fiscal year includes a
net gain on the sale of some of the Parent’s shares in NetSol PK on the open
market of $1,240,808. In the prior year, the Company recognized non-recurring
expenses including $2,208,334 expense for the beneficial conversion feature on
notes payable, $2,803,691 of amortized costs of debt, and $180,890 of
liquidation damages, respectively. In addition, the Company recorded an expense
of $68,411 for the fair market value of warrants granted for the year ended June
30, 2007. The net income per share, basic and diluted, was $0.20 and $0.19 in
2008 compared to net loss, basic and diluted, of $0.33 in 2007.
The net
EBITDA income was $9,095,319 compared to loss of $2,355,561 after amortization
and depreciation charges of $3,354,472 and $2,641,272, income taxes of $121,982
and $160,306, and interest expense of $626,640 and $617,818 respectively. The
EBITDA earnings per share, basic was $0.38 and diluted was $0.35 compared to a
loss of $0.13, basic and diluted. For the year ended June 30, 2007, with the
addition of the non-cash charge for the amortized costs of debt of $2,803,691
and the beneficial conversion feature expense of $2,208,334 the adjusted pro
forma EBITDA income would be $2,656,464 and the adjusted pro forma EBITDA
earnings per share, basic and diluted, would be $0.15. Although the net EBITDA
income is a non-GAAP measure of performance, we are providing it because we
believe it to be an important supplemental measure of our performance that is
commonly used by securities analysts, investors, and other interested parties in
the evaluation of companies in our industry. It should not be considered as an
alternative to net income, operating income or any other financial measures
calculated and presented, nor as an alternative to cash flow from operating
activities as a measure of our liquidity. It may not be indicative of the
Company’s historical operating results nor is it intended to be predictive of
potential future results.
Quarterly Results of Operations for
the quarter ended June 30, 2008 and June 30, 2007
Net
revenues for the quarter ended June 30, 2008 and 2007 are broken out among the
subsidiaries as follows:
|
|
2008
|
|
|
|
2007
|
|
|
|
North
America:
|
|
|
|
|
|
|
|
|
|
NetSol
- North America (NTNA)
|
|
$
|
816,455
|
|
|
7.76
|
%
|
$
|
1,693,383
|
|
|
19.74
|
%
|
|
|
|
816,455
|
|
|
7.76
|
%
|
|
1,693,383
|
|
|
19.74
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NetSol
UK
|
|
|
1,119,663
|
|
|
10.65
|
%
|
|
44,052
|
|
|
0.51
|
%
|
NetSol
- Europe (NTE)
|
|
|
1,283,964
|
|
|
12.21
|
%
|
|
1,341,162
|
|
|
15.64
|
%
|
|
|
|
2,403,627
|
|
|
22.86
|
%
|
|
1,385,214
|
|
|
16.15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia-Pacific:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NetSol
PK
|
|
|
5,766,036
|
|
|
54.83
|
%
|
|
4,307,370
|
|
|
50.22
|
%
|
NetSol-Innovation
|
|
|
1,259,374
|
|
|
11.98
|
%
|
|
232,261
|
|
|
2.71
|
%
|
NetSol
Connect
|
|
|
194,846
|
|
|
1.85
|
%
|
|
918,336
|
|
|
10.71
|
%
|
NetSol-Omni
|
|
|
-
|
|
|
0.00
|
%
|
|
167
|
|
|
0.00
|
%
|
NetSol-Abraxas
Australia
|
|
|
75,317
|
|
|
0.72
|
%
|
|
39,708
|
|
|
0.46
|
%
|
Totals
|
|
|
7,295,573
|
|
|
69.38
|
%
|
|
5,497,842
|
|
|
64.10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Net Revenues
|
|
$
|
10,515,655
|
|
|
100.00
|
%
|
$
|
8,576,439
|
|
|
100.00
|
%
|
The
following table presents our unaudited quarterly results of operations for the
quarters ended June 30, 2008 and 2007. You should read the following table
together with the consolidated financial statements and related notes contained
elsewhere in this report. We have prepared the unaudited information on the same
basis as our audited consolidated financial statements. This table includes
normal recurring adjustments that we consider necessary for the fair
presentation of our financial position and operating results for the quarters
presented. Operating results for any quarter are not necessarily indicative of
results for any future quarters or for a full year.
|
|
For
the Three Months Ended
|
|
|
|
June 30, 2008
|
|
June 30, 2007
|
|
|
|
|
|
% of sales
|
|
|
|
% of sales
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License
fees
|
|
$
|
4,915,813
|
|
|
46.75
|
%
|
$
|
2,936,770
|
|
|
34.24
|
%
|
Maintenance
fees
|
|
|
1,749,871
|
|
|
16.64
|
%
|
|
1,451,243
|
|
|
16.92
|
%
|
Services
|
|
|
3,849,971
|
|
|
36.61
|
%
|
|
4,188,426
|
|
|
48.84
|
%
|
Total
revenues
|
|
|
10,515,655
|
|
|
100.00
|
%
|
|
8,576,439
|
|
|
100.00
|
%
|
Cost of
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and consultants
|
|
|
2,728,921
|
|
|
25.95
|
%
|
|
2,204,328
|
|
|
25.70
|
%
|
Depreciation
and amortization
|
|
|
551,166
|
|
|
5.24
|
%
|
|
60,404
|
|
|
0.70
|
%
|
Travel,
communication, and other
|
|
|
1,453,307
|
|
|
13.82
|
%
|
|
985,568
|
|
|
11.49
|
%
|
Total
cost of sales
|
|
|
4,733,394
|
|
|
45.01
|
%
|
|
3,250,300
|
|
|
37.90
|
%
|
Gross
profit
|
|
|
5,782,261
|
|
|
54.99
|
%
|
|
5,326,139
|
|
|
62.10
|
%
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
and marketing
|
|
|
904,562
|
|
|
8.60
|
%
|
|
811,328
|
|
|
9.46
|
%
|
Depreciation
and amortization
|
|
|
517,321
|
|
|
4.92
|
%
|
|
497,461
|
|
|
5.80
|
%
|
Salaries
and wages
|
|
|
945,402
|
|
|
8.99
|
%
|
|
895,610
|
|
|
10.44
|
%
|
Professional
services
|
|
|
413,490
|
|
|
3.93
|
%
|
|
293,499
|
|
|
3.42
|
%
|
Bad
debt expense
|
|
|
55,016
|
|
|
0.52
|
%
|
|
72,606
|
|
|
0.85
|
%
|
General
and adminstrative
|
|
|
1,170,091
|
|
|
11.13
|
%
|
|
866,220
|
|
|
10.10
|
%
|
Total
operating expenses
|
|
|
4,005,882
|
|
|
38.09
|
%
|
|
3,436,724
|
|
|
40.07
|
%
|
Income (loss) from
operations
|
|
|
1,776,379
|
|
|
16.89
|
%
|
|
1,889,415
|
|
|
22.03
|
%
|
Other income and
(expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain/(Loss)
on sale of assets
|
|
|
(2,440
|
)
|
|
-0.02
|
%
|
|
16,090
|
|
|
0.19
|
%
|
Fair
market value of warrants issued
|
|
|
-
|
|
|
0.00
|
%
|
|
(34,424
|
)
|
|
-0.40
|
%
|
Interest
expense
|
|
|
(82,043
|
)
|
|
-0.78
|
%
|
|
(74,476
|
)
|
|
-0.87
|
%
|
Interest
income
|
|
|
35,234
|
|
|
0.34
|
%
|
|
73,248
|
|
|
0.85
|
%
|
Other
income and (expenses)
|
|
|
1,460,269
|
|
|
13.89
|
%
|
|
25,488
|
|
|
0.30
|
%
|
Income
taxes
|
|
|
(75,710
|
)
|
|
-0.72
|
%
|
|
(33,686
|
)
|
|
-0.39
|
%
|
Total
other expenses
|
|
|
1,335,310
|
|
|
12.70
|
%
|
|
(27,760
|
)
|
|
-0.32
|
%
|
Net income (loss) before
minority interest in subsidiary
|
|
|
3,111,689
|
|
|
29.59
|
%
|
|
1,861,655
|
|
|
21.71
|
%
|
Minority interests in earnings
of subsidiary
|
|
|
(1,749,625
|
)
|
|
-16.64
|
%
|
|
(1,077,828
|
)
|
|
-12.57
|
%
|
Net income
(loss)
|
|
|
1,362,064
|
|
|
12.95
|
%
|
|
783,827
|
|
|
9.14
|
%
|
Dividend
required for preferred stockholders
|
|
|
(33,508
|
)
|
|
-0.32
|
%
|
|
(77,640
|
)
|
|
-0.91
|
%
|
Net income (loss) applicable
to common shareholders
|
|
|
1,328,556
|
|
|
12.63
|
%
|
|
706,187
|
|
|
8.23
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.05
|
|
|
|
|
$
|
0.04
|
|
|
|
|
Diluted
|
|
$
|
0.05
|
|
|
|
|
$
|
0.04
|
|
|
|
|
Weighted
average number of shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
25,425,042
|
|
|
|
|
|
19,706,920
|
|
|
|
|
Diluted
|
|
|
27,303,554
|
|
|
|
|
|
19,835,177
|
|
|
|
|
Liquidity and Capital Resources
The
Company's cash position was $6,275,238 at June 30, 2008 compared to $4,010,164
at June 30, 2007.
The
Company’s current assets, as of June 30, 2008, totaled $30,723,575 and were
48.17% of total assets, an increase of 1.25% from $23,237,058 or 46.92% as of
June 30, 2007. As of June 30, 2008, the Company's working capital (current
assets less current liabilities) totaled $17,036,631 compared to $11,449,252 as
of June 30, 2007, an increase of $5,587,379. As of June 30, 2008, the Company
had $11.0 million in accounts receivable and $11.0 million in revenues in excess
of billings.
Net cash
provided by operating activities amounted to $3,772,041 for the year ended June
30, 2008, as compared to used in $45,888 for the comparable period last fiscal
year. The increase is mainly due to an increase in accounts receivable and other
assets offset by an increase in accounts payable as well as an increase in
operating income. The increase in sales has resulted in an increase in accounts
receivable and revenues in excess of billings. We expect to receive payments on
these accounts within the next fiscal year.
Net cash
used in investing activities amounted to $10,153,779 for the year ended June 30,
2008, as compared to $7,639,916 for the comparable period last fiscal year. The
difference lies primarily in the increase in intangible assets capitalized as
well as an increase in purchases of fixed assets. The Company had purchases of
property and equipment of $4,435,755 compared to $2,420,470 for the comparable
period last fiscal year.
Net cash
provided by financing activities amounted to $8,556,215 and $9,095,915 for years
ended June 30, 2008, and 2007, respectively. The current fiscal year included
the cash inflow of $1,500,000 from the sale of common stock and $3,282,827 from
the exercising of stock options and warrants, compared to $1,030,093 and
$1,008,250 in the prior year, respectively. In the current fiscal year, the
Company had $5,441,870 in proceeds from bank loans, and net capital leases
payments of $3,409,496 as compared to proceeds of $2,359,017 in the comparable
period last year. In addition, during the current fiscal year, the Company sold
shares it held of its subsidiary in Pakistan on the open market and had
$1,765,615 in proceeds from the sale.
The
Company plans on pursuing various and feasible means of raising new funding to
expand its infrastructure, enhance product offerings and strengthen marketing
and sales activities in strategic markets. The strong growth in earnings and the
signing of larger contracts with Fortune 500 customers largely depends on the
financial strength of NetSol. Generally, the bigger name clients and new
prospects diligently analyze and take into consideration a stronger balance
sheet before awarding big projects to vendors. Therefore, NetSol would continue
its effort to further enhance its financial resources in order to continue to
attract large name customers and big value contracts.
As a
growing company, we have on-going capital expenditure needs based on our short
term and long term business plans. Although our requirements for capital
expenses vary from time to time, for the next 12 months, we have the following
capital needs:
|
·
|
Working
capital of $5.0 to $7.0 million for US, European and Pakistan business
expansion, new business development activities and infrastructure
enhancements.
|
While
there is no guarantee that any of these methods will result in raising
sufficient funds to meet our capital needs or that even if available will be on
terms acceptable to the Company, we will consider raising capital through equity
based financing and, warrant and option exercises. We would, however, use some
of our internal cash flow to meet certain obligations as mentioned above.
However, the Company is very conscious of the dilutive effect and price
pressures in raising equity-based capital.
The
methods of raising funds for capital needs may differ based on the following:
|
·
|
Stock
volatility due to market conditions in general and NetSol stock
performance in particular. This may cause a shift in our approach to
raising new capital through other sources such as secured long term
debt.
|
|
·
|
Analysis
of the cost of raising capital in the U.S., Europe or emerging markets. By
way of example only, if the cost of raising capital is high in one market
and it may negatively affect the company’s stock performance, we may
explore options available in other markets.
|
Should
global or other general macro economic factors cause an adverse climate, we
would defer new financing and use internal cash flow for capital
expenditures.
Dividends and Redemption
It has
been the Company's policy to invest earnings in the growth of the Company rather
than distribute earnings as common stock dividends. This policy, under which
common stock dividends have not been paid since the Company's inception and is
expected to continue, but is subject to regular review by the Board of
Directors.
During
the year ended June 30, 2008, we issued 114,588 shares of common stock as
dividends due under the terms of the Preferred Stock; the dividends were issued
in accordance with the terms of the Certificate of Designation which was
approved by the board of directors.
ITEM 7. FINANCIAL STATEMENTS
The
Consolidated Financial Statements that constitute Item 7 are included at the end
of this report on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Kabani
& Company, Inc.’s report on NetSol’s financial statements for the fiscal
years ended June 30, 2007 and June 30, 2008, did not contain an adverse opinion
or disclaimer of opinion, and was not qualified or modified as to uncertainty,
audit scope, or accounting principles.
In
connection with the audit of NetSol's financial statements for the fiscal years
ended June 30, 2007 and June 30, 2008 there were no disagreements, disputes, or
differences of opinion with Kabani & Company on any matters of accounting
principles or practices, financial statement disclosure, or auditing scope and
procedures, which, if not resolved to the satisfaction of Kabani & Company
would have caused Kabani & Company to make reference to the matter in its
report.
ITEM 8A. CONTROLS AND PROCEDURES
Management's Report on Internal
Control over Financial Reporting
Management
of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting. The Company's internal control over financial
reporting has been designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles generally accepted in the United States of America.
The
Company's internal control over financial reporting includes policies and
procedures that pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect transactions and dispositions of assets of
the Company; provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
accounting principles generally accepted in the United States of America, and
that receipts and expenditures are being made only in accordance with
authorization of management and directors of the Company; and provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of the Company's assets that could have a material effect on
the Company's financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Therefore, even those systems determined to be
effective can provide only reasonable assurance with respect to financial
statement preparation and presentation. Projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In
preparing the Company’s 10-Q for the quarter ended September 30, 2008,
Management discovered that there were errors in the manner in which the
Company’s minority interest of its subsidiary was reported. Management
determined that such error necessitated the restatement of its financial
statements for the Fiscal Years Ended June 30, 2008, 2007 and 2006 as contained
in our 10-KSB for the Fiscal Year Ended June 30, 2008. Our management, in
consultation with our independent registered public accounting firm, has
determined that the financial statements included therein overstated amount of
our reported net income for the year ended June 30, 2008 and understatement of
losses for the years ended June 30, 2007 and 2006, by approximately $2,229,824,
$897,396 and $201,063, respectively.
Management
evaluated the impact of this restatement on the Company’s assessment of its
system of internal control. Based upon the definition of “material weakness” in
the Public Company Accounting Oversight Board’s Auditing Standards No. 2, an
Audit of Internal Control Over Financial Reporting in Conjunction With an Audit
of Financial Statements, restatement of financial statements in prior filings
with the SEC is a strong indicator of the existence of a “material weakness” in
design or operation of internal control over financial reporting. Management has
concluded that the controls in place relating to the accounting for minority
interest were not effective to provide reasonable assurance that these items
would be properly recorded and disclosed in the financial statements and that
this is a material weakness in the Company’s internal control over financial
reporting as of June 30, 2008, and disclosed this to the Audit Committee and to
the independent registered public accountants.
Solely as
a result of this material weakness in the Company’s internal control over
financial reporting, management, including the Chief Executive Officer and Chief
Financial Officer, has concluded that the Company’s internal control over
financial reporting as of June 30, 2008 was not effective to provide reasonable
assurance regarding the financial reporting and preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles of the United States of America based on criteria set
forth by the COSO of the Treadway Commission in their Internal
Control—Integrated Framework.
Disclosure Controls and
Procedures
Management,
under the supervision and with the participation of the chief executive officer
and chief financial officer, conducted an evaluation of the disclosure controls
and procedures as defined in Rule 13a-15(e) as of June 30, 2008. Based
upon that evaluation, the Chairman, Chief Financial
Officer and Chief Executive Officer concluded that our disclosure controls and
procedures were ineffective in that they failed to detect that we had omitted
the conclusion regarding Disclosure Controls and Procedures in the initial
10-KSB.
Changes in
Controls
Management
has initiated an additional level of financial statement review as a result of
the above referenced weakness designed to materially strengthen the Company’s
internal controls over financial reporting.
PART III
ITEM 9. DIRECTORS, EXECUTIVE
OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE
EXCHANGE ACT
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires that the
Company's directors and executive officers and persons owning more than 10% of
the outstanding Common Stock, file reports of ownership and changes in ownership
with the Securities and Exchange Commission ("SEC"). Executive officers,
directors and beneficial owners of more than 10% of the Company's Common Stock
are required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
Based
solely on copies of such forms furnished as provided above, or written
representations that no Forms 5 were required, the Company believes that during
the fiscal year ended June 30, 2008, all Section 16(a) filing requirements
applicable to its executive officers, directors and beneficial owners of more
than 10% of its Common Stock were complied with.
DIRECTORS AND EXECUTIVE OFFICERS
The
following table sets forth the names and ages of the current directors and
executive officers of the Company, the principal offices and positions with the
Company held by each person and the date such person became a director or
executive officer of the Company. The Board of Directors elects the executive
officers of the Company annually. Each year the stockholders elect the Board of
Directors. The executive officers serve terms of one year or until their death,
resignation or removal by the Board of Directors. In addition, there was no
arrangement or understanding between any executive officer and any other person
pursuant to which any person was selected as an executive officer.
The
directors and executive officers of the Company are as follows:
Name
|
|
Year First Elected
As an Officer or Director
|
|
Age
|
|
Position Held with the
Registrant
|
|
Family Relationship
|
Najeeb Ghauri
|
|
1997
|
|
53
|
|
Director
and Chairman
|
|
Brother
to Naeem and Salim Ghauri
|
Salim
Ghauri
|
|
1999
|
|
52
|
|
President
and Director
|
|
Brother
to Naeem and Najeeb Ghauri
|
Naeem
Ghauri
|
|
1999
|
|
50
|
|
Chief
Executive Officer, Director
|
|
Brother
to Najeeb and Salim Ghauri
|
Tina
Gilger
|
|
2005
|
|
46
|
|
Chief
Financial Officer
|
|
None
|
Patti
L. W. McGlasson
|
|
2004
|
|
43
|
|
Secretary,
General Counsel
|
|
None
|
Shahid
Javed Burki
|
|
2000
|
|
69
|
|
Director
|
|
None
|
Eugen
Beckert
|
|
2001
|
|
60
|
|
Director
|
|
None
|
Mark
Caton
|
|
2002
|
|
58
|
|
Director
|
|
None
|
Alexander
Shakow
|
|
2007
|
|
70
|
|
Director
|
|
None
|
Business
Experience of Officers and Directors:
NAJEEB U.
GHAURI is the Chief Executive Officer and Chairman of NetSol. He has been a
Director of the Company since 1997, Chairman since 2003 and Chief Executive
Officer since October 2006. Mr. Ghauri is the founder of
NetSol Technologies, Inc. He was responsible for NetSol listing on
NASDAQ in 1999, the NetSol subsidiary listing on KSE (Karachi Stock
Exchange) in 2005, and the NetSol listing on the Dubai International Financial
Exchange (“DIFX”) in 2008. Mr. Ghauri served as the Company's Chief
Executive Officer from 1999 to 2001 and as the Chief Financial Officer from 2001
to 2005. As CEO, Mr. Ghauri is responsible for managing the
day-to-day operations of the Company, as well as the Company's overall growth
and expansion plan. Prior to joining the Company, Mr. Ghauri was
part of the marketing team of Atlantic Richfield Company (ARCO) (now acquired by
BP), a Fortune 500 company, from 1987-1997. Prior to ARCO, he spent nearly 5
years with Unilever as brand and sales managers. Mr. Ghauri received his
Bachelor of Science degree in Management/Economics from Eastern Illinois
University in 1979, and his M.B.A. in Marketing Management from Claremont
Graduate School in California in 1982. Mr. Ghauri was elected
Vice Chairman of US Pakistan Business Council in 2006. A Washington D.C. based
council of US Chamber of Commerce. He is also very active in several
philanthropic activities in emerging markets and is a founding director Pakistan
Human Development Fund, a non-profit organization, a partnership with UNDP to
promote literacy, health services and poverty alleviation in Pakistan.
SALIM
GHAURI has been with the Company since 1999 as the President and Director of the
Company. Mr. Ghauri is currently the Chairman and CEO of NetSol Technologies
Limited. Mr. Ghauri was the founder of Network Solutions (Pvt.) Ltd. in 1995,
later NetSol Technologies (Pvt) Limited. Built under his leadership, NetSol
gradually built a strong team of IT professionals and infrastructure in Pakistan
and became the first software house in Pakistan certified as ISO 9001 and CMMi
Level 5 assessed. Mr. Ghauri received his Bachelor of Science degree in Computer
Science from University of Punjab in Lahore, Pakistan. Before NetSol
Technologies Ltd., Mr. Ghauri was employed with BHP in Sydney, Australia from
1987-1995, where he commenced his employment as a consultant. Mr. Ghauri was
appointed in 2007 as an Honorary Consul for Australia-Punjab
Region.
NAEEM
GHAURI has been a Director of the Company since 1999 and was the Company’s Chief
Executive Officer from August 2001 to October 2006. Mr. Ghauri serves as the
Managing Director of NetSol (UK) Ltd., a wholly owned subsidiary of the Company
located in London, England. Mr. Ghauri was responsible for the launch of NetSol
Connect in Pakistan. Prior to joining the Company, Mr. Ghauri was Project
Director for Mercedes-Benz Finance Ltd., a subsidiary of DaimlerChrysler,
Germany from 1994-1999. Mr. Ghauri supervised over 200 project managers,
developers, analysis and users in nine European Countries. Mr. Ghauri earned his
degree in Computer Science from Brighton University, England. Mr. Ghauri is
President of and serves on the board of NetSol Technologies Europe, Ltd., a
subsidiary of the Company.
TINA
GILGER joined NetSol as Chief Financial Officer in July 2005. Ms.
Gilger had acted as a consultant to the Company since October 2003 in the
capacity of controller. In the three years prior to becoming NetSol’s CFO, Ms.
Gilger acted as an audit liaison for six reporting public companies, of which
one was NetSol. From 2000 to 2002, Ms. Gilger acted as audit liaison for a
public company specializing in reverse mergers for public companies listed on
the OTC:BB. Ms. Gilger received her degree in Accounting, with an emphasis in
Business Management from the University of Utah in 1990. Ms. Gilger was licensed
as a Certified Public Accountant by the State of California in 1992, passing all
four parts of the exam on the first attempt.
PATTI L.
W. MCGLASSON joined NetSol as General Counsel in January 2004 and was elected to
the position of Secretary in March 2004. Prior to joining NetSol, Ms. McGlasson
practiced at Vogt & Resnick, law corporation, where her practice focused on
corporate, securities and business transactions. As part of her Masters in Law
in Transnational Business, she interned at the law firm of Loeff Claeys Verbeke
in Rotterdam, the Netherlands in 1991. Ms. McGlasson was admitted to practice in
California in 1991. She received her Bachelor of Arts in Political Science in
1987 from the University of California, San Diego and, her Juris Doctor and
Masters in Law in Transnational Business from the University of the Pacific,
McGeorge School of Law, in 1991 and 1993, respectively.
EUGEN
BECKERT was appointed to the Board of Directors in 2001. A native of Germany,
Mr. Beckert received his masters in Engineering and Economics from the
University of Karlsruhe, Germany. Mr. Beckert was with Mercedes-Benz AG/Daimler
Benz AG from 1973, working in technology and systems development. In 1992, he
was appointed director of Global IT (CIO) for Debis Financial Services, the
services division of Daimler Benz. From 1996 to 2000, he acted as director of
Processes and Systems (CIO) for Financial Services of DaimlerChrysler Asia
Pacific. During
this period he was instrumental to having the LEASESOFT products of NetSol
developed and introduced in several countries as a pilot customer. From
2001 to 2004, he served as Vice President in the Japanese company of DCS (now
Daimler). Mr. Beckert retired from DaimlerChrysler in November 2006. Mr. Beckert
is chairman of the Nominating and Corporate Governance Committee and a member of
the Audit and Compensation Committees.
SHAHID
JAVED BURKI was appointed to the Board of Directors in February 2003. He had a
distinguished career with World Bank at various high level positions from 1974
to 1999. He was a Director of Chief Policy Planning with World Bank from
1974-1981. He was also a Director of International Relations from 1981-1987. Mr.
Burki served as Director of China Development from 1987-1994 and, Vice President
of Latin America with the World Bank from 1994-1999. In between, he briefly
served as the Finance Minister of Pakistan from 1996-1997. Mr. Burki also served
as the CEO of the Washington based investment firm EMP Financial Advisors from
1992-2002. Presently, he is the Chairman of Institute of Public Policy, a
Lahore, Pakistan based think tank. . He was awarded a Rhodes scholarship in 1962
and M.A in Economics from Oxford University in 1963. He also earned a Master of
Public Administration degree from Harvard University, Cambridge, MA in 1968.
Most recently, he attended Harvard University and completed an Executive
Development Program in 1998. During his lifetime, Mr. Burki has authored many
books and articles including: China's Commerce
(Published by Harvard in 1969) and Accelerated Growth in Latin
America
(Published by World Bank in 1998). Mr. Burki is a chairman of the Audit
Committee and a member of the Compensation and Nominating and Corporate
Governance Committees.
MARK
CATON joined the board of directors of NetSol on January 1, 2007 to fill a
vacancy and was elected to the board in June 2007. Mr. Caton is currently
President of Centela Systems, Inc. a distributor of computer peripheral
solutions in the multimedia and digital electronic market segment, a position he
has held since 2003. Prior to joining Centela, Mr. Caton was President of NetSol
Technologies USA, responsible for US sales, from June 2002 to December 2003. Mr.
Caton was employed by ePlus from 1997 to 2002 as Senior Account Representative.
He was a member of the UCLA Alumni Association Board of Directors and served on
the Board of Directors of NetSol from 2002-2003. Mr. Caton is a Chairman of the
Compensation Committee and a member of the Audit and Nominating Committees. Mr.
Caton received his BA from UCLA in psychology in 1971.
ALEXANDER
SHAKOW joined the board on June 4, 2007. Mr. Shakow had a distinguished
career with the World Bank where he held various high level positions from
1981-2002. Since 2002, he has been an independent consultant for various
international organizations. From 1968-1981 Mr. Shakow held
many senior positions at the United States Agency for International Development,
including Assistant Administrator for Program and Policy; Director -Office of
Development and Planning, Bureau for Asia; and, Director-Indonesia,
Malaysia and Singapore affairs. Mr. Shakow was also a staff member
of the United States Peace Corps from 1963-1967, including director in
Indonesia. Mr. Shakow received his PhD from the London School of Economics
and Political Science in 1962. He earned his undergraduate degree with
honors from Swarthmore College in 1958. Mr. Shakow is listed in
Who’s Who in America
and
Who’s Who in the
World; and
currently is a member of the Board of Trustees of EnterpriseWorks/VITA.
Mr. Shakow is a member of the Audit, Compensation and Nominating and Corporate
Governance Committees.
ITEM 10-EXECUTIVE COMPENSATION
Compensation Discussion and
Analysis
Compensation Philosophy and
Objectives
The
Compensation Committee believes that the most effective executive compensation
program is one that is designed to reward the achievement of specific annual,
long-term and strategic goals by the Company, and which aligns executives’
interests with those of the stockholders by rewarding performance at or above
established goals, with the ultimate objective of increasing stockholder value.
The philosophy of the Compensation Committee is to evaluate both performance and
compensation to ensure that we maintain our ability to attract and retain
superior employees in key positions and that compensation provided to key
employees remains competitive relative to the compensation paid to similarly
situated executives of our peer companies. To that end, the Compensation
Committee believes executive compensation packages should include both cash and
equity-based compensation that reward performance as measured against
established goals.
Setting Executive
Compensation
Management
develops our compensation plans by utilizing publicly available compensation
data in the media services and technology industries. We believe that the
practices of these groups of companies provide us with appropriate compensation
benchmarks, because these groups of companies are in similar businesses and tend
to compete with us for executives and other employees. For benchmarking
executive compensation, we typically review the compensation data we have
collected from these groups of companies, as well as a subset of the data from
those companies that have a similar number of employees as the Company. For
purposes of determining executive compensation, we have not engaged consultants
to help us analyze this data or to compare our compensation programs with the
practices of the companies represented in the compensation data we review.
Based on
management's analyses and recommendations, the Compensation Committee has
approved a pay-for-performance compensation philosophy, which is intended to
establish base salaries and total executive compensation (taking into
consideration the executive's experience and abilities) that are competitive
with those companies with a similar number of employees represented in the
compensation data we review.
We work
within the framework of this pay-for-performance compensation philosophy to
determine each component of an executive's initial compensation package based on
numerous factors, including:
• the
individual's particular background, track record and circumstances, including
training and prior relevant work experience;
• the
individual's role with us and the compensation paid to similar persons in the
companies represented in the compensation data that we review;
• the
demand for individuals with the individual's specific expertise and experience;
•
performance goals and other expectations for the position; and,
• uniqueness
of industry skills.
The terms
of each executive officer's compensation are derived from employment agreements
negotiated between the Company and the executive. Each executive's employment
agreement is generally negotiated to cover a one to three-year period, and
prescribes the base salary and other annual payments, if any, to the executive.
Employment agreements for all executive officers are approved by the Board of
Directors and the Compensation Committee. Employment agreements for other
executives are approved by the Company's Chief Executive Officer.
2008 Executive Compensation
Components
For the
fiscal year ended June 30, 2008, the principal components of compensation that
our named executive officers were eligible to receive were:
• Base
salary;
• Long Term
Equity Incentive Compensation;
• Performance-based
incentive compensation (discretionary bonus); and,
• Perquisites
and other personal benefits.
Base Salary
An
executive's base salary is evaluated together with components of the executive's
other compensation to ensure that the executive's total compensation is
consistent with our overall compensation philosophy.
The base
salaries were established in arms-length negotiations between the executive and
the Company, taking into account their extensive experience, knowledge of the
industry, track record, and achievements on behalf of the Company.
Base
salaries are adjusted annually by the Compensation Committee.
Annual Bonus
During
our fiscal year ended 2008, Mr. Najeeb Ghauri was awarded a cash bonus of
$0. Ms. Gilger was awarded a cash bonus of $15,000. Ms. McGlasson was awarded a
cash bonus of $5,000. Mr. Salim Ghauri was awarded a cash bonus of $0 and Mr.
Naeem Ghauri was awarded a cash bonus of $0.
Long-Term Equity Incentive
Compensation
We
believe that long-term performance is achieved through an ownership culture that
encourages long-term participation by our executives in equity-based awards. Our
various Employee Stock Option Plans allow us to grant stock options to
employees. We currently make initial equity awards of stock options to new
executives and certain non-executive employees in connection with their
employment with the Company. Annual grants of options, if any, are approved by
the Compensation Committee.
Equity
Incentives. Executives,
certain non-executive employees, and directors who join us may be awarded stock
awards and/or stock option grants after they join the Company. These grants have
an exercise price equal to the fair market value of our common stock on the
grant date. Such awards are intended to provide the executive with incentive to
build value in the organization over an extended period of time. The size of the
stock option award is also reviewed in light of the executive's track record,
base salary, other compensation and other factors to ensure that the executive's
total compensation is in line with our overall compensation philosophy. A review
of all components of compensation is conducted when determining equity awards to
ensure that total compensation conforms to our overall philosophy and
objectives.
Perquisites and Other Personal
Benefits
We
provide named executive officers with perquisites and other personal benefits
that we and the Compensation Committee believe are reasonable and consistent
with our overall compensation program to better enable the Company to attract
and retain superior employees for key positions. The Compensation Committee
periodically reviews the levels of perquisites and other personal benefits
provided to executive officers.
Termination Based Compensation
Upon
termination of employment, all executive officers are entitled to receive
severance payments under their employment agreements. In determining whether to
approve, and as part of the process of setting the terms of, such severance
arrangements, the Compensation Committee recognizes that executives and officers
often face challenges securing new employment following termination. Further,
the Committee recognizes that many of the named executives and officers have
participated in the Company since its founding and that this participation has
not resulted in a return on their investments. Termination and Change in Control
Payments considered both the risk and the dedication of these executives’
service to the Company.
Our Chief
Executive Officer, CEO of NetSol Technologies, Ltd. and CEO of Netsol
Technologies Europe, Ltd. have employment agreements that provide, if his
employment is terminated without cause or if the executive terminates the
agreement with Good Reason, he is entitled to (a) all remaining salary to
the end of the date of termination, plus salary from the end of the employment
term through the end of the third anniversary of the date of termination, and
(b) the continuation by the Company of medical and dental insurance
coverage for him and his family until the end of the employment term and through
the end of the third anniversary of the date of termination. Provided, however,
if such benefits cannot be continued for this extended period, the Executive
shall receive cash (including a tax-equivalency payment for Federal, state and
local income and payroll taxes assuming Executive is in the maximum tax bracket
for all such purposes) where such benefits may not be continued. These
agreements further provide for vesting of all options and restrictive stock
grants, if any.
The CFO
of the Company has an employment agreement that provides, if she is terminated
without cause or if the executive terminates the agreement with Good Reason, she
is entitled to (a) all remaining salary to the end of the date of
termination, plus salary from the end of the employment term through the end of
six months of the date of termination, and (b) the continuation by the
Company of medical and dental insurance coverage for her and her family until
the end of the employment term and through the end of six months following the
date of termination. Provided, however, if such benefits cannot be continued for
this extended period, the Executive shall receive cash (including a
tax-equivalency payment for Federal, state and local income and payroll taxes
assuming Executive is in the maximum tax bracket for all such purposes) where
such benefits may not be continued. These agreements further provide for vesting
of all options and restrictive stock grants, if any.
The
Secretary of the Company has an employment agreement that provides, if she is
terminated without cause or if the executive terminates the agreement with Good
Reason, she is entitled to (a) all remaining salary to the end of the date
of termination, plus salary from the end of the employment term through the end
of the first anniversary of the date of termination, and (b) the
continuation by the Company of medical and dental insurance coverage for her and
her family until the end of the employment term and through the end of the first
anniversary of the date of termination. Provided, however, if such benefits
cannot be continued for this extended period, the Executive shall receive cash
(including a tax-equivalency payment for Federal, state and local income and
payroll taxes assuming Executive is in the maximum tax bracket for all such
purposes) where such benefits may not be continued. These agreements further
provide for vesting of all options and restrictive stock grants, if any.
Tax and Accounting Implications
Deductibility of Executive
Compensation
As part
of its role, the Compensation Committee reviews and considers the deductibility
of executive compensation under Section 162(m) of the Internal Revenue
Code, which provides that we may not deduct compensation of more than $1,000,000
that is paid to certain individuals. We believe that compensation paid under the
management incentive plans is generally fully deductible for federal income tax
purposes.
Accounting for Stock-Based
Compensation
Beginning
on July 1, 2006, we began accounting for stock-based payments, including awards
under our Employee Stock Option Plans, in accordance with the requirements of
Statement of Financial Accounting Standards No. 123 (revised 2004),
Share-Based
Payment, or
SFAS 123(R).
Summary Compensation Table
The
following table shows the compensation for the fiscal year ended June 30, 2008
earned by our Chairman and Chief Executive Officer, our Chief Financial Officer
who is our Principal Financial and Accounting Officer, and others considered to
be executive officers of the Company.
Name and Principle
Position
|
|
Fiscal Year
Ended
|
|
Salary ($)
|
|
Bonus
($)
|
|
Stock
Awards ($)
(1)
|
|
Option
Awards ($)
|
|
All Other
Compensation
($)
|
|
Total ($)
|
|
Najeeb
Ghauri
Chief
Executive Officer,
Chairman
|
|
|
2008
2007
|
|
$
$
|
287,500
275,000
|
|
$
$
|
-
50,000
|
|
$
$
|
-
-
|
|
$
$
|
-
-
|
(2)
(2)
|
$
$
|
51,701
46,700
|
(3)
(3)
|
$
$
|
339,201
371,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Naeem
Ghauri
Chief
Executive Officer,
Global
Products Division
|
|
|
2008
2007
|
|
$
$
|
235,183
220,282
|
|
$
$
|
-
50,000
|
|
$
$
|
-
-
|
|
$
$
|
-
-
|
(2)
(3)
|
$
$
|
37,906
34,660
|
(4)
(4)
|
$
$
|
273,089
304,942
|
|
Salim
Ghauri
Chief
Executive Officer,
Global
Services Division
|
|
|
2008
2007
|
|
$
$
|
200,000
175,000
|
|
$
$
|
-
50,000
|
|
$
$
|
-
-
|
|
$
$
|
-
-
|
(2)
(2)
|
$
$
|
-
-
|
(5)
(5)
|
$
$
|
200,000
225,000
|
|
Tina
Gilger
Chief
Financial Officer
|
|
|
2008
2007
|
|
$
$
|
128,917
95,000
|
|
$
$
|
15,000
7,004
|
|
$
$
|
-
-
|
|
$
$
|
12,160
-
|
(2)
(2)
|
$
$
|
12,846
17,587
|
(6)
(6)
|
$
$
|
168,923
119,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patti
L. W. McGlasson
Secretary,
General
Counsel
|
|
|
2008
2007
|
|
$
$
|
128,333
110,000
|
|
$
$
|
5,000
6,536
|
|
$
$
|
-
-
|
|
$
$
|
12,160
-
|
(2)
(2)
|
$
$
|
-
-
|
(7)
(7)
|
$
$
|
145,493
116,536
|
|
(1) No stock
was awarded to any officer during the fiscal year ended June 30, 2008 and
therefore, no expense was recognized in the consolidated financial statements.
(2) For
the fiscal year ended June 30, 2008, the following options were granted to the
named officers: 10,000 options each to Ms. Tina Gilger and Ms. Patti McGlasson,
using the Black-Scholes model these were valued at $12,160 each and an expense
was recorded for this amount in the accompanying consolidated financial
statements. No options were awarded to any officer during the fiscal year ended
June 30, 2007 and therefore, no expense was recognized in the consolidated
financial statements.
(3)
Consists of $36,000 and $29,000 paid for automobile and travel allowance and
$15,701 and $17,856 paid for medical and dental insurance premiums paid by the
Company for participation in the health insurance program for the fiscal years
ended June 30, 2008 and 2007, respectively.
(4)
Consists of $24,149 and $31,876 paid for automobile and travel allowance and
$13,757 and $2,784 paid for private medical insurance premiums paid by the
Company for the fiscal years ended June 30, 2008 and 2007,
respectively.
(5) The
amount paid to the officer was in aggregate less than $10,000 for the fiscal
years ended June 30, 2008 and 2007, respectively.
(6)
Consists of $12,846 and $17,587 paid for medical and dental insurance premiums
paid by the Company for participation in the health insurance program for the
fiscal years ended June 30, 2008 and 2007, respectively.
(7) The
amount paid to the officer was in aggregate less than $10,000 for the fiscal
years ended June 30, 2008 and 2007, respectively.
The
following options were granted to the named executives during the fiscal year
ended June 30, 2008: 10,000 options each to Ms. Tina Gilger and Ms. Patti
McGlasson, using the Black-Scholes model these were valued at $12,160 each and
an expense was recorded for this amount in the accompanying consolidated
financial statements.
There
were no options granted to the named executives during the fiscal year ended
June 30, 2007.
Discussion of Summary Compensation
Table
The terms
of our executive officers' compensation are derived from our employment
agreements with them and the annual performance review by our Compensation
Committee. The terms of Mr. Najeeb Ghauri, Mr. Naeem Ghauri and Mr. Salim
Ghauri’s employment agreements with the Company were the result of negotiations
between the Company and the executives and were approved by our Compensation
Committee and Board of Directors. The terms of Ms. McGlasson’s employment
agreement with the Company were the result of negotiations between our Chief
Executive Officer and Ms. McGlasson and were approved by our Compensation
Committee and Board of Directors. The terms of Ms. Gilger’s employment were
the result of negotiations between our Chief Executive Officer and
Ms. Gilger and were approved by our Compensation Committee and Board of
Directors.
Employment Agreement with Najeeb
Ghauri
Effective
January 1, 2007, the Company entered into an Employment Agreement with our Chief
Executive Officer, Najeeb Ghauri (the “CEO Agreement”). The CEO Agreement was
amended effective January 1, 2008. Pursuant to the CEO Agreement, as amended,
between Mr. Ghauri and the Company (the "CEO Agreement"), the Company
agreed to employ Mr. Ghauri as its Chief Executive Officer from the date of
the CEO Agreement through December 31, 2010. The term of employment
automatically renews for 36 additional months unless notice of intent to
terminate is received by either party at least 6 months prior to the end of the
term. Under the CEO Agreement, Mr. Ghauri is entitled to an annualized base
salary of $300,000 and is eligible for annual bonuses at the discretion of the
Compensation Committee. Pursuant to the terms of the amendment, Mr. Ghauri is
entitled to the following bonuses. Only upon the achievement of the Minimum
Bonus Benchmark (as defined below), Mr. Ghauri shall be granted stock options
for 750,000 shares of the common stock of the Company (the "Options") pursuant
to an option agreement (the "Option Agreement") issued pursuant to the Company’s
2005 Employee Stock Option Plan and shall vest equally over twenty four months
beginning on the grant date and will be exercisable based on the customary
provisions of such plan. The Option Agreement will have customary provisions
relating to adjustments for stock splits and similar events. The exercise price
of the Options will be $2.62 for 250,000 shares and, $3.90 for 500,000 shares.
Further, the compensation committee authorized the following bonus structure:
the bonus structure contemplates a bonus being awarded on the basis of a
benchmark and accelerators. A bonus of One Hundred Thousand Dollars ($100,000)
is payable upon achieving the minimum bonus benchmark of: company-wide revenue
of $32,230,000 for fiscal year 2007-2008; and, earnings per share of $0.22 (the
“Minimum Bonus Benchmark”). Additional bonuses may be earned if certain
“accelerator goals” are achieved. The bonus is accelerated to 200% of the bonus
amount if revenue of $35,000,000 is attained and earnings per share of $0.27;
and, to 300% if revenue of $40,000,000 and earnings per share $0.32. Once the
Minimum Bonus Benchmark is attained the additional bonus may be earned based on
a percentage of accelerator goals achieved.
The CEO
Agreement also includes provisions respecting severance, non-solicitation,
non-competition, and confidentiality obligations. Pursuant to the CEO Agreement,
if he terminates his employment for Good Reason (as described below), or, is
terminated prior to the end of the employment term by the Company other than for
Cause (as described below) or death, he shall be entitled to all remaining
salary from the termination date until 36 months thereafter, at the rate of
salary in effect on the date of termination, immediate vesting of all options
and, continuation of all health related plan benefits for a period of 36 months.
He shall have no obligation to seek other employment and any income so earned
shall not reduce the foregoing amounts. If he is terminated by the Company for
Cause (as described below), or at the end of the employment term, he shall not
be entitled to further compensation. Under the CEO Agreement, Good Reason
includes the assignment of duties inconsistent with his title, a material
reduction in salary and perquisites, the relocation of the Company's principal
office by 30 miles, if the Company asks him to perform any act which is illegal,
including the commission of a crime or act of moral turpitude, or a material
breach of the CEO Agreement by the Company. Under the CEO Agreement, Cause
includes conviction of crime involving moral turpitude, failure to perform his
duties to the Company, engaging in activities which are directly competitive to
or intentionally injurious to the Company, or any material breach of the CEO
Agreement by Mr. Ghauri.
The above
summary of the CEO Agreement is qualified in its entirety by reference to the
full text of the CEO, a copy of which was filed as an exhibit to the Company’s
10-KSB for the fiscal year ended June 30, 2007. The above summary of the
Amendment is qualified in its entirety by reference to the full text of the
Amendment, a copy of which was filed as an exhibit hereto.
Employment Agreement with Naeem
Ghauri
Effective
January 1, 2007, the Company entered into an Employment Agreement with our
President of NetSol Technologies Europe, Ltd. and Chief Executive Officer of our
EMEA Agreement , Naeem Ghauri (the “President EMEA Agreement”). The President
EMEA Agreement was amended effective January 1, 2008. Pursuant to the Employment
Agreement, as amended, the Company agreed to employ Mr. Ghauri as its
President of the EMEA region from the date of the President EMEA Agreement
through December 31, 2010. The term of employment automatically renews for 36
additional months unless notice of intent to terminate is received by either
party at least 6 months prior to the end of the term. Under the President EMEA
Agreement, Mr. Ghauri is entitled to an annualized base salary of £122,000
($243,439 at June 30, 2008) and is eligible for annual bonuses at the discretion
of the Compensation Committee. Pursuant to the terms of the Amendment, and only
upon the achievement of company-wide revenue of $32,230,000 for fiscal year
2007-2008; and, earnings per share of $0.22 (the “Minimum Bonus Benchmark”),
Executive shall be granted stock options for 525,000 shares of the common stock
of the Company (the "Options") pursuant to an option agreement (the "Option
Agreement") issued pursuant to the Company’s 2005 Employee Stock Option Plan and
shall vest equally over twenty four months beginning on the grant date and will
be exercisable based on the customary provisions of such plan. The Option
Agreement will have customary provisions relating to adjustments for stock
splits and similar events. The exercise price of the Options will be $2.62 for
175,000 shares and, $3.90 for 350,000 shares. Pursuant to the power granted to
the board to provide bonuses to the Executive in section 3.1 of this Agreement,
the compensation committee has authorized the following bonus structure. The
bonus structure contemplates a bonus being awarded on the basis of a benchmark
and accelerators. A bonus of Twenty-Four Thousand Two Hundred Fifty Dollars
($24,250) is payable upon achieving the minimum bonus benchmark of: company-wide
revenue of $32,230,000 for fiscal year 2007-2008; and, earnings per share of
$0.22 (the “Minimum Bonus Benchmark”). Additional bonuses may be earned if
certain “accelerator goals” are achieved. The bonus is accelerated to 200% of
the bonus amount if revenue of $35,000,000 is attained and earnings per share of
$0.27; and, to 300% if revenue of $40,000,000 and earnings per share $0.32. Once
the Minimum Bonus Benchmark is attained the additional bonus may be earned based
on a percentage of accelerator goals achieved. Additionally, so long as
Executive is the head of the mergers and acquisition team, Executive shall
receive a bonus of Twenty-Four Thousand Two Hundred Fifty Dollars ($24,250) per
successfully closed acquisition which involves minimal participation (with fees
of no more than $10,000) from mergers and acquisition advisors.
The
Company retained the right to increase the base compensation as it deems
necessary. In addition, Mr. Ghauri is entitled to participate in the
Company's stock option plans, is entitled to two weeks of paid vacation per
calendar year and is to receive a car allowance totaling $2,000 per month for
the term of the President EMEA Agreement. Finally, during the term of the
President EMEA Agreement, the Company shall pay the amount of premiums or other
costs incurred for the coverage of Mr. Ghauri, his spouse and dependent
family members under the Company's health and related benefit plans.
The
President EMEA Agreement also includes provisions respecting severance,
non-solicitation, non-competition, and confidentiality obligations. Pursuant to
the President EMEA Agreement, if he terminates his employment for Good Reason
(as described below), or, is terminated prior to the end of the employment term
by the Company other than for Cause (as described below) or death, he shall be
entitled to all remaining salary from the termination date until 36 months
thereafter, at the rate of salary in effect on the date of termination,
immediate vesting of all options and, continuation of all health related plan
benefits for a period of 36 months. He shall have no obligation to seek other
employment and any income so earned shall not reduce the foregoing amounts. If
he is terminated by the Company for Cause (as described below), or at the end of
the employment term, he shall not be entitled to further compensation. Under the
President EMEA Agreement, Good Reason includes the assignment of duties
inconsistent with his title, a material reduction in salary and perquisites, the
relocation of the Company's principal office by 30 miles, if the Company asks
him to perform any act which is illegal, including the commission of a crime or
act of moral turpitude, or a material breach of the President EMEA Agreement by
the Company. Under the President EMEA Agreement, Cause includes conviction of
crime involving moral turpitude, failure to perform his duties to the Company,
engaging in activities which are directly competitive to or intentionally
injurious to the Company, or any material breach of the President EMEA Agreement
by Mr. Ghauri.
The above
summary of the President EMEA Agreement is qualified in its entirety by
reference to the full text of the President EMEA Agreement, a copy of which was
filed as an exhibit to the Company’s 10-KSB for the fiscal year ended June 30,
2007. The above summary of the Amendment is qualified in its entirety by
reference to the full text of the Amendment, a copy of which was filed as an
exhibit hereto.
Employment Agreement with Salim
Ghauri
Effective
January 1, 2007, the Company entered into an Employment Agreement with our
President of NetSol Technologies, Ltd., our wholly owned subsidiary in Lahore,
Pakistan and Chief Executive Officer of the APAC Region, Mr. Salim Ghauri (the
“President APAC Agreement”). Pursuant to the Employment Agreement, as amended, ,
the Company agreed to employ Mr. Ghauri as its President APAC and Chief
Executive Officer of the Global Services Division from the date of the President
APAC Agreement through December 31, 2010. The term of employment automatically
renews for 36 additional months unless notice of intent to terminate is received
by either party at least 6 months prior to the end of the term. Under the
President APAC Agreement, Mr. Ghauri is entitled to an annualized base
salary of $225,000 and is eligible for annual bonuses at the discretion of the
Compensation Committee. Pursuant to the amendment, and only upon the achievement
of the Minimum Bonus Benchmark (as defined below), Executive shall be granted
stock options for 525,000 shares of the common stock of the Company (the
"Options") pursuant to an option agreement (the "Option Agreement") issued
pursuant to the Company’s 2005 Employee Stock Option Plan and shall vest equally
over twenty four months beginning on the grant date and will be exercisable
based on the customary provisions of such plan. The Option Agreement will have
customary provisions relating to adjustments for stock splits and similar
events. The exercise price of the Options will be $2.62 for 175,000 shares and,
$3.90 for 350,000 shares. Pursuant to the power granted to the board to provide
bonuses to the Executive in section 3.1 of this Agreement, the compensation
committee has authorized the following bonus structure. The bonus structure
contemplates a bonus being awarded on the basis of a benchmark and accelerators.
A bonus of Fifty Thousand Dollars ($50,000) is payable upon achieving the
minimum bonus benchmark of: company-wide revenue of $32,230,000 for fiscal year
2007-2008; and, earnings per share of $0.22 (the “Minimum Bonus Benchmark”).
Additional bonuses may be earned if certain “accelerator goals” are achieved.
The bonus is accelerated to 200% of the bonus amount if revenue of $35,000,000
is attained and earnings per share of $0.27; and, to 400% if revenue of
$40,000,000 is attained and earnings per share of $0.32. Once the Minimum Bonus
Benchmark is attained the accelerator bonus shall be awarded proportionally to
the accelerator goals achieved.
The
Company retained the right to increase the base compensation as it deems
necessary. In addition, Mr. Ghauri is entitled to participate in the
Company's stock option plans, is entitled to two weeks of paid vacation per
calendar year. Finally, during the term of the President APAC Agreement, the
Company shall pay the amount of premiums or other costs incurred for the
coverage of Mr. Ghauri, his spouse and dependent family members under the
Company's health and related benefit plans.
The
President APAC Agreement also includes provisions respecting severance,
non-solicitation, non-competition, and confidentiality obligations. Pursuant to
the President APAC Agreement, if he terminates his employment for Good Reason
(as described below), or, is terminated prior to the end of the employment term
by the Company other than for Cause (as described below) or death, he shall be
entitled to all remaining salary from the termination date until 36 months
thereafter, at the rate of salary in effect on the date of termination,
immediate vesting of all options and, continuation of all health related plan
benefits for a period of 36 months. He shall have no obligation to seek other
employment and any income so earned shall not reduce the foregoing amounts. If
he is terminated by the Company for Cause (as described below), or at the end of
the employment term, he shall not be entitled to further compensation. Under the
President APAC Agreement, Good Reason includes the assignment of duties
inconsistent with his title, a material reduction in salary and perquisites, the
relocation of the Company's principal office by 30 miles, if the Company asks
him to perform any act which is illegal, including the commission of a crime or
act of moral turpitude, or a material breach of the President APAC Agreement by
the Company. Under the President APAC Agreement, Cause includes conviction of
crime involving moral turpitude, failure to perform his duties to the Company,
engaging in activities which are directly competitive to or intentionally
injurious to the Company, or any material breach of the President APAC Agreement
by Mr. Ghauri.
The above
summary of the President EMEA Agreement is qualified in its entirety by
reference to the full text of the President EMEA Agreement, a copy of which was
filed as an exhibit to the Company’s 10-KSB for the fiscal year ended June 30,
2007. The above summary of the Amendment is qualified in its entirety by
reference to the full text of the Amendment, a copy of which was filed as an
exhibit hereto.
Effective
August 1, 2007, the Company entered into an Employment Agreement with our Chief
Financial Officer, Ms. Tina Gilger. Pursuant to the Employment Agreement between
Ms. Gilger and the Company (the "CFO Agreement"), the Company agreed to
employ Ms. Gilger as its Chief Financial Officer from the date of the CFO
Agreement through August 1, 2008. According to the terms of the CFO Agreement,
the term of the agreement automatically extends for an additional one month
periods unless notice of intent to terminate is received by either party at
least two weeks prior to the end of the term. Under the CFO Agreement, Ms.
Gilger was entitled to an annualized base salary of $132,000 and is eligible for
annual bonuses at the discretion of the compensation committee of the board of
directors. The Company retained the right to increase the base compensation as
it deems necessary. In addition, Ms. Gilger is entitled to participate in
the Company's stock option plans and, is entitled to two weeks of paid vacation
per calendar year. Finally, during the term of the CFO Agreement, the Company
shall pay the amount of premiums or other costs incurred for the coverage of
Ms. Gilger and her dependent family members under the Company's health and
related benefit plans.
The CFO
Agreement also includes provisions respecting severance, non-solicitation,
non-competition, and confidentiality obligations. Pursuant to the CFO Agreement,
if she terminates her employment for Good Reason (as described below), or, is
terminated prior to the end of the employment term by the Company other than for
Cause (as described below) or death, she shall be entitled to all remaining
salary from the termination date until 6 months thereafter, at the rate of
salary in effect on the date of termination, immediate vesting of all options
and, continuation of all health related plan benefits for a period of 6 months.
She shall have no obligation to seek other employment and any income so earned
shall not reduce the foregoing amounts. If she is terminated by the Company for
Cause (as described below), or at the end of the employment term, she shall not
be entitled to further compensation. Under the CFO Agreement, Good Reason
includes the assignment of duties inconsistent with her title, a material
reduction in salary and perquisites, the relocation of the Company's principal
office by 60 miles, if the Company asks her to perform any act which is illegal,
including the commission of a crime or act of moral turpitude, or a material
breach of the CFO Agreement by the Company. Under the CFO Agreement, Cause
includes conviction of crime involving moral turpitude, failure to perform her
duties to the Company, engaging in activities which are directly competitive to
or intentionally injurious to the Company, or any material breach of the CFO
Agreement by Ms. Gilger.
The above
summary of the CFO Agreement is qualified in its entirety by reference to the
full text of the CFO Agreement, a copy of which was filed as an exhibit to the
Company’s 10-KSB for the year ended June 30, 2007.
Employment Agreement with Patti L.
W. McGlasson
Effective
May 1, 2006, the Company entered into an Employment Agreement with our Secretary
and General Counsel, Ms. Patti L. W. McGlasson. Pursuant to the Employment
Agreement between Ms. McGlasson and the Company (the "General Counsel
Agreement"), the Company agreed to employ Ms. McGlasson as its Secretary
and General Counsel from the date of the General Counsel Agreement through April
30, 2008. According to the terms of the General Counsel Agreement, the term of
the agreement automatically extends for an additional one year periods unless
notice of intent to terminate is received by either party at least 6 months
prior to the end of the term. Under the General Counsel Agreement,
Ms. McGlasson was entitled to an annualized base salary of $110,000 and is
eligible for annual bonuses at the discretion of the Chief Executive Officer.
Effective August 1, 2007, Ms. McGlasson’s annualized salary was raised to
$130,000. The Company retained the right to increase the base compensation as it
deems necessary. In addition, Ms. McGlasson is entitled to participate in
the Company's stock option plans and, is entitled to two weeks of paid vacation
per calendar year. Finally, during the term of the General Counsel Agreement,
the Company shall pay the amount of premiums or other costs incurred for the
coverage of Ms. McGlasson, her spouse and dependent family members under
the Company's health and related benefit plans.
The
General Counsel Agreement also includes provisions respecting severance,
non-solicitation, non-competition, and confidentiality obligations. Pursuant to
the General Counsel Agreement, if she terminates her employment for Good Reason
(as described below), or, is terminated prior to the end of the employment term
by the Company other than for Cause (as described below) or death, she shall be
entitled to all remaining salary from the termination date until 12 months
thereafter, at the rate of salary in effect on the date of termination,
immediate vesting of all options and, continuation of all health related plan
benefits for a period of 12 months. She shall have no obligation to seek other
employment and any income so earned shall not reduce the foregoing amounts. If
she is terminated by the Company for Cause (as described below), or at the end
of the employment term, she shall not be entitled to further compensation. Under
the General Counsel Agreement, Good Reason includes the assignment of duties
inconsistent with her title, a material reduction in salary and perquisites, the
relocation of the Company's principal office by 60 miles, if the Company asks
her to perform any act which is illegal, including the commission of a crime or
act of moral turpitude, or a material breach of the General Counsel Agreement by
the Company. Under the General Counsel Agreement, Cause includes conviction of
crime involving moral turpitude, failure to perform her duties to the Company,
engaging in activities which are directly competitive to or intentionally
injurious to the Company, or any material breach of the General Counsel
Agreement by Ms. McGlasson.
The above
summary of the General Counsel Agreement is qualified in its entirety by
reference to the full text of the General Counsel Agreement, a copy of which was
filed as an exhibit to the Company’s 10-KSB for the fiscal year ended June 30,
2006 on September 27, 2006.
Outstanding Equity Awards at Fiscal
Year-End
The
following table shows grants of stock options and grants of unvested stock
awards outstanding on June 30, 2008, the last day of our fiscal year, to each of
the individuals named in the Summary Compensation Table.
NAME
|
|
NUMBER OF
SECURITIES
UNDERLYING
OPTIONS (#)
EXERCISABLE
|
|
NUMBER OF
SECURITIES
UNDERLYING
OPTIONS (#)
UNEXERCISABLE
|
|
OPTION
EXERCISE
PRICE ($)
|
|
OPTION
EXPIRATION
DATE
|
|
Najeeb Ghauri
|
|
|
100,000
|
|
|
-
|
|
|
2.21
|
|
|
1/1/14
|
|
|
|
|
100,000
|
|
|
|
|
|
3.75
|
|
|
1/1/14
|
|
|
|
|
50,000
|
|
|
|
|
|
5.00
|
|
|
1/1/14
|
|
|
|
|
20,000
|
|
|
|
|
|
2.64
|
|
|
3/26/14
|
|
|
|
|
30,000
|
|
|
|
|
|
5.00
|
|
|
3/26/14
|
|
|
|
|
374,227
|
|
|
|
|
|
1.94
|
|
|
4/1/15
|
|
|
|
|
500,000
|
|
|
|
|
|
2.91
|
|
|
4/1/15
|
|
|
|
|
200,000
|
|
|
|
|
|
1.83
|
|
|
6/2/16
|
|
|
|
|
250,000
|
|
|
|
|
|
2.50
|
|
|
6/2/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Naeem
Ghauri
|
|
|
100,000
|
|
|
-
|
|
|
2.21
|
|
|
1/2/14
|
|
|
|
|
100,000
|
|
|
|
|
|
3.75
|
|
|
1/2/14
|
|
|
|
|
50,000
|
|
|
|
|
|
5.00
|
|
|
1/2/14
|
|
|
|
|
20,000
|
|
|
|
|
|
2.64
|
|
|
3/26/14
|
|
|
|
|
30,000
|
|
|
|
|
|
5.00
|
|
|
3/26/14
|
|
|
|
|
10,000
|
|
|
|
|
|
2.50
|
|
|
2/16/12
|
|
|
|
|
374,227
|
|
|
|
|
|
1.94
|
|
|
4/1/15
|
|
|
|
|
500,000
|
|
|
|
|
|
2.91
|
|
|
4/1/15
|
|
|
|
|
250,000
|
|
|
|
|
|
1.83
|
|
|
6/2/16
|
|
|
|
|
250,000
|
|
|
|
|
|
2.50
|
|
|
6/2/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salim
Ghauri
|
|
|
100,000
|
|
|
-
|
|
|
2.21
|
|
|
1/2/14
|
|
|
|
|
100,000
|
|
|
|
|
|
3.75
|
|
|
1/2/14
|
|
|
|
|
50,000
|
|
|
|
|
|
5.00
|
|
|
3/26/14
|
|
|
|
|
20,000
|
|
|
|
|
|
2.64
|
|
|
3/26/14
|
|
|
|
|
30,000
|
|
|
|
|
|
5.00
|
|
|
3/26/14
|
|
|
|
|
20,000
|
|
|
|
|
|
2.50
|
|
|
2/16/12
|
|
|
|
|
374,227
|
|
|
|
|
|
1.94
|
|
|
4/1/15
|
|
|
|
|
500,000
|
|
|
|
|
|
2.91
|
|
|
4/1/15
|
|
|
|
|
250,000
|
|
|
|
|
|
1.83
|
|
|
6/2/16
|
|
|
|
|
250,000
|
|
|
|
|
|
2.50
|
|
|
6/2/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tina
Gilger
|
|
|
10,000
|
|
|
-
|
|
|
1.86
|
|
|
7/20/15
|
|
|
|
|
10,000
|
|
|
|
|
|
2.79
|
|
|
7/20/15
|
|
|
|
|
20,000
|
|
|
|
|
|
1.65
|
|
|
7/7/15
|
|
|
|
|
20,000
|
|
|
|
|
|
2.25
|
|
|
7/7/15
|
|
|
|
|
10,000
|
|
|
|
|
|
1.60
|
|
|
7/23/17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patti
L. W. McGlasson
|
|
|
10,000
|
|
|
-
|
|
|
3.00
|
|
|
1/1/14
|
|
|
|
|
20,000
|
|
|
|
|
|
2.64
|
|
|
3/26/14
|
|
|
|
|
30,000
|
|
|
|
|
|
5.00
|
|
|
3/26/14
|
|
|
|
|
20,000
|
|
|
|
|
|
1.65
|
|
|
7/7/15
|
|
|
|
|
20,000
|
|
|
|
|
|
2.25
|
|
|
7/7/15
|
|
|
|
|
10,000
|
|
|
|
|
|
1.60
|
|
|
7/23/17
|
|
Option Exercises and Stock Vested
Mr.
Najeeb Ghauri exercised options to acquire 50,000 shares of common stock of the
Company at the exercise price of $1.83 per share during the last fiscal year.
Pension Benefits
We do not
have any qualified or non-qualified defined benefit plans.
Potential Payments upon Termination
or Change of Control
Generally,
regardless of the manner in which a named executive officer's employment
terminates, he is entitled to receive amounts earned during his term of
employment. Such amounts include the portion of the executive's base salary that
has accrued prior to any termination and not yet been paid and unused
vacation pay.
In
addition, we are required to make the additional payments and/or provide
additional benefits to the individuals named in the Summary Compensation Table
in the event of a termination of employment or a change of control, as set forth
below.
Najeeb Ghauri, Chairman and Chief
Executive Officer
In the
event that Mr. Ghauri is terminated as a result of a change in control (defined
below), he is entitled to all payments due in the event of a termination for
Cause or Good Reason and: (a) a onetime payment equal to the product of 2.99 and
his salary during the preceding 12 months; (b) a one-time payment equal to the
higher of (i) Executive’s bonus for the previous year and (ii) one percent of
the Company’s consolidated gross revenues for the previous twelve (12) months;
and, at the election of the Executive, (c) a one-time cash payment equal to the
cash value of all shares eligible for exercise upon the exercise of Executive’s
Options then currently outstanding and exercisable as if they had been exercised
in full (the “Change of Control Termination Payment”). In the event Executive
elects to receive the cash value of the shares underlying Executive’s options,
he shall so notify the Company of his intent.
The
following table summarizes the potential payments to Mr. Ghauri assuming
his employment with us was terminated or a change of control occurred on June
30, 2008, the last day of our most recently completed fiscal
year.
BENEFITS
AND PAYMENTS
|
|
CHANGE
OF
CONTROL
|
|
TERMINATION
UPON DEATH
OR
DISABILITY
|
|
TERMINATION
BY US
WITHOUT
CAUSE OR BY
EXECUTIVE
FOR GOOD
REASON
|
|
|
|
|
|
|
|
|
|
Base
Salary
|
|
$
|
900,000
|
|
$
|
-
|
|
$
|
953,103
|
|
Bonus
|
|
|
-
|
|
|
|
|
|
|
|
Salary
Multiple Pay-out
|
|
|
897,000
|
|
|
|
|
|
|
|
Bonus
or Revenue One-time Pay-Out
|
|
|
366,422
|
|
|
|
|
|
|
|
Net
Cash Value of Options
|
|
|
4,190,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,353,928
|
|
$
|
-
|
|
$
|
953,103
|
|
Naeem Ghauri, President EMEA
In the
event that Mr. Ghauri is terminated as a result of a change in control (defined
below), he is entitled to all payments due in the event of a termination for
Cause or Good Reason and: (a) a onetime payment equal to the product of 2.99 and
his salary during the preceding 12 months; (b) a one-time payment equal to the
higher of (i) Executive’s bonus for the previous year and (ii) one percent of
the Company’s consolidated gross revenues for the previous twelve (12) months;
and, at the election of the Executive, (c) a one-time cash payment equal to the
cash value of all shares eligible for exercise upon the exercise of Executive’s
Options then currently outstanding and exercisable as if they had been exercised
in full (the “Change of Control Termination Payment”). In the event Executive
elects to receive the cash value of the shares underlying Executive’s options,
he shall so notify the Company of his intent.
The
following table summarizes the potential payments to Mr. Ghauri assuming
his employment with us was terminated or a change of control occurred on June
30, 2008, the last day of our most recently completed fiscal year.
BENEFITS AND PAYMENTS
|
|
CHANGE
OF
CONTROL
|
|
TERMINATION
UPON DEATH
OR
DISABILITY
|
|
TERMINATION
BY US
WITHOUT
CAUSE OR BY
EXECUTIVE
FOR GOOD
REASON
|
|
|
|
|
|
|
|
|
|
Base
Salary
|
|
$
|
735,000
|
|
$
|
-
|
|
$
|
735,000
|
|
Bonus
|
|
|
-
|
|
|
|
|
|
|
|
Salary
Multiple Pay-out
|
|
|
732,550
|
|
|
|
|
|
|
|
Bonus
or Revenue One-time Pay-Out
|
|
|
366,422
|
|
|
|
|
|
|
|
Net
Cash Value of Options
|
|
|
4,371,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,205,078
|
|
$
|
-
|
|
$
|
735,000
|
|
Salim Ghauri, President APAC
In the
event that Mr. Ghauri is terminated as a result of a change in control (defined
below), he is entitled to all payments due in the event of a termination for
Cause or Good Reason and: (a) a onetime payment equal to the product of 2.99 and
his salary during the preceding 12 months; (b) a one-time payment equal to the
higher of (i) Executive’s bonus for the previous year and (ii) one percent of
the Company’s consolidated gross revenues for the previous twelve (12) months;
and, at the election of the Executive, (c) a one-time cash payment equal to the
cash value of all shares eligible for exercise upon the exercise of Executive’s
Options then currently outstanding and exercisable as if they had been exercised
in full (the “Change of Control Termination Payment”). In the event Executive
elects to receive the cash value of the shares underlying Executive’s options,
he shall so notify the Company of his intent.
The
following table summarizes the potential payments to Mr. Ghauri assuming
his employment with us was terminated or a change of control occurred on June
30, 2008, the last day of our most recently completed fiscal
year.
|
|
CHANGE
OF
CONTROL
|
|
TERMINATION
UPON DEATH
OR
DISABILITY
|
|
TERMINATION
BY US
WITHOUT
CAUSE OR BY
EXECUTIVE
FOR GOOD
REASON
|
|
|
|
|
|
|
|
|
|
Base
Salary
|
|
$
|
675,000
|
|
$
|
-
|
|
$
|
675,000
|
|
Bonus
|
|
|
-
|
|
|
|
|
|
|
|
Salary
Multiple Pay-out
|
|
|
672,750
|
|
|
|
|
|
|
|
Bonus
or Revenue One-time Pay-Out
|
|
|
366,422
|
|
|
|
|
|
|
|
Net
Cash Value of Options
|
|
|
4,371,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,085,278
|
|
$
|
-
|
|
$
|
675,000
|
|
Tina Gilger, Chief Financial Officer
In the
event that Ms. Gilger is terminated as a result of a change in control (defined
below), she is entitled to all payments due in the event of a termination for
Cause or Good Reason and: (a) a onetime payment equal to the product of 2.99 and
her salary during the preceding 6 months; (b) a one-time payment equal to the
higher of (i) Executive’s bonus for the previous year and (ii) one-half of one
percent of the Company’s consolidated gross revenues for the previous six (6)
months; and, at the election of the Executive, (c) a one-time cash payment equal
to the cash value of all shares eligible for exercise upon the exercise of
Executive’s Options then currently outstanding and exercisable as if they had
been exercised in full (the “Change of Control Termination Payment”). In the
event Executive elects to receive the cash value of the shares underlying
Executive’s options, she shall so notify the Company of her intent.
The
following table summarizes the potential payments to Ms. Gilger assuming
her employment with us was terminated or a change of control occurred on June
30, 2008, the last day of our most recently completed fiscal year.
BENEFITS AND PAYMENTS
|
|
CHANGE
OF
CONTROL
|
|
TERMINATION
UPON DEATH
OR
DISABILITY
|
|
TERMINATION
BY US
WITHOUT
CAUSE OR BY
EXECUTIVE
FOR GOOD
REASON
|
|
|
|
|
|
|
|
|
|
Base
Salary
|
|
$
|
66,000
|
|
$
|
-
|
|
$
|
66,000
|
|
Bonus
|
|
|
15,000
|
|
|
|
|
|
|
|
Salary
Multiple Pay-out
|
|
|
197,340
|
|
|
|
|
|
|
|
Bonus
or Revenue One-time Pay-Out
|
|
|
91,605
|
|
|
|
|
|
|
|
Net
Cash Value of Options
|
|
|
180,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
550,545
|
|
$
|
-
|
|
$
|
66,000
|
|
Patti L. W. McGlasson, Secretary and
General Counsel
In the
event that Ms. McGlasson is terminated as a result of a change in control
(defined below), she is entitled to all payments due in the event of a
termination for Cause or Good Reason and: (a) a onetime payment equal to the
product of 2.99 and her salary during the preceding 12 months; (b) a one-time
payment equal to the higher of (i) Executive’s bonus for the previous year and
(ii) one-half of one percent of the Company’s consolidated gross revenues for
the previous twelve (12) months; and, at the election of the Executive, (c) a
one-time cash payment equal to the cash value of all shares eligible for
exercise upon the exercise of Executive’s Options then currently outstanding and
exercisable as if they had been exercised in full (the “Change of Control
Termination Payment”). In the event Executive elects to receive the cash value
of the shares underlying Executive’s options, she shall so notify the Company of
her intent.
The
following table summarizes the potential payments to Ms. McGlasson assuming
her employment with us was terminated or a change of control occurred on June
30, 2008, the last day of our most recently completed fiscal
year.
BENEFITS AND PAYMENTS
|
|
CHANGE
OF
CONTROL
|
|
TERMINATION
UPON DEATH
OR
DISABILITY
|
|
TERMINATION
BY US
WITHOUT
CAUSE OR BY
EXECUTIVE
FOR GOOD
REASON
|
|
|
|
|
|
|
|
|
|
Base
Salary
|
|
$
|
130,000
|
|
$
|
-
|
|
$
|
130,000
|
|
Bonus
|
|
|
5,000
|
|
|
|
|
|
|
|
Salary
Multiple Pay-out
|
|
|
388,700
|
|
|
|
|
|
|
|
Bonus
or Revenue One-time Pay-Out
|
|
|
183,211
|
|
|
|
|
|
|
|
Net
Cash Value of Options
|
|
|
283,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
990,711
|
|
$
|
-
|
|
$
|
130,000
|
|
Director Compensation
Director Compensation
Table
The
following table sets forth a summary of the compensation earned by our Directors
and/or paid to certain of our Directors pursuant to the Company's compensation
policies for the fiscal year ended June 30, 2008, other than Najeeb Ghauri,
Naeem Ghauri and Salim Ghauri who are executives and directors.
NAME
|
|
FEES
EARNED
OR PAID
IN CASH ($)
|
|
OPTION
AWARDS
($) (1)
|
|
TOTAL
($)
|
|
Eugen Beckert
|
|
|
23,000
|
|
|
-
|
|
|
23,000
|
|
Shahid
Javed Burki
|
|
|
29,000
|
|
|
-
|
|
|
29,000
|
|
Mark
Caton
|
|
|
26,000
|
|
|
-
|
|
|
26,000
|
|
Alexander
Shakow
|
|
|
16,000
|
|
|
-
|
|
|
16,000
|
|
(1) |
There
were no options awarded during fiscal year ended June 30, 2008
|
Director Compensation Policy
Messrs. Ghauri
are not paid any fees or other compensation for services as members of our Board
of Directors.
The
non-employee members of our Board of Directors received as compensation for
services as directors as well as reimbursement for documented reasonable
expenses incurred in connection with attendance at meetings of our Board of
Directors and the committees thereof. The Company paid the following amounts to
members of the Board of Directors for the activities shown during the fiscal
year ended June 30, 2008.
BOARD ACTIVITY
|
|
CASH
PAYMENTS
|
|
Annual
Cash Retainer
|
|
$
|
10,000
|
|
Committee
Membership
|
|
$
|
2,000
|
|
Chairperson
for Audit Committee
|
|
$
|
15,000
|
|
Chairperson
for Compensation Committee
|
|
$
|
12,000
|
|
Chairperson
for Nominating and Corporate Governance Committee
|
|
$
|
9,000
|
|
Members
of our Board of Directors are also eligible to receive stock option or stock
award grants both upon joining the Board of Directors and on an annual basis in
line with recommendations by the Compensation Committee, which grants are
non-qualified stock options under our Employee Stock Option Plans. Further, from
time to time, the non-employee members of the Board of Directors are eligible to
receive stock grants that may be granted if and only if approved by the
shareholders of the Company.
Compensation Committee Interlocks and
Insider Participation
The
current members of the Compensation Committee are Messrs. Caton (Chairman),
Mr. Beckert, Mr. Burki and Mr. Shakow. During the fiscal year ended June 30,
2007, the Chairman of the Compensation Committee was Mr. Beckert. There were no
other members of the committee during the fiscal year ended June 30, 2007. All
current members of the Compensation Committee are "independent directors" as
defined under the Nasdaq Marketplace Rules. None of these individuals were at
any time during the fiscal year ended June 30, 2008, or at any other time, an
officer or employee of the Company.
No
executive officer of the Company serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee.
Employee Stock Option Plans
The 2001
plan authorizes the issuance of up to 2,000,000 options to purchase common stock
of which 2,000,000 have been granted. The grant prices range between $.75 and
$2.50.
The 2002
plan authorizes the issuance of up to 2,000,000 options to purchase common stock
of which 2,000,000 options have been granted. The grant prices range between
$.75 and $5.00.
In March
2004, our shareholders approved the 2003 stock option plan. This plan authorizes
up to 2,000,000 options to purchase common stock of which 1,159,606 have been
granted. The grant prices range between $1.00 and $5.00.
In March
2005, our shareholders approved the 2004 stock option plan. This plan authorizes
up to 5,000,000 options to purchase common stock of which 4,998,246 have been
granted. The grant prices range between $1.50 and $3.00.
In April
2006, our shareholders approved the 2005 stock option plan. This plan authorizes
up to 5,000,000 options to purchase common stock of which 1,780,000 have been
granted. The grant prices range between $1.70 and $2.55.
In May
2008, our shareholders approved the 2008 Equity Incentive Plan. This plan
authorizes grants of up to 1,000,000 options or stock awards of which none have
been granted.
ITEM 11- SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock, its only class of outstanding voting
securities as of September 15, 2008, by (i) each person who is known to the
Company to own beneficially more than 5% of the outstanding common Stock with
the address of each such person, (ii) each of the Company's present directors
and officers, and (iii) all officers and directors as a group:
Name and Address
|
|
Number of
Shares(1)(2)
|
|
Percentage
Beneficially
owned(4)
|
|
|
|
|
|
|
|
Najeeb
Ghauri (3)
|
|
|
2,577,650
|
|
|
9.75
|
%
|
Naeem
Ghauri (3)
|
|
|
2,261,367
|
|
|
8.56
|
%
|
Salim
Ghauri (3)
|
|
|
2,434,406
|
|
|
9.21
|
%
|
Eugen
Beckert (3)
|
|
|
223,900
|
|
|
*
|
|
Shahid
Javed Burki (3)
|
|
|
194,000
|
|
|
*
|
|
Mark
Caton (3)
|
|
|
6,000
|
|
|
*
|
|
Alexander
Shakow (3)
|
|
|
0
|
|
|
*
|
|
Patti
McGlasson (3)
|
|
|
135,000
|
|
|
*
|
|
Tina
Gilger (3)
|
|
|
81,731
|
|
|
*
|
|
The
Tail Wind Fund Ltd.(5)(6)
|
|
|
2,748,818
|
|
|
9.90
|
%
|
All
officers and directors
|
|
|
|
|
|
|
|
as
a group (nine persons)
|
|
|
7,914,054
|
|
|
29.95
|
%
|
* Less
than one percent
(1)
Except as otherwise indicated, the Company believes that the beneficial owners
of the common stock listed below, based on information furnished by such owners,
have sole investment and voting power with respect to such shares, subject to
community property laws where applicable. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and
generally includes voting or investment power with respect to securities.
(2)
Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect to
securities. Shares of common stock relating to options currently exercisable or
exercisable within 60 days of September 19, 2007 are
deemed outstanding for computing the percentage of the person holding such
securities but are not deemed outstanding for computing the percentage of any
other person. Except as indicated by footnote, and subject to community property
laws where applicable, the persons named in the table above have sole voting and
investment power with respect to all shares shown as beneficially owned by them.
Includes shares issuable upon exercise of options exercisable within 60 days, as
follows: Mr. Najeeb Ghauri, 1,774,227; Mr. Naeem Ghauri, 1,784,227; Mr. Salim
Ghauri, 1,774,227; Mr. Eugen Beckert, 135,000; Mr. Shahid Burki, 150,000; Ms.
Tina Gilger, 70,000; and Ms. Patti McGlasson, 110,000.
(3)
Address c/o NetSol Technologies, Inc. at 23901 Calabasas Road, Suite 2072,
Calabasas, CA 91302.
(4)
Shares issued and outstanding as of September 13, 2007 were 21,374,922.
(5)
Address: The Bank of Nova Scotia Trust Company (Bahamas) Ltd., Windermere House,
404 East Bay Street, P.O. Box SS-5539, Nassau, Bahamas. Tail Wind Advisory &
Management Ltd., a UK corporation authorized and regulated by the Financial
Services Authority of Great Britain (“TWAM”), is the investment manager for The
Tail Wind Fund Ltd., and David Crook is the CEO and controlling shareholder of
TWAM. Each of TWAM and David Crook expressly disclaims any equitable or
beneficial ownership of the shares being referred to hereunder and held by The
Tail Wind Fund Ltd.
(6)
Subject to the Ownership Limitation (defined below), The Tail Wind Fund Ltd.
(“Tail Wind”) may be deemed to beneficially own a total of 4,352,073 shares of
Common Stock, including: 1,268,740 shares of Common Stock held by Tail Wind,;
1,060,606 shares of Common Stock issuable upon conversion of $1,750,000 in
liquidation preference of the Company’s Series A 7% Cumulative Convertible
Preferred Stock (“the Preferred Stock”); 303,030 sshares of Common Stock
issuable upon exercise of Warrants issued to Tail Wind on June 29, 2007; 303,030
shares of Common Stock issuable upon exercise of Warrants issued to Tail Wind on
October 29, 2007 (together with the warrants issued on June 29, 2007, the
“Warrants”); and, 1,416,667 shares of Common Stock issuable upon conversion of
$4,250,000 in principal amount of the Company’s Convertible Notes due July 31,
2011 issued to Tail Wind on July 23, 2008 (the “Notes”). . In accordance with
Rule 13d-4 under the Securities Exchange Act of 1934, as amended, because the
number of shares of Common Stock into which the Reporting Person's Notes,
Preferred Stock and Warrants are convertible and exercisable is limited,
pursuant to the terms of such instruments, to that number of shares of Common
Stock which would result in the Reporting Person having beneficial ownership of
9.9% of the total issued and outstanding shares of Common Stock (the "Ownership
Limitation"), Tail Wind disclaims beneficial ownership of any and all shares of
Common Stock that would cause Tail Wind's beneficial ownership to exceed the
Ownership Limitation. In accordance with the Ownership Limitation, Tail Wind,
based upon 26,285,761 shares of common stock outstanding (as of July 23, 2008),
Tail Wind beneficially owns 2,748,818 shares of Common Stock and disclaims
beneficial ownership of 1,603,255.
ITEM 12-CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS.
In July
2007, the board approved compensation for service on the Audit, Compensation and
Nominating and Corporate Governance Committees. This compensation is discussed
in the sections entitled “Compensation of Directors” beginning on page
53.
PART IV
ITEM 13 - EXHIBITS AND REPORTS ON
FORM 8-K
(a)
Exhibits
3.1
|
|
Articles
of Incorporation of Mirage Holdings, Inc., a Nevada corporation, dated
March 18, 1997,
|
|
|
incorporated
by reference as Exhibit 3.1 to NetSol’s Registration Statement No.
333-28861 filed on
|
|
|
Form
SB-2 filed June 10, 1997.*
|
3.2
|
|
Amendment
to Articles of Incorporation dated May 21, 1999, incorporated by reference
as Exhibit 3.2 to NetSol’s Annual Report for the fiscal year ended June
30, 1999 on Form 10K-SB filed September 28, 1999.*
|
3.3
|
|
Amendment
to the Articles of Incorporation of NetSol International, Inc. dated March
20, 2002 incorporated by reference as Exhibit 3.3 to NetSol’s Annual
Report on Form 10-KSB/A filed on February 2, 2001.*
|
3.4
|
|
Amendment
to the Articles of Incorporation of NetSol Technologies, Inc. dated August
20, 2003 filed as Exhibit A to NetSol’s Definitive Proxy Statement filed
June 27, 2003.*
|
3.5
|
|
Amendment
to the Articles of Incorporation of NetSol Technologies, Inc. dated March
14, 2005 filed as Exhibit 3.0 to NetSol’s quarterly report filed on Form
10-QSB for the period ended March 31, 2005.*
|
3.6
|
|
Amendment
to the Articles of Incorporation dated October 18, 2006 filed as Exhibit
3.5 to NetSol’s Annual Report for the fiscal year ended June 30, 2007 on
Form 10-KSB.*
|
3.7
|
|
Amendment
to Articles of Incorporation dated May 12, 2008 (1)*
|
3.8
|
|
Bylaws
of Mirage Holdings, Inc., as amended and restated as of November 28, 2000
incorporated by reference as Exhibit 3.3 to NetSol’s Annual Report for the
fiscal year ending in June 30, 2000 on Form 10K-SB/A filed on February 2,
2001.*
|
3.9
|
|
Amendment
to the Bylaws of NetSol Technologies, Inc. dated February 16, 2002
incorporated by reference as Exhibit 3.5 to NetSol’s Registration
Statement filed on Form S-8 filed on March 27, 2002.*
|
4.1
|
|
Form
of Common Stock Certificate*
|
4.2
|
|
Form
of Warrant*.
|
4.3
|
|
Form
of Series A 7% Cumulative Preferred Stock filed as Annex E to NetSol’s
Definitive Proxy Statement filed September 18, 2006*.
|
10.1
|
|
Lease
Agreement for Calabasas executive offices dated December 3, 2003
incorporated by reference as Exhibit 99.1 to NetSol’s Current Report filed
on Form 8-K filed on December 24, 2003.*
|
10.2
|
|
Company
Stock Option Plan dated May 18, 1999 incorporated by reference as Exhibit
10.2 to the Company’s Annual Report for the Fiscal Year Ended June 30,
1999 on Form 10K-SB filed September 28, 1999.*
|
10.3
|
|
Company
Stock Option Plan dated April 1, 1997 incorporated by reference as Exhibit
10.5 to NetSol’s Registration Statement No. 333-28861 on Form SB-2 filed
June 10, 1997*
|
10.4
|
|
Company
2003 Incentive and Nonstatutory incorporated by reference as Exhibit 99.1
to NetSol’s Definitive Proxy Statement filed February 6,
2004.*
|
10.5
|
|
Company
2001 Stock Options Plan dated March 27, 2002 incorporated by reference as
Exhibit 5.1 to NetSol’s Registration Statement on Form S-8 filed on March
27, 2002.*
|
10.6
|
|
Company
2008 Equity Incentive Plan incorporated by reference as Annex A to
NetSol’s Definitive Proxy Statement filed May 28,
2008.*
|
10.6
|
|
Frame
Agreement by and between DaimlerChrysler Services AG and NetSol
Technologies dated June 4, 2004 incorporated by reference as Exhibit 10.13
to NetSol’s Annual Report for the year ended June 30, 2005 on Form 10-KSB
filed on September 15, 2005.*
|
10.7
|
|
Share
Purchase Agreement dated as of January 19, 2005 by and between the Company
and the shareholders of CQ Systems Ltd. incorporated by reference as
Exhibit 2.1 to NetSol’s Current Report filed on form 8-K on January 25,
2005.*
|
10.8
|
|
Stock
Purchase Agreement dated May 6, 2006 by and between the Company, McCue
Systems, Inc. and the shareholders of McCue Systems, Inc. incorporated by
reference as Exhibit 2.1 to NetSol’s Current Report filed on form 8-K on
May 8, 2006.*
|
10.9
|
|
Employment
Agreement by and between NetSol Technologies, Inc. and Patti L. W.
McGlasson dated May 1, 2006 incorporated by reference as Exhibit 10.20 to
NetSol’s Annual Report on form 10-KSB dated September 18,
2006.*
|
10.11.
|
|
Employment
Agreement by and between the Company and Najeeb Ghauri dated January 1,
2007 filed as Exhibit 10.11 to the Company’s Annual Report filed on Form
10-KSB for the year ended June 30, 2007.*
|
10.12
|
|
Employment
Agreement by and between the Company and Naeem Ghauri dated January 1,
2007 filed as Exhibit 10.11 to the Company’s Annual Report filed on Form
10-KSB for the year ended June 30, 2007.*
|
10.13
|
|
Employment
Agreement by and between the Company and Salim Ghauri dated January 1,
2007 filed as Exhibit 10.11 to the Company’s Annual Report filed on Form
10-KSB for the year ended June 30, 2007.*
|
10.14
|
|
Employment
Agreement by and between the Company and Tina Gilger dated August 1, 2007
filed as Exhibit 10.11 to the Company’s Annual Report filed on Form 10-KSB
for the year ended June 30, 2007.*
|
10.15
|
|
Amendment
to Employment Agreement by and between Company and Najeeb Ghauri dated
effective January 1,
2007.*
|
10.16
|
|
Amendment
to Employment Agreement by and between Company and Naeem Ghauri dated
effective January 1, 2007. *
|
10.17
|
|
Amendment
to Employment Agreement by and between Company and Salim Ghauri dated
effective January 1,*
|
10.18
|
|
Lease
Agreement by and between McCue Systems, Inc. and Sea Breeze 1 Venture
dated April 29, 2003*.
|
10.19
|
|
Amendment
to Lease Agreement by and between McCue Systems, Inc. and Sea Breeze 1
Venture dated June 25, 2007 filed as Exhibit 10.19 to the Company’s Annual
Report filed on Form 10-KSB for the year ended June 30, 2007.
*
|
10.20
|
|
Lease
Agreement by and between NetSol Pvt Limited and Civic Centres Company
(PVT) Limited dated May 28, 2001 incorporated by this reference as Exhibit
10.23 to NetSol’s Annual Report on form 10-KSB dated September 18,
2006.*
|
10.21
|
|
Lease
Agreement by and between NetSol Pvt Limited and Mrs. Rameeza Zobairi dated
December 5, 2005 incorporated by this reference as Exhibit 10.24 to
NetSol’s Annual Report on form 10-KSB dated September 18,
2006.*
|
10.22
|
|
Lease
Agreement by and between NetSol Pvt Limited and Mr. Nisar Ahmed dated May
4, 2006 incorporated by this reference as Exhibit 10.25 to NetSol’s Annual
Report on form 10-KSB dated September 18, 2006.*
|
10.23
|
|
Lease
Agreement by and between NetSol Technologies, Ltd. and Argyll Business
Centres Limited dated April 28, 2006 incorporated by this reference as
Exhibit 10. 26 to NetSol’s Annual Report on form 10-KSB dated September
18, 2006.*
|
10.24
|
|
Tenancy
Agreement by and between NetSol Technologies, Ltd. and Beijing Lucky
Goldstar Building Development Co. Ltd. dated June 26, 2007 filed as
Exhibit 10.21 to the Company’s Annual Report filed on Form 10-KSB for the
year ended June 30, 2007.*
|
10.25
|
|
Company
2005 Stock Option Plan incorporated by reference as Exhibit 99.1 to
NetSol’s Definitive Proxy Statement filed on March 3,
2006.*
|
10.26
|
|
Company
2004 Stock Option Plan incorporated by reference as Exhibit 99.1 to
NetSol’s Definitive Proxy Statement filed on February 7,
2005.*
|
10.27
|
|
Working
area sublease by and between NetSol Technologies, Ltd. and Toyota Leasing
(Thailand) Co. Ltd., dated June 21, 2007 filed as Exhibit 10.24 to the
Company’s Annual Report filed on Form 10-KSB for the year ended June 30,
2007.*
|
10.28
|
|
Lease
Agreement by and between NetSol Technologies, Inc. and NetSol Technologies
North America, Inc. and NOP Watergate LLC dated April 3,
2008.*
|
10.29
|
|
Lease
Amendment Number Three by and between NetSol Technologies, Inc. and
Century National Properties, Inc. dated December 12, 2007.
*
|
10.30
|
|
Rent
Agreement by and between Mr. Tahir Mehmood Khan and NetSol Technologies
Ltd. Dated January 21, 2008.
*
|
21.1
A list of
all subsidiaries of the Company*
31.1
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (CEO)(1)
31.2
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (CFO)(1)
32.1
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (CEO)(1)
32.2
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley act of 2002 (CFO)(1)
*Previously
Filed
(1) Filed
Herewith
(b)
Reports on Form 8-K
|
1)
|
On
May 1, 2008, the Company filed a current report including its press
release dated April 30, 2008 which announced the results of operations and
financial conditions for its Pakistani subsidiary, NetSol Technologies,
Ltd. for the quarter ended March 31,
2008.
|
|
2)
|
On
May 13, 2008, the Company filed a current report including its press
release dated May 13, 2008 and Financial Results Presentation dated May
13, 2008 which announced the results of operations and financial
conditions for the quarter ended March 31,
2008.
|
Item 14 Principal Accountant Fees and
Services
Audit Fees
Kabani
& Co. audited the Company’s financial statements for the fiscal years ended
June 30, 2008 and June 30, 2007. The aggregate fees billed by
Kabani & Co. for the annual audit and review of financial statements
included in the Company’s Form 10-KSB or services that are normally provided by
Kabani & Company that are normally provided by the accountant in connection
with statutory and regulatory filings or engagements for the year ended June 30,
2008 was $120,000, and for the year ended June 30, 2007 was $105,000.
Audit Related Fees
The
aggregate fees billed by Kabani & Co. during fiscal 2008 including
assurance and related audit services not covered in the preceding paragraph was
$37,500. These “Audit Related Fees” were primarily for services in connection
with the review of quarterly financial statements.. The aggregate fees billed by
Kabani & Company during fiscal 2007 including assurance and related audit
services not covered in the preceding paragraph was $52,500. These “Audit
Related Fees” were primarily for services in connection with the review of
quarterly financial statements and the Company’s filing of a Registration
Statement and amendments thereto on Form S-3.
Tax Fees
Tax fees
for fiscal year 2008 were $4,500 and consisted of the preparation of the
Company’s federal and state tax returns for the fiscal years 2007. Tax fees for
fiscal year 2007 were $12,500 and consisted of the preparation of the Company’s
federal and state tax returns for the fiscal year 2006.
All Other Fees
There
were no other fees billed by Kabani & Co. or services rendered to
NetSol during the fiscal years ended June 30, 2008 and 2007, other than as
described above.
Pre-Approval
Procedures
The Audit
Committee and the Board of Directors are responsible for the engagement of the
independent auditors and for approving, in advance, all auditing services and
permitted non-audit services to be provided by the independent auditors. The
Audit Committee maintains a policy for the engagement of the independent
auditors that is intended to maintain the independent auditor’s independence
from NetSol. In adopting the policy, the Audit Committee considered the various
services that the independent auditors have historically performed or may be
needed to perform in the future. The policy, which is to be reviewed and
re-adopted at least annually by the Audit Committee:
|
(i) |
Approves
the performance by the independent auditors of certain types of service
(principally audit-related and tax), subject to restrictions in some
cases, based on the Committee’s determination that this would not be
likely to impair the independent auditors’ independence from
NetSol;
|
|
(ii) |
Requires
that management obtain the specific prior approval of the Audit Committee
for each engagement of the independent auditors to perform other types of
permitted services; and,
|
|
(iii) |
Prohibits
the performance by the independent auditors of certain types of services
due to the likelihood that their independence would be
impaired.
|
Any
approval required under the policy must be given by the Audit Committee, by the
Chairman of the Committee in office at the time, or by any other Committee
member to whom the Committee has delegated that authority. The Audit Committee
does not delegate its responsibilities to approve services performed by the
independent auditors to any member of management.
The
standard applied by the Audit Committee in determining whether to grant approval
of an engagement of the independent auditors is whether the services to be
performed, the compensation to be paid therefore and other related factors are
consistent with the independent auditors’ independence under guidelines of the
Securities and Exchange Commission and applicable professional standards.
Relevant considerations include, but are not limited to, whether the work
product is likely to be subject to, or implicated in, audit procedures during
the audit of NetSol’s financial statements; whether the independent auditors
would be functioning in the role of management or in an advocacy role; whether
performance of the service by the independent auditors would enhance NetSol’s
ability to manage or control risk or improve audit quality; whether performance
of the service by the independent auditors would increase efficiency because of
their familiarity with NetSol’s business, personnel, culture, systems, risk
profile and other factors; and whether the amount of fees involved, or the
proportion of the total fees payable to the independent auditors in the period
that is for tax and other non-audit services, would tend to reduce the
independent auditors’ ability to exercise independent judgment in performing the
audit.
SIGNATURES
In
accordance with Section 13 or 15 (d) of the Exchange Act, the Registrant caused
this amended report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
NetSol
Technologies, Inc.
|
|
|
|
|
Date:
November 26, 2008
|
|
BY:
|
/S/
NAJEEB GHAURI
|
|
|
|
|
|
|
|
Najeeb
Ghauri
|
|
|
|
Chief
Executive Officer
|
|
|
|
|
Date:
November 26, 2008
|
|
BY:
|
/S/
Tina Gilger
|
|
|
|
|
|
|
|
Tina
Gilger
|
|
|
|
Chief
Financial Officer
|
In
accordance with the Exchange Act, this amended report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
|
|
BY:
|
/S/
NAJEEB U. GHAURI
|
|
|
|
Najeeb
U. Ghauri
|
|
|
|
Chief
Executive Officer
|
|
|
|
Director,
Chairman
|
|
|
|
|
Date:
November 26, 2008
|
|
|
/S/
SALIM GHAURI
|
|
|
|
Salim
Ghauri
|
|
|
|
President,
APAC
|
|
|
|
Director
|
|
|
|
|
Date:
November 26, 2008
|
|
BY:
|
/S/
NAEEM GHAURI
|
|
|
|
Naeem
Ghauri
|
|
|
|
President,
EMEA
|
|
|
|
Director
|
|
|
|
|
Date:
November 26, 2008
|
|
BY:
|
/S/
EUGEN BECKERT
|
|
|
|
Eugen
Beckert
|
|
|
|
Director
|
|
|
|
|
Date:
November 26, 2008
|
|
BY:
|
/S/
SHAHID JAVED BURKI
|
|
|
|
Shahid
Javed Burki
|
|
|
|
Director
|
|
|
|
|
Date:
November 26, 2008
|
|
BY:
|
/S/
MARK CATON
|
|
|
|
Mark
Caton
|
|
|
|
Director
|
|
|
|
|
Date:
November 26, 2008
|
|
BY:
|
/S/
ALEXANDER SHAKOW
|
|
|
|
Alexander
Shakow
|
|
|
|
Director
|
NETSOL
TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS
|
|
Page
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
F-2
|
|
|
|
Consolidated
Balance Sheets as of June 30, 2008, 2007, and 2006
(restated)
|
|
F-3
|
|
|
|
Consolidated
Statements of Operations for the Years Ended June 30, 2008, 2007, and 2006
(restated)
|
|
F-4
|
|
|
|
Consolidated
Statements of Stockholders’ Equity for the Years Ended
|
|
|
June
30, 2008, 2007, and 2006 (restated)
|
|
F-5
|
|
|
|
Consolidated
Statements of Cash Flows for the Years Ended June 30, 2008, 2007, and 2006
(restated)
|
|
F-8
|
|
|
|
Notes
to Consolidated Financial Statements
|
|
F-10
|
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Board of
Directors
NetSol
Technologies, Inc. and subsidiaries
Calabasas,
California
We have
audited the accompanying consolidated balance sheets of NetSol Technologies,
Inc. and subsidiaries as of June 30, 2008, 2007 and 2006, and the related
consolidated statements of operations, stockholders’ equity and cash flows for
the years ended June 30, 2008, 2007, and 2006. These financial statements are
the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We
conducted our audits of these statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of NetSol
Technologies, Inc. and subsidiaries as of June 30, 2008, 2007 and 2006, and the
results of its consolidated operations and its cash flows for the years ended
June 30, 2008, 2007, and 2006 in conformity with accounting principles generally
accepted in the United States of America.
As
discussed in note 22, the Company restated its financial statements for the
years ended June 30, 2008, 2007 and 2006.
/s/
Kabani & Company, Inc.
CERTIFIED
PUBLIC ACCOUNTANTS
Los
Angeles, California
September
12, 2008 except for note 2, 14, 18 and 22 which are as of November 6,
2008
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS - RESTATED
|
|
As
of 6/30/08
|
|
As
of 6/30/07
|
|
As
of 6/30/06
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
6,275,238
|
|
$
|
4,010,164
|
|
$
|
2,493,768
|
|
Certificates
of deposit
|
|
|
-
|
|
|
-
|
|
|
1,739,851
|
|
Restricted
cash
|
|
|
-
|
|
|
-
|
|
|
4,533,555
|
|
Accounts
receivable, net of allowance for doubtful accounts
|
|
|
10,988,888
|
|
|
7,937,686
|
|
|
6,171,331
|
|
Revenues
in excess of billings
|
|
|
11,053,042
|
|
|
8,501,769
|
|
|
4,469,069
|
|
Other
current assets
|
|
|
2,406,407
|
|
|
2,278,749
|
|
|
2,822,869
|
|
Total
current assets
|
|
|
30,723,575
|
|
|
22,728,368
|
|
|
22,230,443
|
|
Property and
equipment,
net of accumulated depreciation
|
|
|
9,176,780
|
|
|
7,583,752
|
|
|
6,472,038
|
|
Other assets,
long-term
|
|
|
1,866,437
|
|
|
1,308,267
|
|
|
-
|
|
Intangibles:
|
|
|
|
|
|
|
|
|
|
|
Product
licenses, renewals, enhancements, copyrights,
|
|
|
|
|
|
|
|
|
|
|
trademarks,
and tradenames, net
|
|
|
10,837,856
|
|
|
7,772,848
|
|
|
5,120,213
|
|
Customer
lists, net
|
|
|
1,732,761
|
|
|
2,427,405
|
|
|
3,109,548
|
|
Goodwill
|
|
|
9,439,285
|
|
|
7,708,501
|
|
|
6,092,906
|
|
Total
intangibles
|
|
|
22,009,902
|
|
|
17,908,754
|
|
|
14,322,667
|
|
Total
assets
|
|
$
|
63,776,694
|
|
$
|
49,529,141
|
|
$
|
43,025,148
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
4,116,659
|
|
$
|
3,590,651
|
|
$
|
3,276,159
|
|
Current
portion of loans and obligations under capitalized leases
|
|
|
2,280,110
|
|
|
887,098
|
|
|
768,935
|
|
Other
payables - acquisitions
|
|
|
846,215
|
|
|
962,406
|
|
|
4,086,204
|
|
Unearned
revenues
|
|
|
3,293,728
|
|
|
2,815,660
|
|
|
2,669,995
|
|
Due
to officers
|
|
|
184,173
|
|
|
356,422
|
|
|
90,767
|
|
Dividend
to preferred stockholders payable
|
|
|
33,508
|
|
|
77,640
|
|
|
-
|
|
Loans
payable, bank
|
|
|
2,932,551
|
|
|
3,097,928
|
|
|
662,800
|
|
Total
current liabilities
|
|
|
13,686,944
|
|
|
11,787,805
|
|
|
11,554,860
|
|
Obligations under capitalized
leases, less
current maturities
|
|
|
332,307
|
|
|
339,759
|
|
|
183,168
|
|
Convertible notes payable -
net
|
|
|
-
|
|
|
-
|
|
|
3,505,137
|
|
Long term loans;
less
current maturities
|
|
|
411,608
|
|
|
-
|
|
|
-
|
|
Total
liabilities
|
|
|
14,430,859
|
|
|
12,127,564
|
|
|
15,243,165
|
|
Minority interest -
restated
|
|
|
7,857,969
|
|
|
4,528,594
|
|
|
1,786,738
|
|
Commitments and
contingencies
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock, 5,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
|
|
1,920;
4,130 issued and outstanding
|
|
|
1,920,000
|
|
|
4,130,000
|
|
|
-
|
|
Common
stock, $.001 par value; 95,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
|
|
25,545,482;
20,556,553; 16,160,875 issued and outstanding
|
|
|
25,545
|
|
|
20,556
|
|
|
16,161
|
|
Additional
paid-in-capital - restated
|
|
|
74,950,286
|
|
|
66,642,732
|
|
|
57,106,542
|
|
Treasury
stock
|
|
|
(35,681
|
)
|
|
(10,194
|
)
|
|
(10,194
|
)
|
Accumulated
deficit - restated
|
|
|
(33,071,702
|
)
|
|
(37,885,387
|
)
|
|
(31,873,104
|
)
|
Stock
subscription receivable
|
|
|
(600,907
|
)
|
|
(1,001,407
|
)
|
|
(299,250
|
)
|
Common
stock to be issued
|
|
|
1,048,249
|
|
|
1,329,612
|
|
|
1,749,979
|
|
Capitalized
finance costs of debt
|
|
|
-
|
|
|
-
|
|
|
(326,599
|
)
|
Other
comprehensive loss - restated
|
|
|
(2,747,924
|
)
|
|
(352,929
|
)
|
|
(368,290
|
)
|
Total stockholders'
equity
|
|
|
41,487,866
|
|
|
32,872,983
|
|
|
25,995,245
|
|
Total liabilities and
stockholders' equity
|
|
$
|
63,776,694
|
|
$
|
49,529,141
|
|
$
|
43,025,148
|
|
See
accompanying notes to these consolidated financial statements.
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS - RESTATED
|
|
For
the Years Ended June 30,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
Net
Revenues:
|
|
|
|
|
|
|
|
|
|
|
License
fees
|
|
$
|
12,685,039
|
|
$
|
9,788,266
|
|
$
|
5,192,371
|
|
Maintenance
fees
|
|
|
6,306,321
|
|
|
5,441,339
|
|
|
2,444,075
|
|
Services
|
|
|
17,650,815
|
|
|
14,052,481
|
|
|
11,053,966
|
|
Total
revenues
|
|
|
36,642,175
|
|
|
29,282,086
|
|
|
18,690,412
|
|
Cost of
revenues
|
|
|
|
|
|
|
|
|
|
|
Salaries
and consultants
|
|
|
10,071,664
|
|
|
8,812,934
|
|
|
6,117,886
|
|
Travel
|
|
|
1,719,743
|
|
|
1,529,796
|
|
|
756,880
|
|
Repairs
and maintenance
|
|
|
405,140
|
|
|
430,962
|
|
|
229,052
|
|
Insurance
|
|
|
239,043
|
|
|
211,897
|
|
|
8,519
|
|
Depreciation
and amortization
|
|
|
1,398,454
|
|
|
794,482
|
|
|
733,370
|
|
Other
|
|
|
1,890,100
|
|
|
1,914,440
|
|
|
1,174,811
|
|
Total
cost of sales
|
|
|
15,724,144
|
|
|
13,694,511
|
|
|
9,020,518
|
|
Gross
profit
|
|
|
20,918,031
|
|
|
15,587,575
|
|
|
9,669,894
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
Selling
and marketing
|
|
|
3,722,470
|
|
|
3,161,924
|
|
|
1,789,349
|
|
Depreciation
and amortization
|
|
|
1,939,502
|
|
|
1,846,790
|
|
|
2,286,678
|
|
Bad
debt expense
|
|
|
58,293
|
|
|
189,873
|
|
|
30,218
|
|
Salaries
and wages
|
|
|
3,703,836
|
|
|
3,696,501
|
|
|
2,557,648
|
|
Professional
services, including non-cash compensation
|
|
|
837,598
|
|
|
1,067,702
|
|
|
607,706
|
|
General
and adminstrative
|
|
|
3,447,113
|
|
|
2,977,917
|
|
|
2,657,642
|
|
Total
operating expenses
|
|
|
13,708,812
|
|
|
12,940,707
|
|
|
9,929,241
|
|
Income from
operations
|
|
|
7,209,219
|
|
|
2,646,868
|
|
|
(259,347
|
)
|
Other income and
(expenses):
|
|
|
|
|
|
|
|
|
|
|
Loss
on sale of assets
|
|
|
(35,484
|
)
|
|
(2,977
|
)
|
|
(35,090
|
)
|
Beneficial
conversion feature
|
|
|
-
|
|
|
(2,208,334
|
)
|
|
(14,389
|
)
|
Amortization
of debt discount and capitalized cost of debt
|
|
|
-
|
|
|
(2,803,691
|
)
|
|
-
|
|
Liquidation
damages
|
|
|
-
|
|
|
(180,890
|
)
|
|
-
|
|
Fair
market value of warrants issued
|
|
|
-
|
|
|
(68,411
|
)
|
|
(21,505
|
)
|
Interest
expense
|
|
|
(626,708
|
)
|
|
(617,818
|
)
|
|
(442,887
|
)
|
Interest
income
|
|
|
195,103
|
|
|
201,015
|
|
|
280,276
|
|
Gain
on sale of subsidiary shares
|
|
|
1,240,808
|
|
|
-
|
|
|
-
|
|
Gain
on foreign currency exchange rates
|
|
|
2,020,839
|
|
|
178,522
|
|
|
191,736
|
|
Other
income and (expenses)
|
|
|
148,544
|
|
|
74,050
|
|
|
8,294
|
|
Total
other income (expenses)
|
|
|
2,943,102
|
|
|
(5,428,534
|
)
|
|
(33,565
|
)
|
Net income (loss) before
minority interest in subsidiary
|
|
|
10,152,321
|
|
|
(2,781,666
|
)
|
|
(292,912
|
)
|
Minority interest in subsidiary
- restated
|
|
|
(5,038,115
|
)
|
|
(2,832,985
|
)
|
|
(1,155,183
|
)
|
Income
taxes
|
|
|
(121,982
|
)
|
|
(160,306
|
)
|
|
(106,021
|
)
|
Net income (loss) -
restated
|
|
|
4,992,224
|
|
|
(5,774,957
|
)
|
|
(1,554,116
|
)
|
Dividend
required for preferred stockholders
|
|
|
(178,541
|
)
|
|
(237,326
|
)
|
|
-
|
|
Net income (loss) applicable
to common shareholders - restated
|
|
|
4,813,683
|
|
|
(6,012,283
|
)
|
|
(1,554,116
|
)
|
Other comprehensive
loss:
|
|
|
|
|
|
|
|
|
|
|
Translation
adjustment - restated
|
|
|
(2,394,994
|
)
|
|
15,361
|
|
|
152,401
|
|
Comprehensive income (loss) -
restated
|
|
$
|
2,418,689
|
|
$
|
(5,996,922
|
)
|
$
|
(1,401,715
|
)
|
Net income (loss) per
share:
|
|
|
|
|
|
|
|
|
|
|
Basic
- restated
|
|
$
|
0.20
|
|
$
|
(0.33
|
)
|
$
|
(0.11
|
)
|
Diluted
- restated
|
|
$
|
0.19
|
|
$
|
(0.33
|
)
|
$
|
(0.11
|
)
|
Weighted
average number of shares outstanding
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
24,118,538
|
|
|
18,189,590
|
|
|
14,567,007
|
|
Diluted
|
|
|
25,997,049
|
|
|
18,189,590
|
|
|
14,567,007
|
|
See
accompanying notes to these consolidated financial statements.
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY – RESTATED
FOR THE
YEARS ENDED JUNE 30, 2006, 2007 AND 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
Capitalized
|
|
Compre-
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
Sub-
|
|
|
|
Finance
|
|
hensive
|
|
|
|
Total
|
|
|
|
Common
Stock
|
|
Paid-in
|
|
Treasury
|
|
scriptions
|
|
Shares
to
|
|
Costs
|
|
Income/
|
|
Accumulated
|
|
Stockholders'
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Shares
|
|
Receivable
|
|
be
Issued
|
|
of
Debt
|
|
(Loss)
|
|
Deficit
|
|
Equity
|
|
Balance
at June 30, 2005
|
|
|
13,830,884
|
|
$
|
13,831
|
|
$
|
46,610,746
|
|
$
|
(27,197
|
)
|
$
|
(616,650
|
)
|
$
|
108,500
|
|
$
|
-
|
|
$
|
(520,691
|
)
|
$
|
(30,318,988
|
)
|
$
|
15,249,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash
|
|
|
933,334
|
|
|
933
|
|
|
1,399,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,400,000
|
|
Issuance
of common stock for services
|
|
|
67,255
|
|
|
67
|
|
|
111,548
|
|
|
|
|
|
|
|
|
7,500
|
|
|
|
|
|
|
|
|
|
|
|
119,115
|
|
Excercise
of common stock options
|
|
|
285,383
|
|
|
285
|
|
|
346,697
|
|
|
|
|
|
317,400
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
669,382
|
|
Issuance
of common stock in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exchange
for notes payable & interest
|
|
|
36,607
|
|
|
37
|
|
|
70,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,018
|
|
Issuance
of common stock for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
conversion
of convertible debentures
|
|
|
80,646
|
|
|
81
|
|
|
149,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,000
|
|
Issuance
of common stock in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exchange
for purchase of CQ Systems
|
|
|
884,535
|
|
|
885
|
|
|
1,847,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,848,680
|
|
Issuance
of common stock in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exchange
for purchase of McCue
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
1,628,979
|
|
|
|
|
|
|
|
|
|
|
|
1,628,979
|
|
Issuance
of common stock in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exchange
for accrued expenses
|
|
|
42,231
|
|
|
42
|
|
|
64,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,078
|
|
Issuance
of treasury shares for services
|
|
|
|
|
|
|
|
|
|
|
|
17,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,003
|
|
Capital
contribution from issuance of subsidiary stock on foreign exchange
|
|
|
-
|
|
|
-
|
|
|
4,031,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,031,002
|
|
Fair
market value of warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
options issued
|
|
|
-
|
|
|
-
|
|
|
2,474,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,474,751
|
|
Capitalized
finance costs of debt
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
(326,599
|
)
|
|
|
|
|
|
|
|
(326,599
|
)
|
Foreign
currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustments
- restated
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
152,401
|
|
|
|
|
|
152,401
|
|
Net
income for the year - restated
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,554,116
|
)
|
|
(1,554,116
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at June 30, 2006 - restated
|
|
|
16,160,875
|
|
$
|
16,161
|
|
$
|
57,106,542
|
|
$
|
(10,194
|
)
|
$
|
(299,250
|
)
|
$
|
1,749,979
|
|
$
|
(326,599
|
)
|
$
|
(368,290
|
)
|
$
|
(31,873,104
|
)
|
$
|
25,995,245
|
|
See
accompanying notes to these consolidated financial statements.
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY – RESTATED
FOR THE
YEARS ENDED JUNE 30, 2006, 2007 AND 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
Capitalized
|
|
Compre-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
Sub-
|
|
|
|
Finance
|
|
hensive
|
|
|
|
Total
|
|
|
|
Preferred
Stock
|
|
Common
Stock
|
|
Paid-in
|
|
Treasury
|
|
scriptions
|
|
Shares
to
|
|
Costs
|
|
Income/
|
|
Accumulated
|
|
Stockholders'
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Shares
|
|
Receivable
|
|
be
Issued
|
|
of
Debt
|
|
(Loss)
|
|
Deficit
|
|
Equity
|
|
Balance
at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2006 - restated
|
|
|
-
|
|
$
|
-
|
|
|
16,160,875
|
|
$
|
16,161
|
|
$
|
57,106,542
|
|
$
|
(10,194
|
)
|
$
|
(299,250
|
)
|
$
|
1,749,979
|
|
$
|
(326,599
|
)
|
$
|
(368,290
|
)
|
$
|
(31,873,104
|
)
|
$
|
25,995,245
|
|
Preferred
Stock issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for
conversion of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
convertible
note
|
|
|
5,500
|
|
|
5,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,500,000
|
|
Excercise
of common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock
options
|
|
|
|
|
|
|
|
|
1,525,030
|
|
|
1,525
|
|
|
2,548,198
|
|
|
|
|
|
(517,250
|
)
|
|
(5,000
|
)
|
|
|
|
|
|
|
|
|
|
|
2,027,473
|
|
Common
stock issued for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
|
|
103,333
|
|
|
104
|
|
|
108,396
|
|
|
|
|
|
(219,907
|
)
|
|
1,141,500
|
|
|
|
|
|
|
|
|
|
|
|
1,030,093
|
|
Services
|
|
|
|
|
|
|
|
|
261,984
|
|
|
261
|
|
|
390,216
|
|
|
|
|
|
35,000
|
|
|
7,500
|
|
|
|
|
|
|
|
|
|
|
|
432,977
|
|
Conversion
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
preferred
stock
|
|
|
(1,370
|
)
|
|
(1,370,000
|
)
|
|
830,302
|
|
|
830
|
|
|
1,369,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Payment
of dividend
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
preferred stock
|
|
|
|
|
|
|
|
|
105,589
|
|
|
105
|
|
|
159,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
159,684
|
|
Common
stock issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
exhange for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
related
interest
|
|
|
|
|
|
|
|
|
230,863
|
|
|
231
|
|
|
339,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
339,368
|
|
Purchase
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
McCue
Systems
|
|
|
|
|
|
|
|
|
1,329,470
|
|
|
1,330
|
|
|
2,274,677
|
|
|
|
|
|
|
|
|
(1,564,367
|
)
|
|
|
|
|
|
|
|
|
|
|
711,640
|
|
Beneficial
conversion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
feature
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,208,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,208,334
|
|
Repricing
of warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,667
|
|
Adjustment
to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stockholder
list
|
|
|
|
|
|
|
|
|
9,107
|
|
|
9
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Fair
market value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
warrants and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
options
issued
|
|
|
|
|
|
|
|
|
-
|
|
|
-
|
|
|
136,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136,571
|
|
Finance
costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
capital raised
|
|
|
|
|
|
|
|
|
-
|
|
|
-
|
|
|
(9,746
|
)
|
|
|
|
|
|
|
|
|
|
|
326,599
|
|
|
|
|
|
|
|
|
316,853
|
|
Foreign
currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
translation
adjusts - restated
|
|
|
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,361
|
|
|
|
|
|
15,361
|
|
Net
loss for the year -restated
|
|
|
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,012,283
|
)
|
|
(6,012,283
|
)
|
Balance
at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2007 restated
|
|
|
4,130
|
|
$
|
4,130,000
|
|
|
20,556,553
|
|
$
|
20,556
|
|
$
|
66,642,732
|
|
$
|
(10,194
|
)
|
$
|
(1,001,407
|
)
|
$
|
1,329,612
|
|
$
|
-
|
|
$
|
(352,929
|
)
|
$
|
(37,885,387
|
)
|
$
|
32,872,983
|
|
See
accompanying notes to these consolidated financial statements.
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY – RESTATED
FOR THE
YEARS ENDED JUNE 30, 2006, 2007 AND 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
Compre-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
Sub-
|
|
|
|
hensive
|
|
|
|
Total
|
|
|
|
Preferred
Stock
|
|
Common
Stock
|
|
Paid-in
|
|
Treasury
|
|
scriptions
|
|
Shares
to
|
|
Income/
|
|
Accumulated
|
|
Stockholders'
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Shares
|
|
Receivable
|
|
be
Issued
|
|
(Loss)
|
|
Deficit
|
|
Equity
|
|
Balance
at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2007 -restated
|
|
|
4,130
|
|
$
|
4,130,000
|
|
|
20,556,553
|
|
$
|
20,556
|
|
$
|
66,642,730
|
|
$
|
(10,194
|
)
|
$
|
(1,001,407
|
)
|
$
|
1,329,612
|
|
$
|
(352,929
|
)
|
$
|
(37,885,385
|
)
|
$
|
32,872,983
|
|
Excercise
of common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock
options
|
|
|
|
|
|
|
|
|
849,938
|
|
|
850
|
|
|
1,477,079
|
|
|
|
|
|
80,500
|
|
|
36,600
|
|
|
|
|
|
|
|
|
1,595,029
|
|
Excercise
of common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock
warrants
|
|
|
|
|
|
|
|
|
1,087,359
|
|
|
1,087
|
|
|
1,753,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,754,547
|
|
Common
stock issued for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
|
|
1,515,152
|
|
|
1,516
|
|
|
2,498,484
|
|
|
|
|
|
250,000
|
|
|
(1,250,000
|
)
|
|
|
|
|
|
|
|
1,500,000
|
|
Services
|
|
|
|
|
|
|
|
|
57,500
|
|
|
58
|
|
|
126,268
|
|
|
|
|
|
|
|
|
41,600
|
|
|
|
|
|
|
|
|
167,926
|
|
Conversion
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
preferred
stock
|
|
|
(2,210
|
)
|
|
(2,210,000
|
)
|
|
1,339,392
|
|
|
1,339
|
|
|
2,208,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Payment
of dividend
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
preferred stock
|
|
|
|
|
|
|
|
|
114,588
|
|
|
114
|
|
|
222,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
222,673
|
|
Common
stock issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
exhange for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of 100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Omni
|
|
|
|
|
|
|
|
|
25,000
|
|
|
25
|
|
|
76,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76,750
|
|
Purchase
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
McCue
Systems
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
890,437
|
|
|
|
|
|
|
|
|
890,437
|
|
Purchase
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,487
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,487
|
)
|
Fair
market value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
options issued
|
|
|
|
|
|
|
|
|
-
|
|
|
-
|
|
|
24,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,320
|
|
Finance
costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
capital raised
|
|
|
|
|
|
|
|
|
-
|
|
|
-
|
|
|
(10,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,000
|
)
|
Write-off
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subscription
rec
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(70,000
|
)
|
|
|
|
|
70,000
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Foreign
currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
translation
adjusts - restated
|
|
|
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
(2,394,994
|
)
|
|
|
|
|
(2,394,994
|
)
|
Net
income for the year -restated
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,813,683
|
|
|
4,813,683
|
|
Balance
at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2008 - restated
|
|
|
1,920
|
|
$
|
1,920,000
|
|
|
25,545,482
|
|
$
|
25,545
|
|
$
|
74,950,286
|
|
$
|
(35,681
|
)
|
$
|
(600,907
|
)
|
$
|
1,048,249
|
|
$
|
(2,747,924
|
)
|
$
|
(33,071,702
|
)
|
$
|
41,487,866
|
|
See
accompanying notes to these consolidated financial statements.
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS - RESTATED
|
|
For
the Years Ended June 30,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) - restated
|
|
$
|
4,992,224
|
|
$
|
(5,774,957
|
)
|
$
|
(1,554,116
|
)
|
Adjustments
to reconcile net income (loss)
|
|
|
|
|
|
|
|
|
|
|
to
net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
3,337,956
|
|
|
2,641,272
|
|
|
3,020,048
|
|
Bad
debt expense
|
|
|
58,293
|
|
|
189,873
|
|
|
30,218
|
|
Gain
on forgiveness of debt
|
|
|
-
|
|
|
-
|
|
|
(8,294
|
)
|
Loss
on sale of assets
|
|
|
35,484
|
|
|
2,977
|
|
|
35,090
|
|
Gain
on sale of subsidiary shares in Pakistan
|
|
|
(1,240,808
|
)
|
|
-
|
|
|
-
|
|
Minority
interest in subsidiary - restated
|
|
|
5,038,115
|
|
|
2,832,985
|
|
|
1,155,183
|
|
Stock
issued for services
|
|
|
167,926
|
|
|
88,099
|
|
|
200,194
|
|
Stock
issued for convertible note payable interest
|
|
|
-
|
|
|
311,868
|
|
|
-
|
|
Fair
market value of warrants and stock options granted
|
|
|
24,320
|
|
|
136,571
|
|
|
25,618
|
|
Beneficial
conversion feature
|
|
|
-
|
|
|
2,208,334
|
|
|
14,389
|
|
Amortization
of capitalized cost of debt
|
|
|
-
|
|
|
2,815,358
|
|
|
100,172
|
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
|
Increase
in accounts receivable
|
|
|
(4,123,995
|
)
|
|
(2,858,608
|
)
|
|
(1,351,660
|
)
|
Increase
in other current assets
|
|
|
(4,980,504
|
)
|
|
(3,359,736
|
)
|
|
(3,809,179
|
)
|
Decrease
in long-term assets
|
|
|
229,622
|
|
|
159,940
|
|
|
-
|
|
Increase
in accounts payable and accrued expenses
|
|
|
233,408
|
|
|
560,136
|
|
|
450,419
|
|
Net cash provided by/(used in)
operating activities
|
|
|
3,772,041
|
|
|
(45,888
|
)
|
|
(1,691,918
|
)
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(4,435,755
|
)
|
|
(2,420,470
|
)
|
|
(2,709,569
|
)
|
Sales
of property and equipment
|
|
|
15,838
|
|
|
366,088
|
|
|
301,684
|
|
Net
proceeds of certificates of deposit
|
|
|
-
|
|
|
1,737,481
|
|
|
(1,534,371
|
)
|
Payments
of acquisition payable
|
|
|
(879,007
|
)
|
|
(4,027,753
|
)
|
|
4,086,204
|
|
Purchase
of treasury stock
|
|
|
(25,486
|
)
|
|
-
|
|
|
-
|
|
Increase
in intangible assets
|
|
|
(4,829,369
|
)
|
|
(3,295,262
|
)
|
|
(5,027,968
|
)
|
Cash
brought in at acquisition
|
|
|
-
|
|
|
-
|
|
|
473,890
|
|
Net cash used in investing
activities
|
|
|
(10,153,779
|
)
|
|
(7,639,916
|
)
|
|
(4,410,130
|
)
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sale of common stock
|
|
|
1,500,000
|
|
|
1,030,093
|
|
|
1,400,000
|
|
Proceeds
from the exercise of stock options and warrants
|
|
|
3,282,827
|
|
|
1,008,250
|
|
|
669,382
|
|
Proceeds
from sale of subsidiary stock
|
|
|
1,765,615
|
|
|
-
|
|
|
4,031,001
|
|
Finance
costs incurred for sale of common stock
|
|
|
(10,000
|
)
|
|
-
|
|
|
-
|
|
Reduction
of restricted cash
|
|
|
-
|
|
|
4,533,555
|
|
|
(4,533,555
|
)
|
Proceeds
from loans from officers
|
|
|
-
|
|
|
165,000
|
|
|
-
|
|
Bank
overdraft
|
|
|
85,335
|
|
|
-
|
|
|
-
|
|
Proceeds
from bank loans
|
|
|
5,441,870
|
|
|
-
|
|
|
-
|
|
Payments
on bank loans
|
|
|
(99,936
|
)
|
|
-
|
|
|
|
|
Proceeds
from convertible notes payable
|
|
|
-
|
|
|
-
|
|
|
5,500,000
|
|
Payments
on capital lease obligations & loans - net
|
|
|
(3,409,496
|
)
|
|
2,359,017
|
|
|
82,650
|
|
Net cash provided by financing
activities
|
|
|
8,556,215
|
|
|
9,095,915
|
|
|
7,149,478
|
|
Effect of exchange rate changes
in cash
|
|
|
90,597
|
|
|
106,285
|
|
|
74,611
|
|
Net increase in cash and cash
equivalents
|
|
|
2,265,074
|
|
|
1,516,396
|
|
|
1,122,041
|
|
Cash
and cash equivalents, beginning of year
|
|
|
4,010,164
|
|
|
2,493,768
|
|
|
1,371,727
|
|
Cash and cash equivalents, end
of year
|
|
$
|
6,275,238
|
|
$
|
4,010,164
|
|
$
|
2,493,768
|
|
See
accompanying notes to these consolidated financial statements.
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
For
the Years Ended June 30,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
SUPPLEMENTAL
DISCLOSURES:
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
559,156
|
|
$
|
232,783
|
|
$
|
244,390
|
|
Taxes
|
|
$
|
118,535
|
|
$
|
70,184
|
|
$
|
45,511
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CASH
INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for intangible assets
|
|
$
|
-
|
|
$
|
269,128
|
|
$
|
-
|
|
Common
stock issued for acquisition of 100% of subsidiary
|
|
$
|
76,750
|
|
$
|
2,295,649
|
|
$
|
1,848,680
|
|
Common
stock issued for payment of note payable and related
interest
|
|
$
|
-
|
|
$
|
27,500
|
|
$
|
71,018
|
|
Common
stock issued for dividend payable
|
|
$
|
222,673
|
|
$
|
-
|
|
$
|
-
|
|
Common
stock issued for conversion of debentures
|
|
$
|
-
|
|
$
|
150,000
|
|
$
|
150,000
|
|
Bonus
stock distribution issued by subsidiary to minority
holders
|
|
$
|
1,160,994
|
|
$
|
345,415
|
|
$
|
345,415
|
|
Stock
issued for the conversion of Preferred Stock
|
|
$
|
2,210,000
|
|
$
|
1,370,000
|
|
$
|
1,370,000
|
|
Warrants
issued to convertible note holders
|
|
$
|
-
|
|
$
|
-
|
|
$
|
2,108,335
|
|
Warrants
issued for cost of debt
|
|
$
|
-
|
|
$
|
-
|
|
$
|
340,799
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock issued for conversion of convertible note payable
|
|
$
|
-
|
|
$
|
5,500,000
|
|
$
|
5,500,000
|
|
See accompanying notes to these consolidated financial
statements.
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BUSINESS AND CONTINUED
OPERATIONS
NetSol
Technologies, Inc. and subsidiaries (the “Company”), formerly known as NetSol
International, Inc. and Mirage Holdings, Inc., was incorporated under the laws
of the State of Nevada on March 18, 1997. During November of 1998, Mirage
Collections, Inc., a wholly owned and non-operating subsidiary, was dissolved.
In March
2000, the Company formed NetSol (Pvt), Limited as a wholly owned subsidiary. The
subsidiary was merged into the Company’s subsidiary, NetSol Technologies Limited
(“NetSol PK”) in April 2006.
Business Combinations Accounted for
Under the Purchase Method:
NetSol Technologies Europe
Limited (“NTE”) (formerly CQ Systems)
On
January 19, 2005, the Company entered into an agreement to acquire 100% of the
issued and outstanding shares of common stock of CQ Systems Ltd., a company
organized under the laws of England and Wales. The acquisition closed on
February 22, 2005. The initial purchase price was £3,576,335 or $6,730,382, of
which one-half was due at closing payable in cash and stock and the other half
was due when the audited March 31, 2006 financial statements were completed. On
the closing date, $1.7 million was paid and 681,965 shares were issued to the
shareholders of CQ, valued at $1,676,795 at an average share price of $2.46 was
recorded. In addition, the agreement called for the accumulated retained
earnings amounting to £423,711 or $801,915 of CQ Systems as of the closing date
to be paid to the shareholders in cash and stock. In April 2005, the additional
cash of £350,000 or $662,410 was paid and 77,503 shares of the Company’s common
stock valued at $139,505 were issued. The total amount paid at closing was
$4,178,710. In June 2006, the final installment for the purchase of CQ Systems
was determined based on the audited revenues for the twelve month period ending
March 31, 2006. Based on the earn-out formula in the purchase agreement,
£2,087,071 or $3,785,210 was due in cash and stock. On June 12, 2006, 884,535
shares of the Company’s restricted common stock were issued to the shareholders
of CQ Systems. In July 2006, the cash portion of $1,936,530 plus $31,810 of
interest was paid to the shareholders.
During
the year ended June 30, 2008, the name of the subsidiary was changed to NetSol
Technologies Europe Limited.
NetSol Technologies North
America (“NTNA”) (formerly McCue Systems)
On May 6,
2006, the Company entered into an agreement to acquire 100% of the issued and
outstanding stock of McCue Systems, Inc. (“McCue”), a California corporation.
The acquisition closed on June 30, 2006. The initial purchase price was
estimated at $8,471,455 of which one-half was due at closing payable in cash and
stock. The other half is due in two installments over the next two years based
on the revenue after the audited December 31, 2006 and 2007 financial statements
are completed. On the closing date, $2,117,864 payable and 958,213 shares to be
issued valued at $1,628,979 were recorded. The cash was paid on July 5, 2006 and
the shares were also issued in July 2006. The total amount paid at closing was
$3,746,843. In June 2007, the second installment due was determined based on the
audited revenues for the twelve month period ending December 31, 2006. Based on
the earn-out formula in the purchase agreement, $1,807,910 was due in cash and
stock. On June 27, 2006 397,700 shares of the Company’s restricted common stock
were issued to the shareholders of McCue Systems. In July and August 2006,
$450,000 and $429,007, respectively, of the cash portion was paid to the
shareholders. In June 2007, the second installment on the acquisition consisting
of $903,955 in cash and 408,988 shares of the Company’s restricted common stock
became due and was recorded. In July and August, 2007, $879,007 of the cash was
paid. In June 2008, the third and final installment was determined based on the
audited revenues for the twelve month period ending December 31, 2007. Based on
the earn-out formula in the purchase agreement, $1,525,632 was due, consisting
of $762,816 in cash and 345,131 shares of the Company’s restricted common stock.
The cash portion is shown as “Other Payable - Acquisition” and the stock portion
is shown in “Shares to be issued” on these consolidated financial statements.
The balance at June 30, 2008 was $846,215. Of this amount, $104,452 represents
the few remaining McCue shareholders that have not been located as of the date
of this report. The shares were issued on July 3, 2008 and the cash due was paid
in July and August 2008.
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
During
the year ended June 30, 2008 the name of the subsidiary was changed to NetSol
Technologies North America, Inc.
Business Combinations Accounted for
Under the Pooling of Interest Method:
Abraxas Australia Pty,
Limited
On
January 3, 2000, the Company issued 30,000 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.
Formation of
Subsidiary:
During
the period ended December 31, 2002, the Company formed a subsidiary in the UK,
NetSol Technologies Ltd., as a wholly-owned subsidiary of NetSol Technologies,
Inc. This entity serves as the main marketing and delivery arm for services and
products sold and delivered in the UK and mainland Europe.
NetSol-Innovation (formerly
TiG-Netsol)
In
January 2005, the Company formed TiG-NetSol (Pvt) Limited (“TiG-Netsol”) as a
joint venture with a UK based public company TIG Plc., with 50.1% ownership by
NetSol Technologies, Inc. and 49.9% ownership by TiG. TiG-NetSol was
incorporated in Pakistan on January 12, 2005 under the Companies Ordinance, 1984
as a private company limited by shares. The business of TiG-Netsol is export of
computer software and its related services developed in Pakistan.
During
the year ended June 30, 2008, the name of the joint venture was changed to
NetSol-Innovation (Private) Limited.
NetSol
Omni
In
February 2006, the Company purchased 50.1% of the outstanding shares for $60,012
in Talk Trainers (Private) Limited, (“Talk Trainers”), a Pakistan corporation
which provides educational services, professional courses, training and Human
Resource services to the corporate sector. The major stockholder of Talk
Trainers was Mr. Ayub Ghauri, brother to the executive officers of the Company,
and therefore the acquisition was recorded at historical cost as the entities
are under common control. As the effects of this transaction are immaterial to
the Company overall, no pro forma information is provided. During the quarter
ended June 30, 2006, Talk Trainers changed its name to NetSol Omni (Private)
Limited (“Omni”).
In
December 2007, the Company entered into an agreement with the minority
shareholders of Omni, whereby the Company purchased the remaining 49.9% of Omni
for 25,000 shares of the Company’s common stock valued at $76,750. Also in
December, the operations of the subsidiary were merged into the operations of
NetSol PK and will be reported under that subsidiary in the
future.
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Merger of
Subsidiaries
On April
28, 2006, the Companies wholly-owned subsidiary NetSol (PVT), Limited (“PK
Private”) merged into NetSol Technologies (PVT), Ltd, both located in Lahore,
Pakistan. As the subsidiaries were under common control, the assets and
liabilities of PK Private were recorded at historically values at the time of
the merger. The consolidated financial statements reflect the income and
expenses of PK Private for the fiscal year up to the date of the
merger.
In
December 2007, the Companies wholly-owned subsidiary Omni was merged into NetSol
PK both located in Lahore, Pakistan. As the subsidiaries were under common
control, the assets and liabilities of Omni were recorded at historically values
at the time of the merger. The consolidated financial statements reflect the
income and expenses of Omni for the fiscal year up to the date of the merger.
NOTE 2 - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES - RESTATED
Principles of
Consolidation:
The
accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries, NetSol Technologies North America,
Inc. (“NTNA”), NetSol Technologies Limited (“NetSol UK”), NetSol-Abraxas
Australia Pty Ltd. (“Abraxas”), NetSol Technologies Europe Limited (“NTE”), and
its majority-owned subsidiaries, NetSol Technologies, Ltd.(“NetSol PK”), NetSol
Connect (Pvt), Ltd. (“Connect”), TIG-NetSol (Pvt) Limited (“NetSol-TIG”), and
NetSol Omni (Private) Limited (“Omni”). All material inter-company accounts have
been eliminated in the consolidation.
Business
Activity:
The
Company designs, develops, markets, and exports proprietary software products to
customers in the automobile finance and leasing, banking, healthcare, and
financial services industries worldwide. The Company also provides system
integration, consulting, IT products and services in exchange for fees from
customers.
Use of Estimates:
The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America 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.
Cash and Cash
Equivalents:
Equivalents
For
purposes of the statement of cash flows, cash equivalents include all highly
liquid debt instruments with original maturities of three months or less which
are not securing any corporate obligations.
Concentration
The
Company maintains its cash in bank deposit accounts, which, at times, may exceed
federally insured limits. The Company has not experienced any losses in such
accounts.
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Accounts Receivable:
The
Company’s customer base consists of a geographically dispersed customer base.
The Company maintains reserves for potential credit losses on accounts
receivable. Management reviews the composition of accounts receivable and
analyzes historical bad debts, customer concentrations, customer credit
worthiness, current economic trends and changes in customer payment patterns to
evaluate the adequacy of these reserves. Reserves are recorded primarily on a
specific identification basis.
Revenues in excess of
billings:
“Revenues
in excess of billings” represent the total of the project to be billed to the
customer over the revenues recognized under the percentage of completion method.
As the customer is billed under the terms of their contract, the corresponding
amount is transferred from this account to “Accounts Receivable.”
Property and
Equipment:
Property
and equipment are stated at cost. Expenditures for maintenance and repairs are
charged to earnings as incurred; additions, renewals and betterments are
capitalized. When property and equipment are retired or otherwise disposed of,
the related cost and accumulated depreciation are removed from the respective
accounts, and any gain or loss is included in operations. Depreciation is
computed using various methods over the estimated useful lives of the assets,
ranging from three to seven years.
The
Company accounts for the costs of computer software developed or obtained for
internal use in accordance with Statement of Position 98-1, “Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use.” The
Company capitalizes costs of materials, consultants, and payroll and
payroll-related costs for employees incurred in developing internal-use computer
software. These costs are included with “Computer equipment and software.” Costs
incurred during the preliminary project and post-implementation stages are
charged to general and administrative expense.
Intangible
Assets:
Intangible
assets consist of product licenses, renewals, enhancements, copyrights,
trademarks, trade names, customer lists and goodwill. The Company evaluates
intangible assets, goodwill and other long-lived assets for impairment, at least
on an annual basis and whenever events or changes in circumstances indicate that
the carrying value may not be recoverable from its estimated future cash flows.
As part
of intangible assets, the Company capitalizes certain computer software
development costs in accordance with SFAS No. 86, “Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed.” Costs incurred
internally to create a computer software product or to develop an enhancement to
an existing product are charged to expense when incurred as research and
development expense until technological feasibility for the respective product
is established. Thereafter, all software development costs are capitalized and
reported at the lower of unamortized cost or net realizable value.
Capitalization ceases when the product or enhancement is available for general
release to customers.
The
Company makes on-going evaluations of the recoverability of its capitalized
software projects by comparing the amount capitalized for each product to the
estimated net realizable value of the product. If such evaluations indicate that
the unamortized software development costs exceed the net realizable value, the
Company writes off the amount which the unamortized software development costs
exceed net realizable value. Capitalized and purchased computer software
development costs are being amortized ratably based on the projected revenue
associated with the related software or on a straight-line basis over three
years, whichever method results in a higher level of amortization.
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Statement of Cash
Flows:
In
accordance with Statement of Financial Accounting Standards No. 95, "Statement
of Cash Flows," cash flows from the Company's operations are calculated based
upon the local currencies. As a result, amounts related to assets and
liabilities reported on the statement of cash flows will not necessarily agree
with changes in the corresponding balances on the balance sheet.
Revenue Recognition:
The
Company recognizes its revenue in accordance with the Securities and Exchange
Commissions (“SEC”) Staff Accounting Bulletin No. 104, “Revenue
Recognition” (“SAB 104”) and The American Institute of Certified Public
Accountants (“AICPA”) Statement of Position (“SOP”) 97-2, “Software Revenue
Recognition,” as amended by SOP
98-4 and SOP 98-9, SOP 81-1, “Accounting
for Performance of Construction-Type and Certain Production-Type
Contracts,” and
Accounting Research Bulletin 45 (ARB 45) “Long-Term Construction Type
Contracts.” The
Company’s revenue recognition policy is as follows:
License
Revenue: The
Company recognizes revenue from license contracts without major customization
when a non-cancelable, non-contingent license agreement has been signed,
delivery of the software has occurred, the fee is fixed or determinable, and
collectibilty is probable. Revenue from the sale of licenses with major
customization, modification, and development is recognized on a percentage of
completion method,
in conformity with ARB 45 and SOP 81-1. Revenue
from the implementation of software is recognized on a percentage of completion
method,
in conformity with Accounting Research Bulletin (“ARB”) No. 45 and SOP 81-1. 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. An output
measure of “Unit of Work Completed” is used to determine the percentage of
completion which measures the results achieved at a specific date. Units
completed are certified by the Project Manager and EVP IT/
Operations.
Services
Revenue: Revenue
from consulting services is recognized as the services are performed for
time-and-materials contracts. Revenue from training and development services is
recognized as the services are performed. Revenue from maintenance agreements is
recognized ratably over the term of the maintenance agreement, which in most
instances is one year.
Unearned
Revenue: Unearned
Revenue is broken down into three main categories; a) annual maintenance
contracts whereby the annual fee is collected at the beginning of the service
period and recognized on a pro-rata basis over the life of the contract, b)
service revenue connected to those contracts which the implementation and
development segments are recognized on the percentage of completed method; and
c) customized development projects for existing customers to modify their
version of the product to better meet their individual needs which are
recognized on the percentage of completion method. As of June 30, 2008, unearned
revenues were $3,293,728.
Fair Value:
Unless
otherwise indicated, the fair values of all reported assets and liabilities,
which represent financial instruments, none of which are held for trading
purposes, approximate carrying values of such amounts.
Advertising
Costs:
The
Company expenses the cost of advertising as incurred. Advertising costs for the
years ended June 30, 2008, 2007, and 2006 were $781,709 and $643,081 and
$593,811 respectively.
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
EARNINGS/(LOSS) PER SHARE -
RESTATED:
“Earnings
per share” is calculated in accordance with the Statement of financial
accounting standards No. 128 (SFAS No. 128), “Earnings per share”.
Basic net income per share is based upon the weighted average number of common
shares outstanding. Diluted net income per share is based on the assumption that
all dilutive convertible shares and stock options were converted or exercised.
Dilution is computed by applying the treasury stock method. Under this method,
options and warrants are assumed to be exercised at the beginning of the period
(or at the time of issuance, if later), and as if funds obtained thereby were
used to purchase common stock at the average market price during the
period.
The
following is a reconciliation of the numerators and denominators of the basic
and diluted earnings per share computations:
For the year ended June 30,
2008
|
|
Net Income
|
|
Shares
|
|
Per Share
|
|
Basic
earnings per share:
|
|
$
|
4,813,683
|
|
|
24,118,538
|
|
$
|
0.20
|
|
Dividend
to preferred shareholders
|
|
|
178,541
|
|
|
|
|
|
|
|
Net
income available to common shareholders
|
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
Stock
options
|
|
|
|
|
|
950,910
|
|
|
|
|
Warrants
|
|
|
|
|
|
559,160
|
|
|
|
|
Convertible
Preferred Shares
|
|
|
|
|
|
368,441
|
|
|
|
|
Diluted
earnings per share
|
|
$
|
4,992,224
|
|
|
25,997,049
|
|
$
|
0.19
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended June 30,
2007
|
|
|
Net Loss
|
|
|
Shares
|
|
|
Per Share
|
|
Basic
earnings per share:
|
|
$
|
(6,012,283
|
)
|
|
18,189,590
|
|
$
|
(0.33
|
)
|
Dividend
to preferred shareholders
|
|
|
237,326
|
|
|
|
|
|
|
|
Effect
of dilutive securities *
|
|
|
|
|
|
|
|
|
|
|
Stock
options
|
|
|
|
|
|
-
|
|
|
|
|
Warrants
|
|
|
|
|
|
-
|
|
|
|
|
Diluted
earnings per share
|
|
$
|
(5,774,957
|
)
|
|
18,189,590
|
|
$
|
(0.33
|
)
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended June 30,
2006
|
|
|
Net Loss
|
|
|
Shares
|
|
|
Per Share
|
|
Basic
earnings per share:
|
|
$
|
(1,554,116
|
)
|
|
14,567,007
|
|
$
|
(0.11
|
)
|
Dividend
to preferred shareholders
|
|
|
-
|
|
|
|
|
|
|
|
Effect
of dilutive securities *
|
|
|
|
|
|
|
|
|
|
|
Stock
options
|
|
|
|
|
|
-
|
|
|
|
|
Warrants
|
|
|
|
|
|
-
|
|
|
|
|
Diluted
earnings per share
|
|
$
|
(1,554,116
|
)
|
|
14,567,007
|
|
$
|
(0.11
|
)
|
* As
there is a loss, these securities are anti-dilutive. The basic and diluted
earnings per share is the same for the year ended June 30, 2007 and 2006
Other Comprehensive Income &
Foreign Currency Translation - RESTATED:
SFAS 130
requires unrealized gains and losses on the Company’s available for sale
securities, currency translation adjustments, and minimum pension liability,
which prior to adoption were reported separately in stockholders’ equity, to be
included in other comprehensive income. The accounts of NetSol UK and NTE use
the British Pound; NetSol PK, Connect, Omni, and NetSol-TiG use Pakistan Rupees;
and Abraxas uses the Australian dollar as the functional currencies. NetSol
Technologies, Inc., and subsidiary, NTNA, use the U.S. dollar as the functional
currency. 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. During
the years ended June 30, 2008, 2007, and 2006, comprehensive income included net
translation loss of $2,394,994 and income $15,361 and $152,401, respectively.
Other comprehensive loss, as presented on the accompanying consolidated balance
sheet in the stockholders’ equity section amounted to $2,747,923, $352,929, and
$368,290 as of June 30, 2008, 2007, and 2006, respectively.
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Accounting for Stock-Based
Compensation:
The
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation, which applies the
fair-value method of accounting for stock-based compensation plans. In
accordance with this standard, the Company accounts for stock-based compensation
in accordance with Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees.
In March
2000, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
No. 44 (Interpretation 44), “Accounting for Certain Transactions Involving Stock
Compensation.” Interpretation 44 provides criteria for the recognition of
compensation expense in certain stock-based compensation arrangements that are
accounted for under APB Opinion No. 25, Accounting for Stock-Based Compensation.
Interpretation 44 became effective July 1, 2000, with certain provisions that
were effective retroactively to December 15, 1998 and January 12, 2000.
Interpretation 44 did not have any material impact on the Company’s financial
statements.
In
December 2004, the FASB issued FASB Statement No. 123R, "Share-Based Payment, an
Amendment of FASB Statement No. 123" ("FAS No. 123R"). FAS No. 123R requires
companies to recognize in the statement of operations the grant- date fair value
of stock options and other equity-based compensation issued to employees. FAS
No. 123R is effective beginning in the Company's first quarter of fiscal year
ended June 30, 2007.
INCOME TAXES -
RESTATED
The
consolidated pre-tax income consists of the following:
|
|
Years
Ended June 30,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
US
operations
|
|
$
|
(3,223,892
|
)
|
$
|
(8,044,489
|
)
|
$
|
(3,310,368
|
)
|
Foreign
operations
|
|
|
10,567,922
|
|
|
2,744,493
|
|
|
3,017,456
|
|
|
|
$
|
7,344,030
|
|
$
|
(5,299,996
|
)
|
$
|
(292,912
|
)
|
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
The
components of the provision for income taxes are as follows:
|
|
Years
Ended June 30,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Foreign
|
|
|
121,982
|
|
|
160,306
|
|
|
106,021
|
|
State
and Local
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Foreign
|
|
|
-
|
|
|
-
|
|
|
-
|
|
State
and Local
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Provision
for income taxes
|
|
$
|
121,982
|
|
$
|
160,306
|
|
$
|
106,021
|
|
The
following is a reconciliation of the provision for income taxes computed at the
statutory federal income tax rate to the income taxes reflected in the Statement
of Operations:
|
|
Years
ended June 30,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
Income
taxes (benefit) at statutory rate
|
|
|
34.00
|
%
|
|
34.00
|
%
|
|
34.00
|
%
|
State
income taxes, net of federal tax benefit
|
|
|
17.22
|
%
|
|
6.00
|
%
|
|
6.00
|
%
|
Foreign
earnings taxed at different rates
|
|
|
-47.26
|
%
|
|
5.00
|
%
|
|
7
|
%
|
Change
in valuation allowance for deferred tax assets
|
|
|
-3.62
|
%
|
|
-42.00
|
%
|
|
-46
|
%
|
Non-deductible
expenses
|
|
|
0.06
|
%
|
|
|
|
|
|
|
Other,
net
|
|
|
1.27
|
%
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
1.66
|
%
|
|
3.00
|
%
|
|
1
|
%
|
The
following table sets forth the significant components of the aggregate net
deferred tax assets of the Company:
|
|
Years
ended June 30,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
Deferred
tax asset:
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
119,977
|
|
|
-
|
|
|
|
|
Intangible
assets
|
|
|
(1,293,677
|
)
|
|
-
|
|
|
|
|
Net
Operating loss carry forwards
|
|
|
11,774,869
|
|
|
15,913,553
|
|
|
10,556,046
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
deferred tax assets
|
|
|
10,601,169
|
|
|
15,913,553
|
|
|
4,222,418
|
|
Valuation
allowance for deferred tax assets
|
|
|
(10,601,169
|
)
|
|
(15,913,553
|
)
|
|
(4,222,418
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
deferred tax assets/(liabilities)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
United States of
America
Under
SFAS 109, deferred tax assets may be recognized for temporary differences that
will result in deductible amounts in future periods and for loss carry forwards.
A valuation allowance is recognized if, based on the weight of available
evidence, it is more likely than not that some portion or all of the deferred
tax asset will not be realized. The Company established a full valuation
allowance as management believes it is more likely than not that these assets
will not be realized in the future. The valuation allowance decreased by
$5,513,447 for the year ended June 30, 2008 mainly due to reporting a deferred
tax liability related to acquired intangibles and adjusting the Company's net
operating losses. To the extent a benefit is realized from reducing the
valuation allowance on acquired deferred income tax assets, the benefit will be
credited to goodwill.
At June
30, 2008, federal and state net operating loss carry forwards were $22,223,241
and $4,983,979 respectively. Federal net operating loss carry forwards begin to
expire in 2020, while state net operating loss carry forwards begin to expire in
2012. Due to both historical and recent changes in the capitalization structure
of the Company, the utilization of net operating losses may be limited pursuant
to section 382 of the Internal Revenue Code.
FIN 48
clarifies the accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements in accordance with FASB 109. This
Interpretation prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition. FIN 48 is effective for fiscal years
beginning after December 15, 2006. The cumulative effect, if any, of applying
FIN 48 is to be reported as an adjustment to the opening balance of retained
earnings in the year of adoption. The impact of the Company’s reassessment of
its tax positions in accordance with FIN 48 did not have an effect on the
results of operations, financial condition or liquidity. As of June 30, 2008,
the Company does not have any unrecognized tax benefits related to various
federal and state income tax matters. The Company will recognize accrued
interest and penalties related to unrecognized tax benefits in income tax
expense.
The
Company is subject to U.S. federal income tax, as well as various state and
foreign jurisdictions. The Company is currently open to audit under the statute
of limitations by the federal and state jurisdictions for the years ending June
30, 2004 through 2007. The Company does not anticipate any material amount of
unrecognized tax benefits within the next 12 months.
The
cumulative amount of undistributed earnings of foreign subsidiaries that the
Company intends to permanently invest and upon which no deferred US income taxes
have been provided is $20,107,651 as of June 30, 2008. The additional US income
tax on unremitted foreign earnings, if repatriated, would be offset in part by
foreign tax credits. The extent of this offset would depend on many factors,
including the method of distribution, and specific earnings
distributed.
Pakistan
As of
June 30, 2008 the Company’s Pakistan subsidiaries had net operating loss carry
forwards which can be carried forward for six years to offset future taxable
income. The deferred tax assets for the Pakistan subsidiaries at June 30, 2008
consists mainly of net operating loss carry forwards and were fully reserved as
the management believes it is more likely than not that these assets will not be
realized in the future.
The
following table sets forth the significant components of the net deferred tax
assets for operation in Pakistan as of June 30, 2008 and
2007.
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
2008
|
|
2007
|
|
2006
|
|
Net
Operating Loss Carryforward
|
|
$
|
3,367,809
|
|
$
|
2,434,444
|
|
$
|
1,652,356 |
|
Total
Deferred Tax Assets
|
|
|
1,178,733
|
|
|
852,056
|
|
|
578,325 |
|
Less:
Valuation Allowance
|
|
|
(1,178,733
|
)
|
|
(852,056
|
)
|
|
(578,325 |
) |
Net
Deferred Tax Asset
|
|
$
|
-
|
|
$
|
-
|
|
$ |
- |
|
UK
As of
June 30, 2008 the Company’s UK subsidiaries had net operating loss carry
forwards which can be carried forward indefinitely to offset future taxable
income. The deferred tax assets for the UK subsidiaries at June 30, 2008
consists mainly of net operating loss carry forwards and were fully reserved as
the management believes it is more likely than not that these assets will not be
realized in the future.
The
following table sets forth the significant components of the net deferred tax
assets for operation in the UK:
|
|
2008
|
|
2007
|
|
2006
|
|
Net
Operating Loss Carryforward
|
|
$
|
172,687
|
|
$
|
1,649,025
|
|
$
|
600,319
|
|
Total
Deferred Tax Assets
|
|
|
51,806
|
|
|
494,707
|
|
|
180,096
|
|
Less:
Valuation Allowance
|
|
|
(51,806
|
)
|
|
(494,707
|
)
|
|
(180,096
|
)
|
Net
Deferred Tax Asset
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Derivative
Instruments:
In June
1998, the Financial Accounting Standards Board issued SFAS No. 133, “Accounting
for Derivative Instruments and Hedging Activities.” SFAS No. 133, as amended by
SFAS No. 137, is effective for fiscal years beginning after June 15, 2000. SFAS
No. 133 requires the Company to recognize all derivatives as either assets or
liabilities and measure those instruments at fair value. It further provides
criteria for derivative instruments to be designated as fair value, cash flow
and foreign currency hedges and establishes respective accounting standards for
reporting changes in the fair value of the derivative instruments. After
adoption, the Company is required to adjust hedging instruments to fair value in
the balance sheet and recognize the offsetting gains or losses as adjustments to
be reported in net income or other comprehensive income, as appropriate. The
Company has complied with the requirements of SFAS 133, the effect of which was
not material to the Company’s financial position or results of operations as the
Company does not participates in such activities.
Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed of:
Effective
January 1, 2002, the Company adopted Statement of Financial Accounting Standards
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
144"), which addresses financial accounting and reporting for the impairment or
disposal of long-lived assets and supersedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
and the accounting and reporting provisions of APB Opinion No. 30, "Reporting
the Results of Operations for a Disposal of a Segment of a Business." The
Company periodically evaluates the carrying value of long-lived assets to be
held and used in accordance with SFAS 144. SFAS 144 requires impairment losses
to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amounts. In that event, a
loss is recognized based on the amount by which the carrying amount exceeds the
fair market value of the long-lived assets. Loss on long-lived assets to be
disposed of is determined in a similar manner, except that fair market values
are reduced for the cost of disposal.
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
For
goodwill not identifiable with an impaired asset, the Company establishes
benchmarks at the lowest level (entity level) as its method of assessing
impairment. In measuring impairment, unidentifiable goodwill is considered
impaired if the fair value at the lowest level is less than its carrying amount.
The fair value of unidentifiable goodwill is determined by subtracting the fair
value of the recognized net assets at the lowest level (excluding goodwill) from
the value at the lowest level. The amount of the impairment loss is equal to the
difference between the carrying amount of goodwill and the fair value of
goodwill. In the event that impairment is recognized, appropriate disclosures
are made.
Goodwill
of a reporting unit is reviewed for impairment if events or changes in
circumstances indicate that the carrying amount of its goodwill or intangible
assets may not be recoverable. Impairment of reporting unit goodwill is
evaluated based on a comparison of the reporting unit’s carrying value to the
implied fair value of the reporting unit. Conditions that indicate that an
impairment of goodwill exists include a sustained decrease in the market value
of the reporting unit or an adverse change in business climate.
Reporting
segments:
Statement
of financial accounting standards No. 131, Disclosures about segments of an
enterprise and related information (SFAS No. 131), which superceded statement of
financial accounting standards No. 14, Financial reporting for segments of a
business enterprise, establishes standards for the way that public enterprises
report information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in interim
financial statements regarding products and services, geographic areas and major
customers. SFAS No. 131 defines operating segments as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performances. The Company allocates its
resources and assesses the performance of its sales activities based upon
geographic locations of its subsidiaries (see Note 17).
New Accounting
Pronouncements:
In
September 2006, FASB issued SFAS 158 “Employers’ Accounting for Defined Benefit
Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87,
88, 106, and 132(R)”. This Statement improves financial reporting by requiring
an employer to recognize the over funded or under funded status of a defined
benefit postretirement plan (other than a multiemployer plan) as an asset or
liability in its statement of financial position and to recognize changes in
that funded status in the year in which the changes occur through comprehensive
income of a business entity or changes in unrestricted net assets of a
not-for-profit organization. This Statement also improves financial reporting by
requiring an employer to measure the funded status of a plan as of the date of
its year-end statement of financial position, with limited exceptions. An
employer with publicly traded equity securities is required to initially
recognize the funded status of a defined benefit postretirement plan and to
provide the required disclosures as of the end of the fiscal year ending after
December 15, 2006. An employer without publicly traded equity securities is
required to recognize the funded status of a defined benefit postretirement plan
and to provide the required disclosures as of the end of the fiscal year ending
after June 15, 2007. However, an employer without publicly traded equity
securities is required to disclose the following information in the notes to
financial statements for a fiscal year ending after December 15, 2006, but
before June 16, 2007, unless it has applied the recognition provisions of this
Statement in preparing those financial statements:
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
1. A brief
description of the provisions of this Statement
2. The date
that adoption is required
3. The date
the employer plans to adopt the recognition provisions of this Statement, if
earlier.
The
requirement to measure plan assets and benefit obligations as of the date of the
employer’s fiscal year-end statement of financial position is effective for
fiscal years ending after December 15, 2008. The management is currently
evaluating the effect of this pronouncement on the consolidated financial
statements.
In July
2006, the FASB released FASB Interpretation No. 48, “Accounting for Uncertainty
in Income Taxes, an interpretation of FASB Statement No. 109 (FIN 48)”. FIN 48
clarifies the accounting and reporting for uncertainties in income tax law. This
interpretation prescribes a comprehensive model for the financial statement
recognition, measurement, presentation and disclosure of uncertain tax positions
taken or expected to be taken in income tax returns. This statement is effective
for fiscal years beginning after December 15, 2006. Management is currently in
the process of evaluating the expected effect of FIN 48 on our results of
operations and financial position.
In
February 2007 the FASB issued SFAS 159, “The Fair Value Option for Financial
Assets and Financial Liabilities—including an amendment of FASB Statement No.
115.” The statement permits entities to choose to measure many financial
instruments and certain other items at fair value. The objective is to improve
financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. The statement is effective as of the beginning of an entity’s first
fiscal year that begins after November 15, 2007. Management is currently
evaluating the effect of this pronouncement on the consolidated financial
statements.
In
December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in
Consolidated Financial Statements”. This Statement amends ARB 51 to establish
accounting and reporting standards for the non-controlling (minority) interest
in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a
non-controlling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements. SFAS No. 160 is effective for the Company’s fiscal year
beginning October 1, 2009. Management is currently evaluating the effect of this
pronouncement on its consolidated financial statements.
In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”. This
Statement replaces SFAS No. 141, Business Combinations. This Statement retains
the fundamental requirements in Statement 141 that the acquisition method of
accounting (which Statement 141 called the purchase method) be used for all
business combinations and for an acquirer to be identified for each business
combination. This Statement also establishes principles and requirements for how
the acquirer: a) recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any non-controlling
interest in the acquiree; b) recognizes and measures the goodwill acquired in
the business combination or a gain from a bargain purchase; and, c) determines
what information to disclose to enable users of the financial statements to
evaluate the nature and financial effects of the business combination. SFAS No.
141(R) will apply prospectively to business combinations for which the
acquisition date is on or after Company’s fiscal year beginning October 1, 2009.
While the Company has not yet evaluated this statement for the impact, if any,
that SFAS No. 141(R) will have on its consolidated financial statements, the
Company will be required to expense costs related to any acquisitions after
September 30, 2009.
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
In March
2008, the FASB issued FASB Statement No. 161, “Disclosures about Derivative
Instruments and Hedging Activities”. The new standard is intended to improve
financial reporting about derivative instruments and hedging activities by
requiring enhanced disclosures to enable investors to better understand their
effects on an entity’s financial position, financial performance, and cash
flows. It is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. The new standard also improves transparency about the location and
amounts of derivative instruments in an entity’s financial statements; how
derivative instruments and related hedged items are accounted for under
Statement 133; and how derivative instruments and related hedged items affect
its financial position, financial performance, and cash flows. FASB Statement
No. 161 achieves these improvements by requiring disclosure of the fair values
of derivative instruments and their gains and losses in a tabular format. It
also provides more information about an entity’s liquidity by requiring
disclosure of derivative features that are credit risk-related. Finally, it
requires cross-referencing within footnotes to enable financial statement users
to locate important. Based on current conditions, the Company does not expect
the adoption of SFAS 161 to have a significant impact on its results of
operations or financial position.
In May
2008, FASB issued SFASB No.162, “The Hierarchy of Generally Accepted Accounting
Principles”. The pronouncement mandates the GAAP hierarchy reside in the
accounting literature as opposed to the audit literature. This has the practical
impact of elevating FASB Statements of Financial Accounting Concepts in the GAAP
hierarchy. This pronouncement will become effective 60 days following SEC
approval. The Company does not believe this pronouncement will impact its
financial statements.
In May
2008, FASB issued SFASB No. 163, “Accounting for Financial Guarantee Insurance
Contracts-an interpretation of FASB Statement No. 60”. The scope of the
statement is limited to financial guarantee insurance (and reinsurance)
contracts. The pronouncement is effective for fiscal years beginning after
December 31, 2008. The Company does not believe this pronouncement will impact
its financial statements.
Reclassifications:
For
comparative purposes, prior year’s consolidated financial statements have been
reclassified to conform with report classifications of the current
year.
NOTE 3 – MAJOR
CUSTOMERS
During
fiscal year ended June 30, 2008 and 2007, there were no customers who
represented 10% or more of the Company’s total revenue. During the fiscal year
ended June 30, 2006, two customers DaimlerChrysler (which consists of a group of
many companies), accounted for approximately 11% of the revenue and Toyota
Motors (which consists of a group of many companies) accounted for approximately
12%.
The
Company is a strategic business partner for Daimler Financial Services (which
consists of a group of many companies), which accounts for approximately 5%, 2%,
and 11% of revenue, Toyota Motors (which consists of a group of many companies)
accounts for approximately 3%, 9%, and 12% of revenue, and Nissan (which
consists of a group of many companies) accounts for approximately 11%,5%, 0% of
revenue for the fiscal year ended June 30, 2008, 2007, and 2006, respectively.
Accounts receivable at June 30, 2008, 2007, and 2006 for these companies was
$2,357,889, $1,925,831, and $808,044.
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – RESTRICTED
CASH
On June
21, 2006 the Company completed financing of $5,500,000 (see Note 12). As a
requirement of the financing the funds could only be used for their stated
purpose, the acquisition of CQ Systems and McCue Systems, related costs, and
some working capital. As of June 30, 2006, the acquisition payments of
$4,086,204 and related costs of $447,351 were not paid and the cash needed for
these payments is shown as restricted cash in these consolidated financial
statements. In July 2006, the payments were made.
NOTE 5 – OTHER CURRENT
ASSETS
Other
current assets consist of the following:
|
|
As
of 6/30/08
|
|
As
of 6/30/07
|
|
As
of 6/30/06
|
|
Prepaid
Expenses
|
|
$
|
825,640
|
|
$
|
776,785
|
|
$
|
1,069,582
|
|
Advance
Income Tax
|
|
|
356,843
|
|
|
187,219
|
|
|
116,921
|
|
Employee
Advances
|
|
|
133,954
|
|
|
166,469
|
|
|
323,447
|
|
Security
Deposits
|
|
|
244,409
|
|
|
260,199
|
|
|
105,252
|
|
Advance
Rent
|
|
|
211,828
|
|
|
-
|
|
|
-
|
|
Tender
Money Receivable
|
|
|
293,943
|
|
|
-
|
|
|
-
|
|
Other
Receivables
|
|
|
335,493
|
|
|
843,383
|
|
|
661,210
|
|
Other
Assets
|
|
|
4,297
|
|
|
44,694
|
|
|
546,457
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,406,407
|
|
$
|
2,278,749
|
|
$
|
2,822,869
|
|
NOTE 6 - PROPERTY AND
EQUIPMENT
Property
and equipment, net, consist of the following:
|
|
As
of 6/30/08
|
|
As
of 6/30/07
|
|
As
of 6/30/06
|
|
Office
furniture and equipment
|
|
$
|
1,224,340
|
|
$
|
1,216,833
|
|
$
|
1,109,889
|
|
Computer
equipment
|
|
|
9,043,307
|
|
|
6,776,051
|
|
|
5,071,927
|
|
Assets
under capital leases
|
|
|
1,511,311
|
|
|
1,321,159
|
|
|
860,605
|
|
Building
|
|
|
2,902,142
|
|
|
3,247,352
|
|
|
3,273,837
|
|
Construction
under progress
|
|
|
-
|
|
|
274,698
|
|
|
291,526
|
|
Land
|
|
|
925,210
|
|
|
600,481
|
|
|
606,451
|
|
Autos
|
|
|
245,855
|
|
|
213,336
|
|
|
382,485
|
|
Improvements
|
|
|
413,175
|
|
|
419,797
|
|
|
367,584
|
|
Subtotal
|
|
|
16,265,340
|
|
|
14,069,707
|
|
|
11,964,304
|
|
Accumulated
depreciation
|
|
|
(7,088,560
|
)
|
|
(6,485,955
|
)
|
|
(5,492,266
|
)
|
|
|
$
|
9,176,780
|
|
$
|
7,583,752
|
|
$
|
6,472,038
|
|
For the
years ended June 30, 2008, 2007, and 2006, fixed asset depreciation expense
totaled $1,573,345, $1,015,835, and $1,053,382, respectively. Of these amounts,
$1,031,943 and $567,145, respectively, are reflected as part of cost of goods
sold.
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - INTANGIBLE
ASSETS
Intangible
assets consist of the following:
|
|
Product Licenses
|
|
Customer Lists
|
|
Total
|
|
Intangible
asset - June 30, 2005 - cost
|
|
$
|
8,799,323
|
|
$
|
3,294,757
|
|
$
|
12,094,080
|
|
Additions
|
|
|
2,032,257
|
|
|
2,143,837
|
|
|
4,176,094
|
|
Effect
of translation adjustment
|
|
|
95,545
|
|
|
-
|
|
|
95,545
|
|
Accumulated
amortization
|
|
|
(5,806,911
|
)
|
|
(2,329,046
|
)
|
|
(8,135,957
|
)
|
Net
balance - June 30, 2006
|
|
$
|
5,120,214
|
|
$
|
3,109,548
|
|
$
|
8,229,762
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
asset - June 30, 2006 - cost
|
|
$
|
10,920,327
|
|
$
|
5,438,594
|
|
$
|
16,358,921
|
|
Additions
|
|
|
3,470,253
|
|
|
12,500
|
|
|
3,482,753
|
|
Effect
of translation adjustment
|
|
|
113,128
|
|
|
-
|
|
|
113,128
|
|
Accumulated
amortization
|
|
|
(6,730,860
|
)
|
|
(3,023,689
|
)
|
|
(9,754,549
|
)
|
Net
balance - June 30, 2007
|
|
$
|
7,772,848
|
|
$
|
2,427,405
|
|
$
|
10,200,253
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets - June 30, 2007 - cost
|
|
$
|
14,511,208
|
|
$
|
5,451,094
|
|
$
|
19,962,302
|
|
Additions
|
|
|
4,481,077
|
|
|
-
|
|
|
4,481,077
|
|
Effect
of translation adjustment
|
|
|
(381,578
|
)
|
|
-
|
|
|
(381,578
|
)
|
Accumulated
amortization
|
|
|
(7,772,851
|
)
|
|
(3,718,333
|
)
|
|
(11,491,184
|
)
|
Net
balance - June 30, 2008
|
|
$
|
10,837,856
|
|
$
|
1,732,761
|
|
$
|
12,570,617
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
expense:
|
|
|
|
|
|
|
|
|
|
|
Year
ended June 30, 2008
|
|
$
|
1,069,967
|
|
$
|
694,644
|
|
$
|
1,764,611
|
|
Year
ended June 30, 2007
|
|
$
|
930,791
|
|
$
|
694,644
|
|
$
|
1,625,435
|
|
Year
ended June 30, 2006
|
|
$
|
1,377,385
|
|
$
|
589,281
|
|
$
|
1,966,666
|
|
The above
amortization expense includes amounts in “Cost of Goods Sold” for capitalized
software development costs of $366,511, $227,335, and $69,973 for the fiscal
years ended June 30, 2008, 2007, and 2006, respectively.
At June
30, 2008, 2007, and 2006, product licenses, renewals, enhancements, copyrights,
trademarks, and tradenames, included unamortized software development and
enhancement costs of $9,550,831, $5,782,366, and $2,426,275, respectively.
Software development amortization expense was $366,511, $227,335, and $105,389
for the years ended June 30, 2008, 2007, and 2006, respectively.
Amortization
expense of intangible assets over the next five years is as
follows:
|
|
FISCAL
YEAR ENDING
|
|
|
|
Asset
|
|
6/30/09
|
|
6/30/10
|
|
6/30/11
|
|
6/30/12
|
|
6/30/13
|
|
TOTAL
|
|
Product
Licences
|
|
$
|
1,512,349
|
|
$
|
1,257,480
|
|
$
|
794,583
|
|
$
|
128,892
|
|
$
|
128,892
|
|
$
|
3,822,195
|
|
Customer
Lists
|
|
|
694,644
|
|
|
606,852
|
|
|
431,266
|
|
|
-
|
|
|
-
|
|
|
1,732,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,206,993
|
|
$
|
1,864,332
|
|
$
|
1,225,849
|
|
$
|
128,892
|
|
$
|
128,892
|
|
$
|
5,554,957
|
|
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Goodwill
is comprised of amounts recognized in the acquisition of the
following:
|
|
Balance
at
|
|
Balance
at
|
|
Balance
at
|
|
|
|
June
30, 2008
|
|
June
30, 2007
|
|
June
30, 2006
|
|
NetSol
PK Tech
|
|
$
|
1,166,611
|
|
$
|
1,166,611
|
|
$
|
1,166,611
|
|
CQ
Systems
|
|
|
3,471,813
|
|
|
3,471,813
|
|
|
3,471,813
|
|
McCue
Systems
|
|
|
4,664,100
|
|
|
3,010,846
|
|
|
1,395,251
|
|
NetSol
Omni
|
|
|
136,761
|
|
|
59,231
|
|
|
59,231
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,439,285
|
|
$
|
7,708,501
|
|
$
|
6,092,906
|
|
There was
no impairment of goodwill for the years ended June 30, 2008, 2007, and
2006.
NOTE 8 – OTHER ASSETS – LONG
TERM
During
the year ended June 30, 2007, NetSol PK agreed to lease a facility from the
owner of the adjacent land agreed to build an office to the Company’s
specifications and the Company agreed to help pay for the development of the
land in exchange for discounted rent for the next three years. As of June 30,
2008, the Company has paid a total of 26,156,725pkr or approximately $383,530 in
connection with this agreement. Of this amount, 14,446,675pkr or approximately
$211,828 has been classified as current, representing one-year of rental
payments, and 3,570,000pkr or approximately $52,346 shown as long-term assets.
As of June 30, 2007, the Company has paid a total of $479,519 in connection with
this agreement. Of this amount, $186,656 has been classified as current,
representing one-year of rental payments, with the balance of $292,863 shown as
long-term assets. During the year ended June 30, 2008, 8,140,050pkr or
approximately $198,280 was expensed.
In
addition, NetSol PK has begun work on building a new building behind the current
one. The enhancement of infra-structure is necessary to meet the company’s
growth in local and international business. The balance for advance for
Capital-Work-In-Progress was $1,043,765.
During
the current fiscal year, our North American operations determined it was
necessary to move its location from Burlingame to Emeryville. The move is
expected to be completed in September 2008. As part of the lease agreement, the
Company was required to pay two months of rental payments as a security deposit
valued at $155,880.
As of
June 30, 2008, one of the Company’s subsidiaries has classified two of its
accounts receivable as long-term amounting to $614,446 at present value net of
discount of $109,818. The discount was calculated using a rate of 8.25% and a
time period of two years as the collection is expected by the fiscal year ended
June 30, 2010.
As of
June 30, 2007, one of the Company’s subsidiaries has classified two of its
accounts receivable as long-term amounting to $1,015,404 at present value net of
discount of $62,628. The discount was calculated using a rate of 6% and a time
period of one year as the collection is scheduled in July 2008.
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - ACCOUNTS PAYABLE AND ACCRUED
EXPENSES
Accounts
payable and accrued expenses consist of the following:
|
|
As
of 6/30/08
|
|
As
of 6/30/07
|
|
As
of 6/30/06
|
|
Accounts
Payable
|
|
$
|
1,468,491
|
|
$
|
1,039,140
|
|
$
|
1,340,241
|
|
Accrued
Liabilities
|
|
|
2,099,693
|
|
|
2,159,537
|
|
|
1,679,601
|
|
Accrued
Payroll
|
|
|
2,203
|
|
|
14,869
|
|
|
-
|
|
Accrued
Payroll Taxes
|
|
|
176,916
|
|
|
71,921
|
|
|
25,343
|
|
Interest
Payable
|
|
|
158,627
|
|
|
120,119
|
|
|
112,759
|
|
Deferred
Revenues
|
|
|
72,240
|
|
|
40,597
|
|
|
69,000
|
|
Taxes
Payable
|
|
|
138,489
|
|
|
144,468
|
|
|
49,215
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,116,659
|
|
$
|
3,590,651
|
|
$
|
3,276,159
|
|
NOTE 10 –
DEBTS
A) LOANS AND LEASES
PAYABLE
Notes and
leases payable consist of the following:
|
|
Balance
at
|
|
Current
|
|
Long-Term
|
|
Name
|
|
6/30/08
|
|
Maturities
|
|
Maturities
|
|
D&O
Insurance
|
|
$
|
41,508
|
|
$
|
41,508
|
|
$
|
-
|
|
E&O
Insurance
|
|
|
28,518
|
|
|
28,518
|
|
|
-
|
|
Habib
Bank Line of Credit
|
|
|
1,501,998
|
|
|
1,501,998
|
|
|
-
|
|
Bank
Overdraft Facility
|
|
|
84,952
|
|
|
84,952
|
|
|
-
|
|
HSBC
Loan
|
|
|
739,428
|
|
|
327,820
|
|
|
411,608
|
|
Subsidiary
Capital Leases
|
|
|
627,621
|
|
|
295,314
|
|
|
332,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,024,025
|
|
$
|
2,280,110
|
|
$
|
743,915
|
|
|
|
Balance
at
|
|
Current
|
|
Long-Term
|
|
Name
|
|
6/30/07
|
|
Maturities
|
|
Maturities
|
|
D&O
Insurance
|
|
$
|
66,207
|
|
$
|
66,207
|
|
$
|
-
|
|
Professional
Liability Ins
|
|
|
641
|
|
|
641
|
|
|
-
|
|
Noon
Group
|
|
|
565,045
|
|
|
565,045
|
|
|
-
|
|
Subsidiary
Capital Leases
|
|
|
594,964
|
|
|
255,205
|
|
|
339,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,226,857
|
|
$
|
887,098
|
|
$
|
339,759
|
|
|
|
Balance
at
|
|
Current
|
|
Long-Term
|
|
Name
|
|
6/30/06
|
|
Maturities
|
|
Maturities
|
|
D&O
Insurance
|
|
$
|
74,889
|
|
$
|
74,889
|
|
$
|
-
|
|
Professional
Liability Ins
|
|
|
668
|
|
|
668
|
|
|
-
|
|
Noon
Group
|
|
|
516,295
|
|
|
516,295
|
|
|
-
|
|
A.
Zaman Settlement
|
|
|
16,300
|
|
|
16,300
|
|
|
-
|
|
Subsidiary
Capital Leases
|
|
|
343,951
|
|
|
160,783
|
|
|
183,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
952,103
|
|
$
|
768,935
|
|
$
|
183,168
|
|
In June
2002, the Company signed a settlement agreement with a former consultant for
payment of past services rendered. The Company agreed to pay the consultant a
total of $75,000. The agreement calls for monthly payments of $1,500 per month
until paid. As of June 30, 2006, the balance was $16,300. The entire balance has
been classified as a current liability in the accompanying consolidated
financial statements. In July 2006, the balance was paid in full.
In
February 2005, the Company received a loan from Noon Group in the amount of
$500,000. The note carries an interest rate of 9.75% per annum and is due in one
year. The maturity date of the loan may be extended at the option of the holder
for an additional year. During the fiscal year ended June 30, 2006, $48,750 of
accrued interest was recorded for this loan. In March, 2006, the note was
extended for another year. In April 2006, $51,250 of accrued interest was paid.
Total unpaid accrued interest at June 30, 2006 was $16,295. During the fiscal
year ended June 30, 2007, $48,750 of accrued interest was recorded for this
loan. In April 2006, $51,250 of accrued interest was paid. Total unpaid accrued
interest at June 30, 2006 was $65,044. In July 2007, the full principle and
interest were paid.
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
On July
4, 2007, the Company entered into a debt agreement with AMZ, a brokerage firm,
in Lahore, Pakistan for a total of $2,457,642. AMZ brokered the loan with 2
banks in Pakistan, Bank Islami Pakistan Ltd, and Security Leasing Corporation
Ltd. The loan called for 30% of the value of the loan to be collateralized by
shares the Company owns in its Pakistan subsidiary, NetSol PK, plus an
additional 10% of the total share pledged to cover any extra margin due to the
change in value of the pledged shares. Finance costs associated with this debt
totaled $39,445 and the Company received a net balance of $2,418,197. The loan
had a maturity of three months and an interest rate 18.35%, consisting of the
Karachi Interbank Offer Rate (“KIBOR” of 9.09%, a base rate of 4.26%, and a
mark-up rate of 5%. On October 4, 2007, the loan matured and was rolled over for
an additional three months. The new interest rate was 14.75%. Upon maturity on
January 4, 2008, payment of the note and accrued interest was extended for six
weeks. On February 16, 2008, the full balance of the loan and accrued interest
of $256,608 was paid. All pledged shares were returned to the
Company.
In August
2007, the Company’s subsidiary, NetSol UK, entered into an agreement with HSBC
Bank whereby the line of credit outstanding of £500,000 or approximately
$1,023,850 was converted into a loan payable with a maturity of three years. The
interest rate is 7.5% with monthly payments of £15,558 or approximately $31,858.
The Parent has guaranteed payment of the loan in the event the subsidiary should
default on it. During the year ended June 30, 2008, £155,585 or approximately
$307,384 was paid on the principal of this note and £27,784 or approximately
$52,310 was paid in interest. The loan outstanding as of June 30, 2008 was
£370,567 or $739,428; of this amount $327,820 is classified as current
maturities and $411,608 as long-term debt.
In
January 2008, the Company renewed its directors’ and officers’ (“D&O”)
liability insurance for which the annual premium is $102,585. The Company
arranged financing with AFCO Credit Corporation with a down payment of $10,584
with the balance to be paid in nine monthly installments of $10,584 each. The
balance owing as of June 30, 2008 was $41,508. In January 2007, the Company
renewed its directors and officers’ liability insurance for which the annual
premium is $163,620. In January 2007, the Company arranged financing with AFCO
Credit Corporation with a down payment of $16,784 with the balance to be paid in
nine monthly installments of $16,784 each. The balance owing as of June 30, 2007
was $66,207. In January 2006, the Company renewed its directors and officers’
liability insurance for which the annual premium is $185,000. In January 2006,
the Company arranged financing with AFCO Credit Corporation with a down payment
of $19,007 with the balance to be paid in nine monthly installments of $19,007
each. The balance owing as of June 30, 2006 was $74,889.
In
January 2008, the Company purchased an Errors and Omissions (“E&O”)
liability insurance for an annual premium of $69,783. The Company arranged
financing with AFCO Credit Corporation with a down payment of $7,213 with the
balance to be paid in nine monthly installments of $7,213 each. The balance
owing as of June 30, 2008 was $28,518.
In April
2008, the Company entered into an agreement with Habib American Bank to secure a
line of credit to be collateralized by Certificates of Deposit held at the bank.
During the year ended June 30, 2008, $1,510,595 was drawn down on this line of
credit and $12,629 was repaid. The interest rate on this account is variable and
was 4.571% at June 30, 2008. Interest paid during the year ended June 30, 2008
was $4,032 and the balance was $1,501,998.
During
the year ended June 30, 2008, the Company’s subsidiary, NTE, entered into an
overdraft facility with HSBC Bank plc whereby the bank would cover any
overdrafts up to £200,000. The interest rate is 3.25% per year over the Bank’s
sterling Base Rate, which is currently 5%, for an effective rate of 8.25%. As of
June 30, 2008, the subsidiary had used £42,574 or approximately $84,952.
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL LEASE
OBLIGATIONS
The
Company leases various fixed assets under capital lease arrangements expiring in
various years through 2013. The assets and liabilities under capital leases are
recorded at the lower of the present value of the minimum lease payments or the
fair value of the asset. The assets are depreciated over the lesser of their
related lease terms or their estimated useful lives and are secured by the
assets themselves. Depreciation of assets under capital leases is included in
depreciation expense for the years ended June 30, 2008, 2007, and
2006.
Following
is the aggregate minimum future lease payments under capital leases as of June
30, 2008:
Minimum
Lease Payments
|
|
|
|
|
Due
FYE 6/30/09
|
|
$
|
368,671
|
|
Due
FYE 6/30/10
|
|
|
258,927
|
|
Due
FYE 6/30/11
|
|
|
113,053
|
|
Due
FYE 6/30/12
|
|
|
6,135
|
|
Due
FYE 6/30/13
|
|
|
3,356
|
|
Total
Minimum Lease Payments
|
|
|
750,142
|
|
Interest
Expense relating to future periods
|
|
|
(122,521
|
)
|
Present
Value of minimum lease payments
|
|
|
627,621
|
|
Less:
Current portion
|
|
|
(295,314
|
)
|
Non-Current
portion
|
|
$
|
332,307
|
|
Following
is a summary of fixed assets held under capital leases:
|
|
As
of 6/30/08
|
|
As
of 6/30/07
|
|
As
of 6/30/06
|
|
Computer
Equipment and Software
|
|
$
|
895,235
|
|
$
|
661,647
|
|
$
|
337,381
|
|
Furniture
and Fixtures
|
|
|
62,054
|
|
|
50,007
|
|
|
64,340
|
|
Vehicles
|
|
|
392,727
|
|
|
458,839
|
|
|
306,720
|
|
Building
Equipment
|
|
|
161,295
|
|
|
150,666
|
|
|
152,164
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,511,311
|
|
|
1,321,159
|
|
|
860,605
|
|
Less:
Accumulated Depreciation
|
|
|
(653,643
|
)
|
|
(508,294
|
)
|
|
(407,281
|
)
|
Net
|
|
$
|
857,668
|
|
$
|
812,865
|
|
$
|
453,324
|
|
B) LOANS PAYABLE - BANK
The
Company’s Pakistan subsidiary, NetSol Technologies (Private) Ltd., has a loan
with a bank, secured by the Company’s assets. This note consists of the
following:
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
For
the year ended June 30, 2008:
|
|
|
|
TYPE
OF
|
|
MATURITY
|
|
INTEREST
|
|
BALANCE
|
|
LOAN
|
|
DATE
|
|
RATE
|
|
USD
|
|
|
|
|
|
|
|
|
|
Export
Refinance
|
|
Every 6 months
|
|
|
7.50
|
%
|
$
|
2,932,551
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
$
|
2,932,551
|
|
For
the year ended June 30, 2007:
|
|
|
|
|
|
TYPE
OF
|
|
MATURITY
|
|
INTEREST
|
|
BALANCE
|
|
LOAN
|
|
DATE
|
|
RATE
|
|
USD
|
|
|
|
|
|
|
|
|
|
Export
Refinance
|
|
Every 6 months
|
|
|
7.5
|
%
|
$
|
1,968,827
|
|
Running
Finance
|
|
On
demand
|
|
|
12.0
|
%
|
|
123,050
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
$
|
2,091,877
|
|
For
the year ended June 30, 2006:
|
|
|
|
|
|
TYPE
OF
|
|
MATURITY
|
|
INTEREST
|
|
BALANCE
|
|
LOAN
|
|
DATE
|
|
RATE
|
|
USD
|
|
|
|
|
|
|
|
|
|
Export
Refinance
|
|
Every 6 months
|
|
|
9
|
%
|
$
|
662,800
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
$
|
662,800
|
|
The
Company’s subsidiary, NetSol UK, has a line of credit with HSBC Bank. Interest
rate charged on amounts drawn-down is 1.75% over base rate. At June 30, 2007
this rate was 5.5%. As of June 30, 2007, the line of credit balance was £502,046
or $1,006,051. In July 2007, this line of credit was converted into a term
loan.
Total
loans payable - bank at June 30, 2007 was $3,097,928.
C) OTHER PAYABLE -
ACQUISITION
As of
June 30, 2008 and 2007, Other Payable - Acquisition consists of total payments
of $846,215, and $962,406 due to the shareholders of McCue Systems. As of June
30, 2006, Other Payable - Acquisition consists of total payments of $4,086,204
due to the shareholders of CQ Systems and McCue Systems.
CQ System (now NetSol
Technologies Europe Ltd.)
In June
2006, the final installment for the purchase of CQ Systems was determined based
on the audited revenues for the twelve month period ending March 31, 2006. Based
on the earn-out formula in the purchase agreement, £2,087,071 or $3,785,210 was
due in cash and stock. On June 12, 2006 884,535 shares of the Company’s
restricted common stock were issued to the shareholders of CQ Systems. As of
June 30, 2006, a payable to CQ Systems shareholders consisting of the cash
portion of $1,936,530 and an interest expense of $31,810 for a total of
$1,968,340 is shown as “Other Payable - Acquisition” in these consolidated
financial statements. In July 2006, the cash was paid to the
shareholders.
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
McCue Systems (now NetSol
Technologies North America Inc.)
On June
30, 2006, the acquisition with McCue Systems, Inc. (“McCue”) closed (see Note
20). As a result, the first installment consisting of $2,117,864 cash and
958,213 shares of the Company’s restricted common stock was recorded. During the
fiscal year ended June 30, 2007, $2,059,413 of the cash portion of was paid to
the McCue shareholders and in July 2006 the stock was issued. In June 2007, the
second installment on the acquisition consisting of $903,955 in cash and 408,988
shares of the Company’s restricted common stock became due and was recorded. In
July and August 2007, $879,007 of the cash was paid. In June
2008, the third and final installment became due, consisting of $762,816 in cash
and 345,131 shares of the Company’s restricted common stock. The cash portion is
shown as “Other Payable – Acquisition” and the stock portion is shown in “Shares
to be issued” on these consolidated financial statements. The balance at June
30, 2008 was $846,215. Of this amount, $104,452 represents the few remaining
McCue shareholders that have not been located as of the date of this report. The
shares were issued on July 3, 2008 and the cash due was paid in July and August
2008.
D) DUE TO
OFFICERS
The
officers of the Company, from time to time, loan funds to the Company.
During
the fiscal year ended June 30, 2006, one of the officers had deferred the
increase in his wages. During the fiscal year ended June 30, 2006, $50,000 of
accrued wages was added to the balance due to officers and $34,574 was remitted
to one officer against the amounts owing to him. In addition, $7,500 was paid to
another officer against amounts owed to him. In addition, one subsidiary had
$35,205 due to an officer of the subsidiary. The balance owing as of June 30,
2006 was $90,767.
During
the fiscal year ended June 30, 2007, $43,750 of accrued wages was added to the
balance due to officers and $62,458 was remitted to one officer against the
amounts owing to him. In addition, the board of directors authorized a bonus in
the amount of $50,000 each to the three founding officers for recognition of
past service and the growth in the Company. During the quarter ended March 31,
2007, the officers used the bonus to exercise options. In addition, one
subsidiary had $4,567 due to an officer of the subsidiary. The balance due to
officers as of June 30, 2007 was $356,422
On
September 1, 2006, an officer of the Company loaned $165,000 to the Company for
its immediate short-term cash needs in the corporate office. The loan had a
maturity date of three months and is interest free and had been automatically
extended. The terms of the loan were approved by the Company’s board of
directors. The balance of this loan was repaid in July 2007.
In
addition, the officers of the Company have advanced $34,173 as working capital.
The balance due to officers as of June 30, 2008 was $184,173.
In July
2008, the officers exercised 98,358 options against the amounts owed to them of
$179,738.
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 – DIVIDEND PAYABLE
PREFERRED
SHAREHOLDERS
On
October 30, 2006, the convertible notes payable (see note 12) were converted
into 5,500 shares of Series A 7% Cumulative Convertible Preferred Stock. The
dividend is to be paid quarterly, either in cash or stock at the Company’s
election. The dividend for the fiscal years ended June 30, 2008 and 2007 totaled
$178,541 and $237,326. Of the amount due for fiscal years ended June 30, 2008
and 2007, $145,033 and $159,686 has been paid in stock and the remaining balance
of $33,508 and $77,640 is payable and is reflected in these consolidated
financial statements. The amount due as of June 30, 2008 was paid with the
issuance of 13,107 shares of the Company’s common stock on July 3,
2008.
SUBSIDIARY
DIVIDEND
On
September 26, 2007, the Company’s joint-venture subsidiary, NetSol-Innovation
declared a cash dividend of 100,000,000 Pakistan Rupees (“pkr”) or approximately
$1,651,522. Of this amount, the Company was due 50,520,000 pkr or approximately
$834,349. The dividend was paid during the quarter ended December 31, 2007. The
amount attributable to the minority holders is approximately $817,173.
NOTE 12 – CONVERTIBLE NOTE
PAYABLE
On June
15, 2006, the Company entered into an agreement with five accredited investors
whereby the Company issued five convertible notes payable for an aggregate
principal value of $5,500,000. These notes bore interest at the rate of 12% per
annum and were due in full one year from the issuance date or on June 15, 2007
(the “Financing”). The Convertible Notes could have immediately converted
into shares of common stock of the Company at the conversion value (initially
set at one share per $1.65 of principal dollar) to the extent that such
conversion did not violate Nasdaq Market Place rules. Due to the
limitation rule, none of the note was convertible as of September 30, 2006. Upon
the approval of the stockholders, to the extent not already converted into
common shares, the Convertible Notes Payable would be immediately converted into
shares of Preferred Stock. On October 18, 2006, the shareholders approved the
issuance of the shares and on October 30, 2006 the notes were converted into
5,500 shares of Preferred Stock. During the quarter ended September 30, 2006,
$167,489 of interest was accrued. As of September 30, 2006, a total of $194,989
in accrued interest had been recorded on the notes and was added to the
principal of the notes. During the fiscal year ended June 30, 2007, $251,167 of
interest was accrued. On December 13, 2006, the note holders agreed to accept
shares of the Company’s common stock in payment of the interest owed to them. In
addition, the note holders required the Company to issue a total of 60,000
shares of the Company’s common stock valued at $88,201 as a premium to receive
payment in shares rather than cash. This amount is included in “interest
expense” in the accompanying consolidated financial statements for the year
ended June 30, 2007.
The
beneficial conversion feature expense was based on the net value of the loan
after reducing the proceeds by the value of the warrants issued and was
$2,208,334 for the year ended June 30, 2007.
The
common stock shares issued under this financing agreement, including warrants,
were to be registered within 120 days after closing (or October 19, 2006). If
the Company did not meet the registration requirement, the Company was to pay in
cash as liquidated damages for such failure and not as a penalty to each Holder
an amount equal to one percent (1%) of such Holder's Purchase Price paid by such
Holder pursuant to the Purchase Agreement for each thirty (30) day period until
the applicable Event has been cured. The registration statement became effective
on January 19, 2007. During the fiscal year ended June 30, 2007, the Company
accrued $168,667 as liquidation damages due and has paid the full amount. As a
result, the Company recorded an additional $12,223 in liquidation damages during
the fiscal year ended June 30, 2007. This amount is included in “Accrued
Liabilities” as of June 30, 2008.
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
As part
of the agreement, the investors received warrants to purchase 1,666,668 shares
of the Company’s common stock. The warrants have an exercise price of $2.00 and
expire in five years. These warrants were valued using the Black-Scholes model
at $2,108,335 and were capitalized as a contra-account against the note balance.
These costs were being amortized over the life of the loan or a pro-rata basis
as the loan was converted into common or preferred stock. As the loans were
converted on October 30, 2006, the balance of $2,022,363 was amortized and
recorded as “amortization of debt discount” for the year ended June 30, 2007.
The
Black-Scholes pricing model used the following assumptions:
Risk-free
interest rate
|
|
|
6.00
|
%
|
Expected
life
|
|
|
5
years
|
|
Expected
volatility
|
|
|
100
|
%
|
Dividend
yield
|
|
|
0
|
%
|
Under the
agreement, any future financing whereby warrants are issued at an exercise price
lower than the exercise price of the warrants in the agreement, an adjustment to
the exercise price is to be made. During the fiscal year ended June 30, 2007, a
financing was completed which included the issuance of warrants at an exercise
price of $1.65. Following the formula set out in the agreement, it was
determined that the adjusted exercise price was $1.93 per share. As a result,
the Company revalued the warrants for the adjusted exercise price using the
Black-Scholes model at $2,120,000 and recorded an expense of $11,667 for the
repricing of the warrants during the year ended June 30, 2007. The Black-Scholes
pricing model used the same assumptions as for the original valuation of the
warrants.
In
connection with this financing, the Company paid $474,500 in cash for placement
agent fees and legal fees. These costs were capitalized and are being amortized
over the life of the loan or a pro-rata basis as the loan is converted into
common or preferred stock. As the loans were converted on October 30, 2006, the
balance of $454,729 of these costs were amortized and recorded as “amortization
of capitalized cost of debt” during the year ended June 30, 2007.
As part
of the financing, warrants to purchase 266,666 shares of the Company’s common
stock were issued to the placement agent as part of its fee. The warrants have
an exercise price of $1.65 and expire in two years. These warrants were valued
using the Black-Scholes model at $340,799 and were capitalized. These costs were
being amortized over the life of the loan or a pro-rata basis as the loan was
converted into common or preferred stock. As the loans were converted on October
30, 2006, the balance of $326,599 of these costs were amortized and recorded as
“amortization of capitalized cost of debt” during the year ended June 30, 2007.
The
Black-Scholes pricing model used the following assumptions:
Risk-free
interest rate
|
|
|
6.00
|
%
|
Expected
life
|
|
|
2
years
|
|
Expected
volatility
|
|
|
100
|
%
|
Dividend
yield
|
|
|
0
|
%
|
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 – CONVERTIBLE
DEBENTURE
On March
24, 2004, the Company entered into an agreement with several investors to
acquire Series A Convertible Debentures (the “Bridge Loan”) whereby a total of
$1,200,000 in debentures were procured through Maxim Group, LLC. The Company
received a net of $1,049,946 after placement expenses. In addition, the
beneficial conversion feature of the debenture was valued at $252,257. The
Company had recorded this as a contra-account against the loan balance and
amortized the beneficial conversion feature over the life of the loan.
Under the
terms of the Bridge Loan agreements, and supplements thereto, the debentures
bore an interest at the rate of 10% per annum, payable on a quarterly basis in
common stock or cash at the election of the Company. The maturity date was 24
months from the date of signing, or March 26, 2006. Pursuant to the terms of a
supplemental agreement dated May 5, 2004 between NetSol and the debenture
holders, the conversion rate was set at one share for each $1.86 of principal.
In
addition, each debenture holder was entitled to receive at the time of
conversion warrants equal to one-half of the total number of shares issued. The
total number of warrants that may be granted was 322,582. The warrants expire in
five years and have an exercise price of $3.30 per share. The fair value of the
warrants was calculated and recorded using the Black-Scholes method at the time
of granting, when the debenture was converted.
During
the fiscal year ended June 30, 2006, three of the convertible debenture holders
elected to convert their notes into common stock. As part of the conversion,
warrants to purchase a total of 40,323 common shares were issued to the note
holders. The warrants were valued using the fair value method at $21,505 and was
recorded as an expense in the accompanying consolidated financial statements for
the fiscal year ended June 30, 2006.
NOTE 14 – STOCKHOLDERS’ EQUITY -
RESTATED
PREFERRED STOCK
On
October 30, 2006, the convertible notes payable (see note 12) were converted
into 5,500 shares of Series A 7% Cumulative Convertible Preferred Stock. The
preferred shares are valued at $1,000 per share or $5,500,000. The preferred
shares are convertible into common stock at a rate of $1.65 per common share.
The total shares of common stock that can be issued under these Series A
Preferred Stock is 3,333,333. On January 19, 2007, the Form S-3 statement to
register the underlying common stock and related dividends became effective. As
of June 30, 2008 and 2007, 2,210 and 1,370 of the preferred shares had been
converted into 1,339,392 and 830,302 shares of the Company’s common stock,
respectively. As of June 30, 2008 and 2007, there were 1,920 and 4,130 shares of
preferred stock outstanding.
The
Series A Convertible Preferred Stock carries certain liquidation and
preferential rights. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, before any distribution of assets
of the Corporation can be made to or set apart for the holders of Common Stock,
the holders of Convertible Preferred Stock shall be entitled to receive payment
out of such assets of the Corporation in an amount equal to $1,000 per share of
Convertible Preferred Stock then outstanding, plus any accumulated and unpaid
dividends thereon (whether or not earned or declared) on the Convertible
Preferred Stock. In addition, the Convertible Preferred Stock ranks senior to
all classes and series of Common Stock and existing preferred stock and to each
other class or series of preferred stock established hereafter by the Board of
Directors of the Corporation, with respect to dividend rights, redemption
rights, rights on liquidation, winding-up and dissolution and all other rights
in any manner, whether voluntary or involuntary.
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Business Combinations:
CQ Systems, Inc. (now NetSol
Technologies Europe Ltd.)
In
February 2005, the Company completed the acquisition of CQ Systems, (see Note
19). As part of this agreement, the Company issued 759,468 shares of its
restricted common stock valued at $1,816,301 to the shareholders of CQ
Systems.
In June
2006, the final installment was due for the acquisition and the Company issued
884,535 shares of its restricted common stock valued at $1,848,680 to the
shareholders of CQ Systems.
McCue Systems, Inc. (now
NetSol Technologies North America Inc.)
In June
2006, the Company completed the acquisition of McCue Systems, Inc. (see Note
20). During fiscal year ended June 30, 2007 as part of this agreement, the
Company issued 931,770 shares of its restricted common stock valued at
$1,584,009 to the shareholders of McCue Systems for the initial down payment.
In June
2007, the second installment became due for the acquisition and the Company
issued 397,700 shares of its restricted common stock valued at $711,640 to the
shareholders of McCue Systems. In addition, a total of 37,731 shares valued at
$64,612 are shown in “Shares to Be Issued” in these consolidated financial
statements representing McCue Systems shareholders that have not been located as
of this date.
In June
2008, the third and final installment became due for the acquisition and the
Company recorded 345,131 shares to be issued valued at $890,437 on these
consolidated financial statements. Of these, 335,604 shares were issued in July
2008. The balance represents McCue Systems shareholders that have not been
located as of this date.
NetSol Omni
(“Omni”)
In
December 2007, the Company entered into an agreement with the minority
shareholders of Omni, whereby the Company purchased the remaining 49.9% of Omni
for 25,000 shares of the Company’s common stock valued at $76,750.
Private Placements
In
January 2006, the Company sold 933,334 shares of the Company’s common stock for
$1,400,000 in a private placement.
In June
2007, the Company sold 757,576 shares of the Company’s common stock to two
institutional investors for $1,250,000. The Company received $1,000,000 of this
by June 30, 2007 and the remainder was received on July 2, 2007. The shares were
issued in July 2007. This purchase agreement contained a “green shoe” clause
whereby the investors had the option to purchase within six months the same
number of shares at the same price and receive the same number of warrants. In
October 2007, the investors exercised the “green shoe” clause and the Company
sold them 757,576 shares of the Company’s common stock valued at $1,250,000. As
part of the agreement, the investors were granted 378,788 warrants with an
exercise price of $1.65.
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Services, Accrued Expenses and
Payables
In July
2004, the Board of Directors and officers were granted the right to receive
shares of the Company’s common stock if certain conditions were met during their
2004 – 2005 term of office. These conditions were met and a total of 28,000
restricted Rule 144 common shares were issued in August 2005 and 11,000 shares
were issued in March 2006. The shares were valued at the fair market value at
the date of grant of $57,034 or $1.46 per share.
In
October 2005, the Company issued 36,607 restricted Rule 144 common shares valued
at $71,018 in payment of $50,000 in principal, $16,000 in penalties and $2,453
in accrued interest on a note payable (see Note 10).
In
October 2005, the Company entered into an agreement with a vendor whereby the
Company issued the vendor 27,231 shares valued at $52,828 for the payment of
outstanding invoices in the amount of $50,923. As a result, the Company recorded
a loss on settlement of debt in the amount of $1,905.
In March
2006, the Company entered into an agreement with a former consultant whereby the
Company agreed to issue the consultant 10,000 restricted Rule 144 shares of its
common stock valued at $19,200 for past services.
In March
2006, a director exercised 15,000 options at $.75 per share for a total of
$11,250. The value of the shares was applied against accrued fees
payable.
In
October 2005, the Company entered into an agreement with a vendor whereby the
Company agreed to issue $2,500 worth of stock per month as payment for services
rendered. The stock was to be issued after the end of each quarter. The Company
issued 7,755 shares of its common stock during the year ended June 30, 2006. The
Company issued 12,177 shares of its common stock during the fiscal year ended
June 30, 2007 valued at $21,250. The agreement was terminated on December 15,
2006.
In
January 2006, the Company entered into an agreement with two consultants whereby
the Company agreed to issue shares of the Company’s restricted common stock for
their services. During the fiscal year ended June 30, 2007, the Company issued
160,624 shares of restricted common stock valued at $269,128. The agreement was
terminated in May 2007.
In
October 2006, the Company entered into an agreement with a consultant whereby
the Company agreed to issue 25,000 shares of the Company’s restricted common
stock at the signing of the agreement. The shares were valued at $36,250 or
$1.45 per share.
In
October 2006, the Company entered into an agreement with a consultant whereby
the Company agreed to issue a total of 40,000 of the Company’s restricted stock,
to be paid at the end of each quarter of service. As of June 30, 2007, the
Company has recorded as “Stock to Be Issued” 10,000 shares valued at $15,000 or
$1.50 per share under this agreement. In October 2007, these shares were issued.
During the year ended June 30, 2008, the remaining 30,000 shares valued at
$45,000 were issued.
In
October 2006, the Company entered into an agreement with an employee whereby the
Company agreed to issue a total of 35,000 shares of the Company’s restricted
common stock valued at $132,650; vesting over one year on a quarterly basis.
During the year ended June 30, 2008, 17,500 shares were vested and issued valued
at $66,324were issued to the employee.
In June
2008, the Company entered into an agreement with a consultant whereby the
Company agreed to issue a total of 20,000 shares of the Company’s restricted
common stock valued at $56,600 for services rendered. As of June 30, 2008, the
stock had not been issued and is shown in “Stock to be Issued”.
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Options and Warrants
Exercised
During
the year ended June 30, 2006, the Company issued 285,383 shares of its common
stock for the exercise of options valued at $343,132. Of these, $52,500 has been
recorded as “Stock Subscription Receivable”. In addition, 3,030 shares valued at
$5,000 have been shown as “Stock to Be Issued.”
During
the year ended June 30, 2007, the Company issued 1,571,243 shares of its common
stock for the exercise of options valued at $2,585,474. Of this, $1,173,750 was
recorded as “Stock Subscription Receivable”, $33,750 was a cashless exercise
whereby the exercise price was applied against amounts owed by the Company to a
Director, and $7,000 was applied to amounts owed by the Company to an employee.
$150,000 was a cashless exercise whereby the exercise price was applied against
amounts owed by the Company to three officers (see Note 10). In addition, 3,030
shares of the Company’s common stock valued at $5,000 was issued against
payments made in the previous year and was recorded as a reduction in “Shares to
Be Issued.”
During
the year ended June 30, 2008, the Company issued 849,938 shares of its common
stock for the exercise of options valued at $1,477,929. Of these shares, 1,818
valued at $3,000 were issued against amounts owed by the Company to an employee,
and a net amount of $16,750 was recorded against “subscription receivable”. In
addition, 20,000 shares valued at $36,600 was recorded as “shares to be issued”
as of June 30, 2008.
During
the year ended June 30, 2008, the Company issued 1,087,359 shares of its common
stock for the exercise of warrants valued at $1,754,547.
Payment of
Interest
On
December 13, 2006, the Company issued a total of 230,863 shares of the Company’s
common stock valued at $339,137 or $1.47 per share to the convertible note
holders as payment of the interest due to them (see note 13). This payment
included 60,000 shares valued at $88,201 as premium shares to accept payment of
the interest in the Company’s common stock rather than cash. These shares have
been registered with the Securities and Exchange Commission.
Issuance of shares for Conversion of
Debt and Settlement of Litigation
During
the year ended June 30, 2006, three of the convertible debenture holders elected
to convert their notes into common stock. The total of the notes converted was
$150,000 and the Company issued 80,646 shares of its common stock to the note
holders.
Payment of Dividend to Preferred
Stockholders
During
the years ended June 30, 2008 and 2007, the Company issued 114,588 and 105,589
shares of the Company’s common stock valued at $222,673 and $159,684,
respectively, as payment of the dividend owed to the Preferred Stockholders (see
Note 11).
Stock Subscription
Receivable
Stock
subscription receivable represents stock options exercised and issued that the
Company has not yet received the payment from the purchaser.
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
During
the year ended June 30, 2006, the Company recorded $52,500 in receivable and
collected $369,900. The Company also recorded the cancellation of $43,650 due as
a charge to additional paid-in capital as a result of a review of the records
when the amount was recorded in 2000. It was determined the amount was not due
and therefore was cancelled. The
balance of the receivable at June 30, 2006 was $299,250.
During
the year ended June 30, 2007, the Company issued a total of $1,673,750 of new
receivables and received payments of $936,593. In addition, $35,000 was applied
to amounts owing from a subsidiary. The balance at June 30, 2007 was
$1,001,407.
During
the year ended June 30, 2008, a total of $542,000 was collected and new
receivables of $211,500 were issued. In addition, the Company wrote-off $70,000
of receivables as uncollectible from employees who have since left the Company.
The balance at June 30, 2008 was $600,907.
Treasury Stock
During
the year ended June 30, 2006, the Company issued 10,000 of its treasury shares
valued at $17,002 for the payment of services. The balance at June 30, 2006 and
2007 was $10,194.
On March
24, 2008, the Company announced that it had authorized a stock repurchase
program permitting the Company to repurchase up to 1,000,000 of its shares of
common stock over the next 6 months. The shares are to be repurchased from time
to time in open market transactions or privately negotiated transactions in the
Company's discretion. During the year ended June 30, 2008, the Company had
repurchased a total of 13,600 shares on the open market valued at $25,486. The
balance as of June 30, 2008 was $35,681.
Common Stock Purchase Warrants and
Options
From time
to time, the Company issues options and warrants as incentives to employees,
officers and directors, as well as to non-employees.
Common
stock purchase options and warrants consisted of the following:
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
Aggregated
|
|
|
|
|
|
Exercise
|
|
Intrinsic
|
|
|
|
# shares
|
|
Price
|
|
Value
|
|
Options:
|
|
|
|
|
|
|
|
Outstanding
and exercisable, June 30, 2005
|
|
|
5,038,000
|
|
$
|
0.75
to $5.00
|
|
$
|
-
|
|
Granted
|
|
|
3,850,913
|
|
$
|
1.65
to $3.00
|
|
|
|
|
Exercised
|
|
|
(303,413
|
)
|
$
|
0.75
to $1.75
|
|
|
|
|
Expired
|
|
|
-
|
|
|
|
|
|
|
|
Outstanding
and exercisable, June 30, 2006
|
|
|
8,585,500
|
|
$
|
0.75
to $5.00
|
|
$
|
269,125
|
|
Granted
|
|
|
180,606
|
|
$
|
1.65
|
|
|
|
|
Exercised
|
|
|
(1,573,743
|
)
|
$
|
0.75
to $1.94
|
|
|
|
|
Expired
|
|
|
(90,000
|
)
|
$
|
2.64
to $5.00
|
|
|
|
|
Outstanding
and exercisable, June 30, 2007
|
|
|
7,102,363
|
|
$
|
0.75
to $5.00
|
|
$
|
129,521
|
|
Granted
|
|
|
20,000
|
|
$
|
1.60
|
|
|
|
|
Exercised
|
|
|
(869,938
|
)
|
$
|
0.75
to $2.55
|
|
|
|
|
Expired
|
|
|
(180,000
|
)
|
$
|
0.75
|
|
|
|
|
Outstanding
and exercisable, June 30, 2008
|
|
|
6,072,425
|
|
$
|
0.75
to $5.00
|
|
$
|
1,717,608
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants:
|
|
|
|
|
|
|
|
|
|
|
Outstanding
and exercisable, June 30, 2005
|
|
|
655,280
|
|
$
|
1.75
to $5.00
|
|
$
|
-
|
|
Granted
|
|
|
1,973,657
|
|
$
|
1.65
- $3.30
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
Expired
|
|
|
(30,000
|
)
|
$
|
1.75
- $3.75
|
|
|
|
|
Outstanding
and exercisable, June 30, 2006
|
|
|
2,598,937
|
|
$
|
1.65
to $5.00
|
|
$
|
13,333
|
|
Granted
|
|
|
403,788
|
|
$
|
1.65
to $3.70
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
Expired
|
|
|
-
|
|
|
|
|
|
|
|
Outstanding
and exercisable, June 30, 2007
|
|
|
3,002,725
|
|
$
|
1.65
to $5.00
|
|
$
|
58,091
|
|
Granted
|
|
|
378,788
|
|
$
|
1.65
|
|
|
|
|
Exercised
|
|
|
(1,269,199
|
)
|
$
|
1.65
to $3.30
|
|
|
|
|
Expired
|
|
|
(120,000
|
)
|
$
|
2.50
to $5.00
|
|
|
|
|
Outstanding
and exercisable, June 30, 2008
|
|
|
1,992,314
|
|
$
|
1.65
to $5.00
|
|
$
|
1,206,095
|
|
The
average life remaining on the options and warrants as of June 30, 2008 is as
follows:
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Exercise
Price
|
|
Number
Outstanding
and
Exercisable
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Weighted
Ave
Exericse
Price
|
|
OPTIONS:
|
|
|
|
|
|
|
|
$0.01
- $0.99
|
|
|
14,000
|
|
|
3.58
|
|
|
0.75
|
|
$1.00
- $1.99
|
|
|
2,193,425
|
|
|
7.10
|
|
|
1.87
|
|
$2.00
- $2.99
|
|
|
3,065,000
|
|
|
6.75
|
|
|
2.68
|
|
$3.00
- $5.00
|
|
|
800,000
|
|
|
5.78
|
|
|
4.24
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
6,072,425
|
|
|
6.74
|
|
|
2.59
|
|
|
|
|
|
|
|
|
|
|
|
|
WARRANTS:
|
|
|
|
|
|
|
|
|
|
|
$1.00
- $1.99
|
|
|
1,527,652
|
|
|
3.43
|
|
|
1.79
|
|
$3.00
- $5.00
|
|
|
464,662
|
|
|
1.14
|
|
|
3.31
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
1,992,314
|
|
|
2.90
|
|
|
2.15
|
|
All
options and warrants granted are vested and are exercisable as of June 30,
2008.
Options:
The
company adopted SFAS No. 123-R effective July 1, 2006 using the modified
prospective method. Under this transition method, stock compensation expense
recognized in the six months ended December 31, 2006 includes compensation
expense for all stock-based compensation awards vested during the six months
ended December 31, 2006, based on the grant-date fair value estimated in
accordance with the provisions of SFAS No. 123-R.
During
the year ended June 30, 2006, 3,848,413 options were granted to employees of the
company and are fully vested and expire ten years from the date of grant unless
the employee terminates employment, in which case the options expire within 30
days of their termination. The exercise price of these options ranges between
$1.65 and $3.00. No expense was recorded for the granting of these
options.
In
compliance with FAS No. 148, the Company had elected to continue to follow the
intrinsic value method in accounting for its stock-based employee compensation
plan as defined by APB No. 25 and has made the applicable disclosures
below.
Had the
Company determined employee stock based compensation cost based on a fair value
model at the grant date for its stock options under SFAS 123, the Company's net
earnings per share would have been adjusted to the pro forma amounts for year
ended June 30, 2006 as follows:
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
2006
|
|
|
|
Restated
|
|
Net
income (loss) - as reported
|
|
$
|
(1,554,116
|
)
|
Stock-based
employee compensation expense, included in reported net loss, net of
tax
|
|
|
-
|
|
|
|
|
|
|
Total
stock-based employee compensation expense determined under
fair-value-based method for all rewards, net of tax
|
|
|
(5,674,402
|
)
|
|
|
|
|
|
Pro
forma net loss
|
|
$
|
(7,228,518
|
)
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
Basic,
as reported
|
|
|
(0.11
|
)
|
Diluted,
as reported
|
|
|
(0.11
|
)
|
|
|
|
|
|
Basic,
pro forma
|
|
|
(0.50
|
)
|
Diluted,
pro forma
|
|
|
(0.50
|
)
|
Pro forma
information regarding the effect on operations is required by SFAS 123, and has
been determined as if the Company had accounted for its employee stock options
under the fair value method of that statement. Pro forma information using the
Black-Scholes method at the date of grant based on the following assumptions:
|
|
2006
|
|
Expected
life (years)
|
|
|
10
years
|
|
Risk-free
interest rate
|
|
|
3.25%
- 6.0
|
%
|
Dividend
yield
|
|
|
–
|
|
Volatility
|
|
|
54%
- 100
|
%
|
During
the year ended June 30, 2006, a total of 2,500 options were granted to a
consultant and are fully vested from the date of grant. The options expire in
ten years and have an exercise price of $1.98 per share. The options were valued
using the fair value method at $4,113 or $1.65 per share and recorded the
expense in the accompanying consolidated financial statements. The Black-Scholes
option pricing model used the following assumptions:
Risk-free
interest rate
|
|
|
3.25
|
%
|
Expected
life
|
|
|
10
years
|
|
Expected
volatility
|
|
|
82
|
%
|
Dividend
yield
|
|
|
0
|
%
|
During
the quarter ended June 30, 2007, 180,606 options were granted to employees with
an exercise price of $1.65 per share and an expiration date of one-year. All
options granted have been exercised as of June 30, 2007. Using the Black-Scholes
method to value the options, the Company recorded $102,584 in compensation
expense for these options in the accompanying consolidated financial statements.
The Black-Scholes option pricing model used the following
assumptions:
Risk-free
interest rate
|
|
|
7
|
%
|
Expected
life
|
|
|
1
year
|
|
Expected
volatility
|
|
|
83
|
%
|
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
During
the quarter ended September 30, 2007, 20,000 options were granted to two
officers with an exercise price of $1.60 per share and an expiration date of ten
years, vesting immediately. Using the Black-Scholes method to value the options,
the Company recorded $24,320 in compensation expense for these options in the
accompanying consolidated financial statements.
The
Black-Scholes option pricing model used the following assumptions:
Risk-free
interest rate
|
|
|
4.5
|
%
|
Expected
life
|
|
|
10
years
|
|
Expected
volatility
|
|
|
65
|
%
|
Warrants:
During
the year ended June 30, 2006, three debenture holders converted their notes into
common stock. As part of the conversion, warrants to purchase a total of 40,323
common shares were issued to the note holders. The warrants expire in five years
and have an exercise price of $3.30 per share. The warrants were valued using
the fair value method at $21,505 and ranged between $0.45 and $0.71 per share
and recorded the expense in the accompanying consolidated financial statements.
The Black-Scholes option pricing model used the following
assumptions:
Risk-free
interest rate
|
|
|
3.25
|
%
|
Expected
life
|
|
|
5
years
|
|
Expected
volatility
|
|
|
44%
- 56
|
%
|
Dividend
yield
|
|
|
0
|
%
|
On
October 11, 2006, the Company entered into an agreement with a consultant
whereby the Company agreed to grant the consultant a total of 100,000 warrants
with an exercise price of $1.85 and 100,000 warrants with an exercise price of
$3.70. The warrants vest equally over the term of the agreement on a quarterly
basis commencing on January 11, 2007 and vest only upon completion of the
quarter’s service as earned. The agreement was terminated on March 31, 2007. The
25,000 warrants vested are exercisable until October 10, 2011 and all non-vested
warrants were cancelled at the time of the agreement termination. During the
quarter ended March 31, 2007, a total of 25,000 of the warrants had vested. The
warrants were valued using the fair value method at $33,987 or $1.44 and $1.28
per share and recorded during the year ended June 30, 2007. The Black-Scholes
option pricing model used the following assumptions:
|
|
|
7.0
|
%
|
Expected
life
|
|
|
5
years
|
|
|
|
|
100
|
%
|
Dividend
yield
|
|
|
0
|
%
|
In
October 2007, the investors exercised the “green shoe” clause and the Company
sold them 757,576 shares of the Company’s common stock valued at $1,250,000. In
addition as part of the agreement, the investors were granted 378,788 warrants
with an exercise price of $1.65 and expire in five years.
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 – INCENTIVE AND NON-STATUTORY
STOCK OPTION PLAN
The 2001 Plan
On March
27, 2002, the Company enacted an Incentive and Non-statutory Stock Option Plan
(the “2001 Plan”) for its employees and consultants under which a maximum of
2,000,000 options may be granted to purchase common stock of the Company. Two
types of options may be granted under the Plan: (1) Incentive Stock Options
(also known as Qualified Stock Options) which may only be issued to employees of
the Company and whereby the exercise price of the option is not less than the
fair market value of the common stock on the date it was reserved for issuance
under the Plan; and (2) Non-statutory Stock Options which may be issued to
either employees or consultants of the Company and whereby the exercise price of
the option is less than the fair market value of the common stock on the date it
was reserved for issuance under the plan. Grants of options may be made to
employees and consultants without regard to any performance measures. All
options issued pursuant to the Plan are nontransferable and subject to
forfeiture.
Any
Option granted to an Employee of the Corporation shall become exercisable over a
period of no longer than ten (10) years and no less than twenty percent (20%) of
the shares covered thereby shall become exercisable annually. No Incentive Stock
Option shall be exercisable, in whole or in part, prior to one (1) year from the
date it is granted unless the Board shall specifically determine otherwise, as
provided herein. In no event shall any Option be exercisable after the
expiration of ten (10) years from the date it is granted, and no Incentive Stock
Option granted to a Ten Percent Holder shall, by its terms, be exercisable after
the expiration of ten (10) years from the date of the Option. Unless otherwise
specified by the Board or the Committee in the resolution authorizing such
option, the date of grant of an Option shall be deemed to be the date upon which
the Board or the Committee authorizes the granting of such Option.
The
number and exercise prices of options granted under the 2001 Plan is as
follows:
|
|
As of
|
|
Exercise
|
|
As of
|
|
Exercise
|
|
As of
|
|
Exercise
|
|
|
|
6/30/2008
|
|
Price
|
|
6/30/2007
|
|
Price
|
|
6/30/2006
|
|
Price
|
|
Outstanding
and exercisable, beginning of year
|
|
|
31,000
|
|
$
|
0.75
to $1.25
|
|
|
46,000
|
|
$
|
0.75
to $2.50
|
|
|
111,000
|
|
$
|
0.75
to $2.50
|
|
Granted
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
|
-
|
|
$
|
0.75
to $2.50
|
|
Exercised
|
|
|
(15,000
|
)
|
$
|
0.75
|
|
|
(15,000
|
)
|
$
|
0.75
to $1.75
|
|
|
(65,000
|
)
|
$
|
0.75
to $1.75
|
|
Expired
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Outstanding
and exercisable, end of year
|
|
|
16,000
|
|
$
|
0.75
to $1.00
|
|
|
31,000
|
|
$
|
0.75
to $1.00
|
|
|
46,000
|
|
$
|
0.75
to $1.25
|
|
The 2002 Plan
In
January 2003, the Company enacted an Incentive and Non-statutory Stock Option
Plan (the “2002 Plan”) for its employees and consultants under which a maximum
of 2,000,000 options may be granted to purchase common stock of the Company. Two
types of options may be granted under the Plan: (1) Incentive Stock Options
(also known as Qualified Stock Options) which may only be issued to employees of
the Company and whereby the exercise price of the option is not less than the
fair market value of the common stock on the date it was reserved for issuance
under the Plan; and (2) Non-statutory Stock Options which may be issued to
either employees or consultants of the Company and whereby the exercise price of
the option is less than the fair market value of the common stock on the date it
was reserved for issuance under the plan. Grants of options may be made to
employees and consultants without regard to any performance measures. All
options issued pursuant to the Plan are nontransferable and subject to
forfeiture.
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Any
Option granted to an Employee of the Corporation shall become exercisable over a
period of no longer than ten (10) years and no less than twenty percent (20%) of
the shares covered thereby shall become exercisable annually. No Incentive Stock
Option shall be exercisable, in whole or in part, prior to one (1) year from the
date it is granted unless the Board shall specifically determine otherwise, as
provided herein. In no event shall any Option be exercisable after the
expiration of ten (10) years from the date it is granted, and no Incentive Stock
Option granted to a Ten Percent Holder shall, by its terms, be exercisable after
the expiration of ten (10) years from the date of the Option. Unless otherwise
specified by the Board or the Committee in the resolution authorizing such
option, the date of grant of an Option shall be deemed to be the date upon which
the Board or the Committee authorizes the granting of such Option.
The
number and weighted average exercise prices of options granted under the 2002
Plan is as follows:
|
|
As of
|
|
Exercise
|
|
As of
|
|
Exercise
|
|
As of
|
|
Exercise
|
|
|
|
6/30/2008
|
|
Price
|
|
6/30/2007
|
|
Price
|
|
6/30/2006
|
|
Price
|
|
Outstanding
and exercisable, beginning of year
|
|
|
972,000
|
|
$
|
0.75
to $5.00
|
|
|
1,059,500
|
|
$
|
0.75
to $2.50
|
|
|
1,139,500
|
|
$
|
0.75
to $2.50
|
|
Granted
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Exercised
|
|
|
(60,000
|
)
|
$
|
1.25
|
|
|
(47,500
|
)
|
$
|
0.75
to $2.30
|
|
|
(80,000
|
)
|
$
|
0.75
|
|
Expired
|
|
|
(30,000
|
)
|
$
|
0.75
- $2.50
|
|
|
(40,000
|
)
|
$
|
3.00
to $5.00
|
|
|
-
|
|
|
-
|
|
Outstanding
and exercisable, end of year
|
|
|
882,000
|
|
$
|
0.75
to $5.00
|
|
|
972,000
|
|
$
|
0.75
to $5.00
|
|
|
1,059,500
|
|
$
|
0.75
to $5.00
|
|
The 2003 Plan
In March
2004, the Company enacted an Incentive and Non-statutory Stock Option Plan (the
“2003 Plan”) for its employees and consultants under which a maximum of
2,000,000 options may be granted to purchase common stock of the Company. Two
types of options may be granted under the Plan: (1) Incentive Stock Options
(also known as Qualified Stock Options) which may only be issued to employees of
the Company and whereby the exercise price of the option is not less than the
fair market value of the common stock on the date it was reserved for issuance
under the Plan; and (2) Non-statutory Stock Options which may be issued to
either employees or consultants of the Company and whereby the exercise price of
the option is less than the fair market value of the common stock on the date it
was reserved for issuance under the plan. Grants of options may be made to
employees and consultants without regard to any performance measures. All
options issued pursuant to the Plan are nontransferable and subject to
forfeiture.
Any
Option granted to an Employee of the Corporation shall become exercisable over a
period of no longer than ten (10) years and no less than twenty percent (20%) of
the shares covered thereby shall become exercisable annually. No Incentive Stock
Option shall be exercisable, in whole or in part, prior to one (1) year from the
date it is granted unless the Board shall specifically determine otherwise, as
provided herein. In no event shall any Option be exercisable after the
expiration of ten (10) years from the date it is granted, and no Incentive Stock
Option granted to a Ten Percent Holder shall, by its terms, be exercisable after
the expiration of ten (10) years from the date of the Option. Unless otherwise
specified by the Board or the Committee in the resolution authorizing such
option, the date of grant of an Option shall be deemed to be the date upon which
the Board or the Committee authorizes the granting of such
Option.
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
The
number and weighted average exercise prices of options granted under the 2003
Plan is as follows:
|
|
As of
|
|
Exercise
|
|
As of
|
|
Exercise
|
|
As of
|
|
Exercise
|
|
|
|
6/30/2008
|
|
Price
|
|
6/30/2007
|
|
Price
|
|
6/30/2006
|
|
Price
|
|
Outstanding
and exercisable, beginning of year
|
|
|
745,000
|
|
$
|
1.00
to $5.00
|
|
|
970,000
|
|
$
|
1.00
to $5.00
|
|
|
787,500
|
|
$
|
1.00
to $5.00
|
|
Granted
|
|
|
20,000
|
|
$
|
1.60
|
|
|
180,606
|
|
$
|
1.65
|
|
|
182,500
|
|
$
|
1.70
to $2.55
|
|
Exercised
|
|
|
(236,000
|
)
|
$
|
1.70
to $1.98
|
|
|
(355,606
|
)
|
$
|
1.25
to $1.65
|
|
|
-
|
|
|
-
|
|
Expired
|
|
|
(50,000
|
)
|
$
|
2.64
to $5.00
|
|
|
(50,000
|
)
|
$
|
2.64
to $5.00
|
|
|
-
|
|
|
-
|
|
Outstanding
and exercisable, end of year
|
|
|
479,000
|
|
$
|
1.60
to $5.00
|
|
|
745,000
|
|
$
|
1.25
to $5.00
|
|
|
970,000
|
|
$
|
1.25
to $5.00
|
|
The 2004 Plan
In March
2005, the Company enacted an Incentive and Non-statutory Stock Option Plan (the
“2004 Plan”) for its employees and consultants under which a maximum of
5,000,000 options may be granted to purchase common stock of the Company. A
registration statement on form n S-8 was filed on April 7, 2006 registering the
shares of common stock underlying the options in this plan. Two types of options
may be granted under the Plan: (1) Incentive Stock Options (also known as
Qualified Stock Options) which may only be issued to employees of the Company
and whereby the exercise price of the option is not less than the fair market
value of the common stock on the date it was reserved for issuance under the
Plan; and (2) Non-statutory Stock Options which may be issued to either
employees or consultants of the Company and whereby the exercise price of the
option is less than the fair market value of the common stock on the date it was
reserved for issuance under the plan. Grants of options may be made to employees
and consultants without regard to any performance measures. All options issued
pursuant to the Plan are nontransferable and subject to forfeiture.
Any
Option granted to an Employee of the Corporation shall become exercisable over a
period of no longer than ten (10) years and no less than twenty percent (20%) of
the shares covered thereby shall become exercisable annually. No Incentive Stock
Option shall be exercisable, in whole or in part, prior to one (1) year from the
date it is granted unless the Board shall specifically determine otherwise, as
provided herein. In no event shall any Option be exercisable after the
expiration of ten (10) years from the date it is granted, and no Incentive Stock
Option granted to a Ten Percent Holder shall, by its terms, be exercisable after
the expiration of ten (10) years from the date of the Option. Unless otherwise
specified by the Board or the Committee in the resolution authorizing such
option, the date of grant of an Option shall be deemed to be the date upon which
the Board or the Committee authorizes the granting of such Option.
The
number and weighted average exercise prices of options granted under the 2004
Plan is as follows:
|
|
As of
|
|
Exercise
|
|
As of
|
|
Exercise
|
|
As of
|
|
Exercise
|
|
|
|
6/30/2008
|
|
Price
|
|
6/30/2007
|
|
Price
|
|
6/30/2006
|
|
Price
|
|
Outstanding
and exercisable, beginning of year
|
|
|
3,574,363
|
|
$
|
1.65
to $3.00
|
|
|
4,730,000
|
|
$
|
1.65
to $3.00
|
|
|
3,000,000
|
|
$
|
1.94
to $2.91
|
|
Granted
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,888,413
|
|
$
|
1.65
to $3.00
|
|
Exercised
|
|
|
(448,938
|
)
|
$
|
1.65
to $2.00
|
|
|
(1,155,637
|
)
|
$
|
1.65
to $1.94
|
|
|
(158,413
|
)
|
$
|
1.65
to $1.75
|
|
Expired
|
|
|
(50,000
|
)
|
$
|
1.93
to $2.89
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Outstanding
and exercisable, end of year
|
|
|
3,075,425
|
|
$
|
1.65
to $3.00
|
|
|
3,574,363
|
|
$
|
1.65
to $3.00
|
|
|
4,730,000
|
|
$
|
1.65
to $3.00
|
|
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
The 2005 Plan
In April
2006, the Company enacted an Incentive and Non-statutory Stock Option Plan (the
“2005 Plan”) for its employees and consultants under which a maximum of
5,000,000 options may be granted to purchase common stock of the Company. Two
types of options may be granted under the Plan: (1) Incentive Stock Options
(also known as Qualified Stock Options) which may only be issued to employees of
the Company and whereby the exercise price of the option is not less than the
fair market value of the common stock on the date it was reserved for issuance
under the Plan; and (2) Non-statutory Stock Options which may be issued to
either employees or consultants of the Company and whereby the exercise price of
the option is less than the fair market value of the common stock on the date it
was reserved for issuance under the plan. Grants of options may be made to
employees and consultants without regard to any performance measures. All
options issued pursuant to the Plan are nontransferable and subject to
forfeiture.
Any
Option granted to an Employee of the Corporation shall become exercisable over a
period of no longer than ten (10) years and no less than twenty percent (20%) of
the shares covered thereby shall become exercisable annually. No Incentive Stock
Option shall be exercisable, in whole or in part, prior to one (1) year from the
date it is granted unless the Board shall specifically determine otherwise, as
provided herein. In no event shall any Option be exercisable after the
expiration of ten (10) years from the date it is granted, and no Incentive Stock
Option granted to a Ten Percent Holder shall, by its terms, be exercisable after
the expiration of ten (10) years from the date of the Option. Unless otherwise
specified by the Board or the Committee in the resolution authorizing such
option, the date of grant of an Option shall be deemed to be the date upon which
the Board or the Committee authorizes the granting of such Option.
The
number and weighted average exercise prices of options granted under the 2005
Plan is as follows:
|
|
As of
|
|
Exercise
|
|
As of
|
|
Exercise
|
|
As of
|
|
Exercise
|
|
|
|
6/30/2008
|
|
Price
|
|
6/30/2007
|
|
Price
|
|
6/30/2006
|
|
Price
|
|
Outstanding
and exercisable, beginning of year
|
|
|
1,780,000
|
|
$
|
1.70
to $2.55
|
|
|
1,780,000
|
|
$
|
1.70
to $2.55
|
|
|
-
|
|
|
-
|
|
Granted
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,780,000
|
|
$
|
1.70
to $2.55
|
|
Exercised
|
|
|
(110,000
|
)
|
$
|
1.70
to $2.55
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Expired
|
|
|
(50,000
|
)
|
$
|
1.83
to $2.50
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Outstanding
and exercisable, end of year
|
|
|
1,620,000
|
|
$
|
1.70
to $2.50
|
|
|
1,780,000
|
|
$
|
1.70
to $2.55
|
|
|
1,780,000
|
|
$
|
1.70
to $2.55
|
|
2008 EQUITY INCENTIVE
PLAN
In May
2008, the shareholders approved the 2008 Equity Incentive Plan (the “2008 Plan”)
which provides for the grant of equity-based awards, including options, stock
appreciation rights, restricted stock awards or performance share awards or any
other right or interest relating to shares or cash, to eligible participants.
The aggregate number of shares reserved and available for award under the 2008
Plan is 1,000,000 (the Share Reserve). The 2008 Plan contemplates the issuance
of common stock upon exercise of options or other awards granted to eligible
persons under the 2008 Plan. Shares issued under the 2008 Plan may be both
authorized and unissued shares or previously issued shares acquired by the
Company. Upon termination or expiration of an unexercised option, stock
appreciation right or other stock-based award under the 2008 Plan, in whole or
in part, the number of shares of common stock subject to such award again become
available for grant under the 2008 Plan. Any shares of restricted stock
forfeited as described below will become available for grant. The maximum number
of shares that may be granted to any one participant in any calendar year may
not exceed 500,000 shares. All
options issued pursuant to the Plan are nontransferable and subject to
forfeiture.
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
a) |
Stock
Options. Options
granted under the 2008 Plan are not generally transferable and must be
exercised within 10 years, subject to earlier termination upon
termination of the option holder's employment, but in no event later than
the expiration of the option's term. The exercise price of each option may
not be less than the fair market value of a share of the Company’s common
stock on the date of grant (except in connection with the assumption or
substitution for another option in a manner qualifying under
Section 424(a) of the Internal Revenue Code of 1986, as amended (the
Code). Incentive stock options granted to any participant who owns 10% or
more of the Company’s outstanding common stock (a Ten Percent
Shareholder) must have an exercise price equal to or exceeding 110% of the
fair market value of a share of our common stock on the date of the grant
and must not be exercisable for longer than five years. Options
become vested and exercisable at such times or upon such events and
subject to such terms, conditions, performance criteria or restrictions as
specified by the Committee. The maximum term of any option granted under
the 2008 Plan is ten years, provided that an incentive stock option
granted to a Ten Percent Shareholder must have a term not exceeding five
years.
|
|
b) |
Performance
Awards. Under
the 2008 Plan, a participant may also be awarded a "performance award,"
which means that the participant may receive cash, stock or other awards
contingent upon achieving performance goals established by the Committee.
The Committee may also make "deferred share" awards, which entitle the
participant to receive our stock in the future for services performed
between the date of the award and the date the participant may receive the
stock. The vesting of deferred share awards may be based on performance
criteria and/or continued service with our Company. A participant who is
granted a "stock appreciation right" under the Plan has the right to
receive all or a percentage of the fair market value of a share of stock
on the date of exercise of the stock appreciation right minus the grant
price of the stock appreciation right determined by the Committee (but in
no event less than the fair market value of the stock on the date of
grant). Finally, the Committee may make "restricted stock" awards under
the 2008 Plan, which are subject to such terms and conditions as the
Committee determines and as are set forth in the award agreement related
to the restricted stock.
|
As of
June 30, 2008, no options or other awards have been made under this
plan.
NOTE 16 – COMMITMENTS AND
CONTINGENCIES
Leases
The
Company’s headquarters
is located in California in approximately 1,919 rentable square feet and a
monthly rent of $4,754 per month. The term of the lease is for two years and
expires on December 31, 2009. A security deposit of $4,790 was made and is
included in other current assets in the accompanying consolidated financial
statements.
The
Australia lease is a month to month lease and is rented at the rate of $1,380
per month. The Beijing lease is a two year lease that expires in August 2009.
The monthly rent is $4,315 per month. The Bangkok lease is a one year lease with
monthly rent of $752. The NetSol Europe facilities, located in Horsham, United
Kingdom, are leased until June 23, 2011 for an annual rent of £75,000
(approximately $150,330). NTNA recently relocated to the Emeryville, California
location. The Emeryville lease is a ten year lease with monthly rent of $77,880.
NTNA’s former Burlingame, California, premises are leased until June 30, 2009
with a monthly rent of $16,178. NTNA is actively seeking to sublet the
Burlingame, California premises.
The
NetSol Karachi lease is a 3 year lease that expires on December 4, 2008 and
currently is rented at the rate of $1,726 per month. The NetSol Islamabad lease
is a 15 year lease that expires on August 31, 2016 and currently is rented at
the rate of $1,417 per month. The NetSol Rawalpindi lease is a 1 year lease that
expires in January 2009 and currently is rented at the rate of $850 per
month.
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Upon
expiration of its leases, the Company does not anticipate any difficulty in
obtaining renewals or alternative space. Rent
expense amounted to $807,835 and $804,295 for the years ended June 30, 2008 and
2007, respectively.
The total
annual lease commitment for the next five years is as follows:
FYE
2009
|
|
$
|
1,339,914
|
|
FYE
2010
|
|
$
|
1,122,606
|
|
FYE
2011
|
|
$
|
1,122,606
|
|
FYE
2012
|
|
$
|
951,564
|
|
FYE
2013
|
|
$
|
951,564
|
|
Lahore Technology
Campus
In May
2004, the newly built Technology Campus was inaugurated in Lahore, Pakistan.
This facility consists of 50,000 square feet of computer and general office
space. This facility is state of the art, purpose-built and fully dedicated for
IT and software development; the first of its kind in Pakistan. Title to this
facility is held by NetSol Technologies Ltd. and is not subject to any
mortgages. In order to cater for future business expansion and taking advantage
of depressing real estate market, the company purchased two new cottages
adjacent to its main building. Total covered area of these cottages is 4,900 sq
feet and it cost was $250,000 approx. The management has moved its accounts,
finance, internal audit, company secretariat and costing and budgeting
department into these cottages. For the recreation of its valuable human
resources, the management has also established a gymnasium there.
NetSol PK
has outgrown its current facility and has looked to other sources to house its
growing numbers of employees. During the year ended June 30, 2007, the owner of
the adjacent land agreed to build an office to the Company’s specifications and
the Company agreed to help pay for the development of the land in exchange for
discounted rent for the next three years. In addition, NetSol PK has begun work
on building a new building behind the current one. The enhancement of
infra-structure is necessary to meet the company’s growth in local and
international business.
Employment
Agreements
Effective
January 1, 2007 and amended on January 1, 2008, the Company entered into an
Employment Agreement with the Chief Executive Officer. Pursuant to the
Employment Agreement between the CEO and the Company (the "CEO Agreement"), the
Company agreed to employ him as its Chief Executive Officer from the date of the
CEO Agreement through December 31, 2009. Under the CEO Agreement, the CEO is
entitled to an annualized base salary of $300,000 and is eligible for annual
bonuses at the discretion of the Compensation Committee. The Company retained
the right to
increase the base compensation as it deems necessary. In addition, the CEO is
entitled to participate in the Company's stock option plans, is entitled to two
weeks of paid vacation per calendar year and is to receive a car allowance
totaling $3,000 per month for the term of the CEO Agreement. Finally, during the
term of the CEO Agreement, the Company shall pay the amount of premiums or other
costs incurred for the coverage of the CEO, his spouse and dependent family
members under the Company's health and related benefit plans.
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Effective
January 1, 2007 and amended on January 1, 2008, the Company entered into an
Employment Agreement with the President of the EMEA Region and Chief Executive
Officer of the Global Products Division. Pursuant to the Employment Agreement
between him and the Company (the "President EMEA Agreement"), the Company agreed
to employ him as its President of the EMEA region and Chief Executive Officer of
the Global Products Division from the date of the President EMEA Agreement
through December 31, 2009. Under the President EMEA Agreement, he is entitled to
an annualized base salary of £122,000 or approximately $245,000 and is eligible
for annual bonuses at the discretion of the Compensation Committee. The Company
retained the right to increase the base compensation as it deems necessary. In
addition, he is entitled to participate in the Company's stock option plans, is
entitled to two weeks of paid vacation per calendar year and is to receive a car
allowance totaling $2,000 per month for the term of the President EMEA
Agreement. Finally, during the term of the President EMEA Agreement, the Company
shall pay the amount of premiums or other costs incurred for the coverage of
him, his spouse and dependent family members under the Company's health and
related benefit plans.
Effective
January 1, 2007 and amended on January 1, 2008, the Company entered into an
Employment Agreement with our President of the APAC Region and Chief Executive
Officer of the Global Services Division. Pursuant to the Employment Agreement
between him and the Company (the "President APAC Agreement"), the Company agreed
to employ him as its President APAC and Chief Executive Officer of the Global
Services Division from the date of the President APAC Agreement through December
31, 2009. Under the President APAC Agreement, he is entitled to an annualized
base salary of $225,000 and is eligible for annual bonuses at the discretion of
the Compensation Committee. The Company retained the right to increase the base
compensation as it deems necessary. In addition, he is entitled to participate
in the Company's stock option plans, is entitled to two weeks of paid vacation
per calendar year. Finally, during the term of the President APAC Agreement, the
Company shall pay the amount of premiums or other costs incurred for the
coverage of him, his spouse and dependent family members under the Company's
health and related benefit plans.
Effective
May 1, 2006, the Company entered into an Employment Agreement with our Secretary
and General Counsel. Pursuant to the Employment Agreement between her and the
Company (the "General Counsel Agreement"), the Company agreed to employ her as
its Secretary and General Counsel from the date of the General Counsel Agreement
through April 30, 2008. Under the General Counsel Agreement, she was entitled to
an annualized base salary of $110,000 and is eligible for annual bonuses at the
discretion of the Chief Executive Officer. Effective August 1, 2007, Ms. her
annualized salary was raised to $130,000. The Company retained the right to
increase the base compensation as it deems necessary. In addition, she is
entitled to participate in the Company's stock option plans and, is entitled to
two weeks of paid vacation per calendar year. Finally, during the term of the
General Counsel Agreement, the Company shall pay the amount of premiums or other
costs incurred for the coverage of her, her spouse and dependent family members
under the Company's health and related benefit plans.
Effective
July 20, 2005, we entered into an employment agreement with the Chief Financial
Officer. The agreement was amended effective May 1, 2006 to provide a yearly
salary of $95,000. Effective August 1, 2007, her annualized salary was raised to
$132,000 and is eligible for annual bonuses at the discretion of the Chief
Executive Officer. The Company retained the right to increase the base
compensation as it deems necessary. In addition, she is entitled to participate
in the Company's stock option plans and, is entitled to two weeks of paid
vacation per calendar year. Finally, during the term of the Chief Financial
Officer Agreement, the Company shall pay the amount of premiums or other costs
incurred for the coverage of her and her dependent family members under the
Company's health and related benefit plans.
The
agreements also provide for reimbursement of reasonable business-related
expenses. The agreements also provide for certain covenants concerning
non-competition, non-disclosure, indemnity and assignment of intellectual
property rights.
Litigation
As of
June 30, 2008 and 2007, to the best knowledge of the Company’s management and
counsel, there is no material litigation pending or threatened against the
Company.
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 – SEGMENT AND GEOGRAPHIC
AREAS
The
Company has identified three global regions or segments for its products and
services; North America, Europe, and Asia-Pacific. Our reportable segments are
business units located in different global regions. Each business unit provides
similar products and services; license fees for leasing and asset-based
software, related maintenance fees, and implementation and IT consulting
services. Separate management of each segment is required because each business
unit is subject to different operational issues and strategies due to their
particular regional location. We account for intercompany sales and expenses as
if the sales or expenses were to third parties and eliminate them in the
consolidation.
The
following table presents a summary of operating information and certain year-end
balance sheet information for the years ended June 30, 2008, 2007, and 2006:
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
2008
|
|
2007
|
|
2006
|
|
Revenues
from unaffiliated customers:
|
|
|
|
|
|
|
|
North
America
|
|
$
|
3,969,521
|
|
$
|
4,953,083
|
|
$
|
45,250
|
|
Europe
|
|
|
7,676,225
|
|
|
5,482,972
|
|
|
7,414,960
|
|
Asia
- Pacific
|
|
|
24,996,429
|
|
|
18,846,031
|
|
|
11,230,202
|
|
Consolidated
|
|
$
|
36,642,175
|
|
$
|
29,282,086
|
|
$
|
18,690,412
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss):
|
|
|
|
|
|
|
|
|
|
|
Corporate
headquarters
|
|
$
|
(3,845,756
|
)
|
$
|
(3,358,739
|
)
|
$
|
(3,688,598
|
)
|
North
America
|
|
|
(932,008
|
)
|
|
29,257
|
|
|
-
|
|
Europe
|
|
|
1,838,541
|
|
|
(704,530
|
)
|
|
898,141
|
|
Asia
- Pacific
|
|
|
10,148,442
|
|
|
6,680,880
|
|
|
2,531,110
|
|
Consolidated
|
|
$
|
7,209,219
|
|
$
|
2,646,868
|
|
$
|
(259,347
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) after taxes and before minority adjustment:
|
|
|
|
|
|
|
Corporate
headquarters
|
|
$
|
(2,784,659
|
)
|
$
|
(8,474,143
|
)
|
$
|
(4,119,188
|
)
|
North
America
|
|
|
(910,833
|
)
|
|
38,510
|
|
|
-
|
|
Europe
|
|
|
1,767,712
|
|
|
(832,294
|
)
|
|
834,381
|
|
Asia
- Pacific
|
|
|
11,958,119
|
|
|
6,325,955
|
|
|
2,885,874
|
|
Consolidated
|
|
$
|
10,030,339
|
|
$
|
(2,941,972
|
)
|
$
|
(398,933
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable
assets:
|
|
|
|
|
|
|
|
|
|
|
Corporate
headquarters
|
|
$
|
16,566,612
|
|
$
|
13,263,111
|
|
$
|
17,630,389
|
|
North
America
|
|
|
1,920,508
|
|
|
2,070,829
|
|
|
2,329,837
|
|
Europe
|
|
|
6,233,480
|
|
|
4,833,181
|
|
|
4,318,911
|
|
Asia
- Pacific
|
|
|
39,056,094
|
|
|
29,362,020
|
|
|
18,746,011
|
|
Consolidated
|
|
$
|
63,776,694
|
|
$
|
49,529,141
|
|
$
|
43,025,148
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization:
|
|
|
|
|
|
|
|
|
|
|
Corporate
headquarters
|
|
$
|
1,402,219
|
|
$
|
1,406,989
|
|
$
|
1,887,646
|
|
North
America
|
|
|
214,777
|
|
|
131,848
|
|
|
-
|
|
Europe
|
|
|
301,505
|
|
|
268,795
|
|
|
173,258
|
|
Asia
- Pacific
|
|
|
1,419,455
|
|
|
833,640
|
|
|
959,144
|
|
Consolidated
|
|
$
|
3,337,956
|
|
$
|
2,641,272
|
|
$
|
3,020,048
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures:
|
|
|
|
|
|
|
|
|
|
|
Corporate
headquarters
|
|
$
|
4,189
|
|
$
|
3,986
|
|
$
|
4,367
|
|
North
America
|
|
|
70,443
|
|
|
20,821
|
|
|
-
|
|
Europe
|
|
|
56,155
|
|
|
249,690
|
|
|
192,752
|
|
Asia
- Pacific
|
|
|
4,304,968
|
|
|
2,145,973
|
|
|
2,512,450
|
|
Consolidated
|
|
$
|
4,435,755
|
|
$
|
2,420,470
|
|
$
|
2,709,569
|
|
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Net
revenues by our various products and services provided are as
follows:
|
|
For
the Years
|
|
|
|
Ended
June 30,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
Licensing
Fees
|
|
$
|
12,685,039
|
|
$
|
9,788,266
|
|
$
|
5,192,371
|
|
Maintenance
Fees
|
|
|
6,306,321
|
|
|
5,441,339
|
|
|
2,444,075
|
|
Services
|
|
|
17,650,815
|
|
|
14,052,481
|
|
|
11,053,966
|
|
Total
|
|
$
|
36,642,175
|
|
$
|
29,282,086
|
|
$
|
18,690,412
|
|
NOTE 18 – MINORITY INTEREST IN
SUBSIDIARY - RESTATED
The
Company had minority interests in several of its subsidiaries. The balance of
the minority interest was as follows:
SUBSIDIARY
|
|
MIN INT
BALANCE AT
6/30/08
|
|
MIN INT
BALANCE AT
6/30/07
|
|
MIN INT
BALANCE AT
6/30/06
|
|
|
|
|
|
|
|
|
|
PK
Tech
|
|
$
|
6,309,918
|
|
$
|
2,871,617
|
|
$
|
655,805
|
|
NetSol-TiG
|
|
|
1,365,855
|
|
|
1,397,984
|
|
|
811,534
|
|
Connect
|
|
|
182,196
|
|
|
258,993
|
|
|
311,440
|
|
Omni
|
|
|
-
|
|
|
-
|
|
|
7,959
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,857,969
|
|
$
|
4,528,594
|
|
$
|
1,786,738
|
|
NetSol Technologies, Limited
(“NetSol PK”)
In August
2005, the Company’s wholly-owned subsidiary, NetSol
Technologies (Pvt), Ltd. (“NetSol PK”) became listed on the Karachi Stock
Exchange in Pakistan. The Initial Public Offering (“IPO”) sold 13,986,000 shares
of the subsidiary to the public thus reducing the Company’s ownership by 39.42%.
Net proceeds of the IPO were $4,890,224. As a result of the IPO, the Company is
required to show the minority interest of the subsidiary on the accompanying
consolidated financial statements.
For the
fiscal years ended June 30, 2008, 2007, and 2006, the subsidiary had net income
of $9,842,805, $4,747,590, and $1,780,892, of which $4,127,154 and $2,272,643,
and $702,027, respectively, was recorded against the minority interest. The
balance of the minority interest at June 30, 2008 was $6,309,918.
On May 18
2007, the subsidiary’s board of directors authorized a 15% stock bonus dividend
to all its stockholders as of that date. The net value of shares issued to
minority holders was $345,415.
On
October 19, 2007, the subsidiary’s board of directors authorized a 22% stock
bonus dividend to all its stockholders as of that date. The net value of shares
issued to minority holders was $545,359.
On April
11, 2008, the subsidiary’s board of directors authorized a 20% stock bonus
dividend to all its stockholders as of that date. The net value of shares issued
to minority holders was $615,335.
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
In
February 2008, the Company sold 948,100 shares of its ownership in NetSol PK on
the open market with a value of $1,765,615. A net gain of $1,240,808 was
recorded as “Other Income” on these consolidated financial statements. As a
result of the sale, the Company’s ownership in the subsidiary decreased from
60.58% to 58.68% and the minority interest percentage increased 1.9% to
41.32%.
NetSol-Innovation:
In
December 2004, NetSol forged a new and a strategic relationship with a UK based
public company TIG Plc. A new Joint Venture was signed by the two companies to
create a new company, TiG NetSol Pvt Ltd., during the current year the name was
changed to NetSol-Innovation (Private) Limited, (“NetSol-Innovation”), with
50.1% ownership by NetSol Technologies, Inc. and 49.9% ownership by TiG. The
agreement anticipates TiG’s technology business to be outsourced to NetSol’s
offshore development facility.
During
year ended June 30, 2005, the Company invested $253,635 and TiG invested
$251,626 and the new subsidiary began operations during the quarter ended March
31, 2005.
For the
fiscal years ended June 30, 2008, 2007, and 2006, the subsidiary had net income
of $2,127,173, $1,401,444, and $879,134, of which $916,115, $596,802, and
$438,688 was recorded against the minority interest, respectively. The balance
of the minority interest at June 30, 2008 was $1,365,855.
On
September 26, 2007, the subsidiary’s board of directors authorized a cash
dividend of 100,000,000 Pakistan Rupees (“pkr”) or approximately $1,651,522. Of
this amount, the Company received 50,520,000 pkr or approximately $834,349 which
has been invested in NetSol PK. The net value to the minority holders is
approximately $817,173.
NetSol
Connect:
In August
2003, the Company entered into an agreement with United Kingdom based Akhter
Group PLC (“Akhter”). Under the terms of the agreement, Akhter Group acquired
49.9 percent of the Company’s subsidiary; Pakistan based NetSol Connect Pvt Ltd.
(“Connect”), an Internet service provider (“ISP”), in Pakistan through the
issuance of additional Connect shares. As part of this Agreement, Connect
changed its name to NetSol Akhter. The partnership with Akhter Computers is
designed to rollout connectivity and wireless services to the Pakistani national
market.
As of
June 30, 2005, a total of $751,356 had been transferred to Connect, of which
$410,781 was from Akhter. In June 2006, a total of $40,000 cash was distributed
to each partner as a return of capital. In addition during the year ended June
30, 2008, and addition $20,000 of cash was distributed to Akhter as a return of
capital.
For the
fiscal years ended June 30, 2008, 2007, and 2006, the subsidiary had net loss of
$8,765, $57,117 and a net income of $14,304, respectively, of which ($4,374),
($28,501), and $7,138 respectively, was recorded against the minority interest.
The balance of the minority interest at June 30, 2008 was
$182,196.
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Talk Trainers (Private)
Limited (“Talk Trainers”) – NetSol Omni
In
February 2006, the Company purchased for $60,012 50.1% of the outstanding shares
in Talk Trainers (Private) Limited, (“Talk Trainers”), a Pakistan corporation
which provides educational services, professional courses, training and human
resource services to the corporate sector. The major stockholder of Talk
Trainers was Mr. Ayub Ghauri, brother to the executive officers of the Company,
and therefore the acquisition was recorded at historical cost as the entities
are under common control. As the effects of this transaction are immaterial to
the Company overall, no pro forma information is provided. During the quarter
ended June 30, 2006, Talk Trainers changed their name to NetSol
Omni.
In
December 2007, the Company purchased the remaining 49.9% of the outstanding
shares from the minority shareholders with a historical value of $12,399 for
25,000 shares of the Company’s common stock valued at $76,750 (see note 14).
Also in December, the operations of the subsidiary were merged into the
operations of NetSol PK and will be reported under that subsidiary in the
future.
For the
fiscal years ended June 30, 2008 and 2007, the subsidiary had a net loss of
$10,224 and $71,298, of which ($781) and ($7,959) was recorded against the
minority interest. The balance of the minority interest at June 30, 2008 was
$0.
NOTE 19 – ACQUISITION OF CQ
SYSTEMS
On
January 19, 2005, the Company entered into an agreement to acquire 100% of the
issued and outstanding shares of common stock of CQ Systems Ltd., a company
organized under the laws of England and Wales. The acquisition closed on
February 22, 2005.
According
to the terms of the Share Purchase Agreement, the Company acquired 100% of the
issued and outstanding shares of CQ from CQ’s current shareholders, whose
identity is set forth in the Share Purchase Agreement (the “CQ Shareholders”) at
the completion date in exchange for a purchase price consisting of: a) 50.1% of
CQ’s total gross revenue for the twelve month period ending March 31, 2005 after
an adjustment for any extraordinary revenue, i.e. non-trading revenue (“LTM
Revenue”) multiplied by 1.3 payable: (i) 50% in shares of restricted common
stock of the Company at a per share cost basis of $2.313 and as adjusted by the
exchange rate of U.S. Dollar to British Pound (at the spot rate for the purchase
of sterling with U.S. dollars certified by NatWest Bank plc as prevailing at or
about 11:00 a.m.) on January 19, 2005 and, (ii) 50% in cash; and b) 49.9% of
CQ’s LTM Revenue for the period ending March 31, 2006 multiplied by 1.3 payable,
at the Company’s discretion: (i) wholly in cash; or (ii) on the same basis and
on the same terms as the initial payment provided, however that the cost basis
of the Company’s common stock shall be based on the 20 day volume weighted
average of the Company’s shares of common stock as traded on NASDAQ 20 days
prior to March 31, 2005 and, provided that under no circumstances shall the
total number of shares of common stock issued to the CQ Shareholders exceed 19%
of the issued and outstanding shares of common stock, less treasury shares, of
the Company at January 19, 2005.
The
initial purchase price was £3,576,335 or $6,730,382, of which one-half was due
at closing payable in cash and stock and the other half is due when the audited
March 31, 2006 financial statements are completed. On the closing date, $1.7
million was paid and 681,965 shares were issued to the shareholders of CQ,
valued at $1,676,795 at an average share price of $2.46 (see note 14) was
recorded. In addition, the agreement called for the accumulated retained
earnings amounting to £423,711 or $801,915 of CQ Systems as of the closing date
to be paid to the shareholders in cash and stock. In April 2005, the additional
cash of £350,000 or $662,410 was paid and 77,503 shares of the Company’s common
stock valued at $139,505 were issued. The total amount paid at closing was
$4,178,710.
In
accordance with SFAS 141, the Company had recognized the lesser of the maximum
amount of the contingent consideration based on earnings or the excess of the
fair market value of assets acquired over the purchase price as a deferred
liability. The deferred liability balance at June 30, 2005 was $313,397. The
purchase price was allocated as follows:
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Purchase Price
Allocation:
|
|
|
|
Purchase
Price
|
|
$
|
7,532,297
|
|
Less
contingent consideration
|
|
|
(3,353,587
|
)
|
Net
purchase price
|
|
$
|
4,178,710
|
|
|
|
|
|
|
Net
tangible assets
|
|
$
|
984,420
|
|
Intangible
Assets:
|
|
|
|
|
Product
License
|
|
|
2,190,807
|
|
Customer
Lists
|
|
|
1,316,880
|
|
Deferred
liability
|
|
|
(313,397
|
)
|
Net
purchase price
|
|
$
|
4,178,710
|
|
In June
2006, the final installment for the purchase of CQ Systems was determined based
on the audited revenues for the twelve month period ending March 31, 2006. Based
on the earn-out formula in the purchase agreement, £2,087,071 or $3,785,210 was
due in cash and stock. On June 12, 2006, 884,535 shares of the Company’s
restricted common stock were issued to the shareholders of CQ Systems. In July
2006, the cash portion of $1,936,530 plus $31,810 of interest was paid to the
shareholders. As a result of the final payment the Company recorded an addition
of $3,471,813 to goodwill.
NOTE 20 – ACQUISITION OF McCUE
SYSTEMS (now NetSol Technologies North America)
On May 6,
2006, the Company entered into an agreement to acquire 100% of the issued and
outstanding stock of with McCue Systems, Inc. (“McCue”), a California
corporation. The acquisition closed on June 30, 2006.
According
to the terms of the Share Purchase Agreement, the Company acquired 100% of the
issued and outstanding shares of McCue from McCue’s current shareholders, whose
identity is set forth in the Share Purchase Agreement (the “McCue Shareholders”)
at the completion date in exchange for a purchase price consisting of: a) 50% of
McCue’s total gross revenue for the audited twelve month period ending December
31, 2005 after an adjustment for any revenue occurring outside of the company’s
ordinary scope of operations as defined by US GAAP multiplied by 1.5 payable:
(i) 50% in shares of restricted common stock of the Company at the 30 day volume
weighted average price (“VWAP) for each of the 30 trading days prior to the
execution date of this agreement or at the VWAP for each of the 30 trading days
prior to November 30, 2005 whichever is the greater VWAP; and, (ii) 50% in cash;
b) 25% of McCue’s total gross revenue for the twelve months ending December 31,
2006 multiplied by 1.5 payable, at the Company’s discretion: (i) wholly in cash;
or (ii) on the same basis and on the same terms as the initial payment provided
that under no circumstances shall the total number of shares of common stock
issued to the McCue Shareholders exceed 19% of the issued and outstanding shares
of common stock, less treasury shares, of the Company at May 6, 2006; and c) 25%
of McCue’s total gross revenue for the twelve months ending December 31, 2007
multiplied by 1.5 payable, at the Company’s discretion: (i) wholly in cash; or
(ii) on the same basis and on the same terms as the initial payment provided
that under no circumstances shall the total number of shares of common stock
issued to the McCue Shareholders exceed 19% of the issued and outstanding shares
of common stock, less treasury shares, of the Company at May 6,
2006.
The
initial purchase price was estimated at $8,471,455 of which one-half was due at
closing payable in cash and stock. The other half is due in two installments
over the next two years based on revenues after the audited December 31, 2006
and 2007 financial statements are completed. On the closing date, $2,117,864
payable and 958,213 shares to be issued valued at $1,628,979, adjusted for the
market value at closing, was recorded. The cash was paid on July 5, 2006 and the
shares were also issued in July 2006. The total amount recorded at closing was
$3,746,843.
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
The
purchase price was allocated as follows:
Purchase Price
Allocation:
|
|
|
|
Purchase
Price
|
|
$
|
8,471,455
|
|
Less
contingent consideration
|
|
|
(4,235,727
|
)
|
Adjustment
for valuation of shares to market at closing
|
|
|
(488,885
|
)
|
Net
purchase price
|
|
$
|
3,746,843
|
|
|
|
|
|
|
Net
tangible assets
|
|
$
|
80,245
|
|
Intangible
Assets:
|
|
|
|
|
Product
License
|
|
|
127,510
|
|
Customer
Lists
|
|
|
2,143,837
|
|
Goodwill
|
|
|
1,395,251
|
|
Net
purchase price
|
|
$
|
3,746,843
|
|
In June
2007, the second installment for the purchase of McCue Systems was determined
based on the audited revenues for the twelve month period ending December 31,
2006. Based on the earn-out formula in the purchase agreement, $1,807,910 was
due in cash and stock. On June 27, 2007, 397,700 shares of the 408,988 shares
due of the Company’s restricted common stock were issued to the shareholders of
McCue Systems. The balance represents shareholders of McCue Systems that haven’t
been located as of this date. In July and August 2007, $450,000 and $429,007 of
the cash portion was paid to the shareholders. As a result of the second payment
the Company recorded an addition of $1,615,595 to goodwill.
In June
2008, the third and final installment for the purchase of McCue Systems was
determined based on the audited revenues for the twelve month period ending
December 31, 2007. Based on the earn-out formula in the purchase agreement,
$1,525,632 was due in cash and stock, of which $762,816 is due in cash and
345,131 shares were due. On July 3, 2008, 335,604 shares of the 345,131 shares
due of the Company’s restricted common stock were issued to the shareholders of
McCue Systems. The balance represents shareholders of McCue Systems that haven’t
been located as of this date. In July and August 2008, $737,868 of the cash
portion was paid to the shareholders. As a result of the final payment the
Company recorded an addition of $1,653,254 to goodwill.
NOTE 21 – SUBSEQUENT EVENTS
On July
3, 2008, 335,604 shares of the 345,131 shares due of the Company’s restricted
common stock were issued to the shareholders of McCue Systems. In addition, in
July and August 2008, $737,868 of the cash balance due to the shareholders was
paid.
On July
3, 2008, 13,107 shares valued at $33,508 of the Company’s common stock was
issued as payment of the dividend due to the Preferred
Shareholders.
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
On July
2, 2008, the Company granted 100,000 options to an employee at an exercise price
of $1.65 and an expiration date of three months, vesting immediately. Using the
Black-Scholes method to value the options, the Company recorded $89,700 in
compensation expense for these options.
In July
2008, three officers of the Company exercised 98,358 option shares valued at
$179,738 against amounts owing to them.
On July
23, 2008, the Company entered into a Convertible Note with two investors with a
total value of $6,000,000. The note has an interest rate of 7% per annum and is
convertible into common shares at a conversion rate of $3.00 per share. The fair
market value of the shares at the date of signing was $2.90; therefore, no
beneficial conversion feature expense is to be recorded on the
transaction.
In August
2008, a warrant holder exercised 51,515 warrants valued at $99,424.
On
September 12, 2008, at the completion of the audited financial statements,
bonuses in the form of option grants became due to three of the officers of the
Company for the successful meeting of certain benchmarks. A total of 1,800,000
options were granted, and have an expiration date of ten years. The options vest
over 24 months. Using the Black-Scholes method to value the options, the total
value of the options was $2,490,600. Of this amount, $62,265 was recorded in the
quarter ended September 30, 2008.
For the
quarter ended September 30, 2008, the Company recorded the dividend payable to
the preferred stockholders in the amount of $33,876.
On
October 31, 2008, the Company entered into an agreement to purchase 100% of the
member shares of Ciena Solutions, LLC, a California limited liability
corporation. Under the terms of the agreement, the Company will pay a deposit of
$350,000 to the two members for the purchase with the full purchase price to be
determined based on the performance of the new entity over the next four years.
No assets or liabilities will be picked up by the Company at the acquisition,
only the rights to the existing contracts. As the effects of this transaction
are immaterial to the Company overall, no pro forma information is
provided.
The total
Purchase Price is to be the total of the Initial Consideration and the Deferred
Consideration. The Initial Consideration was Three Hundred Fifty Thousand
Dollars ($350,000). The Deferred Consideration to be the Consideration After
Fiscal Year 1, the Consideration After Fiscal Year 2, the Consideration After
Fiscal Year 3 and, the Consideration After Fiscal Year 4; provided, however,
that under no circumstances may the total number of NetSol Shares issued to
Sellers (including those shares issued as part of the Initial Consideration and
those shares issued which would be considered aggregated with those issued
pursuant to this Agreement according to NASDAQ rules) exceed 19% of the issued
and outstanding shares of common stock of NetSol, less treasury shares, on the
date of the Closing. In the event NetSol is not permitted to issue as part of
the Deferred Consideration, shares of common stock equal in value to 50% of the
Deferred Consideration, NetSol may issue such amount as is permitted and the
remainder in cash. Each Fiscal Year shall be measured from July 1 to June 30
with Fiscal Year 1 being the period from July 1, 2008 to June 30, 2009.
Deferred
Consideration is to be calculated as follows:
|
1)
|
after
the conclusion of fiscal year 1, the consideration will be comprised of
25% of the lesser of Ciena’s Earnings Before Interest, Tax, Depreciation
and Amortization (“EBIDTA”) for Year 1 multiplied by 4.5 or the Gross
Revenue of Ciena for Year 1 multiplied by .75 less those capitalized costs
incurred by NetSol and/or its subsidiaries for the benefit of Ciena. All
numbers shall be based on audited Fiscal Year 1 financial statements.
Payments are to be made; a) 50% in restricted common stock of NetSol at
the 30 day volume weighted average price (“VWAP”) in the 30 days preceding
the end of Fiscal Year 1; and b) 50% in U.S.
Dollars.
|
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
2)
|
Consideration
after the conclusion of the second full year of operations, July 1, 2009
to June 30, 2010 (“Fiscal Year 2”) will be comprised of 25% of the lesser
of: Ciena’s EBIDTA Year 2 multiplied by 4.5 or the Gross Revenue of Ciena
for Fiscal Year 2 multiplied by .75 less those capitalized costs incurred
by NetSol and/or its subsidiaries for the benefit of Ciena and less three
hundred fifty thousand dollars ($350,000). If the consideration is a
negative number, that negative number shall carry-over to the pay-out for
Fiscal Year 3. All numbers shall be based on the audited Fiscal Year
2financial statements. Payment are to be made; a) 50% shall be payable in
restricted common stock of NetSol at the 30 day VWAP as of June 30, 2010,
in accordance with the VWAP Calculation, and; b) 50% in U.S. Dollars.
|
|
3)
|
Consideration
after the conclusion of the third full year of operations from July 1,
2010 to June 30, 2011 (“Fiscal Year 3”) will be comprised of 25% of the
lesser of: Ciena’s EBIDTA for Fiscal Year 3 multiplied by 4.5 or the Gross
Revenue of Ciena for Year 3 multiplied by .75 less those capitalized costs
incurred by NetSol and/or its subsidiaries for the benefit of Ciena and
less any carry-over from Fiscal Year 2. All numbers shall be based on the
audited Fiscal Year 3 financial statements. Payment will be made; a) 50%
shall be payable in restricted common stock of NetSol at the 30 day VWAP
as of June 30, 2011 calculated in accordance with the VWAP Calculation,
and; b) 50% in U.S. Dollars.
|
|
4)
|
Consideration
after the conclusion of the fourth full year of operations from July 1,
2011 to June 30, 2012 (“Fiscal Year 4”) will be comprised of 25% of the
lesser of: Ciena’s EBIDTA for Fiscal Year 4 multiplied by 4.5 or the Gross
Revenue of Ciena for Year 4 multiplied by .75 less those capitalized costs
incurred by NetSol and/or its subsidiaries for the benefit of Ciena and
less any carry-over from Fiscal Years 2 and 3. All numbers shall be based
on the audited Fiscal Year 4 financial statements. Payment will be made;
a) 50% shall be payable in restricted common stock of NetSol at the 30 day
VWAP as of June 30, 2011 calculated in accordance with the VWAP
Calculation, and; b) 50% in U.S. Dollars.
|
NOTE 22 – RESTATEMENT OF FINANCIAL
STATEMENTS
On
November 5, 2008, the management of NetSol Technologies, Inc. (the “Company”)
concluded, after consultation with our independent registered public accounting
firm, and a review of the pertinent facts, that the previously issued financial
statements contained in the Company's annual Report on Form 10-KSB for the years
ended June 30, 2008, 2007 and 2006 should not be relied upon due primarily to
computational errors in connection with the allocation of appropriate amounts to
minority interest in the statement of income (operations) and calculation of
minority interest ownership.
Our
management, in consultation with our independent registered public accounting
firm, has determined that the financial statements included therein overstated
amount of our reported net income for the year ended June 30, 2008 and
understatement of losses for the years ended June 30, 2007 and 2006, by
approximately $2,229,824, $897,396 and $201,063, respectively.
Below is
a comparative presentation of the balance sheet and income statement as of and
for the years ended June 30, 2008, 2007 and 2006 as restated in this report and
as reported in the Company’s Reports on Form 10KSB previously
filed with the Securities and Exchange Commission.
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
As
reported
6/30/08
|
|
As
Restated
6/30/08
|
|
As
reported
6/30/07
|
|
As
Restated
6/30/07
|
|
As
reported
6/30/06
|
|
As
Restated
6/30/06
|
|
BALANCE
SHEET:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
Interest
|
|
$
|
6,866,514
|
|
$
|
7,857,969
|
|
$
|
6,866,514
|
|
$
|
4,528,594
|
|
$
|
1,637,045
|
|
$
|
1,786,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
Paid-in Capital
|
|
$
|
76,456,697
|
|
$
|
74,950,286
|
|
$
|
66,988,147
|
|
$
|
66,642,732
|
|
|
no
change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Deficit
|
|
|
(32,067,003
|
)
|
|
(33,071,702
|
)
|
|
(32,067,003
|
)
|
|
(37,885,387
|
)
|
|
(31,672,041
|
)
|
|
(31,873,104
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive loss
|
|
|
(4,267,579
|
)
|
|
(2,747,924
|
)
|
|
(4,267,579
|
)
|
|
(352,929
|
)
|
|
(419,660
|
)
|
|
(368,290
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
STATEMENT:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) before minority interest in subsidiary
|
|
|
10,152,321
|
|
|
10,152,321
|
|
|
(2,781,666
|
)
|
|
(2,781,666
|
)
|
|
(292,912
|
)
|
|
(292,912
|
)
|
Minority
interest in subsidiary
|
|
|
(2,808,291
|
)
|
|
(5,038,115
|
)
|
|
(1,935,589
|
)
|
|
(2,832,985
|
)
|
|
(954,120
|
)
|
|
(1,155,183
|
)
|
Income
taxes
|
|
|
(121,982
|
)
|
|
(121,982
|
)
|
|
(160,306
|
)
|
|
(160,306
|
)
|
|
(106,021
|
)
|
|
(106,021
|
)
|
Net income
(loss)
|
|
|
7,222,048
|
|
|
4,992,224
|
|
|
(4,877,561
|
)
|
|
(5,774,957
|
)
|
|
(1,353,053
|
)
|
|
(1,554,116
|
)
|
Dividend
required for preferred stockholders
|
|
|
(178,541
|
)
|
|
(178,541
|
)
|
|
(237,326
|
)
|
|
(237,326
|
)
|
|
-
|
|
|
-
|
|
Net income (loss) applicable
to common shareholders
|
|
|
7,043,507
|
|
|
4,813,683
|
|
|
(5,114,887
|
)
|
|
(6,012,283
|
)
|
|
(1,353,053
|
)
|
|
(1,554,116
|
)
|
Other
comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation
adjustment
|
|
|
(3,792,148
|
)
|
|
(2,394,994
|
)
|
|
(55,770
|
)
|
|
15,361
|
|
|
101,031
|
|
|
152,401
|
|
Comprehensive
income (loss)
|
|
$
|
3,251,359
|
|
$
|
2,418,689
|
|
$
|
(5,170,657
|
)
|
$
|
(5,996,922
|
)
|
$
|
(1,252,022
|
)
|
$
|
(1,401,715
|
)
|
Net
income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.29
|
|
$
|
0.20
|
|
$
|
(0.28
|
)
|
$
|
(0.33
|
)
|
$
|
(0.09
|
)
|
$
|
(0.11
|
)
|
Diluted
|
|
$
|
0.28
|
|
$
|
0.19
|
|
$
|
(0.28
|
)
|
$
|
(0.33
|
)
|
$
|
(0.09
|
)
|
$
|
(0.11
|
)
|
Weighted
average number of shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
24,118,538
|
|
|
24,118,538
|
|
|
18,189,590
|
|
|
18,189,590
|
|
|
14,567,007
|
|
|
14,567,007
|
|
Diluted
|
|
|
25,997,049
|
|
|
25,997,049
|
|
|
18,189,590
|
|
|
18,189,590
|
|
|
14,567,007
|
|
|
14,567,007
|
|