UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

 

 

Date of Report (Date of earliest event reported): February 12, 2020

 

Commission file number: 0-22773

 

NETSOL TECHNOLOGIES, INC.

(Exact name of small business issuer as specified in its charter)

 

NEVADA 95-4627685
(State or other Jurisdiction of (I.R.S. Employer NO.)
Incorporation or Organization)  

 

23975 Park Sorrento, Suite 250

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 pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, $.01 par value per share   NTWK   NASDAQ

 
 

 

   
 

 

Item 2.02 Results of Operations and Financial Condition.

 

On February 12, 2020, NetSol Technologies, Inc. issued a press release announcing results of operations and financial conditions for the quarter ended December 31, 2019. The press release is furnished as Exhibit 99.1 to this Form 8-K.

 

The information in this report shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document field under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

 

Exhibits

 

99.1News Release dated February 12, 2020

 

  Page 2
 

 

SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

    NETSOL TECHNOLOGIES, INC.
     
Date: February 12, 2020 /s/ Najeeb Ghauri
    NAJEEB GHAURI
    Chief Executive Officer

 

Date: February 12, 2020 /s/ Roger Almond
    ROGER ALMOND
    Chief Financial Officer

 

  Page 3
 

 

Exhibit 99.1

 

 

NETSOL Technologies Reports Fiscal Second Quarter 2020 Financial Results

 

Sequential Topline Growth of 16% Drives Profitable Quarter with $0.05 Earnings Per Share

 

Company Advances Three-Pronged Growth Strategy: Alternative Subscription Option Leads to Bolstered Pipeline; Advanced Discussions with Potential for New Engagements Through Otoz; Continued Progress and Technological Advancements in Innovation Lab

 

CALABASAS, Calif., February 12, 2020 – NETSOL Technologies, Inc. (Nasdaq: NTWK), a global business services and enterprise application solutions provider, reported results for the fiscal second quarter ended December 31, 2019.

 

Fiscal Second Quarter 2020 and Recent Operational Highlights

 

  Regarding previously announced 12-country, $110 million contract with German auto manufacturing giant, the Company made continued progress with respect to additional NFS Ascent® implementations and anticipates Go Live events in the coming months for the following countries: Singapore, Malaysia, and Thailand.
  As part of the above-referenced contract, achieved a successful Go Live in Hong Kong with the NFS Ascent® Retail Platform, consisting of Omni Point of Sale (Omni POS) and Contract Management System (CMS).
  Introduced Software-as-a-Service (SaaS) subscription-based pricing for new and existing customers as an alternative to the traditional license model, which is now available for all cloud-based NETSOL products and services globally, including NETSOL’s flagship offering NFS Ascent®.
  NETSOL North America secured a contract with SCI Lease Corp, a Canadian-based national automotive leasing company, for its Contract Management System (CMS) on the cloud, representing the first SaaS-based agreement for Ascent in this region.
  Announced the official Go-Live with mCollector application for a top tier multi-finance company in Indonesia, as part of a larger contract originally signed in 2018.
  Made significant progress towards the deployment of NFS Ascent® Retail Platform for a New Zealand-based captive equipment finance company.
  Made significant progress towards the deployment of NFS Ascent® Wholesale Platform for a U.K.-based leading auction house.
  Generated additional $2.0 million by providing additional services for various customers across multiple regions.
  Appointed industry veteran Chris Mobley as the new Head of NFS Ascent® Wholesale operations in Europe with the goal of leading the rollout of NETSOL’s new, subscription-based pricing strategy, orchestrating the company’s European-focused growth plans and leading pre-sales of the company’s Wholesale operations globally.
  Made further advancements in certain Otoz Innovation Lab initiatives, leading to multiple discussions, demonstrations, and potential engagements with a several tier one customers in the U.S. and Asia Pacific (APAC) regions.
  Announced NETSOL’s “Cloud Readiness” campaign during the 20th anniversary of the company’s listing on Nasdaq as part of its participation at the closing bell ceremony in late January.

 

 

 

 

Fiscal Second Quarter 2020 Financial Results

 

Total net revenues for the second quarter of fiscal 2020 were $15.7 million, compared with $17.0 million in the prior year period. The decrease in total net revenues was primarily due to a decrease in total license fees of $4.4 million, which was offset by an increase in services revenues of $1.8 million and an increase in total maintenance fees of $1.3 million.

 

  Total license fees were $384,000, compared with $4.8 million in the prior year period.
  Total maintenance fees were $5.0 million, compared with $3.7 million in the prior year period.
  Total services revenues were $10.3 million, compared with $8.5 million in the prior year period.

 

Gross profit for the second quarter of fiscal 2020 was $7.8 million (or 49.7% of net revenues), compared to $8.9 million (or 52.1% of net revenues) in the second quarter of fiscal 2019. The decreases in gross profit and gross profit as a percentage of revenue were primarily due to decreases in revenue by an amount that was greater than the related decreases in cost of revenues, respectively. The decrease in cost of revenues was predominantly driven by decreases in travel, depreciation and amortization and other expenses, which were offset by an increase in salaries and consultants’ costs.

 

Operating expenses for the second quarter of fiscal 2020 increased 6.4% to $7.1 million (or 45.2% of net revenues) from $6.7 million (or 39.2% of net revenues) in the second quarter of fiscal 2019. The increase in operating expenses was primarily due to increases in general and administrative expenses, which were offset by decreases in sales and marketing expenses, salaries and wages, and professional services.

 

GAAP net income attributable to NETSOL for the second quarter of fiscal 2020 totaled $586,000 or $0.05 per diluted share, compared with GAAP net income of $2.9 million or $0.25 per diluted share in the second quarter of fiscal 2019. GAAP net income attributable to NETSOL included a $61,000 gain on foreign currency exchange transactions in the second quarter of fiscal 2020, which was a significant decrease compared with a gain of $2.5 million in the prior year period.

 

Non-GAAP adjusted EBITDA for the second quarter of fiscal 2020 totaled $1.6 million or $0.13 per diluted share, compared with non-GAAP adjusted EBITDA of $4.1 million or $0.35 per diluted share in the second quarter of fiscal 2019 (see note regarding “Use of Non-GAAP Financial Measures,” below for further discussion of this non-GAAP measure).

 

At December 31, 2019, cash and cash equivalents were $22.1 million, an increase from $20.3 million at the end of the prior year quarter.

 

Management Commentary

 

“The fiscal second quarter was a positive step forward for our business as we continue to position NETSOL for its next phase of growth in the years ahead,” said company Co-Founder, Chairman and Chief Executive Officer Najeeb Ghauri. “The 16% sequential improvement in our topline was the result of ongoing and significant implementation work within our core business, which also included an additional $2.0 million in change requests, yet another favorable data point that underlies the ongoing industry shift to more complex deployments. While our year-to-date results reflect our ongoing efforts to transition NETSOL towards a more diversified revenue mix, in Q2 we maintained our commitment to financial prudence, most notably evidenced in our return to profitability during the period.

 

 

 

 

“Operationally, we began the initial application of our three-pronged growth strategy, which has yielded already-favorable results. More specifically, in November we closed our first official sale of NFS Ascent® in North America, which also represented the first SaaS-based agreement for Ascent in this region. Additionally, our mobility-focused work within our Otoz Innovation Lab has garnered serious attention from potential and existing customers alike, which we expect to materialize in increased demos, more advanced development discussions, and even pilot projects in the coming months. Looking to the second half of the year, with our current pipeline as well as ongoing major rollouts with existing customers, we have strong visibility to reaffirm our expectations for sequential improvement throughout the balance of fiscal 2020.”

 

Sales Outlook

 

NETSOL President, Global Sales and Otoz CEO Naeem Ghauri added: “While we are continuing to sell add-on services and more licenses for existing contracts, we’re also now generating new opportunities at an increasing rate for our subscription pricing, or SaaS, model. While it remains early days, we are encouraged by the strong initial interest we’ve seen and believe our decision to diversify our offerings beyond the traditional license sales will lead to long-term, predictable revenue growth. Going forward, we have visibility into a growing pipeline within all three of our geographic regions, which we anticipate to result in sequentially improved results in the second half 2020. Further out, we’re working towards an eventual inflection point where annual recurring revenues, or ARR, can supplant our current license revenues and provide sustained profitability.”

 

Otoz Update

 

“We are actively discussing various partnerships and collaborations with several tier one customers to launch Otoz as a premium, white-labeled, shared mobility platform and believe we are close to announcing official agreements soon,” continued Ghauri. “While we continue to build out the platform according to our predefined product roadmap, interest in the platform is tracking ahead of internal targets and forecasts, which has us ramping up efforts to meet demand. We look forward to providing more updates on these roadmap developments as well as potential partnerships in the near future.”

 

Conference Call

 

NETSOL Technologies management will hold a conference call today (February 12, 2020) at 11 a.m. Eastern time (8 a.m. Pacific time) to discuss these financial results. A question and answer session will follow management’s presentation.

 

U.S. dial-in: 1-877-407-0789

International dial-in: 1-201-689-8562

 

Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Gateway Investor Relations at 1-949-574-3860.

 

The conference call will be broadcasted live and available for replay here and via the Investor Relations section of NETSOL’s website.

 

 

 

 

A replay of the conference call will be available after 2:00 p.m. Eastern time on the same day through February 26, 2020.

 

Toll-free replay number: 1-844-512-2921

International replay number: 1-412-317-6671

Replay ID: 13698709

 

About NETSOL Technologies

 

NETSOL Technologies, Inc. (Nasdaq: NTWK) is a worldwide provider of IT and enterprise software solutions primarily serving the global finance and leasing industry. The company’s suite of applications is backed by 40 years of domain expertise and supported by a committed team of more than 1,300 professionals placed in eight strategically located support and delivery centers throughout the world. NFS, LeasePak, LeaseSoft or NFS Ascent® – help companies transform their finance and leasing operations, providing a fully automated asset-based finance solution covering the complete finance and leasing lifecycle.

 

About Otoz

 

Otoz provides business-to-business, white-label technology solutions for new mobility. Our suite of agile and customizable mobility solutions ranges from car sharing and subscription products to AI-enabled chatbots, allowing businesses to engage consumers and facilitate the complete transaction lifecycle intelligently and digitally. Otoz technologies empower automotive companies and start-ups to launch new mobility models quickly and efficiently. The technology Otoz has developed is cloud-native and supported by artificial intelligence (AI), machine learning (ML), internet of things (IoT) and blockchain. Our technology drives utilization, while supporting robust and efficient operations.

 

Forward-Looking Statements

 

Certain statements in this press release are forward-looking in nature, including, but not limited to, expected net revenue and the demand for and sales lifecycle of NFS Ascent® and the outlook or potential demand for new product lines and innovation such as for Otoz or NFS Ascent® SaaS, and accordingly, are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. The words “expects,” “anticipates,” variations of such words, and similar expressions, identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, 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. The subject Companies expressly disclaim any obligation or undertaking to update or revise any forward-looking statement contained herein to reflect any change in the company’s expectations with regard thereto or any change in events, conditions or circumstances upon which any statement is based.

 

Use of Non-GAAP Financial Measures

 

The reconciliation of Adjusted EBITDA to net income, the most comparable financial measure based upon GAAP, as well as a further explanation of adjusted EBITDA, is included in the financial tables in Schedule 4 of this press release.

 

Investor Relations Contact:

 

Matt Glover and Tom Colton

Gateway Investor Relations

1-949-574-3860

investors@netsoltech.com

 

 

 

 

NETSOL Technologies, Inc. and Subsidiaries

Schedule 1: Consolidated Balance Sheets

 

   As of   As of 
  December 31, 2019   June 30, 2019 
ASSETS        
Current assets:          
Cash and cash equivalents  $22,083,584   $17,366,364 
Accounts receivable, net of allowance of $351,431 and $192,786   8,401,835    12,332,714 
Accounts receivable, net of allowance of $0 and $166,075 - related party   1,231,181    3,266,600 
Revenues in excess of billings, net of allowance of $205,006 and $194,684   15,850,011    14,719,047 
Revenues in excess of billings - related party   101,669    110,827 
Convertible note receivable - related party   4,185,000    3,650,000 
Other current assets   3,392,190    3,146,264 
Total current assets   55,245,470    54,591,816 
Revenues in excess of billings, net - long term   1,291,025    1,281,492 
Property and equipment, net   12,668,689    12,096,855 
Right of use of assets - operating leases   3,050,885    - 
Long term investment   2,411,807    2,653,769 
Other assets   24,301    23,569 
Intangible assets, net   6,792,846    7,332,950 
Goodwill   9,516,568    9,516,568 
Total assets  $91,001,591   $87,497,019 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable and accrued expenses  $7,927,523   $7,476,560 
Current portion of loans and obligations under finance leases   9,436,332    6,905,597 
Current portion of operating lease obligations   1,182,850    - 
Unearned revenues   3,135,721    5,977,736 
Common stock to be issued   88,324    88,324 
Total current liabilities   21,770,750    20,448,217 
Loans and obligations under finance leases; less current maturities   417,824    564,572 
Operating lease obligations; less current maturities   1,966,770    - 
Total liabilities   24,155,344    21,012,789 
Commitments and contingencies          
Stockholders’ equity:          
Preferred stock, $.01 par value; 500,000 shares authorized;   -    - 
Common stock, $.01 par value; 14,500,000 shares authorized;          
12,000,566 shares issued and 11,753,063  outstanding as of December 31, 2019 and 11,911,742 shares issued and 11,664,239 outstanding as of June 30, 2019  
 
 
 
 
120,006
 
 
 
 
 
 
 
119,117
 
 
Additional paid-in-capital   128,197,589    127,737,999 
Treasury stock (At cost, 247,503 shares and 247,503 shares as of December 31, 2019 and June 30, 2019, respectively)  
 
 
 
 
(1,455,969
 
)
 
 
 
 
 
(1,455,969
 
)
Accumulated deficit   (36,448,870)   (35,206,898)
Other comprehensive loss   (30,456,632)   (33,125,006)
Total NetSol stockholders’ equity   59,956,124    58,069,243 
Non-controlling interest   6,890,123    8,414,987 
Total stockholders’ equity   66,846,247    66,484,230 
Total liabilities and stockholders’ equity  $91,001,591   $87,497,019 

 

 

 

 

NETSOL Technologies, Inc. and Subsidiaries

Schedule 2: Consolidated Statement of Operations

 

   For the Three Months   For the Six Months 
   Ended December 31,   Ended December 31, 
   2019   2018   2019   2018 
Net Revenues:                    
License fees  $383,963   $4,817,569   $3,063,108   $10,773,682 
Maintenance fees   4,965,877    3,661,723    9,357,324    7,401,399 
Services   10,282,755    8,348,843    16,701,646    14,819,468 
Services - related party   57,424    174,492    140,357    404,623 
Total net revenues   15,690,019    17,002,627    29,262,435    33,399,172 
                     
Cost of revenues:                    
Salaries and consultants   4,625,872    4,497,054    9,080,836    9,517,616 
Travel   1,572,923    1,706,182    2,915,558    2,858,179 
Depreciation and amortization   734,352    880,048    1,454,017    1,817,652 
Other   954,912    1,060,772    1,899,436    2,109,096 
Total cost of revenues   7,888,059    8,144,056    15,349,847    16,302,543 
                     
Gross profit   7,801,960    8,858,571    13,912,588    17,096,629 
                     
Operating expenses:                    
Selling and marketing   1,858,096    2,048,303    3,601,964    3,749,629 
Depreciation and amortization   215,479    193,779    417,866    406,011 
General and administrative   4,568,790    4,002,059    8,487,403    8,408,779 
Research and development cost   454,605    424,652    1,127,575    742,807 
Total operating expenses   7,096,970    6,668,793    13,634,808    13,307,226 
                     
Income from operations   704,990    2,189,778    277,780    3,789,403 
                     
Other income and (expenses)                    
Gain (loss) on sale of assets   528    (3,504)   239    48,790 
Interest expense   (88,006)   (63,804)   (151,669)   (163,238)
Interest income   435,682    230,421    834,911    479,385 
Gain (loss) on foreign currency exchange transactions   61,061    2,536,755    (1,699,129)   2,547,667 
Share of net loss from equity investment   (164,796)   (298,293)   (354,020)   (597,984)
Other income   207,987    4,503    226,313    9,882 
Total other income (expenses)   452,456    2,406,078    (1,143,355)   2,324,502 
                     
Net income (loss) before income taxes   1,157,446    4,595,856    (865,575)   6,113,905 
Income tax provision   (610,510)   (264,872)   (848,748)   (501,786)
Net income (loss)   546,936    4,330,984    (1,714,323)   5,612,119 
Non-controlling interest   39,039    (1,475,355)   472,351    (1,793,901)
Net income (loss) attributable to NetSol  $585,975   $2,855,629   $(1,241,972)  $3,818,218 
                     
Net income (loss) per share:                    
Net income (loss) per common share                    
Basic  $0.05   $0.25   $(0.11)  $0.33 
Diluted  $0.05   $0.25   $(0.11)  $0.33 
                     
Weighted average number of shares outstanding                    
Basic   11,724,606    11,586,507    11,694,423    11,542,877 
Diluted   11,724,606    11,592,193    11,694,423    11,548,563 

 

 

 

 

NETSOL Technologies, Inc. and Subsidiaries

Schedule 3: Consolidated Statement of Cash Flows

 

   For the Six Months 
   Ended December 31, 
   2019   2018 
Cash flows from operating activities:          
Net income (loss)  $(1,714,323)  $5,612,119 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:          
Depreciation and amortization   1,871,883    2,223,663 
Provision for bad debts   (20,699)   - 
Share of net loss from investment under equity method   354,020    597,984 
Gain on sale of assets   (239)   (48,790)
Stock based compensation   328,585    869,743 
Changes in operating assets and liabilities:          
Accounts receivable   4,554,558    4,208,751 
Accounts receivable - related party   2,229,695    (219,538)
Revenues in excess of billing   (1,088,693)   (7,633,216)
Revenues in excess of billing - related party   14,823    (91,279)
Other current assets   (208,065)   (1,409,746)
Accounts payable and accrued expenses   490,875    139,331 
Unearned revenue   (3,019,493)   (1,094,375)
Net cash provided by operating activities   3,792,927    3,154,647 
           
Cash flows from investing activities:          
Purchases of property and equipment   (785,999)   (1,441,237)
Sales of property and equipment   32,524    519,645 
Convertible note receivable - related party   (535,000)   (1,033,000)
Net cash used in investing activities   (1,288,475)   (1,954,592)
           
Cash flows from financing activities:          
Proceeds from the exercise of stock options and warrants   -    65,000 
Proceeds from exercise of subsidiary options   11,621    2,650 
Dividend paid by subsidiary to non-controlling interest   (1,920,618)   (566,465)
Proceeds from bank loans   2,074,341    382,240 
Payments on finance lease obligations and loans - net   (102,499)   (289,027)
Net cash provided by (used in) financing activities   62,845    (405,602)
Effect of exchange rate changes   2,149,923    (2,562,502)
Net increase (decrease) in cash and cash equivalents   4,717,220    (1,768,049)
Cash and cash equivalents at beginning of the period   17,366,364    22,088,853 
Cash and cash equivalents at end of period  $22,083,584   $20,320,804 

 

 

 

 

NETSOL Technologies, Inc. and Subsidiaries

Schedule 4: Reconciliation to GAAP

 

   For the Three Months Ended   For the Three Months Ended    For the Six Months Ended   For the Six Months Ended 
   December 31, 2019   December 31, 2018    December 31, 2019   December 31, 2018 
                  
Net Income (loss) attributable to NetSol  $585,975   $2,855,629    $(1,241,972)  $3,818,218 
Non-controlling interest   (39,039)   1,475,355     (472,351)   1,793,901 
Income taxes   610,510    264,872     848,748    501,786 
Depreciation and amortization   949,831    1,073,827     1,871,883    2,223,663 
Interest expense   88,006    63,804     151,669    163,238 
Interest (income)   (435,682)   (230,421)    (834,911)   (479,385)
EBITDA  $1,759,601   $5,503,066    $323,066   $8,021,421 
Add back:                     
Non-cash stock-based compensation   164,292    437,695     328,585    869,743 
Adjusted EBITDA, gross  $1,923,893   $5,940,761    $651,651   $8,891,164 
Less non-controlling interest (a)   (346,644)   (1,887,861)    (155,409)   (2,640,530)
Adjusted EBITDA, net  $1,577,249   $4,052,900    $496,242   $6,250,634 
                      
                      
Weighted Average number of shares outstanding                     
Basic   11,724,606    11,586,507     11,694,423    11,542,877 
Diluted   11,724,606    11,592,193     11,694,423    11,548,563 
                      
Basic adjusted EBITDA  $0.13   $0.35    $0.04   $0.54 
Diluted adjusted EBITDA  $0.13   $0.35    $0.04   $0.54 
                      
                      
(a) The reconciliation of adjusted EBITDA of non-controlling interest                     
to net income attributable to non-controlling interest is as follows                     
                      
Net Income attributable to non-controlling interest  $(39,039)  $1,475,355    $(472,351)  $1,793,901 
Income Taxes   190,292    70,821     243,627    141,364 
Depreciation and amortization   270,003    338,278     529,638    704,132 
Interest expense   25,491    20,219     44,532    52,909 
Interest (income)   (115,670)   (54,247)    (221,171)   (121,115)
EBITDA  $331,077   $1,850,426    $124,275   $2,571,191 
Add back:                     
Non-cash stock-based compensation   15,567    37,435     31,134    69,339 
Adjusted EBITDA of non-controlling interest  $346,644   $1,887,861    $155,409   $2,640,530