AS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER
1, 2006
REGISTRATION
NO. 333-138103
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
AMENDMENT
NO. 1 TO
FORM
S-3
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
NETSOL
TECHNOLOGIES, INC.
(Name
of
small business issuer in its charter)
|
Nevada
|
2834
|
95-4627685
|
|
(State
or Other Jurisdiction
of
Incorporation
or
Organization)
|
(Primary
Standard
Industrial
Classification
"SIC"
Code Number)
|
(IRS
Employer
Identification
Number)
|
23901
Calabasas Road, Suite 2072
Calabasas,
CA 91302
Phone:
(818) 222-9195
Fax:
(818) 222-9197
(Address
including the zip code & telephone number including area code,
of
registrant's
principal executive office)
NAJEEB
GHAURI
CHIEF
EXECUTIVE OFFICER
NETSOL
TECHNOLOGIES, INC.
23901
Calabasas Road, Suite 2072
Calabasas,
CA 91302
Phone:
(818) 222-9195
Fax:
(818) 222-9197
(Name,
address, including zip code, and telephone number, including area
code,
of
agent
for service)
COPIES
TO:
PATTI
L.
W. MCGLASSON
GENERAL
COUNSEL
NETSOL
TECHNOLOGIES, INC.
23901
Calabasas Road, Suite 2072
Calabasas,
CA 91302
Phone:
(818) 222-9195
Fax:
(818) 222-9197
APPROXIMATE
DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As
soon
as practicable after the effective date of this Registration
Statement.
CALCULATION
OF REGISTRATION FEE
|
Title
of Each Class of Securities to be Registered
|
|
Number
of
Shares
to
be
Registered
(1)
(2)
|
|
Proposed
Maximum
Offering
Price
Per
Share
(1)
(2)
|
|
Proposed
Maximum
Aggregate
Offering
Price
|
|
Amount
of
Registration
Fee
|
|
|
Shares
of Common Stock, $.001 par value,
issuable
upon conversion of, and/or redemption of,
and
in lieu of cash dividends on
Series
A Convertible Preferred Stock (3)
|
|
|
5,000,000
|
|
$
|
1.47
|
|
$
|
7,350,000
|
|
$
|
865.06
|
|
|
Shares
of Common Stock, $.001 par value,
issuable
upon exercise of warrants (4)
|
|
|
1,933,334
|
|
$
|
1.47
|
|
$
|
2,842,001
|
|
$
|
334.49
|
|
|
Shares
of Common Stock, $.001 par value,
issuable
in lieu of cash interest
payments
on Convertible Notes(5)
|
|
|
230,863
|
|
$
|
1.47
|
|
$
|
339,386
|
|
$
|
39.94
|
|
|
TOTAL
|
|
|
7,164,198
|
|
|
|
|
$
|
10,531,369
|
|
$
|
1,239.49
|
|
|
(1)
|
Estimated
solely for the purpose of calculating the amount of the registration
fee
pursuant to Rule 457(c).
|
|
(2)
|
Pursuant
to Rule 416 under the Securities Act of 1933, as amended, there are
also
being registered such additional shares of common stock as may become
issuable pursuant to anti-dilution provisions of the warrants and
preferred stock.
|
|
(3)
|
3,333,333
of the shares are currently issuable upon conversion of the preferred
stock and 1,666,667 represent an additional number to be registered
to
account for changes to the conversion value and/or payments of the
preferred dividend in common stock rather than in
cash.
|
|
(4)
|
1,666,668
and 266,666 of the shares are issuable upon exercise of the warrants
by
the investors and placement agent
respectively.
|
|
(5)
|
Interest
due on the Convertible Note is $251,166.67. The selling stockholders
agreed to accept, at the Company’s election, consistently with the other
financing documents, shares of common stock in lieu of cash,
in an amount
equal to $1.47 per share plus 60,000 additional
shares.
|
If
the
only securities being registered on this form are being offered pursuant to
dividend or interest reinvestment plans, please check the following
box. o
If
any of
the securities being registered on this form are to be offered on a delayed
or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or interest
reinvestment plans check the following box. x
If
this
From is a registration statement pursuant to General Instruction I.D. or a
post-effective amendment thereto that shall become effective upon filing with
the Commission pursuant to Rule 462(e) under the Securities Act, check the
following box. o
If
this
form is a post-effective amendment to a registration statement filed pursuant
to
General Instruction I.E. filed to register additional securities or additional
classes of securities pursuant to Rule 413(b) under the Securities Act, check
the following box. o
THE
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
THE
INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND IS SUBJECT TO CHANGE OR
AMENDMENT. THE SELLING STOCKHOLDERS MAY NOT SELL THE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT
IS
NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR
SALE IS NOT PERMITTED.
SUBJECT
TO COMPLETION, DATED OCTOBER 19, 2006
PROSPECTUS
7,164,198
SHARES OF COMMON STOCK
NETSOL
TECHNOLOGIES, INC.
The
selling stockholders listed on page 10 of this prospectus are offering for
resale up to 7,164,198 shares of our common stock, referred to as the “offered
shares.” All of the offered shares are issuable, or may in the future become
issuable, with respect to securities issued in connection with the private
placement of convertible notes with a principal value of $5,500,000 (the
“Convertible Notes”) and warrants to acquire up to 1,666,667 shares of common
stock (the “Warrants”) that NetSol completed in June 2006 (the “Financing”). On
October 30, 2006 (“Exchange Date”) the Convertible Notes were exchanged for
shares of Series A 7% Cumulative Convertible Preferred Stock (the “Series A
Preferred Stock”) which are in turn convertible into shares of our common stock.
The shares of common stock being offered for resale by the selling stockholders
pursuant to this prospectus include: shares of common stock issued in lieu
of
cash interest payment on the Convertible Notes due at the Exchange Date;
shares
of common stock issuable upon conversion and/or redemption of our Series
A
Preferred Stock; shares of common stock which may be issued in payment of
dividends on the Series A Preferred Stock; shares of common stock issuable
upon
the exercise of the Warrants; shares of common stock issuable upon the exercise
of warrants issued to our placement agent as part of the Financing (the
“Placement Agent Warrants”); and, additional shares of common stock that may be
issued to the selling stockholders as a result of conversion or exercise
price
anti-dilution adjustments applicable to the Series A Preferred Stock and/or
the
Warrants. In this prospectus, the terms "NetSol," "we," or "us" will each
refer
to NetSol Technologies, Inc.
We
will
not receive any proceeds from sales of the shares of common stock by the selling
stockholders.
Our
common stock is traded on the NASDAQ Capital Market under the symbol “NTWK”. The
closing price of our common stock on November 30, 2006 was
$1.50..
We
will
bear all expenses, other than selling commissions and fees, in connection with
the registration and sale of the shares being offered by this
prospectus.
INVESTING
IN OUR SECURITIES INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK
FACTORS"
BEGINNING ON PAGE 6
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION
HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS
IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
December
1, 2006
TABLE
OF CONTENTS
|
SPECIAL
NOTE REGARDING FORWARD LOOKING STATEMENTS
|
1
|
| |
|
|
PROSPECTUS
SUMMARY
|
1
|
| |
|
|
RISK
FACTORS
|
6
|
| |
|
|
USE
OF PROCEEDS
|
10
|
| |
|
| SELLING
SECURITY HOLDERS |
11
|
| |
|
|
PLAN
OF DISTRIBUTION
|
13
|
| |
|
| LEGAL
PROCEEDINGS |
14
|
| |
|
|
DESCRIPTION
OF SECURITIES
|
15
|
| |
|
| EXPERTS |
15
|
| |
|
| DISCLOSURE
OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES |
16
|
| |
|
|
WHERE
YOU CAN FIND MORE INFORMATION
|
16
|
| |
|
| INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE |
17
|
| |
|
| UNDERTAKINGS |
19
|
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some
of
the statements under "Prospectus Summary," "Risk Factors," in this prospectus
are forward-looking statements. These statements involve known and unknown
risks, uncertainties, and other factors that may cause our or our industry's
actual results, levels of activity, performance, or achievements to be
materially different from any future results, levels of activity, performance,
or achievements expressed or implied by forward-looking statements. Such factors
include, among other things, those listed under "Risk Factors" and elsewhere
in
this prospectus.
In
some
cases, you can identify forward-looking statements by terminology such as "may,"
"will," "should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential," "proposed," "intended," or "continue" or the negative
of these terms or other comparable terminology. You should read statements
that
contain these words carefully, because they discuss our expectations about
our
future operating results or our future financial condition or state other
"forward-looking" information. There may be events in the future that we are
not
able to accurately predict or control. Before you invest in our securities,
you
should be aware that the occurrence of any of the events described in these
risk
factors and elsewhere in this prospectus could substantially harm our business,
results of operations and financial condition, and that upon the occurrence
of
any of these events, the trading price of our securities could decline and
you
could lose all or part of your investment. Although we believe that the
expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, growth rates, levels of activity, performance,
or achievements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform these statements to
actual results.
PROSPECTUS
SUMMARY
The
following summary contains basic information about NetSol and this prospectus.
Because it is a summary, it does not contain all of the information that you
should consider before investing in our securities. For a more complete
understanding of the risks associated with investing in us, you should read
the
entire prospectus carefully, including the “Risk Factors” starting on page
6.
OUR
COMPANY
We
are an
end-to-end information technology ("IT") and business consulting services
provider for the lease and finance, banking and financial services industries.
Since it was founded in 1997, the Company has developed enterprise solutions
that help clients use IT more efficiently in order to improve their operations
and profitability and to achieve business results. Our focus has remained the
lease and finance, banking and financial services industries. We operate on
a
global basis with locations in China, Europe, East Asia and the U.S. By
utilizing our worldwide resources, we believe we have been able to deliver
high
quality, cost-effective IT products and IT services.
Our
subsidiary, NetSol Technologies Ltd. ("NetSol PK") develops the majority of
our
software. NetSol PK was the first software company in Pakistan in 1998 to
achieve the ISO 9001 accreditation and was again the first software company
in
Pakistan to obtain Carnegie Mellon’s Software Engineering Institute (“SEI”)
Capable Maturity Model (“CMM”) Level 4 assessment in 2004 and CMMi Level 5 now
in 2006. As maintained by the SEI, maturity levels measure the maturity of
a
software company’s methodology that in turn ensures enhanced product quality
resulting in faster project turn-a-round and a shortened time to market.
During
recent years, we have focused on developing software applications for the
leasing and financial service industries. In late 2002, we launched a new suite
of software products under the name LeaseSoft. The LeaseSoft suite is comprised
of four major integrated asset based leasing/financing software applications.
The suite, consisting of a Credit Application Creation System (LeaseSoft.CAC),
a
Credit Application Processing System (LeaseSoft.CAP), a Contract Activation
& Management System (LeaseSoft.CAM) and a Wholesale Finance System
(LeaseSoft.WFS), whether used alone or together, provides the user with an
opportunity to address specific sub-domains of the leasing/financing cycle
from
the credit approval process through the tracking of the finance contract and
asset.
Our
company is divided into three regions, North America, Europe and Asia Pacific.
The North American region consists of operations of the company and of our
subsidiary, McCue Systems, Inc. (“McCue”), and is headed by John McCue as
President of the North America region. In June 2006, we acquired the shares
of
McCue. McCue has 35 years of experience in developing business solutions for
the
equipment and vehicle leasing industry as a provider of lease/loan portfolio
management software for banks, leasing companies and manufacturers. Its flagship
product, LeasePak, simplifies lease/loan administration and asset management
by
accurately tracking leases, loans and equipment from origination through
end-of-term and disposition. The LeasePak brand is recognized in the US and
Canadian marketplace and is configured to handle the unique tax and regulation
requirements of North America. LeasePak is complementary to NetSol’s LeaseSoft
offering and its geographic specificity complements LeaseSoft in regions in
which LeaseSoft does not currently have coverage or domain support
knowledge.
Our
Asia
Pacific region is headed by Salim Ghauri as President of the region and consists
of all of our Pakistani subsidiaries, NetSol Technologies, Ltd., Abraxas and
our
Beijing, China sales office. Our NetSol PK operation supports the worldwide
customer base of the LeaseSoft suite of products and all other product
offerings. NetSol is actively undertaking exercises for providing consultancy
services for different software companies. The key aspects of these services
would be CMMi introduction, gap analyses for ISO 9001:2000 compliant procedures,
CMMi Level 2/3 pre-assessments, consultancies, evaluations and tracking/analyses
of such improvements. There
is
a growing domestic business in Pakistan for the IT and IT enabled services,
as
stated above, and NetSol is strategically positioned to support a very stable
and economically beneficial pipeline to win many more as well as major new
projects in the public and private sectors. NetSol will continue to strengthen
its position as a dominant IT solutions provider in this explosive growth
market.
Our
European region consists of our two wholly owned subsidiaries, NetSol
Technologies, Ltd. and NetSol-CQ, Ltd. (formally CQ Systems Ltd.) In February
2005, NetSol acquired 100% of CQ Systems Ltd., (“CQ”), 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 CQ’s knowledge base and
strong presence in the Asset Finance market to launch LeaseSoft in the UK and
continental Europe. CQ’s strong sales and marketing capability would further
help NetSol gain immediate recognition and positioning for the LeaseSoft suite
of products. In November 2005, CQ was re-branded as NetSol-CQ and was launched
into the UK market with new branding and logo. This was part of a global
strategy to have consistency in our marketing collateral across the globe.
All
NetSol-CQ products have been re-branded as LeaseSoft and the Enterprise product
would now be known as LeaseSoft Asset.
With
the
acquisition of Pearl Treasury System, whose product offering is now referred
to
as InBanking™, the Company expands its menu of software into the banking and
other financial areas. 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. The beta version of InBanking
is
now in the final stages of completion and NetSol is currently seeking a small
number of banks and financial institutions to be pilot development partners
for
the beta version of InBanking™ to support their specific
requirements.
We
market
our software products worldwide to companies primarily in the automobile
finance, leasing and banking industries. Some of NetSol’s customers include:
DaimlerChrysler Services AG; DaimlerChrysler Asia Pacific - Singapore;
Mercedes-Benz Finance - Japan; Yamaha Motors Finance - Australia;
DaimlerChrysler Financial Services-Taiwan; Debis Portfolio Systems - UK;
DaimlerChrysler Financial Services - Australia; DaimlerChrysler Leasing -
Thailand; DaimlerChrysler Financial Services - South Korea; UMF Leasing
Singapore; MCB Mauritius; Toyota Leasing Thailand; Toyota Motors Finance China;
BMW Financial Services - China; Australian Motor Finance- Australia and,
DaimlerChrysler Services New Zealand. In addition, NetSol provides offshore
development and testing services to Innovation Group Plc UK and their blue
chip
global insurance giants like Allstate, Cendent, etc. NetSol is also a strategic
business partner for DaimlerChrysler (which consists of a group of many
companies), which accounts for approximately 11% of our revenue. Toyota Motors
(which consists of a group of many companies) accounts for approximately 12%
of
our revenues. No other individual client represents more than 10% of the revenue
for the fiscal year ended June 30, 2006.
We
were
incorporated under the laws of the State of Nevada on March 18, 1997. Our
principal executive offices are located at 23901 Calabasas Road, Suite 2072,
Calabasas, California 91302. Our telephone phone number is (818) 222-9195 and
our website address is http://www.netsoltek.com.
THE
FINANCING
On
June
15, 2006, we entered into an agreement with 5 accredited investors whereby
Netsol issued 5 convertible notes 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”). In connection with the
Financing, the Company entered into the following documents: A Convertible
Note
and Warrant Purchase Agreement (the “SPA”); 12% Convertible Notes (the
“Convertible Notes”); Common Stock Purchase Warrants (the “Warrants”); and,
Investor Rights Agreement (the “IRA”). The Company also agreed to a form of
Certificate of Designation for 7% Cumulative Convertible Preferred Stock
(the
“Preferred Stock”) and, issued the Placement Agent Warrant Agreement (the
“Placement Agent Warrant).
The
proceeds of the Financing are being used by the Company to: (i) pay the initial
cash consideration due to McCue shareholders as part of the acquisition of
McCue
Systems, Inc. by the Company; (ii) pay the final cash consideration due to
former CQ Systems Inc. shareholders as part of the acquisition of CQ Systems,
Ltd. (now NetSol-CQ); and (iii) provide working capital. The initial cash
consideration due to McCue shareholders is $2,117,864 and represents 38.51%
of
the total proceeds raised. The final cash consideration due to former CQ
Systems, Inc. shareholders is £1,064,369 (which represents $1,936,200.17 at the
exchange rate of British pounds sterling into U.S. Dollars at June 28, 2006).
The CQ payment represents 35.20% of the total funds raised in the Financing.
The
remaining funds are being used to pay fees due under the terms of the Financing
and as working capital.
Pursuant
to the terms of the SPA, each purchaser received a Convertible Note in the
amount of their investment and a Warrant in an amount equal to 50% of the
aggregate principal value of the Notes divided by the conversion value
(currently $1.65 per share). Based on an aggregate principal value of
$5,500,000, the investors were entitled to Warrants to acquire up to 1,666,667
shares of common stock at an exercise price per warrant of $2.00. The Warrants
were permitted to be exercised at any time, to the extent that such conversion
did not violate Nasdaq Marketplace rules, and in full at such time after
our
stockholders approved the issuance of shares underlying such Warrants until
five
years from the issuance date of the Warrants, or June 15, 2011. On October
18,
2006, our stockholders approved the issuance of all shares of common stock
underlying the Preferred Stock, the Warrants, the Placement Agent Warrants
and
such additional shares of common stock that may be issued in lieu of cash
as
dividends due to Preferred Stock holders. On October 18, 2006, the Company
provided each investor notice to exchange its Convertible Notes
for
(a) such number of shares of preferred stock as equals the principal amount
exchanged divided by $1,000 and (b) cash equal to the amount of unpaid interest
on the notes through the exchange date. The
Convertible Notes were exchanged for Preferred Stock on the Exchange Date,
October 30, 2006. As of October 30, 2006 there are 5,500 shares of Preferred
Stock issued and outstanding. As of the Exchange Date interest in the amount
of
$251,166.67 was due to the Selling Stockholders. The Selling Stockholders
and
Company have clarified the terms of the Convertible Notes to permit payment
of
the interest, at the Company’s discretion, in shares of common stock rather than
cash. And,
accordingly, in lieu of payment of interest in cash, the Selling Stockholders
have received 230,863 shares, on a pro rata basis, due on the Exchange
Date.
As
part
of the consideration paid for its services in facilitating the Financing, Maxim
Group, LLC (the “Placement Agent”) received warrants to acquire up to 266,666
shares of common stock of the Company at the exercise price of $1.65 per share.
Such warrants do not contain anti-dilution protection.
The
Preferred Stock is convertible into shares of common stock at such time and
at
such value as is set forth in the Certificate of Designation. The initial
conversion value shall be $1.65. The conversion value is subject to adjustment
as set forth in the Certificate of Designation. The holders of the Preferred
Stock are entitled to receive cumulative dividends at the rate of 7% per annum
from the date of issuance of each share of preferred stock until paid. The
dividends may be paid, at the Company’s option, in cash or in shares of common
stock in arrears on the first business day of each calendar quarter of each
year. The Company may force a conversion of the Preferred Stock in the event
that the market price of the Company’s common stock is greater than 200% of the
conversion value. If any shares of the Preferred Stock remain outstanding on
June 15, 2009, the Company shall redeem such shares for an amount in cash equal
to the liquidation preference plus all accrued but unpaid dividends.
Anti-dilution protection is afforded to the holders by providing for an
adjustment of the conversion price in certain circumstances. The conversion
price is adjusted for dividends, subdivisions, combinations, distributions
and
issuances of shares, or securities convertible into shares, of common stock
of
the Company issued at an effective per share selling price which is the less
than the greater of the fair market price or the conversion value as of the
issuance date. Conversion of the Preferred Stock is subject to beneficial
ownership caps of from 4.9% to 9.9% of the total number of shares of common
stock of the Company then issued and outstanding.
The
IRA
requires the Company to register, on a registration statement to be filed with
the SEC within 8 business days of the special shareholders’ meeting, 150% of
such number of shares of common stock into which the Preferred Stock is
convertible and 100% of the number of shares of common stock issuable upon
exercise of the Warrants. The IRA requires the registration statement to be
effective within 120 days of the closing of the Financing. Since the
registration statement was not effective by that date, each holder is entitled
to cash compensation equal to 1% of its investment amount for every 30 days
of
non-compliance (or a proportionally smaller amount if less than 30 days).
THE
OFFERING
This
prospectus relates to the offering for resale of NetSol Technologies, Inc.
common stock by the selling stockholders named in this prospectus, who may
use
this prospectus to resell their shares of common stock. The shares of common
stock being offered for resale by the selling stockholders include: shares
of
common stock issuable upon conversion and/or redemption of our Series A
Preferred Stock; shares of common stock which may be issued in payment of
dividends on the Series A Preferred Stock; shares of common stock issuable
upon
the exercise of the Warrants; shares of common stock issuable upon the exercise
of warrants issued to our placement agent as part of the Financing (the
“Placement Agent Warrants”); and, additional shares of common stock that may be
issued to the selling stockholders as a result of conversion or exercise price
anti-dilution adjustments applicable to the Series A Preferred Stock and/or
the
Warrants.
We will
not receive any proceeds from sales of our common stock by the selling
stockholders. For further information about the selling stockholders, see
“Selling Stockholders.”
|
Common
Stock Offered
|
This
prospectus relates to the offering of 7,164,198 shares of our common
stock, which may be sold from time to time by the selling stockholders
named in this prospectus. The shares of our common stock are being
registered to permit the selling stockholders to sell the shares
from time
to time in the public market. The selling stockholders will determine
the
timing and amount of any sale.
|
| |
|
|
Common
Stock outstanding
|
We
had 17,647,396 shares of common stock issued and outstanding as
of
November
30, 2006.
|
|
Use
of Proceeds
|
We
will not receive any of the proceeds from sale of shares of common
stock
offered by the selling stockholders.
|
| |
|
|
Trading
Market
|
Our
common stock is currently listed on the NASDAQ Capital Market under
the
trading symbol “NTWK.”
|
| |
|
|
Risk
Factors
|
Investment
in our common stock involves a high degree of risk. You
should carefully consider the information set forth in the "Risk
Factors"
section of this prospectus as well as other information set forth
in this
prospectus, including our financial statements and related
notes.
|
RISK
FACTORS
An
investment in our securities is extremely risky. You should carefully consider
the following risks, in addition to the other information presented in this
prospectus, before deciding to buy our securities. If any of the following
risks
actually materialize, our business and prospects could be seriously harmed
and,
as a result, the price and value of our securities could decline and you could
lose all or part of your investment. The risks and uncertainties described
below
are intended to be the material risks that are specific to us and to our
industry.
RISKS
RELATED TO OUR BUSINESS
We
May Have Difficulty Raising Needed Capital in the Future, Which Could
Significantly Harm Our Business.
We
will
require additional financing in order to support further expansion, develop
new
or enhanced services or products, respond to competitive pressures, acquire
complementary businesses or technologies or take advantage of unanticipated
opportunities. Our ability to arrange such financing in the future will depend
in part upon the prevailing capital market conditions, as well as our business
performance. There can be no assurance that we will be successful in our efforts
to arrange additional financing on satisfactory terms. If additional financing
is raised by the issuance of our securities, control of NetSol may change and
stockholders may suffer additional dilution. If adequate funds are not
available, or are not available on acceptable terms, we may not be able to
take
advantage of opportunities, or otherwise respond to competitive pressures and
remain in business.
We
Will Require Additional Financing; We May Not Achieve Profitability; We
Anticipate Continued Losses; Current Liabilities Exceed Current
Assets.
As
of the
fiscal year ended June 30, 2005 and 2006, we had a positive working capital
of
$3,458,300 and $10,675,585. We have current short-term bank notes of
$662,800 due within six months. We had a net income of $663,225 in fiscal
2005, but a net loss of $1,353,053 in fiscal 2006.
In
addition, we continue to operate at a deficit on a monthly basis, which is
not
expected to change in the foreseeable future, even with the implementation
of
our current business plan. Notwithstanding that we raised $5,500,000 in
June 2006, we may need to raise additional funds to continue operations and
to
expand and invest in the growth of our business for the next year.
Additionally, we required a minimum of $1,058,932 to pay the second installment
of the acquisition of McCue Systems in June 2007. We cannot assure you
that we can achieve, sustain or increase profitability. If revenues grow
slower than we anticipate, or if operating expenses exceed our expectations
or
cannot be adjusted accordingly, our business, results of operations and
financial condition will be materially and adversely affected. Although we
have improved our financials steadily in last few quarters, no assurance can
be
given that we will continue to improve our financial condition.
We
May Not Be Able To Realize The Benefits Of Our Strategic
Plan.
We
have
undertaken a business plan designed to optimize the alignment of our business
into two divisions (Global Products and Global Services) and three regions
(North America, Europe and Asia Pacific). Although our management is confident
about our ability to realize some benefits from the restructuring, the level
of
benefits to be realized could be affected by a number of factors including,
without limitation: (a) our ability to raise sufficient funds; (b) our ability
to continue to operate as planned without further stockholder hostile takeover
attempts; (c) our ability to prosper given the current uncertainty in the US
technology industry; and, (d) our ability to react effectively to the global
political and business effects of the political events around the world and
particularly in Pakistan.
We
Depend Heavily On A Limited Number Of Client Projects And The Loss Of Any Such
Projects Would Adversely Affect Our Operating Results.
As
of the
fiscal year ended June 30, 2006,
we
derived approximately 11% of our net revenues from DaimlerChrysler (which
consists of a group of companies and clients). DaimlerChrysler consists of
a number of companies, each of which are uniquely different customers and none
of which represents greater than 10% of our net revenues. We also derived
12% of our net revenues from Toyota Motor Finance. As with
DaimlerChrysler, Toyota consists of a number of companies, each of which are
uniquely different customers and none of which represents greater than 10%
of
our net revenues. We continue to enhance our relationship with
DaimlerChrysler to provide software and support services to them on a global
basis. This may increase our reliance on DaimlerChrysler as a revenue
source. We also have other significant clients whose business is critical
to our success. The loss of any of our principal clients for any reason,
including as a result of the acquisition of that client by another entity,
could
have an adverse effect on our business, financial condition and results of
operations.
If
Any Of Our Clients Terminate Their Contracts With Us, Our Business Could Be
Adversely Affected.
Many
of
our clients have the ability to cancel certain of their contracts with us with
limited advance notice and without significant penalty. Any such termination
could result in a loss of expected revenues related to that client’s project. A
cancellation or a significant reduction in the scope of a large project could
have a material adverse effect on our business, financial condition and results
of operations.
If
We Are Unable To Protect Our Proprietary Software, Our Business Could Be
Adversely Affected.
Our
success as a company depends, in part, upon our work product being deemed
proprietary software, along with other intellectual property rights. While
both
the LeaseSoft and NetSol trade names and marks are copyrighted and trademarked
in Pakistan, we have not registered any trademarks or filed any copyrights
in
any other jurisdictions. We rely on a combination of nondisclosure and other
contractual arrangements, and common law intellectual property, trade secret,
copyright and trademark laws to protect our proprietary rights. As a matter
of
course, we generally enter into confidentiality agreements with our employees,
and require that our consultants and clients enter into similar agreements.
We
also limit access to our proprietary information. There can be no assurance
that
these steps will be adequate to deter misappropriation of proprietary
information or that we will be able to detect unauthorized use and take
appropriate steps to enforce our intellectual property rights. In addition,
although we believe that our services and products do not infringe on the
intellectual property rights of others, there can be no assurance that
infringement claims will not be asserted against us in the future, or that
if
asserted, any such infringement claim will be successfully defended. The cost
of
defending any such suit will have a negative impact, even if ultimately
successful. A successful claim against us could materially adversely affect
our
business, financial condition and results of operations. If NetSol cannot
protect its proprietary information, others could copy our software and compete
with us in providing both software and services.
We
May Not Have The Right To Resell Or Reuse Software Developed For Specific
Clients.
A
portion
of our business involves the development of software for specific client
engagements. Ownership of these solutions is the subject of negotiation and
is
frequently assigned to the client, although we may retain a license for certain
uses. Some clients have prohibited us from marketing the software developed
for
them for specified periods of time or to specified third parties. There can
be
no assurance that our clients will not demand similar or other restrictions
in
the future. Issues relating to the ownership of and rights to use our software
solutions can be complicated and there can be no assurance that potential
disputes will not affect our ability to resell or reuse these software
solutions. While we have not incurred such expense in the past, limitations
on
our ability to resell or reuse software solutions could require us to incur
additional expenses to develop new solutions for future projects.
International
Expansion Of Our Business Could Result In Financial Losses Due To Changes In
Foreign Political And Economic Conditions Or Fluctuations In Currency And
Exchange Rates.
We
expect
to continue to expand our international operations. As well as the two offices
in the United States, we currently have offices in Pakistan, China, the UK
and
Australia. As of June 30, 2006 approximately 95% of our revenue is generated
by
non-U.S. sources. Our international operations are subject to other inherent
risks, including:
|
•
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political
uncertainty in Pakistan and the Southeast Asian Region, particularly
in
light of the United States’ war on terrorism and the Iraq
war;
|
| |
|
|
•
|
recession
in foreign countries;
|
| |
|
|
•
|
fluctuations
in currency exchange rates, particularly any continued weakness of
the
U.S. dollar and the effect this may have on U.S. off-shore technology
spending;
|
| |
|
|
•
|
difficulties
and costs of staffing and managing foreign operations;
|
| |
|
|
•
|
reduced
protection for intellectual property in some countries;
|
| |
|
|
•
|
political
instability or changes in regulatory requirements or the potential
overthrowing of the current government in certain foreign countries;
|
| |
|
|
•
|
U.S.
imposed restrictions on the import and export of technologies;
and,
|
| |
|
|
|
U.S.
imposed restrictions on the issuances of business and travel visas
to
foreign workers primarily those from Middle Eastern or East Asian
countries.
|
We
Are Controlled By and Are Dependent On Our Key Personnel.
Our
management is currently controlled and operated by various members of the Ghauri
family. Our success will depend in large part upon the continued services of
those individuals including Messrs. Salim Ghauri, Najeeb Ghauri and Naeem
Ghauri. The death or loss of the services of any one of them or of any one
or
more of our other key personnel could have a material adverse effect on our
business, financial condition and results of operations. We do not have key
man
life insurance on these individuals. In addition, if one or more of our key
employees resigns to join a competitor or to form a competing company, the
loss
of such personnel and any resulting loss of existing or potential clients to
any
such competitor could have a material adverse effect on our business, financial
condition and results of operations. In the event of the loss of any key
personnel, there can be no assurance that we will be able to prevent the
unauthorized disclosure or use of our technical knowledge, practices or
procedures by such personnel. We entered into employment agreements with Messrs.
Salim, Najeeb and Naeem Ghauri effective January 1, 2004, for a period of three
(3) years. Messrs. Salim, Najeeb and Naeem Ghauri have non-competition and
anti-raid clauses in their employment agreements with us.
Certain
Of Our Management Team Have Relationships Which May Potentially Result In
Conflicts Of Interests.
In
fiscal
year 2002, certain of our management team loaned approximately $141,893 to
our
Pakistani subsidiary company for operating costs. This loan accrued interest
at
the rate of 18% per annum and was to be repaid at such time as the Company
could
afford to repay the loan or through other methods that did not require a cash
outlay by the Company, such as the exercise of options by the management team.
Also, since 2002 our management team has, in the interest of improving the
cash
flow of the Company, elected to take only a portion of their salaries, deferring
the remainder. In November 2003, the management team exercised options totaling
$200,973 the consideration of which was offset against funds due to the Company
as repayment of the loan and as due but deferred compensation. In March 2004,
the management team exercised options totaling $75,000 of which all but $24,512
was paid for with due but deferred compensation. The remaining $24,511 was
paid
through the officers’ normal salary deferral by the end of August 2004. In
December 2004, the officers exercised options to acquire shares for which the
officers mistakenly believed sufficient deferred compensation existed to pay
for
these exercises. When it was discovered that there was not sufficient deferred
compensation, the shares were cancelled by the agreement of the Company and
the
officers. While these transactions were approved by the Board of Directors,
which believes such transactions to be fair in their terms, and such
transactions have not resulted in the management team choosing personal gain
over Company gain, such transactions may have constituted a potential conflict
of interest between our management members’ personal interest and the interest
of the Company in
that
management could be motivated to repay debts owed to the management team rather
than using that money for the Company’s growth. This, however, did not occur.
Nevertheless, the errors related to the March 2004 and December 2004
transactions may constitute violations of Section 13(k)(1) of the Securities
and
Exchange Act of 1934, as amended (the “Exchange Act”) by the Company and/or the
named officers. A possible violation of Section 13(k)(1) of the Exchange Act
may
result in an investigation by the SEC which may have a materially adverse effect
on the Company. Violations of Section 13(k) (1) of the Exchange Act may expose
the Company and the named officers to possible civil and criminal
penalties.
Certain
Option Exercises May Result in a Violation of Section
13(k)(1)
Officers
of the Company have routinely either loaned funds to or deferred the receipt
of
consideration due to them at such times as the Company was in need of cash.
These officers have frequently used these funds due to them to exercise options
to acquire common stock of the Company. In March 2004, Najeeb and Naeem Ghauri
exercised options to acquire shares of common stock of the Company. At the
time
of the exercise, they mistakenly believed that sufficient funds were due to
them
from the Company and compensation deferral to pay for these options. However,
there was a deficit between the amount of funds due to the officers from the
Company and the exercise price of the options. This deficit was repaid through
the normal salary deferral to the Company by the end of May, in the case of
Mr.
Naeem Ghauri and, the end of August 2004, in the case of Mr. Najeeb Ghauri.
In
December 2004, certain officers exercised options against salary deferrals
due
to them. Upon discovering that sufficient liabilities were
not
available to offset the monies due for the exercise, these shares were
immediately cancelled by the Company. Section 13(k)(1) of the Exchange Act
prohibits companies from making loans to officers. The SEC may view the
difference between the exercise price due and the amounts credited as a
prohibited loan to these officers. The errors related to the March 2004 and
December 2004 transactions may constitute violations of Section 13(k)(1) of
the
Securities and Exchange Act of 1934, as amended (the “Exchange Act”) by the
Company and/or the named officers. A possible violation of Section 13(k)(1)
of
the Exchange Act may result in an investigation by the SEC which may have a
materially adverse effect on the Company. Violations of Section 13(k)(1) of
the
Exchange Act may expose the Company and the named officers to possible civil
and
criminal penalties.
We
Face Significant Competition In Markets That Are New And Rapidly
Changing.
The
markets for the services we provide are highly competitive. We principally
compete with strategy consulting firms, Internet professional services firms,
systems integration firms, software developers, technology vendors and internal
information systems groups. Many of the companies that provide services in
the
markets we have targeted have significantly greater financial, technical and
marketing resources than we do, have greater name recognition and generate
greater revenues. Potential customers may also have in house employees that
can
compete with or replace us. In addition, there are relatively low barriers
to
entry into these markets and we expect to continue to face competition from
new
entrants into these same markets. We believe that the principal competitive
factors in these markets include:
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our
ability to integrate strategy, experience modeling, creative design
and
technology services;
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|
|
•
|
quality
of service, speed of delivery and price;
|
| |
|
|
•
|
industry
knowledge;
|
| |
|
|
•
|
sophisticated
project and program management capability; and,
|
| |
|
|
•
|
Internet
technology expertise and talent.
|
We
believe that our ability to compete also depends on a number of competitive
factors outside our control, including:
|
•
|
ability
of our competitors to hire, retain and motivate professional
staff;
|
| |
|
|
•
|
development
by others of Internet services or software that is competitive with
our
solutions; and
|
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|
|
•
|
extent
of our competitors’ responsiveness to client
needs.
|
There
can
be no assurance that we will be able to compete successfully in these
markets.
RISKS
RELATED TO INVESTING IN THIS OFFERING
Our
Stock Price Has Historically Been Volatile; Our Stock Price After This Offering
Will Be Subject To Market Factors.
The
trading price of our common stock has historically been volatile. The future
trading price of our common stock could be subject to wide fluctuations in
response to:
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•
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quarterly
variations in operating results and achievement of key business
metrics;
|
| |
|
|
•
|
changes
in earnings estimates by securities analysts, if any;
|
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|
|
•
|
any
differences between reported results and securities analysts’ published or
unpublished expectations;
|
| |
|
|
•
|
announcements
of new contracts or service offerings by NetSol or
competitors;
|
| |
|
|
•
|
market
reaction to any acquisitions, joint ventures or strategic investments
announced by NetSol or competitors;
|
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|
|
•
|
demand
for our services and products;
|
| |
|
|
•
|
changes
of shares being sold pursuant to Rule 144 or upon exercise of the
warrants; and,
|
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|
|
•
|
general
economic or stock market conditions unrelated to NetSol’s operating
performance.
|
Potential
Future Sales Pursuant To Rule 144 May Have A Depressive Effect On The Trading
Price Of Our Securities.
Certain
shares of common stock presently held by officers, directors and certain other
stockholders are "restricted securities" as that term is defined in Rule 144,
promulgated under the Act. Under Rule 144, a person (or persons whose shares
are
aggregated) who has satisfied a one year holding period, may, under certain
circumstances sell within any three month period a number of shares which does
not exceed the greater of 1% of the then outstanding shares of common stock,
or
the average weekly trading volume during the four calendar weeks prior to such
sale. Rule 144 also permits, under certain circumstances, including a two-year
holding period, the sale of shares by a person without any quantity limitation.
Such holding periods have already been satisfied in many instances. Therefore,
actual sales or the prospect of sales of such shares under Rule 144 in the
future may depress the prices of our common stock.
Provisions
of Our Bylaws Hinder Change in Control.
Our
bylaws contain provisions that prevent actions being taken by shareholders
by
written consent. Shareholders actions may only be taken at special meetings
called in accordance with our bylaws. Our bylaws limit the manner and timing
of
calling such meetings by shareholders. These provisions may effectively prevent
shareholders from changing board composition and or management in a swift
manner.
USE
OF PROCEEDS
We
will
not receive any of the proceeds from the offering of common stock for sale
by
the selling stockholders. Proceeds received by us as a result of the exercise
of
the warrants by the selling stockholders will be used for working capital
purposes.
SELLING
STOCKHOLDERS
The
following table and notes set forth the name of each selling stockholder, the
nature of any position, office, or other material relationship, if any, which
the selling stockholder has had, within the past three years, with NetSol or
with any of our predecessors or affiliates, the amount of shares of NetSol
common stock that are beneficially owned by such stockholder, the amount to
be
offered for the stockholder's account and the amount to be owned by such selling
stockholder upon completion of the offering.
|
Name
of Selling Stockholder(1)(2)
|
|
Number
of
Shares
of
NetSol
Common Stock
Beneficially
Owned
Prior
to
the Offering(1)
|
|
Number
of
Shares
of
NetSol
Common
Stock
Being
Offered
Hereby
(3)
|
|
Number
of
Shares
of
NetSol
Common
Stock to
be Beneficially
Owned
Upon
Completion
of
the
Offering(1)(2)
|
|
|
The
Tail Wind Fund Ltd.(4)
|
|
|
1,926,376
|
|
|
3,448,766
|
|
|
0
|
|
|
Solomon
Strategic Holdings, Inc.(5)
|
|
|
227,273
|
|
|
313,525
|
|
|
0
|
|
|
Crestview
Capital Master, LLC(6)
|
|
|
880,605
|
|
|
1,881,145
|
|
|
0
|
|
|
Whalehaven
Capital Fund Limited(7)
|
|
|
454,545
|
|
|
627,048
|
|
|
0
|
|
|
Bristol
Investment Fund, Ltd.(8)
|
|
|
454,545
|
|
|
627,048
|
|
|
0
|
|
| Maxim
Partners LLC(9) |
|
|
446,718
|
|
|
266,666
|
|
|
0
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
4,223,547
|
|
|
7,164,198
|
|
|
0
|
|
|
(1)
|
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 such securities.
|
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|
|
(2)
|
None
of the Selling Stockholders has held an employment, officer or director
position with NetSol within the past three years. Assuming that all
shares
being registered hereby will be sold, all convertible notes will
be
converted and all warrants will be exercised, no selling stockholder
will
hold a percentage interest in the shares of NetSol in excess of 1
percent
at the completion of the offering.
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|
|
(3)
|
The
IRA requires the Company to register 150% of
such number of shares of common stock into which the Preferred Stock
is
convertible and 100% of the shares of common stock issuable upon
exercise
of the warrants.
Accordingly, the number being registered hereby is in excess of the
number
held by each Selling Stockholder.
|
|
(4)
|
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. (“Tail Wind”), and
David Crook is the CEO and controlling shareholder of TWAM. Therefore,
TWAM and Mr. Crook may be deemed to have voting and/or investment
control
over the shares of common stock owned by Tail Wind. Each of TWAM
and Mr.
Crook expressly disclaims any equitable or beneficial ownership
of the
shares being referred to hereunder and held by Tail Wind. Tail
Wind is not
affiliated with a broker-dealer and, acquired the securities in
the
ordinary course of business. At the time of the acquisition, Tail
Wind had
no agreements, arrangements or understandings with any other person,
either directly or indirectly, to dispose of the securities. The
shares of
common stock consist of 1,666,667 shares underlying the Preferred
Stock
and 833,334 shares of common stock underlying the Warrants and
115,431
issuable in lieu of cash interest due under the Convertible Notes.
Subject
to the Ownership Limitation (defined below), Tail Wind would own
a total
of 2,615,432 shares of Common Stock, including 1,666,667 shares
of Common
Stock issuable upon conversion of 2,750 Preferred Stock , and 833,334
shares of Common Stock issuable upon exercise of Warrants issued
to Tail
Wind on such date and shares issuable as interest payments due
under the
Convertible 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 Tail Wind’s 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 Tail
Wind
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.
|
| |
|
|
(5)
|
Andrew
P. Mackeller has been authorized by the Board of Directors of Solomon
Strategic Holdings, Inc. (“SSH”) to make voting and disposition decisions
with respect to the shares on behalf of SSH. By reason of such
delegated
authority, Mr. Mackeller may be deemed to have voting and/or investment
control over the shares of common stock owned by SSH. Mr. Mackeller
expressly disclaims any equitable or beneficial ownership of the
shares
being registered hereunder and held by SSH, and he does not have
any legal
right to maintain such delegated authority. a corporation with
a principal
address in the Isle of Man. SSH is not affiliated with a broker-dealer
and, acquired the securities in the ordinary course of business.
At the
time of the acquisition, SSH had no agreements, arrangements or
understandings with any other person, either directly or indirectly,
to
dispose of the securities.The shares of common stock consist of
151,515
shares of common stock underlying the Preferred Stock; 75,758 shares
of
common stock underlying the Warrants; and 10,494 as payment of
interest
due under the Convertible Note.
|
| |
|
|
(6)
|
Crestview
Capital Master, LLC (“Crestview”) is a limited liability company whose
sole manager is Crestview Capital Partners, LLC. Mr. Robert Hoyt
is the
Manager of Crestview Capital Partners. Mr. Stewart R. Flink and
Mr. Daniel
Warsh, as managers of Crestview Capital Partners, have voting and/or
investment control over the Securities being registered for the
account of
Crestview Capital Master, LLC. Messrs. Flink and Warsh disclaim
beneficial
ownership of such shares. Stewart Flink, a manager of Crestview
Capital
Partners, is the controlling shareholder of Dillon Capital, Inc.,
a
broker-dealer, registered under the NASD. All securities to be
resold were
acquired in the ordinary course of business. At the time of acquisition,
Crestview had no agreements, understandings or arrangements with
any other
persons, either directly or indirectly, to dispose of the securities.
The
shares of common stock consist of 909,088 shares of common stock
underlying the Preferred Stock; 454,546 shares of common stock
underlying
the Warrants; and, 62,962 as payment of interest due under the
Convertible
Note. 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
Crestview’s 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 Crestview having beneficial
ownership of 4.99% of the total issued and outstanding shares of
Common
Stock (the "Ownership Limitation"), Crestview disclaims beneficial
ownership of any and all shares of Common Stock that would cause
Crestview
to exceed the 4.99% Ownership Limitation.
|
| |
|
|
(7)
|
Arthur
Jones, Trevor Williams and Derek Wood, directors; Michael Finkelstein,
investment manager; and, Evan Schemenauer, Chief Financial Officer
hold
the right to disburse and vote shares held by Whalehaven Capital
Fund
Limited. Whalehaven Capital Fund is not affiliated with a broker-dealer
and, acquired the securities in the ordinary course of business.
At the
time of the acquisition, Whalehaven Capital Fund had no agreements,
arrangements or understandings with any other person, either directly
or
indirectly, to dispose of the securities.The shares of common stock
consist of 303,031 of common stock underlying the Preferred Stock;
151,515
shares of common stock underlying the Warrants; and, 20,988 as
payment of
interest due under the Convertible Note.
|
| |
|
|
(8)
|
Bristol
Capital Advisors, LLC (“BCA”) is the investment advisor to Bristol
Investment Fund, Ltd. (“Bristol”). Paul Kessler is the manager
of BCA and as such has voting and investment control over the securities
held by Bristol. Mr. Kessler disclaims beneficial ownership of these
securities. Bristol is not affiliated with a broker-dealer and,
acquired
the securities in the ordinary course of business. At the time
of the
acquisition, Bristol had no agreements, arrangements or understandings
with any person, either directly or indirectly, to dispose of the
securities. The shares of common stock consist of 303,031 shares
of common
stock underlying the Preferred Stock; 151,515 shares of common
stock
underlying the Warrants; and, 20,988 as payment of interest due
under the
Convertible Note.
|
| |
|
|
(9)
|
Maxim
Partners LLC owns 98% of Maxim Group LLC, a registered broker dealer.
MJR
Holdings LLC owns 72% of Maxim Partners LLC. Mike Rabinowitz is
the
principal manager of MJR Holdings and has principal voting and
dispositive
power with respect to the securities owned by Maxim Partners LLC.
The
number of shares beneficially owned include: 266,666 warrants to
acquire
common stock which are being registered hereby and 180,052 shares
as
compensation for services provided to NetSol. Pursuant to the placement
agent agreements by and between NetSol and Maxim Group LLC, Maxim
Partners
LLC, as nominee of Maxim Group LLC, received, as part of the compensation
for their services, warrants to purchase up to 266,666 shares of
our
common stock at an exercise price of $1.65 per share. These warrants
may
be exercised until June 20, 2008. Maxim Partners LLC acquired the
securities being registered hereby to be resold in the ordinary
course of
business and, at the time of acquiring the securities, Maxim Partners,
LLC
had no agreements, understandings or arrangements with any other
persons,
either directly or indirectly, to dispose of the securities. In
connection
with its services as our placement agent, Maxim Group LLC also
received
cash compensation and expenses. In addition, Maxim Group LLC also
received
cash compensation from us for M&A advisory services provided to us in
connection with our acquisition of McCue Systems, Inc.. We have
also
granted Maxim Group LLC a right of first refusal to act as lead
underwriter or placement agent or advisor for public and private
equity
and debt offerings and finanancial advisory services.
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PLAN
OF DISTRIBUTION
We
are
registering the shares of common stock on behalf of the selling security
holders. Sales of shares may be made by selling security holders, including
their respective donees, transferees, pledgees or other successors-in-interest
directly to purchasers or to or through underwriters, broker-dealers or through
agents. Sales may be made from time to time on the Nasdaq Capital Market, any
other exchange or market upon which our shares may trade in the future, in
the
over-the-counter market or otherwise, at market prices prevailing at the time
of
sale, at prices related to market prices, or at negotiated or fixed prices.
The
shares may be sold by one or more of, or a combination of, the
following:
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a
block trade in which the broker-dealer so engaged will attempt to
sell the
shares as agent but may position and resell a portion of the block
as
principal to facilitate the transaction (including crosses in which
the
same broker acts as agent for both sides of the
transaction);
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purchases
by a broker-dealer as principal and resale by such broker-dealer,
including resales for its account, pursuant to this
prospectus;
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ordinary
brokerage transactions and transactions in which the broker solicits
purchases;
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through
options, swaps or derivatives;
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in
privately negotiated transactions;
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in
making short sales entered into after the date of this prospectus
or in
transactions to cover such short sales; and
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put
or call option transactions relating to the shares.
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The
selling security holders may effect these transactions by selling shares
directly to purchasers or to or through broker-dealers, which may act as agents
or principals. These broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the selling security holders and/or
the purchasers of shares for whom such broker-dealers may act as agents or
to
whom they sell as principals, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions). The selling security
holders have advised us that they have not entered into any agreements,
understandings or arrangements with any underwriters or broker-dealers regarding
the sale of their securities.
The
selling security holders may enter into hedging transactions with broker-dealers
or other financial institutions. In connection with those transactions, the
broker-dealers or other financial institutions may engage in short sales of
the
shares or of securities convertible into or exchangeable for the shares in
the
course of hedging positions they assume with the selling security holders.
The
selling security holders may also enter into options or other transactions
with
broker-dealers or other financial institutions which require the delivery of
shares offered by this prospectus to those broker-dealers or other financial
institutions. The broker-dealer or other financial institution may then resell
the shares pursuant to this prospectus (as amended or supplemented, if required
by applicable law, to reflect those transactions).
The
selling security holders and any broker-dealers that act in connection with
the
sale of shares may be deemed to be “underwriters” within the meaning of Section
2(11) of the Securities Act of 1933, and any commissions received by
broker-dealers or any profit on the resale of the shares sold by them while
acting as principals may be deemed to be underwriting discounts or commissions
under the Securities Act. The selling security holders may agree to indemnify
any agent, dealer or broker-dealer that participates in transactions involving
sales of the shares against liabilities, including liabilities arising under
the
Securities Act. We have agreed to indemnify each of the selling security holders
and each selling security holder has agreed, severally and not jointly, to
indemnify us against some liabilities in connection with the offering of the
shares, including liabilities arising under the Securities Act.
The
selling security holders will be subject to the prospectus delivery requirements
of the Securities Act. We have informed the selling security holders that
the
anti-manipulative provisions of Regulation M promulgated under the Securities
Exchange Act of 1934 may apply to their sales in the market. The selling
security holders must conduct their sales in accordance with all rules
promulgated under the Securities Exchange Act of 1934, included those provided
in Regulation M.
Selling
security holders also may resell all or a portion of the shares in open market
transactions in reliance upon Rule 144 under the Securities Act, provided they
meet the criteria and conform to the requirements of Rule 144.
Upon
being notified by a selling security holder that a material arrangement has
been
entered into with a broker-dealer for the sale of shares through a block trade,
special offering, exchange distribution or secondary distribution or a purchase
by a broker or dealer, we will file a supplement to this prospectus, if required
pursuant to Rule 424(b) under the Securities Act, disclosing:
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the
name of each such selling security holder and of the participating
broker-dealer(s);
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the
number of shares involved;
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the
initial price at which the shares were
sold;
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the
commissions paid or discounts or concessions allowed to the
broker-dealer(s), where applicable;
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that
such broker-dealer(s) did not conduct any investigation to verify
the
information set out or incorporated by reference in this prospectus;
and
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other
facts material to the transactions.
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In
addition, if required under applicable law or the rules or regulations of the
Commission, we will file a supplement to this prospectus when a selling security
holder notifies us that a donee or pledgee intends to sell more than 500 shares
of common stock.
We
are
paying all expenses and fees in connection with the registration of the shares.
The selling security holders will bear all brokerage or underwriting discounts
or commissions paid to broker-dealers in connection with the sale of the
shares.
Pursuant
to a requirement by the National Association of Securities Dealers, Inc.,
or
NASD, the maximum commission or discount to be received by any NASD member
or
independent broker/dealer may not be greater than 8.0% of the gross proceeds
received by us for the sale of any securities being registered pursuant to
SEC
Rule 415.
The
266,666 warrants issued to Maxim Partners, LLC are exercisable at $1.65 per
share and have been deemed compensation
by the NASD and are therefore subject to a 180-day lock-up from the date
of this
prospectus pursuant to Rule 2710(g)(1) of the NASD Conduct Rules. Additionally,
the warrants may not be sold, transferred, assigned, pledged or hypothecated,
or
be the subject of any hedging, short sale, derivative, put or call transaction
that would result in the effective economic disposition of the such securities,
for a period of 180 days following the date of this prospectus. However,
the
warrants may be transferred to any underwriter and selected dealer participating
in the offering and their bona fide officers or partners. Thereafter, the
warrants will be transferable provided such transfer is in accordance with
the
provisions of the Securities Act.
LEGAL
PROCEEDINGS
To
the
best knowledge of Company’s management and counsel, there is no material
litigation pending or threatened against the Company.
DESCRIPTION
OF SECURITIES
The
Selling Stockholders are offering for sale shares of our common stock, par
value
$0.001 per share. We only have one class of common stock. Our capital stock
consists of 45,000,000 shares of common stock, par value $.001 per share and
5,000,000 shares of preferred stock, $.001 par value. Our board of directors
has
designated the rights and privileges of 7% Series A Cumulative Convertible
Preferred Stock (the “Preferred Stock”). As of the October 30, 2006, there are
5,500 shares of Preferred Stock issued and outstanding. No other shares of
preferred stock have been issued. The terms and rights of the preferred shares
may be set by the board of directors at their discretion. Each share of common
stock is entitled to one vote at annual or special stockholders meetings. There
are no pre-emption rights. We have never declared or paid any dividends on
our
common stock or other securities and we do not intend to pay any cash dividends
with respect to our common stock in the foreseeable future. For the foreseeable
future, we intend to retain any earnings for use in the operation of our
business and to fund future growth. The terms of the warrant agreements between
the selling stockholders and NetSol contain anti-dilution
protections.
The
Preferred Stock is convertible into shares of common stock at such time and
at
such value as is set forth in the Certificate of Designation. The initial
conversion value shall be $1.65. The conversion value is subject to adjustment
as set forth in the Certificate of Designation. The holders of the Preferred
Stock are entitled to receive cumulative dividends at the rate of 7% per annum
from the date of issuance of each share until paid. The dividends may be paid,
at the Company’s option, in cash or in shares of common stock in arrears on the
first business day of each calendar quarter of each year. The Company may force
a conversion of the Preferred Stock in the event that the market price of the
Company’s common stock is greater than 200% of the conversion value. If any
shares of the Preferred Stock remain outstanding on June 15, 2009, the Company
shall redeem such shares for an amount in cash equal to the liquidation
preference plus all accrued but unpaid dividends. Anti-dilution protection
is
afforded to the holders by providing for an adjustment of the conversion price
in certain circumstances as is set forth in the Certificate of Designation.
The
conversion price is adjusted for dividends subdivisions, combinations,
distributions and issuances of shares, or securities convertible into shares,
of
common stock of the Company issued at an effective per share selling price
which
is the less than the greater of the fair market price or the conversion value
as
of the issuance date. 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 and
voting of the Preferred Stock is subject to beneficial ownership caps of from
4.9% to 9.9% of the total number of shares of common stock of the Company then
issued and outstanding.
EXPERTS
The
audited financial statements for our company incorporated by reference in this
prospectus and in the registration statement of which it forms a part have
been
audited by Kabani & Company, Inc., independent registered public accounting
firm, to the extent and for the periods set forth in their reports incorporated
herein and are incorporated herein in reliance upon such reports given upon
the
authority of said firm as experts in auditing and accounting.
The
audited financial statements for our company as of the fiscal year ended June
30, 2005 is also reliant on the reports of Saeed Kamran Patel & Co.,
Chartered accountants, as stated in their reports therein, upon the authority
of
that firm as experts in auditing and accounting.
Patti
L.
W. McGlasson, Esq., General Counsel for our Company, has passed on the validity
of the securities being offered hereby.
Kabani
& Company, Inc. was not hired on a contingent basis, nor will it receive a
direct of indirect interest in the business of the issuer. Neither Kabani &
Company, Inc. nor its principals are, or will be, a promoter, underwriter,
voting trustee, director, officer or employee of NetSol. Saeed Kamran Patel
& Co, was not hired on a contingent basis, nor will it receive a director or
indirect interest in the business of the issuer. Neither Saeed Kamran Patel
& Co, nor its principals are, or will be, a promoter, underwriter, voting
trustee, director, or officer of employee of NetSol. Ms. McGlasson is an
employee of NetSol. She has received, as part of her compensation with NetSol,
options to purchase and grants of shares of common stock.
DISCLOSURE
OF COMMISSION POSITION OF
INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
We
have
indemnified each member of the board of directors and our executive officers
to
the fullest extent authorized, permitted or allowed by law. Insofar as
indemnification for liabilities arising under the Securities Act of 1933 (the
"Act") may be permitted to directors, officers and controlling persons of the
small business issuer pursuant to the foregoing provisions, or otherwise, the
small business issuer has been advised that in the opinion of the Securities
and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
For
the
purpose of determining any liability under the Act, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona
fide offering thereof.
WHERE
YOU CAN FIND MORE INFORMTION
We
are
subject to the information requirements of the Securities Exchange Act of 1934
and we file reports and other information with the SEC.
You
may
read and copy any of the reports, statements, or other information we filed
with
the SEC at the SEC’s Public Reference Section at 100 F Street, N.E., Washington
D.C. 20549 at prescribed rates. Information on the operation of the Public
Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC
maintains a website at http://www.sec.gov
that
contains reports, proxy statements and other information regarding issuers
that
file electronically with the SEC. The Nasdaq Stock Market maintains a website
at
http://www.nasdaq.com
that
contains reports, proxy statements and other information filed by
us.
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
We
have
filed with the SEC, Washington D.C., a registration statement on Form S-3 under
the Securities Act, covering the securities offered by this prospectus. This
prospectus does not contain all of the information that you can find in our
registration statement and the exhibits to the registration statement.
Statements contained in this prospectus as to the contents of any contract
or
other document referred to are not necessarily complete and in each instance
such statement is qualified by reference to each such contract or document
filed
or incorporated by reference as an exhibit to the registration
statement.
The
SEC
allows us to “incorporate by reference” the information we file with them. This
means that we can disclose important information to you by referring to other
documents that are legally considered to be part of this prospectus, and later
information that we file with the SEC will automatically update and supersede
the information in this prospectus and the documents listed below. We
incorporate by reference the documents listed below, and any future filings
made
with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange
Act of 1934 until the selling stockholders sell all the offered
shares:
*
Our
Quarterly Report on Form 10-QSB for the quarter ended September 30,
2006.
*
Our
Definitive Proxy Statement filed with the SEC on September 18,
2006.
*
Our
Annual Report on Form 10-KSB for the year ended June 30, 2006 filed with the
SEC
on September 27, 2006.
*
Our
Current Report on Form 8-K filed with the SEC on July 5, 2006.
*
Our
Current Report on Form 8-K filed with the SEC on July 24, 2006.
*
Our
Current Report on Form 8-K filed with the SEC on September 11,
2006.
*
Our
Current Report on Form 8-K filed with the SEC on September 25,
2006.
*
Our
Current Report on Form 8-K filed with the SEC on October 6, 2006.
We
will
provide to each person at no cost, including any beneficial owner, to whom
a
prospectus is delivered, a copy of any or all of the information that has been
incorporated by reference in the prospectus but not delivered with the
prospectus upon the written or oral request to NetSol Technologies, Inc.
attention: General Counsel, 23901 Calabasas Road, Suite 2072, Calabasas,
California 91302; (818) 222-9195.
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Indemnification
of Directors and Officers
We
are
required by our Bylaws and Certificate of Incorporation to indemnify, to the
fullest extent permitted by law, each person that we are permitted to indemnify.
Our Bylaws it to indemnify such parties to the fullest extent permitted by
Nevada law.
Nevada
corporation law permits us to indemnify our directors, officers, employees,
or
agents against expenses, including attorneys fees, judgments, fines and amounts
paid in settlements actually and reasonably incurred in relation to any action,
suit, or proceeding brought by third parties because they are or were directors,
officers, employees, or agents of the corporation. In order to be eligible
for
such indemnification, however, our directors, officers, employees, or agents
must have acted in good faith and in a manner they reasonably believed to be
in,
or not opposed to, our best interests. In addition, with respect to any criminal
action or proceeding, the officer, director, employee, or agent must have had
no
reason to believe that the conduct in question was unlawful.
In
derivative actions, we may only indemnify our officers, directors, employees,
and agents against expenses actually and reasonably incurred in connection
with
the defense or settlement of a suit, and only if they acted in good faith and
in
a manner they reasonably believed to be in, or not opposed to, our best
interests. Indemnification is not permitted in the event that the director,
officer, employee, or agent is actually adjudged liable to the corporation
unless, and only to the extent that, the court in which the action was brought
so determines.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933
(the
“Act”) may be permitted to our controlling directors, officers, or persons
pursuant to the foregoing provisions, we have been informed that in the opinion
of the Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Act and is therefore
unenforceable.
Expenses
of Issuance and Distribution
The
following is an estimate of the expenses that we expect to incur in connection
with this registration. We will pay all of these expenses, and the selling
stockholders will not pay any of them.
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SEC
Registration fee
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$
|
1,239.49*
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Printing
and engraving expenses
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$
|
0.00*
|
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|
Legal
fees and expenses
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$
|
0.00*
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|
Accounting
fees and expenses
|
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$
|
1,500.00*
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Miscellaneous
|
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$
|
0.00*
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Total
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|
$
|
2,73949*
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*
Estimate, and subject to future contingencies.
Exhibits
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4.1
|
Form
of Common Stock Certificate filed as Exhibit 4.2 to NetSol’s Annual Report
filed on form 10-KSB on September 27, 2006 and incorporated herein
by this
reference.
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4.2
|
The
Warrant filed as Annex C to NetSol’s Definitive Proxy Statement filed on
September 18,2006 and incorporated herein by this
reference.
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4.3
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Form
of Series A 7% Cumulative Convertible Preferred Stock filed as Annex
E to
NetSol’s Definitive Proxy Statement filed on September 18, 2006 and
incorporated herein by this reference.
|
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4.4
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Investor’s
Rights Agreement incorporated filed as Annex D to NetSol’s Definitive
Proxy Statement filed on September 18, 2006 and incorporated herein
by
this reference.
|
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4.5
|
Convertible
Note and Warrant Purchase Agreement filed as Annex A to NetSol’s
Definitive Proxy Statement filed on September 18, 2006 and incorporated
herein by this reference.
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4.6
|
12%
Convertible Note filed as Annex B to NetSol’s Definitive Proxy Statement
filed on September 18, 2006 and incorporated herein by this
reference.
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4.7
|
Placement
Agent Warrant filed as Annex F to NetSol’s Definitive Proxy Statement
filed on September 18, 2006 and incorporated herein by this
reference.
|
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5.0
|
Opinion
of Patti L. W. McGlasson*
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23.1
|
Consent
of Kabani & Company*
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23.2
|
Consent
of Saeed Kamran Patel *
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| *Filed
Herewith |
Undertakings
Insofar
as indemnification for liabilities arising under the Securities Act of 1933
may
be permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of
such issue.
The
undersigned registrant hereby undertakes:
(1) To
file, during any period in which it offers or sells securities, a post-effective
amendment to this registration statement to:
(i)
To include any prospectus required by section 10(a)(3) of the Securities Act
of
1933.
(ii)
To reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the registration
statement; and notwithstanding the forgoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities offered would
not
exceed that which was registered) and any deviation from the low or high end
of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in the volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii)
To include any additional or changed material information on the plan of
distribution.
(2) For
purposes of determining liability under the Securities Act, to treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona
fide offering.
(3) To
file a post-effective amendment to remove from registration any of the
securities that remains unsold at the end of the offering.
Each
prospectus filed pursuant to Rule 424(b) as part of a registration statement
relating to an offering, other than registration statements relying on Rule
430B
or other than prospectuses filed in reliance on Rule 430A, shall be deemed
to be
part of and included in the registration statement as of the date it is first
used after effectiveness. Provided, however, that no statement made in a
registration statement prospectus that is part of the registration statement
or
made in a document incorporated or deemed incorporated by reference will, as
to
a purchaser with a time of contract of sale prior to such first use, supersede
or modify any statement that was made in the registration statement or
prospectus that was part of the registration statement or made in any such
document immediately prior to such date of first use.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant certifies
that
it has reasonable grounds to believe that it meets all of the requirements
for
filing on Form S-3 and has duly caused this amended registration statement
to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
city
of Calabasas, State of California on December 1, 2006.
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Netsol
Technologies, Inc.
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By: |
/s/
Najeeb Ghauri |
| |
Najeeb
Ghauri, Chief Executive
Officer |
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By: |
/s/ Tina
Gilger |
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Tina
Gilger,
Chief Financial Officer |
POWER
OF ATTORNEY
KNOW
ALL PERSONS BY THESE PRESENTS,
that
each of the undersigned hereby constitutes and appoints Najeeb Ghauri, as
his
true and lawful attorney-in-fact and agent, with full power of substitution
and
resubstitution, for him and on his behalf to sign, execute and file this
registration statement and any or all amendments (including, without limitation,
post-effective amendments) to this registration statement, and to file the
same,
with all exhibits thereto and any and all documents required to be filed
with
respect therewith, with the Securities and Exchange Commission or any regulatory
authority, granting unto such attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in connection therewith and about the premises in order to effectuate
the same as fully to all intents and purposes as he might or could do if
personally present, hereby ratifying and confirming all that such
attorney-in-fact and agent, or his substitute or substitutes, may lawfully
do or
cause to be done.
Pursuant
to the requirements of the Securities Act of 1933, as amended, this registration
statement has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
|
Name
and Signature
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Title
|
|
Date
|
| |
|
|
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/s/Najeeb
Ghauri
|
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Director,
Chairman, Chief Executive Officer
|
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December
1, 2006
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/s/Tina
Gilger
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Chief
Financial Officer
|
|
December
1, 2006
|
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|
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/s/Naeem
Ghauri
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Director
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December
1, 2006
|
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/s/
Derek Soper
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Director
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December
1, 2006
|
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/s/
Salim Ghauri
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Director
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|
December
1, 2006
|
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/s/
James Moody
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Director
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|
December
1, 2006
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/s/
Eugen Beckert
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Director
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|
December
1, 2006
|
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/s/
Shahid Javed Burki
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|
Director
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|
December
1, 2006
|