UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
----------------------------------------------------------------------
Date of Report (Date of earliest event reported): July 14, 2005
(January 19, 2005)
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)
23901 Calabasas Road, Suite 2072, Calabasas, CA 91302
(Address of principal executive offices) (Zip Code)
(818) 222-9195 / (818) 222-9197
(Issuer's telephone/facsimile numbers, including area code)
Item 1.01. Entry into a Material Definitive Agreement.
On January 19, 2005, NetSol Technologies, Inc., a Nevada corporation (the
"Company") entered into a Share Purchase Agreement whereby the Company agreed to
acquire 100% of the issued and outstanding shares of CQ Systems Ltd., a company
organized under the laws of England and Wales ("CQ") (the "Share Purchase
Agreement"). Prior to the execution of the Share Purchase Agreement, there was
no relationship between the Company and any of the parties to the Share Purchase
Agreement. On March 1, 2005, the Company filed an amended current report on form
8-K including the financial statements of CQ and certain pro forma financial
statements. On June 9, 2005, the Company filed and amended current report on
form 8-k to remove the reference to the CQ Systems Ltd. Financial Statements for
the year ended March 31, 2003 and to add the financial statements of CQ Systems
Ltd. for the period ending December 31, 2004.
The Company is now attaching the March 2004 year end financial statements for CQ
Systems which has been amended and which includes a new auditor's letter.
Exhibits
Listed below are the financial statements, pro forma financial information filed
as a part of this report.
(a) Financial Statements of the Business Acquired.
(1) CQ Systems Ltd. Financial Statements for the year ended March 31, 2004
(2) CQ Systems Ltd. Financial Statements for the period ending December 31,
2004*
(b) Pro Forma Financial Information.
(1) NetSol Technologies Inc. and Subsidiaries Pro Forma Financial Statements
June 30, 2004 (Unaudited)*
NetSol Technologies Inc. and Subsidiaries Pro Forma Financial Statements
June 30, 2003 (Unaudited)*
NetSol Technologies, Inc. and Subsidiaries Pro Forma Financial Statements
for the quarter and six months ended December 31, 2004 (Unaudited)*
(c) Exhibits
2.1 Share Purchase Agreement dated as of January 19, 2005 by and between the
Company and the shareholders of CQ Systems Ltd.*
*Previously filed
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: July 14, 2005 /s/ Naeem Ghauri
---------------------------
NAEEM GHAURI
Chief Executive Officer
Date: July 14, 2005 /s/ Najeeb Ghauri
---------------------------
NAJEEB GHAURI
Chief Financial Officer and Chairman
CQ SYSTEMS LIMITED
COMPANY NUMBER: 1998080
(Registered in England)
FINANCIAL STATEMENTS
AND ADDITIONAL INFORMATION
YEAR ENDED 31 MARCH 2004
CQ SYSTEMS LIMITED
COMPANY INFORMATION
FOR THE YEAR ENDED 31 MARCH 2004
DIRECTORS: P J Grace
G E Tarrant
I M Tarrant
A Elliott
J Halliday
J Manktelow
C S Taylor
SECRETARY: P M Tarrant
REGISTERED OFFICE: Planet House
North Heath Lane
Horsham
West Sussex
United Kingdom
RH12 5QE
REGISTERED NUMBER: 1998080 (England)
ACCOUNTANTS & AUDITORS: CMB Partnership
Chartered Accountants and Registered Auditors
Chapel House
1 Chapel Street
Guildford
Surrey
United Kingdom
GU1 3UH
CQ SYSTEMS LIMITED
CONTENTS
FINANCIAL STATEMENTS PAGE
Directors Report 1
Independent Auditor's Report 2
Consolidated Balance Sheets 3
Consolidated Statements of Income and Retained Earnings 4
Consolidated Statements of Comprehensive Income 4
Consolidated Statements of Cash Flows 5 - 6
Notes to the Financial Statements 7 - 10
Company Balance Sheet 11
CQ SYSTEMS LIMITED
REPORT OF THE DIRECTORS FOR THE YEAR ENDED 31 MARCH 2004
The directors present their report with the financial statements of the group
for the year ended 31 March 2004.
PRINCIPAL ACTIVITY
The principal activity of the group in the year under review was that of the
provision of computer software and services.
DIRECTORS
The directors during the year under review were:
P J Grace
G E Tarrant
I M Tarrant
A Elliott
J Halliday
J Manktelow
C S Taylor - appointed 05/02/04
The beneficial interests of the directors holding office on 31 March 2004 in the
issued share capital of the company were as follows:
01.04.03
or date of
appointment
31.03.04 if later
-------- --------
Ordinary (pound)0.20 shares
P J Grace 75,000 75,000
G E Tarrant 150,000 150,000
I M Tarrant 150,000 150,000
A Elliott 55,983 55,983
J Halliday 38,034 38,034
J Manktelow 30,983 30,983
C S Taylor -- --
The directors' interests above include shares held by connected persons.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
Company law requires the directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
company and of the profit or loss of the company for that period. In preparing
those financial statements, the directors are required to
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company. They are also responsible for safeguarding the assets of the company
and hence for taking reasonable steps for the prevention and detection of fraud
and other irregularities.
ON BEHALF OF THE BOARD:
Secretary: P. Tarrant
Date: 24th January 2005
Page 1
CQ SYSTEMS LIMITED
INDEPENDENT AUDITOR'S REPORT
Board of Directors
NetSol Technologies, Inc. and Subsidiaries
Calabasas, California
We have audited the consolidated balance sheets of CQ Systems Limited, a United
Kingdom corporation, as of March 31, 2004 and 2003, and the related statements
of operations, and cash flows for the years ended March 31, 2004 and 2003. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit of these statements in accordance with auditing standards
generally accepted in the United Kingdom. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, based on our audits, the financial statements referred to above
present fairly, in all material respects, the financial position of CQ Systems
Limited as of March 31, 2004 and 2003, and the results of its consolidated
operations and its cash flows for the years ended March 31, 2004 and 2003 in
conformity with accounting principles generally accepted in the United States of
America. The details were extracted from the financial statements prepared under
United Kingdom GAAP. The financial statements prepared under United Kingdom GAAP
were audited by ourselves with an unqualified Audit Report issued.
/s/ CMB Partnership
CMB Partnership
Surrey, United Kingdom
24 January 2005
Page 2
CQ SYSTEMS LIMITED
CONSOLIDATED BALANCE SHEET - ASSETS
March 31
2004 2003
Note (pound) (pound)
--------- ---------
CURRENT ASSETS
Cash and cash equivalents 809,488 448,136
Accounts receivable (net of (pound)5,000 bad debt provision) 400,280 435,806
Prepaid expenses and other receivables 60,501 47,216
--------- ---------
TOTAL CURRENT ASSETS 1,270,269 931,158
--------- ---------
AUTOMOBILES & EQUIPMENT 2
Automobiles 64,725 39,732
Furniture and equipment 172,841 155,093
Computer equipment 580,772 546,646
--------- ---------
818,338 741,471
Less accumulated depreciation 676,768 616,420
--------- ---------
141,570 125,051
--------- ---------
1,411,839 1,056,209
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31
2004 2003
Note (pound) (pound)
--------- ---------
CURRENT LIABILITIES
Accounts payable 16,682 21,365
Hire purchase liabilities 23,428 32,153
Payroll, Vat and corporation taxes payable 283,017 135,117
Dividends payable 53,062 30,000
Accrued liabilities 75,197 92,911
Deferred income 418,581 410,193
--------- ---------
TOTAL CURRENT LIABILITIES 869,967 721,739
LONG TERM LIABILITIES AND PROVISIONS
Hire purchase liabilities 38,270 5,275
Deferred tax 2,916 1,198
--------- ---------
TOTAL LIABILITIES 911,153 728,212
SHAREHOLDERS' EQUITY 7
Ordinary Shares
1,000,000 shares authorised (pound)0.20 par value
Issued and outstanding 500,000 shares 100,000 100,000
Retained earnings 400,686 227,997
--------- ---------
1,411,839 1,056,209
========= =========
......................... ..........................
Approved and signed on behalf of the board of directors on
See notes to financial statements.
Page 3
CQ SYSTEMS LIMITED
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
Year ended Year ended
March 31 2004 March 31 2003
Note (pound) (pound)
---------- ----------
NET REVENUE 1.b 2,739,303 2,471,477
COST OF REVENUE 1,082,577 1,069,974
---------- ----------
GROSS PROFIT 1,656,726 1,401,503
OPERATING EXPENSES 1.e 1,119,171 1,302,176
---------- ----------
INCOME FROM OPERATIONS 537,555 99,327
OTHER INCOME (EXPENSES)
Interest income 19,483 10,257
Interest payable (5,238) (3,530)
---------- ----------
INCOME BEFORE CORPORATION 551,800 106,054
AND DEFERRED TAXES
UK CORPORATION AND DEFERRED TAXES 3 (141,049) (29,076)
---------- ----------
NET INCOME 410,751 76,978
RETAINED EARNINGS
Beginning of year 227,997 181,019
Less: Dividends (238,062) (30,000)
---------- ----------
End of year 400,686 227,997
========== ==========
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year ended Year ended
March 31 2004 March 31 2003
(pound) (pound)
---------- ----------
NET INCOME 410,751 76,978
---------- ----------
COMPREHENSIVE INCOME 410,751 76,978
========== ==========
See notes to financial statements.
Page 4
CQ SYSTEMS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended Year ended
March 31 2004 March 31 2003
(pound) (pound)
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers 2,761,544 2,343,179
Cash paid to suppliers and employees (2,074,453) (2,235,165)
Interest received 19,483 10,257
Interest paid (5,238) (3,530)
Corporation tax paid (27,878) (8,782)
---------- ----------
Net cash provided by operating activities 673,458 105,959
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net sales (purchases) of equipment (97,106) (27,462)
---------- ----------
Net cash used by investing activities (97,106) (27,462)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (215,000) --
---------- ----------
Net cash used by financing activities (215,000) --
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 361,352 78,497
CASH AND CASH EQUIVALENTS
Beginning of year 448,136 369,639
---------- ----------
End of year 809,488 448,136
========== ==========
See notes to financial statements.
Page 5
CQ SYSTEMS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
Year ended Year ended
March 31 2004 March 31 2003
(pound) (pound)
-------- --------
RECONCILIATION OF NET INCOME TO CASH
PROVIDED BY OPERATING ACTIVITIES
Net Income 410,751 76,978
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 80,587 111,390
Decrease/(increase) in accounts receivable and other debtors 22,241 (128,297)
Increase in accounts payable and other creditors 46,708 25,594
Increase in corporation taxes payable 111,453 19,096
Increase in deferred taxes 1,718 1,198
-------- --------
262,707 28,981
-------- --------
673,458 105,959
======== ========
See notes to financial statements.
Page 6
CQ SYSTEMS LIMITED
NOTES TO FINANCIAL STATEMENTS
1. Summary of significant accounting policies
The accompanying consolidated financial statements are prepared in
accordance with accounting principles generally accepted in the United
States of America (US GAAP) and are stated in United Kingdom sterling.
In preparing the consolidated financial statements, management is required
to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities
at the date of the consolidated balance sheet and the reported amounts of
revenues and expenses during the reported period. Actual results could
differ from those estimates.
a. Principles of consolidation
The consolidated financial statements include the financial
statements of the company and its subsidiary. The group's subsidiary
is Custom Quest Limited, a dormant company that has not traded since
31 May 2001 in which the group has a 100% direct holding in the
voting rights. The net assets of the subsidiary company since
cessation of trade is (pound)nil.
b. Revenue
The group recognises its revenue in accordance with the Securities
and Exchange Commissions ("SEC") Staff Accounting Bulletin No 104
"Revenue recognition in Financial Statements".
Licence revenue is recognised where orders have been signed and the
product is delivered. In contracts with multiple elements revenues
are allocated to each element based on the fair value on completion,
delivery and acceptance by the customer. For other services related
activity, revenue is recognised on a time and material basis.
c. Automobiles and equipment
Depreciation is provided at the following rates in order to write
off each asset over its useful life;
Computer software 50% straight line
Office furniture and fittings 15% straight line
Computer equipment 33.33% straight line
Automobiles 25% straight line
The group evaluates tangible fixed assets for impairment losses at
least annually and whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable or is
greater than its fair value.
Long-lived assets
Effective January 1 2002, the group adopted Statement of Financial
Accounting Standards No 144 "Accounting for the impairment or
disposal of long-lived assets" ("SFAS 144") which addresses
financial accounting and reporting for the impairment or disposal of
long-lived assets. The group has evaluated the carrying value of
long-lived assets held in accordance with SFAS 144. SFAS 144
requires impairment losses to be recorded on long-lived assets when
indicators of impairment are present where the carrying amount
exceeds the fair value of the asset. Based on its review, the group
believes that as of March 31 2004 and 2003, there were no
significant impairments of its long-lived assets.
Page 7
CQ SYSTEMS LIMITED
NOTES TO FINANCIAL STATEMENTS - Continued
d. Deferred Tax
Deferred tax is recognised in respect of all timing differences that
have originated but not reversed at the balance sheet date. These
reflect the expected future tax consequences of temporary
differences between the carrying amounts of assets and liabilities
at the balance sheet date and their respective tax bases.
e. Research and Development
Expenditure on research and development is written off in the year
in which it is incurred. Development costs on computer software that
is to be sold relates to bespoke work undertaken for particular
customers as and when requested. Under these circumstances, these
costs are written off as incurred rather than capitalised and
amortised, as they relate solely to the individual customers
specifications rather than being available for general release to
customers.
f. Advertising
The company expenses advertising costs as they are incurred.
g. Hire Purchase and Leasing Commitments
Assets obtained under hire purchase contracts are capitalised in the
balance sheet and are depreciated over their useful estimated lives.
The interest element of these obligations are charged to the
statement of income and retained earnings over the lease term. The
capital element of the future payments is treated as liability.
Rentals paid under operating leases are charged to the statement of
income and retained earnings on a straight line basis.
h. Pensions
The company operates a defined contribution pension scheme.
Contributions payable for the year are charged in the statement of
income and retained earnings.
i. Cash and cash equivalents
Cash and cash equivalents consist of cash at bank and in hand.
j. Foreign currency transactions
Accounting principles generally require that recognised revenue,
expenses, gains and losses be included in net income. Certain
statements however require entities to report specific changes in
assets and liabilities, such as a gain or loss on a foreign currency
translation, as a separate component of the equity section of the
balance sheet. Such items, along with net income, are components of
comprehensive income. Cumulative translation adjustments were
insignificant in both the year and preceding year.
2. SECURED CREDITORS
The amounts owed under hire purchase contracts totalling (pound)61,698
(2003 - (pound)37,428) are secured on the assets acquired.
Page 8
CQ SYSTEMS LIMITED
NOTES TO FINANCIAL STATEMENTS - Continued
3. CORPORATION AND DEFERRED TAXES
Provision is made for United Kingdom corporation tax payable on the
group's taxable net income. This is provided for at the rate of tax
prevailing at that time. The current standard corporation tax rate in the
United Kingdom is 30%. Deferred tax is provided using the standard rate.
The UK corporation and deferred tax charge is stated below:-
Year Ended Year Ended
March 31 March 31
2004 2003
(pound) (pound)
-------- --------
Corporation tax 139,331 27,878
Deferred tax 1,718 1,198
-------- --------
141,049 29,076
-------- --------
The corporation tax assessed for the year is set out below:-
Year Ended Year Ended
March 31 March 31
2004 2003
(pound) (pound)
-------- --------
Net Income 551,800 106,064
======== ========
Net income multiplied by standard rate of 165,540 20,150
corporation tax of 30% (2003: small companies
corporation tax rate of 19%)
Effects of:-
Excess of capital allowances over depreciation (1,099) 6,950
Expenses not allowable for tax Marginal relief 977 778
(26,087) --
-------- --------
139,331 27,878
-------- --------
4. COMMITMENTS
The group is committed to making operating lease payments of (pound)82,500
in the forthcoming year.
Page 9
CQ SYSTEMS LIMITED
NOTES TO FINANCIAL STATEMENTS - Continued
5. MAJOR CUSTOMERS
Revenue from customers accounting for more than 10% of the total net
revenue for the year are as follows:
Singer & Friedlander Insurance Finance Limited (pound)689,375
Cattles Commercial Leasing Limited and Cattles Commercial Finance Limited (pound)544,459
6. DIVIDENDS
The shareholders of the company in their meeting dated 23 September 2003
approved a dividend of (pound)185,000. A further dividend of (pound)53,062
was approved at a meeting held on 26 February 2004.
7. SHAREHOLDERS EQUITY
March 31 March 31
2004 2003
(pound) (pound)
-------- --------
Net income for year 410,751 76,978
Dividends (238,062) (30,000)
-------- --------
Net addition to shareholders equity 172,689 46,978
Opening Shareholders equity 327,997 281,019
-------- --------
Closing Shareholders equity 500,686 327,997
-------- --------
Page 10
COMPANY BALANCE SHEET - ASSETS
March 31
2004 2003
Note (pound) (pound)
--------- ---------
CURRENT ASSETS
Cash and cash equivalents 809,488 448,136
Accounts receivable (net of (pound)5,000 bad debt provision) 400,280 435,806
Prepaid expenses and other debtors 60,501 47,216
--------- ---------
TOTAL CURRENT ASSETS 1,270,269 931,158
--------- ---------
EQUIPMENT
2
Automobiles 64,725 39,732
Furniture and equipment 172,841 155,093
Computer equipment 580,772 546,646
--------- ---------
818,338 741,471
Less accumulated depreciation 676,768 616,420
--------- ---------
141,570 125,051
--------- ---------
1,411,839 1,056,209
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31
2004 2003
(pound) (pound)
--------- ---------
CURRENT LIABILITIES
Accounts payable 16,682 21,365
Hire purchase liabilities 23,428 32,153
Payroll, Vat and corporation taxes payable 283,017 135,117
Dividends payable 53,062 30,000
Accrued liabilities 75,197 92,911
Deferred income 418,581 410,193
--------- ---------
TOTAL CURRENT LIABILITIES 869,967 721,739
LONG TERM LIABILITIES AND PROVISIONS
Hire purchase liabilities 38,270 5,275
Deferred tax 2,916 1,198
--------- ---------
TOTAL LIABILITIES 911,153 728,212
SHAREHOLDERS' EQUITY
Ordinary Shares
1,000,000 shares authorised (pound)0.20 par value
Issued 500,000 shares 100,000 100,000
Retained earnings 400,686 227,997
--------- ---------
1,411,839 1,056,209
========= =========
......................... ..........................
Approved and signed on behalf of the board of directors on
Page 11