We have 4.1 mm left of the 2008 converts, unless some have been converted subsequent to Q1.
On the 2008 notes: During the quarter ended September 30, 2010, Holders of the 2008 Note further elected to convert the principal and interest due thereon into a total of 310,435 shares of common stock. These conversions reduced the principal of the 2008 Note to $4,149,402
Other dilution came from conversion of the 2009 Notes. 10Q says: During the quarter ended September 30, 2010, Holders of the 2009 Note further elected to convert the remaining principal and interest due thereon into a total of 2,613,333 shares of common stock. These conversions reduced the principal of the 2009 Note to nil.
That explains 2.6 mm shares of dilution.
There is no question that the company suffers from the Pakistan connection. If this company was in India in some ways it would be doing better, both in terms of market perception and because potential clients wouldn't be afraid to visit the place, not to mention that it is easier to get a beer in India.
On the other hand, I suspect their labor costs are below Indian costs for the same reason -there are no Wipros or Satyams, etc there to compete for labor. Also, while the Indian rupee has been strengthening, the Pak rupee has been falling for years, which means again a cheaper labor cost.
Thanks for the summary of your conversation with Najeeb (or whichever Ghauri). On the Tailwinds deal, can you remind me what happened? Did they use cash to repay some or all of the converts? Thanks!
You are completely right. Every day one of the brokers takes this thing up at the close, which is the "painting the screen deal". I don't know how they do it, and I don't particularly mind since I'm long. Today was particularly egregious though, and as far as I'm concerned, should not be allowed. I had an order to sell at $1.85 in the last minute, most of which go executed but not the last 500 shares, which remained unsold at the close. So they somehow went past my offer and put up a trade above the price I was offering to sell. I presume this happened at one of the alternative exchanges, but i would be interested if anyone could explain to me how this can happen.
I think the reality is that most of the business is done in Asia. The US presence has usually been small, and generally not particularly successful in terms of generating sales, and is not really indicative of the company. I thought they were also getting out of the Calabasas lease as well, by the way.
As far as I can tell, the US presence is mainly to maintain the listing, do the corporate filings, and probably lastly to get some actual US business done (US business was something like 15% of revenues as I recall). Hopefully that changes but that seems to be the case now.
It is a bit of an issue, but remember they also have $12 mm of receivables against $4.9 mm of payables, plus the $4mm in cash. Also, as I recall, the $4 mm of converts though, are likely to get converted into equity, as the strike price is significantly below $1, so that will reduce the debt - though since equity gets diluted its not without pain.
The idea is that Pak, China, Philippines, Vietnam are the new "new markets" for business process outsourcing companies, ie that India has been done. There's not much new in the report, and certainly no new news on Netsol, except a nice concept for Lehman to sell.
No, it's that they are having the shareholders meeting today, probably underway now. Wish I knew what they were saying.
I wouldn't worry too much about the AR going up, unless there are signs that they won't get paid on it, which I don't see. I think most of their customers now are pretty reliable.
I definitely worry about them issuing more stock to fund a purchase of a US entity. It's probably the right thing to do for the long-term, but the short term dilution (unless they can buy enough earnings with the purchase) could be a negative. At the end of the day, the thing that will drive this stock is growing EPS, not revenues.
On of the problems of the software biz (and many others) is that people tend to take a while to pay you, and you have upfront costs like people and hardware to pay.
What's the cash flow situation? The 10Q mentions $4.03 mm raised from sale of sub stock (they probably never got $6mm, and had to pay a bunch of fees, so thats the net). I mentions $1.8 mm in increase in accounts receivable that were funded, plus $1.5 mm in property & equipment purchases and $1.3 mm in CDs they bought. That more than takes care of the $4 million IPO proceeds. By the way, the 10Q also mentions about $454k in development costs that were booked as an intangible asset, just in case you thought that the profits were a really hard number.
What I don't understand is exactly how they are using the subs cash to fund everything, but presumably the sub is making the investments and funding the receivables, not the parent. I also don't understand (and don't like) this private placement agreement for 933,333 restricted shares of the
Company's common stock for $1,400,000 or $1.50 ps. Maybe they wanted to prefund what they will have to pay to complete the CQ Systems deal.
I don't think this stuff is "bad" or necessarily unusual in the industry, but it indicates that until NTWK can raise its profits significantly they will continue to face cash flow pressures. Good thing is that as they get more profitable they should be able to fund more through bank lines than through issuing more equity.
A little bit in there for everyone. I had been hoping for $0.2 net or higher a week ago, but given what they made in NETSOL this report certainly could have been worse. And there seemed to be some acknowledgement from management that this was not the greatest of quarters, which is positive. I think we stay around $2.00 for a bit.
I agree with you that it is likely that day will come. Based on the facts recently though I don't think tomorrow is going to be that day.
The basic math is that last quarter the Pak sub made about $750k, which after adding in some $100k of earnings from CQ, and subtracting minority interest and expenses at the parent reduced to $200k net for Q1, which was disapointing. Looks like the Pak sub is going to contribute a lot less this quarter, and so unless CQ or another sub makes a big contribution, it may be a flat or even negative net income for the quarter. So I've been selling yesterday and today.