NetSol Technologies Inc (NTWK) 2010 Q1 法說會逐字稿

Greetings, and welcome to the NetSol first quarter fiscal year 2010 financial results conference call. At this time all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Christopher Chu of Grayling. Thank you Mr. Chu, you may begin.

Thank you operator. Hello everyone, and thank you for joining us on the NetSol Technologies fiscal first quarter 2010 financial results conference call for the period ending September 30, 2009.

I hope you have found the PowerPoint presentation we prepared to supplement this call and will follow along with us. The slide numbers we refer to are found at the bottom of each slide. The presentation may be found on the main page of the investor relations section of the NetSol website located at www.NetSolTech.com. That's NetSol T-E-C-H -- all one word -- dot com.

In addition, I would like to remind you that we are recording and webcasting today's call. The webcast archive on the call also will be available in the investor relations section of the NetSol website.

Please proceed to slide number two as I read a brief Safe Harbor statement.

This conference call and presentation may contain forward-looking statements. These statements reflect the current belief of NetSol Technologies management, as well as assumptions made by and information available to NetSol. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual future results and developments could differ materially from those set forth in these statements due to various factors.

These factors include, amongst others, changes in the general economic and competitive situation, particularly in NetSol's businesses and markets. In addition, future results and developments could be affected by the performance of financial markets, fluctuations in exchange rates, and changes in national and supernatural law, particularly with regard to tax regulations.

The company assumes no obligation to update forward-looking statements.

Moving to slide number three, we are pleased to have presenting today Mr. Najeeb Ghauri, NetSol Chairman and Chief Executive Officer. He is joined by Mr. Boo-Ali Siddiqui, NetSol Chief Financial Officer, and Mr. Naeem Ghauri, President, Global Sales -- from Lahore and Beijing, respectively, joining today's call and will also be available in the question and answer session.

I would now like to pass the call over to Mr. Najeeb Ghauri. Please go ahead.

Thank you Chris. Hello everyone and good morning, and thank you for joining us today. If you'd join me on slide number four, I'll start with a topline overview of key perspectives of our fiscal fourth-quarter performance.

I am pleased to report that our fiscal fourth quarter was highlighted by significant ongoing improvements including sequential double-digit revenue growth and improved bottom-line profitability, all driven by a 100% sequential growth in our core NetSol Financial Suite license sales. Overall, this further confirms that NetSol is ramping up its operating and financial performance into a growth phase following the recession-driven cycle that we believe bottomed out in our fiscal Q3, two quarters back. We are seeing some very exciting customer wins and market trends that support our view for further long-term revenue and profitability expansion going forward.

Overall, total revenue for the quarter was $7.6 million, up 11% sequentially, driven by the new customer demand and down 18% year-over-year, reflecting the challenges of the global economic downturn compared to what was an exceptionally strong fiscal 2009 first quarter, which was among the strongest in the company's history. This marked our second consecutive quarter of double-digit revenue growth.

Based on the comprehensive global streamlining activities we put in place in fiscal 2009 and ongoing cost efficiency measures, NetSol is attaining once again historical gross margins of 53% in Q1 of 2010, this compared to 37% in the sequential quarter.

Our net margins also improved materially in Q1 compared to the previous quarter.

Increased sales levels and improved operating performance all filtered down to the bottom line, as we recorded a 71% reduction in GAAP net loss, equal to less than $0.01 a share this quarter, nearly a breakeven position.

On a non-GAAP basis we recorded a 117% sequential improvement in EBITDA profitability. Overall we believe we are making excellent progress towards achieving our quarterly GAAP EPS profitability as reflected in our Q1 results.

Now moving to slide number nine -- or page number nine (sic - see presentation) -- let's look at some of the key factors driving this renewed momentum.

From a macro level, we are seeing renewed global economic activity opening up previously frozen as well, as new as new purchasing decisions. Clients are realizing their need to move ahead with critical investments in software solutions to be competitive, and certain markets accommodate strong customer demand such as what we are noticing in China.

This improvement in global business activity is notable in two of the hardest hit sectors where we have a significant presence -- automotive and finance. It gives me great pleasure to say we had NetSol Financial Suite wins in both sectors, and the sales pipeline continues to gain strength, which offers further optimism.

Another key trend we are seeing is that our multinational blue-chip customers are increasingly looking for global software solutions to meet their asset finance management needs. This is an extremely important trend, as we leverage the strength of existing license clients to up-sell into additional geographies or optimally into a global frame agreement to support global deployments of our NetSol Financial Suite. The multi-currency and multi-lingual capabilities of our solutions combined with the flexibility offered by our modular software components make it a perfect solution we match to the complex needs of global customers. Our customers are looking for a proven solution which can be implemented quickly from one vendor with one solution.

Further supporting this trend is the aging of installed legacy solutions which increasingly cannot handle the volume and complexity of our clients' asset finance needs. These legacy systems are now virtually impossible to update and must be replaced.

NetSol can design, implement and support a new solution, and once installed these solutions typically have long-term lifespans, re-creating recurring revenues around service and support as well as license upgrades.

We believe we are in a sweet spot where, as larger software providers will view this as a very complex niche market requiring high levels of investment to build a quality asset based lending solution. For a small company such as NetSol, we see this so-called niche market offering tremendous opportunities for growth worldwide and that no competitors could offer. Our 13 years of expertise and investment in our products puts us in a unique position to grab market share across a truly global marketplace.

As an example, we saw one of the world's leading software vendors attempt to build a custom asset finance solution over seven months before they were pulled off the project and NetSol was brought in. We implemented a comprehensive solution on the shortest possible time.

Going forward we have upgraded our NetSol Financial Suite licensing structure to incorporate automatic license sale upgrade triggers linked to the volume of usage on our platform. This allows NetSol to ensure our clients have ample infrastructure to handle the organic growth of their business as well as provides an important formal license sales -- license sales upgrade structure to allow us to grow with the success of our clients.

We most recently saw successes with the new license sale upgrade model with a major auto manufacturer operating in China.

China continues to be a major growth driver for our business, where we maintain the number one market share position for asset-based lending software solutions, while auto leasing is a rather young industry in China but the largest population and among the fastest growing auto sectors in the world. We are seeing continued strong demand in the market, and as we previously reported, our investing in China increased local resources to further capitalize on the vast opportunities we see there.

Another strategic driver of our business continues to be joint ventures. Our extended Innovation joint venture with the Innovation group continues to perform well and with the excellent opportunities for additional growth there. We also continue to deploy our Atheeb/NetSol joint venture focused on business opportunities in Saudi Arabia and the broader Gulf region.

The Middle East and Gulf markets are well-funded with vast petroleum driven dollars, and they're investing in IT infrastructure across the Kingdom of Saudi Arabia. Our JV with a major local conglomerate, Atheeb Group, presents NetSol with new opportunities for IT services and solution projects. We have already seen joint sales activity and believe this will be a new revenue driver going forward for us. These joint venture and partnership activities provide highly cost-efficient ways to penetrate new global markets with the assistance of a local partner with key relationships on the ground.

Lastly, the streamlining of our global corporate structure under our previously announced is providing a highly efficient operating platform, bringing operating expenses in line with revenue, and helping restore margins and profitability as revenue has begun to ramp again.

If we move now to slide number six, we walk through how this renewed momentum translated into some key customer wins and pipeline opportunities.

Select customer wins in the fiscal quarter of 2010 included a growing relationship with a large Chinese private bank and leasing company; and Nissan Renault Finance Mexico, South America, the next Mexican affiliate of Nissan Motor, building on our existing relationship with the Nissan Global; a large Netherlands-based finance company; a major UK -- United Kingdom based short-term loan company, as we saw some fresh penetration of the European market with our NFS solutions; and enhancement and maintenance and development revenue with our existing US based clients and partners.

Complementing our success in the private sector with our NetSol Financial Suite, we are also seeing some large potential opportunities in the government sector for our IT service group, particularly in the e-government and defense sectors.

Two large opportunities we have mentioned in the past that continue to move forward include a previous contract bid for a land (inaudible) management system. This is the project which has been revived by the province of Punjab in Pakistan recently. NetSol stands as one of the final two bidders for this potential large government contract, [subject to we have to submit to] selection sometime later this fiscal year.

And secondly, our joint bid with a major US defense contractor for a multibillion dollar IT services project around the digitalization of the Pakistan military forces as well as an automated command and control system.

We continue to work actively in both major project base and look forward to reporting back of any positive developments when they are material.

This concludes my strategical overview. If you turn to slide number seven for the financial review, I'd like to pass the call to Boo-Ali, our CFO.

Good morning everyone. And thank you for joining us on today's call. I would like to kick off the financial review by moving to slide number eight, where we see NetSol's revenue performance over the last five quarters.

Revenue in the first quarter of fiscal year 2010 totaled $7.6 million, reflecting our second consecutive quarter of sequential revenue growth, as our business rebounds from the global recession-driven low watermark recorded in the fiscal third quarter of 2009. The 11% sequential revenue growth in the fiscal first quarter was driven by a near doubling of license revenue.

Slide number nine shows the breakdown of revenue by business.

For the fiscal first quarter, as a percentage of total revenue, IT consulting and servicing represented 43%, license fees (inaudible) 33% of the total revenue, and maintenance fees stayed relatively stable at 24%.

On a geographical basis for the fiscal first quarter of 2010, as a percentage of total revenue Asia Pacific represented 65%; North America, 23%; and Europe, 12%.

I would like to highlight here that the growth of our North American services and deployment revenues during the quarter, combined with ongoing cost of (inaudible) majors and realignment of US office space expense contributed to positive net income for our US operations, a market where we continue to see tremendous long-term potential for growth.

Moving on to slide number 10 and a look at GAAP EPS.

NetSol's GAAP net loss applicable to common shareholders for the quarter was $264,000, or a loss of less than $0.01 per diluted share, versus GAAP net income applicable to common shareholders of $0.04 per fully diluted share in the year-ago period.

Sequentially, our GAAP net loss was reduced by 71%.

Non-controlling interest income, previously known as minority interest income, [deducted] was $1.1 million for the fiscal first quarter. Non-controlling interest income is related to the non-controlling interest in earnings in our -- several of our subsidiaries, as the aggregate of net income attributable to minority owners must be deducted from NetSol's earnings.

Slide number 11 shows NetSol's EBITDA performance on a quarterly basis over time.

Fiscal first quarter EBITDA income totaled $1.2 million or $0.04 per fully diluted share, compared to EBITDA income of $2.3 million or $0.08 per fully diluted share in the year-ago period.

Sequentially, NetSol's quarterly EBITDA profitability more than doubled, rising 117%, as we see the benefit of rising revenues on our streamlined global expense base.

Just as a reminder, EBITDA is defined as earnings before interest, tax, depreciation and amortization. The company uses EBITDA as a measure of the company's operating trends.

Investors are cautioned that EBITDA is not a measure of liquidity or of financial performance under Generally Accepted Accounting Principles. The EBITDA numbers presented may not be comparable to similarly titled measures reported by other companies. EBITDA, while providing useful information, should not be considered in isolation or as an alternative to net income or cash flows as determined under GAAP.

We believe EBITDA is one of the best [metrics] to measure the underlying profitability of our businesses.

I would now like to turn the call back to the Najeeb for some closing remarks.

Thank you Boo-Ali. Before we open the call to questions, let's move to slide number 12, and let me provide some topline perspectives around our financial objective for NetSol's financial performance.

Our goal is focused on further sequential improvements in quarterly revenue as well as our bottom-line GAAP and EBITDA performance. We see bottom-line profitability to be driven by sales growth as well as ongoing efficiency measures. This includes a strict focus on returning to quarterly profitability in the near term. We continue to forecast a quarterly breakeven position, revenue run rate of approximately $8 million on a GAAP EPS basis, and at $6.5 million on a cash basis.

I'm very pleased to say that our sales [platform] continues to strengthen, particularly in China, Asia Pacific, and the Kingdom of Saudi Arabia, where we have continued to focus on our recently established Atheeb/NetSol joint venture. As we reported last quarter, we are also continuing to pursue some large opportunities in the government and defense sectors.

Overall we are quite optimistic on our outlook for fiscal year 2010.

With that, I would now like to turn the call over to the operator to facilitate the question and answer session. Operator, please take our first question.

(Operator Instructions). Joe Giamichael, Rodman & Renshaw.

It's a wordy question, so I'll apologize up front. But you are on the path of what appears to be sustainable profitability, and subsequently reposted a number of successive contract wins, yet your stock has remained flat despite all this positive news. I have to assume that investors are telling us that this is sort of a blip and that this type of environment is not sustainable. Can you talk a bit about the business environment as a whole and sort of how NetSol's opportunity fits into it?

Yes. Thank you Joe for your question. I'll give some comments on that, and Naeem wants to give an overall perspective as the Head of Sales.

I think what we've demonstrated in this earning and the previous quarter, that we have taken the company from a most difficult time in the recession, out of the recession, and stabilized operations by controlling the costs at every level. As a result, you've seen about 25% reduction in our operating expenses, and we're just barely close to the breakeven, as you can see.

I believe overall business (inaudible) for our business is quite strong, and our product business is serving demand worldwide, and we are able to capitalize as we go forward. And I think Naeem can give you a bit more general detail on exactly what the business outlook is in different regions, but I am really encouraged by the opportunities in front of us for our [product] business, especially worldwide and how we believe we can start showing a stronger topline and bottom-line growth.

Great.

So I'll just pick up a little bit here from you. Joe, currently I am in Beijing and have been here for the last two weeks, and what I am seeing here is a real opportunity for NetSol, and not only an opportunity we had. You know we have been closing a number of deals there quarter after quarter. And -- but this is my first trip in a long time where I've actually seen a new influx of foreign banks and new joint ventures being formed here to set up leasing companies, both auto and non-auto companies, which are basically our prime targets.

So actually now we're seeing good momentum from where we were six months ago, and as Najeeb said before, I think we hit rock bottom about two quarters ago and we have seen a good upward trend from last quarter, and actually this one has further solidified that trend.

And the way we are looking at these numbers, the backlog is looking very, very solid. We are actually way ahead in our backlog in terms of signed business to where we were forecasting today, and we are only just in the first quarter of the fiscal.

So I think these are sort of tangible evidence for us to say that I think we will sustain this quarterly performance and maybe improve it. And we are not just only in China, but we are starting to see a good trend in the US, and -- as well as Europe, which is our NTE subsidiary, and as you would have been following the news, you'd know that we signed two significant new contracts in our European business.

So we see a general upbeat sentiment globally, but particularly in China and, as Najeeb said, in the Kingdom of Saudi Arabia.

And are you confident that that upbeat environment is one that is going to allow you to capitalize to the point where you're consistently back in profitability on an enterprise basis?

Well, from -- again, a lot of people have called about them and have said there is definitely growth coming into many markets. But China, as you know, never really had a recession. So for China and other emerging markets, we are very, very confident that we will continue to grow. US, we are starting to see the first signs, so that -- again, nobody can predict. But certainly we are seeing more interest into our products, and as Boo-Ali has said earlier, that we actually have turned a profit in the US, I think. Boo-Ali, correct me if I'm wrong.

That's right.

First profit after a very, very long time in the US.

Yes, correct.

I want to further add on to what Naeem has said. [If you] look around our business model and our products that we have built over the last 12 years, really this is a very unique solution we have, and perhaps the only company, particularly in China and even in the US market, has this kind of product which is now a niche end-to-end solution. I don't think any competition can brag to have this kind of solution which is so robust and has created such a fine blue-chip customer base worldwide. I mean, you look at the customer names.

So what is comparing to us, which we believe -- why we are so bullish, is that as we started to ramp up our marketing efforts coming out of this very tough time the last two quarters, I believe this company has a potential like, if I say it, an SAP kind of product that we are in the process of, you know, making for the global market. So I am very confident that NetSol's finance suite will be a big winner in our space, primarily in China, and of course our big market, which has always been North America and all America and Europe.

So we're pretty confident of the upside here.

Well, just to touch upon the contract wins that you guys have posted in the past several months, can you just -- I guess again explain to us the economics of a typical contract, how the -- from the standpoint of the announcement through how the revenues tend to be recognized? I guess what I'm getting at is when should we start to see -- or have we started to see the ramp as a result of these contract wins?

Again, Boo-Ali can elaborate on the revenue recognition, but I can tell you that you are starting to see -- where you saw the, if you like, the increase in license revenue and some services revenue, that has -- that was as a result of some business that we signed in the quarter, and maybe some in the previous quarter, because with the license fee we don't take all of that in, and I believe we spread it, and then also services revenue is also driven by milestones.

So again, as I said, the backlog is very strong I think, but obviously that -- by that I mean just the [signing] (technical difficulty) business, and that will filter into subsequent quarters. And so what gives us comfort is that we are like 80% in our backlog to where we ended last year's, and that's just because we ended around $[26] million for the year?

Yes.

And total revenue? I believe we're already 80% of that last year already, in terms of signed business. That's (inaudible) quite a healthy position to be in, where we have three more quarters to get the rest of the 20% to be flat, and then the growth comes from there.

And outside of sort of these I guess normal course of business contract wins, there are two much larger opportunities that are out there. There's the defense contractor and the -- or the defense opportunity with Pakistan and the land deal that you've discussed. Can you give us a sense for what you're timing is for either in terms of decisions being doled out and/or what sort of -- some of the variables around that are?

Let me help with this. Look, the defense project is obviously, as we announced a few months ago, is -- the scope and size is quite phenomenal. And we are also dealing with an environment where our client -- potential client, army, is as you know, quite busy with dealing with challenges there, where that may have delayed the process. But we are still in the running as one of the five bidders. And the next step would be, when the customer is ready, to down-select five out of three (sic - see press release).

I believe this is a project which -- the army needs it, they have the budget, it's becoming more critical under the -- today's environment there. So we are pretty confident that this will happen at some point, but we have not factored, as I said previously in my previous presentations in the road shows recently, we are not (inaudible) any of the revenue or bottom line in our internal projection for 2010. If we win this contract, then we will probably make a special announcement to give some more detail on what it means to the top and bottom line.

Secondly, I talked about in my press release (inaudible) about the land (inaudible) it has been revived recently. There was a pause for last -- almost a year, but the province of Punjab, which is where we have our headquarters in Lahore, development center, is much more aggressive in bringing IT solutions. So they have -- we will (inaudible) the thing, and we are still in the league of -- with -- along with another competitor, so that's the information we have as of yesterday. And it looks better than what it looked a quarter ago.

So accordingly we will come back -- and again, both of these products are not factored in our projections for 2010 yet. And we have to rely most on our core business, which me and Naeem talked about in the last few minutes, and that is very solid and strong, and the upside is quite high.

(Operator Instructions). Matthew Weiss, Maxim Group.

Most of my questions have been answered. I just had a question on the revenue mix. Obviously we saw license come back in earnest this quarter. And obviously that had a lifting effect on gross margins. I was sort of wondering if you could speak going forward into '10 how you're looking at the mix there? Obviously it's to your benefit to generate as much license revenue as possible, enough to get follow-on business, but I know to some extent that's out of your control related to timing and whatnot. But can you just talk about sort of what you are thinking of there in terms of the relative contribution going forward? Have we seen a base maybe in license revenues? And then how that correlates to your gross margin assumptions?

Naeem, do you want me to answer that?

I can just pick up the -- one part, and then (technical difficulty) you can pick up the rest.

You know the maintenance side of things, Matthew, are pretty much around the 25% mark. And what fluctuates is really services and license. And we believe if we can have an even split between services and license, that's where we ideally want to be. So at the moment it's 43% to 33%, and if we can be somewhere around 36%, 37%, 38% on license and the same in services, that would be for us a pretty optimum position, if you like, in terms of growth. And if we can keep it split that way, then it's very, very healthy gross margins based on those kind of splits.

Further, Matthew, I am looking at the global -- a good picture. We believe that NFS, which is NetSol's finance suite, license and services, [in orders of] the license and the maintenance, we are looking at comfortably a range of 60% to 70% of our total revenue in this area alone. The rest will fall, 40%, that includes our joint ventures and the public sector.

So what it shows us is a healthy trend. As you've seen in Q1, we've doubled the license sales, of course from a smaller base compared to Q4, but the license sales are peaking in demand because of the product solution we have, and China is playing a big part.

So I think if we end up with 65% or 70% of the [licenses] including services and maintenance of the whole business, that will really improve our margins, the gross margins, tremendously. That's where you have more attractive, lucrative margins, at the more license sales and the more maintenance generations from those sales.

So it's a pretty good position for the company compared to a year ago. And it's an exciting time for the company to continue to push license sales across the globe.

That's helpful. Thank you. And then going down further onto profitability on EBITDA here, you guys put up a nice print and a nice sequential rise. I guess quantitatively you didn't call sort of a sequential improvement into Q2 for revenues. It seems like you prefer to feel comfortable with what you put up there. But in terms of your EBITDA margin, we are about 16%. Do you sort of look at sort of -- what are you targeting I guess for fiscal '010 there? Around this range? Are we going to see this slightly move up quarter-to-quarter as we go through the year, as you -- it seems that a lot of the cost efficiencies have realized in the past quarter and the current quarter, so how do we think of that going forward?

I think it's a great question. I (inaudible) EBITDA -- Boo-Ali, you can correct me -- has been in the range of mid 20%, like 23%, 25% -- if I remember those numbers correctly. So our goal would be to exceed 20% in the coming quarter and hoping that the top line will help achieve that goal.

20% in Q2 is sort of what you're targeting?

I'm not saying Q2. We are targeting, yes. But I am not projecting that we -- that (inaudible) is hard to guess.

Fair enough. And then do you guys give the geographic breakdown of revenue? I don't recall if you historically do that or --

Well, in the Q you will see breakdown, and like Boo-Ali mentioned, we did about 65% in Asia Pacific. Of course the US is growing a little bit, partly because first quarter was a bit slow in [new too] but many have said they've signed new contracts, and there was a -- again, a very positive turnaround in the open economy also for us. So we believe that going forward, you will see perhaps 20%/20% between the US and the UK, and then 60% in Asia Pacific.

So you are seeing actually -- I'm hearing some data points come back negative out of Europe, suggesting that things are lagging recovery elsewhere. It is your sentiment that things are actually moving in the right direction in Europe?

Absolutely (multiple speakers)

Do you want to add something on Europe (inaudible)

Yes, sure. Well Matthew, Europe is interesting that we -- yes, there is still technically a recession in the UK. But we've found that there is a lot more interest in the product then there was six months ago. Maybe there is a time lag here, and maybe it is good for us that the spending is coming in before they start going to growth. But we signed two contracts which we -- it's the first two contracts we've signed in like nine months to a year. And we've got quite a few interesting prospects in the pipeline.

I believe that the UK will do a lot better than they did last year. So take it for what it is on face value. But I -- that's what we -- the way we see our business.

Also I want to add one more comment here about UK especially. We have really done -- we have done tremendously well given the fact that we have really downsized the headcount there and leveraging in the best possible way, both in the US and UK, our capabilities in Pakistan, and that is really helping our margins. Without adding more programmers and developers, we are able to support much more lean and efficiently. So that will improve our bottom line as we start to earn more licenses in the UK and the US markets.

And then just quickly if I could drill down, of that 65% that's Asia Pacific, about how much of that percentage is out of China in particular?

China could be half of that literally in my view.

Half of Asia Pacific?

Yes, because the reason is -- Naeem, you can endorse that. We definitely have the strongest pipeline in China [than has] ever been before. And one reason is because, one, Naeem is spending a lot of time with his team there in the whole region, and you've added more personnel in the Bangkok office, by the way. Bangkok is also a growing market to cover, so the regional locations, our biggest customer is based in Bangkok, the Toyota. And China has a lot more new sectors including banking, where Naeem and Salim and all the team is working diligently to explore those and pursue those opportunities. So it is at least half of the (inaudible) region contribution.

I'll just add to this, Matthew, I think China will be our big surprise this fiscal and going forward. We have become very acclimatized here now. We are well established in Beijing, and we have customers in Shanghai, Beijing, (inaudible). We are getting a lot of traction and interest because this product is really one of the key, if you like, drivers for the financial services business. So like in the US 30, 40 years ago with credit deregulation is what's happening in China. The credit has been deregulated. And international companies can set up finance companies.

If you can imagine with the kind of growth there is in China, who would not want to be here? So we are now finding every big name you can imagine from any part of the world. They want to set up leasing companies in China. And NetSol is by far the number one vendor of these end-to-end solutions.

And so we are getting our pricing, we are getting prospects, and we are getting very busy here. So I believe China will be the surprise package, and so our mix in revenue will get bigger. And there are plans to handle the good presence in China, and it's well underway, and you will see more news coming in the next few quarters.

Okay, thank you guys.

Daniel Annai, TailWind.

Just two quick questions for you. First of all, on your accounts receivable, when I compute it against your revenues, you've got about five months of receivables. What are you doing on your side to bring that down?

We are seeing -- as soon as Boo-Ali -- just trying to dial again. He dropped out, his line dropped out.

We are seeing good collection in last quarter, and definitely there has been a slow process the last few months. But I believe the last quarter and the current quarter we seem to increase cash coming in to the company from these customers. We took all the potential of that region in previous quarters. But we didn't take anything in this quarter because we don't foresee any write-off from the existing receivables, so feeling good about it. There is definitely -- customers are catching up. The Europe customers are quite good in meeting their obligations, but in Asia, a bit slow. But I don't see any concern as of now where any receivable is at risk.

Daniel, just to add -- this is Naeem -- to Najeeb's point. I think the biggest part of those receivables is in China. And typically China is slow in payment because of the broker's fee and how long it takes to get a payment into our account. That's one reason.

The second reason is, quite a few of the companies we are doing business with are still not here with a license. They haven't received a finance license to trade. So obviously systems have to go in ahead, because without the system they cannot even do an audit with the China Central Bank. So our systems go in, and we start billing the client as we complete the work, but we do make a special provision with the client up front that will allow them extra time to pay, because they in fact have a technical issue in paying before that they have a company set up in China. So a lot of that is due to this, and there's at least three or four instances that I know (technical difficulty) directly, and I'm dealing with those clients on a daily basis, where we know the progress of the company's setup. What happens then is that they -- as soon as they are set up, they send us one big chunk to clear a lot.

If you also refer to our cash flow, it is -- and it's based on the (inaudible) financial we filed this morning, you can see that actually the incoming cash has been very positive. It approached almost $700,000 in the Q1. So to me it's a healthy trend, (inaudible) clearly a bit slow from China, but that is -- they don't alarm me, you know?

Just to follow up with Naeem's point, typically how long do you have to wait between when you bill for the work and the company gets set up, etc., and finally pays you? How long is that period with the Chinese companies?

Well, it's getting shorter. I can tell you that much. It used to take up to a year, but now I would say between six to nine months. So the earliest -- so it's -- I mean, you are showing five months worth of receivables, that's quite healthy, actually. We had instances, very early days in China, we had BMW as a customer. It took a year and a half before they settled with us. And obviously there was some concern that -- whether we should provide against that. But again, our experience is, these are blue-chip names and so they do pay. We've had very little bad debt provision previously, and I don't foresee it now.

Thank you. And my second question is, if you can just help me understand how much cash you have on the books? And how much debt? Just because I need to understand what that restricted cash is and what's that netted against. So just basically if you can break down your cash and debt position please.

Boo-Ali just dropped out, but he's dialing in again from Lahore.

The cash overall, as we reported, is about $4 million net cash at Q1. That is if we pay off the CDs of $5 million with a current bank here. There's liabilities, obviously the long-term is with one of the investors, close to $8 million, and others of ongoing banks liabilities in different locations, and some payables. So it actually hasn't gone up from the previous quarter -- as I look at it at Q4 2009 fiscal versus Q1 that we just reported. So it's pretty much flat. And our goal is to bring down the liability and improve the cash position to, one, injecting -- of pushing hard on the receivables collections, and B, trying to see if we can update on the liabilities sooner than later.

And Najeeb, those -- some of these liabilities are through convertibles notes, right?

Absolutely. There are two notes, as you know. One in a $6 million note and one was recently acquired (multiple speakers)

So Daniel, some of that will convert into equity, some won't, and the ones that don't convert, obviously there's many different ways to pay it back. So -- but as Najeeb said, the net cash is $4 million, and we are now generating cash, so we should -- we are in pretty good shape.

Okay gentlemen, thank you very much.

(Operator Instructions). Joe Giamichael, Rodman & Renshaw.

I just had one quick follow-up. Given the backlog that you just previously discussed, are you at a point now where you would be comfortable in terms of giving any form of revenue guidance over the balance of this year, or at least a target?

I believe we are not ready yet. While we are very confident internally speaking, given the backlog and all the things that are happening in different markets for us, we are quite bullish about the projection about the top line and bottom line. But I think it will be prudent to watch a couple more quarters and see if the global economy is settling down and helping us to actually sign the deals that we are working on a day-to-day basis.

So at this stage we are better off updating the market each quarter through the earnings calls, and in between if we feel that the time has come, maybe we'll come back and announce that. But right now we have -- we really have to use that backlog, which is quite solid, as Naeem mentioned in the beginning. So I think we'll leave it like that.

Just add, if you want to do some sums, we are -- we've just started the second quarter. We have a $22 million, $23 million backlog of signed business. Last year we did 26 point something million dollars. And we've got nine months to do more than that. So we are very confident that we can do better than last year. And as Najeeb said, hopefully each quarter will tell its own story, moving in the right direction.

Our goal is to always do better than the analyst estimates. So you can do your own modeling.

Okay, thanks.

John Rodstrom, private investor.

I've been an investor for some time, and just -- I've got a couple of questions. One, do you see yourselves having to do any more capital raises in the near future?

Thank you for your question. Not in the near future. While we're trying to manage our company with our own cash -- cash flow, absolutely the responsibility is to make sure when is the right time, if there is a right time in the short-term and long-term to look at opportunities that may be out there. But we are not pursuing anything at this stage.

Because one of the things that strikes me is the dilution of the stock and the number of shares outstanding. And when you look at it over the long -- the last four or five years, where we are, revenues and where we are today versus where we once were, I just get the sense that we are sort of undercapitalized. And so I know you've taken the position that you've always looked for merger candidates and you've done the acquisition. But wouldn't it make some sense to maybe look at -- in the other direction and have some larger company kind of take us on?

There is always an open I'd say in the company, with the Board and the management team. And we have been approached, but the timing is -- has to be right. We are actually working with some very key partners like Atheeb Group in Saudi Arabia, which is a very, very big, diversified group in the region. And those are the kind of relationships we believe can become an equity partner also, and not just (inaudible) business, but also (inaudible) so those kind of discussion always happens. But it's a question of timing, we believe.

I think, as Joe mentioned at the beginning, our stock is quite undervalued. We buy from time to time to show our confidence. But I think eventually you will see a turnaround, and the market will see and realize that this is a -- I call it a hidden gem in this space, that we have the good business, the product and our quality standards and customers worldwide. So it's a matter of time really when you'll see the valuation much higher than what it is today.

And one more thing (multiple speakers). It's just a request, if I could. Should you look to do any more capital raises, would it be possible to ask your current shareholders across the board to be part of that capital raise? Because just from my perspective, I get the sense that I always feel left out, I never get asked. And other folks get to put up that money and get attractive terms, and us shareholders who are in day-in and day-out don't get to have those opportunities. So I would just respectfully request that someday, if you do raise more capital, that you would come to us as well.

John, I appreciate your comment, and we'll keep that in mind. I promise you that.

I think, Naeem, you wanted to make some comment.

Yes. I just wanted to add, John, first of all, are you a private investor? Or you represent an institution?

I am a private investor, I have a (multiple speakers) I've got a large number of your shares.

Okay. Well, thanks very much for your confidence, and I know at times it can be a bit frustrating, and -- but as you can imagine, we are with the company 12 years, and we haven't taken an exit. We must believe in something, and this -- we are building a great franchise. I think somebody will realize the value of this franchise at some point. We may get the right approach from the right company. And I can tell you, if the approach is right and if the price is right, we can look at it.

But I believe today it's too soon in terms of we are rebuilding the company and we see great prospects. That's why we're still in the company. And we've never thought of exiting. So if you hang in (technical difficulty) [there] with us, we do have a niche, and we believe we will get attracted by the right company.

I have never sold a share. I have only purchased additional shares.

Again, thank you so much. We appreciate that.

There are no further questions at this time. I would like to turn the floor back over to management for closing comments.

Thank you again for joining us today. We look forward to talking to you again next quarter to provide an update on our progress. Thank you all, and have a good day.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.