NetSol Technologies Inc (NTWK) 2011 Q3 法說會逐字稿

Welcome to the NetSol Technologies, Inc. third-quarter fiscal 2011 financial results conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions).

It is now my pleasure to introduce Jon Cunningham, Vice President of Investor Relations for RedChip Companies. Please go ahead.

Thank you, Marissa. Hello, everyone, and thank you for joining us on the NetSol Technologies third-quarter earnings call for the three months ended March 31, 2011. I would like to remind you that we are recording and webcasting today's call. The webcast archive of the call will also be available on the Investor Relations section of the NetSol website.

Before I introduce our speakers, I would like to remind all listeners that in this call, management's prepared remarks contain forward-looking statements, which are subject to risks and uncertainty. Management may make additional forward-looking statements in response to your questions today. Therefore, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

These forward-looking statements reflect the current beliefs 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 uncertainty. Actual future results and developments could differ materially from those set forth in these statements due to various factors.

These factors include, among other, changes in the general economic and competitive situation, particularly in NetSol's interest and markets, and additional future results and developments that could be affected by the financial markets, like fluctuations and exchange rates in the national and international law, particularly with regarding to tax regulation.

In addition, any projections as to the Company's future performance represent management estimates as of today, May 10, 2011. The Company assumes no obligation to update forward-looking statements.

We are pleased to have presenting today Mr. Najeeb Ghauri, NetSol's Chairman and Chief Executive Officer. He is joined by Mr. Boo-Ali Siddiqui, Netsol's Chief Financial Officer; Mr. Naeem Ghauri, President of Global Sales; and to Mr. Shaz Khan, Senior Vice President of SAP Sales and Solutions. All will be available during the question-and-answer sessions.

I would like now to turn the call over to Mr. Najeeb Ghauri. Najeeb, please go ahead.

Thank you, Jon, and hello, everyone. We thank you for joining us on the call today. The third quarter of fiscal 2011 was highlighted by continued revenue growth, increased profitability and improved margins for NetSol Technologies. Our higher sales were driven by new and repeat customer demand, while our cost management measures continue to positively impact our bottom line. We've seen major new developments in all of our operations worldwide during the third quarter, and our outlook remains very strong for our core business domain moving forward.

With this being said, I would like to have our CFO, Boo-Ali, to give you the review of the Company's financial highlights for the Q3 and first nine months 2011 fiscal. Boo-Ali, please.

Thank you, Najeeb, and thank you, everyone, for joining us today. As Najeeb indicated, we are very pleased with our year-on-year growth we achieved during the third quarter, which marked our fifth consecutive profitable quarter.

For the three-month period ended March 31, 2011, total revenue increased to $10.8 million, up 31.3% year-over-year. Net revenue from license fees was $3.6 million as compared to $3.64 million for the same period a year ago. Revenues generated from maintenance fees were $1.9 million, up 9% from $1.7 million for the third quarter of fiscal 2010. Revenues generated from services totaled $5.3 million, up 48.8% from $3.5 million for the same period a year ago.

Net income attributable to common shareholders increased 463% to $3.3 million, or $0.06 per diluted share, as compared to $600,000, or $0.02 per diluted share, in the third quarter of fiscal 2010.

Operating income increased to $4.8 million, up 84.6% from operating income of $2.6 million in the third quarter of fiscal 2010. Gross margin for the quarter increased 130 basis points to 62.6% as compared to 61.3% for the same period a year ago.

EBITDA for the three-month period totaled $4.6 million, or $0.09 per diluted share, as compared to EBITDA of $1.8 million, or $0.05 per diluted share, for the third quarter of fiscal 2010.

For the nine months ended March (technical difficulty).

Marissa, did we lose Boo-Ali?

-- net revenues from license fee increased 7.8% year-over-year to $10.3 million as compared to $9.5 million for the same period a year ago. Revenue generated from maintenance was $5.6 million, up 4.9% from $5.3 million for the first nine months of fiscal 2010. Revenues generated from services totaled $13.8 million, up [22.9%] from $11.2 million for the same period a year ago.

Net income attributable to common shareholders increased to $6.8 million, or $0.14 per diluted share, as compared to a net loss of $100,000, or $0.004 per diluted share, in the first nine months of fiscal 2010. Operating income increased to $10.7 million up from operating income of $5.4 million in the same period a year ago.

Gross margin increased 450 basis points to 63.8% as compared to 59.3% for the same period a year ago. EBITDA for the nine-month period totaled $10.5 million, or $0.22 per diluted share, as compared to EBITDA of $3.8 million, or $0.11 per diluted share, for the same period in fiscal 2010.

We remain fully committed to building shareholder value by strengthening our balance sheet, enhancing profitability through internal cash collection, improving accounts receivables collection, implementing continuous cost control and financing this Company's growth strategy most intensely.

As of today, the Company has [35.35] million outstanding shares, and if the dilutive impact of outstanding option and warrants which may be exercised on June 30 is taken into consideration, the total number of outstanding shares may increase to [57] million shares.

While we are maintaining our previously-stated revenue guidance for fiscal 2011, projecting the revenue of $40 million to $44 million, we are updating our earnings guidance from $0.15 to $0.20 to a new range of $0.18 to $0.23 per diluted share.

At this point, I will turn the call back over to Najeeb to discuss our business highlights for the most recent quarter. Najeeb.

Thank you, Boo-Ali. As you know, during the last quarter and recent days, we have witnessed a severe earthquake disaster in Japan, a dramatic wave of revolution across key nations in the Middle East and an historical development in Pakistan last week. For decades, we have seen geopolitical challenges and dramatic events in the Middle East.

These events and tragedies and their effect on businesses and masses of population are beyond our control. We believe this geopolitical environment has little effect on us. NetSol is a US-based company with global operations. To best serve our customers, NetSol does not depend on any one [individual] location. Instead, we have established strategic locations around the world, including the United States, the UK, China, Thailand, Pakistan and Australia. We believe we have all of our locations very well secured and protected. Neither geopolitical risk nor natural disasters have ever disrupted our operations.

We have created the most effective global delivery model, with further enhancements in progress in the US, China and Thailand locations. Our customers, no matter where they are located, [are there] offered the best solutions, services, support, local project management teams and, most importantly, the competitive pressures, due to our global delivery model. Our customers come to us because of our global sales and delivery capabilities and that enhances their return on investment.

This is what matters most to our customers and our partners worldwide. We have never lost a customer. I repeat, we have never lost a single customer in our history, giving us a 100% retention record. This is very unusual in the states we are in. Based on our capable team and location and our ability to deliver on time, we have maintained our record no matter what happens in the global environment.

Now, this is a reality, not a perception, certainly. Our NetSol (inaudible) Center of Excellence has been inducted by the World Bank and by a number of major local Ivy-League-level business groups for case studies as the only (inaudible) company in Pakistan.

In the past quarter, we saw major new developments in all of our operations worldwide that we believe will provide a sustained positive impact on the growth and profitability of our business.

Our relocation to larger office facilities in Beijing, China was completed on the first of March this year, further reinforcing the strong foundation we have built in China and positioning us well to benefit from the continued growth of the world's second-largest economy, and now the number one wafer market country. We expect the formation of our NetSol China facility to be completed within the next one to two months, and it's currently in the final steps of the process with the Chinese authorities. This new entity will be a wholly-owned (inaudible) enterprise of NetSol Technologies, Inc.

Recently, we secured multiple client wins for NFS NextGeneration, which is the latest version of our NetSol Financial Suite solutions, as we expanded our NFS NextGeneration sales and marketing efforts from the Asia-Pacific region to North America. Our investment in this sophisticated new platform is drawing attention globally and comes at a time when many large auto captive finance companies are seeking new software technologies that are future-proof. We are currently in sales discussions with several new NFS NextGeneration implementation projects.

We expanded our relationship with SANY Auto Finance Company Limited, one of the top 20 machinery equipment manufacturers in the world, leveraging their current NFS platform to develop enhanced additional designs to meet their evolving needs. We will have the opportunity to apply these new features to product offerings for their (technical difficulty)

Pardon me. The line of Najeeb has disconnected. We are dialing out to him right now.

Operator, I can pick it up from here. This is Naeem.

Naeem, go ahead. Maybe with these secured client wins.

Sure. We have still the opportunity to apply these new features to our product offerings to other finance and (inaudible) software clients. Additionally, our agreements stipulate that NetSol was the preferred [system] vendor for SANY should they enter [any] into that market as a captive finance company.

We signed an agreement with BYD Limited to implement our NFS solution, including both the wholesale and retail platforms. As in our relationship with SANY, customization that is completed for BYD in the (inaudible) will produce new additions to our NFS solution, which we will in turn leverage as we roll out our next generation of NFS solutions.

Our effort to further penetrate the Asia-Pacific market resulted in the signing of a new NFS contract with a major bank in Thailand. This win substantiates our move to upgrade our office business in Thailand, which we discussed on the last quarter call.

While the unfortunate disaster in Japan caused delays in closing some new contracts with major auto finance companies, we expect them to close in future quarters.

Also, in the Asia-Pacific region, we became a member of the Australian Equipment Leasing Association, a group that includes the majority of our existing and potential clients in Australia as its members. With most of our competitors also being members, we felt it was prudent that we should benefit similarly from the lead generation and marketing opportunity that membership provides.

A similar initiative that we believe will bolster sales in the upcoming year is our participation in the SAP EcoHub solution marketplace, which we announced at the beginning of the quarter. This robust community-powered market makes it easier for customers to discover, evaluate and buy partner solutions, including smartOCI, that complement SAP applications.

On the European front, we announced the successful implementation of our Loan Management system for Albemarle & Bond Holdings, which is a leading UK pawnbroker and provider of financial services.

In the last quarter, we were awarded a major contract by a leading telecom operator in Pakistan. The contract was for a security solution to protect the most critical segments of the client's IT operation.

Additionally, we have been actively participating in several new (inaudible) for various large-scale projects, of which we have secured at least two in the recent months. Our (inaudible) for these big-ticket projects is getting momentum, and NetSol, in almost every case, is a (inaudible) by invitation.

Another win in Pakistan was a more recently announced agreement with TCS Private Limited, a leading express and logistics provider in Pakistan. The customer operations management solution we are providing for TCS will serve as the backbone for several of their four business divisions. We are quite pleased with this contract, as it marks our entry into the vast global logistics and supply chain market, a vertical we believe can be very lucrative for NetSol in the years to come.

As we strengthen our presence in the high-growth areas of Southeast Asia and the Middle East, particularly the Kingdom of Saudi Arabia, our key initiative will be to continue enhancing our balance sheet so that we are well-positioned to bid on lucrative infrastructure, defense and public sector projects in Saudi Arabia.

Our recent contract with a major software company in Saudi Arabia not only raises our visibility in the country, but also serves as a solid reference point for potential clients in that region.

In North America, we launched LeasePak-SaaS, a subscription-based lease and loan accounting portfolio management system delivered using the Software as a Service deployment model. Previously, only available as a licensed software solution, this new SaaS version brings the broad functionality of the LeasePak system within the budgets of small and midsize (inaudible) companies, expanding our potential market dramatically.

Recognizing the positive impact SaaS solutions can have on increasing our market share penetration in numerous industries, we are working aggressively to offer additional cloud-computing-based solutions to both existing and new customers.

We are very excited about the fast-growing demand for our NFS NextGen platform. After nearly three years of flat or slow market response, the past few months have turned around in a very positive way. To meet the increasing demand from the revival of the US auto sector, we are expanding our team of experts in this area.

In Latin America, we've been receiving new interest from local groups seeking to capitalize on the market (technical difficulty). We believe these strong emerging markets are ripe for NetSol, and we are aggressively pursuing key opportunities in the region.

As a testament to our belief in the value we are creating for shareholders, our management team has completed several recent purchases of NetSol stock, including 500,000 shares acquired in February and March of this year. We intend to continue to enhance our ownership and have no plans to sell any shares. We believe our valuation is unusually low at current prices. By continuing to invest in our growth, our resources and our infrastructure, we will strengthen our competitive position and continue to grow shareholder value for the long term.

Before we field your questions and answers today, I would like to invite Shaz Khan, our Senior Vice President of smartOCI and e-commerce solutions, to share why he believes this vertical must be spun out from our core businesses. Shaz?

Thank you, Naeem. Good morning, everyone. My name is Shaz Khan and I head up the SAP Solutions and Services division of NetSol Technologies.

Over the past year and a half, NetSol has been investing diligently in developing a new product and vertical called smartOCI. smartOCI is a cloud-based, online marketplace and B2B e-commerce search engine integrated with the SAP platform, one of the largest software companies in the world.

Needless to say, we are excited about the prospects and market opportunity with this product and market segment. The product was released in beta with a select group of Fortune 500 companies in the United States, and the beta program delivered incredible feedback and results which were incorporated into our R&D efforts, which have now resulted in a formal launch for the product.

We have a three-pronged distribution strategy for the product, which we are seeing a tremendous uptake in demand in, direct sales, our partner network with SAP and solution resellers all over the world. Most recently, we have ratified our first reseller partner in Europe, CIBER Netherlands, which is a $1.2 billion consulting organization globally.

Over the past six months, we have been demoing and showing the technology to numerous Fortune 1000 retail, public-sector, manufacturing and consumer product companies in the United States and Europe, and expect to close a number of deals in the upcoming quarter.

We will also be participating in one of the largest tradeshows sponsored by SAP next week at the SAP Sapphire Conference in Orlando, and we will be exhibiting the product at the show.

With that, I will turn it over back to Naeem.

Thanks. I wonder if Najeeb is back on.

I think we have Najeeb (multiple speakers).

Yes, I'm back. We will now -- Jon, thank you, and thank you, Naeem. Jon, we're ready to take the questions and answers.

Okay. Marissa, can you give the instructions for the Q&A, please?

(Operator Instructions) Mike Vermut, Newland Capital.

Fantastic quarter. Can you just go a little bit more into detail about the smartOCI spin-off market potential, what you are looking there? Just more in depth as to what this can mean for the Company and what type of feedback you are really hearing on it.

Shaz, maybe you can jump in, both of you, one at a time.

Okay. Just I'll start and Shaz can complete the point. What with smartOCI we are looking for is, first, penetration into catalog searches which are more B2B, one company at a time. However, there is a plan to expand the engine into more the marketplace, and I think, Shaz, you can put more color to that.

Sure. So over the past year and a half, we've seen a lot of activity in this specific market from Ariba's acquisition of Quadrem last year to SciQuest's initial public offering to one of the largest e-commerce search engines in the world in China, Dangdang, going public.

NetSol Technologies wants a piece of this market. And what we have developed is a very unique product offering with smartOCI, which allows corporate procurement departments within any size company to effectively manage their procurement costs within their organization. In effect, it allows companies to complete 100% of their sourcing and purchasing transactional requests over the Internet.

So is this something that is going to be rolled out with SAP?

We are actively talking with SAP. We are actually certified with SAP already, and have achieved the highest level of certification with SAP on the product. We have a strong partnership with SAP. As you know, NetSol Technologies is an SAP Gold Partner in North America, specializing in supply chain solution and services. And we are diligently looking at opportunities with SAP to expand our market potential.

Excellent. Let me just take one step further. When you look at the growth that we've been experiencing -- and it's great growth, great margin expansion -- do you see a step function up with the introductions -- with the new software introductions going into fiscal '12, '13 and beyond?

Are you referring to smartOCI or NextGeneration (multiple speakers)?

SmartOCI and NextGen, all combined. It seems like '12 should be a step function higher on the growth curve.

I think Naeem will have (inaudible). He can review the update.

Mike, what we are seeing is that as current technology with NFS, the platform, that has had a very good penetration over the last several years, that starts to taper off, we want leading into that tapering a growth curve of NFS NextGeneration, complemented by smartOCI and its derivative. We want to see 2012 as the year of introduction of a new platform with NFS NextGen.

As we stated in the press release and the call today, we have already secured a number of our clients, which are currently in the process of implementing NextGen. So it is not a beta product anymore. We have active deployments ongoing. In addition, we've had interest from several other auto captive and non-auto captive companies, exploring possibilities to deploy NextGen.

So what we are seeing is good traction on the new platform. And what Shaz just shared with you, that we've had so much interest in smartOCI that we are looking at additional derivatives of that search engine to go into more like a market-based offering, as well as what we are doing with [one-to-one prospect] and customers.

Great. For that, I don't need a forecast -- but on smartOCI, how is this priced, what are the target customers, and what is the market potential that you are going after?

Absolutely. The pricing on the product is based on two components. There is a one-time setup fee, which corresponds to a statement of work provided by the client. So that is time and material.

Then there is an ongoing monthly subscription fee. We are 100% Software as a Service. We recognize that cloud computing is fast becoming one of the dominant trends in software licensing in the market. And we want to take that step to provide our customers with that capability to actively and quickly deploy our technology.

In terms of the market segment, SAP has over 22,000 customer installations; all 22,000 are fair game for this product. In addition to SAP, the product is not going to be looked at as a centric product just for SAP. As Naeem mentioned, we are going to expand into different verticals and marketplace offerings to integrate with other major ERP vendors, and have already been approached by some.

Great. So this seems like it is a whole other leg of the Company that you haven't even started to penetrate and could be larger than what you already have.

I think -- Naeem, go ahead.

Mike, that is one reason why we already give smartOCI its clear focus and its team. And we have agreed a plan to spin smartOCI off into a separate entity, which will have its own sales, marketing and management, to absolutely leverage the opportunities that we're seeing.

This was felt after the kind of traction and response we got through the launch of the product. And then the number of blue-chip prospects we're speaking with this, they sort of caught us by surprise, that typically, all the prospects we are speaking to are Fortune 500 companies. They are very big names, and from time to time as we sign these deals, we will be making announcements. Some deals are imminent, ready to be signed.

Excellent. Well, look, if this is the starting point for everything, we're in good shape. So thanks, guys.

[Bill Garrison.]

Good morning, thank you. Wondered if you could spend just a minute on the balance sheet. Specifically, if you could talk about the uptick in accounts receivables and any sort of update in terms of how that is progressing through May at this point.

Yes, we have -- either Boo-Ali and Naeem can answer any of these questions. Definitely, there is improvement in our receivables collection. I think Boo-Ali will give you exact numbers what is collected in nine months and over the last quarter, and Naeem can say where the trend is going.

(inaudible) we are very (inaudible) from accounts receivable (inaudible) the last nine months and the last quarter. If you see, this appears to be the last nine months we had collected more than $22 million from customers. And through the last three months, we -- the(inaudible) more than [$7.5 million].

I think in general, Bill -- this is Naeem -- the general trend is that as revenues are growing, so will the receivables. As you are well aware, our business is very strong in Asia Pacific, especially China. Where typically it is about a 60-day market, this is more a 90- to 120-days receivable market. And that is Asia for you.

And we have seen this trend over the last five years not change much. In general, these clients are slow to pay, but everybody has paid. I don't think we have had any bad debt provisions or written anything off from the receivables in the last four or five years, maybe some really nominal amounts. But these are all good receivables and the trend is slow. But these clients are very high-profile clients and the big names in China and Asia. So we eventually do collect, as it shows by the numbers Boo-Ali just shared with you. In the nine months, we have collected over $22 million.

Okay, all right. Good enough. Secondly, could you just address the lease abandonment charge on the income statement, what that was in the most recent quarter?

(inaudible) Najeeb and Boo-Ali can (inaudible). We have taken a 2% -- or a $0.02 provision in 2010 for our old office (inaudible), which we had leased in San Francisco Bay area. But then again, with the recession, we left that office and moved to a much smaller place in Alameda. At the time we had taken a provision for close to $900,000. Actually, it was close to $1.5 million, including the accruals and actual lease balances. So we did take the provision for closer to $0.02.

And the (inaudible) our last quarter, in the March quarter, and so we gained whatever we put as expense in the provision. So I think it leveled out, so there was expense in the past and now we got it back to it's pretty much leveled out.

Okay, fair enough. And lastly, Najeeb, could you talk at all about kind of the environment in Pakistan with respect to some of these large governments that you have out there? I know, obviously, there have been a lot of events. But I guess I'm just trying to get any additional insight in terms of how you are thinking about things from a timing standpoint. I wanted to see if there was anything else you could share.

Yes, Bill, definitely. I did try to give a little overview on the environment overall and geopolitical and all the challenges that we go through every day. And I also admitted to you that, yes, some customers are (inaudible), but most of the customers who are buying a solution, they have no issue. They keep in touch. They always support. They all buy our product and continue for many, many years.

In terms of in the domestic opportunity in Pakistan, we have seen rising activities the last few months. As a result, we have seen two smaller-sized contracts, nothing major, that we have been working on. Nevertheless, we're also seeing some revived or renewed interest in a key public sector.

I guess when we are challenged like this, we see in terms of intelligence-gathering and other security issues, that it becomes more critical for the government or the military for their agencies to beef up their capabilities in hardware and for infrastructure.

So we are, as a premium IT company, privileged to be partners with still US and outside US major players. Anytime there is a major development, we can participate as a US partner or as a local partner, depending upon the needs of the potential client.

But I think while we don't -- the R&D opportunity, we continue to kind of downplay. But there is certainly the new trend of activity. And it means what we have in our ranges to go after projects which are maybe (inaudible) dollar, but they are (inaudible) because the (inaudible) company will (inaudible) and deliver. But the big projects that we see are the long-term and (inaudible) to strengthen the balance sheet, [rather] than Saudi Arabia or Pakistan or other big countries, to make sure that we have the ability, the financial wherewithal to participate and (inaudible).

So I think the opportunity is quite strong and we continue to go after them. Naeem, you can add (inaudible) something.

Basically, Najeeb said it all. But this activity sort of goes up and down, depending on what is happening in the country. So really over a period of time, we have started expecting any upside into our results from an eventual win, because we believe that it's only a matter of time that we will have a win.

However, because of time scales involved and the uncertainty and the brokers involved, we stopped factoring in any upside into our guidance of the major wins in Pakistan. So what you are getting at the moment in terms of projections, revenue and earnings guidance is this side of the business is totally defactored from those items.

I also want to add one more point, just to (inaudible) their minds for everyone who are listening to this call. And that is in spite of the rather big development center we have in lower Pakistan, we have mentioned a few others in China, US and UK and Thailand and growing, we do not generate more than 8% to 9% of the revenue actually from the local business. The 90% of business comes from all over the world, which includes Asia-Pacific primarily.

So (inaudible) for any market or investor reaction on the day-to-day challenges that happen there and usually we are (inaudible). But we have no dependency on the local revenue in any case. So I think in that way, actually pretty strong about the future of (inaudible), how we are growing that company in the global market and really leveraging from the emerging markets. So we don't have any dependency of revenue coming from Pakistan whatsoever.

Okay. Very good. Thank you, and good luck.

(Operator Instructions) Mitch Hardy, RedChip Companies.

Good morning, gentlemen. I'm with Cognition Capital Management, today representing RedChip Companies. And I am new to covering NetSol, so naturally, I have a lot of questions. I will try to limit them for the time available.

You have a wonderful company. You've obviously demonstrated tremendous ability to develop products and services and sell them and retain wonderful clients. If there is one question in my mind as an investor, it would be on the subject of dilution. I heard the gentlemen earlier mention that the current status of shares outstanding and options and warrants and so forth would add up to approximately 57 million shares.

What is the limit? Can you draw a line in the sand for us as to how many shares there are going to be? The number keeps going up and up.

Yes, let me give you a two-point answer to this. One is, yes, there is the dilution. But then if you look at the balance sheet, one of the major notes has been fully converted at maximum. We basically retired about $5 million from our liabilities.

I saw that, yes.

And that was the price we had to pay, that there was -- conversion price. And so those are pretty much gone. So that dilution, yes, but it helped into our balance sheet.

Secondly, I think the Company has a dynamic of incredible opportunities worldwide, and we believe, we being the largest shareholder, we value every single shareholder. But in the company, there is a stage where if you don't do certain things, then it is going to hurt the business because of the global opportunities and the growing economies, and on many different fronts, we're doing that.

Naeem explained I think eloquently about (inaudible) there, and of course (inaudible) market. Now the rest, we have to continue to invest to grow the Company. And at this stage, (inaudible) at the beginning of this call that we have potentially 57 million shares, if the remaining options -- and I think the current ones are pretty much (inaudible) -- but if they are exercised, then those would be the maximum number for June 30.

[But you can] also jump in with this question of dilution. We come across this literally every day from investors calling us, one-to-one, we get calls and e-mails. So let me put it in the right perspective so that people listen to the call, and maybe it can get out to other investors as well.

When we give you guidance and we say that range, we have factored in dilution. So from the investors' point of view, you don't have any surprises that if we have issued additional shares, that has an impact on EPS. Because EPS at the end of the day is a benchmark by which to judge the Company's performance, and whatever the most (inaudible) you get in the market, again, that EPS is key.

So we can worry about dilution to an extent. But for a company that is growing at our pace, at around 20%, 25% a year, you have to keep growing your infrastructure, you have to keep growing your human resource, your market penetration, sales and marketing. These are all multi-pronged challenges that are part of the dynamics of the Company. And at any given time, all these things are moving at a similar pace.

To keep the company funded, we are trying to balance between taking too much debt on or issuing equity. So it's always better to do neither, (multiple speakers) debt or equity. Then how do you grow? Because most of the growth is coming organically. We have not done an acquisition in -- we did a small acquisition two years ago, but the other acquisitions have been six years ago. So all the growth we are now experiencing is coming purely from organic sales and marketing efforts.

So please bear with us that the dilution is there for a reason. We went through the recession, a lot of (inaudible) notes were issued at the time, at lower prices. But keep in mind the stock price was low at the time and people who took the bet on the Company at that time and funded the Company actually are benefiting, because they took their very -- from their point of view, a risky investment, when stock was at $0.35 talk, $0.36. And so let's not begrudge those people who converted the stock at $0.35, $0.40, $0.65, $0.70, who are now benefiting, because it they took the bet on the Company and helped the Company at that time.

So the management is of the view it will continue to grow. Dilution is a part, but we are trying to keep a very strong tab on it. Absolutely every share is issued with a lot of consideration for dilution so that we don't go in excess with that number so it doesn't impact our EPS and our guidance.

And to further point is that any future dilution, if it happened, I think we have made a plan. The strategy is that any additional equity would be issued around a new project win or a major project finance. So if we were to win a large infrastructure or get a large win in NFS, we will only issue additional equity to fund that actual revenue and that business. I think that puts your mind at ease.

Thank you, first. That is a complete answer. If all my questions got this complete answers, I would take your entire day. I will try to be brief with a couple of others, if you don't mind.

As I say, I'm new to covering the Company. The smartOCI spinoff, how is that structured? is That actually going to be sold to the public, or could you help me understand that a little better? And I apologize if that is an ignorant question, but I'm new to this.

Yes, Najeeb, can I pick this up, because (multiple speakers) closely with Shaz and Najeeb on this project myself. And the plan is that, initially, (inaudible) has already had (inaudible) capital from NetSol during incubation. So we incubated the technology, the development of the search engine technology, and that in itself has gone to a point now that is beyond beta testing.

So now we are in the face of actual customer acquisition, which brings in the actual, tangible revenue. When you have tangible revenue and actual customers, you start to become a real business, which is going to have a top and a bottom line.

What we are planning to do is in the next phase, we want to take the company outside of the parent and as a separate entity, just like our European subsidiary and our US subsidiary and our Pakistan subsidiary. And as you know, China is also a separate company -- China is soon to be, and so is Australia. All these countries operate much better as a devolved unit, with its own management and its own P&L and ownership.

We believe with smartOCI we to do something similar, because starting to grow and scale and what we see in the future potential, that the first step is to make sure we start getting customers. And then we take it out as a separate company, grow it organically to a point. When it starts to get interesting to the public, then we have the option to either fund it through either (inaudible), private equity, or NetSol can invest some more money into it.

At the right time - who knows in the future, going down two years, three years on the road, we may spin it off as a separate entity -- as a public entity, if it has a scale and interest in the market. But it is too far ahead to give you a timeline.

Okay, so it is not imminent. It is a wait-and-see at this point?

(inaudible) [go about scaling this] and you've got to put revenue in it and you have to show a number of wins. And so it's difficult to call a timing on this. But the fact is we are trying to put it -- we are putting it in a separate entity, that it should lead towards that end goal which you just mentioned.

Also -- this is Najeeb -- because we want to also make sure that it's not lost in the core business, so that we can have focus on (inaudible) NetSol (inaudible) 100% used on (inaudible) in the US. Then we can essentially market it as a single entity, focused on all the e-commerce marketplace business, really attractive [retail].

I think in the long-term we see (inaudible) in terms of market penetration or market recognition of this vertical, at the same time when we spin it off, there may be opportunity for there can be some bigger partners coming on to take a stake in this company.

With this I have to ask Jon, how many other (inaudible), because I don't want to monopolize too much on one person.

Understood. Let's repoll, Marissa, one more time. If there are no further questions, we will give it back to Najeeb.

(Operator Instructions) There are no further questions at this time. I would now like to turn the call back over to Najeeb. Please go ahead.

Thank you very much. Thank you so much, everyone, including I want to say this -- that we are extremely optimistic about the future of the Company. All the good things we are doing, as we just shared with you the last 45 minutes leads us to a direction where we believe the long-term outlook of this Company is quite strong, that we are a dynamic Company. We have an excellent management team, very (inaudible) people all across the globe who does an excellent job for the Company, even (inaudible) great challenges, big challenges (inaudible) for the (inaudible) customer.

With our unique technological and delivery capabilities and increasing worldwide demand for IT solutions, we believe our position in the global IT market will grow even stronger in the coming years.

We enter the final quarter of fiscal 2011 tremendously optimistic about the growth of a journey that lies ahead. And thank you again for your continued support of NetSol Technologies. Goodbye. We will see you next time.

Thank you. Ladies and gentlemen, this does conclude our conference call for today. If you would like to listen to the replay of today's conference, please dial 1-877-870-5176 or 858-384-5517 using the access code 4433965. Also, there will be a transcript available of this conference.

We would now like to thank you for your participation. You may now disconnect.