Quarterly report pursuant to Section 13 or 15(d)

Accounting Policies (Tables)

v3.10.0.1
Accounting Policies (Tables)
6 Months Ended
Dec. 31, 2018
Accounting Policies [Abstract]  
Schedule of Fair Value of Financial Assets Measured on Recurring Basis

The Company’s financial assets that were measured at fair value on a recurring basis as of June 30, 2018, were as follows:

 

    Level 1     Level 2     Level 3     Total Assets  
Revenues in excess of billing - long term   $ -     $ -     $ 1,206,669     $ 1,206,669  
Total   $ -     $ -     $ 1,206,669     $ 1,206,669  

Schedule of Fair Value of Financial Instruments Reconciliation

The reconciliation from June 30, 2018 to December 31, 2018 is as follows:

 

    Revenues in excess of billing - long term     Fair value discount     Total  
 Balance at June 30, 2018   $ 1,445,245     $ (238,576 )   $ 1,206,669  
 Effect of ASC 606 adoption     (1,445,245 )     238,576       (1,206,669 )
 Balance at December 31, 2018   $ -     $ -     $ -  

Schedule of New Accounting Pronouncements and Changes in Accounting Principles

The following table presents the cumulative effect adjustments, net of income tax effects, to beginning consolidated balance sheet accounts for the new accounting standards adopted by the Company on the first day of fiscal 2019:

 

    As of June 30,     Topic 606     As of July 1,  
    2018     Adjustments     2018  
ASSETS                        
Current assets:                        
Cash and cash equivalents   $ 22,088,853             $ 22,088,853  
Accounts receivable, net of allowance of $610,061 and $571,511     12,775,461               12,775,461  
Accounts receivable, net - related party     3,374,272               3,374,272  
Revenues in excess of billings     14,285,778       (7,328,812 )     6,956,966  
Revenues in excess of billings - related party     -               -  
Convertible note receivable - related party     2,123,500               2,123,500  
Other current assets     2,703,032               2,703,032  
Total current assets     57,350,896       (7,328,812 )     50,022,084  
Revenues in excess of billings, net - long term     1,206,669       (1,206,669 )     -  
Property and equipment, net     16,165,491               16,165,491  
Long term investment     3,217,162               3,217,162  
Other assets     70,299               70,299  
Intangible assets, net     12,247,196               12,247,196  
Goodwill     9,516,568               9,516,568  
Total assets   $ 99,774,281     $ (8,535,481 )   $ 91,238,800  
                         
LIABILITIES AND STOCKHOLDERS’ EQUITY                        
Current liabilities:                        
Accounts payable and accrued expenses   $ 7,873,809             $ 7,873,809  
Current portion of loans and obligations under capitalized leases     8,595,919               8,595,919  
Unearned revenues     5,949,581       218,174       6,167,755  
Common stock to be issued     88,324               88,324  
Total current liabilities     22,507,633       218,174       22,725,807  
Loans and obligations under capitalized leases; less current maturities     330,596               330,596  
Total liabilities     22,838,229       218,174       23,056,403  
Commitments and contingencies                        
Stockholders’ equity:                        
Preferred stock, $.01 par value; 500,000 shares authorized;     -       -       -  
Common stock, $.01 par value; 14,500,000 shares authorized; 11,708,469 shares issued and 11,502,616 outstanding as of June 30, 2018 and 11,225,385 shares issued and 11,190,606 outstanding as of June 30, 2017     117,085               117,085  
Additional paid-in-capital     126,479,147               126,479,147  
Treasury stock (At cost, 205,853 shares and 34,779 shares as of June 30, 2018 and June 30, 2017, respectively)     (1,205,024 )             (1,205,024 )
Accumulated deficit     (37,994,502 )     (5,795,795 )     (43,790,297 )
Stock subscription receivable     (221,000 )             (221,000 )
Other comprehensive loss     (24,386,071 )             (24,386,071 )
Total NetSol stockholders’ equity     62,789,635       (5,795,795 )     56,993,840  
Non-controlling interest     14,146,417       (2,957,860 )     11,188,557  
Total stockholders’ equity     76,936,052       (8,753,655 )     68,182,397  
Total liabilities and stockholders’ equity   $ 99,774,281     $ (8,535,481 )   $ 91,238,800  

  

The following table presents the cumulative effect adjustments, net of income tax effects, to beginning consolidated balance sheet accounts for the new accounting standards adopted by the Company as of December 31, 2018:

 

    As reported under Topic 606          

Balances under

Prior GAAP

 
    December 31, 2018     Adjustments     December 31, 2018  
ASSETS                        
Current assets:                        
Cash and cash equivalents   $ 20,320,804             $ 20,320,804  
Accounts receivable, net of allowance of $376,178 and $610,061     7,852,296               7,852,296  
Accounts receivable, net - related party     2,944,290               2,944,290  
Revenues in excess of billings     13,832,654       8,426,401       22,259,055  
Revenues in excess of billings - related party     62,323               62,323  
Convertible note receivable - related party     3,156,500               3,156,500  
Other current assets     4,092,921               4,092,921  
Total current assets     52,261,788       8,426,401       60,688,189  
Revenues in excess of billings, net - long term     -       1,356,637       1,356,637  
Property and equipment, net     14,005,541               14,005,541  
Long term investment     2,689,005               2,689,005  
Other assets     35,470               35,470  
Intangible assets, net     9,637,010               9,637,010  
Goodwill     9,516,568               9,516,568  
Total assets   $ 88,145,382     $ 9,783,038     $ 97,928,420  
                         
LIABILITIES AND STOCKHOLDERS’ EQUITY                        
Current liabilities:                        
Accounts payable and accrued expenses   $ 7,468,984             $ 7,468,984  
Current portion of loans and obligations under capitalized leases     7,627,426               7,627,426  
Unearned revenues     4,705,302       (217,410 )     4,487,892  
Common stock to be issued     88,324               88,324  
Total current liabilities     19,890,036       (217,410 )     19,672,626  
Loans and obligations under capitalized leases; less current maturities     345,473               345,473  
Total liabilities     20,235,509       (217,410 )     20,018,099  
Commitments and contingencies Stockholders’ equity:                        
Preferred stock, $.01 par value; 500,000 shares authorized;     -       -       -  
Common stock, $.01 par value; 14,500,000 shares authorized; 11,860,310 shares issued and 11,654,457 outstanding as of December 31, 2018 and 11,708,469 shares issued and 11,502,616 outstanding as of June 30, 2018     118,603               118,603  
Additional paid-in-capital     127,398,738               127,398,738  
Treasury stock (At cost, 205,853 shares and 205,853 shares  as of December 31, 2018 and June 30, 2018, respectively)     (1,205,024 )             (1,205,024 )
Accumulated deficit     (39,972,079 )     6,621,172       (33,350,907 )
Stock subscription receivable     (221,000 )             (221,000 )
Other comprehensive loss     (28,446,811 )             (28,446,811 )
Total NetSol stockholders’ equity     57,672,427       6,621,172       64,293,599  
Non-controlling interest     10,237,446       3,379,276       13,616,722  
Total stockholders’ equity     67,909,873       10,000,448       77,910,321  
Total liabilities and stockholders’ equity   $ 88,145,382     $ 9,783,038     $ 97,928,420  

  

The following table summarizes the effects of adopting Topic 606 on the Company’s Condensed Consolidated Statement of Income for the three and six months ended December 31, 2018:

 

    For the Three Months     For the Six Months  
    Ended December 31, 2018     Ended December 31, 2018  
    As reported under
Topic 606
    Adjustments     Under prior
GAAP
    As reported
Topic 606
    Adjustments     Under prior
GAAP
 
                                     
Net Revenues:                                                
License fees   $ 4,817,569             $ 4,817,569     $ 10,773,682     $ -     $ 10,773,682  
Maintenance fees     3,534,693       210,879       3,745,572       7,173,020       357,356       7,530,376  
Services     8,237,334               8,237,334       14,655,968       -       14,655,968  
Maintenance fees - related party     127,030               127,030       228,379       -       228,379  
Services - related party     286,001               286,001       568,123       -       568,123  
Total net revenues     17,002,627       210,879       17,213,506       33,399,172       357,356       33,756,528  
                                                 
Cost of revenues:                                                
Salaries and consultants     4,497,054               4,497,054       9,517,616       -       9,517,616  
Travel     1,706,182               1,706,182       2,858,179       -       2,858,179  
Depreciation and amortization     880,048               880,048       1,817,652       -       1,817,652  
Other     1,060,772               1,060,772       2,109,096       -       2,109,096  
Total cost of revenues     8,144,056       -       8,144,056       16,302,543       -       16,302,543  
                                                 
Gross profit     8,858,571       210,879       9,069,450       17,096,629       357,356       17,453,985  
                                                 
Operating expenses:                                                
Selling and marketing     2,048,303               2,048,303       3,749,629       -       3,749,629  
Depreciation and amortization     193,779               193,779       406,011       -       406,011  
General and administrative     4,002,059               4,002,059       8,408,779       -       8,408,779  
Research and development cost     424,652               424,652       742,807       -       742,807  
Total operating expenses     6,668,793       -       6,668,793       13,307,226       -       13,307,226  
                                                 
Income from operations     2,189,778       210,879       2,400,657       3,789,403       357,356       4,146,759  
                                                 
Other income and (expenses)                                                
Gain (loss) on sale of assets     (3,504 )             (3,504 )     48,790       -       48,790  
Interest expense     (63,804 )             (63,804 )     (163,238 )     -       (163,238 )
Interest income     230,421       74,985       305,406       479,385       149,968       629,353  
Gain on foreign currency exchange transactions     2,536,755       685,766       3,222,521       2,547,667       739,469       3,287,136  
Share of net loss from equity investment     (298,293 )             (298,293 )     (597,984 )     -       (597,984 )
Other income     4,503               4,503       9,882       -       9,882  
Total other income (expenses)     2,406,078       760,751       3,166,829       2,324,502       889,437       3,213,939  
                                                 
Net income before income taxes     4,595,856       971,630       5,567,486       6,113,905       1,246,793       7,360,698  
Income tax provision     (264,872 )             (264,872 )     (501,786 )     -       (501,786 )
Net income     4,330,984       971,630       5,302,614       5,612,119       1,246,793       6,858,912  
Non-controlling interest     (1,475,355 )     (328,411 )     (1,803,766 )     (1,793,901 )     (421,416 )     (2,215,317 )
Net income attributable to NetSol   $ 2,855,629     $ 643,219     $ 3,498,848     $ 3,818,218     $ 825,377     $ 4,643,595  
                                                 
Net income per share:                                                
Net income per common share                                                
Basic   $ 0.25     $ 0.05     $ 0.30     $ 0.33     $ 0.07     $ 0.40  
Diluted   $ 0.25     $ 0.05     $ 0.30     $ 0.33     $ 0.07     $ 0.40  
                                                 
Weighted average number of shares outstanding                                                
Basic     11,586,507       11,586,507       11,586,507       11,542,877       11,542,877       11,542,877  
Diluted     11,592,193       11,592,193       11,592,193       11,548,563       11,548,563       11,548,563  

  

The following table summarizes the effects of adopting Topic 606 on the financial statement line items of the Company’s Consolidated Statement of Cash Flows for the three months ended December 31, 2018:

 

    For the Six Months  
    Ended December 31, 2018  
    As reported under
Topic 606
    Adjustments     Under prior
GAAP
 
Cash flows from operating activities:                        
Net income   $ 5,612,119     $ 1,246,793     $ 6,858,912  
Adjustments to reconcile net income to net cash provided by operating activities:                        
Depreciation and amortization     2,223,663               2,223,663  
Share of net loss from investment under equity method     597,984               597,984  
Loss on sale of assets     (48,790 )             (48,790 )
Stock based compensation     869,743               869,743  
Changes in operating assets and liabilities:                     -  
Accounts receivable     4,208,751               4,208,751  
Accounts receivable - related party     (219,538 )             (219,538 )
Revenues in excess of billing     (7,633,216 )     (1,247,557 )     (8,880,773 )
Revenues in excess of billing - related party     (91,279 )             (91,279 )
Other current assets     (1,409,746 )             (1,409,746 )
Accounts payable and accrued expenses     139,331               139,331  
Unearned revenue     (1,094,375 )     764       (1,093,611 )
Net cash provided by operating activities     3,154,647       -       3,154,647  
                         
Cash flows from investing activities:                        
Purchases of property and equipment     (1,441,237 )             (1,441,237 )
Sales of property and equipment     519,645               519,645  
Convertible note receivable - related party     (1,033,000 )             (1,033,000 )
Net cash used in investing activities     (1,954,592 )     -       (1,954,592 )
                         
Cash flows from financing activities:                        
Proceeds from the exercise of stock options and warrants     65,000               65,000  
Proceeds from exercise of subsidiary options     2,650               2,650  
Dividend paid by subsidiary to non-controlling interest     (566,465 )             (566,465 )
Proceeds from bank loans     382,240               382,240  
Payments on capital lease obligations and loans - net     (289,027 )             (289,027 )
Net cash used in financing activities     (405,602 )     -       (405,602 )
Effect of exchange rate changes     (2,562,502 )             (2,562,502 )
Net increase in cash and cash equivalents     (1,768,049 )     -       (1,768,049 )
Cash and cash equivalents at beginning of the period     22,088,853               22,088,853  
Cash and cash equivalents at end of period   $ 20,320,804     $ -     $ 20,320,804