NETSOL Technologies, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Accounting Policies (Tables)

Accounting Policies (Tables)

6 Months Ended

Dec. 31, 2018

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

	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