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)

9 Months Ended

Mar. 31, 2019

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 March 31, 2019 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 March 31, 2019	$	-		$	-		$	-

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, 2018			Topic 606 Adjustments			As of July 1,2018
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
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
	March 31, 2019			Adjustments			March 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	17,014,590					$	17,014,590
Accounts receivable, net of allowance of $373,329 and $610,061		15,971,676						15,971,676
Accounts receivable, net - related party		3,012,133						3,012,133
Revenues in excess of billings		13,381,205			7,964,871			21,346,076
Revenues in excess of billings - related party		61,822						61,822
Convertible note receivable - related party		3,250,000						3,250,000
Other current assets		3,593,057						3,593,057
Total current assets		56,284,483			7,964,871			64,249,354
Revenues in excess of billings, net - long term		-			1,370,111			1,370,111
Property and equipment, net		14,374,262						14,374,262
Long term investment		2,501,299						2,501,299
Other assets		23,994						23,994
Intangible assets, net		9,042,726						9,042,726
Goodwill		9,516,568						9,516,568
Total assets	$	91,743,332		$	9,334,982		$	101,078,314

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	6,881,435					$	6,881,435
Current portion of loans and obligations under capitalized leases		8,111,332						8,111,332
Unearned revenues		6,241,741			(1,013,469	)		5,228,272
Common stock to be issued		88,324						88,324
Total current liabilities		21,322,832			(1,013,469	)		20,309,363
Loans and obligations under capitalized leases; less current maturities		716,563						716,563
Total liabilities		22,039,395			(1,013,469	)		21,025,926
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.01 par value; 500,000 shares authorized;		-			-			-
Common stock, $.01 par value; 14,500,000 shares authorized;11,879,056 shares issued and 11,673,203 outstanding as of March 31, 2019 and 11,708,469 shares issued and 11,502,616 outstanding as of June 30, 2018		118,791						118,791
Additional paid-in-capital		127,551,606						127,551,606
Treasury stock (At cost, 205,853 shares and 205,853 shares as of March 31, 2019 and June 30, 2018, respectively)		(1,205,024	)					(1,205,024	)
Accumulated deficit		(38,704,519	)		6,851,550			(31,852,969	)
Stock subscription receivable		(221,000	)					(221,000	)
Other comprehensive loss		(28,474,832	)					(28,474,832	)
Total NetSol stockholders’ equity		59,065,022			6,851,550			65,916,572
Non-controlling interest		10,638,915			3,496,901			14,135,816
Total stockholders’ equity		69,703,937			10,348,451			80,052,388
Total liabilities and stockholders’ equity	$	91,743,332		$	9,334,982		$	101,078,314

The following table summarizes the effects of adopting Topic 606 on the Company’s Condensed Consolidated Statement of Income for the three and nine months ended March 31, 2019:

	For the Three Months Ended March 31, 2019									For the Nine Months Ended March 31, 2019
	As reported under Topic 606			Adjustments			Under prior GAAP			As reported under Topic 606			Adjustments			Under prior GAAP

Net Revenues:
License fees	$	2,536,320		$	175,507		$	2,711,827		$	13,310,002		$	175,507		$	13,485,509
Maintenance fees		3,562,412			232,110			3,794,522			10,735,432			589,466			11,324,898
Services		10,519,219						10,519,219			25,175,187			-			25,175,187
Maintenance fees - related party		142,344						142,344			370,723			-			370,723
Services - related party		366,760						366,760			934,883			-			934,883
Total net revenues		17,127,055			407,617			17,534,672			50,526,227			764,973			51,291,200

Cost of revenues:
Salaries and consultants		4,833,611						4,833,611			14,351,227			-			14,351,227
Travel		1,793,964						1,793,964			4,652,143			-			4,652,143
Depreciation and amortization		874,654						874,654			2,692,306			-			2,692,306
Other		1,067,506						1,067,506			3,176,602			-			3,176,602
Total cost of revenues		8,569,735			-			8,569,735			24,872,278			-			24,872,278

Gross profit		8,557,320			407,617			8,964,937			25,653,949			764,973			26,418,922

Operating expenses:
Selling and marketing		1,864,990						1,864,990			5,614,619			-			5,614,619
Depreciation and amortization		252,442						252,442			658,453			-			658,453
General and administrative		3,833,209						3,833,209			12,241,988			-			12,241,988
Research and development cost		513,770						513,770			1,256,577			-			1,256,577
Total operating expenses		6,464,411			-			6,464,411			19,771,637			-			19,771,637

Income from operations		2,092,909			407,617			2,500,526			5,882,312			764,973			6,647,285

Other income and (expenses)
Gain (loss) on sale of assets		16,380						16,380			65,170			-			65,170
Interest expense		(70,447	)					(70,447	)		(233,685	)		-			(233,685	)
Interest income		201,084			13,474			214,558			680,469			163,442			843,911
Gain on foreign currency exchange transactions		47,218			(73,088	)		(25,870	)		2,594,885			666,381			3,261,266
Share of net loss from equity investment		(245,389	)					(245,389	)		(843,373	)		-			(843,373	)
Other income		3,116						3,116			12,998			-			12,998
Total other income (expenses)		(48,038	)		(59,614	)		(107,652	)		2,276,464			829,823			3,106,287

Net income before income taxes		2,044,871			348,003			2,392,874			8,158,776			1,594,796			9,753,572
Income tax provision		(275,476	)					(275,476	)		(777,262	)		-			(777,262	)
Net income		1,769,395			348,003			2,117,398			7,381,514			1,594,796			8,976,310
Non-controlling interest		(501,835	)		(117,625	)		(619,460	)		(2,295,736	)		(539,041	)		(2,834,777	)
Net income attributable to NetSol	$	1,267,560		$	230,378		$	1,497,938		$	5,085,778		$	1,055,755		$	6,141,533

Net income per share:
Net income per common share
Basic	$	0.11		$	0.02		$	0.13		$	0.44		$	0.09		$	0.53
Diluted	$	0.11		$	0.02		$	0.13		$	0.44		$	0.09		$	0.53

Weighted average number of shares outstanding
Basic		11,656,098			11,656,098			11,656,098			11,580,066			11,580,066			11,580,066
Diluted		11,691,342			11,691,342			11,691,342			11,615,310			11,615,310			11,615,310

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 March 31, 2019:

	For the Nine Months Ended March 31, 2019
	As reported under						Under prior
	Topic 606			Adjustments			GAAP
Cash flows from operating activities:
Net income	$	7,381,514		$	1,594,796		$	8,976,310
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,350,759						3,350,759
Share of net loss from investment under equity method		843,373						843,373
Loss on sale of assets		(65,170	)					(65,170	)
Stock based compensation		980,682						980,682
Fair market value of stock options extended		43,612						43,612
Changes in operating assets and liabilities:								-
Accounts receivable		(4,249,540	)					(4,249,540	)
Accounts receivable - related party		(461,435	)					(461,435	)
Revenues in excess of billing		(6,862,451	)		(799,501	)		(7,661,952	)
Revenues in excess of billing - related party		(97,359	)					(97,359	)
Other current assets		(1,189,909	)					(1,189,909	)
Accounts payable and accrued expenses		(540,615	)					(540,615	)
Unearned revenue		611,157			(795,295	)		(184,138	)
Net cash used in operating activities		(255,382	)		-			(255,382	)

Cash flows from investing activities:
Purchases of property and equipment		(2,590,302	)					(2,590,302	)
Sales of property and equipment		1,005,214						1,005,214
Convertible note receivable - related party		(1,126,500	)					(1,126,500	)
Net cash used in investing activities		(2,711,588	)		-			(2,711,588	)

Cash flows from financing activities:
Proceeds from the exercise of stock options and warrants		85,000						85,000
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		1,337,092						1,337,092
Payments on capital lease obligations and loans - net		(298,610	)					(298,610	)
Net cash provided by financing activities		559,667			-			559,667
Effect of exchange rate changes		(2,666,960	)					(2,666,960	)
Net increase in cash and cash equivalents		(5,074,263	)		-			(5,074,263	)
Cash and cash equivalents at beginning of the period		22,088,853						22,088,853
Cash and cash equivalents at end of period	$	17,014,590		$	-		$	17,014,590