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

Quarterly report pursuant to Section 13 or 15(d)

Restatement of Previously Issued Financial Statements

Restatement of Previously Issued Financial Statements

3 Months Ended

Sep. 30, 2017

Accounting Changes and Error Corrections [Abstract]

Restatement of Previously Issued Financial Statements

NOTE 20 – RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

During the preparation of the Company’s Form 10-Q for the nine months ended March 31, 2017, misstatements were identified in the previous financial statements relating to the recording of revenue in the proper period. The restated financial statements for the periods affected were disclosed in Note 19 of the Notes to Condensed Consolidated Financial Statement contained in the Company’s Form 10-Q for the nine months ended March 31, 2017.

On December 21, 2015, the Company signed a 10-year contract for a 12-country installation of its NFS Ascent product which included a perpetual license, continued maintenance on the existing product and then maintenance on NFS Ascent upon installation. The Company did not appropriately apply the percentage-of-completion method for this arrangement in accordance with ASC 605-35. As a result, for quarter ended September 30, 2016, license revenue was understated by $1,953,935 and for the quarter ended December 31, 2016, license revenue was overstated by $1,580,529.

The Company charges maintenance revenue on the license value plus any additional customization that the customer may require. For one customer, the Company did not increase the maintenance fee for the additional customization that was performed during the year. This resulted in an understatement of maintenance revenue of $120,976 for the quarter ended September 30, 2016 and an overstatement of maintenance revenue of $198,797 for the quarter ended December 31, 2016.

The following tables present the restated financial statements for the quarter ended September 30, 2016.

	Balance Sheet As of September 30, 2016
	As Originally Presented			Amount of Restatement		As Restated
ASSETS
Current assets:
Cash and cash equivalents	$	11,156,437				$	11,156,437
Accounts receivable, net of allowance of $500,853 and $492,498		7,142,255					7,142,255
Accounts receivable, net - related party		5,384,573					5,384,573
Revenues in excess of billings		13,358,858			2,074,911		15,433,769
Revenues in excess of billings - related party		682,049					682,049
Other current assets		3,192,425					3,192,425
Total current assets		40,916,597			2,074,911		42,991,508
Restricted cash		90,000					90,000
Property and equipment, net		22,612,752					22,612,752
Other assets		1,604,731					1,604,731
Intangible assets, net		19,326,259					19,326,259
Goodwill		9,516,568					9,516,568
Total assets	$	94,066,907		$	2,074,911	$	96,141,818

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	6,389,128				$	6,389,128
Current portion of loans and obligations under capitalized leases		4,408,173					4,408,173
Unearned revenues		4,419,692					4,419,692
Common stock to be issued		88,324					88,324
Total current liabilities		15,305,317			-		15,305,317
Long term loans and obligations under capitalized leases; less current maturities		539,859					539,859
Total liabilities		15,845,176			-		15,845,176
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.01 par value; 500,000 shares authorized;		-			-		-
Common stock, $.01 par value; 14,500,000 shares authorized; 10,882,281 shares issued and 10,855,002 outstanding as of September 30, 2016 and 10,713,372 shares issued and 10,686,093 outstanding as of June 30, 2016		108,823					108,823
Additional paid-in-capital		122,367,231					122,367,231
Treasury stock (27,279 shares)		(415,425	)				(415,425	)
Accumulated deficit		(39,089,079	)		1,379,608		(37,709,471	)
Stock subscription receivable		(602,811	)				(602,811	)
Other comprehensive loss		(17,960,133	)				(17,960,133	)
Total NetSol stockholders’ equity		64,408,606			1,379,608		65,788,214
Non-controlling interest		13,813,125			695,303		14,508,428
Total stockholders’ equity		78,221,731			2,074,911		80,296,642
Total liabilities and stockholders’ equity	$	94,066,907		$	2,074,911	$	96,141,818

	For the Three Months
	Ended September 30, 2016
	As Originally			Amount of
	Presented			Restatement			As Restated
Net Revenues:
License fees	$	3,499,860		$	1,953,935		$	5,453,795
Maintenance fees		3,402,821			120,976			3,523,797
Services		5,806,717						5,806,717
License fees - related party		246,957						246,957
Maintenance fees - related party		130,631						130,631
Services - related party		1,914,572						1,914,572
Total net revenues		15,001,558			2,074,911			17,076,469

Cost of revenues:
Salaries and consultants		5,893,349						5,893,349
Travel		711,895						711,895
Depreciation and amortization		1,330,872						1,330,872
Other		972,338						972,338
Total cost of revenues		8,908,454			-			8,908,454

Gross profit		6,093,104			2,074,911			8,168,015

Operating expenses:
Selling and marketing		2,411,136						2,411,136
Depreciation and amortization		269,097						269,097
General and administrative		4,552,098						4,552,098
Research and development cost		92,932						92,932
Total operating expenses		7,325,263			-			7,325,263

Income (loss) from operations		(1,232,159	)		2,074,911			842,752

Other income and (expenses)
Loss on sale of assets		(2,403	)					(2,403	)
Interest expense		(54,475	)					(54,475	)
Interest income		30,440						30,440
Loss on foreign currency exchange transactions		(414,896	)					(414,896	)
Other income		21,560						21,560
Total other income (expenses)		(419,774	)		-			(419,774	)

Net income (loss) before income taxes		(1,651,933	)		2,074,911			422,978
Income tax provision		(39,875	)					(39,875	)
Net income (loss)		(1,691,808	)		2,074,911			383,103
Non-controlling interest		(73,911	)		(695,303	)		(769,214	)
Net income (loss) attributable to NetSol	$	(1,765,719	)	$	1,379,608		$	(386,111	)

Net Income (loss) per share:
Net income (loss) per common share
Basic	$	(0.17	)	$	0.14		$	(0.04	)
Diluted	$	(0.17	)	$	0.14		$	(0.04	)

Weighted average number of shares outstanding
Basic		10,697,425			10,697,425			10,697,425
Diluted		10,697,425			10,697,425			10,697,425

	For the Three Months
	Ended September 30, 2016
	As Originally			Amount of
	Presented			Restatement		As Restated
Net income (loss)	$	(1,765,719	)	$	1,379,608	$	(386,111	)
Other comprehensive income (loss):

Translation adjustment		1,094,074			-		1,094,074
Comprehensive income (loss)		(671,645	)		1,379,608		707,963
Comprehensive income (loss) attributable to non-controlling interest		323,713			-		323,713
Comprehensive income (loss) attributable to NetSol	$	(995,358	)	$	1,379,608	$	384,250

	For the Three Months
	Ended September 30, 2016

	As Originally			Amount of
	Presented			Restatement			As Restated
Cash flows from operating activities:
Net income (loss)	$	(1,691,808	)	$	2,074,911		$	383,103
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization		1,599,969						1,599,969
Loss on sale of assets		2,403						2,403
Stock issued for services		865,456						865,456
Fair market value of warrants and stock options granted		21,804						21,804
Changes in operating assets and liabilities:
Accounts receivable		2,336,894						2,336,894
Accounts receivable - related party		121,800						121,800
Revenues in excess of billing		(2,746,917	)		(2,074,911	)		(4,821,828	)
Revenues in excess of billing - related party		93,208						93,208
Other current assets		306,339						306,339
Accounts payable and accrued expenses		(780,569	)					(780,569	)
Unearned revenue		(346,108	)					(346,108	)
Net cash used in operating activities		(217,529	)		-			(217,529	)

Cash flows from investing activities:
Purchases of property and equipment		(554,873	)					(554,873	)
Sales of property and equipment		151,818						151,818
Investment		(555,555	)					(555,555	)
Net cash used in investing activities		(958,610	)		-			(958,610	)

Cash flows from financing activities:
Proceeds from the exercise of stock options and warrants		276,861						276,861
Proceeds from exercise of subsidiary options		14,013						14,013
Payments on capital lease obligations and loans - net		(49,117	)					(49,117	)
Net cash provided by financing activities		241,757			-			241,757
Effect of exchange rate changes		533,292						533,292
Net decrease in cash and cash equivalents		(401,090	)		-			(401,090	)
Cash and cash equivalents, beginning of the period		11,557,527						11,557,527
Cash and cash equivalents, end of period	$	11,156,437		$	-		$	11,156,437