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)

3 Months Ended

Sep. 30, 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 September 30, 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 September 30, 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			Topic 606			As of
	June 30, 2018			Adjustments			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
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
	September 30, 2018			Adjustments			September 30, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	20,435,744					$	20,435,744
Accounts receivable, net of allowance of $600,833 and $610,061		7,487,381						7,487,381
Accounts receivable, net - related party		3,039,320						3,039,320
Revenues in excess of billings		13,335,529			7,458,067			20,793,596
Revenues in excess of billings - related party		70,250						70,250
Convertible note receivable - related party		2,881,500						2,881,500
Other current assets		3,438,861						3,438,861
Total current assets		50,688,585			7,458,067			58,146,652
Revenues in excess of billings, net - long term		-			1,281,652			1,281,652
Property and equipment, net		15,650,128						15,650,128
Long term investment		2,958,692						2,958,692
Other assets		54,936						54,936
Intangible assets, net		11,465,925						11,465,925
Goodwill		9,516,568						9,516,568
Total assets	$	90,334,834		$	8,739,719		$	99,074,553

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	7,153,778					$	7,153,778
Current portion of loans and obligations under capitalized leases		8,433,675						8,433,675
Unearned revenues		4,913,731			(289,099	)		4,624,632
Common stock to be issued		88,324						88,324
Total current liabilities		20,589,508			(289,099	)		20,300,409
Loans and obligations under capitalized leases; less current maturities		296,680						296,680
Total liabilities		20,886,188			(289,099	)		20,597,089
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.01 par value; 500,000 shares authorized;		-			-			-
Common stock, $.01 par value; 14,500,000 shares authorized; 11,782,360 shares issued and 11,576,507 outstanding as of September 30, 2018 and 11,708,469 shares issued and 11,502,616 outstanding as of June 30, 2018		117,824						117,824
Additional paid-in-capital		126,918,319						126,918,319
Treasury stock (At cost, 205,853 shares and 205,853 shares as of September 30, 2018 and June 30, 2018, respectively)		(1,205,024	)					(1,205,024	)
Accumulated deficit		(42,827,708	)		5,977,953			(36,849,755	)
Stock subscription receivable		(221,000	)					(221,000	)
Other comprehensive loss		(24,649,274	)					(24,649,274	)
Total NetSol stockholders’ equity		58,133,137			5,977,953			64,111,090
Non-controlling interest		11,315,509			3,050,865			14,366,374
Total stockholders’ equity		69,448,646			9,028,818			78,477,464
Total liabilities and stockholders’ equity	$	90,334,834		$	8,739,719		$	99,074,553

The following table summarizes the effects of adopting Topic 606 on the Company’s Condensed Consolidated Statement of Income for the three months ended September 30, 2018:

	For the Three Months
	Ended September 30, 2018
	As reported under						Under prior
	Topic 606			Adjustments			GAAP

Net Revenues:
License fees	$	5,956,113					$	5,956,113
Maintenance fees		3,638,327			146,477			3,784,804
Services		6,418,634						6,418,634
License fees - related party		-						-
Maintenance fees - related party		101,349						101,349
Services - related party		282,122						282,122

Total net revenues		16,396,545			146,477			16,543,022

Cost of revenues:
Salaries and consultants		5,020,562						5,020,562
Travel		1,151,997						1,151,997
Depreciation and amortization		937,604						937,604
Other		1,048,324						1,048,324
Total cost of revenues		8,158,487			-			8,158,487

Gross profit		8,238,058			146,477			8,384,535

Operating expenses:
Selling and marketing		1,701,326						1,701,326
Depreciation and amortization		212,232						212,232
General and administrative		4,406,720						4,406,720
Research and development cost		318,155						318,155
Total operating expenses		6,638,433			-			6,638,433

Income (loss) from operations		1,599,625			146,477			1,746,102

Other income and (expenses)
Gain (loss) on sale of assets		52,294						52,294
Interest expense		(99,434	)					(99,434	)
Interest income		248,964			74,983			323,947
Gain on foreign currency exchange transactions		10,912			53,703			64,615
Share of net loss from equity investment		(299,691	)					(299,691	)
Other income (expense)		5,379						5,379
Total other income (expenses)		(81,576	)		128,686			47,110

Net income (loss) before income taxes		1,518,049			275,163			1,793,212
Income tax provision		(236,914	)					(236,914	)
Net income (loss)		1,281,135			275,163			1,556,298
Non-controlling interest		(318,546	)		(93,005	)		(411,551	)
Net income (loss) attributable to NetSol	$	962,589		$	182,158		$	1,144,747

Net income (loss) per share:
Net income (loss) per common share
Basic	$	0.08		$	0.02		$	0.10
Diluted	$	0.08		$	0.02		$	0.10

Weighted average number of shares outstanding
Basic		11,502,616			11,502,616			11,502,616
Diluted		11,507,730			11,507,730			11,507,730

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 September 30, 2018:

	For the Three Months
	Ended September 30, 2018
	As reported under						Under prior
	Topic 606			Adjustments			GAAP
Cash flows from operating activities:
Net income (loss)	$	1,281,135		$	275,163		$	1,556,298
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		1,149,836						1,149,836
Share of net loss from investment under equity method		299,691						299,691
(Gain) loss on sale of assets		(52,294	)					(52,294	)
Stock based compensation		432,048						432,048
Changes in operating assets and liabilities:								-
Accounts receivable		5,136,381						5,136,381
Accounts receivable - related party		284,869						284,869
Revenues in excess of billing		(6,347,196	)		(204,238	)		(6,551,434	)
Revenues in excess of billing - related party		(70,102	)					(70,102	)
Other current assets		(571,246	)					(571,246	)
Accounts payable and accrued expenses		(680,147	)					(680,147	)
Unearned revenue		(1,202,420	)		(70,925	)		(1,273,345	)
Net cash used in operating activities		(339,445	)		-			(339,445	)

Cash flows from investing activities:
Purchases of property and equipment		(563,413	)					(563,413	)
Sales of property and equipment		184,032						184,032
Convertible note receivable - related party		(758,000	)					(758,000	)
Net cash used in investing activities		(1,137,381	)		-			(1,137,381	)

Cash flows from financing activities:
Proceeds from the exercise of stock options and warrants		-						-
Proceeds from exercise of subsidiary options		2,650						2,650
Purchase of treasury stock		-						-
Proceeds from bank loans		119,895						119,895
Payments on capital lease obligations and loans - net		(179,237	)					(179,237	)
Net cash provided by (used in) financing activities		(56,692	)		-			(56,692	)
Effect of exchange rate changes		(119,591	)					(119,591	)
Net increase in cash and cash equivalents		(1,653,109	)		-			(1,653,109	)
Cash and cash equivalents at beginning of the period		22,088,853						22,088,853
Cash and cash equivalents at end of period	$	20,435,744		$	-		$	20,435,744