NETSOL Technologies, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Summary of Significant Accounting Policies (Tables)

Summary of Significant Accounting Policies (Tables)

12 Months Ended

Jun. 30, 2019

Summary of Estimated Useful Lives of Assets

Following is the summary of estimated useful lives of the assets:

Category		Estimated Useful Life

Computer equipment & software		3 to 5 Years
Office furniture and equipment		5 to 10 Years
Building		20 Years
Autos		5 Years
Assets under capital leases		3 to 10 Years
Improvements		5 to 10 Years

Schedule of Fair Value of Financial Assets Measured on Recurring Basis

Our financial assets that are measured at fair value on a recurring basis as of June 30, 2019 are as follows:

	Level 1		Level 2		Level 3		Total Assets
Revenues in excess of billing - long term	$	-	$	-	$	1,281,492	$	1,281,492
Total	$	-	$	-	$	1,281,492	$	1,281,492

Our financial assets that are measured at fair value on a recurring basis as of June 30, 2018, are 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 June 30, 2019 is as follows:

	Revenues in excess of billing - long term			Fair value discount			Total
Balance at June 30, 2017	$	5,483,869		$	(310,331	)	$	5,173,538
Additions		2,432,244			(180,526	)		2,251,718
Transfers to short term		(6,470,868	)		-			(6,470,868	)
Amortization during the period		-			252,281			252,281
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	)
Additions		1,380,631			(99,139	)		1,281,492
Balance at June 30, 2019	$	1,380,631		$	(99,139	)	$	1,281,492

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
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
	June 30, 2019			Adjustments			June 30, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	17,366,364					$	17,366,364
Accounts receivable, net of allowance of $192,786 and $610,061		12,332,714						12,332,714
Accounts receivable, net of allowance of $166,075 and $0 - related party		3,266,600						3,266,600
Revenues in excess of billings, net of allowance of $194,684 and $0		14,719,047			9,324,173			24,043,220
Revenues in excess of billings - related party		110,827						110,827
Convertible note receivable - related party		3,650,000						3,650,000
Other current assets		3,146,264						3,146,264
Total current assets		54,591,816			9,324,173			63,915,989
Revenues in excess of billings, net - long term		1,281,492			1,383,585			2,665,077
Property and equipment, net		12,096,855						12,096,855
Long term investment		2,653,769						2,653,769
Other assets		23,569						23,569
Intangible assets, net		7,332,950						7,332,950
Goodwill		9,516,568						9,516,568
Total assets	$	87,497,019		$	10,707,758		$	98,204,777

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	7,476,560					$	7,476,560
Current portion of loans and obligations under capitalized leases		6,905,597						6,905,597
Unearned revenues		5,977,736			(908,100	)		5,069,636
Common stock to be issued		88,324						88,324
Total current liabilities		20,448,217			(908,100	)		19,540,117
Loans and obligations under capitalized leases; less current maturities		564,572						564,572
Total liabilities		21,012,789			(908,100	)		20,104,689
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.01 par value; 500,000 shares authorized;		-			-			-
Common stock, $.01 par value; 14,500,000 shares authorized; 11,911,742 shares issued and 11,664,239 outstanding as of June 30, 2019 and 11,708,469 shares issued and 11,502,616 outstanding as of June 30, 2018		119,117						119,117
Additional paid-in-capital		127,737,999						127,737,999
Treasury stock (At cost, 247,503 shares and 205,853 shares as of June 30, 2019 and June 30, 2018, respectively)		(1,455,969	)					(1,455,969	)
Accumulated deficit		(35,206,898	)		7,690,573			(27,516,325	)
Stock subscription receivable		-						-
Other comprehensive loss		(33,125,006	)					(33,125,006	)
Total NetSol stockholders’ equity		58,069,243			7,690,573			65,759,816
Non-controlling interest		8,414,987			3,925,285			12,340,272
Total stockholders’ equity		66,484,230			11,615,858			78,100,088
Total liabilities and stockholders’ equity	$	87,497,019		$	10,707,758		$	98,204,777

The following table summarizes the effects of adopting Topic 606 on the Company’s Consolidated Statement of Income for the year ended June 30, 2019:

	For the Year
	Ended June 30, 2019
	As reported under						Under prior
	Topic 606			Adjustments			GAAP

Net Revenues:
License fees	$	16,768,749		$	357,259		$	17,126,008
Maintenance fees		15,010,171			587,194			15,597,365
Services		34,185,992			-			34,185,992
License fees - related party		-			-			-
Maintenance fees - related party		511,242			-			511,242
Services - related party		1,343,029			-			1,343,029
Total net revenues		67,819,183			944,453			68,763,636

Cost of revenues:
Salaries and consultants		19,253,364			-			19,253,364
Travel		6,527,868			-			6,527,868
Depreciation and amortization		3,525,857			-			3,525,857
Other		4,066,443			-			4,066,443
Total cost of revenues		33,373,532			-			33,373,532

Gross profit		34,445,651			944,453			35,390,104

Operating expenses:
Selling and marketing		7,831,758			-			7,831,758
Depreciation and amortization		897,800			-			897,800
General and administrative		16,916,953			-			16,916,953
Research and development cost		1,971,228			-			1,971,228
Total operating expenses		27,617,739			-			27,617,739

Income from operations		6,827,912			944,453			7,772,365

Other income and (expenses)
Gain (loss) on sale of assets		81,455			-			81,455
Interest expense		(311,798	)		-			(311,798	)
Interest income		955,061			176,916			1,131,977
Gain on foreign currency exchange transactions		6,345,859			1,740,834			8,086,693
Share of net loss from equity investment		(841,845	)		-			(841,845	)
Other income		18,680			-			18,680
Total other income (expenses)		6,247,412			1,917,750			8,165,162

Net income before income taxes		13,075,324			2,862,203			15,937,527
Income tax provision		(1,057,784	)		-			(1,057,784	)
Net income		12,017,540			2,862,203			14,879,743
Non-controlling interest		(3,434,141	)		(967,425	)		(4,401,566	)
Net income attributable to NetSol	$	8,583,399		$	1,894,778		$	10,478,177

Net income per share:
Net income per common share
Basic	$	0.74		$	0.16		$	0.90
Diluted	$	0.74		$	0.16		$	0.90

Weighted average number of shares outstanding
Basic		11,599,290			11,599,290			11,599,290
Diluted		11,621,990			11,621,990			11,621,990

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 year ended June 30, 2019:

	For the Year
	Ended June 30, 2019
	As reported under						Under prior
	Topic 606			Adjustments			GAAP
Cash flows from operating activities:
Net income	$	12,017,540		$	2,862,203		$	14,879,743
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		4,423,657						4,423,657
Provision for bad debts		474,516						474,516
Share of net loss from investment under equity method		841,845						841,845
Loss on sale of assets		(80,470	)					(80,470	)
Stock based compensation		1,131,013						1,131,013
Fair market value of stock options		43,612						43,612
Accounts receivable		(1,836,962	)					(1,836,962	)
Accounts receivable - related party		(977,445	)					(977,445	)
Revenues in excess of billing		(10,764,428	)		(2,172,277	)		(12,936,705	)
Revenues in excess of billing - related party		(122,810	)					(122,810	)
Other current assets		(861,128	)					(861,128	)
Accounts payable and accrued expenses		(47,819	)					(47,819	)
Unearned revenue		692,089			(689,926	)		2,163
Net cash provided by operating activities		4,933,210			-			4,933,210

Cash flows from investing activities:
Purchases of property and equipment		(2,726,558	)					(2,726,558	)
Sales of property and equipment		1,170,878						1,170,878
Convertible note receivable - related party		(1,526,500	)					(1,526,500	)
Investment in associates		(250,000	)					(250,000	)
Purchase of subsidiary shares from open market		(317,500	)					(317,500	)
Net cash used in investing activities		(3,649,680	)		-			(3,649,680	)

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
Purchase of treasury stock		(250,945	)					(250,945	)
Dividend paid by subsidiary to non-controlling interest		(566,465	)					(566,465	)
Proceeds from bank loans		1,227,158						1,227,158
Payments on capital lease obligations and loans - net		(480,231	)					(480,231	)
Net cash provided by financing activities		17,167			-			17,167
Effect of exchange rate changes		(6,023,186	)					(6,023,186	)
Net decrease in cash and cash equivalents		(4,722,489	)		-			(4,722,489	)
Cash and cash equivalents at beginning of the period		22,088,853						22,088,853
Cash and cash equivalents at end of period	$	17,366,364		$	-		$	17,366,364