NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2017
(UNAUDITED)
NOTE
1 - BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The
Company designs, develops, markets, and exports proprietary software products to customers in the automobile financing and leasing,
banking, and financial services industries worldwide.
The Company also provides system integration,
consulting, and IT products and services in exchange for fees from customers.
The
consolidated condensed interim financial statements included herein have been prepared by the Company, without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information
presented not misleading. The year-end condensed consolidated balance sheet data was derived from audited financial statements,
but does not include all disclosures required by accounting principles generally accepted in the United States of America.
These
statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary
for fair presentation of the information contained therein. It is suggested that these condensed consolidated financial statements
be read in conjunction with the financial statements and notes thereto included in the Company’s annual report on Form 10-K
for the year ended June 30, 2017. The Company follows the same accounting policies in preparation of interim reports. Results
of operations for the interim periods are not indicative of annual results.
The
accompanying condensed consolidated financial statements include the accounts of NetSol Technologies, Inc. and subsidiaries (collectively,
the “Company”) as follows:
Wholly
owned Subsidiaries
NetSol
Technologies Americas, Inc. (“NTA”)
NetSol
Connect (Private), Ltd. (“Connect”)
NetSol
Technologies Australia Pty Ltd. (“Australia”)
NetSol
Technologies Europe Limited (“NTE”)
NTPK
(Thailand) Co. Limited (“NTPK Thailand”)
NetSol
Technologies (Beijing) Co. Ltd. (“NetSol Beijing”)
NetSol
Technologies (GmbH) (“NTG”)
Majority-owned
Subsidiaries
NetSol
Technologies, Ltd. (“NetSol PK”)
NetSol
Innovation (Private) Limited (“NetSol Innovation”)
NetSol
Technologies Thailand Limited (“NetSol Thai”)
Virtual
Lease Services Holdings Limited (“VLSH”)
Virtual
Lease Services Limited (“VLS”)
Virtual
Lease Services (Ireland) Limited (“VLSIL”)
For
comparative purposes, prior year’s condensed consolidated financial statements have been reclassified to conform to report
classifications of the current period. Below is the table of reclassified amounts:
|
|
For
the Three Months
|
|
|
For
the Six Months
|
|
|
|
Ended
December 31, 2016
|
|
|
Ended
December 31, 2016
|
|
|
|
Originally
reported
|
|
|
Reclassified
|
|
|
Originally
reported
|
|
|
Reclassified
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
$
|
6,984,084
|
|
|
$
|
6,619,158
|
|
|
$
|
12,790,801
|
|
|
$
|
12,175,293
|
|
Services
- related party
|
|
|
1,464,901
|
|
|
|
1,829,827
|
|
|
|
3,379,473
|
|
|
|
3,994,981
|
|
|
|
$
|
8,448,985
|
|
|
$
|
8,448,985
|
|
|
$
|
16,170,274
|
|
|
$
|
16,170,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for bad debts
|
|
$
|
-
|
|
|
$
|
1,026
|
|
|
$
|
-
|
|
|
$
|
1,026
|
|
General
and administrative
|
|
|
3,933,413
|
|
|
|
3,932,387
|
|
|
|
8,552,609
|
|
|
|
8,551,583
|
|
|
|
$
|
3,933,413
|
|
|
$
|
3,933,413
|
|
|
$
|
8,552,609
|
|
|
$
|
8,552,609
|
|
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2017
(UNAUDITED)
NOTE
2 – ACCOUNTING POLICIES
Use
of Estimates
The
preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The areas requiring significant estimates are provision for doubtful accounts, provision
for taxation, useful life of depreciable assets, useful life of intangible assets, contingencies, and estimated contract costs.
The estimates and underlying assumptions are reviewed on an ongoing basis. Actual results could differ from those estimates.
Concentration
of Credit Risk
Cash
includes cash on hand and demand deposits in accounts maintained within the United States as well as in foreign countries. Certain
financial instruments, which subject the Company to concentration of credit risk, consist of cash and restricted cash. The Company
maintains balances at financial institutions which, from time to time, may exceed Federal Deposit Insurance Corporation insured
limits for the banks located in the United States. Balances at financial institutions within certain foreign countries are not
covered by insurance. As of December 31, 2017, and June 30, 2017, the Company had uninsured deposits related to cash deposits
in accounts maintained within foreign entities of approximately $8,463,863 and $11,564,343, respectively. The Company has not
experienced any losses in such accounts.
The
Company’s operations are carried out globally. Accordingly, the Company’s business, financial condition and results
of operations may be influenced by the political, economic and legal environments of each country and by the general state of
the country’s economy. The Company’s operations in each foreign country are subject to specific considerations and
significant risks not typically associated with companies in economically developed nations. These include risks associated with,
among others, the political, economic and legal environments and foreign currency exchange. The Company’s results may be
adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency
conversion and remittance abroad, and rates and methods of taxation, among other things.
Fair
Value of Financial Instruments
The
Company applies the provisions of ASC 820-10,
“Fair Value Measurements and Disclosures.”
ASC 820-10 defines
fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure
requirements for fair value measures. For certain financial instruments, including cash and cash equivalents, restricted cash,
accounts receivable, accounts payable and short-term debt, the carrying amounts approximate fair value due to their relatively
short maturities. The carrying amounts of the long-term debt approximate their fair values based on current interest rates for
instruments with similar characteristics.
The
three levels of valuation hierarchy are defined as follows:
Level
1:
|
Valuations
consist of unadjusted quoted prices in active markets for identical assets and liabilities and has the highest priority.
|
Level
2:
|
Valuations
rely on quoted prices in markets that are not active or observable inputs over the full term of the asset or liability.
|
Level
3:
|
Valuations
are based on prices or third party or internal valuation models that require inputs that are significant to the fair value
measurement and are less observable and thus have the lowest priority.
|
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2017
(UNAUDITED)
The
Company’s financial assets that are measured at fair value on a recurring basis as of December 31, 2017, are as follows:
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
Assets
|
|
Revenue
in excess of billing - long term
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,668,854
|
|
|
$
|
6,668,854
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,668,854
|
|
|
$
|
6,668,854
|
|
The
Company’s financial assets that were measured at fair value on a recurring basis as of June 30, 2017, were as follows:
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
Assets
|
|
Revenue
in excess of billing - long term
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,173,538
|
|
|
$
|
5,173,538
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,173,538
|
|
|
$
|
5,173,538
|
|
The
reconciliation from June 30, 2017 to December 31, 2017 is as follows:
|
|
Revenue
in excess of billing - long term
|
|
|
Fair
value discount
|
|
|
Total
|
|
Balance
at June 30, 2017
|
|
$
|
5,483,869
|
|
|
$
|
(310,331
|
)
|
|
$
|
5,173,538
|
|
Additions
|
|
|
1,469,379
|
|
|
$
|
(85,057
|
)
|
|
|
1,384,322
|
|
Amortization
during the period
|
|
|
-
|
|
|
|
110,994
|
|
|
|
110,994
|
|
Balance
at December 31, 2017
|
|
$
|
6,953,248
|
|
|
$
|
(284,394
|
)
|
|
$
|
6,668,854
|
|
The
Company applied the discounted cash flow method to calculate the fair value and used NetSol PK’s weighted average borrowing
rate, ranging from 3.93% to 4.43%.
Management
analyzes all financial instruments with features of both liabilities and equity under ASC 480,
“Distinguishing Liabilities
From Equity”
and ASC 815,
“Derivatives and Hedging.”
Derivative liabilities are adjusted to reflect
fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjustments
to fair value of derivatives. The effects of interactions between embedded derivatives are calculated and accounted for in arriving
at the overall fair value of the financial instruments. In addition, the fair values of freestanding derivative instruments such
as warrant and option derivatives are valued using the Black-Scholes model.
New
Accounting Pronouncements
Recent
Accounting Standards Adopted by the Company:
In
November 2015, the Financial Accounting Standards Board (FASB) issued ASU 2015-17,
Balance Sheet Classification of Deferred
Taxes
(ASU 2015-17), which changes how deferred taxes are classified on the balance sheet and is effective for financial statements
issued for annual periods beginning after December 15, 2016, with early adoption permitted. ASU 2015-17 requires all deferred
tax assets and liabilities to be classified as non-current. The adoption of this guidance did not have a material impact on the
Company’s results of operations, financial position or disclosures.
In
March 2016, the FASB issued ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting
. The guidance simplifies
accounting for share-based payments, most notably by requiring all excess tax benefits and tax deficiencies to be recorded as
income tax benefits or expense in the income statement and by allowing entities to recognize forfeitures of awards when they occur.
This new guidance is effective for annual reporting periods beginning after December 15, 2016 and may be adopted prospectively
or retroactively. The adoption of this guidance did not have a material impact on the Company’s results of operations, financial
position or disclosures.
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2017
(UNAUDITED)
Accounting
Standards Recently Issued but Not Yet Adopted by the Company:
In
May 2014, the (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09,
Revenue from Contracts with
Customers
, which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts
with customers and will supersede most current revenue recognition guidance. The standard’s core principle is that a company
will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration
to which the company expects to be entitled in exchange for those goods or services. In August 2015, the FASB deferred the effective
date of the new revenue standard by one year, which will make it effective for the Company in the first quarter of its fiscal
year ending June 30, 2019. The Company is currently in the process of evaluating the impact of adoption of this ASU on its consolidated
financial statements.
In
January 2016, the FASB issued ASU 2016-01,
Recognition and Measurement of Financial Assets and Financial Liabilities
(ASU
2016-01), which requires equity investments that are not accounted for under the equity method of accounting to be measured at
fair value with changes recognized in net income and updates certain presentation and disclosure requirements. ASU 2016-01 is
effective beginning after December 15, 2017. The adoption of this guidance is not expected to have a material impact on the Company’s
results of operations, financial position or disclosures.
In
February 2016, the FASB issued ASU No. 2016-02,
Leases
, which requires lessees to recognize right-of-use assets and lease
liabilities, for all leases, with the exception of short-term leases, at the commencement date of each lease. This ASU requires
lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or
not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized
based on an effective interest method or on a straight-line basis over the term of the lease. This ASU is effective for annual
periods beginning after December 15, 2018 and interim periods within those annual periods. Early adoption is permitted. The amendments
of this update should be applied using a modified retrospective approach, which requires lessees and lessors to recognize and
measure leases at the beginning of the earliest period presented. The Company is currently evaluating the impact of the adoption
of this standard on its consolidated financial statements.
In
August 2016, the FASB issued ASU 2016-15,
Clarification of Certain Cash Receipts and Cash Payments
, which eliminates the
diversity in practice related to the classification of certain cash receipts and payments in the statement of cash flows, by adding
or clarifying guidance on eight specific cash flow issues. This guidance is effective for fiscal years beginning after December
15, 2017, including interim periods within those fiscal years, with early adoption permitted. The amendments in this update should
be applied retrospectively to all periods presented, unless deemed impracticable, in which case, prospective application is permitted.
The adoption of this guidance is not expected to have a material impact on the Company’s results of operations, financial
position or disclosures.
On
November 17, 2016, the FASB issued Accounting Standards Update No. 2016-18,
Statement of Cash Flows (Topic 230): Restricted
Cash.
It is intended to reduce diversity in the presentation of restricted cash and restricted cash equivalents in the statement
of cash flows. The new standard requires that restricted cash and restricted cash equivalents be included as components of total
cash and cash equivalents as presented on the statement of cash flows. As a result, entities will no longer present transfers
between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. ASU 2016-18
is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Earlier
adoption is permitted. The Company maintains restricted cash balances and will show restricted cash as part of cash and restricted
cash equivalents in the statement of cash flows.
In
January 2017, the FASB issued ASU No. 2017-01,
Clarifying the Definition of a Business
, which clarifies and provides a
more robust framework to use in determining when a set of assets and activities is a business. The amendments in this update should
be applied prospectively on or after the effective date. This update is effective for annual periods beginning after December
15, 2017, and interim periods within those periods. Early adoption is permitted for acquisition or deconsolidation transactions
occurring before the issuance date or effective date and only when the transactions have not been reported in issued or made available
for issuance financial statements. The Company does not expect the adoption to have any significant impact on its Consolidated
Financial Statements.
In
January 2017, the FASB issued ASU No. 2017-04,
Simplifying the Test for Goodwill Impairment
. Under the new standard, goodwill
impairment would be measured as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed
the carrying value of goodwill. This ASU eliminates existing guidance that requires an entity to determine goodwill impairment
by calculating the implied fair value of goodwill by hypothetically assigning the fair value of a reporting unit to all of its
assets and liabilities as if that reporting unit had been acquired in a business combination. This update is effective for annual
periods beginning after December 15, 2019, and interim periods within those periods. Early adoption is permitted for interim or
annual goodwill impairment test performed on testing dates after January 1, 2017. The Company will apply this guidance to applicable
impairment tests after the adoption date.
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2017
(UNAUDITED)
In
May 2017, the FASB issued ASU 2017-09,
Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting,
which
clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. The new
guidance will reduce diversity in practice and result in fewer changes to the terms of an award being accounted for as a modification.
The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.
The new standard will be effective prospectively for the Company for the fiscal year beginning July 1, 2018. Early adoption is
permitted. The Company is currently evaluating the impact of the adoption of the new standard on its consolidated financial statements
and related disclosures.
In
July 2017, the FASB issued ASU No. 2017-11,
“Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic
480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part
II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and
Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception”.
The ASU was issued to address the complexity
associated with applying generally accepted accounting principles (GAAP) for certain financial instruments with characteristics
of liabilities and equity. The ASU, among other things, eliminates the need to consider the effects of down round features when
analyzing convertible debt, warrants and other financing instruments. As a result, a freestanding equity-linked financial instrument
(or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence
of a down round feature. The amendments are effective for fiscal years beginning after December 15, 2018, and should be applied
retrospectively. Early adoption is permitted, including adoption in an interim period. The Company is currently in the process
of evaluating the impact of the adoption of this standard on its consolidated financial statements.
All
other newly issued accounting pronouncements not yet effective have been deemed either immaterial or not applicable.
NOTE
3 – EARNINGS PER SHARE
Basic
earnings per share are computed based on the weighted average number of shares of common stock outstanding during the period.
Diluted earnings per share is computed based on the weighted average number of shares of common stock plus the effect of dilutive
potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include
outstanding stock options, warrants, and stock awards.
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2017
(UNAUDITED)
The
components of basic and diluted earnings per share were as follows:
|
|
For
the three months ended
December 31, 2017
|
|
|
For
the six months ended
December 31, 2017
|
|
|
|
Net
Income
|
|
|
Shares
|
|
|
Per
Share
|
|
|
Net
Income
|
|
|
Shares
|
|
|
Per
Share
|
|
Basic income
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income available to common shareholders
|
|
$
|
634,421
|
|
|
|
11,159,075
|
|
|
$
|
0.06
|
|
|
$
|
264,923
|
|
|
|
11,115,346
|
|
|
$
|
0.02
|
|
Effect
of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options
|
|
|
-
|
|
|
|
12,468
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,468
|
|
|
|
-
|
|
Diluted
income per share
|
|
$
|
634,421
|
|
|
|
11,171,543
|
|
|
$
|
0.06
|
|
|
$
|
264,923
|
|
|
|
11,127,814
|
|
|
$
|
0.02
|
|
|
|
For the three months ended
December 31, 2016
|
|
|
For
the six months ended
December 31, 2016
|
|
|
|
Net
Loss
|
|
|
Shares
|
|
|
Per
Share
|
|
|
Net
Loss
|
|
|
Shares
|
|
|
Per
Share
|
|
|
|
Restated
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
|
|
|
|
Restated
|
|
Basic loss
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss available to common shareholders
|
|
$
|
(2,168,394
|
)
|
|
|
10,877,446
|
|
|
$
|
(0.20
|
)
|
|
$
|
(2,554,505
|
)
|
|
|
10,783,685
|
|
|
$
|
(0.24
|
)
|
Effect
of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Diluted
loss per share
|
|
$
|
(2,168,394
|
)
|
|
|
10,877,446
|
|
|
$
|
(0.20
|
)
|
|
$
|
(2,554,505
|
)
|
|
|
10,783,685
|
|
|
$
|
(0.24
|
)
|
The
following potential dilutive shares were excluded from the shares used to calculate diluted earnings per share as their inclusion
would be anti-dilutive.
|
|
For
the Three Months
|
|
|
For
the Six Months
|
|
|
|
Ended
December 31,
|
|
|
Ended
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Options
|
|
|
-
|
|
|
|
480,133
|
|
|
|
-
|
|
|
|
480,133
|
|
Warrants
|
|
|
-
|
|
|
|
11,075
|
|
|
|
-
|
|
|
|
11,075
|
|
Share Grants
|
|
|
285,956
|
|
|
|
629,258
|
|
|
|
285,956
|
|
|
|
629,258
|
|
|
|
|
285,956
|
|
|
|
1,120,466
|
|
|
|
285,956
|
|
|
|
1,120,466
|
|
NOTE
4 – OTHER COMPREHENSIVE INCOME AND FOREIGN CURRENCY:
The
accounts of NTE, VLSH and VLS use the British Pound; VLSIL and NTG use the Euro; NetSol PK, Connect, and NetSol Innovation use
the Pakistan Rupee; NTPK Thailand and NetSol Thai use the Thai Baht; Australia uses the Australian dollar; and NetSol Beijing
uses the Chinese Yuan as the functional currencies. NetSol Technologies, Inc., and its subsidiary, NTA, use the U.S. dollar as
the functional currency. Assets and liabilities are translated at the exchange rate on the balance sheet date, and operating results
are translated at the average exchange rate throughout the period. Accumulated translation losses classified as an item of accumulated
other comprehensive loss in the stockholders’ equity section of the consolidated balance sheet were $20,276,030 and $18,074,570
as of December 31, 2017 and June 30, 2017, respectively. During the three and six months ended December 31, 2017, comprehensive
income (loss) in the consolidated statements of comprehensive income (loss) included a translation loss attributable to NetSol
of $1,612,881 and $2,201,460, respectively. During the three and six months ended December 31, 2016, comprehensive income (loss)
in the consolidated statements of operations included a translation loss of $668,262 and translation income of $102,099, respectively.
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2017
(UNAUDITED)
NOTE
5 – RELATED PARTY TRANSACTIONS
NetSol-Innovation
In
November 2004, the Company entered into a joint venture with 1insurer, formerly
Innovation Group,
called NetSol-Innovation.
NetSol-Innovation provides support services to 1insurer. During the three and six months ended December 31, 2017, NetSol Innovation
provided services of $796,757 and $1,928,513, respectively. During the three and six months ended December 31, 2016, NetSol-Innovation
provided services of $1,401,144 and $2,956,619, respectively. Accounts receivable at December 31, 2017 and June 30, 2017 were
$2,429,771 and $1,462,078, respectively.
Investec
Asset Finance
In
October 2011, NTE entered into an agreement with Investec Asset Finance to acquire VLS. NTE and VLS provide support services to
Investec. During the three and six months ended December 31, 2017, NTE and VLS provided license, maintenance and services of $442,699
and $1,043,891, respectively. During the three and six months ended December 31, 2016, NTE and VLS provided license, maintenance
and services of $115,102 and $851,787, respectively. Accounts receivable at December 31, 2017 and June 30, 2017 were $113,310
and $133,218, respectively.
WRLD3D
On
May 31, 2017, Faizaan Ghauri, son of CEO Najeeb Ghauri, and an employee of the Company was appointed CEO of WRLD3D, Inc. (“WRLD3D”)
a non-public company. On March 2, 2016, the Company purchased a 4.9% interest in WRLD3D for $1,111,111 and the Company’s
subsidiary NetSol PK purchased a 12.2% investment in WRLD3D for $2,777,778 which will be earned over future periods by providing
IT and enterprise software solutions. See Note 7 and Note 11.
G-FORCE
Najeeb
Ghauri, CEO and Chairman of the Board, and Naeem Ghauri, Director, have a financial interest in G-Force, LLC, which purchased
a 4.9% investment in WRLD3D, Inc. for $1,111,111. See Note 11 “Other Long-Term Assets”
NOTE
6 – MAJOR CUSTOMERS
The
Company is a strategic business partner for Daimler Financial Services (which consists of a group of many companies in different
countries), which accounts for approximately 35.90% and 41.54% of revenue for the six months ended December 31, 2017 and 2016,
respectively. The revenue from this customer is shown in the Asia – Pacific segment. Accounts receivable at December 31,
2017 and June 30, 2017, were $12,761,829 and $1,620,717, respectively. Revenue in excess of billing at December 31, 2017 was $16,674,348,
which included $6,668,854 shown as long term. Revenue in excess of billing at June 30, 2017 was $18,579,540, which included $5,173,538
shown as long term.
On
December 21, 2015, the Company entered into a 10-year contract with Daimler Financial Services to provide license, maintenance
and services for 12 countries in the Asia Pacific Region. The implementation phase is expected to be over a five-year period with
maintenance and support over 10 years. The contract is a fixed fee arrangement with total license and maintenance fees of approximately
€71,000,000 (approximately $85,054,591) with services to be separately agreed upon and billed as they are performed. The
customer will make fixed annual payments of €5,850,000 (approximately $7,008,019) for years 1-5 and €8,350,000 (approximately
$10,002,899) for years 6-10. Under the terms of the contract, the customer has the right to withdraw from certain modules and
terminate the agreement as to certain countries based on good cause or business reasons prior to the beginning of implementation.
On,
September 4, 2017, the Company amended the agreement which provided for an additional €7,700,000 (approximately $9,277,108)
to be earned over the remaining life of the contract. The amended agreement provides for €7,000,000 (approximately $8,433,735)
to be paid in the current fiscal year with €100,000 (approximately $120,482) to be paid each year over the remaining
seven years.
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2017
(UNAUDITED)
NOTE
7 – CONVERTIBLE NOTE RECEIVABLE – RELATED PARTY
The
Company entered into an agreement with WRLD3D, whereby the Company was issued a Convertible Promissory Note (the “Convertible
Note”) which was fully executed on May 25, 2017. The maximum principal amount of the Convertible Note is $750,000, and as
of December 31, 2017, the Company had disbursed the full amount. The Convertible Note bears interest at 5% per annum and all unpaid
interest and principal is due and payable upon the Company’s request on or after February 1, 2018. The Convertible Note
is convertible into Series BB Preferred shares at the lesser of (i) the price paid per share for the equity security by the investors
in the qualified financing and (ii) $0.6788 per share (adjusted for any stock dividends, combinations, splits, recapitalizations
or the like with respect to WRLD3D’s Series BB Preferred Stock after the date of the Convertible Note). The Convertible
Note is convertible upon the occurrence of the following events:
1.
Upon a qualified financing which is an equity financing of at least $2,000,000.
2.
Optionally, upon an equity financing less than $2,000,000.
3.
Optionally after the maturity date.
4.
Upon a change of control.
NOTE
8 - OTHER CURRENT ASSETS
Other
current assets consisted of the following:
|
|
As
of December 31,
|
|
|
As
of June 30,
|
|
|
|
2017
|
|
|
2017
|
|
|
|
|
|
|
|
|
Prepaid
Expenses
|
|
$
|
660,417
|
|
|
$
|
597,687
|
|
Advance
Income Tax
|
|
|
979,296
|
|
|
|
1,052,935
|
|
Employee
Advances
|
|
|
114,147
|
|
|
|
128,100
|
|
Security
Deposits
|
|
|
84,934
|
|
|
|
103,255
|
|
Other
Receivables
|
|
|
648,237
|
|
|
|
252,590
|
|
Other
Assets
|
|
|
332,152
|
|
|
|
329,319
|
|
Total
|
|
$
|
2,819,183
|
|
|
$
|
2,463,886
|
|
NOTE
9 – REVENUE IN EXCESS OF BILLINGS – LONG TERM
Revenue
in excess of billings, net consisted of the following:
|
|
As
of December 31,
|
|
|
As
of June 30,
|
|
|
|
2017
|
|
|
2017
|
|
Revenue
in excess of billing - long term
|
|
$
|
6,953,248
|
|
|
$
|
5,483,869
|
|
Present
value discount
|
|
|
(284,394
|
)
|
|
|
(310,331
|
)
|
Net
Balance
|
|
$
|
6,668,854
|
|
|
$
|
5,173,538
|
|
Pursuant
to revenue recognition for contract accounting, the Company has recorded revenue in excess of billings long-term for amounts billable
after one year. During the three and six months ended December 31, 2017, the Company accreted $59,272 and $110, 994, respectively,
which is recorded in interest income. The Company used the discounted cash flow method with interest rates ranging from 3.93%
to 4.43%.
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2017
(UNAUDITED)
NOTE
10 - PROPERTY AND EQUIPMENT
Property
and equipment consisted of the following:
|
|
As
of December 31,
|
|
|
As
of June 30,
|
|
|
|
2017
|
|
|
2017
|
|
|
|
|
|
|
|
|
Office
Furniture and Equipment
|
|
$
|
3,908,883
|
|
|
$
|
3,755,710
|
|
Computer
Equipment
|
|
|
25,788,684
|
|
|
|
26,693,730
|
|
Assets
Under Capital Leases
|
|
|
1,522,708
|
|
|
|
1,965,650
|
|
Building
|
|
|
8,794,381
|
|
|
|
9,243,866
|
|
Land
|
|
|
2,299,047
|
|
|
|
2,428,626
|
|
Autos
|
|
|
1,287,043
|
|
|
|
1,270,339
|
|
Improvements
|
|
|
534,900
|
|
|
|
592,652
|
|
Subtotal
|
|
|
44,135,646
|
|
|
|
45,950,573
|
|
Accumulated
Depreciation
|
|
|
(25,692,152
|
)
|
|
|
(25,579,870
|
)
|
Property
and Equipment, Net
|
|
$
|
18,443,494
|
|
|
$
|
20,370,703
|
|
For
the three and six months ended December 31, 2017, depreciation expense totaled $707,668 and $1,436,327, respectively. Of these
amounts, $484,883 and $967,669, respectively, are reflected in cost of revenues. For the three and six months ended December 31,
2016, depreciation expense totaled $902,678 and $1,801,981, respectively. Of these amounts, $631,193 and $1,261,399, respectively,
are reflected in cost of revenues.
Following
is a summary of fixed assets held under capital leases as of December 31, 2017 and June 30, 2017:
|
|
As
of December 31,
|
|
|
As
of June 30,
|
|
|
|
2017
|
|
|
2017
|
|
Computers
and Other Equipment
|
|
$
|
236,518
|
|
|
$
|
309,863
|
|
Furniture
and Fixtures
|
|
|
65,084
|
|
|
|
227,914
|
|
Vehicles
|
|
|
1,221,106
|
|
|
|
1,427,873
|
|
Total
|
|
|
1,522,708
|
|
|
|
1,965,650
|
|
Less:
Accumulated Depreciation - Net
|
|
|
(568,087
|
)
|
|
|
(711,622
|
)
|
|
|
$
|
954,621
|
|
|
$
|
1,254,028
|
|
NOTE
11 – OTHER LONG TERM ASSETS
|
|
|
|
As
of December 31,
|
|
|
As
of June 30,
|
|
|
|
|
|
2017
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
(1)
|
|
$
|
3,389,801
|
|
|
$
|
3,057,020
|
|
Long
Term Security Deposits
|
|
|
|
|
153,514
|
|
|
|
154,275
|
|
Total
|
|
|
|
$
|
3,543,315
|
|
|
$
|
3,211,295
|
|
(1)
Investment in WRLD3D
On
March 2, 2016, the Company purchased a 4.9% interest in WRLD3D, a non-public company, for $1,111,111. The Company paid $555,556
at the initial closing and $555,555 on September 1, 2016. NetSol PK, the subsidiary of the Company, purchased a 12.2% investment
in WRLD3D, for $2,777,778 which will be earned over future periods by providing IT and enterprise software solutions. Per the
agreement, NetSol PK is to provide a minimum of $200,000 of services in each three-month period and the entire balance is required
to be provided within three years of the date of the agreement. If NetSol PK fails to provide the future services, it may be required
to forfeit the unearned shares back to WRLD3D. As of December 31, the investment earned by NetSol PK is $2,549,587.
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2017
(UNAUDITED)
In
connection with the investment, the Company and NetSol PK received a warrant to purchase preferred stock of WRLD3D which included
the following key terms and features:
|
●
|
The
warrants are exercisable into shares of the “Next Round Preferred”, only if and when the Next Round Preferred
is issued by WRLD3D in a “Qualified Financing”.
|
|
●
|
The
warrants expire on March 2, 2020.
|
|
●
|
“Next
Round Preferred” is defined as occurring if WRLD3D’s preferred stock (or securities convertible into preferred
stock) are issued in a Qualified Financing that occurs after March 2, 2016.
|
|
●
|
“Qualified
Financing” is defined as financing with total proceeds of at least $2 million.
|
|
●
|
The
total number of common stock shares to be issued is equal to $1,250,000 divided by the per share price of the Next Round Preferred.
|
|
●
|
The
exercise price of the warrants is equal to the greater of
|
|
a)
|
70%
of the per share price of the Next Round Preferred sold in a Qualified Financing, or
|
|
|
|
|
b)
|
25,000,000
divided by the total number of shares of common stock outstanding immediately prior to the Qualified Financing (on a fully-diluted
basis, excluding the number of common stock shares issuable upon the exercise of any given warrant).
|
The
Company had originally accounted for the investment under the cost method. On May 31, 2017, the Company determined that it met
the significant influence criteria since the newly appointed CEO of WRLD3D is the son of the CEO, Najeeb Ghauri, and also an employee
of the Company; therefore, the Company changed the accounting treatment from the cost method to the equity method.
During
the three and six months ended December 31, 2017, NetSol PK provided services valued at $315,408 and $583,708, respectively. During
the three and six months ended December 31, 2016, NetSol PK provided services valued at $300,963 and $549,621, respectively. This
revenue is recorded as services-related party. These services are recorded as accounts receivable until approved by WRLD3D after
which the shares are released from restriction. Accounts receivable at December 31, 2017 and June 30, 2017 were $39,322 and $49,646,
respectively. Revenue in excess of billing at December 31, 2017 and June 30, 2017 were $107,562 and $80,705, respectively. During
the three and six months ended December 31, 2017, NetSol PK services valued at $285,378 and $553,678, respectively, were released
from restriction. During the three and six months ended December 31, 2016, NetSol PK services valued at $300,963 and $549,621,
respectively, were released from restriction. Under the equity method of accounting, the Company recorded its share of net loss
of $203,336 and $270,898 for the three and six months ended December 31, 2017, respectively.
NOTE
12 - INTANGIBLE ASSETS
Intangible
assets consisted of the following:
|
|
As
of December 31,
|
|
|
As
of June 30,
|
|
|
|
2017
|
|
|
2017
|
|
|
|
|
|
|
|
|
Product
Licenses - Cost
|
|
$
|
47,244,997
|
|
|
$
|
47,244,997
|
|
Effect
of Translation Adjustment
|
|
|
(4,850,984
|
)
|
|
|
(3,134,488
|
)
|
Accumulated
Amortization
|
|
|
(27,583,408
|
)
|
|
|
(27,067,358
|
)
|
Net
Balance
|
|
$
|
14,810,605
|
|
|
$
|
17,043,151
|
|
(A)
Product Licenses
Product
licenses include internally developed original license issues, renewals, enhancements, copyrights, trademarks, and trade names.
Product licenses are amortized on a straight-line basis over their respective lives, and the unamortized amount of $14,810,605
will be amortized over the next 5.5 years. Amortization expense for the three and six months ended December 31, 2017 was $683,220
and $1,373,547, respectively. Amortization expense for the three and six months ended December 31, 2016 was $687,571 and $1,388,237,
respectively.
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2017
(UNAUDITED)
(B)
Future Amortization
Estimated
amortization expense of intangible assets over the next five years is as follows:
Year
ended:
|
|
|
|
December
31, 2018
|
|
$
|
2,630,334
|
|
December 31,
2019
|
|
|
2,630,334
|
|
December 31,
2020
|
|
|
2,630,334
|
|
December 31,
2021
|
|
|
2,630,334
|
|
December 31,
2022
|
|
|
2,630,334
|
|
Thereafter
|
|
|
1,658,935
|
|
|
|
$
|
14,810,605
|
|
NOTE
13 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts
payable and accrued expenses consisted of the following:
|
|
As
of December 31,
|
|
|
As
of June 30,
|
|
|
|
2017
|
|
|
2017
|
|
|
|
|
|
|
|
|
Accounts
Payable
|
|
$
|
1,639,112
|
|
|
$
|
1,466,265
|
|
Accrued
Liabilities
|
|
|
5,086,258
|
|
|
|
4,498,958
|
|
Accrued
Payroll & Taxes
|
|
|
488,491
|
|
|
|
520,719
|
|
Taxes
Payable
|
|
|
167,994
|
|
|
|
174,485
|
|
Other
Payable
|
|
|
178,443
|
|
|
|
219,767
|
|
Total
|
|
$
|
7,560,298
|
|
|
$
|
6,880,194
|
|
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2017
(UNAUDITED)
NOTE
14 – DEBTS
Notes
payable and capital leases consisted of the following:
|
|
|
|
As
of December 31, 2017
|
|
|
|
|
|
|
|
|
Current
|
|
|
Long-Term
|
|
Name
|
|
|
|
Total
|
|
|
Maturities
|
|
|
Maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D&O
Insurance
|
|
(1)
|
|
$
|
105,023
|
|
|
$
|
105,023
|
|
|
$
|
-
|
|
Bank
Overdraft Facility
|
|
(2)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Loan
Payable Bank - Export Refinance
|
|
(3)
|
|
|
4,521,613
|
|
|
|
4,521,613
|
|
|
|
-
|
|
Loan
Payable Bank - Running Finance
|
|
(4)
|
|
|
678,217
|
|
|
|
678,217
|
|
|
|
-
|
|
Loan
Payable Bank - Export Refinance II
|
|
(5)
|
|
|
3,165,130
|
|
|
|
3,165,130
|
|
|
|
-
|
|
Loan
Payable Bank - Running Finance II
|
|
(6)
|
|
|
1,356,484
|
|
|
|
1,356,484
|
|
|
|
-
|
|
|
|
|
|
|
9,826,467
|
|
|
|
9,826,467
|
|
|
|
-
|
|
Subsidiary
Capital Leases
|
|
(7)
|
|
|
557,516
|
|
|
|
306,633
|
|
|
|
250,883
|
|
|
|
|
|
$
|
10,383,983
|
|
|
$
|
10,133,100
|
|
|
$
|
250,883
|
|
|
|
|
|
As
of June 30, 2017
|
|
|
|
|
|
|
|
|
Current
|
|
|
Long-Term
|
|
Name
|
|
|
|
Total
|
|
|
Maturities
|
|
|
Maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D&O
Insurance
|
|
(1)
|
|
$
|
87,485
|
|
|
$
|
87,485
|
|
|
$
|
-
|
|
Bank
Overdraft Facility
|
|
(2)
|
|
|
221,379
|
|
|
|
221,379
|
|
|
|
-
|
|
Loan
Payable Bank - Export Refinance
|
|
(3)
|
|
|
4,776,461
|
|
|
|
4,776,461
|
|
|
|
-
|
|
Loan
Payable Bank - Export Refinance II
|
|
(5)
|
|
|
1,910,585
|
|
|
|
1,910,585
|
|
|
|
-
|
|
Loan
Payable Bank - Running Finance II
|
|
(6)
|
|
|
2,865,877
|
|
|
|
2,865,877
|
|
|
|
-
|
|
|
|
|
|
|
9,861,787
|
|
|
|
9,861,787
|
|
|
|
-
|
|
Subsidiary
Capital Leases
|
|
(7)
|
|
|
727,770
|
|
|
|
361,008
|
|
|
|
366,762
|
|
|
|
|
|
$
|
10,589,557
|
|
|
$
|
10,222,795
|
|
|
$
|
366,762
|
|
(1)
The Company finances Directors’ and Officers’ (“D&O”) liability insurance, Errors and Omissions (“E&O”)
liability insurance and some account payables, for which the D&O and E&O balances are renewed on an annual basis and,
as such, are recorded in current maturities. The interest rate on these financings were ranging from 4.8% to 7.69% as of December
31, 2017 and June 30, 2017.
(2)
The Company’s subsidiary, NTE, has an overdraft facility with HSBC Bank plc whereby the bank would cover any overdrafts
up to £300,000, or approximately $405,405. The annual interest rate was 4.75% as of December 31, 2017. Total outstanding
balance as of December 31, 2017 was £Nil. Interest expense for three and six months ended December 31, 2017, was $5,991
and $8,045, respectively. Interest expense for three and six months ended December 31, 2016, was $nil.
This
overdraft facility requires that the aggregate amount of invoiced trade debtors (net of provisions for bad and doubtful debts
and excluding intra-group debtors) of NTE, not exceeding 90 days old, will not be less than an amount equal to 200% of the facility.
As of December 31, 2017, NTE was in compliance with this covenant.
(3)
The Company’s subsidiary, NetSol PK, has an export refinance facility with Askari Bank Limited, secured by NetSol PK’s
assets. This is a revolving loan that matures every six months. Total facility amount is Rs. 500,000,000 or $4,521,613 at December
31, 2017 and June 30, 2017. The interest rate for the loans was 3% at December 31, 2017 and June 30, 2017. Interest expense for
the three and six months ended December 31, 2017 was $35,533 and $71,431, respectively. Interest expense for the three and six
months ended December 31, 2016 was $28,527 and $57,592, respectively.
(4)
The Company’s subsidiary, NetSol PK, has a running finance facility with Askari Bank Limited, secured by NetSol PK’s
assets. Total facility amount is Rs. 75,000,000 or $678,242, at December 31, 2017. NetSol PK used Rs. 74,997,233 or $678,217,
at December 31, 2017. The interest rate for the loans was 8.16% at December 31, 2017.
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2017
(UNAUDITED)
This
facility requires NetSol PK to maintain a long-term debt equity ratio of 60:40 and the current ratio of 1:1. As of December 31,
2017, NetSol PK was in compliance with this covenant.
(5)
The Company’s subsidiary, NetSol PK, has an export refinance facility with Samba Bank Limited, secured by NetSol PK’s
assets. This is a revolving loan that matures every six months. Total facility amount is Rs. 350,000,000 or $3,165,130 and Rs.
200,000,000 or $1,910,585, at December 31, 2017 and June 30, 2017, respectively. The interest rate for the loans was 3% at December
31, 2017 and June 30, 2017. Interest expense for the three and six months ended December 31, 2017 was $17,656 and $39,778, respectively.
Interest expense for three and six months ended December 31, 2016, was $nil.
(6)
The Company’s subsidiary, NetSol PK, has a running finance facility with Samba Bank Limited, secured by NetSol PK’s
assets. Total facility amount is Rs. 150,000,000 or $1,356,484 and Rs. 300,000,000 or $2,865,877, at December 31, 2017 and June
30, 2017, respectively. The interest rate for the loans was 8.13% at December 31, 2017 and June 30, 2017, respectively.
Interest expense for the three and six months ended December 31, 2017 was $35,626 and $79,721, respectively. Interest expense
for three and six months ended December 31, 2016, was $nil.
During
the tenure of loan, the facilities from Samba Bank Limited require NetSol PK to maintain at a minimum a current ratio of 1:1,
an interest coverage ratio of 4 times, a leverage ratio of 2 times, and a debt service coverage ratio of 4 times. As of December
31, 2017, NetSol PK was in compliance with these covenants.
(6)
The Company leases various fixed assets under capital lease arrangements expiring in various years through 2022. The assets and
liabilities under capital leases are recorded at the lower of the present value of the minimum lease payments or the fair value
of the asset. The assets are secured by the assets themselves. Depreciation of assets under capital leases is included in depreciation
expense for the three months ended December 31, 2017 and 2016.
Following
is the aggregate minimum future lease payments under capital leases as of December 31, 2017:
|
|
Amount
|
|
Minimum
Lease Payments
|
|
|
|
|
Due
FYE 12/31/18
|
|
$
|
336,546
|
|
Due
FYE 12/31/19
|
|
|
220,855
|
|
Due
FYE 12/31/20
|
|
|
36,412
|
|
Due
FYE 12/31/21
|
|
|
5,182
|
|
Due
FYE 12/31/22
|
|
|
-
|
|
Total
Minimum Lease Payments
|
|
|
598,995
|
|
Interest
Expense relating to future periods
|
|
|
(41,479
|
)
|
Present
Value of minimum lease payments
|
|
|
557,516
|
|
Less:
Current portion
|
|
|
(306,633
|
)
|
Non-Current
portion
|
|
$
|
250,883
|
|
NOTE
15 - STOCKHOLDERS’ EQUITY
During
the six months ended December 31, 2017, the Company issued 26,136 shares of common stock for services rendered by officers of
the Company. These shares were valued at the fair market value of $163,350.
During
the six months ended December 31, 2017, the Company issued 9,699 shares of common stock for services rendered by the independent
members of the Board of Directors as part of their board compensation. These shares were valued at the fair market value of $55,080.
During
the six months ended December 31, 2017, the Company issued 98,408 shares of its common stock to employees pursuant to the terms
of their employment agreements valued at $605,107.
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2017
(UNAUDITED)
During
the six months ended December 31, 2017, the Company collected subscription receivable of $76,511 related to the exercise of stock
options in previous years.
During
the six months ended December 31, 2017, the Company received $138,800 pursuant to a stock option agreement for the exercise of
35,773 shares of common stock at a price of $3.88 per share.
During
the six months ended December 31, 2017, the Company paid $601,020 to purchase 139,275 of shares of its common stock from the
open market at an average price of $4.32 per share.
NOTE
16 - INCENTIVE AND NON-STATUTORY STOCK OPTION PLAN
Common
stock purchase options and warrants consisted of the following:
OPTIONS:
|
|
# of shares
|
|
|
Weighted Ave Exercise Price
|
|
|
Weighted Average Remaining Contractual Life (in years)
|
|
|
Aggregated Intrinsic Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable, June 30, 2016
|
|
|
610,133
|
|
|
$
|
4.90
|
|
|
|
0.99
|
|
|
$
|
799,030
|
|
Granted
|
|
|
79,838
|
|
|
$
|
4.53
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(84,838
|
)
|
|
$
|
4.49
|
|
|
|
|
|
|
|
|
|
Expired / Cancelled
|
|
|
(130,000
|
)
|
|
$
|
7.50
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable, June 30, 2017
|
|
|
475,133
|
|
|
$
|
4.20
|
|
|
|
1.05
|
|
|
$
|
8,413
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(35,773
|
)
|
|
$
|
3.88
|
|
|
|
|
|
|
|
|
|
Expired / Cancelled
|
|
|
(1,000
|
)
|
|
$
|
16.00
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable, December 31, 2017
|
|
|
438,360
|
|
|
$
|
4.20
|
|
|
|
0.57
|
|
|
$
|
319,465
|
|
The
following table summarizes information about stock options and warrants outstanding and exercisable at December 31, 2017.
Exercise
Price
|
|
|
Number
Outstanding and Exercisable
|
|
|
Weighted
Average Remaining Contractual Life
|
|
|
Weighted
Ave Exercise Price
|
|
OPTIONS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3.88
|
|
|
|
384,898
|
|
|
|
0.49
|
|
|
$
|
3.88
|
|
$
|
6.50
|
|
|
|
53,462
|
|
|
|
1.10
|
|
|
$
|
6.50
|
|
Totals
|
|
|
|
438,360
|
|
|
|
0.57
|
|
|
$
|
4.20
|
|
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2017
(UNAUDITED)
The
following table summarizes stock grants awarded as compensation:
|
|
#
of shares
|
|
|
Weighted
Average Grant Date Fair Value ($)
|
|
|
|
|
|
|
|
|
Unvested,
June 30, 2016
|
|
|
630,228
|
|
|
$
|
6.07
|
|
Granted
|
|
|
222,146
|
|
|
$
|
5.92
|
|
Forfeited
/ Cancelled
|
|
|
(5,000
|
)
|
|
$
|
5.55
|
|
Vested
|
|
|
(427,175
|
)
|
|
$
|
5.90
|
|
Unvested,
June 30, 2017
|
|
|
420,199
|
|
|
$
|
6.07
|
|
Vested
|
|
|
(134,243
|
)
|
|
$
|
6.13
|
|
Unvested,
December 31, 2017
|
|
|
285,956
|
|
|
$
|
6.18
|
|
For
the three and six months ended December 31, 2017, the Company recorded compensation expense of $405,721 and $833,530, respectively.
For the three and six months ended December 31, 2016, the Company recorded compensation expense of $682,640 and $1,547,579,
respectively. The compensation expense related to the unvested stock grants as of December 31, 2017 was $1,731,908 which will
be recognized during the fiscal years 2018 through 2022.
NOTE
17 – TAXES
U.S.
Tax Reform
On
December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act
(the “Tax Act”). The Tax Act significantly revises the future ongoing U.S. corporate income tax by, among other things,
lowering U. S. corporate income tax rates and implementing a territorial tax system. As the Company has a June 30 fiscal year-end,
the lower corporate income tax rate will be phased in, resulting in a U.S. statutory federal rate of approximately 28% for our
fiscal year ending June 30, 2018, and 21% for subsequent fiscal years.
There
are also certain transitional impacts of the Tax Act. As part of the transition to the new territorial tax system, the Tax Act
imposes a one-time repatriation tax on deemed repatriation of historical earnings of foreign subsidiaries. As of December 31,
2017, the provisional undistributed earnings of foreign subsidiaries were $22.8 million which the Company anticipates being able
to offset fully with net operating loss carry forwards. In addition, the modified territorial tax system includes a new anti-deferral
provision, referred to as global intangible low taxed income (“GILTI”), which subjects certain foreign income to current
U.S. tax.
The
changes included in the Tax Act are broad and complex. The final transition impacts of the Tax Act may differ from the above estimate,
possibly materially, due to, among other things, changes in interpretations of the Tax Act, any legislative action to address
questions that arise because of the Tax Act, any changes in accounting standards for income taxes or related interpretations in
response to the Tax Act, or any updates or changes to estimates the company has utilized to calculate the transition impacts,
including impacts from changes to current year earnings estimates and foreign exchange rates of foreign subsidiaries.
In
December 2017, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 118, “Income
Tax Accounting Implications of the Tax Cuts and Jobs Act” (“SAB 118”), which provides guidance on accounting
for the tax effects of the Tax Reform Act. Under SAB 118, companies are able to record a reasonable estimate of the impacts of
the Tax Reform Act if one is able to be determined and report it as a provisional amount during the measurement period. The measurement
period is not to extend beyond one year from the enactment date. Impacts of the Tax Reform Act that a company is not able to make
a reasonable estimate for should not be recorded until a reasonable estimate can be made during the measurement period.
We
currently anticipate finalizing and recording any resulting adjustments by the end of our current fiscal year ending June 30,
2018.
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2017
(UNAUDITED)
NOTE
18 – CONTINGENCIES
On
April 7, 2017, Conister Bank Limited filed a complaint in the High Court of Justice Chancery Division, as claim no. HC-2017-001045
against our subsidiary, Virtual Lease Services Limited (“VLS”). The complaint alleges that VLS was in willful default
of their agreements with Conister Bank Limited by failing to fulfill its obligations under the agreements with Conister. The complaint
alleges damages in excess of £200,000 (approximately $270,270). VLS has responded to the complaint and its expenses
are currently covered by available insurance. VLS denies all claims and intends to vigorously defend the action.
NOTE
19 – OPERATING SEGMENTS
The
Company has identified three segments for its products and services; North America, Europe and Asia-Pacific. Our reportable segments
are business units located in different global regions. Each business unit provides similar products and services; license fees
for leasing and asset-based software, related maintenance fees, and implementation and IT consulting services. Separate management
of each segment is required because each business unit is subject to different operational issues and strategies due to their
particular regional location. The Company accounts for intra-company sales and expenses as if the sales or expenses were to third
parties and eliminates them in the consolidation.
The
following table presents a summary of identifiable assets as of December 31, 2017 and June 30, 2017:
|
|
As
of December 31,
|
|
|
As
of June 30,
|
|
|
|
2017
|
|
|
2017
|
|
Identifiable
assets:
|
|
|
|
|
|
|
|
|
Corporate
headquarters
|
|
$
|
3,308,334
|
|
|
$
|
2,922,514
|
|
North
America
|
|
|
5,513,464
|
|
|
|
6,717,366
|
|
Europe
|
|
|
6,590,233
|
|
|
|
6,056,514
|
|
Asia
- Pacific
|
|
|
89,125,306
|
|
|
|
83,980,936
|
|
Consolidated
|
|
$
|
104,537,337
|
|
|
$
|
99,677,330
|
|
The
following table presents a summary of investment under equity method as of December 31, 2017 and June 30, 2017:
|
|
As
of December 31,
|
|
|
As
of June 30,
|
|
|
|
2017
|
|
|
2017
|
|
Investment
in WRLD3D:
|
|
|
|
|
|
|
|
|
Corporate
headquarters
|
|
$
|
1,033,486
|
|
|
$
|
1,111,111
|
|
Asia
- Pacific
|
|
|
2,356,315
|
|
|
|
1,945,909
|
|
Consolidated
|
|
$
|
3,389,801
|
|
|
$
|
3,057,020
|
|
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2017
(UNAUDITED)
The
following table presents a summary of operating information for the three and six months ended December 31:
|
|
For
the Three Months
|
|
|
For
the Six Months
|
|
|
|
Ended
December 31,
|
|
|
Ended
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
Restated
|
|
|
|
|
|
Restated
|
|
Revenues
from unaffiliated customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
$
|
1,287,638
|
|
|
$
|
1,513,997
|
|
|
$
|
2,135,710
|
|
|
$
|
3,355,428
|
|
Europe
|
|
|
1,661,213
|
|
|
|
1,298,037
|
|
|
|
3,109,037
|
|
|
|
1,888,578
|
|
Asia
- Pacific
|
|
|
10,258,128
|
|
|
|
11,530,506
|
|
|
|
18,464,352
|
|
|
|
23,267,335
|
|
|
|
|
13,206,979
|
|
|
|
14,342,540
|
|
|
|
23,709,099
|
|
|
|
28,511,341
|
|
Revenue
from affiliated customers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
|
442,699
|
|
|
|
115,102
|
|
|
|
1,043,891
|
|
|
|
1,467,295
|
|
Asia
- Pacific
|
|
|
796,757
|
|
|
|
1,401,144
|
|
|
|
2,512,221
|
|
|
|
2,956,619
|
|
|
|
|
1,239,456
|
|
|
|
1,516,246
|
|
|
|
3,556,112
|
|
|
|
4,423,914
|
|
Consolidated
|
|
$
|
14,446,435
|
|
|
$
|
15,858,786
|
|
|
$
|
27,265,211
|
|
|
$
|
32,935,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany
revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
$
|
139,228
|
|
|
$
|
95,053
|
|
|
$
|
241,703
|
|
|
$
|
231,180
|
|
Asia
- Pacific
|
|
|
768,431
|
|
|
|
1,462,603
|
|
|
|
1,145,368
|
|
|
|
1,922,554
|
|
Eliminated
|
|
$
|
907,659
|
|
|
$
|
1,557,656
|
|
|
$
|
1,387,071
|
|
|
$
|
2,153,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) after taxes and before non-controlling interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
headquarters
|
|
$
|
(1,258,717
|
)
|
|
$
|
(1,190,559
|
)
|
|
$
|
(2,296,641
|
)
|
|
$
|
(2,179,432
|
)
|
North
America
|
|
|
65,194
|
|
|
|
(71,134
|
)
|
|
|
(230,452
|
)
|
|
|
(266,817
|
)
|
Europe
|
|
|
180,655
|
|
|
|
(698,364
|
)
|
|
|
280,045
|
|
|
|
(1,293,771
|
)
|
Asia
- Pacific
|
|
|
2,674,870
|
|
|
|
583,327
|
|
|
|
3,727,785
|
|
|
|
2,746,393
|
|
Consolidated
|
|
$
|
1,662,002
|
|
|
$
|
(1,376,730
|
)
|
|
$
|
1,480,737
|
|
|
$
|
(993,627
|
)
|
The
following table presents a summary of capital expenditures for the six months ended December 31:
|
|
For
the Six Months
|
|
|
|
Ended
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Capital
expenditures:
|
|
|
|
|
|
|
|
|
North
America
|
|
$
|
-
|
|
|
$
|
41,275
|
|
Europe
|
|
|
123,335
|
|
|
|
273,794
|
|
Asia
- Pacific
|
|
|
419,788
|
|
|
|
759,247
|
|
Consolidated
|
|
$
|
543,123
|
|
|
$
|
1,074,316
|
|
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2017
(UNAUDITED)
NOTE
20 – NON-CONTROLLING INTEREST IN SUBSIDIARY
The
Company had non-controlling interests in several of its subsidiaries. The balance of non-controlling interest was as follows:
SUBSIDIARY
|
|
Non-Controlling
Interest %
|
|
|
Non-Controlling
Interest at
December 31, 2017
|
|
|
|
|
|
|
|
|
NetSol
PK
|
|
|
33.83
|
%
|
|
$
|
12,386,620
|
|
NetSol-Innovation
|
|
|
49.90
|
%
|
|
|
1,749,551
|
|
VLS,
VLSH & VLSIL Combined
|
|
|
49.00
|
%
|
|
|
407,132
|
|
NetSol
Thai
|
|
|
0.006
|
%
|
|
|
(79
|
)
|
Total
|
|
|
|
|
|
$
|
14,543,224
|
|
SUBSIDIARY
|
|
Non-Controlling
Interest %
|
|
|
Non-Controlling
Interest at
June 30, 2017
|
|
|
|
|
|
|
|
|
NetSol
PK
|
|
|
33.80
|
%
|
|
$
|
12,887,938
|
|
NetSol-Innovation
|
|
|
49.90
|
%
|
|
|
1,599,734
|
|
VLS,
VLHS & VLSIL Combined
|
|
|
49.00
|
%
|
|
|
311,502
|
|
NetSol
Thai
|
|
|
0.006
|
%
|
|
|
(92
|
)
|
Total
|
|
|
|
|
|
$
|
14,799,082
|
|
NetSol
PK
During
the six months ended December 31, 2017, employees of NetSol PK exercised 50,000 of options of common stock pursuant to employees
exercising stock options and NetSol PK received cash of $7,755 resulting in an increase in non-controlling interest from 33.80%
to 33.83%.
During
the six months ended December 31, 2017, NetSol PK paid a cash dividend of $1,234,991.
NOTE
21 – 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 three and six months ended December 31, 2016.
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2017
(UNAUDITED)
|
|
Balance Sheet
|
|
|
|
As of December 31, 2016
|
|
|
|
|
As
Originally
|
|
|
|
Amount
of
|
|
|
|
|
|
|
|
|
Presented
|
|
|
|
Restatement
|
|
|
|
As
Restated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
9,505,383
|
|
|
|
|
|
|
$
|
9,505,383
|
|
Accounts receivable,
net of allowance of $495,760 and $492,498
|
|
|
5,840,490
|
|
|
|
|
|
|
|
5,840,490
|
|
Accounts receivable,
net - related party
|
|
|
4,303,380
|
|
|
|
|
|
|
|
4,303,380
|
|
Revenues in excess
of billings
|
|
|
17,646,488
|
|
|
|
373,406
|
|
|
|
18,019,894
|
|
Revenues in excess
of billings - related party
|
|
|
469,030
|
|
|
|
|
|
|
|
469,030
|
|
Other
current assets
|
|
|
2,904,650
|
|
|
|
|
|
|
|
2,904,650
|
|
Total current assets
|
|
|
40,669,421
|
|
|
|
373,406
|
|
|
|
41,042,827
|
|
Restricted cash
|
|
|
90,000
|
|
|
|
|
|
|
|
90,000
|
|
Property and equipment, net
|
|
|
21,873,277
|
|
|
|
|
|
|
|
21,873,277
|
|
Other assets
|
|
|
2,054,938
|
|
|
|
|
|
|
|
2,054,938
|
|
Intangible assets, net
|
|
|
18,423,439
|
|
|
|
|
|
|
|
18,423,439
|
|
Goodwill
|
|
|
9,516,568
|
|
|
|
|
|
|
|
9,516,568
|
|
Total
assets
|
|
$
|
92,627,643
|
|
|
$
|
373,406
|
|
|
$
|
93,001,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
and accrued expenses
|
|
$
|
7,373,097
|
|
|
|
|
|
|
$
|
7,373,097
|
|
Current portion
of loans and obligations under capitalized leases
|
|
|
4,368,930
|
|
|
|
|
|
|
|
4,368,930
|
|
Unearned revenues
|
|
|
2,806,804
|
|
|
|
77,821
|
|
|
|
2,884,625
|
|
Common
stock to be issued
|
|
|
88,324
|
|
|
|
|
|
|
|
88,324
|
|
Total current liabilities
|
|
|
14,637,155
|
|
|
|
77,821
|
|
|
|
14,714,976
|
|
Long
term loans and obligations under capitalized leases; less current maturities
|
|
|
501,554
|
|
|
|
|
|
|
|
501,554
|
|
Total
liabilities
|
|
|
15,138,709
|
|
|
|
77,821
|
|
|
|
15,216,530
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value; 500,000
shares authorized;
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Common stock, $.01 par value; 14,500,000
shares authorized;
|
|
|
|
|
|
|
|
|
|
|
|
|
10,993,054 shares issued and 10,958,275
outstanding as of December 31, 2016 and 10,713,372 shares issued and 10,686,093 outstanding as of June 30, 2016
|
|
|
109,931
|
|
|
|
|
|
|
|
109,931
|
|
Additional paid-in-capital
|
|
|
123,019,215
|
|
|
|
|
|
|
|
123,019,215
|
|
Treasury stock (34,779 shares and
27,279 shares)
|
|
|
(454,310
|
)
|
|
|
|
|
|
|
(454,310
|
)
|
Accumulated deficit
|
|
|
(40,074,755
|
)
|
|
|
196,890
|
|
|
|
(39,877,865
|
)
|
Stock subscription
receivable
|
|
|
(450,220
|
)
|
|
|
|
|
|
|
(450,220
|
)
|
Other
comprehensive loss
|
|
|
(18,628,395
|
)
|
|
|
|
|
|
|
(18,628,395
|
)
|
Total NetSol stockholders’
equity
|
|
|
63,521,466
|
|
|
|
196,890
|
|
|
|
63,718,356
|
|
Non-controlling
interest
|
|
|
13,967,468
|
|
|
|
98,695
|
|
|
|
14,066,163
|
|
Total
stockholders’ equity
|
|
|
77,488,934
|
|
|
|
295,585
|
|
|
|
77,784,519
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
92,627,643
|
|
|
$
|
373,406
|
|
|
$
|
93,001,049
|
|
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2017
(UNAUDITED)
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
Ended December 31, 2016
|
|
|
Ended December 31, 2016
|
|
|
|
As Originally
|
|
|
Amount of
|
|
|
|
|
|
As Originally
|
|
|
Amount of
|
|
|
|
|
|
|
Presented
|
|
|
Restatement
|
|
|
As
Restated
|
|
|
Presented
|
|
|
Restatement
|
|
|
As
Restated
|
|
Net Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License
fees
|
|
$
|
5,350,086
|
|
|
$
|
(1,580,529
|
)
|
|
$
|
3,769,557
|
|
|
$
|
8,849,946
|
|
|
$
|
373,406
|
|
|
$
|
9,223,352
|
|
Maintenance fees
|
|
|
3,787,696
|
|
|
|
(198,797
|
)
|
|
|
3,588,899
|
|
|
|
7,190,517
|
|
|
|
(77,821
|
)
|
|
|
7,112,696
|
|
Services
|
|
|
6,984,084
|
|
|
|
|
|
|
|
6,984,084
|
|
|
|
12,790,801
|
|
|
|
|
|
|
|
12,790,801
|
|
License fees - related
party
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
246,957
|
|
|
|
|
|
|
|
246,957
|
|
Maintenance fees
- related party
|
|
|
51,345
|
|
|
|
|
|
|
|
51,345
|
|
|
|
181,976
|
|
|
|
|
|
|
|
181,976
|
|
Services
- related party
|
|
|
1,464,901
|
|
|
|
|
|
|
|
1,464,901
|
|
|
|
3,379,473
|
|
|
|
|
|
|
|
3,379,473
|
|
Total net revenues
|
|
|
17,638,112
|
|
|
|
(1,779,326
|
)
|
|
|
15,858,786
|
|
|
|
32,639,670
|
|
|
|
295,585
|
|
|
|
32,935,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and consultants
|
|
|
5,979,804
|
|
|
|
|
|
|
|
5,979,804
|
|
|
|
11,873,153
|
|
|
|
|
|
|
|
11,873,153
|
|
Travel
|
|
|
836,240
|
|
|
|
|
|
|
|
836,240
|
|
|
|
1,548,135
|
|
|
|
|
|
|
|
1,548,135
|
|
Depreciation and
amortization
|
|
|
1,318,764
|
|
|
|
|
|
|
|
1,318,764
|
|
|
|
2,649,636
|
|
|
|
|
|
|
|
2,649,636
|
|
Other
|
|
|
1,065,727
|
|
|
|
|
|
|
|
1,065,727
|
|
|
|
2,038,065
|
|
|
|
|
|
|
|
2,038,065
|
|
Total
cost of revenues
|
|
|
9,200,535
|
|
|
|
-
|
|
|
|
9,200,535
|
|
|
|
18,108,989
|
|
|
|
-
|
|
|
|
18,108,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
8,437,577
|
|
|
|
(1,779,326
|
)
|
|
|
6,658,251
|
|
|
|
14,530,681
|
|
|
|
295,585
|
|
|
|
14,826,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing
|
|
|
2,713,478
|
|
|
|
|
|
|
|
2,713,478
|
|
|
|
5,057,516
|
|
|
|
|
|
|
|
5,057,516
|
|
Depreciation and
amortization
|
|
|
271,485
|
|
|
|
|
|
|
|
271,485
|
|
|
|
540,582
|
|
|
|
|
|
|
|
540,582
|
|
General and administrative
|
|
|
3,933,413
|
|
|
|
|
|
|
|
3,933,413
|
|
|
|
8,552,609
|
|
|
|
|
|
|
|
8,552,609
|
|
Research
and development cost
|
|
|
91,607
|
|
|
|
|
|
|
|
91,607
|
|
|
|
184,539
|
|
|
|
|
|
|
|
184,539
|
|
Total
operating expenses
|
|
|
7,009,983
|
|
|
|
-
|
|
|
|
7,009,983
|
|
|
|
14,335,246
|
|
|
|
-
|
|
|
|
14,335,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
operations
|
|
|
1,427,594
|
|
|
|
(1,779,326
|
)
|
|
|
(351,732
|
)
|
|
|
195,435
|
|
|
|
295,585
|
|
|
|
491,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income and
(expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on sale of
assets
|
|
|
(32,339
|
)
|
|
|
|
|
|
|
(32,339
|
)
|
|
|
(34,742
|
)
|
|
|
|
|
|
|
(34,742
|
)
|
Interest expense
|
|
|
(62,127
|
)
|
|
|
|
|
|
|
(62,127
|
)
|
|
|
(116,602
|
)
|
|
|
|
|
|
|
(116,602
|
)
|
Interest income
|
|
|
23,416
|
|
|
|
|
|
|
|
23,416
|
|
|
|
53,856
|
|
|
|
|
|
|
|
53,856
|
|
Loss on foreign
currency exchange transactions
|
|
|
(621,887
|
)
|
|
|
|
|
|
|
(621,887
|
)
|
|
|
(1,036,783
|
)
|
|
|
|
|
|
|
(1,036,783
|
)
|
Other
income
|
|
|
6,823
|
|
|
|
|
|
|
|
6,823
|
|
|
|
28,383
|
|
|
|
|
|
|
|
28,383
|
|
Total
other income (expenses)
|
|
|
(686,114
|
)
|
|
|
-
|
|
|
|
(686,114
|
)
|
|
|
(1,105,888
|
)
|
|
|
-
|
|
|
|
(1,105,888
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
before income taxes
|
|
|
741,480
|
|
|
|
(1,779,326
|
)
|
|
|
(1,037,846
|
)
|
|
|
(910,453
|
)
|
|
|
295,585
|
|
|
|
(614,868
|
)
|
Income
tax provision
|
|
|
(338,884
|
)
|
|
|
|
|
|
|
(338,884
|
)
|
|
|
(378,759
|
)
|
|
|
|
|
|
|
(378,759
|
)
|
Net income (loss)
from continuing operations
|
|
|
402,596
|
|
|
|
(1,779,326
|
)
|
|
|
(1,376,730
|
)
|
|
|
(1,289,212
|
)
|
|
|
295,585
|
|
|
|
(993,627
|
)
|
Non-controlling
interest
|
|
|
(1,388,272
|
)
|
|
|
596,608
|
|
|
|
(791,664
|
)
|
|
|
(1,462,183
|
)
|
|
|
(98,695
|
)
|
|
|
(1,560,878
|
)
|
Net
income (loss) attributable to NetSol
|
|
$
|
(985,676
|
)
|
|
$
|
(1,182,718
|
)
|
|
$
|
(2,168,394
|
)
|
|
$
|
(2,751,395
|
)
|
|
$
|
196,890
|
|
|
$
|
(2,554,505
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.09
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
(0.26
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.24
|
)
|
Diluted
|
|
$
|
(0.09
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
(0.26
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
10,877,446
|
|
|
|
10,877,446
|
|
|
|
10,877,446
|
|
|
|
10,783,685
|
|
|
|
10,783,685
|
|
|
|
10,783,685
|
|
Diluted
|
|
|
10,877,446
|
|
|
|
10,877,446
|
|
|
|
10,877,446
|
|
|
|
10,783,685
|
|
|
|
10,783,685
|
|
|
|
10,783,685
|
|
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2017
(UNAUDITED)
|
|
For the Three Months
|
|
|
|
Ended December 31, 2016
|
|
|
|
As Originally
|
|
|
Amount of
|
|
|
|
|
|
|
Presented
|
|
|
Restatement
|
|
|
As
Restated
|
|
Net income
(loss)
|
|
$
|
(985,676
|
)
|
|
$
|
(1,182,718
|
)
|
|
$
|
(2,168,394
|
)
|
Other comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation
adjustment
|
|
|
(944,837
|
)
|
|
|
-
|
|
|
|
(944,837
|
)
|
Comprehensive income
(loss)
|
|
|
(1,930,513
|
)
|
|
|
(1,182,718
|
)
|
|
|
(3,113,231
|
)
|
Comprehensive
income (loss) attributable to non-controlling interest
|
|
|
(276,575
|
)
|
|
|
-
|
|
|
|
(276,575
|
)
|
Comprehensive
income (loss) attributable to NetSol
|
|
$
|
(1,653,938
|
)
|
|
$
|
(1,182,718
|
)
|
|
$
|
(2,836,656
|
)
|
|
|
For the Six Months
|
|
|
|
Ended December 31, 2016
|
|
|
|
As Originally
|
|
|
Amount of
|
|
|
|
|
|
|
Presented
|
|
|
Restatement
|
|
|
As
Restated
|
|
Net income
(loss)
|
|
$
|
(2,751,395
|
)
|
|
$
|
262,469
|
|
|
$
|
(2,488,926
|
)
|
Other comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation
adjustment
|
|
|
149,237
|
|
|
|
-
|
|
|
|
149,237
|
|
Comprehensive income
(loss)
|
|
|
(2,602,158
|
)
|
|
|
262,469
|
|
|
|
(2,339,689
|
)
|
Comprehensive
income (loss) attributable to non-controlling interest
|
|
|
47,138
|
|
|
|
-
|
|
|
|
47,138
|
|
Comprehensive
income (loss) attributable to NetSol
|
|
$
|
(2,649,296
|
)
|
|
$
|
262,469
|
|
|
$
|
(2,386,827
|
)
|
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2017
(UNAUDITED)
|
|
For the Six Months
|
|
|
|
Ended December 31, 2016
|
|
|
|
As Originally
|
|
|
Amount of
|
|
|
|
|
|
|
Presented
|
|
|
Restatement
|
|
|
As
Restated
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(1,289,212
|
)
|
|
$
|
295,585
|
|
|
$
|
(993,627
|
)
|
Adjustments to reconcile
net income (loss) to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
3,190,218
|
|
|
|
|
|
|
|
3,190,218
|
|
Provision for bad
debts
|
|
|
1,026
|
|
|
|
|
|
|
|
1,026
|
|
Loss on sale of
assets
|
|
|
34,742
|
|
|
|
|
|
|
|
34,742
|
|
Stock issued for
services
|
|
|
1,525,775
|
|
|
|
|
|
|
|
1,525,775
|
|
Fair market value
of warrants and stock options granted
|
|
|
21,804
|
|
|
|
|
|
|
|
21,804
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
3,678,110
|
|
|
|
|
|
|
|
3,678,110
|
|
Accounts receivable
- related party
|
|
|
829,285
|
|
|
|
|
|
|
|
829,285
|
|
Revenues in excess
of billing
|
|
|
(7,219,089
|
)
|
|
|
(373,406
|
)
|
|
|
(7,592,495
|
)
|
Revenues in excess
of billing - related party
|
|
|
285,791
|
|
|
|
|
|
|
|
285,791
|
|
Other current assets
|
|
|
585,147
|
|
|
|
|
|
|
|
585,147
|
|
Accounts payable
and accrued expenses
|
|
|
334,241
|
|
|
|
|
|
|
|
334,241
|
|
Unearned
revenue
|
|
|
(1,908,440
|
)
|
|
|
77,821
|
|
|
|
(1,830,619
|
)
|
Net
cash used in operating activities
|
|
|
69,398
|
|
|
|
-
|
|
|
|
69,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property
and equipment
|
|
|
(1,074,316
|
)
|
|
|
|
|
|
|
(1,074,316
|
)
|
Sales of property
and equipment
|
|
|
181,087
|
|
|
|
|
|
|
|
181,087
|
|
Purchase of treasury
stock
|
|
|
(38,885
|
)
|
|
|
|
|
|
|
(38,885
|
)
|
Investment
|
|
|
(705,555
|
)
|
|
|
|
|
|
|
(705,555
|
)
|
Net
cash used in investing activities
|
|
|
(1,637,669
|
)
|
|
|
-
|
|
|
|
(1,637,669
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the
exercise of stock options and warrants
|
|
|
429,452
|
|
|
|
|
|
|
|
429,452
|
|
Proceeds from exercise
of subsidiary options
|
|
|
18,089
|
|
|
|
|
|
|
|
18,089
|
|
Dividend paid by
subsidiary to Non controlling interest
|
|
|
(968,657
|
)
|
|
|
|
|
|
|
(968,657
|
)
|
Payments
on capital lease obligations and loans - net
|
|
|
(69,998
|
)
|
|
|
|
|
|
|
(69,998
|
)
|
Net
cash provided by financing activities
|
|
|
(591,114
|
)
|
|
|
-
|
|
|
|
(591,114
|
)
|
Effect
of exchange rate changes
|
|
|
107,241
|
|
|
|
|
|
|
|
107,241
|
|
Net decrease in cash
and cash equivalents
|
|
|
(2,052,144
|
)
|
|
|
-
|
|
|
|
(2,052,144
|
)
|
Cash and cash
equivalents, beginning of the period
|
|
|
11,557,527
|
|
|
|
|
|
|
|
11,557,527
|
|
Cash
and cash equivalents, end of period
|
|
$
|
9,505,383
|
|
|
$
|
-
|
|
|
$
|
9,505,383
|
|