Item
1. Financial Statements (Unaudited)
NETSOL
TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
|
|
As
of
March 31, 2017
|
|
|
As
of
June 30, 2016
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
8,450,115
|
|
|
$
|
11,557,527
|
|
Accounts
receivable, net of allowance of $494,011 and $492,498
|
|
|
10,301,949
|
|
|
|
9,691,229
|
|
Accounts
receivable, net - related party
|
|
|
4,414,635
|
|
|
|
5,691,178
|
|
Revenues
in excess of billings
|
|
|
20,893,955
|
|
|
|
10,493,096
|
|
Revenues
in excess of billings - related party
|
|
|
94,685
|
|
|
|
804,168
|
|
Other
current assets
|
|
|
3,040,774
|
|
|
|
2,214,628
|
|
Total
current assets
|
|
|
47,196,113
|
|
|
|
40,451,826
|
|
Restricted
cash
|
|
|
90,000
|
|
|
|
90,000
|
|
Property
and equipment, net
|
|
|
21,205,976
|
|
|
|
22,774,435
|
|
Other
assets
|
|
|
2,549,858
|
|
|
|
842,553
|
|
Intangible
assets, net
|
|
|
17,662,773
|
|
|
|
19,674,033
|
|
Goodwill
|
|
|
9,516,568
|
|
|
|
9,516,568
|
|
Total
assets
|
|
$
|
98,221,288
|
|
|
$
|
93,349,415
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
7,404,181
|
|
|
$
|
5,962,770
|
|
Current
portion of loans and obligations under capitalized leases
|
|
|
5,650,475
|
|
|
|
4,440,084
|
|
Unearned
revenues
|
|
|
4,025,642
|
|
|
|
4,739,214
|
|
Common
stock to be issued
|
|
|
88,324
|
|
|
|
88,324
|
|
Total
current liabilities
|
|
|
17,168,622
|
|
|
|
15,230,392
|
|
Long
term loans and obligations under capitalized leases; less current maturities
|
|
|
499,515
|
|
|
|
477,692
|
|
Total
liabilities
|
|
|
17,668,137
|
|
|
|
15,708,084
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
Preferred
stock, $.01 par value; 500,000 shares authorized;
|
|
|
-
|
|
|
|
-
|
|
Common
stock, $.01 par value; 14,500,000 shares authorized; 11,132,349 shares issued and 11,097,570 outstanding as of March 31, 2017
and 10,713,372 shares issued and 10,686,093 outstanding as of June 30, 2016
|
|
|
111,324
|
|
|
|
107,134
|
|
Additional
paid-in-capital
|
|
|
123,693,569
|
|
|
|
121,448,946
|
|
Treasury
stock (At cost, 34,779 shares and 27,279 shares as of March 31, 2017 and June 30, 2016, respectively)
|
|
|
(454,310
|
)
|
|
|
(415,425
|
)
|
Accumulated
deficit
|
|
|
(39,177,897
|
)
|
|
|
(37,323,360
|
)
|
Stock
subscription receivable
|
|
|
(359,070
|
)
|
|
|
(783,172
|
)
|
Other
comprehensive loss
|
|
|
(18,797,496
|
)
|
|
|
(18,730,494
|
)
|
Total
NetSol stockholders’ equity
|
|
|
65,016,120
|
|
|
|
64,303,629
|
|
Non-controlling
interest
|
|
|
15,537,031
|
|
|
|
13,337,702
|
|
Total
stockholders’ equity
|
|
|
80,553,151
|
|
|
|
77,641,331
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
98,221,288
|
|
|
$
|
93,349,415
|
|
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
NETSOL
TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
For
the Three Months
|
|
|
For
the Nine Months
|
|
|
|
Ended
March 31,
|
|
|
Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Net
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License
fees
|
|
$
|
5,730,222
|
|
|
$
|
1,358,469
|
|
|
$
|
14,953,574
|
|
|
$
|
3,076,541
|
|
Maintenance
fees
|
|
|
3,538,996
|
|
|
|
3,388,526
|
|
|
|
10,651,692
|
|
|
|
9,826,209
|
|
Services
|
|
|
7,004,272
|
|
|
|
8,159,490
|
|
|
|
19,795,073
|
|
|
|
24,487,467
|
|
License
fees - related party
|
|
|
-
|
|
|
|
484,644
|
|
|
|
246,957
|
|
|
|
484,644
|
|
Maintenance
fees - related party
|
|
|
51,698
|
|
|
|
28,423
|
|
|
|
233,674
|
|
|
|
218,409
|
|
Services
- related party
|
|
|
1,624,132
|
|
|
|
2,554,347
|
|
|
|
5,003,605
|
|
|
|
7,377,430
|
|
Total
net revenues
|
|
|
17,949,320
|
|
|
|
15,973,899
|
|
|
|
50,884,575
|
|
|
|
45,470,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and consultants
|
|
|
6,161,110
|
|
|
|
5,691,530
|
|
|
|
18,034,263
|
|
|
|
15,936,191
|
|
Travel
|
|
|
764,867
|
|
|
|
543,672
|
|
|
|
2,313,002
|
|
|
|
1,779,134
|
|
Depreciation
and amortization
|
|
|
1,340,188
|
|
|
|
1,483,695
|
|
|
|
3,989,824
|
|
|
|
4,419,396
|
|
Other
|
|
|
686,950
|
|
|
|
860,868
|
|
|
|
2,725,015
|
|
|
|
2,822,347
|
|
Total
cost of revenues
|
|
|
8,953,115
|
|
|
|
8,579,765
|
|
|
|
27,062,104
|
|
|
|
24,957,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
8,996,205
|
|
|
|
7,394,134
|
|
|
|
23,822,471
|
|
|
|
20,513,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
and marketing
|
|
|
2,439,948
|
|
|
|
1,896,295
|
|
|
|
7,497,464
|
|
|
|
5,597,689
|
|
Depreciation
and amortization
|
|
|
284,642
|
|
|
|
321,230
|
|
|
|
825,224
|
|
|
|
898,018
|
|
General
and administrative
|
|
|
4,329,798
|
|
|
|
3,808,327
|
|
|
|
12,882,407
|
|
|
|
10,391,844
|
|
Research
and development cost
|
|
|
101,193
|
|
|
|
132,123
|
|
|
|
285,732
|
|
|
|
362,117
|
|
Total
operating expenses
|
|
|
7,155,581
|
|
|
|
6,157,975
|
|
|
|
21,490,827
|
|
|
|
17,249,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
1,840,624
|
|
|
|
1,236,159
|
|
|
|
2,331,644
|
|
|
|
3,263,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income and (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
(loss) on sale of assets
|
|
|
1,647
|
|
|
|
14,848
|
|
|
|
(33,095
|
)
|
|
|
642
|
|
Interest
expense
|
|
|
(60,357
|
)
|
|
|
(56,070
|
)
|
|
|
(176,959
|
)
|
|
|
(196,399
|
)
|
Interest
income
|
|
|
27,229
|
|
|
|
29,673
|
|
|
|
81,085
|
|
|
|
117,084
|
|
Gain
(loss) on foreign currency exchange transactions
|
|
|
390,897
|
|
|
|
12,955
|
|
|
|
(645,886
|
)
|
|
|
(235,291
|
)
|
Other
income (expense)
|
|
|
(219
|
)
|
|
|
25,258
|
|
|
|
28,164
|
|
|
|
200,256
|
|
Total
other income (expenses)
|
|
|
359,197
|
|
|
|
26,664
|
|
|
|
(746,691
|
)
|
|
|
(113,708
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income before income taxes
|
|
|
2,199,821
|
|
|
|
1,262,823
|
|
|
|
1,584,953
|
|
|
|
3,150,256
|
|
Income
tax provision
|
|
|
(61,604
|
)
|
|
|
(106,209
|
)
|
|
|
(440,363
|
)
|
|
|
(454,707
|
)
|
Net
income
|
|
|
2,138,217
|
|
|
|
1,156,614
|
|
|
|
1,144,590
|
|
|
|
2,695,549
|
|
Non-controlling
interest
|
|
|
(1,438,249
|
)
|
|
|
(307,135
|
)
|
|
|
(2,999,127
|
)
|
|
|
(1,382,033
|
)
|
Net
income (loss) attributable to NetSol
|
|
$
|
699,968
|
|
|
$
|
849,479
|
|
|
$
|
(1,854,537
|
)
|
|
$
|
1,313,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.06
|
|
|
$
|
0.08
|
|
|
$
|
(0.17
|
)
|
|
$
|
0.13
|
|
Diluted
|
|
$
|
0.06
|
|
|
$
|
0.08
|
|
|
$
|
(0.17
|
)
|
|
$
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
10,987,214
|
|
|
|
10,427,664
|
|
|
|
10,850,538
|
|
|
|
10,338,740
|
|
Diluted
|
|
|
11,121,620
|
|
|
|
10,643,479
|
|
|
|
10,850,538
|
|
|
|
10,554,555
|
|
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
NETSOL
TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
|
|
For
the Three Months
|
|
|
For
the Nine Months
|
|
|
|
Ended
March 31,
|
|
|
Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
699,968
|
|
|
$
|
849,479
|
|
|
$
|
(1,854,537
|
)
|
|
$
|
1,313,516
|
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
translation adjustment
|
|
|
(240,245
|
)
|
|
|
(333,340
|
)
|
|
|
(91,008
|
)
|
|
|
(2,247,813
|
)
|
Comprehensive
income (loss)
|
|
|
459,723
|
|
|
|
516,139
|
|
|
|
(1,945,545
|
)
|
|
|
(934,297
|
)
|
Comprehensive
income (loss) attributable to non-controlling interest
|
|
|
(71,144
|
)
|
|
|
19,111
|
|
|
|
(24,006
|
)
|
|
|
(516,166
|
)
|
Comprehensive
income (loss) attributable to NetSol
|
|
$
|
530,867
|
|
|
$
|
497,028
|
|
|
$
|
(1,921,539
|
)
|
|
$
|
(418,131
|
)
|
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
NETSOL
TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
For
the Nine Months
|
|
|
|
Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
1,144,590
|
|
|
$
|
2,695,549
|
|
Adjustments
to reconcile net income to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
4,815,048
|
|
|
|
5,317,414
|
|
Provision
for bad debts
|
|
|
732
|
|
|
|
49,605
|
|
(Gain)
Loss on sale of assets
|
|
|
33,095
|
|
|
|
(642
|
)
|
Stock
issued for services
|
|
|
1,998,968
|
|
|
|
694,693
|
|
Fair
market value of warrants and stock options granted
|
|
|
26,956
|
|
|
|
145,716
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(649,776
|
)
|
|
|
115,428
|
|
Accounts
receivable - related party
|
|
|
405,009
|
|
|
|
(3,111,316
|
)
|
Revenues
in excess of billing
|
|
|
(10,388,695
|
)
|
|
|
(3,078,655
|
)
|
Revenues
in excess of billing - related party
|
|
|
553,767
|
|
|
|
15,507
|
|
Other
current assets
|
|
|
419,704
|
|
|
|
(838,913
|
)
|
Accounts
payable and accrued expenses
|
|
|
337,890
|
|
|
|
617,112
|
|
Unearned
revenue
|
|
|
(715,880
|
)
|
|
|
(1,490,697
|
)
|
Net
cash provided by (used in) operating activities
|
|
|
(2,018,592
|
)
|
|
|
1,130,801
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(1,315,922
|
)
|
|
|
(2,523,865
|
)
|
Sales
of property and equipment
|
|
|
149,430
|
|
|
|
556,280
|
|
Purchase
of treasury stock
|
|
|
(38,885
|
)
|
|
|
-
|
|
Investment
in eeGeo
|
|
|
(905,555
|
)
|
|
|
(555,556
|
)
|
Purchase
of subsidiary shares from open market
|
|
|
-
|
|
|
|
(767,397
|
)
|
Net
cash used in investing activities
|
|
|
(2,110,932
|
)
|
|
|
(3,290,538
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from sale of common stock
|
|
|
-
|
|
|
|
64,931
|
|
Proceeds
from the exercise of stock options and warrants
|
|
|
785,479
|
|
|
|
728,699
|
|
Proceeds
from exercise of subsidiary options
|
|
|
54,377
|
|
|
|
16,744
|
|
Dividend
paid by subsidiary to non-controlling interest
|
|
|
(968,657
|
)
|
|
|
-
|
|
Proceeds
from bank loans
|
|
|
1,484,162
|
|
|
|
1,334,285
|
|
Payments
on capital lease obligations and loans - net
|
|
|
(251,040
|
)
|
|
|
(736,405
|
)
|
Net
cash provided by financing activities
|
|
|
1,104,321
|
|
|
|
1,408,254
|
|
Effect
of exchange rate changes
|
|
|
(82,209
|
)
|
|
|
(1,536,315
|
)
|
Net
decrease in cash and cash equivalents
|
|
|
(3,107,412
|
)
|
|
|
(2,287,798
|
)
|
Cash
and cash equivalents, beginning of the period
|
|
|
11,557,527
|
|
|
|
14,168,957
|
|
Cash
and cash equivalents, end of period
|
|
$
|
8,450,115
|
|
|
$
|
11,881,159
|
|
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
NETSOL
TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
|
|
For
the Nine Months
|
|
|
|
Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
SUPPLEMENTAL
DISCLOSURES:
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
201,670
|
|
|
$
|
195,737
|
|
Taxes
|
|
$
|
215,424
|
|
|
$
|
195,104
|
|
|
|
|
|
|
|
|
|
|
NON-CASH
INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Provided
services for investment in eeGeo, Inc.
|
|
$
|
836,070
|
|
|
$
|
-
|
|
Assets
acquired under capital lease
|
|
$
|
466,528
|
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
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.
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, 2016. 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 year.
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. 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 March 31, 2017, and June 30, 2016, the Company had uninsured deposits related to cash deposits in
accounts maintained within foreign entities of approximately $6,786,368 and $7,640,095, respectively. The Company has not experienced
any losses in such accounts.
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2017
(UNAUDITED)
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.
On
June 23, 2016, the United Kingdom (U.K.) held a referendum in which voters approved an exit from the European Union (E.U.), commonly
referred to as “Brexit”. As a result of the referendum, it is expected that the British government will begin negotiating
the terms of the U.K.’s future relationship with the E.U. Although it is unknown what those terms will be, it is possible
that there will be greater restrictions on imports and exports between the U.K. and E.U. countries and perhaps increased regulatory
complexities. These changes may adversely affect the Company’s operations and financial results.
New
Accounting Pronouncements
On
November 17, 2016, the FASB issued Accounting Standards Update (“ASU”) 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, upon adoption of this standard, the
Company will show restricted cash as part of cash and restricted cash equivalents.
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
MARCH
31, 2017
(UNAUDITED)
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.
The
components of basic and diluted earnings per share were as follows:
|
|
For
the three months ended
March 31, 2017
|
|
|
For
the nine months ended
March 31, 2017
|
|
|
|
Net
Income
|
|
|
Shares
|
|
|
Per
Share
|
|
|
Net
Loss
|
|
|
Shares
|
|
|
Per
Share
|
|
Basic income
(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) available to common shareholders
|
|
$
|
699,968
|
|
|
|
10,987,214
|
|
|
$
|
0.06
|
|
|
$
|
(1,854,537
|
)
|
|
|
10,850,538
|
|
|
$
|
(0.17
|
)
|
Effect
of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options
|
|
|
-
|
|
|
|
134,406
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Diluted
income (loss) per share
|
|
$
|
699,968
|
|
|
|
11,121,620
|
|
|
$
|
0.06
|
|
|
$
|
(1,854,537
|
)
|
|
|
10,850,538
|
|
|
$
|
(0.17
|
)
|
|
|
For
the three months ended
March 31, 2016
|
|
|
For
the nine months ended
March 31, 2016
|
|
|
|
Net
Income
|
|
|
Shares
|
|
|
Per
Share
|
|
|
Net
Income
|
|
|
Shares
|
|
|
Per
Share
|
|
Basic income
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income available to common shareholders
|
|
$
|
849,479
|
|
|
|
10,427,664
|
|
|
$
|
0.08
|
|
|
$
|
1,313,516
|
|
|
|
10,338,740
|
|
|
$
|
0.13
|
|
Effect
of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options
|
|
|
-
|
|
|
|
212,674
|
|
|
|
-
|
|
|
|
-
|
|
|
|
212,674
|
|
|
|
-
|
|
Warrants
|
|
|
-
|
|
|
|
3,141
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,141
|
|
|
|
-
|
|
Diluted income
per share
|
|
$
|
849,479
|
|
|
|
10,643,479
|
|
|
$
|
0.08
|
|
|
$
|
1,313,516
|
|
|
|
10,554,555
|
|
|
$
|
0.12
|
|
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 Nine Months
|
|
|
|
Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Stock
Options
|
|
|
480,133
|
|
|
|
-
|
|
|
|
|
480,133
|
|
|
|
-
|
|
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 $18,797,496 and $18,730,494
as of March 31, 2017 and June 30, 2016, respectively. During the three and nine months ended March 31, 2017, comprehensive income
(loss) in the consolidated statements of comprehensive income (loss) included a translation loss attributable to NetSol
of $169,101 and $67,002, respectively. During the three and nine months ended March 31, 2016, comprehensive income (loss)
in the consolidated statements of comprehensive income (loss) included a translation loss attributable to NetSol
of $352,451 and $1,731,647, respectively.
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2017
(UNAUDITED)
NOTE
5 – RELATED PARTY TRANSACTIONS
NetSol
Innovation
In
November 2004, the Company entered into a joint venture agreement with 1insurer (formerly “Innovation Group”) called
NetSol Innovation. NetSol Innovation provides support services to 1insurer. During the three and nine months ended March 31, 2017,
NetSol Innovation provided services of $1,446,749 and $4,403,368, respectively. During the three and nine months ended March 31,
2016, NetSol Innovation provided services of $2,069,940 and $6,096,466, respectively. Accounts receivable at March 31, 2017 and
June 30, 2016 were $3,779,982 and $4,689,322, respectively.
Investec
Asset Finance
In
October 2011, NTE entered into an agreement with Investec Asset Finance to acquire VLS. NTE and VLS both provide support services
to Investec. During the three and nine months ended March 31, 2017, NTE and VLS provided license, maintenance and services of
$229,081 and $1,080,868, respectively. During the three and nine months ended March 31, 2016, NTE and VLS provided license, maintenance
and services of $997,474 and $1,984,017, respectively. Accounts receivable at March 31, 2017 and June 30, 2016 were $634,653 and
$1,001,856, respectively. Revenue in excess of billing at March 31, 2017 and June 30, 2016 were $94,685 and $804,168, respectively.
G-Force
LLC
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 eeGeo, Inc. (“eeGeo”) for $1,111,111. See Note 8 “Other Long Term Assets”.
NOTE
6 - OTHER CURRENT ASSETS
Other
current assets consisted of the following:
|
|
As
of
March 31, 2017
|
|
|
As
of
June 30, 2016
|
|
|
|
|
|
|
|
|
Prepaid
Expenses
|
|
$
|
630,285
|
|
|
$
|
386,578
|
|
Advance
Income Tax
|
|
|
1,223,242
|
|
|
|
968,334
|
|
Employee
Advances
|
|
|
125,058
|
|
|
|
83,978
|
|
Security
Deposits
|
|
|
279,905
|
|
|
|
72,985
|
|
Other
Receivables
|
|
|
508,620
|
|
|
|
486,562
|
|
Other
Assets
|
|
|
273,664
|
|
|
|
216,191
|
|
Total
|
|
$
|
3,040,774
|
|
|
$
|
2,214,628
|
|
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2017
(UNAUDITED)
NOTE
7 - PROPERTY AND EQUIPMENT
Property
and equipment consisted of the following:
|
|
As
of
March 31, 2017
|
|
|
As
of
June 30, 2016
|
|
|
|
|
|
|
|
|
Office
Furniture and Equipment
|
|
$
|
3,644,613
|
|
|
$
|
3,346,156
|
|
Computer
Equipment
|
|
|
26,298,233
|
|
|
|
25,935,620
|
|
Assets
Under Capital Leases
|
|
|
2,393,615
|
|
|
|
2,409,074
|
|
Building
|
|
|
9,208,029
|
|
|
|
9,185,570
|
|
Land
|
|
|
2,418,461
|
|
|
|
2,410,664
|
|
Autos
|
|
|
1,211,460
|
|
|
|
1,073,447
|
|
Improvements
|
|
|
428,464
|
|
|
|
385,135
|
|
Subtotal
|
|
|
45,602,875
|
|
|
|
44,745,666
|
|
Accumulated
Depreciation
|
|
|
(24,396,899
|
)
|
|
|
(21,971,231
|
)
|
Property
and Equipment, Net
|
|
$
|
21,205,976
|
|
|
$
|
22,774,435
|
|
For
the three and nine months ended March 31, 2017, depreciation expense totaled $930,712 and $2,732,693, respectively. Of these amounts,
$646,070 and $1,907,469, respectively, are reflected in cost of revenues. For the three and nine months ended March 31, 2016,
depreciation expense totaled $1,115,544 and $3,242,057, respectively. Of these amounts, $796,722 and $2,344,039, respectively,
are reflected in cost of revenues.
Following
is a summary of fixed assets held under capital leases as of March 31, 2017 and June 30, 2016:
|
|
As
of
March 31, 2017
|
|
|
As
of
June 30, 2016
|
|
Computers
and Other Equipment
|
|
$
|
378,765
|
|
|
$
|
503,926
|
|
Furniture
and Fixtures
|
|
|
227,232
|
|
|
|
408,200
|
|
Vehicles
|
|
|
1,787,618
|
|
|
|
1,496,948
|
|
Total
|
|
|
2,393,615
|
|
|
|
2,409,074
|
|
Less:
Accumulated Depreciation - Net
|
|
|
(749,736
|
)
|
|
|
(713,248
|
)
|
|
|
$
|
1,643,879
|
|
|
$
|
1,695,826
|
|
NOTE
8 – OTHER LONG TERM ASSETS
|
|
As
of
March 31, 2017
|
|
|
As
of
June 30, 2016
|
|
|
|
|
|
|
|
|
Investment
(1)
|
|
$
|
2,461,975
|
|
|
$
|
720,350
|
|
Long
Term Security Deposits
|
|
|
87,883
|
|
|
|
122,203
|
|
Total
|
|
$
|
2,549,858
|
|
|
$
|
842,553
|
|
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2017
(UNAUDITED)
(1)
|
Investment
under cost method
|
|
●
|
On
March 2, 2016, the Company purchased a 4.9% interest in eeGeo 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 eeGeo, 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 shares back to eeGeo. During the three and nine months ended March 31, 2017, NetSol PK provided
services valued at $286,449 and $836,070, respectively. During the nine months ended March 31, 2017, NetSol PK paid $350,000
to eeGeo to buy out a portion of the services requirement. As of March 31, 2017, the accumulated balance of services provided
was $1,000,864 which is recorded as investment.
|
In
connection with the investment, the Company and NetSol PK received a warrant to purchase preferred stock of eeGeo 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 eeGeo in a “Qualified Financing”.
|
|
|
●
|
The
warrants expire on March 2, 2020.
|
|
|
●
|
“Next
Round Preferred” is defined as occurring if eeGeo’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 accounted for this investment using the cost method.
NOTE
9 - INTANGIBLE ASSETS
Intangible
assets consisted of the following:
|
|
As
of
March 31, 2017
|
|
|
As
of
June 30, 2016
|
|
|
|
|
|
|
|
|
Product
Licenses - Cost
|
|
$
|
47,244,997
|
|
|
$
|
48,632,368
|
|
Deletions
|
|
|
-
|
|
|
|
(1,387,371
|
)
|
Effect
of Translation Adjustment
|
|
|
(3,363,688
|
)
|
|
|
(3,323,518
|
)
|
Accumulated
Amortization
|
|
|
(26,218,536
|
)
|
|
|
(24,247,446
|
)
|
Net
Balance
|
|
$
|
17,662,773
|
|
|
$
|
19,674,033
|
|
(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 $17,662,773
will be amortized over the next 7 years. Amortization expense for the three and nine months ended March 31, 2017 was $694,118
and $2,082,355, respectively. Amortization expense for the three and nine months ended March 31, 2016 was $686,973 and $2,075,357,
respectively.
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2017
(UNAUDITED)
(B)
Future Amortization
Estimated
amortization expense of intangible assets over the next five years is as follows:
Year
ended:
|
|
|
|
March
31, 2018
|
|
$
|
2,766,955
|
|
March
31, 2019
|
|
|
2,766,955
|
|
March
31, 2020
|
|
|
2,766,955
|
|
March
31, 2021
|
|
|
2,766,955
|
|
March
31, 2022
|
|
|
2,766,955
|
|
Thereafter
|
|
|
3,827,998
|
|
|
|
$
|
17,662,773
|
|
NOTE
10 – GOODWILL
Goodwill
represents the excess of the aggregate purchase price over the fair value of the net assets acquired in businesses combinations.
Goodwill was comprised of the following amounts:
|
|
As
of
March 31, 2017
|
|
|
As
of
June 30, 2016
|
|
NetSol
PK
|
|
$
|
1,166,610
|
|
|
$
|
1,166,610
|
|
NTE
|
|
|
3,471,814
|
|
|
|
3,471,814
|
|
VLS
|
|
|
214,044
|
|
|
|
214,044
|
|
NTA
|
|
|
4,664,100
|
|
|
|
4,664,100
|
|
Total
|
|
$
|
9,516,568
|
|
|
$
|
9,516,568
|
|
NOTE
11 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts
payable and accrued expenses consisted of the following:
|
|
As
of
March 31, 2017
|
|
|
As
of
June 30, 2016
|
|
|
|
|
|
|
|
|
Accounts
Payable
|
|
$
|
1,336,370
|
|
|
$
|
1,346,532
|
|
Accrued
Liabilities
|
|
|
5,464,682
|
|
|
|
4,171,058
|
|
Accrued
Payroll & Taxes
|
|
|
307,083
|
|
|
|
231,881
|
|
Taxes
Payable
|
|
|
183,046
|
|
|
|
66,437
|
|
Other
Payable
|
|
|
113,000
|
|
|
|
146,862
|
|
Total
|
|
$
|
7,404,181
|
|
|
$
|
5,962,770
|
|
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2017
(UNAUDITED)
NOTE
12 – DEBTS
Notes
payable and capital leases consisted of the following:
|
|
|
|
As
of March 31, 2017
|
|
|
|
|
|
|
|
|
Current
|
|
|
Long-Term
|
|
Name
|
|
|
|
Total
|
|
|
Maturities
|
|
|
Maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D&O
Insurance
|
|
|
(1)
|
|
$
|
153,033
|
|
|
$
|
153,033
|
|
|
$
|
-
|
|
Bank
Overdraft Facility
|
|
|
(2)
|
|
|
284,965
|
|
|
|
284,965
|
|
|
|
-
|
|
HSBC
Loan
|
|
|
(3)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Loan
Payable Bank
|
|
|
(4)
|
|
|
4,756,469
|
|
|
|
4,756,469
|
|
|
|
-
|
|
|
|
|
|
|
|
5,194,467
|
|
|
|
5,194,467
|
|
|
|
-
|
|
Subsidiary
Capital Leases
|
|
|
(5)
|
|
|
955,523
|
|
|
|
456,008
|
|
|
|
499,515
|
|
|
|
|
|
|
$
|
6,149,990
|
|
|
$
|
5,650,475
|
|
|
$
|
499,515
|
|
|
|
|
|
As
of June 30, 2016
|
|
|
|
|
|
|
|
|
Current
|
|
|
Long-Term
|
|
Name
|
|
|
|
Total
|
|
|
Maturities
|
|
|
Maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D&O
Insurance
|
|
|
(1)
|
|
$
|
65,114
|
|
|
$
|
65,114
|
|
|
$
|
-
|
|
HSBC
Loan
|
|
|
(3)
|
|
|
93,704
|
|
|
|
93,704
|
|
|
|
-
|
|
Loan
Payable Bank
|
|
|
(4)
|
|
|
3,792,907
|
|
|
|
3,792,907
|
|
|
|
-
|
|
|
|
|
|
|
|
3,951,725
|
|
|
|
3,951,725
|
|
|
|
-
|
|
Subsidiary
Capital Leases
|
|
|
(5)
|
|
|
966,051
|
|
|
|
488,359
|
|
|
|
477,692
|
|
|
|
|
|
|
$
|
4,917,776
|
|
|
$
|
4,440,084
|
|
|
$
|
477,692
|
|
(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 March
31, 2017 and 4.25% to 5.89% as of June 30, 2016, respectively.
(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 $375,000. The annual interest rate was 4.75% as of March 31, 2017. Total outstanding balance
as of March 31, 2017 was £227,972 or approximately $284,965. Interest expense for three and nine months ended March 31,
2017 was $4,501, respectively.
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 March 31, 2017, NTE was in compliance with this covenant.
(3)
In October 2011, the Company’s subsidiary, NTE, entered into a loan agreement with HSBC Bank to finance the acquisition
of a 51% controlling interest in Virtual Leasing Services Limited. HSBC Bank guaranteed the loan up to a limit of £1,000,000,
or approximately $1,250,000 for a period of 5 years with monthly payments of £18,420, or approximately $23,025.
The interest rate was 4% which is 3.5% above the bank sterling base rate. The loan is securitized against a debenture comprising
of fixed and floating charges over all the assets and undertakings of NTE including all present and future freehold and leasehold
property, book and other debts, chattels, goodwill and uncalled capital, both present and future. Interest expense for the three
and nine months ended March 31, 2017 was $nil and $1,576, respectively. Interest expense for the three and nine months ended March
31, 2016 was $2,243 and $11,254, respectively. NTE paid this loan in full during nine months ended March 31, 2017.
(4)
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 approximately $4,756,469.
The interest rate for the loans was 3% and 4.5% at March 31, 2017 and June 30, 2016, respectively. Interest expense for the three
and nine months ended March 31, 2017 was $28,012 and $85,604, respectively. Interest expense for the three and nine months ended
March 31, 2016 was $31,669 and $109,655, respectively.
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
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 March 31, 2017,
NetSol PK was in compliance with this covenant.
(5)
The Company leases various fixed assets under capital lease arrangements expiring in various years through 2021. 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 and nine months ended March 31, 2017 and 2016.
Following
is the aggregate minimum future lease payments under capital leases as of March 31, 2017:
|
|
Amount
|
|
Minimum
Lease Payments
|
|
|
|
|
Due
FYE 3/31/18
|
|
$
|
511,387
|
|
Due
FYE 3/31/19
|
|
|
340,734
|
|
Due
FYE 3/31/20
|
|
|
188,220
|
|
Total
Minimum Lease Payments
|
|
|
1,040,341
|
|
Interest
Expense relating to future periods
|
|
|
(84,818
|
)
|
Present
Value of minimum lease payments
|
|
|
955,523
|
|
Less:
Current portion
|
|
|
(456,008
|
)
|
Non-Current
portion
|
|
$
|
499,515
|
|
NOTE
13 - STOCKHOLDERS’ EQUITY
During
the nine months ended March 31, 2017, the Company issued 95,526 shares of common stock for services rendered by officers of the
Company. These shares were valued at the fair market value of $570,323.
During
the nine months ended March 31, 2017, the Company issued 48,501 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 $275,442.
During
the nine months ended March 31, 2017, the Company issued 195,112 shares of its common stock to employees pursuant to the terms
of their employment agreements valued at $1,153,203.
During
the nine months ended March 31, 2017, the Company collected subscription receivable of $424,102 related to the exercise of stock
options in previous years.
During
the nine months ended March 31, 2017, the Company received $361,377 pursuant to a stock option agreement for the exercise of 79,838
shares of common stock at price ranging from $4.45 to $4.75 per share.
During
the nine months ended March 31, 2017, the Company purchased 7,500 of shares of its common stock from open market at an average
price of $5.18 per share.
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2017
(UNAUDITED)
NOTE
14 - 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
|
|
|
(79,838
|
)
|
|
$
|
4.53
|
|
|
|
|
|
|
|
|
|
Expired
/ Cancelled
|
|
|
(130,000
|
)
|
|
$
|
7.50
|
|
|
|
|
|
|
|
|
|
Outstanding
and exercisable, March 31, 2017
|
|
|
480,133
|
|
|
$
|
4.20
|
|
|
|
0.42
|
|
|
$
|
519,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WARRANTS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
and exercisable, June 30, 2016
|
|
|
163,124
|
|
|
$
|
7.29
|
|
|
|
0.23
|
|
|
$
|
9,303
|
|
Granted
/ adjusted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(163,124
|
)
|
|
$
|
7.29
|
|
|
|
|
|
|
|
|
|
Outstanding
and exercisable, March 31, 2017
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
The
following table summarizes information about stock options and warrants outstanding and exercisable at March 31, 2017.
Exercise
Price
|
|
Number
Outstanding
and
Exercisable
|
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
|
Weighted
Ave
Exercise
Price
|
|
|
OPTIONS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.10
- $9.90
|
|
|
479,133
|
|
|
|
0.42
|
|
|
$
|
4.17
|
|
|
$10.00
- $19.90
|
|
|
1,000
|
|
|
|
0.31
|
|
|
$
|
16.00
|
|
|
Totals
|
|
|
480,133
|
|
|
|
0.42
|
|
|
$
|
4.20
|
|
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2017
(UNAUDITED)
The
following table summarizes stock grants awarded as compensation:
|
|
#
of shares
|
|
|
Weighted
Average Grant
Date Fair Value
($)
|
|
Unvested,
June 30, 2015
|
|
|
6,667
|
|
|
$
|
6.00
|
|
Granted
|
|
|
864,500
|
|
|
$
|
5.91
|
|
Vested
|
|
|
(240,939
|
)
|
|
$
|
5.51
|
|
Unvested,
June 30, 2016
|
|
|
630,228
|
|
|
$
|
6.07
|
|
Granted
|
|
|
225,896
|
|
|
$
|
5.92
|
|
Cancelled
|
|
|
(5,000
|
)
|
|
$
|
5.55
|
|
Vested
|
|
|
(308,763
|
)
|
|
$
|
5.88
|
|
Unvested,
March 31, 2017
|
|
|
542,361
|
|
|
$
|
6.12
|
|
For
the three and nine months ended March 31, 2017, the Company recorded compensation expense of $499,743 and $2,047,839, respectively.
For the three and nine months ended March 31, 2016, the Company recorded compensation expense of $368,674 and $694,693, respectively.
The compensation expense related to the unvested stock grants as of March 31, 2017 was $3,085,100 which will be recognized during
the fiscal years 2017 through 2022.
OPTIONS
During
the nine months ended March 31, 2017, the Company granted 79,838 options to employees with exercise prices of ranging from $4.45
to $4.75 per share and expiration dates of 1 to 3 months, vesting immediately. Using the Black-Scholes method to value the options,
the Company recorded $26,956 in compensation expense for these options in the accompanying condensed consolidated financial statements.
The fair market value was calculated using the Black-Scholes option pricing model with the following assumptions:
●
|
Risk-free
interest rate - 0.01% -0.51%
|
●
|
Expected
life –1- 3 months
|
●
|
Expected
volatility – 16.71% - 19.27%
|
●
|
Expected
dividend - 0%
|
NOTE
15 – CONTINGENCIES
As
previously disclosed, on July 25, 2014, purported class action lawsuits were filed in the U.S. District Court for the Central
District of California against the Company and certain of its current or former officers and/or directors, which have been consolidated
under the caption
Rand-Heart of New York, Inc. v. NetSol Technologies, Inc., et al.
, Case No. 2:14-cv-05787 PA (SHx). Plaintiffs
subsequently filed consolidated amended complaints, which asserted claims under Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934. As a result of the Company’s motions, the Court dismissed all of plaintiffs’ claims except those related
to the scope of the Company’s release of its next generation product, NFS Ascent™, during the narrow, proposed class
period of October 24, 2013 to November 8, 2013. The Company filed an answer and affirmative defenses denying the remaining claims.
On February 26, 2016, the parties executed a Stipulation of Settlement to fully resolve the consolidated class action lawsuit,
and filed a motion seeking the Federal Court’s approval of the settlement. On March 28, 2016, the Court issued an order
preliminarily approving the settlement and providing for notice to class members. Following class notice and hearing, the Court
issued an order granting the motion for final approval of the settlement and plan of allocation and motion for an award of attorneys’
fees and case expenses on July 1, 2016. The Court’s Judgment approving the settlement on the terms set forth in the Stipulation
of Settlement was signed on July 2, 2016. The cost of the settlement was covered by the Company’s insurers.
On
October 27, 2015, a shareholder derivative lawsuit was filed in the California state court entitled
McArthur v Ghauri, et al.
,
Case No. BC599020 (Los Angeles, Cty.), naming current and former members of the Company’s board of directors as defendants.
The complaint alleges that the defendants breached their fiduciary duties based on the same alleged factual premise as the pending
federal securities class action described above. The Company is named as a nominal defendant only and no damages are sought from
it. On March 16, 2016, the parties in the California lawsuit reached an agreement-in-principle providing for the settlement of
that case. The proposed settlement is on the terms and conditions set forth in a Memorandum of Understanding (“MOU”).
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2017
(UNAUDITED)
On
December 30, 2015, a virtually identical shareholder derivative lawsuit was filed in Nevada state court,
Paulovits v. Ghauri,
et al.
, Case No. CV15-02470 (Washoe Cty.). The Nevada complaint names the same defendants and is based on the same alleged
facts as the earlier-filed California case. On April 29, 2016, the Company filed a motion to dismiss or stay the Nevada proceeding
on multiple grounds, including that is it duplicative of the first-filed California action. On May 23, 2016, pursuant to the parties’
stipulation, the Nevada court ordered that matter to be stayed for a period of one year.
On
June 15, 2016, the parties in the California and the Nevada cases jointly executed a Stipulation and Agreement of Settlement of
Derivative Claims, which is intended to fully resolve both cases. Pursuant to the stipulation and subject to the court’s
approval, the Company has agreed to adopt or maintain certain corporate governance measures, and has agreed to cause its insurers
to pay plaintiff counsel’s fees and expenses in an aggregate amount not to exceed $175,000. On June 16, 2016, the California
plaintiff filed a motion for preliminary approval of the derivative settlement. The motion for approval of the settlement was
continued by the California court until December 14, 2016. Effective January 9, 2017, the California Court issued a preliminary
order approving the settlement. A final approval hearing was scheduled for April 6, 2017. At the April 6, 2017 hearing, the Court
continued the hearing for at least 60 days. A hearing date has not yet been set.
NOTE
16 – 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 March 31, 2017 and June 30, 2016:
|
|
As
of
March 31, 2017
|
|
|
As
of
June 30, 2016
|
|
Identifiable
assets:
|
|
|
|
|
|
|
|
|
Corporate
headquarters
|
|
$
|
3,170,329
|
|
|
$
|
3,646,160
|
|
North
America
|
|
|
6,581,063
|
|
|
|
6,845,444
|
|
Europe
|
|
|
6,415,485
|
|
|
|
7,857,427
|
|
Asia
- Pacific
|
|
|
82,054,411
|
|
|
|
75,000,384
|
|
Consolidated
|
|
$
|
98,221,288
|
|
|
$
|
93,349,415
|
|
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2017
(UNAUDITED)
The
following table presents a summary of operating information for the three and nine months ended March 31:
|
|
For
the Three Months
|
|
|
For
the Nine Months
|
|
|
|
Ended
March 31,
|
|
|
Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Revenues
from unaffiliated customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
$
|
1,111,897
|
|
|
$
|
1,739,115
|
|
|
$
|
4,467,325
|
|
|
$
|
4,194,321
|
|
Europe
|
|
|
1,579,486
|
|
|
|
1,514,370
|
|
|
|
4,083,572
|
|
|
|
4,692,125
|
|
Asia
- Pacific
|
|
|
13,582,107
|
|
|
|
9,653,000
|
|
|
|
36,849,442
|
|
|
|
28,503,771
|
|
|
|
|
16,273,490
|
|
|
|
12,906,485
|
|
|
|
45,400,339
|
|
|
|
37,390,217
|
|
Revenue
from affiliated customers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
|
229,081
|
|
|
|
997,474
|
|
|
|
1,080,868
|
|
|
|
1,984,017
|
|
Asia
- Pacific
|
|
|
1,446,749
|
|
|
|
2,069,940
|
|
|
|
4,403,368
|
|
|
|
6,096,466
|
|
|
|
|
1,675,830
|
|
|
|
3,067,414
|
|
|
|
5,484,236
|
|
|
|
8,080,483
|
|
Consolidated
|
|
$
|
17,949,320
|
|
|
$
|
15,973,899
|
|
|
$
|
50,884,575
|
|
|
$
|
45,470,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany
revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
$
|
112,419
|
|
|
$
|
132,978
|
|
|
$
|
343,599
|
|
|
$
|
375,471
|
|
Asia
- Pacific
|
|
|
292,839
|
|
|
|
1,330,946
|
|
|
|
2,215,393
|
|
|
|
4,390,555
|
|
Eliminated
|
|
$
|
405,258
|
|
|
$
|
1,463,924
|
|
|
$
|
2,558,992
|
|
|
$
|
4,766,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) after taxes and before non-controlling interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
headquarters
|
|
$
|
(1,147,068
|
)
|
|
$
|
(1,160,828
|
)
|
|
$
|
(3,967,144
|
)
|
|
$
|
(2,350,656
|
)
|
North
America
|
|
|
(302,353
|
)
|
|
|
516,849
|
|
|
|
(105,595
|
)
|
|
|
97,089
|
|
Europe
|
|
|
(199,215
|
)
|
|
|
696,437
|
|
|
|
(997,867
|
)
|
|
|
42,267
|
|
Asia
- Pacific
|
|
|
3,786,853
|
|
|
|
1,104,156
|
|
|
|
6,215,196
|
|
|
|
4,906,849
|
|
Consolidated
|
|
$
|
2,138,217
|
|
|
$
|
1,156,614
|
|
|
$
|
1,144,590
|
|
|
$
|
2,695,549
|
|
The
following table presents a summary of capital expenditures for the nine months ended March 31:
|
|
For
the Nine Months
|
|
|
|
Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Capital
expenditures:
|
|
|
|
|
|
|
|
|
Corporate
headquarters
|
|
$
|
-
|
|
|
$
|
-
|
|
North
America
|
|
|
41,340
|
|
|
|
57,114
|
|
Europe
|
|
|
422,024
|
|
|
|
333,683
|
|
Asia
- Pacific
|
|
|
852,558
|
|
|
|
2,133,068
|
|
Consolidated
|
|
$
|
1,315,922
|
|
|
$
|
2,523,865
|
|
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2017
(UNAUDITED)
NOTE
17 – 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
March 31, 2017
|
|
|
|
|
|
|
|
|
NetSol
PK
|
|
|
33.70
|
%
|
|
$
|
12,657,960
|
|
NetSol-Innovation
|
|
|
49.90
|
%
|
|
|
2,583,427
|
|
VLS,
VLSH & VLSIL Combined
|
|
|
49.00
|
%
|
|
|
295,702
|
|
NetSol
Thai
|
|
|
0.006
|
%
|
|
|
(58
|
)
|
Total
|
|
|
|
|
|
$
|
15,537,031
|
|
SUBSIDIARY
|
|
Non-Controlling
Interest %
|
|
|
Non-Controlling
Interest at
June 30, 2016
|
|
|
|
|
|
|
|
|
NetSol
PK
|
|
|
33.40
|
%
|
|
$
|
10,292,495
|
|
NetSol-Innovation
|
|
|
49.90
|
%
|
|
|
2,735,998
|
|
VLS,
VLHS & VLSIL Combined
|
|
|
49.00
|
%
|
|
|
309,213
|
|
NetSol
Thai
|
|
|
0.006
|
%
|
|
|
(4
|
)
|
Total
|
|
|
|
|
|
$
|
13,337,702
|
|
NETSOL
TECHNOLOGIES, LIMITED
During
the nine months ended March 31, 2017, employees of NetSol PK exercised 347,500 options of common stock pursuant to employees exercising
stock options and NetSol PK received cash of $54,377, resulting in an increase in non-controlling interest from 33.40% to 33.70%.
During
the nine months ended March 31, 2017, NetSol PK declared a cash dividend of $425,988
.
NETSOL
INNOVATION
During
the nine months ended March 31, 2017, NetSol-Innovation declared a cash dividend of $1,669,199
.
NOTE
18 – INCOME TAXES
The
current tax provision is based on taxable income for the year determined in accordance with the prevailing law for taxation of
income. The charge for tax on income is calculated at the current rates of taxation as applicable after considering tax credit
and tax rebates available, if any. We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Our effective
tax rate is lower than the U.S. statutory rate primarily because of more earnings realized in countries that have lower statutory
tax rates. Our effective tax rate in the future will depend on the portion of our profits earned within and outside the United
States. Income from the export of computer software and its related services developed in Pakistan is exempt from tax up to 2019;
however, tax at the applicable rates is charged to the income from revenue generated from other than core business activities.
During
the three and nine months ended March 31, 2017, the Company recorded an income tax provision of $61,604 and $440,363, respectively
resulting in an effective tax rate of 2.8% and 27.8%, respectively. For the three and nine months ended March 31, 2016, the Company
recorded income tax provision of $106,209 and $454,707, respectively resulting in an effective tax rate of 8.4% and 14.4% respectively.
NOTE
19 – 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 Company determined that the Company's quarterly
financial statements for the quarters ended September 30, 2015, December 31, 2015, September 31, 2016 and December 31, 2016 should
no longer be relied upon.
On
August 31, 2015, the Company signed a consulting services agreement by which the Company would provide a model office at the customer’s
data center which would include a base installation of the Company’s NFS Ascent product, along with certain agreed upon
services. The Company received €1,800,000, approximately $2,024,000, as a non-refundable fee, which was received in two equal
payments. The Company then entered into a 10-year contract with the same customer on December 21, 2015. The Company recorded the
revenue for the model office in the periods that the cash was received. However, since the two contracts were with the same customer
and signed within a short period of time, and both contracts stipulate an offset of payments made for services provided for the
model office, the two contracts should have been combined and accounted for as a single contract. Revenue was recognized on the
percentage-of-completion method in accordance with Accounting Standards Codification (“ASC”) 605-35 for this arrangement.
As a result, for the quarter ended September 30, 2015, license revenue was overstated by $591,119 and for the quarter ended December
31, 2015 license revenue was understated by $406,146.
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 $88,888, $96,085, and $120,976 for the quarters ended September
30, 2015, December 31, 2015, and September 30, 2016, respectively. Maintenance revenue was overstated by $198,797 for the quarter
ended December 31, 2016.
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2017
(UNAUDITED)
|
|
Balance
Sheet
|
|
|
|
As
of September 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
Originally
|
|
|
Amount
of
|
|
|
|
|
|
|
Presented
|
|
|
Restatement
|
|
|
As
Restated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
10,075,324
|
|
|
|
|
|
|
$
|
10,075,324
|
|
Restricted
cash
|
|
|
90,000
|
|
|
|
|
|
|
|
90,000
|
|
Accounts
receivable, net of allowance of $518,657 and $524,565
|
|
|
7,485,807
|
|
|
|
|
|
|
|
7,485,807
|
|
Accounts
receivable, net - related party
|
|
|
4,409,186
|
|
|
|
|
|
|
|
4,409,186
|
|
Revenues
in excess of billings
|
|
|
6,560,754
|
|
|
|
(591,119
|
)
|
|
|
5,969,635
|
|
Other
current assets
|
|
|
2,279,083
|
|
|
|
|
|
|
|
2,279,083
|
|
Total
current assets
|
|
|
30,900,154
|
|
|
|
(591,119
|
)
|
|
|
30,309,035
|
|
Property
and equipment, net
|
|
|
24,053,908
|
|
|
|
|
|
|
|
24,053,908
|
|
Intangible
assets, net
|
|
|
21,837,105
|
|
|
|
|
|
|
|
21,837,105
|
|
Goodwill
|
|
|
9,516,568
|
|
|
|
|
|
|
|
9,516,568
|
|
Total
assets
|
|
$
|
86,307,735
|
|
|
$
|
(591,119
|
)
|
|
$
|
85,716,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
5,030,352
|
|
|
|
|
|
|
$
|
5,030,352
|
|
Current
portion of loans and obligations under capitalized leases
|
|
|
4,241,836
|
|
|
|
|
|
|
|
4,241,836
|
|
Unearned
revenues
|
|
|
4,302,524
|
|
|
|
(88,888
|
)
|
|
|
4,213,636
|
|
Common
stock to be issued
|
|
|
88,324
|
|
|
|
|
|
|
|
88,324
|
|
Total
current liabilities
|
|
|
13,663,036
|
|
|
|
(88,888
|
)
|
|
|
13,574,148
|
|
Long
term loans and obligations under capitalized leases;
less current maturities
|
|
|
329,834
|
|
|
|
|
|
|
|
329,834
|
|
Total
liabilities
|
|
|
13,992,870
|
|
|
|
(88,888
|
)
|
|
|
13,903,982
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock, $.01 par value; 500,000 shares authorized;
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Common
stock, $.01 par value; 14,500,000 shares authorized; 10,322,826 shares issued and 10,295,547 outstanding as of September 30,
2015 and 10,307,826 shares issued and 10,280,547 outstanding as of June 30, 2015
|
|
|
103,228
|
|
|
|
|
|
|
|
103,228
|
|
Additional
paid-in-capital
|
|
|
119,287,407
|
|
|
|
|
|
|
|
119,287,407
|
|
Treasury
stock (27,279 shares)
|
|
|
(415,425
|
)
|
|
|
|
|
|
|
(415,425
|
)
|
Accumulated
deficit
|
|
|
(41,137,149
|
)
|
|
|
(326,952
|
)
|
|
|
(41,464,101
|
)
|
Stock
subscription receivable
|
|
|
(1,139,672
|
)
|
|
|
|
|
|
|
(1,139,672
|
)
|
Other
comprehensive loss
|
|
|
(18,130,300
|
)
|
|
|
|
|
|
|
(18,130,300
|
)
|
Total
NetSol stockholders’ equity
|
|
|
58,568,089
|
|
|
|
(326,952
|
)
|
|
|
58,241,137
|
|
Non-controlling
interest
|
|
|
13,746,776
|
|
|
|
(175,279
|
)
|
|
|
13,571,497
|
|
Total
stockholders’ equity
|
|
|
72,314,865
|
|
|
|
(502,231
|
)
|
|
|
71,812,634
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
86,307,735
|
|
|
$
|
(591,119
|
)
|
|
$
|
85,716,616
|
|
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2017
(UNAUDITED)
|
|
For
the Three Months
|
|
|
|
Ended
September 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
Originally
|
|
|
Amount
of
|
|
|
|
|
|
|
Presented
|
|
|
Restatement
|
|
|
As
Restated
|
|
Net
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
License
fees
|
|
$
|
1,193,354
|
|
|
$
|
(591,119
|
)
|
|
$
|
602,235
|
|
Maintenance
fees
|
|
|
3,012,238
|
|
|
|
88,888
|
|
|
|
3,101,126
|
|
Services
|
|
|
6,753,873
|
|
|
|
|
|
|
|
6,753,873
|
|
Maintenance
fees - related party
|
|
|
158,231
|
|
|
|
|
|
|
|
158,231
|
|
Services
- related party
|
|
|
2,187,408
|
|
|
|
|
|
|
|
2,187,408
|
|
Total
net revenues
|
|
|
13,305,104
|
|
|
|
(502,231
|
)
|
|
|
12,802,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and consultants
|
|
|
4,999,890
|
|
|
|
|
|
|
|
4,999,890
|
|
Travel
|
|
|
481,453
|
|
|
|
|
|
|
|
481,453
|
|
Depreciation
and amortization
|
|
|
1,474,235
|
|
|
|
|
|
|
|
1,474,235
|
|
Other
|
|
|
938,797
|
|
|
|
|
|
|
|
938,797
|
|
Total
cost of revenues
|
|
|
7,894,375
|
|
|
|
-
|
|
|
|
7,894,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
5,410,729
|
|
|
|
(502,231
|
)
|
|
|
4,908,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
and marketing
|
|
|
1,698,404
|
|
|
|
|
|
|
|
1,698,404
|
|
Depreciation
and amortization
|
|
|
291,172
|
|
|
|
|
|
|
|
291,172
|
|
General
and administrative
|
|
|
3,366,047
|
|
|
|
|
|
|
|
3,366,047
|
|
Research
and development cost
|
|
|
112,070
|
|
|
|
|
|
|
|
112,070
|
|
Total
operating expenses
|
|
|
5,467,693
|
|
|
|
-
|
|
|
|
5,467,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(56,964
|
)
|
|
|
(502,231
|
)
|
|
|
(559,195
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income and (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
on sale of assets
|
|
|
(11,873
|
)
|
|
|
|
|
|
|
(11,873
|
)
|
Interest
expense
|
|
|
(68,173
|
)
|
|
|
|
|
|
|
(68,173
|
)
|
Interest
income
|
|
|
52,112
|
|
|
|
|
|
|
|
52,112
|
|
Loss
on foreign currency exchange transactions
|
|
|
(113,719
|
)
|
|
|
|
|
|
|
(113,719
|
)
|
Other
income
|
|
|
54,314
|
|
|
|
|
|
|
|
54,314
|
|
Total
other income (expenses)
|
|
|
(87,339
|
)
|
|
|
-
|
|
|
|
(87,339
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss before income taxes
|
|
|
(144,303
|
)
|
|
|
(502,231
|
)
|
|
|
(646,534
|
)
|
Income
tax provision
|
|
|
(75,223
|
)
|
|
|
|
|
|
|
(75,223
|
)
|
Net
loss
|
|
|
(219,526
|
)
|
|
|
(502,231
|
)
|
|
|
(721,757
|
)
|
Non-controlling
interest
|
|
|
(191,502
|
)
|
|
|
175,279
|
|
|
|
(16,223
|
)
|
Net
loss attributable to NetSol
|
|
$
|
(411,028
|
)
|
|
$
|
(326,952
|
)
|
|
$
|
(737,980
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.04
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.07
|
)
|
Diluted
|
|
$
|
(0.04
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
10,281,335
|
|
|
|
10,281,335
|
|
|
|
10,281,335
|
|
Diluted
|
|
|
10,281,335
|
|
|
|
10,281,335
|
|
|
|
10,281,335
|
|
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2017
(UNAUDITED)
|
|
For
the Three Months
|
|
|
|
Ended
September 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
Originally
|
|
|
Amount
of
|
|
|
|
|
|
|
Presented
|
|
|
Restatement
|
|
|
As
Restated
|
|
Net
loss
|
|
$
|
(411,028
|
)
|
|
$
|
(326,952
|
)
|
|
$
|
(737,980
|
)
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation
adjustment
|
|
|
(1,248,567
|
)
|
|
|
-
|
|
|
|
(1,248,567
|
)
|
Comprehensive
income (loss)
|
|
|
(1,659,595
|
)
|
|
|
(326,952
|
)
|
|
|
(1,986,547
|
)
|
Comprehensive
income (loss) attributable to non-controlling interest
|
|
|
(285,367
|
)
|
|
|
-
|
|
|
|
(285,367
|
)
|
Comprehensive
income (loss) attributable to NetSol
|
|
$
|
(1,374,228
|
)
|
|
$
|
(326,952
|
)
|
|
$
|
(1,701,180
|
)
|
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2017
(UNAUDITED)
|
|
For
the Three Months
|
|
|
|
Ended
September 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
Originally
|
|
|
Amount
of
|
|
|
|
|
|
|
Presented
|
|
|
Restatement
|
|
|
As
Restated
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(219,526
|
)
|
|
$
|
(502,231
|
)
|
|
$
|
(721,757
|
)
|
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
1,765,407
|
|
|
|
|
|
|
|
1,765,407
|
|
Provision
for bad debts
|
|
|
36,780
|
|
|
|
|
|
|
|
36,780
|
|
Loss
on sale of assets
|
|
|
11,873
|
|
|
|
|
|
|
|
11,873
|
|
Stock
issued for services
|
|
|
77,750
|
|
|
|
|
|
|
|
77,750
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(1,268,570
|
)
|
|
|
|
|
|
|
(1,268,570
|
)
|
Accounts
receivable - related party
|
|
|
(975,266
|
)
|
|
|
|
|
|
|
(975,266
|
)
|
Revenues
in excess of billing
|
|
|
(773,583
|
)
|
|
|
591,119
|
|
|
|
(182,464
|
)
|
Revenues
in excess of billing - related party
|
|
|
(138,926
|
)
|
|
|
|
|
|
|
(138,926
|
)
|
Other
current assets
|
|
|
(322,533
|
)
|
|
|
|
|
|
|
(322,533
|
)
|
Accounts
payable and accrued expenses
|
|
|
(833,638
|
)
|
|
|
|
|
|
|
(833,638
|
)
|
Unearned
revenue
|
|
|
(538,259
|
)
|
|
|
(88,888
|
)
|
|
|
(627,147
|
)
|
Net
cash used in operating activities
|
|
|
(3,178,491
|
)
|
|
|
-
|
|
|
|
(3,178,491
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(625,794
|
)
|
|
|
|
|
|
|
(625,794
|
)
|
Sales
of property and equipment
|
|
|
180,258
|
|
|
|
|
|
|
|
180,258
|
|
Net
cash used in investing activities
|
|
|
(445,536
|
)
|
|
|
-
|
|
|
|
(445,536
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sale of common stock
|
|
|
64,931
|
|
|
|
|
|
|
|
64,931
|
|
Proceeds
from bank loans
|
|
|
437,070
|
|
|
|
|
|
|
|
437,070
|
|
Payments
on capital lease obligations and loans - net
|
|
|
(174,385
|
)
|
|
|
|
|
|
|
(174,385
|
)
|
Net
cash provided by financing activities
|
|
|
327,616
|
|
|
|
-
|
|
|
|
327,616
|
|
Effect
of exchange rate changes
|
|
|
(797,222
|
)
|
|
|
|
|
|
|
(797,222
|
)
|
Net
decrease in cash and cash equivalents
|
|
|
(4,093,633
|
)
|
|
|
-
|
|
|
|
(4,093,633
|
)
|
Cash
and cash equivalents, beginning of the period
|
|
|
14,168,957
|
|
|
|
|
|
|
|
14,168,957
|
|
Cash
and cash equivalents, end of period
|
|
$
|
10,075,324
|
|
|
$
|
-
|
|
|
$
|
10,075,324
|
|
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2017
(UNAUDITED)
|
|
Balance
Sheet
As
of December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
Originally
|
|
|
Amount
of
|
|
|
|
|
|
|
Presented
|
|
|
Restatement
|
|
|
As
Restated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
13,986,773
|
|
|
|
|
|
|
$
|
13,986,773
|
|
Restricted
cash
|
|
|
90,000
|
|
|
|
|
|
|
|
90,000
|
|
Accounts
receivable, net of allowance of $487,937 and $524,565
|
|
|
6,025,334
|
|
|
|
|
|
|
|
6,025,334
|
|
Accounts
receivable, net - related party
|
|
|
5,749,523
|
|
|
|
|
|
|
|
5,749,523
|
|
Revenues
in excess of billings
|
|
|
5,061,568
|
|
|
|
(184,973
|
)
|
|
|
4,876,595
|
|
Other
current assets
|
|
|
2,671,613
|
|
|
|
|
|
|
|
2,671,613
|
|
Total
current assets
|
|
|
33,584,811
|
|
|
|
(184,973
|
)
|
|
|
33,399,838
|
|
Property
and equipment, net
|
|
|
23,251,920
|
|
|
|
|
|
|
|
23,251,920
|
|
Intangible
assets, net
|
|
|
20,877,711
|
|
|
|
|
|
|
|
20,877,711
|
|
Goodwill
|
|
|
9,516,568
|
|
|
|
|
|
|
|
9,516,568
|
|
Total
assets
|
|
$
|
87,231,010
|
|
|
$
|
(184,973
|
)
|
|
$
|
87,046,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
5,907,103
|
|
|
|
|
|
|
$
|
5,907,103
|
|
Current
portion of loans and obligations under capitalized leases
|
|
|
3,767,193
|
|
|
|
|
|
|
|
3,767,193
|
|
Unearned
revenues
|
|
|
3,546,819
|
|
|
|
(184,973
|
)
|
|
|
3,361,846
|
|
Common
stock to be issued
|
|
|
88,324
|
|
|
|
|
|
|
|
88,324
|
|
Total
current liabilities
|
|
|
13,309,439
|
|
|
|
(184,973
|
)
|
|
|
13,124,466
|
|
Long
term loans and obligations under capitalized leases;
less current maturities
|
|
|
273,109
|
|
|
|
|
|
|
|
273,109
|
|
Total
liabilities
|
|
|
13,582,548
|
|
|
|
(184,973
|
)
|
|
|
13,397,575
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock, $.01 par value; 500,000 shares authorized;
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Common
stock, $.01 par value; 14,500,000 shares authorized; 10,418,350 shares issued and 10,391,071 outstanding as of December 31,
2015 and 10,307,826 shares issued and 10,280,547 outstanding as of June 30, 2015
|
|
|
104,184
|
|
|
|
|
|
|
|
104,184
|
|
Additional
paid-in-capital
|
|
|
119,890,798
|
|
|
|
|
|
|
|
119,890,798
|
|
Treasury
stock (27,279 shares)
|
|
|
(415,425
|
)
|
|
|
|
|
|
|
(415,425
|
)
|
Accumulated
deficit
|
|
|
(40,262,084
|
)
|
|
|
|
|
|
|
(40,262,084
|
)
|
Stock
subscription receivable
|
|
|
(1,139,672
|
)
|
|
|
|
|
|
|
(1,139,672
|
)
|
Other
comprehensive loss
|
|
|
(18,546,296
|
)
|
|
|
|
|
|
|
(18,546,296
|
)
|
Total
NetSol stockholders’ equity
|
|
|
59,631,505
|
|
|
|
-
|
|
|
|
59,631,505
|
|
Non-controlling
interest
|
|
|
14,016,957
|
|
|
|
|
|
|
|
14,016,957
|
|
Total
stockholders’ equity
|
|
|
73,648,462
|
|
|
|
-
|
|
|
|
73,648,462
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
87,231,010
|
|
|
$
|
(184,973
|
)
|
|
$
|
87,046,037
|
|
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2017
(UNAUDITED)
|
|
For
the Three Months
|
|
|
For
the Six Months
|
|
|
|
Ended
December 31, 2015
|
|
|
Ended
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
Originally
|
|
|
Amount
of
|
|
|
As
|
|
|
As
Originally
|
|
|
Amount
of
|
|
|
As
|
|
|
|
Presented
|
|
|
Restatement
|
|
|
Restated
|
|
|
Presented
|
|
|
Restatement
|
|
|
Restated
|
|
Net
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License
fees
|
|
$
|
709,691
|
|
|
$
|
406,146
|
|
|
$
|
1,115,837
|
|
|
$
|
1,903,045
|
|
|
$
|
(184,973
|
)
|
|
$
|
1,718,072
|
|
Maintenance
fees
|
|
|
3,240,472
|
|
|
|
96,085
|
|
|
|
3,336,557
|
|
|
|
6,252,710
|
|
|
|
184,973
|
|
|
|
6,437,683
|
|
Services
|
|
|
9,574,104
|
|
|
|
|
|
|
|
9,574,104
|
|
|
|
16,327,977
|
|
|
|
|
|
|
|
16,327,977
|
|
Maintenance
fees - related party
|
|
|
31,755
|
|
|
|
|
|
|
|
31,755
|
|
|
|
189,986
|
|
|
|
|
|
|
|
189,986
|
|
Services
- related party
|
|
|
2,635,675
|
|
|
|
|
|
|
|
2,635,675
|
|
|
|
4,823,083
|
|
|
|
|
|
|
|
4,823,083
|
|
Total
net revenues
|
|
|
16,191,697
|
|
|
|
502,231
|
|
|
|
16,693,928
|
|
|
|
29,496,801
|
|
|
|
-
|
|
|
|
29,496,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and consultants
|
|
|
4,925,565
|
|
|
|
|
|
|
|
4,925,565
|
|
|
|
9,925,455
|
|
|
|
|
|
|
|
9,925,455
|
|
Travel
|
|
|
754,009
|
|
|
|
|
|
|
|
754,009
|
|
|
|
1,235,462
|
|
|
|
|
|
|
|
1,235,462
|
|
Depreciation
and amortization
|
|
|
1,461,466
|
|
|
|
|
|
|
|
1,461,466
|
|
|
|
2,935,701
|
|
|
|
|
|
|
|
2,935,701
|
|
Other
|
|
|
1,022,682
|
|
|
|
|
|
|
|
1,022,682
|
|
|
|
1,961,479
|
|
|
|
|
|
|
|
1,961,479
|
|
Total
cost of revenues
|
|
|
8,163,722
|
|
|
|
-
|
|
|
|
8,163,722
|
|
|
|
16,058,097
|
|
|
|
-
|
|
|
|
16,058,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
8,027,975
|
|
|
|
502,231
|
|
|
|
8,530,206
|
|
|
|
13,438,704
|
|
|
|
-
|
|
|
|
13,438,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
and marketing
|
|
|
2,002,990
|
|
|
|
|
|
|
|
2,002,990
|
|
|
|
3,701,394
|
|
|
|
|
|
|
|
3,701,394
|
|
Depreciation
and amortization
|
|
|
285,616
|
|
|
|
|
|
|
|
285,616
|
|
|
|
576,788
|
|
|
|
|
|
|
|
576,788
|
|
General
and administrative
|
|
|
3,536,676
|
|
|
|
|
|
|
|
3,536,676
|
|
|
|
6,902,723
|
|
|
|
|
|
|
|
6,902,723
|
|
Research
and development cost
|
|
|
117,924
|
|
|
|
|
|
|
|
117,924
|
|
|
|
229,994
|
|
|
|
|
|
|
|
229,994
|
|
Total
operating expenses
|
|
|
5,943,206
|
|
|
|
-
|
|
|
|
5,943,206
|
|
|
|
11,410,899
|
|
|
|
-
|
|
|
|
11,410,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
2,084,769
|
|
|
|
502,231
|
|
|
|
2,587,000
|
|
|
|
2,027,805
|
|
|
|
-
|
|
|
|
2,027,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income and (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
on sale of assets
|
|
|
(2,333
|
)
|
|
|
|
|
|
|
(2,333
|
)
|
|
|
(14,206
|
)
|
|
|
|
|
|
|
(14,206
|
)
|
Interest
expense
|
|
|
(72,156
|
)
|
|
|
|
|
|
|
(72,156
|
)
|
|
|
(140,329
|
)
|
|
|
|
|
|
|
(140,329
|
)
|
Interest
income
|
|
|
35,299
|
|
|
|
|
|
|
|
35,299
|
|
|
|
87,411
|
|
|
|
|
|
|
|
87,411
|
|
Loss
on foreign currency exchange transactions
|
|
|
(134,527
|
)
|
|
|
|
|
|
|
(134,527
|
)
|
|
|
(248,246
|
)
|
|
|
|
|
|
|
(248,246
|
)
|
Other
income
|
|
|
120,684
|
|
|
|
|
|
|
|
120,684
|
|
|
|
174,998
|
|
|
|
|
|
|
|
174,998
|
|
Total
other income (expenses)
|
|
|
(53,033
|
)
|
|
|
-
|
|
|
|
(53,033
|
)
|
|
|
(140,372
|
)
|
|
|
-
|
|
|
|
(140,372
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (loss) before income taxes
|
|
|
2,031,736
|
|
|
|
502,231
|
|
|
|
2,533,967
|
|
|
|
1,887,433
|
|
|
|
-
|
|
|
|
1,887,433
|
|
Income
tax provision
|
|
|
(273,275
|
)
|
|
|
|
|
|
|
(273,275
|
)
|
|
|
(348,498
|
)
|
|
|
|
|
|
|
(348,498
|
)
|
Net
income (loss) from continuing operations
|
|
|
1,758,461
|
|
|
|
502,231
|
|
|
|
2,260,692
|
|
|
|
1,538,935
|
|
|
|
-
|
|
|
|
1,538,935
|
|
Non-controlling
interest
|
|
|
(883,396
|
)
|
|
|
(175,279
|
)
|
|
|
(1,058,675
|
)
|
|
|
(1,074,898
|
)
|
|
|
-
|
|
|
|
(1,074,898
|
)
|
Net
Income (loss) attributable to NetSol
|
|
$
|
875,065
|
|
|
$
|
326,952
|
|
|
$
|
1,202,017
|
|
|
$
|
464,037
|
|
|
$
|
-
|
|
|
$
|
464,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.08
|
|
|
$
|
0.04
|
|
|
$
|
0.12
|
|
|
$
|
0.05
|
|
|
$
|
-
|
|
|
$
|
0.05
|
|
Diluted
|
|
$
|
0.08
|
|
|
$
|
0.03
|
|
|
$
|
0.11
|
|
|
$
|
0.04
|
|
|
$
|
-
|
|
|
$
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
10,308,186
|
|
|
|
10,308,186
|
|
|
|
10,308,186
|
|
|
|
10,294,760
|
|
|
|
10,294,760
|
|
|
|
10,294,760
|
|
Diluted
|
|
|
10,548,922
|
|
|
|
10,548,922
|
|
|
|
10,548,922
|
|
|
|
10,535,496
|
|
|
|
10,535,496
|
|
|
|
10,535,496
|
|
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2017
(UNAUDITED)
|
|
For
the Three Months
|
|
|
|
Ended
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
Originally
|
|
|
Amount
of
|
|
|
|
|
|
|
Presented
|
|
|
Restatement
|
|
|
As
Restated
|
|
Net
income
|
|
$
|
875,065
|
|
|
$
|
326,952
|
|
|
$
|
1,202,017
|
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation
adjustment
|
|
|
(665,906
|
)
|
|
|
-
|
|
|
|
(665,906
|
)
|
Comprehensive
income (loss)
|
|
|
209,159
|
|
|
|
326,952
|
|
|
|
536,111
|
|
Comprehensive
income (loss) attributable to non-controlling interest
|
|
|
(249,910
|
)
|
|
|
-
|
|
|
|
(249,910
|
)
|
Comprehensive
income attributable to NetSol
|
|
$
|
459,069
|
|
|
$
|
326,952
|
|
|
$
|
786,021
|
|
|
|
For
the Six Months
|
|
|
|
Ended
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
Originally
|
|
|
Amount
of
|
|
|
|
|
|
|
Presented
|
|
|
Restatement
|
|
|
As
Restated
|
|
Net
income (loss)
|
|
$
|
464,037
|
|
|
$
|
-
|
|
|
$
|
464,037
|
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation
adjustment
|
|
|
(1,914,473
|
)
|
|
|
-
|
|
|
|
(1,914,473
|
)
|
Comprehensive
income (loss)
|
|
|
(1,450,436
|
)
|
|
|
-
|
|
|
|
(1,450,436
|
)
|
Comprehensive
income (loss) attributable to non-controlling interest
|
|
|
(535,277
|
)
|
|
|
-
|
|
|
|
(535,277
|
)
|
Comprehensive
income (loss) attributable to NetSol
|
|
$
|
(915,159
|
)
|
|
$
|
-
|
|
|
$
|
(915,159
|
)
|
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2017
(UNAUDITED
)
|
|
For
the Six Months
|
|
|
|
Ended
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
Originally
|
|
|
Amount
of
|
|
|
|
|
|
|
Presented
|
|
|
Restatement
|
|
|
As
Restated
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
1,538,935
|
|
|
|
|
|
|
$
|
1,538,935
|
|
Adjustments
to reconcile net income (loss) to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
3,512,489
|
|
|
|
|
|
|
|
3,512,489
|
|
Provision
for bad debts
|
|
|
37,043
|
|
|
|
|
|
|
|
37,043
|
|
Loss
on sale of assets
|
|
|
14,206
|
|
|
|
|
|
|
|
14,206
|
|
Stock
issued for services
|
|
|
326,019
|
|
|
|
|
|
|
|
326,019
|
|
Fair
market value of warrants and stock options granted
|
|
|
145,716
|
|
|
|
|
|
|
|
145,716
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
111,967
|
|
|
|
|
|
|
|
111,967
|
|
Accounts
receivable - related party
|
|
|
(2,383,828
|
)
|
|
|
|
|
|
|
(2,383,828
|
)
|
Revenues
in excess of billing
|
|
|
535,937
|
|
|
|
184,973
|
|
|
|
720,910
|
|
Other
current assets
|
|
|
(758,802
|
)
|
|
|
|
|
|
|
(758,802
|
)
|
Accounts
payable and accrued expenses
|
|
|
142,008
|
|
|
|
|
|
|
|
142,008
|
|
Unearned
revenue
|
|
|
(1,190,072
|
)
|
|
|
(184,973
|
)
|
|
|
(1,375,045
|
)
|
Net
cash provided by operating activities
|
|
|
2,031,618
|
|
|
|
-
|
|
|
|
2,031,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(1,177,443
|
)
|
|
|
|
|
|
|
(1,177,443
|
)
|
Sales
of property and equipment
|
|
|
357,933
|
|
|
|
|
|
|
|
357,933
|
|
Purchase
of subsidiary shares from open market
|
|
|
(347,623
|
)
|
|
|
-
|
|
|
|
(347,623
|
)
|
Net
cash used in investing activities
|
|
|
(1,167,133
|
)
|
|
|
-
|
|
|
|
(1,167,133
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sale of common stock
|
|
|
64,931
|
|
|
|
|
|
|
|
64,931
|
|
Proceeds
from the exercise of stock options and warrants
|
|
|
194,680
|
|
|
|
|
|
|
|
194,680
|
|
Proceeds
from bank loans
|
|
|
306,750
|
|
|
|
|
|
|
|
306,750
|
|
Payments
on capital lease obligations and loans - net
|
|
|
(530,733
|
)
|
|
|
|
|
|
|
(530,733
|
)
|
Net
cash provided by financing activities
|
|
|
35,628
|
|
|
|
-
|
|
|
|
35,628
|
|
Effect
of exchange rate changes
|
|
|
(1,082,297
|
)
|
|
|
|
|
|
|
(1,082,297
|
)
|
Net
decrease in cash and cash equivalents
|
|
|
(182,184
|
)
|
|
|
-
|
|
|
|
(182,184
|
)
|
Cash
and cash equivalents, beginning of the period
|
|
|
14,168,957
|
|
|
|
|
|
|
|
14,168,957
|
|
Cash
and cash equivalents, end of period
|
|
$
|
13,986,773
|
|
|
$
|
-
|
|
|
$
|
13,986,773
|
|
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2017
(UNAUDITED
)
|
|
Balance
Sheet
|
|
|
|
As
of September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
Originally
|
|
|
Amount
of
|
|
|
|
|
|
|
Presented
|
|
|
Restatement
|
|
|
As
Restated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
11,156,437
|
|
|
|
|
|
|
$
|
11,156,437
|
|
Accounts
receivable, net of allowance of $500,853 and $492,498
|
|
|
7,142,255
|
|
|
|
|
|
|
|
7,142,255
|
|
Accounts
receivable, net - related party
|
|
|
5,384,573
|
|
|
|
|
|
|
|
5,384,573
|
|
Revenues
in excess of billings
|
|
|
13,358,858
|
|
|
|
2,074,911
|
|
|
|
15,433,769
|
|
Revenues
in excess of billings - related party
|
|
|
682,049
|
|
|
|
|
|
|
|
682,049
|
|
Other
current assets
|
|
|
3,192,425
|
|
|
|
|
|
|
|
3,192,425
|
|
Total
current assets
|
|
|
40,916,597
|
|
|
|
2,074,911
|
|
|
|
42,991,508
|
|
Restricted
cash
|
|
|
90,000
|
|
|
|
|
|
|
|
90,000
|
|
Property
and equipment, net
|
|
|
22,612,752
|
|
|
|
|
|
|
|
22,612,752
|
|
Other
assets
|
|
|
1,604,731
|
|
|
|
|
|
|
|
1,604,731
|
|
Intangible
assets, net
|
|
|
19,326,259
|
|
|
|
|
|
|
|
19,326,259
|
|
Goodwill
|
|
|
9,516,568
|
|
|
|
|
|
|
|
9,516,568
|
|
Total
assets
|
|
$
|
94,066,907
|
|
|
$
|
2,074,911
|
|
|
$
|
96,141,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
6,389,128
|
|
|
|
|
|
|
$
|
6,389,128
|
|
Current
portion of loans and obligations under capitalized leases
|
|
|
4,408,173
|
|
|
|
|
|
|
|
4,408,173
|
|
Unearned
revenues
|
|
|
4,419,692
|
|
|
|
|
|
|
|
4,419,692
|
|
Common
stock to be issued
|
|
|
88,324
|
|
|
|
|
|
|
|
88,324
|
|
Total
current liabilities
|
|
|
15,305,317
|
|
|
|
-
|
|
|
|
15,305,317
|
|
Long
term loans and obligations under capitalized leases;
less current maturities
|
|
|
539,859
|
|
|
|
|
|
|
|
539,859
|
|
Total
liabilities
|
|
|
15,845,176
|
|
|
|
-
|
|
|
|
15,845,176
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock, $.01 par value; 500,000 shares authorized;
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Common
stock, $.01 par value; 14,500,000 shares authorized; 10,882,281 shares issued and 10,855,002 outstanding as of September 30,
2016 and 10,713,372 shares issued and 10,686,093 outstanding as of June 30, 2016
|
|
|
108,823
|
|
|
|
|
|
|
|
108,823
|
|
Additional
paid-in-capital
|
|
|
122,367,231
|
|
|
|
|
|
|
|
122,367,231
|
|
Treasury
stock (27,279 shares)
|
|
|
(415,425
|
)
|
|
|
|
|
|
|
(415,425
|
)
|
Accumulated
deficit
|
|
|
(39,089,079
|
)
|
|
|
1,379,608
|
|
|
|
(37,709,471
|
)
|
Stock
subscription receivable
|
|
|
(602,811
|
)
|
|
|
|
|
|
|
(602,811
|
)
|
Other
comprehensive loss
|
|
|
(17,960,133
|
)
|
|
|
|
|
|
|
(17,960,133
|
)
|
Total
NetSol stockholders’ equity
|
|
|
64,408,606
|
|
|
|
1,379,608
|
|
|
|
65,788,214
|
|
Non-controlling
interest
|
|
|
13,813,125
|
|
|
|
695,303
|
|
|
|
14,508,428
|
|
Total
stockholders’ equity
|
|
|
78,221,731
|
|
|
|
2,074,911
|
|
|
|
80,296,642
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
94,066,907
|
|
|
$
|
2,074,911
|
|
|
$
|
96,141,818
|
|
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2017
(UNAUDITED
)
|
|
For
the Three Months
|
|
|
|
Ended
September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
Originally
|
|
|
Amount
of
|
|
|
|
|
|
|
Presented
|
|
|
Restatement
|
|
|
As
Restated
|
|
Net
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
License
fees
|
|
$
|
3,499,860
|
|
|
$
|
1,953,935
|
|
|
$
|
5,453,795
|
|
Maintenance
fees
|
|
|
3,402,821
|
|
|
|
120,976
|
|
|
|
3,523,797
|
|
Services
|
|
|
5,806,717
|
|
|
|
|
|
|
|
5,806,717
|
|
License
fees - related party
|
|
|
246,957
|
|
|
|
|
|
|
|
246,957
|
|
Maintenance
fees - related party
|
|
|
130,631
|
|
|
|
|
|
|
|
130,631
|
|
Services
- related party
|
|
|
1,914,572
|
|
|
|
|
|
|
|
1,914,572
|
|
Total
net revenues
|
|
|
15,001,558
|
|
|
|
2,074,911
|
|
|
|
17,076,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and consultants
|
|
|
5,893,349
|
|
|
|
|
|
|
|
5,893,349
|
|
Travel
|
|
|
711,895
|
|
|
|
|
|
|
|
711,895
|
|
Depreciation
and amortization
|
|
|
1,330,872
|
|
|
|
|
|
|
|
1,330,872
|
|
Other
|
|
|
972,338
|
|
|
|
|
|
|
|
972,338
|
|
Total
cost of revenues
|
|
|
8,908,454
|
|
|
|
-
|
|
|
|
8,908,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
6,093,104
|
|
|
|
2,074,911
|
|
|
|
8,168,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
and marketing
|
|
|
2,411,136
|
|
|
|
|
|
|
|
2,411,136
|
|
Depreciation
and amortization
|
|
|
269,097
|
|
|
|
|
|
|
|
269,097
|
|
General
and administrative
|
|
|
4,552,098
|
|
|
|
|
|
|
|
4,552,098
|
|
Research
and development cost
|
|
|
92,932
|
|
|
|
|
|
|
|
92,932
|
|
Total
operating expenses
|
|
|
7,325,263
|
|
|
|
-
|
|
|
|
7,325,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
|
(1,232,159
|
)
|
|
|
2,074,911
|
|
|
|
842,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income and (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
on sale of assets
|
|
|
(2,403
|
)
|
|
|
|
|
|
|
(2,403
|
)
|
Interest
expense
|
|
|
(54,475
|
)
|
|
|
|
|
|
|
(54,475
|
)
|
Interest
income
|
|
|
30,440
|
|
|
|
|
|
|
|
30,440
|
|
Loss
on foreign currency exchange transactions
|
|
|
(414,896
|
)
|
|
|
|
|
|
|
(414,896
|
)
|
Other
income
|
|
|
21,560
|
|
|
|
|
|
|
|
21,560
|
|
Total
other income (expenses)
|
|
|
(419,774
|
)
|
|
|
-
|
|
|
|
(419,774
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) before income taxes
|
|
|
(1,651,933
|
)
|
|
|
2,074,911
|
|
|
|
422,978
|
|
Income
tax provision
|
|
|
(39,875
|
)
|
|
|
|
|
|
|
(39,875
|
)
|
Net
income (loss)
|
|
|
(1,691,808
|
)
|
|
|
2,074,911
|
|
|
|
383,103
|
|
Non-controlling
interest
|
|
|
(73,911
|
)
|
|
|
(695,303
|
)
|
|
|
(769,214
|
)
|
Net
income (loss) attributable to NetSol
|
|
$
|
(1,765,719
|
)
|
|
$
|
1,379,608
|
|
|
$
|
(386,111
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.17
|
)
|
|
$
|
0.14
|
|
|
$
|
(0.04
|
)
|
Diluted
|
|
$
|
(0.17
|
)
|
|
$
|
0.14
|
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
10,697,425
|
|
|
|
10,697,425
|
|
|
|
10,697,425
|
|
Diluted
|
|
|
10,697,425
|
|
|
|
10,697,425
|
|
|
|
10,697,425
|
|
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2017
(UNAUDITED
)
|
|
For
the Three Months
|
|
|
|
Ended
September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
Originally
|
|
|
Amount
of
|
|
|
|
|
|
|
Presented
|
|
|
Restatement
|
|
|
As
Restated
|
|
Net
income (loss)
|
|
$
|
(1,765,719
|
)
|
|
$
|
1,379,608
|
|
|
$
|
(386,111
|
)
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation
adjustment
|
|
|
1,094,074
|
|
|
|
-
|
|
|
|
1,094,074
|
|
Comprehensive
income (loss)
|
|
|
(671,645
|
)
|
|
|
1,379,608
|
|
|
|
707,963
|
|
Comprehensive
income (loss) attributable to non-controlling interest
|
|
|
323,713
|
|
|
|
-
|
|
|
|
323,713
|
|
Comprehensive
income (loss) attributable to NetSol
|
|
$
|
(995,358
|
)
|
|
$
|
1,379,608
|
|
|
$
|
384,250
|
|
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2017
(UNAUDITED
)
|
|
For
the Three Months
|
|
|
|
Ended
September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
Originally
|
|
|
Amount
of
|
|
|
|
|
|
|
Presented
|
|
|
Restatement
|
|
|
As
Restated
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(1,691,808
|
)
|
|
$
|
2,074,911
|
|
|
$
|
383,103
|
|
Adjustments
to reconcile net income (loss) to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
1,599,969
|
|
|
|
|
|
|
|
1,599,969
|
|
Loss
on sale of assets
|
|
|
2,403
|
|
|
|
|
|
|
|
2,403
|
|
Stock
issued for services
|
|
|
865,456
|
|
|
|
|
|
|
|
865,456
|
|
Fair
market value of warrants and stock options granted
|
|
|
21,804
|
|
|
|
|
|
|
|
21,804
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
2,336,894
|
|
|
|
|
|
|
|
2,336,894
|
|
Accounts
receivable - related party
|
|
|
121,800
|
|
|
|
|
|
|
|
121,800
|
|
Revenues
in excess of billing
|
|
|
(2,746,917
|
)
|
|
|
(2,074,911
|
)
|
|
|
(4,821,828
|
)
|
Revenues
in excess of billing - related party
|
|
|
93,208
|
|
|
|
|
|
|
|
93,208
|
|
Other
current assets
|
|
|
306,339
|
|
|
|
|
|
|
|
306,339
|
|
Accounts
payable and accrued expenses
|
|
|
(780,569
|
)
|
|
|
|
|
|
|
(780,569
|
)
|
Unearned
revenue
|
|
|
(346,108
|
)
|
|
|
|
|
|
|
(346,108
|
)
|
Net
cash used in operating activities
|
|
|
(217,529
|
)
|
|
|
-
|
|
|
|
(217,529
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(554,873
|
)
|
|
|
|
|
|
|
(554,873
|
)
|
Sales
of property and equipment
|
|
|
151,818
|
|
|
|
|
|
|
|
151,818
|
|
Investment
|
|
|
(555,555
|
)
|
|
|
|
|
|
|
(555,555
|
)
|
Net
cash used in investing activities
|
|
|
(958,610
|
)
|
|
|
-
|
|
|
|
(958,610
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from the exercise of stock options and warrants
|
|
|
276,861
|
|
|
|
|
|
|
|
276,861
|
|
Proceeds
from exercise of subsidiary options
|
|
|
14,013
|
|
|
|
|
|
|
|
14,013
|
|
Payments
on capital lease obligations and loans - net
|
|
|
(49,117
|
)
|
|
|
|
|
|
|
(49,117
|
)
|
Net
cash provided by financing activities
|
|
|
241,757
|
|
|
|
-
|
|
|
|
241,757
|
|
Effect
of exchange rate changes
|
|
|
533,292
|
|
|
|
|
|
|
|
533,292
|
|
Net
decrease in cash and cash equivalents
|
|
|
(401,090
|
)
|
|
|
-
|
|
|
|
(401,090
|
)
|
Cash
and cash equivalents, beginning of the period
|
|
|
11,557,527
|
|
|
|
|
|
|
|
11,557,527
|
|
Cash
and cash equivalents, end of period
|
|
$
|
11,156,437
|
|
|
$
|
-
|
|
|
$
|
11,156,437
|
|
NETSOL
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2017
(UNAUDITED
)
The
following tables present the restated financial statements for the quarter ended December 31, 2016.
|
|
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
MARCH
31, 2017
(UNAUDITED
)
|
|
For
the Three Months
|
|
|
For
the Six Months
|
|
|
|
Ended
December 31, 2016
|
|
|
Ended
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
Originally
|
|
|
Amount
of
|
|
|
As
|
|
|
As
Originally
|
|
|
Amount
of
|
|
|
As
|
|
|
|
Presented
|
|
|
Restatement
|
|
|
Restated
|
|
|
Presented
|
|
|
Restatement
|
|
|
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
MARCH
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
MARCH
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
|
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The
following discussion is intended to assist in an understanding of the Company’s financial position and results of operations
for the three and nine months ended March 31, 2017. The following discussion should be read in conjunction with the information
included within our Annual Report on Form 10-K for the year ended June 30, 2016, and the Condensed Consolidated Financial Statements
and notes thereto included elsewhere in this Quarterly Report on Form 10-Q.
Forward-Looking
Information
This
report contains certain forward-looking statements and information relating to the Company that is based on the beliefs of its
management as well as assumptions made by and information currently available to its management. When used in this report, the
words “anticipate”, “believe”, “estimate”, “expect”, “intend”, “plan”,
and similar expressions as they relate to the Company or its management, are intended to identify forward-looking statements.
These statements reflect management’s current view of the Company with respect to future events and are subject to certain
risks, uncertainties and assumptions. Should any of these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those described in this report as anticipated, estimated or expected.
The Company’s realization of its business aims could be materially and adversely affected by any technical or other problems
in, or difficulties with, planned funding and technologies, third party technologies which render the Company’s technologies
obsolete, the unavailability of required third party technology licenses on commercially reasonable terms, the loss of key research
and development personnel, the inability or failure to recruit and retain qualified research and development personnel, or the
adoption of technology standards which are different from technologies around which the Company’s business ultimately is
built. The Company does not intend to update these forward-looking statements.
Business
Overview
NetSol
Technologies, Inc. (NasdaqCM: NTWK) is a worldwide provider of IT and enterprise software solutions. We believe that our solutions
constitute mission critical applications for our clients as they encapsulate end-to-end business processes, facilitating faster
processing and increased transactions.
The
Company’s primary source of revenue is the licensing, customization, enhancement and maintenance of its suite of financial
applications under the brand name NFS™ (NetSol Financial Suite) and NFS Ascent
TM
for leading businesses in the
global lease and finance industry.
NetSol’s
clients include Dow-Jones 30 Industrials and Fortune 500 manufacturers and financial institutions, global vehicle manufacturers,
and enterprise technology providers, all of which are serviced by NetSol delivery locations around the globe.
Founded
in 1997, NetSol is headquartered in Calabasas, California. While the Company follows a global strategy for sales and delivery
of its portfolio of solutions and services, it continues to maintain regional offices in the following locations:
●
|
North
America
|
San
Francisco Bay Area
|
●
|
Europe
|
London
Metropolitan area
|
●
|
Asia
Pacific
|
Lahore,
Karachi, Bangkok, Beijing, Jakarta and Sydney
|
The
Company maintains services, solutions and/or sales specific offices in the USA, England, Germany, Pakistan, Thailand, China and
Australia.
NetSol’s
offerings include its flagship global solution, NFS™. A robust suite of five software applications, it is an end-to-end
solution for the lease and finance industry covering the complete leasing and financing cycle, starting from quotation origination
through end of contract transactions. The five software applications under NFS™ have been designed and developed for a highly
flexible setting and are capable of dealing with multinational, multi-company, multi-asset, multi-lingual, multi-distributor and
multi-manufacturer environments. Each application is a complete system in itself and can be used independently to address specific
sub-domains of the leasing/financing cycle. When used together, they fully automate the entire leasing/financing cycle for any
size company, including those with multi-billion dollar portfolios.
NFS
Ascent™
NFS
Ascent™ is the Company’s next-generation platform, offering a technologically advanced solution for the auto and equipment
finance and leasing industry. NFS Ascent’s™ architecture and user interfaces were designed based on the Company’s
collective experience with global Fortune 500 companies over the past 30 years. The platform’s framework allows auto captive
and asset finance companies to rapidly transform legacy driven technology into a state-of-the-art IT and business process environment.
At the core of the NFS Ascent™ platform is a lease accounting and contract processing engine, which allows for an array
of interest calculation methods, as well as robust accounting of multibillion dollar lease portfolios under various generally
accepted accounting principles (GAAP), as well as international financial reporting standards (IFRS). NFS Ascent™, with
its distributed and clustered deployment across parallel application and high volume data servers, enables finance companies to
process voluminous data in a hyper speed environment. NFS Ascent™ has been developed using the latest tools and technologies
and its n-tier SOA architecture allows the system to greatly improve a myriad of areas including, but not limited to, scalability,
performance, fault tolerance and security.
NFS
Mobility
NetSol
launched NFS mobility in 2014. It enables a sales force for the finance and leasing company across different channels such as
point of sale, field investigation and auditing, and allows end customers to access their contract details through a self-service
mobile application. NFS Mobility includes mAccount, mPOS, mDealer, mAuditor, and Mobile Field Investigator (mFI).
LeasePak
In
North America, NTA has and continues to develop the LeasePak Productivity modules as an additional companion set of products to
operate in conjunction with the LeasePak base system licensed software. LeasePak streamlines the lease management lifecycle, while
maintaining customer service and reducing operating costs. It is web-enabled and can be configured to run on HP-UX, SUN/Solaris
or Linux, as well as for Oracle and Sybase users. It is scalable from a basic offering to a collection of highly specialized add
on modules for systems, portfolios and accrual methods for virtually all sizes and varying complexity of operations. It is part
of the vehicle leasing infrastructure at leading Fortune 500 banks and manufacturers, as well as for some of the industry’s
leading independent lessors. It handles every aspect of the lease or loan lifecycle, including credit application origination,
credit adjudication, pricing, documentation, booking, payments, customer service, collections, midterm adjustments, and end-of-term
options and asset disposition. It is also integrated with Vertex Series O.
The
LeasePak solution includes the LeasePak Software-as-a-Service (“SaaS”) business line, which provides an enhanced performance,
while reducing the overall cost of ownership. SaaS offers a new deployment option whereby customers only require access to the
internet and web browser to use the software. LeasePak-SaaS targets small and mid-sized leasing and finance companies.
NTA
has updated the LeasePak’s technology set to .Net. The most recent upgrade includes faster performance, new features, improved
security, and compatibility with the latest hardware. LeasePak.Net takes full advantage of the existing business functionality
of LeasePak.
LeaseSoft
In
addition to offering NFS Ascent™ to the European market, NTE has some regional offerings, including LeaseSoft and LoanSoft.
LeaseSoft is a full lifecycle lease and finance system aimed predominantly at the UK funder market, including modules to support
web portals and an electronic data interchange manager to facilitate integration between funders and introducers. LoanSoft is
similar to LeaseSoft, but optimized for the consumer loan market.
The
following discussion is intended to assist in an understanding of NetSol’s financial position and results of operations
for the nine months ended March 31, 2017. It should be read together with our condensed consolidated financial statements and
related notes included herein.
Highlights
Listed
below are a few of NetSol’s major successes achieved in the nine months ended March 31, 2017:
●
|
The
first implementation of our contract with a long-standing customer to upgrade to NFS
Ascent™
in 11 countries and implement NFS Ascent™, in one new country, was recently completed in Australia and New Zealand.
The first implementation phase continues in China, Korea, and South Africa.
|
|
|
●
|
Sold
LeasePak license valued at $500,000 to Korean based automotive captive for their U.S. operations.
|
|
|
●
|
NetSol
PK signed a collaboration agreement to provide technology services to eeGeo, an interactive 3D mapping company based in the
United Kingdom. The eeGeo platform enables businesses to easily visualize complex data sets and location-based services in
a 3D mobile experience. This agreement is progressing well as per joint agreements with NetSol and eeGeo.
|
|
|
●
|
Went
live with a major implementation of our NFS legacy system with Tri Petch Isuzu Leasing in Thailand.
|
|
|
●
|
Went
live with NFS legacy system in China.
|
|
|
●
|
A
restructuring of the Company’s efficiencies, initiated in December 2016, is expected to result in approximately $4 million
in savings spread over the next year.
|
|
|
●
|
Teamed
up with Microsoft Pakistan to foster innovation, encourage entrepreneurship and provide senior mentorship to promising new
start-ups as part of the NSPIRE program.
|
|
|
●
|
NetSol
PK signed an agreement with Microsoft North Africa, East Mediterranean & Pakistan to further support the Pakistan technological
start-ups.
|
Our
success, in the near term, will depend, in large part, on the Company’s ability to continue to grow revenues and improve
profits, adequately capitalize for growth in various markets and verticals, make progress in the North American and European markets
and, continue to streamline sales and marketing efforts in every market we operate. However, management’s outlook for the
continuing operations, which has been consolidated and has been streamlined, remains optimistic.
Management
has identified the following material trends affecting NetSol.
Positive
trends:
●
|
Improving
U.S. economy generally, and particularly in the auto and banking markets.
|
|
|
●
|
China
to invest $55 billion in Pakistan on energy and infrastructure projects.
|
|
|
●
|
NFS
legacy Solutions and Ascent’s largest auto finance market remains robust and resilient in China.
|
|
|
●
|
According
to Business Insider, US auto manufactures hit a record 18.4 million units of new car sales in 2016 up from 17.5 million in
2015.
|
|
|
●
|
New
emerging markets and IT destinations in Thailand, Malaysia, Indonesia, and Australia.
|
|
|
●
|
According
to a Bloomberg December 2016 report, China’s car sales have been on a 26-year Record Streak fueled by tax break to consumers.
|
|
|
●
|
According
to a KPMG report, global car sales are rising and forecast to exceed 91 million by 2017.
|
|
|
●
|
Continued
interest from multinational auto captives, global companies and existing clients in NetSol Ascent™.
|
|
|
●
|
As
noted by Bloomberg, an improved economic environment, major foreign investment and improved security in Pakistan should restore
business confidence and increase foreign travel.
|
Negative
trends:
●
|
The
disruption risk of geopolitical unrest in the Middle East and the global threat of terrorist attacks.
|
|
|
●
|
Restricted
liquidity and financial burden due to tighter internal processes and limited budgets might cause delays in the receivables
from some clients.
|
|
|
●
|
Uncertainty
in European countries due to Brexit.
|
|
|
●
|
Continued
concerns about absorbing refugees and associated security risks in Europe.
|
CHANGES
IN FINANCIAL CONDITION
Quarter
Ended March 31, 2017 compared to the Quarter Ended March 31, 2016
The
following table sets forth the items in our unaudited condensed consolidated statement of operations for the quarter ended March
31, 2017 and 2016 as a percentage of revenues.
|
|
For
the Three Months
|
|
|
|
Ended
March 31,
|
|
|
|
2017
|
|
|
%
|
|
|
2016
|
|
|
%
|
|
Net
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License
fees
|
|
$
|
5,730,222
|
|
|
|
31.92
|
%
|
|
$
|
1,358,469
|
|
|
|
8.50
|
%
|
Maintenance
fees
|
|
|
3,538,996
|
|
|
|
19.72
|
%
|
|
|
3,388,526
|
|
|
|
21.21
|
%
|
Services
|
|
|
7,004,272
|
|
|
|
39.02
|
%
|
|
|
8,159,490
|
|
|
|
51.08
|
%
|
License
fees - related party
|
|
|
-
|
|
|
|
0.00
|
%
|
|
|
484,644
|
|
|
|
3.03
|
%
|
Maintenance
fees - related party
|
|
|
51,698
|
|
|
|
0.29
|
%
|
|
|
28,423
|
|
|
|
0.18
|
%
|
Services
- related party
|
|
|
1,624,132
|
|
|
|
9.05
|
%
|
|
|
2,554,347
|
|
|
|
15.99
|
%
|
Total
net revenues
|
|
|
17,949,320
|
|
|
|
100.00
|
%
|
|
|
15,973,899
|
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and consultants
|
|
|
6,161,110
|
|
|
|
34.33
|
%
|
|
|
5,691,530
|
|
|
|
35.63
|
%
|
Travel
|
|
|
764,867
|
|
|
|
4.26
|
%
|
|
|
543,672
|
|
|
|
3.40
|
%
|
Depreciation
and amortization
|
|
|
1,340,188
|
|
|
|
7.47
|
%
|
|
|
1,483,695
|
|
|
|
9.29
|
%
|
Other
|
|
|
686,950
|
|
|
|
3.83
|
%
|
|
|
860,868
|
|
|
|
5.39
|
%
|
Total
cost of revenues
|
|
|
8,953,115
|
|
|
|
49.88
|
%
|
|
|
8,579,765
|
|
|
|
53.71
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
8,996,205
|
|
|
|
50.12
|
%
|
|
|
7,394,134
|
|
|
|
46.29
|
%
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
and marketing
|
|
|
2,439,948
|
|
|
|
13.59
|
%
|
|
|
1,896,295
|
|
|
|
11.87
|
%
|
Depreciation
and amortization
|
|
|
284,642
|
|
|
|
1.59
|
%
|
|
|
321,230
|
|
|
|
2.01
|
%
|
General
and administrative
|
|
|
4,329,798
|
|
|
|
24.12
|
%
|
|
|
3,808,327
|
|
|
|
23.84
|
%
|
Research
and development cost
|
|
|
101,193
|
|
|
|
0.56
|
%
|
|
|
132,123
|
|
|
|
0.83
|
%
|
Total
operating expenses
|
|
|
7,155,581
|
|
|
|
39.87
|
%
|
|
|
6,157,975
|
|
|
|
38.55
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
1,840,624
|
|
|
|
10.25
|
%
|
|
|
1,236,159
|
|
|
|
7.74
|
%
|
Other
income and (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on sale of assets
|
|
|
1,647
|
|
|
|
0.01
|
%
|
|
|
14,848
|
|
|
|
0.09
|
%
|
Interest
expense
|
|
|
(60,357
|
)
|
|
|
-0.34
|
%
|
|
|
(56,070
|
)
|
|
|
-0.35
|
%
|
Interest
income
|
|
|
27,229
|
|
|
|
0.15
|
%
|
|
|
29,673
|
|
|
|
0.19
|
%
|
Gain
on foreign currency exchange transactions
|
|
|
390,897
|
|
|
|
2.18
|
%
|
|
|
12,955
|
|
|
|
0.08
|
%
|
Other
income (expense)
|
|
|
(219
|
)
|
|
|
0.00
|
%
|
|
|
25,258
|
|
|
|
0.16
|
%
|
Total
other income (expenses)
|
|
|
359,197
|
|
|
|
2.00
|
%
|
|
|
26,664
|
|
|
|
0.17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income before income taxes
|
|
|
2,199,821
|
|
|
|
12.26
|
%
|
|
|
1,262,823
|
|
|
|
7.91
|
%
|
Income
tax provision
|
|
|
(61,604
|
)
|
|
|
-0.34
|
%
|
|
|
(106,209
|
)
|
|
|
-0.66
|
%
|
Net
income
|
|
|
2,138,217
|
|
|
|
11.91
|
%
|
|
|
1,156,614
|
|
|
|
7.24
|
%
|
Non-controlling
interest
|
|
|
(1,438,249
|
)
|
|
|
-8.01
|
%
|
|
|
(307,135
|
)
|
|
|
-1.92
|
%
|
Net
income attributable to NetSol
|
|
$
|
699,968
|
|
|
|
3.90
|
%
|
|
$
|
849,479
|
|
|
|
5.32
|
%
|
A
significant portion of our business is conducted in currencies other than the U.S. dollar. We operate in several geographical
regions as described in Note 16 “Operating Segments” within the Notes to the Condensed Consolidated Financial Statements.
Weakening of the value of the U.S. dollar compared to foreign currency exchange rates generally has the effect of increasing our
revenues but also increasing our expenses denominated in currencies other than the U.S. dollar. Similarly, strengthening of the
U.S. dollar compared to foreign currency exchange rates generally has the effect of reducing our revenues but also reducing our
expenses denominated in currencies other than the U.S. dollar. We plan our business accordingly by deploying additional resources
to areas of expansion, while continuing to monitor our overall expenditures given the economic uncertainties of our target markets.
In order to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency
fluctuations, we compare the changes in results from one period to another period using constant currency. In order to calculate
our constant currency results, we apply the current period results to the prior period foreign currency exchange rates. In the
table below, we present the change based on actual results in reported currency and in constant currency.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Favorable
|
|
|
Favorable
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unfavorable)
|
|
|
(Unfavorable)
|
|
|
Favorable
|
|
|
|
For
the Three Months
|
|
|
Change
in
|
|
|
Change
due to
|
|
|
(Unfavorable)
|
|
|
|
Ended
March 31,
|
|
|
Constant
|
|
|
Currency
|
|
|
Change
as
|
|
|
|
2017
|
|
|
%
|
|
|
2016
|
|
|
%
|
|
|
Currency
|
|
|
Fluctuation
|
|
|
Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Revenues:
|
|
|
17,949,320
|
|
|
|
100.00
|
%
|
|
|
15,973,899
|
|
|
|
100.00
|
%
|
|
|
2,378,546
|
|
|
|
(403,125
|
)
|
|
|
1,975,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues:
|
|
|
8,953,115
|
|
|
|
49.88
|
%
|
|
|
8,579,765
|
|
|
|
53.71
|
%
|
|
|
(402,479
|
)
|
|
|
29,129
|
|
|
|
(373,350
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
8,996,205
|
|
|
|
50.12
|
%
|
|
|
7,394,134
|
|
|
|
46.29
|
%
|
|
|
1,976,067
|
|
|
|
(373,996
|
)
|
|
|
1,602,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
7,155,581
|
|
|
|
39.87
|
%
|
|
|
6,157,975
|
|
|
|
38.55
|
%
|
|
|
(1,178,355
|
)
|
|
|
180,749
|
|
|
|
(997,606
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
1,840,624
|
|
|
|
10.25
|
%
|
|
|
1,236,159
|
|
|
|
7.74
|
%
|
|
|
797,712
|
|
|
|
(193,247
|
)
|
|
|
604,465
|
|
Net
revenues for the quarter ended March 31, 2017 and 2016 are broken out among the segments as follows:
|
|
2017
|
|
|
2016
|
|
|
|
Revenue
|
|
|
%
|
|
|
Revenue
|
|
|
%
|
|
North
America
|
|
|
1,111,897
|
|
|
|
6.19
|
%
|
|
|
1,739,115
|
|
|
|
10.89
|
%
|
Europe
|
|
|
1,808,567
|
|
|
|
10.08
|
%
|
|
|
2,511,844
|
|
|
|
15.72
|
%
|
Asia-Pacific
|
|
|
15,028,856
|
|
|
|
83.73
|
%
|
|
|
11,722,940
|
|
|
|
73.39
|
%
|
Total
|
|
$
|
17,949,320
|
|
|
|
100.00
|
%
|
|
$
|
15,973,899
|
|
|
|
100.00
|
%
|
Revenues
License
fees
License
fees for the three months ended March 31, 2017 were $5,730,222 compared to $1,843,113 for the three months ended March 31, 2016
reflecting an increase of $3,887,109 with a change in constant currency of $3,885,931. Included in the license fees are licenses
provided to related parties of $nil for the three months ended March 31, 2017 compared to $484,644 for the same period last year.
During the three months ended March 31, 2017, we increased our license revenues through sales of our NFS Ascent™ product
and sales of our regional offerings in the U.S.
Maintenance
fees
Maintenance
fees for the three months ended March 31, 2017 were $3,590,694 compared to $3,416,949 for the three months ended March 31, 2016
reflecting an increase of $173,745 with a change in constant currency of $267,025. Maintenance fees include maintenance provided
to related parties of $51,698 for the three months ended March 31, 2017 compared to $28,423 for the same period last year. Maintenance
fees begin once a customer has “gone live” with our product. The increase was due to the start of new maintenance
agreements from customers who went live with our product during the latter stages of fiscal year 2016 and into fiscal year 2017.
We anticipate maintenance fees to gradually increase as we implement both our NFS legacy product and NFS Ascent™.
Services
Services
income for the three months ended March 31, 2017 was $8,628,404 compared to $10,713,837 for the three months ended March 31, 2016
reflecting a decrease of $2,085,433 with a change in constant currency of $1,774,410. Included in the services revenue are services
provided to related parties of $1,624,132 for the three months ended March 31, 2017 compared to $2,554,347 for the same period
last year. The decrease is due to a decrease in consulting services with current customers and a reduction in implementation services.
Services revenue is derived from services provided to both current customers as well as services provided to new customers as
part of the implementation process.
Gross
Profit
The
gross profit was $8,996,205, for the three months ended March 31, 2017 as compared with $7,394,134 for the three months ended
March 31, 2016. This is an increase of $1,602,071 with an increase in constant currency of $1,976,067. The gross profit percentage
for the three months ended March 31, 2017, increased to 50.12% from 46.29% for the three months ended March 31, 2016. The cost
of sales was $8,953,115 for the three months ended March 31, 2017 compared to $8,579,765 for the three months ended March 31,
2016 or an increase of $373,350 and on a constant currency basis an increase of $402,479. As a percentage of sales, cost of sales
decreased from 53.71% for the three months ended March 31, 2016 to 49.88% for the three months ended March 31, 2017.
Salaries
and consultant fees increased by $469,580 from $5,691,530 for the three months ended March 31, 2016 to $6,161,110 for the three
months ended March 31, 2017 and on a constant currency basis increased $539,464. The increase in salaries and consultant fees
is due to annual salary increases and the strategic hiring of employees at key locations including Pakistan, Thailand, China,
UK and North America as we anticipate new projects associated with NFS Ascent™.
Depreciation
and amortization expense decreased to $1,340,188 compared to $1,483,695 for the three months ended March 31, 2016 or a decrease
of $143,507 and on a constant currency basis a decrease of $160,284. Depreciation and amortization expense decreased as some products
became fully amortized.
Operating
Expenses
Operating
expenses were $7,155,581 for the three months ended March 31, 2017 compared to $6,157,975, for the three months ended March 31,
2016 or an increase of 16.20% or $997,606 and on a constant currency basis an increase of 19.14% or $1,178,355. As a percentage
of sales, it slightly increased from 38.55% to 39.87%. The increase in operating expenses was primarily due to the increase
in selling and marketing expenses of $543,653 or 28.67% and on a constant currency basis an increase of $574,133 or 30.28%, and
an increase in general and administrative expenses of $521,471 or 13.69% and on a constant currency basis an increase of $666,134
or 17.49%.
The
increase in selling and marketing expenses is due to the increase in our salaries and commissions, travel expenses, and business
development costs to market and sell NFS Ascent™ globally.
General
and administrative expenses were $4,329,798 for the three months ended March 31, 2017 compared to $3,808,327 at March 31, 2016
or an increase of $521,471 or 13.69% and on a constant currency basis an increase of $666,134 or 17.49%. During the three months
ended March 31, 2017, salaries increased by approximately $247,163 or $266,470 on a constant currency basis due to the increase
in the number of employees, annual raises, share grants and options; other general and administrative expenses slightly increased
by approximately $1,696 or $123,533 on a constant currency basis; professional services increased by approximately $272,612 or
$276,131 on a constant currency basis.
Income
from Operations
Income
from operations was $1,840,624 for the three months ended March 31, 2017 compared to $1,236,159 for the three months ended March
31, 2016. This represents an increase in income of $604,465 with an increase in income of $797,712 on a constant currency basis
for the three months ended March 31, 2017 compared with the three months ended March 31, 2016. As a percentage of sales, income
from operations was 10.25% for the three months ended March 31, 2017 compared to 7.74% for the three months ended March 31, 2016.
Net
Income
Net
income was $699,968 for the three months ended March 31, 2017 compared to $849,479 for the three months ended March 31, 2016.
This is a decrease in income of $149,511 compared to the prior year. For the three months ended March 31, 2017, net income per
basic and diluted share was $0.06 compared to $0.08 for the three months ended March 31, 2016.
Nine
Months Ended March 31, 2017 compared to the Nine Months Ended March 31, 2016
The
following table sets forth the items in our unaudited condensed consolidated statement of operations for the nine months ended
March 31, 2017 and 2016 as a percentage of revenues.
|
|
For
the Nine Months
|
|
|
|
Ended
March 31,
|
|
|
|
2017
|
|
|
%
|
|
|
2016
|
|
|
%
|
|
Net
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License
fees
|
|
$
|
14,953,574
|
|
|
|
29.39
|
%
|
|
$
|
3,076,541
|
|
|
|
6.77
|
%
|
Maintenance
fees
|
|
|
10,651,692
|
|
|
|
20.93
|
%
|
|
|
9,826,209
|
|
|
|
21.61
|
%
|
Services
|
|
|
19,795,073
|
|
|
|
38.90
|
%
|
|
|
24,487,467
|
|
|
|
53.85
|
%
|
License
fees - related party
|
|
|
246,957
|
|
|
|
0.49
|
%
|
|
|
484,644
|
|
|
|
1.07
|
%
|
Maintenance
fees - related party
|
|
|
233,674
|
|
|
|
0.46
|
%
|
|
|
218,409
|
|
|
|
0.48
|
%
|
Services
- related party
|
|
|
5,003,605
|
|
|
|
9.83
|
%
|
|
|
7,377,430
|
|
|
|
16.22
|
%
|
Total
net revenues
|
|
|
50,884,575
|
|
|
|
100.00
|
%
|
|
|
45,470,700
|
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and consultants
|
|
|
18,034,263
|
|
|
|
35.44
|
%
|
|
|
15,936,191
|
|
|
|
35.05
|
%
|
Travel
|
|
|
2,313,002
|
|
|
|
4.55
|
%
|
|
|
1,779,134
|
|
|
|
3.91
|
%
|
Depreciation
and amortization
|
|
|
3,989,824
|
|
|
|
7.84
|
%
|
|
|
4,419,396
|
|
|
|
9.72
|
%
|
Other
|
|
|
2,725,015
|
|
|
|
5.36
|
%
|
|
|
2,822,347
|
|
|
|
6.21
|
%
|
Total
cost of revenues
|
|
|
27,062,104
|
|
|
|
53.18
|
%
|
|
|
24,957,068
|
|
|
|
54.89
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
23,822,471
|
|
|
|
46.82
|
%
|
|
|
20,513,632
|
|
|
|
45.11
|
%
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
and marketing
|
|
|
7,497,464
|
|
|
|
14.73
|
%
|
|
|
5,597,689
|
|
|
|
12.31
|
%
|
Depreciation
and amortization
|
|
|
825,224
|
|
|
|
1.62
|
%
|
|
|
898,018
|
|
|
|
1.97
|
%
|
General
and administrative
|
|
|
12,882,407
|
|
|
|
25.32
|
%
|
|
|
10,391,844
|
|
|
|
22.85
|
%
|
Research
and development cost
|
|
|
285,732
|
|
|
|
0.56
|
%
|
|
|
362,117
|
|
|
|
0.80
|
%
|
Total
operating expenses
|
|
|
21,490,827
|
|
|
|
42.23
|
%
|
|
|
17,249,668
|
|
|
|
37.94
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
2,331,644
|
|
|
|
4.58
|
%
|
|
|
3,263,964
|
|
|
|
7.18
|
%
|
Other
income and (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
(loss) on sale of assets
|
|
|
(33,095
|
)
|
|
|
-0.07
|
%
|
|
|
642
|
|
|
|
0.00
|
%
|
Interest
expense
|
|
|
(176,959
|
)
|
|
|
-0.35
|
%
|
|
|
(196,399
|
)
|
|
|
-0.43
|
%
|
Interest
income
|
|
|
81,085
|
|
|
|
0.16
|
%
|
|
|
117,084
|
|
|
|
0.26
|
%
|
Loss
on foreign currency exchange transactions
|
|
|
(645,886
|
)
|
|
|
-1.27
|
%
|
|
|
(235,291
|
)
|
|
|
-0.52
|
%
|
Other
income
|
|
|
28,164
|
|
|
|
0.06
|
%
|
|
|
200,256
|
|
|
|
0.44
|
%
|
Total
other income (expenses)
|
|
|
(746,691
|
)
|
|
|
-1.47
|
%
|
|
|
(113,708
|
)
|
|
|
-0.25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income before income taxes
|
|
|
1,584,953
|
|
|
|
3.11
|
%
|
|
|
3,150,256
|
|
|
|
6.93
|
%
|
Income
tax provision
|
|
|
(440,363
|
)
|
|
|
-0.87
|
%
|
|
|
(454,707
|
)
|
|
|
-1.00
|
%
|
Net
income
|
|
|
1,144,590
|
|
|
|
2.25
|
%
|
|
|
2,695,549
|
|
|
|
5.93
|
%
|
Non-controlling
interest
|
|
|
(2,999,127
|
)
|
|
|
-5.89
|
%
|
|
|
(1,382,033
|
)
|
|
|
-3.04
|
%
|
Net
income (loss) attributable to NetSol #
|
|
$
|
(1,854,537
|
)
|
|
|
-3.64
|
%
|
|
$
|
1,313,516
|
|
|
|
2.89
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Favorable
|
|
|
Favorable
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unfavorable)
|
|
|
(Unfavorable)
|
|
|
Favorable
|
|
|
|
For
the Nine Months
|
|
|
Change
in
|
|
|
Change
due to
|
|
|
(Unfavorable)
|
|
|
|
Ended
March 31,
|
|
|
Constant
|
|
|
Currency
|
|
|
Change
as
|
|
|
|
2017
|
|
|
%
|
|
|
2016
|
|
|
%
|
|
|
Currency
|
|
|
Fluctuation
|
|
|
Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Revenues:
|
|
|
50,884,575
|
|
|
|
100.00
|
%
|
|
|
45,470,700
|
|
|
|
100.00
|
%
|
|
|
6,478,304
|
|
|
|
(1,064,429
|
)
|
|
|
5,413,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues:
|
|
|
27,062,104
|
|
|
|
53.18
|
%
|
|
|
24,957,068
|
|
|
|
54.89
|
%
|
|
|
(2,507,459
|
)
|
|
|
402,423
|
|
|
|
(2,105,036
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
23,822,471
|
|
|
|
46.82
|
%
|
|
|
20,513,632
|
|
|
|
45.11
|
%
|
|
|
3,970,845
|
|
|
|
(662,006
|
)
|
|
|
3,308,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
21,490,827
|
|
|
|
42.23
|
%
|
|
|
17,249,668
|
|
|
|
37.94
|
%
|
|
|
(4,854,819
|
)
|
|
|
613,660
|
|
|
|
(4,241,159
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
2,331,644
|
|
|
|
4.58
|
%
|
|
|
3,263,964
|
|
|
|
7.18
|
%
|
|
|
(883,974
|
)
|
|
|
(48,346
|
)
|
|
|
(932,320
|
)
|
Net
revenues for the nine months ended March 31, 2017 and 2016 are broken out among the segments as follows:
|
|
2017
|
|
|
2016
|
|
|
|
Revenue
|
|
|
%
|
|
|
Revenue
|
|
|
%
|
|
North
America
|
|
$
|
4,467,325
|
|
|
|
8.78
|
%
|
|
$
|
4,194,321
|
|
|
|
9.22
|
%
|
Europe
|
|
|
5,164,440
|
|
|
|
10.15
|
%
|
|
|
6,676,142
|
|
|
|
14.68
|
%
|
Asia-Pacific
|
|
|
41,252,810
|
|
|
|
81.07
|
%
|
|
|
34,600,237
|
|
|
|
76.09
|
%
|
Total
|
|
$
|
50,884,575
|
|
|
|
100.00
|
%
|
|
$
|
45,470,700
|
|
|
|
100.00
|
%
|
Revenues
License
fees
License
fees for the nine months ended March 31, 2017 were $15,200,531 compared to $3,561,185 for the nine months ended March 31, 2016
reflecting an increase of $11,639,346 with a change in constant currency of $11,733,078. Included in the license fees are licenses
provided to related parties of $246,957 for the nine months ended March 31, 2017 compared to $484,644 for the same period last
year. During the nine months ended March 31, 2017, we increased our license revenues through sales of our NFS Ascent™ product
and sales of our regional offerings in the U.S.
Maintenance
fees
Maintenance
fees for the nine months ended March 31, 2017 were $10,885,366 compared to $10,044,618 for the nine months ended
March 31, 2016 reflecting an increase of $840,748 with a change in constant currency of $1,137,055. Maintenance
fees include maintenance provided to related parties of $233,674 for the nine months ended March 31, 2017 compared to $218,409
for the same period last year. Maintenance fees begin once a customer has “gone live” with our product. The increase
was due to the start of new maintenance agreements from customers who went live with our product during the latter stages of fiscal
year 2016 and into fiscal year 2017. We anticipate maintenance fees to gradually increase as we implement both our NFS legacy
product and NFS Ascent™.
Services
Services
income for the nine months ended March 31, 2017 was $24,798,678 compared to $31,864,897 for the nine months ended March 31, 2016
reflecting a decrease of $7,066,219 with a change in constant currency of $6,391,829. Included in the services revenue are services
provided to related parties of $5,003,605 for the nine months ended March 31, 2017 compared to $7,377,430 for the same period
last year. The decrease is due to a decrease in consulting services with current customers and a reduction in implementation services.
Services revenue is derived from services provided to both current customers as well as services provided to new customers as
part of the implementation process.
Gross
Profit
The
gross profit was $23,822,471, for the nine months ended March 31, 2017 as compared with $20,513,632 for the nine months
ended March 31, 2016. This is an increase of $3,308,839 with an increase in constant currency of $3,970,845. The
gross profit percentage for the nine months ended March 31, 2017 slightly increased to 46.82% from 45.11% for the nine
months ended March 31, 2016. The cost of sales was $27,062,104 for the nine months ended March 31, 2017 compared to $24,957,068
for the nine months ended March 31, 2016 for an increase of $2,105,036 and on a constant currency basis an increase of $2,507,459.
As a percentage of sales, cost of sales slightly decreased from 54.89% for the nine months ended March 31, 2016 to 53.18%
for the nine months ended March 31, 2017.
Salaries
and consultant fees increased by $2,098,072 from $15,936,191 for the nine months ended March 31, 2016 to $18,034,263 for the nine
months ended March 31, 2017 and on a constant currency basis increased $2,438,781. The increase in salaries and consultant fees
is due to annual salary increases and the strategic hiring of employees at key locations including Pakistan, Thailand, China,
UK and North America as we anticipate new projects associated with NFS Ascent™.
Depreciation
and amortization expense decreased to $3,989,824 compared to $4,419,396 for the nine months ended March 31, 2016 or a decrease
of $429,572 and on a constant currency basis a decrease of $445,624. Depreciation and amortization expense decreased as some products
became fully amortized.
Operating
Expenses
Operating
expenses were $21,490,827 for the nine months ended March 31, 2017 compared to $17,249,668, for the nine months ended March 31,
2016 for an increase of 24.59% or $4,241,159 and on a constant currency basis an increase of 28.14% or $4,854,819. As a percentage
of sales, it increased from 37.94% to 42.23%. The increase in operating expenses was primarily due to the increase
in selling and marketing expenses of $1,899,775 or 33.94% and on a constant currency basis an increase of $2,125,617 or 37.97%,
and an increase in general and administrative expenses of $2,490,563 or 23.97% and on a constant currency basis an increase of
$2,855,483 or 27.48%.
The
increase in selling and marketing expenses is due to the increase in our salaries and commissions, travel expenses, and business
development costs to market and sell NFS Ascent™ globally.
General
and administrative expenses were $12,882,407 for the nine months ended March 31, 2017 compared to $10,391,844 at March 31, 2016
or an increase of $2,490,563 or 23.97% and on a constant currency basis an increase of $2,855,483 or 27.48%. During the nine months
ended March 31, 2017, salaries increased by approximately $2,533,264 or $2,689,781 on a constant currency basis due to the increase
in the number of employees, annual raises, share grants, cash bonuses and options; other general and administrative expenses decreased
by approximately $266,940 or $83,685 on a constant currency basis; professional services increased by approximately $224,239 or
$249,387 on a constant currency basis.
Income
from Operations
Income
from operations was $2,331,644 for the nine months ended March 31, 2017 compared to $3,263,964 for the nine months ended
March 31, 2016. This represents a decrease in income of $932,320 with a decrease in income of $883,974 on a constant
currency basis for the nine months ended March 31, 2017 compared with the nine months ended March 31, 2016. As a percentage of
sales, net income from operations was 4.58% for the nine months ended March 31, 2017 compared to income of 7.18% for the
nine months ended March 31, 2016.
Net
Income (Loss)
Net
loss was $1,854,537 for the nine months ended March 31, 2017 compared to net income of $1,313,516 for the nine months ended
March 31, 2016. This is an increase in loss of $3,168,053 compared to the prior year. For the nine months ended March 31,
2017, net loss per basic and diluted share was $0.17 compared to net income basic and diluted per share of $0.13 and $0.12,
respectively for the nine months ended March 31, 2016.
Non-GAAP
Financial Measures
Regulation
S-K Item 10(e), “Use of Non-GAAP Financial Measures in Commission Filings,” defines and prescribes the conditions
for use of non-GAAP financial information. Our measures of adjusted EBITDA and adjusted EBITDA per basic and diluted share meet
the definition of a non-GAAP financial measure.
We
define the non-GAAP measures as follows:
●
|
EBITDA
is GAAP net income or loss before net interest expense, income tax expense, depreciation and amortization.
|
|
|
●
|
Non-GAAP
adjusted EBITDA is EBITDA less stock-based compensation expense.
|
|
|
●
|
Adjusted
EBITDA per basic and diluted share – Adjusted EBITDA allocated to common stock divided by the weighted average shares
outstanding and diluted shares outstanding.
|
We
use non-GAAP measures internally to evaluate the business and believe that presenting non-GAAP measures provides useful information
to investors regarding the underlying business trends and performance of our ongoing operations as well as useful metrics for
monitoring our performance and evaluating it against industry peers. The non-GAAP financial measures presented should be used
in addition to, and in conjunction with, results presented in accordance with GAAP, and should not be relied upon to the exclusion
of GAAP financial measures. Management strongly encourages investors to review our consolidated financial statements in their
entirety and not to rely on any single financial measure in evaluating the Company.
The
non-GAAP measures reflect adjustments based on the following items:
EBITDA
:
We report EBITDA as a non-GAAP metric by excluding the effect of net interest expense, income tax expense, depreciation and amortization
from net income or loss because doing so makes internal comparisons to our historical operating results more consistent. In addition,
we believe providing an EBITDA calculation is a more useful comparison of our operating results to the operating results of our
peers.
Stock-based
compensation expense
: We have excluded the effect of stock-based compensation expense from the non-GAAP adjusted EBITDA and
non-GAAP adjusted EBITDA per basic and diluted share calculations. Although stock-based compensation expense is calculated in
accordance with current GAAP and constitutes an ongoing and recurring expense, such expense is excluded from non-GAAP results
because it is not an expense which generally requires cash settlement by NetSol, and therefore is not used by us to assess the
profitability of our operations. We also believe the exclusion of stock-based compensation expense provides a more useful comparison
of our operating results to the operating results of our peers.
Non-controlling
interest
: We add back the non-controlling interest in calculating gross adjusted EBITDA and then subtract out the income taxes,
depreciation and amortization and net interest expense attributable to the non-controlling interest to arrive at a net adjusted
EBITDA.
Our
reconciliation of the non-GAAP financial measures of adjusted EBITDA and non-GAAP earnings per basic and diluted share to the
most comparable GAAP measures for the three and nine months ended March 31, 2017 and 2016 are as follows:
|
|
Three
Months
|
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
Nine
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
March
31, 2017
|
|
|
March
31, 2016
|
|
|
March
31, 2017
|
|
|
March
31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (loss) before preferred dividend, per GAAP
|
|
$
|
699,968
|
|
|
$
|
849,479
|
|
|
$
|
(1,854,537
|
)
|
|
$
|
1,313,516
|
|
Non-controlling
interest
|
|
|
1,438,249
|
|
|
|
307,135
|
|
|
|
2,999,127
|
|
|
|
1,382,033
|
|
Income
taxes
|
|
|
61,604
|
|
|
|
106,209
|
|
|
|
440,363
|
|
|
|
454,707
|
|
Depreciation
and amortization
|
|
|
1,624,830
|
|
|
|
1,804,925
|
|
|
|
4,815,048
|
|
|
|
5,317,414
|
|
Interest
expense
|
|
|
60,357
|
|
|
|
56,070
|
|
|
|
176,959
|
|
|
|
196,399
|
|
Interest
(income)
|
|
|
(27,229
|
)
|
|
|
(29,673
|
)
|
|
|
(81,085
|
)
|
|
|
(117,084
|
)
|
EBITDA
|
|
$
|
3,857,779
|
|
|
$
|
3,094,145
|
|
|
$
|
6,495,875
|
|
|
$
|
8,546,985
|
|
Add
back:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
stock-based compensation
|
|
|
478,345
|
|
|
|
368,674-
|
|
|
|
2,025,924
|
|
|
|
840,409
|
|
Adjusted
EBITDA, gross
|
|
$
|
4,336,124
|
|
|
$
|
3,462,819
|
|
|
$
|
8,521,799
|
|
|
$
|
9,387,394
|
|
Less
non-controlling interest (a)
|
|
|
(2,045,028
|
)
|
|
|
(1,186,132
|
)
|
|
|
(4,860,826
|
)
|
|
|
(3,884,124
|
)
|
Adjusted
EBITDA, net
|
|
$
|
2,291,096
|
|
|
$
|
2,276,687
|
|
|
$
|
3,660,973
|
|
|
$
|
5,503,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
number of shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
10,987,214
|
|
|
|
10,427,664
|
|
|
|
10,850,538
|
|
|
|
10,338,740
|
|
Diluted
|
|
|
11,121,620
|
|
|
|
10,643,479
|
|
|
|
10,984,944
|
|
|
|
10,554,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
adjusted EBITDA
|
|
$
|
0.21
|
|
|
$
|
0.22
|
|
|
$
|
0.34
|
|
|
$
|
0.53
|
|
Diluted
adjusted EBITDA
|
|
$
|
0.21
|
|
|
$
|
0.21
|
|
|
$
|
0.33
|
|
|
$
|
0.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)The
reconciliation of adjusted EBITDA of non-controlling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
net income attributable to non-controlling interest is as follows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income attributable to non-controlling interest
|
|
$
|
1,438,249
|
|
|
$
|
307,135
|
|
|
$
|
2,999,127
|
|
|
$
|
1,382,033
|
|
Income
Taxes
|
|
|
10,871
|
|
|
|
36,569
|
|
|
|
71,916
|
|
|
|
74,350
|
|
Depreciation
and amortization
|
|
|
538,118
|
|
|
|
790,065
|
|
|
|
1,587,412
|
|
|
|
2,346,603
|
|
Interest
expense
|
|
|
17,502
|
|
|
|
9,416
|
|
|
|
53,918
|
|
|
|
40,749
|
|
Interest
(income)
|
|
|
(10,610
|
)
|
|
|
(31,715
|
)
|
|
|
(27,702
|
)
|
|
|
(83,112
|
)
|
EBITDA
|
|
$
|
1,994,130
|
|
|
$
|
1,111,470
|
|
|
$
|
4,684,671
|
|
|
$
|
3,760,623
|
|
Add
back:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
stock-based compensation
|
|
|
50,898
|
|
|
|
74,662
|
|
|
|
176,155
|
|
|
|
123,501
|
|
Adjusted
EBITDA of non-controlling interest
|
|
$
|
2,045,028
|
|
|
$
|
1,186,132
|
|
|
$
|
4,860,826
|
|
|
$
|
3,884,124
|
|
LIQUIDITY
AND CAPITAL RESOURCES
Our
cash position was $8,450,115 at March 31, 2017, compared to $11,557,527 at June 30, 2016.
Net
cash used in operating activities was $2,018,592 for the nine months ended March 31, 2017 compared to $1,130,801 provided by operating
activities for the nine months ended March 31, 2016. At March 31, 2017, we had current assets of $47,196,113 and current
liabilities of $17,168,622. We had accounts receivable of $14,716,584 at March 31, 2017 compared to $15,382,407 at June 30, 2016.
We had revenues in excess of billings of $20,988,640 at March 31, 2017 compared to $11,297,264 at June 30, 2016. During
the nine months ended March 31, 2017, our revenues in excess of billings were reclassified to accounts receivable pursuant to
billing requirements detailed in each contract. The combined totals for accounts receivable and revenues in excess of billings
increased by $9,025,553, from $26,679,671 at June 30, 2016, to $35,705,224 at March 31, 2017. The increase is due
to recognition of revenue according to progress of contracts. Accounts payable and accrued expenses, and current portions of loans
and lease obligations amounted to $7,404,181 and $5,650,475, respectively at March 31, 2017.
The
average days sales outstanding for the nine months ended March 31, 2017 and 2016 were 165 and 165 days, respectively, for
each period. The days sales outstanding have been calculated by taking into consideration the average combined balances of accounts
receivable and revenue in excess of billings.
Net
cash used in investing activities was $2,110,932 for the nine months ended March 31, 2017, compared to $3,290,538 for the nine
months ended March 31, 2016. We had purchases of property and equipment of $1,315,922 compared to $2,523,865 for the comparable
period last fiscal year. During the nine months ended March 31, 2017, the Company purchased a 2.5% interest in eeGeo, Inc. for
$555,555 increasing its investment to 4.9%. NetSol PK also paid $350,000 to eeGeo, Inc. in addition to providing services for
investment. The Company purchased 7,500 of its common stock from open market at an average price of $5.18 per share.
Net
cash provided by financing activities was $1,104,321, compared to $1,408,254 for the nine months ended March 31, 2017, and 2016,
respectively. The nine months ended March 31, 2017 included the cash inflow of $785,479 from the exercising of stock options and
warrants compared to $728,699 for the same period last year. During the nine months ended March 31, 2017, we had net receipts
from bank loans and capital leases of $1,233,122 compared to $597,880 for the nine months ended March 31, 2016. We are operating
in various geographical regions of the world through its various subsidiaries. Those subsidiaries have financial arrangements
from various financial institutions to meet both their short and long term funding requirements. These loans will become due at
different maturity dates as described in Note 12 of the financial statements. We are in compliance with the covenants of the financial
arrangements and there is no default, which may lead to early payment of these obligations. We anticipate paying back all these
obligations on their respective due dates from its own sources.
We
typically fund the cash requirements for our operations in the U.S. through our license, services, and maintenance agreements,
intercompany charges for corporate services, and through the exercise of options and warrants. As of March 31, 2017, we had approximately
$8.45 million of cash, cash equivalents and marketable securities of which approximately $6.79 million is held by our foreign
subsidiaries. As of June 30, 2016, we had approximately $11.56 million of cash, cash equivalents and marketable securities of
which approximately $7.64 million is held by our foreign subsidiaries. We intend to permanently reinvest these funds outside the
U.S., and therefore, we do not anticipate repatriating undistributed earnings from our non-U.S. operations. If funds from foreign
operations are required to fund U.S. operations in the future, and if U.S. tax has not previously been provided, we would be required
to accrue and pay additional U.S. taxes to repatriate these funds.
We
remain open to strategic relationships that would provide value added benefits. The focus will remain on continuously improving
cash reserves internally and reduced reliance on external capital raise.
As
a growing company, we have on-going capital expenditure needs based on our short term and long term business plans. Although our
requirements for capital expenses vary from time to time, for the next 12 months, we anticipate needing $3 million for APAC, U.S.
and Europe new business development activities and infrastructure enhancements, which we expect to provide from current operations.
While
there is no guarantee that any of these methods will result in raising sufficient funds to meet our capital needs or that even
if available will be on terms acceptable to us, we will be very cautious and prudent about any new capital raise given the global
market uncertainties. However, we are very conscious of the dilutive effect and price pressures in raising equity-based capital.
Financial
Covenants
The
Pakistani subsidiary, NetSol PK has an approved facility for export refinance from Askari Bank Limited amounting to Rupees 400
million or approximately $3.86 million which requires NetSol PK to maintain a long-term debt equity ratio of 60:40 and the current
ratio of 1:1.
As
of the date of this report, we are in compliance with the financial covenants associated with our borrowings. The maturity dates
of the borrowings of respective subsidiaries may accelerate if they do not comply with these covenants. In case of any change
in control in subsidiaries, they may have to repay their respective credit facilities.
CRITICAL
ACCOUNTING POLICIES
Our
financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United
States (“U.S. GAAP”). Preparing financial statements requires management to make estimates and assumptions that affect
the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s
application of accounting policies. Critical accounting policies for us include revenue recognition and multiple element arrangements,
intangible assets, software development costs, and goodwill.
REVENUE
RECOGNITION
The
Company derives revenues from the following sources: (1) software licenses, (2) services, which include implementation and consulting
services, and (3) maintenance, which includes post contract support.
The
Company recognizes revenue from license contracts without major customization when a non-cancelable, non-contingent license agreement
has been signed, delivery of the software has occurred, the fee is fixed or determinable, and collectability is probable. Delivery
is considered to have occurred upon electronic transfer of the license key that provides immediate availability of the product
to the purchaser. Determining whether and when some of these criteria have been satisfied often involves assumptions and judgments
that can have a significant impact on the timing and amount of revenue the Company reports.
If
an arrangement does not qualify for separate accounting of the software license and consulting transactions, then new software
license revenue is generally recognized together with the consulting services based on contract accounting using either the percentage-of-completion
or completed contract method. Contract accounting is applied to any arrangements: (1) that include milestones or customer specific
acceptance criteria that may affect collection of the software license fees; (2) where services include significant modification
or customization of the software; (3) where significant consulting services are provided for in the software license contract
without additional charge or are substantially discounted; or (4) where the software license payment is tied to the performance
of consulting services.
Revenue
from consulting services is recognized as the services are performed for time-and-materials contracts. Revenue from training and
development services is recognized as the services are performed.
Revenue
from maintenance agreements is recognized ratably over the term of the maintenance agreement, typically one year.
Multiple
Element Arrangements
The
Company may enter into multiple element revenue arrangements in which a customer may purchase a number of different combinations
of software licenses, consulting services, maintenance and support, as well as training and development.
Vendor
specific objective evidence (“VSOE”) of fair value for each element is based on the price for which the element is
sold separately. The Company determines the VSOE of fair value of each element based on historical evidence of the Company’s
stand-alone sales of these elements to third-parties or from the stated renewal rate for the elements contained in the initial
software license arrangement. When VSOE of fair value does not exist for any undelivered element, revenue is deferred until the
earlier of the point at which such VSOE of fair value exists or until all elements of the arrangement have been delivered. The
only exception to this guidance is when the only undelivered element is maintenance and support or other services, then the entire
arrangement fee is recognized ratably over the performance period.
INTANGIBLE
ASSETS
Intangible
assets consist of product licenses, renewals, enhancements, copyrights, trademarks, trade names, and customer lists. Intangible
assets with finite lives are amortized over the estimated useful life and are evaluated for impairment at least on an annual basis
and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. We assess recoverability
by determining whether the carrying value of such assets will be recovered through the undiscounted expected future cash flows.
If the future undiscounted cash flows are less than the carrying amount of these assets, we recognize an impairment loss based
on the excess of the carrying amount over the fair value of the assets.
SOFTWARE
DEVELOPMENT COSTS
Costs
incurred to internally develop computer software products or to enhance an existing product are recorded as research and development
costs and expensed when incurred until technological feasibility for the respective product is established. Thereafter, all software
development costs are capitalized and reported at the lower of unamortized cost or net realizable value. Capitalization ceases
when the product or enhancement is available for general release to customers.
The
Company makes on-going evaluations of the recoverability of its capitalized software projects by comparing the amount capitalized
for each product to the estimated net realizable value of the product. If such evaluations indicate that the unamortized software
development costs exceed the net realizable value, the Company writes off the amount which the unamortized software development
costs exceed net realizable value. Capitalized and purchased computer software development costs are being amortized ratably based
on the projected revenue associated with the related software or on a straight-line basis.
STOCK-BASED
COMPENSATION
Our
stock-based compensation expense is estimated at the grant date based on the award’s fair value as calculated by the Black-Scholes-Merton
(BSM) option pricing model and is recognized as expense over the requisite service period. The BSM model requires various highly
judgmental assumptions including expected volatility and expected term. If any of the assumptions used in the BSM model changes
significantly, stock-based compensation expense may differ materially in the future from that recorded in the current period.
In addition, we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to
vest. We estimate the forfeiture rate based on historical experience and our expectations regarding future pre-vesting termination
behavior of employees. To the extent our actual forfeiture rate is different from our estimate; stock-based compensation expense
is adjusted accordingly.
GOODWILL
Goodwill
represents the excess of the aggregate purchase price over the fair value of the net assets acquired in a purchase businesses
combination. Goodwill is reviewed for impairment on an annual basis, or more frequently if events or changes in circumstances
indicate that the carrying amount of goodwill may be impaired. The goodwill impairment test is a two-step test. Under the first
step, the fair value of the reporting unit is compared with its carrying value (including goodwill). If the fair value of the
reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and the enterprise
must perform step two of the impairment test (measurement). Under step two, an impairment loss is recognized for any excess of
the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value
of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation.
The residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Fair value of the reporting
unit is determined using a discounted cash flow analysis. If the fair value of the reporting unit exceeds its carrying value,
step two does not need to be performed.
RECENT
ACCOUNTING PRONOUNCEMENTS
For
information with respect to recent accounting pronouncements and the impact of these pronouncements on our consolidated financial
statements, see Note 2 of Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report.