NetSol(NTWK) - 2019 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis of NETSOL Technologies, Inc Item 1. Financial Statements (Unaudited) This section presents NETSOL Technologies' unaudited condensed consolidated financial statements, including balance sheets, statements of operations, cash flows, and detailed notes on accounting policies and segment information Condensed Consolidated Balance Sheets Total assets decreased from $99.8 million to $88.1 million, driven by lower accounts receivable, while liabilities and equity also declined Condensed Consolidated Balance Sheet Highlights (in USD) | Financial Metric | As of Dec 31, 2018 | As of June 30, 2018 | | :--- | :--- | :--- | | Total Assets | $88,145,382 | $99,774,281 | | Total Current Assets | $52,261,788 | $57,350,896 | | Cash and cash equivalents | $20,320,804 | $22,088,853 | | Accounts receivable, net | $7,852,296 | $12,775,461 | | Goodwill | $9,516,568 | $9,516,568 | | Total Liabilities | $20,235,509 | $22,838,229 | | Total Current Liabilities | $19,890,036 | $22,507,633 | | Total Stockholders' Equity | $67,909,873 | $76,936,052 | Condensed Consolidated Statements of Operations Net revenues increased to $17.0 million for the three months and $33.4 million for six months, driven by license fees, significantly boosting net income Statement of Operations Summary (in USD) | Metric | Three Months Ended Dec 31, 2018 | Three Months Ended Dec 31, 2017 | Six Months Ended Dec 31, 2018 | Six Months Ended Dec 31, 2017 | | :--- | :--- | :--- | :--- | :--- | | Total Net Revenues | $17,002,627 | $14,446,435 | $33,399,172 | $27,265,211 | | License Fees | $4,817,569 | $235,932 | $10,773,682 | $561,998 | | Gross Profit | $8,858,571 | $6,688,353 | $17,096,629 | $11,500,162 | | Income (loss) from Operations | $2,189,778 | $316,831 | $3,789,403 | ($801,172) | | Net Income Attributable to NetSol | $2,855,629 | $634,421 | $3,818,218 | $264,923 | | Diluted EPS | $0.25 | $0.06 | $0.33 | $0.02 | Condensed Consolidated Statements of Cash Flows Operating cash flow significantly improved to $3.2 million provided, while investing and financing activities used cash, leading to a net decrease in cash and equivalents Cash Flow Summary for the Six Months Ended December 31 (in USD) | Cash Flow Activity | 2018 | 2017 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $3,154,647 | ($2,054,989) | | Net cash used in investing activities | ($1,954,592) | ($899,882) | | Net cash used in financing activities | ($405,602) | ($449,164) | | Net decrease in cash and cash equivalents | ($1,768,049) | ($4,168,304) | | Cash and cash equivalents at end of period | $20,320,804 | $10,004,650 | Notes to the Condensed Consolidated Financial Statements Notes detail accounting policies, the impact of ASC 606 adoption, revenue breakdowns, major customers, related party transactions, debt, and segment reporting - The Company adopted ASC 606 on July 1, 2018, resulting in a cumulative net decrease of $5,795,795 to opening accumulated deficit and $2,957,860 to non-controlling interest[40][41] - Daimler Financial Services is a major customer, contributing 31.6% of net revenues for the six months ended December 31, 2018, under a 10-year contract valued at approximately €71 million plus services[113][115] - The Asia-Pacific segment generated the vast majority of revenue ($27.6 million) and net income ($7.9 million) for the six months ended December 31, 2018[170][173] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the business overview, financial performance, liquidity, and capital resources, highlighting increased revenue and profitability driven by license fee recognition in China Business Overview and Highlights NetSol provides IT and enterprise software for the lease and finance industry, highlighted by new multi-million dollar NFS Ascent™ contracts in China and successful implementations - The company's primary revenue source is licensing, customization, and maintenance of its NetSol Financial Suite (NFS™) and NFS Ascent™ platforms for the global lease and finance industry[184][187] - Signed a five-year contract valued at approximately $30 million with a tier-one auto captive finance company for NFS Ascent™ implementation in China[196] - Signed a multi-million-dollar contract with a major American multinational automaker for NFS Ascent™ Retail Platform implementation in China[196] Results of Operations Revenues increased to $17.0 million for the quarter and $33.4 million for six months, driven by license fees from China contracts, significantly boosting net income and gross profit margin Revenue Breakdown for the Three Months Ended December 31 (in USD) | Revenue Type | 2018 | 2017 | | :--- | :--- | :--- | | License fees | $4,817,569 | $235,932 | | Maintenance fees | $3,534,693 | $3,568,448 | | Services | $8,237,334 | $9,087,191 | | Total Net Revenues | $17,002,627 | $14,446,435 | Revenue Breakdown for the Six Months Ended December 31 (in USD) | Revenue Type | 2018 | 2017 | | :--- | :--- | :--- | | License fees | $10,773,682 | $561,998 | | Maintenance fees | $7,173,020 | $7,042,173 | | Services | $14,655,968 | $16,104,928 | | Total Net Revenues | $33,399,172 | $27,265,211 | - The increase in license revenue is primarily due to a new five-year, $30 million contract and another multi-million dollar contract for NFS Ascent™ in China[207][229] - Gross profit margin for the six months ended Dec 31, 2018, increased to 51.2% from 42.2% in the prior-year period, driven by higher-margin license revenue[236] Liquidity and Capital Resources The company maintained a strong cash position of $20.3 million, with operating cash flow significantly improving and average days sales outstanding decreasing - Cash and cash equivalents stood at $20,320,804 at December 31, 2018, compared to $22,088,853 at June 30, 2018[254] - Net cash provided by operating activities was $3,154,647 for the six months ended December 31, 2018, compared to net cash used of $2,054,989 in the prior-year period[255] - Average days sales outstanding (DSO) improved to 155 days for the six months ended December 31, 2018, down from 260 days in the same period of 2017[257] Item 3. Quantitative and Qualitative Disclosures about Market Risk No quantitative or qualitative disclosures regarding market risk were reported for the period - No disclosures were made under this item[301] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[302] - No material changes occurred in internal controls over financial reporting during the quarter[306] PART II. OTHER INFORMATION This section provides additional information including legal proceedings, risk factors, equity sales, defaults, and exhibits Item 1. Legal Proceedings No legal proceedings were reported by the company during the period - None[307] Item 1A. Risk Factors No new or updated risk factors were reported in this quarterly report - None[307] Item 2. Unregistered Sales of Equity and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported during the period - None[308] Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported by the company - None[308] Item 4. Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable[309] Item 5. Other Information No other information was reported by the company - None[310] Item 6. Exhibits This section lists exhibits filed with the report, including CEO and CFO certifications under Sarbanes-Oxley Sections 302 and 906 - Exhibits filed include CEO and CFO certifications under Sarbanes-Oxley Sections 302 and 906[311]