NOTE 15 – DEBTS

Notes payable and capital leases consisted of the following:

(1) The Company finances Directors’ and Officers’ (“D&O”) liability insurance and Errors and Omissions (“E&O”) liability insurance, 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 range from 6.0% to 7.0% as of June 30, 2019 and 5.3% and 6.5% as of June 30, 2018.

(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 $379,747. The annual interest rate was 5.1% as of June 30, 2019. Total outstanding balance as of June 30, 2019 and 2018 was £nil.

This overdraft facility requires that the aggregate amount of invoiced trade debtors (net of provisions for bad and doubtful debts and excluding intra-group debtors) of NTE, not exceeding 90 days old, will not be less than an amount equal to 200% of the facility. As of June 30, 2019, NTE was in compliance with this covenant.

(3) The Company’s subsidiary, NetSol PK, has an export refinance facility with Askari Bank Limited, secured by NetSol PK’s assets. This is a revolving loan that matures every six months. Total facility amount is Rs. 500,000,000 or $3,066,355 and Rs. 500,000,000 or $4,107,451 at June 30, 2019 and 2018, respectively. The interest rate for the loan was 3% at June 30, 2019 and 2018.

(4) The Company’s subsidiary, NetSol PK, has a running finance facility with Askari Bank Limited, secured by NetSol PK’s assets. Total facility amount is Rs. 75,000,000 or $459,953, at June 30, 2019. NetSol PK used Rs. 53,000,000 or $325,034, at June 30, 2019. The interest rate for the loan was 13.0% and 8.2% at June 30, 2019 and 2018, respectively.

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 June 30, 2019, NetSol PK was in compliance with this covenant.

(5) The Company’s subsidiary, NetSol PK, has an export refinance facility with Samba Bank Limited, secured by NetSol PK’s assets. This is a revolving loan that matures every six months. Total facility amount is Rs. 380,000,000 or $2,330,431 and Rs. 350,000,000 or $2,875,216, at June 30, 2019 and 2018, respectively. The interest rate for the loan was 3% at June 30, 2019 and 2018.

(6) The Company’s subsidiary, NetSol PK, has a running finance facility with Samba Bank Limited, secured by NetSol PK’s assets. Total facility amount is Rs. 120,000,000 or $735,925 and Rs. 150,000,000 or $1,232,235, at June 30, 2019 and 2018, respectively. The interest rate for the loan was 14.3% and 8.1% at June 30, 2019 and 2018, respectively.

During the tenure of loan, the facilities from Samba Bank Limited require NetSol PK to maintain at a minimum a current ratio of 1:1, an interest coverage ratio of 4 times, a leverage ratio of 2 times, and a debt service coverage ratio of 4 times. As of June 30, 2019, NetSol PK was in compliance with these covenants.

(7) In March 2019, the Company’s subsidiary, VLS, entered into a loan agreement with Investec a related party. The loan amount was £69,549, or $88,037, for a period of 5 years with monthly payment of £1,349, or $1,708. As of June 30, 2019, the subsidiary has used this facility up to $82,969, of which $67,131 was shown as long-term and $15,838 as current. The interest rate was 6.14% at June 30, 2019.

(8) The Company leases various fixed assets under capital lease arrangements expiring in various years through 2024. 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 years ended June 30, 2019 and 2018.

Following is the aggregate minimum future lease payments under capital leases as of June 30, 2019: