NOTE 11 – DEBTS

Notes payable and capital leases consisted of the following:

(1) The Company finances Directors’ and Officers’ (“D&O”) liability insurance as well as Errors and Omissions (“E&O”) liability insurance, for which the total balances are renewed on an annual basis, are recorded in current maturities. The interest rate on the insurance financing was 0.49% and 0.55% as of March 31, 2015 and June 30, 2014, respectively.

(2) In April 2008, the Company entered into an agreement with Habib American Bank to secure a line of credit to be collateralized by certificates of deposit held at the bank. The interest rate on this line of credit is variable, and was 1.5% as of March 31, 2015 and June 30, 2014, respectively. In June 2012, the Company’s subsidiary, NTA, entered into an agreement with Habib American Bank to secure a line of credit up to $500,000 to be collateralized by certificates of deposit of the same value held at the bank. The interest rate on this line of credit is variable and was 1.9% as of March 31, 2015 and June 30, 2014, respectively. Interest expense for the three and nine months ended December 31, 2014 was $nil and $8,658, respectively. Interest expense for the three and nine months ended March 31, 2014 was $9,536 and $26,262, respectively. Amounts of both lines of credit were paid down during the period.

(3) During the year ended June 30, 2008, the Company’s subsidiary, NTE, entered into an overdraft facility with HSBC Bank plc whereby the bank would cover any overdrafts up to £300,000, or approximately $445,038. The annual interest rate was 4.75% as of March 31, 2015 and June 30, 2014, 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, 2015, NTE was in compliance with this covenant.

(4) In October 2011, the Company’s subsidiary, NTE, entered into a loan agreement with HSBC Bank to finance the acquisition of 51% in Virtual Leasing Services Limited. HSBC Bank guaranteed the loan up to a limit of £1,000,000, or approximately $1,483,459 for a period of 5 years with monthly payments of £18,420, or approximately $27,325. The interest rate was 4% which is 3.5% above the bank sterling base rate. The loan is securitized against 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, 2015 was $7,628 and $37,578, respectively. Interest expense, during the three and nine months ended March 31, 2014, was $19,940 and $61,429, respectively.

This facility requires that NTE’s adjusted tangible net worth to be not be less than £600,000. For this purpose, adjusted tangible net worth means shareholders’ funds less intangible assets plus non-redeemable preference shares. In addition, the facility requires NTE’s cash debt service coverage to not fall below 150% of the aggregate debt service cost. As of March 31, 2015, NTE was in compliance with this covenant.

(5) The Company’s subsidiary, NetSol PK, entered into two different term finance facilities from Askari Bank to finance the construction of a new building. The total aggregate amount of these facilities is Rs. 112,500,000, or approximately $1,091,279 (secured by the first charge of Rs. 580 million or approximately $5.62 million over the land, building and equipment of NetSol PK). The interest rate was 12.39% as of March 31, 2015 and June 30, 2014, respectively, which is 2.75% above the six-month Karachi Inter Bank Offering Rate. During the period ended march 31, 2015, NetSol PK paid off the complete liability against this financing.

(6) 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. 300,000,000 or $2,910,079 (availed Rs. 200,000,000 or $1,940,052). The interest rate for the loans was 7.5% and 9.4% at March 31, 2015 and June 30, 2014 respectively. Interest expense for the three and nine months ended March 31, 2015 was $31,428 and $104,203, respectively. Interest expense for the three and nine months ended March 31, 2014, was $36,762 and $122,943, respectively.

Both term and export refinance facilities from Askari Bank Limited amounting to Rupees 350 million ($3.43 million) require NetSol PK to maintain a long term debt equity ratio of 60:40 and the current ratio of 1:1. As of March 31, 2015, NetSol PK was in compliance with this covenant.

(7) In October 2013, the Company’s subsidiary, NTE, entered into a loan agreement with Investec, a related party, to finance VLS. The loan amount was £100,000, or approximately $148,346, for a period of 1 year with monthly payments of £8,676, or approximately $12,870. The interest rate was 4.1%. As of March 31, 2015, NTE has paid the loan in full.

In March 2014, the Company’s subsidiary, VLS, entered into a loan agreement with Investec. The loan amount was £150,000, or approximately $222,519, for a period of two years with annual payments of £75,000, or approximately $111,259. The interest rate was 3.13%. As of March 31, 2015, VLS has used this facility up to $119,655 including interest due, and was shown as current maturity.

(8) The Company leases various fixed assets under capital lease arrangements expiring in various years through 2018. 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, 2015 and 2014.

Following is the aggregate minimum future lease payments under capital leases as of March 31, 2015: