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 and as such are recorded in current maturities. The interest rate on the insurance financing was 0.35% and 0.49% as of December 31, 2015 and June 30, 2015, respectively.

(2) In October 2011, the Company’s subsidiary, NTE, entered into a loan agreement with HSBC Bank to finance the acquisition of 51% of a controlling interest in Virtual Leasing Services Limited. HSBC Bank guaranteed the loan up to a limit of £1,000,000, or approximately $1,480,166 for a period of 5 years with monthly payments of £18,420, or approximately $27,265. 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 six months ended December 31, 2015 was $1,161 and $9,011, respectively. Interest expense for the three and six months ended December 31, 2014 was $13,248 and $29,950, respectively.

This facility requires that NTE’s adjusted tangible net worth would 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, NTE’s cash debt service coverage would not fall below 150% of the aggregate debt service cost. As of December 31, 2015, 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. 300,000,000 or approximately $2,824,859. The interest rate for the loans was 4.5% and 7.5% at December 31, 2015 and June 30, 2015, respectively. Interest expense for the three and six months ended December 31, 2015 was $36,980 and $77,986, respectively. Interest expense for the three and six months ended December 31, 2014 was $37,068 and $72,775, respectively.

Export refinance facility from Askari Bank Limited amounting to Rupees 300 million ($2.82 million) require NetSol PK to maintain a long term debt equity ratio of 60:40 and the current ratio of 1:1. As of December 31, 2015, NetSol PK was in compliance with this covenant.

(4) In March 2014, the Company’s subsidiary, VLS, entered into a loan agreement with Investec. The loan amount was £150,000, or approximately $222,025, for a period of two years with annual payments of £75,000, or approximately $111,012. The interest rate was 3.13%. As of December 31, 2015, VLS has used this facility up to $128,647 including interest due, and was shown as a current maturity.

(5) 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 six months ended December 31, 2015 and 2014.