NOTE 12 – DEBTS

Notes payable and capital leases consisted of the following:

(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.

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: