NOTE 14 – 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 were ranging from 4.8% to 7.69% as of March 31, 2018 and June 30, 2017.

(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 $422,535. The annual interest rate was 4.75% as of March 31, 2018. Total outstanding balance as of March 31, 2018 was £Nil. Interest expense for the three and nine months ended March 31, 2018, was $5,122 and $13,167, respectively. Interest expense for the three and nine months ended March 31, 2017, was $4,501.

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, 2018, 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 $4,325,634 at March 31, 2018 and June 30, 2017. The interest rate for the loan was 3% at March 31, 2018 and June 30, 2017. Interest expense for the three and nine months ended March 31, 2018 was $24,441 and $94,710, respectively. Interest expense for the three and nine months ended March 31, 2017 was $28,012 and $85,604, respectively.

(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 $648,845, at March 31, 2018. NetSol PK used Rs. Nil or $Nil, at March 31, 2018. The interest rate for the loan was 8.16% at March 31, 2018.

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, 2018, 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. 350,000,000 or $3,027,643 and Rs. 200,000,000 or $1,910,585, at March 31, 2018 and June 30, 2017, respectively. The interest rate for the loan was 3% at March 31, 2018 and June 30, 2017. Interest expense for the three and nine months ended March 31, 2018 was $30,095 and $69,873, respectively. Interest expense for three and nine months ended March 31, 2017, was $nil.

(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. 150,000,000 or $1,297,690 and Rs. 300,000,000 or $2,865,877, at March 31, 2018 and June 30, 2017, respectively. The interest rate for the loan was 8.14% and 8.13% at March 31, 2018 and June 30, 2017, respectively. Interest expense for the three and nine months ended March 31, 2018 was $19,997 and $99,718, respectively. Interest expense for the three and nine months ended March 31, 2017, was $nil.

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 March 31, 2018, NetSol PK was in compliance with these covenants.

(6) The Company leases various fixed assets under capital lease arrangements expiring in various years through 2022. 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 months and nine months ended March 31, 2018 and 2017.

Following is the aggregate minimum future lease payments under capital leases as of March 31, 2018: