NOTE 10 - LEASES

The Company leases certain office space, office equipment and autos with remaining lease terms of one year to 10 years under leases classified as financing and operating. For certain leases, the Company has options to extend the lease term for additional periods ranging from one year to 10 years.

The Company treats a contract as a lease when the contract conveys the right to use a physically distinct asset for a period of time in exchange for consideration, or the Company directs the use of the asset and obtains substantially all the economic benefits of the asset. These leases are recorded as right-of-use (“ROU”) assets and lease obligation liabilities for leases with terms greater than 12 months. ROU assets represent the Company’s right to use an underlying asset for the entirety of the lease term. Lease liabilities represent the Company’s obligation to make payments over the life of the lease. A ROU asset and a lease liability are recognized at commencement of the lease based on the present value of the lease payments over the life of the lease. Initial direct costs are included as part of the ROU asset upon commencement of the lease. Since the interest rate implicit in a lease is generally not readily determinable for the operating leases, the Company uses an incremental borrowing rate to determine the present value of the lease payments. The incremental borrowing rate represents the rate of interest the Company would have to pay to borrow on a collateralized basis over a similar lease term to obtain an asset of similar value. For finance leases, the Company used the incremental borrowing rate implicit in the lease.

The Company reviews the impairment of ROU assets consistent with the approach applied for the Company’s other long-lived assets. The Company reviews the recoverability of long-lived assets when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on the Company’s ability to recover the carrying value of the asset from the expected undiscounted future pre-tax cash flows of the related operations.

The Company elected the practical expedient to exclude short-term leases (leases with original terms of 12 months or less) from ROU asset and lease liability accounts.

Lease expense is recognized on a straight-line basis over the lease term, while variable lease payments are expensed as incurred. Variable payments change due to facts or circumstances occurring after the commencement date, other than the passage of time, and do not result in a re-measurement of lease liabilities. The Company’s variable lease payments include payments for finance leases that are adjusted based on a change in the Karachi Inter Bank Offer Rate. The Company’s lease agreements do not contain any significant residual value guarantees or restrictive covenants.

Supplemental balance sheet information related to leases was as follows:

SCHEDULE OF BALANCE SHEET INFORMATION RELATED TO LEASE

NETSOL TECHNOLOGIES, INC.

Notes to Consolidated Financial Statements

June 30, 2023 and 2022

The components of lease cost were as follows:

SCHEDULE OF COMPONENTS OF LEASE COST 

Lease term and discount rate were as follows:

SCHEDULE OF LEASE TERM AND DISCOUNT RATE

Supplemental disclosures of cash flow information related to leases were as follows:

SCHEDULE OF SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION RELATED TO LEASES

NETSOL TECHNOLOGIES, INC.

Notes to Consolidated Financial Statements

June 30, 2023 and 2022

Maturities of operating lease liabilities were as follows as of June 30, 2023:

SCHEDULE OF MATURITIES OF OPERATING LEASE LIABILITIES

The Company is a lessor for certain office space leased by the Company and sub-leased to others under non-cancelable leases. These lease agreements provide for a fixed base rent and terminate by January 2027. All leases are considered operating leases. There are no rights to purchase the premises and no residual value guarantees. For the years ended June 30, 2023 and 2022, the Company received lease income of $31,998 and $35,356, respectively.

The Company signed an agreement for office space in Austin, Texas in April 2023 with effective date of August 2023. The lease agreement is a three year agreement with monthly payments ranging from $10,790 for year one to $11,448 for year three.