NOTE 15 – DEBTS

Notes payable and finance 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 5.0% to 7.0% as of March 31, 2021 and June 30, 2020.

(2) The Company and its subsidiary, NTA, received Paycheck Protection Program loans of $469,721 introduced by the U.S. Government during the COVID-19 Pandemic. This loan is forgivable if the Company meets the criteria set by the U.S. Government. The loans carry an interest rate of 1% and have a maturity date of two years from the date of the disbursement of the loan. As of March 31, 2021, the Company has not applied for the loan forgiveness.

(3) 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 $410,959. The annual interest rate was 5.12% as of March 31, 2021. The total outstanding balance as of March 31, 2021 was £Nil.

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, 2021, NTE was in compliance with this covenant.

(4) The Company’s subsidiary, NetSol PK, has a term finance facility from Askari Bank Limited, approved by the Government of Pakistan to protect the employment situation during the Pandemic COVID-19. This is a term loan payable in three years. The availed facility amount was Rs. 311,727,320 or $2,036,103, at March 31, 2021, of which $1,322,065 is shown as current and the remaining $714,038 is shown as long term. The availed facility amount was Rs. 232,042,664 or $1,380,878, at June 30, 2020, of which $354,337 is shown as current and the remaining $1,026,541 is shown as long term. The interest rate for the loan was 3% at March 31, 2021 and June 30, 2020.

(5) 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 nine months. The total facility amount is Rs. 500,000,000 or $3,265,839 at March 31, 2021 and Rs. 500,000,000 or $2,975,482 at June 30, 2020. The interest rate for the loan was 3% at March 31, 2021 and June 30, 2020.

(6) The Company’s subsidiary, NetSol PK, has a running finance facility with Askari Bank Limited, secured by NetSol PK’s assets. The total facility amount is Rs. 75,000,000 or $489,876, at March 31, 2021. The balance outstanding at March 31, 2021 and June 30, 2020 was Rs. Nil. The interest rate for the loan was 9.59% and 7.2% at March 31, 2021 and June 30, 2020, 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, 2021, NetSol PK was in compliance with this covenant.

(7) 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 nine months. The total facility amount is Rs. 380,000,000 or $2,482,037 and Rs. 380,000,000 or $2,261,365 at March 31, 2021 and June 30, 2020, respectively. The interest rate for the loan was 3% at March 31, 2021 and June 30, 2020.

(8) The Company’s subsidiary, NetSol PK, has a running finance facility with Samba Bank Limited, secured by NetSol PK’s assets. The total facility amount is Rs. 120,000,000 or $783,801 and Rs. 120,000,000 or $714,116, at March 31, 2021 and June 30, 2020, respectively. The interest rate for the loan was 9.09% and 7.7% at March 31, 2021 and June 30, 2020, respectively. The balance outstanding at March 31, 2021 and June 30, 2020 was Rs. 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, 2021, NetSol PK was in compliance with these covenants.

(9) The Company’s subsidiary, NetSol PK, has an export refinance facility with Habib Metro Bank Limited, secured by NetSol PK’s assets. This is a revolving loan that matures every nine months. The total facility amount is Rs. 900,000,000 or $5,878,511 and NetSol PK used Rs. 700,000,000 or $4,572,176 at March 31, 2021. The total facility amount is Rs. 900,000,000 or $5,355,868 and NetSol PK used Rs. 500,000,000 or $2,975,483 at June 30, 2020. The interest rate for the loan was 3% at March 31, 2021 and June 30, 2020.

(10) In March 2019, the Company’s subsidiary, VLS, entered into a loan agreement. The loan amount was £69,549, or $95,273, for a period of 5 years with monthly payments of £1,349, or $1,848. As of March 31, 2021, the subsidiary has used this facility up to $59,087, of which $40,007 was shown as long-term and $19,080 as current. The interest rate was 6.14% at March 31, 2021.

(11) The Company’s subsidiary, VLS finances Directors’ and Officers’ (“D&O”) liability insurance, and recorded in current maturities. The interest rate on this financing was 4.5% as of March 31, 2021.

(12) The Company leases various fixed assets under finance lease arrangements expiring in various years through 2024. The assets and liabilities under finance 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 finance leases is included in depreciation expense for the three and nine months ended March 31, 2021 and 2020.

Following is the aggregate minimum future lease payments under finance leases as of March 31, 2021: