Quarterly report pursuant to Section 13 or 15(d)

LEASES

v3.21.2
LEASES
3 Months Ended
Sep. 30, 2021
Leases  
LEASES

NOTE 11 - 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.

 

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:

 

    As of     As of  
   

September 30,

2021

   

June 30,

2021

 
Assets                
Operating lease assets, net   $ 1,197,453     $ 1,345,869  
                 
Liabilities                
Current                
Operating   $ 828,879     $ 857,729  
Non-current                
Operating     438,423       564,257  
Total Lease Liabilities   $ 1,267,302     $ 1,421,986  

 

 

NETSOL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

September 30, 2021

(Unaudited)

 

The components of lease cost were as follows:

 

    2021     2020  
    For the Three Months  
    Ended September 30,  
    2021     2020  
             
Amortization of finance lease assets   $ 21,033     $ 45,253  
Interest on finance lease obligation     4,936       11,692  
Operating lease cost     282,951       320,086  
Short term lease cost     -       16,578  
Sub lease income     (9,155 )     (8,624 )
Total lease cost   $ 299,765     $ 384,985  

 

Lease term and discount rate were as follows:

 

    As of     As of  
   

September 30,

2021

   

June 30,

2021

 
             
Weighted average remaining lease term - Operating leases     1.6 Years       1.78 Years  
                 
Weighted average discount rate - Operating leases     5.7 %     5.7 %

 

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

 

    2021     2020  
    For the Three Months  
    Ended September 30  
    2021     2020  
             
Cash flows related to lease liabilities                
Operating cash flows related to operating leases   $ 288,623     $ 269,783  
                 
Operating cash flows from finance leases   $ 3,502     $ 8,141  
                 
Financing cash flows from finance leases   $ 48,908     $ 93,105  

 

 

NETSOL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

September 30, 2021

(Unaudited)

 

Maturities of operating lease liabilities were as follows as of September 30, 2021:

 

    Amount  
Within year 1   $ 875,294  
Within year 2     359,175  
Within year 3     90,226  
Within year 4     772  
Within year 5     772  
Thereafter     2,123  
Total Lease Payments     1,328,362  
Less: Imputed interest     (61,060 )
Present Value of lease liabilities     1,267,302  
Less:  Current portion     (828,879 )
Non-Current portion   $ 438,423  

 

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 are currently on a month by month basis. All leases are considered operating leases. There are no rights to purchase the premises and no residual value guarantees. For the three months ended September 30, 2021 and 2020, the Company received lease income of $9,155 and $8,624, respectively.