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Note 11 - Debts
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Sep. 30, 2014
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| Disclosure Text Block Supplement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt and Capital Leases Disclosures [Text Block] |
NOTE 11 – DEBTS
Notes payable and capital leases consisted of the following:
(1) The Company finances Directors’ and Officers’ (“D&O”) liability insurance as well as Errors and Omissions (“E&O”) liability insurance, for which the total balances are renewed on an annual basis, are recorded in current maturities. The interest rate on the insurance financing was 0.55% as of September 30, 2014 and June 30, 2014, respectively.
(2) In April 2008, the Company entered into an agreement with Habib American Bank to secure a line of credit to be collateralized by certificates of deposit held at the bank. The interest rate on this line of credit is variable, and was 1.5% as of September 30, 2014 and June 30, 2014, respectively. Interest expense for the three months ended September 30, 2014 and 2013 was $7,070 and $6,997, respectively.
In February 2012, the Company entered into agreement with HSBC for the issuance of stand by letter of credit worth $90,000 in favor of landlord against the new office space. The Company has deposited $90,000 in a saving account with HSBC as collateral against this letter of credit.
In June 2012, the Company’s subsidiary, NTA, entered into an agreement with Habib American Bank to secure a line of credit up to $500,000 to be collateralized by certificates of deposit of the same value held at the bank. The interest rate on this line of credit is variable and was 1.9% and 1.9% as of September 30, 2014 and June 30, 2014, respectively. Interest expense for the three months ended September 30, 2014 and 2013 was $1,588 and $299, respectively.
Amounts of both lines of credit were paid down during the period.
(3) During the year ended June 30, 2008, the Company’s subsidiary, NTE, entered into an overdraft facility with HSBC Bank plc whereby the bank would cover any overdrafts up to £300,000, or approximately $487,230. The annual interest rate was 4.75% as of September 30, 2014 and June 30, 2014, 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 September 30, 2014, NTE was in compliance with this covenant.
(4) In October 2011, the Company’s subsidiary, NTE, entered into a loan agreement with HSBC Bank to finance the acquisition of 51% in Virtual Leasing Services Limited. HSBC Bank guaranteed the loan up to a limit of £1,000,000, or approximately $1,624,100 for a period of 5 years with monthly payments of £18,420, or approximately $29,916. The interest rate was 4% which is 3.5% above the bank sterling base rate. The loan is securitized against 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 months ended September 30, 2014 and 2013 was $16,702 and $18,849, respectively.
This facility requires that NTE’s adjusted tangible net worth to be not be less than £600,000. For this purpose, adjusted tangible net worth means shareholders’ funds less intangible assets plus non-redeemable preference shares. In addition, the facility requires NTE’s cash debt service coverage to not fall below 150% of the aggregate debt service cost. As of September 30, 2014, NTE was in compliance with this covenant.
(5) The Company’s subsidiary, NetSol PK, entered into two different term finance facilities from Askari Bank to finance the construction of a new building. The total aggregate amount of these facilities is Rs. 112,500,000, or approximately $1,081,835, (secured by the first charge of Rs. 580 million or approximately $5.58 million over the land, building and equipment of the company). The interest rate was 12.90% as of September 30, 2014 and June 30, 2014, respectively, which is 2.75% above the six-month Karachi Inter Bank Offering Rate.
(6) The Company’s subsidiary, NetSol PK, has an export refinance facility with Askari Bank Limited, secured by the Company’s assets. This is a revolving loan that matures every six months. Total facility amount is Rs. 300,000,000 or $2,884,893. The interest rate for the loans was 7.5% and 9.4% at September 30, 2014 and June 30, 2014 respectively. Interest expense for the three months ended September 30, 2014 and 2013 was $35,001 and $22,123, respectively.
Both term and export refinance facilities from Askari Bank Limited amounting to Rupees 262.5 million ($2.52 million) require NetSol PK to maintain a long term debt equity ratio of 60:40 and the current ratio of 1:1. As of September 30, 2014, NetSol PK was in compliance with this covenant.
(7) In October 2013, the Company’s subsidiary, NTE, entered into a loan agreement with Investec, a related party, to finance VLS. The loan amount was £100,000, or approximately $162,410, for a period of 1 year with monthly payments of £8,676, or approximately $14,091. The interest rate was 4.1%.
In March 2014, the Company’s subsidiary, VLS, entered into a loan agreement with Investec. The loan amount was £150,000, or approximately $243,615, for a period of two years with annual payments of £75,000, or approximately $121,808. The interest rate was 3.13%. As of September 30, 2014, the subsidiary has used this facility up to $258,186 including interest due, of which $127,868 was shown as long term and $130,318 as current maturity, including seven months of accrued interest.
(8) The Company leases various fixed assets under capital lease arrangements expiring in various years through 2018. 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 ended September 30, 2014 and 2013.
Following is the aggregate minimum future lease payments under capital leases as of September 30, 2014:
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