LEASES

9 Months Ended

Mar. 31, 2022

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
	March 31, 2022		June 30, 2021
Assets
Operating lease assets, net	$	1,238,713	$	1,345,869
Liabilities
Current
Operating	$	706,684	$	857,729
Non-current
Operating		570,871		564,257
Total Lease Liabilities	$	1,277,555	$	1,421,986

NETSOL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

March 31, 2022

(Unaudited)

The components of lease cost were as follows:

	For the Three Months						For the Nine Months
	Ended March 31,						Ended March 31,
	2022			2021			2022			2021
Amortization of finance lease assets	$	16,273		$	65,628		$	59,201		$	142,807
Interest on finance lease obligation		5,632			6,662			13,780			25,307
Operating lease cost		137,270			319,712			518,048			950,538
Short term lease cost		128,008			33,138			166,789			63,209
Sub lease income		(8,907	)		(9,155	)		(27,012	)		(26,517	)
Total lease cost	$	278,276		$	415,985		$	730,806		$	1,155,344

Lease term and discount rate were as follows:

	As of			As of
	March 31, 2022			June 30, 2021
Weighted average remaining lease term - Operating leases		3.38 Years			1.78 Years
Weighted average discount rate - Operating leases		5.9	%		5.7	%

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

	For the Nine Months
	Ended March 31
	2022		2021
Operating cash flows related to operating leases	$	541,705	$	856,135
Operating cash flows related to finance leases	$	3,553	$	20,138
Financing cash flows related to finance leases	$	55,399	$	254,985

NETSOL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

March 31, 2022

(Unaudited)

Maturities of operating lease liabilities were as follows as of March 31, 2022:

	Amount
Within year 1	$	742,215
Within year 2		221,799
Within year 3		146,200
Within year 4		131,729
Within year 5		98,977
Thereafter		1,621
Total Lease Payments		1,342,541
Less: Imputed interest		(64,986	)
Present Value of lease liabilities		1,277,555
Less: Current portion		(706,684	)
Non-Current portion	$	570,871

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 and nine months ended March 31, 2022, the Company received lease income of $8,907 and $27,012, respectively. For the three and nine months ended March 31, 2021, the Company received lease income of $9,155 and $26,517, respectively.