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LEASES

6 Months Ended

Dec. 31, 2022

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.

NETSOL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

December 31, 2022

(Unaudited)

Supplemental balance sheet information related to leases was as follows:

	As of		As of
	December 31, 2022		June 30, 2022
Assets
Operating lease assets, net	$	1,246,778	$	969,163

Liabilities
Current
Operating	$	499,455	$	548,678
Operating, Current	$	499,455	$	548,678
Non-current
Operating		789,621		447,260
Operating, Current		789,621		447,260
Total Lease Liabilities	$	1,289,076	$	995,938

The components of lease cost were as follows:

SCHEDULE OF COMPONENTS OF LEASE COST

	2022			2021			2022			2021
	For the Three Months						For the Six Months
	Ended December 31,						Ended December 31,
	2022			2021			2022			2021

Amortization of finance lease assets	$	3,099		$	21,895		$	5,995		$	42,928
Interest on finance lease obligation		1,552			3,212			3,359			8,148
Operating lease cost		113,079			97,827			231,601			380,778
Short term lease cost		37,986			38,781			104,622			38,781
Sub lease income		(7,786	)		(8,950	)		(15,598	)		(18,105	)
Total lease cost	$	147,930		$	152,765		$	329,979		$	452,530

Lease term and discount rate were as follows:

	As of			As of
	December 31, 2022			June 30, 2022

Weighted average remaining lease term - Operating leases		3.31 Years			3.34 Years

Weighted average discount rate - Operating leases		3.6	%		4.2	%

NETSOL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

December 31, 2022

(Unaudited)

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

		1		2
	For the Six Months
	Ended December 31
	2022		2021

Operating cash flows related to operating leases	$	236,311	$	369,175

Operating cash flows related to finance leases	$	3,358	$	3,531

Financing cash flows related finance leases	$	16,230	$	54,844

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

	Amount
Within year 1	$	534,010
Within year 2		373,602
Within year 3		324,306
Within year 4		120,543
Within year 5		583
Thereafter		874
Total Lease Payments		1,353,918
Less: Imputed interest		(64,842	)
Present Value of lease liabilities		1,289,076
Less: Current portion		(499,455	)
Non-Current portion	$	789,621

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 six months ended December 31, 2022, the Company received lease income of $7,786 and $15,598, respectively. For the three and six months ended December 31, 2021, the Company received lease income of $8,950 and $18,105, respectively.

NETSOL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

December 31, 2022

(Unaudited)