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Notes to Accounts of Mindteck (India) Ltd.

Mar 31, 2015

1 BACKGROUND

Mindteck (India) Limited ('Mindteck' or 'the Company') was incorporated to render engineering and IT services to customers across various industry verticals in specific service horizontals. Mindteck's core offerings are in Product Engineering, Application Software, Electronic Design, Testing and Enterprise Business services.

In the Product Engineering space, Mindteck renders Electronic Design, Firmware and Software in key vertical areas of Life Sciences and Analytical Instruments, Semiconductor Fab Equipment, Medical Instruments and in the high-end Storage Products segment. The Enterprise Business services line provides services in the areas of support and maintenance of enterprise-wide applications. Application Software services are centered around providing solutions to independent software vendors in the Banking and Financial Services Industry (BFSI) space and a broad range of services for custom Application Development, Application Management, Re-engineering, Validation and Verification across the spectrum.

Through IT-enabled services, the Company provides offshore- based employee resourcing, marketing and pre-sales support services to its subsidiaries.

Mindteck is headquartered in Bengaluru with a branch office in Kolkata. The software development centres in Bengaluru and Kolkata are 100% Export Oriented Units ('EOU') set up under the Software Technology Parks of India (STPI) Scheme of the Government of India. Mindteck has subsidiaries in the United States of America, United Kingdom, Singapore, Malaysia and Bahrain.

1.1.1 Employee Benefits: Post-employment Benefit Plans

Defined contribution plans

The Company makes contributions, determined as a specified percentage of employee salaries, in respect of qualifying employees towards Provident Fund, which is a defined contribution plan. The company has no obligations other than to make the specified contributions. The contributions are charged to the Statement of Profit and Loss as they accrue. The amount recognized as an expense towards contribution to Provident Fund for the year aggregated to Rs 16,364,981 (previous year: Rs 14,526,034).

Defined benefit plans

The Company operates post-employment defined benefit plans that provide gratuity. The gratuity plan entitles an employee, who has rendered at least five years of continuous service, to receive one-half month's salary for each year of completed service at the time of retirement/exit. The Scheme is funded by the plan assets.

The following table set out the status of the gratuity plan as required under AS-15 Employee Benefits

Amount in Rs.

The estimates of future salary increases considered in actuarial valuation take into account inflation, seniority, promotion and other relevant factors such as supply and demand factors in the employment market.

2.1 Contingent Liabilities and Commitments

a) Corporate Guarantee of Rs 125,396,000 i.e. USD 2 million (previous year: Rs 119,726,000 i.e. USD 2 million) in favour of a banking institution in the United States of America with respect to the extension of credit facilities by the banking institution to Mindteck Inc., a wholly owned subsidiary of the Company.

b) Income tax matters aggregating to Rs 135,694,569 (previous year: Rs 118,682,320) are pending at various forums. The management believes that the Company has a good case to defend and no liability is expected in this regard.

c) Company has utilised bank guarantee facilities of Rs. 3,554,053 (previous year Rs 4,715,401) from Axis Bank against the bank guarantees provided to Customs and Excise Departments for Software Technology Park of India (STPI) bonding facilities.

2.2 Quantitative Details

The Company is engaged in providing software, IT-enabled and related services. Such services are not capable of being expressed in any generic unit and hence, it is not possible to give the quantitative details of sales and certain information as required under paragraphs 5 (viii) (c) of general instructions for preparation of the statement of profit and loss as per revised Schedule III to the Companies Act, 2013.

2.3 Segmental Reporting

The Company's operations predominantly relate to providing software and IT-enabled services which constitute the Company's two primary business segments. The Company considers the business segment as the primary segment and geographical segment based on the location of customers as the secondary segment.

The accounting principles consistently used in the preparation of the financial statements are also consistently applied to record income and expenditure in individual segments.

Income and direct expenses in relation to segments is categorized based on items that are individually identifiable to that segment, while the remainder of costs are apportioned on an appropriate basis. Certain expenses are not specifically allocable to individual segments as the underlying services are used interchangeably. The Company therefore believes that it is not practical to provide segment disclosures relating to such expenses and accordingly such expenses are separately disclosed as unallocable and directly charged against total income.

Segment assets excluding trade receivables, segment liabilities and fixed assets used in the Company's business have not been identified to any reportable segment, as these are used interchangeably between segments and hence Management believes that it is currently not practical to provide segment disclosures relating to total carrying amount of segment assets, liabilities and fixed assets, since a meaningful segregation is not possible.

Additionally, the Company leases office facilities, residential facilities and equipment under cancellable operating leases. The rental expense under cancellable operating leases during the year ended March 31, 2015 amounted to Rs 7,404,192 (previous year Rs 7,682,441).

2.4 Related Party Transactions

a) Related parties where control exists

The related parties where control exists are the holding companies (including ultimate and intermediary holding companies), subsidiaries and the Mindteck Employees Welfare Trust.

(i) Holding companies

Transcompany Ltd., British Virgin Islands (BVI) - Ultimate holding company Vanguard Group Holding Ltd., BVI - Intermediary holding company Mindteck Holdings Ltd., BVI - Intermediary holding company Business Holdings Ltd., BVI - Intermediary holding company Garrington Investments Ltd., BVI - Intermediary holding company Infotech Ventures Ltd. - Subsidiary of Intermediary holding company Embtech Holdings Ltd., Mauritius - Holding company

(ii) Subsidiaries (including step subsidiaries)

Mindteck Inc., USA [formerly Infotech Consulting Inc.]

Mindteck Software Malaysia SDN. BHD, Malaysia Mindteck Middle East Limited SOC, Kingdom of Bahrain Mindteck UK Limited, United Kingdom Mindteck Singapore Pte. Limited, Singapore Mindteck Netherlands BV, Netherlands Mindteck Germany GmbH, Germany Chendle Holdings Ltd, BVI

(iii) Mindteck Employees Welfare Trust ('MEWT')

b) Key Managerial Personnel

Yusuf Lanewala Managing Director

Dayananda Shetty Executive Director (Resigned w.e.f August 14,2014)

Meenaz Dhanani Executive Director

Anand Balakrishnan Chief Financial Officer (Appointed w.e.f November 7, 2014)

Avneet Gupta Chief Operating Officer (Appointed w.e.f January 2, 2015)

Shivarama Adiga . S Company Secretary

(c) Transactions with related parties for the year ended are as follows:

As per the Guidance Note on 'Accounting for Employee Share-Based Payments' issued by the ICAI, 416,000 (previous year 416,000) weighted average number of equity shares held by the Mindteck Employees Welfare Trust have been reduced from the equity shares outstanding in computing basic and diluted earnings per share.

2.5 The Ministry of Micro, Small and Medium Enterprises has issued an Office Memorandum dated August 26, 2008 which recommends that the Micro and Small Enterprises should mention in their correspondence with its customers the Entrepreneurs Memorandum Number as allocated after filing of the Memorandum in accordance with the 'Micro, Small and Medium Enterprises Development Act, 2006' ('the Act'). Accordingly, the disclosure in respect of the amounts payable to such enterprises as at March 31, 2015 has been made in the financial statements based on information received and available with the Company. Further in view of the management, the impact of interest, if any, that may be payable in accordance with the provisions of the Micro, Small and Medium Enterprises Development Act is not expected to be material. The Company has not received any claim for interest from any supplier as at the balance sheet date.

2.6 Comparatives presented have been regrouped, where necessary, to conform to the current year's classification.


Mar 31, 2014

1. CONTINGENT LIABILITIES AND COMMITMENTS

a) Corporate Guarantee of Rs 119,726,000 i.e. USD 2 million (previous year: Rs 109,310,000 i.e. USD 2 million) in favour of a banking institution in the United States of America with respect to the extension of credit facilities by the banking institution to Mindteck Inc., a wholly owned subsidiary of the Company.

b) Income tax matters aggregating to Rs 118,682,320 (previous year: Rs 84,826,398) are pending at various forums. The management believes that the Company has a good case to defend and no liability is expected in this regard.

c) Company has utilised bank guarantee facilities of Rs 4,715,401 from Axis Bank against the bank guarantees provided to Customs and Excise Departments for STPI bonding facilities.

2. QUANTITATIVE DETAILS

The Company is engaged in providing software, IT-enabled and related services. Such services are not capable of being expressed in any generic unit and hence, it is not possible to give the quantitative details of sales and certain information as required under paragraphs 5 (viii) (c) of general instructions for preparation of the statement of profit and loss as per revised Schedule VI to the Companies Act, 1956.

3. SEGMENTAL REPORTING

The Company''s operations predominantly relate to providing software and IT-enabled services which constitute the Company''s two primary business segments. The Company considers the business segment as the primary segment and geographical segment based on the location of customers as the secondary segment.

The accounting principles consistently used in the preparation of the financial statements are also consistently applied to record income and expenditure in individual segments.

Income and direct expenses in relation to segments is categorized based on items that are individually identifiable to that segment, while the remainder of costs are apportioned on an appropriate basis. Certain expenses are not specifically allocable to individual segments as the underlying services are used interchangeably. The Company therefore believes that it is not practical to provide segment disclosures relating to such expenses and accordingly such expenses are separately disclosed as unallocable and directly charged against total income.

Segment assets excluding trade receivables, segment liabilities and fixed assets used in the Company''s business have not been identified to any reportable segment, as these are used interchangeably between segments and hence Management believes that it is currently not practical to provide segment disclosures relating to total carrying amount of segment assets, liabilities and fixed assets, since a meaningful segregation is not possible.

4. LEASE TRANSACTIONS

The Company leases office and residential facilities and certain equipment under operating lease arrangements.

Lease rental expense for office facilities under non-cancellable operating leases during the year ended March 31, 2014 amounted to Rs 49,856,801 (previous year Rs 11,889,630).

Additionally, the Company leases office facilities, residential facilities and equipment under cancellable operating leases. The rental expense under cancellable operating leases during the year ended March 31, 2014 amounted to Rs 7,682,441 (previous year Rs 36,467,117).

5. RELATED PARTY TRANSACTIONS

a) Related parties where control exists

The related parties where control exists are the holding companies (including ultimate and intermediary holding companies), subsidiaries and the Mindteck Employees Welfare Trust.

(i) Holding companies

Transcompany Ltd., British Virgin Islands (BVI) - Ultimate holding company Vanguard Group Holding Ltd., BVI - Intermediary holding company Mindteck Holdings Ltd., BVI - Intermediary holding company Business Holdings Ltd., BVI - Intermediary holding company Garrington Investments Ltd., BVI - Intermediary holding company Infotech Ventures Ltd. - Subsidiary of Intermediary holding company Embtech Holdings Ltd., Mauritius - Holding company

(ii) Subsidiaries (including step subsidiaries)

Mindteck Inc., USA [formerly Infotech Consulting Inc.] Mindteck Software Malaysia SDN. BHD, Malaysia Mindteck Middle East Limited SOC, Kingdom of Bahrain Mindteck UK Limited, United Kingdom Mindteck Singapore Pte. Limited, Singapore Mindteck Netherlands BV, Netherlands Mindteck Germany GmbH, Germany Chendle Holdings Ltd, BVI

(iii) Mindteck Employees Welfare Trust (''MEWT'')

6. The Ministry of Micro, Small and Medium Enterprises has issued an Office Memorandum dated August 26, 2008 which recommends that the Micro and Small Enterprises should mention in their correspondence with its customers the Entrepreneurs Memorandum Number as allocated after filing of the Memorandum in accordance with the ''Micro, Small and Medium Enterprises Development Act, 2006'' (''the Act''). Accordingly, the disclosure in respect of the amounts payable to such enterprises as at March 31, 2014 has been made in the financials statements based on information received and available with the Company. Further in view of the management, the impact of interest, if any, that may be payable in accordance with the provisions of the Micro, Small and Medium Enterprises Development Act is not expected to be material. The Company has not received any claim for interest from any supplier as at the balance sheet date.

7. LONG-TERM BORROWINGS

As at March 31, 2013, Mindteck (India) Limited had an outstanding term loan of Rs 31,325,178 to Axis Bank Ltd., repayable in 21 quarterly installments commencing April 1, 2013. The interest rate on the term loan facility was base rate plus 3.25% (base rate was 13.25%). The term loan facility with Axis Bank Ltd., was secured by equitable mortgage of property at Kolkata, charge on fixed assets of the company and hypothecation charge on the entire current assets of the company. During the year, the company repaid the term loan in full and the balance outstanding as at March 31, 2014 is Rs Nil.

8. Comparatives presented have been regrouped, where necessary, to conform to the current year''s classification.


Mar 31, 2013

1 BACKGROUND

Mindteck (India) Limited (''Mindteck'' or ''the Company'') was incorporated to render engineering and IT services to customers across various industry verticals in specific service horizontals. Mindteck''s core offerings are in Product Engineering, Application Software, Electronic Design, Testing and Enterprise Business services.

In the Product Engineering space, Mindteck renders Electronic Design, Firmware and Software in key vertical areas of Life Sciences and Analytical Instruments, Semiconductor Fab Equipment, Medical Instruments and in the high-end Storage Products segment. The Enterprise Business services line provides services in the areas of support and maintenance of enterprise-wide applications. Application Software services are centered around providing solutions to independent software vendors in the Banking and Financial Services Industry (BFSI) space and a broad range of services for custom Application Development, Application Management, Re-engineering, Validation and Verification across the spectrum. Through IT-enabled services, the Company provides offshore-based employee resourcing, marketing and pre-sales support services to its subsidiaries.

Mindteck is headquartered in Bengaluru with a branch office in Kolkata. The software development centers in Bengaluru and Kolkata are 100% Export Oriented Units (''EOU'') set up under the Software Technology Parks of India (STPI) Scheme of the Government of India. Mindteck has subsidiaries in the United States of America, United Kingdom, Singapore, Malaysia and Bahrain.

2.1 CONTINGENT LIABILITIES AND COMMITMENTS

a) Corporate Guarantee of Rs 109,310,000 i.e. USD 2 million (previous year: Rs 104,061,600 i.e. USD 2 million) in favour of a banking institution in the United States of America with respect to the extension of credit facilities by the banking institution to Mindteck Inc., a wholly owned subsidiary of the Company.

b) Income tax matters aggregating to Rs 84,826,398 (previous year: Rs 32,685,747) are pending at various forums. The management believes that the Company has a good case to defend and no liability is expected in this regard.

2.2 QUANTITATIVE DETAILS

The Company is engaged in providing software, IT-enabled and related services. Such services are not capable of being expressed in any generic unit and hence, it is not possible to give the quantitative details of sales and certain information as required under paragraphs 5 (viii) (c) of general instructions for preparation of the statement of profit and loss as per revised Schedule VI to the Companies Act, 1956.

2.3 MANAGERIAL REMUNERATION

Mr. Wayne Mitchell Berkowitz was appointed as the Company''s Managing Director with effect from February 6, 2012. No remuneration is payable to the Managing Director by the Company in the current year as well as in the previous year. Further, no remuneration has been paid to Non-Executive directors during the current year as well as in the previous year. Mr. Wayne Mitchell Berkowitz is a non- resident foreign citizen and is therefore unable to satisfy the condition mentioned in Part 1(e) of Schedule XIII of the Companies Act, 1956. Accordingly the Company vide its letter dated March 23, 2012 filed an application in Form 25A seeking approval of the Central Government to the appointment of Mr. Wayne Mitchell Berkowitz as the Managing Director of the Company pursuant to Section 269 of the Companies Act, 1956. Approval was received from the Government vide their letter dated September 17, 2012. Mr. Wayne Mitchell Berkowitz is an employee of subsidiary company Mindteck Inc., USA. The total salary paid to him by Mindteck Inc., during the year ended March 31, 2013 is USD 250,000 (Approximately Rs 13,637,357) and the same is not recharged to the Company.

2.4 SEGMENTAL REPORTING

The Company''s operations predominantly relate to providing software and IT-enabled services which constitute the Company''s two primary business segments. The Company considers the business segment as the primary segment and geographical segment based on the location of customers as the secondary segment.

The accounting principles consistently used in the preparation of the financial statements are also consistently applied to record income and expenditure in individual segments.

Income and direct expenses in relation to segments is categorized based on items that are individually identifiable to that segment, while the remainder of costs are apportioned on an appropriate basis. Certain expenses are not specifically allocable to individual segments as the underlying services are used interchangeably. The Company therefore believes that it is not practical to provide segment disclosures relating to such expenses and accordingly such expenses are separately disclosed as unallocable and directly charged against total income.

Segment assets excluding sundry debtors, segment liabilities and fixed assets used in the Company''s business have not been identified to any reportable segment, as these are used interchangeably between segments and hence Management believes that it is currently not practical to provide segment disclosures relating to total carrying amount of segment assets, liabilities and fixed assets, since a meaningful segregation is not possible.

2.5 LEASE TRANSACTIONS

The Company leases office and residential facilities and certain equipment under operating lease arrangements.

Lease rental expense for office facilities under non-cancellable operating leases during the year ended March 31, 2013 amounted to Rs 11,889,630 (previous year Rs 3,811,471).

Additionally, the Company leases office facilities, residential facilities and equipment under cancellable operating leases. The rental expense under cancellable operating leases during the year ended March 31, 2013 amounted to Rs 36,467,117 (previous year Rs 44,463,471).

2.6 RELATED PARTY TRANSACTIONS

a) Related parties where control exists

The related parties where control exists are the holding companies (including ultimate and intermediary holding companies), subsidiaries and the Mindteck Employees Welfare Trust.

(i) Holding companies

Transcompany Ltd., British Virgin Islands (BVI) - Ultimate holding company

Vanguard Group Holding Ltd., BVI - Intermediary holding company

Mindteck Holdings Ltd., BVI - Intermediary holding company

Business Holdings Ltd., BVI - Intermediary holding company

Garrington Investments Ltd., BVI - Intermediary holding company

Embtech Holdings Ltd., Mauritius - Holding company

Infotech Ventures Ltd. - Subsidiary of Intermediary holding company

(ii) Subsidiaries (including step subsidiaries)

Mindteck Inc., USA [formerly Infotech Consulting Inc.] Mindteck Software Malaysia SDN. BHD, Malaysia Mindteck Middle East Limited SPC, Kingdom of Bahrain Mindteck UK Limited, United Kingdom Mindteck Singapore Pte. Limited, Singapore Mindteck Netherlands BV, Netherlands Mindteck Germany GmbH, Germany Chendle Holdings Ltd, BVI

(iii) Mindteck Employees Welfare Trust (''MEWT'')

b) Key Managerial Personnel

Wayne Mitchell Berkowitz - Managing Director

Javed Gaya - Non-Executive Director

Narayan Ambat Menon - Non-Executive Director

Yusuf Lanewala - Non-Executive Director (appointed as Additional Director with effect from February 13, 2013)

2.7 The Ministry of Micro, Small and Medium Enterprises has issued an Office Memorandum dated August 26, 2008 which recommends that the Micro and Small Enterprises should mention in their correspondence with its customers the Entrepreneurs Memorandum Number as allocated after filing of the Memorandum in accordance with the ''Micro, Small and Medium Enterprises Development Act, 2006'' (''the Act''). Accordingly, the disclosure in respect of the amounts payable to such enterprises as at March 31, 2013 has been made in the financials statements based on information received and available with the Company. Further in view of the management, the impact of interest, if any, that may be payable in accordance with the provisions of the Micro, Small and Medium Enterprises Development Act is not expected to be material. The Company has not received any claim for interest from any supplier as at the balance sheet date.

2.8 DERIVATIVE INSTRUMENTS

The Company takes forward contracts to mitigate its risks associated with foreign currency fluctuations in respect of highly probable forecast transactions. The Company does not enter into any forward contract, which is intended for trading or speculative purposes. The details of forward contracts outstanding as at March 31, 2013 and March 31, 2012 are as follows:

2.9 LONG-TERM BORROWINGS

As at March 31, 2013, Mindteck (India) Limited owes Rs 31,325,178 (previous year Rs Nil) to Axis Bank Ltd towards the term loan repayable in 21 quarterly installments commencing from April 1, 2013. The interest rate on the term loan facility was base rate plus 3.25% (presently 13.25%). The term loan facility with Axis Bank Ltd., is secured by equitable mortgage of property at Kolkata, charge on fixed assets of the Company and hypothecation charge on the entire current assets of the Company.

2.10 Corresponding figures for the previous year presented have been regrouped, where necessary, to conform to the current year''s classification.


Mar 31, 2012

1 BACKGROUND

Mindteck (India) Limited ('Mindteck' or 'the Company') was incorporated to render engineering and IT services to customers across various industry verticals in specific service horizontals. Mindteck's core offerings are in Product Engineering, Application software, Electronic Design, Testing and Enterprise Business services.

In the product engineering space, Mindteck renders electronic design, firmware and software in key vertical areas of Life Sciences and analytical instruments, semiconductor fab equipments, medical instruments and in the high-end storage products segment. The enterprise business services line provides services in the areas of support and maintenance of enterprise wide applications. Application software services are centered around providing solutions to independent software vendors in the Banking and Financial Services Industry (BFSI) space and a broad range of services for custom application development, application management, re-engineering, validation and verification across the spectrum.

Through IT-enabled services, the Company provides offshore based employee resourcing, marketing and pre-sales support services to its subsidiaries.

Mindteck is headquartered in Bangalore with branch offices in Kolkata and Gurgaon. The software development centers in Bangalore and Kolkata are 100% Export Oriented Units ('EOU') set up under the Software Technology Parks of India (STPI) Scheme of the Government of India. Mindteck has subsidiaries in the United States of America, United Kingdom, Singapore, Malaysia and Bahrain.

a) Consolidation of the Mindteck Employees Welfare Trust

In March 2008, the Company had sought a legal opinion regarding consolidation of the financial statements of the Trust in accordance with the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 dated June 30, 2003 ('the Guidelines'). The Company was advised that the financial statements of the Trust should be consolidated with the standalone financial statements of the Company. Accordingly, the Company has consolidated the financial statements of the Trust with its own standalone financial statements to comply with the requirements of the Guidelines.

The investment in the equity shares of the Company held by the Trust has been reduced from the share capital and securities premium account. Further, the opening retained earnings of the Trust has been included in the Company's opening retained earnings. Balances, after inter-company eliminations, have been appropriately consolidated in the Company's financial statements on a line by line basis.

b) On April 1, 2008, the Company acquired 100% equity in its fellow subsidiary Chendle Holdings Limited, BVI ('Chendle Holdings') including its wholly owned subsidiary Primetech Solutions Inc., USA.

At an agreed valuation of USD 6,600,000 (approximately Rs. 264,664,741), the purchase consideration was agreed to be settled by a fresh issue of the equity shares of the Company to the shareholders of Chendle Holdings. The issue of equity shares to discharge the purchase consideration has been recorded at a price of Rs 73.54 per equity share, being the fair value of the equity shares issued, in accordance with the requirements of paragraph 10 of AS-13 , 'Accounting for Investments'.

Of the total purchase consideration payable, 167,177 equity shares (Previous year: 270,056 equity shares) have been reserved for allotment to certain shareholders of Chendle Holdings, subject to the furnishing of Permanent Account Number ('PAN') and other requirements by these shareholders. The submission of PAN is a pre-requisite to complete the allotment of shares. The Company is in the process of following up with the shareholders of Chendle Holdings to obtain the PAN and upon receiving the PAN, the Company will allot the shares to these shareholders. During the year, the Company, on receipt of the PAN, has allotted 102,879 shares of Rs. 10 par value at the aforesaid price of Rs. 73.54, which has been described in the preceding paragraph. Accordingly, an amount of Rs. 6,536,932, i.e., Rs. 63.54 per equity share, has been recorded as securities premium in the current year. The remaining 167,177 shares aggregating Rs. 12,294,204 (at a price of Rs. 73.54 each) shall be issued on receipt of PAN from the shareholders.

d) The Company has two class of shares referred to as equity shares having a par value of Rs.10 and cumulative, non-convertible, redeemable preference shares having a par value of Rs.100. Each holder of the equity share, as reflected in the records of the Company as of the date of the shareholder meeting, is entitled to one vote in respect of each share held for all matters submitted to vote in the shareholder meeting.

The Company declares and pays dividends in Indian rupees. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the Annual General Meeting.

In the event of liquidation of the Company, the holders of equity shares will be entitled to receive any of the remaining assets of the Company after distribution of all preferential amounts. However, no such preferential amounts exists currently. The distribution will be in proportion to the number of equity shares held by the shareholders.

i) Employee stock options

i) Employee Share Incentive Scheme 2000

The Company has an Employee Share Incentive Scheme 2000 ('ESIS 2000') for the benefit of its employees administered through the Mindteck Employees Welfare Trust ('The Trust'). The Trust, which was constituted for this purpose, subscribed to 416,000 equity shares renounced in its favour by the Company's promoters/directors in the Company's earlier Rights Issue. These shares are to be distributed amongst the Company's employees, based on the recommendations made by the Company's Appraisal Committee. No equity shares have been distributed under the ESIS 2000 and therefore, no stock compensation expense has been recorded.

ii) Mindteck Employee Stock Option Scheme 2005

During the year ended March 31, 2006, the Company introduced the 'Mindteck Employees Option Scheme 2005' ('the Option Scheme 2005') for the benefit of the employees, as approved by the Board of Directors in its meeting held on July 4, 2005 and the shareholders meeting held on July 29, 2005. The Option Scheme 2005 provides for the creation and issue of 500,000 options that would eventually convert into equity shares of Rs. 10 each in the hands of the Company's employees. The options are to be granted to the eligible employees at the discretion of and at the exercise price determined by the Compensation Committee of the Board of Directors. The options vest annually in a graded manner over a three year period and are exercisable during a maximum period of 5 years from the date of vesting.

During the year ended March 31, 2012, the Company has granted 301,200 options on August 11, 2011 at an exercise price of Rs.19.10 per share and 15,000 options on February 2, 2012 at Rs. 15.42 per share.

Option activity during the year and weighted average exercise price of stock options under the Option Scheme 2005 is given as below:

The Company uses the intrinsic value method to account for the stock compensation cost. The exercise price has been determined as the closing price of the Company's shares traded on the Bombay Stock Exchange on the day prior to the date of grant of options and thus there is no stock compensation expense under the intrinsic value method for the options granted during the year.

The Guidance Note on 'Accounting for Employee Share-Based Payments' issued by the ICAI requires the disclosure of pro-forma net results and EPS, both basic and diluted, had the Company adopted the fair value approach described in the guidance note. Had the Company accounted for compensation cost under the fair value method, the reported profit after taxation for the year ended March 31, 2012 would have been Rs 6,944,510 (previous year Rs 57,041,292) i.e. lower by Rs 457,680 (previous year lower by Rs 180,713) and the basic and diluted EPS for the year would have been Rs. 0.28 and Rs. 0.28 (previous year Rs. 2.34 and Rs. 2.32) respectively.

The fair value of stock based awards to employees is calculated through the use of option pricing models, requiring subjective assumptions which greatly affect the calculated values. The said fair value of the options has been calculated using Black-Scholes option pricing model, considering the expected term of the options to be 4 years, an expected dividend yield of 5-10% on the underlying equity shares, volatility in the share price of 55-100% and a risk free rate of 7-9.5%. The Company's calculations are based on a single option valuation approach. The expected volatility is based on historical volatility of the share price during the period after eliminating abnormal price fluctuations.

iii) Mindteck Employee Stock Option Scheme 2008

During the year ended March 31, 2009, the Company introduced 'Mindteck Employees Stock Option Scheme 2008' ('the Option Scheme 2008') for the benefit of the employees, as approved by the Board of Directors in its meeting held on May 27, 2008 and the shareholders meeting held on July 30, 2008. The Option Scheme 2008 provides for the creation and issue of 1,200,000 options that would eventually convert into equity shares of Rs. 10 each in the hands of the Company's employees. The options are to be granted to the eligible employees at the discretion of and at the exercise price determined by the Compensation Committee of the Board of Directors. The options will vest after the expiry of a period of twelve months from the date on which the options are granted. The vesting term and the period over which the options are exercisable is to be decided by the Compensation Committee.

No options have been granted under the Option Scheme 2008.

2.1 CONTINGENT LIABILITIES AND COMMITMENTS

a) Guarantees given by the Company's bankers as at March 31, 2012 is Rs. Nil (previous year: Rs. Nil).

b) Corporate Guarantee of Rs. 104,061,600 i.e. USD 2 million (previous year: Rs. 181,141,600 i.e. USD 4 million) in favour of a banking institution in the United States of America with respect to the extension of credit facilities by the banking institution to Mindteck, Inc., a wholly owned subsidiary of the Company.

c) Estimated amount of contracts remaining to be executed on capital account (net of advances) and not provided for as at March 31, 2012 is Rs. NIL (previous year: Rs. NIL).

d) Claims against the Company not acknowledged as debt as at March 31, 2012 is Nil (previous year: Nil).

e) Income tax matter aggregating to INR 32,685,747 (previous year: INR 35,747,102) are pending at various forums. The management believes that the Company has a good case to defend and no liability is expected in this regard.

2.2 QUANTITATIVE DETAILS

The Company is engaged in providing software, IT-enabled and related services. Such services are not capable of being expressed in any generic unit and hence, it is not possible to give the quantitative details of sales and certain information as required under paragraphs 5

(viii) (c) of general instructions for preparation of the statement of profit and loss as per revised Schedule VI to the Companies Act, 1956.

2.3 MANAGERIAL REMUNERATION

Mr. Pankaj Agarwal was appointed as the Company's Managing Director with effect from April 1, 2008 and resigned with effect from February 6, 2012. Subsequently, Mr. Wayne Mitchell Berkowitz was appointed as the Company's Managing Director with effect from February 6, 2012. No remuneration is payable to the Managing Director by the Company in the current as well as in the previous year. Further, no remuneration has been paid to non-executive directors during the current as well as previous year. Mr. Wayne Mitchell Berkowitz is a non-resident Indian and foreign citizen and is therefore unable to satisfy condition mentioned in Part 1(e) of Schedule XIII of the Companies Act, 1956. Accordingly the Company vide its letter dated March 23, 2012 has filed an application in Form 25A seeking approval of the Central Government to the appointment of Mr. Wayne Mitchell Berkowitz as the Managing Director of the Company pursuant to Section 269 of the Companies Act, 1956 and awaiting approval.

2.4 SEGMENTAL REPORTING

The Company's operations predominantly relate to providing software and IT-enabled services which constitute the Company's two primary business segments. The Company considers the business segment as the primary segment and geographical segment based on the location of customers as the secondary segment.

The accounting principles consistently used in the preparation of the financial statements are also consistently applied to record income and expenditure in individual segments.

Income and direct expenses in relation to segments is categorized based on items that are individually identifiable to that segment, while the remainder of costs are apportioned on an appropriate basis. Certain expenses are not specifically allocable to individual segments as the underlying services are used interchangeably. The Company therefore believes that it is not practical to provide segment disclosures relating to such expenses and accordingly such expenses are separately disclosed as unallocable and directly charged against total income.

Segment assets excluding sundry debtors, segment liabilities and fixed assets used in the Company's business have not been identified to any reportable segment, as these are used interchangeably between segments and hence Management believes that it is currently not practical to provide segment disclosures relating to total carrying amount of segment assets, liabilities and fixed assets, since a meaningful segregation is not possible.

2.5 LEASE TRANSACTIONS

The Company leases office and residential facilities and certain equipment under operating lease arrangements.

Lease rental expense for office facilities under non-cancellable operating leases during the year ended March 31, 2012 amounted to Rs. 3,811,471 (previous year Rs. 46,560,001).

Additionally, the Company leases office facilities, residential facilities and equipment under cancellable operating leases. The rental expense under cancellable operating leases during the year ended March 31, 2012 amounted to Rs. 44,463,471 (previous year Rs. 15,753,447).

Rental income from sub-leasing of building and office facilities during the year ended March 31, 2012 was Rs. Nil (previous year Rs. 16,659,591).

2.6 RELATED PARTY TRANSACTIONS

a) Related parties where control exists

The related parties where control exists are the holding companies (including ultimate and intermediary holding companies), subsidiaries and the Mindteck Employees Welfare Trust.

(i) Holding companies

Transcompany Ltd., British Virgin Islands (BVI) - Ultimate holding company Vanguard Investments Ltd., BVI - Intermediary holding company Mindteck Holdings Ltd., BVI - Intermediary holding company Business Holdings Ltd., BVI - Intermediary holding company Garrington Investments Ltd., BVI - Intermediary holding company Embtech Holdings Ltd., Mauritius - Holding company

(ii) Subsidiaries (including step subsidiaries)

Mindteck, Inc., USA [formerly Infotech Consulting Inc.]

Mindteck Software Malaysia SDN. BHD, Malaysia Mindteck Middle East Limited SPC, Kingdom of Bahrain Mindteck (UK) Limited, United Kingdom Mindteck Singapore Pte. Limited, Singapore Mindteck Netherlands BV, Netherlands Mindteck Germany GmbH, Germany Chendle Holdings Ltd, BVI

(iii) Mindteck Employees Welfare Trust ('MEWT')

b) Key managerial personnel

Wayne Mitchell Berkowitz - Managing Director (appointed with effect from February 6, 2012)

Pankaj Agarwal - Managing Director (resigned with effect from February 6, 2012)

Vivek Malhotra - Non-Executive Director Indresh Narain - Non-Executive Director Javed Gaya - Non-Executive Director

Narayan Ambat Menon - Non-Executive Director (appointed with effect from September 30, 2011)

2.7 The Ministry of Micro, Small and Medium Enterprises has issued an Office Memorandum dated August 26, 2008 which recommends that the Micro and Small Enterprises should mention in their correspondence with its customers the Entrepreneurs Memorandum Number as allocated after filing of the Memorandum. Accordingly, the disclosure in respect of the amounts payable to such enterprises as at March 31, 2012 has been made in the financials statements based on information received and available with the Company. Further in view of the management, the impact of interest, if any, that may be payable in accordance with the provisions of the Micro, Small and Medium Enterprises Development Act is not expected to be material. The Company has not received any claim for interest from any supplier under the Micro, Small and Medium Enterprises Development Act.

2.8 TRANSFER PRICING

The Company has established a comprehensive system of maintenance of information and documents as required by the transfer pricing legislation under sections 92-92F of the Income-Tax Act, 1961. Since the law required existence of such information and documentation to be contemporaneous in nature, the Company is in the process of updating the documentation for the international transactions entered into with the associated enterprise during the financial year and expects such records to be in existence latest by the due date, as required by law. The Management is of the opinion that its international transactions are at arm's length so that the aforesaid legislation will not have any impact on the financial statements, particularly on the amount of tax expenses and that of provision for taxation.

2.9 The Company has prepared these financial statements as per the format prescribed by Revised Schedule VI to the Companies Act, 1956 ('the schedule') issued by Ministry of Corporate Affairs. Previous periods' figures have been recast/restated to conform to the classification required by the Revised Schedule VI.

 
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