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Notes to Accounts of Persistent Systems Ltd.

Mar 31, 2015

1. Nature of operations

Persistent Systems Limited (the "Company") is a public Company domiciled in India and incorporated under the provisions of the Companies Act, 1956 (the "Act"). The shares of the Company are listed on Bombay Stock Exchange and National Stock Exchange. The Company is a global company specializing in software products, services and technology innovation. The Company offers complete product life cycle services.

2. Basis of preparation

The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in India (Indian GAAP) to comply in all material respects with the Accounting Standards specified under Section 133 of the Companies Act, 2013 read with Rule 7 of the Companies (Accounts) Rules, 2014 and the relevant provisions of the Companies Act, 2013. These financial statements are prepared on an accrual basis and under the historical cost convention except financial instruments which have been measured at fair value. The accounting policies are consistently applied by the Company during the year and are consistent with those used in previous year.

3. Gratuity plan:

The Company has a defined benefit gratuity plan. Each employee is eligible for gratuity on completion of minimum five years of service at 15 days basic salary (last drawn basic salary) for each completed year of service. The scheme is funded with an insurance Company in the form of a qualifying insurance policy.

The following tables summarize the components of net benefit expense recognized in the statement of profit and loss and the funded status and amounts recognized in the Balance Sheet for the respective plans.

4. Operating leases

The Company has taken equipment and office premises on lease under cancellable operating lease arrangements. Further, the Company has also taken certain office premises under non-cancellable operating lease agreement for a period of 3 - 15 years. The escalations during non-cancellable lease period have been accounted for on a straight line basis. There are no restrictions imposed by the lease agreements. There are no subleases. The Company has an option to renew the lease agreements at the end of the lease period.

(iv) Gurantee given on behalf of subsidiary

Persistent Systems Ltd has given a guarantee of USD170,000 to a creditor (Sunlife Assurance Company of Canada) on behalf of Persistent Systems Inc.

* Includes current portion Rs. 312.40 million and non-current portion Rs. Nil (Previous year - current portion Rs. 89.91 million and non-current portion Rs. 299.70 million)

** Includes current portion Rs. 3.62 and non-current portion Rs. Nil (Previous year - current portion Rs. 1.94 million and non- current portion Rs. 6.47 million)

5. Employees stock option plans (ESOP)

Certain information in this note relating to number of shares, options and per share/option price has been disclosed in full and is not rounded off as stated in note 43.

d) Effect of the employee share-based payment plans on the statement of profit and loss and on its financial position Compensation expense arising from equity-settled employee share based payment plans for the year ended March 31, 2015 amounted to Rs. 31.71 million (Previous year Rs. Nil). The liability for employee stock options outstanding as at March 31,2015 is Rs. 55.65 million (Previous year Rs. 26.96 million).

6. Contingent liabilities

The Company does not have any contingent liability as on March 31, 2015 (Previous year Rs. Nil)

i. As on March 31,2015, the pending litigations in respect of direct taxes amount to Rs. 115.06 million and in respect of indirect taxes amount to Rs. 26.07 million. Based on the advice obtained and judgments in favour of the Company at the first appellate authority in the earlier years, the company''s management does not expect any outflow in respect of these litigations.

7. The Company has incurred an expenditure of Rs. 51.96 million during the financial year 2014-15 on Corporate Social Responsibility in accordance with section 135(5) of the Companies Act, 2013.

8. Details of dues to micro and small enterprises as defined under MSMED Act, 2006

There are no defaults and overdue amounts payable to suppliers, who have intimated about their status as Micro and Small Enterprises as per the provisions of Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act, 2006).

9. Loans and advances in the nature of loans given to subsidiaries and associates and firms / companies in which directors are interested

a) Advance to Persistent Systems, Inc.

- Balance as at March 31, 2015Rs.7.77 million (Previous year: Rs. 7.62 million).

- Maximum amount outstanding during the yearRs. 16.50 million (Previous year: Rs. 14.39 million).

- There is no repayment schedule in respect of this advance. It is repayable on demand. This amount is utilized for meeting business requirements.

b) Advance to Persistent Systems Pte. Ltd.

- Balance as at March 31, 2015 Rs. Nil (Previous year: Rs. 0.18 million)

- Maximum amount outstanding during the yearRs. 0.57 million (Previous year: Rs. 0.76 million)

- There is no repayment schedule in respect of this advance. It is repayable on demand. This amount is utilized for meeting business requirements.

c) Advance to Persistent Telecom Solutions Inc.

- Balance as at March 31, 2015Rs.0.43 million (Previous year: Rs. 0.02 million)

- Maximum amount outstanding during the yearRs. 0.43 million (Previous year: Rs. 2.06 million)

- There is no repayment schedule in respect of this advance. It is repayable on demand. This amount is utilized for meeting business requirements.

d) Advance to Persistent Systems Malaysia Sdn. Bhd.

- Balance as at March 31, 2015 Rs. Nil (Previous year: Rs. 19.28 million)

- Maximum amount outstanding during the yearRs. 20.14 million (Previous year: Rs. 44.66 million)

- There is no repayment schedule in respect of this advance. It is repayable on demand. This amount is utilized for meeting business requirements.

e) Loan to Persistent Systems, Inc.

- Balance as at March 31, 2015Rs.312.40 million (Previous year: Rs. 389.61 million)

- MaximumamountoutstandingduringtheyearRs. 389.61 million (Previous year: Rs. 389.61 million)

- Principle and interest is payable at the end of 3 years @ LIBOR 3.5% p.a. This amount is utilized for meeting business requirements.

f) Advance to Persistent Systems France SAS

- Balance as at March 31, 2015Rs.0.04 million (Previous year: Rs. Nil)

- Maximum amount outstanding during the yearRs. 0.67 million (Previous year: Rs. Nil)

- There is no repayment schedule in respect of this advance. It is repayable on demand. This amount is utilized for meeting business requirements.

g) Advance to CloudSquads Inc.

- BalanceasatMarch31,2015Rs.0.01 million (Previous year: Rs. Nil)

- Maximum amount outstanding during the yearRs. 0.03 million (Previous year: Rs. Nil)

- There is no repayment schedule in respect of this advance. It is repayable on demand. This amount is utilized for meeting business requirements.

h) Loan to Klisma e-Services Private Limited

- Balance as at March 31, 2015Rs.27.43 million (Previous year: Rs. 27.43 million)

- Maximum amount outstanding during the year Rs. 27.43 million (Previous year: Rs. 27.43 million)

- Principle is payable at the end of twelve months and interest is payable quarterly @ 12 % p.a. This amount is utilized for meeting business requirements.

i) Advance to Klisma e-Services Private Limited

- Balance as at March 31, 2015Rs.0.75 million (Previous year: Rs. 0.75 million)

- Maximum amount outstanding during the yearRs. 0.75 million (Previous year: Rs. 0.75 million)

- There is no repayment schedule in respect of this advance. It is repayable on demand. This amount is utilized for meeting business requirements.

10. The Company had adjusted the difference between the cost incurred by the Trust for the purpose of purchase of shares and the exercise price of those shares which have been exercised by the employees during the earlier periods/years to General Reserve, in accordance with Guidance Note on accounting for Employee share based payment, issued by the Institute of Chartered Accountants of India. As per the provisions of the Trust Deed, the Trust is constituted as an irrevocable trust and in no event the funds of the Trust shall revert to the Company. The Company has obtained a legal opinion which states that the Company has no right to the assets of the Trust. Hence in view of the legal opinion the Company had reversed the amount of Rs. 92.85 million in the previous year which was initially transferred to General Reserve.

11. The financial statements are presented in Rs. million and decimal thereof except for per share information or as otherwise stated.

12. Previous year''s figures have been regrouped where necessary to conform to current year''s classification.


Mar 31, 2014

1. Nature of operations

Persistent Systems Limited (the "Company") is a public Company domiciled in India and incorporated under the provisions of the Companies Act, 1956 (the "Act"). The shares of the Company are listed on Bombay Stock Exchange and National Stock Exchange. The Company is a global company specializing in software products, services and technology innovation. The Company offers complete product life cycle services.

2. Basis of preparation

The financial statements of the Company for the year ended March 31, 2014 have been prepared in accordance with generally accepted accounting principles in India (Indian GAAP) to comply in all material respects with the Accounting Standard notified under the Companies (Accounting Standards) Rules, 2006, (as amended) and the relevant provisions of the Companies Act, 1956 read with general circular 15/2013 dated September 13, 2013, issued by the Ministry of Corporate Affairs, in respect of Section 133 of the Companies Act, 2013. These financial statements are prepared on an accrual basis and under the historical cost convention except derivative financial instruments which have been measured at fair value. The accounting policies are consistently applied by the Company during the year and are consistent with those used in previous year.

3. Segment Information

The Company''s operations predominantly relate to providing software products, services and technology innovation covering full life cycle of product to its customers. The primary reporting segments are identified based on review of market and business dynamics based on risk and returns affected by the type or class of customers for the services provided which are as follows:

a. Telecom and Wireless

b. Life Science and Healthcare

c. Infrastructure and Systems

Geographical Segments

The following table shows the distribution of the Company''s sales by geographical market regardless of from where the services were rendered.

4. Gratuity plan:

The Company has a defined benefit gratuity plan. Each employee is eligible for gratuity on completion of minimum five years of service at 15 days basic salary (last drawn basic salary) for each completed year of service. The scheme is funded with an insurance Company in the form of a qualifying insurance policy.

The following tables summarize the components of net benefit expense recognized in the statement of profit and loss and the funded status and amounts recognized in the Balance Sheet for the respective plans.

5. Operating leases

The Company has taken equipment and office premises on lease under cancellable operating lease arrangements. Further, the Company has also taken certain office premises under non-cancellable operating lease agreements for a period of 3 – 15 years. The escalations during non-cancellable lease period have been accounted for on a straight line basis. There are no restrictions imposed by the lease agreements. There are no subleases. The Company has an option to renew the lease agreements at the end of the lease period.

6. Related party disclosures

(i) Names of related parties and related party relationship

Related parties where control exists Subsidiaries

i. Persistent Systems, Inc.

ii. Persistent Systems Pte Ltd.

iii. Persistent Systems France SAS

i v. Persistent Systems Malaysia Sdn. Bhd.

v. Persistent Telecom Solutions Inc.

(wholly owned subsidiary of Persistent Systems, Inc.) vi. CloudSquads Inc.

(wholly owned subsidiary of Persistent Systems, Inc.)

Related parties with whom transactions have taken place during the year

Key management personnel

i. Dr. Anand Deshpande, Chairman and Managing Director ii. Mr. Nitin Kulkarni, Executive Director

Relatives of Key management personnel

i. Mr. Suresh Deshpande

(Father of the Chairman and Managing Director) ii. Mrs. Sulabha Deshpande

(Mother of the Chairman and Managing Director) iii. Mrs. Sonali Anand Deshpande

(Wife of the Chairman and Managing Director) i v. Dr. Mukund Deshpande

(Brother of the Chairman and Managing Director) v. Mrs. Chitra Buzruk

(Sister of the Chairman and Managing Director)

(iv) Gurantee given on behalf of subsidiary

Persistent Systems Limited has given a guarantee of USD 170,000 to Sunlife Assurance Company of Canada on behalf of Persistent Systems, Inc.

7. Employees stock option plans (ESOP)

Certain information in this note relating to number of shares, options and per share/option price has been disclosed in full and is not rounded off as stated in Note 43.

d) Effect of the employee share-based payment plans on the statement of profit and loss and on its financial position

Compensation expense arising from equity-settled employee share based payment plans for the year ended March 31, 2014 amounted to Rs. NIL (Previous year Rs. 0.94 Million). The liability for employee stock options outstanding as at March 31, 2014 is Rs. 26.96 Million (Previous year Rs. 30.48 Million).

e) Details of stock options granted during the year

The weighted average fair value of the stock options granted during the current year is Rs. NIL (Previous year Rs. 159.92). The Binomial tree valuation model has been used for computing the weighted average fair value considering the following inputs:

The expected volatility was determined based on historical volatility data. The historical volatility is calculated as the standard deviation of daily lognormal returns from the stock of the Company/ comparable Companies. To allow the effect of early exercise of the options the exercise period has been considered as one year after the vesting date where the share price is expected to be 2.50 times the exercise price.

f) Impact on the reported net profit and earnings per share by applying the fair value based method

Since the Company uses intrinsic value method as required by the Guidance Note on Accounting for Employee Share- based Payments issued by the Institute of Chartered Accountants of India, the impact on reported net profit and Earnings Per Share by applying the fair value method is set out as follows:

8. Contingent liabilities

The Company does not have any contingent liability as on March 31, 2014 (Previous year Rs. Nil)

9. Details of dues to micro and small enterprises as defined under MSMED Act, 2006

There are no defaults and overdue amounts payable to suppliers, who have intimated about their status as Micro and Small Enterprises as per the provisions of Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act, 2006).

10. Loans and advances in the nature of loans given to subsidiaries and associates and firms / companies in which directors are interested

a) Advance to Persistent Systems Inc.

- Balance as at March 31, 2014 Rs. 7.62 Million (Previous year: Rs. 3.71 Million).

- Maximum amount outstanding during the year Rs. 14.39 Million (Previous year: Rs. 52.47 Million).

- There is no repayment schedule in respect of this loan. It is repayable on demand.

b) Advance to Persistent Systems Pte. Ltd

- Balance as at March 31, 2014 Rs. 0.18 Million (Previous year: Rs. 0.18 Million)

- Maximum amount outstanding during the year Rs. 0.76 Million (Previous year: Rs. 1.98 Million)

- There is no repayment schedule in respect of this loan. It is repayable on demand.

c) Advance to Persistent Telecom Solutions Inc.

- Balance as at March 31, 2014 Rs. 0.02 Million (Previous year: Rs. 0.11 Million )

- Maximum amount outstanding during the year Rs. 2.06 Million (Previous year: Rs. 1.77 Million )

- There is no repayment schedule in respect of this loan. It is repayable on demand.

d) Advance to Persistent Systems Malaysia Sdn. Bhd.

- Balance as at March 31, 2014 Rs. 19.28 Million (Previous year: Rs. Nil)

- Maximum amount outstanding during the year Rs. 44.66 Million (Previous year: Rs. Nil)

- There is no repayment schedule in respect of this loan. It is repayable on demand.

e) Loan to Persistent Systems Inc.

- Balance as at March 31, 2014 Rs. 389.61 Million (Previous year: Rs. 352.79 Million)

- Maximum amount outstanding during the year Rs. 389.61 Million (Previous year: Rs. 352.79 Million)

- Principle and interest is payable at the end of 3 years @ LIBOR 3.5% p.a.

f) Loan to Persistent Systems France SAS

- Balance as at March 31, 2014 Rs. Nil (Previous year: Rs. 29.91 Million)

- Maximum amount outstanding during the year Rs. 29.91 Million (Previous year: Rs. 31.20 Million)

- Principal and interest is payable at the end of 3 years @ 3.43% p.a.

11. a) The ESOP schemes of Persistent Systems Limited ("the Company") are administered through the ESOP Trust. As per the provisions of the Trust Deed, the Trust is constituted as an irrevocable trust and in no event the funds of the Trust shall revert to the Company. The Company has obtained a legal opinion which states that the Company has no right to the assets of the Trust. In view of this position, the Company has not consolidated the financial statements of the ESOP Trust in the standalone financial statements of the Company.

b) The Company had adjusted the difference between the cost incurred by the Trust for the purpose of purchase of shares and the exercise price of those shares which have been exercised by the employees during the earlier periods/years to General Reserve, in accordance with Guidance Note on accounting for Employee share based payments, issued by the Institute of Chartered Accountants of India. However in view of the legal opinion referred to in a) above, the Company has reversed the amount of Rs. 92.85 Million, initially transferred to General Reserve.

12. The financial statements are presented in Rs. Million and decimal thereof except for per share information or as otherwise stated.

13. Previous year''s figures have been regrouped where necessary to conform to current year''s classification.


Mar 31, 2012

1. Nature of operations

Persistent Systems Limited (the "Company") is predominantly engaged in Outsourced Software Product Development services. The Company offers complete product life cycle services.

2. Basis of preparation

The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in India (Indian GAAP). The financial statements have been prepared to comply in all material respects with the Accounting Standards ('AS') notified by the Companies (Accounting Standards) Rules, 2006, (as amended) and the relevant provisions of the Companies Act, 1956. These financial statements have been prepared under the historical cost convention on an accrual basis.

The accounting policies adopted in the preparation of financial statements are consistent with those of previous year except further change in accounting policy as explained below:

a) Reconciliation of the shares outstanding at the beginning and at the end of the reporting period There is no movement in the shares outstanding at the beginning and at the end of the reporting period.

b) Terms/rights attached to equity shares

The Company has only one class of equity shares having a par value of Rs 10 per share. Each holder of equity shares is entitled to one vote per share. 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 ensuing Annual General Meeting.

During the year ended March 31,2012, the amount of per share dividend recognized as distributions to equity shareholders is Rs 6 (March 31, 2011: Rs 5.50).

In the event of liquidation of the Company, the holders of equity shares will be entitled to receive remaining assets of the Company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.

3. Segment information

The primary reporting segments are identified based on risk and returns affected by the type or class of customers for the services provided as follows:

a. Infrastructure and Systems

b. Life science and Healthcare

c. Telecom and Wireless

4. Gratuity plan

The Company has a defined benefit gratuity plan. Under the gratuity plan, each employee is eligible for gratuity on completion of minimum five years of service at 15 days basic salary (last drawn basic salary) for each completed year of service. The scheme is funded with an Insurance Company in the form of a qualifying insurance policy.

The following tables summarize the components of net benefit expense recognised in the Statement of Profit and Loss and the funded status and amounts recognised in the Balance Sheet for the gratuity plan.

5. Operating leases

The Company has taken equipment and office premises on lease under cancellable operating lease arrangements. Further, the Company has also taken certain office premises under non-cancellable operating lease agreement for a period of 3 -15 years. There are no escalations during non-cancellable lease period. There are no restrictions imposed by the lease agreements. There are no subleases. The Company has an option to renew the lease agreements at the end of the lease period.

6. Employees stock options(ESOP)

Certain information in this note relating to number of shares, options and per share/option price has been disclosed in full and is not rounded off as stated in note 45.

d) Effect of the employee share-based payment plans on the Profit and Loss Account and on its financial position Compensation expense arising from equity-settled employee share based payment plans for the year ended March 31, 2012 amounted to Rs 8.36 Million (Previous year Rs 7.11 Million). The liability for employee stock options outstanding as at year end is Rs 33.51 Million (Previous year Rs 34.76 Million).

The expected volatility was determined based on historical volatility data. The historical volatility is calculated as the standard deviation of daily lognormal returns from the stock of the Company/comparable Companies. To allow the effect of early exercise of the options the exercise period has been considered as one year after the vesting date where the share price is expected to be 2.50 times the exercise price.

f) Adjustment to general reserve on account of ESOP issued through trust

The Company has adjusted Rs 32.36 Million (Previous year: Rs 20.36 Million) to General Reserve as the difference between the cost incurred by the Trust for the purpose of shares and the exercise price of those shares which have been exercised by the employee during the year, in accordance with Guidance Note on accounting for Employee Share based Payment, issued by the Institute of Chartered Accountants of India and SEBI Guidelines.

7. Contingent liabilities

(In Rs Million) As at As at

March 31, 2012 March31,2011

Claims against the Company not acknowledged as debts

-Legalclaims[Note(i)] - 0.18

-lncometax[Note(ii)] 114.56 81.70

114.56 81.88

(i) This represents disputed legal claim filed by an ex-employee, which has been since decided in the favour of the Company.

(ii) This represents disputed income tax demands against which the Company has filed appeals for the respective years with relevant authorities. The management is confident that the matter would be decided in favour of the Company. Consequently no provision has been made in the books of account in respect of such disputed income tax demands.

8. Details of dues to micro and small enterprises as defined under MSMED Act, 2006 There are no amounts that need to be disclosed pertaining to micro and small enterprises under the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act, 2006).

As at March 31, 2012, no supplier has intimated the Company about its status as Micro or Small enterprises or its registration with the appropriate authority under 'The Micro, Small and Medium Enterprises Development Act, 2006'.

9. Amalgamation of Persistent Systems Limited (PSL), Persistent eBusiness Solutions Limited (PeBS) and Persistent Systems and Solutions Limited (PSSL)

a) Pursuant to the scheme of amalgamation ("the Scheme") sanctioned by the Honourable High Court of Bombay vide Order dated February 3, 2012, PeBS and PSSL, subsidiaries of the Company, have been merged with the Company with effect from April 1, 2011, an Appointed Date. The Company completed the process of Amalgamation on March 16, 2012 by filing of above Court Order with the Registrar of Companies.

PeBS was engaged in software development, consultancy and system integration services.

PSSL was set up to inter alia, mainly provide software development services from Special Economic Zone.

b) Pursuant to the Scheme:

(i) The authorised share capital of the Company has been enhanced without any liability for payment of any additional fee or stamp duty. Accordingly, authorised share capital of the Company of Rs 1,000 Million (100 Million equity shares ofRs 10 each) has been enhanced to Rs 1,120 Million (112 Million equity shares of Rs 10 each).

(ii) The assets and liabilities, rights and obligation of erstwhile PeBS and PSSL have been vested with the Company effective April 1, 2011. The Scheme has, accordingly, been given effect to in these accounts. The amalgamation has been accounted for under the "Pooling of Interests" as prescribed under notified "Accounting Standard 14 - Accounting for Amalgamations" (AS-14) as per Scheme of Amalgamation. Accordingly, the assets and liabilities of erstwhile PeBS and PSSL as at April 1, 2011 have been taken over at book value.

(iii) Further pursuant to the scheme, the balance appearing as "Investments in PeBS" and "Investments in PSSL" in the books of the Company, as on the appointed date, has been cancelled against the "Equity Share Capital" appearing in the books of the subsidiary companies. The excess of net assets taken from PeBS and PSSL over the "Investments in PeBS" and "Investments in PSSL" ofRs 10.50 Million has been adjusted against the general reserve.

(vi) The Company has reported the transactions of PSSL and PeBS from April 1,2011 as if the transactions were undertaken by the Company. The Company has included profit of Rs 89.08 Million of PSSL and of Rs 4.46 Million of PeBS for year ended March 31, 2012, in its Statement of Profit and Loss.

10. Loans and advances in the nature of loans given to subsidiaries and associates and firms/companies in which directors are interested

a) Advance to Persistent Systems, Inc.

- Balance as at March 31, 2012: Rs 10.52 Million (Previous year: Rs 4.93 Million).

- Maximum amount outstanding during the year: Rs 62.92 Million (Previous year: Rs 30.96 Million).

- There is no repayment schedule in respect of this loan. It is repayable on demand.

b) Advance to Persistent Systems Pte. Ltd.

- Balance as at March 31, 2012: Rs 1.91 Million (Previous year: Rs 1.04 Million)

- Maximum amount outstanding during the year: Rs 1.93 Million (Previous year: Rs 1.04 Million)

- There is no repayment schedule in respect of this loan. It is repayable on demand.

c) Advance to Persistent Systems France S.A.S.

- Balance as at March 31, 2012: Rs 1.48 Million (Previous year: NIL)

- Maximum amount outstanding during the year: Rs 1.51 Million (Previous year: NIL)

- There is no repayment schedule in respect of this loan. It is repayable on demand.

d) Loan to Persistent Systems, Inc.

- Balance as at March 31, 2012: Rs 78.60 Million (Previous year: Rs 54.93 Million)

- Maximum amount outstanding during the year: Rs 82.19 Million (Previous year: Rs 55.82 Million)

- Principle and interest is payable at the end of 3 years @ LIBOR 3.5% p.a.

e) Loan to Persistent Systems France S.A.S.

- Balance as at March 31, 2012: Rs 8.83 Million (Previous year: Nil)

- Maximum amount outstanding during the year: Rs 9.09 Million (Previous year: NIL)

- Principal and interest is payable at the end of 3 years @ 3.43% p.a.

11. Comparatives

Till the previous reporting period, the Company was using pre-revised Schedule VI to the Companies Act 1956, for preparation and presentation of its financial statements. During the year the revised Schedule VI notified under the Companies Act 1956, has become applicable to the Company.

The Company has reclassified previous year figures to conform to this year's classification. Except accounting for dividend on investments in subsidiaries, the adoption of revised Schedule VI does not impact recognition and measurement principles followed for preparation of financial statements. However, it significantly impacts presentation and disclosures made in the financial statements, particularly presentation of Balance Sheet.


Mar 31, 2009

1. Nature of operations

Persistent Systems Limited (the "Company") is predominantly engaged in Outsourced Product Development services for Independent Software Vendors ("ISVs") and Enterprises. The Company offers complete product life cycle services from end to end,

2. Securities for loans

The export packing credit is secured by hypothecation of present and future receivables of the Company on pari passu basis with Bank of India and Citibank N.A. There is no balance payable as at March 31, 2009 and March 31, 2008.

The Company has received a demand notice dated December 31, 2008, u/s 156 of the Income Tax Act, for the assessment year 2005-06 for Rs. 2.57 Million. The Commissioner of Income Tax (Appeals - II), as per the order dated November 11, 2008, has passed an order granting relief of Rs. 2.61 Million for the assessment year 2003-04.

3. Gratuity and other employment benefit plans:

The Company has a defined benefit gratuity plan. Every employee who has completed five years or more of service gets a gratuity on departure at 15 days basic salary (last drawn basic salary) subject to a maximum of 30 days basic salary (last drawn basic salary) as per the rules of the Company for each completed year of service. The scheme is funded with an insurance Company in the form of a qualifying insurance policy.

The following tables summarise the components of net benefit expense recognised in the Profit and Loss Account and the funded status and amounts recognised in the Balance Sheet for the respective plans.

The overall expected rate of return on assets is determined based on the market prices prevailing on that date, applicable to the period over which the obligation is to be settled,

4, Investment in subsidiary

During the year ended March 31, 2009 the Company has invested Rs. 14.50 Million in Persistent Systems and Solutions Limited, a wholly owned subsidiary set up in India.

The Company has, also made an additional investment of SGD 0.40 Million during the year in Persistent Systems Pte. Limited, a wholly owned subsidiary in Singapore.

Note

i. Pursuant to resolution passed at an Extra Ordinary General Meeting held on September 17, 2007 equity shares were issued as bonus shares in the ratio of 5 Equity Shares for every 2 Equity Shares held by capitalisation of reserves,

ii. Pursuant to resolution passed at an Extra Ordinary General Meeting held on September 17, 2007, 209,045 Series A Participatory Cumulative Optionally Convertible Preference Shares of Rs 100 each were converted into Equity Shares of Rs. 10 each. For computation of diluted EPS, weighted average number of equity shares includes 209,045 Series A Participatory Cumulative Optionally Convertible Preference Shares of Rs. 100 each up to the date of such conversion into equity shares.

5. Share issue expenses

The Company deferred its Initial Public Offer (IPO), which was planned during the year, due to adverse market sentiment. The Company has, therefore, written off share issue expenses amounting to Rs. 14.73 Million (Previous year Rs. 35.18 Million) as an exceptional item.

6, Related party transactions

A. Names of related parties

Subsidiaries

i. Persistent eBusiness Solutions Limited

ii. Persistent Systems, Inc.

iii. Persistent Systems Pte. Limited

iv. Persistent Systems and Solutions Limited

Key management personnel

i. Dr. Anand Deshpande, Chairman and Managing Director ii. Mr. S. P. Deshpande, Director

Relatives of key management personnel

i. Mrs. Chitra Buzruk (Relative of the Chairman and Managing Director and a Director)

ii. Mrs. Sulabha Suresh Deshpande (Relative of the Chairman and Managing Director and a Director)

iii. Mrs. Sonali Anand Deshpande (Relative of the Chairman and Managing Director)

iv. Dr. Mukund Suresh Deshpande (Relative of the Chairman and Managing Director and a Director)

Note 1: No contractual life is defined in the schemes.

All the numbers provided in this above table are after ignoring fractions Compensation expense arising from employee share based payment plans amounted to Rs. 14.83 million (Previous year Rs. 5.89). No fresh grants have been granted during the year.

Had compensation cost been determined in a manner consistent with fair value approach there will be no significant impact on the companys net income and earning per share.

Advance to the Trust, as on the bajance sheet date in respect of shares allotted by the Company to the Trust, amounted to Rs. 50.60 million (Previous year Rs. 55.10 million). As illustrated in the example in the appendix to the Guidance Note, had the advance been presented as a reduction from equity, the Equity Share Capital would have been reduced by Rs. 6.06 million (Previous year Rs. 6.60 million) and Share Premium would have been reduced by Rs. 44.54 million (Previous year Rs.48.50 million).

7. Requirement of clause 3, 4C and 4D of Part II to schedule VI of the Companies Act, 1956

The Company is engaged in the development of software and related services. The production and sale of such software cannot be expressed in any generic unit. Hence, it is not possible to give quantitative details of sales and certain information as required under paragraphs 3, 4C and 4D of Part II to schedule VI of the Companies Act, 1956. The information required under clause 4D is given hereunder to the extent considered applicable.

8. Dues to Micro, Small and Medium

There were no amounts due to Micro, Small and Medium undertaking outstanding for more than 30 days, as at March 31, 2009.

During the year, the Company had sent requests to vendors for confirming their status as Micro, Small and Medium enterprises as per their registration with the appropriate authority under the Micro, Small and Medium Enterprises Development Act, 2006. Based on the confirmations received from such vendors, the management has confirmed that there are no dues outstanding as on March 31, 2009 and there were no payments made during the period beyond 30 days, hence no provision for interest is required.

9. Previous year comparatives

Previous years figures have been regrouped where necessary to confirm to current years classification.


Mar 31, 2007

1. Nature of Operations

Persistent Systems Private Limited is predominantly engaged in Outsourced Product Development services for Independent Software Vendors (ISVs) and Enterprises. The Company offers complete product life cycle services from end to end.

2. Issue of Series A Participatory Cumulative Optionally Convertible Preference Shares During the financial year 2005-06, the Company had issued 2,09,045 Series A Participatory Cumulative Optionally Convertible Preference Shares of Rs. 100 each at a total premium of Rs. 4,000 per share. The terms of redemption and conversion of preference shares are as follows On or after November 17, 2009 the preference shareholders have a right to require the Company to undertake a Qualified Initial Public Offer (QIPO).

If the Company is not able to commence the process of QIPO within 90 days from the notice from the preference shareholders, then they have a right to exercise the exit transaction or buy back option to provide liquidity to their investments so that they receive the higher of:

a. Two times the Series A Adjusted Price for each share to be bought back together with all unpaid dividends which have been declared but remaining unpaid; and

b. Fair market value per share as determined by an independent accounting firm, together with all dividends, which have been declared but remaining unpaid

The Series A Adjusted Price as mentioned in point 3(a) above is required to be proportionally or appropriately adjusted for

i. any distribution of securities by way of return of capital;

ii. any bonus issue by the Company;

iii. any stock split, consolidation or other similar action in respect of the share capital of the Company; or

iv. any other reorganisation, recapitalisation, reclassification, or similar event in respect of the share capital of the Company.

For the purpose of the above terms, "QIPO" shall mean an initial public offering of shares by the Company resulting in gross proceeds to it of not less than the Indian Rupee equivalent of USD 35 Million (USD Thirty Five Million) resulting in the Companys Shares being listed on in the Relevant Market.

During the financial year 2005-06, the Company bought back 9,79,450 Equity Shares in pursuance of Section 77A of the Companies Act, 1956 by utilising the equity share capital and share premium account. Consequent to buy back, the Company has created capital redemption reserve of Rs. 97.95 Lakhs in the financial year 2005-06.

3.1 Securities for loans

The Companys immovable properties and moveable fixed assets located at Bhageerath and Aryabhata - Pingala in Pune are secured by first mortgage and charge in respect of term loan sanctioned by the Export Import Bank of India (EXIM) Bank. The Company has prepaid the loan and is in the process of clearing the charge.

The export packing credit is secured by hypothecation of entire current assets of the Company on pari passu basis with Bank of India and Citibank NA. The export packing credit is also secured by hypothecation of entire receivables of the Company on pari passu basis with State Bank of India. There is no balance payable as at the end of the financial year 2006-07.

4. Employees stock options

Based on the guidance note on share based payments issued by the Institute of Chartered Accountants of India, the Company had made a provision of Rs. 373.41 Lakhs in respect of stock appreciation rights under Employees Stock Option Plan (ESOP - I), Employees Stock Option Plan - II! (ESOP - III) and an amount of Rs. 2.93 Lakhs in respect of options to purchase shares under ESOA - ii scheme.

During the year, the Company converted the stock appreciation rights under the ESOP-I, ESOP - II! and ESOP - V schemes into option to purchase shares. As a result of this conversion, the Company is no more liable to pay compensation for stock appreciation rights to the employees. Therefore the Company has reversed the provision in respect of stock appreciation rights amounting to Rs. 376.34 Lakhs as no longer required.

Based on the assessment of fair value of equity shares of the Company by the independent valuer, no compensation expense is required to be recognised in the books for the shares granted under the ESOP schemes,

4.1 Adoption of Accounting Standard 15 (AS -15) (Revised 2005) employee benefits The Company has gone for early adoption of the Accounting Standard 15 (AS-1 5) (Revised 2005) issued by the Institute of Chartered Accountants of India, which is mandatory from accounting periods starting from December 7, 2006. Accordingly, the Company has provided for leave encashment on short term leaves on actual cost as against actuarial valuation in the previous year. Further in accordance with the transitional provision in the revised accounting standard, Rs. 107.98 Lakhs has been adjusted to the General Reserve for leave encashment.

4.2 Gratuity and other post-employment benefit plans

The Company has a defined benefit gratuity plan. Every employee who has completed five years or more of service gets a gratuity on departure at 1 5 days basic salary (last drawn basic salary) subject to a maximum of 30 days basic salary (last drawn basic salary) as per the rules of the Company for each completed year of service. The scheme is funded with an insurance company in the form of a qualifying insurance policy.

The following tables summarise the components of net benefit expense recognised in the Profit and Loss Account and the funded status and amounts recognised in the balance sheet for the respective plans.

The Company maintains gratuity fund, which is being administered by Life Insurance Corporation of India (the insurer). The amount of investment as at March 31, 2007 is Rs. 290.93 Lakhs.

The overall expected rate of return on assets is determined based on the market prices prevailing on that date, applicable to the period over which the obligation is to be settled.

4.3 Sale of software services and products

Sale of software services and products include foreign currency fluctuation loss of Rs. 331,02 Lakhs (Previous year gain Rs. 144,29 Lakhs)

Note

a. Weighted average number of equity shares for diluted EPS includes 2,09,045 Series A participatory Redeemable Cumulative Optionally Convertible Preference Shares of Rs 100 each. The preference shareholders have a right to convert one share of Rs. 100 each into 10 Equity shares of Rs. 10 each prior to the Initial public offer (IPO).

5. Supplementary statutory information

5.1 Remuneration paid to executive and non-executive Directors

As the future liability for gratuity and leave encashment is provided on an actuarial basis for the Company as a whole, the amount pertaining to the directors is not ascertainable and, therefore, not included above.

Previous years remuneration include annual remuneration paid to Mr. Ashutosh Joshi and Mr. Ajit Tamhankar although they resigned as Directors on November 18, 2005.

Previous years sitting fees include fees paid to Dr. Shridhar Shukla who resigned as Director on November 18, 2005.

6.1 Merger of a subsidiary

The Company received sanction from the Bombay High Court, Mumbai and Bombay High Court, Goa bench for amalgamation of ControlNet (India) Pvt. Ltd. (ControlNet) effective from April 1, 2006. Pursuant to this, all assets, liabilities and losses of ControlNet are merged with the assets, liabilities and reserves of the Company with effect from April 1, 2006, by following "pooling of interest method" as prescribed in Accounting Standard 14 (AS-14) as issued by the Institute of Chartered Accountants of India.

The difference between the amounts recorded as investment and the amount of share capital plus reserves of ControlNet has been adjusted in the general reserve amounting to Rs. 630.91 Lakhs.

7. Related party disclosures

I. Names of related parties

Subsidiaries

ControlNet (India) Pvt. Ltd. (Subsidiary till March 31, 2006) Persistent eBusiness Solutions Pvt, Ltd. Persistent Systems, Inc.

Key Management Personnel

Dr. Anand S. Deshpande, Chairman and Managing Director Mr. Suresh P.Deshpande, Director Mr. Ashutosh Joshi (Resigned as Director on November 18, 2005) Mr. Ajit Tamhankar (Resigned as Director on November 18,2005)

Company in which a Non Executive Director was a Director

Great Software Laboratory Private Limited. (Resigned as Director on November 18, 2005)

Relatives of Key Management Personnel

Mrs. Chitra Buzruk (Relative of the Chairman and Managing Director and Executive Director)

Mrs. Sulabha Suresh Deshpande (Relative of the Chairman and Managing Director and Executive Director)

Mrs. Sonali Anand Deshpande (Relative of the Chairman and Managing Director and Executive Director)

Mr. Bhalchandra N. Shukla (Relative of ex-Non Executive Director, Dr. Shridhar Shukla who resigned as Director on November 18,2005)

Mr. Shreekanth Joshi (Relative of ex-Director, Mr. Ashutosh Joshi who resigned as Director on November 18,2005)

8. Requirement of clause 3, 4C and 4D of Part II to schedule VI of the Companies Act, 1956

The Company is engaged in the development of software and related services. The production and sale of such software cannot be expressed in any generic unit. Hence, it is not possible to give quantitative details of sales and certain information as required under paragraphs 3, 4C and 4D of Part II to schedule VI of the Companies Act, 1956. The information required under clause 4D is given hereunder to the extent considered applicable

9. Dues to smal lscale industrial undertakings

On the basis of information available with the Company, there were no small scale undertakings to whom the Company owed a sum which was outstanding for more than 30 days as at March 31, 2007 (previous year ended March 31, 2006 Rs. Nil).

10. Previous year comparatives

The current years figures of the Company include twelve months operating results of erstwhile ControlNet (India) Pvt. Ltd., which merged with the Company effective from April 1, 2006. Therefore, the current year figures are strictly not comparable with previous year figures.

Previous years accounts were audited by M/s Joshi Apte & Co., Chartered Accountants and have been reclassified wherever necessary to confirm with the current years presentation.

 
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