information technology · pdf filepbdt (4,362) (97) less: depreciation & amortization...
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HTMT Inc ................................................... 93
HTMT Europe Limited..................................... 100
Hinduja TMT France ..................................... 105
Source One Communications Inc. ....................... 107
Source One Communications Asia Inc. .................. 113
Customer Contact Center Inc. ........................... 119
C-Cubed (Antilles) N.V. ............. ..................... 129
C-Cubed B.V. ............. ................................. 131
Information Technology Subsidiaries
Information Technology Subsidiaries
92
General Information
Customer Contact Center, Inc.
Board of Directors
M. S. Varadan
Ludwell Denny
Jose Xavier Gonzales
Pushkar Misra
Gian Carlo Bautista
Management Team
Pushkar Misra
Edmund Lazo
Bryce C. Hayes
Joy Padlan
Jose John Arvisu III
Michael Quiambao
Jan Bengzon
Anna Liza Cagaoan
Tina Salmo
Company Secretary
Atty. Virginia V. Viray
Puyat, Jacinto and Santos Law Office
12th
Floor, Manila Bank Building
Ayala Avenue, Makati City, Philippines
Statutory Auditors
SyCip Gorres Velayo & Co.
(A member practice of Ernst & Young Global)
6760 Ayala Avenue 1226 Makati City, Philippines
Registered Office
1 E-Commerce Avenue,
Eastwood City Cyberpark,
E-Rodriguez Jr. Ave.,
Bagumbayan, Quezon City, Philippines.
Source One Communications Asia, Inc.
Board of Directors
Zayber Protacio
M. S. Varadan
Pushkar Misra
Ludwell Denny
Virginia B. Viray
Management Team
Pushkar Misra
Edmund Lazo
Bryce C. Hayes
Joy Padlan
Jose John Arvisu III
Michael Quiambao
Jan Bengzon
Anna Liza Cagaoan
Tina Salmo
Company Secretary
Atty. Virginia V. Viray
Puyat, Jacinto and Santos Law Office
12th
Floor, Manila Bank Building
Ayala Avenue, Makati City, Philippines
Statutory Auditors
Punongbayan & Araullo
(Member of Grant Thornton International)
20th
Floor, Tower 1 The Enterprise Center.,
6766 Ayala Avenue, Makati City.
Philippines
Registered Office
1 E-Commerce Avenue,
Eastwood City Cyberpark,
E-Rodriguez Jr. Ave.,
Bagumbayan, Quezon City, Philippines.
HTMT Europe Limited
Board of Directors
Dheeraj G. Hinduja
Ashok Dani
V. Venkatesan
Business Development Manager
Pradeep J. Kololgi
Company Secretary
Abhijit Mukhopadhyay
Statutory Auditors
Lubbock Fine
Chartered Accountants
Russel Bedford House
City Forum, 250 City Road
London EC1V 2QQ, UK
Registered Office
New Zealand House
80, Haymarket,
London SW1Y 4TE, U.K.
Hinduja TMT France
U.M. Nair, Gerant
Statutory Auditors
Pierre Sorel
Expert Comptable,
19, rue Jean Mermoz- BP 473
75366 Paris Cedex 08, France
Registered Office
4 Rue de l’ Abreuvoir 92400
Courbevoie, Paris, France
Source One Communications Inc.
Board of Directors
Kenneth D. Peterson
Ramkrishan P. Hinduja
K. Thiagarajan
M.S. Varadan
Ali Ganjaei
Management Team
M.S. Varadan
Danielle Grisoni
Ken Gary
Company Secretary
Ali Ganjaei
Statutory Auditors
Neal J. Nissel
6, East 45th
Street
New York, MY-10017
Registered Office
1013 Centre Road
City Wilmington,
Delaware-19805
HTMT Inc.
Board of Directors
Kenneth D. Peterson
Dheeraj G. Hinduja
Ali Ganjaei
R. Mohan
Management Team
M. S. Varadan
V. Prasanna Kumar
Company Secretary
Ali Ganjaei
Statutory Auditors
Neal J. Nissel
6, East 45th
Street
New York, MY-10017
Registered Office
520, Madison Avenue
40th
Floor, New York
N.Y. 10022
Information Technology Subsidiaries
93
Directors Report
To the Members,
Your Directors are pleased to present the consolidated report on the
business and operations of the Company and its two subsidiaries, HTMT
Europe and HTMT France for the 12 months ended 31st
March 2005
Financial Results
‘000s
Rupees US Dollars
2005
Revenues 804,019 17,879
Expenditure 772,765 17,184
Gross Profit 31,254 695
Operating expenses 37,685 838
PBDIT (6,431) (143)
ADD: Interest 180 4
Gain on currency valuation 540 12
Gain on sale of assets 1,349 30
PBDT (4,362) (97)
Less: Depreciation & Amortization 1,709 38
Less: Provision for Taxation 45 1
Loss from operations before
Minority Interest (6,116) (136)
Less: Minority Interest in results of
consolidated operations 2,608 58
Net Loss (3,508) (78)
Financial Review
HTMT Inc. USA is a wholly owned subsidiary of Hinduja TMT Ltd, a
Company incorporated in India. The Company’s principal business consists
of marketing and providing Information Technology (“IT”) services and
solutions to its clientele primarily in the form of professional IT staffing,
claims processing, call center, software development and consulting
services. The Company has its operations in the USA and also in the
United Kingdom, through a 51% owned subsidiary, HTMT Europe Limited
(HTMT Europe) and in France through another 51% owned subsidiary,
Hinduja TMT France ( HTMT France)
During the year ended 31 March 2005, your Company generated Gross
Income of USD 17.879 million as against USD 11.314 million in the
previous year. Your Company is confident of further improving business
in the coming year.
The net loss incurred by your Company during the year was lower at
USD 0.078 million as against USD 0.161 million incurred in the previous
year following substantial cost reduction measures instituted by your
Company for reducing the General and Administration expenses.
HTMT Inc.
Review of Subsidiaries
The two subsidiaries incurred a substantially reduced net loss of USD
119,011 for the year under review as against a net loss of USD 552,566
incurred in the previous year. As of 31st
March 2005 the total assets and
liabilities of the two subsidiaries amounted to USD 462,979 and USD
662,903 respectively. The funding of the operations was provided
primarily by HTMT Inc., USA, Hinduja TMT Ltd, India and the 49% minority
shareholders.
Recent Developments:
In March 2005, your Company inducted M. S. Varadan, Executive Director
of Hinduja TMT Ltd, as President of the Company.
With the approval of the shareholders, your Company, with effect from
1st
April 2005, has merged with Source One Communications Inc. USA
(Source One), another 100% subsidiary of Hinduja TMT Ltd
The merged entity is renamed as Source1 HTMT Inc.. The merger is
expected to generate synergies from the consolidation of the marketing
and client relationship management functions of both the companies
and benefit from the reduction in cost of independent operations of
both entities.
HTMT Europe and HTMT France would continue their operations as
subsidiaries of Source1 HTMT Inc.
Statement of Directors’ responsibilities in respect of the financial
statements
Your Directors based on the information and documents made available
to them, confirm that:
i) in the preparation of the accounts for the period under review,
the applicable accounting standards have been followed. There are
no material departures in the adoption and application of the
accounting standards.
ii) they have selected such accounting policies and applied them
consistently and made judgements and estimates that are
reasonable and prudent so as to give a true and fair view of the
state of affairs of your Company at the end of the the period under
review and of the loss of your Company for that period;
iii) they have taken proper and sufficient care to the best of their
knowledge and ability for the maintenance of adequate accounting
records in accordance with the applicable laws for safeguarding
the assets of your Company and for preventing and detecting
fraud and other irregularities;
iv) they have prepared the annual accounts on a going concern basis
Your Directors wish to place on record their appreciation of the
continued support from your Company’s clients, valuable contributions
and co-operation of its employees and the excellent co-operation from
US Government agencies and bankers.
Kenneth D. Peterson
Director
29th
July 2005
Information Technology Subsidiaries
94
NEAL J. NISSEL
Certified Public Accountant
6 East 45th Street,
New York, N.Y. 10017
(212) 661-1610
Fax : (212) 986-9728
To the Board of Directors and Stockholder of HTMT, Incorporated
We have audited the accompanying consolidated balance sheets of HTMT,
Incorporated and Subsidiaries as of March 31, 2005 and 2004, and the
related consolidated statements of operations, changes in stockholder’s
equity, and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit. We did not audit
the financial statements of HTMT Europe Limited and Hinduja TMT
France, majority owned subsidiaries, which statements reflect total
assets of $462,979 and $359,660 as of March 31, 2005 and 2004,
respectively, and revenues of $663,341 and $770,397 for the years
ended March 31, 2005 and 2004, respectively. Those statements were
audited by other auditors whose reports have been furnished to us,
and our opinion, insofar as it relates to the amounts included for HTMT
Europe Limited and Hinduja TMT France, is based solely on the reports
of the other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, based on our audits, the consolidated financial statements
referred to above present fairly, in all material respects, the
consolidated financial position of HTMT, Incorporated and Subsidiaries
as of March 31, 2005 and 2004, and the results of its operations and its
cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States of America.
New York, New York
June 20, 2005
Independent Auditors’ Report
Liabilities And Stockholder’s Equity
2005 2004
$ $
Current Liabilities:
Accounts Payable 950,459 604,814
Due to HTMT (India) (Note 5) 2,528,666 1,390,945
Due to HBI Incorporated, N.V. (Note 6) 137,144 127,092
Deferred Income — 21,350
Income Taxes Payable 1,682 1,660
Total Current Liabilities 3,617,951 2,145,861
Minority Interest In
Consolidated Subsidiaries (96,188) (37,829)
Stockholder’s Equity:
Capital Stock (Note 1) 2,900,000 2,900,000
Accumulated Deficit (2,540,082) (2,461,625)
Translation Adjustment (12.429) (9.078)
Total Stockholder’s Equity 347,489 429,297
3,869,252 2,537,329
Consolidated Balance Sheets March 31, 2005 and 2004
Assets
2005 2004
$ $
Current Assets:
Cash in Bank (Note 2) 494,523 487,884
Accounts Receivable - Trade (Note 2) 3,083,595 1,767,570
Other Receivables 3,410 3,058
Prepaid Expenses and Other Current Assets 18,411 5,411
Deferred Income Taxes (Note 4) 200,000 199,000
Total Current Assets 3,799,939 2,462,923
Property and Equipment: (Note 2)
Office Equipment 161,519 165,935
Less: Accumulated Depreciation 92,206 91,529
Property and Equipment, Net 69,313 74,406
3,869,252 2,537,329
The accompanying notes are an integral part of the consolidated financial statement.
HTMT Inc.
Consolidated Statements of Operations for the years ended March 31, 2005 and 2004
Information Technology Subsidiaries
95
2005 2004
$ $
Revenues 17,878,842 11,314,215
Cost of Revenues 17,184,364 10,124,360
Gross Profit 694,478 1,189,855
General and Administrative Expenses 876,153 1,540,379
Loss from Operations (181,675) (350,524)
Other Income (Expense):
Gain (Loss) on Currency Valuation 12,601 (21,440)
Gain (Loss) on Disposal of Assets 29,985 (42,762)
Interest Income 3,806 929
Interest Expense — (40)
Total Other Income (Expense) 46,392 (63,313)
Loss From Continuing Operations
Before Income Tax Provision and Minority Interest (135,283) (413,837)
Provision for Income Taxes (Note 4) 1,533 18,115
Loss From Continuing Operations Before Minority Interest (136,816) (431,952)
Minority Interest in Results of Operations of Consolidated Subsidiaries (58,359) (270,757)
Net Loss (78,457) (161,195)
The accompanying notes are an integral part of the consolidated financial statement.
TOTAL
PREFERRED COMMON ACCUMULATED TRANSLATION STOCKHOLDER’S
STOCK STOCK DEFICIT ADJUSTMENT EQUITY
Balance, April 1,2003 2,500,000 200,000 (2,300,430) (27,935) 371,635
Preferred Stock Issued August, 2003 200,000 — — — 200,000
Translation Adjustment — — — 18,857 18,857
Net Loss — — (161,195) — (161,195)
Balance, March 31,2004 2,700,000 200,000 (2,461,625) (9,078) 429,297
Translation Adjustment — — — (3,351) (3,351)
Net Loss — — (78,457) — (78,457)
Balance, March 31,2005 2,700,000 200,000 (2,540,082) (12,429) 347,489
Consolidated Statements of Changes In Stockholder’s Equity
for the years ended March 31, 2005 and 2004
(figures in $)
HTMT Inc.
Consolidated Statements of Operations for the years ended March 31, 2005 and 2004
Information Technology Subsidiaries
96
HTMT Inc.
Consolidated Statments of Cash Flow for the years ended March 31, 2005 and 2004
2005 2004
$ $
Cash Flows from Operating Activities:
Net Loss (78,457) (161,195)
Adjustments to Reconcile Net Loss
to Net Cash from Operating Activities:
Depreciation 37,817 50,659
Deferred Income Taxes (1,000) 14,000
Translation Adjustment (3,351) 18,857
Minority Interest in Results of Operations of Subsidiaries (58,359) (270,757)
(Gain) Loss on Disposal of Equipment (29,985) 42,762
(Increase) Decrease in Assets:
Accounts Receivable-Trade (1,316,025) (1,073,668)
Other Receivables (352) 8,156
Security Deposits — 2,089
Prepaid Expenses and Other Current Assets (13,000) 49,175
Increase (Decrease) in Liabilities:
Accounts Payable 345,645 199,955
Deferred Income (21,350) 21,350
Income Taxes Payable 22 378
Total Adjustments (1,059,938) (937,044)
Net Cash Used by Operating Activities (1,138,395) (1,098,239)
Cash Flows from Investing Activities:
Acquisition of Properly and Equipment (39,696) (160,689)
Proceeds from Sale of Equipment 36,957 —
Net Cash Used by Investing Activities (2,739) (160,689)
Cash Flows from Financing Activities:
Decrease in Subscription Receivable — 183,907
Increase in Due to HTMT (India) 1,137,721 891,461
Increase in Due to HBI Incorporated, N.V. 10,052 67,108
Issuance of Preferred Stock — 200,000
Issuance of Stock by Subsidiaries-Minority Interest — 156,555
Net Cash Provided by Financing Activities 1,147,773 1,499,031
Net Increase in Cash 6,639 240,103
Cash, Beginning of Year 487,884 247,781
Cash, End of Year 494,523 487,884
Supplemental Disclosure of Cash Flow Information:
Cash Paid During the Year for: Interest 8,618 40
Income Taxes 2,511 3,737
The accompanying notes are an integral part of the consolidated financial statement.
Information Technology Subsidiaries
97
Note 1 Corporate Organization and Description of Business
HTMT, Incorporated (“HTMT”) is a wholly owned subsidiary of
Hinduja TMT Ltd. (“HTMT (India)”) a company incorporated in
India. HTMT was organized on March 23, 1995, under the laws
of the State of New York and has an authorized capital of
200,000 shares of common stock, $1 par value and 3,400,000
shares of preferred stock, $1 par value. As of March 31, 2005,
200,000 shares of common and 2,700,000 shares of preferred
are issued and are outstanding.
The Company’s principal business consists of providing
information technology (“IT”) services and solutions to its
clientele primarily in the form of professional IT staffing,
claims processing, call center, software development and
consulting services. The Company has operations in the United
Kingdom, through a 51% owned subsidiary, HTMT Europe
Limited (“HTMT (Europe)”) and has operations in France
through a 51% owned subsidiary, Hinduja TMT France (“HTMT
(France)”).
Note 2 Summary of Significant Accounting Policies:
Basis of Accounting
The Company uses the accrual method of accounting. Certain
items of income and expenses, and asset valuation are
recognized for financial statement purposes in different time
periods than for tax purposes. (Refer to Note 4)
Principles of Consolidation
The accompanying consolidated financial statements include
the accounts of the Company and its majority owned
subsidiaries, HTMT Europe Limited and Hinduja TMT France
(“Companies”). All material intercompany transactions and
intercompany accounts have been eliminated in consolidation.
(Refer to Note 3)
Basis of Reporting
The accompanying consolidated financial statements are
presented on the basis that the Company is a going concern.
Going concern contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business over
a reasonable length of time. The accompanying consolidated
financial statements show that the company has accumulated
substantial losses. Management of the Company developed a
plan to increase profitability by reducing operating expenses
and increase marketing activities to stimulate growth and to
increase the company’s concentration in the offshore
development of software and services. This resulted in an
increase in revenues but the Company sustained a small loss in
the United States operation. Operations in the United Kingdom
continue to generate losses while the operations in France
have remained profitable. The ability of the Company to
continue as a going concern is dependent on the Company’s
continued financial support from its parent company and other
related parties. (Refer to Notes 5 & 6)
Revenue Recognition
The Company recognizes revenue for the leasing of software
engineers based upon the time expended by the engineers.
Revenue from software development is recognized under the
percentage-of-completion method based on labor inputs. Fees
charged for processing services are on a per unit basis.
Concentrations of Credit Risk
Financial instruments, which could subject the Company to a
concentration of credit risk, include its free cash balances and
trade accounts receivable. The Company maintains its cash
balances in a major New York financial institution. At times
the balances may exceed federally insured limits of $100,000.
HTMT’s clients range from large multi-national companies to
small regional IT staffing firms. During the years ended March
31, 2005 and 2004 the Company had revenues from two
unaffiliated clients, which accounted for approximately 96%
and 92% of revenues, respectively. During the years ended
March 31, 2005 and 2004, no other client accounted for more
than 5% revenues. The aggregate accounts receivable balances
for these clients at March 31, 2005 and 2004 were $2,695,440
and $1,600,004, respectively.
Accounts Receivable -Trade
An allowance for doubtful accounts receivable may be provided
based on historical collection experience and evaluation of
outstanding accounts receivable at the end of each year. As of
March 31, 2005 and 2004, no allowance for doubtful accounts
receivable was necessary to be recorded.
Property and Equipment
Property and equipment is stated at cost. Major additions
are capitalized while minor betterments are charged to
expense. Depreciation of equipment is provided using the
straight-line method over estimated useful lives of three years.
The cost and related accumulated depreciation of assets retired
or sold are removed from the respective accounts, and any
resulting gain or loss is included in the consolidated statement
of income and expenses.
Income Taxes
The Company records deferred tax assets and liabilities for
differences between the financial statement and tax bases of
assets and liabilities (“Temporary differences”), as well as for
net operating loss carryforwards. These are measured using
enacted tax rates in effect for the year in which the differences
are expected to reverse. Valuation allowances are established,
when necessary, to reduce deferred tax assets to the amounts
expected to be realized.
Management Estimates
The consolidated financial statements are prepared in
conformity with accounting principles generally accepted in
the United States of America, which require management to
make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could
differ from those estimates.
Foreign Currency Translation
Local currencies are generally considered to be the functional
currency of operations outside the U.S. Translation gains and
losses are included as a separate component of consolidated
stockholder’s equity. The functional currency for the operations
in the United Kingdom and France, are the British pound and
the euro, respectively.
Note 3 Foreign Operations
The Company has a 51% interest in two foreign subsidiaries.
Operations are conductet in the United Kingdom through its
HTMT (Europe) subsidiary and in France through its HTMT
(France) subsidiary.
For the years ended March 31, 2005 and 2004 the subsidiaries
incurred net losses of $119,101 and $552,566, respectively. At
March 31, 2005 and 2004, the subsidiaries’ assets total $462,979
and $359,660 and liabilities total $662,903 and $436,702,
respectively. During the years then ended, funding was provided
primarily by HTMT, HTMT (India) and the 49% minority
stockholder.
Note 4 Income Taxes
Income taxes are provided for the tax effects of transactions
reported in the consolidated financial statements.
The provision for income taxes consist of the following:
2005 2004
$ $
Current Tax Expense 2,533 4,115
Deferred Tax Expense (Benefit) (1,000) 14,000
Net Income Tax Expense 1,533 18,115
The provision for income taxes differs from the amount,
which would be computed if statutory federal income tax
rates were applied to pre-tax income. This is principally due
to taxes imposed by state and local regulations, net of federal
income tax benefit, and the nondeductibility of certain
expenses.
HTMT Inc.
Notes to Consolidated Financial Statements March 31, 2005 and 2004
Information Technology Subsidiaries
98
The significant components of the net deferred tax asset
consists of approximately the following:
2005 2004
$ $
Net Operating Loss Carryforwards 1,070,000 1,036,000
Accrued Vacation and Taxes 31,000 23,000
Depreciation (1,000) —
1,100,000 1,059,000
Valuation Allowance (900,000) (860,000)
Net Deferred Tax Asset 200,000 199,000
As of March 31, 2005 and 2004, a valuation allowance has been
recognized to partially offset the deferred tax asset due to
the uncertainty of realizing the entire future benefit. As of
March 31, 2005 the net operating loss carryforward in the
United States of approximately $1,930,000 is available to be
carried forward to offset future taxable income and will
begin to expire in 2012. As of March 31, 2005 the net operating
loss carryforward in the foreign subsidiaries of approximately
$1,650,000 is available to be carried forward to offset future
taxable income.
Note 5 Due to HTMT (India) - Related Party Transactions
The Companies reimburse HTMT (India) for direct expenses
incurred on its behalf, including, recruiting and training
software engineers in India. For the years ended March 31,
2005 and 2004, HTMT (India) charged the Companies for expenses
amounting to $2,761 and $10,620, respectively. In addition, for
the years ended March 31, 2005 and 2004, the Companies were
engaged in offshore contract related transactions with HTMT
(India) for a net amount totaling $13,937,864 and $8,223,347,
respectively. As of March 31, 2005 and 2004, the balance due
HTMT (India) was $2,528,666 and $1,390,945, respectively.
Note 6 Due to HBI Incorporated, N.V. - Affiliated Company
HBI Incorporated, N.V. (“HBI”), an affiliated company, provides
office space, personnel, and administrative services for HTMT.
For the years ended March 31, 2005 and 2004, HTMT was
charged a fee for these services in the amount of $197,500
and $230,000, respectively. The Company has an agreement
with HBI to pay commissions on revenues generated from
two customers. For the years ended March 31, 2005 and
2004, HTMT recorded commission expense to HBI of $1,262,298
and $841,077, respectively.
As of March 31, 2005 and 2004, the unpaid balance of the
advances and administrative services amounted to $137,144
and $127,092, respectively.
Note 7 Retirement Plan
The Company maintains a 401 (K) Retirement Plan that covers
all employees with a minimum of three months of service.
Eligible employees may elect to make contributions to the
plan through a salary reduction arrangement not to exceed
15% of their gross pay. At the discretion of the Board of
Directors, the Company may elect to contribute to the plan.
For the years ended March 31, 2005 and 2004, the Company
did not make a contribution to the plan.
Note 8 Subsequent Events
Effective April 1, 2005 HTMT agreed to merge with Source
One Communications, Inc. (“Source1”), a Delaware corporation,
in a tax free reorganization. A common parent, HTMT (India),
owns both Source1 and HTMT. Source1 will be the surviving
corporation and the name of the merged company will be
Source 1 HTMT, Inc.
NEAL J. NISSEL
Certified Public Accountant
6 East 45th Street,
New York, N.Y. 10017
(212) 661-1610
Fax : (212) 986-9728
Independent Auditors’ Report on Supplementary Information
To the Board of Directors and Stockholder of HTMT, Incorporated
Our report on our audit of the basic consolidated financial statements
of HTMT, Incorporated and Subsidiaries for the years ended March 31,
2005 and 2004 appears on page 3. That audit was made for the purpose
of forming an opinion on the basic consolidated financial statements
taken as a whole. The information in Schedules I and II is presented for
purposes of additional analysis and is not a required part of the basic
consolidated financial statements. Such information has been subjected
to the auditing procedures applied in the audit of the basic consolidated
financial statements. In our opinion, which insofar as it relates to
HTMT Europe Limited and Hinduja TMT France, is based on the report
of other auditors, such information is fairly stated in all material
respects in relation to the basic consolidated financial statements
taken as a whole.
New York, New York
June 20, 2005
HTMT Inc.
Notes to Consolidated Financial Statements March 31, 2005 and 2004
Information Technology Subsidiaries
99
2005 2004
$ $
Schedule I
Cost of Revenues:
Compensation – Programmers 384,891 246,672
Payroll Taxes 58,368 33,885
Employee Health and Welfare 25,831 11,017
Offshore Development and Services 14,960,666 8,622,786
Technical Fees 165,482 234,493
Visa Expense 2,870 1,850
Commissions 1,586,256 973.657
Total Cost of Revenues 17,184,364 10,124,360
Schedule II
General and Administrative Expenses:
Compensation – Office 277,601 734,854
Payroll and Other Taxes 42,093 100,954
Employee Health and Welfare 18,629 32,822
Administrative Fees 197,500 230,000
Professional Fees 111,596 93,089
Telephone 8,536 28,467
Auto and Travel 60,782 119,938
Office Expense 92,609 107,621
Postage and Delivery 12,372 4,647
Depreciation and Amortization 37,817 50,659
Advertising and Trade Shows 15,264 22,191
Recruitment fees 1,354 15,137
Total General and Administrative Expenses 876,153 1,540,379
See independent auditors’ report on supplementary information.
HTMT Inc.
Consolidated Schedules of Operating Costs and Expenses for the years ended
March 31, 2005 and 2004
Information Technology Subsidiaries
100
HTMT Europe Limited
The Directors present their report and the financial statements of the
Company for the year ended 31 March 2005.
Principal Activities and Business Review
The principal activity of the company was that of the provision of
information technology consultancy services.
During the year, the Company continued to supply IT consultants to
software development projects in the UK and France and also to new
operations in Australia and Italy. Although the French operations have
been transferred to the Group’s French subsidiary, further prospects
exist in the UK and overseas.
Although the level of activity in the IT sector is still depressed following
the global economic downturn and the level of investment in IT
development and consequently the demand for IT consultants are less
than was previously hoped, the Directors are confident that, given the
strength of the Hinduja TMT Group as a whole and its commitment to
maintaining a presence in this sector, the long term outlook is
satisfactory.
Results and Dividends
The trading results for the year and the Company’s financial position at
the end of the year are shown in the attached financial statements.
The Directors have not recommended a dividend.
The Directors and their interests in the shares of the Company
The Directors who served the company during the year together with
their beneficial interests in the shares of the company were as follows:
Ordinary Shares of £1 each
At At
31 March 2005 1 April 2004
Mr D G Hinduja — —
Mr V Venkatesan — —
Mr A Dani — —
Directors’ Responsibilities
Company law requires the Directors to prepare financial statements
for each financial year which give a true and fair view of the state of
affairs of the Company at the end of the year and of the profit or loss
for the year then ended. In preparing those financial statements, the
Directors are required to:
– select suitable accounting policies, as described on pages 8 to 9, and
then apply them consistently;
– make judgements and estimates that are reasonable and prudent;
– state whether applicable accounting standards have been followed,
subject to any material departures disclosed and explained in the
financial statements; and
– prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the Company will continue in
business.
The Directors are responsible for keeping proper accounting records
which disclose with reasonable accuracy at any time the financial
position of the Company and to enable them to ensure that the financial
statements comply with the Companies Act 1985. The Directors are
also responsible for safeguarding the assets of the Company and hence
for taking reasonable steps for the prevention and detection of fraud
and other irregularities.
Auditors
A resolution to re-appoint Lubbock Fine as auditors for the ensuing
year will be proposed at the annual general meeting in accordance
with section 385 of the Companies Act 1985.
Signed on behalf of the Directors
Mr A Dani
Director
Approved by the Directors on 21 June 2005
Directors’ Report
We have audited the financial statements of HTMT Europe Limited for
the year ended 31 March 2005 on pages 5 to 15 which have been
prepared under the historical cost convention and the accounting policies
set out on pages 8 to 9.
This report is made solely to the company’s shareholders, as a body, in
accordance with Section 235 of the Companies Act 1985. Our audit
work has been undertaken so that we might state to the company’s
shareholders those matters we are required to state to them in an
auditors’ report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone
other than the company and the company’s shareholders as a body, for
our audit work, for this report, or for the opinions we have formed.
Respective Responsibilities of Directors and Auditors
As described in the Statement of Directors’ Responsibilities the
company’s directors are responsible for the preparation of the financial
statements in accordance with applicable law and United Kingdom
Accounting Standards.
Our responsibility is to audit the financial statements in accordance
with relevant legal and regulatory requirements and United Kingdom
Auditing Standards.
We report to you our opinion as to whether the financial statements
give a true and fair view and are properly prepared in accordance
with the Companies Act 1985. We also report to you if, in our opinion,
the Directors’ Report is not consistent with the financial statements,
if the company has not kept proper accounting records, if we have not
received all the information and explanations we require for our
audit, or if information specified by law regarding directors’
remuneration and transactions with the company is not disclosed.
We read the Directors’ Report and consider the implications for our
report if we become aware of any apparent misstatements within it.
Basis of Audit Opinion
We conducted our audit in accordance with United Kingdom Auditing
Standards issued by the Auditing Practices Board. An audit includes
examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial statements. It also includes an assessment of
the significant estimates and judgements made by the directors in the
preparation of the financial statements, and of whether the accounting
policies are appropriate to the company’s circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information
and explanations which we considered necessary in order to provide
us with sufficient evidence to give reasonable assurance that the
financial statements are free from material misstatement, whether
caused by fraud or other irregularity or error. In forming our opinion
we also evaluated the overall adequacy of the presentation of
information in the financial statements.
Opinion
In our opinion the financial statements give a true and fair view of the
state of the company’s affairs as at 31 March 2005 and of its loss for the
year then ended, and have been properly prepared in accordance with
the Companies Act 1985.
Lubbock Fine Russell Bedford House
Chartered Accountants City Forum, 250 City Road
& Registered Auditors London EC1V 2QQ
Date: 21st June, 2005
Auditors’ Report
Information Technology Subsidiaries
101
Profit And Loss Account
for the year ended 31st March, 2005
2005 2004
Note £ £
TURNOVER 2 180,820 300,187
Cost of sales 149,223 205,663
Gross Profit 31,597 94,524
Administrative expenses 221,940 514,321
Other operating income 3 (109,835) (75,132)
OPERATING LOSS 4 (80,508) (344,665)
Interest receivable 245 402
Loss on Ordinary Activities
before Taxation (80,263) (344,263)
Tax on loss on ordinary activities 6 — —
Loss for the financial year (80,263) (344,263)
Balance brought forward (788,287) (444,024)
Balance carried forward (868,550) (788,287)
All of the activities of the company are classed as continuing.
The company has no recognised gains or losses other than the
results for the year as set out above.
Balance Sheet As At 31st March, 2005
Cash Flow Statement for the year ended 31st March, 2005
2005 2004
Note £ £ £ £
NET CASH OUTFLOW FROM OPERATING ACTIVITIES 15 (78,584) (105,006)
RETURNS ON INVESTMENTS AND
SERVICING OF FINANCE
Interest received 245 402
NET CASH INFLOW FROM RETURNS ON INVESTMENTS AND SERVICING OF FINANCE 245 402
CAPITAL EXPENDITURE
Payments to acquire intangible fixed assets — (25,000)
Payments to acquire tangible fixed assets — (25,003)
Receipts from sale of fixed assets 19,867 —
NET CASH INFLOW/(OUTFLOW) FROM CAPITAL EXPENDITURE 19,867 (50,003)
CASH OUTFLOW BEFORE FINANCING (58,472) (154,607)
FINANCING
Issue of equity share capital — 196,100
NET CASH INFLOW FROM FINANCING — 196,100
(DECREASE)/INCREASE IN CASH 16 (58,472) 41,493
The notes to accounts form part of these financial statements.
HTMT Europe Limited
2005 2004
Note £ £
FIXED ASSETS
Intangible assets 7 — —
Tangible assets 8 — 7,115
— 7,115
CURRENT ASSETS
Debtors 9 141,861 114,645
Cash at bank 343 58,046
142,204 172,691
CREDITORS: Amounts falling
due within one year 10 245,454 202,793
Net Current Liabilities (103,250) (30,102)
Total Assets Less Current Liabilities (103,250) (22,987)
Capital and Reserves
Called-up equity share capital 13 765,300 765,300
Profit and loss account (868,550) (788,287)
(Deficiency) 14 (103,250) (22,987)
These financial statements were approved by the directors on the
21st June, 2005 and are signed on their behalf by:
A. Dani
Director
Information Technology Subsidiaries
102
HTMT Europe Limited
Notes to Accounts
1. ACCOUNTING POLICIES
Basis of accounting
The Financial statements have been prepared under the historical
cost convention, and in accordance with applicable accounting
standards.
Going concern
The company meets its day to day working capital requirements
from the support of its ultimate parent undertaking. The directors
believe that it is appropriate to prepare the financial statements
on a going concern basis which assumes that the company will
continue in operational existence for the foreseeable future on
the basis of the company’s plans and the continued support of the
ultimate parent undertaking.
If the company is unable to continue in operational existence for
the foreseeable future, adjustments would have to be made to
reduce the balance sheet values of assets to their recoverable
amounts, provide for further liabilities that might arise and
reclassify fixed assets and long term liabilities as current assets
and liabilities.
Turnover
The turnover shown in the profit and loss account represents
amounts invoiced and amounts received and receivable during the
year, exclusive of Value Added Tax.
Recharged disbursements
The company excludes from turnover and administrative expenses
those disbursements which it incurred as agent on behalf of its
shareholders and group companies. This reflects the fact that
these disbursements have been recharged in full.
Amortisation
Amortisation is calculated so as to write off the cost of an asset,
less its estimated residual value, over the useful economic life of
that asset as follows:
Software Licence - fully written off during the previous
year due to impairment
Depreciation
Depreciation is calculated so as to write off the cost of an asset,
less its estimated residual value, over the useful economic life of
that asset as follows:
Plant & Hardware - 75% reducing balance per annum
Equipment - 33% of cost per annum
Operating lease agreements
Rentals applicable to operating leases where substantially all of the
benefits and risks of ownership remain with the lessor are charged
against profits on a straight line basis over the period of the
lease.
Deferred taxation
Deferred tax is recognised in respect of all timing differences that
have originated but not reversed at the balance sheet date where
transactions or events have occurred at that date that will result
in an obligation to pay more, or a right to pay less or to receive
more tax, with the following exceptions:
Provision is made for tax on gains arising from the revaluation
(and similar fair value adjustments) of fixed assets, and gains
on disposal of fixed assets that have been rolled over into
replacement assets, only to the extent that, at the balance
sheet date, there is a binding agreement to dispose of the
assets concerned. However, no provision is made where, on
the basis of all available evidence at the balance sheet date, it
is more likely than not that the taxable gain will be rolled
over into replacement assets and charged to tax only where
the replacement assets are sold;
Deferred tax assets are recognised only to the extent that
the directors consider that it is more likely than not that
there will be suitable taxable profits from which the future
reversal of the underlying timing differences can be
deducted.
Deferred tax is measured on an undiscounted basis at the tax
rates that are expected to apply in the periods in which timing
differences reverse, based on tax rates and laws enacted or
substantively enacted at the balance sheet date.
Foreign currencies
Assets and liabilities in foreign currencies are translated into
sterling at the rates of exchange ruling at the balance sheet date.
Transactions in foreign currencies are translated into sterling at
the rate of exchange ruling at the date of the transaction. Exchange
differences are taken into account in arriving at the operating
profit.
2. TURNOVER
The turnover and loss before tax are attributable to the one
principal activity of the company.
An analysis of turnover is given below:
2005 2004
£ £
United Kingdom 2,400 19,350
Overseas 178,420 280,837
180,820 300,187
3. OTHER OPERATING INCOME
2005 2004
£ £
Other operating income 109,835 75,132
4. OPERATING LOSS
Operating loss is stated after charging/(crediting):
2005 2004
£ £
Directors’ emoluments — —
Amortisation — 25,000
Depreciation of owned fixed assets 3,370 19,902
Profit on disposal of fixed assets (16,122) —
Auditors’ remuneration
- as auditors 4,000 7,650
- for other services 4,525 800
Net loss / (profit) on foreign
currency translation (3,530) 12,534
The operating loss for the year was after charging an amount of
£11,800 in respect of costs arising in the prior years.
5. PARTICULARS OF EMPLOYEES
The average numjaer of staff employed by the company during the
financial year amounted to:
2005 2004
£ £
Number of administrative staff 2 4
Number of management staff 1 1
Number of consultant staff 2 2
5 7
The aggregate payroll costs of the above were:
2005 2004
£ £
Wages and salaries 206,114 359,123
Social security costs 20,238 35,920
226,352 395,043
6. TAXATION ON ORDINARY ACTIVITIES
No charge to corporation tax arises due to the loss incurred
during the year, which will be carried forward and offset against
future profits.
Information Technology Subsidiaries
103
7. INTANGIBLE FIXED ASSETS
Software
Licence
£
COST
At 1 April 2004 25,000
Disposals (25,000)
At 31 March 2005 —
AMORTISATION
At 1 April 2004 25,000
On disposals (25,000)
At 31 March 2005 —
NET BOOK VALUE
At 31 March 2005 —
At 31 March 2004 —
8. TANGIBLE FIXED ASSETS
Plant &
Hardware Equipment Total
£ £ £
COST
At 1 April 2004 23,964 5,476 29,440
Disposals (23,964) — (23,964)
At 31 March 2005 — 5,476 5,476
DEPRECIATION
At 1 April 2004 17,973 4,352 22,325
Charge for the year 2,246 1,124 3,370
On disposals (20,219) — (20,219)
At 31 March 2005 — 5,476 5,476
NET BOOK VALUE 31st March-05 — — —
At 31 March 2004 5,991 1,124 7,115
9. DEBTORS
2005 2004
£ £
Trade debtors 83,307 49,539
Amounts owed by group undertakings 49,427 64,372
VAT recoverable 6,016 —
Other debtors 146 56
Prepayments and accrued income 2,965 678
141,861 114,645
10. CREDITORS: Amounts falling due within one year
2005 2004
£ £
Bank loans and overdrafts 769 —
Trade creditors 5,605 7,707
Amounts owed to group undertakings 72,662 54,636
PAYE and social security 5,662 17,360
VAT — 1,348
Other creditors 137,908 102,933
Accruals and deferred income 22,848 18,809
245,454 202,793
11. DEFERRED TAXATION
No provision has been made in the financial statements and the
amounts unprovided at the end of the year are as follows:
2005 2004
£ £
Tax losses available 157,842 142,783
The deferred tax asset in respect of trading losses has not
been recognised on the basis that its future recoverability is
uncertain. The asset will be recovered in the future in the
event that the company makes sufficient taxable profits to
utilise these losses.
12. RELATED PARTY TRANSACTIONS
Sangam Limited
During the year, the company was charged £27,312 (2004 - £39,643)
in respect of office accommodation and facilities provided by Sangam
Limited, a company that holds 49% of the share capital of HTMT
Europe Limited. The balance due to Sangam Limited at the year
end in respect of the above charges was £74,154 (2004 - £46,841).
The company also recharged part of the salary of two members of
staff who undertake work on behalf of Sangam Limited. The amount
recharged for the year ended 31 March 2005 was £67,782 (2004 -
£75,132). The balance due from Sangam Limited in respect of the
above charges was £25,981 (2004 - £nil).
During the previous year, the company issued 96,089 ordinary
shares of £1 each to Sangam Limited.
Group companies
During the year, the company had the following transactions with
fellow group companies:
The company was charged £86,567 (2004 - £96,423) for technical
services and recharged expenses by its ultimate parent company,
Hinduja TMT Limited. At the balance sheet date an amount of
£72,662 (2004 - debtor of £44,962) was due to the ultimate parent
company.
During the year, the company recharged the salaries of two
members of staff who undertake work on behalf TMT France SARL
totalling £32,995 (2004 - £nil). At the balance sheet date an amount
of £49,427 (2004 - £64,354) was due from this company.
During the previous year, the company issued 100,011 ordinary
shares of £1 each at par to its immediate parent undertaking,
HTMT Inc. The total balance outstanding and due to the company at
the year-end was £nil (2004 - £18).
Other companies
Finac Services Limited, a company controlled by a member of the
Hinduja family, provides accounting services, office accommodation
and facilities to HTMT Europe Limited. The total charges for the
year amounted to £6,000 (2004 - £12,000) and the balance at the
year end was £nil (2004-£10,575).
During the previous year, the company paid fees of £4,000 to Amas
Investments & Project Services Limited, a company controlled by a
member of the Hinduja family, for promotional work.
13. SHARE CAPITAL
Authorised share capital:
2005 2004
£ £
2,000,000 Ordinary shares of £1 each 2,000,000 2,000,000
Allotted, called up and fully paid:
2005 2004
No. £ No. £
Ordinary shares of £1 each 765,300 765,300 765,300 765,300
14. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS’ FUNDS
2005 2004
£ £
Loss for the financial year (80,263) (344,263)
New equity share capital subscribed — 196,100
Net reduction to shareholders’ equity
(deficit)/funds (80,263) (148,163)
Opening shareholders’ equity
(deficit)/funds (22,987) 125,176
Closing shareholders’ equity deficit (103,250) (22,987)
HTMT Europe Limited
Notes to Accounts
Information Technology Subsidiaries
104
15. RECONCILIATION OF OPERATING LOSS TO
NET CASH OUTFLOW FROM OPERATING ACTIVITIES
2005 2004
£ £
Operating loss (80,508) (344,665)
Amortisation — 25,000
Depreciation 3,370 19,902
Profit on disposal of fixed assets (16,122) —
(lncrease)/decrease in debtors (27,216) 128,206
Increase in creditors 41,892 66,551
Net cash outflow from
operating activities (78,584) (105,006)
16. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET
DEBT
2005 2004
£ £
(Decrease)/!ncrease in cash in the period (58,472) 41,493
Movement in net debt in the period (58,472) 41,493
Net funds at 1 April 2004 58,046 16,553
Net debt at 31 March 2005 (426) 58,046
HTMT Europe Limited
Notes to Accounts
17. ANALYSIS OF CHANGES IN NET DEBT
At
1 Apr.04 Cash flows 31 Mar.05
£ £ £
Net cash:
Cash in hand and at bank 58,046 (57,703) 343
Ovedrafts — (769) (769)
Net debt 58,046 (58,472) (426)
18. CONTROLLING PARTY
The company is ultimately controlled by the Hinduja family.
19. ULTIMATE PARENT COMPANY
The company’s immediate parent undertaking, and the parent
undertaking of the smallest group for which group financial
statements are prepared, is HTMT Inc, a company incorporated in
the United States of America. HTMT Inc has included the results of
the company in its group accounts, copies of which are available
from 520 Madison Avenue, New York NY1022, USA.
In the directors’ opinion, the ultimate parent company, and the
parent undertaking of the largest group for which group financial
statements are prepared, is Hinduja TMT Limited, a company
incorporated in India. Copies of its consolidated group’ accounts,
which include the results of HTMT Europe Limited, are available
from Hinduja House, 1st Floor, 171 Dr. A.B. Road, Worli, Mumbai
400018, India
Information Technology Subsidiaries
105
Hinduja TMT France
Independent Auditors’ Report
To the Board of Directors and
Stockholder
of Hinduja TMT France
4, Rue de l’Abreuvoir
92400 COURBEVOIE
We have audited the balance sheets of Hinduja TMT France as of March
31, 2005. These financial statements are the responsibility of the
company’s management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audits in accordance with auditing standards generally
accepted in FRANCE.
Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free
of material misstatements.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, based on our audits, the financial statements referred
to above present fairly, in all material respects, the financial position
of Hinduja TMT France as for March 31, 2005 and the results of its
operations and its cash flows for the years then ended, in conformity
with accounting principles generally accepted in France.
Pierre Sorel
Paris, June 29, 2005
Report on The Trial Account 03/31/2005
We have established the accounts for the period 04/01/2004 – 03/31/2005
We express our opinion on the accounts, the balance sheet and profit
and loss ending 03/31/2005. These are genuine and true.
We have audited the accounts and we certify that they have been done
in accordance of the French bookkeeping standard (IASC)
We confirm that Cabinet SOREL is independent in the performance of all
professional services with regard to Hinduja TMT France and their
related and affilliated companies, and that there are no independence
issues. Moreover, all members of our audit engagement team have no
financial interests in the client and have the ability to act with integrity
and objectivity.
We also confirm that at 31st March 2005 HTMT Europe was due
∈95857,60 from Hinduja TMT France.
Pierre Sorel
Paris, June 29, 2005
Statement of Income
For the year ended March 31, 2005
Amount in Euros
2005 2004
Net Products Sales 259425 221531
Gross profit 259425 221531
Selling, general and administrative expenses (135286) (188274)
Income (profit) from operations 124139 33257
Financial expenses (income), net — (234)
Income before taxes on income 124139 33023
Other income — —
NET INCOME (LOSS) 124139 33023
Balance Sheet
as at 31st March, 2005
Amount in Euros
2005 2004
ASSETS
Current Assets:
Cash and cash equivalents 102241 105117
Trade accounts receivable, net 45338 21713
Other receivables and prepaid expenses 4286 3147
Inter Company receivables 38862 —
Total Current Assets 190727 129977
Fixed Assets, net 1162 1162
Other Assets, net 528 528
Amortization (856) (468)
TOTAL ASSETS 191561 131199
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable 6271 7727
Income Tax 34243 —
Credit facility outstanding and
short-term borrowing — 110
Accrued expenses and other liabilities 55149 55465
VAT taxes payable 2 2
Intercompany payables — 96138
Total current liabilities 95665 159442
Common stock 8000 8000
Loss 2002-2003 (69266) (69266)
Profit at 31/03/04 33023 —
Profit for Year to Date 124139 33023
Total stockholders’ equity 95896 (28243)
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY 191561 131199
Information Technology Subsidiaries
106
Statements of Cash Flows
For the year ended March 31, 2005
Amount in Euros
2005 2004
Cash Flows from Operating Activities : 124139 33023
Adjustments to reconcile Net Loss to net cash from Operating Act
Depreciation 387 388
Increase Decrease in Assets :
Accounts receivable trade (23625) 47227
Other receivables (1139) (629)
Increase Decrease in Liabilities :
Accounts Payable (102918) (125244)
Total Adjustments (127295) (78258)
Net cash Used by Operating Activities (3156) (45235)
Cash flows from Investing Activities :
Acquisition of Property and Equipement — 1690
Net Cash Used by Investing Activities — 1690
Cash flow from Financing Activities :
Increase in due to HTMT EUROPE 280 96138
Issuance of stock by Subsidiaries minority interest
Net Decrease in Cash (2876) 52593
Cash beginning of Year 105117 52524
Cash end of the year 102241 105117
Note 1 Corporate Organisation and Description of Business
Hinduja TMT France is a wholly owned subsidiary of HTMT
Incorporated a company incorporated in United States for 51%
of the share, be ∈4080.00 and SANGAM Ltd. (HTMT Europe) a
company incorporated in United Kingdom for 49% of the share,
be ∈3920. Hinduja TMT France was organised on March 06,
2002 under the laws of France and has an authorised capital of
800 shares of preferred stock, ∈10 par value. These shares
were issued for a consideration of ∈8000.
The company principal business consists of providing information
technology (“IT”) services and solutions to its clientele primarily
in the form of professional IT staffing, claims processing,
software development and consulting services.
Note 2 Summary of Significant Accounting Policies
Basis of Accounting
The company uses the accrual method of Accounting. Certain
items of income and expenses, and asset valuation are
recognized for financial statement purposes in different time
periods than for tax purposes.
Revenue recognition
The company recognises revenue for the leasing of software
engineers based upon the time expended by the engineers.
Revenue from software development is recognised under the
percentage of completion method based on labor inputs. Fees
charged for processing services are on a per unit basis.
Concentrations of Credit Risk
Hinduja TMT France’s clients range from large multi-national
companies to small regional IT staffing firms. During the year
ended March 31, 2005 the company had revenues from only an
unaffiliated client, SOLECTRON BV EUROPE, which accounted for
100% of revenues. The aggregate accounts receivable balance
at March 31, 2005 were ∈45337.50
Property and equipment
Property and equipment is stated at cost. Depreciation of
equipment is provided using the straight-line method over
estimated useful lives of three years. The cost and related
accumulated depreciation of assets retired or sold are removed
from the respective accounts, and any resulting gain or loss is
included in the consolidated statement of income and expenses.
Management Estimates
The consolidated financial statements are prepared in conformity
with accounting principles generally accepted in France, which
require management to make estimates and assumptions that
affect reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and
expenses during the reporting periods. Accrual results could
differ from those estimates.
Foreign Currency Translation
Local currencies are generally considered to be the functional
currency of operations outside the U.S. translation gains and
losses are include as a separate component of consolidated
stockholder’s equity. The functional currency for the operations
in France is the euro.
Note 3 Foreign Operations
The company Hinduja TMT France began full operations in France
during the year ended March 31, 2003.
For the year ended March 31, 2004 Hinduja TMT France get
profit for ∈33023, the company’s assets total ∈986134 and
liabilities total ∈953111, whereas the company incurred net
losses of ∈69266 for the year ended March 31, 2003. Then
funding was provided primarily by HTMT Europe.
For the year ended March 31, 2005 Hinduja TMT France get
profit for ∈23663 and the Company’s assets total ∈152890 and
liabilities total ∈152890
Note 4 Income taxes
For the year ended March 31, 2005, the basis of Income tax for
Hinduja TMT France is ∈NIL (profit 23662 less deficit 36 243).
Note 5 Due to HTMT Europe – Related party Transactions
The company reimburse HTMT Europe for direct expenses
incurred on its behalf, including, recruiting and training
software engineers in India. For the year ended March 31,
2003, HTMT Europe charged the company for expenses amounting
∈135596, and for the year ended March 31, 2004 the company
reimburse HTMT Europe ∈39458, then the unpaid balance of
advances and administrative services amounted to ∈96138.
For the financial period from April 01, 2004 to March 31, 2005,
Hiduja TMT France reimburse HTMT Europe ∈135000 and the
debt at the end of the period is ∈95858 due to HTMT Europe UK.
Note 6 Retirement Plan
Hinduja TMT France have no Retirement Plan.
Notes to Consolidated Financial Statements March 31, 2005
Hinduja TMT France
Information Technology Subsidiaries
107
Source One Communications Inc.
To the Members,
Your Directors are pleased to present the consolidated financial results
of your Company for the period September 17, 2004 to March 31,2005:
Financial Results
‘000s
Rupees US Dollars
2005
Revenues 384,449 8,549
Expenditure 360,884 8,025
PBDIT 23,565 524
Add Interest income 1,754 39
Less: Depreciation & Amortization 8,185 182
Loss on currency valuation 10,523 234
Profit before Minority Interest
and taxation 6,611 147
Less: Provision for taxation (225) (5)
Net profit before Minority Interest 6,836 152
Less: minority Interest 3,328 74
Net Income 3,508 78
Add : Other Income 2,743 61
Comprehensive income 6,251 139
Background
Effective 17th
September 2004, Source One Communications Inc., USA
(Source One) is a wholly owned subsidiary of Hinduja TMT Ltd (HTMT
India), a company incorporated In India. Your Company’s principal business
consists of marketing and providing customer contact center services
to its clientele primarily in the form of call centers. The Company has
its headquarters and a call center in New Jersey and a branch office in
Toronto, Canada. Your Company has investments in a 57.5% subsidiary,
Source One Communications Asia, Inc. (SOCA), located at Manila,
Philippines.
SOCA is a joint venture between Customer Contact Center Inc. (C3),
Manila and Source One. HTMT India is the controlling shareholder of C3
which owns the remaining 42.5% of SOCA.
Financial Review:
During the six and half months ended 31st
March 2005, your Company
has earned a Gross Revenue of USD 8.549 million and earned a net
profit of USD 0.078 million.
Review of Operations:
In the period under review, your Company has performed satisfactorily
amid external pressures on pricing and available human resources.
Through its’ own call centers in New Jersey and Toronto and SOCA
owned call centers in Manila, your Company serves over a dozen
customers, some of who are Fortune 500 companies engaged in different
businesses like Consumer Electronics, Pharmaceuticals, Utilities, Fuel
and Power, Consumer goods etc.
Some of the clients have shown greater confidence in your Company’s
quality capabilities by increasing volumes and adding new lines. Infact,
the Toronto Call Center has achieved the distinction of being the number
one center for the highest quality of service amongst various service
providers to one of it’s clients.
Your Company is continually looking at ways to streamline the
organization to rationalize costs of rendering service and make for a
better-functioning company. The major steps initiated to this end
include merging of the Training and Quality functions into one team and
the greater involvement of the Workforce group in the decision process
relating to agent hiring and manpower rationalisation.
Recent Developments:
Effective 1st
April 2005, with the approval of the shareholders, HTMT
Inc., USA, the 100% owned subsidiary of HTMT India, has merged with
Source One.
The merged entity is renamed as Source1 HTMT Inc., The merger is
expected to generate synergies from the consolidation of the marketing
and client relationship management functions of both the companies
and benefit from the reduction in cost of independent operations of
both entities.
Directors:
Following the acquisition of the Company by HTMT India, the Company’s
Board was reconstituted in November 2004, with the following as
directors:
Ken Peterson, Chairman
R.P.Hinduja, Director (Co-Chairman of HTMT India)
K. Thiagarajan, Director (MD and CEO of HTMT India)
Ali Ganjaei, Director (CEO Amas group, USA)
M.S.Varadan, Director & President
Following the merger of HTMT Inc., USA with Source One, Dheeraj G.
Hinduja, (Director-HTMT India) has joined the Board of your Company.
Statement of Directors’ responsibilities in respect of the financial
statements
Your Directors based on the information and documents made available
to them, confirm that:
i) in the preparation of the accounts for the period under review,
the applicable accounting standards have been followed. There are
no material departures in the adoption and application of the
accounting standards.
ii) they have selected such accounting policies and applied them
consistently and made judgements and estimates that are
reasonable and prudent so as to give a true and fair view of the
state of affairs of your Company at the end of the the period under
review and of the profit of your Company for that period;
iii) they have taken proper and sufficient care to the best of their
knowledge and ability for the maintenance of adequate accounting
records in accordance with the applicable laws for safeguarding
the assets of your Company and for preventing and detecting
fraud and other irregularities;
iv) they have prepared the annual accounts on a going concern basis
Your Directors wish to place on record their appreciation of the
continued support from customers, valuable contributions and co-
operation of its employees, its bankers and the excellent co-operation
received from the Governments of USA, Canada and Philippines including
PEZA.
Kenneth D. Peterson
Director
29th
July 2005
Directors’ Report
Information Technology Subsidiaries
108
Source One Communications Inc.
NEAL J. NISSEL
Certified Public Accountant
6 East 45th Street,
New York, N.Y. 10017
(212) 661-1610
Fax : (212) 986-9728
To the Board of Directors and Stockholder of Source One Communications,
Inc.
We have audited the accompanying consolidated balance sheet of Source
One Communications, Inc and Subsidiary as of March 31, 2005, and the
related consolidated statements of income and comprehensive income,
changes in stockholder’s equity, and cash flows for the period September
17 2004 to March 31, 2005. These consolidated financial statements are
the responsibility of the Company’s management. Our responsibility is
to express an opinion on these consolidated financial statements based
on our audit. We did not audit the financial statements of Source One
Communications Asia, Inc., a majority owned subsidiary, which
statements reflect total assets of $3,929,804 as of March 31, 2005, and
revenues of $6,529,663 for the period from September 17, 2004 to
March 31, 2005. Those statements were audited by another auditor
whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for Source One Communications Asia,
Inc., is based solely on the report of the other auditor.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, based on our audits, the consolidated financial statements
referred to above present fairly, in all material respects, the
consolidated financial position of Source One Communications, Inc. and
Subsidiary as of March 31, 2005, and the results of its operations and
its cash flows for the period September 17, 2004 to March 31, 2005, in
conformity with accounting principles generally accepted in the United
States of America.
New York, New York
June 24, 2005
Independent Auditors’ Report
Liabilities And Stockholder’s Equity
2005
$ $
Current Liabilities:
Accounts Payable 1,272,812
Due to Georgeson Shareholder
Communication, Inc. 1,306,013
Due to HBI Incorporated, N.V. (Note 5) 149,772
Sales Tax Payable 11,429
Income Taxes Payable 1.340
Total Current Liabilities 2,741,366
Minority Interest In
Consolidated Subsidiary 1,717,065
Stockholder’s Equity:
Common Stock (Note 1) 10
Additional Paid-in Capital 9,671,945
Accumulated Deficit (6,459,506)
Accumulated Other
Comprehensive Income:
Foreign Currency Translation Adjustment 30,904
Total Stockholder’s Equity 3,243,353
7,701,784
Consolidated Balance Sheets March 31, 2005
Assets
2005
$ $
Current Assets:
Cash and Cash Equivalents (Note 2) 4,217,555
Certificate of Deposit -
Restricted (Note 6) 80,000
Accounts Receivable - Trade, Net (Note 2) 1,948,073
Prepaid Expenses and
Other Current Assets 139,492
Due from Customer Contract
Center, Inc. (Note 3) 514,137
Deferred Income Taxes (Note 4) 148,400
Total Current Assets 7,047,657
Property and Equipment: (Note 2)
Office Furniture and Equipment 2,267,218
Leasehold Improvements 123,224
2,390,442
Less: Accumulated Depreciation 1,751,781
Property and Equipment, Net 638,661
Security Deposit 15,466
7,701,784
The accompanying notes are an integral part of the consolidated financial statement.
Information Technology Subsidiaries
109
Source One Communications Inc.
Consolidated Statements of Income and Comprehensive Incomefor the period September 17, 2004 to March 31, 2005
2005
$ $
Revenues 8,549,037
Cost of Revenues, General and Administrative Expenses 8,207,755
Income from Operations 341,282
Other Income (Expense):
Loss on Currency Valuation (234,121)
Interest Income 39,368
Total Other Income (Expense) (194,753)
Income From Continuing Operations Before
Income Tax Provision and Minority Interest 146,529
Provision for Income Taxes (Benefit) (Note 4) (5,660)
Income From Continuing Operations
Before Minority Interest 152,189
Minority Interest in Consolidated Subsidiary’s Earnings 73,853
Net Income 78,336
Other Comprehensive Income:
Foreign Currency Translation Adjustment 81,598
Income Tax Expense Related to Other Comprehensive Income 20,600
Other Comprehensive Income 60,998
Comprehensive Income 139,334
The accompanying notes are an integral part of the consolidated financial statement.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY
FOR THE PERIOD SEPTEMBER 17, 2004 TO MARCH 31, 2005
COMMON ADDITIONAL ACCUMULATED ACCUMULATED TOTAL
STOCK PAID—IN DEFICIT OTHER STOCKHOLDER’S
CAPITAL COMPREHENSIVE EQUITY
INCOME
Balance, September 17,2004 10 9,671,945 (6,626,645) (30,094) 3,015,216
Prior Period Adjustment (Note 7) — — 88,803 — 88,803
Adjusted Balance, September17,2004 10 9,671,945 (6,537,842) (30,094) 3,104,019
Translation Adjustment — — — 60,998 60,998
Net Income — — 78,336 — 78,336
Balance, March 31,2005 10 9,671,945 (6,459,506) 30,904 3,243,353
(figures in $)
Information Technology Subsidiaries
110
2005
$ $
Cash Flows from Operating Activities:
Net Income 78,336
Adjustments to Reconcile Net Income
to Net Cash from Operating Activities:
Allowance for Doubtful Accounts (31,072)
Deferred Income Taxes 13,600
Depreciation 182,055
Translation Adjustment 60,998
Minority Interest in Net Income of Consolidated Subsidiary 73,853
(Increase) Decrease in Assets:
Accounts Receivable - Trade 322,838
Prepaid Expenses and Other Current Assets (22,400)
Security Deposit (4,768)
Increase (Decrease) in Liabilities:
Accounts Payable (62,658)
Sales Tax Payable 11,429
Income Taxes Payable 1,340
Total Adjustments 545,215
Net Cash Provided by Operating Activities 623,551
Cash Flows from Investing Activities:
Investment in Certificate of Deposit - Restricted (80,000)
Acquisition of Property and Equipment (249,165)
Net Cash Used by Investing Activities (329,165)
Cash Flows from Financing Activities:
Decrease in Due to Hinduja TMT Ltd. (19,447)
Increase in Due to HBI Incorporated, N.V. 149,772
Net Payments to Customer Contract Center, Inc. (562,781)
Increase in Due to Georgeson Shareholder Communication 1,306.013
Net Cash Provided by Financing Activities 873,557
Net Increase in Cash 1,167,943
Cash and Cash Equivalents, Beginning of Year 3,049,612
Cash and Cash Equivalents, End of Year 4,217,555
Source One Communications Inc.
Consolidated Statements of Cash Flows for the period September 17, 2004 to March 31, 2005
The accompanying notes are an integral part of the consolidated financial statement.
Information Technology Subsidiaries
111
Source One Communications Inc.
Notes to Consolidated Financial Statements March 31, 2005
Note 1 Corporate Organization and Description of Business
Source One Communications, Inc. (“Source 1” or the
“Company”) is a wholly owned subsidiary of Hinduja TMT Ltd.
(“HTMT (India)”) a company incorporated in India. Source 1
was organized on June 30, 2000, under the laws of the State
of Delaware and has an authorized capital of 1,000 shares of
common stock, $.01 par value, all of which are issued and are
outstanding.
The Company’s principal business consists of providing
customer contact services to its clientele primarily in the
form of call centers. The Company has its headquarters’ and
a call center in New Jersey, a branch office in Toronto, Canada
and a 57.5% owned subsidiary, Source One Communications
Asia, Inc. (“SOCA”), located in the Philippines.
Effective September 17, 2004, HTMT (India) acquired Source 1
from Georgeson Shareholder Communications, Inc. HTMT (India)
is also the controlling shareholder of Customer Contact Center,
Inc. (“C3
”), which owns the remaining 42.5% of the outstanding
shares of SOCA.
Note 2 Summary of Significant Accounting Policies:
Basis of Accounting
The Company uses the accrual method of accounting. Certain
items of income and expenses, and asset valuation are
recognized for financial statement purposes in different time
periods than for tax purposes. (Refer to Note 4)
Principles of Consolidation
The accompanying consolidated financial statements include
the accounts of the Company and its majority owned
subsidiary, SOCA. All material intercompany transactions and
intercompany accounts have been eliminated in consolidation.
(Refer to Note 3)
Cash and Cash Equivalents
The consolidated Company considers all highly liquid
investments purchased with an original maturity of three
months or less to be cash equivalents.
Revenue Recognition
The consolidated Company recognizes revenue for the call
centers based upon the performance of contractually agreed
tasks, which coincides with the billing of services. Fees for
services provided include per minute fee for talk time, based
on monthly call volume.
Concentrations of Credit Risk
Financial instruments, which could subject the consolidated
Company to a concentration of credit risk, include its free
cash balances and trade accounts receivable. The Company
maintains its cash balances in major financial institutions,
which have federally insured limits of $100,000. SOCA
maintains its cash balances in financial institutions located in
the Philippines that contain minimal insurance limits. At March
31, 2005, the uninsured cash balances of the Company and
SOCA total approximately $2,750,000 and $1,380,000,
respectively.
The consolidated company’s clients range from large multi-
national companies to small regional firms. During the period
September 17, 2004 to March 31, 2005 the consolidated
Company had revenues from seven clients, which accounted
for approximately 93% of revenues. During the period
September 17, 2004 to March 31, 2005, no other client
accounted for more than 5% revenues. The aggregate accounts
receivable balance for these clients at March 31, 2005 is
$1,829,519.
Accounts Receivable - Trade
An allowance for doubtful accounts receivable may be provided
based on historical collection experience and evaluation of
outstanding accounts receivable at the end of each year. As of
March 31, 2005, the consolidated company has recorded an
allowance for doubtful accounts receivable in the amount of
$30,337.
Property and Equipment
Property and equipment is stated at cost. Major additions
are capitalized while minor betterments are charged to
expense. Depreciation of equipment is provided using the
straight-line method over the estimated useful lives of three
to five years. The cost and related accumulated depreciation
of assets retired or sold are removed from the respective
accounts, and any resulting gain or loss is included in the
consolidated statement of income and expenses.
Income Taxes
The Company records deferred tax assets and liabilities for
differences between the financial statement and tax bases of
assets and liabilities (“Temporary differences”), as well as for
net operating loss carryforwards. These are measured using
enacted tax rates in effect for the year in which the differences
are expected to reverse. Valuation allowances are established,
when necessary, to reduce deferred tax assets to the amounts
expected to be realized.
Comprehensive Income
The Company accounts for comprehensive income in accordance
with Statement of Financial Accounting Standards No. 130,
“Reporting Comprehensive Income” (SFAS 130) which requires
the reporting of comprehensive income in addition to net
income. Comprehensive income is a more inclusive financial
reporting methodology that include disclosures of certain
financial information that historically has not been recognized
in calculating net income. For the period September 17, 2004
to March 31, 2005, comprehensive income as presented in the
consolidated statement of income and comprehensive income
consists of net income and foreign currency translation
adjustments net of income taxes and has no impact on total
stockholder’s equity.
Management Estimates
The consolidated financial statements are prepared in
conformity with accounting principles generally accepted in
the United States of America, which require management to
make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could
differ from those estimates.
Foreign Currency Translation
Local currencies are generally considered to be the functional
currency of operations outside the U.S. Translation gains and
losses are included as a separate component of consolidated
stockholder’s equity. The functional currency for the operations
in the Philippines is the Philippine Peso.
Note 3 Due from Customer Contract Center, Inc. - Related Party
Transactions
Pursuant to a rental agreement, C3
provides office space,
equipment and personnel to SOCA in return for a fee
computed on a percentage of total operating expenses. For
the period September 17, 2004 to March 31, 2005, C3
charged
SOCA $1,235,562 for the above expenses. SOCA and C3
have
entered into a discounted rental agreement wherein SOCA
prepaid C3
for rental services in consideration for monthly
discounts of approximately 7.57%. As of March 31, 2005 the
unused portion of the prepayment is $929,802 and is reflected
in due from C3
.
In addition, C3
provides IT and telephony support, human
resources, finance, planning and marketing services in
consideration for a monthly service fee of approximately
$120,000. For the period September 17, 2004 to March 31,
2005, C3
charged SOCA $734,635 for the above services. As of
March 31, 2005 the unpaid portion of the service fee is $415,665
and is reflected in due from C3
.
As of March 31, 2005, the net balance due from C3
is
$514,137.
Information Technology Subsidiaries
112
Source One Communications Inc.
Notes to Consolidated Financial Statements March 31, 2005
Note 4 Income Taxes
Income taxes are provided for the tax effects of transactions
reported in the consolidated financial statements.
The provision for income taxes consist of the following:
$
Current Tax Expense 1,340
Deferred Tax Benefit (7,000)
Net Income Tax Benefit (5,660)
The provision for income taxes differs from the amount,
which would be computed if statutory federal income tax
rates were applied to pre-tax income. This is principally due
to taxes imposed by state regulations, net of federal income
tax benefit, the nondeductibility of certain expenses and a
temporary tax holiday in the information technology zone in
the Philippines.
The significant components of the net deferred tax asset
consists of approximately the following:
$
Net Operating Loss Carryforwards
- Post Acquisition 49,000
Net Operating Loss Carryforwards
- Pre Acquisition 753,000
Allowance for Doubtful Accounts 6,000
Accrued Payroll Taxes 3,000
Translation Adjustment (20,600)
Depreciation 111,000
901,400
Valuation Allowance (753,000)
Net Deferred Tax Asset 148,40O
As of March 31, 2005, a valuation allowance has been recognized
to partially offset the deferred tax asset due to the
uncertainty of realizing any future benefit of the state net
operating loss carryforward arising prior to the date of
acquisition on September 16, 2004. As of March 31, 2005 the
federal net operating loss carryforward in the United States
of approximately $121,000 is available to be carried forward
to offset future taxable income and will expire in 2025.
Note 5 Due to HBI Incorporated, N.V. - Affiliated Company
An affiliated company provided transition and financial services
for Source 1 in exchange for fees aggregating $150,000. As of
March 31, 2005, the unpaid balance amounted to $149,772.
Note 6 Commitments
The Company leases space for its main office at 1280 Wall
Street West, Lyndhurst, New Jersey, at an annual base rent of
$220,395 until March 31, 2007, $230,890 until March 31, 2009
and $241,385 until June 30, 2010, which is the expiration of
the lease.
The Company leases space for its office in Toronto, Canada at
an annual rental of $236,652 until March 31, 2007, which is the
expiration of the lease.
The approximate minimum rental commitments under the
above leases are as follows:
Fiscal Year Ending Amount ($)
2006 457,047
2007 457,047
2008 230,890
2009 230,890
2010 241,385
2011 60,346
Total 1,677,605
The above leases provide for additional rent based upon
escalations for real estate taxes and building operating
expenses.
SOCA has entered into an agreement with C3
, to lease office
space, equipment and personnel in Manila, Philippines based
upon a percentage of operating expenses for an initial term
of four years expiring November 15, 2005. (Refer to Note 3)
In lieu of a security deposit, the Company provides a standby
letter of credit in the amount of $80,000 in favor of its payroll
service provider. The letter of credit is cotlateralized by a
certificate of deposit in the amount of $80,000.
SOCA has entered into various contracts with
telecommunication providers relating to the lease of
international private lines for a term of one year, with options
to renew.
Note 7 Prior Period Adjustment
During the period ended March 31, 2005, the Company
discovered errors made in prior periods. As of September
16, 2004, the balance due SOCA was understated on the
books of Source 1 by $184,169. In addition as of September
16, 2004, Source 1’s investment in SOCA was overstated by
$257,366. Since these transactions occurred prior to the
date of acquisition of Source 1 by HTMT (India), it is not
practical to ascertain the effect on the prior period financial
statements. As of September 16, 2004 net deferred tax
assets totaling $162,000 was not recorded. This would have
resulted a prior period tax benefit. The net effect of these
prior period adjustments to current retained earnings was
$88,803.
Note 8 Subsequent Events
Effective April 1, 2005 Source 1 agreed to merge with HTMT,
Inc. (“HTMT (NY)”), a New York corporation in a tax free
reorganization. A common parent, HTMT (India), owns both
Source 1 and HTMT (NY). Source 1, will be the surviving
corporation and the name of the merged company will be
Source 1 HTMT, Inc. In addition, effective April 1 2005, the
Company has resotved to spin off its call center operations in
New Jersey and Toronto to HTMT (India). Although the tax
ramifications of the spin off have not yet been determined,
it is not expected to have a material effect on the Company.
113
Information Technology Subsidiaries
Source One Communications Asia, Inc.
Directors’ Report
To the Members,
Your Directors are pleased to present the financial results of your
Company for the period September 17, 2004 to March 31,2005:
Financial Results:
‘000s
Rupees Pesos
2005
Revenues 291,067 361,754
Expenditure 282,134 350,651
Gross Profit 8,933 11,103
Add:Interest/other income 1,122 1,394
Less:Depreciation & Amortization 2,309 2,870
Profit before tax 7,746 9,627
Provision for Taxation — —
Net Income 7,746 9,627
Your Company is a joint venture between Customer Contact Center Inc.
Manila (C3) and Source One Communications Inc., USA, (Source One). The
Company is a subsidiary of Source One, which holds 57.5% of the equity
capital of the Company. Following the acquisition of 100% stake of
Source One by Hinduja TMT Ltd. (HTMT), a Company incorporated under
the laws of India, with effect from 17th
September 2004, your Company
has become a subsidiary of Hinduja TMT Ltd.
Financial Review
During the period under review, your Company’s gross revenue
amounted to Peso 361.8 million; it earned a net profit of Peso 9.6 Mn
Review of Operations
Your Company has focused on implementing efficiency and productivity
measures and has succesfully handled intense competition pressures.
Just-in-time provisioning of resources and boosting agent productivity
by better workforce management were some of the initiatives adopted
by your Company.
Your Company avails Infrastructure facilities and support services from
C3. Your Company has a marketing arrangement with the parent and
pays marketing fees to Source One.
Change in Accounting Year
At the Board Meeting held on 21st
February 2005, the Board approved
the change in the accounting year of the corporation to begin on the 1st
day of April and end on the 31st
day of March of each year. This is to
synchronize your Company’s accounting year with its ultimate parent
company, HTMT.
Directors
At the Board meeting held on 21st
February 2005, Atty. Virginia B.
Viray was appointed as Corporate Secretary and a Board Director of
your Company. Mr. Pushkar Misra continues on the board and as President
& Chief Executive Officer.
Statement of Directors’ responsibilities in respect of the financial
statements
Your Directors, based on the information and documents made available
to them, confirm that:
i) in the preparation of the accounts for the period under review,
the applicable accounting standards have been followed. There are
no material departures in the adoption and application of the
accounting standards.
ii) they have selected such accounting policies and applied them
consistently and made judgements and estimates that are
reasonable and prudent so as to give a true and fair view of the
state of affairs of your Company at the end of the the period under
review and of the profit of your Company for that period;
iii) they have taken proper and sufficient care to the best of their
knowledge and ability for the maintenance of adequate accounting
records in accordance with the applicable laws for safeguarding
the assets of your Company and for preventing and detecting
fraud and other irregularities;
iv) they have prepared the annual accounts on a going concern basis
Your Directors wish to place on record their appreciation of the
valuable contributions and co-operation of its employees and the
excellent co-operation from PEZA and other Government agencies and
bankers.
Pushkar Misra
Director
Date: July 13, 2005
The Board of Directors
Source One Communications Asia, Inc.
We have audited the accompanying balance sheet of Source One
Communications Asia, Inc. as of March 31, 2005, and the related
statements of income, changes in equity and cash flows for the period
September 17, 2004 to March 31, 2005. These financial statements are
the responsibility of the Company’s management. Our responsibility is
to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in the Philippines. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Source One
Communications Asia, Inc. as of March 31, 2005, and the results of its
operations and its cash flows for the period September 17, 2004 to
March 31, 2005, in accordance with generally accepted accounting
principles in the Philippines.
Our report is intended solely for the use of the Company’s management
and its parent company for consolidation purposes and should not be
used by parties other than those who agreed with the scope of this
engagement.
Punongbayan & Araullo
PTR No. 9454911
January 14, 2005
Makati City
Date: July 13, 2005
Independent Auditors’ Report
114
Information Technology Subsidiaries
2005
P
Net Revenues (Note 11) 361,754,150
Cost Of Services (Notes 7 and 8) 236,174,335
Gross Profit 125,579,815
Operating Expenses
Marketing and services fees (Note 7) 45,349,262
Shared services fees (Note 7) 40,651,113
Transportation and travel 6,765,878
Outside services 5,282,608
Taxes and licenses 2,913,198
Rental 2,667,391
Supplies 1,071,459
Communication 1,025,721
Other operating expenses (Note 9) 3,075,736
108,802,366
Income From Operations 16,777,449
Other Charges - Net (Note 10) 7,150,242
Net Income (Note 11) 9,627,207
Liabilities And Stockholder’s Equity
2005
P
Current Liabilities:
Trade and other payables (Note 6) 52,569,917
Due to related parties (Note 7) 71,444,274
Total Current liabilities 124,014,191
Equity
Capital stock 10,344,000
Retained earnings 213,324,999
Total Equity 223,668,999
Total Liabilities and Equity 347,683,190
BALANCE SHEET AS AT MARCH 31, 2005
Assets
2005
P
Current Assets:
Cash and cash equivalents (Note 3) 76,427,872
Trade and other receivables - net (Notes 4 and 7) 212,171,171
Due from a related party (Notes 7 and 8) 50,920,180
Prepayments and other current assets 1,297,757
Total Current Assets 340,816,980
Non-current Assets
Property and equipment - net (Note 5) 6,019,210
Other non-current assets 847,000
Total Non-current Assets 6,866,210
Total Assets 347,683,190
Source One Communications Asia, Inc.
Statement of Income for the period September 17, 2004 to March 31, 2005
See Notes to Financial Statements.
115
Information Technology Subsidiaries
Source One Communications Asia, Inc.
Statement of Changes In Equity for the period September 17, 2004 to March 31, 2005
2005
P
Capital Stock - P1 par value
Authorized - 20,000,000 shares
Issued and outstanding - 10,344,000 shares 10,344,000
Retained Earnings
Balance at beginning of period 203,697,792
Net income 9,627,207
Balance at end of period 213,324,999
Total Equity 223,668,999
2005
P
Cash Flows from Operating Activities:
Net income 9,627,207
Adjustments for:
Depreciation 2,869,529
Unrealized foreign currency losses 2,820,574
Interest income (1,391,645)
Operating income before working capital changes 13,925,665
Increase in trade and other receivables (62,825,107)
Decrease in prepayments and other current assets 2,533,475
Increase in due from a related party (50,920,180)
Increase in other non-current assets (247,000)
Increase in trade and other payables 6,843,888
Increase in due to related parties 62,653,097
Net Cash Used in Operating Activities (28,036,162)
Cash Flows From Investing Activities
Acquisitions of property and equipment (263,972)
Interest received 1,391,645
Net Cash From Investing Activities 1,127,673
Effects of Exchange Rate Changes on Cash (927,063)
NET DECREASE IN CASH AND CASH EQUIVALENTS ( 27,835,552)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 104,263,424
CASH AND CASH EQUIVALENTS AT END OF PERIOD 76,427,872
See Notes to Financial Statements
Statement of Cash Flows for the period September 17,2004 to March 31, 2005
116
Information Technology Subsidiaries
1. Corporate Information
Source One Communications Asia, Inc. (the “Company”) was
incorporated in the Philippines on February 7, 2002. The Company
was formed by the strategic alliance of Source One Communications,
Inc. (“SOCI”) and Customer Contact Center, Inc. (“C3
”), both major
stockholders of the Company. In September 2004, Hinduja TMT
(“HTMT”), who owns controlling interest in C3
, acquired 100% of
SOCI from Georgeson Shareholder Communications, Inc. (“GSCI”).
With the acquisition of SOCI and its current shareholdings in the
Company, HTMT has consolidated its ownership of the Company.
The Company is mainly engaged in the customer contact service
business commonly referred to as call centers.
The registered office of the Company is located at 1E-Commerce
Avenue, Eastwood City Cyberpark, E. Rodriguez Jr. Avenue,
Bagumbayan, Quezon City.
On February 22, 2005, the Board of Directors approved the change
in the Company’s accounting period from fiscal year ending May 31
to fiscal year ending March 31. The approval of the Securities and
Exchange Commission was obtained on June 24, 2005. The Bureau
of Internal Revenue’s approval on the change in accounting period
is still pending.
The Company operates within the Philippines and had 705 employees
as of March 31, 2005.
The financial statements of the Company for the period ended
March 31, 2005 were authorized for issue by the Company’s Board
of Directors on July 13, 2005.
2. Summary of Significant Accounting Policies
Basis of Preparation of Financial Statements
The financial statements have been prepared in accordance with
generally accepted accounting principles in the Philippines.
The financial statements have been prepared on a historical cost
basis.
The accounting policies have been consistently applied by the
Company and are consistent with those used in the previous year,
except for the adoption of new accounting standards as stated on
the next page.
Adoption of New Accounting Standards
In 2004, the Company adopted the following Statements of Financial
Accounting Standards (“SFAS”) /International Accounting Standards
(“IAS”) issued by the Accounting Standards Council (“ASC”) which
became effective for financial statements beginning January 1,
2004:
SFAS 12/IAS 12 : Income Taxes
SFAS 17/IAS 17 : Leases
The Company’s adoption of the new accounting standards did not
have any material effects on the financial statements, hence, did
not result in any adjustments in the financial statements.
Impact of New Accounting Standards Effective Subsequent
to Fiscal Year 2005
In 2004, the ASC issued a series of new accounting standards that are
adopted from existing IAS, revised IAS and new International Financial
Reporting Standards (“IFRSs”) issued by the International Accounting
Standards Board (“IASB”). The new ASC accounting standards are
effective in the Philippines for financial statements covering periods
beginning on or after January 1, 2005. Also, the ASC re-named its
accounting standards to correspond better with the IASB
pronouncements. Philippine Accounting Standards (“PASs”) correspond
to the adopted lASs, while Philippine Financial Reporting Standards
(“PFRSs”) correspond to the adopted IFRSs. Existing SFASs and SFASs/
IASs not yet superseded will be reissued by the ASC as PASs.
Of the new ASC pronouncements, the following standards are
relevant to the Company:
PAS 1 : Presentation of Financial Statements
PAS 8 : Accounting Policies, Changes in Accounting Estimates
and Errors
PAS 10 : Events after the Balance Sheet Date
PAS 16 : Property, Plant and Equipment
PAS 17 : Leases
PAS 19 : Employee Benefits
PAS 21 : The Effects of Changes in Foreign Exchange Rates
PAS 24 : Rekted Party Disclosures
PAS 32 : Financial Instruments: Disclosures and Presentation
PAS 36 : Impairment of Assets
PAS 39 : Financial Instruments: Recognition and Measurement
PFRS 1 : First-time Adoption of PFRS
The Company will apply the relevant new accounting standards in
fiscal year 2006 in accordance with their transitional provisions.
It is currently evaluating the impact of those standards on its
financial statements and has initially determined that PAS 19,
Employee Benefits, will have significant effects on its financial
statements for fiscal year 2006, as well as for prior and future
periods. This new accounting standard prescribes the accounting
and disclosure by employers for employee benefits. Employee
benefits are all forms of consideration given by an entity in
exchange for service rendered by employees. These benefits include
short-term benefits (such as short-term compensated absences
and profit sharing and bonus plans), post-employment benefits
(such as pension plans), other long-term benefits (such as long-
service leave or sabbatical leave) and termination benefits.
Presently, the Company provides short-term benefits to its
employees and has not yet recognized the retirement benefits of
its employees. The Company’s application of PAS 19 may increase
the employee benefits that it will recognize as expense starting
fiscal year 2006.
Cash and Cash Equivalents
Cash and cash equivalents are defined as cash on hand, demand
deposits and short-term, highly liquid investments readily
convertible to known amounts of cash and which are subject to
insignificant risk of changes in value.
Trade Receivables
Trade receivables, which generally have a 60-day term, are
recognized and carried at original invoice amounts less allowance
for any uncollectible amounts. An estimate for doubtful debts is
made when collection of the full amount is no longer probable. Bad
debts are written off when identified.
Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation and any impairment in value. The cost of an asset
comprises its purchase price and directly attributable costs of
bringing the asset to working condition for its intended use.
Expenditures for additions, major improvements, and renewals
are capitalized; expenditures for repairs and maintenance are
charged to income as incurred. When assets are sold, retired or
otherwise disposed of, their cost and related accumulated
depreciation and impairment losses are removed from the
accounts and any resulting gain or loss is reflected in income for
the period.
Depreciation is computed on the straight-line basis over the
estimated useful lives of the assets as follows:
Software 5 years
EDP equipment 5 years
Other property and equipment 5 years
Switch equipment 4 years
The carrying values of property and equipment are reviewed
for impairment when events or changes in circumstances
Source One Communications Asia, Inc.
Notes to Financial Statements March 31, 2005
117
Information Technology Subsidiaries
indicate that their carrying values may not be recoverable. If
any such indication exists and where the carrying values
exceed the estimated recoverable amount, the assets or cash
generating units are written down to their recoverable
amount. The recoverable amount of property and equipment
is the greater of net selling price and value in use. In assessing
value in use, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that .reflects
current market assessments of time value of money and the
risks specific to the asset. Impairment losses are recognized
in the statement of income.
If there is any indication at the balance sheet date that an
impairment loss recognized for an asset in prior years may no
longer exist or may have decreased, the Company estimates the
recoverable amount of that asset and the carrying amount of the
asset is adjusted to the recoverable amount resulting in the
reversal of the impairment loss.
Revenue Recognition
Revenue is recognized to the extent that it is probable that the
economic benefits will flow to the Company and the revenue can be
reliably measured. Revenue is generally recognized at the
performance of contractually agreed tasks, which coincides with
the billing of the services.
Leases
Leases, which do not transfer to the Company substantially all the
risks and benefits of ownership of the asset, are classified as
operating leases. Operating lease payments are recognized as
expense in the statement of income on a straight-line basis over
the lease term.
Foreign Currency Transactions
The accounting records of the Company are maintained in Philippine
pesos. Foreign currency transactions during the year are
translated into Philippine pesos at exchange rates which
approximate those prevailing on transaction dates. Foreign
currency monetary assets and liabilities at the balance sheet date
are translated into Philippine pesos at exchange rates which
approximate those prevailing on that date. Exchange gains and
losses are recognized in income for the period.
Income Taxes
Deferred income tax is provided, using the balance sheet liability
method effective 2005, on all temporary differences at the balance
sheet date between the tax bases of assets and liabilities and
their carrying amounts for financial reporting purposes.
Under the balance sheet liability method, with certain exceptions,
deferred tax liabilities are recognized for all taxable temporary
differences and deferred tax assets are recognized for all deductible
temporary differences and the carryforward of unused tax losses
and unused tax credits to the extent that it is probable that
taxable profit will be available against which the deferred tax
assets can be utilized.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is probable
that sufficient taxable profit will be available to allow all or part
of the deferred income tax asset to be utilized.
Deferred tax assets and liabilities are measured at the tax rates
that are expected to apply to the period when the asset is realized
or the liability is settled, based on tax rates and tax laws that have
been enacted or substantively enacted at the balance sheet date.
3. Cash and Cash Equivalents
This account consists of:
Cash on hand and in banks P 62,427,872
Short-term cash pkcements 14,000,000
P 76,427,872
Cash accounts with the banks generally earn interest at rates
based on daily bank deposit rates. Short-term placements are
made for varying periods of between 22 to 37 days and earn
interest at the respective short-term placement rate of 7.75%.
4. Trade and Other Receivables
The components of this account are as follows:
Trade (see Note 7) P 209,398,560
Others 3,613,614
213,012,174
Allowance for doubtful accounts (841,003)
P 212,171,171
Source One Communications Asia, Inc.
Notes to Financial Statements March 31, 2005
5. Property and Equipment
A reconciliation of the carrying amounts at September 17, 2004 and March 31, 2005 and the gross carrying amounts and the
accumulated depreciation of property and equipment are shown below:
Other
Switch EDP Property and
Equipment Equipment Software Equipment Total
Cost: P P P P P
Balance at
September 17,2004 19,872,842 1,699,020 15,789 87,090 21,674,741
Additions — 250,653 13,319 — 263,972
Balance at
March 31,2005 19,872,842 1,949,673 29,108 87,090 21,938,713
Accumulated Depreciation:
Balance at
September 17,2004 12,627,535 388,851 3,553 30,035 13,049,974
Depreciation charges
for the period 2,691,114 166,139 2,935 9,341 2,869,529
Balance at
March 31,2005 15,318,649 554.990 6,488 39,376 15,919,503
Net book value at
March 31,2005 4,554,193 1,394,683 22,620 47,714 6,019,210
118
Information Technology Subsidiaries
6. Trade And Other Payables
The components of this account are as follows:
Trade P 26,388,245
Accrued expenses 22,057,360
Others 4,124,312
P 52,569,217
7. Related Party Transactions
The significant transactions of the Company with related parties
are described below:
Memorandum of Agreement (“MOA”)
On November 15, 2001, SOCI and C3
executed a MOA for the purpose
of setting up a customer contact and service center in the Philippines
which will initially serve principally the North American market.
This MOA served as the basis for the formation of the Company.
SOCI and C3
also entered into several agreements which were
covered in the MOA concerning the Company. These agreements
involving the Company are described below:
• Facilities Agreement with C3
for an initial term of four years
with an option to extend for one or more additional terms
upon mutual agreement of the parties. In consideration for
the facilities, equipment and personnel provided by C3
, the
Company shall pay the former facilities fee computed at a
certain percentage of total operating expenses as defined in
the Facilities Agreement. The facilities fees charged against
the Company for the period amounted to P68.5 million and is
included as part of Cost of Services in the statement of income
(see Note 8).
On November 11, 2004 and February 4, 2005, the Company
and C3
entered into Discounted Facilities Fees Agreements
(“Agreements”) wherein the Company agreed to pay in advance
the facilities fees due to C3
. The advance payments shall be
amortized in accordance with the terms of the Agreements.
In consideration for the advance payment, C3
granted monthly
discounts on the facilities fees. The unamortized balance of
prepaid facilities fees amounted to P50.9 million or US$921,332
as of March 31, 2005 and is shown as Due from a Related Party
in the balance sheet.
• Marketing and Services Agreement with SOCI for an initial
term of four years with an option to extend for one or more
additional terms upon mutual agreement of the parties. In
consideration for the marketing and promotion, collection of
receivables, facility management, and technical operating
support provided by SOCI, the Company shall pay the former a
monthly service fee. Part of this fee is payment for the license
of Charm Software and Trademark Agreement with SOCI, also
for an initial term of four years with an option to extend for
one or more additional terms upon mutual agreement of the
parties. On March 21, 2005, the Company agreed to an increase
in fees of US$115,000 per month. For the period September
17, 2004 to March 31, 2005, the Company incurred service
fees from this agreement amounting to P45.3 million. This is
shown as part of Marketing and Services Fees in the statement
of income. As of March 31, 2005, the unpaid balance of
Marketing and Services Fees amounted to P34.9 million, and is
shown as part of Due to Related Parties account in the balance
sheet.
As of March 31, 2005, the trade receivables due from SOCI
arising from this agreement amounted to P209.4 million and
is presented as part of Trade and Other Receivables in the
balance sheet (see Note 4).
• Shared Services Agreement with C3
for an initial term of four
years with an option to extend for one or more additional
terms upon mutual agreement of the parties. In consideration
for the IT and telephony support, human resources, finance
and planning and strategic marketing provided by C3
, the
Company shall pay the former a monthly service fee. On March
21,2005, the Company agreed to an increase in fees of US$85,000
per month. For the period September 17, 2004 to March 31,
2005, the Company incurred service fees from this agreement
amounting to P40.7 million and is shown as Shared Services
Fees in the statement of income. As of March 31, 2005, the
unpaid portion relating to this agreement amounted to P23.3
million and is shown as part of Due to Related Parties account
in the balance sheet.
Advances
In the normal course of business, the Company is charged for
certain costs and expenses that are advanced by C3
and SOCI.
Outstanding advances to related parties arising from these
transactions amounting to P13.2 million are shown as part of Due
to Related Parties account in the balance sheet.
8. Cost of Services
Cost of services consists of:
Salaries and wages P 131,049,033
Materials, supplies and facilities (see Note 7) 102,434,188
Depreciation 2,691,114
P 236,174,335
The Company has contracts with various telecommunication
providers relating to the lease of international private lines for
a term of one year with option to extend for one or more
additional terms upon mutual agreement of the parties.
Telecommunication charges arising from these contracts are
included as part of Cost of Services under the Materials, Supplies
and Facilities account.
9. Other Operating Expenses
This account is composed of the following:
Repairs and maintenance P 884,665
Professional fees 869,849
Doubtful accounts 841,003
Depreciation 178,415
Miscellaneous 301,804
P 3,075,736
10. Other Charges
This account includes the following:
Foreign currency losses - net P 8,544,701
Interest income ( 1,391,645)
Other income ( 2,814)
P 7,150,242
11. Registration With The Philippine Economic Zone Authority
(Peza)
The Company’s operations at the information technology (“IT”)
zone is registered with the PEZA under Republic Act No. 7916 as a
zone enterprise engaged in the operations of a call center that
will provide high value added phone, e-mail, chat and web
communications handling within the North American markets.
As an IT zone registered enterprise, the Company enjoys certain
tax and non-tax incentives, including an income tax holiday (“ITH”)
up to February 2006. Upon expiry of the ITH incentive, the Company,
in lieu of all local and national taxes, shall be subjected to the
preferential tax rate of 5% of gross revenue, net of certain
deductions specifically provided for in the Act. As supplier of services
within the Ecozone, the Company is also entitled to the benefit of
value-added tax at zero percent.
12. Commitments And Contingencies
There are commitments and contingent liabilities that arise in the
normal course of the Company’s operations, which are not reflected
in the accompanying financial statements. Management is of the
opinion that losses, if any, from these commitments and
contingencies will not have material effects on the Company’s
financial statements.
Source One Communications Asia, Inc.
Notes to Financial Statements March 31, 2005
119
Information Technology Subsidiaries
Customer Contact Center Inc.
Directors’ Report
To the Members,
Your Directors are pleased to present their report on the business and
operations of the Company for the 9 months ended 31st
March 2005.
Financial Results
‘000s
Rupees Pesos
2005
Total Income 305,748 380,000
Expenditure 219,436 272,727
Operating Profit 86,312 107,273
Add: Equity in net earnings of JV (SOCA) 21,107 26,233
PBDIT 107,419 133,506
Less: Interest (net) 8,192 10,182
PBDT 99,227 123,324
Less: Depreciation & Amortization 49,052 60,964
PBT 50,175 62,360
Provision for Taxation 1,407 1,749
PAT 48,768 60,611
Financial Review
Your Company became a subsidiary of Hinduja TMT Ltd. a Company
incorporated under the laws of India, in July 2004.
During the period 1 July 2004 to 31 March 2005, your Company generated
Gross income of PhP 380 Mn and posted a net profit of PhP 60.6 Million.
Your Company and Source One Communications Inc., USA, are operating
a Joint Venture, viz. Source One Communications Asia, Manila (SOCA).
The total income reported by your Company for the 9 months period
ended 31.03.05 includes as share of net profit of PhP 26.2 Million from
the Joint Venture.
The total assets of your Company as of March 31, 2005 amounted to PhP
480 Mn, PhP 219.9 Mn of which are in fixed assets. Cash and cash
equivalents are at PhP 38.7 Mn.
Review of Operations
Sustained growth was the hall mark of the year for your Company.
During the year your Company increased the number of agent seats in
its Eastwood facility to 990 agent seats, including the seats assigned to
SOCA.
A leading financial services firm, a principal client of your Company,
placed new work orders in 2004. This has resulted in better utilization
of seats as these accounts are geared towards the Asia-Pacific region
and thus operate in the day time.
Another existing account, a direct broadcast satellite services provider,
approached your Company to handle its emerging markets Australia
and Europe in the 2nd
half of 2004, in addition to servicing its clients in
North America, which is its biggest market.
During the year, your Company was also chosen by one of the largest
global life insurance firms to be its Tier 1 provider to service the
company’s employees, vendors, consultants and others, accessing its
applications in different locations in the US and selected offices
worldwide. This includes providing problem resolution, documentation,
and escalation 24 x 7.
Recent Developments and Challenges
Your Company’s growth in business in the last few months is as
impressive as the growth of call center business in Philippines. In the
last two months, capacity was raised by 150 agent seats, largely to
cater to the increased business routed by the leading financial services
firm mentioned earlier. This is in line with the client’s commitment of
increasing its seat requirement to 420 by year end.
Your Company has been pro-active in attracting and retaining call
center agents by regularly upgrading the quality of its in-house training,
re-assessing its Compensation and Benefits structure to ensure
competitiveness and by cultivating a “Fun” work environment for all
the employees.
Change in Accounting Year
At the Board Meeting held on 21st
February 2005, the Board approved
the change in the accounting year of the corporation to begin on the 1st
day of April and end on the 31st
day of March of each year. This is to
synchronize your Company’s accounting year with its parent company,
HTMT.
Directors
At the Board Meeting held on 2nd
March 2005, Jose Xavier Gonzales
relinquished his post as President of your Company and was appointed
as Non-executive Chairman of the Board. Pushkar Misra, President of
SOCA was appointed as President of your Company and was inducted as
Director, in the vacancy caused by the resignation of Zayber Protacio
due to his other pre-occupations. The Board wishes to thank Zayber
Protacio and Jose Xavier Gonzales for the valuable services rendered
by them during their tenure as Chairman and as President of the
Company respectively.
Statement of Directors’ responsibilities in respect of the financial
statements.
Your Directors, based on the information and documents made available
to them confirm that:
i) in the preparation of the accounts for the period under review,
the applicable accounting standards have been followed. There are
no material departures in the adoption and application of the
accounting standards.
ii) They have selected such accounting policies and applied them
consistently and make judgements and estimates that are
reasonable and prudent so as to give a true and fair view of the
state of affairs of your Company at the end of the period under
review and of the profit of your Company for that period
iii) They have taken proper and sufficient care to the best of their
knowledge and ability for the maintenance of adequate accounting
records in accordance with the applicable laws for safeguarding
the assets of your Company and for preventing and detecting
fraud and other irregularities.
iv) they have prepared the annual accounts on a going concern basis.
Employees
As of end-March, your Company had a total manpower complement of
862, out of which 783 are directly associated in operations.
Your Directors wish to place on record their appreciation of the
continued support from customers, valuable contributions and co-
operation of its employees and the excellent co-operation from PEZA
and other Government agencies and bankers.
Pushkar Misra
Director
July 12, 2005
120
Information Technology Subsidiaries
Customer Contact Center Inc.
Report of Independent Auditors
The Stockholders and the Board of Directors Customer Contact Center,
Inc.
We have audited the accompanying balance sheet of Customer Contact
Center, Inc. (a wholly owned subsidiary of C-Cubed B.V.) as of March 31,
2005 and the related statements of income, changes in stockholders’
equity and cash flows for the period July 1, 2004 to March 31, 2005.
These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the Philippines. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Customer Contact
Center, Inc. as of March 31, 2005, and the results of its operations and
its cash flows for the period July 1, 2004 to March 31, 2005 in conformity
with accounting principles generally accepted in the Philippines.
Maria Vivian G. Cruz
Partner
CPA Certificate No. 83687
SEC Accreditation No. 0073-A
Tax Identification No. 102-084-744
PTR No. 1195841, January 3, 2005, Makati City
July 12, 2005
Liabilities And Stockholder’s Equity
2005
P
Current Liabilities
Accounts payable and other
current liabilities (Notes 2, 8, 15 and 17) 151,634,879
Current portion of:
Obligations under capital lease
(Notes 2, 5, 9 and 17) 13,712,462
Long-term debt (Notes 5, 10 and 17) 10,025,604
Income tax payable 1,324,538
Total Current Liabilities 176,697,483
Noncurrent Liabilities
Due to related parties
(Notes 11, 12 and 17) 170,183,800
Obligations under capital lease -
net of current portion (Notes 2, 5, 9 and 17) 3,923,663
Long-term debt - net of current portion
(Notes 5, 10 and 17) 7,276,618
Total Noncurrent Liabilities 181,384,081
Stockholders’ Equity
Capital stock (Note 12) 100,000,000
Retained earnings (Note 2) 22,018,435
Total Stockholders’ Equity 122,018,435
480,099,999
Balance Sheet as at March 31, 2005
Assets
2005
P
Current Assets
Cash and cash equivalents (Notes 3 and 17) 38,696,964
Receivables - net (Notes 4, 7 and 17) 106,890,349
Prepayments and other current assets 3,479,887
Total Current Assets 149,067,200
Noncurrent Assets
Property and equipment - net
(Notes 2,5,9,10 and 20) 219,924,516
Interest in a joint venture
(Notes 6, 11 and 18) 96,039,542
Due from a related party
(Notes 11 and 17) 167,327
Other noncurrent assets - net
(Notes 4 and 7) 14,901,414
Total Noncurrent Assets 331,032,799
480,099,999
See Accompanying Notes to Financial Statement
121
Information Technology Subsidiaries
See Accompanying Notes to Financial Statement
Customer Contact Center Inc.
Statement of Income For the Period July 1, 2004 to March 31, 2005
Statement of Changes in Stockholders’ Equity for the Period
July 1, 2004 to March 31, 2005
2005
P
CAPITAL STOCK (NOTE NO. 12) P 10 PAR VALUE
Authorized and issued - 10,000,000 shares 100,000,000
RETAINED EARNINGS (DEFICIT)
Balance at beginning of period, as previously reported (29,913,414)
Change in accounting for leases (Note 2) (8,679,247)
Balance at beginning of period, as restated (38,592,661)
Net income for the period 60,611,096
Balance at end of period 22,018,435
122,018,435
2005
P
REVENUES (Notes 6, 11 and 19)
Call center 202,930,300
Others 177,068,326
379,998,626
COST OF SERVICES (Notes 2, 13, 15 and 19) 297,969,964
GROSS INCOME 82,028,662
GENERAL AND ADMINISTRATIVE EXPENSES
(Notes 2, 14, 15 and 19) 32,308,986
INCOME FROM OPERATIONS 49,719,676
EQUITY IN NET EARNINGS OF
A JOINT VENTURE (Note 6) 26,232,831
FINANCE INCOME (EXPENSES)
Interest expense (Notes 2, 9, 10, 11 and 12) (10,519,827)
Foreign exchange loss - net (Note 17) (3,013,127)
Bank and other service charges (397,392)
Interest income 337,953
(13,592,393)
INCOME BEFORE INCOME TAX 62,360,114
PROVISION FOR CURRENT INCOME TAX
(Notes 16 and 18) 1,749,018
NET INCOME 60,611,096
122
Information Technology Subsidiaries
Customer Contact Center Inc.
Statement of Cash Flows For the Period July 1, 2004 To March 31, 2005
2005
P
Cash Flows from Operating activities
Income before income tax 62,360,114
Adjustments for:
Depriciation and amortization 60,964,386
Equity in net earnings of a joint venture (26,232,831)
Interest expense 10,519,827
Provisions for:
Doubtful accounts 4,070,832
Retirement expense 2,892,722
Unrealized foreign exchange loss 768,279
Interest income (337,953)
Gain on sale of property and equipment (17,283)
Operating income before working capital changes 114,988,093
Increase in:
Receivables (42,339,061)
Prepayments and other current assets (726,838)
Accounts payable and other current liabilities 31,775,857
Net cash provided by operating activites 103,698,051
Cash Flows from Investing activities
Acquisitions of property and equipment (68,315,697)
Increase in:
Due from a related party (567,169)
Other noncurrent assets (28,560)
Interest rececived 337,953
Proceeds form sale of property and equipment 28,619
Net cash used in investing activities (68,544,854)
Cash Flow from Financing activites
Increase in due to related parties 30,772,301
Payments to long-term debt (18,973,786)
Payments of obligations under capital lease (11,239,927)
Interest paid (5,624,227)
Net cash used in financing activities (5,065,639)
Effect of exchange rate changes on cash and cash equivalents (1,183,370)
Net increase in cash and cash equivalents 28,904,188
Cash and cash equivalents at beginning of period 9,792,776
Cash and cash equivalents at end of period 38,696,964
See Accompanying Notes to Financial Statement
123
Information Technology Subsidiaries
1. Corporate Information
Customer Contact Center, Inc. (the Company) was incorporated in
the Philippines on May 12, 2000. The Company is a wholly owned
subsidiary of C-Cubed B.V., a corporation organized and existing
under the laws of the Netherlands. The shares are held in trust by
Universal Vision Corporation (UVC), a British Virgin Islands
company. The Company is primarily engaged in the customer contact
service business, commonly referred to as “call centers,” for the
purpose of satisfying relationship requirements of clients through
various multimedia and personal access services. It also designs
and develops information databases and provides consultancy,
advisory, management and staffing services to its clients.
The Company has a total of 862 employees as of March 31, 2005.
The registered office address of the Company is #1 E-Commerce
Avenue, Eastwood City, Cyberpark, Libis, Quezon City.
The accompanying financial statements were approved and
authorized for issue by the Board of Directors (BOD) on July 12,
2005.
2. Summary of Significant Accounting Policies
Basis of Preparation
The accompanying financial statements have been prepared in
conformity with accounting principles generally accepted in the
Philippines using the historical cost basis.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. The estimates
and assumptions used in the accompanying financial statements
are based upon management’s evaluation of relevant facts and
circumstances as of the date of the financial statements. Actual
results could differ from such estimates.
Changes in Accounting Policies
The Company adopted the following Statements of Financial
Accounting Standards (SFAS)/ International Accounting Standards
(IAS) which became effective on January 1, 2004:
• SFAS 12/IAS 12, “Income Taxes,” prescribes the accounting
treatment for current and deferred income taxes. The
standard requires the use of a balance sheet liability method
in accounting for deferred income taxes. It requires the
recognition of a deferred tax liability and, subject to certain
conditions, asset for all temporary differences with certain
exceptions. The standard provides for the recognition of
deferred tax asset when it is probable that taxable income
will be available against which the deferred tax asset can be
used. Adoption of this standard has no material impact on the
Company’s financial position and results of operations.
• SFAS 17/IAS 17, “Leases,” resulted in the capitalization of
finance leases as assets at the lower of the fair value of the
leased asset and the present value of the minimum lease
payments. Finance leases are those that transfer substantially
all risks and rewards of ownership to the lessees. Adoption of
the standard resulted in the recognition of lease payments
under operating leases on a straight-line basis and additional
capital lease assets. Previously, certain leases were considered
as operating leases and lease payments expensed on the basis
of the terms of the lease agreements. The changes in policy
were reflected in the financial statements on a retroactive
basis. The restatement resulted in the recognition of additional
capitalized leased assets amounting to P4,923,490 and liabilities
amounting to P17,032,410 on March 31, 2005. Net income
decreased by P3,429,673 for the period July 1, 2004 to March
31, 2005. Deficit increased by P8,679,247 as of July 1, 2004.
New Accounting Standards Effective in 2005
New accounting standards based on IAS and International Financial
Reporting Standards, referred to as Philippine Accounting Standards
(PAS) and Philippine Financial Reporting Standards (PFRS), respectively,
will become effective in 2005. The Company will adopt the following
relevant new accounting standards effective January 1, 2005:
• PAS 19, “Employee Benefits,” requires the use of the projected
unit credit method in measuring retirement benefit expense and
a change in the manner of computing benefit expense relating to
past service cost and actuarial gains and losses. It requires a
company to determine the present value of defined benefit
obligations and the fair value of any plan assets with sufficient
regularity that the amounts recognized in the financial statements
do not differ materially from the amounts that would be determined
at the balance sheet date. The Company will avail of the services of
a qualified actuary to perform an actuarial valuation of the
Company’s employee benefit obligations in accordance with PAS 19,
and to determine the amount of transitional liability or asset that
will be adjusted against retained earnings upon adoption of this
standard.
• PAS 32, “Financial Instruments: Disclosure and Presentation,” covers
the disclosure and presentation of all financial instruments. The
standard requires more comprehensive disclosures about a
company’s financial instruments, whether recognized or
unrecognized in the financial statements. New disclosure
requirements include terms and conditions of financial instruments
used by a company, types of risks associated with both recognized
and unrecognized financial instruments (price risk, credit risk,
liquidity risk, and cash flow risk), fair value information of both
recognized and unrecognized financial assets and financial liabilities,
and a company’s financial risk management policies and objectives.
The standard also requires financial instruments to be classified as
liabilities or equity in accordance with its substance and not its
legal form.
• PAS 39, “Financial Instruments: Recognition and Measurement,”
establishes the accounting and reporting standards for the
recognition and measurement of a company’s financial assets and
financial liabilities. The standard requires a financial asset or
financial liability to be recognized initially at fair value. Subsequent
to initial recognition, a company should continue to measure
financial assets at their fair values, except for loans and receivables
and held-to-maturity investments, which are to be measured at
cost or amortized cost using the effective interest rate method.
Financial liabilities are subsequently measured at cost or amortized
cost, except for liabilities classified as “at fair value through
profit and loss” and derivatives, which are to be measured at fair
value subsequently.
PAS 39 also covers the accounting for derivative instruments. This
standard has expanded the definition of a derivative instrument
to include derivatives (and derivative-like provisions) embedded
in non-derivative contracts. Under the standard, every derivative
instrument is recorded in the balance sheet as either an asset or
liability measured at its fair value. Derivatives that do not qualify
as hedges are adjusted to fair value through income. If a derivative
is designated and qualify as a hedge, depending on the nature of
the hedging relationship, changes in the fair value of the derivative
are either offset against the changes in fair value of the hedged
assets, liabilities, and firm commitments through earnings, or
recognized in stockholders’ equity until the hedged item is
recognized in earnings. A company must formally document,
designate and assess the hedge effectiveness of derivative
transactions that receive hedge accounting treatment.
The Company has not yet determined the impact of adopting PAS 32 and
PAS 39 due to certain process/system changes that are needed to
quantify the impact. However, the Company expects an increase in
volatility in net earnings due to fair value accounting for financial
instruments.
• PFRS 1, “First-time Adoption of Philippine Financial Reporting
Standards,” requires an entity to comply with PFRS effective at
the reporting date for its first PFRS financial statements. In
particular, the PFRS requires an entity to do the following in the
opening PFRS balance sheet that it prepares as a starting point for
its accounting under PFRS: (a) recognize all assets and liabilities
whose recognition is required by PFRS; (b) not recognize items as
assets or liabilities if PFRS do not permit such recognition; (c)
reclassify items that it recognized under previous generally
accepted accounting principles as one type of asset, liability or
component of equity, but are a different type of asset, liability or
component of equity under PFRS; and (d) apply PFRS in measuring
all recognized assets and liabilities. Any additional disclosure
requirements by this standard will be presented accordingly.
Customer Contact Center Inc.
Notes to Financial Statements
124
Information Technology Subsidiaries
The Company will also adopt in 2005 the following new standards:
• PAS 1, “Presentation of Financial Statements,” provides a
framework within which an entity assesses how to present fairly
the effects of transactions and other events; provides the base
criteria for classifying liabilities as current or noncurrent; prohibits
the presentation of income from operating activities and
extraordinary items as separate line items in statement of income;
and specifies the disclosures about key sources of estimation,
uncertainty and judgments management has made in the process
of applying the entity’s accounting policies.
• PAS 8, “Accounting Policies, Changes in Accounting Estimates and
Errors,” removes the concept of fundamental error and the allowed
alternative to retrospective application of voluntary changes in
accounting policies and retrospective restatement to correct prior
period errors. It defines material omissions or misstatements,
and describes how to apply the concept of materiality when applying
accounting policies and correcting errors.
• PAS 10, “Events After the Balance Sheet Date,” provides a limited
clarification on the accounting for dividends declared after the
balance sheet date.
• PAS 16, “Property, Plant and Equipment,” provides additional
guidance and clarification on recognition and measurement of
items of property, plant and equipment. It also provides that each
part of an item of property, plant and equipment with a cost that
is significant in relation to the total cost of the item shall be
depreciated separately. In addition, the standard requires the
inclusion of the cost of dismantling, removal or restoration of an
asset as part of the cost of an item of property, plant and
equipment. Such obligation should be recognized when the asset is
installed or put into use.
• PAS 17, “Leases,” provides a limited revision to clarify the
classification of a lease of land and building and prohibits the
expensing of initial direct costs in the financial statements of the
lessors.
• PAS 24, “Related Party Disclosures,” provides additional guidance
and clarity in the scope of the standard, the definitions and
disclosures for related parties. It also requires disclosure of the
compensation of key management personnel by benefit type.
Except for the impact of PAS 16 and PAS 19, the Company does not
expect any significant changes in the accounting policies when it adopts
the above new standards in 2005. Required disclosures will be included
in the 2005 financial statements where applicable.
Cash and Cash Equivalents
Cash includes cash on hand and in banks. Cash equivalents are short-
term, highly liquid investments that are readily convertible to known
amounts of cash with original maturities of three months or less and
are subject to an insignificant risk of change in value.
Receivables
Trade receivables are recognized and carried at original invoice amounts
less an allowance for any uncollectible amount. Other receivables are
stated at face value less allowance for any uncollectible amount. An
estimate for doubtful accounts is made when collection of the full
amount is no longer probable.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation
and amortization and any impairment in value.
The initial cost of property and equipment comprises its purchase
price, including import duties, taxes and any directly attributable
costs of bringing the asset to its working condition and location for its
intended use. Expenditures incurred after the property and equipment
have been put into operation, such as repairs and maintenance and
overhaul costs, are normally charged to income in the period the costs
are incurred. In situations where it can be clearly demonstrated that
the expenditures have resulted in an increase in the future economic
benefits expected to be obtained from the use of an item of property
and equipment beyond its originally assessed standard of performance,
the expenditures are capitalized as additional costs of property and
equipment.
Depreciation and amortization are calculated on a straight-line basis
over the following estimated useful lives:
Electronic Data Processing (EDP)
hardware and software 1-5 years
Leasehold improvements 5 years or term of the lease,
whichever is shorter
Furniture, fixtures and equipment 5 years
Transportation equipment 1 -4 years
The useful lives and depreciation and amortization method are reviewed
periodically to ensure that the periods and method of depreciation and
amortization are consistent with the expected pattern of economic
benefits from items of property and equipment.
When assets are sold or otherwise disposed of, the cost and the related
accumulated depreciation and amortization are eliminated from the
accounts and any resulting gain or loss is credited or charged to
current operations.
Impairment of Assets
The carrying values of property and equipment and other long-lived
assets are reviewed for impairment when events or changes in
circumstances indicate that the carrying value may not be recoverable.
If any such indication exists and where the carrying values exceed the
estimated recoverable amount, the assets or cash-generating units
are written down to their recoverable amounts. The recoverable
amount of property and equipment and other long-lived assets is the
greater of net selling price or value in use. The net selling price is the
amount obtainable from the sale of the asset in an arm’s-length
transaction. In assessing value in use, the estimated future cash flows
are discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money
and the risks specific to the asset. For an asset that does not generate
largely independent cash inflows, the recoverable amount is determined
for the cash-generating unit to which the asset belongs. Impairment
losses, if any, are recognized in the statement of income.
A previously recognized impairment loss is reversed only if there has
been a change in the estimates used to determine the recoverable
amount of an asset, however, not to an amount higher than the carrying
amount that would have been determined (net of any depreciation),
had no impairment loss been recognized for the asset in prior years.
A reversal of an impairment loss is credited to current operations.
Interest in a Joint Venture
The Company’s interest in its joint venture is accounted for under the
equity method of accounting. The interest in joint venture is carried in
the balance sheet at cost plus post-acquisition changes in the Company’s
share in the net assets of the joint venture, less any impairment in
value. The statement of income reflects the Company’s share of the
results of operations of the joint venture.
Revenues
Revenues are recognized to the extent that it is probable that the
economic benefits will flow to the Company and the amount of revenue
can be measured reliably. The following specific recognition criteria
must also be met before revenue is recognized:
• Revenue from call center services is recognized when service is
rendered in accordance with the terms of contracts.
• Facilities and shared service fees (shown as part of “Revenues -
Others” account in the statement of income) are recognized under
the accrual basis in accordance with the terms of the agreements.
• Interest income is recognized as the interest accrues.
Retirement Costs
Retirement costs are actuarially determined using the projected unit
credit method. This method reflects services rendered by employees
to the date of valuation and incorporates assumptions concerning
employees’ projected salaries. Retirement costs include current service
cost plus amortization of past service cost, experience adjustments,
and changes in actuarial assumptions over the expected average
remaining lives of the covered employees.
Customer Contact Center Inc.
Notes to Financial Statements
125
Information Technology Subsidiaries
Leases
Finance leases, which substantially transfer to the Company all the
risks and benefits incidental to ownership of the leased item, are
capitalized at the inception of the lease at the fair value of the leased
property or, if lower, at the present value of the minimum lease
payments. Lease payments are apportioned between the finance charges
and reduction of the lease liability so as to achieve a constant rate of
interest on the remaining balance of the liability. Finance charges are
directly charged against income.
Capitalized leased assets are depreciated over the shorter of the
estimated useful life of the asset or the lease term.
Leases where the lessor substantially retains all the risks and benefits
of ownership of the asset are classified as operating leases. Operating
lease payments are recognized as an expense in the statement of
income on a straight-line basis over the lease term.
For income tax purposes, rental expense is deductible based on the
provisions of the lease contracts.
Income Tax
Deferred income tax is provided, using the balance sheet liability
method, on all temporary differences at the balance sheet date between
the tax bases of assets and liabilities and their carrying amounts for
financial reporting purposes.
Deferred income tax liabilities are recognized for all taxable temporary
differences. Deferred income tax assets are recognized for all deductible
temporary differences, carryforward of unused tax credits from excess
minimum corporate income tax (MCIT) and net operating loss carryover
(NOLCO), to the extent that it is probable that taxable profit will be
available against which the deductible temporary differences and
carryforward of MCIT and NOLCO can be utilized. Deferred income tax,
however, is not recognized when it arises from the initial recognition
of an asset or liability in a transaction that is not a business combination
and, at the time of the transaction, affects neither the accounting
profit nor taxable profit or loss.
The carrying amount of deferred income tax assets is reviewed at
each balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profit will be available to allow all or
part of the deferred income tax asset to be utilized.
Deferred income tax assets and liabilities are measured at the tax
rates that are expected to apply to the period when the asset is
realized or the liability is settled, based on tax rates (and tax laws)
that have been enacted or substantively enacted at the balance sheet
date.
Foreign Currency Transactions
Transactions in foreign currencies are recorded using the exchange
rate at the date of the transactions. Monetary assets and liabilities
denominated in foreign currencies are restated using the closing rate
at the balance sheet date. All differences are taken to the statement of
income in the period in which they arise. For income tax purposes,
these gains and losses are treated as taxable income or deductible
expense in the period such are realized.
Provisions
Provisions are recognized when the Company has a present obligation
(legal or constructive) as a result of a past event, it is probable that an
outflow of resources embodying economic benefits will be required to
settle the obligation and a reliable estimate can be made of the amount
of the obligation.
Contingencies
Contingent liabilities are not recognized in the financial statements.
They are disclosed unless the possibility of an outflow of resources
embodying economic benefits is remote. A contingent asset is not
recognized in the financial statements but disclosed when an inflow of
economic benefits is probable.
Subsequent Events
Subsequent events that provide additional information about the
Company’s position at the balance sheet date (adjusting events) are
reflected in the financial statements. Subsequent events that are not
adjusting events are disclosed in the notes to financial statements
when material.
3. Cash and Cash Equivalents P
Cash on hand and in banks (see Note 17) 38,102,871
Short-term deposits (see Note 17) 594,093
38,696,964
Cash in banks earn interest at the respective bank deposit rates.
Short-term deposits are made for varying periods of up to three
months, depending on the immediate cash requirements of the Company,
and earn interest at the respective short-term deposit rates.
4. Receivables P
Trade (see Notes 7 and 17) 105,466,192
Advances to suppliers 3,717,622
Advances to officers and employees 1,247,558
Others 1,190,492
111,621,864
Less allowance for doubtful accounts 4,731,515
106,890,349
5. Property and Equipment
EDP Furniture,
Hardware and Leasehold Fixtures and Transportation
Software Improvements Equipment Equipment Total
Cost P P P P P
Beginning of period (see Note 2) 248,756,735 46,473,414 36,306,595 5,833,661 337,370,405
Additions (see Note 20) 82,115,160 1,508,501 3,800,654 — 87,424,315
Disposals (122,176) — — (235,622) (357,798)
End of year 330,749,719 47,981,915 40,107,249 5,598,039 424,436,922
Accumulated depreciation
and amortization
Beginning of period (see Note 2) 100,868,919 26,129,429 13,850,641 3,045,493 143,894,482
Depreciation and amortization for the period 44,596,887 9,494,189 5,708,642 1,164,668 60,964,386
Disposals (122,176) — — (224,286) (346,462)
End of period 145,343,630 35,623,618 19,559,283 3,985,875 204,512,406
Netbookvalue 185,406,089 12,358,297 20,547,966 1,612,164 219,924,516
Cost and accumulated depreciation of property and equipment held under capital lease follows (see Note 9):
P
Cost 44,637,094
Accumulated depreciation 16,350,528
Net book value 28,286,566
Certain property and equipment of the Company with a carrying value of PI,612,164 as of March 31, 2005 were used as collateral for the Company’s
long-term debt (see Note 10).
Customer Contact Center Inc.
Notes to Financial Statements
126
Information Technology Subsidiaries
6. Interest in a Joint Venture
On November 15, 2001, the Company entered into a joint venture
(JV) agreement with Source One Communications, Inc. (SOC), a
foreign entity, and formed Source One Communications Asia, Inc.
(SOCA), a jointly-controlled entity, for an equity share of 42.5%. The
purpose of the JV is to set up a customer contact and service
center in the Philippines. SOC handles the marketing and
promotional activities in North America for SOCA. SOCA was
incorporated in February 2002. Its application with the Philippine
Economic Zone Authority (PEZA) as an information technology zone
enterprise was approved on May 22, 2002.
Details of the Company’s interest in SOCA follow:
P
Acquisition cost 4,396,200
Accumulated equity in net earnings:
Balance at beginning of period 65,410,511
Equity in net earnings for the period 26,232,831
Balance at end of period 91,643,342
96,039,542
Undistributed earnings of SOCA included in the Company’s retained
earnings which are not available for dividend distribution as of
March 31, 2005 amounted to P91,643,342.
Condensed financial information of SOCA follows:
P
Current assets 290,373,521
Noncurrent assets 61,129,945
Current liabilities 51,847,389
Noncurrent liabilities 73,680,684
Net assets 225,975,393
Gross revenues 510,923,378
Cost of services 325,672,125
Operating expenses 117,376,014
Other expenses - net 6,150,931
Net income 61,724,308
The Company provides, among others, the following services to
SOCA: (a) support services on areas of human resource, finance,
strategic support and information technology; (b) co-location of
the operating requirements of SOCA in the Company’s call center
facility; and (c) management of SOCA’s call center operations within
the facility (see Note 18). As consideration for such services, the
Company’s total billings to SOCA amounted to P142,052,581 for the
period July 1, 2004 to March 31, 2005, and is included under
“Revenues - Others” account in the statement of income.
7. Other Noncurrent Assets
P
Deposits and bonds 14,074,093
Trade receivables - net of current
portion of1,648,200 (see Note 4) 827,321
Others - net of allowance
for doubtful accounts of P630,869 —
14,901,414
In 2004, the Company entered into an agreement with one of its
customers to restructure the payment terms of certain trade
receivables. Under the restructured terms, the receivable will be
collected over a period of 2 years until May 2006.
8. Accounts Payable and Other Current Liabilities
Accounts payable (see Note 17):
P
Trade 41,780,742
Non-trade 11,168,068
52,948,810
Accrued expenses:
Retirement (see Note 15) 38,519,295
Rent (see Note 2) 17,099,094
Penalties 12,909,005
Salaries and employee benefits 4,870,264
Taxes 4,244,475
Others 7,234,891
84,877,024
Others 13,809,045
151,634,879
9. Obligations Under Capital Lease
Certain property and equipment of the Company are held under
lease arrangements, which require the payment of monthly lease
amortizations (see Note 5). The equipment held under capital
lease (shown under “Property and equipment” account in the
balance sheet) and the corresponding obligations under capital
lease are included in the balance sheet at the fair market value of
the equipment at the inception of the lease or present value of the
minimum lease payments, whichever is lower.
The aggregate future minimum payments under the leases are as
follows:
March 31 P
2006 14,956,139
2007 3,841,240
2008 325,581
Total minimum lease obligation 19,122,960
Less amount representing interest 1,486,835
Present value of minumum lease payments 17,636,125
Less current portion 13,712,462
3,923,663
10. Long-term Debt
P
Notes payable with chattel mortgage 1,344,135
Installment contracts payable 15,958,087
17,302,222
Less current portion 10,025,604
7,276,618
Notes Payable with Chattel Mortgage
The Company obtained several loans from a local bank to finance
its acquisition of transportation equipment. Effective interest
rates range from 13% to 16% for the period July 1, 2004 to March
31, 2005. The said transportation equipment were pledged as
collateral to secure the Company’s long-term debt (see Note 5).
Loan maturities are as follows:
March 31 P
2006 804,221
2007 322,861
2008 217,053
1,344,135
Installment Contracts Payable
The Company entered into several installment sales agreement
with its suppliers for the purchase of EDP hardware. The equipment
purchased and the corresponding obligations under the installment
sales contracts are included in the balance sheet at the present
value of the installment payments.
The aggregate future installment payments under the installment
contracts are as follows:
March 31 P
2006 9,741,245
2007 6,458,659
2008 465,960
Total installment payments 16,665,864
Less amount representing interest 707,777
Present value of installment payments 15,958,087
Less current portion 9,221,383
6,736,704
11. Related Party Transactions
In addition to the related party transactions discussed in Note 12,
significant transactions with SOCA follow:
P
Facilities fees, shared services and people cost
advances charged by the Company under an
existing memorandum of agreement (see Note 6) 142,052,581
Interest-bearing cash advance granted to the
Company for working capital requirements* 25,649,323
* Interest expense of the Company for the interest-bearing cash
advance amounted to P978,385 for the period July 1, 2004 to
March 31, 2005.
The outstanding balances from the above transactions are reflected
in the Company’s balance sheet under the following accounts:
Due to related parties (see Note 12) 170,183,800
Due from a related party 167,327
Customer Contact Center Inc.
Notes to Financial Statements
127
Information Technology Subsidiaries
12. Stockholders’ Equity
On July 31, 2003, BHC sold its 100% ownership interest in the
Company and its remaining receivable from the Company to UVC.
In relation to BHC’s sale of its stake in the Company, the Company
and BHC entered into a Deed of Assignment whereby the parties
have agreed to set-off the receivables and payables of the Company
to BHC and its related parties, leaving a balance due from the
Company of $0.34 million. Such balance and an additional amount of
$ 1.46 million in payment of the Company’s loan, were paid for by
C-Cubed B.V. The settlement of these obligations was recognized
as interest-bearing advance included under “Due to related parties”
account in the balance sheet.
On December 11, 2002, the BOD approved a resolution to accept
subscription deposits amounting to P26.0 million from a director
of the Company. In September 2003, these deposits were assigned
by the director to C-Cubed N.V., a stockholder of C-Cubed B.V., in
exchange for a portion of its interest in C-Cubed B.V. C-Cubed N.V.,
in turn, assigned the deposits to C-Cubed B.V. and converted the
deposits into an interest-bearing advance included under “Due to
related parties” account in the balance sheet.
Both advances are subject to interest of 7.5% per annum effective
July 31, 2003, and are payable within 3 years in equal annual
installments commencing on July 31, 2006. Accrued interest expense
for these advances amounted to P7,l 17,005 for the period July 1,
2004 to March 31, 2005, and is included under “Due to related
parties” account in the balance sheet.
13. Cost of Services P
Salaries and employee benefits (see Note 15) 139,590,159
Facilities-related expenses (see Notes 2 and 19) 65,023,279
Depreciation and amortization
(see Notes 2 and 5) 58,474,945
Contracted services 13,517,628
Training and professional development 6,611,708
Travel and transportation 5,348,779
Repairs and maintenance 5,022,342
Taxes and licenses 420,158
Representation and entertainment 33,986
Others 3,926,980
297,969,964
14. General and Administrative Expenses P
Salaries and employee benefits (see Note 15) 11,951,100
Travel and transportation 4,593,986
Provision for doubtful accounts 4,070,832
Depreciation and amortization
(see Notes 2 and 5) 2,489,441
Training and professional development 2,156,640
Taxes and licenses 1,576,619
Facilities-related expenses
(see Notes 2 and 19) 1,317,692
Contracted services 1,101,471
Representation and entertainment 192,791
Others 2,858,414
32,308,986
15. Retirement Benefits
The Company has an unfunded, noncontributory and actuarially
computed pension plan covering substantially all of its employees.
The benefits are based on years of service and compensation
during the last year of employment.
As of December 31, 2004, the latest actuarial valuation date, the
actuarial present value of pension benefits amounted to P30.8
million. The principal actuarial assumptions used to determine the
pension benefits were a discount rate, annual salary increase and
annual return on plan assets of 9.5%. Actuarial valuations are made
at least every three years. Total retirement expense amounted
to P2.9 million for the period July 1, 2004 to March 31, 2005.
16. Income Tax
a. The following deferred tax assets were not recognized in the
balance sheet because management believes that the
corresponding benefits will not be realized in the future:
P
NOLCO 4,136,695
Accrued retirement 1,882,600
Lease differential 377,469
Allowance for doubtful accounts 73,017
MCIT 42,064
6,511,845
b. The current provision for income tax represents 5% gross
income tax on the Company’s PEZA-registered activities which
are not covered by the income tax holiday (ITH) incentive (see
Note 18).
c. MCIT can be claimed as tax credits against future regular
income tax due until 2007.
d. NOLCO can be claimed as deduction from future taxable income
as follows:
Year Incurred Expiry Date P
2002 2005 1,345,125
2003 2006 8,518,539
2004 2007 491,315
2005 2008 2,572,192
12,927,171
NOLCO amounting to PI,047,394 expired during the period.
e. The reconciliation of provision for income tax computed at
the statutory income tax rate to provision for income tax as
shown in the statement of income is as follows:
P
Income tax computed at statutory tax rate 19,955,236
Income tax effects of:
Income from operations subject to
income tax holiday (Note 18) (18,605,446)
Nondeductible expenses 16,267,030
Difference on taxation using a
special rate (see Note 18) (8,433,473)
Equity in net earnings of a
joint venture (8,394,506)
Income already subjected to
final tax at a lower rate (116,062)
Change in value of unrecognized
deferred tax assets 1,076,239
1,749,018
17. Foreign Currency-Denominated Monetary Items
The Company has outstanding foreign currency-denominated
monetary assets and liabilities as follows:
Philippine Peso
US Dollar Equivalent
Foreign currency-denominated:
Monetary assets 2,590,958 142,347,233
Monetary liabilities 4,413,640 242,485,382
Net (1,822,682) (100,138,149)
The exchange rate used to translate the foreign currency-
denominated assets and liabilities is P54.94 to US$1 as of March 31,
2005. Net foreign exchange losses charged against income
amounted to P3,013,127 for the period July 1, 2004 to March 31,
2005.
18. PEZA Registration
The Company’s operations in the IT zone are registered with the
PEZA under Republic Act No. 7916 (the Act) as a zone enterprise
engaged in the operation of a call center that provides high value-
added phone, e-mail, chat and web communication handling within
the Asia Pacific, European and US markets. The Act created the
PEZA, which is currently responsible for the operation,
administration, management and development of the economic
zone (Ecozone) according to the principles and provisions set forth
in the Act, and the regulation and supervision of the enterprises in
the Ecozone.
Customer Contact Center Inc.
Notes to Financial Statements
128
Information Technology Subsidiaries
As an IT zone-registered enterprise, the Company enjoys certain
tax and non-tax incentives, including an ITH up to August 2005.
Upon expiry of the 1TH incentive, the Company, in lieu of all local
and national taxes, shall be subject to the prescribed tax rate of
5% of gross revenues, net of certain deductions specifically provided
for in the Act. As a supplier of goods, property or services within
the Ecozone, the Company is also entitled to the benefit of zero
percent (0%) value added tax.
On October 28, 2002, the PEZA approved the Company’s application
for amendment of its registered activities to include the following:
(a) to provide and lease out facilities to SOCA for the latter’s call
center services; (b) to act as administrative arm of SOCA relating
to IT and telephony support, human resource policies, finance and
planning and strategic marketing. Such additional activities are
subject to 5% gross income tax rate and are not covered by the ITH
incentive (see Note 16).
Tax incentives availed by the Company for the period July 1, 2004
to March 31, 2005 are as follows:
P
ITH 2,907,101
Duty free importations 1,795,539
19. Significant Contracts
a. The Company entered into various contracts and agreements
with its clients to provide call center services under various
periods, terms and conditions.
b. The Company leases the call center facility, for a period of 5
years beginning November 2000, renewable upon mutual
agreement of both parties. In February 2004, the lease
agreement was extended for another 3 years. Rent expense
charged to operations amounted to P21,188,600 for the period
July 1, 2004 to March 31, 2005.
The annual future lease commitments for the call center facility
are as follows:
March 31 P
2006 30,851,616
2007 32,919,024
2008 33,347,958
2009 25,557,361
20. Note to Statement of Cash Flows
Noncash investing and financing activity:
Long-term debt and capital lease obligations
for the purchase of property and equipment:
P
Acquisition cost 23,310,046
Less: Downpayment 4,201,428
Long-term debt and capital lease obligations 19,108,618
21. Other Matters
On March 28, 2005, the Securities and Exchange Commission approved
a resolution changing the accounting period of the Company from a
calendar year to a fiscal year ending March 31.
Customer Contact Center Inc.
Notes to Financial Statements
Information Technology Subsidiaries
129
C-Cubed (Antilles) N.V.
To the Members,
The Directors present their annual report, together with the audited
financial statements of the Company as at 31st
March 2005.
Principal Activity
The pricipal activities of the Company comprise of holding and financing
of group entities.
Results and Dividends
The Company’s net income for the year ended 31st
March 2005 is US
$ 26’122.58.
The Directors do not recommend any dividend for the year under
review.
Directorate
Amas Trust (Services) S.A.was appointed as a Director of your Company
on August 5th
2005.
Statement of Directors’ responsibilities in respect of the financial
statements
Directors’ Report
Shareholder’s Equity And Liabilities
March 31st
2005
US$
Capital And Reserves
Issued share capital - 6000 Shares
issued at Nominal value of US$ 1.- each 6’000.00
Accumulated results 16’764.57
Result for the financial year 26’122.58
Shareholders Equity 48’887.15
Creditors: Long Term Debt
Shareholders Loan 4’917’085.35
(including interest accrued of
US$ 453’950.- and US$ 111’944
as at March 31" and Dec. 31
st
respectively)
Creditors: Amounts falling due
within one year
Due to affiliate 28’200.21
Other creditors and accrued expenses 566’609.85
Shareholders Equity and Liabilities 5’560’782.56
Balance Sheet as at 31 March 2005
(Before appropriation of result)
The accompanying notes form an integral part of these accounts
Assets
March 31st
2005
US$
Long Term Assets
Investments 43’107.81
Loan due from affiliate 5’504’945.58
(including interest accrued of
US$ 566’395 and US$ 139’352
as at March 31
st
and Dec. 31
st
respectively)
Current Assets
Unpaid Share Capital issued 6’000.00
Due from affiliate 6’729.17
Total Assets 5’560’782.56
Accountants’ Report
To the Members,
The Directors are responsible for the preparation of the accounts and
they consider that the company is exempt from a statutory audit.
In accordance with your instructions and in order to assist you to fulfil
your reporting responsibilities to your shareholders, we have prepared
the accompanying Financial Statements as at March 31st, 2005 in
Your Directors based on the information and documents made available
to them, confirm that:
i) in the preparation of the accounts for the period under review,
the applicable accounting standards have been followed. There are
no material departures in the adoption and application of the
accounting standards.
ii) they have selected such accounting policies and applied them
consistently and made judgements and estimates that are
reasonable and prudent so as to give a true and fair view of the
state of affairs of your Company at the end of the the period under
review and of the profit of your Company for that period;
iii) they have taken proper and sufficient care to the best of their
knowledge and ability for the maintenance of adequate accounting
records in accordance with the applicable laws for safeguarding
the assets of your Company and for preventing and detecting
fraud and other irregularities;
iv) they have prepared the annual accounts on a going concern basis
For and on behalf of the Board
Director
August 8th
2005
accordance with Generally Accepted Accounting Standards from the
accounting records, information and explanations supplied to us.
Yours Truly,
Amas Trust Services (Switzerland) Ltd.
July 28th
2005
Information Technology Subsidiaries
130
Profit And Loss Account For The Period Ended 31 March 2005
The accompanying notes form an integral part of these accounts.
15 months
period ended
March 31st 2005
US$
Interest income on loans due from affiliate 427’043.26
Interest expense on loans due to Shareholders 342’005.94
Foreign exchange differences 600.71
Net financial income / (expense) 85’638.03
Operating expenses (59’515.46)
Result Before Taxation —
Corporate income tax
Result After Taxation 26’122.58
C-Cubed (Antilles) N.V.
GENERAL
Group affiliation and principal activities
C-Cubed NV. (“the Company”), a corporation with limited liability,
having its statutory seat in Curacao was incorporated under the laws
of The Netherland Antilles on the 19th
of September 2003. The Company
holds the full ownership interest in C-Cubed BV, Tilburg, The Netherlands.
The principal activities of the Company consist of holding and financing
of group entities.
ACCOUNTING POLICIES
Basis of presentation
The accompanying accounts have been prepared under the historical
cost convention in accordance with Generally Accepted Accounting
Principles. Unless indicated otherwise, assets and liabilities are stated
at nominal value.
Consolidation
The consolidation would not improve insight to the financial position of
the Company, due to different activities of its affiliates. As far as required
the financial statements of the participation are included as an enclosure
to these financial statements. The financial statements of this participation
are presented on the basis of local accounting principles.
Foreign currency translation
Assets and liabilities denominated in other currencies are translated
into US Dollar at the rates of exchange prevailing on the balance sheet
date. Transactions in foreign currencies have been translated at the
rates of exchange prevailing on the balance sheet date.
The following exchange rate have been applied as at 31 March 2005
(31s!
Dec. 2003) 1 US$0 = 1.3641 (1.2423) US Dollar (USD)
Long-term investments
Interests in group entities are stated at cost less a provision for any
permanent or long-term diminution in value.
Recognition of income
Dividends from interests in group entities are recognized as income if
and when received. Other revenues and expenses are accounted for in
the period these items concern.
NOTES ON SPECIFIC ITEMS OF THE BALANCE SHEET
Long-term investments
As at 31 March 2005 the long-term investments comprise the following
interests in group entities
Name Statutory seat Percent of
ownership interest
C-Cubed BV Tilburg, The Netherlands 100 %
Issued share capital
The authorized share capital of the Company consists of 6000 issued
shares of USD 1 each
Movements in capital and reserves
Issued Share Accumu- P&L Total
Share premium lated FY
Capital reserve results
Opening Balance 6’000 16’764.57 22’764.57
Appropriation of
Results 16764.57 (16’764.57) —
Share capital
issued — — —
Result from P&L 26’122.58 26’122.58
Balance as at
March 31st
, 2005 6’000 16’764.57 26’122.58 48’887.15
OTHER NOTES
Employees
The Company does not employ any staff other than the directors and
hence incurred no further salary and related social security expenses
or pension costs during the period ending 31 March 2005.
Contingent liabilities
The Company has granted Mr. Jose Xavier Gonzales a right to acquire
19.6% of the issued Share Capital of C-Cubed B.V. Tilburg by conversion
of the amount due to him by the Company and stated at US$ 475’415.-
in the Company’s balance sheet as at March 31st
, 2005.
OTHER INFORMATION
Statutory provisions concerning the appropriation of results
In accordance with the Articles of Association the result for the period
is at the disposal of the General Meeting of Shareholders. No profit may
be distributed to the shareholders as long as the Company has no free
reserves available.
Post balance sheet events
No events have occurred since 31 March 2005 that would make the
present financial position substantially different from that shown in
the balance sheet at the balance sheet date, or which would require an
adjustment to or disclosure in the annual accounts.
NOTES TO THE BALANCE SHEET AND PROFIT AND LOSS ACCOUNT
Information Technology Subsidiaries
131
C-Cubed B.V.
Directors’ Report
To the Members,
The Directors present their annual report, together with the audited financial statements of the Company for the period ended 31st
March 2005.
Principal Activity
The pricipal activities of the Company comprise of holding and financing of group entities.
During the period under review, the Company has acquired the total issued share capital of Customer Contact Center (“C-Cubed”) Inc, Phillippines,
a corporation active in Call – Center outsourcing and mainly operating in South-East Asia.
Results and Dividends
During the period under review, the Company incurred a loss of Euro 4’855. To a large extent this loss was on account of professional fees and
interest charges arising from debt funding for the acquisition of C-Cubed.
The Directors recommend that no dividend be declared for the year under review.
Directorate
Amas Trust (Services) S.A.was appointed as a Director of your Company on 25th
July, 2005.
Statement of Directors’ responsibilities in respect of the financial statements
Your Directors, based on the information and documents made available to them, confirm that:
i) in the preparation of the accounts for the period under review, the applicable accounting standards have been followed. There are no material
departures in the adoption and application of the accounting standards.
ii) they have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent
so as to give a true and fair view of the state of affairs of the Company at the end of the the period under review and of the loss of the Company
for that period;
iii) they have taken proper and sufficient care to the best of their knowledge and ability for the maintenance of adequate accounting records in
accordance with the applicable laws for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;
iv) they have prepared the annual accounts on a going concern basis
By Order of the Board
Director
July 26th
2005
Auditors’ Report
Introduction
We have audited the financial statements of C-Cubed B.V., Tilburg, The
Netherlands, for the period January 1, 2004 till March 31, 2005. These
financial statements are the responsibility of the company’s
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
Scope
We conducted our audit in accordance with auditing standards generally
accepted in the Netherlands. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the
financial statements. We believe that our audit provides a reasonable
basis for our opinion.
Opinion
In our opinion, the financial statements give a view of the financial
position of the company as at March 31, 2005 and of the result for the
period then ended as is required in this case in accordance with the
accounting policies as defined in the notes to the financial statements.
Meeuwsen Ten Hoopen
Chartered Accountants
July 26th
2005
Information Technology Subsidiaries
132
Shareholder’s Equity And Liabilities
March 31st
2005
EURO
Capital And ReservesIssued share capital - 227 Shares issued
at Nominal value of Euro 100.- each 22’700
Accumulated results (54’566)
Result for the financial year (4’855)
Result for the financial year (36’721)
Creditors: Long Term Debt
Shareholder’s Loan 4’035’676
(including interest accrued of
Eur. 313’065.- and Eur. 112’173.-
as at March 31
st
and
Dec. 31
st
respectively)
Creditors: Amounts falling due
within one year
Other creditors and accrued expenses 46’813
Shareholders Equity and Liabilities 4’045’767
Balance Sheet as at 31 March 2005
(Before appropriation of result)
The accompanying notes form an integral part of these accounts
Assets
March 31st
2005
EURO
Long Term Assets
Investments 2’141’670
Loan due from subsidiary 1’877’267
(including interest
accrued of Eur. 156’020
and Eur. 57’606 as at
March 31 and Dec. 31
st
respectively)
Current Assets
Unpaid Share Capital issued 22’700
VAT receivable 4’130
Total Assets 4’045767
Profit And Loss Account For The Period Ended 31 March 2005
The accompanying notes form an integral part of these accounts.
15 months
period ended
March 31st 2005
EURO
Interest income on loans due from group entities 156’020
Interest expense on loans due to Shareholders (313’065)
Foreign exchange differences 194’874
Net financial income / (expense) 37’829
Operating expenses (42’684)
RESULT BEFORE TAXATION (4’855)
Corporate income tax —
Result After Taxation (4’855)
C-Cubed B.V.
Information Technology Subsidiaries
133
GENERAL
Group affiliation and principal activities
C-Cubed B.V. (“the Company”), a corporation with limited liability,
having its statutory seat in Tilburg, The Netherlands, The Netherlands,
was incorporated under the laws of The Netherlands on the 2nd
May
1989. The Company considers C-CUBED NV, Netherlands Antilles, to be
its parent company.
The principal activities of the Company consist of holding and financing
of group entities.
ACCOUNTING POLICIES
Basis of presentation
The accompanying accounts have been prepared under the historical
cost convention in accordance with Generally Accepted Accounting
Principles in The Netherlands. Unless indicated otherwise, assets and
liabilities are stated at nominal value.
Consolidation
The Company applies Article 406, Part 9, Book 2 of the Netherlands Civil
Code due to the fact that its participation has different activities and
consolidation would not improve insight to the financial position. As far
as required the financial statements of the participation are included as
an enclosure to these financial statements. The financial statements of
this participation are presented on the basis of local accounting principles.
Foreign currency translation
Assets and liabilities denominated in other currencies are translated
into euro at the rates of exchange prevailing on the balance sheet
date. Transactions in foreign currencies have been translated at the
rates of exchange prevailing on the balance sheet date.
The following exchange rate have been applied as at 31 March 2005
(2004): 1 Euro = 1.3641 (1.2423) US Dollar (USD)
Long-term investments
Interests in group entities are stated at cost less a provision for any
permanent or long-term diminution in value.
Recognition of income
Dividends from interests in group entities are recognized as income if
and when received. Other revenues and expenses are accounted for in
the period these items concern.
NOTES ON SPECIFIC ITEMS OF THE BALANCE SHEET
Long-term investments
As at 31 March 2005 the long-term investments comprise the following
interests in group entities
Name Statutory seat Percent of
ownership interest
C-Cubed Inc Manilla, Philippines 100 %
Issued share capital
The authorized share capital of the Company consists of 1000 shares of
EUR 100 each, of which 227 have been issued.
Movements in capital and reserves
Issued Share Accumu- P&L Total
Share premium lated FY
Capital reserve results
Opening Balance 22’700 — — (54’566) (31’866)
Appropriation of
Results — — (54’566) 54’566 —
Share capital
issued — — — — —
Result from P&L — — — (4’855) (4’855)
Balance as at
March 31st
, 2005 22’700 — (54’566) (4’855) (36’721)
OTHER NOTES
Employees
The Company does not employ any staff other than the directors and
hence incurred no further salary and related social security expenses
or pension costs during the period ending 31 March 2005.
OTHER INFORMATION
Statutory provisions concerning the appropriation of results
In accordance with article 16 of the Articles of Association the result
for the period is at the disposal of the General Meeting of Shareholders.
No profit may be distributed to the shareholders as long as the Company
has no free reserves available.
Proposed appropriation of result
The Board of Management proposes to carry forward the loss for the
year ending 31 March 2005 in the amount of EUR 4’8S6.- to next year’s
accounts. No dividend will be declared and paid due to the accumulated
losses.
Post balance sheet events
No events have occurred since 31 March 2005 that would make the
present financial position substantially different from that shown in
the balance sheet at the balance sheet date, or which would require an
adjustment to or disclosure in the annual accounts.
Notes to the Balance Sheet and Profit and Loss Account
C-Cubed B.V.
InNetwork Entertainment Limited ............................137
Grant Investrade Limited.......................................149
IndusInd Media & Communications Limited ..................154
Tele Video Communications India Limited ................... 169
In2cable (India) Limited........................................ 177
IndusInd Telecom Network Limited. .......................... 189
Media & Telecom Subsidiaries
Media-Telecom Subsidiaries
136
InNetwork Entertainment Ltd.
Board of Directors
A.K Das, Chairman
Ravi Mansukhani, CEO, Manager
Ashok Mansukhani
Sanjeev R. Pandit
Sanjay Asher
Management Team
Ravi Mansukhani, CEO, Manager
Satheesh Kumar, VP-Finance
Anand Girdhar, VP-Movie Division
Milind Kulkarni, VP-Technical
Company Secretary
Jatin Shah
Statutory Auditors
Shah & Co.
Chartered Accountants
Registered Office
InCentre
49/50, MIDC
12th
Road, Andheri (E)
Mumbai 400 093
In2Cable (India) Limited
Board of Directors
R.P. Hinduja, Chairman
S. Solomon Raj
K.C. Samdani
Management Team
Brig. T.M. Sridharan (Retd.), CEO, Manager
Sudhir Gosar, CTO
Milind Hukeri, CFO & Company Secretary
Anil Srivastava, GM – Marketing
Statutory Auditors
Price Waterhouse
Chartered Accountants
Registered Office
InCentre
49/50, MIDC
12th
Road, Andheri (E)
Mumbai 400 093
Indusind Media & Communications Ltd.
Board of Directors
A.K Das, Chairman
Sanjay Asher
Sanjeev R. Pandit
Ashok Mansukhani, Executive Director – Corporate Services
K.C Samdani
Ravi Mansukhani
Brig. T.M. Sridharan (Retd.)
Srinivas Palakodeti, Chief Operating Officer, Manager
Board Observers
Varun Kapur, Intel Pacific Inc.
Ms. Adrienne Corbud Fumagalli, Kudelski S.A.
Management Committee
Srinivas Palakodeti, Chief Operating Officer, Manager
Brig. T.M. Sridharan VSM (Retd.), CEO In2Cable
Manoj Motwani, Sr. Vice President – Operations
Brig. R. Deshpande (Retd.), Sr. Vice President - Technical
Shankar Devrajan, Vice President - Finance
Company Secretary
Viresh Dhaibar, G.M Legal & Company Secretary
Statutory Auditors
Deloitte Haskins & Sells
Chartered Accountants
Registered Office
315 –G, New Charni Road,
Mumbai – 400 004
Administrative Office:
InCentre
49/50, MIDC
12th
Road, Andheri (E)
Mumbai 400 093
Grant Investrade Limited
Board of Directors
R.P. Hinduja
K. Thiagarajan
Srinivas Palakodeti
Company Secretary
Hasmukh Shah
Statutory Auditors
Deloitte Haskins & Sells
Chartered Accountants
Registered Office
Hinduja House
171, Dr. Annie Besant Road
Worli, Mumbai 400 018
IndusInd Telecom Network Limited
Board of Directors
Y.M. Kale, Chairman
K. Thiagarajan
Hidemoto Fukuzawa
Marian Menezes
(Alternate Director to Hidemoto Fukuzawa)
Company Secretary
Rajkumar Ghoshal
Statutory Auditors
Shah & Co.
Chartered Accountants
Registered Office
Hinduja House
171, Dr. Annie Besant Road
Worli, Mumbai 400 018
Tele Video Communications India Ltd.
Board of Directors
K. C. Samdani
Srinivas Palakodeti
Ashok H. Mansukhani
Statutory Auditors
Shah & Co.
Chartered Accountants
Registered Office
315-G, New Charni Road,
Mumbai – 400 004
General Information
Media-Telecom Subsidiaries
137
InNetwork Entertainment Ltd.
To The Members,
Your Directors are pleased to present their report on the business and
operations of the Company for the year ended 31st
March 2005.
Financial Results
(Rs. in ‘000s)
Year ended 31st
March 2005 2004
Total Income 186,929 241,172
Expenditure 79,409 77,826
PBDIT 107,520 163,346
Less: Interest 51,993 69,376
PBDT 55,527 93,970
Less: Depreciation 11,509 11,372
Amortization 28,740 67,040
Restrictive Rights /
Preliminary Exp. W/off 4,683 5,209
PBT 10,595 10,349
Provision written back 585 —
Deferred Tax (Liability)/Asset — (9,967)
PAT/(Loss) 11,180 382
Review of operations:
The Company’s performance during the year under review has been good.
This was possible due to the management’s focus on assets productivity,
cost reduction and internal efficiency. Viewed against the backdrop of
an economy recovering from a slow down, surfeit of channels offering
content similar to that of your Company, increased burden of Service
Tax, Software issues etc which had led to stagnation in the revenue in
comparison to the earlier years, the achievement is gratifying.
Factors like competitive pricing, differentiated content along with
aggressive marketing and distribution drive have helped your Company
to retain its share of the media pie.
The channel has substantially shifted from Cassette based play-out to
DVD based play-out. During the year 2005-2006, the shift would be
complete. This has resulted in substantial savings in cost as well as
improved quality of play-out owing to the digitized content.
The company invested in energy saving devices that has resulted in 10%
saving in power costs.
The company had been steadily investing in equipments for digitization
of content. Digitization facilitates ease of handling and storing, mitigates
generation loss resulting in substantial saving in storage costs. The
company is now ready to offer thematic content leveraging the strength
of its library. The offerings could be in the form of multiple channels or
through the Set Top Boxes of In Cable on a Pay Per View mode, which is
subject to implementation of CAS.
During the year under review, your Company’s total revenues of Rs.
187 Mn included Film Finance revenue of Rs.52 Mn, Films Export revenue
of Rs. 3 Mn, Advertisement revenue of Rs. 61 Mn and Income from
Royalties of Rs.38 Mn.
Advertisement revenues increased by a healthy 35% over the previous
year largely due to the contribution of CVO channel, which demonstrated
the brand loyalty the channel commands. Large agencies and corporates
have understood the impact of CVO in influencing consumer behavior
with the channel straddling across all Socio Economic Segments.
IN Mumbai due to its restricted presence to Mumbai city, competing
with large channels with pan India presence and a Metro segment largely
devoted to Mumbai, has managed to garner revenues through events as
was largely anticipated.
With a view to consolidate its film distribution and financing activity,
the Company substantially reduced its exposures in new projects.
The Directors do not recommend any dividend for the current year.
Industry Structure, Market share and Developments:
The entertainment industry grew by a healthy 15% over the previous
year, a growth rate that is double of that predicted growth rate for the
economy.
The industry is poised for a leap with the introduction of CAS, DTH, and
Digitized content both for TV and Cinema, IP TV and wireless
dissemination of content facilitating viewer ship across a wider
geographic area. All this is bound to positively impact the entertainment
landscape.
The key enabler is the change in the regulatory environment. Efforts of
TRAI, the regulator in the convergence arena, and change in legislations
to attract players in DTH, revision of the ground rules for FM radio,
rationalization of Entertainment Tax structure, and sops for multiplexes
would spur the growth of the industry.
To build scale, augment streams of revenue and to tide over the cyclical
downturn, consolidation and investment across various segments of the
industry will be the focus of your company in the near future.
Your company continues to be a key player in the content aggregation
and distribution space. However, due to the lackluster performance of
the Film industry in the year 2003, the company adopted a strategy of
consolidation during 2004. Fresh investments were being evaluated
against viability parameters.
CVO continues to be leader in the cable movie segment. Despite severe
competition from other satellite channels, upward revision in the Service
tax, scarcity in quality software, the division managed to maintain its
distinct identity. The feather in the cap was the return of a large FMCG
multinational that realized the potential of the channel and has made
large media buying commitments for the following year.
The channel has been able to maintain its position with innovative
packaging and aggressive distribution in major centers spread as far and
wide as Nepal and Assam. Increased presence of IN Cable in the northern
parts of India like Delhi and Uttar Pradesh has augmented the reach of
CVO in to the Hindi heartland.
Opportunities and Threats
The year 2004 was a reasonably good one for the film industry. The large
Indian population across the world along with demand from countries
with cultural similarities to India is an un-satiated market for quality
movies. With greater purchasing power and a predominantly young
population, the demand for a variety of entertainment is robust.
Corporatization of the film industry, funding available from financial
institutions at reasonable rates, legislative support for multiplexes and
digital cinema projections has opened new vistas for the film industry.
These steps would result in improved transparency of financial
transactions, wider and quicker release of films and an effective lid on
piracy justifying larger investments.
With a young and discerning viewer, opportunities present themselves
for production of movies that would be a targeted at a niche audience,
offering a steady stream of software for multiplexes away from the
conventional and run of the mill movies.
TV has caught the attention of the viewers and the ad community as the
most effective medium of reaching target audience. India has a C&S
household of 4.4 Crore in a total of 20 Crore household. The key revenue
streams are Subscription and Advertising, contributing 63% and 33%
respectively of the total revenues. While Satellite and Terrestrial
advertising corner a substantial chunk, a small portion of the revenue
goes to cable, the domain in which, your Company operates. Distribution
strength, content differentiation apart, advertisers are now looking into
more non-conventional methods like in-script advertising and innovative
brand placements.
CVO and IN Mumbai have a strong brand identity that commands loyalty
cutting across all SEC’s. The channels have continuously innovated in
content and packaging keeping the viewers interest alive. The strong
distribution network of IN Cablenet has resulted in the channels reaching
a large number of homes across the country, giving a national reach akin
to a satellite channel. The medium is cost effective offering exclusive
content and effective branding for various advertisers to leverage on
the excellent TRP’s that the channels garner.
Directors’ Report
Media-Telecom Subsidiaries
138
InNetwork Entertainment Ltd.
Directors’ Report (Contd.)
Should Conditional Access System (CAS) be introduced , multiple windows
of opportunities in the nature of Pay per View and Video on Demand
would open. Movies could be played on the network a day before the
release in theaters offering a unique opportunity to the subscribers.
CAS would further help your Company to offer thematic channels utilizing
the large library that it has to further consolidate its position as a content
aggregator.
Events have been a steady source of revenue for the Company. Your
Company in recognition of the potential Events offer, has set up a separate
events cell, which, apart from organizing regular events like Ganeshotsav,
Miss IN Mumbai, Salute Mumbai and Navratri will execute special events
to carve a niche for itself.
Attempts at digitizing content for theater exhibition have not been
successful owing to lack of support from exhibitors. Entertainment tax
varies from state to state thereby impacting the revenues of the industry
and leading to under declaration of revenues and occupancy rates.
Standalone cinemas have suffered in comparison to the multiplexes due
to the legislative support offered to the latter.
Risks and Concern
Films have traditionally been a high-risk business. The single digit
percentage success rate of films is an indicator of the morass the industry
is in. Viewer likes and dislikes are hard to fathom and therefore there
can be no single formula for success. Piracy and rejection of digitized
projection is another area of concern.
In the near future, more and more channels will be jostling for the
viewer’s eyeballs. With the launch of more channels there is a fear of
supply exceeding demand leading to a fall in Ad revenues. Small channels
without the strength of software would opt to form part of a bouquet of
channels thereby ensuring visibility.
Non-implementation of CAS has permitted the last mile operators to
perpetuate under declaration of connectivity and therefore the revenue
numbers. There is no fair sharing of revenue among the operators, MSO’s
and the broadcasters. Unless CAS is implemented, cash flow for content
aggregators would be severely affected thereby impacting further
investments in software. Set top boxes would facilitate value added
services to the subscribers.
With a surfeit of channels and compression of software telecast and
storage not yet mandated, small channels would be lost without carriage.
Digitalization of software would challenge distribution orthodoxies.
Digitalization would offer carriage of more channels on the network.
This would prevent hegemony of large corporates that would otherwise
dominate networks because of the bouquet under their command. The
Government is seized of the matter and has presented a paper on
Digitalization of Networks, to mandate the MSO’s to facilitate
transmission of larger number of channels.
Human resources development / Industrial relation
Employees are your Company’s most valuable asset and believe that
your Company’s employees are central to its sustainable success.
Developing, motivating, rewarding and retaining talent at all levels, is a
business priority and a key responsibility of your Company’s senior
Management. Your Company has a competitive team of professionals to
manage its day-to-day affairs and has in place, a suitable training program
to upgrade skills of its employees at regular intervals.
Internal Control System
Management Information System constitutes the backbone of the
Company’s control mechanism. All operating parameters are monitored
and controlled. Specialized software packages, bar coding and other
monitoring equipments that were introduced last year have ensured
that all systems are under control.
Clearly defined roles and responsibilities down the line for all the
managerial positions have been institutionalized. Regular internal audits
and checks ensure that responsibilities are executed effectively and
that the MIS is flawless as a result of a well conceived annual planning
and budgeting system.
Fixed Deposits
During the year under review the Company did not accept any Fixed
Deposits.
Conservation of Energy, Technology Absorption etc.:
There are no particulars to be disclosed under Section 217 (1) (e) of The
Companies Act, 1956 relating to conservation of energy, technology
absorption , considering the nature of your company’s activities.
Foreign Exchange earnings and outgo
Details of foreign exchange earnings and outflow during the year are
given as under:
Foreign Exchange Earnings: Rs. 31.90 Lac Foreign Exchange Outgo:
Rs. NIL
Directors:
Mr. Ashok Mansukhani is liable to retire by rotation at the ensuing annual
general meeting and being eligible offers himself for reappointment.
Directors’ Responsibility Statement:
Pursuant to Section 217 (2AA) of the Companies Act, 1956 your
Directors, based on the information and documents made available
to them, confirm that :
(i) in the preparation of annual accounts for the year ended 31st
March 2005, the applicable accounting standards have been
followed. There are no material departures in the adoption
and application of the accounting standards.
(ii) they have selected such accounting policies and applied them
consistently and made judgments and estimates that are
reasonable and prudent so as to give a true and fair view of
the state of affairs of your Company at the end of the financial
year and of the profit of your Company for that period;
(iii) they have taken proper and sufficient care to the best of
their knowledge and ability for the maintenance of adequate
accounting records in accordance with the provisions of the
Companies Act,1956 for safeguarding the assets of your
Company and for preventing and detecting fraud and other
irregularities;
(iv) they have prepared the annual accounts on a going concern
basis.
Auditors report & Auditors:
M/s. Shah & Co, Chartered Accountants, Auditors of the Company,
retire at the conclusion of the ensuing Annual General Meeting of the
Company and are eligible for re-appointment.
Statement in respect of subsidiaries:
The statement pursuant to Section 212 (3) of the Companies Act, 1956
in respect of the subsidiary companies is attached.
Particulars of employees:
During the year under review, none of the employees of your company
was in receipt of remuneration in excess of the limit prescribed under
Section 217 (2A) of the Companies Act 1956 read with the Companies
(Particulars of Employees) Rules 1975 as amended from time to time.
Acknowledgements:
Your Directors place on record their sincere appreciation of valuable
assistance and support provided by all the Bankers. Your Directors also
recognise and appreciate the excellent services rendered by staff across
all levels.
For and on behalf of the Board of Directors
InNetwork Entertainment Limited
Place: Mumbai A.K. Das
Date : 28th
June, 2005 Chairman
Media-Telecom Subsidiaries
139
InNetwork Entertainment Ltd.
Auditors’ Report
To The Members of InNetwork Entertainment Limited
1. We have audited the attached Balance Sheet of InNetWork
Entertainment Limited as at 31st March 2005 and also the Profit
and Loss Account and Cash Flow Statement of the Company for the
year ended on that date annexed thereto. These financial
statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial
statements based on our audit.
2. We conducted out audit in accordance with auditing standards
generally accepted in India. Those Standards require that we plan
and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by the management, as well as
evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
3. As required by the Companies (Auditors’ Report) Order, 2003,
issued by the Central Government of India in terms of sub-section
(4A) of Section 227 of the Companies Act, 1956, we enclose in the
Annexure a statement on the matters specified in paragraphs 4
and 5 of the said order.
4. Further to our comments in the Annexure referred to in Paragraph
3 above, we state that:
(a) We have obtained all the information and explanations, which
to the best of our knowledge and belief were necessary for
the purpose of our audit.
(b) In our opinion proper books of account as required by law
have been kept by the Company so far as appears from our
examination of such books.
(c) In our opinion, the Balance Sheet, the Profit and Loss Account
and Cash Flow Statement referred to in this report are in
agreement with the books of account.
(d) In our opinion, the Balance Sheet, the Profit and Loss Account
and Cash Flow Statement dealt with by this report comply
with the Accounting Standards referred to in Section 211 (3C)
of the Companies Act, 1956.
(e) On the basis of the written representations received from
the directors, and taken on record by the Board of Directors,
we report that none of the Directors are disqualified as on
31st
March 2005 from being appointed as a Director in terms
of clause (g) of sub-section (1) of section 274 of the Companies
Act, 1956.
(f) in our opinion and to the best of our information and according
to the explanations given to us, the said Accounts subject to
Note No. A(4) read together with the other notes in schedule
18 give the information required by the Companies Act, 1956,
in the manner so required and give a true and fair view in
conformity with the accounting principles generally accepted
in India.
(i) In the case of the Balance Sheet, of the state of affairs of
the Company as on 31st March 2005,
(ii) In the case of Profit and Loss Account, of the “Profit” of
the Company for the year ended on that date.
(iii) In the case of the Cash Flow Statement of the cash flows
for the year ended on that date.
For SHAH & CO.
Chartered Accountants
Indulal H. Shah
Place : Mumbai Partner
Dated : 28th
June, 2005 Membership No. 798
Media-Telecom Subsidiaries
140
InNetwork Entertainment Ltd.
Annexure to the Auditors Report
(Referred in Para 3 of our Report of even date)
i. (a) The Company has maintained proper records showing full
particulars including quantitative details and situation of fixed
assets.
(b) We have been informed that the fixed assets have been
physically verified by the Management at regular intervals
and no material discrepancies have been noticed on such
verification.
(c) There has been no disposal substantial part of any fixed assets
during the year.
ii. (a) Films, television software, shares and cassettes held as stock
in trade have been physically verified by the management at
regular intervals during the year
(b) The procedure of physical verification of stocks followed by
the management appears reasonable and adequate in relation
to the size of the company and the nature of its business.
(c) The company is maintaining proper records of films, television
software, shares and cassettes. We are informed that no
material discrepancies were noticed on such verification as
compared to book records.
iii. According to the information and explanations given to us, the
Company has not granted/taken any loans secured or unsecured
to/from companies firms or other parties covered in the register
maintained under Section 301 of the Companies Act 1956. As such
provisions of clause 4(iii) (b), (c), (d), (f) and (g) are not applicable.
iv. According to the information and explanations given to us, there
are adequate internal control procedures commensurate with the
size of the company and the nature of its business with regards to
purchase of film rights, shares, cassettes, fixed assets and with
regard to assignment of film rights and services. During the
course of audit, we have not observed any continuing failure to
correct major weaknesses in internal control system.
v. As explained to us and according to the information and explanations
given to us, there are no transactions during the year that need
to be entered in the register maintained under section 301 of the
Companies Act, 1956 and exceeding the value of five lac rupees in
respect of each party.
vi. As the company has not accepted any deposits from the public
provisions of clause 4(vi) of the Companies (Auditors’ Report) Order
2003 are not applicable to the company.
vii. In our opinion, the company has an internal audit system
commensurate with the size and nature of its business.
viii. (a) According to the information and explanations given to us,
the company is generally regular in depositing with
appropriate authorities undisputed statutory dues including
provident fund investor education and protection fund,
employees state insurance, income tax, sale tax, wealth tax,
service tax, custom duty, excise duty, cess and other material
statutory dues applicable to it. We are informed that there
are no undisputed statutory dues which were in arrears as
at 31st March, 2005 for a period of more than six months
from the date they became payable.
(b) According to the information and explanations given to us,
there are no statutory dues which have not been deposited
on account of disputes pending at various forums.
ix. The accumulated losses of the company are not more than fifty
percent of its net worth. The company has not incurred cash losses
during the financial year covered by our audit or in the immediately
preceeding financial year.
x. According to the information and explanations given to us, the
company has not defaulted in repayment of dues to banks. The
company has not issued any debentures.
xi. According to the information and explanations given to us, the
company has not granted any loans and advances on the basis of
security by way of pledge of shares, debentures and other securities.
xii. In our opinion, the company is not a chit fund or a nidhi / mutual
benefit fund/society. Therefore the provisions of clause 4 (xiii) of
the Companies (Auditors report) Order 2003 are not applicable to
the company.
xiii.In our opinion and according to the information and explanations
given to us, the company is not a dealer or trader in shares,
securities, debentures and other investments.
xiv. In our opinion, the terms and conditions on which the company has
given guarantee for loans taken by others from banks or financial
institutions are not prejudicial to the interest of the company.
xv. The company has not obtained any terms loans during the year.
xvi. Based on the information and explanations given to us and on an
overall examination of the Balance Sheet of the company, there
are no funds raised on short term basis which have been used for
long term investment.
xvii.During the year, the company has not made any preferential
allotment of shares to parties and companies covered in the register
maintained under section 301 of the Companies Act, 1956.
xviii.The company has not issued any debentures during the year.
xix.The company has not raised any money by way of public issues
during the year.
xx. According to the information and explanation given to us no fraud
on or by the company has been noticed or reported during the
year.
xxi. Clause 4 (viii) of the companies (Auditors’ Report) Order 2003 is
not applicable to the company for the year under report.
FOR SHAH & CO.,
Chartered Accountants
Indulal H. Shah
Place : Mumbai Partner
Date : 28th
June, 2005 Membership No. 798
Media-Telecom Subsidiaries
141
InNetwork Entertainment Ltd.
As per of our report of even date For and on behalf of the Board
Ashok Mansukhani Ravi Mansukhani
For Shah & Co. Director Director
Chartered Accountants
I. H. Shah Jatin Shah
Partner Company Secretary
Membership No. 798
Mumbai, Dated : 28
th
June, 2005 Mumbai, Dated : 28
th
June, 2005
Profit And Loss Account
for the year ended March 31, 2005
(Rs. in ’000s)
Schedule 2005 2004
INCOME
Operating Income 10 176,192 226,738
Other Income 11 10,737 14,434
186,929 241,172
EXPENDITURE
Operating Expenses 12 20,857 30,890
Commission & Discount 13 4,123 4,020
Ammortization of
Film rights 14 28,740 67,040
Employee Cost 15 22,184 24,456
Restrictive Rights W/off 4,252 4,252
Other Expenses 16 32,245 47,921
Interest 17 51,993 69,376
164,394 247,955
Less: Software Expenses
transferred to
Stock in Trade — 29,461
164,394 218,494
Depreciation 15,760 15,623
Less: Transferred from
Revaluation Reserve 4,251 4,251
11,509 11,372
Preliminary Expenses W/Off 431 957
176,334 230,823
Profit/(Loss) For The Year
Before Taxation 10,595 10,349
Add: Excess Provision Written Back 585 —
Provision for Taxation
-Current — —
-Defferred Tax Liability — (9,967)
Profit/(Loss) After Taxation 11,180 382
Add:Balance brought forward
from pervious year (132,514) (132,896)
Net Loss transferred to
Balance Sheet (121,334) (132,514)
Basic & Diluted Earnings per share (2.01) (5.20)
Balance Sheet As At March 31, 2005
(Rs. in ’000s)
Schedule 2005 2004
SOURCES OF FUNDS
Shareholders’ Funds
Share Capital 1 489,100 489,100
Reserves and Surplus 2 84,846 89,097
Loan Funds
Secured Loans 3 39,699 404
Unsecured Loans 4 991,600 1,053,300
Deferred Tax Liability 24,483 24,483
1,629,728 1,656,384
APPLICATION OF FUNDS
Fixed Assets 5
Gross Block 458,820 457,708
Less: Depreciation 134,145 118,389
Net Block 324,675 339,319
Investments 6 614,300 600,086
Current Assets
Loans and Advances 7
Inventories 271,321 215,258
Sundry Debtors 91,280 89,013
Cash and Bank Balances 58,099 83,031
Loans and Advances 333,750 371,492
754,450 758,794
Less: Current Liabilities
and Provisions 8
Current Liabilities 188,077 182,057
Provisions 1,424 1,424
189,501 183,481
Net Current Assets 564,949 575,313
Miscellaneous Expenditure 9 4,470 9,152
Profit & Loss Account 121,334 132,514
1,629,728 1,656,384
Significant accounting policies and notes to accounts 18
Media-Telecom Subsidiaries
142
InNetwork Entertainment Ltd.
Schedules forming part of the Balance Sheet as at March 31, 2005
(Rs.in ’000s)
2005 2004
SCHEDULE 1
Share Capital
Authorised
35,00,000 Equity Shares
of Rs 100/— each 350,000 350,000
15,00,000 Cumulative
Redeemable Preferance
Shares of Rs.100/— each 150,000 150,000
500,000 500,000
Issued,Subscribed and Paid-Up
33,91,000 Equity Shares
of Rs. 100 each fully paid up 339,100 339,100
(All the Equity Shares are held by
Hinduja TMT Ltd.,
the Holding Company).
15,00,000 12% Cumulative
Redeemable Convertible 150,000 150,000
Pref Shares of Rs. 100 each,
fully paid up.
(All the preference shares
are held by Hinduja TMT Ltd.,
the Holding Company).
489,100 489,100
(Rs.in ’000s)
2005 2004
SCHEDULE 2
Reserves and Surplus
Revaluation Reserve
Balance as per last Balance Sheet 89,097 93,348
Less: Transferred to
Profit & Loss Account 4,251 4,251
84,846 89,097
SCHEDULE 3
Secured Loans
From UTI Bank Ltd. 39,489 —
(Secured against hypothecation of
Stock & Book Debts)
From ICICI Bank Ltd. 210 404
(Secured against hypothecation of car)
39,699 404
SCHEDULE 4
Unsecured Loans
From Holding Company 981,400 1,026,500
From Subsidiaries 10,200 11,700
Overdrawn Balance against
cheques issued — 15,100
991,600 1,053,300
SCHEDULE 5
Fixed Assets
(Rs. in ’000s)
GROSS BLOCK DEPRECIATION/AMORTISATION NET BLOCK
Particulars As at Additions Deletions As at Upto For the Deletions Upto As at As at
01.04.2004 during during 31.03.2005 31.03.2004 Year 31.03.2005 31.03.2005 31.03.2004
the year the year
Goodwill 133,495 — — 133,495 — — — — 133,495 133,495
Land & Building 176,553 — — 176,553 52,047 5,897 — 57,944 118,609 124,506
Plant & Machinery 40,543 1,105 — 41,648 13,894 2,866 — 16,760 24,888 26,649
Office Equipments 4,048 19 — 4,067 1,493 199 — 1,692 2,375 2,555
Furniture & Fixtures 53,130 1 13 53,118 25,397 3,362 4 28,755 24,363 27,733
Computer & Accessories 763 — — 763 284 122 — 406 357 479
Vehicles 1,370 — — 1,370 180 130 — 310 1,060 1,190
Equipment H/E 35,915 — — 35,915 20,639 2,539 — 23,178 12,737 15,276
E.D.P. Equipment 707 — — 707 520 115 — 635 72 187
Electrical Installation 11,184 — — 11,184 3,935 530 — 4,465 6,719 7,249
Total 457,708 1,125 13 458,820 118,389 15,760 4 134,145 324,670 339,319
Previous Year 456,700 1,008 — 457,708 102,766 15,622 — 118,389 339,319
Media-Telecom Subsidiaries
143
InNetwork Entertainment Ltd.
Schedules forming part of the Balance Sheet as at 31st March, 2005
SCHEDULE 6
Investments (Long Term At Cost)
A. QUOTED:
1. 4,500 Equity shares of Gulf Oil 151 151
Corporation Ltd of Rs.10/— each
fully paid up.
(Previous year — 4500 shares)
(Market Value as on 31.3.05
Rs.9,95,625/—)
B. UNQUOTED:
a) In Subsidiary Companies
1. 325,06,000 Equity Shares of
Indusind Media & Communications 326,523 326,523
Ltd of Rs.10/— each fully paid up
(Previous year 325,06,000 shares)
2. 15,000 Equity Shares of 1,500 1,500
Televideo Communications (I) Ltd
of Rs.100/— each fully paid up
(Previous year 15,000 shares)
b) Others
1. 9,60,000 Equity Shares of Planet 9,600 9,600
E Shop Holdings India Pvt Ltd
of Rs.10/— each fully paid up
(Previous Year 9,60,000 shares)
2. 60,000 Equity Shares of 600 600
Shop 24 Seven India Pvt Ltd
of Rs.10/— each fully paid up
(Previous Year 60,000 shares)
3. 1,04,73,775 Equity Shares of 271,996 257,782
IndusInd Telecom Network Ltd
of Rs.10/— each fully paid up
(Previous Year 1,00,00,000 shares)
4. 3,93,000 Equity Shares of 3,930 3,930
Star Ya Kalaakar.Com Ltd.
of Rs.10/— each fully paid up
(Previous Year 3,93,000 shares)
614,300 600,086
SCHEDULE 7
Current Assets Loans & Advances
A CURRENT ASSETS
INVENTORIES
Films 197,724 181,590
Television Software 32,055 32,055
Equity Shares 41,169 —
Cassettes 373 1,613
271,321 215,258
Sundry Debtors
(Unsecured and considered
good, unless otherwise stated)
a) Debts outstanding for a
period exceeding six months.
– Debts due from companies
under the same Mangement. 18,475 2,686
– Other debtors
Debts considered good 47,273 62,698
Debts considered doubtful 18,114 18,114
83,862 83,498
Less:Provision for doubtful Debts 18,114 18,114
65,748 65,384
(Rs. in ’000s)
2005 2004
(Rs. in ’000s)
2005 2004
SCHEDULE 7 (Contd.)
b) Other Debts
– Debts due from companies
under the same Mangement. 9,511 115
– Other debtors 16,021 23,514
91,280 89,013
CASH & BANK BALANCES
a) Cash on hand 92 99
b) With scheduled banks
In current Accounts 3,292 12,472
In Margin Money Accounts 54,572 54,672
c) Cheques on hand 143 15,788
58,099 83,031
B LOANS & ADVANCES
(Unsecured & Considered good)
Advance recoverable in Cash or
in kind or for value to be received 230,177 262,415
Interest Accrued on Inter
corporate deposits and Others 1,081 10,810
Inter corporate deposits 51,600 51,350
Prepaid Expenses 857 267
Staff Advance 83 755
Deposits 10,467 10,387
Advance Payment of Tax &
Tax Deducted at Source 39,485 35,508
333,750 371,492
SCHEDULE 8
Current Liabilities & Provisions
A CURRENT LIABILITIES
Sundry Creditors 20,537 16,326
Advances from Customers 10,638 8,479
Deposits 137,033 136,971
Other Liabilities 19,869 20,281
188,077 182,057
B PROVSIONS
Provision for Taxation 1,424 1,424
1,424 1,424
SCHEDULE 9
Miscellaneous Expenditure
(to the extent not written off
or adjusted)
Preliminary Expenses 217 647
Restrictive Rights 4,253 8,505
4,470 9,152
Media-Telecom Subsidiaries
144
InNetwork Entertainment Ltd.
Schedules forming part of the Profit & Loss Account for the year ended March 31, 2005
(Rs. in ’000s)
2005 2004
SCHEDULE 10
Operating Income
Infrastructure Charges 16,170 14,792
Income from film finance 52,349 50,272
Income from film Exports 3,190 66,521
Income from film rights 4,500 —
Advertisement Revenue 61,474 45,224
Royalties 38,040 47,040
Profit from sale of Shares 469 —
Revenue from Projects — 2,889
176,192 226,738
SCHEDULE 11
Other Income
Dividend 27 23
Interest On ICD 5,187 4,501
Interest — Others 3,233 3,905
Sundry Credit Balances W/back 229 —
Commission received 1,176 —
Exchange Rate Fluctuation — 228
Miscellaneous Receipts 885 5,777
10,737 14,434
SCHEDULE 12
Operating Expenses
Rates & Taxes 3,105 3,675
Processing Charges — (Films) 706 7,507
Consumable 3,728 5,755
Programming 405 558
Carriage Fees 6,612 4,720
Equipment Hire Charges 2,001 2,509
Courier Charges 947 2,561
Events Expenses 2,704 2,966
Logo Fees 649 639
20,857 30,890
SCHEDULE 13
Commission & Discount
Discount 504 171
Commission 3,619 3,849
4,123 4,020
(Rs. in ’000s)
2005 2004
SCHEDULE 14
Ammortization of Film Rights
Opening Stock 213,645 188,444
Add: Film Rights Acquired 44,874 92,241
Less : Closing Stock 229,779 213,645
Ammortised 28,740 67,040
SCHEDULE 15
Employee Cost
Salaries,Wages,Allowances & Bonus 20,295 22,134
Contribution to PF / FPF & ESIC 1,350 1,522
Staff Welfare 539 800
22,184 24,456
SCHEDULE 16
Other Expenses
Communication Expenses 1,851 2,478
Electricity Expenses 2,641 3,656
Infrastructure Service charges 40 121
Repairs & Maintenance 2,992 4,030
Lease Rental — 3
Legal & Professional Charges 6,975 11,849
Printing & Stationery 1,012 1,203
Travelling & Conveyance 5,379 7,843
Advertising & Sales Promotion 5,853 10,560
Auditors’ Remuneration
– Audit Fees 866 491
– Tax Audit Fees 110 108
Insurance 669 981
Membership & Subscription 1,418 1,403
Other Expenses 2,439 3,195
32,245 47,921
SCHEDULE 17
Interest
Interest paid to Bank 866 3,433
Interest paid to Others 51,127 65,943
51,993 69,376
Media-Telecom Subsidiaries
145
SCHEDULE 18
Significant Accounting Policies And Notes To Accounts
A. SIGNIFICANT ACCOUNTING POLICIES
1. Accounting Convention:
• The financial statements are prepared under the historical
cost convention in accordance with the applicable
accounting standards & relevant presentation
requirements of the Companies Act, 1956, except
otherwise stated.
• The Company generally follows the mercantile system of
accounting and recognises income and expenditure on an
accrual basis except those with significant uncertainties.
• Revenue Recognition: The Company generally recognises
revenue on mercantile basis.
2. Fixed Assets:
• Fixed Assets are stated at cost/book value less accumulated
depreciation. Cost comprises of the purchase price, duties
& taxes and any other cost attributable to bringing the
asset to its working condition for its intended use.
• Value of the building has been stated at the value as per
revaluation done as at 31st
March 1995.
3. Depreciation:
Depreciation is provided on Straight Line Method on pro-rata
basis at the rates prescribed under Schedule XIV of the
Companies Act, 1956.
4. Inventories:
• Cost of television programs, news, current affairs or
chat shows produced by the company for telecast on its
own television channel are charged to the Profit & Loss
Account in the year under report. These costs were
amortized on straight-line basis over a period of 36
months in the earlier years (i.e.) upto 31st
March 2004.
Consequently, the change in method of accounting has
resulted in lowering the profit for the current year by
Rs. 97.28 Lacs.
• Cost of telecast rights of films acquired for telecast on its
own channel is amortized in the year of exploitation.
• Cost of films acquired for sale are amortized on a straight-
line basis over a period of 60 months.
• Stocks of tapes have been valued at cost or market value
whichever is lower.
• Equity Shares held as Stock in Trade are valued at the cost
or market value whichever is lower.
5. Amortization of Miscellaneous expenditure:
• Preliminary & share issue expenses are amortized over
a period of five years.
• Restrictive covenants are amortized over a period of
ten years.
6. Investments:
Long Term Investments are stated at cost of acquisition.
Provision for diminution in value is made, if otherwise than
temporary.
7. Foreign Currency transactions:
All income and expenditure in foreign currency are recorded
at the rate of exchange prevalent on the dates when the
transactions were executed.
8. Retirement benefits:
The Company has taken a Group Gratuity cum Life Assurance
policy with Life Insurance Corporation of India (LIC). Provision
for gratuity has been made at the rate of contribution
computed by LIC.
9. Borrowing costs are recognised as an expense in the period
in which these are incurred.
InNetwork Entertainment Ltd.
Schedules Annexed To And Forming Part of Accounts
B. NOTES ON ACCOUNTS:
1. Contingent liabilities not provided for:
Estimated amount of contract remaining to be executed on
Capital Account and not provided for – Rs. NIL – (Previous year
– Rs. NIL).
2. Guarantee issued by bank on behalf of the company and
outstanding as at 31st
March 2005 – Rs.54,572 (000’s); Previous
year – Rs.54,572 (000’s).
3. Legal and Professional charges include Rs. NIL paid to a partner
of auditors for other services; Previous year – Rs. 456 (000’s).
4. According to the information and explanations given to us,
there are no dues to SSI undertakings as at 31st
March 2005.
5. Arrears of dividend on 12% Cumulative Redeemable Convertible
Preference shares for the period upto 31st
March 2005 –
Rs. 61,500 (000’s); Previous year – Rs.43,500 (000’s).
6. In the opinion of the Board, Current Assets, Loans and Advances
have approximately the same value as stated in the Balance
Sheet if realized in the ordinary course of business.
(Rs. in ‘000s)
Current Previous
Year Year
7. Earnings in Foreign Currency 3,190 66,521
8. Expenditure in Foreign Currency NIL 1,191
(Incurred for travel)
9. Sundry Debtor’s include the following amounts due from
companies under the same management:
(Rs. in ’000s)
Name of the Balance Maximum Balance
Company as at Balance as at
31st March, during 31st March,
2005 the year 2004
IndusInd Media &
Communications Ltd. 796 9,930 8,936
Shop 24Seven-India P. Ltd. 11,749 11,749 2,800
In2Cable India Ltd. 2,167 2,167 1,380
10. Loans and Advances include the following amounts due from
Companies under the same management:
(Rs. in ’000s)
Name of the Balance Maximum Balance
Company as at Balance as at
31st March, during 31st March,
2005 the year 2004
IndusInd Media &
Communications Ltd. 12,620 13,232 7,775
Shop24Seven India P. Ltd. 42,250 45,292 45,292
Planet E Shop Holdings
India Pvt. Ltd. 9,250 9,536 9,536
11 a. Provision for Income Tax is not made in view of the
unabsorbed carried forward losses
b. The company has not recognized deferred tax asset in
view of prudential accounting norms followed by the
company. Break up of Deferred Tax Liability as at 31st
March 2005 is as follows:
(Rs. in 000’s)
Deferred Tax Liability
Amortization of Film Rights 29,879
Preliminary Expenses 23
Depreciation of Fixed Assets 24,115
Leave Encashment 171
Total Deferred Tax Liability 54,188
Deferred Tax Asset
Unabsorbed Depreciation 3,348
Losses Carried Forward 7,767
Gratuity 17
Provision for Doubtful Debts 7,626
Loss of previous Year 10,947
Total Deferred Tax Asset 29,705
Net Deferred Tax Liability 24,483
Media-Telecom Subsidiaries
146
Deferred Tax Assets are recognised and carried forward only
to the extent that there is reasonable certainty that sufficient
future taxable income will be available against which such
Deferred Tax Asset can be realized.
12. The Company operates in a single business segment namely
“Media & Entertainment”; as such there are no reportable
primary business segments. The Company caters only to the
domestic market where there are no differing risks and returns
as such there are no reportable geographical segments.
13. Related party disclosures:
Related Parties & Relationships
Category Party Relationship
A
1 Aasia Management Enterprises where common
& Consultancy control exists
Pvt. Ltd.
2 In2Cable India Ltd. Enterprises where common
control exists
3 Shop24Seven Enterprises where common
India Pvt. Ltd. control exists
4 Planet E Shop Enterprises where
Holdings India control exists
Pvt. Ltd.
B IndusInd Media & Subsidiary Company
Communications Ltd.
C Hinduja TMT Ltd. Holding Company
Persons Persons Persons
referred referred referred
Nature of Transactions to in A to in B to in C (Rs.000’s)
During the year above above above Total
Infrastructure Charges
IndusInd Media &
Communications Ltd. — 4,741 — 4,741
In2Cable India Ltd. 1,372 — — 1,372
Hinduja TMT Ltd. — — 7,745 7,745
Royalty Income
IndusInd Media &
Communications Ltd. — 12,000 — 12,000
Revenue Share
Shop24Seven India Pvt. Ltd. 1,460 — — 1,460
Interest Income
Shop24Seven India Pvt. Ltd. 4,222 — — 4,222
Planet E—Shop Holdings
India Pvt. Ltd. 925 — — 9 2 5
Reimbursement of
Expenses — Income
In2Cable India Ltd. 163 — — 1 6 3
IndusInd Media &
Communications Ltd. — 267 — 2 6 7
Shop24Seven India Pvt. Ltd. 107 — — 1 0 7
Interest paid
Hinduja TMT Ltd. — — 51,102 51,102
Reimbursement of Expenses
Hinduja TMT Ltd. — — 331 3 3 1
Aasia Management &
Consultancy Ltd. 168 — — 1 6 8
IndusInd Media &
Communications Ltd. — 87 — 8 7
Carriage Fees
IndusInd Media &
Communications Ltd. — 6,612 — 6,612
Internet Subscription
In2Cable India Ltd. 244 — — 2 4 4
Royalty — Logo Fees
IndusInd Media &
Communications Ltd. — 649 — 6 4 9
Balances at year—end
Secured Loans
IndusInd Media &
Communications Ltd. — 10,200 — 10,200
Hinduja TMT Ltd. — — 981,400 981,400
Current Liabilities
Aasia Management &
Consultancy Ltd. 305 — — 3 0 5
In2Cable India Ltd. 662 — — 6 6 2
IndusInd Media &
Communications Ltd. — 5,331 — 5,331
Hinduja TMT Ltd. — — 10,316 10,316
Sundry Debtors
In2Cable India Ltd. 2,167 — — 2,167
Shop24Seven India Pvt. Ltd. 11,749 — — 11,749
IndusInd Media &
Communications Ltd. — 796 — 7 9 6
Loans & Advances
Shop24Seven India Pvt. Ltd. 42,250 — — 42,250
Planet E Shop Holdings 9,250 — — 9,250
India pvt. Ltd.
Indusind Media & Comm. Ltd. 12,620 — — 12,620
14. Earning Per Equity Share
(Rs. in ’000s)
Year Ended Year Ended
31st March, 31st March,
2005 2004
Profit/(Loss) 11, 180 382
Add: Preference Dividend 18, 000 18,000
Total Loss (6, 820) (17,618)
Weighted average Number of Equity
Shares Outstanding during the year
For Basic EPS (number in 000’s) 3,391 3,391
Weighted average Number of Equity
Shares Outstanding during the year
For Diluted EPS 4,891 4,891
Basic and Diluted E.P.S (2.01) (5.20)
Since the effect of potential equity shares on Earnings per share
is anti-dilutive, the same has been ignored.
15. Note on Managerial Remuneration:
Employee cost as per Schedule XIII include remuneration paid
to a Director as under:
Rs. in 000’s
Salary & Other Allowances 1,604
Contribution to Provident Fund & Other Fund 106
Other perquisites 14
1,724
16. Quantitative details:
The Company traded in equity shares during the last financial
year. The relevant information in quantities & values is as
follows:
Unit Opening Purchases Sales Closing
Stock Stock
Quantity – NIL 9,97,900 1,75,000 8,22,900
Numbers
Quantity – NIL 4,98,59,260 91,59,500 4,11,68,636
Value
17. Previous year figures have been regrouped wherever
considered necessary.
InNetwork Entertainment Ltd.
Schedules Annexed To And Forming Part of Accounts
As per our report of even date For and on behalf of the Board
Ashok Mansukhani
For Shah & Co. Director
Chartered Accountants. Ravi Mansukhani
Indulal H. Shah Director
Partner Jatin Shah
Membership No. 798 Company Secretary
Place : Mumbai Place : Mumbai
Dated : 28
th
June, 2005 Dated : 28
th
June, 2005
Persons Persons Persons
referred referred referred
Nature of Transactions to in A to in B to in C (Rs.000’s)
above above above Total
Media-Telecom Subsidiaries
147
I Registration Details
Registration No. 1 1- 2 1 5 5 1 State Code. 1 1
Balance Sheet Date 3 1 0 3 2 0 0 5
I I Capital raised during the period (Amount in Rs. Thousands)
Public Issue Rights Issue
N I L N I L
Bonus Issue Private Placement
N I L N I L
III Position of Mobilisation and Deployment of Funds (Amount in Rs. Thousands)
Total Liabilities Total Assets
0 1 6 2 9 7 2 8 0 1 6 2 9 7 2 8
Sources of Funds
Paid-Up Capital Reserves and Surplus
0 0 4 8 9 1 0 0 0 0 0 8 4 8 4 6
Secured Loans Unsecured Loans
0 0 0 3 9 6 9 9 0 0 9 9 1 6 0 0
Application of Funds
Net Fixed Assets Investments
0 0 3 2 4 6 7 5 0 0 6 1 4 3 0 0
Net Current Assets Miscellaneous Expenditure
0 0 5 6 4 9 4 9 0 0 0 0 4 4 7 0
Deferred Tax Liability Accumulated Losses
0 0 0 2 4 4 8 3 0 0 1 2 1 3 3 4
IV Performance of Company (Amount in Rs. Thousands)
Total Income Total Expenditure
0 0 1 8 6 9 2 9 0 1 7 5 7 4 9
(Please tick appropriate box + for Profit, - for Loss)
Profit/Loss Before Tax Profit/Loss After Tax
+ 0 0 0 1 1 1 8 0 + 0 0 0 1 1 1 8 0
(Please tick appropriate box + for positive, - for negative)
+ - Earning per Share in Rs. Dividend Rate %
� 2 . 0 1 N I L
V Generic Names of Three Principal Products/Services of the Company (as per monetary terms)
ITEM CODE NO. (ITC CODE) PRODUCT DESCRIPTION
N O T M E D I A A N D
A P P L I C A B L E E N T E R T A I N M E N T
For and on behalf of the Board
Ashok Mansukhani Ravi Mansukhani Jatin Shah
Director Director Company Secretary
Mumbai
Dated : 28
th
June, 2005
Additional information pursuant to Part IV of the Companies Act, 1956
Balance Sheet Abstract and Company’s General Business Profile
InNetwork Entertainment Ltd.
Media-Telecom Subsidiaries
148
(Rs.in ‘000s)
PARTICULARS TOTAL
Cash flow from operating activities
Net profit /(loss) after taxation,
and extraordinary item 11,180
Adjustment for :
Depreciation 11,509
Bad debts written off —
Defferred tax liability —
Preliminary, deferred
and share issue Expenses 4,683
Interest income (8,420)
Profit/(loss) from sale of assets —
Interest expenses 51,993
Operating Profit before
working capital changes 70,945
Decrease in Sundry Debtors (2,267)
Decrease in Inventories (56,063)
Decrease in Loans & Advances 37,742
Increase in Sundry Creditors
& other payables 6,020
InNetwork Entertainment Ltd.
Cash Flow Statement For The Year Ended March 2005
As per of our report of even date For and on behalf of the Board
Ashok Mansukhani Ravi Mansukhani
For Shah & Co. Director Director
Chartered Accountants
I. H. Shah Jatin Shah
Partner Company Secretary
Membership No. 798
Mumbai, Dated : 28
th
June, 2005 Mumbai, Dated : 28
th
June, 2005
(Rs.in ‘000s)
PARTICULARS TOTAL
Cash generated from operations 56,377
Income taxes paid —
Cash flow before extaordinary items 56,377
Extraordinary items —
Net Cash from operating activities 56,377
Cash flow from investing activities
Purchase of fixed assets (1,125)
Investments made (14,214)
Interest received 8,420
Sale of Fixed Asset 8
Net cash from investing activities (6,911)
Cash flow from financing activities
Proceeds from unsecured loan (61,700)
Interest paid (51,993)
Repayment of Secured Loan 39,295
Net cash from financing activities (74,398)
Net increase in cash and cash equivalents (24,932)
Cash and cash equivalents at beginning of period 83,031
Cash and cash equivalents at end of period 58,099
STATEMENT PURSUANT TO SECTION 212 OF THE COMPANIES ACT, 1956. (FORMING PART OF DIRECTORS’ REPORTS
(Rs. in ‘000s)
IndusInd Media & Tele Video
Communications Communication
Ltd. India Ltd.
1. The Financial Year of the Subsidiary 31.03.2005 31.03.2005
Companies ended on
2. Date on which they became subsidiaries 10-4-2000 14-9-2001
3. Number of shares held by InNetwork Entertainment Ltd. 325,06,000 15,000
(Holding Company) in the Subsidiary Companies at the end of
the financial year the Subsidiary Companies.
4. Extent of interest of Holding Company as at the end of the 57.50% 60%
financial year of the Subsidiary Companies.
5. The net aggregate amount(‘000) of the Subsidiary Companies’ Profit/(loss)
so far as it concerns members of the Holding Company and is not dealt with
in the Holding Company’s Accounts
i. For the year ended 31st March 2005. (374,234) (640)
ii. For the financial years since they became Subsidiaries (1,283,800) (2,001)
6. The net aggregate amount of the Subsidiary Companies’ Profit/(loss) so far as
it concerns members of the Holding Company and dealt with in the Holding Company’s Accounts
i. For the year ended 31st March 2005. Nil Nil
ii. For the financial years since they became Subsidiaries Nil Nil
For and on behalf of the board
Ashok Mansukhani Ravi Mansukhani
Director Director
Place : Mumbai Jatin Shah
Date : 28th June, 2005 Company Secretary
Media-Telecom Subsidiaries
149
Grant Investrade Ltd.
To The Members,
Your Directors have pleasure in presenting herewith the Annual Report
together with the Audited Accounts of the Company for the year ended
31st
March 2005.
Financial Results
(Fig in Rs.)
2004-05 2003-04
Total Income 88,949 98,989
Total Expenses 184,166 174,304
Loss Before Tax 95,217 75,315
Loss After Tax 98,595 75,315
Your Company has incurred a net loss of Rs.98,595/ - for the year 2004-
2005.
In view of the losses, the Directors of your Company do not recommend
any dividend.
Company’s Activities
Your Company continues to be a Special Purpose Vehicle for holding
6.69% of the effective share capital of IndusInd Media & Communications
Ltd. (IMCL) The Company’s Directors and its corporate parent, Hinduja
TMT Ltd., have participated in guiding IMCL to strengthen itself in Cable
Television business.
Fixed Deposits
The Company has not accepted and/ or renewed any Fixed Deposits
during the year under review.
Directors
Mr.R.P.Hinduja Director of your Company retires by rotation at the
ensuing Annual General Meeting and being eligible, offers himself for
re-appointment.
Mr.S.Solomon Raj resigned as Director with effect from the close of
business hours of 22nd December 2004. The Board places on record its
special appreciation for the services rendered by Mr. S.Solomon Raj during
his tenure as a Director of the Company.
Mr. K.Thiagarajan was appointed as an Additional Director at the Board
Meeting held on 22nd
December 2004.
Mr. K. Thiagarajan is an MBA from IIM, Ahmedabad and B. Tech from IIT,
Madras. He brings with him 28 years of rich experience in the Chemical,
Automotive, Engineering and IT sectors both in India and abroad. He is
the Managing Director and Chief Executive Officer of the corporate
parent, Hinduja TMT Ltd.
Mr. K. Thiagarajan holds office upto the date of the ensuing Annual
General Meeting and the Company has received a notice in writing under
Section 257 of the Companies Act, 1956 from member proposing his
candidature for the office of Director of the Company at the ensuing
Annual General Meeting.
Conservation of Energy etc.
Considering the nature of the business of your Company, there are
no particulars to be disclosed relating to the year under review in
respect of Conservation of Energy, Research and Development &
Technology Absorption pursuant to Section 217(1)(e) of the
Companies Act, 1956.
There are no Foreign Exchange earnings or outgo during the year.
Employees
During the year under review, none of the employees of your
Company was in receipt of remuneration in excess of the limit
prescribed under Section 217 (2A) of the Companies Act, 1956 read
with the Companies (Particulars of Employees) Rules, 1975 as
amended from time to time.
Directors’ Responsibility Statement
Pursuant to Section 217(2AA) of the Companies Act, 1956 your Directors,
based on the information and documents made available to them, confirm
that:
i) in the preparation of the annual accounts, for the year ended
31st
March 2005, applicable accounting standards have been
followed. There are no material departures in the adoption and
application of the accounting standards.
ii) they have selected such accounting policies and applied them
consistently and made judgements and estimates that are
reasonable and prudent so as to give a true and fair view of the
state of affairs of your Company at the end of the financial year
and of the loss of your Company for that period.
iii) they have taken proper and sufficient care to the best of their
knowledge and ability for the maintenance of adequate accounting
records in accordance with the provisions of the Companies Act
1956 for safeguarding the assets of your Company and for preventing
and detecting fraud and other irregularities.
iv) they have prepared the annual accounts on a going concern basis.
Auditors
M/s. Deloitte Haskins & Sells, Chartered Accountants, the statutory
auditors of the Company retire at the conclusion of the ensuing Annual
General Meeting of the Company and are eligible for re-appointment.
For and on behalf of the Board of Directors
Place : Mumbai K. Thiagarajan S. Palakodeti
Date : 28th June, 2005 Director Director
Directors’ Report
Media-Telecom Subsidiaries
150
To The Shareholders of Grant Investrade Limited
1. We have audited the attached Balance Sheet of Grant Investrade
Limited as at March 31, 2005 and also the Profit and Loss account
of the Company for the year ended on that date. These financial
statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial
statements based on our audit.
2. We conducted our audit in accordance with auditing standards
generally accepted in India. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by the
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable
basis for our opinion.
3. As required by the Companies [Auditors’ Report] Order 2003,
issued by the Central Government in terms of Section 227
(4A) of the Companies Act, 1956, we give in the annexure a
statement on the matters specified in paragraph 4 and 5 of
the said Order, to the extent applicable and based on such
checks we considered appropriate.
4. Further to our comments in the annexure referred to above, we
report that: -
a) We have obtained all the information and explanations, which
to the best of our knowledge and belief were necessary for
the purposes of our audit;
b) In our opinion, proper books of account as required by law
have been kept by the Company so far as appears from our
examination of the books;
c) The Balance Sheet and Profit and Loss account dealt with by
this report are in agreement with the books of account;
d) In our opinion, the Balance Sheet and Profit and Loss account
dealt with by this report are in compliance with the
accounting standards referred to in sub- section (3C) of
section 211 of the Companies Act, 1956;
e) On the basis of written representations received from
directors, and taken on record by the board of directors,
we report that none of the directors is disqualified as on
March 31, 2005 from being appointed as director in terms
of clause (g) of sub-section (1) of section 274 of the Companies
Act, 1956;
f) In our opinion and to the best of information and according to
the explanations given to us, the accounts read with notes
give the information required by the Companies Act, 1956 in
the manner so required and give a true and fair view in
conformity with the accounting principles generally accepted
in India;
(i) in the case of the Balance Sheet, of the state of affairs
of the Company as at March 31, 2005,
(ii) in the case of the Profit and Loss account, of the loss
for the year ended on that date,
and
(iii) in the case of Cash Flow satement, of the cash flows of
the Company for the year ended as on that date
For Deloitte Haskins & Sells
Chartered Accountants
R.Raghavan
Partner
Mumbai : 28th June, 2005 Membership No. 9483
Grant Investrade Ltd.
Auditors’ Report
In our opinion and according to the information and explanations given
to us, the nature of the Company’s business/activities during the year
are such that clauses (i), (ii), (iii), (iv), (v), (vi) (viii), (xi), (xii), (xiii),
(xiv), (xv), (xvi), (xvii), (xviii), (xix), (xx) of Companies (Auditors’
report) Order, 2003 are not applicable to the Company and we report
that:
i. The company has an adequate internal audit system
commensurate with the size and the nature of its business.
ii. (a) The company has been regular in depositing undisputed
statutory dues, including Provident Fund, Investor Education
and Protection Fund, Employees’ State Insurance, Income
tax, Sales tax, Wealth tax, custom duty, excise duty, cess
and any other statutory dues with the appropriate
authorities during the year.
(b) There are no unpaid disputed demands relating to sales
tax/income tax/custom tax/wealth tax/excise duty/cess.
Annexure To The Auditors’ Report
(Referred to in Para 3 of our Report)
iii. The accumulated losses of the Company does not exceed fifty
percent of its net worth as at the end of the year. However, the
Company has incurred cash losses during the current year and
the immediately preceding financial year.
iv. To the best of our knowledge and belief and according to the
information and explanations given to us, no fraud on or by the
company was noticed or reported during the year.
For Deloitte Haskins & Sells
Chartered Accountants
R. Raghavan
Place : Mumbai Partner
Date : 28th June, 2005 Membership No. 9483
Media-Telecom Subsidiaries
151
In terms of our report of even date For and on behalf of the Board
For Deloitte Haskins & Sells K. Thiagarajan S. Palakodeti
Chartered Accountants Director Director
R. Raghavan Hasmukh Shah
Partner Company Secretary
Membership No. 9483
Mumbai, Dated : 28th June, 2005 Mumbai, Dated : 28th June, 2005
Balance Sheet as at March 31, 2005
(Rs. in ’000s)
Schedule 2005 2004
SOURCES OF FUNDS
Shareholder’s Funds
Capital A 41,549 41,549
Reserves and surplus B 2,175,791 2,175,791
TOTAL 2,217,340 2,217,340
APPLICATION OF FUNDS
Investments C 2,215,146 2,215,146
Current Assets,
Loans and Advances
Cash and Bank balances D 1,630 1,662
Other Current assets E 7 6
Loans and Advances F 39 71
1,676 1,739
Less : Current Liabilites
and Provisions
Liabilties G 127 120
NET CURRENT ASSETS 1,549 1,619
Miscellaneous Expenditure
(to the extent not written
off or adjusted) H 114 142
Profit and Loss Account 531 433
TOTAL 2,217,340 2,217,340
Profit and Loss Account
for the year ended March 31, 2005
(Rs. in ’000s)
Schedule 2005 2004
INCOME
Interest — Bank (Gross) 85 97
(Tax Deducted at Source
Rs. 18; Previous Year: Rs. 20)
— Tax refunds 4 2
89 99
EXPENDITURE
Administrative Expenses I 184 174
184 174
Loss Before Tax 95 75
Taxation -Prior Year 3 —
Loss After Tax 98 75
Balance being loss brought
forward 433 358
Balance carried forward to
Balance Sheet 531 433
Earning per share
Basic (0.02) (0.02)
Grant Investrade Ltd.
NOTES J
Media-Telecom Subsidiaries
152
(Rs. in ’000s)
2005 2004
SCHEDULE A
Share Capital
Authorised
5,000,000 (2004 : 5,000,000)
Equity Shares of Rs. 10 each 50,000 50,000
50,000 50,000
Issued, Subscribed and
Paid-up Capital
4,154,902 (2004 : 4,154,902)
Equity Shares of Rs. 10, each fully paid-up 41,549 41,549
41,549 41,549
Note:
Of above, 2,119,002 (2004 : 2,119,002) Equity Shares of Rs. 10 each are
held by Hinduja TMT Limited, the Holding Company.
SCHEDULE B
Reserves And Surplus
Securities Premium Account
Balance as per last Balance sheet 2,175,791 2,175,791
2,175,791 2,175,791
SCHEDULE C
Investments - Long term at cost,
Non-trade-unquoted
4,153,000 (2004:4,153,000) 2,215,146 2,215,146
Equity Shares of Rs. 10 each,
fully paid-up in IndusInd Media
and Communications Limited 2,215,146 2,215,146
SCHEDULE D
Cash And Bank Balances
Cash on hand 1 1
Balances with scheduled bank in:
- Current account 129 111
- Deposit account 1,500 1,550
1,630 1,662
SCHEDULE E
Other Current Assets
Interest Accrued on fixed deposits 7 6
7 6
SCHEDULE F
Loans and Advances - Unsecured
Taxation 39 71
39 71
SCHEDULE G
Liabilities
Sundry Creditors -
(small scale undertakings) — —
Others 127 120
127 120
SCHEDULE H
Miscellaneous Expenditure
(To the extent not
written off or adjusted)
Preliminary Expenses 103 129
Share Issue Expenses 11 13
114 142
SCHEDULE I
Administrative Expenses
Corporate Service Charges 66 65
Legal & Professional Chgs. 30 21
Rates & taxes 1 2
Auditors’ Remuneration:
– Audit Fee 55 54
- Out of Pocket Expenses — 2
Filing Fees 3 2
Preliminary expenses written-off 26 26
Share issue expenses written-off 2 2
Miscellaneous Expenses 1 —
184 174
Grant Investrade Ltd.
Schedules annexed to and forming part of accounts for the year ended March 31, 2005
SCHEDULE J
NOTES
All rupee figures are in thousands unless stated otherwise.
1. SIGNIFICANT ACCOUNTING POLICIES
Financial statements
The financial statements are prepared under the historical cost
convention in accordance with applicable accounting standards
and provisions of the Companies Act, 1956.
Investment
Investments are stated at cost. Provision is made for diminution
in value, if otherwise than temporary.
Income
Interest on fixed deposits is accounted on accrual basis.
Miscellaneous Expenditure
Preliminary Expenses and Share Issue Expenses are amortised
over a period of ten years.
Taxation
Provision for current taxes, if any, is made as per the applicable
Finance Act and provisions of Income Tax Act 1961.
Deferred tax is recognized subject to the consideration of
prudence, on timing differences, being the difference between
taxable income and accounting income that originate in one period
and are capable of reversals in one or more subsequent periods.
Deferred tax assets are not recognized on carry forward of
losses unless there is virtual certainty that sufficient future taxable
income will be available against which such deferred taxes can be
realized.
2. NOTES
1. The Company has reckoned its investment in “Indusind Media
& Communications Limited” as a strategic investment,
accordingly no provision for diminution of the value in
investment is considered necessary.
2. No provision for income tax is made in view of the loss for
the year and unabsorbed carry forward losses. The Company
has not recognised deffered tax asset in view of uncertainty
of profits on account of continuing losses for the past few
years.
3. Earning per share (EPS):
2005 2004
Loss after Tax (Rs. in ‘000s) (98) (75)
Weighted Average Number of
Equity Shares outstanding
during the period 4,154,902 4,154,902
Loss Per Equity Share (Rs.) (0.02) (0.02)
4. Related party disclosures:
(a) List of related parties and relationship
Party Relationship
Hinduja TMT Limited Holding Company
(b) Related Party transactions during the year
Transactions Amount (Rs.)
Corporate Service Charges 0.66
0.65
Professional Fee 0.25
0.00
(c) Balances as at year end
Amount (Rs.)
Payable 24
15
a) Figures in Italics pertain to previous year.
5. Previous year’s figures have been regrouped / rearranged,
wherever considered necessary.
Schedules A to J form part of the accounts for the year ended March 31, 2005.
Signatories to the accounts and schedules ‘A’ to ‘J’
In terms of our report on even date For and on behalf of the Board
For Deloitte Haskins & Sells
Chartered Accountants
R Raghavan K. Thiagarajan S. Palakodeti Hasmukh Shah
Partner Director Director Company Secretary
Membership No. 9483
Mumbai, 28th June, 2005 Mumbai, 28th June, 2005
Media-Telecom Subsidiaries
153
I Registration Details
Registration No. 1 0 6 6 7 6 State Code 1 1
Balance Sheet Date 3 1 0 3 2 0 0 5
I I Capital raised during the period (Amount in Rs. Thousands)
Public Issue Rights Issue
N I L N I L
Bonus Issue Private Placement
N I L N I L
III Position of Mobilisation and Deployment of Funds (Amount in Rs. Thousands)
Total Liabilities Total Assets
2 2 1 7 3 4 0 2 2 1 7 3 4 0
Sources of Funds
Paid-Up Capital Reserves and Surplus
4 1 5 4 9 2 1 7 5 7 9 1
Secured Loans Unsecured Loans
N I L N I L
Application of Funds
Net Fixed Assets Investments
N I L 2 2 1 5 1 4 6
Net Current Assets Miscellaneous Expenditure
1 5 4 9 1 1 4
Accumulated Losses
5 3 1
IV Performance of Company (Amount in Rs. Thousands)
Total Income Total Expenditure
0 8 5 1 8 4
(Please tick appropriate box + for Profit, - for Loss)
+ - Profit/Loss Before Tax + - Profit/Loss After Tax
� 9 5 � 9 8
(Please tick appropriate box + for positive, - for negative)
+ - Earning per Share in Rs. Dividend Rate %
� 0 . 0 2 N I L
V Generic Names of Three Principal Products/Services of the Company (as per monetary terms)
Item Code No. (ITC Code) Product Description
N O T I N V E S T M E N T
A P P L I C A B L E C O M P A N Y
For and on behalf of the Board
K. Thiagarajan S. Palakodeti Hasmukh Shah
Director Director Company Secretary
Mumbai
Dated : 28th June 2005
Grant Investrade Ltd.
Additional information pursuant to Part IV of Schedule VI to the Accounts
Balance Sheet Abstract and Company’s General Business Profile:
Media-Telecom Subsidiaries
154
Directors’ Report
To the Members,
Your Directors have pleasure in presenting the Tenth Annual Report
together with Audited Statement of Accounts of the Company for the
Financial Year ended 31st
March, 2005.
(in Rs. 000s)
Year Ended 31st March 2005 2004
Income from Operations
- Cable Television Transmission 830,406 758,886
Operating Expenditure
- Cable Television Operations 798,598 837,087
- Other operating expenses 377,038 126,900
Total Operating Expenses 1,175,636 963,987
Operating Profit / (loss) (345,230) (205,101)
Add: Miscellaneous Income 58,310 298,338
Less : Interest 2,150 749
Depreciation 74,285 132,613
Impairment Loss 287,144 —
Deferred and share issue expenses 317 1,268
Tax 25 20
Profit / (Loss) for the year (650,841) (41,413)
Financial Review
Cable television transmission income grew by over 9.4%, to Rs.830 million
in the current year from Rs.759 million in the previous year. This was
driven by the increase in the subscription fees, which grew by 10% to
Rs.689 million and channel placement charges which increased by 71%.
While Cable Television Operational expenditure decreased by around 5 %,
total operating expenses increased by 22% from Rs.964 million in the
previous year to Rs.1176 million in the year under review. The increase in
expenses is on account of maintenance costs on Digital Headend and CAS
Systems, shortfall in recovery of service tax and provision for bad debts.
The financial position of your Company continues to remain adverse as
the pay channel and other operating costs are not being recovered in full.
Your Company started operations in 1995, based on co-axial fibre and
550 MHz amplifiers. Over the years, fibre based transmission of signals
has developed and your Company has deployed Hybrid Fibre Co-axial
System in its cities of operations. Keeping in view Accounting Standard
(AS) 28 issued by the Institute of Chartered Accountants of India (ICAI),
your Company has reviewed the returns from certain analog headends,
network equipment and other equipment. Keeping in view the assets
which have become obsolete/redundant, an amount of Rs.287 million
has been provided as impairment loss.
After taking into account the impairment loss, depreciation and other
expenses, the loss for the year ended 31/03/05 stands at Rs.651 million
As on 31st
March, 2005, your Company had cash and cash equivalents of
around Rs.257.1 million.
Review of Operations
The Company continued to consolidate its operations during the current
year. Scope for increase in rates is limited in view of the TRAI tariff
orders of January 2004 and October 2004. Efforts to increase declarations
from operators met with limited success.
Additional investments were made during the year in upgrading the
network by deploying fibre optic cables for providing quality transmission
and value added services like internet over cable. The Company has also
started leasing excess dark fibre capacity to telecom companies and
ISPs and is taking steps to build this as a separate business activity.
Pending implementation of Conditional Access System (CAS), your
Company has been promoting Digital Services under the brand name
“INDIGITAL” using Digital Set Top Boxes.
The benefits offered by Digital Set Top Boxes are as under :
� DVD quality pictures and Stereophonic sound
� Possible to view more than 300 channels with digital quality
� All channels with same consistent quality viewing, plus extra Regional
and International channels
� Language selection feature in Select Dual Audio feed channels
� Parental Child Lock for Channels
� Weekly Channels Program Guide for more than 80 Channels and
film/programme brief for more than 20 channels
Your Company is now delivering over 165 digital television and FM
radio channels through the Set-Top-Boxes in Mumbai and Delhi.
Equity Investment by Kudelski S.A.
In 2003, your Company entered into a Heads of Agreement with Kudelski
SA, Switzerland for issuing around 3% of its equity for approximately US
$ 12 million.
FIPB approvals for Kudelski’s equity investment was received in January
2004 and May 2005 and the Company is in the process of completing the
required formalities for issue of shares.
Industry Structure, Market Shares and Developments
As per the Price Waterhouse Coopers’ FICCI Report, “The Indian
Entertainment Industry – An unfolding opportunity” March 2005, India is
the third largest television market in the world. Of the total 200 million
homes in the country, around 65% i.e. around 119 million homes have
television sets. Out of the 119 million TV homes, only 42% i.e. around 50
million homes have cable television. The low penetration of cable in TV
homes show huge potential for future growth.
As per the above Report, the Indian Television industry has been estimated
at Rs.129 billion of which subscription revenues account for 58%,
advertising 37% and television software 5%. The television industry is
expected to grow at 18% p.a. over the next 5 years.
Addressability
The Telecom Regulatory Authority of India (TRAI), through its report
dated 1st
October 2004 has recommended 3 models for introduction of
addressability in the country. This report is under consideration of the
Ministry of Information & Broadcasting. TRAI has noted that CAS
implementation in Chennai has left TV viewers in Chennai satisfied.
The MSO Alliance, (of which your Company is a member) has filed a
petition in the Delhi High Court challenging the February 2004 notification
of the Government of India for keeping CAS in abeyance and the matter
is scheduled for final hearing on 11th July 2005.
Trai Interconnect Order
TRAI, through its Order dated 8/10/2004 mandates the broadcasters/
MSOs to provide signals on a non discriminatory basis. It has made it
mandatory for broadcasters/MSOs to give a stipulated notice period (30
days for non-payment of outstandings and 2 days for piracy/copyright
violation) prior to switch off of signals to MSOs/Operators.
Pricing of Channels
TRAI, through its order of 1st
October 2004, has permitted channels which
have turned pay after 26/12/2003 or new pay channels after 26/12/
2003 to be charged separately. TRAI, through its order of December
2004 has permitted a 7% increase in the tariffs frozen at December 2003
level and the revised tariffs would be effective from 1st
January 2005.
The Tariff Order of 1/10/2004 does not provide for situations where
channels have moved from one bouquet to another (e.g. HBO, Ten Sports)
and the MSO Alliance has sought intervention of TRAI for amendment of
its Tariff Orders.
Digitalisation of Cable
In January 2005, TRAI has issued its consultation paper on Digitalisation
of Cable for introduction of digital cable in a phased manner. Your
Company has submitted its views to TRAI on the consultative paper.
TRAI’s final recommendations are expected by July 2005.
Increase in the Number of Channels
The year 2004-05 saw several new channels being launched across
different genres. Currently, there are over 300 channels being beamed
over India. With the biggest analog headend in Mumbai, your Company
can transmit a maximum of 107 channels. In view of severe shortage of
channel capacity, it is a tremendous challenge to select channels which
would meet the requirements of a diverse television audience.
In the long run, it would be the introduction of addressability and digital
cable which would give the customer the right to choose channels as
well as overcome the infrastructural bottleneck of limited bandwidth.
Opportunities and Threats
During 2004-05, Doordarshan has launched its Free-to-Air DTH service
called DD Direct. The Government has issued Letters of Intent to Tata-
Star joint venture and Sun Group. Taking into account the existing Zee
IndusInd Media & Communications Ltd.
Media-Telecom Subsidiaries
155
DTH service, the total number of DTH operators in India is expected to
touch four by March 2006.
While DTH services and new technologies such as IPTV pose challenges
for the cable television industry, your Company has clear plans to meet
these challenges by offering a bouquet of digital choices with matching
quality and content and is moving ahead on PPV. It may be noted that,
internationally, DTH services and cable television services have been
found to co-exist.
Current Trends and Future Outlook
As mentioned earlier, your Company has launched Digital Cable Services.
Your Company believes that digital cable services are well positioned
to meet the challenges of DTH and IPTV services.
It may be noted that all new services such as DTH and IPTV required
usage of addressability. Your Company has already installed digital
addressability and has started deploying Set Top Boxes and has the
completed digital back-end. Thus, your Company is well positioned to
meet the challenges of DTH and IPTV.
Risk Management
Rising costs on account of periodic pay channel rates revision, inability
to raise tariffs to customers and franchisee operators continue to
adversely affect the financials of your Company. Failure to renew the
contract with a broadcaster on mutually acceptable terms may, at
times, lead to disruption in the transmission of signals. While your
Company adopts a proactive approach and takes all reasonable steps to
ensure continuity of service to its customers, the risk of signal disruption
due to confrontation with the broadcaster continues to pose a challenge
to the Company. Implementation of CAS would negate the risks. Successful
and timely implementation of CAS would not only benefit subscribers
but also your Company in this regard.
Human Resources
Till 31st
March 2005, your Company was procuring services from a
group company, Tele Video Communications India Ltd. (TVCIL). With a
view to simplifying the overall structure, increasing transparency and
reducing overall costs, the employees of TVCIL have been taken on the
rolls of your Company, w.e.f. 1st
April 2005.
Your Company has conducted training programmes related to quality
improvement, cost control, performance management, job related
areas to improve the overall skill sets.
Internal Control Systems
Your Company has a Committee of Directors, which meets periodically
to review the performance of the Company and discuss critical issues
influencing the business of your Company. Minutes of various meetings
of the Committee of Directors are placed before the Board of Directors
of your Company.
The operations of each branch and headend are reviewed by Internal
Audit to ensure compliance with procedures and policies laid by the
management of the Company.
The minutes of the Audit Committee are placed before the Board of
Directors of your Company. Your Company is taking necessary steps to
further strengthen and streamline its internal audit systems.
Shareholding
There has been no change in the shareholding pattern of your Company
during the financial year 2004-2005.
Fixed Deposit
During the year under review your Company has not accepted any
Fixed Deposits.
Directors / Management
Major Gen C . L. Anand (Retd), Managing Director, has retired from the
services of the Company on 31st
March 2005.
With effect from 12/04/2005, Mr. Srinivas Palakodeti has been appointed
as Chief Operating Officer of your Company. He will be assisted by a
Management Committee comprising Brig. T.M. Sridharan (Retd.), Mr.
Ashok Mansukhani, Mr. Manoj Motwani, Brig. R. Deshpande (Retd.) and
Mr. Shankar Devarajan.
With effect from 6/5/2005, Mr. Ashok Mansukhani has been appointed
as Executive Director – Corporate Services, of your Company.
During the year, Mr. Ram T. Hingorani (former Vice Chairman & Whole
Time Director) and Mr. K.V. Seshasayee, resigned from the Board of
Directors of your Company.
The Board wishes to place on record its sincere appreciation of the
valuable services rendered by Major Gen. Anand (Retd.), Mr. Ram T.
Hingorani and Mr. K.V. Seshasayee.
Mr.Sanjay Asher and Mr. Sanjeev R. Pandit, Directors of the Company are
liable to retire by rotation at the ensuing Annual General Meeting of the
Company and being eligible, have offered themselves for re-appointment.
Mr. Ravi Mansukhani, Brig. T.M. Sridharan (Retd.) and Mr. Srinivas
Palakodeti have been appointed as Directors of the Company w.e.f. 27/
6/2005. They shall hold office upto date of the ensuing Annual General
Meeting. The Company has received notices in writing under Section
257 of the Companies Act 1956 from shareholders proposing their
candidature for the office of Directors of the Company. Mr. Srinivas
Palakodeti was appointed as Manager of the Company w.e.f. 27/6/
2005.
Directors’ Responsibility Statement
Pursuant to Section 217(2AA) of the Companies Act, 1956 your Directors,
based on the information and documents made available to them, confirm
that:
i) in the preparation of the annual accounts for the year ended 31st
March 2005, the applicable accounting standards have been followed.
There are no material departures in the adoption and application
of the accounting standards;
ii) they have selected such accounting policies and applied them
consistently and made judgments and estimates that are reasonable
and prudent so as to give a true and fair view of the state of affairs
of your Company at the end of the financial year and of the loss of
your Company for that period;
iii) they have taken proper and sufficient care to the best of their
knowledge and ability for the maintenance of adequate accounting
records in accordance with the provisions of the Companies Act,
1956 for safeguarding the assets of your Company and for preventing
and detecting fraud and other irregularities;
iv) they have prepared the annual accounts on a going concern basis.
Auditors and Auditors’ Report
M/s. Deloitte Haskins & Sells, Chartered Accountants, Auditors of the
Company, retire at the conclusion of the ensuing Annual General Meeting
of the Company and are eligible for re-appointment.
Conservation of Energy, Research & Development & Technology
Absorption
The prescribed particulars Under Section 217 (1) (e) of the Companies
Act, 1956 relating to Conservation of Energy, Research and Development,
Technology Absorption and Foreign Exchange earnings and outgo are
furnished in Annexure - “A” to this report.
Employees
Information as per section 217 (2A) of the Companies Act, 1956 read
with the Companies (Particulars of Employees) Rules, 1975 forms part
of this report and is furnished as Annexure - “B”.
Acknowledgements
The Cable Television business is highly competitive and your Company
has successfully met with the challenges posed by its competitors. The
Directors wish to place on record the vigorous efforts and unstinted
support of the Company’s management team and employees. Your
Directors also place on record their sincere appreciation to all business
partners and shareholders for their sustained support and co-operation.
For and on behalf of the Board
Place :Mumbai A. K. Das
Date : 27th
June 2005 Chairman
IndusInd Media & Communications Ltd.
Media-Telecom Subsidiaries
156
Auditors’ Report
To The Shareholders of IndusInd Media & Communications
Limited
1. We have audited the attached balance sheet of IndusInd Media &
Communications Limited as at March 31, 2005, the profit and loss
account and the cash flow statement of the company for the year
ended on that date annexed thereto. These financial statements
are the responsibility of the company’s management. Our
responsibility is to express an opinion on these financial statements
based on our audit.
2. We conducted our audit in accordance with auditing standards
generally accepted in India. Those standards require that we plan
and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by the management, as well as
evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
3. As required by the Companies [Auditor’s Report] Order 2003,
issued by the Central Government in terms of Section 227 (4A) of
the Companies Act, 1956, we give in the annexure, a statement on
the matters specified in paragraphs 4 and 5 of the said Order to
the extent applicable and based on such checks we considered
appropriate.
4. Further to our comments in the annexure referred to above, we
report that : -
a) We have obtained all the information and explanations, which
to the best of our knowledge and belief were necessary for
the purposes of our audit.;
b) In our opinion, proper books of account as required by law
have been kept by the company so far as appears from our
examination of the books.;
c) The balance sheet, profit and loss account and cash flow
statement dealt with by this report are in agreement with
the books of account;
d) In our opinion, the balance sheet, profit and loss account and
cash flow statement dealt with by this report are in compliance
with the accounting standards referred to in sub- section (3C)
of section 211 of the Companies Act, 1956.
e) On the basis of written representations received from
directors, and taken on record by the board of directors, we
report that none of the directors is disqualified as on March
31, 2005 from being appointed as director in terms of clause
(g) of sub-section (1) of section 274 of the Companies Act, 1956;
f) In our opinion and to the best of information and according to
the explanations given to us, the accounts read with notes
give the information required by the Companies Act, 1956 in
the manner so required and give a true and fair view in
conformity with the accounting principles generally accepted
in India;
(i) in the case of the balance sheet, of the state of affairs of
the company as at March 31, 2005,
(ii) in the case of the profit and loss account, of the loss for
the year ended on that date
and
(iii) in the case of cash flow statement, of the cash flows of the
company for the year ended as on that date
For Deloitte Haskins & Sells
Chartered Accountants
R. Raghavan
Place: Mumbai Partner
Date : 27th June, 2005 Membership No. 9483
Information as per Section 217 (1) (e) read with the Companies
(Disclosure of Particulars in the Report of the Board of Directors)
Rules, 1988 and forming part of the Director’s Report for the year
ended 31st
March, 2005.
Conservation of Energy, Research & Development & Technology
Absorption
Considering the nature of the business of your Company, there are no
particulars to be disclosed relating to the year under review.
Annexure ‘A’ To The Director’s Report
Foreign Exchange Earnings & Outgo
(Rs. in’000s)
2004-05 2003-04
A) Earnings in Foreign Exchange
– Reimbursement of expenses Nil 1410
– Compliance Fees 544 Nil
B) Expenditure in Foreign Exchange
- C.I.F. Value of Imports 1342 730923
– Travelling 9 535
– Repairs & Maintenance of Plant 5166 Nil
& Machinery
For and on behalf of the Board
Place : Mumbai A. K. Das
Date : 27th June, 2005 Chairman
IndusInd Media & Communications Ltd.
Directors’ Report (Contd.)
Annexure “B” To The Directors’ Report
Particulars of employees pursuant to section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees)
Rules,1975 and forming part of the Directors’ Report for the year ended March 31,2005
Employed part of the financial year and in receipt of remuneration exceeding Rs. 2.00 lacs per month.
Sr. Name of Employee A g e Designation Gross Qualification Date of Experience Last Designation
No. Remuneration joining in years Employment
(Rs)
1 Mr. Ram T. Hingorani 69 Vice Chairman & 27,00,103/- M.Com., 4/1/1999 46 Cable Video Chief Executive
Whole-time Director- M.B.A., India limited Officer
Strategic Planning Finance
2 Maj. Gen. C.L. Anand 65 Managing Director 29,98,896/- B.Tech 19/6/2001 36 Reminiscent Chief Executive
(Retd.) (Elec. & Telecom India Officer
Eng.) and EDPS Television
(Elec. Data Limited
Processing Systems)
M.Tech (Managt.
& Systems)
Notes:
1) Remuneration includes Salary,Allowance,Contribution to Gratuity
and taxable value of perquisities.
2) The above appointments were contractual.
3) The above employees were not related to any of the Directors.
For and on behalf of the Board
Place : Mumbai A. K. Das
Date : 27th June, 2005 Chairman
Media-Telecom Subsidiaries
157
(Referred to in para 3 of our report)
In our opinion and according to the information and explanation given
to us, the nature of the company’s business/activities during the year
are such that clauses (i) (c), (iii) (e) (f) (g), (vi), (viii), (xi), (xii), (xiii),
(xiv), (xv), (xvi), (xviii), (xix), (xx) of Companies (Auditor’s report )
order , 2003 are not applicable to the company and we report that:
(i) In respect of its fixed assets:
(a) The company has maintained proper records showing full
particulars, including quantitative details and situation of
fixed assets.
(b) The fixed assets have been physically verified by the
management during the year and the reconciliation with the
records is in progress and adjustments for the discrepancy, if
any, would be made on the completion of reconciliation, which
in the opinion of the management may not be material.
(ii) In respect of its inventories:
(a) Inventories were physically verified during the year by the
management at reasonable intervals.
(b) The procedures of physical verification of inventories followed
by the management are reasonable and adequate in relation
to the size of the company and the nature of its business.
(c) The company has maintained proper records of its inventories
and no material discrepancies were noticed on physical
verification.
(iii) In respect of unsecured loans granted by the company to companies,
firms or other parties covered in the register maintained under
section 301 of the Companies Act 1956, we state:
a. The Company has not granted any loans during the year. At
the year-end, the outstanding loans granted aggregated to
Rs.122,200 (‘000) (number of parties-2).
b. The rate of interest and other terms and conditions of such
loans are, in our opinion, prima facie not prejudicial to the
interest of the company except in respect of interest free
loan granted to a party in previous years.
c. The receipt of principal amounts has been regular/ as per
stipulations, however receipt of interest has not been regular
and the company has written-off interest, due from a party,
relating to the previous year.
d. In respect of overdue amounts of over Rs.1 lakh remaining
outstanding at the year- end, as explained to us, management
has taken reasonable steps for recovery of the principal
amounts and interest.
(iv) There are adequate internal control procedures commensurate
with the size of the Company and the nature of its business for the
purchase of inventory and fixed assets and for the sale of goods
and services and we have not observed any continuing failure to
correct major weaknesses in such internal controls.
Schedule A
Statement of disputed statutory dues on account of pending appeals
Name of statute Year Nature of dues Demand (Rs. (‘000s) Forum
Gujarat Entertainment Tax, 1977 1996-97 Entertainment Tax 16,705 High court of Gujarat
Mumbai Entertainment Tax Act, 1923* 1999-00 Entertainment Tax 1,897 Revenue ministry
Mumbai Entertainment Tax Act, 1923 1998-99 Entertainment Tax 462 Revenue ministry
Customs Act, 1962 1995-96 Custom Duty 80,586 Customs, Excise &
Service Tax Appellate Tribunal
* Net of payment
IndusInd Media & Communications Ltd.
Annexure to the Auditors’ Report
(v) In respect of contracts or arrangements entered in the register
maintained in pursuance of section 301 of the Companies Act 1956,
to the best of our knowledge and belief and according to the
information and explanations given to us:
a. The particulars of contracts or arrangements referred to in
Section 301 that needed to be entered into the register,
maintained under the said section have been so entered.
b. Where each of such transactions (excluding loans reported
under paragraph (iii) above) is exceeding Rs 5 lacs in value,
the transactions have been made at prices which are prima
facie reasonable having regard to the prevailing market prices
at the relevant time.
(vi) The company has an adequate internal audit system commensurate
with the size and the nature of its business.
(vii) In respect of statutory and other dues:
a. The company has been generally regular in depositing
undisputed statutory dues, including Provident Fund,
Employees’ State Insurance, Income Tax, Sales Tax, Wealth
Tax, Service Tax, Custom Duty, Excise Duty, cess and any
other statutory dues with the appropriate authorities during
the year.
b. Disputed dues aggregating to Rs. 99,650 (‘000) has not been
deposited with the respective statutory authorities
(schedule A).
(viii)The accumulated losses exceed 50% of the net worth as at the end
of the year. The Company has incurred cash losses during the
financial year. There were no cash losses in the immediately
preceding financial year.
(ix) On an overall examination of the balance sheet of the company,
funds raised on short-term basis have, prima facie, not been used
during the year for long-term investment.
(x) To the best of our knowledge and belief and according to the
information and explanations given to us, no fraud on or by the
company was noticed or reported during the year.
For Deloitte Haskins & Sells
Chartered Accountants
R. Raghavan
Place: Mumbai Partner
Date : 27th June, 2005 Membership No. 9483
Media-Telecom Subsidiaries
158
(Rs.in ’000s)
Schedule 2005 2004
SOURCES OF FUNDS
Shareholders Funds
Share capital A 1,907,978 1,907,978
Reserves and surplus B 1,134,429 1,134,429
TOTAL 3,042,407 3,042,407
APPLICATION OF FUNDS
Fixed Assets C
Gross block 738,205 1,286,771
Less : deprecation 171,434 752,161
Net block 566,771 534,610
Capital work in progress 13,476 456,452
580,247 991,062
Investments D 7,308 7,088
Current Assets, Loans and Advances
Inventories E 26,029 42,258
Sundry debtors F 207,828 224,938
Cash and bank balances G 155,539 126,047
Other current assets H 15,243 19,733
Loans and advances I 313,299 625,444
717,938 1,038,420
Less : CURRENT LIABILITIES AND PROVISIONS
Liabilities J 343,312 423,865
Net Current Assets 374,626 614,555
Miscellaneous Expenditure K — 317
( to the extent not written off or adjusted )
Profit and Loss Account 2,080,226 1,429,385
TOTAL 3,042,407 3,042,407
Notes S
In terms of our report of even date For and on behalf of the Board of Directors
For Deloitte Haskins & Sells A.K. Das Ashok Mansukhani
Chartered Accountants Chairman Director
R Raghavan S. Palakodeti Viresh Dhaibar
Partner Director Company Secretary
Membership No. 9483
Place : Mumbai Place : Mumbai
Date : 27th June, 2005 Date : 27th June, 2005
IndusInd Media & Communications Ltd.
Balance Sheet As At March 31, 2005
Media-Telecom Subsidiaries
159
(Rs.in ’000s)
Schedule 2005 2004
INCOME
Cable television transmission L 830,406 758,886
Miscellaneous M 58,310 298,338
888,716 1,057,224
EXPENDITURE
Cable television operations N 798,598 837,087
Employees remuneration and benefits O 36,234 31,786
Others P 340,804 95,114
Financial Q 2,150 749
1,177,786 964,736
Profit / (loss) before depreciation, impairment
loss, deferred & share issue expenses and tax (289,070) 92,488
Depreciation 74,285 132,613
Impairment Loss 287,144 —
Deferred and share issue expenses R 317 1,268
Loss after depreciation, impairment loss, 650,816 41,393
deferred & share issue expenses and before tax
Taxation 25 20
Loss after tax 650,841 41,413
Loss brought forward 1,429,385 1,387,972
Loss carried forward 2,080,226 1,429,385
Basic Earning per share of Rs. 10 each — ( in Rupees) (13.09) (2.42)
Diluted Earning per share of Rs. 10 each — ( in Rupees) (10.24) (0.65)
Notes S
IndusInd Media & Communications Ltd.
Profit And Loss Account for the year ended March 31, 2005
In terms of our report of even date For and on behalf of the Board of Directors
For Deloitte Haskins & Sells A.K. Das Ashok Mansukhani
Chartered Accountants Chairman Director
R Raghavan S. Palakodeti Viresh Dhaibar
Partner Director Company Secretary
Membership No. 9483
Place : Mumbai Place : Mumbai
Date : 27th June, 2005 Date : 27th June, 2005
Media-Telecom Subsidiaries
160
Schedules Annexed to and forming part of Accounts for the year ended March 31, 2005
(Rs.in ’000s)
2005 2004
A Share Capital
Authorised
59,500 (2004:59,500)
Equity share of Rs 10 each 595,000 595,000
5,500(2004:5,500)
Class I 12% Cumulative optionally
convertible preference share of
Rs 10 each 55,000 55,000
75,000 (2004:75000)
Class II 12% Cumulative redeemable
non convertible preference share of
Rs 10 each 750,000 750,000
1,400,000 1,400,000
Issued, subscribed and paid-up
56,534 (2004:56,534)
Equity share of Rs 10 each
fully paid up 565,340 565,340
5,500 (2004:5,500)
Class I 12% Cumulative optionally
convertible preference share of
Rs.10 each fully paid up 55,000 55,000
(Option exercised awating approval
for conversion to equity -
refer Schedule S (Note 2 (b)))
74,150 (2004:74,150)12% Cumulative
redeemable non convertible
preference shares of Rs 10 each
fully paid up 741,500 741,500
1,361,840 1,361,840
Share application money
Share application money pending
allotment 546,138 546,138
1,907,978 1,907,978
C Fixed Assets
(Rs. in ’000s)
Gross Block AT COST Depreciation Net Block AS AT
Particulars As at Impaired Addi- Deduc- As at Upto Impaired For the Deduc- Upto
1.4.2004 Assets tions tions 31.3.2005 1.4.2004 Assets year tions 31.3.2005 31.3.2005 31.3.2004
Goodwill 34,876 — — — 34,876 28,862 — 3,492 — 32,354 2,522 6,014
Building * 384 — — — 384 48 — 13 — 61 323 336
Machinery and
equipment 1,197,344 906,953 393,642 16,060 667,973 699,810 633,873 68,165 11,367 122,735 545,238 497,534
Furniture and
fixtures 30,143 21,046 4,350 112 13,335 7,905 7,168 841 24 1,554 11,781 22,238
EDP equipment 16,469 2,192 154 2 14,429 12,026 2,006 1,166 2 11,184 3,245 4,443
Vehicles 7,555 — 551 898 7,208 3,510 — 608 572 3,546 3,662 4,045
TOTAL 1,286,771 930,191 398,697 17,072 738,205 752,161 643,047 74,285 11,965 171,434 566,771 534,610
Previous year 1,250,790 — 37,582 1,601 1,286,771 620,456 — 132,613 911 752,158 534,613 630,332
Capital work in progress 13,476 456,452
* Building- Includes shares in co-operative society.
IndusInd Media & Communications Ltd.
B Reserves and surplus
Securities premium account 1,134,429 2,067,760
Less : Applied towards approved
capital reduction — 933,331
1,134,429 1,134,429
(Rs.in ’000s)
2005 2004
Media-Telecom Subsidiaries
161
Schedules Annexed to and forming part of Accounts for the year ended March 31, 2005
IndusInd Media & Communications Ltd.
(Rs.in 000’s)
2005 2004
D Investments—long term at cost
Trade—unquoted
2.4 (2004: 2.4)Equity shares of
Rs 100 each fully paid up of
U.S.N Networks Private Limited
includes 4 (2004: 4) equity share
held by nominees. 240 240
14.4 (2004: 14.4)10% Non convertible
redeemable preference share of
Rs 100 each fully paid up of U.S.N.
Networks Private Limited. 1,440 1,440
14.6 (2004: 14.6 )Equity share of
Rs 100/— each fully paid up of
United Mysore Network Pvt. Limited 4,985 4,985
Non—trade—unquoted
National Savings Certificate at
face value. 423 423
Add: acquired during the year
Rs. 615 (2004: Nil) 615 —
Less: matured during the year
Rs. 395 (2004: Nil) 395 —
643 423
(Lodged with Entertainment
Department as security deposit.
Investments are held in the joint
names of directors and officers
of the company)
Indira Vikas Patra [face value
Rs.Four Hundred
(2004:Rs. Four Hundred] — —
7,308 7,088
E Inventories
Network cables and equipments 26,029 42,258
26,029 42,258
F Sundry debtors—unsecured
Outstanding for more than 6 months
Considered — good 27,606 70,163
— doubtful 109,478 —
137,084 70,163
Less : provision 109,478 —
27,606 70,163
Others
— considered good 180,222 154,775
— doubtful 5,922 —
186,144 154,775
Less : provision 5,922 —
180,222 154,775
207,828 224,938
(Rs.in 000’s)
2005 2004
G Cash and bank balances
Cash on hand 1,064 280
Cheques on hand 6,506 8,168
Balances with scheduled banks in :
— Current account 16,514 5,691
— Deposit account 71,139 51,513
Balances with Non—scheduled banks
in ABN Amro Bank N.V., London. 60,316 60,395
(Maximum Balance during the year
Rs.60,395 (2004: 546,138)) — —
155,539 126,047
H Other current assets
Interest accrued on Inter—
corporate deposits 14,538 16,302
Interest accrued on investments 76 384
Interest accrued — others 629 3,047
15,243 19,733
I Loans and advances—unsecured
Loans — Inter—corporate deposits 122,200 446,950
Advances recoverable in cash or
in kind or for value to be
received considered :
good 186,755 173,970
doubtful 20,745 24,687
207,500 198,657
Less : provision 20,745 24,687
186,755 173,970
Taxation (net) 4,344 4,524
313,299 625,444
J Liabilities
Sundry creditors
: Due to small scale industries 24 224
: Due to others 217,031 310,433
217,055 310,657
Trade deposits 4,356 7,479
Advance from customers 9,606 3,522
Other liabilities 112,295 102,207
343,312 423,865
K Miscellaneous expenditure
(To the extent not written off
or adjusted)
Deferred revenue expenditure — 317
— 317
Media-Telecom Subsidiaries
162
(Rs.in ’000s)
2005 2004
INCOME
L Cable television transmission
Subscription — Direct Subscribers 149,185 124,529
— Cable Operators 540,101 543,261
— Internet Subscribers 18,201 19,840
Advertisement 39,971 20,312
Channel Placement 80,530 47,063
Installation charges 2,418 3,881
830,406 758,886
M Miscellaneous
Interest — banks 3,028 6,718
— others 19,073 68,209
(Tax deducted at source
Rs. 482 (2004 : Rs. 1405)
Profit from sale of fixed assets (net) 1,460 —
Exchange difference (net) — 3,254
Provision for expenses / liabilities
written back 9,813 2,961
Provision for loans written back — 4,667
Provision for doubtful debts/advances
written back 3,043 203,061
Others 21,893 9,468
58,310 298,338
EXPENDITURE
N Cable television operations
Subscription — Pay channels 629,886 687,243
Less : Recovered 5,700 5,040
624,186 682,203
Consumables 8,832 11,609
Purchase of Set top Boxes — 585,557
Lease rental — duct 11,867 —
Cassette hiring 472 1,079
Rates & taxes 14,209 12,430
Power and fuel 10,242 10,664
Rent 7,755 8,842
Repairs and maintenance
— Building 4 48
— Plant and machinery 20,266 18,860
Freight 426 1,768
Hiring charges 396 2,960
Production expenses 190 1,094
Commission 55,693 47,317
Contract — services 44,060 44,424
798,598 1,428,855
Less : capitalised — 6,211
Less : Set—top boxes adjusted against
securities premium account — 585,557
798,598 837,087
IndusInd Media & Communications Ltd.
Schedules Annexed to and forming part of Accounts for the year ended March 31, 2005
(Rs.in ’000s)
2005 2004
O Employees remuneration and
benefits
Salaries and wages 30,824 34,700
Contribution to provident/other funds 2,578 2,612
Staff welfare 2,832 3,425
36,234 40,737
Less : capitalised — 8,951
36,234 31,786
P Others
Communication 7,258 9,913
Rent 7,886 11,703
Power and fuel 6,178 6,797
Repairs and maintenance — others 5,498 7,732
Insurance 3,815 1,078
Lease rental 1,360 291
Legal and professional fees 32,535 37,489
Printing and stationery 1,652 2,301
Traveling and conveyance 13,101 18,581
Auditors remuneration
— Audit fees 1,818 1,716
— Other services 990 956
— Out of pocket expenses 62 57
Loss on sales of fixed assets (net) — 296
Fixed Assets Scrapped 1,413 —
CWIP written off 96,032 —
Exchange difference (net) 477 —
General 25,349 42,224
Bad debts — 347,774
Sundry balances / Advances written off 19,981 876
Loans written off — 4,674
Provision for doubtful debts / advances 115,399 1,900
340,804 496,358
Less : Capitalised — 53,470
Less : Bad debts transferred to
securities premium account — 347,774
340,804 95,114
Q Financial charges
Interest — others 1,592 427
Bank charges 558 5,499
2,150 5,926
Less : Capitalised — 5,177
2,150 749
R Deferred and share issue expenses
Deferred revenue expenditure 317 1,268
317 1,268
S Notes
All rupee figures are in thousands unless stated otherwise.
1. Significant Accounting Policies
Basis of accounting
The financial statements are prepared under the historical cost
convention in accordance with generally accepted accounting
principles in India including applicable accounting standards and
provisions of the Companies Act, 1956.
Use of Estimates
The presentation of the financial statements requires estimates
and assumptions to be made that affect the reported amount of
assets and liabilities on the date of the financial statement and the
reported amount of revenues and expenses during the reporting
period. The difference between the actual results and the estimates
are recognized in the period in which the results are known /
materialized.
Fixed assets
Tangible and intangible fixed assets are recorded at cost including
expenses upto commissioning/ putting the assets into use.
Fixed assets are stated at cost less accumulated depreciation /
amortization. Cost comprises of the purchase price and any
attributable cost (including financing cost and expenditure during
construction). Costs incurred for acquisition of subscriber points
are capitalized as cable points (included in machinery and
equipment).
Impairment of Fixed Assets
The carrying values of fixed assets are evaluated for impairment, if
any. Impairment is charged to profit and loss account.
Depreciation
Depreciation is provided for fixed assets on straight-line method,
on month basis, at rates prescribed under Schedule XIV of the
Companies Act, 1956, except assets costing up to Rs.5000/- each
are not fully depreciated. Goodwill is amortized over a period of
ten years. Furniture & fixture at leased premises are depreciated
over the lease period.
Media-Telecom Subsidiaries
163
IndusInd Media & Communications Ltd.
Schedules Annexed to and forming part of Accounts for the year ended March 31, 2005
Leases
In respect of operating lease, rentals and all other expenses are
treated as revenue expenditure.
Investment
Investments are stated at cost. Provision is made for diminution in
value, if otherwise than temporary.
Inventories
Inventory consisting of cables, head-end equipments and other
network items are valued at cost on first in first out basis.
Sundry debtors
Sundry debtors are reflected net of provision for doubtful debts.
Provision is made for doubtful debts based on ageing and specific
identification.
Income
Cable television transmission income by subscription, advertisement
and carriage fees are recognized on basis of bills raised on direct
subscribers or cable operators, actual telecast and agreements with
parties respectively.
Employees’ retirement benefits
The company has an approved gratuity scheme for employees. Liability
towards Gratuity is recognized on the basis of premium paid under
Group Gratuity policy with Life Insurance Corporation of India (LIC).
The adequacy of the accumulated fund balance with LIC is also
reconfirmed on the basis of independent actuarial valuation as at
the year-end and shortfall, if any, is provided in the accounts.
The company provides for leave encashment, not being in the nature
of retirement benefit, based on actuals.
Foreign currency transactions
Transactions in foreign currency are accounted at exchange rate
prevailing on the date of the transaction. Year-end balances of
current assets / liabilities are restated at closing / contracted rate.
Exchange difference on settlement / restatement is charged to Profit
& Loss account except in the case of imported fixed assets where it
is included as cost to the asset.
Taxation
Provision for current taxes, if any, is made as per the applicable
Finance Act and provisions of Income Tax Act, 1961 after taking into
consideration judicial pronouncements and opinion of the companies
tax advisors. Tax payments are setoff against provisions.
Provision for wealth tax, if any, is made as per the provisions of
Wealth Tax Act, 1957.
Deferred tax is recognized subject to the consideration of prudence,
on timing differences, being the difference between taxable income
and accounting income that originate in one period and are capable
of reversals in one or more subsequent periods. Deferred tax assets
are not recognized unless there is virtual certainty that sufficient
future taxable income will be available against which such deferred
taxes can be realized.
Borrowing cost
Interest on specific borrowing relating to qualifying assets is included
in the cost of the asset. Other borrowing cost is charged to profit
and loss account.
Deferred revenue expenditure
Expenses relating to channel network consolidation is recognized
as deferred revenue expenditure.
Pre-operative and preliminary expenses and deferred revenue
expenditure are written off over a period of five years.
Share issue expenses incurred prior to March 31, 2000 were written
off over five years and those subsequent to March 31, 2000 are
adjusted to securities premium account.
Contingent Liabilities
Contingent liabilities as estimated are appropriately disclosed.
2. Share capital
a. Of the issued, subscribed and paid up capital, 32,505,990 (2004:
32,505,990) equity share of Rs. 10 each are held by InNetwork
Entertainment Limited (formerly Aasia Industrial Technologies
Limited)- Holding company and the ultimate holding company
is Hinduja TMT Limited.
b. 12% Cumulative optionally convertible preference shares of
Rs. 10 each were convertible into equity shares, at par, at the
option of the holders on or before March 31, 2004. The
Preference Share holders have exercised their option for
conversion to equity shares but the same has not been complied
with pending requisite approval.
c. 12% Cumulative redeemable non-convertible preference shares
of Rs. 10 each are redeemable, at par, at the end of seventh
year from the date of allotment (July 10, 1998).
During 2003-04, the company has executed an agreement with
“Kudelski S.A” and “Nagravision S.A” Switzerland for
subscription to the share capital to the company and for
utilization of proceeds to acquire set-top boxes, smart cards
and certain capital equipments, which is part of the conditional
access system (CAS) to be implemented by the company. Pending
requisite approval, the monies received towards 15,34,400 no.
equity shares of Rs. 10 each at a premium of Rs. 345.93 has
been disclosed as share application money in the financial
statements.
The monies received has been retained in an “Escrow Account”
with “ABN Amro Bank” London UK, aggregating to Rs. 546,138
($ 11,914) out of which Rs. 477,840 ($ 10,545) have been utilized
to defray part of the cost of imported set-top boxes and CAS
equipments.
3. Contingent Liabilities:
(a) Claims against the company not acknowledged as debts.
- Entertainment tax. Rs. 17,167 (2004: Rs. 16,705)
- Telecasting of films,
copyright etc. Amount not ascertainable
- Others Rs. 585 (2004: Rs. 1,234)
(b) Guarantees/counter guarantees
given by the company to
- Custom authorities Rs.295,031 (2004: Rs.294,733)
- Banks for guarantees given Rs.39,233 (2004: Rs.37,233)
to various authorities
(c) Custom duty liability Rs.80,586 (2004 : Nil)
(d) Arrears of preference dividend
12 % optionally convertible Rs 13,200 (2004: Rs. 13,200)
12 % redeemable Rs.444,900 (2004: Rs.355,920)
non-convertible
4. Unexecuted contracts on capital account not provided for Rs. 1,506
(2004:16,009).
5. In conformity with Accounting Standard 28 (Impairment of Assets)
issued by the Institute of Chartered Accountants of India, the
company has recognized impairment of identified Plant & Machinery,
Furniture& Fixtures and EDP equipment as at April 1, 2004, amounting
to Rs.273,080, Rs. 13,878 and Rs. 186 respectively by charge to
Profit and loss account.
6. Capital Work-in-progress (CWIP) written off during the year pertains
to developmental expenses aggregating to Rs. 96,032 on account of
uncertainty of certain projects to which they relate.
7. The Company has reckoned its investments in USN Network Private
Limited and United Mysore Network Private Limited as strategic
investments, accordingly no provision for diminution of the value in
investments is considered necessary.
8. Names of small-scale industrial undertakings, outstanding for more
than thirty days: Modern Communication & Broadcast Systems: Rs.
24 (2004: Rs. 224).
9. Subscription Income is net of discount Rs. 8,500 (2004: Rs. 25,722).
10. Exchange difference adjusted to the carrying cost of fixed assets
amount to Rs.334 (2004: Rs.6,446).
11. No provision for income tax is made in view of the loss for the year
and unabsorbed carry-forward losses. The company has not
recognized deferred tax asset in view of uncertainty of profits on
account of continuing losses for the past few years. Taxation for the
year represents wealth tax Rs. 25 (2004: Rs. 20).
Media-Telecom Subsidiaries
164
IndusInd Media & Communications Ltd.
Schedules Annexed to and forming part of Accounts for the year ended March 31, 2005
16. The Company operates in a single business segment namely Cable Television Transmission. The company caters only to the domestic market
where there are no differing risks and returns and there are no reportable geographical segments.
17. Related party disclosures
(a) List or related parties and relationships
Category Party Relationship
A1 Aasia Corporation Associate entities
A2 Aasia Management & Consultancy Limited Associate entities
A3 Aasia Properties Development Limited Associate entities
B InNetwork Entertainment Limited Holding Company
C Hinduja TMT Limited Ultimate Holding Company
D1 In2cable (India) Limited. Fellow Subsidiary
D2 Tele Video Communications India Limited Fellow Subsidiary
E IndusInd Cable Television (Bombay) Limited Subsidiary
F1 United Mysore Network Private Limited Enterprises in which company has significant influence.
F2 USN Network Private Limited Enterprises in which company has significant influence.
G1 R. T. Hingorani Key management personnel
G2 Maj. Gen. C.L. Anand Key management personnel
(b) Related Party transactions during the year
(Categories A to G relate to details given in the above paragraph) (Rupees)
Transactions Categories
A1 A2 A3 B C D1 D2 E F1 F2 G1 G2 Total
Interest Income 18,457 — — 491 73 19,021
60,130 2,842 195 349 313 63,829
Channel Placement 6,612 6,612
income 4,720 4,720
Internet - subscription 17,850 17,850
income 19,840 19,840
Advertisement income — —
68 68
Local connectivity 275 275
charges received — —
Technical fees received —
—
Sbscription Income 649 376 1,025
639 — 639
Internet - sale of modem —
—
12. a. Loans and advances include amounts due from companies under
the same management:
Name of Company Balance Maximum
outstanding outstanding
2005 2004 2005 2004
Rs. Rs. Rs. Rs.
Tele Video Communications 6,527 5,634 13,840 11,582
India Limited
b. Sundry Debtors include amounts due from companies under
same management:
Name of Company Balance Maximum
outstanding outstanding
2005 2004 2005 2004
Rs. Rs. Rs. Rs.
In2cable India Limited 15,643 9,926 15,643 12,860
13. Payments made to or provided for whole-time directors
2005 2004
(Rupees) (Rupees)
Salaries 2,890 2,285
Perquisites 1,459 443
Gratuity 1,350 98
Total 5,699 2,826
14. CIF Value of Imports
-Revenue Nil 561,282
-Capital 1,342 169,641
15. a. Expenditure in foreign currency
Travelling 9 535
Repairs & Maintenance –
Plant & Machinery 5,166 Nil
b. Earnings in foreign currency
Others – Reimbursement of expenses Nil 1,410
Compliance Fees 544 Nil
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165
IndusInd Media & Communications Ltd.
Schedules Annexed to and forming part of Accounts for the year ended March 31, 2005
Transactions Categories
A1 A2 A3 B C D1 D2 E F1 F2 G1 G2 Total
Expense Reimb. 38 38
Received. — —
Hiring charges paid 1,102 168 1,270
1,102 933 2,035
Royalty Headend 305 305
Equipment — —
Rent paid 1,440 4,436 5,876
3,210 7,916 11,126
Infrastructure charges (839) (573) (270) 448 (1,233)
paid/(received) (1,911) (83) (268) — (2,262)
Subscription Cable Master 12,000 12,000
12,000 12,000
Internet charges 801 801
1,361 1,361
Purchase of modems 131 131
53 53
CAS expenses — — —
88 28,333 28,421
PLATCO project 553 553
1,524 1,524
Expense Reimb. Paid 5 26 31
3 — 3
Payment for man 110 117 33,289 33,517
power supply 314 — 33,108 33,422
Professional fees — 14,362 (1,244) 13,117
paid/(Recd.) 1,033 16,375 — 17,408
Managerial 2,700 2,999 5,699
remuneration 2,728 — 2,728
Commission paid — —
1,840 1,840
Write (Off) /Back — —
of amounts due (876) (876)
Interest Receivable 13,461 13,461
Written Off — —
Intercorporate — —
Deposit Given 34,000 34,000
Intercorporate Deposit 322,500 1,500 — 750 324,750
Received Back
474,500 149,350 — 2,350 — 626,200
(c) Balances as at year-end
Categories
A1 A2 A3 B C D1 D2 E F1 F2 G1 G2 Total
Receivables net 5,191 223 15,643 7,748 3,784 2,014 34,604
of payables 2,517 — 9,926 4,585 3,293 1,496 21,817
Rent Deposit 97,500 97,500
Given 97,500 97,500
Payables net 1,837 2,172 12,460 — 16,469
of receivables 735 1,031 16,710 3,219 21,695
Interest receivable 11,695 2,842 14,537
On ICD 13,461 2,842 16,303
Inter Corporate Deposits 112,000 10,200 — 122,200
434,500 11,700 750 446,950
Investments 1,680 4,985 6,665
1,680 4,985 6,665
a. Figures in Italics pertain to previous year
b. Previous Years figures are regrouped wherever necessary
Media-Telecom Subsidiaries
166
IndusInd Media & Communications Ltd.
Schedules Annexed to and forming part of Accounts for the year ended March 31, 2005
In terms of our report of even date For and on behalf of the Board of Directors
For Deloitte Haskins & Sells A.K. Das Ashok Mansukhani
Chartered Accountants Chairman Director
R Raghavan S. Palakodeti Viresh Dhaibar
Partner Director Company Secretary
Membership No. 9483
Place : Mumbai Place : Mumbai
Date : 27th June, 2005 Date : 27th June, 2005
18. Earnings per share (EPS):
2005 2004
(i) Loss for the year
650,841 41,413
Add: Preference dividend 88,980 95,580
Total loss (Rupees) 739,821 136,993
(ii) Nominal value of ordinary shares Rs.10 Rs.10
(iii) Weighted average number of ordinary shares for Basic EPS 56,534,000 56,534,000
(iv) Weighted average number of ordinary shares for Diluted EPS 63,568,400 63,568,400
(v) Basic earnings per ordinary shares (Rs. 13.09) (Rs. 2.42)
(vi) Diluted earnings per ordinary shares (Rs. 10.24) (Rs. 0.65)
Diluted EPS is disclosed though it is anti-dilutive
19. Previous years figures have been regrouped and rearranged, wherever necessary for comparative purposes.
Schedules ‘A’ to ‘S’ form part of accounts for the year ended March 31, 2005.
Signatories to the accounts and schedules ‘A’ to ‘S’
Media-Telecom Subsidiaries
167
In (000’s)
Particulars 2005 2004
Cash flow from operating activities
Net profit /(loss) before taxation, and extraordinary item (650,816) (41,393)
Add : Adjustment for :
Depreciation 74,285 132,613
Impairment Loss 287,144 —
Provision for expenses / liabilities written back (9,813) (2,961)
Provision for loans written back — (4,667)
Advances / Sundry written off 19,982 —
Provision for doubtful debts / advances written back (3,043) (203,061)
Provision for doubtful debts / advances 115,399 1,900
Preliminary, deferred and share issue Expenses 317 1,268
Interest income (22,101) (74,927)
Assets written off 1,413 —
CWIP written off 96,032 —
(Profit)/loss from sale of assets (1,460) 296
Interest expenses 2,150 749
560,305 (148,790)
Operating profit before working capital changes (90,511) (190,183)
Increase in sundry debtors (98,288) 193,399
Decrease /(increase) in inventories 16,229 (2,327)
Increase in loans & advances (16,081) (8,020)
Increase in Sundry creditors & other payables (70,770) 725,415
(168,910) 908,467
Cash generated from operations (259,421) 718,284
Cash flow from investing activities
Purchase of fixed assets (51,753) (406,647)
Proceeds from sale of Fixed Assets 5,156 393
Inter corporate Deposits 324,750 592,200
Decrease in - interest accrued (8,970) 17,488
Investments (221) —
Purchase of Set top Boxes — (585,557)
Interest received 22,101 74,927
Net cash from investing activities 291,063 (307,196)
Cash flow from financing activities
Repayments of secured loans — (303)
Interest expenses (2,150) (749)
Proceeds from issue of shares-Share application money — 546,138
Reduction of Share Premium — (933,331)
Net cash from financing activities (2,150) (388,245)
Net increase in cash and cash equivalents 29,492 22,843
Cash and cash equivalents at beginning of period 126,047 103,204
Cash and cash equivalents at end of period 155,539 126,047
IndusInd Media & Communications Ltd.
Cash Flow Statement for the year ended March 31, 2005
In terms of our report of even date For and on behalf of the Board of Directors
For Deloitte Haskins & Sells A.K. Das Ashok Mansukhani
Chartered Accountants Chairman Director
R Raghavan S. Palakodeti Viresh Dhaibar
Partner Director Company Secretary
Membership No. 9483
Place : Mumbai Place : Mumbai
Date : 27th June, 2005 Date : 27th June, 2005
Media-Telecom Subsidiaries
168
Balance Sheet Abstract and Company’s General Business Profile:
I Registration Details
Registration No. 0 0 8 5 8 3 5 State Code. 1 1
Balance Sheet Date 3 1 3 2 0 0 5
I I Capital raised during the period (Amount in Rs. Thousands)
Public Issue Rights Issue
N I L N I L
Bonus Issue Private Placement
N I L N I L
III Position of Mobilisation and Deployment of Funds (Amount in Rs. Thousands)
Total Liabilities Total Assets
3 0 4 2 4 0 7 3 0 4 2 4 0 7
Sources of Funds
Paid-Up Capital Reserves and Surplus
1 9 0 7 9 7 8 1 1 3 4 4 2 9
Secured Loans Unsecured Loans
N I L N I L
Application of Funds
Net Fixed Assets Investments
5 8 0 2 4 7 7 3 0 8
Net Current Assets Miscellaneous Expenditure
3 7 4 6 2 6 N I L
Accumulated Losses
2 0 8 0 2 2 6
IV Performance of Company (Amount in Rs. Thousands)
Total Income Total Expenditure
8 8 8 7 1 6 1 5 3 9 5 3 2
(Please tick appropriate box + for Profit, - for Loss)
+ - Profit/Loss Before Tax + - Profit/Loss After Tax
� 6 5 0 8 1 6 � 6 5 0 8 4 1
(Please tick appropriate box + for positive, - for negative)
+ - Earning per Share in Rs. Dividend Rate %
� 1 3 . 0 9 N I L
V Generic Names of Three Principal Products/Services of the Company (as per monetary terms)
ITEM CODE NO. (ITC CODE) PRODUCT DESCRIPTION
0 0 8 5 2 4 9 0 0 2 V I D E O / C A S S E T T E S
C O N T A I N I N G P R O G —
R A M M E D A D V T. / P U B —
L I C I T Y / S O F T W A R E
IndusInd Media & Communications Ltd.
In terms of our report of even date For and on behalf of the Board of Directors
For Deloitte Haskins & Sells A.K. Das Ashok Mansukhani
Chartered Accountants Chairman Director
R Raghavan S. Palakodeti Viresh Dhaibar
Partner Director Company Secretary
Membership No. 9483
Place : Mumbai Place : Mumbai
Date : 27th June, 2005 Date : 27th June, 2005
Media-Telecom Subsidiaries
169
Tele Video Communications India Ltd.
To the Members,
Your Directors are presenting the Tenth Annual Report together with
the Audited Accounts for the year ended 31st March, 2005
Financial Performance
During the year under review your Company has earned Net Revenue of
Rs. 33.36 million as compared to Rs. 33.48 million during the previous
year. Your Company has incurred Net Loss of Rs. 1.06 million during the
year under review as compared to a loss of Rs. 1.15 million during the
previous year. Till 31st March 2005, your Company was rendering services
to IndusInd Media & Communications Ltd. (“IMCL”). With effect from1st
April 2005, all the employees have been taken on the rolls of IMCL.
Dividend
Your directors do not recommend any dividend considering the loss
incurred during the year.
Fixed Deposits
During the year under review, your Company has not accepted any
Fixed Deposits.
Employees
During the year under review, none of the employees of your
Company was in receipt of remuneration in excess of the limit
prescribed under Section 217 (2A) of the Companies Act, 1956 read
with the Companies (Particulars of Employees) Rules, 1975 as
amended from time to time.
Directors
Mr K C Samdani, Director of the Company is liable to retire by rotation
at the ensuing Annual General Meeting of the Company and being
eligible has offered himself for re-appointment. Mr. Arun Kumar resigned
from the Board with effect from 24th March 2005 and Mr. Ashok
Mansukhani was appointed as a Director with effect from 29th March,
2005.
Auditors
M/s Shah & Company, Chartered Accountants, Auditors of the Company
retire at the conclusion of the ensuing Annual General Meeting of the
Company and are eligible for re-appointment.
Conservation of Energy, etc
Considering the nature of the business of your Company, there are
no particulars to be disclosed relating to the year under review in
respect of Conservation of Energy, Research and Development &
Technology Absorption pursuant to Section 217(1)(e) of the Companies
Act, 1956.
There are no Foreign Exchange earnings or outgo during the year.
Compliance Certificate
In accordance with Section 383A(1) of the Companies Act, 1956, and the
Companies (Compliance Certificate) Rules, 2001, the Company has obtained
a Certificate from Secretary in the whole time practice confirming that
the Company has complied with all the provisions of the Companies Act,
1956 and a copy of such certificate is attached to this Report.
Directors’ Responsibility Statement
Pursuant to the requirement under Section 217(2AA) of the Companies
Act, 1956 your Directors based on the information and documents
made available to them, confirm that :
i. in the preparation of the annual accounts for the year ended 31st
March, 2005 the applicable accounting standards have been followed.
There are no material departures in the adoption and application
of the accounting standards.
ii. they have selected such accounting policies and applied them
consistently and made judgements and estimates that are
reasonable and prudent so as to give a true and fair view of the
state of affairs of your Company at the end of the financial year
and of the loss of your Company for that period;
iii. they have taken proper and sufficient care to the best of their
knowlede and ability for the maintenance of adequate accounting
records in accordance with the provision of the Companies Act,
1956 for safeguarding the assets of your Company and for
preventing and detecting fraud and other irregularities;
iv. they have prepared the annual accounts on a going concern basis.
Acknowledgements
Your Directors place on record their sincere appreciation of valuable
assistance and support provided by the Bankers. Your Directors also
wish to place on record their deep appreciation of excellent services
rendered by employees of the Company at all the levels.
For and on behalf of the Board of Directors
Place : Mumbai Ashok Mansukhani S.Palakodeti
Date : 27th June, 2005 Director Director
Directors’ Report
To,
The Members
Tele Video Communications India Limited
Mumbai.
I have examined the registers, records, books and papers of Tele Video
Communications India Limited (the Company) as required to be
maintained under the Companies Act, 1956, (the Act) and the rules made
thereunder and also the provisions contained in the Memorandum and
Articles of Association of the Company for the financial year ended on
31st
March, 2005 (financial year). In my opinion and to the best of my
information and according to the examinations carried out by me and
explanation furnished to me by the Company, its officers, I certify that
in respect of the aforesaid financial year :
1. The Company has kept and maintained all registers as stated in the
Annexure ‘A’ to this certificate, as per the provisions of the Act
and rules made thereunder and all entries therein have been duly
recorded.
2. The Company has duly filed the forms and returns as stated in the
Annexure ‘B’ to this certificate, with the Registrar of Companies,
within the time prescribed under the Act and the rules made
thereunder.
3. The Company being a Public Limited Company, has the minimum
prescribed Paid up Capital. The Paid up Capital is Rs. 25,00,000/-.
4. The Board of Directors duly met Five times on 17th
June, 2004,
22nd
July, 2004, 11th
October, 2004, 17th
December, 2004 and 29th
March, 2005 in respect of which meetings proper notices were
Secretarial Compliance Certificate
Registration No. : 11-84610 Nominal Capital : Rs. 6,00,00,000/-
given and the proceedings were properly recorded and signed in
the Minutes Book maintained for the purpose.
5. The Company has closed its Register of Members from 20th
September,
2004 to 25th
September, 2004 (both days inclusive) and necessary
compliance of Section 154 of the Act has been done.
6. The Annual General Meeting for the financial year ended on 31st
March, 2004 was held on 27th
September, 2004 after giving due
notice to the members of the Company and the resolutions passed
there at were duly recorded in the Minutes Book maintained for the
purpose.
7. No Extra – ordinary General Meeting was held during the financial
year under review.
8. The Company has not advanced any loans to its Directors or Persons
or Firms or Companies referred under Section 295 of the Companies
Act, 1956.
9. The company has duly complied with the provisions of Section 297
of the Act in respect of contracts specified in that section.
10. The Company has made necessary entries in the register maintained
under Section 301 of the Act.
11. As there were no instances falling under the purview of Section 314
of the Act, the Company has not obtained any approvals of the
Board of Directors, Members or Central Government.
12. The Company has not issued any duplicate Share Certificate(s) during
the financial year under review.
Media-Telecom Subsidiaries
170
Tele Video Communications India Ltd.
13. The Company has :
(i) not allotted/transferred/transmitted any securities during the
financial year under review.
(ii) the Company has not deposited any amount in separate Bank
Account as no Dividend was declared during the financial year.
(iii) The Company has not posted any amount to any Member of the
Company as no Dividend was declared during the financial year.
(iv) not transferred any amount to Investor Education and Protection
Fund, as there was no unpaid dividend, application money due
for refund, matured deposits, matured debentures and the
interest accrued thereon which have remained unclaimed or
unpaid.
(v) duly complied with the requirements of section 217 of the Act.
14. The Board of Directors of the Company is duly constituted. Mr. A. H.
Mansukhani was appointed as an additional director on 29th
March,
2005. Mr. Arun S. Kumar, the Director resigned on 24th
March, 2005.
There was no appointment of alternate Directors and to fill casual
vacancy during the Financial year under review.
15. The company has not appointed any Managing Director/Wholetime
Director/Manager during the financial year under review.
16. The Company has not appointed any sole selling agents during the
year under review.
17. The Company was not required to obtain any approval of the Central
Government, Company Law Board, Regional Director, Registrar of
Companies and / or such authorities prescribed under the various
provisions of the Act during the financial year.
18. The Directors have disclosed their interest in other firms/companies
to the Board of Directors pursuant to the provisions of the Act and
the rules made thereunder.
19. The Company has not issued shares, debentures or other securities
during the financial year under review.
20. The Company has not bought back any shares during the financial
year under review.
21. There was no redemption of Preference Shares or Debentures during
the financial year.
22. There were no transactions necessitating the Company to keep in
abeyance the rights to dividend, right shares and bonus shares
pending registration of the transfer of shares in compliance with
the provisions of the Act.
23. The Company has not accepted/invited any deposits including any
unsecured loans falling within the purview of Section 58A of the
Act, during the financial year.
24. The Company has not made any borrowings during the financial
year.
25. The Company, has not made any loans or advances or given
guarantees or provided securities to other bodies corporate and
consequently no entries have been made in the register kept for
the purpose.
26. The Company has not altered the provisions of the Memorandum
with respect to situation of the Company’s registered office from
one State to another during the year under scrutiny.
27. The Company has not altered the provisions of the Memorandum
with respect to objects of the Company during the year under
scrutiny.
28. The Company has not altered the provisions of the Memorandum
with respect to name of the Company during the year under scrutiny.
29. The Company has not altered the provisions of the Memorandum
with respect to share capital of the company during the year under
scrutiny.
30. The Company has not altered its Articles of Association during the
financial year.
31. There was no prosecution initiated against or show cause notices
received by the Company during the financial year, for the offences
under the Act.
32. The Company has not received any money as security from its
employees during the financial year.
33. The Company has not constituted a Provident Fund under Section
418 of the Companies Act, 1956.
The above report is based on the information/records and registers made
available to me as were found, to the best of my knowledge, to be
necessary for the purpose of Audit.
Company Secretary
Place : Mumbai Prashant Diwan
Date : 27th June, 2005 C.P. No. : 1979
Annexure A
Registers as maintained by the Company.
1. Register of Members u/s 150 of the Companies Act, 1956.
2. Register of Transfers.
3. Register of particulars of Contracts, in which directors are interested u/s 301.
4. Register of Directors u/s 303.
5. Minutes of the Annual General Meeting and Board Meeting u/s 193 alongwith the Attendance Register.
Annexure B
Forms and Returns as filed by the Company with the Registrar of Companies, Maharashtra, Mumbai during the financial year ended on 31st
March, 2005.
1. Balance Sheet as at 31.03.2004 & Profit and Loss Account for the year ended on that date as adopted by the members at the Annual General
Meeting of the Company held on 27th
September, 2004 were filed with the ROC on 26th
October, 2004 vide ROC Receipt No. 982704.
2. Compliance Certificate for the year ended 31.03.2004 filed on 26th
October, 2004 vide ROC Receipt No. 982029.
3. Form No. 23 dated 27th
September, 2004 filed on 26th
October, 2004 vide Receipt No. 981472 in respect of Special Resolution passed under Section
163 of the Companies Act, 1956.
4. Annual Return made up to 27th
September, 2004 filed on 23rd
November, 2004 vide ROC Receipt No.1001027
5. Form No. 29 filed in respect of the consent of Mr. A. H. Mansukhani to act as Director vide ROC Receipt No. 1054311 dated 26th
April, 2005.
6. Form No. 32 filed in respect of Resignation of Mr. Arun S. Kumar as Director w.e.f. 24th
March, 2005 and Appointment of Mr. A. H. Mansukhani as
Additional Director w.e.f. 29th
March, 2005 vide ROC Receipt No. 1054008 dated 25th
April, 2005.
Prashant Diwan
Place : Mumbai Company Secretary
Date : 27th June, 2005 C.P. No. : 1979
Media-Telecom Subsidiaries
171
Auditors’ Report
To the Members of Tele Video Communications India Limited
1. We have audited the attached Balance Sheet of TELE VIDEO
COMMUNICATIONS INDIA LIMITED as at 31st
March 2005, the
Profit and Loss Account and Cash Flow Statement for the year
ended on that date annexed thereto, in which the accounts of TVCI
Delhi Division of the company audited by other Auditors have been
incorporated. These financial statements are the responsibility of
the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audit.
2. We conducted our audit in accordance with auditing standards
generally accepted in India. Those Standards require that we plan
and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
3. As required by the Companies (Auditors’ Report) Order, 2003,
issued by the Central Government of India in terms of sub-section
(4A) of Section 227 of the Companies Act, 1956, we enclose in the
Annexure a statement on the matters specified in paragraphs 4
and 5 of the said order to the extent applicable.
4. Further to our comments in the Annexure referred to in Paragraph
(3) above, we state that:
(i) We have obtained all the information and explanations, which
to the best of our knowledge and belief were necessary for the
purpose of our audit.
(ii) In our Opinion proper books of account as required by law have
been kept by the Company so far as appears from our
examination of those books.
(iii) The Balance Sheet and Profit and Loss Account and the Cash
Flow Statement dealt with by this report are in agreement
with the books of account.
(iv) In our opinion, the Balance Sheet and Profit and Loss Account
and the Cash Flow Statement dealt with by this report comply
with the Accounting Standards referred to in Section 211(3C)
of the Companies Act, 1956.
(v) On the basis of the written representations received from
the directors as on 31st
March 2005 and taken on record by
the Board of Directors, we report that none of the directors
is disqualified as on 31st
March 2005 from being appointed as
a director in terms of clause (g) of sub-section (1) of section
274 of the Companies Act, 1956.
(vi) In our opinion and to the best of our information and according
to the explanations given to us, the said accounts read together
with the Notes in Schedule 7, give the information required
by the Companies Act, 1956, in the manner so required and
give a true and fair view in conformity with the accounting
principles generally accepted in India:
(a) In the case of the Balance Sheet, of the state of affairs of
the Company as on 31st
March 2005.
(b) In the case of the Profit and Loss Account, of the “Loss” of
the Company for the year ended on that date.
(c) In the case of Cash Flow statement of the Cash flows for
the year ended on that date.
For SHAH & CO.
Chartered Accountants
Indulal H.Shah
Place : Mumbai Partner
Date :27th June, 2005 Membership No. 798
(i) The Company does not have any fixed assets and therefore
provisions of sub clauses (a), (b) & (c) of clause (1) of the Companies
(Auditors’ Report) Order, 2003 are not applicable to the company.
(ii) (a) According to the information and explanations given to us the
Company during the year has not granted any loans, secured
or unsecured to Companies, Firms or other parties covered
in the Register maintained under Section 301 of the Companies
Act, 1956. Accordingly Paragraph 4 (iii) (a), (b) (c) & (d) of the
order are not applicable.
(b) According to the information and explanations given to us,
the company has during the year, not taken any loans, secured
or unsecured from companies, firms or other parties covered
in the register maintained under Section 301 of the Companies
Act, 1956. Accordingly, paragraphs 4 (iii) (e), (f) & (g) of the
order are not applicable.
(iii) In our opinion and according to the information and explanations
given to us, there are adequate internal control procedures
commensurate with the size of the company and the nature of
its business with regard to the services given. During the course
of audit, we have not observed any continuing failure to correct
major weaknesses in internal control systems.
(iv) (a) According to the information and explanations given to us
we are of the opinion that the transactions that need to be
entered in the register maintained under section 301 of the
companies Act, 1956 have been so entered.
(b) According to the information and explanations given to us,
the transactions made in pursuance of contracts or
arrangements entered in the register maintained under
section 301 of the Companies Act, 1956 and exceeding the
value of rupees five lakhs in respect of any party during the
year have been made at prices which are reasonable having
regard to prevailing market prices at the relevant time.
(v) As the company has not accepted during the year any deposits
from the public, PROVISIONS OF clause 4 (vi) of the Companies
(Auditors’ Report) Order, 2003 are not applicable.
(vi) In our opinion, the company has an internal audit system
commensurate with the size and nature of its business.
(vii) (a) The company is regular in depositing with appropriate
authorities undisputed statutory dues including provident fund,
investor education protection fund, employees state insurance,
income tax, sales tax, wealth tax, service tax custom duty,
excise duty, cess and other statutory dues applicable to it. We
are informed that there are no undisputed statutory dues as
at 31st March, 2005 outstanding for a period of more than six
months from the date they became payable.
(b) According to the information and explanations given to us,
there are no dues of sale tax, income tax, customs duty,
wealth tax, excise duty and cess which have not been
deposited on account of any dispute.
(viii) The accumulated losses of the company are more than 50% of its
net worth. The company has incurred cash losses during the
financial year ended 31st March, 2005 and in the immediately
preceding financial year.
(ix) According to the information and explantions given to us, the
company has not given any guarantee during the year for loans
taken by others from Banks or Financial Institutions.
(x) According to the information and explanations given to us, no
fraud on or by the company has been noticed or reported during
the year ended 31st March, 2005.
(x) The provisions of clauses (ii) (a), (b) & (c), (viii), (xi), (xii), (xiii),
(xiv), (xvi), (xvii), (xviii), (xix) and (xx) of the Companies
(Auditors’ report) Order, 2003 are not applicable to the company
for the year under report.
For SHAH & CO.
Chartered Accountants
Indulal H.Shah
Place : Mumbai Partner
Date :27th June, 2005 Membership No. 798
Annexure to the Auditors’ Report
(Referred to in Paragraph (3) of our report of even date)
Tele Video Communications India Ltd.
Media-Telecom Subsidiaries
172
As per our report of even date attached For and on behalf of the Board of Directors
For Shah & Co.
Chartered Accountants
Indulal H. Shah Ashok Mansukhani S. Palakodeti
Partner Director Director
Membership No. 798
Place : Mumbai Place : Mumbai
Date : 27th June, 2005 Date : 27th June, 2005
Profit and Loss Account
for the year ended March 31, 2005
(Rs.in ’000s)
Schedule 2005 2004
INCOME
Reimbursement of
Expenses including
Service Charges 33,357 33,108
Other income — 375
33,357 33,483
EXPENDITURE
a) Employees Remuneration
& Benefits 5 30,300 29,194
b) Other Expenses 6 4,124 5,445
34,424 34,639
Profit/(Loss) Before Taxes (1,067) (1,156)
Income Tax for prior years — —
Net Profit/(Loss) for the year
after tax (1,067) (1,156)
Balance Brought Forward
from previous year (8,536) (7,380)
Balance Carried
to Balance Sheet (9,603) (8,536)
Earning per Share-Basic and Diluted (42.68) (46.24)
Balance Sheet as at March 31, 2005
(Rs.in ’000s)
Schedule 2005 2004
SOURCES OF FUNDS
Shareholders’ Funds
Share Capital 1 2,500 2,500
TOTAL 2,500 2,500
APPLICATION OF FUNDS
Current Assets, Loans
And Advances
a) Cash and Bank Balances 2 311 586
b) Loans & Advances 3 3,569 1,977
3,880 2,563
Less:Current Liabilities
And Provisions
a) Current Liabilities 4 10,983 8,599
b) Provisions — —
10,983 8,599
Net Current Assets (7,103) (6,036)
Profit & Loss A/C 9,603 8,536
TOTAL 2,500 2,500
Notes to accounts 7
Tele Video Communications India Ltd.
Media-Telecom Subsidiaries
173
Tele Video Communications India Ltd.
Schedules annexed to and forming part of accounts for the year ended March 31, 2005
(Rs.in ’000s)
2005 2004
SCHEDULE 4
A Current Liabilities
Sundry Creditors 39 56
Other Liabilities 10,944 8,543
10,983 8,599
SCHEDULE 5
Employees Remuneration and Benefits
Salary, Wages & Bonus 25,904 24,425
Staff Welfare 1,693 1,495
Contribution to P.F & Other Funds 1,835 2,418
Contribution to ESIC & EDLI 868 856
30,300 29,194
SCHEDULE 6
Other Expenses
Communication Expenses 68 132
Rent 60 60
Legal & Prof. Charges 160 882
Printing & Stationery 20 6
Travelling & Conveyance 3,709 4,224
Auditors Remuneration
(Ref Note No B - 1 in Schedule 7 ) 55 55
Misc. Exps. 50 82
Bank Charges 2 4
4,124 5,445
(Rs.in ’000s)
2005 2004
SCHEDULE 1
Share Capital
Authorised
600,000 Equity Shares of Rs.100/- each 60,000 60,000
Issued, Subscribed and Paid—up
25,000 2,500 2,500
Equity Shares of Rs.100/- each,
fully paid-up 2,500 2,500
SCHEDULE 2
Cash And Bank Balances
Cash on hand 31 16
Bank Balances
With scheduled banks in Current Accounts 280 570
311 586
SCHEDULE 3
Loans And Advances
(Unsecured and considered good)
Advance payment of Income Tax 2,156 1,473
Loans /Advance to staff 846 374
Others Advances 567 130
3,569 1,977
Media-Telecom Subsidiaries
174
SCHEDULE 7
Notes forming part of the accounts
A. SIGNIFICANT ACCOUNTING POLICIES
1. Financial statements
The financial statements are prepared under the historical cost convention in accordance with applicable accounting standards and
relevant provisions of the Companies Act, 1956.
2. Employees retirement benefits
The company has a gratuity scheme. Contributions to the gratuity scheme, funded with Life Insurance Corporation of India (based on
actuarial valuation), are charged to Profit And Loss Account.
The Company provides for leave encashment based on actuals.
3. Taxation
Provision for current taxes, if any, is made as per the Income Tax Act, 1961.
B. OTHER NOTES
1. Auditor’s remuneration of Rs. 54,971/- includes Audit Fees of Rs. 27,840/- and Tax Audit Fees of Rs. 10,050/- and Branch Audit Fees of
Rs. 17,081/-
2. In view of the financial support from InNetwork Entertainment Ltd, the holding company, to meet any obligations as they fall due, the
accounts of the company are prepared on a going concern basis though the net worth of the company is in negative.
3. No provision for income tax is made in view of the loss for the year and unabsorbed carry forwards losses.
4. Earning per share (EPS)
2004 - 2005 2003 - 2004
Loss after tax (Rs. In ‘000) 1,067 1,156
Weighted Average number of
equity shares outstanding during the period 25,000 25,000
Loss per equity share (Rs.) 42.68 46.24
5. Related party disclosures :
a. List of related parties and relationship
Category Party Relationship
A IndusInd Media & communications Ltd. Fellow Subsidiary
B Aaisa Management & Consultancy Pvt. Ltd. Associate Company
b. Related Party transactions
(Categories A to B relate to details given in the above paragraph) Rs. in ‘000
Transactions Categories
A B Total
Service charges for man power supply 33,289 33,289
(33,108) (33,108)
Rent 60 60
(60) (60)
(c) Balances as at year end Categories
A B Total
Receivables net of payables 0
Rent Deposit 0
Given 0
Payables net of receivables 7,748 0 7,748
(5,690) (3,500) (5,725)
6. Previous year figures have been regrouped and rearranged wherever necessary.
As per our report of even date attached. For and on behalf of the Board of Directors
For Shah & Co.
Chartered Accountants
Indulal H. Shah Ashok Mansukhani S. Palakodeti
Partner Director Director
Membership No. 798
Place : Mumbai Place : Mumbai
Date : 27th June, 2005 Date : 27th June, 2005
Tele Video Communications India Ltd.
Schedules annexed to and forming part of accounts for the year ended March 31, 2005
Media-Telecom Subsidiaries
175
Tele Video Communications India Ltd.
Balance Sheet Abstract And Company’s General Business Profile
I Registration Details
Registration No. 8 4 6 1 0 State Code 1 1
Balance Sheet Date 3 1 0 3 2 0 0 5
I I Capital raised during the period (Amount in Rs. Thousands)
Public Issue Rights Issue
N I L N I L
Bonus Issue Private Placement
N I L N I L
III Position of Mobilisation and Deployment of Funds (Amount in Rs. Thousands)
Total Liabilities Total Assets
2 5 0 0 2 5 0 0
Sources of Funds
Paid-Up Capital Reserves and Surplus
2 5 0 0 N I L
Secured Loans Unsecured Loans
N I L N I L
Application of Funds
Net Fixed Assets Investments
N I L N I L
Net Current Assets Miscellaneous Expenditure
(7 1 0 3) N I L
Accumulated Losses
9 6 0 3
IV Performance of Company (Amount in Rs. Thousands)
Total Income Total Expenditure
3 3 3 5 7 3 4 4 2 4
(Please tick appropriate box + for Profit, - for Loss)
+ - Profit/Loss Before Tax + - Profit/Loss After Tax
� 1 0 6 7 � 1 0 6 7
(Please tick appropriate box + for positive, - for negative)
Earning per Share in Rs. Dividend Rate %
(4 2 . 6 8) N I L
V Generic Names of Three Principal Products/Services of the Company (as per monetary terms)
Item Code No. (ITC Code): Product Description
N O T C A B L E N E T W O R K
A P P L I C A B L E D I S T R I B U T I O N
As per our report of even date attached For and on behalf of the Board of Directors
For Shah & Co.
Chartered Accountants
Indulal H. Shah Ashok Mansukhani S. Palakodeti
Partner Director Director
Membership No. 798
Place : Mumbai Place : Mumbai
Date : 27th June, 2005 Date : 27th June, 2005
Media-Telecom Subsidiaries
176
Tele Video Communications India Ltd.
Cash Flow Statement for the year ended 31st
March, 2005
(Rs. In ‘000s)
Particulars 2005 2004
A Cash Flow from Operating Activities :
Net Profit / (Loss) before tax and extraordinary items (1,067) (1,156)
Adjustments for :
Interest Expenses — 11
Operating profit before working capital changes (1,067) (1,145)
Increasing Loans & Advances (1,592) 314
Increase in Sundery Creditors & Other payable 2,384 1,172
Cash generated from operations (275) 341
Cash Flow from Investing Activities : — —
Cash Flow from Financing Activities :
Interest Expeness — (11)
Net Cash from Financing Activities — (11)
Net Increase in Cash and Cash equivalents (275) 330
Cash and Cash equivalents at beginning of period 586 256
Cash and Cash equivalents at the end of period 311 586
As per our report of even date attached For and on behalf of the Board of Directors
For Shah & Co.
Chartered Accountants
Indulal H. Shah Ashok Mansukhani S. Palakodeti
Partner Director Director
Membership No. 798
Place : Mumbai Place : Mumbai
Date : 27th June, 2005 Date : 27th June, 2005
Media-Telecom Subsidiaries
177
Directors’ Report
To The Members,
In2cable (India) Ltd.
Your Directors have pleasure in presenting the tenth Annual Report
together with the Audited Statements of Accounts for the year ended
31st
March, 2005.
1. Financial Results
Your Company has posted a net loss of Rs. 20.17 million on a total
income of Rs. 72.83 million for the year ended 31st
March, 2005.
The highlights of the financial results of your Company are:
(in Rs. ‘000)
Year ended 31
st
March 2005 2004
Total Income 72,833 82,351
Operating Expenditure 77,721 85,250
PBDIT (4.888) (2,899)
Less : Interest — 3,252
PBDT (4.888) (6,151)
Less: Depreciation 15,282 14,928
PBT (20,170) (21,079)
Provision for taxation — —
PAT/(Loss) (20,170) (21,079)
Add : Loss brought forward
from the previous year (82,820) (61,741)
Loss carried forward to Balance Sheet (102,990) (82,820)
2. Financial Review
During the year your Company posted a total income Rs. 72.83
million, lower by 14 % from Rs. 82.35 million in previous year.
Your Company’s income from its core business of Broadband Internet
Services dropped by 13% to Rs. 70.03 million from Rs. 78.84 million
in the previous year. Though the cable modem trading activities
were discontinued generally, the Company took up a short term
promotional scheme to offer modems at a concessional rate for
such new subscribers who would commit a certain minimum period
and value which resulted in acquiring a new subscriber for every
such modem sold . The sale of modems during the year was Rs 1.52
million against Rs 0.54 million in the previous year.
The Company posted a net loss of Rs. 20.17 million after providing
Rs. 15.28 million towards depreciation.
Since the Company does not have any distributable profits, your
Directors do not recommend any dividend for the year ended 31st
March, 2005.
3. Operations Review
Internet Access
The Company had rolled out its LAN based Broadband Internet variant
“IN2NET” which was designed to offer cheaper solution to the
customers and offer bulk sales at wholesale rates to operators who
would install their own LAN network.
The scheme got a very good response from the market with the
Company achieving a peak of Rs 1.00 million sale and an average
monthly sale of of Rs 0.72 million during the year, despite the stiff
competition in the overall market.
Internet Bandwidth
The Company has continued the effort to optimize bandwidth by
procurement of more “clean” bandwidth than “shared” bandwidth,
backed by adequate Service Level Agreements (SLAs). The Company
also shifted the entire intra city backhaul network from MTNL to
Tata Power Broadband resulting in sizeable savings in costs.
The Company continued efforts to reduce the number of bandwidth
vendors to achieve economies of scale and stability in bandwidth .
However significant reduction in the bandwidth costs could not be
achieved as there were no major reductions in prices by vendors
and the vendors like VSNL, Bharti themselves entering into retail
distribution of internet services.
Internet Telephony (VoIP)
The “PC based” VoIP service on the Media Ring platform has
continued to have good response from Mumbai, Indore & Baroda
markets; however the growth individually for the Company and
generally in the country has been very slow.
4. Business Development & Marketing
The Company continued to introduce various usage based MB
packages and hourly packages in pre-paid and post-paid categories
suitable to various segments keeping in mind the trend in the
market. In the light of the competition from unorganized /
unlicenced sectors and the larger players like Bharti, Reliance,
VSNL, MTNL and BSNL the Company had to concentrate on
retention of the existing subscribers .The Company was
successful in retaining of customers generally in major operating
parts, however had to revise subscription tariffs downward to
maintain competitive rates.
5. Technology
Your Company has maintained and improved technical expertise
to offer customized solutions to its subscribers. The Company has
been keeping a strict vigil on the operation of bandwidth and the
users at the centralized NOC situated at MIDC,Mumbai.
There was demand from consumers for internet access with low
initial investment mainly in modem which was met by more spread
of LAN based services through the “IN2NET” software, customized
for specific requirements of the company . The scheme primarily
operates on prepaid module and the risk of recovery / bad debts
is fully mitigated.
6. Human Resource Development
Your Company has continued the thrust to better its human
resources. Regular reporting from the branches about the conduct
of business and solving the bottlenecks has been ensured for better
understanding and contentment. All new branch employees are
offered extensive technical training at the NOC in Mumbai before
final posting at branch level.
Cordial industrial relations were maintained due to the Company’s
pro-active HR policy.
7. Indian Internet Market: Major Developments
A recent study of ISPs in India indicated that over 700 private
Internet service providers (ISPs) were operating in India; however
several of them have exited business in the past four years due to
flawed business models, rapid changes in technology making the
installed technology going obsolete and slow / delayed announcement
of policies by the regulators, besides the unhealthy competition
thrown by the unlicensed / unregulated operators . Despite the
challenges faced, the Company has kept itself abreast of the changes
on technological front and has kept the systems up to date
conforming to the requirements of the business.
The study as regards the mechanics of Internet Services Business
reveals that operational costs for ISPs have remained high mainly
due to high tariffs for international and domestic leased lines.
Most ISPs who kept their tariffs low and expected the losses to be
made up by rapid increase in subscriber base failed as subscriber
bases never went anywhere near projections for a host of reasons.
ISPs had hoped that regulation would take care of the high tariffs
for international and domestic leased lines.
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178
In2cable (India) Ltd.
Directors’ Report (Cont’d.)
8. Future Outlook
The government agencies, TRAI & DoT are looking at the growth of
Internet as an important means of improving both Broadband as
well as telecommunication in India.
Growth of broadband and its availability at an affordable rate has
been the main attention of the Government. There have been
number of papers, which have been published in the current year,
which suggest a method that will be adopted for Broadband growth.
The availability of Broadband services at an affordable price level
will have a favourable impact both on GDP as well as knowledge
base.
During this financial year, your Company will continue to use Cable
Modem, Ethernet and VoIP technology to penetrate the Market. Your
Company will consolidate Internet growth in major cities and then
will plan expansion in other cities, keeping in view the quality, cost
and profit.
Your Company was asked by Hinduja Group to set up IP based Audio
Video Conferencing Facility, connecting all Hinduja Group Companies
in India and abroad. The Project was completed in stipulated time
in a cost effective manner. The Network has enabled the Group
Companies to improve co-ordination significantly and reduce
communication cost considerably. Your Company will also, through
the expertise gained, will provide Audio and Video Conferencing
Facilities and establish Close User Group (CUG).
9. Risks & Concerns
As brought out from time to time by various analysts, Internet
industry is a long term investment. Your Company’s detailed planning
process helps in understanding the strategic risk and evolve effective
risk management strategies and programs. The ISP industry overall
is going through a lean period and major players also find it difficult
to break even. Further, high Bandwidth cost combined with low
retail price results in loss. Further, the volume of customers, as
visualized, is not happening causing stagnation. The Companies like
VSNL & MTNL, with deep pockets, have come out with low price
offrings that have affected other companies directly.
10. Share Capital
During the year there was no increase in the authorized or paid
up capital of the Company.
11. Internal Control Systems
The Company has successfully implemented and operated the
software integration of Financial Accounting system “Navision” with
the EliteCore SMS and Billing system resulting in flawless transfer of
billing / customer related data to the Financial accounts without
manual interference and enabling the Company to maintain
adequate internal control over commercial transactions . Both the
Elite Core SMS and the IN2NET software have adequate controls to
strictly enforce bandwidth policies. This provides the Company an
effective safeguard against possible misuse and leakage.
The Company’s accounts and other records are regularly offered
to independent internal auditor for audit. The reports of internal
and external auditors with comments of the management are
regularly placed before the audit committee, which are discussed
with the management and the auditors to satisfy about the internal
control environment.
12. Fixed Deposit
During the year under review your Company has not accepted any
Fixed Deposit.
13. Directors
During the year under review Mr. K V Seshasayee and Mr. R T
Hingorani resigned as directors of the Company. The Board wishes
to place on record their valuable contribution to the Company
during their tenure.
Mr K C Samdani retires by rotation at the ensuing Annual General
Meeting and offers himself for re-appointment.
14. Appointment of Manager
Brig T M Sridharan (Masters degree in Satellite Communication &
Post Graduate qualification in Management from College of Defence
Management with wide experience of over 35 years in the
telecommunications arena) who was already holding the charge as
Chief Executive Officer, was appointed as Manager of the Company
with effect from 30th June 2004.
15. Directors’ Responsibility Statement
Pursuant to Section 217 (2AA) of the Companies Act, 1956 your
Directors, based on the information and documents made available
to them, confirm that :
(i) in the preparation of annual accounts for the year ended 31st
March 2005, the applicable accounting standards have been
followed. There are no material departures in the adoption
and application of the accounting standards.
(ii) they have selected such accounting policies and applied them
consistently and made judgments and estimates that are
reasonable and prudent so as to give a true and fair view of the
state of affairs of your Company at the end of the financial
year and of the loss of your Company for that period;
(iii) they have taken proper and sufficient care to the best of their
knowledge and ability for the maintenance of adequate
accounting records in accordance with the provisions of the
Companies Act,1956 for safeguarding the assets of your Company
and for preventing and detecting fraud and other irregularities;
(iv) they have prepared the annual accounts on a going concern
basis.
16. Auditors and Auditors’ Report
M/s Price Waterhouse, Chartered Accountants, auditors of the
Company, retire at the conclusion of the ensuing Annual General
Meeting of the Company and being eligible offer themselves for
reappointment.
The observations made by the Auditors in their report with
reference to notes on the accounts for the current period are self
explanatory and need no further comments from the Directors.
17. Conservation of Energy, Research & Development,
Technology Absorption and Foreign Exchange Earnings &
Outgoings
The prescribed particulars under Section 217 (1) (e) of the Companies
Act, 1956 relating to Conservation of Energy, Research &
Development & Technology Absorption and foreign exchange earnings
and outgoings are annexed herewith as Annexure A.
18. Employees
During the year under review, none of the employees of your company
was in receipt of remuneration in excess of the limit prescribed
under Section 217 (2A) of the Companies Act 1956 read with the
Companies (Particulars of Employees) Rules 1975 as amended from
time to time.
19. Acknowledgement
The Board wishes to express its deep appreciation of the commitment
of all staff members and thank shareholders and Bankers for their
sustained support.
For and on behalf of the Board of Directors
of In2cable ( India) Limited
Place : Mumbai R P Hinduja
Date : 28th
June 2005 Chairman
Media-Telecom Subsidiaries
179
In2cable (India) Ltd.
Directors’ Report (Cont’d.)
Annexure A to the Directors’ Report
Information as per Section 217 (1) (e) read with the Companies
(Disclosure of Particulars in the Report of the Board of Directors)
Rules, 1988 and forming part of the Directors’ Report for the year
ended 31st
March, 2005.
1. Conservation of Energy, Research & Development &
Technology Absorption
Considering the nature of the business of your Company, there are
no particulars to be disclosed relating to the year under review.
2. Foreign Exchange Earnings & Outgoings
The foreign exchange earnings and outgoings in during the year
are as follows:
(Rs. in ‘000)
Particulars 2004-05 2003-04
A. Total Foreign Exchange earned Nil Nil
B. Total Foreign Exchange Outgo :
i) On import of Capital Goods Nil Nil
ii) On import of cable modems Nil Nil
iii) Expenditure in Foreign
currencies for Travel,
subscription etc. 229 263
For and on behalf of the Board of Directors
of In2cable ( India) Limited
Place : Mumbai R P Hinduja
Date : 28th
June 2005 Chairman
Auditors’ Report
To The Members of In2cable (India) Limited
(c) The Balance Sheet, Profit and Loss Account and Cash Flow
Statement dealt with by this report are in agreement with
the books of account;
(d) In our opinion, the Balance Sheet, Profit and Loss Account and
Cash Flow Statement dealt with by this report have been
prepared in compliance with the applicable accounting
standards referred to in sub-section 3C of Section 211 of the
Act;
(e) On the basis of written representations received from the
Directors as on March 31, 2005 and taken on record by the
Board of Directors of the Company, none of the Directors is
disqualified as on March 31, 2005 from being appointed as a
Director in terms of clause (g) of sub-section (1) of Section 274
of the Act;
(f) In our opinion and to the best of our information and according
to the explanations given to us, the Balance Sheet and Profit
and Loss Account and the Cash Flow Statement, together with
the Notes thereon and attached thereto, give in the prescribed
manner, the information required by the Act and also give a
true and fair view in conformity with accounting principles
generally accepted in India:
(i) in the case of the Balance Sheet, of the state of affairs of
the Company as at March 31, 2005;
(ii) in the case of the Profit and Loss Account, of the loss for
the year ended on that date.
(iii) in the case of the Cash Flow Statement, of the cash flows
for the year ended on that date.
Partha Ghosh
Partner
Membership No. F - 055913
For and on behalf of
Place : Mumbai Price Waterhouse
Dated : 28th June, 2005 Chartered Accountants
1. We have audited the attached Balance Sheet of In2cable (India)
Limited, as at March 31, 2005, Profit and Loss Account and the
Cash Flow Statement for the year ended on that date annexed
thereto, which we have signed under reference to this report.
These financial statements are the responsibility of the Management
of the Company. Our responsibility is to express an opinion on
these financial statements based on our audit.
2. We have conducted our audit in accordance with the auditing
standards generally accepted in India. Those Standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by the Management, as well as
evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
3. We draw your attention to Note 4 on Schedule Q, regarding the
preparation of accounts on a going concern basis taking into account
the financial support provided by the Holding Company and the
proposed merger with IndusInd Media and Communications Limited
effective April 1, 2005.
4. As required by the Companies (Auditor’s Report) Order, 2003 as
amended by the Companies (Auditor’s Report) (Amendment) Order,
2004 issued by the Central Government of India in terms of sub-
section 4A of Section 227 of The Companies Act, 1956, of India (the
Act), and on the basis of such checks of the books and records of the
Company as we considered appropriate and according to the
information and explanations given to us, we give in the Annexure
a statement on the matters specified in Paragraphs 4 and 5 of the
said Order.
5. Further to our comments in the Annexure referred to in Paragraph
4 above, we report that:
(a) We have obtained all the information and explanations, which
to the best of our knowledge and belief were necessary for
the purposes of our audit;
(b) In our opinion, proper books of account as required by law
have been kept by the Company so far as appears from our
examination of those books;
Media-Telecom Subsidiaries
180
In2cable (India) Ltd.
Annexure to Auditors’ Report
1. (a) The Company is maintaining proper records to show full
particulars, including quantitative details and situation of its
fixed assets.
(b) The fixed assets of the Company have been physically verified
by the Management during the year and no material
discrepancies between the book records and the physical
inventory have been noticed. In our opinion, the frequency of
verification is reasonable.
(c) In our opinion and according to the information and
explanations given to us, a substantial part of the fixed assets
has not been disposed off by the Company during the year.
2. (a) The inventory of the Company has been physically verified by
the Management at the year-end at all its locations. In our
opinion, the frequency of verification is reasonable.
(b) In our opinion, the procedures of physical verification of
inventory followed by the Management are reasonable and
adequate in relation to the size of the Company and the
nature of its business.
(c) On the basis of our examination of the records of inventory,
in our opinion, the Company is maintaining proper records of
inventory and the discrepancies between the physical
inventory and the book records noticed on physical verification
were not material.
3. (a) The Company has not granted any loans, secured or unsecured,
to companies, firms or other parties listed in the Register
maintained under Section 301 of The Companies Act, 1956, of
India (the Act).
(b) The Company has taken a interest –free loan from the holding
company covered in the Register maintained under Section
301 of the Act. The maximum amount involved during the
year and the year-end balances of such loans aggregates Rs.
24,000(000s) and Rs. 24,000(000s), respectively.
(c) In our opinion, the rate of interest and other terms and
conditions of such loans are not prima facie prejudicial to the
interest of the Company.
(d) In respect of the aforesaid loan, the loan is repayable on
demand.
4. In our opinion and according to the information and explanations
given to us, having regard to the explanation that certain items
purchased are of special nature for which suitable alternative
sources of supply do not exist for obtaining comparative quotations,
there are adequate internal control procedures commensurate
with the size of the Company and the nature of its business, for
purchase of inventory, fixed assets and for the sale of goods and
services. Further, on the basis of our examination of the books
and records of the Company, and according to the information and
explanations given to us, we have neither come across nor have
we been informed of any continuing failure to correct major
weaknesses in the aforesaid internal control system.
5. (a) In our opinion and according to the information and
explanations given to us, the particulars of contracts or
arrangements referred to in Section 301 of the Act have been
entered in the register required to be maintained under that
Section.
(b) In our opinion and according to the information and
explanations given to us, for purchase and sale of services,
sale of goods and fixed assets made in pursuance of contracts
or arrangements entered in the register maintained under
Section 301 of the Act and exceeding the value of Rupees Five
Lacs in respect of each party during the year, which have
been made at prices which are reasonable having regard to
the prevailing market prices at relevant time, except in case
of certain transactions where no comparison of prices could
be made available as these transactions are of special nature.
There are no purchase of goods, materials and fixed assets
during the year.
6. The Company has not accepted any deposits from the public within
the meaning of Sections 58A and 58AA of the Act and the rules
framed there under.
7. In our opinion, the Company’s present internal audit system is
commensurate with its size and the nature of its business.
8. The Central Government of India has not prescribed the maintenance
of cost records under clause (d) of sub-section (1) of Section 209 of
the Act for any of the products of the Company.
9. (a) According to the information and explanations given to us and
the records of the Company examined by us, in our opinion,
the Company is generally regular in depositing undisputed
statutory dues including provident fund, employees’ state
insurance, income-tax, sales-tax, service tax and other
material statutory dues, as applicable, with the appropriate
authorities.
(b) According to the information and explanations given to us and
the records of the Company examined by us, there are no
dues of sales tax, income tax, service tax and wealth tax
which have not been deposited on account of dispute.
10. The net worth of the Company has completely eroded as at March
31, 2005 and it has incurred cash losses during the financial year
ended on that date as well as in the immediately preceding financial
year.
11. According to the records of the Company examined by us and the
information and explanation given to us, the Company has not
defaulted in repayment of dues to any banks during the year.
Further, there were no dues payable to the financial institutions
and debenture holders during the year.
12. The Company has not granted any loans and advances on the basis
of security by way of pledge of shares, debentures and other
securities.
13. The provisions of any special statute applicable to chit fund/ nidhi/
mutual benefit fund/ societies are not applicable to the Company.
14. In our opinion, the Company is not a dealer or trader in shares,
securities and other investments.
15. In our opinion, and according to the information and explanations
given to us, the Company has not given any guarantee for loans
taken by others from banks or financial institutions during the
year.
16. In our opinion, and according to the information and explanations
given to us on an overall basis, the term loans have been applied
for the purpose for which they were obtained.
17. On the basis of an overall examination of the Balance Sheet of the
Company, in our opinion and according to the information and
explanations given to us, there are no funds raised on a short-
term basis which have been used for long-term investment.
18. The Company has not made any preferential allotment of shares to
parties and companies covered in the Register maintained under
Section 301 of the Act during the year.
19. The Company has not issued any debentures during the year.
20. The Company has not raised any money by public issue during the
year.
21. During the course of our examination of the books and records of
the Company, carried out in accordance with the generally accepted
auditing practices in India, and according to the information and
explanations given to us, we have neither come across any instance
of fraud on or by the Company, noticed or reported during the
year, nor have we been informed of such case by the Management.
Partha Ghosh
Partner
Membership No. F - 055913
For and on behalf of
Price Waterhouse
Place : Mumbai Chartered Accountants.
Date : 28th June, 2005
(Referred to in paragraph 4 of our report of even date)
Media-Telecom Subsidiaries
181
In2cable (India) Ltd.
Schedules referred to herein form an integral Schedules referred to herein form an integral
part of the Balance Sheet. part of the Profit & Loss Account.
This is the Balance Sheet referred to in our report of even date. This is the Profit & Loss Account referred to in our report of
even date.
For and on behalf of the Board
Partha Ghosh S. Solomon Raj K. C. Samdani
Partner Director Director
Membership No. F-055913
For and on behalf of Brig. T.M. Sridharan (Retd.) Milind Hukeri
Price Waterhouse Chief Executive Officer Company Secretary
Chartered Accountants
Place : Mumbai Place : Mumbai
Date : June 28th, 2005 Date : June 28th, 2005
Balance Sheet as at 31st March, 2005
(Rs.in’000s)
As at As at
Schedule 2005 2004
SOURCES OF FUNDS
Shareholders’ Funds
Share Capital A 100,000 100,000
Loan Funds
Secured Loans B 437 —
Unsecured Loans C 24,000 22,000
24,437 22,000
TOTAL 124,437 122,000
APPLICATION OF FUNDS
Fixed Assets
Gross Block D 93,654 93,551
Less : Depreciation /
Amortisation 54,864 40,519
Net Block 38,790 53,032
Current Assets,
Loans And Advances
Stock-in-Trade E 143 163
Sundry Debtors F 968 4,014
Cash and Bank Balances G 2,719 2,277
Loans and Advances H 4,198 3,455
8,029 9,909
Less: Current Liabilities
and Provisions I
Current Liabilities 24,711 22,853
Provisions 1,284 1,656
25,995 24,509
Net Current Assets (17,966) (14,600)
Miscellaneous Expenditure J 624 748
(to the extent not written
off or adjusted)
Profit and Loss Account 102,990 82,820
TOTAL 124,437 122,000
Profit And Loss Account
for the year ended 31st March, 2005
(Rs.in’000s)
Schedule 2005 2004
INCOME
Income from Internet
Operations (Gross) 70,034 78,839
[Tax Deducted at Source
Rs. 9 (’000s);
Previous Year: Rs. 19 (’000s)]
Trading Sales 1,525 535
Other Income K 1,274 2,977
72,833 82,351
EXPENDITURE
Cost of Traded Goods L 1,935 915
Internet Bandwidth Charges 28,501 35,368
Internet Carriage/Access Charges 21,838 23,369
Employee Costs M 14,158 13,854
Administrative and
Other Expenses N 11,276 11,744
Depreciation 15,282 14,928
Financial Expenses O 13 3,252
93,003 103,430
Loss Before Tax 20,170 21,079
Provision for Tax
(Refer Note 2 on Schedule Q) — —
20,170 21,079
Loss Brought Forward
From Previous Year 82,820 61,741
Loss Carried Forward
to Balance Sheet 102,990 82,820
Loss per Equity Share
(Basic and Diluted) (in Rs.) 2.02 4.06
Significant Accounting Policies P
Notes to Accounts Q
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182
In2cable (India) Ltd.
Cash Flow Statement for the year ended 31st March, 2005
2004-2005
(Rs. in ‘000s)
A. Cash Flow from Operating Activities
Net Profit / ( Loss ) before Taxation (20,170)
Adjustment for :
Depreciation 15,282
Preliminary and Share Issue
Expenses written off 125
Interest Income (174)
Profit on Sale of Fixed Assets (442)
Provision for Gratuity and
Leave Encashment (372)
Provisions/ Bad Debts Written Off 326 14,745
Operating profit before
working capital changes (5,425)
Adjustments for:
Trade Receivables 2,720
Inventories 20
Other Receivables / Loans
and Advances (743)
Trade Payables 1,857 3,854
Net Cash generated from
Operating Activities (A) (1,571)
B. Cash flow from Investing Activities
Purchase of Fixed Assets (1,605)
Proceeds from Sale of Fixed Assets 1,007
Interest Income 174 (424)
Net Cash generated from
Investing Activities (B) (424)
C. Cash Flow from Financing Activities
Payments/ Proceeds of
Long Term Borrowings 2,000
Payments / Proceeds of
Short Term Borrowings 437 2,437
Net Cash generated from
Financing Activities (C ) 2,437
Net Increase in Cash and
Cash Equivalents 442
Cash and Cash Equivalents
at beginning of the year 2,277
Cash and Cash Equivalents
at end of the year 2,719
Cash and Cash Equivalents As at
comprises of 31-03-2005
(Rs. in ‘000s)
Cash on Hand 12
Balance with Scheduled Banks in :
- Current Accounts 1,702
- Deposit Accounts 1,005
2,719
Notes
1 The above cash flow statement has been prepared under the
“Indirect Method” as set out in the Accounting Standard-3 on Cash
Flow Statement, issued by the Institute of Chartered Accountants
of India.
2 This is the first year of applicability of account of Accounting
Standard - 3 - Cash Flow Statement. Accordingly previous year figures
have not been given.
2004-2005
(Rs. in ‘000s)
This is the Cash Flow Statement referred in our report of even date.
For and on behalf of the Board
Partha Ghosh S. Solomon Raj K. C. Samdani
Partner Director Director
Membership No. F-055913
For and on behalf of Brig. T.M. Sridharan (Retd.) Milind Hukeri
Price Waterhouse Chief Executive Officer Company Secretary
Chartered Accountants
Place : Mumbai Place : Mumbai
Date : June 28th, 2005 Date : June 28th, 2005
Media-Telecom Subsidiaries
183
SCHEDULE D
Fixed Assets
(Refer Note 2 on Schedule P) (Rs. in’000s)
GROSS BLOCK DEPRECIATION / AMORTISATION NET BLOCK
Particulars As at Additions Deductions As at Upto For the On Upto As at As at
01.04.2004 during the during the 31.03.2005 31.03.2004 Year Deletions 31.3.2005 31.3.2005 31.03.2004
year year
Intangible Assets
Software 3,343 — — 3,343 597 542 — 1,139 2,204 2,746
Tangible Assets
Internet Equipments 86,476 676 1,502 85,650 38,408 14,120 937 51,591 34,059 48,068
Computers 2,866 186 — 3,052 1,185 489 — 1,674 1,378 1,681
Furniture and Fixtures 155 5 — 160 69 8 — 77 83 86
Office Equipments 44 13 — 57 29 14 — 43 14 15
Motor Vehicles 667 725 — 1,392 231 109 — 340 1,052 436
Total 93,551 1,605 1,502 93,654 40,519 15,282 937 54,864 38,790 53,032
Previous Year 88,155 5,396 — 93,551 25,591 14,928 — 40,519 53,032 64,597
(Rs.in’000s)
2005 2004
SCHEDULE A
Share Capital
Authorised
10,000,000 Equity Shares
of Rs. 10 each 100,000 100,000
Issued, Subscribed and Paid-up Capital
10,000,000 Equity Shares
of Rs. 10 each, fully paid-up. 100,000 100,000
100,000 100,000
Notes:
1 All the Shares are held by Hinduja TMT Limited, the Holding Company
and its nominees.
(Rs.in’000s)
2005 2004
SCHEDULE B
Secured Loan
Vehicle Finance Loan 437 —
(Secured against hypothecation of
Motor Car)
[Repayable within one year Rs. 194;
Previous Year : Rs. Nil]
437 —
SCHEDULE C
Unsecured Loan
Loan from the Holding Company 24,000 22,000
[Repayable within one year Rs. Nil ;
Previous Year; Rs. 22,000 (‘000s)]
[Including Interest Accrued and Due
Rs. Nil; Previous Year; Rs. Nil]
24,000 22,000
In2cable (India) Ltd.
Schedules annexed to and forming part of accounts for the year ended 31st March, 2005
Media-Telecom Subsidiaries
184
In2cable (India) Ltd.
Schedules annexed to and forming part of accounts for the year ended 31st March, 2005
(Rs.in’000s)
As at As at
31-03-2005 31-03-2004
SCHEDULE E
Stock- In- Trade
Cable Modems 143 163
143 163
SCHEDULE F
Sundry Debtors
(Unsecured)
(Refer Note 3 on Schedule Q)
Debts Outstanding for a Period
exceeding Six Months
- Considered Good — 870
- Considered Doubtful 3,039 4,006
3,039 4,876
Other Debts
- Considered Good 968 3,144
- Conidered Doubful 30 —
998 3,144
4,037 8,020
Less: Provision for Doubtful Debts 3,069 4,006
968 4,014
SCHEDULE G
Cash and Bank Balances
Cash on Hand 12 9
Balance with Scheduled Banks in :
- Current Accounts 1,702 2,263
- Deposit Accounts 1,005 5
[under lien with bank Rs. 5 (‘000);
Previous year Rs. 5 (‘000)] 2,719 2,277
SCHEDULE H
Loans and Advances
(Unsecured and Considered Good)
Advances Recoverable in Cash or in
Kind or for Value to be Received 3,724 2,109
Deposits 439 989
Tax Deducted at Source 35 357
4,198 3,455
SCHEDULE I
Current Liabilities And Provisions
Current Liabilities
Sundry Creditors * 22,457 16,314
(includes Dues to Small Scale
Industrial Undertakings Rs. Nil;
Previous Year: Rs. Nil)
Subscription Billed in Advance — 1,581
Advance Received from Customers 1,460 3,531
Other Liabilities 794 1,427
24,711 22,853
Provisions
(Refer Note 5 on Schedule P)
Gratuity — 203
Leave Encashment 1,284 1,453
1,284 1,656
25,995 24,509
* There are no amounts due to be credited
to Investor Education Protection Fund.
SCHEDULE J
Miscellaneous Expenditure
(to the extent not written off or adjusted)
(Refer Note 7 on Schedule P)
Preliminary and Share Issue Expenses 624 748
624 748
(Rs.in’000s)
2004-2005 2003-2004
SCHEDULE K
Other Income
Interest (Gross)
- on Fixed Deposit
[Tax Deducted at Source Rs. 7 (‘000) ;
Previous Year: Rs. Nil] 174 167
- on Others — —
Service Charges 37 108
Liability no longer required written back — 2,526
Profit on Sale of Assets 442 —
Miscellaneous 621 176
1,274 2,977
SCHEDULE L
Cost of Sale of Modems
Opening Stock 163 1,174
Add : Purchases 1,915 —
2,078 1,174
Less : Closing Stock 143 163
Less : Modems / VoIP boxes
capitalisations during the year — 96
1,935 915
SCHEDULE M
Employee Costs
Salary and Other Benefits 12,653 12,125
Contribution to Employees’
Provident and Other Funds 1,173 1,308
Staff Welfare 332 421
14,158 13,854
SCHEDULE N
Administrative and Other Expenses
Rent 1,348 1,385
Rates and Taxes 28 40
Electricity 213 301
Repairs and Maintenance - Others 490 720
Training and Recruitment 11 138
Communication 1,125 1,114
Travelling and Conveyance 2,717 2,683
Legal and Professional Charges 740 685
Advertisement and Business Promotion 935 927
Insurance 522 475
Membership and Subscription 545 401
Printing and Stationery 458 519
Software Expenses 987 131
Auditors’ Remuneration
- As Auditors 250 250
- Other Services — 100
- Out of pocket expenses 16 13
Provisions/ Bad Debts Written Off (net) 326 1,200
Preliminary Expenses Written-Off 125 125
Bank Charges and Commission 261 432
Miscellaneous 171 105
Donations 8 —
11,276 11,744
SCHEDULE O
Financial Expenses
Interest on :
- Inter-corporate Deposits — 3,248
- Others 13 4
13 3,252
Media-Telecom Subsidiaries
185
SCHEDULE P
Significant Accounting Policies
1 Accounting Convention
These Accounts have been prepared under historical cost
convention, on accrual basis and comply with the Accounting
Standards referred to in Section 211(3C) of The Companies Act,
1956, of India (The Act).
2 Fixed Assets and Depreciation
Fixed assets are stated at cost of acquisition, including any
attributable cost for bringing the asset to its working condition for
its intended use, less its accumulated depreciation.
Tangible Assets
Depreciation on fixed assets is computed on Straight Line Method
at the rates specified in Schedule XIV to The Act, except for modems
and VoIP boxes capitalised, which are amortised over a period of
three years. Depreciation is charged on a pro-rata basis for all the
assets purchased and sold during the year. Depreciation on assets
individually costing up to Rs. 5,000 is charged at 100% in the year of
addition.
Intangible Assets
Computer Software is amortised over the period of six years.
3 Stock in Trade
Stock in Trade is valued at lower of cost (ascertained on “First In
First Out” basis) or market value.
4 Foreign Currency Transactions
a) All foreign currency transactions are recorded at the rates
prevailing on the date of the transaction. Gains and losses arising
out of subsequent fluctuations in exchange rates are accounted
for on realisation/ payment.
b) All foreign currency current assets and liabilities are translated
at the exchange rate prevailing at the year-end and the
exchange difference has been ascertained and recognised in
the financial statements.
5 Retirement Benefits
a) Liability towards gratuity has been recognised on the basis of
premium paid/payable under the Group Gratuity policy of Life
Insurance Corporation of India (LIC). In respect of gratuity, the
adequacy of the accumulated fund balance available with LIC
has been confirmed on the basis of actuarial valuation
performed at the year-end and shortfall, if any, has been
provided in the financial statements.
b) Liability for leave encashment is made on unavailed
accumulated leave balances of employees on the basis of their
current salaries.
6 Revenue Recognition
Subscription income for internet services rendered is recognised
on a pro-rata basis over the period in which such services are
rendered.
Sale of modems is accounted on installation of modems at
subscribers’ location.
7 Preliminary and Share Issue Expenses
Preliminary and Share Issue expenses are amortised equally over a
period of ten years.
8 Deferred Tax is recognised, subject to the consideration of
prudence, on timing difference, being the difference between
taxable income and accounting income that originate in one period
and are capable of reversal in one or more subsequent periods.
Deferred Tax assets are not recognised unless there are timing
differences, the reversal of which, will result in sufficient income
or there is a virtual certainty that sufficient future taxable income
will be available against which such deferred tax asset can be
realised.
SCHEDULE Q
Notes To Accounts
1. Contingent Liabilities and Capital Commitments
a) Estimated amount of contract (net of capital advance)
remaining to be executed on Capital Account not provided for
is Rs. Nil; Previous Year: Rs. 87 (‘000s).
b) Contingent Liabilities at the year-end not provided for in
respect of:
2004-2005 2003-2004
(Rs. in ‘000s) (Rs. in ‘000s)
Guarantees given by Bank
on behalf of the Company 10,005 10,005
2. No provision has been made for income tax in view of loss incurred
by the Company in the current year. The Company has recognised
following deferred tax liabilities/assets:
2004-2005 2003-2004
(Rs. in ‘000s) (Rs. in ‘000s)
Deferred Tax Liability
Depreciation on Fixed Assets 12,643 15,773
Unamortised Miscellaneous
Expenditure 139 102
Total Deferred Tax Liability 12,782 15,875
Deferred Tax Asset
Provision for Retirement Benefits 470 594
Provisions for Doubtful Debts 1,466 1,437
Allowance for carry forward loss
and unabsorbed depreciation 10,846 13,844
Total Deferred Tax Asset 12,782 15,875
Net Deferred Tax Asset /
(Liability) — —
Note:
As a matter of prudence, deferred tax asset is recognised only to
the extent of deferred tax liability.
3. The Company is in the process of reconciling / obtaining
confirmations from certain Sundry Debtors. However, as a matter
of prudence the Company has made a provision for doubtful debts
of Rs. 3,069 (‘000s) in respect of debts outstanding for a period
exceeding six months.
4. In view of the erosion of net worth and losses incurred by the
Company in the current financial year as well as in the previous
financial years, the financial statements have been prepared on a
going concern basis, with regard to the financial support from
Hinduja TMT Limited, the Holding Company and proposed merger
of the Company with its Group Media Company.
5. Segment Information
Primary Segment
In accordance with Accounting Standard 17 “ Segment Reporting”
issued by the Council of the Institute of Chartered Accountants of
India, the Company is engaged in a single domestic business segment
namely “ Provision of Internet over Cable” and hence there is no
other primary reportable segment. Accordingly, the segment
revenue, segment liabilities, total carrying amount of segment
assets, total carrying amount of segment liabilities, total cost
incurred to acquire segment assets, total amount of charge of
depreciation and amortisation during the year are as reflected in
the financial statement as of and for the year ended March 31, 2005.
Secondary Segment
The performance of the company is mainly driven by domestic
sales made / services provided and hence no separate geographical
segment is identified. Accordingly, revenue from external
customers, carrying amount of segment assets and addition to
fixed assets during the year are all reflected in the financial
statements as of and for the year ended March 31, 2005.
In2cable (India) Ltd.
Schedules annexed to and forming part of accounts for the year ended 31st March, 2005
Media-Telecom Subsidiaries
186
6. Related party disclosures
I : Holding Company
1. Hinduja TMT Limited
II : Fellow subsidiaries – Subsidiaries of holding company (including indirect subsidiaries)
1. Indusind Media and Communication Limited
2. InNetwork Entertainment Limited
III : Companies under the common control
1. Hinduja Group India Limited
2. Aasia Management and Consultancy Limited
3. USN Networks Private Limited
IV : Key Managerial Personnel
1. Brig. T M Sridharan, Chief Executive Officer
The following details pertain to transactions carried out with the related parties in the ordinary course of business and the balances
outstanding at the year-end.
(Rs.in ‘000s)
Nature of Transaction Parties Parties Parties Parties Total
referred to referred to referred to referred to
in I above in II above in III above in IV above
Income
Internet Subscription
Hinduja TMT Limited 1,551 — — — 1,551
Indusind Media and Communication Limited — 801 — — 801
Hinduja Group India Limited — — 747 — 747
Others — 245 284 — 529
Total 1,551 1,046 1,031 — 3,628
Sale of Assets
Hinduja TMT Limited 1,651 — — — 1,651
Aasia Management and Consultancy Limited — — 123 — 123
Total 1,651 — 123 — 1,774
Trading Sales
Indusind Media and Communication Limited — 131 — — 131
Total — 131 — — 131
Expenses
Internet Carriage / Access Charges
Indusind Media and Communication Limited — 17,850 — — 17,850
USN Networks Private Limited — — 1,191 — 1,191
Total — 17,850 1,191 — 19,041
Rent
InNetwork Entertainment Limited — 1,372 — — 1,372
Total — 1,372 — — 1,372
Managerial Remuneration
Brig. T M Sridharan — — — 1,345 1,345
Total — — — 1,345 1,345
Inter—Corporate Deposit Received
Hinduja TMT Limited 2,000 — — — 2,000
Total 2,000 — — — 2,000
Year End Balances
Receivables net of payables at the year—end
Hinduja TMT Limited 23,961 — — — 23,961
Others — — 214 — 214
Total 23,961 — 214 — 24,175
Payable net of receivables at the year—end
Indusind Media and Communication Limited — 15,488 — — 15,488
Others — 1,343 — — 1,343
Total — 16,831 — — 16,831
Note :
This is the first year of applicability of account of Accounting Standard –17 “Segment Reporting” for the Company. Accordingly, previous year
figures have not been given.
In2cable (India) Ltd.
Schedules annexed to and forming part of accounts for the year ended 31st March, 2005
Media-Telecom Subsidiaries
187
7. Managerial Remuneration
Employee Costs include remuneration to Chief Executive Officer ( appointed as Manager under the Companies Act, 1956 )
(Rs. in ’000s)
Particulars Year ended Year ended
31-03-2005 31-03-2004
Salary and Allowances 1,195.40 NIL
Contribution to Provident Fund 135.60 NIL
Perquisites ( valued as per IncomeTax Act 1961 , wherever applicable ) 14.40 NIL
8. Expenditure in Foreign Currency on account of:
Travelling — 35
Subscription 229 228
9. Additional information pursuant to the provisions of paragraphs 3, 4C and 4D of Part II of Schedule VI to The Act.
Class of Goods Cable Modems VoIP Boxes
Year 2004-05 2003-04 2004-05 2003-04
Opening Stock
Quantity (Nos.) 138 202 — 12
Value (Rs. in ‘000s) 163 1,058 — 116
Purchases (net of returns)
Quantity (Nos.) 600 — — —
Value (Rs. in ‘000s) 1,909 — — —
Adjustment for modems capitalized
Quantity (Nos.) — — — (10)
Value (Rs. in ‘000s) — — — (96)
Sales
Quantity (Nos.) 681 64 — 2
Value (Rs. in ‘000s) 1,563 500 — 35
Closing Stock
Quantity (Nos.) 57 138 — —
Value (Rs. in ‘000s) 143 163 — —
10. Earning Per Share (Basic and Diluted)
2004-2005 2003-2004
Loss after Tax (Rs. in ‘000) 20,170 21,079
Weighted Average Number of Equity Shares 10,000,000 52,04,918
Loss Per Share (Rs.) 2.02 4.06
Nominal value of Equity Share 10 10
11. Information, to the extent not disclosed, with regard to other matters specified in Part II of the Schedule VI to The Act, are either nil or not
applicable to the Company for the year ended 31st
March 2005.
12. Refer annexure for additional information pursuant to Part IV of Schedule VI to the Act.
13. Previous year’s figures have been regrouped/ rearranged, wherever necessary.
Schedules A to Q form an integral part of the Accounts.
For and on behalf of the Board
Partha Ghosh S. Solomon Raj K. C. Samdani
Partner Director Director
Membership No. F-055913
For and on behalf of Brig. T.M. Sridharan (Retd.) Milind Hukeri
Price Waterhouse Chief Executive Officer Company Secretary
Chartered Accountants
Place : Mumbai Place : Mumbai
Date : June 28th, 2005 Date : June 28th, 2005
In2cable (India) Ltd.
Schedules annexed to and forming part of accounts for the year ended 31st March, 2005
Media-Telecom Subsidiaries
188
Balance Sheet Abstract and Company’s General Business Profile:
I Registration Details
Registration No. 8 8 4 8 7 State Code 1 1
Balance Sheet Date 3 1 0 3 0 5
I I Capital raised during the year (Amount in Rs. Thousands)
Public Issue Rights Issue
N I L N I L
Bonus Issue Private Placement
N I L N I L
III Position of Mobilisation and Deployment of Funds (Amount in Rs. Thousands)
Total Liabilities Total Assets
1 2 4 4 3 7 1 2 4 4 3 7
Sources of Funds
Paid-Up Capital Reserves and Surplus
1 0 0 0 0 0 N I L
Secured Loans Unsecured Loans
4 3 7 2 4 0 0 0
Application of Funds
Net Fixed Assets Investments
3 8 7 9 0 N I L
(Please tick appropriate box + for Profit, - for Loss)
+ — Net Current Assets Miscellaneous Expenditure
� 1 7 9 6 6 6 2 4
Accumulated Losses
1 0 2 9 9 0
IV Performance of Company (Amount in Rs. Thousands)
Turnover Total Expenditure
7 2 8 3 3 9 3 0 0 3
(Please tick appropriate box + for Profit, - for Loss)
+ — Profit/Loss Before Tax + — Profit/Loss After Tax
� 2 0 1 7 0 � 2 0 1 7 0
(Please tick appropriate box + for positive, - for negative)
+ — Earning per Share in Rs. Dividend Rate %
� 2 . 0 2 N I L
V Generic Names of Three Principal Products/Services of the Company (as per monetary terms)
Item Code No. (ITC Code): NA Product Description
N O T I N T E R N E T
A P P L I C A B L E S E R V I C E
P R O V I D E R
For and on behalf of the Board
S. Solomon Raj K.C. Samdani Brig. T.M. Sridharan (Retd.) Milind Hukeri
Director Director Chief Executive Officer Company Secretary
Mumbai
Dated : 28th June, 2005
In2cable (India) Ltd.
Additional information pursuant to Part IV of Schedule VI to the Act
Media-Telecom Subsidiaries
189
IndusInd Telecom Network Ltd.
Directors’ Report
TO THE MEMBERS OF INDUSIND TELECOM NETWORK LIMITED, MUMBAI
Your Directors are pleased to present their Ninth Annual Report
together with Audited Accounts for the year ended March 31st, 2005.
Financial Results
During the year ended 31st March 2005, we are pleased to report that
your Company has made a net profit of Rs. 2549.99 million as against a
net loss of Rs. 6.93 million in the previous year. Although there is no
operating profit during the year, the net profit represents the book
profit arising out of the exchange of shares of Fascel Ltd. against
shares of Hutchison Max Telecom Ltd.
The net Profit carried forward in the books as at the end of the year
is as under:
(Rs. in 000s)
Profit for the year ended 31.3.2005 25,49,996
Less: Balance brought forward from
the previous year (DR) 1,70,064
Net Profit carried to Balance Sheet. 23,79,932
Dividend
Your Directors do not recommend any dividend as there is no operating
profit during the period under review.
Consolidation of Fascel Ltd. (Fascel) with Hutchison Max Telecom
Ltd. (HMTL)
Hutch Group, prior to the IPO of its Cellular Telecom holdings in India,
started the process of consolidating all its cellular operating companies
with HMTL, which is the cellular operator in Mumbai. The consolidation
of Fascel, being one of the operating companies, with HMTL was
completed on 1st February, 2005.
Based on valuation of all circles, taking into account their current
performance and future potential, Fascel’s equity valuation was placed
at around 17.03% of the consolidated entity. In exchange for its equity
in Fascel, the company was allotted 5.11% of the equity in HMTL. This
translated into 1,75,35,271 equity shares of Rs.10 each in HMTL.
In view of the above consolidation, Fascel has become a 100% subsidiary
of HMTL. Consequently all the directors of the Company on the Board of
Fascel tendered their resignations effective 1st February, 2005 and
Mr. Y. M. Kale, Chairman of your Company was appointed as Director
on the Board of HMTL with effect from 1st February, 2005.
Performance Review of Hutchison Max Telecom Ltd.
During the year under review, HMTL has widened its innovative and
user-friendly services to include GPRS and EDGE services on a wider
scale. It achieved a landmark of reaching 1.4 million subscribers and
continues to be the market leader, having a market share of 40% as at
31 December 2004 in a very competitive 6-player market. The subscriber
base increased by 43% from 1,004,197 subscribers to 1,439,568.
The blended Minutes of Usage (MOU) per subscriber increased to 398 per
month in the current year as against 350 per month in the previous year.
The blended Airtime Revenue per Subscriber (ARPU) was Rs. 558/- per
month in the current year as against Rs. 642/- per month in previous
year. The reduction was largely due to lower tariffs in an increasingly
competitive environment.
HMTL has further expanded its network to increase its coverage.
During the year the Company added 124 cell sites to enhance its
network coverage, closing with 755 cell sites as at 31 December 2004.
The sharing of infrastructure (cell sites) was continued during the
previous year and as at 31 December 2004, 197 cell sites were shared
with other cellular operators.
Outlook of HMTL
The year 2004 was a benchmark year for HMTL having achieved
substantial growth in the subscriber base. The year ahead is expected
to bring a change in the regulatory environment for HMTL with the
proposed regulations for spectrum, interconnection, unified licensing
and foreign ownership. Further market consolidation is expected,
which should rationalize the competitive environment. HMTL continues
to focus not just on subscriber growth but on revenue and profit
growth and aims to continue to be the preferred supplier of world
class services at costs that are affordable to the Indian consumer.
Rights issue
In view of the exchange of Fascel shares for shares of HMTL, your
Company was liable to pay the Minimum Alternate Tax (MAT) of Rs.
21.75 crores. In order to arrange the MAT payment as also other
estimated tax liabilities, your Company made a rights issue of 75,00,000
equity shares of Rs. 10/- each at a premium of Rs. 20/- per share
pursuant to approval of the shareholders at the Extra-ordinary General
Meeting held on 21st February, 2005. The Authorised Capital of the
Company was also increased from Rs. 165 crores to Rs. 165.80 crores
to accommodate the aforesaid rights issue.
Dematerialisation of shares
During the year, the shares of your Company were admitted for
dematerialization with National Securities Depository Limited. M/s.
Sharepro Services has been appointed as the Registrar and Share
Transfer Agent of your Company.
Public Deposit
During the year under review, your Company has not accepted any
deposits from the public pursuant to the provisions of Section 58A of
the Companies Act, 1956 and the Rules made thereunder.
Directors
During the year under review, Mr. K. V. Seshasayee and Mr. Toshiyuki
Kato resigned from your Company’s Board with effect from 11th October,
2004 and 21st February, 2005 respectively. The Board wishes to place
on record its sincere appreciation of the valuable guidance provided by
Mr. Seshasayee and Mr. Kato during their tenure as Directors.
Mr. K. Thiagarajan was appointed as Additional Director of your
Company with effect from 11th October, 2004 and will hold office upto
the date of the ensuing Annual General Meeting. The Company has
received a notice from a Member of your Company signifying its
intention to propose the candidature of Mr. K. Thiagarajan as Director
liable to retire to by rotation.
Mr. Hidemoto Fukuzawa was appointed as Director in place of Mr.
Toshiyuki Kato with effect from 21st February, 2005.
Mr. Marian Menezes ceased to be an alternate director of Mr. Toshiyuki
Kato with effect from 21st February, 2005 and was simultaneously
appointed as alternate director to Mr. Hidemoto Fukuzawa with effect
from the said date.
In accordance with the Articles of Association of the Company, Mr. Y. M.
Kale will retire by rotation and being eligible, offer himself for re-
appointment.
Audit Committee
In view of changes in directorate, the Audit committee was reconstituted
during the year. At present the members of the Audit Committee are
as under:-
1. Mr. K. Thiagarajan (Chairman)
2. Mr. Y. M. Kale
3. Mr. Hidemoto Fukuzawa
Directors Responsibility Statement
Your Directors confirm:
1. That in the preparation of the annual accounts, the applicable
accounting standards have been followed;
2. That the Directors have selected such accounting policies and applied
them consistently and made judgments and estimates that are
reasonable and prudent so as to give a true and fair view of the
state of affairs of the Company for that year;
3. That the Directors had taken proper and sufficient care for the
maintenance of adequate accounting records in accordance with
the provisions of the Companies Act, 1956 for safeguarding the
assets of the Company and for preventing and detecting fraud and
other irregularities;
4. That the Directors have prepared the annual accounts on a going
concern basis.
Auditors
M/s. Shah & Co. the Auditors of the Company retire and are eligible for re-
appointment. The members are requested to appoint Auditors for the
current year and fix their remuneration at the Annual General Meeting.
The observations made by the Auditors in the Auditors’ Report with
reference to notes on the accounts for the current period are self-
explanatory and need no further comments from the Directors.
Particulars of employees
No employee of the Company is in receipt of remuneration aggregating
of Rs. 24,00,000/- or more per annum.
Information as per Section 217(1)(e) of the Companies Act, 1956
read with the Companies (Disclosure of Particulars in the Report
of the Board of Directors) Rules, 1988
A. Conservation of energy & technology absorption:
Considering the nature of the business of your Company, there are
no particulars to be disclosed relating to the year under review.
B. Foreign exchange earnings and outgo: NIL
On behalf of the Board
Place: Mumbai Y. M. Kale
Date : 28th
June, 2005 Chairman
Media-Telecom Subsidiaries
190
To The Members of Indusind Telecom Network Limited
1. We have audited the attached Balance Sheet of Indusind Telecom
Network Limited, as at 31st March 2005 and also the Profit and
Loss Account and the Cash Flow Statement of the Company for the
year ended on that date annexed thereto. These financial
statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial
statements based on our audit.
2. We conducted our audit in accordance with the auditing standards
generally accepted in India. Those Standards require that we plan
and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
3. As required by the Companies (Auditors’ Report) Order, 2003,
issued by the Central Government of India in terms of sub-section
(4A) of Section 227 of the Companies Act, 1956, we enclose in the
annexure a statement on the matters specified in paragraphs 4
and 5 of the said order.
4. Further to our comments in the Annexure referred to above, we
report that:
a) We have obtained all the information and explanations, which
to the best of our knowledge and belief were necessary for
the purpose of our audit.
b) In our Opinion proper books of account as required by law
have been kept by the Company so far as appears from our
examination of such books.
IndusInd Telecom Network Ltd.
March, 2005 but the company has incurred cash losses in the
immediately preceding financial year.
viii. According to the information and explanations given to us the
company has not granted any loans or advances on the basis of
security by way of pledge of shares, debentures and other
securities.
ix. The company is not a chit fund/nidhi/mutual benefit fund/society.
Therefore, the provisions of clause 4(xiii) of the Companies
(Auditors’ report) Order, 2003 are not applicable to the company.
x. The company is not dealing in or trading in shares, securities,
debentures and other investments. Accordingly, the provisions of
clause 4(xiv) of the Companies (Auditors’ report) Order, 2003 are
not applicable to the company.
xi. According to the information and explanations given to us the
company has not given any guarantee during the year for loans
taken by others from banks or financial institutions.
xii. According to the information and explanations given to us, the
company has not taken any term loans during the year.
xiii.According to the information and explanations given to us, the
company has made preferential allotment of shares to parties and
companies covered in the register maintained under section 301
of the Act. In our opinion the price at which shares have been
issued is not prejudicial to the interest of the company.
xiv. The company has not issued any debentures in the year under
report.
xv. The company has not raised any money by way of public issue
during the year.
xvi.According to the information and explanations given to us, no
fraud on or by the company has been noticed or reported during
the year ended 31st March 2005.
xvii.Other Clauses No 4. (ii) (a) to (c), 4 (iv), 4 (viii), 4 (xi) and 4 (xvii)
of the Companies (Auditor’s Report) Order, 2003 are not applicable
to the Company for the year under report.
FOR SHAH & CO.,
Chartered Accountants
Indulal H. Shah
Place : Mumbai Partner
Date : 28th
June, 2005 Membership No. 798
c) The Balance Sheet, the Profit and Loss Account and the Cash
Flow Statement dealt with by this report are in agreement
with the books of account.
d) The Balance Sheet the Profit and Loss Account and the Cash
Flow Statement dealt with by this report comply with the
accounting standards referred to in section 211(3C) of the of
the Companies Act, 1956.
e) On the basis of the written representations received from
the directors as on 31st March 2005 and taken on record by
the Board of Directors we report that none of the directors
are disqualified as on 31st March, 2005 from being appointed
as a director in terms of clause (g) of sub-section (1) of section
274 of the Companies Act, 1956.
f) In our opinion and to the best of our information and according
to the explanations given to us, the said accounts read together
with the notes in schedule I, give the information required by
the companies Act,1956, in the manner so required and give
a true and fair view in conformity with the accounting
principles generally accepted in India.
i) In the case of Balance Sheet of the state of affairs of the
company as at 31st March,2005.
ii) In the case of Profit and Loss Account of the “PROFIT” of
the company for the year ended on that date.
and
iii) in the case of Cash Flow Statement of the cash flows of the
company for the year ended on that date.
FOR SHAH & CO.
Chartered Accountants
Indulal H. Shah
Place : Mumbai Partner
Date : 28th
June, 2005 Membership No. 798
i. The Company does not have any Fixed Assets and hence, provision
of clasue 4(i)(a,b,c) are not applicable to the company.
ii. (a) The Company has not accepted any loans during the year from
the parties covered in the register maintained under section
301 of the Companies Act, 1956.
In view of clause 4 (iii)(a) of the Comapnies (Auditor’s Report)
Order, 2003 clause 4 (iii)(b, c & d) are not applicable to the
Company.
(b) The Company has not granted any loans during the year to the
parties covered in the register maintained under section 301
of the Companies Act, 1956.
In view of clause 4 (iii)(e) of the Companies (Auditor’s Report)
Order, 2003 clause 4 (iii) (f & g) are not applicable to the
Company.
iii. According to the information and explanations given to us, there
are no transactions that need to be entered into the register
maintained under section 301 of the companies Act, 1956.
Accordingly, clause v(b) of paragraph 4 of the order is not applicable
to the company for the current year.
iv. As the company has not accepted any Deposits from the public
within the meaning of Sections 58A and 58AA or any other relevant
provisions of the Companies Act, 1956, Clause 4(vi) of the Companies
(Auditors’ Report) Order 2003 is not applicable to the Company.
v. In our opinion, the company has an internal audit system
commensurate with the size and nature of its business.
vi. (a) The company is regular in depositing with appropriate
authorities undisputed statutory dues including provident fund,
Investor Education and Protection Fund, employees state
insurance, income tax, sales tax, wealth tax, service tax,
custom duty, excise duty, cess and other material statutory
dues wherever applicable to it.
(b) According to the information and explanations given to us,
there are no dues of wealth tax, service tax, sales tax,
customs duty, excise duty and cess which have not been
deposited on account of any dispute. Income tax of Rs. 25.37
Lacs has not been deposited on account of a dispute (Refer
Note No. B(1) in Schedule I).
vii. The company has no accumulated losses as at 31st March, 2005 and
it has not incurred any cash losses in the financial year ended 31st
Annexure To The Auditors’ Report
(Referred in Para 3 of our Report of even date)
Auditors’ Report
Media-Telecom Subsidiaries
191
As per our report of even date For and on behalf of the Board
For Shah & Co. Y.M. Kale Yagnesh Sanghrajka
Chartered Accountants Chairman Manager
K.Thiagarajan Rajkumar Ghoshal
Director Company Secretary
Indulal H. Shah M. Menezes
Partner Director
Membership No. 798
Place : Mumbai Place : Mumbai
Date : 28th
June, 2005 Date : 28th
June, 2005
Profit And Loss Account
for the year ended 31st March, 2005
(Rs.in’000s)
For the For the
Schedule Year ended Year ended
31-03-2005 31-03-2004
INCOME
Interest 30 80
Dividend 45 65
Profit on Sale of Long Term
Investment 2,769,357 —
TOTAL 2,769,432 145
EXPENDITURE
Administrative and
other Expenses H 1,408 1,341
Financial Expenses
(Interest) — 1,572
TOTAL 1,408 2,913
Profit/ (Loss) Before Taxation 2,768,024 (2,768)
Provision for Current Tax
(Refer Note B 10 in Schedule I) 217,500 —
2,550,524 (2,768)
Income Tax provision for Earlier Year 528 4,164
Profit/ (Loss) for the Year 2,549,996 (6,932)
Add : Balance brought forward
from last year (170,064) (163,132)
Balance carried to Balance Sheet 2,379,932 (170,064)
Earning Per Share (Rs.)
(Basic and Diluted) 16.103 (0.044)
Balance Sheet as at 31st March, 2005
(Rs.in’000s)
Schedule As at As at
31-03-2005 31-03-2004
SOURCES OF FUNDS
Shareholders’ Funds
Share Capital A 1,657,906 1,582,906
Reserves and Surplus B 2,696,977 167,045
4,354,883 1,749,951
TOTAL 4,354,883 1,749,951
APPLICATION OF FUNDS
Investments C 4,356,894 1,580,080
Current Assets,Loans
and Advances
Cash and Bank Balances D 130 1,654
Loans and Advances E — 16
130 1,670
Less : Current Liabilities
and Provisions
Current Liabilities F 3,341 3,363
3,341 3,363
Net Current Assets (3,211) (1,693)
Miscellaneous Expenditure G 1,200 1,500
(To the extent not written
off or adjusted)
Profit & Loss Account — (170,064)
TOTAL 4,354,883 1,749,951
IndusInd Telecom Network Ltd.
Significant Accounting Policies and Notes To Accounts I
Media-Telecom Subsidiaries
192
InNetwork Entertainment Ltd.
(Rs.in ’000s)
As at As at
31-03-2005 31-03-2004
SCHEDULE D
Cash and Bank Balances
Cash on hand ** — —
Bank balance with a Scheduled Bank
in current account 130 1,654
TOTAL 130 1,654
** (As at 31.03.2005 : Rs. 631/-)
SCHEDULE E
Loans and Advances
Advance Tax and TDS (Net of — 16
provisions)
TOTAL — 16
SCHEDULE F
Current Liabilities and Provision
Other Liabilities 2,839 3,363
Provision for Taxation
(Net of Advance Tax) 502 —
TOTAL 3,341 3,363
SCHEDULE G
Miscellaneous Expenditure
(To the extent not written off
or adjusted)
Preliminary Expenses 1,200 1,500
TOTAL 1,200 1,500
SCHEDULE H
Administrative and Other Expenses
Salaries — 738
Legal and Professional Fees 791 178
Auditors’ Remuneration
– As Auditors 22 22
– For Other Matters 2 2
Filing Fees 10 7
Share Issue Expenses Written Off 281 —
Other Expenses 2 94
Preliminary Expenses / Share Issue
Expenses written-off 300 300
TOTAL 1,408 1,341
IndusInd Telecom Network Ltd.
Schedules Forming Part of the Balance Sheet and Profit & Loss Account for the year
ended 31st March, 2005
As per our report of even date For and on behalf of the Board
For Shah & Co. Y.M. Kale Yagnesh Sanghrajka
Chartered Accountants Chairman Manager
K.Thiagarajan Rajkumar Ghoshal
Director Company Secretary
I.H. Shah M. Menezes
Partner Director
Membership No. 798
Place : Mumbai Place : Mumbai
Date : 28th
June, 2005 Date : 28th
June, 2005
(Rs.in ’000s)
As at As at
31-03-2005 31-03-2004
SCHEDULE A
Share Capital
Authorised
165,800,000 Equity Shares
of Rs. 10 /- each (As at
31 st March 2004 :
165,000,000 shares) 1,658,000 1,650,000
Issued, Subscribed and Paid Up
165,790,550 Equity Shares of
Rs. 10/- each 1,657,906 1,582,906
fully paid - up
(Refer Note B 3 in Schedule I)
(As at 31 st March 2004 :
158,290,550 shares)
SCHEDULE B
Reserves and Surplus
Share Premium Account
As per last Balance Sheet 57,295 57,295
Addition during the year 150,000 —
(Refer Note B 3 in Schedule I)
207,295 57,295
Capital Redemption Reserve
As per last Balance Sheet 109,750 109,750
Profit and Loss Account 2,379,932 —
TOTAL 2,696,977 167,045
SCHEDULE C
Investments (At Cost) - Long Term
Unquoted
Nil (previous Year 150,000,000
Equity Shares of Rs. 10/- each — 1,579,215
of Fascel Limited, fully paid - up.)
17,535,271 Equity Shares of
Rs. 10/- each of 4,348,572 —
Hutchison Max Telecom Limited.
Received in exchange of
150,000,000 Equity shares
of Rs.10/- each of Fascel Limited,
at a premium of Rs.237.99 per
Equity share.
Quoted
Mutual Fund Investment — 865
(81,702 units of Rs.10.58 each
of Grindlays Cash Fund)
(Previous Year Rs.8.65 Lacs)
Mutual Fund Investment 8,322 —
(8,32,125 units of Rs.10.0007
each of Principal Pnb Asset
Management company Pvt. Ltd.)
(Market Value Rs.83.22 Lacs)
(Previous Year: Rs.Nil)
TOTAL 4,356,894 1,580,080
Aggregate Value of Unquoted
Investments 4,348,572 1,579,215
Aggregate Value of Quoted
Investments 8,322 865
4,356,894 1,580,080
Media-Telecom Subsidiaries
193
SCHEDULE I
Notes Forming part of the Balance Sheet and Profit & Loss Account for
the year ended 31 st March, 2005.
A Significant Accounting Policies
1. Method of Accounting
The Company is following accrual basis of accounting.
2. Long-term investments are stated at Book Value (Refer Note
No. B (4) below)
3. Transactions in Foreign Currency:
Transactions in Foreign currency are recorded at the exchange
rate prevailing on the date of transaction.
4. (a) The provision for taxation is ascertained on the basis of
assessable profits computed in accordance with the
provisions of the Income-tax Act, 1961.
(b) Deferred tax is recognized, subject to the consideration
of prudence, on timing differences, being the difference
between taxable income and accounting income that
originate in one period and are capable of reversal in one
or more subsequent periods. Deferred tax assets are
not recognized on unabsorbed depreciation and carry
forward of losses unless there is virtual certainty that
sufficient future taxable income will be available against
which such deferred tax assets can be realized.
5. Preliminary/ share issue expenses are being written off over
a period of ten years.
B Notes to Accounts
1. Contingent Liabilities in respect of:
Taxation Matters - Rs.2,537(000) (Previous Year Rs. Nil)
pertaining to the Assessment Year 1999 – 2000. The Company
expects the appeals to be decided in its favour.
2. Share Capital – Of the Issued, Subscribed and Paid up Capital,
101,302,525 Equity Shares of Rs.10/- each are held by the
Holding Company, Hinduja TMT Limited.
3. Rights Issue: As per the provisions of Section 81 of the
Companies Act 1956, in the year under review, the Company
has issued 7,500,000 Equity Shares of Rs.10/- each at a premium
of Rs.20/- per share aggregating to Rs.225,000(000) on Rights
Basis to the existing Shareholders of the Company
4. During the year under review the company has received
17,535,271 Equity shares of Rs.10/- each of Hutchison Max
Telecom Ltd at a premium of Rs.237.99 per Equity Share in
Exchange of 150,000,000 Equity Shares of Rs.10/- each of
Fascel Ltd.,
5. As per the Accounting Standard 22 (AS 22) “Accounting for
Taxes on Income”, the accumulated Deferred Tax Asset as on
31.03.2005 has not been recognized in the books of account in
view of Prudential Accounting Norms followed by the company.
6. Earning per Equity Share 2004-05 2003-04
(Basic and Diluted)
Profit /(Loss) (Rs.’000s) 2,549,996 (6,932)
Weighted Average Number
of Equity Shares outstanding
during the year 158,352,658 156,503,249
Basic and Diluted Earnings
Per Equity Share (Rs.) 16.103 (0.044)
7. Related Party Transactions :
a) Related party where control exists :
1. Ultimate Parent Company: Hinduja TMT Ltd.
2. Associate Company : Hinduja Group India Ltd.
b) The Company has entered into following transactions with
the related parties :
Nature of (Rs. ‘000s)
Transactions 2004-05 2003-04
Ultimate Parent Reimbursement
Company of Legal Expenses 30 —
Interest Paid — 1,532
Associate Reimbursement
Company of Deputation 519 738
Expenses
Net outstanding payable at the year end
Hinduja TMT Ltd 28 NIL
Hinduja Group 123 700
India Ltd
8. Segment Reporting : The Company’s main object is to undertake
and to provide Basic and Cellular Mobile Telephone Services
and has an investment in Telecommunication company’s shares
which constitutes a single business segment. As such, segment-
reporting disclosure as envisaged in AS-17 is not applicable to
the Company.
9. Additional Information pursuant to paragraph 4C and 4D has
not been given, as the company has not done any trading
business or service Activity.
10. Income Tax Matter:
Provision for Income Tax under MAT (As per Section 115JB) of
Rs.217,500(000) for the assessment year 2005-06 has been
made in the accounts as approved by the Board of Directors.
11. Expenditure in foreign currency Rs. Nil.
12. Previous year’s figures have been regrouped wherever
necessary.
IndusInd Telecom Network Ltd.
Schedules Forming Part of the Balance Sheet and Profit & Loss Account for the year
ended 31st March, 2005
As per our report of even date For and on behalf of the Board
For Shah & Co. Y.M. Kale Yagnesh Sanghrajka
Chartered Accountants Chairman Manager
K.Thiagarajan Rajkumar Ghoshal
Director Company Secretary
Indulal H. Shah M. Menezes
Partner Director
Membership No. 798
Place : Mumbai Place : Mumbai
Date : 28th
June, 2005 Date : 28th
June, 2005
Media-Telecom Subsidiaries
194
IndusInd Telecom Network Ltd.
Cash Flow Statement for the year ended 31st
March, 2005
(Rs. In ‘000s)
2004-2005
A Cash Flow from Operating Activities :
Net Profit before tax and extraordinary items 2,768,024
Adjustments for :
Share Issue and Deferred Revenue Expenses Written off 300
Profit on sale of Long Term Investments (2,769,357)
(2,769,057)
Operating profit before working capital changes (1,033)
Adjustments for :
Trade Payables (22)
Other Receivables 16
(6)
Operating profit after working capital changes (1,039)
Direct Taxes Paid (218,028)
(218,028)
Net Cash from Operating Activities (A) (219,067)
B Cash Flow from Investing Activities :
Investments Made (1,587,559)
Investments Sold 1,580,102
(7,457)
Net cash from Investing Activities (B) (7,457)
C Cash Flow from Financing Activities :
Proceeds from Right Issue 225,000
225,000.00
Net Cash from Financing Activities (C) 225,000.00
Net Increase/ (decrease) in Cash and Cash equivalents (A + B + C) (1,524)
Cash and Cash equivalents as at the beginning of the year 1,654
Cash and Cash equivalents as at the end of the year 130
Cash and Cash Equivalents comprise :
Cash on Hand —
Balances with Scheduled Banks in
- Current Accounts 130
- Margin Money Account
130
Notes
1 The above cash flow statement has been prepared under the “Indirect Method” as set out in the Accounting Standard-3 on Cash Flow Statement,
issued by the Institute of Chartered Accountants of India.
2 This is the first year of applicability of account of Accounting Standard-3 “ Cash Flow Statement “ for the Company. Accordingly, previous year
figures have not been given.
As per our report of even date For and on behalf of the Board
For Shah & Co. Y.M. Kale Yagnesh Sanghrajka
Chartered Accountants Chairman Manager
K.Thiagarajan Rajkumar Ghoshal
Director Company Secretary
Indulal H. Shah M. Menezes
Partner Director
Membership No. 798
Place : Mumbai Place : Mumbai
Date : 28th
June, 2005 Date : 28th
June, 2005
Media-Telecom Subsidiaries
195
I Registration Details
Registration No. 8 7 6 5 7 State Code. 1 1
Balance Sheet Date 3 1 0 3 0 5
I I Capital raised during the period (Amount in Rs. Thousands)
Public Issue Rights Issue
N I L 7 5 0 0 0
Bonus Issue Private Placement
N I L N I L
III Position of Mobilisation and Deployment of Funds (Amount in Rs. Thousands)
Total Liabilities Total Assets
4 3 5 4 8 8 3 4 3 5 4 8 8 3
Sources of Funds
Paid-Up Capital Reserves and Surplus
1 6 5 7 9 0 6 2 6 9 6 9 7 7
Share Application Money Unsecured Loans
N I L N I L
Application of Funds
Net Fixed Assets Investments
N I L 4 3 5 6 8 9 4
Net Current Assets Miscellaneous Expenditure
(3 2 1 1) 1 2 0 0
Accumulated Losses
N I L
IV Performance of Company (Amount in Rs. Thousands)
Turnover Total Expenditure
2 7 6 9 4 3 2 1 4 0 8
(Please tick appropriate box + for Profit, - for Loss)
+ - Profit/Loss Before Tax + - Profit/Loss After Tax
� 2 7 6 8 0 2 4 � 2 5 4 9 9 9 6
(Please tick appropriate box + for positive, - for negative)
+ - Earning per Share in Rs. Dividend Rate %
� 1 6 . 1 0 3 N I L
V Generic Names of Three Principal Products/Services of the Company (as per monetary terms)
Item Code No. (HS Code): Product Description
N O T N O T
A P P L I C A B L E A P P L I C A B L E
Grant Investrade Ltd.
IndusInd Telecom Network Ltd.
Additional information pursuant to part IV Schedule VI to the Act
Balance Sheet Abstract and Company’s General Business Profile:
For and on behalf of the Board
For Shah & Co. Y.M. Kale Yagnesh Sanghrajka
Chartered Accountants Chairman Manager
K.Thiagarajan Rajkumar Ghoshal
Director Company Secretary
Indulal H. Shah M. Menezes
Partner Director
Membership No. 798
Place : Mumbai Place : Mumbai
Date : 28th
June, 2005 Date : 28th
June, 2005
REGISTERED & CORPORATE OFFICE
BANGALORE
MUMBAI
Hinduja TMT Ltd.
Hinduja House, 171, Dr. Annie Besant Road
Worli, Mumbai 400 018 INDIA
91-22-24966350/51
91-22-24937374
Hinduja TMT Ltd.
HTMT House No. 614, Vajpayee Nagar,
Bommanahalli Hosur Road,
Bangalore - 560 068 INDIA
91-80-25732620/50
91-80-25731592
Hinduja TMT Ltd.
In-Centre, 49/50 MIDC, 12th Road,
Marol, Andheri (East),
Mumbai 400 093 INDIA
91-22-28248300/4/8
91-22-28248366/67
MAURITIUS
NEW JERSEY, USA
Hinduja TMT Ltd.Wing 'A', 3rd Floor,Cyber Tower,Ebene, Cybercity Rose HillMauritius
00230 7249886
Source 1 HTMT Inc.
1280 Wall Street West
Lyndhurst, New Jersey 07071
201-508-5000
201-508-5088
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NEW YORK, USA
TORONTO, CANADA
MANILA, PHILIPPINES
LONDON, UK
PARIS, FRANCE
HTMT Inc.
520, Madison Avenue, 40th Floor,
New York,
NY 10022, USA
212-471-8688
212-7527312
Source 1 HTMT Inc.th777 Bay Street, 27 Floor
Toronto Ontario M5G 2C8
416-847-7199
416-642-7119
Customer Contact Center Inc.
Source One Communications Asia Inc.
1 E-Commerce Avenue,
Eastwood City Cyberpark,
E. Rodriguez Jr. Avenue,
Libis, Quezon City 1110
Philippines
63-2-434-5144
63-2-434-5122
HTMT Europe Ltd.
New Zealand House,th13 Floor, 80 Haymarket,
London, SW1Y UK
44-207-839-4661
44-207-839-4337
Hinduja TMT France
33, Rue Galilee
75116, Paris
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HTMT - Annual Report 2005196
Contact us...
Services
Head Office
Development / Delivery Centres
Marketing Offices
Share Data :
Stock Exchanges
Stock code (BSE/NSE)
Reuters Code
52 week Range
Current Market Price (Rs.)
Market Capitalisation (Rs. Crs)
Shareholding Pattern (30-6-2005)
Financial Data
Total Income
Stand Alone
Consolidated
Net Profit
Stand Alone
Consolidated
Share Capital
EPS (Rs.)
Stand Alone
Consolidated
Book Value (Rs.)
Stand Alone
Consolidated
Key Subsidiaries
Customer Care Centre Inc.
Source One HTMT Inc.
IndusInd Media & Communications Ltd
InNetwork Entertainment Ltd
In2Cable (India) Ltd
IT & ITES-BPO services
Mumbai
Mumbai, Bangalore, Manila, New Jersey &
Toronto
New York, London, Paris
BSE / NSE
500189 / HTMT
HTMT.BO / HTMT.NS
127 - 403
339 (as on 19th August, 2005)
1,386
Promoters - 67.75%
Institutional Investors - 18.32%
Corporate Bodies - 7.07%
Individuals / Others - 6.86%
Rs. 167 Crores
Rs. 614 Crores
Rs. 70 Crores
Rs. 231 Crores
Rs. 40.9 Crores
17.13
56.54
119
130
Call Center Services
Call Center & Mktg. Services
Multiple System Operator
Television-Film content
Broadband Internet Services
up 3% yoy
up 115% yoy
down 7% yoy
up 175% yoy
51%
100%
62%
100%
100%
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Addre
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Key data 2005
Key data
2005
Annual Report 2005
Web Presence
www.htmtoutsourcing.com
Websites
www.hindujatmt.com
www.c-cubeservices.com
www.sourceonehtmt.com
www.hindujagroup.com
Forward-looking statements
In this Annual Report we may have disclosed certain forward-looking realised, although we believe we have been prudent in assumptions.
information to enable investors to comprehend our prospects and take The achievement of results is subject to risks, uncertainties and even
informed investment decisions. This report and other statements - inaccurate assumptions at times.
written and oral - that we periodically make may contain forward-
looking statements that set out anticipated results based on the Should known or unknown risks or uncertainties materialise, or should
management's plans and assumptions. We have tried wherever underlying assumptions prove inaccurate, actual results could vary
possible to identify information with words such as 'anticipate', materially from those anticipated, estimated or projected. Readers
'estimate', 'expects', 'projects', 'intends', 'plans', 'believes', and words should bear this in mind.
of similar substance in connection with any discussion of future
performance. We undertake no obligation to publicly update any forward-looking
statements, whether as a result of new information, future events
We cannot guarantee that these forward-looking statements will be or otherwise.