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Dhanus Technologies Ltd.

BSE: 532903 Sector: IT
NSE: DHANUS ISIN Code: INE406H01016
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Dhanus Technologies Ltd. (DHANUS) - Director Report

Company director report

DIRECTORS

Your Directors are pleased to present the 18th Annual Report together withthe statement of audited accounts of the Company for the financial year ended on December31, 2011.

Financial Highlights

The following table summarizes the financial highlights of your Company, on astandalone basis, for the financial year under review:

Particulars Year ended 31st December, 2011 Year ended 31st December, 2010
(12 months) (18 months)
Total Income 53,65,07,714 119,29,85,522
Profit Before Interest, Depreciation and Taxes 7,26,35,079 39,83,74,913
Less: (a) Interest 1,87,82,500 4,30,58,343
(b) Depreciation 17,71,48,232 37,01,00,290
Profit/(Loss) Before Tax (12,32,95,653) (1,47,83,720)
Less: Provision for - (a) Provision for Current Tax 10,72,000 1,21,90,000
(b) Deferred Tax (1,03,70,322) (1,68,84,584)
Profit/(Loss) After Tax (11,39,97,331) (1,00,89,136)

Note: The figures for the current year are for a period of 12 months as against 18months in the previous period and hence, are not comparable.

Financial Review

The turnover of the Company for the financial year ended 31st December,2011, reported a decrease of 55.03% from Rs. 11929.85 lakhs in the previous year to Rs.5365.08 lakhs in the year under review.

The Company has reported a Profit before interest, depreciation and tax of Rs. 726.35lakhs and after providing Rs. 187.83 lakhs towards interest, Rs. 1771.48 lakhs towardsdepreciation and adjusting Rs. 92.98 lakhs towards tax, the net loss amounts to Rs.1139.97 lakhs.

Business Review

During the current financial year ended December 31, 2011, the businesses across allverticals met with a substantial setback on account of factors both external and beyondthe control of the management and internal relating to issues such as marketing structureand reach, product pricing etc. Dhanus has, over the past two years, been trying to makeefforts to reverse the downslide in business by attempting to restructure its businessesand salvage the Company's business clientele and marketing reach.

Telecom

With the Company facing a recession throughout the year under review, and on account ofgrowing financial instability and economic downturn across various parts of the globe,more significantly in Europe, and making an impact in India, the tourism industry sufferedsubstantially thus adversely influencing the overseas travels of Indians. The Company'stelecom services were thus impacted as Indians traveling abroad happen to be the exclusivetarget customer segment in this vertical. V-tel continues to contribute a major share tothe Company's top line. The Company continues to make efforts to arrest this negativetrend by reviewing and drawing new plans both on the product and marketing front.

Telematics

The Company's telematics vertical brand 'Fleetrac' showed a significant negative growthon account of recession in the transportation and automobile sector. The Company is havinga relook at the Company's marketing strategies, client reach, pricing policies andstrategies. Your Company plans to revisit its business model in this segment and reviewits financial viability and thereafter decide on its renewed launch.

IT/ITES

The marginal reversal in the recessionary conditions in the US did not do much in termsof reviving the fortunes of the outsourcing business of your Company. Morover, theanti-sourcing sentiments prevailing in the US also added to lack of fresh business fromthe US. This has affected the Company's main customer segment, and the anti-outsourcingsentiments prevailing in the US on account of large scale unemployment continued to impactthis segment of Company's business this year too. The BPO business had sustained anegative growth in its business and the Company succumbed to pricing and margin pressures.

Trading Activities

The Company had forayed into a new business segment viz., Trading Activity in November2010. The Company primarily was engaged in the trading of computer products, accessoriesand peripheral items. The Company started this business in the first week of November,2010 and did robust business in this segment initially, although with nominal marginlevels. However, the Company continued this business till June 2011 anticipating increasedvolume of business and also upward scalability in the profit margins. The Company howeverrealized that it was not to happen and it was essentially a low-margin with not much ofperceptible scalability and therefore decided to suspend this activity in the secondquarter of the financial year under review till a comprehensive review of this segment ofbusiness and its viability is analyzed.

Current strategy:

The Company's primary aim is to be a global communications company, utilizing emergingtechnologies to provide convergent communication services. The business model of theCompany revolves around its core competence i.e., Telecom & Networking.

The Company proposes to review its entire gamut of existing businesses, marketingstructure and strategy and adopt a pragmatic approach in analyzing its ability to achievea dedicated revival plan in each of these businesses.

The Company's business opportunities are undoubtedly high in various parts of the worldwherever there is a perceptible presence of Indian diaspora.

Management Discussion and Analysis

A detailed report on Management Discussion & Analysis for the financial year endedDecember 31, 2011 as stipulated under Clause 49 of the listing agreement with the StockExchanges in India is provided as a separate chapter in this Annual Report.

Issue of Convertible Warrants

As mentioned in our earlier Report for the financial year 2009-10, your Company madefirm financial arrangements to take advantage of business opportunities that may arise infuture, as the Company believes that it needs to have an inorganic-growth approach till aself-sustaining financial strength is reached.

The Company therefore issued 15,00,00,000 Convertible Equity Warrants to select groupof investors/allottees on February 21, 2011. Thereafter, on receipt of full consideration,your Company converted 8,32,68,333 Warrants into Equity Shares of equivalent amount onMarch 31, 2011 and the balance 6,67,31,667 Warrants into Equity Shares of equivalentamount on July 9, 2011.

Bonus Shares

Your Company decided to capitalize its existing reserves by issuing Bonus Shares to itsEquity Shareholders in the ratio of 12:5 (i.e., 12 equity shares for every 5 equity sharesheld as on the Record Date). Your Company, after receiving the requisite approvals fromthe Stock Exchanges, successfully made the allotment of 40,30,62,312 Bonus Shares.

Public Deposits

Your Company has not accepted any public deposits.

Directors

In compliance with the provisions of the Companies Act, 1956 and in accordance with theCompany's Articles of Association, Shri. G. Rathan Kumar and Shri. A.D. Sudhindra,Directors, retire by rotation at this Annual General Meeting scheduled on September 25,2012 and, being eligible, offer themselves for re-appointment.

It needs to be mentioned here that the Company had seven Directors at the end offinancial year 2009-10. However, one of the independent Directors expired consequent towhich the strength of the Board reduced to six at the end of the financial year ended 31stDecember, 2011. Amongst the remaining six, the resignation of two independent Directorswas accepted by the Board in its meeting on 18th March, 2012. In the samemeeting, three Additional Directors were appointed bringing the strength of the Board toseven. The Additional Directors would come up for confirmation as Directors in the ensuingAnnual General Meeting.

During the year and the intervening period post the closure of the financial year andthe date of this Report, the following developments in the Board took place:

Shri. Darshan Suryakant Shah, Non-Executive and Independent Director of the Companyresigned on February 24, 2012 and ceased to be a Director. His resignation was accepted bythe Board in its meeting held on March 18, 2012.

Shri. R. Radhakrishna, Non-Executive and Independent Director of the Company resignedon August 9, 2011 and ceased to be a Director. His resignation was accepted by the Boardin its meeting held on March 18, 2012.

Consequent to the untimely demise of Shri. S. Manoharan, Non-Executive &Independent Director, his name was removed from the Board in its meeting on May 14, 2011.

During the period between the end of the financial year 2011 and the date of thisReport, Shri. Kumar Raichand Madan, Shri. U. Parthasarathy and Shri. S. Sriram wereappointed as Additional Directors w.e.f March 18, 2012. They will hold office till theconclusion of the ensuing Annual General Meeting of the Company. The Board welcomes Shri.Kumar Raichand Madan, Shri. U. Parthsarathy and Shri. S. Sriram on board and looks forwardto their active participation on various deliberations.

The Board appreciates the contributions made by Shri. Darshan Suryakant Shah, Shri. R.Radhakrishna and Shri. S. Manoharan during their tenure as Directors of the Company.

The Board of Directors inform the members that all the directors of your Company haveconfirmed that, in terms of Section 274(1)(g) of the Companies Act, 1956, they are notdisqualified to act as directors of your Company.

Directors Responsibility Statement

Pursuant to the requirements of sub-section 2AA of Section 217 of the Companies(Amendment) Act 2001, the Directors confirm that:

(i) In preparation of the annual accounts, the applicable accounting standards havebeen followed and proper explanations have been provided for material departures, whereverapplicable.

(ii) The Directors have selected such accounting policies and applied themconsistently, and made judgments and estimates that are reasonable and prudent, so as togive a true and fair view of the state of affairs of the Company as at 31stDecember, 2011 and the loss of the Company for the financial year ended 31stDecember, 2011.

(iii) The Directors have taken proper and sufficient care for the maintenance ofadequate accounting records in accordance with the provisions of the Company's Act, 1956,for safeguarding the assets of the Company and for preventing and detecting fraud andother irregularities.

(iv) The Directors have prepared the annual accounts on a going concern basis.

Auditors

M/s. P.C. Acharya & Co., Chartered Accountants, the Statutory Auditors, will retireat the conclusion of the forthcoming Annual General Meeting and are eligible forre-appointment. The Audit Committee and your Board recommend their reappointment asAuditors of the Company for a further period of one year and to fix their remuneration.They have furnished to the Company a certificate of their eligibility for appointment asauditors, pursuant to section 224 (1B) of the Companies Act, 1956.

The Board of Directors shall subsequent to their appointment determine the terms andconditions of their appointment, scope of work, and allocation of responsibilities such asstatutory audit, internal audit, taxation, tax audit etc and to accordingly fix theirremuneration.

Auditor's Report

With regard to the qualifications and emphasis of matter contained in the Auditor'sReport of Dhanus Technologies Limited, our explanations are given below:

i. Note (b) and (c) of the 4th para of the Auditor's Report - Note 1.2 (a)and (b) of Schedule 1 & 2 - Notes to Accounts to the financial statements

The Company has four business verticals and has a large number of debtors and creditorsas its business across various service verticals is of retail nature. Also, the Company'sservices and products have a wide geographical reach as well. Consequently, thereconciliation and control accounts of receivables and payables are not fully complete,although substantially covered. The Company however believes that non-reconciliation insuch accounts will not have any serious and perceptible impact on the revenues andexpenses recognized.

ii. Note (d) of the 4th para of the Auditor's Report

The Company has maintained a proper system of accounts. The Company confirms that thepurported deviation from Accounting Standards prescribed under AS-6, AS-9, AS-10, AS-22and AS-28 will in no way have any material adverse impact on the Profit & Loss Accountand also the Asset Liability position of the Company. The Company shall however make extraefforts to bring the systems in line with the accounting Standards expected of theCompany.

iii. Note (e) & (f) of the 4th para of the Auditor's Report

The Company agrees that reconciliation of Trade Receivables and Payables is yet to befully completed. However, the Company firmly believes that non-reconciliation and controlaccounts of receivables and payables will not have any serious and perceptible impact onthe revenues and expenses recognized as substantial and critical reconciliations have notprovided any adverse indication or cause for concern.

iv. Note (g) of the 4th para of the Auditor's Report

The inability to quantify the value of current assets including debtors, loans andadvances from a mark to market perspective will not have any material impact on the assetliability position of the Company. The Company's fixed assets being very large in numberas it primarily comprises of high-value routers, switches, servers, computing systems,integrators etc., the Company is in the process of completing the physical verification ofits fixed assets. The Company certifies that it fully owns the title to the assets and thecost of purchase and depreciation levied on them is accurate and in terms of generallyaccepted accounting principles. Kindly refer to Note 1.1 on Fixed Assets and correspondingwrite up on depreciation on assets.

v. Note (h) of the 4th para of the Auditor's Report

The Board agrees with the statement that the investment in M/s Borusan Telekom, Turkeyis possibly irrecoverable. The Company however proposes to attempt recovering the initialadvance given towards share purchase, although the Company agrees that the attempt may bean exercise in futility and accordingly appropriate steps in this regard would be followedto write off the investment after all possible efforts towards recovery are completelyexhausted.

The Company disagrees with the view that the amount advanced to M/s Sreeven InfocomLimited is irrecoverable. Sreeven Infocom is a healthy company and the Company is in talkswith the management of Sreeven Infocom to recover the amount advanced earlier.

Since the qualifications made by the Auditor's in the Report on the Consolidatedfinancial statements is similar to the ones made in the Standalone financial statements,the above explanations apply equally to those as well.

Audit Committee

The Audit Committee consists of three members namely Shri. G. Rathan Kumar, Justice(Retd.) Shri. S. Kalyanam and Shri. U. Parthasarathy, all of whom are independent. Shri.G. Rathan Kumar is the Chairman of the Audit Committee. All members of the Audit Committeepossess sufficient knowledge and experience in the field of Finance and Accounts.

Subsidiary Companies

Dhanus Global Medicare Limited, India and Dhanus Technologies Inc., USA continues to bewholly owned subsidiaries of your company. The statement under section 212 of theCompanies Act, 1956 along with a statement of additional information of subsidiaries isattached herewith.

Listing

The Equity Shares continue to be listed on Bombay Stock Exchange Limited (BSE) andNational Stock Exchange of India Limited (NSE). Both these exchanges have nation-wideterminals and therefore, shareholders/investors are not facing any difficulty in tradingthe shares of the Company from any part of the country. The Company has paid the annuallisting fee for the year 2012-13 to the BSE and NSE and the annual custodial fee toNational Securities Depository Limited (NSDL) and Central Depository Services (India)Limited (CDSL).

Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo.

Information as required under section 217(1)(e) of the Companies Act, 1956 read withthe Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988,is annexed as an Annexure to this Report.

Particulars of Employees

In terms of the provisions of Section 217 (2A) of the Companies Act, 1956 read with theCompanies (Particulars of Employees) Rules 1975 as amended, there was no employee duringthe year drawing remuneration more than the stipulated amount in the said rules.

Corporate Governance

Pursuant to Clause 49 of the Listing Agreement with the Stock Exchanges, a detailedcompliance report on Corporate Governance systems and practices together with acertificate from the statutory auditors confirming compliance with the conditions ofcorporate governance stipulated in the said clause is annexed to this report.

The Board laid down a "Code of Conduct" for all Board members and seniormanagement of the Company and the "Code of Conduct" has been posted on thewebsite of the Company, www.dhanus.net.

Acknowledgements

Your Directors take this opportunity to place on record their sincere appreciation forthe continued support and confidence reposed by the clients, business associates and theshareholders. The Directors also convey their appreciation to the employees at all levelsfor their enormous personal efforts as well as collective contribution.

For and on behalf of the Board of Directors

Place: Chennai Capt. D.S. Srinivasan A.D. Sudhindra
Dated: August 18, 2012 Managing Director Director

ANNEXURE TO THE DIRECTORS' REPORT

Information under Section 217(1) (e) of the Companies Act, 1956 read with the Companies(Disclosure of Particulars in the Report of Board of Directors) Rules, 1988, and formingpart of Directors' Report as under:

A. Conservation of Energy

The Operations of your Company are not energy-intensive. Adequate measures have howeverbeen taken to reduce energy consumption by using energy efficient computer terminals andby the purchase of energy efficient equipment incorporating the latest technology. Asenergy forms a very small part of the total cost, the impact on cost is negligible.

B. Technology Absorption

Your Company is constantly making efforts towards adoption, innovation and absorptionof the latest technology. The Company continues to carry out Research and Developmentactivities to enhance its capability and customer service. Your Company hopes that thisthrust will bring in new and better products and upgrade the existing products.

Your Company will continue to invest in and adopt the best processes and methodologiessuited to its line of business and long term business strategy. The company will continueto leverage on new technologies and also on the expertise available.

C. Foreign Exchange Earnings and Outgo:

The details of Foreign Exchange Earnings and Outgo are given below:

Year ended 31.12.2011 Year ended 31.12.2010
a) Foreign Exchange Earnings Nil Nil
b) Foreign Exchange Outgo Nil Nil

D. Details under section 217(2A) of the Companies Act, 1956 for the year ended 31stDecember, 2011

There was no Director or Key Managerial personnel drawing remuneration that would makethem eligible for being mentioned under section 217(2A) of the Companies Act, 1956.

For and on behalf of the Board of Directors
Place: Chennai Capt. D.S. Srinivasan A.D. Sudhindra
Dated: August 18, 2012 Managing Director Director
Registered Office:
New No. 20/Old No. 6, First Floor
Sengunthar Street
Shenoy Nagar
Chennai - 600 030
Tamil Nadu, India

Statement in Pursuance of Section 212(3) of the Companies Act, 1956

Sl. No. Name of the Subsidiary Company Dhanus Global Medicare Ltd. Dhanus Technologies Inc., USA
1. Financial Year of the Subsidiary Company 30.06.2011 31.12.2011
2. Holding Company's interest in the Company's Accounts Rs. 2,81,34,500/-(28,13,450 Equity Shares of Rs.10/-each) 100% Rs.9,54,73,560/-(22,64,90,000 shares of US$ 0.01 each)100%
3. Net Aggregate amount of the Losses not dealt with in the Holding Company's Accounts a) For the subsidiary's financial year ended as stated above b) For the previous financial year of the Subsidiary company. NIL NIL
4. Net Aggregate amount of the Losses dealt with in the Holding Company's Accounts.
a) For the subsidiary's financial year ended as stated above NIL NIL
b) For the previous financial year of the Subsidiary company.

 

Capt. D.S. Srinivasan A.D. Sudhindra R. Ramnath
Managing Director Director President (Corporate Affairs), CFO & Company Secretary
Place: Chennai
Date: August 18, 2012

Statement in Pursuance of Section 212(5) of the Companies Act, 1956

Statement of material changes which has occurred in respect of the following in thecase of the subsidiary between the end of the financial year and that of the holdingcompany in respect thereof.

Sl. No. Particulars Dhanus Global Medicare Ltd. Dhanus Technologies Inc.
a. Fixed Assets of the Subsidiary Nil Nil
b. Investments in subsidiary Nil Nil
c. Money lent by the subsidiary Nil Nil
d. Money borrowed by the subsidiary for any purpose other than that of meeting current liabilities Nil Nil

For consolidation of the accounts of Dhanus Technologies Limited, the foreignsubsidiary transactions are translate converted into Indian Rupees at Rs. 53.065 per US$i.e., the exchange rate as on 31st December 2011.

Capt. D.S. Srinivasan A.D. Sudhindra R. Ramnath
Managing Director Director CFO & Company Secretary
Place: Chennai
Date: August 18, 2012