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DSQ Software Ltd.

BSE: 523864 Sector: IT
NSE: SQRDSFWARE ISIN Code: INE286A01017
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DSQ Software Ltd. (SQRDSFWARE) - Auditors Report

Company auditors report

DSQ SOFTWARE LIMITED ANNUAL REPORT 2003-2004 AUDITORS' REPORT TO THE SHAREHOLDERS We have audited the attached balance sheet of DSQ Software Limited as at 30th September 2004, and the profit and loss account for the period 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 statements based on our audit. 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 from 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 presentation. We believe that our audit provides a reasonable basis for our opinion. 1. As required by the Companies (Auditor's Report) Order 2003 issued by Central Government in terms of section 227(4A) of the Companies Act, 1956 and on the basis of such examination of the books and records of the company as we considered appropriate and according to the information and explanations given to us during the course of audit, we enclose in the Annexure a statement on the matters specified in the said Order. 2. We have relied upon the representations given by the Management in respect of transactions, the validity, completeness and the values thereof, entered into between the Company and its overseas subsidiary /business associate companies and by its overseas branch, relating to sale of services / products, purchase of products/ services and reimbursement of expenses amongst these entities and in the view of the Management such transactions are not prejudicial to the interests of the Company. 3. The approval of the Reserve Bank of India is yet to be obtained for the overdue export receivables whose balance as at the period end is Rs.486,732 thousands. 4. Attention is invited to the following matters in Schedule 14: 4.1 Note 2(i) regarding provision of interest of Rs. 28,672 thousands (previous year Rs. 22,393 thousands) on Term Loans from IDBI, we are unable to comment upon the adequacy or otherwise of the same as the matter is sub judice. 4.2 Note 3 regarding Interest on Unsecured Loans from Bajaj Auto Ltd, as a result of non provision, the loss of the company is understated to the extent of Rs.20,000 thousands, and due to non provisioning and reversal of interest in the earlier year amounting Rs.16,000 thousand and Rs.10,904 thousand respectively the unsecured liability is under stated to an extent of Rs.46,904 thousand. 4.3 Note 4(ii) and 5 regarding the difference in the issued share capital of the Company, the company has to extinguish the liability by reducing the issued capital vide Registrar of Companies' directive dated 21.6.2002 and SEBI's Order dated 09.09.2004 relating to acquisition of Fortuna Technologies Inc., USA. 4.4 Note 6 regarding investigation by government agencies and seizure of certain records including statutory records of the Company in the absence of originals, we have relied upon the copies of the records/ minutes and other supporting documents produced to us and the representation of the Management for carrying out the audit. The lifting of the prohibitory order on the blocked Bank Account of the Company with a balance of Rs.486 thousands (Previous year Rs.476 thousands) and the ultimate liability in the penalty imposed by Enforcement Directorate for Rs.20,000 thousands, depends on the final out come of appeal proceedings. 4.5 Note 7 regarding Investments - we are unable to comment upon the adequacy of the provision for diminution in the carrying value of the investments since the realisability /marketability of such unquoted shares is uncertain. We have relied on the representations given by the management that the investments made are not prejudicial to the interests of the Company. 4.6 Note 8 regarding sale/services to the overseas subsidiary /business associate companies amounting to Rs.89,257 thousands (Previous year Rs.299,227 thousands) and adjustment of export receivables by issue of credit notes amounting to Rs. 56, 611 thousands (Previous year Rs. 201,540 thousands) towards contract expenditure have been accounted for by the company based on the arrangements, represented to have been entered into with these entities. The revenue recognition/adjustment of receivables by credit notes is based on management representation as to the arms length price of the transactions. 4.7 Note 11 regarding the partial compliance of compromise memo with ING Vysya Bank and its consequential effect. 4.8 Note 17 regarding accounting of interest for the period subsequent to the transfer of the debentures thereby the loss has been understated by Rs.5,156 thousands (previous year Nil). 5. We further report that had the observations made by us in paragraphs 4.2 and 4.8 above been considered, the loss for the period would have been more by Rs.25,156 thousands (as against the reported figure of Rs. 757,301 thousands), debit balance in profit and loss account would have been Rs.3,116,694 thousands (as against the reported figure of Rs. 3,091,538 thousands), unsecured loans would have been Rs.146, 904 thousands (as against the reported figure of Rs.100, 000 thousands). 6. As at the period ended 30.09.2004 the company's accumulated loss is Rs.3,091,538 thousands and its net worth is 166,399 thousands. The turnover of the company has come down drastically to Rs.11,588 thousands from 3,204,630 thousands for the year ending 30th June, 2002. It also does not have key management personal like President/Chief executive officer/Chief financial officer/senior managerial personal and Company secretary, 'to steer the company out of the current problems. The company has been saddled with legal proceeding from various Govt agencies the financial institutions and creditors. SEBI vide its order dt 9.09.04, has prohibited the company from accessing the capital market for a period of 10 years, making it difficult for the company to raise financial resources from public. Under these conditions the there is a significant uncertainty whether company will be able to continue its operations as a going concern' and therefore may be unable to to realize its assets and discharge its liability in the normal course of its business, and therefore adjustments relating to the recoverability and classification of recorded assets amounts or to amounts and classification of liabilities that may be necessary if the entity is unable to continue as going concern. On the basis of our observations set out in paragraphs 2 to 6 above, the effect of which, individually or collectively, could not be determined / estimated and the consequential impact, if any, on the net worth and value per share as at 30.,9.2004, and the loss for the period ended on that date, we are unable to opine whether the Balance Sheet gives a true and fair view of the state of company's affairs as at 30.9.2004 and whether the Profit and Loss Account gives a true and fair view of the loss for the period ended on that date in conformity with the accounting principles generally accepted in India. 7. Subject as aforesaid in paragraphs 2 to 6 including sub paragraphs above, we further report that : 7.1 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. 7.2 In our opinion, proper books of accounts as required by law have been maintained by the Company so far as appears from our examination of those books. 7.3 The Balance Sheet as at 30th September 2004 and the Profit and Loss account for the period ended on that date referred to above are in agreement with the books of accounts. 7.4 To the best of our information and according to the explanations given to us, the said accounts read in conjunction with Schedule 1 to 14 togetherwith notes thereon, give the information required by the Act in the manner so required. 7.5 In our opinion, the Balance Sheet and the Profit and Loss Account comply in all material aspects with the applicable accounting standards issued by the Institute of Chartered Accountants of India referred to in Section 211(3C) of the Act AS 20 on Earnings per share. 7.6 On the basis of the written representations, information and declaration from the directors of the Company and taken on record by the Board of Directors, we report that none of the directors is disqualified as on 30.9.2004 from being appointed as a director in terms of Sec. 274(1)(g) of the Companies Act 1956. R. Padmanabhan For Ramani & Ramanujam Chartered Accountant Chartered Accountants Chennai P. Ranga Ramanujam March 4, 2005 Partner ANNEXURE TO THE AUDITORS' REPORT TO THE MEMBERS OF DSQ SOFTWARE LIMITED REFERRED TO IN PARAGRAPH (1) OF OUR REPORT OF EVEN DATE FOR THE PERIOD ENDED 30TH SEPTEMBER 2004 i) (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 reasonable interval except for Dubai branch having Gross Block valued Rs.6,136 thousands (Previous year Rs.6,136 thousands). No material discrepancies have been noticed on such verification. (c) No substantial part of the Fixed assets has been disposed off during the period. ii) (a) The company has granted unsecured loans to 3 parties covered in the register maintained under section 301 of the Companies Act, 1956. The amount outstanding as at the period-end is Rs. 67,870 thousands (Previous year Rs.103,030 thousands). (b) As represented by the management the rate of interest and other terms and conditions of the loan granted by the company to the said parties, are prima facie not prejudicial to the interest of the company which we are unable to comment up on. (c) We are unable to comment upon the regularity of the repayment of the interest and principal since they have been given without any stipulation. (d) In our opinion reasonable steps have been taken by the company for recovery of principal and interest (e) The company has not taken any loans, secured or unsecured from companies, firms or other parties covered in the register maintained under section 301 of the Act. iii) In our opinion and information given to us, the company has internal control system commensurate with the size of the company and nature of its business for purchase of fixed assets. During the course of our audit, we have not observed any continuing failure to correct major weaknesses in internal control systems. iv) (a) The transactions that need to enter in pursuance of Section 301 of the Act have been so entered. (b) The transactions made in pursuance of such contracts or arrangements in the absence of the availability of the comparable prices, we are unable to comment upon the reasonableness of the prices with regard to the prevailing market price at the relevant time. v) The company has not accepted any deposits from the public. vi) The company has an internal audit system, which requires to be strengthened to make it commensurate with its size and nature of its business. vii) The Central Government has not prescribed the maintenance of cost records under Section 209(1)(d) of the Act for the products of the company. viii) (a) There were delays in depositing the Tax Deducted at Source, dividend tax, provident fund with appropriate authorities. The arrears as at the period end in respect of Tax Deducted at Source (Salaries), dividend tax which are due for a period more than six months form the date it became due is Rs.936 thousands, Rs.9,175 thousands respectively, out of which the company has since paid a sum of Rs.330 thousands against tax deducted at source. ix) The company's accumulated losses at the end of the financial year is more than fifty percent of its net worth. The company has incurred cash losses in the current and in the immediately preceding financial year. x) The company has defaulted in repayment of dues to financial institutions and banks. The period and amount of default are as below : Name of the Amount Default (As per Period Institution company's books of account) IndusInd Bank 31,85,73,127 July 2003 onwards Industrial Development Bank 37,15,68,225 July 2003 onwards ING Vysya Bank Ltd. 6,25,37,736 April 2003 onwards xi) 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) The company has given guarantee for loans taken by others from financial institutions, the terms and conditions whereof as per the management are not prejudicial to the interest of the company which we are unable to comment. xiii) During the current period company has not availed any term loans and hence commenting on application of the term loan does not arise. xiv) The company has not raised any short term fund during the period and hence commenting on investing on long term basis does not arise. xv) The company has not made any preferential allotment of shares to parties listed in the register maintained under section 301 of the Companies Act, 1956 xvi) The company has not issued any debentures during the period xvii) The company has not raised money in any public issue in the period under review. xviii) SEBI has reported fraud by the company in its Securities transactions, quantifying the liability of the company at Rs.6,300,000 thousands, which is being denied by the company in appeal proceedings. In our opinion and according to the explanations given to us, no fraud on or by the company has been noticed or reported during the period except as mentioned above. xix) In our opinion and according to the information given to us the provisions of clauses ii, xiii & xiv of Para 4 of the Companies (Auditor's Report) Order, 2003 are not applicable to this company. R. Padmanabhan For Ramani & Ramanujam Chartered Accountant Chartered Accountants Chennai P. Ranga Ramanujam March 4, 2005 Partner