DSQ SOFTWARE LIMITED
ANNUAL REPORT 2003-2004
the Members of
DSQ Software Limited
Your Directors have pleasure in presenting the Eleventh Annual Report of
your Company together with the audited accounts for the period ended
September 30, 2004.
Financial Result Rs. Crores
(15 Months) (12 Months)
Sales, Service and Other Income 11.39 61.09
Profit / (Loss) before Interest,
Depreciation and Income Tax (9.43) (22.84)
Interest 4.36 9.41
Depreciation 61.60 65.18
Profit / (Loss) before Tax 75.39 (97.43)
Provision for Taxation - -
Profit / (Loss) After Tax (143.38) (97.43)
Add: Balance brought forward
from last year - 5.36
Balance Transferred from
General Reserve - 43.70
Less: Provision for diminution
in value of investments 89.90 94.80
Prior Period Expenses 0.14 0.21
Proposed Dividend - -
Balance carried in
Profit & Loss Account 308.81 (143.38)
Reserves and Surplus 295.52 295.52
Review of Operations
Your Company has achieved a total income of Rs.11.39 crores for the period
ended September 30, 2004 compared to Rs.61.09 crores for the year ended
June 30, 2003.
As members are aware, the global melt down in IT sector had an adverse
impact on the Indian Software Companies to a great extent. Besides the
terrorist attack in US and the ban on travel to India affected the industry
to a great extent. Your Company is no exception to this general slow down.
This has resulted in decline in turnover, reduction in operating profit and
adverse cash flow situation of your Company. Besides the deliberate adverse
publicity about the Company in the media has also hurt the Company as some
of the old customers had, left the Company.
To combat the situation, your Company has taken various economy measures
during the period to improve the operating margins. Despite best efforts,
the Company has not been able to improve its client base/orders. The loss
of Senior Executives has also affected its performance.
In view of the loss incurred during the period, your Directors do not
recommend any dividend for the period ended 30th September, 2004.
The Company has not accepted any Fixed Deposits under Section 58-A of the
Companies Act, 1956.
Mr. Shiw Kumar Agarwal retires by rotation at the forthcoming Annual
General Meeting and being eligible, offers himself for reappointment. The
tenure of office of Mr. Dinesh Dalmia as Managing Director was over during
the course of this financial year and Mr. S. Govind Rajan was appointed as
Whole-time Director of the Company for a period of 2 years from 1st
The Company has a wholly owned subsidiary, Total Infosystems Inc. (Formerly
DSQ Software Corp.), USA. The accounts of the subsidiary company together
with the Auditors Report for the year ending 31st December, 2003 are
attached with this report, as required under Section 212 (1) of the
Companies Act, 1956 and the figures in respect of the Sudsidiary Company
are disclosed in INR.
Disclosure pertaining to Conservation of Energy, Technology Absorption and
Matters required under Section 217 (1)(e) of the Companies Act, 1956
regarding conservation of energy and technology are given in an Annexure
'A' which forms part of this report.
The disclosures required to be made under the guidelines on Employees Stock
Option Scheme are given in Annexure 'B'. Pursuant to Clause 49 of the
Listing Agreement, a report on Corporate Governance is given in Annexure
'C'. A Management Discussion and Analysis Report is given as addition to
Particulars of Employees
No employee is drawing more than Rupees two lakhs per month and hence the
statement to be disclosed in accordance with the provisions of Section 217
(2A) of the Companies Act, 1956 is not annexed.
Directors' Responsibility Statement as required under Section 217(2AA) of
the Companies Act, 1956
Your Directors confirm
i) that in the preparation of accounts for the year ended June 30, 2003,
the applicable Accounting Standards had been followed and there are no
ii) that the selected accounting policies are reasonable and prudent so as
to give a true and fair view of the state of affairs of the Company at the
year end and of the profit or loss of the Company for that year and applied
iii) that proper and sufficient care has been taken for maintenance of
adequate accounting records in accordance with the provisions of the
Companies Act, 1956 for safeguarding the assets of the Company and
preventing and detecting fraud and other irregularities;
iv) that the accounts for the period ended September 33, 2004 are on a
'going concern basis'.
In regard to reservations / qualifications in the Auditors' Report, the
relevant notes on the accounts are self explanatory. However, your
Directors wish to offer the following additional information /
The observations in Paragraph 2 of the Auditors' Report are more in the
nature of clarifications of the basis on which the audit was conducted,
which do not have any bearing on the accounts of the Company.
In respect of Paragraph 3, the Company has already applied with Reserve
Bank of India for write off of the overdue exports receivables amounting to
Rs.470,638 thousands and the approval is awaited.
In respect of Paragraph 4.1, the clarification in the Note No.2 ( i ) is
self explanatory and the matter is subjudice before the Honarable DRT,
In respect of Paragraph 4.2, the Note No.3 is self explanatory.
In respect of Paragraph 4.3 of the Auditors' Report, as mentioned in Note
No.5, the Securities and Exchange Board of India carried out an
investigation into the acquisition of M/s. Fortuna Technologies Inc., USA
and had advised the Company to cancel this acquisition done on share swap
basis. The Department of Company Affairs directed the Company to extinguish
the liability in respect of the shares allotted for the above purpose. The
Company is in the process of complying with the directions of the
Department of Company Affairs.
In respect of Paragraph 4.4 of the Auditors' Report, as mentioned in Note
No.6, the Enforcement Directorate conducted an investigation into certain
alleged FERA violations and had also taken certain records including the
statutory records. The Company is contesting the allegations made by the
Directorate and the matter is sub-judice.
In respect of Paragraph 4.5 of the Auditors' Report; as mentioned in Note
No. 17, the Company had made strategic long term investments in certain
unlisted companies which have become Associates as defined in Accounting
Standards 18 on account of such investments. As a matter of abundant
caution, the Company has also made adequate provision for the diminution in
the carrying value of such investments.
In respect of Paragraph 4.6 of the Auditors' Report, as mentioned in Note
No.8, these practices have been consistently followed by the Company from
its inception and there is no change. The Reserve Bank of India permits
Indian companies executing software contracts to retain and utilize
overseas a maximum of 70% of the contract value for project related
expenses and the balance income of at least 30% should be repatriated to
India. The Company is complying with these requirements.
In respect of Paragraph 4.7 of the Auditors' Report, the Note No.11 is self
In respect of Paragraph 4.8 of the Auditors' Report, the Note No.17 is self
In respect of observation in point Nos. ii (b) & ii (c) of the Annexure to
the Auditors' Report, your Directors wish to clarify that these amounts
were given in the normal course of business and substantial amounts were
recovered during the year.
In respect of point No. (vi) of the Annexure to the Auditors' Report, your
Company will take appropriate action.
In respect of point No. (viii) of the Annexure to the Auditors' Report,
your Directors wish to clarify that because of the terrorist attacks in the
US and slow down of economy, there were delays in collecting the amounts
from our overseas customers and the Company's cash flows were affected.
Also, the Company's liquidity was badly affected because of the opening
losses and the Company did not have adequate liquid resources to meet the
commitments on the due dates. Consequently, there was a delay in depositing
the Provident Fund and tax dues. However, the Provident Fund amount have
since been paid and the Company is making necessary arrangements to clear
the balance income tax amount due at the earliest.
The Company's Auditors, M/s. Ramani & Ramanujam and R. Padmanabhan, retire
at the conclusion of the ensuing Annual General Meeting and are eligible
for reappointment. Letters have been received from them stating that if the
appointed, the appointment will be in accordance with the provisions of the
Companies Act, 1956.
Your Directors take this opportunity to place on record their gratitude for
the confidence reposed and the co-operation extended to the Company by
Governmental agencies, banks, financial institutions, institutional and
Individual investors, mutual funds and equity funds. Your Directors also
wish to place on record their appreciation of the dedicated services of the
employees of the Company at all levels and their gratitude to the members
for their continued support.
For and on behalf of the Board
Place : Chennai S. Govind Rajan
Date : March 4, 2005 Chairman
ANNEXURE - `A' TO THE DIRECTORS' REPORT
Statement of Particulars of Conservation of Energy, Technology Absorption
Foreign exchange earnings and outgo pursuant to Section 217 (1) (e) of the
Companies Act, 1956 read with Companies (Disclosure of Particulars in the
Report of Board of Directors) Rules, 1988.
The Company is in the services sector and is not a power intensive one.
These rules are not applicable for this industry. However, it still lays
emphasis on conservation of energy and the Company's facilities have been
designed in such a way so as to minimise the use of energy.
Technology Absorption, Adaptation and Innovation
The Company being engaged in fast growth IT Sector, continuously adapts
itself to changing technologies so as to meet customer expectations.
The Foreign Exchange earnings / outgo are as under:
Particulars Current period Previous year
Foreign Exchange earned 10.34 32.06
Foreign Exchange outgo 7.14 22.19
For and on behalf of the Board
Chennai S. Govind Rajan
March 4, 2005 Chairman
ANNEXURE - `B' TO THE DIRECTORS' REPORT
Information required to be disclosed under SEBI (ESOS & ESPS)
The Company pursuant to the shareholders approval on 22nd July, 1998 and
29th March, 2001 has established two schemes of Employee Stock Option
namely DSQ ESOS (I) and DSQ ESOS (II). The Compensation Committee of
Directors approved the grant of the option to the employees on the basis of
the performance and other eligibility criteria. The details of various
Employees Stock Option Schemes are summarised below:
(a) DSQ ESOS (1)
(i) Total number of option granted to the employees 6,00,500
(ii) Exercise price Rs.260/- per share
(iii) Total number of equity shares issued under
the scheme during 2001-2002 24,825
(iv) Total amount paid-up Rs.64,54,500/-
(b) DSQ ESOS (ii)
Under this scheme, the grant size of 13,00,000 equity shares has been
approved at an exercise price of Rs.870/- per share. The scheme has not yet
Auditors' Report on Employees Stock Option Schemes
We have examined the books of account and other relevant records and based
on the information and explanations given to us, certify that, in our
opinion, the Company has not issued any employee stock options during the
year under the Employees Stock Option Scheme in accordance with SEBI
(Employees Stock Option Scheme and Employee Stock Purchase Scheme)
guidelines, 1999 and the resolutions of the Company in General Meeting held
on 28th July, 1998 and 29th March, 2001.
R. Padmanabhan For Ramani & Ramanujam
Chartered Accountant Chartered Accountants
Chennai P. Ranga Ramanujam
March 4, 2005 Partner