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Mascon Global Ltd.

BSE: 531131 Sector: IT
NSE: N.A. ISIN Code: INE896A01013
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Mascon Global Ltd. (MASCONGLOBAL) - Director Report

Company director report

MASCON GLOBAL LIMITED ANNUAL REPORT 2010-2011 DIRECTOR'S REPORT Dear Members, Your Directors are pleased to present their report on the business and operations of the Company together with the Audited Consolidated and Standalone Accounts of your Company for the period ended June 30, 2011. Financial Results: The following tables give the consolidated and standalone financial performance of the Company for the year 2010-2011 as compared to the previous financial year. Consolidated: Rs. in thousands Year ended June 30, 2011 March 31, 2010 (15 months) (12 months) Revenues 8,009,109 10,208,785 Cost of revenue 6,921,706 8,338,707 Gross margin 1,087,403 1,870,078 Other income 6,802 8,534 Selling, general and administration expenses 5,226,024 1,549,121 Operating profit (PBIDT) (4,131,819) 329,491 Interest & finance charges 641,858 445,431 Exchange Loss/(Gain) (31,674) 384,068 Depreciation & amortization 763,105 309,729 Profit before prior year adjustment and tax (5,505,109) (809,737) Prior year adjustments (190,356) 376,736 Provision for tax-Current year 14,850 53,212 - Previous year 5,842 4,293 - Deferred tax - (14,983) Profit after tax (5,335,445) (1,228,995) Standalone: Rs. in thousands Year ended June 30, 2011 March 31, 2010 (15 months) (12 months) Revenues 759,439 3,553,277 Cost of revenue 559,214 2,780,535 Gross margin 200,225 772,742 Other income 2,311 2,775 Selling, general and administration expenses 4,151,913 793,986 Operating profit (PBIDT) (3,949,377) (18,469) Interest & finance charges 444,501 358,082 Exchange Loss/(Gain) (35,869) 384,068 Depreciation & amortization 147,818 54,636 Profit before prior year adjustment and tax (4,505,826) (815,255) Prior year adjustments 187,392 (18,852) Provision for tax-Current year - 8500 - Deferred tax - (14,984) Profit after tax (4,693,218) (789,919) Year in Retrospect a. Consolidated: Total Revenues during 2010-2011 (Fifteen months) at Rs.80,091 lakhs registered an decrease of 22% over the previous year (Twelve months) revenue of Rs. 102,088 lakhs mainly on account of non-renewal of certain client contracts and loss of business due to the slow down in the US. The gross margin during the year was Rs.10,874 lakhs (13.5% of Revenue) as compared to Rs. 18,700 lakhs (18% of Revenue) in the previous year. The operating loss during the year increased to Rs. 41,318 lakhs as compared to Rs.3,294 lakhs during the previous year. The net loss for the year increased to Rs.53,354 lakhs against a net loss of Rs. 12,289 lakhs during the previous year. b. Standalone: Total Revenue during 2010-2011 (Fifteen months) at Rs.7, 594 lakhs registered a decrease of 78% over the previous year (Twelve months) revenue of Rs.35,533 lakhs, mainly on account slow down in the US resulting in marginal reduction of business to India. The gross margin during the year has decreased to Rs. 2,002 lakhs (26% of Revenue) as compared to Rs. 7,727 lakhs (22% of Revenue) in the previous year. The operating loss during the year increased to Rs. 39,493 lakhs as compared to Rs 18.5 lakhs during the previous year. The net loss for the year amounted to Rs. 46,932 lakhs as against a net loss of Rs. 7,899 lakhs during the previous year. Dividend The Board has not recommended any dividend for the year 2010-2011. Share Capital No fresh capital has been raised during the financial year 2010-2011 Acquisitions The Company has not made any new acquisition during the financial year 2010-2011 Financial Restructuring with Banks and others (i) In India State Bank of India The Company had availed Term loan and working capital facilities from State bank of India, Chennai during 2007 and 2009 to meet the overseas acquisition and to bridge the gap in working capital. Due to the global economic crisis, the company's revenues have substantially reduced and the company was unable to service the loan and interest. The Bank, the company and the Guarantors have entered in to a Joint Memo of settlement as of December 16, 2011 by which, the company and the guarantors have agreed to reduce the over all loan outstanding of the bank to the extent of INR. 67.88 crores and the balance to be settled over a period ending June 2015, on a structured repayment basis. The Company has also provided additional collateral in the form of UCC on 15% of the present paid-up capital of the US Subsidiary, namely, M/S. Versatech Consulting Inc, USA in favour of the bank, as per the terms of the Joint Memo of Settlement. The Company and the guarantors have initiated for the sale of the properties of the guarantors to repay the outstanding to the extent of INR. 67.88 crores of which INR. 41.59 crores has already been paid to reduce the overall outstanding of the bank. The matter is pending for final orders before the Debt Recovery Tribunal (DRT) chennai. ICICI Bank The Company and the personal guarantor Mr. K.Chandra are in discussions with the bank for arriving at an one time settlement in the form of a structured repayment. SBI Global Factors Limited and L&T Finance Limited The Company and the personal guarantor Mr. K. Chandra are in discussions with the above lenders to achieve a schedule for making structured repayments of the outstanding dues and to settle the legal suits filed by them against the company and its directors/officers. Donewell Impex Private Limited The Company had offered in the Magistrate Court a settlement plan but the lender has not agreed with the same and the matter is still before the Court. In the matter of the Winding-up petition filed by them before the Honorable High Court of New Delhi, the Company has agreed to offer a payment plan on a monthly basis and the matter is yet to be decided. In all the restructuring with the banks or other parties, the company is confident of entering in to a proper arrangement to settle the dues and disputes. (ii) US Subsidiary MGL Americas Inc, USA, the wholly owned subsidiary established during 2001 had been the pioneer in sourcing the off-shore business contracts for the India development centers, before the acquired subsidiaries were added to the profile of the company. During 2009, due to the US Economic melt down, the bankers to the subsidiary also went through convulsions and arising out of the same, the working capital and term loan limits were significantly reduced by them. During 2010-11, the bankers have to resort to liquidation and as part of the measures taken by the liquidators, the entire limit has been closed as of this August 2011, resulting in non-availability of working capital for supporting the operations of the subsidiary. Also, the bank has adjusted a portion of their term note and over advance by adjusting the collections from the operations and also by way of exercising their lien on a portion of the assets of the company. Human Resource Development This year has been extremely challenging for the organization from an HR perspective. In the context of a rather tough year on the business and operations front and on the backdrop of a resurgent IT Industry has meant that the Company has faced challenging times both in retention and attraction of talent. Tactically the HR Function refocused its approach on getting managers and themselves to work closer with the workforce to be able to respond to them and to disseminate information quicker as well as to establish better emotional connect. The total number of employees as on June 30, 2011 was 1600. The attrition for our remaining team is at 15%, however this remains comparable to the current industry benchmarks. The company has lost a number of clients and the clients have chosen to absorb some of our employees in their new vendor. MGL envisages major growth from new business areas such as Healthcare & Life Sciences, Banking, Financial Services, Communications, Infrastructure Management and Cloud Computing etc. The requirement of skills for these segments continues to be significantly different than that of the conventional IT services due to strong domain focus. Continued efforts are being made to identify suitable resources for these areas as well as to retool the existing workforce. The HR function is presently implementing robust long term plans focused on enhancement of the employer brand both internally and in the external market place. In view of the deep domain and technology skill sets that the business model of the Company requires, negotiations on tie-ups with well known institutions imparting technology education are at an advanced stage with a view to establishing suitable labs. This will not only harness innovation within partner educational institutions benefitting everyone involved but set up an assured well trained supply of workforce for the future. Quality Initiatives At MGL, commitment to continuous improvement of quality practices and building robust information security practices are an integral part of our business operation. MGL has achieved a number of significant milestones in its journey towards operational excellence. + Gurgaon Development Center is certified to ISO 9001:2008 + Bangalore Development Centers are certified to ISO 27001:2005 + Bangalore Development Centers are certified to ISO14001:2004 + Bangalore Development center is certified to TL9000 The above certifications are testimony to MGL's unstint commitment to achieving the highest standards of quality and expertise that the company brings to its clients globally. The corner stone of these certifications is the in-house developed Mascon Quality System (MQS) an agile, process driven, people oriented and customer focused quality management system which is continuously evolving to cater to the requirements of the company's varied business offerings. Certification and Partnerships: During the year, MGL did not sign any partnership agreements. Corporate Social Responsibility: Mascon being a responsible corporate entity has continuously been taking initiatives to address the societal problems and uplifting the underprivileged. During the year also 'Mascon Community Service'(MCS) continued to carry out several activities. Subsidiaries: Your Company has six direct subsidiaries as on June 30, 2011, viz. MGL Americas Inc., USA, Versatech Consulting Inc, USA, Ebusinessware Inc, USA, Jass & Associates Inc, USA, Mascon Global (Europe) Ltd., UK, and Mascon International Limited, Mauritius. MGL Americas Inc. has its own subsidiaries, details of which are given in the statement pursuant to the provisions of Sec.212 of the Companies Act, 1956. All the direct and step-down subsidiaries are engaged in software related business only. Ebusinessware Inc, has its own subsidiaries, details are given in the statement pursuant to the provisions of sec.212 of the companies Act, 1956. All the direct and step-down subsidiaries are engaged in software related business only. MGL Americas Inc., USA MGL Americas Inc., USA, a 100% subsidiary of the Company achieved total revenue of Rs.19,658 lakhs and EBITDA of Rs. (5,695) lakhs. The above results also include the performance of Mascon Global Information, S.D.E.R.L. DE.C.V. (Mexico), step-down subsidiary of the Company. Mascon Global GmbH., Germany another step down subsidiary of the Company did not have any operations during the year and steps are being taken for its revival. During the year, MGL Americas Inc, USA underwent financial settlement with its bankers, namely, M/S. Laurus Master Fund to adjust their dues towards their term loan and working capital funding. Accordingly, certain outstanding dues to bankers, vendors and employees together with certain business assets has been contributed to a corporation formed for this purpose and adjusted against the settlement of the banks outstanding obligations in the USA. This had an impact on the off-shore business arrangement with India with one of the development centers as they were having the business from these clients. The subsidiary company has still business left out and continuing to improve the same. MGL Americas had also formed another step-down subsidiary called MGL Telecom Inc. to cater to the Telecom business and except for certain payroll being operated through this corporation no other formal business operations are carried out in this subsidiary. Versatech Consulting Inc., USA Versatech Consulting Inc., USA, a 100% subsidiary of the Company achieved total revenue of Rs. 7,355 lakhs and EBITDA of Rs. 259 for the period ended June 30, 2011. The business of this company has been combined post merger of the other operating US Subsidiaires w.e.f. August 30, 2011 and all trade assets and liabilities are contributed to the new entity w.e.f. August 31, 2011.M/ S.Versatech Consulting Inc, is continuing as the lead subsidiary of the Company. Ebusinessware Inc., USA Ebusinessware Inc., USA, a 100% subsidiary of the Company achieved total revenue of Rs 181.34 lakhs and EBITDA of Rs. 962.15 lakhs. The above results include the performance of Ebusinessware Singapore Pte Limited, Singapore and Ebusinessware (India) Private Limited, India. The total operations of Ebusinessware Inc USA has been merged with M/S. Versatech Consulting Inc, USA w.e.f August 30, 2011 and the combined assets and liabilities were contributed to the new entity w.e.f. August 31, 2011. Post this statutory merger with Versatech Consulting EBW will not exist as a separate legal entity. The Existing subsidiaries of EBW in India and in Singapore will be the subsidiaries of the new corporation post the contribution of all the assets as part of the above initiative. Jass and Associates Inc USA Jass and Associates Inc, USA, a 100% subsidiary of the Company achieved total revenue of Rs.33,108 lakhs and EBITADA of Rs.812 Lakhs. The total operations of Jass & Associates Inc USA has been merged with M/S. Versatech Consulting Inc, USA w.e.f.August 30, 2011 and the combined assets and liabilities were contributed to the new entity w.e.f August 31, 2011. Post this statutory merger with Versatech Consulting JASS will not exist as a separate legal entity. Consolidation of US Subsidiaries During August 2011, the company had taken initiative to combine the business operations of the operating subsidiaries in the US, namely,M/S. Ebusinessware Inc, USA and M/S. Jass & Associates Inc, USA with M/S. Versatech Consulting Inc, USA by way of statutory merger of the corporations. Post the said merger, the combined business assets and liabilities of M/S. Versatech Consulting Inc, USA, Ebusinessware Inc USA and Jass & Associates Inc USA were contributed in to a new operating company. Post consolidation, the company is of the view that the intrinsic value of the business has increased. Mascon Global (Europe) Limited., UK Mascon Global (Europe) Limited, UK, a 100% subsidiary of the Company achieved total revenue of Rs.278 lakhs. The overall operations suffered due to the US and Europe Economy slow down. The management is taking all steps to re-establish certain new business verticals including product support in the years to come. Mascon International Limited, Mauritius Mascon International Limited, Mauritius, a 100 % subsidiary of the Company is a Special Purpose Vehicle (SPV) for making investments and it is not engaged in any operations during the year. Reporting on the Subsidiaries As per Sec. 212 of the Companies Act, 1956, your Company is required to attach the Directors Report, Balance Sheet and profit & Loss Account of these subsidiaries. However, the Ministry of Corporate Affairs (MCA) has issued their circular exempting the above. A brief summary of these subsidiaries is given in the Annual Report. The annual accounts of these subsidiary companies along with related information are available for inspection during business hours at the registered office of the Company. Corporate Governance and Management Discussion and Analysis As required under clause 49 of the Listing Agreement, reports on Corporate Governance along with Auditors' certificate and Management Discussion and Analysis are attached as a part of the annual report. Mr. K.Chandra, Chief Executive Officer and also responsible for the over all finance function has given a certificate to the Board as per the provisions of clause 49 of the Listing Agreement. Directors Reappointment Mr. Hendrikus Adrianus Alfonsus, Director of the Company, retire by rotation at the forthcoming Annual General Meeting and being eligible, offer himself for re-appointment. The Board of Directors has also recommended his reappointment for consideration of the Shareholders. Resignation: Mr. R. Gowrishanker, Director of the Company resigned w.e.f. February 2011. The Board places on record their appreciation for the long association of Mr. Gowrishanker and for his valuable contribution made by him during his tenure as the director of the Company. Mr. M. Srinivasan Director of the Company resigned w.e.f April 20, 2011. The Board places on record its appreciation for the valuable contribution made by him during his tenure as director of the Company. Directors Responsibility Statement: Pursuant to Section 217 (2AA) of the Companies Act, 1956, your Directors confirm that, to the best of their knowledge and belief; (i) In the preparation of the Annual Accounts for the Financial Year ended June 30, 2011, the applicable accounting standards have been followed along with proper explanation relating to material departures, if any; (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 the Company as at June 30, 2011 and its profit for the year ended on that date; (iii) Proper and sufficient care has been taken 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; (iv) The annual accounts have been prepared on a going concern basis. Statutory Auditors: The existing statutory auditors M/s G. Balu Associates, Chartered Accountants, shall retire at the conclusion of the ensuing Annual General Meeting and have indicated that they are not willing to continue in office as statutory auditors and as per the provisions of sub-section (1B) of section 224 of the Companies Act, 1956 M/ s. Nisarand kumar Chartered Accountants have confirmed their willingness to be appointed as statutory auditors, if appointed. Pursuant to recommendation of the Audit Committee, the Board of Directors have approved the appointment of M/s. Nisar and Kumar Chartered Accountants, as the statutory auditors of the Company for the financial year 2011-2012, subject to the approval of the shareholders of the company at the ensuing Annual General Meeting. Auditors' Report: In relation to the observations / qualification made by the auditors we state the following: * Substantial reduction in turnover and Loss during the period: The nature of business of the Company is sensitive to the global IT markets, more specifically the US markets. The Slowdown in the IT Industry, economic issues in USA and Europe and more specifically due to the reduction in off-shore business to India from the subsidiaries are the major reasons for the reduction in turnover. Also, the impact the US Subsidiary had due to the liquidation of their banker, has affected the availability of operational funds to the Company. * Unable to remit the statutory liabilities and clause no. ix of Annexure to Auditors' report: The reduced cash inflow due to the substantial reduction of off-shore business and the collections being impacted on account of the specific issues relating to the US Subsidiary are the primary cause for the delay / non remittance of the statutory liabilities by the company. The management endeavors to avail funds from alternate sources to repay the statutory obligations. * Recovery/Winding-up Proceedings by Banks/Others. As highlighted above , severe cash flow issues were faced by the major subsidiary as its banker went under liquidation, also adjusting the collections against their limits. This created severe cash strain for operational support. Some of the major clients of this subsidiary also canceled the off-shore business, which created further liquidity crunch. Due to continuing default, the banks/others have proceeded against the company by taking recovery/winding- up actions which are being represented by the Company. The Company is hopeful that the financial restructuring efforts will result in dropping off the winding up initiatives of the banks and others. * Going concern: The Company is optimistic of improved performance from offshore business in the near future due to prospects of recovery in US IT markets. The company's efforts to improve the revenue stream and restructure the debt burden, reduction of overall cost should result in adequate operational cash flows in near future * Regarding note 3(a) and 10(d): The interest on FCCBs and contribution towards approved gratuity fund could not be paid due to the liquidity crunch faced by the company. The company expects to resolve the same once the restructuring of borrowings with the banks is completed. * Regarding note 3(c): The Company is renegotiating the terms of borrowing and is hopeful of substantial reduction in the interest amount, thus, no provision has been made. * Regarding note 10(c): The company has rightly recorded the dues towards foreign tax liabilities on account of failure of debtor to meet the obligation taken over by it. * Non-confirmation of balance in debtors, creditors, Loans and advances and Deposits: The company is in the process of obtaining the confirmations from debtors and other parties. * No provision has been made in the books for any diminution in value for the investments made in certain subsidiaries. The Company has not considered diminution in these investments as it is not of a permanent nature and the current business and potential for the future for these subsidiaries is extremely positive. In the annexure to the Auditors' Report, it has been observed at clause (ix) that there were delays in the remittances of provident fund and tax deducted at source in India. This was due to severe liquidity crunch. The Company is in the process of raising some loans and the same could not be completed so that these liabilities could be discharged immediately. However, the management is making all the best efforts to get this situation regularized. Corporate Social Responsibility: Mascon being a responsible corporate entity has continuously been taking initiatives to address the societal problems and uplifting the underprivileged. During the year also 'Mascon Community Service' (MCS) continued to carry out several activities. Particulars of employees The information required under section 217 (2A) of the Companies Act, 1956, read with the companies (Disclosure of Particulars in the Report of Board of Directors) Rules 1988 is given in the Annexure appended hereto and forms part of this report. In terms of Section 219(1)(b)(iv) of the Companies Act, 1956, the report and accounts are being sent to all shareholders of the Company excluding the AfroesaidAnnexure. Any shareholder interested in obtaining a copy of the said statement may write to the Company Secretary at the registered office of the Company. Conservation of energy, technology absorption and foreign exchange earnings and outgo Particulars required 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, are set out in the Annexure 'A' to this Report. Acknowledgements The Board of Directors acknowledges the consistent support from the Company's clients, vendors, bankers, Government agencies, shareholders and investors. The Directors also place on record their sincere appreciation for the significant contribution made by the employees at all levels through their hard work, dedication and commitment. For and on behalf of the Board of Directors Place: San Francisco K. Chandra Dated: March 28, 2012 Chairman ANNEXURE 'A' TO THE DIRECTORS' REPORT Particulars pursuant to Companies (Disclosure of particulars in the Report of Board of Directors) Rules, 1988: A. Conservation of energy: The operations of your Company are not energy-intensive. However, adequate measures have been taken to preserve environment and reduce energy consumption by using energy efficient computers and equipments. Your Company uses CFL fittings in the development centers to reduce the power consumption for lighting. As energy cost forms a very small part of total cost, the impact on cost is not material. B. Technology absorption: a. Research and development: Your Company continuously invests in Research and Development ensuring a high level of technical competence. Research and Development refers to: i) General Software Development, which includes adoption of new technologies, process improvement, etc. ii) Continuous development & innovation in the Software Development Life Cycle process by adopting latest technologies such as Agile and extreme programming. iii) Implementation of Project Management Information System (PMIS) tools to plan and track the project execution across the globe. iv) Designed and developed a product to manage Competency Development and Management across the Company. v) Company has developed a very comprehensive Risk Management tracker for tracking the project risks. vi) Company has developed a Home Automation Solution in emerging technologies like Zigbee, Zwave etc. vii) Company has developed a demonstrable convergence gateway solution which is a confluence of legacy and current standards in wireline and wireless communications. viii) Company has developed a framework for Network Management Systems. ix) Development of a solution offering in the Plastics Manufacturing arena with the global leader in the ERP Software. x) Company has developed a Value Added Service framework for messaging platform. xi) Company has developed a security solution in emerging technologies like broadband wireless communication. xii) Development of frameworks, which helps in rapid development of new products/system. xiii) Verification & validation: Development of a process for testing, which enables the Company to deliver high quality product/solutions by optimizing the resources. MGL Continues to strengthen the R&D work in application development areas and absorption of new technologies. During 2011-2012, the communication technology division has continued development of the following solutions: 1 .Convergence Gateway: MGL Convergence Gateway is a new generation VoIP enabled gateway based on PICMG 2.16 compliant cPCI COTS hardware. This supports multiple interfaces and functionalities. It supports SIP user agents. FXS based telephone endpoints. For trunking it supports SIP, FXO, ISDN-PRI, E&M. It supports various Class- 5 features and also multi-party conferencing. Some of the USP's of the solution are: * Highly customizable hardware (common off the shelf) * Easy GUI based provisioning and management support * Highly scalable * New features can be easily added * Provides backend billing support 2. MGL NMS Framework: MGL NMS Framework is a simplified solution for monitoring, configuring and troubleshooting network devices and elements. The Framework is a heterogeneous, hierarchal and distributed network management system which manages the activities, procedures, methods and tools that pertain to the OAMP (operation, administration, maintenance, and provisioning) of any network systems. Individual network elements (NE) in any network can be managed by NMS Agent. Multiple agents can be connected to the central NMS Server which manages the network elements. The NMS solution supports complete FCAPS (Fault, Configuration, Accounting, Performance, and Security) functionality. Benefits of MGL NMS Framework include * Hierarchical management of agents and servers * Management of logical networks * Easy XML based configurations * Built-in scheduler * Topology view, and * Support for various RDBMS. 3. Home Net-A Home Networking Solution: Home networking is a new and emerging area. New standards are being released; new devices are being introduced into the market. Home networking emergence is necessitated by plenty of electronic gadgets used at home and the need to exchange data between them seamlessly. HomeNet is a comprehensive solution being developed to showcase MGL's expertise in these areas. HomeNet solution consists of off-the-shelf products integrated to form the home network; applications and services that can be offered over the home network. The solution enables: * Remote monitoring of homes from a desktop connected to internet * Networking devices within home using different medium (Coaxial cable, telephone cable, power lines, wireless) * Media sharing between devices (TV, Mobile phone, computer, etc) within home * Converged voice communication within home In our continuous commitment towards the society, MGL established an Environmental Management System based on ISO 14001 standard. Our company is actively identifying ways to adopt Green measures into all its operations. MGL's Communication division at Bangalore got re-certified for TL 9000 to version 5.TL 9000 is a specific Quality System standard promoted by Telecom industry leaders. MGL is among the only few organizations in India to have achieved this certification.. MGL is also uniquely certified for TL 9000 'Product category 7.8.2' for its consulting and staff augmentation business. We became the 4th organization in the world to have achieved a certification for their consulting and staff augmentation business. Our Company continues to achieve a higher degree of methodology standardization in handling software projects, which have been acclaimed by various quality auditors. The results will help the Company in leveraging these learnings into developing better solutions for its clients. b. Future plan of action: Your Company is continuously strengthening the R&D work in application development areas and absorption of new technologies. Your Company continues to invest in total integration of all its offices for improved efficiency. During the current financial year, no additional areas or activities were planned except focusing on the areas already identified by the company. Teams have been formed to develop ideas and frameworks to help address the time to market challenges of our customers. An example of such a framework is the MGL's NMS Framework. This provides a simplified solution for monitoring, configuring, and troubleshooting network devices and elements. MGL also has developed a Home Networking solution by integrating various components (COTS) and developed software glue on them. With this user will be able to view pictures stored in his/her computer on TV, able to play various playlist in home computer over the music system, monitor his home remotely over the internet or mobile phones. MGL also has developed a Convergence Gateway, which can act like a small foot print, highly configurable and customizable IPPBX system providing various class-5 features, using COTS components. MGL has plans to develop expertise in the following areas: * Applications for Android based systems * Voice XML * Test Automation IMS (IP Multimedia Subsystem) is an emerging standard in the telecom arena. The company is developing a suit of products to create Intellectual property and expertise in IMS area. AVANZAR suite consists of AVANZAR- Diameter, AVANZAR-DiaSim, AVANZAR-Dia Test, and AVANZAR-Dia LDAP products that enable TEMs to quickly re-engineer their existing network elements to make them IMS compliant and develop new IMS Network Elements. MGL participated in the IMS Plugfest conducted at University of New Hampshire, USA. At present, we are actively marketing AVANZAR to various customers. RichSMS is a Value Added Application for mobile users. This has been jointly developed with our existing customer Roamware. Roamware has more than 300 telecom operators worldwide as their customers and Roamware is marketing RichSMS to these customers. MGL owns the intellectual property of RichSMS. To meet the ever growing and specific needs of the Travel & Hospitality industry, MGL has developed market intelligence solutions that provide real time information relevant to hotels, car, airline or total travel package operators. VerityRM helps hotels, airlines and cruise operators around the world to obtain competitive rate/ availability information about their competitors from a wide array of electronic distribution channels. It has both On-demand and Scheduled reporting components. VerityRank is a powerful online competitive intelligence tool that will help monitor online presence with respect to search engine rankings vis-a-vis the competition. It helps to strategize marketing search action plan to stay ahead of the competition. ServizConnect helps the hotel and property management businesses to easily manage their room inventory and price across various distribution channels. It also has Batch, Price and Detailed Update components. c. Expenditure incurred: No further funds have been spent during the year towards setting up and executing Center of Excellence. d. Technology absorption, adaptation and innovation: Your Company uses the latest technology available for its operations. Your Company continues to maintain its thrust in modern technology applications. The Company has completed the implementation of Oracle ERP software at all its locations across the world except in integrating few of the subsidiaries of the company. C. Foreign exchange earnings and outgo: (Rupees in thousands) For the year ended June 30, 2011 March 31, 2010 a. Foreign exchange earnings by export of 652,191 3,487,753 Software b. Expenditure in foreign currency Expenses incurred in connection with onsite 20,914 3,202,236 operations at overseas trading office Overseas allowances, travel and other expenses 5,638 6,143 Capital goods Nil Nil Investment in WOS Nil 243,143 Advance towards acquisition of shares Nil Nil For and on behalf of the Board of Directors Place: San Francisco K. Chandra Date : March 28, 2012 Chairman MANAGEMENT DISCUSSION AND ANALYSIS OPPORTUNITIES & RISKS: The markets have been very difficult in the US. Together with the impact suffered by our Wholly owned subsidiary (WOS) due to our working capital banker in the US, and the continued non-availability of working capital support has put us in a difficult situation. The opportunities will expand in the coming months and risk will continue to be fact that we are unable to raise working capital funding. In addition, the challenges to settle with our bankers in India is significant and this has taken substantial attention of the management. OPPORTUNITIES: Our focus has been to fix our past backlogs and we believe that we can continue to grow once these factors are behind us. Opening up of new market segments: We are focused on our existing clients and building them and not placing any efforts with new clients. Domestic Market: The domestic market has low margins and the company is not focusing on this business Inorganic growth. The coming years will place unprecedented opportunities but our ability to restructure our finances will determine our ability to start our growth process. RISKS: Macro-Economic Risks: The Global financial health remains very fragile and our ability to grow has been impacted by this serious dislocation. Financial Risks: We continue to face financial risks arising out of our default situation with the banks. OPERATIONAL RISKS: Business Model Risks: The business model and opportunities have changed significantly since the financial meltdown of 2008-09. Our ability to solve our backlogs will determine the growth we can achieve. People Risks: Our talent pool is the best in the industry and they have become absorbed with some of our longer term issues. While we are making every effort to retain them the business model needs to change as also our need to insulate our business and the employees from the potential actions of the banks that we owe money to. Security Risks: We do not perceive any security threats at this time M & A. Transactions Risk: We have faced this risk due to non payment of some of the earn out payments. This continues to be a potential risk. Internal Control & Adequacy: We have sufficient internal control but continued cash starvation due to non availability of working capital has made us very lean and very focused on cutting costs. Audit Committee: We have an Audit Committee, details of which are provided in the Corporate Governance section elsewhere in this report. The Audit Committee reviews internal audit reports submitted by internal auditors and also periodically reevaluates the internal control systems for their adequacy and compliance with applicable statutes. Risk Management Committee: The Company has a Risk Management Committee that is chaired by the CEO. Members include the business heads, CFO and Company secretary. The Chairman of the committee apprises the Board at periodic intervals of any risk assessments and mitigation procedures. The company continues to seek the help of external consultants and experts to assess the risk structure of the organization and plans to bring in controls compliant to COBIT and SAS70. The Board and audit committee discussed significant business risks identified by management and any related mitigation plans. Industry and company specific risks and MGLs' mitigation strategy are covered in the Corporate Governance section elsewhere in this report. Financial Performance: MGL's financial performance statements have been prepared in accordance with Indian Generally Accepted Accounting Principles (GAAP) and the Companies, Act, 1956. The management Discussion and Analysis of the results given on the basis of the consolidated operations of Mascon Global and all subsidiary companies. This discussion should be read together with the detailed financial statements and notes to the accounts. RESULTS FROM OPERATIONS FOR MGL: The Financial Year 2010-2011, ended June 30, 2011 is for a period of fifteen months compared to the Financial Year 2009-2010, ended March 31, 2010 is for a period of twelve months. All comparisons are made on the above basis. REVENUE: The Company recorded operating revenue from overseas and domestic operations of INR. 8,009 million for the year ended June 30, 2011. This represents a decrease of 21.55% over operating revenues of INR. 10,209 million for the year ended March 31, 2010. The Company recorded domestic revenues of INR 107 million in 2011, a increase of 62% over 2010 revenues of INR. 66 million. COST OF REVENUE: The Company recorded cost of revenue of INR. 6,922 million for the year ended June 30, 2011. Cost of revenues were 86% and 82% of revenues in 2011 and 2010, respectively. The increase in percentage of cost of revenues can be attributed primarily to the reduction in revenue and increased staff costs. GROSS PROFIT: The Company recorded gross profit of INR 1,087 million for the year ended June 30, 2011. This represents decrease of 41% over gross profit of INR.1.870 million for the year ended March 31, 2010. The decrease in gross margin from 18% in 2010 to 13.5% in 2011 is a direct result of increase in cost of revenue as explained in the previous paragraph. SELLING, GENERAL & ADMINISTRATION EXPENSES (SGA): The Company recorded SGA of INR. 5,226 million (excluding an exchange gain of INR.31.7 million) for the year ended June 30, 2011. This represents a increase of 238% over the SGA of INR. 1549 million (excluding an exchange loss of INR 384 million) for the year ended March 31, 2010. SGA as a percentage of revenues has increased substantially from 15% to 65%. PROFIT BEFORE INTEREST,DEPRECIATION, AND TAXES (PBIDT): The Company recorded loss of INR.4,132 million for the year ended June 30, 2011. The Company recorded profit of INR.329 million for the year ended March 31, 2010. Excluding the impact of exchange differences, PBIDT as a percentage of revenues decreased and become negative in 2011. INTEREST AND OTHER INCOME: The Company recorded Interest and other Income of INR. 7 million for the year ended June 30, 2011. This represents a decrease of 22% over Interest and Other Income of INR 9 million for the year ended March 31, 2010. INTEREST AND FINANCE CHARGES: The Company recorded Interest and Finance Charges of INR.642 million for the year ended June 30, 2011. This represents an increase of 44% over Interest and Finance Charges of INR.445 million for the year ended March 31, 2010. DEPRECIATION AND AMORTIZATION: The Company recorded Depreciation and Amortization expenditure of INR. 763 million for the year ended June 30, 2011. This represents an increase of 146% over Depreciation and Amortization expenditure of INR 310 million for the year ended March 31, 2010. This is primarily due to one time depreciation recorded in the year ended June 30, 2011. PROVISION FOR TAXATION: Income tax expense comprises taxes on income from expenditure in India and other applicable foreign tax jurisdictions. The Company enjoyed certain benefits in India from tax incentive policies till the Financial Year 2009- 2010. Income and other taxes payable are determined in accordance with the provisions of the Income Tax Act, 1961. Tax expenses related to overseas operations are provided for in accordance with the tax laws of the applicable countries where work is carried out. For the Year ended June 30, 2011, the Company has provided an amount of INR. 15 million towards current tax (INR.53 million the previous year). No tax provision was written back for previous years, while an additional provision of INR. 1.7 million has been made for the previous years. Deferred tax asset was INR Nil for the year ended June 30, 2011 as against a deferred tax liability of INR 15 million for 2010. PROFIT AFTER TAX: As a result of consolidated operations carried out during the year, the Company recorded a net loss of INR.5,335 million for the year ended June 30, 2011 against a net loss of INR.1,229 million for the year ended March 31, 2010. Financial Position of Mascon Global Limited (Consolidated). SHARE CAPITAL: The Share capital of the Company as on June 30, 2011 is given below: Table : MGL Share capital 2010-2011 (Rupees in Millions) As on June 30, 2011 As on March 31, 2010 Authorized share capital 7,000 7,000 Issued and paid up capital 3,721 3,721 LOANS: The Company recorded secured loans of INR 2,541 million as on June 30, 2011 compared to INR. 2,353 million as on March 31, 2010. The Company recorded unsecured loans of INR. 2,518 million as on June 30, 2011 compared to INR. 2,456 million as on March 31, 2010. ASSETS: Fixed Assets: The Company recorded additions to gross block (excluding capital work-in progress and goodwill) of INR. 14 million for the year ended June 30, 2011, compared to additions of INR.10 million for the year ended March 31, 2010. INVESTMENTS: The Company recorded investments of INR 3,489 million as on June 30, 2011, compared to INR. 4,605 million as on March 31, 2010. CURRENT ASSETS, LOANS and ADVANCES: The Company recorded current assets, loans and advances of INR.3,057 million as on June 30, 2011,compared to INR. 5,440 million as on March 31, 2010. Accounts Receivable comprised of INR.1,505 million on June 30, 2011 representing an decrease of 60% over accounts receivable of INR. 3,814 million on March 31, 2010. The Company recorded total cash and bank balances of INR.199 million on June 30, 2011 representing a decrease of 5% over cash and bank balances of INR.210 million on March 31, 2010. Loans and advances comprised of INR. 1,354 million on June 30, 2011 representing a decrease of 4% over loans and advances of INR.1,416 million on March 31, 2010. PROVISIONS: The Company recorded provisions for taxation of INR 176 million for the year ended June 30, 2011, representing a increase of 60% over provisions due to previous year adjustments for taxation of INR. 442 million for the year ended March 31, 2010. The Company has created deferred tax asset of INR.1 million for the year ended June 30, 2011 representing a decrease of 85% over the deferred tax liability of INR.7 million for the year ended March 31, 2010. These taxes are primarily in the US for the wholly owned subsidiaries.
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