DIRECTORS' REPORT To The Members, Your Directors have pleasure in presenting the Sixteenth Annual Report together with the Audited Accounts (including consolidated accounts) of the Company for the year ended 31st March 2015. Operations The consolidated income of the Company was Rs. 6.21 Crores and the consolidated loss was Rs. 4.64 Crores. Mos Chip India The Company has been building the services space in software and customer specific chip development. The company leveraging its vast product development experience has successfully bid on a very complex SOC chip for the Indian defense lab. The company sees very large opportunities in the defense sector with multi fold growth opportunities while the software services offer a very steady growth. Subsidiaries, Joint Ventures and Associate Companies In accordance with Section 129(3) of the Companies Act, 2013, a statement containing salient features of the financial statements of the subsidiary companies in Form AOC-1 is enclosed as Annexure - A of the Board's Report. Dividend The company has not declared any dividend during the year under review. Increase/Decrease in Share Capital The Company has only one class of shares. The Company has not allotted any shares during the year under review. However during the year the Company has proposed for Scheme of Capital Reduction. Under this Scheme the Company reduced Face Value of its equity shares from Rs.10/- to Rs.2/- per share. The reduction in share capital amounting to Rs. 368,284,136/- and the balance standing in the share premium account of Rs. 666,633,920/- has been used to set off accumulated losses to the extent of Rs. 1,034,918,056. After the reduction, the paid up share capital stands at Rs. 92,071,034 as on 31 March 2015. Marketing and distribution The company has transformed into value added services and has made steady inroads into very large Tier-1 customers including domestic customers. The Company has bagged a very complex custom System on a Chip (SOC) from a domestic customer despite stiff competition from the leading service providers. This chip is to be fabricated using the state of the art 40nm Low Power CMOS technology. The company is increasing focus on Defence projects. The Company is continuing to look for some critical joint ventures and pursuing these vigorously. Material changes and commitments if any affecting the financial position of the Company occurred between the end of the financial year to which this Financial Statements relate and the date of the report There have been no material changes and commitments, affecting the financial position of the Company which occurred during between the end of the financial year to which the financial statements relate and the date of this report. Details of significant and material orders passed by the regulators/ courts/ tribunals impacting the going concern status and the Company's operations in future There are no significant material orders passed by the Regulators/ Courts which would impact the going concern status of the Company and its future operations Transfers to Reserves In view of the loss, your Board of Directors does not appropriate any amount to be transferred to General Reserves during the year under review. Buy Back of Securities The Company has not bought back any of its securities during the year under review. Sweat Equity The Company has not issued any Sweat Equity Shares during the year under review. Bonus Shares The Company has not issued any bonus shares during the year under review. Listing with Stock Exchanges The Company confirms that it has paid the Annual Listing Fee for the year 2015-16 to BSE where the Company' Shares are listed. Dematerialization of Shares 90.95% of the company's paid up Equity Share Capital is in dematerialized form as on 31 stMarch, 2015 and balance 9.05 % is in physical form. The Company's Registrars are Karvy Computershare Pvt. Ltd., Karvy Selenium, Tower B, Plot No. 31 & 32, Financial District, Gachibowli, Hyderabad - 500 032, Telangana. Number of Board Meetings held The Board of Directors duly met 6 times during the financial year from 1st April, 2014 to 31st March, 2015. The dates on which the meetings were held are as follows: 18h April, 2014, 29th May, 2014, 04th August, 2014, 08th August, 2014, 13thNovemeber, 2014 and 12th February, 2015. Directors In terms of Articles of Association of the company Mr. C. Dayakar Reddy, Director and Mr. K. Ramchandra Reddy, Director retires by rotation at the ensuing Annual General Meeting and being eligible offers them self for re-appointment. Dr. Vijaya Chandru (DIN: 00914988) resigned from the Board on 13th November 2014. The Board expresses its appreciation of the valuable contribution made by Dr. Vijaya Chandru during the tenure of his directorship. Appointment of Independent Directors Your Directors state that Mr. G. Prasad, Mr. K. V. Ramana & Ms. Poornima Shenoy who have been appointed as Independent Director & Independent Women Director possess appropriate balance of skills, expertise and knowledge and are qualified for appointment as Independent Directors. All Independent Directors have given declarations that they meet the criteria of independence as laid down under Section 149(6) of the Companies Act, 2013 and Clause 49 of the Listing Agreement. Familiarization programme for Independent Directors The Company pro-actively keeps its Directors informed of the activities of the Company, its management and operations and provides an overall industry perspective as well as issues being faced by the industry. Board evaluation The Board of Directors has carried out an annual evaluation of its own performance, Board committees and individual directors pursuant to the provisions of the Act and the corporate governance requirements as prescribed by Securities and Exchange Board of India ("SEBI") under Clause 49 of the Listing Agreements ("Clause 49"). The performance of the Board was evaluated by the Board after seeking inputs from all the directors on the basis of the criteria such as the Board composition and structure, effectiveness of board processes, information and functioning, etc. The performance of the committees was evaluated by the board after seeking inputs from the committee members on the basis of the criteria such as the composition of committees, effectiveness of committee meetings, etc. The Board and the Nomination and Remuneration Committee ("NRC") reviewed the performance of the individual directors on the basis of the criteria such as the contribution of the individual director to the Board and committee meetings like preparedness on the issues to be discussed, meaningful and constructive contribution and inputs in meetings, etc. In addition, the Chairman was also evaluated on the key aspects of his role. In a separate meeting of independent Directors, performance of non-independent directors, performance of the board as a whole and performance of the Chairman was evaluated, taking into account the views of executive directors and non-executive directors. The same was discussed in the board meeting that followed the meeting of the independent Directors, at which the performance of the Board, its committees and individual directors was also discussed. Audit Committee The Composition of the Audit Committee is provided in the Corporate Governance Report forming part of this report. All the recommendations made by the Audit Committee were accepted by the Board. Nomination and Remuneration Policy The Nomination and Remuneration Policy containing guiding principles for payment of remuneration to Directors, Senior Management, Key Managerial Personnel and other employees including Non-executive Directors along with Board Evaluation criteria are provided in the Corporate Governance Report. Corporate Social Responsibility (CSR) Initiatives: Section 135 of the Companies Act, 2013 provides the threshold limit for applicability of the CSR to a Company ie. (a) networth of the Company to be ' 500 crore or more; or (b) turnover of the company to be ' 1,000 crore or more; or (c) net profit of the company to be ' 5 crore or more. As the Company does not fall under any of the threshold limits given above, the provisions of section 135 are not applicable to the Company. Internal control systems and their adequacy: The Company maintains appropriate systems of internal control, including monitoring procedures, to ensure that all assets are safeguarded against loss from unauthorized use or disposition. Company policies, guidelines and procedures provide for adequate checks and balances and are meant to ensure that all transactions are authorized, recorded and reported correctly. The Head of Internal Audit together with external audit consultants review the effectiveness and efficiency of these systems and procedures to ensure that all assets are protected against loss and that the financial and operational information is accurate and complete in all respects. The Audit Committee of the Board of Directors approves and reviews audit plans for the year based on internal risk assessment. Audits are conducted on an on-going basis and significant deviations are brought to the notice of the Audit Committee. Employee Stock Option Plan During the year under report the company has eight schemes in operation as mentioned below, for granting stock options to the employees and directors of the company and its wholly owned subsidiary in accordance with Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines 1999. (a) Mos Chip Stock Option Plan - 2001 (b) Mos Chip Stock Option Plan - 2002 (c) Mos Chip Stock Option Plan - 2004 (d) Mos Chip Stock Option Plan - 2005 (MI) (e) Mos Chip Stock Option Plan - 2005 (WOS) (f) Mos Chip Stock Option Plan - 2008 (g) Mos Chip Stock Option Plan - 2008 (ALR) (h) Mos Chip Stock Option Plan - 2008 (Director) Disclosures pursuant to para 12 of the above referred SEBI guidelines are set out as Annexure - B, to this report. Vigil Mechanism / Whistle Blower Policy In pursuant to the provisions of section 177(9) & (10) of the Companies Act, 2013, a Vigil Mechanism Whistle Blower Policy in line with listing agreement for directors and employees to report genuine concerns has been established. The Vigil Mechanism Policy has been uploaded on the website of the Company at <http://www.Mos Chip.com/> corporategovernance/ Vigil Mechanism Policy link. Fixed Deposits The company has not accepted any fixed deposits in terms of Section 73 of the Companies Act, 2013 from the public. Auditors Statutory Auditors and Auditors' Report M/s. Gokhale & Co., Chartered Accountants (Firm Registration No. 000942S) were re-appointed as the Statutory Auditors of the Company to hold office from the conclusion of the 15th Annual General Meeting (AGM) held on September 11, 2014 until the conclusion of the third consecutive AGM of the Company to be held in the year 2017 (subject to ratification of their appointment by the Members at every AGM held after the AGM held on September 11, 2014). As required under the provisions of section 139(1) of the Companies Act, 2013, the Company has received a written consent from M/s. Gokhale & Co., Chartered Accountants to their appointment and a Certificate, to the effect that their appointment, if made, would be in accordance with the Companies Act, 2013 and the Rules framed thereunder and that they satisfy the criteria provided in section 141 of the Companies Act, 2013. The Members are requested to ratify the appointment of the Statutory Auditors as aforesaid and fix their remuneration. The Notes on Financial Statements referred to in the Auditors Report are self-explanatory and do not call for any further comments. The Auditors' Report does not contain any qualification, reservation or adverse remark. The Statutory Auditors have not reported any incident of fraud to the Audit Committee of the Company in the year under review. Secretarial Audit Pursuant to the provisions of Section 204 of the Act and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Board of Directors has appointed M/s. B S S & Associates, Company Secretaries for conducting Secretarial Audit of the Company for the financial year 2014-2015. The Secretarial Audit Report is annexed herewith as Annexure - C. The Secretarial Audit report does not contain any qualification, reservation or adverse remark Conservation of energy, research and development, technology absorption, foreign exchange earnings and outgo Information required under Section 134(3)(m) of the Act read with Rule 8(3) of the Companies (Accounts) Rules, 2014, with respect to conservation of energy, technology absorption and foreign exchange earnings/outgo is included in Annexure D. Management Discussion & Analysis Pursuant to the provisions of Clause 49 of the Listing Agreement, a report on Management Discussion & Analysis is set out as Annexure - E to this report. RELATED PARTY TRANSACTIONS: Related party transactions that were entered during the financial year were on an arm's length basis and were in the ordinary course of business. There were no materially significant related party transactions with the Company's Promoters, Directors, Management or their relatives, which could have had a potential conflict with the interests of the Company. Transactions with related parties entered by the Company in the normal course of business are periodically placed before the Audit Committee for its omnibus approval and the particulars of contracts entered during the year as per Form AOC-2 is enclosed as Annexure-F. The Board of Directors of the Company has, on the recommendation of the Audit Committee, adopted a policy to regulate transactions between the Company and its Related Parties, in compliance with the applicable provisions of the Companies Act 2013, the Rules thereunder and the Listing Agreement. This Policy was considered and approved by the Board has been uploaded on the website of the Company at <http://www.Mos Chip.com/corporategovernance> /Related Party Policy link. Extract of Annual Return: The details forming part of the extract of the Annual Return in form MGT 9 is annexed herewith as Annexure G PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS Details of Loans, Guarantees and Investments covered under the provisions of Section 186 of the Companies Act, 2013 are given in the notes to the Financial Statements. REMUNERATION RATIO OF THE DIRECTORS / KEY MANAGERIAL PERSONNEL (KMP) / EMPLOYEES: The information required pursuant to Section 197 read with Rule 5 of The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 and Companies (Particulars of Employees) Rules, 1975, in respect of employees of the Company and Directors is furnished hereunder: Directors' Responsibility statement as per Section 134 (3) (C) of the Companies Act, 2013 The Board of Directors of Mos Chip states that: a) in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures; b) The Directors had 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 at the end of the financial year 2014-15 and of the loss of the company for that period; c) The Directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities; d) The directors had prepared the annual accounts on a going concern basis; e) The Directors had laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively: f) The Directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively. CORPORATE GOVERNANCE AND SHAREHOLDERS INFORMATION The Company is committed to good corporate governance in line with the Listing Agreement and Provisions, Rules and Regulations of The Companies Act, 2013. The Company is in compliance with the provisions on corporate governance specified in the Listing Agreement with BSE. A certificate of compliance from Mr. Sompally Srikanth, a practicing Company Secretary and the report on Corporate Governance form part of this Directors' Report as Annexure - H. Company's Policy on Prohibition, Prevention and Redressal of Sexual Harassment of Women at Workplace The Company prohibits any form of sexual harassment and any such incidence is immediately investigated and appropriate action taken in the matter against the offending employee(s) based on the nature and the seriousness of the offence. The Company has a policy on Prohibition, Prevention and Redressal of Sexual Harassment of Women at Workplace (the Policy) and matters connected therewith or incidental thereto covering all the aspects as contained under the "The Sexual Harassment of Women at Workplace (Prohibition, Prevention and Redressal) Act, 2013" notified by the Government of India vide Gazette Notification dated 23rd April, 2013. There was no case of sexual harassment reported during the year under review DEVELOPMENT AND IMPLEMENTATION OF A RISK MANAGEMENT POLICY: The Company has been addressing various risks impacting the Company and the policy of the Company on risk management is provided elsewhere in this Annual Report in Management Discussion and Analysis. Acknowledgments Your Directors thank the company's bankers, investors and vendors for their unstinted support during the year. Your Directors also appreciate the contribution made by the employees at all levels, who through their hard work, perseverance and competence, are taking the company in the right direction. Your directors also thank the Government of India, particularly the Customs and Excise Departments, Software Technology Park - Hyderabad, Department of Industrial Policy & Promotion under the Ministry of Commerce & Industry, Department of Company Affairs, Reserve Bank of India, Department of Telecommunications and all other agencies for their support, and wish their continued support in future. For and on behalf of the Board of Directors K. Ramachandra Reddy Chairman & CEO Date : 31st August 2015 |