MOSCHIP SEMICONDUCTOR TECHNOLOGY LIMITED
ANNUAL REPORT 2009-2010
NOTES ON ACCOUNTS
1. Company overview:
MosChip Semiconductor Technology Limited ('MosChip' or 'the Company') is a
fabless semiconductor company engaged in the business of developing
application specific integrated circuits (ASICs) and System on Chip (SOC)
technologies. The Company also sale application specific integrated
circuits (ASICs). The Company specializes in the areas of computer
peripherals, data communications and consumer electronics. The development
/ design process is carried out at its design centre located in Hyderabad.
MosChip has its headquarters in Hyderabad, India with a branch office in
Santa Clara, CA, USA.
1.1 Significant Accounting Policies:
1.1.1 Basis for Preparation of Financial Statements:
The financial statements have been prepared to comply in all material
respects with the mandatory Accounting Standards issued by the Institute of
Chartered Accountants of India (ICAI) and the relevant provisions of the
Companies Act, 1956. The financial statements have been prepared under the
historical cost convention on an accrual basis. The accounting policies
have been consistently applied by the Company and are consistent with those
used during the previous year.
1.1.2 Use of Estimates:
The presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Examples of such estimates include future
obligations under employee retirement benefit plans and the useful life of
fixed assets. Although these estimates are based on management's best
knowledge of current events and actions the Company may undertake in
future, actual results ultimately may differ from the estimates.
1.1.3 Revenue Recognition:
Revenue from software sales is recognized based on software developed and
billed as per the terms of specific contracts.
Revenue from royalty is recognized on accrual basis based on the terms of
the agreement, provided collection is probable.
Interest income is recognized on accrual basis.
Revenue from product sales is recognized on dispatch of material.
Provision for doubtful debts are recorded in the period in which such
losses become probable based on the current estimates.
1.1.4 Fixed Assets and Capital Work-in-Progress:
Fixed Assets are stated at cost of acquisition inclusive of inland freight,
duties and taxes and incidental expenditure incurred during installation
wherever applicable.
Leasehold improvements represent expenses incurred towards civil works,
interior furnishings, etc. on the leased premises.
Capital work-in-progress comprises outstanding advances paid to acquire
fixed assets, and the cost of fixed assets that are not yet ready for their
intended use at the balance sheet date.
Fixed Assets sold or retired from active use are eliminated from accounts
by removing the related cost and accumulated depreciation. On elimination
or removal any gain or loss is included in the results of operations.
1.1.5 Depreciation:
Depreciation on Fixed Assets other than Improvement to Leasehold Premises,
Mask Tool Charges (Part of Plant & Machinery) and Computer Software is
provided under Straight Line method at the rates specified in Schedule XIV
of the Companies Act, 1956.
Depreciation on additions and deletions to assets during the year is
charged to revenue pro rata to the period of their use.
Leasehold Improvements are amortized over the estimated useful life or
unexpired period of lease (whichever is lower) on a straight line basis.
Mask Tools are depreciated over a period of 2 years based on estimated
useful life.
Computer Software is depreciated over a period of 5 years based on the
technical evaluation about their useful economic life. These rates are
higher than those prescribed in Schedule XIV of the Companies Act, 1956.
Assets costing less than Rs.5,000/-individually have been fully depreciated
in the year of purchase.
1.1.6 Impairment of Fixed Assets:
Consideration is given at each balance sheet date to determine whether
there is any indication of impairment of the carrying amount of the
Company's fixed assets. If any indication exists, an asset's recoverable
amount is estimated. An impairment loss is recognized whenever the carrying
amount of an asset exceeds recoverable amount.
1.1.7 Foreign Exchange Transactions:
Initial Recognition: Foreign currency transactions are recorded in the
reporting currency, by applying to the foreign currency amount the exchange
rate between the reporting currency and the foreign currency approximately
at the date of the transaction.
Conversion: Foreign currency monetary items are reported using the closing
rate. Non-monetary items, which are carried in terms of historical cost
denominated in a foreign currency, are reported using the exchange rate at
the date of the transaction.
Exchange Differences: Exchange differences arising on the settlement or
conversion of monetary items, are recognised as income or as expenses in
the period in which they arise except those arising on liabilities
pertaining to fixed assets acquired from outside India, which are adjusted
with the cost of the fixed assets.
Foreign Operations: The financial statements of an integral foreign
operation are translated as if the transactions of the foreign operation
have been those of the Company itself. Exchange differences arising on a
monetary item forming part of net investment in a non-integral foreign
operation is accumulated in foreign currency translation reserve until
disposal of the net investments.
1.1.8 Investments:
Investments are classified into current investments and long-term
investments. Current Investments are carried at the lower of cost and fair
value, and provision is made to recognize any decline in the carrying
value. Long-term investments are carried at cost, and provision is made to
recognize any decline, other than temporary, in the value of such
investment.
1.1.9 Retirement benefits:
Provident Fund: The Company contributes to the employees' provident fund (a
defined contribution benefit) maintained under the Employees Provident Fund
scheme by the Central Government.
Gratuity: The Company Contributes to LIC Group Gratuity Fund. Liabilities
with regard to the Gratuity Plan are determined by actuarial valuation as
on the balance sheet date.
Leave Encashment: Liabilities with regard to the Leave Encashment are
determined by actuarial valuation as on the balance sheet date.
1.1.10 Earnings per share:
The Company reports basic and diluted earnings per share in accordance with
Accounting Standard 20 'Earnings per Share'. Basic earnings per share is
computed by dividing the net profit or loss for the period by the weighted
average number of Equity shares outstanding during the period. Diluted
earnings per share is computed by dividing the net profit or loss for the
period by the weighted average number of Equity shares outstanding during
the period as adjusted for the effects of all dilutive potential equity
shares, except where the results are anti-dilutive.
1.1.11 Provisions:
A provision is recognised when the Company has a present obligation as a
result of past event and it is probable that an outflow of resources will
be required to settle the obligation, in respect of which a reliable
estimate can be made. Provisions except those disclosed elsewhere in the
financial statements, are not discounted to their present value and are
determined based on best estimate required to settle the obligation at the
each Balance Sheet date. These are reviewed at each Balance Sheet date and
adjusted to reflect the current best estimates.
1.1.12 Miscellaneous Expenditure:
Preliminary expenses and expenditure in connection with issue of shares are
written off over a period of five years.
1.2 Notes on Accounts:
1.2.1 Contingent Liabilities:
(Amount in Rupees)
As at 31 March
Particulars 2010 2009
Estimated amount of unexecuted capital
contracts not provided Nil Nil
Outstanding Bank Guarantee given by
Bankers 907,433 889,185
Outstanding Bank Guarantee on account
of Bond executed by the Company to
Government of India towards exemption
of customs duty 2,525,000 2,525,000
1.2.2 Share Capital:
The Company has allotted 2,650,000 equity shares of Rs.10 each at a price
of Rs.12.50 per share (including premium of Rs.2.50) to the subscribers on
a preferential basis during the financial year, raising an amount of
Rs.33,125,000/-.
Convertible warrants:
During the year under review, the Company has issued 250,000 convertible
warrants at a price of Rs.12.50 each. The said warrants represent a right
to acquire, but not exceeding, 250,000 equity shares of Rs.10 each at the
price of Rs.12.50 (including premium) per share. The warrants can be
exercised within a period of 18 months from the date of issue of such
warrants. The warrants were issued for an upfront consideration of
Rs.781,250. Non-exercise of warrants within 18 months from the date of
issue will result in forfeiture of upfront consideration.
1.2.3 Secured Loans:
Export Packing Credit facility obtained from UCO Bank is secured by
hypothecation by way of first charge on stocks of finished goods, raw
materials, work in progress, stores and spares and book debts, and second
charge in respect of other movable assets, and guaranteed by Chairman and
Managing Director.
1.2.4 Unsecured Loans:
The Company has obtained unsecured loan from director of an amount of Rs. 1
Crore at the rate of 10% interest payable. The provision for the same has
been made in these accounts in the financial year ending 31st March 2010.
The due date for the loan repayment is on or before 03rd September 2010.
Similarly the company has also obtained interest bearing Inter Corporate
Deposit of Rs. 1 Crore at the rate of 10% interest. The provision for the
same has been made in these accounts in the financial year ending 31st
March 2010. Due date for the repayment of loan is on or before 06th
September 2010.
The interest and other terms and conditions are not prejudicial to the
interest of the company.
1.2.5 Accounting for taxes on income:
During the period under review, the Company carried its operations in India
through its 100% Export Oriented Unit, registered with the Software
Technology Parks of India (STPI), Hyderabad. Pursuant to the scheme of
Amalgamation, the Company continues to carry on the business of erstwhile
Verasity Technologies and treats it as an overseas branch office. The
operations of the STPI Unit and overseas branch have resulted in a net loss
for the year ended 31 March 2010. Hence, no provision has been made in the
books of account for the tax liability for the year as well as for the
deferred taxes as per the Accounting Standard - 22 on Accounting for Taxes
on Income, issued by the Institute of Chartered Accountants of India.
1.2.6 Employee Stock Option Plans:
As per the Employee Stock Option Scheme and Employee Stock Purchase
Guidelines, 1999 issued by the Securities and Exchange Board of India, the
excess of the market price of the underlying equity shares as of the date
of the grant of the options over the exercise price of the options is to be
recognized and amortized on a straight-line basis over the vesting period.
The Company has established nine schemes Employee Stock Option Plan,
MosChip Stock Option Plan 2001, MosChip Stock Option Plan 2002, MosChip
Stock Option Plan 2004, MosChip Stock Option Plan 2005 (MI), MosChip Stock
Option Plan 2005 (WOS), MosChip Stock Option Plan 2008, MosChip Stock
Option Plan 2008(ALR) and MosChip Stock Option Plan 2008(Director) with
600,000 equity shares, 300,000 equity shares, 700,000 equity shares,
1,000,000 equity shares, 500,000 equity shares, 500,000 equity shares,
3,000,000 equity shares, 1,000,000 equity shares and 1,000,000 equity
shares respectively. Of these the Employee Stock Options Plan was
established when the Company was unlisted and consequently, the Employee
Stock Option Scheme and Employee Stock Purchase Guidelines, 1999 are not
applicable to the options granted under this Plan.
Stock Options Outstanding under the Employee Stock Option Plan:
Particulars Year ended Year ended
31 March 2010 31 March 2009
Options outstanding at the beginning
of the year 180,200 243,800
Granted during the year 0 0
Forfeited during the year 23,400 63,600
Exercised during the year 0 0
Outstanding at the end of the year 156,800 180,200
Stock Options Outstanding under the MosChip Stock Option Plan 2001:
Particulars Year ended Year ended
31 March 2010 31 March 2009
Options outstanding at the beginning
of the year 174,500 170,875
Granted during the year 0 153,000
Forfeited during the year 64,500 149,375
Exercised during the year 0 0
Outstanding at the end of the year 110,000 174,500
Stock Options Outstanding under the MosChip Stock Option Plan 2002:
Year ended Year ended
Particulars 31 March 2010 31 March 2009
Options outstanding at the beginning
of the year 402,000 501,129
Granted during the year 0 448,000
Forfeited during the year 86,000 547,129
Exercised during the year 0 0
Outstanding at the end of the year 316,000 402,000
Stock Options Outstanding under the MosChip Stock Option Plan 2004:
Particulars Year ended Year ended
31 March 2010 31 March 2009
Options outstanding at the beginning
of the year 495,000 861,000
Granted during the year 0 572,000
Forfeited during the year 197,000 938,000
Exercised during the year 0 0
Outstanding at the end of the year 298,000 495,000
Stock Options Outstanding under the MosChip Stock Option Plan 2005-MI:
Particulars Year ended Year ended
31 March 2010 31 March 2009
Options outstanding at the beginning
of the year 132,000 484,000
Granted during the year 0 0
Forfeited during the year 20,000 352,000
Exercised during the year 0 0
Outstanding at the end of the year 112,000 132,000
Stock Options Outstanding under the MosChip Stock Option Plan 2005-WOS:
Particulars Year ended Year ended
31 March 2010 31 March 2009
Options outstanding at the beginning
of the year 400,000 475,000
Granted during the year 0 0
Forfeited during the year 0 75,000
Exercised during the year 0 0
Outstanding at the end of the year 400,000 400,000
Stock Options Outstanding under the MosChip Stock Option Plan 2008:
Particulars Year ended Year ended
31 March 2010 31 March 2009
Options outstanding at the beginning
of the year 2,009,627 0
Granted during the year 0 2,814,327
Forfeited during the year 11,41,559 804,700
Exercised during the year 0 0
Outstanding at the end of the year 868,068 2,009,627
Stock Options Outstanding under the MosChip Stock Option Plan 2008 (ALR):
Particulars Year ended Year ended
31 March 2010 31 March 2009
Options outstanding at the beginning
of the year 711,554 0
Granted during the year 0 741,554
Forfeited during the year 306,755 30,000
Exercised during the year 0 0
Outstanding at the end of the year 404,799 711,554
Stock Options Outstanding under the MosChip Stock Option Plan 2008
(Director):
Particulars Year ended Year ended
31 March 2010 31 March 2009
Options outstanding at the beginning
of the year 300,000 0
Granted during the year 0 400,000
Forfeited during the year 0 100,000
Exercised during the year 0 0
Outstanding at the end of the year 300,000 300,000
1.2.7 Earnings per Share:
The Company reports basic and diluted earnings per equity share in
accordance with AS-20, 'Earnings per Share'.
Basic earning per equity share has been computed by dividing net loss after
tax by the weighted average number of equity shares outstanding during the
applicable periods. Diluted earnings per equity share has been computed
using the weighted average number of equity shares and dilutive potential
equity shares outstanding during the applicable periods. The reconciliation
between basic and diluted earnings per equity share is as follows:
(Amount in Rupees except share data)
Year ended Year ended
31 March 2010 31 March 2009
BASIC EARNINGS/(LOSS) PER SHARE:
Net Profit/(Loss) for the period
before exceptional, extraordinary
and prior period item (73,111,922) (81,680,731)
Net Profit/(Loss) for the period
after exceptional, extraordinary
and prior period item (73,313,106) (81,674,904)
Weighted average number of
equity shares 46,035,517 43,385,517
EPS before extraordinary and
prior period item (1.66) (1.88)
EPS after extraordinary and
prior period item (1.66) (1.88)
DILUTED EARNINGS/(LOSS) PER SHARE:
Net Profit/(Loss) for the period
before exceptional, extraordinary
and prior period item (73,111,922) (81,680,731)
Net Profit/(Loss) for the period
after exceptional, extraordinary
and prior period item (73,313,106) (81,674,904)
Adjustments Nil Nil
Diluted Net Profit/(Loss) for the
period before exceptional,
extraordinary and prior period
item (73,111,922) (81,680,731)
Diluted Net Profit/(Loss) for
the period after exceptional,
extraordinary and prior period
item (73,313,106) (81,674,904)
Weighted average number of
equity shares 46,035,517 43,385,517
Diluted Potential weighted
average number of equity shares Nil Nil
Weighted average number of
diluted equity shares 46,035,517 43,385,517
EPS before extraordinary and
prior period item (1.66) (1.88)
EPS after extraordinary and
prior period item (1.66) (1.88)
1.2.8. Directors' Remuneration:
(Amounts in Rupees)
Year ended Year ended
31 March 2010 31 March 2009
1. Salary and allowances 8,100,000 9,715,000
2. No Provision for Commission to Whole Time Directors has been made in the
books, as there is no profit in accordance with Section 198 of the
Companies Act, 1956.
1.2.9. Related Party disclosures:
A. List of Related Parties:
Description of Relationship Name of Related Parties Designation
Subsidiary MosChip Semiconductor -
Technology, USA.
Key Management Personnel K. Ramachandra Reddy Chairman & CEO
C. Dayakar Reddy Managing Director
Sathya Kalyanasundaram CFO
B. Transactions and balances due to / from related parties:
(Amounts in Rupees)
Transactions Balance as on
Nature of Transaction during the year 31 March 2010
Transactions with Subsidiary:
Reimbursement of expenses/Payable 96,077 Nil
Reimbursement of expenses/Receivable 175,517 Nil
Advance for sales/Payable 17,317,600 7,450,226
Loans/Receivable 37,615,850 11,454,600
Sales/Receivable 170,399,422 44,651,216
Transactions with whole time
directors:
Remuneration to Chairman & CEO 4,050,000 Nil
Remuneration to Managing Director 4,050,000 Nil
Loan from Directors/Payables 10,000,000 10,000,000
Interest Payable on Directors Loan 73,973 73,973
Transactions with key
Management Personnel:
Remuneration to Key Management
Personnel 2,225,007 Nil
Stock Options Granted/Outstanding
to Key Management Personnel Nil Nil
1.2.10. Additional information as required under Part II of Schedule VI of
the Companies Act, 1956:
(Amounts in Rupees)
Year ended Year ended
Particulars 31 March 2010 31 March 2009
Rs. Rs.
A. CIF Value of Imports:
Capital Goods 118,279 78,289
Material Purchase 96,612,488 36,467,673
B. Expenditure in Foreign currency:
Software Charges 2,871,390 1,533,939
Traveling Expenses 2,201,007 1,304,423
Professional Charges 88,592 78,430
Consumables 590,073 4,893,504
Other Expenses 221,542 (4,690,633)
C. Earnings in Foreign Exchange
Sales Revenue:
Sales Revenue 170,399,422 104,072,863
15.2.11. Segment Reporting:
The Company recognizes ASIC design as its only primary segment since its
operations during the year consists of ASIC design and sale/license of
related intellectual property developed by it. Accordingly revenues from
sale/license of software (designs/intellectual property) comprise the
primary basis of segmental information set out in these Financial
Statements. Secondary segmental reporting is performed on the basis of the
geographical location of customers.
a) Business Segment Information:
(Amounts in Rupees)
Particulars Year ended Year ended
31 March 2010 31 March 2009
Rs. Rs.
Revenue:
Sales to external customers 170,399,422 104,072,863
Segment Profit/(loss):
Other Income (73,412,469) (82,657,042)
Profit/(loss) before Tax 300,547 1,356,156
Fringe Benefit Tax (73,111,922) (81,300,886)
Exceptional Item 0 379,845
Profit/(loss) after Tax before
Extraordinary and Prior
Period Item 177,445 0
Extraordinary and Prior
Period Item (73,289,367) (81,680,731)
Net profit/(loss) 23,739 (5,827)
(73,313,106) (81,674,904)
Other Segment Information:
Depreciation 11,538,752 11,427,828
Non-cash expenses other than
depreciation 3,013,156 2,947,966
Particulars of Segment Assets
and Liabilities:
Segment Assets 172,759,617 148,156,702
Investments 375,579,087 375,579,087
Cash and Bank Deposits 3,235,820 2,944,944
Other Assets 184,200 127,182
Total Assets 551,758,725 526,807,915
Segment Liabilities 153,736,856 92,292,751
Total Liabilities 153,736,856 92,292,751
b) Geographic Segment Information:
(Amounts in Rupees)
Revenue:
North America 170,399,422 104,072,863
Others Nil Nil
Carrying amount of segment
fixed assets:
India 133,353,033 131,565,631
North America 21,119,596 21,119,596
Additions to fixed assets:
India 2,396,137 1,797,949
North America Nil Nil
1.2.12 Amounts paid/payable to Auditors:
(Amounts in Rupees)
Year ended Year ended
31 March 2010 31 March 2009
For Statutory Audit 120,000 110,000
For Tax Audit 40,000 40,000
For Certification 92,000 65,118
Total 252,000 215,118
1.2.13 Gratuity Plan:
The Company has a defined benefit gratuity plan. Every employee who has
completed five years or more of service gets a gratuity on departure at 15
days salary (last drawn salary) for each completed year of service. The
scheme is funded with an insurance company in the form of a qualifying
insurance policy.
The following table summarizes the components of net benefit expense
recognised in the profit and loss account and the funded status and amounts
recognised in the balance sheet for the respective plans:
(Amounts in Rupees)
Year ended 31 March 2010
Gratuity cost for the period:
Current Service Cost 691,157
Interest cost on defined benefit obligation 343,704
Expected Return on Plan Assets (220,256)
Net Actuarial losses/(gain) recognised in year 19,353
Net Gratuity cost 833,958
Balance Sheet:
Reconciliation of present value of the
obligation and the fair value of plan assets
Fair Value of Plan Assets at the end
of the year 3,611,446
Present Value of the funded obligation at
the end of the year 1,531,868
Asset/(Liability) recognized in the
balance sheet (2,079,578)
Change in the present value of defined
benefit obligation are as follows:
Present value of obligations at the
beginning of year 3,899,186
Current Service Cost 691,157
Interest cost 343,704
Actuarial (gain)/loss (12,680)
Benefits paid (1,309,921)
Present value of obligations as at
the end of year 3,611,446
Change in the fair value of plan
assets are as follows:
Fair Value of Plan Assets at beginning
of year 2,003,771
Expected return on plan assets 220,256
Actuarial gain/(loss) (32,033)
Contributions 649,795
Benefits paid (1,309,921)
Fair Value of Plan Assets at end of year 1,531,868
The principal assumptions used in determining gratuity and other post
employment benefit obligations for the company's plan are as follows:
Discount Rate - 8.30%
Expected rate of return on assets - 7.50%
The fund is administered by Life Insurance Corporation of India ('LIC').
The overall expected rate of return on assets is determined based on the
market prices prevailing on that date, applicable to the period over which
the obligation is to be settled.
The estimates of future salary increases, considered in actuarial
valuation, take account of inflation, seniority, promotion and other
relevant factors, such as supply and demand in the employment market.
Above figures have been adopted as per actuarial valuation done by
Thanawala Consultancy Services.
The defined benefit obligation of compensated absence (leave encashment) in
respect of the employees of the company as at 31st March 2010 is
Rs.1,392,309.
1.2.14 Utilization of Preferential Issue Proceeds:
The following statement shows the total funds raised through issue of
Preferential Issue, the amounts utilized up to 31 March 2010 and the
balance available as on that date:
Particulars Rs. Rs.
Issue Proceeds:
- Share Capital 26,500,000
- Share Premium 6,625,000
Total Issue Proceeds 33,125,000
Utilization:
Working Capital/Business Operations 33,125,000
Total Funds Utilized 33,125,000
Funds Available Nil
1.2.15 Dues to Micro and Small Enterprises (SME):
In terms of Section 22 of the Micro, Small and Medium Enterprises
Development Act 2006, (SME Act) the outstanding payable to Micro and Small
enterprises, as defined under the SME Act, are required to be disclosed in
the prescribed format. However, such Enterprises are required to be
registered under the SME Act.
There are no dues to any small scale industrial undertakings and micro,
small & medium enterprises which are outstanding for more than 30 days or
45 days respectively at the Balance Sheet date. This information has been
determined to the extent such parties have been identified on the basis of
information available with the company.
1.2.16 Quantitative Details:
During the year the Company is engaged in computer software development and
selling of ASICs (Semiconductor Chips). The production and sale of software
cannot be expressed in any generic unit. Hence, it is not possible to give
the quantitative details computer software development sales. The following
statement shows the quantitative details of ASIC's as required under
Paragraphs 3 and 4C of Part II of Schedule VI of the Companies Act, 1956.
Opening Balance Quantity Purchased Quantity Sold Closing Balance
Nil 2,005,044 2,005,044 Nil
1.2.17 Regrouping/Reclassification:
The figures for previous year have been regrouped / reclassified wherever
necessary.
Per and subject to our report of even date
For and on behalf of the Board of Directors
For Gokhale & Co.,
Chartered Accountants
Chandrashekhar Gokhale K. Ramachandra Reddy C. Dayakar Reddy
Partner Chairman & CEO Managing Director
Membership No. 23839
Place : Hyderabad Raj Kumar Singh
Date : 14th May 2010 Company Secretary
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