Notes to Accounts of Micro Technologies (India) Ltd.

Sep 30, 2013

MICRO TECHNOLOGIES (INDIA) LIMITED

SIGNIFICANT ACCOUNTING POLICIES AND NOTES FORMING PART OF THE BALANCE SHEET AND STATEMENT OF PROFIT AND LOSS FOR THE EIGHTEEN MONTHS PERIOD ENDED 30th September, 2013

Company Overview

1.Your Company has successfully innovated more than 300 products through its strong base of Research and Development in the field of Information technology encompassing both software and embedded. This positioning has helped the company to expand its global foot print. Your company''s, diverse product line covers industries such as Oil & Gas, Banking, Logistics, Telecommunication, Infrastructure etc. to provide the much-needed security, life Style and Support Systems and Web-based software. Company uses its strong relationship with domestic and global business partners for market penetration and presence. Company has introduced newer policies and strategies to facilitate development of newer products and have a faster go-to- market approach.

2.Contingent liabilities:

Contingent liabilities in respect of outstanding guarantees given by bank in favour of various government authorities and others are as under:

(Amount in Lacs) For the 18 Months For the year ended Particulars period ended March 31,2012 September 30,2013

Guarantees given by banks on behalf of the 366.61 Nil

Company

Corporate Guarantee given by the Company 9510.24 5,948.35

Total 9510.24 6,314.96

3.Prior period items include Expenses / Income related to previous year not provided for are separately classified as prior period expenditure / income during the current year in accounts.

4.In the opinion of the Board and to the best of their knowledge and belief, the value on realization of the current assets, loans & advances, deposits, in the ordinary course of business will not be less than the value stated in Balance Sheet.

5.Balances in respect of some of the debtors, creditors, advances and deposits are subject to confirmation.

6.Pursuant to the provisions of Sections 205A and 205C of the Companies Act, 1956, the dividend which remains unclaimed/unpaid for a period of seven years from the date of transfer to the unpaid dividend account is required to be transferred to the Investor Education and Protection Fund (IEPF) established by the Central Government.

As seven years have not expired from date of transfer to the unpaid dividend account, the amount is not required to be transferred to Investor Education and Protection Fund (IEPF)

7.There are no specific claims from suppliers under interest on delayed payments covered under Small Scale & Ancillary Act, 1993.

8.The company does not have any dues payable to any micro, small and medium enterprises as at the year end. The identification of the micro, small & medium enterprises is based on management''s knowledge of their status. The Company has not received any intimation from the suppliers regarding their status under the MSMED Act 2006. Hence, disclosures, if any, relating to amounts unpaid as at the year end, together with interest paid / payable as required under the said act have not been given.

9.Related Party Disclosures as per Accounting Standard - 18:

1. Related Parties:

(i) Subsidiary Company

Micro Secure Solutions Limited Micro Retail Limited Micro Technologies (I) Ltd FZE Micro Retail Ltd FZE*

· Micro Secure Solutions Limited Hong kong**

* Subsidiary of Micro Retail Limited

** Subsidiary of Micro Secure Solutions Limited. (ii)Associates

· Micro Cloud Computing Private Limited

· Youth Promoters Private Limited

(iii)Key Managerial Personnel

· Aditya Sekhar – Chairman & Managing Director

· Ganapathy V. – Executive Director

10. Segment Information:

i) Business Segment: The Company is primarily engaged in the business of Information Technology Solutions Segment.

ii) Geographical Segment: The secondary reporting segment for the Company is geographical segment based on location of customers, which are as follows :

11.Previous year comparatives:

Previous year figures have been regrouped and rearranged wherever required to confirm to this year''s classification. As per our Audit Report of even date attached

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Mar 31, 2012

Company Overview

1. The Company has successfully innovated more than 300 products through its strong base of Research and Development in the field of Information technology encompassing both software and embedded. This positioning has helped the company to expand its global foot print. Your company's, diverse product line covers industries such as Oil & Gas, Banking, Logistics, Telecommunication, Infrastructure etc. to provide the much-needed security, life Style and Support Systems and Web-based software. Company uses its strong relationship with domestic and global business partners for market penetration and presence. Company has introduced newer policies and strategies to facilitate development of newer products and have a faster go-to- market approach.

2. Contingent liabilities:

Contingent liabilities in respect of outstanding guarantees given by bank in favour of various government authorities and others are as under:

For the year ended For the year ended Particulars March 31 2012 March 312011

Guarantees given by banks on behalf of 366.61 307.22 the Company

Corporate Gurantee given by the Company 5948.35 -

Total 6314.96 307.22

3. Prior period items include Expenses / Income related to previous year not provided for are separately classified as prior period expenditure / income during the current year in accounts.

4. In the opinion of the Board and to the best of their knowledge and belief, the value on realization of the current assets, loans & advances, deposits, in the ordinary course of business will not be less than the value stated in Balance Sheet.

5. Balances in respect of some of the debtors, creditors, advances and deposits are subject to confirmation.

6. Foreign Currency Convertible Bonds:

On 20th July, 2007 the Company issued 150 foreign currency convertible bonds (FCCB) of a face value of USD 100,000 each aggregating USD 15.0 million. As per the terms of the issue, the holders have an option to convert FCCB in to equity shares at an initial conversion rate of Rs 312.84 per equity share at a fixed exchange rate subject to certain price adjustment as per the terms of the issue. However as a result of terms of issue, the conversion price as on date is Rs 250.40 per share. Further under certain conditions, the Company after July 20,2010 but before July 21,2012 has an option for earlier redemption of the bonds, in the whole, but not in part. Unless previously converted or redeemed or purchased and cancelled, the Company will redeem these bonds with a redemption premium of 7.75% (which is identical to the gross to the yield in case of redemption at maturity) calculated on a semi-annual basis.

The FCCBs as detailed above are hybrid instruments with an option of conversion into specified number of shares and an underlying foreign currency liability with redemption at a premium in the event of non conversion at the end of the period. A number of factors would influence the conversion decision including movement in the quoted price of the Company's shares, the rate of exchange, interest rates in the market, the growth in financial performance and profitability of the Company and the performance of the industry in which the Company operated, etc. In the opinion of the Company, the lesser number of conversions into equity shares is a temporary aberration due to the current economic conditions. The Company expects that the bond holders would continue to opt for conversion rather than redemption and consequently no premium are expected to be payable and therefore, the same is not provided for and the outstanding amount has been treated as Long Term Borrowing.

7. During the year under review the Company has raised short term loan of Rs. 15,00,00,000/- ( Rupees Fifteen Crores Only) through 'Commercial Paper' and the same is outstanding as on the date of Balance Sheet.

8. Pursuant to the provisions of Sections 205A and 205C of the Companies Act, 1956, the dividend which remains unclaimed/unpaid for a period of seven years from the date of transfer to the unpaid dividend account is required to be transferred to the Investor Education and Protection Fund (IEPF) established by the Central Government.

As seven years have not expired from date of transfer to the unpaid dividend account, the amount is not required to be transferred to Investor Education and Protection Fund (IEPF)

9. There are no specific claims from suppliers under interest on delayed payments covered under Small Scale & Ancillary Act, 1993.

10. The company does not have any dues payable to any micro, small and medium enterprises as at the year end. The identification of the micro, small & medium enterprises is based on management's knowledge of their status. The Company has not received any intimation from the suppliers regarding their status under the MSMED Act 2006. Hence, disclosures, if any, relating to amounts unpaid as at the year end, together with interest paid / payable as required under the said act have not been given.

11. Employee Benefits

Disclosure as required by Accounting Standard 15 (Revised) on Employee Benefits:- In respect of gratuity, a defined benefit scheme (based on actuarial valuation) are given below:-

The actuarial value of gratuity as on 31.03.2012 calculated on the above assumptions works out to Rs. 68.91 Lacs/- (PY 50.89 Lacs) & additional provision regarding the same has been made in the books.

12. Details of Capacities, Production and Stocks:

The activity of the Company is that of software development, hardware & software integration, development of IT related security products, E-commerce and internet services. Due to the technicalities involved of the integration between the software and the hardware, it is difficult to give the quantitative details of above items. The closing stocks as valued and certified by the management are as under:

13. Related Party Disclosures as per Accounting Standard -18:

1. Related Parties:

(i) Subsidiary Company

- Micro Secure Solutions Limited

- Micro Retail Limited

- Micro Technologies(l)Ltd FZE

- Micro Retail Ltd FZE*

- Micro Secure Solutions Limited Hong kong**

- Subsidiary of Micro Retail Limited

** Subsidiary of Micro Secure Solutions Limited.

(ii) Associates

- Micro Cloud Computing Private Limited

- Micro Capitals Private Limited

- Youth Promoters Private Limited

(iii) Key Managerial Personnel

- Dr P Sekhar-Chairman & Managing Director

- Ms JayanthiS-Executive Director

- AdityaS-Relative of Managing Director (Chief Strategic Officer)

42. Segment Information:

I) Business Segment: The Company is primarily engaged in the business of Information Technology Solutions Segment.

14. Leases as per Accounting Standard 19:

Obligations on long-term, non-cancelable operating leases

The lease rentals charged during the year and the maximum obligations on long term, non-cancelable operating leases payable as per the rentals stated in the respective agreements are as follows:

The operating lease arrangements are renewable on a periodic basis and can extend upto maximum of 4 years from their respective dates of inception and relate of rented premises. Some of these lease arrangements have price escalation clause.

15. Earnings Per Share (EPS) as per Accounting Standard 20:

The Company reports basic and diluted Earnings per Share (EPS) in accordance with Accounting Standard 20 on Earnings per Share. Basic EPS is computed by the Net Profit or Loss for the year by the weighted average no of equity shares outstanding during the year.

16. Previous year comparatives:

Previous year figures have been regrouped and rearranged wherever required to confirm to this year's classification.

As per our Audit Report of even date attached

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Mar 31, 2011

1. Nature of Operations

Your Company has successfully innovated more than 300 products through its strong base of Research and Development in the field of Information technology encompassing both software and embedded. This positioning has helped the company to expand its global foot print. Your companys, diverse product line covers industries such as Oil & Gas, Banking, Logistics, Telecommunication, Infrastructure etc. to provide the much-needed security, life Style and Support Systems and Web-based software. Company uses its strong relationship with domestic and global business partners for market penetration and presence. Company has introduced newer policies and strategies to facilitate development of newer products and have a faster go-to- market approach.

(a) Contingent liabilities:

Contingent liabilities in respect of outstanding guarantees given by bank in favour of various government authorities and others are as under: (Amount in Rupees >

For the year ended For the year ended Particulars March 31 201 March 31,2010

Guarantees given by banks on behalf of the Company 3,07,21,521 3,51,09,911

Total 3,07,21,521 3,51,09,911

(b) Prior period items include:- Expenses / Income related to previous year not provided for are separately classified as prior period expenditure / income during the current year in accounts.

(c) In the opinion of the Board and to the best of their knowledge and belief, the value on realization of the current assets, loans & advances, deposits, in the ordinary course of business will not be less than the value stated in Balance Sheet.

(d) Balances in respect of some of the debtors, creditors, advances and deposits are subject to confirmation.

(e) During the year, there has been no factoring of receivables. (Previous Year- Rs. 10,20,82,480/-).

(f) Foreign Currency Convertible Bonds:

On 20th July, 2007 the Company issued 150 foreign currency convertible bonds (FCCB) of a face value of USD 100,000 each aggregating USD 15.0 million. As per the terms of the issue, the holders have an option to convert FCCB in to equity shares at an initial conversion rate of Rs 312.84 per equity share at a fixed exchange rate subject to certain price adjustment as per the terms of the issue. However as a result of terms of issue, the conversion price as on date is Rs 250.40 per share. Further under certain conditions, the Company after July 20, 2010 but before July 21, 2012 has an option for earlier redemption of the bonds, in the whole, but not in part. Unless previously converted or redeemed or purchased and cancelled, the Company will redeem these bonds with a redemption premium of 7.75% (which is identical to the gross to the yield in case of redemption at maturity) calculated on a semi-annual basis.

The FCCBs as detailed above are hybrid instruments with an option of conversion into specified number of shares and an underlying foreign currency liability with redemption at a premium in the event of non conversion at the end of the period. A number of factors would influence the conversion decision including movement in the quoted price of the Companys shares, the rate of exchange, interest rates in the market, the growth in financial performance and profitability of the Company and the performance of the industry in which the Company operated, etc. In the opinion of the Company, the lesser number of conversions into equity shares is a temporary aberration due to the current economic conditions. The Company expects that the bond holders would continue to opt for conversion rather than redemption and consequently no premium are expected to be payable and therefore, the same is not provided for.

For the reasons stated above, the FCCB liability in respect of 120 bonds (previous year 148 bonds) as at the year end is continued to be considered as a non monetary liability in terms of Accounting Standard 11 (AS-11) (Revised) "The effects of changes in foreign exchange rates" and accordingly the same is not restated at the year end exchange rate.

(g) Provision for current tax is made taking into account the provisions of Income Tax Act, 1961. Deferred Tax resulting from "Timing Difference" between book & taxable profit is accounted for using the tax rates and laws that have been enacted and subsequently enacted as on the balance sheet date. Major component of Deferred Tax arising on account of temporary timing difference is as under:-

(h) During the year under review the Company has raised short term loan of Rs. 25,00,00,000/- ( Rupees Twenty Five Crores Only) through Commercial Paper and the same is outstanding as on the date of Balance Sheet.

(I) As per technical evaluation done by the company, certain softwares were uneconomical to use due to changes in technology and hence where not supposed to give future economic benefit and net book Value of these softwares were charged off to profit & loss account during the current year valuing Rs. 24,97,94,521/-. If these were not charged off to Profit & Loss account, the profit would have been higher by the same amount.

0) Pursuant to the provisions of Sections 205A and 205C of the Companies Act, 1956, the dividend which remains unclaimed/unpaid for a period of seven years from the date of transfer to the unpaid dividend account is required to be transferred to the Investor Education and Protection Fund (iEPF) established by the Central Government.

(k) There are no specific claims from suppliers under interest on delayed payments covered under Small Scale & Ancillary Act, 1993.

(I) The company does not have any dues payable to any micro, small and medium enterprises as at the year end. The identification of the micro, small & medium enterprises is based on managements knowledge of their status. The Company has not received any intimation from the suppliers regarding their status under the MSMED Act 2006. Hence, disclosures, if any, relating to amounts unpaid as at the year end, together with interest paid / payable as required under the said act have not been given.

(t) Related Party Disclosures as per Accounting Standard -18:

1.Related Parties:

(I) SUBSIDIARY COMPANY

Micro Secure Solutions Limited Micro Retail Limited

(ii) ASSOCIATES

Micro Associates Consultancy (I) Private Limited Micro Capitals Private Limited Addon Automation Private Limited Youth Promoters Private Limited

(iii) KEY MANAGERIAL PERSONNEL

Dr. PSekhar-Chairman & Managing Director Ms. JayanthiS-Executive Director

(W)Previous year comparatives:

Previous year figures have been regrouped and rearranged wherever required to confirm to this years classification.

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Mar 31, 2010

1. Nature of Operations

Your Company is one of the leading providers of IT based security and messaging products/soiutions for it global clients.Its diverse product line carries more than 140 products ranging from premises security, Web security, ¦ Vehicle security, Mobile devices security to personal tracking systems. Product lines include the much-needed security devices, life style and support systems and web-based software. Company is striving hard to mark its presence in more new areas including healthcare and Energy.

a) Contingent liabilities:

Outstanding guarantees given by bank in favour of various Govt Authorities and others are as under:

For the year ended For the year ended Particulars March 31,2010 March 31,2009

Guarantees given by banks on behalf of 3,51,09,911 22,89,289 the Company

Total 3,51,09,911 22,89,289

b) Prior period items include:-

Expenses paid related to previous year but not provided for in the previous year are separately classified as prior period expenditure. The managerial remuneration paid for earlier years is included in the managerial remuneration paid during the year.

c) Forfeiture of convertible share warrants

The company on 12th January, 2008 issued and allotted 24,00,000 Convertible Warrants issued on private placement on preferential basis, carrying an option / entitlement to subscribe to equivalent no. of equity shares of Rs. 10 each-on a future date to the promoter / private corporate body as per the terms, these warrants were due for conversion at the option of the investors on or before the period of 18 months from the date of issue. The investor had paid an upfront amount of Rs. 6,16,51,200/- being 10% of the total issue price at the time of subscribing to the warrants. As per the terms of the issue the investor were required to pay the balance 90% at the time of conversion of said warrants into equity. Further, in case the investor do not opt for conversion of the warrants the upfront amount so paid stands forfeited by the company and all the rights attached to the warrants lapse automatically. None of the warrant holders exercise the option to convert any of the aforesaid warrants till the last date of conversion within 18 months from there prospective entitlement. Accordingly during the financial year under review, the company forfeited the amount of Rs.6,16,51,200/- paid on the warrant due to non exercise of the option by the warrant holders. This amount has been credited to Capital Reserve Account. An amount of Rs. 1,75,28,000/- was similarly forfeited in the previous year, was credited to General Reserve Account has also been transferred to Capital Reserve Account during the year.

d) In the opinion of the Board and to the best of their knowledge and belief, the value on realization of the Current Assets, Loans & Advances, Deposits, in the ordinary course of the business will not be less than the value stated in Balance Sheet.

e) Balances in respect of some of the Debtors, Creditors, Advances and Deposits are subject to confirmation.

f) During the year, there has been factoring of some receivables on a with recourse basis with a NBFC. The NBFC has disbursed a net amount of Rs.10,20,82,480/- to the credit of the Companys account on an assignment of debt. In this event, the factored receivables are accounted as collected, since in view of the Companys management no significant uncertainty exist of their eventual payment by the factored customer.

g) Foreign Currency Convertible Bonds:

On July20, 2007 the Company issued 150 foreign currency convertible bonds (FCCB) of a Face Value of USD 100000 each aggregating USD 15.0 million. As per the terms of the issue, the holders have an option to convert FCCB in to Equity Shares at an initial conversion rate of Rs 312.84 per equity share at a fixed exchange rate subject to certain price adjustment as per the terms of the issue. However as a result of terms of issue, the conversion price as on date is Rs 250.40 per share. Further under certain conditions, the Company after July 20, 2010 but before July 21, 2012 has an option for earlier redemption of the bonds, in the whole, but not in part. Unless previously converted or redeemed or purchased and cancelled, the Company will redeem these bonds with a redemption premium of 7,75% percent (which is identical to the gross to the yield in case of redemption at maturity) calculated on a semiannual basis.

The FCCBs as detailed above are hybrid instruments with an option of conversion into specified number of shares and an underlying foreign currency liability with redemption at a premium in the event of non conversion at the end of the period. A number of factors would influence the conversion decision including movement in the quoted price of the Companys shares, the rate of exchange, interest rates in the market, the growth in financial performance and profitability of the company and the performance of the industry in which Company operated, etc. In the opinion of the Company, the lesser number of conversions into equity shares is a temporary aberration due to the current economic conditions. The Company expects that the Bond holders would continue to opt for conversion rather than redemption and consequently no premium are expected to be payable and therefore, the same is not provided for. However, in the event of redemption, the premium payable would be adjusted against the balance in the Share Premium Account. The bond redemption reserve earlier transferred amounting Rs. 10,34,05,942/- has been reversed back to Share Premium Account.

For the reasons stated above, the FCCB liability in respect of 148 bonds (previous year 148 bonds) as at the year end is continued to be considered as a non monetary liability in terms of Accounting Standard 11 (AS-11) (Revised) "The effects of changes in Foreign Exchange Rates" and accordingly the same is not restated at the year end exchange rate.

h) Provision for current tax is made taking into account the provisions of Income Tax Act, 1961. Deferred Tax resulting from "Timing difference" between book & taxable profit is accounted for using the tax rates and laws that have been enacted and subsequently enacted as on the balance date.

i) During the year under review the company has raised short term loans of Rs. 25,00,00,000/- through Commercial Paper, the same is outstanding as on the date of balance Sheet.

j) Pursuant to the provisions of Sections 205A and 205C of the Companies Act, 1956, the dividend which remains unclaimed/unpaid for a period of seven years from the date of transfer to the unpaid dividend account is required to be transferred to the Investor Education and Protection Fund (IEPF) established by the Central Government.

k) There are no specific claims from suppliers under "Interest on Delayed Payments to Small Scale & Ancillary Act, 1993."

l) The company does not have any dues payable to any Micro Small and Medium Enterprises as at the year end. The identification of the Micro Small & Medium enterprises is based on managements knowledge of there status. The company has not received any intimation from the suppliers regarding there status under the MSMED 2006. Hence, disclosures, if any, relating to amounts unpaid as at the year end, together with interest paid / payable as required underthe said act have not been given.

m) Segment Reporting as per Accounting Standard 17: The Company operates solely in the Information Technology Solutions segment and hence no separate information for segment wise disclosure is required.

s) Related Party Disclosures as per Accounting Standard 18:

A. Related party disclosures, as required byAS-18aregiven below: (i) Relationships:

Category I: Major Shareholders in the Company

Micro Associates Consultancy (India) Pvt. Ltd, Micro Capitals Pvt. Ltd, Dr. P Sekhar, Ms. JayanthiS.

Category II: Subsidiaries:

Micro Secure Solutions Limited. Micro Retail Limited.

Associates:

Micro Associates Consultancy (I) Pvt. Ltd

Micro Capital Pvt. Ltd

Addon Automation Pvt. Ltd

Youth Promoters India Limited

B. Other related parties

The details of Key management personnel & their relatives are as follows:

Key management personnel

Dr. P Sekhar, - Chairman & Managing Director

Ms. JayanthiS, -Whole Time Director

Relatives of key management personnel:

Name of the key Name of the Relatives of Relation management personnel key management personnel

Father Dr. P Sekhar R. Padmanabhan

Mother Dr. P Sekhar P. Padma

Son Dr. P Sekhar Aditya Sekhar, Arjun Sekhar

Fathers Father Dr. P Sekhar Renghachari

Brother Dr. P Sekhar P Sampath Kumar, P Sridhar

Brothers wife Dr. P Sekhar S. Padmini, S. Usha

Sister Dr. P Sekhar K. Prema

Sisters Husband Dr. P Sekhar K. Kannan

Father Ms. Jayanthi S K. L Narasimhan

Mother Ms. Jayanthi S N Vatsala

Son Ms. Jayanthi S Aditya Sekhar, Arjun Sekhar

Fathers Father Ms. Jayanthi S Krishnaswamy

Fathers Mother Ms. Jayanthi S Komiavalli

Mothers Mother Ms. Jayanthi S S. Sita

Mothers Father Ms. Jayanthi S K Seshadry

Brother Ms. Jayanthi S N Naresh

Brothers wife Ms. Jayanthi S Geeta Naresh

Sister Ms. Jayanthi S Geeta Vjjay Sarathy

Sisters Husband Ms. Jayanthi S Vijay Sarathy

t) Earnings Per Share (EPS) Accounting Standard 20:

The company reports basic and diluted Earnings per Share (EPS) in accordance with Accounting Standard 20 on Earnings per Share. Basic EPS is computed by the net profit or loss for the year by the weighted average no of equity shares outstanding during the year.

u) Previous year comparatives:

The figures of the previous year have been regrouped, rearranged and reclassified wherever necessary to conform to current.