Nucleus Software

1.  Company Overview
 
 Nucleus Software Exports Ltd. (‘Nucleus’ or ‘the Company’) was
 incorporated on 9 January 1989 in India as a private limited company.
 It was subsequently converted into a public limited company on 10
 October 1994. The Company made an initial public offer in August 1995.
 As at 31 March 2009, the Company is listed on three stock exchanges in
 India namely National Stock Exchange, Bombay Stock Exchange and Madras
 Stock Exchange. The Company has wholly owned subsidiaries in Singapore,
 USA, Japan, Australia, Hong-Kong, Netherlands and India. The Company’s
 business consists of software product development and marketing and
 providing support services mainly for corporate business entities in
 the banking and financial services sector.
 
 2.  Employees Stock Option Plan (“ESOP”)
 
 The Securities and Exchange Board of India (‘SEBI’) has issued the
 (Employee Stock Option Scheme and Employee Stock Purchase Scheme)
 Guidelines, 1999, which is effective for all stock option schemes
 established after 19 June 1999. In accordance with these Guidelines,
 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
 option, including up-front payments, if any, is to be recognised and
 amortised on graded vesting basis over the vesting period of the
 options.
 
 The Company currently has four ESOP schemes, ESOP scheme-1999
 (instituted in 2000), ESOP scheme- 2002 (instituted in 2002), ESOP
 scheme-2005 (instituted in 2005) and ESOP scheme-2006 (instituted in
 2006). These schemes were duly approved by the Board of Directors and
 Shareholders in their respective meetings. The 1999 scheme provides for
 the issue of 170,000 options, 2002 scheme for 225,000 options, 2005
 scheme for 600,000 options and 2006 scheme for 1,000,000 options to
 eligible employees.  These schemes are administered by the Compensation
 Committee comprising four members, the majority of whom are independent
 directors. On exercise of stock options, option holders are entitled to
 bonus shares in the ratio of 1:1, pursuant to approval of bonus shares
 by the shareholders in the annual general meeting held on 6 July 2007.
 
 3.  Most of the operations of the company are conducted through
 Software Technology Park (STP). Income from STP are tax exempt for
 the earlier of 10 years commencing from the fiscal year in which the
 unit commences software development or 31 March 2010
 
 Pursuant to the change in the Indian Income-tax Act, 1961, the company
 has calculated its tax liability after considering Mini- mum
 Alternative Ta x (MAT). The MAT credit entitlement can be carried
 forward and set off against the future tax liability.  Accordingly a
 sum of Rs.57,300,000 (Rs.54,100,000) was carried forward and shown
 under Loans and advances in the balance sheet as at 31 March 2009.
 
 4.  Employee Benefit Obligations
 
 Defined contribution plans
 
 An amount of Rs.56,896,091 (Rs.44,094,694) for the year ended, have
 been recognized as an expense in respect of Companys contribution for
 Provident Fund and Employee State Insurance Fund deposited with the
 government authorities and has been shown under personnel expenses in
 the Profit and Loss Account.
 
 Defined benefit plans
 
 The Company operates gratuity plan wherein every employee is entitled
 to the benefit equivalent to 15 days of total basic salary last drawn
 for each completed year of service. Gratuity is payable to all eligible
 employees of the Company on retirement, separation, death or permanent
 disablement, in terms of the provisions of the Payment of Gratuity Act.
 
 The following table set out the status of the gratuity plan as required
 under the aforesaid standard:
 
 5. Segment reporting - Basis of preparation
 
 (i) Segment accounting policies
 
 The Segment reporting policy complies with the accounting policies
 adopted for preparation and presentation of financial statements of the
 Company and is in conformity with Accounting Standard-17 on Segment
 Reporting, as specified in the Companies (Accounting Standard) Rules,
 2006. The segmentation is based on the Geographies (reportable primary
 segment) in which the Company operates and internal reporting systems.
 The secondary segmentation is based on the nature and type of services
 rendered.
 
 (ii) Composition of reportable segments
 
 The Company operates in five main geographical segments: India, Far
 East, Singapore, Europe and Middle East.
 
 Income and direct expenses in relation to segments are categorised
 based on items that are individually identifiable to that segment,
 while the remainder of the costs are categorised in relation to the
 associated turnover and/or number of employees.  Certain expenses such
 as depreciation, which form a significant component of total expenses,
 are not specifically allocable to specific segments as the underlying
 services are used interchangeably across geographies. The Company
 believes that it is not practicable to provide segment disclosures
 relating to those costs and expenses, and accordingly these expenses
 are separately disclosed as unallocated and directly charged against
 total income.
 
 Segment assets and liabilities represent the net assets put up and
 liabilities of that segment. All the fixed assets of the Company are
 located in India. These have not been identified to any of the
 reportable segments, as these are used interchangeably between segments
 and across geographies. Other items which are not directly attributable
 to any particular segment and which cannot be reasonably allocated to
 various segments are consolidated under Unallocated head.
 
 6. Capital commitments and contingent liabilities
 
 a.  Estimated amount of contracts remaining to be executed on capital
 account and not provided for in the books of account (net of advances)
 Rs.1,309,533 (Rs.111,489,712).
 
 b.  Claim against the Company not acknowledged as debt Rs.324,000
 (previous year Rs.324,000).
 
 7. The company has established a comprehensive system of maintenance
 of information and documents as required by the transfer pricing
 legislation under sections 92-92F of the Income Tax Act, 1961. Since
 the law requires existence of such information and documentation to be
 contemporaneous in nature, the Company is in the process of updating
 the documentation for the international transactions entered into with
 associated enterprises during the financial year and expects such
 records to be in existence latest by the due date of filing of the
 return of income, as required under law. The management is of the
 opinion that its international transactions are at arms length so that
 the aforesaid legislation will not have any impact on the financial
 statements, particularly on the amount of tax expense and that of
 provision for taxation.
 
 8. One of the subsidiaries of the Company has been granted a Letter of
 Approval (LOA) from Office of Development Commissioner, Special
 Economic Zone, the Government of India on 25 June 2008. According to
 this, the subsidiary has to commence operations within one year from
 the date of LOA. As per the management, the subsidiary is yet to
 commence its operations and is in the process of filing an application
 for extension of LOA. Based on the assessment of the management,
 extension will be granted and would undertake requisite steps to comply
 with the conditions stipulated in the LOA.
 
 9. During the current year, as per provision of Income-tax Act, 1961,
 the Company has taken credit of corporate dividend tax aggregating
 Rs.7,222,875 on account of dividend received from one of its
 subsidiaries.
 
 10. Revenue recognised upto the reporting date in respect of contracts
 in progress at the reporting date aggregates Rs.1,457,086,628
 (Rs.883,717,310).
 
 11. Previous year figures have been regrouped/ reclassified wherever
 necessary to make them comparable with the current year figures.