Zicom Security Systems

The Directors have pleasure in placing before you their Fourteenth
 Annual Report, together with the Audited Accounts of the Company for
 the financial year ended March 31,2008.
 
 FINANCIAL HIGHLIGHTS                               (Rupees in million)
 Particulars                        March 31, 2008      March 31, 2007
 
 Net Sales / Income from Operations       1,645.19            1,545.82
 
 Other Income                                 4.64                9.19
 
 Total Income                             1,649.83            1,555.01
 
 Total Expenditure                        1,444.17            1,386.31
 
 Gross Profit Before 
 Interest & Depreciation                    205.66              168.70
 
 Interest & Finance Charges                  62.01               11.12
 
 Gross Profit Before 
 Depreciation and Taxation                  143.65              157.58 
 
 Depreciation                                16.70               35.68
 
 Profit Before Prior Period Items           126.95              121.90
 
 Add: Prior Period Items                     (1.23)               1.64 
 
 Profit Before Tax                          125.72              123.54
 
 Provision for Taxation:
 
 Current Year                                39.70               26.50
 
 Deferred                                     3.94               18.93
 
 Fringe Benefit Tax                           1.65                2.50
 
 Taxation of earlier years                     Nil               (3.76)
 
 Net Profit after Taxation                   80.43               79.37
 
 Add : Balance Brought Forward 
 from Previous Year                         164.91              107.06
 
 Profit Available for Appropriation         245.34              186.43
 
 APPROPRIATIONS:
 
 Transfer to General Reserve                   Nil                4.00
 
 Provision for Dividend                      12.70               14.98
 
 Provision for Tax on Dividend                2.16                2.54
 
 Dividend including Taxes for Earlier Year    3.28                 Nil
 
 Balance of Profit Carried Forward 
 to Balance Sheet                           227.20              164.91
 
 OPERATIONS
 
 During the year under review, Zicom has achieved the Total Income of
 Rs. 1,649.83 million vis-a-vis Rs. 1,555.01 million in the previous
 year, showing a growth of 6.1 0%. The Gross Profit before Interest,
 Depreciation and Tax of Rs. 205.66 million compared with Rs. 1 68.70
 million in the previous year, shows an increase of 21.91 %. Net Profit
 after Tax was almost stagnant at Rs. 80.43 million compared to Rs.
 79.37 million in the previous year, mainly due to higher finance
 charges and tax impact. It may however be pointed out that the results
 of the year under review are not strictly comparable with the results
 of the previous year, because the performance of the retail business is
 not reflected in the results of the year under review.
 
 In view of the subsidiary structure created under flagship Company, the
 year under review was a year of restructuring of business c the
 Company. The Company has for the first time published the consolidated
 performance to cover performance of the following subsidiaries namely
 Zicom Retail Products Private Limited (ZRPPL), Unisafe Fire
 Protection Specialists LLC, Dubai (UNISAFE) and Zicom Manufacturing
 Co. (HK) Ltd. On a consolidated basis, the Company has achieved the
 Total Income of Rs. 2,91 1.59 million with Net Profit of Rs. 14.54
 million. Although the Companys consolidated net income has increased
 sharply, the profits have been affected mainly due to writing off of
 entire brand building expenditure of Rs. 21 8.39 million of new retail
 venture.
 
 DIVIDEND
 
 Considering stringent money market situation and need to conserve the
 resources for future business plans, your Board has recommended a
 dividend of Re. 1/- (10%) (previous year 14%) on equity shares of
 Rs.10/- each of the Company entailing the total payout of Rs. 1 4.98
 million (previous year Rs. 20.80 million).
 
 BUSINESS DEVELOPMENTS AND PROSPECTS
 
 The year 2007-2008 witnessed major changes in group structure in order
 to address various segments in electronic safety and security market.
 In order to focus on fastest growing retail and residential segments,
 the Board of Directors approved the Scheme of Arrangement for hiving
 off the Consumer Service Group Business of the Company into its wholly
 owned subsidiary viz. ZRPPL, for cash consideration, on a going concern
 basis. In accordance with the Scheme of Arrangement approved by the
 Honorable High Court of Bombay vide its order dated November 23, 2007,
 the said Scheme was made effective from April 1, 2007, resulting in
 creation of ZRPPL.
 
 ZRPPL as a separate Company accentuating on the business of erstwhile
 Consumer Service Group (CSG), has resulted in release of existing
 management bandwidth to expand its flagship integration business to
 service demanding security needs of public and private sectors. With
 this change the Company has executed many high end private projects
 like WIPRO, l-flex, ANZ, WNS Global, Airport Authority of India -
 Amritsar, Philips, SAIL, etc.; and public importance projects such as
 Mumbai City Surveillance, Bangalore City Surveillance, Kolkatta Metro,
 Mumbai Western Railway, Varanasi Temple, Krishna Janma Sthal (Mathura),
 etc. In view of increasing awareness for safety and security and
 consistent economic growth, there are many growth opportunities in this
 field. The electronic security market is expected to grow at Compounded
 Annual Growth Rate of 23%.
 
 During the year, the Company had acquired stake of 49% in Unisafe Fire
 Protection Specialists LLC, Dubai (Unisafe) for exploring the new
 growth opportunities in overseas market. Unisafe provides Fire
 Detection and Fire Fighting Systems, equipments and services, for more
 than a decade. The investment made in Unisafe has proved extremely
 rewarding. Due to surge in construction activities in Middle- East and
 installation of fire and safety equipments being mandatory requirement
 of any construction there, we foresee breakthrough performance of this
 subsidiary.
 
 The Company has also set up its subsidiary viz Zicom Manufacturing Co.
 (HK) Ltd. in Honkong mainly for international trade and exploring /
 managing manufacturing facilities at China, Korea and Taiwan.
 
 The performance of the Company covering various aspects of its business
 operations in the year ended March 31, 2008 and prospects for the
 Companys business in the future has been dealt with at length in a
 separate section titled Management Discussion and Analysis, forming
 part of the Corporate Governance Report, as stipulated in Clause 49 of
 the Listing Agreement with the Stock Exchanges.
 
 FINANCE
 
 The Share Capital of the Company, during the financial year, increased
 from Rs. 97.46 million to Rs. 127.00 million due to issue of equity
 shares of the Company to all the outstanding bondholders who exercised
 the conversion option of 840 bonds aggregating 1o US$ 8.40 million into
 2,453,357 equity shares and issue of 500,000 equity shares to Bennett,
 Coleman &Co. Ltd on preferential basis at a price of Rs. 200/- per
 share. This has resulted in net increase in securities premium account
 by Rs. 246.48 million after adjusting difference of Rs. 76.00 million
 between book value and fair market value of fixed assets as on April 1,
 2007 and unrealized assets to the tune of Rs. 115.98 million under
 the Scheme of Arrangement.
 
 During the year, the Company made Preferential Issue of 2,100,000
 Warrants to Promoters Group Companies viz. Baronet Properties and
 Investments Private Limited and Coronet Properties and Investments
 Private Limited and 1,575,000 Warrants to various entities and bodies
 corporate. Each of the above Warrant can be converted into one equity
 share of the Company of Rs. 10/- each at a premium of Rs. 190/- per
 share.
 
 SUBSIDIARY & JOINT VENTURE COMPANIES
 
 The financial year ended March 31, 2008 bought into operation three
 subsidiaries which has helped to improve the consolidated performance
 of the Company. The brief profile of subsidiary companies are given
 below. Information on financials of the subsidiary for 2007-2008, are
 provided in annexure hereto. In respect of foreign subsidiary
 companies, figures in rupees are converted from applicable respective
 foreign currencies at appropriate rate at the year end.
 
 Unisafe Fire Protection Specialists LLC, Dubai
 
 The Company ventured in to the promising business of providing Fire
 Detection and Fire Fighting systems, equipments and services by
 acquiring 49%stake in Dubai based Unisafe Fire Protection Specialists
 LLC.
 
 Unisafe is one of the reputed Fire Protection Company in U.A.E. with
 its presence in Dubai and Abu Dhabi, operating for almost a decade.
 Unisafe has handled many prestigious projects in U.A.E. such as
 Emirates Towers to Dubai Airport Hangars. Today, Unisafe caters to a
 large spectrum of clientele from government to corporate, refineries,
 shopping malls, multi storey buildings, resorts, etc.
 
 Unisafe offers a comprehensive range of solutions for all Fire
 Protection needs starting from the basic Hydrant and Sprinkler Systems
 to advance Analogue Addressable Fire Alarm Systems and specialized
 Gaseous Fire Suppression Systems.
 
 During the financial year, Unisafe has posted significant growth and
 achieved total income of Rs. 721.95 million and a Net Profit of Rs.
 126.20 million.
 
 Zicom Retail Products Private Limited
 
 The Company vide order from Honorable High Court of Bombay, had hived
 off its Consumer Service Group Business (CSG) to its wholly owned
 subsidiary viz. Zicom Retail Products Private Limited w.e.f. April 1,
 2007. This was initiated to focus on security needs of fastest growing
 retail and residential segments in the country. The retail business has
 been divided into separate verticals which will focus on specific
 market/end user segments with robust distribution network.
 
 The year under review saw continued increase in demand for home and
 retail products and Zicom Retail was successful in tapping the
 opportunities by offering variety of products from plain vanilla
 products to customized solutions to meet the needs of every customer.
 
 In the first successful year of its operations, Zicom Retail has
 achieved Total Income of Rs. 509.03 million with Net Loss of Rs. 153.76
 million. This loss is mainly attributed to heavy advertisement and
 brand building expenditure amounting to Rs. 21 8.38 million incurred
 for building up new category of security product for SOHO market i.e.
 Small Office and Home Office. Thus, Zicom Retail has made good initial
 break through against lack of awareness about security products in the
 Indian consumer mind.
 
 Zicom Manufacturing Co. (HK) Ltd.
 
 With a view to promote international marketing and sale of Zicom
 branded products and to help the Company to source equipments at the
 competitive prices, a subsidiary was set up in Honkong on April 1 2,
 2007 in the name of Zicom Manufacturing Co. (HK) Ltd., with 76%
 shareholding. This subsidiary is also working upon for setting up of
 manufacturing facilities for the Companys in-house developed products
 in China and other neighbouring countries. In the first year of its
 operations, the subsidiary has posted Net Income of Rs. 47.84 million
 with Net Profit of Rs. 3.98 million.
 
 CONSOLIDATED FINANCIAL STATEMENTS
 
 In accordance with the Accounting Standard (AS) 21 on Consolidated
 Financial Statements read with Accounting Standard (AS) 23 on
 Accounting for Investments in Subsidiaries, the Audited Consolidated
 Financial Statements are provided in the Annual Report. The Company had
 applied to Central Government under Section 212 of the Companies Act, 1
 956, and accordingly the Company was exempted from attaching a copy of
 financial statements of Zicom Retail Products Private Limited and Zicom
 Manufacturing Co. (HK) Ltd., Hong Kong. In respect of Unisafe Fire
 Protection Specialists LLC, Dubai, the Company had separately applied
 to the Ministry of Corporate Affairs, Government of India, seeking
 similar exemption. Accordingly, the financial statements of the
 subsidiaries are not attached with this Annual Report. The statement on
 subsidiaries pursuant to Section 212 (3) of the Act is attached hereto
 as separate annexure. The Annual Accounts of the subsidiary companies
 are open for inspection by any Member at the Registered Office of the
 Company.
 
 DEVELOPMENT SUBSEQUENT TO THE YEAR END
 
 As the part of our constant endeavour to provide better services and
 solutions, we have partnered with CNA Group, Singapore to set up a
 subsidiary with a stake of 51 % with main focus on becoming
 foremost-integrated systems solution provider for intelligent building
 management solutions and green buildings in India. The said joint
 venture would provide complete end-to-end solutions right from system
 study to design, architecture, application development, installation
 and maintenance. In view of the thrust provided for creation and
 conservation of energy in India, the concept of green buildings is
 getting accepted. Also intelligent buildings and connected real estate
 solutions will be the major requirement in India on the background of
 large scale residential, commercial and industrial constructions.
 
 DIRECTORS
 
 In accordance with the provisions of the Companies Act, 1 956, and
 Article 1 1 0 of the Articles of Association, Achyut Godbole and Dr. B.
 Samal are the Directors liable to retire by rotation at the ensuing
 Annual General Meeting.
 
 Both the above Directors being eligible, have offered themselves for
 re-appointment. Your Directors recommend the re-appointments for your
 approval.
 
 During the year, Satya Pal Talwar, joined the Board on June 1 8, 2007
 as an Independent Director, but resigned from the Board due to his
 pre-commitments w.e.f. February 1 8, 2008. Harish Nayak also resigned
 from the Board w.e.f. September 28, 2007, by not opting for
 re-appointment at the last Annual General Meeting of the Company. Your
 Board put on record its sincere appreciation for valuable contribution
 made by both these Directors, during their tenure.
 
 GROUP
 
 Pursuant to an intimation from the Promoters, the names of the
 Promoters and entities comprising Group as defined under the
 Monopolies and Restrictive Trade Practices (MRTP) Act, 1969 are
 disclosed in the Annual Report for the purpose of the SEBI (Substantial
 Acquisition of Shares and Takeovers) Regulations, 1997.
 
 AUDITORS REPORT
 
 As regard to the remarks of the Auditors regarding non disclosure of
 Revenue and Expenses items for discontinued operation of retail
 business for the previous year 2006-2007, to be disclosed in the
 current years account along with the figures of the previous year, we
 hereby state that as the retail business was started as a part of
 on-going operations of flagship Company with sharing its infrastructure
 and resources, with no plans for hiving off this business initially, no
 separate item wise revenue and expenditure of this venture was
 maintained by the Company.
 
 AUDITORS
 
 M/s. R Raj & Co., Chartered Accountants retire at the conclusion of the
 ensuing Annual General Meeting and are eligible for re-appointment. A
 written certificate from them have been obtained by the Company to the
 effect that their re-appointment, if made, would be in accordance with
 the limits specified under Section 224 (1B) of the Companies Act, 1
 956. The Board recommends their re-appointment for your approval.
 
 STATUTORY INFORMATION
 
 (a) Conservation of Energy, Technology Absorption and Foreign Exchange
 Earnings and Outgo: Conservation of Energy:
 
 The Company is not required to furnish the prescribed information under
 Section 21 7(1) (e) of the Companies Act, 1 956, relating to the
 Conservation of Energy and Technology Absorption, as the Company does
 not fall under the industries included in Schedule to the relevant
 rules. However, your Directors report that the operations of the
 Company do not involve much use of energy. The Company makes every
 possible effort to conserve energy at all levels of its operations.
 
 Our recent joint venture with CNA Group, is aimed to offer solution to
 support conservation of energy by users.
 
 Technology Absorption:
 
 The Company has not imported any technology; and therefore no
 information is provided in this regard. However, the Company is
 continuously working on improving its indigenous products and software.
 
 Foreign Exchange Earnings and Outgo & Export Market Developments:
 
 The Company has earned Rs. 8.76 million (previous year Rs. 1 7.79
 million) in foreign currency, and has spent Rs. 128.41 million
 (previous year Rs. 239.84 million) in foreign exchange during the year
 under review. The details of these foreign exchange expenditures are
 available at item nos.21,22 & 23 of Schedule 15, being Notes forming
 part of the Accounts.
 
 (b) Particulars of Employees:
 
 Particulars of employees as required under Section 217 (2A) of the
 Companies Act, 1956, read with the Companies (Particulars of
 Employees) Rules, 1975, as amended, forms part of this report. However,
 in pursuance of Section 219 (1) (b) (iv) of the Companies Act, 1956,
 this report is being sent to all the shareholders of the Company
 excluding the aforesaid information, and the said particulars will be
 made available on request, and also made available for inspection at
 the Registered Office of the Company.  Members interested in obtaining
 such particulars may write to the Company Secretary at the Registered
 Office of the Company.
 
 (c) Corporate Governance:
 
 As per Clause 49 of the Listing Agreement with the Stock Exchanges, a
 separate section on Corporate Governance, together with a certificate
 from the Companys Auditors confirming compliance by the Company with
 the requirements of Corporate Governance, is set out separately forming
 part of this Report.
 
 FIXED DEPOSITS
 
 The Company has not accepted any deposits falling within the purview of
 Section 58A of the Companys Act, 1956, and as such, no principal or
 interest amount was outstanding on the date of the Balance Sheet.
 
 HUMAN RESOURCES
 
 The Companys HR department is a trend setter for various HR policies
 and practices. Every practice and policy is designed with an aim to
 ensure enhancement of employee morale thus leading to exemplary
 performance. The Performance Management System of the organization
 works towards enhancing the performance of the individual to their
 fullest while ensuring job satisfaction for all employees. For
 employees, the Company apart from putting their sincere efforts on
 work, are also made part of gamut of activities like NGO visits, Sports
 Day, Car Day, Kool Kids Day, and many more. These activities are
 celebrated with full vigour and zest by all the employees.
 
 EMPLOYEES STOCK OPTION SCHEME
 
 In accordance with Employees Stock Option Scheme (ESOS) of the Company,
 the employees have been offered options as per eligible criteria fixed
 under the Scheme. Against each of the above, an eligible employee is
 entitled to acquire equal number of equity shares of Rs. 10/- each of
 the Company at a price as may be decided by the Board / Compensation
 Committee. There are two Schemes of the Company viz. ESOS 2006 and ESOS
 2007. Necessary disclosures required to be given in accordance with
 Securities and Exchange Board of India (Employee Stock Option Scheme
 and Employee Stock Purchase Scheme) Guidelines, 1999, for ESOS 2006 are
 as under. As the Company has been granting the stock options only under
 ESOS 2006 and has yet to grant any options from ESOS 2007, no
 disclosures are given hereunder in respect of ESOS 2007:
 
 Sr. No.  Description                  Details
 
 1.       Total number of 
          Options under the Scheme     400,000 Options [each Option
                                       represents 1 (one) share] 
 
 2.       Options granted 
          during the year              59,000 Options
 
 3.       The pricing formula          The exercise price, i.e. 
                                       the price to acquire one 
                                       equity share of the
                                       Company upon exercise of 
                                       option shall be upto a maximum
                                       discount of 25% on latest   
                                       available closing price 
                                       of the equity share of the 
                                       Company, one day prior to the
                                       date of the meeting
                                       of the Board of Directors / 
                                       Compensation Committee in
                                       which the options are granted,
                                       on that Stock Exchange
                                       where there is highest trading
                                       volume on the said date. 
                                       The extent of discount
                                       will be decided by the
                                       Compensation Committee.
 
 4.       Options vested               59,400
 
 5.       Options exercised
          during the year              Nil
 
 6.       Total No. of Shares 
          arising as a result of
          exercise of Options          Nil
 
 7.       Options lapsed at
          the end of the year          140,000 Options
 
 8.       Variation of
          terms of Option              No variations made
 
 9.       Money realized by 
          exercise of Options          N.A.
 
 10.      Total number of Options 
          in force at the
          end of the year              236,000 Options
 
 11.      Employee-wise 
          details of Options
          granted during the year
 
 i)       Senior managerial 
          personnel                    Ravikant Malhan -   10,000
 
 
 General Manager Projects
 
 Sr. 
 No.  Description                 Details
 
 ii)  Any other employee who 
 receives a grant in any          Ravikant Malhan - 10,000
 one year of Options amounting 
 to 5% or more of                 General Manager Projects
 options granted during that year
 
 iii) Identified employees 
 who were granted Options,        Nil 
 during any one year equal to 
 or exceeding 1% of ; 
 the issued capital (excluding
 outstanding warrants
 and conversions) of the 
 company at the time of
 grant.
 
 12. Diluted Earnings Per Share 
 (EPS) pursuant to issue of       Rs. 7.62
 shares on exercise of Options 
 calculated in accordance
 with Accounting Standard (AS) 20.  
 
 13. The Company has calculated 
 the employee compensation
 cost using the intrinsic value 
 of the Stock Options,   
 the difference between the 
 employee compensation cost
 so computed and the employee 
 compensation cost that 
 have been  recognized if it 
 had  used  the fair value of  
 the Options,              
 the impact of this 
 difference on profits            Rs. (49.77) Lakhs
 the impact of this 
 difference on EPS                Re. (0.39)
 
 14. Options whose exercise 
 price either equals or 
 exceeds or is less than 
 the market price of the stock,
 weighted average exercise price  Rs. 163.95
 
 weighted average 
 fair values of Option            Rs. 77.66
 
 
 15. A description of the method 
 and significant assumptions   
 used to estimate the fair 
 values of Options, including
 the following weighted 
 average information:
 
 i. Risk Free Interest Rate       8.11%
 
 ii. Expected Life                3 years
 
 iii.Expected-Volatility          51.55%
 
 iv. Expected Dividends           10%
 
 v.  The weighted average 
 price of the underlying share        
 in market at the 
 time of Options granted.         Rs. 187.64
 
 
 DIRECTORS RESPONSIBILITY STATEMENT
 
 Pursuant to Section 217 (2AA) of the Companies Act, 1956, the
 Directors hereby confirm that in preparation of the annual accounts for
 the year ended March 31,2008:
 
 (i) The applicable accounting standards have been followed along with
 proper explanation relating to material departures, if any;
 
 (ii) Reasonable and prudent judgment and estimates were made, so as to
 give a true and fair view of the state of affairs of the Company at the
 end of the financial year and of the profit of the Company for the year
 ended on March 31, 2008;
 
 (iii) Proper and sufficient care was 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.
 
 INSURANCE
 
 All the assets of the Company are adequately insured.
 
 ACKNOWLEDGMENTS
 
 Your Directors would like to place on record their gratitude for the
 valuable guidance and support received from its stakeholders viz.
 shareholders, customers, employees, lenders, suppliers, government
 agencies, business partners, etc. Zicom would not have achieved this
 success without stakeholders support and hope that the same would
 continue in the time to come to help the Company in achieving new
 milestones.
 
                               On behalf of the Board of Directors
 
                                                    Manohar Bidaye
                                                          Chairman
 
 Place: Mumbai
 Date : June 30,2008