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Megasoft Ltd.

BSE: 532408 | NSE: MEGASOFT |

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Series: BE | ISIN: INE933B01012 | SECTOR: Computers - Software Medium & Small

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Annual Report

For Year :
2018 2017 2016 2015 2013 2012 2011 2010 2009

Director’s Report

The Directors have pleasure to present their report of your company on the business and operations for the year ended 31 March 2018.

Financial Results

(Rs. lakhs)

Particulars

Standalone

Consolidated

For the

For the

For the

For the

year ended

year ended

year ended

year ended

31 March 2018

31 March 2017

31 March 2018

31 March 2017

Revenues

2,851.34

3,104.83

6,625.94

7,014.21

Expenditure

3,115.95

3,548.83

5,665.14

6,452.75

Finance cost

322.83

232.95

519.87

593.78

Depreciation

65.89

66.84

431.16

511.76

Operating profit / (loss)

(653.33)

(743.79)

9.77

(544.07)

Profit before tax

(554.20)

62.24

108.91

220.25

Less: Taxes

(60.23)

(51.63)

(60.23)

(51.63)

Profit after tax

(493.97)

113.87

169.14

271.88

Earnings per share (equity shares, par value Rs.10 each) Basic (Rs.)

(1.05)

0.24

0.45

0.59

Diluted (Rs.)

(1.05)

0.24

0.45

0.59

Overview

During the financial year ended 31 March 2018, your company recorded consolidated revenues of Rs. 6625.94 lakhs as compared to Rs.7,014.21 lakhs for the financial year ended 31 March 2017. The consolidated profit was Rs.169.14 lakhs during the current year as compared to Rs.271.88 lakhs in the previous year.

Further, during the year under review there were no changes in nature of business of the company.

Dividend

On account of inadequacy of profits during the financial year ended 31 March 2018, the Board of Directors of the company have not recommended dividend.

Share capital

The paid-up equity share capital as on 31 March 2018 was Rs.4,426.73 lakhs comprising of 4,42,67,293 equity shares of Rs.10 each. During the year under review, the company has not issued shares with differential voting rights nor granted stock options or sweat equity.

Material changes from end of financial year to date of this report

Except as disclosed elsewhere in this report, there have been no material changes and commitments, which can affect the financial position of the Company occurred between the end of the financial year of the Company and date of this report.

Directors and Key Managerial Personnel

The company has received declarations from all the independent directors of the company confirming that they meet the criteria of independence as prescribed under section 149(6) of the Companies Act, 2013 and Schedule IV of the Companies Act, 2013 and Regulation 16(1)(b) of the SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015.

In accordance with the provisions of the Companies Act, 2013 and in terms of the Memorandum and Articles of Association of the company, Mr GV Kumar [DIN-00059107] and Mr D Sudhakar Reddy [DIN-00047707], directors of your company, retire by rotation at the ensuing AGM and are eligible for reappointment.

Board Meetings

The Board of Directors met four (4) times during the financial year. The provisions of Companies Act, 2013 and Regulation 17(2) of SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015, Secretarial Standard - 1 issued by Institute of Company Secretaries of India were adhered to in respect of meeting of Board of Directors of the company.

Nomination & Remuneration Policy

The Board has, on the recommendation of the Nomination & Remuneration Committee framed a policy for selection and appointment of Directors, Senior Management and their remuneration. The Remuneration Policy is available on the website of the company and the terms of reference are given separately in the Corporate Governance Report.

Board Evaluation

Pursuant to the provisions of the Companies Act, 2013 and SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015, the Board has carried out an annual performance evaluation of its own performance, the directors individually as well as the evaluation of the working of its committees. The manner in which the evaluation has been carried out has been detailed out in the Corporate Governance Report.

Directors'' Responsibility Statement

To the best of their knowledge and belief and according to the information and explanations obtained by them, your Directors make the following statements in terms of section 134(3)(c) of the Companies Act, 2013:

(i) in the preparation of the annual financial statements for the year ended 31 March 2018, the applicable accounting standards had been followed along with proper explanations relating to material departures;

(ii) 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 as at the end of the financial year and of the profit / loss of the company for the year;

(iii) the directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities;

(iv) the directors had prepared the annual accounts on a going concern basis;

(v) 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; and

(vi) 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.

Significant Transactions

Pursuant to the Shareholders'' approval via postal ballot in March 2016 and the Joint Development Agreement entered into by the Company with M/s. Darshita Infrastructure Ltd (A Salarpuria Sattva Group Company), the Company during the period under review, commenced the setting up of a large IT facility at its property at Nanakramguda (which was registered in the company''s favour in May 2015 by TSIIC through a conditional sale deed). The Company also obtained necessary Statutory approvals from TSIIC and other regulatory authorities and the construction is in progress.

Outlook

A detailed discussion on the performance of the company, industry structure, threats, opportunities, risks, future outlook and strategy is given separately in the Management''s Discussion and Analysis section, which forms a part of this annual report.

Energy Conservation, Technology Absorption and Foreign Exchange Earnings and Outgo

In terms of Section 134(3)(m) of the Companies Act, 2013 and the rules framed thereunder, your Directors furnish the required details below:

(a) Conservation of Energy: Your Company uses electric energy for all its equipment''s such as air conditioners, computer terminals, lighting and utilities in the work premises. All possible measures have been taken to conserve energy:

- through periodic energy audits to identify potential areas for saving

- by incorporating energy-efficient equipment

- through automation i.e. using timers, automatic level controllers, etc.

(b) Research and Development (R&D): Being considered a market leader in Mobile Infrastructure space for virtual operators and Mobile Payments, Your Company further strengthened its Products and Solutions to launch services for multiple Customers based on a Cloud Offering for both Its MSP and Payment Manager offerings. Furthering our focus on building and expanding Your Company''s expertise in latest technologies, your company now built an Enterprise Mobile Data Core Platform as well as additional Mobile Wallet functionalities.

(c) Technology Absorption: In our quest to offer all our products in cloud environment, Your Company re-architected and designed multiple components and technologies to enable porting of the services on to cloud. With our intent to offer all flagship products in cloud, our products require higher configurability, auto scaling and data security frameworks. Your company has made significant progress in this regard during last year.

(d) The details of foreign exchange earnings and outgo are given in note no. 29 and 30 of the Notes forming part of the standalone financial statements of the company.

Quality certifications

Your company''s quality management system (QMS) has its foundation on decades of experience and industry best practices that are aligned with international standard quality models and certifications. This assures that the company maintains confidentiality, integrity, availability of corporate, and client information

ISO 9001:2015 - Quality Management System

QMS enhancing customer satisfaction.

Your company is certified for ISO 9001:2015 by BSI, India. Our products & solutions therefore ensure customer satisfaction.

ISO 27001:2013 - Information Security Management System

Information security management system enhancing Confidentiality, Availability and Integrity.

Risk Management

Although the company has long been following the principle of risk minimisation as is the norm in every industry, it has now become a compulsion.

Therefore, in accordance with Section 134(3)(n) of the Companies Act, 2013 and Regulation 17(9) SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015 the Board members formally adopted steps for framing, implementing and monitoring the risk management policy for the company.

A disciplined approach to risk is important in a diversified organization like ours in order to ensure that we are executing according to our strategic objectives and that we only accept risk for which we are adequately compensated. We evaluate risk at the individual transaction level, and evaluate aggregated risk at the customer, industry, geographic and collateral-type levels, where appropriate.

At the end of each year, management and the Board jointly develop a list of major risks that company plans to prioritize in the next year. Key areas of Risk Management for the year 2018-19 include Data Security and Privacy, Technology obsolescence, Service Delivery, retention and development of Human Resources, Business competition and continuity, Foreign exchange fluctuations & new compliances.

The main objective of Your Company''s risk management policy is to ensure sustainable business growth with stability and to promote a pro-active approach in reporting, evaluating and resolving risks associated with the business. In order to achieve the key objective, the policy establishes a structured and disciplined approach to Risk Management, in order to guide decisions on risk related issues.

The risk governance structure is led by the Audit/Risk Compliance Committee, chaired by Mr. Anil Kumar Sood. This committee is responsible for the effective management of the risks facing the Company. The Committee meets on a quarterly basis and reports to the Board. As a matter of policy, these risks are assessed and steps as appropriate are taken to mitigate the same.

Internal Control Systems and Their Adequacy

The company has an Internal Control System, commensurate with the size, scale and complexity of its operations. The scope and authority of the Internal Audit (IA) function is defined in the Internal Audit Charter. To maintain its objectivity and independence, the Internal Audit function reports to the Chairman of the Audit/Risk Compliance Committee of the Board.

The Internal Audit monitors and evaluates the efficacy and adequacy of internal control system in the company, its compliance with operating systems, accounting procedures and policies at all locations of the company and its subsidiaries. Based on the report of internal audit function, process owners undertake corrective action in their respective areas and thereby strengthen the controls. Significant audit observations and corrective actions thereon are presented to the Audit/Risk Compliance Committee of the Board.

Vigil Mechanism / Whistle Blower Policy

In order to ensure that the activities of the company and its employees are conducted in a fair and transparent manner by adoption of highest standards of professionalism, honesty, integrity and ethical behaviour, the company has adopted a vigil mechanism policy. This policy is explained in corporate governance report and also posted on the website of the company.

Related Party Transactions

All related party transactions that were entered into during the financial year were on an arm''s length basis and were in the ordinary course of business. There are no materially significant related party transactions made by the company with the promoters, directors, key managerial personnel or other designated persons which may have a potential conflict with the interest of the company at large.

All related party transactions are placed before the Audit/Risk Compliance Committee as also the Board for approval.

The Board of Directors of the company has, on the recommendation of the Audit/Risk Compliance 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 framed thereunder and Regulation 23 of SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015. This Policy was considered and approved by the Board and has been uploaded on the website of the company.

Enhancing Shareholder Value

Enhancing Shareholder Value is the common thread that runs through everything we do as a company from innovating new products and broadening our existing portfolio, to successful restructuring efforts and improving our working capital. Throughout our history, delivering value to our shareholders has been and will continue to be uppermost in our minds as we manage our business. However, in the last few years, due to declining revenues and performance, the company has been unable to declare dividends. Your company is also committed to creating value for all its stakeholders by ensuring that its corporate actions positively impact the stock price and creation of Shareholder Value.

Corporate Social Responsibility

The provisions for corporate social responsibility (CSR) under the Companies Act, 2013, are not applicable to the company for the current financial year. However, your company has been, over the years, pursuing as part of its corporate philosophy, an unwritten CSR policy voluntarily which goes much beyond mere philanthropic gestures and integrates interest, welfare and aspirations of the community with those of the company itself in an environment of partnership for inclusive development.

Corporate Governance

A report on Corporate Governance including the relevant Auditors'' Certificate regarding compliance with the conditions of Corporate Governance as stipulated in Regulation 34(3) and Schedule V of SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015, is annexed. Management''s Discussion and Analysis is also annexed.

Particulars of Loans, Guarantees & Investments

Details of Loans, Guarantees and Investments covered under the provisions of Section 186 of the Companies Act, 2013 are given in note no. 3, 9 and 27 of the Notes forming part of the standalone financial statements of the company.

Subsidiary Companies

The statement pursuant to Section 129 of the Companies Act, 2013 in respect of subsidiaries is attached as Annexure-1. The annual accounts of these subsidiaries and the related detailed information will be made available to any member of the company seeking such information at any point of time and are also available for inspection by any member of the company at the registered office of the company. The company shall furnish a copy of annual accounts of subsidiaries to any member on demand.

Consolidated Financial Statements

The consolidated financial statements of the company prepared in accordance with the prescribed Accounting Standards form part of this Annual Report pursuant to the Regulation 34(2) of SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015.

Fixed Deposits

The company has not accepted any deposits from the public, and as such, there are no outstanding deposits in terms of the Companies (Acceptance of Deposits) Rules, 2014.

Particulars of Employees

There are no employees falling within the provisions of section 134(3)(q) of the Companies Act, 2013 read with Rule 5(2) and 5(3) of The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.

Employee Stock Option Scheme

The company has not issued any employee stock option during the year under review.

Extract of Annual Return

The details forming part of the extract of the Annual Return in form MGT-9 has been given in the Annexure-2 appended hereto and forms part of this report.

Auditors'' Report

Except as specified and explained below, there are no other qualifications, reservations, or adverse remarks or disclaimers in the Auditors'' Report. Observations made in the Auditors'' Report are self-explanatory and therefore do not call for any further comments under Section 134(1) of the Companies Act, 2013.

Remark by Auditors: There have been delays by the Company during the year in depositing Statutory Dues with the appropriate authorities. As at 31st March, 2018, under this clause, there has been arrears of outstanding of ''33,80,855 towards TDS under the Income Tax Act, 1961. However, as on the date of this report this outstanding has been paid by the Company.

Explanation: Due to operational difficulties and short term challenges in collections, there were delays in payment of statutory dues. However we have taken steps to strengthen timely collection process to overcome such delays.

Auditors

Statutory Auditors

Members at its 17th Annual General Meeting held on July 28, 2017 Appointed M/s. N. C. Rajagopal & Co., [Firm Registration No.003398S], Chartered Accountants to hold office as auditors of the company till the conclusion of the 22nd Annual General Meeting to be held in the year 2022.

In accordance to the provisions of section 139 of the Companies Act, 2013, The Board of Directors on the recommendation of the Audit Committee has proposed to ratify the appointment of M/s. N. C. Rajagopal & Co., Chartered Accountants, Firm Registration No. 003398S as Statutory Auditors. Further, the Company received a declaration from M/s. N. C. Rajagopal & Co., Chartered Accountants in accordance with the provisions of Section 141 of the Companies Act, 2013 and the Rules framed there under.

Internal Auditor

Mr R Balasubramanian (FCA-220677), Chartered Accountants, perform the duties of internal auditors of the company and their reports are reviewed by the audit committee from time to time.

Secretarial Auditor

Pursuant to the provisions of Sections 204 of the Companies Act, 2013 and the rules framed thereunder, the company has appointed M/s M Damodaran & Associates (CoP-5081/FCS-5837), Practicing Company Secretaries, to undertake the Secretarial Audit of the company. The Secretarial Auditors'' Report, in the prescribed format, for the year ended 31 March 2018 is annexed to this Directors'' Report and forms part of the Annual Report (Annexure-3). There are no qualifications or adverse remarks made by the secretarial auditor.

Human Resources Development

Your Company is committed to provide a holistic experience to employees that fosters a culture of high performance led by innovation. Your Company believes that while Technology can enable processes but it is People who lead the company towards its goals and successes. There is a significant focus on creating a fun-filled, high-energy work environment where personal milestones, organizational successes and special occasions are celebrated with fervor and enthusiasm.

Disclosure as required under Section 22 of Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013

Your company has in place an Anti-Sexual Harassment Policy in line with the requirements of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. The Internal Complaints Committee (ICC) has been set up to redress the complaints received regarding sexual harassment. All employees are covered under this policy. During the year under review the ICC has not received any complaints.

Listing with Stock Exchanges

Your company''s equity shares are listed on BSE [532408] and NSE [MEGASOFT]. Necessary stock exchange regulations are complied with from time to time.

Acknowledgments

Your directors place on record their appreciation of the customers, bankers, Government of India and of other countries, Registrar and Share Transfer Agent, vendors and technology partners for the support extended. Your directors also wish to place on record their appreciation of the contribution made by employees at all levels without whom the growth of the company is unattainable. Your directors seek and look forward to the same support during future years of growth.

For and on behalf of the Board of Directors

GV Kumar D Sudhakar Reddy

Managing Director Executive Director

Place : Hyderabad

Date : 29 May 2018

Director’s Report