federal technologies ltd Management discussions
FEDERAL TECHNOLOGIES LIMITED
ANNUAL REPORT 2004-2005
MANAGEMENT DISCUSSION AND ANALYSIS
RESULTS OF OPERATION:
The Revenue of the Company for the current year is Rs.474.94 Lakhs as
compared to Rs. 580.83 Lakhs for the previous year. The Company generated a
net surplus of Rs. 1569.38 Lakhs for the year from its operations and from
the sale of business undertaking.
SALE OF BUSINESS
During the year, your Company sold its business operations to Avnisoft
Systems Private Limited (Purchaser), a wholly owned Subsidiary of
Flextronics International, incorporated under the laws of India, as a going
concern and on a slump sale basis. Consequently, all the Business Assets
and Business Liabilities were transferred to the Purchaser and the
Corporate Assets and Corporate Liabilities were retained by your Company.
Your Directors approved the sale of business in the Board Meeting held on
22.07.2005 and your consent was received through a postal ballot process
which was a mandatory requirement under the Companies Act , the result of
which was in favour of the transaction and was announced on August 23,
2005 and ratified at the Extra Ordinary Meeting of Members held on
September 21, 2005.
BUSINESS:
During the year, till the date of slump sale, the company continued its
business of developing and licensing ready-to-manufacture reference designs
in digital television products and technologies, predominantly for set-top
boxes for the global market. Last year we had introduced new products and
technologies apart from the MPEG2 digital broadcast products in the form of
portable media players and recorders for MPEG4 based technologies and
applications. Your company continued to build on these products and have
acquired new customers internationally towards both readymade reference
products and technologies licensing. Post the sale of Business, in
accordance with the terms and conditions of the Business Sale Agreement,
your company has discontinued its current business operations and have
transferred all its Business Assets and Business Liabilities including all
the employees to the Purchaser.
Overview
The financial statements have been prepared in compliance with the
requirements of the Companies Act, 1956, and the Generally Accepted
Accounting Principles (GAAP) in India. The management of Federal
Technologies Limited accepts responsibility for the integrity and
objectivity of these financial statements, as well as for various estimates
and judgments used therein. In addition to the historical information
contained herein, the following discussion includes forward looking
statements which involve risks and uncertainties, including, but not
limited to, risks inherent in the Companys growth strategy, dependence on
certain clients, dependence on availability of qualified technical
personnel and other factors discussed in this report.
Commentary on the financial statements
1. Share capital
1.1. The Company has at present, only one class of shares. The Company had
forfeited 18,97,900 Equity Shares during 1998-99, for non-payment of
Allotment Money in accordance with the Articles of Association of the
Company. Of these, during 1999-2000, the Company had re-issued 5,92,900
equity shares on preferential basis to Mutual Funds. Further, during the
year 2000-01 the Company re-issued 25,000 equity shares for consideration
other than in cash for acquisition of IndusLabs a division of InduSoft
Private Limited. Total outstanding shares as on date is 38,25,000 equity
shares of Rs.10/- each. The Board of Directors reserve the right under
Articles of Association of the Company to re-issue balance of 12,80,000
forfeited shares to such persons on such terms and condition as it deems
fit.
2. Reserves and Surplus
2.1. Capital reserve of Rs. 20.36 Lakhs represents Application money
received during the public issue against the 5,92,900 Equity Shares, which
were subsequently forfeited and re issued as follows:
5,92,900 equity shares re - issued at a premium on preferential basis to
mutual funds during the year 1999 and 25,000 equity shares issued towards
consideration other than for cash towards acquisition of Indus Labs
during the year 2001.
2.2. Share premium account represents the cash premium collected on the re-
issue of forfeited shares of 5,92,900 equity shares issued on preferential
basis to mutual funds during 1999-2000.
2.3. The Company has transferred Rs 157 Lakhs (Previous year - Rs. 6 Lakhs)
to General Reserves during the year.
3. Secured & Un Secured Loans
3.1. During the year Company took a unsecured loan of Rs. 1,31,31,258/-
from Future Software Limited carrying a interest of 10.25% Per Annum. Since
all the assets of the Company was pledged with the State Bank of India
towards the Cash Credit loan extended to the Company this loan was used to
repay the Secured Loan with State Bank of India . How ever being the loan
of the Business Undertaking the same was transferred to the Purchaser.
3.2 During the year the Company has re paid the working capital loan to the
tune of Rs. Rs.100 Lakhs State Bank of India, Industrial Finance Branch.
4. Fixed assets
4.1. During the year the Company added assets worth Rs. 3.96 Lakhs, pre
sale of business. (Previous year-Rs. 169.20 Lakhs) to its Gross Block. How
ever all the Fixed Assets of the Business Undertaking except Office
Building and Vehicles of the Company transferred to the purchaser.
4.2. The Company has assets worth Rs 7.55 Lakhs (Previous Year - Rs. 10.56
Lakhs) under Hire Purchase Agreements. This being Corporate Assets of the
Company has not been transferred to the purchaser.
4.3. Property, plant and equipment are stated at cost less accumulated
depreciation. The Company computes depreciation for all property, plant and
equipment using the straight-line method.
Assets Depreciation Rates
Computers 20%
Plant & Machinery 14.29%
Office Equipment and Furniture & Fixtures 14.29%
Vehicles 20%
4.4 Building is depreciated as per the provisions of the Companies Act,
1956 at 1.63%. This being corporate asset of the Company it has not been
transferred to the Purchaser.
4.5 Goodwill, arising out of acquisition of Indus labs being long-term
asset and having an intrinsic value, in excess of cost is not being
amortised This being the asset of the Business undertaking has been
transferred to the purchaser on account of sale.
4.6 The Company has not planned any Capital Expenditure.
5. Investments
5.1 The Company has invested an amount of USD 3000 (Rs.1.45 Lakhs) in 2001-
02 in Fedtec Inc,USA an wholly owned subsidiary .
6. Sundry Debtors
6.1 All sundry debtors appearing in the Books of Accounts, being asset of
the Business Undertaking on the date of sale have been transferred to the
purchaser.
6.2 Dues from Companies under the same management - Nil (Previous Year -
Nil)
7. Cash and bank balances
7.1 The bank balances includes Rs. 2991.62 Lakhs (Previous Year - Rs. 0.19
Lakhs) in Current and Fixed Deposits accounts.
8. Loans and advances
8.1 Advances recoverable in cash, kind or value to be received, are
primarily towards prepayments for value to be received and loans and
advances given and includes a sum of Rs. 300.61 Lakhs held in an Escrow
Account out of the Purchase consideration with the purchaser for a period
of 12 months from the date of sale towards adjustments to the purchase
consideration on account of events occurring during this period, that could
impact the value of the transferred Business Undertaking.
8.2 Tax deducted at source Rs 20.55 Lakhs (Previous Year-Rs. 9.13 Lakhs)
8.3 Dues from Companies under the same management - Nil (Previous year -
Nil).
8.4 Deposits represent lease deposits paid for staff accommodation, and
sales tax deposits. Company has paid Rs.6.00 Lakhs (Previous Year -
Rs. 14.50 Lakhs) as deposits for its operation and facilities and towards
above said deposits.
9. Current liabilities
9.1 Sundry Creditors for capital goods represent amount payable to vendors
for supply of capital assets and to financiers for supply of capital assets
on Hire Purchase basis. Sundry creditors - others include creditors for
operational expenses, accrued employee incentives and benefits. How ever
all the liabilities of the Business undertaking except the Corporate
liabilities have been transferred to the purchaser on account of sale.
10 Profit & Loss Account
10.1 Income
10.1.1 The Company derived its income of Rs. 490.59 Lakhs (Previous Year -
Rs. 580.83 Lakhs) from designing, developing and providing services in
embedded consumer electronic devices with vertical focus on digital
television technologies through ready to manufacture reference designs of
set-top boxes and wireless communication products, and services rendered
till the date of sale of business.
Rs. in Lakhs
Particulars 2004-2005 2003-2004
Value % Value %
Design, Development , sale of 474.93 96.81 580.82 99.99
products and services
Other Income 15.66 3.19 000.01 00.01
Total 490.59 100.00 580.83 100.00
10.1.2 Non-operating income
10.1.2.1 Non-operating income presently consists of income derived by the
Company from interest on deposits with Bank and other income.
10.2 Operating profits
10.2.1 The operating profit of the company amounted to Rs. 95.83 Lakhs and
the surplus generated out of the sale of the business undertaking amounted
to Rs. 2106.88 Lakhs.
10.3 Interest & Bank Charges
10.3.1 The Company incurred an expenditure of Rs. 15.08 Lakhs (Previous
Year - Rs. 22.50) towards interest and bank charges.
10.4 Depreciation
10.4.1 The Company provided a sum of Rs.88.02Lakhs (Previous Year- Rs.73.84
Lakhs) towards depreciation on its assets as per its Accounting Policy.
Post sale of business all the Assets except Office Building and Vehicles
transfered to the purchaser.
10.5 Provision for tax
10.5.1 The Company has provided Rs. 631.74 (Previous Year Nil) for tax
liability during the year in accordance with the applicable provisions of
the Income Tax Act, 1961.
10.6 Net Profit / Loss
10.6.1 The operating Profit the Company amounted to Rs. 95.83 lakhs and the
surplus generated out of the sale of the business undertaking amounted to
Rs. 2106.88 Lakhs as against Operating Net profit of Rs. 64.24 Lakhs during
the previous year.
10.7 Earnings per share
10.7.1 Earnings per share as on the Balance Sheet date was Rs 41.03 per
share (Previous Year.(Rs. 1.68 per share).
10.8 Cost of Software Tools Charged off
10.8.1 Cost of Software Tools charged off to revenue during the year
amounted to Rs. Nil Lakhs as against Rs. 0.80 Lakhs for the previous year.