SQL Star International Ltd Directors Report

Dear Shareholders,

Your Directors take pleasure to present the 25^th Annual Report on the business and operations of the Company together with the Audited Financial Accounts for the year ended 31^st March, 2012.

1. The financial highlights of the Company : (Rupees in Lakhs)

	SQL Star		SQL Star, India
Particulars	Group Consolidated		(Stand alone)
	Financial Year		Financial Year
	2011-12	2010-11	2011-12	2010-11
INCOME:
- Sales/Income from Operations	3,546.58	3,938.68	1,513.19	1,778.16
Total	3,546.58	3,938.68	1,513.19	1,778.16
EXPENDITURE :
- Staff Cost	2,898.71	3,004.99	1,026.33	1,112.79
- Other Expenditure	773.10	1,217.54	533.37	720.82
- Direct & Outsourcing	156.13	274.39	154.53	196.14
- Provisions	922.33	160.54	855.38	160.54
- Depreciation	295.84	215.75	257.79	190.75
Total	5,046.11	4,873.21	2,827.40	2,381.03
Profit/(Loss) from Operations before Other income, interest & exceptional items	(1,499.53)	(934.53)	(1,314.21)	(602.88)
- Other Income	156.33	86.91	158.71	71.16
Profit/(Loss) before Interest & exceptional items	(1,343.20)	(847.62)	(1,155.48)	(531.72)
- Interest	101.63	48.39	96.68	41.60
Profit/(Loss) After Interest, before exceptional items	(1,444.83)	(896.01)	(1,252.16)	(573.32)
- Exceptional Items	-	-	-	-
Profit/(Loss) from Ordinary Activities before tax	(1,444.83)	(896.01)	(1,252.16)	(573.32)
- Tax Expenses	(74.23)	(39.51)	(75.53)	(45.05)
Profit/(Loss) from Ordinary Activities after tax	(1,370.60)	(856.50)	(1,176.63)	(528.27)
- Extraordinary Items (net of Tax Expenses)	-	-	-	-
Net Profit/(Loss) for the period	(1,370.60)	(856.50)	(1,176.63)	(528.27)

2 . BUSINESS PERFORMANCE

On a Consolidated basis, the Company reported total income of Rs. 3,546.58 Lacs in the FY 2011-12, as compared to Rs. 3,938.68 Lacs reported in the previous financial year, registering a decline of 11.06%. The loss after tax was Rs. 1370.60 Lacs in the FY 2011-12, as against Rs. 856.50 Lacs reported in the previous year.

On a Standalone basis, the Company reported total income of Rs 1,513.19 Lacs in the FY 2011-12, as compared to Rs. 1,778.16 Lacs reported in the previous financial year, registering a decline of 17.51%. The loss after tax was Rs. 1176.63 Lacs in the FY 2011-12, as against Rs. 528.27 Lacs reported in the previous year.

2 . 1 . Performance of SQL Star, India – Standalone Company

In the financial year 2011-12, the Global Economy faced fresh challenges with several of the major economies battling with issues of growth and solvency. The Indian economy witnessed a year of slower growth, high inflation and strong forex volatility, the situation exacerbated by slow pace of decision making by Government. In this environment, your Company focused on improving the return on capital employed and quality of balance sheet while re-engineering the Company’s businesses for higher growth

During the financial year under evaluation the Company not delivered up to the mark in each of the segments that it operates in, and in every segment that it is focused on, despite the instability and turmoil in the macro situation that continues to endure. Revenues and earnings have not expanded as the Company leveraged a low order booked during the year. The Company also entered into few engagements in foreign markets, secured few orders from its existing small clients that enables off-shore capabilities in the Singapore. The global economic environment remains subdued although key economies such as the US are showing stability and some improvement, with a yet unresolved crisis in the Euro zone and signs of slower growth in many emerging economies.

In such business conditions, SQL Star has stayed focused on strengthening its order book, supporting its front-end team, furthering its track in the marketplace, and exploring areas for further efficiency enhancement as it enters the new financial year.

The Company is planning to invest in creating additional Marketing management team, augmenting its front-end sales organization, and expanding its delivery facilities. In line with its client and operating profile and to effectively meet future growth requirements, the Company has been enhancing its capabilities and organizational skill-base. The initiatives undertaken by the Company during the year under review should yield benefits in the future.

The main reason for the fall in the revenue of the stand-alone company was due to decline in revenues from the e-Governance vertical. As informed in our previous Annual Report, during the last fiscal, the Mandi Board had resorted to unilateral and un-lawful termination of the Service Contract for executing the Mandi Project and further, withheld dues to the Company from April’ 08 onwards aggregating to Rs. 28.77 Cr (out of which Rs. 20.22 Cr pertains to billing raised on behalf of outsourcing partner). The Mandi Project was one of the major contributors to the revenues of the Company and the unilateral and un-lawful termination has severely impacted the Company financially and otherwise. The matter was referred for Arbitration proceedings. When the arbitration proceedings were in progress, the Mandi Board withdrew the arbitrator. In the meanwhile, the Company has filed a petition before the Honorable High Court of Madhya Pradesh, Jabalpur Bench seeking to appoint an arbitrator to complete the proceedings.

The Mandi Board has appointed Shri. Justice Arijit Pasayat (Retd.) as Arbitrator from their side. Considering the stature and the seniority of Shri. Pasayat, the Company has sent out a proposal to Shri. Pasayat, to accept as Sole Arbitrator to adjudicate on the subject issue, which was accepted.

Shri. Arijit Pasayat, the new Arbitrator being appointed to adjudicate on the on going issue between the Mandi Board and SQL Star, has convened the first meeting on 8th January, 2012 at New Delhi, to finalize the terms of my appointment as sole arbitrator, hearing schedules and other related issues. After hearing from both the parties, the new Arbitration has decided that the Arbitration proceedings will continue from the stage it was left by the previous Arbitrator. The Arbitrtion Proceedings are going on and Cross Examination of Claimant’s have been done on 25th, 26th and 27th November 2011.

Further, the other e-Governance project viz., Sampark Project in the Union Territory of Chandigarh came to a logical conclusion as of Dec 31, 2010. The Department of Information Technology, Chandigarh is yet to complete the re-tendering proces.

2.2. Performance of Wholly Owned Subsidiaries

During the year under review, the Singapore Company reported an increase of around 4.07% in its revenues, whereas the revenues of the USA subsidiary was down by around 34.55%, mainly due to macro-economic conditions prevailing in the USA and also on account of no revenues from the Embedded Wireless and Software business unit, as it has been shelved by the Company.

(a) SQL Star International Inc., USA

During the year under review, SQL Star International Inc., USA, has generated Rs. 451.52 Lakhs in revenue and reported Loss before Interest, Depreciation and Tax of Rs 0.34 Lakhs, with loss after Tax of Rs. 8.63 Lakhs.

The Company has entered into Letter of Intent with a group of Investors for disposal of whole/part of its shareholding in its wholly owned subsidiary Company in the USA viz., SQL Star International Inc., and in its step-down subsidiary of the Company viz., Talent Fuse Inc.,

Provision for diminution in the value of investments in the Subsidiary Company is being recognised from time to time in the accounts and is provided in full.

(b) International SQL Star Pte. Ltd., Singapore

During the year under review, International SQL Star Pte Ltd., Singapore, has generated Rs. 1,583.08 Lakhs in revenue and reported Loss before Interest, Depreciation and Tax of Rs. 151.93 Lakhs, with Loss after Tax of Rs. 187.86 Lakhs.

Due to continuous cash losses, mounting of liabilities resulted from severe liquidity issues and exodus of key employees etc., the Board of Directors of M/s. International SQL Star Pte Ltd have decided to wound-up the affairs of the Company thru Creditors Voluntary Winding-up process. In this context, M/s. Chee Yoh Chuang and Abuthahir Abdul Gafoor of M/s. Stone Forest Corporate Advisory Pte Ltd., Singapore have been appointed as Official Liquidators for the purposes of such winding-up of the affairs of the Company.

Provision for diminution in the value of investments in the Subsidiary Company is being recognised from time to time in the accounts and is provided in full.

(c) SQL Star International Pty Ltd., Australia

During the year under review, SQL Star International Pty Ltd., Australia, has generated Rs. 11.94 Lakhs in revenue and reported Profit before Interest, Depreciation and Tax of Rs. 2.70 Lakhs, with Profit after Tax of Rs. 2.52 Lakhs.

Due to continuous cash losses, mounting of liabilities resulted from severe liquidity issues and exodus of key employees etc., the Board of Directors of M/s. SQL Star International Pty Ltd have decided to voluntarily wound-up the affairs of the Company. In this context, M/s. Steven Kugel and Anthony Warner of M/s. CRS Warner Kugel., Australia have been appointed as Official Liquidators for the purposes of such winding-up of the affairs of the Company.

3 . DIVIDEND

Due to the loss incurred during the year, the Board of Directors of your Company does not recommend any dividend for the financial year 2011-12.

4 . AUDITOR’S

The Statutory Auditors of the Company, M/s. Maharaj N R Suresh and Co, Chartered Accountants, Chennai retire at the conclusion of the ensuing Annual General Meeting and being eligible, offered themselves for re-appointment.

The Company has received letter from them to the effect that their appointment if made would be within the prescribed limits under Section 224(1-B) of the Companies Act, 1956 and that they are not disqualified for re-appointment within the meaning of Section 226 of the Act.

5 . EXPLANATIONS TO QUALIFICATIONS IN AUDITOR’S REPORT

Clause No. of the Auditors’ Report	Directors Reply
4 (iii)(d)	The Company has borrowed unsecured loans from Promoter Group Companies. Due to cash liquidity issues, the Company has not paid the interest from March 2008 onwards. The outstanding interest will be cleared once the cash flow pressure is eased out.
4 (vi)	Due to overall fall in revenues and margins, and with the Mandi Board withholding our payments from April’ 08 onwards, there has been tremendous pressure on the cash flows of the Company. As a result, there have been delays in the payment of the statutory dues. In order to clear certain amount of the Statutory dues, the Company borrowed Rs. 1Cr from Mr. Sunil Gupta, the Co-Chairman & Managing Director of the Company. The Company had cleared the said loan in multiple trenches and the final trench of the Loan along with interest has been cleared before May’ 12.
4 (ix)(a) & (b)	As informed earlier, due to the Mandi Board resorting to unilateral and un-lawful termination of the Service Contract and withholding dues to the Company from April’ 08 onwards aggregating to Rs. 28.77 Crores (out of which Rs. 20.22 Crores pertains to billing raised on behalf of outsourcing partner), there was tremendous pressure on the working capital of the Company. Further, due to external market conditions, the revenues from all business units have suffered, which has further put the pressures on the working capital. Due to these reasons, there were incessant delays in making the payments of undisputed statutory dues including Provident Fund, Income Tax deducted from various Services /Payments and Service Tax. However, the Company is taking necessary steps to regularize the remittances of various statutory dues with appropriate authorities.

6. DIRECTORS

As per Article 51 of the Articles of Association, Mr. C P Khandelwal and Mr. Mahesh Solanki who retires by rotation at the ensuing Annual General Meeting and being eligible offers themselves for reappointment.

7. PUBLIC DEPOSITS

In terms of the Provision of section 58A of the Companies Act, 1956 read with the Companies (Acceptance of Deposits Rules) 1975, Your Company has not accepted any fixed deposits from public and as such, no amount of principal or interest was outstanding on the date of the Balance Sheet.

8. CORPORATE GOVERNANCE

Pursuant to the provisions of Clause 49 of the Listing Agreement and Section 292A of the Companies Act, 1956, a Report on the Corporate Governance, which, inter alia, includes the composition and constitution of Audit Committee, is featuring as a part of Annual Report. Certificate of the Statutory Auditors regarding compliance with the conditions of Corporate Governance as stipulated in Clause 49 of the Listing Agreement is also given in this Annual Report. Your Company will continue to adhere in letter and spirit to the good corporate governance policies.

9. On 9th July 2012 the Board of Directors of the Company have approved the Merger of M/s. Mindlogicx Infratec Limited with the Company which is subject to in-principle approval by the Bombay Stock Exchange and approval by the members of the Company and sanction by the Hon’ble High Court of Andhra Pradesh. The application filed with Bombay Stock Exchange is pending for in-principle approval

10 . MANAGEMENT DISCUSSION AND ANALYSIS

Management Discussion and Analysis Report as required under Clause 49 (IV) (F) is disclosed separately in this Annual Report.

11 . INTERNAL CONTROL

Your Company has established reasonably sound system of Internal controls in the operational areas. Internal controls evolved are commensurate with the size of the operations and organizational requirements and are adequate to protect the enterprise resources. The Audit Committee reviews the adequacy of internal control system from time to time.

12 HUMAN RESOURCES

Your Company administers a comprehensive human resources management system which includes attracting, developing and retaining a highly qualified and continuously learning workforce. Your Company is continuously striving towards the implementation of certain HR best practices, with a greater focus on fulfilling and supporting our business needs and simultaneously catering to the enhancement of people, process and procedures in the organization.

13 . QUALITY

Continuous Quality improvement and adherence to quality standards and processes are important to remain competitive in the global market. During the year, your Company has focused on improving quality in every process, including project designs, product development and delivery, Testing and Implementation and maintenance. As a part of continuous improvement program, during the year, your Company obtained ISO 9001:2008 re-certifications.

14 . MATERIAL CHANGES AFFECTING THE FINANCIAL POSITION

Pursuant to provisions of Section 217 (1) (d) of the Companies Act, 1956, there has been no material change and commitment affecting the financial position of the Company that has occurred between the end of the financial year of the company, related to the balance sheet and the date of the report.

15 . CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION etc.

Information in accordance with the provisions of section 217(1)(e) of the Companies Act, 1956 read with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 is given in Annexure-A forming part of this report.

16 . FINANCIAL INFORMAITON OF SUBSIDIARY COMPANIES

In terms of the specific approval granted by the Central Government under Section 212(8) of the Companies Act, 1956, and in terms of the general permission granted by the Central Government to all companies vide General Circular No. 3/2011 dated February 21, 2011, the Audited/Un-Audited Financial Statements along with the reports of the Board of Directors and the Auditors pertaining to the above subsidiaries have not been attached to this Report. The Financial Statements of the said subsidiaries will be kept for inspection by any investor at the registered office of your Company. Investors who want to have a copy of the above may write to the Compliance Officer at the registered office.

18 . PARTICULARS OF EMPLOYEES

Information required under Section 217(2A) of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975 and forming part of Directors’ Report for the year ended March 31st, 2012.

There are no employees drawing salary in excess of the limit prescribed under 217(2A) of the Companies Act, 1956,

19. DIRECTORS’ RESPONSIBILITY STATEMENT

Pursuant to the requirement of provisions of Section 217 (2AA) of the Companies Act, 1956 with respect to Directors’ Responsibility Statement, it is hereby confirmed that:-

(i) In the preparation of the annual accounts for the year ended March 31^st, 2012, the applicable accounting standards read with requirements set out under Schedule VI of the Companies Act, 1956, have been followed and there are no material departures from the same;

(ii) The Directors have 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 March 31^st, 2012 and the Loss of the Company for the year ended as on date.

(iii) The Directors have taken proper and sufficient care 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; and

(iv) The Directors have prepared the annual accounts of the Company on a "going concern" basis.

20 . RELATED PARTY TRANSACTIONS

As a matter of policy, your Company carries out transactions with related parties on an arm’s length basis. Statement of these transactions is given in the Notes to Accounts in compliance of Accounting Standard AS – 18.

21 . ACKNOWLEDGEMENTS

Your Directors take this opportunity to thank all Investors, Clients, Licenses, Technology Partners, Vendors, Banks, Regulatory authorities, Media and Stock Exchanges for their valuable and continued support and cooperation extended during the year under review.

Your Directors also wish to place on record their sincere appreciation of the contribution made by the employees of the Company. Our consistent growth was made possible by their hard work, solidarity, cooperation and support.

For and on behalf of the Board

SQL Star International Limited

Place : Mumbai	Sunil Gupta
Date : 4th December, 2012	Co-Chairman & Managing Director

ANNEXURE TO DIRECTORS’ REPORT

Annexure - A

CONSERVATION OF ENERGY & TECHNOLOGY ABSORPTION, FOREIGH EXCHANGE EARNINGS AND OUTGO

A . Conservation of Energy

Your Company’s operations are software oriented and not energy intensive. Adequate measures are taken to conserve energy wherever possible. No additional investments are made for reduction of consumption of energy.

The energy consumption is very inadequate and energy cost forms a small part of total costs, the impact of costs is not material.

B. Technology absorption

A technology vision has been formulated that anticipates changes to evolve technology based on the same. The core management team identifies itself with the vision process and is constantly captivating, adapting and deploying the technological changes into its services to its customers, so as to improve their business efficiencies.

C. Foreign exchange earnings and outgo		(Rupees in Lakhs)
Details	Year ended	Year ended
	31.03.2012	31.03.2011
Earnings from service	13.17	3.73
Expenditure	1.22	4.20