Opto Circuits Management Discussions


INDUSTRY OVERVIEW

Medical devices are an eminent part of the healthcare sector. The medical device industry includes devices which simplify the prevention, diagnosis and treatment of diseases and illnesses. The devices range from pacemakers, dialysis machines to thermometers, vital signs monitors, and pulse oximetry sensor which are used in diverse primary, secondary and tertiary medical establishments. North America is the largest market accounting for over 40% followed by Europe and rest of the World. In rest of the World, developing economies in particular China, India, Africa, Middle East and Brazil have been growth contributors over the past couple of years.

While an aging population, chronic lifestyle diseases, expansion of emerging markets and advances in technology are expected to drive growth, however there are certain factors which are considerably altering the healthcare demand and delivery landscape.

Companies in the industry need to adapt their R&D strategy. Policy on pricing and mechanics of their supply chain to strive in the changing regulatory, clinical and business landscape. Consequently, companies will need to create technologies that help reduce healthcare costs, focus on the needs of the emerging markets, and fit into the reimbursement patterns of developed economies.

The Indian medical device industry though in its nascent stages shows great potential due to its strong private healthcare system, growing middle class with increasing income levels, change in the disease profiles (lifestyle diseases), greater penetration of health insurance, Government focus on healthcare infrastructure development and arising awareness of personal health care.

Overview of Medical Device industry: The Indian medical device market is growing steadily. It was valued at US$3.5 Billion in 2015 and could expand to approximately US $4.8 Billion by 2019. As Indias economic, healthcare, and social landscapes evolve, its medical device market emerges as a promising opportunity for foreign manufacturers.

Opportunities in the Indian market: India relies on imports to supply its healthcare system with medical technology. The medical tourism and luxury healthcare markets are among Indias fastest- growing industries, which create significant demand for specialized, high-tech medical equipment.

There is consistent demand for surgical instruments, cancer diagnostics, orthopedic and prosthetic equipment, imaging, orthodontic and dental implants, and electro medical equipment.

Industry challenges in India: Medical Device Regulation in India only apply to certain product categories. However, Indias underdeveloped regulatory framework is a significant obstacle for foreign manufacturers of regulated device types. The weak rupee makes it difficult for some medical device companies to remain profitable in this market, particularly for manufacturers competing with low-cost Chinese products. Also, foreign manufacturers will also encounter significant competition from American, European, and Japanese companies.

COMPANY OVERVIEW

Opto Circuits (India) Limited is an established global medical devices and technology group with a diversified product portfolio which is head quartered out of Bangalore, India. Your Company along with its subsidiaries are engaged in the design, development, manufacture, marketing and distribution of a range of medical products that are used by primary, secondary and tertiary healthcare establishments as well as in public access facilities such as schools, fire stations, policy offices in over 150 countries. Your Company specializes in vital signs monitoring, emergency cardiac care, vascular treatments and sensing technologies. Your US FDA listed and CE marked products are manufactured in India, Malaysia, Germany and the United States.

Your Companys interventional products include stents, balloons both drug eluting and non-drug eluting and AV shunts used for the treatment of coronary and peripheral arterial diseases, as well as catheters and implants that are inserted in the human body. Your Company has proprietary technology with respect to the design and development of these products allowing us to differentiate these from competing devices. Some of our well known brands in this segment are Dior, Freeway, E-Magic Plus, and Genius Magic, Siro Prime, Freeway Shunt Balloon Catheter.

Your Company develops, manufacture, and market a broad range of advanced cardiac diagnostic and therapeutic devices and state of art patient monitoring systems. Your Companys products include automated patient monitoring devices and services, vital signs monitors, pulse oximeters and peripheral artery disease diagnostic equipment.

Your Company also sells a variety of related products and consumables and offer a portfolio of related training and key support services, including the installation, training, monitoring and maintenance of our equipments, which allow our customers to optimize the usage of our products and provide us with recurring revenues on a contracted basis. Some of our well known brands in this segment are, RevoNCompass, NGenuity, Poet IQ, etc.,

Unitexis Vascular Inc, an Opto Circuits Group Company, is a leader in non invasive technology, has released the next generation MultiLab vascular system, Mlutilab ROODRA is among the first in the industry to provide extreme flexibility and configurability. This one touch, fully functional vascular system provides a 24-inch touch screen monitor on a multi-axis mount for ergonomically correct usage.

Eurocor GmbH, Germany, a Wholly Owned Subsidiary of Opto Eurocor Health Care Limited is an international leader in vascular devices such as stent and Drug Eluting Balloon technology, related services and solutions, recently announced the acquisition of a patent application related to bioresorbable stents.

Bioresorbable stents represent a novel alternative to traditional vascular stent technology. This novel stent design uses a material combination of metal and polymer which combines the advantage of bioresorbable and robust stent properties. The patent grant will bolster the extension of Eurocor Portfolio to include bioresorbable devices, capable of addressing significant new markets and customers globally. Since the launch of the companys [ Eurocor GmbH, Germany] patented Drug Eluting Ballon [DEB or DCB] product range, Eurocor has invested in future technology that avoids having to leave meta behind in coronary and peripheral lesions. With the advent of Bioresorbable stents, the company is quite excited to extend its patented and novel product technology and to provide metal free, fully resorbable stent products.

STRENGTHS OF YOUR COMPANY

One of the biggest competitive advantages is the propriety technology developed by our inhouse teams which gives us control over features and intellectual property costs of devices and helps minimize our dependence on third party technologies. The focus on research and development activities has enabled us to develop devices which we believe are technologically superior to other devices available in the market. Your Companys diversified product portfolio across invasive and non-invasive caters to the needs of primary secondary and tertiary care establishments is well balanced and includes technologies that command high profit margins and also allows to achieve sales and distribution synergies coupled with economies of scale. The global distribution network is supported by a large team of third- party distributors and highly qualified international team of sales personal spread across Europe, United States and other parts of the world. Your Companys extensive distribution, sales and service network allows to be closer to end-users and enables us to be more responsive to market demand. Your Company has been in the medical devices business since 1992 and have established long-standing relationships with physicians, general practitioners and specialists, clinics and hospitals. Further your company believes that our long term relationships and the quality of our customer base is a key strength that enables us to expand our business and operations

BUSINESS PERFORMANCE ANALYSIS CONSOLIDATED

The Company reported consolidated Sales of 229.57 Crores in Financial Year 2017-18 as against Sale of 215.98 Crores in Financial Year 2016-17, an Increase of 6% .

This marginal increase is despite the impact and after effects of the hostile takeover of CSC, & CSI reported earlier, and also having substantial erosion of Revenue of Cardiac Care Ltd . Further the disruption of the operations of Criticare Technologies Inc[CTI], step down subsidiary of the Company due to legal procedure and related delays in setting up the facilities after moving the same to Rhode Island in USA and that the benefit of full financial years business and resultant revenue were badly affected.

Despite the above facts and the softening of European Markets and overall economic slowdown. Further, Opto Eurocor Healthcare Limited and the Standalone entity, the Overall Revenue of the Consolidated entity [Opto Consolidated] witnessed a marginal increase in the Revenue for the financial year 2017-18.

The Company reported an Operating Profit of 34.88 Cores for the Financial Year 2017-18, before the exception item as against an Operating Loss of [8.82 Crores] for the Financial Year 2016-17, before the exceptional item.

Exceptional item for the Financial Year 2017-18 , was 1.60 Crores.

After providing for the above exceptional items, the Company [Consolidated] reported a Net Profit of 35.59 Crores for the Financial Year 2017-18, as against a Net Loss of (508.30) Crores in Financial Year 2016-17.

Further the Hostile takeover of two of the overseas Subsidiaries, viz Cardiac Science Corporation, USA[CSC] & Criticare Systems Inc, USA[CSI] by / though DBS Bank Ltd, have dented the Top Line apart from having a huge impact on the Cash flow and non moving stock specifically earmarked for these entities resulting in huge losses.

Company along with its step down subsidiary (Cardiac Science Corporation) had borrowed funds from DBS Bank Ltd. In the year 2014-15 the said loan was restructured and as part of the said process 12678.41 lakhs borrowed by the company was also restructured. As per the terms of the agreement with DBS Bank ltd, upon default by step down subsidiary (Cardiac Science Corporation) the bank exercised their rights and assigned the debts to a third party and also exercised proxy voting rights to take management control of the company. As a result of this the loan borrowed by the company to the tune of 12678.41 lakhs stands extinguished. DBS Bank has objected to the stand taken by the Company and also want to classify the loan as red flagged account and recommended for a forensic audit. The banks also have convened a Joint Lender Forum on the above matter.

The Company has raised objections to the stand taken by DBS Bank and moved the Court and obtained a Mandatory Injunction Order [ Under Order F.R. NO: O.S. /292/2017 dated 06th March, 2017 from the Honble City Civil Court restraining the Bank [ DBS bank] from

a] Declaring the Company as Willful defaulters

b] Classifying the companys loan account as sub standard or red flagged account

c] Appointing/ conducting any forensic audit in the precincts of the company.

The Company also made a claim of USD 160.82 Million against DBS Bank Ltd vide its letter dated 24th January, 2017 and this claim is part of the above petition filed before the Honble Court by the Company and that the matter is sub judice. The Company has also informed all the other lender Banks in the above matter.

The loan liability of Cardiac Science Corporation by secured lender DBS Bank Limited was sold by them to Aurora Capital through its Subsidiary CFS. The Shares of Criticare Systems Inc, had also been pledged to DBS, for additional lines granted by them to DBS. CFS has filed Chapter XI of the US Bankruptcy Code, in US Bankruptcy Courts in the Western District of Wisconsin of Cardiac Science Corporation, to facilitate Debt Restructuring and to protect itself from miscellaneous creditors. Opto Circuits (India) Limited and Opto Cardiac Care Limited as owners of Cardiac Science. Corporation, are seeking appropriate legal recourse to protect the rights of the shareholders. Your Directors are fighting the legal battle against the hostile take over, which may take some time, but are confident that it will be to the benefit of your company and also to its shareholders.

The Company has made a claim of USD 160 Million against DBS Bank dated 24th January, 2017.

The Company also filed a Complaint with the Ombudsman, Reserve Bank of India, Bangalore on DBS Bank s Action and also

Filed a Memo with Debt Recovery Tribunal[ DRT-2] Bangalore in furtherance to the Claims made by the company against DBS Bank Ltd . DRT-2 Bangalore has sought a response from DBS bank and served a Notice under the provisions of Section 28(2) of the DRT Act, calling for disclosures as to the amount received by DBS Bank from Aurora Venture Capital USA. DBS Bank has not complied with DRT Order as of date

The Company thus has sought and taken legal recourse and remedies with the Regulatory Bodies in furtherance to the companys claims as aforesaid and the matter is Sub Judice.

The Companys Vizags Operations, viz, a division of the company in SEZ, Vizag, continued to be suspended w.e.f April 01, 2017 as an outcome of the losses suffered in Hud- Hud Cyclone in Vizag and that the companys constant efforts to get the

Insurance claim with the Insurance company did not yield positive results. The Company is taking effective steps including legal remedy to have its claims settled with the insurance company and has taken up the matter with IRDA, New Delhi and has been constantly following the same

OPTO CIRCUITS [INDIA] LTD- STANDALONE FINANCIALS.

The Company reported Sales of 63.71 Crores for the Financial Year 2017-18, [ Previous Financial Year 2016-17 Sales 50.55 Crores], an increase of 20.66% over the previous Financial Year, The company reported an operating Profit of 10.05 Crores for the Financial Year 2017-18 for the Previous Financial Year, 2016-17, the Operating Loss was (1.47) Crores, before the exceptional items.

The Company reported a Profit before Tax of 10.05 Crores for the Financial Year 2017-18 [there being no exceptional items],as against a Net Loss before Tax of (364.04) Crores for the Financial Year 201617, [ exceptional item for the Financial Year 2016-17 being (362.56) Crores.]

Your Company continues efforts to win more customers and a bigger pie of the existing business, to improve the overall performance.

The Company has borrowings from State Bank of India, HDFC Bank Ltd, Yes Bank Ltd, Standard Chartered Bank Ltd and Bank of Nova Scotia Ltd, for which no provision for interest is made in the financial statements as these Banks have categorized the respective borrowings as NPA. The Company has also lines of Credit and Borrowings from Indusind Bank Ltd which is in operation.

The Management has submitted proposals for One Time Settlement [OTS]/Negotiated Settlement/ Compromise Proposal/ Restructuring etc of its Loan portfolios with Standard Chartered Bank Ltd, State Bank of India, HDFC Bank Ltd and Bank of Nova Scotia Ltd.

With Standard Chartered Bank Ltd, based on the proposal for Negotiated Settlement, submitted to SCB Ltd, the company has already Repaid 20.79 Crores towards part settlement of the same and the balance of 62 Crores in a phased manner [3 years time] as mutually agreed between the company and SCB Ltd.

With State Bank of India, the Company has made a proposal for Compromise Settlement for 70 Crores and that the company has already Paid 7 Crores in a phased manner as Upfront Money and for the balance settlement amount of 63 Crores, for the banks Final approval and being followed up on a regular basis.

With HDFC Bank Ltd the company has given a proposal for restructuring of its Loan [ NO OTS] wherein the entire loan amount is programmed to be paid in 5 years 3 months time frame in a phased out manner with a security creation and cash flow plans along with the clarifications sought by HDFC Bank had been submitted , awaiting the approval from the bank.

With Bank of Nova Scotia Ltd, the company has submitted proposal for OTS which was rejected, while the Bank has moved through the provisions of SARFAESI Act the security, viz 250 Acres of landed property in SEZ, Hassan. The management is having series of discussions with the bank and offered a few options, including the encashment of the said security / or the sale proceeds /consideration from prospective investors / buyers so of the parcels of lands towards appropriation of the said loan liability as the valuation of the said property would be adequate to meet the loan liability.

The Management is actively pursuing the above OTS/ settlement proposals with the respective banks on an on-going basis.

CONSERVATION OF ENERGY

Your Company does not fall under the category of power intensive industries. However, sustained efforts are taken toreduce energy consumption. The organization is an ISO 14001 certified Company which is an international Environmental Management System Standard. The Environmental policy ofyour Company aims at conservation of natural resources and minimization of pollution.

FOREIGN EXCHANGE EARNINGS AND OUTGO.

Your Company earned 5599.53 Lakhs in foreign exchange in the year under review.

Foreign Exchange outflow was 2284.34 Lakhs.

PARTICULARS OF EMPLOYEES AND RELATED DISCLOSURES

There were no employees, who were in receipt of more or employed part of Rupees One Crore Two Lakhs or more or employed part of year and in receipt of remuneration in excess of Rupees Eight Lakhs

Fifty Thousand or more, a month, under information as per Section 197(12) of the Act, read with Rules 5(2) and 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2016.

Having regard to the provisions of the second proviso to Section 136(1) of the Act and as advised, the Annual Report excluding the information on Disclosures pertaining remuneration and other details as required under Section 197(12) of the Act,read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2016, is being sent to the members of the Company. The said information is available for inspection at the registered office of the Company during working hours and any member interested in obtaining such information may write to the Company Secretary and the same will be furnished on request.

CORPORATE GOVERNANCE

The Company is committed to maintain the highest standards of corporate governance and adhere to the corporate governance requirements set out by SEBI. The report on corporate governance as stipulated under the Listing Regulations forms an integral part of this Report. The requisite certificate from the practicing company Secretary confirming compliance with the conditions of corporate governance is attached to the report on corporate governance.

DIRECTORS RESPONSIBILITY STATEMENT

The financial statements are prepared in accordance with Indian Accounting Standards (Ind AS).

YOUR DIRECTORS STATE THAT

a) In the preparation of the Annual Accounts for the year ended March 31, 2018 the applicable accounting standards have been followed and there are no material departures from the same.

b) The Directors have selected such accounting policies and applied them consistently and made judgments and estimates that were reasonable and prudent 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 and loss of the company for that period;

c) The Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance the provisions of the Act for safe guarding the assets of the Company and for preventing and detecting fraud and other irregularities.

d) The Directors have prepared the annual accounts on the going concerns basis.

e) The Directors have laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and are operating effectively and

f) The Directors have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively.

LISTING OF SECURITIES

Your Companys Equity Shares continue to remain listedon BSE Limited and the National Stock Exchange of India Limited., Your Company has paid the listing fees as payable to the BSE Limited and the National Stock Exchange of India Limited., for the financial year 2018-19.

FIXED DEPOSITS

Your Company has not accepted any fixed deposits from the public during the financial year under review.

DIRECTORS APPOINTMENT

Based on recommendations of Nomination and Remuneration Committee the Board appointed Ms.Rangalakshmi Srinivasa (holding DIN: 08145970) as an additional Director in the category of Independent Director, with effect from June 06, 2018.

RETIREMENT

Mr. Jayesh Chandrakant Patel ( DIN:01338843) was appointed as a Director of the Company on 3rd April 2000. He is liable to retire by rotation at the 26th Annual General Meeting. Due to his pre-occupation he expressed his desire not to seek re-appointment. The Board places on record its appreciation for the long years of guidance, support and advise rendered by Mr. Jayesh Chandrakant Patel.The vacancy caused by his retirement is not proposed to be filled up in this meeting.

None of the Independent Directors will retire at the ensuing Annual General Meeting.

At the 23rd Annual General Meeting held on December 31st 2015, Dr. Suleman Adam Merchant (DIN:00475410), was appointed as an Independent Director of the Company to hold office till the conclusion of Annual General Meeting to be held in year 2018. The term of Dr.Suleman Adam Merchant as an Independent Director, comes to an end on conclusion of ensuing 26th AGM.

Due to his pre-occupation he expressed his desire not to seek re-appointment for the second term as an Independent Director of the Company.The Board places on record its appreciation for the guidance, support and advise rendered by Dr.Suleman Adam Merchant, during his tenure as an Independent Director of the Company.

The Company has received notices under section 160 from Member, along with the requisite deposit, signifying intention to propose appointment of Ms.Rangalakshmi Srinivasa. Accordingly, necessary resolutions are being placed for approval of the Members at the 26th Annual General Meeting of the Company.

The Directors seek your support in confirming the appointment of Ms.Rangalakshmi Srinivas as Director in capacity of an Independent Director of the company in the ensuing Annual General Meeting.

RESIGNATION

Dr.Suchitra Misra (DIN: 02254365) resigned as Non Executive Director with effect from close of business hours of April 01, 2018.

The Board places on record contributions made by Dr.Suchitra Misra during her tenure as Director.

DECLARATION BY INDEPENDENT DIRECTOR

The Company has received necessary declaration from Independent Directors that they meet the criteria of Independence laid down in Section 149(6) of the Companies Act, 2013 and the provisions of Regulation 16(1) (b) of the Securities and Exchange Board of India (Listing Obligation sand Disclosure Requirements) Regulations, 2015.

TRAINING OF INDEPENDENT DIRECTORS.

To familiarize the new inductees with strategy operations and functions of our Company, Senior Managerial personnel make presentations on Companys strategy, organization structure, products, technology, quality, facilities. Further at the time of appointment of an Independent Director, the Company issues a formal letter of appointment outlining his or her role, function, duties.

Based on the confirmation received, none of the Directors are disqualified for being appointed/re- appointed as directors in terms of Section 164 the Companies Act, 2013.

During the year under review, no stock options were issued to the Directors of the Company.

POLICY ON DIRECTORS APPOINTMENT REMUNERATION AND EVALUATION

Your Company has in place, the Nomination Remuneration and Evaluation Policy of the Company on Directors appointment and remuneration, including criteria for determining qualifications, positive attributes, independence of Director and other matters provided under sub Section (3)of Section 178 of the Companies Act, 2013. The Policy also contains the evaluation frame work as stipulated under SEBI Listing Regulations, 2015 which mandates that the Board shall monitor and review the Board evaluation frame work. The Companies Act, 2013 states that a formal annual evaluation needs to be made by the Board of its own performance and that of its committees and individual Directors. The evaluation of all the Directors and the Board as a whole was conducted based on the criteria and framework adopted by the Board and as per Guidance Note on Board Evaluation issued by the Securities Exchange Board of India, During January 2017.

MEETING OF THE BOARD

Eight Meetings of the Board of Directors were held during the year. For further details, please refer Corporate Governance section in this Annual Report.

COMMITTEES OF THE BOARD

Currently, the Board has Five Committees: Audit and Risk Management Committee, Nomination and Remuneration Committee, Corporate Social Responsibility Committee,

Stake holders Relationship Committee and Finance Committee.

A detailed note on the composition and scope of the Committee is provided under the Corporate Governance Section in this Annual Report.

AUDITORS

At the 25th Annual General Meeting held on September 05, 2017, members have approved the appointment of M/s. B.V. Swamy & Co., Chartered Accountants, Bengaluru, as Statutory Auditors of the Company.

M/s. B.V. Swamy & Co., Statutory Auditors holds office till the conclusion of the Annual General Meeting to be held in the year 2020.

The Statutory Auditors of the Company have not reported any fraud as specified under the second proviso of Section 143(12) of the Companies Act, 2013 (including any statutory modification(s) or reenactment^) for the time being in force).

SECRETARIAL AUDITOR

The Board has appointed Mr. Vijayakrishna K.T., Practicing Company Secretary, to conduct Secretarial Audit for the financial year 2017-18. The Secretarial Audit Report for the financial year ended March 31, 2018 is annexed here with marked as Annexure 1 in the Form of MR 3 to this Report. The Board of Directors of the Company here by furnish following explanations and clarifications with respect the observations made by the Secretarial Auditors in their report dated August 31, 2018 under the heading observations in points (a) to (e).

(a & c) Due to technical issues in making the requisite returns, digitally signing the same and uploading, delays occurred in filings of certain returns/ and updating registers. Extreme levels of care and caution will be exercised to ensure that such delays do not occuragain.

b) The Company has provided loans to Advanced Micronic Devices Limited, a subsidiary, which is making efforts to revive its business operations. The Company will ensure to comply with Section 185 of the Companies Act, 2013.

c) The Company will ensure & take corrective action to strengthen Secretarial standards & certain provisions of the Act.

d) Extreme levels of care and caution will be exercised to ensure that such delays do not occur again.

RISK MANAGEMENT

The Company has laid down risk assessment and minimization procedures which are in line with the best practices in the industry and as per its experience and objectives. The Risk Management system is reviewed periodically and updated.

INTERNAL FINANCIAL CONTROLS

The Company has in place adequate internal financial controls with reference to financial statements. During the year, such controls were tested and no reportable material weakness in the design or operation were observed.

CONTRACTS AND ARRANGEMENTS WITH RELATED PARTIES

All contracts / arrangements / transactions entered by the Company during the financial year with related parties were in the ordinary course of business and on an arms length basis. During the year, the Company had not entered into any contract/ arrangement/ transaction with related parties which could be considered material in accordance with the policy of the Company on materiality of related party transactions. The disclosure of Related Party transactions as required under Section 134(3)(h) of Companies Act, 2013 in Form AOC 2 is annexed here with marked as Annexure 2.

The policy on materiality of related party transactions and dealing with related party transactions as approved by the Board may be accessed on the Companys website at the link http://www.optoindia.com/pdf/OCIL - Policy on Related Party Transaction.pdf

Your Directors draw attention of the members to Note No.33 to the financial statement which sets out related party disclosures.

PARTICULARS OF LOANS GIVEN, INVESTMENTS MADE, GUARANTEES GIVEN AND SECURITIES PROVIDED

The particulars of loans, guarantees, and investments have been disclosed in the financial statements.

CORPORATE SOCIAL RESPONSIBILITY (CSR)

The Corporate Social Responsibility Committee (CSR Committee) appointed by the Board, has formulated and recommended to the Board, a Corporate Social Responsibility Policy (CSR Policy) indicating the activities to be undertaken by the Company, which has been approved by the Board.The CSR Policy may be accessed on the Companys website at the link: http://www.optoindia.com/pdf/OCIL- CSR Policy.pdf

In terms of Section 134 of the Companies Act, 2013 read with the Companies (Corporate Social Responsibility Policy) Rules, 2014, the annual report on Corporate Social Responsibility activities of the Company is given in Annexure3 to this report.

Due to non-availability of profits, the Company was not required to spend any amount on CSR activities during the financial year 2017-18.

VIGIL MECHANISM / WHISTLE BLOWER POLICY

The Company promoters ethical behavior in all its business activities and has put in place a mechanism for reporting illegal or unethical behavior. The Company has a vigil mechanism and whistle blower policy under which the employee are free to report violations of applicable laws and regulations and the code of conduct, to chief vigilance officer and Audit and Risk Management Committee of the Board. The Company further confirms that no personal have been denied access to the Audit and Risk Management Committee.

The policy on vigil mechanism and whistle blower policy may be accessed on the Companys website at the link:

http://http://www.optoindia.com/pdf/OCIL - Whistle Blower Policy.pdf

POLICY ON DISCLOSURE OF MATERIAL EVENT SAND INFORMATION

Your Company has adopted the Policy on Disclosure of Material Events and information, in accordance with Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 to determine the events and information which are material in nature and are required to be disclosed to the Stock Exchanges.

The said policy is available on the website of the Company at

http://www.optoindia.com/pdf/OCIL - Policy on Disclosure of Material Event and Informationx.pdf

POLICY ON PRESERVATION OF DOCUMENTS AND RECORDS

Your Company has adopted the policy on

Preservation of Documents and Records in accordance with Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015. The Policy ensures that the Company complies with the applicable document retention laws, preservation of various statutory documents and also lays down minimum retention period for the documents and records in respect of which no retention period has been specified by any law/rule/regulation. The policy also provides for the authority under which the disposal/ destruction of documents and records after their minimum retention period can be carried out.

EXTRACT OF ANNUAL RETURN

Extract of Annual Return of the Company is annexed here with as Annexure 4 to this Report.

MATERIAL CHANGES AND COMMITMENTS AFFECTING THE FINANCIAL POSITION OF THE COMPANY.

There have been no material changes and commitments, affecting the financial position of the Company which occurred during between the end of the financial year to which the financial statements relate and the date of this report.

SIGNIFICANT AND MATERIAL ORDERS

No order was passed by any court or regulator or tribunal during the year under review which impacts going concern status of the Company.

SECRETARIAL STANDARD

The Company compliances with all applicable Secretarial Standards.

TRANSFER TO INVESTOR EDUCATION AND PROTECTION FUND AUTHORITY

a. During the year 2017-18, unclaimed Dividend for financial year 2009-10 6,75,905/- was transferred to the Investor Education and Protection Fund ("IEPF"), as required under the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016 ("IEPF Authority").

b. During the year 2017-18, 23,562 Equity Shares in respect of which dividend has not been claimed for the final dividend declared in financial year 2009-10 was transferred to the IEPF Authority pursuant to the provisions of Section 124(6) of the Companies Act, 2013 and the rules thereunder.

RESPONSE TO AUDITORS OBSERVATIONS

The Board of Directors of the company furnish following response to the Qualifications/ observations made by the Auditors in their Report dated April 30, 2018 for the Standalone Financial Statements and Consolidated Financial Statements.

RESPONSE TO AUDITORS OBSERVATION ON STANDALONE FINANCIAL STATEMENTS

The Board of Directors of the Company response to the Qualifications/ observations made by the Auditors in their Report dated 30th April 2018 for the Standalone Financial Statements under the heading Basis for Qualified Opinion in points [a] to [e.] and Response to Emphasis of Matter [1] & [2]]

RESPONSE TO QUALIFIED OPINION:

a-i] Receivables:

The Debtors represent the export bills receivables discounted with the banks and we are pursuing the same with the respective debtors for recovery; Meanwhile, we have also sought the requisite approvals for Write off of the said Receivables over 36 months [222.50 Crores] as per the Regulatory requirements with the respective AD banks and also taken up the same with RBI, while we have made a provision for write off the said amounts being considered Doubtful book debt in our Audited Financial Statements.

a-ii] Payables:

With regard to the payables over 3 years, the company had taken up with the vendors and addressed certain inadequacies in the quality specifications with respect to the materials supplies by these vendors and the negotiations are underway to sort these out to arrive at a mutually acceptable settlement. The Company is following up this matter.

b] Investment in subsidiary- Opto Cardiac Care Ltd [OCCL]

b-i] Auditors Observation is Noted .

b-ii] The company has taken up the matter with the Honble City Civil Court in Bangalore, Karnataka and obtained Mandatory Injunction against DBS Bank Ltd.

Further The Company also made a claim of USD 160.82 Million against DBS Bank Ltd vide its letter dated 24th January, 2017 and this claim is part of the above petition filed before the Honble City Civil Court, Bangalore by the Company, and that the matter is sub-judice. The Company has also informed all the other lender Banks in the above matter.

The Company also has lodged a compliant with The Ombudsman, RESERVE BANK of INDIA, Bangalore and also with Debt Recovery Tribunal -2 [DRT-2] Bangalore on the companys claim against DBS Bank Ltd. DRT Bangalore had sought response / explanations from DBS Bank Ltd in this matter.

Further since the litigation is pending before the US Bank ruptcy Courts and that the Company is seeking appropriate legal relief to protect the rights of the share holders. Your company will take a decision to impair the investments when these legal cases are settled.

c] Bank Borrowings-NPA-Negotiated Settlement/ OTS etc:

c-i] Auditors Observation with respect to NPA on bank borrowings noted.

c-ii] With Bank of Nova Scotia Ltd the company has submitted proposal for One Time Settlement which was rejected by the bank. Thereafter Bank of Nova Scotia also has sought legal remedy for recovery of debt under the provisions of SARFAESI Act and the management had offered options inter alia among others to have the said security [viz 250 acres of Landed property in our SEZ, Hassan belonging to one of its subsidiary company, viz Opto Infrastructure Ltd] disposed off to appropriate towards the loan dues / or repay the dues through offers from prospective buyers/ investors in the said SEZ to liquidate the loan. Response from the bank is awaited.

c-iii] With HDFC Bank Ltd, the company has submitted proposals for Restructuring of the loan portfolio and that the company has offered to repay the entire dues [NO OTS] in 5 years & 3 months time frame and the negotiations with the bank are in the final stage.

As regards the Winding Up petitions filed or moved by HDFC Bank Ltd and Bank of Nova Scotia Ltd before the Honble High Court, Karnataka, the company has filed its objections and also copies of the Settlement Proposals [OTS] / or Restructuring of the liabilities before the Honble High Court Karnataka, Bangalore and the company is pursuing the matter through its Legal Counsels.

In the meanwhile, at the last hearing before the Honble High Court Karnataka dated 27th July 2018 on a petition by HDFC Bank for Winding Up of the Company, and as per the Directive and Speaking. Order of the Honble High Court, directing the company to pay 50 Lakhs within one week of the Order, the company has paid 50 Lakhs on 01st August 2018 to HDFC Bank towards the said Loan.

c-iv] With Standard Chartered Bank Ltd, [SCB] the company has already Repaid 20.79 Crores in March 2017, towards part settlement of the Negotiated Settlement and the balance of 62 Crores in a phased manner [3 years time] which is approved by the bank [SCB], being Agreement for Negotiated Settlement dated 06th March 2018 and that the company had commenced the repayment program as per the Negotiated Settlement Agreement .

c-v] With State Bank of India, the Company has submitted a Proposal for Compromise Settlement after protracted meetings and discussions for 70 Crores and that the company had already repaid 7 Crores as Up front money in SBIs designated No Lien Account as per the requirements of the bank [SBI] and the balance 63 Crores in 4 quarterly rests. Final Approval from SBI is awaited .

d] Observations of the Auditors is noted. Meanwhile, The Company is taking efforts with a Resurgence & Revival plan to revive the operations and will take stand on this matter during the course of the current financial year.

e] Impairment of Assets-AS 36

The Company continues to battle and survive amidst absence of working capital assistance, in view of the aforesaid facts, while trying its best & managing to repay the banks and to keep the operations of the company running and to meet the existing order. As mentioned in para [b] as above, there is inadequate working capital funds support for sustaining the operations, the company is not able to allocate further resources for this intangible assets.

EMPHASIS OF MATTER

1] Cardiac Science Corporation USA [ CSC] & DBS Bank-Matter

Please see and refer our Response vide point [b-ii] of the Response to Auditors Qualified Opinion.

2] Standard Chartered Bank [SCB]

Please see & refer our Response to Auditors qualified opinion in para [c-iv] as above, read with our Note 14 to Audited Accounts wherein as per the said Negotiated Settlement, the differential amount of 153.217 Crores had been transferred to Capital Reserve.

RESPONSE TO ANNEXURE TO THE AUDITORS

REPORT[ CARO] [I] TO [XVII]

[ii] The Company has taken note of the comments by the Auditors and that the company would carryout physical verification of inventories on a half yearly basis from this financial year.

[iii] [a], [b] & [c] The Company had granted unsecured loans to its subsidiaries to meet their working capital requirements and that no interest has been charged since the company is not incurring interest costs.

[viii] with respect to the Auditors Comments and observations in para [viii-a] to the Annexure, this is noted and in future no delays would occur as we ensure compliance of the time lines for making such statutory payments.

[viii b] The said amounts or demands are disputed and we have taken up the matter with CIT Appeals and with the Honble High Court and are being followed up

[ix] Please refer to our Response to Auditors Qualified Opinion vide para c-i to c-v as above.

[xv] During the Financial Year, the company has issued and allotted on 23rd November 2017,

4,51,75,999 No of Equity Shares [face value of 10/- per share] at a premium of 5/ per Equity shares [3,66,01,318 Equity Shares under Stock swap basis (other than cash) and 85,74,681 Equity shares against loan conversion] on preferential Allotment basis to Non Promoters, aggregating to 67.76 Crores, and that the Paid Up Equity Capital has enhanced from 242.31 Crores to 287.49 Crores [28,74,95,406 no of Equity Shares of 10- each face value]

The said issue and allotment is as per the requirements of the Companies Act and wasapproved by the Stock Exchanges as per the Listing obligations provisions under Chapter VII SEBI (ICDR) Regulations, 2009 and Regulatory requirements

AUDITORS OBSERVATION ON CONSOLIDATED FINANCIAL STATEMENTS FOR FY 2017-18

The Board of Directors of the Company response to the Qualifications/observations made by the Auditors in their Report dated 30th April 2018 for the Consolidated Financial Statements under the heading Basis for Qualified Opinion in points[1.] to [12] and Response to Annexure to the Auditors Report Point [1] to [13]

RESPONSE TO QUALIFIED OPINION

1. AMDL - Non moving stock :

The company is examining the quality of non moving stock wrt to its subsidiary company, AMDL and would take appropriate action in due course ;

2. Long outstanding Receivables/ Payables

i] Receivables:

The Company is constantly pursuing these long over dues with the Debtors and that the management has taken a stand for provisioning of receivables over 36 months, aggregating to 22,250 Lakhs. The company will be sought the requisite Regulatory approvals for write off of these receivables with the respective AD Banks and also with Reserve Bank of India in this respect and await response.

ii] Payables:

With regard to the payables over 3 years,the company had taken up with the vendors and addressed certain inadequacies in the quality specifications with respect to the materials supplies by these vendors and the negotiations are underway to sort these out to arrive at a mutually acceptable settlement.

2. Advanced Micronic Devices Ltd-

Noted the observation on receivables over 360 days and the company would take effective steps to recover the same wrt to the Overseas Branch of AMDL, viz US Branch and also of AMDL Indian Operations. On payables, the company has taken up with the respective creditors seeking balance confirmation and awaiting response.

3. Investment in Opto Cardiac Care Ltd.- Subsidiary- Opto Cardiac Care Ltd [OCCL]

Auditors Observation is Noted.

The company has taken up the matter with the Honble Court in Bangalore, Karnataka and obtained Mandatory Injunction against DBS Bank Ltd.

Further The Company also made a claim of USD 160.82 Million against DBS Bank Ltd vide its letter dated 24th January, 2017 and this claim is part of the above petition filed before the Honble Court, Bangalore by the Company and that the matter is is sub-judice. The Company has also informed all the other lender Banks in the above matter.

The Company also has lodged a compliant with The Ombudsman, RESERVE BANK of INDIA, Bangalore and also with Debt Recovery Tribunal -2 [DRT-

2] Bangalore on the companys claim against DBS Bank Ltd. DRT Bangalore had sought response / explanations from DBS Bank Ltd in this matter.

Further since the litigation is pending before the US Bankruptcy Courts and that the Company is seeking appropriate legal relief to protect the rights of the shareholders. Your company will take a decision to impair the investments when these legal cases are settled.

4. Bank Borrowings-NPA-Negotiated Settlement/ OTS etc:

4-i] Auditors Observation with respect to NPA on bank borrowings noted.

4-ii] With Bank of Nova Scotia Ltd the company has submitted proposal for One Time Settlement which was rejected by the bank. There after Bank of Nova Scotia also has sought legal remedy for recovery of debt under the provisions of SARFAESI Act and the management had offered options inter alia among others to have the said security [ viz 250 acres of Landed property in our SEZ, Hassan belonging to one of its subsidiary company, viz Opto Infrastructure Ltd] disposed off to appropriate towards the loan dues / or repay the dues through offers from prospective buyers/ investors in the said SEZ to liquidate the loan. Response from the bank is awaited.

4-iii] With HDFC Bank Ltd, the company has submitted proposals for Restructuring of the loan portfolio and that the company offered to repay the entire dues[ NO OTS] in 5 years & 3 months time frame and the negotiations are in the final stage.

4-iv] As regards the Winding Up petition by HDFC Bank Ltd and Bank of Nova Scotia Ltd before the Honble High Court, Karnataka, the company has filed its objections and also copies of the Settlement Proposals [OTS] before the Honble High Court Karnataka, Bangalore and the company is pursuing the matter through its Legal Counsels.

In the meanwhile, at the last hearing before the Honble High Court Karnataka dated 27th July 2018 on a petition by HDFC Bank for Winding Up of the Company, and as per the Directive and Speaking Order of the Honble High Court, directing the company to pay 50 Lacs within one week of the Order, the company has paid 50 Lacs on 01st August 2018 to HDFC Bank towards the said Loan.

4-v] With Standard Chartered Bank Ltd, [SCB] the company has already Repaid 20.79 Crores in March 2017, towards part settlement of the Negotiated Settlement and the balance of 61 Crores in a phased manner[ 3 years time] which is approved by the bank [SCB], being Agreement for Negotiated Settlement dated 06th March 2018 and that the company had commenced the repayment program as per the Negotiated Settlement Agreement .

4-vi] With State Bank of India, the Company has submitted a Proposal for Compromise Settlement after protracted meetings and discussions for 70 Crores and that the company had already paid 7 Crores as Up front money in SBIs designated No Lien Account as per the requirements of the bank [SBI] and the balance 63 Crores in 4 quarterly rests. Final Approval from SBI is awaited .

5. Advance to AMDL

Advanced Micronic Devices Ltd [AMDL] - Noted.

The Company is making efforts for revival of its operations and will take stand on this matter during the course of the current financial year.

6. Impairment of Non-Current Investment/ Intangible Assets

[i] & [ii] Please refer to our response in para[e] in Opto Circuits Stand alone Response to Auditors Qualified Opinion.

Further as stated above, there is inadequate working capital funds support for sustaining the operations, the company is not able to allocate further resources for this intangible assets..

7. Advanced Micronic Devices Ltd -USA Branch

Advanced Micronic Devices Ltd has a branch at USA. There is no mandatory requirement for such branch audit in the USA. The company has adequate internal control systems, checks and mechanisms in place and is directly monitoring the same.

8. Advanced Micronic Systems Ltd

Noted . The company is taking effective steps to settle and clear the dues to its employees. The company is also following up the matter in the Honble High Court. Un reconciled tax amount outstanding is out of the receipt of 186 Lacs as Tax refund during the year.

9. Loans and Advances to Subsidiary Companies

The Company had granted unsecured loans to its subsidiaries to meet their working capital requirements and that no interest has been charged since the company is not incurring interest costs.

10. Auditors Observation is noted .

11. Please refer our Response under point 9 as above wrt to Opto Infrastructure Ltd.

12. Auditors Observation is noted . please also refer to point no 3 of our Response to Auditors qualified opinion in this respect.

EMPHASIS OF MATTER

1] Please refer Our Response to Auditors Qualified Opinion - vide point no 3 of the Response.

2] Please refer our Response to Auditors Qualified Opinion- vide point no 4[v] .

Further Please see & refer our Response to Auditors qualified opinion in para [c-iv] as above, read with our Note 14 to Audited Accounts wherein as per the said Negotiated Settlement, the differential amount of 153.21 Crores had been transferred to Capital Reserve.

3[ A]& [B] .

Please note that the Unaudited Management Certified Financial Statements for the Financial Year 2017-18 have been incorporated in the respective Holding Companies Consolidated Financial Statements which were Audited by the respective Statutory Auditors of the Respective Holding Companies with their Reports thereto for consolidating in the Indian Listed Holding Company, viz Opto Circuits[ India] Limited.

However, Going forward, the companys management/ Board would ensure audit of all the overseas entities/ subsidiaries and render Audited Financial Statements and Reports.

COMMENTS OF THE AUDITORS NOTE

INDUSTRIAL RELATIONS

Industrial relations have been cordial and constructive, which have helped your Company to achieve production targets.

DISCLOSURE UNDER THE SEXUAL HARSSMENT OF WOMEN AT WORK PLACE (PREVENTION, PROHIBITION AND REDRESSAL) ACT, 2013:

Your company has always believed in providing a safe and harassment free work place for every individual working in Companys premises through various interventions and practices. The Company always endeavors to create and provide an environment that is free from discrimination and harassment including sexual harassment.

A policy on prevention of Sexual Harassment a work place has been released by the Company. The policy aims at prevention of harassment of employees and lays down the guidelines for identification, reporting and prevention of undesired behavior. Three members internal complaints Committee (ICC) was set up from the senior management

with women employees constituting majority. The ICC is responsible for redressal of complaints related to sexual harassment and follows the guidelines provided in the policy. No complaints pertaining to sexual harassment was reported during the year.

ACKNOWLEDGEMENTS

Your Directors greatly appreciate the commitment and dedication of employees at all levels that have contributed to the growth and success of your company. Your Company also thanks all our stake holders, customers, vendors, Investors, bankers and other business associates for their continued support and encouragement during the year.

On behalf of the Board of Directors

Vinod Ramnani Somadas GC
Chairman, Managing Director
(DIN:01580173) (DIN:00678824)
Place: Bengaluru
Date: 31st August 2018