NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
1.
|
Organization and business
|
Rediff.com India Limited (“Rediff”) was incorporated as a private limited company in India on January 9,
1996 under the Indian Companies Act, 1956 and was converted to a public limited company on May 29, 1998. Rediff’s American Depository Shares (“ADSs”) are listed on the NASDAQ Global Market.
In February 2001, Rediff established Rediff Holdings, Inc. (“RHI”), a Delaware Corporation, as a wholly-owned subsidiary to be
a holding company for certain investments in the United States of America. In March 2001, Rediff acquired Value Communication Corporation (“ValuCom”). On February 27, 2001, RHI acquired thinkindia.com, Inc (“thinkindia”),
later renamed Rediff.com Inc. On April 27, 2001, RHI acquired India Abroad Publications, Inc. (“India Abroad”), a print and online news company.
On November 26, 2010, Rediff acquired Vubites India Private Limited (“Vubites”) from the Chairman and Managing Director of Rediff (referred to as “the CMD”) and a principal
shareholder in Rediff. Vubites enables small and local businesses to advertise on national TV channels within their city to reach their target audiences (see Note 6).
Rediff with its subsidiaries (“the Company”) is in the business of providing online internet based services, focusing on India and the global Indian community. Its websites consists of channels
relevant to Indian interests such as cricket, astrology, matchmaker and movies, content on various matters like news and finance, search facilities, a range of community features such as e-mail, chat, messenger, e-commerce, broadband wireless
content and mobile value-added services to mobile phone subscribers in India. The Company also enables its customers to insert localized advertisements on national television channels by providing a platform to create an advertisement and prepare a
media plan. Additionally, the Company publishes two weekly newspapers, ‘India Abroad’ and ‘India in New York’, in North America.
|
2.
|
Significant accounting policies
|
The
accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).
|
|
(b)
|
Basis of consolidation
|
The consolidated financial statements include the financial statements of Rediff and its wholly – owned subsidiaries and variable
interest entity (VIE) in which the Company is the primary beneficiary. All inter-company accounts and transactions are eliminated on consolidation.
|
|
(c)
|
Investments in equity method investees
|
Investments in entities in which the Company can exercise significant influence, but does not own a majority equity interest or otherwise control, are accounted for using the equity method. The Company
records its share of the results of these companies in the consolidated statement of comprehensive loss as equity in net earnings (loss) of equity method investees. The Company reviews its investments for other-than-temporary impairment whenever
events or changes in business circumstances indicate that the carrying value of the investment may not be fully recoverable. Investments identified as having an indication of impairment are subject to further analysis to determine if the impairment
is other-than-temporary and this analysis requires estimating the fair value of the investment. The determination of fair value of the investment involves considering factors such as current economic and market conditions, the operating performance
of the companies including current earnings trends and forecasted cash flows, and other company and industry specific information. Measurement of any impairment loss is based on its excess of the carrying value of the investment over its fair value.
F-8
The
preparation of consolidated financial statements in conformity with generally accepted accounting principles (US GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of
contingent liabilities on the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include allowances for doubtful trade accounts receivables, impairment
of goodwill, property, plant and equipment, intangible and investments, useful lives of property, plant and equipment and intangible assets, valuation of deferred tax assets, stock based compensation and employee benefits. Actual results could
differ from those estimates.
India Online
business
India Online business includes revenues from advertising and fee based services. Advertising includes
advertisement and sponsorships. Fee based services include e-commerce, subscription services and mobile value-added services. E-commerce revenues primarily consist of commission earned on sale of items to customers who shop online while subscription
services consist of subscriptions received for using e-mail and other subscriber services. Mobile value-added services include revenues derived from providing value added short messaging services and other related products to mobile phone users.
Advertisement and sponsorship income is derived from customers who advertise on the Company’s website or to whom direct
links from the Company’s website to their own websites are provided and income earned from sending targeted emails to Rediffmail subscribers.
Revenue from display of advertisement and sponsorship is recognized ratably based on delivery over the contractual period of the advertisement, commencing when the advertisement is placed on the website
or broadcast. Revenues are also derived from sponsor buttons placed in specific areas of the Company’s website, which generally provide users with direct links to sponsor websites. These revenues are recognized ratably over the period in which
the advertisement is displayed, provided that no significant Company obligations remain and collection of the resulting receivable is probable. Company obligations may include guarantees of a minimum number of impressions, or times, that an
advertisement appears in pages viewed by users of the Company’s website. To the extent that minimum guaranteed impressions are not met, the Company defers recognition of the corresponding revenues until the guaranteed impression levels are
achieved. The Company also earns revenues from the sending of e-mail messages to its users on behalf of advertisers and such revenues are recognized ratably over the contracted period.
E-commerce revenue primarily consists of commission from the sale of books, music, apparel, confectionery, gifts and other items to
retail customers who shop at the Company’s online store. Customers directly place orders with vendors through the Company’s website. When an order is placed, the Company informs the vendor through an intranet and also confirms whether
payment has already been collected by the Company through credit card/debit card or cheques, or whether the payment is to be made by the customer on cash-on-delivery (“COD”) basis. The vendor then dispatches the products to the customers.
The vendor sends a periodic summary of the transactions executed for which the Company has collected payments on its behalf. The Company makes payment to the vendor after deduction of its share of margin, commission and costs. The Company recognizes
as revenues the commission earned on these transactions and shipping costs recovered from customers.
Subscription service
revenues primarily include income from various paid e-mail and other service products for the Company’s registered user base. Subscription income is deferred and recognized pro rata as fulfilled over the terms of such subscription.
Mobile value-added services (“MVAS”) revenues are derived from providing value added short messaging services
(“SMS”), e-mail and other related products to mobile phone users. The Company contracts with third-party mobile phone operators for sharing revenues from these services. Mobile value-added services based revenues are recognized when the
service is performed.
F-9
US Publishing business
US Publishing business primarily include advertising and sponsorship revenues and consumer subscription revenues earned from the
publication of India Abroad, a weekly newspaper distributed primarily in the United States and Canada. It also includes the advertising revenues of Rediff India Abroad, the website catering to the Indian community in the United States.
Advertising revenues are recognized at the time of publication of the related advertisement. Subscription income is deferred and
recognized pro rata as fulfilled over the terms of such subscription.
Revenues from banners and sponsorships are recognized
over the contractual period of the advertisement, commencing when the advertisement is placed on the website, provided that no significant obligations remain and collection of the resulting receivable is probable. Obligations may include guarantee
of a minimum number of impressions, or times that an advertisement appears in pages viewed by users of the Company’s website. To the extent that minimum guaranteed impressions are not met, the Company defers recognition of the corresponding
revenues until the guaranteed impression levels are achieved.
Costs
and expenses have been classified according to their primary functions in the following categories:
Cost of revenues
Cost of revenues primarily include cost of content for the Rediff websites, editorial costs, employee compensation,
stock-based compensation, internet communication, data storage, software usage, printing and circulation costs for the India Abroad and India in New York newspapers and fee based services related costs.
Sales and marketing
Sales and marketing expenses primarily include employee compensation for sales and marketing personnel, advertising and promotion expenses, market research costs and stock-based compensation. The costs of
advertising are expensed as and when incurred.
Product development
Product development costs primarily include software development expenses, compensation of product development personnel and stock-based
compensation. Internal and external costs incurred to develop internal use software during application development stage is capitalized when the Company’s managing director has authorized and committed to funding the development, and it is
probable that the software development will be completed and the software will perform the function intended. Upgrades and enhancements are capitalized only when these relate to additional features or result in additional functionality which the
existing software is incapable of performing. All costs incurred during the preliminary project and post implementation and operation stages are expensed as incurred.
General and administrative
These costs primarily include employee
compensation of administrative and supervisory staff whose time is mainly devoted to strategic and managerial functions, rent, insurance premiums, electricity, telecommunication costs, legal and professional fees, stock-based compensation costs and
other general expenses.
|
|
(g)
|
Cash and cash equivalents
|
The Company considers all highly liquid investments with a maturity at the date of purchase of three months or less and that are readily
convertible to known amounts of cash to be cash equivalents.
Cash and cash equivalents consist of cash on hand, balances in
current accounts, deposits with banks which are unrestricted as to withdrawal and use.
F-10
|
|
(h)
|
Property, plant and equipment
|
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 so as to expense the
costs over the estimated useful lives of assets. The estimated useful lives of assets are as follows:
|
|
|
|
|
Furniture and fixtures
|
|
10 years
|
|
Computer equipment and software
|
|
1 to 3 years
|
|
Office equipment
|
|
3 to 10 years
|
|
Vehicles
|
|
8 years
|
|
Leasehold improvements
|
|
6 years
|
|
Website development costs
|
|
3 years
|
Capital work-in-progress is not depreciated until the construction and installation of the asset is
complete, and the asset is available for use.
|
|
(i)
|
Website development costs
|
Costs incurred in the operations stage that provides additional functions or features to the Company’s website are capitalized and
amortized over their estimated useful life of three years. Maintenance expenses or costs that do not result in new features or functions are expensed as product development costs.
Securities that do not have readily determinable fair market values are recorded at cost, subject to an impairment charge for any other
than temporary decline in value. The fair values of these securities are not estimated if there are no events or changes in circumstances that may have a significant effect on the fair value. It is not practicable to estimate the fair value of these
securities.
Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. Acquisition related costs are recognized in
statement of comprehensive loss as incurred. The acquiree’s identifiable assets and liabilities are recognized at their fair value at the acquisition date.
Purchase consideration in excess of the identifiable assets and liabilities is recognized as goodwill. Gain resulting from excess of the acquiree’s identifiable assets and liabilities over the
purchase consideration is recognized, after reassessment, in the statement of comprehensive loss.
Goodwill
represents the excess of purchase consideration over the fair values of the aquiree’s identifiable assets acquired and liabilities assumed in a business combination. Goodwill is assessed for impairment on an annual basis on January 1 or
earlier when events or circumstances indicate that the carrying amount of goodwill exceeds its implied fair value.
Goodwill
impairment assessment is a two-step test. The first step compares the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit
is considered not impaired; however, if the carrying amount of the reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the impairment loss amount, if any.
The Company uses an income-based valuation approach to determine the fair value of the reporting unit by estimating the present value of
future cash flows after considering current economic conditions and trends, estimated future operating results and growth rates, anticipated future economic and regulatory conditions and availability of necessary technology.
When required to perform the second step, the Company compares the implied fair value of a reporting unit’s goodwill with the
carrying amount of that goodwill. If the carrying amount exceeds the implied fair value, an impairment loss equal to that excess amount is recognized, not to exceed the goodwill carrying amount. The Company determines the implied fair value of
goodwill for a reporting unit by assigning the fair value of the reporting unit to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination.
The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of the goodwill. This assignment process is only for purposes of testing goodwill impairment and the Company does
not adjust the carrying amounts of the recognized assets and liabilities (other than goodwill, if appropriate) or recognize previously unrecognized intangible assets in the consolidated balance sheet as a result of this assignment process.
F-11
The
accompanying consolidated financial statements have been presented in US dollars as the reporting currency. The functional currency of Rediff is the Indian Rupee (“Rs.” or “Rupee”) while that of its subsidiaries domiciled in the
United States is the US dollar and in Canada is the Canadian dollar. Transactions in foreign currency are recorded at the original rates of exchange prevailing at the time of the transactions. Monetary assets and liabilities denominated in foreign
currency are restated using the exchange rates prevailing at the date of the balance sheet. Exchange differences arising on settlement of transactions and restatement of monetary assets and liabilities at the balance sheet date are recognized in the
statement of comprehensive loss.
For the purposes of presenting the consolidated financial statements, Rupees have been
converted into US dollars for balance sheet accounts using the exchange rate in effect at the balance sheet date, and for revenue and expense accounts using a monthly weighted-average exchange rate. The gains or losses resulting from such
translation are reported as other comprehensive income or loss, which is a separate component of shareholders’ equity.
Basic
earnings per share has been computed by dividing the net income (loss) from operations by the weighted average number of equity shares outstanding during the period, including equity share equivalents for ADSs issued. Diluted earnings per share is
computed using the weighted average number of equity shares including equity share equivalents for ADSs issued and dilutive potential equity shares outstanding during the period, using the treasury stock method for options, except where the results
would be anti-dilutive. Dilutive potential equity shares consist of the incremental equity shares issuable upon the exercise of stock options. The Company also reports earnings (loss) per ADS, where two ADSs represent one equity share.
Income
taxes consist of current income taxes and the change in the deferred tax balances during the year. Deferred tax assets and liabilities are recognized for each entity and taxing jurisdiction for future tax consequences attributable to temporary
differences between the carrying amounts of assets and liabilities and their respective tax bases and net operating loss carry-forwards, measured using the enacted tax rates expected to apply in the years in which such temporary differences are
expected to be recovered or settled. The effect of changes in tax rates is recognized in income in the period that includes the enactment date. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance for any tax
benefits for which future realization is uncertain.
The Company evaluates each tax positions to determine if it is more
likely than not that a tax position is sustainable, based on its technical merits. If a tax position does not meet the more likely than not threshold, a liability is recorded. Additionally, for a position that is determined to, more likely than not,
be sustainable, the Company measures the benefit at the highest cumulative probability of greater than 50% of being realized and establish a liability for the remaining portion.
The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense.
|
|
(p)
|
Impairment or disposal of long-lived assets (excluding goodwill)
|
The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of long-lived assets may not be recoverable. The Company subjects
such long-lived assets to a test of recoverability based on the undiscounted cash flows expected from use or disposition of such assets. Such events or circumstances would include changes in the market, technological obsolescence and adverse changes
in profitability or regulation. If the asset is impaired, the Company recognizes an impairment loss as the difference between the estimated fair values determined using discounted cash flows and the carrying value of the asset. Assets to be disposed
of are reported at the lower of the carrying value or the fair value less the cost to sell.
F-12
Intangible assets consist of customer contracts and intellectual property carried at cost and amortized over their estimated useful lives,
generally on a straight-line basis over three and seven years, respectively, that best reflects the economic benefits of the intangible assets.
|
|
(r)
|
Stock-based compensation
|
The Company measures the cost of services received from employees, associates, retainers and non-employee directors in exchange for share
based compensation at the grant date fair value award. The Company recognizes stock-based compensation on a straight line basis over the vesting period.
|
|
(s)
|
Allowances for doubtful trade accounts receivable
|
The Company establishes an allowance for doubtful accounts on trade accounts receivable after considering the financial condition of the customer, ageing of the accounts receivable, historical experience
and the current economic environment. Trade accounts receivable balances are written off against allowances only after all means of collections have been exhausted and potential of recovery is considered remote.
Gratuity
The Company provided for gratuity, a defined benefit retirement plan (the Gratuity Plan) covering eligible employees. The Gratuity Plan
provides a lump-sum payment to vested employees at retirement, death, incapacitation or termination of employment, of an amount based on the respective employee’s salary and the tenure of employment. Vesting occurs upon completion of five years
of service. The defined benefit liability is determined by actuarial valuation, at each balance sheet date, using the projected unit credit method.
Provident fund
Eligible employees of the Company receive benefits from a
provident fund, a defined contribution plan. Both the employee and the Company make monthly contributions to this provident fund plan equal to a specified percentage of the covered employee’s salary. Amounts collected under the provident fund
plan are deposited in a government administered provident fund. The Company’s contribution to fund the benefits is expensed as incurred.
Compensated absence
s
The Company provided the compensated absences
liability for the amounts to be paid as a result of employee’s rights to compensated absences in the year in which it is earned.
|
|
(u)
|
Comprehensive income (loss)
|
Comprehensive income (loss) is defined as the change in equity of a company during a period from transactions and other events and circumstances excluding transactions resulting from investments from
owners and distributions to owners. Comprehensive income (loss) for the periods presented includes net income (loss) and foreign currency translation adjustments.
F-13
|
3.
|
New Accounting Pronouncements
|
In February 2013, the FASB issued revised guidance on “Comprehensive Income: Reporting of Amounts Reclassified Out
of Accumulated Other Comprehensive Income.” The revised guidance does not change the current requirements for reporting net income or other comprehensive income in financial statements. However, the revised guidance requires an entity to
provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes,
significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same
reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about
those amounts. The revised guidance is effective prospectively for reporting periods beginning after December 15, 2012 for public entities. The revised guidance will not have a material impact on the Company’s consolidated financial
position, results of operations or cash flows.
|
4.
|
Prepaid Expenses and Other Current Assets
|
Prepaid expenses and other current assets comprise:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
|
2012
|
|
|
2013
|
|
|
|
|
US$
|
|
|
US$
|
|
|
Prepaid expenses
|
|
|
798,276
|
|
|
|
616,327
|
|
|
Supplier advances
|
|
|
168,737
|
|
|
|
106,143
|
|
|
Rent deposits
|
|
|
297,289
|
|
|
|
63,799
|
|
|
Other advances and deposits
|
|
|
50,920
|
|
|
|
70,137
|
|
|
Loans to employees
|
|
|
59,650
|
|
|
|
70,529
|
|
|
Others
|
|
|
263
|
|
|
|
248
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,375,135
|
|
|
|
927,183
|
|
|
|
|
|
|
|
|
|
|
|
|
5.
|
Property, Plant and Equipment
|
Property, plant and equipment comprise:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
|
2012
|
|
|
2013
|
|
|
|
|
US$
|
|
|
US$
|
|
|
Furniture and fixtures
|
|
|
497,334
|
|
|
|
473,115
|
|
|
Computer equipment and software
|
|
|
29,744,643
|
|
|
|
25,966,628
|
|
|
Office equipment
|
|
|
413,084
|
|
|
|
405,394
|
|
|
Vehicles
|
|
|
256,262
|
|
|
|
281,016
|
|
|
Leasehold improvements
|
|
|
677,932
|
|
|
|
646,925
|
|
|
Website development costs
|
|
|
2,553,410
|
|
|
|
3,452,526
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment – at cost
|
|
|
34,142,665
|
|
|
|
31,225,604
|
|
|
Less: Accumulated depreciation and amortization
|
|
|
(27,875,525
|
)
|
|
|
(26,344,562
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,267,140
|
|
|
|
4,881,042
|
|
|
Capital work-in-progress
|
|
|
1,131,941
|
|
|
|
899,130
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment – net
|
|
|
7,399,081
|
|
|
|
5,780,172
|
|
|
|
|
|
|
|
|
|
|
|
In fiscal 2011, Company discontinued the use of certain software included in Website development costs
and recorded an impairment charge of US$109,658 representing carrying amount.
F-14
In fiscals 2011, 2012 and 2013, the Company incurred depreciation and amortization expense
of US$3,617,535, US$3,028,924 and US$3,249,417, respectively.
|
6.
|
Acquisition of Vubites India Private Limited
|
On November 26, 2010, the Company acquired all of the equity interests in Vubites India Private
Limited (“Vubites”) from the CMD, a principal shareholder in the Company (promoter and owner of Vubites). Additionally in accordance with the terms of the acquisition, Vubites’ shareholder’s loan from CMD was assumed and settled
by the Company. Rediff and Vubites were not under common control because the CMD does not have controlling financial ownership interest in Rediff and as a result the acquisition has been accounted as a business combination using the purchase method.
Excess of acquisition date fair value of identifiable assets acquired and liabilities assumed (after reassessment) of US$420,589 over purchase consideration represents contribution from the principal shareholder and has been recognized in the
statement of shareholders’ equity.
This acquisition gives an opportunity for revenue growth by providing
affordable local advertising on the television media to small businesses to reach their target audiences within the same city.
The allocation of the purchase price to the assets acquired and liabilities assumed based on their fair values as at the acquisition date was as follows:
|
|
|
|
|
|
|
Net asset acquired at fair values
|
|
|
|
|
|
|
US $
|
|
|
Cash acquired
|
|
|
23,155
|
|
|
Property, plant & equipment
|
|
|
202,856
|
|
|
Other assets
|
|
|
63,947
|
|
|
Amortizable intangible assets:
|
|
|
|
|
|
Customer contracts
|
|
|
16,270
|
|
|
Intellectual property
|
|
|
3,423,682
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
3,729,910
|
|
|
|
|
|
|
|
|
Liabilities assumed:
|
|
|
|
|
|
Loan from Principal shareholder and the CMD of Rediff
|
|
|
2,711,622
|
|
|
Other liabilities
|
|
|
68,449
|
|
|
Deferred tax liability, net
|
|
|
205,159
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
2,985,230
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
|
744,680
|
|
|
|
|
|
|
|
|
Purchase price
|
|
|
324,091
|
|
|
Contribution from a principal shareholder
|
|
|
420,589
|
|
Acquisition related expense of US$73,125 has been recognized as general and administrative expenses in
the statement of comprehensive loss. The Company settled Vubites’s employee stock options by cash consideration of US$140,468, of which an amount of US$103,946 representing the excess amount paid over the acquisition date fair value of these
stock options has been immediately recognized as compensation cost in the statement of comprehensive loss. Additionally, an amount of US$140,468 was payable to Vubite’s employees which was contingent on these employees remaining in employment
for period of 16 months from the acquisition date.
The results of operation of Vubites are included in the consolidated
financial statements effective from November 26, 2010. Proforma financial information related to the acquisition has not been disclosed as the effect on the Company’s consolidated revenues and results of operations are not material.
Investment, cost method
In August 2010, promissory notes of Runa Inc. with a carrying amount of US$1,300,000 were converted into equity shares upon exercise of conversion option by the Company resulting in an equity interest
ownership in Runa Inc. of 10%.
F-15
During the fiscal year ended March 31, 2013, the Runa Inc. offered right issue to
existing shareholder and the Company subscribed of US$104,987 to maintain the existing ownership.
Investments in equity interest
The Company’s investments in equity method investees interest were as follows:
|
|
|
|
|
|
|
|
|
Percent
of
ownership of equity
shares
|
|
|
Tachyon Technology Private Limited (Impaired in fiscal 2009)
|
|
|
26
|
%
|
|
Imere Technology Private Limited (up to October 8, 2012)
|
|
|
44
|
%
|
|
Eterno Infotech Private Limited (Up to December 19, 2011)
|
|
|
43
|
%
|
|
Bigslick Infotech Private Limited (Impaired in fiscal 2010)
|
|
|
37
|
%
|
The following table presents financial information for equity method investees:
|
|
|
|
|
|
|
|
|
|
|
|
|
As at March 31,
|
|
|
|
|
2012
|
|
|
2013
|
|
|
|
|
US$
|
|
|
US$
|
|
|
Current assets
|
|
|
207,456
|
|
|
|
—
|
|
|
Non-current assets
|
|
|
103,585
|
|
|
|
—
|
|
|
Current liabilities
|
|
|
58,435
|
|
|
|
—
|
|
|
Non-current liabilities
|
|
|
195,000
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For years ended March 31,
|
|
|
|
|
2011
|
|
|
2012
|
|
|
For the period
ended
October 8,
2012
|
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
Revenues
|
|
|
480,045
|
|
|
|
362,280
|
|
|
|
320,005
|
|
|
Total costs
|
|
|
1,307,874
|
|
|
|
700,337
|
|
|
|
72,910
|
|
|
Profit (loss) from operations
|
|
|
(827,829
|
)
|
|
|
(338,057
|
)
|
|
|
247,095
|
|
|
Earnings (loss) attributable to Rediff*
|
|
|
(785,707
|
)
|
|
|
(215,735
|
)
|
|
|
84,310
|
|
|
*
|
Company’s share of profit (loss) of the equity method investee has been determined after giving effect to the subsequent amortization on account of fair value
adjustments made for the identifiable intangible assets of the equity method investees as at the date of acquisition.
|
During the fiscal year ended March 31, 2011, the Company impaired its investment of US$543,220 in Tachyon Technology Private Limited after concluding that such investment was other than temporarily
impaired due to uncertainties involved and fitment with long term strategy.
During the fiscal year ended March 31, 2012,
the Company sold its investment in Eterno Infotech Private Limited for a consideration of US$937,866 and recorded a gain of US$749,897 under the heading “Gain on sale of equity method investee” in consolidated statement of comprehensive
loss.
During the fiscal year ended March 31, 2013, the Company sold its investment in Imere Technology Private Limited
for a consideration of US$1,452,944 and recorded a gain of US$1,292,168 and included as “Gain on sale of equity method investee” in consolidated statement of comprehensive loss.
F-16
The Company’s goodwill is in respect of its acquisition of India Abroad. The goodwill has been allocated to the US
Publishing business, reporting unit.
The changes in the carrying amount of goodwill for the fiscal years ended March 31,
2012 and 2013 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended March 31,
|
|
|
|
|
2012
|
|
|
2013
|
|
|
|
|
Gross
|
|
|
Accumulated
impairment
|
|
|
Net
|
|
|
Gross
|
|
|
Accumulated
impairment
|
|
|
Net
|
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
As at beginning of the year
|
|
|
10,515,168
|
|
|
|
8,515,168
|
|
|
|
2,000,000
|
|
|
|
10,515,168
|
|
|
|
8,515,168
|
|
|
|
2,000,000
|
|
|
Impairment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,000,000
|
|
|
|
2,000,000
|
|
|
As at end of the year
|
|
|
10,515,168
|
|
|
|
8,515,168
|
|
|
|
2,000,000
|
|
|
|
10,515,168
|
|
|
|
10,515,168
|
|
|
|
—
|
|
In fiscal year 2013, the Company recognised a goodwill impairment loss of US$2,000,000. The impairment
was on account of the weakness in the publishing industry which resulted in reduction of the US publishing business’s projected operating results and estimated future cash flows. The Company used an income-based valuation approach to determine
the fair value of the reporting unit by estimating the present value of future cash flows after considering current economic conditions and trends, estimated future operating results and growth rates.
|
9.
|
Intangible assets, net
|
The following table summarizes the carrying amount of intangible assets comprise:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2012
|
|
|
|
|
Gross
carrying
value
|
|
|
Accumulated
amortization
|
|
|
Net
carrying
value
|
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
Customer contracts
|
|
|
14,547
|
|
|
|
6,465
|
|
|
|
8,082
|
|
|
Intellectual property
|
|
|
3,060,969
|
|
|
|
583,042
|
|
|
|
2,477,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets, net
|
|
|
3,075,516
|
|
|
|
589,507
|
|
|
|
2,486,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2013
|
|
|
|
|
Gross
carrying
value
|
|
|
Accumulated
amortization
|
|
|
Net
carrying
value
|
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
Customer contracts
|
|
|
13,684
|
|
|
|
10,642
|
|
|
|
3,042
|
|
|
Intellectual property
|
|
|
2,879,190
|
|
|
|
959,730
|
|
|
|
1,919,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets, net
|
|
|
2,892,874
|
|
|
|
970,372
|
|
|
|
1,922,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer contracts and intellectual property are amortized on a straight line basis over a period of
three and seven years, respectively. The Company recognized amortization expense of intangible assets of US$168,863, US$470,845 and US$414,959 in fiscal 2011, 2012 and 2013 respectively. The aggregate estimated amortization expense for intangible
assets for each of the five succeeding fiscal years is given in the table below:
|
|
|
|
|
|
|
Year ending March 31,
|
|
US$
|
|
|
2014
|
|
|
414,354
|
|
|
2015
|
|
|
411,313
|
|
|
2016
|
|
|
411,313
|
|
|
2017
|
|
|
411,313
|
|
|
2018
|
|
|
274,209
|
|
F-17
|
10.
|
Other non-current assets
|
Other non-current assets comprise:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
|
2012
|
|
|
2013
|
|
|
|
|
US$
|
|
|
US$
|
|
|
Promissory notes *
|
|
|
1,100,000
|
|
|
|
—
|
|
|
Prepaid expenses
|
|
|
307,946
|
|
|
|
187,176
|
|
|
Rent deposits
|
|
|
699,223
|
|
|
|
825,055
|
|
|
Loans to employees
|
|
|
61,422
|
|
|
|
32,143
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,168,591
|
|
|
|
1,044,374
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
The Company had subscribed to convertible promissory notes (referred to as the “notes”) issued by Examville.com LLC, for total cash consideration of
US$1,100,000. These notes are convertible into equity shares of issuer of the notes at a conversion price that will be determined based on the issuance price of equity shares issued for future financing. If not converted during a specified period,
as per the respective terms, notes shall be redeemed at par on maturity. During the year ended March 31, 2013, the Company recorded an other than temporary impairment loss of US$1,100,000 because the Company does not expect to recover the
carrying amount.
|
|
11.
|
Accounts payable and accrued liabilities
|
Accounts payable and accrued liabilities comprise:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
|
2012
|
|
|
2013
|
|
|
|
|
US$
|
|
|
US$
|
|
|
Accounts payable
|
|
|
599,495
|
|
|
|
1,592,630
|
|
|
Accrued expenses
|
|
|
2,174,267
|
|
|
|
2,141,812
|
|
|
Taxes payable
|
|
|
184,575
|
|
|
|
217,460
|
|
|
Employee incentive payable
|
|
|
647,593
|
|
|
|
145,549
|
|
|
Other employee payables
|
|
|
715,985
|
|
|
|
1,290,289
|
|
|
Other current liabilities
|
|
|
56,186
|
|
|
|
65,968
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,378,101
|
|
|
|
5,453,708
|
|
|
|
|
|
|
|
|
|
|
|
|
12.
|
Other non-current liabilities
|
Other non-current liabilities comprise:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
|
2012
|
|
|
2013
|
|
|
|
|
US$
|
|
|
US$
|
|
|
Unearned revenues
|
|
|
345,224
|
|
|
|
217,021
|
|
|
Retirement benefits
|
|
|
409,261
|
|
|
|
479,799
|
|
|
Other liabilities
|
|
|
202,844
|
|
|
|
197,438
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
957,329
|
|
|
|
894,258
|
|
|
|
|
|
|
|
|
|
|
|
F-18
Treasury shares
During the fiscal year ended March 31, 2010 the Company formed Rediff.com India Limited Employee Trust
(“Trust”). The Trust is controlled and administrated by senior employees of the Company. The Company is the primary beneficiary of the Trust and, accordingly has consolidated the Trust. The Trust acquired 1,015,000 shares for a
consideration of US$4,426,605 and reserved these shares for benefit of Company’s employees and directors.
Sales and marketing expense includes advertising cost of US$1,524,086, US$1,650,747 and US$92,135 for the fiscal years
ended March 31, 2011, 2012 and 2013 respectively.
|
15.
|
Related party transactions
|
The Company’s principal related parties are its founder shareholders, directors and companies that the founder
shareholders and directors control. The Company enters into transactions with such related parties in the normal course of business. Related party transactions and balances, other than purchase of subsidiary from a principal shareholder as described
in note 6, are as follows:
Advertising Revenues
During the fiscal year ended March 31, 2011, 2012 and 2013, the Company earned advertising revenues of US$721,974, US$ Nil and US$
Nil respectively, from Edelweiss Capital Services Ltd in which a director of Rediff is shareholder and director.
Product Development Expenses
During the fiscal years ended March 31,
2011, 2012 and 2013, the Company incurred product development expenses (including amount capitalized) of US$167,833, US$137,490, and US$95,395, respectively, on account of services rendered by Tachyon Technologies Private Ltd, an equity method
investee.
Trade account receivables write off
During the fiscal year ended March 31, 2013, the Company wrote off US$206,974 trade account receivables from Edelweiss Capital
Services Ltd in which a director of Rediff is shareholder and director against the recorded allowance. The allowance for trade account receivables was recorded in the year ended March 31, 2012.
Investment
During the fiscal year ended March 31, 2013, the Company subscribed to rights issued by Runa Inc. and by means of the exercise of those rights purchased shares in Runa Inc. for US$104,987. A director
of the Company is a shareholder and key member of the management personnel of Runa Inc.
Balances with related parties
include:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
|
2012
|
|
|
2013
|
|
|
|
|
US$
|
|
|
US$
|
|
|
Trade account receivable for advertising revenues (net of allowance of US$206,974 )
|
|
|
90,835
|
|
|
|
—
|
|
|
|
|
|
|
Accounts payable for product development expense
|
|
|
12,612
|
|
|
|
14,709
|
|
F-19
Gratuity
The Company provides for gratuity on an actuarial valuation. The Company has an unfunded defined benefit retirement plan covering eligible employees in India. This plan provides for a lump-sum payment to
be made to vested employees at retirement, death or termination of employment of an amount equivalent to 15 days basic salary, payable for each completed year of service. These gratuity benefits vest upon an employee’s completion of five years
of service.
The following tables set out the amounts recognized in the Company’s consolidated financial statements for
the fiscal years ended March 31, 2011, 2012 and 2013. The measurement date used is March 31 of the relevant fiscal year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
Change in benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at the beginning of the year
|
|
|
349,624
|
|
|
|
434,594
|
|
|
|
446,146
|
|
|
Acquisition
|
|
|
7,874
|
|
|
|
—
|
|
|
|
—
|
|
|
Actuarial (gain) loss
|
|
|
(16,687
|
)
|
|
|
(10,478
|
)
|
|
|
14,941
|
|
|
Service cost
|
|
|
74,660
|
|
|
|
78,983
|
|
|
|
75,039
|
|
|
Interest cost
|
|
|
36,731
|
|
|
|
41,987
|
|
|
|
44,025
|
|
|
Benefits paid
|
|
|
(22,851
|
)
|
|
|
(39,297
|
)
|
|
|
(26,382
|
)
|
|
Effect of exchange rate changes
|
|
|
5,243
|
|
|
|
(59,643
|
)
|
|
|
(26,257
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at the end of the year
|
|
|
434,594
|
|
|
|
446,146
|
|
|
|
527,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current – (included in other employee payable)
|
|
|
35,220
|
|
|
|
36,885
|
|
|
|
47,713
|
|
|
Non-current – (included in retirement benefits)
|
|
|
399,374
|
|
|
|
409,261
|
|
|
|
479,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation was US$247,312 and US$290,852 as of March 31, 2012 and 2013
respectively.
Net gratuity cost for the years ended March 31, 2011, 2012 and 2013 comprise of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
Service cost
|
|
|
74,660
|
|
|
|
78,983
|
|
|
|
75,039
|
|
|
Interest cost
|
|
|
36,731
|
|
|
|
41,987
|
|
|
|
44,025
|
|
|
Recognized net actuarial (gain) loss
|
|
|
(16,687
|
)
|
|
|
(10,478
|
)
|
|
|
14,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gratuity cost
|
|
|
94,704
|
|
|
|
110,492
|
|
|
|
134,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The assumptions used in accounting for gratuity in the years ended March 31, 2011, 2012 and 2013
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
2012
|
|
|
2013
|
|
|
Discount rate
|
|
9.00%
|
|
|
9.24
|
%
|
|
|
8.75
|
%
|
|
|
|
|
|
|
Rate of increase in compensation
|
|
10% for first year and
7% thereafter
|
|
|
7.00
|
%
|
|
|
7.00
|
%
|
The following benefit payments, which reflect expected future services, as appropriate are expected to be
paid
|
|
|
|
|
|
|
Year ending March 31,
|
|
US$
|
|
|
2014
|
|
|
47,713
|
|
|
2015
|
|
|
42,140
|
|
|
2016
|
|
|
52,234
|
|
|
2017
|
|
|
161,243
|
|
|
2018
|
|
|
65,913
|
|
|
2019-2023
|
|
|
446,148
|
|
F-20
The expected benefits are based on the same assumptions used to measure the Company’s
benefit obligation as of March 31, 2013.
Provident Fund
Employees based in India and the Company each, contribute at the rate of 12% of salaries to a provident fund maintained by the Government
of India for the benefit of such employees. The provident fund is a defined contribution plan. Accordingly, the Company expenses such contributions as incurred. Amounts contributed by the Company to the provident fund, in aggregate, were US$252,004,
US$279,396 and US$259,684 for the years ended March 31, 2011, 2012 and 2013, respectively.
The components of income before income taxes and equity in net earnings of equity method investees are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
– Domestic
|
|
|
(4,870,380
|
)
|
|
|
(6,422,577
|
)
|
|
|
(7,177,897
|
)
|
|
– Foreign
|
|
|
(898,648
|
)
|
|
|
(973,378
|
)
|
|
|
(4,371,884
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and equity in net loss of equity method investee
|
|
|
(5,769,028
|
)
|
|
|
(7,395,955
|
)
|
|
|
(11,549,781
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current income tax (benefit) expense
|
|
|
17,279
|
|
|
|
65,555
|
|
|
|
(33,248
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The reconciliation of estimated income tax expense at Indian statutory income tax rate to income tax
expense reported in the statements of comprehensive loss is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
Loss before income taxes and equity in net loss of equity method investee
|
|
|
(5,769,028
|
)
|
|
|
(7,395,955
|
)
|
|
|
(11,549,781
|
)
|
|
|
|
|
|
|
Indian statutory income tax rate
|
|
|
33.218
|
%
|
|
|
32.445
|
%
|
|
|
32.445
|
%
|
|
|
|
|
|
|
Expected income tax expense (benefit)
|
|
|
(1,916,356
|
)
|
|
|
(2,399,618
|
)
|
|
|
(3,747,327
|
)
|
|
|
|
|
|
|
Tax effect of:–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile expected income tax expense to reported income tax expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock-based compensation
|
|
|
185,741
|
|
|
|
298,428
|
|
|
|
245,313
|
|
|
Valuation allowance recognised during the year
|
|
|
1,805,725
|
|
|
|
2,337,757
|
|
|
|
3,060,830
|
|
|
Goodwill Impairment
|
|
|
—
|
|
|
|
—
|
|
|
|
648,900
|
|
|
Tax in foreign jurisdictions
|
|
|
(26,208
|
)
|
|
|
(52,715
|
)
|
|
|
(142,710
|
)
|
|
Earnings (loss) of equity method investees
|
|
|
(260,996
|
)
|
|
|
(69,995
|
)
|
|
|
27,354
|
|
|
Others
|
|
|
229,373
|
|
|
|
(48,302
|
)
|
|
|
(125,608
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit) expense
|
|
|
17,279
|
|
|
|
65,555
|
|
|
|
(33,248
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-21
The tax effects of significant temporary differences that resulted in deferred tax assets
and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
|
2012
|
|
|
2013
|
|
|
|
|
US$
|
|
|
US$
|
|
|
|
|
|
|
Net operating loss carry forwards
|
|
|
4,659,466
|
|
|
|
7,062,788
|
|
|
Depreciation and amortization
|
|
|
4,052,339
|
|
|
|
4,358,969
|
|
|
Allowances for doubtful accounts receivables
|
|
|
1,091,749
|
|
|
|
343,500
|
|
|
Employee benefits
|
|
|
290,111
|
|
|
|
322,573
|
|
|
Minimum alternate tax credit
|
|
|
334,636
|
|
|
|
314,764
|
|
|
Loss of equity method investees
|
|
|
354,926
|
|
|
|
270,527
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
10,783,227
|
|
|
|
12,673,121
|
|
|
Valuation allowance
|
|
|
(10,783,227
|
)
|
|
|
(12,673,121
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability:
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
244,429
|
|
|
|
185,982
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Deferred tax liability
|
|
|
244,429
|
|
|
|
185,982
|
|
|
|
|
|
|
|
|
|
|
|
Movements in valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
|
2012
|
|
|
2013
|
|
|
|
|
US$
|
|
|
US$
|
|
|
Balance as at beginning of the year
|
|
|
10,375,601
|
|
|
|
10,783,227
|
|
|
Valuation allowance recognised during the year
|
|
|
2,337,757
|
|
|
|
3,060,830
|
|
|
Expired net operating carry forward losses
|
|
|
(1,071,323
|
)
|
|
|
(811,255
|
)
|
|
Reduction on account of unrecognized tax benefit
|
|
|
4,036
|
|
|
|
5,010
|
|
|
Effect of currency translation
|
|
|
(862,844
|
)
|
|
|
(364,691
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at end of the year
|
|
|
10,783,227
|
|
|
|
12,673,121
|
|
|
|
|
|
|
|
|
|
|
|
Rediff’s net operating loss carry forwards aggregating approximately US$7,676,956 as of
March 31, 2013 will expire between April 2013 and March 2019.
As of March 31, 2013, ValuCom has net operating loss
carry forwards available to offset future federal taxable income of US$3,033,000, which expire in years 2021 through 2031.
As
of March 31, 2013, Rediff Holdings, Inc. has net operating loss carry forwards of approximately US$7,126,000 for federal income tax purposes, which expire in years 2020 through 2032.
Unabsorbed depreciation of US$14,237,632 can be indefinitely carried forward.
Realization of the future tax benefits related to the deferred tax asset is dependent on many factors, including the Company’s
ability to generate taxable income within the net operating loss carry forward period. Management has considered these factors and believes that a valuation allowance is required for each of the periods presented.
Recoverable taxes mainly consist of withholding tax on income from advertising services and interest income, which the Company claimed as
refund.
F-22
A reconciliation of the beginning and ending amount of unrecognized tax benefits during the
fiscal years ended March 31, 2012 and 2013 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2013
|
|
|
|
|
US$
|
|
|
US$
|
|
|
Unrecognized tax benefits balance at beginning of the year
|
|
|
32,442
|
|
|
|
21,224
|
|
|
|
|
|
|
Gross decrease for tax positions of prior years
|
|
|
(7,090
|
)
|
|
|
(14,483
|
)
|
|
Effect of currency translation
|
|
|
(4,128
|
)
|
|
|
(1,260
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits balance at end of the year
|
|
|
21,224
|
|
|
|
5,481
|
|
|
|
|
|
|
|
|
|
|
|
The Company’s two major tax jurisdictions are India and the U.S., though the Company also files tax
returns in other foreign jurisdiction. In India, tax returns from fiscal year 2010 are subject to examination by the direct taxing authority. The assessments for fiscal year 2000 onwards are subject matters of appeals with the direct taxing
authorities. The Company’s U.S. federal and state tax returns pertaining to fiscal year 2012 onwards remains subject to examination in accordance with the statute of limitation prescribed by the relevant authorities.
The chief operating decision maker’s (Rediff’s Chairman and Managing Director) allocates resources to and
assess the performance of the segments of the Company. The chief operating decision maker evaluates segment performance by results of the segment before operating expenses.
The Company has two operating segments, namely, the India Online business and the U.S. Publishing business.
|
(i)
|
India Online business primarily includes revenues from advertising and fee-based services. Advertising includes revenues mainly from display and performance based
advertising and to a lesser extent from sponsorships. Fee-based services include revenues from online shopping, subscription services and mobile value-added services.
|
|
(ii)
|
US Publishing business primarily includes revenues from the Rediff India Abroad website and revenues from the print newspapers, India Abroad and India in New York.
|
Following are the segment results and segment assets for the years ended March 31, 2011, 2012 and 2013.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
|
|
India
Online
Business
|
|
|
US
Publishing
Business
|
|
|
Total
|
|
|
India
Online
Business
|
|
|
US
Publishing
Business
|
|
|
Total
|
|
|
India
Online
Business
|
|
|
US
Publishing
Business
|
|
|
Total
|
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
Revenues from external customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
|
13,817,053
|
|
|
|
3,548,083
|
|
|
|
17,365,136
|
|
|
|
12,517,461
|
|
|
|
3,462,646
|
|
|
|
15,980,107
|
|
|
|
8,485,560
|
|
|
|
2,872,638
|
|
|
|
11,358,198
|
|
|
Fee based services
|
|
|
4,125,556
|
|
|
|
304,771
|
|
|
|
4,430,327
|
|
|
|
3,705,761
|
|
|
|
256,398
|
|
|
|
3,962,159
|
|
|
|
4,041,904
|
|
|
|
258,602
|
|
|
|
4,300,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
17,942,609
|
|
|
|
3,852,854
|
|
|
|
21,795,463
|
|
|
|
16,223,222
|
|
|
|
3,719,044
|
|
|
|
19,942,266
|
|
|
|
12,527,464
|
|
|
|
3,131,240
|
|
|
|
15,658,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (excluding depreciation and amortization)
|
|
|
8,299,834
|
|
|
|
2,496,145
|
|
|
|
10,795,979
|
|
|
|
8,241,612
|
|
|
|
2,532,509
|
|
|
|
10,774,121
|
|
|
|
7,470,935
|
|
|
|
2,480,949
|
|
|
|
9,951,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Results
|
|
|
9,642,775
|
|
|
|
1,356,709
|
|
|
|
10,999,484
|
|
|
|
7,981,610
|
|
|
|
1,186,535
|
|
|
|
9,168,145
|
|
|
|
5,056,529
|
|
|
|
650,291
|
|
|
|
5,706,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Assets
|
|
|
57,334,942
|
|
|
|
4,702,523
|
|
|
|
62,037,465
|
|
|
|
44,457,954
|
|
|
|
3,483,912
|
|
|
|
47,941,866
|
|
|
|
35,577,371
|
|
|
|
820,713
|
|
|
|
36,398,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
4,034,753
|
|
|
|
11,303
|
|
|
|
4,046,056
|
|
|
|
5,375,763
|
|
|
|
33,786
|
|
|
|
5,409,549
|
|
|
|
2,105,552
|
|
|
|
2,315
|
|
|
|
2,107,867
|
|
|
Depreciation/amortization
|
|
|
3,776,809
|
|
|
|
9,589
|
|
|
|
3,786,398
|
|
|
|
3,490,725
|
|
|
|
9,044
|
|
|
|
3,499,769
|
|
|
|
3,651,816
|
|
|
|
12,560
|
|
|
|
3,664,376
|
|
F-23
The following is a reconciliation of the segment results to (loss) income before income
taxes of the Company for the years ended March 31, 2011, 2012 and 2013.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
|
|
|
|
|
Segment result
|
|
|
10,999,484
|
|
|
|
9,168,145
|
|
|
|
5,706,820
|
|
|
Operating expenses (including depreciation and amortization)
|
|
|
(19,695,625
|
)
|
|
|
(20,005,598
|
)
|
|
|
(19,571,322
|
)
|
|
Other income, net
|
|
|
2,927,113
|
|
|
|
3,441,498
|
|
|
|
2,314,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before income taxes and equity in net earnings (loss) of equity method investees
|
|
|
(5,769,028
|
)
|
|
|
(7,395,955
|
)
|
|
|
(11,549,781
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a reconciliation of the segment assets to the total assets as at March 31, 2012 and 2013.
|
|
|
|
|
|
|
|
|
|
|
|
|
As at March 31,
|
|
|
|
|
2012
|
|
|
2013
|
|
|
|
|
US$
|
|
|
US$
|
|
|
India Online business
|
|
|
44,457,954
|
|
|
|
35,577,371
|
|
|
US Publishing business
|
|
|
3,483,912
|
|
|
|
820,713
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment assets
|
|
|
47,941,866
|
|
|
|
36,398,084
|
|
|
Investments in equity method investees
|
|
|
81,473
|
|
|
|
—
|
|
|
Investment, at cost
|
|
|
1,300,000
|
|
|
|
1,404,987
|
|
|
Promissory note
|
|
|
1,100,000
|
|
|
|
—
|
|
|
Rediff.com India Employee trust
|
|
|
44,880
|
|
|
|
45,931
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
50,468,219
|
|
|
|
37,849,002
|
|
|
|
|
|
|
|
|
|
|
|
Revenues are attributed to individual countries according to the location of the customers.
Revenues derived from customers are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended March 31,
|
|
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
United States and Canada
|
|
|
3,628,056
|
|
|
|
3,382,387
|
|
|
|
3,030,249
|
|
|
India
|
|
|
17,615,686
|
|
|
|
16,078,008
|
|
|
|
12,241,845
|
|
|
Rest of the world
|
|
|
551,721
|
|
|
|
481,871
|
|
|
|
386,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
21,795,463
|
|
|
|
19,942,266
|
|
|
|
15,658,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No single customer accounted for 10 percent or more of the total revenues for the years ended
March 31, 2011, 2012 and 2013.
F-24
Long-lived assets by location are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
|
2012
|
|
|
2013
|
|
|
|
|
US$
|
|
|
US$
|
|
|
United States and Canada
|
|
|
2,055,307
|
|
|
|
45,063
|
|
|
India
|
|
|
9,829,783
|
|
|
|
7,657,611
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
11,885,090
|
|
|
|
7,702,674
|
|
|
|
|
|
|
|
|
|
|
|
|
19.
|
Concentration of credit risk
|
Concentrations of credit risk exist when changes in economic or geographic factors affect groups of counter parties
whose aggregate credit exposure is material in relation to the Company’s total credit exposure.
Financial instruments
that potentially subject the Company to concentrations of credit risk consist principally of cash equivalents and accounts receivable.
The Company maintains the majority of its cash in Indian Rupees with reputed banks in India with high quality credit rating.
The Company performs ongoing evaluations to determine customer credit limit, but no collateral is required. In 2012 and 2013, approximately 88% and 85% of our accounts receivable were derived from
revenues earned from customers located in India. The majority of the customers outside India are located in the United States.
|
20.
|
Stock-based compensation
|
2002 Stock Option Plan
In January 2002 the Company’s Board of Directors approved the 2002 Stock Option Plan (“2002 plan”), which provides for the grant of stock options to the Company’s employees. Unless
terminated sooner, a grant under this plan will terminate automatically after expiry of 10 years from the date of issue of such grant. A total of 280,000 of the Company’s equity shares were reserved pursuant to 2002 plan.
Under the terms of the 2002 plan, the board or a committee or a sub-committee of the board will determine and authorize the grant of
options to eligible employees. Such options vest at the rate of 25% on each successive anniversary of the grant date, until fully vested. Each option grant carries with it the right to purchase Company’s one ADS at the exercise price during the
exercise period, which expires ten years from the date of grant. The exercise price is determined by the board (or a committee or a sub-committee of the board) and shall be no more than 110% of the fair market value of ADS and no less than 50% of
the fair market value of ADS on the date of the grant.
A summary of option activity under the 2002 ESOP plan as of
March 31, 2013, and changes during the year then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Number of Options
(in terms of
shares)
|
|
|
Weighted
average
exercise
price
|
|
|
Weighted
average
remaining
contractual
term (year)
|
|
|
Aggregate
intrinsic
value
|
|
|
|
|
|
|
|
US$
|
|
|
|
|
|
US$
|
|
|
Outstanding as at April 1, 2012
|
|
|
17,750
|
|
|
|
16.61
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
1,250
|
|
|
|
2.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as at March 31, 2013
|
|
|
16,500
|
|
|
|
17.69
|
|
|
|
5.6
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as at March 31, 2013
|
|
|
8,625
|
|
|
|
13.70
|
|
|
|
3.2
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total grant date fair value of stock options vested during the year ended March 31, 2013 was
US$78,645. There were no vesting during the year ended March 31, 2011 and 2012.
F-25
The weighted average grant date fair value of options granted during the year ended
March 31, 2012 was US$14.98. There were no options granted during the years ended March 31, 2011 and 2013. The total intrinsic value of the options exercised during the year ended March 31, 2012 was US$912,558. There were no options
exercised during the years ended March 31, 2011 and 2013.
Cash received from option exercises under the 2002 Stock
Option Plan for the year ended March 31, 2012 was US$243,234.
As of March 31, 2013, there was US$55,208 of total
unrecognized option cost related to non-vested stock options granted under the plan. That cost is expected to be recognized over a weighted average period of 2.3 years. To the extent the forfeiture rate is different from what we have anticipated
stock-based compensation related to these awards will be different from our expectations.
2004 Stock Option
Plan
In June 2004, the Company’s Board of Directors approved the 2004 Stock Option Plan (“2004 plan”),
which provide for the grant of stock options to the Company’s employees. Unless terminated sooner, the grant under this plan will terminate automatically after expiry of 10 years from the date of issue of such grant. A total of 358,000 of the
Company’s equity shares were reserved pursuant to 2004 plan.
Under the terms of the 2004 plan, the board or a committee
or a sub-committee of the board will determine and authorize the grant of options to eligible employees. Such options vest at the rate of 25% on each successive anniversary of the grant date, until fully vested. Each option grant carries with it the
right to purchase Company’s one ADS at the exercise price during the exercise period, which expires ten years from the date of grant. The exercise price is determined by the board (or a committee or a sub-committee of the board) and shall be no
more than 110% of the fair market value of ADS and no less than 50% of the fair market value of ADS on the date of the grant.
A summary of option activity under the 2004 ESOP plan as of March 31, 2013, and changes during the year then ended is presented
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Number of
options (in
terms
of shares)
|
|
|
Weighted
average
exercise
price
|
|
|
Weighted
average
remaining
contractual
term (year)
|
|
|
Aggregate
intrinsic
value
|
|
|
|
|
|
|
|
US$
|
|
|
|
|
|
US$
|
|
|
Outstanding as at April 1, 2012
|
|
|
135,487
|
|
|
|
11.40
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
375
|
|
|
|
5.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as at March 31, 2013
|
|
|
135,112
|
|
|
|
11.41
|
|
|
|
3.6
|
|
|
|
19,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as at March 31, 2013
|
|
|
117,237
|
|
|
|
12.37
|
|
|
|
3.2
|
|
|
|
12,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total grant date fair value of stock options vested during the year ended March 31, 2011, 2012
and 2013 was US$146,602, US$705,890 and US$108,481, respectively.
There were no options granted during the years ended
March 31, 2011, 2012 and 2013. The total intrinsic value of the options exercised during the year ended March 31, 2012 was US$1,230,857. There were no options exercised during the years ended March 31, 2011 and 2013.
Cash received from option exercises under the 2004 Stock Option Plan for the year ended March 31, 2012 was US$912,310.
As of March 31, 2013, there was US$14,131 of total unrecognized option cost related to non-vested stock options granted under the
plan. That cost is expected to be recognized over a weighted average period of 0.3 year. To the extent the forfeiture rate is different from what we have anticipated stock-based compensation related to these awards will be different from our
expectations.
F-26
2006 Stock Option Plan
The 2006 Stock Option Plan (“2006 ESOP”) consists of two plans, namely the ADR Linked Employee Stock Option Plan-2006 and
Employee Stock Option Plan-2006 which is linked to the shares of the Company. These plans were adopted and approved by the Compensation committee on June 20, 2006 in accordance with the approval granted by shareholders on March 31, 2006.
Unless terminated sooner, the grant under this plan will terminate automatically after expiry of 10 years from the date of issue of such grant. A total of 670,000 equity shares were approved for issuance under both the plans.
Under the terms of the 2006 plans, the board or a committee or a sub-committee of the board will determine and authorize the grant of
options to eligible employees. Such options vest at the rate of 20% - 25% on each successive anniversary of the grant date, until fully vested. Each option grant carries with it the right to purchase Company’s one equity share / ADS depending
on the plan to which the option relates at the exercise price during the exercise period, which expires ten years from the date of grant. The exercise price for the ADR Linked Employee Stock Option Plan-2006 is determined by the board (or a
committee or a sub-committee of the board) and shall be no more than 110% of the fair market value of ADS and no less than 50% of the fair market value of ADS on the date of the grant. The exercise price for the Employee Stock Option Plan-2006 is
also determined by the board (or a committee or a sub-committee of the board) and shall not be less than the face value of equity shares.
A summary of option activity under the 2006 ESOP plan as of March 31, 2013, and changes during the year then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Number of
options
(in
terms of shares)
|
|
|
Weighted
average
exercise
price
|
|
|
Weighted
average
remaining
contractual
term (year)
|
|
|
Aggregate
intrinsic
value
|
|
|
|
|
|
|
|
US$
|
|
|
|
|
|
US$
|
|
|
Outstanding as at April 1, 2012
|
|
|
516,438
|
|
|
|
8.48
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
10,625
|
|
|
|
5.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as at March 31, 2013
|
|
|
505,813
|
|
|
|
8.50
|
|
|
|
5.9
|
|
|
|
1,132,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as at March 31, 2013
|
|
|
363,563
|
|
|
|
9.80
|
|
|
|
5.3
|
|
|
|
793,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total grant date fair value of stock options vested during the year ended March 31, 2011, 2012
and 2013 was US$740,930, US$873,798 and US$1,542,072 respectively.
The weighted-average grant-date fair value of options
granted during the year ended March 31, 2011, 2012 and 2013 was US$15.37, US$12.86 and US$ Nil for each option, respectively. The total intrinsic value of the options exercised during the year ended March 31, 2012 was US$670,998. There
were no stock options exercised during the years ended March 31, 2011 and 2013.
Cash received from option exercises
under the 2006 Stock Option Plan for the year ended March 31, 2012 was US$209,133.
As of March 31, 2013, there was
US$903,962 of total unrecognized option cost related to non-vested stock options granted under the plan. That cost is expected to be recognized over a weighted-average period of 2.0 years. To the extent the forfeiture rate is different from what we
have anticipated stock-based compensation related to these awards will be different from our expectations.
There was no grant
during the year ended March 31, 2013. The fair value of each option is estimated on the date of grant using the Black-Scholes model with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended March 31,
|
|
|
|
|
2011
|
|
2012
|
|
2013
|
|
|
Dividend yield
|
|
0%
|
|
0%
|
|
|
—
|
|
|
Expected term
|
|
5.5 – 7 years
|
|
5.5 – 7 years
|
|
|
—
|
|
|
Risk free interest rates
|
|
2.04% – 2.77%
|
|
1.23% – 2.84%
|
|
|
—
|
|
|
Expected volatility
|
|
75.88% – 77.61%
|
|
78.36% – 81.98%
|
|
|
—
|
|
F-27
Expected volatilities are based on the historical volatility of the Company’s stock.
The expected term of stock options granted under the Plans is based on historical exercise patterns, which the Company believes are representative of future behavior. The risk-free rate for periods within the expected term of the option is based on
the U.S. Treasury yield curve in effect at the time of grant.
Total stock-based compensation cost recognized under the
various employee stock option plans were US$559,157, US$787,874 and US$756,090 for the year ended March 31, 2011, 2012 and 2013 respectively. The compensation cost has been allocated to cost of revenues and operating expenses as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31,
|
|
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
Cost of revenues
|
|
|
78,559
|
|
|
|
60,224
|
|
|
|
50,151
|
|
|
Sales and marketing
|
|
|
161,506
|
|
|
|
138,930
|
|
|
|
122,316
|
|
|
Product development
|
|
|
187,378
|
|
|
|
385,737
|
|
|
|
321,473
|
|
|
General and administrative
|
|
|
131,714
|
|
|
|
202,983
|
|
|
|
262,150
|
|
|
21.
|
Earnings (loss) per share and ADS
|
For the years ended March 31, 2011, 2012 and 2013, the following table sets forth the computation of basic and
diluted earnings per share and ADS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31,
|
|
|
|
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Net loss
|
|
US$
|
(6,572,014
|
)
|
|
US$
|
(7,677,245
|
)
|
|
US$
|
(11,432,223
|
)
|
|
Weighted average equity shares for basic and diluted earnings (loss) per share
|
|
|
13,783,033
|
|
|
|
13,758,635
|
|
|
|
13,795,178
|
|
|
Earnings /(loss) per share
|
|
– basic
|
|
|
(0.477
|
)
|
|
|
(0.558
|
)
|
|
|
(0.828
|
)
|
|
|
|
– diluted
|
|
|
(0.477
|
)
|
|
|
(0.558
|
)
|
|
|
(0.828
|
)
|
|
Earnings / (loss) per ADS
|
|
– basic
|
|
|
(0.238
|
)
|
|
|
(0.279
|
)
|
|
|
(0.414
|
)
|
|
|
|
– diluted
|
|
|
(0.238
|
)
|
|
|
(0.279
|
)
|
|
|
(0.414
|
)
|
Potentially dilutive shares relating to outstanding employee stock option aggregating 255,080, 324,027
and 140,247 as at March 31, 2011, 2012 and 2013, respectively have been excluded from the computation of diluted earnings per share for these periods as their effect was anti-dilutive.
Dividends, if any, will be declared and paid in Indian Rupees. Indian law requires that any dividend be declared out of
accumulated distributable profits only after the transfer to a general reserve of a specified percentage of net profit computed in accordance with current regulations. The remittance of dividends outside India is governed by Indian law on foreign
exchange and is subject to applicable taxes.
F-28
|
23.
|
Allowance for doubtful trade accounts receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Balance at
Beginning
of
Period
|
|
|
Expense /
Reversal
|
|
|
Bad debts
written off
|
|
|
Effect
of
exchange rate
changes
|
|
|
Balance at
end
of period
|
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
Fiscal 2013
|
|
|
3,200,434
|
|
|
|
(48,580
|
)
|
|
|
(2,106,011
|
)
|
|
|
(169,543
|
)
|
|
|
876,300
|
|
|
Fiscal 2012
|
|
|
4,022,664
|
|
|
|
37,700
|
|
|
|
(423,245
|
)
|
|
|
(436,685
|
)
|
|
|
3,200,434
|
|
|
Fiscal 2011
|
|
|
4,128,829
|
|
|
|
(144,263
|
)
|
|
|
—
|
|
|
|
38,098
|
|
|
|
4,022,664
|
|
|
24.
|
Fair value of financial instruments
|
The carrying amounts of cash and cash equivalents, accounts receivable, other current assets, accounts payable and
accrued liabilities, approximate their fair values due to the short- term nature of these instruments.
As discussed in Note
8, the Company’s US publishing business reporting unit has been measured at fair value of US$6.35 million on a non-recurring basis, using level 3 — unobservable inputs, for annual goodwill impairment test. Accordingly, the Company has
recorded an impairment charge of US$2,000,000 on December 31, 2012.
Estimation of fair value of financial instrument
relies on management judgment; however there are inherent uncertainties in any estimation technique. Therefore, for substantially all financial instruments, the fair values are not necessarily indicative of all the amounts the Company could have
realized in a sales transaction as of March 31, 2013. The estimated fair value amounts as of March 31, 2013 have been measured as of this date, and have not been re-evaluated or updated for purposes of these consolidated financial
statements.
|
25.
|
Commitments and contingencies
|
As of March 31, 2013, the Company has commitment for purchase of computer equipment and cost to develop internal
use software aggregating US$675,458.
Commitment relating to operating leases is as below:
The Company leases office premises and residential apartments for employees under various operating leases. Certain of these arrangements
have free or escalating rent payment provisions. The Company recognized rent expense under such arrangements on a straight-line basis. Operating lease expense that has been included in the determination of the net income is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended March 31,
|
|
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
Office premises
|
|
|
707,772
|
|
|
|
778,364
|
|
|
|
726,893
|
|
|
Residential apartments for employees
|
|
|
128,956
|
|
|
|
102,725
|
|
|
|
104,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating lease expense
|
|
|
836,728
|
|
|
|
881,089
|
|
|
|
831,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The minimum annual lease commitments under the above operating leases that have initial or remaining
terms in excess of one year are as follows:
|
|
|
|
|
|
|
For the year ending March 31,
|
|
US$
|
|
|
2014
|
|
|
350,284
|
|
|
2015
|
|
|
217,794
|
|
|
2016
|
|
|
224,328
|
|
|
2017
|
|
|
231,058
|
|
|
2018
|
|
|
278,742
|
|
F-29
Litigation and Other Legal Matters
Action Relating to Access to Pornographic Material
On June 21, 2000, Rediff, certain of its directors and others (Ajit Balakrishnan, Arun Nanda, Abhay Havaldar, Sunil Phatarphekar, Charles Robert Kaye and Tony Janz) were named as defendants in a
criminal complaint (RCC Complaint Number 76 of 2000) filed by Mr. Abinav Bhatt, who was then a 22 year old student, before the Judicial Magistrate, First Class, Pune, India, alleging commission of an offence, under Section 292 of the IPC
for distributing, publicly exhibiting and putting into circulation obscene, pornographic and objectionable material. The RCC Complaint alleged that Rediff, through its website “www.rediff.com”, provided a search facility that enabled
Internet users to view pornographic, objectionable and obscene material. On November 27, 2000, the Judicial Magistrate passed an order on the Complaint holding that a prima facie case under Section 292 of the IPC had been made out against
Rediff and directed commencement of criminal proceedings against all the defendants. A criminal writ petition was filed in the High Court of Mumbai (
Sunil N. Phatarphekar & Ors. v. Abhinav Bhatt and Ors.
, Mumbai High Court, Criminal
Writ Petition No. 1754 of 2000) by the aforementioned defendants, seeking among other relief the setting aside of the order of the Judicial Magistrate. The High Court of Mumbai in its order dated December 20, 2000, while granting
ad-interim relief to the petitioners in the Writ Petition, stayed the order of Judicial Magistrate pending final disposal of the Writ Petition. The Writ Petition has been admitted by the High Court of Mumbai. While Rediff believes that the lawsuit
is without merit, and that it and its directors have a valid defense to the charges, in the event that it is unsuccessful in its defense, Rediff and its directors may face both criminal penalties and monetary fines or damages.
Under Indian law, any person who publishes or transmits or causes to be published in the electronic form, any material which is
lascivious or appeals to the prurient interest or if its effect is such as to tend to deprave and corrupt persons who are likely, having regard to all relevant circumstances, to read, see or hear the matter contained or embodied in it, shall be
punished (i) for the first conviction, with imprisonment of up to five years and with a fine of up to Rs.100,000 (approximately US$2,000); and (ii) in the event of a second conviction, with imprisonment of up to ten years and with a fine
of up to Rs.200,000 (approximately US$4,000).
Actions Relating to Trademark Infringement
In May, 2008, a complaint was filed by The Board of Control of Cricket in India (“BCCI”) against Sandeep Goyal and Rediff
alleging that the depiction of images on the online game known as Indian Fantasy League started by Sandeep Goyal has been violative of the Indian Premier League (“IPL”) trademark. BCCI is seeking (a) a permanent injunction restraining
defendants from the use of logo “Indian Fantasy League.com”; (b) shutdown of the website Indianfantasyleague.com; (c) to render the accounts of all profits earned by the said website and damages to the tune of Rs.1.0 million
(approximately US$20,000). Rediff has filed its response to BCCI Complaint, and among the defenses Rediff has raised are: (a) it is Sandeep Goyal who has infringed the trademark of IPL and not Rediff.com; (b) Rediff.com only provides the
domain hosting and web based email solution services which enables the subscriber to set up and manage their website as per the terms and conditions of Rediff business solutions; (c) subscribers such as Sandeep Goyal are required to abide by
and comply with the terms and conditions Rediff imposes on its subscribers which provides that the subscriber shall be solely responsible for producing, electronically uploading and maintaining his website and such subscriber shall ensure that all
upload material shall be owned and/or properly licensed by the Subscriber and shall not adversely affect any rights of any third party. Although Rediff believes that it has valid defenses to the charges, if Rediff is unsuccessful after exhausting
all legal remedies, we could be subject to monetary fines or damages.
In February, 2006, a complaint was filed by Marksman
Pvt. Ltd. against various telecom operators and internet service providers and Rediff.com alleging infringement of copyright of Marksman by way of dissemination of information relating to scores, alerts and updates and or other events happenings via
Short Message Service (SMS) Technology on wireless and mobile telephones in respect of One Day International Cricket Matches (“ODIs”) during India’s tour of Pakistan Scheduled in February, 2006. The Company has filed its response and
among the defenses raised were: (a) Rediff.com along with other telecom operators and service providers have not infringed the copyrights of Marksman; (b) the information relating to scores, alerts and updates and or other events happening
via Short Message Service (SMS) Technology on wireless and mobile telephones in respect of ODIs which was being provided to subscribers was sourced from public domain and as such no exclusivity can be claimed since it falls into public domain. The
one judge panel, while dismissing a request for an interim order, has directed the defendants to maintain the accounts of the SMS received during the ODIs. Marksman will have to first amend the suit to seek damages before any claim is made against
Rediff.com.
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In 2006, Marksman has sought to amend the suit prayer to include damages. Although the Company believes that it has valid defenses to the charges, if the Company is unsuccessful after exhausting
all legal remedies, the Company could be subject to monetary fines or damages.
Actions Relating to Patent Infringement
In March, 2009 a complaint was filed against Rediff and 12 other defendants by S. Ramkumar, alleging violation of his patent
rights in respect of Mobile phones with plurality of SIM cards sold through Rediff’s Shopping website. S. Ramkumar is seeking permanent injunction restraining the defendants, including Rediff, from infringing upon his patent with respect to the
Mobile phones with plurality of SIM cards allocated to different communication networks, by manufacturing, marketing, selling and distributing mobile phones having simultaneous use of more than one SIM thereby infringing his products and patented
process. S. Ramkumar is also claiming damages in the amount of Rs.1.0 million (approximately US$20,000). Rediff has already filed its response to the court based on the following defenses: (a) it is the vendors, and not Rediff, that sells
shopping products on its website and that it has not infringed on any of Ramkumar’s intellectual property rights; (b) Rediff’s Shopping website only provides an online platform that enables customers and sellers to enter into
sale/purchase transactions and it is not involved in the sale or purchase of the goods/products listed on its website; and (c) vendors are required to comply with the terms and conditions Rediff imposes on vendors using Rediff Shopping, which
include providing Rediff with the description of their products, prices and product images, and which also specifically provide that vendors shall not infringe on third party rights, including third-party intellectual property rights. The case is
likely to be taken up for arguments sometime in the future. Though Rediff is arrayed as a defendant, S. Ramkumar’s main grievance is only against the other defendants who are manufacturing, selling and distributing multiple SIM cards in alleged
violation of the patent in favor of the S. Ramkumar. However, given the nature of the suit and pleadings there would not be any substantial monetary claim on the Company.
The Company is also subject to other legal proceedings and claims, which have arisen in the ordinary course of its business. Those actions, when ultimately concluded and determined, will not, in the
opinion of management, have a material effect on the results of operations, cash flows or the financial position of the Company.
The Company has not recognized any loss accrual for the litigation disputes as the Company believes that it is probable that it would be successful on resolution of the litigation. The maximum total loss
relating to these disputes would be US$44,000 excluding any interest and penalties, which amounts cannot be reasonably estimated at this point of time.
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