Amended Annual and Transition Report (foreign Private Issuer) (20-f/a)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 20-F/A

 

 

 

¨	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

 

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2013

 

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

¨	SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report                     

For the transition period from                      to                     

Commission File Number 000-30735

 

 

REDIFF.COM INDIA LIMITED

(Exact name of Registrant as specified in its charter)

 

 

Not Applicable

(Translation of Registrant’s name into English)

Republic of India

(Jurisdiction of incorporation or organization)

Mahalaxmi Engineering Estate

1st Floor, L. J. First Cross Road

Mahim (West)

Mumbai - 400016, India

[phone]

(Address of principal executive offices)

Swasti Bhowmick

Tel No - [phone] ext 390 Facsimile - [phone]

(Name, telephone and facsimile number of company contact person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of each Class		Name of each exchange on which registered
American Depositary Shares, each represented by one-half of one equity share, par value 5 per share		NASDAQ Global Market

Securities registered pursuant to Section 12(g) of the Act:

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

Not Applicable

(Title of Class)

 

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 14,810,178 Equity Shares.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933.    Yes   ¨     No   x

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes   ¨     No   x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     No   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer   ¨             Accelerated filer   ¨             Non-accelerated filer   x

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP   x		International Financial Reporting Standards as issued by the International Accounting Standards Board   ¨		Other   ¨

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.    Item 17   ¨     Item 18   ¨

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   x

 

 

 

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Explanatory Note

This Amendment No. 1 to the Annual Report on Form 20-F for the fiscal year ended March 31, 2013, which was originally filed with the Securities and Exchange Commission on August 15, 2013, is being filed solely for purposes of

 

(i)

furnishing Interactive Data File disclosure as Exhibit 101 in “Item 19. Exhibits” in accordance with Rule 405 of Regulation S-T; and

 

(ii)

in “Item 18. Financial Statements”, correcting errors in two financial figures in the bottom table on page F-23 (specifically, correcting 2012 US Publishing Business Segment Assets from US$4,583,912 to US$3,483,912 (which is US$1.1 million less) and correcting 2012 Total Segment Assets correspondingly from US$49,041,866 to US$47,941,866).

Other than as expressly set forth above, this Form 20-F/A does not, and does not purport to, amend, update or restate the information in any other item of the Form 20-F, or reflect any events that have occurred after the filing of the Form 20–F.

 

ITEM 19.

EXHIBITS

The exhibits contained in our Form 20-F are hereby amended solely in order to insert Exhibit 101.

 

Exhibit Number		Description
101#*		Financial information from the Registrant’s Annual Report on Form 20-F for the period ended March 31, 2013, filed with the SEC on August 15, 2013, formatted in eXtensible Business Reporting Language (XBRL):
		(i)		Consolidated Balance Sheets as of March 31, 2012 and 2013
		(ii)		Consolidated Statements of Comprehensive loss for each of the years ended March 31, 2011, 2012 and 2013
		(iii)		Consolidated Statements of Shareholders’ Equity for each of the years ended March 31, 2011, 2012 and 2013
		(iv)		Consolidated Statements of Cash Flows for each of the years ended March 31, 2011, 2012 and 2013
		(v)		Notes to Consolidated Financial Statements

 

#	Submitted electronically herewith.

*

XBRL (eXtensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

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SIGNATURE

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F/A No.1 and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

 

REDIFF.COM INDIA LIMITED
By:		/s/ Ajit Balakrishnan
		Name:		Ajit Balakrishnan
		Title:		Chairman and Managing Director (Principal Executive Officer)

 

By:		/s/ Swasti Bhowmick
		Name:		Swasti Bhowmick
		Title:		Chief Financial Officer (Principal Financial Officer)

Date: August 30, 2013

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INDEX TO FINANCIAL STATEMENTS

 

		Page(s)
Reports of Independent Registered Public Accounting Firm		F-2 – F-3
Consolidated Balance Sheets as of March 31, 2012 and 2013		F-4
Consolidated Statements of Comprehensive loss for the years ended March  31, 2011, 2012 and 2013		F-5
Consolidated Statements of Shareholders’ Equity for the years ended March  31, 2011, 2012 and 2013		F-6
Consolidated Statements of Cash Flows for the years ended March 31, 2011, 2012 and 2013		F-7
Notes to Consolidated Financial Statements		F-8 – F-31

 

F-1

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Rediff.com India Limited

Mumbai, India

We have audited the accompanying consolidated balance sheets of Rediff.com India Limited and subsidiaries (“the Company”) as of March 31, 2013 and 2012, and the related consolidated statements of comprehensive loss, shareholders’ equity, and cash flows for each of the three years in the period ended March 31, 2013. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2013 and 2012, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2013, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of March 31, 2013, based on the criteria established in Internal Control — Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated August 15, 2013 expressed an unqualified opinion on the Company’s internal control over financial reporting.

/s/ DELOITTE HASKINS & SELLS

Chartered Accountants

Mumbai, India

August 15, 2013

 

F-2

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Rediff.com India Limited

Mumbai, India

We have audited the internal control over financial reporting of Rediff.com India Limited and subsidiaries (“the Company”) as of March 31, 2013, based on the criteria established in Internal Control — Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Item 15 under Controls and Procedures of the accompanying Form 20-F titled Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of effectiveness of the internal control over financial reporting to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2013, based on the criteria established in Internal Control — Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended March 31, 2013 and our report dated August 15, 2013 of the Company expressed an unqualified opinion on those financial statements.

/s/ DELOITTE HASKINS & SELLS

Chartered Accountants

Mumbai, India

August 15, 2013

 

F-3

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REDIFF.COM INDIA LIMITED

CONSOLIDATED BALANCE SHEETS

as of March 31, 2012 and 2013

 

		2012				2013
		US$				US$
Assets
Current Assets
Cash and cash equivalents			24,545,839				20,024,483
Trade accounts receivable (net of allowances of US$3,200,434 and US$876,300 as of March 31, 2012 and 2013, respectively)			6,151,846				3,766,743
Prepaid expenses and other current assets (See Note 4)			1,375,135				927,183
Total current assets			32,072,820				24,718,409
Property, plant and equipment – net (See Note 5)			7,399,081				5,780,172
Goodwill (See Note 8)			2,000,000				—
Intangible assets, net (See Note 9)			2,486,009				1,922,502
Investments, at cost (See Note 7)			1,300,000				1,404,987
Investments in equity method investees (See Note 7)			81,473				—
Recoverable taxes			2,960,245				2,978,558
Other non-current assets (See Note 10)			2,168,591				1,044,374
Total non-current assets			18,395,399				13,130,593
Total assets			50,468,219				37,849,002
Liabilities and Shareholders’ Equity
Liabilities
Current liabilities
Accounts payable and accrued liabilities (See Note 11)			4,378,101				5,453,708
Customer advances and unearned revenues			2,151,956				1,509,095
Total current liabilities			6,530,057				6,962,803
Deferred tax liability (See Note 17)			244,429				185,982
Other non-current liabilities (See Note 12)			957,329				894,258
Total non-current liabilities			1,201,758				1,080,240
Total liabilities			7,731,815				8,043,043
Commitments and contingencies (See Note 25)
Shareholders’ Equity
Equity shares: par value – Rs.5, Authorized: 24,000,000 equity shares as of March 31, 2012 and 2013; Issued: 14,810,178 equity shares as of March 31, 2012 and 2013 and outstanding 13,795,178 equity shares as of March 31, 2012 and 2013			1,756,726				1,756,726
Additional paid-in-capital			130,958,274				131,714,364
Accumulated other comprehensive loss			(9,278,078	)			(11,532,390	)
Accumulated deficit			(76,273,913	)			(87,706,136	)
Treasury shares, at cost (See Note 13) (1,015,000 equity shares as of March 31, 2012 and 2013)			(4,426,605	)			(4,426,605	)
Total shareholders’ equity			42,736,404				29,805,959
Total liabilities and shareholders’ equity			50,468,219				37,849,002

See accompanying notes to the consolidated financial statements

 

F-4

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REDIFF.COM INDIA LIMITED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

For each of the years ended March 31, 2011, 2012 and 2013

 

		2011				2012				2013
		US$				US$				US$
Revenues
India Online			17,942,609				16,223,222				12,527,464
U.S. Publishing			3,852,854				3,719,044				3,131,240
Total revenues			21,795,463				19,942,266				15,658,704
Cost of revenues (excluding depreciation and amortization separately disclosed below)
India Online			8,299,834				8,241,612				7,470,935
U.S. Publishing			2,496,145				2,532,509				2,480,949
Total cost of revenues			10,795,979				10,774,121				9,951,884
Operating expenses
Sales and marketing			5,373,345				5,341,678				3,266,790
Product development			3,826,350				3,136,778				2,920,824
Depreciation and amortization			3,786,398				3,499,769				3,664,376
General and administrative			6,582,091				7,935,447				7,615,588
Goodwill Impairment (See Note 8)			—				—				2,000,000
Long-lived assets impairment (See Note 5)			109,658				—				—
Foreign exchange loss (gain), net			17,783				91,926				103,744
Total operating expenses			19,695,625				20,005,598				19,571,322
Operating loss			(8,696,141	)			(10,837,453	)			(13,864,502	)
Other income (expense), net
Interest income			3,372,109				2,584,432				1,952,345
Investment impairment			(543,220	)			—				—
Promissory note impairment (See Note 10)			—				—				(1,100,000	)
Gain on sale of equity method investee			—				749,897				1,292,168
Miscellaneous income			98,224				107,169				170,208
Total other income, net			2,927,113				3,441,498				2,314,721
Loss before income taxes and equity in net loss of equity method investees			(5,769,028	)			(7,395,955	)			(11,549,781	)
Income tax benefit (expense)			(17,279	)			(65,555	)			33,248
Equity in net earnings (loss) of equity method investees			(785,707	)			(215,735	)			84,310
Net loss			(6,572,014	)			(7,677,245	)			(11,432,223	)
(Loss) earnings per share – basic			(0.477	)			(0.558	)			(0.828	)
(Loss) earnings per share – diluted			(0.477	)			(0.558	)			(0.828	)
(Loss) earnings per ADS – (where 2 ADSs represent 1 equity share) – basic			(0.238	)			(0.279	)			(0.414	)
(Loss) earnings per ADS – (where 2 ADSs represent 1 equity share) – diluted			(0.238	)			(0.279	)			(0.414	)
Weighted average number of equity shares – basic			13,783,033				13,758,635				13,795,178
Weighted average number of equity shares – diluted			13,783,033				13,758,635				13,795,178
Other comprehensive income (loss)
Foreign currency translation adjustment and total other comprehensive income (loss)			408,618				(5,841,093	)			(2,254,312	)
Comprehensive loss attributable to shareholders			(6,163,396	)			(13,518,338	)			(13,686,535	)

See accompanying notes to the consolidated financial statements

 

F-5

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REDIFF.COM INDIA LIMITED

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

For each of the years ended March 31, 2011, 2012 and 2013

 

		Equity shares																				Treasury shares
																						(Equity shares held by controlled trust)
		Number of shares				Equity  share capital US$				Additional paid-in- capital US$				Accumulated other comprehensive income (loss) US$				Accumulated deficit US$				No of shares				US$				Total shareholders’ equity US$
Balance as of March 31, 2010			14,615,800				1,735,105				127,847,598				(3,845,603	)			(62,024,654	)			(750,000	)			(3,106,447	)			60,605,999
Stock-based compensation											559,157																				559,157
Net loss																			(6,572,014	)											(6,572,014	)
Foreign currency translation adjustment															408,618																408,618
Contribution from principal shareholder (See Note 6)											420,589																				420,589
Repurchase of equity shares for treasury (See Note 13)																							(265,000	)			(1,320,158	)			(1,320,158	)
Balance as of March 31, 2011			14,615,800				1,735,105				128,827,344				(3,436,985	)			(68,596,668	)			(1,015,000	)			(4,426,605	)			54,102,191
Stock-based compensation											787,874																				787,874
Net loss																			(7,677,245	)											(7,677,245	)
Foreign currency translation adjustment															(5,841,093	)															(5,841,093	)
Stock option exercised			194,378				21,621				1,343,056																				1,364,677
Balance as of March 31, 2012			14,810,178				1,756,726				130,958,274				(9,278,078	)			(76,273,913	)			(1,015,000	)			(4,426,605	)			42,736,404
Stock-based compensation											756,090																				756,090
Net loss																			(11,432,223	)											(11,432,223	)
Foreign currency translation adjustment															(2,254,312	)															(2,254,312	)
Balance as of March 31, 2013			14,810,178				1,756,726				131,714,364				(11,532,390	)			(87,706,136	)			(1,015,000	)			(4,426,605	)			29,805,959

See accompanying notes to the consolidated financial statements

 

F-6

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REDIFF.COM INDIA LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

For each of the years ended March 31,

 

		2011				2012				2013
		US $				US $				US $
Cash flows from operating activities
Net loss			(6,572,014	)			(7,677,245	)			(11,432,223	)
Adjustments to reconcile net loss to net cash generated from operating activities:
Gain on sale of investment in equity method investee			—				(749,897	)			(1,292,168	)
Goodwill impairment			—				—				2,000,000
Long-lived assets impairment			109,658				—				—
Investment impairment			543,220				—				—
Equity in net loss (earnings) of equity method investees			785,707				215,735				(84,310	)
Depreciation and amortization			3,786,398				3,499,769				3,664,376
Allowances / (write-back) for doubtful trade accounts			(144,263	)			37,700				(48,580	)
Promissory note impairment			—				—				1,100,000
Loss (profit) on sale of property, plant and equipment			(51	)			5,165				(1,701	)
Stock-based compensation expense			559,157				787,874				756,090
Unrealized exchange loss (gain)			(257	)			117,952				11,808
Changes in assets and liabilities:
Trade accounts receivable			(1,146,531	)			158,828				2,104,717
Prepaid expenses and other current assets			24,969				119,836				449,452
Accounts payable, accrued liabilities and other liabilities			428,114				(1,961,862	)			1,156,450
Customer advances and unearned revenues			201,184				688,625				(621,397	)
Recoverable taxes			1,812,649				(61,155	)			(193,869	)
Other non-current assets			107,697				(384,871	)			(109,196	)
Net cash generated from / (used in) operating activities			495,637				(5,203,546	)			(2,540,551	)
Cash flows from investing activities
Payments to acquire property, plant and equipment			(4,010,461	)			(5,379,475	)			(1,903,229	)
Purchase of investment			—				—				(104,987	)
Sale of investment in equity method investee			—				937,866				1,452,944
Acquisition, net of cash acquired*			(3,028,660	)			—				—
Purchase of promissory notes			(250,000	)			—				—
Proceeds from sale of property, plant and equipment			10,501				17,986				7,594
Net cash used in investing activities			(7,278,620	)			(4,423,623	)			(547,678	)
Cash flows from financing activities
Repurchase of equity shares			(1,320,158	)			—				—
Proceeds from issue of shares			—				1,364,677				—
Net cash from / (used in) financing activities			(1,320,158	)			1,364,677				—
Net decrease in cash and cash equivalents			(8,103,141	)			(8,262,492	)			(3,088,229	)
Cash and cash equivalents at the beginning of the year			44,690,314				36,922,125				24,545,839
Effect of exchange rate changes on cash			334,952				(4,113,794	)			(1,433,127	)
Cash and cash equivalents at the end of the year			36,922,125				24,545,839				20,024,483
Supplementary cash flow information:
Income taxes paid			482,414				492,682				448,393
Supplementary disclosure of non-cash investing activity:
Payables for purchase of property, plant and equipment			35,595				30,074				204,638
Conversion of Runa Inc promissory notes into investment in equity shares			1,300,000				—				—

 

*	Payment for acquisition of Vubites includes an amount of US$2,711,622 for settlement of Vubites shareholder loan assumed and settled in accordance with the terms of the acquisition (see Note 6).

See accompanying notes to the consolidated financial statements

 

F-7

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REDIFF.COM INDIA LIMITED

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

 

(a)

Basis of preparation

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

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(d)

Use of estimates

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.

 

(e)

Revenue recognition

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

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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.

 

(f)

Costs and expenses

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

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(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.

 

(j)

Investments, at cost

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.

 

(k)

Business Combination

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.

 

(l)

Goodwill

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

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(m)

Foreign currency

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.

 

(n)

Earnings per share

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.

 

(o)

Income taxes

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

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(q)

Intangible assets

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.

 

(t)

Employee benefit

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

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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

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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.

 

7.	Investments

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

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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

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8.

Goodwill

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

 

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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

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13.	Shareholders’ equity

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.

 

14.	Sales and marketing

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

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16.	Retirement Benefits

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

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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.

 

17.	Income Taxes

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

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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

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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.

 

18.

Segments

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

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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

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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

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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

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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

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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.

 

22.

Dividends

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

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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

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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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