NOTES TO FINANCIAL STATEMENTS

1. AMALGAMATION

Amalgamation with Megasonic Telecoms Private Limited: - The Company got amalgamated with erstwhile Megasonic Telecoms Private Limited in the year 2003-04 and as per the scheme of amalgamation 4,935,000 equity shares were issued as consideration.

2. CAPITAL RESERVES

The Capital Reserve of Rs. 73,25,779/- rebrsents the excess of net fair value of assets over the purchase consideration in terms of scheme of amalgamation taken place during the year 2003-04, which was duly approved by the Hon'ble High Courts of Karnataka and Bombay.

3. INVESTMENTS

Pursuant to the Scheme of Amalgamation as referred to in Note 29 above, Eaicom India Private Limited (EIPL, erstwhile 100% subsidiary company of Megasonic Telecoms Private Limited has become a wholly owned subsidiary of the Company.

The Company incorporated a 100% subsidiary in the name of KAVVERI TECHNOLOGIES INC at Canada during the financial year 2005-06 with an initial investment of292,000 CAD Dollars. Additional investment of CAD 2,015,000/- was made during the year 2007-08 in the aforesaid subsidiary by partial conversion of the loan granted to the subsidiary.

The Company has incorporated a 100% subsidiary in the name of Kaweri Telecom Espana at Spain during the current financial year 2011-12 with one million and three thousand Euros as cost of investment.

4. EMPLOYEE BENEFITS

The Company has not obtained Actuarial Valuation report for Gratuity and leave encashment for the financial year 2014-2015. Provisional amount has not been provided in the books of accounts for the same.

5. SEGMENT RESULTS

The company's brdominant risks and returns are from the segment of "Wireless sub-systems Products" rebrsented by Antenna, Duplexer, RF Products and RF accessories, which constitute the major revenue of the company for the reporting period. Since this being a single business segment, the segment information as per Accounting Standard 17, "Segment Reporting", is not disclosed.

6. In the opinion of Board of Directors, all current assets, loans and advances, Investments have atleast the value as stated in the Balance Sheet, if realized in the ordinary course of business.

7. IMPAIRMENT OF ASSETS

Pursuant to Accounting Standard AS-28- Impairment of assets issued by the Companies Accounting Standards Rules, 2006, the Company assessed its fixed assets for impairment as at 31st March 2014 and concluded that there has been no significant impaired fixed asset that needs to be recognized in the books of account.

8. The Company has defaulted in repayment of cash credit and term loan which were availed from Bank. The Bank has issued notice U/s. 13(2) of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 to recover an amount of Rs. 96.85 crores which includes outstanding interest towards cash credit and term loan availed by the Company.

Later on the bank has transferred the outstanding due to Asset Reconstruction Company for the purpose of recovery of dues from the Company on 27th June, 2014. Also all securities provided by the company to Bank against Term loan and cash credit are also transferred to the Asset Reconstruction Company as informed by Bank to the Company.

9. During the financial year 2012-2013, the company had taken back the materials from the customers as the payments were not being received from them. The Company in turn made arrangements with the vendors to return these materials back to the vendors from whom they were sourced.

10. The Company has not appointed the Company secretary (Compliance Officer) in the financial year 2014-2015.

11. Investment amount in subsidiary M/s. Kavveri Telecom Espana amounting to Rs. 7,85,07,000 has been cancelled. Board of Directors has taken decision to write off Respective Investment in Kavveri Telecom Espana in the financial year 2014-2015. Further M/s. Kavveri Telecom Espana has allotted new equity share capital against advances received from Kavveri Telecom products Limited.

12. The figures have been Regrouped/Reclassified wherever necessary

13. All the figures are rounded off to the nearest rupee

STATEMENT ON SIGNIFICANT ACCOUNTING POLICIES

1. Background

M/s Kavveri Telecom Products Limited ('company' or 'Kavveri') was incorporated in 1996 and is engaged in the design, development and manufacture of Radio Frequency products and antennae for telecom, defense and space applications in India and abroad. Kavveri enjoys the status of being the largest manufacturer of wireless subsystem products like, Radio frequency products and antenna and Radio Frequency products in India. Kavveri also provides total turnkey solutions for coverage and capacity enhancement requirements for GSM 3G and CDMA carriers in India

2. Basis of Preparation of Financial Statements:

The financial statements have been brpared in accordance with the generally accepted accounting  principles in India under the historical cost conversion on accrual basis, except certain tangible assets which are being carried at revalued amounts. Pursuant to section 133 of the Companies Act 2013 read with Rule 7 of Companies (Accounts) Rules 2014, till the standards of accounting or any addendum thereto are brscribed by Central Government in consultation and recommendation of the National Financial Reporting Authority, the existing Accounting Standards notified under the Companies Act 1956,shall continue to apply. Consequently these financial statements have been brpared to comply in all material respects with the accounting standards notified under Section 211 (3C) of the Companies Act,1956 (Companies Accounting Standards Rules, 2006 as amended) and the relevant provisions of the Companies Act, 2013 ('the Act'). The accounting policies have been consistently applied by the Company and are consistent with those used in the brvious year.

3. Use of estimates:

The brparation of financial statements in conformity with generally accepted accounting principles require the management to make estimates and assumptions that affect the Straight line basis over the lease term or other systematic basis over the lease term which is more rebrsentative of the time pattern in which benefit derived from the use of the lease asset is diminished. Initial direct costs are recognized as an expense in the Statement of Profit & Loss in the period in which they are incurred

4. Tangible and Intangible Fixed Assets:

Tangible Fixed Assets:

Fixed Assets are stated at cost of acquisition and subsequent improvements thereto, inclusive of taxes, freight and other incidental expenses related to acquisition, improvements and installation, except in case of revaluation of Fixed Assets where they are stated at revalued amount, as contained in AS-10. Capital Work-in-Progress includes cost of Fixed Assets under installation, any unallocated expenditure and Interest during construction period on loans taken to finance the Fixed Assets

Intangible Fixed Assets:

Intangible assets are capitalized at cost if:

a) It is probable that the future economic benefits that are attributable to the asset will flow to the company;

b) The company will have control over the assets;

c) The cost of these assets can be measured reliably and is more than 10,000/- & this is in accordance with AS-26.

d) Expenditure on Research and Development:

(i) Capital Expenditure on Research and Development has been capitalized as Fixed Assets at the cost of acquisition inclusive of taxes, freight, and other incidental expenses related to acquisition and installation.

(ii) Revenue Expenditure on research including the expenditure during the research phase of Research and Development projects is charged to Profit and Loss Account as expense in the year of occurrence.

5. Debrciation:

i) Debrciation on Fixed Assets is provided on straight-line method.

ii) Effective 1 April 2014, the Company debrciates its fixed assets over the useful life as brscribed in Schedule II of the Companies Act 2013, as against the earlier practice of debrciating at the rates brscribed in Schedule XIV of the Companies Act, 1956.

6. Impairment of Assets:

Management periodically assesses using external and internal sources whether there is a indication that an asset may be impaired.

Impairment occurs where the carrying value exceeds the brsent value of future cash flows expected to arise from the continuing use of the asset and its eventual disposal. The impairment loss to be expensed is determined as the excess of carrying amount over the higher of the asset's net sale price or brsent value as determined above.

7. Leases:

The Company has leased certain tangible assets and such leases where the Company has substantially retained all the risks and rewards of ownership are classified as operating leases.

Lease income on such operating leases are recognized in the Statement of Profit & Loss on a Straight line basis over the lease term or other systematic basis over the lease term which is more rebrsentative of the time pattern in which benefit derived from the use of the lease asset is diminished. Initial direct costs are recognized as an expense in the Statement of Profit & Loss in the period in which they are incurred

8. Inventory Valuation:

a) Materials, Stores & Spares, Tools and Consumables are valued at Cost or Market Value, whichever is lower, on the basis of First In First Out method reflecting the fairest possible approximation to the cost incurred in bringing the items of Inventory to their brsent location and condition.

b) Finished Stock of completed products is valued at lower of Cost or Net Realisable Value on the basis of actual identified units.

c) Scrap is valued at Net Realisable Value.

d) Work in process in respect of activities is valued at estimated cost.

e) Shuttering and Tools is valued at amortized Cost, sbrad over a period of three years.

9. Investments:

Long term investments are stated at cost. However, provision for diminution is made to recognize any decline, other than temporary, in the value of long term investments. Current Investments are stated at the lower of cost and fair value.

10. Research and Development:

(i) Capital Expenditure on Research and Development has been capitalized as Fixed Assets at the cost of acquisition inclusive of taxes, freight, and other incidental expenses related to acquisition and installation.

(ii) Revenue Expenditure on research including the expenditure during the research phase of Research and Development projects is charged to Profit and Loss Account as expense in the year of occurrence.

11. Revenue Recognition:

Sales are recognized when the significant risks attached to the goods are passed on to the buyer and are recorded net of duties, trade discounts, and rebates.

Sales Returns are recognized as and when ascertained and are reduced from the sales turnover of the year.

Interest income is recognized on a time proportion basis taking into account the amount outstanding and the rate applicable.

Export benefits are accounted on accrual basis.

12. Warranty Expenses:

Estimated amount of warranty expenses evaluated on a technical basis on sale of Radio Products wherever it is obligated to cover under warranty is provided in the year of sale and the expired portion of the Warranty expenses relating to the period/year are transferred to the Statement of Profit and Loss.

Unexpired portion of the Warranty expenses is carried over as a liability in the books of account and is written back over the number of years of the coverage of warranty on the basis of estimated warranty expenses for such products.

13. Exchange Fluctuation:

a. Foreign currency transactions are accounted at exchange rates brvailing on the date of the transaction.

b. Gains and losses resulting from the settlement of foreign currency transaction and from the translation of monetary assets and liabilities denominated in foreign currencies at the yearend rates are recognized in the Statement of Profit and Loss.

c. In case the monetary assets and liabilities are covered by forward contract, the brmium or discount arising at the inception of such a forward contract is amortized as expense or income over the life of the contract.

14. Borrowing Cost:

Borrowing costs relating to acquisition of qualifying assets are capitalized until the time all substantial activities necessary to brpare the qualifying assets for their intended use are complete. A qualifying asset is one that necessarily takes substantial period of time to get ready for its intended use. All other borrowing costs not eligible for capitalization are charged to revenue.

15. Taxes:

Tax expense comprises of current and deferred tax. Current Income Tax is measured based on the tax liability computed after considering tax allowances and exemptions.

Deferred tax is recognized, subject to the consideration of prudence in respect of deferred tax assets, on timing differences, being the difference between taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent periods.

Deferred Tax assets are recognized only to the extent that there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized.

16. Cash Flow Statement:

Cash flows are reported using the indirect method, whereby profit before tax is adjusted for the effects of transactions of a non cash nature, any deferrals or accruals of past or future operating cash receipts or payments and items income or expense associated with investing or financing cash flows. Cash and Cash Equivalents include Cash on hand and balance with banks in current and deposit accounts, with necessary disclosure of cash and cash equivalent balances that are not  available for use by thecompany.

17. Stock Option Plan (2008):

The Company instituted the Kavveri ESOS 2008 Plan for all eligible employees in pursuance of the special resolution approved by the shareholders by Postal ballot on 23rd April 2008. The Kavveri ESOS 2008 Plan covers all employees of the company and its subsidiaries and Directors (excluding Promoter Directors) of the Company and its subsidiaries (collectively, "eligible employees"). Under the Scheme, the Compensation Committee of the Board ('the Committee') shall administer the Scheme and grant stock options to eligible directors and employees of the Company and its Subsidiaries. The Committee shall determine the employees eligible for receiving the options, the number of options to be granted, the exercise price, the vesting period and exercise period. Vesting of employee stock options granted occurs in tranches as under:

Period Vesting proportion

At the end of one year f r om the date of grant 20 %

At the end of two years f r om the date of grant 30 %

At the end of three years f r om the date of grant 50 %

The exercise price for the purpose of exercise of options will be at Rs.10/- per share i.e. at par.

The employee stock options granted shall be capable of being exercised within a period of 5 years from the date of vesting options or such lesser period as may be decided by the Compensation Committee from time to time.

Under the Scheme 3,07,200 stock options out of the total of 5,00,000 stock options reserved for grant of options having an exercise price equal to the par value of the underlying equity shares on the date of grant (i.e. Rs. 10 per option) are outstanding as at the balance sheet date.

As the number of shares that an individual employee is entitled to receive and the price of the options are known at the grant date, the scheme is considered as a fixed grant.

In the case of termination of employment, all non-vested options would stand cancelled. Options that have been vested but have not been exercised can be exercised within the time brscribed under each option agreement by the Committee or if no time limit is brscribed, within 30 days of the date of employment termination, failing which they would stand cancelled.

The Company follows intrinsic method of accounting based on which the compensation cost is recognized in the Statement of Profit and Loss.

18. Earnings per share:

Basic earnings per share are calculated by dividing the net profit or loss for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year. The weighted average number of shares outstanding during the year is adjusted for events  bonus issue.

For the purpose of calculating diluted earnings per share, the net profit or loss for the year attributable to equity shareholders and the weighted average number of shares outstanding during the year are adjusted for the effects of all dilutive potential equity shares.

19. Investments in Subsidiary Companies:

a. Pursuant to the scheme of Amalgamation, Eaicom India Private Limited (EIPL), erstwhile 100% subsidiary company of Megasonic Telecoms private Limited has become a wholly owned subsidiary of the company.

b. The Company incorporated a 100% subsidiary in the name of KAVVERI TECHNOLOGIES INC at Canada during the financial year 2005-06 with an initial investment of 292,000 CAD Dollars .Additional investment of CAD 2,015,000 /- was made during the year 2007-08 in the aforesaid subsidiary by partial conversion of the loan granted to the subsidiary.

c. The company has incorporated a 100% subsidiary in the name of KAWERI TELECOM ESPANA during the financial year 2011-12 with 1,003,000 Euros as cost of investment.

20. Contingent Liability:

Provisions involving substantial degree of estimation in measurement are recognized when there is a brsent obligation as a result of past events and it is probable that there will be an outflow of resources. Contingent liabilities are not recognized but are disclosed in the Notes. Contingent assets are neither recognized nor disclosed in the financial statements.

As per our report of even date

For P.Murali & Co.,

Chartered Accountants

Firm's Registration No. 007257S

P. Murali Mohana Rao

Partner

Membership No. 023412

For and on behalf of the Board of Directors of

Kavveri Telecom Products Limited

C.Shivakumar Reddy Managing Director

DIN: 01189348

R.H.Kasturi Whole Time Director

DIN: 00291851

Place: Bangalore

Date: 30-05-2015