On
July
26, 2007, we issued a press release announcing the revenues and net income
of
SMC Group for the first quarter of fiscal year 2008, which was included
in
Exhibit 99.1 to our current report on Form 8-K filed on August 2, 2007
and which
was initially amended in our current report on Form 8-K filed on November
28,
2007 (“Amendment No. 1”).
We
are
filing this Amendment No. 2 to Form 8-K to:
·
|
clarify
that the projected financial results for the SMC Group included
in the
press release are presented on a combined basis in accordance
with
accounting principles generally accepted in the United States
(U.S. GAAP);
and
|
·
|
provide
additional information on the projected financial results for
the SMC
Group, including the assumptions underlying the projected financial
results.
|
|
Audited
results for the fiscal years
ended March 31,*
|
Projected
Results for the fiscal years
ending March 31,**
|
|
|
|
|
|
|
|
Revenues
|
$9.27
|
$18.38
|
$34.33
|
$65.96
|
$94.99
|
$128.21
|
Earnings
Before Income Taxes
|
1.83
|
7.85
|
18.50
|
39.04
|
58.05
|
80.96
|
Net
Income
|
1.20
|
5.44
|
13.40
|
25.78
|
40.94
|
57.77
|
* These
figures represent financial results for the SMC Group on a combined basis
for
the fiscal years ending March 31, 2005, 2006 and 2007, calculated on
the basis
of separate historical financial statements prepared in accordance with
accounting principles generally accepted in India (Indian
GAAP). Please see below
for a reconciliation of
these amounts to the corresponding amounts in the financial statements
of SMC
Global Securities Ltd. and SAM Global Securities Ltd., audited in accordance
with U.S. GAAP.
** Represents
estimated financial results for the SMC Group on a combined basis for
the fiscal
years ending March 30, 2008, 2009 and 2010 in accordance with accounting
principles generally accepted in the United States (U.S. GAAP). As
disclosed in our proxy statement under “Risk Factors”, the SMC Group’s business
and operations are subject to substantial risks. Accordingly, there
can be no assurance that the projected results are indicative of the
SMC Group’s
future performance or that actual results will not differ materially
from the
projected results presented above. Please see below for a list of key
assumptions underlying these estimates.
SMC
Group’s management has provided the projected results over a three year
period. While projected results were first provided in May 2007, the
share purchase transactions were not expected to be consummated until
at least
the third quarter of fiscal year 2008. In order to be able to furnish
investors with two full years of projected figures, as is customary in
India,
the SMC Group decided to extend its projections through fiscal year
2010. Furthermore, the Group believes that its projections for fiscal
years 2009 and 2010 permit it to include post-gestation period estimates
of
results for certain businesses into which it has only recently ventured,
including insurance, mutual fund distribution, international commodities
distribution (Dubai Gold and Commodities Exchange), online trading and
merchant
banking.
*** In
light of SMC’s and SAM’s financial results for the quarter ended June 30, 2007,
which are included in the proxy statement accessible on the SEC’s website at
www.sec.gov, it should be noted that the SMC Group’s results in a given quarter
tend to be sequentially better than its results in the previous quarter,
and the
Group’s management therefore believes that a quarter-on-quarter growth of 20-25%
for the remainder of fiscal year 2008 is reasonably achievable in the
current
market environment. This growth rate would enable the Group to meet
its forecasted results for the fiscal year ending March 31, 2008.
The
estimated financial results for the
SMC Group on a combined basis for the fiscal years ending March 30, 2008,
2009
and 2010 are based on the following key assumptions. These
assumptions are inherently subject to significant uncertainties and actual
results may differ materially from the projected results.
(a)
|
An
increase in the number of branches from 803 as of March 31,
2007 to 1,050
by March 2008, 1,200 by March 2009 and 1,600 by March 2010
(which the
Group believes to be a reasonable estimate based on historic
growth and
market potential). As of December 1, 2007, the SMC Group had
1,025 branches.
|
|
An
annual GDP growth in India of 8% (which the Group believes
to be a
reasonable estimate based on statistics in the “Economic Survey 2006-2007”
published by the Government of India, which showed growth rates
of 9% and
9.2% for 2005 and 2006, respectively
).
|
|
The
absence of any adverse change in the Indian financial
markets. As a financial intermediary, the SMC Group would be
negatively affected if Indian financial markets declined for
a prolonged
period of time.
|
|
An
increase in the number of equities customers from 59,000 as
of March 31,
2007 to 105,000 by March 2008, 156,000 by March 2009 and 230,400
by March
2010. As of December 1, 2007, the SMC Group had 95,000 equities
customers.
|
|
An
increase in equity brokerage income of 60% for fiscal year
2008, 50% for
fiscal year 2009 and 40% for fiscal year 2010. Growth in equity
brokerage income for the year ended March 31, 2007 was 60%
and the Wall
Street Journal, citing analysts, expects stock trading volumes
to increase
about 50% a year for the next two to three
years.
|
|
An
increase in the number of commodities customers from 4,000
as of March 31,
2007 to 11,000 by March 2008, 14,300 by March 2009, and 19,200
by March 31
2010. India’s organized commodities trading markets were
liberalized as recently as 2004, and accordingly, growth is
still in a
nascent stage, especially when considering the large component
of GDP that
is comprised by agriculture. While the Indian government has
not provided full guidance on its regulatory and reform policy
for the
commodities sector, due to the sheer growth in the sector and
pressure
from domestic and foreign business interests, the government
is expected
shortly to clarify its vision for the full fledged development
of this
sector. Notably, in November 2007, the Finance Minister of
India stated in a speech in New York that he expects the financial
services sector to be the next growth engine of the Indian
economy.
|
|
An
increase in commodities brokerage income of 40% for fiscal
year 2008, 40%
for fiscal year 2009 and 40% for fiscal year 2010. Growth in
commodities brokerage income for the year ended March 31, 2007
was
50%.
|
|
An
increase in the number of online trading customers to 30,000
by March
2008, 93,750 by March 2009 and 125,000 by March 2010. Online
trading operations were only begun in April 2007 and as of
December 1,
2007, the SMC Group had 13,000 customers. As an increasing
number of Indians, particularly younger people who are comfortable
with
technology, get used to the conveniences afforded by online
trading, this
market will grow exponentially. Over the past six months, the
SMC Group
has spent considerable time and investment in building awareness
for this
new service offering, and as the awareness builds in the marketplace,
the
Group expects to see an exponential growth in customers who
sign up for
online trading.
|
|
An
average yield per month from arbitrage operations of 17% for
fiscal year
2008, 14% for fiscal year 2009 and 12% for fiscal year 2010. In
fiscal year 2007, the average yield per month from arbitrage
operations
was 18%.
|
|
An
increase in insurance income of $2.5 million for fiscal year
2008, $5
million for fiscal year 2009 and $8 million for fiscal year
2010. In fiscal year 2007, insurance income was approximately
$100,000. The SMC Group commenced its insurance business in
August 2006. As is the case with any new business, the Group’s
insurance operations are undergoing a gestation
period. Insurance penetration in India is currently very low,
amongst the lowest in the world, and the insurance industry
is estimated
to be a $80 billion market. The SMC Group, using its extensive
branch network, has invested in building awareness of insurance
products
both among existing and new clients, and educating them on
the benefits of
insurance.
|
|
An
increase in merchant banking income from $260,000 in fiscal
year 2007 to
$1.25 million for fiscal year 2008, $5 million for fiscal year
2009 and
$10
|
million
for fiscal year 2010. Merchant banking is a relationship-driven
business. The SMC Group, through its acquisition of Nexgen Capital in
2006, only recently entered this market and has spent time and investment
on
building relationships with mid-tier and large-tier companies, particularly
across the North India/Delhi region, which has fewer merchant banking
firms. The SMC Group is also building relationships with several
high-profile companies, which, if they come to fruition, would provide
visibility to the Group’s capabilities. As the SMC Group continues to
win new mandates, it expects merchant banking to become a viable business
contributing significantly to revenues and income.
|
The
closing of the share purchase transactions by January 20,
2008.
|
We
believe that a reasonable estimate
of the projected impact on forecasted results of not achieving the above-listed
assumptions cannot be quantified. When equities markets decline for a
prolonged period of time, many investors tend to increase their investments
in
the commodities markets, which are sometimes viewed as a natural hedge
to
equities. Therefore, while the SMC Group may experience a decline in
equities income, income from commodities may rise at the same
time. Furthermore, when capital markets tend to be more volatile,
investors (particularly newer investors) tend to invest more of their
assets in
professionally managed funds, e.g. mutual funds. In that scenario,
while equities brokerage income may decline for the Group, income from
the
distribution of mutual fund products and institutional brokerage may
rise at the
same time. Since changing market conditions generally result in
investors changing their asset allocations, a diversified financial services
company such as the SMC Group would be able to offset losses in one area
at
least partially with gains in another.
The
following table includes a
reconciliation of the results presented above to the corresponding amounts
in
the financial statements of SMC Global Securities Ltd. and SAM Global
Securities
Ltd., audited in accordance with U.S. GAAP.
|
|
FY
2005
|
|
|
FY
2006
|
|
|
FY
2007
|
|
Particulars
|
|
Revenues
|
|
|
Earnings
before Income Taxes
|
|
|
Net
Income
|
|
|
Revenues
|
|
|
Earnings
before Income Taxes
|
|
|
Net
Income
|
|
|
Revenues
|
|
|
Earnings
before Income Taxes
|
|
|
Net
Income
|
|
Financials
included in table above (Provisional March 31, 2007 Indian
GAAP
accounts)
|
|
|
9.27
|
|
|
|
1.83
|
|
|
|
1.20
|
|
|
|
18.38
|
|
|
|
7.85
|
|
|
|
5.44
|
|
|
|
34.33
|
|
|
|
18.50
|
|
|
|
13.40
|
|
Adjusted
Final US GAAP PWC figures for SAM Global and SMC Global
|
|
|
9.05
|
|
|
|
3.67
|
|
|
|
2.24
|
|
|
|
17.27
|
|
|
|
6.94
|
|
|
|
4.86
|
|
|
|
24.18
|
|
|
|
10.41
|
|
|
|
9.03
|
|
Difference
|
|
|
0.22
|
|
|
|
(1.84
|
)
|
|
|
(1.04
|
)
|
|
|
1.11
|
|
|
|
0.91
|
|
|
|
0.58
|
|
|
|
10.15
|
|
|
|
8.09
|
|
|
|
4.37
|
|
Due
to legal entity structure as at March 31, 2007, financials
of SMC Comtrade
Ltd. were accounted by PwC using the Equity method. As of
April 26, 2007
SMC Comtrade became a fully owned subsidiary of the SMC Group
(i.e. SMC
Global + SAM Global). (MIAC would have 14.9% ownership in
all SMC
businesses)
|
|
|
0.40
|
|
|
|
0.01
|
|
|
|
0.01
|
|
|
|
1.90
|
|
|
|
0.74
|
|
|
|
0.49
|
|
|
|
7.78
|
|
|
|
5.69
|
|
|
|
4.49
|
|
Due
to legal entity structure as at March 31, 2007, financials
of SMC Comex
International DMCC+ Nexgen Capitals Ltd. + DSP Insurance
brokers (P) Ltd.
were accounted by PwC using the Equity method. Post March
31, 2007, these
companies will become fully owned subsidiaries of the SMC
Group (i.e. SMC
Global + SAM Global). (Millennium would have 14.9% ownership
in all SMC
businesses)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.68
|
|
|
|
0.20
|
|
|
|
0.19
|
|
Differences
In Provisional & Audited accounts as on March 31, 2007
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.33
|
|
|
|
0.40
|
|
|
|
0.27
|
|
Differences
in Indian GAAP and US GAAP
|
|
|
(0.18
|
)
|
|
|
(1.85
|
)
|
|
|
(1.03
|
)
|
|
|
(0.79
|
)
|
|
|
0.17
|
|
|
|
0.30
|
|
|
|
0.71
|
|
|
|
1.53
|
|
|
|
1.18
|
|
Currency
differences (PWC assumed an exchange rate of 1 USD = INR
43.10 and SMC’s
management assumed an exchange rate of 1 USD = INR 42)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.65
|
|
|
|
0.28
|
|
|
|
0.19
|
|
Extraordinary
gain
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(0.25
|
)
|
Share
of Equity investments
|
|
|
-
|
|
|
|
-
|
|
|
|
(0.01
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(0.21
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1.70
|
)
|
Total
|
|
|
0.22
|
|
|
|
(1.84
|
)
|
|
|
(1.04
|
)
|
|
|
1.11
|
|
|
|
0.91
|
|
|
|
0.58
|
|
|
|
10.15
|
|
|
|
8.09
|
|
|
|
4.37
|
|
This
document may contain forward-looking statements within the meaning
of the
Private Securities Litigation Reform Act of 1995 about Millennium and
the SMC
Group. Forward-looking statements are statements that are not
historical facts. Such forward-looking statements, based upon the
current beliefs and expectations of Millennium and the SMC Group’s management,
are subject to risks and uncertainties which could cause actual results
to
differ materially from the forward-looking statements. These risk factors
and
other cautionary language
are
detailed in Millennium’s filings with the Securities and Exchange Commission,
including its definitive proxy statement, as filed on December 21,
2007, and
reports on Form 10-Q and Form 10-K. The information set forth herein
should be read in light of such risks.
Our
stockholders and other interested parties are urged to read the definitive
proxy
statement regarding the proposed transaction with the SMC Group because
it
contains important information. Copies of the definitive proxy
statement and other relevant documents are available without charge online
at
the Securities and Exchange Commission’s website (http://www.sec.gov) and by
mail through requests to Millennium India Acquisition Company Inc., 159
South
Drive, Manhasset Hills, NY 11040, attention: F. Jacob
Cherian.