iflex 2006-07

i-fl ex annual report 2006-07

Cover Page.indd 1Cover Page.indd 1 7/24/2007 6:01:38 PM7/24/2007 6:01:38 PM

The 2005-2006 Annual Report used the metaphor of fi re to depict the energy and passion that drive our achievements.

The 2004-2005 Annual Report carried the theme of circles to depict our 360-degree coverage of the fi nancial domain.

For excellence in design, production and communication, we won:

• Society of Technical Communication (STC), Australian Chapter - Merit Award (2005 - 2006)

• League of American Communications Professionals (LACP), Magellan Awards - Honors Award (2005 - 2006)

• League of American Communications Professionals (LACP) Awards - Bronze Award (2004 - 2005)

• Society of Technical Communication (STC), Australian Chapter - Distinguished Award (2004 - 2005)


1

The Power of ‘n’ 2

Visionn 3

Corporate Information 8

Directors’ Report 11

Corporate Governance Report 21

Financials

Indian GAAP

Unconsolidated 33

Consolidated 75

US GAAP 99

Annual General Meeting (AGM) notice I

Attendance Slip & Proxy Form XIII

Annual Report 2006-2007_B & W.indd 1Annual Report 2006-2007_B & W.indd 1 7/27/2007 3:32:10 PM7/27/2007 3:32:10 PM

The Power of ‘n’

i-fl ex is the leading IT solutions provider to the fi nancial services industry worldwide. Oracle is the world’s

most successful enterprise software company. For years, i-fl ex and Oracle have worked together as partners

to empower banks and fi nancial institutions and make them successful in their businesses.

With Oracle acquiring a majority stake in i-fl ex last year, the breadth and depth of the joint offerings of both

companies have become even more integrated, rich and powerful, to create a unifi ed capability that is unique

in the industry. Today, we stand for:

• the most comprehensive range of solutions for fi nancial institutions from a single source

• a unique combination of integrated and best-of-breed applications

• a business process-oriented approach that aligns IT initiatives with business needs and enables an

evolutionary transformation of IT infrastructure

• a strong commitment to open systems and industry standards, ensuring interoperability

• a partner-oriented approach to the market, ensuring comprehensive solution delivery

The superscript “n” in “ i-fl exn” refl ects the enormity of this combined impact. Through this consolidated,

potent, enriched and integrated portfolio of solutions and services, we now can accelerate our progress

towards realizing our vision – to empower fi nancial institutions around the world with competitive advantage

and propel their businesses to greater growth and success.


i-fl ex annual report 2006-07 3

We are at a new and exciting point in our journey, ready to embark on

yet another voyage of infi nite potential and immense possibilities. It brings

back nostalgic memories of the time we started out from offi ces in India,

15 years ago, to bravely enter the fi nancial services industry and capture a

share of business in this specialized domain. All we had then was a dream,

a burning ambition and plenty of courage.

This was unchartered territory for any Indian IT company at that time – our

vision was to deliver signifi cant value to our customers’ businesses rather

than merely provide technical resources on a cost-based model. Our bold

move, to build world-class products and solutions targeted exclusively at

the global fi nancial services industry, in those days was unconventional.

But, in fact, it is this clear focus and unrelenting zeal to make our customers

excel in their businesses that has stood us in good stead and made us the

leading IT solutions provider to the fi nancial services industry.

The journey, thus far, has been truly breathtaking, satisfying and rewarding.

From the time MicroBanker, our fi rst banking product, was ranked No. 1

in the world by International Banking Systems (IBS), UK, in its league table

of wholesale back-offi ce products in 1995, to FLEXCUBE®, our fl agship

suite, being launched in Bangalore in 1997; our name change from CITIL

to i-fl ex in 2000; the company going public on the Indian bourses as

i-fl ex® solutions limited in 2002, to Oracle Corporation, the world’s leading

technology enterprise software company, acquiring a majority stake in the

company – it has been one breathtaking and rewarding journey.

Our core guiding principles – customer focus, domain expertise and global

reach – remain unchanged. We continue to build, invest and enhance

our offerings continuously and deliver complete solutions to our customers

through our “build-buy-ally” strategy. We build our own solutions (FLEXCUBE

and ReveleusTM, among others). We also buy products (DaybreakTM,

Mantas®) or acquire stakes in companies whose solutions complement

our own. Where neither is feasible, we forge strategic partnerships and

alliances. In the future, we will continue to invest in creating world-class

intellectual property, expand our business solutions footprint and enter

new markets, while leveraging our partnerships and alliances.

When we launched FLEXCUBE, we used the term, “mission impossible”

to represent our goals for the future. We soon went on to make every

mission, however diffi cult, a reality. A year back, we adopted the theme

‘Renaissance’, or the spirit of revival and reinvention, in the context of our

relationship with leading enterprise technology company, Oracle. Oracle’s

acquisition of a majority stake in i-fl ex has opened new doors for us,

especially with many large top-tier fi nancial institutions in the advanced

markets.

Oracle today stands out as a clear leader in its vision of integrated,

standards-based applications, and is moving aggressively to fulfi ll that

vision. With the formation of the new Oracle Financial Services Global

Business Unit, managed by a team from i-fl ex that has extensive

experience, domain expertise and a proven track record of leadership

in fi nancial services, there will be a consolidation and integration of our

growing portfolio of fi nancial services applications to provide the best-in-

class solutions that our customers expect.

Today, our rich suite of solutions continues to expand, keeping pace with

rapidly changing market requirements, and arming our customers with

unrivaled competitive advantage. Large retail and corporate banking

deployments, our sustained leadership in the risk and compliance area

through a comprehensive Governance, Risk and Compliance framework,

the enablement of process-driven enterprises through our process

repository for banks, and new focus on emerging areas such as Islamic

Banking, among others, set the course for rapid growth.

Our joint vision for the future is that every bank and fi nancial institution,

large or small, in any part of the world, advanced or emerging, will transact

on software that is powered by us. I believe our potential is limitless and

the opportunity is at hand.

Rajesh Hukku

Chairman

i-fl ex solutions limited

Recounting some glittering moments from i-fl ex’s historyIt’s been 15 years since we set forth on our journey in the fi nancial services industry. We capture some moments from this glorious saga here.

199

2

199

5• CITIL (Citicorp Information Technology Industries Limited), spun off from COSL (Citicorp Overseas

Software Limited), commences fi rst year of operations • CITIL begins functioning as an independent

company, creating next-generation software for the fi nancial services industry worldwide; it focuses on

building domain expertise and creating intellectual property in the fi nancial services industry, making it

stand out among other Indian software companies of the era

• CITIL gains recognition for establishing world-class processes and quality

standards • It attains SEI CMM Level 4, becoming the fi rst fi nancial software fi rm

in the world and one out of six companies worldwide to achieve this distinction at

that time • MicroBanker ranked as the No. 1 wholesale banking software in the

world by the International Banking Systems (IBS), UK


19

96

19

97 • FLEXCUBE® makes its debut in November. This launch set the stage for

i-fl ex becoming the global leader in providing world-class solutions to the

fi nancial services industry

• CITIL establishes the Center of Excellence for business intelligence to provide

specialized consulting and software products, as well as services in data

warehousing and business intelligence

Recent Awards and Achievements

Best Core Banking Project Award

• i-fl ex® solutions and Syndicate Bank, one of India’s leading public-

sector banks, won the ‘Best Core Banking Project Award for Large

Banks’ at The Asian Banker IT Implementation Awards, 2006.

Launched last year, the Asian Banker IT Awards aim to discover

emerging best practices in the use of IT in the fi nancial services

industry. The assessments were based on four inter-related criteria:

project implementation, business value created, qualitative analysis and

architectural design, and technical innovation.

N R K Raman – Managing Director & CEO, i-fl ex solutions – and C P Swarnkar – Chairman and Managing Director, Syndicate Bank – with the judges, after accepting the ‘Best Core Banking Project Award for Large Banks’.

One of the 38 Best Earners in Financial Services

• Research by The American Banker and Financial Insights, an IDC

company, resulted in i-fl ex receiving the FinTech citation at the BAI-RDS

conference in Las Vegas, USA, for best fi scal results. The FinTech 100

evaluates IT services companies on fi scal year-end revenues and the

percentage attributed to the fi nancial services industry.

• Forbes Asia ranked i-fl ex No. 12 in its ‘Best under Billion List’.

Export Awards

• i-fl ex was awarded the Certifi cate of Excellence in IT Exports

for the year 2005-2006 by the STPI, Government of India, and

Department of Information Technology and Biotechnology, Government

of Karnataka, India.

N R K Raman receiving the award from H D Kumaraswamy – Chief Minister, Government of Karnataka.

• i-fl ex won the Best Export Award, Product Category: IT and BT –

Non SSI Gold, from the Department of Commerce and Industries,

Government of Karnataka, for the year 2005-2006.

A Srinivasan – Vice-President, APAC Sales & COO, i-fl ex solutions pte ltd – receives the award from Shivananda Naik – Minister for Small Scale Industries, and Mahendra Jain – Secretary, Commerce & Industries, Government of Karnataka.

• i-fl ex was presented with the EPCES Export Award for 2004-05, for Best

SEZ (non-SSI) for EOUs & SEZ Units, from The Export Promotion Council,

New Delhi, India.

Atul Gupta – Senior Vice-President, Process and Quality Management Group – received the EPCES Export Award for 2004-05 for Best SEZ (Non-SSI) (Electronic & Computer Software) from Kamal Nath – Union Minister of Commerce and Industry, India.

IBS ranks FLEXCUBE® the #1 Banking Solution

for the Fifth Consecutive Year

• FLEXCUBE retained its position as the world’s No.1 selling banking

solution for the fi fth consecutive year, in International Banking Systems’

(IBS) Annual Sales League Tables for 2006, leading all other banking

products across all categories in the number of new wins for the year.

SWIFTReady Silver Label (2007) awarded to FLEXCUBE for Payments

• FLEXCUBE V.UM Release 7.3 received the SWIFTReady Silver 2007

Label for complying with SWIFT Criteria for its payments application.

This label identifi es products that are compliant with SWIFT, integrate

effi ciently into the SWIFT environment, increase traffi c automation, and

achieve straight-through processing (STP).

The Banker Magazine commends Reveleus™ for Innovation

• Reveleus and the Reveleus’ Basel II Solution were ‘Highly Commended’

by The Banker magazine and The Financial Times in the Compliance

Initiative Innovation category of The Banker Technology Awards, 2006.

The awards recognize the innovation and excellence of technical

applications and services for the front-, middle-, and back-offi ce functions

in fi nancial services companies, and the strategies used by these

companies to use technology effectively.



19

98

19

99• MicroBanker becomes the 6th international banking product in the world

to be used by 100 customers • FLEXCUBE starts gaining traction and

international leadership

• FLEXCUBE sees accelerated growth; is ranked the world’s No. 2 banking solution

in the IBS Sales League Table • FLEXCUBE Information Center, a Web-enabled

business intelligence system, is launched, along with a Center of Excellence for

CRM • Java Center for fi nancial services is established

Top Analyst Firms rank Reveleus as the Leading Solution for Basel II

and Operational Risk

Mantas, an i-fl ex business, ranked by Waters Magazine

• Waters Magazine ranked Mantas for Best Anti-Money Laundering

Solution for 2007, 2005 and 2004 and Best Compliance Solution for

2003. The award is voted by the subscribers of Waters, a monthly

magazine that covers information technology and solutions in the fi nancial

services industry.

PrimeSourcing™ receives a Gold Rating for Compliance with

Policies and Standards

• PrimeSourcing, i-fl ex’s IT Services division, was awarded the Gold

Rating for 2006 for compliance with policies and standards by a leading

investment bank in the SmartSourcing IT Services Provider category, for

the second year in a row.

The Brown-Wilson Group ranks Equinox as Top Outsourcer for

Mortgage Banks

• A survey administered by the Brown-Wilson Group, authors of the

best-selling book, The Black Book of Outsourcing, ranked Equinox,

an i-fl ex company, as the top outsourcing vendor to the Mortgage Banking

Industry in 2006. Survey participants rated Equinox’s mortgage process

outsourcing services as No. 1 in the industry, ahead of those provided by

India-based outsourcing competitors, as well as suppliers from the USA.

IAOP ranks Equinox a Leader in Global Outsourcing

• Equinox was ranked in the Leaders’ category in the 2007 Global

Outsourcing 100, by The International Association of Outsourcing

Professionals (IAOP), for the second year in a row.

Rajesh Hukku receives the Stevie’s Best Chairman Award for 2006

• Rajesh Hukku was named Stevie’s Best Chairman for 2006.

The Stevie Awards, hailed as the “Business world’s Oscars”, are conferred

in the following three categories: The American Business Awards,

The International Business Awards and The Stevie Awards for Women

Entrepreneurs. Last year, the International Stevie Award winners were

selected from more than 700 categories around the world.

• Rajesh Hukku was also recognized among the 50 Outstanding Asian

Americans in Business for 2006.

Rajesh Hukku at the Stevie Awards ceremony. Standing next to him is Allyson Stewart-Allen from International Marketing Partners.

S Hariharan named one of the Top 100 CIOs in the Country

• S Hariharan – Senior Vice-President, Infrastructure and Support Services,

i-fl ex solutions – was ranked among the top 100 CIOs in the country,

at the Indian CIO 100 Symposium and Awards Ceremony in Mumbai.

The CIO 100 is considered to be one of the most prestigious awards in

the IT industry.

Vivek V Govilkar receives the HR Achievers Award

• Vivek V Govilkar – Senior Vice-President, Human Resources and Training,

i-fl ex solutions – was presented with the HR Achievers Award at a function

organized by Indira Group of Institutions, Pune, India.

Vivek V Govilkar – SVP, Human Resources and Training, i-fl ex solutions – receiving the HR Achievers Award from A Sunderajan – Managing Director, Thomas Assessments – at Indira Group of Institutions, Pune.

Certifi cations and Quality Benchmarks

Successfully completed an SAS70 Review of Internal Controls for

the Fifth Consecutive Year

i-fl ex offi ce at Mumbai certifi ed for ISO 27001 Compliance

• The i-fl ex offi ce at Goregaon, Mumbai, was certifi ed for ISO 27001

compliance. ISO 27001 is one of the most widely accepted information

security governance standards. This certifi cation affi rms i-fl ex’s

fi rm commitment towards standardizing corporate governance and

compliance levels in the company.

Achievements

• Posted annual revenues of Rs. 2,061 crores (Indian GAAP Consolidated)

for 2006-2007. Net profi ts increased by 50 percent.

• Combined revenues from USA and Europe grew from 67 to 70 percent.

• Number of customers serviced increased from 642 to 753; FLEXCUBE

now has a global presence in over 105 countries, with 315 customers.

• Annual products revenue registered a 47 percent increase to

Rs. 1,121 crores. The product tank size stood at USD 82.5 million,

the highest level reached till date, showing a 27 percent year-on-

year increase.

• Employee strength grew to 9,000 plus.

• Opened new offi ces in London, New Jersey, Seoul and Taipei; invested in

new offi ce space across Mumbai, Pune, Bangalore and Chennai in India.

• Acquired Mantas, a leading software company providing solutions for

regulatory compliance, governance and anti-money laundering, in an all

cash transaction of USD 122.6 million.

• The consulting business expanded with the acquisition of CAPCO’s

Singapore operations.


20

00

20

01 • Financial software development facilities established at Pune and Chennai

• Fully-owned subsidiaries set up in USA and Singapore • i-fl ex solutions b.v. in

Amsterdam, The Netherlands, becomes operational • i-fl ex Consulting™ is launched

Key performance indicators 2006-2007

1997-98 1998-99 1999-00 2000-01 2001-02* 2002-03* 2003-04* 2004-05* 2005-06* 2006-07*

22000

20000

18000

16000

14000

12000

10000

8000

6000

4000

2000

0

796.061,390.18

1,971.24

3,038.564,157.18

6,141.21

7,881.29

11,385.93

14,823.00

Operating revenues

in R

s. m

illio

n

20,609.38

1997-98 1998-99 1999-00 2000-01 2001-02* 2002-03* 2003-04* 2004-05* 2005-06* 2006-07*

307.92504.33

692.73

1,100.21 1,152.99

1,708.881,787.86

2,324.33 2,376.53

3,722.80

Net income4000.00

3500.00

3000.00

2500.00

2000.00

1500.00

1000.00

500.00

0.00

in R

s. m

illio

n

1997-98 1998-99 1999-00 2000-01 2001-02* 2002-03* 2003-04* 2004-05* 2005-06* 2006-07*

1350.00

1200.00

1050.00

900.00

750.00

600.00

450.00

300.00

150.00

0

Economic value added

in R

s. m

illio

n

173.87264.03

328.33

548.39 472.33

669.33720.91

903.50

1,149.83

1,294.00

1997-98 1998-99 1999-00 2000-01 *2001-02 *2002-03 *2003-04 *2004-05 *2005-06 *2006-07

Total Revenue 825.86 1,444.31 2,062.69 3,211.21 4,295.27 6,239.14 8,017.87 11,645.21 15,113.54 20,976.66

Total Expenses 509.24 909.53 1,312.30 2,016.85 2,991.95 4,277.53 5,703.26 8,693.82 12,176.59 16,837.90

EBT 316.62 534.78 750.39 1,194.36 1,303.32 1,961.61 2,314.61 2,951.39 2,936.95 4,138.75

Tax 8.70 30.44 57.66 94.15 150.33 252.73 526.75 627.06 560.42 415.96

EAT 307.92 504.34 692.73 1,100.21 1,152.99 1,708.88 1,787.86 2,324.33 2,376.53 3,722.80

EPS 3.70 6.06 8.32 13.21 13.84 20.52 21.47 27.91 28.53 44.70

Book Value 9.72 15.58 25.46 38.12 56.58 92.79 112.01 137.51 165.65 283.57

Note: All EPS and Book Values are computed based on the current equity capital base of 83,288,580 shares

EVA 173.87 264.03 328.33 548.39 472.33 669.33 720.91 903.50 1,149.83 1,294.00

1997-98 1998-99 1999-00 2000-01 2001-02* 2002-03* 2003-04* 2004-05* 2005-06* 2006-07*

45.00

40.00

35.00

30.00

25.00

20.00

15.00

10.00

5.00

0

3.70

6.06

8.32

13.21 13.84

20.5221.47

27.9128.53

44.70Earnings per share

Rs.

1997-98 1998-99 1999-00 2000-01 2001-02* 2002-03* 2003-04* 2004-05* 2005-06* 2006-07*

300.00

270.00

240.00

210.00

180.00

120.00

90.00

60.00

30.00

0

9.27 15.5825.46

38.1256.58

92.79112.01

137.51 165.65

283.57

Book value

Rs.

Book Value is computed on the equity capital base of 83,288,580 shares as on March 31, 2007.Earnings per share is computed on the equity capital base of 83,288,580 shares as on March 31, 2007.

All fi gures in Rs. million except EPS & Book value

*As per Indian GAAP Consolidated results

i-fl ex solutions fi nancials at a glance

Our 10 years in the industry

• CITIL renamed i-fl ex solutions limited • Center of Excellence for e-services launched

• Separate business unit established to address the Applications Services Provider

(ASP) market • i-fl ex solutions b.v., a 100 percent subsidiary of the company, opened

in Amsterdam, The Netherlands



• i-fl ex’s North American development, support and demonstration center set

up in New York • Reveleus Basel II solutions framework for enterprise risk

management, a complete set of analytics and metrics compliant with the Bank of

International Settlement (BIS) requirements, launched • Signed a global strategic

alliance with IBM to deliver and market core banking replacement solutions to medium and large size

banks in markets worldwide

20

02

20

03• i-fl ex goes public, listed on the Bombay Stock Exchange (BSE) and the National

Stock Exchange (NSE), New Delhi. Scrip sees exponential growth in a span of fi ve years and becomes one of the newest and best performing stocks from the Indian software industry • Reveleus™ launched to address the business intelligence and analytics market • First software development center outside India launched in Singapore

• FLEXCUBE touches the 100th customer mark • FLEXCUBE ranked No.1 banking solution in IBS’ Sales League Table; remains top of the IBS charts for the next fi ve years • i-fl ex’s IT services division is branded PrimeSourcing • Signed agreement with HP as strategic alliance partner

1997-98 1998-99 1999-00 2000-01 2001-02* 2002-03* 2003-04* 2004-05* 2005-06* 2006-07*

800

700

600

500

400

300

200

100

0

163

206238

281

345

404

480

544

642

753

Customers serviced...

Cus

tom

er C

ount

1997-98 1998-99 1999-00 2000-01 2001-02* 2002-03* 2003-04* 2004-05* 2005-06* 2006-07*

140

120

100

80

60

40

20

0

5155

66

74

84

93

108112

123128

... across countries

Cou

ntry

Bas

e

Number of employees including those in subsidiaries

1997-98 1998-99 1999-00 2000-01 2001-02* 2002-03* 2003-04* 2004-05* 2005-06* 2006-07*

10000

9000

8000

6000

5000

4000

3000

2000

1000

0

657 7901,017

1,590

2,0322,327

2,974

4,747

6,858

9,068

Region-wise revenues Operating revenues

39%

USA

14%

India, Middle East &

Africa

18%

Asia Pacifi c

28%

Europe

1%

Latin America &

Caribbean

54%

Products

Revenue

46%

Services

Revenue

Expenditure breakup Revenue breakup

9%

Professional fees

4%

Application software

64%

Staff Cost

13%

Travel cost

43%

Services

55%

Products

5%

Facility Costs

5%

Other expenses2%

KPO-Services


20

04

20

05• Consumer lending systems provider, SuperSolutions Inc., USA, acquired as a 100

percent subsidiary • i-fl ex Technology Deployment and Management Services (TDMS) for

IT infrastructure management services launched • Regulatory reporting solutions major,

FRS, and i-fl ex solutions form an alliance to ease the burden of global regulatory reporting

for banks • Acquires 33 percent stake in Paris-based Login SA, extending capabilities

into the treasury solutions arena • Equinox Corporation acquired to provide KPO (Knowledge Process

Outsourcing) services to mortgage institutions, auto fi nancers and credit companies

• i-fl ex assessed at CMMi Level 5; also, certifi ed BS 7799 compliant. BS 7799 are

security standards and policies addressing information security • 51 percent equity

stake acquired in Castek® Software Inc., a Toronto-based provider of insurance

systems for the global Property & Casualty (P&C) insurance industry • IPR acquired

for CAPCO’s Operational Risk Tool Suite (ORTOS); tool renamed as Reveleus

Operational Risk • Citigroup’s 41 percent stake in i-fl ex acquired by Oracle

CORPORATE INFORMATION

i-fl ex solutions ltd.

Board of Directors

Charles Phillips

Deepak Ghaisas

Derek Williams

N R Kothandaraman (N R K Raman) (Managing Director and CEO,

i-fl ex solutions)

R Ravisankar

Rajesh Hukku (Chairman, i-fl ex solutions)

Sam Bharucha

Tarjani Vakil

William T Comfort, Jr

Y M Kale

Senior Management

Executive Vice-Presidents

Joseph John

Olivier Trancart

V Shankar

Senior Vice-Presidents

Anand Phanse

Atul Gupta

Kishore Kapoor

Manmath Kulkarni

Nandu Kulkarni

S Hariharan

S Sundararajan

Sajal Mukherjee

Vijay Sharma

Vivek Govilkar

Vice-Presidents

A Srinivasan

Cafó Boga

Don Ganguly

Dilip Kulkarni

Dinesh Shetty

G Narasimhan

George Thomas

Gopinath Govindan

Gratian Perez

Jambu Natarajan

K Laxminarayan

Kapil Gupta

M Ravikumar

Mahesh Rao

Meenakshy Iyer

Mohan Bhatia

Nikos Goutsoulas

P Prasannavadanan

Peter Yorke

Prabhakar Ravoori

R Narasimhan

R Ramamurthi

S Ramakrishnan

Sridhar Padmanabhan

Sridhar Ramachandran

Sunder Annamraju

Swati Srinivasan

Thomas Mathew

V Senthil Kumar

V Srinivasan

Venkata Subramanian

Vikram Gupta

Yung Wu

Company Secretary

Deepak Ghaisas

Chief Financial Offi cer

Makarand Padalkar

Chief Accounting Offi cer & Compliance Offi cer

Avadhut (Vinay) Ketkar

Solicitors

Ramesh P Makhija & Co.

Auditors

S. R. Batliboi & Associates

Internal Auditors

Mukund M Chitale & Co.

Bankers

Bank of India

Central Bank of Libya

Citibank N.A.

HDFC Bank Ltd.

Kotak Mahindra Bank Ltd.

Laxmi Vilas Bank

State Bank of Mauritius Ltd.

Yes Bank Ltd.

Registrars & Transfer Agents

Intime Spectrum Registry Ltd.

C 13, Pannalal Silk Mills Compound

L.B.S. Marg, Bhandup (W)

Mumbai 400 078



20

06

20

07• Oracle’s stake in i-fl ex increased to 55.1 percent • Mantas Inc., a

leading solutions provider in the anti-money laundering space, acquired;

the fi rm is now a fully owned subsidiary of i-fl ex • Market capitalization

crosses USD 5 billion

• Oracle’s stake in i-fl ex stands at 81.02 percent (as of

March 31, 2007) • Rajesh Hukku named the leader of Oracle’s

Financial Services Global Business Unit (FSGBU) • R Ravisankar

and Deepak Ghaisas join the leadership team of the FSGBU

• N R Kothandaraman (N R K Raman) dons the mantle of MD and

CEO of i-fl ex solutions

Registered Offi ce


Unit 10-11, SDF-1

SEEPZ, Andheri (E)

Mumbai 400 096, India

Offi ces

i-fl ex Center

399, Subhash Road

Vile Parle (E)


i-fl ex Park

Nirlon Compound

Western Express Highway

Goregaon (E)


i-fl ex Annexe

Nirlon Compound

Western Express Highway

Goregaon (E)


Corporate Center A

Andheri Kurla Road

Andheri (E)


Marchon House

2nd Floor,

J.B. Nagar, Andheri-Kurla Road

Andheri (E)


i-fl ex Park

C/o Embassy Business Park

C.V. Raman Nagar

Bangalore 560 093, India

i-fl ex Center

# 333, Kundalahalli, Brookefi elds


i-fl ex Center of Learning

Plot No. 13, Doddanekundi

Industrial Area, Phase II

Whitefi eld Road

Mahadevapura Post


Lower Ground fl oor, B Tower

Diamond District

Airport Road


SJR I Park

Ground & First Floor, Tower – 2

EPIP Zone, Whitefi eld Road, Whitefi eld


Pride Silicon Plaza

2nd Floor

Next to Chatushringi

Senapati Bapat Road

Pune 411 053, India

i-fl ex Center

Block 9A, Ambrosia - II

Bhavdhan Khurd, Tal. Mulshi

Pune 411 021, India

i-fl ex Heights

Lohia Jain IT Park

Paud Road, Kothrud

Pune 411 029, India

143/1, Uttamar Gandhi Salai, Nugambakkam

Chennai 600 034, India

99, Venkatnarayana Road, T Nagar

Chennai 600 017, India

Millennium House

12, Trubnaya Street

Moscow 103045, Russia


205, Building 3,

Dubai Internet City

Dubai, United Arab Emirates (UAE)

Subsidiary Offi ce – India

i-fl ex Processing Services Limited

i-fl ex Center

399, Subhash Road, Vile Parle (E)


Subsidiary Offi ces – Asia-Pacifi c

i-fl ex solutions pte ltd

27, International Business Park

# 02-01 Primefi eld Landmark Building

Singapore 609 924


Offi ces

Room 806, Central Plaza

No. 227 HuangPi Road North

Shanghai 200003

China

6, FL 17, Fukoku Seimei Building

2-2-2 Uchisaiwaicho, Chiyoda-ku

Tokyo 1000011

Japan

#103-504, Garam Apt. Ilwon-dong

Kangnam-gu

Seoul 135239

South Korea

Room 4-1, 5F, No.51, Sec. 2

Keelung Rd., Xinyi District

Taipei City 110, Taiwan (R.O.C.)

Level 10, Margaret Street

Sydney, NSW 2000

Australia

Subsidiary Offi ce - Europe

i-fl ex solutions b.v.

World Trade Center, B-Tower, 12th Floor

Strawinskylaan 1245

1077 XX Amsterdam

The Netherlands

Offi ces

Niederlassung Deutschland

Mainzer LandstraBe 49a

60329 Frankfurt am Main

Germany

121, Meridian Place

Off Marsh Wall

South Quay

London E14 9FE, UK

Level 25

40 Bank Street

Canary Wharf

London E14 5NR, UK

i-fl ex solutions b.v.

Molyneux House

Bride Street, Dublin 8

Ireland

Fitzwilliam Hall

Fitzwilliam Place, Dublin 2

Ireland

Subsidiary Offi ce - i-fl ex solutions b.v.

6-8 Kifi ssias Avenue

Paradissos, Maroussi

Athens 15125

Greece

Subsidiary Offi ces – North America

i-fl ex America inc. & i-fl ex solutions inc.

99 Park Avenue, Suite 1530

New York 10016, USA

SuperSolutions Corporation

10050 Crosstown Circle

Suite 600, Eden Prairie

MN 55344, USA

Mantas

13650 Dulles Technology Drive

Suite 300, Herndon

VA 20171, USA

Offi ces

i-fl ex solutions inc.

60, State Street, Suite 700

Boston, MA 02109, USA


355 Lexington Avenue, FL 4

New York, NY 10017, USA


9 E. 37th Street, FL 12

New York, NY 10016, USA


Reveleus

399 Thornall Street, 6th Floor

Edison, NJ 08837, USA


5805 Blue Lagoon Drive, Suite 295

Miami, Florida 33126, USA

Castek Software Inc.

1 Yonge St, Suite 2300

Toronto, Ontario, Canada

Subsidiary Offi ce – Mauritius

ISP Internet Mauritius Company

10, Frere Felix de Valois Street

Port Louis, Mauritius

Offi ces

Equinox Corporation

10, Corporate Park, Suite 130

Irvine, CA, 92606, USA

Equinox Global Services Pvt. Ltd.

DLF Infi nity Tower A, 3rd Floor

DLF Cyber City, Phase II

Gurgaon 122 002

Haryana, India



Dear Members,

The Directors take great pleasure in presenting their report on the

business and operations of your Company along with the Annual Report

and audited financial statements for the Financial Year 2006-07.

Financial highlights

As per Indian GAAP Unconsolidated

(All amounts in millions of Indian Rupees)

Year ended March 31, 2007


Revenue 15,523.44 11,538.22Income from operations before depreciation & amortization 4,027.53 2,983.71

Depreciation & amortization 565.35 387.81Interest/other income (expenses) 348.30 299.21

Income before taxes 3,810.48 2,895.11Provision for tax 263.74 447.57Net income after tax 3,546.74 2,447.54Prior period item – 39.55Net income 3,546.74 2,407.99Balance brought forward 464.24 492.49Profit available for appropriation 4,010.98 2,900.48

Transfer to general reserve – 2,000.00Proposed dividend – 381.44Corporate dividend tax 0.17 53.66Dividend paid on stock options exercised before AGM 2006 1.24 1.14

Balance carried forward 4,009.57 464.24

As per Indian GAAP Consolidated financial statements:




Revenue 20,609.38 14,823.00Income from operations before depreciation & amortization 4,424.50 3,204.18

Depreciation & amortization (653.02) (460.37)Interest/other income (expenses) 359.65 284.65

Income before taxes 4,131.13 3,028.46Provision for tax (415.96) (560.42)Net income for the year before minority interest, share of profit (loss) of associate and prior period items 3,715.17 2,468.04

Minority interest – 2.57Share of profit (loss) of associate and prior period items 7.63 3.33

Prior period items – (97.41)Net income 3,722.80 2,376.53

Performance

On an unconsolidated basis, your Company’s revenue grew to

Rs. 15,523.44 million during the financial year 2006-07 from

Rs. 11,538.22 million last year, a growth of 35%. The net income before

taxes and prior period item stood at Rs. 3,810.48 million during the year

against Rs. 2,895.11 million last year, translating into a growth of 32%.

The Company’s net income after taxes and prior period items increased

to Rs. 3,546.74 million this year from Rs. 2,407.99 million last year, a

growth of 47%.

Revenue, on the basis of consolidated financials is Rs. 20,609.38 million

this year, an increase of 39% as compared to Rs. 14,823.00 million last

year. The Earnings before Taxes on a consolidated basis is Rs. 4,131.13

million this year as compared to Rs. 3,028.46 million last year, an

increase of 36%. The Company’s net income before prior period item

increased to Rs. 3,722.80 million this year as compared to Rs. 2,473.94

million last year, an increase of 50%.

A detailed analysis of the financials is given in the Management’s

Discussion and Analysis report that forms part of this Annual Report.

Dividend

Your Company has aggressive growth plans to capitalize on its brand

and market opportunities and, therefore, needs to invest substantially in

the growth of the business. Keeping this in view and in order to enhance

shareholder value by conserving funds for reinvestment and funding for

future acquisitions, the Board has decided not to declare a dividend in the

current year. The funds will be used to further invest in infrastructure and

other growth opportunities to enhance the leadership of your Company

in the market.

Transfer to reserves

The Company does not propose to transfer any amount to the General

Reserve out of the amount available for appropriation. An amount of

Rs. 4,009.57 million is proposed to be retained in the Profit & Loss

Account.

Share capital

On September 14, 2006, the Company issued and allotted 4,447,418

equity shares on a preferential basis to Oracle Global (Mauritius) Limited,

the Promoters of the Company, at Rs. 1,307.50 per share primarily to

fund the acquisition of Mantas Inc.

During the year the Company also allotted 2,552,795 equity shares to

its Directors/employees who exercised their options under its Employee

Stock Option Plan.

As a result, as on March 31, 2007, the paid up equity share capital of

the Company increased to 83,288,580 equity shares of face value of

Rs. 5/- each.

Oracle’s acquisition of i-flex’s shares

As on April 1, 2006, Oracle Global (Mauritius) Ltd. (“Oracle”) was holding

36,422,788 equity shares (47.74% paid up capital) of the Company.

During the period April 2006 to June 2006, Oracle further acquired

3,725,524 equity shares. On September 14, 2006, the Company

allotted 4,447,418 equity shares to Oracle on preferential basis. On

December 4, 2006, Oracle made an open offer to the members of the

Company to acquire up to 34.93% of the then capital of the Company.

Through this offer, Oracle acquired 22,885,968 equity shares of the

Company. As of March 31, 2007, Oracle holds 67,481,698 equity

shares (81.02% of the capital of the Company).

Directors’ report Financial year 2006-07


Use of IPO proceeds

In June 2002, your Company completed its Initial Public Offer (IPO) in

India and listed its shares on the National Stock Exchange of India Ltd.

(NSE) and Bombay Stock Exchange Ltd. (BSE). Out of the IPO proceeds

of Rs. 1,780.80 million, the Company has utilized Rs. 1,493.61 million

up to March 31, 2007 for its infrastructure projects in Mumbai and

Bangalore, and in expanding its marketing reach.

Your Company also issued shares to Oracle Global (Mauritius) Limited

on a preferential basis on September 14, 2006. Out of the proceeds of

Rs. 5,815.00 million, the Company has utilized Rs. 5,679.47 million up

to March 31, 2007 towards the acquisition of Mantas Inc.

Infrastructure

During the year, your Company made significant additions to its

infrastructure to meet the growing business requirements. The Company

opened new offices in Bangalore, Pune and Chennai and the Company’s

subsidiaries added offices in Athens, Dublin, New Jersey, London,

Seoul and Taipei to accommodate the increasing workforce. These new

premises expanded the capacity by about 2,000 seats. Construction of

the Company’s landmark building in Goregaon, Mumbai is completed

and the operations have recently commenced in the first phase of this

building. Your Company is in the process of finalizing a lease for over

a million square feet of contiguous office space in Bangalore. Your

Company has also entered into the MOU for acquisition of a large 100

acre piece of land in Nasik (Maharashtra) as a future growth center.

Acquisitions

On October 2, 2006, the Company through its subsidiary,

i-flex America inc., acquired 100% ownership in Mantas Inc. for a

total consideration of USD 126.43 million (Rs. 5,807 million) including

transaction cost of USD 4.98 million (Rs. 229.8 million). The financial

statements of Mantas Inc. are consolidated with the Company from

October 2, 2006. The Company has recorded goodwill on account of the

consolidation of Rs. 5,410 million as on March 31, 2007.

Mantas Inc. is a leading provider of Anti-Money Laundering (AML)

compliance software and related services. The Mantas Behavior Detection

PlatformTM is the industry’s most comprehensive solution for detecting risk,

enhancing customer relationships and addressing regulatory requirements

in the Anti-Money Laundering, trading and broker compliance areas. This

acquisition greatly strengthens your Company’s offerings in the Risk and

Compliance area led by its ReveleusTM platform.

On January 3, 2007, the Company, through its subsidiary

i-flex solutions pte ltd, acquired 100% ownership in

i-flex Consulting (Asia Pacific) pte ltd, the erstwhile Capital Markets

Company Pte. Ltd. (“CAPCO”) for a total consideration of USD 1.05

million (Rs. 46.4 million) and recorded goodwill of Rs. 38.3 million on

consolidation of CAPCO. This acquisition will strengthen i-flex Consulting’s

ability to provide high-end consulting to banks in the Asia Pacific

region. The combined i-flex–CAPCO team provides a compelling pool

of expertise to assist banks in business transformation, management of

large technology implementations and addressing risk and compliance

requirements.

Global alliances

Your Company lays great emphasis in building and expanding its partner

network with organizations which can promote, sell, implement and

support its offerings around the world. During the year, your Company

has made great strides in expanding its partner network in a number

of countries, especially the non-English speaking countries in Europe,

Latin America, Asia and Francophone Africa.

Your Company made major progress on multiple areas in its relationship

with Oracle, from aligning its solutions with Oracle to offering a much

more comprehensive solutions portfolio to its customers, to closely align

the joint sales and marketing efforts.

Strategically, your Company has taken several other important partnering

initiatives, a notable one being a joint collaborative initiative between

i-flex, Oracle and IBM to provide next generation solutions to top tier

financial institutions worldwide. This alliance brings together the world’s

No. 1 IT vendor, the world’s No. 1 enterprise software vendor and the

world’s No. 1 core banking solution provider, representing a unique and

compelling value proposition to top tier financial institutions around the

world.

Subsidiaries

Your Company has subsidiaries in India, USA, Singapore, the Netherlands,

Canada and Mauritius to handle operations as well as to strengthen

marketing and sales efforts in the respective markets and ensure deeper

penetration in these regions.

During the financial year, i-flex Processing Services Limited became a

wholly owned subsidiary of the Company. i-flex America inc., a wholly

owned subsidiary of the Company, acquired a 100% equity capital of

Mantas Inc., and Mantas Inc. became the subsidiary of the Company.

i-flex solutions pte ltd, a wholly owned subsidiary of the Company

acquired 100% equity capital of i-flex Consulting (Asia Pacific) pte ltd and

accordingly, i-flex Consulting (Asia Pacific) pte ltd became the subsidiary

of the Company.

Pursuant to Section 212 of the Companies Act, 1956, the Company is

required to attach to its Annual Report the Directors’ Report and financial

statements of its subsidiaries. Since the Company presents audited

consolidated financial statements under Indian GAAP and US GAAP in

its Annual Report, the Company has applied to the Central Government

of India for an exemption from attaching the Directors’ Report, Balance

Sheet and Profit and Loss Account of its subsidiaries to the Annual

Report. The approval from the Central Government in this regard is

awaited and in case the exemption under Section 212 (8) of the Act

is granted to the Company by the Central Government, the financial

statements of the subsidiaries of the Company shall not be attached to

the Annual Report of the Company. In that case the Company undertakes

that the financial statements of the subsidiary companies for the year

ended March 31, 2007 will be made available to the members on

request at the Registered Office/Corporate Office of the Company and

the same will be kept open for inspection by any member during the

office hours of the Company.

Fixed deposits

During the financial year 2006-07, the Company has not accepted any

fixed deposit within the meaning of Section 58A of the Companies Act,

1956, and as such, no amount of principal or interest was outstanding

as of the date of the Balance Sheet.

Awards, honors and recognitions

Your Company has consistently received wide recognition for leadership

and achievements.



– i-flex solutions and Syndicate Bank, one of India’s leading

public-sector banks, won the ‘Best Core Banking Project Award for

Large Banks’ at The Asian Banker IT Implementation Awards, 2006.

Launched last year, the Asian Banker IT Awards aim to discover

emerging best practices in the use of IT in the financial services

industry. The assessments were based on four inter-related criteria:

project implementation, business value created, qualitative analysis

and architectural design, and technical innovation.

– Research by the American Banker and Financial Insights, an IDC

company, resulted in i-flex receiving the FinTech citation at the

BAI-RDS conference in Las Vegas, USA, for best fiscal results. The

FinTech 100 evaluates IT services companies on fiscal year-end

revenues and the percentage attributed to the financial services

industry.

– Forbes Asia ranked i-flex No. 12 in its ‘Best under Billion List’

– i-flex received the Certificate of Excellence in IT Exports for the

year 2005-2006 by the Software Technology Parks of India [STPI],

Government of India, and Department of Information Technology (IT)

and Bio-technology (BT), Government of Karnataka, India.

– i-flex won the Best Export Award, Product Category: IT and BT -

Non SSI Gold, from the Department of Industries and Commerce,

Government of Karnataka, for the year 2005-2006.

– i-flex presented with the EPCES Export Award for 2004-05 for best

SEZ (non-SSI) for EOUs & SEZ Units from The Export Promotion

Council, New Delhi, India.

– FLEXCUBE retained its position as the world’s No.1 selling banking

solution for the fifth consecutive year in the ‘International Banking

Systems’ (IBS) Annual Sales League Table for 2006, leading all

other products across all categories in the number of new wins for

the year.

– Reveleus and the Reveleus’ Basel II Solution were ‘Highly

Commended’ by The Banker magazine and The Financial Times

in the Compliance Initiative Innovation category of The Banker

Technology Awards 2006. The awards recognize the innovation

and excellence of technical applications and services for the front-,

middle-, and back-office functions in financial services companies

and the strategies used by these companies to use technology

effectively.

– PrimeSourcingTM, i-flex’s IT Services division, awarded the Gold

Rating for 2006 for compliance to policies and standards by a

leading investment bank in the SmartSourcing IT Services Provider

category for the second year in a row.

– A survey administered by the Brown-Wilson Group, authors of

the best-selling book, The Black Book of Outsourcing, ranked

Equinox, an i-flex company, as the top outsourcing vendor to the

Mortgage Banking Industry in 2006. Survey participants rated

Equinox’s mortgage process outsourcing services as number one

in the industry, ahead of those provided by India-based outsourcing

competitors as well as suppliers from the USA.

– Equinox ranked in the Leaders’ category in The 2007 Global

Outsourcing 100 by The International Association of Outsourcing

Professionals (IAOP) for the second year in a row.

Litigation

PortfolioScope, a company based in the United States of America, has

filed a lawsuit in a US District Court for the District of Massachusetts

alleging misappropriation of confidential and proprietary information by

the Company. The Company firmly believes that the allegations are false,

unwarranted and without merit and will vigorously oppose the claims

made by PortfolioScope. The Company has filed a motion to dismiss

PortfolioScope’s complaint in its entirety and has instructed the legal

advisers to take all appropriate actions to protect the interests of the

Company and its customers. The said motion to dismiss was granted

in part and that discovery is proceeding on the limited issue of whether

PortfolioScope’s claims were timely filed.

Corporate governance

The Company has taken appropriate steps and measures to comply

with all the applicable provisions of Clause 49 and Section 292A of the

Companies Act, 1956.

Your Company has constituted three separate committees for Audit,

Compensation and Protection of Member’s interest. A separate report

on Corporate Governance, along with a certificate of Statutory Auditors of

the Company, is annexed herewith.

A certificate from the Managing Director and CFO of the Company

confirming internal controls and checks pertaining to financial statements

for the year ended March 31, 2007 was placed before the Board of

Directors and the Board has noted the same.

A list of the committees of the Board and names of their members is

given below. The scope of each of these committees and other related

information is detailed in the enclosed Corporate Governance Report.

Audit committee

Mr. Y M Kale

Mr. Sam Bharucha

Mr. William T Comfort, Jr.

Ms. Tarjani Vakil

Compensation committee

Mr. William T Comfort Jr.

Mr. Y M Kale

Mr. Charles Phillips

Shareholders’ grievances committee

Ms. Tarjani Vakil

Mr. Deepak Ghaisas


Allotment of ESOP shares

The members of the Company had approved the Employees Stock Option

Scheme (ESOP) of the Company in its Annual General Meeting of 2001.

According to the said scheme, the Company has granted shares to eligible

Directors/employees from time to time. The details are given below.

Total number of Options granted

2001-02 4,548,9202002-03 80,0002003-04 36,0002004-05 60,0002005-06 10,0002006-07 373,000Total 5,107,920Pricing formula At the fair market value

as on the date of grant

Options vested 112,985Options exercised during 2006-07 (2,552,795)Total number of shares arising as a result of exercise of

options during 2006-07 (2,552,795)Options lapsed 2002-03 129,5202003-04 112,5002004-05 82,2002005-06 87,6002006-07 46,600Total 458,420Variation of terms of options NoneMoney realized by exercise of options Rs. 688,823,187

Total number of options in force 530,485

Employee-wise details of options granted to:

Number of Options

i. Director Nil

ii. Any other employee who receives grant in any one year of option amounting to 5% or more of option granted during that year Nil

iii. Identified employees who were granted option, during any one year, equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the Company at the time of grant Nil

iv. Diluted Earnings Per Share (EPS) pursuant to the issue of shares on exercise of option calculated in accordance with accounting standard 20 ‘Earnings Per Share’ issued by the Institute of Chartered Accountants of India Rs. 43.60

Had compensation cost for the Company’s ESOP been determined based

on fair value at the grant dates, Company’s net income and earnings per

share would have been reduced to pro forma amounts indicated below:

March 31, 2007

Net income as reported 3,546,739Add: Compensation expense included in reported income –

Add: Compensation expense determined using fair value of options (115,596)

Pro forma net income 3,431,143Basic income per shareAs reported 44.82Pro forma 43.36Diluted income per shareAs reported 43.60Pro forma 42.20

The fair value of options was determined using the Black-Scholes model

with the following assumptions:

March 31, 2007

Dividend yield 0.39 %Expected volatility 37 %Risk-free interest rates 6 %Expected life 6.5 years

Details of options issued during FY 2006-07:

Options were issued at market price on May 5, 2006.

Number of options issued 373,000Weighted average exercise price of these options Rs. 1290.85Weighted average fair value of these options

per Black & Scholes model Rs. 596

Human resources

Employees are the key assets of the Company and the Company has

created a healthy and productive work environment which encourages

excellence. Your Company continuously invests in training staff in the

latest technology trends and in various sub-verticals within the financial

services domain.

To deal with the major market opportunities, the Company has invested in

increasing the manpower strength in the product business by 45%, from

2,018 at end of March 2006 to 2,931 at the end of March 2007. Overall,

on a gross basis, it added 3,291 employees in the software and services

business in the financial year. The KPO business of the Company is in an

investment mode and has grown significantly too. Your Company nearly

doubled the strength in this business line to 1,034 from 534 at the end

of March 2006.



Directors’ responsibility statement

As required under Section 217 of the Companies Act, the Directors

hereby confirm that:

i. In preparation of the annual accounts, the applicable accounting

standards have been followed along with proper explanation relating

to material departures;

ii. The Directors have selected such accounting policies and applied

them consistently and made judgments and estimates that are

reasonable and prudent so as to give a true and fair view of the

state of affairs of the Company at the end of the financial year and

of the profit of the Company for that period;

iii. The Directors have taken proper and sufficient care for the

maintenance of adequate accounting records in accordance with

the provisions of this act for safeguarding the assets of the Company

and for preventing and detecting fraud and other irregularities;

iv. The Directors have prepared the annual accounts on a ‘going

concern’ basis.

Directors

Mr. Rajesh Hukku and Mr. William T Comfort, Jr. retire by rotation at the

ensuing Annual General Meeting, and being eligible, offer themselves for

re-appointment.

Pursuant to Section 260 of the Companies Act, 1956,

Mr. N R Kothandaraman (N R K Raman), Mr. Deepak Ghaisas,

Mr. R Ravisankar and Mr. Derek Williams were appointed as additional

Directors of the Company on May 1, 2007. They would hold office up

to the date of the ensuing Annual General Meeting. The Company has

received notices in writing from members proposing their candidatures

for the office of Director.

At the Board Meeting of the Company held on May 1, 2007,

Mr. Rajesh Hukku ceased to be the Managing Director of the Company

and continues as a Director and the Chairman of the Board of Directors. At

that meeting, Mr. N R Kothandaraman (N R K Raman) has been appointed

the Managing Director of the Company, subject to the approval of the

members of the Company and other regulatory authorities, if any.

The Board recommends to the members the resolutions for

re-appointment of Mr. William T Comfort, Jr. and Mr. Rajesh Hukku

and appointment of Mr. N R Kothandaraman (N R K Raman),

Mr. Deepak Ghaisas, Mr. R Ravisankar and Mr. Derek Williams as

Directors/Managing Director.

Brief resume of the Directors proposed to be appointed/re-appointed,

nature of their expertise in specific functional areas and names

of companies in which they hold Directorships and Membership/

Chairmanship of Board Committees, as stipulated under the Listing

Agreement with the Stock Exchanges are provided in the Notice forming

part of the Annual Report.

Auditors

M/s S. R. Batliboi & Associates, the present Statutory Auditors of the

Company, retire at the ensuing Annual General Meeting and have confirmed

their eligibility and willingness to accept office, if re-appointed.

Conservation of energy, technology absorption and foreign

exchange earnings and outgo

The particulars as prescribed under sub-section (1)(e) of Section 217 of

the Companies Act, 1956 read with Companies (Disclosure of particulars

in the Report of Board of Directors) Rules, 1988, the relevant data

pertaining to conservation of energy, technology absorption and foreign

exchange earnings and outgo are furnished hereunder:

a. Conservation of energy

The operations of the Company are not energy-intensive. The Company,

however, takes measures to reduce and optimize energy consumption by

using energy efficient computers, CFL bulbs and ballast-based lighting.

Further, offices have been designed to maximize the use of ambient

lighting while conserving the air conditioning. The expense on power in

relation to income is nominal and under control.

b. Technology absorption

Since businesses and technologies are changing constantly, investment

in research and development activities is of paramount importance. Your

Company lays a great emphasis on knowledge management and has

an institutionalized process for absorption of new technologies. Your

Company continued its focus on quality up-gradation of the software

development process and software product enhancements.

c. Foreign exchange earnings and outgo:


Foreign Exchange Earnings* 14,952Foreign Exchange Outgo (net of recovery) 4,732 (Including capital goods & other expenditure)

*Excluding reimbursement of traveling expenses and interest income

Prospects

The global financial services industry traditionally is the largest purchaser

of information technology and views technology as a major success


factor to drive business growth. The demand for software and services

is very positive and financial institutions across the world are investing

substantially to meet the increased competition, address consolidation,

and comply with demanding regulatory requirements. The need for

replacing core transaction systems is strong and investments in the

risk and governance area are increasing. Financial institutions are also

embracing the latest technology trends driven by the Service Oriented

Architecture (SOA) and modern Internet-based systems.

Your Company is well positioned in the global financial services market

with its comprehensive solutions stack and is further expanding its

portfolio to meet some of the unique opportunities, especially in the

developed market. Notably, your Company vastly expanded its business

solutions portfolio; acquired Mantas to lead its governance solution

footprint; and invested in the development of Islamic Banking to claim

leadership in this market over the year. The alliance network has been

strengthened by signing a unique three-party agreement with IBM and

Oracle. The partnership with Oracle brings a great advantage and your

Company is working more intensively with the global Oracle network and

sales force to open further business opportunities.

Employee particulars

Information pursuant to Section 217(2A) of the Companies Act, 1956,

read with the Companies (Particulars of Employees) Rules, 1975, and

under Section 217 (1)(e) of the said Act, read with the Companies

(Disclosure of Particulars in the Report of Board of Directors) Rules, 1988

to the extent applicable are set out in the Annexure hereto.

Acknowledgements

Your Directors take this opportunity to thank the Company’s customers,

members, vendors and bankers for their continued support during the

year. Your Directors also wish to thank the Government of India and its

various agencies, Department of Electronics, the Software Technology

Parks – Bangalore, Mumbai, Chennai and Pune, the Santacruz Electronics

Export Processing Zone, the Customs and Excise department, Ministry of

Commerce, Ministry of Finance, Ministry of External Affairs, Department

of Telecommunication, the Reserve Bank of India, the State Governments

of Maharashtra, Karnataka, Haryana and Tamil Nadu and other local

Government Bodies for their support, and look forward to their continued

support in the future.

Your Directors also place on record their appreciation for the excellent

contribution made by all employees of i-flex through their commitment,

competence, co-operation and diligence to duty in achieving consistent

growth for the Company.

For and on behalf of the Board,

Rajesh Hukku

Chairman

July 4, 2007



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Sen

ior

Man

ager

B.S

c. (P

CM

), B

.E.

( Ele

ctric

al &

Ele

ctro

nics

) 4

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ovem

ber

15

, 1

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PS

I Dat

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Moh

anS

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r Prin

cipa

l Con

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i-fle

x C

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M.S

c.,

AIC

WA

, P

GD

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(NC

ST)

, FR

M (G

AR

P)

44

Mar

ch 8

, 2

00

11

93

,05

5,4

43

Info

sys

Tech

nolo

gies

Ltd

.7

Bha

tt A

mis

h B

Sen

ior

Man

ager

B.E

. (E

lect

roni

cs),

DM

M3

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ugus

t 2

, 2

00

41

62

,55

8,0

70

Maj

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Sof

twar

e In

c8

Che

riyan

Mon

aS

enio

r M

anag

erB

.A.

HS

M4

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ne 1

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99

32

32

,84

3,6

40

Essa

rs L

td.

9D

ande

kar

Raj

eev

M #

Sen

ior

Man

ager

B.S

c.,

B.S

c. (T

ech)

, G

rad

CW

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3M

arch

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, 2

00

72

02

99

,54

3A

vaya

Inc.

, U

SA

10

Dav

is K

K

Sen

ior

Man

ager

B.C

om.

PG

D P

M &

IR4

8M

ay 1

9, 2

00

42

42

,90

3,7

19

DS

L S

oftw

are

Ltd.

11

Des

hpan

de S

anja

y V

Sen

ior

Man

ager

M.S

c.,

M.B

.A.

45

May

17

, 2

00

52

33

,27

4,1

21

iSm

art

Sol

utio

ns L

td.

12

Dha

vale

Viv

ek V

ittha

lS

enio

r M

anag

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.E.,

PD

GS

T3

4A

ugus

t 4

, 1

99

31

32

,52

1,0

62

–13

Dut

ta B

asu

Sen

ior

Con

sulta

ntM

.Sc.

, M

.B.A

.5

3A

pril

2, 2

00

12

53

,52

3,1

13

AN

Z In

form

atio

n Te

chno

logy

14

Gay

athr

i K H

Sen

ior

Man

ager

B.S

. C

OM

M4

0Ju

ly 1

, 1

99

11

82

,92

6,6

24

Wip

ro In

fote

ch15

Gha

isas

Dee

pak

KC

EO –

Indi

a O

pera

tions

, C

FO a

nd C

ompa

ny S

ecre

tary

A.C

.A,

F.C

.S,

A.I.

C.W

.A4

9Ju

ly 7

, 1

99

32

61

7,7

12

,54

3Ta

ta U

nisy

s Lt

d.16

Gho

sh S

anja

y Kum

arS

enio

r M

anag

erB

.Tec

h.3

5S

epte

mbe

r 1

, 1

99

41

33

,23

6,5

09

–17

Gho

sh A

runa

bha

Sen

ior

Man

ager

B.E

. (E

lect

roni

cs)

36

Sep

tem

ber

1, 1

99

41

32

,91

4,5

21

–18

Gov

ilkar

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ekSr.

Vic

e Pre

side

nt,

Hum

an R

esou

rces

and

Tra

inin

gM

.Tec

h.5

1A

pril

12

, 1

99

42

64

,89

6,8

72

Tata

Uni

sys

Ltd.

19

Gov

inda

n G

opin

ath

Vice

Pre

side

nt,

Cor

pora

te H

RP

GD

M4

2D

ecem

ber

19

, 1

99

41

93

,02

9,7

28

Bro

oke

Bon

d –

Lip

ton

20

Gup

ta A

tul

Sr.

Vic

e Pre

side

nt,

Pro

cess

& Q

ualit

y M

anag

emen

t G

roup

B.T

ech.

, P

GD

M4

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pril

1, 1

99

42

55

,02

1,6

17

Citi

corp

Ove

rsea

s S

oftw

are

Ltd.

21

Gup

ta B

imal

Sen

ior

Man

ager

B.E

. (H

on.)

47

Aug

ust

10

, 1

99

22

42

,83

0,6

68

TVS

Suz

uki L

td.

22

Gup

ta D

as B

uddh

adeb

Sen

ior

Man

ager

B.S

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3Fe

brua

ry 1

1, 1

99

81

92

,82

3,3

88

Tata

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el L

td.

23

Gup

ta K

apil

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Pre

side

nt,

FLEX

CU

BE

Dev

elop

men

tM

.Tec

h.4

3M

arch

21

, 1

99

11

64

,53

7,6

23

Citi

corp

Ove

rsea

s S

oftw

are

Ltd.

24

Gup

ta V

ikra

mVi

ce P

resi

dent

, Priv

ate

Wea

lth M

anag

emen

tB

.E.

43

Apr

il 1

, 1

99

62

04

,62

0,2

91

T S

B B

ank

25

Gur

upra

sad

DS

enio

r M

anag

erB

.E.

(Hon

.) El

ectr

ical

and

Ele

ctro

nics

3

6A

ugus

t 3

, 1

99

21

43

,06

0,5

94

–26

Ham

piha

llika

r Vi

naya

kS

enio

r M

anag

erP

GD

M3

9M

ay 2

0, 2

00

22

03

,85

7,0

63

Hom

e Tr

ade

Ltd.

27

Han

digo

l Rav

iSen

ior

Con

sulta

ntM

PM

& P

GD

M5

8O

ctob

er 1

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00

03

23

,76

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26

Infr

asof

t28

Har

ihar

an S

Sr.

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e Pre

side

nt,

Infr

astr

uctu

re S

ervi

ces

M.E

.5

2O

ctob

er 3

, 1

98

82

94

,93

4,0

00

Citi

corp

Ove

rsea

s S

oftw

are

Ltd.

29

Huk

ku R

ajes

h *

Cha

irman

& M

anag

ing

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ctor

B.E

.4

9M

ay 4

, 1

98

72

83

53

,76

0C

itico

rp O

vers

eas

Sof

twar

e Lt

d.30

Iyer

Mee

naks

hyVi

ce P

resi

dent

, R

evel

eus

Dev

elop

men

tM

.Sc.

42

Mar

ch 1

0, 1

99

31

94

,27

4,3

06

Telc

o31

Jaira

j Thy

agar

ajS

enio

r M

anag

erA

.C.A

. G

rad

C.W

.A.

42

Apr

il 1

5, 2

00

31

62

,78

7,5

51

Am

eric

an E

xpre

ss B

ank

Ltd.

32

John

Jos

eph

Exec

utiv

e Vi

ce P

resi

dent

, B

anki

ng P

rodu

cts

B.E

.5

0D

ecem

ber

15

, 1

98

82

55

,84

7,4

46

Citi

corp

Ove

rsea

s S

oftw

are

Ltd.

33

Jose

ph M

athe

wS

enio

r M

anag

erM

.B.A

.4

6Fe

brua

ry 1

7, 1

99

81

82

,57

9,5

12

Wip

ro34

Kal

e Vi

vek

S $

Sen

ior

Man

ager

MP

HIL

49

July

12

, 2

00

42

96

13

,36

6EI

TL35

Kam

ath

Raj

ani

Sen

ior

Man

ager

B.E

. (E

&C

)4

2Ju

ne 1

, 1

99

21

82

,97

6,1

74

L&T

Com

pute

r C

ente

r36

Kan

ekar

Am

lesh

Bha

lcha

ndra

Sen

ior

Man

ager

B.E

. (E

lect

rical

Eng

inee

ring)

42

Aug

ust

30

, 2

00

42

02

,58

8,8

48

Uni

sys

Cor

pora

tion

37

Kap

oor

Mad

huka

r H

arba

nsla

l S

enio

r M

anag

erB

.E.

( E&

C)

45

Apr

il 2

1, 2

00

42

22

,98

6,0

44

GTL

Lim

ited

38

Ket

kar

Ava

dhut

DC

hief

Acc

ount

ing

Off

icer

A.C

.A.,

L.L

.B.

40

June

3, 1

99

11

63

,21

8,7

71

Citi

corp

Ove

rsea

s S

oftw

are

Ltd.

39

Kin

i Din

akar

Kun

tadi

Sen

ior

Man

ager

B.E

., P

GD

IE (N

ITIE

)4

4Ju

ly 2

6, 1

99

92

02

,99

3,5

76

Logi

ca In

c.40

N R

Kot

hand

aram

an

(N R

K R

aman

)C

hief

Ope

ratin

g O

ffic

erM

.Sc.

49

Oct

ober

7, 1

98

52

79

,34

6,5

66

Dat

amat

ics

Con

sulta

nt

Sta

tem

ent

of p

artic

ular

s of

em

ploy

ees

purs

uant

to

Sec

tion

21

7(2

a) o

f th

e C

ompa

nies

Act

, 1

95

6,

read

with

the

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pani

es (P

artic

ular

s of

Em

ploy

ees)

Am

endm

ent

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es, 1

97

5 a

nd f

orm

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part

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the

Dire

ctor

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t fo

r th

e ye

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ndin

g M

arch

31

, 20

07

Em

ploy

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or w

hole

of

the

year


Sr.

no.

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n &

nat

ure

of d

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s (a

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ch 3

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20

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Age

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e of

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Rem

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atio

n re

ceiv

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s.)

Pre

viou

s em

ploy

er

41

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karn

i Dili

p R

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ianc

e O

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ber

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99

33

33

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16

Citi

corp

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s S

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are

Ltd.

42

Kul

karn

i Gur

unat

hS

enio

r M

anag

erM

.E.

43

June

4, 2

00

11

92

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7,7

21

Dat

amat

ics

Lim

ited

43

Kul

karn

i Man

dar

Dig

amba

r $

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ior

Man

ager

B.E

.3

6A

ugus

t 4

, 1

99

31

42

,80

6,9

91

–44

Kul

karn

i Man

mat

hS

r. V

ice

Pre

side

nt &

Chi

ef A

rchi

tect

, R

etai

l Ban

king

Pro

duct

sM

.Sc.

41

July

16

, 1

98

71

94

,85

1,4

56

Citi

corp

Ove

rsea

s S

oftw

are

Ltd.

45

Kul

karn

i Man

oj N

Sen

ior

Man

ager

B.E

.4

0Fe

brua

ry 6

, 1

99

51

83

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0,7

82

L &

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karn

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arS

r. V

ice

Pre

side

nt,

Ret

ail B

anki

ng P

rodu

cts

B.T

ech,

PG

DM

54

Oct

ober

13

, 2

00

02

54

,53

8,9

93

Opu

s S

oftw

are

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. Lt

d.47

Kum

ar M

Rav

i Vi

ce P

resi

dent

, Fa

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ies

Man

agem

ent

B.S

c.3

9Ju

ne 1

8, 1

99

02

03

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2,7

11

Com

stru

ct S

oftw

are

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ate

Ltd.

48

Kum

ar S

ampa

thS

enio

r M

anag

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MS

39

Febr

uary

12

, 1

99

61

83

,24

5,5

47

Sto

ck H

olid

ing

Cor

p. O

f In

dia

Ltd.

49

Kum

ar S

atis

h G

Sen

ior

Man

ager

B.E

. (E

lect

roni

cs)

46

June

27

, 2

00

11

82

,61

3,9

72

Com

pute

r A

ssoc

iate

s In

dia

Lim

ited.

50

Mah

adev

an P

adm

aSen

ior

Man

ager

M.A

. Ec

onom

ics

52

Aug

ust

25

, 2

00

32

82

,47

3,1

48

Pol

aris

Sof

twar

e La

b Lt

d.51

Mah

adev

an R

avi

Sen

ior

Man

ager

M.S

c.,

AIC

WA

, P

GD

ST

(NC

ST)

, FR

M (G

AR

P)

42

July

1, 1

99

81

92

,96

6,7

12

LIC

Hsg

. Fi

nanc

e Lt

d.52

Mah

adev

an V

Sen

ior

Man

ager

B.S

c. (M

athe

mat

ics)

, M

.C.A

.4

1O

ctob

er 1

1, 1

99

61

72

,55

6,8

75

Firs

t A

mer

ican

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k of

Ken

ya L

td.

53

Mah

esh

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Pre

side

nt,

Prim

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g –

Bus

ines

s In

telli

genc

e G

roup

B.E

., P

GD

M4

4M

ay 1

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99

12

31

,44

1,2

60

Citi

corp

Ove

rsea

s S

oftw

are

Ltd.

54

Mak

hija

Raj

esh

Sen

ior

Con

sulta

ntB

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(Ele

ctro

nics

)3

7O

ctob

er 1

, 1

99

21

73

,26

1,6

38

God

rej a

nd B

oyce

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Mat

hew

Tho

mas

Vice

Pre

side

nt,

Pro

duct

Man

agem

ent

&

Kno

wle

dge

Man

agem

ent

M.B

.A.

51

Aug

ust

2, 1

98

92

73

,84

6,4

28

Citi

corp

Ove

rsea

s S

oftw

are

Ltd.

56

Meh

ta B

hara

tS

enio

r M

anag

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.Com

., L

.L.B

.3

4Ja

nuar

y 1

5, 1

99

71

42

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6,3

56

Ses

han

Sub

ram

ania

n &

Ass

ocia

tes

57

Mitr

a R

ajee

v #

Sen

ior

Man

ager

MS

(Com

p. S

c.)

40

Apr

il 1

7, 2

00

61

91

,93

3,0

84

AXA

Fin

anci

al58

Mon

dal P

inak

iS

enio

r M

anag

erB

.Tec

h.,

PG

DM

39

Nov

embe

r 1

5, 2

00

11

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9,4

26

Citi

bank

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.59

Moo

nim

Mus

tafa

Sen

ior

Man

ager

M.B

.A.

40

Nov

embe

r 1

0, 1

99

81

73

,27

9,9

44

Info

rmix

Inte

rnat

iona

l Ltd

.60

Mur

alid

har

Min

i SS

enio

r M

anag

erM

.Sc.

, P

GD

IM

45

Febr

uary

2, 2

00

41

92

,48

0,7

83

DS

L S

oftw

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61

Mur

thy

Sun

il K

rishn

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enio

r M

anag

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(Mec

hani

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ter

of S

cien

ce

(Com

pute

r In

form

atio

n S

cien

ces)

44

Aug

ust

12

, 2

00

51

92

,64

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73

Juni

per

Net

wor

ks, In

c.

62

Nai

r R

ajku

mar

VS

enio

r M

anag

erP

GD

M4

4Ju

ne 1

, 1

98

91

83

,42

0,5

02

Citi

corp

Ove

rsea

s S

oftw

are

Ltd.

63

Nar

asim

han

GVi

ce P

resi

dent

, C

usto

mer

Ful

film

ent –

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ope

& A

fric

aC

AIIB

44

Mar

ch 1

1, 1

99

31

93

,94

4,6

40

Sta

te B

ank

Of

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asim

han

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ce P

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dent

, C

usto

mer

Ful

film

ent –

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a P

acifi

c,

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a &

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dle

East

MFM

45

Sep

tem

ber

1, 1

99

32

24

,43

0,6

85

Can

ara

Ban

k

65

Nat

araj

an K

iran

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ior

Man

ager

B.E

. (In

form

atio

n En

gine

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g),

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.A3

7Fe

brua

ry 1

4, 2

00

51

42

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1,1

62

TREM

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an P

V J

ambu

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ce P

resi

dent

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twar

e Q

ualit

y A

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ance

B.E

., M

.P.I.

B4

3S

epte

mbe

r 1

, 1

99

71

93

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6,9

02

Nat

iona

l Ban

k of

Om

an, O

man

67

Nat

araj

an S

Sen

ior

Man

ager

M.B

.A.

36

May

24

, 1

99

91

42

,40

7,5

90

Sto

ck H

oldi

ng C

orpo

ratio

n of

Indi

a Lt

d.68

Ohr

ie S

heen

amS

enio

r M

anag

erB

.E.

(ELE

C)

38

Sep

tem

ber

1, 1

99

21

43

,13

3,6

17

–69

Pad

alka

r M

akar

and

SC

hief

of

Sta

ff a

nd In

vest

or R

elat

ions

M.T

ech.

48

Aug

ust

16

, 1

99

42

34

,92

3,0

41

Tata

Uni

sys

Ltd.

70

Pad

man

abha

n Srid

har

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Pre

side

nt –

Ent

erpr

ise

Aut

omat

ion

Mas

ter

Of

Engi

neer

ing

(IIS

c)5

1Ju

ne 2

3, 1

99

92

63

,53

2,6

52

KP

MG

Indi

a P

vt L

td.

71

Pat

tam

ada

Med

apa

Aya

nna

Sen

ior

Man

ager

M.B

.A.

(Fin

ance

), B

.Sc

(PC

M)

42

Aug

ust

23

, 2

00

41

72

,72

4,9

91

Pro

vidu

s R

isk

Man

agem

ent

Sol

utio

ns72

Per

ez G

ratia

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ce P

resi

dent

, C

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rate

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s at

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r. R

ajes

h H

ukku

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R R

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anka

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The detailed report on Corporate Governance for the financial year

April 1, 2006 to March 31, 2007 as per the format prescribed by SEBI

under Clause 49 of the Listing Agreement is set out below:

1. Company’s philosophy on code of governance

The Company believes in adopting and adhering to all the globally

recognized corporate governance practices and continuously

benchmarking itself against each such practice. The Company

understands and respects its fiduciary role and responsibility to the

members and strives hard to meet their expectations.

2. Board of Directors

2.1 Composition and category

The composition of the Board of the Company as of March 31, 2007,

was as given below:

Corporate governance report

Name Designation Category Directorships in other

Companies

Chairpersonship of Committees

of Boards of other

Companies

Membership of Committees

of Boards of other

CompaniesMr. Rajesh Hukku Chairman and

Managing DirectorExecutive, Non-Independent Director

3 Nil NilMr. S P Bharucha Director Non-Executive, Independent Director 1 Nil NilMr. William T Comfort, Jr. Director Non-Executive, Independent Director 3 Nil NilMr. Y M Kale Director Non-Executive, Independent Director 2 Nil NilMr. Charles Phillips Director Non-Executive, Non-Independent Director 3 Nil 1Ms. Tarjani Vakil Director Non-Executive, Independent Director 7 3 2

Consequent to the induction of Mr. Deepak Ghaisas, Mr. R Ravisankar, Mr. N R Kothandaraman (N R K Raman) and Mr. Derek Williams on the Board of

the Company on May 1, 2007, the newly constituted Board of the Company is as under:

Name Designation Category

Mr. Rajesh Hukku* Chairman Non-Executive, Non-Independent DirectorMr. R Ravisankar** Vice Chairman Executive, Non-Independent DirectorMr. Deepak Ghaisas*** Vice Chairman Executive, Non-Independent DirectorMr. N R Kothandaraman (N R K Raman)**** Managing Director Executive, Non-Independent DirectorMr. Derek Williams***** Director Non-Executive, Non-Independent DirectorMr. S P Bharucha Director Non-Executive, Independent DirectorMr. William T Comfort, Jr. Director Non-Executive, Independent DirectorMr. Y M Kale Director Non-Executive, Independent DirectorMr. Charles Phillips Director Non-Executive, Non-Independent DirectorMs. Tarjani Vakil Director Non-Executive, Independent Director

* As of May 1, 2007, Mr. Rajesh Hukku has ceased to be the Managing Director of the Company and continues as the Non-Executive Chairman of the Company.

** The Board of Directors of the Company, in their meeting held on May 1, 2007, has appointed Mr. R Ravisankar as an Additional Director and Vice Chairman of the

Company.

*** The Board of Directors of the Company, in their meeting held on May 1, 2007, has appointed Mr. Deepak Ghaisas as an Additional Director and Vice Chairman of the

Company.

**** The Board of Directors of the Company, in their meeting held on May 1, 2007, has appointed Mr. N R Kothandaraman (N R K Raman) as an Additional Director and

Managing Director of the Company.

***** The Board of Directors of the Company, in their meeting held on May 1, 2007, has appointed Mr. Derek Williams as an Additional Director of the Company.

2.2 Attendance of each Director at the Board Meetings and the

last Annual General Meeting

The Company holds regular Board Meetings. The detailed agenda along

with the explanatory notes is circulated in advance. The Directors can

suggest inclusion of any item(s) in the agenda at the Board Meeting.

The Independent Directors actively participate in the Board Meetings

and contribute significantly by expressing their opinions, views and

suggestions in the decision process.

During the Financial Year 2006-2007, 9 Board Meetings were held on

the following dates:

May 5, 2006, July 6, 2006, July 28, 2006, August 10, 2006,

August 14, 2006, September 14, 2006, October 20, 2006,

November 9, 2006 and January 19, 2007.

The attendance of the Directors at the Board Meetings and the

Annual General Meeting of the Company held during the financial year

2006-2007 was as given below:

Name of the Director Number of Board

Meetings attended

Number of Board Meetings attended

Last AGM Attended

In person On phone/video

conference

Mr. Rajesh Hukku 9 7 2 YesMr. S P Bharucha 8 8 0 YesMr. William T Comfort, Jr. 8 3 5 Yes

Mr. Y M Kale 9 9 0 YesMr. Charles Phillips 9 3 6 YesMs. Tarjani Vakil 9 9 0 Yes


2.3 Details of other directorships

Details of the Directorships of the Company’s Directors in other companies

as on March 31, 2007 are given below:

Name of the DirectorOther directorships held as on March 31, 2007

Mr. Rajesh Hukku i-flex solutions inc.i-flex America inc. i-flex Processing Services Limited

Mr. S P Bharucha Press Trust of India Ltd.

Mr. William T Comfort, Jr. 399 Venture Partners Inc.Citigroup Venture Capital Ltd.Court Square Capital Ltd.

Mr. Y M Kale Ashok Leyland Ltd. (Alternate Director)Ennore Foundries Ltd. (Alternate Director)

Mr. Charles Phillips Oracle CorporationViacom Inc.Morgan Stanley

Ms. Tarjani Vakil Asian Paints Ltd.Alkyl Amines Chemicals Ltd.Aditya Birla Nuvo Ltd.Mahindra Intertrade Ltd.D S P Merrill Lynch Trustee Co. Pvt. Ltd.Idea Cellular Ltd.Idea Mobile Communications Ltd.

2.4 Details of memberships of Board Committees

None of the Directors of the Company holds memberships of more

than ten committees nor is any Director a Chairperson of more than

five Committees of the Boards of the Companies where he/she holds

directorship. For this purpose, “Committees” comprise of Audit

Committee, Compensation Committee and Shareholders’ Grievances

Committee of a company.

The details of the memberships of the Company’s Directors in the

abovementioned committees of all the Companies of which they are

members as on March 31, 2007 are given below:

Name of the Director

Audit Committee

Compensation Committee

Shareholders’ Grievances Committee

Member Chair-person

Member Chair-person

Member Chair-person

Mr. Rajesh Hukku Nil Nil Nil Nil Nil Nil

Mr. S P Bharucha 1 Nil Nil Nil Nil Nil

Mr. William TComfort, Jr. 1 Nil Nil 1 Nil Nil

Mr. Y M Kale Nil 1 1 Nil Nil NilMr. Charles Phillips 1 Nil 1 Nil Nil Nil

Ms. Tarjani Vakil 3 3 1 Nil Nil 1

2.5 Brief resume of Directors who will be retiring by rotation at

the ensuing Annual General Meeting of the Company and, being

eligible, offer themselves for re-appointment

Mr. Rajesh Hukku

Mr. Rajesh Hukku is the Chairman of i-flex® solutions. Rajesh is head of

Oracle’s Financial Services Global Business Unit (FSGBU), headquartered

in New York. The FSGBU will draw on Oracle’s global footprint and i-flex’s

comprehensive portfolio solutions and domain expertise in the financial

services industry, to provide integrated solutions to financial institutions

around the world.

Since donning the mantle of Chief Executive Officer – i-flex solutions, in

1992, Mr. Hukku has architected the success story of the company-from

a player primarily in the emerging markets, to India’s first global software

product Company and the leading IT solutions provider to the financial

services industry in the world today. In 2000, Rajesh was appointed

Chairman and Managing Director of i-flex solutions. Under his leadership,

i-flex became the only organization in the Indian IT industry to place itself

on the global map with a ‘Made in India’ brand.

FLEXCUBE’s consistent ranking as the No.1 banking solution in the world

by IBS (International Banking Systems), UK, for five consecutive years,

bears a strong testimony to the company’s leadership stature in the

industry. In addition, i-flex has built a comprehensive portfolio of products

and service offerings that include the highly acclaimed Reveleus™ suite

for Basel II and Operational Risk, PrimeSourcing™, and i-flex Consulting™

that are geared towards the banking and financial services industry.

Transformation has been the leitmotif of Rajesh’s contribution to the Indian

IT industry. His relentless pursuit of creating the first product success on

the global center-stage has created a sharp distinction amidst a crowd

of traditional IT services providers. He also piloted i-flex to a thought

leadership stature and mentored a host of small and medium companies

who aspired to create new products and emulate i-flex’s proven business

model.

For his role in scripting i-flex’s growth, Mr. Hukku was conferred the

prestigious Ernst & Young ‘Entrepreneur of the Year Award 2002’ in the

Information Technology, Communications and Entertainment category.

He is also the recipient of the renowned International Stevie Award in

the ‘Best Chairman’ category. More recently, he was recognized as one

among the Outstanding 50 Asian Americans in Business by the Asian

American Business Development Center.

Rajesh received the Government of India’s most prestigious IT award - ‘The

Dewang Mehta award for innovation in IT’ in 2003. He also received the

2004 Global Entrepolis Award, an honor bestowed on Asia’s emerging

technopreneurs. For his contribution to IT transformation in Chile, he was

awarded the highest civilian honor bestowed on a foreign national - the

‘Order Bernardo O Higgins - Great Official’ by the Government of Chile

in 2004.

Rajesh has championed India Inc.’s expansion into new geographies

and service lines, and served on the NASSCOM (National Association of

Software and Service Companies, India) Executive Committee. Recognized

as a visionary entrepreneur, he has spoken at the World Economic Forum



Summit, the Asia-Pacific Leadership Summit, Harvard Business School

and various prestigious banking forums, including the World Congress of

Bankers in Jamaica and the Latin American Business Convention.

i-flex’s unique business model and Rajesh’s vision for the financial

services industry have been lauded and written about in many leading

publications like The Economist, The Wall Street Journal, The Far Eastern

Economic Review, and Knowledge@Wharton.

Mr. Hukku holds 676,524 equity shares of the face value of Rs. 5/- of

the Company as on date.


Mr. William T Comfort, Jr. has been Chairman of Citigroup Venture

Capital, the private equity arm of Citigroup specializing in leveraged

buy-outs, since 1979. He is also a Citigroup representative on the

investment committee of Stirling Square Capital Partners. Mr. Comfort

joined Citigroup in 1973 and has been the Executive Director of Citicorp

International Bank, Ltd. in London and Head of Corporate Finance at

Citibank, N.A.

Mr. Comfort received his B.A. and LL.B. at the University of Oklahoma

and an LL.M. at New York University Law School. He is a trustee of

the New York University Law Center Foundation, the John A. Hartford

Foundation, Inc., and was an adjunct professor at the Columbia Business

School.

Mr. Comfort does not hold any equity shares of the Company as on

date.

2.6 Brief resume of new Directors proposed to be appointed at the

ensuing Annual General Meeting of the Company

Mr. R Ravisankar

Mr. R Ravisankar is Vice-Chairman, i-flex® solutions, and a part of the

leadership team of Oracle’s newly formed Financial Services Global

Business Unit (FSGBU).

Shanx, as he is popularly known, is a founding member of i-flex, and

has over 23 years of experience in management consulting, information

technology and business management. He has led i-flex’s products

and services business, technology and architecture, global sales and

marketing and corporate development functions, including new lines of

business, over the past two decades.

Beginning his career at i-flex in 1993 (originally COSL/CITIL, where he

executed a number of assignments, primarily, for Citibank, since 1987)

he headed the IT Services business, conceptualizing, strategizing and

winning customers, while helping the business grow rapidly over the

years.

In 1997, he took over as the Chief Executive Officer of the Company

and was instrumental in transforming i-flex into a fast-growing, highly

successful products and services Company, winning customers around

the globe. As part of the Executive Management Office at i-flex solutions,

Shanx is credited with envisioning i-flex’s technology leadership,

branding and alliances, overseas expansion and M&A strategies. He

relocated to the USA in 2000 as Chief Executive Officer (International

Operations and Technology), with the responsibility of managing i-flex’s

products and services businesses, the subsidiaries abroad, and new

business acquisitions in the USA. He later managed the business

development portfolio while continuing to execute his responsibilities as

CEO - i-flex solutions inc.

He enjoys teaching and exchanging ideas on banking and technology and

has presented i-flex’s global product software success story in various

industry forums like NASSCOM and CII. Leading media organizations

such as CNBC, NDTV, The Economic Times, The Times of India, Business

Today, and a host of other publications, have also profiled Shanx.

Mr. R Ravisankar holds 366,400 equity shares of face value of Rs. 5/- of


Mr. Deepak Ghaisas

Mr. Ghaisas is Vice-Chairman, i-flex solutions, and a part of the


Business Unit (FSGBU). In his new role, he will provide the unit with

his in-depth knowledge, commitment, and experience. Mr. Ghaisas’s

expertise spans areas such as business management and management

accounting; techno-legal-commercial areas of information technology,

risk management, corporate governance, legal affairs, and contract

negotiations. Mr. Ghaisas’s ability, which transformed and shaped

i-flex’s successful financial performance, will now guide the FSGBU to a

high level of growth and recognition.

As Chief Executive Officer (India operations) and Chief Financial Officer

from 1997 to April, 2007, Mr. Ghaisas was credited for playing a

large role in creating, selling, and driving the organization’s strategy.

As a spokesperson for the organization in its early years, Mr. Ghaisas

demonstrated a deep confidence in i-flex’s potential for the global

market, and provided the organization with a focus and clarity of direction

that it needed.

Recently, Mr. Ghaisas was elected for the third time to the executive

council of NASSCOM. He is also the chairman of the IT Committee of

Confederation of Indian Industry (CII); and, a member of the Committee of

the Indian Institute of Bankers - constituted for the purpose of drafting the

curriculum for Information System Audit course for bankers.

Another measure of his visionary strategy and evangelistic style is

showcased in his role as Vice-President of the Maharashtra Economic

Development Corporation (MEDC), a governing body which actively

participates in the decision-making process for the economic development

of Maharashtra, India. He is also a member of the Internet Banking

Committee of the Reserve Bank of India - the body that formulated

guidelines on Internet banking and security in India.

Mr. Ghaisas holds 456,269 equity shares of face value of Rs. 5/- of the

Company as on date.

Mr. N R Kothandaraman (N R K Raman)

Mr. Raman is the Managing Director and Chief Executive Officer,

i-flex solutions. As CEO, he is not only responsible for advancing i-flex’s

mission of being the leading IT solutions provider to the financial

services industry worldwide, but is also the focal point for providing the

organization with focus and clarity of direction to employees. As global

markets get more competitive, and growth of technology faster-paced,

the requirements to meet success and the risks are greater than before;

it is Mr. Raman’s responsibility to maintain and implement corporate

objectives as established by i-flex’s Board. In short, Mr. Raman functions

as the main link between Board members and the various levels of the

organization.

Mr. Raman has held various positions in i-flex since he joined the Company

in 1985. He most recently was Chief Operating Officer responsible for

the development strategy and global delivery of i-flex’s products and

services divisions. He managed all aspects of operations, including


human resource development, process, and quality management, and

served as one of the key leaders in directing technology strategies and

goals for strategic business units in the Company. Earlier, as Senior

Vice-President - Global Sales, he was responsible for the entire gamut of

sales operations across five regions.

Mr. Raman holds a master’s degree in Physics, with a specialization

in Electronics. He is also a certified Citicorp Finance Professional.

Recently in June 2006, he completed an executive education program

on ‘Strategy: Building and Sustaining Competitive Advantage’ at Harvard

Business School.

Mr. Raman is a recognized speaker at various IT discussions; and has been

part of many panels, including ‘IT in India: a Social Audit’, ‘IT Innovation

in India’ and ‘Strategy to Accelerate Growth of Indian IT Industry’. He has

also spoken at the Forum for Science and Development, and at the Bank

of America-hosted, ‘Perspectives - The Evolving Landscape’. Recently,

he was part of the prestigious ‘CII Governance Series’, organized by the

Government of Karnataka, India.

Mr. Raman holds 114,000 equity shares of face value of Rs. 5/- of the

Company as on date.

Mr. Derek Williams

Derek Williams is the Chairman and Executive Vice-President of Oracle

Corporation, Asia Pacific and Japan. Mr. Williams has been at the helm

of Oracle’s Asia Pacific and Japan operations since it was established

in 1991.

He also played a pivotal role in building a strong presence throughout

Asia by adopting a strategy of partnering closely with local companies

and providing software and support for companies of all sizes. Among his

key accomplishments is the development of Oracle’s presence in China

and India.

Mr. Derek Williams does not hold any equity shares of the Company as

on date.

3. Audit committee

3.1 Primary objectives and powers of the audit committee

The primary objective of Audit Committee is to monitor and provide

effective supervision of the management’s financial reporting process

and to ensure accurate, timely and proper disclosures and transparency,

integrity and quality of financial reporting. The powers of the Audit

Committee include the following:

1. To investigate any activity within its terms of reference.

2. To seek information from any employee.

3. To obtain outside legal or other professional advice.

4. To secure attendance of outsiders with relevant expertise, if it

considers necessary.

3.2 Broad terms of reference

The terms of reference of the Audit Committee are as follows:

1. Oversight of the Company’s financial reporting process and the

disclosure of its financial information to ensure that the financial

statement is correct, sufficient and credible.

2. Recommending to the Board, the appointment, re-appointment and,

if required, the replacement or removal of the statutory auditor and

the fixation of audit fees.

3. Approval of payment to statutory auditors for any other services

rendered by the statutory auditors.

4. Reviewing, with the management, the annual financial statements

before submission to the Board for approval, with particular

reference to:

a. Matters required to be included in the Director’s Responsibility

Statement to be included in the Board’s report in terms of

clause (2AA) of Section 217 of the Companies Act, 1956

b. Changes, if any, in accounting policies and practices and

reasons for the same

c. Major accounting entries involving estimates based on the

exercise of judgment by management

d. Significant adjustments made in the financial statements arising

out of audit findings

e. Compliance with listing and other legal requirements relating to

financial statements

f. Disclosure of any related party transactions

g. Qualifications in the draft audit report.

5. Reviewing, with management, the quarterly financial statements

before submission to the Board for approval.

6. Reviewing, with management, the performance of statutory and

internal auditors and the adequacy of the internal control systems.

7. Reviewing the adequacy of the internal audit function including the

structure of the internal audit department, staffing and seniority of

the official heading the department, reporting structure coverage

and frequency of internal audit.

8. Discussion with internal auditors regarding any significant findings

and any follow-up required.

9. Reviewing the findings of any internal investigations by the internal

auditors into matters where there is suspected fraud or irregularity

or a failure of internal control systems of a material nature and

reporting the matter to the Board.

10. Discussion with statutory auditors, before the audit commences,

about the nature and scope of the audit as well as post-audit

discussion to determine any area of concern.

11. To determine the reasons for any substantial defaults in the payment

to depositors, debenture holders, members (in case of non payment

of declared dividends) and creditors.

12. To review the functioning of the Whistle Blower function.

13. Carrying out any other function as is mentioned in the terms of

reference of the Audit Committee.

3.3 Composition of the committee

The Composition of Audit Committee as on March 31, 2007 was as

follows:

Mr. Y M Kale Chairman, Non-Executive, Independent Director

Mr. S P Bharucha Member, Non-Executive, Independent Director

Mr. William T Comfort, Jr. Member, Non-Executive, Independent Director

Ms. Tarjani Vakil Member, Non-Executive, Independent Director

3.4 Meetings and attendance

During the Financial Year 2006-2007, six meetings of the Committee

were held on April 25, 2006, May 4, 2006, July 26, 2006,

August 10, 2006, October 18, 2006 and January 19, 2007.



The member’s attendance at the Committee Meetings was as given

below:

Name Number of meetings attended In person On phone

Mr. Y M Kale 6 –Mr. S P Bharucha 4 –Mr. William T Comfort, Jr. 2 1Ms. Tarjani Vakil 6 –

The auditors of the Company were also invited for the meetings.

3.5 Audit committee’s recommendations:

The Committee reviewed the financial results of the Company prepared in

accordance with Indian GAAP (including consolidated results) and US GAAP

as at and for the periods ended June 30, 2006, September 30, 2006,

December 31, 2006 and March 31, 2007 and recommended the same

to the Board of Directors for their adoption.

The Committee recommended to the Board of Directors the re-appointment

of M/s S. R. Batliboi & Associates, Chartered Accountants, as statutory

auditors of the Company for the financial year 2007-2008.

The Committee also recommended the re-appointment of internal

auditors to conduct the internal audit for the financial year 2007-2008.

The Committee reviewed Internal Auditors’ reports and related reports

on actions taken, utilization of IPO proceeds, risk management policies,

compliance with the Clause 49 of the Listing Agreement, etc. from time

to time.

4. Compensation committee

4.1 Brief description of terms of reference

The scope of Compensation Committee is to determine the compensation

of the Executive Management Officers (EMOs). The EMOs in turn, decide

the compensation of key managerial personnel and other employees of

the Company. The Compensation Committee also approves, allocates and

administers the Employee Stock Option Plan 2002, reviews performance

appraisal criteria and sets norms for ESOP allocation.

4.2 The composition of compensation committee as on

March 31, 2007 is as follows:

Mr. William T Comfort, Jr. Chairman, Non-Executive, Independent Director

Mr. Y M Kale Member, Non-Executive, Independent Director

Mr. Charles Phillips Member, Non-Executive, Non-Independent Director

4.3 Meeting and attendance

The Committee met once during the year and the meeting was attended

by all the members.

4.4 Compensation policy

The Compensation Committee determines and recommends to the Board

the compensation payable to the Directors. The limit for the commission

to be paid to the Board members and the remuneration payable to the

Managing Director of the Company are approved by the members of the

Company. The annual compensation of the Non-Executive Directors is

approved by the Compensation Committee, within the parameters set by

the members at the members’ meetings.

The Committee also has the mandate to review and recommend

compensation payable to the Senior Executives of the Company. It also

sets norms for ESOP allocation.

4.5 Details of remuneration paid to the Directors during the financial year 2006-07 are as follows:

Name of Director ESOPs granted under ESOP

Plan

Commission paid (Rs. ‘000)

Salary (Rs. ‘000)

Contribution to PF (Rs. ‘000)

Total Amount paid (Rs. ‘000)

Mr. Rajesh Hukku* Nil Nil 330 24 354Mr. S P Bharucha Nil 800 Nil Nil 800Mr. William T Comfort, Jr. Nil Nil Nil Nil NilMr. Y M Kale Nil 1,200 Nil Nil 1,200Mr. Charles Phillips Nil Nil Nil Nil NilMs. Tarjani Vakil Nil 900 Nil Nil 900Total Nil 2,900 330 24 3,254

* Mr. Rajesh Hukku is deputed to i-flex solutions inc., USA. His gross compensation comprising of fixed salary and variable performance based remuneration from

i-flex solutions inc. for the financial year 2006-07 was USD 952,800. In addition, Mr. Hukku was paid a salary as mentioned in the table above for his services as the

Managing Director of the Company.

There were no sitting fees and/or perquisites applicable and paid to the Directors during the financial year 2006-2007 except as stated above.


The terms of Employee Stock Purchase Scheme grants made to the Directors are given below.

Name of Director Scheme # of offered shares outstanding

as at March 31, 2007

Offered shares exercised during

the year

Grant price (Rs.) Expiry Date

Mr. Rajesh Hukku ESPS 1998 Nil 132,724 25.00 December 31, 2008Mr. Rajesh Hukku ESPS 2000 Nil 134,400 112.50 December 31, 2010

The above shares were offered at Fair Market Value on the dates of grant. The Director becomes entitled to purchase the shares in a phased manner over

a period of 5 years from the date of grant based on continued Directorship/employment with the Company.

The terms of Employee Stock Options granted to the Directors are given

below.

Name of Director # of options outstanding

as on March 31, 2007

Options exercised

during the year

Grant price (Rs.)

Expiry Date

Mr. Rajesh Hukku Nil 409,400 265.00 March 3, 2012Mr. S P Bharucha 8,000 2,000 708.65 June 13, 2015Mr. Y M Kale 2,000 4,000 418.92 February 17, 2013Ms. Tarjani Vakil 6,000 2,000 559.60 August 17, 2014

The above options were issued at Fair Market Value on the dates of grant.

The options vest over a period of 5 years from the date of grant and are

subject to continued Directorship/employment with the Company.

During the financial year 2006-07, the Executive Director of the

Company was paid a compensation within the limits envisaged in the

Companies Act, 1956. Non-Executive, Independent Directors of the

Company were paid remuneration by way of commission as approved by

the Board of Directors/members of the Company subject however to the

condition that the commission should not exceed 1% of the net profits

of the Company for all the Non-Executive Directors in aggregate in one

financial year.

5. Shareholders’ grievances committee

5.1 Composition of the Committee

The composition of Shareholders’ Grievances Committee as on

March 31, 2007 was as follows:

Ms. Tarjani Vakil Chairperson, Non-Executive, Independent Director

Mr. Deepak Ghaisas*CEO – India Operations, CFO and Company Secretary

* On May 1, 2007, Mr. Ghaisas was appointed as Vice Chairman of the Board of

Directors of the Company.

5.2 Scope of shareholders’ grievances committee’s activities

The scope of the Shareholders’ Grievances Committee is to review and

address the grievances of the members in respect of share transfers,

transmission, dematerialization and rematerialization of shares and other

share related activities.

During the year the Committee held four meetings on April 20, 2006,

August 10, 2006, October 12, 2006 and February 28, 2007 which were

attended by both the members of the Committee.

5.3 Company secretary

Name of Company Secretary Mr. Deepak GhaisasAddress i-flex solutions ltd

i-flex Center399, Subhash RoadVile Parle (East)Mumbai 400 057

Tel +91-22-6718 5000Fax +91-22-2832 3374

5.4 Compliance officer

Name of Compliance Officer Mr. Avadhut (Vinay) KetkarAddress i-flex solutions ltd

i-flex Center399, Subhash RoadVile Parle (East)Mumbai 400 057

Tel + 91-22-6718 5000Fax + 91-22-2832 3374e-mail [email protected]

5.5 Details of shareholders’ complaints received, resolved

during the year 2006-2007 and pending share transfers as on

March 31, 2007.

Nature of complaints Opening balance

Received Cleared Pending

Non receipt of warrant 1 23 24 0Non receipt of certificate 0 6 6 0Non receipt of demat credit/rej. 0 56 56 0Sebi/stock exchange/MCA 0 14 14 0Legal 0 1 1 0Others 0 4 4 0

Number of pending share transfers as on March 31, 2007 – One.



6. General body meetings

6.1 Location, date and time where last three Annual General

Meetings were held

Financial Year Venue Date Time

2005-2006 The Leela Kempinski, Sahar, Andheri (East) Mumbai 400 059

August 10, 2006 3.00 p.m.

2004-2005 Le Royal Meridian, Sahar Airport Road Andheri (East) Mumbai 400 059

August 12, 2005 3.00 p.m.

2003-2004 The Leela, Near Sahar Airport, Andheri (East), Mumbai 400 059

August 19, 2004 3.00 p.m.

6.2 There were no matters requiring approval of the members

through Postal Ballot in any of the previous three Annual General

Meetings of the Company.

7. Disclosures

a. All the relevant information in respect of materially significant

related party transactions, i.e., transactions of the Company of

material nature with its promoters, directors or management or their

relatives, subsidiaries of the Company, etc. has been disclosed in

the respective financial statements presented in the Annual Report.

The Company did not undertake any transaction with any related

party having potential conflict with the interest of the Company at

large.

b. The Company has complied with statutory compliances and

no penalty or stricture is imposed on the Company by the Stock

Exchanges or Securities and Exchange Board of India (SEBI) or any

other statutory authority on any matter related to the capital markets

during the last three years.

c. The Company has a Whistle Blower Policy which provides an

avenue for employees to raise concerns of any violations of Code of

Conduct, incorrect or misrepresentation of any financial statements

and reports, unethical behavior, etc. The policy provides adequate

safeguards to employees reporting such violations to the Company.

No employee has been denied access to the Audit Committee.

d. The Board has laid down Codes of Conduct for the Board of

Directors and Senior Management Personnel of the Company.

These Codes have been posted on the Company’s website

www.iflexsolutions.com.

e. In accordance with SEBI’s Regulations on prevention of Insider

Trading, the Company has laid down the policy and procedures for

prevention of Insider Trading for its designated employees.

8. Means of communication

8.1 The quarterly, half yearly and annual results of the Company were

published in English and Marathi newspapers.

8.2 Company organized investor conference calls to discuss its financial

results every quarter where the investor queries were answered by

the Executive Management Officers of the Company.

8.3 Company’s periodic financial results, press releases and transcripts

of the investor conference calls are posted on the Company’s

website www.iflexsolutions.com.

8.4 Detailed Management Discussion and Analysis Reports covering

Indian GAAP and US GAAP financials have been included in this

Annual Report.

8.5 The Company has also posted information relating to its financial

results and Distribution of shareholding on a quarterly basis on

Electronic Data Information Filing and Retrieval System (EDIFAR)

http://sebiedifar.nic.in.

9. General shareholder information

Annual General Meeting Date August 24, 2007Time 3.00 p.m.Venue InterContinental

The Grand Mumbai, Sahar Airport Road, Mumbai 400 059

Financial Year April 1 to March 31

Date of Book Closure August 20, 2007 to August 24, 2007 (both days inclusive)

Listing on Stock Exchanges at Bombay Stock Exchange Limited (BSE); and National Stock Exchange of India Ltd. (NSE)

Stock CodeBombay Stock Exchange Ltd (BSE) 532466National Stock Exchange of India Ltd. (NSE) I-FLEX


10. Market price data

Monthly high/low of the shares of the Company from April 1, 2006 to March 31, 2007 are given below:

Month and Year High (Rs.) Low (Rs.) Volume of Shares High (Rs.) Low (Rs.) Volume of SharesBSE NSE

April 2006 1,475.00 1,123.00 3,294,136 1,456.90 1,132.00 5,092,121May 2006 1,395.00 950.00 772,201 1,350.00 950.00 3,163,093June 2006 1,170.00 840.00 424,718 1,185.00 832.00 1,638,747July 2006 1,380.00 1,040.45 1,811,221 1,372.95 1,100.00 5,164,832August 2006 1,473.85 1,243.05 1,329,865 1,543.40 1,260.00 5,266,673September 2006 1,480.00 1,405.05 272,057 1,469.90 1,375.30 1,366,077October 2006 1,580.55 1,425.00 827,274 1,580.00 1,425.50 3,283,035November 2006 1,660.00 1,413.95 701,354 1,659.90 1,479.00 3,032,472December 2006 2,068.90 1,603.05 3,421,262 2,090.00 1,601.00 11,518,813January 2007 2,174.00 1,880.00 270,730 2,170.00 1,930.15 1,197,399February 2007 2,015.00 1,880.00 111,087 2,224.30 1,760.00 779,746March 2007 2,090.00 1,820.00 147,431 2,099.00 1,801.00 605,337

Relative movement chart

The chart above gives the relative movement of the closing prices of

the Company’s share and BSE Sensex relative to the closing prices. The

period covered is June 28, 2002 to July, 4 2007.

11. Registrars and transfer agent

Name Intime Spectrum Registry Limited

Address C-13, Pannalal Silk Mills Compound L. B. S. Marg, Bhandup (West), Mumbai 400 078

Tel +91-22- 2596 3838Fax +91-22- 2596 2691e-mail [email protected] 203, Davar House, 197/199 D. N. Road, Fort,

Mumbai 400 001Tel +91-22- 2269 4127

12. Share transfer system

The Registrar and Transfer Agent (“the Registrar”), on receipt of transfer

deed with respective share certificate(s), scrutinizes the same and

verifies signature(s) of transferor(s) on the transfer deed with specimen

signature(s) registered with the Company. A list of such transfers is

prepared and checked thoroughly and a transfer register is prepared.

The transfer register is placed before the Transfer Committee Meeting

for approval, which meets at regular intervals.

During the last financial year 107,200 equity shares were transferred in

physical mode.



13. Distribution of shareholding as on March 31, 2007

Shares of nominal value of (Rs.) Number of Shareholders % Share amount (Rs.) % to Equity

UPTO 2,500 12,675 87.25 3,154,020 0.752,501 – 5,000 405 2.79 1,596,360 0.385,001 – 10,000 397 2.73 3,056,120 0.7410,001 – 20,000 369 2.54 5,667,920 1.3620,001 – 30,000 153 1.05 3,875,470 0.9330,001 – 40,000 133 0.92 4,673,070 1.1240,001 – 50,000 73 0.50 3,395,125 0.8250,001 – 100,000 171 1.18 12,159,880 2.92100,001 & ABOVE 151 1.04 378,864,935 90.98Total 14,527 100.00 416,442,900 100.00

14. Shareholding per category as on March 31, 2007

Category Code

Category of shareholder Number of shareholders

Total number of

Physical shares

Number of shares held in dematerialized

form

Total number of

shares

As a percentage

of (A + B)

(A) Shareholding of Promoter and Promoter Group [1] Indian – – – – –[a] Individuals/Hindu Undivided Family – – – – –[b] Central Government/State Government(s) – – – – –[c] Bodies Corporate – – – – –[d] Financial Institutions/Banks – – – – –[e] Any other (specify) – – – – – Sub-Total (A)(1) – – – – –[2] Foreign [a] Individuals (Non-Resident Individuals/Foreign Individuals) – – – – –[b] Bodies Corporate Oracle Global (Mauritius) Ltd. 2 76,200 67,405,498 67,481,698 81.02[c] Institutions – – – – –[d] Any other (specify) – – – – – Sub-Total (A)(2) 2 76,200 67,405,498 67,481,698 81.02 Total Shareholding of Promoter and Promoter Group

(A)=(A)(1)+(A)(2) 2 76,200 67,405,498 67,481,698 81.02(B) Public Shareholding [1] Institutions [a] Mutual Funds/UTI 21 – 471,073 471,073 0.57[b] Financial Institutions/Banks – – – – –[c] Central Government/State Government(s) – – – – –[d] Venture Capital Funds – – – – –[e] Insurance Companies 1 – 25,000 25,000 0.03[f] Foreign Institutional Investors 8 – 161,898 161,898 0.19[g] Foreign Venture Capital Investors – – – – –[h] Any other (specify) Foreign Mutual Funds 23 – 551,782 551,782 0.66 Sub-Total (B)[1] 53 – 1,209,753 1,209,753 1.45[2] Non-institutions [a] Bodies Corporate 361 – 438,394 438,394 0.53[b] Individuals-

(i) Individual shareholders holding nominal share capital upto Rs. 1 Lakh. 13,268 928,094 5,192,922 6,121,016 7.35

(ii) Individual shareholders holding nominal share capital in excess of Rs. 1 Lakh. 99 715,600 3,347,166 4,062,766 4.88


Category Code

Category of shareholder Number of shareholders

Total number of

Physical shares

Number of shares held in dematerialized

form

Total number of

shares

As a percentage

of (A + B)

[c] Any other (specify) Clearing Member 89 – 40,998 40,998 0.05 Foreign Company – – – – – Market Maker 25 – 1,573 1,573 0.00 Foreign Nationals 3 – 59,000 59,000 0.07 NRI (Repatriate) 256 – 935,011 935,011 1.12 NRI (Non-Repatriate) 198 196,800 1,536,008 1,732,808 2.08 Overseas Corporate Bodies 1 – 800 800 0.00 Directors 5 – 686,524 686,524 0.82 Trust 2 – 497,374 497,374 0.60 HUF 165 – 20,865 20,865 0.03 Sub-Total (B) [2] 14,472 1,840,494 12,756,635 14,597,129 17.53 Total Public Shareholding (B)= (B)(1) +(B)(2) 14,525 1,840,494 13,966,388 15,806,882 18.98 Total (A)+(B) 14,527 1,916,694 81,371,886 83,288,580 100.00

During the financial year 2006-07:

1. The Company issued and allotted 2,552,795 equity shares to its Directors/employees who exercised their ESOPs during the year.

2. The Company also issued and allotted 4,447,418 equity shares on a preferential basis to Oracle Global (Mauritius) Limited, the Promoter of the

Company.

3. The Company has not issued any ADR/GDR.

15. Dematerialization of shares and liquidity

The shares of the Company are under compulsory demat mode. Under

the Depository System, the International Securities Identification Number

(ISIN) allotted to the Company’s shares is INE881D01027.

As on March 31, 2007, 97.69% of the shares of the Company were in

demat mode.

16. Address for correspondence

Registered Office Corporate office

i-flex solutions ltd i-flex solutions ltdUnit 10-11, i-flex CenterSDF-1, SEEPZ, 399, Subhash RoadAndheri (East) Vile Parle (East) Mumbai 400 096 Mumbai 400 057India IndiaTel +91-22- 5676 2000 Tel +91-22- 6718 5000 Fax +91-22- 2829 2767 Fax +91-22- 2832 3374e-mail: [email protected]

As on March 31, 2007, the Company also had following branch offices in

the states of Maharashtra, Karnataka and Tamil Nadu.

i-flex Park Nirlon CompoundWestern Express Highway Goregaon (East)Mumbai 400 059India

i-flex Center of LearningPlot No. 13, Doddanekundi Industrial Area, Phase IIWhitefield RoadMahadevapura PostBangalore 560 048India

i-flex AnnexeNirlon CompoundWestern Express HighwayGoregaon (East)Mumbai 400 063India

Pride Silicon Plaza, 2nd FloorNext to ChatushringiSenapati Bapat RoadPune 411 053India

Corporate Centre AAndheri Kurla RoadAndheri (East)Mumbai 400 059India

i-flex CenterBlock 9A, Ambrosia IIBavdhan KhurdTaluka MulshiPune 411 021India

Marchon House, 2nd FloorJ B NagarAndheri-Kurla RoadAndheri (East)Mumbai 400 059India

i-flex HeightsLohia Jain IT ParkPaud RoadKothrudPune 411029India

i-flex ParkC/o Embassy Business ParkC V Raman Nagar Bangalore 560 093India

143/1 Uttamar Gandhi SalaiNungambakkamChennai 600 034India

i-flex Center# 333, Kundalahalli RoadBrookefieldsBangalore 560 037India



Annexure to Directors’ report

To

The Board of Directors

i-flex solutions limited

Mumbai

This is to certify that:

(a) We have reviewed financial statements and the cash flow statement

of i-flex solutions ltd (“the Company”) for the quarter and year ended

March 31, 2007 and that to the best of our knowledge and belief:

(i) These statements do not contain any materially untrue

statement or omit any material fact or contain statements that

might be misleading;

(ii) These statements together present a true and fair view of

the Company’s affairs and are in compliance with existing

accounting standards, applicable laws and regulations.

(b) There are, to the best of our knowledge and belief, no transactions

entered into by the Company during the period which are fraudulent,

illegal or violative of the Company’s code of conduct.

(c) We accept responsibility for establishing and maintaining internal

controls and have evaluated the effectiveness of the internal control

systems of the Company, and have disclosed to the auditors and the

Audit Committee, deficiencies in the design or operation of internal

controls, if any, of which we are aware of and the steps we have

taken or propose to take to rectify these deficiencies.

(d) We have indicated to the auditors and the Audit Committee:

(i) Significant changes in internal controls during the period, if

any;

(ii) Significant changes in accounting policies during the period, if

any; and that the same have been disclosed in the notes to the

financial statements; and

(iii) instances of significant fraud of which we have become aware

of and the involvement therein, if any, of the management or

an employee having a significant role in the Company’s internal

control system.

(e) We further declare that all Board members and Senior Management

Personnel have affirmed compliance with Codes of Conduct for the

year ended March 31, 2007.

For i-flex solutions limited

Rajesh Hukku Deepak Ghaisas

Managing Director Chief Financial Officer

May 1, 2007


To

The Members of i-flex Solutions Limited

We have examined the compliance of conditions of corporate governance

by i-flex Solutions Limited (‘the Company’), for the year ended on

March 31, 2007, as stipulated in Clause 49 of the Listing Agreement of

the said Company with stock exchange(s).

The compliance of conditions of corporate governance is the responsibility

of the management. Our examination was limited to procedures and

implementation thereof, adopted by the Company for ensuring the

compliance of the conditions of the Corporate Governance. It is neither

an audit nor an expression of opinion on the financial statements of the

Company.

In our opinion and to the best of our information and according to the

explanations given to us, we certify that the Company has complied

with the conditions of Corporate Governance as stipulated in the above

mentioned Listing Agreement.

We further state that such compliance is neither an assurance as to the

future viability of the Company nor the efficiency or effectiveness with

which the management has conducted the affairs of the Company.

For S. R. Batliboi & Associates

Chartered Accountants

per Sunil Bhumralkar

Partner

Membership No.: 35141

Mumbai, India

July 4, 2007

Auditors’ certificate


Creating Value

i-fl ex solutions ltd

Financial statements for the year ended

March 31, 2007 prepared in accordance with

Indian Generally Accepted Accounting Principles

(Indian GAAP) (Unconsolidated).



The following discussion is based on our audited unconsolidated financial

statements, which have been prepared in accordance with Accounting

Standards referred to in Section 211 (3C) of the Companies Act 1956.

You should read the following discussion of our financial condition and

results of operations together with the detailed unconsolidated Indian

GAAP financial statements and the notes to those statements. Our fiscal

year ends on March 31 of each year.

Information technology in the financial services industry

The financial services industry is undergoing transformation, both in how

it addresses its customers, and in how it runs its operations. The entry of

non-traditional players, global mergers and acquisitions, ever increasing

demands from customers to deliver a ubiquitous and next generation

customer experience, a demanding regulatory environment, and the

emergence of new customer interaction channels have contributed to

this shift.

Governance, risk and compliance has emerged as a strategic priority

for financial institutions. The post 9/11 environment has seen financial

institutions grappling with the challenges of increasing regulatory

complexity and also an emerging convergence of the areas of governance

driven by regulations such as Sarbanes-Oxley, risk management

with regulations in Basel II, and compliance driven by regulations as

anti-money laundering, the Patriot Act, data privacy, etc.

In the core transaction processing area, increasing number of financial

institutions are getting more and more receptive to the value proposition

and the benefits of core banking transformation, and the Company is

taking concrete steps in that direction.

Information Technology (IT) plays a major role in such a scenario – acting as

an enabler of a new customer-centric outlook, and a means to improving

operational efficiency, while driving compliance to new regulatory norms,

reducing costs and achieving competitive differentiation.

In conjunction with Oracle Global (Mauritius) Limited (“Oracle”), i-flex has

a very clearly articulated value proposition and strategy, which is centered

around the business priorities and challenges of financial institutions in

the market today. Our approach is centered on addressing the 4Cs that

are affecting financial institutions today: Competitive differentiation, Cost

reduction, Customer intimacy and Compliance and risk management.

i-flex has organized its entire range of offerings and value propositions to

align with these priorities.

Overview

i-flex® solutions is in the business of providing comprehensive IT

solutions to the financial services industry worldwide. Playing the role of

a specialized IT partner to financial services institutions worldwide, our

approach is balanced with a wide range of products, custom solutions

and consulting services.

Our solutions portfolio includes packaged applications, custom application

software development, deployment, maintenance and support services,

business and IT consulting services, technology deployment and

management services and the knowledge process outsourcing in the

financial services domain.

As of March 31, 2007, the Group cumulatively serviced 750 customers

in 125 countries through its portfolio of products and services.

We are organized by region and business segment. We have two

major business segments - the Products Business (comprising product

licensing, customization, implementation and support) and the Services

Business (providing customized software and consulting services). We

have also recently launched Knowledge Process Outsourcing Services

(value-added knowledge outsourcing). These segments are described in

greater detail below:

Products

The i-flex portfolio includes FLEXCUBE®, a complete banking product

suite for retail, consumer, corporate, investment and internet banking,

and asset management and investor servicing. Since its launch in 1997,

more than 300 financial institutions in over 105 countries have chosen

FLEXCUBE. The product suite has been ranked the world’s No. 1 selling

core banking solution for five consecutive years--2002, 2003, 2004,

2005 and 2006--by the UK-based International Banking Systems (IBS).

The product suite’s portfolio was further enriched last year by adding

products targeted at Islamic Banking. With the new FLEXCUBE SWIFTNet

Services Integrator suite, banks are able to leverage the SWIFTNet

(SWIFT’s IP-based messaging solution) environment for increased

business value. Increased delivery capacity, and improved functionality

through our association with Oracle made this the best ever year for

FLEXCUBE.

The ReveleusTM suite of analytical applications for the financial services

industry is focused in the areas of risk management, customer insight,

and enterprise-wide financial performance. Reveleus Risk Analytics

solves the most complex global challenges facing the financial industry

today, including multi-jurisdictional Basel II compliance and operational

risk management. Reveleus was ‘Highly Commended’ for its Compliance

Initiative Innovation in The Banker Technology Awards for 2006.

Mantas® is a wholly owned subsidiary of i-flex. Mantas’ Behavior

Detection PlatformTM is the industry’s most comprehensive solution

for detecting risk, enhancing customer relationships, and addressing

regulatory requirements in the anti-money laundering, trading and broker

compliance areas. Mantas, along with Reveleus, offer a single, unified

platform for governance, risk and compliance. Waters Magazine ranked

Mantas for Best Anti-Money Laundering solution for 2004, 2005 and

2007 and Best Compliance solution for 2003.

DaybreakTM is a comprehensive consumer lending system that automates

all aspects of financing from origination, to servicing and collections for

installment loans; consumer leases, revolving products and home equity

lines of credit. It empowers financial services organizations to improve

productivity, enhance customer service and manage risks.

Together with Castek® Software Inc., a majority-owned subsidiary, i-flex

offers strategic business software and services for the global Property

and Casualty insurance market. Castek provides insurance carriers

with a suite of core business processing systems for insurance product

and process configuration, policy processing, customer billing, claims

management and services.

Our solution portfolio rests on SOA, enabling interoperability, extensibility

and standardization. Encompassing cash management, trade, treasury,

payments, lending deposits, private wealth management, asset

management, among others, it helps financial institutions become

‘model enterprises’, reduces costs, improves efficiency, and increases

their addressable market and asset size.

Management’s discussion and analysis of financial condition and results of operations


Services

PrimeSourcingTM, i-flex’s global IT services division, provides customized

software solutions exclusively for the financial services industry

worldwide, with a dedicated focus on delivering solutions through domain

specialization. While at a broad level this domain specialization focuses

on corporate, investment, private and retail banking, and the insurance

domains, each of these domains are further segmented into relevant

practice lines and Centers of Excellence. These solutions are supported

by a comprehensive pool of proprietary methodologies, best practices,

and backed by SEI-CMMi Level 5 compliant processes.

PrimeSourcing’s Oracle practice group caters to specialized practices

in Business Intelligence, Fusion Middleware (SOA), and Oracle

Apps implementation. The division also leverages well-established

CoBIT-compliant global infrastructure and development centers to deliver

services in an optimized onsite-near-shore-offshore model.

The i-flex ConsultingTM division offers an end-to-end consulting

partnership, providing comprehensive business and technology solutions

that enable financial services enterprises to improve process efficiencies;

optimize costs; meet risk and compliance requirements; define IT

architecture; and, manage the transformation process. Consulting

services are offered in the areas of business transformation, risk and

compliance, program management, IT architecture, IT governance and

process improvement. i-flex’s solution approach for financial services

institutions is process-driven and rests on the i-flex Process Framework for Banking (iPFBTM), a tool for transforming banking operations. It is a

process repository created by drawing on i-flex’s domain expertise and

best practices.

i-flex’s Technology Deployment & Management Services (TDMS) division specializes in conceptualizing, designing, deploying and

managing IT Infrastructure. The i-RIMS (i-flex Remote Infrastructure

Management Services) Center manages IT infrastructure remotely from

India on a 24 x 7 basis through its on-site-offshore model. TDMS services

are based on best practices such as ITIL (IT Infrastructure Library), COBIT

(Control Objectives for Information and related Technology) model, a

globally accepted standard for IT management and control framework,

and BS7799 (ISO17799).

i-flex Processing Services is a 100% owned subsidiary of i-flex solutions,

with consultants experienced in various functions in the asset

management space, financial modeling and valuation KPO. The services

provided encompass IT software, consulting, KPO and infrastructure.

Equinox Corporation, a wholly owned subsidiary of i-flex, excels in

providing cost-effective and high-quality knowledge process outsourcing

services (KPO) to the financial services industry. Equinox was selected

in the Leaders Category for the ‘2007 Global Outsourcing 100’ by The

International Association of Outsourcing Professionals (IAOP). The Global

Outsourcing 100 defines the standard for excellence in outsourcing

service delivery. It was also recognized among the ‘Top 50 Global

Outsourcers & Top 30 Global Offshore Vendors’ by the International

Association of Outsourcing Professionals (IAOP).

Corporate development

During the year, Oracle purchased equity shares of i-flex solutions ltd

(“i-flex” or the “Company”) from OrbiTech Ltd., the then major shareholder

of the Company and through an open offer and, also from the stock

market, taking its shareholding to 81.02% as on March 31, 2007.

Business metrics

Our total revenues in fiscal 2007 were Rs. 15,523.4 million, representing

an increase of 35% from Rs. 11,538.2 million in fiscal 2006. The net

income in fiscal 2007 was Rs. 3,547 million, against Rs. 2,408 million

in fiscal 2006. Our net income margins were 23% and 21% in fiscal

years 2007 and 2006 respectively. We define net income margins for

a particular period as the ratio of net income to total revenues during

such period. We had 7,631 employees as on March 31, 2007 as against

6,044 at the end of the previous year in India.

Products business


Year ended March 31

2007 2006

Products revenue 8,909.5 6,540.6 Cost of products revenue (3,864.2) (2,550.0)Sales and marketing expenses (553.7) (591.7)General and administrative expenses (518.2) (281.9)

Depreciation and amortization (255.1) (141.6)Income from operations 3,718.3 2,975.4 Operating margin* 42% 45%

Products revenue

Our products revenue represented 57% of the total revenues for

both fiscal years ended 2007 and 2006. Our products revenue were

Rs. 8,909.5 million during the fiscal year ended March 31, 2007; an

increase of 36% from Rs. 6,540.6 million during the fiscal year ended

March 31, 2006.

Products revenue comprise license fees, professional fees for

implementation and enhancement services and annual maintenance

contract (Post Contract Support - PCS) fees for our products.

License fee

Our standard licensing arrangement for our products provides the user

a perpetual right to use the product for a pre-defined number of users

and sites upon payment of a license fee. The license fee is a function

of a variety of quantitative and qualitative factors, including the number

of copies sold, the number of concurrent users supported, the number

and combination of the modules sold, and the number of sites and

geographical locations supported. The licenses are non-exclusive,

personal, non-transferable and royalty free.

Implementation fee

After products are licensed to these customers, we provide services

related to the implementation of these products at customer sites,

integration with other customer systems, and enhancement of products

to address specific requirements of customers. The customer is typically

charged a service fee either on a fixed-price basis or a time and

materials basis. Implementation and enhancement services comprise

functional enhancements, interface building, implementation planning,

data conversion, training and product walkthroughs, and are provided to

customers who enter into licensing arrangements with us.



Annual maintenance contracts fees

We also earn fees relating to annual maintenance contracts after

the implementation of a product and following the expiration of the

warranty period. Under these agreements, we provide technical

support, maintenance, problem solving and upgrades of the licensed

products. These support agreements are typically entered for a period of

12 months.

As the revenues from license fees and implementation and enhancement

services rendered by us depend on the number of new customers we add

and the implementation project life cycle, these revenues typically vary

from year to year. The annual maintenance contracts generate steady

revenues and would grow to the extent of new customers coming under

the PCS. The percentages of our revenue from these streams are as

follows:

Fiscal Year Ended March 31

2007 2006

License fees 30% 39%Implementation and customization fees 52% 42%

PCS arrangements 18% 19%Total 100% 100%

Cost of products revenue and operating expenses

The cost of our products revenue consists of costs attributable to

the implementation, enhancement, maintenance and continued

development, including research and development efforts, of our core

product offerings - the FLEXCUBE suite of products, Reveleus and other

products. These costs primarily consist of compensation expenses for

all our IT professionals working in the products business, project-related

travel expenses, professional fees paid to software services vendors and

the cost of application software for internal use.

Research and development costs are treated as expenses incurred.

Software development costs are also treated as expenses incurred until

technological feasibility is established. Software product development

cost incurred subsequent to the achievement of technological feasibility

is not material and is taken as incurred.

Operating expenses include selling and marketing expenses, general

and administrative expenses that consist of commissions payable to

our partners, product advertising, marketing expenses, and allocated

overhead expenses associated with support and monitoring functions

such as human resources, facilities and infrastructure expenses, quality

assurance and finance.

Services business


Year ended March 31

2007 2006

Services revenue 6,613.9 4,997.6Cost of services revenue (5,020.3) (3,965.3)Sales and marketing expenses (97.7) (10.6)General and administrative expenses (424.7) (345.1)

Depreciation and amortization (236.1) (165.9)Income from operations 835.1 510.7Operating margin* 13% 10%

Services revenue

Our services revenue represented 43% of the total revenues for both

the fiscal years ended March 31, 2007 and 2006. The services revenue

were Rs. 6,613.9 million in the fiscal year ended March 31, 2007;

an increase of 32% from Rs. 4,997.6 million in the fiscal year ended

March 31, 2006.

The contracts relating to the services business are either time or material

contracts or fixed price contracts. The percentage of total services revenue

from time and material contracts was 87% in fiscal 2007 and 76% in

fiscal 2006, with the remainder of the services revenue attributable to

fixed price contracts.

We provide our services through offshore centers located in India, on-site

teams operating at customers’ premises and our development centers

located in other parts of the world. Offshore services revenue consist

of revenues from work conducted at our development centers in India

on behalf of foreign customers while on-site revenue comprises work

conducted at customers’ premises outside India. Revenue from India

represents work done for Indian customers at their locations and at

our development centers in India. The composition of our on-site and

offshore revenue is determined by the project life cycle. Typically, the

work involving the design of new systems or relating to a system roll-out

would be conducted on-site, while the core software development,

maintenance and support activity may be conducted offshore. We

received 62% of our services revenue from on-site work and 38% from

offshore work during the fiscal year 2007 as against 59% and 41%,

respectively in fiscal year 2006.

Our services revenue and profits are also affected by the rate at which

our software professionals are utilized. The utilization rate is calculated

as the percentage billed for our personnel in a particular period to the

average number of staff that is considered billable in that same period.

For the purpose of calculating the number of billable staff, we exclude

personnel that are engaged in management, administration, marketing

support, initial training (six months for personnel without any prior

work experience and three months for personnel with over two years

experience) and personnel allocated to the approved internal investment

projects. Our on-site personnel deployment on projects is based on

project needs and therefore such personnel are fully utilized. Utilization

rates for our services business were 71% and 73% for fiscal 2007 and

2006 respectively. We have been able to restrict the drop in the operating

margins to only 73 basis points despite the additional staff costs due to

wage hikes and lower utilization.

Cost of services revenue and operating expenses

The cost of revenues for services consists primarily of compensation

expenses for our software professionals; cost of application software

for internal use, travel expenses and professional fees paid to software

services vendors. We recognize these costs as incurred. Our operating

expenses include selling, general and administrative expenses and

allocated overhead expenses associated with human resources, corporate

marketing, management information systems, quality assurance and

finance.


Geographic breakup of revenues

In line with the Company’s strategy to increase penetration in the advanced markets, the contribution in products revenue from Europe has increased

by 4% as compared to the previous year, while the overall revenues are well diversified. The following table represents the percentage breakup of our

revenues for products and services business by region:



Products Revenues

Services Revenues

Total Revenues

Products Revenues

Services Revenues

Total Revenues

USA 17% 58% 35% 22% 66% 42%Europe 38% 18% 29% 34% 14% 25%Asia Pacific 20% 18% 19% 17% 16% 16%Middle East, India and Africa 24% 6% 16% 25% 3% 16%Latin America and Caribbean 1% 0% 1% 2% 1% 1%Total 100% 100% 100% 100% 100% 100%

Customer concentration

Our operations and business depend on our relationships with a number

of large customers. Revenues from the top-ten customers for fiscal 2007

and 2006 were 26% and 22%, respectively, as a percentage of the total

revenues. The top-ten customers in the services business contributed

to 38% of the total services revenue, while the top-ten customers in

the products business contributed to 37% of the total products revenue

during fiscal 2007.

The percentage of total revenues during the fiscal years 2007 and 2006

that we derived from our largest customer, largest-five customers and

largest-ten customers is provided in the accompanying table. In the

table, various affiliates of Citigroup are classified as separate customers,

and the last row sets forth the percentage of total revenues we earned

from the various affiliates from Citigroup with respect to our products and

services business individually, and with respect to our business taken as

a whole.

Products Revenue

Services Revenue

Total Revenues

2007 2006 2007 2006 2007 2006

Top customer 6% 8% 8% 9% 3% 4%Top 5 customer 24% 22% 24% 26% 15% 15%Top 10 customer 37% 32% 38% 40% 26% 24%Citigroup and its affiliates 18% 16% 46% 0% 30% 10%

Trade receivables

Trade receivables as of March 31, 2007 and March 31, 2006 were

Rs. 10,419 and Rs. 7,458 million respectively. Our days sales outstanding

(which is the ratio of sundry debtors to total sales in a particular year

multiplied by 365) for both fiscal 2007 and 2006 was approximately

245 and 236 respectively. The Company periodically reviews its account

receivables outstanding as well as the aging quality of the account

receivable, customer relationship and history of the client. The following

table presents the age profile of our sundry debtors:

Year ended March 31

Period in days 2007 2006

0-180 68% 70%More than 180 32% 30%Total 100% 100%

Foreign currency and treasury operations

A substantial portion of our revenues is generated in foreign currencies

while a majority of our expenses are incurred in Indian Rupees, with the

remaining expenses incurred in US Dollars and European currencies.

We follow a conservative philosophy of treasury operations, and the policy

is to invest funds substantially in time deposits with well-known, sound

Indian and foreign banks. The Company has ensured adequate controls

over asset management, including cash management operations, credit

management, and debt collection operations.

The Company also balances funds in USD accounts or INR deposits

based on the comparative interest rates and currency requirements. The

Company books forward covers from time to time, in line with its treasury

management philosophy.

Income taxes

Currently, we benefit from the tax holidays the Government of India

provides to software products and IT services exporters from specially

designated Software Technology Parks in India. As a result of these

incentives, our operations have been subject to relatively lower tax

liabilities in India. These tax incentives currently include a 10-year tax

holiday from Indian corporate income-taxes for the operations of seven



of our Indian facilities. The Finance Act, 2000, restricts the ten-year tax

holiday available from the fiscal year in which the undertaking begins

to manufacture or produce, or until fiscal 2009, whichever is earlier.

Accordingly, facilities set up after fiscal 2000 will enjoy the benefit of the

tax holiday only until fiscal 2009. For eight of our facilities, these benefits

expire in stages through 2009. Income taxes also include foreign taxes

representing income taxes payable overseas by us in various countries.

Employee Stock Purchase Scheme (‘ESPS’)

The Company has adopted the ESPS administered through a Trust

(“the Trust”) to provide equity-based incentives to key employees of

the Company. The Trust purchases shares of the Company from the

market using the proceeds of loans obtained from the Company. Such

shares are offered by the Trust to employees at an exercise price, which

approximates the fair value on the date of the grant. The employees

can purchase the shares in a phased manner over a period of five years

based on continued employment, until which, the Trust holds the shares

for the benefit of the employee. The employee will be entitled to receive

dividends, bonus, etc., that may be declared by the Company from time

to time for the entire portion of shares held by the Trust on behalf of the

employees.

On the acceptance of the offer, the selected employee shall undertake to

pay within ten years from the date of acceptance of the offer the cost of

the shares incurred by the Trust including repayment of the loan relatable

thereto. The repayment of the loan by the Trust to the Company would

be dependent on employee repaying the amount to the Trust. In case

the employee resigns from employment, the rights relating to shares,

which are eligible for exercise, may be purchased by payment of the

exercise price whereas, the balance shares shall be forfeited in favor of

the Trust. The Trustees have the right of recourse against the employee

for any amounts that may remain unpaid on the shares accepted by the

employee. The shares that an employee is eligible to exercise during the

initial five-year period merely go to determine the amount and scheduling

of the loan to be repaid on exercise by the employee. The Trust shall

repay the loan obtained from the Company on receipt of payments from

employees against shares exercised or otherwise.

The Securities and Exchange Board of India (‘SEBI’) has issued the

Employee Stock Option Scheme and Stock Purchase Guidelines, 1999

(‘SEBI guidelines’), which are applicable to stock purchase schemes for

employees of all listed Companies. In accordance with these guidelines,

the excess of market price of the underlying equity shares on the date of

grant of the stock options over the exercise price of the options is to be

recognized in the books of account and amortized over the vesting period.

However, no compensation cost has been recorded as the scheme terms

are fixed and the exercise price equals the market price of the underlying

stock on the grant date.

A summary of the activity in the Company’s ESPS is as follows:

(Number of shares)

Year ended March 31

2007 2006

Opening balance of unallocated shares 120,888 70,606Shares forfeited during the year 21,228 50,282Closing balance of unallocated shares 142,116 120,888

Opening balance of allocated shares 2,080,546 3,393,936Shares exercised during the year (1,704,106) (1,263,108)Shares forfeited during the year (21,228) (50,282)Closing balance of allocated shares 355,212 2,080,546

Shares eligible for exercise 164,712 1,830,774Shares not eligible for exercise 190,500 249,772Total allocated shares 355,212 2,080,546

Employee Stock Option Plan (‘ESOP’)

Pursuant to the ESOP scheme approved by the shareholders of

the Company held on August 14, 2001, the Board of Directors, on

March 4, 2002 approved the Employees Stock Option Scheme (‘the

Scheme’) for issue of 4,753,600 options to the employees and directors

of the Company and its subsidiaries. According to the Scheme, the

Company has granted 4,598,920 options prior to the IPO and 559,000

options at various dates after the IPO. As per the scheme, each of the

20% of the total options granted will vest to the eligible employees and

directors on completion of 12, 24, 36, 48 and 60 months and is subject to

the continued employment of the employee or director with the company

or its subsidiaries. Options have an exercise period of 10 years.

A summary of the activity in the Company’s ESOP is as follows:



Shares arising from options

Weighted average exercise price



Outstanding at beginning of the year 2,756,880 280 4,151,850 274Granted 373,000 1,291 10,000 709Exercised (2,552,795) (270) (1,317,370) (266)Forfeited (46,600) (826) (87,600) (282)Outstanding at end of the year 530,485 989 2,756,880 280


The details of options unvested and options vested and exercisable as on

March 31, 2007 are as follows:

Range of exercise

prices

Shares Weighted average exercise

price (Rs)

Weighted average

remaining contractual life (Years)

Options unvested 419-560 62,000 520 6.9709-709 8,000 709 8.2

1,291-1,291 347,500 1,291 9.1Options vested and exercisable 265-265 77,982 265 4.9

419-560 35,003 505 6.8530,485 989 8.1

The weighted average share price for stock options granted during the

year, on the date of grant was Rs. 1,291 and the estimated weighted

average fair value of options granted during the year is Rs. 596.

Analysis of our financial results

Comparison of fiscal 2007 with fiscal 2006

Revenues

Our total revenues in the fiscal year ended March 31, 2007, were

Rs. 15,523.4 million, an increase of 35% over total revenue of

Rs. 11,538.2 million in the fiscal year ended March 31, 2006. The

increase in revenue was attributable to a 36% increase in the revenue

from the products business and a 32% increase in the revenue from the

services business.

Products revenue

Our products revenue in the fiscal year ended March 31, 2007, were

Rs. 8,909.5 million, an increase of 36% over our products revenue of

Rs. 6,540.6 million in the fiscal year ended March 31, 2006 on the

strength of strong and large customer wins. The revenue from license

fees comprised 30% of the revenue, implementation fees comprised

52%, and annual maintenance contracts comprised 18% of the revenue

for the fiscal 2007.

Services revenue

Our services revenue in the fiscal year ended March 31, 2007, were

Rs. 6,613.9 million, an increase of 32% over our services revenue of

Rs. 4,997.6 million in the fiscal year ended March 31, 2006. Revenue

from time and material contracts comprised 87% of the revenue, and

fixed price contracts comprised 13% for the fiscal 2007.

Interest and other income

Interest and Other income in the fiscal year ended March 31, 2007,

amounted to Rs. 348.3 million. Interest received from bank deposits

increased from Rs. 268.7 million to Rs. 328.6 million. There was also

an exchange loss of Rs. 18 million and a loss on sale of fixed assets

of Rs. 4.6 million. Effective treasury management and hedging of the

forex risk ensured that exchange loss was reduced to Rs. 18 million as

compared to Rs. 22 million in the fiscal year ended March 31, 2006, in

a volatile exchange regime.

Cost of revenues and operating expenses

Cost of revenue

Our cost of revenue in the fiscal year ended March 31, 2007, was

Rs. 8,884.5 million, an increase of 36% over cost of revenue of

Rs. 6,515.3 million in the fiscal year ended March 31, 2006. Our cost

of revenue as a percentage of total revenue was 57% in the fiscal

year ended March 31, 2007 and fiscal year ended March 31, 2006.

We invest significantly both in our products and services businesses to

meet emerging market requirements, and create the foundation for the

growth in future. In the financial year 2006-07, we invested in enhancing

the product suite to new requirements from countries in Europe, Asia,

USA and Latin America. We also enhanced our offerings in the risk and

compliance area.

Our cost of products revenue in the fiscal year ended March 31, 2007,

was Rs. 3,864.2 million, an increase of 52% over cost of products

revenue of Rs. 2,550 million in the fiscal year ended March 31, 2006.

Our cost of products revenue as a percentage of products revenue was

43% in the fiscal year ended March 31, 2007, compared to 39% in the

fiscal year ended March 31, 2006. This increase, as stated above was

largely attributable to the higher investments in the product business.

Our cost of services revenue in the fiscal year ended March 31, 2007,

was Rs. 5,020.3 million, an increase of 27% over cost of services

revenue of Rs. 3,965.3 million in the fiscal year ended March 31, 2006.

Our cost of services revenue as a percentage of services revenue was


fiscal year ended March 31, 2006. The primary reason for the increase

in costs during this year as stated above was higher employee costs

needed for investments in creating new competencies.

Sales and marketing expenses

Our sales and marketing expenses in the fiscal year ended

March 31, 2007, were Rs. 651.4 million, an increase of 8% over sales

and marketing expenses of Rs. 602.3 million in the fiscal year ended

March 31, 2006. Our sales and marketing expenses as a percentage of

total revenue for the fiscal year ended March 31, 2007, remained steady

at 5% like in the fiscal year ended March 31, 2006.

Our sales and marketing expenses for the products business in the fiscal

year ended March 31, 2007, were Rs. 553.7 million, a decrease of 7%

as compared to sales and marketing expenses for the products business

of Rs. 591.7 million in the fiscal year ended March 31, 2006. Sales

and marketing expenses for our products business as a percentage of

products revenue remains at 6% in the fiscal year ended March 31, 2007

and 9% in the fiscal year ended March 31, 2006.

Our sales and marketing expenses for our services business in the fiscal

year ended March 31, 2007 were Rs. 97.7 million, as against Rs. 10.6

million in the fiscal year ended March 31, 2006. Sales and marketing

expenses for our services business as a percentage of services revenue

remained steady at around 1%.

General and administrative expenses

Our general and administrative expenses in the fiscal year ended

March 31, 2007 were Rs. 1,959.9 million, an increase of 36% over our

general and administrative expenses of Rs. 1,436.9 million in the fiscal



year ended March 31, 2006. In the financial year, we expanded our

facilities to meet the growth requirements and created new development

facilities during the year for our services business in Bangalore, Chennai

and Mumbai. Our general and administrative expenses as a percentage of

total revenue however was 13% in the fiscal year ended March 31, 2007

and 12% in the fiscal year ended March 31, 2006.

General and administrative expenses for our products business in the

fiscal year ended March 31, 2007, were Rs. 518.2 million, an increase

of 84% over general and administrative expenses for our products

business of Rs. 281.9 million in the fiscal year ended March 31, 2006

caused by increased rent, power and communication costs. These

expenses as a percentage of products revenue were 6% in the fiscal

year ended March 31, 2007, compared to 4% in the fiscal year ended

March 31, 2006.

General and administrative expenses for our services business in the

fiscal year ended March 31, 2007, were Rs. 424.7 million, an increase

of 23% over our general and administrative expenses for our Services

business of Rs. 345.1 million in the fiscal year ended March 31, 2006.

This increase is due to new development centers becoming operational

for the services business. Our general and administrative expenses for

our services business as a percentage of services revenue was 6% in

the fiscal year ended March 31, 2007, compared to 7% in the fiscal year

ended March 31, 2006.

Income taxes

Our provision for income taxes in the fiscal year ended March 31, 2007,

was Rs. 263.7 million, a decrease of 41% over our provision for income

taxes of Rs. 447.6 million in the fiscal year ended March 31, 2006. Our

effective tax rate was 15% in the fiscal year ended March 31, 2007 as

compared to 20% in the fiscal year ended March 31, 2006. The decrease

in tax rate is attributable to the higher generation of revenue from units

availing tax holidays in India.

Income from operations and net income

As a result of the foregoing factors, income from operations increased

33% from Rs. 2,595.9 million in fiscal 2006 to Rs. 3,462.2 million in

fiscal 2007 and net income increased 22% from Rs. 2,408 million in

fiscal 2006 against Rs. 3,546.7 million in fiscal 2007. We define net

income margins for a particular period as the ratio of net income to total

revenue during such a period.

Liquidity and capital resources

Our capital requirements relate primarily to financing the growth of our

business. We have historically financed the majority of our working

capital, capital expenditure and other requirements through our operating

cash flow. During the fiscal 2007 we have utilized cash of Rs. 419.7

million for operations as against Rs. 1,130 million cash generated in

fiscal 2006.

i-flex is a zero debt company. We expect that our primary financing

requirements in the future will be capital expenditure and working

capital requirements in connection with the expansion of our business.

We believe that cash generated from operations will be sufficient to

satisfy our currently foreseeable capital expenditure and working capital

requirements.

Human capital

We recruit graduates from leading engineering and management

institutions. We also hire functional experts from the banking industry.

We had a net addition of 1,587 employees during the fiscal year taking

our employee strength to 7,631 employees as on March 31, 2007. The

blend of functional knowledge and technical expertise, coupled with i-flex

training and experience make our employees unique.

We enjoy cordial relationships with our employees and endeavor to

give them an excellent, professionally rewarding, and enriching work

environment. We operate an effective performance management system

with a focus on employee development. This measures key result

areas, competencies and training needs, ensuring all-round employee

development.

Risks and concerns

Quantitative and qualitative disclosures about risk

Our primary risk exposures are due to the following:

– foreign exchange rate fluctuations, principally relating to the

fluctuation of the US Dollar to the Indian Rupee;

– fluctuations in interest rates; and

– fluctuations in the value of our investments.

As of March 31, 2007, we had cash and bank balances of Rs. 5,007.5

million, out of which Rs. 3,699.10 million is in interest-bearing bank

deposits. Consequently, we face an exposure on account of fluctuation

in interest rates. These funds were invested in bank deposits of longer

maturity (more than 90 days) to earn a higher rate of interest income.

A substantial portion of our revenues is generated in foreign currencies,

while a majority of our expenses are incurred in Indian Rupees. Our

functional currency for Indian operations is the Indian Rupee. We

expect that the majority of our revenue will continue to be generated in

foreign currencies for the foreseeable future, and a significant portion

of our expenses, including personnel costs and capital and operating

expenditure, would continue to be incurred in Indian Rupees.

In addition, we face normal business risks such as global competition

and country risks pertaining to countries that we operate in.

Integration of mergers and acquisitions

i-flex has acquired a couple of companies in the past, i.e.,

SuperSolutions Corporation, USA, ISP Internet Mauritius Company,

Mauritius and Canada-based Castek Software Inc. (“Castek”). During

the year we acquired 100% of Mantas Inc., Virginia (“Mantas”) through

an investment in i-flex America inc. and these mergers and acquisitions

involve inherent risks, including:

– unforeseen contingent risks or latent liabilities relating to these

business that may only become apparent after the merger or

acquisition is finalized;

– integration and management of the operations, sales and marketing,

personnel and systems;


The company, as part of its policies, ensures that the companies acquired

are successfully integrated into the mainstream business.

SWOT analysis

Strengths:

– One of the most comprehensive solutions portfolio for the financial

services industry

– Global client base and market reach

– Strong backing of Oracle

– Solutions based on world-class technology backed by strong R&D

– High-quality manpower resources, with deep domain expertise in

the financial industry

Weaknesses:

– Weakening of Indian Rupee against the US Dollar

– Wage inflation pressure

Opportunities:

– Increasing investment momentum in core banking systems by large

and global financial institutions

– India as preferred outsourcing destination

– Compliance, Risk and Governance is on the top of the investment

agenda for financial institutions

– Expanding solutions portfolio and entry into new market segments

such as consumer finance, business analytics, Basel II, anti-money

laundering

Threats:

– Increasing competition

– Legislative and visa related travel restrictions

Outlook

i-flex solutions offers the most comprehensive footprint of solutions for

the financial services industry today. These solutions cover customer

delivery across all customer touch points, core banking processing,

transaction processing across different verticals and different product

processes across consumer banking, corporate banking, investment,

asset management, and analytics for measuring the performance of

the business and providing insights to decision-making teams to enable

timely, mid-course corrections.

There are several key opportunities in the marketplace for i-flex.

Large corporate and retail banking assignments, emerging areas

such as Islamic Banking, private wealth management, enterprise risk

management and compliance and IT outsourcing are some of the areas

where i-flex sees opportunities in the next few years. The company has

been engineering a series of acquisitions to expand into software for risk

management, anti-money laundering, consumer lending, and property

and casualty insurance.

There is increased traction in large institutions looking to replace their

core systems. Multi-country standardization opportunities also form

an integral part of the core banking replacement strategy for global

banks. Risk and compliance is the key priority area for banks and,

again, i-flex solutions’ GRC framework is a leading solution in this area.

Outside i-flex’s traditional market of core banking, there are emerging

opportunities in other verticals within the financial services industry. i-flex

recently entered the insurance vertical and it plans to continue to expand

the capability within the financial services domain.

Internal control systems and their adequacy

The Company has in place adequate systems of internal control and

documented procedures covering all financial and operating functions.

These systems have been designed to provide reasonable assurance with

regard to maintaining proper accounting controls, monitoring economy

and efficiency of operations, protecting assets from unauthorized use or

losses and ensuring reliability of financial and operational information.

The Company continuously strives to align all its processes and controls

with global best practices.



Reconciliation Statement of profit as per the Indian GAAP unconsolidated, Indian GAAP consolidated with US GAAP

(All amounts in thousands of Indian Rupees)

Year endedMarch 31, 2007


Net income as per Indian GAAP unconsolidated profit and loss account 3,546,739 2,407,986

AddRevenue of subsidiaries, neti-flex solutions b.v. 846,648 444,049 i-flex solutions pte ltd – consolidated 635,994 406,082 i-flex America inc. – consolidated 3,164,578 2,181,974 ISP Internet Mauritius Company – consolidated 404,956 234,670

5,052,176 3,266,775

Other income from subsidiaries, net 11,166 (12,169) 5,063,342 3,254,606

LessExpenses of subsidiaries, neti-flex solutions b.v. (533,459) (450,815)i-flex solutions pte ltd – consolidated (428,689) (240,137)i-flex America inc. – consolidated (3,369,983) (2,190,748)ISP Internet Mauritius Company – consolidated (564,315) (409,081)

166,896 (36,175)

Profit after consolidating subsidiaries 3,713,635 2,371,811 Add Proportionate Revenue of joint venture, net 33,763 18,005 Proportionate Other income from joint venture, net 97 171

33,860 18,176 LessProportionate Expenses of joint ventures, net (32,321) (16,790)

(32,321) (16,790)

Profit on equity investment 7,622 3,328

Net income as per Indian GAAP consolidated profit and loss account 3,722,796 2,376,525

Unrealized loss on mark to market of forward contract (29,745) (9,097)Amortization of intangible assets (187,729) (44,684)Additional gratuity reversal of provision as per SFAS 87 31,733 26,131 (Provision) for vacation pay – (21,826)Deferred revenue for post contract support, significant discounts, and SOP 81-1,net (520,184) (311,709)Prior period item on account of forward contract – 48,230 Charge of options and warrant to IBM and GE, respectively (5,784) (8,199)Profit on embedded derivatives (4,374) 17,749 Effect of SAB 104 – Revenue recognition for refund clause (74,194) 25,902 Effect of SOP 97.2 – Revenue deferral for warranty 2,906 38,363 Date based revenue recognition (42,264) –Deferred compensation cost under SFAS 123(R) (195,831) –Mark to market of available for sale securities 810 –Acquisition cost of Mantas 45,865 –Translation effect of foreign currency financial statements 24,051 52,984 Net income as per US GAAP consolidated profit and loss account 2,768,056 2,190,369


Auditors’ report

To

The Members of i-flex Solutions Limited

1. We have audited the attached balance sheet of i-flex Solutions

Limited (‘the Company’) as at March 31, 2007 and also the profit

and loss account and the cash flow statement for the year ended

on that date annexed thereto. These financial statements are the

responsibility of the Company’s management. Our responsibility is

to express an opinion on these financial statements based on our

audit.

2. We conducted our audit in accordance with auditing standards

generally accepted in India. 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 audit provides

a reasonable basis for our opinion.

3. As required by the Companies (Auditors’ Report) Order, 2003 (as

amended) (‘the Order’) issued by the Central Government of India

in terms of sub-section (4A) of Section 227 of the Companies Act,

1956 (‘the Act’), we enclose in the Annexure a statement on the

matters specified in paragraphs 4 and 5 of the said Order.

4. Further to our comments in the Annexure referred to above, we

report that:

i) We have obtained all the information and explanations, which

to the best of our knowledge and belief were necessary for the

purposes of our audit;

ii) In our opinion, proper books of account as required by law

have been kept by the Company so far as appears from our

examination of those books;

iii) The balance sheet, profit and loss account and cash flow

statement dealt with by this report are in agreement with the

books of account;

iv) In our opinion, the balance sheet, profit and loss account and

cash flow statement dealt with by this report comply with

the accounting standards referred to in sub-section (3C) of

Section 211 of the Act.

v) On the basis of the written representations received from the

directors, as on March 31, 2007, and taken on record by

the Board of Directors, we report that none of the directors is

disqualified as on March 31, 2007 from being appointed as a

director in terms of clause (g) of sub-section (1) of Section 274

of the Act.

vi) In our opinion and to the best of our information and according

to the explanations given to us, the said accounts give the

information required by the Act, in the manner so required

and give a true and fair view in conformity with the accounting

principles generally accepted in India;

a) in the case of the balance sheet, of the state of affairs of

the Company as at March 31, 2007;

b) in the case of the profit and loss account, of the profit for

the year ended on that date; and

c) in the case of cash flow statement, of the cash flows for

the year ended on that date.




Partner


Mumbai, India

May 1, 2007



Annexure referred to in paragraph 3 of our report of even date Re: i-flex Solutions Limited

(i) (a) The Company has maintained proper records showing full

particulars, including quantitative details and situation of

fixed assets.

(b) Fixed assets have been physically verified by the

management during the year and as informed, no material

discrepancies were identified on such verification.

(c) There was no substantial disposal of fixed assets during

the year.

(ii) Due to the nature of its business, clause (ii) of the Order,

relating to physical verification of inventory is not applicable to

the Company.

(iii) (a) As informed, the Company has not granted any loans,

secured or unsecured to companies, firms or other parties

covered in the register maintained under section 301 of

the Act.

(b) As informed, the Company has not taken any loans, secured

or unsecured from companies, firms or other parties covered

in the register maintained under section 301 of the Act.

(iv) In our opinion and according to the information and explanations

given to us, there is an adequate internal control system

commensurate with the size of the Company and the nature of

its business, for the purchase of fixed assets and for the sale of

services. During the course of our audit, no major weakness has

been noticed in the internal control system in respect of these

areas. Due to the nature of its business the Company does not

purchase any inventory.

(v) According to the information and explanations provided by the

management, we are of the opinion that there are no contracts

and arrangements that need to be entered into the register

maintained under Section 301 of the Act.

(vi) The Company has not accepted any deposits from the public.

(vii) In our opinion, the Company has an internal audit system

commensurate with the size and nature of its business.

(viii) To the best of our knowledge and as explained, the Central

Government has not prescribed maintenance of cost records

under clause (d) of sub-section (1) of Section 209 of the Act for

the products of the Company.

(ix) (a) The Company is generally regular in depositing with

appropriate authorities undisputed statutory dues including

provident fund, investor education and protection fund, or

employees’ state insurance, income-tax, sales-tax, wealth-

tax, service tax, customs duty, excise duty, cess and other

material statutory dues applicable to it.

(b) According to the information and explanations given to us,

no undisputed amounts payable in respect of provident

fund, investor education and protection fund, employees’

state insurance, income-tax, wealth-tax, service tax, sales-

tax, customs duty, excise duty, cess and other undisputed

statutory dues were outstanding, at the year end, for a

period of more than six months from the date they became

payable.

(c) According to the information and explanation given to us,

there are no dues of income tax, sales-tax, wealth tax,

service tax, custom duty, excise duty and cess which have

not been deposited on account of any dispute.

(x) The Company has no accumulated losses at the end of the

financial year and it has not incurred cash losses in the current

and immediately preceding financial year.

(xi) The Company did not have any dues to any financial institution,

bank or debenture holder during the year.

(xii) According to the information and explanations given to us and

based on the documents and records produced to us, the

Company has not granted loans and advances on the basis

of security by way of pledge of shares, debentures and other

securities.

(xiii) In our opinion, the Company is not a chit fund or a nidhi/mutual

benefit fund/society. Therefore, the provisions of clause 4(xiii) of

the Order are not applicable to the Company.

(xiv) In our opinion, the Company is not dealing in or trading in shares,

securities, debentures and other investments. Accordingly, the

provisions of clause 4(xiv) of the Order are not applicable to the

Company.

(xv) According to the information and explanations given to us, the

Company has not given any guarantee for loans taken by others

from bank or financial institutions.

(xvi) The Company did not have any term loans outstanding during

the year.

(xvii) According to the information and explanations given to us and

on an overall examination of the balance sheet of the Company,

we report that no funds raised on short-term basis have been

used for long-term investment.

(xviii) The Company has not made any preferential allotment of shares

to parties or companies covered in the register maintained

under Section 301 of the Act.

(xix) The Company did not have any outstanding debentures during

the year.

(xx) We have verified that the end use of money raised by public

issues is as disclosed in the notes to the financial statements.

(xxi) Based upon the audit procedures performed for the purpose of

reporting the true and fair view of the financial statements and

as per the information and explanations given by management,

we report that no fraud on or by the Company has been noticed

or reported during the course of our audit.




Partner


Mumbai, India

May 1, 2007



Schedules 2007 2006 Sources of fundsShareholders’ funds Share capital 1 416,443 381,442 Share application money pending allotment 401,679 10,309 Reserves and surplus 2 23,166,636 13,245,866

23,984,758 13,637,617

Application of fundsFixed assets 3Cost 3,232,748 2,818,892 Less: Accumulated depreciation and amortization 1,739,532 1,184,941 Net book value 1,493,216 1,633,951 Capital work-in-progress and advances 1,270,678 581,356

2,763,894 2,215,307 Investments 4 6,092,200 413,536

Deferred tax assets 5 131,351 70,762

Current assets, loans and advances 6Sundry debtors 10,419,437 7,428,617 Cash and bank balances 5,007,470 5,579,881 Other current assets 987,275 257,437 Loans and advances 4,866,857 2,567,237

21,281,039 15,833,172 Less: Current liabilities and provisions 7Current liabilities 5,930,401 4,326,091 Provisions 353,325 569,069

6,283,726 4,895,160

Net current assets 14,997,313 10,938,012

23,984,758 13,637,617

Notes to accounts 15

The schedules referred to above and notes to accounts form an integral part of the balance sheet.

Balance sheet as at March 31

As per our report of even date For and on behalf of the Board of Directors



Rajesh Hukku

Chairman

& Managing Director

Y M Kale

Director


Partner


Deepak Ghaisas

Company Secretary

Tarjani Vakil

Director

Mumbai, India

May 1, 2007

Mumbai, India

May 1, 2007



(All amounts in thousands of Indian Rupees, except share and per share data)

Schedules 2007 2006

Revenue 8 15,523,444 11,538,224

Cost of revenue 9 (8,884,576) (6,515,333)Gross profit 6,638,868 5,022,891

Operating expensesSelling and marketing expenses 10 (651,438) (602,267)General and administrative expenses 11 (1,959,900) (1,436,919)Depreciation and amortization (565,351) (387,812)Income from operations 3,462,179 2,595,893

Non-operating income (expenses)Interest income 12 365,535 294,460 Other (expenses) income, net 13 (17,232) 4,748 Income before provision for taxes and prior period item 3,810,482 2,895,101

Provision for taxesCurrent tax (Refer Note 13 of Schedule 15) (251,032) (462,120)Deferred tax 60,589 69,554 Fringe benefit tax (73,300) (55,000)Net income for the year before prior period item 3,546,739 2,447,535 Prior period item – (39,549)Net income 3,546,739 2,407,986

Profit and loss account, beginning of the year 464,241 492,494 Amount available for appropriation 4,010,980 2,900,480

Appropriations:Proposed dividend – (381,442)Tax on Proposed dividend – (53,497)Dividend paid on stock options exercised (1,237) (1,140)Tax on dividend paid on stock options exercised (174) (160)Transfer to general reserve – (2,000,000)Surplus carried to Balance Sheet 4,009,569 464,241

Earnings per share of Rs. 5/- each (in Rs.) 14 Basic 44.82 31.87 Diluted 43.60 31.03


The schedules referred to above and notes to accounts form an integral part of the profit and loss account.

Profit and loss account for the year ended March 31




Rajesh Hukku

Chairman

& Managing Director

Y M Kale

Director


Partner


Deepak Ghaisas

Company Secretary

Tarjani Vakil

Director

Mumbai, India

May 1, 2007

Mumbai, India

May 1, 2007



2007 2006

Schedule 1: Share capital

Authorized:100,000,000 (March 31, 2006 – 100,000,000) equity shares of Rs. 5/- each 500,000 500,000

Issued, subscribed and fully paid up:83,288,580 (March 31, 2006 – 76,288,367) equity shares of Rs. 5/- each 416,443 381,442

a. Of the above, 67,481,698 (March 31, 2006 – 36,422,788) equity shares of Rs. 5/- each are held by Oracle Global (Mauritius) Limited (“Oracle”). The Company became subsidiary of Oracle on April 14, 2006.

b. Of the above, 62,121,800 (March 31, 2006 – 62,121,800) equity shares of Rs. 5/- each had been issued as fully paid up bonus shares by capitalizing the securities premium account.

c. Refer Note 6 (b) of Schedule 15 for options granted for unissued equity shares.

Schedule 2: Reserves and surplus

Securities premiumBalance, beginning of the year 2,543,056 2,146,426 Received during the year 6,468,820 396,630 Balance, end of the year 9,011,876 2,543,056

General reserveBalance, beginning of the year 10,238,569 8,238,569 Transferred from profit and loss account – 2,000,000 Adjustment for employee benefits provision (Refer Note 2 (h) of Schedule 15) (93,378) – Balance, end of the year 10,145,191 10,238,569

Profit and loss account 4,009,569 464,241

23,166,636 13,245,866

Schedules annexed to and forming part of the accountsfor the year ended March 31



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As atMarch 31, 2007

As atMarch 31, 2006

Schedule 4: Investments

a. Long term investments (at cost)

i. Trade (unquoted)EBZ Online Private Limited 242,240 (March 31, 2006 – 242,240) equity shares of Rs. 10/- each, fully paid-up 45,000 45,000 Less: Provision for diminution in value of investment (45,000) (45,000)

– –

Flexcel International Private Limited 2,068,000 (March 31, 2006 – 2,068,000) equity shares of Rs. 10/- each, fully paid-up 20,680 20,680 Less: Provision for diminution in value of investment (20,680) (20,680)

– –

Login SA 33,000 (March 31, 2006 – 33,000) equity shares of EUR 2/- each, fully paid up 6,593 6,593

ii. Non trade (unquoted)National Savings Certificate – VIII issue 131 131

iii. Non trade (quoted)6.75% Tax Free US-64 Bonds 331,225 (March 31, 2006 – 331,225) Bonds of Rs. 100/- each, fully paid-up 33,123 33,123

iv. In wholly owned subsidiaries (unquoted)i-flex solutions b.v. 5,185 (March 31, 2006 – 5,185) equity shares of EUR 100/- each, fully paid-up 25,119 25,119

i-flex solutions pte ltd250,000 (March 31, 2006 – 250,000) equity shares of SDG 1/- each, fully paid up 6,626 6,626

i-flex America inc.1 (March 31, 2006 – 1) equity shares of USD 0.01/- each, fully paid up 2,979,316 139,829 100 (March 31, 2006 – Nil) Series A Convertible Participating Preference shares of USD 0.01 each, fully paid up 2,839,487 –

ISP Internet Mauritius Company30,000 (March 31, 2006 – 30,000) equity shares of USD 1/- each, fully paid up 192,115 192,115

i-flex Processing Services Limited 50,000 (March 31, 2006 – Nil) equity shares of Rs. 10/- each, fully paid up 500 –

b. Current investment (cost or fair value whichever is lower)

Non trade (quoted)

9% Dhanalakshmi Bank Bonds Series VI (see note below)10 (March 31, 2006 – 10) Bonds of Rs. 1,000,000 each, fully paid up 9,190 10,000

6,092,200 413,536

Aggregate cost of quoted investments 42,313 33,123 Aggregate market value of quoted investments 42,133 33,623 Aggregate cost of unquoted investments 6,049,887 380,413

Note: As at March 31, 2006, 9% Dhanalakshmi Bank Bonds Series VI was not listed and was classified as unquoted investment.



As atMarch 31, 2007

As atMarch 31, 2006

Schedule 5: Deferred tax asset

Difference between book and tax depreciation 124,351 70,762 Provision for doubtful debts 7,000 –

131,351 70,762

Schedule 6: Current assets, loans and advances

a. Sundry debtors (unsecured)

Debts outstanding for a period exceeding six months:Considered good 3,286,784 2,191,032 Considered doubtful 148,735 78,316

3,435,519 2,269,348 Other debts - considered good 7,132,653 5,237,585

10,568,172 7,506,933 Less: Provision for doubtful debts (148,735) (78,316)

10,419,437 7,428,617

Amount due from subsidiaries [Refer Note 9 of Schedule 15] 7,835,843 5,933,317

b. Cash and bank balances

Cash in hand 985 661 Cheques on hand – 86,975 Balances with scheduled banks:

Current accounts in foreign currency 463,916 428,269 Other current accounts 44,813 159,018 Deposit accounts 3,699,052 4,325,595 Deposit amount ofUnutilized IPO funds (Refer Note 11 of Schedule 15) 287,190 528,728 Preferential issue (Refer Note 12 of Schedule 15) 497,263 40,441 Margin money deposit 6,067 1,883 Unclaimed dividend accounts 2,065 2,027

Balances with non-scheduled banks: Current accounts in foreign currency 5,739 5,895 Deposit account in foreign currency 380 389

5,007,470 5,579,881

Balances with non-scheduled banks:Citibank, Dubai current account 2,850 666 Citibank, Dubai deposit account 380 389 Citibank, Moscow current accounts 2,889 5,229

Maximum balance held during the year:Citibank, Dubai current account 5,028 3,461 Citibank, Dubai deposit account 422 389 Citibank, Moscow current accounts 13,437 15,467

c. Other current assets

Interest accrued on:Bank deposits 71,013 51,674 Bonds 741 746

Loan to subsidiaries [Refer Note 9 of Schedule 15] 59,668 33,528 Unbilled revenue 771,243 171,489 Gross investment in lease 42,118 – Contract work in progress 42,492 –

987,275 257,437

d. Loans and advances (unsecured, considered good)

Advances recoverable in cash or in kind or for value to be received:Loan to ESPS Trust [Refer Note 6 (a) and 9 of Schedule 15] – 4,925 Loan to subsidiaries [Refer Note 9 of Schedule 15] 864,788 738,475 Premises and other deposits 2,446,721 1,221,469


As atMarch 31, 2007

As atMarch 31, 2006

Prepaid expenses 260,359 109,459 Advance tax, net of provision for taxes 769,037 275,199 Forward contract receivable 305,630 29,398 Other advances 220,322 188,312

4,866,857 2,567,237

Schedule 7: Current liabilities and provisions

a. Current liabilities

Amount due to subsidiaries [Refer Note 9 of Schedule 15] 2,759,670 1,990,501 Accrued expenses 1,271,190 1,043,422 Deferred revenues 1,576,427 969,921 Accounts payable 61,364 72,097 Advances from customers 19,832 21,553 Advance against warrants – 40,441 Investor Education and Protection Fund to be credited by unclaimed dividends* 2,065 2,027 Unearned finance income 16,234 – Other current liabilities 223,619 186,129

5,930,401 4,326,091

Amounts due to Small Scale Industrial undertakings – – (The identification of Small Scale Industrial undertaking is based on management’s knowledge of their status)

* There is no amount due and outstanding as at balance sheet date to be credited to the Investor Education and Protection Fund.

b. Provisions

Proposed dividend – 381,442 Tax on proposed dividend – 53,497 Provision for gratuity [Refer Note 2 (h) and 7 of Schedule 15] 127,013 79,991 Provision for compensated absence [Refer Note 2 (h) of Schedule 15] 226,312 54,139

353,325 569,069



Schedule 8: Revenue

Product licenses and related activities 8,909,532 6,540,633 IT solutions and consulting services 6,613,912 4,997,591

15,523,444 11,538,224

Schedule 9: Cost of revenue

Employee costs 6,258,717 4,529,748 Travel related expenses (net of recoveries) 1,629,208 1,301,120 Professional fees 535,618 349,105 Application software 461,033 335,360

8,884,576 6,515,333

Schedule 10: Selling and marketing expenses

Employee costs 217,214 153,632 Professional fees 148,465 186,854 Travelling expenses 137,520 117,041 Advertising expenses 55,075 62,127 Other expenses 93,164 82,613

651,438 602,267





Schedule 11: General and administrative expenses

Employee costs 687,215 463,061 Rent 294,944 156,880 Professional fees 201,296 161,989 Power 127,359 100,744 Communication expenses 135,864 111,484 Traveling expenses 77,686 60,218 Application software 45,105 31,487 Other expenses 390,431 351,056

1,959,900 1,436,919

Schedule 12: Interest income

Interest on:Bank deposits 328,643 268,723

[includes tax deducted at source of Rs. 74,589 (March 31, 2006 – Rs. 70,739)]Bonds 3,639 4,330

[includes tax deducted at source of Rs. 212 (March 31, 2006 – Rs. 572)]Loans to employees 197 230 Loan to subsidiaries 27,782 21,177 Lease assets 5,274 –

365,535 294,460

Schedule 13: Other (expenses) income

Reversal of provision for diminution in value of investment, net – 5,528 Loss on sale of investment – (4,785)Foreign exchange loss, net (17,963) (21,964)Profit (Loss) on sale of fixed assets, net (4,554) 314 Insurance claim – 21,530 Miscellaneous income 5,285 4,125

(17,232) 4,748

Schedule 14: Reconciliation of basic and diluted equity shares used in computing earnings per share

Number of shares

Weighted average shares outstanding for basic earnings per share 79,125,096 75,562,947 Add: Effect of dilutive stock options 2,230,666 2,046,096 Weighted average shares outstanding for diluted earnings per share 81,355,762 77,609,043

Schedule 15: Notes to accounts

1. Background and nature of operations

i-flex solutions ltd (“i-flex” or the “Company”) was incorporated in India

with limited liability on September 27, 1989. The Company is principally

engaged in the business of providing information technology solutions

and business process outsourcing services to the financial services

industry worldwide. i-flex has a suite of banking products, which caters

to the needs of corporate, retail, investment banking, treasury operations

and data warehousing.

i-flex is a subsidiary of Oracle with Oracle having 81.02% ownership

interest in the Company as at March 31, 2007.

2. Summary of significant accounting policies

a. Basis of presentation

The financial statements are prepared under the historical cost convention,

on the accrual basis of accounting, in conformity with accounting

principles generally accepted in India and complying in all material

respects with the mandatory accounting standards issued by the Institute

of Chartered Accountants of India and referred to in Section 211(3C) of

the Companies Act, 1956 (‘the Act’). The accounting policies applied by

the Company are consistent with those used in the previous years except

for early adoption of Accounting Standard 15 (Revised), ‘Employees

benefits’ issued by the Institute of Chartered Accountants of India. The

financial statements are presented in the general format specified in

Schedule VI to the Act.

The significant accounting policies adopted by the Company, in respect

of the financial statements are set out as below:

b. Use of estimates

The preparation of financial statements in conformity with generally

accepted accounting principles requires management to make

estimates and assumptions that affect the reported amounts of assets

and liabilities and disclosure of contingent liabilities at the date of the

financial statements and the results of operations during the reporting


year end. Although these estimates are based upon management’s best

knowledge of current events and actions, actual results could differ from

these estimates.

c. Fixed assets, depreciation and amortization

Fixed assets including assets under finance lease arrangements are

stated at cost less accumulated depreciation. The Company capitalizes

all direct costs relating to the acquisition and installation of fixed assets.

Advances paid towards the acquisition of fixed assets outstanding at each

balance sheet date and the cost of fixed assets not ready to use before

such date are disclosed under ‘Capital work-in-progress and advances’.

Customer contracts and product IPRs are capitalized based on a fair

value. The Company records the difference between consideration paid

to acquire these contracts and the fair value of assets and liabilities

acquired as goodwill.

The Company purchases certain specific-use application software, which

is in ready to use condition, for internal use. It is estimated that such

software has a relatively short useful life, usually less than one year.

The Company, therefore, charges to income the cost of acquiring such

software.

Depreciation and amortization are computed using straight-line method,

at the rates specified in Schedule XIV to the Act or based on the

estimated useful life of assets, whichever is higher. The estimated useful

life considered for depreciation of fixed assets are as follows:

Asset description Asset life (in years)

Tangible assetsImprovement of leasehold premises

Lesser of estimated useful life or lease term

Buildings 20Computer equipments 3Electrical and office equipments 2–7Furniture and fixtures 2–7Leased vehicles Lesser of estimated useful

life or lease termIntangible assetsGoodwill on acquisition 3–5Customer contract 5Product IPR 5PeopleSoft ERP 5

The carrying amounts of assets are reviewed at each balance sheet date

if there is any indication of impairment based on internal/external factors.

An impairment loss is recognized wherever the carrying amount of an

asset exceeds its recoverable amount. The recoverable amount is the

greater of the assets net selling price and value in use. In assessing

value in use, the estimated future cash flows are discounted to their

present value at the weighted average cost of capital. After impairment,

depreciation is provided on the revised carrying amount of the asset over

its remaining useful life.

d. Investments

Trade investments refer to the investments made with the aim of

enhancing the Company’s business interests in providing information

technology solutions to the financial services industry worldwide. Long

term investments are stated at cost less provision for diminution on

account of other than temporary decline in the value of the investment.

Current investments are stated at lower of cost and fair value determined

on an individual investment basis.

e. Foreign currency transactions

Foreign currency transactions during the year are recorded at the

exchange rates prevailing on the date of the transaction. Foreign

currency denominated monetary items are translated into Rupees

at the closing rates of exchange prevailing at the date of the balance

sheet. Non-monetary items, which are carried in terms of historical cost

denominated in a foreign currency, are reported using the exchange rate

at the date of the transaction. On reporting company’s monetary items,

rates different from those at which they were initially recorded or reported

in previous financial statements, are recognized as income or expenses

in the year in which they arise.

In respect of forward exchange contracts entered into by the Company

to hedge the foreign currency risk, the premium or discount arising at

the inception of forward exchange contracts is amortized as expense

or income over the life of the contract. Exchange differences on such

contracts are recognized in the statement of profit and loss in the

year in which the exchange rates change. Any profit or loss arising on

cancellation or renewal of forward exchange contract is recognized as

income or as expense for the year. The Company uses foreign currency

option contracts to hedge its exposure to movement in foreign exchange

rates. Any profit or loss arising on settlement or expiry of option contracts

is recognized as income or expense for the year.

f. Revenue recognition

Revenue is recognized as follows:

Product licenses and related revenue:

– License fees are recognized, on delivery and subsequent milestone

schedule as per the terms of the contract with the end user.

– Implementation/Enhancement services are recognized as services

are provided, when arrangements are on a time and material

basis. Revenue for fixed price contracts are recognized using the

proportionate completion method to the extent of achievement of

customer certified milestones.

– Product maintenance revenue is recognized, over the period of the

maintenance contract.

IT solutions and consulting services

Revenue from IT solutions and consulting services are recognized as

services are provided when arrangements are on a time and material

basis. Revenue from fixed price contracts are recognized using the

proportionate completion method to the extent of achievement of customer

certified milestones. Proportionate completion is measured based upon

the efforts incurred to date in relation to the total estimated efforts to

complete the contract. If the proportionate completion efforts are higher

than the related contractual milestone requiring customer acceptance,

revenue is recognized only to the extent customer acceptance has been

received.

The Company monitors estimates of total contract revenue and cost on

a routine basis throughout the delivery period. The cumulative impact

of any change in estimates of the contract revenue or costs is reflected

in the period in which the changes become known. In the event that a

loss is anticipated on a particular contract, provision is made for the

estimated loss.

Revenue in excess of billings is classified as unbilled revenue while billing

in excess of earnings is classified as deferred revenue. Contractually



recoverable expenses are deferred while other costs are expensed off in

the year in which it is incurred.

Reimbursable expenses for projects are invoiced separately to customers

and although reflected as sundry debtors to the extent outstanding as at

year end, are not included as revenue or expense.

g. Research and development expenses for software products

Research and development costs are expensed as incurred. Software

product development costs are expensed as incurred until technological

feasibility is established. Software product development costs incurred

subsequent to the achievement of technological feasibility are not

material and are expensed as incurred.

h. Employee benefits

The Company’s employee benefits primarily cover provident fund,

superannuation, gratuity and compensated absences.

Provident fund and Superannuation fund are defined contribution schemes

and the Company has no further obligation beyond the contributions

made to the fund. Contributions are charged to profit and loss account in

the year in which they accrue.

Gratuity liability is a defined benefit obligation and is recorded based

on actuarial valuation made at the end of the year. The gratuity liability

and net periodic gratuity cost is actuarially determined after considering

discount rates, expected long term return on plan assets and increase in

compensation levels. All actuarial gain/loss are immediately recorded to

the profit and loss account and are not deferred. The Company makes

contributions to a fund administered and managed by the Life Insurance

Corporation of India (LIC) to fund the gratuity liability. Under this scheme,

the obligation to pay gratuity remains with the Company, although LIC

administers the scheme.

Short term compensated absences are provided for based on estimates.

Long term compensated absences are provided for based on actuarial

valuation.

Effective April 1, 2006 the Company has early adopted Accounting

Standard (AS) 15 (Revised), ‘Employee benefits’ issued by the Institute of

Chartered Accountants of India. Accordingly, the Company has recorded

charge for compensated absence of Rs. 96,328 for the year ended

March 31, 2007. Further in accordance with the transitional provision

of AS 15 (Revised), the compensated absence pertaining to years prior

to April 1, 2006 amounting to Rs. 93,378 has been adjusted against

General reserve.

i. Operating leases

Leases of assets under which all the risks and rewards of ownership are

effectively retained by the lessor are classified as operating leases. Lease

payments under operating leases are recognized as an expense on a

straight-line basis over the lease term.

j. Income-tax

Tax expense comprises of current, deferred and fringe benefit tax.

Current income tax and fringe benefit tax is measured at the amount

expected to be paid to the tax authorities in accordance with the

Indian Income Tax Act. Deferred income taxes are recognized for the

future tax consequences attributable to timing differences between the

financial statement determination of income and their recognition for tax

purposes. The effect on deferred tax assets and liabilities of a change in

tax rates is recognized in income using the tax rates and tax laws that

have been enacted or substantively enacted by the balance sheet date.

Deferred tax assets are recognized and carried forward only to the extent

that there is a reasonable certainty that sufficient future taxable income

will be available against which such deferred tax assets can be realized.

Unrecognized deferred tax assets of earlier periods are re-assessed

and recognized to the extent that it has become reasonably certain that

future taxable income will be available against which deferred tax assets

can be realized. Deferred tax asset is recognized only on those timing

differences, which reverses in post tax free period, as Company enjoys

exemption under Section 10A of Income Tax Act, 1961.

k. Earnings per share

The earnings considered in ascertaining the Company’s earnings per

share comprise the net profit after tax. The number of shares used in

computing basic earnings per share is the weighted average number

of shares outstanding during the year. The number of shares used in

computing diluted earnings per share comprises the weighted average

number of shares considered for deriving basic earnings per share, and

also the weighted average number of shares, if any which would have

been issued on the conversion of all dilutive potential equity shares. The

number of shares and potentially dilutive equity shares are adjusted for

the bonus shares and sub-division of shares.

l. Share-based compensation/payments

The Company uses the intrinsic value method of accounting for its

employee share-based compensation plan and other share-based

arrangements. Under this method compensation expense is recorded

over the vesting period of the option, if the fair market value of the

underlying stock exceeds the exercised price at the measurement date,

which typically is the grant date.

m. Provision and contingencies

A provision is recognized when an enterprise has a present obligation as

a result of past event and it is probable that an outflow of resources will

be required to settle the obligation, in respect of which a reliable estimate

can be made. Provisions are not discounted to its present value and

are determined based on management estimate required to settle the

obligation at the balance sheet date. These are reviewed at each balance

sheet date and adjusted to reflect the current management estimates.

3. Commitments and contingent liabilities

a. Capital commitments

Contracts remaining to be executed on capital account and not provided

for (net of advances) aggregates to Rs. 1,875,264 (includes capital

commitment through issuance of letter of intents of Rs. 998,819) as at

March 31, 2007 (March 31, 2006 – Rs. 801,100).

b. Contingent liabilities

Financial bank guarantees given to banks on behalf of

subsidiaries, aggregates to Rs. 39,384 as at March 31, 2007

(March 31, 2006 – Rs. 63,028).

c. Loan to Equinox Global Services Private Limited (‘Equinox’)

Loan given to Equinox has conversion option in equity shares of Equinox.

In case of conversion, interest of 8% would not be payable by Equinox.

The Company intends to exercise the option of conversion and hence no

interest has been accrued on the loan.


4. Leases

a. Where Company is lessee

Finance lease

The Company takes vehicles under finance lease of upto five years. Future

minimum lease payments under finance lease as at March 31, 2007 and

2006 are as follows:

As at March 31, 2007

Principal Interest Total

Not later than one year 9,161 1,558 10,719

Later than one year but not later than five years 15,399 1,598 16,997

Total minimum payments 24,560 3,156 27,716


Principal Interest Total

Not later than one year 8,152 1,728 9,880

Later than one year but not later than five years 17,597 1,885 19,482


Operating lease

The Company has taken certain office premises and residential premises

for employees under operating lease, which expire at various dates

through year 2012. Gross rental expenses for year ended March 31, 2007

aggregated to Rs. 288,521 (March 31, 2006 – Rs. 149,131). The

minimum rental payments to be made in future in respect of these leases

are as follows:

March 31, 2007 March 31, 2006

Not later than one year 162,537 179,861 Later than one year but not later than five years 272,838 295,149

Later than five years 10,572 55,183 445,947 530,193

b. Where Company is lessor

The Company has given IT equipments under finance lease for a period

of five years. Present value of minimum lease payments receivable under

this finance lease as at March 31, 2007 are as follows:


Not later than one year 13,422Later than one year but not later than five years 23,221

Total minimum payments receivable 36,643

5. Derivatives

The Company enters into forward foreign exchange contracts and option

contracts where the counter party is a bank. The Company purchases

forward foreign exchange contracts and option contracts to mitigate the

risks of change in foreign exchange rate on receivables and payables

denominated in certain foreign currencies. The Company considers

the risk of non-performance by the counter party as non-material. As

at March 31, 2007 and 2006 the Company has following outstanding

derivative instruments:

March 31, 2007 March 31, 2006

Forward contracts – Sellin USD 123,000 115,000in EUR 3,500 6,250Option contracts – Sellin USD 16,500 18,000

The Company has following foreign currency exposures which are not

hedged as at March 31, 2007 and 2006.

March 31, 2007 March 31, 2006

Foreign currency receivables In USD 78,511 27,886In EUR 14,655 8,779In GBP 9,293 132In SGD 4,848 –In AED 1,052 –In CAD 836 –In MYR 5,435 –In JPY 272,631 –Foreign currency payablesIn USD 58,338 37,097In EUR 4,175 2,844In GBP 3,561 1,090In SGD 4,622 4,312In JPY 248,099 –In CHF 97 –In RUB 212 –

6. Share-based compensation/payments

a) Employee Stock Purchase Scheme (‘ESPS’)


(“the Trust”) to provide equity-based incentives to key employees of the

Company. The Trust purchases shares of the Company from market

using the proceeds of loans obtained from the Company. Such shares

are offered by the Trust to employees at an exercise price, which







employees.










exercise price whereas, the balance shares shall be forfeited in favor of












the excess of market price of the underlying equity shares on the date of

grant of the stock options over the exercise price of the options is to be

recognized in the books of account and amortized over the vesting period.

However, no compensation cost has been recorded as the scheme terms

are fixed and the exercise price equals the market price of the underlying

stock on the grant date.




Number of shares

Opening balance of unallocated shares 120,888 70,606

Shares forfeited during the year 21,228 50,282

Closing balance of unallocated shares 142,116 120,888

Opening balance of allocated shares 2,080,546 3,393,936

Shares exercised during the year (1,704,106) (1,263,108)

Shares forfeited during the year (21,228) (50,282)

Closing balance of allocated shares 355,212 2,080,546

Shares eligible for exercise 164,712 1,830,774Shares not eligible for exercise 190,500 249,772Total allocated shares 355,212 2,080,546

b) Employee Stock Option Plan (‘ESOP’)

Pursuant to ESOP scheme approved by the shareholders of the Company held on August 14, 2001, the Board of Directors, on March 4, 2002 approved

the Employees Stock Option Scheme (‘the Scheme’) for issue of 4,753,600 options to the employees and directors of the Company and its subsidiaries.

According to the Scheme, the Company has granted 4,598,920 options prior to the IPO and 559,000 options at various dates after IPO. As per the

scheme, each of 20% of the total options granted will vest to the eligible employees and directors on completion of 12, 24, 36, 48 and 60 months and is

subject to continued employment of the employee or director with the company or its subsidiaries. Options have an exercise period of 10 years.








Outstanding at beginning of year 2,756,880 280 4,151,850 274Granted 373,000 1,291 10,000 709Exercised (2,552,795) (270) (1,317,370) (266)Forfeited (46,600) (826) (87,600) (282)Outstanding at end of year 530,485 989 2,756,880 280

The details of options unvested and options vested and exercisable as on March 31, 2007 are as follows:

Range of exercise prices Shares Weighted average exercise price (Rs.)

Weighted average remaining contractual

life (Years)

Options unvested 419-560 62,000 520 6.9709-709 8,000 709 8.2

1,291-1,291 347,500 1,291 9.1Options vested and exercisable 265-265 77,982 265 4.9

419-560 35,003 505 6.8530,485 989 8.1

The weighted average share price for stock options granted during the year, on the date of grant was Rs. 1,291 and the estimated weighted average fair

value of options granted during the year is Rs. 596.


The fair value of options granted during the year under the ESOP was

estimated on the date of the grant using the Black-Scholes model with

the following assumptions:

Dividend yield 0.39%Expected volatility 37%Risk-free rate of interest 6%Expected life 6.5 years

Had compensation cost been determined in a manner consistent with the

fair value approach, the Company’s net income and earnings per share

as reported would have changed to the amounts indicated below:

March 31, 2007 March 31, 2006

Net income as reported 3,546,739 2,407,986Add: Compensation expense included in reported income – –

Less: Compensation expense determined using fair value of options (115,596) (70,728)

Proforma net income 3,431,143 2,337,258Basic earnings per shareAs reported 44.82 31.87Proforma 43.36 30.93Diluted earnings per shareAs reported 43.60 31.03Proforma 42.20 30.13

7. Employee benefit obligation

Defined contribution plans

During year ended March 31, 2007, the Company contributed following

amounts to defined contributions plans:

Provident fund 133,753Superannuation fund 43,676 177,429

Defined benefit plan – gratuity

The amounts recognized in the balance sheet are as follows:

Present value of funded obligations 131,397Fair value of plan assets (4,697)Net liability 126,700Amounts in balance sheet

Liability 126,700Asset –

Net liability 126,700

The amounts recognized in the profit and loss account for the year ended

March 31, 2007 are as follows:

Current service cost 21,408Interest cost 5,830Expected return on plan assets (136)Recognized net actuarial loss 31,049Total included in ‘employee benefit expense’ 58,151Actual return on plan assets 146

Changes in present value of defined benefit obligation representing

reconciliation of opening and closing balances thereof are as follows:

Defined benefit obligation at beginning of the year 83,226Current service cost 21,408Interest cost 5,830Benefits paid (10,126)Actuarial loss 31,059Defined benefit obligation at end of the year 131,397

Changes in the fair value of plan assets representing reconciliation of

opening and closing balances thereof are as follows:

Fair value of plan assets at beginning of the year 1,818Expected return on plan assets 136Actuarial gains 10Contribution by employer 12,859Benefits paid (10,126)Fair value of plan assets at end of the year 4,697

The assumptions used in accounting for the gratuity plan are set out as

below:

Discount rate 8.00%Expected return on plan assets 7.50%Withdrawal rates

Age (Yrs) Rates21-30 25%31-34 20%35-44 15%45-50 1%51-59 1%

The estimates of future salary increase, considered in actuarial valuation,

take account of inflation, seniority, promotions and other relevant factors

such as supply and demand in the employment market.

The Company evaluates these assumptions annually based on its

long-term plans of growth and industry standards. The discount rates are

based on current market yields on government bonds consistent with the

currency and estimated term of the post employment benefits obligations.

Plan assets are administered by the LIC and invested in lower risk assets,

primarily debt securities. The Company’s contribution to the fund for the

year ended March 31, 2008 is expected to be Rs. 20,000. The expected

benefit payments from the fund as of March 31, 2007 are below:

Year ending March 31

2008 23,3072009 24,1552010 29,1672011 34,3692012 40,4612013-2016 162,295

313,754

The Company has adopted AS 15 (Revised) from April 1, 2006 and this

being the first year of adoption of AS 15 (Revised) the Company has

not given disclosure for the following for previous four annual financial

years:

1. the present value of the defined benefit obligation, the fair value of

the plan assets and the surplus or deficit in the plan; and

2. the experience adjustments arising on plan liabilities and plan

assets.




Particulars Products Services Corporate Total

Revenue 8,909,532 6,613,912 – 15,523,444 Cost of revenue (3,864,229) (5,020,347) – (8,884,576)Gross profit 5,045,303 1,593,565 – 6,638,868 Selling and marketing expenses (553,731) (97,707) – (651,438)General and administrative expenses (518,221) (424,712) (1,016,967) (1,959,900)Depreciation and amortization (255,130) (236,065) (74,156) (565,351)Income from operations 3,718,221 835,081 (1,091,123) 3,462,179 Interest income 365,535 Other expenses, net (17,232)Income before provision for taxes 3,810,482 Provision for taxes (263,743)Net income 3,546,739

Other informationCapital expenditure by segment 226,932 153,112 50,925 430,969 Segment assets 8,051,748 8,202,353 14,014,383 30,268,484 Segment liabilities 3,547,580 2,481,813 254,333 6,283,726 Shareholders’ funds – – 23,984,758 23,984,758


Particulars Products Services Corporate Total

Revenue 6,540,633 4,997,591 – 11,538,224 Cost of revenue (2,550,010) (3,965,323) – (6,515,333)Gross profit 3,990,623 1,032,268 – 5,022,891 Selling and marketing expenses (591,683) (10,584) – (602,267)General and administrative expenses (281,865) (345,068) (809,986) (1,436,919)Depreciation and amortization (141,578) (165,884) (80,350) (387,812)Income from operations 2,975,497 510,732 (890,336) 2,595,893 Interest income 294,460 Other income, net 4,748 Income before provision for taxes 2,895,101 Provision for taxes (447,566)Net income for the year before prior period item 2,447,535

Prior period item (39,549)Net income 2,407,986

Other informationCapital expenditure by segment 303,208 316,908 85,790 705,906 Segment assets 5,174,648 5,656,021 7,702,108 18,532,777 Segment liabilities 1,436,437 463,504 2,995,219 4,895,160 Shareholders’ funds – – 13,637,617 13,637,617

8. Segment information

Business segments are defined as a distinguishable component of an

enterprise that is engaged in providing a group of related products or

services and that is subject to differing risks and returns and about which

separate financial information is available. This information is reviewed

and evaluated regularly by the management in deciding how to allocate

resources and in assessing the performance.

The Company is organized geographically and by business segment.

For management purposes the Company is primarily organized on a

worldwide basis into two business segments:

a) Product licenses and related activities (‘Products’) and

b) IT solutions and consulting services (‘Services’).

The business segments are the basis on which the Company reports

its primary segment information to management. Product licenses and

related activities segment deals with banking software products like the

FLEXCUBE suite of products, Reveleus and MicroBanker which cater to

needs of corporate, retail and investment banking as well as treasury

operations and data warehousing requirements. The related activities

include enhancements, implementation and maintenance activities.

IT solutions and consulting services comprise of bespoke software

development, provision of computer software solutions and related

consulting services arising from such activities. This segment is further

sub-divided in the following sub-segments i.e., Business intelligence,

Customer relationship management, Brokerage, e-commerce, Internet

services and IT and Business consulting.

The Company does not track assets and liabilities geographically.


Segment revenue and expense:

Revenue is generated through licensing of software products as well as by providing software solutions to the customers including consulting services.

The expenses which are not directly attributable to a business segment are shown as corporate expenses.

Segment assets and liabilities:

Segment assets include all operating assets used by a segment and consist principally of debtors, deposits for premises and fixed assets. Segment

liabilities primarily includes deferred revenues, finance lease obligation, advance from customer, accrued employee cost and other current liabilities.

While most such assets and liabilities can be directly attributed to individual segments, the carrying amount of certain assets and liabilities used jointly

by two or more segments is allocated to the segment on a reasonable basis. Assets and liabilities that cannot be allocated between the segments are

shown as part of corporate assets.

Geographical segments

The following table shows the distribution of the Company’s sales by geographical market:



Regions % %

United States of America 5,333,405 34% 4,761,396 42%Europe 4,541,764 30% 2,923,013 25%Asia Pacific 3,002,966 19% 1,873,481 16%Middle East, India and Africa 2,505,454 16% 1,827,933 16%Latin America and Caribbean 139,855 1% 152,401 1%

15,523,444 100% 11,538,224 100%



9. Names of related parties and description of relationship:

Principal shareholder and its affiliates (“Oracle”) Oracle Global (Mauritius) Limited(from November 18, 2005) Oracle (India) Private Limited

Oracle USA, Inc.Oracle Corporation (Thailand) Co Limited

Promoter Company and its affiliates (“Citigroup”) OrbiTech Limited (till November 17, 2005) Polaris Software Lab Limited

Citigroup Inc.Citicorp Technology Holdings Inc., USACitibank branchesCiticorp Information Technology, Inc. e-Serve International Limited

Subsidiaries i-flex solutions b.v. i-flex solutions pte ltdi-flex solutions inc.i-flex America inc.SuperSolutions CorporationCastek Software Inc. and its subsidiariesMantas Inc. and its subsidiariesISP Internet Mauritius CompanyEquinox CorporationEquinox Global Services Pvt. Ltd.i-flex Processing Services Limitedi-flex Consulting (Asia Pacific) pte ltd

Joint ventures Flexcel International Private Limited

Associates Login SA

Other entities where company has significant influence i-flex Employee Stock Purchase Scheme Trust

Key Managerial Personnel Rajesh Hukku – Chairman and Managing DirectorR Ravisankar – Chief Executive Officer – International Operations and Business Development

Deepak Ghaisas – Chief Executive Officer – India Operations, Chief Financial Officer and Company Secretary

N R Kothandaraman (N R K Raman) – Chief Operating Officer – India Operations

Makarand Padalkar – Chief of Staff and Investor RelationsJoseph John – Executive Vice President, Universal Banking Products Division

V Shankar – Executive Vice President, PrimeSourcingOlivier Trancart – Head Global Sales and MarketingNandkumar Kulkarni – Sr. Vice President, Retail Banking Products Division

Atul Gupta – Sr. Vice President, Process and Quality Management GroupVijay Sharma – Sr. Vice President, Consulting and System IntegrationS Hariharan – Sr. Vice President, Infrastructure ServicesVivek Govilkar – Sr. Vice President, Human Resources


Transactions and balances outstanding with these parties are described below:

Transactions Amount receivable (payable)Year ended

March 31, 2007Year ended



March 31, 2006

RevenueCitigroup – 530,789 – – Oracle 37,777 – 5,007 348 Subsidiaries

i-flex solutions b.v. 3,404,183 2,219,173 2,139,752 1,364,101 i-flex solutions inc. 4,683,722 4,104,936 3,997,048 3,743,513 i-flex solutions pte ltd 2,479,979 1,681,017 1,559,613 775,756 Equinox Global Services Pvt. Ltd. 22,597 – 26,558 6,786 ISP Internet Mauritius Company – 6,978 – – SuperSolutions Corporation 72,947 42,863 112,872 43,161 Castek Software Inc. 19,298 – – –

Joint ventureFlexcel International Private Limited 45,085 7,878 46,272 6,119

Interest on bank deposit Citigroup – 6,860 – –

Interest on loan Subsidiaries

i-flex America inc. 26,264 19,688 56,332 31,630 ISP Internet Mauritius Company 1,518 1,489 3,336 1,898

Unbilled revenueSubsidiaries

i-flex solutions b.v. – – 117,291 23,358 i-flex solutions inc. – – 267,767 114,640 i-flex solutions pte ltd – – 199,746 29,060 Equinox Global Services Pvt. Ltd. – – 2,603 – Castek Software Inc. – – 19,205 –

Loan outstanding Subsidiaries

i-flex America inc. – – 433,600 446,100 Equinox Global Services Pvt. Ltd. 140,000 – 390,000 250,000 ISP Internet Mauritius Company – – 41,188 42,375

Loan to trust and employees Repayment of loan by ESPS Trust 4,925 – – 4,925

Other advancesSubsidiaries

i-flex Processing Services Limited 2,399 – 2,399 – Equinox Global Services Pvt. Ltd. 30,000 – – 30,000

Rental depositKey managerial personnel 125 – 325 200

Advance rent Key managerial personnel – – 56 114

RentKey managerial personnel 128 166 – –

RemunerationKey managerial personnel 71,995 77,753 – –

Reimbursement of expenses Subsidiaries

i-flex solutions b.v. 537,907 313,292 (277,490) (238,266)i-flex solutions inc. 1,996,997 1,347,628 (2,173,480) (1,570,784)i-flex solutions pte ltd 839,642 566,778 (219,532) (118,885)i-flex America inc. 12,999 – 12,999 –







March 31, 2006

SuperSolutions Corporation 1,144 – (63,709) (62,566)ISP Internet Mauritius Company 1,169 – 1,169 –

Joint ventureFlexcel International Private Limited 10,225 2,988 11,969 1,744

Cost of revenueSuperSolutions Corporation 39,627 – (39,627) –

Purchase of softwareOracle 230,617 123,351 – –

Provision for doubtful debtsi-flex solutions b.v. 9,854 – 10,250 650 i-flex solutions inc. 15,529 13,290 28,320 13,408 i-flex solutions pte ltd 27,298 – 26,427 –

Other expensesOracle 1,411 1,106 – – Citigroup – 633 – –

Professional feesOracle – 846 – – Joint venture

Flexcel International Private Limited 30,508 6,850 – –

Deferred revenue Oracle – – (4,245) – Subsidiaries

i-flex solutions b.v. – – (455,084) (148,397)i-flex solutions inc. – – (295,093) (241,725)i-flex solutions pte ltd – – (191,543) (57,793)

Joint ventureFlexcel International Private Limited – – (1,163) (653)

Lease feesKey managerial personnel 3,462 962 – –

Other transactionsDividend paid Citigroup – 161,180 – – Oracle 200,742 – – – ESPS Trust 9,670 14,634 – – Key managerial personnel 8,265 7,914 – –

Capital contribution i-flex America inc. 5,678,974 – – – i-flex Processing Services Limited 500 – – –

Total 20,699,482 11,261,042 5,791,138 4,490,817

1. Balances as on March 31, 2007 and 2006 with promoters and affiliates have not been disclosed as they cease to be related party. Previous year

transactions with Citigroup have been disclosed till November 17, 2005.

2. Includes salary, bonus and perquisites.

3. Loan given to subsidiaries represents loan to i-flex America inc. amounting to Rs. 433,360 (interest LIBOR + 50 basis points) as at March 31, 2007

(March 31, 2006 – 446,100), ISP Internet Mauritius Company amounting to Rs. 41,188 (interest LIBOR + 50 basis points) as at March 31, 2007

(March 31, 2006 – 42,375).

Maximum balance outstanding during the period were as follows:

March 2007 March 2006i-flex America inc. 465,300 446,100 ISP Internet Mauritius Company 44,199 42,375 Equinox Global Services Pvt. Ltd. 390,000 250,000




10. Supplementary information

a. Aggregate expensesFollowing are the aggregate amounts incurred on certain specific expenses that are required to be disclosed under Schedule VI to the Act:

Salaries and bonus 6,720,213 4,857,200 Staff welfare expenses 202,515 159,714 Contribution to provident and other funds 240,418 129,527 Travel related expenses (net of recoveries) 1,844,414 1,478,379 Professional fees 885,379 697,948 Application software 506,138 369,670 Communication expenses 142,490 119,723 Rent 302,262 163,728 Advertising expenses 124,939 65,693 Power 130,131 103,783 Insurance 58,301 40,612 Repairs and maintenance:

Leasehold premises 11,995 7,184 Computer equipments 24,562 24,612 Others 26,627 17,761

Rates and taxes 24,847 13,013 Finance charge on leased assets 1,766 2,389 Provision for doubtful debts, net 74,063 45,743 Advances written off – 22,800 Other expenses 174,854 235,040

11,495,914 8,554,519

b. Managerial remunerationSalary and incentives 330 330 Contribution to provident and other funds 24 24 Commission to non whole time directors 2,920 7,805

3,274 8,159

In addition to the above, the Managing Director of the Company has also been paid remuneration aggregating Rs. 41,313 (including bonus of Rs. 15,884 which was provided as on March 31, 2006) for the year ended March 31, 2007 (March 31, 2006 – Rs. 44,881) from i-flex solutions inc., a wholly owned subsidiary of the Company.

The Company accrues for gratuity benefit and bonus for all employees as a whole. It is not possible to ascertain the provision for individual director and hence the same has not been disclosed above.

Computation of net profit for calculating commission payable to non-whole time directors in accordance with Section 198 of the Act .

Net income after tax and prior period item 3,546,739 2,407,986 AddManagerial remuneration 354 354 Commission to non-wholetime Directors 2,920 7,805 Depreciation and amortization as per books of accounts 565,351 387,812 Donation 6,202 9,824 Provision for income taxes 263,743 447,566

4,385,309 3,261,347 LessProfit on sale of investment – 743 Profit on sale of fixed assets, net – 314 Depreciation and amortization as per Section 350 of the Act (Note 1 below) 565,351 387,812 Net profit on which commission is payable 3,819,958 2,872,478

Commission payable to non-wholetime Director:Maximum allowed as per Companies Act, 1956 (1 percent) 38,200 28,725 Maximum approved by the shareholders (1 percent) 38,200 28,725 Commission approved by the Board of Directors 2,920 7,805

Note 1: The Company depreciates fixed assets based on estimated useful lives of the assets. The rates of depreciation used by the Company are higher than the

minimum rates prescribed by Schedule XIV of the Act.





c. Payments to auditorsStatutory audits 5,107 4,377 Tax audit 561 561 Special reports 2,133 1,796 Certifications 392 563 Reimbursement of out-of-pocket expenses 750 580

8,943 7,877

d. Earnings in foreign currency (on accrual basis)Product licenses and related revenue 8,382,073 6,080,537 IT solutions and consulting services 6,567,372 4,977,506 Interest income 2,222 25,010

14,951,667 11,083,053

e. Expenditure in foreign currency (on accrual basis)Salaries and bonus 2,745,697 1,876,131 Travelling, net of recovery 1,004,727 940,608 Professional fees 519,505 406,407 Application software 107,577 65,246 Foreign taxes 64,307 46,850 Advertising 34,874 27,061 Representative office expenses 7,697 2,362 Seminar expenses 26,507 12,687 Others 129,578 109,646

4,640,469 3,486,998

f. Value of imports on CIF basis - capital goods 91,577 146,928

g. Remittance in foreign currencies for dividendThe Company has not remitted any amount in foreign currencies on account of dividends during the year to non-resident shareholders. The particulars of dividends declared and paid to non-resident shareholders are as under:

Year of dividend payment 2006-07 2005-06 Year to which it relates 2005-06 2004-05 Number of non-resident shareholders 734 445 Number of equity shares held 56,128,427 5,281,299 Amount of dividend 280,642 26,406



11. Utilization of IPO Funds

Proceeds from issue of shares 1,780,800 1,780,800 Less: Issue expenses (103,074) (103,074)Net IPO Proceeds 1,677,726 1,677,726 Less: Utilization of funds Bangalore Development Centre (554,753) (554,753)Mumbai Development Centre (730,410) (488,872)Investment in/loans to subsidiary companies

i-flex solutions b.v. (24,380) (24,380)i-flex solutions pte ltd (6,626) (6,626)i-flex solutions inc. (73,064) (73,064)Setting up Dubai marketing office (1,303) (1,303)

Unutilized IPO funds 287,190 528,728




12. Preferential allotment

a. Allotment of shares to OracleProceeds from issue of shares to Oracle 5,814,999 – Less: Utilization of funds for investment in i-flex America inc. (5,678,974) – Unutilized funds 136,025 –

b. Allotment of options to GEProceeds from issue of options to GE 401,679 40,441 Less: Utilization of funds for operations (40,441) – Unutilized funds 361,238 40,441

13. During the year, the Company received income tax assessment order for financial year ended March 31, 2004. As per the order, the Company has been allowed income tax relief in respect of foreign taxes to the extent of non 10A income earned by the Company from respective foreign jurisdiction. Accordingly, the Company has recorded tax credit of Rs. 86,130 pertaining to periods till March 31, 2006.

14. Prior year comparatives

Prior year amounts have been reclassified, where necessary to confirm with current years presentation.




Rajesh Hukku

Chairman

& Managing Director

Y M Kale

Director


Partner


Deepak Ghaisas

Company Secretary

Tarjani Vakil

Director

Mumbai, India

May 1, 2007

Mumbai, India

May 1, 2007




2007 2006

Cash flows from operating activitiesIncome before provision for taxes and prior period item 3,810,482 2,895,101

Adjustments to reconcile income before provision for taxes tocash (used in) provided by operating activities:

Depreciation and amortization 565,351 387,812 Loss (Profit) on sale of fixed assets, net 4,554 (314)Loss on sale of investment – 4,785 Reversal of provision for diminution in the value of investments, net – (5,528)Marked to market of current investment 810 – Interest income (365,535) (294,460)Effect of exchange difference on cash and bank balances (4,301) (5,694)Finance charge on leased assets 1,766 2,389 Advances written off – 22,800 Provision for doubtful debts, net 74,063 45,743

4,087,190 3,052,634 Changes in assets and liabilities, net of effect of acquisitionIncrease in sundry debtors and unbilled revenue (3,664,637) (1,377,373)Increase in loans and advances (1,788,456) (662,941)Increase in current liabilities and provisions 1,764,374 793,259 Cash from operating activities 398,471 1,805,579 Payment of domestic and foreign taxes (818,170) (675,571)Net cash (used in) provided by operating activities (419,699) 1,130,008

Cash flows from investing activitiesAdditions to fixed assets including capital work-in-progress (1,120,053) (1,099,422)Net investment in lease (20,610) – Acquisition of customer contracts and product intellectual property rights (‘IPR’) – (43,009)

Investment in subsidiary company (5,679,474) – Investment in Dhanalakshmi Bonds – (10,000)Proceeds from sale of fixed assets 11,608 8,948 Bank fixed deposits having maturity of more than 90 days matured 7,679,391 7,579,352 Bank fixed deposits having maturity of more than 90 days booked (6,723,628) (8,122,931)Proceeds from maturity of investments 20,000 2,621 Interest received 314,787 279,525 Net cash used in investing activities (5,517,979) (1,404,916)

Cash flows from financing activitiesIssue of shares against Employee Stock Option scheme and options to IBM 678,514 391,761

Issue of shares to Oracle Global Mauritius Limited 5,814,999 – Share application money from GE 361,238 40,441 Advance against equity shares to be issued under ESOP scheme – 10,309 Repayment of loan by Employee Stock Purchase Scheme (‘ESPS’) Trust 4,925 117,500

Loan to subsidiaries (96,313) (209,417)Payment of dividend and tax thereon (436,350) (428,207)Payment of lease obligations (10,322) (10,652)Net cash provided by (used in) financing activities 6,316,691 (88,265)

Effect of exchange difference on cash and bank balances 4,301 5,694

Net increase (decrease) in cash and cash equivalents 383,314 (357,479)Cash and cash equivalents at beginning of the year 795,736 1,153,215 Cash and cash equivalents at end of the year (Note 1) 1,179,050 795,736

Statement of cash flow for the year ended March 31



2007 2006

Note 1: Component of cash and cash equivalentCash in hand 985 661 Cheques on hand – 86,975 Balances with scheduled banks

Current accounts in foreign currency 463,916 428,269 Other current accounts 44,813 159,018 Deposit accounts 3,699,052 4,366,036 Deposit amount Unutilized IPO funds 287,190 528,728 Preferential issue 497,263 – Margin money deposit 6,067 1,883 Unclaimed dividend accounts 2,065 2,027

Balances with non-scheduled banksCurrent accounts in foreign currency 5,739 5,895 Deposit account in foreign currency 380 389

Total Cash and bank balances 5,007,470 5,579,881 LessBank deposits having maturity of more than 90 days (3,820,288) (4,780,235)Margin money deposit (6,067) (1,883)Unclaimed dividend accounts (2,065) (2,027)Cash and cash equivalents at the end of the year 1,179,050 795,736




Rajesh Hukku

Chairman

& Managing Director

Y M Kale

Director


Partner


Deepak Ghaisas

Company Secretary

Tarjani Vakil

Director

Mumbai, India

May 1, 2007

Mumbai, India

May 1, 2007

Statement of cash flow (continued)for the year ended March 31



Balance sheet abstract and company’s general business profile

I. Registration detailsRegistration number 5 3 6 6 6 State Code 1 1

Balance Sheet date 3 1 0 3 2 0 0 7Date Month Year

II. Capital raised during the year (amount in Rs. thousands)Public issue Rights issue

N I L N I LBonus issue Private placement

N I L N I L

III. Position of mobilization and deployment of funds (amount in Rs. thousands)Total liabilities Total assets

3 0 2 6 8 4 8 4 3 0 2 6 8 4 8 4Sources of funds Paid-up capital Reserves and surplus

4 1 6 4 4 3 2 3 1 6 6 6 3 6Secured loans Unsecured loans

N I L N I LApplication of funds Net fixed assets Investments

2 7 6 3 8 9 4 6 0 9 2 2 0 0

Net current assets Miscellaneous expenditure1 4 9 9 7 3 1 3 N I L

Accumulated lossesN I L

IV. Performance of company (amount in Rs. thousands)Turnover Total expenditure

1 5 5 2 3 4 4 4 1 2 0 7 8 4 9 7+/– Profit/loss before tax +/– Profit/loss after tax

+ 3 8 1 0 4 8 2 + 3 5 4 6 7 3 9

(Please tick appropriate box + for profit, – for loss)Earning per share in Rs. Basic Dividend rate %

4 4 . 8 2 N I L

Earning per share in Rs. Diluted4 3 . 6 0

V. Generic names of three principal products/services of company(as per monetary terms)Item Code number(ITC code) N . A .

Product description

S O F T W A R E D E V E L O P M E N T S E R V I C E S

S O F T W A R E P R O J E C T A S S I G N M E N T S

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Creating Value

i-fl ex solutions ltd



Indian Generally Accepted Accounting Principles

(Indian GAAP) (Consolidated).



Auditors’ report

To the Board of Directors of

i-flex Solutions Limited:

1. We have audited the attached consolidated balance sheet of

i-flex Solutions Limited, its subsidiaries, associate company and joint

venture (together referred to as ‘the Group’ as described in Note 1 of

schedule 15 to the financial statements) as at March 31, 2007 and

also the consolidated profit and loss account and the consolidated

cash flow statement for the year ended on that date annexed

thereto. These financial statements are the responsibility of the

Group’s management and have been prepared by the management

on the basis of separate financial statements and other financial

information regarding components. Our responsibility is to express

an opinion on these financial statements based on our audit.

2. We conducted our audit in accordance with auditing standards

generally accepted in India. Those Standards require that we plan


the financial statements are free of material misstatements. 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 statements presentation. We believe that our audit provides

a reasonable basis for our opinion.

3. We report that the consolidated financial statements have been

prepared by the Group’s management in accordance with the

requirements of Accounting Standard (AS) 21, Consolidated Financial

Statements, AS 23, Accounting for Investments in Associates in

Consolidated Financial Statements and AS 27, Financial Reporting

of Interests in Joint Ventures issued by the Institute of Chartered

Accountants of India.

4. In our opinion and to the best of our information and according to

the explanations given to us, the consolidated financial statements

give a true and fair view in conformity with the accounting principles

generally accepted in India:

(a) in the case of the consolidated balance sheet, of the state of

affairs of the Group as at March 31, 2007;

(b) in the case of the consolidated profit and loss account, of the

profit of the Group for the year then ended; and

(c) in the case of the consolidated cash flow statement, of the cash

flows of the Group for the year then ended.




Partner


Mumbai, India

July 2, 2007



Schedules 2007 2006

Sources of fundsShareholders’ fundsShare capital 1 416,443 381,442 Share application money pending allotment 401,679 10,309 Reserves and surplus 2 23,202,085 13,415,421 Deferred tax liability 3 1,745 1,649

24,021,952 13,808,821

Application of fundsFixed Assets 4Cost 9,626,043 3,966,811 Less: Accumulated depreciation, amortization and impairment 2,030,937 1,389,133 Net book value 7,595,106 2,577,678 Capital work-in-progress and advances 1,346,108 581,356

8,941,214 3,159,034

Investments 5 59,167 52,355

Deferred tax asset 3 141,483 70,762

Current assets, loans and advances 6Sundry debtors 7,494,396 5,257,917 Cash and bank balances 7,197,754 6,869,435 Other current assets 1,194,592 309,124 Loans and advances 4,325,016 2,078,892

20,211,758 14,515,368 Less: Current liabilities and provisions 7Current liabilities 4,910,518 3,308,784 Provisions 421,152 679,914

5,331,670 3,988,698

Net current assets 14,880,088 10,526,670

24,021,952 13,808,821


The schedules referred to above and notes to accounts form an integral part of the consolidated balance sheet.

Consolidated balance sheet as at March 31




Rajesh Hukku

Chairman

& Managing Director

Y M Kale

Director


Partner


Deepak Ghaisas

Company Secretary

Tarjani Vakil

Director

Mumbai, India

July 2, 2007

Mumbai, India

May 1, 2007




Schedules 2007 2006

Revenue 8 20,609,382 14,823,003 Cost of revenue 9 (11,066,050) (7,794,099)Gross profit 9,543,332 7,028,904

Operating expensesSelling and marketing expenses 10 (2,656,196) (2,008,958)General and administrative expenses 11 (2,462,635) (1,757,806)Depreciation and amortization (653,023) (460,368)Provision for impairment of goodwill – (57,958)Income from operations 3,771,478 2,743,814

Non-operating incomeInterest income 12 376,907 294,552 Other expenses, net 13 (17,253) (9,907)Income before provision for taxes and prior period items 4,131,132 3,028,459

Provision for taxesCurrent tax (Refer Note 12 of Schedule 15) (413,192) (574,971)Deferred tax 70,625 69,554 Fringe benefit tax (73,391) (55,000)Net income for the year before minority interest, share of profit of associate company and prior period items 3,715,174 2,468,042

Minority interest – 2,564 Share of profit of associate company 7,622 3,328 Net income for the year before prior period items 3,722,796 2,473,934 Prior period items – (97,409)

Net income 3,722,796 2,376,525

Profit and loss account, beginning of the year 630,950 690,664 Amount available for appropriation 4,353,746 3,067,189 Appropriations:Proposed dividend – (381,442)Tax on Proposed dividend – (53,497)Dividend paid on stock options exercised (1,237) (1,140)Tax on dividend paid tax on stock options exercised (174) (160)Transfer to general reserve – (2,000,000)Surplus carried to balance sheet 4,352,335 630,950

Earnings per share of Rs. 5/- each (in Rs.) 14 Basic 47.05 31.45 Diluted 45.76 30.62


The schedules referred to above and notes to accounts form an integral part of the consolidated profit and loss account.

Consolidated profit and loss for the year ended March 31




Rajesh Hukku

Chairman

& Managing Director

Y M Kale

Director


Partner


Deepak Ghaisas

Company Secretary

Tarjani Vakil

Director

Mumbai, India

July 2, 2007

Mumbai, India

May 1, 2007





Schedule 1: Share capital

Authorized:100,000,000 (March 31, 2006 – 100,000,000) equity shares of Rs. 5/- each 500,000 500,000

Issued, subscribed and fully paid-up:83,288,580 (March 31, 2006 – 76,288,367) equity shares of Rs. 5/- each 416,443 381,442

a. Of the above, 67,481,698 (March 31, 2006 – 36,422,788) equity shares of Rs. 5/- each are held by Oracle Global (Mauritius) Limited (“Oracle”).

The Company became subsidiary of Oracle on April 14, 2006.

b. Of the above, 62,121,800 (March 31, 2006 – 62,121,800) equity shares of Rs. 5/- each had been issued as fully paid up bonus shares by

capitalizing the securities premium account.

c. Refer Note 6(b) of Schedule 15 for the options granted for unissued equity shares.

Schedule 2: Reserves and surplus

Securities premiumBalance, beginning of the year 2,543,366 2,146,736 Received during the year 6,468,821 396,630 Balance, end of the year 9,012,187 2,543,366

General reserveBalance, beginning of year 10,238,569 8,238,569 Transferred from profit and loss account – 2,000,000 Adjustment for employee benefits provision [Refer note 2 (h) of Schedule 15] (93,378) – Balance, end of the year 10,145,191 10,238,569

Foreign currency translation reserve (310,164) –

Gain on dilution of equity investment in joint venture 2,536 2,536

Profit and loss account 4,352,335 630,950 23,202,085 13,415,421

Schedule 3: Deferred tax asset (liability)

Deferred tax asset Difference between book and tax depreciation 124,351 70,762 Expenditure allowable on actual payment 10,132 – Provision for doubtful debts 7,000 –

141,483 70,762 Deferred tax liabilityDifference between book and tax depreciation (1,745) (1,649)

(1,745) (1,649) 139,738 69,113

Schedules annexed to and forming part of the accountsfor the year ended March 31



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Schedule 5: Investments

a. Long term investments (at cost)

i. Trade (unquoted)EBZ Online Private Limited242,240 (March 31, 2006 – 242,240) equity shares of Rs. 10/- each, fully paid-up 45,000 45,000 Less: Provision for diminution in value of investment (45,000) (45,000)

– – Login SA33,000 (March 31, 2006 – 33,000) equity shares of EUR 2/- each, fully paid up 9,101 5,773 Add: Share of profit of associate company 7,622 3,328

16,723 9,101 ii. Non trade (unquoted)

National Savings Certificate – VIII issue 131 131

iii. Non trade (quoted)6.75% Tax Free US-64 Bonds331,225 (March 31, 2006 – 331,225) Bonds of Rs. 100/- each, fully paid-up 33,123 33,123

b. Current Investment (cost or fair value, whichever is lower)

Non trade (quoted)9% Dhanalakshmi Bank Bond Series VI (See note below)10 (March 31, 2006 – 10) Bonds of Rs. 1,000,000/- each, fully paid up 9,190 10,000

59,167 52,355

Aggregate cost of quoted investments 42,313 33,123 Aggregate market value of quoted investments 42,133 33,623 Aggregate cost of unquoted investments 16,854 19,232

Note: As at March 31, 2006, 9% Dhanalakshmi Bank Bond Series VI was not listed and was classified as unquoted investment.

Schedule 6: Current assets, loan and advances

a. Sundry debtors (unsecured)

Debts outstanding for a period exceeding six months:Considered good 939,161 715,927 Considered doubtful 182,208 99,439

1,121,369 815,366 Other debts-considered good 6,555,235 4,541,990

7,676,604 5,357,356 Less: Provision for doubtful debts (182,208) (99,439)

7,494,396 5,257,917

b. Cash and bank balances

Cash in hand 2,133 4,354 Cheques on hand 50,111 86,975 Balances with scheduled banks

Current accounts in foreign currency 463,916 428,269 Other current accounts 84,079 159,153 Deposit accounts 3,715,847 4,325,595 Deposit amount ofUnutilized IPO funds 287,190 528,728 Preferential issue 497,263 40,441 Margin money deposit 19,292 1,883 Unclaimed dividend accounts 2,065 2,027

Balances with non-scheduled banksCurrent accounts in foreign currency 1,743,342 1,275,534 Deposit account in foreign currency 332,516 16,476

7,197,754 6,869,435





c. Other current assets

Interest accrued on:Bank deposits 71,013 51,688 Bonds 741 746

Unbilled revenue 1,038,228 256,690 Gross investment in lease 42,118 – Contract work in progress 42,492 –

1,194,592 309,124

d. Loans and advances (unsecured, considered good)

Advances recoverable in cash or in kind or for value to be received:Loan to ESPS Trust [Refer note 6(a) of Schedule 15] – 4,925 Premises and other deposits 2,517,095 1,258,967 Prepaid expenses 363,051 149,268 Advance tax, net of provision for taxes 929,639 401,364 Forward contract receivable 305,630 29,398 Other advances 209,601 234,970

4,325,016 2,078,892

Schedule 7: Current liabilities and provisions

a. Current liabilities

Accrued expenses 1,872,843 1,540,006 Deferred revenues 2,079,018 1,183,257 Accounts payable 315,596 147,070 Advances from customers 19,832 134,772 Advance against warrants – 40,441 Investor Education and Protection Fund to be credited by unclaimed dividends* 2,065 2,027 Unearned finance income 16,234 – Other current liabilities 604,930 261,211

4,910,518 3,308,784

*There is no amount due and outstanding as at balance sheet date to be credited to the Investor Education and Protection Fund.

b. Provisions

Proposed dividend – 381,442 Tax on Proposed dividend – 53,497 Provision for gratuity [Refer Note 2 (h) of Schedule 15] 129,487 81,346 Provision for compensated absence [Refer Note 2 (h) of Schedule 15] 291,665 94,982 Provision for taxation, net of advance tax – 68,647

421,152 679,914



Schedule 8: Revenue

Product licenses and related activities 11,193,090 7,637,364 IT solutions and consulting services 9,364,575 7,164,491 Share of sales of joint venture company 51,717 21,148

20,609,382 14,823,003

Schedule 9: Cost of revenue

Employee costs 7,993,454 5,706,000 Travel related expenses (net of recoveries) 1,718,746 1,332,338 Professional fees 767,239 419,588 Application software 586,611 336,173

11,066,050 7,794,099




Schedule 10: Selling and marketing expenses

Employee costs 1,407,165 988,284 Professional fees 365,899 357,582 Travelling expenses 343,413 243,061 Advertising expenses 150,368 135,373 Rent 105,419 66,121 Communication expenses 97,760 52,695 Other expenses 186,172 165,842

2,656,196 2,008,958

Schedule 11: General and administrative expenses

Employee costs 977,385 574,641 Rent 351,947 195,888 Professional fees 250,610 200,011 Communication expenses 156,273 149,775 Power 128,016 101,257 Travelling expenses 86,051 70,347 Other expenses 512,352 465,887

2,462,635 1,757,806

Schedule 12: Interest income

Interest onBank deposits 367,409 289,992

[includes tax deducted at source of Rs. 74,589 (March 31, 2006 – Rs. 70,739)]Bonds 3,639 4,330

[includes tax deducted at source of Rs. 212 (March 31, 2006 – Rs. 572)]Loans to employees 585 230 Lease assets 5,274 –

376,907 294,552

Schedule 13: Other expenses, net

Reversal of provision for diminution in value of investment, net – 5,528 Loss on sale of investment – (4,785)Foreign exchange loss, net (22,623) (38,072)(Loss) profit on sale of fixed assets, net (4,554) 314 Insurance claim – 21,530 Miscellaneous income 9,924 5,578

(17,253) (9,907)

Schedule 14: Reconciliation of basic and diluted shares used in computing earnings

per share

No of shares

Weighted average shares outstanding for basic earnings per share 79,125,096 75,562,947 Add: Effect of dilutive stock options 2,230,666 2,046,096 Weighted average shares outstanding for diluted earnings per share 81,355,762 77,609,043



Schedule 15: Notes to accounts

1. Background and nature of operations

i-flex solutions ltd (“i-flex” or the “Company”) was incorporated in India with limited liability on September 27, 1989. The Company along with its

subsidiaries and associates is principally engaged in the business of providing information technology solutions and business process outsourcing

services to the financial services industry worldwide. i-flex has a suite of banking products, which caters to the needs of corporate, retail, investment

banking, treasury operations and data warehousing.

i-flex is a subsidiary of Oracle with Oracle having 81.02% ownership interest as at March 31, 2007.

The Company has following subsidiaries, joint venture and associates:

Companies Country of Incorporation Voting Interest Relationship

Direct holdingi-flex solutions b.v. The Netherlands 100% Subsidiaryi-flex solutions pte ltd Singapore 100% Subsidiaryi-flex America inc. United States of America 100% SubsidiaryISP Internet Mauritius Company Republic of Mauritius 100% Subsidiaryi-flex Processing Services Limited India 100% SubsidiaryFlexcel International Private Limited India 40% Joint VentureLogin SA France 33% AssociateSubsidiaries of i-flex America inc.SuperSolutions Corporation United States of America 100% Subsidiaryi-flex solutions inc. United States of America 100% SubsidiaryCastek Software Inc. Canada 76.77% SubsidiaryMantas Inc. United States of America 100% SubsidiarySubsidiaries of Mantas Inc.Mantas Ltd. United Kingdom 100% SubsidiarySotas Inc. United States of America 100% SubsidiaryMantas Singapore Pte Ltd Singapore 100% SubsidiaryMantas (India) Private Limited India 100% SubsidiarySotas Ltd. United Kingdom 100% SubsidiarySubsidiaries of Castek Software Inc.Castek Hungarian Holdings Inc. Canada 100% SubsidiaryCastek Inc. United States of America 100% SubsidiaryCastek Software Factory Ltd. United States of America 100% SubsidiaryCastek RBG Inc. United States of America 100% SubsidiarySubsidiaries of ISP Internet Mauritius CompanyEquinox Corporation United States of America 100% SubsidiaryEquinox Global Services Pvt. Ltd. India 99.83% SubsidiarySubsidiaries of i-flex solutions pte ltdi-flex Consulting (Asia Pacific) pte ltd Singapore 100% Subsidiary


a. Basis of presentation and consolidation

The consolidated financial statements includes the accounts of i-flex, its

subsidiaries, associate company and joint venture company (hereinafter

collectively referred as the “Group”) and are prepared in accordance with

accounting principles generally accepted in India under the historical cost

convention on the accrual basis. The financial statements are presented

in the general format specified in Schedule VI to the Companies Act 1956

(‘the Act’). However, as these financial statements are not statutory

financial statements, full compliance with the Act are not required

and hence these financial statements do not reflect all the disclosure

requirements of the Act.

The consolidated financial statements are prepared in accordance

with the principles and procedures required for the preparation and

presentation of consolidated financial statements as laid down under

AS 21, ‘Consolidated Financials Statements’, AS 23, ‘Accounting

for Investments in Associates in Consolidated Financial Statements’

and AS 27, ‘Financial Reporting of Interest in Joint Venture’, issued

by the Institute of Chartered Accountants of India (ICAI). The financial

statements of the Company and its subsidiaries are consolidated on

a line to line basis by adding together like items of assets, liabilities,

income and expenses. Any excess of the cost to the parent company

of its investment in a subsidiary and the parent company’s portion of

equity of subsidiary at the date, at which investment in the subsidiary is

made, is described as goodwill and recognized separately as an asset

in the consolidated financial statements. In respect of the joint venture

company, the Group applies the proportionate consolidation method. All

significant inter-company transactions and balances between the entities

included in the consolidated financial statements have been eliminated.

Investment in associate company is accounted under equity method in

consolidated financial statements.

The accounting policies have been consistently applied by the Group and

are consistent with those used in the previous years except for early

adoption of Accounting Standard (AS) 15 (Revised), ‘Employee benefits’

issued by the ICAI. The significant accounting policies adopted by the


Group, in respect of the consolidated financial statements are set out

below.

b. Use of estimates

The preparation of financial statements in conformity with generally

accepted accounting principles requires management to make

estimates and assumptions that affect the reported amounts of assets

and liabilities and disclosure of contingent liabilities at the date of the

financial statements and the results of operations during the reporting

year end. Although these estimates are based upon management’s best

knowledge of current events and actions, actual results could differ from

these estimates.

c. Fixed assets, depreciation and amortization

Fixed assets including assets under finance lease arrangements are

stated at cost less accumulated depreciation. The Group capitalizes all

direct costs relating to the acquisition and installation of fixed assets.

Advances paid towards the acquisition of fixed assets outstanding at

each balance sheet date and the cost of fixed assets not ready to use

before such date are disclosed under ‘Capital work-in-progress and

advances’. Customer contracts and product IPRs are capitalized based

on a fair value. The Group records the difference between considerations

paid to acquire these contracts and the fair value of assets and liabilities

acquired as goodwill.

The Group purchases certain specific use application software, which is in

ready to use condition, for internal use. It is estimated that such software

has a relatively short useful life, usually less than one year. The Group,

therefore, charges to income the cost of acquiring such software.

The Company computes, depreciation and amortization using straight-line

method, at the rates specified in Schedule XIV to the Act or based on

the estimated useful life of assets, whichever is higher. All other entities

in the group including joint venture company and associate compute

depreciation and amortization using straight line method based on

estimated useful life of the assets. The estimated useful life considered

for depreciation of fixed assets is as follows:


Tangible assetsImprovement of leasehold premises

Lesser of estimated useful life or lease term

Buildings 20Computer equipments 3Electrical and office equipments 2-7Furniture and fixtures 2-7Leased assets Lesser of estimated useful

life or lease termIntangible assetsGoodwill on acquisition 3-5Customer contract 5Product IPR 5PeopleSoft ERP 5

Goodwill arising on consolidation is evaluated for impairment annually.

The carrying amounts of assets are reviewed at each balance sheet date

if there is any indication of impairment based on internal/external factors.

An impairment loss is recognized wherever the carrying amount of an

asset exceeds its recoverable amount. The recoverable amount is the

greater of the assets net selling price and value in use. In assessing

value in use, the estimated future cash flows are discounted to their

present value at the weighted average cost of capital. After impairment,

depreciation is provided on a revised carrying amount of assets over its

remaining useful life.

d. Investments

Trade investments refer to the investments made with the aim of

enhancing the Group’s business interests in providing information

technology solutions to the financial services industry worldwide. Long

term investments are stated at cost less provision for diminution on

account of other than temporary decline in the value of the investment.

Current investments are stated at lower of cost and fair value determined

on an individual investment basis.

e. Foreign currency transactions

Foreign currency transactions during the year are recorded at the

exchange rates prevailing on the date of the transaction. Foreign currency

denominated monetary items is translated into reporting currency at the

closing rates of exchange prevailing at the date of the balance sheet.

Non-monetary items, which are carried in terms of historical cost

denominated in a foreign currency, are reported using the exchange

rate at the date of the transaction. Exchange differences arising on the

settlement of monetary items or on reporting company’s monetary items

at rates different from those at which they were initially recorded or

reported in previous financial statement, are recognized as income or as

expenses in the year in which they arise.

In respect of forward exchange contracts entered into by the Group

to hedge the foreign currency risk, the premium or discount arising at

the inception of forward exchange contracts is amortized as expense

or income over the life of the contract. Exchange differences on such

contracts are recognized in the statement of profit and loss in the

year in which the exchange rates change. Any profit or loss arising on

cancellation or renewal of forward exchange contract is recognized as

income or as expense for the year. The Group uses foreign currency

option contracts to hedge its exposure to movement in foreign exchange

rates. Any profit or loss arising on settlement or expiry of option contracts

is recognized as income or expense for the year.

Foreign operations of the group are classified under integral and non

integral foreign operations. The financial statements of integral foreign

operations are translated as if the transactions of foreign operations

have been those of the company itself. In translating the financial

statements of a non-integral foreign operation for incorporation in

financial statements the assets and liabilities, both monetary and

non-monetary are translated at closing rate. Income and expenses items

of the non-integral foreign operation are translated at the exchange rate

at the date of the transactions; all the resulting exchange differences are

accumulated in foreign currency translation reserve until the disposal of

the net investment.

f. Revenue recognition

Revenue is recognized as follows:

Product licenses and related revenue:

– License fees are recognized, on delivery and subsequent milestone

schedule as per the terms of the contract with the end user.

– Implementation/Enhancement services are recognized as services

are provided when arrangements are on a time and material



basis. Revenue for fixed price contracts are recognized using the

proportionate Completion method to the extent of achievement of

customer certified milestones.

– Product maintenance revenue is recognized, over the period of the

maintenance contract.

IT solutions and consulting services:

Revenue from IT solutions and consulting services are recognized as


basis. Revenue from fixed price contracts are recognized using the

proportionate completion method to the extent of achievement of customer

certified milestones. Proportionate completion is measured based upon

the efforts incurred to date in relation to the total estimated efforts to

complete the contract. If the proportionate completion efforts are higher

than the related contractual milestone requiring customer acceptance,


received.

The Group monitors estimates of total contract revenue and cost on a

routine basis throughout the delivery period. The cumulative impact of

any change in estimates of the contract revenue or costs is reflected

in the period in which the changes become known. In the event that

a loss is anticipated on a particular contract, provision is made for the

estimated loss.

Revenue in excess of billings is classified as unbilled revenue while billing

in excess of earnings is classified as deferred revenue. Contractually

recoverable expenses are deferred while other costs are expensed of in

the year in which it is incurred.

Reimbursable expenses for projects are invoiced separately to customers

and although reflected as sundry debtors to the extent outstanding as at

period-end, are not included as revenue or expense.

g. Research and development expenses for software products





material and are expensed as incurred.

h. Employee benefits

The Group’s employee benefits primarily cover provident fund,

superannuation, gratuity and compensated absences.

Provident fund and superannuation fund are defined contribution schemes

and the Group has no further obligation beyond the contributions made to

the fund. Contributions are charged to profit and loss account in the year

in which they accrue.

Gratuity liability is defined benefit obligation and recorded based on

actuarial valuation made at the end of the year. The gratuity liability

and net periodic gratuity cost is actuarially determined after considering

discount rates, expected long term return on plan assets and increases

in compensation levels. All actuarial gain/loss are immediately recorded

to the profit and loss account and are not deferred. The Company makes

contributions to a fund administered and managed by the Life Insurance

Corporation of India (LIC) to fund the gratuity liability. Under this scheme,

the obligation to pay gratuity remains with the Company, although LIC

administers the scheme.

Short term compensated absences are provided for based on estimates.

Long term compensated absences are provided for based on actuarial

valuation.

Effective April 1, 2006 the Group has early adopted Accounting Standard

(AS) 15 (Revised), ‘Employee benefits’ issued by the Institute of Chartered

Accountants of India. Accordingly, the Group has recorded charge for

compensated absence of Rs. 138,345 for year ended March 31, 2007.

Further in accordance with the transitional provision of AS 15 (Revised),

the compensated absence pertaining to years prior to April 1, 2006

amounting to Rs. 93,378 has been adjusted against general reserve.

i. Operating leases

Leases of assets under which all the risks and rewards of ownership are

effectively retained by the lessor are classified as operating leases. Lease

payments under operating leases are recognized as an expense on a

straight-line basis over the lease term.

j. Income-tax

Tax expense comprises of current, deferred and fringe benefit tax.

Current income tax and fringe benefit tax is measured at the amount

expected to be paid to the tax authorities in accordance with the Indian

Income Tax Act. Deferred income taxes are recognized for the future tax

consequences attributable to timing differences between the financial

statement determination of income and their recognition for tax purposes.

The effect on deferred tax assets and liabilities of a change in tax rates

is recognized in income using the tax rates and tax laws that have been

enacted or substantively enacted by the balance sheet date. Deferred tax

assets are recognized and carried forward only to the extent that there is a

reasonable certainty that sufficient future taxable income will be available

against which such deferred tax assets can be realized. In situations

where there are carry forward losses, deferred tax asset is recognized

only if there is virtual certainty supported by convincing evidence that

future taxable income will be available against which deferred tax asset

can be realized. Unrecognized deferred tax assets of earlier years are

re-assessed and recognized to the extent that it has become reasonably

certain or virtually certain that future taxable income will be available

against which deferred tax assets can be realized. Deferred tax asset is

recognized only on those timing differences, which reverses in post tax

free period, as company enjoys exemption under Section 10A of Income

Tax Act, 1961.

Tax expense relating to overseas operations is determined in accordance

with tax laws applicable in countries where such operations are domiciled.

Advance taxes and provisions for current income taxes are presented in

the balance sheet after off-setting advance taxes paid and income tax

provisions arising in the same tax jurisdiction and enterprise.

k. Earnings per share

The earnings considered in ascertaining the Group’s earnings per

share comprise the net profit after tax. The number of shares used in

computing basic earnings per share is the weighted average number

of shares outstanding during the year. The number of shares used in

computing diluted earnings per share comprises the weighted average

number of shares considered for deriving basic earnings per share, and

also the weighted average number of shares, if any which would have

been issued on the conversion of all dilutive potential equity shares. The

number of shares and potentially dilutive equity shares are adjusted for

the bonus shares and sub-division of shares.


l. Share-based compensation/payments

The Group uses the intrinsic value method of accounting for its employee

share-based compensation plan and other share-based arrangements.

Under this method compensation expense is recorded over the vesting

period of the option, if the fair value of the underlying stock exceeds the

exercised price at the measurement date, which typically is the grant

date.

m. Provision and contingencies

A provision is recognized when an enterprise has a present obligation as

a result of past event and it is probable that an outflow of resources will

be required to settle the obligation, in respect of which a reliable estimate

can be made. Provisions are not discounted to its present value and

are determined based on management estimate required to settle the

obligation at the balance sheet date. These are reviewed at each balance

sheet date and adjusted to reflect the current management estimates.

3. Commitments and contingent liabilities

a. Capital commitments

Contracts remaining to be executed on capital account and not provided

for (net of advances) aggregates to Rs. 1,955,320 (includes capital

commitment through issuance of letter of intents of Rs. 998,819) as at

March 31, 2007 (March 31, 2006 – Rs. 801,100).

b. Contingent Liabilities

Financial bank guarantees given to banks aggregates to Rs. 39,384 as at

March 31, 2007 (March 31, 2006 – Rs. 11,111)

4. Leases

a. Where Company is lessee

Finance lease

The Group takes vehicles, furniture and fixture and computer equipments

under finance lease of upto five years. Future minimum lease payments

under finance lease as at March 31, 2007 and 2006 are as follows:


Principal Interest TotalNot later than one year 10,842 1,687 12,529Later than one year but not later than five years 15,537 1,601 17,138



Not later than one year 10,371 2,064 12,435 Later than one year but not later than five years 19,653 1,932 21,585


Operating lease

The Group has taken certain office premises and residential premises for

employees under operating lease, which expire at various dates through

year 2012. Gross rental expenses for the year ended March 31, 2007

aggregated to Rs. 425,610 (March 31, 2006 – Rs. 249,429). The

minimum rental payments to be made in future in respect of these leases

are as follows:

March 31, 2007 March 31, 2006

Not later than one year 337,542 275,051Later than one year but not later than five years 633,324 537,641

Later than five years 17,631 82,603 988,497 895,295

b. Where Company is lessor

The Company has given IT equipments under finance lease for a period

of five years. Present value of minimum lease payments receivable under

this finance lease as at March 31, 2007 are as follows:


Not later than one year 13,422Later than one year but not later than five years 23,221Total minimum payments receivable 36,643

5. Derivatives

The Group enters into forward foreign exchange contracts and option

contracts where the counter party is a bank. The Group purchases

forward foreign exchange contracts and option contracts to mitigate

the risks of change in foreign exchange rate on receivable and payables

denominated in certain foreign currencies. The Group considers the

risk of non-performance by the counter party as immaterial. As at

March 31, 2007 and 2006 the Group has following outstanding derivative

instruments:

March 31, 2007 March 31, 2006

Forward contracts – Sellin USD 123,000 115,000in EUR 3,500 6,250Option contracts – Sellin USD 16,500 18,000



The Group has following foreign currency exposures which are not

hedged as at March 31, 2007 and 2006.

March 31, 2007 March 31, 2006

Foreign currency receivables in USD 103,130 37,700 in EUR 35,614 8,779 in GBP 14,601 166 in JPY 446,547 – in CAD 836 – in CHF 1 – in Korean Won – 34,097 in SGD 14,699 5,709 in AED 1,217 – in MYR 13,658 –Foreign currency payablesin USD 128,980 55,024in EUR 34,695 2,844in GBP 14,586 1,090in SGD 9,446 4,581in RUB 212 –in MYR 5,435 –in JPY 293,569 –

6. Share-based compensation/payments

a. Employee Stock Purchase Scheme (‘ESPS’)


(“the Trust”) to provide equity-based incentives to key employees of the

Company. The Trust purchases shares of the Company from market

using the proceeds of loans obtained from the Company. Such shares

are offered by the Trust to employees at an exercise price, which







employees.








exercise price whereas, the balance shares shall be forfeited in favour of












the excess of market price of the underlying equity shares on the date

of grant of the stock options over the exercise price of the options is to

be recognized in the books of account and amortized over the vesting

period. However, no compensation cost would need to be recorded as

the scheme terms are fixed and the exercise price equals the market

price of the underlying stock on the grant date.




Number of shares

Opening balance of unallocated shares 120,888 70,606

Shares forfeited during the year 21,228 50,282

Closing balance of unallocated shares 142,116 120,888

Opening balance of allocated shares 2,080,546 3,393,936

Shares exercised during the year (1,704,106) (1,263,108)

Shares forfeited during the year (21,228) (50,282)

Closing balance of allocated shares 355,212 2,080,546

Shares eligible for exercise 164,712 1,830,774

Shares not eligible for exercise 190,500 249,772

Total allocated shares 355,212 2,080,546

b. Employee Stock Option Plan (‘ESOP’)

Pursuant to ESOP scheme approved by the shareholders of the Company

held on August 14, 2001, the Board of Directors, on March 4, 2002

approved the Employees Stock Option Scheme (‘the Scheme’) for issue

of 4,753,600 options to the employees and directors of the Company

and its subsidiaries. According to the Scheme, the Company has granted

4,598,920 options prior to the IPO and 559,000 options at various dates

after IPO. As per the scheme, each of 20% of the total options granted

will vest to the eligible employees and directors on completion of 12, 24,

36, 48 and 60 months and is subject to continued employment of the

employee or director with the company or its subsidiaries. Options have

exercise period of 10 years.


The weighted average share price for stock options granted during the

year, on the date of grant was Rs. 1,291 and the estimated weighted

average fair value of options granted during the year is Rs. 596.

The fair value of options granted during the period under the ESOP was

estimated on the date of the grant using the Black-Scholes model with

the following assumptions:

Dividend yield 0.39%Expected volatility 37%Risk-free rate of interest 6%Expected life 6.5 years

Had compensation cost been determined in a manner consistent with the

fair value approach, the Group’s net income and earnings per share as

reported would have changed to the amounts indicated below:

March 31, 2007 March 31, 2006

Net income as reported 3,722,796 2,376,525 Add: Compensation expense included in reported income – –

Less: Compensation expense determined using fair value of options (115,596) (70,728)

Proforma net income 3,607,200 2,305,797 Basic earnings per share

As reported 47.05 31.45 Proforma 45.59 30.51

Diluted earnings per shareAs reported 45.76 30.62 Proforma 44.37 29.72










Outstanding at beginning of year 2,756,880 280 4,151,850 274Granted 373,000 1,291 10,000 709Exercised (2,552,795) (270) (1,317,370) (266)Forfeited (46,600) (826) (87,600) (282)Outstanding at end of year 530,485 989 2,756,880 280

The details of options unvested and options vested and exercisable as on March 31, 2007 are as follows:

Range of exercise prices Shares Weighted average exercise price (Rs.)

Weighted average remaining contractual

life (Years)Options unvested 419-560 62,000 520 6.9

709-709 8,000 709 8.21,291-1,291 347,500 1,291 9.1

Options vested and 265-265 77,982 265 4.9Exercisable 419-560 35,003 505 6.8

530,485 989 8.1

7. Employee benefits


During the year ended March 31, 2007, the Group contributed following

amounts to defined contributions plans:

Provident fund 133,753Superannuation fund 43,676 177,429

Defined benefit plan-gratuity

The amounts recognized in the balance sheet are as follows:

Present value of funded obligations 131,397Fair value of plan assets (4,697)Present value of unfunded obligations 2,787Unrecognized past service cost –Net liability 129,487

Amounts in balance sheet:Liability 129,487Asset –Net liability 129,487

The amounts recognized in the profit and loss account are as follows:

Current service cost 22,147 Interest cost 5,928 Expected return on plan assets (136)Recognized net actuarial loss 31,644 Total, included in ‘employee benefit expense’ 59,583Actual return on plan assets 146



Changes in present value of defined benefit obligation representing

reconciliation of opening and closing balances thereof are as follows:

Defined benefit obligation at beginning of the period 84,581 Current service cost 22,147 Interest cost 5,928 Benefits paid (10,126)Actuarial loss 31,654 Defined benefit obligation at end of the period 134,184

Changes in the fair value of plan assets representing reconciliation of

opening and closing balances thereof are as follows:

Fair value of plan assets at beginning of the period 1,818 Expected return on plan assets 136 Actuarial gain 10Contributions by Employer 12,859Benefits paid (10,126)Fair value of plan assets at end of the period 4,697


below:

Discount rate 8.00%Expected return on plan assets 7.50%Withdrawal rates

Age (Yrs) Rates21-30 25%31-34 20%35-44 15%45-50 1%51-59 1%

The estimates of future salary increase considered in actuarial valuation

take account of inflation, seniority, promotions and other relevant factors

such as supply and demand in the employment market.

The Group evaluates these assumptions annually based on its long-term

plans of growth and industry standards. The discount rates are based on

current market yields on government bonds consistent with the currency

and estimated term of the post employment benefits obligations. Plan

assets are administered by the LIC and invested in lower risk assets,

primarily debt securities. The Group’s contribution to the fund for the

year ended March 31, 2008 is expected to be Rs. 20,018 The expected

benefit payments from the fund as of March 31, 2007 are below:


2008 23,3252009 24,5642010 29,8192011 35,3112012 42,1772013-2017 168,660

323,856

The Group has adopted AS 15 (Revised) from April 1, 2006 and this being

the first year of adoption of AS 15 (Revised) the Group has not given

disclosure for the following for previous four annual financial years:

1. the present value of the defined benefit obligation, the fair value of

the plan assets and the surplus or deficit in the plan; and

2. the experience adjustments arising on plan liabilities and plan

assets.

8. Acquisition of companies

a. Mantas Inc. (“Mantas”)

On October 2, 2006, the Company through its subsidiaries

i-flex America inc., acquired 100% ownership in Mantas for a total

consideration of USD 126,431 (Rs. 5,806,963) including transactions

cost of USD 5,002 (Rs. 229,761). The Company completed all the closing

formalities related to the acquisition and remitted cash to the erstwhile

shareholders of Mantas on October 2, 2006.

Mantas together with its subsidiaries, provides of anti-money laundering

and compliance solutions to customer in the financial service industry.

It is headquartered in Herndon, Virginia, United States. Mantas has

Behavior Detection Platform which addresses regulatory compliance, loss

prevention and revenue generation through its suite of risk management,

anti-money laundering, fraud, employee surveillances and broker and

trading compliance monitoring applications.

The net assets of the acquired business comprise of the following:

Cash 317,760Current assets 553,748Current liabilities (533,522)Fixed assets 58,964Goodwill 5,410,013Purchase Consideration 5,806,963

Subsequent to acquisition i.e. October 2, 2006, the Company has

consolidated the results of Mantas in its consolidated financial

statements.

b. i-flex Consulting (Asia Pacific) pte ltd

On January 3, 2007, the Company through its subsidiaries

i-flex solutions pte ltd, acquired 100% ownership in

i-flex Consulting (Asia Pacific) pte ltd erstwhile known as The Capital

Markets Company Pte. Ltd (‘CAPCO’) for a total consideration of

USD 1,050 (Rs. 46,366). The Company completed all the closing


shareholders of CAPCO on January 3, 2007.

The net assets of the acquired business comprise of the following:

Cash 14,729Current assets 21,728Current liabilities (28,643)Tangible assets 228Goodwill 38,324Purchase consideration 46,366

Subsequent to acquisition i.e. January 3, 2007, the Company has

consolidated the results of i-flex Consulting in its consolidated financial

statements.



Particulars Products Services KPO-Services

Joint ventures

Corporate Eliminations Total

RevenueExternal revenue 11,193,090 8,919,800 444,775 51,717 – – 20,609,382 Inter-segment revenue 17,953 – – – – (17,953) – Total revenue 11,211,043 8,919,800 444,775 51,717 – (17,953) 20,609,382 Cost of revenue (4,350,515) (6,391,068) (298,432) (26,035) – – (11,066,050)Gross profit 6,860,528 2,528,732 146,343 25,682 – (17,953) 9,543,332 Selling and marketing expenses (2,172,446) (371,270) (111,339) (1,141) – – (2,656,196)General and administrative expenses (866,690) (424,709) (126,313) 631 (1,045,554) – (2,462,635)Depreciation and amortization (307,078) (241,485) (24,624) (5,685) (74,151) – (653,023)Inter segment expense – – – (17,953) – 17,953 – Income (loss) from operations 3,514,314 1,491,268 (115,933) 1,534 (1,119,705) – 3,771,478

Interest income 376,907 Other expenses, net (17,253)Income before provision for taxes 4,131,132 Provision for taxes (415,958)Net income for the year before share of profit of associate company 3,715,174

Share of profit of associate company 7,622 Net income 3,722,796

Other informationCapital expenditure by segment 5,686,716 191,662 13,100 7,857 85,784 – 5,985,119 Segment assets 12,999,204 5,732,294 336,175 36,378 10,249,571 – 29,353,622 Segment liabilities 3,118,195 930,957 115,417 8,129 1,160,717 – 5,333,415 Shareholders‘ funds – – – – 24,020,207 – 24,020,207

9. Segment information

Business segments are defined as components of an enterprise about

which separate financial information is available. This information is

reviewed and evaluated regularly by the management, in deciding how to

allocate resources and in assessing the performance.

The Group is organized geographically and by business segment. For

management purposes the Group is primarily organized on a worldwide

basis into three business segments:

a. Product licenses and related activities (‘Products’) and

b. IT solutions and consulting services (‘Services’)

c. Knowledge Processing Services (‘KPO-Services’)

The business segments are the basis on which the Group reports its

primary operational information to management. Product licenses and

related activities segment deals with banking software products like the

FLEXCUBE suite of products, Reveleus, MicroBanker and Daybreak which

cater to needs of corporate, retail and investment banking as well as

treasury operations and data warehousing requirements. The related

activities include enhancements, implementation and maintenance

activities. Product segment further comprises of casualty insurance

carriers which include insurance product and process configuration, policy

administration, customer management, billing and claims management.

Anti-money laundering and compliance solutions are the new additions

to product segment on acquisition of Mantas.

IT solutions and consulting services comprise of bespoke software

development, provision of computer software solutions and related

consulting services arising from such activities. This segment is further

sub-divided in the following sub-segments i.e. Business intelligence,

Customer relationship management, Brokerage, e-commerce, Internet

services and IT and Business consulting.

KPO-Services comprises of knowledge process outsourcing services to

the mortgage banking industry.

The activities of the joint venture are disclosed as a separate segment.




Particulars Products Services KPO-Services

Joint ventures

Corporate Eliminations Total

RevenueExternal revenue 7,637,364 6,929,821 234,670 21,148 – – 14,823,003 Inter-segment revenue 3,143 – – – – (3,143) – Total revenue 7,640,507 6,929,821 234,670 21,148 – (3,143) 14,823,003 Cost of revenue (2,733,299) (4,904,950) (150,239) (5,611) – – (7,794,099)Gross profit 4,907,208 2,024,871 84,431 15,537 – (3,143) 7,028,904 Selling and marketing expenses (1,623,237) (312,837) (70,855) (2,029) – – (2,008,958)General and administrative expenses (424,170) (345,069) (159,870) (6,644) (822,053) – (1,757,806)Depreciation and amortization (179,197) (173,576) (24,741) (2,506) (80,348) – (460,368)Provision for impairment of goodwill – – – – (57,958) – (57,958)Inter segment expense – – – (3,143) – 3,143 – Income (loss) from operations 2,680,604 1,193,389 (171,035) 1,215 (960,359) – 2,743,814

Interest income 294,552 Other expenses, net (9,907)Income before provision for taxes 3,028,459 Provision for taxes (560,417)Net income for the year before minority interest, share of profit of associate company 2,468,042

Minority interest 2,564 Share of profit of associate company 3,328 Net income for the year before prior period items 2,473,934

Prior period items, net of taxes (97,409)Net income 2,376,525

Other informationCapital expenditure by segment 304,199 316,215 78,695 5,963 181,179 – 886,251 Segment assets 4,634,950 4,036,178 385,410 14,236 8,726,745 – 17,797,519 Segment liabilities 1,580,865 498,704 76,303 7,723 1,826,752 – 3,990,347 Shareholders’ funds – – – – 13,807,172 – 13,807,172

Segment revenue and expense

Revenue is generated through licensing of software products as well as by providing software solutions to the customers including consulting services and

knowledge process outsourcing services. The expenses which are not directly attributable to a business segment are shown as corporate expenses.

Segment assets and liabilities

Segment assets include all operating assets used by a segment and consist principally of debtors, deposits for premises and fixed assets. Segment

liabilities primarily includes deferred revenues, finance lease obligation, advance from customer, Accrued employee cost and other current liabilities.

While most such assets and liabilities can be directly attributed to individual segments, the carrying amount of certain assets and liabilities used jointly by

two or more segments is allocated to segments on a reasonable basis. Assets and liabilities that cannot be allocated between the segments are shown

as part of corporate assets and liabilities.


The following table shows the distribution of the group’s consolidated sales by geographical market:

Year EndedMarch 31, 2007

Year EndedMarch 31, 2006

Regions % %

United States of America 8,145,729 39% 6,943,534 47%Europe 5,699,472 28% 3,364,672 23%Asia Pacific 3,639,511 18% 2,279,064 15%Middle East, India and Africa 2,984,815 14% 2,083,105 14%Latin America and Caribbean 139,855 1% 152,628 1%

20,609,382 100% 14,823,003 100%


10. Related party transactions

Names of Related Parties and description of relationship:

Relationship Names of related partiesPrincipal shareholder and its affiliates (“Oracle”) Oracle Global (Mauritius) Limited(from November 18, 2005) Oracle (India) Private Limited

Oracle USA, Inc.Oracle Corporation (Thailand) Co Ltd

Promoter Company and it’s affiliates (“Citigroup”) OrbiTech Limited (till November 17, 2005) Polaris Software Lab Limited

Citigroup Inc.Citicorp Technology Holdings Inc., USACitibank branchesCiticorp Information Technology, Inc. e-Serve International Limited

Joint Venture Flexcel International Private Limited

Key Managerial Personnel Rajesh Hukku – Chairman and Managing DirectorR Ravisankar – Chief Executive Officer – International Operations and Business Development

Deepak Ghaisas – Chief Executive Officer – India Operations, Chief Financial Officer and Company Secretary

N R Kothandaraman (N R K Raman) – Chief Operating Officer – India Operations

Makarand Padalkar – Chief of Staff and Investor RelationsJoseph John – Executive Vice President, Universal Banking Products Division

V Shankar – Executive Vice President, PrimeSourcingOlivier Trancart – Head Global Sales and MarketingNandkumar Kulkarni – Sr. Vice President, Retail Banking Products Division

Atul Gupta – Sr. Vice President, Process and Quality Management GroupVijay Sharma – Sr. Vice President, Consulting and System IntegrationS Hariharan – Sr. Vice President, Infrastructure ServicesVivek Govilkar – Sr. Vice President, Human Resources V Senthil Kumar – Chief Marketing Officer, i-flex solutions b.v. Kishore Kapoor – CEO i-flex solutions pte ltdCafo Boga – COO – i-flex solutions inc.Sajal Mukherjee – CEO SuperSolutions Corporation & Vice President North America Sales

Sanjib Ganguly – CEO – Equinox CorporationYung Wu – CEO – Castek Software Inc.S Ramakrishnan – CEO – Mantas Inc.







March 31, 2006

OracleRevenue 252,984 26,313 223,032 28,066 Purchase of Software 238,561 123,351 – – Professional fees 1,197 846 – – Other expenses 6,095 1,106 (2,917) (7,394)Reimbursement of Expenses – 722 – – Referral fees – 7,353 – –Deferred revenue – – (160,688) (5,998)Dividend paid 200,742 – – –

Citigroup (Note 1)Revenue – 2,649,667 – – Reimbursement of Expenses – 27,116 – – Bank charges – 2,415 – – Dividend paid – 161,180 – – Interest on bank deposits – 6,860 – –

Flexcel International Private Limited Revenue 49,929 10,626 – 6,119 Deferred revenue 3,662 – (3,662) (653)

Key managerial personnelRent 128 166 – 114 Rental deposit 125 – 325 200 Remuneration (Note 2) 235,336 216,109 – – Lease fees 3,462 – – – Dividend paid 8,441 8,097 – – Total 1,000,662 3,241,927 56,090 20,454

Notes:

1. Balances as on March 31, 2007 and 2006 with promoters and affiliates have not been disclosed as they cease to be related party. Previous years transactions with

Citigroup have been disclosed till November 17, 2005.

2. Includes salary, bonus and perquisites.



11. Aggregate expenses



Salaries and bonus 9,877,743 6,916,529 Staff welfare expenses 266,086 208,356 Contribution to provident and other funds 234,175 144,040 Travel related expenses (net of recoveries) 2,148,210 1,645,746 Professional fees 1,383,748 977,181 Application software 641,250 375,737 Rent 457,366 262,009 Communication expenses 254,033 202,470 Advertising expenses 220,812 138,939 Power 138,783 106,763 Rates and taxes 26,342 15,052 Repairs and maintenance: Leasehold premises 15,420 8,698 Computer equipments 40,518 44,068 Others 28,365 22,410 Insurance 60,156 43,637 Finance charge on leased assets 5,284 2,665 Advances written off 8,351 22,800 Provision for doubtful debts, net 87,611 52,535 Other expenses 290,628 371,228

16,184,881 11,560,863

12. During the year, the Company received income tax assessment order for financial year ended March 31, 2004. As per the order, the Company

has been allowed income tax relief in respect of foreign taxes to the extent of non 10A income earned by the Company from respective foreign

jurisdiction. Accordingly, the Company has recorded tax credit of Rs. 86,130 pertaining to periods till March 31, 2006.

13. Prior year comparatives

Prior year amounts have been reclassified, where necessary to conform with current year presentation.




Rajesh Hukku

Chairman

& Managing Director

Y M Kale

Director


Partner


Deepak Ghaisas

Company Secretary

Tarjani Vakil

Director

Mumbai, India

July 2, 2007

Mumbai, India

May 1, 2007




2007 2006

Cash flows from operating activitiesIncome before provision for taxes and prior period items 4,131,132 3,028,459

Adjustments to reconcile income before provision for taxes to cash provided by operating activities:

Depreciation and amortization 653,023 460,368 Deferred compensation expense 33,451 – Loss (Profit) on sale of fixed assets, net 4,554 (314)Reversal of provision for diminution in value of investments, net – (5,528)Loss on sale of investments – 4,785 Advances written off 8,351 22,800 Marked to market of current investment 810 – Interest income (376,907) (294,552)Effect of exchange difference on cash and bank balances 10,102 (34,347)Finance charge on leased assets 5,284 2,665 Provision for impairment of goodwill – 57,958 Provision for doubtful debts, net 87,611 52,535

4,557,411 3,294,829 Changes in assets and liabilities, net of effect of acquisitionIncrease in sundry debtors and unbilled revenue (2,645,095) (1,691,184)Increase in loans and advances (1,690,241) (705,842)Increase in current liabilities and provisions 1,190,875 1,133,689 Cash from operating activities 1,412,950 2,031,492 Payment of domestic and foreign taxes (1,083,505) (952,397)Net cash provided by operating activities 329,445 1,079,095

Cash flows from investing activitiesAdditions to fixed assets including capital work in progress (1,242,105) (1,220,372)Net investment in lease (20,610) – Acquisition of customer contract and product intellectual property rights (‘IPR’) – (43,009)Acquisition of companies, net of cash acquired (5,520,840) (34,962)Investment in Dhanalakshmi Bonds – (10,000)Proceeds from sale of fixed assets 13,157 8,948 Bank fixed deposits having maturity of more than 90 days matured 7,679,391 7,600,014 Bank fixed deposits having maturity of more than 90 days booked (6,741,189) (8,122,931)Proceeds from sale of investments 20,000 2,621 Interest received 352,312 301,072 Net cash used in investing activities (5,459,884) (1,518,619)

Cash flows from financing activitiesIssue of shares against Employee Stock Option Plan (‘ESOP’) scheme and options to IBM 678,514 391,761 Issue of shares to Oracle Global Mauritius Limited 5,814,999 – Share application money from GE 361,238 40,441 Advance against equity shares to be issued under ESOP Scheme – 10,309 Repayment of loan by Employee Stock Purchase Scheme (‘ESPS’) Trust 4,925 117,500 Payment of dividend and tax thereon (436,350) (428,207)Payment of lease obligations (16,302) (14,834)Net cash provided by financing activities 6,407,024 116,970

Effect of exchange difference on cash and bank balances (10,102) 34,347

Net increase (decrease) in cash and cash equivalents 1,266,483 (288,207)Cash and cash equivalents at beginning of the year 2,085,290 2,373,497 Cash and cash equivalents at end of the year (Note 1) 3,351,773 2,085,290

Consolidated statement of cash flow for the year ended March 31



2007 2006

Note 1: Component of cash and cash equivalentCash in hand 2,133 4,354 Cheques on hand 50,111 86,975 Balances with scheduled banks:

Current accounts in foreign currency 463,916 428,269 Other current accounts 84,079 159,153 Deposit accounts 3,715,847 4,382,123 Deposit amount ofUnutilized IPO funds 287,190 528,728 Preferential issue 497,263 – Margin money deposit 19,292 1,883 Unclaimed dividend amount 2,065 2,027

Balances with non-scheduled banks: Current accounts in foreign currency 1,743,342 1,275,534 Deposit account in foreign currency 332,516 389

Total cash and bank balances 7,197,754 6,869,435

Less:Bank deposits having maturity of more than 90 days (3,824,624) (4,780,235)Margin money deposit (19,292) (1,883)Unclaimed dividend accounts (2,065) (2,027)Cash and cash equivalents at end of the year 3,351,773 2,085,290




Rajesh Hukku

Chairman

& Managing Director

Y M Kale

Director


Partner


Deepak Ghaisas

Company Secretary

Tarjani Vakil

Director

Mumbai, India

July 2, 2007

Mumbai, India

May 1, 2007

Consolidated statement of cash flow (continued)for the year ended March 31


Creating Value

i-fl ex solutions ltd and Subsidiaries



United States Generally Accepted Accounting

Principles (US GAAP).



The following discussion is based on our audited consolidated financial

statements, which have been prepared in accordance with US GAAP.

The financial statements are consolidated for i-flex (“the Group”) that

includes i-flex solutions ltd and its subsidiaries, i.e., i-flex solutions pte ltd.,

i-flex America inc., i-flex solutions inc., SuperSolutions Corporation,

Castek Software Inc., Mantas Inc., i-flex Consulting (Asia Pacific) pte ltd.,

i-flex Processing Services Limited and ISP Internet Mauritius Company.

Investments in joint venture company, Flexcel International Private Limited,

and in associate company, Login SA, have been accounted for using

the equity method, since we exert significant influence over their

operations.

You should read the following discussion of our financial conditions and

results of operations together with the detailed consolidated US GAAP

financial statements and the appended notes to those statements. Our

fiscal year ends on March 31 of each year.

Information technology in the financial services industry

The financial services industry is undergoing transformation, both in how

it addresses its customers, and in how it runs its operations. The entry of

non-traditional players, global mergers and acquisitions, ever increasing

demands from customers to deliver a ubiquitous and next generation

customer experience, a demanding regulatory environment, and the

emergence of new customer interaction channels have contributed to

this shift.

Governance, risk and compliance has emerged as a strategic priority

for financial institutions. The post 9/11 environment has seen financial

institutions grappling with the challenges of increasing regulatory

complexity and also an emerging convergence of the areas of governance

driven by regulations such as Sarbanes-Oxley, risk management

with regulations in Basel II, and compliance driven by regulations as

anti-money laundering, the Patriot Act, data privacy, etc.

In the core transaction processing area, increasing number of financial

institutions are getting more and more receptive to the value proposition

and benefits of core banking transformation, and are taking concrete

steps in that direction.

Information Technology (IT) plays a major role in such a scenario – acting as

an enabler of a new customer-centric outlook, and a means to improving

operational efficiency, while driving compliance to new regulatory norms,

reducing costs and achieving competitive differentiation.

In conjunction with the Oracle, i-flex has a very clearly articulated value

proposition and strategy, which is centered around the business priorities

and challenges of financial institutions in the market today. Our approach

is centered on addressing the 4Cs that are affecting financial institutions

today: Competitive differentiation, Cost reduction, Customer intimacy and

Compliance and risk management. i-flex has organized the entire range

of offerings and value propositions to align with these priorities.

Overview

i-flex® solutions is in the business of providing comprehensive IT

solutions to the financial services industry worldwide. Playing the role of

a specialized IT partner to financial services institutions worldwide, our

approach is balanced with a wide range of products, custom solutions

and consulting services.

Our solutions portfolio includes packaged applications, custom application

software development, deployment, maintenance and support services,

business and IT consulting services, technology deployment and

management services and the knowledge process outsourcing in the

financial services domain.

As of March 31, 2007, the Group cumulatively serviced 753 customers

in 128 countries through its portfolio of products and services.

We are organized by region and business segment. We have two

major business segments - the Products Business (comprising product

licensing, customization, implementation and support) and the Services

Business (providing customized software and consulting services). We

have also recently launched Knowledge Process Outsourcing Services

(value-added knowledge outsourcing). These segments are described in

greater detail below:

Products

The i-flex portfolio includes FLEXCUBE®, a complete banking product

suite for retail, consumer, corporate, investment and internet banking,

and asset management and investor servicing. Since its launch in 1997,

more than 315 financial institutions in over 105 countries have chosen

FLEXCUBE. The product suite has been ranked the world’s No. 1 selling

core banking solution for five consecutive years--2002, 2003, 2004

2005 and 2006--by the UK-based International Banking Systems (IBS).

The product suite’s portfolio was further enriched last year by adding

products targeted at Islamic Banking. With the new FLEXCUBE SWIFTNet

Services Integrator suite, banks are able to leverage the SWIFTNet

(SWIFT’s IP-based messaging solution) environment for increased

business value. Increased delivery capacity, and improved functionality

through our association with Oracle made this the best ever year for

FLEXCUBE.

The ReveleusTM suite of analytical applications for the financial services

industry is focused in the areas of risk management, customer insight,

and enterprise-wide financial performance. Reveleus’ Risk Analytics

solves the most complex global challenges facing the financial industry

today, including multi-jurisdictional Basel II compliance and operational

risk management. Reveleus was ‘Highly Commended’ for its Compliance

Initiative Innovation in The Banker Technology Awards for 2006.

Mantas® is a wholly owned subsidiary of i-flex. Mantas’ Behavior

Detection PlatformTM is the industry’s most comprehensive solution

for detecting risk, enhancing customer relationships, and addressing

regulatory requirements in the anti-money laundering, trading and broker

compliance areas. Mantas, along with Reveleus, offers a single, unified

platform for governance, risk and compliance. Waters Magazine ranked

Mantas for Best Anti-Money Laundering Solution for 2004, 2005 and

2007 and Best Compliance Solution for 2003.

DaybreakTM is a comprehensive consumer lending system that automates

all aspects of financing from origination, to servicing and collections for

installment loans; consumer leases, revolving products and home equity

lines of credit. It empowers financial services organizations to improve

productivity, enhance customer service and manage risks.

Together with Castek® Software Inc., a majority-owned subsidiary, i-flex

offers strategic business software and services for the global Property

and Casualty insurance market. Castek provides insurance carriers

with a suite of core business processing systems for insurance product

Management’s discussion and analysis of financial condition and results of operations


and process configuration, policy processing, customer billing, claims

management and services.

Our solution portfolio rests on SOA, enabling interoperability, extensibility

and standardization. Encompassing cash management, trade, treasury,

payments, lending deposits, private wealth management, asset

management, among others, it helps financial institutions become

‘model enterprises’, reduce costs, improve efficiency, and increases their

addressable market and asset size.

Services

PrimeSourcingTM, i-flex’s global IT services division, provides customized

software solutions exclusively for the financial services industry

worldwide, with a dedicated focus on delivering solutions through domain

specialization. While at a broad level this domain specialization focuses

on corporate, investment, private and retail banking, and the insurance

domains, each of these domains are further segmented into relevant

practice lines and Centers of Excellence. These solutions are supported

by a comprehensive pool of proprietary methodologies, best practices,

and backed by SEI-CMMi Level 5 compliant processes.

PrimeSourcing’s Oracle practice group caters to specialized practices

in Business Intelligence, Fusion Middleware (SOA), and Oracle

Apps implementation. The division also leverages well-established

CoBIT-compliant global infrastructure and development centers to deliver

services in an optimized onsite-near-shore-offshore model.

The i-flex ConsultingTM division offers an end-to-end consulting

partnership, providing comprehensive business and technology solutions

that enable financial services enterprises to improve process efficiencies;

optimize costs; meet risk and compliance requirements; define IT

Architecture; and, manage the transformation process. Consulting

services are offered in the areas of business transformation, risk and

compliance, program management, IT architecture, IT governance and

process improvement. i-flex’s solution approach for financial services

institutions is process-driven and rests on the i-flex Process Framework for Banking (iPFBTM), a tool for transforming banking operations. It is a

process repository created by drawing on i-flex’s domain expertise and

best practices.

i-flex’s Technology Deployment & Management Services (TDMS) division specializes in conceptualizing, designing, deploying and

managing IT Infrastructure. The i-RIMS (i-flex Remote Infrastructure

Management Services) Center manages IT infrastructure remotely from

India on a 24 x 7 basis through its on-site-offshore model. TDMS services

are based on best practices such as ITIL (IT Infrastructure Library), COBIT

(Control Objectives for Information and related Technology) model, a

globally accepted standard for IT management and control framework,

and BS7799 (ISO17799).

i-flex Processing Services is a 100% owned subsidiary of i-flex solutions,

with consultants experienced in various functions in the asset

management space, financial modeling and valuation KPO. The services

provided encompass IT software, consulting, KPO and infrastructure.

Equinox Corporation, a wholly owned subsidiary of i-flex, excels in

providing cost-effective and high-quality knowledge process outsourcing

services (KPO) to the financial services industry. Equinox was selected

in the Leaders Category for the ‘2007 Global Outsourcing 100’ by The

International Association of Outsourcing Professionals (IAOP). The Global

Outsourcing 100 defines the standard for excellence in outsourcing

service delivery. It was also recognized among the ‘Top 50 Global

Outsourcers & Top 30 Global Offshore Vendors’ by the International

Association of Outsourcing Professionals (IAOP).

Corporate developments

During the year, Oracle Global (Mauritius) Limited (“Oracle”) acquired

further ownership interest in the Company taking its overall ownership

holding to 81.02% as on March 31, 2007.

i-flex acquired Mantas, Inc., USA in August 2006. This acquisition was

done through the Company’s wholly owned subsidiary i-flex America inc.,

USA.

i-flex acquired Capital Market Company Pte Limited (“CAPCO”),Singapore

in January 2007. This acquisition was done through the company’s

wholly owned subsidiary i-flex solutions pte ltd, Singapore.

Business metrics

Our total revenues in fiscal 2007 were Rs. 20,381.1 million, representing

an increase of 37% from Rs. 14,835.2 million in fiscal 2006 and a CAGR

of 36% since fiscal 2004. The net income in fiscal 2007 was Rs. 2,768.1

million, as against Rs. 2,190.4 million in fiscal 2006 and a CAGR of 16%

since fiscal 2004. Our net income margins are 14% and 15% for the

fiscal years 2007 and 2006 respectively. We define net income margins

for a particular period as the ratio of net income to total revenues during

such period. We had 9,068 employees as on March 31, 2007 against

6,858 at the end of the previous year.

Products business


Year ended March 31

2007 2006

Products revenue 10,966.2 7,570.9 Cost of products revenue (4,855.6) (2,978.7)Sales and marketing expenses (2,210.3) (1,672.0)General and administrative expenses (823.0) (427.5)


*Operating margin is defined as income from operations from the

Products Business (excluding corporate expenses) as a percentage of

total products revenue.

Products revenue

As of March 31, 2007, our products included the FLEXCUBE suite,

Reveleus, Daybreak Lending Suite and Mantas Behavior Detection

Platform. Our products revenue represented 54% and 51% of our

total revenues for fiscal years ended 2007 and 2006, respectively. Our

products revenue were Rs. 10,966.2 million during the fiscal year ended

March 31, 2007, an increase of 45% from Rs. 7,570.9 million during the

fiscal year ended March 31, 2006. In the Fiscal 2007, the license fees

recognition has been lower based on milestones and project completion

as compared to Fiscal 2006 from 35% to 25%. Further, the amortization

cost (Rs. 185 million) because of the acquisitions in Fiscal 2007 have

contributed to registered losses, this has contributed to the reduction in



the margins as compared to Fiscal 2006. The deferred revenue at the

end of the Fiscal 2007 increased by 79% as compared to the figure at

end of the Fiscal 2006.

Our products revenue comprise license fees, professional fees for

implementation and enhancement services and annual maintenance

contract (Post Contract Support – ‘PCS’) fees for our products.

License fee

Our standard licensing arrangements for products provide the user a

perpetual right to use the product for a pre-defined number of users

and sites upon payment of a license fee. The license fee is a function

of a variety of quantitative and qualitative factors including the number

of copies sold, the number of concurrent users supported, the number

and combination of the modules sold, and the number of sites and

geographical locations supported. The licenses are non-exclusive,

personal, non-transferable and royalty free.

Implementation fee

Along with licensing of products to these customers, we provide

services related to the implementation of these products at customer

sites, integration with other customer systems and enhancement of

products to address specific requirements of customers. The customer

is typically charged a service fee either on a fixed price basis or a time

and material basis. Implementation and enhancement services comprise

functional enhancements, interface building, implementation planning,

data conversion, training and product walkthroughs and are provided to

customers who enter into licensing arrangements with us.

Annual maintenance contracts fees

We also earn fees relating to annual maintenance contracts after

the implementation of a product and following the expiration of the

warranty period. Under these agreements, we provide technical

support, maintenance, problem solving and upgrades of the licensed

products. These support agreements are typically entered for a period of

12 months.

As the revenues from license fees and implementation and enhancement

services rendered by us depend on the number of new customers we

add and the implementation project lifecycle, these revenues typically

vary from year to year. The annual maintenance contracts generate

steady revenues and would grow to the extent of new customers coming

under Post Contract Support. The percentages of our revenue from these

streams are as follows:

Fiscal Year EndedMarch 31

2007 2006

License fees 25% 35%Implementation and customization fees 58% 47%

PCS arrangements 17% 18%Total 100% 100%

The consistency, from one period to another, of the revenues recognized

from license fees and implementation and customization services

rendered by us, depends on the number of new customers, milestones

completion and timing of the related implementation. Our Post Contract

Support arrangements, though, generate steady revenues that are

therefore more predictable.

Cost of products revenue and operating expenses

The cost of our products revenue consists of costs attributable to

the implementation, enhancement, maintenance and continued

development, including research and development efforts, of our core

product offerings - the FLEXCUBE suite of products, Reveleus and other

products. These costs primarily consist of compensation expenses for all

of our IT professionals working in the products business, project-related

travel expenses, professional fees paid to software services vendors and

the cost of application software for internal use.


development costs are expensed as incurred until technological feasibility

is established. Software product development cost incurred subsequent

to the achievement of technological feasibility is not material and is

expensed as incurred.

Our operating expenses include selling and marketing expenses, general

and administrative expenses that consist of commissions payable to

our partners, product advertising, marketing expenses and allocated

overhead expenses associated with support and monitoring functions

such as human resources, facilities and infrastructure expenses, quality

assurance and financial control, and depreciation and amortization.

Services business


Year ended March 31

2007 2006

Services revenue 8,970.1 7,029.7 Cost of services revenue (6,485.9) (5,014.1)Sales and marketing expenses (379.3) (327.6)General and administrative expenses (428.6) (349.4)



Services business (excluding corporate expenses) as a percentage of

total services revenue.

Services revenue

Our services revenue represented 44% and 47% of our total revenues for

the fiscal year ended March 31, 2007 and 2006. Our services revenue

were Rs. 8,970.1 million in the fiscal year ended March 31, 2007,

an increase of 28% from Rs. 7,029.7 million in the fiscal year ended

March 31, 2006.

The contracts relating to the services business are either time and

material contracts or fixed price contracts. The percentage of total

services revenue from time and material contracts was 89% in fiscal

2007 and 81% in fiscal 2006, with the remainder of our services revenue

attributable to fixed price contracts.

We provide our services through offshore centers located in India, on-site

teams operating at customers’ premises and our development centers

located in other parts of the world. Offshore services revenue consists of

revenue from work conducted at our development centers in India and

for Indian customers at their locations. On-site revenues consist of work

conducted at customer premises outside India and our development

centers outside India. The composition of our on-site and offshore


revenue is determined by the project life cycle. Typically, the work

involving the design of new systems or relating to a system roll-out would

be conducted onsite, while the core software development, maintenance

and support activity may be conducted offshore. We received 69% and

66% of our services revenue from on-site work and 31% and 34% from

off-shore work during the fiscal years 2007 and 2006 respectively.

Our services revenue and profits are also affected by the rate at which

our software professionals are utilized. The utilization rate is calculated

as the percentage billed for our personnel in a particular period to the

average number of staff that is considered billable in that same period.

For the purpose of calculating the number of billable staff, we exclude

personnel that are engaged in management, administration, marketing

support, initial training (six months for personnel without any prior

work experience and three months for personnel with over two years

experience) and personnel allocated to the approved internal investment

projects. Our on-site personnel deployment on projects is based on

project needs and therefore such personnel are fully utilized. Utilization

rates for our services business were 71% and 73% for fiscal 2007 and

2006 respectively. We have been able to restrict the drop in the operating

margins to only 73 basis points despite the additional staff costs due to

wage hikes and lower utilization.

Cost of services revenue and operating expenses

The cost of revenues for services consists primarily of compensation

expenses for our software professionals; cost of application software

for internal use, travel expenses and professional fees paid to software

services vendors. We recognize these costs as incurred. Our operating


allocated overhead expenses associated with support and monitoring

functions such as human resources, corporate marketing, information

management systems, quality assurance and financial control, and

depreciation and amortization.

Knowledge Process Outsourcing (KPO) services business


Year ended March 31

2007 2006

Services revenue 444.8 234.7 Cost of services revenue (298.4) (153.8)Sales and marketing expenses (111.3) (67.3)General and administrative expenses (126.3) (159.9)

Depreciation and amortization (31.0) (38.1)Income from operations (122.3) (184.4) Operating margin* (28%) (79%)


Knowledge Process Outsourcing (KPO) services business (excluding

corporate expenses) as a percentage of total services revenue

Knowledge Process Outsourcing (KPO) services revenue

Our KPO services revenue represented 2.2% and 1.6% of our total

revenues for the fiscal year ended March 31, 2007 and 2006. Our

KPO services revenue were Rs. 444.8 million in the fiscal year ended

March 31, 2007, an increase of 90% from Rs. 234.7 million in the

fiscal year ended March 31, 2006. This business line is currently in

investment phase, and in spite of these investments, due to aggressive

cost management, we were able to reduce the losses in the business

from 79% to 28%.

Cost of Knowledge Process Outsourcing (KPO) services revenue and operating expenses

The cost of revenues for KPO Services consists primarily of compensation

expenses for our professionals, travel expenses and professional fees

paid to vendors. We recognize these costs as incurred. Our operating


allocated overhead expenses.

Geographic breakup of revenues

Our overall revenues continue to be well diversified. The following table

represents the percentage breakup of our revenues for our products and

services business by region:



Products Revenue

Services Revenue

Total Revenues

Products Revenue

Services Revenue

Total Revenues

USA 21% 62% 40% 25% 70% 47%Middle East,

India and

Africa 20% 8% 15% 22% 5% 14%Asia Pacific 20% 16% 18% 19% 13% 16%Europe 38% 14% 26% 33% 11% 22%Latin

America

and

Caribbean 1% 0% 1% 1% 1% 1%Total 100% 100% 100% 100% 100% 100%

Customer concentration

Our operations and business depend on our relationships with a number

of large customers. Our revenues from our top ten customers for fiscal

2007 and 2006 were at 22% of our total revenues in both the years.

The top ten customers in the services business contributed to 30% of

the total services revenue, and the top ten customers in our products

business, contributed to 33% of the total products revenue during

fiscal 2007.

The percentage of total revenues during fiscal years 2007 and 2006

that we derived from our largest customer, largest five customers and

largest ten customers is provided in the accompanying table. In the

table, various affiliates of Citigroup are classified as separate customers,

and the last row sets forth the percentage of total revenues we earned

from the various affiliates of Citigroup with respect to our products and

services business individually and with respect to our business taken as

a whole.

Products Revenue

Services Revenue

Total

2007 2006 2007 2006 2007 2006

Top customer 5% 6% 5% 6% 3% 3%Top 5 customers 20% 22% 18% 20% 12% 13%Top 10 customers 33% 33% 30% 33% 22% 22%Citigroup and its affiliates 16% 18% 44% 55% 29% 36%

Trade receivables

Trade receivables as of fiscal March 31, 2007 and 2006 were Rs. 8,644.4

and Rs. 5,655.4 million respectively. Our days sales outstanding (which



is the ratio of sundry debtors to total sales in a particular year multiplied

by 365) for fiscal 2007 and 2006 were approximately 115 and 121

respectively. The Group periodically reviews its account receivables

outstanding as well as the aging quality of the account receivables,

customer relationship and history of the client. The following table

presents the age profile of our debtors:

2007 2006

Period in days 0-180 87% 86%More than 180 13% 14%Total 100% 100%

Foreign currency and treasury operations


while a majority of our expenses are incurred in Indian Rupees with the

remaining expenses incurring in US Dollars and European currencies.

We follow a conservative philosophy of treasury operations and the policy

is to invest funds substantially in time deposits with well-known and sound

Indian and foreign banks. The Company has ensured adequate controls

over asset management including cash management operations, credit

management and debt collection.

The Group also balances funds in USD accounts or INR deposits

based on the comparative exchange rates, interest rates and currency

requirements. The Group books forward covers from time to time in line

with its treasury management philosophy.

Income taxes

Currently, we partially benefit from the tax holidays the Government

of India provides to software products and IT services exporters from

specially designated software technology parks in India. As a result of

these incentives, our operations have been subject to relatively lower tax

liabilities in India. These tax incentives currently include a 10-year tax

holiday from Indian corporate income-taxes for the operation of seven

of our Indian facilities. As a result a substantial portion of our pre-tax

income has not been subject to tax in recent years.

The Finance Act, 2000 restricts the ten-year tax holiday available from

the fiscal year in which the undertaking begins to manufacture or produce

or until fiscal 2009, whichever is earlier. Accordingly, facilities set up

after fiscal 2000 will enjoy the benefit of the tax holiday only until fiscal

2009. For eight of our facilities, these benefits expire in stages through

2009. Income taxes also include foreign taxes representing income taxes

payable overseas by us in various countries.

Employee Stock Purchase Scheme (‘ESPS’)

On March 29, 1998 the Company adopted the ESPS to provide

equity-based incentives to key employees of the Company (“1998

Scheme”). Subsequently on April 1, 1999, April 1, 2000, April 1, 2001

and June 1, 2004 the Company adopted other Stock based schemes

(“1999 Scheme”, “2000 Scheme”, “2001 Scheme” and “2004 Scheme”).

These schemes, which have similar terms, are administered through a

Trust (the “Trust”). The Trust purchases shares of the Company using the

proceeds of loans obtained from the Company. Such shares are offered

by the Trust to employees at an exercise price, which approximates the

fair value on the date of the grant. The right to purchase the shares vests

over a period determined at the grant date. Employees are entitled to

the dividends on shares allocated to them by the Trust. The employee is

allowed a period of ten years to pay the exercise price. The Trustees have

the right of recourse against the employee for any amounts that may

remain unpaid on the shares accepted by the employee.

No compensation cost was recorded if the exercise price equals the fair

value of the underlying stock on the grant date. The shares held by the

Trust have been considered as outstanding for basic EPS purposes, to

the extent these shares have been allocated to employees pursuant to

the above schemes and are eligible to be exercised by the employee.

For diluted EPS, shares not eligible for exercise are considered in

determining weightage number of shares outstanding using the treasury

stock method. The fair value of the unallocated shares held by the Trust

is recorded as deferred share-based compensation.

Employee Stock Option Plan (‘ESOP’)

At the Annual General Meeting of the shareholders of the Company

held on August 14, 2001, the Company introduced an additional ESOP,

pursuant to which equity shares not exceeding an additional 7.5% of

the issued and paid-up equity share capital of the Company had been

earmarked for grant, at any given time to present and future employees

and directors of the Company and its existing and future subsidiaries.

Pursuant to the above resolution, the Board of Directors, at their meeting

held on March 4, 2002 approved the Employees Stock Option Scheme

(the “Scheme”) for issue of 4,753,600 options to the employees and

directors of the Group. According to the ESOP, the Company has

granted 4,548,920 options to the eligible employees and directors of

the Company and its subsidiaries, prior to the IPO, and 559,000 options

thereafter. As per the terms of the Scheme, the exercise price would

equate the IPO price for the options granted prior to the IPO and at the

fair market value on the date of grant for options granted thereafter. 20%

of the total options granted under the Scheme will vest to the eligible

employees and directors on the completion of 12, 24, 36, 48 and 60

months and is subject to the continued employment of the employee or

director with the Company or its subsidiaries.

A summary of the activity in the Group’s ESOP for year ended


Shares arising

from options

Weighted average exercise

price

Weighted average

remaining contractual

life (in years)

Aggregate intrinsic

value (in

thousands)

Outstanding at beginning of year 2,756,880 280

Granted 373,000 1,291

Exercised (2,552,795) (270)

Forfeited (46,600) (826)

Outstanding at end of year 530,485 989 8.1 579,634

Options expected to vest 417,500 1,165 8.8 382,701

Options vested and exercisable 112,985 339 5.5 196,893

Shares reserved as at March 31, 2007 for the future issuance of

options was 104,100. The -average fair value of options granted during


the year ended March 31, 2006 and 2007 was Rs. 334 and Rs. 596,

respectively.

Analysis of our financial results

Comparison of fiscal 2007 with fiscal 2006

Revenues

Our total revenues in the fiscal year ended March 31, 2007 were

Rs. 20,381.1 million, an increase of 37% over our total revenues of

Rs. 14,835.2 million in the fiscal year ended March 31, 2006. The

increase in revenues was attributable to a 45% increase in the revenues

from our products business and 28% increase in the revenues from the

services business.

Products revenue

Our products revenue in the fiscal year ended March 31, 2007 were

Rs. 10,966.2 million, an increase of 45% over our products revenue

of Rs. 7,570.9 million in the fiscal year ended March 31, 2006 on the

strength of strong and large customer wins. The revenues from license

fees comprised 25% of the revenues, implementation fees comprised

58% and Annual Maintenance Contracts comprised 17% of the revenues

for the fiscal 2006.

Services revenue

Our services revenue in the fiscal year ended March 31, 2007 were

Rs. 8,970.1 million, an increase of 28% over our services revenue of

Rs. 7,029.7 million in the fiscal year ended March 31, 2006. Revenues

from time and material contracts comprised 89% of the revenues and

fixed price contracts comprised 11% for the fiscal 2007.

Knowledge Process Outsourcing (KPO) revenue

Our revenues from KPO Services in the fiscal year ended March 31, 2007

were Rs. 444.8 million, an increase of 90% over our revenues from KPO

Services of Rs. 234.7 million in the fiscal year ended March 31, 2006.

Interest and other income

Our interest and other income in the fiscal year ended March 31, 2007

was Rs. 348.6 million, an increase of 14% over our interest and other

income of Rs. 305.7 million in the fiscal year ended March 31, 2006.

The increase was mainly due to increase in interest from Bank Deposits

of Rs. 77.2 million as compared to fiscal 2006, due to rise in interest

rates. This increase has been off set by foreign exchange loss amounting

to Rs. 30.3 million during the year mainly due to appreciation of 2.8%

in Dollar/Rupee.

Cost of revenues and operating expenses

Cost of revenue

Our cost of revenues in the fiscal year ended March 31, 2007 was

Rs. 11,639.9 million, an increase of 43% over our cost of revenues

of Rs. 8,146.7 million in the fiscal year ended March 31, 2006. Our

cost of revenues as a percentage of total revenue was 57% in the

fiscal year ended March 31, 2007, compared to 55% in the fiscal year

ended March 31, 2006. We invest significantly both in our products and

services businesses to meet emerging market requirements, and create

the foundation for the growth in future. In the financial year 2006-07,

we invested in enhancing the product suite to meet the requirements

in countries such as Russia, China, Latin America, and the USA and

enhanced the Reveleus Basel II suite. In our Services business, we invested

in creating a new Insurance line of business as well as in creating the

Oracle Competency Center. Further, our KPO business, which currently is

in investment phase, has also contributed to the reduction in the overall

gross margins as compared to the last financial year.

Our cost of products revenue in the fiscal year ended March 31, 2007

was Rs. 4,855.6 million, an increase of 63% over our cost of products


Our cost of products revenue as a percentage of products revenue was


fiscal year ended March 31, 2006. This increase, as stated above, was

largely attributable to the higher investments in the product business.

Our cost of services revenue in the fiscal year ended March 31, 2007

was Rs. 6,485.9 million, an increase of 29% over our cost of services


The cost of services revenue as a percentage of services revenue was


fiscal year ended March 31, 2006.

Sales and marketing expenses

Our sales and marketing expenses in the fiscal year ended March 31, 2007

were Rs. 2,701 million, an increase of 31% over our sales and marketing

expenses of Rs. 2,066.9 million in the fiscal year ended March 31, 2006.

Our sales and marketing expenses as a percentage of total revenues

was at 13% for the fiscal year ended March 31, 2007 compared to

14% for the fiscal year ended March 31, 2006. The decrease in sales

and marketing expenses was principally due to operational synergies in

international marketing efforts and reduction in referral fees this year.

Our sales and marketing expenses for our products business in the fiscal

year ended March 31, 2007 were Rs. 2,210.3 million, an increase of

32% over our sales and marketing expenses for our products business

of Rs. 1,672 million in the fiscal year ended March 31, 2006. Sales

and marketing expenses for our products business as a percentage of

products revenue was 20% in the fiscal year ended March 31, 2007,


in sales and marketing expenses was largely due to reduction in referral

fees this year.

Our sales and marketing expenses for our services business in the fiscal

year ended March 31, 2007 were Rs. 379.3 million, an increase of 16%

over our sales and marketing expenses for our services business of

Rs. 327.6 million in the fiscal year ended March 31, 2006. Sales and

marketing expenses for our services business as a percentage of services

revenue was 4% in the fiscal year ended March 31, 2007, compared to

5% in the fiscal year ended March 31, 2006.

General and administrative expenses

Our general and administrative expenses in the fiscal year ended

March 31, 2007 were Rs. 2,454.6 million, an increase of 47% over

our general and administrative expenses of Rs. 1,669.3 million in the

fiscal year ended March 31, 2006. In the financial year, we expanded

our facilities to meet the growth requirements and created new

development facilities in Bangalore, Chennai and Pune and their costs

like rent, power and communication. Our general and administrative

expenses as a percentage of total revenues was 12% in the fiscal year

ended March 31, 2007, compared to 11% in the fiscal year ended

March 31, 2006.



General and administrative expenses for our products business in the

fiscal year ended March 31, 2007 were Rs. 823 million, an increase

of 93% over our general and administrative expenses for our products


The increase is attributable to G&A expenses of Mantas Inc. getting

added this year as also increased rent, power and communication costs

of the new office premises. Our general and administrative expenses for

our Products Business as a percentage of products revenue was 8% in

the fiscal year ended March 31, 2007, compared to 6% in the fiscal year


General and administrative expenses for our services business in the

fiscal year ended March 31, 2007 were Rs. 428.6 million, an increase

of 23% over our general and administrative expenses for our services


Our general and administrative expenses for our services business as a

percentage of services revenue remained at 5% in the fiscal year ended

March 31, 2007, and the fiscal year ended March 31, 2006.

Income taxes

Our provision for income taxes in the fiscal year ended March 31, 2007

was Rs. 342.5 million, a decrease of 34% over our provision for income

taxes of Rs. 515.2 million in the fiscal year ended March 31, 2006. Our

effective tax rate was 11% in the fiscal year ended March 31, 2006


in tax rate is attributable to the higher generation of revenue from units

availing tax holidays in India.

Income from operations and net income

As a result of the foregoing factors, income from operations increased

by 15% to Rs. 2,752.8 million in fiscal 2007 from Rs. 2,392.5 million

in fiscal 2006, and net income increased by 26% to Rs. 2,768.1 million

in fiscal 2007 from Rs. 2,190.4 million in fiscal 2006. In the current

financial year, our recent acquisitions contributed negatively to the tune

of almost Rs. 502 million to the net income, while adding Rs. 1,324

million to the top line, thus effectively resulting in negative contribution

to the margins by 3%. These acquisitions are in the investment phase

and add strategic value to our business and growth prospects. Our net

margins decreased to 14% from 15% in fiscal 2006. We define net

income margins for a particular period as the ratio of net income to total

revenues during such period.

Liquidity and capital resources

Our capital requirement relate primarily to financing the growth of our

business. We have historically financed the majority of our working capital,

capital expenditure and other requirements through our operating cash

flow. During fiscal 2007 and 2006, we generated cash from operations

of Rs. 820 million and Rs. 1,415.3 million respectively.

i-flex is a zero debt company. We expect that our primary financing

requirements in the future will be capital expenditure and working

capital requirements in connection with the expansion of our business.

We believe that the cash generated from operations will be sufficient to

satisfy our currently foreseeable capital expenditure and working capital

requirements.

Human capital

We recruit graduates from leading engineering and management

institutions. We also hire functional experts from the banking industry.

We had a net addition of 2,210 employees during the fiscal year taking

our employee strength to 9,068 employees as on March 31, 2007. The

blend of functional knowledge and technical expertise, coupled with i-flex

training and experience make our employees unique.

We enjoy cordial relationships with our employees and endeavor to

give them an excellent, professionally rewarding and enriching work

environment. We operate an effective performance management system

with a focus on employee development. This measures key result

areas, competencies and training needs ensuring all-round employee

development.

Risks and concerns

Quantitative and qualitative disclosures about market risk

Our primary market risk exposures are due to the following:

– foreign exchange rate fluctuations,.

– fluctuations in interest rates; and

– fluctuations in the value of our investments.

As of March 31, 2007, we had Cash and Bank Balances of Rs. 7,182.2

million out of which Rs. 3,824.6 million was in interest–bearing bank

deposits. Consequently, we face an exposure on account of fluctuation

in interest rates. These funds were invested in bank deposits of longer

maturity (more than 90 days) to earn a higher rate of interest income.


while a majority of our expenses are incurred in Indian Rupees and the

balance in US Dollars and European currencies. Our functional currency

for Indian operations and consolidated financials is the Indian Rupee.

We expect the majority of our revenues will continue to be generated

in foreign currencies for the foreseeable future and a significant portion

of our expenses, including personnel costs and capital and operating

expenditure, to continue to be incurred in Indian Rupees.

In addition, we face normal business risks such as global competition

and country risks pertaining to countries that we operate in.

Integration of mergers and acquisitions

i-flex has acquired companies in the past, i.e.,

SuperSolutions Corporation, USA, ISP Internet Mauritius Company,

Mauritius and Castek Software Inc., Canada. During the year, we

acquired Mantas Inc., Virginia, and i-flex Consulting (Asia Pacific) pte ltd.,

Singapore in an all cash deal. These mergers and acquisitions involve

inherent risks, including:

– unforeseen contingent risks or latent liabilities relating to these

businesses that may only become apparent after the merger or

acquisition is finalized;

– integration and management of the operations, sales and marketing,

personnel and systems;


The company as part of its policies ensures that the companies acquired

are successfully integrated into the mainstream business.

Swot analysis

Strengths

– One of the most comprehensive solutions portfolio for the financial

services industry

– Global client base and market reach

– Strong backing of Oracle

– Solutions based on world-class technology backed by strong R&D

– High-quality manpower resources, with deep domain expertise in

the financial industry

Weaknesses

– Weakening of Indian Rupee against the US Dollar

– Wage inflation pressure

Opportunities

– Increasing investment momentum in core banking systems by large

and global financial institutions

– India as preferred outsourcing destination

– Compliance, Risk and Governance is on the top of the investment

agenda for financial institutions

– Expanding solutions portfolio and entry into new market segments

such as consumer finance, business analytics, Basel II, anti-money

laundering

Threats

– Increasing competition

– Legislative and visa related travel restrictions

Outlook

i-flex solutions offers the most comprehensive footprint of solutions for

the financial services industry today. These solutions cover customer

delivery across all customer touch points, core banking processing,

transaction processing across different verticals and different product

processes across consumer banking, corporate banking, investment,

asset management, and analytics for measuring the performance of

the business and providing insights to decision-making teams to enable

timely, mid-course corrections.

There are several key opportunities in the market place for i-flex.

Large corporate and retail banking assignments, emerging areas

such as Islamic Banking, private wealth management, enterprise risk

management and compliance and IT outsourcing are some of the areas

where i-flex sees opportunities in the next few years. The group has

been engineering a series of acquisitions to expand into software for risk

management, anti-money laundering, consumer lending, and property

and casualty insurance.

First, there is increased traction in large institutions looking to replace

their core systems. Multi-country standardization opportunities also

form an integral part of the core banking replacement strategy for

global banks. i-flex is already well positioned in this market with its

comprehensive solutions stack and is further expanding the portfolio to

meet unique opportunities, especially in the developed market. Second,

there are opportunities opening up in replacing older packages in banks.

While this was always a traditional market segment, the opportunities in

these areas are significantly increasing. Third, risk and compliance is the

key priority area for banks and, again, i-flex solutions’ GRC framework is

a leading solution in this area.

Lastly, outside i-flex’s traditional market of core banking, there are

emerging opportunities in other verticals within the financial services

industry. i-flex recently entered the insurance vertical and it plans to

continue to expand the capability within the financial services domain.

Acquisitions

a. Mantas Inc. (“Mantas”)

On October 2, 2006, i-flex, through its subsidiaries i-flex America inc.,

acquired 100% ownership in Mantas Inc. i-flex completed all the closing


stockholders of Mantas on October 2, 2006.

Mantas, together with its subsidiaries, provide anti-money laundering

and compliance solutions to customer in the financial service industry.

It is headquartered in Herndon, Virginia, United States. Mantas’ Behavior

Detection Platform addresses regulatory compliance, loss prevention and

revenue generation through its suite of risk management, anti-money

laundering, fraud, employee surveillances and broker and trading

compliance monitoring applications.

b. i-flex Consulting (Asia Pacific) pte ltd

On January 3, 2007, i-flex through its subsidiary i-flex solutions pte ltd,

acquired 100% ownership in i-flex Consulting (Asia Pacific) pte ltd erstwhile

known as The Capital Markets Company Pte. Ltd. (“CAPCO”). The

Company completed all the closing formalities related to the acquisition

and remitted cash to the erstwhile shareholders of CAPCO on

January 3, 2007.

This acquisition will strengthen i-flex Consulting’s ability to provide

high end consulting to banks in the Asia Pacific region. The combined

i-flex – CAPCO team provides a compelling pool of expertise to assist

banks in business transformation, management of large technology

implementations and addressing risk and compliance requirements.

Internal control systems and their adequacy

i-flex group has in place adequate systems of internal controls and

documented procedures covering all financial and operating functions.

These systems have been designed to provide reasonable assurance with

regard to maintaining proper accounting controls, monitoring economy

and efficiency of operations, protecting assets from unauthorized use or

losses, and ensuring reliability of financial and operational information.

The Group continuously strives to align all its processes and controls with

global best practices.



The Board of Directors and Shareholders of

i-flex Solutions Limited

We have audited the accompanying consolidated balance sheets of

i-flex Solutions Limited (“the Company”) as of March 31, 2006 and 2007,

and the related consolidated statements of income, shareholders’ equity

and cash flows for the years then ended. These financial statements are

the responsibility of the Company’s management. Our responsibility is to

express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally

accepted in the United States. Those standards require that we plan


the financial statements are free of material misstatement. We were

not engaged to perform an audit of the Company’s internal control over

financial reporting. Our audits included consideration of internal control

over financial reporting as a basis for designing audit procedures that are

appropriate in the circumstances, but not for the purpose of expressing

an opinion on the effectiveness of the Company’s internal control over

financial reporting. Accordingly, we express no such opinion. An audit

also includes examining, on a test basis, evidence supporting the amounts

and disclosures in the financial statements, assessing the accounting

principles used and significant estimates made by management and

evaluating the overall financial statement presentation. We believe that

our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present

fairly, in all material respects, the consolidated financial position

of i-flex Solutions Limited at March 31, 2006 and 2007, and the

consolidated results of its operations and its cash flows for the years

then ended, in conformity with accounting principles generally accepted

in the United States.

As discussed in Note 2 to the consolidated financial statements, the

Company adopted the provisions of Statement of Financial Accounting

Standards (“SFAS”) No. 123(R) (revised 2004), Share-Based Payment,

effective April 1, 2006 and, SFAS No. 158, Employer’s Accounting

for Defined Benefit Pension and Other Postretirement Plans, effective

March 31, 2007.

S. R. Batliboi & Associates

Mumbai, India

July 2, 2007

Report of independent auditors


(All amounts in thousands except share data)

2006Rs.

2007Rs.

2007USD

AssetsCurrent assetsCash and cash equivalents 2,082,098 3,338,320 77,455Bank deposits 4,780,235 3,824,624 88,738Accounts receivable, net of allowance of Rs. 99,439 and Rs. 182,208 (USD 4,228), respectively 5,223,217 7,279,653 168,901

Accounts receivable – related parties 34,185 223,032 5,175Unbilled revenue 398,023 1,141,738 26,491Marketable securities 10,000 9,190 213Prepaid income taxes 400,952 926,921 21,506Rental deposit 38,045 819,306 19,010Prepaid expenses 149,241 362,678 8,415Deferred tax assets – 10,132 235Other current assets 358,743 749,748 17,396Total current assets 13,474,739 18,685,342 433,535

Goodwill 549,535 4,394,279 101,955Intangible assets, net 343,265 1,407,435 32,655Property and equipment, net 2,174,282 2,894,452 67,157Investment in equity investees 15,616 24,777 575Other investments 33,254 33,254 772Rental deposits 1,206,553 1,675,221 38,868Restricted bank deposits 1,883 19,292 448Deferred tax assets 70,762 131,351 3,047Total assets 17,869,889 29,265,403 679,012

Liabilities and shareholders’ equityCurrent liabilitiesAccounts payable 132,396 308,256 7,152Accounts payable – related parties 7,394 2,917 68Accrued employee costs 997,055 1,309,876 30,392Deferred revenue – current 1,834,950 3,343,266 77,570Obligation under capital leases – current 10,371 10,842 252Other current liabilities 1,056,821 1,501,921 34,847Total current liabilities 4,038,746 6,477,078 150,281

Deferred rent – 30,263 702Deferred revenue – non current 131,838 43,021 998Obligation under capital leases – non current 19,653 15,537 360Deferred tax liabilities 1,649 1,745 40Accrued pension liability 55,253 118,184 2,742

CommitmentsShareholders’ equityEquity shares, Rs. 5 par value, authorized: 100,000,000 sharesIssued and outstanding: 76,288,367 and 83,288,580 shares, respectively 381,442 416,443 9,662

Equity shares subscribed: 38,900 and 395,529 shares, respectively 10,309 401,679 9,320Additional paid-in-capital 3,070,283 9,780,388 226,923Deferred share-based compensation – Employees Share Purchase Scheme (“ESPS”) trust (580,663) (13,472) (459,900)

Accumulated other comprehensive loss (74,920) (465,273) (10,795)Retained earnings 10,695,295 13,027,001 302,251Total shareholders’ equity 13,622,509 22,579,575 523,889Total liabilities and shareholders’ equity 17,869,889 29,265,403 679,012

See accompanying notes.

Consolidated balance sheets as at March 31



Consolidated statements of income for the year ended March 31

(All amounts in thousands, except per share data)

2006Rs.

2007Rs.

2007USD

RevenueThird parties 12,116,411 20,154,888 467,632Related parties 2,718,835 226,182 5,247

14,835,246 20,381,070 472,879Cost of revenue (excluding depreciation and amortization) (a) (8,146,671) (11,639,948) (270,069)Gross profit 6,688,575 8,741,122 202,810

Operating expensesSelling and marketing expenses (a) (2,066,853) (2,700,960) (62,667)General and administrative expenses (a) (1,669,277) (2,454,566) (56,951)Depreciation and amortization (501,947) (832,782) (19,322)Impairment of goodwill (57,958) – –Operating income 2,392,540 2,752,814 63,870

Non-operating income (expense), netInterest income (a) 294,381 371,603 8,622Other income (expense), net 11,323 (23,051) (535)Income before income taxes 2,698,244 3,101,366 71,957

Provision for income taxes (515,152) (342,471) (7,946)Equity in net income of equity investees 4,713 9,161 213Minority interest 2,564 – –Net income 2,190,369 2,768,056 64,224

Earnings per shareBasic 29.13 35.13 0.82Diluted 28,24 34.22 0.79

(a) Includes the following related party amounts:Cost of revenue (excluding depreciation and amortization) 124,197 239,758 5,563Selling and marketing expenses 7,353 – –General and administrative expenses 3,521 6,095 141Interest income 6,860 – –



Consolidated statements of cash flows for the year ended March 31

(All amounts in thousands)

2006Rs.

2007Rs.

2007USD

Cash flows from operating activitiesNet income 2,190,369 2,768,056 64,224

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 501,947 832,782 19,322Impairment of goodwill 57,958 – –Provision for doubtful accounts, net 52,535 87,611 2,033Advances written off 22,800 8,351 194Share-based compensation cost 8,199 121,380 4,678Deferred tax benefit (69,554) (70,625) (1,639)(Profit) loss from sale of property and equipment, net (314) 4,554 106Profit on sale of investment (743) – –Deferred compensation cost – 33,451 776Equity in net income of equity investee (4,713) (9,161) (213)Minority interest (2,564) – –

Changes in operating assets and liabilities, net of effect of acquisitions Accounts receivable and unbilled revenue (1,856,985) (2,683,200) (62,255)Other current assets and other assets (896,308) (2,323,124) (53,901)Current liabilities and other liabilities 1,412,681 2,050,014 45,703Net cash provided by operating activities 1,415,308 820,089 19,028

Cash flows from investing activitiesAcquisition of companies, net of cash acquired (34,962) (5,523,827) (128,163)Purchase of property and equipment including capital work-in-progress (1,214,086) (1,244,243) (28,869)Acquisition of customer contracts and product intellectual property rights (‘IPR’) (43,009) – –

Proceeds from sale of property and equipment 8,948 13,157 305Proceeds from bank deposits 7,600,014 7,679,391 178,176Investment in bank deposits (8,122,931) (6,741,189) (156,408)Net investment in lease – (20,610) (478)Investment in Dhanalakshmi Bond (10,000) – –Proceeds from sale of investment 2,621 20,000 464Net cash used in investing activities (1,813,405) (5,817,321) (134,973)

Cash flows from financing activitiesShares subscribed but not issued 10,309 – –Issue of shares to Oracle Global (Mauritius) Limited – 5,814,999 134,919Exercise of warrants 40,441 361,238 8,381Issue of shares against Employee Stock Option Plan (‘ESOP’) scheme and options to IBM 391,761 678,514 15,743

Repayment of loan by Employee Stock Purchase Scheme (‘ESPS’) Trust 117,500 4,925 114Capital lease payments (12,169) (3,441) (80)Dividend and tax thereon (428,207) (436,350) (10,124)Net cash provided by financing activities 119,635 6,419,885 148,953

Net (decrease) increase in cash and cash equivalents (278,462) 1,422,653 33,008Effect of exchange rate changes on cash and cash equivalents (11,486) (166,431) (3,862)Cash and cash equivalents at the beginning of the year 2,372,046 2,082,098 48,309Cash and cash equivalents at the end of the year 2,082,098 3,338,320 77,455

Supplemental disclosure of cash flow informationTaxes paid 952,397 1,007,808 23,383Accounts payable related to the purchase of property and equipment 54,832 45,937 1,066Assets acquired under capital leases 13,431 9,133 212




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1. Organization and description of business

i-flex solutions ltd (“i-flex” or the “Company”) was incorporated in India

with limited liability on September 27, 1989. The Company along with

its subsidiaries is principally engaged in the business of providing

information technology solutions and business process outsourcing

services to the financial services industry worldwide. i-flex has a suite

of banking products, which caters to the needs of corporate, retail,

investment banking, treasury operations and data warehousing.

i-flex is a subsidiary of Oracle Global Mauritius Limited (‘Oracle’) with

Oracle having an 81.02% ownership interest in the Company as at

March 31, 2007.


2.1. Basis of preparation

The accompanying consolidated financial statements include the

accounts of i-flex and its subsidiaries (hereinafter collectively referred

to as the “Group”) and are prepared in accordance with United States

generally accepted accounting principles (“US GAAP”). All inter-company

balances and transactions have been eliminated upon consolidation. An

acquired business is included in the Group’s consolidated statements of

income with effect from the date of the acquisition.

The Company uses the Indian Rupee (“Rs.”) as its reporting currency.

For the convenience of readers, the consolidated financial statements

for the year ended March 31, 2007 have been translated into United

States Dollars (“USD”) at the noon buying rate in New York City on

March 31, 2007 for cable transfers in Indian Rupees, as certified

for customs purposes by the Federal Reserve Bank of New York of

1 USD = Rs. 43.10. The convenience translation should not be construed

as a representation that the Indian Rupee amounts or the USD amounts

referred to in these consolidated financial statements have been, could

have been, or could in the future be, converted into USD or Rs., as the

case may be, at this or at any other rate of exchange, or at all.

The Group also separately presents its consolidated financial statements

for the same periods prepared in accordance with India generally accepted

accounting principles (“Indian GAAP”). Significant differences between

the Indian GAAP and US GAAP relate to the deferral of revenue pertaining

to post-contract support, accounting for share-based payments,

accounting of employee benefit plans, accounting for acquisitions, foreign

forward exchange contracts, option contracts, embedded derivatives and

amortization of intangibles.

2.2. Use of estimates

The preparation of financial statements in accordance with US GAAP

requires management to make estimates and assumptions that affect

the amounts reported in the consolidated financial statements and

accompanying notes. The Company bases its estimates and judgments

on historical experience and on various other assumptions that it believes

are reasonable under the circumstances. The amount of assets and

liabilities reported on the Company’s balance sheets and the amounts

of revenue and expenses reported for each of its years presented are

affected by estimates and assumptions, which are used for, but not

limited to, the accounting for revenue recognition, allowance for doubtful

accounts, income taxes, determining impairment on long-lived assets,

intangibles and goodwill, share-based compensation and accounting for

defined benefit plans. Actual results could differ from those estimates.

2.3. Foreign currency translation

The Group’s foreign operations use their respective local currency as

their functional currency. Accordingly, assets and liabilities of foreign

subsidiaries are translated into Rs. at exchange rates in effect at the

balance sheet date, while revenue and expenses are translated at average

exchange rates prevailing during the year. Translation adjustments are

reported as a component of accumulated other comprehensive income

in shareholders’ equity.

Foreign currency denominated assets and liabilities are translated into

the functional currency at exchange rates in effect at balance sheet

date. Foreign currency transaction gains and losses are recorded in the

consolidated statements of income within other income.

2.4. Revenue recognition

The Group derives revenue from software licensing and related services

and IT solutions and consulting services.

Software licensing and related services

The Group enters into agreements to generally convey a perpetual

license to its customers and also provides implementation services and

customization services as required. Customers also have the option

to enter into a maintenance arrangement (Post Contract Support or

“PCS”), which is generally an annual contract, and commences when the

implementation is complete and the warranty period has ended.

License revenue for perpetual licenses are recognized upon delivery,

when services that are required to be performed under the terms of

the arrangement with the customer are not considered essential to

the functionality of the software and when persuasive evidence of

an arrangement exists, delivery has occurred, the license fee is fixed

and determinable and the collection of the fee is probable. License

revenue from arrangements, which contain extended payment terms

is not considered to be fixed and determinable at the inception of the

arrangement and, accordingly, revenue is recognized as payments

from customers become due, assuming all other conditions for revenue

recognition have been satisfied.

In limited situations, the Group enters into time-based or term licenses

for a specified period and the license fee and PCS revenue is recognized

ratably over the period of the arrangement.

Services are not considered essential to the functionality of the software

when such services primarily consist of minor functional enhancements,

simple interfaces, implementation planning, data conversion, training

and product walkthrough and the realisability of the license fees is not

dependent on such services. When vendor specific objective evidence

(“VSOE”) of the fair value of the services, based on historical evidence

of sales of similar services exists, revenue related to implementation

services are recognized as services are provided when arrangements

are on a time and material basis. In the case of fixed price arrangements,

subject to VSOE being established, revenue related to implementation

services is recognized using the proportional performance method of

accounting. Performance is measured based upon the efforts incurred

to date in relation to the total estimated efforts to complete the contract.

If the realisability of the services fees are dependent on acceptance

conditions, revenue is recognized only when such acceptance conditions

have been met.

Notes to consolidated financial statements for the year ended March 31, 2006 and 2007

(All amounts in thousands, except share data)



When an arrangement provides for significant modification or realization

on of the product or if services are essential to the functionality of the

product or the realization of the license fees is dependent on the services,

the revenue related to both the license and services is recognized using

the percentage of completion method of accounting. Percentage of

completion is measured based upon the efforts incurred to date in relation

to the total estimated efforts to complete the contract. If the realisability

of the services fees is dependent on acceptance conditions, revenue is

recognized only when such acceptance conditions have been met.

The Group enters into PCS arrangements, which are generally for a period

of 12 months and renewable thereafter, to provide technical support,

maintenance, query solving and upgrades (on a when and if available

basis) to its customers. PCS revenue is recognized ratably over the period

of the PCS. When PCS is provided together with other elements, VSOE

of PCS is based on the renewal rate for the PCS arrangement. When the

arrangement includes a free maintenance period, including the implied

benefit to receive upgrades during the implementation and warranty

period, a portion of the license fees based on the VSOE of PCS is deferred

and recognized over the free PCS period.

If an up-front discount is provided in an arrangement, a proportionate

portion of that discount is applied to each element in the arrangement

based on each element’s fair value.

IT solutions and consulting services

The Group provides bespoke software development and other consulting

services to customers primarily in banking and financial services.

Revenues from IT solutions and consulting services are recognized as


basis. Revenues for fixed price contracts are recognized based on a

proportional performance method. If the proportional performance is higher

than a related contractual milestone requiring customer acceptance,


received. The Group monitors estimates of total contract revenues and

cost throughout the delivery period. The cumulative impact of any change

in estimates of the contract revenues or costs is reflected in the period in

which the changes become known. If a loss is anticipated on a particular

contract, provision is made for the estimated loss.

The Company issues invoices related to fixed price contracts based on

either the achievement of milestones during a project or other contractual

terms. Differences between the timing of billings and the recognition of

revenue based upon the proportional performance method of accounting

are recorded as deferred revenue. Deferred revenue also includes the

revenue remaining to be recognized on PCS arrangements.

Reimbursement for out-of-pocket expenses

Reimbursements of out-of-pocket expenses amounting to Rs. 282,518

and Rs. 495,941 (USD 11,507) for the years ended March 31, 2006 and

2007, respectively are included in revenue in accordance with Emerging

Issues Task Force Consensus (“EITF”) 01-14 “Income Statement

Characterization of Reimbursement received for “Out of Pocket” expenses

incurred”.

2.5. Cost of revenue

Cost of revenue comprises of salaries, employee benefits, project related

travel costs, application software costs and professional fees.

2.6. Research and development





material and have also been expensed. These costs primarily consist of

salaries and employee benefits and other related expenses. Research

and development cost for the years ended March 31, 2006 and 2007

amounted to Rs. 188,908 and Rs. 288,756 (USD 6,700), respectively,

and is included in cost of revenue.

2.7. Cash and cash equivalents

The Group considers all highly liquid investments with an initial maturity

of up to three months to be cash equivalents. Cash and cash equivalents

include Rs. 290,197 and Rs. 421,343 (USD 9,776) at March 31, 2006

and 2007, respectively, related to the Company, that are in Indian banks

and are subject to local exchange control restrictions and can be remitted

overseas only with prior approval from relevant regulatory authority.

2.8. Bank deposits

Bank deposits consist of term deposits with an original maturity of more

than three months.

2.9. Accounts receivable

Accounts receivable represents trade receivables, net of an allowance for

doubtful accounts. The allowance for doubtful accounts represents the

Group’s best estimate of receivables that are doubtful of recovery based

on a specific identification basis.

The changes in the allowance for doubtful accounts for the years ended

March 31, 2006 and 2007 were as follows:

March 312006 2007 2007

Rs. Rs. USD

Balance at the beginning of the year 45,152 99,439 2,307

Charged to operations 54,822 89,900 2,086Reversal on account of collections (2,287) (2,289) (53)

Foreign currency translation 1,752 (4,842) (112)Balance at the end of the year 99,439 182,208 4,228

2.10. Property and equipment

Property and equipment, which include amounts recorded under capital

leases, are recorded at cost. Depreciation and amortization are computed

using the straight-line method over the estimated useful lives of the

assets, which are as follows:


Building 20Computer equipment 3Electrical and office equipment 2-7Furniture and fixtures 2-7Leased assets Lesser of estimated useful

life or lease termLeasehold improvements Lesser of estimated useful

life or lease termPeopleSoft ERP 5


Advances paid towards the acquisition of property and equipment and

the cost of property and equipment not put to use before the balance

sheet date are disclosed under the caption capital work-in-progress in

Note 5.

Property and equipment are reviewed for impairment if indicators

of impairment arise. The evaluation of impairment is based upon a

comparison of the carrying amount of the property and equipment to the

estimated future undiscounted net cash flows expected to be generated

by the property and equipment. If estimated future undiscounted cash

flows are less than the carrying amount of the property and equipment,

the asset is considered impaired. The impairment expense is determined

by comparing the estimated fair value of the property and equipment

to its carrying value, with any shortfall from fair value recognized as an

expense in the current period. The fair value is determined based on

valuation techniques such as discounted cash flows or comparison to fair

values of similar assets. There were no impairment charges recognized

during the years ended March 31, 2006 and 2007.

2.11. Goodwill and intangibles assets

Goodwill is not amortized but is reviewed for impairment annually or more

frequently if indicators arise. The evaluation is based upon a comparison

of the estimated fair value of the reporting unit to which the goodwill

has been assigned to the sum of the carrying value of the assets and

liabilities for that reporting unit. The fair values used in this evaluation

are estimated based upon discounted future cash flow projections for

the reporting unit. These cash flow projections are based upon a number

of estimates and assumptions. The Company recorded an impairment

charge provision of Rs. 57,958 during the year ended March 31, 2006.

Intangible assets acquired in business combinations are initially valued at

fair market value using generally accepted valuation methods appropriate

for the type of intangible assets. Intangible assets with definite lives

are amortized over their estimated useful lives and are reviewed for

impairment, if indicators of impairment arise. Intangible assets such as

Trademarks are considered to have indefinite life and are reviewed for

impairment annually or more frequently if indicators arise. The evaluation

of impairment is based upon a comparison of the carrying amount of

the intangible asset to the estimated future undiscounted net cash flows

expected to be generated by the asset. If estimated future undiscounted

cash flows are less than the carrying amount of the asset, the asset

is considered impaired. The impairment expense is determined by

comparing the estimated fair value of the intangible asset to its carrying

value, with any shortfall from fair value recognized as an expense in the

current period. As of March 31, 2007, no impairment had occurred.

Amortization of the Group’s definite lived intangible assets is computed

using the straight-line method over the estimated useful lives of the

assets, which are as follows:

Asset description Asset life (in months)

Technologies/software 60Customer relationship 36-60*Customer contracts and customer order backlog 12

Process know how 60Intellectual property right 60Others 12-36#

* The weighted average amortization period from the date of purchase is

53 months# The weighted average amortization period from the date of purchase is

20 months

2.12. Investments

Investments in marketable securities are classified as available for sale

and are accounted for at fair value, which is determined by reference

to prevailing market prices. Changes in fair value are recorded, net of

taxes as comprehensive income and reported in accumulated other

comprehensive income, as a separate component of shareholders’

equity. A decline in fair value below original cost is recorded in the income

statement when it is considered to be other than temporary.

Investments where the Group has between a 20% to 50% voting interest

are accounted for using the equity method. Investments in unquoted

equity securities where the Group owns less than 20% of the voting

interest are accounted for at cost. A decline in fair value below original

cost is recorded in the income statement when it is considered to be

other than temporary.

2.13. Income taxes

The Group applies the asset and liability method of accounting for

income taxes as described in Statement of Financial Accounting

Standards (“SFAS”) No. 109, “Accounting for Income Taxes”. Under this

method, deferred tax assets and liabilities are recognized for future tax

consequences attributable to differences between the financial statements

carrying amounts of existing assets and liabilities and their respective

tax bases and operating loss and tax credit carryforwards. Deferred tax

assets and liabilities are measured using tax rates expected to apply to

taxable income in the years in which those temporary differences are

expected to be recovered or settled. The effect on deferred tax assets

and liabilities of a change in tax rates is recognized in income in the

period that includes the enactment date. Valuation allowances are

recognized to reduce the deferred tax assets to an amount that is more

likely than not to be realized. In assessing the likelihood of realization,

management considers estimates of future taxable income and the

effect of temporary differences. The Group evaluates potential exposures

related to tax contingencies or claims made by the tax authorities in

various jurisdictions and determine if a reserve is required.

2.14. Dividends

Dividends distributable to the shareholders are accounted upon the

approval of the payment of the dividend by shareholders at their general

meeting.

2.15. Employee benefit plans


Eligible employees of the Group in India receive benefits from a Provident

Fund, administered by the Government of India, which is a defined

contribution plan. Both the employees and the Group make monthly

contributions to the Provident Fund equal to a specified percentage of

the eligible employees’ salary.

Eligible United States employees of the Group participate in a savings plan

(“the Plan”) under Section 401(k) of the United States Internal Revenue

Code (“the Code”). The Plan allows for employees to defer a portion of

their annual earnings on a pre-tax basis through voluntary contributions

to the Plan. The Plan provides that the Group can make optional

contributions up to the maximum allowable limit under the Code.

Eligible employees of the Group in India receive benefits from a

Superannuation Plan, administered by Life Insurance Corporation of

India (“LIC”), which is a defined contribution plan. The Company makes

monthly contributions to the Superannuation fund equal to a specified

percentage of the eligible employees’ salary.



The Company has no further obligation under defined contribution plans

beyond the contributions made to the plan. Contributions are charged

to income in the year in which they are due and are included in the

consolidated statements of income (see note 10).

Defined benefit plan

Employees in India are entitled to benefits under the Payment of Gratuity

Act, 1972, a defined benefit retirement plan covering eligible employees

of the Group. The plan provides for a lump-sum payment to eligible

employees at retirement, death, incapacitation or on termination of

employment, of an amount based on the respective employee’s salary

and tenure of employment subject to a maximum of approximately

Rs. 350 (USD 8) per employee.

The Company makes contributions to a fund administered and managed

by the LIC to fund the gratuity liability. Under this scheme, the obligation

to pay gratuity remains with the Group, although LIC administers the

scheme. The gratuity liability and net periodic gratuity cost has been

actuarially determined after considering discount rates, expected long

term return on plan assets and increases in compensation levels.

Differences between the amount paid to LIC and the net periodic gratuity

cost is recorded as a prepaid (accrued) pension cost.

On March 31, 2007, the Group adopted the recognition, measurement

and disclosure provisions of SFAS No. 158, “Employer Accounting for

Defined Benefit Pension and Other Post Retirement Plans, an amendment

of FASB Statements No. 87, 88, 106 and 132 (R)”. SFAS No. 158 requires

the Group to recognize the funded status (i.e., the difference between

the fair value of plan assets and the projected benefit obligations) of

its pension plan in the balance sheet as of March 31, 2007, with a

corresponding adjustment to accumulated other comprehensive income.

The adjustment to accumulated other comprehensive income at adoption

represents the net unrecognized actuarial losses, which was previously

netted against the plan’s funded status in the Group’s statement of

financial position pursuant to the provisions of SFAS No. 87 “Employers

Accounting for Pensions”. This amount will be subsequently recognized

as net periodic pension cost pursuant to the Group’s historical accounting

policy for amortizing such amounts. Further, actuarial gains and losses

that arise in subsequent periods and are not recognized as net periodic

pension cost in the same periods will be recognized a component of other

comprehensive income. Those amounts will be subsequently recognized

as a component of net periodic pension cost on the same basis as the

amounts recognized in accumulated other comprehensive income at

adoption of SFAS No. 158. The impact of adopting these provisions was

an increase in the accrued pension liability of Rs. 47,942 (USD 1,112)

and a decrease in shareholders equity of Rs. 47,942 (USD 1,112).

2.16. Compensated absence

The Group’s compensated absence liability is accrued based on an

estimate for leave encashment and availment by an employee out of

the total leave balance standing to the credit of an employee at the

period end. Short term compensated absences are provided for based

on estimates. Long term compensated absences are provided for based

on actuarial valuation.

2.17. Advertising cost

Advertising costs are expensed as incurred and are included in selling

and marketing expenses. Advertising costs for the years ended

March 31, 2006 and 2007 were Rs. 135,373 and Rs. 150,368

(USD 3,489), respectively.

2.18. Leases

The Group classifies all leases at inception as either a capital lease or

an operating lease. A lease of assets under which there is a transfer

of substantially all of the risk and rewards incident to ownership as

prescribed in SFAS No. 13, “Accounting for Leases” are classified as

capital leases and all other leases are classified as operating leases.

Assets under capital leases are capitalized and lease payments are

appropriated towards the lease obligation and interest on the obligation

amount. Lease payments under an operating lease are recognized as an

expense on a straight-line basis over the lease term.

2.19. Earnings per share

Basic earnings per share is computed using the weighted-average

number of equity shares outstanding during the year. Diluted earnings per

share is computed by considering the impact of the potential issuance of

equity shares, using the treasury stock method, on the weighted average

number of shares outstanding.

The following table sets forth the computation of basic and diluted

earnings per share:

March 31, 2006 March 31, 2007NumeratorNet income 2,190,369 2,768,056DenominatorBasic weighted average equity shares outstanding 75,192,287 78,789,867

Dilutive impact of stock options and stock purchase scheme 2,371,459 2,108,049

Diluted weighted average equity shares outstanding 77,563,746 80,897,916

2.20. Fair value of financial instruments

The carrying amounts reported in the balance sheet for cash and cash

equivalents, accounts receivable, other current assets, accounts payable

and other current liabilities approximate their fair value due to the short

maturity of these items.

Restricted cash and cash equivalent of Rs. 19,292 (USD 448) represents

margin money against bank guarantees issued for periods equal to or

above five years. The Group receives interest on these deposits, which

are at the rates offered by the bank on such transactions. Long-term

rental deposits comprise of interest free deposits maintained for office

and residential premises taken on lease. Such deposits are recoverable

on termination of such lease agreements. Long-term rental deposit

amounted to Rs. 1,206,553 and Rs. 1,675,221 (USD 38,868) at

March 31, 2006 and 2007, respectively and the fair value determined

using market rates of interest as of March 31, 2006 and 2007 was

Rs. 1,057,835 and Rs. 771,714 (USD 17,905), respectively.

2.21. Concentration of credit risk

Financial instruments that potentially subject the Group to concentrations

of credit risk consist principally of cash equivalents, account receivable

and bank deposits. By their nature, all such financial instruments involve

risk including the credit risk of non-performance by counter parties. The

Group’s cash equivalents, bank deposits and restricted cash are invested

with banks with high investment grade credit ratings. Account receivables

are typically unsecured and are derived from revenue earned from

customers in the financial service industry primarily in the United States

and Europe. The Group monitors the credit worthiness of its customers

to whom it grants credit terms in the normal course of business.


Management believes there is no significant risk of loss in the event of

non-performance of the counter parties to these financial instruments,

other than the amounts already provided for in the consolidated financial

statements.

2.22. Derivative instruments and hedging activities

The Group has entered into forward and option foreign exchange

contracts where the counter party is a bank. The Group purchases

forward foreign exchange contracts to mitigate the risks of change in

foreign exchange rates on accounts receivable and accounts payable

denominated in certain foreign currencies. Although these contracts

are effective as hedges from an economic perspective, they do not

qualify for hedge accounting under SFAS No. 133, “Accounting for

Derivative Instruments and Hedging Activities” as amended. Under

SFAS 133, the changes in the fair value of derivatives that are either

not designated as a hedge or is so designated but do not qualify for

hedge accounting, is recognized in the income statement. As of

March 31, 2006 and 2007, the Group held forward foreign exchange

contracts for the sale of USD 115,000 and USD 123,000 respectively,

EUR 6,250 and EUR 3,500 respectively and foreign exchange option

contracts of USD 18,000 and USD 16,500 respectively. These contracts

mature in between 1 to 12 months. The Group has recorded Rs. 8,273

and Rs. 29,745 (USD 690) as forward foreign exchange loss for the

years ended March 31, 2006 and 2007, respectively in respect of these

contracts.

Further, certain license arrangements entered into by the Group with its

customers are denominated in a currency which is neither the functional

currency of the Group or the customer, and thus qualify as embedded

derivative instruments under SFAS No. 133. Accordingly, gains or losses

on such embedded derivative instruments are recognized in the Group’s

consolidated income statements based on the fair value of the embedded

derivative contracts at year end and the corresponding asset/liability is

recorded in the balance sheet under other current assets or other current

liabilities. The Group has recorded Rs. 17,749 as gain and Rs. 4,374

(USD 101) as loss for the year ended March 31, 2006 and 2007,

respectively related to such embedded derivatives.

2.23. Share-based compensation

In December 2004, the Financial Accounting Standards Board (“FASB”)

issued SFAS No. 123 (revised 2004), “Share-Based Payment”

(“SFAS No. 123(R)”) that addresses the accounting for share-based

payment transactions in which an enterprise receives employee services

in exchange for equity instruments of the enterprise or liabilities that are

based on the fair value of the enterprise’s equity instruments or that may be

settled by the issuance of such equity instruments. Prior to April 1, 2006,

the Group accounted for its employee share-based compensation

plan using the intrinsic value method of accounting prescribed by the

Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for

Stock Issued to Employees” and related Interpretations, as permitted by

SFAS No. 123, “Accounting for Stock-Based Compensation”. Effective

April 1, 2006, the Group adopted SFAS No. 123(R), using the modified

prospective transition method and accordingly, prior period financial

statements have not been restated to reflect the impact of SFAS 123(R).

Under this method, the Group is required to recognize share-based

compensation for all new and unvested share-based awards that are

ultimately expected to vest as the requisite service is rendered beginning

April 1, 2006. Share-based compensation is measured based on the fair

values of the share-based award on the dates of grant.

SFAS 123R requires the use of a valuation model to calculate the

fair value of share-based awards. The Group has elected to use the

Black-Scholes-Merton pricing model to determine the fair value of

share-based awards on the dates of grant, consistent with that used for

pro forma disclosures under SFAS No. 123, Accounting for Stock-Based

Compensation.

The Group recognized share-based compensation using the straight-line

method for all share-based awards issued on or after April 1, 2006. For

share-based awards issued prior to April 1, 2006, the Group continues

to recognize share-based compensation using the accelerated expense

attribution method.

As a result of adopting SFAS No. 123(R) on April 1, 2006, the Group

has recognized share-based compensation expenses of Rs. 115,596

(USD 2,682) for the year ended March 31, 2007. If the Group had

continued to account for share-based compensation in accordance with

APB Opinion No. 25, income before provision for income taxes and net

income for the year ended March 31, 2007 would have been higher by

Rs. 115,596 (USD 2,682) and basic and diluted earnings per share for

the year ended March 31, 2007 would have been higher by Rs. 1.47

(USD 0.03) and Rs. 1.43 (USD 0.03), respectively.

The following table presents the effect on reported net income and

earnings per share if the Group had accounted for stock options under

the fair value method of accounting described in SFAS No. 123 for the

year ended March 31, 2006:

Net income as reported 2,190,369Add: Stock based employee compensation expense included in reported net income −

Less: Stock based employee compensation determined using fair value of the options (70,728)

Pro forma net income 2,119,641Basic income per shareAs reported 29.13Pro forma 28.19Diluted income per shareAs reported 28.24Pro forma 27.27

2.24. Reclassifications

Certain amounts in the prior year’s financial statements and related notes

have been reclassified to conform to the current year’s presentation.

2.25. Recently issued accounting standards

In June 2006, the FASB issued Interpretation No. 48 (“FIN 48”),

“Accounting for Uncertainty in Income Taxes”, an interpretation of

SFAS No. 109, “Accounting for Income Taxes”, to create a single

model to address accounting for uncertainty in tax positions. FIN 48

clarifies the accounting for income taxes by prescribing a minimum



recognition threshold that a tax position is required to meet before being

recognized in the financial statements. FIN 48 also provides guidance

on de-recognition, measurement, classification, interest and penalties,

accounting in interim periods, disclosure and transition. A tax position

must be more-likely-than-not of realization to be recognized upon the

adoption of FIN 48 and in subsequent periods. FIN 48 is effective for

fiscal year beginning April 1, 2007, and the provisions of FIN 48 will be

applied to all tax positions upon its initial adoption with the cumulative

effect of the change in accounting principle recognized as an adjustment

to opening retained earnings. The Group is currently evaluating the impact

of the application of FIN 48 on its consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, “Fair Value

Measurements”. SFAS No. 157 defines “fair value” as the price that

would be received to sell an asset or paid to transfer a liability in an

orderly transaction between market participants at the measurement

date. SFAS No. 157 provides guidance for the determination of fair

value, and establishes a fair value hierarchy for assessing the sources of

information used in fair value measurements. SFAS No. 157 is effective

for fiscal years beginning after November 15, 2007. The Group is

currently evaluating the impact of this pronouncement on its consolidated

financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option

for Financial Assets and Financial Liabilities” which permits entities to

choose to measure many financial instruments and certain other items

at fair value that are not currently required to be measured at fair value.

SFAS No. 159 will be effective for the Group on April 1, 2008.

3. Business combinations

Mantas Inc. (“Mantas”)

On October 2, 2006, the Group acquired a 100% ownership in Mantas

for a total consideration of USD 126,500 (Rs. 5,809,950) including

transactions costs of USD 5,067 (Rs. 232,727). Closing formalities

related to the acquisition were completed and cash was remitted to the

erstwhile stockholders of Mantas on October 2, 2006.

Mantas, together with its subsidiaries, provide anti-money laundering

and compliance solutions to customer in the financial services industry.

Mantas has a Behavior Detection Platform which addresses regulatory

compliance, loss prevention and revenue generation through its suite of

risk management, anti-money laundering, fraud, employee surveillance

and broker and trading compliance monitoring applications.

The acquisition was accounted for under the purchase method of

accounting in accordance with SFAS No. 141, “Business Combinations”.

The results of operations for Mantas have been included in the Group’s

consolidated statements of income from October 2, 2006. The allocation

of the total purchase price based on management estimates of the assets

acquired and liabilities assumed is as follows:

Rs. USD

Cash 317,760 6,918Current assets 553,305 12,047Current liabilities (555,997) (12,101)Property and equipments 36,285 790Intangible assets: Customer contracts 23,287 507Customer relationship 267,129 5,816Intellectual property rights (IPR) 1,079,906 23,512Goodwill 4,088,275 89,011Purchase consideration 5,809,950 126,500

The valuation of intangible assets was based on an income based

approach using projected cash flows and discounting them to arrive at

a present value. Customer contracts, customer relationship and IPR are

amortized over their useful life which has been estimated to be 1 year for

customer contracts and 5 years for customer relationships and IPR.

As a part of acquisition, the Company entered into bonus agreements

with certain employees of Mantas and agreed to pay bonuses amounting

to USD 5,546 (Rs. 254,912). The Company paid bonuses of USD 3,991

(Rs. 183,720) on the date of acquisition and accounted the same as

a cost of the business combination. The balance bonuses amounting

to USD 1,555 (Rs. 71,192) is linked to employment conditions and is

payable to employees only if employees serve Mantas for the period

of one year. The same is recorded as a liability for employee costs

with a corresponding debit to deferred compensation. The deferred

compensation cost will be charged to the income statement over a

period of one year. For the year ended March 31, 2007, the Company

has recorded Rs. 33,451 as a charge to employee cost.

Pro-forma consolidated results of operation assuming the acquisition of

Mantas at the beginning of the year is as follows:

Year ended March 312006 2007 2007

Rs. Rs. USDRevenueAs reported 14,835,246 20,381,070 472,879Pro-forma (unaudited) 17,048,499 21,096,041 489,467Net incomeAs reported 2,190,369 2,768,056 64,224Pro-forma (unaudited) 2,220,241 2,650,604 61,499Basic earnings per shareAs reported 29.13 35.13 0.82Pro-forma (unaudited) 29.53 33.64 0.78Diluted earnings per shareAs reported 28,62 34.22 0.79Pro-forma (unaudited) 28,24 32.76 0.76


The Capital Market Company Pte Ltd (“CAPCO”)

On January 3, 2007, the Group acquired a 100% ownership in CAPCO

for a total consideration of USD 1,050 (Rs. 46,366). Closing formalities

related to the acquisition were completed and cash was remitted to the

erstwhile shareholders of CAPCO on January 3, 2007. After the acquisition,

CAPCO’s name was changed to i-flex Consulting (Asia Pacific) pte ltd.

CAPCO was incorporated in Singapore and is in the business of providing

software and technology consultancy services to financial institutions in

Far East Asia.

These acquisitions were accounted for under the purchase method of

accounting in accordance with SFAS No.141, “Business Combinations”.

The results of operations for CAPCO have been included in the Group’s

consolidated statement of income from January 3, 2007. The fair value

of identifiable intangible assets has been determined based on standard

valuation techniques. The Company has preliminarily recorded identifiable

intangible assets of Rs. 38,324 (USD 868) and net assets of Rs. 8,042

(USD 182) in connection with this acquisition. The proforma effect of this

acquisition was not significant to the consolidated results of operations

of the Group.

During the year ended March 31, 2006, the Group acquired a 76.77%

ownership interest in Castek Software Inc. (‘Castek’) and the operational

risk solutions division of Capital Market N.V. for a total consideration of

Rs. 115,281. The Group recorded goodwill of Rs. 22,842, identifiable

intangible assets of Rs. 87,144 and net assets of Rs. 5,255 in connection

with these acquisitions.

4. Goodwill and intangible assets

The components of intangible assets are as follows:

March 31, 2006Gross Accumulated

amortization Net

Rs. Rs. Rs.

Amortizable intangible assets:Technologies/software 120,753 53,247 67,506Customer relationship 197,093 96,007 101,086Customer contracts 29,037 28,915 122Process know how 14,601 3,650 10,951Intellectual property right 191,416 41,505 149,911Others 7,614 6,460 1,154Non-amortizable intangible asset:

Trademark 12,535 − 12,535573,049 229,784 343,265

March 31, 2007

Gross Accumulated amortization

Net

Rs. Rs. Rs.

Amortizable intangible assets:Technologies/software 117,072 75,121 41,951Customer relationship 470,895 178,050 292,845Customer contracts 67,375 44,072 23,303Process know how 14,471 6,244 8,227Intellectual property right 1,209,961 181,036 1,028,925Others 7,559 7,559 −Non-amortizable intangible asset:

Trademark 12,184 − 12,1841,899,517 492,082 1,407,435

March 31, 2007

Gross Accumulated amortization

Net

USD USD USD

Amortizable intangible assets:Technologies/software 2,716 1,743 973Customer relationship 10,926 4,131 6,795Customer contracts 1,563 1,023 540Process know how 336 145 191Intellectual property right 28,073 4,200 23,873Others 175 175 −Non-amortizable intangible assets:

Trademark 283 − 28344,072 11,417 32,655

Amortization expense related to intangible assets amounted to Rs. 130,750

and Rs. 272,467 (USD 6,322) for the year ended March 31, 2006 and

2007, respectively.

The estimated annual amortization expense based on current amortizable

intangible assets for fiscal years beginning April 1, 2007 is as follows:

Year ending March 31Rs. USD

2008 1,279,209 29,6802009 66,128 1,5342010 36,881 8562011 10,470 2432012 2,563 59

1,395,251 32,372

The changes in carrying value of goodwill by segment (Refer to note 15)

were as follows:

Product KPO TotalRs. Rs. Rs.

Balance at April 1, 2005 389,098 194,442 583,540Goodwill arising on acquisition 22,842 − 22,842Foreign currency translation (2,711) 3,822 1,111Impairment during the year (57,958) − (57,958)Balance at March 31, 2006 351,271 198,264 549,535Goodwill arising on acquisition 4,088,295 − 4,088,295Foreign currency translation (237,996) (5,555) (243,551)Balance at March 31, 2007 4,201,570 192,709 4,394,279

USD USD USD

Balance at March 31, 2007 97,484 4,471 101,955



5. Property and equipment

The major classes of property and equipment are as follows:

March 31

2006 2007 2007Rs. Rs. USD

Land 232,674 232,674 5,399Building 253,340 253,340 5,878Computer equipment 1,147,088 1,385,323 32,142Electrical and office equipment 430,056 542,710 12,592Furniture and fixtures 369,534 453,224 10,516Vehicles 37,765 42,496 986Leasehold improvements 249,524 323,678 7,510PeopleSoft ERP 53,767 53,767 1,247Capital work-in-progress 581,356 1,345,804 31,225

3,355,104 4,633,016 107,495Accumulated depreciation and amortization (1,180,822) (1,738,564) (40,338)

Property and equipment, net 2,174,282 2,894,452 67,157

Depreciation and amortization expense, including amortization of assets recorded under capital leases, amounted to Rs. 371,197 and Rs. 560,315

(USD 13,000) for the year ended March 31, 2006 and 2007, respectively.

Assets held under capital leases included above are as follows:

March 31

2006 2007 2007Rs. Rs. Rs.

Computer equipment 7,367 7,161 166Furniture and fixtures 3,420 3,324 77Vehicles 37,765 42,495 986

48,552 52,980 1,229Accumulated amortization (20,648) (28,995) (673)

27,904 23,985 556

6. Investments

Marketable securities

The fair values of the available for sale securities are as follows:

March 31

2006 2007 2007Rs. Rs. USD

Opening carrying value – 10,000 232Add: Investment during the year 10,000 – –Less: Unrealized loss during the year – (810) (19)

Carrying value of the investment 10,000 9,190 213

The above investment is in debt securities of 9% Dhanalakshmi Bank

Bond Series VI (allotted on March 30, 2006) and are non-convertible

and redeemable at par at the end of 7 years 3 months from the date of

allotment.

Investments in Equity Investees

The Group has a 40% investment in Flexcel International Private Limited

(“Flexcel”), a joint venture between HDFC Bank Limited and its affiliates,

Lord Krishna Bank Limited and its affiliates and the Company. Flexcel

provides the Group’s products through an Application Service Provider

(“ASP”) model to various banks and financial institutions in India.

Further, i-flex has a 33% equity stake in Login SA, a France based

treasury software specialists firm. Login SA is a front and mid office

treasury solution provider with its product, Login Acumen. The Group

has accounted for this investment using the equity method of accounting

and recorded its share of profits of its equity investees of Rs. 4,713 and

Rs. 9,161 (USD 213) for the year ended March 31, 2006 and 2007,

respectively, in the consolidated statements of income.

Other investments

March 31

2006 2007 2007Rs. Rs. USD

UTI US-64 – 6.75% Tax free Bonds 33,123 33,123 769

National Saving Certificates - VIII issue 131 131 3

33,254 33,254 772

The Group holds 331,225 US-64 6.75 % Tax-free bonds. These bonds

are redeemable at par on June 1, 2008. The fair value of these bonds as

on March 31, 2007 was Rs. 32,944 (USD 764).

The Company also has a 19.5% ownership interest in EBZ online

private limited (‘EBZ’). Management is of the view that the fair value

of its investment in EBZ has declined permanently and hence, as of

March 31, 2005 management had made a provision of Rs. 45,000

(USD 1,044) towards the diminution in the value of its investment

in EBZ.


7. Income taxes

The Group’s provision for income taxes consists of the following:

Year ended March 31

2006 2007 2007Rs. Rs. USD

Current taxesDomestic taxes (406,589) (182,725) (4,240)Foreign taxes (178,117) (230,371) (5,345)

(584,706) (413,096) (9,585)Deferred taxes Domestic taxes 69,554 70,625 1,639Foreign taxes − − −

69,554 70,625 1,639 (515,152) (342,471) (7,946)

Income (loss) before income taxes for the years ended March 31, 2006

and 2007 primarily arose in the following jurisdictions:

Year ended March 31

Jurisdiction 2006 2007 2007Rs. Rs. USD

India 2,552,652 3,016,496 69,988United States (110,597) (428,726) (9,947)Singapore 171,816 295,885 6,865The Netherlands 154,664 218,317 5,065United Kingdom − 86,918 2,017Others (70,291) (87,524) (2,031)

2,698,244 3,101,366 71,957

The Group’s Indian operations are eligible to claim income-tax exemption with respect to profits earned from export revenue from an operating unit

registered under the Software Technology Parks of India. The benefit is available from the date of commencement of operations to March 31, 2009,

subject to a maximum of 10 years. The Company had seven such locations for the years ended March 31, 2006 and 2007. The benefits expire in stages

from April 1, 2006 to March 31, 2009.

The additional income tax expense at the statutory rate in India, if the tax exemption was not available, would have been approximately Rs. 665,944

and Rs. 1,217,074 (USD 28,238) for the years ended March 31, 2006 and 2007, respectively. The impact of such additional tax on basic and diluted

earnings per share would have been a reduction of earnings per share by Rs. 8.86 and Rs. 8.59, respectively, for the year ended March 31, 2006 and

Rs. 15.45 and Rs. 15.04, respectively, for the year ended March 31, 2007.

The following is a reconciliation of the Indian statutory income tax rate with the effective tax rate:

Year ended March 31

2006 2007 2007Rs. Rs. USD

Income before income taxes 2,698,244 3,101,366 71,957Enacted tax rate in India 33.66% 33.66% 33.66%

Statutory income tax 908,229 1,043,919 24,221Provision (benefit) due to

Tax effect on exempt income (680,409) (1,217,387) (28,246)Differential foreign tax rate 46,156 8,171 190Permanent differences 156,337 410,511 925Net losses with no current benefits 76,108 98,656 2,289Changes in valuation allowance 8,731 97,788 2,269Tax relief of earlier year, net of provision for tax − (99,187) (2,302)

Provision for income taxes 515,152 342,471 7,946



The components of the deferred tax assets and liabilities are as follows:

March 31

2006 2007 2007Rs. Rs. USD

Deferred tax assetsLoss on sale of investment 25,083 25,083 582Share of loss in equity investees 3,817 3,472 81Net operating losses carried forward 151,835 1,106,656 25,677Difference between book and tax depreciation 70,762 148,330 3,442Diminution in value of investment 15,147 15,147 351Provision for doubtful debts − 7,000 162Others 15,974 102,251 2,372 Total deferred tax assets 282,618 1,407,939 32,667Less: valuation allowance (185,534) (723,022) (16,775)Deferred tax assets, net of valuation allowance 97,084 684,917 15,892

Deferred tax liabilitiesDifference between book and tax depreciation (27,971) (545,179) (12,650)

Net deferred tax assets 69,113 139,738 3,242

The classification of deferred tax assets (liabilities) is as follows

March 31

2006 2007 2007Rs. Rs. USD

CurrentDeferred tax assets − 10,132 235Deferred tax liabilities − − −Net current deferred tax assets − 10,132 235Non currentDeferred tax assets 256,296 854,373 19,822Less: valuation allowance (185,534) (723,022) (16,775)

70,762 131,351 3,047Deferred tax liabilities (1,649) (1,745) (40)Net non current deferred tax assets 69,113 129,606 3,007

As at March 31, 2007, the Group had net operating loss carry forwards

aggregating to Rs. 2,599,388 (USD 59,949) in the US which expires

between 2024 and 2027, Rs. 206,778 (USD 4,769) in Canada which

expires in 2015, Rs. 58,629 (USD 1,352) in Japan which expires between

2012 and 2013 and Rs. 17,589 (USD 406) in Germany which is can be

allowed to carry forward indefinitely. The Group has recorded a valuation

allowance, for the deferred tax asset related to net operating loss carry

forwards, the loss on sale of investment and share of losses in equity

investee. The loss on sale of investment and share of losses in equity

investee would be deductible for tax only when the investments are sold

and if the Group has offsetting capital gains. The change in valuation

allowance was primarily on account of recording a valuation allowance

for net operating losses with no current benefits.

In determining the tax provisions, the Group also provides for tax

exposures based on the Group’s assessment of regulatory reviews. Such

accruals, which are recorded in income taxes payable, are management’s

estimates based on information currently available and, accordingly,

are subject to revision if new information becomes available. The final

outcome is dependent upon the judgment of regulatory reviewers.

The Group is involved in income tax assessment proceedings in various

jurisdictions. While the resolution of these assessments cannot be

predicted with certainty, management currently believes that the final

outcome of such matters, in the aggregate, will not have a material

adverse effect on the financial position, results of operations or cash

flows of the Group.

Deferred income taxes on undistributed earnings of foreign subsidiaries

have not been provided as such earnings are deemed to be permanently

reinvested.

8. Deferred revenue

Deferred revenue comprises of:

March 31

2006 2007 2007Rs. Rs. USD

Advance billings 1,238,071 2,435,467 56,507Unexpired post contract support 593,945 923,580 21,429

Advances from customers 134,772 27,240 632

1,966,788 3,386,287 78,568


9. Other current liabilities

Other current liabilities comprise payables in respect of:

March 312006 2007 2007

Rs. Rs. USD

Referral fee/commission

199,502 227,045 5,268

Professional fees 231,156 383,754 8,904Rates and taxes 173,563 310,463 7,203Application software 71,770 79,396 1,842Travelling expenses 87,366 113,422 2,631Embedded derivatives 9,281 13,655 317

Others 284,183 374,186 8,6821,056,821 1,501,921 34,847

10. Employee benefit plans


During the years ended March 31, 2006 and 2007, the Group contributed

the following amounts to defined contributions plans:

Year ended March 31

2006 2007 2007Rs. Rs. USD

Provident fund – India 95,847 133,753 3,103Superannuation – India 10,641 43,676 1,013 106,488 177,429 4,116

Defined benefit plan – gratuity

The reconciliation of the beginning and ending balances of the projected benefit obligation and the fair value of plans assets for the years ended

March 31, 2006 and 2007, and the accumulated benefit obligation at March 31, 2006 and 2007, are as follows:

Year ended March 31

2006 2007 2007Rs. Rs. USD

Change in projected benefit obligationsObligation at beginning of the year 66,131 78,594 1,823Service cost 15,785 20,415 474Interest cost 4,722 5,974 139Benefits paid (5,854) (10,126) (235)Actuarial (loss) gain (2,190) 28,024 650Benefit obligation at end of the year 78,594 122,881 2851

Change in plan assetsPlan assets at beginning of the year 5,922 1,818 42Actual return 230 136 4Actuarial loss 20 10 –Actual contributions 1,500 12,859 298Benefits paid (5,854) (10,126) (235)Plan assets at end of the year 1,818 4,697 109

Funded status (76,776) (118,184) (2,742)Unrecognized net loss 21,523 – –Net amount recognized (55,253) (118,184) (2,742)Accumulated benefit obligation at end of the year 52,494 88,153 2,045

The underfunded status of the plan of Rs. 55,253 and Rs. 118,184

(USD 2,742) at March 31, 2006 and 2007, respectively, is recorded as

a long-term liability.

Year ended March 31

2006 2007 2007Rs. Rs. USD

Net periodic gratuity costService cost 15,785 20,415 474Interest cost 4,722 5,974 139Expected return on plan assets (1,518) 82 2

Amortization 1,773 1,377 32Net periodic gratuity cost for the year 20,762 27,848 647


below:

March 312006 2007

Discount rate 8.00% 9.40%Expected return on plan assets 7.50% 7.50%Rate of compensation increase 5.00% 8.00%

The Group evaluates these assumptions annually based on its long-term

plans of growth and industry standards. The discount rates are based

on current market yields on high quality corporate bonds. Plan assets

are administered by the LIC and invested in lower risk assets, primarily

debt securities. The Group’s contribution to the fund for the year ended



March 31, 2008 is expected to be Rs. 20,018 (USD 464). The expected

benefit payments from the fund as of March 31, 2007 are as follows:

Year ending March 31Rs. USD

2008 23,325 5412009 24,564 5702010 29,819 6922011 35,311 8192012 42,177 9792013-2017 168,660 3,913

323,856 7,514

The cumulative effect of adopting the provisions of SFAS No. 158 on the

Group’s statement of financial position at March 31, 2007 are presented

in the following table:

At March 31, 2007

Prior to adopting

SFAS

Effect of adopting

As reported at March 31, 2007

Rs. Rs. Rs.

Accrued pension liability

70,242 47,942 118,184

Accumulated other comprehensive loss 417,331 47,942 465,273

The adoption of SFAS No. 158 had no effect on the Group’s consolidated

statement of income for the year ended March 31, 2007, or for any prior

year presented, and it will not effect the Group’s operating results in

future periods. Included in accumulated other comprehensive income at

March 31, 2007 is the cumulative effect of adoption of SFAS No. 158

amounting to Rs. 47,942 (USD 1,112) that has not yet been recognized

in net periodic pension cost. The amount included in accumulated other

comprehensive income and expected to be recognized in net periodic

pension cost during the year ended March 31, 2008 is Rs. 6,737. No

plan assets are expected to be returned to the Company during the year


11. Accumulated other comprehensive loss

The changes within each classification of accumulated other

comprehensive loss for the years ended March 31, 2006 and 2007 is

as follows:

Cumulative translation

adjustment

Changes in fair value

of available for sale

securities

Cumulative effect of adoption of SFAS No. 158

Total accumulated

other comprehensive

loss Rs. Rs. Rs. Rs.

Balance at April 1, 2005 54,700 – – 54,700

Change during the year 20,220 – – 20,220

Balance at March 31, 2006 74,920 – – 74,920

Change during the year 341,601 810 47,942 390,353

Balance at March 31, 2007 416,521 810 47,942 465,273

12. Shareholders’ equity

The Group has only one class of shares, equity shares. Each holder

of equity shares is entitled to one vote per share. Dividends proposed

by the Board of Directors are payable when formally approved by the

shareholders, who have the right to decrease but not increase the amount

of the dividend recommended. The Company accrues for dividend upon

obtaining shareholder approval. The company paid cash dividends of

Rs. 375,538 (Rs. 5.00 per share) and Rs. 382,679 (USD 8,879) (Rs. 5.00

per share) and dividend tax amounting to Rs. 52,669 and Rs. 53,671

(USD 1,245), during the years ended March 31, 2006 and 2007,

respectively. Under the Indian Companies Act, all Indian companies are

mandatorily required to transfer its current year’s earnings to a general

reserve, which is restricted for the purpose of distribution of dividend. As

at March 31, 2007, the Company had a general reserve amounting to

Rs. 10,238,569 (USD 235,387) which is included in retained earnings.

13. Share-based compensation

Share-based compensation recognized during years ended

March 31, 2006 and 2007 (including awards accounted for as liability

awards) is as follows:

March 312006 2007 2007

Rs. Rs. USD

Cost of revenue Nil 147,321 3,418Selling and marketing expenses Nil 21,016 488General and administrative expenses Nil 27,494 638

Nil 195,831 4,544

Employee Stock Purchase Scheme (“ESPS”)

On March 29, 1998 the Company adopted the ESPS to provide

equity-based incentives to key employees of the Company (“1998

Scheme”). Subsequently on April 1, 1999, April 1, 2000, April 1, 2001

and June 1, 2004, the Company adopted additional share-based

schemes (“1999 Scheme”, “2000 Scheme”, “2001 Scheme” and “2004

Scheme”). These schemes, which have similar terms, are administered

through a Trust (the “Trust”). The Trust purchases shares of the Company

using the proceeds of loans obtained from the Company. Such shares are

offered by the Trust to employees at an exercise price, which approximates

the fair value on the date of the grant. The right to purchase the shares

vests over a period determined at the grant date. Employees are entitled

to the dividends on shares allocated to them by the Trust. The employee

is allowed a period of ten years to pay the exercise price. The Trustees

have the right of recourse against the employee for any amounts that

may remain unpaid on the shares accepted by the employee.

No compensation cost was recorded if the exercise price equals the fair

value of the underlying stock on the grant date. The shares held by the

Trust have been considered as outstanding for basic EPS purposes, to

the extent these shares have been allocated to employees pursuant to

the above schemes and are eligible to be exercised by the employee.

For diluted EPS, shares not eligible for exercise are considered in

determining weightage number of shares outstanding using the treasury

stock method. The fair value of the unallocated shares held by the Trust

is recorded as deferred share-based compensation.



Year ended March 31

2006 2007Number of shares

Opening balance of unallocated shares 70,606 120,888Shares forfeited during the year 50,282 21,228Closing balance of unallocated shares 120,888 142,116Opening balance of allocated shares 3,393,936 2,080,546Shares exercised during the year (1,263,108) (1,704,106)Shares forfeited during the year (50,282) (21,228)Closing balance of allocated shares 2,080,546 355,212Shares eligible for exercise 1,830,774 164,712Shares not eligible for exercise 249,772 190,500Closing balance of allocated shares 2,080,546 355,212

As the shares granted to the employees vest upon the employee

accepting the offer, the fair value of the shares granted to the employee

computed in accordance with SFAS 123 would not differ significantly

from the intrinsic value of the shares as determined in accordance with

APB 25.

Employee Stock Option Plan (“ESOP”)

The Company has granted 4,753,600 options to the employees and

directors of the Group. As per the scheme, 20% of the total options

granted under the Scheme will vest to the eligible employees and

directors on the completion of 12, 24, 36, 48 and 60 months and is

subject to the continued employment of the employee or director with the

Company or its subsidiaries.

A summary of option activity in the Company’s ESOP for year ended


Shares arising

from options


price

Weighted average


life (in years)

Aggregate intrinsic

value (in thousands)

Outstanding at April 1, 2006 2,756,880 280

Granted 373,000 1,291Exercise of options (2,552,795) (270)

Forfeited (46,600) (826)Outstanding at March 31, 2007 530,485 989 8.1 579,634

Options expected to vest 417,500 1,165 8.8 382,741

Options vested and exercisable 112,985 339 5.5 196,893

The aggregate intrinsic value is calculated as the difference between the

exercise price of the underlying options and the closing share price of

Rs. 2,081.65 of the Company’s share on March 30, 2007 (last trading

day prior to March 31, 2007).

The aggregate intrinsic value of options exercised during the years

ended March 31, 2007 was Rs. 4,624,771 (USD 107,303). Total cash

received as a result of option exercises was approximately Rs. 688,823

(USD 15,982) for the year ended March 31, 2007.

As of March 31, 2007, there was Rs. 119,464 (USD 2,772) of

unrecognized compensation cost related to outstanding share options,

net of estimated forfeitures. This amount is expected to be recognized

over a weighted average period of 4.1 years. To the extent the forfeiture

rate is different than what the Company has anticipated, compensation

expense related to these awards will be different from the Company’s

expectations.

The fair value of options granted during the year ended March 31, 2007

was estimated on the date of grant using the Black-Scholes-Merton

option-pricing model with the following assumptions:

Expected life 6.5 yearsRisk free interest rates 6%Expected volatility 36.80%Dividend yield 0.39%

The expected life is based on the midpoint of the vesting and the

contracted term of the option, the risk free interest rate is based on United

States Treasury instruments and the expected volatility was calculated

based on the historical volatility of the Company’s stock price. Forfeitures

are estimates based on the Company’s historical analysis of actual stock

option forfeitures. The Company has paid cash dividends on its common

share @100% for past 3 years and, accordingly, the expected dividend

yield is arrived considering a dividend rate of 100%. Shares reserved as

at March 31, 2007 for the future issuance of options was 104,100. The

weighted-average fair value of options granted during the year ended

March 31, 2006 and 2007 was Rs. 334 and Rs. 596, respectively.

Castek share-based options

On December 6, 2005, Castek, subsidiary company of i-flex, has adopted

a stock-based compensation plan, called the 2005 Castek Share Option

Plan (the 2005 CSOP). Under the terms of the 2005 CSOP, a total of

194,040,852 equity shares of Castek have been reserved for issuance

to the Castek’s employees, directors or other eligible peoples. As per the

2005 CSOP, each stock option will have an exercise price equal to or

greater than fair market value of Castek’s shares on the date of the grant,

the vesting period of three years from the date of grant and exercise

period of five years.

Further, as per the terms of 2005 CSOP, while the Group holds at least

50% of the outstanding equity shares of Castek at the dates indicated

below, then the Group will be required to purchase the indicated

percentage of options from the employees (and the employees are

required to sell to the Group such options). The price per equity share

of Castek for this purpose is based on Castek’s revenue for the relevant

fiscal year multiplied by a revenue multiplier, as set out below divided by

the number of equity shares issued and outstanding on the above date

on a fully diluted basis.

Year ending March 31 Repurchase % Revenue multiplier

2009 50% 2.50 times2010 30% 2.75 times2011 20% 3.00 times

In accordance with SFAS No. 123(R) the Group recognises liabilities

awards under share-based payment arrangements at fair value. At each

reporting date, the Group measures the amount of the liability under

these awards based on the above formula and such cost are recognized

over the repurchase period. The accounting liability will be remeasured at



each balance sheet date based on an estimate by management of future

revenue over the relevant period. The Group has recognized share-based

compensation expenses of Rs. 80,235 (USD 1,850) for the year ended

March 31, 2007.

A summary of option activity in Castek’s 2005 CSOP for year ended




price

Weighted average


life (in years)

Outstanding at April 1, 2006

188,820,799 0.0212

Cancelled (1,507,500) 1.82Outstanding at March 31, 2007 187,313,299 0.0035 5.3

Options expected to vest 125,499,911 0.0035 2.7

Options vested and exercisable 61,813,388 0.0035 2.0

Share-based transactions with non-employees

Pursuant to a subscription agreement entered into between the Group and

GE Capital Mauritius Equity Investment, on August 23, 2005, the Company

granted 395,529 warrants to GE at a fair market value of Rs. 1,015.55.

GE is entitled to subscribe for these warrants in two tranches and after

completion of and compliance with certain predetermined requirements.

As required by the Securities and Exchange Board of India (“SEBI”)

Guidelines 2003, GE has deposited Rs. 40,441 (USD 938), an amount

equivalent to 10% of the total consideration as a deposit. As per the

requirements of SFAS 123 and EITF 96-18, the fair value of the equity

instruments issued was used to measure the transaction as that value

was more reliably measurable than the fair value of the services received.

The fair value of the warrants measured using the date of issue as the

measurement date aggregated Rs. 57,825 (USD 342). This amount has

been accounted for as a discount and a reduction of revenue with a

corresponding credit to additional paid in capital over a period of 10

years. For the year ended March 31, 2006 and 2007 the Company has

recorded Rs. 3,374 and Rs. 5,784 (USD 134), respectively, as a discount

on revenue.

14. Related party transactions

Relationship Names of the related parties

Principal Shareholder and its affiliates (“Oracle”) Oracle Global (Mauritius) Limited(From November 18, 2005) Oracle (India) Private Limited

Oracle USA, Inc.Oracle Corporation (Thailand) Co Ltd

Promoter Company and its affiliates (“Citigroup”) OrbiTech Limited (Until November 17, 2005) Polaris Software Lab Limited

Citigroup Inc.Citicorp Technology Holdings Inc., USACitibank branchesCiticorp Information Technology, Inc.e-Serve International Limited

Joint Ventures Flexcel International Private Limited


Transactions Receivable (payable)Year ended

March 31At

March 312006 2007 2007 2006 2007 2007

Rs. Rs. USD Rs. Rs. USD

CitigroupRevenue 2,681,174 − − − − −Interest income 6,860 − − − − −Bank charges 2,415 − − − − −OracleRevenue 27,035 176,253 4,089 28,066 223,032 5,175Professional fees 846 1,197 28 − − −Application software 123,351 238,561 5,535 − − −Referral fees 7,353 − − − − −Other expenses 1,106 6,095 141 (7,394) (2,917) (68)Deferred revenue − − − (5,998) (211,247) ( 4,901)FlexcelRevenue 10,626 49,929 1,158 6,119 − −Deferred revenue − − − (653) (3,662) (85)


15. Segmental information

The Group has adopted SFAS No. 131, “Disclosures about Segments

of an Enterprise and Related Information”, which requires reporting

information about operating segments in annual financial statements.

Operating segments are identified as components of an enterprise

that engage in business activities from which it may earn revenue and

incur expenses, whose operating results are regularly reviewed by the

enterprises Chief Operating Decision Maker. Group is primarily organized

on a worldwide basis into three business segments:

a) Product licenses and related activities (“Products”);

b) IT solutions and consulting services (“Services”) and

c) Knowledge Processing Services (“KPO”)

The Group reports operating performance of its business segments

to management. The Product license segment comprises of banking

products like the FLEXCUBE suite of products, MicroBanker and Daybreak

which cater to needs of corporate, retail and investment banking as well

as treasury operations and data warehousing requirements. The related

activities include enhancements, implementation and maintenance

activities. Product segment further comprises of casualty insurance

carriers which include insurance product and process configuration, policy

administration, customer management, billing and claims management.

Anti-money laundering and compliance solutions are the new additions

to product segment after the acquisition of Mantas. Substantially all

of the product revenue relate to the FLEXCUBE product. IT solutions

and consulting services comprise of bespoke software development,

computer software solutions and related consulting services arising

from such activities. The services provided under this segment include

Business intelligence, Customer relationship management, Brokerage,

e-commerce, Internet services and IT and business consulting. KPO

comprises of business process outsourcing services for the mortgage

industry.

Expenses, which are not attributable to a business segment, are shown

as corporate expenses. Cost of revenues comprise of all direct employee

costs, travel cost of software professionals, professional fees to software

vendors and application software cost used for internal use.

General and administrative costs are costs, which primarily comprise

of rent, power; communication, repairs and maintenance are initially

allocated among Products, Services and others segment based on

headcount. The other costs are allocated to Products and Services based

on the revenue. The Group allocates expenditure incurred on selling and

marketing expenses in the ratio of the revenues between Products and

Services, or in the ratio of the efforts spent in marketing products and

services. All other segment revenue and expense are directly attributable

to the segments.

Segment assets include all operating assets used by a segment and

consist principally of receivables, deposits for premises and property

and equipment, net of allowances and provisions. Segment liabilities

primarily include deferred revenues, capital lease obligation, advances

from customers, accrued employee cost and other current liabilities.

While most such assets and liabilities can be directly attributed to

individual business segments, the carrying amount of certain assets and

liabilities used jointly by both segments is allocated to the segment on a

reasonable basis. Assets and liabilities that cannot be allocated between

the segments are shown as part of corporate assets.


Products Services KPO Corporate Total(All amounts in Indian Rupees)

Revenue 7,570,888 7,029,689 234,669 − 14,835,246Cost of revenue (excluding depreciation and amortization) (2,978,708) (5,014,128) (153,835) − (8,146,671)

Gross profit 4,592,180 2,015,561 80,834 − 6,688,575Operating expenses

Selling and marketing expenses (1,672,032) (327,564) (67,257) − (2,066,853)General and administrative expenses (427,495) (349,431) (159,870) (732,481) (1,669,277)Depreciation and amortization (209,742) (173,707) (38,148) (80,350) (501,947)Impairment of goodwill − − − (57,958) (57,958)

Operating profit 2,282,911 1,164,859 (184,441) (870,789) 2,392,540Interest income 294,381Other income, net 11,323Income before income taxes 2,698,244Provision for income taxes (515,152)Equity in net income of equity investees 4,713Minority interest 2,564Net income 2,190,369

Segment assets as at March 31, 2006 4,593,177 3,917,018 374,322 8,985,372 17,869,889Segment liabilities as at March 31, 2006 1,461,707 499,811 75,766 2,210,096 4,247,380Capital expenditure by segment 304,199 316,215 78,695 181,195 880,304




Products Services KPO Corporate Total (All amounts in Indian Rupees)

Revenue 10,966,178 8,970,117 444,775 – 20,381,070Cost of revenue (excluding depreciation and amortization) (4,855,586) (6,485,929) (298,433) – (11,639,948)

Gross profit 6,110,592 2,484,188 146,342 – 8,741,122Operating expenses

Selling and marketing expenses (2,210,278) (379,343) (111,339) – (2,700,960)General and administrative expenses (822,972) (428,591) (126,315) (1,076,688) (2,454,566)Depreciation and amortization (483,443) (247,417) (31,004) (70,918) (832,782)

Operating profit 2,593,899 1,428,837 (122,316) (1,147,606) 2,752,814Interest income 371,603Other income, net (23,051)Income before provision for income taxes 3,101,366Provision for income taxes (342,471)Equity in net income of equity investees 9,161Net income 2,768,056

Segment assets as at March 31, 2007 12,954,812 5,644,892 396,457 10,269,242 29,265,403Segment liabilities as at March 31, 2007 4,327,630 1,070,494 114,890 1,172,814 6,685,828Capital expenditure by segment 5,737,762 191,662 13,100 83,344 6,025,868

(All amounts in USD)


Products Services KPO Corporate Total

Revenue 254,436 208,123 10,320 – 472,879Cost of revenue (excluding depreciation and amortization) (112,659) (150,486) (6,924) – (270,069)

Gross profit 141,777 57,637 3,396 – 202,810Operating expenses

Selling and marketing expenses (51,283) (8,801) (2,583) – (62,667)General and administrative expenses (19,094) (9,944) (2,931) (24,982) (56,951)Depreciation and amortization (11,217) (5,741) (719) (1,645) (19,322)

Operating profit 60,183 33,151 (2,837) (26,627) 63,870Interest income 8,622Other income, net (535)Income before income taxes 71,957Provision for income taxes (7,946)Equity in net income of equity investees 213Net income 64,224

Segment assets as at March 31, 2007 300,576 130,972 9,199 238,265 679,012Segment liabilities as at March 31, 2007 100,409 24,837 2,666 27,211 155,123Capital expenditure by segment 133,127 4,447 304 1,934 139,812



The following table shows the distribution of the Group’s consolidated revenue by geographical market based on the location of customers:

Year ended March 31

2006 2007Rs. % Rs. USD %

United States of America 6,938,469 47 8,123,253 188,475 40Europe 3,275,487 22 5,419,170 125,735 26Asia Pacific 2,363,380 16 3,654,502 84,791 18Middle East, India and Africa 2,087,242 14 3,041,175 70,561 15Latin America and Caribbean 170,668 1 142,970 3,317 1

14,835,246 100 20,381,070 472,879 100

The Group does not track its profits, assets and liabilities by region. The

Group derives more than 10% of its revenues from Citigroup as follows:

Year ended March 31

2006 2007 2007Rs. Rs. USD

Product segment related

1,365,472 1,763,665 40,920

Service segment related 4,028,743 4,135,440 95,950

5,394,215 5,899,105 136,870

16. Other income (expense), net

Other income (expense), net comprises of the following:

Year ended March 31

2006 2007 2007Rs. Rs. USD

Foreign exchange loss, net (16,838) (30,311) (703)Insurance claim 21,530 − −Profit on sale of investment 743 − −Miscellaneous income 5,888 7,260 168

11,323 (23,051) (535)

17. Commitments

Capital Expenditure

As at March 31, 2006 and 2007, the Group had committed to spend

Rs. 801,100 and Rs. 1,955,320 (USD 45,367) (includes capital

commitments through the issuance of letters of intent of Rs. 998,819

(USD 23,174)), respectively, under agreements to purchase property and

equipment.

Leases

The Group has taken certain office premises, residential premises

and vehicles for employees under operating leases, which expire at

various dates through year 2013. Future minimum lease payments

under capital leases and operating leases consisted of the following at

March 31, 2007:


Capital leases Operating leasesRs. USD Rs. USD

2008 12,529 291 337,542 7,8322009 8,739 202 225,978 5,2432010 5,060 117 181,186 4,2042011 2,274 53 139,586 3,2392012 1,065 24 86,574 2,009Thereafter till 2013 17,631 409Total minimum payments 29,667 687 988,497 22,936Amount representing interest (3,288) (75)Present value of minimum lease payment 26,379 612

Obligation under capital leasesLong term 10,842 252Current 15,537 360

26,379 612

Rental expenses for the years ended March 31, 2006 and 2007 was

Rs. 249,429 and Rs. 423,448 (USD 9,825), respectively.

18. Subsequent events

Acquisition

On April 20, 2007, i-flex solutions b.v., wholly owned subsidiary company

of i-flex, signed an investment agreement with Fourlis Holdings SA,

Athens Technology Centre (‘ATC’) and shareholders of ATC. Under the

terms of investment agreement, the Group alongwith Fourlis Holdings SA,

and shareholders of ATC has set up company called, i-flex solutions SA

(‘i-flex SA’) wherein the Group currently holds 35% ownership interest.

The Group would acquire the remaining 65% of ownership interest in

i-flex SA over a period of 3 years in 4 tranches whereas i-flex SA would

acquire certain assets, employees and contracts from ATC. The Group

would pay EUR 2 million to ATC, as a compensation for the termination

of existing business relationships, assignment of banking business

contracts and for the acquisition of banking business clientele. In addition

to this, the Group would pay EUR 9.7 million to Fourlis Holding SA and

shareholders of ATC for the acquisition of a 55% stake in Joint Stock

Company. The Group is in the process of completing the acquisition

formalities.


Annual Report 2006-2007_B & W.indd IAnnual Report 2006-2007_B & W.indd I 7/27/2007 3:32:48 PM7/27/2007 3:32:48 PM

Annual Report 2006-2007_B & W.indd IIAnnual Report 2006-2007_B & W.indd II 7/27/2007 3:32:48 PM7/27/2007 3:32:48 PM

i-fl ex annual report 2006-07 III

NOTICE is hereby given that the Eighteenth Annual General Meeting of

i-flex solutions limited will be held at InterContinental The Grand Mumbai,

Sahar Airport Road, Mumbai 400 059 on Friday, August 24, 2007 at

3.00 p.m. to transact the following business:

Ordinary Business:

1. To receive, consider and adopt the Audited Balance Sheet as on

March 31, 2007, the Profit and Loss Account for the year ended on

that date, and the Reports of the Board of Directors and the Auditors

thereon.

2. To appoint a Director in place of Mr. Rajesh Hukku, who retires by

rotation and, being eligible, offers himself for re-appointment.

3. To appoint a Director in place of Mr. William T Comfort, Jr., who retires

by rotation and, being eligible, offers himself for re-appointment.

4. To appoint Auditors of the Company and to fix their remuneration.

Special Business:

5. To consider and, if thought fit, to pass, with or without modification(s),

as an Ordinary Resolution the following:

“RESOLVED THAT pursuant to the provisions of Section 228 and

other applicable provisions, if any, of the Companies Act, 1956, the

Board of Directors of the Company be and is hereby authorized to

appoint Branch Auditors to conduct the audit of branch office(s) of

the Company whether existing or which may be opened hereafter,

in India or abroad, in consultation with the Company’s Statutory

Auditors, any person(s) qualified to act as Branch Auditors within the

meaning of Section 228 of the Act and to fix their remuneration.”



“RESOLVED THAT Mr. N R Kothandaraman (N R K Raman) be and

is hereby appointed as a Director of the Company, liable to retire by

rotation.”



“RESOLVED THAT Mr. Deepak Ghaisas be and is hereby appointed

as a Director of the Company, liable to retire by rotation.”



“RESOLVED THAT Mr. R Ravisankar be and is hereby appointed as a

Director of the Company, liable to retire by rotation.”



“RESOLVED THAT Mr. Derek Williams be and is hereby appointed

as a Director of the Company, liable to retire by rotation.”



“RESOLVED THAT in accordance with the provisions of

Sections 198, 269, 309, 310 read with Schedule XIII and other

applicable provisions, if any, of the Companies Act, 1956 (including

any statutory modification(s) or re-enactment(s) thereof, for the

time being in force) and subject to such sanctions and approvals

as may be necessary, approval of the Company be and is hereby

accorded to the appointment and terms of remuneration of

Mr. N R Kothandaraman (N R K Raman) as the Managing Director of

the Company for a period of five years with effect from May 1, 2007

to April 30, 2012 as set out below:

1. Gross Salary: In the scale of Rs. 55 Lakh p.a. to Rs. 62 Lakh

p.a. inclusive of perquisites as mentioned below.

2. Performance linked Bonus: Payable quarterly or at other

intervals, as may be decided by the Compensation Committee

and the Board.

3. Perquisites and allowances:

a. Housing: Furnished/unfurnished residential accommodation

or house rent allowance up to 10% of the salary in lieu

thereof. The expenditure incurred by the Company on gas,

electricity, water and furnishings, if any, shall be valued as

per Income Tax Rules, 1962.

b. Medical reimbursement/allowance: Reimbursement of

actual expenses for self and family and/or allowance will

be paid as decided by the Board from time to time.

c. Leave travel concession/allowance: For self and family once

in a year, as decided by the Compensation Committee and

the Board from time to time.

d. Club fees: Fees payable subject to a maximum of two

clubs.

e. Provision for driver/driver’s salary allowance: As per the

rules of the Company.

f. Personal accident insurance: As per the rules of the

Company.

4. Other benefits:

a. Earned/privilege leave: As per the rules of the Company.

b. Company’s contribution to provident fund and

superannuation fund: As per the rules of the Company.

c. Gratuity: As per the rules of the Company.

d. Encashment of leave: As per the rules of the Company.

e. Company car and telephone: Use of the Company’s car

and telephone at the residence for official purposes, as per

the rules of the Company.

Notice to members

Annual Report 2006-2007_B & W.indd IIIAnnual Report 2006-2007_B & W.indd III 7/27/2007 3:32:48 PM7/27/2007 3:32:48 PM

RESOLVED FURTHER THAT notwithstanding anything

stated herein above, wherein in any financial year closing

on and after March 31, 2008, the Company incurs a loss

or its profits are inadequate, the Company shall pay to

Mr. N R Kothandaraman (N R K Raman) the remuneration as

mentioned above as the minimum remuneration.

RESOLVED FURTHER THAT the terms and conditions and the

remuneration as mentioned above that forms part of the Agreement,

that is submitted to this meeting and for identification signed by

the Chairman of the Company, is approved and that the Board

of Directors of the Company be and is hereby authorised to alter

and vary the terms and conditions of the said appointment and/or

Agreement in such manner as may be agreed to between the Board

of Directors and Mr. N R Kothandaraman (N R K Raman).”



“RESOLVED THAT in accordance with the provisions of Section 269,

Schedule XIII and other applicable provisions of the Companies Act,

1956, (including any statutory modification(s) or re-enactment(s)

thereof, for the time being in force) and subject to such other

approvals as may be necessary in this regard the consent of

the Company be and is hereby accorded to the appointment of

Mr. Deepak Ghaisas as the Whole-time Director of the Company

with effect from May 1, 2007.

RESOLVED FURTHER THAT Mr. Deepak Ghaisas as the Whole-time

Director will not draw any remuneration from the Company or be

entitle to any perquisites as are mentioned in Schedule XIII of the

Act except reimbursement of expenses incurred while carrying out

his duties for the business of the Company.

RESOLVED FURTHER THAT a draft agreement containing the terms

and conditions of appointment of Mr. Deepak Ghaisas submitted

to this meeting and initialed by the Chairman for the purpose of

identification thereof with the liberty to the Board of Directors to alter



of Directors and Mr. Deepak Ghaisas.”



“RESOLVED THAT in accordance with the provisions of Section 269,

Schedule XIII and other applicable provisions of the Companies Act,

1956, (including any statutory modification(s) or re-enactment(s)

thereof, for the time being in force) and subject to such other

approvals as may be necessary in this regard the consent of

the Company be and is hereby accorded to the appointment of

Mr. R Ravisankar as the Whole-time Director of the Company with

effect from May 1, 2007.

RESOLVED FURTHER THAT Mr. R Ravisankar as the Whole-time

Director will not draw any remuneration from the Company or be

entitle to any perquisites as are mentioned in Schedule XIII of the

Act except reimbursement of expenses incurred while carrying out

his duties for the business of the Company.

RESOLVED FURTHER THAT a draft Agreement containing the terms

and conditions of appointment of Mr. R Ravisankar submitted

to this meeting and initialed by the Chairman for the purpose of

identification thereof with the liberty to the Board of Directors to alter



of Directors and Mr. R Ravisankar.”


as a Special Resolution the following:

“RESOLVED THAT pursuant to Section 309 and other applicable

provisions of the Companies Act, 1956, if any, and subject to such

other statutory approvals as may be required, the consent of the

members be and is hereby accorded to the payment of commission

to the Directors of the Company (excluding the Managing Director

and Whole-time Directors), not exceeding in the aggregate one per

cent per annum of the net profits of the Company, which shall be

calculated in accordance with the provisions of Sections 198, 349

and 350 of the Companies Act 1956, such payment to be in such

amounts, or proportions and in such manner, as may be decided

by the Board of Directors based on the attendance, participation

and the contribution of the concerned Directors or on the basis of

such other criteria as may be laid down by the Board of Directors

from time to time, and that such commission shall be paid by the

Company to such Directors for a period of five years commencing

from April 1, 2007, to March 31, 2012.”


as a Special Resolution the following:

“RESOLVED THAT pursuant to Section 115 WKA of the Income

Tax Act, 1961 and the Securities and Exchange Board Of India

(Employee Stock Option Scheme and Employee Stock Purchase

Scheme) Guidelines, 1999 and other applicable statutory provisions,

if any, approval of the members of the Company be and is hereby

accorded to the Board of Directors of the Company to carry out the

following amendments to the ‘2002 EMPLOYEES STOCK OPTION

PLAN’ (‘ESOP Plan’) of the Company which shall be effective from

April 1, 2007.

Amendment to the 2002 EMPLOYEES STOCK OPTION PLAN of the

Company (“Plan”): In Clause 19 (d) of the Plan, the following shall

be inserted at the end:

“Notwithstanding anything to the contrary contained in the Plan or

any agreement under the Plan, the Eligible Employee shall bear

and pay or reimburse to the Company fringe benefit tax, including

related surcharge, cess, duty, or any other levy, to the extent to

which the Company is liable to pay the fringe benefit tax in relation

to the value of fringe benefits provided to the Eligible Employee and

determined under Clause (ba) of sub-section (1) of Section 115WC

of the Income tax Act, 1961. The Administrator is authorized to

determine the amount of withholding, deduction or recovery, if any,

of such tax from the Eligible Employee and also finalise the timing

and modalities for such recovery.”

Annual Report 2006-2007_B & W.indd IVAnnual Report 2006-2007_B & W.indd IV 7/28/2007 1:52:21 PM7/28/2007 1:52:21 PM

i-fl ex annual report 2006-07 V

RESOLVED FURTHER THAT the above amendments shall also be

applicable to the Options already granted or to be granted under the

Plan to the present and future employees of the Company.

RESOLVED FURTHER THAT the above amendments shall also be

applicable to the Options already granted or to be granted under the

Plan to the present and future employees of the present and future

subsidiary companies of the Company.

RESOLVED FURTHER THAT except as stated above all other terms

and conditions of ESOP Plan already approved by the members of

the Company shall remain unaltered.”

By Order of the Board

Deepak Ghaisas

Vice Chairman & Company Secretary

Registered Office:

Unit 10-11, SDF 1, SEEPZ,

Andheri (East),

Mumbai 400 096

July 4, 2007

Notes:

a) An Explanatory Statement as required under Section 173 (2) of the

Companies Act, 1956 and the information as required under the

Listing Agreements with Stock Exchanges in respect of item nos. 5

to 14 mentioned in the above Notice are annexed hereto.

b) The Register of Members and the Share Transfer Books of

the Company will remain closed from August 20, 2007 to

August 24, 2007, both days inclusive.

c) A MEMBER ENTITLED TO ATTEND AND VOTE IS ENTITLED TO

APPOINT A PROXY OR PROXIES TO ATTEND AND VOTE INSTEAD

OF HIMSELF ON A POLL ONLY AND THAT A PROXY NEED NOT BE A

MEMBER.

d) The instrument appointing proxy should be deposited at the

Registered Office of the Company not less than 48 hours before the

commencement of the meeting.

e) The members/proxies are requested to bring duly filled in Attendance

Slips sent herewith for attending the meeting.

f) The documents referred to in the Explanatory Statement annexed

hereto are available for inspection by the members of the Company

at the Registered Office of the Company between 2.00 P.M. to

4.00 P.M. on any working day of the Company.

g) The members who hold shares in physical form are requested to

notify promptly any change in their addresses to the Company’s

Registrars and Transfer Agents. The members who hold shares in

demat mode are requested to notify promptly any change in their

addresses to their Depository Participants.

h) The members seeking any information with regard to accounts are

requested to write to the Company at an early date to enable the

Management to keep the information ready.

i) Pursuant to Sections 205A and 205C of the Companies Act, 1956,

any money transferred to the unpaid dividend account which

remains unpaid or unclaimed for a period of 7 years from the date

of such transfer is now required to be transferred to the ‘Investor

Education and Protection Fund’ set up by the Central Government.

Accordingly, the amount of unclaimed dividend for the financial

year ended March 31, 2000 will be transferred to the ‘Investor

Education and Protection Fund’ in due course. Once the amount

is so transferred, no claim shall lie against the aforesaid fund or

the Company in respect of such dividend amount thereafter. The

members are requested to send to the Company their claims, if any,

for the dividend for financial year 1999-2000 onwards before the

amount becomes due for transfer to the above fund.

ADDITIONAL INFORMATION PURSUANT TO CLAUSE 49-VI OF THE

LISTING AGREEMENT

DETAILS OF DIRECTORS SEEKING APPOINTMENT/

RE-APPOINTMENT AT THE FORTHCOMING ANNUAL GENERAL

MEETING:

Mr. Rajesh Hukku

Mr. Rajesh Hukku born on February 8, 1958, received a Bachelor’s

degree (B.E.) in Electrical and Electronics Engineering from the Birla

Institute of Technology and Science, India and undertook Post Graduate

Research in LAN Technology at the University of Maryland, USA.

Mr. Hukku is the Chairman of i-flex solutions. He is the head of Oracle’s

Financial Services Global Business Unit (FSGBU), headquartered in

New York. The FSGBU will draw on Oracle’s global footprint and i-flex’s

comprehensive portfolio solutions and domain expertise in the financial

services industry, to provide integrated solutions to financial institutions

around the world.

Since donning the mantle of Chief Executive Officer – i-flex solutions, in

1992, Mr. Hukku has architected the success story of the company-from

a player primarily in the emerging markets to India’s first global software

product Company and the leading IT solutions provider to the financial

services industry in the world today. In 1999, Mr. Hukku was appointed

Chairman and Managing Director of i-flex solutions. Under his leadership,

i-flex became the only organization in the Indian IT industry to place itself

on the global map with a ‘Made in India’ brand.

FLEXCUBE’s consistent ranking as the No.1 banking solution in the world

by IBS (International Banking Systems), UK, for five consecutive years,

bears a strong testimony to the company’s leadership stature in the

industry. In addition, i-flex has built a comprehensive portfolio of products

and service offerings that include the highly acclaimed Reveleus™ suite

for Basel II and Operational Risk, PrimeSourcing™, and i-flex Consulting™

that are geared towards the banking and financial services industry.

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Transformation has been the leitmotif of Rajesh’s contribution to the Indian

IT industry. His relentless pursuit of creating the first product success on

the global center-stage has created a sharp distinction amidst a crowd

of traditional IT services providers. He also piloted i-flex to a thought

leadership stature and mentored a host of small and medium companies

who aspired to create new products and emulate i-flex’s proven business

model.

For his role in scripting i-flex’s growth, Mr. Hukku was conferred the

prestigious Ernst & Young ‘Entrepreneur of the Year Award 2002’ in the

Information Technology, Communications and Entertainment category.

He is also the recipient of the renowned International Stevie Award in

the ‘Best Chairman’ category. More recently, he was recognized as one

among the Outstanding 50 Asian Americans in Business by the Asian

American Business Development Center.

Mr. Hukku received the Government of India’s most prestigious IT award -

‘The Dewang Mehta award for innovation in IT’ in 2003. He also received

the 2004 Global Entrepolis Award, an honor bestowed on Asia’s emerging

technopreneurs. For his contribution to IT transformation in Chile, he was

awarded the highest civilian honor bestowed on a foreign national - the

‘Order Bernardo O Higgins - Great Official’ by the Government of Chile

in 2004.

Mr. Hukku has championed India Inc.’s expansion into new geographies

and service lines, and served on the NASSCOM (National Association of

Software and Service Companies, India) Executive Committee. Recognized

as a visionary entrepreneur, he has spoken at the World Economic Forum

Summit, the Asia-Pacific Leadership Summit, Harvard Business School

and various prestigious banking forums, including the World Congress of

Bankers in Jamaica and the Latin American Business Convention.

i-flex’s unique business model and Mr. Hukku’s vision for the financial

services industry have been lauded and written about in many leading

publications like The Economist, The Wall Street Journal, The Far Eastern

Economic Review, and Knowledge@Wharton.

Mr. Hukku holds 676,524 equity shares of the face value of Rs. 5/- of


Mr. Hukku as a Non-Executive Director of the Company will not draw

any remuneration from the Company except reimbursement of expenses

incurred for attending the meetings of the Company and expenses

incidental thereto.

Mr. Hukku holds directorship and committee membership in the following

Companies:

List of other Directorships held

Membership in Committees of

other companies

Chairmanship in Committees of

other companies

i-flex solutions inc. – –i-flex America inc. – –i-flex Processing Services Ltd.

– –


Mr. William T Comfort, Jr. has been Chairman of Citigroup Venture

Capital, the private equity arm of Citigroup specializing in leveraged

buy-outs, since 1979. He is also a Citigroup representative on the

investment committee of Stirling Square Capital Partners. Mr. Comfort

joined Citigroup in 1973 and has been Executive Director of Citicorp

International Bank, Ltd. in London and Head of Corporate Finance at

Citibank, N.A.

Mr. Comfort born on August 3, 1937, received his B.A. and LL.B. at the

University of Oklahoma and an LL.M. at New York University Law School.

He is a trustee of the New York University Law Center Foundation, the

John A. Hartford Foundation, Inc., and was an adjunct professor at the

Columbia Business School.

Mr. Comfort has been a member of the Board of Directors of the Company

since February 27, 1998.

Mr. Comfort as a Non-Executive Director of the Company will not draw

any remuneration from the Company except reimbursement of expenses

incurred for attending the meetings of the Company and expenses

incidental thereto.

Mr. Comfort does not hold any equity shares of the Company as on

date.

Mr. Comfort holds directorship and committee membership in the

following Companies:



other companies


other companies

399 Venture Partners Inc. – –Citigroup Venture Capital Ltd. – –Court Square Capital Ltd. – –

Annual Report 2006-2007_B & W.indd VIAnnual Report 2006-2007_B & W.indd VI 7/27/2007 3:32:49 PM7/27/2007 3:32:49 PM

i-fl ex annual report 2006-07 VII

Mr. N R Kothandaraman (N R K Raman)

Mr. N R Kothandaraman (N R K Raman), born on September 17, 1958,

holds a master’s degree in Physics, with a specialization in Electronics. He

is also a certified Citicorp Finance Professional. Recently in June 2006,

he completed an executive education program on ‘Strategy: Building and

Sustaining Competitive Advantage’ at Harvard Business School.

Mr. Raman is the Managing Director and Chief Executive Officer,

i-flex solutions. As CEO, he is not only responsible for advancing

i-flex’s mission of being the leading IT solutions provider to the financial

services industry worldwide, but is also the focal point for providing the

organization with focus and clarity of direction to employees. As global

markets get more competitive, and growth of technology faster-paced,

the requirements to meet success and the risks are greater than before;

it is Mr. Raman’s responsibility to maintain and implement corporate

objectives as established by i-flex’s Board. In short, Mr. Raman functions

as the main link between Board members and the various levels of the

organization.

Mr. Raman has held various positions in i-flex since he joined the company

in 1985. He most recently was Chief Operating Officer responsible for

the development strategy and global delivery of i-flex’s products and

services divisions. He managed all aspects of operations, including

human resource development, process, and quality management, and

served as one of the key leaders in directing technology strategies and

goals for strategic business units in the company. Earlier, as Senior

Vice-President - Global Sales, he was responsible for the entire gamut of

sales operations across five regions.

Mr. Raman is a recognized speaker at various IT discussions; and has been

part of many panels, including ‘IT in India: a Social Audit’, ‘IT Innovation

in India’ and ‘Strategy to Accelerate Growth of Indian IT Industry’. He has

also spoken at the Forum for Science and Development, and at the Bank

of America-hosted, ‘Perspectives - The Evolving Landscape’. Recently,

he was part of the prestigious ‘CII Governance Series’, organized by the

Government of Karnataka, India.

Mr. Raman holds 114,000 equity shares of the face value of Rs. 5/- of


Mr. Raman holds directorship and committee membership in the




other companies


other companies

i-flex Processing Services Ltd. – –ISP Internet Mauritius Company – –Equinox Global Services Pvt. Ltd. – –

Mr. Deepak Ghaisas

Mr. Deepak Ghaisas, born on November 19, 1957, is a Chartered

Accountant, Cost Accountant and Company Secretary.

Mr. Ghaisas is Vice-Chairman, i-flex solutions, and a part of the


Business Unit (FSGBU). In his new role, he will provide the unit with

his in-depth knowledge, commitment, and experience. Mr. Ghaisas’s

expertise spans areas such as business management and management

accounting; techno-legal-commercial areas of information technology,

risk management, corporate governance, legal affairs, and contract

negotiations. Mr. Ghaisas’s ability, which transformed and shaped

i-flex’s successful financial performance, will now guide the FSGBU to a

high level of growth and recognition.

As a Chief Executive Officer (India operations) and Chief Financial

Officer from 1997 to April, 2007, Mr. Ghaisas was credited for playing

a large role in creating, selling and driving the organization’s strategy.

As a spokesperson for the organization in its early years, Mr. Ghaisas

demonstrated a deep confidence in i-flex’s potential for the global market

and provided the organization with a focus and clarity of direction that it

needed.

Recently, Mr. Ghaisas was elected for the third time to the executive

council of NASSCOM. He is also the chairman of the IT committee of

Confederation of Indian Industry (CII); and a member of the committee of

the Indian Institute of Bankers - constituted for the purpose of drafting the

curriculum for Information System Audit course for bankers.

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Another measure of his visionary strategy and evangelistic style is

showcased in his role as Vice-President of the Maharashtra Economic

Development Corporation (MEDC), a governing body which actively

participates in the decision-making process for the economic development

of Maharashtra, India. He is also a member of the Internet Banking

Committee of the Reserve Bank of India - the body that formulated

guidelines on Internet banking and security in India.

Mr. Ghaisas holds 456,269 equity shares of face value of Rs. 5/- of the

Company as on date.

Mr. Ghaisas holds directorship and committee membership in the


List of other Directorships held Membership in Committees

of other companies

Chairmanship in Committees

of other companies

Shoppers Stop Ltd. – Shoppers Stop Ltd. - Audit Committee

USV Ltd. – USV Ltd. - Audit Committee

i-flex Processing Services Ltd. – –i-flex solutions pte ltd – –i-flex Consulting(Asia Pacific) pte ltd.

– –

i-flex solutions inc. – –i-flex America inc. – –SuperSolutions Corporation – –Flexcel International Pvt. Ltd. – –ISP Internet Mauritius Company

– –

Equinox Global Services Pvt. Ltd.

– –

Bombay Chamber of Commerce and Industry

– –

Mr. R Ravisankar

Mr. R Ravisankar, born on November 22, 1957, received his Bachelor’s

degree (B.Tech) and PGDM.

Mr. R Ravisankar is Vice-Chairman, i-flex solutions, and a part of the


Business Unit (FSGBU).

Shanx, as he is popularly known, is a founding member of i-flex, and

has over 23 years of experience in management consulting, information

technology and business management. He has led i-flex’s products

and services business, technology and architecture, global sales and

marketing and corporate development functions, including new lines of

business, over the past two decades.

Beginning his career at i-flex in 1993 (originally COSL/CITIL, where he

executed a number of assignments, primarily, for Citibank, since 1987)

he headed the IT Services business, conceptualizing, strategizing and

winning customers, while helping the business grow rapidly over the

years.

In 1997, he took over as the Chief Executive Officer of the Company

and was instrumental in transforming i-flex into a fast-growing, highly

successful products and services Company, winning customers around

the globe. As part of the Executive Management Office at i-flex solutions,

Shanx is credited with envisioning i-flex’s technology leadership,

branding and alliances, overseas expansion and M&A strategies. He

relocated to the USA in 2000 as Chief Executive Officer (International

Operations and Technology), with the responsibility of managing i-flex’s

products and services businesses, the subsidiaries abroad, and new

business acquisitions in the USA. He later managed the business

development portfolio while continuing to execute his responsibilities as

CEO – i-flex solutions inc.

He enjoys teaching and exchanging ideas on banking and technology and

has presented i-flex’s global product software success story in various

industry forums like NASSCOM and CII. Leading media organizations

such as CNBC, NDTV, The Economic Times, The Times of India, Business

Today, and a host of other publications, have also profiled Shanx.

Shanx holds 366,400 equity shares of face value of Rs. 5/- of the

Company as on date.

Shanx holds directorship and committee membership in the following

Companies:



other companies


other companies

i-flex solutions Inc. – –i-flex America Inc. – –SuperSolutions Corporation – –Castek Software Inc. – –Mantas Ltd. – –i-flex Processing Services Ltd. – –

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i-fl ex annual report 2006-07 IX

Mr. Derek Williams

Mr. Derek Williams, born on December 30, 1944, is the Chairman and

Executive Vice-President of Oracle Corporation, Asia Pacific and Japan.

In this role, he provides overall leadership in areas of strategic interest

to Oracle and serves as the Company’s top ambassador for industry,

Government and policy within the region. Mr. Williams has been at

the helm of Oracle’s Asia Pacific and Japan operations since it was

established in 1991. He has grown the Company’s total revenues in Asia

Pacific and Japan to more than USD 2 billion in fiscal year 2006.

He also played a pivotal role in building a strong presence throughout

Asia by adopting a strategy of partnering closely with local companies

and providing software and support for companies of all sizes. Among his

key accomplishments is the development of Oracle’s presence in China

and India.

Mr. Williams was awarded an Honorary Professorship from Shanghai

Textile University in 1995.

Mr. Williams does not hold any equity shares of the Company as on

date.

Mr. Williams holds directorship and committee membership in the following Companies:

List of other Directorships held Membership in Committees of other companies

Chairmanship in Committees of other companies

Beijing Oracle Software Systems Co Limited – –E-docs Asia-Pacific Pty Ltd. – –Eontec Australia Pty Ltd. – –Eontec Singapore Pte Ltd. – –G-Log Pty Ltd. – –G-Log Sdn Bhd Malaysia – –JD Edwards Australia Pty Limited – –JD Edwards WorldSolutions Co Pty Limited – –Oracle (Philippines) Corporation – –Oracle Corporation (Thailand) Company Limited – –Oracle Corporation Australia Pty Limited – –Oracle Corporation Japan – –Oracle Corporation Malaysia Sdn. Bhd (fka Oracle Systems Malaysia Sdn. Bhd)

– –

Oracle Corporation Singapore Pte Ltd. – –Oracle Korea Ltd. – –Oracle New Zealand Limited – –Oracle Research and Development – –Center (Beijing) Co Limited – –Oracle Research and Development – –Center (Shenzhen) Co Limited – –Oracle Systems Hong Kong Limited – –Oracle Vietnam Pte Ltd. – –PeopleSoft (Beijing) Software Co Limited – –PeopleSoft Australia Pty Limited – –PeopleSoft Hong Kong Limited – –PeopleSoft India Private Limited – –PeopleSoft Worldwide (M) Sdn Bhd – –PT Oracle Indonesia – –Siebel Systems Australia Pty Limited – –Siebel Systems Hong Kong Limited – –Siebel Systems Malaysia Sdn Bhd – –Siebel Systems Software (India) Private Limited – –SPL WorldGroup (Philippines) Inc. – –Oracle India Pvt. Ltd. – –

Mr. Williams as a non-executive Director of the Company will not draw any remuneration from the Company except reimbursement of expenses incurred

for attending the meetings of the Company and expenses incidental thereto.

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Explanatory Statement as required by Section 173 (2) of the

Companies Act, 1956.

The following Explanatory Statement sets out all the material facts

relating to the special business mentioned in the accompanying Notice

dated July 4, 2007.

Item no. 5

The Company has branch offices in India and abroad and may also open

new branches in future. It may be necessary to appoint branch auditors

for conducting the audit of the books of accounts of the Company at such

branches.

The Board of Directors of the Company seeks approval of the members

for authorising the Board to appoint Branch Auditors and to fix their

remuneration in consultation with the Statutory Auditors of the

Company.

No Director is in any way concerned or interested in the resolution no. 5

of the Notice.

The Board commends the resolution no. 5 for the acceptance by the

members.

Item nos. 6 to 9


Mr. R Ravisankar and Mr. Derek Williams were respectively appointed

as the Additional Directors of the Company at the Board Meeting held on

May 1, 2007. Pursuant to and in accordance with the provisions of the

Section 260 of the Companies Act, 1956, and Article 109 of the Articles

of Association of the Company, these Directors hold office up to the date

of this Annual General Meeting and are eligible for appointment(s).

The Company has received notices under Section 257 of the Act,

proposing their appointment as Directors of the Company, along with the

requisite deposit.

The details regarding the above proposed appointees as the Directors

and their detailed resumes have been given in the annexure attached

to this Notice.

In view of the expertise, knowledge and experience of these appointees,

their appointment as the Directors of the Company is recommended.


Mr. R Ravisankar and Mr. Derek Williams will retire by rotation.

Except Mr. N R Kothandaraman (N R K Raman), Mr. Deepak Ghaisas,

Mr. R Ravisankar and Mr. Derek Williams none of the Directors is

concerned or interested in the resolutions at Item nos. 6 to 9 of the

Notice.

Item no. 10

Oracle Global (Mauritius) Ltd., the Promoter of the Company nominated

Mr. N R Kothandaraman (N R K Raman) as a Director on the Board of

Directors of the Company. He was appointed as the Managing Director

of the Company for a period of five years with effect from May 1, 2007,

on the remuneration, perquisites and other terms and conditions as

mentioned in the resolution no. 10 of this Notice, subject to the approval

of the members of the Company in the General Meeting.

The Compensation Committee of the Company has recommended,

subject to the approval of the members of the Company, the remuneration

payable to Mr. N R Kothandaraman (N R K Raman) as set out in the

resolution no. 10 of the Notice which is within the limits prescribed

under Schedule XIII and other applicable provisions of the Companies

Act, 1956.

The Draft Agreement to be entered into between the Company and

Mr. N R Kothandaraman (N R K Raman) is available for inspection by the

members of the Company at its Registered Office between 2.00 p.m. to

4.00 p.m. on any working day of the Company.

This may be treated as an abstract of the Draft Agreement between

the Company and Mr. N R Kothandaraman (N R K Raman) pursuant to

Section 302 of the Companies Act, 1956.

Except Mr. N R Kothandaraman (N R K Raman), no other Director is

concerned or interested in the resolution at Item no. 10 of the Notice.

Your Directors recommend the resolution at Item no. 10 of the Notice to

the members.

Item nos. 11 & 12

The Board of Directors at its meeting held on May 1, 2007, has pursuant

to the provisions of the Act and subject to the approval of the members

of the Company appointed Mr. Deepak Ghaisas and Mr. R Ravisankar as

Whole-time Directors of the Company with effect from May 1, 2007.

As per the Draft Agreement(s) to be entered into between Mr. Ghaisas and

Mr. R Ravisankar and the Company, Mr. Ghaisas and Mr. R Ravisankar,

as Whole-time Directors of the Company will not draw any remuneration

from the Company or be entitled to any perquisites as are mentioned in

Schedule XIII to the Act except reimbursement of expenses incurred while

carrying out their duties for the business of the Company.

The Draft Agreement(s) to be entered into between the Company

and Mr. Deepak Ghaisas and Mr. R Ravisankar respectively are available

for inspection by the members of the Company at its Registered Office

between 2.00 p.m. to 4.00 p.m. on any working day of the Company.

This may be treated as an abstract of the Draft Agreement(s) between

the Company and Mr. Deepak Ghaisas and Mr. R Ravisankar respectively

pursuant to Section 302 of the Companies Act, 1956.

Except Mr. Deepak Ghaisas and Mr. R Ravisankar, no other Director is

concerned or interested in the resolutions at Item nos. 11 and 12 of the

Notice.

Your Directors recommend the resolutions at Item nos. 11 and 12 of the

Notice to the members.

Item no. 13

According to the provisions of Section 309 (4) of the Companies Act,

1956, (“Act”) and Article 99 of the Articles of Association of the Company

a director who is neither in whole-time employment of the Company nor

a managing director may be paid remuneration by way of commission

if the members of the Company pass a special resolution authorizing

such payment provided that the remuneration paid to all such directors

together shall not exceed 1% of net profits of the Company.

The Company has not been paying any fees to its Non-Executive Directors

for attending meetings of the Board. The members, at the Annual General

Annexure to notice

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i-fl ex annual report 2006-07 XI

Meeting of the Company held on September 6, 2002, had approved the

payment of remuneration by way of commission, not exceeding 1%

of the net profits of the Company computed as per the provisions of

Section 198, 349 and 350 of the Act, to Non-Executive Directors of the

Company for a period of five years with effect from April 1, 2002.

The Directors of the Company have significantly contributed to the

Company’s progress during last couple of years. It is, therefore,

proposed to continue to pay remuneration by way of commission to

the Non-Executive Directors of the Company subject to the approval

of the members in the General Meeting and such other statutory and

government approvals as may be required, if any. The amount of

commission proposed to be paid to the Non-Executive Directors shall not

exceed 1% of the net profits of the Company which shall be computed as

per the provisions of Section 198, 349 and 350 of the Act.

The resolution at Item no. 13 of the Notice seeks approval of the members

for authorizing the Board of Directors of the Company to decide the

quantum and the manner of remuneration to the Non-Executive Directors

of the Company for a period of five years with effect from April 1, 2007.

Except Mr. S P Bharucha, Ms. Tarjani Vakil and Mr. Y M Kale no other

Director of the Company is concerned or interested in the resolution at

Item no. 13 of the Notice.

Item no. 14

Fringe Benefit Tax (“FBT”) has been recently introduced on exercise of

Employee Stock Options (“ESOPs”) by an employee. The Finance Act,

2007 provides, inter alia, that when an employer allots or transfers, directly

or indirectly any shares or other specified security at a concessional rate

to its employee, it will be treated as fringe benefit and taxed accordingly.

This amendment is effective from April 1, 2007.

The Finance Act, 2007, has also introduced Section 115 WKA in the

Income Tax Act, 1961, which allows modification of the ESOP schemes

to enable the employer to recover from the employee the FBT to the

extent to which the employer is liable to pay, in relation to the value of

fringe benefits provided to the employee.

The Employees Stock Option Plan 2002 (“ESOP Plan”) of the Company

was approved by the members of the Company at the Annual General

Meeting held on August 14, 2001. In view of the changes introduced in

the Income Tax Act, 1961, as mentioned above, it is proposed to amend

the Clause 19 (d) of the ESOP Plan to enable the Company to recover the

applicable FBT from the respective employees of the Company and to

grant necessary powers to the Administrator of the Plan for administrative

convenience.

Subject to the approval of members of the Company, the proposed

amendment will be applicable to all the Directors/employees of the

Company and all the Directors/employees of the present and future

subsidiary Companies of the Company who have exercised or shall

exercise their ESOPs on or after April 1, 2007. Due to this proposed

amendment, such Directors/employees shall bear and pay or reimburse

to the Company the applicable FBT as mentioned above.

These changes have been approved by the Board of Directors and the

Compensation Committee of the Company.

A copy of the ESOP Plan duly modified is available for inspection at the

Registered Office of the Company between 2.00 p.m. to 4.00 p.m. on all

working days of the Company.

This resolution is in the interest of the Company and your Directors

recommend the resolution at item no. 14 of the Notice to the members.

Except Mr. Charles Phillips, Mr. Derek Williams and

Mr. William T Comfort Jr., Directors of the Company, who have not

been granted options under the ESOP Plan, all the other Directors of

the Company have been granted options and may be deemed to be

concerned or interested in the resolution at item no. 14 of the Notice.

By Order of the Board

Deepak Ghaisas

Vice Chairman and Company Secretary

Registered Office:

Unit 10-11, SDF 1, SEEPZ,

Andheri (East),

Mumbai 400 096

July 4, 2007

Annual Report 2006-2007_B & W.indd XIAnnual Report 2006-2007_B & W.indd XI 7/27/2007 3:32:50 PM7/27/2007 3:32:50 PM

All Company or product names are trademarks or registered trademarks of their respective owners

Annual Report 2006-2007_B & W.indd XIIAnnual Report 2006-2007_B & W.indd XII 7/27/2007 3:32:51 PM7/27/2007 3:32:51 PM

i-fl ex annual report 2006-07 XIII

I/We ...................................................................................................... of ........................................................................in the

district of ...................................................................................................... being a member/members of the above

named Company, hereby appoint ..............................................................................................................................

of ................................................. in district of .........................................................................................

or failing him/her ................................................................. of ...................................................................................... in the

district of ........................................................................... as my/our proxy to attend and vote for me/us and on my/our behalf at

the Annual General Meeting of the Company to be held on Friday, August 24, 2007 at 3.00 p.m. at InterContinental The Grand Mumbai,

Sahar Airport Road, Mumbai 400 059 and at any adjournment thereof.

Signed this ................................................. day of ................................................. 2007.

Signature/s .................................................

Ledger Folio No. ............................................... DPID ................................................ Client ID ..............................................

No. of Shares held ............................................................

Note: 1. The proxy need not be a member.

2. The proxy form duly signed across Re. 1/- revenue stamp should reach the Registered Offi ce of the

Company not less than 48 hours before the time fi xed for the meeting.

PROXY FORM


Registered Offi ce: 10-11, SDF 1, SEEPZ,

Andheri (East), Mumbai 400 096.

Affi xRe. 1/-

Revenue Stamp

ATTENDANCE SLIP

I hereby record my presence at the Eighteenth Annual General Meeting of the Company to be held on Friday,

August 24, 2007 at 3.00 p.m. at. InterContinental The Grand Mumbai, Sahar Airport Road, Mumbai 400 059.

Full name of the Member ..............................................................................................................................................................

(in block letters)

Ledger Folio No. ................................................ DPID ................................................ Client ID ................................................

Number of Shares held ..................................................................................................................................................................

Signature of Member or proxy attending ........................................................................................................................................

Full name of Proxy ........................................................................................................................................................................

(in block letters)

Please give full name of the 1st Joint Holder.

Mr./Mrs./Miss. ..............................................................................................................................................................................

Note: Please fi ll in the attendance slip and hand it over at the ENTRANCE OF THE HALL


Registered Offi ce: 10-11, SDF 1, SEEPZ,

Andheri (East), Mumbai 400 096.

Annual Report 2006-2007_B & W.indd XIIIAnnual Report 2006-2007_B & W.indd XIII 7/27/2007 3:32:51 PM7/27/2007 3:32:51 PM

Annual Report 2006-2007_B & W.indd XIVAnnual Report 2006-2007_B & W.indd XIV 7/27/2007 3:32:51 PM7/27/2007 3:32:51 PM

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iflex 2006-07

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