i-flex annual report 2001-2002 - Oracle i-flex annual report 2001-2002. ... Notes: All EPS and Book...

i - f l e x a n n u a l r e p o r t 2 0 0 1 - 2 0 0 2w w w . i f l e x s o l u t i o n s . c o m

C M Y CM MY CY CMY K

Our Annual Reports are designed to present the achievements and highlights of the year and ourfinancial statements in a transparent and fair manner in accordance with universally acceptedaccounting regulations. Our previous Annual Report for 2000-01 was recognized for its innovativepresentation and comprehensive content and won several awards during the year:• The American Society of Professional Communicators (ASPC) Masters Award.

The Annual Report was selected as the best one from among 131 entries.• The South African Pulp & Paper Industries (SAPPI) Trading Printer of the Year Silver Award.• The Society for Technical Communication – Australia Chapter Award.• The New York Festivals Midas Award for excellence in financial communications.• The second prize from the Institute of Chartered Accountants of India.• The first prize in the Annual Report category from the Association of Business Communicators

of India.

iFlexAR02_PAP.FH8 8/8/02 1:10 AM Page 1


i - f l e x a n n u a l r e p o r t 2 0 0 1 - 2 0 0 2

empowering financialinstitutions globally



Introduction 3

Propelling Growth 5

Power-Packed 15

Spreading Light 21

Collaborative Power 27

Global Presence 32

Key Management Personnel 34

In the News 39

Directors’ Report 41

Corporate Governance Report 50

Financials

Indian GAAP 65

US GAAP 109

i-flex solutions b.v. 165

i-flex solutions pte. ltd. 175

i-flex solutions inc. 191

Contents



Simple. Yet Potent. The modest matchstick. A powerful catalystthat can leverage a small spark to create an abundance of energyand light.

Like matchsticks, we i-flexers are catalysts. With unremittingzeal, unquenchable enthusiasm, a problem-solving attitude andthe ability to spark off innovative ideas, we are focussed on providingthe right solutions to our customers – financial institutions aroundthe world – helping them to succeed through the effective use ofinformation technology.

As a company, we’re known for making a positive differenceto all those with whom we interact – our customers, partners,employees, shareholders and the community.

This Annual Report chronicles some such examples.



We, at i-flex, have empowered our customers with

a suite of products and services that arm them with

competitive advantage and enable them to excel

in their businesses. Little wonder then, that in a

short span, we have grown our customer base

rapidly and serviced 345 financial institutions

across 84 countries.

Propelling Growth



The year 2001-02 was a challenging one for business.

Despite an environment of uncertainty, a tense geopolitical landscape

and diminished spending, we continued to grow with our unique, diversified

business model.

Key performance indicators 2001-02

Regionwise revenue

Operating revenue

32%USA

26%Middle East

& Africa

21%Asia Pacific

20%Europe

1%Latin America& Caribbean

40%

60%

Products Revenue

ServicesRevenue



Profit after tax

1267.61

1100.21

692.73

504.33

307.92

0

200

400

600

800

1000

1200

1400

1997-98 1998-99 1999-00 2000-01 2001-02

Prof

it in

Rs

Mill

ions

Total revenues

4252.71

3211.21

2062.69

1444.31

825.86

1997-98 1998-99 1999-00 2000-01 2001-020

500

1000

1500

2000

2500

3000

3500

4000

4500

Reve

nue

in R

s M

illio

ns

i - f l e x a n n u a l r e p o r t 2 0 0 1 - 0 2 7



37.33

32.40

20.40

14.85

9.07

1997-98 1998-99 1999-00 2000-01 2001-02

Earnings per share

0

5

10

15

20

25

30

35

40

In R

upee

s

Earnings per share is computed on the equity capital base of 33,955,400 shares as on March 31, 2002

574.49548.39

328.33

264.03

173.87

1997-98 1998-99 1999-00 2000-01 2001-02

Economic value added

0

100

200

300

400

500

600

Rs M

illio

n



143.01

93.51

62.46

38.22

23.70

Book value

0

20

40

60

80

100

120

140

160

1997-98 1998-99 1999-00 2000-01 2001-02

In R

upee

s

0

500

1000

1500

2000

2500

Employees

1997-98 1998-99 1999-00 2000-01 2001-02

2032

1590

1017

790657

Book value is computed on the equity capital base of 33,955,400 shares as on March 31, 2002




...across countries

1997-98 1998-99 1999-00 2000-01 2001-02

84

74

66

5551

0

10

20

30

40

50

60

70

80

90

345

281

238

206

163

Customers serviced...

0

50

100

150

200

250

300

350

1997-98 1998-99 1999-00 2000-01 2001-02



All figures in Rs Million except EPS & Book Value

1997 - 98 1998 - 99 1999 - 00 2000 - 01 2001 - 02

Total Revenue 825.86 1,444.31 2,062.69 3,211.21 4,252.71

Total Expenses 509.24 909.53 1312.30 2,016.85 2,834.96

EBT 316.62 534.78 750.39 1,194.36 1,417.75

Tax 8.70 30.44 57.66 94.15 150.14

EAT 307.92 504.33 692.73 1,100.21 1,267.61

EPS 9.07 14.85 20.40 32.40 37.33

Book Value 23.70 38.22 62.46 93.51 143.01

Notes:

All EPS and Book Value are computed on the equity capital base of 33,955,400 shares as on March 31, 2002

EVA 173.87 264.03 328.33 548.39 574.49

Strategic investments and IPO

In line with our strategy of positioning ourselves as an integral part of the global financial services industry, with

participation from well-known financial institutions, we inducted Standard Chartered Group as a strategic

investor. Financial Ventures Mauritius Limited, an investment arm of the Standard Chartered Group, took an

equity stake in our business in March 2002.

The other strategic event is, of course, our IPO. We spent much of 2001-02 preparing for the IPO – our listing

on The Stock Exchange Mumbai and the National Stock Exchange in India, a key event that will greatly

enhance our visibility in the market and serve as a strategic enabler in our mission going forward.

i-flex solutions financials at a glance


iFlexAR02_PAP.FH8 8/8/02 2:44 PM Page 12


Highlights of the year 2001-02

• Ranked No. 1 product software company in India by the country’s apex software organization – the National

Association of Software and Service Companies (NASSCOM).

• FLEXCUBE reached the 100-customer mark with customers across 40 countries. We achieved this landmark

in the shortest period of four years, as compared to our major competitors who have taken between five and

eight years to achieve the same landmark.

• Established subsidiaries in Singapore and the USA.

• Figured among the top-10 IT employers in the country as ranked by India’s leading technology publication,

Dataquest.

• Improved our ranking in the Indian software industry charts and moved up to 15th place from 18th position

in the Dataquest compilation of top-20 Software Exporters from India in 2001-02 and to 13th place from

18th position in the NASSCOM Software and Service Industry Performance Report.

• Established a new software development center in Chennai .

• Laid the foundation stone for a dedicated Bangalore Development Center and Corporate

Office – i-flex Park – with 140,000 sq. ft. that will finally house 1,400 employees.

• Standard Chartered Group, through its investment arm Financial

Ventures Mauritius Limited, took a stake in our business in

March 2002.

The proposed i-flex park will be a landmark

building in Bangalore.



N.R.K. Raman, Senior Vice President, Global Sales, i-flex solutions, receiving

the sectoral award for highest exports in Computer Software and Services during

1998-99 from Pramod Mahajan, Minister of Information Technology, Government

of India on February 21, 2002.

Accolades

Continuing our tradition of excellence, we won a

number of awards during the year. Some of these were:

• The Ministry of Information Technology,

Government of India, award for exemplary Export

Performance.

• The Electronics and Computer Software Export

Promotion Council of India Award for Software

Exporters.

• Best Software Exporter Award in the multinational

companies category from the Government of

Karnataka.

• Awarded the Ramakrishna Bajaj National Quality

Certificate of Merit, a prestigious accolade that is

a true acknowledgment of our quality initiatives.

• Star Exporter Award status conferred by the Santacruz

Electronics Exports Processing Zone (SEEPZ)

authorities.

• Conferred the IBM Partner of Distinction 2002/

pSeries Award for Asia Pacific.

• Won an award from Oracle for the early adoption

of Oracle 9i by an independent software vendor in

India.

• Microsoft’s ‘Asia Fusion’ award for the best solution

using the .NET framework.




We have a powerful suite of products and services,

unmatched in their comprehensiveness, that enable

financial institutions to cut costs, respond rapidly

to market needs, enhance customer service levels,

and mitigate risk. At the heart of our software

development initiatives is a rigorous commitment

to quality and a deep-rooted process orientation

within the organization.

Power-Packed



Our product portfolio

We continued to invest heavily in FLEXCUBE – our Universal Banking

Solution – during the year. We proved the scalability of our product

architecture, with successful high volume benchmarks for FLEXCUBE as

well as FLEXCUBE Information Center – our business intelligence and

analytics solution.

FLEXCUBE continued to do well against global competition – we added

37 new customers during 2001-02 and were ranked among the top-two

in the sales league tables for both corporate back-office and retail banking

solutions in the world by International Banking Systems, UK. In fact,

FLEXCUBE was the ONLY solution to find a spot among the top five

solutions in both lists.

Our initiatives in 2001-02 included the following:

• Product enhancement, including the development of derivatives

processing and cash management components.

• Enrichment of our Internet banking product FLEXCUBE @ and the

addition of brokerage functionality to create FLEXCUBE @ Broker.

• Enriched our solutions portfolio with third party offerings in the area

of credit cards and payment systems.

Continuous product enrichment ensures that FLEXCUBE customers get a best-of-breed solution.



• Creation of a Spanish language version of

FLEXCUBE.

• Upgrading the technology and architecture of our

products to keep pace with market trends.

• Qualifying our products on new and diverse platforms.

• Benchmarking, performance tuning, and other

measures to enhance and prove the scalability of

our solutions.

Responding to the growing demand from our

customers and partners for training on the

functionality, implementation and operations of the

FLEXCUBE suite of solutions, we launched the first

FLEXCUBE Center of Learning. This Center will

provide a wide range of training courses, not only

relating to the FLEXCUBE suite, but also on general

topics on the application of information technology

to financial services. Victor Menezes, Senior Vice

Chairman, Citigroup, inaugurated this Center during

his visit to Bangalore in August 2001.

Our services portfolio

Vertically focused on the financial services industry,

our services business enables financial institutions to

reduce time to market and cost of operations through

the delivery of customized high quality IT solutions.

In a challenging year, we continued to make progress.

We launched our unique solution delivery methodology

– PrimeSourcing™ – a blend of offshore and onsite

development that gives our customers substantial cost

saves while significantly reducing the risk of failed or

unfulfilled software delivery. We added new customers

and increased revenues. We executed major projects

for prestigious accounts such as UBS Warburg globally,

American Stock Exchange in the USA and Emirates

Bank in the Middle East.

Victor Menezes, Senior Vice Chairman, Citigroup inaugurates the first FLEXCUBE Center of

Learning in Bangalore.




The offshore development centers and existing strategic business units

consolidated their existing relationships with over 160 projects executed

during the year. The .NET team won the Microsoft ‘Asia Fusion’ Award for

the best solution using the .NET framework.

Other significant initiatives included the launch of a new development

center in Chennai. We also laid the foundation for a new initiative in the

area of business intelligence and analytical applications, leveraging the

FLEXCUBE Information Center solution, which will see a formal launch

in fiscal 2002-03.

i-flex consulting

Having established itself last year as a specialized financial services business

and technology consulting unit, our consulting division saw its key lines

of practice maturing and some new lines of practice developing during

the current year. In response to the heightened sensitivity to Disaster

Recovery and Continuity of Business among financial institutions, we set

up our Continuity of Business practice. i-flex consulting also added Call

Center and Risk Management practice lines to its existing offerings which

include Business and IT Strategy, Business Process Redesign, Requirements

Analysis, Information Security Assurance, Technology and Infrastructure

and Process and Quality consulting.

The Business Process Redesign (BPR) offering, especially around

the FLEXCUBE solution has been well accepted across markets,

and we successfully executed assignments for banks, large and small, in

Asia and Africa.



Quality initiatives

Traditionally, we have always had a very strong process

orientation and were pioneers in process maturity,

having been assessed at SEI CMM level 4 as early as

1995, and at SEI CMM level 5 in 1999. Our Process

and Quality Management Consulting practice, through

our SEI authorized Lead Assessors and Process

Consulting experts, has helped IT organizations and

financial institutions achieve higher software

development process maturity. Apart from continuing

to acquire customers in the USA and Europe, we have

entered new countries in ASPAC and Latin America

during the year.

Last year, we received COBIT* compliance certification

for our facilities. According to Ernst and Young, who

carried out the certification process, we were the first

company in India to acquire COBIT certification

across all four domains of Planning and Organization,

Acquisition and Implementation, Delivery and

Support, and Monitoring.

With CMM Level 5 capability and COBIT

certification, we are now in an even stronger position

to assure our customers of the quality of our products

and efficiency of our processes.

Earlier in the year, after a stringent evaluation process

based on several parameters by an independent panel,

the Indian Merchants Chamber Mumbai conferred

on us the Ramakrishna Bajaj Certificate of Merit for

our quality initiatives.

* COBIT has been developed as a generally applicable and accepted standard for good Information Technology (IT) security and control practices that

provides a reference framework for management, users, and IS audit, control and security practitioners.




We have effectively leveraged our partner and

alliances strategy to expand our market access

and spread warmth and light in our customers’

businesses. We also increased our international

presence and set up two new subsidiaries.

Spreading Light



Customer delight

In 2001-02, our customer acquisition momentum continued unabated as

we added 64 new customers, including customers in 10 new countries.

Notable among these were Banco Austral, Mozambique; Citifinancial,

USA; NikkoCitiTrust, Japan; Samesch Bank, Austria; SNS Bank,

Netherlands; UBS Warburg, UK and United Bank of Africa, Nigeria.

We had success at home as well, with several big wins in the Indian

market including Syndicate Bank – the first centralized automation

decision by an Indian public sector bank.

Our most significant effort – the global deployment of FLEXCUBE in

Citibank – continued its advance with countries across Europe and

ASPAC, going live on schedule during the year, and with many

implementations being completed in record time. When the Citibank

project is complete, FLEXCUBE is expected to operate as Citibank’s

standard platform for corporate banking across over 100 countries. This

ability to execute flawlessly on one of the most complex and ambitious

deployments in Citigroup testifies to the flexibility and capability of the

product that we have built, and our ability to deliver on our promises.

Most importantly, we crossed the 100-customer mark for FLEXCUBE in

2001-02. While our major competitors have taken

anything between five years and eight years to reach

100 customers, we managed to do it with FLEXCUBE

in just four years.



Our journey to achieving 100 customers represents

the successful execution of a carefully planned growth

strategy that has taken us through Africa, Asia and

the Middle East and to Europe and Japan. We are

now at the threshold of introducing FLEXCUBE to

the most evolved and largest market in the world -

North America.

Strong technology alliances

Our partnership-oriented approach to the market

received a strong boost this year, with the increasing

visibility and success of i-flex and FLEXCUBE. There

was a significant increase in momentum in our

relationships with Hewlett Packard / Compaq, IBM,

Intel, Microsoft and Oracle.

In line with our strategy of engaging with business

partners who demonstrate technology and business

strengths in different markets and regions, we added

new corporate business partners in the year, enhancing

our market reach. Our network of 33 business partners

now cover 53 countries across Asia Pacific, Latin

America, Africa, Europe, the USA and the Middle East.

International user meet

In March 2002, we organized our 4th International

User Meet at the Sentosa Island in Singapore. The

meet, the first to be held in an international venue,

hosted more than 180 delegates from 23 countries and

over 60 organizations.

A spectacular i-flex User Meet at Singapore, a heady combination

of business and fun, brought together over 180 delegates representing

customers, prospects and partners among others.




The User Meet, based on the theme “Relationships:

Banking in the Future”, provided participants a forum

to discuss global banking trends, technological

innovations, and took a look at the key directions

of growth in the financial services industry, with the

help of subject experts from research, partner and

customer organizations.

The principal sponsors of the meet included strategic

partners of i-flex, Hewlett-Packard and Intel, while

the supporting sponsors were Compaq and IBM.

Overseas subsidiaries

We made significant progress in our globalization

initiative – we set up subsidiaries in Singapore and

North America. We now have three subsidiaries

including one in the Netherlands, set up in 2000.

i-flex solutions inc. in the USA was launched in

February 2002 to provide software and services to

financial institutions in North America. Headquartered

in the heart of New York City, i-flex solutions inc. has

branch offices in San Francisco, CA; Boston, MA;

and Parsippany, NJ.

From its beginnings as a Representative Office of

i-flex for the Asia Pacific region, i-flex solutions pte.

ltd. was incorporated as a 100% subsidiary in November

2001 with its own office space in busy Suntec City

in Singapore.

We strengthened our direct presence in the USA,

Europe and Africa, as well as Dubai, Singapore, Japan

and Australia and inducted senior international staff

to our management team. i-flex solutions inc. opened its office at 99 Park in the heart of New York city.



Partner eventsTogether with our partners, we jointly participated in multiple events through the year:

June 2001 – “Internet Banking: Prophecy to Profits”: Joint event between i-flex and IBM in Mumbai,

India showcasing FLEXCUBE @.

August 2001 – Showcased FLEXCUBE at a joint event with

Intel in Bangalore in the presence of Dr. Craig Barrett, CEO, Intel.

We demonstrated the responsiveness and scalability of FLEXCUBE

on Intel architecture. The data center was set up to handle eight

million transactions per business day across 2,000 branches, marking

yet another landmark achievement for FLEXCUBE.

October 2001 – Microsoft Asia Fusion: Won the Microsoft .NET

‘Solution of the Year’ Award for the Asia Pacific region for “ComEX”, a Commodities Exchange solution.

The award was presented at the Microsoft Asia Fusion event in Kuala Lumpur, Malaysia where about 100

Microsoft solution partners in Asia showcased solutions across eight categories. The final selection was

made from over 105 entries across these categories.

November 2001 – Keystone initiative: Microsoft, Intel and Compaq have joined together to form

Keystone – an alliance designed to meet Asian banks’ technology needs. We have been identified by

Keystone as a partner who will be leveraged for its business intelligence and core banking solutions.

December 2001 – Oracle Open World, San Francisco: Recognized as one of the key early adopters of

Oracle technologies specifically Oracle 9i.

December 2001 – Microsoft Executive Summit: Participated at the Microsoft Executive Summit held

at Goa, India and made a presentation on ‘Business Intelligence for the Financial Enterprise’.

January 2002 – Oracle Apps World, Amsterdam: Recognized as one of the two independent

software vendors in the FSI space who pledged support for Information Architecture.

February 2002 – IBM Partner World 2002, San Francisco: Awarded

the IBM Partner of Distinction 2002/ pSeries for Asia Pacific. The

award is in recognition of our contribution and commitment to

IBM’s pSeries platform and business.

V. Senthil Kumar, CEO, i-flex solutions b.v. demonstrates

the versatility of FLEXCUBE to Dr. Craig Barrett,

CEO, Intel.

The IBM partner award presented to i-flex for stellar

contribution and commitment to the IBM pSeries.




The recipe for successful software development is

an open and healthy work environment nurtured

by team building and a spirit of camaraderie.

i-flex is a place that encourages fun as much

as hard work.

Collaborative Power



People care

As a company which believes that employees are key contributors to

its business success, we have focused on attracting and retaining high-

level performers and success-driven employees. The combination of a

strong brand name, great working environment and competitive

compensation package, has helped us build a talent pool of 2,032

employees (as on March 31, 2002).

i-flexers making a difference

People speak

“My journey through i-flex is a journey of about eight years. I would call it enriching

and rewarding. Enriching because it has allowed me the freedom in my vocation, given

me the opportunity to perform different kinds of roles in different contexts and rewarding

because by doing all this I think I have become a complete professional; I have learnt a

lot. The organization and I have grown together.”

Anand Kumar

“Work here is a heady cocktail of

stimulating challenges and fun. It’s

interesting, fulfilling, lively and exciting.”

Roli Gupta

i-flex’s 2000th employee Parimita Mohanty is given a warm welcome by

CEO - International Operations and Technology, R. Ravisankar.

Head – Software Engg. Process Group

Associate Consultant

Head – IT Services Division

“I joined i-flex on May 15 in 1985, 17 years ago.

The experience has been wonderful – an experience

of a lifetime because not very often one gets an

opportunity to see an organization grow from almost

nothing in terms of manpower or infrastructure, to

become a truly global organization. I am proud to be

a child of this great organization.”

V Shankar

Associate Consultant

“The most important thing that I like about i-flex is the people. It

takes all sorts of people to make i-flex, right from the payment system

gurus at Pune to the Java professionals at Bangalore. That’s what

makes the i-flex environment very challenging. For me, i-flex is the

most amazing place to be in.”

Mitoo Chakraborty



It is a matter of pride that the very first as well as the

1,000th and 2,000th employee continue to serve the

company. In fact, at the close of last fiscal, we have

more than 180 employees who have completed at least

five years of service in the company.

Additionally, we take a keen interest in employee

growth through various initiatives.

Induction programs and training

An extensive induction-training program is conducted

for newly recruited employees to orient them with our

values, policies, key business aspects and our

technologies. Last year, our employees spent 23,094

days in training. Complementing our classroom training

initiatives are self-learning packages that give

employees the freedom to learn at their own pace.

We also piloted a mentorship program to help

newcomers in the organization settle down and become

productive in a shorter timeframe.

During the year we implemented PeopleSoft, an

enterprise-wide human resource information system,

to manage employee development.

Internal communications

As a step towards fostering an open, informal,

non-hierarchical culture, we have instituted internal

communication channels for employees in the form

of annual and periodic open houses where our

employees have an opportunity to understand the

business goals of the company and put forth their ideas

The tradition of an annual open house continues where the management outlines

its vision and employees are recognized for their contribution. Cultural performances

form an important part of the programme.

Training is an important activity at i-flex.




and concerns to the management. Apart from organizing Open Houses

at Bangalore and Mumbai where most of our employees are located, we

conducted employee meetings in Japan, Singapore, UK, Nigeria and the

United States.

To further boost internal communication, we have a corporate Intranet,

which was relaunched with a new look and greater interactivity and

currency of information. The intranet facilitates two-way communication

and comprises a news section, a bulletin board, and other sections dedicated

to groups within the company. We also have a bimonthly magazine that

networks i-flexers across the globe.

Cultural initiatives

To help employees socialize informally and encourage inter-department

interaction, a focused cultural team – iCE (i-flex Cultural Ensemble) has

been flourishing in India as well as overseas.

iCE encourages special hobbies and organizes fun events for employees

to showcase their talents. This year, the iCE initiative gathered momentum

and went global – with NiCE (iCE in New York and Nigeria).

In continuation of our commitment to the preservation and promotion

of Indian classical music and art, we supported the 11th Sureshbabu

Hirabhai Sangeet Samaroah between January 12 - 14, 2002. Some of the

Employees’ children were invited to the office to spend the morning

on the occasion of Children’s Day (November 14th).

i-flexers take a break from work and enjoy a trek in the Western Ghats.



best exponents of Indian music and art including

Pandit Birju Maharaj (Kathak), Ustad Zakir Hussain

(Tabla), Pandit Jasraj (Vocal), Dr. Prabha Atre (Vocal),

Pandit Vishwamohan Bhat (Mohana Veena) and Dr.

Rajam (Violin) enthralled about 20,000 music lovers

during the festival.

Performance management system

We launched a new i-flex performance management

system called “impact” to enable and motivate i-flexers

to deliver superior solutions consistently in a high

performance environment.

Growth in infrastructure

In a challenging year, when many software companies

were scaling back their growth projections and

retrenching staff, we set records for growth in

infrastructure.

We established a new development center at Chennai,

and added space at Bangalore and Mumbai, increasing

our office space by over 50%.

At Bangalore, we laid the foundation stone of “i-flex

Park”, to signify the commencement of construction

of a two building project that will finally house

over 1,400 staff and have more than 1,40,000 sq. ft.

of built-up space.

We strengthened our communications and network

infrastructure and implemented a Virtual Private

Network (VPN) and intranet access for our increasingly

globally dispersed staff.

Our eight development centers across Bangalore,

Chennai, Mumbai, and Pune are equipped with

approximately 2,300 workstations and over 150

servers that operate on a variety of platforms. We

also have more than 300 laptops for staff that are

always on the move.

To address our communication needs, we have a fiber

optic backbone at each of our development centers

with 100 megabytes per second bandwidth

connectivity.

Every employee has access to state-of-the-art

communication facilities including data and voice,

video conferencing, ISDN, Internet and e-mail.

This includes 128Kbps-leased lines to our other offices

as well as to client locations.

We believe that a good infrastructure fosters a great

environment and, in turn a motivated team.

The Pune Center is one of our newer software development facilities.




CyprusGhanaIndiaJamaicaJapanKenyaKuwaitLondonMalaysiaNetherlandsNigeriaPhilippinesSingaporeSouth AfricaSri LankaUgandaZambia

Asia PacificChinaMalaysiaS.KoreaThailand

Latin AmericaArgentinaBrazilMexicoParaguayUruguay

EuropeAlbaniaAustria

BelgiumFinlandIcelandLuxembourgNorwayPolandRussiaSwedenThe Netherlands

Middle East & IndiaBahrainBangladeshCyprusJordanKuwait

LebanonNepalOmanSri LankaUAE

AfricaAngolaBotswanaEthiopiaEritreaEgyptGhanaKenyaMalawiMauritius

MoroccoMozambiqueNamibiaNigeriaSouth AfricaSeychellesSwazilandTanzaniaTunisiaUgandaZambiaZimbabwe

North AmericaCanadaUnited States of America

AmsterdamBangaloreChennaiMumbaiNew JerseyNew YorkPuneSingapore

Distributors

i - f lex o f f ices

Support Centers

Global Presence




Customer Presence

AlbaniaArgentinaAustraliaAustriaBahrainBelgiumBenin RepublicBhutanBotswanaBrazilCanadaChileChinaColumbiaCyprusCzech RepublicDenmark

Dominican RepublicEgyptEthiopiaFinlandFranceGeorgiaGermanyGhanaGreeceHong KongHungaryIcelandIndiaIndonesiaIrelandIsraelJamaica

JapanJordanKenyaKuwaitLebanonLuxembourgMadagascarMalawiMalaysiaMaltaMauritiusMexicoMozambiqueNepalNetherlandsNigeriaNorth Korea

NorwayOmanPakistanParaguayPhilippinesPolandPortugalPuerto RicoRussiaRwandaSamoaSaudi ArabiaSeychellesSingaporeSloveniaSouth AfricaSouth Korea

SpainSri LankaSwitzerlandTaiwanTanzaniaThailandTurkeyUAEUgandaUKUSAVanuatuVenezuelaYemenZambiaZimbabwe



Key Management Personnel

Rajesh Hukku

R. Ravisankar

Deepak Ghaisas

Makarand Padalkar

Executive Management OfficeRajesh Hukku – Chairman and Managing Director

R. Ravisankar – CEO - International Operations and Technology

Deepak Ghaisas – CEO - India Operations and CFO

Makarand Padalkar – Chief of Staff, Product Marketingand Corporate Communications



S. Hariharan

S. Ramakrishnan

V. Shankar

Vijay Sharma

Vivek Govilkar

Joseph John

Nandkumar KulkarniR. Vidyasagar

Business and Support HeadsAtul Gupta – ASP Business Group

CafÓ Boga – North American Operations

Joseph John – Banking Products Division

Nandkumar Kulkarni – Payment Systems Group

R. Vidyasagar – Human Resources Group

S. Hariharan – Infrastructure, Support and Services Group

S. Ramakrishnan – Business Intelligence Products Division

V. Shankar – IT Services Division

Vijay Sharma – i-flex Consulting

Vivek Govilkar – Process, Quality and Training Group


Atul Gupta

CafÓ Boga



N.R.K. Raman

Sajal Mukherjee

V. Senthil Kumar

Dennis Roman

Dilip Kulkarni

Anand Phanse

A. Srinivasan

Regional Sales and MarketingA. Srinivasan – Africa, Latin America and Caribbean

Anand Phanse – North America

Dennis Roman – North American Marketing

Dilip Kulkarni – India and Middle East

Kishore Kapoor – Asia Pacific

N.R.K. Raman – Global Sales

Sajal Mukherjee – North America

V. Senthil Kumar – Europe

Kishore Kapoor



Joseph P. Kennedy II

Nihar Mody

Rajesh Hukku

William T. Comfort, JrY. M

. Kale

DirectorsJoseph P. Kennedy II

Nihar Mody

Rajesh Hukku (Chairman and Managing Director)

William T. Comfort, Jr

Y. M. Kale

Corporate Information




Company Secretary

Deepak Ghaisas

Solicitors

Ramesh P. Makhija & Co

Auditors

Arthur Andersen & Associates

Bankers

Bank of India

Citibank N.A.

HDFC Bank

Registrars and transfer agents

Intime Spectrum Registry Limited

260 A, Shanti Industrial Estate,

Sarojini Naidu Road, Mulund (W),

Mumbai 400 080

Subsidiary offices

i-flex solutions b.v.

Strawinskylaan 1245

1077 ZX Amsterdam

The Netherlands

i-flex solutions pte. ltd.

Suntec Tower One # 12-03

7, Temasek Boulevard,

Singapore 038 987

i-flex solutions inc.

99, Park Avenue, Suite 1530

NYC, New York 10016

USA

Registered office

10 -11, SDF 1, SEEPZ

Andheri (E), Mumbai 400 096.

Branch offices

i-flex Center, 399, Subhash Road

Vile Parle (E), Mumbai 400 057.

i-flex Center, 146, Infantry Road

Bangalore 560 001.

4th floor, Shankar Narayan Building

26, M G Road, Bangalore 560 001.

Raheja Towers, 9th Floor

26-27, M G Road, Bangalore 560 001.

Pride Silicon Plaza, Next to Chaturshringi

Senapati Bapat Road, Pune 411 053.

143/1 Uttamar Gandhi Salai

4th floor, Nungambakkam

Chennai 600 034



In the newsWhen we formed i-flex 10 years ago,our vision was to create intellectual capitalin India. We were not just setting upanother company that sold software....wewanted to go the whole hog with branding,designing, conceiving and domain skills.

Rajesh HukkuChairman and Managing Director in theEconomic Times, IndiaFebruary 2002

The worldwide acceptance of the product is a testimony of our globalcompetitiveness and we would continue to strive for excellence in alldomain areas in which we have presence.

R. RavisankarCEO - International Operations and Technology in Business IndiaJanuary 2002

A handful of pioneers in India’s technology capital are nowtrying to change...aiming to turn the nation from a pool ofcut-rate software programmers to a centre for finished productsthat carry high profit margins. “For the last two decades, ‘Madeby Indians’ was popular...but ‘Made in India’ was not..Ourentire mission is to change that”

Deepak GhaisasCEO - India Operations and CFO in Forbes.comFebruary 2002

The FLEXCUBE suite addresses virtually allareas of financial technology, including applicationsfor retail and corporate banking, investor servicesand brokerage operations. Beyond end-to-endbanking solutions, i-flex offers a range of servicesin operations the company has dubbed “Centersof Excellence”. The centers focus on thedevelopment of complete solutions in particularareas - from concept and design to finaldeployment.

Bank Technology NewsSeptember 2001

In the News



Directors’ ReportFinancial year 2001-02

Dear Members,

Your Directors take great pleasure in presenting

their report on the business and operations of

the Company along with the Annual Report and

audited annual accounts for the financial year

2001-02.

Financial highlights

Year ended March 312002 2001

Total Income 4,252,707 3,211,210

Gross Profit BeforeDepreciation 1,562,728 1,339,614

Less: Depreciation 144,985 145,251

Profit Before Taxes 1,417,743 1,194,363

Less: Provision For Tax 150,135 94,148

Net Profit After Tax 1,267,608 1,100,215

Add: BalanceBrought Forward 119,905 65,529

Profit available forappropriation 1,387,513 1,165,744

Transfer toGeneral Reserve 1,250,000 1,000,000

Proposed Dividend 46,644 41,596

CorporateDividend Tax – 4,243Balance Carried Forward 90,869 119,905

Performance

Your Company has once again recorded healthy

growth in both revenues and profits, despite the

backdrop of global economic slowdown and a

tougher, more competitive, business environment.

The total revenues of the Company grew to

Rs 4,252.71 million in 2001-02 from

Rs 3,211.21 million in 2000-01, a growth of

32%. Earnings before taxes stood at Rs 1,417.74

million during the financial year from

Rs 1,194.36 million last financial year,

translating to a growth of 19%.The Company’s

earnings after tax increased to Rs 1,267.61

million from Rs 1,100.22 million – a growth of

15%. The profit transferred to General Reserves

increased to Rs 1,250 million from Rs 1,000

million and the total General Reserves are at a

healthy level of Rs 3,988.57 million. Basic and

diluted EPS stood at Rs 38.03, an increase of

15% over the previous year.

A detailed analysis of the financial statements

is presented in the Management Discussion &

Analysis Report prepared under Indian GAAP

and US GAAP.

Dividend

Your Directors are pleased to recommend a

Dividend of Rs 1.25 per share (25% on par value

of Rs 5). The dividend, if approved, at the

forthcoming Annual General Meeting, will be

paid out of the profits of the Company to those

shareholders whose names appear on the

Register of Members as on the date of the

Annual General Meeting. The equity shares

alloted by the Company in its recently

completed IPO will also be entitled for

dividends.

The total amount of dividend is Rs 46.64 million

against Rs 41.60 million for the previous year.

In accordance with the current provisions of

the Indian Income Tax Act, 1961, dividend is

taxed in the hands of the shareholders.

Thousands of Indian Rupees

Hence, the Company does not have any

tax liability towards dividend tax

this year.

Share capital

At an Extraordinary General Meeting held on

January 7, 2002, the shareholders adopted a

resolution authorizing the Board of Directors of

the Company to issue and allot to any person, in

one or more tranches, Equity Shares and / or

securities and / or options convertible into

Equity Shares of Rs 5 each upto a maximum of

5% of the issued and paid-up share capital of the

Company. Pursuant to this resolution, on March

4, 2002, the Company issued 679,000 Equity

Shares (representing an equity interest of 2% of

the issued Equity Shares) to Financial Ventures

Mauritius Limited, a financial arm of the

Standard Chartered Bank Group, at a price of

Rs 650 per equity share of Rs 5 each.

Sub-division of equity shares

At the Annual General Meeting of the

Company held on August 14, 2001, the

shareholders approved the sub-division of equity

shares of Rs 10 face value each into two equity

shares of face value of Rs 5 each and the Board

of Directors were given the authority to fix a

record date for this purpose. The Board of

Directors accordingly declared January 15, 2002

as the record date for effecting the sub-division.

Subsequent to this sub-division, the authorized

equity share capital of Rs 500 million has been

divided into 100 million equity shares of Rs 5

each. The issued, subscribed and paid-up capital

of Rs 169.78 million has been divided into 33.96

million equity shares of Rs 5 each.

Initial Public Offer

In terms of the Prospectus issued by the

Company on June 19, 2002 and the book

building exercise undertaken in June 2002, the

Company had allotted 33,60,000 fresh equity

shares of Rs 5 each at Rs 530 per share and had

facilitated an Offer for Sale of the existing

shareholders’ 6,01,700 shares of Rs 5 each

during its Initial Public Offering (IPO).

The price as discovered in the book building

exercise was Rs 530 per share and the

Allotmet of 33,60,000 shares was approved

by the Board on June 25, 2002 and the shares

offered for Sale by the existing shareholders of

the Company were transferred on the same date

to the successful bidders in the IPO.

The Company has listed its shares on The Stock

Exchange, Mumbai (BSE) and the National

Stock Exchange Limited (NSE) on June 28,

2002. All the necessary requirements in respect

of the IPO and listing have been complied with.

Employee stock option plan


shareholders of the Company held on August

14, 2001, the Company introduced an Employee

Stock Option Plan (ESOP), pursuant to which

equity shares not exceeding an additional 7.5%

of the issued and paid-up equity share capital of

the Company have been earmarked for grant, at

any given time, to present and future employees

and directors of the Company as well as its

existing and future subsidiaries. Consequent to

the above resolution, the Board of Directors, at

their meeting of March 4, 2002, approved the

ESOP (‘the Scheme’) for issue of 2,376,800

options to employees and Directors of the

Company and its subsidiaries. The Company has


granted 2,274,460 options to the eligible

employees and directors of the Company and its

subsidiaries at an exercise price, which is equal

to the issue price i.e. Rs 530.00 per share,

determined through the book-building process.

Of the total options granted under the Scheme,

20% will vest to 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.

Subsidiaries

During the year, your Company established two

wholly owned subsidiaries, “i-flex solutions pte

ltd” and “i-flex solutions inc” in Singapore and

the United States of America respectively.

These subsidiaries were formed to strengthen

marketing and sales efforts in the Asia Pacific

and North American markets and ensure

deeper penetration in these regions. While the

Company’s subsidiary in the Netherlands “i-flex

solutions b.v.” has been operational since May

2000, the other two subsidiaries commenced

operations in the current fiscal year.

Your Company has consolidated the financials

of these subsidiaries with its financials as per the

requirement of Accounting Standard AS 21,

issued by the Institute of Chartered Accountants

of India. The Company has also prepared its

financials as per the US GAAP and has

accordingly consolidated the financials of

these subsidiaries with its own financials. The

stand-alone financials of these subsidiaries and

the Consolidated Financials as per Indian and

US GAAP form part of this Annual Report.

Joint ventures

DotEx International Limited

In the last fiscal year, your Company had entered

into a joint venture with NSE.IT Limited,

(a wholly owned subsidiary of the National Stock

Exchange of India Limited) to form DotEx

International Limited (DotEx). DotEx, a 51:49

joint venture between NSE.IT Limited and

i-flex, has set up an online broker’s plaza, which

enables brokers and their clients to transact in

stock/securities through the Internet. DotEx has

commenced earning revenue from this financial

year through registration fees and broking fees

from brokers who have signed up with them.

Your Company had invested Rs 49.00 million in

DotEx as of March 31, 2002.

Flexcel International Private Limited

Flexcel is a joint venture of i-flex with HDFC

Bank Limited and its group companies, which

offers i-flex’s flagship product, FLEXCUBE,

through an Application Service Provider

(‘ASP’) model to various banks and financial

institutions in India who may not wish to invest

in creating and maintaining their own internal

IT infrastructure. Your Company holds 49.49%

shares in Flexcel while the balance of 50.51%

shares are held by HDFC Bank Limited and its

associates. Flexcel is currently in the startup

phase.

Your Company’s investment in this joint venture

is Rs 29.72 million as of March 31, 2002.

Your Company has consolidated the financials of

these Joint Ventures with its financials as per the

requirement of Accounting Standard AS 27,

issued by the Institute of Chartered Accountants

of India. Though this accounting standard is

mandatory only from April 2002, the Company

has voluntarily adopted this standard from this

fiscal itself. The Company has also prepared its

financials as per the US GAAP and has

accordingly incorporated the financials of these

joint ventures in its consolidated financials.

Investments

EBZ Online Private Limited

In the year under review, your Company

invested in EBZ Online Private Limited (EBZ).

EBZ is a strategic partnership between Brihans

Technologies Private Limited (‘BTPL’) and

i-flex to provide IT solutions to the Co-

operative banking sector in India. i-flex has

two representatives on the Board of EBZ.

As of March 2002, i-flex had invested Rs 45.00

million representing 242,260 equity shares of

Rs 10.00 each, which comprised 19.5% of EBZ’s

paid-up capital.

Times Online Money Limited

Your Company had invested Rs 100 million in

Times Online Money Limited (Times Online),

which has set up a financial portal

(www.timesofmoney.com) that provides

financial information and services to a wide

range of customers. Times Online, at inception,

was a joint venture between the Times of India

Group (Bennett Coleman and Company

Limited), Citibank NA and i-flex. In fiscal 2001,

i-flex had provided Rs 50 million for diminution

in the value of the investment. On March 13,

2002, i-flex sold its investment in Times Online

Money Limited for Rs 48.50 million.

Infrastructure

The Company opened two additional software

development centers in India – The Chennai

Development Center with an area of 30,687 sq. ft.

with a capacity to accommodate 326 people and

an additional Development Center in Bangalore

with an area of 33,436 sq. ft. with a capacity to

accommodate 309 people. The work on “i-flex

Park”, Bangalore, the Company’s first fully

owned office premises covering a total area of

140,000 sq. ft. with a capacity to accommodate

1,400 people has also commenced and is

scheduled to be ready for occupation by

December 2003.

i-flex recently signed a memorandum of

understanding for acquiring a plot of land

admeasuring 10,000 sq. mts. and constructing an

office building there on of about 1,50,000 sq. ft.

The construction of the office premises will

commence after the land is transferred in the

name of the Company.

Awards, honors and recognition

Your Directors are happy to report some of the

significant achievements of your Company over

the last financial year.

• FLEXCUBE, the Company’s flagship

product, launched in November 1997,

crossed the 100 customer mark within four

years of its launch. This is a remarkable

achievement for a new banking solution,

considering that competitors have taken

anything between five to eight years to

reach this landmark.

• FLEXCUBE continued to be ranked among

the top two selling wholesale back-office

banking solutions in the International

Banking Systems (IBS) UK Sales League


Table in 2001 for the third year in

succession. On the Retail Banking front,

FLEXCUBE was ranked second in 2001 as

against a third position in the previous year.

We are proud to report that FLEXCUBE is

the only solution that finds a place among

the top five in both league tables underscoring

its truly comprehensive capablity that has

found popular acceptance across the

financial services world globally.

• i-flex occupies first position among product

software exporters from India for 2001-02

according to the National Association of

Software Services Companies

(NASSCOM). This ranking emphasizes

i-flex’s supremacy in the product arena, and

the leadership role that it is playing in the

thrust of the Indian software industry to

move up the value chain. i-flex also moved

up rapidly in industry rankings, ranking 13th

in the NASSCOM list of software exporters

from India as against a position of 18th in

the previous year.

• Your Company received the SEEPZ Star

exporter award for the best export

performance from the Santacruz Electronics

Exports Promotion Zone (SEEPZ) authorities.

SEEPZ was established with an aim to

primarily boost exports from India, by

providing exporters the facilities to contribute

a host of value added services to their

products. Today it is India’s premier Export

Processing Zone with a global perspective.

• The Government of India has recognized

your Company yet again for its excellent

export performance in the Electronics and

Information Technology category by giving

it an award for Excellence in Exports.

• Your Company’s Annual Report for the

financial year 2000-01 won many national

and international accolades. The Institute of

Chartered Accountants of India conferred

the second prize for our Annual Report.

The Association of Business Communicators

of India, the Society for Technical

Communication (Australia Chapter) and

the American Society of Professional

Communicators, USA were some of the other

organizations that recognized and honored

the quality, content and creative presentation

of your Company’s Annual Report.

• i-flex won the Microsoft .NET ‘Solution of

the Year’ award for the Asia Pacific region

for “ComEX”, its Commodities Exchange

solution. The award was presented to i-flex

at the Microsoft Asia Fusion event in Kuala

Lumpur, Malaysia, where about 100

Microsoft solution partners in Asia

showcased solutions across eight categories.

• Your Company also won recognition for

the early adoption of Oracle 9i by an

independent software vendor.

• In 2000-01, i-flex was ranked among the

top-10 IT employers in the country by IT

magazine Dataquest. Dataquest is India’s

premier magazine dedicated to the

propagation and reporting of issues

relating to information technology.

• Your Company achieved the prestigious

COBIT certification for its Facilities

Management Services.

• i-flex received the Ramakrishna Bajaj

Certificate of Merit, a prestigious accolade

that is a true acknowledgement of our

quality initiatives.

Litigation

In May 1999, the Company entered into an

agreement with The Saraswat Co-operative

Bank Ltd. (“The Bank”) providing for the

license of FLEXCUBE to the Bank. On June 15,

2002, the Company received a legal notice from

the legal counsel of the Bank terminating the

license agreement as a result of alleged failure

of the Company to deliver the FLEXCUBE

software to the Bank in a manner contemplated

by the license agreement. Through the legal

notice the Bank has called upon the Company

to pay alleged loss of Rs 2,556 million with

interest @ 18% p.a for any delay.

The Company has, in consultation with its legal

counsel, taken steps to reply to the legal notice

sent by the legal counsel of the Bank.

Directors

Mr. William T. Comfort Jr. and Mr. Y.M. Kale

retire by rotation at the ensuing Annual General

Meeting and, being eligible, offer themselves for

reappointment.

Mr. Joseph P. Kennedy II and Mr. Nihar Mody

whose term as Additional Directors conclude at

this Annual General Meeting, being eligible,

offer themselves for appointment as Directors.

The business activities of the Company have

increased significantly over the years. The

Directors of the Company play an important

part in decision making for the Company.

It is now proposed to pay remuneration by way

of commission to Non-executive Directors as

particularly mentioned in resolution No. 8

of the Notice convening the ensuing Annual

General Meeting.

The Company is paying remuneration to

Mr. Rajesh Hukku, Chairman and Managing

Director, as approved by the shareholders at the

Annual General Meeting held on September 22,

2000. Mr. Hukku is also associated with i-flex

solutions inc. USA, the wholly owned subsidiary

of the Company which is also paying a

remuneration to him. A resolution seeking

approval of the shareholders of the Company for

such remuneration forms part of the Notice

under Item No. 9.

Corporate governance

In line with the recommendations of the

Securities and Exchange Board of India (SEBI)

on Corporate Governance, three separate

committees viz. Audit, Compensation and

Protection of Shareholder’s interest were formed

during the year. Your Company has taken steps

to comply with the requirements of clause 49 of

the Listing Agreement and Sec 292A of the

Companies Act, 1956, regarding corporate

governance. A separate report on Corporate

Governance and Management Discussion &

Analysis are annexed as a part of the Annual

Report.

The Company’s shares have been listed on The

Stock Exchange, Mumbai (BSE) and the

National Stock Exchange Limited (NSE) on

June 28, 2002. Accordingly the provisions of

Listing Agreement become applicable to the

Company thereafter. Although clause 49 of the

Listing Agreement was not applicable to the

Company for the year ended March 31, 2002,

the report on Corporate Governance is prepared

and included in this Annual Report. In view of

the same, a certificate from the Auditors of the

Company for compliance of Corporate

Governance by the Company during the

financial year 2001-02 is not required.


Audit Committee

The Audit Committee constituted on February

26, 2001, had a change of members with the

induction of three new members into the

committee – Mr. Y.M. Kale (Chairman of the

committee), Mr. Nihar Mody and Mr. William

T. Comfort Jr. The earlier three members

Mr. Rajesh Hukku, Mr. S. Venkatachalam and

Mr. Ajay Relan resigned from the committee

w.e.f. March 4, 2002, the date on which the new

committee members were appointed.

The scope of the audit committee is detailed in

the enclosed Corporate Governance report.

Compensation Committee

The Compensation Committee was constituted

by the Board of Directors at its meeting of

March 4, 2002. This committee comprises three

directors: Mr. William T. Comfort Jr., Mr. Joseph

P. Kennedy II and Mr. Y.M. Kale.

The scope of this committee is to determine

compensation as well as approve, allocate and

administer the ESOP and review performances

of the Executive Management Office (EMO)

comprising Mr. Rajesh Hukku, Chairman and

Managing Director, Mr. R. Ravisankar, Chief

Executive Officer – International Operations

and Technology, and Mr. Deepak Ghaisas,

Chief Executive Officer – India Operations and

Company Secretary. The committee in turn has

delegated to the EMO the authority to

determine compensation as well as approve,

allocate and administer ESOP and review the

performance of key managerial personnel and

other employees.

Shareholders Grievances Committee

The Shareholders Grievances Committee was

re-constituted by the Board of Directors at its

meeting held on March 4, 2002 comprising

Mr. Nihar Mody and Mr. Deepak Ghaisas as its

members.

The scope of the Shareholders Grievances

Committee is to review and address grievances

of shareholders in respect of share transfers,

transmission and other share-related activities.

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.

Auditors

M/s Arthur Andersen & Associates, the

present Statutory Auditors of the Company

have vide letter dated July 30, 2002, informed

the Company that they do not wish to be

reappointed as Auditors of the Company after

expiry of their current term that ends at the

conclusion of the Annual General Meeting

of the Company.

As recommended by the Audit Committee, the

Board, at its meeting held on July 30, 2002, has

proposed M/s. S.R. Batliboi & Associates,

Chartered Accountants, as the new Statutory

Auditors of the Company. You are requested to

consider their appointment.

Conservation of energy, technology absorption andforeign 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

on foreign exchange earnings and outgo are

furnished hereunder:

(A) Conservation of Energy

The operations of the Company are not energy-

intensive. However measures have been taken to

reduce energy consumption by using energy

efficient computers and by the purchase of

energy efficient equipment with the latest

technologies. The expenses on power in relation

to income are nominal and under control.

(B) Technology Absorption

Since businesses and technologies are changing

constantly and continuously, investment in

research and development activities is of

paramount importance. Your Company

continued its focus on quality upgradation of

software development process as well as ongoing

enhancement of its portfolio of solutions, which

has enabled continued market success despite

rapid changes in technology.

(C) Foreign Exchange Earnings and Outgo

Foreign Exchange Earnings 3,976.82

Foreign Exchange Outgo* 970.95

*(Including capital goods & other expenditure)

Prospects

i-flex has always had a strong focus on exports

and this focus is expected to continue in the

coming years as well. To increase its business,

your Company has taken part in several

exhibitions around the world as well as allied

with corporate business partners and technology

partners to promote its products and services

apart from augmenting its own global sales force.

The long-term goal of your Company is to be a

respected name in the global Banking and

Financial Services industry for its products and

services and to continue to garner a significant

portion of its business from the overseas market.

The Company’s objective is to become the IT

Partner of choice to the global financial services

industry by leveraging its own comprehensive

solutions portfolio, domain expertise, global

network, strategic partnership and alliances and

cost effective delivery capability. The key

strategy to achieve this goal includes:

(Rs in millions)


• Expanding the solutions portfolio;

• Expanding market share and reach;

and

• Leveraging partnership and alliances.

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, shareholders, 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

Exports Processing Zone, the Customs and

Excise Department, Ministry of Commerce,

Ministry of Finance, Department of

Telecommunication, the Reserve Bank of India,

SEBI, BSE, NSE, Registrar of Companies, the

State Governments of Maharashtra, Karnataka

and Tamil Nadu and other local government

bodies for their support, and look forward to

their continued assistance and encouragement

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, hard work, and

diligence to duty in achieving consistent growth.

for and on behalf of the Board,

Rajesh Hukku

Chairman and Managing Director

July 30, 2002

The detailed report on Corporate Governance

as per the format prescribed by SEBI and

incorporated in 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 recognised corporate

governance practices and continuously

benchmark itself against each such practice.

The Company understands and respects its

fiduciary role and responsibility to its

shareholders and strives hard to meet their

expectations.

2 Board of Directors

2.1 Composition and category

The Company currently has five directors

including the Chairman, of these three directors

are independent directors. The Chairman of the

board is an Executive Chairman and is also the

Managing Director of the Company. The

Company also has one alternate director.

The current composition of the Board of the

Company is given below:

Corporate governance report

Name Designation Category

Mr. Rajesh Hukku Chairman and Executive Non-Independent DirectorManaging Director

Mr. William T. Comfort Jr. Director Non-executive Non-Independent Director

Mr. Y.M. Kale Director Non-executive Independent Director

Mr. Joseph P. Kennedy II Director Non-executive Independent Director

Mr. Nihar Mody Director Non-executive Independent Director

Mr. Ajay Relan Alternate Director Non-executive Non-Independent Directorto Mr. William T.Comfort Jr.


2.2 Attendance of each director at the boardmeetings, and the last annual general meeting

During the year 2001-02, the Company held

seven 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 details of attendance of the directors at the

Board meeting and Annual General Meeting

held during the year 2001-02 are given below:

Directors Jun 25, Aug 14, Nov 30, Dec 13, Jan 7, Mar 4, Mar 4, Aug 14,2001 2001 2001 2001 2002 2002 2002 2001

1st 2ndmeeting meeting

Mr. Rajesh Hukku Yes Yes Yes Yes Yes Yes Yes Yes

Mr. William T. Comfort Jr. Yes No Yes Yes No No No No

Mr. Y.M. Kale 1 NA Yes Yes No Yes No No Yes

Mr. Joseph P. Kennedy II 2 NA NA NA NA No No No NA

Mr. Nihar Mody 3 NA NA NA NA NA NA Yes NA

Mr. Ajay Relan Yes Yes Yes No Yes Yes Yes Yes

Mr. S. Venkatachalam 4 Yes Yes No No No Yes Yes Yes

Mr. Marc P. Weill 4 Yes No Yes No No No No No

Mr. Dipak Rastogi 4 Yes No Yes No No No No No

Mr. Robert Druskin 4 Yes No No Yes No No No No

1 Appointed with effect from August 14, 20012 Appointed with effect from January 7, 20023 Appointed with effect from March 4, 2002 at the 2nd meeting4 Ceased to be a Director with effect from March 4, 2002NA: was not a Director on that date

AnnualGeneralMeetingBoard Meeting

2.3 The details of the directorships of the company’sdirectors in other companies are given below:

Name of Director Other Directorships details

Mr. Rajesh Hukku i-flex solutions b.v.i-flex solutions inc.

Mr. William T. Comfort Jr. Flender AG

Mr. Y.M. Kale Nil

Mr. Joseph P. Kennedy II Citizens Energy CorporationCitizens EnterprisesCorporation Citizens International LLCCitizens Fuels CorporationCitizens Health CorporationCitizens Investments Ltd.Citizens Conservation CorporationCitizens Programs CorporationAngola Educational Assistance Fund Inc.Citizens Homeless Care CorporationCitizens International Development FundKennedy Resources LLCProFlowersSonic TelecommunicationsMasTecFusion TelecomClearwireTeCoGen

Mr. Nihar Mody Nil

Mr. Ajay Relan Citicorp Finance India LimitedOrbiTech LimitedPolaris Software Labs LimitedOrbiTech Solutions LimitedSasken Communication Technologies LimitedDCM Technologies LimitedSystems America India LimitedDishnet DSL LimitedInfinity Knowledge Systems LimitedPramati Technologies LimitedNewgen Software Technologies LimitedGujarat Glass LimitedSecure Meters LimitedHigh Polymer Labs LimitedTimes Online Money Limited


2.4 Details of membership of board committees

None of the Directors of the Company hold

memberships of more than ten Committees nor

is any Director a chairman of more than five

Committees of Board of all the companies

where he holds directorships. For this purpose

committees comprise of Audit Committee,

Compensation Committee and Shareholders

Grievances Committee. The details of the

memberships of the directors in all committees

are given below:

Name of Committees

Director Membership Chairmanship

Mr. Rajesh Hukku None None

Mr. William T. Comfort Jr. 2 1

Mr. Y.M. Kale 2 1

Mr. Joseph P.Kennedy II 1 None

Mr. Nihar Mody 2 None

Mr. Ajay Relan None None

2.5 Brief resume of directors who will be retiring atthe ensuing annual general meeting of the company

Mr. Willian T. Comfort Jr.

Mr. William T. Comfort Jr. is the Chairman of

Citigroup Venture Capital Limited, a subsidiary

of Citibank involved in leveraged buyout

transactions. Mr. Comfort joined Citigroup in

1973 as Vice President in the Corporate Finance

Department of First National City Bank in

New York and then moved to London in 1976

to become the Executive Director of Citicorp

International Bank Limited. In 1979, he

returned to New York to assume his current

position.

Prior to joining Citigroup Venture Capital

Limited, Mr. Comfort was a partner at W.E.

Hutton & Co. in New York. He is also on the

Board of Directors of Flender AG in Germany.

A Trustee of the New York University Law

Center Foundation and of the John A. Hartford

Foundation, Inc., Mr. Comfort is also an adjunct

professor at the Columbia Business School,

Advisor to the Board of Old Westbury Gardens

and a Member of the Advisory Committee for

the University of Oklahoma Law School.

Mr. Y.M. Kale

Mr. Y.M. Kale, a Chartered Accountant, was

president of the Institute of Chartered

Accountants of India in the year 1995-96 and

is also a Fellow member of the Institute of

Chartered Accountants of England and Wales.

He has contributed to various governmental

bodies such as committees of Securities &

Exchange Board of India including Committee

of Offer Document, Committee of Takeovers

and Committee on Accounting for Corporates,

and participated as a member of the Group for

Introduction of Concurrent Audit of Banks,

organized by the Reserve Bank of India.

Mr. Kale was also a member of the International

Accounting Standards Board from 1995 to 1998.

Mr. Joseph P. Kennedy II

Mr. Joseph P. Kennedy II currently serves as

Chairman and President of Citizens Energy

Corporation, Chairman of Sonic

Telecommunications, Chairman of People’s

Genetics and also advises and serves board

of several other companies in the energy,

telecommunications and health care industries.

He founded Citizens Energy in 1979 and built

it into a leading innovator in the energy

industry and other fields. Citizens Energy is a

not-for-profit corporation that supports a wide

array of social and charitable programmes in the

U.S. and abroad. It derives most of its income

from for-profit ventures that it has created over

the years and which it controls. Mr. Kennedy

returned to the helm of Citizens Energy in 1998

after serving six terms in the U.S. House of

Representatives from the 8th Congressional

District of Massachusetts. During his term as a

Congressman, he devised creative and

innovative approaches to address social needs,

particularly in the ways that the private sector

rather than government agencies could help

communities achieve economic growth and

prosperity. During his terms in the Congress,

Mr. Kennedy served on the House Banking

Committee, where he played an active role in

such major legislation as the federal savings

and loan bailout, credit reporting reform, the

Glass-Steagall overhaul and financial

modernization.

Mr. Nihar Mody

Mr. Nihar Mody, is a partner in Wadia Ghandy

& Co., Advocates & Solicitors. Mr. Mody is

primarily focused on matters relating to corporate

law, joint ventures, private equity, securities

derivatives transactions, securities transactions,

finance, structured finance, banking laws and

securities laws, including stock exchanges and

SEBI related laws, property related transactions,

information technology and litigation matters in

High Courts and in the Supreme Court of India.

Mr. Mody is a Bachelor of Commerce and

Economics from Sydneham College of Commerce

and Economics, Mumbai. He also holds a

Bachelors degree in law from Government Law

College, Mumbai. He joined M/s. Wadia

Ghandy & Co., Advocates and Solicitors, as a

trainee in 1986 and became a partner in 1992.

3 Audit committee

3.1 Broad terms of reference

The terms of reference of the Audit Committee

are as follows:

a. Oversight of the Company’s financial

reporting process and the disclosure of its

financial information to ensure that the

financial statements are correct, sufficient

and credible.

b. Reviewing with management the annual

financial statements before submission to

the board, focusing primarily on;

• Any changes in accounting policies and

practices.

• Major accounting entries based on

exercise of judgment by management.

• Qualifications in draft audit report.

• Significant adjustments arising out of

audit.

• The going concern assumption.

• Compliance with accounting standards.

• Compliance with stock exchange and

legal requirements concerning financial

statements.

• Any related party transactions i.e.

transactions of the company of material

nature, with promoters or the

management, their subsidiaries or

relatives etc. that may have potential

conflict with the interests of the

Company at large.


c. To review and approve annual accounts of

the Company and recommend to the Board

for adoption or otherwise.

d. To review the Company’s financial and risk

management policies.

e. To look into the reasons for substantial

defaults in the payment to the depositors,

debenture holders, shareholders (in case of

non payment of declared dividends) and

creditors.

f. To have full access to information contained

in the records of the company.

g. To seek external professional advice and to

seek information from any employee, if

necessary.

h. To recommend the appointment and

removal of external auditor, fixation of audit

fee and also approval for payment for any

other services.

i. To review the adequacy of internal audit

function and frequency of internal audit.

j. To discuss with internal auditors any

significant findings and follow up there on.

3.2 Composition

The Company had formed an Audit Committee

even before listing of its shares on stock

exchanges. The members of the former Audit

Committee were Mr. Rajesh Hukku,

Mr. S. Venkatachalam and Mr. Ajay Relan.

In view of restructuring of the Board and

compliance required as per the Listing

Agreement, the Audit Committee of the

Company is reconstituted and currently consists

of the following three non-Executive Directors.

Name of Director Status of Director

Mr. Y.M. Kale Chairman,Independent,Non-ExecutiveDirector

Mr. Nihar Mody Member,Independent,Non-ExecutiveDirector

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

Non-ExecutiveDirector

3.3 Meetings and attendance

The Audit Committee held four Meetings so far

and the member’s attendance at the Committee

Meetings is as under:

Name of Director Number ofmeetings attended

Mr. Rajesh Hukku 1

Mr. S. Ventkatachalam 1

Mr. Ajay Relan 1

Mr. Y.M. Kale 3

Mr. Nihar Mody 3

Mr. William T. Comfort Jr. –

4 Remuneration (compensation) committee

4.1 Brief description of terms of reference

The Company had a former Compensation

committee of Mr. Dipak Rastogi and

Mr. William T. Comfort Jr. which was

reconstituted on March 4, 2002, to comprise

of three directors Mr. William T. Comfort Jr.,

Mr. Joseph P. Kennedy II and Mr. Y.M. Kale.

The scope of this committee is to determine the

compensation of Executive Management Office

(EMO) comprising Mr. Rajesh Hukku,

Chairman and Managing Director,

Mr. R. Ravisankar, Chief Executive Officer –

International Operations and Technology and

Mr. Deepak Ghaisas, Chief Executive Officer –

India Operations and Company Secretary. The

EMO in turn, decides the compensation of key

managerial personnel and other employees.

The compensation committee also approves,

allocates and administers the Employee Stock

Option Plan (ESOP) 2002, reviews performance

appraisal criteria and sets norms for ESOP

allocation.

4.2 The composition of the compensation committeeis as follows:

Name of Director Status of Director

Mr. William T. Chairman,

Comfort Jr. Non-Independent

Non-Executive

Director

Mr. Joseph P. Member,

Kennedy II Independent

Non-Executive

Director

Mr. Y.M. Kale Member,

Independent

Non-Executive

Director

4.3 Meeting & attendance

This Committee met three times during the

financial year 2001-02 and all the members

were present.

4.4 Remuneration policy

The Remuneration Committee has the mandate

to review and recommend compensation

payable to the EMO of the Company. It also

administers the Company’s ESOP plans 2002.

4.5 Details of remuneration paid to all the directors

Mr. Rajesh Hukku 4,67,300 3,30,000*

Mr. William T. Comfort Jr. – –

Mr. Y.M. Kale – –

Mr. Joseph P. 3,30,000 –Kennedy II

Mr. Nihar Mody – –

Mr. Ajay Relan(Alternate Directorto Mr. William T.Comfort Jr.) – –

Total 7,97,300 3,30,000

* Mr. Rajesh Hukku is entitled for remuneration of USD 287,500 p.a. fromi-flex solution s inc., USA, a subsidiary of the company.

Amountpaid during

financial year2001-02

Indian Rupees

ESOPOptions

Name of Director


5 Shareholders grievances committee

5.1 Composition of committee

Name of Director Status of Member

Mr. Nihar Mody Chairman,Non-Independent,

Non-Executive Director

Mr. Deepak Ghaisas Member

5.2 Scope of the shareholders grievances committee

The scope of the Shareholders Grievances

Committee is to review and address the

grievances of the shareholders in respect of share

transfers, transmission and other share related

activities.

5.3 Company secretary

Name of Mr. Deepak GhaisasCompany Secretary

Address i-flex solutions ltd.i-flex Center

399 Subhash RoadVile Parle (East)Mumbai 400 057

Telephone 839 1909 / 823 5190

Fax 832 3374

5.4 Compliance officer

Name of Compliance Officer Mr. Avadhut

(Vinay) Ketkar

Address i-flex solutions ltd.i-flex Center

399 Subhash RoadVile Parle (East)Mumbai 400 057

Telephone 839 1909 / 823 5190

Fax 832 3374

e-mail [email protected]

5.5 Details of shareholders’ complaints received,not solved and pending share transfers as onJuly 30, 2002

Nature of Complaints Received Cleared

Letters received fromshareholders fornon-receipt ofshares/dividend 60 60

Letters received fromStock Exchange 4 4

Letters received fromSEBI – –

No. of pending sharetransfers – –

6 General body meetings

6.1 Location, dates and time, where last three AnnualGeneral Meetings were held

Financial Year Venue Date Time

2000-2001 The Leela, August 14, 3.00 p.m.

Near Sahar Airport, 2001

Andheri (East),

Mumbai 400 059

1999-2000 Ramada Hotel September 22, 3.00 p.m.

Palmgrove, Juhu Beach, 2000

Mumbai 400 049

1998-1999 The Leela, August 31, 5.00 p.m.

Near Sahar Airport, 1999

Andheri (East),

Mumbai 400 059

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, the

directors or the Management, their

subsidiaries or relatives etc. having potential

conflict with the interest of the Company at

large has been given in the Annual Report.

b. The Company has complied with statutory

compliances and no penalty or stricture is

imposed by the Stock Exchanges or SEBI or

any other statutory authority on any matter

related to the capital markets during the last

three years.


8. Means of communication

a. Half yearly report will be circulated to each

shareholder.

b. The quarterly and half yearly results are/will

be published in English and Marathi News

Paper.

c. The Company’s Audited & Unaudited

periodic financial results are being displayed

in the Company’s website

www.iflexsolutions.com

d. A detailed Management Discussion and

Analysis Report covering the Indian and

US GAAP financials has been included

in this Annual Report.

9 General shareholder information

a) The ensuing Annual General Meeting of the Company will be held at ITC Grand Maratha

Sheraton, Sahar, Mumbai 400 099 on Friday, September 6, 2002 at 3.00 p.m.

b) Financial Year of the Company April 1 to March 31

c) Date of Book Closure August 30, 2002 to September 6, 2002

(both days inclusive)

d) Dividend Payment Date September 10, 2002

e) Listing on Stock Exchanges at The Stock Exchange,

Mumbai (BSE)

National Stock Exchange of

India Ltd. (NSE)

f) Stock Code

The Stock Exchange, Mumbai 532466

National Stock Exchange of India Ltd I-FLEX

g) Market price data:

The shares of the Company were listed on BSE and NSE on June 28, 2002. The high, low Market Price

data of the shares of the Company from June 28, 2002, is given below:

BSE NSE

Month Low (Rs) High (Rs) Low (Rs) High (Rs)

June 02 495.00 560.00 495.05 550.00

July 02 433.05 555.00 401.00 555.80

h) Registrar and Share Transfer Agents

Intime Spectrum Registry Limited

260-A Shanti Industrial Estate Branch

Sarojini Naidu Road, Mulund (West) 203 Davar House

Mumbai 400 080 197/199 D. N. Road

Telephone 592 3837 Mumbai 400 001

Fax 567 2693 Telephone 2656929, 2656927



i) Share transfer system

The Registrar and Share Transfer Agent (“the Registrar”) on receipt of transfer deed with respective

share certificate(s) scrutinizes the same for specified details and matches signature(s) of transferor(s)

with those on our records. A list of such transfers is processed and prepared and checked thoroughly

and a transfer register is prepared. The transfer register is placed before the Transfer Committee Meeting

for approval. On approval by the transfer committee, the Register of Members is updated. The transfer

endorsement stickers are printed through system and affixed on reverse of respective share certificates

which are then signed by the officials of the Company. The certificates then are dispatched to

transferees by registered post. During last financial year 18,87,950 shares were transferred.

j) Distribution of shareholding as on July 30, 2002

Shares of Nominal Number of % to total Shares % to

Value of Shareholders Shareholders Amount Total capital

Rs

1 – 2500 9,445 82.11 39,97,465 2.14

2,501 – 5,000 400 3.48 15,90,605 0.84

5,001 – 10,000 383 3.33 30,14,755 1.62

10,001 – 20,000 399 3.47 63,17,985 3.38

20,001 – 30,000 131 1.14 33,34,935 1.78

30,001 – 40,000 265 2.30 90,82,900 4.86

40,001 – 50,000 67 0.58 30,94,450 1.65

50,001 – 1,00,000 268 2.33 205,90,540 11.03

1,00,001 and Above 145 1.26 13,55,53,365 72.70

Total 11,503 100.00 18,65,77,000 100.00

k) Shareholding per category

As on July 30, 2002

l) Dematerialization of shares and liquidity

Procedure for dematerialisation/rematerialisation of scripts

Shareholders are required to submit demat request to Depository Participants (DP). DP send requests

for demat of shares along with the physical share certificates to Registrar and Share Transfer Agents

(“the Registrar”) of the Company. The Registrar liaisons with National Securities Depository Ltd.

(NSDL)/Central Depository Services (India) Ltd. (CDSL), within 7 days from date of log in of the

demat request in the system and acknowledges receipt of physical shares for demat and verifies the

genuineness of share certificates, create transaction and generate edit list. After verification of edit list

and effecting corrections, if any, the Registrar updates the final Demat Register. The Registrar forwards

confirmation report of the transaction to NSDL/CDSL or the rejection report, as the case may be. Daily

reconciliation and confirmation of capital is done by Registrar. Registrar also corresponds with the DP

and shareholder in case of rejection.

As on July 30, 2002, 33.77 % of the shares of the Company are in electronic form.

Category Number of Shares %

Promoters 16,118,000 43.19

Mutual funds and UTI 1,907,767 5.11

Banks, Financial Institutions, Insurance Companies 30,000 0.08

FIIs 614,950 1.65

Private Corporate Bodies 3,661,152 9.81

Indian Public 12,343,105 33.08

NRIs/OCBs 1,958,756 5.25

Any other – Foreign Company 681,670 1.83

Total 37,315,400 100.00


m) Address for correspondence

Registered Office Corporate office

Unit 10-11 i-flex Center

SDF-1 SEEPZ, Andheri (East) 399 Subhash Road

Mumbai 400 096 Vile Parle (East)

Telephone 829 1020 Mumbai 400 057

Fax 829 2767 Telephone 839 1909

Fax 832 3374


Additionally the Company has branch offices in the States of Karnataka, Maharashtra and Tamilnadu.

The addresses are given below:

a) 9th Floor, Raheja Towers,

26-27, M. G. Road, Bangalore 560 001.

b) Prestige Opal,

146 Infantry Road, Bangalore 560 001.

c) 4th Floor, Shankarnarayana Building,

M. G. Road, Bangalore 560 001.

d) Pride Silicon Plaza,

Next to Chatushringi,

Senapati Bapat Marg, Pune 411 053.

e) 143 / 1 Uttamar Gandhi Salai,

Nugambakam, Chennai 600 034.


Financialsi-f lex solutions ltd.

Financial statements for the yearended March 31, 2002 preparedin accordance with IndianGenerally Accepted AccountingPrinciples (Indian GAAP).


You should read the following discussion of our

financial condition and results of operations

together with the detailed unconsolidated

financial statements for last three years and the

notes to those statements prepared in

accordance with Indian GAAP included in this

Annual Report.

The following discussion is based on the

Company’s audited unconsolidated financial

statements, which have been prepared in

accordance with Indian GAAP, and on

information available from other sources. We

have also prepared audited financial statements

for fiscal 2001 and 2002 in accordance with

US GAAP, together with a discussion of our

financial conditions and results of operations

based on those financial statements. Please refer

to page 111 of this Annual Report for that

discussion. Our fiscal year ends on March 31 of

each year, so all references to a particular fiscal

year are to the twelve month period ended

March 31 of that year.

In this section only, any reference to “we”, “us”

or “our” refers to i-flex solutions limited on an

unconsolidated basis.

Overview

We are in the business of providing comprehensive

information technology solutions to the financial

services industry world-wide. We are organised

geographically and by business segments. We

have two primary business segments, products

licenses and related services, or Products Business,

and IT solutions and consulting activities, or

Services Business, as described below:

Products

Our flagship product offering is the FLEXCUBE

suite, which comprises a comprehensive range of

Management discussion and analysisof financial condition and results of operations

package solutions addressing the transaction

processing, accounting, business intelligence,

analytical application and Internet delivery

needs of a wide range of financial institutions,

including corporate banks, retail banks,

universal banks, capital market intermediaries,

investment banks and other specialised financial

institutions. The FLEXCUBE suite includes:

• FLEXCUBE, a banking back-office and

transaction processing system;

• FLEXCUBE @, a multi-channel eFinance

platform enabling financial institutions to

deliver their services via the Internet; and

• FLEXCUBE Information Center, a business

intelligence solution with a set of specialised

analytical applications.

Services

We have an independent Services Business,

which is focused on the financial services

industry. Our Services Business provides

custom software development, deployment,

maintenance and support services (both onsite

and offshore) as well as business and IT

consulting services. Our strategy in the Services

Business is to leverage our domain expertise in

financial services to create “Centers of

Excellence” around specific areas of strategic

importance to financial institutions, delivering

value-added solutions to meet the business needs

of our customers. Focus areas for our Centers of

Excellence include CRM, business intelligence,

e-services, development and integration services

and payment systems.

Business metrics

Our total income in fiscal 2002 was Rs 4,253

million, representing an increase of 32% from

Rs 3,211 million in fiscal 2001 (compared to an

increase of 56% from fiscal 2000 to fiscal 2001),

and a CAGR of 44% since fiscal 2000. The net

profit in fiscal 2002 was Rs 1,268 million,

representing an increase of 15% from Rs 1,100

million in fiscal 2001 (compared to an increase

of 59% from fiscal 2000 to fiscal 2001), and a

CAGR of 35% since fiscal 2000. We define net

profit margins for a particular period as the ratio

of profit before extraordinary items and

adjustments to total income during such period.

Our net profit margins have been 34%, 34% and

30% for the fiscal years 2000, 2001 and 2002,

respectively. In the near term, we expect

continued pressure on our rate of growth in total

revenues and net income and on our net income

margins, especially in our services business,

primarily as a result of the global economic

slowdown and adverse condition in our target

markets.

Products business(in Rs million)

Year ended March 31

2000 2001 2002

Product revenues 972.34 1,653.33 2,461.95

Net exchange gainarising on Productrevenues 1.89 25.75 22.5

Segmentaloperating expenses (488.14) (793.89)(1,325.14)Operating incomefrom ProductBusiness 486.09 885.19 1,159.31

Product revenuegrowth rate overprior year 70% 49%

Operating margin * 50% 54% 47%

* Operating margin is defined as segmental operating income from the ProductsBusiness (excluding unallocated and other expenses) as a percentage of totalproducts revenue

Products revenues

Our products revenues include license fees,

professional fees for implementation and

enhancement services and annual maintenance

contracts fees for our products. Our products

revenues represented 49%, 54% and 60% of our

total revenues in fiscal 2000, fiscal 2001 and

fiscal 2002, respectively. Products revenue

increased by 70% from Rs 972.34 million in

fiscal 2000 to Rs 1,653.33 million in fiscal 2001,

and by 49% to Rs 2,461.95 million in fiscal 2002

compared to fiscal 2001.

Services business(in Rs million)

Year ended March 31

2000 2001 2002

Services revenues 998.90 1,385.22 1,650.72

Net exchangegain arising onservices revenues 1.94 21.58 15.09

Segmentaloperating expenses (572.31) (906.42)(1,226.70)

Operating incomefrom servicesbusiness 428.53 500.38 439.11

Services revenuegrowth rate overprior year 39% 19%

Operating margin* 43% 36% 27%

* Operating margin is defined as segmental operating income from the ServicesBusiness (excluding unallocated and other expenses) as a percentage of totalservices revenue.

Services revenues

Our services revenues represented 51%, 46%

and 40% of our total revenues in fiscal 2000,

fiscal 2001 and fiscal 2002, respectively. Services

revenues increased by 39% from Rs 998.90

million in fiscal 2000 to Rs 1,385.22 million in

fiscal 2001, and by 19% to Rs 1,650.72 million

in fiscal 2002 compared to fiscal 2001.


Geographic breakdown of revenues

Our business is organised geographically and

the following table represents the percentage

breakdown of our total revenues by region:

Year ended March 31

2000 2001 2002

USA 23% 35% 32%

Middle East and Africa 29% 24% 26%

Asia Pacific 14% 21% 21%

Europe 29% 19% 20%

Latin America andCaribbean 5% 1% 1%

Total 100% 100% 100%

Sundry debtors

We have high sundry debtors, which as of fiscal

2000, 2001 and 2002, were Rs 629.26 million,

Rs 1,190.49 million and Rs 1,955.79 million,

respectively. Our days of sales outstanding

(which is defined as the ratio of sundry debtors

to total sales in a particular year multiplied by

365) for fiscal 2000, 2001 and fiscal 2002 were

approximately 116 days, 141 days and 172 days,

respectively. These sundry debtors are high

because of the longer payment processing cycle

for product sales, the procedural time required

for foreign exchange remittance in certain

countries where our customers are located and

because of the overall economic slowdown.

These are also high due to high trade receivables

from our related parties, which are members of

Citigroup due to longer payment processing

cycles. We are working with our customers

including Citigroup to reduce these receivables,

however there can be no assurances that we will

succeed in our endeavour to reduce our sundry

debtors. The following table presents the age

profile of our debtors:

Year ended March 31

Period in Days 2000 2001 2002

0-180 89% 95% 94%

More than 180 11% 5% 6%

Total 100% 100% 100%

During fiscal 2000 and 2002, we made provision

of Rs 2.83 million and Rs 43.27 million,

respectively for doubtful debts and during fiscal

2001 we had a write back of Rs 0.75 million.

However we have not written off any bad debts

during the last three fiscal years.

Income taxes

Currently, we benefit from a tax holiday given by

the Government of India for the export of

information technology services. As a result of

our tax incentives, our operations in India have

been subject to insignificant tax liabilities.

These tax incentives currently include a 10-year

tax holiday from the payment of Indian

corporate income taxes for the operations of our

Indian facilities, comprising five units registered

under the “Software Technology Parks” scheme

and one unit forming part of the “Special

Economic Zone”. These benefits will expire for

some of our units starting on April 1, 2004. The

Finance Act, 2000 has provided that this tax

holiday will not be available for assessment years

beginning April 1, 2010. The tax holiday under

Section 10A of the Income tax Act is limited to

90 percent of the eligible profits instead of 100

percent of such profits in relation to fiscal 2003.

Accordingly, for fiscal 2003, 10 percent of the

eligible profits of the Company would be taxable

at the corporate tax rate of 36.75 percent

(including surcharge).

Foreign taxes are due to income taxes payable

overseas in the United States of America,

Malaysia, United Kingdom and Singapore.

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. Subsequently on

April 1, 1999, April 1, 2000 and April 1, 2001,

the Company adopted other stock based

schemes. These schemes, which have similar

terms, are administered through the ESPS Trust.

The ESPS Trust purchases Equity Shares of the

Company using the proceeds of loans obtained

from the Company. Such Equity Shares are

offered by the ESPS Trust to employees at an

exercise price which approximates the fair value

on the date of the grant. The employees can

purchase the Equity Shares in a phased manner

over a period of five years based on continued

employment, until which time the ESPS Trust

holds the Equity Shares for the benefit of the

employee. The employee will be entitled to

receive dividends, bonus and other distributions

that may be declared by the Company from time

to time for the entire portion of Equity Shares

held by the ESPS Trust on behalf of the

employees.

On the acceptance of the offer, the selected

employee undertakes to pay within ten years

from the date of acceptance of the offer the cost

of acquisition of the Equity Shares incurred by

the ESPS Trust, including repayment of the loan

related thereto. The repayment of the loan by

the ESPS Trust to the Company is dependent on

the employee repaying the amount to the ESPS

Trust. In the event the employee resigns from

employment, the rights relating to the Equity

Shares, which are eligible to be exercised, may

be purchased by payment of the exercise price

whereas, the balance Equity Shares shall be

forfeited in favour of the ESPS Trust. The ESPS

Trustees have the right of recourse against the

employee for any amounts that may remain

unpaid on the Equity Shares accepted by the

employee. The Equity 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 ESPS Trust shall repay the

loan obtained from the Company on receipt of

payments from employees against Equity Shares

purchased 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 option 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 recognised in the financial statements and

amortised over the vesting period. These

guidelines are presently not applicable to the

Company as its Equity Shares are not listed on

any stock exchange. However, even if the

principles outlined in the SEBI guidelines were

to be adopted by the Company in respect of the

stock purchase scheme granted to its employees,

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.

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 have been earmarked for grant to

present and future employees and directors of

the Company and Company’s existing and


future subsidiaries. Pursuant to the above

resolution, the Board of Directors, at their

meeting held on March 4, 2002, approved an

Employees Stock Option Scheme (the

“Scheme”) for the issue of upto 2,376,800

options to the employees and directors of the

Company. Pursuant to the Scheme, the

Company has granted 2,274,460 options to

eligible employees and directors of the Company

and its subsidiaries at an exercise price equal to

the Issue Price. 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, respectively, and

an employee or director’s ability to exercise his

options is subject to the continued employment

of the employee or director with the Company

or its subsidiaries.

Since the exercise price of the Options granted

under the Scheme will be equal to the Issue

Price, no compensation cost will be recorded as

the exercise price will be equal to the fair value

of the Equity Shares.

Results of operations

Comparison of fiscal 2002 with fiscal 2001

Some of the key developments that occurred

during fiscal 2002 include the following:

• Our new financial software development

facility at Pune for credit card payment

systems and Internet/e-commerce security

became operational.

• We opened two additional software

development centers in India – the Chennai

development center with an area of 30,687

sq. ft. and a capacity to accommodate 326

people and the Bangalore development

center with an area of 33,436 sq. ft. and a

capacity to accommodate 309 people.

• We commenced the deployment of

corporate and retail versions of FLEXCUBE

for Citibank in the Latin America region.

• We established subsidiaries in US and

Singapore to strengthen our presence and

have greater visibility in these markets.

• FLEXCUBE reached the 100 customer

mark.

• We set up Flexcel International Private

Limited, a company dedicated to deploying

FLEXCUBE on an Application Service

Provider model, with the HDFC Bank and

its group companies.

• FLEXCUBE was ranked second both on the

2001 Retail Banking Systems and the 2001

Wholesale Banking Systems, sales league

tables as per the April 2002 issue of

International Banking Systems publication.

Income

Our total income increased 32% from

Rs 3,211.21 million in fiscal 2001 to Rs 4,252.71

million in fiscal 2002. The increase in total

income was attributable to a 34% increase in

sales, which was partially offset by 18% decrease

in other income.

Sales

Sales increased 34% from Rs 3,085.88 million in

fiscal 2001 to Rs 4,150.26 million in fiscal 2002.

This increase was primarily due to a 49%

increase in sales from our Products Business from


million in fiscal 2002 and a 19% increase in sales

from our Services Business from Rs 1,385.22

million in fiscal 2001 to Rs 1,650.72 million

in fiscal 2002.

Other Income

Other income decreased 18% from Rs 125.33

million in fiscal 2001 to Rs 102.45 million in

fiscal 2002. The decrease primarily resulted

from a decrease in the exchange gain.

Dividend income also decreased by 27% from

Rs 4.6 million in fiscal 2001 to Rs 3.3 million

in fiscal 2002.

Expenditure

Our expenditure (comprising professional fees,

employee costs and other expenses) increased

44% from Rs 1,871.59 million in fiscal 2001 to

Rs 2,689.98 million in fiscal 2002. Expenditure

as a percentage of total sales increased from

61% in fiscal 2001 to 65% in fiscal 2002 due to

increased growth in expenditure as compared to

total sales.

Professional fees increased 66% from Rs 147.96


fiscal 2002. As a percentage of total sales,

professional fees increased from 5% in fiscal

2001 to 6% in fiscal 2002.

Employee costs increased 53% from Rs 723.01


fiscal 2002. Employee costs as a percentage of

total sales increased from 23% in fiscal 2001

to 27% in fiscal 2002. The total increase of

Rs 385.88 million in employee costs was

principally attributable to a 28% increase in

employee strength from 1,590 employees to

2,032 employees and an increase of

approximately 54% in the salaries and

bonuses paid to the employees.

Other expenses increased 33% from Rs 1,000.62


fiscal 2002. As a percentage of total sales, other

expenses remained constant at 32% in fiscal

2001 and fiscal 2002. The major reasons for the

increase in other expenses were increase in the

cost of application software, travel,

communication expenses, insurance, rates

and taxes, rent, power and provision for

doubtful debts.

During fiscal 2002, the Company sold its

investment in Times Online Money Limited for

Rs 48.5 million. In fiscal 2001, the Company

had provided Rs 50 million towards diminution

in the value of its investment in Times Online

Money Limited. As a result there is an

additional loss of Rs 1.5 million during the fiscal

2002. The Company has also provided Rs 25.83

million towards diminution in the value of its

investment in UTI.

Depreciation

Depreciation decreased marginally from

Rs 145.25 million in fiscal 2001 to Rs 144.99

million in fiscal 2002. We depreciate the assets

on a written down value basis. Hence, even

though we have new facilities that have been

developed at Pune and Chennai, the

depreciation charge for fiscal 2002 has reduced

as compared to fiscal 2001. As a percentage of

total sales, depreciation cost reduced from 5% in

fiscal 2001 to 3% in fiscal 2002.

Income taxes

Provision for income taxes increased 59% from


million in fiscal 2002. This increase is primarily

due to increase in provision for foreign taxes

attributable to increase in the sales from

overseas customers, in the United States of

America, Malaysia, United Kingdom and

Singapore. Our effective tax rate increased from

7.88% in fiscal 2001 to 10.59% in fiscal 2002.

As a result of further changes in the tax laws, we

expect our effective tax rate to increase further,

which will have an adverse impact on our net

profit in future periods.


Net profit

As a result of the foregoing factors, net profit

increased 15% from Rs 1,100.22 million in fiscal

2001 to Rs 1,267.61 million in fiscal 2002.




• We entered the highly competitive Japanese

market by entering into an agreement for

providing product licenses and services to

Shinsei Bank, Japan.

• We commenced deployment of FLEXCUBE

for Citibank in countries across Europe and

the Asia-Pacific region.

• We made a foray into the Singapore markets

and secured an order from DBS Bank,

Singapore forthe deployment of FLEXCUBE

across 10 countries.

• Our wholly-owned subsidiary in the

Netherlands, i-flex solutions b.v., became

operational.

• We set up a joint venture with NSE.IT Ltd.

to form DotEx International Limited, a

company dedicated to owning, operating

and maintaining web-sites and portals

Income

Our total income increased 56% from


million in fiscal 2001. The increase in total

income was attributable to a 56% increase in

sales and a 43% increase in other income.

Sales

Sales increased 56% from Rs 1,975.07 million in

fiscal 2000 to Rs 3,085.88 million in fiscal 2001.

This increase was primarily due to a 70%

increase in total income from our Products

Business from Rs 972.34 million in fiscal 2000

to Rs 1,653.33 million in fiscal 2001 and a 39%

increase in total income from our Services

Business from Rs 998.90 million in fiscal 2000

to Rs 1,385.22 million in fiscal 2001. Increase in

sales was also partly attributable to an increase

in net exchange gain arising on sales, which

increased from Rs 3.83 million in fiscal 2000

to Rs 47.33 million in fiscal 2001.

Other income

Other income increased 43% from Rs 87.62


fiscal 2001. The increase primarily resulted from

a 68% increase in the interest received by the

Company from increased deposits placed by the

Company with banks and an increase of 387%

due to net exchange gains other than sales from


million in fiscal 2001.

Expenditure

Our expenditure (comprising of professional fees,

employee cost and other expenses) increased

57% from Rs 1,189.97 million in fiscal 2000 to

Rs 1,871.59 million in fiscal 2001. Expenditure

as a percentage of total sales increased

marginally from 60% in fiscal 2000 to 61%

in fiscal 2001 due to increased growth in

expenditure compared to sales.

Professional fees increased 21% from Rs 121.98


fiscal 2001. However, as a percentage of total

sales, the professional fees decreased from 6%

in fiscal 2000 to 5% in fiscal 2001.

Employee costs increased 61% from Rs 448.89


fiscal 2001. Employee costs as a percentage of

total sales remained constant at 23% in both

fiscal 2000 and 2001. The total increase in

employee costs of Rs 274.12 million was

principally attributable to an increase in

employee strength by 56%, from 1,017

employees to 1,590 employees and an increase

in salaries and bonuses paid to our employees.

Other expenses increased 62% from Rs 619.10


fiscal 2001. As a percentage of total sales,

expenditure increased marginally from 31% in

fiscal 2000 to 32% in fiscal 2001. The primary

reasons for the increase in other expenses were

increases in travelling cost, rent, power cost

repairs and maintenance cost, advertising costs

and rates and taxes. However communication

expenses during fiscal 2001 were controlled and

reduced by 19% as compared to fiscal 2000,

primarily due to the introduction of technologies

such as videoconferencing and leased line

communications within our facilities.

During fiscal 2001, we provided for diminution

in the value of our investment in Times Online

Money Limited aggregating Rs 50 million. This

representing 50% of the value of our investment

in Times Online Money Limited. We also

provided for Rs 0.83 million towards diminution

in the value of an investment in UTI.

Depreciation

Depreciation increased 19% from Rs 122.33


fiscal 2001. This increase was primarily due to

investment of Rs 119.22 million by the

Company in its fixed assets for the new

development facility at Bangalore and the

existing offices in Mumbai and Bangalore.

However as a percentage of total sales,

depreciation cost reduced from

6% in fiscal 2000 to 5% in fiscal 2001.

Income taxes



million in fiscal 2001. This increase was

primarily due to increase in provision for foreign

taxes attributable to increase in the sales from

overseas customers in the United States of

America, Malaysia, United Kingdom and

Singapore. Our effective tax rate increased

marginally from 7.68% in fiscal 2000 to 7.88%

in fiscal 2001.

Net profit

As a result of the foregoing factors, net profit

increased 59% from Rs 692.73 million in fiscal

2000 to Rs 1,100.22 million in fiscal 2001.

Information required as per Clause 6.8 of SEBI

Guidelines

1 Unusual or infrequent events or

transactions

During fiscal 2002, the Company has sold

its entire investment in Times Online

Money Limited to Times of India Group.

Other than this, there have been no

significant or infrequent transactions.

2 Significant economic/regulatory changes

Regulation K

We have been advised by Citigroup that as

47.5% of the outstanding equity capital of

the Company is held by OrbiTech Limited,

a Citigroup entity, the following regulatory

conditions are applicable to us under the

United States bank regulatory framework.

The United States bank regulatory

framework applies to members of the

Citigroup companies, including us. One of

the regulations, Regulation K issued under


the Bank Holding Company Act of 1956

and the International Banking Act of 1978,

prohibited a US bank holding company

from investing in a non-US company

engaged in any business in the United States

(other than with its affiliates) or engaged in

data processing activities outside the United

States other than those related to banking,

financial or economic data. As a result of

the restrictions imposed by Regulation K,

we did not form a subsidiary or establish a

physical presence in the United States,

other than to the extent of providing

products or services to Citigroup entities.

The Gramm – Leach – Bliley Act in

November 1999 amended Regulation K and

created an alternative to investments by a

US bank holding company in non-US

companies under authority of Regulation K.

Certain qualified bank holding companies

were permitted to create non-US

subsidiaries that could operate globally,

including in the US, provided they were not

a direct or indirect subsidiary in the banking

chain of a US bank holding company but

were direct or indirect subsidiaries in the

corporate chain of the bank holding

company. Following the enactment of the

Gramm – Leach – Bliley Act, a restructuring

of our holding companies was effected to

take advantage of the alternative to

Regulation K and, with effect from March

31, 2001, we became an entity held in the

corporate chain of Citigroup companies and

not in the banking chain of Citigroup

companies. As a result of the Gramm –

Leach – Bliley Act and the restructuring,

we are no longer subject to Regulation K,

and have incorporated in December 2001

a subsidiary in the United States,

i-flex solutions inc.

As a result of Citigroup’s investment in us,

we are, however, still a regulated entity for

the purposes of the Bank Holding Company

Act of 1956 and operate within the

authority provided by Regulation Y.

Regulation Y does not allow a regulated

entity to derive more than 30% of its total

income from data processing activities other

than those relating to banking, financial or

economic data.

In part, due to the restrictions imposed by

Regulation K, our income from the US in

fiscal 2000, 2001 and 2002 were only 23%,

35% and 32%, respectively, of our total

income for such periods. Most of our income

from the US market were derived from our

Services Business, with only a small

percentage derived from our Products

Business. Almost all of our US income in

fiscal 2000, 2001 and 2002 came from

Citigroup companies. As discussed above,

we are no longer regulated by Regulation K

and we expect that our total income from

the US, and, in particular, income from our

Products Business, are likely to increase in

the near future. As we do not presently

obtain any of our income from activities

other than those related to banking,

financial or economic data, we do not

believe the restrictions presently imposed

under Regulation Y affect our business

activities, although there can be no

assurance that this will always be the case

for future periods.

Income tax

Currently, we benefit from a tax holiday

given by the Government of India for the

export of information technology services.

As a result of our tax incentives, our

operations in India have been subject to

insignificant tax liabilities. These tax

incentives currently include a 10-year tax

holiday from the payment of Indian

corporate income taxes for the operations of

our Indian facilities, comprising five units

registered under the “Software Technology

Parks” scheme and one unit forming part of

the “Special Economic Zone”. These

benefits will expire for some of our units

starting on April 1, 2004. The Finance Act,

2000 has provided that this tax holiday will

not be available for assessment years

beginning April 1, 2010. This tax holiday

under Section 10A of the Income Tax Act

is now limited to 90 percent of the eligible

profits instead of 100 percent of such profits

for fiscal 2003. Accordingly, 10 percent of

the eligible profits of the Company for

fiscal 2003 would be taxable at the

proposed corporate tax rate of 36.75 per cent

(including surcharge). This would increase

our tax liability.

Other than as stated above, there are no

significant economic changes that materially

affect or are likely to affect the income from

continuing operations.

3 Known trends or uncertainties

Other than as described in this Annual

Report, to our knowledge there are no

known trends or uncertainties that have or

had or are expected to have a material

adverse impact on revenue or income of the

Company from continuing operations.

4 Future relationship between costs and

income

Other than as described in this Annual

Report, to our knowledge there are no

known factors, which will affect the future

relationship between the costs, and income,

or which will have a material impact on the

operations and finances of the Company.

5 Total turnover of each major industry

segment in which the Company operates

Please refer to the discussions in the

paragraphs entitled “Products Business” and

“Services Business” at the beginning of this

section.

6 New products or business segments

• We believe that the insurance industry

will be an important area of growth for us

in the future. Therefore, we have recently

started a Center of Excellence to address

the service needs of insurance companies.

The Center’s focus will be to provide

solutions to insurance companies from

our range of offerings which will include

offering investment management,

offshore development and maintenance

projects, including e-business projects,

systems integration and insurance

Business Process Re-engineering, or

BPR consultancy services.

• Currently, we are developing and

integrating new modules for workflow

and document management and cash and

liquidity management to FLEXCUBE.

• We are also currently developing

FLEXCUBE in various languages.

7 Seasonality of business

The business of the Company is not

seasonal. However there could be significant

variation in our quarterly revenue and

profits because of the variation in the

revenues from Products Business.


8 Dependence on single or few suppliers /

customers

The Company derives a significant part of

its income from its top few customers. Set

forth below is the revenue generated by top,

top 5 and top 10 customers in fiscal 2000,

2001 and 2002. In the table below, the

various members of Citigroup are classified

as separate customers and the last row sets

forth the percentage of total income we

earned from the various members of the

Citigroup in aggregate.

9 Competitive conditions

The Company expects the competition to

intensify from other Indian as well as foreign

IT companies.

10 Significant developments after March 31,

2002 that may affect our future results of

operations

Under Section 10 A of the Income-tax Act,

all our profits arising out of exports were

exempt from payment of income taxes.

However, under the Finance Act, 2002, the

exemption has been limited to 90 percent of

the eligible profits (instead of 100 percent of

such profits in prior years) for fiscal 2003.

2000 2001 2002 2000 2001 2002 2000 2001 2002

Customer

Top 13% 16% 12% 32% 50% 41% 16% 23% 16%

Top 5 39% 38% 38% 84% 83% 75% 46% 48% 42%

Top 10 55% 56% 57% 96% 93% 90% 62% 63% 58%

Citigroup and its entities 1% 17% 25% 81% 82% 75% 40% 47% 45%

TotalProducts income Services incomeYear ended March 31

Accordingly, 10 percent of our profits

arising out of exports will be taxable at the

currently proposed corporate tax rate of

36.75 percent (including surcharge) in

fiscal 2003.

So far, we have been obtaining L1 visas for

our employees working in the United States

through Citicorp Information Technology,

Inc. Following the incorporation of our

subsidiary in the United States, we have

applied for the transfer of these visas from

Citicorp Information Technology, Inc. to

i-flex solutions Inc. In future, all such L1

visas would be obtained through i-flex

solutions inc. Any delay in the transfer of

these visas or our ability to obtain visas in

the future could have an impact on our

business, financial condition and results of

operations.

Save as stated elsewhere in the Annual

Report, to our knowledge no circumstances

have arisen since the date of the last

financial statement as disclosed in the

Annual Report which materially and

adversely affect or is likely to affect the

trading or profitability of the Company, or

the value of its assets, or its ability to pay its

liability within the next twelve months.

Save as stated elsewhere in the Annual

Report, there is no subsequent development

after the date of the Auditors’ Report which

will have a material impact on reserves,

profits, earnings per share and book value of

the Company.


1 We have audited the accompanying

balance sheet of i-flex solutions limited

(‘the Company’) at March 31, 2002 and the

related statements of profit and loss and cash

flows for the year then ended, prepared in

conformity with accounting principles

generally accepted in India. 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 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.

4 In our opinion, and to the best of our

information and according to the

explanations given to us, the accompanying

financial statements

a give the information required by the

Companies Act, 1956 (‘the Act’), in the

manner so required; and

b give a true and fair view of the state of

affairs of i-flex solutions limited at

March 31, 2002 and of its profit and

cash flows for the year then ended, in

conformity with the accounting

principles generally accepted in India.

Further, the balance sheet and the

statement of profit and loss comply with

the accounting standards referred to in

Section 211(3C) of the Act and are in

agreement with the books of account.

In our opinion, the Company has

maintained proper books of account as

required by law insofar as appears from

our examination of those books.

5 On the basis of information and

explanations given to us, and

representations obtained by the Company

and taken on record by the Board of

Directors, as on March 31, 2002 none of

the directors are disqualified from being

appointed as directors in terms of section

274(1)(g) of the Act.

6 As required by the Manufacturing and

Other Companies (Auditor’s Report) Order,

1988 (‘the Order’) issued by the Central

Government of India in terms of section

227 (4A) of the Act, we enclose in the

Annexure a statement on the matters

specified in paragraphs 4 and 5 of the said

Order.

Arthur Andersen & AssociatesChartered Accountants

Chennai Subramanian SureshMay 3, 2002 Partner

To the Members ofi-flex solutions limited

1 The Company has maintained proper

records showing full particulars, including

quantitative details and situation of its

fixed assets. A major portion of the fixed

assets has been physically verified by the

management during the year and no material

discrepancies were noted on the fixed assets

verified during the year. In our opinion, the

frequency of physical verification is

reasonable.

2 The fixed assets of the Company have not

been revalued during the year.

3 Due to the nature of its business, clauses (iii)

to (vi) and (xii) of the Order, relating to

physical verification and valuation of stock,

are not applicable to the Company.

4 The Company has not taken/granted any

loans, secured or unsecured from/to

companies, firms or other parties listed in the

register maintained under Section 301 of the

Act and/or companies under the same

management as defined under

Section 370(1B) of the Act.

5 The parties to whom loans or advances in

the nature of loans have been given by the

Company are repaying the principal amounts

as stipulated and are also regular in the

payment of interest where applicable.

6 The internal control procedures of the

Company relating to the purchase of

equipment, components and other assets are

adequate and commensurate with its size and

nature of its business. Due to the nature of

its business, the Company does not purchase

any stores, raw materials and plant and

machinery and there are no sale of goods.

7 In our opinion, and according to the

information and explanations given to us,

Annexure to Auditors’ ReportMarch 31, 2002

there are no transactions of sale of services

made in pursuance of contracts or

arrangements entered in the register

maintained under Section 301 of the Act,

and aggregating during the year to

Rs 50,000 or more in respect of each party.

Due to the nature of its business, the

Company does not purchase or sell any

goods or materials other than software

products.

8 The Company has not accepted any

deposits from the public to which the

provisions of Section 58A of the Act and

the rules framed thereunder apply.

9 The Company’s activities do not generate

any by-products or scrap.

10 In our opinion, the Company has an

internal audit system, which is

commensurate with its size and the nature

of its business.

11 The Central Government has not

prescribed the maintenance of cost records

by the Company under Section 209(1)(d)

of the Act.

12 The Company has been regular in

depositing Provident Fund and Employees’

State Insurance dues with the appropriate

authorities.

13 According to the records of the Company,

and as per the information and

explanations given to us, there were no

amounts outstanding at March 31, 2002

in respect of undisputed income-tax,

wealth-tax, sales-tax, customs duty and

excise duty which were outstanding for a

period of more than six months from the

date they became payable.


14 On the basis of our examination of the books

of account, and according to the information

and explanations given to us, no personal

expenses have been charged to the statement

of profit and loss, for the year ended

March 31, 2002.

15 The Company is not an industrial

undertaking within the meaning of the Sick

Industrial Companies (Special Provisions)

Act, 1985.

In respect of service activities

16 Due to the nature of services rendered by the

Company, the clause in respect of recording

receipts, issues and consumption of materials

and stores and allocating materials consumed

to relative jobs are not applicable.

17 The Company has a reasonable system of

allocating manhours utilised to relative jobs

commensurate with the size and nature of its

business. There is a reasonable system of

authorisation at proper levels and an

adequate system of internal controls

commensurate with the size of the Company

and the nature of its business on allocation

of labour to jobs.

Arthur Andersen & Associates

Chartered Accountants

Chennai Subramanian Suresh

May 3, 2002 Partner

Note 2002 2001

Sources of funds

Shareholders’ funds

Share capital 3 169,777 166,382

Reserves and surplus 4 4,686,198 3,008,710

4,855,975 3,175,092Application of funds

Fixed assets 2(c) & 5

Cost 816,031 590,067

Less: Accumulated depreciation 511,898 369,352

Net book value 304,133 220,715

Capital work-in-progress and advances 2,412 103

306,545 220,818

Investments 2(d) & 6 200,868 151,803

Deferred tax assets 7 24,860 –

Current assets, loans and advances 8Sundry debtors 1,955,786 1,190,490

Cash and bank balances 2,214,842 1,472,949

Other current assets 11,274 6,739

Loans and advances 792,856 725,231

4,974,758 3,395,409Less: Current liabilities and provisions 9Current liabilities 526,181 426,523

Provisions 124,875 166,415

651,056 592,938

Net current assets 4,323,702 2,802,471

4,855,975 3,175,092

The accompanying notes 1 to 20 are an integral part of the balance sheet.

Balance sheetas at March 31

(All amounts in thousands of Indian rupees)

Arthur Andersen & Associates Rajesh Hukku Y M Kale Nihar Mody Ajay Relan Deepak GhaisasChartered Accountants Chairman & Director Director Director Company Secretary

Managing Director

Subramanian SureshPartner

Chennai MumbaiMay 3, 2002 May 3, 2002


Note 2002 2001

Revenues

Sales 2(e) & 10 4,150,257 3,085,884

Other income 11 102,450 125,326

4,252,707 3,211,210Expenditure

Professional fees 245,661 147,964

Employee costs 12 1,108,894 723,014

Other expenses 13 1,335,424 1,000,618

Depreciation 2(c) & 5 144,985 145,251

2,834,964 2,016,847

Profit before tax 1,417,743 1,194,363

Provision for taxation 2(k) & 14 150,135 94,148

Net profit for the year 1,267,608 1,100,215

Profit and loss account, beginning of the year 119,905 65,529

Profit available for appropriation 1,387,513 1,165,744

Transfer to general reserve 1,250,000 1,000,000

Proposed dividend 46,644 41,596

Corporate dividend tax – 4,243

Balance carried to balance sheet 90,869 119,905

Earnings per share of Rs 5/- each

Basic and Diluted (in Rs) 2(l) 38.03 33.06

Weightage average number of shares used

in computing earnings per share

Basic and Diluted 33,328,488 33,276,400

The accompanying notes 1 to 20 are an integral part of the statement of profit and loss.

Statement of Profit and Lossfor the year ended March 31



Managing Director



2002 2001

Cash flows from operating activitiesProfit before tax 1,417,743 1,194,363

Adjustments to reconcile profit beforetax to cash provided by operating activities:Depreciation 144,985 145,251

Loss on retirement/sale of fixed assets, net 343 1,087

Loss on sale of Investments 51,500 –

Writeback/provision for diminution in

the value of investment, net (24,172) 50,828

Interest income (66,415) (63,013)

Dividend income (3,311) (4,553)

Reversal of excess provision for contingencies – (10,500)

Effect of exchange difference on cash and bank

balances (26,280) (6,591)

Finance charge on leased assets 2,577 2,348

Provision/(write back) for doubtful debts 43,276 122,503 (751) 114,106

1,540,246 1,308,469Changes in assets and liabilitiesIncrease in sundry debtors (808,599) (560,482)

Increase in loans and advances (46,554) (91,584)

Increase in current liabilities and provisions 47,430 (807,723) 201,101 (450,965)

Cash from operating activities 732,523 857,504

Payment of domestic and foreign

income taxes (142,740) (60,719)

Net cash from operating activities 589,783 796,785

Cash flows from investing activitiesAdditions to fixed assets including capital

work in progress (230,530) (82,323)

Sale proceeds from fixed assets 207 87

Purchase of investments (45,000) (120,000)

Sale proceeds from investment 48,500 –

Investment in subsidiary companies (55,295) (739)

Investment in joint ventures (24,598) (24,500)

Share application money paid to Flexcel (29,620) –

Investments in bank deposits (1,150,000) –

Interest received 61,880 59,611

Dividends received 3,311 4,553

Net cash used in investing activities (1,421,145) (163,311)

Statement of Cash flowfor the year ended March 31




Managing Director



2002) 2001)

Cash flows from financing activitiesIncrease in share capital 3,395) –)

Increase in share premium 437,955) –)

Repayment of loan from Employee Stock

purchase Scheme (‘ESPS’) Trust 8,549) 4,461)

Payment of dividends (41,596) (20,798)

Payment of corporate dividend tax (4,243) (4,576)

Payment of lease obligations (7,683) (12,266)

Net cash used by financing activities 396,377) (33,179)

Effect of exchange difference on cash

and bank balances 26,280) 6,591)

Net increase/(decrease) in cash

and cash equivalents (408,705) 606,886)

Cash and cash equivalents at

beginning of the year 1,471,598) 864,712)

Cash and cash equivalents at end of the year 1,062,893) 1,471,598)

Note: Cash and cash equivalent includes all

highly liquid investments with an original

maturity of less than 180 days. The

reconciliation to the cash

and bank balances as given in Note 8(b)

is as follows

Cash and bank balances, per Note 8(b) 2,214,842) 1,472,949)

Less: Bank deposits having maturity of more

than 180 days 1,150,000) –)

Unclaimed dividend account (1,949) (1,351)

1,062,893) 1,471,598)

The accompanying notes 1 to 20 are an integral part of this statement.

Statement of Cash flow (continued)for the year ended March 31


1 Background

i-flex solutions limited (‘i-flex’ or ‘the

Company’), formerly Citicorp Information

Technology Industries Limited (‘CITIL’), a

closely held public limited company, was

incorporated in India with limited liability on

September 27, 1989. The Company’s principal

shareholder is OrbiTech Limited (‘OrbiTech’)

formerly Citicorp Overseas Software Limited

with shareholding of 47.47 per cent. OrbiTech is

a 100 per cent subsidiary of Citicorp Technology

Holdings Inc, USA.

The Company has unilateral/joint control in the

following entities:

• i-flex solutions b.v. (‘i-flex b.v.’), a 100 per

centowned subsidiary company incorporated

in May 2000 under the laws of The

Netherlands;

• DotEx International Limited (‘DotEx’), a

49percent owned joint venture company

incorporated in June 2000 under the Indian

laws;

• Flexcel International Private Limited

(‘Flexcel’), a 49.49 per cent owned joint

venture company incorporated in March

2001 under the Indian laws;

• i-flex solutions pte ltd, (‘i-flex pte’), a

100 per cent owned subsidiary company

incorporated in November 2001 under the

laws of Singapore; and

• i-flex solutions inc, (‘i-flex inc.’), a 100 per

cent owned subsidiary company incorporated

in December 2001 under the laws of the

United States of America.

The Company is principally engaged in the

business of providing information technology

solutions to the financial services industry

worldwide. i-flex has a suite of banking products,

i-flex solutions limitedNotes to the financial statementsfor the year ended March 31, 2002

(All amounts in thousands of Indian Rupees,unless otherwise stated)

which caters to the needs of corporate, retail

and investment banking as well as treasury

operations. The Company also provides

consulting services and develops bespoke

software for its customers from the financial

services industry. The Company derives a

substantial portion of its revenues from the

overseas markets.

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 in

accordance with the accounting standards

referred to in section 211(3C) of the

Companies Act, 1956 (‘the Act’).

The significant accounting policies adopted

by the Company, in respect of the 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 assets and liabilities at

the date of the financial statements and the

results of operations during the reporting year.

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 and depreciation

Fixed assets including assets under finance lease

arrangements are stated at cost less accumulated

depreciation. The Company capitalises all

direct costs relating to the acquisition and


installation of fixed assets. Depreciation is

provided pro-rata to the period of use, on the

written down value method, at the rates

specified in Schedule XIV to the Act or based

on the estimated useful life of assets, whichever

is higher. Vehicles under finance leases are

amortised over the useful life or lease term, as

appropriate (four to five years). The rates at

which fixed assets are depreciated are as follows:

%

Improvement to leasehold premises 35

Buildings 15

Computer equipment 60

Electrical and office equipment 35

Furniture and fixtures 35

The Company purchases certain application

software 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.

Advances paid towards the acquisition of fixed

assets outstanding at each balance sheet date

and the cost of fixed assets not put to use before

such date are disclosed under ‘Capital

work-in-progress’.

(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.

(e) Revenue recognition

Software revenues are recognised as follows:

(i) Product licenses and related revenues:

• License fees, on delivery and subsequent

milestone schedules as per the terms of the

contract with the end user

• Product maintenance revenues, over the

period of the maintenance contract

• Product management services, as the

services are rendered, on a time and

material basis.

(ii) Development services, as the services are

rendered, on a time and material basis.

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 revenues or

expenses.

(f) 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 assets and liabilities are translated

into rupees at the rates of exchange prevailing at

the date of the balance sheet. All exchange

differences are dealt with in the statement of

profit and loss, except for those relating to the

acquisition of fixed assets, which are adjusted,

if material, in the cost of the fixed assets.

(g) Research and development expenses forsoftware 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) Retirement benefits

Retirement benefits to employees comprise

payments to gratuity, superannuation and

provident funds as per the approved schemes of

the Company.

The Company has schemes of retirement

benefits of provident fund, superannuation fund

and gratuity fund in respect of which the

Company’s contribution to the funds are charged

to the statement of profit and loss. The gratuity

fund and superannuation fund benefits of the

Company are administered by a trust formed for

this purpose through the Group Schemes of the

Life Insurance Corporation of India (‘LIC’).

In respect of gratuity, the adequacy of the

accumulated funds available with the LIC has

been confirmed on the basis of an actuarial

valuation made at the year-end.

(i) Leave encashment/Vacation pay

Accrual for leave encashment is estimated on

the basis of an actuarial valuation for the

unavailed leave balance standing to the credit

of the employees at the year-end.

Hitherto, the Company accrued for the liability

for vacation pay on the basis of current employee

compensation rates for the entire unavailed

leave balance standing to the credit of the

employees at the year-end. During the current

year, the method of valuation has been revised

and an accrual has been made for leave

encashment based on an actuarial valuation for

the unavailed leave balance standing to the

credit of the employees at the year-end. As a

result of this change, the net profit for year

ended March 31, 2002 is higher by Rs 61,890.

(j) 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 recognised

as an expense on a straight-line basis over the

lease term.

(k) Income-tax

Provision for current income-tax is made on the

assessable income at the tax rate applicable to

the relevant assessment year. 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 realised.

In accordance with accounting standard no 22

(AS 22) issued by the Institute of Chartered

Accountants of India, the Company has

provided for deferred income taxes during the

year. This change in the accounting policy has

resulted in a deferred tax credit of Rs 6,291

for the year. Further, in accordance with the

transitional provisions of AS 22, the deferred

tax asset pertaining to the years prior to

April 1, 2001 amounting to Rs 18,569 has been

adjusted against general reserve. As a result of

this change the net profit for the year is higher

by Rs 6,291 and Reserves and surplus is higher

by Rs 24,860.


(l) 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 share 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.

As at As at)

March 31, 2002 March 31, 2001)

3 Share Capital

Authorized

100,000,000 equity shares of Rs 5/- each 500,000 500,000

(2001 – 50,000,000 equity shares of Rs 10/- each) )

Issued, subscribed and paid-up

33,955,400 equity shares of Rs 5/- each, fully paid up 169,777 166,382

(2001 – 16,638,200 equity shares of Rs 10/- each,

fully paid-up) )

(a) Of the above, 24,784,300 equity shares of Rs 5/- each (2001 – 12,392,150 equity shares of

Rs 10/- each) have been issued as fully paid up bonus shares by capitalising the share

premium account.

(b) The shareholders in the Annual General Meeting of the Company held on August 14,

2001, approved the sub-division of equity shares of face value of Rs 10/- each into two

equity shares of face value of Rs 5/- each. The Board of Directors in their meeting held on

January 7, 2002, declared a record date of January 15, 2002 for effecting the sub-division.

Subsequent to this sub-division, the authorised equity share capital of Rs 500,000 has been

divided into 100,000,000 equity shares of Rs 5/- each and the issued, subscribed and paid-up

capital of Rs 166,382 has been divided into 33,276,400 equity shares of Rs 5/- each.

(c) On March 4, 2002, the Company issued 679,000 equity shares of Rs 5/- each to Financial

Ventures Mauritius Limited, a subsidiary of the Standard Chartered Bank, at a premium of

Rs 645/- per share.

4 Reserves and Surplus

General reserve

Balance, beginning of year 2,720,000 1,720,000

Opening deferred tax credit (Refer Note 2(k)) 18,569

Transferred from profit and loss account 1,250,000 1,000,000

Balance, end of year 3,988,569 2,720,000

Share premium

Balance, beginning of year 168,805 251,996

Received during the year 437,955 –

Capitalised towards issue of bonus shares – (83,191)

Balance, end of year 606,760 168,805

Profit and loss account 90,869 119,905

4,686,198 3,008,710


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March 31, 2002 March 31, 2001

6 Investments

a) Long term investments (unquoted)

i) Trade investments

Times Online Money Limited (Note a)

Nil (2001 – 3,333,333) equity shares of Rs 10/- each,

fully paid-up – 100,000

Less: Provision for diminution in value of investment – (50,000)

– 50,000

DotEx International Limited (Note b)

4,900,000 (2001 – 2,450,000) equity shares of

Rs 10/- each, fully paid-up 49,000 24,500

EBZ Online Private Limited (Note c)

242,260 (2001 – Nil) equity shares of Rs 10/- each, fully paid-up 45,000 –

Flexcel International Private Limited (Note d)

9,800 (2001 – Nil) equity shares of Rs 10/- each, fully paid-up 98 –

ii) Non-trade investments

Eastern Software Systems Limited (Note c)

357,711 (2001 – 357,711) equity shares of Rs 10/- each,

fully paid-up 9,875 9,875

12.75% KEONICS Mahiti Bonds Series-1 (Note e)

400 (2001 – 400) Bonds of Rs 50,000/- each 20,000 20,000

iii) In subsidiaries

i-flex solutions b.v. (Note f) a wholly owned subsidiary

company incorporated in The Netherlands

185 (2001 – 185) equity shares of Euros 100/- each,

fully paid-up 739 739

i-flex solutions Pte limited. (Note g) a wholly owned

subsidiary company incorporated in Singapore

250,000 (2001 – Nil) equity shares of Singapore $ 1/-

each fully paid up 6,626 –

i-flex solutions inc., (Note g) a wholly owned subsidiary

company incorporated in the United States of America

100 (2001 – Nil) equity shares of US$ 0.01 cent each

fully paid up 48,669 –

180,007 105,114


Note a) Times Online Money Limited (‘TOML’) was ajoint venture between Times of India Group, CitibankNA and i-flex. i-flex provided technological support towww.timesofmoney.com, a portal developed by i-flex forTOML. Due to a significant fall in the valuation ofinternet companies, the enterprise value of TOML haddeclined significantly. Management was of the view thatthe fair value of its investments in TOML had declinedas a result. Further due to the global uncertain economicenvironment in which start-up internet companiesoperate, there is an uncertainty about the futureprofitability of TOML. Accordingly during the yearended March 31, 2001, management had providedRs 50,000 as it believed that such diminution in thevalue of its investment in TOML was other thantemporary. During the year ended March 31, 2002, theCompany has sold this investment to Times of IndiaGroup for a consideration of Rs 48,500.

Note b) DotEx is a 51:49 joint venture between NSE.ITLimited, a wholly owned subsidiary of The NationalStock Exchange of India Limited (‘NSE’) and i-flex.DotEx has set up a broker's plaza which enables brokersand their clients to transact in stock/securities marketsthrough the internet. DotEx has commenced earningrevenue through registration fees and broking fees frombrokers who have signed up with them. Management isof the view that the accumulated losses of Rs 59,952 asper the unaudited financial statements at March 31, 2002are in the nature of start-up losses, and that DotEx isexpected to earn profits which are dependent onexpanding its current revenue streams and developingnew revenue generating streams. Accordingly,management does not consider that there is anydiminution in the value of its investment in DotExand is valued at cost.

Note c) The Company’s ownership interest in EasternSoftware Systems Limited (‘ESSL’) and EBZ OnlinePrivate Limited (‘EBZ’) is 6.65% and 19.5% respectively.EBZ is a strategic partnership between BrihansTechnologies Private Limited (‘BTPL’) and i-flex tointegrate the selected and adapted software providedunder i-flex’s products with BTPL’s products forCo-operative banking sector in India. ESSL is primarilyengaged in catering to the needs of small businessesthrough its flagship product, ‘ebizframe’. Both companiesare unlisted companies. The Company's rights are limitedto protecting its investments in ESSL and EBZ and itdoes not exert significant influence on the operations ofthese companies by way of representation on the board of

directors, participation in policy making processes,material intercompany personnel or technologicaldependency. Accordingly, these investments are valuedat cost less any decline in fair value below original costwhen considered to be other than temporary.Management does not believe that currently there is anyother than temporary decline in the value of theseinvestments.

Note d) Flexcel is a joint venture with HDFC BankLimited and its group companies, which provides thecapability of Flexcube through an Application ServiceProvider (‘ASP’) model to various banks and financialinstitutions in India who may not wish to invest increating and maintaining their own internal ITinfrastructure. The Company holds 49.49% shares inFlexcel while the balance of 50.51% shares are held byHDFC Bank Limited and its associates. Flexcelis currently in the startup phase. Management does notconsider that there is any diminution in the value of itsinvestment in Flexcel and is valued at cost. As per theunaudited financial statements, Flexcel has accumulatedlosses of Rs 13,215 as at March 31, 2002.

Note e) Investments in debt securities of 12.75%KEONICS Mahiti Bonds Series – 1 allotted on February1, 2001 are redeemable at par at the end of seven yearsfrom the date of allotment and have a put and calloption at the end of five years from the date ofallotment.

Note f) i-flex b.v. was incorporated as a 100% subsidiaryin The Netherlands to undertake marketing of theCompany’s software products and provide software andrelated services to clients in Europe as well as work onthe business development efforts in the region.Management believes that the accumulated losses ofEuro 2.17 million till March 31, 2002 of i-flex b.v. arein the nature of start up losses and that i-flex b.v. isexpected to earn profits in the near future. Accordingly,management does not consider that there is anydiminution in the value of its investment in i-flex b.v.and is valued at cost.

Note g) i-flex pte. and i-flex inc. were incorporated as100% subsidiaries as on November 16, 2001 andDecember 5, 2001 respectively. These companies hadno significant operations till March 31, 2002.

Note h) Units in US-64 are valued at the closing marketprice on the National Stock Exchange as atMarch 28, 2002.

As at) As at)

March 31, 2002) March 31, 2001)

b) Current investments (non-trade, quoted)

Unit Trust of India – 1964 Scheme (US-64) (Note h)

3,311,258 units (and 278 fractions) (2001 – 3,311,258) units

(and 278 fractions) of Rs 10/- each 50,000) 50,000)

Less: Excess of cost over market value (29,139) (3,311)

20,861) 46,689)

200,868) 151,803)

Aggregate cost of quoted investments 50,000) 50,000)

Aggregate market value of quoted investments 20,861) 46,689)

Aggregate amount of unquoted investments 180,007) 105,114)

As at As at

March 31, 2002 March 31, 2001

7 Deferred tax assets

Difference between book and tax depreciation 24,826 –

Preliminary expenses written off in books 34 –

24,860 –

8 Current assets, loans and advances

(a) Sundry debtors (unsecured)

Debts outstanding for a period exceeding six months:

– Considered good 122,944 58,179

– Considered doubtful 47,536 4,233

170,480 62,412

Other debts (considered good) 1,832,842 1,132,311

2,003,322 1,194,723

Less: Provision for doubtful debts (47,536) (4,233)

1,955,786 1,190,490

Amount due from subsidiaries 190,945 68,655

(b) Cash and bank balances

Cash in hand 458 239

Cheques in hand – 63,362

Balances with scheduled banks:

– Deposit accounts 1,389,189 696,485

– Other current accounts 33,346 15,800

– Unclaimed dividend accounts 1,949 1,351

– Current accounts in foreign currency 763,335 691,955

Balances with non scheduled banks:

– Current accounts in foreign currency 26,565 3,757

2,214,842 1,472,949

Balances with non scheduled banks

– in current accounts in foreign currency

Citibank NY Rep office, USA 14,344 3,757

Citibank NY, USA 9,613 –

Citibank, Singapore (US $ account) 370 –

Citibank, Singapore (Singapore $ account) 354 –

Citibank, Argentina 1,884 –

26,565 3,757

Maximum balance held during the year:

– in current accounts in foreign currency

Citibank NY Rep office, USA 16,688 24,720

Citibank NY, USA 15,327 –

Citibank, Singapore (US $ account) 2,859 –


As at As at

March 31, 2002 March 31, 2001

Citibank, Singapore (Singapore $ account) 1,341 –

Citibank, Argentina 1,884 –

(c) Other current assets

Interest accrued but not due on:

– Bank Deposits 10,430 6,170

– Bonds 454 412

– Loan to i-flex b.v. 390 157

11,274 6,739

(d) Loans and advances

(unsecured, considered good unless otherwise stated)

Advances recoverable in cash or in kind or for value

to be received:

Loan to ESPS Trust (Refer note 18(a)) 291,649 300,198

Loans to employees (secured) 17,687 24,239

Loan to subsidiary 3,115 3,004

Deposits 326,234 286,586

Prepaid expenses 92,627 90,201

Share application money paid to Flexcel 29,620 –

Amount due from subsidiary 1,431 –

Other advances 30,493 21,003

792,856 725,231

9 Current liabilities and provisions

(a) Current liabilities

Accrued expenses 261,464 238,104

Deferred revenues 165,523 109,356

Finance lease obligations 16,053 12,590

Accounts payable 40,448 28,197

Unclaimed dividends 1,949 1,351

Advances from customers 5,428 7,795

Amount due to subsidiary 2,100 –

Other current liabilities 33,216 29,130

526,181 426,523

Amounts due to Small Scale Industrial undertakings – –

(b) Provisions

Proposed dividend 46,644 41,596

Corporate dividend tax – 4,243

Accrual for leave encashment/vacation pay (Refer Note 2(i)) 9,898 65,659

Provision for taxation, net of advance payment of taxes Rs 150,839 68,333 54,917

(2001 – Rs 102,906)

124,875 166,415

Year ended Year ended

March 31, 2002 March 31, 2001

10 Sales

Product licenses and related activities 2,461,948 1,653,332

IT solutions and consulting services 1,650,719 1,385,223

Exchange gain arising on sales, net 37,590 47,329

4,150,257 3,085,884

11 Other income

Interest on bank deposits, loans and bonds 63,500 60,017

(includes tax deducted at source of Rs 11,263 (2001 – Rs 10,337))

Exchange gain other than on sales, net 32,710 46,205

Dividend on current investment 3,311 4,553

Reversal of excess provision for contingencies – 10,500

Interest earned on loans to employees 2,915 2,996

Miscellaneous income 14 1,055

102,450 125,326

12 Employee costs

Salaries and bonus 1,016,129 659,112

Staff welfare expenses 44,818 38,377

Contribution to provident and other funds 47,947 25,525

1,108,894 723,014

13 Other expenses

Travel related expenses (net of recoveries) 794,909 614,403

Rent 97,215 68,383

Application software 88,305 26,411

Communication expenses 74,375 54,122

Advertising 44,541 43,790

Power 31,007 24,105

Provision for diminution in the value of investments, net (24,172) 50,828

Repairs and maintenance:

– Leasehold premises 526 3,526

– Computer equipments 11,041 12,546

– Others 9,298 6,981

Insurance 5,889 3,416

Rates and taxes 2,746 1,493

Finance charge on leased assets 2,577 2,348

Loss on sale of investments 51,500 –

Loss on retirement/sale of fixed assets, net 343 1,160

Provision for doubtful debts, net 43,276 (751)

Miscellaneous expenses 102,048 87,857

1,335,424 1,000,618


Year ended) Year ended

March 31, 2002) March 31,2001

14 Provision for taxation

Domestic taxes 49,307) 28,000

Foreign taxes 107,119) 66,148

Deferred tax credit (Refer Note 2(k)) (6,291) –

150,135) 94,148

15 Commitments

(a) Capital commitments

Contracts remaining to be executed on capital account and not provided for (net of advances)

aggregates to Rs 139,594 (2001 – Rs 17,052).

(b) Lease commitments

(i) Finance leases

The Company takes vehicles under finance leases of upto five years Future minimum lease payments

under finance leases as of March 31, 2002 and March 31,2001 are as follows:

As at March 31, 2002 Principal Interest Total

Not later than one year 6,035 2,035 8,070

Later than one year and not later than five years 10,018 1,928 11,946

Total minimum payments 16,053 3,963 20,016

As at March 31, 2001 Principal Interest Total

Not later than one year 4,216 1,698 5,914

Later than one year and not later than five years 8,374 1,694 10,068

Total minimum payments 12,590 3,392 15,982

The Company is eligible to claim a benefit with

respect to profits earned from export revenues

from its five units registered under the Software

Technology Parks (‘STP’) and one unit forming

part of an Special Economic Zone (‘SEZ’). The

benefit under the current tax laws is restricted to

10 consecutive assessment years, beginning with

the assessment year relevant to the previous year

in which the Company commences operations

from each location. This benefit will expire for

certain of the Company’s units beginning from

April 1, 2004.

Foreign taxes represent income taxes payable



(ii) Operating leases

The Company has taken certain office premises and residential premises for employees under

operating leases, which expire at various dates through to 2012. Gross rental expense for the year

ended March 31, 2002 aggregated to Rs 94,354 (2001 – Rs 65,039). The minimum rental payments

to be made in future in respect of these leases is as follows:

As at March 31, 2002 Amount

Not later than one year 73,762

Later than one year and not later than five years 111,739

Later than five years 24,112

As at March 31, 2001 Amount

Not later than one year 67,906

Later than one year and not later than five years 194,151

Later than five years 109,732

16 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 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 and

b) IT solutions and consulting services.

The 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 and MicroBanker which cater

to needs of corporate, retail and investment

banking as well as treasury operations and

datawarehousing 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 subsegments i.e. Business intelligence,

Customer relationship management, Brokerage,

e-commerce, Internet services and IT and

Business consulting.


Product license IT solutions

Particulars and related and consulting Corporate Total

activities services

Total revenues 2,461,948 1,650,719 – 4,112,667

Net exchange gain arising on sales 22,502 15,088 – 37,590

Segmental operating expenses 1,325,144 1,226,694 283,126 2,834,964

Segmental operating income 1,159,306 439,113 (283,126) 1,315,293

Interest income and other income 102,450

Income taxes 150,135

Net profit 1,267,608

Other information

Segment assets 1,398,193 1,180,209 2,928,629 5,507,031

Segment liabilities 307,136 94,675 249,245 651,056

Share capital and reserves and surplus – – 4,855,975 4,855,975

Depreciation 50,638 82,122 12,225 144,985

Capital expenditure by segment 51,465 122,269 56,311 230,045

Product license IT solutions

Particulars and related and consulting Corporate) Total

activities services

Total revenues 1,653,332 1,385,223 – 3,038,555

Net exchange gain arising on sales 25,753 21,576 – 47,329

Segmental operating expenses 793,892 906,417 316,538 2,016,847

Segmental operating income 885,193 500,382 (316,538) 1,069,037

Interest income and other income 125,326

Income taxes 94,148

Net profit 1,100,215

Other information

Segment assets 777,194 835,955 2,154,881 3,768,030


Share capital and reserves and surplus – – 3,175,092 3,175,092

Depreciation 45,768 85,232 14,251 145,251


Year endedMarch 31, 2001

Year endedMarch 31, 2002

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, net of allowances and provisions. 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 can not be allocated between

the segments are shown as part of corporate assets.

Geographical segments

The following table shows the distribution of the group’s consolidated sales by geographical market:


March 31, 2002 March 31, 2001

Regions Amount % Amount %

United States of America 1,333,498 32 1,052,575 35

Middle East and Africa 1,087,459 26 723,078 24

Asia Pacific 850,848 21 654,171 21

Europe 815,885 20 569,355 19

Latin America and Caribbean 24,977 1 39,376 1

4,112,667 100 3,038,555 100

17 Related party transactions

The Company has entered into transactions with various Citibank branches, Citicorp Information

Technology, Inc (‘CITI’), e-Serve International Limited (‘e-Serve’), and OrbiTech over which Citigroup

and its affiliates have significant ownership interest, controlling interest or exercise significant

influence. The company has also entered into certain transactions with its joint venture companies

Flexcel and DotEx and with its subsidiary companies, i-flex bv, i-flex Pte and i-flex inc. The key

managerial personnel comprise of the Chairman and Managing Director, Chief Executive Officer –

International Operations and Technology, Chief Executive Officer – India Operations, Chief Financial

Officer and Company Secretary, Chief of Staff and the operational heads of various groups, which

includes Quality Management and Training, Infrastructure and Support, Banking Products, Product

marketing, Global sales, IT services and Human resources.


The related party transactions can be categorized as follows:

Banking product revenues

The Company supplied banking products and earned revenues from the following related parties:


March 31, 2002 March 31, 2001

Citibank branches 609,669 269,362

i-flex b.v. 282,999 97,764

CITI 3,300 15,152

Flexcel 358 –

e-Serve 169 155

i-flex pte. 2,444 –

DotEx 100 –

899,039 382,433

IT solutions and consulting services revenue

The Company has provided IT solutions and consulting services and earned revenues from the following

related parties:


March 31, 2002 March 31, 2001

CITI 673,370 692,434


i-flex b.v. 14,941 21,120


i-flex inc. 759 –

Times Online Money Limited – 10,000

DotEx 9,560 8,960

e-Serve 21 42

1,277,477 1,175,872

Lease payments

The Company takes vehicles on finance lease from e-Serve. The lease rentals (principal and interest)

paid to e-Serve on this account during the year ended March 31, 2002 and March 31, 2001 aggregated

to Rs 7,136 and Rs 5,775 respectively.


March 31, 2002 March 31, 2001

Professional services

Fees for professional services paid to

OrbiTech for software development 25,155 –

Provision for doubtful debts for Citibank branches 1,221 –


March 31, 2002 March 31, 2001

Remuneration to key management personnel 27,912 23,795

(Comprises of salary, bonus and perquisites)

Repayment of loans by key management personnel 1,703 284

Amounts due from related parties

Amounts receivable from related parties at March 31, 2002 and March 31, 2001 on account of

sales of banking products and consulting services referred to above are as follows:


March 31, 2002 March 31, 2001


(net of provision for doubtful debts of Rs 1,221

(March 2001 – Rs Nil))

CITI 276,761 262,694

i-flex b.v. 174,207 68,655

DotEx 6,999 5,392

Times Online Money Limited – 2,500

e-Serve – 42

Flexcel 385 –

i-flex solutions inc. 751 –


1,079,012 633,710

Loans outstanding from key management personnel 4,844 6,674

Loan outstanding from i-flex b.v. 3,115 3,004

Amounts due to related parties

Due to e-Serve towards lease obligations

repayable (principal and interest) 14,896 15,982

Due to OrbiTech towards professional services 1,427 –

18 Stock Based Compensation Scheme

a) Employee stock purchase scheme (‘ESPS’)


ESPS to provide equity based incentives to key

employees of the Company (‘1998 Scheme’).

Subsequently on April 1, 1999, April 1, 2000 and

April 1, 2001, the Company adopted other Stock

based schemes (‘1999 Scheme’ , ‘2000 Scheme’

and ‘2001 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 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.


employee shall undertake to pay within ten years


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 recently issued the Employee Stock

Option Scheme and Stock Purchase Guidelines,

1999 (‘SEBI guidelines’), which are applicable to

stock option 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.

These guidelines are presently not applicable to

the Company, as its shares are not listed on any

stock exchange.

However, even if the principles outlined in the

SEBI guidelines were to be adopted by the

Company in respect of the stock purchase

scheme granted to its employees, 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.

b) Employee Stock Option Plan (‘ESOP’)


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

have been earmarked for grant, at any given

time to present and future employees and

directors of the Company and its existing and



meeting held on March 4, 2002 approved the

Employees Stock Option Scheme (‘the Scheme’)

for issue of 2,376,800 options to the employees

and directors of the Company. According to the

ESOP the Company has gr`fited 2,274,460

options to the eligible employees and directors of

the Company and its subsidiaries at an exercise

price, which will equate the issue price

determined through the book-building

procedure. 20% of the total options granted



12, 24, 36, 48 and 60 months respectively and is

subject to the continued employment of the

employee or director with the Company or its

subsidiaries.

As per the terms of ‘the Scheme’, the exercise

price would equate the price determined

for the IPO through book building process.

Accordingly no compensation cost would need

to be recorded as the exercise price would equal

to the fair value of the shares on the date

of the IPO.


March 31, 2002 March 31, 2001

19 Supplementary profit and loss data

(a) Managerial remuneration

Salaries and incentives 330 186

Contribution to provident and other funds – 124

Perquisites – 22

330 332

In addition to the above, the Managing Director of the Company has also been provided remuneration

aggregating Rs 1,760 approximately from a subsidiary of the Company, i-flex inc. USA. Such remuneration

is subject to the approval from shareholders and thereafter from the Central Government under Section

269 of the Act.

(b) Payments to auditors

Statutory audit fees 1,300 1,100

Tax Audit 500 450

Special reports 3,200 1,619

Reimbursement of out-of-pocket expenses 103 165

5,103 3,334

(c) Earnings in foreign currency

Product licenses and related revenues 2,280,916 1,546,500

IT solutions and consulting services 1,625,600 1,351,691

Reimbursement of traveling expenses 246,308 191,750

Foreign exchange gain 70,300 93,534

4,223,124 3,183,475

(d) Expenditure in foreign currency

Traveling (net of recoveries) 641,606 342,006

Professional fees 84,184 75,681

Application software 15,396 9,377

Foreign Taxes 94,808 26,998

Advertising 13,471 11,950

Salaries and Bonus 43,605 4,418

Representative office expenses 17,663 15,564

Seminar expenses 11,745 14,285

Staff training expenses 2,404 1,686

Others 7,202 6,636

932,084 508,601

(e) Value of imports on CIF basis – capital goods 38,866 66,357

20 Prior year comparatives

Prior year amounts have been reclassified, where necessary to conform with current year’s presentation.


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 2 Date Month Year

II. Capital raised during the year (amount in Rs thousands)

Public issue Rights issueN I L N I L

Bonus issue Private placementN I L 3 3 9 5

III. Position of mobilization and deployment of funds (amount in Rs thousands)

Total liabilities Total assets5 5 0 7 0 3 1 5 5 0 7 0 3 1

Sources of funds Paid-up capital Reserves and surplus

1 6 9 7 7 7 4 6 8 6 1 9 8

Secured loans Unsecured loans

N I L N I L

Application of funds Net fixed assets Investments

3 0 6 5 4 5 2 0 0 8 6 8

Net current assets

4 3 2 3 7 0 2 N I L

Accumulated losses

N I L

IV. Performance of company (amount in Rs thousands)

4 2 5 2 7 0 7 2 8 3 4 9 6 4

+/- Profit/loss before tax +/- Profit/loss after tax

+ 1 4 1 7 7 4 3 + 1 2 6 7 6 0 8

(Please tick appropriate box + for profit, - for loss)

Earning per share in Rs Dividend rate %

3 8 . 0 3 2 5

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 SS O F T W A R E P R O J E C T A S S I G N M E N T SS O F T W A R E P R O D U C T M A N A G E M E N T

Total expenditureTurnover

Miscellaneous expenditure

Statement pursuant to Section 212 of the Companies Act, 1956relating to Subsidiary Companies

Rajesh Hukku Y M Kale Nihar Mody Ajay Relan Deepak GhaisasChairman & Director Director Director Company SecretaryManaging Director

MumbaiMay 3, 2002

1 Name of the Subsidiary i-flex solutions b.v.)

2 The Financial Year of the Subsidiary Company ended on March 31, 2002)

3 Holding Company i-flex solutions ltd.)

4 Holding Company’s interest 100%)

5 Shares held by the Holding Company in the Subsidiary 185 equity shares of Euro 100)

each fully paid up)

6 Net aggregate amount of Profits / (Losses) of the Subsidiary

so far as it concerns the Members of the Holding Company

and is not dealt with in the Accounts of the Holding Company

a. for the financial year ended on March 31, 2002 (Rs 76,808)

b. for the previous financial years of the Subsidiary since

it became a Subsidiary (Rs 14,581)

7 Net aggregate amount of Profits / (Losses) of the Subsidiary so far as it

concerns the Members of the Holding Company dealt with or

provided for in the Accounts of the Holding Company

a. for the financial year ended on March 31, 2002 N.A.)

b. for the previous financial years of the Subsidiary since it

became a Subsidiary N.A.)


1 Name of the Subsidiary i-flex solutions pte. ltd.

2 The Financial Year of the Subsidiary Company ended on March 31, 2002

3 Holding Company i-flex solutions ltd.

4 Holding Company’s interest 100%

5 Shares held by the Holding Company in the Subsidiary 250,000

equity shares of

Singapore Dollar 1

each fully paid up


so far as it concerns the Members of the Holding Company and

is not dealt with in the Accounts of the Holding Company

a. for the financial year ended on March 31, 2002 Rs 531


became a Subsidiary N.A.



dealt with or provided for in the Accounts of the

Holding Company

a. for the financial year ended on March 31, 2002 N.A.




MumbaiMay 3, 2002

(Amount in thousands of Indian Rupees)

1 Name of the Subsidiary i-flex solutions inc.)

2 The Financial Year of the Subsidiary Company ended on March 31, 2002)

3 Holding Company i-flex solutions ltd.)

4 Holding Company’s interest 100%)

5 Shares held by the Holding Company in the Subsidiary 100 equity shares of

US$ 0.01cent each

fully paid up


so far as it concerns the Members of the Holding Company and

is not dealt with in the Accounts of the Holding Company

a. for the financial year ended on March 31, 2002 Rs (11,610)





dealt with or provided for in the Accounts of the

Holding Company

a. for the financial year ended on March 31, 2002 N.A.

b. for the previous financial years of the Subsidiary since it became a Subsidiary N.A.


MumbaiMay 3, 2002

(Amount in thousands of Indian Rupees)


Financialsi-f lex solutions ltd.& Subsidiaries

Financial statements for the yearended March 31, 2002 preparedin accordance with United StatesGenerally Accepted AccountingPrinciples (US GAAP).


You should read the following discussion of our

financial condition and results of operations

together with the detailed consolidated US

GAAP financial statements and the notes to

those statements in this Annual Report. The

financial statements are consolidated for i-flex

solutions limited and its wholly-owned

subsidiaries, i-flex solutions b.v., i-flex solutions

pte ltd. and i-flex solutions inc., as applicable.

Investment in joint venture companies, DotEx

and Flexcel are accounted for using the equity

method since we exert significant influence over

their operations.

The following discussion is based on our audited

consolidated financial statements, which have

been prepared in accordance with US GAAP,

and on information available from other sources.

Our fiscal year ends on March 31 of each year, so

all references to a particular fiscal year are to the

twelve-month period ended March 31 of that

year.

Overview

We are in the business of providing

comprehensive information technology solutions

to the financial services industry world-wide.

We are organised geographically and by business

segments. We have two primary business

segments, products licenses and related services,

or Products Business, and IT solutions and

consulting activities, or Services Business, as

described below:

Products

Our flagship product offering is the FLEXCUBE

suite, which comprises a comprehensive range of

package solutions addressing the transaction

processing, accounting, business intelligence,

analytical application and Internet delivery

Management discussion and analysisof financial condition and results of operations

needs of a wide range of financial institutions,

including corporate banks, retail banks,

universal banks, capital market intermediaries,

investment banks and other specialised financial

institutions. The FLEXCUBE suite includes:

• FLEXCUBE, a banking back-office and

transaction processing system;

• FLEXCUBE @, a multi-channel eFinance

platform enabling financial institutions to

deliver their services via the Internet; and

• FLEXCUBE Information Center, a business

intelligence solution with a set of specialised

analytical applications.

Services

We have an independent Services Business,

which is focused on the financial services

industry. Our Services Business provides custom

software development, deployment,

maintenance and support services (both onsite

and offshore) as well as business and IT

consulting services. Our strategy in the Services

Business is to leverage our domain expertise in

financial services to create “Centers of

Excellence” around specific areas of strategic

importance to financial institutions, delivering

value-added solutions to meet the business needs

of our customers. Focus areas for our Centers of

Excellence include CRM, business intelligence,

e-services, development and integration services

and payment systems.

Business metrics

Our total revenues in fiscal 2002 were Rs 4,357

million, representing an increase of 34% from

Rs 3,241 million in fiscal 2001 (compared to an

increase of 49% from fiscal 2000 to fiscal 2001),

and a CAGR of 42% since fiscal 2000. The net

income in fiscal 2002 was Rs 1,036 million,

representing an increase of 2% from Rs 1,014

million in fiscal 2001 (compared to an increase

of 28% from fiscal 2000 to fiscal 2001), and a

CAGR of 14% since fiscal 2000. Our net

income margins have been 36%, 31% and 24%

for the fiscal years 2000, 2001 and 2002

respectively. In the near term, we expect

continued pressure on our rate of growth in total

revenues and net income and on our net income

margins, especially in our services business,

primarily as a result of the global economic

slowdown and adverse condition in our target

markets. We define net income margins for a

particular period as the ratio of net income to

total revenues during such period.

Products Business(in Rs million)

Year ended March 31

2000 2001 2002

Product revenues 1,114.67 1,729.47 2,614.39

Cost of productrevenues (306.84) (464.06) (836.94)

Sales andmarketingexpenses (140.01) (289.41) (559.93)

General andadministrativeexpenses (93.19) (128.02) (173.06)

Depreciation andamortisation (39.26) (40.14) (49.30)

Income fromoperations 535.38 807.85 995.17

Product revenuegrowth rate overprior period 59% 55% 51%


* Operating margin is defined as income from operations from the ProductsBusiness (excluding corporate expenses) as a percentage of total productsrevenue.

Products revenues

Our products revenues represented 60%, 53%


fiscal 2001 and fiscal 2000, respectively.

Products revenues increased by 59% to

Rs 1,114.67 million in fiscal 2000 from

Rs 700.03 million in fiscal 1999, by 55% to

Rs 1,729.47 million in fiscal 2001 compared to

fiscal 2000 and by 51% to Rs 2,614.39 million

in fiscal 2002 compared to fiscal 2001.

For licensing of our products, we enter into a

master license agreement or a standard end user

license agreement with our customers. As of

March 31, 2002, the Company has entered into

memoranda of understanding (“MoUs”), master

license agreements or standard end-user license

agreements for the license of the FLEXCUBE

suite of products under which the contractual

license fees payable to us (referred to herein as

our order book) are US$ 27.01 million. After

the products are licensed to customers, we

provide services related to the enhancement and

implementation of the products. These services

are either charged on a time or material basis or

on a fixed-price basis and the terms on which

such services are to be provided are generally

included in the license agreement itself. The

revenue derived from the provision of these

services is dependent upon the implementation

cycle and the enhancements that need to be

made to the product to meet the requirements of

the customer. Hence, no definitive estimation

has been made of the revenues that may be

generated from the provision of such services.

Although our order book has been determined

based on definitive agreements with our

customers, we cannot assure you that future

revenue on account of license fees or the

associated enhancement and implementation

service will not be lower than the amount

indicated by our present order book.


In particular, even in those cases where our

customers have agreed to a specific

implementation schedule, they may be unable to

meet this schedule, thereby delaying our ability

to recognise the license revenues related to these

contracts. As a result the actual license fee

revenues generated by the existing customers as

per the order book may be materially lower.

The FLEXCUBE suite of products contributes a

significant portion of our total products revenue

and we expect that this will continue to be the

case in the near future. As of March 31, 2002,

there are 105 customer organisations, that have

entered into MoUs, master license agreements

or standard end-user license agreements for the

FLEXCUBE suite of products for deployment

in their organisations. In addition, 5 customer

organisations are using modules from the

FLEXCUBE suite of products in shared

infrastructure mode and 1 customer organisation

is using modules from the FLEXCUBE suite of

products on a deferred license payment mode.

In addition, our products revenues comprise

revenues from the sales of two other products,

MicroBanker, a back-office transaction-

processing product for corporate banks and

Promotr, a product addressing process and

quality management needs. We also derive a

small portion of our revenues from the sale of

third party software, which is generally sold

along with our FLEXCUBE licenses.

The percentage of our products revenues by

product is as follows:

Year ended March 31

2000 2001 2002

FLEXCUBE Suite 75% 96% 98%

MicroBanker 24% 3% 1%

Promotr 1% 1% 1%

Total ProductsRevenue 100% 100% 100%

Our products revenues comprise license fees,

professional fees for implementation and

enhancement services and annual maintenance

contract (post contract support) fees for our

products.

• Currently, we charge one-time license fees

whenever a new license or fresh module is

sold to a customer

Our standard licensing arrangements

typically do not require significant

modification or enhancement of software.

The standard end-user license agreement for

our products provides the user a perpetual

right to use the product for a pre-defined

number of users and sites upon the 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. The licenses are

non-exclusive, personal, non-transferable

and royalty free.

The average amounts payable to us as

license fees under our MoUs master license

agreements or standard end-user license

agreements for the FLEXCUBE suite of

products has been increasing over a period

of time from an average of US$ 377,000 in

fiscal 1998 (the year in which FLEXCUBE

was launched) to an average of US$ 720,000

in fiscal 2002. However, there can be no

assurance that such increase will continue at

the same rate, or at all, in the future.

We recognise license fee revenues 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. We allocate a portion

of our license fees to the annual

maintenance contract provided free of

charge to the customer for the specified

period provided under the licensing

arrangement. The amounts are allocated

based upon Vendor Specific Objective

Evidence, or VSOE, of the fair value of

those services or products.

If a licensing arrangement provides a

customer a right to a significant incremental

discount (with reference to VSOE of the fair

value of that element) on a future purchase

of any other software product or a service, a

proportionate amount of that discount is

applied to each element covered by the

arrangement based on each element’s fair

value. Licensing arrangements which allow a

customer to purchase additional copies of

products already licensed and delivered to

the customer do not result in the provision

of a significant discount to the customer.

Revenues are recognised as each additional

copy is purchased by the customer based on

the price per copy stated in the agreement.

If software product components are used in a

software development and consulting

services agreement where the services are

determined to be essential to the

functionality of the licensed software, both

the license and consulting fees are

recognised under the proportional efforts

method of contract accounting.

• We earn implementation and enhancement

fees when we implement and enhance the

product for the customer

After products are licensed to the customers,

we provide services related to the

implementation of the products at the

customer sites, integration with other

customer information technology systems

and enhancement of the products to

address the specific requirements of the

customers. The customer is typically

charged a service fee either on a fixed price

basis or a time and material basis. The

implementation and enhancement services

comprise functional enhancements,

interface building, implementation

planning, data conversion, training and

product walkthrough and are provided to

customers who enter into licensing

arrangements with us. Such revenues are

generally not essential to the functionality

of the software. Although, historically we

have provided these services to most of our

customers directly, we intend to increase

the use of our partners to provide such

services in order to enhance our capacity to

implement our products.

Revenues from the implementation and

enhancement services are recognised upon

the proportionate efforts method to the

extent certified by the customer for fixed

price contracts and as the services are

provided in respect of time and material

contracts.

• Annual Maintenance Contracts fees

We also earn fees in respect of the

provision of annual maintenance contracts

after the implementation of a product and

following the expiry 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.

Revenues from annual maintenance

contracts are typically a percentage of the

license fee and are charged on an annual

basis. These are recognised rateably over


the term of the contract on a straight-line

basis.

While the revenues from license fees and

implementation and enhancement services

rendered by us depend on the number of

new customers we obtain, the annual

maintenance contracts generate steady

revenues that are therefore easier to predict.

The percentage of our revenues from these

streams is as follows:

Year ended March 31

2000 2001 2002

License Fees 53% 39% 35%

Implementation

and

Enhancement Fees 32% 47% 50%

Annual

Maintenance

Contracts 16% 14% 15%

Total 100% 100% 100%

We also receive reimbursement for

out-of-expenses incurred from our

customers. These expenses primarily include

travel expenses, accommodation and travel

allowances given to the employees. We are

the primary obligor and have the credit risk

for the expenses incurred. Pursuant to the

guidance set forth in Emerging Issues Task

Force Topic 103-D, the Company reports

these reimbursements of out-of-pocket

expenses as revenues.

Cost of products revenues and operating expenses

The cost of our products revenues consists of

costs attributable to the implementation,

enhancement, maintenance and continued

development, including research and

development efforts, of our core product, the

FLEXCUBE suite of products, and our 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 vendors and cost of application

software for internal use.

The research and development costs are

expensed as incurred. Software development

costs are expensed as incurred until

technological feasibility is established. Software

product development cost incurred subsequent

to the achievement of the technological

feasibility are not material and are 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 human resources, facilities and

infrastructure expenses, quality assurance and

finance. Our sales and marketing expenses have

increased more rapidly than our other operating

expenses and we expect this trend to continue as

we aim to increase our presence in our target

markets.

Year ended)March 31,)

(in Rs million)

2000 2001 2002

Services revenues 1,059.30 1,511.08 1,742.78

Cost of services revenues (468.02) (784.80) (1,072.48)

Sales and marketing expenses (31.33) (40.24) (43.23)

General and administrative expenses (123.16) (118.13) (147.42)

Depreciation and amortisation (54.88) (74.75) (78.06)

Income from operations 381.92 493.16 401.60

Services revenues growth rate over prior year 49% 43% 15%


* Operating margin is defined as income from operations of the Services Business (excluding corporate expenses) as a percentage of total services revenue.

Services revenues

Our services revenues represented 40%, 47%


fiscal 2001 and fiscal 2000, respectively. Services

revenues increased by 15% to Rs 1,742.78

million in fiscal 2002 from Rs 1,511.08 million

in fiscal 2001 and by 43% to Rs 1,511.08 million

in fiscal 2001 from Rs 1,059.30 million in

fiscal 2000 and by 49% to Rs 1,059.30 million in

fiscal 2000 from Rs 710.21 million in fiscal 1999.

The contracts relating to our Services Business

are either time and material contracts or fixed

price contracts. The percentage of total services

revenues from time and material contracts has

increased from 73% in fiscal 2000 to 80% in

fiscal 2001, with the remainder of our services

revenues attributable to fixed price contracts.

Services business


During fiscal 2002, the percentage of revenue

from time and material contracts decreased

compared to fiscal 2001 and contributed 57% of

our total services revenues, with the remainder

attributable to fixed price contracts. The

increase in the fixed price component in fiscal

2002 is due to a greater proportion of our

contracts where we have end-to-end outsourcing

responsibility and increased demand for fixed

price contracts from our customers. We expect

this trend to continue.

We provide our services through offshore centers

located in India and through onsite teams

operating at our customers’ premises. Offshore

services revenues consist of revenues from work

conducted at our development centers in India

on behalf of foreign customers and onsite

revenue comprises work conducted at customer’s

premises outside India. Our India revenue

represents work done for Indian customers at

their locations and at our development centers

in India. The composition of our onsite and

offshore revenue is determined by the project life

cycle. Typically, the work involving the design of

new systems or that relate to a system roll out

would be conducted onsite, while the core

software development, maintenance and support

activity may be conducted offshore. The

following table illustrates the percentage

breakdown of our services revenues in fiscal

2000, 2001, and 2002:

Year ended March 31

2000 2001 2002

Onsite 56% 61% 58%

Offshore 44% 37% 40%

India – 2% 2%

Total Servicesrevenues 100% 100% 100%

Our services revenues and profits are also

affected by the rate at which our software

professionals are utilised. The utilisation rate is

calculated as the percentage billed for our

personnel in a particular period (quarter) 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 the 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 investments projects. Our

on-site personnel deployment on projects is

based on the project needs and therefore such

personnel are fully utilised. Utilisation rates for

services were 80%, 81% and 72% for fiscal 2000,

2001 and 2002 respectively. The decrease in

utilisation rate was primarily a result of our

investment in enhancing the expertise of our

employees in our Centers of Excellence.

Revenues from services provided on a time and

material basis are recognised in the period that

the services are provided and costs incurred.

Revenue from fixed price projects are recognised

using the proportionate effort method. While

no provisions have been made to date, the

percentage of completion provision is subject to

periodic revisions and the cumulative impact of

any revision in the estimates of the percentage of

completion is reflected in the period in which

the changes become known.

Cost of services revenues 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 vendors. We

recognise these costs as incurred. Our operating

2000 2001 2002 2000 2001 2002 2000 2001 2002

USA 1% 9% 9% 44% 64% 66% 22% 34% 32%

Middle East and Africa 57% 38% 37% 4% 6% 8% 31% 23% 25%

Asia Pacific 15% 32% 29% 13% 8% 11% 14% 21% 21%

Europe 18% 19% 24% 38% 22% 15% 28% 21% 21%

Latin America and

Caribbean 9% 2% 1% 1% 0% 0% 5% 1% 1%

Total 100% 100% 100% 100% 100% 100% 100% 100% 100%

TotalServices RevenuesProducts Revenues

Customer concentration

Revenues from our top 10 customers for fiscal

2000, 2001 and 2002 were 62%, 63% and 58%,

respectively. This contribution is further

concentrated in respect of our revenues from our

Services Business. The top 10 customers in our

Services Business contributed 90% of the total

services revenues, while the top 10 customers in

our Products Business contributed 57% of the

total products revenues during fiscal 2002.

In the table below, the percentage of revenues

derived from our top customer, top five

expenses include selling, general and

administrative expenses and allocated overhead

expenses associated with human resources,

corporate marketing, information management

systems, quality assurance and finance.

Geographic breakdown of revenues

Our business is organised geographically and the

following table represents the percentage

breakdown of our revenues for our Products and

Services Businesses by region:

Year ended March 31


Trade receivables

We have high trade receivables, which as of

March 31, 2000, 2001 and 2002 were Rs 629.26

million, Rs 1,184.28 million and Rs 1,891.09

million, respectively, or 30%, 34% and 37%,

respectively of total assets as of such dates. Our

days of sales outstanding (which is the ratio of

sundry debtors to total sales in a particular year

multiplied by 365) for fiscal 2000, 2001 and

2002 were approximately 106, 133 and 158,

respectively. These receivables are high because

of the longer payment processing cycle for

product sales, the procedural time required for

foreign exchange remittance in certain countries

where our customers are located and because of

the overall economic slowdown. These are also

high due to high trade receivables from our

customers and top ten customers and various

entities of Citigroup in respect of our Products

and Services Business individually and in respect

of our business taken as a whole, is provided.

The various members of Citigroup are classified

as separate customers and the last row sets forth

the percentage of total revenues we earned from

the various members of the Citigroup in

aggregate:

2000 2001 2002 2000 2001 2002 2000 2001 2002

Top Customer 12% 15% 15% 32% 49% 40% 16% 23% 16%

Top 5 Customers 38% 38% 38% 84% 83% 76% 47% 48% 42%

Top 10 Customers 55% 57% 57% 96% 92% 90% 62% 63% 58%

Citigroup and its entities 1% 18% 22% 82% 82% 76% 40% 48% 44%

TotalServices RevenuesProducts Revenues

Our top customer in fiscal 2001 and 2002 was Citicorp Information Technology Inc., USA, a member of

Citigroup and in fiscal 2000 our top customer was Citibank, London, also a member of Citigroup.

Year ended March 31

Principles of currency translation

A substantial portion of our revenues is

generated in foreign currencies while a majority

of our expenses are incurred in Indian rupees

and the balance is incurred in U.S. Dollars and

European currencies. Our functional currency

for our operations is the Indian Rupee. We

expect a majority of our revenues to continue

to be generated in foreign currencies for the

foreseeable future and a substantial portion of

our expenses, including personnel costs and

capital and operating expenditure, to continue

to be denominated in Indian Rupees.

Consequently, our results of operations will be

affected to the extent the Indian Rupee

fluctuates against the respective

foreign currencies.

Income taxes

Currently, we benefit from a tax holiday given by

the Government of India for the export of

information technology services. As a result of

our tax incentives, our operations in India have

been subject to insignificant tax liabilities.

These tax incentives currently include a 10-year

tax holiday from the payment of Indian

corporate income taxes for the operations of our

Indian facilities, comprising five units registered

under the “Software Technology Parks” scheme

and one unit forming part of the “Special

Economic Zone”. These benefits will expire for

some of our units starting on April 1, 2004. The

Finance Act, 2000 has provided that this tax

holiday will not be available for assessment years

beginning April 1, 2010. The tax holiday under

related parties, which are members of Citigroup

due to longer payment processing cycles. We are

working with our customers including Citigroup

to reduce these receivables, however there can

be no assurances that we will succeed in our

endeavour to reduce our sundry debtors. The

following table presents the percentage profile of

our debtors:

Year ended March 31

Period in Days 2000 2001 2002

0-180 89% 95% 93%

More than 180 11% 5% 7%

Total 100% 100% 100%

During fiscal 2000, 2001 and 2002, we made

provision of Rs 4.98 million, Rs 4.23 million and

Rs 55.91 million, respectively for doubtful debts.

However we have not written off any bad debts

during the last three fiscal years.

New initiatives

We constantly pursue opportunities to leverage

our existing business to deliver value-added

solutions appropriate to the changing business

environment. Therefore, we have set up Flexcel

International Private Limited, a company

dedicated to deploying FLEXCUBE on an ASP

model targeting the small and medium-sized

banks in India, with the HDFC Bank and its

group companies. This is the first in a series of

initiatives to make FLEXCUBE available to

small and medium-sized banks in

various countries.


Section 10A of the Income tax Act is limited to

90 percent of the eligible profits instead of 100

percent of such profits in relation to fiscal 2003.

Accordingly, for fiscal 2003, 10 percent of the

eligible profits of the Company would be taxable

at the corporate tax rate of 36.75 percent

(including surcharge).

Foreign taxes are due to income taxes payable



Employee Stock Purchase Scheme

On March 29, 1998 we adopted the ESPS to

provide equity based incentives to key employees

of the Company. Subsequently, on April 1, 1999,

April 1, 2000 and April 1, 2001, the Company

adopted additional stock based schemes. These

schemes, which have similar terms, are

administered through the ESPS Trust. Under

the schemes, the ESPS Trust purchases Equity

Shares of the Company using the proceeds of

loans obtained from the Company. Such Equity

Shares are offered by the ESPS Trust to

selected employees at an exercise price, which

approximates the fair value on the date of the

grant. The employees can purchase the Equity

Shares in a phased manner over a period of five

years based on continued employment, during

which time the ESPS Trust holds the Equity

Shares for the benefit of the employees. During

this period, the employee is entitled to receive

dividends and bonuses that may be declared by

the Company from time to time for the entire

portion of Equity Shares held by the ESPS Trust

on behalf of the employee.

Upon the acceptance by the employee of the

offer from the ESPS Trust, the selected employee

undertakes to pay within ten years from the date

of acceptance of the offer the cost of the

acquisition of the Equity Shares incurred by the

ESPS Trust, including the repayment of the loan

related thereto. The repayment of the loan by

the ESPS Trust to the Company is dependent on

the employee paying the full amount of the loan

to the ESPS Trust. In the event the employee

resigns from employment, the rights relating to

Equity Shares which are eligible to be exercised


price whereas the balance Equity Shares shall be

forfeited in favour of the ESPS Trust. The ESPS

Trustees have the right of recourse against the

employee for any amounts that may remain

unpaid on the Equity Shares accepted by the

employee. The Equity Shares in respect of which

an employee is eligible to exercise his right of

purchase during the initial five-year period

merely determines the amount and scheduling

of the loan to be repaid on exercise by the

employee. The ESPS Trust is required to repay

the loan obtained from the Company upon

receipt of payments from the employees against

Equity Shares purchased by them or otherwise.

We have elected to adopt Accounting Principles

Board Opinion No. 25, “Accounting for Stock

issued to Employees”, or APB 25, in accounting

for stock granted under this scheme. As per APB

25, the Company did not recognise

compensation expense on the stock granted

because the terms are fixed and the exercise

price equals the fair value of the underlying

stock on the grant date. The Equity Shares

issued to the ESPS Trust have been considered as

outstanding for basic EPS purposes, to the extent

these Equity Shares have been allocated to

employees pursuant to the above schemes and

are eligible to be exercised by the employee. For

diluted EPS purposes, the Equity Shares, which

are not yet eligible for exercise, have also been

considered as outstanding to the extent these

Equity Shares are dilutive using the treasury

stock method. The loan granted to the ESPS

Trust has been presented as a separate

component of equity and repayments of the

loan, by way of exercise of the shares by the

employees has been applied toward this loan in

the equity statement. Dividends paid in respect

of allocated Equity Shares are charged to

retained earnings.

Employee Stock Option Plan

At the annual general meeting of our

shareholders held on August 14, 2001, we

introduced an additional employee stock option

plan under which Equity Shares not exceeding

7.5% of the issued and paid-up equity share

capital of the Company have been earmarked for

grant at any given time to present and future

employees and directors (whole-time or

otherwise) of the Company and present and

future employees and directors (whole-time or

otherwise) of the Company’s present and future

subsidiaries. Pursuant to the above resolution,

the Board of Directors, at their meeting held on

March 4, 2002 approved the issue of 2,376,800

options to the employees and directors of the

Company. Pursuant to this resolution, we have

issued 2,274,460 options and 400 employees

(including directors) have been covered under

this plan. 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, respectively, and an employee or

director’s ability to exercise his options is subject

to the continued employment of the employee

or director with the Company or its subsidiaries.

Since the exercise price of the options granted

under the Scheme will be equal to the Issue

Price, no compensation cost will be recorded as

the exercise price will be equal to the fair value

of the Equity Shares.

Significant regulatory changes

We have been advised by Citigroup that as

47.5% of the outstanding equity capital of the

Company is held by OrbiTech Limited, a

Citigroup entity, the following regulatory

conditions are applicable to us under the Unites

States bank regulatory framework. The United

States bank regulatory framework applies to

members of the Citigroup companies, including

us. One of the regulations, Regulation K issued

under the Bank Holding Company Act of 1956

and the International Banking Act of 1978,

prohibited a US bank holding company from

investing in a non-US company engaged in any

business in the United States (other than with

its affiliates) or engaged in data processing

activities outside the United States other than

those related to banking, financial or economic

data. As a result of the restrictions imposed by

Regulation K, we did not form a subsidiary or

establish a physical presence in the United

States, other than to the extent of providing

products or services to Citigroup entities. The

Gramm – Leach – Bliley Act in November 1999

amended Regulation K and created an

alternative to investments by a US bank holding

company in non-US companies under the

authority of Regulation K. Certain qualified

bank holding companies were permitted to

create non-US subsidiaries that could operate

globally, including in the US, provided they

were not a direct or indirect subsidiary in the

banking chain of a US bank holding company

but were direct or indirect subsidiaries in the

corporate chain of the bank holding company.

Following the enactment of the Gramm – Leach

– Bliley Act, a restructuring of our holding

companies was effected to take advantage of the

alternative to Regulation K and, with effect from

March 31, 2001, we became an entity held in

the corporate chain of Citigroup companies and


not in the banking chain of Citigroup

companies. As a result of the Gramm – Leach –

Bliley Act and the restructuring, we are no

longer subject to Regulation K, and in December

2001 we incorporated a subsidiary in the United

States, i-flex solutions inc.

As a result of Citigroup’s investment in us, we

are, however, still a regulated entity for the

purposes of the Bank Holding Company Act of

1956 and operate within the authority provided

by Regulation Y. Regulation Y does not allow a

regulated entity to derive more than 30% of its

total revenues from data processing activities

other than those relating to banking, financial or

economic data.

In part, due to the restrictions imposed by

Regulation K, our revenues from the US in fiscal

2000, 2001 and 2002 were only 22%, 34% and

32%, respectively, of our total revenues for such

periods. Most of our revenues from the US

market were derived from our Services Business,

with only a small percentage derived from our

Products Business. Almost all of our US

revenues in fiscal 2000, 2001 and 2002 came

from Citigroup companies. As discussed above,

we are no longer regulated by Regulation K and

we expect that our total revenues from the US,

and, in particular, revenues from our Products

Business, are likely to increase in the near future.

As we do not presently obtain any of our

revenues from activities other than those related

to banking, financial or economic data, we do

not believe the restrictions presently imposed

under Regulation Y affect our business activities,

although there can be no assurance that this will

always be the case for future periods.

Analysis of the financial results




• Our new financial software development

facility at Pune for credit card payment

systems and Internet/e-commerce security

became operational.

• We opened two additional software

development centers in India – The Chennai

development center with an area of 30,687

sq. ft. and a capacity to accommodate 326

people and the Bangalore development

center with an area of 33,436 sq. ft. and a

capacity to accommodate 309 people.

• We commenced the deployment of

corporate and retail versions of FLEXCUBE

for Citibank in Latin America region.

• We established subsidiaries in US and

Singapore to strengthen our presence and

have greater visibility in these markets.

• FLEXCUBE reached the 100 customer mark.

• We set up Flexcel International Private

Limited, a company dedicated to deploying

FLEXCUBE on an Application Service

Provider model, with the HDFC Bank and

its group companies.

• FLEXCUBE was ranked second both on the

2001 Retail Banking Systems and the 2001

Wholesale Banking Systems, sales league

tables as per the April 2002 issue of

International Banking Systems publication.

Revenues

Our total revenues increased 34% from


million in fiscal 2002. The increase in revenue

was attributable to a 51% increase in the

revenues from our Products Business and a 15%

increase in the revenues from our Services

Business.

Products revenues

Products revenues increased 51% from


million in fiscal 2002. Of this increase in

products revenues, the revenues from license fees


2001 to Rs 923.11 million in fiscal 2002.

The revenues from implementation and

enhancement fees increased 61% from Rs 816.14


fiscal 2002 and the revenues from annual

maintenance contracts increased 55% from

Rs 242.67 million to Rs 376.25 million.

Services revenues

Services revenues increased 15% from

Rs 1,511.08 million in fiscal 2001 to

Rs 1,742.78 million in fiscal 2002.

Services revenues from time and material

contracts decreased by 18% from Rs 1,209.22


fiscal 2002. Services revenues from fixed price

contracts increased 149% from Rs 301.86


fiscal 2002. The increase in the fixed price

component in the fiscal 2002, is due to increase

in the type of contracts where we have end-to-

end outsourcing responsibility and increased

demand for fixed price contracts from our

customers.

Interest and other income

Interest and other income decreased 11% from


million in fiscal 2002. The decrease primarily

resulted from a decrease in the exchange gain.

The dividend income also decreased by 27% due

to reduced dividend from Unit Trust of India.

Cost of revenues and operating expenses

Cost of Revenues

Cost of revenues increased 53% from


million in fiscal 2002. Cost of revenues as a

percentage of total revenue increased from 39%

in fiscal 2001 to 44% in fiscal 2002.

Cost of products revenues increased 80% from



primarily attributable to increased employee

cost, travel cost, professional fees to software

vendors and application software. Cost of

products revenues as a percentage of products

revenues increased from 27% in fiscal 2001 to

32% in fiscal 2002.

Cost of services revenues increased 37% from

Rs 784.80 million in fiscal 2001 to Rs 1,072.48

million in fiscal 2002. The primary reasons for

the increase in the cost of services were increases

of 64%, 148% and 130% in employee cost,

application software costs and professional fees,

respectively, in fiscal 2002 compared to fiscal

2001. Cost of services revenues as a percentage

of services revenues increased from 52% in fiscal

2001 to 62% in fiscal 2002.


Sales and marketing expenses

Sales and marketing expenses increased 83%

from Rs 329.64 million in fiscal 2001 to

Rs 603.16 million in fiscal 2002. The total

increase in sales and marketing expense of

Rs 273.52 million was principally attributable

to the focused marketing and corporate brand

image building program launched, with an

increased focus on our Products Business. Also

we established two subsidiaries in Singapore

and USA in fiscal 2002. Sales and marketing

expenses as a percentage of total revenues


fiscal 2002.

Sales and marketing expenses for our Products

Business increased 93% from Rs 289.41 million

in fiscal 2001 to Rs 559.93 million in fiscal 2002.

These expenses as a percentage of products

revenues, increased from 17% in fiscal 2001 to

21% in fiscal 2002.

Sales and marketing expenses for our Services

Business increased 7% from Rs 40.24 million in

fiscal 2001 to Rs 43.23 million in fiscal 2002.

These expenses as a percentage of services

revenue decreased to 2% in fiscal 2002 from 3%

as in fiscal 2001.

General and administrative expenses

General and administrative expenses increased

18% from Rs 478.85 million in fiscal 2001 to

Rs 564.05 million in fiscal 2002. The major

reasons for the increase in general and

administration expenses were increases in the

power cost, communication, rent and provision

for doubtful debts. As a percentage of total

revenues, general and administrative expenses

decreased from 15% in fiscal 2001 to 13% in

fiscal 2002.

General and administrative expenses for our

Products Business increased 35% from Rs 128.02


fiscal 2002. However general and administrative

expenses as a percentage of products revenue

remained constant at 7% in fiscal 2001 and

fiscal 2002.


Services Business increased 25% from Rs 118.13


fiscal 2002. However as a percentage of services

revenue general and administrative expenses

remained constant at 8% in fiscal 2001

and 2002.

Provision for diminution in investment

In fiscal 2001, the Company had provided Rs 50

million towards diminution in its value of its

investment in Times Online Money Limited.

During fiscal 2002, the Company sold its

investment in Times Online Money Limited for

Rs 48.5 million. As a result there is an additional

loss of Rs 1.5 million during the fiscal 2002.

The Company has also provided Rs 16.89

million towards diminution in the value of

its investment in UTI.

Income taxes



million in fiscal 2002. Our effective tax rate

increased from 8.21% in fiscal 2001 to 12.50%

in fiscal 2002. This increase is primarily due to

increase in provision for foreign taxes

attributable to significant increase in the sales.

As a result of further changes in the tax laws, we

expect our effective tax rate to increase further,

resulting in an adverse impact to our income

from operations and net income.

Income from operations and net income

As a result of the foregoing factors, income from

operations increased 8% from Rs 1,055.82

million in fiscal 2001 to Rs 1,140.09 million

in fiscal 2002, and net income increased 2%

from Rs 1,013.61 million in fiscal 2001 to

Rs 1,036.01 million in fiscal 2002. As a result,

our net margins declined from 31% in fiscal 2001

to 24% in fiscal 2002. We define net income

margins for a particular period as the ratio of net

income to total revenues during such period.




• We entered the highly competitive Japanese

market by entering into an agreement for

providing product licenses and services to

Shinsei Bank, Japan.

• We commenced deployment of FLEXCUBE

for Citibank in countries across Europe and

the Asia-Pacific region.

• We made a foray into the Singapore markets

and secured an order from DBS Bank,

Singapore for the deployment of

FLEXCUBE across 10 countries

• Our wholly-owned subsidiary in the

Netherlands, i-flex solutions b.v., became

operational.

• We set up a joint venture with NSE.IT Ltd.

to form DotEx International Limited, a

company dedicated to owning, operating

and maintaining web-sites and portals

Revenues

Our total revenues increased 49% from


million in fiscal 2001. The increase in revenue

was attributable to a 55% increase in the

revenues from our Products Business and a 43%

increase in the revenues from our Services

Business.

Products revenues

Products revenues increased 55% from


million in fiscal 2001. Of this increase in

products revenues, the revenues from license fees


2000 to Rs 670.66 million in fiscal 2001.

The revenues from implementation and

enhancement fees increased 135% from


million in fiscal 2001 and the revenues from

annual maintenance contracts increased 33%

from Rs 183.04 million to Rs 242.67 million.

Services revenues

Services revenues increased 43% from


million in fiscal 2001.

Services revenues from time and material

contracts increased 57% from Rs 772.19 million

in fiscal 2000 to Rs 1,209.22 million in fiscal

2001. Services revenues from fixed price

contracts increased 5% from Rs 287.12 million

in fiscal 2000 to Rs 301.86 million in

fiscal 2001.


Interest and other income

Interest and other income increased 117% from


million in fiscal 2001. The increase primarily

resulted from a 68% increase in the interest

received by the Company from increased

deposits placed by the Company with banks and

an increase of 378% due to foreign exchange

gains from Rs 9.48 million in fiscal 2000 to

Rs 45.37 million in fiscal 2001.

Cost of revenues and operating expenses

Cost of revenues

Cost of revenues increased 61% from Rs 774.86


fiscal 2001. Cost of revenues as a percentage of

total revenue increased from 36% in fiscal 2000

to 39% in fiscal 2001.

Cost of products revenues increased 51% from



primarily attributable to increased employee

cost, travel cost and professional fees to software

vendors. Cost of product revenues as a

percentage of product revenues decreased

marginally from 28% in fiscal 2000 to 27% in

fiscal 2001.

Cost of services revenues increased 68% from


million in fiscal 2001. The primary reasons for

the increase in the cost of services were increases

of 78%, 69% and 71% in employee cost, travel

cost and professional fees, respectively. Cost of

services revenues as a percentage of services


52% in fiscal 2001.

Sales and marketing expenses

Sales and marketing expenses increased 92%

from Rs 171.33 million in fiscal 2000 to

Rs 329.64 million in fiscal 2001. The total

increase in sales and marketing expense of

Rs 158.31 million was principally attributable to

the launch of our subsidiary in the Netherlands

for marketing our products in Europe. Sales and

marketing expenses as a percentage of total


10% in fiscal 2001.

Sales and marketing expenses for our Products


in fiscal 2000 to Rs 289.41 million in fiscal 2001,

principally due to increased marketing of our

products by our Netherlands subsidiary. These

expenses, as a percentage of products revenues,


fiscal 2001.

Sales and marketing expenses for our Services


in fiscal 2000 to Rs 40.24 million in fiscal 2001.

These expenses as a percentage of services

revenue, continued to be 3% in fiscal 2001 as in

fiscal 2000.

General and administrative expenses

General and administrative expenses increased

43% from Rs 334.96 million in fiscal 2000 to

Rs 478.85 million in fiscal 2001. As a

percentage of total revenue, general and

administrative expenses remained constant at

15% in both fiscal 2000 and 2001. The major

reasons for the increase in general and

administration expenses were increases in the

power cost, repairs and maintenance cost.

However the communication expenses during

fiscal 2001 were controlled and reduced by 20%

as compared to fiscal 2000 primarily due to

the introduction of technologies such as

videoconferencing and leased line

communications within our facilities.


Products Business increased 37% from Rs 93.19


fiscal 2001. However as a percentage of products



fiscal 2001.


Services Business decreased 4% from Rs 123.16


fiscal 2001. Also as a percentage of services



fiscal 2001.

Provision for diminution in investment

During fiscal 2001, we provided for diminution

of Rs 50 million, representing 50% of the value

of our investment in Times Online Money

Limited.

Income taxes



million in fiscal 2001. Our effective tax rate

increased from 5.62% in fiscal 2000 to 8.21% in

fiscal 2001. This increase is primarily due to

increase in provision for foreign taxes

attributable to significant increase in the sales.

Income from operations and net income

As a result of the foregoing factors, income from

operations increased 34% from Rs 788.31


fiscal 2001, and net income increased 28% from

Rs 793.19 million in fiscal 2000 to Rs 1,013.61

million in fiscal 2001. As a result, our net

margins declined marginally from 36% in fiscal

2000 to 31% in fiscal 2001. 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 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 fiscal 2000, 2001 and 2002 we generated

cash from operations of Rs 526.74 million,

Rs 870.25 million and Rs 693.01 million,

respectively. The decrease during fiscal 2002 is

attributable to a significant increase in trade

receivables from Rs 1,184.28 million as of

March 31, 2001 to Rs 1,891.09 million during

the fiscal 2002.

Further, in fiscal 2002, an amount of Rs 1,150

million was invested in interest bearing bank

deposits. Although these deposits are for a period

of 181 days, the same can be liquidated on

demand. During fiscal 2000, 2001 and 2002

capital expenditure was Rs 166.10 million,

Rs 83.78 million and 240.95 million,

respectively. This expenditure was financed

primarily through our operating cash flow.

As of March 31, 2000, March 31, 2001 and

March 31, 2002 we had no borrowings. We

expect that our primary financing requirements

in the future will be capital expenditures and

working capital requirements in connection with

the expansion of our business. We believe that


cash generated from operations, along with the

net proceeds of the Fresh Issue, will be sufficient

to satisfy our currently foreseeable capital

expenditure and working capital requirements.

However, our liquidity and capital requirements

are affected by many factors, some of which are

based on the normal ongoing operations of our

businesses and some of which arise from

uncertainties related to global economies and

the sectors that we target for our services. In the

future, we may require or choose to obtain

additional debt or equity financing. We cannot

assure you that additional financing, if needed,

will be available on favourable terms.

We may finance future investments, partnerships

or acquisitions with a portion of the net proceeds

from the Fresh Issue, as well as with cash from

operations, our existing cash balances, debt

financing, the issuance of equity securities or a

combination of these. We cannot assure you that

we will be able to arrange financing on

acceptable terms, if at all, to complete any such

transaction.

Quantitative and qualitative disclosures about marketrisk

Our primary market risk exposures are on

account of the following:

• fluctuations in interest rates;

• fluctuations in the value of our investments;

and

• foreign exchange rate fluctuations,

principally relating to the fluctuation of the

U.S. Dollar to Indian Rupee exchange rate.

As of March 31, 2002, we held Rs 1,150 million

in interest–bearing bank deposits. Consequently,

we face a market risk exposure on account of

fluctuation in interest rates. These funds were

invested in the bank deposit of longer maturity

(more than 180 days) to earn interest income at

higher rate.

As of March 31, 2002, we had invested Rs 74.87

million in unquoted equity and debt securities

where we had less than 20% voting interest.

These investments are recorded at cost on our

balance sheet and any decline in fair value below

the original cost are recorded in the income

statement when they are considered to be other

than temporary.

A substantial portion of our revenues are

generated in foreign currencies while a majority

of our expenses are incurred in Indian Rupees

and the balance in U.S. Dollars and European

currencies. Our functional currency for Indian

operations is the Indian Rupee. We expect a

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. Consequently,

our results of operations will be affected to the

extent the Indian Rupee fluctuates against the

respective foreign currency.

Significant developments after March 31, 2002 thatmay affect our future results of operations

Under Section 10 A of the Income-tax Act, all

our profits arising out of exports were exempt

from payment of income taxes. However, under

the Finance Act, 2002, this exemption has been

limited to 90 percent of the eligible profits

(instead of 100 percent of such profits in prior

years) for fiscal 2003. Thus 10 percent of our

profits arising out of exports will be taxable at

the corporate tax rate of 36.75 percent

(including surcharge) in fiscal 2003.

So far, we have been obtaining L1 visas for our

employees working in the United States through

Citicorp Information Technology, Inc. Following

the incorporation of our subsidiary in the United

States, we have applied for the transfer of these

visas from Citicorp Information Technology, Inc.

to i-flex solutions Inc. In future, all such L1 visas

would be obtained through i-flex solutions Inc.

Any delay in the transfer of these visas or our

ability to obtain visas in the future could have

an impact on our business, financial condition

and results of operations.

Recent accounting pronouncements under US GAAP

Please refer to paragraph 2.20 of the “Notes to

the consolidated financial statements for fiscal

years ended March 31, 2002, 2001 (Restated), of

this Annual Report for recent US GAAP

pronouncements that impact our results of

operations.

Reimbursement for out-of-pocket expenses

The Group receives reimbursement for

out-of-expenses incurred, from the customers.

These expenses primarily include travel

expenses, accommodation and travel allowances

given to the employees. The Group is the

primary obligor and has the credit risk for the

expenses incurred. Pursuant to the guidance set

out in Emerging Issues Task Force Topic 103-D,

the Company reports these reimbursements of

out-of-pocket expenses as revenues.


To the Board of Directors of

iflex solutions limited

We have audited the accompanying consolidated

balance sheets of i-flex solutions limited, a

company incorporated in India, and its subsidiary

(‘the Group’) as of March 31, 2002 and 2001

(Restated, refer note 21), and the consolidated

statements of income, shareholders’ equity and

cash flows for the years ended March 31, 2002

and 2001 (Restated, refer note 21). These

financial statements are the responsibility of the

Group’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 of America. Those standards

require that we plan and perform the audit to

obtain reasonable assurance about whether the

financial statements are free of material

misstatement. An audit includes examining, on

a test basis, evidence supporting the amounts

and disclosures in the financial statements. An

audit also includes assessing the accounting

principles used and significant estimates made by

management, as well as evaluating the overall

financial statement presentation. We believe

that our audits provide a reasonable basis for our

opinion.

In our opinion, the consolidated financial

statements referred to above present fairly, in all

material respects, the financial position of the

Group as of March 31, 2002 and 2001

(Restated, refer note 21), and the results of its

operations and its cash flows for the years then

ended in conformity with accounting principles

generally accepted in the United States of

America.

Chennai Arthur Andersen & Associates

May 3, 2002

Report of Independentpublic accountants

Thousands of Thousands of Thousands ofUS Dollars(Translated) Indian Rupees Indian Rupees

2002 2002 2001(Restated)

Assets

Current assetsCash and cash equivalents 23,070 1,122,346 1,474,390Trade receivables, net 20,310 988,106 619,227Trade receivable from related parties, net 18,561 902,980 565,054Bank deposits 23,638 1,150,000 –Employee receivables 169 8,219 7,948Prepaid expenses 2,035 98,999 71,786Deferred income taxes, net 52 2,533 11,980Marketable securities, available for sale 429 20,861 46,688Other assets 1,390 67,624 18,492Total current assets 89,654 4,361,668 2,815,565

Property and equipment, net 6,337 308,283 207,928Other investments 1,539 74,875 79,875Investment in equity investee 490 23,834 9,660Rental deposits 5,992 291,541 282,182Employee receivables 493 23,984 28,646Deferred income taxes, net 506 24,624 6Other assets 246 11,949 22,819Total assets 105,257 5,120,758 3,446,681

Liabilities and stockholders’ equity

Current liabilitiesDeferred revenue 5,308 258,232 141,604Accrued employee costs 2,815 136,962 91,277Accrued referral fees 1,458 70,935 50,617Accrued rates and taxes 992 48,284 40,726Accounts payable 1,134 55,180 28,197Taxes payable 1,405 68,333 54,917Other current liabilities 2,294 111,585 161,928Current portion of capital lease obligations 124 6,035 4,216Total current liabilities 15,530 755,546 573,482

Deferred revenue 1,952 94,969 39,855Capital lease obligations 206 10,018 8,374Total liabilities 17,688 860,533 621,711

Stockholders’ equity

Common stock, Rs 5/- par value;100,000,000 equity shares authorised (refer note 2.2(c)),33,955,400 shares outstanding as of March 31, 2002 3,490 169,777 166,382Additional paid-in capital 12,472 606,760 168,805Accumulated other comprehensive income (254) (12,341) (3,283)Loan to ESPS Trust (5,995) (291,649) (300,198)Retained earnings 77,856 3,787,678 2,793,264Total stockholders’ equity 87,569 4,260,225 2,824,970

Total liabilities and stockholders’ equity 105,257 5,120,758 3,446,681

The accompanying notes are an integral part of these financial statements.

Arthur Andersen & Associates Rajesh Hukku Y M Kale Nihar Mody Ajay Relan Deepak GhaisasChairman & Director Director Director Company SecretaryManaging Director


Consolidated Balance sheetsas at March 31, 2002 and 2001


Thousands of) Thousands of Thousands ofUS Dollars(Translated) Indian Rupees Indian Rupees

2002) 2002) 2001)(Restated)

Revenues 89,562) 4,357,175) 3,240,550)

Cost of Revenues (39,248) (1,909,411) (1,248,851)

(excluding depreciation and amortisation)

Gross profit 50,314) 2,447,764) 1,991,699)

Selling and marketing expenses (12,398) (603,159) (329,644)

General and administrative expenses (11,594) (564,045) (478,845)

Depreciation and amortisation (2,887) (140,468) (127,390)

Income from operations 23,435) 1,140,092) 1,055,820)

Impairment loss on other investments –) –) (50,000)

Other than temporary dimunition in value of

securities available for sale (347) (16,887) –)

Share of associate companies loss (823) (40,044) (14,840)

Interest income 1,362) 66,244) 63,013)

Other income,net 711) 34,607) 50,231)

Income before provision for income taxes 24,338) 1,184,012) 1,104,224)

Provision for income taxes (3,042) (148,002) (90,614)

Net income 21,296) 1,036,010) 1,013,610)

Basic earnings per share (in USD, Rs) 0.68) 32.98) 33.08)

Diluted earnings per share (in USD, Rs) 0.65) 31.64) 31.78)


Consolidated Income Statementsfor the years ended March 31, 2002 and 2001



Thousands of Thousands of Thousands ofUS Dollars (Translated) Indian Rupees Indian Rupees

2002 2002 2001(Restated)

Cash flows from operating activitiesNet Income 21,296 1,036,010 1,013,610

Adjustments to reconcile net income to net cashprovided by operating activitiesDepreciation and amortization 2,887 140,468 127,390(Profit)/loss on retirement/sale of propertyand equipment, net 7 334 853Impairment loss on other investment – – 50,000Loss on sale of investment 31 1,500 –Other than temporary dimunition in value ofsecurities available for sale 347 16,887 –Share of associate companies loss 823 40,044 14,840Provision/write back for doubtful debt 1,115 54,284 (751)Deferred tax benefit, net (260) (12,667) (8,110)

26,246 1,276,860 1,197,832Change in assets and liabilitiesTrade receivables (15,648) (761,296) (539,277)Other assets (1,518) (73,848) (93,857)Current liabilities 5,166 251,298 305,553Net cash provided by operating activities 14,246 693,014 870,251

Cash flows from investing activitiesPurchase of property and equipment (4,953) (240,952) (83,775)Sale of property and equipment 4 207 87Investment in bank deposits (23,638) (1,150,000) –Purchase of investments (1,431) (69,598) (144,500)Share application money (609) (29,620) –Sale of investments 997 48,500 –Net cash (used in) investing activities (29,630) (1,441,463) (228,188)

Cash flows from financing activitiesIncrease in stockholder’s equity 70 3,395 –Increase in additional paid in capital 9,002 437,955 –Repayment of loan from ESPS Trust 176 8,549 4,461Capital lease payment (105) (5,106) (4,912)Dividend paid (855) (41,596) (20,798)Net cash (used by) financing activities 8,288 403,197 (21,249)

Net (decrease)/ increase in cash and cashequivalents during the year (7,096) (345,252) 620,814Effect of exchange gain/loss on cash and cash equivalents (140) (6,792) (11,136)Cash and cash equivalents at the beginning of the year 30,306 1,474,390 864,712Cash and cash equivalents at the end of the year 23,070 1,122,346 1,474,390

Supplementary informationCashTaxes paidDomestic taxes 985 47,932 20,975Foreign taxes 1,949 94,808 26,998Dividend taxes 87 4,243 4,576

3,021 146,983 52,549Non CashAssets acquired under capital leases 189 9,193 6,121


Consolidated Statement of Cash flowfor the years ended March 31, 2002 and 2001




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1 Background

i-flex solutions limited (‘the Company’ or

‘i-flex’), formerly Citicorp Information

Technology Industries Limited, a closely held

public limited company, was incorporated in

India with limited liability on September 27,

1989. The Company’s principal shareholder is

OrbiTech Limited (‘OrbiTech’) (formerly

Citicorp Overseas Software Limited) with

shareholding of 47.47 per cent. OrbiTech is a

100 per cent subsidiary of Citicorp Technology

Holdings, Inc., which is a part of Citigroup,

USA. On March 4, 2002 the Company issued

679,000 equity shares of par value of Rs 5/- each

fully paid up to Financial Ventures Mauritius

Limited, a subsidiary of Standard Chartered

Bank, at a premium of Rs 645/- per share.

The Company had a controlling/significant

interest in the following:

• i-flex solutions b.v. (‘i-flex b.v.’), a 100 per

cent owned subsidiary company

incorporated in May 2000 under the laws of

The Netherlands;

• DotEx International Limited (‘DotEx’), a

49 per cent owned investee company

incorporated in June 2000 under the Indian

laws;

• Flexcel International Private Limited

(‘Flexcel’), a 49.49 per cent owned investee

company incorporated in March 2001 under

the Indian laws;

• i-flex solutions pte. ltd., (‘i-flex pte.’), a 100

per cent owned subsidiary company

incorporated in November 2001 under the

laws of Singapore; and

• i-flex solutions inc., (‘i-flex inc.’), a 100 per

cent owned subsidiary company

incorporated in December 2001 under the

laws of the United States of America.

The Company along with i-flex b.v., i-flex pte.

and i-flex inc. (hereinafter collectively referred

to as ‘the Group’) is principally engaged in the

business of providing information technology

solutions to the financial services industry

worldwide. i-flex has a suite of banking products,

which caters to the needs of corporate, retail and

investment banking as well as treasury

operations and data warehousing. The Group

also provides software development services and

develops bespoke software for its customers from

the financial services industry. The Group

derives a substantial portion of its revenues from

the overseas markets.


2.1 Principles of consolidation

The accompanying consolidated financial

statements are prepared in conformity with

generally accepted accounting principles in the

United States of America (‘US GAAP’) to

reflect the financial position and the results of

operations of the Group.

The consolidated financial statements present

the accounts of the Group, as described above.

DotEx and Flexcel are accounted for using the

equity method since the Group exerts significant

influence on the operations of DotEx and

Flexcel. All material transactions and balances

between the entities included in the consolidated

financial statements have been eliminated.

2.2 Basis of presentation

(a) These financial statements are prepared

under the historical cost convention on the

accrual basis of accounting in accordance

with the accounting and reporting

requirements of US GAAP. The significant

accounting policies adopted by the Group,

in respect of the financial statements are set

out below.

Notes to the consolidated financial statementsfor the years ended March 31, 2002 and 2001 (restated)

(All amounts in thousands of Indian rupees,unless otherwise stated)


(b) These financial statements are stated in

thousands of Indian rupees (‘Rs’). For the

convenience of readers, the financial

statements for the year ended March 31, 2002

have been translated into thousands of

United States Dollars (‘USD’) using the telex

transfer average rate as prescribed by Citibank

NA as at March 28, 2002 which was 1 USD =

Rs 48.65. The convenience translation should

not be construed as a representation that the

Rs amounts or the USD amounts referred to

in these 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.

(c) On October 9, 1999, the Board of Directors

authorised a one-for-one stock split of the

Company’s equity shares effected in form of a

stock dividend. Further on October 31, 2000,

there was one-for-one stock split of the

Group’s shares in form of a stock dividend.

Also, in accordance with the resolution

passed in the shareholders’ and Board of

Directors’ meetings held on August 14, 2001

and January 7, 2002 respectively, the equity

share of par value Rs 10/- each has been split

into two equity shares of par value of Rs 5/-

each. Subsequent to the sub-division, the

authorised Common Stock is 100,000,000

equity shares and issued and outstanding

common stock is 33,955,400 equity shares.

The stockholders equity accounts reflect the

equity capitalisation of the Group after giving

retrospective effect to these stock dividends

and sub-division of shares for all the years

presented.

2.3 Use of estimates











and actions, actual results could differ from those

estimates.

2.4 Foreign currency

The functional currency of each entity in the

Group is its respective local currency. Monetary

assets and liabilities in foreign currencies are

remeasured into functional currency at the rates

of exchange prevailing at the balance sheet date.

Transactions in foreign currencies are

remeasured into functional currency at the

rates of exchange prevailing at the date of the

transaction. All foreign exchange gains and

losses are recorded in the accompanying

consolidated income statements. The results of

each entity in the Group are translated into

Indian rupees, the reporting currency, at the

average rates of exchange during the year and

the balance sheet is translated at the rate in

effect at the balance sheet date. Translation

adjustments are included as a separate

component of stockholders’ equity in the

accompanying consolidated statements.

2.5 Revenue recognition

The Group derives revenues from:

• The licensing of banking software products,

along with the provision of related

implementation services and post contract

support; and

• Providing software development and other

consulting services to certain customers,

which comprise primarily large financial

services companies.

License fees

The Group’s standard end user license agreement

for the Group’s products provides for an initial

fee to use the product up to a specified limit in

perpetuity. In accordance with the American

Institute of Certified Public Accountants

Statement of Position 97-2, “Software Revenue

Recognition” (‘SOP 97-2’), where an

arrangement does not provide for significant

modification or customisation of the software,

license fee revenues are recognised 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. Fees from licenses sold are recognised

only when the above criteria have been met.

The Group allocates a portion of its software

revenues to post-contract support activities

provided free of charge to the customer for a

specified period as included under the licensing

arrangement. Amounts allocated are based upon

Vendor Specific Objective Evidence (‘VSOE’) of

the fair value of those services or products.

If a licensing arrangement provides a customer a

right to a significant incremental discount (with

reference to VSOE of the fair value of that

element) on a future purchase of any other

software product or a service, a proportionate

amount of that discount is applied to each

element covered by that arrangement based on

each elements fair value. Licensing arrangements,

which allow a customer to purchase additional

copies of products already licensed and delivered

to the customer, do not result in the provision of

a significant discount to the customer. Revenues

are recognised as each additional copy is

purchased by the customer based on the price

per copy stated in the agreement.

If software product components are used in

software development and consulting services

agreement where the services are determined to

be essential to the functionality of the licensed

software both the license and consulting fees are

recognised under the proportional efforts

method of contract accounting.

Implementation/enhancement services

These services essentially comprise, inter alia,

functional enhancements, interface building,

implementation planning, data conversion,

training and product walkthrough and are

provided to customers who enter into licensing

arrangements with the Group. Such services are

generally not essential to the functionality of the

software. Revenue for implementation/

enhancement services is recognised upon the

proportionate efforts method to the extent

certified by the customer for fixed price

contracts and as the services are provided for

time and material contracts.

Post-contract support/annual maintenance contracts

Support agreements, which are generally for a

period of 12 months, require the Group to

provide technical support, maintenance, query

solving and upgrades to the customers Revenues

from post-contract support are recognised

rateably over the term of the contract on a

straight-line basis.

Software development and consulting services

The Group provides software development

services, which comprise resource augmentation

support and onsite and/or offshore development

activities. Revenue for time and material

contracts is recognised as the services are

provided. Fixed price contract revenue is

recognised using the proportionate effort method

to the extent certified by the customers.


Reimbursement for out-of-pocket expenses

The Group receives reimbursement for

out-of-pocket expenses incurred, from the

customers. These expenses primarily include

travel expenses, accommodation and travel

allowances given to the employees. The Group is

the primary obligor and has the credit risk for the

expenses incurred. Pursuant to the guidance set

out in Emerging Issues Task Force Topic 103-D,

during the current year the Company has reported

these reimbursements of out-of-pocket expenses

as revenues. As a result of these changes, revenues

for the previous years have been reclassified.

Deferred revenue represents amounts billed in

excess of revenue earned. Referral fees are

accrued for corresponding to the extent of the

recognition of revenue to which they relate.

2.6 Cost of revenues

Cost of revenues comprises of salaries and

employee benefits, project related travel costs,

application software costs and professional fees.

2.7 Research and development expenses forsoftware 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.

2.8 Cash and cash equivalents

Cash and cash equivalents include all highly

liquid investments with an original maturity of

ninety one days or less.

2.9 Property and equipment

Property and equipment including assets under

capital lease agreements are stated at cost, less

accumulated depreciation and amortisation.

Depreciation is computed using the

written-down value method and is charged to

income over the estimated useful life of the

assets. Assets under capital leases are amortised

over the shorter of the useful life or lease term.

The Group purchases certain application

software 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.

Costs of normal repairs and maintenance

are charged to income as incurred. Major

replacements or betterment of property and

equipment are capitalised. When assets are sold

or otherwise disposed off, the cost and related

accumulated depreciation are removed from the

accounts and any resulting gain or loss is

included in the statement of operations.

Advances paid towards the acquisition of

property and equipment outstanding at each

balance sheet date and the cost of property and

equipment not put to use before such date are

disclosed under ‘Capital advances’.

2.10 Impairment of long-lived assets

The Group reviews long-lived assets for

impairment, whenever an event or changes in

circumstances indicate that the carrying amount

of such assets may not be recoverable. The

carrying values of long-lived assets are assessed

for recoverability by reference to the estimated

future undiscounted cash flows associated with

them. Where this assessment indicates a deficit,

the assets are written down to market value. For

assets, which do not have a readily determinable

market value, the assets are written down to

their estimated market value, calculated by

reference to the estimated future discounted cash

flows. Assets to be disposed are reported at the

lower of the written down value or the fair value,

less the cost to sell. As at March 31, 2002

management believes that no such impairment

exists.

2.11 Marketable securities

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 excluded from net income and

reported, net of taxes as a separate component

of stockholders’ equity. Declines in fair value

below original cost are recorded in the income

statement when they are considered to be other

than temporary.

2.12 Other investments

Investments where the Group controls between

20 percent and 50 percent of the voting interest

are accounted for using the equity method.

Investments in unquoted equity and debt

securities, where the Group controls less than 20

percent voting interest are accounted for at cost.

Decline in fair value below original cost is

recorded in the income statement when they are

considered to be other than temporary.

2.13 Income taxes

The current charge for income taxes is

calculated in accordance with the relevant tax

regulations applicable to the Group. Deferred

income taxes are recognised for the future tax

consequences attributable to temporary

differences between the financial statement

carrying amounts of existing assets and liabilities

and their respective tax bases. The effect on

deferred tax assets and liabilities of a change in

tax rates is recognised in income statement in

the year that includes the enactment date.

Deferred tax assets are recognised in full, subject

to a valuation allowance to reduce the amount

recognised to that, which is more likely than not

to be realised.

2.14 Retirement benefits

Contributions to defined contribution plans are

charged to income in the year in which they

accrue. Current service costs for defined benefit

plans are also accrued in the year to which they

relate. Prior service costs, if any, resulting from

amendments to the plans are recognised and

amortised over the remaining period of service

of such employees.

2.15 Operating leases

Leases of assets under which the lessor

effectively retains all the risks and rewards of

ownership are classified as operating leases.

Lease payments under an operating lease are

recognised as an expense on a straight-line basis

over the lease term.

2.16 Earnings per share

Basic earnings per share is computed by dividing

the net income by the weighted average number

of common shares outstanding during the year.

Diluted earnings per share is computed using the

weighted average of common and dilutive

common equivalent shares outstanding during

the year, using the treasury stock method for

shares which have been granted to employees

pursuant to the Employees Stock Purchase

Scheme (‘the Scheme’) adopted by the Group,

except where the result would be anti-dilutive.

The weighted average of common and dilutive

common equivalent shares outstanding at the

year-end reflect the retrospective effect to the

stock dividends and sub-division of shares for all

the years presented. Please refer note 2.2 (c).


2.17 Stock-based compensation

The Company accounts for stock-based

compensation using the intrinsic value method

prescribed in APB No. 25, “Accounting for

Stock Issued to Employees”. Compensation cost

for stock options is measured as the excess of the

fair value of the Company’s stock on the

measurement date over the amount an employee

must pay to acquire the stock and is recognised

over the vesting period. The intrinsic value of

the options is measured on the basis of the fair

value of the Company’s stock at the end of each

period.

SFAS No. 123, “Accounting for Stock-Based

Compensation,” established accounting and

disclosure requirements using a fair-value-based

method of accounting for stock-based employee

compensation plans. The Company has elected

its current method of accounting as described

above, and has adopted the disclosure

requirements of SFAS No. 123.

2.18 Derivative instruments and hedging activities

In June 1998, the FASB issued SFAS No. 133,

“Accounting for Derivative Instruments and for

Hedging Activities”. SFAS No. 133 established

accounting and reporting standards requiring

that every derivative instrument be recorded in

the balance sheet as either an asset or liability

measured its fair value. SFAS No. 133 also

required that changes in the derivative’s fair

value be recognised currently in earnings unless

specific hedge accounting criteria are met and

that the Group must formally document,

designate and assess the effectiveness of

transactions that receive hedge accounting. The

Group adopted SFAS No. 133 on April 1, 2001.

The Group does not use derivative financial

instruments and does not engage in any hedging

activities. However, some of the license

arrangements entered into by the Group with its

customers are denominated in a currency which

is neither the functional currency of the Group

nor the local currency of the customer, and thus

qualify as embedded derivative instruments as

per SFAS No. 133. Accordingly, gains or losses

on such embedded derivative instruments are

recognised in the Group’s consolidated income

statements based on the market value of the

embedded derivative contracts at each period

end.

Though the Group adopted the provision of

SFAS 133 at April 1, 2001, no transition

adjustment was recorded, as the amounts were

immaterial. The Group has recognised Rs 643 as

revenue related to these embedded derivatives

for the year ended March 31, 2002.

2.19 Vacation pay

Accrual for vacation pay is determined at

current employees compensation rate/actuarial

estimate for the entire unavailed leave balance

standing to the credit of the employees at the

year-end.

2.20 Recent accounting pronouncement

Business combinations, goodwill and other

intangible assets

In June 2001, the Financial Accounting

Standards Board (‘FASB’) issued Statements of

Financial Accounting Standard (‘SFAS’) No.

141, Business Combinations and SFAS No. 142,

Goodwill and Other Intangible Assets. SFAS

No. 141 requires the use of the purchase method

of accounting for all business combinations

initiated after December 30, 2001. SFAS No.

141 requires intangible assets to be recognised if

they arise from contractual or legal rights or are

“separable”, i.e., it is feasible that they may be

sold, transferred, licensed, rented, exchanged or

pledged. As a result, it is likely that more

intangible assets will be recognised under SFAS

No. 141 than its predecessor, APB Opinion

No. 16 although in some instances previously

recognised intangibles will be subsumed into

goodwill.

Under SFAS No. 142, goodwill will no longer

be amortised on a straight-line basis over its

estimated useful life, but will be tested for

impairment on an annual basis and whenever

indicators of impairment arise. The goodwill

impairment test, which is based on fair value, is

to be performed on a reporting unit level. A

reporting unit is defined in SFAS No. 131 as an

operating segment or one level lower. Goodwill

will no longer be allocated to other long-lived

assets for impairment testing under SFAS No.

121, Accounting for the Impairment of

Long-Lived Assets and for Long-Lived Assets to

be Disposed of. Additionally, goodwill on equity

method investments will no longer be amortised;

however, it will continue to be tested for

impairment in accordance with Accounting

Principles Board Opinion No. 18, The Equity

Method of Accounting for Investments in

Common Stock. Under SFAS No. 142

intangible assets with indefinite lives will not

be amortised. Instead they will be carried at

the lower cost or market value and tested for

impairment at least annually. All other

recognised intangible assets will continue

to be amortised over their estimated

useful lives.

SFAS No. 142 is effective for fiscal years

beginning after December 15, 2001 although

goodwill on business combinations

consummated after July 1, 2001 will not be

amortised. The Group does not anticipate that

adoption of SFAS No. 142 will have a material

impact on its results of operations or its

financial position.

Accounting for Asset Retirement Obligations

In June 2001, the FASB issued SFAS No. 143,

“Accounting for Asset Retirement Obligations.”

SFAS No. 143 requires that the fair value of a

liability for an asset retirement obligation be

recognised in the period in which it is incurred if

a reasonable estimate of fair value can be made.

The associated asset retirement costs are

capitalised as part of the carrying amount of the

long-lived asset. An entity shall measure

changes in the liability for an asset retirement

obligation due to passage of time by applying an

interest method of allocation to the amount of

the liability at the beginning of the year. The

interest rate used to measure that change shall

be the credit-adjusted risk-free rate that existed

when the liability was initially measured. That

amount shall be recognised as an increase in the

carrying amount of the liability and as an

expense classified as an operating item in the

statement of income. SFAS No. 143 is effective

for fiscal years beginning after June 15, 2002.

The Group does not anticipate that adoption of

SFAS No. 143 will have a material impact on its

results of operations or its financial position.

Accounting for the Impairment or Disposal ofLong-Lived Asset

In August 2001, the FASB issued SFAS No. 144,

“Accounting for the Impairment or Disposal of

Long-Lived Assets”. SFAS No. 144 establishes a

single accounting model for long-lived assets to

be disposed of by sale consistent with the

fundamental provisions of SFAS 121

“Accounting for the Impairment of Long-Lived

Assets and for Long-Lived Assets to be Disposed

Of”. Whilst it supersedes APB Opinion 30

“Reporting the Results of operations – Reporting

the Effects of Disposal of a Segment of a

Business, and Extraordinary, Unusual and

Infrequently Occurring Events and Transactions”

it retains the presentation of discontinued


operations but broadens that presentation to

include a component of an entity (rather than a

segment of a business). However, discontinued

operations are no longer recorded at net

realisable value and future operating losses are

no longer recognised before they occur. Under

SFAS No. 144 there is no longer a requirement

to allocate goodwill to long-lived assets to be

tested for impairment. It also establishes a

probability weighted cash flow estimation

approach to deal with situations in which there

are ranges of cash flows that may be generated by

the asset being tested for impairment. SFAS

No. 144 also establishes criteria for determining

when an asset should be treated as held for sale.

SFAS No. 144 is effective for fiscal years

beginning after December 15, 2001 and interim

periods within those fiscal years, with early

application encouraged. The provisions of the

Statement are generally to be applied

prospectively. The Group currently has no plans

to dispose of any operations and accordingly,

does not anticipate that adoption of SFAS

No. 144 will have a material impact on its

results of operations or its financial position.

3 Cash and cash equivalents

Cash and cash equivalents consist of physical

cash, cheques on hand and balances available in

current accounts and time deposits with banks.

Time deposits are interest-bearing deposits for

periods ranging from 30 to 91 days. The details

of cash and cash equivalents are as follows:

As at March 31

2002 2002 2001

Cash on hand 10 506 239

Cheques on hand – – 63,362

Bank balances

• Current

accounts 18,143 882,651 714,304

• Time deposits 4,917 239,189 696,485

23,070 1,122,346 1,474,390

Cash and cash equivalents of the Company are

subject to local exchange control restrictions and

can be remitted overseas only with prior approval

from the relevant regulatory authorities.

4 Trade receivables, net

As at March 31

2002 2002 2001

Trade receivables 21,434) 1,042,797) 623,460)

Less: Provision

for doubtful debts (1,124) (54,691) (4,233)

20,310) 988,106) 619,227)

Trade receivables

from related parties 18,586) 904,201) 565,054)

Less: Provision for

doubtful debts (25) (1,221) –)

18,561 902,980) 565,054)

38,871 1,891,086) 1,184,281)

Thousands ofIndian Rupees

Thousands ofUS Dollars





Thousands of Indian rupeesThousands ofUS Dollars




5 Property and equipment, net

Property and equipment consist of the following:

Property and equipment above include the

following assets held under capital leases:

2002 2002 2001

Vehicles 553 26,890 19,337

Less: Accumulated

amortization (254) (12,370) (8,104)

299 14,520 11,233

6 Financial instruments

SFAS 107 requires the Group to disclose the fair

value of all financial instruments in the financial

statements. However, this does not change any

requirements for recognition, measurement, or

classification of the financial instruments in the

financial statements.

2002 2002) 2001)

Estimated

useful life

(years)

Freehold Land 920 44,734 –

Improvement to leasehold premises 7 1,716 83,479 64,687

Building 20 146 7,116 7,116

Computer equipments 3 8,256 401,650 319,729

Electrical and office equipment 7 2,946 143,349 101,999

Furniture and fixtures 7 2,471 120,228 78,639

Vehicles on lease 4-5 553 26,890 19,337

Capital advances 50 2,412 103

17,058 829,858 591,610

Less: Accumulated depreciation

and amortization (10,721) (521,575) (383,682)

Property and equipment, net 6,337 308,283 207,928

As at March 31

As at March 31


The fair values of the Group’s current assets and

current liabilities approximate their carrying

values because of their short maturity. Such

financial instruments are classified as current

and are expected to be liquidated within the

next twelve months. The fair values of equity

investment, deferred income taxes and other

investments are not disclosed as prescribed by

SFAS 107.

Long-term employee receivables are loans given

to employees to acquire assets such as property

and vehicles. Such loans are repayable over fixed

periods ranging from three to ten years. The

Group recovers interest on such loans at rates,

which closely approximates the market rates.

Hence, the fair value of the long-term employee

receivables closely approximates the carrying

value in the financial statements at Rs 23,984,

Rs 28,646 as at March 31, 2002 and 2001

respectively.

Long-term rental deposits comprise of interest

free deposits maintained for office and

residential premises taken on lease. Such

deposits are repayable on termination of such

lease agreements. The fair value of the

long-term rental deposits carried in the financial

statements as at March 31, 2002 and 2001 is

Rs 291,541 and Rs 282,182 respectively,

determined using market rates of interest as at

March 31, 2002 and 2001 is approximately

Rs 206,814 and Rs 160,932 respectively.

7 Stockholders’ equity

7.1 Common stock

The Group has only one class of common stock

referred to herein as equity shares.

7.2 Voting

Each holder of equity shares is entitled to one

vote per share.

7.3 Dividends

Final 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 by the Board of Directors. With

respect to equity shares issued by the Company

during a particular fiscal year, cash dividends

declared and paid for such fiscal year generally

will be prorated from the date of issuance to the

end of such fiscal year. The Company accrues for

dividend upon obtaining shareholders approval.

The Company paid cash dividends of Rs 41,596

and Rs 20,798 during the years ended March 31,

2002 and 2001 respectively. Dividend tax paid

by the Company is charged to the income

statement as part of provision for taxes. For

the years ended March 31, 2002 and 2001

the Company paid Rs 4,243 and Rs 4,576

respectively as dividend tax.

7.4 Liquidation

In the event of liquidation of the Company, the

holders of equity shares shall be entitled to

receive all of the remaining assets of the

Company, after distribution of all preferential

amounts, if any. Such amounts will be in

proportion to the number of equity shares held

by the shareholders.

8 Marketable securities, available for sale

The fair values of the available for sale securities

are as follows:

As at March 31,

2002 2002 2001

Unit Trust of India –

1964 Scheme –

Carrying value/cost 960 46,688 47,516

Less: Other than

temporary

diminution in value (347) (16,887) –

Less: Excess of cost

over market value (184) (8,940) (828)

429 20,861 46,688

The Group holds 3,311,258 units (and 278

fractions) of Rs 10 each of Unit Trust of India –

1964 Scheme (‘US 64’). During the year ended

March 31, 2002 net asset value of US 64 has

reduced substantially. Further, during January

2002, Unit Trust of India (‘UTI’) declared

‘special liquidity scheme’ for all unit holders

holding units in excess of 5,000 units under

which UTI, as on May 31, 2003 would

repurchase the units at Rs 10/- per unit or at

net asset value per unit, as at that date, which

ever is higher.

The Group considers the excess of its cost over

this future repurchase price of units amounting

to Rs 16,887 as other than temporary diminution

in value and has therefore charged Rs 16,887 to

the income statement. The excess of the future

repurchase price over the market price as at

March 31, 2002 is considered as temporary

diminution in value and has been classified as

part of ‘other comprehensive income’.

9 Other investments

Other investments comprise:

As at March 31,

2002 2002 2001

Unquoted

equity Securities

Times Online

Money Limited

(‘TOML’) – – 100,000

Less: Other than

temporary

diminution

in value – – (50,000)

– – 50,000

EBZ Online

Private Limited

(‘EBZ’) 925 45,000 –

Eastern Software

Systems Limited

(‘ESSL’) 203 9,875 9,875

1,128 54,875 59,875

Held to maturity

debt securities

12.75% KEONICS

Mahiti Bonds

Series – 1 411 20,000 20,000

1,539 74,875 79,875

The Company’s ownership interest in EBZ

and ESSL is 19.5 percent and 6.65 percent

respectively. The nature of business of each of

these companies is as follows:

• EBZ is a strategic partnership between

Brihans Technologies Private Limited

(‘BTPL’) and the Company to integrate the

selected and adapted software provided

under Group’s products with BTPL’s

products for Co-operative banking sector

in India.

Thousands of Indian RupeesThousands ofUS Dollars



• ESSL is primarily engaged in catering to the

needs of small businesses through its flagship

product, ‘ebizframe’.

All companies are unlisted companies. The

Group does not exert significant influence

directly/indirectly on the operations of EBZ and

ESSL by way of representation on the Board of

Directors, participation in policy-making

processes, material intercompany transactions,

interchange of managerial personnel or

technological dependency. Accordingly these

investments are valued at cost less any decline in

fair value below original cost when considered to

be other than temporary. Management believes

that there is no other than temporary decline in

the value of these investments.

TOML was a joint venture between Times of

India Group, Citibank NA and the Group. The

Group provided technological support to the

timesofmoney.com, a portal developed by

TOML. Due to significant fall in the valuation

of Internet companies during the year ended

March 31, 2001, the enterprise value of TOML

declined significantly. Accordingly, it had

provided Rs 50,000 during the year ended March

31, 2001 as it believed that the fair value of its

investment in TOML had declined as a result.

The Group sold this investment to the Times of

India Group for a consideration of Rs 48,500 and

the resulting loss of Rs 1,500 has been included

in other income.

Investments in debt securities 12.75%

KEONICS Mahiti Bonds Series – 1 allotted on

February 1, 2001 are non-convertible

redeemable at par at the end of seven years from

the date of allotment. As per the terms of the

securities, the Group has put and call option at

par at the end of five years from the date of

allotment.

10 Investments in equity investees

The Group exercises significant influence over

the affairs of Flexcel and DotEx and hence its

investments in these companies is accounted for

based on the equity method.

DotEx is a 51:49 joint venture between NSE.IT

Limited, a wholly owned subsidiary of The

National Stock Exchange of India Limited

(‘NSE’) and the Group for setting up a Broker

Plaza enabling brokers and their clients to

transact in stock/securities markets through the

internet.

Flexcel, is a joint venture with HDFC Bank

Limited and its group companies to provide the

Group’s products through an Application

Service Provider (‘ASP’) model to various banks

and financial institutions in India. The Group

holds 49.49 percent shares in Flexcel while the

balance of 50.51 percent shares is held by HDFC

Bank Limited and its group companies. During

the year ended March 31, 2002, the Group

invested Rs 29,718 in Flexcel for purchase of

equity shares. As at March 31, 2002, Flexcel has

allotted equity shares amounting to Rs 98 while

the balance Rs 29,620 is disclosed as advance

against the investments with Flexcel since the

shares have not been allotted to the Group

pending completion of legal formalities. Hence

advance against shares has been separately

disclosed below as part of the carrying value of

this investment.


As at March 31

2002 2002 2001

Original Cost

DotEx 1,007 49,000 24,500

Flexcel 2 98 –

Add: Advance

against share capital

given to Flexcel 609 29,620 –

Less: Group’s share

of loss in

DotEx (933) (45,402) (14,840)

Flexcel (195) (9,482) –

490 23,834 9,660

The analysis of the carrying amount of

investments and the earnings of the investee

included in net income is as follows:

As at March 31

2002 2001

Share of net assetsDotEx 3,598 9,660Flexcel 10,172 –

13,770 9,660Carrying valueDotEx 3,598 9,660Flexcel 20,236 –

23,834 9,660Share of (loss)of equity investeeDotEx (30,562) (14,840)Flexcel (9,482) –

(40,044) (14,840)(Loss) includedin net incomeDotEx (30,562) (14,840)Flexcel (9,482) –

(40,044) (14,840)

The summarized unaudited financial statements ofDotEx are as follows:

As at March 31

2002 2001

Balance sheetCurrent assets 9,586 21,301Fixed assets, (net) 17,677 21,048Total assets 27,263 42,349

Current liabilities 15,438 18,936Unsecured loans 4,484 3,700Stockholders’ equity 7,341 19,713Total liabilities andstockholders’ equity 27,263 42,349

Income statementRevenues 3,778 1,254Expenses (66,149) (31,540)Loss from operations (62,371) (30,286)Net loss (62,371) (30,286)

The summarized unaudited financial statements of

Flexcel are as follows:

As at March 31

2002 2001

Balance sheetCurrent assets 33,318 –Fixed assets, (net) 11,551 –Total assets 44,869 –Current liabilities 24,314 –Stockholders’ equity 20,555 –Total liabilities andstockholders’ equity 44,869 –

Income statementRevenues 542 –Expenses (19,706) –Loss from operations (19,164) –Net loss (19,164) –






11 Other current liabilities

Other current liabilities primarily comprise of:

As at March 31

2002 2002 2001

Communication

expenses 232 11,291 9,477

Travelling expenses 974 47,394 101,579

Professional fees 466 22,681 21,235

Other liabilities 622 30,219 29,637

2,294 111,585 161,928

12 Employee benefit plans

The Group has employee benefit plans in the

form of certain statutory and welfare schemes

covering substantially all of its employees.

12.1 Provident fund

In accordance with Indian law, all employees

of the Company, are entitled to receive

benefits under the Provident Fund, a defined

contribution plan in which both the employee

and the Company, contribute monthly at a

determined rate (currently 12 per cent of the

employees’ base salary). These contributions are

made to the Government Provident Fund and

the Company has no further obligation under

Provident Fund, beyond its monthly

contributions. The Company contributed during

the years ended March 31, 2002 and 2001


12.2 Superannuation

The superannuation plan is a defined

contribution pension plan for certain category of

employees of the Company. The Company

contributes to employees’ superannuation fund

at 5 to 10 per cent of the employee’s base salary.

The superannuation fund is administered by a

trust formed for this purpose through the Group

Scheme of the Life Insurance Corporation of

India (‘LIC’). The contributions made are

recorded in the income statement on an accrual

basis. The amounts contributed to the

superannuation fund during the years ended

March 31, 2002 and 2001 amounted to Rs 9,942

and Rs 5,537 respectively. The Company has no

further obligations under the plan beyond its

contribution.

12.3 Vacation pay

Vacation pay liability has been determined at

current employees compensation rate/actuarial

estimate. The amount accrued for the year ended

March 31, 2002 and 2001 was Rs 65,673 and

Rs 65,659 respectively.

12.4 Gratuity

In accordance with Indian law, the Company

provides for gratuity, a defined benefit retirement

plan ('the gratuity plan') covering all its

employees. The Gratuity Plan provides a lump

sum payment to vested employees on retirement

or on termination of employment of an amount

based on the respective employees' salary and

the years of employment with the Company.

The gratuity plan fund benefits of the Company

are administered by a trust formed for this

purpose through the Group Schemes of Life

Insurance Corporation of India (‘LIC’). The

Company provides for the gratuity benefit

through actuarially determined contributions.

The net gratuity cost during the year ended 2001

amounted to Rs 5,075. As the projected benefit

obligation, relating to the gratuity plan, during

the year ended March 31, 2001 was not material,

the Company had not adopted the disclosure

requirements of SFAS 132.


Change in benefit obligationBenefit obligation at beginning of year 225 10,955Service cost 51 2,480Interest cost 21 1,011Benefits paid (3) (158)Actuarial loss 116 5,671Benefit obligation at end of year (A) 410 19,959

Change in plan assetsFair value of plan assets at beginning of year 128 6,243Return on plan assets 11 555Benefits paid (3) (158)Fair value of plan assets at end of year (B) 136 6,640

Funded status (A-B) 274 13,319Unrecognised net transition obligation (13) (628)Unrecognised net actuarial loss (116) (5,650)Unrecognised prior service cost – –

Accrued benefit cost 145 7,041

2002

Net gratuity cost for the year ended March 31, 2002 comprises of the following components:

Components of net periodic benefit cost

Service cost 51 2,480Interest cost 21 1,011Expected return on plan assets (11) (534)Amortization of Transition liabilities 6 314Recognised net actuarial loss – –

Net periodic benefit cost 67 3,271

2002

During the year ended March 31, 2002 the

Company has adopted the disclosure

requirements of SFAS 132, and the change in

benefit obligation and funded status of the

gratuity plan for the year ended March 31, 2002

is as follows:






The assumption used in accounting for the

gratuity plan for the year ended March 31, 2002

is set out below:

Discount rate 9.5% p.a.

Expected return on plan assets 9.0% p.a.

Rate of compensation increase 5.0% p.a.

The Company evaluates these assumptions based

on its long-term plans of growth and industry

standards.

13 Other income, net

Other income comprises of the following:

Year ended March 31

2002) 2002) 2001

Foreign exchange gain,

net 674) 32,782) 45,374

Dividend 68) 3,311) 4,553

Loss on sale of

investment (31) (1,500) –

Miscellaneous income –) 14) 304

711) 34,607) 50,231

14 Income taxes

Under the Indian Income-tax Act, 1961, the

Company is eligible to claim benefits with

respect to profits earned from export revenues

from its five units registered under the Software

Technology Parks (‘STP’) and one unit forming

part of a Special Economic Zone (‘SEZ’). The

benefit as per the current tax laws is restricted to

10 consecutive assessment years, beginning with

the assessment year relevant to the previous year

in which the Company commences operations

from each location. These benefits will expire for

certain of the Company’s units beginning from

April 1, 2004. Foreign taxes are towards income

taxes payable in the United States of America,


The provision for income tax consists of the

following:

Year ended March 31

2002) 2002) 2001)

Current tax expense

Domestic taxes 1,100) 53,550) 32,576)

Foreign taxes 2,202) 107,119) 66,148)

Deferred tax income

relating to the

origination and

reversal of temporary

differences (260) (12,667) (8,110)

3,042) 148,002) 90,614)



(Restated, refer Note 21)


The components of the deferred tax asset are as

follows:

Year ended March 312002 2001

Loss on sale of investment 10,506 –

Other than temporarydiminution in value ofinvestments 3,445 11,200

Unrealised gain onmarketable securities 2,499 742

Share of loss in equityinvestees 11,196 3,324

Difference between bookand tax depreciation 24,624 6

Other differences 34 3852,304 15,310

Less: Valuation allowance (25,147) (3,324)

Total deferred tax asset 27,157 11,986

The Group has created a valuation allowance

for tax effect of loss on sale of investment and

provision for diminution in value of investments

of Rs 10,506 and Rs 3,445 respectively for the

year ended March 31, 2002. Similarly, the Group

has created a valuation allowance in respect of

difference between the tax base and book base

for its investments in equity investee of

Rs 11,196 and Rs 3,324 for the years ended

March 31, 2002 and 2001 respectively. The

above losses would be deductible for tax only

when the investments are sold and if the Group

has offsetting capital gains. Given these

uncertainties, the Group has fully reserved the

tax benefit of the loss on sale/provision for

diminution in value of these investments.

For the year ended March 31, 2002 and March

31, 2001, the Group has not recognised deferred

tax asset for an excess of tax basis over financial

reporting basis for losses of its subsidiaries.

The management considers that the temporary

difference on account of these losses will not

reverse in the foreseeable future.

(Restated,refer Note 21)



2002) 2002) 2001)

Accounting profit 24,338 1,184,012 1,104,224

Enacted tax rate % 35.70 35.70 39.55

Computed tax expense 8,688 422,692 436,720

Tax effect on exempt profit/income (9,369) (455,820) (411,554)

Difference in rate between Indian and foreign taxes – – (26,161)

Taxes on dividend paid 87 4,243 4,576

Impact of change in tax rates 217 10,578 11,794

Tax effect on loss of subsidiaries 753 36,656 5,767

Valuation allowance, during the year 469 22,795 3,324

Others (5) (261) –

840 40,883 24,466

Add: Foreign taxes 2,202 107,119 66,148

Total 3,042 148,002 90,614

The total deferred tax asset has been presented in

the balance sheet as follows:

2002 2002 2001

Current deferred

tax asset 52 2,533 11,980

Non current

deferred tax asset 506 24,624 6

558 27,157 11,986

15 Leases

The Group takes vehicles under capital lease

upto five years Future minimum lease payments

under capital leases as at March 31, 2002 are as

follows:


(Restatedrefer Note 21)




(Restatedrefer Note 21)


The following is a reconciliation of the statutory

tax rate under the Indian Income-tax Act, 1961

and the Group’s effective tax rate:

influence. The Group has also entered into

certain transactions with its investee companies

TOML and DotEx, and affiliate, Flexcel.

The related party transactions can be categorised

as follows:

16.1 Banking product revenues

The Group supplied banking products and earned

revenues from the following related parties:

2002 2002 2001

Citibank branches 11,887 578,326 285,946

CITI 75 3,646 16,802

e-Serve 3 169 155

DotEx 2 100 –

Flexcel 7 358 –

11,974 582,599 302,903

16.2 IT solutions and consulting service revenues

The Group has provided IT solutions and

consulting services and earned revenues from the

following related parties:

2002 2002 2001

Citibank branches 12,693 617,536 490,868

CITI 14,253 693,396 725,834

TOML – – 10,000

DotEx 197 9,560 8,960

e-Serve – 21 42

27,143 1,320,513 1,235,704

March 31

2003 166 8,0702004 124 6,0252005 80 3,9122006 35 1,6812007 7 328Total minimum payments 412 20,016

Less: Amount representingfuture interest 82 3,963Present value of minimumpayments 330 16,053

Less: Current portion 124 6,035Long term lease obligation 206 10,018

The Group has taken certain office premises,

residential premises and vehicles for employees

under operating lease, which expire at various

dates through to 2012. Gross rental expense for

the year ended March 31, 2002 and 2001 was


The minimum rental payments to be made in

future in respect of these leases:

March 31

2003 1,802 87,6462004 1,490 72,4822005 869 42,2552006 469 22,8032007 458 22,283

Thereafter till 2012 659 32,062


The Group has entered into transactions with

various Citibank branches, Citicorp Information

Technology, Inc (‘CITI’), e-Serve International

Limited (‘e-Serve’) over which Citigroup and its

affiliates have significant ownership interest,

controlling interest or exercise significant












16.3 Lease payments

The Group takes vehicles under capital leases

from e-Serve. The lease rentals (principal and

interest) paid to e-Serve on this account for the

year ended March 31, 2002 and 2001 aggregated


16.4 Professional services

The Group utilised the services of professionals

from OrbiTech towards software development.

The total payments towards these professional

services for the year ended March 31, 2002

aggregated Rs 25,155 (March 31, 2001 – Nil).

16.5 Amounts due from related parties

Amounts receivable from related parties on

account of sales of product license and related

activities and IT solutions and consulting

services referred to above are as follows:

2002 2002 2001

Citibank branches * 12,720 618,835 294,426

CITI 5,689 276,761 262,694

DotEx 144 6,999 5,392

TOML – – 2,500

Flexcel 8 385 –

e-Serve – – 42

18,561 902,980 565,054

* Net of provision for doubtful debts of Rs 1,221

(March 2001 – Rs Nil).

16.6 Amounts due to related parties

The amount due to e-Serve towards lease

obligations payable (principal and interest) and

to OrbiTech towards payment of professional

fees as at March 31, 2002 aggregated Rs 14,896

(March 31, 2001 – Rs 15,981) and Rs 1,427

(March 31, 2001 – Nil) respectively.



17 Segmental information

The Group has adopted SFAS No. 131,

“Disclosures about Segments of an Enterprises

and Related Information” which requires

reporting information about operating segments

in annual financial statements. It has also

established standards for related disclosures

about products and services, and geographic

areas. Operating 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 organised geographically and by

business segment. For the management purpose

the Group is primarily organised on a worldwide

basis into two business segments:

• Product licenses and related activities; and

• IT solutions and consulting services

The segments are the basis on which the Group

reports its primary segment information to the

management. The Product license segment has

banking products like FLEXCUBE suite of

products and Microbanker which cater to needs

of corporate, retail and investment banking as

well as treasury operations and datawarehousing

requirements. The related activities include

enhancements, implementation and

maintenance activities.

IT solutions and consulting services comprise

of bespoke software development, computer

software solutions and related consulting services

arising from such activities. This segment is

further sub-divided in the following subsegments

i.e. Business intelligence, Customer relationship

management, Brokerage, e-commerce, Internet

services and IT and business consulting.

Year ended March 31, 2002


Particulars Product license IT solutionsand related and consulting

activities services Corporate Total)

Revenue 2,614,393 1,742,782 – 4,357,175

Cost of revenue (836,935) (1,072,476) – (1,909,411)

Gross profit 1,777,458 670,306 – 2,447,764

Selling and marketing expenses (559,932) (43,227) – (603,159)

General and administrative expenses (173,064) (147,415) (243,566) (564,045)

Depreciation and amortisation (49,296) (78,061) (13,111) (140,468)

Operating income of the segment 995,166 401,603 (256,677) 1,140,092

Other than temporary

diminution in value

of marketable securities (16,887)

Share of associate companies loss (40,044)

Interest income 66,244

Other income, net 34,607

Income before provision for taxes 1,184,012

Provision for income taxes (148,002)

Net income 1,036,010

Other information

Segment assets 1,326,768 1,179,260 2,614,730 5,120,758




Particulars Product license) IT solutions)and related) and consulting)

activities) services) Corporate Total)

Revenue 53,739 35,823 –) 89,562Cost of revenue (17,203) (22,045) –) (39,248)Gross profit 36,536 13,778 –) 50,314Selling and marketing expenses (11,509) (889) –) (12,398)General and administrative expenses (3,557) (3,030) (5,007) (11,594)Depreciation and amortisation (1,013) (1,605) (269) (2,887)Operating income of the segment 20,457 8,254 (5,276) 23,435Other than temporary diminution in valueof marketable securities (347)Share of associate companies loss (823)Interest income 1,362Other income, net 711Income before provision for taxes 24,338Provision for income taxes (3,042)Net income 21,296

Other informationSegment assets 27,272 24,240 53,745 105,257Segment liabilities 9,807 2,412 5,469 17,688Capital expenditure by segment 1,058 2,513 1,363 4,934

Particulars Product license) IT solutions)and related) and consulting)

actsivities) services) Corporate Total)

Revenue 1,729,473 1,511,077 – 3,240,550Cost of revenue (464,055) (784,796) – (1,248,851)Gross profit 1,265,418 726,281 – 1,991,699Selling and marketing expenses (289,405) (40,239) – (329,644)General and administrative expenses (128,023) (118,133) (232,689) (478,845)Depreciation and amortisation (40,140) (74,751) (12,499) (127,390)Operating income of the segment 807,850 493,158 (245,188) 1,055,820Impairment loss on other investment (50,000)Share of associate companies loss (14,840)Interest income 63,013Other income, net 50,231Income before provision for taxes 1,104,224Provision for Income taxes (90,614)Net income 1,013,610

Other informationSegment assets 767,341 829,439 1,849,901 3,446,681Segment liabilities 265,110 71,394 285,207 621,711Capital expenditure by segment 32,239 57,540 14,385 104,164


Thousands of US Dollars


(Restated, refer Note 21)


Revenue is generated through licensing of

software products as well as by providing

software solutions to the customers including

consultancy. The expenses, which are not

attributable to a business segment, are shown as

unallocated corporate expenses. 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.

Geographical segments

The following table shows the distribution of the

Group’s consolidated sales by geographical

market:

Region 2002 2002 2001

United States

of America 28,328 1,378,167 1,116,506

Middle East and

Africa 22,535 1,096,343 749,497

Asia Pacific 19,727 959,710 679,132

Europe 18,452 897,662 653,492

Latin America

and Caribbean 520 25,293 41,923

89,562 4,357,175 3,240,550

Region 2002 2001% %

United States ofAmerica 32 34

Middle East and Africa 25 23

Asia Pacific 21 21

Europe 21 21

Latin America and Caribbean 1 1100 100

The Group derives more than 10 per cent of its

revenues from the following customer:

2002 2002 2001

Customer 1 14,328 697,042 742,636

18 Commitments and contingencies

18.1 Capital expenditureThe Group had committed to spend

approximately Rs 140,186 at March 31, 2002

under agreements to purchase property and

equipment. (March 31, 2001 – Rs 17,052)

18.2 Guarantees

The Group accounts for loss contingencies when

the likelihood of the underlying adverse event

occurring is probable and the loss can be

reasonably estimated.

Guarantees provided by banks on behalf of the

Group amounted to Rs 20,302 at March 31,

2002 (March 31, 2001 – Rs 26,883). The

guarantees were provided to various Indian

Government agencies and a few customers and

prospects. In the event of default the fair value

of the guarantee will approximate the

outstanding payments due under accrued rates

and taxes and accrued expenses. The Group has








concluded that the risk of the guarantee being

called is remote and accordingly no provision

has been made.

18.3 Other commitments

i-flex’s operations are carried out from five units

registered under the Software Technology Parks

(‘STP’) scheme and one unit forming part of

Special Economic Zone (‘SEZ’). Under these

schemes the registered units have export

obligations, which are based on the formula

provided by the notifications/circulars issued by

the STP and SEZ authorities from time to time.

The consequence of not meeting the above

commitments would be a retroactive levy of

import duty on items previously imported duty

free for these units. Additionally the respective

authorities have rights to levy penalties for any

defaults on a case-by-case basis.

19 Stock based compensation

19.1 Employee Stock Purchase Scheme (‘ESPS’)


ESPS to provide equity-based incentives to key

employees of the Company (‘1998 Scheme’).

Subsequently on April 1, 1999, April 1, 2000

and April 1, 2001, the Company adopted

another Stock based schemes (‘1999 Scheme’,

‘2000 Scheme’ and ‘2001 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 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 employees. 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.


employee shall undertake to pay within ten years


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,


price whereas, the balance shares shall be

forfeited in favour 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.

Accordingly, the scheme eliminates any price

risk that the Company could bear and does not

contain any option features.

The Company has elected to adopt Accounting

Principles Board Opinion No. 25, “Accounting

for Stock issued to Employees” (‘APB 25’), in

accounting for stock granted under its scheme.

As per APB 25, the Company did not recognise

compensation expense on the stock granted

because the terms are fixed and the exercise

price equals the fair value of the underlying

stock on the grant date. The shares issued to 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

purposes, the shares, which are not yet eligible

for exercise, have also been considered as

outstanding to the extent these shares are

dilutive using the treasury stock method. The

loan granted to the Trust has been presented as a

separate component of equity and repayments of

the loan, by way of exercise of the shares by the

employees has been applied toward this loan in

the equity statement. Dividends paid in respect

of allocated shares are charged to retained

earnings.

A summary of the activity in the Company’s Stock

schemes is as follows:

2002 2001

Opening balanceof unallocated shares 251,000 1,482,600

Shares acquired bythe Trust – –

Shares allocated toemployees (240,250) (1,366,600)

Shares forfeited duringthe year 68,126 135,000

Closing balance ofunallocated shares 78,876 251,000

Closing balance ofallocated shares 3,603,524 3,431,400

Shares exercisedtill date (305,278) (75,300)

Shares eligiblefor exercise (1,458,437) (969,560)

Shares not eligiblefor exercise 1,839,809 2,386,540

Weighted average price of the Scheme:

2002 2001

Opening balance ofallocated shares 124.03 61.68

Shares allocated toemployees during the year 325.00 225.00

Shares forfeited duringthe year 205.37 184.97

Closing balance ofallocated shares 141.54 124.03

Shares exercised duringthe year 58.69 76.24

Shares eligible for exerciseas at year end 96.12 77.79

Unexercised sharesas at year end 177.55 142.79

Number of shares and weighted average price

stated above has been computed after giving

effect of split of shares as referred in Note 2.2(c).

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.

19.2 Employee Stock Option Plan (‘ESOP’)


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

have been earmarked for grant, at any given

Indian Rupees


time to present and future employees and

directors of the Company and its existing and



meeting held on March 4, 2002 approved the

Employees Stock Option Scheme (‘the Scheme’)

for issue of 2,376,800 options to the employees

and directors of the Company. According to the

ESOP the Company has granted 2,274,460

options to the eligible employees and directors

of the Company and its subsidiaries at an

exercise price, which will equate the issue price

determined through the book-building

procedure. 20% of the total options granted



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.

As per the terms of the Scheme, the exercise

price would equate the price determined for the

IPO through book building process.

The Group applied APB Opinion 25 and related

Interpretations in accounting for this plan. In

accordance with APB Opinion 25, no

compensation cost would need to be recognized

for the Employee Stock Option Plan as the

exercise price would equal to the fair value of

the shares on the date of the IPO. Further, as the

exercise price has not been specified on the date

of grant and would be determined only successful

completion of the Company’s IPO, the fair value

of the options granted pursuant to the ESOP as

at March 31, 2002 determined in accordance

with the provisions of SFAS 123 would be the

intrinsic value of each underlying share. As the

exercise price would equal the fair value of the

shares on the date of the IPO the intrinsic value

of each option granted pursuant to the ESOP

would be ‘Nil’ and no compensation cost would

arise even upon the application of the provisions

of SFAS 123 till the IPO date.

As the Exercise price of the options is not

specified on the date of grant it is not possible

to determine the weighted average exercise

price of the options granted pursuant to the

ESOP.

20 Earnings per share

The following is a reconciliation of the weighted

average number of equity shares used in the

computation of basic and diluted earnings per

equity share:

2002) 2001)

Weighted average number of common shares outstandingat year end 33,328,488 33,276,400

Weighted average number of unallocated shares (78,876) (251,000)

Weighted average number of shares that are not eligiblefor exercise (1,839,809) (2,386,540)

Weighted average number of common shares used for basicEPS purposes 31,409,803 30,638,860

Dilutive component of shares that are not eligible for exercise 1,337,260 1,251,558

Weighted average number of common shares used for dilutedEPS purposes 32,747,063 31,890,418

Number of shares stated above has been

computed after giving effect of split of shares as

referred in Note 2.2(c).

21 Restatement of financial statements for the yearended March 31, 2001

As discussed in Note 2.5, the Group recognises

revenue from software licensing arrangements in

accordance with SOP 97-2. SOP 97-2 requires

allocation of software revenues to post contract

support activities provided free of charge based

on VSOE of fair value of those services and

application of a proportionate amount of any

significant discount (with reference to VSOE of

the fair value of that element) provided to all

the elements covered by the arrangement.

During the year ended March 31, 2001, on one

of the software licensing arrangements entered

into by the Group, such ‘significant discount’

was given on post contract support to be

rendered by the Group. In the previously issued

audited financial statements for the year ended

March 31, 2001 the proportionate amount of the

discount pertaining to this contract was not

allocated to the license fee. In these revised

financial statements for the year ended

March 31, 2001 the allocation of the discount

has been revised.


In the previously issued audited financial

statements for the year ended March 31, 2001,

the Group did not account for the full effect of

providing for post contract support during

periods where the software was being

implemented and where the customer was

entitled to free post contract support services.

Revenues corresponding to the free PCS support

which the customer was entitled to were

deferred based on the revenues recognised and

was calculated using the period the customer was

contractually entitled to the free PCS. In these

revised financial statements for the year ended

March 31, 2001 revenue attributable to post

contract support has now been deferred based on

the total license fee stated in the arrangement,

corresponding to the period commencing from

the date of delivery of the software to the

commencement of the contractual post contract

support period.

In the previously issued audited financial

statements for the year ended March 31, 2001

the Group had recorded a deferred tax asset in

respect of operating loss carry-forwards of a

subsidiary and in respect of a provision for other

than temporary diminution in the carrying value

of an investment of Rs 25,459 instead of

Rs 11,942. In these revised financial statements

for the year ended March 31, 2001 the deferred

tax asset balance has been revised.

The effect of these revisions to the previously

issued financial statements is a reduction in

revenues, net income and basic earnings per

share (split adjusted) reported in the previously

issued audited financial statements for the year

ended March 31, 2001 by Rs 58,417, Rs 71,934

and Rs 2.34/- per share respectively which

correspond to 1.88%, 6.62% and 6.62% of the

amounts reported in the previously issued


22 Reclassification

Prior year figures have been regrouped, recast,

rearranged to confirm to the current year’s

presentation.


Financialsi-f lex solutions b.v.

Financial statements for the yearended March 31, 2002.


Corporate profile

i-flex solutions b.v. is a wholly owned subsidiary

of i-flex solutions ltd. – a provider of solutions

to the global financial services industry. The

company maintains a balanced portfolio of

products and services, offering a wide range of

integrated software solutions for retail,

corporate, Internet and investment banking,

as well as online brokerage and mutual funds.

i-flex solutions b.v. is headquartered in

Amsterdam, The Netherlands and is mandated

with sales and marketing of the company’s

products and services to the European market as

well as supporting its customers in the region.

Business model

Right from inception, in early 2000, i-flex

solutions b.v. has adopted a strong product

focused revenue model thereby effectively

leveraging emerging business opportunities.

In the period under review, the company’s

services business was affected due to the general

recessionary trend in the market and increased

competitive pressures.

The Company has further consolidated its

umbrella brand FLEXCUBE and grew

substantially with the addition of several new

customers including SNS Bank, UBS Warburg,

Rabobank branches in Paris, Dublin and

Frankfurt and PKO BP Bank.

FLEXCUBE contributed 98% of the product

sales.

Today i-flex solutions b.v. has continued with

plans to expand its sales in the central parts of

the continent including Netherlands, Germany,

UK and Poland.

The number of employees at i-flex solutions b.v.

stands at 5 (March 2002).

The Management remains confident about its

long-term prospects for success. The London

office is now operational and has plans to open

an office in Frankfurt. These expansion plans

emphasize the inherent strengths of the

company and would help the company to realize

its goal of becoming a respected name in the

European banking and financial services industry

for its products and services.

Results from operations

The company achieved total revenues of Euro

8,051 for the financial year ended March 31,

2002 – an increase of 169 % over the period

ending March 31, 2001. During the quarter

ended March 31, 2002, sales stood at Euro 2,357.

The net loss for the year ended March 31, 2002

stood at Euro 1,553 as against Euro 618 for the

period ended March 31, 2001.

Cost of revenues comprises salaries and

employee benefit costs, project-related travel

costs, application software costs and professional

fees.

Operating revenues

The company’s operating revenues are derived

from banking software products, IT solutions and

consulting services. In the year under review,

significant sales of the FLEXCUBE suite of

products fueled the growth of the company.

The Company’s commitment to delivering

quality solutions has contributed to customer

confidence. The company explored new market

opportunities in the Netherlands, Germany, UK

and Poland, which further consolidated the

company’s operations in these economies.

With past success of the products in the market

and demand for back office systems, the

management is fairly confident of turning

Directors’ Report

(Thousands of Euros)

around a higher growth in the operating

revenues for the company.

Banking products

Product revenues comprise license fees

charges for enhancements and customization,

implementation fees and product maintenance

charges. Product license fees are recognized on

delivery and subsequent milestone schedules as

per the terms of the contract. Product

maintenance revenues are spread over the period

of the maintenance contract.

The company’s products comprise the

FLEXCUBE suite of products, which address

the needs of corporate, retail and investment

banking as well as treasury operations and

Business Intelligence. This year, product

revenues constituted 95% of the operating

revenues.

Several leading financial institutions including

SNS Bank, UBS Warburg and Rabobank chose

FLEXCUBE.

IT solutions and consulting services

IT solutions and consulting services comprise

offshore and onsite software development as well

as business and technology consulting services

for the financial services industry. Our services

portfolio includes solutions for business

intelligence, customer relationship management,

brokerage, securities, payment systems,

e- commerce, Internet services and IT and

Business consulting. Revenues of the Services

Division contributed 5% of the operating

revenues this year.

Expenses

The Company’s operating expenses increased to

Euro 2,279 in the current year 2001-02 from

Euro 881 during the period ended March 31,

2001. Expenses primarily constituted employee

costs, traveling costs, infrastructure costs, sales

and administrative expenses. Employee costs

constituted 6% and 9% of the total revenue for

the years ended March 31, 2002 and March 31,

2001 respectively.

Amsterdam

The Netherlands V. Senthil Kumar

April 19, 2002 Statutory Director


Introduction

We have audited the financial statements of

i-flex solutions b.v., Amsterdam for the year

ended March 31, 2002. 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.

Scope

We conducted our audit in accordance with

auditing standards generally accepted in The

Netherlands. 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.

Opinion

In our opinion, the financial statements give a

true and fair view of the financial position of the

company as at March 31, 2002 and of the result

for the year then ended, in accordance with

accounting principles generally accepted in

The Netherlands and comply with the financial

reporting requirements included in Part 9,

Book 2 of The Netherlands Civil Code.

Appropriation of income

The Articles of Association of the company

provide that the appropriation of the net result

for the year is decided upon at the Annual

General Meeting of Shareholders.

Awaiting the decision by the shareholder, the

net loss for the year ended March 31, 2002 is

separately included in the shareholder’s equity

as net loss for the period.

Amstelveen Arthur Andersen

The Netherlands

April 19, 2002.

Auditors’ Report


2002 2001

Assets

Fixed assets

Tangible fixed assets 87 47

Current assets

Accounts receivable 2,562 1,140

Prepaid expenses 386 47

2,948 1,187

Cash 551 191

3,499 1,378

3,586 1,425

Shareholders’ equity and liabilities

Shareholders’ equity

Issued and paid-in capital 19 19

Accumulated deficit (618) –

Net loss for the period (1,553) (618)

(2,152) (599)

Long-term loan from shareholder 74 74

Short-term liabilities

Accounts payable

Shareholder 4,243 1,445

Other payables 307 263

Taxes and social securities 73 90

Unearned revenue 286 9

Advance billings 658 –

Accrued liabilities 97 143

5,664 1,950

3,586 1,425

Balance sheetas at March 31before allocation of net loss

Arthur Andersen V. Senthil KumarStatutory Director

Amstelveen, The Netherlands, AmsterdamApril 19, 2002 April 19, 2002



For the period

Year ended) from inception

March 31) upto March 31

2002) 2001

Gross profit on sales 731) 299)

Cost of revenues

Wages and salaries 424) 217)

Social securities 13) 20)

Pension cost 59) 32)

Depreciation of tangible fixed assets 26) 4)

Rental expenses 444) 92)

Marketing expenses 368) 84)

General and administrative expenses 945) 432)

2,279) 881)

Operating loss (1,548) (582)

Financial income and expense

Interest expense shareholder (5) (5)

Currency exchange gain/(loss) –) (31)

(5) (36)

Net loss (1,553) (618)

Statement of Incomefor the year ended March 31


Arthur Andersen V. Senthil KumarStatutory Director

Amstelveen, The Netherlands, AmsterdamApril 19, 2002 April 19, 2002

1 General

a) General

i-flex solutions b.v. (“the Company”), having its

legal seat in Amsterdam, The Netherlands, is a

leading software provider of solutions and

services to the financial services industry across

Europe. The Company has been incorporated on

May 19, 2000.

The Company is a wholly owned subsidiary of

i-flex solutions ltd (“the parent company”),

which has its registered office in Mumbai, India.

b) Related party transactions

All products and (consulting) services sold by

the company to third parties are purchased from

the parent company. For the year ended March

31, 2002 the Company has purchased for an

amount of € 7,320 (from the date of inception

up to March 31, 2001 – € 2,692) of the above

mentioned services from the parent company.

2 Going concern

The Company has a negative working capital

and a negative equity per March 31, 2002. The

parent company has confirmed that it is aware

of the current financial position of the Company

and that the parent company is committed to

provide the necessary level of operational and

financial support to ensure that the Company

meets all its liabilities as they fall due, and

continues as a going concern at least for a period

up to September 2003. The parent company

believes that it has the required financial

resources to fulfill that commitment.

Notes to Financial Statementsat March 31, 2002

3 Accounting principles

a) General

The accounting principles of the Company are

summarized below. These accounting principles

have all been applied consistently throughout

the year and the preceding period from

inception to March 31, 2001.

Assets and liabilities are stated at face value

unless indicated otherwise.

Assets and liabilities denominated in foreign

currencies are translated into euros at the rates

of exchange prevailing at year end. Transactions

in foreign currencies are translated at the rates

of exchange prevailing at the date of the

transaction. The exchange results are recorded

under financial income and expense in the

statement of income.

b) Tangible fixed assets

Tangible fixed assets are stated at the acquisition

cost, less straight-line depreciation. The

depreciation is calculated on the basis of

acquisition cost less residual value and the

estimated useful life of the related asset. The

estimated useful lives are:

Leasehold Improvement 5 years

Furniture and fixtures 5 years

Computers and software 3 years

Tangible fixed assets are revalued in case of any

permanent impairment.

c) Accounts receivableAccounts receivable are stated at face value, less

an allowance for possible uncollectable accounts.

d) Unearned revenue

Unearned revenue relates primarily to advance

payments for post-implementation technical

support, which will be recognized as income



(Thousands of euros)

(Thousands of euros)

ratably over the support period. Also included

are advanced payments for licenses for which

the acceptance period has not yet expired or for

which the related shipment has not taken place

yet. Advance payments for services not rendered

yet have also been included. Furthermore, the

Company allocates a portion of its software

revenues to post-contract support activities

provided free of charge to customer for a

specified period as included under the licensing

arrangement. Amounts allocated are based upon

standard prices charged for those services or

products.

e) Pension

The pensions of the employees of the Company

are based on a defined contribution scheme.

The contributions for these pensions are directly

charged to the income statement.

f) Recognition of income

Software revenues consist of license fees,

customization fees, implementation fees and

maintenance fees and are recognized as follows:

(i) License fees

Software license fee revenues are recognized

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. Further, the recognition of these

revenues depends on certain milestone schedules

as per the terms of each contract, such as

delivery of software and user acceptance;

(ii) Customization and implementation fees

Revenues for implementation and customization

are recognized upon the completion of these

services (milestones) and customer’s acceptance;

(iii) Maintenance feesRevenues from maintenance contracts relate to

post-implementation support and are recognized

ratably over the term of the contract on a

straight-line basis.

Other revenues and expenses are recorded in the

period in which they originate.

4 Tangible fixed assets

The composition of tangible fixed assets is as

follows:

As of March 31

2002 2001

Leasehold improvements 5 7

Furniture and Fixtures 39 10

Computers and software 43 30

87 47

5 Accounts receivable

Accounts receivable as presented under current

assets mature within one year and are

substantially denominated in USD.

6 Shareholders’ equity

The movement in shareholders’ equity is as follows:

Balance March 31, 2001 (599)

Net loss for the year (1,553)

Balance March 31, 2002 (2,152)

The authorized share capital consists of 925

authorized common shares of which 185 shares

are issued and outstanding at March 31, 2001.

The shares have a par value of € 0.1 each.

7 Liabilities

Liabilities with a remaining period up to 1 year,

including the short-term portion of long-term

liabilities, are presented under short-term

liabilities and are substantially denominated in

USD.

The long-term liability represents a loan from

the parent company for an amount of USD 67.

The maximum loan facility from the parent

company amounts to USD 350. The loan bears

an interest of 7.5% per year, which is payable on

a yearly basis. The loan will be disbursed in one

or more installment(s) as may be decided by the

parent company. The parent company may, in

suitable circumstances and also in its absolute

discretion, revise, vary or postpone the

repayment of the principal amounts of the loan

or any part thereof upon such terms and

conditions as may be decided by the parent

company.

8 Income taxes

No income taxes have been recorded as the

Company is in a net loss position. The Company

has a loss carry-forward of € 2,171, which is

available to reduce future tax liabilities.

9 Credit facilities

The Company has no credit facilities apart from

the facilities granted by the parent company.

10 Commitments

Total commitments in connection with

rental obligations and operational lease

agreements amount to approximately

€ 581(2001:512) and terminate in 2007.

The short-term portion of these

commitments amounts to approximately

€ 196 (2001:118).

The portion that is due after 5 years amounts

to approximately € 1 (2001: nil).

11 Net sales

The net sales for the year ended March 31,

2002 amount to € 8,051 (from inception up

to March 31, 2001 – € 2,991).

12 Personnel

The number of personnel for the year ended

March 31, 2002 was 5 (from inception up to

March 31, 2001 – 3), employed in the

following functional areas:

2002 2001

Sales 4 2

Administration 1 1

Total 5 3

13 Statutory Directors

In accordance with Article 383, Book 2 of

the Dutch Civil Code, the remuneration of

the only statutory director is not presented.

The Company has no supervisory directors.


Financialsi-f lex solutions pte. ltd.(Incorporated in the Republic of Singapore)



The Directors present their report together with

the audited financial statements of the company

for the financial year ended 31 March 2002.

The financial year covers the period from 16

November 2001 (date of incorporation) to 31

March 2002.

1 Directors of the Company

The Directors in office at the date of this

report are:

Deepak Ghaisas

(Appointed on the date of incorporation)

Soo Koon Liat


2 Principal Activities

The principal activities of the company in the

course of the financial year are those relating to

providing information technology solutions,

consulting services and development of software

to the financial service industry.

The company commenced its business activities

during the financial year.

3 Acquisition or disposal of subsidiaries

There were no acquisition or disposal of

subsidiaries during the financial year.

4 Results for the financial year

S$

Profit for the year, carried forward 20,024

5 Reserves or provisions

There were no material transfers to or from

reserves or provisions during the financial year.

6 Issue of shares or debentures

At the date of incorporation, 2 subscribers’

shares of S$1 each were issued at par for cash.

During the financial year, the company issued

an additional 249,998 ordinary shares of S$1

each at par for cash to provide for working

capital.

7 Arrangements for directors to acquire shares ordebentures

Neither at the end nor at any time during the

financial year was the company a party to any

arrangement whose object is to enable the

directors of the company to acquire benefits

through the acquisition of shares in or

debentures of the company or any other body

corporate.

8 Directors’ interest in shares or debentures

The directors holding office at the end of the

financial year have no interests in the shares of

the company as recorded in the register kept by

the company for the purposes of Section 164 of

the Companies Act, Cap. 50.

9 Dividends

The directors do not recommend payment of a

dividend for the financial year under review.

10 Bad and doubtful debts

Before the profit and loss account and the

balance sheet of the company were made out,

the directors took reasonable steps to ascertain

that proper action had been taken in relation to

the writing off of bad debts and the making of

provision for doubtful debts and have satisfied

themselves that no bad debts needs to be

written off and that no provision for doubtful

debt is necessary.

Directors’ Report

At the date of this report, the directors are not

aware of any circumstances, which would render

it necessary to write off any debts or to make a

provision for doubtful debt in respect of the


11 Current assets




that any current assets which were unlikely to

realise their book values in the ordinary course

of business have been written down to their

estimated realisable values or had been

adequately provided for.



the values attributable to current assets in the

financial statements of the company misleading.

12 Charges and contingent liabilities

At the date of this report:

(a) there does not exist any charge on the assets

of the company which has arisen since the

end of the financial year which secures the

liability of any other person, and

(b) there does not exist any contingent liability

of the company, which has arisen since the

end of the financial year.

13 Contingent or other liabilities enforceable afteryear end

No contingent or other liability of the company

has become enforceable or is likely to become

enforceable within the period of twelve months

after the end of the financial year which, in the

opinion of the directors, will or may substantially

affect the ability of the company to meet its

obligations as and when they fall due.

14 Other circumstances

As at the date of this report, the directors are

not aware of any circumstances not otherwise

dealt with in this report or in the financial

statements of the company, which would render

any amount stated in the financial statements of

the company misleading.

15 Unusual items

In the opinion of the directors, the results of the

operations of the company during the financial

year have not been substantially affected by any

item, transaction, or event of a material and

unusual nature.

16 Subsequent events

In the opinion of the directors, no item,

transaction or event of a material and unusual

nature has arisen in the interval between the

end of the financial year and the date of this

report which would affect substantially the

results of the operations of the company for the

financial year in which this report is made.

17 Directors’ benefits

Since the date of incorporation, no director has

received or become entitled to receive a benefit

which is required to be disclosed by Section

201(8) of the Companies Act, Cap. 50 by

reason of a contract made by the company or a

related corporation with the director or with a

firm of which he is a member, or with a

company in which he has a substantial financial

interest other than those, which have been

disclosed in the financial statements.


18 Share options granted

No options were granted during the financial

year to take up unissued shares of the company.

19 Share options exercised

During the financial year, no shares were issued

by virtue of the exercise of options granted.

20 Unissued shares under option

There were no unissued shares under option at

the end of the financial year.

21 Auditors

The auditors, Messrs. Rohan • Mah & Partners,

Certified Public Accountants, have expressed

their willingness to accept re-appointment.

On behalf of the board

Deepak GhaisasDirector

Soo Koon LiatApril 22, 2002 Director

We have audited the financial statements of

i-flex solutions pte ltd for the year ended

31 March 2002. These financial statements

are the responsibility of the Company’s

directors. Our responsibility is to express an

opinion on these financial statements based

on our audit.

We conducted our audit in accordance with

Singapore Standards on Auditing. 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 the directors, as well as

evaluating the overall financial statement

presentation. We believe that our audit

provides a reasonable basis for our opinion.

In our opinion,

(a) The financial statements are properly drawn

up in accordance with the provisions of the

Companies Act, Chapter 50 and Singapore

Statements of Accounting Standard and so

as to give a true and fair view of:

(i) The state of affairs of the company as at

31 March 2002 and of the results and

changes in equity of the company for

the year then ended on that date; and

(ii) The other matters required by Section

201 of the Act to be dealt with in the

financial statements;

(b) The accounting and other records, and the

registers required by the Act to be kept by

the company have been properly kept in

accordance with the provisions of the Act.

Singapore Rohan • Mah & PartnersApril 22, 2002 Certified Public

Accountants

Auditors’ report to the members ofi-flex solutions pte ltd(Incorporated in the Republic of Singapore)


(Singapore Dollars)

Note 2002

Assets less liabilitiesNon-Current Assets

Plant and equipment 3 32,191

Current Assets

Trade and other receivables 4 680,986

Cash at bank 252,727

933,713

Current liabilitiesTrade and other payables 5 688,080

Net Current Assets 245,633

Deferred taxation 6 7,800

Net Assets 270,024

EquityShare capital 7 250,000

Retained profit 20,024

Total Equity 270,024

The accompanying notes form an integral part of these financial statements

Balance sheetat March 31,2002

Rohan • Mah & Partners Deepak Ghaisas Soo Koon LiatCertified Public Accountants Director Director

SingaporeApril 22, 2002

Note 16.11.01 to 31.03.02

Revenue 8 676,961

Other income 9 2,728

679,689

Costs and expenses

Cost of sales 609,266

Staff costs 10 25,982

Depreciation 3 3,577

Other operating expenses 11 13,040

651,865

Profit from ordinary activities before taxation 27,824

Taxation 12 7,800

Retained profit for the year, carried forward 20,024


Profit & loss accountfor the period 16 November, 2001 (Date of incorporation) to 31 March, 2002

Rohan • Mah & Partners Deepak Ghaisas Soo Koon LiatCertified Public Accountants Director Director

SingaporeApril 22, 2002

(Singapore Dollars)


Statement of changes in equity for the year ended 31 March, 2002

Share Retained

Capital Profit Total

As at date of incorporation 2 – 2

Issue of shares 249,998 – 249,998

Profit for the year – 20,024 20,024

As at 31 March, 2002 250,000 20,024 270,024


(Singapore Dollars)

These notes form an integral part of and should

be read in conjunction with the accompanying

balance sheet, profit and loss account and

statement of changes in equity.

1 Corporate information

i-flex solutions pte. ltd. is a company

incorporated in Singapore with its registered

office at 7 Temasek Boulevard, #12-03 Suntec

Tower One, Singapore 038987.





to the financial service industry.

The Company is a wholly-owned subsidiary of

i-flex solutions limited, a company incorporated

in India, which is also the company’s ultimate

holding company.

The financial statements of the Company for the

year ended March 31, 2002 were authorised for

issue in accordance with the resolution of the

Director on April 22, 2002.

The company has 2 employees at the end of the

financial year.


2.1 Statement of compliance

These financial statements have been prepared

in accordance with the Statements of

Accounting Standard issued by the Institute of

Certified Public Accountants of Singapore and

the disclosure requirements of the Singapore

Companies Act, Chapter 50.

2.2 Basis of financial statements preparation

The financial statements, expressed in Singapore

dollars, are prepared on the historical cost basis.

i-flex solutions pte. ltd.(Incorporated in the Republic of Singapore)Notes to the financial statements March 31, 2002

2.3 Plant and equipment

2.3.1 Owned assets

Items of plant and equipment are stated at

cost less accumulated depreciation. The

company capitalises all direct costs relating

to the acquisition and installation of plant

and equipment.

2.3.2 Depreciation

Depreciation is provided on the reducing

balance method basis so as to write off the

cost of plant and equipment over their estimated

useful lives as follows:

Computer equipment 60 %


Provided it is probable that the economic

benefits will flow to the Company and the

revenue and costs, if applicable, can be measured

reliably, software revenues are recognised in the

profit and loss account as follow:

2.4.1 Product licenses

Revenue is recognised when goods are

delivered at the customers’ premises which is

taken to be the point in time when the

customer has accepted the goods and the

related risks and rewards of ownership and

subsequent milestone schedules as per the

terms of the contract. Revenue excludes goods

and services or other sales taxes and is after

deduction of any trade discounts.

2.4.2 Product maintenance

Revenue is recognised over the period of

maintenance contract.

2.4.3 Product management, development and consultancy service

Revenue is recognised as and when services are

rendered.


2.5 Deferred taxation

Deferred taxation is provided using the liability

method in respect of the taxation effect arising

from all material temporary differences between

the accounting and tax treatment of income and

expenditure, which are expected with reasonable

probability to crystallise in the foreseeable

future. Deferred tax liabilities are recognised for

all taxable temporary differences.

Deferred tax assets are recognised for all

deductible temporary differences, carry forward

of unused tax assets and unused tax losses, to the

extent that it is probable that taxable profit will

be available against which the deductible

temporary differences can be utilised.

2.6 Foreign currency

Transactions in foreign currencies are measured

and recorded in Singapore dollars using the

exchange rate in effect at the date of the

transaction. At each balance sheet date,

recorded monetary balances that are

denominated in a foreign currency are adjusted

to reflect the rate at the balance sheet date.

All exchange adjustments are taken to the

profit and loss account.

2.7 Operating leases

Rental payable under operating leases are

accounted for in the profit and loss account on a

straight-line basis over the periods of the

respective leases.

2.8 Related parties

For the purposes of these financial statements,

parties are considered to be related to the

company if the company has the ability, directly

or indirectly, to control the party or exercise

significant influence over the party in making

financial and operating decisions, or vice versa,

or where the company and the party are subject

to common control or common significant

influence. Related parties may be individuals or

other entities.

2.9 Impairment

The carrying amounts of the company assets, are

reviewed at each balance sheet date to

determine, whether there is any indication of

impairment. If any such indication exists, the

asset’s recoverable amount is estimated an

impairment loss is recognized in the profit and

loss account.

2.10 Reversals of impairment

An impairment loss is only reversed to the

extent that the asset’s carrying amount does not

exceed the carrying amount that would have

been determined, net of depreciation or

amortisation, if no impairment loss had been

recognized.

2.11 Employee benefit plan

The Company’s contribution to the defined pension

plans are charged to the profit and loss accounts

in the period to which the contribution relates.

2.12 Financial assets

Financial assets include cash and bank balances,

trade and other receivables. Trade receivables are

stated at original invoice amount less allowance

for any uncollectable amounts. Other receivables

are stated at cost less allowances for any

uncollectable amounts.

2.13 Financial liabilities and equity

Financial liabilities and equity instruments are

classified accordingly to the substance of the

contractual arrangements entered into. Financial

liabilities include trade and other payables.

Trade and other payables are stated at nominal

value. Equity instruments are recorded at the

proceeds received net of direct issue cost.

3 Plant and equipment

Note Total 2002

Computer

Cost

At date of incorporation – –

Transfer from a related company 35,768 35,768

At 31.03.02 35,768 35,768

Accumulated Depreciation

At date of incorporation – –

Depreciation for the year 3,577 3,577

At 31.03.02 3,577 3,577

Net Book Value

At 31.03.02 32,191 32,191

4 Trade and other receivablesTrade debtors 102,479

Amount due from a related party - trade 574,482

Prepayments 4,025

680,986

Amount due from a related party is unsecured and interest free.

5 Trade and other payablesAmount due to holding company – trade 609,266

– non-trade 49,782

Accrued operating expenses 29,032

688,080

Amount due to holding company is unsecured and interest free.

6 Deferred taxationAt date of incorporation –

Provided during the year 12 7,800

Balance at end of year 7,800

The deferred taxation arises as a result of:

Excess of net book value over tax written down value of plant and equipment 7,800

(Singapore Dollars)


(Singapore Dollars)

2002

7 Share capital

No. of shares

Authorized

Ordinary shares of S$1 each 300,000 300,000

Issued and fully paid:

At date of incorporation 2 2

Issue of shares 249,998 249,998

At end of year 250,000 250,000

At the date of incorporation, 2 subscribers’ shares of S$1 each were issued at par for cash.

During the financial year, the company issued an additional 249,998 ordinary shares of S$1 each at par for

cash to provide for working capital.

8 Revenue

Revenue represents the product maintenance and consultancy services rendered. Significant category of

revenue during the year is as follow:

16.11.01 to 31.03.02

Product maintenance 574,482

Consultancy 102,479

676,961

9 Other income

Gain on exchange difference 2,728

Note 16.11.01 to 31.03.02

10 Staff costsSalaries and related costs 25,382

Defined contribution pension costs 600

25,982

11 Other operating expensesOther operating expenses included the following for the year ended 31 March:

Auditors’ remuneration 3,000

Preliminary expenses written off 5,300

12 Taxation

Based on results of the year:

Deferred tax 6 7,800

No income tax provision was required based on the income tax determined by applying the Singapore

income tax rate of 24.5% (inclusive of the tax exemption given to SMEs) to profit before tax mainly

because of capital allowances claimed for tax purposes.

13 Significant parties transactionsSignificant related parties transactions between the Company and its related parties are as follows:

With holding company:

Cost of sales 609,266

With related party:

Sales 574,482

(Singapore Dollars)


14 Financial risks

i) Credit risk

Credit risk refers to the risk that counterparties

may default on their contractual obligations

resulting in a financial loss to the company.

Receivables are substantially from related party

and exposure to credit risk is negligible.

ii) Foreign currency risk

Foreign currency risk arises from change in

foreign exchange rates that may have an adverse

effect on the company in the current reporting

period and in the future years. The company’s

exposure to foreign currency risk is minimal as

most transactions are dealt with in foreign

currency.

iii) Liquidity risk

Liquidity risk refers to the risk that the company

is unable to meet its obligations when fall due.

The company monitors its cash flows and

collections on a regular basis as a means of

managing liquidity risk.

iv) Fair value of financial instruments

There are no material differences between the

book value and the fair value of the company’s

financial assets and liabilities. The company

does not engage in transactions involving

financial derivatives.

15 Comparative figures

The financial statements cover the period

16 November 2001 (date of incorporation) to

31 March 2002. These being the first set of

financial statements, there are no comparative

figures.


Financialsi-f lex solutions inc.



The directors present their report together with

the unaudited financial statements of the

company for the financial year ended 31 March

2002. The financial year covers the period from

5 December 2001 (date of incorporation) to

31 March 2002.

1 Directors of the company

The Directors in office at the date of this report

are:

Rajesh Hukku


R. Ravisankar


Deepak Ghaisas


2 Principal activities





to the financial service industry in the United

States of America.

The company commenced its business activities

during the last quarter of the financial year and

the operations were not significant for the

financial year 2001-02.

3 Results for the financial year

Loss for the year, carried forward US$ 241,478

4 Current assets




that any current assets which were unlikely to

realize their book values in the ordinary course

of business have been written down to their

estimated realizable values or had been

adequately provided for.



the values attributable to current assets in the

financial statements of the company misleading.

5 Charges and contingent liabilities

At the date of this report:

(a) There does not exist any charge on the

assets of the company which has arisen since

the end of the financial year which secures

the liability of any other person, and

(b) There does not exist any contingent liability

of the company, which has arisen since the

end of the financial year.

6 Contingent or other liabilities enforceable afteryear end

No contingent or other liability of the company

has become enforceable or is likely to become

enforceable within the period of twelve months

after the end of the financial year which, in the

opinion of the directors, will or may substantially

affect the ability of the company to meet its

obligations as and when they fall due.

7 Other circumstances

As at the date of this report, the directors are

not aware of any circumstances not otherwise

dealt with in this report or in the financial

statements of the company, which would render

Directors’ Report

any amount stated in the financial statements of

the company misleading.

8 Unusual items

In the opinion of the directors, the results of the

operations of the company during the financial

year have not been substantially affected by any

item, transaction, or event of a material and

unusual nature.

9 Subsequent events

In the opinion of the directors, no item,

transaction or event of a material and unusual

nature has arisen in the interval between the

end of the financial year and the date of this

report, which would affect substantially the

results of the operations of the company for the

financial year in which this report is made.

On behalf of the board

Rajesh Hukku

Director


2002)

Assets

Current assetsCash and cash equivalents

Cash in hand 1,000

Bank account 613,653 614,653)

Trade receivable, net 17,280)

Trade receivable from related parties 46,281)

Prepaid expenses 2,750)

Other assets 4,437)

Total current assets 685,401)

Fixed assets

Property and equipment, net 119,397)

Other assets 98,654)

Total assets 903,452)

Liabilities and stockholders’ equity

Current liabilitiesAccounts Payable 144,930)

Other long term liabilitiesStockholders’ equityCommon stock, US $0.01 cent per stock 1)

Additional paid-in capital 999,999)

Retained earnings (241,478)

Total stockholders’ equity 758,522)

Total liabilities and stockholders’ equity 903,452)


Deepak Ghaisas Cafó BogaDirector Chief Operating Officer

New York, USA

April 25, 2002

2002

Balance sheet (unaudited)as at March 31, 2002

(US Dollars)

Income statement (unaudited)for the period December 5, 2001 to March 31, 2002

Revenues 17,280

Operating Expenses

Cost of revenue 15,552

Employee costs 100,963

Depreciation 2,325

Selling, general and administrative expenses 141,213

260,053

Income from operations (242,773)

Interest income 1,295

Net profit/(loss) (241,478)


(US Dollars)

Deepak Ghaisas Cafó BogaDirector Chief Operating Officer

New York, USAApril 25, 2002


1 Background

i-flex solutions inc. (“the company”), a wholly

owned subsidiary of i-flex solutions ltd (“i-flex),

India, was incorporated on December 5, 2001,

in the United States of America. The company

is principally engaged in the business of

providing information technology solutions to

the financial services industry across United

States of America. Since the date of its

incorporation till March 31, 2002, no

significant operations have taken place.


2.1 Basis of presentation

These financial statements are prepared under

the historical cost convention on the accrual

basis of accounting in accordance with the

accounting and reporting requirements of

US GAAP. The significant accounting policies

adopted by the Company, in respect of the

financial statements are set out below.

2.2 Use of estimates











and actions, actual results could differ from

those estimates.


The Company derives revenues from:

Notes to financial statementsfor the period December 5, 2001 to March 31, 2002

(All amounts in US Dollars,unless otherwise stated)

• The licensing of banking software products,

along with the provision of related

implementation services and post contract

support; and

• Providing software development and other

consulting services to certain customers,

which comprise primarily large financial

services companies.

• The entire revenue for the current year

relate to Software development and

consulting services.

Software development and consulting services

The Company provides software development

services, which comprise resource augmentation

support and onsite and/or offshore development

activities. Revenue for time and material

contracts is recognised as the services are

provided. Fixed price contract revenue is

recognised using the proportionate effort method

to the extent certified by the customers.

2.4 Cost of sales

Cost of Sales comprise of professional fees paid

to the parent company.

2.5 Cash and bank balance

Cash and bank balance include all highly liquid

investments with an original maturity of

ninetyone days or less.

2.6 Property and equipment

Fixed assets are stated at the acquisition cost, less

straight-line depreciation. The depreciation is

calculated on the basis of acquisition cost less

residual value (which is zero) and the estimated

useful life of the related assets.

Costs of normal repairs and maintenance are

charged to income as incurred. Major

replacements or betterment of property and

equipment are capitalised. When assets are sold

or otherwise disposed off, the cost and related

accumulated depreciation are removed from the

accounts and any resulting gain or loss is

included in the statement of operations.

2.7 Impairment of long-lived assets

The Company reviews long-lived assets for

impairment, whenever an event or changes in

circumstances indicate that the carrying amount

of such assets may not be recoverable. The

carrying values of long-lived assets are assessed

for recoverability by reference to the estimated

future undiscounted cash flows associated with

them. Where this assessment indicates a deficit,

the assets are written down to market value. For

assets, which do not have a readily determinable

market value, the assets are written down to

their estimated market value, calculated by

reference to the estimated future discounted cash

flows. Assets to be disposed are reported at the

lower of the written down value or the fair value,

less the cost to sell. As at March 31, 2002,

management believes that no such impairment

exists.

2.8 Income taxes

No income taxes have been provided for as of

March 31, 2002, because the company has a

negative income for the year.

3 Property and equipment, net

The details of Property and equipment, the

estimated useful lives, Cost and net value as of

March 31, 2002 are:

Estimated Cost Net

useful life Value

Improvement to

the leasehold

premises 6 years 9,333 9,204

Furniture and

Fixtures 7 years 51,433 50,821

Office Equipments 3-5 years 12,567 12,328

IT Equipments

and Software 3 years 48,390 47,045


4.1 Amounts due from related parties

Amounts receivable from i-flex solutions limited

is US$ 46,280.68 towards reimbursements of

traveling expenses as at March 31, 2002.

4.2 Amounts due to related parties

The amount due to i-flex solutions limited is USD

15,552 towards payment of professional fees as at

March 31, 2002.

5 Commitments and contingencies

Commitments in connection with rental

obligation:

Office Premises 6 years $1,059,342

New York Tel: +1-212-430 5800 Fax: +1-212-430 5808

Amsterdam Tel: +31-20-575 4200 Fax: +31-20-575 4201

Singapore Tel: +65-6238 1900 Fax: +65-6238 1282

Mumbai Tel: +91-22-839 1909 Fax: +91-22-836 3140

Bangalore Tel: +91-80-228 4300 Fax: +91-80-228 4313

Marketing Offices

All company or product names are trademarks or registered trademarks of their respective owners


Our Annual Reports are designed to present the achievements and highlights of the year and ourfinancial statements in a transparent and fair manner in accordance with universally acceptedaccounting regulations. Our previous Annual Report for 2000-01 was recognized for its innovativepresentation and comprehensive content and won several awards during the year:• The American Society of Professional Communicators (ASPC) Masters Award.

The Annual Report was selected as the best one from among 131 entries.• The South African Pulp & Paper Industries (SAPPI) Trading Printer of the Year Silver Award.• The Society for Technical Communication – Australia Chapter Award.• The New York Festivals Midas Award for excellence in financial communications.• The second prize from the Institute of Chartered Accountants of India.• The first prize in the Annual Report category from the Association of Business Communicators

of India.

i - f l e x a n n u a l r e p o r t 2 0 0 1 - 2 0 0 2w w w . i f l e x s o l u t i o n s . c o m

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