Flextronics Software Systems

The Directors take pleasure in presenting the 15th Annual Report and
 the audited accounts of the Company for the nine-month period ended
 March 31, 2007. The Company has changed its financial year to end on
 March 31, 2007. Hence, the figures for the period under review are not
 strictly comparable with those of the previous year, which was for a
 period of 15 months.
 
 Financial Results
 
                                                       (Rs. in Million)
 
 Particulars                               Nine Month     Fifteen Month
                                           Period ended   Period ended
                                           March 31,      June 30,
                                           2007           2006
 
 Total Income                                      6688           8372
 Operating Profit (PBIDT&A)                        1619           2213
 Less: Interest                                       3              0
 Less: Depreciation                                 270            375
 Less: Amortization                                  52            101
 Operating Profit before tax                       1294           1737
 Add: Other Income                                   31            248
 Profit before Tax                                 1325           1985
 (Add)/Less: Provision for Income Tax               (6)            230
 (Add)/Less: Prior Period Adjustment               (14)              4
 Profit after Tax                                  1345           1751
 Dividend                                             -              -
 Transfer to Capital Redemption Reserve               3              8
 
 Operations Review
 
 Total income for the nine-month period stands at Rs.6688 million as
 compared to the total income of Rs. 8372 million for the fifteen-month
 period ended June 30, 2006. The operating profit of the Company for the
 nine-month period ended March 31, 2007 was Rs. 1619 million as compared
 to Rs. 2213 million for the fifteen-month period ended June 30, 2006.
 The profit after tax was Rs.1345 million as compared to Rs.1751 million
 for the period ended June 30, 2006.
 
 Revenue Mix
 
 Particulars                               Nine Month     Fifteen Month
                                           Period ended   Period ended
                                           March 31,      June 30,
                                           2007           2006
 
 
 Services                                       89%           81%
 Products                                       10%           15%
 Technical Support Services
 (BPO) & Goods                                   1%            4%
 
 Revenue Mix : Regionwise
 
 Region                                    Nine Month     Fifteen Month
                                           Period ended   Period ended
                                           March 31,      June 30,
                                           2007           2006
 
 USA                                            36%           27%
 Europe                                         50%           56%
 Rest of the World                               9%           11%
 Domestic                                        5%            6%
 
 Dividend
 
 The Directors do not recommend any dividend for the 9 month period
 ended March 31, 2007.
 
 Business Review
 
 The Company is an end-to-end provider of communication products,
 services and solutions to network equipment providers, handset
 manufacturers, service providers and business process outsourcing
 sectors.
 
 The Company has a hybrid business model of supplying both products and
 services to its customers. Each of these areas is briefly reviewed
 below :
 
 Products
 
 During the period ended March 31, 2007, your Company further
 consolidated its existing products portfolio and took steps to expand
 into these technologies. There is an increased momentum in key
 initiatives in the WiMAX, IMS, SIP & ISS/ESS domains. The Company
 launched a new product called CAS (Converged Access Solution) for the
 Small Medium Gateway Market space. This product has already seen major
 successes and is geared to be a major revenue earner in the coming
 years. Your Company's ASN Wimax Gateway product called ASN Lite was
 showcased at the 3GSM show in February 2007. It enables Service
 Providers to roll out their Mobile Wimax networks using general purpose
 servers and ATCA hardware, reducing cost and time to set up. This
 product ideally suits the Mobile Wimax deployment scenario as seen
 today. Your Company also launched the Diameter stack this year to
 further strengthen its IMS portfolio.
 
 Professional Services & Business Outlook
 
 The company is uniquely positioned in the market by offering
 differentiated services and products to telecom markets worldwide.
 Today, your company's global footprint with multiple near-shore centers
 in addition to offshore centers, deliver customer value in the entire
 telecom space, which is unmatched by any other services company in the
 telecom domain.
 
 The industry is going through tremendous changes. Mergers and
 acquisitions are taking place. Several service providers have merged in
 the US, many others are on the verge of acquisitions and also looking
 to consolidate. OEMs are also following this trend.
 
 There is a constant evolution of new technologies and the hunger for
 increased bandwidth while on the move, is creating a need for newer
 technologies like WiMax, Femtocel and IMS. Your company is well
 positioned to address these technology advancements and is already
 working on several customer projects while owning multiple IPRs in this
 space.
 
 Another major trend is a shift in ARPU (Average Revenue Per User) from
 voice calls to data and value added services (VAS). Worldwide, the
 percentage of revenue from VAS is increasing amongst consumers.  Again,
 your company is engaged with some of the leading players in this space
 and holds a market leadership position in outsourcing services in
 messaging technologies.
 
 Communication technologies are now proliferating into consumer
 electronics devices and there is a convergence of these technologies in
 the automotive space. While still nascent, telematics and automotive
 infotainment are tremendous areas of growth and your company is making
 investments to prepare itself fora leadership position in these
 emerging areas.
 
 Overall, your company is well placed in existing markets and is well
 positioned to take advantage of the growing markets.
 
 Human Resource (HR) Initiatives
 
 The year saw a lot of initiatives in HR. All the Company's processes
 were launched with a focus on automation, integration and consistency
 across centers. Your Company's employee strength stood at 5061 as on
 March 31, 2007. The attrition for the period under review was 16.8%.
 
 The Company automated its Performance Appraisal and Compensation
 Management System to standardize processes across all locations and
 ramp-up with the growth of the organization.  In an effort to enhance
 effectiveness of HR for onsite employees, starting December 2006, the
 company rolled out a Global HR Helpdesk dedicated for onsite employees.
 The year also saw a new revamped Domestic HR Helpdesk getting launched
 - aimed at ensuring timely closures for all logged queries and concerns
 with an escalation mechanism in place.
 
 A record 70% of all fresh engineering hiring for 2007 from top 80
 Campuses and a substantial increase in the number of institutes that
 gave us the 'Dream Job' slot enabled your Company to hire the best.
 There was significant progress on the plan envisaged for Nalanda, your
 Company's fresher training school. The specially designed training
 facility became operational during the period under review, with the
 idea of providing rigorous and customized inputs to help prepare the
 fresh engineers through specialized but uniform learning, irrespective
 of their deployment locations.
 
 The Company also invested substantial efforts on leadership development
 programs and launched a Leadership Enhancement Program for senior
 employees' in collaboration with MDI, Gurgaon. 
 
 New Development Centres
 
 During the nine month period ended March 31, 2007, your Company took on
 lease 74,000 sq. ft. and 28,238 sq. ft. of space for software
 operations at Plot 418-419 in Udyog Vihar in Gurgaon and at the 2nd
 Floor of Tower B of the Presidency Building in Gurgaon with a capacity
 to seat 440 & 179 employees respectively.
 
 The Company also took on lease 15,000 sq. ft. of space for software
 operations at Sigma Whitefield, Sigmatech Park, Varthur Hobli,
 Bangalore with a capacity to seat 100 employees.
 
 Overseas Offices
 
 To further broaden the customer base and to develop deeper customer
 relationships and domain knowledge with a focus on the global delivery
 model, your Company opened a branch office in Korea while the
 representative office in France was converted into a branch.  Also,
 your Company has applied for registration as a branch office in
 Australia, to cater to the needs of Australian market. With all these
 new offices & development centers, your Company will be able to
 effectively develop and market the Company's services and products.
 
 Quality
 
 The company continued to strengthen its quality management systems in
 all locations-Gurgaon, Bangalore and Nuremberg. Your company also
 strengthened the process of seeking feedback on satisfaction levels of
 customers, by centralizing the operations. Your company significantly
 stretched itself to help standardize the delivery capability across key
 software entities acquired by Flextronics. This was done to ensure
 smooth interworking between your Company and these entities in
 fulfilling customer requirements.
 
 Scheme of Arrangement
 
 The Board of Directors of your Company and Future Software Limited (a
 subsidiary of your Company) in their meeting held on December 08,2006
 ap'proved a Scheme of Arrangement wherein your Company and Future
 Software Limited will get merged in Aricent Technologies (Holdings)
 Limited (Formerly Kappa Investments Limited).  The Hon'ble High Court
 vide its order dated December 18, 2006 directed convening meetings of
 the Equity Shareholders and Unsecured Creditors of your Company and
 meeting of the Unsecured Creditors for Future Software Limited for
 approval of the scheme.  The shareholders and unsecured creditors in
 their respective meetings held on January 30, 2007, approved the Scheme
 of Arrangement.
 
 The necessary petitions, for approval of the Scheme of Arrangement,
 were filed with the Hon'ble High Court of Delhi in February 2007.  The
 Hon'ble High Court of Delhi, in its hearing on May 16, 2007, approved
 the merger of your Company and Future Software Limited into Aricent
 Technologies (Holdings) Limited. Upon receipt of the certified copies
 of the Order of the High Court of Delhi sanctioning the Scheme of
 Arrangement, Aricent Technologies (Holdings) Limited, your Company and
 Future Software Limited will file the copies of the Order with the
 Registrar of Companies, NCT of Delhi & Haryana.The date of filing of
 the Order with the Registrar of Companies, NCT of Delhi & Haryana will
 be the Effective Date of merger and your Company and Future Software
 Limited would stand merged into Aricent Technologies (Holdings) Limited
 with effect fro/n April 1, 2007.  Change in Share Capital
 
 During the period under review, your Company completed a buy- back of
 513,103 equity shares at a price of Rs. 725/- per share.  Accordingly
 the paid-up equity capital stands reduced from 33,584,841equity shares
 of Rs. 5/- each as on June 30, 2006 to 33,071,738 equity shares of Rs.
 5/- each as on March 31, 2007.  Buy-back of equity shares by the
 Company To provide the shareholders an option to exit from the Company,
 since the Company is not listed on any stock exchanges, it was decided
 by the Board of Directors to buy-back equity shares of the Company from
 the existing shareholders of the Company, in accordance with the
 provisions of Section 77A of the Companies Act, 1956.
 
 The Board of Directors in their meeting held on April 09, 2007,
 recommended to the shareholders the proposal for buy-back of 939,512
 equity shares of the Company at a price of Rs. 820/- per equity
 share.The shareholders in their extra-ordinary general meeting held on
 April 18, 2007 approved the Offer. Accordingly the share capital of the
 Company stands reduced to Rs. 160,661,130 divided into 32,132,226
 equity shares of Rs. 5/- each.
 
 Directors
 
 In terms of provisions of the Companies Act, 1956 and Articles 124 and
 125 of the Articles of Association of the Company, Mr. Ashish Kumar
 Bhardwaj & Mr. Amal Ganguli retire by rotation and being eligible,
 offer themselves for re-appointment.  Particulars required as per
 Section 212 of the Companies Act, 1956
 
 As per Section 212 of the Companies Act, 1956, the Company is required
 to attacrt the directors' report, balance sheet and profit and loss
 account of the subsidiary companies. The Company had applied to the
 Government of India for an exemption from such attachment as the
 Company presents the audited consolidated financial statements in the
 annual report. The Company believes that the consolidated accounts
 present a full and fair picture of the state of affairs and the
 financial condition and is accepted globally. The Government of India
 vide its letter dated July 04, 2007, granted exemption from complying
 with the requirements of Section 212. Accordingly, the annual report
 does not contain the financial statements of these subsidiaries. The
 company will make available the audited annual accounts and related
 information of the subsidiary companies upon request by any investor of
 the company. These documents will also be available for inspection
 during business hours at the Company's registered office.  Auditors
 
 M/s. Deloitte Haskins & Sells, Chartered Accountants, the auditors of
 your Company who retire in the forthcoming Annual General Meeting,
 being eligible, offer themselves for re-appointment.
 
 Fixed Deposits
 
 The Company has not accepted any deposits during the period under
 review and, as such, no amount of principal or interest was outstanding
 as at the Balance Sheet date.
 
 Community Services
 
 Going beyond business to make a meaningful and positive difference to
 the community, by providing infotech education to underprivileged
 children is the guiding philosophy of the Corporate Social
 Responsibility initiatives undertaken by your Company.
 
 The Company continued to provide financial assistance to the Carterpuri
 Government School in Gurgaon, Haryana. The funds have been utilised for
 the following:
 
 1) A new infotech laboratory, in addition to the existing one, was
 built and another 10 computers were donated. Every year, about 500
 students receive basic and advanced training in computers at these
 labs.
 
 2) A large and spacious library has been built. Employees gifted over
 3000 books that were collected as part of a Books Donation Drive
 which was an organization-wide initiative. 
 
 3) Ninety percent of the school children are anemic and hence, they are
 provided with an inexpensive and nutritious snack/breakfast.
 
 The employee contribution program Give As You Earn (GAYE) continues.
 Your employees have also been contributing time to the Carterpuri
 School. A Reach-Out club has been formed, and members of this club
 regularly spend time with the school children. They conduct classes
 forthem in various subjects. Counseling sessions are also held. All
 major festivals were celebrated at the school and the employees also
 took part in these festivities.
 
 The collections from the Books Donation Drive at your Bangalore
 center were gifted to Shishu Mandir, which is a school for
 underprivileged children.
 
 In addition to this, last winter, your Company organised a clothes
 collection drive for destitute people in and around Delhi. A blood
 donation camp was also organised in collaboration with the Indian Red
 Cross Society, which received an overwhelming response from your
 employees.
 
 Conservation of Energy, Research and Development, Technology
 Absorption, Foreign Exchange Earnings and Outgo
 
 The particulars as prescribed under subsection (1)(e) of Section 217 of
 the Companies Act, 1956, read with the Companies (Disclosure of
 Particulars in the report of Board of Directors) Rules, 1988, are set
 out in the Annexure and form an integral part of the report.
 
 Particulars of Employees
 
 As required under the provisions of Section 217(2A) of the Companies
 Act, 1956, read with the Companies (Particulars of Employees) Rules,
 1975, as amended, the names and other particulars of employees are set
 out in the Annexure and form an integral part of the report. The
 Department of Company Affairs, has amended the Companies (Particulars
 of Employees) Rules, 1975, to the effect that particulars of employees
 of companies engaged in Information Technology sector posted and
 working outside India not being Directors or their relatives, drawing
 more than rupees twenty four lakh per year or rupees two lakh per
 month, as the case may be, need not be included in the statement but,
 such particulars shall be furnished to the Registrar of Companies.
 Accordingly, the statement included in this report does not contain the
 particulars of employees who are posted and working outside India.
 
 Additional Information-Balance-Sheet Abstract and Company's General
 Business Profile
 
 Information pursuant to the Department of Company Affairs notification
 dated May 15,1995 relating to the Balance Sheet Abstract and Company's
 general business profile is provided in the Annual Report for your
 information.
 
 Directors' Responsibility Statement
 
 In compliance with Section 217(2AA) of the Companies Act, 1956, your
 Directors confirm that:
 
 (a) in the preparation of the annual accounts, the applicable
 accounting standards have been followed, and that no material
 departures have been made from the same.
 
 (b) they 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 or loss
 of the Company for that period.
 
 (c) they have taken proper and sufficient care for the maintenance of
 adequate accounting records in accordance with the provisions of the
 Companies Act, 1956, for safeguarding the assets of the Company and for
 preventing and detecting fraud and other irregularities.
 
 (d) they have prepared the annual accounts on a going concern basis.
 
 Acknowledgement
 
 The directors would like to thank and express their sincere
 appreciation to all the customers, vendors, bankers, Central
 Government, State Government and shareholders for their continued faith
 & support in the Company's growth. Your directors place on record their
 appreciation of the contribution made by the employees at all levels,
 who through their competence, hard work, dedication and teamwork have
 enabled the Company to accelerate its growth.
 
 The directors thank the Government of India and various government
 agencies for their support during the period under review, and look
 forward to their continued support in the future.
 
 On behalf of the Board
 
                   Sd/-
 Gurgaon           Ashish Kumar Bhardwaj
 July 04, 2007     Chairman
 
 Annexure to the Directors' Report
 
 Information pursuant to the Companies (Disclosure of particulars in the
 report of Board of Directors) Rules, 1988 forming part of the Report
 of the Directors.
 
 A. CONSERVATION OF ENERGY
 
 The Company makes evaluation on a continuous basis to explore new
 technologies and techniques to make the infrastructure more energy
 efficient. However, the operations of the Company are not energy
 intensive.
 
 B. TECHNOLOGY ABSORPTION.
 
 Research & Development (R&D)
 
 i. Specific areas in which R&D is carried out by the Company:
 
 The Company is committed to the research and development required to
 remain ahead of the technology curve. The result: new services and
 products that give your Company's clients a competitive edge in the
 fast-moving communications business.
 
 We invest in R&D efforts in the following areas in the Telecom domain -
 
 * Next Generation networks,
 * Broadband networks,
 * Wireless Technologies
 
 Our major practices involve -
 
 * Wimax
 * Femto/PicoCell
 * IP multimedia subsystems (IMS)
 * Voice over IP
 * Switching/intelligent networks
 
 Clients now outsource entire efforts or portions of the product
 lifecycle to your Company. The Company offer the following services -
 
 * Technical Consulting
 * Product development
 * Testing
 * Sustenance
 * Cost Reduction engineering
 
 The Company has also developed in-depth detailed solution ideas that
 offer an overview of a technology or service specific issue.
 Capitalizing on the skills, in-depth knowledge and domain expertise of
 software professionals, your Company solutions aim to explore
 technologies of relevance today so that its clients are able to add
 value to their businesses.
 
 2. Benefits derived as a result of the R&D activities:
 
 The Company's single-minded focus on the communications domain has been
 a strength. Continuous investment in R&D helps provide differentiators
 in the Company's offerings.
 
 Its an ongoing initiative for the Company to retain its leadership
 position in the area of developing products in the Telecom domain.
 These solutions have been sold to multiple customers worldwide, and
 have established the Company as a reputed supplier of protocol stacks,
 components and subsystems in the Packet Technologies and Wireless
 domains. In addition, this has helped the Company build strong domain
 knowledge.
 
 The Company also realizes the importance of protecting clients' IPR in
 offshore projects and has well-defined Strategic Outsourcing Services
 processes and guidelines in place aimed at helping customers of
 offshore projects to make the most of their intellectual property.
 
 3. Future plan of action
 
 To focus on
 
 *  R&D in product development & engineering
 
 * Development of new products & IPRs to enable its customers reduce
 cost, time and risk.
 
 The Company 's technology focus would be in the Convergence market with
 products and services in, Mobile (GPRS/3G), Wire-line, Cable/Satellite
 & Broadband Networks and Next Generation Packet Data Networks.
 
 4. Expenditure on R&D
 
 The details of the expenditure incurred on product development and
 prototyping are as under:
 
                                                      (Rs. in Million)
 
 Particulars                               Nine Month     Fifteen Month
                                           Period ended   Period ended
                                           March 31,      June 30,
                                           2007           2006
 
 R&D amount capitalised
 (Net of amortisation)                          3              22
 
 R&D amount expensed off
 including amortisation                       308             424
 
 Total R&D expenditure                        305             402
 
 Total R&D Expenditure as a
 percentage of total turnover                4.6%            4.8%
 
 Technology absorption, adaptation and innovation.
 
 1. Efforts, in brief, made towards technology absorption, adaptation
 and innovation. Benefits derived as a result of the above efforts e.g.
 product improvement, cost reduction, product development, import
 substitution, etc.
 
 Continuous investment in R&D and an active participation in standards
 bodies help the company to develop cutting-edge technologies and
 maintain its leadership position in the communication software services
 and products space.
 
 Deep domain knowledge has helped the Company both expand business and
 move up the value chain.  The Company has a uniquely talented team of
 designers, consultants and engineers who are responsible for technology
 and domain knowledge acquisition and tracking of standards. Their focus
 is to select application domains and relevant core technologies that
 are in line with the overall interests of the Company.
 
 2. In the case of imported technology (imported during the last 5 years
 reckoned from the beginning of the financial year), the following
 information may be furnished:
 
 a)  Technology imported
 b)  Year of import
 c)  Has technology been fully absorbed?        Not Applicable
 d)  If not fully absorbed, areas where
     this has not taken place, reasons
     therefor and future plans of action.
 
 C. FOREIGN EXCHANGE EARNINGS AND OUTGO
 
 a) Activities relating to Exports; initiatives taken to increase
 exports; development of new export markets for products and services
 and export plans.
 
 During the 9 month period ended March 31, 2007, your Company earned
 export revenue of Rs. 6347 million, representing approx.  95% of the
 total sales of the Company. Your Company has subsidiaries in Japan &
 China and has Branch Offices in U.S, U.K., Germany, Dubai, Sweden,
 Singapore & Canada to effectively develop the market. Further, the
 Company has opened a branch office in Korea and converted its
 Representative Office in France to its Branch Office and has applied
 for registration as a branch office in Australia, to increase its
 exports. In order to develop new export markets for services and
 products, your Company has regularly participated in major
 international exhibitions and seminars.
 
 b) Total foreign exchange earned and used.
 
                                                       (Rs. in Million)
 
 Particulars                               Nine Month     Fifteen Month
                                           Period ended   Period ended
                                           March 31,      June 30,
                                           2007           2006
 
 
 Foreign Exchange Earnings                      6349          7633
 Foreign Exchange Outgo                         1497          1939
 
 On behalf of the Board
 Sd/-
 Ashish Kumar Bhardwaj
 Chairman
 
 Gurgaon  
 July 04, 2007