The Members
 
 Kernex Microsystems (India) Limited
 
 The Director present herewith, the Nineteenth Annual Report together
 with the audited accounts of the company for the year ending 31 March
 2011.
 
 Financial Results
 
                                                  Rs. in lacs
 
                                              2010-11    2009-10
 
 Sales and Other Income                       4421.81     667.93
 
 Profit before interest and
 depreciation                                 1130.22    (669.98)
 
 Interest                                      317.25     247.56
 
 Depreciation                                  105.24     139.96
 
 Profit before Tax                             707.73   (1057.50)
 
 Provision for Taxation                        249.90          –
 
 Profit after Tax                              457.83    (699.10)
 
 Add: Balance brought forward
 from previous year                           1298.30    1997.41
 
 Profit available for appropriation           1756.12    1298.30
 
 Earnings Per Share (Rs.)
 
 - Basic                                         3.66      (5.59)
 
 -  Diluted                                      3.66      (5.59)
 Appropriations:
 
 Transfer to General Reserve                        –          –
 
 Proposed Dividend                             125.00          –
 
 Income Tax on proposed
 
 Dividend                                       20.76          –
 
 Balance carried to the
 Balance sheet                                1610.37    1298.30
 
 Dividend
 
 Your Directors are pleased to recommend a dividend of 10% on the paid
 up capital of the company for the financial year 2010-2011. The
 dividend if approved at the ensuing Annual General Body Meeting, will
 be paid to those share holders, whose names appear on the register of
 members of the company as on September 26th, 2011 as per the rules
 applicable at that time.
 
 Company''s Project
 
 Company''s Business and Operational Results:
 
 1.  Your company has exclusive license for manufacturing, installation
 and commissioning of networked system Raksha Kavach for which IP
 rights are held by Konkan Railway Corporation.
 
 As regards to introduction of ACD System through out the country
 Honourable Railway Minister had announced the following during Railway
 Budget speech in Parliament for, 2011-2012.
 
 In my first tenure, I had approved the introduction of Anti-Collision
 Device (ACD). After ten years, I find that it has been implemented only
 on NF Railway. Our recent trials with an improved version of ACD have
 met with success and it will be commissioned on three Zonal Railways,
 Southern, South Central and South Western Railway.  Considering the
 successful trials, I have decided to extend this device to Eastern,
 East Coast, East Central and South Eastern Railways. With this, we will
 have covered 8 out of 17 Zonal Railways.
 
 2.  You will be happy to learn that the State-of-Art facility is ready
 at Hardware Technology Park of your company, near Kancha Imarat, 5 Kms
 from Airport for manufacture of 10,000 ACDs/year has been completed in
 all respects and is ready to undertake designing and manufacturing
 operations at short notice.
 
 3.  During this period under consideration, some of our R&D Projects of
 previous years have been consolidated. This including RFID Readers and
 Tags for correct identification of track ID, Inter-connecting all ACDs
 except Repeaters through GSM Network and Realtime monitoring of status
 of ACDs and use of Blue tooth technology for data accessing on the
 running Loco ACDs and development of Lx Semi Auto Gates and
 Multi-section Digital Axle Counters.
 
 4.  CMC operations in NF Railway covering over 1300 ACDs and over 16
 locosheds at a cost of Rs.10.55 crores has been completed for year
 2010-2011.  Further, it also involves supplementary works costing over
 Rs.7.5 crores, additionally.
 
 Indigenization, Cross Approvals and New Developments
 
 You are aware that your company has signed collaboration agreement with
 M/s Altpro D.O.O. Zagreb, Croatia for manufacture and supply of
 Multi-section Digital Axle Counters. There is over Rs.60 crores market
 in Indian Railways and there are only one or two approved suppliers.
 We have fulfilled all requirements of RDSO, including site trials of
 two units at Hosur and the other one near Lucknow. The approval is
 expected shortly.
 
 Your company proudly announces the completion of Development of
 Electronic Semi-automatic Level Crossing System (Lx System) of safety
 integrity level 3.  We have already shipped over 81 units after Factory
 Acceptance test to ENR, Egypt. Balance 55 Nos. are expected to be
 completed shortly and are likely to be shipped to ENR by end of Oct
 2011 after Factory Acceptance test. We expect to receive certification
 from accredited agency by 31 March 2012.
 
 International Operations
 
 Your company has an extended quantity order for 55 more Lx Gates from
 Egypt in addition to previous 81 units, taking total to 136 Lx Gates,
 at an additional cost of Rs.23.5 crores. The date of project completion
 has been extended to upto 30 June 2012 without any liquidated damages.
 
 Your company has intensified marketing effort for selling Lx Systems
 and MSDAC abroad. We have received enquiries from Australia, England
 and Turkey, etc.  Further, we have submitted quotations for Auto Gates
 to be executed by MNC in Egypt over 30 Nos. costing over Rs.50 crores.
 
 New areas of business in Indian market
 
 Your company has also received enquiries from MNCs to indigenize
 components and subsystems required for Train Protection and Warning
 System (TPWS) in India and also for Metro and Mono Rail System. We are
 considering these enquiries.
 
 Extension of existing projects
 
 Your company may secure orders for additional Gates as part of 174
 Gates from Egyptian Railways.
 
 Domestic Market
 
 Coming to Domestic markets, depending upon the progress of trials, new
 zones may be sanctioned for deployment of ACD System that includes
 South East, East Coast, Eastern and East Central and three zones in the
 South during 2011-2013.
 
 Research & Development
 
 You are aware that your Company''s strengths are strong R&D,
 professionalism, venturing into technologies which are in demand,
 through forward looking plans like technology acquisitions and Joint
 Ventures.
 
 The company has since completed development of Version 2.1 ACD System
 with software and also Lx Gates, Multi-section Digital Axle Counter
 System, ACD Survey software and ACD Reporting System software except a
 few additions to be added, if required by clients.
 
 Diversifications
 
 Your Company needs to diversify as it cannot remain a single client,
 single type of equipment suppliers. Taking up new opportunities in
 Defence and other areas like transportation sectors, etc.
 
 Progress achieved on the IPO and Company Expansion Projects
 
 As part of completion of IPO related company''s expansion projects,
 establishment of new manufacturing centre for ACDs, ADDs and Advanced
 Signal System, land acquisition for Intelligent Transport Technology
 Centre, planned R&D Projects have been completed, International
 marketing office and project offices have since been opened to the
 extent required and rest will be taken up as and when required.
 
 Overseas 100% Owned Subsidiary
 
 Your Company has one Wholly Owned Subsidiary in USA as on 31st March
 2011. The members may refer to the statement under section 212 of the
 Companies Act, 1956 for further information on this subsidiary. The
 Balance Sheet of the said Company is also attached herewith as required
 under Section 212 of the Companies Act, 1956.
 
 Directors'' Responsibility Statement:
 
 As required under Section 217 (2AA) of the Companies Act, 1956 it is
 hereby stated that:
 
 a) In the preparation of the Annual Accounts for the year ended March
 31, 2011 the applicable Accounting Standards had been followed along
 with proper explanation relating to material departures
 
 b) The directors had 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) The directors had 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; and
 
 d) The directors had prepared the annual accounts on a going concern
 basis.
 
 Audit Committee of Board:
 
 The Audit Committee of the company comprises three independent
 Directors and the Chairman of the Audit Committee was present at the
 previous Annual General Meeting.
 
 Corporate Governance Report and Management Discussions and Analysis
 Report:
 
 Separate reports on Corporate Governance along with Auditors''
 Certificate on its compliance as well as Management Discussion and
 Analysis Report forming part of this report is annexed.
 
 Fixed Deposits:
 
 The company has not accepted any deposits from the public and
 therefore, the provisions of section 58A of the Companies Act, 1956 are
 not applicable.
 
 Conservation of Energy, Technology Absorption, etc.:
 
 The particulars prescribed under 217 (1) (e) of the Companies Act, 1956
 read with the Companies (Disclosure of particulars in the Report of
 Board of Directors) Rules 1988, in respect of technology absorption,
 foreign exchange earnings and outgo are set out in the annexure forming
 part of this report.
 
 Employee Relations:
 
 Relations between the employees and the management continued to be
 cordial during the year.
 
 Particulars of Employees:
 
 None of the employees are covered under section 217(2A) read of the
 Companies Act, 1956 read with the Companies (particulars of employees)
 Rules, 1975.
 
 Directors:
 
 Sri S V Subba Raju, Sri M Gopalakrishan IAS(Retd.), Dr Raju Narasa
 Mantena, Directors retire by rotation and being eligible, offer
 themselves for reappointment.
 
 Auditors:
 
 M/s. GMK Associates, Chartered Accountants, Hyderabad the Statutory
 Auditors of the Company retire at the conclusion of this Annual General
 Meeting and are eligible for re-appointment.
 
 Acknowledgements:
 
 The Directors take this opportunity to thank all investors, business
 partners, clients, and technology partners, Company''s Bankers, State
 Bank of Hyderabad, Punjab National Bank, Central and State Government
 Authorities for their continued support during the year. Your Directors
 would like to place on record their appreciation of the contribution
 made by employees at all levels for their commendable team work,
 dedicated and whole hearted efforts made during the year.
 
                             For Kernex Microsystems (India) Limited
 
 Place:Hyderabad                                     S.V. Subba Raju
 
 Date :August 13, 2011                                      Chairman