Annual Report - Allsec€¦ · Chartered Accountants Chennai Bankers • Canara Bank • HDFC Bank Registrars & Transfer Agents Karvy Computershare Private Limited Karvy House, 46,

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Annual Report

2006 - 07

A L L S E C

T E C H N O L O G I E S

L I M I T E D

A N N U A L R E P O R T 1

ALLSEC TECHNOLOGIES LIMITEDCorporate Information

Board of Directors

Dr.Bala V Balachandran ChairmanMr.T. Anantha Narayanan DirectorMr.A. Sankarakrishnan DirectorMr.Vinod Ganjoor DirectorMr.Shankar Narayanan Madhava Menon Investor DirectorMr.Daniel D’ Aniello Investor DirectorMr.N.S. Raghuram Alternate Director to Mr.Vinod GanjoorMr.Mahesh Parasuraman Alternate Director to Mr.Daniel D’ AnielloMr.A. Saravanan Director & PresidentMr.R. Jagadish Director & CEO

Management Team

Mr.P. Viswanathan Executive DirectorMr.R. Vaithiyanathan Senior Vice President – Operation & HRMr.A.G. Balaji Vice President – FinanceMr.Arun P Sowdas Vice President – TechnologyMr.C. Mahadevan Vice President – HR BPO

Company Secretary

Mr.K.S. Raghu

AuditorsS R Batliboi & AssociatesChartered AccountantsChennai

Bankers

• Canara Bank

• HDFC Bank

Registrars & Transfer Agents

Karvy Computershare Private LimitedKarvy House, 46, Avenue 4 Street No.1Banjara Hills, Hyderabad – 500 034.

Registered Office

7H Century Plaza560-562 Anna SalaiTeynampetChennai 600 018.

Corporate Office

46B Velachery Main Road,Velachery, Chennai 600 042.

Corporate Information 1

Notice of Annual General Meeting 3

Financial Highlights and Graphs 6

HR and Training 9

Directors’ Report 12

Corporate Governance 17

Management Discussion & Analysis 23

Auditors’ Report 29

Standalone Financials 32

Consolidated Auditors’ Report 59

Consolidated Financials 60

Contents


ALLSEC TECHNOLOGIES LIMITED

Notice is hereby given that the Eighth Annual Generalmeeting of the Shareholders of ALLSECTECHNOLOGIES LIMITED will be held at 10.00 A.M. onFriday the July 27, 2007 at Narada Gana Sabha,Mini Hall, 314, TTK Salai, Alwarpet, Chennai 600 018 totransact the following business;

Ordinary Business:

1. To consider and adopt the Balance Sheet as at31st March 2007 and the Profit and Loss Account for theperiod ended 31st March 2007 along with the Schedules,the report of the Directors and Auditors thereon.

2. To declare a dividend on Equity Shares for the yearended March 31, 2007.

3. To appoint a Director in the place of Dr.BalaV Balachandran who retires by rotation and beingeligible, offers himself for re-appointment.

4. To appoint a Director in the place ofMr.A.Sankarakrishnan who retires by rotation andbeing eligible, offers himself for re-appointment.

5. To consider and if thought fit, to pass with or withoutmodification(s), the following resolution as OrdinaryResolution;

“RESOLVED THAT M/s. S. R. Batliboi & Associates,Chartered Accountants, the retiring auditors of theCompany, be and are hereby re-appointed as Auditorsof the Company to hold office from the conclusion ofthis meeting until the conclusion of the next AnnualGeneral Meeting of the company on such remunerationas may be decided by the Board of Directors plusreimbursement of actual travel and other out-of-pocketexpenses”

Special Business

6. To consider and if thought fit to pass with orwithout modification the following resolution asan Ordinary Resolution

“RESOLVED THAT Mr. Shankar Narayanan MadhavaMenon a Director who was appointed as an AdditionalDirector and who holds office as such upto the date ofEighth Annual General Meeting of the Company andin respect of whom Notice under section 257 of theCompanies Act, 1956 have been received from amember signifying the intention to propose Mr.ShankarNarayanan Madhava Menon as a candidate for theoffice of Director of the Company be and is herebyappointed as a Director of the Company not liable toretire by rotation”.

7. To consider and if thought fit to pass with orwithout modification the following resolution asan Ordinary Resolution

“RESOLVED THAT Mr. Daniel D’ Aniello a Directorwho was appointed as an Additional Director and

who holds office as such upto the date of Eighth AnnualGeneral Meeting of the Company and in respect ofwhom Notice under section 257 of the Companies Act,1956 have been received from a member signifyingthe intention to propose Mr.Daniel D’ Aniello as acandidate for the office of Director of the Company beand is hereby appointed as a Director of the Companynot liable to retire by rotation”.

NOTES:

1. A MEMBER ENTITLED TO ATTEND AND VOTE ATTHE MEETING IS ENTITLED TO APPOINT A PROXYTO ATTEND AND VOTE INSTEAD OF HIMSELF ANDTHE PROXIES NEED NOT BE A MEMBER OF THECOMPANY. THE PROXIES IN ORDER TO BEEFFECTIVE MUST BE RECEIVED BY THECOMPANY NOT LATER THAN 48 HOURS BEFORETHE TIME FIXED FOR THE MEETING.

2. Explanatory Statement Pursuant to Section 173(2) ofthe Companies Act, 1956 is appended hereto.

3. The Register of Members of the Company and TransferBooks thereof will be closed from 25th July 2007 to27th July 2007 (both days inclusive).

4. The dividend on equity shares, as recommended bythe Board of Directors, if declared at this AnnualGeneral Meeting, will be paid to those shareholderswhose names stand on the Register of Members aftergiving effect to all valid transfer deeds in physical formlodged with the Company on or before 24th July 2007and in respect of shares held in the dematerializedform to those “deemed members” whose namesappear in the statements as furnished by thedepositories for this purpose as at the end of thebusiness hours on 24th July 2007. The dividenddeclared shall be paid within the prescribed time limit.

5. Members holding shares in physical form arerequested to lodge transfer deeds, communicationsfor change of address, mandates(if any) with theCompany’s Share Transfer Agents M/s. KarvyComputershare Private Limited, Unit Allsec, KarvyHouse, 46, Avenue 4, Street No.1,Banjara Hills,Hyderabad 500 034, Phone:91 40 23312454 on orbefore 24th July 2007.

6. The Securities and Exchange Board of India hasmade it mandatory for all companies to use the bankaccount details furnished by the depositories forpayment of dividend through Electronic ClearingService (ECS) to investors wherever ECS facility isavailable. Hence, the members holding shares indematerialised form are requested to intimate allchanges per taining to their bank details, ECSmandates, power of attorney, change of address/name, etc., to their depository participant only and

Notice to the Shareholders



not to the Company’s Registrar and Transfer Agent.Changes intimated to the depository participant willhelp the Company and its Registrar to provide efficientand better services to the Members.

7. The proxies appointed, should bring their attendanceslips sent herewith, dully filled in, for attendingthe meeting.

By Order of the Board

Chennai R.JagadishMay 14, 2007 Director

Registered Office :7H, Century Plaza, 560-562, Anna Salai,Teynampet, Chennai-600 018

Notice of Annual General Meeting

EXPLANATORY STATEMENT UNDER SECTION173(2) OF THE COMPANIES ACT, 1956

For Item No.6

Mr. Shankar Narayanan Madhava Menon nominated byFirst Carlyle Ventures Mauritius, the Investor wasappointed as an Additional Director by the Board ofDirectors at their meeting held on 25th January 2007. Interms of the Subscription and Shareholders Agreementdated 23rd August 2006 executed with First CarlyleVentures Mauritius, the investor directors are not liable toretire by rotation. The Additional directors appointed shallhold office only up to the date of the next Annual Generalmeeting of the Company. The Company has received anotice under Section 257 of the Companies Act, 1956 froma member of his intention to propose the candidature ofMr.Shankar Narayanan Madhava Menon as Director ofthe Company not liable to retire by rotation.

Hence the proposed resolution. The Directors recommendthat the resolution be passed. None of the Directors exceptMr. Shankar Narayanan Madhava Menon is concerned orinterested in the resolution.

For Item No.7

Mr. Daniel D’Aniello nominated by First Carlyle VenturesMauritius, the Investor was appointed as an AdditionalDirector by the Board of Directors at their meeting heldon 25th January 2007. In terms of the Subscription andShareholders Agreement dated 23rd August 2006 executedwith First Carlyle Ventures Mauritius, the investor directorsare not liable to retire by rotation. The Additional directorsappointed shall hold office only up to the date of the nextannual general meeting of the Company. The Companyhas received a notice under Section 257 of the CompaniesAct, 1956 from a member of his intention to propose thecandidature of Mr. Daniel D’ Aniello as Director of theCompany not liable to retire by rotation.

Hence the proposed resolution. The Directors recommendthat the resolution be passed.

None of the Directors except Mr. Daniel D’ Aniello isconcerned or interested in the resolution.

Information required as per the ListingAgreement

For Item No.3 & 4

The Profile of Directors retiring by rotation namelyDr. Bala V. Balachandran and Mr.A.Sankarakrishnan isprovided below:

Dr. Bala V. Balachandran aged 69, is an EminentEconomist, distinguished Professor of Accounting,Information System and Decision Sciences and Directorof the Accounting Research Center at J.L. KelloggGraduate School of Management, Il l inois, USA,Dr. Bala V. Balachandran has over 40 years of experiencein accounting and expertise in management. He has tohis credit several honors, Awards, Fellowships,Teacher Award, and Alumni Faculty Choice Award.

He has done B.Sc. (Hons.) Mathematics/Statistics, 1961;M.A., Mathematics/Statistics, 1963; M.S. AppliedStatistics, Annamalai University, MSE 1969, Engineering,University of Dayton; MSIA 1972; Business Administration,PhD 1973; Industrial Administration, Carnegie-MellonUniveristy; CPA 1978; CMA, 1979.

He is also on the Board of Godrej Consumer ProductsLtd and Great Lakes Institute of Management. He is amember of the Audit Committee of Godrej ConsumerProducts Ltd.

Dr.Bala V Balachandran holds 70,000 equity shares inthe Company.

Mr.A.Sankarakrishnan aged 64 is a graduate fromGuindy Engineering College, Chennai. He joined asGraduate Engineer in India Pistons Limited a leadingautomobile ancillary manufacturing industry in the year1965 and was elevated to the level of Executive Directorin the year 1984. He joined as Managing Director inKone Elevator India Pvt. Ltd., a leading manufacturingindustry, a wholly owned subsidiary of Kone CorporationFinland in the year 1992. He led the modernisationinitiatives in Kone Elevators and was instrumental inturning Kone from sick to healthy, with a 40% market share.He is also adept in absorbing foreign technologies andimplementing the same in Indian industries.

He is also on the Board of Olympus Elevators Pvt Limited.

Mr.Sankarakrishnan does not hold any shares inthe Company.

For Item No.6 & 7

The Profile of Directors namely Mr.Shankar NarayananMadhava Menon and Mr.Daniel D’ Aniello is providedbelow:


ALLSEC TECHNOLOGIES LIMITEDAnnexure to Notice

Mr.Shankar Narayanan Madhava Menon, aged 45,Managing Director of The Carlyle Group, India isresponsible for leading growth capital investments in India.He is based in Mumbai. Prior to joining Carlyle Group,Mr.Shankar Narayanan Madhava Menon spent six yearsat Hathway Investments in Mumbai and during that timeserved as Managing Director and CEO. He was also withDeutsche Bank Capital Partners, based in Hong Kong,as a Director covering South Asia and India.Mr. Shankar Narayanan Madhava Menon has led or beenassociated with a number of prominent private equityinvestments in India, including Johnson Tiles, ExideIndustr ies, Hathway Cable, Asianet Satell iteCommunications, Pushpa Polymers, Tata Infomedia, andAFL Limited. He had served on the Board of Directors ofall these Companies. Prior to Hathway Investments,Mr.Shankar Narayanan Madhava Menon worked atCitibank in Mumbai.

Mr. Shankar Narayanan Madhava Menon is currently onthe Boards of Newgen Imaging Systems Private Ltd.,LearningMate Solutions Private Ltd, Claris LifesciencesLtd, Quality engineering & Software technologies, Inc.,Elitecore technologies Ltd., QuEST Manufacturing &Machining Private Ltd, Financial Software & SystemsPrivate Ltd and other corporates. He is a member of theAudit Committee of Claris Lifesciences Ltd. Mr.ShankarNarayanan Madhava Menon received a Post GraduateDiploma in Management from XLRI Jamshedpur wherehe was a Gold Medalist and stood first in the graduatingclass in the area of Finance and Accounting and a

Bachelor of Technology Degree in Civil Engineering fromthe Indian Institute of Technology, New Delhi.

Mr.Shankar Narayanan Madhava Menon does not holdany shares in the Company.

Mr. Daniel D’Aniello aged 61 is a Founding Partner andManaging Director of The Carlyle Group. He is based inWashington, DC. Prior to forming Carlyle in 1987,Mr. Daniel D’Aniello was Vice President for Finance andDevelopment at Marriott Corporation where he wasresponsible for valuation of all major mergers, acquisitions,divestitures, debt and equity offerings and projectfinancings. Before joining Marriott, he was a FinancialOfficer at Pepsico and TWA.

Mr. Daniel D’Aniello is a 1968 magna cum laude graduateof Syracuse University, where he was a memberof Beta Gamma Sigma, and a 1974 graduate of theHarvard Business School, where he was a TeagleFoundation Fellow.

Mr. Daniel D’Aniello does not hold any shares in theCompany.

By Order of the Board

Chennai R.JagadishMay 14, 2007 Director

Registered Office :7H, Century Plaza, 560-562, Anna Salai,Teynampet, Chennai-600 018


ALLSEC TECHNOLOGIES LIMITEDFinancial Highlights

(Rs. in million)

Year Ended 15 Month Year Ended Year Ended Year Ended December 31, Period Ended March 31, March 31, March 31,

2002 March 31, 2004 2005 2006 2007

A. Profit and Loss Account

Income from services 197.11 249.41 575.53 922.56 1132.79

Other income 2.32 0.20 0.11 10.76 38.56

Total income 199.43 249.61 575.64 933.32 1171.35

Gross Profit before Interest,depreciation & Tax (EBITDA) 47.04 (102.58) 159.34 277.96 364.00

Depreciation & Amortisation 23.24 48.36 40.80 61.31 79.42

Profit before interest & tax 23.79 (150.95) 118.54 216.65 284.58

Interest 5.84 14.94 13.97 5.04 3.86

Profit before taxation 17.95 (165.89) 104.57 211.61 280.72

Profit after taxation 16.97 (164.98) 118.62 216.37 281.35

B. Balance Sheet

Net fixed assets 192.83 154.84 144.02 341.95 290.41

Investments 10.45 14.90 14.90 108.42 884.79

Net current Assets 37.08 (25.73) 78.27 237.06 498.67

Total 240.36 144.02 237.19 687.43 1,673.87

Share Capital 176.78 176.78 88.25 120.87 152.38

Reserves & Surplus 19.27 – 128.10 587.34 1,542.75

Less: Profit & Loss account

Debit balance – 145.72 27.10 – –

Miscellaneous expenses 2.6 1.83 9.60 – –(to the extent not written off)

Net worth 193.44 29.23 179.65 708.21 1,695.13

Loan funds 46.91 114.79 72.06 1.51 1.56

Deferred Tax (net) – – (14.52) (22.29) (22.82)

Total 240.36 144.02 237.19 687.43 1,673.87

C. EPS ( in Rs) 3.9 (37.9) 14.37 18.40 20.09

Diluted EPS ( in Rs) 2.8 (37.9) 14.12 18.15 19.93

Book Value per share 44.42 6.71 20.36 58.59 111.24

Return on Capital Employed 7% (115%) 50% 32% 17%

(ROCE in %)

Return on Networth 9% (564%) 66% 31% 17%

(RONW in %)

Fixed Assets Turnover 1.02 1.61 4.00 2.70 3.90

(No of times)

Working Capital Turnover 5.32 (9.69) 7.35 3.89 2.27

(No of times)

EBITDA as a % of total income 24% (41%) 28% 30% 31%

Net Profit ( Loss ) as a % of total income 9% (66%) 21% 23% 24%



Trends in Revenue





HRHRHRHRHR and Training and Training and Training and Training and Training







At Allsec, we recognize that organizational vibrancy, peopleproductivity and business continuity at large, depends onwork place health and safety. Understanding andappreciating the need for a healthy work-life balance, weencourage our people to work towards the same.

All work and no play make the mind dull and the workdifficult and uninspiring. That is why we take ‘Fun@work’very seriously with various forums/events like,

• Celebrating Togetherness• Team outings/Get-together• Energizing through Sports

In continuation with equipping our employees withnecessary information, a Reading Room/KnowledgeCenter has been established. It features books relatingto IT, Technology, General Management, EmployeeRelations, Project Management, General Magazines andinformation on higher education bulletin.

Allsec’s Corporate Social Activities

In continuance with the Corporate Social Responsibility,Allsec Technologies Limited in association with Lions Clubof Chennai organized a blood donation camp at Allsec’sVelachery center.

ELCOT - Train the Teachers

Allsec Technologies has been associated withELCOT - Electronics Corporation of India for nearly 3 yearsnow and we have been a part of its initiatives, job fairs,“Train the Trainer programs” etc.

Under the above initiative, Allsec together with Sutherlandand Scope International conducted a 3 day seminar inwhich 40 english teachers from different schoolsparticipated. The seminar covered modules such as selfconfidence, communication and presentation skills. It isexpected that with the training imparted to the teachers,they in turn would train their students on the above aspectsleading to better employability for the students.

Allsec Pre - Training Program (APT Program)

Candidates who wish to acquire skill-set required to workin an international Voice BPO can take up this program.Candidates need to undergo a screening test to be eligiblefor this program.

Candidates who successfully clear the Allsec SelectionProcess will be eligible for a full time employmentopportunity at Allsec.

Graduation Day

Graduation day provided an opportunity to identify allemployees who have successfully completed their trainingand have gone online. Parents of the respectiveemployees were invited to this program which acted as abridge between the parents and their wards and TeamLeaders to understand more about the opportunitiesavailable at Allsec; later they were taken on a facility tourwhich gave them the comfort of seeing the quality ofworkplace.

Human Resource

This center will be a starting point for continued developmentand improvement for all Allsecians.

Allsec Employee Referral Offer (AERO)

A tight labour market affects companies looking to expandtheir talent pool. The war for talent is getting more intense.In Allsec we have attempted to convert this threat as anopportunity for our existing employees.

Allsec Employee Referral Offer rewards existingemployees for referring their friends who are qualified foremployment in Allsec.

Majority of the employees gave feedback that they referredto help a friend fetch a good job. Rest of them felt that,referring a good candidate would be a benefit to the

company and they were also motivated by the reward.



DIRECTORS’ REPORT

The Directors have pleasure in presenting to you the EighthAnnual Report of the company covering the financial yearended 31st March 2007.

FINANCIAL HIGHLIGHTS(Rs. in million)

Year Year Ended Ended

March 31 March 312007 2006

Income from Services 1132.79 922.56

Other Income 38.56 10.76

Total Income 1171.35 933.32

Gross Profit before interest,depreciation & Tax (EBITDA) 364.00 277.96

Depreciation & Amortisation 79.42 61.31

Profit before interest & tax 284.58 216.65

Interest & Finance charges 3.86 5.04

Profit before taxation 280.72 211.61

Profit after taxation 281.35 216.37

Profit / (Loss) brought forward 65.36 (27.10)

Surplus carried forwardto Balance Sheet 202.56 65.36

DividendYour directors are pleased to recommend the payment ofdividend of 50% for the year ended March 31, 2007.

Transfer to ReservesWe propose to transfer Rs.55 millions to the generalreserve. An amount of Rs.202.56 millions is proposed tobe carried forward as balance in the Profit and Loss Accountto Balance Sheet.

Business Outlook

Your company progressed this year on its planned path ofgrowth and profitability. The year saw growth in the firsthalf and the second half maintained the levels of revenueand profitability. This was mainly due to the increasedcompetition in the HR front making the addition ofmanpower to the agent pool increasingly difficult.

Your Company focused efforts on recruitment during thebeginning of the current year taking advantage of theacademic year end when more people are normallyavailable. These recruits would add to the agents' pool. Inaddition, to tap the market from tier II cities with goodeducational institutions, your Company has proposed toset up a delivery center at Trichy.

To enhance global delivery capabilities and offer clientscapability to deliver from different geographies yourcompany plans to open a center in Philippines soon.Organic growth has been steady during the financial year.It

Directors’ Report

is expected that your company will sustain organic growthat the same level. Client addition has been steady andpipeline of customers is very good.

In addition to the organic growth your Company also plansto exploit opportunities by making strategic acquisition ofother BPO Companies. This will open new avenues forgrowth. A combination of organic & inorganic growth forthe year would lay the foundation for the company tomaintain its growth for the years to come.

Preferential IssueDuring the year your Company has issued 30,21,685 equityshares of Rs.10/- each at a price of Rs.260/- per share toFirst Carlyle Ventures Mauritius. Your Company has alsoissued 1,60,728 and 8,03,640 warrants to First CarlyleVentures Mauritius and the Promoters of the Companyrespectively. Each warrant is convertible into one equityshare of the Company at a conversion /exercise price ofRs.260/- per resultant equity share within 18 months fromthe date of allotment. The equity shares issued to FirstCarlyle Ventures Mauritius were listed at National StockExchange of India Limited and Bombay Stock ExchangeLimited.

Merger of B2K Corp Private LimitedA petition before the Hon'ble High Court of Madras hasbeen filed by B2K Corp Private Limited ("B2K"), the whollyowned subsidiary with your Company as Respondent forthe approval of the Scheme of Amalgamation of B2K CorpPrivate Limited, with the Company. The Scheme wouldprovide for Amalgamation of the business of B2K with theCompany and it will be a good synergistic fit, enhancingthe export revenues and earnings; The amalgamation underthe Scheme will benefit both companies by pooling thefinancial resources, managerial, technical and marketingexpertise;

New facility at Trichy

Your Company is in the process of setting up a Centre atTrichy. The seating capacity of the Trichy Centre would be200. The new facility is expected to bring additionalmanpower and will meet the growing demands of theexisting customers and the prospective client additions.

BS7799 Certification

Your Company has obtained the renewal of therenowned BS7799 certification for its Information SecurityManagement System.

ISO 27001 certification

A commitment to excellent quality service is part of thecorporative philosophy of your Company and accordinglythe company's operations are supported by internationalcertifications. Your Company has adopted ISO 9001:2000as a standard for Quality Management System and ISO27001:2005 as a standard for Information SecurityManagement System. Your Company's services meet the



physical and technical standards and provide all necessarycontrols for its customers to maintain their administrativesecurity compliance standards. Specifically, Your Companyhas implemented administrative, physical, and technicalsafeguards that reasonably and appropriately protect theconfidentiality, integrity, and availability of information thatit creates, receives, maintains or transmits on behalf of itscustomers and has demonstrated compliance to thestandards successfully.

Disclosure as per Securities and Exchange Board ofIndia (Employees Stock option Scheme and EmployeeStock Purchase Scheme) Guidelines, 1999

Employees Stock Option Schemes

The Compensation Committee of the Board authorized thegrant of the following options to the eligible employees interms of the relevant Schemes. Upon exercise, the holdersof each stock option are entitled to oneequity share

Date ESOP Exercise ESOS Exerciseof 2004 Price 2006 Price

Grant (per option) (per option)

May 6, 2004 286,500 Rs.10/-

January 14, 2005 13,500 Rs.10/-

January 31, 2005 33,700 Rs.10/-

January 25, 2007 350,000 Rs.289.75

Description ESOS 2004 ESOS 2006

a. Options granted 333,700 350,000

b. The pricing formula Face Value Discount of15% on prevailing

market price

c. Options vested 300,000 NIL

d. Options exercised 250,600 NIL

e. The total number ofshares arising as a resultof exercise of options 250,600 NIL

f. Options Cancelled 33,700 NIL

g. Options lapsed 29,600 7,000

h. Variation of termsof options N.A N.A

i. Money realized byexercise of options 2,506,000 NIL

j. Total number ofoptions in force 19,800 350,000

Directors’ Report

k. Employee wise details of options granted to:

(i) Senior Managerial Personnel:Name Designation No. of options No. of options

granted undergranted underESOS 2004 ESOS 2006

Mr.P Viswanathan Executive Director N.A. 20,000Mr.R.VaithiyanathanSr. Vice President- 36,800 20,000

Operations & HRMr.Arun Sowdas Vice President-

Technology 17,800 20,000Mr.C.Mahadevan Vice President-

HR BPO 12,800 20,000Mr.A.G.Balaji Vice President- N.A. 20,000

FinanceMr.K S Raghu Company Secretary N.A. 5,000Mr.Rafael A Vice President - 19,800 20,000 Martinez Allsectech Inc,

Subsidiary CompanyMr.Tom Williams Vice President - N.A. 15,000

Allsectech Inc, Subsidiary Company

(ii) Any other employee who receives a grant in any oneyear of option amounting to 5% or more of optionsgranted during the year. - Not Applicable.

(iii) Identified employees who were granted option, duringany one year, equal to or exceeding 1% of the issuedcapital (excluding warrants and conversions) of thecompany at the time of grant - Not Applicable

l. Diluted Earnings Per Share (EPS) pursuant to issue ofshares on exercise of option calculated in accordancewith Accounting Standard 20. - Rs.19.93

In accordance with SEBI(Employee Stock Option Schemeand Employee Stock Purchase Scheme) Guidelines, 1999,had the Compensation cost for ESOS 2006 beenrecognized based on the fair value at the date of grant inaccordance with binomial method, the amounts of theCompany's net profit and earnings per share would havebeen as follows:

Particulars Profit after tax Basic EPS Diluted EPSRs. in million Rs. Rs.

Amounts 281.35 20.09 19.93as reportedAmounts 277.77 19.84 19.67as per proforma

The fair value of options was estimated at the date of grantusing the binomial method with the following assumptions:

Risk- free interest rate 7.5%Expected life 1.5 years / 2.5 yearsExpected Volatility 50.90% / 52.90%Expected dividend yield 1.47%Share Price on the date of grant Rs.340.90/-Expected forfeiture 10%



Responsibility Statement

Your Directors confirm the following;

(i) That in preparation of the annual accounts, theapplicable accounting standards had been followedalong with proper explanation relating to materialdepartures;

(ii) That the directors had selected such accountingpolicies and applied them consistently and madejudgments and estimates that are reasonable andprudent so as to give a true and fair view of the stateof affairs of the company at the end of the financialyear and of the profit or loss of the company forthat period;

(iii) That the directors had taken proper and sufficient carefor the maintenance of adequate accounting recordsin accordance with the provisions of this Act forsafeguarding the assets of the company and forpreventing and detecting fraud and other irregularities;

(iv) That the directors had prepared the annual accountson a going concern basis.

Subsidiaries

The company has three wholly owned subsidiaries namelyAllsectech Inc, B2K Corp Private Limited and B2K CorpInc, subsidiary of B2K Corp Private Limited. The B2K CorpPrivate Limited is under the process of merger with yourCompany.

Your Company has applied to the Government of India,Ministry of Company Affairs, under Section 212(8) of theCompanies Act, 1956 for the exemption from attaching thefull text of the financial statements of the Company'saforesaid subsidiaries along with the Company's accountsfor the year ended 31st March 2007.

Necessary disclosures will be made in respect of the saidsubsidiaries in this Annual Report apart from the Statementpursuant to Section 212 of the Companies Act, 1956. Theannual accounts of the said subsidiaries and the relateddetailed information will be made available to the investorsof the Company/Subsidiaries, seeking such information atany point of time. The annual accounts of the SubsidiaryCompanies will also be kept for inspection by any investorat the Corporate Office of the Company.

Deposits:

Your company has not accepted any deposit from the publicduring the period under review.

Conservation of energy, technology absorption, foreignexchange earnings and outgo

Your Company being in the Information Technology EnabledServices (ITES), the provisions relating to conservation ofenergy and technology absorptions are not applicable. Thedetails of the earnings and expenditure in foreign currencyare given below:

Particulars INR millionEarnings in Foreign Currency 1093.56Expenditure in Foreign Currency 149.01Payment of Dividend in ForeignCurrency for the year 2005-06 14.18

Directors

Dr.Bala V Balachandran and Mr.A.Sankarakrishnan,Directors retire at the ensuing Annual General Meeting andbeing eligible offer themselves for re-appointment.

Mr. Shankar Narayanan Madhava Menon and Mr.DanielD' Aniello representing M/s.First Carlyle Ventures Mauritius,the Investor were appointed as additional directors on 25thJanuary 2007. The Notice under Section 257 of theCompanies Act, 1956 has been received from memberssignifying their intention to propose Mr. Shankar NarayananMadhava Menon and Mr.Daniel D' Aniello as a candidatefor the office of Director and accordingly a resolution willbe placed before the members at the forthcoming AnnualGeneral Meeting.

During the year Mr. Dilipkumar B Patel and his AlternateDiector, Mr. N. Karthikeyan resigned from the Board.

Corporate Governance

A Report on Management Discussion & Analysis andCompliance of Corporate Governance under clause 49 ofthe listing agreement & Certificate from Auditors confirmingcompliance of conditions of Corporate Governance isenclosed.

Investor Services

Your company will constantly endeavour to give the bestpossible services to the investors. Towards this end thefollowing are some of the initiatives taken by the Company:

Investor fr iendly website of the Company(www.allsectech.com), which gives important financialdetails and other data frequently used by the investors.The Company also has a Shareholders/InvestorsGrievances Committee to address your grievances if anyand resolve them immediately.

Recently the Company has provided an exclusive email id;[email protected] to the investors to facilitatethe redressal of the queries and complaints of the investorsimmediately.

Auditors

M/s. S R Batliboi & Associates, Chartered Accountantswere re-appointed as Auditors of the company at the annualgeneral meeting held on 10th July 2006. M/s. S R Batliboi& Associates retire at this annual general meeting and beingeligible offers themselves for re-election.

Employees

Information as per Section 217 (2A) of the Companies

Directors’ Report


ALLSEC TECHNOLOGIES LIMITEDAnnexure to Directors’ Report

Act, 1956 read with the Companies (Particulars ofEmployees) Rules 1975 are given as Annexure.

Acknowledgement

Your Directors wish to place on record their appreciationfor the excellent support and co-operation given bycustomers, shareholders, service providers andGovernment Agencies.

Your Directors also record their appreciation and gratitudeto Bankers for their continued support and timelyassistance in meeting the Company's resource

ChennaiMay 14, 2007

requirements. Your Directors acknowledgethe dedicated services rendered by all the employees ofthe company.

For and on behalf of the Board of Directors

A. Saravanan R. JagadishDirector Director

Annexure to Directors Report for the year ended March 31, 2007Information as per Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees)Rules, 1975.SI Emp . Name Qualification Date of Designation Remuneration Expe- Age Previous Employment/No. Joining rience Designation

1 A. SARAVANAN CA Since Inception Director & 8,700,000 22 45 Co Promoter ofPresident Allsec Group of Companies -

Allsec Financials Ltd, Director

2 R. JAGADISH CA, CIMA Since Inception Director & 8,700,000 22 45 Co Promoter ofCEO Allsec Group of Companies -

Allsec Financials Ltd, Director

3 R. VAITHIYANATHAN MAM 18-Sep-00 Sr. VP Operations 2,433,760 19 41 Rexcel Solus Croslands,& HR Senior Manager - HR

4 P. VISWANATHAN* CA 17-Jan-07 E D 993,548 33 57 Sanmar Shipping Ltd., MD

5 A.G. BALAJI* CA, ICWA, 29-May-06 VP-Finance 2,110,683 18 41 Cairn Energy India Pty Ltd -ACS, CIMA India, DGM-Finance (Corporate)

6 P. SWAMINATHAN** CA 1-Jan-00 CFO 1,011,407 19 42 Allsec Financials Ltd., VP

7 R. SESHADRI** CA 15-Dec-04 VP-Quality 682,425 21 45 Compass Group Plc -Malaysia, CFO

Notes:1 Nature of employment is contractual and terms and conditions as per Company Rules.2 Remuneration includes salary, allowances, incentives, medical reimbursement, leave travel assistance, contribution

to provident fund and perquisites evaluated on the basis of Income Tax Rules.3 Besides, employees are entitled to gratuity as per rules.4 None of above employees are related to any of the directors of the Company.5 *Denotes details of employees joined during the Financial year.6 **Denotes details of employees resigned during the year.



CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER ANDCHIEF FINANCIAL OFFICER TO THE BOARD

We hereby certify that –a. We have reviewed financial statements and the cash flow statement for the year ended March 31, 2007 and that to the

best of our knowledge and belief:i) these statements do not contain any materially untrue statement or omit any material fact or contain statements that

might be misleading:ii) these statements together present a true and fair view of the Company's affairs and are in compliance with existing

accounting standards, applicable laws and regulations.b. There are, to the best of our knowledge and belief, no transactions entered into by the Company during the year which

are fraudulent, illegal or violative of the Company's code of conduct.c) We accept responsibility for establishing and maintaining internal controls and that we have evaluated the effectiveness

of the internal control systems of the Company pertaining to Financial reporting and we have disclosed to the Auditorsand the Audit Committee, deficiencies in the design or operation of such internal controls, if any, of which we are awareand the steps we have taken or proposed to take to rectify these deficiencies.

d) We have indicated wherever applicable to the Auditors and the Audit Committee:i) significant changes in internal control over Financial reporting during the year;ii) all significant changes in accounting policies during the year, if any and that the same have been disclosed in the

notes to the financial statements andiii) Instances of significant fraud of which we have become aware and the involvement therein, if any, of the management

or an employee having a significant role in the Company's internal control system.

Chennai R.Jagadish A.G.BalajiMay 14, 2007 Director and CEO Chief Financial Officer



(As required by Clause 49 of the Listing Agreementwith the Stock Exchanges)

A. Mandatory Requirements

1. Company’s Philosophy:

The Company lays great importance on investorservice, investor communication, highest level oftransparency, accountability and responsibility in itsoperations and all interactions with its shareholders,investors, lenders, employees and Government. YourDirectors are committed to adopt the best CorporateGovernance practices.

2. Board of Directors:

The Board comprises of a Non-executive Director asChairman, a Director & President and a Director &

Corporate Governance

Name Designation Category Attendance Other @ CommitteeDirectorships Memberships

Board LastMeeting AGM

Dr. Bala V Balachandran Chairman Independent 3 Yes 2 1Non-executive

T.Anantha Narayanan Director Independent 6 Yes 6 -Non- Executive

A.Sankarakrishnan Director Independent 5 Yes 2 -Non-Executive

Vinod Ganjoor Director Non-executive 3 No 5 -

Dilipkumar B Patel Director Independant 1 Yes - -Non-Executive

N. Karthikeyan Alternate Director to 4 No 3 -Dilipkumar B Patel

Shankar Narayanan Director Investor Director 1 N.A. 8 1 Madhava Menon Non- Executive

Daniel D' Aniello Director Investor Director - N.A. - -Non- Executive

N.S. Raghuram Alternate Director to 4 Yes 3 - Vinod Ganjoor

A. Saravanan Director & President Non-Independent 7 Yes 2 -Executive

R. Jagadish Director & CEO Non-Independent 7 Yes 2 -Executive

@ Excluding the membership held in the Company.

Mr. Shankar Narayanan Madhava Menon and Mr.Daniel D' Aniello, the investor directors were appointed as additionaldirectors effective 25th January, 2007.

During the year Mr.Dilipkumar B Patel, Director and Mr.N.Karthikeyan Alternate director to Mr.Dilipkumar B Patel haveresigned from the Board.

Code of Conduct for Directors and Senior ManagementThe Code of Conduct for the Directors and Senior Management of the Company is available on the Company’s website;www.allsectech.com All the Board Members and the Senior Management Personnel have confirmed the Compliancewith the Code.

CEO who are executive directors and 5 other non-executive Directors. The Board also comprise of oneAlternate Director.

The Board functions as a full Board or throughCommittees. The policy decisions and control vestswith Board and the operational issues are handled bythe Committees. Both the Board and Committees meetat regular intervals.

The Board has 3 Committees viz. Audit Committee,Compensation Committee and Shareholders/InvestorGrievance Committee.

During the year 2006 - 2007, Seven Board Meetingswere held on 28.04.2006, 10.07.2006, 24.07.2006,26.07.2006, 23.08.2006, 19.10.2006, 25.01.2007;


ALLSEC TECHNOLOGIES LIMITEDCorporate Governance

3. Audit Committee:

The Audit Committee consists of independent andnon-independent directors. The committeecurrently comprises Mr.T.Anantha Narayanan,Mr.A.Sankarakrishnan, Mr. Shankar Narayanan MadhavaMenon and Mr. R. Jagadish. The composition of the AuditCommittee complies with the requirements of Clause 49of the listing agreement entered into with the StockExchanges.

During the year 4 Audit Committee meetings were heldon 27.04.2006, 24.07.2006, 19.10.2006, 25.01.2007.

The objective of the Committee is to comply with therequirements of the clause 49 of the Listing Agreemententered into with the Stock Exchanges and Section292 A of the Companies Act, 1956.

4. Compensation Committee:

The Compensation Committee presently consists ofDr. Bala V Balachandran, Mr.A.Sankarakrishnan, Mr. VinodGanjoor, Mr. Shankar Narayanan Madhava Menon andMr.A.Saravanan.The objective of the Committee is

• To determine and recommend to the Board ofDirectors the remuneration package of the ManagingDirector and the Whole-time Directors

• To review and determine the remuneration packageof the senior management.

• To approve in the event of loss or inadequate profitsin any year the minimum remuneration payable to theManaging Director and the Whole-time Directorswithin the limits and subject to the parameters asprescribed in Schedule XIII of the Companies Act, I956.

• Grant of stock options under the Employees StockOption Scheme and perform other functions ofcompensation committee as required/ recommendedby SEBI (Employees Stock Option Scheme andEmployees Stock Purchase Scheme) Guidelines, 1999

• To determine and amend the remuneration packageof the key management personnel of the companyand to frame policies to attract, motivate andretain personnel.

• Other functions of a Remuneration Committee asrequired / recommended in the Listing Agreement.

The remuneration paid to the whole time directors isapproved by the Committee of Board and Shareholdersat the general meeting as required by the CompaniesAct, 1956. The details of the remuneration paid to thedirectors for the year ended 31st March 2007 isgiven below;

Executive Directors

Name of Salary & Commission TotalDirector Allowances (Rs. in lakhs) (Rs. in lakhs)

(Rs.in lakhs)

Mr.A.Saravanan 87.00 37.50 124.50

Mr.R.Jagadish 87.00 37.50 124.50

Name Category Status in the Committee Attendance

T.Anantha Narayanan Independent Director Chairman 4A.Sankarakrishnan Independent Director Member 4R.Jagadish Director & CEO Member 4Shankar Narayanan Investor Director Member Nil Madhava Menon*

* Mr. Shankar Narayanan Madhava Menon was inducted into the Audit Committee on 25th January 2007.

Non-Executive Directors Sitting Fees paidRs. in lakhs

Dr.Bala V Balachandran 0.40

Mr.Vinod Ganjoor –

Mr.Dilipkumar B Patel –

Mr.A.Sankarakrishnan 1.20

Mr.T.Anantha Narayanan 1.40

Mr.N.S.Raghuram – 0.80Alternate Director

Mr. N. Karthikeyan – 0.60Alternate Director

The Non-executive Directors namely Dr.Bala VBalachandran and Mr.Dilipkumar B Patel where granted20,000 employee stock options each, on 1st July 2004under ESOP 2004. Mr.Dilipkumar B Patel has exercised10,000 options in February 2006 and the balance 10,000options in July 2006. Dr.Bala V Balachandran hasexercised his entire options in July 2006.

5. Shareholders/Investor Grievance Committee:

The composition of the Shareholders/Investor GrievanceCommittee complies with the requirements of Clause49 of the listing agreement entered into with the StockExchanges.

• The Shareholders/Investor Grievance Committeepresently consists of Mr. Vinod Ganjoor (Chairman),Mr. A. Saravanan, Mr. R. Jagadish, Mr. N.S. Raghuram,



Alternate Director to Mr. Vinod Ganjoor andMr. Shankar Narayanan Madhava Menon .

• This Committee deals with and approves the sharetransfers, transmission, etc., as required from time totime and all other matters relating investor relationsand grievances.

• Mr.K.S.Raghu, Company Secretary is the ComplianceOfficer nominated for this purpose.

• The details of investor complaints during the year2006-07 are,

Compliants Resolved Not solved to the Pendingreceived satisfaction

of shareholders

7 7 Nil Nil

6. General Body Meetings:

I. Location, time and date where last three AnnualGeneral Meetings were held are given below;

Financial Date Time VenueYear

2003-04 September 2.00 P.M. 46 B, Velachery Main Rd,29, 2004 Velachery,

Chennai 600 042

2004-05 July 11.00 A.M. Narada Gana Sabha,23, 2005 Mini Hall, 314,TTK Salai,

Alwarpet, Chennai 600 018

2005-06 July 11.00 A.M. Narada Gana Sabha,10, 2006 314,TTK Salai, Alwarpet,

Chennai 600 018

II. Special Resolutions passed in the previous3 Annual General Meetings:

1. No Special Resolution was passed in the AGMheld on 29th September 2004

2. Special Resolutions passed in the AGM held onJuly 23, 2005

• Resolution for appointment of Mr.R.Jagadishas Whole Time Director

• Resolution for appointment of Mr.A.Saravananas Whole Time Director

3. Special Resolutions passed in the AGM held onJuly 10, 2006

• Resolution for payment of remuneration by wayof Commission to Non-Executive Directorsof the Company

• Resolution for issue of Employee Stock Optionsto employees of the Company

• Resolution for issue of Employee Stock Optionsto employees of the Subsidiary Companies

III. Extra-Ordinary General Meetings:

a) Location, time and date where last three Extra-OrdinaryGeneral Meetings were held are given below;

Date Time Venue

14th January 2005 04.30 P.M. 46 B, Velachery Main Road,Velachery, Chennai 600 042

21st August, 2006 11.00 A.M. Narada Gana Sabha, Mini Hall314,TTK Salai, Alwarpet,Chennai 600 018

12th October, 2006 11.00 A.M. Narada Gana Sabha, Mini Hall314,TTK Salai, Alwarpet,Chennai 600 018

b) The following Special Resolutions were passed atthe Extra-Ordinary General Meetings (EGM);i. At the EGM dated 14th January 2005

• Resolution for amendment to Capital Clauseof Articles of Association.

• Resolution for amendment to Articles ofAssociation.

• Resolution for issue of equity shares underSection 81 (1A) of the Companies Act, 1956 toCompucredit Corporation.

• Resolution for initial public offering of equityshares under Section 81 (1A) of the CompaniesAct, 1956.

• Resolution for authorizing the increase in thelimits for investment by Foreign InstitutionalInvestors (FII) to 100%.

• Resolution for increase of borrowing powerunder Section 293 (1) (d) and 293 (1) (a) of theCompanies Act, 1956.

• Resolution for amendment to ESOP Scheme.

ii. At the EGM dated 21st August, 2006• Resolution for alteration of Articles of

Association with respect to the increase in theAuthorised Share Capital of the Company.

• Resolution for issue of equity shares andwarrants under Section 81 (1A) of theCompanies Act, 1956 to First Carlyle VenturesMauritius.

iii. At the EGM dated 12th October, 2006• Resolution for amendment to Articles of

Association.• Resolution for authorizing the increase in the

limits for investment by Foreign InstitutionalInvestors (FII) to 100%.

• Resolution for approval of the EmploymentAgreement with Mr.A.Saravanan, Whole-TimeDirector.

• Resolution for approval of the EmploymentAgreement with Mr.R.Jagadish, Whole-TimeDirector.



No resolution has been passed last year through postalballot and no special resolution is proposed to beconducted through postal ballot in the ensuing AGM.

7. Disclosures

There have been no materially significant related partytransactions that may have potential conflict with theinterests of the company at large. The necessarydisclosures regarding the transactions are given in theNotes to accounts.

There have been no instances of non-compliance onany matters relating to capital markets, nor have anypenalty/strictures been imposed on the company by thestock exchange or SEBI or any statutory authority onsuch matters.

8. Means of Communications:

• The Quarterly results are being published in oneleading national (English) newspaper normallyThe Economic Times / Business Line and in onevernacular newspaper (Makkalkural). TheQuarterly results are also displayed on theCompany’s website-www.allsectech.com

• The Company’s website also displays AnnualReport, shareholding pattern, code of conduct andother shareholders information.

• The Management Discussion and Analysis Reportis also given as part of the Annual Report.

Market Information details for the year 2006-07

National Stock Exchange Bombay Stock Exchange

Month Price Index Price Index

High Low High Low High Low High Low

Apr-06 287.00 220.00 3,565.75 3,527.25 284.00 236.20 12,061.06 11,008.43

May-06 287.00 201.05 3,622.05 2,997.35 290.00 222.50 12,288.51 10,185.48

Jun-06 258.95 160.05 3,130.00 2,638.10 247.85 142.00 10,597.23 9,262.20

Jul-06 238.40 180.05 3,167.10 3,064.10 236.70 179.95 10,762.67 10,589.46

Aug-06 254.40 207.25 3,402.70 3,113.60 255.00 205.65 11,566.89 10,645.99

Sep-06 260.00 236.05 3,568.65 3,438.80 262.00 235.00 12,331.45 11,815.43

Oct-06 278.00 232.70 3,682.35 3,621.65 280.00 241.00 12,756.23 12,357.69

Nov-06 266.90 252.10 3,900.40 3,794.30 268.00 250.00 13,588.01 13,017.84

Dec-06 298.00 249.00 3,986.75 3,657.65 298.50 248.15 13,493.88 12,830.38

Jan-07 373.85 280.00 4,137.85 3,964.95 377.00 289.25 14,269.31 13,797.44

Feb-07 370.85 281.15 4,198.70 3,965.20 372.00 285.00 14,462.77 13,805.36

Mar-07 350.00 262.00 3,818.75 3,752.95 367.00 261.05 13,193.13 12,861.18

9. General Shareholders Information:

A. Annual General Meeting

Date and Time: 27th July, 2007 at 10.00 A.M.Venue: Naradagana Sabha, Mini Hall,314,TTK Salai, Alwarpet, Chennai 600 018

B. Financial Year

The Financial Year of the Company is April – March.The results for every quarter will be declared withinthe time period prescribed under the ListingAgreement.

C. Date of Book Closure

25th July 2007 to 27th July 2007 (Both days inclusive)

D. Dividend Payment Date

Within 30 days from the date of AGM

E. Listing on Stock ExchangesThe shares of the Company are listed on NationalStock Exchange of India Ltd and Bombay StockExchange Limited.

F. Stock Code / SymbolNSE - AllsecBSE - 532633

G. Market Price Data – High / Low during each month inthe last Financial Year & Performance in comparisonto NSE/ BSE index.



H. Registrars and Transfer AgentsKARVY Computershare Private LimitedUnit: AllsecKarvy House, 46, Avenue 4Street No. 1, Banjara HillsHyderabad 500 034Tel: +91 40 2331 2454; Fax: +91 40 2331 1968E-mail: [email protected]: www.karvy.com

I. Share Transfer SystemKARVY Computershare Private Limited is theRegistrars and Share Transfer Agents of theCompany. The shares lodged for physical transfer /transmission/ transposition, if any would be registeredwithin the prescribed time limit, if the document arecomplete in all respects. The shares in thedematerialised form are admitted for trading withNational Securities Depository Limited (NSDL) andCentral Depository Services (India) Limited (CDSL).

J. Category wise distribution of equity shares as ofMarch 31, 2007;

Category No. of PercentageShares Holding

Promoter Holding:Indian Promoters 4090020 26.84Person Acting in Concert – –Non Promoter Holding:Institutional Investors 1971061 12.94Foreign Institutional Investors 1433495 9.41Foreign Venture Capital 5535175 36.32Foreign Corporate Bodies 684362 4.49Others:Private Corporate Bodies 249627 1.64Indian Public 1102227 7.23NRIs 172359 1.13TOTAL 15238326 100

K. Dematerialization of shares and liquidity

As on March 31, 2007, about 95.50%of the shareswere held in dematerialized form.

L. Address for Investor Correspondence

For any assistance regarding dematerialization ofshares, share transfers, transmissions, change ofaddress or any other query relating to shares, pleasewrite to;

KARVY Computershare Private LimitedUnit: AllsecKarvy House, 46, Avenue 4Street No. 1, Banjara HillsHyderabad 500 034Tel: +91 40 2331 2454; Fax: +91 40 2331 1968E-mail: [email protected]: www.karvy.com

For General Correspondence:Allsec Technologies Limited,46-B, Velachery Main Road,Velachery,Chennai 600 042Tel: +91 44 2244 7070Fax: +91 44 2244 7077Email: [email protected] site: www.allsectech.com

B Non-Mandatory Requirements

1. Remuneration Committee/Compensation Committee:

The Board has set up a Remuneration Committeewith 4 Non-executive and 1 executive Director asmembers of the committee.

2. Audit Qualifications: There is no Audit Qualificationby the Statutory Auditor.

DECLARATION

The Board of Directors of the Company has adopted the “Code of Conduct” for the Directors and Senior Managementof the Company.

All the Board Members and the Senior Management Personnel have affirmed their Compliance with the Code for theyear 2006-07.

Place: Chennai R.JagadishDate : 14th May 2007 Director & CEO



AUDITORS’ CERTIFICATE

ToThe Members of Allsec Technolgies Limited

We have examined the compliance of conditions of Corporate Governance by Allsec technologies Limited (“the Company”),for the year ended on March 31, 2007 as stipulated in clause 49 of the Listing Agreement of the said Company with theStock Exchanges.

The compliance of conditions of Corporate Governance is the responsibility of the management. Our examination waslimited to procedures and implementation thereof, adopted by the Company for ensuring the compliance of the conditionsof Corporate Governance. It is neither an audit nor an expression of opinion on the financial statements of the Company.In our opinion and to the best of our information and according to the explanations given to us, we certify that the Companyhas complied with the conditions of Corporate Governance as stipulated in the above mentioned Listing Agreement.We further state that such compliance is neither an assurance as to the future viability of the company nor the efficiency oreffectiveness with which the management has conducted the affairs of the Company.

For S.R.BATLIBOI & ASSOCIATESChartered Accountants

per Ali NyazPartner

Membership No.:200427

ChennaiMay 14, 2007


ALLSEC TECHNOLOGIES LIMITEDManagement Discussion & AnalysisManagement Discussion & Analysis

INDIA'S IT/ITES CLIMATE

INDIAN IT-ITES SECTOR TO EXCEED USD 60 BILLIONIN EXPORTS BY FY 2010

Over the past decade, the Indian BPO segment haswitnessed significant transformation. Starting with basicdata entry tasks, the industry graduated to a high proportionof voice-based services and a range of back-officeprocessing activities; the export growth for FY07 has beenshowing an encouraging trend and is likely to beatforecasts.

The Indian IT/ITES sector (including the domestic andexports segments) is growing at an estimated 28 percentin FY2007. Total revenue for the sector is expected toexceed USD 47.8 billion, nearly a ten-fold increase overthe aggregate revenue of USD 4.8 billion, reported inFY1998, and direct employment is likely to cross 1.6million. As a proportion of national GDP, the aggregaterevenue of the Indian IT/ITES sector has grown from 1.2percent in FY1998 to an estimated 5.4 percent in FY2007.The net value added by this sector, to the economy, isestimated at 3-3.5 percent for FY2007.

Positive market indicators including large un-charteredterritories and the unbundling of IT-BPO mega-deals withincreasing shares of global delivery, strongly support theoptimism of the industry in achieving its aspired target ofUSD 60 billion in exports by 2010.

Following are the snapshots of Indian IT /ITES performance

� Software and Services (IT-BPO) exports to exceedUSD 31 billion in fiscal 2007, a 32.6% growth.

� Employment in sector to exceed 1.6 million; up from1.28 million last year.

� Domestic IT market broke out of the hardware linkedgrowth pattern for the first time ever in FY 06 and thegrowing trend of software and services' segments is

expected to continue; total size is expected to crossUSD 8.4 billion in revenues for fiscal 2007, a 25%growth over the previous year.

" MNC investments reach an unprecedented scale; overUSD 10 billion announced in fiscal 2007, to beinvested over the next few years.

OPPORTUNITIES & THREATS

OPPORTUNITIES

Vertical Specialisation

Our strategy has always been focused towards the growthin specific business verticals and this has helped us tosharpen our training and processes for specific domainsenabling us to achieve domain specialization resulting indelivering quality solutions to each of our customers. Ourspecialization on verticals expanded in scope with theaddition of the business of B2K in the past year. With thatour verticals of specialisation stand extended to:

� Life cycle customer management

� Collections

� Quality assurance

� Payroll management and

� Technical support

The long term growth strategy is to keep adding specificverticals based on acquisition of anchor clients andconcentrating on developing each of these verticals withthe help of the expertise gained through quality deliveriesto anchor clients.

Expansion of client base

We maintain our focus on long-term client relationships.We believe that there are significant hidden opportunitiesfor additional growth from our existing client base and weare in the process of leveraging these relationships by

Key findings of NASSCOM strategic review 2007 are as follows:

ITES sector revenue trends in $ billion FY 2004 FY 2005 FY 2006 FY 2007EIT Services 10.4 13.5 17.8 23.7-Exports 7.3 10.0 13.3 18.1-Domestic 3.1 3.5 4.5 5.6ITES-BPO 3.4 5.2 7.2 9.5-Exports 3.1 4.6 6.3 8.3-Domestic 0.3 0.6 0.9 1.2Engineering Services and R&D, Software Products 2.9 3.9 5.3 6.5-Exports 2.5 3.1 4.0 4.9-Domestic 0.4 0.8 1.3 1.6Total Software and Services Revenues 16.7 22.6 30.3 39.7of which, exports are 12.9 17.7 23.6 31.3Hardware 5.0 5.9 7.0 8.2Total IT Industry (including Hardware) 21.7 28.5 37.3 47.9

Source: NASSCOM



increasing the depth and breadth of the services weprovide to them. This kind of an internal client expansionhas its benefits in terms of an enhanced understanding ofthe businesses of our clients which helps us serve thembetter in our existing verticals and expand our horizon innew verticals based on our enhanced knowledge andunderstanding of the growing business of our clients. Thisstrategy helps us to strengthen our existing ties with theclients and to broaden our client base with the expertiseattained in these domains where we enjoy corecompetence.

Working with a limited number of anchor clients on a long-term basis allows us to focus on quality and achievingsavings and at the same time meeting and exceedingclient expectations. The goodwill we enjoy with our existingclients enables us to get client referrals which provide usthe opportunity to win new clients. Allsec is planning toexpand its delivery arms by setting up additional contactcenters, as and when the need arises both in and outsideIndia and increase services to active clients across 3 timezones - US, UK and Australia.

The non voice services offered today by the company inthe areas of Quality assurance and HR processing offerssignificant opportunities and the company plans to takeadvantage of this by offering these services to clients inall geographies.

Quality certifications

During the year, Allsec reached another significant milestonein getting the certificate for ISO 27001, an upgrade from BS7799 standard for information security certification securedlast year. It is a significant step forward in our quality initiativesand Allsec is one of the very few elite companies to achievethis certification in the ITES industry.

Considering the need of the industry to enhance customersatisfaction and better customer experience, Allsec iscontinuously re-engineering its processes across allfunctions, developed and implemented certain initiativesto improve delivery systems and strives to provide a world-class customer support environment in line with globalstandards.

The Business Process Improvement we constantlyattempt, our track record on the quality assurance serviceswe deliver and the quality standards and globalcertifications that we have implemented would definitelybe an attractive value proposition to global corporationsto consider us as business partners and outsource largerresponsibilities and jobs higher up the value chain to us.

Capacity utilization

Allsec will be one of the early entrants to set up a callcentre facility in Trichy and plans are also in progress forsetting up a delivery centre in Philippines. The 200 seatfacility at Trichy is expected to become operational by thesecond quarter of fiscal 2008. Over the years Allsec has

Management Discussion & Analysis

concentrated on capacity expansion by setting up the1000-seat facility in Chennai which became fullyoperational in fiscal 2006 in addition to the original 700seats. Further, after the acquisition of B2K an additional600 seats became available at Bangalore. The additionalbusiness available with our existing clients would beserviced from Chennai and Bangalore and in fiscal 2008we expect to reach optimum capacity utilization. Theopportunities available in the financial services sector areabundant and with the expertise and experience thatAllsec has, we should be acquiring new clients therebyutilizing the capacity generated by the new facility. A majorHR drive to profile, screen and recruit manpower iscurrently under progress to cater to the increasingbusiness needs. We believe this will greatly add to theemployee base in Chennai, Bangalore and Trichy.

Inorganic growth fuelled by acquisition

With the participation in the ownership by the internationalventure capital fund, First Carlyle Ventures Mauritius(FCVM) during fiscal 2007, the global visibility of Allsechas further improved. Along with organic growth, Allsechas been growing in strength to evaluate financially viabletargets in furthering the vertical specialization currentlyenjoyed by the Company. By concentrating on acquisitionsacross different time zones, and migrating such processesto India, we can optimize the capacity utilization in Indiain addition to expanding businesses across those newgeographies. The acquisitions would definitely provide afillip to the ever increasing global presence enjoyedby Allsec.

THREATS

ATTRITION

The business process outsourcing (BPO) industry in thecountry which is experiencing high growth rates is alsofacing the challenge of finding quality human resourcesgiven the current attrition rate.

The attrition rates vary between 40% and 60% in theindustry (Nasscom - Mckinsey Report) while theoutsourcing industry is expected to face a shortage of halfmillion professionals by 2012. Thus, high attrition ratescoupled with dearth of quality man power continues tohinder the high growth trajectory and acts as a major hurdlein making India the most preferred destination for alloutsourcing solutions.

Allsec has an attrition rate of approximately 50% and islooking beyond the traditional areas of recruitment to meetthe attrition challenge and the increased demand formanpower. In order to ensure a consistent flow of trainedmanpower, Allsec is working with the government tointroduce courses at school and college level, which arein line with the requirements of the ITES-BPO industry.The challenge for the industry is not in availability butemployability of graduates who come out of the existing



educational stream. To address this, Allsec has beentraining candidates in the basic skill sets that are requiredto make them employable. A broad based system is inplace to identify, train and deploy employable candidates.Further, efforts are also taken in the direction of training,employee referral scheme, employee satisfaction surveysand other recreational activities to tackle the threat posedby attrition.

RISKS AND CONCERNS

BUSINESS RISKS

The market for BPO services is highly competitive, andwe expect competition to intensify and increase from anumber of sources. We believe that the principalcompetitive factors in our markets are price, service quality,sales and marketing skills, the ability to developcustomized solutions and technological and industryexpertise. We face significant competition from severalentities located in India and overseas, including captiveoutsourcing units. Several other countries includingPhilippines and China offer cost effective outsourcingsolutions, and we may not be able to compete with themfor several reasons. In addition, security concernsregarding data being sourced out for processing has beenraising concerns on a global level apart from ethical andmoral issues involved in outsourcing. This threat, is inaddition to the opposition staged by the local populationthat outsourcing causes unemployment in thehome countries.

FINANCIAL RISKS

GEOGRAPHICAL CONCENTRATION OF CLIENTS

Our revenues are highly dependent on clients located inthe United States or from Indian subsidiaries of UScompanies. Consequently, if there is an economicslowdown in the United States, our clients may reduce orpostpone their outsourcing significantly, which may in turnlower the demand for our services and negatively affectour revenues and profitability.

EXCHANGE FLUCTUATION

Managing an equilibrium state in the light of theunfavourable movements in exchange rates involved inearnings and expenditure in foreign currency continuesto be one of the challenges when exposed to globalmarkets. We are currently adopting hedging strategies ona selective basis and in addition use bank balances inforeign currency to meet our foreign currency liabilities.These measures would assist in reducing the impact ofunfavourable movements in exchange rates. However,our results of operation will be affected if the rupeecontinues to appreciate in future.

COST ARBITRAGE

Our most significant costs are the salaries and relatedbenefits of our operations staff and other employees. Wage

costs in India have historically been significantly lowerthan wage costs in the United States and other developedcountries, which has been one of our competitiveadvantages. However, wages in India are increasing at afaster rate compared to the developed countries, whichmay reduce our competitive advantage in relation topricing. We may need to increase the levels of employeecompensation more rapidly than in the past to remaincompetitive and to attract necessary employees. Wageincreases in the long-term may reduce our profit margins.

INDIAN TAXATION RISK

Taxes and other levies imposed by the Government ofIndia and/or the State of Tamil Nadu and Karnataka thatmay affect the BPO industry include: (i) customs duties; (ii)Service tax; (iii) income tax; (iv) value added tax, etc.

In the current Union Budget, there were certain measuressuch as levy of service tax on property rentals, introductionof levy of fringe benefit tax on ESOP, inclusion of profitseligible for deduction under section 10A of IT Act, 1961for computing Minimum Alternate Tax which have adampening effect on the Industry.

LEGAL AND CONTRACTUAL RISKS

Our business is subject to a variety of federal regulations.Particularly, we must comply with a number of laws in theUnited States in relation to debt collection and telephoneand email based solicitation.

The requirements of many of these regulations arecomplex and the failure to comply could result inenforcement or private actions which can potentially affectour reputation and in turn adversely affect our business.In addition, these laws are subject to change and newlaws affecting our business may be enacted, which couldsignificantly affect the demand for, and our ability toprovide, certain service offerings and significantly increasethe cost of regulatory compliance.

INFRASTRUCTURE RISKS

The Company has invested substantially in the state ofthe art infrastructure and equipment in its centers toprovide a world-class service to its customers, service toour clients also depend on the uninterrupted functioning ofthese equipment, power and stability of telecom network.Any obsolescence in the infrastructure and equipmentleading to in-compatibility with client's systems or anydisruption in the essential services may affect the businessof the company.

HUMAN RESOURCES RISK

There have been recent cases of mid-sized companieslosing BPO orders for not being able to demonstrate acompetent team that can manage a large workforce. Highlevel of attrition further complicates the problem. At least50% of the workforce change jobs every year. There is agap between the supply and demand of work force.




Further, the available man power is not employable interms of the skill sets required for the industry. Thus theshortage of supply in quality manpower both at themanagerial level and at the agent's level may significantlyaffect the functioning of the Company.

SEGMENT - WISE OR PRODUCT-WISEPERFORMANCE

Allsec is currently providing voice and data services to itsInternational and Domestic clients in the InformationTechnology Enabled Services (ITES) sector.

The major market of Allsec is concentrated in the USand exports constitute circa 95% of the revenues asdepicted in the table below.

(Rs. in million)

For the year ended Exports Domestic Totalincome

March 31, 2007 1,093.57 39.22 1,132.79March 31, 2006 897.96 24.60 922.56

INTERNAL CONTROL SYSTEMS AND THEIRADEQUACY:

The Company has a well-defined and documentedinternal control system that is adequate andcommensurate with the size and nature of its business.Adequate checks and balances and control systems areestablished to ensure that assets of the company aresafeguarded and transactions are executed under properauthorization and are properly recorded in the books ofaccount. There exists a proper definition of roles andresponsibilities across the organization to ensureinformation flow and effective monitoring. The Companyhas an independent Internal Audit carried out by a firm ofchartered accountants. Apart from this, the Company hasan Audit Committee consisting of 3 independent directorsand 1 whole time director. This committee reviews theinternal audit reports and the quarterly/annual financialstatements relating to all significant audit observationsand follow up actions arising from them.

DISCUSSION ON FINANCIAL AND OPERATIONALPERFORMANCE:

The following discussion is based on our auditedunconsolidated financial statements which are preparedin accordance with the requirements of the Companies

Act, 1956 and complying with the Accounting standardsreferred to in sub-section (3C) of Section 211 of the saidAct. The Income and Expenditures having a materialbearing on the financial statements have been recognizedon accrual basis. The estimates and judgments relatingto the financial statements have been made on areasonable basis and there are not material departuresin adoption of the prescribed Accounting Standards.

PERFORMANCE

(Rs. in million)

Particulars 2006-07 2005-06

IncomeIncome - Operations 1,132.79 922.56Income - Others 38.56 10.76Income - Total 1,171.35 933.32Operating Costs 714.57 571.77Operating Profit 456.77 361.55Establishment Expenses 92.77 83.59EBITDA 364.00 277.96Finance Charges & Non CashExpenses 83.28 66.35Profit before Taxes 280.72 211.61Taxes (0.63) (4.76)Profit after Taxes 281.35 216.37

BALANCE SHEET

1. Share Capital

The Equity Capital of the Company as on March 31, 2007stands at Rs 152.38 million.

During the year an amount of Rs 30.2 million of capitalwas raised from FCVM through a private placement.Further, certain employees exercised their optionsresulting in addition to share capital amounting to Rs 1.29million. The net proceeds of the preferential issue havebeen placed in mutual funds and banks.

Employee Stock Option Plan (ESOP):

The Shareholders at the Extra Ordinary General Meetingheld on May 6, 2004 have approved an Employee StockOption Plan, which provides for an issue of 550,000options to the employees. Consequently, thecompensation committee on July 1, 2004 has granted286,500 options, on January 14, 2005 13,500 optionsand on January 31, 2005 33,700 options to its employeesat an exercise price of Rs 10 per share.


(Rs. in Million)

Income Year Ended March 31, 2007 Year Ended March 31, 2006 Movement % Movement

Exports 1,093.57 897.96 195.61 22%

Domestic 39.22 24.60 14.62 59%

Total 1,132.79 922.56 210.23 23%



Out of the 333,700 options granted, 19,800 options areoutstanding as at March 31, 2007 and 63,300 optionshave been cancelled/lapsed as at March 31st 2007.

Employee Stock Option Scheme (ESOS), 2006 :

The shareholders at the Annual General Meeting held onJuly 10, 2006, have approved an Employee Stock OptionScheme 2006 which provides for an issue of 600,000options to the employees. Consequently, thecompensation committee had granted the 350,000options on January 25, 2007 at an exercise price ofRs 289.75 /- per share.

2. Reserves and Surplus

The Company's Reserves and Surplus as on March 31,2007 stood at Rs 1,518 million represented by sharepremium on the equity shares amounting to Rs 1,202million (after adjusting share issue expenses amountingto Rs 19.4 million), Rs 3 million representing the reservecreated for Employee Stock Option compensation, Rs 110million representing General Reserve and Rs 203 millionrepresenting balance in the profit and loss account.

3. Secured Loans

Secured loan balance represents balance payabletowards hire purchase loans.

4. Fixed Assets

An amount of Rs 27.75 million has been invested in fixedassets during the year of which investments in Call centerequipments, computers and software have been made tothe extent of Rs 15.9 million and Rs 5.6 millionrespectively. Other investments primarily include Rs 2.6million in leasehold improvements and Rs 2.7 milliontowards new vehicles purchased during the year.

After providing for depreciation of Rs 79.42 million for theyear, the net block of fixed assets stood at Rs 286.74million as on March 31, 2007. Balance of net fixed assetswere Rs 340.28 million as at March 31, 2006.

5. Investments

Total Investments amounting to Rs 884.79 million includeRs 36.47 million in the 100% subsidiary Allsectech Inc(which includes additional investment during the currentyear amounting to USD 500,000), and Rs 0.41 million inequity and Rs 124.82 million in optionally convertiblecumulative redeemable preference shares in B2K CorpPrivate Limited. Allsec completed the acquisition ofbalance 30% of the preference capital of B2K Corp duringthe current year.

6. Deferred Tax Asset

On the basis of the results of operations for the year endedMarch 31, 2007 and the estimates of future growth andprofitability, management is of the opinion that there isreasonable certainty that the Company would have

sufficient taxable profits subsequent to the tax holidayperiod to absorb the deferred tax assets.

Accordingly, management has reassessed its deferredtax assets and liabilities as at March 31, 2007 resulting ina net deferred tax asset on account of timing differencesrelating to depreciation to the tune of Rs 22.82 million asat March 31, 2007.

7. Sundry Debtors

Sundry Debtors increased to Rs 264.26 million as at March31, 2007 as against Rs 196.36 million as at March 31,2006. These debtors are considered good and realizable.The sundry debtors in terms of days of sales increased to85 days as at March 31, 2007 as against 77 days as atMarch 31, 2006.

8. Cash and Bank Balances

Cash and Bank balances increased to Rs 369.35 millionas at March 31, 2007 as against Rs 158.06 million as atMarch 31, 2006. This represents year-end cash and bankbalances available in current and deposit accounts.

(Rs. in million)As at As at

March 31 March 312 0 0 7 2 0 0 6

Cash andCurrent accounts 2 4 3 . 4 4 73.44 170.00

Deposit accounts 1 2 5 . 9 0 84.61 41.29

9. Loans & AdvancesThe composition of the year end loans and advanceswas as follows:

(Rs. in million)

As at As atMarch 31 March 31

2 0 0 7 2006Advances recoverable 0.83 1.37 (0.54)Balances withexcise authorities 1 3 . 2 8 – 13.28Loan to Subsidiary- B2K 3 0 . 9 8 17.25 13.73Prepaid expenses 4 . 3 7 4.73 (0.36)Deposits 2 6 . 7 0 24.94 1.76Taxes receivable 6 . 3 7 0.84 5.53

Balances with excise authorities represent credit forservice tax on input services availed. During the year,Allsec granted loan to B2K for working capital andexpansion purposes. Taxes receivable includes MATcredit entitlement of Rs 4.38 million.

10. Current Liabilities

Sundry Creditors, representing the balance payable tosuppliers of goods and services stood at Rs 219.4 million


H e a d Movement

H e a d Movement



as at March 31, 2007 as against Rs 167.47 million as atMarch 31, 2006. The increase in liabilities is mainly dueto increase in the volume of operations. The year endbalance is broken down as under:

(Rs. in million)

As at As atMarch 31 March 31

2 0 0 7 2006

To suppliers of goodsand services 8 5 . 2 6 71.82 13.44

Other payables 4 5 . 0 2 26.74 18.28

Proposed dividend 7 6 . 1 9 60.43 15.76

Tax on dividend 1 2 . 9 5 8.48 4.47

11. Miscellaneous Expenditure

Share issue expenses amounting to Rs 19.4 millionrelating to the preferential issue during the year wereadjusted against share premium.

PROFIT AND LOSS ACCOUNT

i. Income from serviceThe year ended 31st March 2007 recorded a 22% growthin terms of export revenue and 59% in domestic revenueas compared to the year ended March 31, 2006. Thegrowth is mainly due to increased business from ourexisting clients and acquisition of new clients. Growth inrevenue from the existing clients constitutes 18% of thetotal revenue.

The table below provides the details of income andits composition:

(Rs. in million)

Year Ended Year Ended %March 31 March 31 Movement

2007 2006

Exports 1,093.57 897.96 195.61 22%

Domestic 39.22 24.60 14.62 59%

Total 1,132.79 922.56 210.23 23%

ii. Other IncomeCurrent year stood at Rs 38.56 million as compared toRs 10.76 million in the previous year. This increase ismainly due to income earned on prudent deployment ofsurplus funds in mutual funds and bank fixed deposits.

iii. ExpenditureThe year ended March 31, 2007 recorded reasonablegrowth in business. Despite increase in employee costs,overall profitability has been maintained. The table belowprovides a comparison of expenses both in absoluteterms as well as a % of revenue.


(Rs. in million)Year Ended Year Ended

March 31 2007 March 31 2006

Head Amount % To Amount % ToRevenue Revenue

Connectivity cost(Note 1) 132.70 11.71% 142.80 15.48%

Employee costsand benefits(Note 2) 489.93 43.24% 357.24 38.72%

General andadministrationexpenses(Note 3) 126.20 11.14% 100.36 10.88%

Selling expenses 59.15 5.22% 54.97 5.96%

Finance charges 3.86 0.34% 5.04 0.55%

Depreciation

(Note 4) 79.42 7.01% 60.96 6.61%

Note 1: The reduction in cost of connectivity is due to reductionin the tariffs both fixed and variable charges in spite of higherusage reflected by higher revenues earned during fiscal 2007.

Note 2: The increase in employee cost is mainly on accountof increase in head count and raise in pay levels ofexisting staff.

Note 3: The increase in general and admin expenses is dueto rent and electricity expenses relating to the new facilityincurred for the whole year of fiscal 2007, which becameoperational during Q2 of fiscal 2006. Further increase is due toannual maintenance contracts entered into for the expandedcapacity of equipment.

Note 4: Depreciation on the assets installed in the new facilityhave been charged depreciation for the whole of fiscal 2007while these were depreciated proportionally in fiscal 2006 asthese assets were available for use only for part of that year.

iv. Provision for Tax

Provision for tax includes current tax, deferred taxes, fringebenefit tax apart from MAT credit. Since Allsec enjoys deductionunder section 10A of the Income tax Act on its export income,current tax is paid on its book profits (excluding profits eligiblefor deduction under section 10A) under the provisions of MAT.

v. Appropriations

Provision has been made on a consistent basis for proposeddividend at 50% amounting to Rs 76.19 million for the yearunder review and the consequential tax payable on dividendamounts to Rs 12.95 million. Correspondingly, mandatorytransfer to general reserve amounting to Rs 55 million hasbeen effected.

H e a d Movement

MovementIncome


ALLSEC TECHNOLOGIES LIMITEDAuditors’ Report

To The Members of Allsec Technologies Limited

1. We have audited the attached Balance Sheet of AllsecTechnologies Limited (‘the Company’) as at March31, 2007 and also the Profit and Loss Account and theCash Flow Statement for the year ended on that dateannexed thereto. These financial statements are theresponsibility of the Company’s management. Ourresponsibility is to express an opinion on thesefinancial statements based on our audit.

2. We conducted our audit in accordance with auditingstandards generally accepted in India. Those Standardsrequire that we plan and perform the audit to obtainreasonable assurance about whether the financialstatements are free of material misstatement. An auditincludes examining, on a test basis, evidencesupporting the amounts and disclosures in the financialstatements. An audit also includes assessing theaccounting principles used and significant estimatesmade by management, as well as evaluating the overallfinancial statement presentation. We believe that ouraudit provides a reasonable basis for our opinion.

3. As required by the Companies (Auditor’s Report)Order, 2003 (as amended) issued by the CentralGovernment of India in terms of sub-section (4A) ofSection 227 of the Companies Act, 1956, we enclosein the Annexure a statement on the matters specifiedin paragraphs 4 and 5 of the said Order.

4. Further to our comments in the Annexure referred toabove, we report that:

i) We have obtained all the information andexplanations, which to the best of our knowledgeand belief were necessary for the purposes ofour audit;

ii) In our opinion, proper books of account as requiredby law have been kept by the Company so far asappears from our examination of those books;

iii) The balance sheet, profit and loss account andcash flow statement dealt with by this report are inagreement with the books of account;

iv) In our opinion, the balance sheet, profit and lossaccount and cash flow statement dealt with by thisreport comply with the accounting standardsreferred to in sub-section (3C) of section 211 ofthe Companies Act, 1956.

v) On the basis of the written representations receivedfrom the directors, as on March 31, 2007 and takenon record by the Board of Directors, we report thatnone of the directors is disqualified as on March31, 2007 from being appointed as a director interms of clause (g) of sub-section (1) of section274 of the Companies Act, 1956.

vi) In our opinion and to the best of our informationand according to the explanations given to us, thesaid accounts give the information required by theCompanies Act, 1956, in the manner so requiredand give a true and fair view in conformity with theaccounting principles generally accepted in India;

i) in the case of the balance sheet, of the state ofaffairs of the Company as at March 31, 2007;

ii) in the case of the profit and loss account, of theprofit for the year ended on that date; and

iii) in the case of cash flow statement, of the cashflows for the year ended on that date

For S.R. Batliboi & AssociatesChartered Accountants

Per Ali NyazChennai PartnerMay 14, 2007 Membership No: 200427


ALLSEC TECHNOLOGIES LIMITEDAnnexure to Auditors’ Report

Annexure referred to in paragraph 3 of our reportof even dateRe: Allsec Technologies Limited (“the Company”)

i) a) The Company has maintained proper recordsshowing full particulars, including quantitativedetails and situation of fixed assets.

b) The Company has a phased program of physicalverification of fixed assets, which, in our opinionis reasonable having regard to the size of theCompany and the nature of its assets. Inaccordance with the program, the Company hasverified certain assets during the year. Asinformed, no material discrepancies were noticedon such verification.

c) There was no disposal of a substantial part offixed assets during the year.

ii) a) Having regard to the nature of the Company’sbusiness clause 4(ii) of the Order is not applicableto the Company.

iii) a) The Company has granted loans to itssubsidiary, B2K Corp Private Limited, which isincluded in the register maintained under section301 of the Companies Act, 1956. The maximumamount involved during the year was Rs. 33.87million and the year end balance of loans grantedwas Rs. 30.98 million.

b) In our opinion and according to the informationand explanations given to us, the terms andconditions for such loans are not prima facieprejudicial to the interest of the Company.

c) The loans granted are repayable on demand. Asinformed, the Company has not demandedrepayment of any such loan during the year, thus,there has been no default on the part of B2KCorp Private Limited. The payment of interest hasbeen regular.

d) As informed, the Company has not taken anyloans, secured or unsecured from companies,firms or other parties covered in the registermaintained under section 301 of the Act.

iv) In our opinion and according to the informationand explanations given to us, there is anadequate internal control system commensuratewith the size of the Company and the nature of itsbusiness, for the purchase of fixed assets and forthe sale of services. During the course of ouraudit, no major weakness has been noticed inthe internal control system in respect ofthese areas.

v) a) According to the information and explanationsprovided by Management, we are of the opinion

that the particulars of contracts or arrangementsreferred to in section 301 of the Act that need tobe entered into the register maintained undersection 301 have been so entered.

b) In our opinion and according to the informationand explanations given to us and based on atransfer pricing study conducted by Managementin the previous year for services provided andcommission which indicates that the pricing wasat arms length, the transactions made inpursuance of such contracts or arrangementsexceeding value of Rupees five lakhs have beenentered into during the financial year at priceswhich are reasonable having regard to theprevailing market prices at the relevant time.

vi) The Company has not accepted any depositsfrom the public.

vii) In our opinion, the Company has an internal auditsystem commensurate with the size and natureof its business.

viii) To the best of our knowledge and according tothe information and explanation given to us, theCentral Government has not prescribedmaintenance of cost records under clause (d) ofsub-section (1) of section 209 of the Act, for theproducts / services of the Company.

ix) a) The Company is regular in depositing withappropriate authorities undisputed statutory duesincluding provident fund, investor education andprotection fund, employees’ state insurance,income-tax, wealth-tax, service tax, customs duty,cess and other material statutory dues applicableto it. Statutory dues in respect of sales tax andexcise duty are not applicable to the Company.

b) According to the information and explanationsgiven to us, no undisputed amounts payable inrespect of provident fund, investor education andprotection fund, employees’ state insurance,income-tax, wealth-tax, service tax, customs duty,cess and other undisputed statutory dues wereoutstanding, at the year end, for a period of morethan six months from the date they becamepayable.

c) According to the information and explanationgiven to us, there are no dues of income tax,wealth tax, service tax, customs duty and cesswhich have not been deposited on account ofany dispute.

x) The Company has no accumulated losses at theend of the financial year and the Company hasnot incurred cash losses during the year and inthe immediately preceding financial year.


ALLSEC TECHNOLOGIES LIMITEDAnnexure to Auditors’ Report

xi) The Company has no dues to banks, financialinstitutions or debenture holders.

xii) According to the information and explanationsgiven to us and based on the documents andrecords produced to us, the Company has notgranted loans and advances on the basis ofsecurity by way of pledge of shares, debenturesand other securities.

xiii) The Company is not a chit fund or a nidhi / mutualbenefit fund / society. Therefore, the provisionsof clause 4(xiii) of the Order are not applicable tothe Company.

xiv) The Company is not dealing in or trading inshares, securities, debentures and otherinvestments. Accordingly, the provisions ofclause 4(xiv) of the Order are not applicable tothe Company.

xv) According to the information and explanationsgiven to us, the Company has not given anyguarantees for loans taken by others from banksor financial institutions.

xvi) Based on information and explanations given tous by Management, term loans were applied forthe purpose for which the loans were obtained.

xvii) According to the information and explanationsgiven to us and on an overall examination of thebalance sheet of the Company, we report that nofunds raised on short-term basis have been used

for long-term investment.

xviii) The Company has made preferential allotmentof share warrants to parties and companiescovered in the register maintained under section301 of the act. In our opinion the price at whichshares have been issued is not prejudicial to theinterest of the Company.

xix) The Company did not have any debenturesoutstanding during the year.

xx) The Company has not raised any money bypublic issues and accordingly, the provisions ofclause 4(xx) of Companies (Auditor’s Report)Order, 2003 (as amended) are not applicable tothe Company.

xxi) Based upon the audit procedures performed forthe purpose of reporting the true and fair view ofthe financial statements and as per theinformation and explanations given byManagement, we report that no fraud on or bythe Company has been noticed or reportedduring the course of our audit.

For S.R. Batliboi & AssociatesChartered Accountants

Per Ali NyazChennai PartnerMay 14, 2007 Membership No: 200427



As at As atPARTICULARS Schedule March 31, 2007 March 31, 2006

SOURCES OF FUNDS

Shareholders’ fundsShare capital 1 152,383 120,867Share warrants (Refer note 20.3) 25,074 –Stock options outstanding 2 3,024 5,818Reserves and surplus 3 1,514,649 581,524

1,695,130 708,209

Loan fundsSecured loans 4 1,557 1,516

1,696,687 709,725

APPLICATION OF FUNDS

Fixed assets 5

Gross block 541,217 516,438

Less : Accumulated depreciation 254,473 176,156

Net block 286,744 340,282

Add: Capital work-in-progress [including capital advances] 3,662 1,668290,406 341,950

Investments 6 884,792 108,421

Deferred tax asset 7 22,821 22,291

Current assets, loans and advances

Sundry debtors 8 264,259 196,358

Cash and bank balances 9 369,345 158,059

Other current assets 10 1,965 990

Loans and advances 11 82,523 49,122

718,092 404,529

Less : Current liabilities and provisions 12 219,424 167,466

Net current assets 498,668 237,063

Miscellaneous expenditure 13 – –(To the extent not written off or adjusted)

1,696,687 709,725

Notes to Accounts 20

The schedules referred to above and notes to accounts form an integral part of the Balance Sheet.

As per our report of even dateS.R. Batliboi & Associates For and on behalf of the Board of DirectorsChartered Accountants

Per Ali Nyaz A Saravanan R Jagadish K S RaghuPartner Director Director Company SecretaryMembership No: 200427

Place: ChennaiDate: May 14, 2007

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



Year Ended Year EndedPARTICULARS Schedule March 31, 2007 March 31, 2006

IncomeIncome from services 1,132,788 922,565[Tax deducted at source - Rs. 2,657, previous year - Rs. 1,845]Other income 14 38,558 10,762

1,171,346 933,327

ExpenditureConnectivity and other costs 15 132,070 142,802Employee costs and benefits 16 489,927 357,238General and administration expenses 17 126,195 100,359Selling expenses 18 59,152 54,965Finance charges 19 3,858 5,039Deferred revenue expenses written off 13 – 356Depreciation 5 79,422 60,955

890,624 721,714

Profit before tax 280,722 211,613

Provision for taxation- Current tax 2,679 1,700

- MAT credit entitlement (including credit in respect of earlier year of Rs. 1,700) (4,379) – - Deferred tax (Refer note 20.8) (530) (7,771) - Fringe benefit tax 1,603 1,315

Profit after tax 281,349 216,369

Balance brought forward from previous year 65,360 (27,099)

Profit available for appropriation 346,709 189,270

Appropriations:Proposed dividend 76,192 60,434Tax on dividend 12,949 8,476Transfer to General Reserve 55,000 55,000

Profit carried to Balance Sheet 202,568 65,360

Earnings per Share 20.18Net profit available to equity shareholders 281,349 216,369Number of weighted average equity shares used in computing basic earnings per share 14,003,010 11,758,979Basic earnings per share (equity shares, par value Rs 10/- each) (Rs.) 20.09 18.40Number of weighted average equity shares used in computing diluted earnings per share 14,119,605 11,920,437Diluted earnings per share (equity shares, par value Rs 10/- each) (Rs.) 19.93 18.15


The schedules referred to above and notes to accounts form an integral part of the profit and loss account

As per our report of even dateS.R.Batliboi & Associates For and on behalf of the Board of DirectorsChartered Accountants

Per Ali Nyaz A Saravanan R Jagadish K S RaghuPartner Director Director Company SecretaryMembership No: 200427Place: ChennaiDate: May 14, 2007

Profit and Loss Account(All amounts are in thousands of Indian Rupees, unless otherwise stated)



Year Ended Year EndedPARTICULARS March 31, 2007 March 31, 2006

A. Cash flow from operating activities:Net profit before tax 280,722 211,613Adjustments for:Depreciation 79,422 60,954Miscellaneous expenditure written off - 356Interest expense 110 3,461Interest income (6,058) (1,243)Dividend income (31,302) -Loss on sale of assets 751 -Profit on sale of investments (120) (7,136)Unrealised foreign exchange (gain) /loss, net 6,519 (486)Liabilities no longer required written back - (858)Amortisation of employee stock compensation cost 2,128 6,681

Operating profit before working capital changes 332,172 273,342Adjustments for changes in working capital:

- Increase in sundry debtors (71,216) (94,246) - Increase in loans and advances and other current assets (17,522) (12,977) - Increase in current liabilities and provisions 33,480 32,857

Cash generated from operations 276,914 198,976 - Taxes paid, net (2,052) (1,183)

Net cash from operating activities - (A) 274,862 197,793

B. Cash flow from investing activities:Capital expenditure (Refer note 1) (30,575) (259,401)Proceeds from sale of fixed assets 1,111 -Purchase of investments - mutual funds (3,239,348) (240,000)Proceeds from sale of investments - mutual funds 2,516,374 247,136Investment in subsidiary (53,277) (93,517)Loans advanced to subsidiary (12,860) (17,125)Deposits made during the year (100,000) -Interest received 4,235 720Dividend Received 31,302 -

Net cash used in investing activities - (B) (883,038) (362,187)

Cash Flow Statement(All amounts are in thousands of Indian Rupees, unless otherwise stated)




C. Cash flow from financing activities:Proceeds from issue of equity share capital/ share warrants 812,011 425,269Share issue expenses (19,427) (56,740)Proceeds from long term borrowings 1,175 70,407Repayment of long term borrowings (1,134) (128,089)Interest paid (110) (12,861)Proceeds from/(repayment) of short term borrowings, net – (3,571)Dividend paid (60,434) –Dividend tax paid (8,476) –

Net cash from financing activities - (C) 7 2 3 , 6 0 5 294,415

Net increase in cash and cash equivalents (A+B+C) 1 1 5 , 4 2 9 130,021Opening cash and cash equivalents 1 5 7 , 8 6 1 27,840Closing cash and cash equivalents* 2 7 3 , 2 9 0 157,861

*Includes restricted cash balances 2 9 –

Reconciliation of cash and cash equivalents with cash and bank balance as per Schedule 9:

Cash and bank balances, per Schedule 9 3 6 9 , 3 4 5 158,059

Less: Term deposits ( 1 0 0 , 0 0 0 ) –

Add / (Less): Loss / (Gain) on restatement of balances in foreign currency accounts. 3 , 9 4 5 (198)

Cash and cash equivalents as per cash flow statement 273,290 157,861

Notes:1. Increase in capital expenditure include payments for items in capital work in progress and advances for purchase of fixed assets. Adjustments for increase / decrease in current liabilities related to acquisition of fixed assets to the extent identified have been made.

2. The accompanying notes are an integral part of this statement.

As per our report of even date

S.R.Batliboi & Associates For and on behalf of the Board of DirectorsChartered Accountants

Per Ali Nyaz A Saravanan R Jagadish K S RaghuPartner Director Director Company SecretaryMembership No: 200427Place: ChennaiDate: May 14, 2007

Cash Flow Statement(All amounts are in thousands of Indian Rupees, unless otherwise stated)



As at As atPARTICULARS March 31, 2007 March 31, 2006

1 Share capital

Authorised

20,000,000 [Previous year - 15,000,000] Equity shares of Rs. 10/- each 200,000 150,000

1,350,000 [Previous year - 1,350,000] Convertible Preference Shares of Rs. 100/- each 135,000 135,000

Issued, subscribed and paid-up*15,238,326 [Previous year - 12,086,741] Equity Shares of Rs. 10/- each 152,383 120,867

152,383 120,867

* Includes:

a) 3,021,685 equity shares of Rs. 10/- each (previous year - Nil) issued under preferential allotmentduring the year

b) Nil (previous year - 3,141,200 equity shares of Rs. 10/- each, issued under an Initial Public Offer) and

c) 129,900 (previous year - 120,700) shares of Rs. 10/- each issued under the Company's Employee StockOption Plan, 2004.

2 Stock Options Outstanding

Balance, beginning of year 7,253 11,368

Add: Additions during the year 16,326 967

Less: Deletions / adjusted during the year 6,595 5,082

Balance, end of year 16,984 7,253

Less: Deferred employee stock compensation

Balance, beginning of year 1,435 7,149

Add: Additions during the year 16,326 967

Less: Amortized during the year 3,801 6,681


3,024 5,818

3. Reserves and SurplusSecurities PremiumBalance, beginning of year 461,164 123,876Add: Received during the year # 760,344 397,732Less: Adjusted against share issue expenses 19,427 60,444Balance, end of year 1,202,081 461,164

General ReserveBalance, beginning of year 55,000 –Add: Transferred from Profit and Loss Account 55,000 55,000Balance, end of year 110,000 55,000Profit and Loss Account 202,568 65,360

1,514,649 581,524# Includes

a) Rs. 755,421 (previous year Nil) received on issue of 3,021,685 equity shares of Rs.10/- each issued underpreferential allotment during the year at a premium of Rs 250/- per share.

b) Rs. Nil (previous year Rs. 392,650 received on issue of 3,141,200 equity shares of Rs. 10/- each at apremium of Rs. 125/- per share under the Initial Public Offer) and

c) Rs. 4,923 (previous year Rs. 5,082) received towards the Company's Employee Stock Option Plan, 2004.

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



4 Secured loansHire purchase loans from banks (Refer note 20.5) 1,557 1,516(includes amounts repayable withinone year Rs. 538, previous year Rs. 891)

1,557 1,516

6 Investments — Long term (at cost)Unquoted, Non-trade

In subsidiariesAllsectech Inc, USA- Common stock 100 (previous year - 100) 36,473 14,903

B2K Corp Private Limited- 404,722 (previous year - 404,722) equity shares of Rs. 10/- each 405 405- 167,074 (previous year - 117,987) 10% optionally convertible cumulativeredeemable preference shares, face value of Rs. 1,000/- each 124,820 93,113

Current investments (at lower of cost or market value) *Mutual Fund Units #Quoted, fully paid up at cost 723,094 –(Net Asset Value Rs.723,129, previous year Rs. Nil)

884,792 108,421

# Also refer note 20.11 for details of investments in mutual funds.

7 Deferred tax asset

Depreciation (Refer note 20.8) 22,821 22,291

22,821 22,291

8 Sundry debtors (unsecured, considered good)Debts outstanding for a period exceeding six months 1,633 –Other debts 262,626 196,358

264,259 196,358

9 Cash and bank balancesCash on hand 43 34Balance with scheduled banks * - in current accounts 243,343 73,391 - in deposit accounts 125,904 84,607 - in unpaid dividend accounts 29 –Balance with non-scheduled banks - in current accounts with HSBC Plc** 26 27

369,345 158,059

* Includes unutilized proceeds received from preferential issue Rs. 789,237 (previous year Rs. Nil)** Maximum balance during the year was Rs. 27 (Previous Year: Rs. 28)



Schedule 5 is set out on the following page


ALLSEC TECHNOLOGIES LIMITED5

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March

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March

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puter

s and

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25,26

3 1

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– 3

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46,7

03 59

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- Call

centre

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ment

211,8

24 1

5,914

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113

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133,7

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4,19

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34,50

8 1

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34,6

60 10

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1,84

2–

11,9

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24,44

5

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hold im

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89,74

1 2

,605

– 9

2,346

27,11

9 1

6,843

– 4

3,962

48,3

84 62

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Vehic

les*

7,18

9 2

,700

2,95

1 6

,938

1,59

6 5

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20,08

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516,4

38 2

7,745

2,96

6 5

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7 17

6,156

79,4

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286

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Desc

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10 Other current assets

Unbilled revenues 444 423Interest accrued but not due 1,521 567

1,965 990

11 Loans and advances (unsecured, considered good)Advances recoverable in cash or in kind or for value to be received 828 1,369Balance with Excise authorities (Refer note 20.7) 13,281 –Loan to subsidiary [including accrued interest of Rs. 990(previous year - Rs. 120)] 30,975 17,245Prepaid expenses 4,370 4,726Deposits 26,701 24,944MAT Credit Entitlement 4,379 –Advance income tax and tax deducted at source, net 1,989 838

82,523 49,122

Included in loans and advances is:Dues from companies under the same managementB2K Corp Private Limited 30,975 17,245[Maximum amount outstanding during the year Rs. 33,871(previous year - Rs. 17,245)]

12 Current liabilities and ProvisionsCurrent liabilitiesSundry creditors- Due to small scale undertakings – –- Others 85,258 71,817Unpaid dividend 29 –Other liabilities 34,118 21,740

119,405 93,557

ProvisionsEmployee bonusBalance, beginning of year 3,589 –Add: Provision made in the current year 16,669 3,589Less: Payments during the current year 13,913 –


Leave encashment 2,415 1,259Provident fund 290 151Gratuity 1,828 –Proposed dividend 76,192 60,434Tax on dividend 12,949 8,476

100,019 73,909219,424 167,466






13 Miscellaneous expenditure

Deferred revenue expenditureBalance, beginning of yearShare issue expenses – 9,241Ancillary borrowing costs – 356

– 9,597Add: Additions during the yearShare issue expenses 19,427 51,203

19,427 60,800

Less: Amortised during the year – 356Less: Share issue expenses adjusted against securities premium 19,427 60,444Balance, end of year – –

14 Other incomeInterest- Bank deposits (Tax deducted at source Rs. 987, previous year - Rs.186) 4,821 1,024- Others (Tax deducted at source Rs. 260, previous year - Rs. 43) 1,237 218Dividend income from mutual funds 31,302 -Profit on sale of investments 120 7,136Liabilities no longer required written back - 858Foreign exchange gains / (loss), net (1,511) 1,526Miscellaneous income 2,589 -

38,558 10,762

15 Connectivity and other costsConnectivity cost 132,070 132,876Application development cost (Refer note 20.6) - 9,926

132,070 142,802

16 Employee costs and benefitsSalaries, wages and allowances 402,462 287,129

Contributions to provident and other funds 17,198 11,312

Gratuity 2,818 1,667

Employee stock compensation cost* 2,128 6,681

Staff welfare 53,261 41,519

Recruitment and training 12,060 8,930

489,927 357,238

* Includes Rs. 1,673 (previous year Nil) of reversal of cost earlier accounted on lapsed options.

Year Ended Year EndedMarch 31, 2007 March 31, 2006





17 General and Administration expensesElectricity 20,787 18,441Rent and amenities 32,748 24,329Rates and taxes 709 628Repairs and maintenance - Plant and machinery 25,664 18,776 - Others 12,357 9,108Insurance 1,018 1,078Professional and consultancy charges 8,407 9,116Travel and conveyance 10,366 7,375Telephone 2,171 2,172Loss on sale of fixed assets 751 –Miscellaneous expenses 11,217 9,336

126,195 100,359

18 Selling expensesSelling commission 54,109 50,052Other selling expenses 5,043 4,913

59,152 54,965

19 Finance chargesInterest- on term loans – 3,141- others 110 319Bank charges 3,748 1,579

3,858 5,039



20 NOTES TO ACCOUNTS

20.1 Background

Allsec Technologies Limited ('Allsec' or the 'Company') was incorporated on August 24, 1998 as a limited companyunder the Companies Act, 1956. The Company is engaged in the business of providing IT enabled services. Theservices provided by the Company include data verification, processing of orders received through telephone calls,telemarketing, monitoring quality of calls of other call centers, customer services and HR and payroll processing.The Company has three subsidiaries, Allsectech Inc., USA, B2K Corp Private Limited ('B2K') and B2K Corp Inc.,USA (a wholly owned subsidiary of B2K).

The Company completed an Initial Public Offering ('IPO') of 3,141,200 equity shares of Rs. 10/- each at a price ofRs. 135/- per share in May 2005 and the equity shares of the Company are listed on the National Stock Exchangeof India ('NSE') and The Stock Exchange, Mumbai ('BSE').

i. Completion of B2K acquisition and proposed amalgamation

During the previous year, the Company had entered into a Share Purchase Agreement ('SPA') dated December8, 2005 with the shareholders of B2K Corp Private Limited, an Indian company located in Bangalore, engagedin the business of inbound and outbound voice, email and chat support services and information technologyservices. Under the terms of the SPA, the Company acquired the entire outstanding equity capital of B2K for aconsideration of Rs. 405 and the entire outstanding 10% optionally convertible cumulative redeemable preferenceshare capital of B2K for a consideration as per the terms of the SPA. On January 25, 2006, the Company paid anaggregate consideration of Rs. 405 towards the entire equity capital and an amount of Rs. 93,113 towards70.62% of the aforesaid preference capital. During the year, the Company has paid an amount of Rs. 31,708 onJune 6, 2006 towards the balance 29.38% of the aforesaid preference capital and completed the acquisition.

Subsequent to the date of the balance sheet, B2K filed a petition with the Hon'ble High Court of Judicature atMadras under sections 391 to 394 of the Companies Act, 1956 on April 20, 2007 for the sanction of the proposedscheme of amalgamation of B2K with the Company. The petition is fixed for hearing on June 7, 2007. Pendingcompletion of the court process relating to such amalgamation, no effect has been given for the same in thesefinancial statements, for changes, if any, that may be required.

ii. Preferential issue

At the Extra Ordinary General Meeting held on August 21, 2006, the shareholders of the Company had approvedthe preferential issue of 3,021,685 equity shares of the Company to First Carlyle Ventures, Mauritius ('FCVM') ata price of Rs. 260/- per equity share (including a premium of Rs. 250/- per share) and the preferential issue of803,640 warrants to the promoters of the Company and 160,728 warrants to FCVM, each warrant convertibleinto one equity share of the Company at a conversion / exercise price of Rs. 260/- per resultant equity share.Such shares and warrants have been issued to the promoters and FCVM during the year under the terms andconditions as set out in the Subscription and Shareholders' Agreement ('SSA') dated August 23, 2006 by andbetween the Company, its promoters and FCVM. The net proceeds from the issue, after adjusting for share issueexpenses of approximately Rs. 19,427, has been deployed in mutual funds and term deposits.

20.2 Statement of significant accounting policies

(a) Basis of preparation

The financial statements have been prepared to comply in all material respects with the mandatory AccountingStandards issued by the Institute of Chartered Accountants of India and the relevant provisions of the CompaniesAct, 1956 ('the Act'). The financial statements have been prepared under the historical cost convention on anaccrual basis.

(b) Fixed assets

Fixed assets are stated at cost less accumulated depreciation and impairment losses where applicable. Costincludes purchase price and all direct / indirect costs incurred to bring the asset to its working condition for itsintended use.



ALLSEC TECHNOLOGIES LIMITEDSchedules(All amounts are in thousands of Indian Rupees, unless otherwise stated)

(c) Depreciation

Depreciation is provided using the straight line method in the manner specified in Schedule XIV to the Act, at therates prescribed therein or at the rates based on Management's estimate of the useful lives of such assets,whichever is higher, as follows:

ASSET DESCRIPTION PERCENTAGE

Plant and machinery 4.75 - 16.21

Furniture and fixtures 6.33

Vehicles 9.5

Intangible Assets – Software 25

Leasehold improvements are amortised over the estimated useful lives or the remaining primary lease period,whichever is less. Assets individually costing Rs. 5 or less are fully depreciated in the year of purchase.

(d) Impairment

i. The carrying amounts of assets are reviewed at each balance sheet date if there is any indication ofimpairment based on internal / external factors. An impairment loss is recognized wherever the carryingamount of an asset exceeds its recoverable amount. The recoverable amount is the greater of the asset's netselling price and its value in use. In assessing value in use, the estimated future cash flows are discountedto their present value at the weighted average cost of capital.

ii. After impairment, depreciation is provided on the revised carrying amount of the asset over its remaininguseful life.

iii. A previously recognized impairment loss is increased or reversed depending on changes in circumstances.However, the carrying value after reversal is not increased beyond the carrying value that would haveprevailed by charging usual depreciation if there was no impairment.

(e) Investments

Investments that are readily realisable and intended to be held for not more than a year are classified as currentinvestments. All other investments are classified as long-term investments. Current investments are carried atlower of cost and fair value determined on an individual investment basis. Long-term investments are carried atcost. Provision for diminution in value is made to recognise a decline other than temporary in the value of longterm investments.

(f) Leases

Finance leases, which effectively transfer to the Company substantially all the risks and benefits incidental toownership of the leased asset, are capitalized at the lower of the fair value and present value of the minimumlease payments at the inception of the lease term and disclosed as leased assets. Lease payments areapportioned between the finance charges and reduction of the lease liability based on the implicit rate of return.Finance charges are charged against income.

Leases where the lessor effectively retains substantially all the risks and benefits of ownership of the leaseditem, are classified as operating leases. Operating lease payments are recognized as an expense in the Profitand Loss account on a straight-line basis over the lease term.

(g) Provisions

A provision is recognized when an enterprise has a present obligation as a result of past event and it is probablethat an outflow of resources will be required to settle the obligation, in respect of which a reliable estimate canbe made. Provisions are not discounted to its present value and are determined based on Managementestimate of amounts required to settle the obligation at the balance sheet date. These are reviewed at eachbalance sheet date and adjusted to reflect the current Management estimates.

Provision for tenure bonus is made for the estimated liability payable to employees on completion of specifiedtenure of employment and satisfaction of certain other conditions.



(h) Deferred revenue expenditure

Share issue expenses are adjusted against the share premium received, in accordance with Section 78 ofthe Act.

(i) Revenue recognition

Income from services

Income from IT enabled services is derived from both time based and unit priced contracts. Revenue is recognizedas the related services are performed in accordance with the specific terms of the contract with the customer.

Unbilled revenue represents accrual of income relating to services provided but not billed as at the year end.

Dividend income

Dividend income is recognised when the right to receive payment is established by the balance sheet date.

Interest

Interest income is recognised on a time proportion basis taking into account the amount outstanding and therate applicable.

(j) Retirement benefits

Retirement benefit in the form of provident fund is charged to the Profit and Loss Account of the year when thecontributions to the respective fund are due.

Gratuity liability under the Payment of Gratuity Act, 1972 and leave encashment is determined and provided foron the basis of actuarial valuation made at the end of each financial year.

(k) Taxation

Tax expense comprises current, deferred and fringe benefit tax. Provision for current income tax and fringebenefit 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 betweenthe 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 recognised in the income statementusing the tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date.Deferred tax assets are recognised only to the extent that there is reasonable certainty that sufficient futuretaxable income will be available against which such deferred tax assets can be realised. If the company hasunabsorbed depreciation or carry forward tax losses, deferred tax assets are recognised only if there is virtualcertainty supported by convincing evidence that such deferred tax assets can be realised against futuretaxable profits.

Minimum Alternative Tax ('MAT') credit is recognised as an asset only when and to the extent there is convincingevidence that the company will pay normal income tax during the specified period. In the year in which theMinimum Alternative tax (MAT) credit becomes eligible to be recognized as an asset in accordance with therecommendations contained in guidance note issued by the Institute of Chartered Accountants of India, the saidasset is created by way of a credit to the profit and loss account and shown as MAT Credit Entitlement. TheCompany reviews the same at each balance sheet date and writes down the carrying amount of MAT CreditEntitlement to the extent there is no longer convincing evidence to the effect that Company will pay normalIncome Tax during the specified period.

(l) Foreign currency transactions

Transactions denominated in foreign currencies are recorded at the exchange rates prevailing on the date oftransaction. At the year-end, monetary items are converted into rupee equivalents at the year-end exchangerates. Non-monetary items which are carried in terms of historical cost denominated in a foreign currency arereported using the exchange rate at the date of the transaction.

All exchange differences arising on settlement / conversion of foreign currency transactions are included in theprofit and loss account, except in cases where they relate to the acquisition of fixed assets from outside India, inwhich case they are adjusted in the cost of the corresponding asset.

In relation to the forward contracts entered into to hedge the foreign currency risk of the underlying monetaryassets / liabilities, the exchange difference is calculated as the difference between the foreign currency amount



of the contract translated at the exchange rate at the reporting date, or the settlement date where the transactionis settled during the reporting period, and the corresponding foreign currency amount translated at the later ofthe date of inception of the forward exchange contract and the last reporting date. Such exchange differencesare recognised in the profit and loss account in the reporting period in which the exchange rates change. Thepremium or discount on all such contracts arising at the inception of each contract is amortised as income orexpense over the life of the contract. Any profit or loss arising on the cancellation or renewal of forward contractsis recognized as income or as expense for the period.

(m) Earnings Per Share ("EPS")

The earnings considered in ascertaining the Company's earnings per share comprise the net profit after tax. Thenumber of shares used in computing basic earnings per share is the weighted average number of sharesoutstanding during the year. The number of shares used in computing diluted earnings per share comprises theweighted average number of shares considered for deriving basic earnings per share and also the weightedaverage number of shares, if any, which would have been issued on the conversion of all dilutive potentialequity shares.

(n) Deferred employee stock compensation expenses

Measurement and disclosure of the employee share-based payment plans is done in accordance with theGuidance Note on Accounting for Employee Share-based Payments, issued by the Institute of CharteredAccountants of India. The Company measures compensation cost relating to employee stock options using theintrinsic value method. Deferred employee stock compensation expense is amortized over the vesting period ofthe option on a straight line basis.

20.3 Share warrants

As mentioned in note 20.1(ii) above, in accordance with the terms of the SSA, the Company has allotted 803,640warrants to the promoters and 160,728 warrants to FCVM on preferential basis at a subscription price of Rs. 26 /- perwarrant. Each warrant shall be convertible into one equity share of the Company at a conversion / exercise price ofRs. 260/- (face value of Rs. 10 /- including a premium of Rs. 250 /-) per resultant equity share.

The holders of the warrants will have an option to apply for and be allotted one equity share of the Company perwarrant at any time before the expiry of 18 months from the date of allotment. The Company has issued the saidwarrants on receipt of the subscription price of Rs. 26 /- per warrant, aggregating to Rs. 25,074.

20.4 Stock option plans

The Company has two stock option plans that provide for the granting of stock options to employees includingDirectors of the Company (not being promoter Directors and Executive Directors, holding more than 10% of theequity shares of the Company). The option plans are summarized below:

Employee Stock Option Plan (ESOP), 2004

The shareholders at the Extra Ordinary General Meeting held on May 6, 2004, approved an Employee Stock OptionPlan (ESOP) which provides for the grant of 550,000 options to employees. Consequently, the compensationcommittee had granted the following options on various dates at an exercise price of Rs.10 /- per share:

DATE OF GRANT NUMBER OF OPTIONS GRANTED

July 1, 2004 286,500 optionsJanuary 14, 2005 13,500 optionsJanuary 31, 2005 33,700 options

The remaining options of 216,300 have not been issued as at the date of the balance sheet and the Company doesnot propose to issue the same.

The Company has adopted the (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines,1999 issued by Securities and Exchange Board of India, and has recorded a compensation expense using the fairvalue method as set out in those guidelines. The summary of the movement in options is given below:



PARTICULARSAs at As at

March 31, 2007 March 31, 2006

Options outstanding, beginning of year 168,400 300,000

Options granted during the year – –

Options exercised during the year 129,900 120,700

Options lapsed during the year 18,700 10,900

Options outstanding, end of year 19,800 168,400

Options outstanding at the year end comprise of:

- Options eligible for exercise at year end 19,800 28,250

- Options not eligible for exercise at year end – 140,150

Weighted average share price at the date of exercise (Rs.) 209.68 178.82

Weighted average remaining contract life of options 2 years and 3 years and

4 months 4 months

Vesting period of options

- 50% of the options – one year from the date of grant

- 50% of the options – two years from the date of grant

Employee Stock Option Scheme (ESOS), 2006

The shareholders at the Annual General Meeting held on July 10, 2006, have approved an Employee StockOption Scheme 2006 (ESOS 2006) which provides for an issue of 600,000 options to the employees. Consequently,the compensation committee had granted the 350,000 options on January 25, 2007 at an exercise price ofRs. 289.75 per share.

The Company has adopted the (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines,1999 issued by Securities and Exchange Board of India, and has recorded a compensation expense using theintrinsic value method as set out in those guidelines. The summary of the movements in options is given below:

PARTICULARSAs at

March 31, 2007

Options outstanding, beginning of year –

Options granted during the year 350,000

Options exercised during the year –

Options lapsed during the year –

Options outstanding, end of year 350,000

Options outstanding at the year end comprise of:

- Options eligible for exercise at year end –

- Options not eligible for exercise at year end 350,000

Weighted average remaining contract life of options 4 years and 10 months




Pro-forma Disclosures for ESOS 2006

In accordance with SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines,1999, had the compensation cost for ESOS 2006 been recognized based on the fair value at the date of grant inaccordance with binomial method, the amounts of the Company's net profit and earnings per share would havebeen as follows:



PARTICULARS PROFIT AFTER TAX BASIC EPS (Rs.) DILUTED EPS (Rs.)

Year Ended March 31, 2007

- Amounts as reported 281,349 20.09 19.93

- Amounts as per pro-forma 277,770 19.84 19.67

The fair value of options was estimated at the date of grant using the binomial method with the followingassumptions:

PARTICULARS Year EndedMarch 31, 2007

Risk-free interest rate 7.5%

Expected life 1.5 years / 2.5 years

Expected volatility 50.9% / 52.9%

Expected dividend yield 1.47%

Share price on the date of grant Rs. 340.90

Expected forfeiture 10%

20.5 Secured loans

Hire purchase loans are secured by hypothecation of the respective assets acquired.

20.6 Application development costs

Under the terms of an arrangement with a customer, the Company was required to bear a portion of the total costincurred in the development of application software used in rendering services to such customer. The Companydoes not have any control or ownership of the licenses over such software and the cost incurred on the same hasbeen charged to the Profit and Loss Account in the previous year.

20.7 Service tax credits

During the fourth fiscal quarter of 2007, the Company has, based on legal opinion, accrued for the input credit onservice tax paid, for the various input services availed by the Company. The credit availed relates to the entire fiscalyear and accordingly, the expenses to which such credits relate which have been reported on a gross basis in theun-audited quarterly results for the first three quarters are now reported in the annual financial statements afternetting off such credits.

20.8 Deferred taxes

Management of the Company is of the opinion that the benefit of the tax holiday would continue to be available toits operations for the remaining period of tax holiday. Accordingly, no deferred tax asset or liability has beenrecognized in these financial statements for the future tax consequences attributable to differences between taxableincome and accounting income for the year, to the extent that such differences are expected to reverse within the taxholiday period. Management has also reassessed virtual certainty of all existing and potential deferred tax assetswhich originate within the tax holiday period and are capable of recovery after the expiry of the tax holiday period.Based on historical trends in growth and profitability, long term customer contracts and relationships andManagement's committed business plans, Management believes that there is virtual certainty that sufficient futuretaxable income would be available beyond the tax holiday period, to recover the entire deferred tax of Rs. 22,821relating to current and unabsorbed depreciation of earlier years.

20.9 There is no overdue amount payable to Micro, Small and Medium Enterprises as defined under The Micro, Smalland Medium Enterprises Development Act, 2006. Further the Company has not paid any interest to any Micro, Smalland Medium Enterprises during the current year.

20.10 On account of the nature of the business of the Company, supplementary information for the profit and loss accountas required to be disclosed under clause 3 (i) to (iii) except 3 (ii) (c) and clause 4 (c) of Part II to Schedule VI of theAct are not applicable and hence no disclosures have been made in this regard.



20.11 Details of current investments

Current investments in mutual funds at the year end comprise of:

March 31, 2007 March 31, 2006

Name of Mutual fund No. of units Amount No. of units Amount

Franklin TITMA fund 155,528 155,567 – –

Birla Cash Plus Series 1 10,223,928 102,439 – –

Reliance Interval Fund Series 2 10,196,368 102,075 – –

ICICI Pru FMP 37 10,000,000 100,000 – –

Kotak Liquid fund 6,331,088 77,417 – –

Pru ICICI Super plan 5,280,526 52,964 – –

HDFC Call Plan 4,977,102 51,894 – –

Standard Chartered Liquidity Manager Fund 5,094,746 50,953 – –

UTI Money Market fund 1,654,340 29,785 – –

Total 723,094 –

The following investments were purchased and sold during the year:

Purchased Sold

Name of Mutual fund No. of units Amount No. of units Amount

Birla Cash Plus 7,485,403 75,000 7,485,403 75,000

Kotak Liquid Fund 10,222,357 125,000 10,222,357 125,000

ICICI Pru Liquid Plan Super Institutional 30,526,657 305,267 30,526,657 305,267

Standard Chartered Liquidity Manager 5,004,585 50,051 5,004,585 50,051

HDFC CMF Savings Plan 15,778,688 167,828 15,778,688 167,828

DSP ML Liquidity Plus Institutional Plan 51,531 51,542 51,531 51,542

Standard Chartered Liqudity Manager Plus 216,074 216,095 216,074 216,095

SBI Magnum Inst.Income Savings 25,037,100 251,185 25,037,100 251,185

DSP ML Liquidity Fund 7,584,241 75,918 7,584,241 75,918

SBI Debt Funds Series 17,504,442 175,044 17,504,442 175,044

Kotak FMP 3M Series 7 Dividend 7,633,802 76,338 7,633,802 76,338

Kotak FMP 3M Series 3 Dividend 2,499,481 25,006 2,499,481 25,006

RLF Treasury plan 1,313,115 20,072 1,313,115 20,072

Tata FHF Series 8 7,610,000 76,135 7,610,000 76,135

Reliance Liquid Fund Cash Plan 2,420,199 26,964 2,420,199 26,964

ICICI Pru FMP 35 15,000,000 150,000 15,000,000 150,000

Birla FMP Series II 7,473,019 74,947 7,473,019 74,947

Reliance Liquidity Fund 7,607,642 76,925 7,607,642 76,925

UTI Liquid Cash Plan 315,729 321,869 315,729 321,869

UTI Money Market 9,984,895 175,068 9,984,895 175,188

Total 2,516,254 2,516,374

Investments purchased, as shown above, includes the number of units and amounts credited towards re-investmentof dividends received.



20.12 Segment reporting

The Company's operations predominantly relate to IT enabled services and accordingly this is the only primaryreportable segment. The Company does not have a reportable geographical segment, since more than 90% ofits income is derived from services provided to customers in the United States of America.

20.13 Related party transactions

1. Names of related parties

Relationship Name of the party

Subsidiaries Allsectech Inc., USA

B2K Corp Private Limited (with effect from January 25, 2006)

B2K Corp Inc., USA (with effect from January 25, 2006)

Key management personnel Whole time directors:A. SaravananR. Jagadish

2. Transactions with related parties:

Subsidiaries Key Management PersonnelPARTICULARS

March 31, 2007 March 31, 2006 March 31, 2007 March 31, 2006

Selling commission expenses

-- Allsectech Inc. 48,900 43,637 – –

Service income

-- Allsectech Inc. 85,881 21,627 – –

Advances made / (collected)

-- B2K Corp Private Limited 12,833 17,245 – –

Interest on advances made

-- B2K Corp Private Limited 895 120 – –

Investment in subsidiary

-- B2K Corp Private Limited 31,707 93,518 – –

-- Allsectech Inc 21,570 – – –

Directors' remuneration

-- Salaries – – 17,400 10,500

-- Commission 7,500 –

Dividend paid (cash basis) 20,450 –

The Company has extended guarantees aggregating to USD 235,000 (previous year - USD 235,000) on behalfof its subsidiary Allsectech Inc., USA.



3. Balances with related parties:

Subsidiaries Key Management PersonnelPARTICULARS

March 31, 2007 March 31, 2006 March 31, 2007 March 31, 2006

Receivable

Allsectech Inc. 37,905 15,460 – –

Payable

Allsectech Inc. 39,286 17,875 – –

Loans and Advances

B2K Corp Private Limited 30,975 17,245 – –

Investment in subsidiary

Allsectech Inc. 36,473 14,903 – –

B2K Corp Private Limited 125,225 93,518 – –

Commission payable – – 7,500 –

20.14 Lease commitments

Finance leases

PARTICULARS As at As atMarch 31, 2007 March 31, 2006

Not later than one yearMinimum lease payments 652 962Less: Finance Charges 114 71Present value 538 891

Later than one year but not later than five yearsMinimum lease payments 1,197 649Less: Finance Charges 178 24Present value 1,019 625

Later than five yearsMinimum lease payments Nil NilLess: Finance Charges Nil NilPresent value Nil Nil

Operating leases

Office premises in India are obtained under operating lease. Lease rentals incurred during the yearRs. 32,748 (previous year Rs. 24,329) have been charged as an expense in the profit and loss account. The future lease rentals payable are as follows:


Upto 1 year 33,752 31,263

1 to 5 years 143,960 134,614

Beyond 5 years 66,600 133,164

TOTAL 244,312 299,041




20.15 Payment to directors

PARTICULARS Year Ended Year EndedMarch 31, 2007 March 31, 2006

Salaries 17,400 10,500

Commission to Wholetime directors 7,500 –

Computation of Net Profit in accordance with section 349 of the Act for calculation of commission payableto directors:

PARTICULARS Year EndedMarch 31, 2007

Profit as per Profit and Loss Account 281,349

Add:

Directors' remuneration 24,900

Directors' sitting fee 440

Depreciation as per Profit and Loss account 79,422

Less:

Depreciation allowable under section 350 of the Act 79,422

Net profit as per Section 349 of the Act 306,689

Remuneration (including commission) to Managing and Wholetimedirectors at 10% of the net profits as calculated above 30,669

20.16 Auditors' remuneration


Audit fees* 1,550 1,100

Other matters* 245 500

Out of pocket expenses 50 15

* Amounts exclude service tax.

20.17 Contingencies and commitments


Capital contracts yet to be executed 14,855 –

20.18 Earning per share


Weighted average number of basic equityshares outstanding during the year 14,003,010 11,758,979

Add: Dilutive potential equity shares 116,595 161,458

Number of weighted average equity sharesfor calculation of diluted EPS 14,119,605 11,920,437




20.19 CIF value of imports


Capital goods 16,599 162,560

20.20 Expenditure in foreign currency (on accrual basis)


Connectivity Cost 79,736 90,902

Application development cost – 9,926

Selling commission 54,109 50,052

Foreign travel 2,099 974

Maintenance charges 11,593 7,064

Legal and professional charges 1,476 4,499

20.21 Earnings in foreign exchange (on accrual basis)


Service income 1,093,567 897,964

20.22 Dividend remitted in foreign exchange


Period to which it relates 2005-06 –

Number of non-resident shareholders 2 –

Number of equity shares held on which dividend was due 2,836,679 –

Amount remitted USD 301,756 –

20.23 Foreign currency exposures

The Company had used derivative financial instruments in the form of forward exchange contracts to hedge itsrisks associated with foreign currency fluctuations during the year. Accounting policy for forward exchange contractsis given in note 20.2 (l) above. There are no open forward contracts at year end.

The details of foreign currency balances which are not hedged as at the balance sheet date are as below:

March 31, 2007 March 31, 2006

PARTICULARS Foreign Amount in Amount in Amount in Amount inCurrency Foreign Indian Foreign Indian

Currency Rupees Currency Rupees

Receivables USD 5,950 258,744 4,332 193,233

Payables USD 1,434 62,379 946 42,210

AUD 9 329 8 245

GBP – – 12 932




March 31, 2007 March 31, 2006

PARTICULARS Foreign Amount in Amount in Amount in Amount inCurrency Foreign Indian Foreign Indian

Currency Rupees Currency Rupees

Bank balances USD 5,480 238,315 1,044 46,564

GBP 0.3 26 162 12,602

Investments USD 810 36,473 – –

20.24 Previous year comparatives

Previous year figures have been reclassified / regrouped wherever necessary to conform to the currentyear's classification.


per Ali Nyaz A Saravanan R Jagadish K S RaghuPartner Director Director Company SecretaryMembership No: 200427





Statement Pursuant to Part IV of Schedule VI to the Companies Act, 1956Balance Sheet Abstract and Company’s General Business Profile

I Registration Details

Registration No. 4 1 0 3 3 State Code 1 8

Balance Sheet Date 3 1 0 3 2 0 0 7

I I Capital Raised During the period (Amount in Rs. Thousand)

Public Issue N I L Right Issue N I L

Bonus Issue N I L Private Placement 3 1 5 1 6

(Shares issued under Preferential issue / ESOP)

III Positing to Moilisation and Deployment of Funds (Amount in Rs. Thousand)

Total Liabilities 1 6 9 6 6 8 7 Total Assets 1 6 9 6 6 8 7

Source of Funds

Paid up Capital 1 5 2 3 8 3 Reserves & Surplus 1 5 4 2 7 4 7

Secured Loan 1 5 5 7 Unsecured Loan N I L

Application of Funds

Net Fixed Assets 2 9 0 4 0 6 Investments 8 8 4 7 9 2

Net Current Assets 4 9 8 6 6 8 Deferred Tax Assets/ (Liabilities) 2 2 8 2 1

Accumulated Losses N I L Miscellaneous Expenditure N I L

IV Performance of the Company (Amount in Rs. Thousand)

Turnover (Sales and Other Income) 1 1 7 1 3 4 6 Total Expenditure 8 9 0 6 2 4

Profit/(Loss) before Tax 2 8 0 7 2 2 Profit/(Loss) After Tax 2 8 1 3 4 9

Earning per share-basic Rs. 2 0 . 0 9 Dividend Rate % 5 0 %

Earning per share-Diluted Rs. 1 9 . 9 3

V Generic names of principal products/services of the Company (As per monetary Terms)

Item Code No. (ITC Code) 892.3 - Data Processing Services

Product Description Call Centre Management


A Saravanan R Jagadish K S RaghuDirector Director Company Secretary

Place: ChennaiDate : May 14, 2007



STATEMENT PURSUANT TO SECTION 212 OF THE COMPANIES ACT, 1956 RELATING TO SUBSIDIARY COMPANIES

1. Name of the Subsidiary Company ALLSECTECH INC. B2K Corp Pvt. Ltd B2k Corp Inc

2. Financial Year of the Subsidiary ended on 31st March 2007 31st March 2007 31st March 2007

3. Extent of interest in Subsidiary Company 100 % 100 % 100% owned byB2K Corp Pvt. Ltd

4. Net aggregate amount of the Profit of theSubsidiary Company so far as it concernsthe members of the Company

a) Dealt with in the Company’s Accounts

I) For the Financial Year of theSubsidiary.

II) For the previous financial years ofthe Subsidiary since it becamethe Subsidiary of the Company.

b) Not Dealt with in the Company’sAccounts.

I) For the Financial Year of theSubsidiary.

II) For the previous financial years ofthe Subsidiary since it became theSubsidiary of the Company.

5. Change in the interest of the Companybetween the end of the financial year of theSubsidiary Companies and the Company’sFinancial Year ended 31st March 2007

6. Material changes between the end of theFinancial Year of the Subsidiary Companyand the Company’s Financial year ended31st March 2007

a. Fixed Assets

b. Investments

c. Money lent

d. Money borrowed other than those formeeting Current Liabilities

Nil Nil Nil

Nil Nil Nil

(1,684) (32,965) 7,095

782 (9,461) 1,206

N.A. N.A. N.A.

N.A. N.A. N.A.


R Jagadish A Saravanan K.S.RaghuDirector Director Company Secretary

Place: Chennai

Date: 14th May 2007

Statement Pursuant to Section 212of the Companies Act 1956(All amounts are in thousands of Indian Rupees, unless otherwise stated)


ALLSEC TECHNOLOGIES LIMITEDStatement Pursuant to Section 212of the Companies Act 1956(All amounts are in thousands of Indian Rupees, unless otherwise stated)

Information of Subsidiary Companies for the year ended March 31, 2007 disclosed as per the terms of exemptionunder Section 212(8) of the Companies Act, 1956 granted by the Central Government

SI. No. Particulars Allsec Tech Inc., B2K Corp. Private Ltd. B2K Corp Inc.,

(a) Capital 36,473 171,121 5

(b) Reserves (902) (105,899) (7,002)

(c) Total Assets 35,571 202,096 5

(d) Total Liabilities 35,571 202,096 5

(e) Investment – – –

(Except in case of investmentin Subsidiaries)

(f) Turnover 144,418 123,391 12,445

(g) Profit Before Taxation (953) (32,794) 7,108

(h) Provision for Taxation 731 171 13

(i) Profit After Taxation (1,684) (32,965) 7,095

(j) Proposed Dividend – – –



Consolidated FConsolidated FConsolidated FConsolidated FConsolidated Financial Statementsinancial Statementsinancial Statementsinancial Statementsinancial Statementsfor the year†ended for the year†ended for the year†ended for the year†ended for the year†ended March 31, 2007March 31, 2007March 31, 2007March 31, 2007March 31, 2007





1. We have audited the attached consolidated balancesheet of Allsec Technologies Limited (‘the Company’),as at March 31, 2007, and its subsidiaries AllsectechInc, B2K Corp Private Limited and B2K Corp Inc (theSubsidiaries) and also the related consolidated profitand loss account and the consolidated cash flowstatement for the year ended on that date annexedthereto. These financial statements are theresponsibility of the Company’s management and havebeen prepared by Management on the basis ofseparate financial statements and other financialinformation regarding components. Our responsibilityis to express an opinion on these financial statementsbased on our audit.

2. We conducted our audit in accordance with theauditing standards generally accepted in India. ThoseStandards require that we plan and perform the auditto obtain reasonable assurance about whether thefinancial statements are free of material misstatement.An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financialstatements. An audit also includes assessing theaccounting principles used and significant estimatesmade by management, as well as evaluating the overallfinancial statement presentation. We believe that ouraudit provides a reasonable basis for our opinion.

3. The financial statements of the Subsidiaries, whosefinancial statements reflect aggregate total assets ofRs.180 million as at March 31, 2007, aggregate totalrevenues of Rs.280 million and net cash flowsaggregating to Rs.196 million for the year then endedand other financial information required for the purposeof consolidation have been audited by other auditorswhose reports have been furnished to us, and ouropinion is based solely on the report / certification ofother auditors. The auditor of B2K Corp Private Limitedand its subsidiary B2K Corp Inc has, in his report datedMay 14, 2007, on the consolidated financial statementsreported that the financial statements of B2K Corp Incas at March 31, 2007 which reflect total assets ofRs.2.36 million, total revenues of Rs.12.43 million andnet cash flows of

Rs.1.6 million have not been audited and that hisopinion is based solely on a review of the accountsand information furnished by the Management.Accordingly, the accompanying Consolidated FinancialStatements do not include adjustments if any that mayarise had the financial statements of B2K Corp Incbeen audited.

4. We report that the consolidated financial statementshave been prepared by Management in accordancewith the requirements of Accounting Standards (AS)21 – ‘Consolidated financial statements’, issued bythe Institute of Chartered Accountants of India.

5. Based on our audit and on consideration of reports ofother auditors on separate financial statements andon the other financial information of the components,and to the best of our information and according tothe explanations given to us, we are of the opinionthat except for the effect of adjustments if any, thatmay arise, had the financial statements of B2K CorpInc been audited, the attached consolidated financialstatements give a true and fair view in conformity withthe accounting principles generally accepted in India:

(a) in the case of the consolidated balance sheet, ofthe state of affairs of Allsec Technologies Limitedand its Subsidiaries, as at March 31, 2007;

(b) in the case of the consolidated profit and lossaccount, of the consolidated profit of AllsecTechnologies Limited and its Subsidiaries, for theyear ended on that date; and

(c) in the case of the consolidated cash flow statement,of the consolidated cash flows of AllsecTechnologies Limited and its Subsidiaries, for theyear ended on that date.

For S.R. BATLIBOI & ASSOCIATESChartered Accountants

per Ali NyazChennai, PartnerMay 14, 2007 Membership No.: 200427

Auditors’ Reporton Consolidated Financial Statements

The Board of Directors

Allsec Technologies Limited


ALLSEC TECHNOLOGIES LIMITEDConsolidated Balance Sheet(All amounts are in thousands of Indian Rupees, unless otherwise stated)

As at As atPARTICULARS Schedule March 31, 2007 March 31, 2006

SOURCES OF FUNDS

Shareholders’ funds

Share capital 1 152,383 120,867

Share warrants (Refer Note 22.4) 25,074 –

Stock options outstanding 2 3,024 5,818

Reserves and surplus 3 1,471,366 572,237

1,651,847 698,922

Preference shares of B2K Corp Private Limited 4 – 49,087

Secured loans 5 1,557 1,516

1,653,404 749,525

APPLICATION OF FUNDS

Fixed assets 6

Gross block 626,894 598,563

Less : Accumulated depreciation 311,817 209,253

Net block 315,077 389,310

Add: Capital work-in-progress [including capital advances] 8,162 1,892

323,239 391,202

Goodwill 7 24,620 48,445

Investments 8 723,094 –

Deferred tax assets 9 22,821 22,291

Current assets, loans and advances

Sundry debtors 10 275,061 205,360

Cash and bank balances 11 387,676 196,020

Other current assets 12 1,965 990

Loans and advances 13 91,056 63,432

755,758 465,802

Less : Current liabilities and provisions 14 196,149 178,241

Net current assets 559,609 287,561

Miscellaneous expenditure 15 21 26

(To the extent not written off or adjusted)

1,653,404 749,525


The schedules referred to above and notes to accounts form an integral part of the Balance Sheet.As per our report of even date

S.R. Batliboi & Associates For and on behalf of the Board of DirectorsChartered Accountants





Year ended Year endedPARTICULARS Schedule March 31, 2007 March 31, 2006

IncomeIncome from services 1,275,240 939,022Other income 16 37,990 14,876

1,313,230 953,898

ExpenditureConnectivity and other costs 17 139,217 145,417Employee costs and benefits 18 571,383 384,404General and administration expenses 19 224,468 134,453Selling expenses 20 15,317 13,180Finance charges 21 4,402 5,168Deferred revenue expenses written off 15 5 357Depreciation 6 104,351 66,534Amortisation of Goodwill 7 6,446 1,818

1,065,589 751,331

Profit before tax 247,641 202,567

Provision for taxation- Current tax 3,422 2,191- MAT credit entitlement (including credit in respect of earlier year of Rs 1,700) (4,379) –- Deferred tax (Refer Note 22.9) (530) (7,771)- Fringe benefit tax 1,775 1,370

Profit after tax 247,353 206,777Balance brought forward from previous year 56,073 (26,794)

Profit available for appropriation 303,426 179,983

Appropriations:Proposed dividend 76,192 60,434Tax on dividend 12,949 8,476Transfer to General Reserve 55,000 55,000

Profit carried to Balance Sheet 159,285 56,073

Earnings per share 22.15

Net profit available to equity shareholders 247,353 205,780

Number of weighted average equity shares used in computing basic earnings per share 14,003,010 11,758,979

Basic earnings per share (equity shares, par value Rs.10/- each) (Rs.) 17.66 17.50

Number of weighted average equity shares used in computing diluted earnings per share 14,119,605 11,920,437

Diluted earnings per share (equity shares, par value Rs.10/- each) (Rs.) 17.52 17.35Notes to Accounts 22

The schedules referred to above and notes to accounts form an integral part of the profit and loss account

Consolidated Profit and Loss Account(All amounts are in thousands of Indian Rupees, unless otherwise stated)

As per our report of even dateS.R. Batliboi & Associates For and on behalf of the Board of DirectorsChartered Accountants




ALLSEC TECHNOLOGIES LIMITEDConsolidated Cash Flow Statement(All amounts are in thousands of Indian Rupees, unless otherwise stated)

Year ended Year endedPARTICULARS March 31, 2007 March 31, 2006

A. Cash flow from operating activities:

Net profit before tax 247,641 202,567

Adjustments for:

Depreciation and Amortisation 110,797 68,351

Miscellaneous expenditure written off 5 357

Interest expense 450 3,466

Interest income (5,556) (1,153)

Dividend income (31,302) –

Loss on sale of assets 627 39

Profit on sale of investments (120) (7,136)

Unrealised foreign exchange (gain) /loss, net 6,520 (486)

Liabilities no longer required written back – (858)

Amortisation of employee stock compensation cost 2,128 6,681

Operating profit before working capital changes 331,190 271,828

Adjustments for changes in working capital :

- Increase in sundry debtors (73,017) (92,944)

- Increase in loans and advances and other current assets (25,138) (9,464)

- Increase / (Decrease) in current liabilities and provisions (571) 42,282

Cash generated from operations 232,464 211,702

- Taxes paid, net (3,304) (2,688)

Net cash from Operating Activities - (A) 229,160 209,014

B. Cash flow from investing activities:

Capital expenditure (Refer note 1) (39,840) (280,798)

Proceeds from sale of fixed assets 1,991 2

Purchase of investments - mutual funds (3,239,348) (240,000)

Proceeds from sale of investments - mutual funds 2,516,374 247,136

Consideration paid for acquiring controlling interest in subsidiary (31,708) (93,517)

Deposits made during the year (100,000) –

Interest received 4,602 750

Dividend Received 31,302 –

Net cash used in investing activities - (B) (856,627) (366,427)


ALLSEC TECHNOLOGIES LIMITEDConsolidated Cash Flow Statement(All amounts are in thousands of Indian Rupees, unless otherwise stated)

Year ended Year endedPARTICULARS March 31, 2007 March 31, 2006

C. Cash flow from financing activities:

Proceeds from issue of equity share capital 812,012 425,269

Share issue expenses (19,427) (56,740)

Proceeds from long term borrowings 1,175 70,407

Repayment of long term borrowings (1,134) (128,089)

Interest paid (450) (3,577)

Repayment of short term borrowings, net – (12,861)

Dividend paid (60,434) –

Dividend tax paid (8,476) –

Net cash from financing activities - ( C) 723,266 294,409

Net Increase in cash and cash equivalents (A+B+C) 95,799 136,996

Opening cash and cash equivalents 195,822 28,470

Cash and cash equivalents incorporated on acquisitionof controlling interest in a subsidiary – 30,356

Closing cash and cash equivalents* 291,621 195,822

*Includes restricted cash balances 29 –

Reconciliation of cash and cash equivalents with cash andbank balance as per Schedule 11:

Cash and Bank balance as per Schedule 11 387,676 196,020

Less: Term deposits (100,000) –

Add / (Less): Loss / (Gain) on restatement of balances in foreign currency accounts. 3,945 (198)

Cash and cash equivalents as per cash flow statement 291,621 195,822

Notes :1. Increase in capital expenditure include payments for items in capital work in progress and advances for purchase of

fixed assets. Adjustments for increase / decrease in current liabilities related to acquisition of fixed assets to theextent identified.

2. The accompanying notes are an integral part of this statement.

As per our report of even date

S.R. Batliboi & Associates For and on behalf of the Board of DirectorsChartered Accountants






1 Share capitalAuthorised15,000,000 [Previous year - 15,000,000] Equity shares of Rs.10/- each 200,000 150,0001,350,000 [Previous year - 1,350,000] Convertible Preference Shares of Rs.100/- each 135,000 135,000

Issued, subscribed and paid-up*15,238,326 [Previous year - 12,086,741] Equity Shares of Rs.10/- each 152,383 120,867

152,383 120,867

* Includes:a) 3,021,685 equity shares of Rs.10/- each (previous year - Nil) issued under preferential allotment during the yearb) Nil (previous year - 3,141,200 equity shares of Rs.10/- each, issued under an Initial Public Offer) andc) 129,900 (previous year - 120,700) shares of Rs.10/- each issued under the Company's Employee Stock Option Plan, 2004.

2 Stock options outstandingBalance, beginning of year 7,253 11,368Add: Additions during the year 16,326 967Less: Deletions / adjusted during the year 6,595 5,082Balance, end of year 16,984 7,253

Less: Deferred employee stock compensationBalance, beginning of year 1,435 7,149Add: Additions during the year 16,326 967Less: Amortized during the year 3,801 6,681


3,024 5,818

3 Reserves and SurplusSecurities PremiumBalance, beginning of year 461,164 123,876Add: Received during the year # 760,344 397,732Less: Adjusted against share issue expenses 19,427 60,444

Balance, end of year 1,202,081 461,164

General ReserveBalance, beginning of year 55,000 –Add: Transferred from Profit and Loss Account 55,000 55,000


Profit and Loss Account 159,285 56,073

1,471,366 572,237

# Includesa) Rs.755,421 (previous year Nil) received on issue of 3,021,685 equity shares of Rs.10/- each issued under

preferential allotment during the year at a premium of Rs.250/- per share.b) Rs.Nil (previous year Rs.392,650 received on issue of 3,141,200 equity shares of Rs.10/- each at a premium of

Rs.125/- per share under the Initial Public Offer) andc) Rs.4,923 (previous year Rs.5,082) received towards the Company's Employee Stock Option Plan, 2004.

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


ALLSEC TECHNOLOGIES LIMITEDConsolidated Schedules(All amounts are in thousands of Indian Rupees, unless otherwise stated)

4 Preference shares of B2k Corp Private Limited

Current year: Nil (Previous Year 49,087 10%Optionally Convertible Cumulative RedeemablePreference Shares of Rs. 1,000/- each) – 49,087

– 49,087

5 Secured loans

Hire purchase loans from banks (Refer Note 22.6) 1,557 1,516

1,557 1,516

Schedule 6 is set out on the following page

7 Goodwill

Balance, beginning of year 48,445 –Add: Additions during the yearExcess of purchase consideration paid over the net assets – 50,263of B2K Corp Private Limited*

48,445 50,263Less: Adjustments during the year

Excess of net assets acquired over purchase considerationpaid for the outstanding preference capital* 17,379 –

Amortisation during the year 6,446 1,818Balance, end of year 24,620 48,445

* Also refer Note 22.2

8 Investments

Current investments (at lower of cost or market value)

In Mutual Fund Units # 723,094 –

Quoted, fully paid up at cost

(Net Asset Value Rs.723,129, previous year Rs. Nil) 723,094 –# Also refer note 22.10 for details of investments in mutual funds.

9 Deferred tax asset

Depreciation (Refer Note 22.9) 22,821 22,291

22,821 22,29110 Sundry debtors (unsecured, considered good)

Debts outstanding for a period exceeding six months 1,633 671

Other debts 273,428 204,689

275,061 205,360

11 Cash and bank balances

Cash on hand 58 39

Balance with scheduled banks - in current accounts 256,042 75,433 - in deposit accounts 128,176 111,814 - in unpaid dividend accounts 29 –Balance with other banks - in current accounts 3,371 8,734

387,676 196,020




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12 Other current assets

Unbilled revenues 444 423

Interest accrued but not due 1,521 567

1,965 990

13 Loans and advances (unsecured, considered good)

Advances recoverable in cash or in kind or for value to be received 12,126 5,541

Balance with excise authorities (Refer note 22.8) 13,281 –

Prepaid expenses 4,476 4,726

Deposits 53,785 52,049

MAT Credit Entitlement 4,379 –

Advance income tax and tax deducted at source, net 3,009 1,116

91,056 63,432

14 Current liabilities

Current liabilities :

Sundry creditors

- Due to small scale undertakings – –

- Others 58,744 79,564

Unpaid dividend 29 –

Other liabilities 36,056 23,681

94,829 103,245

Provisions :

Employee bonus

Balance, beginning of year 3,589 –

Add: Provision made in the current year 17,040 3,589

Less: Payments during the current year 13,913 –


Leave encashment 2,628 1,904Provident fund 290 151

Gratuity 2,545 442

Proposed dividend 76,192 60,434

Tax on dividend 12,949 8,476

101,320 74,996

196,149 178,241






15 Miscellaneous expenditure

Deferred revenue expenditure

Balance, beginning of year

Share issue expenses 26 9,241

Ancillary borrowing costs – 356

26 9,597

Add: Additions during the year

- Preliminary expenditure incurred on acquisitionof controlling interest in a subsidiary – 27

- Share issue expenses 19,427 51,203

19,453 60,827

Less: Amortised during the year 5 357

Less: Share issue expenses adjusted against securities premium 19,427 60,444

Balance, end of year 21 26

Year ended Year ended

March 31, 2007 March 31, 2006

16 Other income

Interest

- Bank deposits 5,473 1,054

- Others 83 99

Dividend income from mutual funds 31,302 –

Profit on sale of investments 120 7,136

Profit on sale of asset 124 –

Liabilities no longer required written back – 858

Foreign exchange gains / (loss) , net (1,706) 1,588

Miscellaneous income 2,594 4,141

37,990 14,876

17 Connectivity and other costs

Connectivity cost 139,217 135,491

Application development cost (Refer note 22.7) – 9,926

139,217 145,417



18 Employee costs and benefits

Salaries, wages and allowances 476,761 314,548

Contributions to provident and other funds 19,518 11,671

Gratuity 2,818 1,667

Employee stock compensation cost* 2,128 6,681

Staff welfare 55,330 40,760

Recruitment and training 14,828 9,077

571,383 384,404

* Includes Rs 1,673 (previous year Nil) of reversal ofcost earlier accounted on lapsed options.

19 General and administration expenses

Electricity 30,157 19,722

Rent and amenities 58,473 29,041

Rates and taxes 7,457 2,714

Repairs and maintenance

- Plant and machinery 25,719 20,379

- Others 17,869 9,108

Insurance 2,411 1,470

Professional and consultancy charges 29,223 25,500

Travel and conveyance 31,143 11,838

Telephone 3,296 3,145

Loss on sale of fixed asset 751 39

Miscellaneous expenses 17,969 11,497

224,468 134,453

20 Selling expenses

Selling commission 9,593 7,629

Other selling expenses 5,724 5,551

15,317 13,180

21 Finance charges

Interest

- on term loans – 3,141

- others 450 324

Bank charges 3,952 1,703

4,402 5,168




22 Notes to accounts

22.1 Background

Allsec Technologies Limited (‘Allsec’ or the ‘Company’) was incorporated on August 24, 1998 as a limited companyunder the Companies Act, 1956. The Company is engaged in the business of providing IT enabled services. Theservices provided by the Company include data verification, processing of orders received through telephone calls,telemarketing, monitoring quality of calls of other call centers, customer services and HR and payroll processing.

The Company completed an Initial Public Offering (‘IPO’) of 3,141,200 equity shares of Rs. 10/- each at a price ofRs. 135/- per share in May 2005 and the equity shares of the Company are listed on the National Stock Exchangeof India (‘NSE’) and The Stock Exchange, Mumbai (‘BSE’).

The Company has three subsidiaries as at the year end. These are:

• Allsectech Inc., USA (‘Allsectech’) – A wholly owned subsidiary of the Company incorporated on September14, 2000 in the State of Delaware, USA. This subsidiary is engaged primarily in the business of providingmarketing support services to the Company.

• B2K Corp Private Limited (‘B2K’) – An Indian Company located in Bangalore engaged in the business ofinbound and outbound voice, email and chat support services and information technology services. TheCompany acquired a controlling interest in this company (100% of equity capital and 70.62% of preferencecapital) on January 25, 2006.

• B2K Corp Inc., USA (‘B2K Inc’) – A wholly owned subsidiary of B2K in which controlling interest has beenacquired pursuant to acquisition of controlling interest in B2K.

Allsectech, B2K and B2K Inc, shall hereinafter, be collectively referred to as ‘the Subsidiaries’. Allsec, along withthe Subsidiaries, shall hereinafter, be collectively referred to as ‘the Group’.

Preferential issue:

At the Extra Ordinary General Meeting held on August 21, 2006, the shareholders of the Company had approvedthe preferential issue of 3,021,685 equity shares of the Company to First Carlyle Ventures, Mauritius (‘FCVM’) at aprice of Rs. 260/- per equity share (including a premium of Rs. 250/- per share) and the preferential issue of803,640 warrants to the promoters of the Company and 160,728 warrants to FCVM, each warrant convertible intoone equity share of the Company at a conversion / exercise price of Rs. 260/- per resultant equity share. Suchshares and warrants have been issued to the promoters and FCVM during the year under the terms and conditionsas set out in the Subscription and Shareholders’ Agreement (‘SSA’) dated August 23, 2006 by and between theCompany, its promoters and FCVM. The net proceeds from the issue, after adjusting for share issue expenses ofapproximately Rs. 19,427, has been deployed in mutual funds and term deposits.

22.2 Completion of B2K Acquisition and proposed amalgamation

On January 25, 2006 the Company acquired controlling interest in B2K Corp Private Limited (‘B2K’) pursuant to aShare Purchase Agreement (‘SPA’) dated December 8, 2005.

Under the terms of the SPA, the Company acquired the entire outstanding equity capital of B2K for a considerationof Rs.405 and the entire outstanding 10% optionally convertible cumulative redeemable preference share capitalof B2K for a consideration as per the terms of the SPA. On January 25, 2006, the Company paid an aggregateconsideration of Rs. 405 towards the entire equity capital and an amount of Rs. 93,113 towards 70.62% of theaforesaid preference capital. During the year, the Company has paid an amount of Rs. 31,708 on June 6, 2006towards the balance 29.38% of the aforesaid preference capital and completed the acquisition.

The excess of the purchase consideration paid over the net assets of B2K as at the date of acquisition had beenrecognized as ‘goodwill’ in the consolidated financial statements. The difference between the cost of acquisition ofthe balance 29.38% of the preference capital of B2K and the book value of the same of Rs. 17,379 has beenadjusted against goodwill in the current year.

Subsequent to the date of the balance sheet, B2K filed a petition with the Hon’ble High Court of Judicature atMadras under sections 391 to 394 of the Companies Act, 1956 on April 20, 2007 for the sanction of the proposed




scheme of amalgamation of B2K with the Company. The petition is fixed for hearing on June 7, 2007. Pendingcompletion of the court process relating to such amalgamation, no effect has been given for the same in thesefinancial statements, for changes, if any, that may be required.

22.3 Statement of significant accounting policies:

(a) Principles of consolidation

i. The Consolidated Financial Statements (‘CFS’) of the Group have been prepared based on a line-by-lineconsolidation of the balance sheet as at March 31, 2007 and statement of profit and loss and cash flows of theGroup for the year ended March 31, 2007.

ii. The financial statements of the Subsidiaries considered for the purpose of consolidation are drawn for thesame reporting period as that of the Company i.e. year ended March 31, 2007.

iii. The CFS have been prepared using uniform accounting policies, except as stated otherwise, for similartransactions and are presented to the extent possible, in the same manner as the Company’s separate financialstatements.

iv. All material inter-company transactions and balances between the entities included in the CFS have beeneliminated on consolidation.

(b) Basis of preparation

The consolidated financial statements have been prepared to comply in all material respects with the mandatoryAccounting Standards issued by the Institute of Chartered Accountants of India and the relevant provisions of theAct to reflect the financial position and the results of operations of the Group. The consolidated financial statementshave been prepared under the historical cost convention and on an accrual basis. Further, the financial statementsare presented in the general format specified in Schedule VI to the Act. However, as these financial statements arenot statutory financial statements, full compliance with the above Act are not required and so they may not reflectall the disclosure requirements of the Act.

The significant accounting policies adopted by the Group in respect of the consolidated financialstatements are:

(c) Fixed assets

Fixed assets are stated at cost less accumulated depreciation and impairment losses where applicable. Costincludes purchase price and all direct / indirect costs incurred to bring the asset to its working condition for itsintended use.

(d) Depreciation

Depreciation is provided using the straight line method in the manner specified in Schedule XIV to the Act, at therates prescribed therein or at the rates based on Management’s estimate of the useful lives of such assets, whicheveris higher, as follows:

Asset Description Percentage

Plant and machinery 4.75 - 16.21


Vehicles 9.50

Intangible assets - Software 25.00

Leasehold improvements are amortised over the estimated useful lives or the remaining primary lease period,whichever is less. Assets individually costing Rs. 5 or less are fully depreciated in the year of purchase.

Goodwill is amortized using the straight-line method over a period of five years.




The assets of Allsectech aggregating to Rs. 11 million (2% of the total group assets) are depreciated using straightline method over its estimated useful life of three years for computers and accessories and five years for otherequipments.

The assets of B2K and its subsidiary aggregating to Rs. 75 million (12% of the total group assets) are depreciatedusing the straight line method over its estimated useful life as follows:

Asset Description Percentage

Computer and accessories 33.33

Plant and machinery 20.00

Office equipment 33.33


Vehicles 20.00

No adjustments have been recognized for the difference arising on account of differing estimates of useful life forsimilar group of assets in the consolidated entities, since Management believes that such differing estimates areappropriate having regard to the pattern of usage of such assets in each of the entities.

(e) Impairment

i. The carrying amounts of assets are reviewed at each balance sheet date if there is any indication of impairmentbased on internal/external factors. An impairment loss is recognized wherever the carrying amount of anasset exceeds its recoverable amount. The recoverable amount is the greater of the asset’s net selling priceand its value in use. In assessing value in use, the estimated future cash flows are discounted to theirpresent value at the weighted average cost of capital.

ii. After impairment, depreciation is provided on the revised carrying amount of the asset over its remaininguseful life.

iii. A previously recognized impairment loss is increased or reversed depending on changes in circumstances.However, the carrying value after reversal is not increased beyond the carrying value that would have prevailedby charging usual depreciation if there was no impairment.

iv. The carrying amount of goodwill arising on consolidation is reviewed for impairment in accordance with therequirements of Accounting Standard 28 “Impairment of Assets” and impairment loss is recognized whereverthe carrying amount of an asset exceeds its recoverable amount.

(f) Investments

Investments that are readily realisable and intended to be held for not more than a year are classified as currentinvestments. All other investments are classified as long-term investments. Current investments are carried atlower of cost and fair value determined on an individual investment basis. Long-term investments are carried atcost. Provision for diminution in value is made to recognise a decline other than temporary in the value of long terminvestments.

(g) Leases

Finance leases, which effectively transfer to the Company substantially all the risks and benefits incidental toownership of the leased asset, are capitalized at the lower of the fair value and present value of the minimum leasepayments at the inception of the lease term and disclosed as leased assets. Lease payments are apportionedbetween the finance charges and reduction of the lease liabil ity based on the implicit rate ofreturn. Finance charges are charged against income.

Leases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased item,are classified as operating leases. Operating lease payments are recognized as an expense in the Profit and Lossaccount on a straight-line basis over the lease term.




(h) Provisions

A provision is recognized when an enterprise has a present obligation as a result of past event and it is probablethat an outflow of resources will be required to settle the obligation, in respect of which a reliable estimate can bemade. Provisions are not discounted to its present value and are determined based on Managementestimate of amounts required to settle the obligation at the balance sheet date. These arereviewed at each balance sheet date and adjusted to reflect the current Management estimates.

Provision for tenure bonus is made for the estimated liability payable to employees on completion of specifiedtenure of employment and satisfaction of certain other conditions.

(i) Deferred revenue expenditure

Share issue expenses are adjusted against the share premium received, in accordance with Section 78 ofthe Act.

(j) Revenue recognition

Income from services:

Income from IT enabled services is derived from both time based and unit priced contracts. Revenue is recognizedas the related services are performed in accordance with the specific terms of the contract with the customer.

Unbilled revenue represents accrual of income relating to services provided but not billed as at the year end.

Dividend income:

Dividend income is recognised when the right to receive payment is established by the balance sheet date.

Interest:

Interest income is recognised on a time proportion basis taking into account the amount outstanding and the rateapplicable.

(k) Retirement benefits

Retirement benefit in the form of provident fund is charged to the Profit and Loss Account of the year when thecontributions to the respective fund are due.

Gratuity liability under the Payment of Gratuity Act, 1972 and leave encashment is determined and provided for onthe basis of actuarial valuation made at the end of each financial year.

(l) Taxation

Tax expense comprises current, deferred and fringe benefit tax. Provision for current income tax and fringe benefittax is made on the assessable income at the tax rate applicable to the relevant assessment year. Deferred incometaxes are recognized for the future tax consequences attributable to timing differences between the financial statementdetermination of income and their recognition for tax purposes.

The effect on deferred tax assets and liabilities of a change in tax rates is recognised in the income statement usingthe tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date. Deferred taxassets are recognised only to the extent that there is reasonable certainty that sufficient future taxable income willbe available against which such deferred tax assets can be realised. If the company has unabsorbed depreciationor carry forward tax losses, deferred tax assets are recognised only if there is virtual certainty supported byconvincing evidence that such deferred tax assets can be realised against futuretaxable profits.

Minimum Alternative Tax (‘MAT’) credit is recognised as an asset only when and to the extent there is convincingevidence that the company will pay normal income tax during the specified period. In the year in which the MinimumAlternative tax (MAT) credit becomes eligible to be recognized as an asset in accordance with the recommendationscontained in guidance note issued by the Institute of Chartered Accountants of India, the said asset is created byway of a credit to the profit and loss account and shown as MAT Credit Entitlement. The Company reviews thesame at each balance sheet date and writes down the carrying amount of MAT Credit Entitlement to the extentthere is no longer convincing evidence to the effect that Company will pay normal Income Tax during the specifiedperiod.




(m) Foreign currency transactionsTransactions:

Transactions denominated in foreign currencies are recorded at the exchange rates prevailing on the date oftransaction. At the year-end, monetary items are converted into rupee equivalents at the year-end exchange rates.Non-monetary items which are carried in terms of historical cost denominated in a foreign currency are reportedusing the exchange rate at the date of the transaction.

All exchange differences arising on settlement / conversion of foreign currency transactions are included in theprofit and loss account, except in cases where they relate to the acquisition of fixed assets from outside India, inwhich case they are adjusted in the cost of the corresponding asset.

In relation to the forward contracts entered into to hedge the foreign currency risk of the underlying monetaryassets / liabilities, the exchange difference is calculated as the difference between the foreign currency amount ofthe contract translated at the exchange rate at the reporting date, or the settlement date where the transaction issettled during the reporting period, and the corresponding foreign currency amount translated at the later of thedate of inception of the forward exchange contract and the last reporting date. Such exchange differences arerecognised in the profit and loss account in the reporting period in which the exchange rates change. The premiumor discount on all such contracts arising at the inception of each contract is amortised as income or expense overthe life of the contract. Any profit or loss arising on the cancellation or renewal of forward contracts is recognized asincome or as expense for the period.

Translations:

The financial statements of an integral foreign operation are translated as if the transactions of the foreign operationhave been those of the Company itself. The resulting difference on account of translations is recorded in the profitand loss account.

(n) Earnings per share (“EPS”)The earnings considered in ascertaining the Company’s earnings per share comprise the net profit after tax. Thenumber of shares used in computing basic earnings per share is the weighted average number of shares outstandingduring the year. The number of shares used in computing diluted earnings per share comprises the weightedaverage number of shares considered for deriving basic earnings per share and also the weighted average numberof shares, if any, which would have been issued on the conversion of all dilutive potential equity shares.

(o) Deferred employee stock compensation expensesMeasurement and disclosure of the employee share-based payment plans is done in accordance with the GuidanceNote on Accounting for Employee Share-based Payments, issued by the Institute of Chartered Accountants ofIndia. The Company measures compensation cost relating to employee stock options using the intrinsic valuemethod. Deferred employee stock compensation expense is amortized over the vesting period of the option on astraight line basis.

22.4 Share warrantsAs mentioned in note 22.1(i) above, in accordance with the terms of the SSA, the Company has allotted 803,640warrants to the promoters and 160,728 warrants to FCVM on preferential basis at a subscription price ofRs.26 /- per warrant. Each warrant shall be convertible into one equity share of the Company at a conversion /exercise price of Rs.260/- (face value of Rs.10 /- including a premium of Rs.250/-) per resultant equity share.

The holders of the warrants will have an option to apply for and be allotted one equity share of the Company perwarrant at any time before the expiry of 18 months from the date of allotment. The Company has issued the saidwarrants on receipt of the subscription price of Rs.26 /- per warrant, aggregating to Rs.25,074.

22.5 Stock option plansThe Company has two stock option plans that provide for the granting of stock options to employees includingDirectors of the Company (not being promoter Directors and Executive Directors, holding more than 10% of theequity shares of the Company). The option plans are summarized below:

Employee Stock Option Plan (ESOP) 2004




The shareholders at the Extra Ordinary General Meeting held on May 6, 2004, approved an Employee StockOption Plan (ESOP) which provides for the grant of 550,000 options to employees. Consequently, the compensationcommittee had granted the following options on various dates at an exercise price of Rs.10/- per share:

Date of grant Number of options granted

July 1, 2004 286,500 options

January 14, 2005 13,500 options

January 31, 2005 33,700 options

The remaining options of 216,300 have not been issued as at the date of the balance sheet and the Company doesnot propose to issue the same.

The Company has adopted the (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines,1999 issued by Securities and Exchange Board of India, and has recorded a compensation expense using the fairvalue method as set out in those guidelines. The summary of the movement in options isgiven below:

Particulars As at As atMarch 31, 2007 March 31, 2006

Options outstanding, beginning of year 168,400 300,000

Options granted during the year – –

Options exercised during the year 129,900 120,700

Options lapsed during the year 18,700 10,900

Options outstanding, end of year 19,800 168,400

Options outstanding at the year end comprise of :

- Options eligible for exercise at year end 19,800 28,250

- Options not eligible for exercise at year end – 140,150

Weighted average share price at the date of exercise (Rs.) 209.68 178.82

Weighted average remaining contract life of options 2 years and 4 3 years and 4months months




Employee Stock Option Scheme (ESOS) 2006

The shareholders at the Annual General Meeting held on July 10, 2006 have approved an Employee Stock OptionScheme 2006 (ESOS 2006) which provides for an issue of 600,000 options to the employees. Consequently, thecompensation committee had granted the 350,000 options on January 25, 2007 at an exercise price ofRs. 289.75 per share.

The Company has adopted the (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines,1999 issued by Securities and Exchange Board of India, and has recorded a compensation expense using theintrinsic value method as set out in those guidelines. The summary of the movements in options isgiven below:




Particulars As at March 31, 2007

Options outstanding, beginning of year -

Options granted during the year 350,000

Options exercised during the year -

Options lapsed during the year -

Options outstanding, end of year 350,000

Options outstanding at the year end comprise of :

- Options eligible for exercise at year end -

- Options not eligible for exercise at year end 350,000

Weighted average remaining contract life of options 4 years and 10months




Pro-forma Disclosures for ESOS 2006:

In accordance with SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines,1999, had the compensation cost for ESOS 2006 been recognized based on the fair value at the date of grant inaccordance with binomial method, the amounts of the Company’s net profit and earnings per share would havebeen as follows:

Particulars Profit after tax Basic EPS Diluted EPS(Rs.) (Rs.)

Year ended March 31, 2007

- Amounts as reported 247,641 17.66 17.52

- Amounts as per pro-forma 243,771 17.41 17.26

The fair value of options was estimated at the date of grant using the binomial method with the following assumptions:

Particulars Year EndedMarch 31, 2007

Risk-free interest rate 7.5%

Expected life 1.5 years / 2.5 years

Expected volatility 50.9% / 52.9%

Expected dividend yield 1.47%

Share price on the date of grant Rs. 340.90

Expected forfeiture 10%

22.6 Secured Loans

Hire purchase loans are secured by hypothecation of the respective assets acquired.




Name of the Mutual Fund

22.7 Application development costs

Under the terms of an arrangement with a customer, the Company was required to bear a portion of the total costincurred in the development of application software used in rendering services to such customer. The Companydoes not have any control or ownership of the licenses over such software and the cost incurred on the same hasbeen charged to the Profit and Loss Account in the previous year.

22.8 Service tax credits

During the fourth fiscal quarter of 2007, the Company has, based on legal opinion, accrued for the input credit onservice tax paid, for the various input services availed by the Company. The credit availed relates to the entirefiscal year and accordingly, the expenses to which such credits relate which have been reported on a gross basisin the un-audited quarterly results for the first three quarters are now reported in the annual financial statementsafter netting off such credits.

22.9 Deferred taxes

Management of the Company is of the opinion that the benefit of the tax holiday would continue to be available toits operations for the remaining period of tax holiday. Accordingly, no deferred tax asset or liability has beenrecognized in these financial statements for the future tax consequences attributable to differences between taxableincome and accounting income for the year, to the extent that such differences are expected to reverse within thetax holiday period. Management has also reassessed virtual certainty of all existing and potential deferred taxassets which originate within the tax holiday period and are capable of recovery after the expiry of the tax holidayperiod. Based on historical trends in growth and profitability, long term customer contracts and relationships andManagement’s committed business plans, Management believes that there is virtual certainty that sufficient futuretaxable income would be available beyond the tax holiday period, to recover the entire deferred tax of Rs. 22,821relating to current and unabsorbed depreciation of earlier years.

22.10 Details of current investments

Current investments in mutual funds at the year end comprise of:

March 31, 2007 March 31, 2006

No of units Amount No of units Amount

Franklin TITMA fund 155,528 155,567 - -

Birla Cash Plus Series 1 10,223,928 102,439 - -

Reliance Interval Fund Series 2 10,196,368 102,075 - -

ICICI Pru FMP 37 10,000,000 100,000 - -

Kotak Liquid fund 6,331,088 77,417 - -

Pru ICICI Super plan 5,280,526 52,964 - -

HDFC Call Plan 4,977,102 51,894 - -

Standard Chartered Liquidity Manager Fund 5,094,746 50,953 - -

UTI Money Market fund 1,654,340 29,785 - -

Total 723,094 -

22.11 Segment reporting

The Company’s operations predominantly relate to IT enabled services and accordingly this is the only primaryreportable segment. The Company does not have a reportable geographical segment, since more than 90% of itsincome is derived from services provided to customers in the United States of America.




22.12 Related party transactions

1. Names of related parties

Relationship Name of the party

Key management personnel Whole time directors:A. SaravananR. Jagadish

2. Transactions with related parties:

Particulars March 31, 2007 March 31, 2006

Directors’ remuneration

— Salaries 17,400 10,500

— Commission 7,500 –

Dividend paid (cash basis) 20,450 –

3. Balances with related parties:

Particulars March 31, 2007 March 31, 2006

Commission payable 7,500 –

22.13 Lease commitments

Finance leases:


Not later than one year

Minimum lease payments 652 962

Less: Finance Charges 114 70

Present value 538 892

Later than one year but not later than five years

Minimum lease payments 1,197 649

Less: Finance Charges 178 24

Present value 1,019 625

Later than five years

Minimum lease payments Nil Nil

Less: Finance Charges Nil Nil

Present value Nil Nil

Operating leases:

Office premises in India (Allsec and B2K) are obtained under operating lease. Lease rentals incurred during theyear Rs. 58,427 (previous year Rs. 29,003) have been charged as an expense in the profit and loss account.




The future lease rentals payable are as follows:


Upto 1 year 61,037 56,943

1 to 5 years 185,796 175,273

Beyond 5 years 66,600 133,164

Total 313,433 365,380

Office premises of Allsectech in the US are obtained under an operating lease. Lease rentals paid during the yearRs. 38 (previous year Rs. 43), have been charged as an expense in the profit and loss account.

22.14 Contingencies and commitments


Capital contracts yet to be executed 19,355 1,279

Arrears of preference dividend – 11,385

22.15 Earning per share

Particulars Year ended Year ended

March 31, 2007 March 31, 2006

Net profit/ (loss) as per profit and loss account 247,353 206,776

Less: Arrears of preference dividend, including tax – 997

Net profit/ (loss) for calculation of basic EPS 247,353 205,779

Add: Arrears of preference dividend, including tax – 997

Net profit/ (loss) for calculation of diluted EPS 247,353 206,776Weighted average number of basic equity sharesoutstanding during the year (Nos) 14,003,010 11,758,979Add: Diluted potential equity shares (Nos) 116,595 161,458Number of weighted average equity shares forcalculation of diluted EPS (Nos) 14,119,605 11,920,437

22.16 Foreign currency exposures

The Company had used derivative financial instruments in the form of forward exchange contracts to hedge itsrisks associated with foreign currency fluctuations during the year. Accounting policy for forward exchange contractsis given in note 22.3 (m) above. There are no open forward contracts at year end.

The details of foreign currency balances which are not hedged as at the balance sheet date are as below:

March 31, 2007 March 31, 2006Particulars Foreign Amount in Amount in Amount in Amount in

Currency Foreign Indian Foreign IndianCurrency Rupees Currency Rupees

Receivables USD 5,428 236,044 4,204 187,540

Payables USD 611 26,616 684 30,532AUD 9 329 8 245GBP – – 12 932

Deposits with overseas USD 19 820 – –vendors for services

Bank balances USD 5,765 250,719 1,073 47,871GBP 0.30 26 162 12,602




22.17 Previous year comparatives

Previous year figures include the assets, liabilities and transactions of B2K and B2K Inc. for the period from January25, 2006 (date of acquisition of controlling interest) to March 31, 2006 only. Accordingly, figures of the current yearare not comparable with those of the prior year.

Previous year figures have been reclassified / regrouped wherever necessary to conform to the current year’sclassification.


per Ali Nyaz A Saravanan R Jagadish K S Raghu Partner Director Director Company SecretaryMembership No: 200427



ALLSEC TECHNOLOGIES LIMITEDRegd. Office:7H Century Plaza, 560-562 Anna Salai, Teynampet, Chennai 600 018.

Corp. Office:46 B Velachery Main Road, Velachery, Chennai 600 042.

PROXY FORM

FOLIO No. *DP ID No. *CLIENT ID No. No. OF SHARES HELD

Applicable for holding shares in electronic form.

I / We _________________________________________________ of ________________________ in the district of___________ being a member(s) of ALLSEC TECHNOLOGIES LTD., hereby appoint __________________ of_______________ in the district of ________________________ or failing him/her _________________ of _______________in the district of as my/our proxy to attend and vote for me/us on my/our behalf at the Annual General Meeting of the Company to be held onFriday, July 27, 2007 at 10.00 am and at any adjournment thereof.

Signed this _____ day of ___________________ 2006.

_________________________________ ________________________________

Name of the Shareholder Signature of the Shareholder

Notes:

1. The Proxy form should be filled in full and the proxy form signed across revenue stamp should reach the Share TransferAgents M/s. Karvy or the Registered of the Company., at least 48 hours before the scheduled time of the meeting.

2. Company reserves the right to ask for identification of the proxy.

3. PROXY CAN NOT SPEAK AT THE MEETING OR VOTE ON SHOW OF HANDS.

ALLSEC TECHNOLOGIES LIMITEDRegd. Office:7H Century Plaza, 560-562 Anna Salai, Teynampet, Chennai 600 018.

Corp. Office:46 B Velachery Main Road, Velachery, Chennai 600 042.

ATTENDANCE SLIP

FOLIO No. *DP ID No. *CLIENT ID No. No. OF SHARES HELD

* Applicable for holding shares in electronic form.

I hereby record my presence at the 8th Annual General Meeting of the Company at Narada Gana Sabha, Mini Hall, 314 TTKSalai, Alwarpet, Chennai 600018 on Friday, 27 July, 2007 at 10.00 am.

Mr. / Ms. ______________________________ Signature

Notes : Please produce this attendance slip duly filled and signed at the entrance of the meeting Hall.

Affix Re.1RevenueStamp

NA

GA

RA

J &

CO

. PV

T. L

TD

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Annual Report

2006 - 07

A L L S E C

T E C H N O L O G I E S

L I M I T E D

Documents

Annual Report - Allsec€¦ · Chartered Accountants Chennai Bankers • Canara Bank • HDFC Bank Registrars & Transfer Agents Karvy Computershare Private Limited Karvy House, 46,