Annual report 2005-06
his-to-ry (n.): when time
remembers your story
w w w . s u b e x a z u r e . c o m
Subex Azure Limited (formerly Subex Systems Limited)
Challenging Rules
There are places where definitions are really meant to
be redefined. Where the accepted routes
are rejected. Where the done thing
is, well,
just not done.
Like Subex Azure. A place where
words take on a new meaning.
Where habit and prescription give
way to initiative. And intuition helps
achieve the unimaginable.
spend a
It's an environment where
revolution is a process, not a goal
to
lifetime on.
Where young minds are set free,
to soar, to seek and solve what
generations have struggled with.
In an industry where software spelt services,
Subex Azure chose to take the risky product route.
Several more decisions that turned
conventional wisdom on its head,
paid off.
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Today, we are global leaders in
fraud
and
management
revenue maximization; our brands
empower 150 telcos across
66 countries.
While software engineering often
means mechanical coding, young
Subexians keep breaking barriers
and creating world-beating
products.
Inventive Spirit
At Subex Azure, breaking the mould has been much
more than just a way of doing things; it's been the
guiding principle that has shaped our track record. A
relentless questioning of every aspect of our work has
helped us evolve our very own corporate ethos.
Naturally, our ten-year track record of healthy financial
growth has won many over to our way of thinking. It's
a reassuring story that the numbers tell…
speaking of sustained growth, and a dynamic
future ahead.
When many Indian software companies saw their
ultimate goal in being bought out by an international
giant, at Subex we saw merit in doing exactly the
opposite. We sought out international giants.
Subex’s $140 million acquisition of UK's No.1
revenue assurance company is just one such example
of a vision and strategy that most industry watchers
are still trying to understand.
While an annual report often presents a
one-dimensional picture of the past year, Subex Azure
would like to redefine the very idea; taking stock of
not just the numbers, but our intellectual capital also.
The 500-strong team of young minds, whose
inventive spirit has redefined the way an Indian
company could conduct itself across the globe.
1
Milestone (n): a landmark achievement;
a historic moment from the past year
Subex Azure Limited (formerly Subex Systems Limited)
Contents
Chairman's Letter to the Shareholders ..................................................
05
About Subex Azure
About Subex Azure
About Subex Azure
About Subex Azure
About Subex Azure
Operational Highlights .......................................................................
Financial Highlights ...........................................................................
Offerings Overview...............................................................................
Market Overview..................................................................................
People Overview .................................................................................
Driving Beliefs ....................................................................................
Board of Directors ...............................................................................
Executive Management Team ..............................................................
General Review & Accountability
General Review & Accountability
General Review & Accountability
General Review & Accountability
General Review & Accountability
Directors’ Report ..................................................................................
Report on Corporate Governance .........................................................
Management's Discussion & Analysis ..................................................
Financials
Financials
Financials
Financials
Financials
Financial Review - Subex Azure Limited (Standalone)...........................
Financial Review - Subex Technologies, Inc.........................................
Financial Review - Subex Technologies Limited ...................................
Financial Review - Subex Azure Limited (Consolidated)........................
07
09
11
13
15
17
18
19
22
27
32
44
62
74
90
Shareholders’ Information ................................................................... 109
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3
Keynote (n): a vision or statement that
sets the tone for the activities and
initiatives to follow; a leader's insight
that is shared
Subex Azure Limited (formerly Subex Systems Limited)
Subash Menon
Founder Chairman, Managing Director & CEO
Dear Shareholder,
These past seven years, I have been reporting to you on the growth
of your company in the software products business. I had once
quoted Victor Hugo - “An invasion of armies can be resisted,
but not an idea whose time has come”, while referring to the idea
that your company had. That idea was to create a successful Indian
software product company. An idea that was scoffed at by many. An
idea that was “not bankable” for many funding agencies.
Today, we have proved the skeptics wrong. We have not only created
a vibrant software product company, but have also created history
along the way. The time has now dawned upon us for me to tell you
about certain path-breaking endeavors of your
company.
But first, let me take you through the key financial
data. Our revenue grew by 55% to reach
Rs. 1,812 million while Profit After Tax (PAT)
grew by 54% to reach Rs. 391 million.
In keeping with our long term plan, products
contributed 65% of the revenue by growing at
87%. Products recorded a revenue of Rs. 1,166
million.
Building a Global Company
Your company has always endeavored to create
a global organization. From the word go, seven
years ago, the objective was not to build yet another software product
company. It was to build one of the largest telecom software product
companies in the world. Such a creation calls for several key elements
to be present: a vision, an understanding of the future and the right
attitude to be able to think and execute globally. I am happy to
report that we have now delivered on our promise of the past to
create the global leader in revenue maximization. Let me now take
you through that journey.
In 2000, we launched our first product: Ranger™, a telecom
fraud management system. It was tough going initially, but we
persevered and signed on customers initially in India and then in
other developing countries in Africa and Eastern Europe.
Slowly but steadily, Ranger™ started gaining traction, was soon
accepted as a reliable product and Subex came to be known as a
fraud management company. It was then time for us to redefine our
business. True to our pioneering spirit, we told the telco world that
fraud management and revenue assurance have significant synergies
and launched the next product, INcharge™, a revenue assurance
system. That led to our business getting redefined as revenue
maximization. At the same time, in keeping with our long term
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objective to be the global leader in our area of operation, we set
ourselves the twin objectives of attaining leadership in fraud
management and revenue maximization. Thus began our quest for
the chalice.
INcharge™ started gaining momentum in the wake of Ranger™,
exactly as we had planned. The telcos warmed up to the idea of
a common platform for fraud management and revenue assurance;
and RevMax™, the integrated offering, started gaining currency.
This strategic move also differentiated us from several other vendors
and was the first turning point in our successful
march. With the launch of INcharge™ and its
acceptance by our customers, we felt the need to
evolve a long term strategy that was crucial to
our success.
A thorough gap analysis was conducted between
where we were and where we intended to reach,
and we identified several areas for improvement
and change. Solutions were formulated to address
each issue and that included overhauling
Ranger™, beefing up the sales team, acquisitions
etc. Given the extent of the work involved, the
entire program was divided into three phases and
it was obvious that we were in for a long haul.
While work commenced on implementing the
different solutions identified, the company designed a proactive
approach to inorganic growth. We short-listed several potential
targets, engaged an investment banker and went about
implementing the process. In the first phase, the plan was to
consummate one or two small acquisitions, thereby achieving
leadership in fraud management. This phase was also positioned
as the learning phase with regard to acquisitions. Hence the choice
of small entities as targets to minimize the risk. The targets identified
were met and the final short-list was arrived at over a period of 6
months. Another 6 months were invested in conducting due
diligence and concluding the two acquisitions; the fraud
management businesses of Alcatel in UK and Lightbridge in US. It
is important to comprehend the rationale behind the final decision.
Both these businesses were divisions within large companies and
essentially were stranded assets without any specific plan for the
future. Consequently, they were available at reasonable valuations
and could be assimilated into Subex with minimal risk and within
a short span of time. Further, the customer bases of these two
companies had no overlap among themselves and with that of
Subex at the time. This resulted in a wide base of Tier 1 customers
5
Subex Azure Limited (formerly Subex Systems Limited)
in all the major geographies and could be used as an excellent
strategy to enter the developed countries. Upon completion of the
acquisitions, the company focused on integrating these businesses
with the parent in as seamless a manner as possible to achieve
synergies and cost efficiencies, and to leverage the strengths. Towards
that end, the company invested heavily in new offices and manpower
in the US and UK. The timely investment in these new facilities
manned by experienced personnel with significant local knowledge
and exposure turned out to be a very wise move
resulting in a substantial contraction of the
payback period (for the acquisitions) from an
expected 3 years to 1.5 years. This successful
transition of the acquired businesses into the parent
was a morale booster and also enabled Subexians
to gain valuable experience in integrating
acquisitions on a global scale. We ended up
handling over 30 new customers spread across
15 new countries where Subex was not present
prior to the acquisitions. The entire integration
went through smoothly without negatively
impacting the level of customer satisfaction. That
marked the end of phase 1 of our long term plan.
It was now time to commence phase 2.
Armed with the knowledge and experience
garnered from phase 1, the decision was taken to explore the possibility
of consummating a transformational transaction. As before, we had
a set of key parameters to guide us in this phase. Let me explain those
parameters in detail. The first parameter is a financial one. Subex
does not believe in any acquisition that is dilutive to its earnings. In
short, all acquisitions must be either accretive or neutral to earnings
in the first full year after completion of the acquisition.
The other parameters relate to the business. They are: the products of
the acquired entity must be in our space of operation and hence
synergistic; there should be minimal overlap in customer base;
it should be possible to achieve cost optimization through synergies
in operation; the payback period should be reasonable etc.
Finally, the overriding consideration is that the acquisition should
strengthen Subex in areas where we were seeking additional support
and strength. The need for a transformational transaction was felt
as we were endeavoring to pioneer and spearhead the introduction
of a new concept, Revenue Operations Center (ROC), in the telco
world. The strength that could be derived from such a transaction
seemed crucial.
The successful process employed for phase 1 was re-employed for
this phase as well. Thus, several targets were identified and contacted.
As before, considerable time was invested in the
6
preliminary work of evaluating these targets and in conducting
extensive due diligence of the couple who made it to the final
short-list. This extensive process, that lasted about 15 months,
resulted in the conclusion of the transaction with Azure Solutions
Limited of UK. This company, a 3-year old spin-off from the BT
stable, met all the criteria and was the global leader in revenue
assurance with a wide customer base.
The combination of Subex and Azure, named Subex Azure Limited,
is a very powerful one. I believe that there are four
key aspects to create and sustain a global
company in our area of operation. These are: a
strong product offering; a great brand image; a
wide base of high quality customers and deep
domain expertise. While Subex had a strong
product offering in the form of ROC along with a
wide customer base, Azure brought a great brand
image coupled with excellent customer
relationships and extensive domain knowledge.
Needless to say, the combined entity will be a
force to reckon with as the global leader in fraud
management and revenue assurance.
The journey that was started seven years ago to
create a globally successful and dominant telecom
software product company has now reached a key milestone. We
have now created the largest organization in telecom revenue
maximization with over 150 customers spread across 60 countries.
We now serve 23 of the world's top 40 telcos. We are streets ahead
of the nearest competitor and we have over 25% of a fragmented
market. And, the journey continues towards the next milestone.
The Future
The Future
The Future
The Future
The Future
Subex has now achieved its initial objective set over 3 years ago to
be the global leader in telecom revenue maximization.
The immediate task is to fully integrate the new acquisition seamlessly
and to position Subex Azure to take advantage of the
opportunities that lie ahead. The telecom industry is facing
unprecedented challenges with regard to protecting its revenues
and growing them. This presents fabulous possibilities for the largest
company in that space: Subex Azure. Once the integration is
complete and we start benefitting from the strengths gained, your
company will be ready for phase 3 of its long term plan.
Let me sign off for now by thanking every one of you for the support
and for the faith reposed in me and my colleagues.
Dear shareholders, your company has never been stronger and the
future never brighter, as now.
Subash Menon
Subex Azure Limited (formerly Subex Systems Limited)
Operational Highlights
(cid:1) Acquisition of UK-based Azure Solutions.
The new, combined entity, Subex Azure,
becomes the world’s No. 1 vendor for
fraud management and revenue assurance
solutions and the 2nd largest vendor for
interconnect and inter party billing solutions.
(cid:1) Acquisition of the telecom business assets
of US-based Mantas, Inc.
(cid:1) Launch of the Revenue Operations Center
(ROC) concept.
(cid:1) Launch of the 3rd product, ONtrack Subscriber Risk
Management Solution.
(cid:1) Announcement of the new campus on Outer Ring Road,
Bangalore, to seat 1,000+ Subexians.
(cid:1) Subex Azure was selected as part of Deloitte & Touche
Tech Fast 50
(cid:1) Subex Azure was chosen as one of the 8 most innovative
companies by NASSCOM.
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Flashpoint (n): a moment when insight,
vision and daring explode into a series of
achievements that light up the way ahead
Subex Azure Limited (formerly Subex Systems Limited)
Financial Highlights
Year ended 31st March
Particulars (Rs. in million)
Total Revenue
Export Revenue
Gross Profit
Operating Profit (EBITDA)
Profit Before Tax
Profit After Tax
Shareholders’ Funds
Equity
Gross Fixed Assets
Net Fixed Assets
Total Assets (Basic)
Earning Per Share
Debt (including working capital)
Equity Ratio
EBITDA / Sales - %
Net Profit Margin - %
Return on year-end Net Worth - %
Return on year-end
Capital Employed - %
2006
1841
1787
762
539
422
391
1816
218
653
392
1827
18.23
0.01
29%
22%
22%
30%
2005
1172
1086
467
357
261
253
1233
101
555
368
1542
13.89
0.23
30%
22%
21%
23%
Revenue
UP55%
FY 06 Rs. 1841m
FY 05 Rs. 1172m
Basic EPS
UP31%
FY 06 Rs. 18.23
FY 05 Rs. 13.89
Profit After Tax
UP54%
FY 06 Rs. 391m
FY 05 Rs. 253m
UP51%EBITDA
FY 06 Rs. 539m
FY 05 Rs. 357m
Revenue Share
Products
65%
Services 35%
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Subex Azure Limited (formerly Subex Systems Limited)
Global Customer Footprint
10
Subex Azure Limited (formerly Subex Systems Limited)
Offerings Overview
Telecom networks across the world are on a migration path to Ethernet.
IP based services are expected to proliferate and current business
largely on voice services,
models, which depend
are expected to change considerably. This will change the very
nature of how operators do business and will impact on all areas
of operations from customer acquisition to collection, and from
product development to financial reporting.
Fraud is a global malaise to telecom networks and has a very
significant impact on the bottomlines of telecom operators.
Surveys show that about 4% of the industry's
revenue is lost to fraud. Fraudsters and their
methods will continue to evolve to take advantage
of the numerous security holes that will emerge
in this new environment.
The open architecture of a next-generation
telecom network (like IMS) will make it easier
for fraudsters to illegally gain access to services
and defraud the operators. A highly focused
approach is essential to combat these upcoming
frauds and this forms the biggest driver for the
evolution of Ranger. Ranger's core architecture is
evolving to address fraud threats in the new
environment using a combination of different
techniques including artificial intelligence and
statistical modeling. This has made Ranger the
foremost fraud management system available today for next-gen
services, outperforming others in the market by a large margin.
Ranger is increasingly becoming the solution of choice for large
Tier 1 operators globally as they prepare themselves for the upcoming
cycle of growth.
Revenue leakage in a carrier's network can occur at any point in the billing
chain. Errors and mismatches across switches, inventory, provisioning,
mediation, rating and billing systems result in revenue losses from
incorrect billing, unused assets and unbilled usage, among other things.
In these new revenue models, telcos are fast emerging as sales channels
and payment gateways for a variety of products like ring tones, music
downloads, video downloads, utility payments etc. In these instances,
the potential loss to the telcos who fail to recognize and collect
revenues from their customers is considerably high as they will have to
pay out to those who provide the content and services.
INcharge is a market-leading revenue assurance solution that helps
the operators to automate their revenue leakage detection and
resolution process.
It provides benefits to the revenue assurance analysts in the following
ways:
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(cid:1) Provides an end-to-end revenue assurance capability, allowing
analysts to progressively extend revenue assurance to all areas of
operation. (cid:1) Performs automatic processing and reconciliation of
large data volumes, thus offering larger coverage. (cid:1) Includes powerful
analysis tools that help revenue assurance analysts to quickly zero
in on the root cause of a detected revenue leakage. (cid:1) Provides the
workflow to help prioritize the most critical issues, which leads to
structured resolution and tracking of issues.
Subscriber delinquency and bad debt are serious problems faced by
almost every operator in the world today. On an
average, around 5% of an operator's revenue is
written off as bad debt. Further, a subscriber entry
qualification criterion is becoming less stringent
than before as operators aggressively pursue
subscriber growth.
While uses of credit assessment and scoring
methodologies have helped tackle the problem
prior to activation, a significant portion of risk
exists post activation. Operators need to monitor
the liability and outstanding against each
subscriber on a continuous and real-time basis,
in order to detect delinquency risks early-on in
the billing cycle to limit instances of bad debt.
A successful risk management strategy would aim
to close the gap through pre-emptive techniques such as seeking
part payments from subscribers with unusually high usage or identify
subscribers with whom the post invoice follow up needs to be done
with greater urgency .
ONtrack continuously monitors and tracks the possibility of a subscriber
going delinquent in the network and thus enables operators to minimize
their losses early-on and pre-empt a potential write-off. ONtrack uses a
very flexible rule-driven risk modeling core that allows the system to
profile, segment and define highly focused risk management strategies.
Monitoring the build-up of unbilled amounts is one such strategy;
another would be to detect subscriber behavior changes which suggest
that the subscriber would not be able to pay his bills.
ONtrack employs an integrated usage tracking and rating
mechanism that enables the operator to use a subscriber's usage
details to achieve near-real time risk assessment, thereby negating
any delay imposed by conventional methods on revenue recovery.
Further, ONtrack's flexible workflow helps the operator to better
prioritize cases and even automate monotonous routine tasks like
sending out reminders. Thus, ONtrack reduces the time taken to
work on a case thereby allowing operators to work more actively in
controlling their losses from bad debt.
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Subex Azure Limited (formerly Subex Systems Limited)
Marketing Events
1
2
3
4
5
6
7
8
9
Americas User Conference
Telestratergies Revenue
Assurance (RA) Fall
TeleManagement Forum Dallas
Teradata Partners Users’
Conference
ITU Telecoms America
Risk Management and Audit in Telecoms
Revenue Management
FIINA Plenary
African Telecoms Billing & RA 2005
10 Revenue Assurance Summit 2005
11 Combating Telecom Fraud in Asia
12 APAC User Conference
12
13 TeleManagement Forum ASEAN Summit
Market Overview
The telecommunications business is a dynamic world of sophisticated
markets, demanding customers and rapidly changing technology.
Telecom operators worldwide, toil in an intensely competitive
environment. They are under incessant pressure to show consistent
growth in their Average Revenue per User (ARPU) and Average Margin
per User (AMPU). As operators navigate through this demanding
scenario, they grapple daily with the challenge of ensuring sustained,
profitable growth.
It is the growing maturity of the telecommunication business that is
propelling the need for revenue maximization solutions. Subex Azure
finds itself in the happy position of having built credibility and market
share that it can leverage to achieve a compelling leadership position.
Subex Azure estimates, as independently corroborated by industry
analysts, that the FMS + RAS market will reach an annual size of
USD 250M by 2007-08 and USD 400M by 2009-10. Given the
relative maturity of the FMS segment vis-à-vis the RAS segment,
we expect a higher rate of growth for the RAS market which
in turn would reflect in higher percentage of Subex Azure’s total
revenue earned from INcharge.
Subex Azure has clearly established itself as the leader of the
revenue maximization niche. It is our estimate that Subex Azure
enjoys 25 - 30% market share in the FMS segment and 10 - 15%
market share in the RAS segment.
ROC: Crafting Strategic Business Value
ROC: Crafting Strategic Business Value
ROC: Crafting Strategic Business Value
ROC: Crafting Strategic Business Value
ROC: Crafting Strategic Business Value
Operators realize that sustained growth cannot be guaranteed by
mere addition of new subscribers. Equally important is the ability
to offer new and exciting services. Unfortunately, operators have
repeatedly seen their effort and investment in new services
undermined by insidious revenue leakages. This has made capturing
all accrued revenue from subscribers for the services they use,
a top business objective.
Subex Azure Limited (formerly Subex Systems Limited)
In order to guarantee realization of all accrued revenues,
operators are increasingly embracing the idea of revenue
maximization.
Revenue maximization is the business practice of continual
optimization of the revenue chain to increase the revenue realized
and to reduce the costs incurred.
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What is ROC?
(cid:1) Centralized & Integrated Operational Infrastructure
(cid:1) Monitors, controls & ensures integrity of revenue chain
(cid:1) Provides tools to ensure revenue chain optimization
& error correction
(cid:1) Delivers relevant data to upstream analytics
& planning system
Subex Azure’s key insight is the need for an enabling infrastructure that helps
operators operationalize a successful revenue maximization practice.
We call this the Revenue Operations Centre (ROC).
Subex Azure envisions ROC as a centralized and integrated
operational infrastructure to monitor, control and assure the integrity
of the entire revenue chain. Subex Azure has presented its idea on
the ROC in various industry events where it garnered rave reviews
from industry analysts and the trade press. Dr. Jerry Lucas, one of the
foremost thought-leaders in the telecommunications space,
in his column in Billing World & OSS magazine, highlights ROC as
being "Really on the mark", while a recent Frost & Sullivan report
suggests it as “An innovative approach to this key problem being
experienced by the telcos”.
We believe that Subex Azure is uniquely positioned to emerge as the
leading provider of software solutions that power the ROC. Subex
Azure is best equipped to help operators implement a comprehensive
revenue maximization practice by leveraging its:
(cid:1) Deep domain knowledge
(cid:1)
Acquired through supporting over 80 customer
installations in 40 countries
(cid:1) World class support
(cid:1)
Ability to provide near-shore support through field
support offices
(cid:1)
(cid:1) Integrated suite of best-of-class solutions, RevMaxTM
INchargeTM - Revenue Assurance System
RangerTM - Fraud Management System
(cid:1) ONtrackTM - Risk Management System
(cid:1)
In the coming months, Subex Azure’s communication to
the market will highlight this unique value proposition.
13
Subex pride award win-
ners
Pavankumar
Kulkarni
Rajkumar C
Vijay
Raghunathan
Vivek
Thakare
Subex Azure Limited (formerly Subex Systems Limited)
People Overview
In a critical and exciting year for Subex Azure, our new mandate for
Human Resources is to ensure that we have every Subexian committed
to contributing towards the success of the organization. As we pull
together for this journey, which we believe will be exhilarating as
well as challenging, we will be Creating History in the Indian software
space. We will also draw from the Subexian traits extensively to
march together through the new challenges.
By the end of March 2006, we had a total of 325 Subexians.
Our talent pool of qualified professionals consists of 26% Subexians,
who have been with the organization for more
than 3 years. For a knowledge-intensive industry
like ours, this is quite important and for that
reason, a significant achievement.
Creating History
One of the major activities for us this year has
been an initiative we termed 'Creating History'.
The key message has been that each Subexian
is Creating History by being a part of an
organization that is a world leader in its area of
focus. We have done this by developing fully
home-grown products. Creating History also
emphasizes the point that everyone in the
organization has a chance to contribute
innovative ideas and create Subexian History. This in turn,would
mean better career opportunities for every Subexian.
The Subexian Traits
The Subexian Traits are the traits and characteristics that are
encouraged and nurtured at Subex Azure. We believe that these
traits - Strategic Thinking, Ethics and Professionalism, Quality,
Leadership, Commitment, Perseverance and Customer Orientation
- make a successful Subexian. The significance of these traits is
communicated right from the induction process into the
organization. These are further strengthened through our Subexian
Traits Integration Camp, a mandatory outbound learning
experience for every new Subexian. These traits form the foundation
of our Performance Management System as well. Subexian Traits
are further reinforced through our Subexian Pride Award -
a recognition given by Subexians to fellow Subexians who manifest
the Subexian Traits. You will find our winners of the past year in
this report.
Subex Azure Leadership Program
The way we look at the Subex Azure Leadership Program, as with
any process of building competencies in individuals, is through
the following steps - create the right attitude for change in
individuals, deliver the relevant knowledge, improve the skills/
knowledge, transfer the newly acquired competencies into their
day-to-day activities and then help them get used to the new way
of working.
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We have met one of the major challenges -
creating the right attitude for change - to a great
extent from Phase 1 of the Program, through
the Assessment Centre conducted last year.
Subexians have been receptive to the individual
feedback and thereby have the realization about
the need for their change and growth.
The next step would be to identify the right
avenues for imparting some training initiatives -
classroom, assignment-based, on-the-job, etc.
A continuation of this would be application of
the newly acquired competencies into their daily
activities.
Last year we completed Phase 1 of the
Subex Azure Leadership Program. This
year, the focus will be on Phase 2, the
developmental phase.
Recruitment
Creating a talent pool of skilled Subexians, who possess the correct
fit with the Subex Azure culture, is of utmost importance. We look at
all avenues to hire Subexians - campus recruitment,
referrals by Subexians, job portals and recruitment agencies.
With the demand for talent growing exponentially, a lot of focus
will be on developing future leadership from within.
We have a very crucial time ahead of us. This year we will evaluate
our core human resource strategies and also realign all our
HR processes towards the new business plans. We are a well-knit
team of Subexians, unique by our accessibility to each other and
commitment to the organization. As we grow larger, the biggest
asset we will have is this uniqueness!
15
Milestone (n): a high point; an event or
achievement
that highlights an
organization’s forward journey
Subex Azure Limited (formerly Subex Systems Limited)
Driving Beliefs
Mission Statement
To ensure creation of value by providing a differentiating edge
to the activities of our customers, investors, vendors and
Subexians through technnovative solutions while fulfilling
our social obligations and maintaining high professional and
ethical standards.
Vision Statement
To be the leader in our areas of business through:
Total Customer Satisfaction, Commitment to Excellence and
Determination to Succeed.
Quality Statement
"Subexians are committed to achieve total customer satisfaction by
delivering high quality products that meet the needs and
expectations of our customers.
We commit ourselves to adhere to quality management system
requirements and to continually improve the same”
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Subex Azure Limited (formerly Subex Systems Limited)
Board Of Directors
11111
1. Subash Menon
1. Subash Menon
1. Subash Menon
1. Subash Menon
1. Subash Menon
Founder Chairman,
Managing Director & CEO
ezhuvath
ezhuvath
2. Sudeesh Y
2. Sudeesh Y
2. Sudeesh Yezhuvath
ezhuvath
ezhuvath
2. Sudeesh Y
2. Sudeesh Y
Executive President
3. V3. V3. V3. V3. V. Balaji Bhat
. Balaji Bhat
. Balaji Bhat
. Balaji Bhat
. Balaji Bhat
Non - Executive Director
4. K. Bala Chandran
4. K. Bala Chandran
4. K. Bala Chandran
4. K. Bala Chandran
4. K. Bala Chandran
Non - Executive Director
5. Vinod R. Sethi
5. Vinod R. Sethi
5. Vinod R. Sethi
5. Vinod R. Sethi
5. Vinod R. Sethi
Non - Executive Director
6. Andrew Garman
6. Andrew Garman
6. Andrew Garman
6. Andrew Garman
6. Andrew Garman
Non - Executive Director
7. S. N. Rajesh
7. S. N. Rajesh
7. S. N. Rajesh
7. S. N. Rajesh
7. S. N. Rajesh
Non - Executive Director
abhu
abhu
. Pr
8. P8. P8. P8. P8. P. P. P. P. P. P. Pr
. Pr
abhu
. Prabhu
. Pr
abhu
Non - Executive Director
9. Harry Berry
9. Harry Berry
9. Harry Berry
9. Harry Berry
9. Harry Berry
Non - Executive Director
55555
33333
77777
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66666
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88888
99999
Subex Azure Limited (formerly Subex Systems Limited)
Executive Management Team
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77777
99999
22222
11111
1. Subash Menon
1. Subash Menon
1. Subash Menon
1. Subash Menon
1. Subash Menon
Founder Chairman,
Managing Director & CEO
2. Anuradha
2. Anuradha
2. Anuradha
2. Anuradha
2. Anuradha
Senior Vice President - Engineering
3. Dean Smith
3. Dean Smith
3. Dean Smith
3. Dean Smith
3. Dean Smith
President - APAC
4. Greg LeNeveu
4. Greg LeNeveu
4. Greg LeNeveu
4. Greg LeNeveu
4. Greg LeNeveu
Senior Vice President - Americas
5. Paul Skillen
5. Paul Skillen
5. Paul Skillen
5. Paul Skillen
5. Paul Skillen
Vice President - Account Management, BT Account
33333
55555
6. Phil Osborne
6. Phil Osborne
6. Phil Osborne
6. Phil Osborne
6. Phil Osborne
Vice President - Operations, BT Account
7. Rajkumar C
7. Rajkumar C
7. Rajkumar C
7. Rajkumar C
7. Rajkumar C
Head - Legal & Company Secretary
8. Sanjay Paul Antony
8. Sanjay Paul Antony
8. Sanjay Paul Antony
8. Sanjay Paul Antony
8. Sanjay Paul Antony
Vice President - Human Resources
9. Sanjeev Gadre
9. Sanjeev Gadre
9. Sanjeev Gadre
9. Sanjeev Gadre
9. Sanjeev Gadre
Senior Director - Marketing
10. Saul Nurtman
10. Saul Nurtman
10. Saul Nurtman
10. Saul Nurtman
10. Saul Nurtman
President - EMEA
11. Sekharan Y Menon
11. Sekharan Y Menon
11. Sekharan Y Menon
11. Sekharan Y Menon
11. Sekharan Y Menon
Senior Vice President - Professional Services
Organization
12. V R Suresh Rao
12. V R Suresh Rao
12. V R Suresh Rao
12. V R Suresh Rao
12. V R Suresh Rao
Vice President - Finance & Accounts
13. Vinod Kumar P
13. Vinod Kumar P
13. Vinod Kumar P
13. Vinod Kumar P
13. Vinod Kumar P
Senior Vice President - Sales
ezhuvath
ezhuvath
14. Sudeesh Y
14. Sudeesh Y
14. Sudeesh Yezhuvath
ezhuvath
ezhuvath
14. Sudeesh Y
14. Sudeesh Y
Executive President
44444
66666
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1212121212
1313131313
1414141414
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Subex Azure Limited (formerly Subex Systems Limited)
Financial Review
Financial Review
Financial Review
Financial Review
Financial Review
for the year ended 31st March, 2006
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Subex Azure Limited (formerly Subex Systems Limited)
DIRECTORS’ REPORT TO THE MEMBERS OF SUBEX AZURE LIMITED
DIRECTORS’ REPORT TO THE MEMBERS OF SUBEX AZURE LIMITED
DIRECTORS’ REPORT TO THE MEMBERS OF SUBEX AZURE LIMITED
DIRECTORS’ REPORT TO THE MEMBERS OF SUBEX AZURE LIMITED
DIRECTORS’ REPORT TO THE MEMBERS OF SUBEX AZURE LIMITED
Your directors have pleasure in presenting the twelfth Annual
Report of the company on the business and operations together
with the audited accounts for the year ended 31st March, 2006.
FINANCIAL RESULTS
Amount in Rs. million
2005-06
2005-06
2005-06 2004-05
2005-06
2005-06
Total revenue
1841.19
1172.35
539.44
356.74
Profit before interest,
depreciation & amortization
Interest, depreciation &
amortization
Profit before tax
Provision for taxes
Profit after tax
Appropriations
Appropriations
Appropriations
Appropriations
Appropriations
Interim dividend
Preference dividend
Dividend proposed
on equity shares
Provision for tax on dividends
Transfer to general reserve
117.21
422.23
30.73
391.50
16.28
-
21.76
5.60
39.50
95.64
261.10
8.07
253.03
9.28
4.65
20.13
4.52
25.50
448.50
Surplus carried to balance sheet
756.30
RESULTS OF OPERATIONS
Your company performed well during the financial year ended 31st
March 2006. Our total revenue grew by 55% to reach Rs. 1841.19
million while Profit after Tax (PAT) grew by 54% to reach Rs. 391.50
million. Products division increased its’ contribution to revenue with
a 65% share. Products recorded revenue of Rs. 1166.82 million that
translates to a growth of 87% as against 58% the year before.
As is evidenced by the figures above, the products business is
growing in line with our strategic plan and is set to further gain in
relative terms in the years to come. Over the past 5 years, software
products have increased their contribution in the overall revenue
from a low figure of 7% in FY01 to 65% in FY06. Additionally, one
of the key metrics that we track, namely the Average Revenue
per Contract (ARPC) has increased to US$ 950,000 from
US$ 875,000 in FY05.
Our acquisitions in FY05 have yielded us very good returns during
FY06 and the businesses have got well integrated into the overall
activity. As against an expectation of a payback period of over 3
years, we have finished payback over an 18-month period. This
excellent experience has boosted our confidence in our ability to
handle and gain from acquisitions going forward.
BUSINESS
Your company operates in a niche market providing Revenue
Maximization solution to communications service providers
worldwide. These solutions improve the revenues and profits of
the communications service providers through identification and
22
elimination of leakages in their revenue chain. Your company
conceptualizes and develops software products at its facilities in
Bangalore and is focused on the telecom business segment. Your
company has sales and support offices in Canada, UK, China and
United States. Your company’s vision is to be a global leader in its’
chosen area of operation namely revenue maximization for
communications service providers. Your company aims to be the
leader in revenue maximization solutions for communications
service providers globally and has taken several strategic initiatives
to fulfill its’ ambition. The company is focused on the products side
of the business and is committed to grow this segment faster in
the coming years.
Carriers the world over are facing an increasing threat on the
revenue maximization front. A significant reason for that is the
morphing of their business model coupled with the increasing
complexities and scale. While the conventional business model
was to serve products voice, data etc. that were generated by
their own networks, the new model is to offer products like ring
tones, music downloads, video clippings, commercial products etc.
from other providers thereby functioning as a channel. This brings
with it an added element of risk if revenue leakage happens. For
example, if a carrier misses out to bill for a music download, they
will still need to pay the provider for that download while not
collecting from their customer. This, in effect, is a “double
whammy”. Thus, revenue maximization solutions are fast
becoming key investments for all communications service providers
leading to an unprecedented demand for these solutions.
However, there are widely ranging estimates about the size of
the market. While the loss due to revenue leakages has been
established fairly accurately by Analysys of UK at about 13% of
the revenue of a carrier, the size of the resultant market for tools
to address this loss is yet to be ascertained precisely. Given to
conservative estimates, we put the figure at US$ 250 million during
the current year growing at about 15 to 20% annually and that
gives us a market share of about 25%. As regards the market for
interparty management and interconnect, while the market for
the latter is growing only at about 5%, that for the former is
growing at 39% although from a lower base.
On the whole, there is tremendous opportunity for your company
to grow in the future. The market for our products is growing
quite well and we are now uniquely positioned to take advantage
of that growing market. Our large customer base coupled with
the deep domain knowledge within the organisation puts us in an
enviable position to tap the market effectively and grow at a pace
that is faster than that of the market itself thereby resulting in a
increasing market share.
ACQUISITIONS
Your company has acquired the telecom fraud management
business of Mantas, Inc., during the year which will enable it to
further consolidate its position in the key North American market.
On 25th April, 2006 Subex has announced its agreement to acquire
Azure Solutions Limited which is indeed a significant moment in
the history of your company. Subsequently your company has
announced the completion of the deal on 23rd June, 2006. The
combined entity can now boast 23 of the 40 Tier-1
telecommunications companies across the world. This landmark
deal, valued at US$ 140 million, has been billed as the largest
overseas acquisition by an Indian company in the IT space. The
management is in the process of integrating businesses of both
the companies.
CHANGE OF NAME
Consequent to the acquisition of Azure Solutions Limited, the name
of your company has been changed from Subex Systems Limited
to Subex Azure Limited with effect from 23rd June, 2006.
DIVIDEND
In October 2005, we paid an interim dividend of Rs. 1.50 per share
(15% on par value of Rs.10). Your directors recommend a final
dividend of Re.1 per share (10% on par value of Rs. 10) fortifying
the company’s tradition of enabling shareholders to participate in
its progressive performance, subject to the approval by the
shareholders at the ensuing Annual General Meeting. After the
approval of the shareholders at the ensuing Annual General Meeting,
the dividend will be paid as per the applicable regulations.
In terms of the provisions of the Investor Education and Protection
Fund (Awareness and Protection of Investor) Rules, 2001, no
amount is to be transferred during the year to the Investor
Education and Protection Fund.
The register of members and share transfer books will remain
closed from 22nd August, 2006 to 28th August, 2006, both days
inclusive. The Annual General Meeting of the company has been
scheduled to be held on Monday, 28th August, 2006.
CHANGES IN THE SHARE CAPITAL
ESOP SHARES
During the year, your company has allotted 65,408 shares under
its ESOP 2000 scheme to the option holders on their exercise of
stock options.
BONUS SHARES
During the year under review, a sum of Rs. 108,787,840 standing
to the credit of the Securities Premium Account was capitalized
for the issue of 10,878,784 fully paid equity shares of Rs. 10 each,
allotted as bonus shares in the ratio one equity share for every one
equity share held. The record date for determining the entitlement
of bonus shares was 6th January, 2006 and the bonus shares were
allotted on 9th January, 2006. The Bonus shares will be eligible for
the final dividend to be declared pursuant to the recommendation
made by the board of directors.
ISSUE OF GLOBAL DEPOSITORY RECEIPTS (GDRs)
On 7th April, 2006, your company has raised funds by issuing Global
Depositary Receipts (GDR) to the tune of US$ 10 million. Consequent
to this, the company has issued 1,109,878 underlying equity shares.
These shares were issued at a price of Rs. 400 (face value, Rs.10)
each.
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Subex Azure Limited (formerly Subex Systems Limited)
SUBSIDIARIES
SUBEX TECHNOLOGIES, INC
For the year ended 31st March, 2006, Subex Technologies Inc (STI)
earned an income of Rs. 596.59 million and a net profit of
Rs. 2.54 million. STI provides manpower for the contracts of the
company with its customers in US on a transfer pricing mechanism
and as such the profits on the contracts are reflected in your
company’s accounts. The consolidated accounts are separately
appended to this report. The management has obtained an
independent valuation of the subsidiary, according to which, there
has been no impairment in the carrying cost of the investment.
SUBEX TECHNOLOGIES LIMITED
During the year 2004-05, Subex Technologies Limited (STL) had
been formed as a wholly-owned subsidiary of the company. For
the year ended 31st March, 2006, Subex Technologies Limited
earned an income of Rs.12.26 million and incurred a net loss of
Rs. 15.26 million The issued and paid up share capital of the company
increased from Rs. 0.5 million to Rs. 10 million.
EMPLOYEE STOCK OPTIONS SCHEMES
Your company has introduced various stock option schemes for its
employees. Details of these, including grants to directors and senior
management issued during the year are given below.
EMPLOYEES STOCK OPTION PLAN-1999 (ESOP – I)
This scheme was instituted during 1999 and managed by Subex
Foundation with a corpus of 1,20,000 equity shares initially. This
scheme is not operational now. As on 31st March, 2006, 174,440
shares (which includes 87,220 bonus shares allotted on 6th January,
2006) are available with the trust.
EMPLOYEES STOCK OPTION PLAN-2000 (ESOP- II)
Under this scheme, a corpus of 500,000 options were created for
grant to eligible employees. Each option is convertible into one
fully paid-up equity share of Rs.10. This scheme has been
formulated in accordance with the Securities and Exchange Board
of India (Employee Stock Option Scheme and Stock purchase
scheme) Guidelines, 1999.
The corpus of the scheme was enhanced by another 387,125 options
in order to accommodate the effect and benefit of the bonus issue
made by the company during the financial year 2005-06.
As per the scheme, a Compensation Committee was formed,
which grants options to the eligible employees. The options are
granted at a price, which is not less than 85% of the average of
the closing price of the shares during the 15 trading days preceding
the date of grant on the stock exchange where there is highest
trading volume during this period. The options granted will be
vested over a period of 1 to 4 years and can be exercised over a
period of 3 years from the date of vesting. As on 31st March, 2006,
23,098 options were available in this scheme for further grants.
EMPLOYEE STOCK OPTION PLAN-2005 (ESOP-III)
The recent acquisition of Azure Solutions Limited was done through
the issue of GDRs. Your company has allotted 11,728,728 GDRs,
with every GDR having one underlying equity share, to the share
holders of Azure Solutions Limited as consideration for acquiring
the entire issued share capital of Azure Solutions Limited. The
GDRs are listed on the Luxembourg Stock Exchange.
Under this scheme a corpus of 500,000 options were created for
grant to the eligible employees. Each option is convertible into one
fully paid-up equity share of Rs.10. This scheme has been
formulated in accordance with the Securities and Exchange Board
of India (Employee Stock Option Scheme and Stock purchase
scheme) Guidelines, 1999 and amendments thereto.
23
Subex Azure Limited (formerly Subex Systems Limited)
As per the scheme, the Compensation Committee grants options
to eligible employees. The options are granted at a price, which is
not less than 85% of the average of the closing price of the shares
during the 15 trading days preceding the date of grant on the stock
exchange where there is highest trading volume during this period.
The options granted will be vested over a period of 1 to 4 years and
can be exercised over a period of 3 years from the date of vesting.
S PER SEBI GUIDELINES
S PER SEBI GUIDELINES
TION A
TION A
ADDITIONAL INFORMA
ADDITIONAL INFORMA
S PER SEBI GUIDELINES
TION AS PER SEBI GUIDELINES
ADDITIONAL INFORMATION A
S PER SEBI GUIDELINES
TION A
ADDITIONAL INFORMA
ADDITIONAL INFORMA
Sl.No
Particulars
1
2
3
4
5
6
7
8
9
Options granted as on 31st March, 2006
Options granted during the year
Pricing formula
Options vested but not exercised as on 31st March, 2006
Options exercised as on 31st March, 2006
Options exercised during the year
Money realized by exercise of options during the year
The total number of shares arising as a result of exercise of options
as on 31st March, 2006
Options lapsed as on 31st March, 2006
Options lapsed during the year
Variation of terms of options
No. of employees covered
10
Employee-wise details of options granted during the year under review to:
(i)
Senior managerial personnel
Mr. Sanjay Paul Antony
Ms. Anuradha
Mr. V R Suresh Rao
Mr. Vinod Kumar P
Mr. Sekharan Y Menon
Mr. Rajkumar C
(ii) Other employees who receive a grant in any one year of option
amounting to 5% or more of option granted during that year
(iii)
Identified employees who were granted option, during any one year,
equal to or exceeding 1% of the issued capital (excluding outstanding
warrants and conversions) of the company at the time of grant
Diluted Earnings Per Share (EPS) pursuant to the issue of shares on exercise of option
calculated in accordance with Accounting Standard (AS) 20 ‘Earnings per share’
Where the company has calculated the employee compensation cost using
the intrinsic value of the stock options, the difference between the employee
compensation cost so computed and the employee compensation cost that
shall have been recognized if it had used the fair value of the options.
The impact of this difference on profits and on EPS of the company is:
11
12
13
14
ESOP 2000
ESOP 2005
476,902
144,000
70,380
70,380
As mentioned
above
As mentioned
above
70,323
112,875
65,408
6,055,240
112,875
285,398
50,950
None
310
8000
-
-
-
-
-
NIL
NIL
NIL
NIL
NIL
NIL
N.A
NIL
NIL
None
156
-
2360
1130
2030
1950
1400
NIL
NIL
Rs. 18.13
Rs. 18.13
(7,664,830)
Black Scholes
method of
valuation
6.43%
3 Years
55.765%
0.42%
473.18
Weighted-average exercise prices and weighted-average fair values
of options separately for options whose exercise price either equals or
exceeds or is less than the market price of the stock.
Weighted
Weighted
average exercise average exercise
price is Rs. 442.80 price is Rs. 342.55
A description of the method used during the year to estimate the fair values
of options, including the following weighted-average information :
1.
2.
3.
4.
5.
24
risk-free interest rate
expected life
expected volatility
expected dividends
the price of the underlying share in market at the time of option grant
VERNANCE
VERNANCE
TE GO
TE GO
CORPORA
CORPORA
VERNANCE
TE GOVERNANCE
CORPORATE GO
VERNANCE
TE GO
CORPORA
CORPORA
Your company is committed to ensure good corporate governance
practices in its operations. In achieving this objective, the company
has always endeavored to operate as a responsible and law abiding
corporate citizen. Your company strives to implement the best
corporate governance model at par with the best companies.
During the year under review, your company has been selected as
one among the top-25 companies in India in terms of practicing
best corporate governance norms by the Institute of Company
Secretaries of India.
Your company has complied with the requirements of the new
Clause 49 of the listing agreement of the Stock Exchanges. The
auditors’ certificate on compliance with Clause 49 is annexed to this
report. In addition, your company has documented its internal policies
in line with the corporate governance guidelines. The management’s
discussion & analysis of the financial position of the company is
provided in this annual report and is mentioned hereby for reference.
Subex Azure Limited (formerly Subex Systems Limited)
Engineering and Applied Physics from Harvard College, an MS in
Mechanical Engineering from Stanford University and an MBA
from Stanford University, where he was named an Arjay Miller
Scholar. He is a past president of the Stanford Business School
Alumni Association and member of the Board of Advisors.
Mr. Harry Berry is Managing Partner of New Venture Partners,
which was formed from a combination from Lucent Ventures
Technologies and BT’s corporate venturing arm, BT Brightstar. With
over 30 years experience in the telecommunications industry,
Mr. Harry Berry has held a wide range of senior positions. He has
a depth of experience in dealing with companies in the OSS space
and a strong background in product and service delivery within the
telecommunications field.
FIXED DEPOSITS
Your company has not accepted any fixed deposits from the public.
AUDITORS’ REPORT
PARTICULARS OF EMPLOYEES
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There were no qualifications observed in the auditor’s report for
the Financial Year 2005-06.
AUDIT COMMITTEE
The audit committee presently has 5 directors as members viz.
Mr. V. Balaji Bhat, Mr. K. Bala Chandran, Mr. Vinod R Sethi,
Mr. Subash Menon and Mr. S.N. Rajesh. Except Mr. Subash Menon,
all other members of the audit committee are non-executive
independent directors. Mr. Balaji Bhat is the Chairman of the audit
committee. The role, terms of reference, the authority and powers
of the audit committee are in conformity with the requirements
of the Companies Act, 1956 and Clause 49 of the listing agreement.
More details of the audit committee are provided in the report on
corporate governance attached to this annual report.
AUDITORS
The auditors, M/s. Deloitte Haskins & Sells, Chartered Accountants,
retire at the ensuing Annual General Meeting and have confirmed
their eligibility and willingness to accept office, if re-appointed.
DIRECTORS
The Board of Directors at their meeting held on 25th April, 2006
re-appointed Mr. Sudeesh Yezhuvath as Whole-time Director of
the Company for a further period of 5 years with effect from
1st April, 2006, which was subsequently approved by the members
in their extra-ordinary general meeting held on 29th May, 2006.
As per Article 87 of the Articles of Association of the Company,
Mr. P. P. Prabhu and Mr. Sudeesh Yezhuvath retire by rotation and
being eligible, offer themselves for re-appointment in the
forthcoming Annual General Meeting.
Mr. Alex Puthenchira has resigned from the Board with effect
from 30th August, 2005. Your directors place on record their deep
appreciation for the service rendered by Mr. Alex Puthenchira
during his tenure as a director of the company.
Mr. Andrew Garman and Mr. Harry Berry were inducted on the
Board as directors by the members in their extra-ordinary general
meeting held on 29th May, 2006.
Mr. Andrew Garman is Managing Partner of New Venture Partners.
He focuses on the firm’s Software & Services and Networking &
Communications investment areas. Mr. Garman holds an AB in
As required under the provisions of section 217(2A) of the
Companies Act, 1956 read with the Companies (Particulars of
Employees) Rules, 1975, the names and other particulars of
employees are set out in the annexure included in this report.
As per the amendment made to Companies (Particulars of
Employees) Rules, 1975, the particulars of employees of companies
engaged in Information Technology sector posted and working
outside India, not being directors or their relative, drawing more
than Rs. 24 lakhs per financial year or Rs. 2 lakhs per month, as the
case may be, need not be included in the statement. Accordingly,
the statement included in this report does not contain the particulars
of employees who are posted and working outside India.
INFORMATION UNDER SECTION 217 (1)(e) OF THE COMPANIES
ACT, 1956 READ WITH COMPANIES (DISCLOSURES OF PARTICULARS
IN THE REPORT OF BOARD OF DIRECTORS) RULES, 1988
A CONSERVATION ENERGY
The operations of your company are not energy-intensive.
However, significant measures are taken to reduce energy
consumption by using energy-efficient computers and by the
purchase of energy-efficient equipment. Your company constantly
evaluates new technologies and invests to make its infrastructure
more energy-efficient. Currently your company uses CFL fittings
and electronic ballasts to reduce the power consumption of
fluorescent tubes. Air conditioners with energy efficient screw
compressors for central air conditioning and air conditioners with
split air conditioning for localized areas are used.
B TECHNOLOGY ABSORPTION, ADOPTION AND INNOVATION
Your company has not imported any technology. However, the
telecommunications domain, in which your company operates, is
subject to high level of obsolescence and rapid technological
changes. Your company has developed inherent skills to keep pace
with these changes. Since Software products are the significant
line of business of your company, the company incurs expenses on
product related Research & Development on a continuous basis.
These expenses are charged to revenue under the respective
heads and are not segregated and accounted separately.
C FOREIGN EXCHANGE EARNINGS AND OUTGO
Your company has over the years shifted its focus from software
services to Software products. This has resulted in substantial foreign
25
Subex Azure Limited (formerly Subex Systems Limited)
exchange earnings as compared to previous years. During the year
2005-06 total foreign exchange inflow and outflow is as follows:
31st March, 2006, the applicable accounting standards have been
followed and there are no material departures there from.
i) Foreign exchange earnings Rs. 1378.70 million (previous year
Rs. 1042.08 million)
ii) Foreign exchange outgo Rs. 1000.91 million (previous year
Rs. 632.41 million)
SOCIAL RESPONSIBILITIES - SUBEX CHARITABLE TRUST
The trust was set up with to provide for welfare activities for
underprivileged and the needy in the society. The trust is managed
by trustees elected from amongst the Subexians. During the year
the trust has provided active support for rural heath care initiatives
and for education of underprivileged children.
HUMAN RESOURCE MANAGEMENT
One of the major initiatives for your company this year has been an
initiative termed ‘Creating History’. The key message is that each
Subexian is Creating History by being a part of an organization who
is a world leader in its area of focus. Your company has done this by
developing fully home-grown products. Creating History also
emphasizes the point that everyone in the organization has a chance
to contribute innovative ideas and create Subexian History. This in
turn, would mean better career opportunities for every Subexian.
During the forthcoming year, as your company grows larger, the
biggest asset will be the uniqueness of Subexians because of their
accessibility to each other and commitment towards the
organization.
DIRECTORS’ RESPONSIBILITY STATEMENT
b) That the accounting policies have been selected and applied
consistently and made judgments and estimates that are
reasonable and prudent so as to give a true and fair view of the
state of affairs of the company as at 31st March, 2006 and of the
profit of the company for the year ended on that date.
c) That proper and sufficient care has been taken for the
maintenance of adequate accounting records in accordance with
the provision of the Act for safeguarding the assets of the company
and for preventing and detecting fraud and other irregularities.
d) That the accounts for the year ended 31st March, 2006 has
been prepared on a going concern basis.
APPRECIATIONS / ACKNOWLEDGEMENTS
We thank our clients, vendors, investors and bankers for their
continued support during the year. We place on record our
appreciation for the co-operation and assistance provided by the
Central and State Government authorities particularly software
technology park - Bangalore, customs and central excise authorities,
Registrar of Companies, Karnataka, the Income Tax Department
Reserve Bank of India and various authorities under the
Government of Karnataka.
Your directors also wish to place on record their deep appreciation
to Subexians at all levels for their hard work, solidarity, co-operation
and support as they are instrumental in your company scaling new
heights, year after year.
for and on behalf of the Board
Subash Menon
Founder Chairman,
Managing Director & CEO
In accordance with the provision of Section 217(2AA) of the
Companies Act 1956, the Board of Directors affirms;
a) That in the preparation of the accounts for the year ending
Place : Bangalore
Date : 26th June, 2006
Managing director& ceo
ANNEXURE TO THE DIRECTORS’ REPORT
ANNEXURE TO THE DIRECTORS’ REPORT
ANNEXURE TO THE DIRECTORS’ REPORT
ANNEXURE TO THE DIRECTORS’ REPORT
ANNEXURE TO THE DIRECTORS’ REPORT
Information as per Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of employees) Rules, 1975 and being
part of the Directors’ Report for the year ended 31st March, 2006.
Name
Designation
Qualification Age Experience Date of
Remuneration Previous employment
(No. of
years)
commencement
of employment
received
Rs.
Subash Menon
Founder Chairman,
Managing Director & CEO
B.E
Sudeesh Yezhuvath Executive President
B.Tech
Sekharan Yezhuvath Sr. VP - PSO
Dakshinamurthy
Karra*
Chief Techonolgy Officer
Anuradha
Sr. VP - Engg.
P. Vinodkumar
Sr. VP - Sales
Instru-
mentation
Engg.
B.Sc
MS
B.Tech
Sanjay Paul Antony* VP - Human Resources
BE,PM&IR
* Worked for part of the year.
41
37
39
42
41
36
40
18
16
20
18
17
14
December 1994
12,405,236 Eltel Industries
December 1994
11,003,930 Transmatic Systems Limited
September 1996
2,479,655 Yokogawa Blue Star
February 1999
1,927,515 Powertel Boca Ltd
June 2003
2,814,406 Mistral Software Pvt Ltd
October 1997
4,049,143 Crompton Greaves Ltd
15.8
October 2005
1,683,819 Goldman Sachs
Notes
: Remuneration comprises basic salary, allowances and taxable value of perquisites.
26
Sudeesh Yezhuvath is the brother of Subash Menon and except this, none of the other employees are related to any of the other
Directors of the company.
VERNANCE
VERNANCE
TE GO
TE GO
T ON CORPORA
T ON CORPORA
REPOR
REPOR
VERNANCE
TE GOVERNANCE
T ON CORPORATE GO
REPORT ON CORPORA
VERNANCE
TE GO
T ON CORPORA
REPOR
REPOR
ORPORATETETETETE
ORPORA
ORPORA
ODE OF C
ODE OF C
OSOPHY ON C
OSOPHY ON C
’S PHIL
COMPANYANYANYANYANY’S PHIL
’S PHIL
COMP
COMP
I.I.I.I.I. COMP
ODE OF CORPORA
OSOPHY ON CODE OF C
’S PHILOSOPHY ON C
ORPORA
ODE OF C
OSOPHY ON C
’S PHIL
COMP
GOVERNANCE
GOVERNANCE
GOVERNANCE
GOVERNANCE
GOVERNANCE
Corporate governance is about commitment to values and ethical
business conduct. It is about how an organization is managed.
Therefore situation, performance, ownership and governance of the
company are all equally important as regards to the structure, activities
and policies of the organization. This helps the organization to attract
investors and enhance the trust and confidence of the stakeholders.
Subex Azure’s compliance with the corporate governance
guidelines as stipulated by the stock exchange is described in this
section. The company believes that sound corporate governance
is critical to enhance and retain investors’ trust. Subex Azure
respects minority rights in its business decisions.
Subex Azure’s corporate governance philosophy is based on the
following principles:
1. Satisfy the spirit and not just the letter of the law.
2. Be transparent and maintain high degree of disclosure levels.
3. Communicate externally, in a truthful manner, about how the
Subex Azure Limited (formerly Subex Systems Limited)
practices. Consistent with this commitment, Subex Azure seeks to
achieve a high level of responsibility and accountability in its internal
systems and policies. Subex Azure respects the inalienable rights of
the shareholders to information on the performance of the company.
The company’s corporate governance policies ensures, among others,
the accountability of the Board of Directors and the importance of its
decisions to all its participants viz., customers, employees, investors,
regulatory bodies etc. Subex Azure’s Code of corporate governance
has been drafted in compliance with the code of “Corporate
Governance” as promulgated by the Securities and Exchange Board
of India (SEBI) on 25th January, 2000 and amendments made thereto.
II. BOARD OF DIRECTORS
II. BOARD OF DIRECTORS
II. BOARD OF DIRECTORS
II. BOARD OF DIRECTORS
II. BOARD OF DIRECTORS
The Board of Directors of Subex Azure consists of 9 directors out
of which 2 are executive directors and 7 are non-executive
independent directors.
Details of the composition of the Board of Directors and their
attendance and other particulars are given below:
A. Composition and category of directors as on 26th June, 2006
6
0
-
5
0
0
2
t
r
o
p
e
R
l
a
u
n
n
A
company is run internally.
Category
Category
Category
Category
Category
No. of directors
No. of directors
No. of directors
No. of directors
No. of directors
4. Comply with the laws in all the countries in which the company
operates.
Subex Azure Limited is committed to good corporate governance
Promoter directors
Non-executive Independent directors
Other executive directors
Total
1
7
1
9
%%%%%
11.1%
77.8%
11.1%
100%
B. Attendance of directors at the Board meetings and the last AGM and details about their directorships and membership in committees
as on March 31, 2006.
Director
Position
No. of
Board
No. of
Board
Last AGM
attendance
meetings meetings
attended
held
No. of
directorships
in other
companies ▲
No. of
committees
in which the
director is
No. of
committees
in which the
director is
Chairman ■ ▲ member ■ ▲
Mr. Subash Menon
Chairman &
Managing Director
Non-Executive
Director
Mr. Alex J
Puthenchira*
Mr. K. Bala Chandran Non-Executive
Mr. V. Balaji Bhat
Mr. Vinod R. Sethi
Independent Director
Non-Executive
Independent Director
Non-Executive
Independent Director
Mr. Sudeesh Yezhuvath Wholetime Director
Mr. S. N. Rajesh
Mr. P. P. Prabhu
Mr. Harry Berry+
Non-Executive
Independent Director
Non-Executive
Independent Director
Non Executive
Independent Director
Mr. Andrew Garman+ Non Executive
Independent Director
4
4
4
4
4
4
4
4
4
4
4
-
3
4
2
2
2
4
-
-
Yes
No
Yes
Yes
No
Yes
No
Yes
No
No
1
-
1
5
7
1
3
3
-
-
-
-
1
3
-
-
-
1
-
-
1
-
3
1
3
1
3
1
-
-
▲ Excluding private limited companies & overseas companies.
■ Including only audit committee and shareholder’s grievance committee. Memberships in committees in Subex Azure Ltd are included.
* Mr. Alex J Puthenchira resigned as director with effect from 30th August, 2005.
+ Mr. Harry Berry and Mr. Andrew Garman were inducted on the Board with effect from 29th May, 2006.
27
Subex Azure Limited (formerly Subex Systems Limited)
C. Number and dates of Board meetings
4 (Four) Board meetings were held during the year. The dates on
which meetings were held are as follows
28th April, 2005; 28th July, 2005; 28th October, 2005; 27th January, 2006.
D. Brief details of directors seeking re-appointment
1. Sudeesh Yezhuvath, B. Tech, Executive President, has been
with the company since 1993 and has considerable experience in
the telecom industry. Sudeesh Yezhuvath, who joined the company
as Manager Sales & Marketing, was promoted as the Chief
Operating Officer in 2001. Over the years, he has built up a strong
sales and marketing team in the company.
2. P. P. Prabhu, I.A.S (Retd) joined the Indian Administrative Service
(IAS) in 1964. He held various positions with Govt. of Karnataka and
Govt. of India including the positions of Chairman & Managing
Director of Vikrant Tyres, Managing Director of Karnataka State
Road Transport Corporation, Managing Director of Karnataka Power
Corporation, Chairman of Coffee Board, Secretary to the Government
of India, Ministry of Food Processing Industry and Commerce Secretary,
Government of India. He was till recently Chairman of UTI Venture
Funds Management Private Limited.
AUDIT COMMITTEE
AUDIT COMMITTEE
III.
III.
AUDIT COMMITTEE
III. AUDIT COMMITTEE
III.
AUDIT COMMITTEE
III.
A. Terms of reference
The audit committee has, interalia, the following mandate:
• Overseeing the company’s financial reporting process and
disclosure of its financial information to ensure that the financial
statements are correct, sufficient and credible
• Recommendation of appointment and removal of external
auditor, fixation of audit fee and also approval for payment for
any other services
• Review of annual financial statements before submission to the Board
• Review of adequacy of internal control systems
• Review of adequacy of internal audit function, including the
reporting structure coverage and frequency of internal audit
• Review of the company’s financial and risk management policies
The current charter of the audit committee is in line with
international best practices and the regulatory changes
formulated by SEBI and the listing agreements with the stock
exchanges on which Subex Azure is listed.
B. Composition of audit committee
Composition
Composition
Composition
Composition
Composition
Category
Category
Category
Category
Category
Mr. Balaji Bhat,Chairman
Mr. K. Bala Chandran
Mr. Vinod R. Sethi
Mr. S. N. Rajesh
Mr. Subash Menon
Non-Executive
Independent Director
Non-Executive
Independent Director
Non-Executive
Independent Director
Non-Executive
Independent Director
Founder Chairman,
Managing Director & CEO
The Company Secretary is the secretary of the audit committee.
C. Meetings and attendance during the year
During the financial year 2005-06, four audit committee meetings
were held. The audited financial results for the year ended 31st
March, 2005 were taken on record at the meeting held on 28th
April, 2005. At their meetings held on 28th July, 2005, 28th October,
2005 and 27th January, 2006, the accounts for the respective
quarters were taken on record.
Attendance of committee members at the audit committee meetings held during the year:
Member
Mr. V. Balaji Bhat
Mr. K. Bala Chandran
Mr. Vinod R. Sethi
Mr. S. N. Rajesh
Mr. Subash Menon
IVIVIVIVIV.....
OMMITTEETEETEETEETEE
OMMIT
OMMIT
TION C
TION C
REMUNERA
REMUNERA
TION COMMIT
REMUNERATION C
OMMIT
TION C
REMUNERA
REMUNERA
Composition of the committee
Mr. S. N. Rajesh - Chairman
Mr. Vinod R. Sethi
Mr. K. Balachandran
No. of audit committee meetings held
No. of audit committee meetings attended
4
4
4
4
4
4
3
2
2
4
with effect from 15th May, 2006. The committee looks into
remuneration of executive directors. The committee considers the
performance of the company as well as general industry trends while
fixing the remuneration of executive directors. During the year under
review, the committee had one meeting on 28th April, 2005. All the
members of the committee were present in the meeting.
Mr. V. Balaji Bhat has been inducted as a member of the committee
Details of remuneration to directors
Amount in Rs.
Name
Name
Name
Name
Name
Designation
Designation
Designation
Designation
Designation
Salary
Salary
Salary
Salary
Salary
Commission
Commission
Commission
Commission
Commission
TTTTTotalotalotalotalotal
Mr. Subash Menon
Mr. Sudeesh Yezhuvath
Mr. K. Bala Chandran
Mr. V. Balaji Bhat
Mr. Vinod R. Sethi
Mr. S. N. Rajesh
Mr. P. P. Prabhu
Chairman & Managing Director
Whole time Director
Non-Executive Independent Director
Non-Executive Independent Director
Non-Executive Independent Director
Non-Executive Independent Director
Non-Executive Independent Director
69,05,236
65,03,930
-
-
-
-
-
55,00,000
45,00,000
3,00,000
3,00,000
3,00,000
-
3,00,000
1,24,05,236
1,10,03,930
3,00,000
3,00,000
3,00,000
-
3,00,000
28
Note: The above figures are excluding the sitting fees, which are within the limits specified in the Companies Act, 1956.
The company compensates Non-Executive Independent Directors keeping in view of the time and attention devoted by them for the company.
Subex Azure Limited (formerly Subex Systems Limited)
The following directors have been allotted stock options under the employee stock options scheme of the company.
Name
Designation
No. of options
No. of shares vested and exercised
as on 31st March, 2006
Mr. K. Bala Chandran
Mr. V. Balaji Bhat
Mr. Vinod R. Sethi
Mr. P. P. Prabhu
Non–Executive Director
Non–Executive Director
Non–Executive Director
Non–Executive Director
7,500
7,500
7,500
7,500
2625
4875
2625
1125
The above stock options were granted at the same terms and conditions as mentioned in the ESOP scheme-2000 of the company.
The Remuneration Committee determines and recommends to
the Board the compensation payable to the directors. All Board
level compensation is approved by the shareholders, and separately
disclosed in the financial statements. Remuneration of executive
directors consists of a fixed component and a performance based
commission. The compensation, however, shall be within the
parameters set by the shareholders meetings and the provisions
of the Companies Act, 1956. The executive directors have entered
into service contracts with the company. Both the executive
directors have 3 months notice period with the company if they
decide to terminate the contract. If the termination is from the
company, the notice period shall be 12 months. They have
voluntarily opted out of the stock options plans of the company. In
case of severance from the company the executive directors are
eligible for getting compensation not less than five times the total
remuneration of the preceding 12 months from the date of the
notice and the notice period amount. The non-executive directors
are eligible for commission not exceeding 0.5% of the profits of
the company subject to a maximum of Rs.2 million in aggregate
per year and also stock options of the company subject to the
terms of the stock options schemes of the company.
VVVVV..... SHARE TRANSFER COMMITTEE
SHARE TRANSFER COMMITTEE
SHARE TRANSFER COMMITTEE
SHARE TRANSFER COMMITTEE
SHARE TRANSFER COMMITTEE
A. Composition of the committee
Mr. Sudeesh Yezhuvath, Chairman
Mr. Subash Menon
Authorised Representative of share transfer agents.
B. Meetings during year
The company holds share transfer committee meetings upto three
times a month, as may be required, for approving the transfers/
transmissions of equity shares. The company has appointed
M/s. Canbank Computer Services Limited, a SEBI recognised transfer
agent, as its share transfer agent with effect from 6th November,
2001. The Share Transfer Committee has met four times during
the financial year 2005-06 on the following dates:
Date of the
meeting
No. of transfer
deeds received
Shares
involved
28th October, 2005
2nd January, 2006
6th January, 2006
31st January, 2006
2
2
1
4
400
300
100
800
6
0
-
5
0
0
2
t
r
o
p
e
R
l
a
u
n
n
A
The members of the company’s investor grievance committee
are:
Mr. K. Bala Chandran, Chairman
Mr. Sudeesh Yezhuvath
This committee looks into redressal of shareholders’ and investors’
complaints.
The company secretary is the compliance officer of the
company.
B. Meetings during the year
The committee has met 4 (Four) times during the current financial
year on these dates:
28th April, 2005; 28th July, 2005;
28th October, 2005; 27th January, 2006
Details of the grievances of the investors are provided in the
“Shareholders’ Information” section of this report.
(compensation committee)
(compensation committee)
VII. ESOP COMMITTEE
VII. ESOP COMMITTEE
(compensation committee)
VII. ESOP COMMITTEE (compensation committee)
(compensation committee)
VII. ESOP COMMITTEE
VII. ESOP COMMITTEE
The company has instituted employee stock options scheme in line
with the SEBI Guidelines. In order to grant options under the
scheme to eligible employees, a compensation committee has
been formed.
A. Composition of the committee
The committee comprises the following members:
Mr. V. Balaji Bhat, Chairman
Mr. K. Bala Chandran
Mr. Subash Menon
B. Meetings during the year
The committee met 4 (Four) times during the financial year on the
following dates:
1st April, 2005, 1st July, 2005, 1st October, 2005, 2nd January, 2006
VIII. GENERAL BODY MEETINGS
VIII. GENERAL BODY MEETINGS
VIII. GENERAL BODY MEETINGS
VIII. GENERAL BODY MEETINGS
VIII. GENERAL BODY MEETINGS
A. Location and timings of the last three AGMs
Year
Date of AGM
Venue
Time
2002-2003 9th September, 2003 Le Meridien – 3:00 p.m.
The company ensures that the share transfers are effected within
one month of the receipt of request for transfer.
2003-2004 24th August, 2004
VI.VI.VI.VI.VI. INVES
INVES
INVES
INVESTTTTTOR GRIEV
OR GRIEV
OR GRIEV
ANCE C
ANCE C
OMMIT
OMMIT
OMMITTEETEETEETEETEE
OR GRIEVANCE C
ANCE COMMIT
INVES
OR GRIEV
ANCE C
OMMIT
A. Composition of the committee
2004-2005 28th July, 2005
Bangalore
Le Meridien – 3:00 p.m.
Bangalore
Le Meridien – 3:00 p.m.
Bangalore
29
Subex Azure Limited (formerly Subex Systems Limited)
Location and timings of the last three EGMs
A. The Board
Year Date of EGM
Venue
Time
2005 2nd December,
2005
2006 25th February,
2006
Corporate office
4:00 p.m.
Corporate office
4:00 p.m.
2006 29th May, 2006
Le Meridien - Bangalore 3:00 p.m.
B. Postal ballot
No special resolutions were required to be put through the postal
ballot in the previous year.
IX. DISCLOSURES
IX. DISCLOSURES
IX. DISCLOSURES
IX. DISCLOSURES
IX. DISCLOSURES
A. There are no materially significant related party transactions of
the company of material nature, with the promoters, the directors
or the management, their subsidiaries or relatives etc that may
have potential conflict with the interests of the company at large.
B. The company has not been subjected to any penalties, strictures
by stock exchange(s)/SEBI or any statutory authorities on any matter
related to capital markets, during the last three years. The
company has been complying with the listing conditions.
OMMUNICAAAAATIONTIONTIONTIONTION
OMMUNIC
OMMUNIC
X. MEANS OF C
X. MEANS OF C
X. MEANS OF COMMUNIC
OMMUNIC
X. MEANS OF C
X. MEANS OF C
A. Annual/ Half Yearly and Quarterly results
The annual/half yearly/quarterly audited/un-audited results are
generally published in all editions of Business Standard and
Udayavani. The complete financial statements are posted on the
Company’s website www.subexazure.com. Subex Azure also
regularly provides information to the Stock Exchanges as per the
requirements of the listing agreements and updates the website
periodically to include information on new developments and
business opportunities.
B. Management’s discussion and analysis section is part of the
Annual Report.
XI.XI.XI.XI.XI. General shareholder information is provided in the
“Shareholders’ Information” section of the annual report.
XII.XII.XII.XII.XII. Auditors’ certificate in respect of compliance of conditions of
corporate governance as per Clause 49 of the listing agreement
with the Stock Exchanges is enclosed in this annual report.
XIII.XIII.XIII.XIII.XIII. Compliance with non-mandatory requirements of Clause 49
of the listing agreement.
Clause 49 further states that the non-mandatory requirements
may be implemented as per the company’s discretion. However
the disclosures of compliance with mandatory requirements and
adoption (and compliance)/ non adoption of non-mandatory
requirements shall be made in the section on corporate governance
in the annual report. We comply with the following non-mandatory
requirements.
We have an Executive Chairman and as such maintenance of
office by a Non-Executive Chairman does not arise. None of our
independent directors have served for a tenure exceeding nine
years from the date when the new Clause 49 became effective.
B. Remuneration Committee
We have instituted a Remuneration Committee. A detailed note
on the Remuneration Committee is provided elsewhere in the
report.
C. Shareholder’s rights
We communicate with investors regularly through emails,
telephones and face to face meetings either investor conferences,
company visits or on road shows. We announce quarterly financial
results within four weeks of the close of a quarter. The company
publishes the quarterly financial results in leading business
newspaper(s) as well as put on the company’s website. However,
we have not initiated sending half-yearly declaration of financial
performance to the household of shareholders so far.
D. Audit Qualifications
The company does not have any audit qualification for the year
under review. We always endeavor to move towards a regime of
un-qualified financial statements.
E. Training of Board Members
All new non-executive directors inducted into the Board are given
adequate orientation on the company’s businesses, group
structure, risk management strategy and policies.
F. Mechanism for evaluating non-executive Board Members
The company compensates non-executive directors keeping in
view of the time and attention devoted by them for the company.
While doing so, we evaluate the performance of the non-executive
directors using various parameters. However we are yet to
formalize this evaluation by peer group comprising entire Board
of Directors, excluding the director being evaluated.
G. Whistle Blower Policy
We have established a mechanism for employees to report
concerns about unethical behaviour, actual or suspected fraud or
violation of our code of conduct. The mechanism also provides for
adequate safeguards against victimization of employees who avail
of the mechanism and also provide for direct access to the
Chairman of the Audit Committee in exceptional cases. Our
employees are informed of this policy through appropriate internal
communications. None of our employees has been denied access
to this facility.
Place : Bangalore
Date : 26th June, 2006
for Subex Azure Limited
Subash Menon
Founder Chairman,
Managing Director & CEO
30
Subex Azure Limited (formerly Subex Systems Limited)
TE TTE TO THE MEMBERS OF SUBEX AZURE LIMITED
O THE MEMBERS OF SUBEX AZURE LIMITED
O THE MEMBERS OF SUBEX AZURE LIMITED
TE TTE T
OMPLIANCE CERTIFICTIFICTIFICTIFICTIFICAAAAATE T
OMPLIANCE CER
CCCCCOMPLIANCE CER
OMPLIANCE CER
O THE MEMBERS OF SUBEX AZURE LIMITED
O THE MEMBERS OF SUBEX AZURE LIMITED
OMPLIANCE CER
1. We have examined the compliance of conditions of Corporate
Governance by Subex Azure Limited (formerly Subex Systems
Limited) [‘the Company’], for the year ended 31st March, 2006,
as stipulated in clause 49 of the Listing Agreement of the said
Company with the Stock Exchanges.
2. The compliance of conditions of Corporate Governance is the
responsibility of the management. Our examination has been
limited to a review of the procedures and implementations
thereof, adopted by the Company for ensuring compliance
with the conditions of the Corporate Governance. It is neither
an audit nor an expression of opinion of the financial statements
of the Company.
3.
In our opinion and to the best of our information and according
to the explanations given to us and the representations made
by the Directors and the management, we certify that the
Company has complied with the conditions of Corporate
Governance as stipulated in Clause 49 of the above mentioned
Listing Agreement.
4. We further state that such compliance is neither an assurance
as to the future viability of the Company nor the efficiency or
effectiveness with which the management has conducted
the affairs of the Company.
Place : Bangalore
Date : 26th June, 2006
for Deloitte Haskins & Sells
Chartered Accountants
V. Srikumar
Partner
Membership No. 84494
6
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2
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A
DECLDECLDECLDECLDECLARAARAARAARAARATION BY THE CEO UNDER CL
O THE
O THE
GREEMENT REGARDING ADHERENCE T
GREEMENT REGARDING ADHERENCE T
TING A
TING A
USE 49 I (D) OF THE LIS
TION BY THE CEO UNDER CLAAAAAUSE 49 I (D) OF THE LIS
USE 49 I (D) OF THE LIS
TION BY THE CEO UNDER CL
TION BY THE CEO UNDER CL
O THE
GREEMENT REGARDING ADHERENCE TO THE
TING AGREEMENT REGARDING ADHERENCE T
USE 49 I (D) OF THE LISTING A
O THE
GREEMENT REGARDING ADHERENCE T
TING A
USE 49 I (D) OF THE LIS
TION BY THE CEO UNDER CL
CODE OF CONDUCT
CODE OF CONDUCT
CODE OF CONDUCT
CODE OF CONDUCT
CODE OF CONDUCT
To,
The Members of Subex Azure Limited
In accordance with Clause 49 sub-clause I (D) of the Listing
Agreement with the Stock Exchanges, I hereby confirm that, all
the Directors and the Senior Management personnel including
me, have affirmed compliance to their respective Codes of Conduct,
as applicable for the Financial Year ended 31st March, 2006.
Place : Bangalore
Date : 26th June, 2006
for Subex Azure Limited
Subash Menon
Founder Chairman,
Managing Director & CEO
31
Subex Azure Limited (formerly Subex Systems Limited)
GEMENT’S DISCUSSION AND ANALYSISYSISYSISYSISYSIS
GEMENT’S DISCUSSION AND ANAL
MANAMANAMANAMANAMANAGEMENT’S DISCUSSION AND ANAL
GEMENT’S DISCUSSION AND ANAL
GEMENT’S DISCUSSION AND ANAL
OVERVIEW
OVERVIEW
OVERVIEW
OVERVIEW
OVERVIEW
Subex Azure Limited (Subex Azure) is listed on the National Stock
Exchange of India Limited (NSE), Bombay Stock Exchange Limited
(BSE) and the Bangalore Stock Exchange Limited (BgSE). The Global
Depository Receipts of the company are listed on the Luxembourg
Stock Exchange. Until recently, the company was called Subex
Systems Limited. Consequent to the acquisition of Azure Solutions
Limited, UK, by Subex Systems Limited, the name of the company
was changed to Subex Azure limited.
The management of Subex Azure is committed to improve the
levels of transparency and disclosure. Keeping this in mind, an
attempt has been made to disclose hereunder, information about
the company, its business, operations, outlook, risks and financial
condition.
The financial statements have been prepared in compliance with
the requirements of the Companies Act, 1956, and the Generally
Accepted Accounting Principles (GAAP) in India. The management
of Subex Azure accepts responsibility for the integrity and objectivity
of these financial statements, as well as for various estimates and
judgments used therein. The estimates and judgments relating to
the financial statements have been made on a prudent and
reasonable basis, in order that the financial statements reflect the
form and substance of transactions in a true and fair manner, and
reasonably present the state of affairs and profits for the year
under review.
In addition to the historical information contained herein, the
following discussion may include forward looking statements which
may involve risks and uncertainties, including but not limited to the
risks inherent in the company’s growth strategy, dependency on
certain clients, dependency on availability of qualified technical
personnel and other factors discussed in this report.
1. INDUSTRY STRUCTURE AND DEVELOPMENTS
1. INDUSTRY STRUCTURE AND DEVELOPMENTS
1. INDUSTRY STRUCTURE AND DEVELOPMENTS
1. INDUSTRY STRUCTURE AND DEVELOPMENTS
1. INDUSTRY STRUCTURE AND DEVELOPMENTS
1.1 Subex Azure operates in a niche market providing Revenue
Maximization solution to telecommunications service providers
(telcos) worldwide. These solutions improve the revenues and
profits of the communications service providers through
identification and elimination of leakages in their revenue chain.
Subex Azure conceptualizes and develops software products at its
facilities in Bangalore and is focused on the telecom business
segment. Subex Azure has sales and support offices in the United
States, Canada, UK and China. Subex Azure is the global leader in
its’ chosen area of operation – namely revenue maximization for
communications service providers.
The causes for leakages can be broadly classified into two –
deliberate and non deliberate. The former occurs due to fraud
perpetrated by subscribers on the telcos. The latter occurs due to
a variety of issues like lack of processes, improper processes,
technical errors, equipment malfunction, human errors etc. The
former accounts for about 4% and the latter about 8% of the
revenues of the telcos. Given the total revenue of about US$ 1.3
trillion, the losses add upto about US$ 150 billion globally. Needless
to say, this is a major cause of worry for the telcos and has resulted
in a growing market for our solutions.
2 .2 .2 .2 .2 .
OPPOR
OPPOR
TUNITIES AND THREA
TUNITIES AND THREA
TUNITIES AND THREATSTSTSTSTS
OPPORTUNITIES AND THREA
OPPOR
OPPOR
TUNITIES AND THREA
32
2.1 GROWTH STRATEGY – ORGANIC AND INORGANIC
We have been growing at a frenetic pace as a result of a carefully
balanced combination of organic and inorganic routes. In the world
of software products, particularly in an area of high technology,
depending solely on organic growth is suicidal. Hence our balanced
approach.
Being in the telecom space, there are several ways to grow
organically and we employ all of them extensively. As our revenues
are linked to the size of operations of our customers, we grow
with them. Given the number of products that we have, cross
selling is another avenue for growth. A unique feature of the
telecom sector is the presence of large groups with operations in
multiple geographies. We take advantage of this phenomenon to
spread our footprint. Finally, the carriers constantly evolve through
the provision of new services. We endeavor to extend our products
to cover all these services and thereby create a larger market for
ourselves. About half of the current base of customers were
acquired in an organic manner over the course of six years.
Inorganic means is a key element of our growth strategy. Our
approach here is to be proactive and the same has resulted in our
identifying and acquiring a few key companies and divisions of
companies in the past. The latest one, Azure Solutions Limited of
UK, is a case in point. Azure enhances our brand, domain expertise,
product set and customer base. These are apart from the fact
that we have now achieved global leadership with the help of this
acquisition. The first step in our approach is to chart out the plan
for the future with regard to all the key areas of business – namely
products, markets, penetration etc. The next step is to conduct a
gap analysis and pin point the main areas for improvement or
corrective action. This then leads to the employment of acquisition
as a strategy to address the issues that come to the surface,
through the process of identification of suitable targets and
endeavoring to conclude transactions. We have concluded six
successful acquisitions during the past seven years and will continue
to scout for more such opportunities at the appropriate time.
2.2 MARKET OPPORTUNITY
With the conclusion of the transaction with Azure, and the
formation of the enlarged entity Subex Azure, our stature has
undergone a dramatic change. This, we believe, opens up a plethora
of opportunities for us in a market that is growing rapidly. Further,
we now address a new space called interconnect and inter-party
management. Thus the market opportunity for us encompasses
four product sets, including these two and our traditional areas of
fraud management and revenue assurance.
Carriers the world over are facing an increasing threat on the
revenue maximization front. A significant reason for that is the
morphing of their business model coupled with the increasing
complexities and scale. While the conventional business model
was to serve products – voice, data etc. – that were generated by
their own networks, the new model is to offer products – like ring
tones, music downloads, video clippings, commercial products etc.
– from other providers thereby functioning as a channel. This
brings with it an added element of risk if revenue leakage happens.
For example, if a carrier misses out to bill for a music download,
they will still need to pay the provider for that download while not
collecting from their customer. This, in effect, is a “double
whammy”. Thus, revenue maximization solutions are fast
becoming key investments for all communications service providers
leading to an unprecedented demand for these solutions.
However, there are widely ranging estimates about the size of
the market. While the loss due to revenue leakages has been
established fairly accurately by Analysys of UK at about 13% of
the revenue of a carrier, the size of the resultant market for tools
to address this loss is yet to be ascertained precisely. Given to
conservative estimates, we put the figure at US$ 250 million during
the current year growing at about 15 to 20% annually and that
gives us a market share of about 25%. As regards the market for
interparty management and interconnect, while the market for
the latter is growing only at about 5%, that for the former is
growing at 39% although from a lower base. The data, as per our
estimates, is presented below.
)
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$
(
)
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$
(
120
100
80
60
40
20
0
120
100
80
60
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Market size
92.6
96.9
102.2
2005-06
2006-07
2007-08
Interconnect
Market size
27.9
40.7
53.7
2005-06
2006-07
2007-08
Inter-Party Management
3 .3 .3 .3 .3 . BUSINESS SEGMENTS AND INDUSTRY OUTLOOK.
BUSINESS SEGMENTS AND INDUSTRY OUTLOOK.
BUSINESS SEGMENTS AND INDUSTRY OUTLOOK.
BUSINESS SEGMENTS AND INDUSTRY OUTLOOK.
BUSINESS SEGMENTS AND INDUSTRY OUTLOOK.
3.1 BUSINESS SEGMENTS
Subex Azure operates in two business segments – telecom
software products and telecom software services. The former is
the key focus area for the company and will be discussed in detail.
The latter is staff augmentation services for telcos in the United
States and is fast losing its’ significance as can be seen from the
business mix data provided herein.
Revenue Mix
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.
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12000
1000
800
600
400
200
0
Subex Azure Limited (formerly Subex Systems Limited)
Profit Mix
600
500
400
300
200
100
0
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2001-02
2002-03
2003-04
2004-05
2005-06
Profit from Products
Profit from Services
3.2 TELECOM SOFTWARE PRODUCTS
Subex Azure’s defined space of operation for products is revenue
maximization for telcos. The objective is to develop and market
products that belong to this category. Towards this end, Subex
Azure has developed and is marketing Ranger™, a fraud
management system; INcharge™, a revenue assurance system
and ONtrack™, a subscriber risk management system. Further, the
interparty solutions from Azure have also been added to the product
portfolio. These products form a suite in the revenue maximization
space, called RevMax™. During the year ended 31st March, 2006,
we launched a new concept called Revenue Operations Center
(ROC). This concept calls for a facility with four major components –
software, hardware, processes and people. The company provides
the software portion (RevMax™) of the facility and hence considers
itself to be powering the ROC. This positioning has been brought
forward in our logo. Going forward, the conceptualization and launch
of new products within the RevMax™ suite will be guided by the
proposition of powering the ROC.
Ranger™ Fraud Management System
Ranger™ Fraud Management System
Ranger™ Fraud Management System
Ranger™ Fraud Management System
Ranger™ Fraud Management System
Fraud is a global malaise in telecom networks and has a very
significant impact in the bottom lines of telecom operators.
Fraudsters, who are proving to be extremely innovative, are devising
advanced techniques to defraud networks and the losses can be
quite huge. Surveys show that about 4% of the industry’s revenue
is lost to fraud.
Though digital technologies like GSM and CDMA are secure to a
large extent from technical frauds, subscription related and
behavioral frauds are on the upswing. A very focused approach is
essential to combat these frauds in telecom networks. The types
of fraud that are generally encountered by the telcos are:
● Subscription fraud
● Call selling fraud
● Premium rate service fraud
● Cloning fraud
● Internal fraud
● PABX hacking fraud
● Clip-on fraud
● Pre-paid fraud
● Roaming fraud
● Roaming subscription fraud
2001-02
2002-03
2003-04
2004-05
2005-06
Revenue from Products
Revenue from Services
Combating fraudsters, who are proving to be extremely innovative,
calls for high-end preventive solutions. Successful management of
fraud depends upon the ability of the solution to pre-empt the
occurrence of fraud rather than reacting after the fraud has
33
Subex Azure Limited (formerly Subex Systems Limited)
occurred in a large scale. Ranger™ finds fraud in the network as
early as possible and thus limits the revenue loss that may be
suffered by the operator.
Ranger™ employs a unique mix of events, rules, profiling, pattern
matching, subscriber pre-check and credit management to identify
and curb fraudulent activity. The call data of each subscriber is
mapped and analyzed to furnish accurate alarms and reports to
the operator. Comprehensive information on the case provided
by Ranger™ enables the investigator to quickly settle a case, which
reduces the exposure to fraud considerably. Ranger™ comprises
closely integrated modules that allow telecom operators to
constantly keep a track on the usage pattern of their subscribers
and detect fraud in their network.
INcharge™ Revenue Assurance System
INcharge™ Revenue Assurance System
INcharge™ Revenue Assurance System
INcharge™ Revenue Assurance System
INcharge™ Revenue Assurance System
Revenue leakage in a carrier’s network can occur at any point in
the billing chain. Errors and mismatches across switches, inventory,
provisioning, mediation, rating and billing systems result in revenue
losses from incorrect billing, unused assets and unbilled usage,
among other things. Some of the most common causes of revenue
leakage include:
●
●
●
Unbilled usage or facilities due to provisioning system errors
Incomplete, missing, duplicate and inaccurate CDRs (Call
Detail Record) from switches
Incorrect identification and Mis-handling of CDRs within
mediation and billing systems
● Mismatches between inventory and billing systems
●
Billing and rating errors
Further, increasing competition in telecommunications markets
and the emergence of a growing number of new services has led
to a substantial increase in interconnection (IC) traffic. The fee
paid out to other carriers for traffic passed to their network account
for roughly half of a carrier’s operating costs, and thus deserves a
much closer scrutiny. Yet another area of concern has evolved due
to the new revenue models being deployed by telcos. In these
new revenue models, telcos are fast emerging as sales channels
and payment gateways for a variety of products like ring tones,
music downloads, video downloads utility payments etc. In these
instances, the potential loss to the telcos who fail to recognise and
collect revenues from their customers is considerably high as they
will have to payout to those who provided the content and services.
Thus, irrespective of whether the telcos collected any revenue or
not, they will end up paying out, leading to a significant loss.
A revenue assurance tool helps the operators to automate their
revenue leakage detection and resolution process. It provides
benefits to the revenue assurance analysts in the following ways:
●
●
●
The right tool provides an end-to-end revenue assurance
capability, allowing analysts to progressively extend revenue
assurance to all areas of operation.
The tool performs automatic processing and reconciliation of
large data volumes, thus offering larger coverage.
The tool includes powerful analysis tools that help revenue
assurance analysts quickly zero in on root cause of a detected
revenue leakage.
● Workflow to help prioritise the most critical issues and lead on
ONtrack™ Subscriber Risk Management System
ONtrack™ Subscriber Risk Management System
ONtrack™ Subscriber Risk Management System
ONtrack™ Subscriber Risk Management System
ONtrack™ Subscriber Risk Management System
Subscriber delinquency and bad debt is a serious problem faced
by almost every operator in the world today. On an average,
around 5% of an operator’s revenue is written off as bad debt.
Further, subscriber entry qualification criteria is becoming less
stringent than before as operators aggressively pursue subscriber
growth. While use of credit assessment and scoring methodologies
have helped tackle the problem prior to activation, a significant
portion of risk exists post activation. Operators need to monitor
the liability and outstanding against each subscriber on a continuous
and real-time basis, in order to detect delinquency risks early-on in
the billing cycle to limit instances of bad debt. A successful risk
management strategy would aim to close the gap through pre-
emptive techniques such as seeking part payments from subscribers
with unusually high usage or identify subscribers with whom the
post invoice follow up needs to be done with greater urgency .
ONtrackTM continuously monitors and tracks the possibility of a
subscriber going delinquent in the network and thus enables
operators to minimize their losses eary-on and pre-empt a
potential write-off. ONtrackTM uses a very flexible rule driven risk
modelling core that allows the system to profile, segment and
define highly focussed risk management strategies. Monitoring the
build-up of unbilled amounts is one such strategy; another would
be to detect subscriber behaviour changes which suggest that the
subscriber would not be able to pay his bills.
ONtrackTM employs an integrated usage tracking and rating
mechanism that enables the operator to use a subscriber’s usage
details to achieve near-real time risk assessment, thereby negating
any delay imposed by conventional methods on revenue recovery.
Further, ONtrack’s flexible workflow helps the operator to better
prioritise cases and even automate monotonous routine tasks like
sending out reminders. Thus, ONtrackTM reduces the time taken
to work on a case thereby allowing the operator to work more
actively in controlling their losses from bad-debt.
Interparty Settlement Solutions
Interparty Settlement Solutions
Interparty Settlement Solutions
Interparty Settlement Solutions
Interparty Settlement Solutions
Inter-Party is a modular billing and DWH solution that provides
retail/reseller, wholesale and IP/Content provider solutions for one
or multiple business lines on a single modular platform. Its unique
architecture enables the calculation of multiple charges for each
transaction, and the correlation of reseller revenues with content
provider costs/out payments. This approach not only helps
organizations to realize a reduced cost of ownership, but also
leverages the consolidated data through enhanced corporate-
wide business analysis and reporting capabilities. As product bundles
and their related tariff plans become ever more complex, this
ability to see all revenues and related costs is vital to ensuring a
healthy bottom line.
Interparty provides support for a wide range of business models
where revenue and cost is shared across parties based on a
transaction including:
●
●
●
●
●
Revenue sharing
Self-billing
Reverse billing
Sponsorship
Advertising
34
to structured resolution and tracking of issues.
● MVNO
All Inter-Party settlement implementations are underpinned by a
highly functionally rich billing framework that supports end-to-end
billing workflow. The aforementioned business models and associated
service ‘plug-ins’ are then incorporated into the solution to support
bespoke needs. The billing framework provides the foundations of
all billing implementations including, but limited to, reseller and
content provider account management, product management,
discounts, invoice presentation and generation, out payment report
generation, billing cycles, bill hierarchies and audit trails.
3.3 CUSTOMER BASE
With the acquisition of Azure Solutions, the company serves 150
customers across 60 countries. Further, we now have 23 of the
world’s Top 40 telcos as our customers. Needless to say, this adds
to our superior position in the market thereby enabling us to increase
our market share and grow significantly with time. BT is the largest
customer contributing a very large portion of our revenue
3.4 REVENUE MODEL
Subex Azure licenses its software solutions on a per subscriber or per
transaction basis resulting in continuous growth in license revenues
depending on the growth of the networks where the solutions are
installed. Another sustainable revenue stream is the support revenue
calculated as a function of the license revenue. These three streams
of revenue – new license, additional license and support – are
expected to lend stability to the overall revenue of the company.
Further, we also have a fourth stream of revenue namely,
customization. The following graph gives the revenue from each of
the streams and from Third Party during FY04, FY05 and FY06.
Revenue
Revenue
Revenue
Revenue
Revenue
Stream
Stream
Stream
Stream
Stream
License &
Addl. License
Support
Customization
Third Party
% of total
% of total
% of total
% of total
% of total
FY04
FY04
FY04
FY04
FY04
% of total
% of total
% of total
% of total
% of total
FY05
FY05
FY05
FY05
FY05
% of total
% of total
% of total
% of total
% of total
FY06
FY06
FY06
FY06
FY06
88%
10%
0
2%
64%
18%
13%
5%
67%
19%
5%
9%
Subex Azure Revenue Stream
90
80
70
60
50
40
30
20
10
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Subex Azure Limited (formerly Subex Systems Limited)
3.5 GEOGRAPHICAL MIX
Our revenues from developed markets (particularly from the
Americas) have been growing steadily. This indicates that even
developed markets are far from a point of saturation for our
products and that emerging markets will turn out to be excellent
markets for us in the coming years when they start maturing.
Thus, the long term potential of our space is obvious from the
revenue split among the various geographies given below.
% of Rev.....
% of Rev
% of Rev
% of Rev
% of Rev
in FY04
in FY04
in FY04
in FY04
in FY04
% of Rev.....
% of Rev
% of Rev
% of Rev
% of Rev
FY05
FY05
FY05
FY05
FY05
% of Rev
% of Rev
% of Rev
% of Rev
% of Rev
FY06
FY06
FY06
FY06
FY06
54%
23%
23%
52%
34%
14%
55%
36%
9%
Revenue break-up based on geographies
6
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0
0
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AreaAreaAreaAreaArea
EMEA
Americas
APAC
e
g
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60
50
40
30
20
10
0
% of Rev. in FY 04
% of Rev. in FY 04
% of Rev. in FY 04
EMEA
Americas
APAC
3.6 AVERAGE REVENUE PER CONTRACT
The progression in Average Revenue Per Contract (ARPC), a key
measure that leads to increased profitability, is given below. We
expect this to continue its’ progression in the years to come.
Average Revenue Per Contract
0
0
0
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$
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U
1000
900
800
700
600
500
400
300
200
100
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% of total revenue
in FY 04
% of total revenue
in FY 05
% of total revenue
in FY 06
License & Addl. Licnese
Support
Customization
Third Party
FY 01
FY 02
FY 03
FY 04
FY 05
FY 06
3.7 AVERAGE REVENUE PER SUBEXIAN
In the Products business, our Average Revenue Per Subexian (ARPS),
another key measure that leads to increased profitability, has been
increasing steadily. The following graph shows the progression on
this front.
35
Subex Azure Limited (formerly Subex Systems Limited)
Average Revenue Per Subexian
0
0
0
‘
$
S
U
90
80
70
60
50
40
30
20
10
0
FY 04
FY 05
FY 06
3.8 QUALITY
Subex Azure is dedicated to maintain the highest levels of quality
standards throughout its operations. Towards this, Subex Azure
has been accredited ISO 9001:2000 certification.
may not be able to adapt to these challenges or respond successfully
or in a cost-effective way. Our failure to do so would adversely
affect our ability to compete and retain customers or market
share. Launching new products is a key element of our growth
and an inability to bring new products with high demand to the
market in a timely manner will reduce our growth and profitability.
Subex Azure has set up processes and methodologies to address
this threat and to turn it into a strategic advantage by being in the
forefront of technological evolution. Regular skill upgradation
programs and training sessions that include attending global
conferences, employing specialized consultants etc. are
undertaken.
Retention of software personnel is another major risk being faced
by Subex Azure. Towards this, it provides an empowered
atmosphere with extensive mentoring, career counseling and
constant learning opportunities in cutting edge and challenging
technologies.
4 .4 .4 .4 .4 . RISKS AND CONCERNS
RISKS AND CONCERNS
RISKS AND CONCERNS
RISKS AND CONCERNS
RISKS AND CONCERNS
4.4 INTELLECTUAL PROPERTY
Any business has several risks related to that. Our business is no
different. Following are the risks that we are cognizant of.
4.1 MARKET
The communications industry continues to experience consolidation
and an increased formation of alliances among communications
service providers and between communications service providers
and other entities. Should one of our significant customers
consolidate with a service provider using a competing product and
decide to discontinue the use of our product(s), this could have a
negative material impact on our business. These consolidations
and alliances may cause us to lose customers or require us to
reduce prices as a result of enhanced customer leverage, which
would have a material adverse effect on our business. We may
not be able to offset the effects of any price reductions. We may
not be able to expand our customer base to make up any revenue
declines if we lose customers.
Subex Azure is fully dependant on the telecom industry. So, any
vagaries in the telecom business environment will considerably
impact the fortunes of the company. Further, the revenue
maximization market is evolving resulting in uncertainties on the
size of the market, opportunities etc.
4.2 DEBTORS
The extremely competitive nature of the industry has led to an
abnormally high debtor position that has been detrimental to
cashflow. While the situation has been improving, it could take us
a few more quarters to bring normalcy. Certain markets in which
Subex Azure sells its products are subject to foreign exchange
repatriation and economic risks, which may result in either delayed
recovery or even non-realisation of revenue. Subex Azure conducts
adequate due diligence while venturing into such markets.
4.3 TECHNOLOGY AND PERSONNEL
Our industry is characterized by rapid technological changes and
frequent new service offerings. Significant technological changes
could make our technology and services obsolete, less marketable
or less competitive. We must adapt to our rapidly changing market
by continually improving the features, functionality, reliability and
capability of our products to meet changing customer needs. We
Our success depends to a significant degree upon the protection
of our software and other proprietary technology rights. We rely
on trade secret, copyright and trademark laws and confidentiality
agreements with Subexians and third parties, all of which offer
only limited protection. The steps we have taken to protect our
intellectual property may not prevent misappropriation of our
proprietary rights or the reverse engineering of our solutions. Legal
standards relating to the validity, enforceability and scope of
protection of intellectual property rights in several countries are
uncertain and may afford little or no effective protection of our
proprietary technology. Consequently, we may be unable to prevent
our proprietary technology from being exploited abroad, which
could require costly efforts to protect our technology. Policing the
unauthorized use of our products, trademarks and other
proprietary rights is expensive, difficult and, in some cases,
impossible. Litigation may be necessary in the future to enforce or
defend our intellectual property rights, to protect our trade secrets
or to determine the validity and scope of the proprietary rights of
others. Such litigation could result in substantial costs and diversion
of management resources, either of which could harm our business.
Accordingly, despite our efforts, we may not be able to prevent
third parties from infringing upon or misappropriating our
intellectual property.
4.5 INFRINGEMENT
Third parties could claim that our current or future products or
technology infringe their proprietary rights. Any claim of
infringement by a third party, even those without merit, could
cause us to incur substantial costs defending against the claim,
and could distract our management from our business. Third
parties may also assert infringement claims against our customers.
These claims may require us to initiate or defend protracted and
costly litigation on behalf of our customers, regardless of the merits
of these claims. If any of these claims succeed, we may be forced
to pay damages on behalf of our customers. We also generally
indemnify our customers if our services infringe the proprietary
rights of third parties. If anyone asserts a claim against us relating
to proprietary technology or information, while we might seek to
license their intellectual property, we might not be able to obtain
a license on commercially reasonable terms or on any terms.
36
4.6 ACQUISITION
4.11 TAXATION
Subex Azure Limited (formerly Subex Systems Limited)
Acquisition has always been a significant element of our strategy.
After concluding several small acquisitions, we have now
consummated the biggest in our history. While we have
considerable experience in handling acquisitions spread over the
past 6 years, the scale of the latest one (that of Azure Solutions
Limited) increases the risk by manifold. It is critical to achieve
seamless integration with the acquired entity as our ability to
serve the customers to the expected levels and meet the
expectations of all Subexians will depend heavily on this integration.
Until the acquisition, Azure was a loss making organization.
Converting that operation into a profitable one is another key
aspect that could jeopardize our plans. Further, we need to leverage
the strengths of the combined entity to ensure growth in the
future. Thus, this new acquisition poses several risks that were not
perceived with the acquisitions in the past. While we believe that
adequate planning and strategizing have taken place, the results
of the execution will be known only by the end of the financial
year 2006 – 07.
4.7 VARIABILITY OF QUARTERLY OPERATING RESULTS
The quarterly operating results of the company have varied in
the past due to reasons like seasonal pattern of hardware and
software capital spending by customers, information technology
investment trends, achievement of milestones in the execution
of projects, hiring of additional staff and timing and integration
of acquired businesses. Hence, the past operating results and
period to period comparisons may not indicate future
performance. The management is attempting to mitigate this
risk through expansion of client base geographically and increase
of steady annuity revenue. Despite those efforts, the variability
could continue.
The company constantly endeavors to safeguard itself against the
above mentioned risks by adopting best practices, advanced
processes, future proof investments and up-gradation of skills and
capabilities. Consequently, we believe that we are reasonably well
protected against the risks.
4.8 STATUTORY OBLIGATIONS
Subex Azure has registered with Software Technology Parks of
India for software development activities and has availed Customs
Duties, Sales Tax and Central Excise exemptions. The non-
fulfillment of export obligations may result in penalties as stipulated
by the Government and this may have an impact on future
profitability.
4.9 ENVIRONMENTAL MATTER
Software development, being a pollution-free industry, is not
subject to any environmental regulations.
4.10 FOREIGN EXCHANGE
Subex Azure has substantial exposure to foreign exchange related
risks on account of revenue earnings from export of software. These
are hedged with banks and risks mitigated to the extent possible.
Significant tax benefits have been given to the software companies
in India. These benefits are presently available to Subex Azure.
However, the policies are subject to change. Any change may
adversely affect its’ post tax profits.
India, having been among the signatories to the World Trade
Organization, there exist a commitment to reducing the import
tariff levels, thereby exposing the Indian entrepreneurs to global
competition.
4.12 LITIGATION
There is an increasing trend in litigation regarding intellectual
property rights, patents and copyrights in the software industry.
There also exist other corporate legal risks. Subex Azure has no
material litigation pending against it in any court in India or abroad.
4.13 CONTRACTUAL OBLIGATION
In terms of the contracts entered into by Subex Azure with its
customers in the ordinary course of business, it is obliged to perform
and act according to the contractual terms and regulations. Failure
to fulfill the contractual obligations arising out of such contracts
may expose Subex Azure to financial and other risks.
The management has taken sufficient measures to cover all of its
contractual risks and does not foresee any major liability due to its
non - fulfillment of any contractual terms and conditions.
5 .5 .5 .5 .5 .
INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY
INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY
INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY
INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY
INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY
Management maintains internal control systems designed to
provide reasonable assurance that assets are safeguarded,
transactions are executed in accordance with management’s
authorization and properly recorded, and accounting records are
adequate for preparation of financial statements and other financial
information. The internal audit function also carries out Operations
Review Audits to improve the processes and strengthen control of
the existing processes. The audit committee periodically reviews
the functions of internal audit.
Pursuant to the revised Clause 49 of the Listing Agreement, the
CEO and CFO have to accept responsibility for establishing and
maintaining internal controls for financial reporting and that they
have evaluated the effectiveness of internal control systems of
the company pertaining to financial reporting and that they have
disclosed to the auditors and the audit committee, deficiencies in
the design or operation of such internal controls, if any, of which
they are aware and the steps they have taken or propose to take
to rectify these deficiencies.
An internal steering committee has been formed, under the
supervision of audit committee and a dedicated team of
professionals are engaged in assessing the adequacy of the
company’s internal controls over financial reporting, developing
remediation plans for control deficiencies, if any, identified during
the assessment, and validate through testing that the controls are
functioning as documented.
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Subex Azure Limited (formerly Subex Systems Limited)
TIONAL PERFORMANCE
TIONAL PERFORMANCE
O OPERA
6. DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TT TT TT TT TO OPERA
O OPERA
6. DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPEC
6. DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPEC
TIONAL PERFORMANCE
O OPERATIONAL PERFORMANCE
6. DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPEC
TIONAL PERFORMANCE
O OPERA
6. DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPEC
6.16.16.16.16.1 Key financials and ratio analysis
Key financials and ratio analysis
Key financials and ratio analysis
Key financials and ratio analysis
Key financials and ratio analysis
Amount in Rs million, except key indicators
Financial Highlights /
Financial Highlights /
Financial Highlights /
Financial Highlights /
Financial Highlights /
ear ending 31ststststst Mar
ear ending 31
ear ending 31
YYYYYear ending 31
Marchchchchch
Mar
Mar
ear ending 31
Mar
Total income
Export sales
Operating Profits (EBDIT)
Depreciation & Amortization
Profit before tax
Profit after tax
Equity Dividend %
Share Capital
Reserves & Surplus
Net Worth
Gross fixed Assets
Net Fixed Assets
Total Assets
Key Indicators
Key Indicators
Key Indicators
Key Indicators
Key Indicators
2006
2005
2004
2003
2002
2001
1,841.19
1,787.39
539.44
90.79
422.23
391.50
25%
217.58
1,597.75
1,816.20
653.06
391.61
1,172.35
1,086.40
356.74
71.43
261.10
253.03
30%
100.67
1,132.05
1,233.04
555.42
367.83
891.94
828.53
246.02
42.68
189.04
177.50
20%
73.54
540.94
799.39
209.61
89.66
706.41
676.01
162.19
37.98
101.75
96.12
10%
73.44
403.26
628.85
161.55
77.84
592.51
573.79
95.67
35.68
47.92
41.84
10%
71.23
458.01
367.11
163.81
109.53
557.89
479.59
126.90
20.80
103.94
102.77
20%
71.26
421.82
488.39
109.82
85.53
2,159.76
1,745.12
1,085.76
997.68
896.16
672.06
Earning per Share (Year end)
17.99
25.13
24.14
13.09
5.87
14.42
Cash Earning per Share (Year end)
22.17
32.23
29.94
18.26
10.88
17.34
Book value per Share
83.47
122.48
108.70
85.63
51.54
68.54
Debt (including Working capital)
Equity Ratio
EBDIT / Sales - %
Net Profit Margin - %
Return on year end Net Worth %
Return on year end Capital
Employed %
0.01
0.23
0.21
0.32
0.46
29%
22%
22%
30%
30%
22%
21%
23%
28%
20%
22%
26%
23%
14%
15%
20%
16%
7%
11%
18%
0.01
23%
18%
21%
26%
Note: Earning per share, Cash Earning per share and Book Value of share are in Rupees.
7 .7 .7 .7 .7 .
Y ON FINANCIAL STTTTTAAAAATEMENTS
TEMENTS
TEMENTS
Y ON FINANCIAL S
OMMENTARARARARARY ON FINANCIAL S
Y ON FINANCIAL S
OMMENT
CCCCCOMMENT
OMMENT
TEMENTS
TEMENTS
Y ON FINANCIAL S
OMMENT
7.2 RESERVES AND SURPLUS
7.1 SHARE CAPITAL
7.1.1 Of the equity paid-up capital, the company had issued the
following shares towards consideration other than cash.
●
●
●
●
115,000 shares of Rs.10 each, towards the balances in the
current account of partners, Mr. Subash Menon and Mr. Alex
J. Puthenchira, on the takeover of Subex Systems, a
partnership firm, by the company during 1993-94.
4,626,940 shares of Rs.10 each to all eligible shareholders as
on 31st March, 1999 in the ratio of 1:1 by capitalizing the
General Reserves.
12,840 shares of Rs.10 each to the erstwhile owners of
M/s. IVth Generation Inc., towards part consideration of the
cost of acquisition of that company at Rs.1,023 per share
during 1999-2000.
10,878,784 shares of Rs.10 each to all eligible shareholders as
on 6th January, 2006 in the ratio of 1:1 by capitalizing the
securities premium.
7.1.2 During 2005-06 the company issued 65,408 shares of Rs.10
each to various employees on exercise of Stock Options granted
under the Employee Stock Option Plan (ESOP – II).
38
7.1.3 There are no calls in arrears.
7.2.1 Capital Reserve of Rs.13 million was created by credit of the
notional premium on 12,840 equity shares of Rs.10 each valued at
a price of Rs.1,023 per share and issued to the owners of IVth
Generation Inc, USA as part consideration for the transfer of
their shareholding to Subex Systems Ltd.
7.2.2 Share Premium Account represents the premium collected on:
●
●
●
●
●
971,000 equity shares issued at a premium of Rs.65 per share
through an Initial Public Offer in 1999-2000.
330,800 equity shares issued at a premium of Rs.740 per
share to mutual funds and bodies corporate on a preferential
basis during 1999-2000.
1,887,000 equity shares issued at a premium of Rs. 88 per
share to holders of ROCCPS on conversion of preferential
shares of Rs. 98 each, namely Intel Capital, Toronto Dominion
Bank and UTI Venture Funds.
1,538,459 equity shares issued at a premium of Rs.290 per
share to holders of FCCBs on conversion of the bonds at a
price of Rs.300 per share.
65,408 equity shares allotted to the employees under ESOP II
Scheme as per the provisions of the Scheme.
7.2.3 A sum of Rs.158,956,637 being the cost of Intellectual Property
Rights acquired from Magardi, Inc, in 2001-02, has been written off
against the Share Premium Account, in terms of the approval of
the Shareholders in an Extraordinary General Meeting and the
subsequent confirmation of the Honourable High Court of Karnataka
under section 78 and 100 of the Companies Act, 1956.
7.2.4 The company has transferred Rs.39.50 million (Previous year,
Rs.25.5 million) to General Reserves during the year.
7.2.5 In accordance with the guidelines issued by the Institute of
Chartered Accounts of India on Accounting for Deferred Taxes, a
net gain of Rs.3.94 million have been recorded in the P&L A/c on
account of recognition of deferred tax asset as at year end,
amounting to Rs. 7.91 million.
7.2.6 In accordance with the guidelines issued by SEBI under the
ESOS & ESPS Scheme 1999, the company has created a Reserve
towards the excess of market price of the underlying equity shares
as on the date of the grant of the option over the exercise price of
the option, to be adjusted over the period of vesting. The amount
of reserves as at 31st March, 2006 is Rs.8.88 million (Previous year,
Rs.4.763 million).
7.3 SECURED LOANS
The secured loan of Rs. 11.12 million (Previous Year, Rs. 73.28
million) outstanding in the books as at 31st March, 2006 pertains to
motorcars financed by the company through Hire purchase
scheme with the financiers and is secured by hypothecation
of the vehicles.
7.4 UNSECURED LOANS
Pursuant to conversion of all the Fully Convertible Cumulative Bonds
(FCCB) issued in the previous year, there are no unsecured loans
outstanding.
7.5 DEFERRED PAYMENT CONSIDERATION
The amount of deferred payment consideration outstanding at
the beginning of the year; amounting to Rs.22.75 million represents
the portion of consideration payable to Alcatel UK for transfer of
IPRs pertaining to their FMS business. During the year, this has
been fully discharged by the company.
7.6 FIXED ASSETS
7.6.1 The company acquired business contracts, Intellectual Property
Rights (comprising of trademarks, patents, copyrights) hardware
and software connected with the fraud management software
businesses from Mantas, Inc. USA in an all cash deal of US$ 2.10
million, on 1st March, 2006. The same has been capitalized along
with the expenses incurred in connection with the said acquisition.
7.6.2 The value of intangible assets, based on the valuation report
by independent valuers, is being depreciated over 5 years in
accordance with the company’s assessment of useful life thereof.
Accordingly, an amount of Rs.1,696,053 (pro-rated for the month
of March, 2006) has been depreciated in the financial year under
review.
7.6.3 Consequent to the acquisition, revenues recorded for the
year include revenues arising from these acquisitions as well,
pro-rated for the month of March, 2006.
7.6.4 During the year, the company added Rs.121.47 million to its
gross block, including the FMS business assets of Mantas, as above.
Subex Azure Limited (formerly Subex Systems Limited)
The company disposed off certain assets no longer required. The
company has assets worth Rs.24.20 million (Previous year
Rs. 21.75 million) under hire purchase agreements and - none
(Previous year - Nil) under lease finance.
7.6.5 The company has disposed of its land located at
Yeshwantpur Industrial Area during the year for a sum of
Rs.17,667,000.
7.7 INVESTMENTS
7.7.1 During 1999, the company had acquired the whole of the
outstanding common stocks numbering 3,000 of no par value of
IVth Generation, Inc., New Jersey, USA, Consequent to the
acquisition, IVth Generation Inc, a wholly owned subsidiary of
the company, has been renamed as “Subex Technologies, Inc.”
The investments are carried at cost, including advisory fees,
brokerage and syndication fees for facilitating the investment.
7.7.2 The company has received an independent valuation report
of Subex Technologies, Inc., based on which there is no
impairment in the value of the Investment.
7.7.3 The company has subscribed to the entire share capital of
Subex Technologies Limited, a wholly owned subsidiary company
to the extent of Rs 10 million.
7.8 SUNDRY DEBTORS
7.8.1 During the year, the company has securitized a portion of
its receivables amounting to US$ 8.76 million with UTI Bank Ltd.
7.8.2 The major customers of the company are the telecom
and cellular operators overseas and in India. The receivables are
spread over a large customer base. There is no significant
concentration of credit risk on a single customer, but for the
majority of the services business coming from AT&T, USA.
7.8.3 All the debtors are generally considered good and realizable
and necessary provision has been made for debts considered to
be bad and doubtful. The level of sundry debtors is normal and is
in tune with business trends and requirements.
7.8.4 Sundry debtors as a percentage of total revenue is 53% as
against 63% in the previous year.
7.8.5 The age profile is as given below :
Amount in million Rs.
Period in days
31st March, 2006
31st March, 2005
Value
%
Value
%
Less than 90 days
421.80
43.93
314.14
42.98
90 – 180 days
284.24
29.60
210.07
28.74
More than 180 days
254.15
26.47
206.74
28.28
Total
960.19
100.00
730.95
100.00
7.8.6 The management believes that the overall composition and
condition of sundry debtors is satisfactory.
The company has made fresh provisions for doubtful debts during
the year amounting to Rs. 35.58 million (Previous Year Rs. 4.30
million).
7.8.7 Dues from companies under the same management
●
Subex Technologies, Inc towards dues from certain customers
serviced by Subex Systems - Nil (Previous year - Nil).
● Maximum due during the year -Nil (Previous year, Nil)
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Subex Azure Limited (formerly Subex Systems Limited)
●
Bad debts pertaining to services products division activity
written off during the year Rs.0.14 million (Previous Year,
Rs.0.45 million towards services)
7.9 CASH AND BANK BALANCES
7.9.1 The bank balances in India includes both rupee accounts and
foreign currency accounts. Fixed deposit of Rs.333.67 million is
funded out of book debts securitized.
7.9.2 Cash and bank balances constitute 22.20% of the total assets
as against 18.02% in the previous year.
7.10 LOANS AND ADVANCES
7.10.1 Advances recoverable in cash, kind or value to be received
are primarily towards prepayments for value to be received. Advance
income tax, net of provision for taxation represents payments made
towards tax liability pending assessment and refunds due.
7.10.2 Dues from companies under the same management. -
Rs. 11.53 million from Subex Technologies Limited (Previous Year,
Rs. 0.28 million).
7.10.3 Deposits represent electricity deposit, telephone deposits
and advances of like nature. The company has taken on lease
several buildings for operations and facilities in various cities and
also for housing its staff upon payment of Rs. 26.18 million (Previous
Year, Rs.8.99 million) as rental and maintenance deposits.
7.11 CURRENT LIABILITIES
7.11.1 Sundry creditors for capital goods represent amount payable
to vendors for supply of capital assets and to financiers for supply
of capital assets on hire purchase basis.
7.11.2 Sundry creditors for goods represent amount payable to
vendors for supply of goods.
7.11.3 Sundry creditors - others include creditors for operational
expenses, accrued salaries and benefits and advances received
from clients for delivery of future sales.
7.12 PROVISIONS
Provisions for taxation represent income tax, dividend tax and
wealth tax liability. The provision would be set off upon payment
of tax. The proposed dividend represents the final dividend
recommended to the shareholders by the Board, which would be
paid after the Annual General Meeting.
7.13 FINANCIAL INSTRUMENTS
7.13.1 Letters of credit
The company has Letters of credit amounting to Rs.3.58 (Previous
Year, Rs.5.24 million) million outstanding as at year-end.
7.13.2 Guarantees
The company has outstanding guarantees for various purposes
amounting to Rs.10.08 million as at 31st March, 2006. (Previous
year, Rs.5.17 million). These guarantees are in the nature of
performance guarantees and bid bonds and are subject to the risk
of performance by the company.
7.14 PROFIT & LOSS ACCOUNT
7.14.1 Income
segment wise break up of income is given below;
Amount in Rs. million except percentages
Particulars
2005-2006
2004-2005
Software services
Value
645.32
Software products
1166.82
%
35.61
64.39
Value
537.53
627.97
%
46.12
53.88
Total
1812.16
100.00
1165.50 100.00
7.14.2 Geographically, the company earns income from export of
software services to USA and software products to all countries.
7.15 NON OPERATING INCOME
7.15.1 Non-operating income consists of income derived by the
company by way of interest on deposit with Bank, insurance claims
received towards damages of assets, VAT refund, rental from
sub-lease of premises and write-back of provisions no longer
required and exchange fluctuation.
7.16 EXPENDITURE
7.16.1 The staff cost increased to Rs.946.13 million from Rs.675.73
million during the previous year on account of new recruitment,
increments and increase in onsite consultancy services in US.
7.16.2 The company incurred administration and other expenses
at 12.29% of its total Income during the year as compared to
9.22% during the previous year.
7.17 OPERATING PROFITS
During the year, the company earned an operating profit (profit
before interest, depreciation and tax) of Rs. 539.44 million being
29% of total income as against Rs.356.74 million at 30% during
the previous year.
7.18 INTEREST & BANK CHARGES
The company incurred an expenditure of Rs.26.42 million as against
Rs.24.22 million during the previous year. The interest paid is related
to temporary overdrawals and securitised receivables.
7.19 DEPRECIATION
7.19.1 The provision for depreciation for the year increased to
Rs.90.79 million as compared to Rs. 71.17 million. The increases
mainly on account of the incidence of an entire year’s depreciation
on the Alcatel, and Lightbridge assets acquired in the previous
year. The depreciation provision for FY 2006-07 is expected
to be higher on account of acquisition of Mantas, Inc., on 1st
March, 2006.
7.19.2 The intangible assets i.e. IPRs and goodwill are being
depreciated over 5 years in accordance with the company’s
assessment of useful life thereof. Accordingly, an amount of
Rs. 64,198,915 (Previous year, Rs. 30,831,458) has been depreciated
in the financial year under review.
7.20 PROVISION FOR TAX
The company has provided for its tax liability in India and overseas
after considering the exemptions for income from software services
and products under the various applicable tax enactments.
7.21 NET PROFIT
The company derives its income from providing software
development services and licensing of software products. The
The net profit of the company amounted to Rs.391.50 million as
against Rs.253.03 million during the previous year. The company
40
earned a net profit margin of 22% to total income as against the
same percentage in the previous year.
7.22 EARNINGS PER SHARE
Earnings per share computed on the basis of number of common
stock outstanding, as on the balance sheet date was Rs. 18.23 as
against Rs.13.89 per share for the previous year. The Earnings per
share diluted, for the year was Rs.18.13 as against Rs.13.19 for the
previous year. Shares available with Subex Foundation under ESOP
1999 have been fully considered in the calculation of basic EPS.
7.23 FOREIGN EXCHANGE DIFFERENCE
An amount of Rs. 0.85 million has been accounted for as loss
during the current year compared to gain of Rs. 0.87 million during
the previous year, on account of foreign exchange differences
arising due to timing differences between accrual of income /
expense and receipt / payment of the same.
7.24 DEPRECIATION ON SOFTWARE AND ASSETS COSTING LESS
THAN Rs. 5,000 EACH
During the year, the company charged depreciation at one
hundred percent in respect of assets costing less than Rs. 5,000
each, amounting to Rs. 0.06 million. (Previous year, Rs. 0.10 million).
Cost of software charged off to revenue during the year amounted
to Rs.1.50 million (Previous year, Rs.1.05 million).
8. MATERIAL DEVELOPMENTS IN HUMAN RESOURCES /
INDUSTRIAL RELATIONS FRONT, INCLUDING NUMBER OF PEOPLE
EMPLOYED.
Subexians
As of 31st March, 2006, we had 325 Subexians on our rolls. These
highly trained and motivated people are critical to the success of
our business. We focus on attracting and retaining the best talent
with us.
Our human resources department is centralized at the corporate
headquarters in Bangalore and oversees HR functions across all
the geographies where the company operates. We have
Subex Azure Limited (formerly Subex Systems Limited)
implemented corporate-wide recruiting, training, performance
evaluation and compensation programs that are tailored to address
the needs of each of our business segments.
Recruiting
Subex Azure hires entry level graduates from the top engineering
and management universities in India. The company also hires
through Subexian referral programs, advertisements, placement
consultants, our website postings and walk-ins. To facilitate the
growth of Subexians within the company, all new openings are
first offered to the current Subexians. The nature of work, skill
sets requirements and experience level are highlighted to the
prospective Subexians.
Training
Each of our new recruits must attend a compulsory induction
program when they begin working with us. New or recent
graduates must also attend additional training programs that are
tailored to their area of technology. We also have a training program
for all subexians to improve their technical as well as their soft
skills. We supplement continuing education program by sponsoring
special programs for Subexians at leading educational institutions,
such as the Birla Institute of Technology & Science, Pilani etc., to
provide them cutting-edge skill sets.
Performance Management System
Subex Azure has a competency based appraisal system. Key result
areas of Subexians are assessed through a process of appraisals
involving self, peers and managers. The scores obtained in this
cycle will undergo a normalisation and a moderation process to
bring it in line with the organisation-wide scores.
Compensation
Subex Azure continually provides Subexians with competitive and
innovative compensation packages. The packages include a
combination of salary, stock options, health and disability insurance.
The company measures its compensation packages against industry
standards and strives to match or exceed the same.
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Subex Azure Limited (formerly Subex Systems Limited)
AUDITORS’ REPORT TO THE MEMBERS OF SUBEX SYSTEMS LIMITED
AUDITORS’ REPORT TO THE MEMBERS OF SUBEX SYSTEMS LIMITED
AUDITORS’ REPORT TO THE MEMBERS OF SUBEX SYSTEMS LIMITED
AUDITORS’ REPORT TO THE MEMBERS OF SUBEX SYSTEMS LIMITED
AUDITORS’ REPORT TO THE MEMBERS OF SUBEX SYSTEMS LIMITED
Subex
Subex
1. We have audited the attached Balance Sheet of Subex
Subex
Subex
Systems Limited
Systems Limited
Systems Limited, as at 31st March, 2006, the Profit and Loss
Systems Limited
Systems Limited
Account and the Cash Flow Statement of the Company for
the year ended on that dated annexed thereto. These
financial statements are the responsibility of the management
of the company. Our responsibility is to express an opinion on
these financial statements based on our audit.
2. We conducted our audit in accordance with generally
accepted auditing standards in India. These Standards require
that we plan and perform the audit to obtain reasonable
assurance whether the financial statements are free of
material misstatements. An audit includes, examining on a
test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made
by management as well as evaluating the overall financial
statements presentation. We believe that our audit provides
a reasonable basis for our opinion.
3. As required by the Companies (Auditor’s Report) Order, 2003
issued by the Government of India, in terms of Section 227
(4A) of the Companies Act 1956, we give in the Annexure, a
statement on the matters specified in paragraphs 4 and 5 of
the said Order to the extent applicable to this Company.
4.
Further, to our comments in the Annexure referred to above,
we report that:
(a) we have obtained all the information and explanations, which
to the best of our knowledge and belief were necessary for
the purpose of our audit.
(b)
in our opinion, proper books of account as required by law
have been kept by the Company, so far as it appears from
our examination of the books and proper returns adequate
for the purpose of our audit have been received from the
Company’s branch, in the United States of America (US
Branch) not visited by us.
(c)
the report on the accounts of the US Branch audited by the
Branch Auditors’ has been forwarded to us and has been
dealt with by us in preparing this report.
(d)
(e)
in our opinion, the Balance Sheet, Profit and Loss Account
and Cash Flow Statement dealt with by this report are in
compliance with the Accounting Standards referred to in
Section 211(3C) of the Companies Act, 1956.
the Balance Sheet, Profit and Loss Account and Cash Flow
Statement dealt with by this report are in agreement with
the books of account and the audited branch returns.
(f) on the basis of written representations received from the
directors of the Company, as at 31st March, 2006 and taken
on record by the Board of Directors, we report that none of
the directors is disqualified as on 31st March, 2006 from being
appointed as a director in terms of clause (g) of sub-section
(1) of Section 274 of the Companies Act 1956.
5.
(a)
(b)
(c)
in our opinion and to the best of our information and according
to the explanations given to us, the said accounts read together
with the notes thereon, give the information required by the
Companies Act 1956, in the manner so required, give a true
and fair view in conformity with the accounting principles
generally accepted in India:
in the case of the Balance Sheet, of the state of affairs of the
Company as at 31st March, 2006; and
in the case of the Profit and Loss Account of the profit for the
year ended on that date,
in the case of the Cash Flow Statement, of the cash flows for
the year ended on that date.
Place : Bangalore
Date : 25th April, 2006
for Deloitte Haskins & Sells
Chartered Accountants
V. Srikumar
Partner
Membership No. 84494
O THE MEMBERS OF SUBEX
O THE MEMBERS OF SUBEX
TE T
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TE T
T OF EVEN D
T OF EVEN D
O IN OUR REPOR
O IN OUR REPOR
T (REFERRED T
T (REFERRED T
ORS’ REPOR
ORS’ REPOR
O THE AUDIT
O THE AUDIT
ANNEXURE T
ANNEXURE T
O THE MEMBERS OF SUBEX
TE TO THE MEMBERS OF SUBEX
O IN OUR REPORT OF EVEN D
T (REFERRED TO IN OUR REPOR
ORS’ REPORT (REFERRED T
O THE AUDITORS’ REPOR
ANNEXURE TO THE AUDIT
ANNEXURE T
O THE MEMBERS OF SUBEX
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O THE AUDIT
ANNEXURE T
SYSTEMS LIMITED)
SYSTEMS LIMITED)
SYSTEMS LIMITED)
SYSTEMS LIMITED)
SYSTEMS LIMITED)
1.
The provisions of clauses i(c), iii (d) to (g), (vi), (viii), (x), (xii), (xiii),
(xiv), (xv), (xvi), (xviii), (xix), as contained in para 4 and 5 of the
Companies (Auditors’ Report) Order, 2003, are not applicable
to the Company for the current year.
2.
In respect of its fixed assets:
(a) The Company has maintained proper records showing full
particulars, including quantitative details and situation of fixed
assets.
(b) The fixed assets were physically verified during the year by
the management in accordance with a programme of
verification, which in our opinion provides for physical
verification of all the fixed assets at reasonable intervals.
According to the information and explanations given to us no
material discrepancies were noticed on such verification.
3.
In respect of its inventories:
(a) As explained to us, inventories were physically verified during
the year by the management at reasonable intervals.
(b)
(c)
In our opinion and according to the information and
explanations given to us, the procedures of physical verification
of inventories followed by the management were reasonable
and adequate in relation to the size of the Company and the
nature of its business.
In our opinion and according to the information and
explanations given to us, the Company has maintained proper
records of its inventories and no material discrepancies were
noticed on physical verification.
4.
In respect of loans, secured or unsecured, granted or taken
by the Company to or from companies, firms or other parties
42
covered in the register maintained under section 301 of the
Companies Act, 1956, according to the information and
explanations given to us:
(a)
(b)
the Company has granted loans to one party. At the year
end, the outstanding balances of such loans granted
aggregated to Rs. 11,533,049 and the maximum amount
involved during the year was Rs. 17,322,380.
in our opinion, having regard to the explanation that the loan
is granted to the subsidiary with an intention of providing
financial support, the terms and conditions of the interest
free loan are, prima facie, not prejudicial to the interest of
the Company.
(c) no principal was due during the year ending 31st March, 2006.
5.
6.
In our opinion and according to the information and
explanations given to us, there are adequate internal control
procedures commensurate with the size of the Company
and the nature of its business with regard to the purchase of
inventory and fixed assets and for the sale of goods and
services and we have not observed any continuing failure to
correct major weaknesses in such internal controls.
In respect of contracts and arrangements entered in the
register maintained in pursuance of section 301 of the
Companies Act 1956, to the best of our knowledge and belief,
and according to the information and explanations given to us:
(a)
the particulars of contracts or arrangements referred to in
Section 301 that needed to be entered into the register,
Subex Azure Limited (formerly Subex Systems Limited)
maintained under the said section have been so entered.
(b) where each of such transactions (excluding loans reported
under paragraph 4 above), made in pursuance of contracts
or arrangements, is in excess of Rs. 5 lakhs in respect of any
party, the transactions have been made at prices which are,
prima facie, reasonable having regard to the prevailing market
prices at the relevant time.
7.
In our opinion, the internal audit functions carried out during
the year by a firm of Chartered Accountants appointed by
the management have been commensurate with the size of
the Company and the nature of its business.
8.
In respect of Statutory dues:
(a) according to the information and explanations given to us,
the Company has been generally regular in depositing
undisputed statutory dues including Provident Fund,
Employees’ State Insurance, Investor Education and
Protection Fund, Income Tax, Wealth Tax, Service Tax, Excise
Duty, Customs Duty, Sales Tax, cess and any other material
statutory dues with the appropriate authorities during the
year and there are no undisputed statutory dues as noted
above that are outstanding for a period more than six months
from the date they became payable.
(b) according to the information and explanations given to us,
details of disputed sales tax, income tax, customs duty, wealth
tax, service tax, excise duty and cess which have not been
deposited as on 31st March, 2006, on account of any dispute
are given below:
6
0
-
5
0
0
2
t
r
o
p
e
R
l
a
u
n
n
A
Name of statute
Nature of the dues
Amount (Rs.)
Period to which
the amount relates
Forum where dispute is pending
Income Tax Act, 1961
Income tax
9,352,609
2002-03
We are informed that the Assessment
order was received on 31st March, 2006
and that the company is in the process
of filing an appeal with the Appellate
authorities against the order.
9.
In our opinion and according to the information and
explanations given to us, the Company has not defaulted in
the (re)payment of dues to financial institutions and banks.
10. According to the information and explanations given to us
and the records examined by us, the Company has not raised
funds on short term basis.
11. During the period covered by our audit report, the Company
has not raised any money by public issue.
12. To the best of our knowledge and belief and according to the
information and explanations given to us, no fraud on or by
the Company was noticed or reported during the year.
Place : Bangalore
Date : 25th April, 2006
for Deloitte Haskins & Sells
Chartered Accountants
V. Srikumar
Partner
M. No. 84494
43
Subex Azure Limited (formerly Subex Systems Limited)
Financial Review
Financial Review
Financial Review
Financial Review
Financial Review
Subex Azure Limited (Standalone)
Subex Azure Limited (Standalone)
Subex Azure Limited (Standalone)
Subex Azure Limited (Standalone)
Subex Azure Limited (Standalone)
44
ANCE SHEET AS AS AS AS AS ATTTTT
ANCE SHEET A
BALBALBALBALBALANCE SHEET A
ANCE SHEET A
ANCE SHEET A
SOURCES OF FUNDS
SOURCES OF FUNDS
SOURCES OF FUNDS
SOURCES OF FUNDS
SOURCES OF FUNDS
Shareholders’ funds
Share capital
Share application money
Reserve and surplus
Loan Funds
Loan Funds
Loan Funds
Loan Funds
Loan Funds
Secured loans
Unsecured loans
Deferred payment consideration towards acquisition
- Alcatel, FMS Division
TTTTTotalotalotalotalotal
APPLICAAAAATION OF FUNDS
TION OF FUNDS
TION OF FUNDS
APPLIC
APPLIC
TION OF FUNDS
TION OF FUNDS
APPLIC
APPLIC
Fixed assets
Gross block
Less : Depreciation
Net block
Capital work in progress
Investments
Deferred tax asset (Net)
CURRENT ASSETS, LOANS & ADVANCES
Inventories
Sundry debtors
Cash & bank balances
Loans & advances
Less: Current liabilities & provisions
Net current assets
TTTTTotalotalotalotalotal
Notes on accounts
Subex Azure Limited (formerly Subex Systems Limited)
Schedule
Schedule
Schedule
Schedule
Schedule
3131313131ststststst March, 2006
March, 2006
March, 2006
March, 2006
March, 2006
3131313131ststststst March, 2005
March, 2005
March, 2005
March, 2005
March, 2005
Amount in Rs.
217,575,680
878,089
100,672,230
318,640
1,597,751,141
1,816,204,910 1,132,054,073
1,233,044,943
73,282,446
212,987,750
11,119,920
22,754,000
309,024,196
1,827,324,830
1,827,324,830
1,827,324,830
1,827,324,830
1,827,324,830
1,542,069,139
1,542,069,139
1,542,069,139
1,542,069,139
1,542,069,139
6
0
-
5
0
0
2
t
r
o
p
e
R
l
a
u
n
n
A
555,422,291
188,059,593
367,362,698
11,119,920
-
-
653,064,906
265,950,677
387,114,229
4,495,298
391,609,527
465,431
367,828,129
318,017,947
7,912,000
308,518,947
3,975,809
-
960,193,124
405,677,943
76,355,395
1,442,226,462
332,441,106
62,589
730,950,484
277,911,743
55,871,375
1,064,796,191
203,049,937
1,109,785,356
1,827,324,830
1,827,324,830
1,827,324,830
1,827,324,830
1,827,324,830
861,746,254
1,542,069,139
1,542,069,139
1,542,069,139
1,542,069,139
1,542,069,139
AAAAA
BBBBB
CCCCC
DDDDD
EEEEE
F F F F F
G G G G G
H H H H H
I I I I I
J J J J J
K K K K K
R R R R R
The Schedules referred to above form an integral part of the Balance Sheet
In terms of our report of even date
for Deloitte Haskins & Sells
Chartered Accountants
Subash Menon
Chairman & Managing Director
Sudeesh Yezhuvath
Wholetime Director
V. Balaji Bhat
Director
V. Srikumar
Partner
Membership No. 84494
Bangalore
25th April, 2006
Rajkumar C
Company Secretary & Legal Counsel
V. R. Suresh Rao
General Manager - Accounts & Finance
45
Subex Azure Limited (formerly Subex Systems Limited)
PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED
Schedule
Schedule
Schedule
Schedule
Schedule
3131313131ststststst March,
2006
2006
March,
March,
2006
March, 2006
2006
March,
3131313131ststststst March,
2005
2005
March,
March,
2005
March, 2005
2005
March,
Amount in Rs.
Income
Income
Income
Income
Income
Sales & Services
Other Income
TTTTTotalotalotalotalotal
EXPENDITURE :
EXPENDITURE :
EXPENDITURE :
EXPENDITURE :
EXPENDITURE :
Direct Cost
Personnel Costs
Other Operating, Selling and
Administrative Expenses
Financial Costs
Miscellaneous Expenses amortised
Depreciation
TTTTTotalotalotalotalotal
PrPrPrPrProfit Befor
ofit Before Te Te Te Te Taxation
axation
axation
ofit Befor
ofit Befor
axation
axation
ofit Befor
Provision for taxation
LLLLL
MMMMM
NNNNN
OOOOO
PPPPP
Q Q Q Q Q
- Current
- Fringe Benefit Tax
- Deferred
PrPrPrPrProfit After T
axation
axation
ofit After T
ofit After T
axation
ofit After Taxation
axation
ofit After T
Add: Balance brought forward from Previous year
Profit Available for Appropriation
Profit Available for Appropriation
Profit Available for Appropriation
Profit Available for Appropriation
Profit Available for Appropriation
TION :
TION :
APPROPRIA
APPROPRIA
TION :
APPROPRIATION :
APPROPRIA
TION :
APPROPRIA
Transfer to General Reserve
Dividend
32,775,000
1,891,637
(3,936,191)
- Equity Shares - Interim Dividend 2005-06 (FY)
- Equity Shares - Final Dividend 2004-05 (FY)
- Equity Shares - proposed - Dividend 2005-06 (FY)
- Dividend on Preference Shares
16,283,564
547,764
21,757,568
-
Tax on distributed profits
Surplus carried to Balance Sheet
Surplus carried to Balance Sheet
Surplus carried to Balance Sheet
Surplus carried to Balance Sheet
Surplus carried to Balance Sheet
Earnings Per Share (Face value of Rs.10 each)
- Basic
- Diluted
Notes on accounts
R R R R R
1,812,162,302
29,027,758
1,841,190,060
1,841,190,060
1,841,190,060
1,841,190,060
1,841,190,060
132,850,266
946,131,783
222,772,709
26,419,291
-
90,789,585
1,418,963,634
1,418,963,634
1,418,963,634
1,418,963,634
1,418,963,634
422,226,426
422,226,426
422,226,426
422,226,426
422,226,426
30,730,446
391,495,980
448,497,788
839,993,768
839,993,768
839,993,768
839,993,768
839,993,768
1,165,502,087
6,847,334
1,172,349,421
1,172,349,421
1,172,349,421
1,172,349,421
1,172,349,421
32,210,959
675,730,785
107,668,070
24,216,276
256,942
71,168,952
911,251,984
911,251,984
911,251,984
911,251,984
911,251,984
261,097,437
261,097,437
261,097,437
261,097,437
261,097,437
8,069,019
253,028,418
259,548,226
512,576,644
512,576,644
512,576,644
512,576,644
512,576,644
13,614,828
-
(5,545,809)
39,500,000
25,500,000
9,274,917
20,134,446
-
4,651,061
34,060,424
4,518,432
448,497,788
512,576,644
512,576,644
512,576,644
512,576,644
512,576,644
13.89
13.19
38,588,896
5,604,376
756,300,496
839,993,768
839,993,768
839,993,768
839,993,768
839,993,768
18.23
18.13
The Schedules referred to above form an integral part of the profit & loss account
In terms of our report of even date
for Deloitte Haskins & Sells
Chartered Accountants
Subash Menon
Chairman & Managing Director
Sudeesh Yezhuvath
Wholetime Director
V. Balaji Bhat
Director
V. Srikumar
Partner
Membership No. 84494
46
Bangalore
25th April, 2006
Rajkumar C
Company Secretary & Legal Counsel
V. R. Suresh Rao
General Manager - Accounts & Finance
CASH FLOW STATEMENT FOR THE YEAR ENDED
flow from operating activities
flow from operating activities
Cash
Cash
flow from operating activities
Cash flow from operating activities
Cash
flow from operating activities
Cash
Net profit before tax and before extraordinary items
Adjustments for
Adjustments for
Adjustments for
Adjustments for
Adjustments for
a) Depreciation and amortization
b) Interest / dividend Income
c) Interest on borrowings
d) Assets written off / loss on sale
e) Profit on sale of assets
f) Employee compensation expenses
g) Provision for doubtful debts
h) Unrealised exchange fluctuations
i) Direct taxes paid
Operating profit before working capital changes
Operating profit before working capital changes
Operating profit before working capital changes
Operating profit before working capital changes
Operating profit before working capital changes
Adjustments for
Adjustments for
Adjustments for
Adjustments for
Adjustments for
a) Sundry debtors
b) Loans and advances
c) Inventories
d) Trade and other payables
Cash generated from operations
Cash generated from operations
Cash generated from operations
Cash generated from operations
Cash generated from operations
Cash flow from investing activities
Cash flow from investing activities
Cash flow from investing activities
Cash flow from investing activities
Cash flow from investing activities
a) Purchase of fixed assets
b) Sale / disposal of fixed assets
c) Sale / purchase of investments
d) Deferred payment consideration towards acquisition
e) Reversal of investment carrying value
f) Interest received
Net cash from investing activities
Net cash from investing activities
Net cash from investing activities
Net cash from investing activities
Net cash from investing activities
Cash flow from financing activities
Cash flow from financing activities
Cash flow from financing activities
Cash flow from financing activities
Cash flow from financing activities
a) Proceeds from issue of share capital/options
b) Proceeds from/(repayment) of short term borrowings - Net
c) Proceeds from long term borrowings
d) Repayment of long term borrowings
e) Dividends & dividend tax paid
f) Interest paid on borrowings
Net cash from financing activities
Net cash from financing activities
Net cash from financing activities
Net cash from financing activities
Net cash from financing activities
Net increase in cash or cash equivalents [A + B + C]
Cash or cash equivalents at the start of the year
ts at the close of the year
ts at the close of the year
Cash or cash equivalen
Cash or cash equivalen
ts at the close of the year
Cash or cash equivalents at the close of the year
ts at the close of the year
Cash or cash equivalen
Cash or cash equivalen
AAAAA
B B B B B
CCCCC
Subex Azure Limited (formerly Subex Systems Limited)
3131313131ststststst March,
2006
2006
March,
March,
2006
March, 2006
2006
March,
3131313131ststststst March,
2005
2005
March,
March,
2005
March, 2005
2005
March,
Amount in Rs.
422,226,426
261,097,437
90,789,585
(17,485,876)
26,419,291
1,922,880
(11,976,780)
4,115,709
35,583,448
3,632,964
(21,068,323)
534,159,324
534,159,324
534,159,324
534,159,324
534,159,324
(292,387,910)
(11,546,176)
62,589
93,266,223
323,554,050
323,554,050
323,554,050
323,554,050
323,554,050
(110,095,990)
21,058,612
(9,499,000)
-
-
16,352,692
(82,183,686)
(82,183,686)
(82,183,686)
(82,183,686)
(82,183,686)
18,753,800
(59,387,250)
3,318,000
(6,093,275)
(43,776,147)
(26,419,292)
(113,604,164)
(113,604,164)
(113,604,164)
(113,604,164)
(113,604,164)
127,766,200
277,911,743
405,677,943
405,677,943
405,677,943
405,677,943
405,677,943
6
0
-
5
0
0
2
t
r
o
p
e
R
l
a
u
n
n
A
71,425,894
(1,681,501)
24,216,276
829,470
(114,895)
1,008,361
4,295,276
7,954,119
(7,554,024)
361,476,413
361,476,413
361,476,413
361,476,413
361,476,413
(147,001,976)
(17,588,983)
75,436
81,122,502
278,083,392
278,083,392
278,083,392
278,083,392
278,083,392
(350,824,055)
768,732
(499,940)
3,870,381
18,883,619
1,681,501
(326,119,762)
(326,119,762)
(326,119,762)
(326,119,762)
(326,119,762)
217,939,080
(61,389,471)
469,263,000
(270,554,902)
(43,304,005)
(19,612,907)
292,340,795
292,340,795
292,340,795
292,340,795
292,340,795
244,304,425
33,607,318
277,911,743743743743743
277,911,
277,911,
277,911,
277,911,
Note :
Note :
Note : Cash & cash equivalents include balance with scheduled banks on dividend account and GIC deposit account of Rs. 963,793
Note :
Note :
(previous year Rs. 895,009) which are not available for use by the company.
In terms of our report of even date
for Deloitte Haskins & Sells
Chartered Accountants
V. Srikumar
Partner
Membership No. 84494
Bangalore
25th April, 2006
Subash Menon
Chairman & Managing Director
Sudeesh Yezhuvath
Wholetime Director
V. Balaji Bhat
Director
Rajkumar C
Company Secretary & Legal Counsel
V. R. Suresh Rao
General Manager - Accounts & Finance
47
Subex Azure Limited (formerly Subex Systems Limited)
SCHEDULES TO THE BALANCE SHEET AS AT
3131313131ststststst March,
2006
2006
March,
March,
2006
March, 2006
2006
March,
3131313131ststststst March,
2005
2005
March,
March,
2005
March, 2005
2005
March,
Amount in Rs.
ScScScScSchedule - A
hedule - A
hedule - A
hedule - A
hedule - A
Share capital
Share capital
Share capital
Share capital
Share capital
Authorised
30,140,000 (Previous year, 12,500,000) equity shares of Rs. 10 each
200,000 (Previous year, 2,000,000) Redeemable Optionally
Convertible Cumulative Preference Shares (ROCCPS) of Rs.98 each
TTTTTotalotalotalotalotal
Issued, subscribed and paid up
A) Equity
21,757,568 (Previous year, 10,067,223) equity shares of Rs. 10 each
Of the above
a) 115,000 shares of Rs.10 each were allotted for
consideration other than for cash;
b) 4,626,940 shares of Rs.10 each are allotted as Bonus
shares by capitalisation of General Reserve;
c) 12,840 shares of Rs.10 each are allotted in part
settlement of cost of acquisition of subsidiary
d) 10,878,784 (previous year: Nil) shares of Rs.10 each are allotted
as bonus shares by capitalisation of securities premium;
301,400,000
19,600,000
125,000,000
196,000,000
321,000,000
321,000,000
321,000,000
321,000,000
321,000,000
321,000,000
321,000,000
321,000,000
321,000,000
321,000,000
217,575,680
100,672,230
TTTTTotalotalotalotalotal
Schedule - B
Schedule - B
Schedule - B
Schedule - B
Schedule - B
Reserves and surplus
Reserves and surplus
Reserves and surplus
Reserves and surplus
Reserves and surplus
Capital reserve
General reserve - opening balance
Add : Additions during the year
Securities premium account - opening balance
Add : Additions during the year
Less: Utilised towards issue of bonus shares
Employees stock options outstanding
Less: Deferred employees compensation expenses
Profit & loss account
TTTTTotalotalotalotalotal
Schedule - C
Schedule - C
Schedule - C
Schedule - C
Schedule - C
Secured Loans
Secured Loans
Secured Loans
Secured Loans
Secured Loans
State Bank of India - FCNR (B) Loan
[Amount repayable within one year: Rs. Nil)
(Previous Year, Rs. 59,387,250)
(Secured by first charge on all fixed assets of the
company, both present and future, book debts, stock,
personal guarantee of two directors and equitable
mortgage of industrial land)
Hire Purchase
(Secured by hypothecation of motor cars)
[Amount repayable within one year: Rs. 3,761,855)
(Previous Year, Rs. 4,568,531)
TTTTTotalotalotalotalotal
Scheduled - D
Scheduled - D
Scheduled - D
Scheduled - D
Scheduled - D
Unsecured loans
Unsecured loans
Unsecured loans
Unsecured loans
Unsecured loans
Foreign Currency Convertible Bonds
48
217,575,680
217,575,680
217,575,680
217,575,680
217,575,680
100,672,230
100,672,230
100,672,230
100,672,230
100,672,230
123,802,608
39,500,000
541,983,360
223,066,491
(108,787,840)
22,738,130
13,859,024
13,006,920
163,302,608
656,262,011
8,879,106
756,300,496
1,597,751,141
1,597,751,141
1,597,751,141
1,597,751,141
1,597,751,141
98,302,608
25,500,000
166,327,505
375,655,855
-
10,428,860
5,665,463
13,006,920
123,802,608
541,983,360
4,763,397
448,497,788
1,132,054,073
1,132,054,073
1,132,054,073
1,132,054,073
1,132,054,073
-
59,387,250
11,119,920
13,895,196
11,119,920
11,119,920
11,119,920
11,119,920
11,119,920
73,282,446
73,282,446
73,282,446
73,282,446
73,282,446
-
-
212,987,750
212,987,750
212,987,750
212,987,750
212,987,750
212,987,750
.
s
R
n
i
t
n
u
o
m
A
k
k
k
k
k
c
c
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c
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l
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r
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r
G
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5
5
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2
2
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2
2
,
3
0
1
9
1
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5
,
-
6
6
6
6
6
0
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0
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2
2
2
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-
6
6
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6
6
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1
2
3
4
5
6
7
8
9
Subex Azure Limited (formerly Subex Systems Limited)
SCHEDULES TO THE BALANCE SHEET AS AT
ScScScScSchedule - F
hedule - F
hedule - F
hedule - F
hedule - F
Investments
(Unquoted at cost)
Long term - Non trade
In Government securities - I.V.P
Long term - trade
Subex Technologies, Inc (Wholly owned subsidiary,
incorporated in U.S.A, common stock 3,000 shares, fully
paid up, of no par value)
Long term - trade
Subex Technologies, Ltd (Wholly owned subsidiary,
incorporated in India, common stock 999,994 (previous year:
49,994) shares, fully paid up, at par value of Rs.10 each)
TTTTTotalotalotalotalotal
Schedule - G
Schedule - G
Schedule - G
Schedule - G
Schedule - G
Inventories
Traded goods
TTTTTotalotalotalotalotal
Schedule - H
Schedule - H
Schedule - H
Schedule - H
Schedule - H
Sundry debtors
(Unsecured)
Outstanding for more than six months
- Considered good
- Considered doubtful
Less: Provision for doubtful debts
Others
TTTTTotalotalotalotalotal (considered good)
Schedule - I
Schedule - I
Schedule - I
Schedule - I
Schedule - I
Cash & bank balances
Cash & bank balances
Cash & bank balances
Cash & bank balances
Cash & bank balances
Cash on hand
Balance with scheduled banks
-
-
-
in Current account in Indian Rupees
in Deposit account in Indian Rupees
in EEFC account in foreign currency
Balance with non-scheduled banks
- Deposit with Royal Bank of Canada
-
in current account with Royal Bank of Canada, Canada
(Maximum outstanding during the year Rs. 2,205,145)
in checking account with First Union Bank, New Jersey
(Maximum outstanding during the year Rs.48,103,089)
-
- Deposit with money market account with First Union Bank, New Jersey
-
-
-
-
-
-
(Maximum outstanding during the year Rs. 47,686,579)
in Hellinic Bank - CYP Account, Cyprus
(Maximum outstanding during the year Rs. 1,502)
in Hellinic Bank - USD Account - Cyprus
(Maximum outstanding during the year Rs. 8,077)
in Bank of China - RMB account - China
(Maximum outstanding during the year Rs.1,789,772)
in Bank of China - USD Account - China
(Maximum outstanding during the year Rs. 1,541,775)
in First National Bank of Colardo - USD Account - CO
(Maximum outstanding during the year Rs. 11,017,675)
in HSBC Bank - GBP Account - Slough, London
(Maximum outstanding during the year Rs. 12,132,108)
3131313131ststststst March,
2006
2006
March,
March,
2006
March, 2006
2006
March,
3131313131ststststst March,
2005
2005
March,
March,
2005
March, 2005
2005
March,
Amount in Rs.
-
1,000
308,018,007
308,018,007
9,999,940
499,940
318,017,947
318,017,947
318,017,947
318,017,947
318,017,947
308,518,947
308,518,947
308,518,947
308,518,947
308,518,947
-
-----
62,589
62,589
62,589
62,589
62,589
62,589
254,146,370
58,786,098
312,932,468
58,786,098
206,737,371
23,938,870
230,676,241
23,938,870
206,737,371
524,213,113
730,950,484
730,950,484
730,950,484
730,950,484
730,950,484
254,146,370
706,046,754
960,193,124
960,193,124
960,193,124
960,193,124
960,193,124
342,020
9,776,111
333,665,660
43,245,394
963,793
503,094
11,793,295
-
1,395
1,663
22,595
892,680
1,773,861
2,696,382
425,892
10,350,189
219,021,499
2,438,103
895,009
576,781
18,108,364
23,423,122
1,548
7,593
495,853
766,318
1,398,966
2,506
50
TTTTTotalotalotalotalotal
405,677,943
405,677,943
405,677,943
405,677,943
405,677,943
277,911,743
277,911,743
277,911,743
277,911,743
277,911,743
SCHEDULES TO THE BALANCE SHEET AS AT
Schedule - J
Schedule - J
Schedule - J
Schedule - J
Schedule - J
Loans & advances
Loans & advances
Loans & advances
Loans & advances
Loans & advances
(Unsecured, considered good, subject to confirmation)
Loans and advances recoverable in cash
or in kind or for value to be received
Due from Subex Technologies Ltd. (Net)
(Wholly owned subsidiary)
Advance Income Tax including TDS
Other Deposits
TTTTTotalotalotalotalotal
Schedule - K :
Schedule - K :
Schedule - K :
Schedule - K :
Schedule - K :
Current liabilities & provisions :
Current liabilities & provisions :
Current liabilities & provisions :
Current liabilities & provisions :
Current liabilities & provisions :
Sundry creditors :
Sundry creditors
(other than Small Scale Industrial Undertaking)
Advance received from customers
Duties & taxes
Subex Technologies, Inc. (Net) (Wholly owned subsidiary)
Subex Azure Limited (formerly Subex Systems Limited)
3131313131ststststst March,
2006
2006
March,
March,
2006
March, 2006
2006
March,
3131313131ststststst March,
2005
2005
March,
March,
2005
March, 2005
2005
March,
Amount in Rs.
21,342,369
25,088,751
10,042,277
17,718,857
27,251,892
76,355,395
76,355,395
76,355,395
76,355,395
76,355,395
283,079
9,841,828
20,657,717
55,871,375
55,871,375
55,871,375
55,871,375
55,871,375
6
0
-
5
0
0
2
t
r
o
p
e
R
l
a
u
n
n
A
124,128,357
64,884,807
13,211,952
64,277,408
46,408,428
68,936,388
9,655,614
36,686,755
Unclaimed dividends (Refer Note II.18.3)
300,627
266,803,151
301,227
161,988,412
Provisions
Taxation
Dividends
Tax on proposed dividends
Warranty
TTTTTotalotalotalotalotal
Schedule - L :
Schedule - L :
Schedule - L :
Schedule - L :
Schedule - L :
Other Income :
Other Income :
Other Income :
Other Income :
Other Income :
Interest Received (Gross - TDS Rs. 3,794,118,
Previous Year Rs. 194,853)
Other income received
Profit on sale of fixed assets (Net)
Creditors no longer payable written back
Exchange Fluctuation Account (Net)
Rent received
TTTTTotalotalotalotalotal
37,359,715
22,069,429
3,051,499
3,157,312
15,884,372
22,071,631
2,631,572
65,637,955
473,950
41,061,525
332,441,106
332,441,106
332,441,106
332,441,106
332,441,106
203,049,937
203,049,937
203,049,937
203,049,937
203,049,937
17,485,876
1,487,982
10,053,900
-
-
-
29,027,758
29,027,758
29,027,758
29,027,758
29,027,758
1,681,501
3,550,504
-
128,861
869,400
617,068
6,847,334
6,847,334
6,847,334
6,847,334
6,847,334
51
Subex Azure Limited (formerly Subex Systems Limited)
SCHEDULES TO THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED
SSSSSchedule - M
chedule - M
chedule - M
chedule - M
chedule - M
Direct cost
a. Purchased systems & solutions
(Increase)/ decrease in finished goods
Opening stock - finished goods
Closing stock - finished goods
b. Commission on sales
TTTTTotalotalotalotalotal
Schedule - N
Schedule - N
Schedule - N
Schedule - N
Schedule - N
Personnel costs
Salaries, wages & allowances
Contribution to provident fund and other funds
Other staff related costs
Sub contract charges
TTTTTotalotalotalotalotal
Schedule - O
Schedule - O
Schedule - O
Schedule - O
Schedule - O
Other operating, selling and administrative expenses
Other operating, selling and administrative expenses
Other operating, selling and administrative expenses
Other operating, selling and administrative expenses
Other operating, selling and administrative expenses
Software purchases
Rent
Power, fuel and water charges
Repairs & maintenance others
Insurance
Communication costs
Printing & stationery
Travelling & conveyance
Directors sitting fees
Rates & taxes including filing fees
Advertisement & business promotion
Consultancy charges
Bad Debts written off
Warranty expenses
Provision for doubtful debts
Loss on sale of assets & assets written off (Net)
Exchange Fluctuation Account (Net)
Miscellaneous expenses
TTTTTotalotalotalotalotal
Schedule - P
Schedule - P
Schedule - P
Schedule - P
Schedule - P
Financial costs
Interest on fixed loans
Other interest & bank charges
TTTTTotalotalotalotalotal
62,589
-
3131313131ststststst March,
2006
2006
March,
March,
2006
March, 2006
2006
March,
3131313131ststststst March,
2005
2005
March,
March,
2005
March, 2005
2005
March,
Amount in Rs.
76,932,834
31,751,699
62,589
55,854,843
132,850,266
132,850,266
132,850,266
132,850,266
132,850,266
321,347,918
8,163,941
20,027,863
596,592,061
946,131,783
946,131,783
946,131,783
946,131,783
946,131,783
1,496,013
30,415,017
6,207,953
4,213,304
2,099,094
20,332,862
1,376,270
70,443,729
27,500
962,070
16,120,996
20,909,065
135,104
2,683,362
35,583,448
-
853,205
8,913,717
222,772,709
222,772,709
222,772,709
222,772,709
222,772,709
-
26,419,291
26,419,291
26,419,291
26,419,291
26,419,291
26,419,291
138,025
62,589
75,436
383,824
32,210,959
32,210,959
32,210,959
32,210,959
32,210,959
166,374,038
4,737,399
16,765,149
487,854,199
675,730,785
675,730,785
675,730,785
675,730,785
675,730,785
1,047,017
11,882,243
3,418,257
3,310,730
1,459,299
10,347,307
1,075,134
40,360,808
32,500
3,787,731
15,407,617
5,073,993
448,425
-
4,295,276
277,467
-
5,444,266
107,668,070
107,668,070
107,668,070
107,668,070
107,668,070
1,126,721
23,089,555
24,216,276
24,216,276
24,216,276
24,216,276
24,216,276
52
Schedule – R
Schedule – R
Schedule – R
Schedule – R
Schedule – R
I.I.I.I.I.
Significant accounting policies
Significant accounting policies
Significant accounting policies
Significant accounting policies
Significant accounting policies
I.1. Basis for preparation of financial statements
The financial statements have been prepared under the historical
cost convention in accordance with the applicable Accounting
Principles in India, the Accounting Standards issued by the Institute
of Chartered Accountants of India and the relevant provisions of
the Companies Act, 1956, as adopted consistently by the company.
Revenues are recognised and expenses accounted on their accrual,
including provisions/ adjustments for committed obligations and
amounts determined as payable or receivable during the year.
I.2. Use of estimates
The preparation of the financial statements in conformity with
India GAAP requires that management makes estimates and
assumption that affect the reported amounts of assets and liabilities,
disclosure of contingent liabilities as at the date of the financial
statements and the reported amount of revenue and expenses
during the reported period. Actual results could differ from those
estimates.
I.3. Revenue recognition
Sales are recognised on the dispatch of goods to customers and
are recorded net of discounts, rebates for price adjustment,
rejections, shortages in transit, taxes and duties but include
wherever applicable, export incentives.
Revenue from software development is recognised on the basis of
chargeable time or achievement of prescribed milestones as
relevant to each contract.
Contracts for sale of software licences include fees for transfer of
software licences (which normally coincides with delivery),
installation and commissioning. Activities relating to installation
and commissioning involve minimal time and cost and are not
subject to uncertainties. Revenues from composite contracts
wherein fees for software licenses and implementation/
commissioning fees are not identifiable separately are recognized
on transfer of the software licenses and a provision is made for
the estimated costs relating to the installation and commissioning.
In the case of contracts, where the fees for software licenses and
implementation costs are identified separately, revenues from
software licenses are recognized on transfer of software licenses
and revenues from implementation are recognized on completion
of implementation and commissioning.
Interest on investments and deposits are booked on a time
proportion basis taking into account the amounts invested and the
rate of interest.
Agency commission is accrued on shipment of consignment by
principal.
Maintenance and service income is recognised on accrual basis.
I.4. Fixed assets
Fixed assets are stated at cost of acquisition inclusive of freight, duties,
taxes and interest on borrowed money allocated to and utilised for
fixed assets up to the date of capitalisation and other direct expenditure
incurred on ongoing projects. Assets acquired on hire purchase are
capitalised at gross value and interest thereon is charged to revenue.
I.5. Depreciation
Fixed assets are depreciated using the straight-line method over
Subex Azure Limited (formerly Subex Systems Limited)
the useful lives of assets. Depreciation is charged on pro-rata basis
for assets purchased/ sold during the year.
The rates of depreciation adopted on the assets of the company
are as under
Particulars
Plant & machinery
Computers
Vehicles
Furniture & fixtures
Intangible assets
Goodwill
Depreciation Rates
20.00 %
25.00 %
20.00 %
20.00 %
20.00 %
20.00 %
Individual assets costing less than Rs. 5,000 are depreciated in full,
in the year of purchase.
I.6.
Inventories
Inventories are valued at lower of cost or net realizable value, after
providing for cost of obsolescence and other anticipated losses,
wherever considered necessary. Cost includes the aggregate of all
expenditure incurred in bringing the inventories to the present
condition and situation.
I.7.
Employee Stock Option Plans
For the shares granted/ allocated under Employee Stock Option
Plan - I (ESOP - I), the Securities Exchange Board of India (SEBI)
guidelines are not followed, since the scheme was formulated
prior to the promulgation of the guidelines.
Employee stock options under Employees Stock Option Plan - II
(ESOP - II) are accounted in accordance with the guidelines
stipulated by SEBI. The difference between the market price of
the shares underlying the options granted on the date of grant of
option and the option price is expensed as “Employees’
Compensation” over the period of vesting.
Company has floated ESOP III in the current financial year which
is on the same lines as ESOP II.
I.8. Retirement benefits to employees
The company’s liability towards retirement benefits in the form of
provident fund is fully provided and charged to expenditure. The
company has entered into an agreement with LIC of India for
managing the gratuity liability through a fund, the premium for
which is funded by the company and charged to expenditure on
accrual basis. Leave encashment benefits is accounted for an
estimated liability as at the date of the balance sheet.
I.9. Research and development
Expenses incurred on research and developments are charged to
revenue in the same year. Fixed asset purchased for research and
development are capitalized and depreciated as per the company’s
policy.
I.10. Foreign currency transactions and translation
Transactions denominated in foreign currencies are recorded at
the exchange rates prevailing on the date of the transaction.
Monetary items denominated in foreign currencies at year end
are restated at the exchange rate prevailing on the date of the
Balance Sheet. Exchange differences on settlement/restatement
of foreign currency transactions relating to fixed assets are adjusted
to the cost of the respective assets. Exchange differences relating
6
0
-
5
0
0
2
t
r
o
p
e
R
l
a
u
n
n
A
53
Subex Azure Limited (formerly Subex Systems Limited)
to other transactions are charged to the profit and loss account.
Premium or discount on forward contracts is amortised over the
life of such contract and is recognized as income or expense,
except in respect of the liabilities for the acquisition of fixed assets,
where such amortization is adjusted in the carrying cost of the
fixed assets. Any profit or loss arising on cancellation or renewal or
retirement of forward contract is recognized in profit and loss
account / other accounts as appropriate.
Assets (other than fixed assets) and liabilities of the foreign branches
are translated into Indian rupees at the rate of exchange prevailing
as at the Balance Sheet date. Fixed assets of foreign branches are
restated at the exchange rate prevailing on the date of the
transaction. Revenue and expenses are translated into Indian rupees
at yearly average exchange rates prevailing during the year.
I.11. Investments
Long term Investments are stated at cost. Diminution in the value of
investments other than temporary in nature is provided for.
I.12. Income Taxes
Income Tax comprises the current tax provision under the tax
payable method and the net change in the deferred tax asset or
liability in the year. Deferred tax assets and liabilities are recognized
for the future tax consequences of temporary differences between
the carrying values of the assets and liabilities and their respective
tax bases. Deferred tax assets are recognized and carried forward
to the extent that there is a reasonable/virtual certainity that
sufficient future taxable income will be available against which
such deferred tax assets can be realized.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which
the temporary differences are expected to be received or settled.
The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in the income statement in the period of
enactment of the change.
I.13. Cash Flow Statement
Cash flow statement has been prepared in accordance with the
indirect method prescribed in Accounting Standard 3, issued by
the Institute of Chartered Accountants of India.
I.14. Securities issue expenses
Expenses incurred during the Initial Public Offer, follow on offer
and issue of bonus shares are amortised over 5 years. Other issue
expenses are charged to the securities premium account.
I.15. Provisions
A provision is recognized when an enterprise has a present obligation
as a result of past event; it is probable that an outflow of resources
will be required to settle the obligation, in respect of which a
reliable estimate can be made. Provisions are not discounted to its
present value and are determined based on best estimate required
to settle the obligation at the balance sheet date. These are
reviewed at each balance sheet date and adjusted to reflect the
current best estimates.
II.II.II.II.II.
Notes to accounts
Notes to accounts
Notes to accounts
Notes to accounts
Notes to accounts
II.1. Deferred income taxes
54
a) Provision for income taxes has been made in terms of
Accounting Standard 22 “Accounting for Taxes on Income”.
Deferred tax assets are subject to a valuation allowance that
reduces the amount recognized to that which is more likely than
not to be realized.
Movement in deferred tax asset (Liability)
Net deferred tax asset/ (liability)
at beginning of the year
Add: Tax benefits/ (charge)
for current year
Net deferred tax asset/
Net deferred tax asset/
Net deferred tax asset/
Net deferred tax asset/
Net deferred tax asset/
(liability) at end of the year
(liability) at end of the year
(liability) at end of the year
(liability) at end of the year
(liability) at end of the year
2005-06
2004-05
3,975,809
(1,570,000)
3,936,191
5,545,809
7,912,000
7,912,000
7,912,000
7,912,000
7,912,000
3,975,809
3,975,809
3,975,809
3,975,809
3,975,809
b) The net deferred tax asset as at 31st March, 2006 comprises the
tax impact arising from the timing differences on account of:
As at
31st March, 2006 31st March, 2005
As at
- Depreciation
7,912,000
3,975,809
II.2. Contingent liabilities
Debts factored – Rs. 389,264,166 (Previous year, Rs. 218,862,500)
Claims against the company not acknowledged as debt –
Rs. 9,352,609 (Previous year: NIL)
(This relates to Income Tax matter relating to FY 2002-03. The
demand is being disputed by the company.)
II.3. Investment in Subex Technologies, Inc.USA.
The management has received an independent valuation of the
subsidiary, which indicates that there is no decline in the value of
the investment.
II.4. Acquisition of Tangible and Intangible Assets – Lightbridge Inc
and Alcatel, UK
During 2004-05, the company acquired Intellectual Property Rights
comprising of technology, know how, source code and software
connected with the Fraud Management software businesses from
Alcatel, UK and Lightbridge, USA for an amount of Rs. 172,812,313
and Rs. 141,685,665 respectively, including expenses incurred in
connection with the said acquisitions. During the year an amount
of US$ 25,307 (Rs.1,102,753) has been paid to Lightbridge as
additional consideration and is capitalized as Goodwill.
The intangible assets based on the valuation report by independent
valuers, are being amortised over 5 years in accordance with the
company’s assessment of useful life thereof. Accordingly, an amount
of Rs. 62,502,860 has been amortised in the financial year under
review.
Out of the amount of Rs. 172,812,313 accounted for the Alcatel
acquisition, a portion of the consideration amounting to
Rs. 22,754,000 (Euros 400,000) was to be discharged by way of
discounts allowable to Alcatel on sales of software licenses
prospected by them over a period of 18 months commencing
from 1st October, 2004, as a part of their obligations under the
reseller agreement entered into with the company. This liability,
reflected as deferred payment liability in the previous year’s Balance
sheet, has been fully discharged by the company during the year.
II.5 Foreign Currency Convertible Bonds (FCCB)
During the year 2004-05, the company issued Foreign Currency
Convertible Bonds (FCCBs) aggregating to US$ 10 million to
Institutional Investors to finance the above acquisition.
The Bonds carried interest of 200 basis points above 6-month
LIBOR and were redeemable by December 2009, if not converted
in to equity as per terms of issue
In the previous year FCCB’s amounting to US$ 5,150,000 were
converted at a price of Rs.300 per share. The balance amount of
FCCBs amounting to US$ 485,000 have been converted during
the year at the same price.
II.6 Subex Technologies Ltd (STL) has been incorporated on 28th
March, 2005 with the objective of pursuing software service
business. The subscribed Share Capital of the company is Rs.100
lacs. This is a wholly owned domestic subsidiary of Subex Systems
Limited.
II.7 Acquisition of Tangible and Intangible Assets –Mantas Inc
The company acquired business contracts, hardware, intellectual
property rights (comprising of trademarks, patents, copyrights and
software) connected with the fraud management software
businesses from Mantas, Inc. USA in an all cash deal of US$ 2.l0
million, on 1st March, 2006. The same has been capitalized along
with the expenses incurred in connection with the said acquisition.
The intangible assets accounted for based on the valuation report
by independent valuers, are being depreciated over 5 years in
accordance with the company’s assessment of useful life thereof.
Accordingly, an amount of Rs.1,696,053 has been amortised in
the financial year under review.
II.8 On 9th April, 2006, the company has issued Global Depository
Receipts (GDRs) priced at Rs. 400 per GDR and representing one
share each, amounting to US$ 10 million, which has been listed in
the Luxembourg Stock Exchange. Consequent to the issue,
subscribed equity share capital has gone up by 1,109,878 shares
and this issue has resulted in accretion to the securities premium
account by Rs. 432,852,420 post the balance sheet date.
II.9 Bonus issue
During the year, the company has declared bonus shares in the
ratio of 1:1. The bonus shares (10,878,784) have been issued by
capitalizing an amount of Rs.108,787,840 from the Securities
premium account.
II.10 Operating leases
6
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Subex Azure Limited (formerly Subex Systems Limited)
As of 31st March, 2006 future minimum lease payments for non-
cancellable operating leases for the next five fiscal years are:
Amount in Rs.
For the year ending
31st March, 2006 31st March, 2005
Within one year from
18,281,307
8,107,127
Due in a period between
one year and five years from
44,188,721
15,980,935
Due after five years from
—
—
II.11. Employees Stock Option Plan (ESOP)
ESOP – I
The Company had issued 120,000 Equity Shares at Rs.10 each to
Subex Foundation, an employee welfare Trust, constituted to operate
an Employees Stock Option Plan. Consequent to the issue of Bonus
Shares in earlier years, the total shares available with the trust had
increased to 240,000. As per the Scheme in force, the trust allocates
shares to those employees deemed eligible by the advisory Board
constituted for the purpose. The shares are allocated at a price, which
is not less than 50% of the fair market price. The original Shares
granted are subject to a minimum lock-in period of three years and
the bonus shares are subject to a minimum lock-in of 1 year, where
after the shares granted can be sold/en-cashed. As at 31st March,
2006,174,440 shares (which includes 87,220 bonus shares allotted on
6th January, 2006) are available with the trust. Since the scheme was
formulated prior to the promulgation of SEBI guidelines on ESOP
dated 19th June, 1999, the company has discontinued the scheme.
ESOP – II
During 1999-2000, the Company established a Stock Option Scheme
under which 500,000 options have been allocated for grant to the
employees. Each option comprises of one underlying equity share of
Rs.10 each and carries an entitlement of bonus shares if and when
declared. This scheme has been formulated in accordance with the
SEBI guidelines on ESOP & ESPS dated 19th June, 1999. As per the
scheme, the compensatory committee grants the options to the
employees deemed eligible by the Advisory Board constituted for the
purpose. The options are granted at a price, which is not less than
85% of the average market price of the underlying shares based on
the quotation on the Stock Exchange where the highest volume of
shares are traded for 15 days prior to the date of grant. The shares
granted vest over a period of 1 to 4 years and can be exercised over
a maximum period of 3 years from the date of vesting.
Under this scheme 476,902 option have been granted to 310 employees
as at 31st March, 2006. Out of the above options 70,323 options have
been vested. The difference between the market price of the share
underlying the options granted on the date of grant of option and the
exercise price of the option are expensed over the vesting period as per
the SEBI guidelines. The net impact of the movement in option grants
during the period ended resulted in a debit of Rs. 4,910,159 (previous
year: debit of Rs. 1,744,455) to the Profit & Loss account for the year.
ESOP – III
The company has various operating leases for office facilities and
residential premises for employees which include leases that are
renewable on a yearly basis, cancelable at its option and other
long term leases. Rental expenses for operating leases included in
the Income statement for the year is Rs. 30,415,017 (Previous
year, Rs. 11,882,243).
During 2005-2006, the company established a new stock option
scheme under which 500,000 options have been allocated for
grant to the employees. Each option comprises of one underlying
equity share of Rs.10 each. This scheme has been formulated in
accordance with the SEBI guidelines on ESOP & ESPS dated 19th
June, 1999. As per the scheme, the compensatory committee grants
55
Subex Azure Limited (formerly Subex Systems Limited)
the options to the employees deemed eligible by the advisory board
constituted for the purpose. The options are granted at a price,
which is not less than 85% of the average market price of the
underlying shares based on the quotation on the stock exchange
where the traded volume is the highest for the 15 days prior to the
date of grant. The shares granted vest over a period of 1 to 4 years
can be exercised over a maximum period of 3 years from the date
of vesting.
As on 31st March, 2006, 70,380 options have been granted to 156
employees under this scheme. The difference between the market
price of the share underlying the options granted on the date of
grant of option and the exercise price of the option are expensed
over the vesting period as per the SEBI guidelines. The net impact
of the movement in option grants during the period ended resulted
in a debit of Rs. 497,664 (previous year: Nil) to the Profit & Loss
account for the year.
Fair Value Methodology
The fair value of options used to compute pro forma net income
and earnings per equity share have been estimated on the date of
grant using Black-Scholes model.
The key assumptions used in Black-Scholes model for calculating
fair value are: risk-free interest rate of 6.43%, expected life : 3
years, expected volatility of shares : 55.80% and expected divi-
dend yield: 0.42%. The variables detailed herein represent the
average of the assumptions during the pendency of the grant
dates.
The impact on the EPS of the company if fair value method is
adopted is given below.
Particulars
31st March,2006
Rs.
391,495,980
Employees stock options details as on the balance sheet date are ;
Net Profit (as reported)
ESOP – I : Nil
ESOP – II :
As at
31st March, 2006 31st March 2005
As at
Options outstanding at
the beginning of the year
Granted
Forfeited/ cancelled
Exercised
336,385
144,000
50,950
65,408
301,440
101,800
32,749
34,106
Balance at end of the year
Balance at end of the year
Balance at end of the year
Balance at end of the year
Balance at end of the year
364,027
364,027
364,027
364,027
364,027
336,385
336,385
336,385
336,385
336,385
ESOP – III
Add: Stock-based employee compensation
relating to grants after 1st April, 2005
3,516,774
Less: Stock based compensation expenses
determined under fair value based method
for the above grants
(11,181,604)
Net Profit (proforma)
383,831,150
Basic earning per share (as reported)
Basic earning per share (proforma)
Diluted earning per share (as reported)
Diluted earning per share (proforma)
18.23
17.87
18.13
17.78
Options granted during the year and outstanding at the end of
the year - 70,380
II.12. Related party information
A) Related parties
Method used for accounting for share based payment plan:
Wholly Owned Subsidiaries controlled by the Company:
The company has used intrinsic value method to account for the
compensation cost of stock option to employees of the company.
Intrinsic value is the amount by which the quoted market price of
the underlying share exceeds the exercise price of the option
Subex Technologies Inc., USA
Subex Technologies Ltd, India
Particulars
Options (Nos)
Weighted average exercise price per
stock options (Rs.)
Options outstanding at the beginning of the year
336,385
168.52
Granted during the year
ESOP - II
ESOP - III
Exercised during the year
144,000
70,380
65,408
442.80
342.55
Cancelled & Lapsed during the year
50,950
Options outstanding at the end of the year
ESOP – II
ESOP - III
Options exercisable at the end of the year
364,027
70,380
70,323
284.25
342.55
56
The Company issued 10,878,784 bonus shares with a record date of 6th January, 2006.
The options under ESOP III totaling to 70,380 options were granted on 13th March, 2006, (post issue of Bonus shares referred above).
Subex Azure Limited (formerly Subex Systems Limited)
Companies under same management
Key Management Personnel
Cellcomm Solutions Ltd (formerly known as Subex Cellcomm Ltd)
Subex Holdings Private Limited (SHPL)
Subash Menon, Chairman & Managing Director
Sudeesh Yezhuvath, Wholetime Director
B) Details of the transactions with the related parties other than employees who are related to the Directors of the Company is as under:
e of Trrrrransaction
ansaction
ansaction
e of T
e of T
Natur
Natur
ansaction
Nature of T
ansaction
e of T
Natur
Natur
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Companies under same
Companies under same
Companies under same
Companies under same
Companies under same
management
management
management
management
management
Key Management
Key Management
Key Management
Key Management
Key Management
Personnel
Personnel
Personnel
Personnel
Personnel
2005-06
2005-06
2005-06
2005-06
2005-06
2004-05
2004-05
2004-05
2004-05
2004-05
2005-06
2005-06
2005-06
2005-06
2005-06
2004-05
2004-05
2004-05
2004-05
2004-05
2005-06
2005-06
2005-06
2005-06
2005-06
2004-05
2004-05
2004-05
2004-05
2004-05
a) Purchase of services:
i)
ii)
STI*
STL**
b) Inter Corporate
Deposits received(SHPL)
c)
Interest paid on Inter
Corporate Deposit(SHPL)
d) Repayment of Inter Corporate
Deposit /Loan (SHPL)
e) Salary, perquisites &
commission
f) Amount due as at year end from
596,592,061
487,854,199
9,967,322
-
-
-
-
-
-
-
-
-
i)
ii)
STI*
STL**
104,173,846
85,017,124
11,533,049
283,079
g) Amount due as at year end to
-
-
i)
ii)
STI*
STL**
h) Sharing of expenses related
to services business (STL) see
Note – 1
i) Commission paid on
Service Business
* STI = Subex Technologies, Inc.
** STL = Subex Technologies Ltd
168,451,255
121,703,879
1,490,772
4,225,051
1,164,280
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
325,000
187,702
2,073,508
-
-
-
-
-
-
-
-
-
-
6
0
-
5
0
0
2
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o
p
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l
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A
-
-
-
-
-
-
-
23,409,166
15,670,746
-
-
-
-
10,000,000 4,975,500
-
-
-
-
-
-
Note –1 - Sharing of expenses is in relation to expenses borne by Subex Technologies Ltd towards software services business of Subex
Systems Ltd as agreed between both companies. These have been accounted under depreciation, personnel cost and various heads
included under Schedule -O
II.13. Earnings per share:
a) Basic
Profits after tax
Less: Dividend on preference shares & distribution tax
Net profit available to equity shareholders – basic
b) Diluted
Profits after tax
Add: Interest on FCCB
Net profit available to equity shareholders – diluted
Weighted average number of shares – basic
Weighted average number of shares – diluted
Earnings per share – basic
Earnings per share – diluted
A
B
C
D
E
F
B / E
B / E
B / E
B / E
B / E
D / FD / FD / FD / FD / F
2005-06
2005-06
2005-06
2005-06
2005-06
391,495,980
-
391,495,980
2004-05
2004-05
2004-05
2004-05
2004-05
253,028,418
(5,288,001)
247,740,417
391,495,980
253,028,418
-
5,380,279
391,495,980
21,480,220
21,590,084
18.23
18.23
18.23
18.23
18.23
18.13
18.13
18.13
18.13
18.13
258,408,697
17,833,474
19,584,306
13.89
13.89
13.89
13.89
13.89
13.19
13.19
13.19
13.19
13.19
Earning per share has been recomputed for the previous year taking into account bonus issue during the current year.
57
Subex Azure Limited (formerly Subex Systems Limited)
II.14. a. Managerial Remuneration to Managing Director and Whole-time Directors:
Amount in Rs.
Salary
Contribution to Provident Fund
Perquisites
Commission (as computed below)
Total
Year ended March 31, 2006
Year ended March 31, 2005
11,694,610
1,402,896
311,660
10,000,000
23,409,166
7,035,509
638,571
496,666
7,500,000
15,670,746
b. Computation of Net Profit in accordance with Section 349 of the Companies Act, 1956
Profit before tax as per the Profit &
Loss Account
Add: Directors’ Sitting Fees
Remuneration to Directors (including Commission)
Less: Surplus on sale of Fixed Assets (Net)
Profits for Computation of Directors’ Commission
Maximum Remuneration of Whole-time Directors
under provisions of the Companies Act, 1956 @ 10%
Remuneration including commission, paid
Maximum Commission to Non- Wholetime Directors
under provision of the Companies Act, 1956 @ 1%
Commission paid
II.15. Auditors remuneration
Miscellaneous expenditure includes remuneration to auditors:
Audit fees ( inclusive of service tax)
For tax matters
Other Services
Reimbursement of expenses
Total
II.16. Details of Warranty
2005-06
2005-06
2005-06
2005-06
2005-06
2004-05
2004-05
2004-05
2004-05
2004-05
422,226,426
261,097,437
27,500
24,609,166
32,500
16,470,746
24,636,666
10,053,901
436,809,191
43,680,920
23,409,166
4,368,090
1,200,000
16,503,246
(114,895)
277,485,788
27,748,579
15,670,746
2,774,858
800,000
Year ended 31st March, 2006
Year ended 31st March 2005
1,346,880
55,600
-
3,097
1,405,577
994,400
55,100
800,000
10,929
1,860,429
Year
2005-06
2004-05
Opening balance
Additions During the year
Utilisation / reversal during the year
Closing balance
473,950
2,212,498
3,157,312
473,950
(473,950)
(2,212,498)
3,157,312
473,950
Probable period of outflow in case of warranty is 6-12 months.
II.17. Quantitative details
None of the traded items are in excess of 10% of revenues and it
is not practicable to give quantitative information in the absence
of common expressible units.
II.18. Others
1. The Company is availing non-fund based limits and overdrafts
against lien on the fixed deposits. However, there are no loans
outstanding as on 31st March, 2006.
58
2. Estimated amount of contracts, remaining to be executed on
capital account and not provided for (net of advances paid) Rs.Nil
(Previous year Rs. Nil).
3. Amount of Rs.300,627 represents the unclaimed dividend for
the period from 1999-2006. No part thereof has remained unpaid
or unclaimed for a period of seven years from the date they
become due for payment requiring a transfer to the ‘Investor
Education and Protection Fund’.
4. Personnel Cost for the year includes expenditure on research
and development of Rs. 6,549,332 (Previous Year, Rs. 6,000,318).
This is as certified by the management and relied on by the auditors.
5. Company has disposed of its land located at Yeshwantpur
Industrial Area during the year for a sum of Rs.17,667,000 and has
paid long term capital gains of Rs.2,003,792 on the profits arising
from this transaction.
6. The company has entered into the following derivative
instruments for the purposes of hedging the risks associated with
foreign exchange exposures as at 31st March, 2006 :
(a) Forward Exchange Contracts:
Total
Particulars
US$
Buy/Sell Amount (INR)
Option contracts (to
the extent there is
an unhedged foreign
currency exposure)
Subex Azure Limited (formerly Subex Systems Limited)
b. Derivative Instruments
F C (US$)
Buy / Sell
Rate
Amount (INR)
300,000
100,000
100,000
500,000
600,000
200,000
200,000
Buy
Buy
Buy
Sell
Sell
Sell
44.12
44.26
44.30
44.12
44.26
44.30
13,236,000
4,426,000
4,430,000
22,092,000
26,472,000
8,852,000
8,860,000
44,184,000
2,650,000
Buy
118,605,250
Total
1,000,000
The above disclosures have been made consequent to an
announcement by the Institute of Chartered Accountants of India
in December, 2005, which is applicable to the financial periods
ending on or after 31st March, 2006. Therefore, figures for the
previous year have not been disclosed.
7. Previous year’s figures have been regrouped to conform to the
classifications for the current year.
The year end foreign currency exposures that have not been
hedged by a derivative instrument or otherwise are given below:
Amounts receivable in foreign currency on account of:
Export of goods
Rs.
Foreign currency
8,966,994
60,605,178
GBP 115,980
Euro 1,125,183
847,508,032
US$ 19,069,765
Amounts payable in foreign currency on account of:
Import of goods and
services
Capital Imports [including
Intangibles]
Rs.
Foreign currency
75,58,595
39,776,660
10,619,700
US$ 168,794
US$ 888,268
Euro 195,000
64,277,408
US$ 1,417,738
696,329
US$ 15,550
6
0
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5
0
0
2
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59
Subex Azure Limited (formerly Subex Systems Limited)
II.19. Other Information pursuant to Schedule VI of the Companies Act, 1956.
CIF value of imports :
CIF value of imports :
CIF value of imports :
CIF value of imports :
CIF value of imports :
Import of systems and solutions
Capital goods
Expenditure in foreign currency
Expenditure in foreign currency
Expenditure in foreign currency
Expenditure in foreign currency
Expenditure in foreign currency
Traveling expenses
Interest expense
Consideration for acquired assets
Product marketing expense and other expenditure incurred overseas for
software development
Earnings in foreign exchange
Earnings in foreign exchange
Earnings in foreign exchange
Earnings in foreign exchange
Earnings in foreign exchange
Income from software development services and
products on receipt basis
Remittance in Foreign Currency on account of dividend
Remittance in Foreign Currency on account of dividend
Remittance in Foreign Currency on account of dividend
Remittance in Foreign Currency on account of dividend
Remittance in Foreign Currency on account of dividend
Amount remitted during the year in foreign currency on account of
dividends for the year
No. of Non-resident shareholders for the year
Shares held by non-resident shareholders on which dividend was
due for the year
2005-06
2004-05
2003-04
2005-06
2004-05
2003-04
2005-06
2004-05
2003-04
Amount in Rs.
YYYYYear ended
YYYYYear ended
ear ended
ear ended
ear ended
ear ended
ear ended
ear ended
ear ended
ear ended
March, 2006 31 31 31 31 31st st st st st March, 2005
3131313131st st st st st March, 2006
March, 2005
March, 2005
March, 2006
March, 2006
March, 2005
March, 2005
March, 2006
24,951,522
7,468,007
800,616
13,000,271
16,187,638
5,110,082
108,692,786
8,508,837
5,331,718
-
838,504,812
604,766,727
1,378,695,807
1,042,081,071
808,628
1,085,890
-
2
3
-
539,085
542,945
-
-
547,645
463,780
-
3
4
-
547,645
231,890
Signature to the Schedules A – R
Signature to the Schedules A – R
Signature to the Schedules A – R
Signature to the Schedules A – R
Signature to the Schedules A – R
Subash Menon
Chairman & Managing Director
Sudeesh Yezhuvath
Wholetime Director
V. Balaji Bhat
Director
Place : Bangalore
Date : 25th April, 2006
Rajkumar C
Company Secretary & Legal Counsel
V. R. Suresh Rao
General Manager - Accounts & Finance
60
Subex Azure Limited (formerly Subex Systems Limited)
T AND COMPANYANYANYANYANY’S GENERAL BUSINESS PROFILE
’S GENERAL BUSINESS PROFILE
’S GENERAL BUSINESS PROFILE
T AND COMP
ANCE SHEET ABSTRATRATRATRATRACCCCCT AND COMP
T AND COMP
ANCE SHEET ABS
BALBALBALBALBALANCE SHEET ABS
ANCE SHEET ABS
’S GENERAL BUSINESS PROFILE
’S GENERAL BUSINESS PROFILE
T AND COMP
ANCE SHEET ABS
COMPANYANYANYANYANY: SUBEX AZURE LIMITED
: SUBEX AZURE LIMITED
: SUBEX AZURE LIMITED
COMP
COMP
: SUBEX AZURE LIMITED
: SUBEX AZURE LIMITED
COMP
COMP
YEAR : 2005-2006
YEAR : 2005-2006
YEAR : 2005-2006
YEAR : 2005-2006
YEAR : 2005-2006
I.I.I.I.I.
Registration details
Registration details
Registration details
Registration details
Registration details
Registration No.
1 6 6 6 3
State code
Balance sheet date
3 1 - 0 3 - 2 0 0 6
II.II.II.II.II.
Capital raised during the year (Rupees in thousands)
Capital raised during the year (Rupees in thousands)
Capital raised during the year (Rupees in thousands)
Capital raised during the year (Rupees in thousands)
Capital raised during the year (Rupees in thousands)
Public issue
Bonus issue
-
Rights issues
1 0 8 7 8 7 . 8 4
Private placements - Equity
- Preference
Preferential offer of shares under Employee Stock Option Plan* - Equity
0 8
-
6 5 4
III.
III.
III.
III.
III.
Position of the mobilisation and development of funds (Rupees in thousands)
Position of the mobilisation and development of funds (Rupees in thousands)
Position of the mobilisation and development of funds (Rupees in thousands)
Position of the mobilisation and development of funds (Rupees in thousands)
Position of the mobilisation and development of funds (Rupees in thousands)
Total liabilities
1 8 2 7 3 2 4
Total assets
1 8 2 7 3 2 4
Source of funds
Source of funds
Source of funds
Source of funds
Source of funds
Paid up capital
Secured loans
2 1 7 5 7 6
Share application money
1 1 1 1 9
Reserves & surplus
8 7 8
1 5 9 7 7 5 1
Unsecured loans
Deferred tax liability
-
-
6
0
-
5
0
0
2
t
r
o
p
e
R
l
a
u
n
n
A
Application of funds
Application of funds
Application of funds
Application of funds
Application of funds
Net fixed assets
Net current assets
Miscellaneous expenditure
3 9 1 6 0 9
Investments
1 1 0 9 7 8 5
Deferred tax assets
-
Accumulated lossess
IVIVIVIVIV.....
Performance of company (Rupees in thousands)
Performance of company (Rupees in thousands)
Performance of company (Rupees in thousands)
Performance of company (Rupees in thousands)
Performance of company (Rupees in thousands)
Turnover
Profit before tax
Earnings per share from
ordinary activities (basic) (Rs.)
Interim dividend rate %
Final dividend rate %
1 8 4 1 1 9 0
Total expenditure
4 2 2 2 2 6
Profit after tax
18.23
Earnings per share from
ordinary activities (diluted) (Rs.)
1 5
1 0
3 1 8 0 1 8
7 9 1 2
-
1 4 1 8 9 6 4
3 9 1 4 9 6
18.13
V.
Generic name of three principal products/ services of the company (As per monetary terms)
Generic name of three principal products/ services of the company (As per monetary terms)
Generic name of three principal products/ services of the company (As per monetary terms)
Generic name of three principal products/ services of the company (As per monetary terms)
Generic name of three principal products/ services of the company (As per monetary terms)
Item code no.
(ITC code no.)
8 5 / 2 4
Product
C O M P U T E R
S O F T W A R E
Description
*Issue of shares arising of the exercise of option granted to employees under the company’s ESOP II (2000)
Subash Menon
Chairman & Managing Director
Sudeesh Yezhuvath
Wholetime Director
V. Balaji Bhat
Director
Place : Bangalore
Date : 25th April, 2006
Rajkumar C
Company Secretary & Legal Counsel
V. R. Suresh Rao
General Manager - Accounts & Finance
61
Subex Technologies, Inc.
62
Financial Review
Financial Review
Financial Review
Financial Review
Financial Review
echnologies, Inc.
echnologies, Inc.
Subex T
Subex T
echnologies, Inc.
Subex Technologies, Inc.
echnologies, Inc.
Subex T
Subex T
Subex Technologies, Inc.
O SUBSIDIARY CY CY CY CY COMPOMPOMPOMPOMPANYANYANYANYANY
O SUBSIDIAR
O SUBSIDIAR
TING T
, 1956, RELAAAAATING T
TING T
, 1956, REL
ANIES ACTTTTT, 1956, REL
, 1956, REL
ANIES AC
ANIES AC
TION 212 OF THE COMP
TION 212 OF THE COMP
O SEC
O SEC
ANT T
ANT T
TEMENT PURSU
STSTSTSTSTAAAAATEMENT PURSU
TEMENT PURSU
TING TO SUBSIDIAR
TION 212 OF THE COMPANIES AC
O SECTION 212 OF THE COMP
ANT TO SEC
TEMENT PURSUANT T
O SUBSIDIAR
TING T
, 1956, REL
ANIES AC
TION 212 OF THE COMP
O SEC
ANT T
TEMENT PURSU
1. Name of the subsidiary
2. Financial year ended
3. Holding company’s interest
: Subex Technologies, Inc.
: 31st March, 2006
: 100% in common stock
4. Shares held by the holding company in the subsidiary
: 3,000 numbers of common stock fully paid, no par value
5. The net aggregate of profits or losses for the current financial year of the
subsidiary so far as it concerns the members of the holding company dealt
with or provided for in the acounts of the holding company
a. Dealt with or provided for in the accounts of the holding company
b Not dealt with or provided for in the accounts of the holding company : Rs. 2,539,218
: Nil
6. The net aggregate of profits or losses for previous financial years of the
subsidiary so far as it concerns the members of the holding company
a. Dealt with or provided for in the accounts of the holding company
b. Not dealt with or provided for in the accounts of the holding company : Profit Rs. 2,539,218
: Nil
Subash Menon
Subash Menon
Subash Menon
Subash Menon
Subash Menon
Director
ezhuvath
ezhuvath
Sudeesh Y
Sudeesh Y
ezhuvath
Sudeesh Yezhuvath
Sudeesh Y
ezhuvath
Sudeesh Y
Director
Place : Bangalore
Date : 15th May, 2006
DIRECTORS’ REPORT
DIRECTORS’ REPORT
DIRECTORS’ REPORT
DIRECTORS’ REPORT
DIRECTORS’ REPORT
Your directors have the pleasure in presenting the results of
operations for the financial year 2006
Financial Results:
Amount in Rs.
2006
2005
Total revenue
Gross margin
Income before taxes
Net income
596,592,061
38,292,189
4,667,920
2,539,218
487,854,199
37,509,244
5,201,790
4,179,838
During the financial year 2005-06 your company’s revenue has gone
up from US$ 10,842,595 to US$ 13,403,054, a growth of 23.61%
Your Directors are confident of maintaining the growth level in
the coming years.
for Subex Technologies, Inc.,
Place : Bangalore
Date : 15th May, 2006
Subash Menon
Director
Sudeesh Yezhuvath
Director
ANTSANTS
OUNTOUNTANTS
ANTSANTS
OUNTOUNT
TIFIED PUBLIC ACCCCCCCCCCOUNT
TIFIED PUBLIC A
TIFIED PUBLIC A
T OF CER
T OF CER
REPOR
REPOR
T OF CERTIFIED PUBLIC A
REPORT OF CER
TIFIED PUBLIC A
T OF CER
REPOR
REPOR
Subex Technologies, Inc. Piscataway, New Jersey
We have audited the accompanying balance sheets of Subex
Technologies, Inc. as of 31st March, 2006 and 2005, and the related
statements of income, retained earnings and cash flows for the
years then ended. These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements
are free of material mis-statement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Subex
Technologies, Inc. as of 31st March, 2006 and 2005, and the results
of its operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the
United States of America.
Flackman, Goodman & Potter, P. A.
Certified Public Accountants
Place : Ridgewood, New Jersey
Date : 24th April, 2006
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Subex Technologies, Inc.
BALANCE SHEET FOR THE YEAR ENDED
ASSETS
ASSETS
ASSETS
ASSETS
ASSETS
CURRENT ASSETS
Cash
Accounts receivable
Employee advances
Other current assets
TOTAL CURRENT ASSETS
EQUIPMENT
Equipment
Furniture and fixtures
Accumulated depreciation
TOTAL EQUIPMENT
OTHER ASSETS
Goodwill
Security deposit
TOTAL OTHER ASSETS
TTTTTOOOOOTTTTTAL AAL AAL AAL AAL ASSETS
SSETS
SSETS
SSETS
SSETS
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable
Accrued expenses and payroll
Corporate income tax payable
Due to related entity
TOTAL CURRENT LIABILITIES
SHAREHOLDERS’ EQUITY
Capital stock, no par value, 10,000 shares authorized,
3,000 shares issued and outstanding
Additional paid in capital
Retained earnings
TOTAL SHAREHOLDER’S EQUITY
AL LIABILITIES AND SHAREHOLDERS’ EQUITYYYYY
AL LIABILITIES AND SHAREHOLDERS’ EQUIT
AL LIABILITIES AND SHAREHOLDERS’ EQUIT
TTTTTOOOOOTTTTTAL LIABILITIES AND SHAREHOLDERS’ EQUIT
AL LIABILITIES AND SHAREHOLDERS’ EQUIT
The accompanying notes are an integral part of the financial statements.
3131313131st st st st st March, 2006
March, 2006
March, 2006
March, 2006
March, 2006
3131313131st st st st st March, 2005
March, 2005
March, 2005
March, 2005
March, 2005
Amount in US$.
3,761,752
15,700
57,451
3,834,903
150,753
2,554
(132,145)
21,162
5,129,176
1,238
5,130,414
8,986,479
8,986,479
8,986,479
8,986,479
8,986,479
632,656
679,330
18,506
2,344,015
3,674,507
2,000
5,211,829
98,143
5,311,972
8,986,479
8,986,479
8,986,479
8,986,479
8,986,479
2,804,701
17,195
16,882
2,838,778
138,483
2,554
(113,063)
27,974
5,129,176
3,038
5,132,214
7,998,966
7,998,966
7,998,966
7,998,966
7,998,966
315,107
459,978
6,800
1,950,606
2,732,491
2,000
5,211,829
52,646
5,266,475
7,998,966
7,998,966
7,998,966
7,998,966
7,998,966
64
STATEMENT OF INCOME AND RETAINED EARNINGS FOR THE YEAR ENDED
REVENUES
REVENUES
REVENUES
REVENUES
REVENUES
Consulting fees
EXPENSES
EXPENSES
EXPENSES
EXPENSES
EXPENSES
Reimbursement of expenses
Salaries and wages
Subcontracting expense
Payroll expense
Payroll tax expense
Bank service charges
Depreciation expense
Bad debt expense
Insurance expense
Miscellaneous expense
Office supplies and expense
Postage and delivery
Professional fees
Rent
Provision for taxes
Telephone expense
Travel and entertainment
Recruiting and relocation expenses
TOTAL EXPENSES
NET INCOME
RETAINED EARNINGS (ACCUMULATED DEFICIT) – beginning
RETAINED EARNINGS – ending
The accompanying notes are an integral part of the financial statements.
Subex Technologies, Inc.
3131313131st st st st st March, 2006
March, 2006
March, 2006
March, 2006
March, 2006
3131313131st st st st st March, 2005
March, 2005
March, 2005
March, 2005
March, 2005
Amount in US$.
13,403,054
10,842,595
4,725
10,261,695
1,232,298
54,065
975,318
6,133
19,082
33,347
249,229
9,115
24,885
9,154
176,253
43,221
47,857
22,099
163,128
25,953
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15,226
7,887,325
1,399,287
42,273
669,893
3,525
11,185
-
274,908
32,187
17,585
6,861
135,751
45,368
26,482
14,720
167,814
11,335
13,357,557
10,761,725
45,497
52,646
98,143
80,870
(28,224)
52,646
65
Subex Technologies, Inc.
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Non cash expenses included in net income:
Depreciation
Change in operating assets and liabilities:
Accounts receivable
Other assets
Accounts payable
Accrued expenses
Other current liabilities
NET CASH (USED) PROVIDED BY OPERATING
ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets
CASH FLOWS FROM FINANCING ACTIVITIES
Paid in capital
Advances from related entity
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES
NET DECREASE IN CASH
CASH – beginning of year
CASH – end of year
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest
Income taxes
The accompanying notes are an integral part of the financial statements.
3131313131st st st st st March, 2006
March, 2006
March, 2006
March, 2006
March, 2006
3131313131st st st st st March, 2005
March, 2005
March, 2005
March, 2005
March, 2005
Amount in US$.
45,497
19,082
(957,051)
(37,274)
317,549
219,352
11,706
(381,139)
(12,270)
-
393,409
393,409
-
-
-
1,082
20,295
78,870
11,185
171,844
56,948
(287,901)
46,708
4,800
82,454
(10,463)
(402,175)
330,184
(71,991)
-
-
-
-
17,204
66
NOTES TO FINANCIAL STATEMENTS
31st March, 2006 and 2005
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of operations
Subex Technologies, Inc. “the Company” is a wholly owned
subsidiary of Subex Systems Limited - India “the Parent”. The
Company is a placement company for computer personnel and
maintenance. Customers are located throughout the United
States. Credit is granted to substantially all customers.
Cash equivalents
The Company considers all highly liquid debt instruments purchased
with a maturity of three months or less to be cash equivalents.
Accounts receivable - Recognition of bad debts
The Company considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is provided.
Property and equipment
Property and equipment is stated at cost, less accumulated
depreciation.
Depreciation is provided over the estimated useful lives of the
assets as follows:
Method
Estimated useful life
Equipment
Declining balance
5 years
Subex Technologies, Inc.
assets can be recovered. If it is determined that the carrying value
of goodwill will not be recovered from the undiscounted future cash
flows of the acquired business, the carrying value of such intangible
assets would be considered impaired and reduced by a charge to
operations in the amount of the impairment. An impairment charge
is measured any deficiency in the amount of estimated undiscounted
future cash flows of the acquired business available to recover the
carrying value related to the intangible assets. Based on this
assessment, there was no impairment to goodwill.
Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made for the prior years’ financial
statements to conform to the current year presentation. These
reclassifications had no effect on previously reported results of
operations or retained earnings.
2. INCOME TAXES
The (benefit) provision for income taxes for the years ended 31st
March, 2006 and 2005 consists of current tax expense.
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Furniture and
Equipment
Advertising costs
Declining balance
5-7 years
Federal
State
2006
$32,018
15,839
$47,857
2005
$ 9,778
12,961
$22,739
Advertising costs are expensed as incurred. Advertising expense
for the years ended 31st March, 2006 and 2005 was $0 and $0,
respectively.
Income taxes
Deferred income taxes are recognized for differences between
the basis of assets and liabilities for financial statement and income
tax purposes. Deferred tax assets and liabilities represent future
tax consequences of those differences that will either be taxable
or deductible when the related assets and liabilities are recovered
or settled. At 31st March, 2006 and 2005 there were no material
temporary differences giving rise to deferred tax assets and
liabilities.
Goodwill
Goodwill represents the purchase price and transaction costs
associated with business acquisitions in excess of estimated fair
value of the net assets of the business.
The FASB issued SFAS No. 142, “Goodwill and Intangible Assets”.
SFAS No. 142 eliminates the amortization of goodwill, requires
annual impairment testing of goodwill and introduces the concept
of indefinite life intangible assets.
Management annually reviews the carrying value of goodwill to
determine whether an impairment may exist. The Company
considers relevant cash flow and profitability information, including
estimated future operating results, trends, and other available
information, in assessing whether the carrying value of intangible
3. EMPLOYEE BENEFIT PLAN
The Company maintains a 401(k) Savings Plan for qualified
employees. The terms of the plan define qualified employees as
those over 21 years of age, with at least six months of service with
the Company. Employee contributions are discretionary to a
maximum of 15% of compensation. The Company matches 50%
of the employees contributions up to 6% of compensation. 401(k)
expenses for the years ended 31st March, 2006 and 2005 were
$31,463 and $33,616, respectively.
4. DEBT
The Company has available a revolving line of credit with a bank.
Borrowings under this line of credit bear interest at the bank’s
prime rate plus 1.0%. The outstanding balances at 31st March,
2006 and 2005 was $0 and $0, respectively.
5. RELATED PARTY
The Company bills the parent company on a cost plus basis for
manpower requirements. Revenue from parent company for the
years ended 31st March, 2006 and 2005 was $13,403,054 and
$10,842,595, respectively.
The Company has advanced and received funds from SSL for
working capital purposes. At 31st March, 2006 and 2005 the
Company owed SSL (a branch of the parent) $2,344,015 and
$1,950,606, respectively.
67
Subex Technologies, Inc.
Accounts receivable at 31st March, 2006 and 2005 include
$3,761,752 and $2,771,351 respectively due from the parent
company.
guaranteed by the Federal Deposit Insurance Corporation (FDIC)
up to $100,000. The Company has not experienced any losses in
such accounts.
6. CONCENTRATION OF CREDIT RISK
7. COMMITMENTS
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash and accounts
receivable. The Company controls credit risk through credit
approvals, credit limits, and monitoring procedures. The Company
generally does not require collateral to support accounts receivable.
The Company maintains its cash in bank deposit accounts which,
at times, may exceed federally insured limits. Accounts are
The Company leases office space under a four year lease expiring
31st December, 2006. Rent expense for the years ended 31st
March, 2006 and 2005 was $43,221 and $45,367, respectively.
Future minimum lease payments are as follows for the years
ended March 31:
2007
$29,435
68
AUDITOR’S REPORT
AUDITOR’S REPORT
AUDITOR’S REPORT
AUDITOR’S REPORT
AUDITOR’S REPORT
To
The Board of Directors of Subex Technologies, Inc., Bangalore
We have audited the attached balance sheet of SUBEX
TECHNOLOGIES, INC (the ‘Company’) as at 31st March, 2006 and
the related profit and loss accounts for the period ended on that
date annexed thereto. These financial statements are prepared
in United States of America and translated into Indian Rupees for
the purpose of incorporation thereof in the consolidated financial
statements of the ultimate holding company, Subex Systems
Limited. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion
on these financial statements based on our audit.
1. We conducted our audit in accordance with the auditing standards
generally accepted in India. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material mis-statement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An Audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides
a reasonable basis for our opinion.
2. We report that :
We have obtained all the information and explanations, which to
the best of our knowledge and belief, were necessary for the
purpose of our audit.
Subex Technologies, Inc.
In our opinion, proper books of accounts as required by law, have
been kept by the Company so far as appears from our examination
of those books.
The balance sheet and profit and loss account dealt with by this
report are in agreement with the books of account.
In our opinion the balance sheet and profit and loss account dealt
with by this report have been prepared in compliance with the
applicable accounting standards referred to in section 211(3C) of
the Companies Act,1956.
3. In our opinion and to the best of our information and according
to the explanations to us, the said accounts read with the notes
thereon give in the prescribed manner, the information required
by the Act and give a true and fair view in conformity with the
accounting principles generally accepted in India.
a. In the case of the balance sheet, of the state of affairs of the
Company as at 31st March, 2006
b. In the case of the profit and loss account, of the loss for the
period 31st March, 2006
Place: Bangalore
Date: 15th May, 2006
For M/s. P. Chandrasekar & Co.,
Chartered Accountants
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P. Chandrasekaran
Partner
Membership No. 26037
69
Subex Technologies, Inc.
BALANCE SHEET AS AT
SOURCES OF FUNDS :
SHAREHOLDERS’ FUNDS :
Share Capital
Reserve and Surplus
LOAN FUNDS :
Secured Loans
Unsecured Loans
TTTTTOOOOOTTTTTALALALALAL
APPLICATION OF FUNDS :
FIXED ASSETS :
Gross Block
Less : Depreciation
Net Block
Capital work in progress
DEFERRED TAX ASSET (Net):
CURRENT ASSETS, LOANS & ADVANCES :
Inventories
Sundry Debtors
Cash & Bank balances
Loans & Advances
Less: Current liabilities & Provisions
Net Current Assets
TTTTTOOOOOTTTTTALALALALAL
NOTES ON ACCOUNTS
3131313131st st st st st March, 2006
March, 2006
March, 2006
March, 2006
March, 2006
3131313131st st st st st March, 2005
March, 2005
March, 2005
March, 2005
March, 2005
Amount in Rs.
87,070
318,339,908
318,426,978
87,070
315,874,202
315,961,272
-
-
318,426,978
318,426,978
318,426,978
318,426,978
318,426,978
315,961,272
315,961,272
315,961,272
315,961,272
315,961,272
310,281,844
316,034,432
6,060,463
309,973,969
-
-
168,451,255
-
3,306,017
171,757,272
163,304,263
309,973,969
315,564,961
5,283,115
310,281,844
-
-
123,157,395
-
1,617,614
124,775,009
119,095,581
8,453,009
318,426,978
318,426,978
318,426,978
318,426,978
318,426,978
5,679,428
315,961,272
315,961,272
315,961,272
315,961,272
315,961,272
The Schedules referred to above form an integral part of the balance sheet
In terms of our report of even date
For M/s.P. Chandrasekar & Co.,
Chartered Accountants
P. Chandrasekaran
Partner
Membership No. 26037
70
Place : Bangalore
Date : 15th May, 2006
Subash Menon
Director
Sudeesh Yezhuvath
Director
PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED
Subex Technologies, Inc.
3131313131st st st st st March, 2006
March, 2006
March, 2006
March, 2006
March, 2006
3131313131st st st st st March, 2005
March, 2005
March, 2005
March, 2005
March, 2005
Amount in Rs.
INCOME :
Consulting Fees
TTTTTotalotalotalotalotal
EXPENDITURE :
Personnel Costs
Other Operating, Selling and
Administrative Expenses
Financial Costs
Depreciation
TTTTTotalotalotalotalotal
Profit Before Taxation
Provision for taxation
- Current
- Deferred
Profit After Taxation
Add: Balance brought forward from Previous year
Profit Available for Appropriation
Surplus carried to Balance Sheet
2,128,702
-
NOTES ON ACCOUNTS
The Schedules referred to above form an integral part of the Profit & Loss Account
596,592,061
596,592,061
596,592,061
596,592,061
596,592,061
596,592,061
487,854,199
487,854,199
487,854,199
487,854,199
487,854,199
487,854,199
558,299,872
450,344,955
32,496,482
272,605
855,182
591,924,141
591,924,141
591,924,141
591,924,141
591,924,141
4,667,920
2,128,702
2,539,218
16,921,667
19,460,885
19,460,885
19,460,885
19,460,885
19,460,885
19,460,885
19,460,885
19,460,885
19,460,885
19,460,885
19,460,885
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31,632,964
158,423
516,067
482,652,409
482,652,409
482,652,409
482,652,409
482,652,409
5,201,790
1,021,952
4,179,838
12,741,829
16,921,667
16,921,667
16,921,667
16,921,667
16,921,667
16,921,667
16,921,667
16,921,667
16,921,667
16,921,667
16,921,667
1,021,952
-
In terms of our report of even date
For M/s.P. Chandrasekar & Co.,
Chartered Accountants
P. Chandrasekaran
Partner
Membership No. 26037
Place : Bangalore
Date : 15th May, 2006
Subash Menon
Director
Sudeesh Yezhuvath
Director
71
Subex Technologies, Inc.
SCHEDULES
SCHEDULES
SCHEDULES
SCHEDULES
SCHEDULES
SIGNIFICANT ACCOUNTING POLICIES
SIGNIFICANT ACCOUNTING POLICIES
SIGNIFICANT ACCOUNTING POLICIES
SIGNIFICANT ACCOUNTING POLICIES
SIGNIFICANT ACCOUNTING POLICIES
I.1. Basis for preparation of financial statements
The Financial statements have been prepared under the historical
cost convention in accordance with the applicable Accounting
Principles in India, the Accounting Standards issued by the Institute
of Chartered Accountants of India and the relevant provisions of
the Companies Act, 1956, as adopted consistently by the Company.
Revenues are recognized and expenses accounted on their accrual,
including provisions/adjustments for committed obligations and
amounts determined as payable or receivable during the year.
I.2. Use of Estimates
The preparation of the financial statements in conformity with
India GAAP requires that management makes estimates and
assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent liabilities as at the date of the
financial statements and the reported amount of revenue and
expenses during the reported period. Actual results could differ
from those estimates.
I.3. Revenue recognition
For Contracts where the only deliverable is services, revenue is
recognized based on effort certified by customers and on
fulfillment of contractual obligations with customers.
For other contracts which are milestone based, revenue is
recognized based on proportionate contract completion method
as prescribed by Institute of Chartered Accountants of India.
I.4. Fixed Assets
Fixed assets are capitalized at acquisition cost including directly
attributable costs such as freight, insurance and specific installation
charges for bringing the assets to its working condition for use.
Assets acquired on hire purchase are capitalised at gross value and
interest thereon is charged to revenue.
I.5. Depreciation
Fixed assets are depreciated using the W D V Method over the
estimated useful lives of the asset.
Equipment
Furniture
I.6. Employee Benefit Plan
Method
Useful Life
WDV
WDV
5 years
5 -7 Years
The Company maintains a 401(k) savings plan for qualified
employees. The terms of the plan define qualified employees as
those over 21 years of age, with at least six months of service with
the company. Employee contributions are discretionary to a
maximum of 15% of compensation. The company matches 50%
of the employee’s contributions up to 6% of Compensation.
I.7. Foreign currency transactions and translation
Transactions denominated in foreign currencies are recorded at
the exchange rates prevailing on the date of the transaction.
Monetary items denominated in foreign currencies at year end
are translated at the exchange rate prevailing on the date of the
Balance Sheet. Non monetary items denominated in foreign
currencies are carried at cost. Exchange differences on settlement
or restatement are adjusted in the profit & loss account.
I.8. Income taxes
Income Tax comprises the current tax provision under the tax payable
method and the net change in the deferred tax asset or liability in
the year. Deferred Tax Assets and liabilities are recognized for the
future tax consequences of temporary differences between the
carrying values of the assets and liabilities and their respective tax
basis. Deferred tax assets are recognized subject to management’s
judgment that realization is virtually certain. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which the temporary
differences are expected to be received or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized
in the income statement in the period of enactment of the change.
I.9. Provisions
A provision is recognized when an enterprise has a present obligation
as a result of past event; it is probable that an outflow of resources
will be required to settle the obligation, in respect of which a
reliable estimate can be made. Provisions are not discounted to its
present value and are determined based on best estimate required
to settle the obligation at the balance sheet date. These are
reviewed at each balance sheet date and adjusted to reflect the
current best estimates.
II. NOTES TO ACCOUNTS
II.1. Deferred Income taxes
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which
the temporary differences are expected to be received or settled.
The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in the income statement in the period of
enactment of the change. As at 31st March 2006 and 2005 there
were no material temporary differences giving rise to deferred
tax assets and liabilities.
II.2. Related Party Information
A) Related Parties
Companies under same management
Subex Systems Ltd
B) Details of the transactions with the related parties other than
employees who are related to the Directors of the Company are
as under:
72
Subex Technologies, Inc.
(Amounts in Rs.)
e of Trrrrransaction
ansaction
ansaction
e of T
e of T
Natur
Natur
ansaction
Nature of T
ansaction
e of T
Natur
Natur
Holding Company
Holding Company
Holding Company
Holding Company
Holding Company
Companies under same
Companies under same
Companies under same
Companies under same
Companies under same
management
management
management
management
management
Key Management
Key Management
Key Management
Key Management
Key Management
Personnel
Personnel
Personnel
Personnel
Personnel
TTTTTotalotalotalotalotal
ear ended YYYYYear ended
ear ended
ear ended
ear ended
ear ended YYYYYear ended
ear ended
ear ended
ear ended YYYYYear ended
ear ended
ear ended
ear ended YYYYYear ended
ear ended
ear ended
ear ended YYYYYear ended
ear ended
ear ended
ear ended YYYYYear ended
ear ended
ear ended
ear ended YYYYYear ended
ear ended
ear ended
YYYYYear ended
ear ended
ear ended
ear ended
ear ended
ear ended
ear ended
ear ended
ear ended
ear ended
ear ended
2005-06
2005-06
2005-06
2005-06
2005-06
2004-05
2004-05
2004-05
2004-05
2004-05
2005-06
2005-06
2005-06
2005-06
2005-06
2004-05
2004-05
2004-05
2004-05
2004-05
2005-06
2005-06
2005-06
2005-06
2005-06
2004-05
2004-05
2004-05
2004-05
2004-05
2005-06
2005-06
2005-06
2005-06
2005-06
2004-05
2004-05
2004-05
2004-05
2004-05
a) Sale of Services
596,592,061 487,854,199
b) Amount due to as at
March 31,2006
b) Amount due from as
at March, 31,2006
104,173,877 85,003,135
168,451,255 123,157,395
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil 596,592,061 487,854,199
Nil 104,173,877
85,003,135
Nil 168,451,255 123,157,395
1. Estimated amount of contracts, remaining to be executed on capital account and not provided for (net of advances paid) Rs.Nil (Previous year Rs. Nil).
Signature to the Schedules A - J
Signature to the Schedules A - J
Signature to the Schedules A - J
Signature to the Schedules A - J
Signature to the Schedules A - J
For M/s.P. Chandrasekar & Co.,
Chartered Accountants
P. Chandrasekaran
Partner
Membership No. 26037
Place : Bangalore
Date : 15th May, 2006
Subash Menon
Director
Sudeesh Yezhuvath
Director
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Subex Technologies Limited
74
Financial Review
Financial Review
Financial Review
Financial Review
Financial Review
echnologies Limited
echnologies Limited
Subex T
Subex T
echnologies Limited
Subex Technologies Limited
echnologies Limited
Subex T
Subex T
Subex Technologies Limited
Y COMPANYANYANYANYANY
Y COMP
Y COMP
O SUBSIDIAR
O SUBSIDIAR
TING T
, 1956, RELAAAAATING T
TING T
, 1956, REL
ANIES ACTTTTT, 1956, REL
, 1956, REL
ANIES AC
ANIES AC
TION 212 OF THE COMP
TION 212 OF THE COMP
O SEC
O SEC
ANT T
ANT T
TEMENT PURSU
STSTSTSTSTAAAAATEMENT PURSU
TEMENT PURSU
O SUBSIDIARY COMP
TING TO SUBSIDIAR
TION 212 OF THE COMPANIES AC
O SECTION 212 OF THE COMP
ANT TO SEC
TEMENT PURSUANT T
Y COMP
O SUBSIDIAR
TING T
, 1956, REL
ANIES AC
TION 212 OF THE COMP
O SEC
ANT T
TEMENT PURSU
1 Name of the subsidiary
2 Financial year ended
3 Holding company’s interest
4 Shares held by the holding company in the subsidiary
5 The net aggregate of profits or losses for the current financial year of the
subsidiary so far as it concerns the members of the holding company dealt
with or provided for in the acounts of the holding company
:
:
:
:
Subex Technologies Limited
31st March, 2006
100% in equity shares
1,000,000 equity shares of Rs. 10 each fully paid
a. Dealt with or provided for in the accounts of the holding company
b Not dealt with or provided for in the accounts of the holding company
: Nil
:
(Rs. 15,260,591)
6 The net aggregate of profits or losses for previous financial years of the
subsidiary so far as it concerns the members of the holding company
a. Dealt with or provided for in the accounts of the holding company
b. Not dealt with or provided for in the accounts of the holding company
: Nil
:
(Rs. 15,260,591)
Subash Menon
Subash Menon
Subash Menon
Subash Menon
Subash Menon
Director
ezhuvath
ezhuvath
Sudeesh Y
Sudeesh Y
ezhuvath
Sudeesh Yezhuvath
Sudeesh Y
ezhuvath
Sudeesh Y
Director
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Place : Bangalore
Date : 24th April, 2006
DIRECTORS’ REPORT
To the members,
Your directors have pleasure in presenting the financial results of
the company for the period ended 31st March, 2006.
FINANCIAL RESULTSTSTSTSTS
FINANCIAL RESUL
FINANCIAL RESUL
FINANCIAL RESUL
FINANCIAL RESUL
(Rs. in million)
For the period ended
31st March, 2006
Total Revenue
Loss before Interest, Depreciation & Amortization
Interest, Depreciation & Amortization
Loss before tax
Provision for taxes
Loss after tax
12.26
(14.07)
0.77
(14.84)
0.42
(15.26)
TIONS
TIONS
APPROPRIA
APPROPRIA
TIONS
APPROPRIATIONS
TIONS
APPROPRIA
APPROPRIA
Interim Dividend
Preference Dividend
Dividend proposed
a) on equity shares
b) on preference shares
Provision for tax on Dividends
Transfer to General Reserve
Surplus carried to Balance Sheet
RESULTS OF OPERATIONS
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Your company was incorporated on 28th
March, 2005. During the
period under review, your company has clocked a turnover of
Rs. 12.26 million and a net loss of Rs. 15.26 million. Your Directors
expect growth in the business of the company during the FY
2006-07.
Under this scheme a corpus of 1,00,000 options was created for
grant to the eligible employees. Each option is convertible into one
fully paid-up equity share of Rs.10.
As per the scheme the Compensation Committee grants options to
the eligible employees. The options granted will be vested over a
period of 1 to 4 years and can be exercised over a period of 3 years
from the date of vesting.
AUDITORS
M/s. P. Chandrasekar & Co, the auditors retire at the ensuing
Annual General Meeting and have confirmed their eligibility as per
Sec 224 of the Companies Act, 1956 and their willingness to accept
office, if re appointed.
AUDITORS’ REPORT
There were no qualifications observed in the auditors’ report for
the Financial Year 2005-06.
DIVIDEND
In view of the losses, no dividend has been declared during the
period under review.
DIRECTORS
Mr. Subash Menon, Mr. Sudeesh Yezhuvath and Mr. V. Balaji Bhat
are the directors of the company. As per Regulation 89 of the
Articles of Association of the company, Mr. Sudeesh Yezhuvath
and Mr. V. Balaji Bhat, Directors, retire by rotation and being
eligible, offer themselves for re-appointment.
SHARE CAPITAL
During the year the paid up share capital of the company has
increased to Rs. 10 million from Rs.0.05 million. The additional
shares were issued to Subex Azure Limited, the holding company.
EMPLOYEE STOCK OPTIONS SCHEME
SECRETARIAL COMPLIANCE CERTIFICATE
Your company has introduced a Stock Option plan for its employees
on 1st December, 2005.
As required under section 383A of the Companies Act 1956,
Secretarial Compliance Certificate issued by Ms. K. Padmavathi,
Practicing Company Secretary is annexed to this report.
75
Subex Technologies Limited
Name
Designation
Qualification
Age
Experience Dt of commencement
Of Employment
(No.of yrs)
Remuneration
received
Previous
Employment
S.Ramakrishnan
CEO
B.E.
35
14
4th April, 2005
3,927,693.00
Tata Elxsi Ltd
PARTICULARS OF EMPLOYEES
Companies Act 1956, the Board of Directors affirms;
As required under the provisions of section 217(2A) of the
Companies Act, 1956 read with the Companies (Particulars of
Employees) Rules, 1975, the names and other particulars of
employees as given herewith.
INFORMATION UNDER SECTION 217 (1)(e) OF THE COMPANIES
ACT, 1956 READ WITH COMPANIES (DISCLOSURES OF PARTICULARS
IN THE REPORT OF BOARD OF DIRECTORS) RULES, 1988
A CONSERVATION ENERGY
The operations of your company are not energy-intensive.
However, significant measures are taken to reduce energy
consumption by using energy-efficient computers and by the
purchase of energy-efficient equipment. Your company constantly
evaluates new technologies and invests to make its infrastructure
more energy-efficient.
a) That in the preparation of the accounts for the year ending 31st
March, 2006, the applicable accounting standards have been
followed and there are no material departures there from.
b) That the accounting policies have been selected and applied
consistently and made judgments and estimates that are
reasonable and prudent so as to give a true and fair view of the
state of affairs of the company as at 31st March, 2006 and of the
profit of the company for the year ended on that date.
c) That proper and sufficient care has been taken for the
maintenance of adequate accounting records in accordance with
the provision of the Act for safeguarding the assets of the company
and for preventing and detecting fraud and other irregularities.
d) That the accounts for the period ended 31st March, 2006 has
been prepared on a going concern basis.
B TECHNOLOGY ABSORPTION, ADOPTION AND INNOVATION.
APPRECIATIONS / ACKNOWLEDGEMENTS.
Your company has not imported any technology. However, the
telecommunications domain, in which your company operates, is
subject to high level of obsolescence and rapid technological
changes. Your company has developed inherent skills to keep pace
with these changes.
C FOREIGN EXCHANGE EARNINGS AND OUTGO
Your company is focussed on servicing overseas clients in the software
services sector. During the year 2005-06 total foreign exchange
inflow and outflow is as follows:
i) Foreign Exchange earnings Rs. 8.87 millions
ii) Foreign Exchange outgo Rs. 2.97 millions
DIRECTORS’ RESPONSIBILITY STATEMENT
In accordance with the provision of Section 217(2AA) of the
Your directors acknowledge and thank the co-operation and
assistance received from the Central and State Government
authorities & Banks for their consistent support to the company
and look forward to their continued support in the future.
Your directors also wish to place on record their deep appreciation
to the employees at all levels for their hard work, solidarity, co-
operation and support as they are instrumental in your company
scaling new heights, year after year.
Your involvement as shareholders is greatly valued. Your directors
look forward to your continued support.
for and On Behalf of the Board
Place : Bangalore
Date : 24th April, 2006
Subash Menon
Director
Sudeesh Yezhuvath
Director
ANNEXURE TO THE DIRECTORS’ REPORT
ANNEXURE TO THE DIRECTORS’ REPORT
ANNEXURE TO THE DIRECTORS’ REPORT
ANNEXURE TO THE DIRECTORS’ REPORT
ANNEXURE TO THE DIRECTORS’ REPORT
COMPLIANCE CERTIFICATE
CIN – U74140KA2005PLC035905
To,
The Members
M/S. SUBEX TECHNOLOGIES LIMITED
I have examined the registers, records, books and papers of M/S.
SUBEX TECHNOLOGIES LIMITED (the Company) as required to be
maintained under the Companies Act, 1956, (the Act) and the Rules
made there-under and also the provisions contained in the
Memorandum and Articles of Association of the Company for the
financial year ended 31st March, 2006. In my opinion and to the best
of my information and according to the examinations carried out by
me and explanations furnished to me by the Company, the officers
and agents, I certify that in respect of the aforesaid financial year:
1. The Company has kept and maintained all registers as stated in
Annexure ‘A’ to this Certificate as per the provisions of the Act and
the Rules made there-under and recorded all necessary entries therein.
76
2. The Company has filed the forms and returns as stated in
Annexure ‘B’ to this Certificate with the Registrar of Companies as
required under the Act and the Rules made there-under. However,
the Company has not filed any forms and returns with the Regional
Director, Central Government, Company Law Board or other
authorities since there was no requirement for the same as
evidenced by the transactions executed by the Company during
the year and as informed by the Company Management to me.
3. The Company being an Un-listed Public Limited Company, has
the minimum prescribed Paid-up Share Capital and its maximum
number of Members during the said financial year were Seven (7).
4. The Board of Directors duly met Seven (7) times on 30th March,
2005; 28th April, 2005; 9th June, 2005; 24th June, 2005; 28th July,
2005; 28th October, 2005 and 27th January, 2006 in respect of
which Meetings, proper notices were given and the proceedings
were properly recorded and signed in the Minutes Book maintained
for the purpose. Further, during the year under certification, the
Company has passed Circular Resolution and has confirmed the
same at the Board Meetings held subsequent to the date of such
passing and has been properly recorded and signed in the Minutes
Book maintained for the purpose.
5. Being the first financial year, there was no occasion for the
Company to close its Register of Members and hence violation of
the provisions of Section 154 of the Act does not arise.
6. Current year being the very first financial year (date of
Incorporation being 28th March, 2005), the Company did not hold
any Annual General Meeting during the current year ended 31st
March, 2006 and hence recording the Resolutions passed thereat
in the Minutes Book maintained for the purpose does not arise.
7. The Company has held Two (2) Extraordinary General Meetings
during the current financial year on 28th July, 2005 and 27th March,
2006 respectively, after giving due notice to the Members of the
Company and the Resolutions passed thereat were duly recorded
in the Minutes Book maintained for the purpose.
8. The Company has not advanced loans to its directors and/or persons,
firms or companies referred to in Section 295 of the Act and hence,
the provisions of Section 295 of the Act do not apply to the Company.
9. The Company has complied with the provisions of Section 297
of the Act in respect of contracts specified in that Section.
10. The Company has made necessary entries in the Register
maintained under Section 301 of the Act to the extent applicable.
11. It has been observed that the Company had no occasion to
obtain approvals for complying with the provisions of Section 314
of the Act during the year ended 31st March, 2006.
12. The Company did not issue any duplicate share certificates
during the year under review.
13. The Company has:
i. allotted fresh shares during the current year and has recorded
transfer of shares in both cases, the Company has generally
complied with the provisions of the Act. However, the Company
has not received any Share Certificates for recording transmission
and hence, delivering share certificates after transmission or any
other purpose in accordance with the provisions of the Act do not
arise;
ii. The year of certification being the very first year of Company’s
existence, the issue of declaration of final dividend does not arise.
Further, the Company has not declared any interim dividend during
the financial year 2005-06 and hence, depositing the amount of
interim dividend in a separate Bank Account within statutory period
prescribed therefor does not arise;
iii. For the above-stated reason, payment/posting of dividend
warrants or interim dividend warrants within a period of thirty
days from the date of declaration, transfer of all unclaimed/unpaid
dividend to unpaid dividend or interim dividend account of the
Company in a separate Bank Account and other statutory
obligations in connection therewith does not arise;
iv. no amounts in unpaid dividend account, application money due
for refund, matured deposits, matured debentures and interest
accrued thereon which have remained unclaimed or unpaid for a
period of seven years, and hence, transfer of such moneys to
Investor Education and Protection Fund does not arise;
v. as the current year being the first year of operation, compliance
with the requirements of Section 217 of the Act during the year
of certification did not arise.
14. The Board of Directors of the Company is duly constituted,
and the year of certification being the very first year of Company’s
existence, the provisions of Sections 255, 256 and 257 read with
Article 88 of the Articles of Association of the Company in respect
of retirement of Directors by rotation and filling of vacancy thereof
do not apply. However, during the year under certification, fresh
Subex Technologies Limited
appointment of Directors, Additional Directors, Alternate Directors
and Directors to fill casual vacancies have not been made.
15. The Company has not appointed and/or paid remuneration to
Managing Director/Whole-time Director/Manager and hence, the
provisions of Section 269 read with Schedule XIII of the Act with
regard to appointment of Managing Director/Whole-time Director/
Manager and seeking approval of Central Government in respect
of appointments not being in terms of Schedule XIII of the Act are
not applicable to the Company.
16. The Company has informed that it did not appoint any sole-
selling agents during the year under report.
17. From the transactions carried out by the Company during the
year under certification, there was no occasion for the Company to
obtain approvals of the Central Government, Company Law Board,
Regional Director, Registrar of Companies or such other authorities
as may be prescribed under various provisions of the Act.
18. The Directors have disclosed their interest in other firms/
companies to the Board of Directors pursuant to the provisions of
the Act and the Rules made there-under.
19. The Company has issued Equity Shares during the financial
year and has generally complied with the provisions of the Act.
However, the Company has not issued Preference Shares,
Debentures or any other form of Securities during the financial
year and hence, complying with the provisions of the Act and the
rules framed there under in relation thereto do not arise.
20. The Company has not bought back any shares during the
financial year ending 31st March, 2006.
21. The Company has not issued any debentures and hence,
redemption thereof during the year does not arise.
22. The Company has received a transfer request during the year
under certification. However, as the Company has not declared any
dividend, rights shares and bonus shares, keeping in abeyance rights
thereto pending registration of transfer of shares does not arise.
23. The Company has accepted deposits which are exempt
categories as per Section 58A of the Act read with the Companies
(Acceptance of Deposit) Rules, 1975 during the year ending 31st
March, 2006. Hence, compliance of the provisions of Sections
58A and 58AA read with the said Rules/applicable directions issued
by the Reserve Bank of India/ any other authority in respect of
deposits and filing copy of Advertisement/ Statement in lieu of
Advertisement/ Return of Deposit/ necessary particulars as required
with the Registrar of Companies/ Reserve Bank of India/ any other
authority does not arise.
24. The Company has obtained necessary approvals of the
shareholders to borrow loans beyond the aggregate of paid up
share capital and Free Reserves of the Company pursuant to the
provisions of Section 293(1)(d) of the Act, at the Extraordinary
General Meeting held on 27th March, 2006 and have generally
complied with the provisions of the Act.
25. The Company has neither made investments in other
Companies nor has made loans or given guarantees or provided
securities to other bodies corporate during the year under report
and hence, the provisions of Section 372A of the Act do not apply.
26. The Company has not altered the provisions of Memorandum
with respect to situation of the Company’s Registered Office from
one State to another during the year under scrutiny.
27. The Company has not altered the provisions of Memorandum
with respect to Objects of the Company during the year under scrutiny.
28. The Company has not altered the provisions of Memorandum
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Subex Technologies Limited
with respect to Name of the Company during the year under scrutiny.
29. The Company has not altered the provisions of Memorandum
with respect to Share Capital of the Company during the year
under scrutiny.
30. The Company has not altered its Articles of Association during
the year under scrutiny.
31. From the books, records, registers, papers, files etc., produced
before me for the purposes of this certification, it may be stated
that the Company has not received any show cause notices and
also fines and penalties (except fixed rates of additional fees u/S
611(2) of the Companies Act, 1956, levied in respect of delayed
submission of document/s as mentioned in Annexure ‘B’ to this
Certificate) or any other punishment for alleged offences under
the Companies Act, 1956 and no prosecution has been initiated
against the Company under any of the provisions of the said Act.
32. From the records, it has been observed that the Company has
not received any moneys as security from its employees during
the year under certification and hence, depositing the same as
per the provisions of Section 417(1) of the Act does not arise.
33. As per circular No. F. No. 8/58 (418)/ 63-PR issued by the
Department of Company Affairs, where the provisions of the
Employees Provident Fund Act, 1952 are applicable to the
Provident Fund constituted by a Company, the provisions of Section
418 of the Act need not be complied with. Since the Company has
registered itself under the Employees Provident Fund Act, 1952,
the provisions of Section 418 of the Act are per se not applicable
to the Company. However, based on the records, challans etc,
produced before me, I state that the Company has been depositing
employees’ and employer’s contribution to Provident Fund from
the date of its applicability, with prescribed authorities.
Place : Bangalore
Date : 20th April, 2006
(K. Padmavathi)
Practicing Company Secretary
C.P.No : 3963
ANNEXURE ‘A’
ANNEXURE ‘A’
ANNEXURE ‘A’
ANNEXURE ‘A’
ANNEXURE ‘A’
No.
Name of the Register
1
2
3
4
5
6
7
Register of Members
Register of Directors, Managers & Secretary
Register of Directors’ Shareholdings
Register of Companies and Firms in which Directors, etc., are interested
Register of Contract
Board Meeting Minutes Book
General Meeting Minutes Book
Optional Registers & Books Maintained by the Company
1
2
3
4
Share Applications and Allotment Register
Register of Share Transfer
Register of Documents Sealed
Directors’ Attendance Book
Relevant sections
150
303
307
301(3)
297,299 & 301
193
193
75(1) & (2)
ANNEXURE ‘B’
ANNEXURE ‘B’
ANNEXURE ‘B’
ANNEXURE ‘B’
ANNEXURE ‘B’
Forms and Returns filed by the Company during the financial year ending on 31st March, 2006
A. With Registrar of Companies (in addition to Incorporation documents):
No. Name of the documents
with relevent section numbers
Date of
document
Whether filed within Whether filed after the expiry
the specified period
of specified period
with additional fees
Date of filing
1
2
3
4
5
6
Form III u/S 187-C in respect of
Beneficial Interest
Statement in Lieu of Prospectus
in Schedule-III u/S 70
Form No. 20 u/S 149(2)(c) in
respect of Declaration of
Compliance
Form No. 22 u/S 165 in respect
of Statutory Report
Form No. 2 u/S 75(1) in respect
of Allotment of Equity Shares
Form III u/S 187-C in respect of
Beneficial Interest
28th March, 2005
25th April, 2005
25th April, 2005
27th June, 2005
28th October, 2005
15th November, 2005
NO
YES
YES
NO
YES
YES
YES
N.A.
N.A.
YES
N.A.
N.A.
1st June, 2005
6th May, 2005
6th May, 2005
4th July, 2005
24th November, 2005
28th November, 2005
B.
C.
D.
With Regional Director, Central Government, Company Law Board or Other Authorities:
Documents Pertaining to Previous Year, filed during the Current Year: NONE
Documents filed with other Authorities, as referred to in the Certificate: NONE
NONE
78
Place : Bangalore
Date : 20th April, 2006
(K. Padmavathi)
Practicing Company Secretary
C.P.No : 3963
AUDITOR’S REPORT
AUDITOR’S REPORT
AUDITOR’S REPORT
AUDITOR’S REPORT
AUDITOR’S REPORT
To
The Shareholders, Subex Technologies Limited, Bangalore
We have audited the attached Balance Sheet of SUBEX
TECHNOLOGIES LIMITED as at 31st March, 2006 and also the
Profit and Loss Account for the year ended on that date annexed
thereto. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion
on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards
generally accepted in India. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An Audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides
a reasonable basis for our opinion.
As required by the companies (Auditors Report) order, 2003, issued
by the Company Law Board in terms of Section 227(4A) of the
Companies Act, 1956, we give in the Annexure, a statement on
the matters specified in paragraph 4 & 5 of the said Order, to the
extent applicable to the Company.
Further to our comments in the annexure attached hereto, we
report that:
1. We have obtained all the information and explanations which
to the best of our knowledge and belief were necessary for the
purposes of our audit
ANNEXURE TO AUDIT REPORT
ANNEXURE TO AUDIT REPORT
ANNEXURE TO AUDIT REPORT
ANNEXURE TO AUDIT REPORT
ANNEXURE TO AUDIT REPORT
(i) (a) The company is maitaining proper records showing full
particilars, including quantitativ details and situation of fixed assets.
(b) These fixed assets have been physically verified by the
management at reasonable intervals and no material discrepancies
were noticed on such verification.
(c) No substantial part of fixed assets have been disposed off
during the year, to effect the going concern.
(ii) (a) The Company has not granted, secured or unsecured loans
to companies, firms or other parties covered in the register
maintained under section 301 of the Act.
(b) The Company has taken interest free unsecured loans from
one companies, firms or other parties covered in the register
maintained under section 301 of the Act from one part amounting
to Rs. 115.33 Lakhs and the term and conditions of loan taken by
the company, unsecured, are prima facie not prejudicial to the
interest of the company. There ia no amount overdue for more
than Rupees One Lakh.
(iii) In our opinion and according to information and explanations
given to us, there are adequate internal control procedures
commensurate with the size of the company and the nature of its
business, for the purchase of inventory and fixed assets and for
the sale of goods and there os no continuing failure to correct
major weaknesses in internal control.
Subex Technologies Limited
2. In our opinion proper books of accounts as required by law have
been kept by the Company, so far as appears from our examination
of those books
3. The balance sheet and profit and loss account dealt with by this
report are in agreement with the books of account
4. In our opinion the balance sheet and profit and loss account
comply with the accounting standards referred to in subsection
(3C) of Section 211 of the Companies Act,1956
5. In our opinion and to the best of our information and according
to the explanations given to us, none of the Directors of the Company
are disqualified from being appointed as Directors under clause (g)
of sub section (1) of Section 274 of the Companies Act, 1956.
6. In our opinion and to the best of our information and according
to the explanations given to us, the said accounts read together
with the notes thereon, and other notes, give the information
required by the Companies Act, 1956 in the manner so required,
and give a true and fair view in conformity with the accounting
principles generally accepted in India
a. In the case of the Balance Sheet, of the state of affairs of the
Company as at 31st March, 2006
b. In the case of the Profit and Loss Account, of the Loss of the
Company for the period ended on that date.
6
0
-
5
0
0
2
t
r
o
p
e
R
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a
u
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A
Place : Bangalore
Date : 24th April, 2006
for M/s.P. Chandrasekar
Chartered Accountants
Lakshmy Chandrasekaran
Partner
Membership No. 28508
(iv) (a) All transactions that need to be entered into a register in
pursuance of section 301 of the Act have been so entered. However
we were informed by the management, the above provisions are
not applicable to the company.
(b) In our opinion and according to the information and explanation
given to us, there are not transactions made in pursuance of
contracts or arrangements entered in the register maintained
under section 301 of the Companies Act, 1956 and exceeding the
value of Rs. 5.00 Lakhs, in respect of any party during the year
have been made at prices which are reasonable having regard to
the prevailing market price at the relevant time;
(v) The company has not accepted deposites from the public,
under the directives issued by the Reserve Bank if India and the
provisions of sections 58 A and 58 AA of the Act and the ruled
framed there under.
(vi) The company has no Internal Audit System, which in our
opinion commensurate with its nature of business and size of the
company.
(vii) The maintenance of cost records has not been prescribed by
the Central Government under clause (d) of sub-section (1) of
section 209 of the Act.
(viii) The company has no accumulated losses at the beginning of
the year and has sustained cash losses during the current financial
year covered under our audit.
79
Subex Technologies Limited
(ix) The company has not defaulted in repayment of dues to the
financial institutions and banks
(x) The company has not granted loans and advances on the basis
of security by way of pledge of shares, debentures and other
securities.
(xi) The provisions of any special statue applicable to chit fund/
nidhi/ mutual benefit fund/ societies are not applicable to the
Company and therefore the provisions of clause 4
(xii) of the companies (Auditor’s Report) Order, 2003 are not
applicable to the company.
(xiii) As the company is not dealing or trading in shares, securities,
debentures and other investments, the maintenance of proper
records of the transactions and contracts and making timely entries
of the shares, securities, debentures, and other securities held by
the company, are not applicable.
(xiv) The company has not given guarntee for loand taken by
others from bank or financial institutions, the terms and conditions
whereof are prejudicial to the interest of the company.
(xv) According ti information and explanations given to us, and an
overall examination of the Balnace Sheet and fund flow statement
of the Company; we report that the funds raised on short-term
basis have not been used long-term investment and vice versa.
(xvi) The company has not made any preferencial allotment of
shares to parties and conpanies covered in the Register maintained
under section 301 of the Act.
(xvii) According to information and explanations given to us, the
company has not issued any debentures during the year and no
securities were created by the company.
(xviii) The company has not raised money on public issue.
(xix) On the basis of our examination of the books of accounts and
other relevant record and information made available to us, prima-
facie have not noticed and fraud on or by the Company, during
the year. Further, the management has represented to us that no
fraud on or by the Company has bee reported during the year.
However, we are unable to determine/ verify as to whetjer such
reporting has been made, during the year.
(xx) All other provisions of the said order are not applicable to the
above Company
Place : Bangalore
Date : 24th April, 2006
for M/s.P. Chandrasekar
Chartered Accountants
Lakshmy Chandrasekaran
Partner
Membership No. 28508
80
BALANCE SHEET AS AT
Sources of funds
Sources of funds
Sources of funds
Sources of funds
Sources of funds
Shareholders’ Funds:
Shareholders’ Funds:
Shareholders’ Funds:
Shareholders’ Funds:
Shareholders’ Funds:
Share Capital
Reserves & Surplus
Loan Funds
Loan Funds
Loan Funds
Loan Funds
Loan Funds
Secured Loans
Unsecured Loans
Deferred tax liabilities (net)
TTTTTotalotalotalotalotal
APPLICAAAAATION OF FUNDS
TION OF FUNDS
TION OF FUNDS
APPLIC
APPLIC
TION OF FUNDS
TION OF FUNDS
APPLIC
APPLIC
Fixed Assets:-
Gross Block
Less: Depreciation
Net block
Capital Work-in-progress
Current Assets, Loans and Advances
Sundry Debtors
Cash and Bank Balances
Loans & advances
Less: Current Liabilities & Provisions
Net current assets
Miscellaneous expenditure
Miscellaneous expenditure
Miscellaneous expenditure
Miscellaneous expenditure
Miscellaneous expenditure
Preliminary Expenses
(To the extent not written off or adjusted)
Profit and Loss account
TTTTTotalotalotalotalotal
Notes on Accounts
Notes on Accounts
Notes on Accounts
Notes on Accounts
Notes on Accounts
Subex Technologies Limited
Schedule
Schedule
Schedule
Schedule
Schedule
3131313131ststststst March, 2006
March, 2006
March, 2006
March, 2006
March, 2006
3131313131ststststst March, 2005
March, 2005
March, 2005
March, 2005
March, 2005
Amount in Rs.
10,000,000
-
500,000
-
10,000,000
500,000
2,575,629
11,533,049
184,486
24,293,164
24,293,164
24,293,164
24,293,164
24,293,164
5,546,681
714,202
4,832,479
-
4,832,479
2,933,916
336,811
4,010,664
7,281,391
3,307,760
-
-
-
-
-
500,000
-
500000
-
6
0
-
5
0
0
2
t
r
o
p
e
R
l
a
u
n
n
A
283,079
783,079
783,079
783,079
783,079
783,079
-
3,973,631
500,000
226,463
283,079
15,260,591
15,487,054
-
24,293,164
24,293,164
24,293,164
24,293,164
24,293,164
283,079
783,079
783,079
783,079
783,079
783,079
A
B
C
D
E
J
The Schedules referred to above form an integral part of the balance sheet
In terms of our report of even date
In terms of our report of even date
For M/s.P. Chandrasekar & Co.,
Chartered Accountants
Lakshmy Chandrasekaran
Partner
Membership No. 28508
Place : Bangalore
Date : 24th April, 2006
Subash Menon
Director
Sudeesh Yezhuvath
Director
81
Subex Technologies Limited
PROFIT & LOSS ACCOUNTS FOR THE YEAR ENDED
INCOME
INCOME
INCOME
INCOME
INCOME
Service Income
Other income
TTTTTotalotalotalotalotal
EXPENDITURE
EXPENDITURE
EXPENDITURE
EXPENDITURE
EXPENDITURE
Personnel costs
Other operating, selling and administrative expenses
Financial costs
Depreciation
TTTTTotalotalotalotalotal
Profit before taxation
Provision for taxation
- Current tax
- Fringe benefit tax
- Deferred tax (asset)/liability
Profit afer tax
Loss carried to balance sheet
Earnings per share - Basic
Earnings per share - Diluted
Notes on Accounts
Schedule
Schedule
Schedule
Schedule
Schedule
3131313131ststststst March, 2006
March, 2006
March, 2006
March, 2006
March, 2006
3131313131ststststst March, 2005
March, 2005
March, 2005
March, 2005
March, 2005
Amount in Rs.
12,147,258
108,933
12,256,191
12,256,191
12,256,191
12,256,191
12,256,191
15,992,917
10,336,605
113,809
656,394
27,099,725
27,099,725
27,099,725
27,099,725
27,099,725
(14,843,534)
-
232,571
184,486
(15,260,591)
(15,260,591)
(15.26)
(15.26)
F
G
H
I
C
J
-
-
-----
-
-
-
-----
-
-
-
-
-
-
The Schedules referred to above form an integral part of the profit & loss account
In terms of our report of even date
In terms of our report of even date
For M/s.P. Chandrasekar & Co.,
Chartered Accountants
Lakshmy Chandrasekaran
Partner
Membership No. 28508
82
Place : Bangalore
Date : 24th April, 2006
Subash Menon
Director
Sudeesh Yezhuvath
Director
SCHEDULES FORMING PART OF THE ACCOUNTS
Schedule - A
Schedule - A
Schedule - A
Schedule - A
Schedule - A
Share capital
Share capital
Share capital
Share capital
Share capital
1. Authorised
30,00,000 (Previous year 30,00,000 ) Equity
shares of Rs.10/- each
2. Issued, subscribed and Paid up:
1,000,000 (Previous year 50,000) Equity
shares of Rs.10/- each fully paid
TTTTTotalotalotalotalotal
Schedule - B
Schedule - B
Schedule - B
Schedule - B
Schedule - B
LOAN FUNDS
LOAN FUNDS
LOAN FUNDS
LOAN FUNDS
LOAN FUNDS
Secured Loans
Hire purchase
(Secured by Hypothecation of Motor cars)
(Amount repayable within one year: Rs.576,956)
(Previous Year: Rs.Nil)
Unsecured Loans
Subex Technologies Limited
3131313131ststststst March, 2006
March, 2006
March, 2006
March, 2006
March, 2006
3131313131ststststst March, 2005
March, 2005
March, 2005
March, 2005
March, 2005
Amount in Rs.
30,000,000
30,000,000
10,000,000
10,000,000
10,000,000
10,000,000
10,000,000
10,000,000
500,000
500,000
500,000
500,000
500,000
500,000
6
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2,575,629
-
Unsecured Loan from Subex Systems Ltd (Holding Company)
11,533,049
14,108,678
283,079
TTTTTotalotalotalotalotal
14,108,678
14,108,678
14,108,678
14,108,678
14,108,678
283,079
283,079
283,079
283,079
283,079
283,079
83
Subex Technologies Limited
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SCHEDULES FORMING PART OF THE ACCOUNTS
Schedule - D
Schedule - D
Schedule - D
Schedule - D
Schedule - D
ANS AND ADVVVVVANCES
ANCES
ANCES
ANS AND AD
SSETS, LOOOOOANS AND AD
ANS AND AD
SSETS, L
SSETS, L
CURRENT A
CURRENT A
ANCES
CURRENT ASSETS, L
CURRENT A
ANCES
ANS AND AD
SSETS, L
CURRENT A
Current Assets, Loans & Advances
Current Assets, Loans & Advances
Current Assets, Loans & Advances
Current Assets, Loans & Advances
Current Assets, Loans & Advances
(a) Current Assets:
(a) Current Assets:
(a) Current Assets:
(a) Current Assets:
(a) Current Assets:
Sundry Debtors:
Unsecured:
Outstanding for more than six months
Considered good
Due from Holding Company
Due from others
Considered doubtful
Less: Provision for doubtful debts
Others
Considered good
Due from Holding Company
Due from others
Cash and Bank Balances:
Cash on hand
Balances with Scheduled Banks
on Current Account
- in Current Account in Indian Rupees
- in EEFC Account in foreign Currency
(b) Loans and Advances:
(b) Loans and Advances:
(b) Loans and Advances:
(b) Loans and Advances:
(b) Loans and Advances:
(Unsecured, considered good, subject to confirmation)
Loans and advances recoverable in cash
or in kind or for value to be received
Advance Income Tax including TDS
Other Deposits
TTTTTotalotalotalotalotal
Schedule - E
Schedule - E
Schedule - E
Schedule - E
Schedule - E
CURRENT LIABILITIES AND PROVISIONS
CURRENT LIABILITIES AND PROVISIONS
CURRENT LIABILITIES AND PROVISIONS
CURRENT LIABILITIES AND PROVISIONS
CURRENT LIABILITIES AND PROVISIONS
Liabilities:
Liabilities:
Liabilities:
Liabilities:
Liabilities:
Sundry Creditors
(other than Small Scale Industrial Undertaking)
Duties & Taxes
TTTTTotalotalotalotalotal
Subex Technologies Limited
3131313131st st st st st March, 2006
March, 2006
March, 2006
March, 2006
March, 2006
3131313131st st st st st March, 2005
March, 2005
March, 2005
March, 2005
March, 2005
Amount in Rs.
500,000
336,811
-
500,000
-
-
-
-
2,933,916
1,567,487
1,366,429
-
242,654
94,157
21,812
473,852
3,515,000
4,010,664
7,281,391
7,281,391
7,281,391
7,281,391
7,281,391
2,718,404
589,356
3,307,760
3,307,760
3,307,760
3,307,760
3,307,760
3,307,760
6
0
-
5
0
0
2
t
r
o
p
e
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l
a
u
n
n
A
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
500,000
500,000
500,000
500,000
500,000
-
-
85
Subex Technologies Limited
SCHEDULES FORMING PART OF THE ACCOUNTS
Schedule - F
Schedule - F
Schedule - F
Schedule - F
Schedule - F
OTHER INCOME
OTHER INCOME
OTHER INCOME
OTHER INCOME
OTHER INCOME
Exchange fluctuation
TTTTTotalotalotalotalotal
Schedule - G
Schedule - G
Schedule - G
Schedule - G
Schedule - G
PERSONNEL COSTS
PERSONNEL COSTS
PERSONNEL COSTS
PERSONNEL COSTS
PERSONNEL COSTS
Salaries wages and allowances
Contribution to provident and other funds
Other staff related cost
TTTTTotalotalotalotalotal
Schedule - H
Schedule - H
Schedule - H
Schedule - H
Schedule - H
Other operation, selling and administrative expenses
Other operation, selling and administrative expenses
Other operation, selling and administrative expenses
Other operation, selling and administrative expenses
Other operation, selling and administrative expenses
Software purchases
Rent
Power, fuel and water charges
Repairs & maintenance others
Insurance
Communication costs
Printing and stationery
Travelling and conveyance
Rates and taxes including filing fees
Placement consultancy Fee
Miscellaneous expenses
TTTTTotalotalotalotalotal
Schedule - I
Schedule - I
Schedule - I
Schedule - I
Schedule - I
FINANCE CHARGES
FINANCE CHARGES
FINANCE CHARGES
FINANCE CHARGES
FINANCE CHARGES
Interest on car loan
Bank charges
TTTTTotalotalotalotalotal
3131313131st st st st st March, 2006
March, 2006
March, 2006
March, 2006
March, 2006
3131313131st st st st st March, 2005
March, 2005
March, 2005
March, 2005
March, 2005
Amount in Rs.
108,933
108,933
108,933
108,933
108,933
108,933
14,543,650
662,514
786,753
15,992,917
15,992,917
15,992,917
15,992,917
15,992,917
341,891
3,498,253
464,726
602,401
4,819
510,857
103,980
2,379,959
52,657
1,506,087
870,975
10,336,605
10,336,605
10,336,605
10,336,605
10,336,605
105,283
8,526
113,809
113,809
113,809
113,809
113,809
-
-----
-
-
-
-----
-
-
-
-
-
-
-
-
-
-
-
-----
-
-
-----
8686
SCHEDULE – J
SCHEDULE – J
SCHEDULE – J
SCHEDULE – J
SCHEDULE – J
I. SIGNIFICANT ACCOUNTING POLICIES
I. SIGNIFICANT ACCOUNTING POLICIES
I. SIGNIFICANT ACCOUNTING POLICIES
I. SIGNIFICANT ACCOUNTING POLICIES
I. SIGNIFICANT ACCOUNTING POLICIES
I.1. Basis for preparation of financial statements
The Financial statements have been prepared under the historical
cost convention in accordance with the applicable Accounting
Principles in India, the Accounting Standards issued by the Institute
of Chartered Accountants of India and the relevant provisions of
the Companies Act, 1956, as adopted consistently by the company.
Revenues are recognized and expenses accounted on their accrual,
including provisions/adjustments for committed obligations and
amounts determined as payable or receivable during the year.
I.2. Use of Estimates
The preparation of the financial statements in conformity with
India GAAP requires that management makes estimates and
assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent liabilities as at the date of the
financial statements and the reported amount of revenue and
expenses during the reported period. Actual results could differ
from those estimates.
I.3. Revenue recognition
For contracts where the only deliverable is services, revenue is
recognized based on effort certified by customers and on
fulfillment of contractual obligations with customers.
For other contracts which are milestone based, revenue is
recognized based on proportionate contract completion method
as prescribed by Institute of Chartered Accountants of India.
I.4. Fixed Assets
Fixed assets are capitalized at acquisition cost including directly
attributable costs such as freight, insurance and specific installation
charges for bringing the assets to its working condition for use.
Assets acquired on hire purchase are capitalised at gross value and
interest thereon is charged to revenue.
I.5. Depreciation
Fixed assets are depreciated using the straight-line method over
the useful lives of assets. Depreciation is charged on pro-rata basis
for assets purchased/sold during the year.
The rates of depreciation adopted on the assets of the company
are as under;
Particulars
Plant & machinery
Computers
Vehicles
Furniture & fixtures
Intangible assets
Depreciation Rates
20.00 %
25.00 %
20.00 %
20.00 %
20.00 %
Individual assets costing less than Rs. 5,000 are depreciated in full,
in the year of purchase.
I.6. Retirement benefits to employees
The company’s liability towards retirement benefits in the form of
provident fund is fully provided and charged to expenditure.
Gratuity benefit is accounted for as an estimated liability as at the
date of the balance sheet.
I.7. Foreign currency transactions and translation
Transactions denominated in foreign currencies are recorded at
the exchange rates prevailing on the date of the transaction.
Monetary items denominated in foreign currencies at year end
are translated at the exchange rate prevailing on the date of the
6
0
-
5
0
0
2
t
r
o
p
e
R
l
a
u
n
n
A
Subex Technologies Limited
Balance Sheet. Non-monetary items denominated in foreign
currencies are carried at cost. Exchange differences on settlement
or restatement are adjusted in the profit & loss account.
I.8. Income taxes
Income Tax comprises the current tax provision under the tax payable
method and the net change in the deferred tax asset or liability in
the year. Deferred Tax Assets and liabilities are recognized for the
future tax consequences of temporary differences between the
carrying values of the assets and liabilities and their respective tax
basis. Deferred tax assets are recognized subject to management’s
judgment that realization is virtually certain. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which the temporary
differences are expected to be received or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized
in the income statement in the period of enactment of the change.
I.9. Cash Flow Statement
Cash flow statement has been prepared in accordance with the
indirect method prescribed in Accounting Standard 3, issued by
the Institute of Chartered Accountants of India.
I.10. Provisions
A provision is recognized when an enterprise has a present obligation
as a result of past event; it is probable that an outflow of resources will
be required to settle the obligation, in respect of which a reliable
estimate can be made. Provisions are not discounted to its present
value and are determined based on best estimate required to settle
the obligation at the balance sheet date. These are reviewed at each
balance sheet date and adjusted to reflect the current best estimates.
II. NOTES TO ACCOUNTS
II.1. Deferred Income taxes
a) Provision for income taxes has been made in terms of
Accounting Standard 22 “Accounting for Taxes on Income”.
Deferred tax assets are subject to a valuation allowance that
reduces the amount recognized to that which is more likely than
not to be realized.
Movement in deferred tax liability
Amount in Rs.
2005-06
2004-05
Net deferred tax asset/ (liability)
at 1st April , 2005
Add: Tax benefits/ (charge)
for current year
Net deferred tax asset/
(liability) at 31st March, 2006
Nil
(184,486)
(184,486)
Nil
Nil
Nil
b) The net deferred tax asset as at 31st March, 2005 comprises the
tax impact arising from the timing differences on account of:
Amount in Rs.
As at
31st March, 2006
As at
31st March, 2005
Depreciation
Gratuity
Net deferred asset/(liability)
relating to above
(705,880)
157,792
(184,486)
Nil
Nil
Nil
8787
Subex Technologies Limited
II.2. Operating leases
The Company has various operating leases for office facilities which
include leases that are renewable on a yearly basis, cancelable at
its option and other long term leases. Rental expenses for operating
leases included in the Income statement for the year is
Rs. 3,135,600
As of March 31, 2006 future minimum lease payments for non-
cancelable operating leases for the next five fiscal years are:
Amount in Rs.
For the year ending
31st March, 2006 31st March, 2005
Within one year from the
date of the Balance Sheet
Due in a period between
one year and five years
Due after five years
4,180,800
9,978,176
Nil
Nil
—
Nil
II.3. Related Party Information
A) Related Parties
Companies under same management
Subex Systems Ltd
Key Management Personnel
S. Ramakrishnan, CEO
B) Details of the transactions with the related parties other than employees who are related to the Directors of the company are as under:
e of Trrrrransaction
ansaction
ansaction
e of T
e of T
Natur
Natur
ansaction
Nature of T
ansaction
e of T
Natur
Natur
Holding Company
Holding Company
Holding Company
Holding Company
Holding Company
Companies under same
Companies under same
Companies under same
Companies under same
Companies under same
management
management
management
management
management
Key Management
Key Management
Key Management
Key Management
Key Management
Personnel
Personnel
Personnel
Personnel
Personnel
TTTTTotalotalotalotalotal
2005-06
2005-06
2005-06
2005-06
2005-06
2004-05
2004-05
2004-05
2004-05
2004-05
2005-06
2005-06
2005-06
2005-06
2005-06
2004-05
2004-05
2004-05
2004-05
2004-05
2005-06
2005-06
2005-06
2005-06
2005-06
2004-05
2004-05
2004-05
2004-05
2004-05
2005-06
2005-06
2005-06
2005-06
2005-06
2004-05
2004-05
2004-05
2004-05
2004-05
(Amounts in Rs.)
a) Sale of Services
9,967,322
Nil
533,049
283,079
b) Amount due to as at
31st March, 2006
c) Amount due from
as at 31st March,
2006
1,567,487
d) Sharing of expenses-
Note -1
5,389,331
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
9,967,322
Nil
Nil 11,533,049
283,079
Nil
1,567,487
Nil
5,389,331
Nil
Nil
Note-1 Sharing of expenses in relation to expenses borne by Subex Technologies Ltd towards software services business of Subex
Systems Ltd, as agreed between both companies.
II.4. Earnings per Share:
a) Basic:
Profits after Tax
Less: Dividend on Preference Shares & distribution tax
Net Profit Available to Equity Shareholders –
b) Diluted:
Profits after Tax
Add: Interest on FCCB
Net Profit Available to Equity Shareholders – Diluted
Weighted Average Number of Shares - Basic
Weighted Average Number of Shares – Diluted
Earnings per Share – Basic
Earnings per Share – Basic
Earnings per Share – Basic
Earnings per Share – Basic
Earnings per Share – Basic
Earnings per Share - Diluted
Earnings per Share - Diluted
Earnings per Share - Diluted
Earnings per Share - Diluted
Earnings per Share - Diluted
88
A
B
A
B
C
D
B / CB / CB / CB / CB / C
A / DA / DA / DA / DA / D
2005-06
(15,260,591)
Nil
(15,260,591)
(15,260,591)
2004-05
Nil
Nil
Nil
Nil
Nil
Nil
(15,260,591)
1,000,000
1,000,000
(15.26)
(15.26)
(15.26)
(15.26)
(15.26)
(15.26)
(15.26)
(15.26)
(15.26)
(15.26)
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
II.5. Auditors’ remuneration
Miscellaneous expenditure includes remuneration to auditors’:
Audit fees (inclusive of service tax)
For tax matters
Other Consultancy
Reimbursement of expenses
Subex Technologies Limited
Year ended 31st March, 2006
Year ended 31st March, 2005
28,060
16,836
Nil
Nil
44,896
Nil
Nil
Nil
Nil
Nil
II.6. Employee Stock Option Plans (ESOP)
II.8. Others
The Company established a stock option scheme during the current
year, under which 22,900 options have been granted to the
employees and all the options granted are outstanding as on 31st
March, 2006.
II.7. Segment Report
Currently Company is operating only one single business segment.
Hence the requirement under AS-17 is not applicable
1. Estimated amount of contracts, remaining to be executed on
capital account and not provided for (net of advances paid) Rs.Nil
(Previous year, Rs. Nil).
2. Preliminary expenses are amortized equally over 5 years
II.9. Other Information pursuant to Schedule VI of the Companies
Act, 1956.
6
0
-
5
0
0
2
t
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o
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R
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a
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A
Year ended 31st March, 2006
Year ended 31st March, 2005
Amount in Rs.
CIF value of imports
Expenditure in foreign currency
Traveling expenses
Other expenses
Earnings in foreign exchange
Income from software development services on receipt basis
1,664,587
1,091,518
211,489
8,868,626
Nil
Nil
Nil
Nil
Signature to the Schedules A – J
Signature to the Schedules A – J
Signature to the Schedules A – J
Signature to the Schedules A – J
Signature to the Schedules A – J
For M/s.P. Chandrasekar & Co.,
Chartered Accountants
Lakshmy Chandrasekaran
Partner
Membership No. 28508
Place : Bangalore
Date : 24th April, 2006
Subash Menon
Director
Sudeesh Yezhuvath
Director
89
Subex Azure Limited (formerly Subex Systems Limited)
Financial Review
Financial Review
Financial Review
Financial Review
Financial Review
Subex Azure Limited (Consolidated)
Subex Azure Limited (Consolidated)
Subex Azure Limited (Consolidated)
Subex Azure Limited (Consolidated)
Subex Azure Limited (Consolidated)
90
Subex Azure Limited (formerly Subex Systems Limited)
AUDITOR’S REPORT TO THE BOARD OF DIRECTORS OF SUBEX SYSTEMS LIMITED
1. We have audited the attached Consolidated Balance Sheet of
Subex Systems Limited (“the Company”) and it’s subsidiaries
(the Company and its subsidiaries constitute “the group”) as at
31st March, 2006, the Consolidated Profit and Loss Account
and the Consolidated Cash Flow Statement for the year then
ended, both annexed thereto. These financial statements are
the responsibility of the Company’s management and have
been prepared by the management on the basis of separate
financial statements and other financial information regarding
components. Our responsibility is to express an opinion on
these financial statements based on our audit.
2. We conducted our audit in accordance with generally accepted
auditing standards in India. These Standards require that we plan
and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatements.
An audit includes, examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management as well as
evaluating the overall financial statements presentation. We
believe that our audit provides a reasonable basis for our opinion.
3. We did not audit the financial statements of the subsidiaries,
Subex Technologies Inc and Subex Technologies Limited, whose
financial statements reflect gross total assets of Rs. 184,857,132
as at 31st March, 2006, total revenues of Rs. 608,739,319 and
cash flows of (Rs. 163,189) for the year then ended and the
financial statements of the Company’s branch, in the United
States of America (US branch). These financial statements
and other financial information have been audited by other
auditors, whose report/returns have been furnished to us, and
our opinion, insofar as it relates to the amounts included in
respect of the subsidiaries and the US branch, is based solely
on the report of the other auditors.
4. We report that the consolidated financial statements have
been prepared by the Company in accordance with the
requirements of Accounting Standard (AS) 21, Consolidated
Financial Statements, issued by the Institute of Chartered
Accountants of India and on the basis of the separate audited
financial statements of Subex Systems Limited and its
subsidiaries included in the consolidated financial statements.
5. On the basis of the information and explanation given to us
and on the consideration of the separate audit reports on
individual financial statements and on the other financial
information of the components of Subex Systems Limited
and its subsidiaries, we are of the opinion that the attached
consolidated financial statements give a true and fair view in
conformity with the accounting principles generally accepted
in India:
a)
b)
c)
in the case of the Consolidated Balance Sheet, of the
consolidated state of affairs of Subex Systems Limited and its
subsidiaries as at 31st March, 2006; and
in the case of the Consolidated Profit and Loss Account, of the
consolidated results of operations of Subex Systems Limited
and its subsidiaries for the year then ended.
in the case of the consolidated Cash Flow Statement of the
consolidated cash flows of Subex Systems Limited and its
subsidiaries for the year then ended.
6
0
-
5
0
0
2
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for Deloitte Haskins & Sells
Chartered Accountants
V. Srikumar
Partner
Membership No. 84494
Place : Bangalore
Date : 15th May, 2006
91
Subex Azure Limited (formerly Subex Systems Limited)
CONSOLIDATED BALANCE SHEET AS AT
Schedule
Schedule
Schedule
Schedule
Schedule
3131313131ststststst March, 2006
March, 2006
March, 2006
March, 2006
March, 2006
3131313131ststststst March, 2005
March, 2005
March, 2005
March, 2005
March, 2005
Amount in Rs.
SOURCES OF FUNDS
SOURCES OF FUNDS
SOURCES OF FUNDS
SOURCES OF FUNDS
SOURCES OF FUNDS
Shareholders’ funds
Share capital
Share application money
Reserve and surplus
Loan funds
Secured loans
Unsecured loans
Deferred payment consideration towards acquisition
- Alcatel, FMS Division
TTTTTotalotalotalotalotal
APPLICAAAAATION OF FUNDS
TION OF FUNDS
TION OF FUNDS
APPLIC
APPLIC
TION OF FUNDS
TION OF FUNDS
APPLIC
APPLIC
Fixed assets
Gross block
Less : Depreciation
Net block
Capital work in progress
GOODWILL
GOODWILL
GOODWILL
GOODWILL
GOODWILL
Investments
Investments
Investments
Investments
Investments
Deferred tax asset (net)
Current assets, loans & advances
Inventories
Sundry debtors
Cash & bank balances
Loans & advances
Less: Current liabilities & provisions
Net current assets
Net current assets
Net current assets
Net current assets
Net current assets
Miscellaneous expenditure
Miscellaneous expenditure
Miscellaneous expenditure
Miscellaneous expenditure
Miscellaneous expenditure
(To the extent not written off or adjusted)
TTTTTotalotalotalotalotal
Notes on accounts
AAAAA
BBBBB
CCCCC
DDDDD
EEEEE
FFFFF
GGGGG
HHHHH
IIIII
JJJJJ
K K K K K
LLLLL
R R R R R
217,575,680
878,089
100,672,230
318,640
1,592,684,945
1,811,138,714 1,139,997,336 1,240,988,206
13,695,549
-
-
665,735,874
272,803,176
392,932,698
73,282,446
212,987,750
13,695,549
1,824,834,263
1,824,834,263
1,824,834,263
1,824,834,263
1,824,834,263
22,754,000
309,024,196
1,550,012,402
1,550,012,402
1,550,012,402
1,550,012,402
1,550,012,402
561,999,271
193,342,709
368,656,562
4,495,298
397,427,996
465,431
369,121,993
308,987,980
-
7,727,514
308,987,980
1,000
3,975,809
-
961,559,552
406,014,754
73,718,402
1,441,292,708
330,601,935
62,589
732,404,000
278,411,743
57,205,909
1,068,084,241
200,441,700
1,110,690,773
867,642,541
-
1,824,834,263
1,824,834,263
1,824,834,263
1,824,834,263
1,824,834,263
283,079
1,550,012,402
1,550,012,402
1,550,012,402
1,550,012,402
1,550,012,402
The schedules referred to above form an integral part of the balance sheet
In terms of our report of even date
for Deloitte Haskins & Sells
Chartered Accountants
Subash Menon
Chairman & Managing Director
Sudeesh Yezhuvath
Wholetime Director
V. Balaji Bhat
Director
V. Srikumar
Partner
Membership No. 84494
92
Bangalore
15th May, 2006
Rajkumar C
Company Secretary & Legal Counsel
V. R. Suresh Rao
General Manager - Accounts & Finance
Subex Azure Limited (formerly Subex Systems Limited)
CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED
Schedule
Schedule
Schedule
Schedule
Schedule
3131313131ststststst March, 2006
March, 2006
March, 2006
March, 2006
March, 2006
3131313131ststststst March, 2005
March, 2005
March, 2005
March, 2005
March, 2005
Amount in Rs.
INCINCINCINCINCOMEOMEOMEOMEOME
Sales & services
Other income
TTTTTotalotalotalotalotal
EXPENDITURE
EXPENDITURE
EXPENDITURE
EXPENDITURE
EXPENDITURE
Direct cost
Personnel costs
Other operating, selling and
administrative expenses
Financial costs
Miscellaneous expenses amortised
Depreciation
TTTTTotalotalotalotalotal
Profit before taxation
Provision for taxation
- Current
- Fringe benefit tax
- Deferred
Profit after taxation
Profit after taxation
Profit after taxation
Profit after taxation
Profit after taxation
Add: Balance brought forward from previous year
Profit available for appropriation
APPROPRIATIONTIONTIONTIONTION
APPROPRIA
APPROPRIA
APPROPRIA
APPROPRIA
Transfer to general reserve
Dividend
- Equity shares - interim dividend 2005-06 (FY)
- Equity shares - final dividend 2004-05 (FY)
- Equity shares - proposed dividend 2005-06 (FY)
- Dividend on preference shares
Tax on distributed profits
Surplus carried to balance sheet
Surplus carried to balance sheet
Surplus carried to balance sheet
Surplus carried to balance sheet
Surplus carried to balance sheet
Earnings Per Share (Face value of Rs.10 each)
- Basic
- Diluted
Notes on accounts
MMMMM
NNNNN
OOOOO
PPPPP
QQQQQ
EEEEE
RRRRR
1,814,342,238
28,908,788
1,843,251,026
1,843,251,026
1,843,251,026
1,843,251,026
1,843,251,026
132,850,266
915,371,277
263,876,813
26,805,705
283,079
92,301,159
1,431,488,299
1,431,488,299
1,431,488,299
1,431,488,299
1,431,488,299
411,762,727
411,762,727
411,762,727
411,762,727
411,762,727
33,276,205
378,486,522
446,344,814
824,831,336
824,831,336
824,831,336
824,831,336
824,831,336
1,165,502,087
6,847,334
1,172,349,421
1,172,349,421
1,172,349,421
1,172,349,421
1,172,349,421
32,210,959
638,221,540
139,301,033
24,374,699
256,942
71,685,019
906,050,192
906,050,192
906,050,192
906,050,192
906,050,192
266,299,229
266,299,229
266,299,229
266,299,229
266,299,229
6
0
-
5
0
0
2
t
r
o
p
e
R
l
a
u
n
n
A
14,636,780
-
(5,545,809)
9,090,971
257,208,258
253,215,412
510,423,670
510,423,670
510,423,670
510,423,670
510,423,670
39,500,000
25,500,000
9,274,917
20,134,446
-
4,651,061
34,060,424
4,518,432
446,344,814
510,423,670
510,423,670
510,423,670
510,423,670
510,423,670
14.13
13.41
38,588,896
5,604,377
741,138,063
824,831,336
824,831,336
824,831,336
824,831,336
824,831,336
17.62
17.53
34,903,702
2,124,208
(3,751,705)
16,283,564
547,764
21,757,568
-
The schedules referred to above form an integral part of the Profit and Loss account
In terms of our report of even date
for Deloitte Haskins & Sells
Chartered Accountants
Subash Menon
Chairman & Managing Director
Sudeesh Yezhuvath
Wholetime Director
V. Balaji Bhat
Director
V. Srikumar
Partner
Membership No. 84494
Bangalore
15th May, 2006
Rajkumar C
Company Secretary & Legal Counsel
V. R. Suresh Rao
General Manager - Accounts & Finance
93
Subex Azure Limited (formerly Subex Systems Limited)
CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED
Cash flow from operating activities
Cash flow from operating activities
Cash flow from operating activities
Cash flow from operating activities
Cash flow from operating activities
Net profit before Tax
Adjustments for :
a) Depreciation and amortization
b) Interest income
c) Interest and other charges
d) Assets written off / loss on sale
e) Profit on sale of assets
f) Employee compensation expenses
g) Provision for doubtful debts
h) Unrealised exchange fluctuations
i) Direct taxes paid
Operating profit before working capital changes
Operating profit before working capital changes
Operating profit before working capital changes
Operating profit before working capital changes
Operating profit before working capital changes
Adjustments for :
a) Sundry debtors
b) Loans and advances
c) Inventories
d) Trade and other payables
Cash generated from operations
Cash generated from operations
Cash generated from operations
Cash generated from operations
Cash generated from operations
Cash flow from Investing activities
Cash flow from Investing activities
Cash flow from Investing activities
Cash flow from Investing activities
Cash flow from Investing activities
a) Purchase of fixed assets
b) Preliminary expense
c) Sale / disposal of fixed assets
d) Sale / (purchase) of investments
e) Deferred payment consideration towards acquisition
f) Interest received
Net cash from investing activities
Net cash from investing activities
Net cash from investing activities
Net cash from investing activities
Net cash from investing activities
Cash flow from financing activities
Cash flow from financing activities
Cash flow from financing activities
Cash flow from financing activities
Cash flow from financing activities
a) Proceeds from issue of share capital
b) Proceeds from/(repayment) of short term borrowings
c) Proceeds from long term borrowings
d) Repayment of long term borrowings
e) Dividends and dividend tax paid
f) Interest and other charges paid
Net Cash from financing activities
Net Cash from financing activities
Net Cash from financing activities
Net Cash from financing activities
Net Cash from financing activities
Exchange fluctuation reserve on account of consolidation
Net increase in cash or cash equivalents [A + B + C]
Cash or cash equivalents at the start of the year
Cash or cash equivalents at the close of the year
Cash or cash equivalents at the close of the year
Cash or cash equivalents at the close of the year
Cash or cash equivalents at the close of the year
Cash or cash equivalents at the close of the year
In terms of our report of even date
AAAAA
BBBBB
CCCCC
3131313131ststststst March, 2006
March, 2006
March, 2006
March, 2006
March, 2006
3131313131ststststst March, 2005
March, 2005
March, 2005
March, 2005
March, 2005
Amount in Rs.
411,762,727
266,299,229
92,584,238
(17,485,876)
26,805,705
2,041,851
(11,976,780)
4,115,709
35,583,448
3,632,964
(23,451,823)
523,612,163
523,612,163
523,612,163
523,612,163
523,612,163
(292,300,823)
(6,939,824)
62,589
93,495,061
317,929,166
317,929,166
317,929,166
317,929,166
317,929,166
(116,323,509)
-
21,058,613
1,000
-
16,352,692
(78,911,204)
(78,911,204)
(78,911,204)
(78,911,204)
(78,911,204)
18,753,800
(59,387,250)
6,247,000
(6,446,647)
(43,776,148)
(26,805,705)
(111,414,950)
(111,414,950)
(111,414,950)
(111,414,950)
(111,414,950)
-
127,603,012
278,411,742
406,014,754
406,014,754
406,014,754
406,014,754
406,014,754
71,941,961
(1,681,501)
24,374,699
829,470
(114,895)
1,008,361
4,295,276
(8,279,599)
358,673,001
358,673,001
358,673,001
358,673,001
358,673,001
(121,530,664)
(14,885,633)
75,436
74,979,824
297,311,964
297,311,964
297,311,964
297,311,964
297,311,964
(351,296,338)
(283,079)
768,732
-
3,870,381
1,681,501
(345,258,803)
(345,258,803)
(345,258,803)
(345,258,803)
(345,258,803)
430,926,830
(61,389,471)
256,275,250
(270,554,902)
(43,304,005)
(19,771,331)
292,182,371
292,182,371
292,182,371
292,182,371
292,182,371
568,892
244,235,532
33,607,318
278,411,742
278,411,742
278,411,742
278,411,742
278,411,742
for Deloitte Haskins & Sells
Chartered Accountants
Subash Menon
Chairman & Managing Director
Sudeesh Yezhuvath
Wholetime Director
V. Balaji Bhat
Director
V. Srikumar
Partner
Membership No. 84494
94
Bangalore
15th May, 2006
Rajkumar C
Company Secretary & Legal Counsel
V. R. Suresh Rao
General Manager - Accounts & Finance
Subex Azure Limited (formerly Subex Systems Limited)
3131313131ststststst March, 2006
March, 2006
March, 2006
March, 2006
March, 2006
3131313131ststststst March, 2005
March, 2005
March, 2005
March, 2005
March, 2005
Amount in Rs.
301,400,000
19,600,000
125,000,000
196,000,000
321,000,000
321,000,000
321,000,000
321,000,000
321,000,000
321,000,000
321,000,000
321,000,000
321,000,000
321,000,000
217,575,680
100,672,230
6
0
-
5
0
0
2
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A
SCHEDULES TO THE CONSOLIDATED BALANCE SHEET AS AT
Schedule - A
Schedule - A
Schedule - A
Schedule - A
Schedule - A
Share capital :
Authorised :
30,140,000 (Previous year, 12,500,000) Equity Shares of Rs. 10 each
200,000 (Previous year, 2,000,000) Redeemable Optionally Convertible
Cumulative Preference Shares (ROCCPS) of Rs.98 each
TTTTTotalotalotalotalotal
Issued, subscribed and paid up:
A) Equity :
21,757,568 (Previous year, 10,067,223) equity shares of Rs. 10 each
of the above:
a) 115,000 shares of Rs.10 each were allotted for
consideration other than for cash;
b) 4,626,940 shares of Rs.10 each are allotted as
bonus shares by capitalisation of general reserve;
c) 12,840 shares of Rs.10 each are allotted in part
settlement of cost of acquisition of subsidiary
d) 10,878,784 (Previous year, Nil) shares of Rs.10 each are
allotted as bonus shares by capitalisation of
securities premium;
TTTTTotalotalotalotalotal
Schedule - B
Schedule - B
Schedule - B
Schedule - B
Schedule - B
Reserves and surplus :
Capital reserve
General reserve - opening balance
Add: Additions during the year
Securities premium account - opening balance
Add: Additions during the year
Less: Utilised towards issue of bonus shares
Employees stock options outstanding
Less: Deferred employees compensation expenses
Exchange reserve on consolidation
Profit & loss account
TTTTTotalotalotalotalotal
Schedule - C
Schedule - C
Schedule - C
Schedule - C
Schedule - C
Secured Loans :
State Bank of India - FCNR (B) Loan
(Amount repayable within one year: Rs. nil)
(Previous Year, Rs. 59,387,250)
(Secured by first charge on all fixed assets of the company, both
present and future, book debts, stock, personal guarantee
of two directors and equitable mortgage of industrial land)
Hire purchase
(secured by hypothecation of motor cars)
(Amount repayable within one year: Rs. 5,190,507)
(Previous Year, Rs. 4,568,531)
TTTTTotalotalotalotalotal
Schedule - D
Schedule - D
Schedule - D
Schedule - D
Schedule - D
Unsecured loans :
Foreign currency convertible bonds
Total
123,802,608
39,500,000
541,983,360
223,066,491
(108,787,840)
22,738,130
13,859,024
217,575,680
217,575,680
217,575,680
217,575,680
217,575,680
100,672,230
100,672,230
100,672,230
100,672,230
100,672,230
13,006,920
163,302,608
656,262,011
8,879,106
10,096,237
741,138,063
1,592,684,945
1,592,684,945
1,592,684,945
1,592,684,945
1,592,684,945
98,302,608
25,500,000
166,327,505
375,655,855
-
10,428,860
5,665,463
13,006,920
123,802,608
541,983,360
4,763,397
10,096,237
446,344,814
1,139,997,336
1,139,997,336
1,139,997,336
1,139,997,336
1,139,997,336
-
59,387,250
13,695,549
13,895,196
13,695,549
13,695,549
13,695,549
13,695,549
13,695,549
73,282,446
73,282,446
73,282,446
73,282,446
73,282,446
-
-----
212,987,750
212,987,750
212,987,750
212,987,750
212,987,750
212,987,750
95
Subex Azure Limited (formerly Subex Systems Limited)
.
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9
SCHEDULES TO THE CONSOLIDATED BALANCE SHEET AS AT
Subex Azure Limited (formerly Subex Systems Limited)
3131313131ststststst March, 2006
March, 2006
March, 2006
March, 2006
March, 2006
3131313131ststststst March, 2005
March, 2005
March, 2005
March, 2005
March, 2005
Amount in Rs.
ScScScScSchehehehehedule - F
dule - F
dule - F
dule - F
dule - F
Investments
(Unquoted at cost)
Long term - non trade
In Government securities - I.V.P
TTTTTotalotalotalotalotal
Schedule - G
Schedule - G
Schedule - G
Schedule - G
Schedule - G
Inventories : (at cost)
Traded goods
TTTTTotalotalotalotalotal
Schedule - H
Schedule - H
Schedule - H
Schedule - H
Schedule - H
Sundry debtors
(Unsecured)
Outstanding for more than six months
- considered good
- considered doubtful
Less: Provision for doubtful debts
Others
TTTTTotalotalotalotalotal (considered good)
Schedule - I :
Schedule - I :
Schedule - I :
Schedule - I :
Schedule - I :
Cash & Bank Balances :
Cash on hand
Balance with Scheduled Banks
-
-
-
in current account in indian rupees
in deposit account in indian rupees
in EEFC account in foreign currency
Balance with Non Scheduled Banks
- Deposit with Royal Bank of Canada
-
in Current account with Royal Bank of Canada, Canada
(Maximum outstanding during the year Rs. 2,205,145)
in checking account with first Union Bank, New Jersey
(Maximum outstanding during the year Rs.48,103,089)
-
- Deposit with money market account with First Union
Bank, New Jersey
(Maximum outstanding during the year Rs. 47,686,579)
in Hellinic Bank - CYP Account, Cyprus
(Maximum outstanding during the year Rs. 1,502)
in Hellinic Bank - USD Account - Cyprus
(Maximum outstanding during the year Rs. 8,077)
in Bank of China - RMB account - China
(Maximum outstanding during the year Rs.1,789,772)
in Bank of China - USD Account - China
(Maximum outstanding during the year Rs.1,541,775)
in First National Bank of Colardo - USD Account - CO
(Maximum outstanding during the year Rs.11,017,675)
in HSBC Bank - GBP Account - Slough, London
(Maximum outstanding during the year Rs.12,132,108)
-
-
-
-
-
-
254,146,370
58,786,098
312,932,468
58,786,098
-
-
-
-
254,146,370
707,413,182
961,559,552
961,559,552
961,559,552
961,559,552
961,559,552
342,020
10,018,765
333,665,660
43,339,550
963,793
503,094
1,000
1,000
62,589
62,589
6
0
-
5
0
0
2
t
r
o
p
e
R
l
a
u
n
n
A
206,737,371
23,938,870
230,676,241
23,938,870
206,737,371
525,666,629
732,404,000
732,404,000
732,404,000
732,404,000
732,404,000
425,892
10,850,189
219,021,499
2,438,103
895,009
576,781
11,793,296
18,108,364
-
1,395
1,663
22,595
892,680
1,773,861
2,696,382
23,423,122
1,548
7,593
495,853
766,318
1,398,966
2,506
TTTTTotalotalotalotalotal
406,014,754
406,014,754
406,014,754
406,014,754
406,014,754
278,411,743
278,411,743
278,411,743
278,411,743
278,411,743
97
Subex Azure Limited (formerly Subex Systems Limited)
SCHEDULES TO THE CONSOLIDATED BALANCE SHEET AS AT
Schedule - J
Schedule - J
Schedule - J
Schedule - J
Schedule - J
Loans & advances
(Unsecured, considered good, subject to confirmation)
Loans and advances recoverable in cash
or in kind or for value to be received
Advance income tax including TDS
Other deposits
TTTTTotalotalotalotalotal
Schedule - K
Schedule - K
Schedule - K
Schedule - K
Schedule - K
Current liabilities & provisions
Sundry creditors
Sundry creditors
(other than Small Scale Industrial undertaking)
Advance received from customers
Duties & taxes
Unclaimed dividends (Refer Note II.15.3 of Schedule R)
Provisions
Taxation
Dividends
Tax on proposed dividends
Warranty
Employee benfits
TTTTTotalotalotalotalotal
Schedule - L
Schedule - L
Schedule - L
Schedule - L
Schedule - L
Miscellaneous expenditure
(To the extent not written off or adjusted)
Preliminary expenses
TTTTTotalotalotalotalotal
3131313131ststststst March, 2006
March, 2006
March, 2006
March, 2006
March, 2006
3131313131ststststst March, 2005
March, 2005
March, 2005
March, 2005
March, 2005
Amount in Rs.
24,615,200
18,281,313
30,821,889
73,718,402
73,718,402
73,718,402
73,718,402
73,718,402
26,573,953
9,841,828
20,790,128
57,205,909
57,205,909
57,205,909
57,205,909
57,205,909
183,730,622
64,884,807
13,801,308
300,627
38,196,322
22,069,429
3,051,499
3,157,312
1,410,009
80,190,568
68,936,388
9,655,614
301,227
16,180,750
22,071,631
2,631,572
473,950
-
159,083,797
41,357,903
200,441,700
200,441,700
200,441,700
200,441,700
200,441,700
262,717,364
67,884,571
330,601,935
330,601,935
330,601,935
330,601,935
330,601,935
-
-----
283,079
283,079
283,079
283,079
283,079
283,079
98
SCHEDULES TO THE CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED
Subex Azure Limited (formerly Subex Systems Limited)
Schedule - M
Schedule - M
Schedule - M
Schedule - M
Schedule - M
Other income
Interest received (Gross TDS Rs. 3,794,118, Previous year, Rs. 194,853)
Other income received
Profit on sale of fixed assets (Net)
Creditors no longer payable written back
Exchange fluctuation account (Net)
Rent received
TTTTTotalotalotalotalotal
Schedule - N
Schedule - N
Schedule - N
Schedule - N
Schedule - N
Direct cost
a. Purchase of systems & solutions
(Increase)/ decrease in finished goods
Opening stock - finished goods
Closing stock - finished goods
b. Commission on Sales
TTTTTotalotalotalotalotal
Schedule - O
Schedule - O
Schedule - O
Schedule - O
Schedule - O
Personnel costs
Salaries, wages & allowances
Contribution to provident fund and other funds
Other staff related costs
Sub contract charges
TTTTTotalotalotalotalotal
3131313131ststststst March, 2006
March, 2006
March, 2006
March, 2006
March, 2006
3131313131ststststst March, 2005
March, 2005
March, 2005
March, 2005
March, 2005
Amount in Rs.
6
0
-
5
0
0
2
t
r
o
p
e
R
l
a
u
n
n
A
17,485,876
1,487,982
9,934,930
-
-
-
28,908,788
28,908,788
28,908,788
28,908,788
28,908,788
1,681,501
3,550,504
-
128,861
869,400
617,068
6,847,334
6,847,334
6,847,334
6,847,334
6,847,334
76,932,834
31,751,699
62,589
-
138,025
62,589
62,589
55,854,843
75,436
383,824
132,850,266
132,850,266
132,850,266
132,850,266
132,850,266
32,210,959
32,210,959
32,210,959
32,210,959
32,210,959
828,320,502
8,826,455
23,471,249
54,753,071
915,371,277
915,371,277
915,371,277
915,371,277
915,371,277
553,321,831
4,737,399
17,274,574
62,887,736
638,221,540
638,221,540
638,221,540
638,221,540
638,221,540
99
Subex Azure Limited (formerly Subex Systems Limited)
SCHEDULES TO THE CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED
3131313131ststststst March, 2006
March, 2006
March, 2006
March, 2006
March, 2006
3131313131ststststst March, 2005
March, 2005
March, 2005
March, 2005
March, 2005
Amount in Rs.
1,837,904
35,834,182
6,672,679
4,815,705
13,174,483
22,233,837
1,480,250
80,086,232
27,500
1,014,727
16,356,876
28,787,589
1,637,075
2,683,362
35,583,448
-
794,643
10,856,321
263,876,813
263,876,813
263,876,813
263,876,813
263,876,813
-
26,805,705
26,805,705
26,805,705
26,805,705
26,805,705
26,805,705
1,047,017
13,921,158
3,418,257
3,310,730
13,814,407
11,317,215
1,075,134
47,843,722
32,500
3,787,731
15,407,617
11,146,246
448,425
-
4,295,276
277,467
8,158,131
139,301,033
139,301,033
139,301,033
139,301,033
139,301,033
1,126,721
23,247,978
24,374,699
24,374,699
24,374,699
24,374,699
24,374,699
Schedule - P
Schedule - P
Schedule - P
Schedule - P
Schedule - P
Other operating, selling and
Administrative expenses
Software purchases
Rent
Power, fuel and water charges
Repairs & maintenance others
Insurance
Communication costs
Printing & stationery
Travelling & conveyance
Directors sitting fees
Rates & taxes including filing fees
Advertisement & Business Promotion
Consultancy charges
Bad debts written off
Warranty expenses
Provision for doubtful debts
Loss on sale of asset & assets written off
Exchange fluctuation account (Net)
Miscellaneous expenses
TTTTTotalotalotalotalotal
Schedule - Q
Schedule - Q
Schedule - Q
Schedule - Q
Schedule - Q
Financial costs :
Interest on fixed loans
Other interest & bank charges
TTTTTotalotalotalotalotal
100
SCHEDULE – R
SCHEDULE – R
SCHEDULE – R
SCHEDULE – R
SCHEDULE – R
I. SIGNIFICANT ACCOUNTING POLICIES
I. SIGNIFICANT ACCOUNTING POLICIES
I. SIGNIFICANT ACCOUNTING POLICIES
I. SIGNIFICANT ACCOUNTING POLICIES
I. SIGNIFICANT ACCOUNTING POLICIES
I.1. Basis for preparation of consolidated financial statements
The consolidated financial statements relate to Subex Systems
Limited (the company) and its wholly owned subsidiaries.
The consolidated financial statements have been prepared under
the historical cost convention in accordance with the applicable
Accounting Principles in India, the Accounting Standards issued by
the Institute of Chartered Accountants of India and the relevant
provisions of the Companies Act, 1956, as adopted consistently by
the company. Revenues are recognised and expenses accounted
on their accrual, including provisions / adjustments for committed
obligations and amounts determined as payable or receivable
during the year.
I.2. Use of Estimates
The preparation of the financial statements in conformity with
Indian GAAP requires that management makes estimates and
assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent liabilities as at the date of the
financial statements and the reported amounts of revenue and
expenses during the reported period. Actual results could differ
from those estimates.
Subex Azure Limited (formerly Subex Systems Limited)
chargeable time or achievement of prescribed milestones as
relevant to each contract.
Contracts for sale of software licences include fees for transfer of
software licences (which normally coincides with delivery), installation
and commissioning. Activities relating to installation and
commissioning involve minimal time and cost and are not subject to
uncertainties. Revenues from composite contracts wherein fees for
software licenses and implementation/commissioning fees are not
identifiable separately are recognized on transfer of the software
licenses and a provision is made for the estimated costs relating to
the installation and commissioning. In the case of contracts, where
the fees for software licenses and implementation costs are identified
separately, revenues from software licenses are recognized on
transfer of software licenses and revenues from implementation
are recognized on completion of implementation and commissioning.
For contracts where the only deliverable is services, revenue is
recognized based on effort certified by customers and on
fulfillment of contractual obligations with customers.
Interest on investments and deposits are booked on a time
proportion basis taking into account the amounts invested and the
rate of interest.
Agency commission is accrued on shipment of consignment by
principal.
6
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2
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A
I.3. Principles of Consolidation
Maintenance and service income is recognised on accrual basis.
The financial statements of the company and its wholly owned
subsidiaries have been combined on a line by line basis by adding
together like items of assets, liabilities, income and expense. The
intra-group balances and intra-group transactions are eliminated.
The excess of cost to the company of its investments in the
subsidiary over it’s share of the equity of the subsidiary, at the date
on which the investments in the subsidiary company was made, is
recognized as ‘goodwill’ being an asset in the consolidated financial
statements. The following entities are considered in the
consolidated financial statements.
Sl No Name of
Entity
1
2
Subex
Technologies,
Inc
Subex
Technologies
Ltd
% of
Country of
% of
Incorporation ownership ownership
held at
31st March, 31st March,
2006
held at
2005
USA
100
100
India
100
100
The financial statements of the company and its subsidiaries are
prepared under uniform accounting policies in accordance with
the generally accepted accounting principles in India.
I.4. Revenue recognition
Sales are recognised on the dispatch of goods to customers and
are recorded net of discounts, rebates for price adjustment,
rejections, shortages in transit, taxes and duties but include
wherever applicable, export incentives.
Revenue from software development is recognised on the basis of
I.5. Fixed Assets
Fixed assets are stated at cost of acquisition inclusive of freight,
duties, taxes and interest on borrowed money allocated to and
utilised for fixed assets up to the date of capitalisation and other
direct expenditure incurred on ongoing projects. Assets acquired
on hire purchase are capitalised at gross value and interest thereon
is charged to revenue.
I.6. Depreciation
Fixed assets are depreciated using the straight-line method over
the useful lives of assets. Depreciation is charged on pro-rata basis
for assets purchased/sold during the year.
The rates of depreciation adopted on the assets of the company
is as under ;
Particulars
Particulars
Particulars
Particulars
Particulars
Plant & machinery
Computers
Vehicles
Furniture & fixtures
Intangible assets
Goodwill
Rate of depreciation
Rate of depreciation
Rate of depreciation
Rate of depreciation
Rate of depreciation
20.00 %
25.00 %
20.00 %
20.00 %
20.00 %
20.00 %
Individual assets costing less than Rs. 5,000 are depreciated in full,
in the year of purchase.
I.7.
Inventories
Inventories are valued at lower of cost or net realizable value,
after providing for cost of obsolescence and other anticipated
losses, wherever considered necessary. Cost includes the aggregate
of all expenditure incurred in bringing the inventories to the present
condition and situation.
101
Subex Azure Limited (formerly Subex Systems Limited)
I.8. Employee Stock Option
For the shares granted/ allocated under Employee Stock Option
Plan - I (ESOP - I), the Securities Exchange Board of India (SEBI)
guidelines are not followed, since the scheme was formulated
prior to the promulgation of the guidelines.
Employee stock options under Employee Stock Option Plan - II
(ESOP - II) are accounted in accordance with the guidelines
stipulated by SEBI. The difference between the market price of
the shares underlying the options granted on the date of grant of
option and the option price is expensed as “Employees’
Compensation” over the period of vesting.
The company has floated ESOP - III in the current financial year,
which is on the same lines has ESOP - II.
Subex Technologies Limited has established a new stock option
scheme during the year which is on the same lines as of the Subex
Azure scheme.
I.9. Retirement benefits to employees
The company’s liability towards retirement benefits in the form of
provident fund is fully provided and charged to expenditure. The
company has entered into an agreement with LIC of India for
managing the gratuity liability through a fund, the premium for
which is funded by the company and charged to expenditure on
accrual basis. Leave encashment benefits is accounted for an
estimated liability as at the date of the balance sheet.
In respect of Subex Technologies, Inc., the entity maintains a
contribution scheme for qualified employees. Contribution payable
under the scheme is charged to the profit & loss a/c on accrual basis.
I.10. Research and development
Expenses incurred on research and development are charged to
revenue in the same year. Fixed asset purchased for research and
development are capitalized and depreciated as per the company’s
policy.
I.11. Foreign currency transactions and translation
Transactions denominated in foreign currencies are recorded at
the exchange rates prevailing on the date of the transaction.
Monetary items denominated in foreign currencies at year end
are translated at the exchange rate prevailing on the date of the
balance sheet. Non-monetary items denominated in foreign
currencies are carried at cost. Exchange differences on settlement
or restatement are adjusted in the profit & loss account. Premium
or discount on forward contracts is amortized over the life of such
contract and is recognized as income or expense, except in respect
of the liabilities for the acquisition of fixed assets, where such
amortization is adjusted in the carrying cost of the fixed assets.
Any profit or loss arising on cancellation or renewal or retirement
of forward contract is recognized in profit and loss account.
Assets (other than fixed assets) and liabilities of the foreign branches
are translated into Indian rupees at the rate of exchange prevailing
as at the balance sheet date. Fixed assets of foreign branches are
restated at the exchange rate prevailing on the date of transaction.
Revenue and expenses are translated into Indian rupees at yearly
average exchange rates prevailing during the year.
The exchange difference arising out of the transactions pertaining
to the branch/ subsidiary have been recognised as exchange gain
(loss) in the profit & loss A/c.
On consolidation, assets and liabilities (other than non-monetary
items) are translated at the exchange rate prevailing on the balance
sheet date. Non-monetary items are carried at historical cost.
Revenue and expenses are translated at yearly average exchange
rates prevailing during the year. Exchange differences arising out
of these transactions are:
- included under ‘Exchange reserve on consolidation’ under Reserves
and Surplus in the case of Non-integral operations.
- charged to the Profit and Loss account in the case of Integral
operations.
I.12. Investments
Long term Investments are stated at cost. Diminution in the value of
investments other than temporary in nature is provided for.
I.13. Income Taxes
Income Tax comprises the current tax provision under the tax payable
method and the net change in the deferred tax asset or liability in the
year. Deferred tax assets and liabilities are recognized for the future
tax consequences of temporary differences between the carrying
values of the assets and liabilities and their respective tax bases.
Deferred tax assets are recognized and carried forward to the extent
that there is a reasonable/ virtual certainity that sufficient future
taxable income will be available against which such deferred tax
assets can be realized.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which
the temporary differences are expected to be received or settled.
The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in the income statement in the period of
enactment of the change.
I.14. Cash Flow Statement
Cash flow statement has been prepared in accordance with the
indirect method prescribed in Accounting Standard 3, issued by
the Institute of Chartered Accountants of India.
I.15. Preliminary and Share issue expenses
Expenses incurred during the Initial Public Offer, follow on offer and
issue of bonus shares are amortised over 5 years. Other issue expenses
are charged to the securities premium account.
I.16. Provisions
A provision is recognized when an enterprise has a present obligation
as a result of past event; it is probable that an outflow of resources
will be required to settle the obligation, in respect of which a
reliable estimate can be made. Provisions are not discounted to its
present value and are determined based on best estimate required
to settle the obligation at the balance sheet date. These are
reviewed at each balance sheet date and adjusted to reflect the
currecurrent best estimates.
II. NOTES TO ACCOUNTS
II. NOTES TO ACCOUNTS
II. NOTES TO ACCOUNTS
II. NOTES TO ACCOUNTS
II. NOTES TO ACCOUNTS
II.1. Deferred income taxes
a) Provision for income taxes has been made in terms of
Accounting Standard 22 “Accounting for Taxes on Income”.
Deferred tax assets are subject to a valuation allowance that
reduces the amount recognized to that which is more likely than
not to be realized.
102
Movement in deferred tax asset (Liability)
Net deferred tax asset/
(Liability) at the beginning
of the year
Add: Tax benefits/(charge)
for current year
Net deferred tax asset/
(Liability) at the end of the year
2005-06
2004-05
3,975,809
(1,570,000)
3,751,705
5,545,809
Subex Azure Limited (formerly Subex Systems Limited)
In the previous year FCCB’s amounting to US$ 5,150,000 were
converted at a price of Rs. 300 per share. The balance amount of
FCCBs amounting to US$ 485,000 have been converted during
the year at the same price.
II.5. Fixed assets in the books of Subex Technologies, Inc., have
been depreciated on written down value basis. Gross block of such
assets at 31st March, 2006 amount to Rs. 7,124,287 (1.07% of
total gross block) and net block amounts to Rs. 985,989 (0.25% of
total net block).
7,727,514
3,975,809
II.6. Acquisition of Tangible and Intangible Assets –Mantas, Inc
b) The net deferred tax asset as at 31st March, 2006 comprises the
tax impact arising from the timing differences on account of:
As at
31st March, 2006 31st March, 2005
As at
7,674,401
53,113
3,975,809
-
7,727,514
3,975,809
- Depreciation
- Gratuity
Net deferred asset /
(liability) relating to above
II.2. Contingent liabilities
Debts factored - Rs. 389,264,166 (Previous Year, Rs. 218,862,500)
Debts not acknowledged by company - Rs. 9,352,609 (Previous Year, NIL)
(This relates to Income Tax matter relating to FY 2002-03. The
demand is being disputed by the company)
II.3 Acquisition of Tangible and Intangible Assets – Lightbridge Inc and
Alcatel, UK.
During 2004-05, the company had acquired Intellectual Property
Rights comprising of technology, know how, source code and software
connected with the fraud management software businesses from
Alcatel, UK and Lightbridge, USA for an amount of Rs. 172,812,313
and Rs. 141,685,665 respectively, including expenses incurred in
connection with the said acquisitions. During the year an amount of
US$ 25,307 (Rs.1,102,753) has been paid to Lightbridge as additional
consideration and is capitalized as Goodwill.
The intangible assets based on the valuation report by independent
valuers, are being amortised over 5 years in accordance with the
company’s assessment of useful life thereof. Accordingly, an amount
of Rs. 62,502,860 has been amortised in the financial year under review.
Out of the amount of Rs. 172,812,313 accounted for the Alcatel
acquisition, a portion of the consideration amounting to
Rs. 22,754,000 (Euros 400,000) was to be discharged by way of
discounts allowable to Alcatel on sales of software licenses
prospected by them over a period of 18 months commencing from
1st October, 2004, as a part of their obligations under the reseller
agreement entered into with the company. This liability was reflected
as deferred payment liability in the previous year’s Balance sheet
and has been fully discharged by the company during the year.
II.4. Foreign Currency Convertible Bonds (FCCB)
During the year 2004-05, , , , , the company issued Foreign Currency
Convertible Bonds (FCCBs) aggregating to US$ 10 million to
Institutional Investors to finance the above acquisition.
The Bonds carried interest of 200 basis points above 6-month
LIBOR and were redeemable by December 2009, if not converted
in to equity as per terms of issue.
6
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The company acquired business contracts, hardware, intellectual
property rights (comprising of trademarks, patents, copyrights and
software) connected with the fraud management software
businesses from Mantas, Inc. USA in an all cash deal of US$ 2.10
million, on 1st March, 2006. The same has been capitalized along
with the expenses incurred in connection with the said acquisition.
The intangible assets accounted for based on the valuation report
by independent valuers, are being depreciated over 5 years in
accordance with the company’s assessment of useful life thereof.
Accordingly, an amount of Rs.1,696,053 has been depreciated in
the financial year under review.
II.7. On 9th April, 2006, the company has issued Global Depository
Receipts (GDRs) priced at Rs. 400 per GDR and representing one
share each, amounting to US$ 10 million, which has been listed in
the Luxembourg Stock Exchange. Consequent to the issue,
subscribed equity share capital has gone up by 1,109,878 shares
and this issue has resulted in accretion to the securities premium
account by Rs. 432,852,420 post the balance sheet date.
II.8. Bonus issue
During the year, the company has declared bonus shares in the ratio
of 1:1. The bonus shares (10,878,784) have been issued by capitalizing
an amount of Rs. 108,787,840 from the Securities premium account.
II.9. Operating leases
The company has various operating leases for office facilities and
residential premises for employees which include leases that are
renewable on a yearly basis, cancelable at its option and other
long term leases. Rental expenses for operating leases included in
the Income statement for the year is Rs. 35,834,182.(Previous
Year Rs. 13,921,158)
As of 31st March, 2006 future minimum lease payments for non-
cancellable operating leases for the next five fiscal years are:
Amount In Rs.
For the year ending
31st March, 2006 31st March, 2005
Within one year from
23,770,250
9,817,664
Due in a period between
one year and five years from
54,166,897
17,263,838
Due after five years from
-
-
II.10. Employees Stock Option Plan (ESOP)
ESOP – I
The company had issued 120,000 Equity Shares at Rs.10 each to
Subex Foundation, an employee welfare trust, constituted to operate
an Employees Stock Option Plan. Consequent to the issue of Bonus
Shares, the total shares available with the trust had increased to
103
Subex Azure Limited (formerly Subex Systems Limited)
240,000. As per the Scheme in force, the trust allocates shares to
those employees deemed eligible by the advisory board constituted
for the purpose. The shares are allocated at a price, which is not less
than 50% of the fair market price. The original shares granted are
subject to a minimum lock-in period of three years and the bonus
shares are subject to a minimum lock-in of 1 year, where after the
shares granted can be sold / en-cashed. As at 31st March, 2006,
174,440 shares (which includes 87,220 bonus shares allotted on
6th January, 2006) are available with the trust. Since the scheme was
formulated prior to the promulgation of SEBI guidelines on ESOP
dated 19th June, 1999, the company has discontinued the scheme.
ESOP – II
During 1999-2000, the company established a stock option scheme
under which 500,000 options have been allocated for grant to the
employees. Each option comprises of one underlying equity share
of Rs. 10 each and carries an entitlement of bonus shares if and
when declared. This scheme has been formulated in accordance
with the SEBI guidelines on ESOP & ESPS dated 19th June, 1999. As
per the scheme, the compensatory committee grants the options
to the employees deemed eligible by the advisory board constituted
for the purpose. The options are granted at a price, which is not less
than 85% of the average market price of the underlying shares
based on the quotation on the stock exchange where the highest
volume of shares are traded for 15 days prior to the date of grant.
The shares granted vest over a period of 1 to 4 years can be exercised
over a maximum period of 3 years from the date of vesting.
Under this scheme 477,259 options have been granted to 310
employees as at 31st March, 2006. Out of the above options 70,323
options have been vested. The difference between the market price
of the share underlying the options granted on the date of grant of
option and the exercise price of the option are expensed over the
vesting period as per the SEBI guidelines. The net impact of the
movement in option grants during the period ended resulted in a
debit of Rs. 4,910,159 (previous year: debit of Rs. 1,744,455) to the
Profit & Loss account for the year.
ESOP – III
During 2005-2006, the company established a new Stock Option
Scheme under which 500,000 options have been allocated for grant
to the employees. Each option comprises of one underlying equity
share of Rs.10 each. This scheme has been formulated in accordance
with the SEBI guidelines on ESOP & ESPS dated 19th June, 1999. As
per the scheme, the compensatory committee grants the options
Particulars
to the employees deemed eligible by the advisory board constituted
for the purpose. The options are granted at a price, which is not less
than 85% of the average market price of the underlying shares
based on the quotation on the stock exchange where the traded
volume is the highest for the 15 days prior to the date of grant. The
shares granted vest over a period of 1 to 4 years can be exercised
over a maximum period of 3 years from the date of vesting.
As on 31st March, 2006, 70,380 options have been granted to 156
employees under this scheme. The difference between the market
price of the share underlying the options granted on the date of
grant of option and the exercise price of the option are expensed
over the vesting period as per the SEBI guidelines. The net impact
of the movement in option grants during the period ended resulted
in a debit of Rs. 497,664 (Previous year, Nil) to the Profit & Loss
account for the year.
Subex Technologies Ltd. has established a new stock option scheme
during the year under which 22,900 options have been allocated
for grant to the employees. The shares are allocated at a price,
which is at par.
Employee stock options details as on the balance sheet date are ;
ESOP – I : Nil
ESOP – II :
As at
31st March, 2006 31st March, 2005
As at
Options outstanding at
the beginning of the year
Granted
Forfeited/ cancelled
Exercised
336,385
144,000
50,950
65,408
year
year
Balance at end of the
Balance at end of the
year
Balance at end of the year
year
Balance at end of the
Balance at end of the
364,027
364,027
364,027
364,027
364,027
301,440
101,800
32,749
34,106
33333333336,385
ESOP – III
Options granted during the year and outstanding at the end of
the year - 70,380
Method used for accounting for share based payment plan:
The company has used intrinsic value method to account for the
compensation cost of stock option to employees of the company.
Intrinsic value is the amount by which the quoted market price of
the underlying share exceeds the exercise price of the option.
Options (Nos)
336,385
Weighted average exercise price per
stock options (Rs.)
168.52
442.80
342.55
364,027
70,380
70,323
284.25
342.55
Options outstanding at the beginning of the year
Granted during the year
ESOP - II
ESOP - III
Exercised during the year
Cancelled & Lapsed during the year
Options outstanding at the end of the year
ESOP – II
ESOP - III
Options exercisable at the end of the year
144,000
70,380
65,408
50,950
104
The Company issued 10,878,784 bonus shares with a record date of 6th January, 2006.
The options under ESOP III totaling to 70,380 options were granted on 13th March, 2006, (post issue of Bonus shares referred above).
Subex Azure Limited (formerly Subex Systems Limited)
II.11. Related Party Information
A) Related parties
Companies under same management
Cellcomm Solutions Ltd (formerly known as Subex Cellcomm Ltd)
Subex Holdings Private Limited (SHPL)
Key Management Personnel
Subash Menon, Chairman & Managing Director
Sudeesh Yezhuvath, Whole Time Director
Fair Value Methodology
The fair value of options used to compute pro forma net income
and earnings per equity share have been estimated on the date of
grant using Black-Scholes model.
The key assumptions used in Black-Scholes model for calculating
fair value are: risk-free interest rate ranging between 6.43%,
expected life : 3 years, expected volatility of shares : 55.80% and
expected dividend yield: 0.42%. The variables detailed herein
represent the average of the assumptions during the pendency of
the grant dates.
The impact on the EPS of the company if fair value method is
adopted is given below.
Particulars
Net Profit (as reported)
31st March, 2006
Rs.
378,486,522
Add: Stock-based employee compensation
relating to grants after 1.4.2005
3,516,774
Less: Stock based compensation expenses
determined under fair value based method
for the above grants
(11,181,604)
Net Profit (proforma)
370,821,692
Basic earning per share (as reported)
Basic earning per share (proforma)
Diluted earning per share (as reported)
Diluted earning per share (proforma)
17.62
17.26
17.53
17.18
B) Details of the transactions with the related parties other than employees who are related to the directors of the company is as under:
e of Trrrrransaction
ansaction
ansaction
e of T
e of T
Natur
Natur
ansaction
Nature of T
ansaction
e of T
Natur
Natur
Companies under
Companies under
Companies under
Companies under
Companies under
same management
same management
same management
same management
same management
a)
b)
c)
d)
e)
Inter corporate deposits received (SHPL)
Interest paid on inter corporate deposit (SHPL)
Repayment of Inter corporate deposit/ loan(SHPL)
Salary, perquisites and commission
Amount due to
2005-06
-
-
-
-
-
Amounts in Rs.
Key management personnel
Key management personnel
Key management personnel
Key management personnel
Key management personnel
2005-06
2004-05
-
-
-
-
-
-
-
-
23,409,166
10,000,000
15,670,746
4,975,500
2004-05
325,000
187,702
2,073,508
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105
Subex Azure Limited (formerly Subex Systems Limited)
II.12. Earnings per share
a)
Basic:
Profits after tax
Less: Dividend on preference shares & distribution tax
Net profit available to equity shareholders - basic
b) Diluted:
Profits after tax
Add: Interest on FCCB
Net profit available to equity shareholders – diluted
Weighted average number of shares - basic
Weighted average number of shares – diluted
Earnings per share – basic
Earnings per share – basic
Earnings per share – basic
Earnings per share – basic
Earnings per share – basic
Earnings per share - diluted
Earnings per share - diluted
Earnings per share - diluted
Earnings per share - diluted
Earnings per share - diluted
Amount in Rs.
2005-06
2005-06
2005-06
2005-06
2005-06
2004-05
2004-05
2004-05
2004-05
2004-05
378,486,522
257,208,258
-
(5,288,001)
378,486,522
251,920,257
378,486,522
257,208,258
-
5,380,279
378,486,522
262,588,537
21,480,220
21,590,084
17.62
17.62
17.62
17.62
17.62
17.53
17.53
17.53
17.53
17.53
17,833,474
19,584,306
14.13
14.13
14.13
14.13
14.13
13.41
13.41
13.41
13.41
13.41
A
B
C
D
E
F
B / E
B / E
B / E
B / E
B / E
D / FD / FD / FD / FD / F
Earnings per share has been recomputed for the previous year taking into account bonus shares issued in the current year.
II.13 Segmental Reporting
The group’s operations comprises of software development,
services and sale of telecom products. Primary segmental reporting
comprises of products and services segment. Secondary segment
is reported based on geographical location of customers. The
accounting principles consistently used in the preparation of the
financial statements are also consistently applied to record income
and expenditure in individual segments. These are as set out in the
note on significant accounting policies.
Information about primary business segment:
In primary segment, revenue and direct expenses, which relate to
particular segment and which are identifiable, are reported, while
certain expenses such as depreciation and interest, which form a
significant component of total expenses, are not specifically allocable
to specific segments as the underlying services are used
interchangeably. The company believes that it is not practical to
provide segment disclosures relating to those costs and expenses,
and accordingly these expenses are separately disclosed as
“unallocated” and directly charged against total income.
Particulars
Particulars
Particulars
Particulars
Particulars
Products
Products
Products
Products
Products
Services
Services
Services
Services
Services
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Revenues
1,166,818,957
627,968,982
647,523,281
537,533,105
1,814,342,238
1,165,502,087
2005-06
2005-06
2005-06
2005-06
2005-06
2004-05
2004-05
2004-05
2004-05
2004-05
2005-06
2005-06
2005-06
2005-06
2005-06
2004-05
2004-05
2004-05
2004-05
2004-05
2005-06
2005-06
2005-06
2005-06
2005-06
2004-05
2004-05
2004-05
2004-05
2004-05
Amounts in Rs.
Segment results before
interest, depreciation & taxes
Add: Unallocable Income,
net of unallocable expense
Interest expense
Depreciation and Amortization
Profit before tax
Provision for taxation:
Current
Fringe benefit tax
Deferred
Profit after tax
106
497,732,918
324,669,761
21,571,856
37,946,128
519,304,774
362,615,889
11,847,897
-
26,805,705
24,374,699
92,584,239
71,941,961
411,762,727
266,299,229
34,903,702
14,636,780
2,124,208
-
(3,751,705)
(5,545,809)
378,486,522
257,208,258
Particulars of Segment Assets & Liabilities
Subex Azure Limited (formerly Subex Systems Limited)
Products
Products
Products
Products
Products
Services
Services
Services
Services
Services
Unallocable
Unallocable
Unallocable
Unallocable
Unallocable
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
2005-06
2005-06
2005-06
2005-06
2005-06
2004-05
2004-05
2004-05
2004-05
2004-05
2005-06
2005-06
2005-06
2005-06
2005-06
2004-05
2004-05
2004-05
2004-05
2004-05
2005-06
2005-06
2005-06
2005-06
2005-06
2004-05
2004-05
2004-05
2004-05
2004-05
2005-06
2005-06
2005-06
2005-06
2005-06
2004-05
2004-05
2004-05
2004-05
2004-05
656,180,448 474,397,763 305,379,105 258,068,826 858,879,837 694,897,817 1,820,439,390 1,427,364,406
292,405,609 159,557,687
292,405,609
159,557,687
Segment Assets
Segment Liabilities
Unallocable assets exclude
Goodwill
Investments
Advance income taxes
Miscellaneous expenditure
Deferred tax asset
Unallocable liabilities exclude
Loans - secured
Loans – unsecured
Deferred consideration
Provisions
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308,987,980
308,987,980
-
1,000
18,281,313
9,841,828
226,463
283,079
7,727,514
3,975,809
335,223,270
323,089,696
13,695,549
73,282,446
-
-
212,987,750
22,754,000
38,196,323
40,883,953
51,891,872
349,908,149
Segment assets based on their location
APAC
EMEA
AMERICAS
Total
Amount in Rs.
2005-06
2004-05
98,925,812
198,835,910
456,487,450
243,572,258
406,146,290
290,058,421
961,559,552
732,466,589
II.14. Quantitative details
None of the traded items are in excess of 10% of revenues and it
is not practicable to give quantitative information in the absence
of common expressible units.
1. The company is availing non-fund based limits and overdrafts
against lien on the fixed deposits. However, there are no loans
outstanding as on 31st March, 2006.
2. Estimated amount of contracts, remaining to be executed on
capital account and not provided for (net of advances paid) Rs.Nil
(Previous year, Rs. Nil).
3. Amount of Rs. 300,627 represents the unclaimed dividend for
the period from 1999-2006. No part thereof has remained unpaid
or unclaimed for a period of seven years from the date they
become due for payment requiring a transfer to the ‘Investor
Education and Protection Fund’.
4. Personnel cost for the year include expenditure on research and
development of Rs. 6,549,332 (Previous year, Rs. 6,000,318).
107
Fixed assets used in the company’s business or liabilities contracted
have not been identified to any of the primary reportable segments,
as the fixed assets and services are used interchangeably between
segments. Significantly all the fixed assets of the company are
located in India. The company believes that it is currently not
practicable to provide segment disclosures relating to total assets
and liabilities since a meaningful segregation of the available data
is onerous.
Information about secondary business segment
Revenue attributable to location of customers is:
Revenue
APAC
AMERICAS
EMEA
2005-06
2005-06
2005-06
Software
Products
Software
Services
-
647,523,281
-
Total
110,335,323
1,063,216,858
640,790,057
Revenue
APAC
AMERICAS
EMEA
2004-05
2004-05
2004-05
Software
Products
Software
Services
94,747,131
155,135,728
378,086,174
-
537,533,054
-
Total
94,747,131
692,668,782
378,086,174
110,335,323
415,693,577
640,790,057
II.15. Others
Subex Azure Limited (formerly Subex Systems Limited)
5. The company has disposed of its land located at Yeshwantpur
Industrial Area during the year for a sum of Rs. 17,667,000 and
has paid the relevant long term capital gains (Rs. 2,003,792) on
the profits arising on this transaction.
Signature to the Schedules A – R
Signature to the Schedules A – R
Signature to the Schedules A – R
Signature to the Schedules A – R
Signature to the Schedules A – R
6. The Previous year’s figures have been regrouped to conform to
the classifications for the year.
Subash Menon
Chairman & Managing Director
Sudeesh Yezhuvath
Wholetime Director
V. Balaji Bhat
Director
Place : Bangalore
Date : 15th May, 2006
Rajkumar C
Company Secretary & Legal Counsel
V. R. Suresh Rao
General Manager - Accounts & Finance
108
Subex Azure Limited (formerly Subex Systems Limited)
The International Securities Identification Number (ISIN) for the
Company’s Shares in dematerialized form is INE754A01014.
CUSTODIAL FEE
CUSTODIAL FEE
CUSTODIAL FEE
CUSTODIAL FEE
CUSTODIAL FEE
Pursuant to the Securities and Exchange Board of India (SEBI)
Circular No. MRD/DoP/Stock Exchange/DEP/CIR-4/2005 dated 28th
January, 2005, issuer companies are required to pay custodial fees
to the depositories with effect from 1st April, 2005. Accordingly,
the company has paid custodial fees for the year 2006-07 to
NSDL and CDSL on the basis of the number of beneficial accounts
maintained by them as on 31st March, 2006.
REGISTERED OFFICE
REGISTERED OFFICE
REGISTERED OFFICE
REGISTERED OFFICE
REGISTERED OFFICE
The Registered office of the company is at #721, 7th Main,
Mahalaxmi Layout, Bangalore – 560 086
CCCCCORPORA
TE OFFICE
TE OFFICE
ORPORA
ORPORA
TE OFFICE
ORPORATE OFFICE
TE OFFICE
ORPORA
The Corporate office of the company is at #372, Koramangala III
Block, Sarjapur Road, Bangalore- 560 034.
SHARE TRANSFER
SHARE TRANSFER
SHARE TRANSFER
SHARE TRANSFER
SHARE TRANSFER
Process for the Transfer of Shares:
Share transfers would be registered and returned within a period
of 20 days from the date of receipt, if the documents are clear in
all respects. The company holds Share Transfer Committee
Meetings one/ two / three times a month, as may be required, for
approving the transfers/transmissions of equity shares.
Share transfers and other communication regarding Share
certificates and change of address, etc., may be addressed to:
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M/s Canbank Computer Services Ltd.,
R & T Centre
Naveen Complex, 4th Floor,
#14, M.G. Road,
Bangalore -560 001
Phone : 91-80-25320541 / 542 / 543
Fax : 91-80-25320544
Email : ccslrnt@vsnl.com
Website: www.canbankrta.com
SHAREHOLDERS’ INFORMATION
1. Date and venue of the : 28th August, 2006 at Le Meridien,
Annual General
Meeting (AGM)
28, Sankey Road
Bangalore - 560 052.
2. Dates of book closure
: 22nd August, 2006 - 28th August,
3. Dividend payment
2006 (both days inclusive)
: 25% (15% interim and 10%
final dividend subject to the
approval of the members for
Equity shareholdersfor equity
shareholders). On or after 28th
August, 2006, but within the
statutory time limit of 30 days,
subject to shareholders’ approval
4. Financial year
: 1st April to 31st March
BOARD MEETINGS & FINANCIAL CALENDAR
BOARD MEETINGS & FINANCIAL CALENDAR
BOARD MEETINGS & FINANCIAL CALENDAR
BOARD MEETINGS & FINANCIAL CALENDAR
BOARD MEETINGS & FINANCIAL CALENDAR
Calendar of Board Meetings to adopt the accounts (tentative and
subject to change):
For quarter ending 30th June, 2006 – on 27th July, 2006
For quarter ending 30th September, 2006 – on 27th October, 2006
For quarter ending 31st December, 2006 – on 29th January, 2007
For the year ending 31st March, 2007 – on 27th April, 2007
LISTING OF SHARES
LISTING OF SHARES
LISTING OF SHARES
LISTING OF SHARES
LISTING OF SHARES
Shares of the Company have been quoting on National Stock
Exchange of India Limited (NSE) from 5th September, 2003, on
Bombay Stock Exchange Limited (BSE) from 31st July, 2000 and on
The Bangalore Stock Exchange Limited (BgSE) from 3rd September
1999. Global Depository Receipts (GDRs) of the company are listed
at The Luxembourg Stock Exchange. The company’s GDRs have
been quoting on the Luxembourg Stock Exchange since 7th April,
2006.
The Company’s equity shares were delisted from Hyderabad Stock
Exchange (HSE) with effect from 19th January, 2005.
Listing Fees have been paid to all the above Stock Exchanges for
2006-07.
The stock codes of the company at the Stock Exchanges are as
follows:
Name and address of the stock exchange
Stock code
National Stock Exchange of India Limited,
Exchange Plaza, 5th Floor,
Bandra Kurla Complex,
Mumbai- 400051
Bombay Stock Exchange Limited,
Phiroze Jeejeebhoy Towers
Dalal Street, Fort, Mumbai 400023
The Bangalore Stock Exchange Limited
P. B. No. 27024,
No. 51, Stock Exchange Towers,
1st Cross, J. C. Road
BANGALORE
SUBEX
SUBEX
SUBEXSYS
109
Subex Azure Limited (formerly Subex Systems Limited)
Stock market data relating to shares listed in India
Stock market data relating to shares listed in India
Stock market data relating to shares listed in India
Stock market data relating to shares listed in India
Stock market data relating to shares listed in India
Monthly high and low quotations as well as the volume of shares traded at National Stock Exchange of India Limited, The Bombay Stock
Exchange Limited and The Bangalore Stock Exchange Limited for 2005-2006 are:
Month
Apr ‘05
May ‘05
Jun ‘05
Jul ’05
Aug ‘05
Sep’ 05
Oct ‘05
Nov ‘05
Dec ‘05
Jan ‘06
Feb ‘06
Mar ‘06
High
Rs.
413.00
525.00
526.90
554.95
674.50
669.90
618.90
758.90
838.00
794.40
428.00
447.90
TOTAL
NSE
Low
Rs.
366.00
380.20
464.00
480.15
514.00
563.00
545.75
586.25
697.25
380.00
391.15
386.00
Volume
Nos.
393,421
1,375,784
679,759
234,190
777,306
569,723
303,179
209,756
725,613
625,595
668,638
768,748
7,331,712
BSE
Low
Rs.
343.50
378.00
465.00
471.00
535.20
561.60
550.00
582.00
694.05
380.00
393.00
386.00
High
Rs.
415.80
504.00
526.00
559.00
694.00
680.00
623.70
739.00
887.00
793.00
424.00
456.00
TOTAL
Volume
Nos.
231,724
932,506
244,392
370,789
538,839
418,400
299,993
94,059
659,060
722,521
376,178
608,658
5,497,119
SUBEX AZURE SHARE PRICE VERSUS NSE S&P CNX NIFTY
SUBEX AZURE SHARE PRICE VERSUS NSE S&P CNX NIFTY
SUBEX AZURE SHARE PRICE VERSUS NSE S&P CNX NIFTY
SUBEX AZURE SHARE PRICE VERSUS NSE S&P CNX NIFTY
SUBEX AZURE SHARE PRICE VERSUS NSE S&P CNX NIFTY
BgSE
Low
Rs.
High
Rs.
Volume
Rs.
d
e
d
a
r
t
t
o
N
821.35
776.00
730.65
685.30
639.95
594.60
549.25
503.90
458.55
413.20
367.85
3419.00
3267.35
3115.70
2964.05
2812.40
2660.75
2509.10
2357.45
2205.80
2054.15
1902.50
01/04/05
09/06/05
22/08/05
01/11/05
13/01/06
31/-3/06
– Subex Azure share price – S&P CNX NIFTY
Note: On 6th January, 2006 the company has declared a bonus
in the ratio of one bonus equity share for every share held.
INVESTOR GRIEVANCES
Investor grievances received from 1st April, 2005 to 31st March, 2006:
Nature of complaints
Nature of complaints
Nature of complaints
Nature of complaints
Nature of complaints
Non-receipt of share certificates/refund orders/call money
notice/allotment advice/dividend warrant
Letters from NSDL, Banks etc.
Correction/change of bank mandate of refund order, Change of address
Postal returns of cancelled stock invests / refund
orders/ share certificates / dividend warrants
Other general query
-
Total
Received
Received
Received
Received
Received
Cleared
Cleared
Cleared
Cleared
Cleared
16
-
-
-
-
16
16
-
-
-
16
During the year ended 31st March, 2006, the company has attended
to all the investors’ grievances / correspondence within a period of
10 days from the date of receipt of the same.
LEGAL PROCEEDINGS
LEGAL PROCEEDINGS
LEGAL PROCEEDINGS
LEGAL PROCEEDINGS
LEGAL PROCEEDINGS
There is one pending case relating to dispute over title to shares, in
which we had been made a party. However, this case is not material
in nature.
110
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Subex Azure Limited (formerly Subex Systems Limited)
SHAREHOLDING PATTERN
Distribution of shareholding:
No. of Equity shares held
No. of Equity shares held
No. of Equity shares held
No. of Equity shares held
No. of Equity shares held
1
501
–
–
1001 –
500
1000
5000
5001 – 10000
10001 and above
Categories of Shareholders
As on 31ststststst March, 2006
March, 2006
March, 2006
As on 31
As on 31
March, 2006
March, 2006
As on 31
As on 31
No. of shareholders
No. of shareholders
No. of shareholders
No. of shareholders
No. of shareholders
7177
% of shareholders
% of shareholders
% of shareholders
% of shareholders
% of shareholders
83.51
659
541
91
126
8594
8594
8594
8594
8594
7.67
6.30
1.06
1.46
100.00
100.00
100.00
100.00
100.00
As on 31st March, 2005
No. of shareholders
% of shareholders
4,205
260
230
28
79
4,802
4,802
4,802
4,802
4,802
87.57
5.41
4.79
0.58
1.65
100.00
100.00
100.00
100.00
100.00
Cartegory
Cartegory
Cartegory
Cartegory
Cartegory
Public & Others
Companies
Core Promoters
Mutual Funds
ESOP
FII
As on 31ststststst March, 2006
March, 2006
March, 2006
As on 31
As on 31
March, 2006
March, 2006
As on 31
As on 31
As on 31st March, 2005
No. of share
No. of share
No. of share
No. of share
No. of share
holders
holders
holders
holders
holders
VotiVotiVotiVotiVotingngngngng
strength %
strength %
strength %
strength %
strength %
No. of shares
No. of shares
No. of shares
No. of shares
No. of shares
heldheldheldheldheld
No. of share
holders
Voting
strength
No. of shares
shares held
7903
7903
7903
7903
7903
565565565565565
22222
3535353535
6565656565
2424242424
8594
8594
8594
8594
8594
22.639
22.639
22.639
22.639
22.639
14.623
14.623
14.623
14.623
14.623
18.572
18.572
18.572
18.572
18.572
24.433
24.433
24.433
24.433
24.433
0.576
0.576
0.576
0.576
0.576
19.157
19.157
19.157
19.157
19.157
4925727
4925727
4925727
4925727
4925727
3181581
3181581
3181581
3181581
3181581
4040960
4040960
4040960
4040960
4040960
5315913
5315913
5315913
5315913
5315913
125278
125278
125278
125278
125278
4168109
4168109
4168109
4168109
4168109
100.00
100.00
100.00
100.00
100.00
2,17,57,568
2,17,57,568
2,17,57,568
2,17,57,568
2,17,57,568
4,300
417
3
18
50
14
4,802
25.90
20.34
27.02
11.32
0.34
15.08
2,607,391
2,047,556
2,720,480
1,139,268
34,701
1,517,827
100.00
10,067,223
DIVIDEND
DIVIDEND
DIVIDEND
DIVIDEND
DIVIDEND
Procedure for claiming unpaid dividend.
In terms of Section 205A (5) of the Companies Act, 1956, monies
transferred to the Unpaid Dividend Account of the company, which
remain unpaid or unclaimed for a period of seven years from the
date of such transfer, shall be transferred by the company to the
Investor Education and Protection Fund established by the Central
Government.
Brief particulars of dividend declared on the equity share capital,
are given below:
Which year the
dividend pertains
to
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
Declared at the
AGM / Board
meeting held on
24th April, 1999
17th March, 2000
19th June, 2000
13th July, 2001
15th November, 2002
9th September, 2003
24th August, 2004
27th January, 2005
28th July, 2005
28th October, 2005
Nature of dividend
% of dividend
Final
Interim
Final
Final
Final
Final
Final
Interim
Final
Interim
35
5
20
10
10
20
10
20
15
Due date for
transfer to the fund
See note below*
Before 16th April, 2007
Before 18th July, 2007
Before 12th August, 2008
Before 14th December, 2009
Before 8th October, 2010
Before 23rd September, 2011
Before 26th February, 2012
Before 27th August, 2012
Before 27th November, 2012
The company declared bonus at 1:1 in the years 2000-01 and 2005-06.
* As the entire dividend declared in FY 1998-99 was claimed by the
respective shareholders no amount was required to be transferred
to the Investors Education and Protection Fund in respect of the
said dividend.
Members can claim the unpaid dividend from the company before
transfer to the Investors Education and Protection Fund. It may be
noted that after the unpaid dividend is transferred to the said
Fund, the same cannot be claimed.
Bank particulars for dividend warrants
Bank particulars for dividend warrants
Bank particulars for dividend warrants
Bank particulars for dividend warrants
Bank particulars for dividend warrants
With a view to preventing fraudulent encashment of dividend
warrants, members holding shares in physical form are advised to
furnish to the company particulars of their bank account with a
request to incorporate the same in the dividend warrant.
111
Subex Azure Limited (formerly Subex Systems Limited)
Payment of dividend
Payment of dividend
Payment of dividend
Payment of dividend
Payment of dividend
NOMINATIONTIONTIONTIONTION
NOMINA
NOMINA
NOMINA
NOMINA
Dividend warrants are posted to members at their registered
address within the statutory time limit.
Dividend warrants in respect of shares held in electronic/
dematerialized form are posted to the beneficial owners to their
addresses as per the information furnished by NSDL and CDSL as
on the record date. Warrants for high value amounts are sent
through registered post.
ELECTRONIC CLEARING SERVICE
ELECTRONIC CLEARING SERVICE
ELECTRONIC CLEARING SERVICE
ELECTRONIC CLEARING SERVICE
ELECTRONIC CLEARING SERVICE
The company makes payment of dividend through Electronic
Clearing Service (ECS) to its members. Under this system of
payment of dividend, the shareholders get the credit of dividend
directly in their designated bank account. This ensures direct and
immediate credit with no chance of loss of warrant in transit or its
fraudulent encashment. However, the company may pay the
dividend by issue of warrants. Members holding shares in physical
form who wish to avail of the ECS facility, are requested to give
the ECS mandate in the prescribed form. The form can be obtained
from the R & T agents at the address mentioned above.
SHARES HELD IN PHYSICAL FORM
SHARES HELD IN PHYSICAL FORM
SHARES HELD IN PHYSICAL FORM
SHARES HELD IN PHYSICAL FORM
SHARES HELD IN PHYSICAL FORM
By a tripartite agreement dated 5th December, 2001 in respect of
shares held with NSDL and by a tripartite agreement dated 27th
November 2001 in respect of shares held with CDSL, Canbank
Computers Services Limited, R & T Centre, Naveen Complex, 4th
Floor, 14 M G Road, Bangalore–560 001, were appointed as
‘Registrar and Transfer Agent’ both in respect of shares held in
physical form and dematerialized form.
ANDING GDRs AND THEIR IMPAAAAACCCCCTTTTT
ANDING GDRs AND THEIR IMP
OUTSOUTSOUTSOUTSOUTSTTTTTANDING GDRs AND THEIR IMP
ANDING GDRs AND THEIR IMP
ANDING GDRs AND THEIR IMP
As of 31st March, 2006 no GDRs were outstanding. The company
has issued 1,109,878 GDRs on 7th April, 2006 and 11,728,728
GDRs on 21st June, 2006. The GDRs to equity share ratio is 1:1.
Pursuant to the provisions of Section 109A of the Companies Act,
1956, members may file nomination in respect of their
shareholdings. Any member willing to avail this facility may submit
to the company the prescribed Form 2B (in duplicate), if not already
filed. Form 2B can be obtained with the help of our R & T Agents.
Members holding shares in electronic form are requested to give
the nomination request to their respective Depository Participants
directly.
WEBSITE
WEBSITE
WEBSITE
WEBSITE
WEBSITE
Company’s website www.subexazure.com contains comprehensive
information about the company, products, press release and investor
relations. It serves to inform the shareholders by providing key
information like Board of Directors and the committees of the
Board, financial results, shareholding pattern, distribution of
shareholding, dividend etc.
INVESTORS’ CORRESPONDENCE
INVESTORS’ CORRESPONDENCE
INVESTORS’ CORRESPONDENCE
INVESTORS’ CORRESPONDENCE
INVESTORS’ CORRESPONDENCE
For any queries, please write to:
Rajkumar. C
Head - Legal and Company Secretary
Subex Azure Limited,
No. 372, Koramangala, 3rd Block, Sarjapur Road,
Bangalore – 560 034, India,
Telephone: 91 80 6659 8700
Email:rajkumar.c@subexazure.com
investorrelations@subexazure.com
112
Subex Azure Limited
372, Koramangala III Block, Sarjapur Road, Bangalore - 560 034, India
www.subexazure.com
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