i-flex Solutions Limited BALANCE SHEET AS AT MARCH 31, 2004 (All amounts in thousands of Indian rupees, unless otherwise stated)

Transcription

1 BALANCE SHEET AS AT MARCH 31, 2004 (All amounts in thousands of Indian rupees, unless otherwise stated) Schedules March 31, 2004 March 31, 2003 SOURCES OF FUNDS SHAREHOLDERS' FUNDS Share capital 1 373, ,577 Reserves and surplus 2 9,291,761 7,985,628 9,665,462 8,172,205 APPLICATION OF FUNDS FIXED ASSETS 3 Cost 1,579, ,752 Less: Accumulated depreciation 661, ,412 Net book value 918, ,340 Capital work-in-progress and advances 113, ,383 1,031, ,723 INVESTMENTS 4 547, ,919 DEFERRED TAX ASSET 5 1,950 31,446 CURRENT ASSETS, LOANS AND ADVANCES 6 Sundry debtors 4,016,150 2,497,091 Cash and bank balances 5,275,787 5,340,531 Other current assets 25,241 32,018 Loans and advances 1,266, ,713 10,583,519 8,665,353 Less: CURRENT LIABILITIES AND PROVISIONS 7 Current liabilities 2,177,746 1,254,826 Provisions 322, ,410 2,499,769 1,451,236 NET CURRENT ASSETS 8,083,750 7,214,117 9,665,462 8,172,205 Notes to Accounts 16 The schedules referred to above and notes to accounts form an integral part of the balance sheet.

2 PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2004 (All amounts in thousands of Indian rupees, unless otherwise stated) Schedules March 31, 2004 March 31, 2003 Revenues 8 6,844,609 5,684,284 Cost of revenues 9 (3,245,625) (2,483,373) Gross profit 3,598,984 3,200,911 Selling and marketing expenses 10 (451,871) (446,230) General and administrative expenses 11 (958,403) (707,944) Depreciation and amortisation, net of write-back of opening cumulative effect of accounting change of Rs 88,526 (March 31, Rs nil) 16 Note 3 (35,999) (133,823) INCOME FROM OPERATIONS 2,152,711 1,912,914 Reversal/(provision) for dimunition in value of investment, net 73,062 (43,923) Profit/(Loss) on sale/conversion of investment (72,299) 35 Interest income , ,819 Other income/(expense) 13 (117,765) (88,105) INCOME BEFORE PROVISION FOR INCOME TAXES 2,253,943 1,989,740 Provision for income taxes 14 (495,076) (245,995) NET INCOME 1,758,867 1,743,745 Profit and loss account, beginning of the period 229,372 90,869 Amount available for appropriation 1,988,239 1,834,614 Transfer to General reserve (1,250,000) (1,500,000) Proposed dividend (261,644) (93,289) Corporate dividend tax (33,527) (11,953) Dividend paid on ESOP allotment (32) - Profit and loss account, end of the period 443, ,372 Weighted average earnings per share of Rs 5/- each (in Rs.) Basic Diluted Number of shares used in computing earnings per share 15 Basic 74,668,190 73,065,868 Diluted 77,372,038 74,427,854 Notes to Accounts 16 The schedules referred to above and notes to accounts form an integral part of the profit and loss account.

3 STATEMENT OF CASH FLOW FOR THE YEAR ENDED MARCH 31, 2004 (All amounts in thousands of Indian rupees, unless otherwise stated) March 31, 2004 March 31, 2003 Cash flows from operating activities Income before provision for income taxes 2,253,943 1,989,740 Adjustments to reconcile income before provision for income taxes to cash provided by operating activities : Depreciation and amortisation 35, ,823 Profit on retirement/sale of fixed assets, net (971) (424) Loss/ Profit on sale/conversion of investments 72,299 (35) Reversal for diminution in the value of investments, net (73,062) 43,923 Interest income (218,234) (208,819) Effect of exchange difference on cash and bank balances (108,889) 12,781 Finance charge on leased assets 2,961 2,155 Reversal /Provision for doubtful advance (7,253) 7,253 Provision for doubtful debts 3,847 (293,303) (18,755) (28,098) 1,960,640 1,961,642 Changes in assets and liabilities Increase in sundry debtors (1,522,906) (522,629) Increase in loans and advances (31,689) (68,698) Increase in current liabilities and provisions 864,096 (690,499) 758, ,303 Cash from operating activities 1,270,141 2,128,945 Receipt of refund of previous assessment years 30,296 - Payment of domestic and foreign income taxes (623,933) (249,976) Net cash from operating activities 676,504 1,878,969 Cash flows from investing activities Additions to fixed assets including capital work in progress (530,794) (311,574) Proceeds from sale of fixed assets Loan to i-flex America inc (439,200) - (Increase)/Decrease in bank fixed deposits having maturity of more than 90 days 32,387 (1,760,000) Investment in subsidiaries (91,160) (24,380) Purchase of investments - (250,131) Proceeds from sale of investment in joint venture 928 2,504 Investment in Joint ventures - (7,350) Refund of share application money from joint venture - 9,038 Interest received 214, ,401 Net cash (used in) investing activities (812,476) (2,147,599) Cash flows from financing activities Proceeds from Initial Public Offering ('IPO') - 1,780,800 Payment of IPO related expenses - (103,073) Issue of shares against ESOP Scheme 29,593 - Advance against equity shares to be issued Repayment of loan from Employee Stock Purchase Scheme ('ESPS') Trust 78,501 23,723 Payment of dividend and tax thereon (105,242) (46,644) Payment for lease obligations (8,077) (8,393) Net cash provided by financing activities (5,225) 1,646,758 Effect on exchange difference on cash and bank balances 108,889 (12,781) Net decrease in cash and cash equivalents (32,308) 1,365,347 Cash and cash equivalents at beginning of the year 2,428,240 1,062,893 Cash and cash equivalents at end of the year 2,395,932 2,428,240 Note : The reconciliation to the cash and bank balances as given in Schedule 6(b) is as follows : Cash and bank balances, per Schedule 6(b) 5,275,787 5,340,531 Less: Bank deposits having maturity of more than 90 days (2,877,613) (2,910,000) Unclaimed dividend accounts (2,242) (2,291) 2,395,932 2,428,240.

4 March 31, 2004 March 31, 2003 SCHEDULE 1: SHARE CAPITAL Authorised 100,000,000 equity shares of Rs 5/- each (March 31, ,000,000 equity shares) 500, ,000 Issued, subscribed and paid-up 74,740,150 equity shares of Rs 5/- each, fully paid up (March 31, ,315,400 equity shares) 373, ,577 (a) Of the above, 62,121,800 equity shares of Rs 5/- each (March 31, ,784,300 equity shares) have been issued as fully paid up bonus shares by capitalising the securities premium account. (b) During the year ended March 31, 2004, the Company allotted 109,350 shares to its employees who exercised their options under the ESOP scheme (Refer Note 8(b) of Schedule 16). (c) Refer Note 8(b) of Schedule 16 for options granted for unissued equity shares. SCHEDULE 2: RESERVES AND SURPLUS Securities premium Balance, beginning of year 2,267, ,760 Received during the year 29,157 1,764,000 Capitalized towards issue of bonus shares (186,688) - Utilized towards share issue expenses - (103,073) Balance, end of year 2,110,156 2,267,687 General reserve Balance, beginning of year 5,488,569 3,988,569 Transferred from profit and loss account 1,250,000 1,500,000 Balance, end of year 6,738,569 5,488,569 Profit and loss account 443, ,372 9,291,761 7,985,628 (THIS SPACE IS INTENTIONALLY LEFT BLANK)

5 SCHEDULE 3: FIXED ASSETS Gross Block Depreciation Net Book Value Particulars As at Additions during the year Sale/deletions for the year As at As at Adjustments (Refer Note 3 on Schedule 16) For the year On Sale/deletions for the year As at As at As at Land 44, , , ,674 44,734 Improvement to leasehold premises 83, ,309 60,169 (17,122) 11,347-54,394 29,915 23,712 Buildings * 20, , ,408 4,129 (1,815) 2,605-4, ,489 15,987 Computer equipment 447,102 90,663 6, , ,448 (22,461) 69,012 6, , ,766 73,654 Electrical and office equipment 149,263 89,708 1, , ,574 (25,760) 20,971 1,109 96, ,186 46,689 Furniture and fixtures 117, ,365 1, ,286 83,702 (21,368) 15,034 1,104 76, ,022 33,323 Leased Vehicles 24,631 11,239 5,184 30,686 14,390-5,556 4,460 15,486 15,200 10,241 TOTAL 886, ,635 13,803 1,579, ,412 (88,526) 124,525 13, , , ,340 As at ,031 80,092 9, , , ,823 7, ,412 Capital work-in-progress and advances 113, ,383 1,031, ,723 Notes: * Includes 10 shares of Rs.50/- each in Takshila Building No.9, Co-op Housing Society Ltd., Mumbai

6 SCHEDULE 4: INVESTMENTS March 31, 2004 March 31, 2003 a) Long term investments (i) Trade (unquoted) DotEx International Limited (Note a) - 56,350 NIL equity shares of Rs 10/- each, fully paid-up (March 31, ,635,000) Less: Provision for diminuiton in value of investment - (56,350) - - EBZ Online Private Limited (Note b) 45,000 45, ,240 equity shares of Rs.10/- each, fully paid-up (March 31, ,240) Flexcel International Private Limited (Note c) 20,680 20,680 2,068,000 equity shares of Rs 10/- each, fully paid-up (March 31, ,068,000) (ii) Other than trade investments (unquoted) Eastern Software Systems Limited (Note b) 7,406 7, ,283 equity shares of Rs.10/- each, fully paid-up (March 31, ,283) 12.75% KEONICS Mahithi Bonds Series-1 (Note d) 20,000 20, Bonds of Rs. 50,000/- each fully paid (March 31, ) National Savings Certificate - VIII issue JM High Liquidity Fund - Serial Plan 2004 (Growth) (Note e) 250, ,000 24,965,796 (and 858 fractions) units of Rs 10/- each (March 31, ,965,796 (and 858 fractions)) (iii) Other than trade investments (quoted) 6.75% Tax Free US 64 Bonds (Note f) 33, ,225 Bonds of Rs 100/- each fully paid (March 31, Nil) (iv) In subsidiaries (unquoted) i-flex solutions b.v. (Note g) 25,119 25,119 a wholly owned subsidiary company incorporated in The Netherlands 5,185 equity shares of Euro 100/- each, fully paid-up (March 31, ,185) i-flex solutions Pte limited (Note h) 6,626 6,626 a wholly owned subsidiary company incorporated in Singapore 250,000 equity shares of Singapore $ 1/- each fully paid up (March 31, ,000) i-flex solutions inc. (Note i) - 48,669 a wholly owned subsidiary company incorporated in the United States of America 100 equity shares of US$ 0.01/- cent each fully paid up (March 31, ) i-flex America inc. (Note j) 139,829 - a wholly owned subsidiary company incorporated in the United States of America 1 equity share of US$ 0.01/- cent each fully paid up (March 31, Nil) 547, ,631

7 b) Current investments (quoted) Unit Trust of India Scheme (US-64) (Note f) - 50,000 (March 31, ,311,258 units (and 278 fractions)) of Rs 10/- each Less: Excess of cost over market value - (16,712) - 33, , ,919 Aggregate cost of quoted investments 33,123 50,000 Aggregate market value of quoted investments 35,898 33,288 Aggregate amount of unquoted investments 547, ,631 Note a DotEx International Limited ('DotEx') was a 51:49 joint venture between NSE.IT Limited, a wholly owned subsidiary of The National Stock Exchange of India Limited ('NSE') and i-flex. DotEx had been set up as a broker's plaza which enabled NSE brokers and their clients to transact in the Indian stock market through the internet. As at March 31, 2003 the Company had provided for diminution of Rs 56.3 million in the value of its investment in DotEx. On August 1, 2003 the Company sold its equity shareholding in DotEx to NSE India Ltd. for a total consideration of Rs 0.93 million as a result of which the Company reversed the provision of Rs million in the books and recorded loss on sale of investment of Rs million. Note b The Company s ownership interest in Eastern Software Systems Limited ('ESSL') is 6.62%. The Company also holds 19.5% shares in EBZ Online Private Limited ('EBZ'). EBZ is a strategic partnership between Brihans Technologies Private Limited ('BTPL') and i-flex to integrate the selected and adapted software provided under i-flex s products with BTPL s products for co-operative banking sector in India. ESSL is primarily engaged in catering to the needs of small businesses through its flagship product, ebizframe. Both companies are unlisted companies. The Company's rights are limited to protecting its investments in ESSL and EBZ and it does not exert significant influence on the operations of these companies by way of representation on the board of directors, participation in policy making processes, material intercompany personnel or technological dependency. Accordingly, these investments are stated at cost less any decline in fair value below original cost when considered to be other than temporary. Management does not believe that currently there is any other than temporary decline in the value of these investments. Note c Flexcel is a 40:40:20 joint venture between i-flex, HDFC Bank Limited and its group companies and Lord Krishna Bank, which provides the capability of Flexcube through an Application Service Provider ( ASP ) model to various banks and financial institutions in India who may not wish to invest in creating and maintaining their own internal IT infrastructure. As per the unaudited financial statements as at March 31, 2004, Flexcel had incurred accumulated losses of Rs. 30 million, which management considers to be in the nature of start-up losses. Accordingly, management does not consider that there is any diminution in the value of its investment in Flexcel and the aggregate investment of Rs million is stated at cost. Note d Investments in debt securities of 12.75% KEONICS Mahithi Bonds Series -1 allotted on February 1, 2001 are redeemable at par at the end of seven years from the date of allotment and have a put and call option at the end of five years from the date of allotment. Note e Investment in JM High Liquidity Fund - Serial Plan 2004 (Growth) is investment in debt instrument funds. As per the term of the fund, the maturity of the fund is in April Note f On June 1, 2003 units in UTI US-64 were converted into 6.75 % Tax free US 64 bonds.the first 5,000 units were converted at the repurchase price of Rs 12/- each and the balance 3,306, units at Rs 10/- each. These bonds are redeemable at par on June 1, Note g i-flex b.v. was incorporated as a 100% subsidiary in The Netherlands to undertake marketing of the Company's software products and provide software and related services to clients in Europe and work on the business development efforts in the region. As per the unaudited financial statements, i-flex b.v. has losses of Euro 0.11 million (approximately Rs million) during the year ended March 31, Management believes that the accumulated losses as per the unaudited financial statements as at March 31, 2004 of Euro 2.98 million (approximately Rs million) are in the nature of start up losses. Accordingly, management does not consider that there is any diminution in the value of its investment in i-flex b.v. and is stated at cost.

8 Note h i-flex Pte. was incorporated as a 100% subsidiary in Singapore to undertake marketing of the Company's software products and provide software and related services to clients in Asia Pacific region and work on the business development efforts in the region. As per the unaudited financial statements as at March 31, 2004 i-flex pte. has a net profit of S$ 1.62 million (approximately Rs.42.9 million) for the year ended March 31, 2004 and an accumulated profit of S$ 2.12 million (approximately Rs million) and it is stated at cost. Note i i-flex inc. was incorporated as a 100% subsidiary of i-flex solutions Limited in the United States of America to undertake marketing of the Company's software products and provide software and related services to clients in the America's region and work on the business development efforts in the region. During the current year, the company transferred its investment at cost, to i-flex America inc. Note j In December 2003, i-flex America inc., a Delaware based company, was incorporated as a 100% subsidiary in the United States of America to hold the investments of the Company in various ventures/companies in the United States of America. Consequently the investments in i-flex inc held by the company were transferred to i-flex America inc.

9 March 31, 2004 March 31, 2003 SCHEDULE 5: DEFERRED TAX ASSET Difference between book and tax depreciation 1,950 31,446 SCHEDULE 6: CURRENT ASSETS, LOANS AND ADVANCES (a) Sundry debtors (unsecured) Debts outstanding for a period exceeding six months: -Considered good 1,264, ,910 -Considered doubtful 30,582 28,780 1,295, ,690 Other debts - considered good [includes unbilled revenues of Rs 59,145 (March 31, Rs 28,736)] 2,751,355 1,842,181 4,046,732 2,525,871 Less: Provision for doubtful debts (30,582) (28,780) 4,016,150 2,497,091 Amount due from subsidiaries 2,973,860 1,876,577 (b) Cash and bank balances Cash in hand Balances with scheduled banks: -Current accounts in foreign currency 1,185,988 1,978,890 -Deposit accounts 2,997,554 1,947,000 -Deposit amount of unutilised IPO funds (Refer Note 12 of Schedule 16) 929,233 1,359,017 -Margin money deposit 121, Other current accounts 38,790 51,518 -Unclaimed dividend accounts 2,242 2,291 Balances with non-scheduled banks: -Current accounts in foreign currency 223 1,423 5,275,787 5,340,531 Balances with non-scheduled banks Citibank NY, USA - 1,423 Citibank, Dubai Maximum balance held during the year: Citibank NY Representative office, USA - 14,166 Citibank NY, USA 1,423 10,791 Citibank, Singapore (US$ account) Citibank, Singapore (Singapore$ account) Citibank, Argentina - 1,860 Citibank, Dubai (c) Other current assets Interest accrued on : -Bank deposits 22,215 25,848 -Bonds 1, Loan to subsidiaries 1, Contract acquisition cost (Refer Note 10 of Schedule 16) - 5,326 25,241 32,018

10 (d) Loans and advances (unsecured, considered good unless otherwise stated) March 31, 2004 March 31, 2003 Advances recoverable in cash or in kind or for value to be received: Loan to ESPS Trust (Refer Note 8(a) of Schedule 16) 189, ,926 Loans to employees (secured) 7,694 9,068 Loan to subsidiaries (Refer Note 6 of Schedule 16) 439,200 23,595 Premises and other deposits 402, ,751 Prepaid expenses 79,701 82,645 Advance tax, net of provision for taxes 65,662 - Other advances - Considered good 82,164 58,728 - Considered doubtful - 7,253 1,266, ,966 Less: Provision for doubtful advance - (7,253) 1,266, ,713 SCHEDULE 7: CURRENT LIABILITIES AND PROVISIONS (a) Current liabilities Amount due to subsidiaries 1,120, ,972 Accrued expenses 473, ,151 Deferred revenues 411, ,979 Accounts payable 86,698 5,071 Advances from customers 33,134 41,808 Finance lease obligations 17,189 11,547 Investor Education and Protection Fund to be credited by Unclaimed dividends* 2,242 2,291 Advance against equity shares to be issued Deferred forward exchange contract 5,316 - Other current liabilities 28,205 42,662 2,177,746 1,254,826 Amounts due to Small Scale Industrial undertakings - - * There is no amount due and outstanding as at balance sheet date to be credited to the Investor Education and Protection Fund (b) Provisions Proposed dividend 261,644 93,289 Corporate dividend tax 33,523 11,953 Provision for leave encashment 26,856 23,273 Provision for taxation, net of advance payment of taxes - 67, , ,410 (THIS SPACE IS INTENTIONALLY LEFT BLANK)

11 March 31, 2004 March 31, 2003 SCHEDULE 8: REVENUES Product licenses and related activities 4,364,845 3,651,342 IT solutions and consulting services 2,479,764 2,032,942 6,844,609 5,684,284 SCHEDULE 9: COST OF REVENUES Employee costs 2,109,318 1,255,614 Travel related expenses (net of recoveries) 827, ,297 Application software 154, ,171 Professional fees 148, ,248 Contract acquistion cost (Refer Note 10 of Schedule 16) 5,326 3,043 3,245,625 2,483,373 SCHEDULE 10: SELLING AND MARKETING EXPENSES Travelling expenses 123, ,519 Employee costs 116, ,455 Professional fees 118,538 80,655 Advertising expenses 34,631 37,500 Communication expenses 8,901 5,496 Miscellaneous expenses 50,207 40, , ,230 SCHEDULE 11: GENERAL AND ADMINISTRATIVE EXPENSES Employee costs 375, ,136 Rent 104,807 88,954 Communication expenses 99, ,747 Professional fees 59,135 48,408 Dispute settlement expenses 40,000 - Bad debts written off 34,553 - Provision for doubtful advance - 7,253 Power 44,758 35,361 Travelling expenses 36,018 32,417 Rates and taxes 14,516 6,666 Miscellaneous expenses 150,155 81, , ,944 SCHEDULE 12: INTEREST INCOME Interest on: -Bank deposits 205, ,479 [includes tax deducted at source of Rs 37,547 (March 31, Rs. 39,372)] -Bonds 4,606 2,550 [includes tax deducted at source of Rs 561 (March 31, Rs. 536)] -Loans to employees 1,066 2,176 -Loan to subsidiaries 2, Income tax refunds 5, , ,819

12 March 31, 2004 March 31, 2003 SCHEDULE 13: OTHER INCOME/(EXPENSE) Foreign exchange loss, net (154,126) (89,357) Profit on retirement/sale of fixed assets, net Reversal of provision for doubtful advance 7,253 - Advances written back 26,352 - Miscelleneous Income 1, (117,765) (88,105) SCHEDULE 14: PROVISION FOR TAXATION Current Taxes Domestic taxes 437, ,778 Foreign taxes 27,654 82,803 Deferred tax, net of opening cumulative effect of accounting change of Rs. 23,410 (March 31, Rs. Nil) (Refer Note 3 of Schedule 16) 29,496 (6,586) 495, ,995 Under the Indian Income-tax Act 1961, for the year ended March 31, 2004 the Company is, under Section 10A of the Income Tax Act, 1961, eligible to claim benefits with respect to 100% during the year, as against 90% for last year, of the profits earned from export revenues from its five units registered under the Software Technology Park ('STP'). The benefit as per the current tax laws is restricted to ten consecutive assessment years, beginning with the assessment year relevant to the previous year in which the Company commences operations from each unit. In respect of two of its units where the Section 10A benefits have expired beginning from April 1, 2003, the Company claims deductions under Section 80HHE. Section 80HHE provides for 30% deduction of the profits earned from export revenue for this fiscal year. Foreign taxes represents income taxes payable overseas by the company in the United States of America, Malaysia, United Kingdom,Kuwait and Singapore. SCHEDULE 15: RECONCILIATION OF BASIC AND DILUTED SHARES USED IN COMPUTING EARNING PER SHARE No. of shares Basic weighted average shares outstanding 74,668,190 73,065,868 Add: Effect of dilutive stock options 2,703,848 1,361,986 Weighted average shares outstanding 77,372,038 74,427,854 (THIS SPACE IS INTENTIONALLY LEFT BLANK)

13 SCHEDULE 16: NOTES TO ACCOUNTS 1. BACKGROUND AND NATURE OF OPERATIONS i-flex Solutions Limited ('i-flex' or 'the Company'), a listed company, was incorporated in India with limited liability on September 27, The Company s principal shareholder is OrbiTech Limited ( Orbitech ). Orbitech is a subsidiary of Citicorp Technology Holdings Inc., USA. The Company has unilateral/joint control in the following entities: i-flex Solutions b.v. ( i-flex b.v. ), a 100 per cent owned subsidiary company incorporated in May 2000 under the laws of The Netherlands; i-flex Solutions Pte ltd, ( i-flex Pte ), a 100 per cent owned subsidiary company incorporated in November 2001 under the laws of Singapore; Flexcel International Private Limited ( Flexcel ), a 40 per cent owned joint venture company incorporated in March 2001 under Indian laws. i-flex America inc., ( i-flex America ), a 100 per cent owned subsidiary company incorporated in December 2003 under the laws of the United States of America. SuperSolutions Corporation.,( SuperSolutions ), a 100 per cent owned subsidiary of i-flex America inc. i-flex Solutions inc., ( i-flex inc. ), a 100 per cent owned subsidiary company of i-flex America inc. The Company is principally engaged in the business of providing information technology solutions to the financial services industry worldwide. i-flex has a suite of banking products, which caters to the needs of corporate, retail and investment banking as well as treasury operations and data warehousing. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of presentation The financial statements are prepared under the historical cost convention, on the accrual basis of accounting, in conformity with accounting principles generally accepted in India and in accordance with the accounting standards referred to in section 211(3C) of the Companies Act, 1956 ('the Act'). The accounting policies have been consistently applied by the Company and except for the change in accounting policy referred to in Note 3 below are consistent with those used in the previous years. The significant accounting policies adopted by the Company, in respect of the financial statements are set out below. (b) Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the results of operations during the reporting period/year end. Although these estimates are based upon management s best knowledge of current events and actions, actual results could differ from these estimates.

14 (c) Fixed assets and depreciation Fixed assets including assets under finance lease arrangements are stated at cost less accumulated depreciation. The Company capitalises all direct costs relating to the acquisition and installation of fixed assets. Depreciation is provided on the straight-line method, at the rates specified in Schedule XIV to the Act or based on the estimated useful life of assets, whichever is higher. Vehicles under finance lease are amortised over the useful life or lease term, which ever is lower (four to five years). The estimated useful life considered for depreciation of fixed assets are as follows: Estimated useful life (years) Improvement to leasehold premises 7 Buildings 20 Computer equipment 3 Electrical and office equipment 7 Furniture and fixtures 7 The Company purchases certain specific use application software, which is in ready to use condition, for internal use. It is estimated that such software has a relatively short useful life, usually less than one year. The Company, therefore, charges to income the cost of acquiring such software. Enterprise wide resource software purchased by the Company and which will be implemented by the Company over a period of time is capitalized and depreciated, from its date put to use, over its estimated useful life. Advances paid towards the acquisition of fixed assets outstanding at each balance sheet date and the cost of fixed assets not ready to use before such date are disclosed under Capital work-in-progress and advances. (d) Investments Trade investments refer to the investments made with the aim of enhancing the Company s business interests in providing information technology solutions to the financial services industry worldwide. Long term investments are stated at cost less provision for diminution on account of other than temporary decline in the value of the investment. Current investments are stated at lower of cost and fair value determined on an individual investment basis. (e) Revenue recognition Revenues are recognized as follows: (i) Product licenses and related revenues: - License fees are recognized, on delivery and subsequent milestone schedule as per the terms of the contract with the end user. - Implementation/Enhancement services are recognized as services are provided when arrangements are on a time and material basis. Revenues for fixed price contracts are recognized using the Proportionate Completion method. - Product maintenance revenues are recognized, over the period of the maintenance contract. (ii) Revenues from IT solutions and consulting services are recognized as services are provided when arrangements are on a time and material basis. Revenues for fixed

15 price contracts are recognized using the Proportionate Completion method to the extent of achievement of customer certified milestones. Proportionate Completion is measured based upon the efforts incurred to date in relation to the total estimated efforts to complete the contract. If the Proportionate Completion efforts are higher than the related contractual milestone requiring customer acceptance; revenue is recognized only to the extent customer acceptance has been received. The Company monitors estimates of total contract revenues and cost on a routine basis throughout the delivery period. The cumulative impact of any change in estimates of the contract revenues or costs is reflected in the period in which the changes become known. In the event that a loss is anticipated on a particular contract, provision is made for the estimated loss. Reimbursable expenses for projects are invoiced separately to customers and although reflected as sundry debtors to the extent outstanding as at period/year-end, are not included as revenues or expenses. (f) Foreign currency transactions Foreign currency transactions during the period are recorded at the exchange rates prevailing on the date of the transaction. Foreign currency denominated monetary item are translated into rupees at the closing rates of exchange prevailing at the date of the balance sheet except for sundry debtors covered under forward exchange contracts, which are translated at forward rates. Non-monetary items, which are carried in terms of historical cost denominated in a foreign currency, are reported using the exchange rate at the date of the transaction. In respect of forward exchange contracts entered into by the Company, which are not intended for trading or speculation purposes, the difference between the forward rate and the exchange rate at the inception of a forward exchange contract, is recognized as an income or expense on a straight-line basis over the life of the contract. All exchange differences are dealt with in the statement of profit and loss, except for those relating to the acquisition of fixed assets, which are adjusted, if material, in the cost of the fixed assets. (g) Research and development expenses for software products Research and development costs are expensed as incurred. Software product development costs are expensed as incurred until technological feasibility is established. Software product development costs incurred subsequent to the achievement of technological feasibility are not material and are expensed as incurred. (h) Retirement benefits Retirement benefits to employees comprise payments to gratuity, superannuation and provident funds as per the approved schemes of the Company. The Company has schemes of retirement benefits of provident fund, superannuation fund and gratuity fund in respect of which the Company s contribution to the funds are charged to the statement of profit and loss. The gratuity fund and superannuation fund benefits of the Company are administered by a trust formed for this purpose through the Group Schemes of the Life Insurance Corporation of India ('LIC'). In respect of gratuity, the adequacy of the accumulated funds available with the LIC has been confirmed on the basis of an actuarial valuation made at the year-end and provision has been made for the shortfall if any.

16 (i) Leave encashment Accrual for leave encashment is estimated on the basis of an actuarial valuation for the unavailed leave balance standing to the credit of the employees at the year-end. (j) Operating leases Leases of assets under which all the risks and rewards of ownership are effectively retained by the lessor are classified as operating leases. Lease payments under operating leases are recognized as an expense on a straight-line basis over the lease term. (k) Income-tax Provision for current income tax is made on the assessable income at the estimated average annual effective tax rate that would be applicable to the relevant assessment year. Deferred income taxes are recognized for the future tax consequences attributable to timing differences between the financial statement determination of income and their recognition for tax purposes. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax assets are recognized and carried forward only to the extent that there is a reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. Unrecognized deferred tax assets of earlier years are re-assessed and recognized to the extent that it has become reasonably certain that future taxable income will be available against which deferred tax assets can be realised. (l) Earning per share The earnings considered in ascertaining the Company s earnings per share comprise the net profit after tax. The number of shares used in computing basic earnings per share is the weighted average number of shares outstanding during the period. The number of shares used in computing diluted earnings per share comprises the weighted average number of shares considered for deriving basic earnings per share, and also the weighted average number of shares, if any which would have been issued on the conversion of all dilutive potential equity shares. The number of shares and potentially dilutive equity shares are adjusted for the bonus shares and sub-division of shares. 3. CHANGE IN ACCOUNTING POLICY Upto the year ended March 31, 2003, the Company had been accounting for depreciation on fixed assets based on the written-down value method except for vehicles under finance leases, which were amortised on a straight-line basis over the useful life or lease term, as appropriate. During the current year, the Company has revised its accounting policy of providing for depreciation from the written-down value method to the straight-line method. The change in the above accounting policy has resulted in a surplus of Rs 88,526 in accumulated depreciation and a tax debit of Rs. 23,410 on account of the related deferred tax impact pertaining to the previous years. The impact of this change has been adjusted against the depreciation charge and deferred tax expense for the current year. Consequently, the net profit for the current year is higher by Rs 65,116. Had the Company followed the written-down value basis of depreciation accounting, depreciation charge for the year would have been higher by Rs 5,000 and the deferred tax charge would have been lower by Rs 12,513. (THIS SPACE IS INTENTIONALLY LEFT BLANK)

17 4 COMMITMENTS (a) Capital commitments Contracts remaining to be executed on capital account and not provided for (net of advances) aggregates to Rs 98,612 as at March 31, 2004 (March 31, Rs 507,341) (b) Forward Contracts The Company enters into forward foreign exchange contracts where the counter party is a bank. The Company considers the risk of nonperformance by the counter party as non-material. As at March 31, 2004 the Company held forward foreign exchange contracts of US$ 37 million. (Rs. 1,684 million) (March 31, Rs. Nil) (c) Lease commitments (i) Finance leases The Company takes vehicles under finance leases of upto five years. Future minimum lease payments under finance leases as at March 31, 2004 and March 31, 2003 are as follows: As at March 31, 2004 Principal Interest Total Not later than one year 5,514 1,550 7,064 Later than one year and not later than five years 11,675 1,371 13,046 Total minimum payments 17,189 2,921 20,110 As at March 31, 2003 Principal Interest Total Not later than one year 4,786 1,463 6,249 Later than one year and not later than five years 6,761 1,218 7,979 Total minimum payments 11,547 2,681 14,228 (ii) Operating leases The Company has taken certain office premises and residential premises for employees under operating leases, which expire at various dates through year Gross rental expenses for the year ended March 31, 2004 aggregated to Rs 105,898 (March Rs 92,108 ). The minimum rental payments to be made in future in respect of these leases are as follows : March 31, 2004 March 31, 2003 Not later than one year 45,611 70,368 Later than one year and not later than five years 56,405 76,913 Later than five years 51,495 55,811

18 5 SEGMENT INFORMATION Business segments are defined as a distinguishable component of an enterprise that is engaged in providing a group of related products or services and that is subject to differing risks and returns, and about which separate financial information is available. This information is reviewed and evaluated regularly by the management in deciding how to allocate resources and in assessing the performance. The Company is organised geographically and by business segments. For management purposes the Company is primarily organised on a worldwide basis into two business segments: a) Product licenses and related activities ('Products') and b) IT solutions and consulting services ('Services'). The business segments are the basis on which the Company reports its primary segment information to management. Product licenses and related activities segment deals with banking software products like the FLEXCUBE suite of products, Reveleus and Microbanker which cater to needs of corporate, retail and investment banking as well as treasury operations and data warehousing requirements. The related activities include enhancements, implementation and maintenance activities. IT solutions and consulting services comprise of bespoke software development, provision of computer software solutions and related consulting services arising from such activities. This segment is further sub-divided in the following sub-segments i.e. Business intelligence, Customer relationship management, Brokerage, e-commerce, Internet services and IT and Business consulting. The Company does not track assets and liabilities geographically. March 31, 2004 Particulars Products Services Corporate Total Revenues 4,364,845 2,479,764-6,844,609 Cost of revenues (1,325,193) (1,920,432) - (3,245,625) Gross profit 3,039, ,332-3,598,984 Selling and marketing expenses (420,696) (31,175) (451,871) General and administrative expenses (339,525) (237,256) (381,622) (958,403) Depreciation and amortisation (49,286) (61,765) 75,052 (35,999) Income from operations 2,230, ,136 (306,570) 2,152,711 Reversal for dimunition in value of investment, net 73,062 Loss on sale/conversion of investment (72,299) Interest income 218,234 Other income/(expense) (117,765) Income before provision for income taxes 2,253,943 Provision for income taxes (495,076) Net profit 1,758,867 Other information Segment assets 2,554,069 2,518,740 7,092,422 12,165,231 Segment liabilities 569, ,126 1,752,080 2,499,769 Share capital and reserves and surplus 9,665,462 9,665,462 Capital expenditure by segment 477,000 30, , ,635

19 March 31, 2003 Particulars Products Services Corporate Total Revenues 3,651,342 2,032,942 5,684,284 Cost of revenues (989,565) (1,493,808) (2,483,373) Gross profit 2,661, ,134-3,200,911 Selling and marketing expenses (419,278) (26,952) (446,230) General and administrative expenses (242,041) (205,585) (260,318) (707,944) Depreciation and amortisation (45,285) (74,034) (14,504) (133,823) Income from operations 1,955, ,563 (274,822) 1,912,914 Provision for dimunition in value of investment, net (43,923) Profit on sale/conversion of investment 35 Interest income 208,819 Other income/(expense) (88,105) Income before provision for income taxes 1,989,740 Provision for income taxes (245,995) Net profit 1,743,745 Other information Segment assets 1,294,890 1,700,328 6,628,223 9,623,441 Segment liabilities 438, , ,466 1,451,236 Share capital and reserves and surplus - - 8,172,205 8,172,205 Capital expenditure by segment 20,085 60,007-80,092 Segment revenue and expense: Revenue is generated through licensing of software products as well as by providing software solutions to the customers including consulting services. The expenses which are not directly attributable to a business segment are shown as corporate expenses. Segment assets and liabilities: Segment assets include all operating assets used by a segment and consist principally of debtors, deposits for premises and fixed assets, net of allowances and provisions. Segment liabilities primarily includes deferred revenues, finance lease obligation, advance from customer, accrued employee cost and other current liabilities. While most such assets and liabilities can be directly attributed to individual segments, the carrying amount of certain assets and liabilities used jointly by two or more segments is allocated to the segment on a reasonable basis. Assets and liabilities that cannot be allocated between the segments are shown as part of corporate assets. Geographical segments The following table shows the distribution of the Company's sales by geographical market : Regions March 31, 2004 March 31, 2003 Amount % Amount % United States of America 2,894,315 43% 2,127,531 37% Middle East and Africa 1,275,351 18% 1,464,169 26% Asia Pacific 1,206,155 18% 1,013,830 18% Europe 1,344,314 19% 1,033,635 18% Latin America and Carribean 124,474 2% 45,119 1% 6,844, % 5,684, %

20 6. RELATED PARTY TRANSACTIONS The related party transactions, other than disclosed elsewhere in the financial statements, are summarised in the table below: Promotor Company and its affiliates Subsidiaries Joint Venture ESPS Trust Key Managerial Personnel Total Relationship March 2004 March 2003 March 2004 March 2003 March 2004 March 2003 March 2004 March 2003 March 2004 March 2003 March 2004 March 2003 Revenues Banking product revenues 1,117,750 1,030,440 1,820,063 1,073,001 9,169 2, ,946,982 2,105,548 IT solutions and consulting services revenues 54, ,855 2,272,122 1,409,604-2, ,326,942 1,716,323 Interest on loan - - 2, , Reimbursement of Expenses Communication expenses 16,248 43, ,248 43,811 Remuneration ,624 34,932 41,624 34,932 Finance charges on finance leases 670 1, ,532 Professional fees for software development - 1, ,696 Provision for doubtful debts - (1,221) (1,221) Dimunition in value of investment made in DotEx - 56, ,350 Bad debts , ,446 - Bank charges 743 1, ,004 Rent Assets Sundry debtors 309, ,079 2,973,860 1,876,577 10,636 5, ,294,132 2,058,759 Loan outstanding ,200 23, , ,926 4,000 4, , ,521 Repayment of loan , ,501 23, ,096 24,567 Bank balances 671, , , ,348 Advance rent Interest accrued on fixed deposits 4, , Liabilities Account payable - - 1,120, , ,120, ,972 Finance lease obligation 3,046 7, ,046 7,727 Deferred revenue 193 1, ,208 29, , ,232 32,684 Other transactions Payment of dividends 40,295 20, ,549 3, ,724 24,454 Capital contribution ,829 24, ,829 24, Includes salary, bonus and perquisites 2. Loan given to subsidiaries represents loan to i-flex America inc amounting to Rs 439, 200 as at March 31, 2004 and i-flex solutions inc amounting to Rs 23,595 as at March 31, 2003 with no fixed repayment terms. Maximum balance outstanding during the year were as follows: Mar-2004 Mar-2003 i-flex Solutions inc 23,595 23,965 i-flex Solutions b.v. - 3,770 i-flex America inc 439, Pertains to rent paid on a flat taken on rent from a relative of a Key Managerial Person.

21 Names of Related Parties and description of relationship: Promoter Company and its affiliates Subsidiaries Joint Ventures Other entities where company has significant influence OrbiTech Limited OrbiTech Solution Limited Citigroup Inc. Citicorp Technology Holdings Inc, USA Citibank branches Citicorp Information Technology, Inc e-serve International Limited i-flex b.v, The Netherlands i-flex Pte, Singapore i-flex inc., USA i-flex America inc., USA SuperSolutions Corporation,USA DotEx International Limited till August 1, 2003 Flexcel International Private Limited i-flex Employee Stock Purchase Scheme Trust Key Managerial Personnel ('KMP') Rajesh Hukku - Chairman and Managing Director R Ravisankar - Chief Executive Officer - International - Operations and Technology Deepak Ghaisas - Chief Executive Officer - India - Operations and Chief Financial Officer Makarand Padalkar - Chief of Staff Joseph John - Head - Banking Products Division V Shankar - Head - Information Technology Services Division N R K Raman - Head - Marketing & Global Sales Atul Gupta- Head - Process and Quality Management Group (appointed on September 3, 2003) S Hariharan - Head - Infrastructure and Support Services Group Vivek Govilkar - Head - Human Resources Division R. Vidyasagar -Head-Human Resources Division (resigned on September 3, 2003) 7 SETTLEMENT OF DISPUTE General and Administrative expenses include expenses of Rs 40,000 towards settlement of dispute with a customer in November 2003.

22 8 STOCK BASED COMPENSATION SCHEME a) Employee stock purchase scheme ('ESPS') On March 29, 1998 the Company adopted the ESPS to provide equity based incentives to key employees of the Company ('1998 Scheme'). Subsequently on April 1, 1999, April 1, 2000 and April 1, 2001, the Company adopted other Stock based schemes ('1999 Scheme', 2000 Scheme and '2001 Scheme'). These schemes which have similar terms, are administered through a Trust ('the Trust'). The Trust purchases shares of the Company using the proceeds of loans obtained from the Company. Such shares are offered by the Trust to employees at an exercise price, which approximates the fair value on the date of the grant. The employees can purchase the shares in a phased manner over a period of five years based on continued employment, until which, the Trust holds the shares for the benefit of the employee. The employee will be entitled to receive dividends, bonus, etc that may be declared by the Company from time to time for the entire portion of shares held by the Trust on behalf of the employees. On the acceptance of the offer, the selected employee shall undertake to pay within ten years from the date of acceptance of the offer the cost of the shares incurred by the Trust including repayment of the loan relatable thereto. The repayment of the loan by the Trust to the Company would be dependent on employee repaying the amount to the Trust. In case the employee resigns from employment, the rights relating to shares, which are eligible for exercise, may be purchased by payment of the exercise price whereas, the balance shares shall be forfeited in favour of the Trust. The Trustees have the right of recourse against the employee for any amounts that may remain unpaid on the shares accepted by the employee. The shares that an employee is eligible to exercise during the initial five-year period merely go to determine the amount and scheduling of the loan to be repaid on exercise by the employee. The Trust shall repay the loan obtained from the Company on receipt of payments from employees against shares exercised or otherwise. The Securities and Exchange Board of India ( SEBI ) has issued the Employee Stock Option Scheme and Stock Purchase Guidelines, 1999 ( SEBI guidelines ), which are applicable to stock option schemes for employees of all listed Companies. In accordance with these guidelines, the excess of market price of the underlying equity shares on the date of grant of the stock options over the exercise price of the options is to be recognised in the books of account and amortised over the vesting period. However, no compensation cost would need to be recorded as the scheme terms are fixed and the exercise price equals the market price of the underlying stock on the grant date. The shares issued to the Trust have been considered as outstanding for basic EPS purposes, to the extent the shares have been allocated to the employees pursuant to the above schemes and are eligible to be exercised by the employee. For diluted EPS purpose, the share, which are not yet eligible for exercise, have also been considered as outstanding to the extent these shares are dilutive. The loan granted to the Trust has been presented as a separate component of shareholders' funds. b) Employee Stock Option Plan ( ESOP ) At the Annual General Meeting of the shareholders of the Company held on August 14, 2001, the Company introduced an additional ESOP, pursuant to which equity shares not exceeding an additional 7.5% of the issued and paid-up equity share capital of the Company had been earmarked for grant, at any given time to present and future employees and directors of the Company and its existing and future subsidiaries. Pursuant to the above resolution, the Board of Directors, at their meeting held on March 4, 2002 approved the Employees Stock Option Scheme ( the Scheme ) for issue of 4,753,600 options (inclusive of the 1:1 bonus declared on September 11, 2003) to the employees and directors of the Company and its subsidiaries. According to the Scheme the Company has granted 4,548,920 options (inclusive of the 1:1 bonus declared on September 11, 2003) to the eligible employees and directors of the Company and its subsidiaries prior to the IPO, and 116,000 options thereafter. As per the terms of the Scheme the exercise price would equate the IPO price for the options granted prior to the IPO and at the fair market value on the date of grant for options granted thereafter 20% of the total options granted under the Scheme will vest to the eligible employees and directors on the completion of 12, 24, 36, 48 and 60 months from the date of and is subject to the continued employment of the employee or the director with the Company or its subsidiaries. As per the terms of the Scheme, the exercise price would equate the price determined for the IPO through book building process for the option granted prior to the IPO and the fair market value on the date of grant for option granted thereafter. Accordingly no compensation cost would need to be recorded as the exercise price would equal to the fair value of the shares. The summary of the activity in the Company's ESOP is as follows: March 31, 2004 March 31, 2003 No. of shares Outstanding at the beginning of the year 4,499,400 4,548,920 Granted during the year 36,000 80,000 Exercised during the year (109,350) - Forfeited during the year (112,500) (129,520) Outstanding at the end of the year 4,313,550 4,499,400