i-flex Solutions Limited CONSOLIDATED BALANCE SHEET AS AT DECEMBER 31, 2002 AND MARCH 31, 2002 (All amounts in thousands of Indian rupees)

Transcription

1 i-flex Solutions Limited CONSOLIDATED BALANCE SHEET AS AT DECEMBER 31, 2002 AND MARCH 31, 2002 (All amounts in thousands of Indian rupees) Notes December 31, 2002 March 31, 2002 SOURCES OF FUNDS SHAREHOLDERS' FUNDS Share capital 3 186, ,777 Reserves and surplus 4 7,531,532 4,542,316 7,718,109 4,712,093 APPLICATION OF FUNDS FIXED ASSETS 2(c) & 5 Cost 904, ,562 Less: Accumulated depreciation 624, ,449 Net book value 279, ,113 Capital work-in-progress and advances 208,323 4, , ,989 INVESTMENTS 2(d) & 6 95,716 95,736 DEFERRED TAX ASSETS 7 29,946 24,658 CURRENT ASSETS, LOANS AND ADVANCES 8 Sundry debtors 1,661,740 1,887,483 Cash and bank balances 5,321,399 2,280,983 Other current assets 119,501 10,886 Loans and advances 780, ,928 7,883,380 4,989,280 Less: CURRENT LIABILITIES AND PROVISIONS 9 Current liabilities 669, ,182 Provisions 109, , , ,570 7,104,769 4,260,710 NET CURRENT ASSETS 7,718,109 4,712,093 The accompanying notes 1 to 24 are an integral part of the balance sheet.

2 i-flex Solutions Limited CONSOLIDATED STATEMENT OF PROFIT AND LOSS FOR THE PERIOD ENDED DECEMBER 31, 2002 AND YEAR ENDED MARCH 31, 2002 (All amounts in thousands of Indian rupees) Nine months ended Year ended Notes December 31, 2002 March 31, 2002 REVENUES 2(e) & 10 4,478,980 4,194,772 Cost of Revenues 11 (1,787,200) (1,566,410) (excluding depreciation and amortisation) Gross profit 2,691,780 2,628,362 Selling and marketing expenses 12 (645,089) (599,726) General and administrative expenses 13 (587,135) (642,057) Depreciation and amortisation 2(c) & 5 (108,187) (156,422) INCOME FROM OPERATIONS 1,351,369 1,230,157 Reversal for diminution in value of investments, net 2,318 24,172 Profit/(Loss) on sale of investment 35 (51,500) Interest income ,467 66,672 Other income 15 2,390 33,827 INCOME BEFORE PROVISION FOR INCOME TAXES 1,508,579 1,303,328 Provision for income taxes 2(k) & 16 (183,136) (150,337) NET INCOME 1,325,443 1,152,991 Weighted average earnings per share of Rs 5/- each 2(I) Basic and diluted (in Rs) for the period/year Number of shares used in computing earnings per share Basic and diluted 36,276,855 33,328,488 The accompanying notes 1 to 24 are an integral part of the statement of profit and loss.

3 i-flex Solutions Limited CONSOLIDATED STATEMENT OF CASH FLOW FOR THE NINE MONTH PERIOD ENDED DECEMBER 31, 2002 AND YEAR ENDED MARCH 31, 2002 (All amounts in thousands of Indian rupees) Nine months ended Year ended December 31, 2002 March 31, 2002 Cash flows from operating activities Income before provision for income taxes 1,508,579 1,303,328 Adjustments to reconcile income before provision for income taxes to cash provided by operating activities : Depreciation and amortisation 108, ,422 (Profit)/loss on retirement/sale of fixed assets, net (692) 343 (Profit/Loss on sale of investment (35) 51,500 Provision for diminution in the value of investments, net (2,318) (24,172) Interest income (152,467) (66,672) Dividend income - (3,311) Effect of exchange difference on cash and bank balances 24,529 (26,280) Finance charge on leased assets 1,778 2,577 Provision for doubtful advances 7,253 - Provision for doubtful debts, net (18,755) (32,521) 51, ,059 1,476,058 1,445,387 Changes in assets and liabilities Increase/(decrease) in sundry debtors 243,030 (757,524) Increase in loans and advances (32,627) (90,730) Increase/(decrease) in current liabilities and provisions 91, , ,091 (741,163) Cash from operating activities 1,777, ,224 Payment of domestic and foreign income taxes (163,061) (145,248) Net cash from operating activities 1,614, ,976 Cash flows from investing activities Additions to fixed assets including capital work in progress (282,595) (247,879) Proceeds from sale of fixed assets 2, Investments in bank fixed deposits having maturity of more than 90 days (1,875,000) (1,150,000) Purchase of investments (131) (45,000) Proceeds from sale of investment 2,504 48,500 Interest received 75,831 62,525 Dividends received - 3,311 Net cash (used in) investing activities (2,077,196) (1,328,336) Cash flows from financing activities Proceeds from Initial Public Offering ('IPO') 1,780,800 - Payment of IPO related expenses (103,073) - Proceeds from private placement of shares by the Company - 441,350 Proceeds from private placement of shares by joint venture 4,446 Repayment of loan from Employee Stock Purchase Scheme ('ESPS') Trust 22,583 8,549 Payment of dividend (46,644) (41,596) Payment of corporate dividend tax - (4,243) Payment for lease obligations (5,930) (7,683) Net cash (used)/provided by financing activities 1,652, ,377 Effect on exchange difference on cash and bank balances (24,529) 26,280 Net increase/(decrease) in cash and cash equivalents 1,164,927 (346,703) Cash and cash equivalents at beginning of the period/year 1,129,034 1,475,737 Cash and cash equivalents at end of the period/year 2,293,961 1,129,034

4 Note : The reconciliation to the cash and bank balances as given in Note 8(b) is as follows : Cash and bank balances, per Note 8(b) 5,321,399 2,280,983 Less: Bank deposits having maturity of more than 90 days (3,025,000) (1,150,000) Unclaimed dividend account (2,438) (1,949) 2,293,961 1,129,034 The accompanying notes 1 to 24 are an integral part of this statement

5 i-flex Solutions Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED DECEMBER 31, 2002 AND YEAR ENDED MARCH 31, 2002 (All amounts in thousands of Indian rupees, unless otherwise stated) 1. BACKGROUND i-flex Solutions Limited ('i-flex' or 'the Company'), a public limited Company, was incorporated in India with limited liability on September 27,1989. The Company s principal shareholder is OrbiTech Limited ( Orbitech ) formerly Citicorp Overseas Software Limited with shareholding of per cent. Orbitech is a 100 per cent subsidiary of Citicorp Technology Holdings Inc, USA. In June 2002, the Company completed an Initial Public Offering ( IPO ) of 3,961,700 equity shares of Rs 5 each at a price of Rs 530 per share, comprising a fresh issue of 3,360,000 equity shares and offer for sale of 601,700 equity shares held by existing shareholders. On June 28, 2002, the equity shares of the Company were listed on the National Stock Exchange of India ( NSE ) and The Stock Exchange, Mumbai 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; DotEx International Limited ( DotEx ), a 49 per cent owned joint venture company incorporated in June 2000 under the laws of India; Flexcel International Private Limited ( Flexcel ), a 40 per cent owned joint venture company incorporated in March 2001 under the laws of India; i-flex Solutions Pte Ltd, ( i-flex Pte ), a 100 per cent owned subsidiary company incorporated in November 2001 under the laws of Singapore; and i-flex Solutions Inc, ( i-flex Inc ), a 100 per cent owned subsidiary company incorporated in December 2001 under the laws of the United States of America. The Company together with its wholly owned subsidiaries, i-flex b.v., i-flex Pte and i-flex Inc, 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. The Company also provides consulting services and develops bespoke software for its customers from the financial services industry. The Company derives a substantial portion of its revenues from the overseas markets DotEx is a 51:49 joint venture between NSE.IT Limited, a wholly owned subsidiary of NSE and i-flex. DotEx has set up a broker's plaza which enables brokers and their clients to transact in stock/securities markets through the internet. Flexcel is a 40:40:20 joint venture between i-flex, HDFC Bank Limited and its group companies and Lord Krishna Bank Limited, 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.

6 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of presentation and consolidation The accompanying consolidated financial statements are prepared under the historical cost convention, on the accrual basis of accounting, in conformity with accounting principles generally accepted in India, to reflect the financial position and the results of operations of the Company together with its wholly owned subsidiary companies i.e. i-flex b.v., i-flex Pte. and i-flex Inc. and joint venture companies i.e. DotEx and Flexcel (hereinafter collectively referred to as the Group ). In respect of the joint venture companies, the Group applies the proportionate consolidation method. All material inter-company transactions and balances between the entities included in the consolidated financial statements have been eliminated. The significant accounting policies adopted by the Group, in respect of the consolidated 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 assets and liabilities at the date of the financial statements and the results of operations during the reporting period/year. Although these estimates are based upon management s best knowledge of current events and actions, actual results could differ from these estimates. (c) Fixed assets and depreciation Fixed assets including assets under finance lease arrangements are stated at cost less accumulated depreciation. The Group capitalises all direct costs relating to the acquisition and installation of fixed assets. Depreciation is provided pro-rata to the period of use, on the written down value 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 leases are amortised over the useful life or lease term, as appropriate (four to five years). The rates at which fixed assets are depreciated are as follows: Improvement to leasehold premises 35 Buildings 15 Computer equipment 60 Electrical and office equipment 35 Furniture and fixtures 35 The Group purchases certain application software for internal use. It is estimated that such software has a relatively short useful life, usually less than one year. The Group, therefore, charges to income the cost of acquiring such software. Advances paid towards the acquisition of fixed assets outstanding at each balance sheet date and the cost of fixed assets not put to use before such date are disclosed under Capital workin-progress. %

7 (d) Investments Trade investments refer to the investments made with the aim of enhancing the Group 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. (e) Revenue recognition Revenues are recognised as follows: (i) Product licenses and related revenues: - License fees, on delivery and subsequent milestone schedule as per the terms of the contract with the end user; - Product maintenance revenues, over the period of the maintenance contract; and - Implementation/enhancement services are recognised upon the proportionate efforts method to the extent of achievement of specified milestones or as certified by the customer for fixed price contracts and as the services are provided for time and material contracts. (ii) Software development services are recognised upon the proportionate efforts method to the extent of achievement of specified milestones or as certified by the customer for fixed price contracts and as the services are provided for time and material contracts. 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/year-end are recorded at the exchange rates prevailing on the date of the transaction. Foreign currency denominated assets and liabilities are revalued into rupees at the rates of exchange prevailing at the date of the balance sheet. The results of each entity in the Group are translated into Indian rupees, the reporting currency, at the average rates of exchange during the period/year and the balance sheet is translated at the rate in effect at the balance sheet date. 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 Group.

8 In India, the Group has schemes of retirement benefits of provident fund, superannuation fund and gratuity fund in respect of which the Group 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 period/year-end. (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 period/ 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 recognised 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 tax rate applicable to the relevant assessment year. Deferred income taxes are recognised 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 recognised 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 recognised and carried forward only to the extent that there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. During the year ended March 31, 2002, the Company had adopted Accounting Standard 22, 'Accounting for taxes' (AS 22) issued by the Institute of Chartered Accountants of India. Accordingly, the Company had recorded a deferred tax credit of Rs 6,089 for the year ended March 31, In accordance with the transitional provisions of AS 22, the deferred tax asset pertaining to the years prior to April 1, 2001 amounting to Rs 18,569 had been adjusted against general reserve. (l) Earnings per share The earnings considered in ascertaining the Group 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 equity shares outstanding during the year. The number of shares used in computing diluted earnings per share comprises the weighted average share considered for deriving basic earnings per share, and also the weighted average number of equity 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.

9 December 31, 2002 March 31, SHARE CAPITAL Authorised 100,000,000 equity shares of Rs 5/- each 500, ,000 (March ,000,000 equity shares of Rs. 5/- each) Issued, subscribed and paid-up 37,315,400 equity shares of Rs 5/- each, fully paid up 186, ,777 (March ,955,400 equity shares of Rs 5/- each, fully paid-up) (a) Of the above, 24,784,300 equity shares of Rs 5/- each ( March 31, ,784,300 equity shares of Rs 5/- each) have been issued as fully paid-up bonus shares by capitalising the share premium account. (b) The shareholders in the Annual General Meeting of the Company held on August 14, 2001, approved the sub-division of equity shares of face value of Rs 10/- each into two equity shares of face value of Rs 5/- each. The Board of Directors in their meeting held on January 7, 2002, declared a record date of January 15, 2002 for effecting the sub-division. Subsequent to this sub-division, the authorised equity share capital of Rs 500,000 had been divided into 100,000,000 equity shares of Rs 5/- each and the issued, subscribed and paid-up capital of Rs 166,382 had been divided into 33,276,400 equity shares of Rs 5/- each. (c) On March 4, 2002, the Company had issued 679,000 equity shares of Rs 5/- each to Financial Ventures Mauritius Limited, a subsidiary of the Standard Chartered Bank, at a premium of Rs 645/- per share. (d) In June 2002, the Company made an IPO of 3,360,000 fresh equity shares of Rs 5/- each at a price of Rs 530/- per share. 4 RESERVES AND SURPLUS General reserve Balance, beginning of period/year 3,988,569 2,720,000 Opening deferred tax credit (Refer Note 2(k)) - 18,569 Transferred from profit and loss account - 1,250,000 Balance, end of period/year 3,988,569 3,988,569 Share premium Balance, beginning of period/year 606, ,805 Received during the period/year 1,764, ,955 Share of Share premium received by joint venture Utilised towards share issue expenses (103,073) - Balance, end of period/year 2,267, ,760 Gain on dilution of equity investment in joint venture 2,536 - (refer note 22) Profit and loss account Balance, beginning of the period/year (53,013) 90,640 Net profit for the period/year 1,325,443 1,152,991 Transfer to general reserve - (1,250,000) Proposed dividend - (46,644) Balance, end of period/year 1,272,430 (53,013) 7,531,532 4,542,316

10 5 FIXED ASSETS Gross Block Depreciation Written Down Value Particulars As at Additions during the period Sale/deletions for the period As at As at For the period On Sale/deletions for the period As at As at As at Freehold land 44, , ,734 44,734 Improvement to leasehold premises 85,624 1, ,349 48,106 9, ,984 28,365 37,518 Buildings* 7, ,116 3, ,657 3,459 3,897 Computer equipment 420,684 50,020 7, , ,730 59,732 5, ,547 93, ,954 Electrical and office equipment 145,333 6, ,324 80,183 18, ,750 53,574 65,150 Furniture and fixtures 121,663 4, ,320 66,722 15, ,834 43,486 54,941 Leased vehicles 27,408 2,447 3,736 26,119 12,489 4,649 2,918 14,220 11,899 14,919 TOTAL 852,562 64,495 12, , , ,187 9, , , ,113 As at , ,979 4, , , ,422 2, ,449 Capital work-in-progress and advances 208,323 4, , ,989 * Includes 10 shares of Rs.50/- each in Takshila Building No.9, Co-op Housing Society Limited

11 December 31, 2002 March 31, INVESTMENTS a) Long term investments (unquoted) (i) Trade investments EBZ Online Private Limited (Note a) 45,000 45, ,260 equity shares of Rs10/- each, fully paid-up (March ,260) (ii) Non-trade investments Eastern Software Systems Limited (Note a) 7,406 9, ,283 equity shares of Rs 10/- each, fully paid-up (March ,711 ) 12.75% KEONICS Mahiti Bonds Series-1 (Note b) 20,000 20, Bonds of Rs 50,000/- each (March ) National Savings Certificate (March Nil) 72,537 74,875 b) Current investments (non-trade, quoted) Unit Trust of India Scheme (US-64) (Note c) 3,311,258 units (and 278 fractions) of Rs.10/- each 50,000 50,000 (March ,311,258 units and 278 fractions ) Less: Excess of cost over market value (26,821) (29,139) 23,179 20,861 95,716 95,736 Aggregate cost of quoted investments 50,000 50,000 Aggregate market value of quoted investments 23,179 20,861 Aggregate amount of unquoted investments 72,537 74,875 Note a The Company s ownership interest in Eastern Software Systems Limited ('ESSL') is 6.62%. During the period ended December 31, 2002, the Company accepted the buyback offer from ESSL for 89,428 shares. As a result the ownership interest has reduced from 6.65% to 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 the Group to integrate the selected and adapted software provided under the Group 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 b Investments in debt securities of 12.75% KEONICS Mahiti 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 c Units in US-64 are valued at the closing market price on the NSE as at December 31, 2002.

12 December 31, 2002 March 31, DEFERRED TAX ASSETS Difference between book and tax depreciation 29,946 24,624 Preliminary expenses written off in books ,946 24,658 8 CURRENT ASSETS, LOANS AND ADVANCES (a) Sundry debtors (unsecured) Debts outstanding for a period exceeding six months: -Considered good 282, ,800 -Considered doubtful 38,625 55, , ,096 Other debts: -Considered good 1,379,408 1,757,683 -Considered doubtful ,700,366 1,943,395 Less: Provision for doubtful debts (38,625) (55,912) 1,661,740 1,887,483 Debtors include unbilled revenue 79,136 9,363 (b) Cash and bank balances Cash in hand 1, Remittance in transit - - Balances with scheduled banks: -Deposit accounts 1,885,049 1,393,404 -Deposit amount of unutilised IPO funds 1,403, Unclaimed dividend account 2,438 1,949 -Current accounts in foreign currency 1,806, ,335 -Other current accounts 90,443 35,816 Balances with non-scheduled banks: -Current accounts in foreign currency - 26,565 -Current accounts of foreign subsidiaries 131,842 59,405 5,321,399 2,280,983 (c) Other current assets Interest accrued but not due on: -Bank Deposits 85,147 10,432 -Bonds 2, Loan to subsidiary - - Contract acquisition Cost 31, ,501 10,886 (d) Loans and advances (unsecured, considered good unless otherwise stated) Advances recoverable in cash or in kind or for value to be received: Loan to ESPS Trust (Note 20 (a)) 269, ,649 Loans to employees (secured) 10,884 19,284 Deposits 366, ,648 Prepaid expenses 86, ,273 Share application money - 14,961 Other advances 55,105 31,113 Less : Provision for doubtful advances (7,253) - 780, ,928

13 December 31, 2002 March 31, CURRENT LIABILITIES AND PROVISIONS (a) Current liabilities Accrued expenses 430, ,109 Deferred revenues 128, ,694 Finance lease obligations 12,989 16,053 Accounts payable 28,323 58,417 Unclaimed dividends 2,438 1,949 Advances from customers 8,315 5,428 Other current liabilities 58,254 87, , ,182 (b) Provisions Proposed dividend - 46,644 Provision for leave encashment (Refer Note 2(i)) 17,893 9,919 Provision for taxation, net of advance payment of taxes Rs 2,62,941 91,454 65,825 (March Rs150,839) 109, ,388 Nine months ended Year ended December 31, 2002 March 31, REVENUES Product licenses and related activities 2,817,740 2,506,119 IT solutions and consulting services 1,656,346 1,649,299 Exchange gain arising on sales, net 2,931 37,590 Share of sales of joint venture companies 1,963 1,764 4,478,980 4,194, COST OF REVENUE Employee costs 847, ,059 Travel related expenses (net of recoveries) 748, ,161 Application software 105,806 88,305 Professional fees 81, ,885 Contract acquisition cost (refer Note 21) 3,197-1,787,200 1,566, SELLING AND MARKETING EXPENSES Employee costs 206, ,351 Travelling expenses 142, ,236 Professional fees 122, ,810 Advertising expenses 41,870 59,683 Rent 39,685 24,579 Communication expenses 16,606 4,723 Seminar expenses 8,837 9,660 Power 4,105 1,189 Miscellaneous expenses 62,373 83, , ,726

14 13 GENERAL AND ADMINISTRATIVE EXPENSES Nine months ended Year ended December 31, 2002 March 31, 2002 Employee costs 214, ,073 Communication expenses 95,703 72,507 Rent 67,232 93,530 Exchange loss other than on sales, net 58,947 - Professional fees 31,093 23,966 Travelling expenses 20,088 77,516 Power 27,365 30,342 Advertising 5,643 2,274 Finance charge on leased assets 1,778 2,577 Loss on retirement/sale of fixed assets, net Provision for doubtful debts, net (18,755) 43,276 Provision for doubtful advances 7,253 - Miscellaneous expenses 76, , , , INTEREST INCOME Interest -Bank Deposits 148,745 61,170 (Includes tax deducted at source of Rs 13,171 (March ,263) -Bonds 1,921 2,550 -Loans to employees 1,801 2, ,467 66, OTHER INCOME Exchange gain other than on sales,net - 30,502 Profit on retirement/sale of fixed assets,net Dividend on current investments - 3,311 Miscellaneous income Share of other income of joint venture companies 788 2,390 33, PROVISION FOR TAXATION Domestic taxes 133,000 49,307 Subsidiary taxes 3,928 - Foreign taxes 51, ,119 Deferred tax income relating to origination and reversal of temporary timing differences (5,288) (6,089) 183, ,337 Under the Indian Income-tax Act, 1961, for the year ended March 31, 2003, the Company is eligible to claim benefits with respect to 90% as against 100% till last year of the profits earned from export revenues from its five units registered under the Software Technology Parks ('STP') and one unit forming part of a Special Economic Zone ('SEZ') in India. The benefit as per the current tax laws is restricted to 10 consecutive assessment years, beginning with the assessment year relevant to the previous year in which the Company commences operations from each location. These benefits will expire for certain of the Company's units beginning from April 1, Foreign taxes are towards income taxes payable overseas in the United States of America, Malaysia, United Kingdom and Singapore.

15 17 COMMITMENTS (a) Capital commitments Contracts remaining to be executed on capital account and not provided for (net of advances) aggregate Rs 449,626 as at December 31, 2002 (March 31, 2002 Rs 139,594 ) (share of joint venture - Rs Nil, March Rs Nil) (b) Lease commitments (i) Finance leases The Group takes vehicles under finance leases of upto five years. Future minimum lease payments under finance leases as of December 31, 2002 and March 31, 2002 are as follows: As at December 31, 2002 Principal Interest Total Not later than one year 5,165 1,646 6,811 Later than one year and not later than five years 7,824 1,518 9,342 Total minimum payments 12,989 3,164 16,153 As at March 31, 2002 Not later than one year 6,035 2,035 8,070 Later than one year and not later than five years 10,018 1,928 11,946 Total minimum payments 16,053 3,963 20,016 (ii) Operating leases The Group has taken certain office premises and residential premises for employees under operating leases, which expire at various dates through to Gross rental expense for the period ended December 31, 2002 aggregated to Rs 85,114 (March 31, Rs 100,381) The minimum rental payments to be made in future in respect of these leases are as follows: As at December 31, 2002 Amount Not later than one year 103,060 Later than one year and not later than five years 154,862 Later than five years 60,005 Share of joint venture included in above is as follows: Not later than one year - Later than one year and not later than five years - Later than five years - As at March 31, 2002 Not later than one year 88,770 Later than one year and not later than five years 160,210 Later than five years 32,062 Share of joint venture included in above is as follows: Not later than one year 1,124 Later than one year and not later than five years 387 Later than five years - 18 SEGMENT INFORMATION Business segments are defined as components of an enterprise 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 Group is organised geographically and by business segment. For management purposes the Group is primarily organised on a worldwide basis into two business segments: a) Product licenses and related activities and b) IT solutions and consulting services. The segments are the basis on which the Group reports its primary operational information to management. Product licenses and related activities segment deals with banking software products like the FLEXCUBE suite of products and Microbanker which cater to needs of corporate, retail and investment banking as well as treasury operations and datawarehousing 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 subsegments i.e. Business intelligence, Customer relationship management, Brokerage, e- commerce, Internet services and IT and Business consulting. The activities of the joint ventures are separately monitored and disclosed as a separate segment.

16 Period ended December 31, 2002 Product license and related activities IT solutions and consulting services Joint ventures Corporate Eliminations Total Particulars Revenues External revenue 2,817,740 1,656,346 1, ,476,049 Inter-segment revenue 11 1,403 - (1,414) - Net exchange gain arising on sales 1,846 1, ,931 Total revenue 2,819,597 1,658,834 1,963 - (1,414) 4,478,980 Cost of Revenues (711,689) (1,075,511) (1,787,200) Gross profit 2,107, ,323 1,963 - (1,414) 2,691,780 Selling and marketing expenses (576,921) (68,110) (58) - - (645,089) General and administrative expenses (185,406) (159,465) (12,116) (230,148) - (587,135) Depreciation and amortisation (37,183) (55,465) (4,855) (10,684) - (108,187) Inter segment expense - - (1,414) - 1,414 - Income from operations 1,308, ,283 (16,480) (240,832) - 1,351,369 Provision for diminution in value of investments, net 2,318 Profit on sale of investment 35 Interest income 152,467 Other income 2,390 Income before provision for income taxes 1,508,579 Provision for income taxes (183,136) Net income 1,325,443 Other information Segment assets 1,139,384 1,116,015 17,357 6,223,969-8,496,725 Segment liabilities 325, ,289 7, , ,616 Share capital and reserves and surplus ,718,109 Depreciation 37,183 55,465 4,855 10, ,187 Capital expenditure by segment 18,627 30,213 2,179 13,477-64,496 Year ended March 31, 2002 Product license and related activities IT solutions and consulting services Joint ventures Corporate Eliminations Total Particulars Revenues External revenue 2,506,119 1,649,299 1, ,157,182 Inter-segment revenue 226 4, (4,910) - Net exchange gain arising on sales 22,502 15, ,590 Total revenue 2,528,847 1,669,071 1,764 - (4,910) 4,194,772 Cost of Revenues (625,375) (941,035) - - (1,566,410) Gross profit 1,903, ,036 1,764-2,628,362 Selling and marketing expenses (556,500) (43,226) (599,726) General and administrative expenses (199,104) (221,232) (27,222) (194,499) - (642,057) Depreciation and amortisation (50,638) (82,122) (10,018) (13,644) - (156,422) Inter segment expense - - (4,910) - 4,910 - Income from operations 1,097, ,456 (40,386) (208,143) 4,910 1,230,157 Provision for diminution in value of investments,net 24,172 Loss on sale of investment (51,500) Interest income 66,672 Other income 33,827 Provision for income taxes (150,337) Net profit 1,152,991 Other information Segment assets 1,328,485 1,181,596 35,558 2,895,024 5,440,663 Segment liabilities 309,695 94,676 18, , ,570 Share capital and reserves and surplus ,712,093 4,712,093 Depreciation 50,638 82,122 10,018 13, ,422 Capital expenditure by segment 51, ,269 10,883 66, ,979

17 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 can not be allocated between the segments are shown as part of corporate assets.

18 19 RELATED PARTY TRANSACTIONS The Group has entered into transactions with various Citibank branches, Citicorp Information Technology, Inc ('CITI'), e-serve International Limited ('e-serve') and Orbitech and its subsidiary,orbitech Solutions Limited (OSL). Citigroup is the Promoter for each of these entities including i-flex. The Company has also entered into transactions with the ESPS Trust in which i-flex has controlling interest and/or significant influence. The key managerial personnel comprise of the Chairman and Managing Director, Chief Executive Officer- International Operations and Technology, Chief Executive Officer - India Operations, Chief Financial Officer and Company Secretary, Chief of Staff and the operational heads of various groups, which includes Quality Management and Training, Infrastructure and Support, Banking Products, Product marketing, Global sales, IT services and Human resources. The related party transactions,other than disclosed elsewhere in the financial statements, have been summerised below: a) Revenue Banking product revenues Nine months ended Year ended December 31, 2002 March 31, 2002 Citibank branches 793, ,669 CITI 11,798 3,300 e-serve , ,138 IT solutions and consulting services revenue Citibank branches 1,126, ,343 CITI - 673,370 e-serve ,126,873 1,253,734 Interest received on loans given to key managerial personnel b) Expenses Communication expenses paid to Citigroup Global Technology Infrastructure 38,296 - Remuneration to key management personnel 58,342 27,912 (Comprises of salary,bonus and perquisites) Remuneration to non whole time Directors 10,400 - Finance lease payments to e-serve (Principal and interest) 4,531 7,136 Professional fees paid to OSL for software development 1,849 25,155 Provision for doubtful debts for Citibank branches (1,221) 1,221 Bank charges paid to Citibank branches 2,027 1,852 Rent paid for flat taken on lease from relative of key managerial personnel ,310 63,574

19 c) Assets December 31, 2002 March 31, 2002 Amounts due on account of revenues Citibank branches 537, ,836 (net of provision for doubtful debts of Rs Nil (March Rs 1,221) CITI 33, , , ,597 Loans outstanding i-flex ESPS Trust 269, ,649 Key managerial personnel 4,000 4, , ,533 Repayment of loan during the period/year i-flex ESPS Trust 22,583 8,549 Key managerial personnel 844 1,703 23,427 10,252 Bank balances with Citibank branches Currrent accounts 1,021, ,681 Deposits 101,500 90,000 1,123, ,681 Interest accrued on fixed deposits Citibank branches d) Liabilities Amounts due to related parties e-serve towards lease obligations repayable (principal and interest) 9,098 14,896 OSL towards professional services 1,627 1,427 10,725 16,323 Deferred revenue from related parties Citibank branches 4,250 7,896 e -Serve ,250 7,938 e) Other transactions Payment of dividends Orbitech 20,148 20,148 Non-wholetime directors Key managerial personnel Relatives of key managerial personnel 8 8 ESPS Trust 3,921 4,505 24,476 24,901

20 20 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 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. b) The Securities and Exchange Board of India ( SEBI ) has recently 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. 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 have 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 2,376,800 options to the employees and directors of the Company. According to the ESOP the Company has granted 2,274,460 options (inclusive of 650,200 options to key managerial personnel and 330,000 options to a director) to the eligible employees and directors of the Company and its subsidiaries at an exercise price, which equates the issue price determined through the book-building procedure. 20% of the total options granted under the Scheme will vest to the eligible employees and directors only on the completion of 12, 24, 36, 48 and 60 months respectively and is subject to the continued employment of the employee or director with the Company or its subsidiaries.accordingly none of these options have been vested as of December 31, As per the terms of 'the Scheme',the exercise price equates the price determined for the IPO through the book building process. Accordingly no compensation cost has been recorded, as the exercise price equals the fair value of the shares on the date of the IPO. CONTRACT ACQUISITION COST On December 3, 2002 the Group acquired two IT consulting service contracts and 51 employees working on these contracts from Silverline Technologies Limited and its subsidiary, Silverline Technologies Inc. ( Silverline Group ) for a total consideration of Rs 35,176, which includes a cash payment made to/behalf of the Silverline Group and the assumption of certain employee related liabilities of the Silverline Group. The Group has accounted for the above transaction as a purchase. The purchase consideration of Rs 35,176 is fully allocated to the contracts and accordingly, there is no goodwill resulting from the transaction. The consideration allocated to the contracts is charged to Cost of Revenues on a straight line basis over the remaining contract term of 11 months. Accordingly, Rs 3,197 has been included as part of Cost of Revenues and Rs 31,979 is carried as deferred contract acquisition cost and included in other current assets.

21 22 Summary of interest in joint ventures The Company has two joint ventures, DotEx (49%) and Flexcel (40%). During the period, the Company has diluted its equity in Flexcel by 9.49%. This dilution of equity holding in Flexcel has resulted in a capital appreciation of Rs 2,536 which has been included as a part of reserves and surplus. As described in Note 2(a), the consolidated financial statements include proportionate amount of assets, liabilities, income and expenditure relating to the joint venture companies. The summary of proportionate assets, liabilities, income and expenses (including intra group cost of sales) consolidated with financial statements of the Company are as follows: Proportionate assets and liabilities DotEx Flexcel December 31, 2002 March 31, 2002 December 31, 2002 March 31, 2002 (unaudited) (unaudited) (unaudited) (unaudited) Fixed assets Cost 11,523 17,431 8,294 7,568 Less: Accumulated depreciation 9,497 11,233 3,011 1,853 Net book value 2,026 6,198 5,283 5,715 Capital work-in-progress and advances 2, ,026 8,662 5,283 5,715 Current assets, loan and advances Sundry debtors Cash and bank balances 841 2,501 7,041 4,186 Other current assets Loans and advances 508 2,175 1,640 12,300 1,367 4,695 8,681 16,486 Less: Current liabilities and provisions Current liabilities 3,667 6,311 4,221 11,840 Provisions ,688 6,332 4,221 11,840 Net current assets (2,321) (1,637) 4,460 4,646 NET ASSETS (295) 7,025 9,743 10,361 Proportionate income and expenses for the period ended REVENUES Sales 1,963 1, Other income , ,253 1,851 1, EXPENDITURE General and administrative expenses 10,441 19,514 3,868 7,708 Depreciation 3,051 8,166 1,804 1,852 13,492 27,680 5,672 9,560 Profit before tax (11,239) (25,829) (4,301) (9,292)

22 23 AGGREGATE EXPENSES Following are the aggregate amounts incurred on certain specific expenses that are required to be disclosed under Schedule VI to the Companies Act, 1956: Nine months ended Year ended December 31, 2002 March 31, 2002 Salaries and bonus 1,157,012 1,049,547 Staff welfare expenses 55,048 45,397 Contribution to provident and other funds 56,739 50,539 Travel related expenses (net of recoveries) 910, ,913 Professional fees 235, ,661 Communication expenses 112,309 77,229 Application software 109,681 92,991 Rent 106, ,109 Advertising 47,514 61,959 Power 31,470 31,531 Exchange loss other than on sales,net 58,947 - Insurance 9,530 5,950 Repairs and maintenance: - Leasehold premises 1, Computer equipments 9,210 12,010 - Others 7,505 9,388 Rates and taxes 8,196 4,274 Finance charge on leased assets 1,778 2,577 Loss on retirement/sale of fixed assets, net 343 Provision for doubtful debts, net (18,755) 51,652 Provision for doubtful advances 7,253 - Contract acquisition cost 3,197 - Miscellaneous expenses 108, ,428 3,019,424 2,808, PRIOR PERIOD COMPARATIVES Prior period amounts have been audited by a firm of chartered accountants other than M/s S. R. Batliboi & Associates and have been reclassified, where necessary to conform with current period's presentation.