i-flex Solutions Limited BALANCE SHEET AS AT DECEMBER 31, 2002, DECEMBER 31, 2001 AND MARCH 31, 2002 (All amounts in thousands of Indian rupees)

Transcription

1 i-flex Solutions Limited BALANCE SHEET AS AT DECEMBER 31, 2002, DECEMBER 31, 2001 AND MARCH 31, 2002 (All amounts in thousands of Indian rupees) Note December 31, 2002 December 31, 2001 March 31, 2002 SOURCES OF FUNDS SHAREHOLDERS' FUNDS Share capital 3 186, , ,777 Reserves and surplus 4 7,766,028 3,917,711 4,686,198 7,952,605 4,084,093 4,855,975 APPLICATION OF FUNDS FIXED ASSETS 2(c) & 5 Cost 859, , ,031 Less: Accumulated depreciation 604, , ,898 Net book value 254, , ,133 Capital work-in-progress and advances 189,332 17,317 2, , , ,545 INVESTMENTS 2(d) & 6 203, , ,868 DEFERRED TAX ASSETS 7 29,946-24,860 CURRENT ASSETS, LOANS AND ADVANCES 8 Sundry debtors 2,199,528 1,778,838 1,955,786 Cash and bank balances 5,180,813 1,487,113 2,214,842 Other current assets 95,431 10,437 11,274 Loans and advances 783, , ,856 8,259,763 4,102,650 4,974,758 Less: CURRENT LIABILITIES AND PROVISIONS 9 Current liabilities 879, , ,689 Provisions 105,452 43, , , , ,056 NET CURRENT ASSETS 7,274,788 3,647,934 4,323,702 The accompanying notes 1 to 23 are an integral part of the balance sheet. 7,952,605 4,084,093 4,855,975

2 i-flex Solutions Limited STATEMENT OF PROFIT AND LOSS FOR THE NINE MONTH PERIODS ENDED DECEMBER 31, 2002 AND DECEMBER 31, 2001 AND YEAR ENDED MARCH 31, 2002 (All amounts in thousands of Indian rupees) Nine months ended Nine months ended Year ended Note December 31, 2002 December 31, 2001 March 31, 2002 REVENUES 2(e) & 10 4,187,960 2,940,201 4,150,257 Cost of Revenues 11 (1,784,764) (1,068,267) (1,566,410) (excluding depreciation and amortisation) Gross profit 2,403,196 1,871,934 2,583,847 Selling and marketing expenses 12 (315,870) (363,672) (481,343) General and administrative expenses 13 (506,086) (436,026) (614,898) Depreciation and amortisation 2(c) & 5 (96,845) (96,741) (144,985) INCOME FROM OPERATIONS 1,484, ,495 1,342,621 (Provision)/reversal for dimunition in value of investment, net (39,944) (25,992) 24,172 Profit/(Loss) on sale of investment 35 - (51,500) Interest income ,540 47,258 66,415 Other income 15 1,287 26,088 36,035 INCOME BEFORE PROVISION FOR INCOME TAXES 1,598,313 1,022,849 1,417,743 Provision for income taxes 2(k) & 16 (179,410) (113,848) (150,135) NET INCOME 1,418, ,001 1,267,608 Profit and loss account, beginning of the period/year 90, , ,905 1,509,772 1,028,906 1,387,513 Transfer to general reserve - - (1,250,000) Proposed dividend - - (46,644) Balance carried to Balance Sheet 1,509,772 1,028,906 90,869 Earnings per share of Rs 5/- each Basic and Diluted (in Rs) for the period/year 2(l) Weighted average number of shares used in computing earnings per share Basic and Diluted 36,276,855 33,276,400 33,328,488 The accompanying notes 1 to 23 are an integral part of the statement of profit and loss.

3 i-flex Solutions Limited STATEMENT OF CASH FLOW FOR THE NINE MONTH PERIODS ENDED DECEMBER 31, 2002 AND DECEMBER 31,2001 AND YEAR ENDED MARCH 31, 2002 (All amounts in thousands of Indian rupees) Nine months ended Nine months ended Year ended December 31, 2002 December 31, 2001 March 31, 2002 Cash flows from operating activities Income before provision for income taxes 1,598,313 1,022,849 1,417,743 Adjustments to reconcile income before provision for income taxes to cash provided by operating activities : Depreciation and amortisation 96,845 96, ,985 (Profit)/loss on retirement/sale of fixed assets, net (448) (Profit)/oss on sale of investment (35) - 51,500 Provision for diminution in the value of investments, net 39,944 25,993 (24,172) Interest income (152,540) (47,258) (66,415) Dividend income - (3,311) (3,311) Effect of exchange difference on cash and bank balances 24,529 (20,084) (26,280) Finance charge on leased assets 1,778 1,808 2,577 Provision for doubtful advances 7, Provision for doubtful debts, net (18,755) (1,429) - 54,232 43, ,503 1,596,884 1,077,081 1,540,246 Changes in assets and liabilities Increase in sundry debtors (224,986) (588,348) (808,599) Increase in loans and advances (50,849) (50,047) (46,554) Increase/(decrease) in current liabilities and provisions 378, ,672 (78,383) (716,778) 49,938 (805,215) Cash from operating activities 1,699, , ,031 Payment of domestic and foreign income taxes (163,061) (133,273) (145,248) Net cash from operating activities 1,536, , ,783 Cash flows from investing activities Additions to fixed assets including capital work in progress (250,439) (133,601) (230,530) Proceeds from sale of fixed assets Investments in bank fixed deposits having maturity of more than 90 days (1,875,000) - (1,150,000) Investment in subsidiaries (24,380) - (55,295) Purchase of investments (131) (45,000) (45,000) Proceeds from sale of investment 2,504-48,500 Investment in Joint ventures - - (24,598) Refund of share application money from joint venture 9, Payment of share capital application money for investment in joint venture (7,350) (54,218) (29,620) Interest received 75,993 43,560 61,880 Dividends received - 3,311 3,311 Net cash (used in) investing activities (2,069,220) (185,741) (1,421,145) Cash flows from financing activities Proceeds from Initial Public Offering ('IPO') 1,780, Payment of IPO related expenses (103,073) - - Proceeds from private placement of shares ,350 Repayment of loan from Employee Stock Purchase Scheme ('ESPS') Trust 22,583 3,235 8,549 Payment of dividend (46,644) (41,596) (41,596) Payment of corporate dividend tax - (4,243) (4,243) Payment for lease obligations (5,930) (5,333) (7,683) Net cash (used)/provided by financing activities 1,647,736 (47,937) 396,377 Effect on exchange difference on cash and bank balances (24,529) 20,084 26,280 Net increase/(decrease) in cash and cash equivalents 1,090,482 13,436 (408,705) Cash and cash equivalents at beginning of the period/year 1,062,893 1,471,598 1,471,598 Cash and cash equivalents at end of the period/year 2,153,375 1,485,034 1,062,893

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) 5,180,813 1,487,113 2,214,842 Less: Bank deposits having maturity of more than 90 days (3,025,000) - (1,150,000) Unclaimed dividend account (2,438) (2,079) (1,949) 2,153,375 1,485,034 1,062,893 The accompanying notes 1 to 23 are an integral part of this statement

5 i-flex Solutions Limited NOTES TO THE FINANCIAL STATEMENTS FOR NINE MONTH PERIODS ENDED DECEMBER 31, 2002 AND DECEMBER 31, 2001 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, The Company s principal shareholder is OrbiTech Limited ( Orbitech ) 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 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 chares of the Company were listed on the National Stock Exchange of India 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 per cent joint venture company incorporated in June 2000 under the Indian laws; Flexcel International Private Limited ( Flexcel ), a 40 per cent owned joint venture company incorporated in March 2001 under Indian laws; 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 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. 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 significant accounting policies adopted by the Company, in respect of the financial statements are set out below.

6 (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 end. 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 Company 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 Company 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 Company, 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. % (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. (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 - 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.

7 (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 are recorded at the exchange rates prevailing on the date of the transaction. Foreign currency denominated assets and liabilities are translated into rupees at the rates of exchange prevailing at the date of the balance sheet. 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 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.

8 (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 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. During the prior year ended March 31, 2002, the Company had adopted accounting standard no 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 6,291 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) 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/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 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 3 SHARE CAPITAL December 31, 2002 December 31, 2001 March 31, 2002 (a) (b) Authorised 100,000,000 equity shares of Rs 5/- each (December ,000,000 equity shares of Rs 10/- each) (March ,000,000 equity shares of Rs 5/- each) 500, , ,000 Issued, subscribed and paid-up 37,315,400 equity shares of Rs 5/- each, fully paid up (December ,638,200 equity shares of Rs 10/- each) (March ,955,400 equity shares of Rs 5/- each) 186, , ,777 Of the above, 24,784,300 equity shares of Rs 5/- each (December ,392,150 equity shares of Rs 10/- each and March ,784,300 equity shares of Rs 5/- each) have been issued as fully paid up bonus shares by capitalising the share premium account. 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 has been divided into 100,000,000 equity shares of Rs 5/- each and the issued, subscribed and paid-up capital of Rs 166,382 has been divided into 33,276,400 equity shares of Rs 5/- each. (c) On March 04, 2002, the Company 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 2,720,000 Opening deferred tax credit (Refer Note 2(k)) ,569 Transferred from profit and loss account - - 1,250,000 Balance, end of period/year 3,988,569 2,720,000 3,988,569 Share premium Balance, beginning of period/year 606, , ,805 Received during the period/year 1,764, ,955 Utilised towards share issue expenses (103,073) - - Balance, end of period/year 2,267, , ,760 Profit and loss account 1,509,772 1,028,906 90,869 7,766,028 3,917,711 4,686,198 (THIS SPACE INTENTIONALLY LEFT BLANK)

10 5 FIXED ASSETS Particulars As at Additions during the period Gross Block Depreciation Written Down Value Sale/deletions for the period As at As at For the period On Sale/deletions for the period As at As at As at As at Freehold Land 44, , ,734-44,734 Improvement to leasehold premises 82, ,556 47,856 9,178-57,034 26,522 32,325 34,837 Buildings* 7, ,116 3, ,657 3,459 4,069 3,897 Computer equipment 395,810 40,407 1, , ,785 52,014 1, ,745 81,140 99,848 93,025 Electrical and office equipment 142,742 4, ,749 79,762 17, ,797 49,952 48,785 62,980 Furniture and fixtures 116, ,783 65,906 13, ,234 37,549 47,823 50,140 Leased vehicles 26,890 2,447 3,637 25,700 12,370 4,577 2,883 14,064 11,636 15,183 14,520 TOTAL 816,031 48,840 5, , ,898 96,845 4, , , , ,133 As at , ,746 3, , ,352 96,741 2, ,765 As at , ,045 4, , , ,985 2, ,898 * Includes 10 shares of Rs 50/- each in Takshila Building No.9, Co-op Housing Society Ltd. Capital work-in-progress and advances 189,332 17,317 2, , , ,545

11 6 INVESTMENTS December 31, 2002 December 31, 2001 March 31, 2002 a) Long term investments (unquoted) (i) Trade investments Times Online Money Limited Nil (December ,333,333 equity shares of Rs 10/- each, fully paid up and March Nil) - 100,000 - Less: Provision for diminution in value of investment - (50,000) ,000 - DotEx International Limited (Note a) 49,000 24,500 49,000 4,900,000 equity shares of Rs 10/- each, fully paid-up (December ,450,000 and March ,900,000) Less: Provision for diminution in value of investment (42,263) - - 6,737 24,500 49,000 EBZ Online Private Limited (Note b) 45,000 45,000 45, ,260 equity shares of Rs 10/- each, fully paid-up (December 2001 and March ,260) Flexcel International Private Limited (Note c) 20, ,68,000 equity shares of Rs 10/- each, fully paid-up (December Nil and March ,800) (ii) Non-trade investments Eastern Software Systems Limited (Note b) 7,406 9,875 9, ,283 equity shares of Rs 10/- each, fully paid-up (December 2001 and March ,711) 12.75% KEONICS Mahiti Bonds Series-1 (Note d) 20,000 20,000 20, Bonds of Rs 50,000/- each fully paid (December 2001 and March ) National Savings Certificate (December 2001 and March Nil) (iii) In subsidiaries i-flex solutions b.v. (Note e) 25, a wholly owned subsidiary company incorporated in The Netherlands 5,185 equity shares of Euro 100/- each, fully paid-up (December 2001 and March ) i-flex solutions Pte Limited (Note f) 6,626-6,626 a wholly owned subsidiary company incorporated in Singapore 250,000 equity shares of Singapore $ 1/- each fully paid up (December Nil and March ,000) i-flex solutions inc. (Note g) 48,669-48,669 a wholly owned subsidiary company incorporated in the United States of America 100 equity shares of US$ 0.01 cent each fully paid up (December Nil and March ) 180, , ,007 b) Current investments (non-trade, quoted) Unit Trust of India Scheme (US-64) (Note h) 50,000 50,000 50,000 3,311,258 units (and 278 fractions) of Rs 10/- each {December 2001 and March ,311,258 units (and 278 fractions)} Less: Excess of cost over market value (26,821) (29,305) (29,139) 23,179 20,695 20, , , ,868 Aggregate cost of quoted investments 50,000 50,000 50,000 Aggregate market value of quoted investments 23,179 20,695 20,861 Aggregate amount of unquoted investments 180, , ,007

12 Note a DotEx is 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 has set up a Broker s Plaza, which enables NSE brokers and their clients to transact in a stock market through the Web. The original revenue model of DotEx has not been met due to continued sluggishness in the Indian Capital markets and the substantial reduction in the trading volumes. As per the unaudited financial statements as at December 31, 2002, DotEx has incurred accumulated losses of Rs million which have substantially eroded its net worth. Management is of the view that fair value of its investment in DotEx has declined as a result. However, the Board of Directors of DotEx is exploring various alternatives to monetise the intellectual property developed by DotEx which may recover the Company s investment to some extent. Accordingly considering the uncertainty about the future profitability of DotEx and the expected value to which the intellectual property developed by DotEx could be monetised, management has provided Rs million as other than temporary diminution in the value of its aggregate investment of Rs 56.3 million in DotEx (including share application money of Rs 7.35 million disclosed under loans and advances in note 8(d)). Note b 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 i-flex to integrate the selected and adapted software provided under i-flex s products with BTPL s products for Cooperative 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 December 31, 2002, Flexcel had incurred accumulated losses of Rs 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 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 e 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 as well as work on the business development efforts in the region. Management believes that the accumulated losses as per the unaudited financial statements as at December 31, 2002 of Euro 2.94 million (approximately Rs 112 million) are in the nature of start up losses and that i-flex b.v. is expected to earn profits in the near future. Accordingly, management does not consider that there is any dimunition in the value of its investment in i-flex b.v. and is stated at cost. Note f 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 as well as work on the business development efforts in the region. Note g i-flex inc was incorporated as a 100% subsidiary in the United States of America to undertake marketing of the Company's software products and provide software and related services to clients in American region as well as work on the business development efforts in the region. Management believes that the accumulated losses as per the unaudited financial statements as at December 31, 2002 of US$ 1.79 million (approximately Rs million) are in the nature of start up losses and that i-flex Inc. is expected to earn profits in the near future. Accordingly, management does not consider that there is any dimunition in the value of its investment in i-flex inc. and is stated at cost. Note h Units in US-64 are valued at the closing market price on the National Stock Exchange as at December 31, DEFERRED TAX ASSETS December 31, 2002 December 31, 2001 March 31, 2002 Difference between book and tax depreciation 29,946-24,826 Preliminary expenses written off in books ,946-24,860

13 8 CURRENT ASSETS, LOANS AND ADVANCES December 31, 2002 December 31, 2001 March 31, 2002 (a) Sundry debtors (unsecured) Debts outstanding for a period exceeding six months: -Considered good 434, , ,944 -Considered doubtful 28,780 2,602 47, , , ,480 Other debts - considered good 1,764,864 1,548,991 1,832,842 2,228,308 1,781,440 2,003,322 Less: Provision for doubtful debts (28,780) (2,602) (47,536) 2,199,528 1,778,838 1,955,786 Debtors include unbilled revenues of 76,561 16,689 9,363 Amount due from subsidiaries 1,267, , ,945 (b) Cash and bank balances Cash in hand Balances with scheduled banks in: -Current accounts in foreign currency 1,806, , ,335 -Deposit accounts 1,878, ,582 1,389,189 -Deposit amount of unutilised IPO funds 1,403, Unclaimed dividend account 2,438 2,079 1,949 -Other current accounts 89,602 54,083 33,346 Balances with non scheduled banks: -Current accounts in foreign currency - 22,152 26,565 5,180,813 1,487,113 2,214,842 Balances with non scheduled banks -in current accounts in foreign currency -Citibank NY Rep office, USA - 4,455 14,344 -Citibank NY, USA - 12,874 9,613 -Citibank, Singapore (US$ account) - 2, Citibank, Singapore (Singapore$ account) Citibank, Argentina - 1,865 1,884-22,152 26,565 Maximum balance held during the period/year: -in current accounts in foreign currency -Citibank NY Rep office, USA 14,344 16,689 16,688 -Citibank NY, USA 10,791 15,327 15,327 -Citibank, Singapore (US$ account) 370 2,958 2,859 -Citibank, Singapore (Singapore$ account) 354-1,341 -Citibank, Argentina 1,884 1,865 1,884 (c) Other current assets Interest accrued on : -Bank deposits 85,147 7,772 10,430 -Bonds 2,375 2, Loan to subsidiaries Contract acquisition cost (Refer Note 21) 7, ,431 10,437 11,274 (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) 9,608 19,093 17,687 Loans to subsidiaries 27,491 3,119 3,115 Deposits 351, , ,234 Prepaid expenses 80,393 85,348 92,627 Share application money 7,350 54,218 29,620 Amount due from subsidiary - - 1,431 Other advances (includes advance of Rs 7,253 considered doubtful) 45,827 43,812 30,493 (March 31, Nil and December 31, Nil) Less: Provision for doubtful advances (7,253) , , ,856

14 December 31, 2002 December 31, 2001 March 31, 2002 Share application money comprises of amounts paid to: -DotEx International Limited 7,350 24, Flexcel International Private Limited - 29,718 29,620 7,350 54,218 29,620 9 CURRENT LIABILITIES AND PROVISIONS (a) Current liabilities Accrued expenses 373, , ,464 Amounts due to subsidiaries 287,213-4,608 Deferred revenues 120,395 89, ,523 Advances from customers 29,557 12,742 5,428 Finance lease obligations 12,989 16,752 16,053 Accounts payable 2,477 3,335 40,448 Unclaimed dividends 2,438 2,079 1,949 Other current liabilities 50,464 36,612 33, , , ,689 Amounts due to Small Scale Industrial undertakings (b) Provisions Proposed dividend ,644 Provision for leave encashment 17,872 7,845 9,898 Provision for taxation, net of advance payment of taxes Rs 262,941 (December Rs 145,328 and March Rs 150,839) 87,580 36,027 65, ,452 43, , REVENUES Nine months ended Nine months ended Year ended December 31, 2002 December 31, 2001 March 31, 2002 Product licenses and related activities 2,735,287 1,773,751 2,461,948 IT solutions and consulting services 1,477,652 1,141,086 1,650,719 Exchange (loss)/gain arising on sales, net (24,979) 25,364 37,590 4,187,960 2,940,201 4,150, COST OF REVENUES Employee costs 847, , ,059 Travel related expenses (net of recoveries) 748, , ,161 Application software 105,806 45,662 88,305 Professional fees 81,769 81, ,885 Contract acquisition cost (Refer Note 21) ,784,764 1,068,267 1,566, SELLING AND MARKETING EXPENSES Travelling expenses 116, , ,649 Professional fees 80,645 79, ,810 Employee costs 58,591 78, ,664 Advertising expenses 25,783 36,166 42,268 Seminar expenses 8,837 9,577 9,660 Power 3,982 3,065 4,574 Rent 4,701 3,410 4,270 Communication expenses 1, ,186 Miscellaneous expenses 15,109 40,685 30, , , ,343

15 13 GENERAL AND ADMINISTRATIVE EXPENSES Nine months ended Nine months ended Year ended December 31, 2002 December 31, 2001 March 31, 2002 Communication expenses 94,317 51,449 69,801 Rent 65,765 71,326 92,945 Professional fees 31,580 22,044 23,966 Power 27,365 22,112 29,821 Exchange loss other than on sales, net 26, Travelling expenses 20,088 61,833 77,099 Provision for doubtful advances 7, Advertising 5,643 2,197 2,274 Finance charge on leased assets 1,778 1,808 2,577 Loss on retirement/sale of fixed assets,net Provision for doubtful debts,net (18,755) - 43,276 Employee costs 172, , ,171 Miscellaneous expenses 71,528 81,357 91, , , , INTEREST INCOME Interest on: -Bank deposits 148,394 42,934 60,717 (includes tax deducted at source of Rs 13,171) (December Rs 7,428 and March Rs 11,263) -Bonds 1,921 1,921 2,550 -Loans to employees 1,771 2,228 2,915 -Loan to subsidiaries ,540 47,258 66, OTHER INCOME Exchange gain other than on sales, net - 21,137 32,710 Profit on retirement/sale of fixed assets, net Dividend on current investment - 3,311 3,311 Miscellaneous income 839 1, ,287 26,088 36, PROVISION FOR TAXATION Domestic taxes 133,000 32,782 49,307 Foreign taxes 51,496 81, ,119 Deferred tax income relating to origination and reversal of temporary timing differences (5,086) - (6,291) 179, , ,135 Under the Indian Income-tax Act 1961, for the year ending 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 Park ('STP') and one unit forming part of a Special Economic Zone ('SEZ'). The benefit as per the current tax laws is restricted to ten consecutive assessment years, beginning with the assessment year relevent 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 represents income taxes payable overseas in the United States of America, Malaysia, United Kingdom and Singapore.

16 17 COMMITMENTS (a) Capital commitments Contracts remaining to be executed on capital account and not provided for (net of advances) aggregates to Rs 449,626 as at December 31, 2002 (December Rs 70,928 and March Rs. 139,594). (b) Lease commitments (i) Finance leases The Company takes vehicles under finance leases of upto five years. Future minimum lease payments under finance leases as of December 31, 2002, December 31, 2001 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 December 31, 2001 Principal Interest Total Not later than one year 5,995 1,932 7,927 Later than one year and not later than five years 10,757 2,076 12,833 Total minimum payments 16,752 4,008 20,760 As at March 31, 2002 Principal Interest Total 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 Company has taken certain office premises and residential premises for employees under operating leases, which expire at various dates through to Gross rental expenses for the period ended December 31, 2002 aggregated to Rs 66,991 (December 31, Rs 72,699 and March 31, Rs 94,354) December 31, 2002 December 31, 2001 March 31, 2002 Not later than one year 79,175 68,134 73,762 Later than one year and not later than five years 89, , ,739 Later than five years 59,225 25,709 24, 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 Company is organised geographically and by business segment. For management purposes the Company 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 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 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 sub segments i.e. Business intelligence, Customer relationship management, Brokerage, e-commerce, Internet services and IT and Business consulting.

17 Period ended December 31, 2002 Particulars Product license and related activities IT solutions and consulting services Corporate Total Revenues 2,735,287 1,477,652-4,212,939 Net exchange loss arising on sales (16,218) (8,761) - (24,979) Total revenue 2,719,069 1,468,891-4,187,960 Cost of revenues (712,180) (1,072,584) - (1,784,764) Gross profit 2,006, ,307-2,403,196 Selling and marketing expenses (294,162) (21,708) - (315,870) General and administrative expenses (188,869) (156,152) (161,065) (506,086) Depreciation and amortisation (33,548) (52,613) (10,684) (96,845) Income from operations 1,490, ,834 (171,749) 1,484,395 Provision for dimunition in value of investment (39,944) Profit on sale of investment 35 Interest income 152,540 Other income 1,287 Income before provision for income taxes 1,598,313 Provision for income taxes (179,410) Net profit 1,418,903 Other information Segment assets 1,341,807 1,451,396 6,144,377 8,937,580 Segment liabilities 339, , , ,975 Share capital and reserves and surplus - - 7,952,605 7,952,605 Depreciation 33,548 52,613 10,684 96,845 Capital expenditure by segment 18,627 30,213-48,840 Period ended December 31, 2001 Particulars Product license and related activities IT solutions and consulting services Corporate Total Revenues 1,773,751 1,141,086-2,914,837 Net exchange gain arising on sales 15,435 9,929-25,364 Total revenue 1,789,186 1,151,015-2,940,201 Cost of revenues (420,971) (647,296) - (1,068,267) Gross profit 1,368, ,719-1,871,934 Selling and marketing expenses (336,364) (27,308) - (363,672) General and administrative expenses (93,875) (110,925) (231,226) (436,026) Depreciation and amortisation (32,035) (49,103) (15,603) (96,741) Income from operations 905, ,383 (246,829) 975,495 Provision for dimunition in value of investment (25,992) Interest income 47,258 Other income 26,088 Income before provision for income taxes 1,022,849 Provision for income taxes (113,848) Net profit 909,001 Other information Segment assets 1,261,913 1,096,074 2,180,822 4,538,809 Segment liabilities 189,926 88, , ,716 Share capital and reserves and surplus - - 4,084,093 4,084,093 Depreciation 32,035 49,103 15,603 96,741 Capital expenditure by segment 37,629 68,956 18, ,746

18 Year ended March 31, 2002 Particulars Product license and related activities IT solutions and consulting services Corporate Total Revenues 2,461,948 1,650,719-4,112,667 Net exchange gain arising on sales 22,502 15,088-37,590 Total revenue 2,484,450 1,665,807-4,150,257 Cost of revenues (625,375) (941,035) - (1,566,410) Gross profit 1,859, ,772-2,583,847 Selling and marketing expenses (455,797) (25,546) - (481,343) General and administrative expenses (192,846) (178,501) (243,551) (614,898) Depreciation and amortisation (50,638) (82,122) (12,225) (144,985) Income from operations 1,159, ,603 (255,776) 1,342,621 Provision for dimunition in value of investment 24,172 Loss on sale on investment (51,500) Interest income 66,415 Other income 36,035 Income before provision for Income taxes 1,417,743 Provision for income taxes (150,135) Net profit 1,267,608 Other information Segment assets 1,398,193 1,180,209 2,928,629 5,507,031 Segment liabilities 307,136 94, , ,056 Share capital and reserves and surplus - - 4,855,975 4,855,975 Depreciation 50,638 82,122 12, ,985 Capital expenditure by segment 51, ,269 56, ,045 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 group's consolidated sales by geographical market : Regions December 31, 2002 December 31, 2001 March 31, 2002 United States of America 1,460, ,045 1,333,498 Middle East and Africa 1,185, ,968 1,087,459 Asia Pacific 764, , ,848 Europe 771, , ,885 Latin America and Carribean 31,279 18,611 24,977 4,212,939 2,914,837 4,112,667 % % % Regions 35% 32% 32% United States of America 28% 26% 26% Middle East and Africa 18% 19% 21% Asia Pacific 18% 22% 20% Europe 1% 1% 1% Latin America and Carribean 100% 100% 100%

19 19 RELATED PARTY TRANSACTIONS The Company has entered into transactions with various Citibank branches, Citicorp Information Technology, Inc ('CITI'), e-serve International Limited ('e-serve') and OrbiTech Limited and its subsidiary, Orbitech Solution Limited ('OSL'). Citigroup is the promoter for each of these entities including i-flex. The Company has also entered into certain transactions with its joint venture companies Flexcel and DotEx, with its subsidiary companies, i-flex b.v, i-flex Pte, i-flex inc. and with i-flex Employee Stock Option Trust on 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 summarised below: a) Revenues Nine months ended Nine months ended Year ended December 31, 2002 December 31, 2001 March 31, 2002 Product license and related activities revenue Citibank branches 793, , ,669 i-flex b.v. 306, , ,999 i-flex inc. 171, i-flex Pte. 163,970-2,444 CITI 11,798 2,824 3,300 e-serve Flexcel DotEx ,447, , ,039 IT solutions and consulting services revenue i-flex inc. 776, Citibank branches 248, , ,125 i-flex Pte. 173,361-13,701 i-flex b.v. 7,132 11,552 14,941 DotEx 2,864 5,061 9,560 CITI - 514, ,370 e-serve ,208, ,711 1,277,477 Interest received on loans given to key managerial personnel b) Expenses Communication expenses paid to Citigroup Global Technology Infrastructure 38, Remuneration to key management personnel (Comprises of salary, bonus and perquisites) 21,553 25,457 27,912 Remuneration to non-wholetime Directors 10, Finance lease payments to e-serve (Principal and interest) 4,531 5,236 7,136 Professional fees paid to OSL for software development 1,696 20,557 25,155 Provision for doubtful debts for Citibank branches (1,221) - 1,221 Bank charges paid to Citibank branches 906 1,544 1,852 Rent paid for flat taken on lease from relative of key managerial ,247 52,880 63,574

20 c) Assets December 31, 2002 December 31, 2001 March 31, 2002 Amounts due on account of revenues i-flex solutions inc. 724, i-flex Pte. 234,826-15,987 i-flex b.v. 308, , ,207 Citibank branches [net of provision for doubtful debts of Rs Nil (December Nil and March Rs 1,221)] 204, , ,922 CITI 33, , ,761 DotEx 1,574 5,059 6,999 Flexcel ,507, ,641 1,079,012 Loans outstanding i-flex ESPS Trust 269, , ,649 i-flex inc. 23, Key managerial personnel 4,000 4,890 4,844 i-flex b.v. 3,666 3,119 3, , , ,608 Repayment of loan during the period/year i-flex ESPS Trust 22,583 3,235 8,549 Key managerial personnel 844 1,782 1,703 23,427 5,017 10,252 Bank balances with Citibank branches Current accounts 892, , ,681 Deposits 101, ,400 90, , , ,681 Interest accrued on fixed deposits Citibank, India 200 3, Purchase of Fixed assets from DotEx 2, Amount recoverable from i-flex Pte - - 1,431 d) Liabilities Amounts due to related parties e-serve towards lease obligations repayable (principal and interest) 9,098 16,884 14,896 i-flex pte on account of expenses 3, i-flex inc on account of expenses 280,483-4,608 i-flex b.v. on account of expenses 2, OSL towards professional services 1,627 15,985 1, ,938 32,869 20,931 Deferred revenue from related parties i-flex Pte. 10, i-flex inc. 1, i-flex b.v. 3,125 3,333 2,824 Citibank branches 4,250 13,782 7,896 e-serve Flexcel ,550 17,239 10,785 e) Other transactions Payment of dividends Orbitech 20,148 20,148 20,148 Non-wholetime Directors Key managerial personnel Relatives of key managerial personnel ESPS Trust 3,921 4,505 4,505 24,476 24,901 24,901

21 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 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. 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 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 to the fair value of the shares on the date of the IPO. 21 On December 3, 2002 the Company alongwith its subsidiaries 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 purchase consideration of Rs 8,369 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 761 has been included as part of cost of Revenues and Rs 7,608 is carried as deferred contract acquisition cost and included in other current assets.