i-flex Solutions Limited BALANCE SHEET AS AT SEPTEMBER 30, 2003 (All amounts in thousands of Indian rupees)

Transcription

1 i-flex Solutions Limited BALANCE SHEET AS AT SEPTEMBER 30, 2003 (All amounts in thousands of Indian rupees) Note September 30, 2003 March 31, 2003 SOURCES OF FUNDS SHAREHOLDERS' FUNDS Share capital 3 373, ,577 Reserves and surplus 4 8,734,096 7,985,628 9,107,471 8,172,205 APPLICATION OF FUNDS FIXED ASSETS 2(c) & 5 Cost 1,096, ,752 Less: Accumulated depreciation 679, ,412 Net book value 417, ,340 Capital work-in-progress and advances 153, , , ,723 INVESTMENTS 2(d) & 6 456, ,919 DEFERRED TAX ASSETS 7 33,434 31,446 CURRENT ASSETS, LOANS AND ADVANCES 8 Sundry debtors 3,288,979 2,499,083 Cash and bank balances 5,738,613 5,340,531 Other current assets 32,369 32,018 Loans and advances 876, ,721 9,936,585 8,665,353 Less: CURRENT LIABILITIES AND PROVISIONS 9 Current liabilities 1,857,178 1,254,826 Provisions 32, ,410 1,890,064 1,451,236 NET CURRENT ASSETS 8,046,521 7,214,117 9,107,471 8,172,205 The accompanying notes 1 to 24 are an integral part of the balance sheet.

2 i-flex Solutions Limited STATEMENT OF PROFIT AND LOSS FOR THE SIX MONTH AND THREE MONTH PERIODS ENDED SEPTEMBER 30, 2003 (All amounts in thousands of Indian rupees) Three months ended Six months ended Note September 30, 2003 September 30, 2003 REVENUES 2(e) & 10 1,688,523 3,311,512 Cost of revenues 11 (756,901) (1,486,639) GROSS PROFIT 931,622 1,824,873 Selling and marketing expenses 12 (104,323) (242,028) General and administrative expenses 13 (207,816) (445,202) Depreciation and amortisation 2(c) & 5 (25,591) (48,582) INCOME FROM OPERATIONS 593,892 1,089,061 Interest income 14 53, ,965 Other income/(expense) 15 5,271 (79,494) INCOME BEFORE PROVISION FOR INCOME TAXES 652,798 1,120,532 Provision for income taxes 2(k) & 16 (127,183) (196,943) NET INCOME 525, ,589 Profit and loss account, beginning of the period - 229,372 Amount available for appropriation 525,615 1,152,961 Dividend paid on ESOP shares allotted (32) (32) Corporate dividend tax (4) (4) Profit and loss account, end of the period 525,579 1,152,925 Weighted average earnings per share of Rs 5/- each (in Rs.) 2(l) & 21 Basic Diluted Number of shares used in computing earnings per share Basic 74,657,039 74,647,872 Diluted 76,840,607 76,831,440 The accompanying notes 1 to 24 are an integral part of the statement of profit and loss.

3 i-flex Solutions Limited STATEMENT OF CASH FLOW FOR THE SIX MONTH PERIOD ENDED SEPTEMBER 30, 2003 (All amounts in thousands of Indian rupees) Cash flows from operating activities Income before provision for income taxes 1,120,532 Adjustments to reconcile income before provision for income taxes to cash provided by operating activities : Depreciation and amortisation 48,582 Loss on retirement/sale of fixed assets, net 111 Loss on sale/conversion of Investments 72,299 Reversal for diminution in the value of investments, net (73,062) Interest income (110,965) Effect of exchange difference on cash and bank balances 54,281 Finance charge on leased assets 2,115 Provision for doubtful debts, net 40,115 33,476 1,154,008 Changes in assets and liabilities Increase in sundry debtors (830,011) Increase in loans and advances (97,371) Increase in current liabilities and provisions 593,587 (333,795) Cash from operating activities 820,213 Receipt of refund of previous assessment years 25,236 Payment of domestic and foreign income taxes (276,082) Net cash from operating activities 569,367 Cash flows from investing activities Additions to fixed assets including capital work in progress (146,310) Proceeds from sale of fixed assets 28 Increase in bank fixed deposits having maturity of more than 90 days (676,068) Proceeds from sale of investment in joint venture 928 Interest received 106,049 Net cash (used in) investing activities (715,373) Cash flows from financing activities Proceeds from issuance of share capital 11,713 Advance against equity shares to be issued under ESOP Scheme 291 Repayment of loan from Employee Stock Purchase Scheme ('ESPS') Trust 19,033 Payment of dividend and tax thereon (105,278) Payment for lease obligations (3,863) Net cash provided by financing activities (78,104) Effect on exchange difference on cash and bank balances (54,281) Net decrease in cash and cash equivalents (278,391) Cash and cash equivalents at beginning of the period 2,428,240 Cash and cash equivalents at end of the period 2,149,849 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) 5,738,613 Less: Bank deposits having maturity of more than 90 days (3,586,068) Unclaimed dividend accounts (2,696) 2,149,849 The accompanying notes 1 to 24 are an integral part of this statement. Six months ended September 30, 2003

4 i-flex Solutions Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE SIX MONTH AND THREE MONTH PERIOD ENDED SEPTEMBER 30, 2003 (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. The Company has unilateral/joint control in the following entities: i-flex Solutions b.v. ( i-flex b.v. ), a 100 per cent owned subsidiary company incorporated in May 2000 under the laws of The Netherlands; i-flex Solutions Pte ltd, ( i-flex Pte ), a 100 per cent owned subsidiary company incorporated in November 2001 under the laws of Singapore; 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. Flexcel International Private Limited ( Flexcel ), a 40 per cent owned joint venture company incorporated in March 2001 under Indian laws. 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 accounting policies have been consistently applied by the Company and are consistent with those used in the previous years. Since this is the first year that the Company has presented interim financial statements in accordance with Accounting Standard 25 Interim Financial Reporting, in accordance with the transitional provisions contained therein, the Company has not presented comparative statements of profit and loss and cash flows for the comparable interim periods of the prior year. The significant accounting policies adopted by the Company, in respect of the financial statements are set out below.

5 (b) Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the results of operations during the reporting period/year end. Although these estimates are based upon management s best knowledge of current events and actions, actual results could differ from these estimates. (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 specific use application software, which is in ready to use condition, for internal use. It is estimated that such software has a relatively short useful life, usually less than one year. The Company, therefore, charges to income the cost of acquiring such software. Enterprise wide resource software purchased by the Company and which will be implemented by the Company over a period of time is capitalized and depreciated over its estimated useful life. Advances paid towards the acquisition of fixed assets outstanding at each balance sheet date and the cost of fixed assets not ready to use before such date are disclosed under Capital work-in-progress. % (d) Investments Trade investments refer to the investments made with the aim of enhancing the Company s business interests in providing information technology solutions to the financial services industry worldwide. Long term investments are stated at cost less provision for diminution on account of other than temporary decline in the value of the investment. Current investments are stated at lower of cost and fair value determined on an individual investment basis. (e) Revenue recognition Revenues are 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.

6 - Product maintenance revenues, over the period of the maintenance contract - Implementation/Enhancement services are recognised upon the percentage of completion method based on the proportion of efforts spent to total efforts to complete or on the basis of contractually determined milestones as certified by the customer and as the services are provided for time and material contracts. Provisions for estimated losses, if any, on uncompleted contracts are recorded in the period in which such losses become probable based on current contract estimates. (ii) Software development services are recognised upon the percentage of completion method based on the proportion of efforts spent to total efforts to complete or on the basis of contractually determined milestones as certified by the customer and as the services are provided for time and material contracts. Provisions for estimated losses, if any, on uncompleted contracts are recorded in the period in which such losses become probable based on current contract estimates. 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 year 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 closing rates of exchange prevailing at the date of the balance sheet except for sundry debtors covered under forward exchange contracts, which are translated at forward rates. In respect of forward exchange contracts entered into by the company, the difference between the forward rate and the exchange rate at the inception of a forward exchange contract, is recognised as an income or expense on a straight-line basis over the life of the contract. All exchange differences are dealt with in the statement of profit and loss, except for those relating to the acquisition of fixed assets, which are adjusted, if material, in the cost of the fixed assets. (g) Research and development expenses for software products Research and development costs are expensed as incurred. Software product development costs are expensed as incurred until technological feasibility is established. Software product development costs incurred subsequent to the achievement of technological feasibility are not material and are expensed as incurred. (h) Retirement benefits Retirement benefits to employees comprise payments to gratuity, superannuation and provident funds as per the approved schemes of the Company. The Company has schemes of retirement benefits of provident fund, superannuation fund and gratuity fund in respect of which the Company s contribution to the funds are charged to the statement of profit and loss. The gratuity fund and superannuation fund benefits of the Company are administered by a trust formed for this purpose through the Group Schemes of the Life Insurance Corporation of India ('LIC'). In respect of gratuity, the adequacy of the accumulated funds available with the LIC has been confirmed on the basis of an actuarial valuation made at the period / year -end and provision has been made for the shortfall if any.

7 (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 estimated average annual effective tax rate that would be applicable to the relevant assessment year. Deferred income taxes are recognized for the future tax consequences attributable to timing differences between the financial statement determination of income and their recognition for tax purposes. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax assets are recognized and carried forward only to the extent that there is a reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. (l) Earning per share The earnings considered in ascertaining the Company s earnings per share comprise the net profit after tax. The number of shares used in computing basic earnings per share is the weighted average number of shares outstanding during the period. The number of shares used in computing diluted earnings per share comprises the weighted average 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. (THIS SPACE IS INTENTIONALLY LEFT BLANK)

8 September 30, 2003 March 31, SHARE CAPITAL Authorised 100,000,000 equity shares of Rs 5/- each (March ,000,000 equity shares) 500, ,000 Issued, subscribed and paid-up 74,675,000 equity shares of Rs 5/- each, fully paid up (March ,315,400 equity shares) 373, ,577 (a) Of the above, 62,121,800 equity shares of Rs 5/- each (March ,784,300 equity shares) have been issued as fully paid up bonus shares by capitalising the securities premium account (b) During the six month period ended September 2003, the Company allotted 22,100 shares to its employees who exercised their options under the ESOP scheme (Refer note 20(b)). (c) Refer Note 20(b) for options granted to the employees of the Company and for unissued equity shares. 4 RESERVES AND SURPLUS Securities premium Balance, beginning of period/year 2,267, ,760 Utilised towards share issue expenses - (103,073) Capitalized towards issue of bonus shares (186,687) - Received during the period/year 11,602 1,764,000 Balance, end of period/year 2,092,602 2,267,687 General reserve Balance, beginning of period/year 5,488,569 3,988,569 Transferred from profit and loss account - 1,500,000 Balance, end of period/year 5,488,569 5,488,569 Profit and loss account 1,152, ,372 8,734,096 7,985,628 (THIS SPACE IS INTENTIONALLY LEFT BLANK)

9 5. FIXED ASSETS Particulars As at Additions during the period Gross Block Depreciation Written Down Value Sale/deletions during the period As at As at For the period On Sale/deletions during the period As at As at As at Land 44, , , ,674 44,734 Improvement to leasehold premises 83, ,118 60,169 4,179-64,348 19,770 23,712 Buildings* 20, ,116 4,129 1,199-5,328 14,788 15,987 Computer equipment 447,102 21,392 6, , ,448 25,593 6, ,986 69,412 73,654 Electrical and office equipment 149,263 4, , ,574 8, ,059 42,438 46,689 Furniture and fixtures 117,025 1, ,861 83,702 6,055-89,757 29,104 33,323 Leased vehicles 24,631 1, ,203 14,390 2, ,320 8,883 10,241 TOTAL 886, ,462 7,347 1,096, ,412 48,582 7, , , ,340 As at ,031 80,092 9, , , ,823 7, ,412 Capital work-in-progress and advances 153, , , ,723 * Includes 10 shares of Rs.50/- each in Takshila Building No.9, Co-op Housing Society Ltd.

10 6 INVESTMENTS September 30, 2003 March 31, 2003 a) Long term investments (i) Trade investments (unquoted) DotEx International Limited (Note a) - 56,350 NIL equity shares of Rs 10/- each, fully paid-up (March ,635,000) Less: Provision for diminuiton in value of investment - (56,350) - - EBZ Online Private Limited (Note b) 45,000 45, ,260 equity shares of Rs.10/- each, fully paid-up (March ,260) Flexcel International Private Limited (Note c) 20,680 20,680 2,068,000 equity shares of Rs 10/- each, fully paid-up (March ,068,000) (ii) Non-trade investments (unquoted) Eastern Software Systems Limited (Note b) 7,406 7, ,283 equity shares of Rs.10/- each, fully paid-up (March ,283) 12.75% KEONICS Mahithi Bonds Series-1 (Note d) 20,000 20, Bonds of Rs. 50,000/- each fully paid (March ) National Savings Certificate - VIII issue JM High Liquidity Fund - Serial Plan 2004 (Growth) (Note e) 250, ,000 24,965,796 (and 858 fractions) units of Rs 10/- each (March ,965,796 (and 858 fractions)) (iii) Non-trade investments (quoted) 6.75% Tax Free US 64 Bonds (Note i) 33, ,225 Bonds of Rs 100/- each fully paid (March Nil) (iv) In subsidiaries i-flex solutions b.v. (Note f) 25,119 25,119 a wholly owned subsidiary company incorporated in The Netherlands 5,185 equity shares of Euro 100/- each, fully paid-up (March ,185) i-flex solutions Pte limited (Note g) 6,626 6,626 a wholly owned subsidiary company incorporated in Singapore 250,000 equity shares of Singapore $ 1/- each fully paid up (March ,000) i-flex solutions inc. (Note h) 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 (March ) 456, ,631 b) Current investments (non-trade, quoted) Unit Trust of India Scheme (US-64) (Note i) - 50,000 (March ,311,258 units (and 278 fractions)) of Rs 10/- each Less: Excess of cost over market value - (16,712) - 33, , ,919 Aggregate cost of quoted investments 33,123 50,000 Aggregate market value of quoted investments 35,458 33,288 Aggregate amount of unquoted investments 423, ,631

11 Note a DotEx was a 51:49 joint venture between NSE.IT Limited, a wholly owned subsidiary of The National Stock Exchange of India Limited ('NSE') and i-flex. DotEx had been set up as a broker's plaza which enabled NSE brokers and their clients to transact in the Indian stock market through the internet. As at March 31, 2003 the Company had provided for diminution of Rs million in the value of its investment in DotEx.On August 1, 2003 the Company sold its equity shareholding in DotEx to NSE India Ltd. for a total consideration of Rs 0.93 million as a result of which the Company reversed the provision of Rs million in the books and recorded loss on sale of investment of Rs million. Note b The Company s ownership interest in Eastern Software Systems Limited ('ESSL') is 6.62%. The Company also holds 19.5% shares in EBZ Online Private Limited ('EBZ'). EBZ is a strategic partnership between Brihans Technologies Private Limited ('BTPL') and i-flex to integrate the selected and adapted software provided under i-flex s products with BTPL s products for Co-operative banking sector in India. ESSL is primarily engaged in catering to the needs of small businesses through its flagship product, ebizframe. Both companies are unlisted companies. The Company's rights are limited to protecting its investments in ESSL and EBZ and it does not exert significant influence on the operations of these companies by way of representation on the board of directors, participation in policy making processes, material intercompany personnel or technological dependency. Accordingly, these investments are stated at cost less any decline in fair value below original cost when considered to be other than temporary. Management does not believe that currently there is any other than temporary decline in the value of these investments. Note c Flexcel is a 40:40:20 joint venture between i-flex, HDFC Bank Limited and its group companies and Lord Krishna Bank, which provides the capability of Flexcube through an Application Service Provider ( ASP ) model to various banks and financial institutions in India who may not wish to invest in creating and maintaining their own internal IT infrastructure. As per the unaudited financial statements as at September 30, 2003, Flexcel had incurred accumulated losses of Rs 28 million, which management considers to be in the nature of startup losses. Accordingly, management does not consider that there is any diminution in the value of its investment in Flexcel and the aggregate investment of Rs million is stated at cost. Note d Investments in debt securities of 12.75% KEONICS Mahithi Bonds Series -1 allotted on February 1, 2001 are redeemable at par at the end of seven years from the date of allotment and have a put and call option at the end of five years from the date of allotment. Note e Investment in JM High Liquidity Fund - Serial Plan 2004 (Growth) is investment in debt instrument funds. As per the term of the fund, the maturity of the fund is in April Note f i-flex b.v. was incorporated as a 100% subsidiary in The Netherlands to undertake marketing of the Company's software products and provide software and related services to clients in Europe and work on the business development efforts in the region. As per the unaudited financial statements, i-flex b.v. has loss of Euro 0.30 million (approximately Rs million) during the half year ended September 30, Management believes that the accumulated losses as per the unaudited financial statements as at September 30, 2003 of Euro 3.17 million (approximately Rs million) are in the nature of start up losses. Accordingly, management does not consider that there is any diminution in the value of its investment in i-flex b.v. and is stated at cost. Note g i-flex Pte. was incorporated as a 100% subsidiary in Singapore to undertake marketing of the Company's software products and provide software and related services to clients in Asia Pacific region and work on the business development efforts in the region. As per the unaudited financial statements, i-flex Pte has earned a net profit of S$ 0.50 million (approximately Rs million) for the six month period ended September 30, 2003 and an accumulated profit of S$ 1.0 million (approximately Rs million) and is stated at cost. Note h 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 the America's region and work on the business development efforts in the region. Management believes that the accumulated losses as per the unaudited financial statements as at September 30, 2003 of US$ 1.43 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 believe that there is any dimunition in the value of its investment in i-flex inc. and is stated at cost. Note i On June 1, 2003 units in UTI US-64 were converted into 6.75 % Tax free US 64 bonds.the first 5,000 units were converted at the repurchase price of Rs 12/- each and the balance 3,306, units at Rs 10/- each. These bonds are redeemable at par on June 1, 2008.

12 September 30, 2003 March 31, DEFERRED TAX ASSETS Difference between book and tax depreciation 33,434 31,446 8 CURRENT ASSETS, LOANS AND ADVANCES (a) Sundry debtors (unsecured) Debts outstanding for a period exceeding six months: -Considered good 914, ,910 -Considered doubtful 68,895 28, , ,690 Other debts - considered good [includes Unbilled revenues of Rs 49,090 (March Rs 28,736)] 2,374,426 1,844,173 3,357,874 2,527,863 Less: Provision for doubtful debts (68,895) (28,780) 3,288,979 2,499,083 Amount due from subsidiaries 2,472,848 1,876,577 (b) Cash and bank balances Cash in hand Funds in transit 103,308 - Balances with scheduled banks: -Current accounts in foreign currency 1,803,005 1,978,890 -Deposit accounts 2,538,460 1,947,000 -Deposit amount of unutilised IPO funds 1,257,642 1,359,017 -Other current accounts 31,689 51,518 -Unclaimed dividend amount 2,696 2,291 Balances with non-scheduled banks: -Current accounts in foreign currency 1,381 1,423 5,738,613 5,340,531 Balances with non-scheduled banks -in current accounts in foreign currency Citibank NY, USA 1,381 1,423 1,381 1,423 Maximum balance held during the period/year: -in current accounts in foreign currency Citibank NY Rep office, USA - 14,166 Citibank NY, USA 1,423 10,791 Citibank, Singapore (US$ account) Citibank, Singapore (Singapore$ account) Citibank, Argentina - 1,860 (c) Other current assets Interest accrued on : -Bank deposits 28,667 25,848 -Bonds 2, Loan to subsidiary Contract acquisition cost 761 5,326 32,369 32,018

13 September 30, 2003 March 31, 2003 (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)) 248, ,926 Loan to employees (secured) 7,935 9,068 Loan to subsidiary 22,904 23,595 Deposits 373, ,751 Prepaid expenses 150,867 82,645 Other advances - Considered good 72,396 56,736 - Considered doubtful 7,253 7, , ,974 Less: Provision for doubtful advance (7,253) (7,253) 876, ,721 9 CURRENT LIABILITIES AND PROVISIONS (a) Current liabilities Accrued expenses 575, ,151 Amount due to subsidiaries 887, ,972 Deferred revenues 250, ,979 Advances from customers 31,641 41,808 Finance lease obligations 11,312 11,547 Accounts payable 6,704 5,071 Investor Education and Protection Fund to be credited by Unclaimed dividends* 2,696 2,291 Advance against equity shares to be issued Deferred forward contract 7,693 - Other current liabilities 82,859 42,662 1,857,178 1,254,826 Amounts due to Small Scale Industrial undertakings - - * There is no amount due and outstanding as at balance sheet date to be credited to the Investor Education and Protection Fund (b) Provisions Proposed dividend - 93,289 Corporate dividend tax - 11,953 Provision for leave encashment 16,907 23,273 Provision for taxation, net of advance payment of taxes of Rs 462,866 15,979 67,895 (March Rs 255,557) 32, ,410 (THIS SPACE IS INTENTIONALLY LEFT BLANK)

14 Three months ended Six months ended September 30, 2003 September 30, REVENUES Product licenses and related activities 1,071,796 2,164,003 IT solutions and consulting services 616,727 1,147,509 1,688,523 3,311, COST OF REVENUES Employee costs 504, ,641 Travel related expenses (net of recoveries) 196, ,729 Application software 33,892 76,717 Professional fees 20,397 44,987 Contract acquistion cost 2,283 4, ,901 1,486, SELLING AND MARKETING EXPENSES Professional fees 32,071 64,273 Employee costs 28,697 59,846 Travelling expenses 27,567 72,430 Advertising expenses 6,653 25,055 Communication expenses 3,632 5,197 Rent 1,333 3,363 Power Miscellaneous expenses 3,953 10, , , GENERAL AND ADMINISTRATIVE EXPENSES Employee costs 78, ,469 Communication expenses 28,588 53,003 Rent 25,955 49,731 Power 9,664 20,609 Travelling expenses 8,978 15,154 Professional fees 6,333 35,083 Rates and taxes 5,921 10,016 Advertising expenses 1,634 2,305 Finance charge on leased assets 1,653 2,115 Provision for doubtful debts, net 1,209 43,053 Miscellaneous expenses 39,302 67, , , INTEREST INCOME Interest on: -Bank deposits 51, ,010 [includes tax deducted at source of Rs 18,232 for six months ended 30 September 2003 and Rs 912 for three months ended 30 September 2003] -Bonds 1,200 2,020 [includes tax deducted at source of Rs Nil] -Loans to employees Loan to subsidiaries Income tax refunds - 5,060 53, ,965

15 15 OTHER INCOME/(EXPENSE) Three months ended Six months ended September 30, 2003 September 30, 2003 Foreign exchange gain/(loss), net 4,348 (80,146) Reversal for dimunition in value of investment, net 56,350 73,062 Loss on sale/conversion of investment (55,422) (72,299) Loss on retirement/sale of fixed assets, net (5) (111) 5,271 (79,494) 16 PROVISION FOR TAXATION Domestic taxes 121, ,526 Foreign taxes 7,083 35,404 Deferred tax (1,000) (1,987) 127, ,943 Under the Indian Income-tax Act 1961, for the period ended September 30, 2003 the Company is, under Section 10A of the Income Tax Act, 1961, eligible to claim benefits with respect to 100% during the year, as against 90% for last year, of the profits earned from export revenues from its five units registered under the Software Technology Park ('STP'). The benefit as per the current tax laws is restricted to ten consecutive assessment years, beginning with the assessment year relevant to the previous year in which the Company commences operations from each location. In respect of two of its units where the Section 10A benefits have expired beginning from April 1, 2003, the Company claims deductions under Section 80HHE. Section 80HHE provides for 30% deduction of the profits earned from export revenue for this fiscal year. Foreign taxes represents income taxes payable overseas in the United States of America, Malaysia, United Kingdom and Singapore. (THIS SPACE IS INTENTIONALLY LEFT BLANK)

16 17 COMMITMENTS (a) Capital commitments Contracts remaining to be executed on capital account and not provided for (net of advances) aggregates to Rs 423,716 as at September 30, 2003 (March Rs 507,341) (b) Forward Contracts The Company enters into forward foreign exchange contracts where the counter party is a bank. The Company considers the risk of non-performance by the counter party as non-material. As at September 30, 2003 the Company held forward foreign exchange contracts of US$ million (Rs million). (c) Lease commitments (i) Finance leases The Company takes vehicles under finance leases of upto five years. Future minimum lease payments under finance leases as at September 30, 2003 and March 31, 2003 are as follows: As at September 30, 2003 Principal Interest Total Not later than one year 5,531 1,337 6,868 Later than one year and not later than five years 5, ,736 Total minimum payments 11,312 2,292 13,604 As at March 31, 2003 Principal Interest Total Not later than one year 4,786 1,463 6,249 Later than one year and not later than five years 6,761 1,218 7,979 Total minimum payments 11,547 2,681 14,228 (ii) Operating leases The Company has taken certain office premises and residential premises for employees under operating leases, which expire at various dates through to Gross rental expenses for the six months period ended September 30, 2003 aggregated to Rs 50,540 (March Rs 92,108). The minimum rental payments to be made in future in respect of these leases are as follows : September 30, 2003 March 31, 2003 Not later than one year 60,545 70,368 Later than one year and not later than five years 55,790 76,913 Later than five years 57,995 55, 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, Reveleus 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 Three months ended September 30, 2003 Particulars Product license and related activities IT solutions and consulting services Corporate Total Revenues 1,071, ,727-1,688,523 Cost of revenues (310,486) (446,415) - (756,901) Gross profit 761, , ,622 Selling and marketing expenses (99,596) (4,728) - (104,323) General and administrative expenses (62,600) (62,520) (82,696) (207,816) Depreciation and amortisation (7,912) (14,017) (3,662) (25,591) Income from operations 591,202 89,048 (86,358) 593,892 Interest income 53,635 Other income/(expense) 5,271 Income before provision for income taxes 652,798 Provision for income taxes (127,183) Net profit 525,615 Six months ended September 30, 2003 Particulars Product license and related activities IT solutions and consulting services Corporate Total Revenues 2,164,003 1,147,509-3,311,512 Cost of revenues (602,918) (883,721) - (1,486,639) Gross profit 1,561, ,788-1,824,873 Selling and marketing expenses (227,847) (14,181) - (242,028) General and administrative expenses (164,323) (110,883) (169,996) (445,202) Depreciation and amortisation (17,440) (24,601) (6,541) (48,582) Income from operations 1,151, ,123 (176,537) 1,089,061 Interest income 110,965 Other income/(expense) (79,494) Income before provision for income taxes 1,120,532 Provision for income taxes (196,943) Net profit 923,589 Other information Segment assets 1,824,234 1,988,179 7,185,122 10,997,535 Segment liabilities 581, ,425 1,065,276 1,890,064 Share capital and reserves and surplus 9,107,471 9,107,471 Depreciation 17,440 24,601 6,541 48,582 Capital expenditure by segment 8,219 21, , ,462 Segment revenue and expense: Revenue is generated through licensing of software products as well as by providing software solutions to the customers including consulting services. The expenses which are not directly attributable to a business segment are shown as corporate expenses. Segment assets and liabilities: Segment assets include all operating assets used by a segment and consist principally of debtors, deposits for premises and fixed assets, net of allowances and provisions. Segment liabilities primarily includes deferred revenues, finance lease obligation, advance from customer, accrued employee cost and other current liabilities. While most such assets and liabilities can be directly attributed to individual segments, the carrying amount of certain assets and liabilities used jointly by two or more segments is allocated to the segment on a reasonable basis. Assets and liabilities that cannot be allocated between the segments are shown as part of corporate assets. Geographical segments The following table shows the distribution of the company's sales by geographical market based on the location of the customers: Three months ended Six months ended Regions September 30, 2003 September 30, 2003 United States of America 685,661 1,355,756 Middle East and Africa 336, ,421 Asia Pacific 279, ,098 Europe 372, ,703 Latin America and Carribean 14,448 52,534 1,688,523 3,311,512 Regions % % United States of America 41% 41% Middle East and Africa 20% 19% Asia Pacific 17% 17% Europe 21% 21% Latin America and Carribean 1% 2% 100% 100%

18 19 Related party transactions Promoter Company and its affiliates Subsidiaries Joint Ventures OrbiTech Limited OrbiTech Solution Limited ('OSL') Citicorp Technology Holdings Inc, USA Citibank branches Citicorp Information Technology, Inc ('CITI') Citigroup Inc. e-serve International Limited ('e-serve') i-flex b.v, The Netherlands i-flex Pte, Singapore i-flex inc., USA DotEx International Limited ('DotEx') (till August 1, 2003) Flexcel International Private Limited ('Flexcel') Other entities where company has significant influence i-flex Employee Stock Purchase Scheme Trust Key Managerial Personnel ('KMP') Rajesh Hukku - Chairman and Managing Director R Ravisankar - Chief Executive Officer - International Operations and Technology Deepak Ghaisas - Chief Executive Officer - India Operations, Chief Financial Officer and Company Secretary Makarand Padalkar - Chief of Staff Joseph John - Head - Banking Products Division V Shankar - Head - Information Technology Services Division N R K Raman - Head - Marketing & Global Sales Atul Gupta- Head - Process and Quality Management Group S Hariharan - Head - Infrastructure and Support Services Group Vivek Govilkar - Head - Human Resources Division The related party transactions, other than disclosed elsewhere in the financial statements, have been summarised below: a) Revenues Banking product revenues The Company supplied banking products and earned revenues from the following related parties : Three months ended Six months ended September 30, 2003 September 30, 2003 Citibank branches 301, ,549 i-flex b.v. 229, ,405 i-flex inc. 63, ,822 i-flex Pte. 140, ,698 e-serve Flexcel ,222 1,517,939 IT solutions and consulting services revenues The Company has provided IT solutions and consulting services and earned revenues from the following related parties: Citibank branches 18,201 45,889 i-flex inc. 426, ,452 i-flex Pte. 93, ,431 i-flex b.v. 37,024 62, ,896 1,051,125 Interest received on loans given to key managerial personnel 40 80

19 Three months ended Six months ended September 30, 2003 September 30, 2003 b) Expense Communication expenses paid to Citibank branches 4,602 9,927 Remuneration to key managerial personnel 6,555 12,387 (Comprises of salary and perquisites) Remuneration to non-wholetime directors 3,272 6,545 Finance charge paid on finance leases to e-serve Bank charges paid to Citibank branches Rent paid for flat taken on lease from relative of key managerial personnel ,944 29,783 c) Assets September 30, 2003 March 31, 2003 Sundry debtors i-flex inc. 1,564,002 1,190,207 i-flex Pte. 339, ,532 i-flex b.v. [net off provision for doubtful debts of Rs 32,272, March Nil] 569, ,838 Citibank branches 207, ,160 CITI 8,020 32,919 DotEx 1,574 1,574 e-serve - Flexcel 2,288 3,529 e-serve 44-2,692,248 2,058,759 Loans outstanding i-flex ESPS Trust 248, ,926 i-flex inc. 22,904 23,595 Key managerial personnel 4,000 4, , ,521 Repayment of loan i-flex ESPS Trust 19,033 23,723 Key managerial personnel ,033 24,567 Bank balances with Citibank branches Current accounts 79, ,417 Deposits 316, , , ,294 Advance rent paid to relative of key managerial personnel Interest accrued on fixed deposits Citibank branches, India 2, Maximum loan outstanding from subsidiaries i-flex inc. 23,435 23,965 i-flex b.v. - 3,770

20 September 30, 2003 March 31, 2003 d) Liabilities Amounts due to related parties e-serve towards lease obligations repayable (principal and interest) 6,644 7,727 i-flex Pte on account of expenses 58,580 44,558 i-flex inc on account of expenses 778, ,284 i-flex b.v. on account of expenses 50,186 6, , ,699 Deferred revenue from related parties i-flex Pte. 30,270 4,891 i-flex inc. 47,402 20,195 i-flex b.v. 21,401 4,442 Citibank branches 581 1,869 e-serve Flexcel 1,102 1, ,883 32,684 Repayment of lease obligations to e-serve (Principal) 2,206 4,963 e) Other Transactions Payment of dividends Orbitech 40,295 20,148 Key managerial personnel Relatives of key managerial personnel 16 8 i-flex ESPS Trust 7,549 3,921 48,724 24,454 Grant of Employee Stock Option Plan Number of Options Key managerial personnel - - Non - wholetime directors - 10,000-10,000 (THIS SPACE IS INTENTIONALLY LEFT BLANK)

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 per cent of the issued and paid-up equity share capital of the Company had been earmarked for grant, at any given time to present and future employees and directors of the Company and its existing and future subsidiaries. Pursuant to the above resolution, the Board of Directors, at their meeting held on March 4, 2002 approved the Employees Stock Option Scheme ( the Scheme ) for issue of 4,753,600 options to the employees and directors of the Group. According to the ESOP, the Company has granted 4,548,920 options to the eligible employees and directors of the Company and its subsidiaries, prior to the IPO, and 116,000 options thereafter. As per the terms of the Scheme, the exercise price would equate the IPO price for the options granted prior to the IPO and at the fair market value on the date of grant for options granted thereafter. 20 per cent of the total options granted under the Scheme will vest to the eligible employees and directors on the completion of 12, 24, 36, 48 and 60 months and is subject to the continued employment of the employee or director with the Company or its subsidiaries. As per the terms of the Scheme, the exercise price would equate the price determined for the IPO through book building process for the option granted prior to the IPO and the fair market value on the date of grant for option granted thereafter. Accordingly no compensation cost would need to be recorded as the exercise price would equal to the fair value of the shares. The summary of the activity in the Company's ESOP is as follows: September 30, 2003 March 31, 2003 No. of shares Outstanding at the beginning of the period/year 4,499,400 4,548,920 Granted during the period/year 36,000 80,000 Exercised during the period/year (44,200) - Forfeited during the period/year (91,700) (129,520) Outstanding at the end of the period/year 4,399,500 4,499, Reconciliation of basic and diluted shares used in computing earning per share No. of shares Three months ended Six months ended September 30, 2003 September 30, 2003 Basic weighted average shares outstanding 74,657,039 74,647,872 Add: Effect of dilutive stock options 2,183,568 2,183,568 Weighted average shares outstanding 76,840,607 76,831,440

22 22 Summary of assets and liabilities in joint ventures As at September 30, 2003, the Company had two joint ventures, DotEx (49%) and Flexcel 40%. The summary of proportionate assets and liabilities of DotEx Dotex (unaudited) * Flexcel (unaudited) September 30, 2003 March 31, 2003 September 30, 2003 March 31, 2003 Fixed assets Cost - 11,402 8,832 8,551 Less: Accumulated depreciation - 9,952 4,484 3,376 Net book value - 1,450 4,348 5,175 Current assets, loan and advances Sundry debtors Cash and bank balances ,099 6,196 Other current assets Loans and advances ,306 1, ,719 7,771 Less: Current liabilities and provisions Current liabilities - 1,938 2,876 3,799 Provisions - 12 (169) - - 1,950 2,707 3,799 Net current assets - (1,353) 2,012 3,972 NET ASSETS ,360 9,147 * The Company sold its entire equity stake in DotEx on August 1, 2003 Proportionate income and expenses for the six month period ended Dotex (unaudited) * Flexcel (unaudited) Three months ended Six months ended Three months ended Six months ended September 30, 2003 September 30, 2003 September 30, 2003 September 30, 2003 REVENUES Sales Other income ,203 EXPENDITURE General and administrative expenses ,770 3,205 Depreciation , ,330 4,313 Loss before tax (73) (586) (1,408) (3,110) * Only upto date of sale of shares in DotEx, i.e. August 1, 2003.

23 23 Aggregate expenses Following are the aggregate amounts incurred on certain specific expenses that are required to be disclosed under Schedule VI to the Act: Three months ended Six months ended September 30, 2003 September 30, 2003 Salaries and bonus 558,910 1,055,634 Staff welfare expenses 24,928 44,572 Contribution to provident and other funds 27,624 44,750 Travel related expenses (net of recoveries) 232, ,313 Professional fees 58, ,343 Communication expenses 32,220 58,200 Application software 33,892 76,717 Rent 27,288 53,094 Advertising expenses 8,287 27,360 Power 10,081 21,527 Insurance 575 1,261 Repairs and maintenance: - Leasehold premises 940 2,593 - Computer equipments 9,255 15,721 - Others 2,657 5,414 Rates and taxes 5,921 10,016 Finance charge on leased assets 1,653 2,115 Provision for doubtful debts, net 1,209 43,053 Donation 509 1,059 Contract acquisition cost 2,283 4,565 Other expenses 29,318 52,562 1,069,040 2,173, Prior period/year comparatives Prior period/year amounts have been reclassified and regrouped, where necessary to conform with current period's presentation.