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

Transcription

1 i-flex Solutions Limited CONSOLIDATED BALANCE SHEET AS AT SEPTEMBER 30, 2003 (All amounts in thousands of Indian rupees, unless otherwise stated) Notes September 30, 2003 March 31, 2003 SOURCES OF FUNDS SHAREHOLDERS' FUNDS Share capital 3 373, ,577 Reserves and surplus 4 8,519,158 7,809,725 Less: Loan to Employees Stock Purchase Scheme ('ESPS') Trust 20(a) (248,893) (267,926) 8,643,640 7,728,376 APPLICATION OF FUNDS FIXED ASSETS 2(c) & 5 Cost 1,184, ,389 Less: Accumulated depreciation 709, ,920 Net book value 474, ,469 Capital work-in-progress and advances 154, , , ,852 INVESTMENTS 2(d) & 6 355, ,825 DEFERRED TAX ASSETS 7 32,262 29,703 CURRENT ASSETS, LOANS AND ADVANCES 8 Sundry debtors 2,066,756 1,446,960 Cash and bank balances 6,051,505 5,768,059 Other current assets 34,136 48,851 Loans and advances 654, ,886 8,806,841 7,818,756 Less: CURRENT LIABILITIES AND PROVISIONS 9 Current liabilities 1,130, ,156 Provisions 49, ,604 1,180,054 1,004,760 NET CURRENT ASSETS 7,626,787 6,813,996 8,643,640 7,728,376 The accompanying notes 1 to 24 are an integral part of the balance sheet.

2 i-flex Solutions Limited CONSOLIDATED STATEMENT OF PROFIT AND LOSS FOR THE THREE MONTH AND SIX MONTH PERIODS ENDED SEPTEMBER 30, 2003 (All amounts in thousands of Indian rupees, unless otherwise stated) Three months ended Six months ended Notes September 30, 2003 September 30, 2003 REVENUES 2(e) & 10 1,870,303 3,704,652 Cost of Revenues 11 (791,495) (1,555,139) GROSS PROFIT 1,078,808 2,149,513 Selling and marketing expenses 12 (281,771) (587,274) General and administrative expenses 13 (208,980) (476,220) Depreciation and amortisation 2(c) & 5 (32,540) (62,047) INCOME FROM OPERATIONS 555,517 1,023,972 Interest income 14 53, ,178 Other income/(expenses) 15 21,328 (53,086) INCOME BEFORE PROVISION FOR INCOME 630,590 1,082,064 Provision for income taxes 2(k) & 16 (127,207) (197,510) NET INCOME 503, ,554 Weighted average earnings per share of Rs 5/- each 2(I) & 21 Basic Diluted Number of shares used in computing earnings per Basic 72,572,443 72,563,276 Diluted 76,130,221 76,121,054 The accompanying notes 1 to 24 are an integral part of the statement of profit and loss.

3 i-flex Solutions Limited CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SIX MONTH PERIOD ENDED SEPTEMBER 30, 2003 (All amounts in thousands of Indian rupees, unless otherwise stated) Period ended September 30, 2003 Cash flows from operating activities Income before provision for income taxes 1,082,064 Adjustments to reconcile income before provision for income taxes to cash provided by operating activities : Depreciation and amortisation 62,047 Loss on retirement/sale of fixed assets, net 111 Loss on conversion of units into bonds 16,877 Profit on sale of investment in joint venture (2,188) Reversal for diminution in the value of investments (16,712) Interest income (111,178) Effect of exchange difference on cash and bank balances 54,281 Finance charge on leased assets 2,115 Provision for doubtful debts, net 53,454 58,807 1,140,871 Changes in assets and liabilities Increase in sundry debtors (673,250) Increase in loans and advances (80,298) Increase in current liabilities and provisions 350,757 (402,791) Cash from operating activities 738,080 Receipt of refund of previous assessment years 25,236 Payment of domestic and foreign taxes (297,927) Net cash from operating activities 465,389 Cash flows from investing activities Additions to fixed assets including capital work in progress (157,521) Proceeds from sale of fixed assets 28 Increase in bank fixed deposits having maturity of more than 90 days (678,522) Proceeds from sale of investments 928 Interest received 106,632 Net cash used in investing activities (728,455) 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 ESPS Trust 19,033 Payment of dividend and tax thereon (105,278) Payment for lease obligations (3,893) Net cash provided by financing activities (78,134) Effect of exchange differences on cash and bank balances (54,281) Net decrease in cash and cash equivalents (395,481) Cash and cash equivalents at the beginning of the period 2,855,768 Cash and cash equivalents at end of the period 2,460,287 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) 6,051,505 Less: Bank deposits having maturity of more than 90 days (3,588,522) Unclaimed dividend accounts (2,696) 2,460,287 The accompanying notes 1 to 24 are an integral part of this statement.

4 i-flex Solutions Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THREE MONTH AND SIX 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 27,1989. 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; 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. Flexcel International Private Limited ( Flexcel ), a 40 per cent owned joint venture company incorporated in March 2001 under the laws of India; The Company together with its wholly owned subsidiaries, i-flex b.v., i-flex Pte and i-flex Inc, is principally engaged in the business of providing information technology solutions to the financial services industry worldwide. i-flex has a suite of banking products, which caters to the needs of corporate, retail and investment banking as well as treasury operations. The Company also provides consulting services and develops bespoke software for its customers from the financial services industry. The Company derives a substantial portion of its revenues from the overseas markets Flexcel is a 40:40:20 joint venture between i-flex, HDFC Bank Limited and its group companies and Lord Krishna Bank Limited, which provides the capability of Flexcube through an Application Service Provider ( ASP ) model to various banks and financial institutions in India who may not wish to invest in creating and maintaining their own internal IT infrastructure. DotEx was a 51:49 joint venture between NSE.IT Limited, a wholly owned subsidiary of National Stock Exchange of India limited ( NSE ) and i-flex. DotEx has set up a broker's plaza, which enables brokers and their clients to transact in stock/securities markets through the Internet. During the current period the Company has sold its stake in DotEx to NSE for a total consideration of Rs.0.93 million. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of presentation and consolidation The accompanying consolidated financial statements are prepared under the historical cost convention, on the accrual basis of accounting, in conformity with accounting principles generally accepted in India, to reflect the financial position and the results of operations of the Company together with its wholly owned subsidiary companies i.e. i-flex b.v., i-flex Pte. and

5 i-flex Inc. and joint venture companies i.e. DotEx and Flexcel (hereinafter collectively referred to as the Group ). In respect of the joint venture companies, the Group applies the proportionate consolidation method. In case of DotEx, the Company has consolidated proportionate income and expenses till the date of sale of its share in joint venture. All material inter-company transactions and balances between the entities included in the consolidated financial statements have been eliminated. In accordance with the Employee Stock Option Scheme and Stock Purchase Guidelines, 1999 (SEBI guidelines) issued by Securities and Exchange Board of India ( SEBI ), the group has consolidated the ESPS trust. [Refer note 20(a)]. Since this is the first year that the Group has presented interim financial statements in accordance with Accounting Standard 25 Interim Financial Reporting issued by the Institute of Chartered Accountants of India in accordance with the transitional provisions contained therein, the Group has not presented comparative statements of profit and loss and cash flows for the comparable interim periods of the prior year. The accounting policies have been consistently applied by the group and are consistent with those used in the previous year. The significant accounting policies adopted by the Group, in respect of the consolidated financial statements are set out below. (b) Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the results of operations during the reporting period/year. Although these estimates are based upon management s best knowledge of current events and actions, actual results could differ from these estimates. (c) Fixed assets and depreciation Fixed assets including assets under finance lease arrangements are stated at cost less accumulated depreciation. The Group capitalises all direct costs relating to the acquisition and installation of fixed assets. Depreciation is provided pro-rata to the period of use, on the written down value method, at the rates specified in Schedule XIV to the Act or based on the estimated useful life of assets, whichever is higher. Vehicles under finance leases are amortised over the useful life or lease term, as appropriate (four to five years). The rates at which fixed assets are depreciated are as follows: Improvement to leasehold premises 35 Buildings 15 Computer equipment 60 Electrical and office equipment 35 Furniture and fixtures 35 The Group purchases certain 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 Group, therefore, charges to income the cost of acquiring such software. Enterprise wide resource software purchased by the Group and which the %

6 Group will implement 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 Group s business interests in providing information technology solutions to the financial services industry worldwide. Long term investments are stated at cost less provision for diminution on account of other than temporary decline in the value of the investment. Current investments are stated at lower of cost and fair value determined on an individual investment basis. (e) Revenue recognition Revenues are recognised as follows: (i) (ii) 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. 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. 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. 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 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 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 Group, 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,

7 except for those relating to the acquisition of fixed assets, which are adjusted, if material, in the cost of the fixed assets. (g) Research and development expenses for software products Research and development costs are expensed as incurred. Software product development costs are expensed as incurred until technological feasibility is established. Software product development costs incurred subsequent to the achievement of technological feasibility are not material and are expensed as incurred. (h) Retirement benefits Retirement benefits to employees comprise payments to gratuity, superannuation and provident funds as per the approved schemes of the Group. In India, the Group has schemes of retirement benefits of provident fund, superannuation fund and gratuity fund in respect of which the Group s contribution to the funds are charged to the statement of profit and loss. The gratuity fund and superannuation fund benefits of the Company are administered by a trust formed for this purpose through the Group Schemes of the Life Insurance Corporation of India ('LIC'). In respect of gratuity, the adequacy of the accumulated funds available with the LIC has been confirmed on the basis of an actuarial valuation made at the period/year-end. (i) Leave encashment Accrual for leave encashment is estimated on the basis of an actuarial valuation for the unavailed leave balance standing to the credit of the employees at the period 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 for the respective tax jurisdictions. 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) Earnings per share The earnings considered in ascertaining the Group s earnings per share comprise the net profit after tax. The number of shares used in computing basic earnings per share is the weighted average number of equity shares outstanding during the period/year. The number of shares used in computing diluted earnings per share comprises the weighted average number of equity share considered for deriving basic earnings per share, and also the weighted

8 average number of equity shares, if any, which would have been issued on the conversion of all dilutive potential equity shares. The number of shares and potentially dilutive equity shares are adjusted for the bonus shares and sub-division of shares. The shares issued to the ESPS trust have been considered as outstanding for basic EPS purposes, to the extent these shares have been allocated to the employees pursuent to the ESPS scheme and are eligible for exercise. For dilutive EPS purpose, the shares, which are not yet eligible for exercise, have been considered as dilutive potential equity shares.

9 September 30, 2003 March 31, SHARE CAPITAL Authorised 100,000,000 equity shares of Rs 5/- each 500, ,000 (March 31, ,000,000 equity shares of Rs. 5/- each) Issued, subscribed and paid-up 74,675,000 equity shares of Rs 5/- each, fully paid up 373, ,577 (March 31, ,315,400 equity shares of Rs 5/- each, fully paid-up) (a) Of the above,62,121,800 equity shares of Rs 5/- each (March 31, ,784,300 equity shares) have been issued as fully paid up bonus shares by capitalising the Securities premium account (b) During the six month period ended September 30,2003, the Company allotted 22,100 shares to its employees who excercised their options under under the ESOP scheme [Refer note 20(b)] (c) Refer Note 20(b) for the options granted to the employees of the Company and for unissued equity shares. 4 RESERVES AND SURPLUS 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 Securities premium Balance, beginning of period/ year 2,267, ,760 Received during the period/year 11,602 1,764,000 Share of Securities premium received by joint venture Utilised towards share issue expenses - (103,073) Capitalised towards issue of bonus shares (186,687) - Balance, end of period/ year 2,092,912 2,267,997 Gain on dilution of equity investment in joint venture (Refer note 22) 2,536 2,536 Profit and loss account Balance, beginning of the period/ year 50,623 (53,013) Net profit for the period/ year 884,554 1,708,878 Transfer to general reserve - (1,500,000) Proposed dividend - (93,289) Dividend paid on ESOP shares alloted (32) - Corporate Dividend Tax (4) (11,953) Balance, end of period/ year 935,141 50,623 8,519,158 7,809,725 [THIS SPACE HAS BEEN INTENTIONALLY LEFT BLANK]

10 5 FIXED ASSETS Gross Block Depreciation Written Down Value Particulars As at Additions during the period 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 103, ,029 62,005 6,913-68,918 35,111 41,237 Buildings* 20, ,116 4,129 1,199-5,328 14,788 15,987 Computer equipment 486,411 31,534 17, , ,810 32,663 16, ,188 91,288 93,601 Electrical and office equipment 156,716 5, , ,135 9, ,651 48,549 52,581 Furniture and fixtures 136,108 2, ,743 87,304 8,604-95,908 42,835 48,804 Leased vehicles 25,062 1, ,803 14,537 2, ,508 9,295 10,525 TOTAL 972, ,399 18,748 1,184, ,920 62,047 17, , , ,469 Previous year 852, ,700 16, , , ,298 12, ,920 Capital work-in-progress and advances 154, , , ,852 * Includes 10 shares of Rs 50/- each in Takshila Building No.9, Co-op Housing Society Limited

11 September 30, 2003 March 31, INVESTMENTS a) Long term investments (i) Trade investments (unquoted) EBZ Online Private Limited (Note a) 45,000 45, ,260 equity shares of Rs.10/- each, fully paid-up (March 31, ,260) (ii) Non-trade investments (unquoted) Eastern Software Systems Limited (Note a) 7,406 7, ,283 equity shares of Rs.10/- each, fully paid-up (March 31, ,283) 12.75% KEONICS Mahiti Bonds Series-1 (Note b) 20,000 20, Bonds of Rs. 50,000/- each fully paid-up (March 31, ) National Savings Certificate - VIII issue JM High Liquidity Fund - Serial Plan 2004 (Growth) (Note c) 24,965,796 units (and 858 fractions) of Rs 10/- each (March 31, ,965,796 units (and 858 fractions)) 250, ,000 (iii) Non-trade investments (quoted) 6.75% Tax Free US 64 Bonds (note d) 33, ,225 Bonds of Rs. 100/- each, fully paid-up (March 31, Nil) 355, ,537 b) Current investments (non-trade, quoted) Unit Trust of India Scheme (US-64) (Note d) [March 31, ,311,258 units (and 278 fractions)] of Rs 10/- each - 50,000 Less: Excess of cost over market value - (16,712) - 33, , ,825 Aggregate cost of quoted investments 33,123 50,000 Aggregate market value of quoted investments 35,458 33,288 Aggregate amount of unquoted investments 322, ,537 Note a The Company s ownership interest in Eastern Software Systems Limited ('ESSL') is 6.62%.The Company also holds 19.5% of the issued share capital of EBZ Online Private Limited ('EBZ'). EBZ is a strategic partnership between Brihans Technologies Private Limited ('BTPL') and the Group to integrate the selected and adapted software provided under the Group s products with BTPL s products for the Co-operative banking sector in India. ESSL is primarily engaged in catering to the needs of small businesses through its flagship product, ebizframe. Both companies are unlisted companies. The Company's rights are limited to protecting its investments in ESSL and EBZ and it does not exert significant influence on the operations of these companies by way of representation on the board of directors, participation in policy making processes, material intercompany personnel or technological dependency. Accordingly, these investments are stated at cost less any decline in fair value below original cost when considered to be other than temporary. Management does not believe that currently there is any other than temporary decline in the value of these investments. Note b Investments in debt securities of 12.75% KEONICS Mahiti Bonds Series -1 allotted on February 1, 2001 are redeemable at par at the end of seven years from the date of allotment and have a put and call option at the end of five years from the date of allotment. Note c Investment in JM High Liquidity - 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 d On June 1, 2003 units in US-64 were converted into 6.75% Tax free US-64 bonds. The first 5,000 units were converted at the repurchase price of Rs12/- 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 32,262 29,703 8 CURRENT ASSETS, LOANS AND ADVANCES (a) Sundry debtors (unsecured) Debts outstanding for a period exceeding six months: -Considered good 325, ,868 -Considered doubtful 92,294 38, , ,708 Other debts:-considered good [includes Unbilled revenues of Rs 66,100 (March 31, Rs 28,736)] 1,740,804 1,081,092 2,159,050 1,485,800 Less: Provision for doubtful debts (92,294) (38,840) 2,066,756 1,446,960 (b) Cash and bank balances Cash in hand Funds in transit 103,308 7,091 Balances with scheduled banks: -Current accounts in foreign currency 1,803,005 1,978,890 -Deposit accounts 2,541,557 1,953,253 -Deposit amount of unutilised IPO funds 1,257,642 1,359,017 -Other current accounts 31,689 51,671 -Unclaimed dividend amount 2,696 2,291 Balances with non-scheduled banks: -Current accounts in foreign currency 1,381 1,423 -Current accounts of foreign subsidiaries 309, ,591 6,051,505 5,768,059 (c) Other current assets Interest accrued on: -Bank Deposits 28,719 26,009 -Bonds 2, Contract acquisition cost 3,127 22,388 34,136 48,851 (d) Loans and advances (unsecured, considered good unless otherwise stated) Advances recoverable in cash or in kind or for value to be received: Loans to employees (secured) 9,087 10,267 Deposits 399, ,628 Prepaid expenses 159,725 94,151 Other advances - Considered good 85,814 70,840 - Considered doubtful 7,253 7, , ,139 Less:Provision for doubtful advance (7,253) (7,253) 654, ,886

13 9 CURRENT LIABILITIES AND PROVISIONS September 30, 2003 March 31, 2003 (a) Current liabilities Accrued expenses 671, ,156 Deferred revenues 272, ,269 Accounts payable 30,859 22,770 Advances from customers 2,029 14,495 Finance lease obligations 11,312 11,547 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 131,577 76,283 1,130, ,156 *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 23,285 Provision for taxation, net of advance payment of taxes of Rs 463,035 32, ,077 ( March 31, Rs 255,557) 49, ,604 [THIS SPACE HAS BEEN INTENTIONALLY LEFT BLANK]

14 Three months ended Six months ended September 30, 2003 September 30, REVENUES Product licenses and related activities 1,125,740 2,322,972 IT solutions and consulting services 744,045 1,380,826 Share of sales of joint venture companies ,870,303 3,704, COST OF REVENUES Employee costs 530, ,787 Travel related expenses (net of recoveries) 196, ,729 Application software 33,892 76,717 Professional fees 21,643 48,932 Contract acquisition cost 9,440 18, ,495 1,555, SELLING AND MARKETING EXPENSES Employee costs 88, ,219 Professional fees 66, ,369 Travelling expenses 45,270 99,864 Advertising expenses 20,516 54,912 Rent 14,897 25,697 Communication expenses 11,132 19,964 Miscellaneous expenses 35,053 70, , , GENERAL AND ADMINISTRATIVE EXPENSES Employee costs 78, ,879 Communication expenses 28,687 53,389 Rent 25,962 49,738 Power 9,763 20,816 Travelling expenses 9,025 15,258 Professional fees 6,683 35,661 Rates and taxes 6,340 10,435 Finance charge on leased assets 1,653 2,115 Provision for doubtful debts, net 1,020 56,648 Miscellaneous expenses 40,934 70, , , INTEREST INCOME Interest on: -Bank deposits 52, ,469 [includes tax deducted at source of Rs 18,232 for six months ended September 30,2003 and Rs 912 for three months ended September 30,2003] -Bonds 1,200 2,020 [includes tax deducted at source of Rs Nil] -Loans to employees Income tax refunds - 5,060 53, ,178

15 15 OTHER INCOME/(EXPENSES) Three months ended Six months ended September 30, 2003 September 30, 2003 Foreign exchange (loss)/gain, net 18,739 (55,441) Reversal for dimunition in value of investment, net - 16,712 Loss on conversion of investment - (16,877) Profit on sale of investment in joint venture 2,188 2,188 Loss on retirement/sale of fixed assets, net (5) (111) Miscellaneous income ,328 (53,086) 16 PROVISION FOR TAXATION Domestic taxes 121, ,526 Foreign taxes 7,083 35,404 Subsidiary taxes - 1,142 Deferred tax (976) (2,562) 127, ,510 Under Section 10A of the Indian Income-tax Act 1961, for the period ended September 30, 2003 the Company is eligible to claim benefits with respect to 100% of the profits earned during the year ending March 31,2004, as against 90% for the year ended March 31,2003, 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 80 HHE of the Income Tax Act,1961. Section 80 HHE provides for 30% deduction of the profits earned from export revenue for the year ending March 31, Foreign taxes represents income taxes payable overseas in the United States of America, Malaysia, United Kingdom and Singapore. [THIS SPACE HAS BEEN INTENTIONALLY LEFT BLANK]

16 17 COMMITMENTS AND CONTINGENCIES (a) Capital commitments Contracts remaining to be executed on capital account and not provided for (net of advances) aggregate Rs 424,704 as at September 30, 2003 (March 31, 2003 Rs. 507,642) (share of joint venture - Rs Nil, March 31, Rs.Nil) (b) Contingencies i-flex BV in the Netherlands, might face an action by the Dutch authorities for alleged violation of immigration and taxation rules in the Netherlands. i-flex BV has not received any written communication from the authorities yet and shall defend itself vigorously. The determination of the liability, if any, is not possible at this point. (c) Forward Contracts The Group enters into forward foreign exchange contracts where the counter party is a bank. The Group considers the risk of non- performance by the counter party as non-material. As at September 30, 2003 the Group held forward foreign exchange contracts of US$ million.(in Rs 1, million) (d) Lease commitments (i) Finance leases The Group has taken 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: Principal Interest Total As at September 30, 2003 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 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 Group 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 three months and six months period ended September 30, 2003 aggregated to Rs 41,961 and Rs 66,562 respectively. 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 85,020 95,811 Later than one year and not later than five years 101, ,985 Later than five years 57,995 55,811 [THIS SPACE HAS BEEN INTENTIONALLY LEFT BLANK]

17 18 SEGMENT INFORMATION Business segments are defined as components of an enterprise about which separate financial information is available. This information is reviewed and evaluated regularly by the management, in deciding how to allocate resources and in assessing the performance. The Group is organised geographically and by business segment. For management purposes the Group is primarily organised on a worldwide basis into two business segments: a) Product licenses and related activities and b) IT solutions and consulting services. The segments are the basis on which the Group reports its primary operational information to management. Product licenses and related activities segment deals with banking software products like the FLEXCUBE suite of products, 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 subsegments i.e. Business intelligence, Customer relationship management, Brokerage, e-commerce, Internet services and IT and Business consulting. The activities of the joint venture monitored and disclosed as a separate segment. [THIS SPACE HAS BEEN INTENTIONALLY LEFT BLANK]

18 Three months ended September 30, 2003 Particulars Product license and related activities IT solutions and consulting services Joint ventures Corporate Eliminations Total Revenues External revenue 1,125, , ,870,303 Inter-segment revenue (54) - Total revenue 1,125, , (54) 1,870,303 Cost of Revenues (310,489) (481,006) (791,495) Gross profit 815, , (54) 1,078,808 Selling and marketing expenses (248,612) (33,159) (281,771) General and administrative expenses (62,410) (62,520) (1,770) (82,280) - (208,980) Depreciation and amortisation (7,778) (20,464) (633) (3,665) - (32,540) Inter segment expense - - (54) Income from operations 496, ,896 (1,939) (85,945) - 555,517 Interest income 53,745 Other income Income before provision for income taxes 21, ,590 Provision for income taxes (127,207) Net income 503,383 Six months ended September 30, 2003 Product license and related activities IT solutions and consulting services Joint ventures Corporate Eliminations Total Particulars Revenues External revenue 2,322,972 1,380, ,704,652 Inter-segment revenue (102) - Total revenue 2,323,074 1,380, (102) 3,704,652 Cost of Revenues (602,918) (952,221) (1,555,139) Gross profit 1,720, , (102) 2,149,513 Selling and marketing expenses (522,454) (64,820) (587,274) General and administrative expenses (177,918) (110,883) (3,599) (183,820) - (476,220) Depreciation and amortisation (22,445) (31,660) (1,397) (6,545) - (62,047) Inter segment expense - - (102) Income from operations 997, ,242 (4,244) (190,365) - 1,023,972 Interest income 111,178 Other income Income before provision for income taxes (53,086) 1,082,064 Provision for income taxes (197,510) Net income 884,554 Other information Segment assets 1,285,055 1,307,503 9,067 7,222,069 9,823,694 Segment liabilities 573, ,425 2, ,366 1,180,055 Share capital and reserves and surplus 8,643,640 Depreciation 22,445 31,660 1,397 6,545 62,047 Capital expenditure by segment 8,219 21, , ,399 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 Geographical segments The following table shows the distribution of the group's consolidated sales by geographical market, based on the location of the customer. Three months ended Six months ended Regions September 30,2003 September 30,2003 United States of America 798,545 1,578,465 Middle East and Africa 336, ,319 Asia Pacific 306, ,315 Europe 415, ,019 Latin America and Carribean 14,447 52,534 1,870,303 3,704,652 % % Regions 43% 43% United States of America 18% 17% Middle East and Africa 16% 16% Asia Pacific 22% 23% Europe 1% 1% Latin America and Carribean 100% 100%

19 19 RELATED PARTY TRANSACTIONS Promoter Company and its affiliates Key Managerial personnel OrbiTech Limited OrbiTech Solution Limited ('OSL') Citicorp Technology Holdings Inc, USA Citibank branches Citicorp Information Technology, Inc ('CITI') Citigroup Inc., USA e-serve International Limited ('e-serve') 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) Revenue Three months ended Six months ended September 30,2003 September 30,2003 Banking product revenues The Group supplied banking products and IT solutions and consulting services and earned revenues from the following Citibank branches 301, ,549 e-serve , ,760 IT solutions and consulting services revenues The Group has provided IT solutions and consulting services and earned revenues from the following related party: Citibank branches 588,464 1,031,293 Interest received on loans given to key managerial b) Expense p p branches Remuneration to key managerial personnel (Comprises of salary, bonus and perquisites) 4,602 9,927 6,555 12,387 Remuneration to non-wholetime directors 3,272 6,545 Finance charge paid on finance leases to e-serve Bank pcharges paid to Citibank branches y 851 1,448 managerial personnel ,592 30,944 [THIS SPACE HAS BEEN INTENTIONALLY LEFT BLANK]

20 c) Assets September 30, 2003 March 31, 2003 Amount due from related parties on account of sales Citibank branches 886, ,088 CITI 8,020 32,919 e-serve , ,007 Loans outstanding Key managerial personnel 4,000 4,000 Repayment of loan Key managerial personnel Bank balances with Citibank branches Current accounts 375,826 1,232,622 Deposit accounts 316, , ,880 1,377,499 Advance rent paid to relative of key managerial personnel Interest accrued on fixed deposits Citibank branches, India 2, d) Liabilities Amounts due to related parties e-serve towards lease obligations repayable (principal and interest) 6,644 7,727 Deferred revenue from related parties Citibank branches 581 1,869 e -Serve ,869 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 ,175 20,533 Grant of Employee Stock Option Plan Number of options Non-wholetime Directors - 10,000-10,000

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 acceptance of the offer, the selected employee shall undertake to pay within ten years from the date of acceptance of the offer the cost of the shares incurred by the Trust including repayment of the loan relatable thereto. The repayment of the loan by the Trust to the Company would be dependent on employee repaying the amount to the Trust. In case the employee resigns from employment, the rights relating to shares, which are eligible for exercise, may be purchased by payment of the exercise price whereas, the balance shares shall be forfeited in favour of the Trust. The Trustees have the right of recourse against the employee for any amounts that may remain unpaid on the shares accepted by the employee. The shares that an employee is eligible to exercise during the initial five-year period merely go to determine the amount and scheduling of the loan to be repaid on exercise by the employee. The Trust shall repay the loan obtained from the Company on receipt of payments from employees against shares exercised or otherwise. The Securities and Exchange Board of India ( SEBI ) has issued the Employee Stock Option Scheme and Stock Purchase Guidelines, 1999 ( SEBI guidelines ), which are applicable to stock option schemes for employees of all listed Companies. In accordance with these guidelines, the excess of market price of the underlying equity shares on the date of grant of the stock options over the exercise price of the options is to be recognised in the books of account and amortised over the vesting period. However, no compensation cost would need to be recorded as the scheme terms are fixed and the exercise price equals the market price of the underlying stock on the grant date. The shares issued to the Trust have been considered as outstanding for basic EPS purposes, to the extent the shares have been allocated to the employees pursuant to the above schemes and are eligible to be exercised by the employee. For diluted EPS purpose, the share, which are not yet eligible for exercise, have also been considered as outstanding to the extent these shares are dilutive. The loan granted to the Trust has been presented as a separate component of shareholders' funds. b) Employee Stock Option Plan ( ESOP ) At the Annual General Meeting of the shareholders of the Company held on August 14, 2001, the Company introduced an additional ESOP, pursuant to which equity shares not exceeding an additional 7.5 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 equates the price determined for the IPO through the book building process for the options granted prior to the IPO and the fair market value of the date of grant for options granted therafter.accordingly no compensation cost has been recorded, as the exercise price equals the fair value of the shares on the date of the IPO. The summary of the activity in the Company's ESOP is as follows: No. of shares September 30, 2003 March 31, 2003 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 Three months ended Six months ended September 30,2003 September 30,2003 Basic weighted average shares outstanding 72,572,443 72,563,276 Add: Effect of dilutive stock options 3,557,778 3,557,778 Add: Effect of dilutive shares not eligible for exercise under ESPS - - Weighted average shares outstanding and potential shares outstanding 76,130,221 76,121,054

22 22 Summary of interest in joint ventures During the six month period, the Company had two joint ventures, DotEx (49%) and Flexcel (40%). 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. On August 1, 2003 the Company has sold its stake in DotEx to NSE for a total consideration of 0.93 million. Accordingly, the Company has consolidated only the proportionate income and expenses of DotEx upto the date of sale of its shares in the joint venture. During the year ended March 31,2003, the Company has diluted its equity in Flexcel by 9.49%. This dilution of equity holding in Flexcel has resulted in a capital appreciation of Rs 2,536 which has been included as a part of reserves and surplus. As described in Note 2(a), the consolidated financial statements include proportionate amount of assets, liabilities, income and expenditure relating to the joint venture companies. The summary of proportionate assets, liabilities, income and expenses (including intra group cost of sales) consolidated with financial statements of the Company are as follows: Proportionate assets and liabilities Dotex (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 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, ie. 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 Companies Act,1956: Three months ended Six months ended September 30, 2003 September 30, 2003 Salaries and bonus 628,577 1,215,412 Staff welfare expenses 33,132 59,624 Contribution to provident and other funds 35,650 59,849 Travel related expenses (net of recoveries) 250, ,851 Professional fees 95, ,962 Communication expenses 39,819 73,353 Application software 34,041 76,949 Rent 40,859 75,435 Advertising expenses 22,150 57,217 Power 10,267 21,893 Insurance 936 2,016 Repairs and maintenance: - Leasehold premises 1,067 2,779 - Computer equipments 9,639 16,202 - Others 3,653 6,637 Rates and taxes 7,116 11,497 Finance charge on leased assets 1,653 2,115 Provision for doubtful debts, net 1,020 56,648 Donation 509 1,059 Contract acquisition cost 9,439 18,973 Other expenses 57, ,161 1,282,246 2,618, PRIOR YEAR COMPARATIVES Prior period/year amounts have been reclassified and regrouped, where necessary to conform with current period's/year's presentation.