Directors Report

BOARDS REPORT To, The company continued to achieve the new peaks in terms of profits The Members, The Directors of your Company are pleased to present the fourteenth annual report of the Company for the financial year ended 31st March 2005. FINANCIALS (Rs. in lacs except per share data) 31.03.2005 Total Revenue Total Expenditure PBT PAT Appropriations Proposed Dividend Dividend Tax Transferred to General Reserve Profit carried to Balance Sheet Earning per share (F.V. Rs. 5/- each) 64.79 9.09 50 811.17 5.03 259.15 33.87 100 62.91 3.55 1834.79 1183.05 651.74 651.74 31.03.2004 1274.63 814.94 459.69 459.69 BUSINESS OVERVIEW, GROWTH AND INTERNATIONAL EXPANSION The company has earned total revenues Rs. 1834.79 lacs. Net profit rose to Rs. 651.74, jumped by nearly 42% as against the previous year. With IT industry emerging as a front-runner to stimulate the Indian economy, overall industry outlook has become promising. As per NASSCOMs report, overall software and services grew by 32 percent and export grew by 44 percent. Contribution by the IT industry to the GDP is expected to increase in the coming years. Companys IT division is also becoming stronger as the Company has added a few new clients in the current fiscal so far. Post amalgamation scenario is looking positive for the Company. Further acquisitions of hotel properties were resorted to in order to consolidate and strengthen the companys position in overseas REVENUES The Company continued to achieve new heights in terms of business growth. Income from IT activities grew to Rs. 1759.29 lacs in reporting year as against Rs. 1174.09 lacs during the previous year. Exports also increased from Rs. 1133.83 lacs to Rs. 1711 lacs. However, income from hospitality sector decreased from Rs. 73.43 lacs to Rs. 58.68 lacs due to temporary suspension of operations as extensive renovation works were undertaken.
28

PROFITS

also. The net profit increased from Rs. 459.69 lacs to Rs. 651.74 denoting a growth of 41.78%. The increase in profit is largely attributable to the active steps taken by the management of the Company in reducing the input cost, improved realization and higher operational efficiencies.

market. During the year under report, the company has undergone extensive renovation at its hotel properties. The Board expects the renovated hotels properties will be well received by the customers as the outlook for tourism sector looks very positive. At the end of the year under report, the company, through its wholly owned subsidiary, has acquired one hundred percent stake in US based company engaged in the business of hotels & motels.

SEGMENTAL PERFORMANCE Information Technology Revenue from the IT segment has increased from 1174 lacs to Rs. 1759 lacs in reporting fiscal. Total exports stood at Rs. 1711 lacs as against Rs. 1134 lacs in previous year. The revenue from DTA sales stood at Rs. 12 lacs as against Rs. 5.25 lacs in previous year. The Company enjoys the STPI registration under which the entire profits is exempted in respect of exports of software. Hospitality Consequent to the amalgamation of Sai Motels & Resorts Ltd; the company has diversified into hospitality segment. However, revenue from this segment has declined from Rs. 73.43 lacs in previous year to Rs. 58.68 lacs in the reporting fiscal due to temporary suspension of operations at the several hotels for renovation work. The Board expects the situation to improve in the current fiscal with major renovation work being completed with luxury, leisure and other mid-segment products.

FIXED DEPOSIT Your Company has not accepted any deposit from the public during the previous financial year. REPORT ON CORPORATE GOVERNANCE According to clause 49 of the Listing Agreement, reports on Management Discussion & Analysis, Corporate Governance as well as Auditors Certificate regarding the compliance with the conditions of corporate governance are attached herewith. CHANGES ON THE BOARD Resignations Mr. Prakash Parekh resigned w.e.f. 16.11.2004. Mr. S. Nagarajan, Executive Director, resigned w.e.f. 21.02.2005. The Board of Directors places on record its appreciation for the valuable services rendered by them during their tenure. Appointments

DIVIDEND In the reporting year, Mrs. Vidya Moravekar was appointed as a Managing The Board of Directors of your Company has recommended final dividend @ 10% (Rs. 0.50/- per share). Dividend, if declared at the ensuing annual general meeting, will be paid within statutory time limit. Appointments/ re-appointments at the ensuing annual general meeting LISTING/ DELISTING OF SHARES In terms of Section 255, 256 and 257 of the Companies Act, 1956, and in Presently, the equity shares of your company are listed on Bombay Stock Exchange (BSE) only. Listing fees for the current financial year 2005-06 have already been paid by the Company. accordance with Articles 142 and 143 of Articles of Association of the Company, Mr. Mehul Parekh retires at the forthcoming annual general meeting. Office of ex-director Mr. Prakash Parekh will also be taken up for
29

Director at the last annual general meeting of the Company held on 29.12.2004.

consideration for retirement purpose at the ensuing annual general meeting. DIRECTORS RESPONSIBILITY STATEMENT Pursuant to the requirement under section 217 (2AA) of the Companies Act, 1956, with respect to Directors Responsibility Statement, it is hereby confirmed: 1. that in the preparation of the Annual Accounts for the financial year ended 31st March, 2005, the applicable accounting standards have been followed along with proper explanations relating to material departures; 2. that the Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit of the Company for the year ended 31st March, 2005; 3. that the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting frauds and other irregularities; 4. that the Directors have prepared the accounts for the financial year ended 31st March 2005 on a going concern basis. SUBSIDIARIES Your Company continues to foster important acquisitions of hotel properties through its overseas subsidiaries, placing it in a good position in the hospitality industry. The performance of these subsidiaries has been satisfactory. The Company has 4 subsidiary companies, all of which operate in the same field of hospitality. Besides participating in accelerated future growth, the integration of these hotel companies is expected to unlock value through operating synergies, which will further strengthen the competitive capability of your Companys Hotels business. The financial statements of subsidiaries are attached with this report. AUDITORS M/s. H. H. Topiwala & Co., Chartered Accountants, Auditors of the Company who retire at the forthcoming Annual General Meeting are eligible
30

for re-appointment and have expressed their willingness to accept office as such. They have given a certificate to the effect that the re-appointment, if made, would be within the limits prescribed under Section 224(1B) of the Companies Act, 1956. PARTICULARS OF EMPLOYEES The Company has no employee drawing the salary/ remuneration in excess of the limits specified under section 217(2A) of the Companies Act, 1956. CONSERVATION OF ENERGY, RESEARCH & DEVELOPMENT, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO The particulars as prescribed under sub-section (1)(e) of Section 217 of the Companies Act, 1956, read with the Companies (Disclosure of Particulars in the report of Board of Directors) Rules, 1988, are set out in Annexure-A, forming part of this report. ACKNOWLEDGEMENT The Board desires to place on record, its appreciation to all employees at all level, who during the year under review, with sustained dedicated effort, enabled the Company to deliver a good all-round performance. Your Directors also wish to place on record their appreciation and acknowledge with gratitude the support and co-operation extended by the clients, bankers and investors and look forward to their continued support. Your Directors thank the Software Technology Parks of India, Navi Mumbai, the Reserve Bank of India and other government agencies for their support and look forward to their continued patronage in future.

For and on behalf of the Board Sd/Vidya Moravekar Chairperson & MD

Mumbai, 29th August 2005.

Annexure
ANNEXURE TO THE DIRECTORS REPORT 1. Conservation of energy The operations of your company do not consume high levels of energy. The computer systems installed are designed for low power consumption and in line with the latest technologies. As the cost of energy consumed by the Company forms a very small portion of the total costs, the impact of changes in energy cost on total costs is insignificant. 2. Research & Development (R & D) R&D of new services, designs, frameworks, processes and methodologies continue to be of importance at the Company. This allows your company to increase quality, productivity and customer satisfaction through continuous innovation. a. Specific Areas in which the Company carries out R & D R & D effort is carried out specifically in the areas of application software development including Manufacturing and Distribution, Human Resources Management System, Healthcare, Trading, Hospitality, Security and other Service Industries. b. Benefits derived as a result of above R & D Benefits derived as a result of above R&D are the use of cutting edge design, efficient navigation, streamlined content and speedy delivery to the client. The technology end is customized to incorporate scalability, ease of navigation, customer tracking and database functions tailored to the client. Benefits have been reflected in providing e-technology solutions for Designing e-Business strategies and aligning information technology to support the business information needs Development of custom-built solution Providing e-business consultation Establishing strategic business alliance to provide/develop specific e-business solutions. c. Future plan on R & D Your Company is developing wide range of products that satisfy industrial thirst for faster retrieval and access accurate data in decision making for the ever-changing business conditions and current competitive Global environment. The major activity is to establish business tie-ups to promote Mumbai, 29th August 2005.
31

popular Indian software brands in the overseas market. Our strategy is to offer the software product like ERP, Multi-level Chain Marketing, Human Resource Management System, Sales and Distribution applications which are developed for the Indian/Overseas software companies, which could be parameterized to take care of current requirements and future modifications too. Efforts will be made by integrating R & D with business needs for offering better value added products and services for our customers. The Company will continue to upgrade existing infrastructure and improve performance. This will enable the Company to introduce and implement latest technology to meet changing market needs. d. Expenditure on R & D The development work is continuously undertaken by concerned departments.However no separate record of the expenditure incurred on R & D as such is maintained. 3. Technologies absorption, adaptation and innovation No Technology has been imported. Indigenous Technology available is used for product development, is continuously being upgraded to improve overall performance. Your Company deploys its resources from time to time and imparts necessary training to keep abreast of the continuously changing technology. 4. Foreign Exchange earnings and outgo Earnings in Foreign Exchange Rs. 1711 lacs Foreign Exchange outgo Rs. 1756.36 lacs (including investment of Rs. 1660.46 lacs in WOS/JV abroad)

For and on behalf of the Board Sd/Vidya Moravekar Chairperson & MD

Management Discussion and Analysis

INDUSTRY STRUCTURE AND DEVELOPMENTS Year 2004-05 proved to be a year of augmentation for Indian Corporates. With the revival of US economy and favourable policies of the Government, the IT sector made a huge growth in the previous year. Many companies added fresh finance in their business to maximize the revenue. Overall software and services grew by 32 percent and exports grew by 44 percent. With favourable policies from the Government and strong inflow of funds from foreign participants, the economy showed a huge leap across the sectors. Companies are constantly searching for means of finance for expansion and diversification activities. Many mergers and takeovers resorted to framing better platform for expansion of existing business activities and providing better customer services through consolidation of business activities. India has been ranked one of the fastest growing nations primarily driven by robust growth in Finance, IT industry and manufacturing sectors. Indias international-class manpower that creates high quality software and services solutions is finding favour among overseas customers. Review of operations In the reporting year, the company saw an acceleration in revenues, improved profits and improved profitability where Total revenue increased to Rs. 1834.79 lacs in reporting fiscal as against 1274.63 lacs in previous fiscal; The net profit jumped by nearly 42% to Rs. 651.74 lacs as against Rs. 459.69 lacs in previous year; Other income slightly declined to Rs. 19.99 lacs in reporting fiscal as against Rs. 23.97 lacs in previous fiscal;
32

into hospitality segment, which the Board expects to be a profitable venture in coming years. It is evident from the above, that the year was a growth oriented period marked by higher operational efficiencies. Other Income The other income earned by the company includes interest income, dividend income on its long term investments and gains on foreign currency exchange rate fluctuations. OPPORTUNITIES AND THREATS Opportunities The global economic upturn has opened a number of opportunities for the IT industry. The company has a significant number of potential high value customers, expected to generate good business going forward. The familiarity and experience of Indian players with offshoring is dramatically increasing the breadth of service lines (for instance, ITES, SI, ITO, R&D Services). Indian software companies are amongst the leaders in quality and productivity and we would continue to focus our attention towards customer satisfaction. Information Technology - Influencing the Indian economy The Indian economy has consolidated its position as a major growth economy, second only to China. The contribution of the Indian software and IT-enabled services industry to GDP is expected to increase to 10 percent in 2008. ITS and ITES exports will account for more than 30 percent of all foreign exchange earned in 2008. The industry will create over 2 million jobs for direct employment and an equal number indirectly by way of support services. The global industry will put India firmly on the world technology map.

The company, through its subsidiaries, has made several overseas acquisitions of hotel properties in course of its diversification program

Favorable Government policies While currently the outlook appears positive for the ITS and ITES industries, a fulfillment of the future vision will need the support of the Government. Some of the key issues that need to be addressed are: Remove regulatory bottlenecks and ensure consistency of policies. India has to strengthen the supply base of knowledge workers (by increasing the number of engineering seats, and increasing the share of IT in graduate curriculum) Address specific concerns of the ITES sector (on labor laws, telecom infrastructure and regulatory issues (through product market reforms and increased use of IT in government)

tourism and allied businesses. The number of tourists across the world is increasing. Many industry players have resorted to overseas mergers and acquisitions, thereby making their presence felt at the international stage and simultaneously continue to be profitable ventures. It is the strategic intent of your Company to blend the multiple competencies residing within its businesses to create new engines of growth in a bid to secure the future. Born out of this strategy, the Company has successfully diversified into this sector by rapid overseas acquisitions of hotel properties in various regions of USA. The Company has acquired four hotels in USA, the performance of which has been quite satisfactory. Threats, Risks and concerns The potential threats, though not exhaustive, identified by the management are:

Develop second tier towns into world class software hubs by improving their IT and telecom infrastructure. The strength of any organization is its experienced and skilled manpower. The profitability may be affected if any key person/ officer resigns/ retires from the organisation. However, your company is successful in making optimum allocation and utilization of its human resources; Due to recent changes in Indian Taxation laws, the profitability may be adversely affected if the company fails to make proper tax planning; At present, the Companys major revenue from its IT segment is derived from its fixed cliental base. If such clients switch over to another organization, it may affect adversely. However, the business of the Company may not be affected as the Company has created a good business relations with its existing clients; The company also ventured into hospitality sector. The margins are adequate but may be affected due to non-occupancy of hotel rooms; Competition is widely spread across the sectors. Increase in
33

Growth viable in Tourism and Hospitality sector Another sector which has drawn the attention of business groups is Tourism and Hospitality. In the recent past, this sector has shown a substantial growth and flow of foreign tourists across the world has gone up. India has also seen a jump in these numbers. Global tourism trends have been extremely positive. Driven by resurgent global economies and improvements in socio-political relations, international tourist movements are at an all-time high of nearly 800 million, driven by the increased availability of less expensive destinations across the globe. This sector is indeed in a boom. The formation of a progressive government and continuation of reform initiatives, continued emphasis on infrastructure investments, opening up of various sectors to foreign investment, have given a major fillip to the Indian businesses. Increasing travel has been backed by increase in spends as well, which has been favourable for the development of

competition may put pressure on the companys margins: Your company has been acquiring new hotel properties abroad. Any slowdown in this sector will increase the time to absorb the cost of capital; A major portion of IT segment revenues is derived in US dollar from software exports. The company is exposed to the risk of fluctuation in foreign exchange rates; Any unfavorable changes in Government policies may have an adverse impact on the business prospects; Outlook and Future Strategies The business outlook for the year ahead is expected to be positive, as is evident from preliminary operations in the first quarter of 2005-06. In the recent past, several international hotel chains and domestic business houses have announced their plans to enter various segments such as luxury, leisure and other mid-segment products. In spite of the entry of such chains, which will partially fill the demand-supply gap in hotel rooms, the management expects a considerable excess of demand over supply and significant scope for further expansion. In order to consolidate and strengthen its position in the overseas market, your Company seeks to grow through increasing its presence in the luxury segment and in the highend leisure segment. In the overseas market, your Company is pursuing a presence in key gateway regions in the USA and New Zealand. With the projected increase in tourist traffic, continuing with its strategy, your Company will further explore expansions of premium leisure resorts. Some of the strategies that the Company plans to adopt in coming years include: To consolidate its position in hospitality segment; Further acquisitions of hotel properties to strengthen its position in the hospitality segment; To expand its presence in international market for its IT division; Improvements in revenue growth rates and commensurate improvement in profitability; NASSCOMs IT industry outlook for fiscal 2005-06 shows that:
34

The positives seen by the management are: The Board expects its hospitality sector to be profitable venture as seen from the financial performance in first quarter of the current fiscal; The company continues to foster important hotel acquisitions, through its wholly owned subsidiaries abroad, placing it in a strong position in hospitality sector; The company has added a few new clients in current fiscal which may result in higher revenue. Internal control systems and their adequacy The management has created and maintained facilities to provide feedback from operations. Adequate controls are established to ensure that the assets of the Company are safeguarded and transactions are executed in accordance with the managements authorization and are appropriately recorded in the books of accounts. Fixed assets of the Company have been verified during the year and no major discrepancies have been found during the course of verification. The Company has effective Management Information System to provide the management the planning and control tools to facilitate the decision process. The Company regularly conducts other control measures like cash verification, checks on bank balances, etc. The statutory auditors have shown satisfaction with the internal control system. However, the recommendations for improvement made by the auditors have been agreed by the management to be incorporated into the system and the follow-up action report has been submitted to the internal auditors. Both the statutory and internal auditors are regularly invited to the audit committee meetings. Financial performance with respect to operational performance Share Capital In the previous year, the company has issued and allotted 29,37,500 equity shares as fully paid up to the shareholders of M/s. Sai Motels & Resorts Limited on account of amalgamation. The equity shares capital stood at Rs. 647.88 lacs divided into 1,29,57,500 equity shares of Rs. 5/- each fully paid up. The Company has not given any stock option to any of its employees or officer or Director of the Company. Reserve & Surplus Capital Reserves includes Rs. 2.39 lacs representing an amount of issue of forfeited shares. Rs. 1028.13 lacs represents an amount on account of difference in capital issued to the shareholders of erstwhile M/s. Sai

Export growth will be around 30-40 per cent Domestic growth will be in the region of 25 per cent Indias offshore value proposition will remain the strongest

Motels & Resorts Limited, which merged with the Company. An amount of Rs. 50 lacs was transferred from the profits of the current year to General Reserve totaling the balance of General Reserves at Rs. 840.5 lacs.

accounts for 13.20 lacs. Loans & Advances This includes accrued interest (Rs. 0.5 lacs), advances recoverable (Rs.

Loans funds During the reporting year, the company has repaid its secured loan to the extent of Rs. 10.24 lacs. As on 31st March 2005, the unsecured loan stood at Rs. 4.49 lacs. However, the Company has increased the unsecured loan from bodies corporate to part finance its long-term capital expenditure and other corporate requirements. As on 31st March 2005, the total unsecured loan stood at Rs. 1891 lacs as against Rs. 643.67 lacs in previous fiscal. Fixed Assets During the year under report, the company invested an amount of Rs. 24.82 lacs in fixed assets for project related asset addition capacity increases; and normal capital expenditure

998.66 lacs), advance for technical know how (Rs. 101.12 lacs), deposits (Rs. 33.72 lacs), advance tax and TDS (Rs. 0.88 lacs) and prepaid expenses (Rs. 2.34 lacs). Current Liabilities & Provisions Current liabilities This includes sundry creditors, duties and taxes, unclaimed dividends and other liabilities. Provisions Provisions include proposed dividend, tax on dividend and other provisions. Total export and profit Total export of the software services stood at Rs. 1711 lacs which constitutes 93.25% to the total revenue. The net profits was Rs. 651.74 lacs accounting 35% of the total revenues.

After providing the depreciation, the total fixed assets stood at Rs. 612.95 lacs. Dividend Investments The Board of Directors has recommended a final dividend @ 10% (Rs. 0.50 The total investments includes the equity shares of other companies to the tune of Rs. 20.61 lacs, shares held by the Company in its subsidiaries to the tune of Rs. 3160 lacs and investment in partnership firm to the tune of Rs. 149.07 lacs. All investments have been accounted at cost. Current Assets, Loans and Advances The elements of current assets are: Inventories Inventories, comprises of raw material, held by the Company as on 31st March 2005 is Rs. 0.78 lacs. Sundry debtors Sundry debtors consists Rs. 2.45 lacs for over six months; and Rs. 6.57 lacs for less than six months, as on 31st March 2005. Cash and Bank Balances Cash in hand amounts to Rs. 12.14 lacs and deposits with scheduled banks amounts to Rs. 116.88 lacs. Fixed deposit with scheduled bank Developments in Human Resources / Industrial Relations The policy of the Companys management is to retain the best talent at the competitive honorarium. The Company has also in-house set up to enhance the productivity of the employees. Onsite training and education programs are being conducted at regular intervals ensuring the coverage of all employees. The Company has 60 employees. Cautionary Statement Statement in the Management Discussion and Analysis describing the Companys objectives, projections, estimates, expectations may be forward looking statements within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include economic conditions and price conditions in the domestic and overseas markets in which the company operates, changes in the Government regulations, tax laws and other statutes and other incidental factors.
35

per equity share) subject to the approval of the shareholders in ensuing annual general meeting scheduled to be held on 30.09.2005.

Corporate Governance
I. COMPANYS PHILOSOPHY The Company stands committed to effective corporate governance and has always made an endeavor to instill ethical and transparent practices while recognizing the right to information of all stakeholders including the shareholders. The Company lays a long-term emphasis on Corporate Code of Governance, as a true and effective code of corporate conduct would hold the Company and its stakeholders in a good stead in the coming years. Philosophy based on the principle to enhance the long-term shareholders value while at the same time to protect the interests of other stakeholders. The Company always strives to lead to increase customers * Constitution of the Board and category of Directors Category Meetings Attendance Directorship in other Companies # Last AGM Committees of other Companies Board ChairMembmanship ership satisfaction, shareholders value & wealth and to ensure self-driven, self assessed and self regulated organization strengthening investors trust and ensures a long- term partnership that helps in fulfilling the Companys quest for higher growth and profit. II. BOARD OF DIRECTORS The Board comprises of 2 executive directors, 1 non-executive nonindependent director and 4 non- executive and independent directors. The Chairman is an Executive Director. The number of Independent Directors comprises more than half of the Boards total strength.

Name of Director

Board Audit Vidya Moravekar* S Nagarajan @ Siddhartha M Prakash P @ Mehul P Hemlatha S Arun T Vilas M Bhupendra P. CMD NENI @ # CMD E NENI NEI NEI NEI W NEI NEI 2 8 2 Nil 10 10 Nil 10 Nil 5 5 5 -

Board Committees Remuneration 1 1 1 Investors Grievance 1 5 4 -

N Y Y N Y Y N Y N

5 None 1 None 2 1 None 1 None

None None None None 1 None None None None

None None None None None 1 None 1 None

Chairperson & Managing Director E Executive Director Non-executive non-independent Director NEI Non- executive & independent Director Directors not presently on the Board. * Directors appointed during the year under report Directorship in other companies excludes directorship in private and foreign companies

None of the Directors is a member of more than ten committees or acts as a Chairman of more than five committees across all the companies in which he/ she is a director. However, for this purpose, only three committees viz. Audit Committee, Remuneration Committee and Share Transfer Committee have been taken into account.
36

PARTICULARS OF DIRECTOR(S) SEEKING APPOINTMENT/ REAPPOINTMENT Mr. Mehul Parekh was appointed on the Board on 20.06.2003. He is a Commerce Graduate and persuing a professional course offered by ICSI. He is a Chairman of all the Committees of the Board i.e. Audit Committee,

Remuneration Committee and Shareholders Grievance Committee. Besides the directorship in this Company, Mr. Parekh is a director of M/s. Pan Herbo Limited and M/s. Shrishti Tradewell Private Limited. He is also Chairman of Remuneration Committee of Board of Directors of Ms/. Pan Herbo Limited.

Details of meetings of the Board and Committees thereof held in the year 2004-05 Meetings Dates in 2004 Aug Sep 31 13 Dates in 2005 Feb Mar 21 26 10

Board of Directors Audit Committee Remuneration Committee Share Transfer & Investors Grievance Comm. III. COMMITTEES OF BOARD A. Audit Committee

Apr 5 23 23

May -

Jun 17 17 -

Jul 31 -

Oct 30 30 30 -

Nov 16 30

Dec 30

Jan 29 29 20

fixation of audit fee and also approval for payment for any other services. c. Reviewing with management the annual financial statements before submission to the board, focusing primarily on; o o o o o o o o Any changes in accounting policies and practices. Major accounting entries based on exercise of judgement by management. Qualifications in draft audit report. Significant adjustments arising out of audit. The going concern assumption. Compliance with accounting standards. Compliance with stock exchange and legal requirements concerning financial statements Any related party transactions i.e. transactions of the company of material nature, with promoters or the management, their
37

The Board has constituted, in terms of Section 292A of the Companies Act, 1956 as well as Clause 49 (II) of the Listing Agreement, an Audit Committee which consists of 3 directors, all being non-executive & independent, headed by Mr. Mehul Parekh. The Company Secretary acts as a Secretary of the Committee. The members of the Committee at their meeting held on 29.08.2005 approved the audited accounts for the year ending on 31.03.2005. Apart from the members of the Committee, the Statutory Auditors and internal auditor of the Company are also invited to the meetings. The functions of the Committee are multifarious and specifically include a. Oversight of the companys financial reporting process and the disclosure of its financial information to ensure that the financial statement is correct, sufficient and credible. Recommending the appointment and removal of external auditor,

b.

subsidiaries or relatives etc. that may have potential conflict with the interests of company at large. d. Reviewing with the management, external and internal auditors, the adequacy of internal control systems. Reviewing the adequacy of internal audit function, including the structure of the internal audit department, staffing and seniority of the official heading the department, reporting structure coverage and frequency of internal audit. Discussion with internal auditors any significant findings and follow up there on. Reviewing the findings of any internal investigations by the internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the board. Discussion with external auditors before the audit commences nature and scope of audit as well as have post-audit discussion to ascertain any area of concern. Reviewing the companys financial and risk management policies. To look into the reasons for substantial defaults in the payment to the B.

depositors, debenture holders, shareholders (in case of non payment of declared dividends) and creditors. Remuneration Committee The Company has set up a remuneration committee in terms of

e.

Clause 49 (III) and Schedule XIII to the Companies Act, 1956 which consists of 3 non-executive and independent directors. The powers of remuneration committee include the power to recommend any remuneration to be paid to the executive directors. Remuneration Policy The Company offers remuneration to the executive directors based on his/ her qualification, past experience, performance, degree of responsibilities to be assigned and contribution foreseen to the growth of the Company. The remuneration mainly consists of basic remuneration and other perks. However, the Company has no scheme of stock option for any of its employees including managerial or other directors. Such policy is applied uniformly to all levels of employees. Some benefits of existing remuneration policy have been observed by the management i.e. better performance, motivation and commitment to the organisation.

f.

g.

h.

i. j.

Details of remuneration paid to the executive directors of the Company during the year under report are as under: Name of the Director Mr. Nagarajan S Mr. Arun T Remuneration including Allowances (Rs. in 000) 2.45 2.28 Service Contract & Notice period Stock option

Terminated w.e.f 21.02.2005 Valid w.e.f. 01.12.2001 with an option to terminate the same by either party by giving 30 days notice Valid w.e.f. 29.12.2004 with an option to terminate the same by either party by giving 30 days notice

Nil Nil

Mrs. Vidya M

7.92

Nil

C.

Share Transfer & Investors Grievance Committee Share transfer and investors grievance committee comprises of 3 directors, all of them being non-executives and independents and headed by Mr. Mehul Parekh. Secretary of the Company has been charged to comply the functions of the Committee. The details of complaints received during the year are given below: Number of complaints received during the year Nature of complaints 2 13 1 Number of complaints solved 2 12 1 Number of pending Complaints 0 1 0

Share Transfer/ Transmission Dividend Others

38

IV. *

GENERAL MEETINGS Details of general meetings held during 3 previous financial years

Year 2004

Date & Time 29.12.2004 at 11.30 a.m 14.05.2004 at 11.00 a.m. 30.09.2003 at 11.00 a.m. 30.09.2002 at 11.00 a.m.

Kind of meeting AGM

Venue 114, Kaliandas Udyog Bhavan, Near Century Bhavan, Prabhadevi, Mumbai 400 025 114, Kaliandas Udyog Bhavan, Near Century Bhavan, Prabhadevi, Mumbai 400 025 114, Kaliandas Udyog Bhavan, Near Century Bhavan, Prabhadevi, Mumbai 400 025 114, Kaliandas Udyog Bhavan, Near Century Bhavan, Prabhadevi, Mumbai 400 025

Special resolutions No Business 2 -Appointment of M.D. -Holding Place of Profit 1 -To approve Amalgamation -Delisting of equity shares of the Company from ASE - Commencement of new business

2004

EGM

2003

AGM

01

2002

AGM

01

V.

DISCLOSURES Related party transaction There is no transaction of material nature with the promoters, directors or management of the Company or its subsidiaries or relatives of such persons that may have potential conflict with the interest of the Company at large.

30.09.2005 at 11.30 a.m. at the registered office of the Company. The notice of the meeting is attached with this report. Members are requested to go through the contents of the notice and notes thereto for better understanding. Financial Calendar The financial year of the Company commences on April 01 each year and ends on March 31 of the following year. The preparation and declaration of quarterly/ half yearly/ yearly un-audited financial results are scheduled as following: a. b. c. d. first quarter results half yearly results third quarter results within one Month of quarter ending 30.06.2005 Within one Month of half year ending 30.09.2005 Within one Month of quarter ending 31.12.2005

Details of non-compliance After the close of the year under report, SEBI had issued a notice to the company to the Company for non-filing of declarations for complying with the provisions of Take Over Code. The company has given its consent to adjudicate the matter.

VI.

MEANS OF COMMUNICATION Companys quarterly, half yearly and annual results are being published in Free Press Journal in English Daily Newspaper and in Navshakti Daily Newspaper (in Marathi language). However, unaudited results are not sent to the shareholders individually. The shareholding pattern (as per clause 35 of the Listing Agreement) and quarterly, half yearly results are being uploaded on Company website www.itmicrosystems.com Apart from the Companys website, the above particulars are also filed, as per clause 51 of the Listing Agreement, on SEBIs website www.sebiedifar.com

results for year ending 2006 Within one Month of the year ending 31.03.2006 Book Closure The share transfer books and register of members of the Company will remain closed from 27.09.2005 to 30.09.2005 (both days inclusive) for the purpose of ascertaining the name of the shareholders eligible for dividend, if declared at the annual general meeting. However, above dates are for the purpose of the shares in physical form only and no request for transfer shall be recorded by the Company/ RTA during this period. Book
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VII. GENERAL INFORMATION Schedule of Annual General Meeting

The Fourteenth Annual General Meeting of the Company will be held on

closure will be first day of the book closure period for the shares held in dematerialized form, for the purpose of dividend. However, the transfer of dematerialized shares made during the period of book closure, will be recorded by NSDL/ CDSL only on the expiry of the book closure period.

The listing fees for the year 2005-2006 have been paid to the stock exchange. Registrar and Transfer Agents The Registrar and Share Transfer Agents of the Company are M/s.

Dividend Payment Date TThe Board has recommended a final dividend @ 10% (Rs. 0.50 on each fully paid equity share). Dividend, if declared at the annual general meeting, shall be paid to the shareholders within statutory time prescribed under the applicable provisions of the Companies Act, 1956. It is to be noted that as per the SEBI directions, dividend payable on shares held in dematerialized form will be paid by way of Electronic Clearing Service (ECS) and shall directly be credited to the bank account of the shareholder. However, this facility is extended by the Company only at demat accounts maintained with Depository Participants (DPs) located in Mumbai. Members may please note that while opening a depository account with participants of National Securities Depository Limited (NSDL)/Central Depository Services (India) Limited (CDSL), you may have given your bank account details, which will be used by the Company for payment of dividend through ECS. The details of the bank account of the shareholders will be provided by the NSDL/ CDSL to the Company. However, shareholders holding shares in physical form, have an option to receive dividend by way of ECS if the Company receives from such shareholder(s) duly filled ECS declaration alongwith the copy of cancelled blank cheque (for security concern). If not opted for ECS, dividend warrants/ drafts will be sent to the shareholders at their address registered with the Company.

Sharex Dynamic (India) Private Limited situated at 17/B, Dena Bank Building, 2nd Floor, Horniman Circle, Fort, Mumbai 400 001. Members may please write to the Companys RTA for transfer of shares, payment of dividend on shares, and any other query relating to the shares of the Company. Share Transfer System (shares held in physical form only) At present, the transfers of shares are effected (in physical form) within 15 days from the date of the receipt of the instrument effecting the transfer, subject to the instrument being valid and complete in all respects. All these transfers are later on approved by the Share Transfer cum Investors Grievance Committee of the Board. However, the Company has offered the facility of transfer cum demat. Under this system, after the transfer is effected, an option letter is sent to the transferee indicating the details of the transferred shares and requesting him, if he/ she wishes, to hold such shares in electronic form (Dematerialized form). If he/ she wants his shares to be dematerialized, he/ she has to approach his/ her Depository Participant (DP with whom he/ she maintains his/ her demat account) with the option letter. The DP, based on the option letter, generates a demat request and sends the same to the RTA along with the option letter issued by the RTA. On receipt of the same, the RTA dematerializes the shares. In case the transferee does not want the shares in electronic form, he/ she need not exercise the option and the RTA will dispatch to the transferee the share certificates after the expiry of the period mentioned in the option letter. Dematerialization of shares and liquidity As on 31st March 2005, over 97% of the total paid up equity shares have been dematerialized. Location of Business Development Centre Companys Software Division and Business Development Centre are located at 357, Kalyandas Udyog Bhavan, Near Century Bazaar, Prabhadevi, Mumbai 400 025.

Listing of equity shares of the Company Presently, the equity shares of the Company are listed only on Bombay Stock Exchange. The code and ISIN of the shares of the Company are following: At Bombay Stock Exchange (BSE) Demat ISIN for equity shares in NSDL & CDSL 531816 (ITMICROSYS) INE 194B01029

40

Market Price Data (High and Low of each month of previous year under report) Share Price Month & Year Apr- 04 May 04 Jun-04 Jul-04 Aug-04 Sep-04 Oct-04 Nov-04 Dec-04 Jan-05 Feb-05 Mar-05 High 26.75 26.45 25.70 25.75 26.10 25.00 40.70 51.00 50.80 39.50 48.00 44.50 Low 16.50 17.50 21.55 20.30 18.50 21.15 22.15 34.15 35.00 30.00 32.00 34.80 High 5579.12 5772.64 5012.52 5200.85 5269.22 5638.79 5803.82 6248.43 6617.15 6696.31 6721.08 6954.86 BSE Sensex Low 5599.12 4227.50 4613.94 4723.04 5022.29 5178.57 5558.14 5649.03 6176.09 6069.33 6508.33 6321.31

Performance in comparison to BSE Sensex

Adresses For Correspondence For Change of address/ share transfer or transmission and other share related queries: M/s. Sharex Dynamic (India) Private Ltd. 17/B, Dena Bank Building, 2nd Floor, Horniman Circle, Fort, Mumbai 400 001 For any other queries:

The Company Secretary / Asst Company Secretary IT Microsystems (India) Limited, 114, Kaliandas Udyog Bhavan, Near Century Bazaar, Prabhadevi, Mumbai 400 025
41

Distribution of Shareholding (as on 31.03.2004) Category A. 1. Promoters holding Promoters Indian Promoters Foreign Promoters Persons acting in concert Sub-Total Non-Promoters Holding Institutional Investors a. Mutual Funds and UTI b. Banks, Financial Institutions, Insurance Companies (Central/State Govt. Institutions/Non-government Institutions) c. FIIs Sub-Total Others a. Private Corporate Bodies b. Indian Public c. NRIs/OCBs d. Any other [Clearing Member (Broker)] e. Venture Capital Sub-Total GRAND TOTAL No. of shares held Percentage of shareholding

2. B. 3.

64,49,802 NIL 32,09,525 96,59,327 NIL NIL NIL NIL NIL 25,74,935 6,04,903 1,13,485 4250 600 32,98,173 1,29,57,500

49.78 NIL 24.77 74.55 NIL NIL NIL NIL NIL 19.87 4.67 0.88 0.03 0.01 25.45 100.00

4.

CHAIRMAN OF THE BOARD The Company has an Executive Chairperson. Remuneration committee The Company has already set up a remuneration committee that has inter alia power to determine the remuneration to be paid to the executive directors. The details of such committee and the Companys remuneration policy are given in earlier paragraph of this report. The Company has complied with the requirements of Clause 49 and also Schedule XIII to the Companies Act, 1956 so far the constitution and functions of the Remuneration Committee are concerned.

Shareholders Rights Half-yearly declaration of financial performance including summary of the significant events in last six-months are not sent to the shareholders. Instead, such details are published in newspapers in regional (Marathi) and English Languages as required under the Listing Agreement. Also, the Company uploads financial results, shareholding pattern and other information on its website apart from EDIFAR system mandated by SEBI. Postal Ballot The Company shall comply with the provisions of Section 192A of the Companies Act, 1956 and Companies (Passing of the resolution by postal ballot) Rules, 2001 and follow the prescribed procedure therefor as and when the need arises.

42

Auditors Certificate

Auditors Certificate on Compliance with the conditions of Corporate Governance under Clause 49 of the Listing Agreement(s) To the Members of IT Microsystems (India) Limited We have examined the compliance of conditions of Corporate Governance by IT Microsystems (India) Limited (the Company) for the year ended 31st March, 2005, as stipulated in clause 49 of the Listing Agreement of the said Company with the stock exchanges. The compliance of conditions of Corporate Governance is the responsibility of the management. Our examination was limited to procedures and implementation thereof adopted by the Company for ensuring the compliance of the conditions of Corporate Governance. It is neither an audit nor an expression of opinion on the financial statements of the Company. In our opinion and to the best of our information and according to the explanations given to us, and the representation made by the directors and the management, we certify that the Company has complied with the conditions of Corporate Governance as stipulated in Clause 49 of the above-mentioned Listing Agreement. As required by the Guidance Note on Certification of Corporate Governance issued by the Institute of Chartered Accountants of India, we state that the Registrars of the Company have certified that as on 31st March 2005, there were no investor grievances remaining unattended/ pending for more than 30 days. We further state that such compliance is neither an assurance as to the further viability of the Company nor the efficiency or effectiveness with which the management has conducted the affairs of the Company.

For H. H. Topiwala & Co; Chartered Accountants

H. H. Topiwala Proprietor Membership No. 38660 Mumbai, 29th August 2005.

43

Auditors Report
AUDITORS REPORT TO THE MEMBERS OF IT MICROSYSTEMS (INDIA) LTD. We have audited the attached Balance Sheet of IT Microsystems (India) Ltd. (the Company) as at March 31, 2005 and also the Profit and Loss Account for the year ended on that date annexed thereto and the Cash Flow Statement for the year ended on that date. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion. As required by the Companies (Auditors Report) Order, 2003 issued by the Central Government of India in terms of section 227(4A) of the Companies Act, 1956, we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order. Further to our comments in the Annexure referred to above, we report that: b. (i) We have obtained all information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit; c. (ii) In our opinion, proper books of account as required by law have been kept by the company so far as appears from our examination of those books and proper returns adequate for the purpose of our audit have been received from the USA, UAE and New Zealand branches not visited by us; The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books of account; In the case of the Profit and Loss Account, of the profit for the year ended on that date; and In the case of Cash Flow statement, of the cash flows for the year ended on that date. For H. H. Topiwala & Co; Chartered Accountants (iv) In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report comply with the accounting standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956; The Accountants Review Report in respect of USA branch, audited Receipts and Payments Statement in respect of UAE branch and Audit Report in respect of New Zealand branch have been forwarded to us and have been dealt with by us in preparing this report; On the basis of written representations received from the directors, as on March 31, 2005, taken on record by the Board of Directors, we report that none of the directors is disqualified as on March 31, 2005 from being appointed as a director in terms of Section 274 (1) (g) of the Companies Act, 1956;

(v)

(vi)

(vii) In our opinion and to the best of our information and according to the explanations given to us, the said accounts read together with the Significant Accounting Policies and other notes thereon give the information required by the Companies Act, 1956, in the manner so required and present a true and fair view in conformity with the accounting principles generally accepted in India: a. In the case of the Balance Sheet, of the state of affairs of the Company as at March 31, 2005;

(iii)

Mumbai August 29, 2005

H. H. Topiwala Proprietor Membership No. 38660

44

Annexure to the Auditors Report

1. In respect of its fixed assets: (a) The Company has maintained proper records showing full particulars including quantitative details and situation of fixed assets. (b) According to the information and explanation given to us, the management during the year has physically verified the fixed assets in a phased manner, which in our opinion is reasonable, having regard to the size of the Company and nature of the assets. No material discrepancies were noticed on such verification. (c) Substantial part of Fixed Assets has not been disposed off during the year as to affect the going concern. In respect of its inventories: (a) As explained to us, inventories were physically verified during the year by the management at regular intervals. (b) In our opinion, and according to the information and explanations given to us, the procedures of physical verification of inventories followed by the management are reasonable and adequate in relation to the size of the company and nature of its business. (c) The company has maintained proper records of inventories. As explained to us, there were no material discrepancies noticed on physical verification of inventory as compared to the book records. In respect of loans, secured or unsecured, granted or taken by the company to/from companies, firm or other parties covered in the register maintained under section 301 of the Companies Act 1956. (a) The Company has not granted any loans, secured or unsecured, to companies, firms, or other parties listed in the register maintained under section 301 of the Companies Act, 1956. (b) The erstwhile Sai Motels & Resorts Ltd. now merged with the company has taken unsecured loan from one party aggregating Rs.1.21 Crore. The rate of interest and other terms and conditions are, prima facie, not prejudicial to the interests of the Company. In our opinion and according to the information and explanations given to us, there are adequate internal control procedures commensurate with the size of the Company and nature of its business for the purchase of inventory, fixed assets and also for the sale of goods and services. During the course of our audit, no major weakness has been noticed in the internal controls. In our opinion and according to the information and explanations given to us, the Company has not entered into transactions for the purchase of goods and materials and sale of goods, materials and services, made in pursuance of contracts or arrangements entered in the register maintained under section 301 of the Companies Act, 1956 as aggregating during the year to Rs.500, 000 or more in respect of each party. The Company has not accepted any deposits from the public. 7. 8. 9. In our opinion, the Company has an internal audit system, commensurate with its size and the nature of its business. The central government has not prescribed maintenance of cost records under section 209(1) (d) of the Companies Act, 1956. According to the information and explanations given to us, there are no undisputed amounts payable in respect of income tax, wealth tax, sales tax, customs duty and excise duty that were outstanding as at March 31, 2005 for a period of more than six months from the dates that they became payable. The Company does not have accumulated losses as at the end of the year and the Company has not incurred cash losses during the current year. Based on our audit procedures and to the best of our knowledge and belief and according to the information and explanations given to us, we are of the opinion that the company has not defaulted in the repayment of dues to financial institutions and banks. According to the information and explanations given to us, the Company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and other securities. The provisions of any Special Statute applicable to Chit Fund, Nidhi or Mutual Benefit Fund / Societies are not applicable to the Company. The Company has maintained proper records of transactions and contracts in respect of trading in securities, debentures and other investments and timely entries have been made therein. The Company in its own name has held all shares and other investments. The company has given guarantee for loan taken by its wholly owned subsidiary. According to the information and explanations given to us, we are of the opinion that the terms and conditions thereof are not prejudice to the interests of the company. The Company has not taken any term loans. On the basis of review of statements of accounts and as confirmed by the management, fund raised on short-term basis have not been used for long-term purpose. The Company has not made any preferential allotment of shares to parties and companies covered in the Register maintained under section 301 of the Act. The Company has not issued any debentures. The company has not raised any fund by way of public issue of shares. In our opinion and according to the information and explanation given to us, no fraud on or by the company has been noticed or reported during the year that causes the financial statements to be materially misstated. For H. H. Topiwala & Co; Chartered Accountants H. H. Topiwala Proprietor Membership No. 38660
45

10.

2.

11.

12.

13.

14.

3.

15.

16. 17.

18.

4.

19. 20. 21.

5.

6.

Mumbai August 29, 2005

BALANCE SHEET AS AT 31ST MARCH 2005

(in Rs.) Particulars Sch. As at 31-03-2005 As at 31-03-2004

SOURCES OF FUNDS Shareholders Funds Share Capital Reserves & Surplus Loan Funds Secured Loan Unsecured Loan Total APPLICATION OF FUNDS Fixed Assets Gross Block Less: Depreciation Net Block Capital Work-In-Progress Investments (At Cost) Current Assets, Loans and Advances Raw Materials Sundry Debtors Cash and Bank Balances Loans & Advances

1 2 3 4

64,787,500 268,825,466 449,197 189,131,545 523,193,708

64,787,500 189,062,180 1,473,065 64,367,494 319,690,239

5 73,014,188 11,719,156 61,295,032 4,522,062 332,971,148 78,375 902,129 14,675,463 113,722,490 129,378,457 70,532,152 9,059,134 61,473,018 3,326,403 166,769,504 69,565 22,451,818 16,545,405 87,210,852 126,277,640

6 7 8 9 10

Current Liabilities and Provisions Current Liabilities Provisions Net Current Assets Miscellaneous Expenditure (To the extent not written off or adjusted) Total Notes forming part of the Accounts & Accounting Policies As per our Report of even date For H.H.Topiwala & Co. Chartered Accountants (H.H.Topiwala) Proprietor Membership No.38660 Mumbai, August 29, 2005
46

11 3,419,080 7,676,756 11,095,836 118,282,621 6,122,845 523,193,708 21 15,387,452 29,666,196 45,053,648 81,223,992 6,897,322 319,690,239

12

For and on behalf of the Board

(Vidya Moravekar) Managing Director

(Mehul Parekh) Director

(Kiranchandra Shah) Company Secretary

Mumbai, August 29,2005

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2005
(in Rs.) Particulars Sch. Year ended 31-03-2005 Year ended 31-03-2004

INCOME Income from Information Technology Activities Income from Lodging & Boarding Other Income Total EXPENDITURE Raw Materials Consumed Personnel Expenditure Software Development Expenses General & Administrative Expenses Depreciation & Amortisation Interest and Finance Charges Deferred Revenue Expenditure Written Off Preliminary Expenses Written Off Total PROFIT BEFORE TAX Less: Tax for the Current Year PROFIT AFTER TAX Add: Provision for Taxation Written Back Add: Earlier Excess Provision Written Back Add: Profit brought forward from the previous year Amount available for appropriation APPROPRIATIONS: General Reserve Proposed Dividend Tax on Dividend including surcharge Balance carried to Balance Sheet Total Earnings Per Share (Equity shares, par value of Rs.5/- each) Notes forming part of the Accounts & Accounting Policies As per our Report of even date For H.H.Topiwala & Co. Chartered Accountants (H.H.Topiwala) Proprietor Membership No.38660 Mumbai, August 29, 2005 (Vidya Moravekar) Managing Director

13 14 15

175,929,359 5,868,348 1,681,278 183,478,985

117,409,126 7,342,735 2,710,948 127,462,809

16 17 18 19 5

20

1,370,905 15,801,182 80,070,552 16,265,631 2,660,022 93,076 1,500,000 543,260 118,304,628 65,174,357 65,174,357 21,976,324 6,291,480 93,442,161

1,217,071 16,036,486 42,724,624 16,829,231 2,761,712 209,840 1,500,000 214,624 81,493,588 45,969,221 45,969,221 5,651,906 (6,027,880) 45,593,247

5,000,000 6,478,750 908,645 81,054,766 93,442,161 5.03 21 For and on behalf of the Board

10,000,000 25,915,000 3,386,767 6,291,480 45,593,247 3.55

(Mehul Parekh) Director

(Kiranchandra Shah) Company Secretary

Mumbai, August 29,2005

47

Schedules to the Accounts

(in Rs.) As at 31-03-2005 SCHEDULE 1 : SHARE CAPITAL Authorised: 24,000,000 Equity Shares of Rs.5 each Issued, Subscribed and Paid Up: 12,957,500 (10,020,000) Equity Shares of Rs.5 each fully paid up (includes 1,400,000 equity shares of Rs. 5 each, allotted as fully paid up Bonus shares out of free reserves) (2,937,500 Equity shares of Rs.5 each issued as fully paid up pursuant to the Scheme of amalgamation of Sai Motels & Resorts Ltd. with the Company without payment being received in cash) Share Capital Suspense Account As at 31-03-2004

120,000,000

120,000,000

64,787,500

50,100,000

64,787,500

14,687,500 64,787,500

SCHEDULE 2: RESERVES & SURPLUS Capital Reserve As per last Balance Sheet On account of difference in capital issued to the shareholders of erstwhile Sai Motels & Resorts Ltd. Securities Premium Account As per last Balance Sheet General Reserve As per last Balance Sheet Transferred from Profit and Loss Account Profit and Loss Account Balance Carried Forward

103,051,500 103,051,500 669,200 79,050,000 5,000,000 84,050,000 81,054,766 268,825,466

239,000 102,812,500 103,051,500 669,200 69,050,000 10,000,000 79,050,000 6,291,480 189,062,180

SCHEDULE 3: SECURED LOAN From a Bank Against hypothecation of Motor Vehicle (Payable within one year Rs. 105,856/-, Previous year Rs1,025,867/-)

449,197

1,473,065

449,197 SCHEDULE 4: UNSECURED LOAN From Other Companies

48

1,473,065

189,131,545 189,131,545

64,367,494 64,367,494

Schedules to the Accounts

SCHEDULE 5 : FIXED ASSETS (in Rs.)
SCRIPTION DES As at 01-04-2004 Land Buildings Plant & Machinery Computers Furniture & Fixtures Vehicles Office Equipments Air Conditioners Electrical Installations Total Previous Year 316,163 33,421,527 15,760,890 5,768,792 6,095,444 6,160,619 1,149,222 1,738,230 121,266 70,532,152 13,558,408 GROSS BLOCK (At Cost) Additions Deductions As at 31-03-2005 516,164 34,772,958 15,792,716 5,888,692 6,855,277 6,160,619 1,168,266 1,738,230 121,266 73,014,188 70,532,152 As at 01-04-2004 during the year during the year 200,001 1,351,431 31,826 119,900 759,833 DEPRECIATION For the year Deductions during the year As at 31-03-2005 NET BLOCK As at 31-03-2005 516,164 32,787,138 14,981,622 1,741,627 4,734,276 4,186,472 854,570 1,394,624 98,538 61,295,032 61,473,018 As at 31-03-2004 316,163 31,776,532 15,119,298 2,651,831 4,339,805 4,800,649 887,253 1,477,190 104,298 61,473,018 10,533,839

19,044

2,482,035 57,029,882

56,137

1,644,995 641,592 3,116,961 1,755,639 1,359,970 261,969 261,040 16,968 9,059,134 3,024,569

340,825 169,502 1,030,104 365,362 614,177 51,726 82,566 5,760 2,660,022 6,034,565

1,985,820 811,094 4,147,065 2,121,001 1,974,147 313,695 343,606 22,728 11,719,156 9,059,134

Capital Work In Progress 4,522,062 (Previous year : Rs. 3,326,403/-)

SCHEDULE 6 : INVESTMENTS (At Cost) - Long Term A) QUOTED - (Non - Trade)- Equity Shares Sr. No. 1 2 3 4 5 6 7 Name of the Company Himachal Fut. Comm. Maars Software Punjab Tractors Ltd. Silverline Tips Industries Wellwin Industries Ltd. Wockhardt Lifesciences Ltd. No. of Shares 31-03-2005 53600 9000 400 5300 5000 3500 2400 No. of Shares 31-03-2004 74100 20000 600 15700 5000 1500 9500 Face Value Per Share 10 10 10 10 10 10 10 As At 31-03-2005 1,501,802 111,968 82,844 37,443 197,837 53,350 75,935 2,061,179 264,202,660 117,747,710 24,084,000 4,492,500 27,710,073 6,000 14,907,236 332,971,148 27,710,073 6,000 13,763,782 166,769,504
49

(in Rs.) As At 31-03-2004 2,076,859 250,956 90,036 110,915 197,837 33,150 289,686 3,049,439

B) Investment in Subsidiary Companies 2324 Shares with no par value of I T Hospitality Inc., USA 1008 Shares with no par value of I T Hospitality Inc, USA 220 Shares with no par value of Sai Properties Inc., USA 40 Shares with no par value of Sai Properties Inc., USA 12,58,665 shares @ NZ$ 1 each of Sai Motel Ltd, New Zealand C) National Savings Certificate D) Investment in Partnership Firm - Graciano Cottages Aggregate Book Value of Investments Quoted - Market Value Rs. 1,331,300/- (Previous year Rs.1,695,564)

Schedules to the Accounts

(in Rs.) As at 31-03-2005 SCHEDULE 7 : INVENTORIES (At Cost) Raw Materials (As taken, valued & certified by the management) SCHEDULE 8 : SUNDRY DEBTORS (Unsecured, considered good) Over six months Others SCHEDULE 9 : CASH AND BANK BALANCES Cash in hand Bank balances With Scheduled Banks With Non-Scheduled Banks Commercial Bank of Dubai - UAE (Max.balance during the year Rs.984,231) ANZ Bank - New Zealand (Max. balance during the year Rs.57,422) Fixed Deposits with Scheduled Banks SCHEDULE 10 : LOANS AND ADVANCES (Unsecured, considered good) Accrued Interest Advances recoverable in cash or in kind or for value to be received Advance for Technical Know How Deposits Advance Tax and TDS Prepaid Expenses SCHEDULE 11 : CURRENT LIABILITIES AND PROVISIONS CURRENT LIABILITIES Sundry Creditors Duties & Taxes Unclaimed Dividend Other Liabilities PROVISIONS Provision for Taxation Proposed Dividend Provision for Dividend Tax Other Provision
50

As at 31-03-2004

78,375 78,375

69,565 69,565

245,135 656,994 902,129 1,213,613 11,687,605 448,225 6,020 1,320,000 14,675,463

262,244 22,189,574 22,451,818 3,670,522 11,517,129 381,956 5,798 970,000 16,545,405

49,461 99,866,404 10,112,387 3,372,292 87,816 234,130 113,722,490

214,306 73,115,117 10,097,950 3,329,993 201,712 251,774 87,210,852

288,007 988,563 665,386 1,477,124 3,419,080 6,478,750 908,645 289,361 7,676,756 11,095,836

12,778,860 1,517,088 104,338 987,166 15,387,452 25,915,000 3,386,767 364,429 29,666,196 45,053,648

Schedules to the Accounts

(in Rs.) As at 31-03-2005 SCHEDULE 12 : MISCELLANEOUS EXPENDITURE (To the extent not written off or adjusted) Preliminary Expenses Pre-operative Expenditure Deferred Revenue Expenditure SCHEDULE 13 : INCOME FROM I.T. ACTIVITIES Income from I T Export Income from I T Activities Abroad Income from DTA Sales SCHEDULE 14 : INCOME FROM LODGING & BOARDING Income from Lodging & Boarding Income from sale of Food & Beverages SCHEDULE 15 : OTHER INCOME Profit on sale of Long Term Investments Interest Dividend on Long Term Investments Exchange Rate Fluctuations - Gain Share of Profit from Partnership Firm Other Income SCHEDULE 16 : RAW MATERIALS CONSUMED Opening Stock Add : Purchases during the year Less : Closing Stock SCHEDULE 17 : PERSONNEL EXPENDITURE Salaries including overseas staff expenses Salaries & Allowances Bonus & Ex-Gratia Directors Remuneration Staff Welfare Expenses Keymans Insurance Leave Encashment Leave Travel Allowance Staff Training & Development Exps. Medical Allowance Medical Reimbursement Gratuity Contribution to PF As at 31-03-2004

61,984 3,424,721 2,636,140 6,122,845 171,100,275 3,630,364 1,198,720 175,929,359 3,812,144 2,056,204 5,868,348 132,124 4,325 1,782,870 (318,093) 80,052 1,681,278 69,565 1,379,715 1,449,280 78,375 1,370,905

311,508 2,444,872 4,140,942 6,897,322 113,383,160 3,501,707 524,259 117,409,126 4,900,295 2,442,440 7,342,735 254,201 108,384 23,000 1,452,362 313,017 559,984 2,710,948 69,565 1,217,071 1,286,636 69,565 1,217,071

12,793,151 54,686 853,323 84,880 462,274 161,860 155,216 83,079 272,084 142,670 71,689 666,270 15,801,182

13,377,427 40,135 891,298 170,112 452,671 97,939 29,320 258,422 114,722 57,780 546,660 16,036,486

51

Schedules to the Accounts

(in Rs.) As at 31-03-2005 SCHEDULE 18 : SOFTWARE DEVELOPMENT EXPENSES Cost of software packages for own use Consultancy charges SCHEDULE 19 : GENERAL & ADMINISTRATIVE EXPENSES Advertisement & Sales Promotion Accounting Fees Audit Fees Bank Charges & Commission Books & Periodicals Communication Expenses Commission / Discount Computer Expenses Donations & Gifts Electricity & Water Charges Entertainment Expenses Exchange Rate Fluctuation Loss Fuel Housekeeping Expenses Insurance Charges License & Fees Loss on Sale of Fixed Assets Loss on Sale of Long Term Investments Membership & Subscription Merger & Acquisition Expenses Miscellaneous Expenses Office Expenses PF Administration Charges Printing & Stationery Professional Fees Rent, Rates & Taxes Repairs & Maintenance Security Charges Selling & Distribution Expenses Transportation expenses Travel & Conveyance Expenses Vehicle Expenses SCHEDULE 20 : PRELIMINARY EXPENSES WRITTEN OFF Computer Software Expenditure Written Off Merger & Acquisition Expenses Written Off Miscellaneous Expenditure Written Off Preliminary Expenses Written Off Share Issue Expenses Written Off
52

As at 31-03-2004

174,678 174,678 79,895,874 80,070,552 156,856 80,921 154,538 407,226 25,314 1,304,395 323,505 278,901 20,000 934,096 6,886 2,342,290 293,111 291,250 196,726 524,050 364,464 417,626 90,260 146,235 78,463 332,209 910,461 1,772,495 529,646 766,252 936,662 345,176 1,870,523 365,094 16,265,631 259,212 75,122 45,004 160,347 3,575 543,260

416,290 416,290 42,308,334 42,724,624 53,016 86,063 244,312 37,021 1,314,257 259,848 367,100 940,549 25,710 5,394,813 102,397 241,521 205,209 488,411 21,016 341,711 4,666 22,796 189,883 63,959 235,243 364,819 1,603,275 455,106 795,196 1,090,184 1,422,243 458,907 16,829,231 45,004 166,052 3,568 214,624

Schedules to the Accounts

SCHEDULE 21 NOTES FORMING PART OF THE ACCOUNTS AND ACCOUNTING POLICIES 1 SIGNIFICANT ACCOUNTING POLICIES: a) Method of Accounting and Preparation of Financial Statements The Financial Statements are prepared under Historical Cost Convention on accrual basis and in accordance with Accounting Standards issued by the Institute of Chartered Accountants of India and the presentational requirements laid down by the Companies Act, 1956. b) Revenue Recognition On time-and-materials contracts, revenue from software development is recognized as the related services are rendered and billed to clients as per the terms of specific contracts. On fixed -price contracts, revenue is recognized based on the milestones achieved as specified in the contracts on the basis of the work completed. In respect of Hospitality business, both income and expenditure items are recognised on accrual basis. c) Fixed Assets Fixed assets are stated at their original cost along with taxes, duties, freights and any directly attributable cost of bringing the asset to its working condition for the intended use up to the date of commissioning for operation, attributable to acquisition / construction of the concerned assets. Capital work-in-progress includes machinery to be installed, construction materials and advances, etc. d) Depreciation and Amortization Depreciation on assets other than those situated in the USA and New Zealand Branches has been provided at the rates and in the manner prescribed in the Schedule XIV to the Companies Act, 1956 on the straight line basis. Depreciation in respect of the assets in the New Zealand Branch has been provided according to the provisions of the Taxation Laws prevailing in that country. Franchise Fees paid to CDAC towards setting up and running of overseas I T Training Centers has been amortized over a period of four years. e) Impairment of Assets Assessment of impairment of fixed assets is carried out on each balance sheet date. Impairment loss is recognised when carrying amount of any asset exceeds its recoverable amount. f) Foreign Currency Transactions Transactions arising from export of software, investment in overseas wholly-owned subsidiaries and remittances to overseas branches during the year have been translated into Indian Rupees at the exchange rate prevailing on the date of the particular transaction. Any gain or loss arising from exchange rate fluctuations has been taken to Profit & Loss Account. All monetary items denominated in foreign currencies at the end of the year have been translated at the year end rates. In respect of income and expenditure at the overseas branches, month-end exchange rates have been adopted. g) Investments Investments are valued at cost of acquisition which includes brokerage. Profit or loss on sale of investments are taken into account at the time of sale of investments. Dividends credited / debited for ex-dividend / cum-dividend transactions are included in the cost of acquisition of the investment. h) Inventories Inventories of food materials and beverages, stores and supplies are valued at cost on First-In, First-Out basis
53

Schedules to the Accounts

i) Computer Software Expenses Computer Software Expenses purchased for own use have been deferred to be written off over a period of five years. j) Retirement Benefits Provision for gratuity payable to employees who have completed 5 years of continuous service has been made on an estimated basis. Provision for leave encashment has been made on the basis of number of days leave to the credit of the employees at the end of the financial year. k) Pre-operative Expenses & Deferred Revenue Expenses Pre-operative expenditure represents ongoing project and will be allocated to respective account head on commercial production. Deferred Revenue Expenditure will be written off equally in five years. 2 Investment in Partnership Firm - Graciano Cottages, Goa 2004-05 2003-04 14,907,236 13,763,782 Share of Profit / (Loss) 95% 95% 5% 5% Nil Nil 59,062,500 853,323 Nil Nil 154,538 5,000 Nil Nil Nil 891,298 Nil Nil 86,063 Nil

Total Capital & Current Account Name of the Partners IT Microsystems (India) Limited Mrs. Usha Tari Contingent Liabilities I Estimated amount of capital commitments not provided for: II Contingent Liabilities not provided for: III Guarantees given on behalf of wholly owned subsidiary Profit & Loss Account includes: Remuneration to Directors Sitting Fees Other Perquisites Payment to Auditors For Audit For other services

There are no specific claims on the Company from Small Scale Industrial Suppliers under the Interest on delayed payments to Small Scale & Ancillary Undertakings Act 1993" The Company has not provided for Current and Deferred Taxation on its income in India as it is exempt from Income Tax up to the year ending 31-032009 under Section 10A of the Income Tax Act, 1961. Disclosures of related parties / related party transactions 1 Enterprises owned by directors / major shareholders of the Company Panoramic Hotels Ltd., Pancard Clubs Ltd. , Pan Product Impex Private Ltd., Panoramic Land Developers Private Ltd., Pan Herbo Ltd., Smooth Financials Private Ltd., Panoramic Resorts (India) Ltd., Pan Ad 2 Key Management Personnel and their relatives a) b) Vidya Moravekar Arun Tari Managing Director Whole time Director

54

Schedules to the Accounts

3 Related party transactions The Company entered into transactions with related parties during the year. These transactions along with the relevant balances are set out as under: Transactions with Director a) Advertisement Pan Ad - Prop. Vidya S. Moravekar b) Remuneration Arun B. Tari S. Nagarajan Vidya S. Moravekar Transactions with Associate Companies a) Rent paid Pan Herbo Ltd. b) Rent received Pan Herbo Ltd. Amount due to related parties a) Pancard Clubs Ltd. 9 Segment Reporting Segment Identification: a) The Companys operations are focused on Software Development and Hospitality activities. Accordingly, these two business divisions comprise the primary basis of the segment information set out in the financial statements: (in Rs.) Total 2004-05 430,339 277,920 245,328 330,075 (in Rs.) 2003-04 358,954 224,300 206,498 460,500

240,000 187,500 12,115,554

81,438 165,000 6,657,494

Particulars

I T Activities

Hospitality Business

b)

REVENUE External Revenue 177,731,080 5,747,905 183,478,985 Inter-Segment Revenue Total 177,731,080 5,747,905 183,478,985 RESULT Profit before Depreciation, Interest & Tax 69,293,398 (1,365,943) 67,927,455 Depreciation 1,738,240 921,782 2,660,022 Interest 57,853 35,223 93,076 Taxation Net Profit 67,497,305 (2,322,948) 65,174,357 OTHER INFORMATION Segment Assets 399,826,871 117,243,994 517,070,865 Segment Liabilities 175,149,816 14,430,927 189,580,743 Secondary Segment Reporting is made on the basis of geographical regions. Revenues are segregated on the basis of the location of the customer who is invoiced or in relation to which the revenue is otherwise recognized. Asia External Revenue 139,346,065 Rest of the World 44,132,920 (in Rs.) Total 183,478,985
55

Schedules to the Accounts

10 Additional information pursuant to the provisions of Part II of Schedule VI to the Companies Act, 1956: (in Rs.) 31-03-2005 a) Value of Imports: (C.I.F . Value) Raw Materials Capital Goods Components and Spares b) Expenditure in Foreign Currencies Travelling Expenses Foreign Bank Charges Other Expenses Investment in subsidiary c) Number of Non-Resident Shareholders Number of shares held Remittance in foreign currency on account of dividend d) e) Earning in Foreign Currency Software Export Quantitative Details The Company is engaged in the business of software development and hospitality. Both the development and export of software and hospitality business cannot be expressed in any generic unit. Hence, it is not possible to give the quantative details of sales and certain information as required under paragraphs 3, 4C, 4D of part of Schedule V I to the Companies Act, 1956. 171,100,275 113,383,160 1,108,000 314,856 8,166,540 166,046,450 20 113,485 NIL NIL 156,580 8,801,620 81,108,210 19 135,175 NIL NIL NIL NIL NIL NIL 24,708 31-03-2004

11

Earnings Per Share 2004-05 I II III IV Profit Attributable to Equity Shareholders (Rs.) Number of Equity Shares Nominal Value of Equity Share Basic Earnings Per Equity Share 65,174,357 12,957,500 Rs. 5 5.03 2003-04 45,969,221 12,957,500 Rs. 5 3.55

12 Corresponding figures for previous period presented have been regrouped, where necessary, to confirm to this years classification.

As per our Report of even date For H.H.Topiwala & Co. Chartered Accountants (H.H.Topiwala) Proprietor Membership No.38660 Mumbai, August 29, 2005
56

For and on behalf of the Board

(Vidya Moravekar) Managing Director

(Mehul Parekh) Director

(Kiranchandra Shah) Company Secretary

Mumbai, August 29,2005

Cash Flow Statement

(in Rs.) Year ended 31.03.2005 Year ended 31.03.2004

A.

CASH FLOW FROM OPERATING ACTIVITIES : Net Profit before tax Adjustments for : Depreciation and Amortisation Dividend received Interest received Loss on sale of investment Interest paid Preliminary Expenditure written off Deferred Revenue Expenditure written off Operating profit before working capital changes Movement in Working Capital : (Increase) / Decrease in Sundry Debtors (Increase) / Decrease in Loans & Advances (Increase) / Decrease in Raw Material Increase / (Decrease) in Current Liabilities Increase / (Decrease) in Provision Pre-operative/Miscellaneous Expenditure Cash generated from Operations Direct Tax Paid Net Cash Flow from Operating Activities ( A) 21,549,689 (26,511,638) (8,810) (11,968,372) (75,068) (1,268,788) (18,282,987) 51,915,743 51,915,743 41,340,637 (46,440,829) 4,118,809 271,230 (495,132) (1,205,285) 49,480,818 49,480,818 2,660,022 (4,325) (132,124) 364,464 93,076 543,260 1,500,000 5,024,373 70,198,730 2,761,713 (23,000) (108,384) (254,201) 209,840 214,624 1,916,290 4,716,882 50,686,103 65,174,357 45,969,221

B.

CASH FLOW FROM INVESTING ACTIVITIES : Purchases of Fixed Assets Purchase of Investments Sale of Investments Sale of Fixed Assets Dividend received Interest received Net cash Flow from Investing Activities (B) (3,677,691) (167,189,904) 623,796 4,325 132,124 (170,107,350) (5,476,465) (78,924,757) 834,959 56,137 23,000 108,384 (83,378,742)
57

Cash Flow Statement

Year ended 31.03.2005 C. CASH FLOW FROM FINANCING ACTIVITIES : Secured Loan from Bank Unsecured Loan Repayment of Secured Loan Dividends Paid Additional Tax on Dividend Interest Paid Net cash Flow from Financing Activities ( C ) Net Increase / (Decrease) in cash & cash equivalents (A+B+C) Cash and Cash equivalents at the beginning of the year Cash and Cash equivalents at the end of the year 124,764,051 (1,023,868) (6,478,750) (846,692) (93,076) 116,321,665 (1,869,942) 16,545,405 14,675,463

(in Rs.) Year ended 31.03.2004

567,000 64,341,279 (1,001,650) (20,040,000) (2,567,625) (209,840) 41,089,164 7,191,240 9,354,165 16,545,405

For and on behalf of the Board (Vidya Moravekar) Managing Director Mumbai, August 29, 2005 (Mehul Parekh) Director (Kiranchandra Shah) Company Secretary

AuditorsCertiricate
We have examined the attached Cash Flow Statement of IT Microsystems (India) Limited for the year ended 31st March, 2005. The Statement has been prepared by the Company in accordance the requirements of Clause 32 of the Listing Agreement with Stock Exchanges and is based on and in agreement with the corresponding Profit & Loss Account and Balance Sheet of Company covered by our report of even date to the Members of the Company.

For H.H.Topiwala & Co. Chartered Accountants

Mumbai, August 29, 2005

58

(H.H.Topiwala) Proprietor Membership No.38660

Balance Sheet Abstract And Companys General Business Profile

1 Registration Details: Registration No. State Code Balance Sheet Date 2 Capital raised during the year (Amount in Rs. Thousands) Public Issue Rights Issue Bonus Issue Private Placement 3 Position of mobilisation and deployment of funds (Amount in Rs. Thousands) Total Liabilities Total Assets Sources of Funds Paid-up Capital Reserves & Surplus Secured Loans Unsecured Loans Application of Funds Net Fixed Assets Investments Net Current Assets Miscellaneous Expenditure Accumulated Loss 4 Performance of Company (Amount in Rs. Thousands) Turnover Total Expenditure Profit Before Tax Profit After Tax Earnings Per Share (Rs./Share) Dividend (%) 5 Name of Principal Service of Company Item Code No. Service Description 85.24 Software Development 183,479 118,305 65,174 65,174 5.03 10 65,817 332,971 118,283 6,123 NIL 64,788 268,825 449 189,132 523,194 523,194 NIL NIL NIL NIL 66856 11 31st March 2005

59

IT Hospitality Inc.
3rd Annual Report & Accounts 2004-05 Managment Team Auditors Sudhir Moravekar H. H. Topiwala & Co. President Chartered Accountants Ravi Khare Secretary

BALANCE SHEET AS AT 31ST MARCH 2005

Registered Office 4 West, 37th Street, 3rd Floor, New York NY 10018 Particulars Sources of Funds Shareholders Funds Share Capital Reserves & Surplus Loan Funds Total Application of Funds Fixed Assets Gross Block Less: Depreciation Net Block Investments (At Cost) Current Assets, Loans & Advances Sundry Debtors Cash & Bank Balances Loans & Advances Current Liabilities & Provisions Current Liabilities Provisions Net Current Assets Miscellaneous Expenditure (To the extent not written off or adjusted) Currency Translation Reserve Total Notes forming part of the Accounts and Accounting Policies As per our Report of even date For H.H.Topiwala & Co. Chartered Accountants (H.H.Topiwala) Proprietor Mumbai, August 16, 2005 Sch. As at 31-03-2005 254,187,500 4,904,136 284,363,363 543,454,999 422,630,907 16,608,944 406,021,963 93,914,844 6,103,300 19,633,471 59,676,488 85,413,259 7 44,331,655 8,265 44,339,920 41,073,339 1,733,681 711,172 543,454,999 11 For and on behalf of the Board (Sudhir Moravekar) President Mumbai, August 16, 2005 8,532,686 8,532,686 55,540,962 327,810 182,526,893 (in Rs.) As at 31-03-2004 111,195,000 2,158,498 69,173,395 182,526,893 126,793,585 8,007,982 118,785,603 7,872,518 2,570,502 61,503,146 64,073,648

Directors Report To, The Members IT Hospitality Inc. The Directors of your Company are glad to present the audited annual accounts of the Company for the financial year ended 31st March 2005 together with the reports of the Board and Auditors thereon. (Rs. in Lacs) Financials 2004-05 Income from operation 770.88 Total income 1362.48 PBT 42.03 Provision for T axation 14.57 PAT 27.46 Management T eam Sudhir Moravekar , Director , continues to be president. Mr . Ravi Khare, Secretary and Mr . Ravikumar Lognathan has been entrusted with the responsibility of treasurer . Directors responsibility statement Pursuant to the requirement under section 217 (2AA) of the Companies Act, 1956, with respect to Directors Responsibility Statement, it is hereby confirmed: 1. that in the preparation of the Annual Accounts for the financial period ended 31st March, 2005, the applicable accounting standards have been followed along with proper explanations relating to material departures; 2. that the Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial period and of the profit of the Company for the period ended 31st March, 2005; 3. that the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting frauds and other irregularities; 4. that the Directors have prepared the accounts for the financial period ended 31st March 2005 on a going concern basis. Auditors M/s. H. H. Topiwala & Co; Chartered Accountants, were appointed as auditors of the Company according to the provisions of Indian Companies Act, 1956 and retire at the forthcoming annual general meeting. The Board has received their consent to be re-appointed as auditors at the ensuing AGM. Members are requested to consider their re-appointment. Acknowledgement Board wishes to place on record their appreciation and acknowledge with gratitude the support and cooperation extended by the clients, bankers and investors and look forward to their continued support. The Board also thanks the Reserve Bank of India and other government agencies for their support and look forward to their continued patronage in future. For and on behalf of the Board Sudhir Moravekar Mumbai, August 16, 2005 President Auditors report to the members of IT Hospitality Inc. We have audited the attached Balance Sheet of I T Hospitality Inc. (a Company incorporated in the state of New York, USA) as at March 31, 2005 and also the Profit and Loss Account for the year ended on that date annexed thereto. These financial statements are the responsibility of the Companys management and have been prepared in accordance with accounting policies as described in notes to accounts attached therein, for the purpose of consolidation with the financial statements of IT Microsystems (India) Ltd., the holding company. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards in India. These standards require that we plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amount and disclosures in the financial statements. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. M/S B.R. Pandit & Associates, CPA have done review of the accounts and issued review report dated 8th August 2005 and we have also relied on the review report provided by them. In our opinion and to the best of our information and according to the explanations given to us and based on review report of B.R. Pandit & Associates, CPA, the said accounts give a true and fair view in conformity with the accounting policies described in notes to accounts attached therein: (i) in the case of the Balance Sheet, of the state of affairs of the Company as at March 31,2005; (ii) in the case of the Profit and Loss Account, of the profit for the year ended on that date. For H.H.Topiwala & Co. Chartered Accountants H.H.Topiwala Proprietor Membership No.38660

1 2 3 4

5 6

NOTE : Figures pertaining to balance Sheet items have been translated at year end exchange rates.

PROFIT & LOSS ACCOUNT FOR THE PERIOD ENDED 31ST MARCH 2005
Particulars Sch. Period ended 31-03-2005 77,087,550 56,331,771 2,829,027 136,248,348 64,022,335 47,866,098 8,669,019 11,325,480 162,553 132,045,485 4,202,863 1,457,225 2,745,638 2,745,638 2,158,498 4,904,136 1,181.43 (in Rs.) Period ended 31-03-2004 33,024,653 16,065,700 167,083 49,257,436 20,515,992 12,402,583 7,816,748 3,860,129 44,595,452 4,661,984 775,144 3,886,840 746,058 4,632,898 (2,474,400) 2,158,498 2,141.00

INCOME Income from Operations Consultancy Income Other Income Total EXPENDITURE General & Administrative 9 Expenditure Personnel Expenditure 10 Depreciation 4 Interest Expenditure Amortisation Total Net Profit / (Loss) Before Tax Provision for Taxation Net Profit / (Loss) After Tax Prior Period Adjustments Profit after prior period adjustments Profit/ (Loss) brought forward from Previous Year Profit/(Loss) Carried to Balance Sheet Earnings Per Share (Equity shares with no par value) Notes forming part of the Accounts and 11 Accounting Policies As per our Report of even date For H.H.Topiwala & Co. Chartered Accountants (H.H.Topiwala) Proprietor Mumbai, August 16, 2005

For and on behalf of the Board (Sudhir Moravekar) President Mumbai, August 16, 2005

Mumbai, August 16, 2005

NOTE : Figures pertaining to balance Sheet items have been translated at year end exchange rates.

60

SCHEDULES TO BALANCE SHEET AS AT 31ST MARCH 2005

(in Rs.) Particulars SCHEDULE 1 SHARE CAPITAL Authorised: 10000 Equity Shares with no par value Issued, Subscribed and Paid Up: 2324 (1008) Equity Shares of USD 2500 each, fully paid up SCHEDULE 2 RESERVES & SURPLUS Retained Earnings SCHEDULE 4 : FIXED ASSETS DESCRIPTION As at 01-04-2004 22,283,125 87,681,361 14,423,360 522,881 1,882,858 126,793,585 469,963 Additions Adjustment 55,125,000 210,335,563 34,003 4,399,106 12,472,949 5,070,748 9,477,519 296,914,888 126,354,982 GROSS BLOCK (At Cost) Deductions Translation (189,375) (745,168) (122,578) (4,443) (16,002) (1,077,566) (31,360) As at 31-03-2005 77,218,750 297,271,756 34,003 18,699,888 12,991,387 6,937,604 9,477,519 422,630,907 126,793,585 (in Rs.) As at 31-03-2004 7,872,518 7,872,518 As at 01-04-2004 1,918,026 5,658,414 312,758 118,785 8,007,983 204,912 For the year 4,277,000 3,400 1,915,638 2,128,712 227,763 116,506 8,669,019 7,816,748 DEPRECIATION Deduction Translation Adjustment (16,301) (48,090) (2,658) (1,011) (68,060) (13,678) As at 31-03-2005 6,178,725 3,400 7,525,963 2,438,812 345,538 116,506 16,608,944 8,007,983 As at 31-03-2005 As at 31-03-2004 Particulars SCHEDULE 3 SECURED LOANS Fall Brook Bank (Secured against Mortgage on Property- United Inn) Zion Bank (Secured against Mortgage on Property- United Inn) Carousel Reality Partners (Secured against Mortgage on Property- Sai Bless Inn) H P Capital LLC (Secured against Mortgage on Property- Quality Inn) (Out of above Rs.18,987,500 repayable within one year) As at 31-03-2005 8,633,319 58,139,506 71,249,019 146,341,519 (in Rs.) As at 31-03-2004 8,825,000 60,348,395

254,187,500 254,187,500 4,904,136 4,904,136

111,195,000 111,195,000 2,158,498 2,158,498

284,363,363

69,173,395 (in Rs.)

Land Building Vehicle Furniture & Fixtures Office Equipments Borrowing Cost Capital Improvement Cost Total Previous Year

NET BLOCK As at As at 31-03-2005 31-03-2004 77,218,750 22,283,125 291,093,031 85,763,336 30,603 11,173,925 8,764,946 10,552,574 6,592,066 9,361,013 210,123 1,764,073

406,021,963 118,785,603 118,785,603 265,052 429,505 113,286 789,698 131,968 757,108 3,096,136 1,670,557 909,869 18,453 1,561 201,051 28,551 30,158 1,377,060 2,344,720 875,489 96,853 2,081,013 2,944,751 20,515,992 12,402,583 12,402,583

Particulars SCHEDULE 5 INVESTMENTS (AT COST) Investment in Georgian Motel Corp (Subsidiary) Investments in Hotel Projects SCHEDULE 6 CURRENT ASSETS, LOANS & ADVANCES CURRENT ASSETS Sundry Debtors (Unsecured & Considered Good) Over Six Months Others Cash & Bank Balances Cash on hand First Union-Comfort Inn-CK (Maximum balance during the year Rs.831) First Union Binghamton Che 3121 (Maximum balance during the year Rs.7,736,706/-) First Union Wachovia-check A/C (Maximum balance during the year Rs.86,493,750/-) First Union Wachovia-HYMM A/C (Maximum balance during the year Rs.875/-) M & T Bank-Syracuse 8890764262 (Maximum balance during the year Rs.1,647,056/-) M & T Bank-Binghamton club 9110 (Maximum balance during the year Rs.866,513/-) Wachovia Money Market A/c. 3134 (Maximum balance during the year Rs.85,784,869/-) Merchant Account-Chase Merchant LOANS & ADVANCES Advances recoverable in cash or in kind or for value to be received Deposits

As at 31-03-2005 93,914,844 93,914,844

6,103,300 6,103,300 116,310 831 6,904,171 10,218,188 875 423,773 295,166 1,219,096 455,061 19,633,471 59,676,488 59,676,488 85,413,259

592,202 1,975,873 1,897 530 2,570,502 61,286,492 216,654 61,503,146 64,073,648

Cleaning & Sanitation Conference and meeting expenses Consulting & Professional Expenses Dues and Subscriptions Rent Rate & Taxes Entertainment Franchise Fee Hotel Supplies Insurance Licenses and permits Liquor Medical Expenses Miscellaneous Expenses Other Expenses Postage and delivery Printing and Stationery Rent Repairs & Maintainenance Tax Sales Telephone Training Expenses Travel & Entertainment Expenses Utilities SCHEDULE 10 PERSONNEL EXPENDITURE Salaries Payroll Taxes Payroll Expenses

855,657 3,730,695 441,235 9,084,827 972,467 4,657,105 6,462,065 7,191,629 183,326 2,842,907 59,847 401,578 1,865,843 104,281 126,454 307,346 1,488,781 557,685 2,077,921 2,512,082 11,505,426 64,022,335 44,390,337 3,216,815 258,946 47,866,098

SCHEDULE 7 CURRENT LIABILITIES & PROVISIONS CURRENT LIABILITIES Accounts Payable Advances Overdrawn Bank Balances Notes Payable Duties Taxes Expenses Payable SCHEDULE 8 MISCELLANEOUS EXPENDITURE (To the extent not written off or adjusted) Mortgage Fees

2,074,756 26,537,044 392,918 12,416,906 1,479,756 1,430,275 44,331,655

1,411,206 7,121,480 8,532,686

1,733,681 1,733,681 SCHEDULES TO PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH, 2005 SCHEDULE 9 GENERAL & ADMINISTRATIVE EXPENDITURE Administrative Expenses 22,848 Audit Fees 8,265 Advertisement & Sales Promotion 4,118,844 Bad Debts & provisions 304,597 Bank Service Charges 1,836,145 Business Expenses 279,541 Charity and Donation 22,938

SCHEDULE 11 : NOTES FORMING PART OF THE ACCOUNTS AND ACCOUNTING POLICIES: 1 IT Hospitality, Inc is a New Y ork Corporation organized under the laws of the state of New Y ork on August 30, 2002 and authorized to do business in the state of North Carolina. The company is in the hospitality business relating to consultancy and owns three Motel properties. The properties are Quality Inn a 141 rooms Motel property in Syracuse, New Y ork, Sai Bless Inn a 135 rooms Motel property in Binghamton, New Y ork, United Inn a 124 rooms motel property at Burlington, North Carolina. 2 Significant Accounting Policies : The financial statements have been prepared on an accrual basis and under historical cost convention and in accordance with generally accepted accounting practices in India. a) The companys functional currency is United States Dollars (US$) and these accounts have been prepared in INR. (i) Reporting Currency T ranslation ThebooksofthecompanyaremaintainedinUSDollar .TheseaccountshavebeenpreparedinIndianRupees.The US DollarbalanceasperbooksofthecompanyhasbeenconvertedintoIndianRupeesasfollows: - AlltheassetsandliabilitiesincludingSharecapitalhavebeenconvertedattheyearendexchangerate. - All the income and expenditure items have been converted at the average month-end exchange rate. (ii) The net difference on translation is taken in cumulative currency translation reserve & shown separately. b) Revenue Recognition As a consistent practice, the company recognizes revenue on accrual basis. c) Fixed Assets and Depreciation Depreciation has been charged as per IRS rates prevailing in the US. Borrowing costs incurred on acqusition of fixed charges has been classified under Fixed Assets penidng allocation to various assets. d) Investments InvestmentsarestatedatcostandcomprisesofinvestmentintheGeorgionMotelCorporation(100%subsidiary).ThefinancialoftheGeorgion Motel Corp are presented separately. 3 TheCompanyisawhollyownedsubsidiaryofITMicrosystems(India)Ltd.Theaccountshavebeenpreparedandauditedtoattachwiththeaccounts of I T Microsystems (India) Ltd., the Holding Company, to comply with the provisions of the Companies Act, 1956. As per our Report of even date For H.H.Topiwala & Co. Chartered Accountants (H.H.Topiwala) Proprietor Mumbai, August 16, 2005 For and on behalf of the Board

1,275,203 8,265 1,130,704 183,149 20,885

(Sudhir Moravekar) President Mumbai, August 16, 2005

61

Sai Motel Ltd.

Management Team Sudhir Moravekar Director Usha Tari Director Registered Office 385, Great South Road Greenlane Auckland. Auditors Stewart & Co. Chartered Accountants

BALANCE SHEET AS AT 31ST MARCH 2005

Particulars Sources of Funds Shareholders Funds Share Capital Loan Funds Secured Loan Total Application of Funds Fixed Assets Gross Block Less: Depreciation Net Block Current Assets,Loans & Advances Cash & Bank Balances Trade Debtors Loans & Advances Current Liabilities & Provisions Current Liabilities Net Current Assets Profit and Loss Account Currency Translation Reserve Total Notes forming part of the Accounts and Accounting Policies (Sudhir Moravekar) Director August 22, 2005 Sch. As at 31-03-2005 (in Rs.) As at 31-03-2004

Annual Report For the year ended 31st March 2005. The Members, Sai Motels Limited In respect of the financial year ended 31 March 2005, the Directors of Sai Motels Limited reports as follows: Financial Statements The financial statements for the year are attached to this Annual Report. Disclosures The shareholders have resolved not to disclose the following items in the Annual Report as permitted by section 211(3) of the Companies Act 1993: Any material changes in the nature of the companys business during the year or the classes of business in which the company had an interest during the year. Changes in accounting policies. Particulars of entries in the Interests Register. Total remuneration and the value of benefits received by directors and former directors. The number of employees or former employees (if any) earning over $100,000 per annum and the classification of the number of employees earning in excess of $100,000 in bands of $10,000. Total donations made by the Company. The names of the directors at year end and the names of any persons who ceased to act as directors during the year. For and on behalf of the Board Usha Tari, 22 August, 2005. Director Audit Report of Sai Motels Ltd. for the year ended 31st March 2005 To the Shareholders of Sai Motels Ltd. We have audited the financial report set out in following pages. The financial report provides information about the past financial performance of the company and its financial position as at 31st March 2005. The information is stated in accordance with the accounting policies set out therein. Directors Responsibilities The directors are responsible for the preparation of a financial report that gives a true and fair view of the financial position of the company as at 31st March 2005 and the results of operations for the year ended 31st March 2005. Auditors Responsibilities It is our responsibility to express an independent opinion on the financial report presented by the directors and report our opinion to you. Basis of Opinion An audit includes examining, on test basis, evidence relevant to the amounts and disclosure in the financial report. It also includes assessing: The significant estimates and judgements made by the directors in the preparation of the financial report, and Whether the accounting policies are appropriate to the companys circumstances consistently applied and adequately disclosed. We conducted our audit in accordance with generally accepted auditing standards in New Zealand. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial report is free from material misstatements, whether caused by fraud or error. In forming our opinion we also evaluated the overall adequacy of the presentations of the information in the financial report. Other than in our capacity as auditors we have no relationship with or interests in the company. Unqualified Opinion We have obtained all the information and explanation that we have required: In our opinion- The financial report a. complies with generally accepted accounting practice; b. gives a true and fair view of the financial position of the company as at 31st March 2005 and results of its operations for the year ended on that date. Our audit was completed on 22nd August 2005 and our unqualified opinion is expressed as that date. Stewart & Co. Chartered Accountants

1 2

40,516,930 19,763,167 60,280,097

36,485,678 18,769,007 55,254,685

3 73,184,811 6,720,357 66,464,454 4 299,146 89,554 97 388,797 5 13,175,595 13,175,595 (12,786,798) 5,112,102 1,490,339 60,280,097 9 (Usha Tari) Director 15,506,772 15,506,772 (12,465,596) 5,332,868 947,615 55,254,685 2,827,045 77,976 136,155 3,041,176 65,404,055 3,964,257 61,439,798

NOTE: Figures pertaining to balance Sheet items have been translated at year end exchange rates.

PROFIT & LOSS ACCOUNT FOR THE PERIOD ENDED 31ST MARCH 2005
Particulars INCOME Income from Operations Other Income Total EXPENDITURE Purchases General & Administrative Expenditure Personnel Expenditure Depreciation Interest Total Net Profit / (Loss) Before Tax Provision for Taxation Net Profit / (Loss) After Tax Non Assessable Income Sch. Period ended 31-03-2005 11,160,002 969,132 12,129,134 489,236 6,843,487 786,939 2,377,582 1,578,654 12,075,898 53,236 53,236 167,530 220,766 (5,332,868) (5,112,102) (in Rs.) Period ended 31-03-2004 10,349,559 848,628 11,198,187 424,709 5,207,835 1,228,435 2,432,987 1,530,552 10,824,518 373,669

7 8 3

373,669

Profit/ (Loss) brought forward from Previous Year Profit/(Loss) Carried to Balance Sheet Notes forming part of the 9 Accounts and Accounting Policies (Sudhir Moravekar) Director August 22, 2005

373,669 (5,706,537) (5,332,868)

(Usha Tari) Director

NOTE: Figures pertaining to balance Sheet items have been translated at year end exchange rates.

62

SCHEDULES TO BALANCE SHEET AS AT 31ST MARCH 2005

(in Rs.) Particulars SCHEDULE 1 SHARE CAPITAL Authorised: 1,258,665 Equity Shares of NZD 1 each Issued, Subscribed and Paid Up: 1,258,665 Equity Shares of NZD 1 each, fully paid up SCHEDULE 3 : FIXED ASSETS DESCRIPTION As at 01-04-2004 30,457,967 34,306,419 235,379 404,290 65,404,055 55,264,283 Additions 824,782 824,782 3,962,989 GROSS BLOCK (At Cost) Deductions Translation Adjustment 3,365,259 243,496 3,763,534 26,007 243,496 44,670 7,199,470 6,176,783 As at 31-03-2005 33,823,226 38,651,239 261,386 448,960 73,184,811 65,404,055 (in Rs.) As at 31-03-2004 As at 01-04-2004 3,702,557 58,961 202,739 3,964,257 1,386,656 For the year 2,282,653 30,613 64,316 2,377,582 2,432,987 DEPRECIATION Deduction Translation Adjustment 53,569 403,172 6,514 53,569 22,401 432,087 144,614 As at 31-03-2005 6,334,813 96,088 289,456 6,720,357 3,964,257 As at 31-03-2005 As at 31-03-2004 Particulars SCHEDULE 2 SECURED LOAN Term Loan ANZ Banking Group (NZ) Ltd As at 31-03-2005 19,763,167 19,763,167 40,516,930 40,516,930 36,485,678 36,485,678 (in Rs.) NET BLOCK As at As at 31-03-2005 31-03-2004 33,823,226 30,457,967 32,316,426 30,603,862 165,298 176,419 159,504 66,464,454 61,439,798 201,551 61,439,799 53,877,626 (in Rs.) As at 31-03-2004 18,769,007 18,769,007

Land Building Plant & Machinery Office Equipment & Furniture Total Previous Year

Particulars SCHEDULE 4: CURRENT ASSETS, LOANS & ADVANCES CURRENT ASSETS Cash in Hand Bank Balances ANZ Banking Group(NZ) Ltd (Max. balance during the year Rs.3,379,323) Trade Debtors LOANS & ADVANCES Advances recoverable in cash or in kind or for value to be received SCHEDULE 5 CURRENT LIABILITIES & PROVISIONS CURRENT LIABILITIES ANZ Banking Group (NZ) Ltd (Current Portion) Lease advance - IT Microsystems (India) Ltd Loans G.S.T. Payable Accounts Payable SCHEDULE 6 OTHER INCOME Consultancy Income Other Income SCHEDULE 7 GENERAL & ADMINISTRATIVE EXPENDITURE Accountancy Fees Audit Fees Advertising ACC Levy Bed linens/Blankets / Curtains Bank charges Cleaning & Laundry Courier Charges Commission Paid Consultancy Fees Computer Expenses Equipment Rental General Expenses Insurance Kitchen Utensils Legal Fees Loss by theft Motor vehicle expenses Postage Power Printing & Stationery Rates Repairs & Maintenance Licence Fees Telephone Travelling Expenses Subscriptions Waste Disposal

As at 31-03-2005

SCHEDULE 8 PERSONNEL EXPENDITURE Wages Staff Welfare Expenses

658,226 128,713 786,939

1,128,859 99,576 1,228,435

8,048 291,098 89,554 97

7,247 2,819,798 77,976 136,155

SCHEDULE 9 : NOTES FORMING PART OF THE ACCOUNTS AND ACCOUNTING POLICIES: 1 Significant Accounting Policies: a Method of Accounting The company is a private company registered under the Companies Act 1993 The financial statements have been prepared in accordance with the reporting requirements of section 11 of the Financial Reporting Act 1993 The company qualifies for differential reporting exemptions based on the following criteria It is not publicly accountable and It is not large as defined in the framework for differential reporting.

1,076,286 2,562,742 7,867,173 211,523 1,457,871 13,175,595 912,640 56,492 969,132 269,168 118,674 148,912 37,114 52,112 179,182 168,291 6,449 264,544 33,950 561,091 86,153 149,855 22,147 13,264 165,097 34,315 879,176 44,263 1,121,695 558,140 30,999 1,046,189 332,870 442,997 76,840 6,843,487

934,937 2,603,811 10,476,785 252,019 1,239,220 15,506,772 847,216 1,412 848,628 210,816 33,889 275,430 51,934 90,200 130,330 50,692 253,346 23,298 589,154 48,320 132,250 42,078 51,341 68,116 113,047 5,083 429,736 24,654 866,702 682,319 34,990 618,835 329,567 51,708 5,207,835

The company has adopted all available differential reporting exemptions except for FR9 in relation to disclosure of interest and other revenue. b Revenue Recognition Accounting principles recognised as appropriate for the measurement and reporting of earnings and financial position on an historical cost basis are followed by the company. c Conversion to Indian Rupees Reporting Currency Translation The books of the company are maintained in NZ Dollar. These accounts have been prepared in Indian Rupees. The NZ Dollar balance as per books of the company have been converted into Indian Rupees as follows: - All the assets and liabilities including Share capital have been converted at the year end rate - All the income and expenditure items have been converted at the average month-end rate. The net difference on translation is taken in cumulative currency translation reserve & shown separately. d Fixed Assets and Depreciation Fixed assets are stated at cost or valuation less, aggregate depreciation, which has been calculated using themaximum rates permitted by Income Tax Act, 1994. e Taxation Expenses Taxation expense charged against the operating surplus is the estimated total taxation, as calculated in the companys taxation return to the Inland Revenue Department. f Goods and Service Tax The statement of financial performance has been prepared on a GST exclusive basis. GST payable or receivable at balance date is included in the Statement of Financial Position. g Accounts Receivable Accounts receivable are stated at estimated realisable value after providing against debt for which collection is considered doubtful. There have been no changes in accouting policies. All policies have been applied consistent ly with those used in the previous years. 2 The Company is a wholly owned subsidiary of I T Microsystems (India) Ltd. The accounts have been prepared and audited to attach with the accounts of I T Microsystems (India) Ltd., the Holding Company, to comply with the provisions of the Companies Act, 1956. (Usha Tari) Director

(Sudhir Moravekar) Director August 22, 2005

63

Sai Properties Ltd.

Management Team Sudhir Moravekar President Ravi Khare Secretary Directors Report To, The Members Sai Properties, Inc. Your Directors have pleasure in submitting the second report of the Company comprising of Balance Sheet as on March 31, 2005 along with Profit & Loss Account for the year ended March 31, 2005. (Rs. in Lacs) Financials Income from operations Total Income PBT Provision for Taxation PAT 2004-05 571.49 573.79 18.27 3.90 14.37 Auditors H. H. Topiwala & Co. Chartered Accountants Registered Office 1698 E Arlington Blvd. Greenville, Pitt County, NC 27858

BALANCE SHEET AS AT 31ST MARCH 2005

Particulars
SOURCES OF FUNDS Shareholders Funds Share Capital Reserves & Surplus Loan Funds Secured Loan Unsecured Loan Total APPLICATION OF FUNDS Fixed Assets Gross Block Less: Depreciation Net Block Current Assets, Loans & Advances Cash & Bank Balances Sundry Debtors Loans & Advances Current Liabilities & Provisions Current Liabilities Provisions Net Current Assets Total Notes forming part of the Accounts and Accounting Policies As per our Report of even date For H.H.Topiwala & Co. Chartered Accountants (H.H.Topiwala) Proprietor Mumbai, August 16, 2005

Sch.

As at 31-03-2005

(in Rs.) As at 31-03-2004

1 2 3 4

24,062,500 1,277,560 126,763,481 35,427,306 187,530,847

4,412,500 6,751

41,918,750 46,338,001

5 177,834,300 3,868,113 173,966,187 6 12,894,627 181,825 2,904,606 15,981,058 7 2,410,888 5,510 2,416,398 13,564,660 187,530,847 46,352,018

46,352,018 11,262 2,755 14,017 46,338,001 46,338,001

As a part of the global expansion in the Hospitality sector undertaken by your holding company IT Microsystems (India) Ltd., the company has laid down foundations for robust growth in the coming times. During the year, your company has acquired Comfort Inn, a 122 rooms Motel Property in Greensboro, North Carolina. Acknowledgement: Your Directors record their appreciation to the team at Sai Properties Inc. and its holding company IT Microsystems (India) Ltd. for the support provided through the year. For and on behalf of the Board Mumbai, August 16, 2005 Auditors report to the members of Sai Properties, Inc. We have audited the attached Balance Sheet of Sai Properties, Inc. (a Company incorporated in the state of North Carolina, USA) as at March 31, 2005 and also the Profit and Loss Account for the year ended on that date annexed thereto. These financial statements are the responsibility of the Companys management and have been prepared in accordance with accounting policies as described in notes to accounts attached therein, for the purpose of consolidation with the financial statements of IT Microsystems (India) Ltd., the holding company. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards in India. These standards require that we plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amount and disclosures in the financial statements. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. M/S B.R. Pandit & Associates, CPA have done review of the accounts and issued review report dated 8th August 2005 and we have also relied on the review report provided by them. In our opinion and to the best of our information and according to the explanations given to us and based on review report of B.R. Pandit & Associates, CPA, the said accounts give a true and fair view in conformity with the accounting policies described in notes to accounts attached therein: (i) (ii) in the case of the Balance Sheet, of the state of affairs of the Company as at March 31,2005; in the case of the Profit and Loss Account, of the profit for the year ended on that date. Sudhir Moravekar President

10 For and on behalf of the Board

(Sudhir Moravekar) President Mumbai, August 16, 2005

NOTE: Figures pertaining to balance Sheet items have been translated at year -end exchange rate.

PROFIT & LOSS ACCOUNT FOR THE PERIOD ENDED 31ST MARCH 2005
Particulars
INCOME Income from Operations Other Income Total EXPENDITURE General & Administrative Expenditure Personnel Expenditure Depreciation Interest Expenditure Preliminary Expenses Written Off Total Net Profit Before Tax Provision for Taxation Net Profit After Tax Add: Profit/ (Loss) brought forward from Previous Year Profit/(Loss) Carried to Balance Sheet Earnings Per Share (Equity shares with no par value) Notes forming part of the Accounts and Accounting Policies As per our Report of even date For H.H.Topiwala & Co. Chartered Accountants (H.H.Topiwala) Proprietor Mumbai, August 16, 2005 10 For and on behalf of the Board 8 9 5

Sch.

Period ended 31-03-2005

57,148,807 230,690 57,379,497 33,354,833 8,777,031 3,868,113 9,552,787

(in Rs.) Period ended 31-03-2004

12,970 12,970 6,219

55,552,764 1,826,733 389,550 1,437,183 6,751 1,443,934 6,779.17

6,219 6,751 6,751

6,751 168.78

For H.H.Topiwala & Co. Chartered Accountants H.H.Topiwala Proprietor Mumbai, August 16, 2005 Membership No.38660

(Sudhir Moravekar) President Mumbai, August 16, 2005

NOTE: The income and expenditure items have been converted at the average month-end rate

64

SCHEDULES TO BALANCE SHEET AS AT 31ST MARCH 2005

(in Rs.) Particulars SCHEDULE 1 SHARE CAPITAL Authorised: 10,000 Equity Shares with no par value Issued, Subscribed and Paid Up: 220 (40) Equity Shares of USD 2500 each, fully paid up SCHEDULE 2 : RESEVES & SURPLUS Profit & Loss Account 6,751 Cumulative Currency Translation Reserve As at 31-03-2005 As at 31-03-2004 Particulars SCHEDULE 3: SECURED LOANS Term Loan from Wachovia Securities (Secured against Mortgage on Property, Repayable in 30 years) (Out of the above Rs.8,450,881/payable within one year) As at 31-03-2005 126,763,481 (in Rs.) As at 31-03-2004

24,062,500 24,062,500

4,412,500 4,412,500 1,443,934 6,751

126,763,481 SCHEDULE 4 : UNSECURED LOAN From Companises

(166,374) 1,277,560

35,427,306 35,427,306

41,918,750 41,918,750 (in Rs.)

SCHEDULE 5 : FIXED ASSETS DESCRIPTION As at 01-04-2004 GROSS BLOCK (At Cost) Additions Deductions 39,812,500 134,297,450 626,937 3,097,413 177,834,300 As at 31-03-2005 39,812,500 134,297,450 626,937 3,097,413 177,834,300 (in Rs.) Particulars SCHEDULE 6: CURRENT ASSETS, LOANS & ADVANCES CURRENT ASSETS Sundry Debtors (Unsecured and considered good) Over six months Others Cash in Hand Bank Balances First Union Wachovia - Checking Account (Maximum balance during the year Rs.54,917,754) First Union Wachovia - M/Market Account (Maximum balance during the year Rs.60,850,217) Merchant Accounts Reserve with Wachovia Securities LOANS & ADVANCES Advances Recoverable in cash or kind or for value to be received Security Deposit SCHEDULE 7 CURRENT LIABILITIES & PROVISIONS CURRENT LIABILITIES Accounts Payable Taxes Payable Advances Payroll liability SCHEDULE 8 GENERAL & ADMINISTRATIVE EXPENDITURE Advertisement & Sales Promotion Audit Fees Bank Charges & Commission Commission / Discount Cleaning Sanitation Dues & Subscription Franchise Fees Insurance Insurance Health Lawn Maintenance License & Permits Marketing Charges Miscellaneous Postage & Delivery Printing & Reproduction Professional Fees Repairs & Maintenance Supplies Rent, Rates & Taxes Telephone Expense Travel Utilities As at 31-03-2005 As at 31-03-2004 As at 01-04-2004 DEPRECIATION For the Deduction year during the year 3,281,250 44,800 542,063 3,868,113 As at 31-03-2005 39,812,500 3,281,250 44,800 542,063 3,868,113 As at 31-03-2005 131,016,200 582,137 2,555,350 173,966,187 8,777,031 8,777,031

Land Building Furniture & Fixture Office Equipments Total

NET BLOCK As at 31-03-2004

SCHEDULE 9 PERSONNEL EXPENDITURE Salaries

SCHEDULE 10 : NOTES FORMING PART OF THE ACCOUNTS AND ACCOUNTING POLICIES : 181,825 157,691 389,461 10,570 263,724 12,073,181 2,633,750 270,856 15,981,058 463,444 1,676,456 270,988 2,410,888 682,651 2,755 1,205,770 1,433,531 625,193 155,476 5,263,731 786,617 120,685 101,397 59,622 9,013 311,151 17,395 92,654 11,465,949 1,827,898 3,891,444 1,349,889 539,884 232,357 3,179,771 33,354,833 46,352,018

1 Sai Properties, Inc is a North Carolina Corporation organised under the laws of the state of North Carolina on January 13,2004. The company is in the hospitality business. During the year Company has acquired Comfort Inn, a 122 rooms Motel property in Greensboro, North Carolina. 2 Significant Accounting Policies : The financial statements have been prepared on an accrual basis and under historical cost convention and in accordance with generally accepted accounting practices in India. a) The companys functional currency is United States Dollars (US$) and these accounts have been prepared in INR.

46,352,018

(i) Reporting Currency Translation The books of the company are maintained in US Dollar. These accounts have been prepared in Indian Rupees. The US Dollar balance as per books of the company have been converted into Indian Rupees as follows : - All the assets and liabilities including Share capital have been converted at the year end rate - All the income and expenditure items have been converted at the average monthend rate. (ii) The net difference on translation is taken in cumulative currency translation reserve & shown separately. b) Revenue Recognition As a consistent practice, the company recognises revenue on accrual basis. c) Fixed Assets and Depreciation Depreciation has been charged as per IRS rates prevailing in the US. 3 The Company is a wholly owned subsidiary of I T Microsystems (India) Ltd. The accounts have been prepared and audited to attach with the accounts of I T Microsystems (India) Ltd., the Holding Company, to comply with the provisions of the Companies Act, 1956. As per our Report of even date For H.H.Topiwala & Co. (H.H.Topiwala) Proprietor Mumbai, August 16, 2005 For and on behalf of the Board Chartered Accountants (Sudhir Moravekar) President Mumbai, August 16, 2005

11,262 11,262 2,755 3,464 6,219

65

Georgian Motel Corp.

Management Team Sudhir Moravekar President Ravi Khare Secretary Auditors H. H. Topiwala & Co. Chartered Accountants Registered Office 384, Canada Street Lake George, New York 12845

BALANCE SHEET AS AT 31ST MARCH 2005

Particulars Sources of Funds Shareholders Funds Share Capital Reserves & Surplus Defered Income Tax Loan Funds Secured Loan Total Application of Funds Fixed Assets Gross Block Less: Depreciation Net Block Current Assets, Loans & Advances Current Liabilities & Provisions Current Liabilities Net Current Assets Currency Translation Reserve Total Notes forming part of the Accounts and Accounting Policies As per our Report of even date For H.H.Topiwala & Co. Chartered Accountants (H.H.Topiwala) Proprietor Mumbai, August 16, 2005 Sch. As at 31-03-2005 4,375,000 92,256,525 7,190,794 229,974,019 333,796,338 (in Rs.) As at 31-03-2004 4,412,500 93,924,580 7,820,715 17,597,807 123,755,602

Directors Report To, The Members Georgian Motel Corp. Your Directors have pleasure in submitting the annual report of the Company comprising of Balance Sheet as on March 31, 2005 along with Profit & Loss Account for the year ended March 31, 2005. (Rs. in Lacs) Financials 2004-05 Income from operations 1559.49 Total Income 1611.62 PBT 80.51 Provision for Taxation 9.69 PAT 70.82 Takeover At the end of the year, M/s. IT Hospitality Inc. had acquired one hundred percent of the issued and outstanding common stock, thus making its subsidiary. The Company owns a 164 rooms Luxury resort a Lake George, New York. Acknowledgement: Your Directors record their appreciation to the team at Georgian Motel Corp. and its holding company IT Hospitality Inc. for its support. For and on behalf of the Board Sudhir Moravekar President

3 606,888,231 265,594,394 341,293,837 4 5 23,299,019 (13,007,857) 5,510,358 333,796,338 11 For and on behalf of the Board 22,207,070 1,239,830 4,160,785 123,755,602 10,291,162 10,291,162 375,982,197 257,627,210 118,354,987 23,446,900 23,446,900

(Sudhir Moravekar) President Mumbai, August 16, 2005

Mumbai, August 16, 2005

NOTE: Figures pertaining to balance Sheet items have been translated at year end exchange rates.

Auditors report to the members of Georgian Motel Corp. We have audited the attached Balance Sheet of Georgian Motel Corp. (incorporated in the state of New York, USA) as at March 31, 2005 and also the Profit and Loss Account for the year ended on that date annexed thereto. These financial statements are the responsibility of the Companys management and have been prepared in accordance with accounting policies as described in notes to accounts attached therein, for the purpose of consolidation with the financial statements of IT Microsystems (India) Ltd., the holding company. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards in India. These standards require that we plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amount and disclosures in the financial statements. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. Allen B. Powers, CPA have done review of the accounts and issued review report dated 7th July 2005 and we have also relied on the review report provided by them. In our opinion and to the best of our information and according to the explanations given to us and based on review report of Allen B. Powers, CPA, the said accounts give a true and fair view in conformity with the accounting policies described in notes to accounts attached therein: (i) in the case of the Balance Sheet, of the state of affairs of the Company as at March 31,2005; (ii) in the case of the Profit and Loss Account, of the profit for the year ended on that date. For H.H.Topiwala & Co. Chartered Accountants H.H.Topiwala Proprietor Membership No.38660

PROFIT & LOSS ACCOUNT FOR THE PERIOD ENDED 31ST MARCH 2005
Particulars Sch. Period ended 31-03-2005 (in Rs.) Period ended 31-03-2004

Mumbai, August 16, 2005

INCOME Income from Operations 6 155,949,100 164,252,267 Other Income 7 5,212,987 6,502,617 161,162,087 Total 170,754,883 EXPENDITURE Purchases 8 17,838,334 14,707,366 General & Administrative 9 58,208,387 70,640,439 Expenditure Personnel Expenditure 10 64,267,250 70,980,695 Depreciation 3 12,050,588 11,522,803 Interest 746,869 2,015,581 153,111,428 Total 169,866,884 Net Profit Before Tax 8,050,659 887,999 Provision for Taxation 968,714 2,029,044 Net Profit After Tax 7,081,945 (1,141,045) Profit brought forward 93,924,580 95,065,625 from Previous Year Dividend Distribution 8,750,000 Balance Carried to Balance Sheet 92,256,525 93,924,580 Notes forming part 11 of the Accounts and Accounting Policies As per our Report of even date For and on behalf of the Board For H.H.Topiwala & Co. Chartered Accountants (H.H.Topiwala) (Sudhir Moravekar) Proprietor President Mumbai, August 16, 2005 Mumbai, August 16, 2005 NOTE: The income and expenditure items have been converted at the average month-end rate.

66

SCHEDULES TO BALANCE SHEET AS AT 31ST MARCH 2005

(in Rs.) Particulars SCHEDULE 1 SHARE CAPITAL Authorised: 500 Equity Shares with no par value Issued, Subscribed and Paid Up: 200 Equity Shares with no par value 4,375,000 4,375,000 4,412,500 4,412,500 As at 31-03-2005 As at 31-03-2004 Particulars SCHEDULE 2 SECURED LOAN Mortgage Payable to Mission Oaks Bank (Secured by a mortgage on all real properties) Mortgage Payable to Zions First National Bank (Secured by a mortgage on all real properties) Mortgage Payable to Fallbrook Capital (Secured by a mortgage on all real properties) (out of above $446,592/- repayable within one year) Mortgage Payable-Capital Bank Truck Payable-New Country As at 31-03-2005 43,750,000 170,537,500 15,686,519

(in Rs.) As at 31-03-2004

229,974,019

16,791,835 805,972 17,597,807 (in Rs.)

SCHEDULE 3 : FIXED ASSETS DESCRIPTION As at 01-04-2004 9,079,337 242,097,814 78,493,212 13,534,241 23,400,812 9,376,783 375,982,199 Additions 47,588,931 184,777,163 4,998,131 69,256 876,619 238,310,100 GROSS BLOCK (At Cost) As at Deductions Translation 31-03-2005 Adjustment 56,591,106 (77,162) 424,817,486 (2,057,492) 82,824,263 (667,081) 13,488,475 (115,022) 24,078,557 (198,874) 4,244,825 4,244,825 (43,614) (3,159,245) 5,088,344 606,888,231 (in Rs.) As at 31-03-2004 As at 01-04-2004 156,652,178 64,146,807 10,929,983 20,381,602 5,516,640 257,627,210 For the year 6,513,413 3,391,675 749,438 630,831 765,231 12,050,588 DEPRECIATION Deduction Translation Adjustment (1,331,322) (545,157) (92,890) (173,214) 1,910,171 1,910,171 (30,650) (2,173,233) As at 31-03-2005 161,834,269 66,993,325 11,586,531 20,839,219 4,341,050 265,594,394

Land Building Motel Equipment Office Equipment Kitchen, Dining Room and Lounge Equipment Transport Equipment Total

NET BLOCK As at As at 31-03-2005 31-03-2004 56,591,106 9,079,337 262,983,219 85,445,636 15,830,938 14,346,405 1,901,944 2,604,258 3,239,338 3,019,210 747,294 3,860,143 341,293,837 118,354,989 3,501,980 688,716 68,853 1,114,452 1,064,519 191,275 3,904,082 2,106,968 (177,176) 1,054,828 10,144 284,188 29,750 6,821,544 6,560,314 21,071 90,136 70,640,439 504,922 70,475,773 70,980,695

Particulars SCHEDULE 4: CURRENT ASSETS, LOANS & ADVANCES CURRENT ASSETS Inventories Sundry Debtors (Unsecured and considered good) More than 6 months Others Cash Balance Cash-Capital Bank & Trust Cash Prime Capital Cash in Bank - Escrow Cash in Bank - TD Banknorth (Maximum Balance during the year Rs.8,918,546/-) Employee Loan Retunred Items Prepaid Expenses

As at 31-03-2005

879,375 173,469 78,750 5,282,156 1,296,818 2,580,594 10,291,162

1,814,090 (456,892) 101,488 11,078,695 22,921 5,682,991 189,422 23,520 4,990,664 23,446,900 9,459,376 1,103,125 380,130 739,115 10,525,323 22,207,070

Licenses and Permits Miscellaneous Office Equipmental Rental Office Expenses Pest Control Postage Professional Fees Real estate taxes Repairs & maintenance Rubbish Removal Sales Tax Expenses Supplies Telephone Telephone Tax Theft Loss Travel Agent Commission Utilities 546,148 Water Rents SCHEDULE 10 PERSONNEL EXPENDITURE Employee Benefits Payroll Expenses

194,457 174,404 342,452 437,450 70,032 637,315 3,111,587 6,272,926 10,293,842 820,371 626,635 5,273,285 733,755 6,039 30,870 6,320,300 732,719 58,208,387 2,038,129 62,229,121 64,267,250

SCHEDULE 5 CURRENT LIABILITIES & PROVISIONS CURRENT LIABILITIES Sundry Creditors 1,990,756 Note Payable 6,343,750 Duties & Taxes 2,836,488 Accrued Expenses & Taxes 1,011,456 Advance Deposits- Rentals 11,116,569 23,299,019 SCHEDULES TO P& L A/C FOR THE Y. E. 31ST MARCH 2005 SCHEDULE 6 INCOME FROM OPERATIONS Rooms 107,558,216 Dining Room 32,930,066 Lounge 15,460,818 155,949,100 SCHEDULE 7 OTHER INCOME Interest 141,866 Telephone 235,872 Dock Rentals 2,543,537 Commission, Miscellaneous, etc. 2,291,712 5,212,987 SCHEDULE 8 COST OF SALES Dining Room 13,596,462 Lounge 4,241,872 17,838,334 SCHEDULE 9 GENERAL & ADMINISTRATIVE EXPENDITURE Advertising & Promotion 4,063,323 Automobile Expenses 1,699,417 Bad debts 561,740 Bank Charges 11,852 Cable TV Charges 698,965 Charitable Donations 93,105 Convention & Travel Expenses 1,004,283 Credit card discounts 2,836,643 Dues, Publications and Subscriptions 336,233 Entertainment 1,553,405 Freight 126,408 Front Desk Uniforms Heat, Light & Power 8,613,218 Insurance 5,068,598 Insurance settlement Laundry & Linen 1,236,910

116,057,857 37,907,760 10,286,650 164,252,267 1,181,186 387,757 2,559,955 2,373,718 6,502,617 14,707,366 14,707,366 951,227 9,888,576 558,811 590,713 728,819 304,496 71,745 1,129,465 1,068,277 1,708,702 15,871,590 263,040 568,463 19,648 3,211,468 49,455

SCHEDULE 11 : NOTES FORMING PART OF THE ACCOUNTS AND ACCOUNTINGPOLICIES: 1 Georgian Motel Corp. is an Incorporated Company under the laws of state New York.The company owns a 164 rooms full service Luxury resort at Lake George, NewYork. On 9th March 2005, IT Hospitality has purchased 100% of the issued and outstanding common stock. 2 Significant Accounting Policies : The financial statements have been prepared on an accrual basis and under historical cost convention and in accordance with generally accepted accounting practices in India. a) The companys functional currency is United States Dollars (US$) and these accounts have been prepared in INR. The significant accounting policies adopted by the company are detailed below: (i) Reporting Currency Translation The books of the company are maintained in US Dollar. These accounts have been prepared in Indian Rupees. The US Dollar balance as per books of the company have been converted into Indian Rupees as follows : - All the assets and liabilities including Share capital have been converted at the year end rate - All the income and expenditure items have been converted at the average month-end rate. (ii) The net difference on translation is taken in cumulative currency translation reserve & shown separately. b) Revenue Recognition As a consistent practice, the company recognizes revenue on accrual basis. c) Fixed Assets and Depreciation On acqusition the fixed asstes except land is restated at replacedment cost and the land at appraised value as per purchase method under FAS 141 on business combinations. Depreciation of plant equipment is provided over the estimated useful life of the respective assets using the straight line and declining balance method. d) Inventories Inventories are stated at cost on a first-in, first-out method. e) Tax Credits Investment and new jobs tax credits are accounted for on the flow through method, which recognises the credits in the year in which the credits are utilised for tax purpose. 3 Previous year figures are certified by the management and not audited. The figures have been regrouped, where necessary to confirm to current year classification. 4 The Company is a wholly owned by IT Hospitality, Inc. which is wholly owned subsidiary of IT Microsystems(India) Ltd. The accounts have been prepared and audited to attach with the accounts of IT Microsystems (India) Ltd., the Holding Company, to comply with the provisions of the Companies Act, 1956. As per our Report of even date For and on behalf of the Board For H.H.Topiwala & Co. Chartered Accountants (H.H.Topiwala) (Sudhir Moravekar) Proprietor President Mumbai, August 16, 2005 Mumbai, August 16, 2005

67

Consolidated Auditors Report

We have audited the attached consolidated Balance Sheet of IT Microsystems (India) Ltd. (the Company) and its subsidiaries as at March 31, 2005 and also the consolidated Profit and Loss Account for the year ended on that date annexed thereto and the consolidated Cash Flow Statement for the year ended on that date. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards in India. These standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are prepared, in all material respects, in accordance with an identified financial reporting framework generally accepted in India, and are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements. We believe that our audit provides a reasonable basis for our opinion. We did not audit the financial statements of Sai Motels Ltd. whose financial statements reflect total assets of Rs.6.69 crores as at March 31, 2005 and total revenues of Rs.1.21 crores for the year then ended. These financial statements have been audited by other auditors whose reports have been furnished to us, and in our opinion, in so far as it relates to the amounts included in respect of the subsidiaries, is based solely on the report of the other auditors. We did not audit the financial statements of Graciano Cottage, a partnership firm whose financial statements reflects total assets of Rs.1.50 crores as on March 31,2005 and total revenue of Rs.0.30 crores. The amounts have been incorporated based on unaudited financial statements. We report that the consolidated financial statements have been prepared by the Company in accordance with the requirements of Accounting Mumbai August 29, 2005 For H. H. Topiwala & Co; Chartered Accountants H. H. Topiwala Proprietor Membership No. 38660 c. in the case of consolidated Cash Flow statement, of the consolidated cash flows of the Company and its subsidiaries for the year ended on that date. b. in the case of the consolidated Profit and Loss Account, of the consolidated results of operations of the Company and its subsidiaries for the year ended on that date; and Standards (AS) 21, Consolidated Financial Statements, issued by the Institute of Chartered Accountants of India and on the basis of the separate audited financial statements of the Company and its subsidiaries included in the consolidated financial statements except that the standalone financial statements of IT Microsystems (India) Ltd. do not include amounts expressed in foreign currency, as such disclosure is not warranted by Schedule VI to the Companies Act, 1956. In our opinion and to the best of our information and according to the explanations given to us and on consideration of the separate audit reports of individual audited financial statements of the Company and its subsidiaries, and subject to the matter referred to in above paragraphs, the said accounts give a true and fair view in conformity with the accounting principles generally accepted in India: a. in the case of the consolidated Balance Sheet, of the consolidated state of affairs of the Company and its subsidiaries as at March 31,2005;

68

CONSOLIDATED BALANCE SHEET AS AT 31ST MARCH 2005

(in Rs.) Particulars SOURCES OF FUNDS Shareholders Funds Share Capital Reserves & Surplus Deferred Income Tax Loan Funds Secured Loan Unsecured Loan Total APPLICATION OF FUNDS Fixed Assets Gross Block Less: Depreciation Net Block Capital Work-In-Progress Investments (At Cost) Current Assets, Loans and Advances Raw Materials Sundry Debtors Cash and Bank Balances Loans & Advances Minority Interest Current Liabilities and Provisions Current Liabilities Provisions Net Current Assets Miscellaneous Expenditure (To the extent not written off or adjusted) Total Notes forming part of the Accounts & Accounting Policies As per our Report of even date For H.H.Topiwala & Co. Chartered Accountants (H.H.Topiwala) Proprietor (Vidya Moravekar) Managing Director Sch. As at 31-03-2005 As at 31-03-2004

1 2

64,787,500 270,447,004 7,190,794 662,389,514 207,900,295 1,212,715,107

64,787,500 186,762,032 89,415,467 106,286,244 447,251,243

3 4

5 1,372,827,656 306,480,063 1,066,347,593 4,522,062 6 7 8 9 10 2,067,179 975,048 7,694,845 42,318,658 171,766,414 80,287 222,835,252 83,222,974 7,690,531 90,913,505 12 131,921,747 7,856,526 1,212,715,107 21 For and on behalf of the Board 277,662,278 22,478,720 255,183,558 3,326,403 10,927,957 87,006 22,627,296 68,527,623 148,901,406 80,887 240,224,218 39,609,086 29,708,097 69,317,183 170,907,035 6,906,290 447,251,243

11

(Mehul Parekh) Director

(Kiranchandra Shah) Company Secretary

Membership No.38660 Mumbai, August 29, 2005 Mumbai, August 29,2005 NOTE: Figures pertaining to Foreign Subsidiaries have been translated at year end exchange rates.
69

CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2005
(in Rs.) Particulars Sch. Year ended 31-03-2005 Year ended 31-03-2004

INCOME Income from Information Technology Activities Income from Lodging & Boarding Other Income Total EXPENDITURE Raw Materials Consumed Personnel Expenditure Software Development Expenses General & Administrative Expenses Depreciation & Amortisation Interest and Finance Charges Deferred Revenue Expenditure Written Off Preliminary Expenses Written Off

13 14 15

175,929,359 154,006,056 62,763,384 392,698,799 5,069,968 73,758,340 80,070,552 119,520,127 18,096,491 22,560,557 1,500,000 714,783 321,290,818 71,407,981 1,846,775 69,561,206 21,976,325 3,123,860 94,661,391

117,409,126 53,059,454 19,849,904 190,318,484 1,981,094 30,158,729 42,724,624 43,561,347 13,529,914 5,611,081 1,500,000 223,596 139,290,385 51,028,099 775,144 50,252,955 5,651,906 746,058 (14,225,292) 42,425,627

16 17 18 19 5

20

PROFIT BEFORE TAX Less: Tax for the Current Year PROFIT AFTER TAX Add: Provision Written Back Add: Prior Period Adjustments Add: Profit brought forward from the previous year Amount available for appropriation APPROPRIATIONS: General Reserve Proposed Dividend Tax on Dividend including surcharge Balance carried to Balance Sheet Total Earnings Per Share (Equity shares, par value of Rs.5/- each) Notes forming part of the Accounts & Accounting Policies As per our Report of even date For H.H.Topiwala & Co. Chartered Accountants (H.H.Topiwala) Proprietor (Vidya Moravekar) Managing Director

5,000,000 6,478,750 908,645 82,273,996 94,661,391 5.37 21 For and on behalf of the Board

10,000,000 25,915,000 3,386,767 3,123,860 42,425,627 3.88

(Mehul Parekh) Director

(Kiranchandra Shah) Company Secretary

Membership No.38660 Mumbai, August 29, 2005 Mumbai, August 29,2005 NOTE: Figures pertaining to Foreign Subsidiaries have been translated at year end exchange rates.
70

Consolidated Schedules to the Accounts

(in Rs.) As at 31-03-2005 SCHEDULE 1 : SHARE CAPITAL Authorised: 24,000,000 Equity Shares of Rs.5 each Issued, Subscribed and Paid Up: 12,957,500 (10,020,000) Equity Shares of Rs.5 each fully paid up (includes 1,400,000 equity shares of Rs. 5 each, allotted as fully paid up Bonus shares out of free reserves) (2,937,500 Equity shares of Rs.5 each issued as fully paid up pursuant to the Scheme of amalgamation of Sai Motels & Resorts Ltd. with the Company without payment being received in cash) Share Capital Suspense Account As at 31-03-2004

120,000,000 64,787,500

120,000,000 50,100,000

64,787,500

14,687,500 64,787,500

SCHEDULE 2: RESERVES & SURPLUS Capital Reserve As per last Balance Sheet On account of difference in capital issued to the shareholders of erstwhile Sai Motels & Resorts Ltd. Premium Account As per last Balance Sheet General Reserve As per last Balance Sheet Transferred from Profit and Loss Account Profit and Loss Account Balance Carried Forward Currency Translation Reserve

103,051,500 103,051,500 669,200 79,050,000 5,000,000 84,050,000 82,273,996 402,308 270,447,004

239,000 102,812,500 103,051,500 669,200 69,050,000 10,000,000 79,050,000 3,123,860 867,472 186,762,032

SCHEDULE 3: SECURED LOAN From Banks

662,389,514 662,389,514

89,415,467 89,415,467

SCHEDULE 4: UNSECURED LOAN From Other Companies

207,900,295 207,900,295

106,286,244 106,286,244
71

Consolidated Schedules to the Accounts

SCHEDULE 5 : FIXED ASSETS (in Rs.)
SCRIPTION DES
Asat Land Buildings Plant & Machinery Computers Furniture & Fixtures V ehicles Office Equipments Air Conditioners Electrical Installations Goodwill (Ref. Sch. 21 Note 2) Capital Improvement Borrowing Cost (Ref. Sch.21 Note 1 (x)) T otal Previous Y ear 277,662,278 14,028,371 479,605,063 257,544,622 609,681,908 243,496 56,137 6,121,903 1,372,827,656 6,145,422 277,662,278 22,478,720 3,024,569 18,096,491 19,118,303 265,594,394 53,569 364,027 306,480,063 1,066,347,593 255,183,558 335,848 22,478,720 255,183,558 11,003,802 53,533,255 163,247,947 19,694,573 5,796,599 22,333,763 6,614,374 1,888,542 2,247,956 121,266 301,145 Additions 95,137,501 348,178,179 132,916 119,900 5,864,891 34,003 15,589,406

GROSS BLOCK (At Cost)

Additions 56,591,106 424,817,488 106,902,819 Deductions duringtheyear T ranslation Adjustment 3,175,884 3,018,366 26,007 Asat 31-03-2005 208,437,746 939,018,484 126,756,315 5,916,499 28,120,745 11,736,721 30,961,979 2,247,956 121,266 3,094,821 9,477,519 6,937,605 Asat 01-04-2004 Forthe 01-04-2004 duringtheyear NewSubsidiary

DEPRECIATION
Additions Deductions T ranslation Asat 31-03-2005 year NewSubsidiary duringtheyear Adjustment

NET BLOCK
Asat 31-03-2005 208,437,746 37,295,740 1,749,658 17,648,695 5,274,273 16,034,665 1,819,840 98,538 3,094,821 9,361,013 6,592,067 Asat 31-03-2004 53,533,255 18,449,673 2,664,370 14,360,876 5,153,661 1,279,053 1,926,618 104,298 301,145

243,496

7,601,411 1,244,900 3,132,229 7,972,887 1,460,713 609,489 321,338 16,968

10,308,967 376,617 1,034,612 2,524,851 660,685 2,733,952 106,778 5,760

161,834,269 87,832,544

53,569

6,514

89,460,575 4,166,841 10,472,050 6,462,448 14,927,314 428,116 22,728

386,869 180,077,947

758,940,537 155,646,536

5,088,344 13,488,475

9,477,519 5,070,748

2,793,676

(77,909)

4,341,050 11,586,531

(4,444) -

(16,001)

118,785

116,506 227,763

(25,688)

(2,658)

(1,010)

116,506 345,538

1,882,858

1,764,073

Capital Work In Progress: -4,522,062 (Last Y ear :- 3,326,403/-)

SCHEDULE 6 : INVESTMENTS (At Cost) - Long Term A) QUOTED - (Non - Trade)- Equity Shares Sr. No. 1 2 3 4 5 6 7 B) C) Name of the Company Himachal Fut. Comm. Maars Software Punjab Tractors Ltd. Silverline Tips Industries Wellwin Industries Ltd. Wockhardt Lifesciences Ltd. Investment in Hotel Projects (USA) National Savings Certificate Aggregate Book Value of Investments Quoted - Market Value Rs. 1,331,300/- (Previous year Rs.1,695,564)
72

No. of Shares 31-03-2005 53600 9000 400 5300 5000 3500 2400

No. of Shares 31-03-2004 74100 20000 600 15700 5000 1500 9500

Face Value Per Share 10 10 10 10 10 10 10

As At 31-03-2005 1,501,802 111,968 82,844 37,443 197,837 53,350 75,935 2,061,179 6,000 2,067,179

(in Rs.) As At 31-03-2004 2,076,859 250,956 90,036 110,915 197,837 33,150 289,686 3,049,439 7,872,518 6,000 10,927,957

Consolidated Schedules to the Accounts

(in Rs.) As at 31-03-2005 SCHEDULE 7 : INVENTORIES (At Cost) Raw Materials As at 31-03-2004

975,048 975,048

87,006 87,006

SCHEDULE 8 : SUNDRY DEBTORS (Unsecured, considered good) Over six months Others

412,285 7,282,560 7,694,845

437,722 22,189,574 22,627,2

SCHEDULE 9 : CASH AND BANK BALANCES Cash in hand Bank balances With Scheduled Banks With Non-Scheduled Banks Commercial Bank of Dubai - UAE ANZ Bank - New Zealand First Union Wachovia-check A/c First Union Wachovia Bank- Sweep A/c. First Union Wachovia-HYMM A/C First Union Binghamton Check A/c M & T Bank-Syracuse A/c M & T Bank-Binghamton club A/c Wachovia Money Market A/c. ANZ Banking Group(NZ) Ltd First Union Wachovia Bank- Money Market Account First Union Wachovia - Checking Account Cash in Bank - TD Banknorth Balance in Escrow Account Merchant Accounts Fixed Deposits with Scheduled Banks

1,601,842 11,891,583 Maximum Bal. 984,231 57,422 86,493,750 831 875 7,736,706 1,647,056 866,513 85,784,869 3,379,323 60,850,217 54,917,754 8,918,546 11,698,072 448,225 6,020 10,218,188 831 875 6,904,171 423,773 295,166 1,219,096 291,098 10,570 389,461 1,296,818 5,282,156 718,785 1,320,000 42,318,658

4,321,681

381,956 5,798 1,975,873 1,897 530 2,819,798 46,352,018 970,000 68,527,623

SCHEDULE 10 : LOANS AND ADVANCES (Unsecured, considered good) Accrued Interest Advances recoverable in cash or in kind or for value to be received Advance for Technical Know How Deposits Advance Tax and TDS Prepaid Expenses

49,461 157,606,050 10,112,387 1,095,976 87,816 2,814,724 171,766,414

214,306 134,573,447 10,097,950 3,562,217 201,712 251,774 148,901,406

73

Consolidated Schedules to the Accounts

(in Rs.) As at 31-03-2005 SCHEDULE 11 : CURRENT LIABILITIES AND PROVISIONS CURRENT LIABILITIES Sundry Creditors Advances Duties & Taxes Unclaimed Dividend Overdrawn Bank Balances Other Liabilities PROVISIONS Provision for Taxation Proposed Dividend Provision for Dividend Tax Other Provision As at 31-03-2004

6,362,516 45,520,786 7,243,795 665,386 392,918 23,037,573 83,222,974

13,828,226 3,197,240 104,338 22,479,282 39,609,086 25,915,000 3,386,767 406,330 29,708,097 69,317,183

6,478,750 908,645 303,136 7,690,531 90,913,505

SCHEDULE 12 : MISCELLANEOUS EXPENDITURE (To the extent not written off or adjusted) Preliminary Expenses Pre-operative Expenditure Deferred Revenue Expenditure

61,984 3,424,721 4,369,821 7,856,526

320,476 2,444,872 4,140,942 6,906,290

SCHEDULE 13 : INCOME FROM I.T. ACTIVITIES Income from I T Export Income from I T Activities Abroad Income from DTA Sales

171,100,275 3,630,364 1,198,720 175,929,359

113,383,160 3,501,707 524,259 117,409,126

SCHEDULE 14 : INCOME FROM LODGING & BOARDING Income from Lodging & Boarding Income from sale of Food & Beverages

151,264,294 2,741,762 154,006,056

49,472,909 3,586,545 53,059,454

SCHEDULE 15 : OTHER INCOME Profit on sale of Long Term Investments Consultancy Interest Dividend on Long Term Investments Exchange Rate Fluctuations - Gain Other Income
74

57,244,411 132,124 4,325 1,782,870 3,599,654 62,763,384

254,201 16,912,916 121,354 23,000 1,452,362 1,086,071 19,849,904

Consolidated Schedules to the Accounts

(in Rs.) As at 31-03-2005 SCHEDULE 16 : RAW MATERIALS CONSUMED Opening Stock Add : Purchases during the year Less : Closing Stock As at 31-03-2004

87,006 5,078,635 5,165,641 95,673 5,069,968

101,406 1,966,694 2,068,100 87,006 1,981,094

SCHEDULE 17 : PERSONNEL EXPENDITURE Salaries including overseas staff expenses Salaries & Allowances Bonus & Ex-Gratia Directors Remuneration Staff Welfare Expenses Leave Encashment Leave Travel Allowance Staff Training & Development Exps. Medical Allowance Medical Reimbursement Gratuity Contribution to ESIC Contribution to PF

70,897,068 54,686 853,323 215,720 161,860 155,216 83,079 272,084 202,517 71,689 61,777 729,321 73,758,340

27,231,602 40,135 891,298 325,192 452,671 97,939 126,173 259,983 114,722 57,780 10,760 550,474 30,158,729

SCHEDULE 18 : SOFTWARE DEVELOPMENT EXPENSES Cost of software packages for own use service delivery to clients Consultancy charges

174,678 174,678 79,895,874 80,070,552

416,290 416,290 42,308,334 42,724,624

SCHEDULE 19 : GENERAL & ADMINISTRATIVE EXPENSES Accounting Fees Advertisement & Sales Promotion Administrative Expenses Audit Fees Bank Charges & Commission Books & Periodicals Communication Expenses Commission / Discount Computer Expenses Donations & Gifts Electricity & Water Charges Entertainment Expenses Exchange Rate Fluctuation Loss Fuel Franchise Fees Housekeeping Charges Insurance Charges Licence & Fees

350,089 5,181,353 22,848 273,211 3,502,267 30,126 5,360,394 2,197,721 318,941 42,938 2,209,862 979,352 2,342,290 422,085 9,920,836 28,159,164 8,485,569 803,997

263,832 1,275,203 135,272 545,725 37,807 1,531,760 337,944 390,398 20,885 1,267,661 2,220,009 5,394,813 150,733 3,096,136 7,611,380 1,290,268 544,149
75

Consolidated Schedules to the Accounts

(in Rs.) As at 31-03-2005 SCHEDULE 19 : GENERAL & ADMINISTRATIVE EXPENSES (Con.) Loss on Sale of Fixed Assets Loss on Sale of Long Term Investments Membership & Subscription Merger & Acquisition Expenses Miscellaneous Expenses Office Expenses PF Administration Charges Printing & Stationery Professional Fees Bad & Doubtful Debts Written Off Rent, Rates & Taxes Repairs & Maintenance Security Charges Selling & Distribution Expenses Transportation expenses Travel & Conveyance Expenses Vehicle Expenses As at 31-03-2004

364,464 1,457,332 1,814,873 1,167,485 78,463 631,798 16,401,148 14,264,933 5,069,954 802,330 945,675 345,176 4,971,285 602,168 119,520,127

21,016 803,246 4,666 333,088 221,611 63,959 307,141 1,440,863 5,336,016 3,550,833 826,861 2,496,389 1,441,921 599,762 43,561,347

SCHEDULE 20 : PRELIMINARY EXPENSES WRITTEN OFF Computer Software Expenditure Written Off Merger & Acquisition Expenses Written Off Miscellaneous Expenditure Written Off Preliminary Expenses Written Off Share Issue Expenses Written Off

259,212 75,122 45,004 331,870 3,575 714,783

45,004 175,024 3,568 223,596

SCHEDULE 21 NOTES FORMING PART OF THE ACCOUNTS AND ACCOUNTING POLICIES 1 SIGNIFICANT ACCOUNTING POLICIES: a) The consolidated financial statements relate IT Microsystems (India) Ltd and its subsidiary companies. The consolidated financial statement have been prepared on following basis: i) The financial statement of the Company and its subsidiary companies are combined line-by-line basis by adding together the book values of like items of assets, liabilities, income and expenses, after fully eliminating intra-group transactions resulting in unrealised profits or losses in accordance with Accounting Standard (AS) 21-Consolidated Financial Statements issued by the Institute of Chartered Accountants of India. ii) In case of foreign subsidiaries, revenue items are consolidated at the average rate prevailing during the year. All assets and liabilities are converted at rates prevailing at the end of the year. Any exchange difference arising on consolidation is taken to cumulative currency translation reserve and shown seperately. iii) The difference between the cost of investment in the subsidiaries, over the net assets at the time of acquisition of shares in the subsidiaries is recognised in the financial statements as Goodwill or Capital Reserve as the case may be. iv) As far as possible, the consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances and are presented in the same manner as the Companys separate financial statements. b) Other significant accounting policies i) Method of Accounting and Preparation of Financial Statements The Financial Statements are prepared on Historical Cost Convention on an accrual basis and in accordance with Accounting Standards issued by the Institute of Chartered Accountants of India and the presentational requirements laid down by the Companies Act, 1956.

76

Consolidated Schedules to the Accounts

Revenue Recognition On time-and-materials contracts, revenue from software development is recognized as and when the related services are rendered and billed to clients as per the terms of specific contracts. On fixed -price contracts, revenue is recognized based on the milestones achieved as specified in the contracts on the basis of the work completed. In respect of Hospitality business, both income and expenditure items are recognised on accrual basis. iii) Fixed Assets Fixed assets are stated at their original cost along with taxes, duties, freights and any directly attributable cost of bringing the asset to its working condition for the intended use up to the date of commissioning for operation, attributable to acquisition / construction of the concerned assets except where fixed assets are taken over at consolidated price . Fixed Assets acquired on business purchase at consolidated price have been stated at replacement cost except for land which is stated at fair value. Capital work-in-progress includes machinery to be installed, construction materials and advances, etc. iv) Depreciation and Amortization Depreciation on assets other than those situated in the USA and New Zealand has been provided at the rates and in the manner prescribed in the Schedule XIV to the Companies Act, 1956 on the straight line basis. Depreciation in respect of the assets in the USA and New Zealand has been provided according to the provisions of the Taxation Laws prevailing in the respective countries. Franchise Fees paid to CDAC towards setting up and running of overseas I T Training Centres has been amortized over a period of four years. v) Foreign Currency Transactions Transaction in foreign currency (currency other than companies functional currency) are booked at the exchange rate prevailing on the date of the particular transaction. Any gain or loss arising from exchange rate fluctuations has been taken to Profit & Loss Account. All monetary items denominated in foreign currencies at the end of the year have been translated at the year end rates. In respect of income and expenditure at the overseas branches, month-end exchange rates have been adopted. Foreign currency translation treatment in respect of foreign subsidiaries is described in 1(a) (ii). vi) Investments Investments other than investments in subsidiary are valued at cost of acquisition which includes brokerage. Profit or loss on sale of investments are taken into account at the time of sale of investments. Dividends credited / debited for ex-dividend / cum-dividend transactions are included in the cost of acquisition of the investment. vii) Inventories Inventories of food materials and beverages, stores and supplies are valued at cost on First-In, First-Out basis. viii) Computer Software Expenses Computer Software Expenses purchased for own use have been deferred to be written off over a period of five years. ix) Retirement Benefits Provision for gratuity payable to employees who have completed 5 years of continuous service has been made on an estimated basis in respect of the parent Indian Company. Provision for leave encashment has been made on the basis of number of days leave to the credit of the employees at the end of the financial year in respect of the parent Indian Company. x) Borrowing Costs Borrowing Costs incurred on acquisition of fixed assets has been classified under Fixed Assets pending allocation to various fixed assets. xi) Impairment of Assets Assessment of impairment of fixed assets is carried out on each balance sheet date. Impairment loss is recognised when carrying amount of any asset exceeds its recoverable amount. The subsidiary companies considered in the consolidated financial statements are: Name of the Subsidiary IT Hospitality Inc. Sai Properties Inc. Sai Motels Limited Georgian Motel Corp. (Georgian Motel Corp is a wholly owned subsidiary of IT Hospitality Inc. )
77

ii)

Country of Incorporation U.S.A. U.S.A. New Zealand U.S.A.

Proportion of ownership interest 100% 100 100% 100%

Consolidated Schedules to the Accounts

The Georgian Motel Corp. was acquired on 9th March,2005. The operations subsequent to that date being insignificant whole year revenue has been treated as pre-acquisition revenue and hence not included in the consolidated accounts. Assets and liabilities of the company as on 31st March 2005 have been consolidated in the consolidated financial statement. The excess of purchase consideration over the net assets of the company (Rs.2,793,676) is treated as goodwill. The consolidated figures in the unaudited results for the fourth quarter included the full year figures of the acquired company. Under advice from the auditor and in compliance with AS-21, the whole year revenue has been treated as pre-acqusition andis excluded from consolidated financial results. This has lead to a variance beyond the prescribed limits in the consolidated revenue of the unaudited (Rs. 54.23 Cr) and audited figures (Rs.39.29 Cr.) 3 Contingent Liabilities I Estimated amount of capital commitments not provided for: Nil Nil II Contingent Liabilities not provided for: Nil Nil Profit & Loss Account includes: Remuneration to Directors 853,323 891,298 Sitting Fees Nil Nil Other Perquisites Nil Nil There are no specific claims on the Company from Small Scale Industrial Suppliers under the Interest on delayed payments to Small Scale & Ancillary Undertakings Act 1993" The Company has not provided for Current and Deferred Taxation on its income in India as it is exempt from Income Tax up to the year ending 31-032009 under Section 10A of the Income Tax Act, 1961. Disclosures of related parties / related party transactions Enterprises owned by directors / major shareholders of the Company 1 Panoramic Hotels Ltd., Pancard Clubs Ltd. , Pan Product Impex Private Ltd., Panoramic Land Developers Private Ltd., Pan Herbo Ltd., Smooth Financials Private Ltd., Panoramic Resorts (India) Ltd., Pan Ad Key Management Personnel and their relatives 2 a) Vidya Moravekar Managing Director b) Arun Tari Whole time Director Related party transactions 3 The Company entered into transactions with related parties during the year. These transactions along with the relevant balances are set out as under: (in Rs.) Transactions with Director 2004-05 2003-04 a) Advertisement Pan Ad - Prop. Vidya S. Moravekar 430,339 358,954 b) Remuneration Arun B. Tari 277,920 224,300 S. Nagarajan 245,328 206,498 Vidya S. Moravekar 330,075 460,500 Transactions with Associate Companies a) Rent paid Pan Herbo Ltd. 240,000 81,438 b) Rent received Pan Herbo Ltd. 187,500 165,000 Amount due to related parties a) Pancard Clubs Ltd. 12,115,554 6,657,494 Segment Reporting Segment Identification: a)
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5 6 7

The Companys operations are focused on Software Development and I T Training and other activities.Accordingly, these two business divisions comprise the primary basis of the segment information set out in the financial statements:

Consolidated Schedules to the Accounts

(in Rs.) Total

Particulars REVENUE External Revenue Inter-Segment Revenue Total RESULT Profit before Depreciation, Interest & Tax Depreciation Interest Taxation Net Profit OTHER INFORMATION Segment Assets Segment Liabilities b)

I T Activities

Hospitality Business 214,967,718 214,967,718 42,771,624 16,358,251 22,502,704 1,846,775 2,063,892 1,095,881,108 695,139,993

177,731,080 177,731,080 69,293,405 1,738,240 57,853 67,497,312 108,977,469 175,149,816

392,698,798 392,698,798 112,065,029 18,096,491 22,560,557 1,846,775 69,561,206 1,204,858,577 870,289,809

Secondary Segment Reporting is made on the basis of geographical regions. Revenues are segregated on the basis of the location of the customer who is invoiced or in relation to which the revenue is otherwise recognized. (in Rs.) Total 392,698,798

Asia External Revenue 9 Earnings Per Share I II III IV 10 Profit Attributable to Equity Shareholders (Rs.) Number of Equity Shares Nominal Value of Equity Share Basic Earnings Per Equity Share 142,641,369

Rest of the World 250,057,429

2004-05 69,561,206 12,957,500 Rs. 5 5.37

2003-04 50,252,955 12,957,500 Rs. 5 3.88

Corresponding figures for previous period presented have been regrouped, where necessary, to confirm to this years classification.

As per our Report of even date For H.H.Topiwala & Co. Chartered Accountants (H.H.Topiwala) Proprietor Membership No.38660 Mumbai, August 29, 2005 (Vidya Moravekar) Managing Director

For and on behalf of the Board

(Mehul Parekh) Director

(Kiranchandra Shah) Company Secretary

Mumbai, August 29,2005

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Consolidated Cash Flow Statement

(in Rs.) Year ended 31-03-2005
A. CASH FLOW FROM OPERATING ACTIVITIES : Net Profit before tax Adjustments for : Depreciation and Amortisation Dividend received Interest received Loss on sale of investment Interest paid Preliminary Expenditure written off Deferred Revenue Expenditure written off Operating profit before working capital changes Movement in Working Capital : (Increase) / Decrease in Sundry Debtors (Increase) / Decrease in Inventory (Increase) / Decrease in Loans & Advances (Increase) / Decrease in Minority Interest (Increase) / Decrease in Misc. Expenditure Increase / (Decrease) in Current Liabilities Increase / (Decrease) in Provision Cash generated from Operations Direct Tax Paid Prior Period Items Net Cash Flow from Operating Activities ( A) B. CASH FLOW FROM INVESTING ACTIVITIES : Purchases of Fixed Assets Purchase of Investments Sale of Investments Sale of Fixed Assets Dividend received Interest received Net cash Flow from Investing Activities (B) C. CASH FLOW FROM FINANCING ACTIVITIES : Secured Loan from Bank Unsecured Loan Repayment of Secured Loan Dividends Paid Additional Tax on Dividend Share of profit paid Interest Paid Net cash Flow from Financing Activities ( C ) Adjustment on account of exchange rate Net Increase / (Decrease) in cash & cash equivalents (A+B+C) Cash and Cash equivalents at the beginning of the year Cash and Cash equivalents at the end of the year For and on behalf of the Board Mumbai, August 29, 2005 (Vidya Moravekar) Managing Director (Mehul Parekh) Director (Kiranchandra Shah) Company Secretary 71,407,981 18,096,491 (4,325) (132,124) 364,464 22,560,557 714,783 1,500,000 43,099,846 114,507,827 14,932,451 (888,042) (22,865,008) 600 (1,264,547) 43,613,888 (103,194) 33,426,148 147,933,975 (1,846,775)

Year ended 31-03-2004

51,028,099 13,529,914 (23,000) (289,849) (254,201) 5,611,081 223,596 1,916,290 20,713,831 71,741,930 41,285,437 14,400 (104,716,700) 17,075 (476,220) 13,954,365 271,230 (49,650,413) 22,091,517 (775,144) 746,058 22,062,431 (139,247,275) (10,769,287) 834,959 56,137 23,000 289,849 (148,812,617) 70,473,186 106,260,029 (1,001,650) (20,040,000) (2,567,625) (16,474) (5,611,081) 147,496,385 1,739,394 22,485,593 46,042,030 68,527,623

146,087,200 (825,165,863)

8,496,314

4,325 132,124 (816,533,100) 573,997,915 101,614,051 (1,023,868) (6,478,750) (846,692)

(22,560,557) 644,702,099 (465,164) (26,208,965) 68,527,623 42,318,658

AUDITORS CERTIFICATE We have examined the attached Cash Flow Statement of IT Microsystems (India) Limited for the year ended 31st March, 2005. The Statement has been prepared by the Company in accordance the requirements of Clause 32 of the Listing Agreement with Stock Exchanges and is based on and in agreement with the corresponding Profit & Loss Account and Balance Sheet of the Company covered by our report of even date to the Members of the Company. For H.H.Topiwala & Co. Chartered Accountants (H.H.Topiwala) Proprietor Mumbai, August 29, 2005 Membership No.38660 80