Harbor Network Systems Ltd

Dear Members,

Your Directors present their Twelfth Annual Report and the audited accounts for the period ended 31st March 2004. OPERATION & OUTLOOK Financial Highlight for the year

FORWARD TO BALANCE SHEET

During the year also due to the severe recessionary trend in the economy the company's activities could not progress satisfactorily. The company had been looking for new avenues for profitable ventures for the survival of the company due to setbacks, in the previous business undertaken in the hardware sector. Towards this end the company took steps to venture into activities in the power sector. The company has been successful in developing its two new products, i.e. RF-AMR (Radio Frequency Automatic Meter Reader) and ESS (Energy Saving Streetlights). The products are in the demonstration stage. The company is also in discussions with various international companies for bringing new technologies in the field of solar

Thermal power generation to India. It is hoped that with the huge potential in the energy sector and the encouragement given to the power sector by the Government of India the company will be able to take advantage of the opportunities and turnaround the company in the near future

DIVIDEND

The directors do not recommend any dividend during the year;

PARTICULARS OF EMPLOYEES

During the year there were no employees drawing remuneration attracting the provisions of section 217 (2A) of the Companies Act 1956.

DEPOSITS

The company had not accepted any fixed deposits attracting the provisions of section 58A of the Companies Act 1956.

DIRECTORS

Ms. Kshemankari Nadgir retires by rotation and being eligible offers herself for reappointment.

AUDITORS

M/s. Mehta & Parmar Chartered Accountants, the Company's Auditors retire at the conclusion of the ensuing Annual General Meeting and being eligible for re-appointment offer themselves for reappointment.

ENERGY CONSERVATION. TECHNOLOGY ABSORPTION. FOREIGN EXCHANGE & OUTGO.

As the energy consumption was minimal no separate details of the energy consumption is provided in the report. The company had accorded top most priority in conserving the energy wherever possible. The company had not adopted any foreign technology during the year. The company had not spent any foreign exchange during the year.

DIREC TORS' RESPONSIBILITY STATEMENT

Your Directors State That:-

1. In preparation of the Annual Accounts, the application of Accounting Standards had been followed along with proper explanation relating to material departures.

2. That they had selected such accounting standards, 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 and loss of the company for that period.

3. That they had taken proper and sufficient care for the maintenance of adequate accounting records, in accordance with the provisions of the relevant acts for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities.

4. That they had prepared the Annual Accounts on a going concern basis.

CORPORATE GOVERNANCE

In terms of the requirements of the Stock Exchange the company has constituted the audit committee, shareholders grievance committee, and remuneration committee.

It is pertinent to point out that as the company is not a profit-making one, only one independent director was willing to get associated with the company. Hence the constitution of the various committees are done witit the directors in the board of directors. Similarly the constitution of the board of directors could not meet the requirement of the Corporate Governance because of the reasons explained above.

COMMENTS ON OBSERVATION MADE BY THE AUDITORS.

The various observations made by the auditors are explained in the notes to the accounts of the company. However the following are some of our explanations in general to the points raised by the auditors.

Regarding the non provision of the diminution of the value of investment of Goldhommer Securities Limited, since the said Goldhommer Securities Limited has applied for striking off the name of the company under section 560 of the Companies Act 1956 and the said company has not received any intimation from the Registrar Of Companies, Maharashtra to their application the said amount has not been written off till now. As soon as any intimation is received by the company from the said Goldhommer Securities Limited the company would take necessary action to write off the said investment.

Regarding the non provision of interest of Rs.24,96,960/- from Punjab & Sind Bank (PSB) and from Priya Ltd .The above mentioned parties have filed the suit against the company. As the amount due is disputed no provision has been made. PSB had filed suit against the Company in the Debts Recovery Tribunal, which passed order in favour of the Company by dismissing the Bank's suit on merits. The Bank has appealed the DRT's order and the matter is xuh-iudice.

In respect of item no 14 of the Annexure to the audit report, there have been delays in the payment of the statutory dues. This has been basically due to certain disputes in those particular returns. The company ensures that such delays would be avoided in future.

AUDITCOMMITTEE

The audit committee members consisting of Mrs. Kshemankari Nadgir, Dr.Lakshmi Nadgir and Mr. Satish Ailawadi continued to function as the members of the audit committee in the company.

SUBSIDIARY COMPANY

The subsidiary company has applied for striking off its name from the Registrar of Companies, Maharashtra and are awaiting the response from ROC. As such no activities are conducted by the subsidiary company. The accounts of the subsidiary company are attached with this report.

ACKNOWLEDGMENT

The directors thank the bankers, shareholders and its customers for the support extended to the company.