Four Soft Ltd

FOR THE YEAR 2010-11

Overview

The financial statements have been prepared in compliance with the requirements of theCompanies Act 1956, and Generally Accepted Accounting Principles (GAAP) in India. TheManagement of Four Soft accepts responsibility for the integrity and objectivity of thesefinancial statements, as well as for various estimates and judgments used therein. Theestimates and judgments relating to the financial statements have been made on a prudentand reasonable basis, in order that the financial statements reflect in a true and fairmanner the form and substance of transactions, and reasonably present the company’sstate of affairs and profits for the year.

The following discussion may include forward looking statements which may involve risksand uncertainties, including but not limited to the risks inherent to Company’sgrowth strategy, dependency on certain clients, dependency on availability of qualifiedtechnical personnel and other factors discussed in this report.

1. Industry Structure and Developments

Four Soft is an enterprise applications and product company that operates in the SCM(Supply Chain Management) market space. Four Soft has its suite of products forTransportation, Logistics, Freight Forwarding, Customs, Shipping, Non-Vessel OperatingCommon Carrier (NVOCC), 3PL and 4PL companies. The target customers in‘Transportation and Logistics’ vertical include service providers; and for‘Supply Chain Execution / Distribution’ vertical, the target market includesshippers / manufacturing and 4PL companies. These are execution and mission criticalapplications for the customers. Our product portfolio enhances efficiency, providesvisibility and integration across operations and also to other third party software andsystems. The Company’s product development centre (India Technology Centre) andGlobal Delivery centre are located at Hyderabad with sales and support offices in UK,Netherlands, Denmark, USA, Singapore, Australia and Japan. Four Soft continues to be aglobal leader in Supply Chain Execution Software Solutions for Transportation, Freightforwarding and Logistics domain.

Transport and logistics industry is growing at a 12-18% globally and more important thefuture of this industry is heavily dependant upon the efficient delivery and visibilitywhich requires more than current investment in IT.

This also applies to all the SCM intensive manufacturing industries such asPharmaceutical, Automobile and Retail industry. These industries will soon be called ITdriven supply chain companies which means opportunities for IT products and servicescompanies across the globe.

2.1 Business Segments

Four Soft in the recent past has established its web centric or next generation productportfolios in such a way that these products are available on licensing, hosting and SaaSmodels. This has opened up a wide range of market space for the company across the supplychain and other growing markets such as the Healthcare and Retail. Logistics,Transportation and 3PL companies will become the IT supply chain drivers of the future andhence their survival itself is dependent on the investment in technology or IT productsand technology is necessary to bring additional market space for Four Soft. Manufacturingcompanies across the globe spend a large percentage of its expenditure in managing supplychain either directly or through 4 PL companies. Four Soft having its supply chainproducts Visilog and Visilogplus has proved that there are the products thatenterprises look for to manage their supply chain at increasing efficiency and managingcosts.

The suite of software products offered by Four Soft are 4S eTrans, 4S eLog, 4SVisilog, 4S VisilogPlus, 4S eCustoms, 4SeConnect, 4S iShipping and 4S InfoTips.

Freight Forwarding Solutions

Built on the cutting edge technology of J2EE, Spring and SOA architecture, 4s eTransis a multi-modal, web-centric application for transportation companies - designed to giveoperational and financial control of global and domestic freight movements, from order tocash.

• 4S eTrans is offered for Large Medium and Small customers and it provides realtime data visibility and improved operational profitability. The SME version providessolutions for Small and Medium Enterprises.

• 4S iLogistics built on IBM iSeries, provide solutions for Freight andlogistics business of global organizations.

• 4S Visilog offers Track and Trace functionality to service providers who inturn could also be using other applications in this domain.

Contract Logistics

4S suite of products built for logistics service providers extends well beyond thecapability of traditional warehouse and inventory management systems by integratingsupply, fulfillment and partner collaboration into one enterprise service platform. TheWarehouse Management Solutions (WMS) module contains all the functionality required bywarehousing and distribution organizations. Its distributed processing approach supports awide variety of facilities, including hub-and-spoke distribution centers. Thesecapabilities help a 3PL provider meet the demands of continuous replenishment strategieswhile lowering inventory and shipping costs, and increasing visibility into the supplychain.

The solutions in the offering include 4S eLog, a web centric WMS application thatfulfils warehousing and contract logistics for 3PL companies with capabilities to handleorder management, fulfillment and partner collaboration. The product is sold and deployedin the conventional user license based model as well as SaaS (Software as a Service)model, wherein the revenue model is more on subscription basis for the usage of the systemwhich is hosted by Four Soft.

The SME customers see the SaaS model as an easily adaptable one, as there is no capitalexpenditure involved and can save upfront investment in terms of hardware as well as arefree from implementation hurdles.

Shipper Logistics

4S Visilogplus is a world class business application designed as an efficientsolution for managing supply chain activities in the distribution network, whether companyowned or outsourced to third parties. It enables step-by-step implementation and can beadapted and changed as per needs. Its open architecture makes it easy to integrate withother systems and capably extend ERP into supply chain execution. It is designed to handlebusiness processes order management, transportation management, warehouse management andevent management. It also enables various elements of the supply chain to be connected onreal time basis using web technology and collaborate for overall benefits to the supplychain.

Customs Brokerage

4S eCustoms is a single instance, global application that supports multi-countrycustoms declarations, deployable at country levels of customer choice. It targets thecustoms brokers, shippers that have self-declaration license and freight forwarders and3PLs that also manage customs brokerage. The new technology that it is built also supportsthe ability to deploy it across multi-terminals and branches spread acrossmulti-locations, manage the filing from any of the location in a decentralized mode, andyet have control and visibility in centralized mode.

The product is sold and deployed in the conventional user license based as well as SaaS(Software as a Service) model in India, wherein the revenue model is more on subscriptionbasis for the usage of the system which is hosted by Four Soft. The SME customers see theSaaS model as an easily adaptable one, as they save upfront investment in terms ofhardware as well as are free from implementation hurdles.

2.2 Customer Base

In the previous 8 years, Four Soft has increased its total client base from 5-6customers during of IPO to a strong base of over 400 clients across 120 countries and60,000 users across globe till date. The Company caters to international and domesticFortune 500 clients including 17 of the top 25 largest freight forwarders intransportation and logistics/3PL industry. Major clients of the Company include DHL, DBSchenker, UTI, Ceva Logistics and Panasonic. This gives us the market leadership andenables us to grow significantly and increase our market share in future.

2.3 4S business Model

Four Soft sells its software products in various delivery models including Hosted, SaaSand Licensed basis. The License model is typically done on the ‘Named Users’count, which increases as the customer’s scale of operations increase. The revenuestream is sustainable since there is annual maintenance support contract for the licensedsales made. The service revenues would also come from the implementation services that areperformed, helping the customer ‘go live’ with 4S products, at times, also inintegrated mode with other existing software applications at customers’ site.Further, there is a good chance of revenue to be billed for customization service revenuealso contributes to overall increase in revenues. In the year under review there has beena growing interest in SaaS model and this could be an interesting development for thecompany. This means expanding in the SME market segment and evaluation of the SaaS modelby few large clients who may adopt license model. The revenue numbers on SaaS may not bevery large however the company will be able to earn better margins in this model as scaleincreases.

A detailed chart representing revenues from various services is given below for easyunderstanding.

2.4 Geographical Mix

The long term potential of our revenue stream is from various geographic regionsspecified below. It could be observed that EMEA continues to be contributing to majorityof the revenue share, given the number of logistics hubs it accommodates. We are takingnecessary steps to also improve the revenue share of other regions.

2.5 Average Revenue per Employee on consolidated basis

In the products and solutions business, our Average revenue per employee, a keymeasurement for increased productivity and profitability has been increased steadily. Thebelow graph depicts the growth:

2.6 Quality

Your company is dedicated to maintain the highest level of quality standards andprocesses in its development and delivery teams and overall process improvement to achievethe quality certification. Your company has been appraised with CMMI Level 5 (Version 1.2)certification recently.

This achievement recognizes your company for best-in-class processes related to design,development and maintenance of software that enables it to be a reliable partner forcustomers to solve their business problems.

Capability Maturity Model Integration (CMMI) is a process improvement approach thathelps organizations improve their performance. CMMI can be used to guide processimprovement across a project, a division, or an entire organization. CMMI in softwareengineering provides a framework for the organization to operate at high maturity levelswith the essential elements of management by facts and data-driven decision making.

The appraisal was conducted by Quality Assurance Institute India Ltd, SEI Partner.

3. Strategy Outlook

The company endeavors to achieve higher than industry growth rates in both revenues andprofits during the coming years. The company expects that the quality of revenues, profileof new clients that we acquire, and the average size of orders from new clients will allimprove in the coming years. Strong domain expertise and attractive business potential oflogistics space have seen Four Soft attract multiple rounds of VC investments in its earlyyears. Sustained R&D investments since inception have seen development of acomprehensive suite of contemporary web-based products. We anticipate higher percentage ofgross profits from the new projects that we undertake during next year. Four-Soft will seestrong traction in revenue and profitability over the next few years as it leverages itsR&D investments. Revenue mix is expected to change rapidly in favor of e-products,which will drive expanding margins and exponential profit growth from FY12 onwards.

Four Soft is now focusing on Web 2.0, Cloud computing and other leading edge options.The products are available in the Software as a Service (SaaS) model to extend thebenefits of IT to small and medium customers in the Company’s domain operation.

In next three years, Four Soft plans to adopt the following strategies for overallgrowth:

• Consolidating existing revenues from legacy products obtained from acquiredcompanies

• Multifold growth by selling next generation web-centric eProducts

• Diversify into Business Process Outsourcing (BPO) services within the supplychain and logistics segment.

• Acquire companies in the next 18 months to strengthen presence in newgeographies and verticals based on the level of organic growth.

• Strengthen presence in new geographies through focus on SCM and shipperlogistics vertical.

Being rich in technology, Four Soft has sought to acquire deep domain expertise throughthe inorganic route. The company has already adopted a well planned M&A strategy tostrengthen its software solutions for transport and logistics industry by acquiringcompanies across the globe with Fortune 500 logistics and transportation clients, deepdomain expertise and global presence and experienced management. Four Soft is aiming tobecome a Global Company with local operations.

4.1 Growth through Organic and Inorganic Mode

Four Soft has grown over years by a combination of organic and inorganic strategies.Your company has successfully integrated all its global operations and has emerged tobecome one of the most efficient organization with proven delivery capability. This hasset the stage for the management to frame the strategies with main focus on organicgrowth.

a) Diversifying into BPO services within the supply chain segment

The company has taken initiatives enter into Business Process Outsourcing (BPO) spacethrough organic and inorganic route to offer services like freight settlement reports,customer service and transaction entry to global freight forwarding companies byleveraging the existing domain knowledge and customer base. The company believes thatbeing a product service provider, it has an advantage of understanding the business betterand has the potential to start BPO services within the existing customers and explore newopportunities with new customers. The company has secured two orders from existingcustomers in the financial year under review and this could lead us to more opportunities.As we achieve scale, we will explore options for expanding by the inorganic route.

b) Strengthen presence into new geographies through focus on SCM and shipper logistics

The company has plans to expand its presence into new geographies and focus on shipperlogistics vertical and SCM market through WMS, with an objective to exploit potentialbusiness synergies.

c) Software as a Service(SaaS) Model- LogiSaaS

Four Soft management has enabled all its suite of applications online in thesoftware-as-a-service (SaaS) model this year under the LogiSaaS brand. The market needed adifferent approach as we saw a huge opportunity from SMEs (small and medium enterprises).Your company has been successful in signing few contracts on this platform since itslaunch and expects to grow this business to a substantial volume in the next two years.

d) Remote Infrastructure Management Services (RIMS)

Your company has forayed into a new service offering to global market space. Theoffering is a set of services that help businesses manage the hardware, networks andassociated software using capabilities that are located away from their physicallocations. Your company offers a one stop solution to cater to all IT infrastructure needsof customers. The company has secured an order from its existing customer for thisoffering.

With the help of our products and services, our customers continue to offer value addedservices in multiple geographies to their customers. We endeavor to offer new serviceofferings built around our products to cover all the value-added services. Most of ourpresent business comes from existing customer base.

Inorganic growth is a key element in our exponential growth. We have achieved globalleadership with the acquisitions done in past. Now with the portfolio and range ofproducts we have in all the sub-verticals of Logistics and Transportation, we have come upwith the positioning guidelines that help our sales people to position the best fittingproduct to the customer and geography, depending on the prevailing business practicesspecific to that domain.

4.2 Market Opportunity

Four Soft has made recent inroads based on the opportunities that exists in thelogistics and transportation domain. Your company products portfolio has extendedhorizontally and vertically. Today, it offers integrated software solutions for Logisticsand Transportation, Shipper Logistics and Services (BPO Services, RIMS etc.). Vertically,we have explored business opportunities in the growing market segments like Bio-Pharma,and Retail It also has offerings built on latest internet technologies, using J2EE, whichin turn positions Four Soft as the best in the industry thereby providing an opportunityfor product offerings across domains.

With the growing complexity of operations in this domain, it is extremely important toget the real-time visibility in the supply chain execution and ensure that informationmoves seamlessly across the supply chain, including internal systems and multiple externalsystems. Tracking and tracing the consignment is of great business interest to each of thebusiness partner in the supply chain right from consignor to consignee including theservice providers in the middle. Powerful transaction applications that would increaseoperational efficiency added with the capability to offer visibility and track and tracehas good market potential in this domain and our applications typically target to offerthis value proposition to the target market segments.

A. Market and Competitive Environment

The Transportation and Logistics domain continues to increase consolidation acrossvarious geographies. Four Soft is focused on this domain and any variations in thisbusiness environment may considerably impact the fortunes of the customers and thuseffecting our revenues. Further, the company is not focused on one product or servicesegment for the industry, but offers a wide range or suite of products that may reduceuncertainties on the market size and opportunities etc.

In order to restrict fierce competition, the IT industry serving this domain has beenwitnessing various mergers and acquisitions recently. However, your company’s focusis to acquire small players in the similar business either in US or Asia-pacific tostrengthen its local presence. The company is also looking to penetrate into SouthAmerican market.

Global logistics industry will undoubtedly grow rapidly in the coming years due toincreased global trade, favorable government policies across globe, advancement in modesof transportation, manufacturing moving to low cost economies, emergence of global brandsand retailing, importance of Information and Communication Technologies, focus oninventory reductions and newer ways of logistics and supply chain services.

Four Soft has a substantial edge over competitors due to its highly advancedtechnologies, scalable architecture, delivery capabilities and its vast domain knowledge,apart from its proven capability with 17 of the top 25 largest freight forwarders ascustomers from across logistics and transportation domain.

B. Foreign Exchange Rate Fluctuations

Four soft has been operating through its global subsidiaries spread across Europe,North America and Asia. Four Soft does not have high dependency on any specific currencyas the company’s revenues are spread across various currencies. The revenues and cashflows are generated and received in each of its entities and hence the exposure is only tothe extent of natural hedging. However, there will be risks in foreign exchange to theextent of its spending in Indian rupees which is not material at this point. We hope thatthe increase in Indian rupee revenues (domestic revenue) can mitigate the exposure to theextent of Indian rupee.

C. Technology Obsolescence Mode

The software products industry is highly characterized by rapid technological changesthat could make our technology and service offerings obsolete, less competitive anddifficult to sell. We are adapting ourselves to continuously improve the features,functionality, scalability, robustness and ability to meet the ever changing demands andneeds of customers. Our failure to adapt to the challenges would affect our ability tocompete and retain customers and market share.

Four Soft has the necessary technical resources, tools and methodologies in place toaddress the threat of technical obsolescence. We undertake testing with the latestavailable technical tools, architecture in our product development environment.

D. Geographic Concentration of Revenues

Concentration of revenue from any country exposes your company to the risks inherent toeconomic slowdown, local laws, work culture and ethics of that country. Four Soft’ssubstantial revenues are contributed by Europe; however these revenues are spread acrossGBP, Euro and Danish Kroner. Your company monitors geographic concentration periodicallyto maintain a balance.

Since your company caters primarily to one industry segment - Logistics andTransportation segment - any major laws or changes in this industry would affect yourcompany’s business. However, being in the enterprise software solutions arena, yourcompany always monitors the growth of the industry segment, which is witnessing growth inSouth-East and Far-East Asia. Further changes in laws or changes in industry may result inadditional customization revenue to the company.

Your company relies on repeat business based on strength of client relationships andmajor portion are from existing clients. As number of clients increases, it limits yourcompany’s pricing flexibility, strengthens client’s negotiation capability andany change in client’s IT strategy will adversely affect your company’srevenues. As a proactive measure your company analyses the risks due to change inclient’s business and focus on areas where it can proactively add value to improvecompetitiveness of clients.

E. Acquisitions

Inorganic growth through acquisitions has been the significant element of our strategy.It is critical to manage integration seamlessly across the organization during theacquisition phase, as our ability to serve customers is at higher than expected levels andthus demands our associates’ contribution to make the acquisitions successful. Mostof these acquisitions are low margin companies and to turnaround them to profitable andhigher margin companies is always challenging. We need to continue leveraging thestrengths of combined entities. The company believes that it has executed the acquisitionsin a smooth manner with proper strategy and planning.

F. Variability of Quarterly Operating Results

There is likely variance of quarterly operating results of the company due to ITinvestment trends by customers, achievement of milestones in software projects, additionalstaffing, timing and integration of acquired businesses, foreign exchange fluctuation gain/ (loss). The past operating results and quarterly comparisons may not indicate thecurrent or future performance. The company constantly endeavors to safeguard against suchrisks mitigating through best practices, advanced processes, future proof investments andimparting latest tools and skills to employees, and reasonably well protected against anysuch risks in future.

G. Intellectual Property Infringement

As product development depends on the intellectual property created by its employees,we need to ensure that the same do not infringe any other proprietary technology rights.We have intellectual property policies in place to take care of trade secrets, copyrightand trademarks laws and confidentiality agreements for our employees, third partiesoffering only limited protection. The steps taken by us as well as laws of most advancedcountries do not offer effective protection of intellectual proprietary rights. Thirdparties could claim infringement of proprietary rights against the company or also assertthe same against our customers, which would require protracted defense and costlylitigations on behalf of our customers.

Litigation may be necessary in the future to protect our technology proprietary rightsand trade secrets, resulting in substantial costs and harming our business, despite allour efforts to prevent third parties infringing our proprietary rights.

H. Strategy

The company strategy has always been to strengthen our leadership position in thisdomain irrespective of market dynamics and this will enable us to have a global leaderpositioning and thus increasing our scope of offerings to existing and potential clients.The existing engagement with our clients is mostly offering one or more of our suite ofsolutions. The company is offering the next level of value added services to itscustomers. We continue to have recurring business from existing customers along withmaintaining a long term relationship. We have continued to expand our global operationsthrough client services across the globe through own offices as well as partners.Currently our presence is in over 8 countries with direct offices and another 3 countriesthrough partner offices. We use these operations to support client services globally.

We continue to invest in employees, technology tools for R&D, recruitment andhoning employee skills, increased domain expertise and promote brand visibility throughtradeshows, sponsorships and investor relations. We also continue to develop allianceswith leading technology providers to take advantage of emerging technology for mutualbenefit and cost competitiveness.

The current industry we operate is highly competitive in nature, most of the softwarebeing developed by in-house IT departments and international companies setting up theiroffshore development centers in India. Recently industry ERP majors have also startedfocusing on this domain; however we continue to lead the pack with technology advantageand proven delivery capabilities and shorter implementation life cycle.

6. Internal Control System and their Adequacy

Management maintains internal control systems designed to provide reasonable assurancethat assets are safeguarded, transactions are executed in accordance withmanagement’s authorization and properly recorded, and accounting records are adequatefor preparation of financial statements and other financial information. The internalaudit function also carries out Operations Review Audits to improve the processes andstrengthen control of the existing processes. The audit committee periodically reviews thefunctions of internal audit.

The company’s internal audit team under the supervision of audit committee anddedicated professionals assess the adequacy of internal controls and means to enhance thesame from time to time. These controls basically cover financial reporting, contingencyplans for remedial measures, and validated tools to test controls and functionsdocumented.

6. Culture, Values and Leadership

Your company is emerging as a global player in supply chain for transportation,logistics, distribution execution software. Your company has a written code of conduct andethics to make employees aware of ethical requirements and whistle blower policy forreporting violations, if any.

Your company has internal structured succession planning to take care of loss of anymember of senior management or other key management personnel. Since inception yourcompany is committed to developing next generation leaders and conduct personalitydevelopment and development work of skills acquired by them over the years.

With over 700 strong workforce spread across various nationalities and geographies,your company encourages an ‘Equal Employment Opportunity Policy’ whichdiscourages discrimination for employment on account of sex, race, color, religion,physical challenge and so on.

DISCUSSION ON STANDALONE FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

Note: It is suggested to look at the consolidated figures as they represent the trueperformance of the company in view of the global operations of the organization.

A. Financial Condition I. Share Capital:

The company has only two classes of shares - Equity and Preference Shares. TheAuthorized Share capital is Rs. 350 Million divided in to 5,60,77,600 equity shares of Rs.5/- each and 6,96,120 Redeemable preference Shares of Rs. 100/- each.

During the year under review, there was no change in the company’s AuthorizedShare Capital and continues to stand at Rs. 350 Million.

II. Reserves and Surplus:

During the year, your company recorded a net loss after tax of Rs. 57.25 Million (2009-10 profit after tax Rs. 11.53 Million). The total Reserves and Surplus as on thebalance sheet date is Rs. 761.36 Million (Rs. 817.38 Million as at 31^st March2010). There is an expense of Rs. 2.32 Million towards stock option compensation duringthe year (2009-10 Rs. 1.35 Million).

III. Secured Loans:

The company does not have secured loans as at the balance sheet date.

IV. Fixed Assets:

During the year under review, the total additions to the gross block of assets amountedto Rs. 14.56 million. The entire investment in fixed assets was funded out of internalaccruals

V Investments:

In December 2006, the Company had entered into an agreement for purchase of 100%outstanding equity shares of Transaxiom Holding A/s (subsequently renamed as Four SoftNordic A/s) from its erstwhile shareholders in consideration not exceeding Danish Kroner(DKK) 69,000,000. The aggregate purchase consideration was to be determined based on theaverage eligible revenue of the acquired entity over a period of 36 months ending 31December 2009. As of 31^st March 2011, the company has paid the completepurchase consideration due based on the said criteria.

1. Sundry Debtors

Sundry Debtors, considered good and realizable as of 31^st March 2011 amountsto Rs. 92.12 million (Rs. 81.21 million as at 31^st March 2010). All the debtorsare generally considered good and realizable and necessary provisions for doubtful and baddebts have been made. The sundry debtors are 34% (25% 2009-10) of total revenues.

The provision for doubtful debtors as at the balance sheet date is Rs. 0.48 million(Rs. 0.63 million as at 31^st March 2010).

2. Cash and Bank Balances

The Bank balance in India includes both rupees accounts and foreign currency accounts.Cash and Bank balances are Rs. 12.34 million and 21.02 million for the financial yearended 31^st March 2011 and 31^st March 2010 respectively. Cash andBank balance constitutes 1.15% of the total assets (1.56% as at 31^st March2010).

3. Other Current Assets

Other current assets include interest accrued as at 31^st March 2011amounting to Rs 0.05 million (Rs. 0.03 million as at 31^st March 2010) on fixeddeposits with scheduled banks and Rs. 1.5 million (Rs. 0.89million as at 31^stMarch 2010) being interest accrued and due on loans given to wholly owned subsidiariesnamely Four Soft B.V, The Netherlands and Four Soft Singapore Pte Ltd, Singapore.

4. Loans and Advances

Advances and loans to subsidiaries have increased to Rs. 158.42 million as compared toRs. 11.77 million in previous year.

Advances recoverable in cash, kind or value to be received are primarily towardsprepayments, travel advances and staff advances and other receivables.

5. Current Liabilities and Provisions

Sundry creditors amounting to Rs. 25.89 million (Rs. 117.70 million as at 31^stMarch 2010) includes payroll related liabilities and payable for other general expenses

Provisions include Rs. 9.64 million (Rs. 6.82 million as at 31^st March 2010)gratuity and leave encashment.

1. Income

Income from software services and products.

The company’s revenues are generated principally on License sales of products,Customization and fixed price Annual Maintenance contracts. The decline in revenues isprimarily due to a change in the transfer pricing methodology (as explained in the notesto accounts) and due to some reduction in business from subsidiaries and other customers.The sale of eProducts which were expected to gain momentum in the year review was toincrease the sales as per the revised transfer pricing methodology. However, due tolackluster eProucts sales in the year under review, has resulted in lower revenue.

The Total expenditure statement is as follows:

1. Personnel Expenses:

During the year under review, the personnel expenses were at 95% of its total revenueas compared to 59% during the previous year. The increase in personnel expenses is due tothe increase in head count of over 120 in India and also as a result of annual increments.We have also added a few senior resources during the year 2010-11.

2. Operating and other expenses:

The Operating expenses have remained fairly constant as compared to the previous year.

3. Operating Profits

During the year the company incurred an operating loss of Rs. 73.17 million compared toprofit of Rs. 49.39 million, representing 15% of total revenues during the previous year.The loss is attributable to several factors. As a product company, Four Soft Ltd continuesto invest in product development and research and development activities. Another majorreason is that the India sales have not picked up as expected in the last financial year.Further change in the transfer pricing methodology has resulted in lower margins. Themargins in India business are lower at the moment. However, we expect to this scenario tochange soon since India is one of the fastest emerging economies of the world. We intendto have a major share in the India market as and when the market reaches its potential.

4. Depreciation

The company provided a sum of Rs. 10.40 million compared to Rs. 14.70 million inprevious year towards depreciation representing 4% of total revenues (4% 2009-10).

5. Financial expenses

The financial expenses has decreased on account of repayment of loan availed fromCiticorp Finance (India) Limited.

6. Provision for Tax

In the current year the company incurred a tax loss. The company has recognizeddeferred tax asset on the current losses.

7. Net loss

The net loss of the company amounted to Rs. 57.25 Million for the current financialyear and net profit of Rs. 11.54 million in 2009-10.

8. Liquidity

As of 31^st March 2011, the company had cash and cash equivalents to theextent of Rs. 12.34 million.

9. Earnings per share

Earnings per share are computed on basis of number of common stock outstanding as onthe date of balance sheet which was Rs. (1.48) (Rs. 0.30 in 2009-10). The Diluted earningsper share Rs. (1.48) per share compared to Rs. 0. 30 per share in 2009-10.

10. Stock option plan

The shareholders in the extra ordinary general meeting held on 21^st December2009 have approved the Employee Stock Purchase Scheme and Employee Stock Option Scheme forissue of equity shares not exceeding 1,948,000 for each scheme. During the year 2010-11,the company has not granted any stock options under aforesaid scheme.

11. Foreign Exchange

The company incurred loss of Rs. 0.47 million on foreign exchange translation comparedto a loss of Rs. 5.12 million in previous year due to favorable currency movement in thecurrent year.

12. Related Party Transaction

These have been discussed in detail in the notes to the financial statements.

I. Share Capital:

The company has two classes of shares - Equity and Preference Shares. The AuthorizedShare capital is Rs. 350 Million divided in to 5, 60, 77,600 equity shares of Rs. 5/- eachand 6,96,120 Redeemable preference Shares of Rs. 100/- each.

During the year under review, there was no change in the company’s AuthorizedShare Capital and continues to stand at Rs. 350 Million.

II. Reserves and Surplus:

The closing balance of Share Premium Account was Rs. 648.11 million (Rs. 646.87 millionas at 31^st March 2010). Rs. 1.24 million (Rs. 3.59 million as at 31^stMarch 2010) was transferred on account exercise of stock options.

The General Reserve remained unchanged at Rs. 2.59 million. The balance of Profit andLoss account as on the Balance Sheet date is Rs. 715.71 million (Rs. 684.76 million as at31^st March 2010). Net profits after tax for the year were Rs. 30.94 million(2009-10 Rs. 61.79 million) which is transferred to Balance Sheet.

The closing balance of Foreign Currency Translation Reserve is Rs. 2.01 million (Rs.(71.96) million as at 31^st March 2010)

There is an expense of Rs. 2.32 Million towards stock option compensation during theyear ( 2009-10 Rs. 1.35 Million).

III. Loans:

Secured loans as at the Balance Sheet date aggregated to Rs. 305.42 million (Rs. 232.93million as at 31^st March 2010). Rs. 290.79 million (Rs. 202.64 million as at 31^stMarch 2010) is availed by Four Soft B.V from Punjab National Bank InternationalLimited. This loan is secured by all assets of Four Soft B.V and its subsidiaries and alsoguaranteed by Four Soft Limited.

A short term working capital loan of Rs. 14.63 million was is availed by Four Soft B.Vfrom Punjab National Bank International Limited.

Unsecured loans at Balance Sheet date are Rs. 0.11 million (Rs. 0.13 millionas at 31^stMarch 2010) representing the finance lease obligation.

IV. Fixed Assets:

Addition to tangible fixed assets during the year is Rs. 16.96 million including Rs.6.63 million towards computer equipment.

Addition to intangible assets is Rs. 2.60 million (purchase of software). Goodwill asat Balance Sheet date is Rs. 1,674.68 million (Rs. 1,582.20 million as at 31^stMarch 2010).

1. Sundry Debtors:

Sundry debtors considered good and realizable as on the Balance Sheet date are Rs.235.60 million (Rs. 197.18 million as at 31^st March 2010). All the debtors aregenerally considered good and realizable and necessary provisions for doubtful and baddebts have been made. The provision for doubtful debts stood at Rs. 14.22 million andprovision for doubtful debts provided for during the year is Rs. 4.19 million. Sundrydebtors are 19% (2009-10 15% ) of total revenues.

2. Cash and Bank Balance:

Cash and Bank balances are Rs. 143.05 million (Rs. 197.32 million as at 31^stMarch 2010). Of the above Rs. 130.52 million (Rs. 176.12 million as at 31^stMarch 2010) is held in foreign bank accounts as on the Balance Sheet date.

3. Loans and Advances:

Loans and Advances as at the Balance Sheet date aggregated to Rs. 100.93 million (Rs.73.17 million as at 31^st March 2010) including provision for doubtful advancesof Rs. 2.77 million (Rs. 2.50 million as at 31^st March 2010).

Advances recoverable in cash, kind or value to be received Rs. 75.59 million (Rs. 50.37million as at 31^st March 2010) are primarily towards prepayments, traveladvances and staff advances and other receivables. Deposits Rs. 18.32 million (Rs. 17.30million as at 31^st March 2010) represent electricity deposits, telephonedeposits and other deposits.

Advances for income tax of Rs. 9.79 million (Rs. 8.00 million as at 31^stMarch 2010) are net of provision towards tax liability in the consolidating entities.

4. Current Liabilities:

Current Liabilities as on the Balance Sheet date aggregated to Rs. 287.51 million (Rs.327.21 million as at 31^st March 2010).

Sundry creditors amounting to Rs. 125.85 million (Rs. 191.64 million as at 31^stMarch 2010) includes payroll related liabilities and payable for other general expenses.

Advances from customers as on the Balance Sheet date are Rs. 138.56 million (Rs. 119.13million as at 31^st March 2010)

5. Provisions:

Provisions include Rs. 59.31 million (Rs. 42.58 million as at 31^st March2010) towards gratuity, leave encashment and other employee benefits. Provision for incometax Rs. 17.10 million (Rs. 8.67 million as at 31^st March 2010) net of advancestowards tax liability in the consolidating entities.

B. RESULT OF OPERATIONS

The financial results of the company on the consolidated basis for year 2010-11 aredepicted in the below table:

1. Personnel Expenses

During the year personnel expenses have come down by Rs. 64.52 million on account ofcost rationalization exercise in the regions. However, the global headcount has gone upfrom 561 at last year end to 722 at current year end due to additions in India. Thepayroll cost was 67% of revenues compared to 66% in the previous year.

2. Operating and Other Expenses:

Operating expense was decreased during the year with a 14% over previous year due to a)cost rationalization b) facility consolidation activities and c) favourable exchange ratemovements.

3. Operating Profits:

Operating profit decreased by Rs. 31.08 million in the year under review primarily dueto a) decrease in revenue from a few legacy customers and b) decrease in other income.However the effect on profit was reduced by decrease in the personnel and operatingexpenses. Operating profit was 8% of the total revenues in current financial year comparedto 10% in the previous year.

4. Depreciation:

Depreciation during the year is Rs. 17.84 million compared to Rs. 23.86 million in theprevious year.

5. Financial expenses:

Interest expense was down Rs. 6.96 million on account reduction in the outstandingloans. Total interest expense was down to 1% of the revenues compared to previous year.

6. Provision for Tax:

Provision for Tax includes income tax and deferred tax. The decrease in the tax expenseis on account of the deferred tax asset recognized during the year under review..

7. Net profit

The net profit of the company amounted to Rs. 30.95 Million for the current financialyear a decrease of Rs. 30.84. This represents 2.5% of revenues compared to 5% in theprevious year.

8. Liquidity:

During the year company has a) generated Rs. 41.42 million from operating activities,b) received borrowings of Rs. 102.75 million c) repaid borrowings of Rs. 41.35 million, d)repaid the acquisition related liability of Rs. 94.31 million and e) invested in assets ofRs. 46.15 million.

9. Earnings per share:

Earnings per share during the year were Rs. 0.80 (2009-10 Rs. 1.99 ). The Dilutedearnings per share were Rs. 0.80 (2009-10 Rs. 1.98)

10. Foreign Exchange

During the year profit due to favorable fluctuation in the foreign exchange ratesamounted to Rs. 2.86 million compared to loss of Rs. 27.08 million loss in previous year.

Given below is the list of Contracts signed by Four Soft Group during the year 2010-11