DRAFT COPY

DRAFT COPY

MELSTAR INFORMATION TECHNOLOGIES LIMITED

(Incorporated on 12th August, 1986 as " Sifa India Pvt. Ltd" under the Companies Act, 1956 , the name of the company was subsequently changed to "Melstar Information Technologies Pvt Ltd" on 22nd March, 1994 and became a Public Limited Company called "Melstar Information Technologies Ltd " on 28th July, 1994 )

Registered Office:: Melstar House, G-4, M.I.D.C.

Cross Road `A', Andheri (East)

Mumbai 400 093, India

Phone: 91-22-8310505 Fax: 91-22- 8310520

URL : www.melstar.com

e-mail : ipo@melstar.com

PUBLIC ISSUE OF 22,61,000 NEW EQUITY SHARE ("ISSUE") OF RS.10 EACH FOR CASH AT A PREMIUM OF RS. 50 to 62 PER SHARE AGGREGATING RS. 13.5660 CRORES TO RS 16.2792 CRORES

AND

AN OFFER FOR SALE BY EXISTING MEMBERS ("OFFERORS") OF 8,89,000 EQUITY SHARES AT A PREMIUM OF RS 50 TO 62 PER SHARE AGGREGATING TO RS. 5.334 CRORES TO 6.4008 CRORES

JOINTLY REFFERED TO AS THE "OFFER"

Risks in relation to first offer

This being the first punlic offer of shares of Melstar Information Technologies Ltd (hereinafter referred to as "MITL" or "the Company") there has been no formal market for the shares of Melstar Information Technologies Ltd. The Offer price ( as has been determined and justified by the Lead Manager to the Offer as stated under "Justification for Offer Price" paragraph on page------) should not be taken to be indicative of the market price of the equity shares after the shares are listed. No assurance can be given regarding an active or sustained trading in the shares of Melstar Information Technologies Ltd or regarding the price at which the equity shares will be traded after listing.

GENERAL RISKS

Investment in equity and equity related securities involve a degree of risk and Investors should not invest any funds in this offer unless they can afford to take the risk of losing their investment. Investors are advised to read the risk factors carefully before taking an investment decision in this offering. For taking an investment decision investors must rely on their own examination of the issuer and the offer including the risks involved. The securities have not been recommended or approved by Securities and Exchange Board of India nor does Securities and Exchange Board of India guarantee the accuracy or adequacy of this document.

Investors are advised to refer to Page ( ) for the statement of Risk Factors pertaining to this offer.

COMPANY’S AND OFFERRORS ABSOLUTE RESPONSIBILITY

The issuer, having made all reasonable inquiries, accepts responsibility for, and confirms that this Offer Document contains all information with regard to the Issuer and the issue, which is material in the context of the issue, that the information contained in this Offer Document is true and correct in all material respects and is not misleading in any material respect, that the opinions and intentions expressed herein are honestly held and that there are no other facts, the omission of which makes this document as a whole or any of such information or the expression of any such opinions or intentions misleading in any material respect.

General Disclaimer

It should be noted that the Company accepts no responsibility for statements made otherwise than in the Offer Document or in the advertisements or any other material issued by or at the instance of the Company and that anyone placing reliance on any other source of information would be doing so at their own risk.

LISTING ARRANGEMENTS

The equity share are proposed to be listed on the Stock Exchange at Mumbai ( Regional Stock Exchange) and the National Stock Exchange of India.

The

LEAD MANAGER TO THE OFFER

ICICI Securities and Finance Company Limited

41/44, Minoo Desai Marg

Colaba, Mumbai 400 005

Phone : (022) 288 2460 / 70

Fax : (022) 2837045

Kotak Mahendra Capital Company

Bakhtawar, 1^st floor, 229,

Nariman Point,

Mumbai 400 021.

Phone : (022) 2826655

Fax : (022) 2826632

Offer Opens on :

INDEX

Particulars		Page No.
Definitions / Abbreviations

Risk Factors and Management’s Perception thereof

Highlights
PART – I

I.	General Information

II.	Capital Structure of the Company

III.	Terms of the Present Offer

IV.	Particulars of the Offer

V.	Company, Main Objects, Subsidiaries and Group Companies

VI.	Promoters and Management

VII.	Current Business

VIII.	Project

IX.	Financial Performance of the Company for the last five years

X.	Management Discussion

XI.	Projections

XII.	Stock Market Data and Basis for Offer price

XIII.	Outstanding litigation, defaults, adverse events and material development

XIV.	Other Matters

XV.	Risk Factors and Management’s Perception thereof

PART – II

A.	General Information

B.	Financial Information

C.	Statutory and Other Information

D.	Main Provisions of the Articles of Association of the Company

E.	Material Contracts and Documents for Inspection

DEFINITIONS / ABBREVIATIONS

The Act The Companies Act, 1956

Articles Memorandum and Articles of Association of the Company

SEBI Securities and Exchange Board of India

ROC The Registrar of Companies, Maharashtra, Mumbai

Board The Board of Directors of the Company

"MITL" or "the Company" Melstar Information Technologies Ltd

RBI Reserve Bank of India

PBDIT Profit Before Depreciation, Interest and Tax

IGC IBM Global Center

IDC Informix Development Center

ESD Enterprise Solution Division

MDC Melstar Development Center

PSD Professional Service Division

COD Corporate Service Division

MUK Melstar UK Branch

GSD Global Systems Development Inc

IT Information Technology

STP Software Technology Park

SEEPZ Santacruz Electronics & Exports Processing Zone

RISK FACTORS AND MANAGEMENT’S PERCEPTION THEREOF:

INTERNAL RISK FACTOR

Banks or Financial Institutions have not appraised the cost of the Project for which the funds are being raised.

Management Perception: The Company believes that it has the professional expertise to assess the cost of project and has not approached any institution or banks for an appraisal.

The Company has not yet placed orders for the total equipment required for the project i.e. Computers and allied equipment, software, telecommunication equipment etc.

Management Perception: The market for these equipment continues to be competitive. The Company has long term relationships with the existing suppliers and expects to procure these within a lead-time of 45 days.

The Company is yet to receive the allotment for the proposed second unit at SEEPZ and is yet to place orders for equipment and take other necessary steps towards setting up this unit.

Management Perception : The Company already has one Unit in Seepz. It does not foresee any difficulty in getting allotment for another unit for which an Application has been made. However if the allotment is not received by March 2000 the company shall take a unit in the same area on a lease basis. The deposit for the same shall be met out of the internal accruals of the company.

Melstar is yet to get necessary approval from the Government to promote a joint software development centre in UK which has the attendant risk of some delay.

Management Perception : The current Fast Track Policy of Govt. of India envisages speedy clearances for investments abroad, particularly by IT industry. The Management is confident of receiving the requisite clearance well within the projected time frame keeping in mind that business operations have already started in UK and are progressing positively.

The Company is yet to get the approval of RBI for additional investments in Melstar Inc. in USA.

Management Perception : An application to RBI seeking approval to grant a loan of USD 200,000 to Melstar Inc is pending with the RBI. The application confirms to all RBI guidelines and the approval shall be available in normal course.

The Company has newly set up a few Joint Venturex with foreign parties in the US and is also planning to set up a new subsidiary / Joint Venture in UK, which faces risks in association with any other start up company.

Management Perception : Under the present Policy, Exchange Earner's are permitted to make investments out of the EEFC account up to USD 15.00 million in JVs abroad without prior approval of the RBI, and when required the Company will take necessary steps in that behalf. In view of substantial current and potential business both in USA and Europe it does not apprehend any problem to make necessary investments with or without the prior approval of RBI

The Company proposes to establish an Offshore Development Centre in the US and the UK during the next 12 months. Establishment of such Centres abroad for the first time could expose the company to some risks.

Management Perception : The Company has sufficient experience of establishing and managing Software Development Centres in India. Besides, it has successful partnerships both in the US and in Europe. for Software Development. The management is confident that its experience in India, its knowledge and familiarity with business environment abroad, and the support of its associates abroad will stand it in good stead to effectively establish and manage such Centres abroad.

Melstar and its subsidiary / Joint Venture entered into Software Service Contracts with its clients. These contracts contain clauses that may lead to potential liability for the company.

Management Perception : Any Business has certain attendant risks. A business largely dependent upon knowledge application, like Software development, has to reckon with a higher degree of risk since it also brings in relatively higher returns on investment. Any business Contract has protective clauses for safeguarding mutual rights of the parties. All contracts entered into by the Company are negotiated on terms which expose it to minimal risks.

The company has written off certain extraordinary items aggregating to Rs 500.32 lacs against transfer from genaral reserve of Rs. 505.00 lacs as at March 1999.

Management Perception : In the process of restructuring the company’s business and with the shift in its focus on Software Development Business the company discontinued its business of manufacturing electronic goods and hardware components. The write-off by the Company arose due to certain inventories, debtors and other current assets of the hardware / electronic goods division.

CONTINGENT LIABILITIES

The contingent liabilities of the company as on 31^st March, 1999 were as under:

i) Estimated amount of contract remaining - 81.18 lacs

to be executed on Capital Account.

ii) Letter of Credit outstanding - 302.36 lacs

iii)Bank Guarantee - 87.62 lacs

Management Perception : Such contingent liabilities do arise in the usual course of business and shall not have any negative impact on the company’s operations.

Any fluctuations in the exchange rate will have an impact on the Company’s export income and also on the cost of the project.

Management Perception : The company has a natural hedge against adverse Foreign exchange fluctuation due to its export revenue. With the rupee depreciating against US dollars and other European currencies the currency risk should not be a problem.

Under the Software Technology Park Scheme, the Company could have export obligation based on capital goods imported and the wage bill.

Management Perception : The Company has in the past met its export obligations and does not foresee any problem in meeting the same for the new project.

13. The following dispute/ litigations are pending against the Company

a) Company Petition No 40 of 1994 U/S 397/398 of the Companies Act, 1956 before the Company law Board, Principal bench, New Delhi.

b) Appeal before The State Consumer Disputes Redressal Commission - New Delhi-Ms Reena saxena versus CDM Technologies Pvt Ltd and Melstar Industries Limited.

Management Perception

a) The dispute essentially is between some minority shareholders of another company and amongst others Mr. Suresh Banasl , Mr.Sattar Shaikh and Mr. Bharat Ramani who are amongst the promoters / Directors of Melstar Information Technologies Limited. No effective hearing has taken place though the dispute surfaced in 1992. The Position in this behalf is explained elsewhere in the Offer Document. No liability is likely to devolve on Melstar Information Technologies Limited even in the unlikely event of the verdict of the Company Law Board being adverse to the aforesaid three Directors Of Melstar Information Technologies Limited.

b.) This dispute was raised against one of the resellers of the Company’s Personal Computers and the company was made a Respondent. The Consumer Disputes Redressal Forum before whom the complaint was filed by the Complainant, having regard to the facts and submissions of the company passed no adverse order against it nor the Complainant has sought any releif against the Company in her appeal. The management expects the aforesaid verdict to be upheld by The State Consumer Disputes Redressal Commission - New Delhi and no liability is likely to devolve on the company.

14. Data Communication facilities including internet are being used as delivery mechanism. Security issue poses a risk to the company.

Management Perception : Melstar is in application development only and not in Products. Since the delivery involved is in receiving and sending data, using an Internet server within Melstar, the security risk is minimal

15. The following companies in which promoters have an interest have made losses for past two years:

1998 1997

Melstar Exports & Technologies Pvt. Ltd. 24.72 lacs 22.76 lacs

Melstar Fashions Pvt. Ltd. 38.27 lacs 11.63 lacs

Management Perception : The losses have arisen since the directors of the companies decided to concentrate there attention to promote the business of MITL. As the businesses have been closed down ,the losses have been incurred due to certain routine overheads which the companies had to bear.

16. The company has invoiced Melstar Inc; USA for the year ended 1999 for Rs 397.50 lacs which exceeds 10% of the turnover of the company. This raises concerns regarding the basis for transfer pricing for transactions between the Company and its overseas subsidiary / Joint Ventures.

Management Perception : Melstar Inc. a 100% subsidary of the company has been setup to promote and enhance the companys business in the US markets. For all the transactions entered between the company and its subsidary/Joint Ventures there are agreements executed which the management feels are in the best intrests of the company and the same would not have any adverse impact on the companys profitability

The Company proposes to prepay the term loan of R 250 Lacs to Punjab National Bank out of the proceeds of this offer , the consent of which is not yet obtained.

Management Perception : The company would approach Punjab National Bank at the appropriate time to obtain there consent.

EXTERNAL RISK

The company is in a globally competitive business

Management Perception : The Company has inherent strengths like a track record of successful execution, timely delivery of projects, marketing infrastructure, certified software engineering processes, constant technology up-gradation and professional qualified, experienced and trained manpower which will provide the competitive edge. Further India has a competitive advantage over its compititors due to cheaper english speaking software engineers.0

The IT industry is prone to high risk of technological obsolescence.

Management Perception : Melstar is into a wide range of Software applications/developments and services business and has always proactively upgraded skill sets of all employees and its Infrastructure facilities to keep pace with changing technological needs e.g. it is focussing on emerging technologies such as e-commerce, COM/DCOM, Web based technologies etc.

Success in the software services industry is dependent on skilled manpower, low availability levels or high attrition rates could have an adverse impact on profitability.

Management Perception : The Company’s philosophy of rewarding performance through incentives and ESOP Scheme along with other Human Resource initiatives has helped in providing a conducive work environment which the Company believes will play an important role in attracting and retaining talent.

Changes in Government of India ("GOI") fiscal policy announcements from time to time can have an adverse impact on the profitability of the Company.

Management Perception : The software industry has been identified as a thrust area by the GOI and the Company believes that it is unlikely that the GOI would initiate policies which could be detrimental to the growth of this industry.

Employees working on site at client facilities in the U.S. on temporary and extended assignments are typically required to obtain Visas. While there is no limit to L1 visas there is a limit to the number of new H1 B visas that the U.S. immigration and Naturalisation Services may approve in any Government fiscal year.

Management Perception : The Company has in the past anticipated and accordingly planned for new H1 B Visas. The Company shall continue to be proactive in anticipating the needs of new H1B Visas. However with the focussed increase in offsite business of the company the aforesaid factor would not cause any problems to the company’s offshore business activities.

Reduction in business opportunities from the "millenium bug- Y2K"

Management Perception : Y2K business was never a focus area for the Company as such the Company has not undertaken any dedicated Y2K projects in fiscal 1999.

HIGHLIGHTS :

Offer from a Company in the high growth business of Software Development Services. The Company is also engaged in providing Enterprise Solutions.

The company has a highly successful Software Development Centre with IBM Global Services India Pvt. Ltd. in Bangalore with longterm renewable contract covering an initial period of 3 years.

The Company has set up a dedicated software development centre at SEEPZ for Informix Software India Pvt. Ltd. a subsidiary of Informix Inc. USA, one of the largest Software Companies in the world. The contract is renewable in nature. The initial contract is for a five year term from December 1997.

The company is an Advanced partner for IBM and Lotus for there software applications.

Melstar has set up a dedicated centre for e-Business under the STP scheme at Mumbai.

Melstar has signed a Product Development contract jointly with British and Irish companies in which Melstar shall receive substantial offshore development work along with a 20% ownership on the IPR . This is expected to bring high profits to the company in future as most of the product development work shall be done by the company.

Melstar has multiple longterm agreements with IBM covering services, solution, software and resources to be deployed for IBM and its blue chip customers in India and abroad.

Melstar’s subsidiary in USA has promoted a Joint Venture in New York alongwith US and Swiss companies which has won large outsourcing contracts from Citibank USA. The Company has extensive international presence through its 100% subsidiary in California, Joint Venture in New York, Branch operation in UK and business association in Switzerland. Further the company has a national presence with its branch network in major cities in the country.

The Company has 2 units in Software Technology Parks and one unit in SEEPZ, which are eligible for 100% income tax exemption and other benefits available to units in SEEPZ

The Company operates in India which is emeging as one of the major outsourcing centers in the world due to its huge pool of skilled english speaking technical manpower.

NOTES :

THE INVESTORS ARE ADVISED TO REFER TO THE PARA ON "BASIS FOR OFFER PRICE" BEFORE MAKING AN INVESTMENT IN THIS OFFER.

INVESTORS MAY NOTE THAT IN CASE OF OVER SUBSCRIPTION ALLOTMENT SHALL BE ON PROPORTIONATE BASIS.

PART - I

I. GENERAL INFORMATION
a) NAME AND ADDRESS OF THE REGISTERED OFFICE OF THE COMPANY

MELSTAR INFORMATION TECHNOLOGIES LIMITED

Registered Office:: Melstar House, G-4, M.I.D.C.

Cross Road `A', Andheri (East)

Mumbai 400 093, India

Phone: 91-22-8310505 Fax: 91-22- 8310520

URL : www.melstar.com

e-mail : ipo@melstar.com

b) DISCLAIMER CLAUSE

As required, a copy of this Offer Document has been submitted to Securities and Exchange Board of India (SEBI). It is to be distinctly understood that the submission of Offer Document to SEBI should not, in any way, be deemed or construed that the same has been cleared or approved by SEBI. SEBI does not take any responsibility either for the financial soundness of any scheme or the project for which the offer is proposed to be made, or for the correctness of the statements made or opinions expressed in the document. The Lead Manager, ICICI Securities and Finance Company Limited, Mumbai, has certified that the disclosures made in the offer document are generally adequate and are in conformity with SEBI Guidelines for Disclosure and Investor Protection for the time being in force. This requirement is to facilitate investors to take an informed decision for making investment in the proposed offer. It should also be clearly understood that while the issuer Company is primarily responsible for the correctness, adequacy and disclosure of all relevant information in the offer document, the Lead Manager is expected to exercise due diligence to ensure that the Company discharges its responsibility adequately in this behalf and towards this purpose, the Lead Manager, ICICI Securities and Finance Company Limited has furnished to SEBI a Due Diligence Certificate dated 14^th October 1999 in accordance with SEBI (Merchant Bankers) Regulations 1992, which reads as follows :

We have examined various documents including those relating to litigations like commercial disputes, patent disputes, disputes with collaborators etc., and other materials in connection with the finalisation of the draft Offer Document pertaining to the said offer;

On the basis of such examination and the discussions with the Company, its Directors and other Officers, other agencies, independent verification of the statements concerning the objects of the issue, projected profitability, price justification and the contents of the documents mentioned in the annexure and other papers furnished by the Company;

WE CONFIRM THAT :

a) The draft Offer Document forwarded to SEBI is in conformity with the documents, materials and papers relevant to the offer;

b) all the legal requirements connected with the said issue as also the guidelines, instructions, etc. issued by SEBI, the Government and any other competent authority in this behalf have been duly complied with; and

c) the disclosures made in the draft Offer Document are true, fair and adequate to enable the investors to make a well informed decision as to the investment in the proposed offer.

We confirm that besides ourselves, all the intermediaries named in the Offer Document are registered with SEBI and that till date such registration is valid..

We will satisfy ourselves about the net worth of the underwriters to fulfill their underwriting commitments.

The filing of this offer document does not, however, absolve the Company from any liabilities under Section 63 of the Companies Act, 1956 or from the requirement of obtaining such statutory or other clearances as may be required for the purpose of the proposed offer. SEBI, further reserves the right to take up, at any point of time, with the Lead Manager(s) (Merchant Bankers) any irregularities or lapses in the Offer Document.
c) LISTING ARRANGEMENTS

The equity shares are proposed to be listed on the Stock Exchange at Mumbai (Regional Stock Exchange), and also on the National Stock Exchange of India

d) OFFER PROGRAMME

The subscription list will open at the commencement of banking hours and will close at the close of banking hours on the days mentioned below.

OFFER OPENS ON
CLOSING NOT LATER THAN

e) CREDIT RATING/DEBENTURE TRUSTEE

This being an offer for Equity shares, no credit rating or appointment of Debenture Trustee is required.

f) GOVERNMENT APPROVALS

The Company has received all the necessary permissions and approvals from the Government and various Government agencies for the existing activities except those as disclosed elsewhere in the Offer Document

g) FICTITIOUS APPLICATIONS

Attention of the applicant is specifically drawn to the provisions of sub-section (1) of section 68-A of the Act, which is reproduced below :

Any person who-

(a) makes in a fictitious name an application to a Company for acquiring or subscribing for any shares therein,

or

(b) otherwise induces a company to allot, or register any transfer of shares therein to him, or any other person in a fictitious name,

shall be punishable with imprisonment for a term which may extend to five years."
h) MINIMUM SUBSCRIPTION

In case of non receipt by the Company of 90% of the offerd amount from public subscription plus accepted devolvement from underwriters in case the offer is undersubscribed, within 60 days from the date of closure of the offer, or the subscription level falls below 90% after the closure of the offer on account of cheques having being returned unpaid or withdrawal of applications ,the company shall refund the subscription amount in full. If there is a delay beyond 78 days from the date of closing of the offer in the refund of such subscription , the company shall pay interest @ 15% per annum for the delayed period, and the company and directors of the company shall be jointly and severally liable to repay the amount due.

i) ALLOTMENT / REFUND

Allotment Letter(s) and/ or equity shares Certificates/ Letters of Regret/ Cancelled stockinvests together with refund orders, if any, will be dispatched at the applicant’s sole risk within 10 weeks from the date of closure of the subscription list. The company shall ensure despatch of refund orders of value up to Rs. 1500/- Under Certificate of Posting and refund orders over the value of Rs 1500/- and Allotment Letter/ equity shares Certificates by Registered Post only. The company, as far as possible, will allot the equity shares within 30 days from closure of the subscription list and shall pay interest at the rate of 15% p.a. (except to applicants applying through stockinvests), if the allotment is not made and the refund orders are not despatched to the investors within 30 days from closure of the offer period for delay beyond 30 days. The Company will also make available adequate funds to the Registrars to the Offer for the purpose of despatch of Allotment letters/Share Certificates/ Refund Orders as stated above.

Where the permission have been applied for dealing and listing of equity shares in the stock exchange(s) referred to above, if such permission has not been granted by the stock exchange (s) within 70 days from the date of closure of the subscription list, then the company shall forthwith repay without interest all money received from applicants in pursuance of the Offer Document, and if any such money is not repaid within eight days after the company becomes liable to repay it (i.e. from the date of refusal or within 70 days from the date of closure of subscription list, whichever is earlier) , the company and every director of the company who is an officer in default shall , on and from the expiry of eight days, be jointly and severally liable to repay that money with interest for the delayed period @ 15% per annum, if however, an appeal against the decision of any recognised stock exchange(s) refusing permission for the equity shares to be dealt on that stock exchange has been preferred under section 22 of the Securities Contract (Regulation) Act, any allotment made under this Offer Document shall not be void until the appeal is dismissed.

Refunds will be made by cheques or pay orders drawn on the bank(s) appointed by the company as refund banker. Such instruments will be payable at par at the places where applications are accepted. Bank charges, if any, for encashing such cheques or pay orders will be payable by the applicants.

A minimum of 50% of the net offer of securities to the public shall initially be made available for allotment to individual applicants who have applied for allotment of 1,000 or less than 1,000 shares.

The balance 50% of the net offer of securities to the public shall initially be made available for allotment to investors , including corporate bodies/institutions , and individual applicants who have applied for allotment of more than 1,000 shares or debentures or the securities offered as the case may be.
The unsubscribed portion of the net offer to any one of the categories specified in (a) or (b) shall/may be made available for allotment to applicants in the other category , if so required.

j) UTILIZATION OF OFFER PROCEEDS

All the monies received out of the offer shall be transferred to a separate bank account other than the bank account referred to in sub-section (3) of section 73 of the Companies Act, 1956. The company will provide details of all money utilised out of the offer under an appropriate separate head in the Balance Sheet of the company indicating the purpose for which such monies had been utilised; and also details of all unutilised monies out of the offer shall be disclosed under an appropriate separate head in the Balance Sheet of the company indicating the form in which such unutilised monies have been invested.

k) FILING

A copy of this Offer Document, having attached thereto, the documents referred to elsewhere in the Offer Document copy of which has been kept open for public inspection at the Registered office of the Company has been delivered for registration to the Registrar of Companies, Mumbai, Maharashtra

l) INTERMEDIARIES / COMPLIANCE OFFICER

i) LEAD MANAGERS TO THE OFFER

ICICI Securities and Finance Company Limited

41/44, Minoo Desai Marg,

Colaba

Mumbai 400 005

Phone : (022) 288 2460 / 70

Fax : (022) 2837045

Kotak Mahendra Capital Company

Bakhtawar, 1^st floor, 229,

Nariman Point,

Mumbai 400 021.

Phone : (022) 2826655

Fax : (022) 2826632

ii) REGISTRARS TO THE OFFER

MCS Limited

Sri Padmavati Bhavan,

Plot No. 93, Road No.16

MIDC, Andheri (East),

Mumbai 400 093

Phone. (022) 8201785

Fax (022) 8201783

iii) AUDITORS OF THE COMPANY

Deloitte Haskins & Sells Gupta Maheshwari & Jain

Chartered Accountants Chartered Accountants

Mafatlal House, 6^th floor, Behind Times Bank, Sir M. V. Road

Backbay Reclamation, Andheri ( East ), Mumbai 400 069

Mumbai 400 020 Mumbai 400 069

Phone : (022) 2854330-35 Phone : (022) 8215145/6/7

Fax: (022) 2024337 Fax: (022) 8302221

iv) COMPLIANCE OFFICER

Rajesh Shah – Financial Controller

Melstar House, G-4, M.I.D.C.

Cross Road `A', Andheri (East)

Mumbai 400 093.

Phone : 022-8310505

v) LEGAL ADVISOR

Mr M. R. Lal

Advocate

F-2 /701, Poonam Kunj,

Poonam Nagar, Andheri (East),

Mumbai 400 093.

Phone : 022-8371353/8377094

The investors may contact the aforesaid compliance officer in case of any pre-offer/ post-offer related problems.

v) BANKER TO THE COMPANY

Punjab national Bank b) The Vysya Bank Ltd

SEEPZ Branch, Floral Deck Plaza

Mumbai 400 093. MIDC, Andheri ( East )

Ph No.: (022) Mumbai 400 093

Ph No.8291619, 8292167 Ph No.: (022) 8213367/8

Fax No.: (022) 8290942 Fax No.: (022) 8213095

BANKER TO THE OFFER

Pending appointment
m). UNDERWRITING

Public offer of --------- equity share of Rs.10 each for cash at a premium of Rs.--- per share aggregating Rs. ------- crs in terms of this Offer Document has been underwritten as follows :

(Rs. in Lacs)

Name & Address of Underwriters	Date of Agreement	Amount

OPINION OF THE BOARD AND THE LEAD MANAGERS

The lead managers to the offer have ascertained the net worth and the outstanding commitment of the aforesaid underwriters. In the opinion of the Board and the lead managers, the resources of the aforementioned underwriters are sufficient to enable them to discharge their respective underwriting obligations in full and their respective letters of underwriting have been accepted by the Board at its meeting held on ----------- 1999.

The employees portion is not proposed to be underwritten

II. CAPITAL STRUCTURE OF THE COMPANY Share Capital (as on October 10, 1999)

	No. of shares	Description	Face Value (Rs.)
A	AUTHORISED CAPITAL
	1,50,00,000	Equity share of Rs 10/- each	15,00,00,000
		Total	15,00,00,000
B	ISSUED, SUBSCRIBED AND PAID UP CAPITAL
	98,89,000	Equity share of Rs. 10/- each	9,88,90,000
		Total	9,88,90,000

C	PRESENT OFFER IN TERMS OF THIS OFFER DOCUMENT				Face value (Rs.)	Offer Price of Rs 60 per share	Offer Price of Rs 72 per share
a.	22,61,000		Fresh offer of Equity Shares of Rs. 10/- each for cash at a premium of Rs. ------ per share to the public		2,26,10,000	13,56,60,000	16,27,92,000
b.	8,89,000		Offer for sale by Usha Martin Ventures Ltd, Brij Investment Pvt Ltd. And Multibis Financial Services Ltd.		88,90,000	5,33,40,000	6,40,08,000
	31,50,000				3,15,00,000	18,90,00,000	22,68,00,000
OUT OF C ABOVE
a.	1,12,000	Reservation on Competitive basis for preferential allotment for the Employees of the Company.			11,20,000	67,20,000	80,64,000
D	NET OFFER TO INDIAN PUBLIC
	30,38,000			Equity Shares of Rs 10/- each for cash at a premium of Rs --- per share	3,03,80,000	18,22,80,000	21,87,36,000

E	PAID UP CAPITAL AFTER THE PUBLIC OFFER
	1,21,50,000 Equity Shares of Rs 10/- each	12,15,00,000	12,15,00,000
F	SHARE PREMIUM ACCOUNT
	Before the offer	2,65,02,220	2,65,02,220
	After the offer	13,95,52,220	16,66,84,220
	Premium assumed per share	50	62

NOTES : Part of the offer is an offer for sale by existing shareholders and hence does not have an impact on the equity capital / share premium account of the company. Usha Martin Ventures Ltd., Brij Investments Pvt Ltd. And Multibis Financial Services Ltd. are offering 6,44,000 Shares, 1,14,000 Shares amd 1,31,000 respectively to help the company comply with Rule 19(2)(b) of the Securities Contract (Regulatio) Rules on listing requirement of a minimum of public offer of 25% on the post offer paid up capital of the Company

The build up of share capital till the October 10^th , 1999 is as follows:

Date of Allotment	No. of Shares Face Value Rs.10/-	Total Paid up Capital (Rs.)	Offer Price	Consideration (Rs)	Remarks
18.8.86	500	5000	10	Cash	Subscription to Memorandum of Association.(*)
14.02.87	134500	1345000	10	Cash	Allotment of Qualifying Shares to Initial Promoters(*)
13.10.92	270000	2700000	-	Against Reserve	Bonus Allotment 2:1(*)
08.06.94	810000	8100000	-	Against Reserve	Bonus Allotment 2:1
31.03.95	64650	646500	60	Cash	Allotment to private investors.
31.03.95	270000	2700000	85	Cash	Allotment to employees and private investors.
09.05.95	47850	478500	60	Cash	Allotment to private investors.
09.05.95	302500	3025000	85	Cash	Allotment to employees and private investors.
22.08.95	2850000	28500000	-	Against Reserves	Bonus Allotment 3:2
15.01.98	818125	8181250	10	Cash	Rights Issue at par
31.03.98	384000	3840000	10	Cash	Rights Issue at par
18.09.98	2380850	23808500	-	Against Reserves	Bonus Allotment 2:5
11.01.99	119800	1198000	20	Cash	Allotment to NRI’s/ foreign National.
11.02.99	106022	1060220	20	Cash	Allotment to Foreign Nationals.
20.04.99	1276000	12760000	29	Cash	Allotment to the Usha Martin Group.
14.07.99	5000	50000	10	Against Shares	Allotment on amalgamation with Melstar Industries Ltd.
20.09.99	49203	492030	10	Cash	Allotment to Melstar Employees Welfare Trust .

(*) The above shares were issued & allotted for a face value of Rs.500/- per share. They were subsequently subdivided into shares for a face value of Rs.10/- each vide a Resolution adopted at EGM held on 2^nd April 1994.

a. Name of top ten largest shareholders as on the October 10, 1999

Sr. No.	Name of the Shareholder	No. of Shares
	Usha Martin Ventures Limited	2296464
	Mr.Suresh Bansal	914355
	UMIL Share & Stock Broking Services Ltd.	808000
	Mr.Bharat Ramani	655480
	Mr.Surinder Mohan Arora	640910
	Mr.Sattar Shaikh	561683
	Mrs.Rajni Bansal	472555
	Mrs.Sana Shaikh	318528
	Mrs.Merunissa Pravichandra Mehta	308875
	Shikha Growth Fund Ltd.	290250

b. The top 10 shareholders of the Company as on the October 10^th , 1997

Sl.No.	Name of the Shareholder	No. of Shares
1.	Mr.Suresh Bansal	465000
2.	Times Guaranty Financials Limited	441250
3	Mr.Bharat Ramani	428250
4.	Mr.S.M.Arora	426450
5.	Mr.Sattar Shaikh	361250
6.	Mrs.Rajni Bansal	337500
7.	Shikha Growth Fund Ltd.	300000
8.	Swarup Incorporated	250000
9.	Mrs.Sana Shaikh	227500
10.	Mutlibis Financial Services ltd.	187500

c. Name of top ten largest shareholders as on the September 30, 1999

Sr. No.	Name of the Shareholder	No. of Shares
	Usha Martin Ventures Limited	2296464
	Mr.Suresh Bansal	914355
	UMIL Share & Stock Broking Services Ltd.	808000
	Mr.Bharat Ramani	655480
	Mr.Surinder Mohan Arora	640910
	Mr.Sattar Shaikh	561683
	Mrs.Rajni Bansal	472555
	Shikha Growth Fund Ltd.	420000
	Mrs.Sana Shaikh	318528
	Mrs.Merunissa Pravichandra Mehta	308875

The shareholding pattern of the Company as on October 10^th , 1999 is as follows:

Entity	No. of Share holders	Existing No. Of Shares %		*After The Public Offer () No. Of Shares %**
Promoter Group and Associates	11	4309134	43.58	4309134	35.47
Financial Institutions	1	85500	0.86	85500	0.70
Usha Martin Group	3	3218464	32.55	2460464	20.25
Shikha Growth Fund Ltd	1	290250	2.94	306000	2.52
Mr Pradip Shah & Associates	2	351036	3.55	351036	2.89
NRIs/Foreign Nationals/corporates	5	534697	5.41	534697	4.40
Melstar Employees Welfare Trust	1	49203	0.50	49203	0.40
Employees	6	33975	0.34	145975	1.20
Others	107	1016741	10.28	869991	7.16
Public			0.00	3038000	25.00
Total	135	9889000	100.00	12150000	100.00

4. List Of Shares Locked In Forming 25% Of Share Capital On Post Public Offer Equity Capital

NAME OF THE HOLDER	NO OF SHARES	DATE OF ALLOTMENT/ ACQUISITIONS	ISSUE PRICE	% OF POST ISSUE PAID UP CAPITAL	PERIOD @ LOCKIN
1. Mr. S. M. Arora & Family
*	16720	08.06.1994	-		3 yrs
	3000	09.05.1995	10		3 yrs
*	477000	22.08.1995	-		3 yrs
	5200	22.12.1995	10		3 yrs
*	320080	18.09.1998	-		3 yrs
Total				6.77

2. Mr Suresh Bansal & Family
*	169500	08.06.1994	-		3 yrs
	2000	09.05.1995	10		3 yrs
*	475500	22.08.1995	-		3 yrs
	10000	22.12.1995	10		3 yrs
*	321000	18.09.1998	-		3 yrs

Total				8.05

3. Mr. SATTAR SHEIKH & Family
*	25750	08.06.1994	-		3 yrs
	1000	31.03.1995	10		3 yrs
	2000	09.05.1995	10		3 yrs
*	348750	22.08.1995	-		3 yrs
	7500	22.12.1995	10		3 yrs
*	235500	18.09.1998	-		3 yrs
Total				5.11

4. Mr BHARAT RAMANI & Family
*	26450	08.06.1994	-		3 yrs
	2000	09.05.1995	10		3 yrs
*	347250	22.08.1995	-		3 yrs
	7000	22.12.1995	10		3 yrs
*	234300	18.09.1998	-		3 yrs
Total				5.08
Grand Total	3037500			25.00

* Bonus Issue

FURTHER SHARES LOCKED IN BUT NOT PART OF THE 25% LOCKIN ABOVE : Alloted on amalgamation of Melstar Industries Limited.
	No. of Shares	Date of Allotment	Issue Price	%age	Period* Lock-in
Mr. S. M. Arora & Family	750	14.07.1999	-		3 yrs
Mr Suresh Bansal & Family	1220	14.07.1999	-		3 yrs
Mr. Sattar Sheikh & Family	591	14.07.1999	-		3 yrs
Mr Bharat Ramani & Family	588	14.07.1999	-		3 yrs
Total Shares	3149			0.03

NOTE: The shares locked in by the promoters are not pledged to any party and the equity shares held by the promoters under the lock-in period shall not be sold/transferred/hypothecated during the lock-in period commenting from the date of allotment in the present offer . However the inter-se transfers between the promoters, shose names are mentioned in the offer document would be permitted.

@ These shares will be locked in for a period of 3 years from the date of allotment subject to lock-in for a minimum period of 2 years from the date of allotment in the present offer.

No shares have been issued for consideration other than cash other than the Bonus issues in October 1992, June 1994, August 1995 and September 1998 and to shareholders of Melstar Industries Ltd on amalgamation with MITL

Out of the total preoffer capital of 98,89,000 lacs shares 63,10,850 sharescomprising 63.82 % of the preoffer capital are issued as bonus shares for consideration other than cash

The Promoter Group holds 43,09,134 equity share of face value of Rs. 10 each as on September 30^th 1999 which constitutes 43.58 % of the aggregate equity share capital of the Company. The Promoter’s shareholding will not fall below 35.47% after this Public offer.

There have been a private placement of shares before the company went public and the necessary provisions of the Companies Act have been complied with in this regard.

In the last six months, the Promoters (including family members & associates) and Directors have not entered into any purchase or sale transactions of the Company's shares other than purchase of 2,72,530 shares from Melstar Exports & Technologies Pvt. Ltd. and 1,40,000 shares from Mr. M. R. Bansal and 3625 shares from other shareholders. The detailed breakup of the same is hereunder

No. of Shares

Date of Transfer

Mr. S. M. Arora & Family

43225

17.05.1999

Mr Suresh Bansal & Family

3625

258565

29.04.1999

17.05.1999

Mr. Sattar Sheikh & Family

55370

17.05.1999

Mr Bharat Ramani & Family

55370

17.05.1999

Total Shares

416255

The promoters, directors and lead merchant bankers of the offer have not entered into any buy-back or "similar" arrangements for the securities being offerd through this Offer Document.

There are no "bridge loans" or any other financial arrangements made for incurring expenditure on the project required to be repaid out of the proceeds of the current offer.

The shareholders of the Company do not hold any Warrant, option or convertible loan or debentures, entitling them to acquire further shares of the Company. However, as a part of the ESOP Scheme, the Board of Directors of the Company have issued to the Melstar Employees Welfare Trust, constituted by the Company for the benefit of eligible employees, 500,000 Option Warrants equivalent to 500,000 Equity shares of Rs.10/- each which remain outstanding. These Options would vest in the Trust/beneficiary at periodical intervals in future.

As the allotment is on proportionate basis, in the process of rounding off to the nearest multiple of 100, the offer size may increase by a maximum of 10% of the present Offer.

As on 30^th September 1999 the Company has 248 permenant / regular employees who will be eligible to apply for the shares reserved for Employees in this offer.

No single applicant in the general category can make an application for number of securities, which exceed the number of securities offered in that category.

Any Unsubscribed portion, if any, of shares reserved for employees of Melstar will be added back to the net offer to the public to the extent of such undersubscription in that category. Any oversubscription in the category shall be added to the subscription for the public issue/offer for sale.

17. a A minimum of 50% of the net offer of securities to the public shall initially be made available for allotment to individual applicants who have applied for allotment of 1,000 or less than 1,000 shares or debentures or the securities offered, as the case may be.

The balance 50% of the net offer of securities to the public shall initially be made available for allotment to investors , including corporate bodies/institutions , and individual applicants who have applied for allotment of more than 1,000 shares

The unsubscribed portion of the net offer to any one of the categories specified in (a) or (b) shall/may be made available for allotment to applicants in the other category , if so required.

III. TERMS OF THE PRESENT OFFER
AUTHORITY FOR THE PRESENT OFFER

The present offer of equity shares is being made pursuant to a Special Resolution passed by the shareholders under Section 81 and 81 (1A) of the Act at the Annual General Meeting held on 23^rdAugust 1999 and Board Resolution passed at the Board of Directors meeting held on August 31^st , 1999.

The Board of Usha Martin Ventures Limited had at its meeting held on 5^th October 1999, approved the disinvestment through a public offer for sale of upto 7,76,000 shares held by it.

The Board of Brij Investments Pvt. Ltd. had at its meeting held on 5^th October 1999 approved the disinvestment through a public offer for sale of 1,14,000 shares held by it.

The Board of Multibis Financial Services Ltd.had at its meeting held on 23^rd September 1999 approved the disinvestment through a public offer for sale of 1,31,000 shares held by it.

.PRINCIPAL TERMS AND CONDITIONS OF THE OFFER

The equity shares being offerd are subject to the terms of this Offer Document, the terms and conditions contained in the Application Form, the Memorandum and Articles of Association of the Company, provisions of the Act and the RBI approval under the Foreign Exchange Regulation Act, 1973, other applicable Acts and the Letters of Allotment / equity shares Certificates or other documents and the Guidelines issued from time to time by the Government of India and Securities and Exchange Board of India.

DESCRIPTION OF THE INSTRUMENT

Face Value/Offer Price

Equity shares of face value of Rs 10 per share each are being offered at a price of Rs 60 to 72 per share (Inclusive of share premium of Rs 50 to 62 per share)

Terms of Payment

Application should be for minimum of 100 equity shares and in multiples of 100 equity shares thereafter. The offer price of Rs.60 to 72 per share is payable entirely on application

Where an applicant is allotted lesser number of equity shares than he / she has applied for, the excess amount, if any, already paid on application will be refunded to the applicant on completion of the allotment process. No interest would be payable on application money pending allotment up to 30 days from the date of closure of the Offer.

Interest in case of delay on allotment /despatch

The company agrees that, as far as possible, allotment of securities offered to the public shall be made within 30 days of the closure of this Offer.

The company agrees that it shall pay interest @15 %p.a. if the allotment has not been made and/or the allotment letter/refund orders have not been despatched to the investors within 30 days from the date of the closure of the offer.

Ranking of equity shares

The equity shares to be offerd shall be subject to the Memorandum and Articles of Association of the Company and shall rank pari passu with the existing equity shares of the Company save and except that they shall rank for dividend, if any, which may be declared for the year, on a pro-rata basis for the period from the date the new equity shares are allotted .

INSTRUCTIONS FOR APPLICANTS

HOW TO APPLY

AVAILABILITY OF APPLICATION FORMS AND OFFER DOCUMENT

Application forms together with Memorandum containing salient features of the Offer Document may be obtained from the Registered office of the Company,Brokers, Lead Managers, Underwriters to the offer and Bankers to the offer named herein or from their branches as stated on the reverse of the application form.

PROCEDURE FOR APPLICATION

Application must be :

made only in the prescribed application form relating to the category they fall under accompanying the memorandum.

Category	Colour of Form
Employees of Melstar	Blue
All other categories	White

completed in full in block letters in English except signatures, in accordance with the instructions contained herein and in the application form . Applications not so made are liable to be rejected.

c) for a minimum of 100 equity shares and in multiples of 100 thereafter.

d) in single names or joint names (not more than three).

e) in the name of Resident Indian Individuals , limited companies, statutory corporations/ institutions incorporated in India, Indian Mutual Funds registered with SEBI, Banks, Non Resident Indians (NRIs) and Overseas Corporate Bodies (OCBs) only on a non repatriable basis and NOT in the names of minors, Hindu Undivided Families, foreign nationals, trusts (unless the trust is registered under the Societies Registration Act, 1860 or any other applicable Trust laws and is authorized under its constitution to hold shares in a company), partnership firms or nominee (s) of any of them.

Application by NRIs/OCBs may be made only on a non-repatriable basis. The same will be treated at par with applications made by the members of the resident Indian public, subject to relevant regulations.
PAYMENTS - HOW TO BE MADE

Payments should be made in cash or cheque or demand draft or Stockinvest drawn on any Bank (including a Co-operative Bank) which is situated at and is a member or a sub-member of the Bankers' "Clearing House" located at the Centers (indicated in the Application Form) where the Application is accepted. A separate cheque/demand draft/Stockinvest should accompany each Application.

Money orders, postal orders, outstation cheques or demand drafts, cheques/drafts drawn on banks not participating in the "clearing house" will not be accepted and applications accompanied with such instruments will be rejected.

All cheques or demand drafts accompanying the application must be crossed "A/c Payee Only" and drawn in favour of

Category	Cheque/Bank Draft favouring
Employees of Melstar	A/c MITL - Employees
All other categories	A/c. MITL - Public Offer

You are requested to mention the Application Form Number on the reverse of the Cheque/Draft/Stockinvest. No separate receipts will be issued for the application money. However, the Bankers to the Offer receiving the Application Form will acknowledge receipt of the application by stamping and returning to the applicant the Acknowledgment Slip at the bottom of each Application Form. For further instructions, please read the Application Form carefully.

In case payment is effected in contravention of the conditions mentioned herein, the application money will be refunded and no interest will be paid thereon.

PAYMENT BY STOCKINVEST

The applicant being an individual or Mutual Fund only has the option to use stockinvest for applying for equity shares now offered in terms of this Offer Document. Stockinvest can be obtained from any Bank issuing such instrument in various denominations by making the necessary applications and depositing the amounts with the respective banks. The applicant using the Stockinvest should submit the application form to any of the Bankers to the Offer before closing of the subscription list along with the Stockinvest after filling in the appropriate amount.

The applicant may approach the issuing bank for issue of Stockinvest of required denomination(s) for payment of application money.

1. The prospective investor, at the time of request for issue of Stockinvest to the issuing bank may have to :

a) Indicate that he agrees to abide by the terms of issue and encashment of the Stockinvest.

b) give irrevocable authority to his bank to mark a lien for the value of the Stockinvest against the balance held in his savings / current /other deposit account.

c) agree that the issuing bank will not be liable for any damages or consequences arising out of the loss of these instruments.

2. Banker's lien on the applicant's deposit account will be automatically lifted when :

a) a valid instrument is presented by the Controlling Branch of the Collecting Bank,

b) the cancelled Stock invest is surrendered by the applicant, or applicant has not received the advice of allotment.

c) On execution of an indemnity bond in favour of the bank after the expiry of the validity period (i.e. 4 months) of the Stockinvest.

3. The Stockinvest should bear "Account Payee only" and "Not - Negotiable" crossing and will be payable only to the account of the Issuer Company, i.e. ‘ Melstar Information Technologies Ltd". Stock invest should be utilised by the purchaser(s) and the purchaser's name/name of one of the purchasers should be invariably indicated as the first applicant in the composite application form. Thus if the signature of the purchaser on the Stockinvest and the signature of the first applicant on the application form does not tally, the application would be treated as having been accompanied by a third party Stockinvest and is liable for rejection.

4. Stockinvests are to be used by the purchaser(s) within 10 days of offer and for this purpose the last day for use of the Stockinvest for submitting application to the Bankers to the Offer should be indicated on the face of the Stock invest with a notation "To be used before...."

5. The Stockinvest will be issued to the applicant in blank format after authentication of the date of issue by the designated branch. The Stockinvest duly completed should be submitted along with the APPLICATION FORM to the Bankers to the Offer.

6. No refund will be made to those applicants using Stockinvest for payment of application money

7. In case of non-allotment of equity shares, the cancelled Stockinvest instrument will be returned to the applicant, who will have to approach the issuing bank branch for lifting of lien.

Applications with Stockinvest not fulfilling the above criteria are liable to be rejected. The applicant may approach the banks concerned for obtaining Stockinvest and detailed instructions for the same.

A ceiling of Rs 50,000 per individual per stockinvest has been imposed by Banks. The above ceiling is not applicable to Mutual Funds. The ceiling is subject to change from time to time.

The applicant using Stockinvest should submit the Application Form along with the instrument to any of the Bankers to the offer or their Branches mentioned in the Application Form. The Stockinvest instruments are payable at par at all the branches of the issuing bank and as such outstation Stockinvest instruments can also be attached to the Application Form, if the issuing Bank has a branch at the place of submitting the application.

The applicant has to fill in the following particulars :

1. Title of the account i.e. "Melstar Information Technologies Ltd.";

2. The number of equity shares applied for

3. The amount payable on the equity shares applied for

4. The name and address where the Stockinvest should be returned in case of non-allotment.

The instrument should thereafter be signed by the applicant. Service charges, if any, for issuing Stockinvest must be borne by the applicant.

The applicant should not fill in the portion to be filled up by the Registrars to the Offer (right hand portion of the instrument). The Registrars to the Offer will fill up the right hand portion of the Stockinvest indicating the equity shares allotted to the applicant and also the amount calculated as follows:

In case of full allotment, the number of equity shares and the amount on the right hand side will be the same as the left hand side of the instrument.

In case of partial allotment, the number and the amount after adjusting allotment money, if any, payable in respect of equity shares so allotted, filled up by the Registrars (on the right hand side of the instrument) will be less than or equal to the number and the amount filled up by the applicant (on the left hand side of the instrument)

In case the allotment is nil, the number and the amount filled up by the Registrars on the right side of the instrument will be nil.

In the interest of the investors, to avoid rejection of applications on technical grounds, it is suggested that the applicant should ensure that:

The date of issue of stockinvest by the issuing bank is clearly mentioned on the instrument.

The instrument is duly signed by the authorised Officer of the Bank giving his code number.

The stockinvest instrument bears the code number and address of the issuing bank branch

Any corrections/alterations in the date of the offer, amount, the name of the offeror (MITL), the amount and signed the instrument. These signature on the instrument should tally with the specimen signature of the first named applicant as appearing on the application form.

In case the stockinvest is purchased in joint account, the names of both the acountholders should be mentioned in the stockinvest instrument at the place mentioned for writing the name of the investors.

The amount written in the application form to be deposited and the amount of the stockinvest instrument accompanying the application form should be the same.

The stockinvest is to be utilised by the purchaser(s) and the purchaser’s name /name of one of the purchasers is invariably indicated as the first applicant in the share application form. Thus, if the signature of the purchaser on the stockinvest and the signature of the first applicant on the appliaction form does not tally, the application would be treated as having been accompanied by a third party stockinvest and is liable to be rejected.

Stockinvest instruments which are not payable at Mumbai are liable to be rejected.

The above information is given for the benefit of investors and the company is not liable for any modification of terms of Stockinvest or procedure thereof by issuing Banks.

Inquiries relating to Stockinvest may be addressed only to the Registrars to the Offer and not to the issuing bank.

Registrars to the Offer have been authorised by the Company vide a Board Resolution passed on -----------------------, to sign on behalf of the Company for realising the proceeds of the Stockinvest of the successful allottees or to affix non-allotment advice on the instrument or to cancel the Stockinvest of the non-allottees. The cancelled instrument shall be sent back by the Registrars to the investors directly.

APPLICATION(S) WILL NOT BE ACCEPTED BY THE LEAD MANAGERS OR REGISTRARS TO THE OFFER

DISPOSAL OF APPLICATION AND APPLICATION MONEY

No receipt will be issued for application money. However, the Bankers to the offer receiving the applications will acknowledge the receipt of the application by stamping and returning the detachable acknowledgement slip appended to each application.

The sum received in respect of the offer will be kept in separate bank accounts and the company will not have any access to the funds unless approval of the Regional Stock Exchange i.e. The Mumbai Stock Exchange, is obtained for the basis of allotment and listing approvals obtained from all the Stock exchanges where listing is proposed.

The Company reserves the right to accept or reject any application in whole or part and in either case without assigning any reason thereof.

DISPOSAL OF APPLICATION MADE BY STOCKINVEST

The procedure for disposal of applications made by cash/cheque/demand draft will apply mutatis mutandis to Stockinvest except the following:

1. In case of non-allotment, stockinvest will be cancelled by the registrar to the Offer and returned to the applicant.

2. In case of allotment / partial allotment, the registrar to the offer shall fill in the amount in the stockinvest which would be less than or equal to the amount filled by the investor and present the stockinvest duly discharged on behalf of the company for collection.

3. In case the cancelled stockinvest is not received by the investor from the registrar, lien will be lifted by the issuing branch on expiry of four months from the date of offer against an indemnity bond from the applicant.

4. Inquiries relating to stockinvest may be addressed to the registrars and not to the issuing bank.

5. Multiple application under a stockinvest are liable to be rejected as each application is required to be accompanied by a separate instrument.

GENERAL INFORMATION

DEPOSITORY OPTION TO INVESTORS

As per the provisions of the Depositories Act, 1996, the shares of a body corporate can be in a dematerialised form, i.e not in the form of physical certificates but be fungible and be represented by the statement issued through electronic mode. Many body corporates and their investors are now opting for this mode of electronic accounts. The Company will also opt for this method subject to investors exercising their option to hold the shares in dematerialised form, for which necessary columns have been provided in the respective Applications Forms.

A tripartite agreement has been signed between the Company, MCS Limited and National Securities Depository Limited ( NSDL) dated ------------- 1999.

A tripartite agreement has been signed between the Company, MCS Limited and Central Depository Services(India) Limited dated ------------- 1999.

Investors have an option to seek allotment of equity shares in electronic and / or physical mode.

Such an option if exercised should be indicated in the relevant blocks in the share application form itself.

Applications for electronic and physical shares by the same first applicant will result in rejection of application for shares in electronic mode and only the application for physical shares will be considered as a valid application.

Investors who wish to apply for equity shares in electronic form need to have at least one Beneficiary Account with a Depository Participant prior to the application.

Allotment Advice / Refund Orders will be directly sent to the investors by the Registrars.

If incomplete/incorrect investor account details are given in the application form, it may result in issuance of physical Equity Share Certificate.

Responsibility for correctness of applicant’s demographic details given in the Application Form vis-à-vis those with his/her Depository Participant, would rest with the investor.

Shares in electronic form can be traded only on Stock Exchanges having electronic connectivity with NSDL/CDSL

OTHER INFORMATION

1. An application may be made in single or joint names (not more than three) as mentioned elsewhere in the Offer Document. In case of a joint application, refund pay order (if any) and dividend / warrants, etc. will be made out in favour of the first applicant.

All communications will be addressed to the applicant whose name appears first and will be despatched to the first applicant’s address stated in the application form.

2. An applicant should submit only one application (and not more than one) for the total number of equity shares required. Applications may be made in single or joint names (not more than three). Two or more applications, in single and/or in joint names will be deemed to be multiple applications if the sole and / or first applicant is one and the same. However separate applications can be made in respect of each scheme of Indian Mutual Fund registered with SEBI and that such applications will not be treated as multiple application provided that the applications made by AMC/ Trust/ Custodians clearly indicate their intention as to each scheme concerned for which application has been made. The Board reserves the right to accept or reject in its absolute discretion all or any multiple application(s).

3. In case of applications under a Power of Attorney or by limited companies or bodies corporate or societies, the relevant Power of Attorney or the relevant resolution or authority to make the application, as the case may be, together with a certified true copy thereof along with a copy of Memorandum and Articles of Association and/or bye-laws must be attached to the Application Form at the time of making the application or lodged for scrutiny separately indicating the Serial No. of the Application Form with the Registrars to the offer so as to reach them at Mumbai not later than 10 days from the closure of the Offer.

4. Thumb impression or signature in languages other than the languages specified in the 8th schedule of the constitution of India must be attested by Magistrate or Notary Public or a special Executive Magistrate under his official seal.

5. All communications should be addressed to the Registrars to the Offer.

6. The applicant should mention the Application Form number on the reverse of the instrument through which payment is made.

7. Applicants are advised that it is mandatory for them to indicate in the space provided in the application form, details regarding their Savings Bank/Current Account Numbers and the name of the branch of the bank to which they want the proceeds of refund to be credited. Applications not containing such details will be rejected.

8. Where an application is for allotment of equity shares for a total value of Rs. 50,000 or more i.e. the total number of securities applied for multiplied by the offer price is Rs. 50,000/- or more, the applicant or in the case of applications in joint names, each of the applicants should mention his permanent account number allotted under the Income Tax Act, 1961 or where the same has not been allotted, the GIR number and the Income Tax Circle/Ward/District should be mentioned. In case where neither the permanent account number nor the GIR number has been allotted, the fact of non allotment should be mentioned in the application form. Application forms without this information will be considered incomplete and will be liable to be rejected.

9. Having regard to provisions of Section 269SS of the Income Tax Act, 1961, the subscription against the equity shares application for an amount of Rs. 20,000 or more should not be effected in cash and must be offered only by an A/c. payee cheque / bank draft / Stockinvest. In case payment is effected in contravention of the provisions, the application is liable to be rejected and application money will be refunded without interest.

A separate cheque/ stockinvest/ bankdraft must accompany each application form.

Applicants residing at places where no collection centres have been opened may submit/mail their applications at their sole risk alongwith the application money due thereunto by Demand Draft to the Registrars to the Offer at their Mumbai address, superscribing the envelope " Melstar Information Technologies Ltd-Public Offer", so as to reach the Registrars to the offer on or before the closure of the Subscription list. Such Demand Drafts should be payable at Mumbai only. The charges, if any, for purchase of the Demand drafts will have to be borne by the applicant.

TAX BENEFITS

The Company has been advised by Gupta Maheshwari & Jain, Chartered Accountants, vide their letter dated September 30^th 1999 ,that as per the provisions of the Income-Tax Act, 1961 (the Act) and other direct tax laws as applicable for the time being in force, the following tax benefits and deductions will inter-alia be available to Melstar Information Technologies Ltd. (the Company) and its shareholders.

I Benefits to the Company.

The company has two business units established under the Software Technology Park Scheme. As per the representations received from the management, both the units have complied with the conditions stipulated in Section 10A of the Income Tax Act, 1961. Based on the above representation received from the management and in accordance with and subject to conditions specified in Section 10 A of the Act, the Company is entitled for the tax holiday benefits specified under that section in respect of income derived from these two units. Such benefit is available for a period of 10 consecutive assessment years beginning with the assessment year relevant to the previous year in which the Company has begun to manufacture or produce.

The Company in accordance with and subject to the conditions and to the extent specified in Section 80 HHE(1) of the Income Tax Act 1961, would be entitled to deduction of the profits derived from the export of computer software or for providing technical services outside India in connection with the development or production of computer software. Further the company is also entitled to deduction under section 80 HHE (1A) of the Income Tax Act 1961,for being a supporting software developer for developing and selling computer software to an exporting company for the purposes of export, subject to the conditions specified therein.

The company will be entitled to deduction of one-fifth of the expenses incurred for the offer of shares over a period of five consecutive years subject to the limits and conditions laid down in the Section 35D of the Income Tax Act, 1961.

The dividend income received by the company shall be exempt from tax under section 10(33) of the Income Tax Act,1961.

II Benefits to the Shareholders

Under Section 10 (33) of the Act, the dividend received by the shareholders of the Company is totally exempt.

As per Section 112 of the Act, with effect from 1 April 1999, the tax on the long term capital gains arising on sale of the listed security will be lower of 11% of capital gains (computed without indexation benefits) or 22% of capital gains (computed with indexation benefits).

In accordance with and subject to the conditions and to the extent specified in Section 54 EA of the Act, the shareholders would be entitled to exemption from long term capital gains on sale of their shares in the company.

In accordance with and subject to the conditions and to the extent specified in Section 54 EB of the Act, the shareholders would be entitled to exemption from long term capital gains on sale of their shares in the Company.

In case of a shareholder, being an in individual or Hindu undivided family, in accordance with and subject to the conditions and to the extent specified in Section 54F of the Act, the shareholders would be entitled to exemption from long term capital gains on the sale of their shares in the Company.

In case of a shareholder being a non resident Indian Under section 115AC(1)(b)(ii), income by way of Long Term Capital gain arising from the transfer of shares will be taxable , subject to terms and conditions mentioned therein @ 11 %.

In case of a shareholder, being a non-resident Indian, in accordance with and subject to the conditions and to the extent specified in Section 115 F of the Act, the non-resident shareholder would be entitled to exemption from long Term capital gains on the sale of their shares in the company.

Wealth Tax

Total exemption from wealth tax would be available on investment in shares of the Company.

Gift Tax

Effective from 1^st october 1998, no gift tax shall be levied on gift of shares of the company.

PARTICULARS OF THE OFFER

OBJECTS OF THE OFFER

The present offer of equity shares is being made to part finance the expansion of its Software Development Divisions within and outside India and to meet the expenses of the offer. The detailed break up of which are given hereinafter:

Software Development Divisions:

Setting up of new Software Development Centres at Melstar

House and SEEPZ in Mumbai;

Investment in Melstar UK.
Investment in Subsidiary Company in USA;

Upgrading of the existing hardware, software and other infrastructure facilities for the Divisions;

III. Prepayment of term loans to Punjab national Bank

Reduction in fund based limits with the banks.
Meeting Offer Expenses.
Enlisting Company's Shares on Stock Exchanges.

COST OF THE PROJECT (As estimated by the Company)

The total cost of the project is Rs. 1546 lacs. The expenses of the offer have been estimated at Rs.100 lacs. The cost of project / means of finance have not been appraised by any FIs/bank and the same are based on estimates of the Company’s management. The divison wise and year wise requirement for funds is as detailed below

(Rs. Lacs)

	Total value		Total
Particulars	Mumbai	Mumbai
	MIDC	SEEPZ
A. Software Development Centres
i. Furniture & fixtures,	60.00	50.00	110.00
ii. Electricity/Air Conditioners	24.00	20.00	44.00
iii Hardware Software /Networking/comm.	120.00	96.00	216.00
iv. Office equipment	10.00	10.00	20.00
v. Motor car	15.00	15.00	30.00
vi. Contingencies	11.50	9.50	21.00

Grand Total	240.50	200.50	441.00

B. Investment in Melstar Inc.-US			420.00
C. Investment in Melstar UK			210.00
D. Upgradation of Existing Infrastructure			100.00
E. Prepayment of long term loan			195.00
F. Reduction is Fund based limits with banks			180.00
G. Public Offer Expenses			100.00

Grand Total			1646.00

MEANS OF FINANCE

Particulars	Rs in lacs Public offer at Rs –60/- per share	Rs in lacs Public offer at Rs –72/- per share

Public Offer of equity shares	1289.40	1547.28
Allotment to employees	67.20	80.64
Total Equity	1356.60	1627.92
Internal Accruals**	290.00	18.08
Total	1646.00	1646.00

Net Profits for March 1999 51.45

Add Depreciation for March 1999 90.27

Add Profit for the year March 2000 540.49

Add Depreciation for March 2000 138.00

Less Dividend for March 2000 103.52

Less Dividend Tax 10.35

Total 706.34

Yearwise Breakup of Project Investments

( Rs in lacs )

Particulars

1999-2000

2000-2001

Total

Melstar Development Centre – MIDC Mumbai

80.50

120.00

200.50

Software Development Centre – SEEPZ Mumbai

240.50

240.50

Investment in Melstar Inc.

420.00

420.00

Infracture upgradation

40.00

60.00

100.00

Investment in UK Development Centre

84.00

126.00

210.00

Prepayment of Term Loans

195.00

195.00

Reduction in Fund based limits

180.00

180.00

Issue Expenses

100.00

100.00

Total

1340.00

306.00

1646.00

Notes :

The principal terms of financial assistance (Term Loans) sanctioned by Banks for the Company (As on 30^th September 1999) is as follows:

Institution

Agreement Date

Amount Sanctioned

Rate Of Interest

Repayment Schedule

Security

Punjab National Bank

2^nd February 1998

Rs. 75 Lacs

Note: Amt

O/s as on 30^th September 99

Rs. 43.75 Lacs

4% over PNB’s Term Lending rate presently 16.32%

12 equal quarterly installments of 6.25 lacs after a morotarium period of 6 months from the date of 1^St disbursement and Interest to be recovered seperately as and when charged.

Hypotecation of various assets at SEEPZ officeand at G-4 Melstar House and Personal Gaurantee of Directors.

Punjab National Bank

17^th June 1999

Rs.210 Lacs

Note: Amt

O/s as on 30^th September 99

Rs. 150.90 Lacs

4% over PNB’s Term Lending rate presently 16.32%

12 equal quarterly installments of 17.50 lacs after a morotarium period of 6 months from the date of 1^St disbursement and Interest to be recovered seperately as and when charged.

Hypotecation of various assets at SEEPZ office, G-4 Melstar House and at Bangalore, Pari passu charge with consortium agreement with Vysya Bank and personal gaurantee of Directors.

V. COMPANY MAIN OBJECTS AND SUBSIDIARIES

A. HISTORY OF THE COMPANY

COMPANY HISTORY, MANAGEMENT AND BUSINESS

BRIEF HISTORY AND PRESENT BUSINESS OF THE COMPANY.

MITL was incorporated on 12^th August, 1986 as a Private Limited Company under the name of Sifa India Pvt. Ltd. The name of the Company was subsequently changed to Melstar Information Technologies Pvt. Ltd. vide fresh certificate of Incorporation dated 22^nd March, 1994. Thereafter the company was converted into a Public Limited Company vide certificate of change of name dated 28^th July, 1994.

Sifa India Pvt. Ltd. was promoted by SIFA GmbH, West Germany and the Patel Group of Mumbai. Sifa GmbH held 66% of the Paid up capital of Rs.13.50 lacs divided into 2,700 Equity Shares of Rs.500/- each and the balance was held by Patels. In August, 1991 the company was taken over by the present management by acquiring 1,800 Shares of Rs.500/- each at a price of Rs.120 per share from SIFA GmbH and 900 Equity Shares from the Patel Group at a price of Rs.370/- per share. RBI’s approval for the transfer from Sifa GmbH was obtained vide letter no.CO.FID555/2204 (Activity)91-92 dated August 07, 1991.

In the first year of its operations after the takeover, the Company’s export sales amounted to Rs.12.91 crores essentially through export sales of Hospital equipments, Computer Hardware,etc. The Company used to export its products directly as well as through third parties to erstwhile USSR. During the year 1992-93 the sales of the company increased to Rs.18.08 crores which essentially were against confirmed Rupee orders received in the earlier year from USSR. In view of the turmoil which broke out in USSR in the year 1992, the company shifted its focus from Russia to the domestic market.

The company diversified into Software Exports in the year 1993 and has been exporting mainly to U.S.A., Italy, Switzerland, etc.

The activities of the company were further diversified into manufacture of electronic products such as calculators, blinkers, etc in the year 1994-95. The Company had to suspend electronics business activity early in 1998 and also to reduce the focus on hardware business, being unremunerative, to concentrate on Software Development / Services and Enterprise Solution business.

The present activities of the company can be broadly classified into the following categories:

1) Software Exports

The Company commenced Software Exports in the year 1993 and has been exporting mainly to countries like U.S.A., Italy, Switzerland, etc. The Company’s Software business application development and Consultancy is to international clients from SEEPZ, Mumbai and Connection Point, Bangalore. In Software application development the emphasis is on customised application software for the clients based on their specific needs. Software Consultancy involves MITL consultants temporarily relocating to the clients’ site to provide high level technical consultancy.

Pursuing its strategic business orientation towards Software, the Company has firmed up a number of relationships with various companies abroad, important set-ups being as under:

a) Melstar Inc., USA.

The Company’s Subsidiary in USA which was incorporated in December, 1993 has moved its operations from Atlanta to California on the West Coast 1n 1997. Its end-customers include HP, Citibank, American Honda, Deliotte & Touche, SIS, MCG, etc. It has enlarged its operations by the appointment of new projectS managers and engineers.

Melstar Inc. has also entered into a joint venture with Summit Group of USA and ITC Consulting GmbH of Switzerland, based in New York viz. Global Systems Development Inc(GSD). It has got 45% stake in GSD’s Equity. GSD specialise in Software development and out-sourcing contracts for Banking and it has bagged a major outsourcing contract from Citibank, USA.

b) Melstar - U.K.

The company has established a Branch Office in London in May 1998. This office services businesses in UK, besides other major countries in Europe. The UK office has signed business contracts with a few companies based in Europe including ICI, Linkhand, Application Designers, etc. Looking to enormous potential in Europe, it is proposed to incorporate a new company in UK as a wholly-owned Subsidiary of Melstar Inc or a Joint Venture so as to take over and conduct business currently being carried on by the Branch office.

To promote Off-shore projects in UK, the Company has tied up with Robson and Rhodes, one of the largest Accountancy and Management Consultancy firms in the world to offer Software services jointly with them. The joint agreement signed with Linkhand of UK, and Singularity of Northern Ireland envisages joint development of a new product called Active Document - a Document Management System.

c) Software Development - India

The Company has further strengthened its business association with its existing business partners viz. Informix and IBM Global Services Ltd. The SEEPZ unit is dedicated as India Development Centre for Informix, USA. A long term contract has been signed with Informix covering five years. The total contract envisages exports of over Rs.27 crores from SEEPZ Unit in five years, beginning 1998-99.

The Company has also set-up a dedicated Software Development Centre at Bangalore for IBM. The facility was operational in August 1998. The contract envisages exports of over Rs.10 crores in three years. Negotiations with IBM for additional business are in progress.

Recently the Company has set up a new STP unit in its establishment in MIDC, Mumbai focussed on E-business and Client Server Applications and development work has already started.
Enterprise Solution Division – India

The Company’s Enterprise Solutions business is predominantly a domestic business established nearly five years ago. This segment has progressed from Hardware sales to Networking Solutions and then to Enterprise Solutions for a number of large organisations. This business is generally undertaken in partnership with IBM in India and is focused on IT, Banking and manufacturing segments.
B. Main Objects Of The Company

To carry on business in India and elsewhere as Manufacturers, Exporters, Importers, Buyers, Sellers and Dealers in Electronic Systems, Information Technology including Consultancy, Computer Hardware, Software Development, Infotech Services, Enterprise Solutions, Out-sourcing and Facility Management, Internet, E-Commerce, Infotainment, Education and Training, etc., Gadgets for measurement, information and control of Agricultural and Industrial Machinery and all kinds of machinery, implements, tools, dies utensils, appliances, apparatus and accessories and things connected therewith.
C. SUBSIDIARY OF THE COMPANY

Melstar Inc is a subsidary of MITL located in USA
MELSTAR INC.

Melstar Inc a subsidiary was set up in December 1993 and became partially operational in the year 1994. The company was set up with the help of an NRI based in the US and an American national . The company did not perform well in the initial period. Both the NRI and the American national decided to exit the company. During the year 1998 the Company became a 100% subsidary of MITL after the other shareholders shares were bought back by Melstar Inc. Since then Melstar Inc’s basic focus is on direct marketing for MITL’s software services in the US market. The Company is involved in prospecting for software projects and professional services and to help increase the market reach of the Indian parent.

The Directors of Melstar Inc. are Mr. Suresh Bansal, Mr. S.M.Arora, Mr. Sattar A. Shaikh and Mr. Bharat Ramani.

The operations of Melstar Inc. are headed by Senior Vice-President Mr. Praful Verma.

The following is the Balance Sheet of Melstar Inc. as on December 31^st 1997 and December 31^st 1998 in accordance with the Statement on Standards for Accounting and Review services issued by the American Institute of Certified Public Accountants.

MELSTAR , Inc.

Balance Sheet

Year ended 31.12.1998 ( US$)

Year ended 31.12.1997 ( US$)

ASSETS

CURRENT ASSETS

Cash

11,252.14

7,403.51

Account Receivable

608,301.00

95,000.00

Advances to MITL, the parent company

80,000.00

-

Total Current Assets

699,553.14

102,403.51

FIXED ASSETS

At Cost

19,425.38

12,326.25

Less : Accumulated Depreciation

19,425.38

-

11,621.38

704.87

Investments

450.00

450.00

-

-

Total Fixed Assets

450.00

704.87

OTHER ASSETS

Deposits

4,300.00

4,300.00

500.00

500.00

Organisational Expenses

3,000.00

3,000.00

Less : Written off

3,000.00

-

2,400.00

600.00

Total Other Assets

4,300.00

1,100.00

TOTAL ASSETS

704,303.14

104,208.38

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES

Accounts payables To MITL, the parent Company

237,500.00

81,500.00

Total Current Liabilities

237,500.00

81,500.00

Long term liabilities

400,000.00

-

STOCKHOLDER’S EQUITY

Common Stock

32,500.00

45,000.00

Retained earning

(9,791.62)

(40,260.57)

Net Income of (loss)

44,094.76

17,968.95

Total Stockholder’s Equity

66,803.14

22,708.38

Total Liabilities and Stockholder’s Equity

704,303.14

104,208.38

The following is the Statement of Income & expenses of Melstar Inc. for the year ended December 31^st 1997 and December 31^st 1998 in accordance with the Statement on Standards for Accounting and Review services issued by the American Institute of Certified Public Accountants.

MELSTAR Inc.
Year ended 31.12.1998

( US$)
Year ended 31.12.1997

( US$)

Statements of Income, Expenses and Retained Earnings

INCOME

Consulting Revenue

899134.00

136695.00

Total Sales

899134.00

136695.00

COST OF SALES

Hardware purchases

0.00

20000.00

Services provided by MITL , the parent company

677243.00

81500.00

Total cost of sales

677243.00

101500.00

Gross Profit

221891.00

35195.00

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Salaries and Benefits

56583.33

0.00

ADP Payroll Fees

746.85

124.50

Bank Charges

294.50

130.00

Rent

20,486.24

5042.90

Advertising

13,598.70

0.00

Insurance

3,150.21

1081.00

Amortisation

600.00

0.00

Taxes – Payroll and others

34,354.81

0.00

Telephone

6,160.13

396.29

Depreciation

7,804.00

691.38

Relocation Expenses

5,993.60

0.00

Postage & Forex

2,770.23

0.00

Legal, Accounting & Professional fees

17,628.64

0.00

Office Supplies

5,794.60

1664.00

Utilities

36.65

82.41.00

Travelling Expenses

1,793.75

4264.91

Miscellaneous

0.00

232.40

Late Fees

0.00

202.12

Per Deim Exp

0.00

3314.14

Total Operating Expenses

177796.24

17226.05

Operating Income(Loss) Before taxes

44094.76

17968.95

Net Income(Loss)

44094.76

17968.95

D. Acquisitions / Amalgamations:

a) Pursuant to an Order passed by the Hon’ble Bombay High Court on 8^th August, 1996, EMCO Polymers Pvt. Ltd. having its Registered Office at Sidharth Building, Station Road, Thane-400604 and its manufacturing unit at Plot No.12, Kalwa Industrial Estate, Kalwa, Thane was amalgamated with the Company. In terms of the Scheme of Amalgamation, the Company was to issue 16 Equity Shares of Rs.10/- each for each Share held by the shareholders in EMCO Polymers Pvt. Ltd. or alternatively if the EMCO shareholders so chose, the Company was to pay a cash consideration of Rs.600/- per share of the face value of Rs.100/-. All the shareholders chose to accept the consideration in cash . As such there was no increase in the Company’s Capital. The essential advantage the company derived from this acquisition and amalgamation was that valuable property of EMCO was transferred to the Company resulting in expansion of its asset-base.

b) Melstar Industries Limited (MIL), a company under the same management as the Issuer company, was amalgamated with the Company in terms of a Scheme of Amalgamation sanctioned by the Hon’ble Bombay High Court on 8^th July, 1999, the appointed Date for which was 1^st January 1999. MIL was a National Distributor of IBM Hardware products which distributorship was transferred to the Company in 1995-96. However, MIL possessed a valuable asset in the Building owned by it, known as Melstar House at G-4, MIDC, Cross Road "A", Andheri East, where the Registered and Corporate Office of the Company is located and which the Company had been occupying as a Licencee. In terms of the Scheme of Amalgamation, the assets of MIL became the property of the Company. On 14^th July 1999 after setting off the Company’s dues from MIL, the Company issued 5000 Equity Shares of Rs.10.- each to the Shareholders of MIL which increased the Issued and Paid up Capital of the Company by Rs.50,000/-

OUTSTANDING LITIGATION:

DEFAULTS

There are no defaults on the Company’s part with regard to payment of interest and principal amounts on maturity in respect of loans, as applicable.

There are no outstanding litigations against the Company according to the laws of the land. Also there are no disputes, defaults, non payment of statutory dues, institutional dues and dues towards instrument holders like debentures, fixed deposits and arrears on cumulative preference shares, proceedings initiated for any criminal or civil offenses, economic or otherwise (including past cases and irrespective of whether the same is specified in Part 1 Schedule XIII of the Companies Act) except those as stated elsewere in the Offer Document

Further there are no criminal/civil prosecutions or litigations towards tax liabilities launched against the company and its Directors for any offences except those as stated elsewere in the Offer Document

E. COMPANIES UNDER THE SAME MANAGEMENT

Companies under the same Management as per Section 370(1B) of the Companies Act, 1956, (since abrogated).

The following two companies may be deemed to be under the same Management, since the Promoters / Directors of the Company have substantial Equity Stake in these companies and are also Members of their Board of Directors.
1. Melstar Exports & Technologies Pvt. Ltd. (METPL)

METPL was incorporated in terms of Certificate of Incorporation dated 16^th October1991 as Microedge Exports & Technologies (India) Pvt. Ltd. with its Registered Office at Mumbai. Pursuant to a fresh Certificate of Incorporation dated 13^th February1992, the name of the Company was changed to Melstar Exports & Technologies Pvt. Ltd. Since incorporation, the company has been engaged in exports of varied items viz. medical equipments, video recording equipments, radio communication equipments, typewriter equipments, weighing scales, etc. Later the product range expanded to include cosmetics, batteries, moulded luggage, computer systems, leather garments, jackets, woollen pullovers, mufflers, tea, coffee, detergents, tooth paste, etc . The company was active in business upto 1994-95.

Rupees in Lacs

Particulars

31/3/98

31/3/97

31/3/96

31/3/95

Equity Capital

10.00

10.00

10.00

10.00

Reserves

315.69

368.68

393.66

428.84

Total Income

4.40

50.20

739.73

1,212.68

Profit after Tax / Loss

(24.72)

(22.76)

(13.18)

5.66

Earning per Share(Rs.)

-

-

-

56.60

Book value per share (Rs.)

3,256.90

3,764.60

3,975.70

4,291.80

2. Melstar Fashions Pvt. Ltd. (MFPL)

MFPL was incorporated on 24^th April 1991 as Microplus Exports Pvt. Ltd. with its Registered Office at New Delhi. Its initial activity was manufacture and export of elastic tapes. Subsequently it also started trading in the export market for fabrics, leather goods and accessories, cotton and leather garments, woollen pullovers, mufflers and jackets, cotton bags, etc. It was active in business until 1995/96.

Rupees in Lacs

Particulars

31/3/98

31/3/97

31/3/96

31/3/95

Equity Capital

10.00

10.00

10.00

10.00

Reserves

132.68

171.14

195.64

254.25

Total Income

-

8.06

407.69

561.10

Profit after Tax / Loss

(38.27)

(11.64)

(58.64)

2.66

Earning per Share

-

-

-

2.66

Book value per share (Rs.)

142.68

181.14

205.63

264.23

The erstwhile USSR essentially was the export market for the products of both these companies. Their activities started shrinking gradually from 1995. In the subsequent years, their essential activity was to manage investments made from surpluses generated by them during the earlier years, which virtually changed their status to "investment companies", since the Directors consciously decided to concentrate their time and attention towards development and growth of the business of the Offerr Company viz MITL.

Further there are no listed companies under the same management.
The promoters are involved in the following other companies:

Promoter

Name Of Company

Mr. Suresh Bansal

Melstar Exports & Technologies Pvt. Ltd.

Melstar Fashions Pvt. Ltd.

Melstar Inc. USA.

Global Systems Development Inc, USA

Mr. S. M. Arora

Melstar Exports & Technologies Pvt. Ltd.

Melstar Fashions Pvt. Ltd.

Melstar Inc. USA.

Mr. Sattar Shaikh

Melstar Exports & Technologies Pvt. Ltd.

Melstar Fashions Pvt. Ltd.

Melstar Inc. USA.

Microedge Technologies Pvt Ltd.

Mr. Bharat V. Ramani

Melstar Exports & Technologies Pvt. Ltd.

Melstar Fashions Pvt. Ltd.

Melstar Inc. USA.

There are no outstanding litigations against the company, its promoters, directors and group companies except the following.

a) A Petition U/S 397/398 of the Companies Act, 1956 before the Company law Board, Principal banch, New Delhi.

The Company (MITL), Melstar Exports & Technologies Pvt. Ltd. and Melstar Fashions Pvt. Ltd. alongwith three out of four of the Company’s Promoters, viz S.K.Bansal, S.A.Shaikh and B.V.Ramani who were Directors and Shareholders of another Private Limited Company and to whom MITL (then SIFA India Pvt. Ltd.) had supplied some Computer Systems and Peripherals during the year 1990-91 (prior to the Promoters acquired control over the affairs of MITL) and in 1991-92 for Exports to USSR, have been involved in a Petition U/S 397/398 of the Companies Act, 1956 for alleged oppression of minority and mismanagement, filed against them by some other shareholders of that Company, constituting a minority.

MITL’s role essentially was that of a supporting manufacturer to that company which has not been in business since 1992 as envisaged under the Import Trade Control Policy as well as the Income Tax Act, 1961.

The Original Petition, filed by the Petitioner in June, 1992, was "consigned to record" by the Hon’ble Company Law Board, Principal Bench, New Delhi in February, 1993. The Petitioner filed a fresh Petition in April 1994, canvassing the same charges which was for the first time to come up for hearing on 20.7.95. However at the request of the Petitioner it was adjourned to 29.1.96. Since then there have been nine further adjournments (six at the request of the Petitioner’s Advocate, 2 suo motu by the CLB Bench and one at the request of the Company’s Senior Advocate). The matter has not progressed at all and the Petition is now re-scheduled to be heard on 22/23^rd February, 2000 at the behest of the petitioner.

MITL has been legally advised that no liability is likely to devolve on it even in the unlikely event of the verdict of the Company Law Board being adverse to the three concerned Directors of MITL.

b) Appeal before The State Consumer Disputes Redressal Commission - New Delhi

Appeal before The State Consumer Disputes Redressal Commission - New Delhi - Ms.Reena Saxena versus CDM Technologies P. Ltd. and Melstar Industries Ltd.

One Reena Saxena filed before the Consumer Disputes Redressal Forum-II, New Delhi a Complaint bearing No.2307/95 against CDM Technologies Pvt. Ltd. of Delhi (CDM), CDM’s Marketing Manager and Melstar Industries Limited (MIL) (a Melstar Group Company) inter alia alleging that the Opposite party No.1 and 2, CDM Technologies Pvt. Ltd. and CDM’s Marketing Manager, had supplied to the complainant a Computer of different specifications than the type 486 which the Complainant had ordered on Respondent No.1 (CDM).

The Relationship between MIL and the CDM was that CDM was a Distributor of MITL products as also IBM products in the domestic market. This arrangement ended in June ‘95, when MITL decided to market its products directly and IBM Distributorship was also transferred to the Company.

CDM was a Reseller of the products marketed by Melstar Industries Ltd. (MIL) at the relevant time. In its submissions before the District Forum MIL emphasised that it had never supplied to the Reseller, Personal Computers of the Type 486 DX2 which the complainant had ordered on CDM and all MIL’s supplies of PCs to the Reseller at the material time were of PC 386 range. As such MIL could in no way be held responsible or answerable for any deficiencies allegedly found by the Complainant in the product supplied by CDM to her. In its order dated 19^th March, 1998 the Hon’ble District Forum up-held MIL’s submissions based on the facts and did not give any adverse findings against it. The Complainant being aggrieved by the Order of the District Forum, filed an Appeal against it with the State Consumer Dispute Redressal Commission, New Delhi claiming relief against CDM only and not against MIL, though MIL was made a party thereto. MIL was advised that having been impleaded as a Respondent, it must file an Affidavit in Reply and be represented by our Advocate before the Commission when the matter came up for hearing. Accordingly, MIL in its Affidavit reiterated its submissions made before the District Forum drawing specific attention of the Hon’ble Commission to the aforesaid facts. The Appeal came up for hearing on 15^th September,1999. The matter is now scheduled to be heard for arguments on 14^th December 1999.

As stated above, since the Hon’ble District Forum has not given any adverse finding nor has the complainant claimed any relief against MIL, no liability is likely to devolve on MIL or the Company.

MIL has since been amalgamated with the Company pursuant to Order dated 8^th July, 1999 of the Honourable Bombay High Court .
VI. PROMOTERS AND MANAGEMENT

PROMOTERS

The Company was promoted by SIFA GmbH, West Germany, Mr.S.L.Patel and Mr.K.N.Patel. Sifa GmbH held 66% of the Paid up Capital of Rs.13.50 lacs and the balance was held by Patels. In August, 1991 the Company was taken over by the present promoters.

The Present Promoters are –

(1) Mr.Suresh Bansal, Chairman of the Company, aged 42 years is a Commerce Graduate and has completed DBIM from Bombay University. He has over 21 years of experience in export marketing of computers and software. He worked with ESSEN Computers Limited as General Manager (Exports) for over 9 years, before he ventured into IT business on his own along with others.

(2) Mr.S.M.Arora, Managing Director, aged 64 years is a Management Graduate (MBA) with over 42 years of experience in various fields. He has been associated with IBM World Trade Corporation as Country Distribution Manager, IDM Limited as Marketing and Manufacturing Service Manager, Prompt Computers (P) Limited and Sujata Data Products Limited as Director.

(3) Mr.Bharat Ramani aged 37 completed his Electrical Engineering from VJTI and Masters in Marketing Management from NIMIMS. He has nearly 16 years experience in the Computer Industry at Executive positions and at Board levels and until his appointment as President of Melstar Inc from 1.4.1999 has been looking after commercial functions of the Company.

(4) Mr.Sattar Shaikh, aged 42 Commerce Graduate from Mumbai university has 21 years experience in Electronics / Computer Industry at executive and at Board Levels. He looks after the Finance , Administration and commercial functions functions of the Company.
LITIGATIONS

Except as stated elsewhere in the Offer Document there are no pending litigations / criminal proceedings launched against the Promoters, Directors of the Company and group companies for offences under the enactments specified in Paragraph 1 of Part 1 of Schedule XIII of the Companies Act, 1956.
MANAGEMENT

At the highest level MITL is managed by a Board of Directors which comprises of Technocrat professionals of eminence in the field of Information Technology.

BOARD OF DIRECTORS

The details of the Board are given below :

Designation
Age

(Years)

Qualification

Other Directorships / Interests

Mr. Suresh Bansal

S/o. Mr. Sadhu Ram Bansal.

Jolly High Rise P-2

16th Floor

Palli Mala Road

Palli Hill.

Bandra

Mumbai - 400 050

Executive Chairman

42

B.Com, DBIM

Melstar Exports & Technologies Pvt. Ltd.

Melstar Fashions Pvt. Ltd.

Melstar Inc. USA.

Global System Development. Inc. USA

Mr. S. M. Arora

S/o. Late. D. M. Arora

502, Jewel Mahal

Seven Bungalows Versova

Mumbai 400 061

Managing Director

64

MBA

Melstar Exports & Technologies Pvt. Ltd.

Melstar Fashions Pvt. Ltd.

Melstar Inc. USA.

Mr. Sattar Shaikh

S/o. Late Shaikh Abdul Gaffar

Adore Apts

Rebello Road,

Near Mehboob Studio

Bandra

Mumbai 400 050

Whole time Director

42

B.Com

Melstar Exports & Technologies Pvt. Ltd.

Melstar Fashions Pvt. Ltd.

Melstar Inc. USA.

Microedge Technologies Pvt Ltd.

Mr. Bharat V. Ramani S/o. Mr. Vithaldas G. Ramani

3606, Clithore Court

Alexandra Avenue

Rayners Lane, Harrow

Middlesex HAZ 9UQ (UK)

Non-Executive Director

37

B.E. (VJTI)

MMS (NMIMS)

Melstar Exports & Technologies Pvt. Ltd.

Melstar Fashions Pvt. Ltd.

Melstar Inc.

Mr. Prashant Jhawar

S/o. Mr. Basant kumar Jhawar,

Appartment No. 319,

London Crown II

Post Box No. 50151

Dubai UAE.

Mr Brajesh .Kumar Biyani

Son of Mr Gajanad Biyani

Alternate to Mr Prashant Jhawar :

Flat No. 8D, Bally High No.1,Ballygunge Park Road, Calcutta 700019

Non-Executive Director

Alternate Director

36

48

B.Com

B. Tech ( Chemical Engg.), PGD.

Usha Beltron Ltd.

Usha Audiotel Ltd.

Usha Martin Telematics Ltd.

Usha Martin Europe Ltd.

Usha Breco Ltd.

Summit Usha Martin Finance Ltd.

UMT Investments Ltd.

UMTL Holding Company Ltd.

UMI Princep Investments Ltd.

MA FoI Management Consultants Ltd.

Outstanding Litigations against the Directors:

There are no criminal/civil prosecutions or litigations towards tax liabilities against any of the Directors of the Company except as stated elsewere in the Offer Document
Changes among Directors in Last three years

Name

Date of Appointment

Date of Cessation

Reasons for change

Mr.M.R.Bansal

17.7.1995

25.05.1998

Personal

Mr.P.N.Wakhlu

19.09.1996

25.05.1998

Personal

Mr. Prashant Jhawar

20.04.1999

--

Appointed in terms of the Share holder Agreement dated 20^th April 1999 with Usha Martin Ventures Ltd on acquisition of Equity in the Company

KEY MANAGEMENT PERSONNEL

-This team is led by key, senior management personnel who are professionally qualified and have rich experience in the IT Industry. Following is the profile of senior management staff at MITL.

Name

Designation

Area

Qualification

Total Experience

Yrs.

K.Selvaraj

Vice President

Software Development (CS)

B.E., M.E.

21

Jeremy D'lima

Vice President

Software Development (Banking)

B.Sc.

20

Dr.P.Paul

General Manager

Software Development (OTDC)

M.Tech, PhD, IIT Kharagpur.

9

Sandeep Sawant

General Manager

E-Business

B.Tech.

11

Praveen Shetty

Asst. General Manager

Solution & Services

B.E. M.M.M.

8

Akhil Tulyani

Project Manager

Software Development (CS)

M.S.(Computer Sci.) USA

11

Ajay Aggarwal

Manager

SEPG

B.S.(Computer Sci.)USA

12

Rajesh Shah

Finance Controller

Finance

C.A.

13

Sushil Wakhlu

Asst. General Manager

Commercial Market Operations

B. E. Chemical

PGD

17

Prasenjit Phukan

Manager

Human Resourses

B.Com Masters in Personal Management

6

Ajit Krishna

General Manager

Software IGC Bangalore

B. Sc. (Engg.)PGDM, IIM Bangalore

10

T. Sukruth Kumar

Zonal Manager

Sales

B.E.

11

K. Selvaraj (44) : M.E. from Indian Institute of Science has been with MITL since January’1998 having joined as Vice – President – Software Development. He has over 21 years of experience in software development. Prior to joining Melstar he has worked for Organization’s like Rolta India Ltd., Onward technologies Ltd.

As a Vice – President – Software Development , he is responsible for timely delivery of client server projects .

Jeremy D’lima (47) : B.Sc. from Mumbai University has over 21 years of experience in software development , business development in organization’s like Digital Equipment India Ltd, Kale consultants Ltd. He has rejoined Melstar as Vice President – Banking & Finance Industry in February’1999, his earlier stint with Melstar was as General Manager for 2 years. He is responsible for business development from Citibank,USA

Dr. P. Paul (33) : M.Tech and Ph.D from IIT, Kharagpur has over 9 years of expereince in Software engineering , client server application, real time System Technology in organizations like Bells Softech, GEC Alsthom, France. He has joined Melstar as General Manager – Object Oriented Development Technology. He is responsible for software development using Object Oriented technology.

Sandeep Sawant (33) : B.Tech.( Electronics) has over 11 years experience in software development in organization’s like IBM UK Ltd, UK, British Telecom Plc,UK. He has joined Melstar as General Manager – e-Business in April’1999. He is heading the e-business division.

Praveen Shetty (32) : B.E.( Electronics & Telecommunication) from M.I.T., Manipal and Master in Marketing Management from Chetna Institute of Management Studies & Research has over 10 years of experience in business development of software solutions in CMC. He has joined Melstar as Asst. General Manager – Solution & Service from October’1998. He is responsible for business development for software solutions and facility management in India.

Akhil Tulyani : MS in computer from US, has over 12 years of experience in software projects with companies such as AT&T etc.

Ajay Aggarwal ( 37) B.S. ( Computer Science ) from New Mexico State University, USA has 12 year experience in software quality assurance in organisation like Hewlett Packard, USA , DCISI, India. His major strength has been implementation of SEI-CMM. He has joined Melstar as Manager – Software Process in July’1999. He is responsible for quality assurance by implementing SEI-CMM.

Rajesh Shah (40) : B.Com and CA from Institute of Chartered Accountants of India has over 13 years of experience in Accounts and Finance in organization’s like Growel Corporate Services, Lawa Coated Papers Ltd. He has joined Melstar as Finance Controller in February, 1999. He is responsible for Accounts, Finance, Banking & RBI matters.

Sushil Wakhlu (39) : B.E. ( Chemical) from REC, Srinagar, and PGD Public Relation & Journalism has over 17 years experience in commercial , export , manufacturing. His last assignment was with Orkay Industries. He has joined Melstar in July ‘1994 and currently he is holding the position of Assistant General Manager – Commercial market operations.

Prasenjit Phukan (30) : B.Com and Masters in Personnel Management from Poona University has over 6 years experience in Human Resources Development . His last assignment was with Byzan Systems Pvt. Ltd. He has joined Melstar as Manager – Human Resources in May’1999. He is responsible for HR functions.

Ajit Krishna (41) : BSc. ( Engg) PGDM, PGDM, IIM Bangalore. He has over 15 years of experience. Six years in Middle East. He has joined Melstar as General Manager – Software – IGC Bangalore.

T. Sukruth Kumar (35) : B.E. from D.S. College of Engineering has over 11 years experience in sales & service in organization’s like Sterling Computers. He has joined Melstar in March’1993 and currently holding the position of Zonal Manager – South zone. He is responsible for enterprise solution & networking product sales in south zone.

Changes in the Key management personnel in the last twelve months.

KEY MANAGEMENT PERSONNEL WHO LEFT THE COMPANY

Mr Sanjiv Kapoor – Vice President : left since company closed down the hardware business

Mr Rajesh Tallati – General Manager : left since company closed down the hardware business

Mr Pradeep Nigam – Vice President : Transferred to joint venture in New York – Global System Dvelopment Inc.
KEY MANAGEMENT PERSONNEL WHO JOINED THE COMPANY

Praveen Shetty – Asst. General Manager – Solutions & Services
Sandeep Sawant – General Manager E-Business

Ajay Agarwal – Head SPG – Quality

Rajesh Shah - Finance Controller

Jeremy Delima – Vice President, Banking

Dr. P. Paul – General Manager - Object Technology Division

Ajit Krishna – General manager – Software – IGC - Bangalore
EMPLOYEES STOCK OPTION PLAN (ESOP)

The Company has created an Employees Welfare Trust ("Trust") called "MITL Employees Welfare Trust" to implement the Employees Stock Option Plan. The Company has allotted to the Trust 49,203 Equity shares on September 20^th 1999 and the process of transfer of these shares to the employees is in progress.

The company has also issued to the Trust 5 lacs option warrants convertible into 5,00,000 equity shares over a peirod of time for allotment to the employees from time to time to reward outstanding & exceptional performance, encouraging internal competition and attracting and retaining highly skilled and creative talent. The trust has to hold the shares and warrants on behalf of the eligible Employees and to offer the same to the eligible employees, subject to the terms & conditions of the Employees Stock Option Scheme. The Company has appointed a Committee of its Board to identify employees eligible for issue of Equity Shares/warrents and related matters.

In the past the Company has allotted 33,975 equity shares to its employees on a preferential basis.

VII. CURRENT BUSINESS

MITL BUSINESS OPERATIONS

Positioning of the Company

MITL is positioned as an IT outsourcing Company with its unique model combining the strengths of onsite services, offsite services and off shore services. The Business model for Melstar is given below:

BUSINESS MODEL

All the current activities of MITL and planned activities in the future fall under the above model. To provide the highest quality of services to its customers within the outsourcing business, MITL specialises in following technologies.

E- Business and web applications

Object Technologies

Client Server

Legacy System

System Integration & networking

Product development & maintenance

MITL provides outsourcing services under the above business model covering cutting edge technologies to following industries.

Information Technology Industries

Banking Finance & Insurance Industries

Divisions

MITL’s activities are divided into the following Divisions

IBM Global Centre (IGC)

Informix Development Centre (IDC)

Melstar Development Centre (MDC)

Enterprise Solution Division (ESD)

Professional Services Division (PSD)

Melstar U.K. (MUK)

Melstar Inc. (MUS)

IBM GLOBAL CENTRE (IGC)

IBM Global Centre was set up in the month of August 1998 at Bangalore, as a 100% Export Oriented Unit under STPI scheme of India. This unit is operational and dedicated to IBM Global Services Ltd in for the past one year

Melstar has signed long-term contract with IBM Global Centre under which Melstar will provide upto 42 trade personnel for software development for IBM projects to be associated with 10 people from IBM Global Services Pvt. Ltd.

Currently it employs 36 people from Melstar and 15 people from IBM. IBM Software Development centre is one of the unique centre in the country having online link/connection with IBM world communication, net, mainframe. Currently the centre is engaged in various kinds of software development projects for IBM in the US including sales and distribution module. Most of these projects are on IBM main frame employing people’s skill in MVS, Cobol, JCL, DBL Technologies, etc. The unit has now started developing people on systems, which include latest software technologies such as C++, VB and Oracle etc.

This centre has additional agreement with IBM to provide software development teams for IBM’s other projects in India and in the U.S., Japan and Australia. Under this agreement Melstar has already deployed the first set of people who have started the project development with IBM in the US and Japan.

During the period from August 1998 till 31^st March 1999, the centre generated Export Revenue of Rs.126.75 lacs. During the current year this centre is estimated to generate a revenue of Rs.355.00 lacs.

INFORMIX DEVELOPMENT CENTRE (IDC).

During the year 1997 MITL signed a long-term software development contract with Informix, leading US Software Co. in the field of RDMS. This is the 2^nd and the largest Software Technology centre in India and outside the US for Imformix Melstar set up the facility to house 70 personnel in Software development and the number is expected to increase upto 100 seats when the centre is fully operational. Informix US has agreed to give complete equipment, Hardware and Software tools on loan basis to run the centre. At the end of the contract this equipment shall go back to Informix US. Informix has already supplied equipment worth Rs.196.82 lacs till 31^st March, 1999.

Informix is a leading RDBMS Co. having their main Development facility in Manlo Park, USA. Informix Development Centre at SEEPZ is linked with Manlo park with satellite link and enables Indian Engineers to work closely with their counterparts in California. The Unit develops new product releases, provides supports, bug fixing as well as validating the product patches for the new releases. The facility is equipped with latest high power Sunservers, Sun Workstation and Pentium desk tops.

During the year ending March 1999, Melstar did export business of Rs.395.12 lacs from this unit. During the year 1999-2000 the exports are likely to touch around Rs.400.00 lacs. Informix, expects that over a period of 5 years total exports worth Rs.27.24 crore will take place from this centre.

MELSTAR DEVELOPMENT CENTRE (MDC)

Melstar Development Centre is located at Melstar House, MIDC, Mumbai in the building owned by the Company with an area of approx. 15000 sq.ft. This Development Centre houses three facilities.
a) Client Server Application

This facility has 56 seats, NT server, Pentium desk tops, Internet ISDN and other communication facilities, latest software, tools and application. This facility focuses on Oracle and Microsoft technologies. The Centre develops application and software products using oracle 7.xx 8i, Microsoft SQL server with VB etc. as well as COM /DCOM technologies.

The centre has its own Software Engineering Process Group (SEPG) headed by Mr.Ajay Aggarwal who has 10 years experience in implementing SEI-CMM level applications in various companies including 5 years in HP California.

Melstar has already signed a Contract with QAI to implement SEI-CMM level 3. The certification is expected by March 2000.
b) E-Commerce

This facility has been already set up in the above location under the Software Technology Park Scheme with a capacity to house 55 people. The facility is headed by a GM with 11 years of experience, out of which for 8 years he was with IBM, UK. The facility started its operations in July 1999 with a team of 15 people and shall be fully operational by the end of the year. This facility is equipped with latest IBM’s Netfinity, Servers, Pentium III Desktop and most of the software tools and applications required for e-commerce facility.

This facility mainly focuses on developing and customising application around IBM technologies. Melstar works closely with IBM to develop this facility. Melstar signed agreement with IBM for San Francisco. It specialises in net commerce, SEI, Firewalls, payment gateways, trading on the net etc. This division is currently carrying out trial projects to enhance the skills of its people to be ready for mega opportunities emerging in the next century.

Object Technology Development Centre.

This is the third centre planned within Melstar Development Centre at the above locals in Mumbai, which will be focussed on object technologies. Details are covered separately under future expansion plans.

ENTERPRISE SOLUTION DIVISION (ESD)

Enterprise Solution Division focuses on providing solutions, services and system integration to the Indian Customers. This has emerged out of upgradation of the existing hardware business, which has since been closed. This business is conducted in close co-operation with IBM India. Melstar is one of the largest Business Partners with IBM India to provide solutions and services to Blue Chip customers like P&G, Kodak,, ICICI Bank Ltd., Reserve Bank of India, Wipro GE India Ltd. etc., This Division employs 60 people and has 8 branches all over the country. For the year ending March 1999 this Division fetched business for 1240.77 lacs. For the current year- ESD is expected to earn revenues of Rs.932 lacs with higher component of services. In future this division expects to grow into e-Business for the Indian Market. This Division is also IBM’s authorised service centre at various locations to provide service to the customers.

PROFESSIONAL SERVICE DIVISION (PSD)

This is a new Division set up by Melstar to attract Indian business in the area of managed services. The Division is headed by an A G M., Praveen Shetty, who has over 10 years experience, out of which 4 years was with CMC Ltd. This Division addresses customers in the banking, Finance, Insurance and IT segments to provide facility management. The company looks forward to expanding the Indian Market to provide complete managed operations, local software project as well as consultancy on e-Commerce and internet technologies. The Division draws upon the resources from the Software Development facility of the company to address the customer needs. Currently this Division has 45 employees of whom 40 are engaged in providing services to the customers like IBM, Origin, Standard Chartered, RBI, TCL, BPCL, etc.. This Division is likely to grow tremendously in the coming years and will capture growing IT services business in India. The Division is planning to tie-up with another institute in the US, and shall be the first organisation to have quality certified help desk engineers in the country.

MELSTAR U.K. (MUK)

Melstar UK is at present a Branch operation established by the Company in 1998 to tap the growing European market in the outsourcing business. Mr. Bharat Ramani, a Member of the Board of the Company, has been deputed in April, 1999 to head this Centre in view of its strategic importance both for the Company as also for Melstar Inc and is a rapidly growing Business Centre with enormous potential for growth.. Mr. Ramani is the product of the prestigious VJTI and has over 16 years experience in the IT industry. In the short period of its presence in Europe, Melstar has achieved major breakthroughs by concluding Agreements with two British Companies for joint development of Software products which have enormous potential in Banking and Insurance Sectors the world over. This product is being developed on COM/DCOM technology and will in course of time include the internet and e-Commerce market for these sectors. Melstar's unique role includes development, maintenance and support for the product besides a 20% ownership of the IPR to the product.

In its efforts to provide a spin off to its marketing efforts in Europe, Melstar has also established a relationship with ITC Consulting GmbH of Switzerland to undertake on-site project development for CITIBANK Switzerland. A team of Specialists has already been deployed in Zurich for the purpose. The association with ITC will get strengthened with the setting up of a state of the art Software Development Centre in UK which will also service customers in Switzerland besides other countries. Besides these long-term associations, the Company has also successfully established business relations with other customers and at present has a team of 15 specialist personnel to service the market and is likely to grow in size to nearly 50 personnel during the next year. The fast development of the European market will open up endless opportunities for off-shore projects in the coming years and Melstar’s presence there with the support of its associates, would help it to tap a fair share of the growing market.

.

The emerging scenario has persuaded the Board of Directors of the Company to convert the Branch operations in UK to a Joint Venture or a Subsidiary in the near future. Another opportunity, which Melstar has taken advantage of, is the reaching of an understanding with Mr. Robert Day, one of the topmost professionals in the field of Object Technology in Europe to help the Company in the setting up in India of a World class Object Technology Development Centre.

MELSTAR INC. (MUS)

Melstar Inc a subsidiary was set up in at the end of 1993 and became partially operational in the year 1994. The company was set up with the help of an NRI and an American National. The company did not perform well in the initial period. Both the NRI and the American person decided to exit of the company. During the year 1998 the company became a 100% subsidiary of MITL. MITL also decided to depute a Sr.Vice President. of the company to look after and expand the operations of Melstar Inc. in the US. With this move business of Melstar Inc. is on the upward swing, as is evident from the following figures :

Year

Revenue

Profit (Amount in USD)

1998

899134

44095

1997

136695

17969

1996

500715

2990

During the current year ending December 1999 the company expects to generate a revenue of around USD 1.5 Million out of which it has already achieved revenues to the tune of USD 1.07 Million for the 8 months period ended August 1999.

The major achievements of Melstar Inc are as follows:

Melstar Inc became the preferred vendor for HP in the US. Melstar Inc. now has more than 25 people in the US, which includes its own people as also those on contract. Melstar Inc. set up a Joint Venture in the US in the name of Global System Development Inc in New York. Melstar Inc has developed more than 10 customers in the US during the last one year. Some of the important customers are IBM, HP, Profession Access, MCG, GSD, Zen & Art, Hell Kinion, Technology Partners, etc.

2. The company is focussed on providing outsourcing services to various customers which include on site consultancy, offshore development of software applications based on client server application as well as Internet and E-commerce. The company has done all its marketing activities on the east coast through its Joint venture viz GSD Inc. The Company is shortly planning to launch "Right Desk" (facility management services in the US.). Further it plans to set up one more sales and marketing outlet in Central Time zone as well as an offsite E-commerce facility in the U.S.

Present Board of Directors of Melstar Inc comprises -

Mr. Suresh Bansal - Chairman

Mr. S.M.Arora - Director

Mr. Sattar A. Shaikh - Director

Mr. Bharat Ramani - Director
C. SALIENT FEATURES OF BUSINESS TIE-UPS.

1. INFORMIX DEVELOPMENT CENTRE (IDC)

Agreement with Informix Software (India) Pvt. Ltd. (ISIPL).

Date of Agreement: December 15, 1997.

Expiry Date of the Agreement: December 14, 2002

Title of the Agreement: Software Development Agreement (SDA)

Melstar to set up a dedicated facility on 8000 sft . in SEEPZ for Software Development;

Informix will provide loan for furnishing the facility as also needed equipment to Melstar;

- Agreement is supplemented by a letter dated 31^st March, 1999 specifying expected exports of software from Melstar’s SEEPZ Unit at Rs.27.24 crores over the five year period.

- Billing and Payment terms as mutually agreed.

The Agreement is liable to be terminated by six month's advance notice by Informix to Melstar.

2. PARTNERSHIP AGREEMENT BETWEEN LINKHAND IMAGE LTD, U.K., SINGULARITY LTD, IRELAND & MELSTAR INFORMATION TECHNOLOGIES LTD., MUMBAI.

Date of Agreement: 04^th June, 1999.

Validity - 43 months ending on 31^st march 2002.

Agreement envisages development, sale and maintenance of a Document Management System

in component form and sharing the income among the three parties in proportion to respective

contribution to capital.

- Project is based on Component Technology of Microsoft.

Melstar's share will be 20% and it will have similar ownership rights in the product as well.

The three participating Companies will jointly develop the product as per the agreed Business Plan.

Besides, Melstar has an exclusive right to sell the product in India as also a right to appoint a

Reseller in the US. It is also entitled to an additional 60% of the sale price for marketing and

providing support for the product.

The Agreement also envisages setting up of a Joint Venture Company in India.
3. TECHNOLOGY LICENCE AGREEMENT WITH IBM CORPORATION, USA

Effective Date: 25^th March, 1999

Licence Reference No. S991122

The Agreement grants knowhow licence to Melstar to -

- use San Fransco Technology from IBM for development of Patents & Applications

- reproduce copies of base technology in combination with original Product

Development;

Right to licence a third party to prepare complementary product for Melstar product;

IBM to provide Technical support to Melstar covering FAQ… and technology, and

Technical Managers to prepare new version for San Fransisco for a period of 18 months.
4. AGREEMENT WITH IBM GLOBAL SERVICES INDIA PVT. LTD

Date of Original Agreement … 24^th February, 1997.

Date of Supplemental Agreement …. 16^th February, 1999.

The Agreements envisage -

setting up by Melstar of a dedicated facility for development of Software for IBM at

Bangalore with an office space of 4020 sft. and all fit and equipment detailed in the

Agreement with 42 software professionals;

To manage attrition rate, Melstar to provide additional 10% staff.

The Centre will be a 100% dedicated export unit for exports to IBM US in Dollar terms;

IBM shall provide all requisite software tools and process development support and has

the right to supervise and monitor quality besides providing support in project management

and other strategic areas.

- Billing and Payment terms as mutually agreed.

IBM can terminate the Agreement on 30 days advance notice to Melstar.

D. MARKETING

MITL conducts its sales and marketing activities through a combination of outlets such as direct sales offices, Joint Ventures and Strategic Partnerships with others.

DIVISION WISE FOCUS

Since the Company’s business activities centre around highly focussed areas, it becomes imperative to market all these services with experts in the target areas. In line with this strategy, MITL has entrusted the responsibility of marketing to separate Divisions manned by specialists. The sales activities of some divisions are combined whereas the business model essentially remains the same. Apart from this, dedicated sales force participates in creating sales for across the Company’s business Divisions in India.

INTERNATIONAL OFFICES

Since the US and European markets represent over 80% of the world’s requirement of software products, MITL has focussed its energies on these geographical areas. To tap the European market, Melstar has set up a Branch office operation in Harrow, Middlesex, U.K. This office is manned by a Director, Mr.Bharat Ramani, who is now an NRI to service the entire European market. Melstar U.K. office has further created alliances with local and foreign partners to conduct sales and marketing activities. Arrangement with RDA Ltd., Robson Rhodes, ITC are examples of these alliances. Associates in Germany and Holland have also been developed for undertaking marketing activities effectively. In US such activities are looked after by MITL’s 100% Subsidiary Melstar Inc headed by a Senior Vice President, Mr.Prafull Verma. MITL has also promoted a Joint Venture through its Subsidiary on the East Cost of US in the name of Global Systems Development Inc (GSD) to look after sales activities of MITL. MITL has deputed Mr.Pradeep Nigam, Vice President to GSD based in New York. A Joint Venture Partner, Mr.Hal McIntyre is the President of GSD for out-sourcing contract and is supported by Mr.Pradeep Nigam. Mr.S.M.Arora, Managing Director of the Company provides requisite help and support from MITL’s Mumbai Office and handles all queries from rest of the world also. The Executive Chairman of the Company, Mr.Suresh Bansal actively supervises and supports the activities of Melstar Inc and GSD and frequently travels to US and Europe to develop contacts, tie-ups and lasting relationships with the customers.

DOMESTIC BUSINESS

MITL’s domestic business activities are divided into 4 segments, viz:

Enterprise Solution Division

This Division is headed by an Assistant General Manager, Mr.Sushil Wakhlu and is guided by Mr.Sattar A. Shaikh, a Whole-time Director of the Company. ESD comprises a team of 20 dedicated personnel spread over 7 branch locations at Mumbai, Bangalore, Hyderabad, Pune, Delhi, Calcutta and Chennai. This Division receives resource support from a Marketing Manager of IBM.

Professional Services Division

The sales and marketing activities are conducted by a General Manager supported by a team of professionals located at Mumbai Headquarters and some of the Branches in India.

Other Activities

Mr.S.M.Arora, Managing Director apart from his normal responsibilities and maintaining close relations with Informix and IBM provides support to the US Subsidiary and GSD as also has dealings with potential customers to enhance and broaden the area of operations of the Company in India.

Corporate Events

MITL hosts a state of the art web site covering all its activities, corporate presentation and plans to expand further to Intranet and E-commerce. Several queries are generated and are satisfactorily dealt with through the web site. MITL is listed on a large number of search engines all over the world. Apart from this channel of communication, regular advertisements, campaigns, participation in seminars and conferences helps in increasing the awarness of its web site among potential users.

Quality

Quality, A Way of Life

Pursuing excellence is a way of life at Melstar. Melstar prides on its world-class processes.

Melstar believes in mature software development services that conform to the highest industry standards. This helps it consistently deliver on time and on budget to global clients.
SEI CMM Certification

Software Engineering Institute’s - Capability Maturity Model (SEI - CMM) is widely regarded as the best standard to measure the quality and maturity of an organization's software development and maintenance processes. This standard allows customers to see that software is produced in a controlled and monitored fashion which should, if defined and applied to a high standard, ensure a high quality of finished software product.

Melstar is actively working towards achieving a SEI - CMM rating of Level 3 by the year 2000. This distinction is shared by a very small number of companies the world over. Melstar has retained the external consultant Quality Assurance Institute (QAI) to help it achieve this milestone. Melstar’s software development processes are optimized to the CMM framework, which means continuous process improvement in organization-wide activities, is institutionalized.

The Software Engineering Institute (SEI) is a federally funded Research and Development Center sponsored by the US Department of Defense. The mission of SEI is to provide leadership in advancing the state of the art practices of software engineering to improve the quality of systems that depend on software.

SEI’s Capability Maturity Model (CMM) is a model for judging the maturity of the software processes of an organization and for identifying the key practices that are required to increase the maturity of these processes. The CMM is organized into five maturity levels:

Except for Level 1, each maturity level is decomposed into several key process areas that indicate the areas an organization should focus on to improve its software process.

Each key process area is described in terms of the key practices that contribute to satisfying its goals. The key practices describe the infrastructure and activities that contribute most to the effective implementation and institutionalization of the key process area.
Quality Assurance Efforts

A high degree of emphasis is placed on quality at Melstar and many techniques have been developed internally to constantly measure the benchmarks set by the company.

End user demands like shortened delivery deadlines, more complex applications and increased systems integration need to be completely fulfilled at the first time itself. To achieve this, we have implemented quality standardsthroughout the project development life cycle, instead of using archaic methods of relying on testing for product validation.

Our quality standards go beyond the development life cycle and apply to the development support life cycle as well. For a typical project, in addition to processes such as Contract Review, Analysis and Design, Project Configuration Management, Implementation, Testing and Maintenance, the quality standards also extend to support processes such as Human Resources Management, Document Control, Training and System Administration.

An independent Quality Department at Melstar ensures the definition, implementation and improvement of quality standards. Each project and department has a Quality Facilitator who is in charge of reviewing and monitoring quality standards on a regular basis. The Quality Facilitators report to the Quality Manager.

Listed below are other initiatives taken by Melstar towards ensuring that a high degree of quality is maintained:
Project Metrics

To ensure quality, project metrics are collected systematically. The data is analyzed to draw inferences at the project and organizational levels. The results are used to improve the Software Development Life Cycle.
Best Practices

All activities are continuously benchmarked with global best practices and every effort is made to achieve them. Experts from our Quality Department work closely with project teams to implement quality procedures and transfer best practices from past projects.
Process Audits

Audit feedback enables the reengineering of internal processes, when required. All processes are clearly described in the on-line Quality System Documentation and made available to our employees, across the globe. Ensuring superb processes - worldwide.
Training Programs

Employees are trained on an ongoing basis through programs such as QMS Awareness Programme, Internal Quality Auditor’s Training Programme; Software Engineering, Project Management, etc.
Quality Facilitators

The main role is to review performance, ensure adherence to quality standards, collating of statistics and ensuring authenticity, periodic status reporting. Quality activities are periodically reviewed with these quality facilitators.

MITL believes that customer expectations can be fulfilled only by embedding quality in every area of development. At MITL, the customer's interest is protected through this quality paradigm. This model ensures delivery of excellent services through all phases of a project.
E-Business

Melstar has embarked upon an ambitious plan to set up a world class consultancy division dedicated to e-business.

eBusiness is the powerful business environment that is created when you connect critical business systems directly to customers, employees, vendors, and business partners, using intranets, extranets, eCommerce technologies, collaborative applications, and the Web. Many companies consider the development of intranets and extranets to be part of e-business.

One of the features of setting up an e-business is getting closer to your customers and vendors electronically as well. This is popularly called ‘e-commerce’. E-commerce is only a small part of the wider spectrum of e-Business technologies.

eCommerce is growing faster than anyone ever predicted! Consider the rapid growth and online success of consumer and business merchants like Cisco, Dell, Amazon.com, PC Flowers, Expedia, and many others.

To sum it up, e-commerce is the use of the Internet to connect business partners together to create, manage and extend commercial relationships - anytime, anyplace. while e-Business is the use of internet technologies to conduct every part of your business transactions wherever possible.

Developing e-Business successfully means building reliable, scalable IT systems for security, collaboration, messaging, e-commerce payments, supply-chain management, sales force, data warehousing, and customer relations - and integrating all of this with existing back-end operations. It's a tremendous task, and it has to be done now!

Clearly, e-Commerce, security, intranets and extranets, supply chain automation and Web-enablement of existing applications are able to reduce the cost of doing business, as well as improve communications between customers and suppliers. e-Business, with all its goodness, is a confusing proposition. What's more, to survive and grow, the business must evaluate and deploy new e-business technology and tools, while integrating your new Internet-enabled enterprise with traditional legacy systems and trading partners.

Electronic business - using innovative technology to build relationships and commerce globally - is the greatest opportunity and/or threat to existing business models since the industrial revolution. eBusiness is driving a fundamental reconfiguration of every industry. With the rise of the Internet and the proliferation of electronic commerce, sales force automation, call centers, and mobile computing, the very fabric of business has changed forever. Customers have more power. Relationships are changing, competition increasing, distribution channels exploding, and startups are bringing giants to their knees.

According to Internet research firms, ecommerce will rapidly penetrate all commercial transactions, especially business-to-business ones.

As the chart illustrates, ecommerce is estimated to grab nearly a 10% share of all business-to-business revenues by 2003.

Business-to-business ecommerce

Increasingly, much direct selling (or e-tailing) is taking place on the Internet of computer-related equipment and software. One of the first to report sales in the millions of dollars directly from the Web was Dell Computer. Travel bookings directly or indirectly as a result of Web research are becoming significant. Custom-orderable golf clubs and similar specialties are considered good prospects for the immediate future.

With the security built into today's browsers and with digital certificates now available for individuals and companies like Verisign, a certificate issuer, much of the early concern about the security of business transaction on the Web has abated and e-business by whatever name seems likely to accelerate.

According to IDC, the leading industry analysts, by year 2003, the e-commerce revenues world wide will be to the tune of US$900 Billions. As more and more companies worldwide, no matter how small or big they are; join this new way of getting closer to more and more customers world wide, the services industry who can develop these e-commerce solutions is also poised for a massive growth.

From a base of approximately $40 billion in 1998, most observes expect web commerce to exceed $1 trillion by early in the next decade. Business-to-business transactions comprise approximately three-quarters of the ecommerce market.

One Day, all businesses will use eBusiness. The question, "How big will online commerce be?" will have diminishing relevance, because all commerce is jumping onto the Internet.

Melstar has set up a dedicated division for delivering e-business solutions for its customers worldwide. Based in a customs bonded software technology park in Melstar House, Mumbai; the division is specializing in delivering leading edge e-commerce solutions. The center is equipped with state-of-the-art software and hardware from IBM, Sun and Microsoft. MITL is developing e-commerce solutions based around technologies from each of these vendors which are some of the most popular technologies in the e-commerce world today. In due course of time, MITL plans to set up centers of excellence around other leading technologies like Oracle, for delivering e-commerce solutions.

Melstar has specialized teams of world class professionals who excel in delivering high end web based e-commerce solutions using IBM and Microsoft technologies. Melstar has a dedicated team of professionals specializing in Java technologies.

Melstar plans to grow the e-business division to a 150 people strong team in the next 12 months spread across India, US and UK.
Software Development Methodology

Keeping in view, a commitment to deliver highly reliable software products with consistent quality, Melstar has evolved a very systematic methodology for requirement analysis, design, implementation and release of software products.

Different stages in the methodology are summarized below:
Project Initiation

This is aimed at initiating any project and involves activities such as Customer Contact, Proposal Submission and Contract Finalization. The final result of these activities is a well-defined project contract.

Requirements Analysis

Based on the project requirements, a document is drawn up by the project incharge, sketching the requirements of the software product. The document is reviewed by the customer and the review team, from which the final document specifying and freezing the user requirements is generated.

Planning

This stage has two major activities namely: Quality Planning and Project Planning. Quality Planning involves the selection of appropriate life-cycle model and defining quality requirements for the project based on specifications. Project Planning involves Risk Analysis, Risk Management and Development Planning.

Detailed Analysis

The project leader, along with the software team, proceeds with translating the user requirements into a "problem definition" i.e., "What the software will do". This defines the functions, features, performance limitations of the software package for the given release. The document often contains actual visual representation of the user interface for the software package. An interface diagram along with a prototype is also prepared for customer approval. The deliverable in this activity is the Detailed Software Specification Document.
Software Design Specifications

This specification attempts to answer the question "How to do it". The activities in this stage convert the detailed specifications into the actual design defining the data flow and procedure flows. The problem decomposition (of the design specifications generated in the above step) in terms of software subsystems is the first part of this document followed by breakup of the subsystems into "modules". A lot of time is spent in this stage to ensure the optimum design utilizing the capabilities of the platform and the development tools. Each module is taken up by a team member who develops the procedural / process related interfaces in terms of their input / output followed by "pseudo - code" for each of the procedures within the module. The deliverables at this stage are High Level Design Document and the Detailed Design Document.

Build, Code Reviews and Unit Testing

Only after the above steps are completed, actual code implementation starts. Debugging starts only when members of the quality team actually walk through the code line by line for two goals:

To ensure that the code is self-documenting with appropriated comment lines.

To discover frontal errors that become obvious due to raised level of consciousness on part of the software engineer who wrote the code.

Each engineer then performs unit tests on his/her procedures / modules with "templates" to ensure its correct working. The deliverables at this stage are the source code, executable code and the test document.

Integration and System Testing

The project incharge then creates the targeted release of the software produced by "checking in" the source modules. He keeps track of the version numbers of the various modules with the help of various software tools to ensure the correct software product generation. The whole process is known as "Version Control". After the generation, the software package is tested for its functionality by the incharge and then handed over to the Quality Team for Black Box Testing. The results of this stage are summarized as Test Results.

Alpha Site Testing

The software package is released in-house to the Quality Department for alpha testing. This group meticulously goes through the documents generated above and ensures that they are correctly implemented by testing the software package thoroughly and exhaustively. All the various options, switches, and bells-&-whistles are operated to ensure correct functionality. The quality representative creates the Software Bug Report wherever required and submits them to the incharge for any modifications.
Beta Site and General Product Release

After the QA group is satisfied with performance and functionality of the product, the version is released with all the documents, and a post-project review is carried out. The customer is required to submit the project review form to comment on the quality of the work, the coding, and the expected results. The deliverables at this stage are the Acceptance Document and the Project Review Documents.

Maintenance

The maintenance activities provide for Software Enhancements and Problem Fixing with a systematic approach. The reported problems are documented and handed over to the Change Control Board to decide the need and resources for the changes before it is handed over as a change request to the project incharge. The results of this stage are software upgrades and the corrected or enhanced versions, which also go through all the quality procedures listed above.

Control of Process

The effectiveness of the above methodology is enhanced by exercising control on the deliverables at every stage as given below:

Client Acceptance and Contract Review

Internal and Customer Review

Plan Review

Formal Technical Review

Design Walkthrough

Code Walkthrough and Unit Testing

Integration and System Testing

Customer Acceptance Document

Project Metrics

Support System

Similarly, support functions are carried out in a systematic way through the following activities:
Configuration Management

This involves project-wise configuration management planning and setup, version control and change control.
Document and Data Control

This involves proper filing and indexing, control over distribution of documents and data.
Quality Record Maintenance

Records are identified and stored for pre-defined period of time.
Training

Periodically training needs of the team are identified and in-house or external training is imparted. The training records are maintained as quality records.
Infrastructure

The company has state of the art infrastructural facilities totaling more than 16000 square feet for software development. The facilities include IBM AS/400s, Sun Servers, IBM Net finity servers and pentium machine servers and workstations. The software platforms include products from Oracle, Microsoft, IBM, Lotus and SCO. The communication facilities include 64KB Link , ISDN Internet from its software development centers providing internet and remote login capabilities across the globe. In addition the company has set up internal communications systems using groupware such as Lotus Notes and Microsoft Exchange.

Details of Existing Infrastructure - Mumbai (Head Office)

Sr. No.

Description

Configuration

Client / Server

E-Commerce

ESD / Corporate

1

Servers

Pentium III 500MHz.

2

AS400

1

Pentium II 350MHz.

1

Pentium Pro 200MHz.

2

Pentium 133MHz.

1

Pentium 100MHz.

1

2

Clients

Pentium III 500MHz.

15

Pentium MMX 200MHz.

10

1

Pentium MMX 166/167MHz.

5

3

Pentium 166/167MHz.

4

9

Pentium 150MHz.

3

Pentium 133MHz.

7

1

Pentium 120MHz.

1

Pentium 100MHz.

9

3

Pentium 75MHz.

7

486DX4-100

1

486DX2-66

2

IBM ThinkPad

4

3

Printers

LaserJet

1

1

InkJet

1

2

DMP

1

5

4

Other Items

Modems

1

Switches/Hubs

5

2

5

MultiMedia Kit

4

5

Other Office Items

Copier

1

1

EPABX

1

UPS

1

OHP

3

Tea/Coffee Machine

1

6

Software

Microsoft

Yes

Yes

Yes

IBM

Yes

Yes

Oracle

Yes

Yes

Lotus

Yes

Yes

DETAILS OF EXISTING INFRASTRUCTURE AT IGC, BANGALORE

CONFIGURATION

QTY

1

SERVER NETFINITY

PII 333MHZ/64MB RAM/4.5 GB SCSI HDD/1.44 MB FDD/24X CDROM DRIV ON BOARD 10/100 IBM ETHERJET NETWORK CARD

2

2

IBM GL 300 GL

PII 233Mhz/32MB RAM

48

PCI IMB VRAM/IBM G-42

IBM PC 100

100Mhz

2

3

OTHER ITEMS LIKE MODEMS/CTD/DAT DRIVER/SWITCHES/HUBS/ MMKIT/CD ROM DRIVE/ CD WRITE

YES

4

OTHER OFFICE EQUIPMENTS LIKE COPIER/ COFEE MACHINE, EPABX, OHP, DATA PROJECTOR

YES

5

UPS

YES

6

GENSET

YES

7

AREA

12000

8

OWN/LEASE/RENT

OWN

DETAILS OF EXISTING INFRASTRUCTURE AT INFORMIX DEVELOPMENT CENTRE- SEEPZ

CONFIGURATION

QTY

1

SERVER

SUN WORKSTATION UIE/170

9

2

CLIENTS WITH PENTIUM/486 (DESKTOP OR LAPTOP)

SERVER UE 3500/91GB CD ROM WRTIER

1

SUN WORKSTATION US/270, 19" CM/4 2GB

24

PENTIUM 133 MHZ

12

PC 300PL, MONITOR MEMORY CD ROM

5

2

SUN WORKSTATION UIE/170

9

SERVER UE 3500/91GB CD ROM WRTIER

1

3

PRINTERS

LASER

4

4

OTHER ITEMS LIKE UPS/ POWER PCS/ DIGITAL PHONES, 3 COM CARDS, RAD, MODEMS

YES

5

OTHER OFFICE ITEMS LIKE SERVER RACK, TELEPHONE INSTRUMENT, REFRIGERATORS, MICROWAVE, VACUUM CLEANER, WHITE BOARD, PROJECTOR, CANNON FAX, COLOUR, GODREJ PARTITION PANELS

YES

7

AREA

4000

8

OWN/LEASE/RENT

LEASE

BRANCH NETWORK

City

Area (Sq. Ft.)

Computers

Tel.

Fax

Xerox

Printers

Harrow, UK

Lease Hold

4

2

1

2

1

Mumbai

2500

92

32

2

2

11

Bangalore

925

6

2

1

3

Hyderabad

1300

6

5

1

3

Chennai

1300

2

1

1

1

Delhi

650

7

4

1

2

Calcutta

625

5

4

1

2

Pune

600

3

2

1

2

Technology:

The company’s Board of Directors and other business heads comprise a team looking after the technological aspects of the company. The company has the guidance from IDC India and NASSCOM for definition of the market trends. This team reviews new and emerging technologies as well as recent market trends to augument quick assimilation of these into the organisation. Under its guidance the company has been able to induct new technologies in the areas of e-commerce and internet based technologies into its services.
Manpower:

As on 30^th September 1999 the Company employs 248 people out of which around 163 people are qualified engineers for software development projects, IT services and the balance comprises managers, marketing and support staff. Further the company avails the services of 75 software engineers on contract basis for development work at Mumbai, US and UK.

VIII. PROJECT

DETAILS OF THE EXPANSION PLAN

The Company is raising funds for the following expansion programme:

Software Development Divisions:

Setting up of new Software Development Centres at Melstar

House and SEEPZ in Mumbai;

Investment in Melstar UK.

Investment in Subsidiary Company in USA;

Upgrading of the existing hardware, software and other infrastructure facilities for the Divisions;

Prepayment of term loans to Punjab national Bank

Reduction in fund based limits with the banks

Meeting Offer Expenses.

Enlisting Company's Shares on Stock Exchanges.

I. SOFTWARE DEVELOPMEMT CONSULTING DIVISIONS

Expansion of Melstar Development Centre, MIDC Mumbai

Melstar Development Centre is located at MIDC, Andheri (E), Mumbai. The development centre is part of the Melstar House owned by the company. The entire building is divided into 4 floors totaling approx. 15000 sq.ft. In this building 1^st floor has already been converted into E-commerce activities, whereas third floor is operational as Client Server development facility. The proposed expansion on the 2^nd floor covering an area of 5500 sq.ft. which will have approx. 60 seats alongwith server rooms training facility, discussion room, staff welfare area as well as lobby area.

This centre shall focus on object technologies, the emerging technologies for the next millenium. Melstar has already appointed a General Manager to head this centre, Dr. P. Paul having over 12 years experience in the software industries with B.Tech, M.Tech & Phd. From IIT Kharagpur.

Melstar has also signed agreement with British National Mr. Robert Day, who is one of the top professionals on Object Technologies in Europe to help Melstar set up a world class Object Technologies Centre. The centre will be called as Object Technologies Development Centre and shall focus on outsourcing contracts from America and European countries for product development.

The detailed Investment plan and facilities are as under

( Rs in lacs )

Melstar Development Centre – MIDC Mumbai

1999-2000

2000-2001

Total

a. Furniture and Fixtures / Electricity/Airconditiong

60.00

10.00

70.00

b. Hardware/Software/Networking/Communication

18.00

78.00

96.00

c. Office Equipment

10.00

10.00

d. Motor Car

15.00

15.00

e. Contigencies

2.50

7.00

9.50

Total

80.50

120.00

200.50

a) Furniture and Fixtures / Electricity/Airconditiong

A total area of 5500 sq.ft. is being fitted up to house 60 seats. The facility will be air-conditioning , server room, individual cubicals for sitting arrangements, cabins and larger cubicals for senior people, Discussion Room, Training Room, Reception and lobby area, Rest Room etc.

The company has calculated a total amount of Rs.70.00 lac which comes to Rs.1272 per sq.ft. This is in line with competitive rates going on in the market for such facility as well as in line with past investment done by the company.
b) Hardware/Software/Networking/Communication.

The Company plans to invest Rs.96 lac on this infrastructure. The approximate details of infrastructure to be procured is as under :
Infrastructure

Servers :

IBM Netfinity Servers - 4

Internet proxy Server - 1

Communication Server - 1
Computers :

Pentium III Desk Tops - 60

Lap Tops - 5
Communication links

Internet dedicated link - 1

CISCO Router - 2

Network / S. Cabling with 100mbps - 1 set

Network Laser Printer & Scanners - 2 sets

Xerox & Fax - 1 set

LCD projector & White Board - 1 set

EPABX/ Video Conferencing/ ISDN lines - 1 set
Software Operating system & tools.

c. Power

The company has power faciltiies for 110 KVA. The management feesls that additional availability of power requirements will not be problem.
d. Manpower

Manpower : GM-1, SEPG-1, Project Managers –3, Project Leaders – 8, Support staff – 2, System analysts / Programmers – 45

b. SETTING UP NEW DEVELOPMENT CENTRE – SEEPZ

The company is planning to set up a new centre in SEEPZ. The company’s application for allotment of new unit in SDF VI is pending with SEEPZ authorities. The area of the unit is approx. 6000 sq.ft, which will house a total of 75 people. The cost break up for the project is as follows:

Particulars

2000-2001

Total

Software Development Centre – SEEPZ Mumbai

a. Furniture and Fixtures / Electricity/Airconditiong

84.00

84.00

b. Hardware/Software/Networking/Comm

120.00

120.00

c. Office Equipment

10.00

10.00

d. Motor Car

15.00

15.00

e. Contigencies

10.00

10.00

240.00

240.00

a. Furniture and Fixtures / Electricity/Airconditiong

The estimated expenses on furniture/fixture/electrical/Air-conditioning works out to Rs. 84 lac. This comes to Rs.1400 per sq.ft. The rate is somewhat higher since SEEPZ does not provide any flooring or internal walls or electricity in the unit.

The facility will include Reception area, Server Room, Cabins for VP and GM’s, Larger cubicals for Project Leaders, Project Managers and 60 cubicals for software development engineers. The facility will also have Library, Training room, Discussion and meeting room, apart from canteen and rest room.

b. Hardware/Software/Networking/Communication

In this facility company is planning to invest Rs.120 lacs on following items.
Infrastructure

Servers:

Sun Solaris Server 1

IBM Netfinity Servers 4

Internet Proxy Server 1

Communication Server 1

Knowledge net 1
Computers

Pentium III Desk Tops 70

Lab Tops 5
Communication links

Internet dedicated link 1

CISO Router 2

Network/s.cabling with 100mbps. data transfer - 1 set

Network laser Printer & Scanner - 2 sets

Xerox & Fax – 1 set

LCD Projector & White Board - set

EPABX / Video conferencing / ISDN lines – 1set

Software Operating system & Tools 1set
c. Power

The company shall make an application and does not foresee any problems in getting the same, since SEEPZ is the priority area.
d. Manpower

Manpower : GM-1, SEPG-1, Project Managers –3, Project Leaders – 10, Support staff – 2, System analysts / Programmers – 57

c. SETTING UP OF DEVELOPMENT CENTER IN UK.

Melstar started its UK operations by setting up a Branch Operation in 1998. This Branch was earlier headed by a V.P. This is now looked after by a Director of the Company who has shifted to UK. Where the company plans to setup a development centre.

Geography.

Melstar UK branch looks after and promotes business all over Europe. This will remain a Head Quarter for European Business for Melstar. Apart from its office in UK, it has associates in Switzerland, Holland and Germany. Melstar plans to open 3 more offices in Europe in the next two years apart from setting up a Development Centre.

Industry

In line with overall direction of the company, Melstar UK operations focus on Banking and I.T. industry for provding Outsourcing and E-commerce solutions. Melstar has already entered into tie-ups with British companies to provide focus on this industry.

Technology

Melstar has tied up with RDAL a UK Company to give focus on cutting edge tech for next century. Object Technology is the emerging technology for future. Melstar has already taken concrete steps to address this challenge. Melstar is also focusing on ‘Web Technologies around Internet and e-commerce.

Development Centre

As a part of the outsourcing services, Company plans to set up a number of local development centres to provide better customer services, use local resources, mix local cultures and build business intelligence locally. These centres would be show windows of the company and shall carry out high-end work for the customers. Major project development involving user study, functional requirements, project specifications, protocol development, local support, short terms projects, transfer of knowledge from customer to Melstar specialist etc. shall be carried out by these centres.

Melstar plans to set up one such centre in UK in association with its existing associate ITC Consulting, GmbH. This centre is likely to be operational during the first quarter of year 2000. The setting up of this centre is divided into two phases. 1^st phase will deploy 10 professionals and will expand the same to 30 professionals by December 2000. Following investment is proposed to be made on the centre.

UK Development Centre

Currency Pound

Phase I II Total

1. Seats Nos. 10 20 30

2. Space Sq ft 1500 3000 4500

3. Fit up 15000 30000 45000

4. Desktops/Server/NW 35000 70000 105000

5. S/W Tools/OS/Packages 10000 20000 30000

6. Office Equipment-EPABX/xerox 5000 10000 15000

Printer/Video/security

7. Deposit 5000 10000 15000

Total 70000 140000 210000

W.Capital 50000 40000 90000

Grand Total 120000 180000 300000

Equivalent Amount in INR 210 Lacs ( 1 Pound = Rs 70 )

Implementation : Phase I : January - March 2000.

: Phase II : September – December 2000

c. TO INVEST IN SUBSIDIARY OPERATIONS IN THE US

DETAILS OF INVESTMENT IN MELSTAR INC.

( in US $ )

Expansion of Current

Office in California

- Equipment/software 30000

- Furniture & Fixture 10000 40000

Opening of New office in Dallas

- Deposit 5000

- Equipment 10000

- Furniture & Fixture 10000 25000

C. Investment in Launch of 200000

Right Desk ( The outsourcing

Services for medium size companies)

D. Working Capital on an estimated 700000

Rev. of US$ 4.2 million ----------

Equivalent to 60 days billing.

Total 965000

======

Total investments equivalent INR @ 43.50 Rs 420 Lacs

The amount shall be invested by March 2000.

II. UPGRADING OF THE EXISTING HARDWARE, SOFTWARE AND OTHER INFRASTRUCTURE FACILITIES FOR THE DIVISIONS;

UPGRADATION OF EXISTING INFRASTRUCTURE

Details of investments in hardware & Software for upgradation:

( Rupees in lacs )

1999-2000

2000-2001

Total

Hardware for existing Centres

30.00

45.00

75.00

Software for existing Centres

10.00

15.00

25.00

Total

40.00

60.00

100.00

Hardware additional/replacement for existing centres

Nos.

Servers – MDC

5

Workstations Intel P-III-450 MHz, 4.3 GB HDD,48 xCD Drive, 14" colour monitor

MDC – Client Server

50

MDC – E-Commerce

20

Hyderabad

10

Software additional/replacement for existing centres

Nos.

Windows – Upgrade

60

Windows – NT Server/Client

10

Oracle 8i / tools / other packages

15

IBM – E-commerce

10

Microsoft Products V studio, Internet, Transaction Servers

30

Front Page MS Projects

30

MSO

35

Java Dev. Kit, Adobe, Proxy, Netscape Apache/ Internet S/W

35

The schedule of implementation:

Hardware and Software will be procured as per the market rates at the time of procurement as the same are available with a lead period of 30 days.

III. PREPAYMENT OF TERM LOANS TO PUNJAB NATIONAL BANK

The Company has been sanctioned Term loans for its projects aggregating to Rs 285 lacs, out of which Rs 195 lacs is outstanding as on 30^th September 1999. The company shall prepay the term loan outstanding to the bank out of the proceeds of the offer.

IV. REDUCTION IN FUND BASED LIMITS WITH THE BANKS

The company currently has fund based limits with Vysya bank Ltd and Punjab national bank aggregating to Rs 490 Lacs. As on 30^th September 1999 a sum of Rs 423.51 is utilised by the company. The company intends to reduce the utilisation of this limits to the extent of Rs 180 Lacs out of the issue proceeds.

V. MEETING OFFER EXPENSES.

ISSUE EXPENSES DETAILS FOR THE SHARES ISSUED BY COMPANY

Rs. in Lacs.

Brokerage

24.42

Underwriting Commission, Issue Management Fees and other expenses

75.58

Total

100.00

SWOT ANALYSIS

STRENGTHS

Company has a group of Blue Chip Customers Developed and built over a number of years.

Company’s long term association with IBM provides unique strength to the company for providing high quality sophisticated solutions to its customers

Existing business with 3 Software Development facilities out of which 2 of them are dedicated to IBM & Informix, the leader in the Software business are sources of a great strength.

The company’s marketing set up which includes its 7 branches in India and one each in the US and Europe

A strong process driven quality organisation with solid track records.

WEAKNESSES

i) Legacy & Image of being a hardware company in the past

ii) Offsite Software Development in the US and UK. Large Infrastructure with higher cost and

overheads for the current size of business.

OPPORTUNITIES :

IT outsourcing business/ Internet and Object Technologies area- the fastest growing business in the world and in India.

Internet E-commerce business to have highest growth in the world in any industry.

Company’s focus on Banking / Insurance brings huge opportunities in Europe and India apart from the US market.

Object Technologies Development Centre. It is the biggest opportunity for product development.

THREATS

Limited availability of trained Manpower is the biggest threat

Other MNCs setting up large centres in the country and poaching on the manpower of existing companies.

Y2K COMPLIANCE

The Company has assessed and evaluated in detail the likely areas and operations which could be impacted by Y2K related issues. The impact is confined to some of the personal computers which are non-Y2K compliant and hence the company is in the process of upgrading/replacement of the same.
SOFTWARE MARKET

Domestic software activity

The domestic software market in 1997-98 has shown marked maturity. In 1997-98, there has been an impressive increase in sales of Products & Packages. As per a Nasscom study, over 113 new software products were launched by domestic software companies and over 140 new software products were launched by overseas companies in the Indian domestic market.

There was a 45% growth in CAD/CAM market; 28% growth in RDBMS sales, 81% increase in sale of ERP packages and 37% increase in financial packages. Undoubtedly, ERP was a clear winner. Increased penetration of computers, strict implementation of copyright act and further control of piracy may further strengthen these segments of the market ( Sourse : NASSCOM )
Software export activity

In the export market, India’s expertise in ‘Professional Services’ and ‘Projects’ are expected to continue their dominance as a major part of Indian software export activity.

Development focus

In the recent years, the Indian software companies have become more speciality oriented and have a definite focus on specific segments of software development. Nearly two thirds of the companies are engaged in developing end-user application products and services ranging from straight forward accounting systems to specialised niche market products or customised services.

The rest obtain their revenues from consultancy, systems integration, supply of specialised software systems, such as software tools, communications software and software for dedicated hardware devices.
OUTSOURCING – QUALITY OUTSOURCING PARTNER

Software houses from India have effectively provided many of the Fortune 500 corporations with efficient software solutions. These solutions have helped these companies to be more responsive to their customers and more attractive to their shareholders. No wonder, companies like Citibank, Morgan Stanley, AT&T, General Electric, Reebok, General Motors, Fujitsu, Boeing, Coca-Cola, Pepsi, Swissair and British Airways continue to remain ahead of their rivals, thanks to many of the software companies in India.

Many of the corporate giants in U.S., Europe and Japan are increasingly looking towards India for cost-effective, high quality software solutions. A World Bank funded study in the U.S. confirmed that vendors rated India as their number one choice for outsourcing. For example, thousands of ATM users at Citibank in U.S., Barclays Bank in the U.K. or Hongkong and Shanghai Bank in Far East can thank the software engineers in the Silicon Valley of India for the efficiency and state-of-the-art technology of ATM Machines. Even passengers travelling on British Airways, Singapore Airlines, American Airlines, Swiss Air etc, may not realise that they need to thank a group of software engineers from India for helping these airlines to run on schedule.

The list of software multinationals operating from India reads like a Who's Who of global software giants - IBM, Microsoft, Novell, Computer Associates, Oracle, AT&T, Fujitsu, Motorola, EDS, Computervision, Digital, Hewlett Packard etc

So what is the mystery behind India's success in providing efficient software solutions? Some say that it is the mathematical ability of Indians. After all, it was India that invented the numeral zero. Others concede that it is the cost advantage. But the truth is all this, plus much more.

Indian software companies have the unique distinction of providing efficient software solutions with cost and quality advantage, using state-of-the-art technologies, having the capacity to handle large projects and, above all, the ability to execute timely deliveries.

OUTSOURCING – Current & Future Outlook

In the last few years, more and more companies around the world are looking towards India for outsourcing their software requirements. The changing business environment is demanding new applications. In particular, the spread of client-server computing in decentralised organisations involves the development of applications specific to a user's business.

Outsourcing is becoming a strategy for forward thinking IS managers. It is no longer just a means for reducing costs, but a tool for adding value to business. It enables organisations to concentrate on their core business, carry out business re-engineering and provide information that is valid, timely and adequate to assist decision making at the management level and quality and cost control at the middle and lower levels.

As a result, outsourcing has gradually grown beyond the traditional idea of "having a third party running the data centre". It has come to mean, "any use of an outside contractor to replace or extend in-house resources".

Outsourcing is closely linked with corporate strategy, since it must support the organisation's major initiative in using IS. It should enhance and add value to the business. A rule of thumb to start and gain experience is, "if IS is low cost and of high value addition, keep it within the organisation, i.e. in-source. If IS is high cost and of low value addition, consider outsourcing".



In the past few years, whenever organisations around the world have outsourced to India, the Indian software companies have substantially helped to cut costs in software development projects or MIS environments, while maintaining high quality. Moreover, all these cost and quality advantages are coupled with the use of state-of-the-art technologies.

In 1996-97 more than US$ 500 million worth of software development work was outsourced to India (The total software exports from India during the year was US$ 1085 million). This was 56% higher than US$ 320 million worth of outsourcing orders in 1995-96. It is estimated that in 1997-98, the quantum of outsourcing may jump to US$ 900 million and reach as high as US$ 2000 million

(Source Nasscom)

IX. FINANCIAL PERFORMANCE OF THE COMPANY FOR LAST 5 (FIVE) YEARS

The auditors have examined the books of Melstar Information Technologies Ltd for the five years ended on March 31'1999 audited by them and adopted by the members and for the quarter ended June 30, 1999 being the last date upto which the accounts of the company have been made and adopted by the Board of Directors. The auditors have certified vide their certificate dated 30^th September 1999, that as of date they are not aware of any material adjustment which would affect the result shown by these accounts in accordance with the requirement of Part II of Schedule II to the Companies Act, 1956 and read with requirement of the Securities and Exchange Board of India vide its clarification No. XIII and XIV of the Guidelines for Disclosure and Investors' Protection :

Rupees in Lacs

Profit & Loss Account for the year/quarter ended

30-06-99

31-03-99

31-03-98

31-03-97

31-03-96

31-03-95

SALES

A. Software sales

Own

325.92

1,281.29

204.80

33.88

77.73

67.29

Trading

-

1,045.94

247.37

145.41

62.95

8.60

B.Other Products

Own

46.41

283.41

1,052.70

936.30

748.66

1,514.48

Trading

196.67

902.29

3,175.76

4,195.34

2,224.63

47.25

C.Other Income

5.23

10.00

37.48

26.62

39.98

1.82

D.Increase / (Decrease) in Inventories

19.52

(248.52)

21.32

501.35

230.35

16.04

Total Income

593.75

3,274.41

4,739.43

5,838.90

3,384.30

1,655.48

Less :

Interest & Finance charges

30.58

126.89

152.87

121.24

40.41

3.56

Depreciation

29.79

90.27

86.00

64.47

45.36

15.32

Material consumed

176.11

1,750.91

3,530.43

4,722.40

2,668.08

1,160.49

Net income from operation

357.27

1,306.34

970.13

930.79

630.45

476.11

Total expenditure

318.28

1,237.23

931.99

773.84

512.32

347.92

Profit from operations

38.99

69.11

38.14

156.95

118.13

128.19

Taxation

-

17.66

5.00

20.00

23.00

1.00

Net profit after tax

38.99

51.45

33.14

136.95

95.13

127.19

Dividend Rate ( % )

-

-

5

15

15

15

Dividend

-

-

24.63

71.25

53.95

16.73

Dividend Tax

-

-

2.46

7.12

-

-

Adjustments:

Items writen back

13.17

1.43

Prioir year expenses

(11.76)

(56.43)

(0.46)

(10.03)

2.01

-

Extra ordinary items

-

500.32

-

-

-

-

Transfer to/(from )General Reserve

-

(505.00)

10.00

75.00

46.00

100.00

Profit Brought forward from previous year

1.94

2.24

6.65

19.93

22.74

10.85

Retained Profits

29.17

1.94

2.24

6.65

19.93

22.74

Profit after giving effect to Qualificatons in Auditor's report and prior year adjustments

Net profit for the year

38.99

51.45

33.14

136.95

95.13

127.19

Adjustments arising from Auditors qualification:

Non Provision for Leave encashment

-

-

(10.49)

(6.14)

(2.26)

-

Prior year expenses

-

(11.44)

(3.13)

(46.52)

(10.50)

2.57

Provision for taxation for ealier years

-

16.50

-

(13.17)

-

-

Provision for taxation

-

-

(16.50)

-

13.17

-

Write off of Share issue expenses

-

7.25

-

-

-

-

Loss of Melstar Industries Ltd.

-

1.72

-

-

-

-

Net Adjusted Profits

38.99

65.48

3.02

71.12

95.54

129.76

Balance Sheet as at

30/6/99

31/3/99

31/3/98

31/3/97

31/3/96

31/3/95

Fixed assets

1,723.50

1,648.26

965.50

894.35

519.48

122.79

Less : Depreciation

222.35

192.63

173.54

209.80

122.35

52.91

Net fixed assets

1,501.15

1,455.63

791.96

684.55

397.13

69.88

Capital work in progress

41.19

27.45

11.09

94.83

111.98

-

Investments

10.33

10.33

40.37

20.37

20.37

18.48

Current assets

Cash and Bank balances

61.25

76.22

121.27

97.53

125.97

77.45

Accounts receivables

530.12

643.31

980.13

1,036.61

910.71

584.51

Loans and advances

172.80

151.42

356.19

400.10

242.49

115.16

Closing stock

244.23

225.47

840.25

920.94

404.21

231.05

Total Current assets

1,008.40

1,096.42

2,297.84

2,455.18

1,683.38

1,008.17

Current Liabilities

Accounts payable

618.97

825.75

1,046.56

1,485.51

595.12

110.71

Advance received from customers

39.49

31.30

31.03

50.92

13.10

2.57

Other Liabilities

-

155.90

120.01

144.55

205.84

-

Proposed dividend

-

-

24.63

71.25

53.95

16.73

Provision for tax

27.11

27.11

27.46

27.13

24.00

1.00

Total current liabilities

685.57

1,040.06

1,249.69

1,779.36

892.01

131.01

NET CURRENT ASSETS

322.83

56.36

1,048.15

675.82

791.37

877.16

Miscellaneous expenditure

-

-

20.10

47.94

42.55

3.75

TOTAL

1,875.50

1,549.77

1,911.67

1,523.51

1,363.40

969.27

CAPITAL AND RESERVES

Share Capital

983.48

855.88

595.21

475.00

475.00

154.96

Advance towards Share Capital

0.50

0.50

-

-

-

-

Share Premium

265.02

22.58

200.63

200.63

200.63

234.83

Reserves and Surplus

77.06

49.47

588.42

582.83

521.11

477.50

Share Holders Funds

1326.06

928.43

1384.26

1258.46

1196.74

867.29

LOAN FUNDS

Long term debt/Car loan

191.65

156.10

156.41

21.38

6.04

1.56

Bank overdraft

357.79

465.24

342.16

243.67

160.63

100.42

Unsecured loans

-

-

28.85

-

-

-

Total Loan Funds

549.44

621.34

527.42

265.05

166.67

101.98

TOTAL

1,875.50

1,549.77

1,911.68

1,523.51

1,363.41

969.27

Accounting Ratios

Basic Earning Per Share (EPS) Rs.

1.63

0.90

0.06

1.50

2.65

12.18

Cash Earning per share Rs.

2.88

2.70

3.11

3.47

4.43

13.52

Net Asset Value per share

13.48

10.84

22.92

25.48

24.30

55.72

Return on Net Worth %

3.46%

5.71%

0.23%

6.02%

9.47%

19.24%

Number of Equity shares of Rs. 10 each

9,834,797

8,563,797

5,952,125

4,750,000

4,750,000

1,549,650

EPS represents basic earning per share calculated as Profit after tax (PAT) divided by weighted average of shares employed during the year.

Cash EPS represents PAT for the year plus non cash charges divided by weighted average of shares employed during the year.

Non cash charges compromise depreciation,amortisation of business development expenses, loss on sale of fixed assets and loss on sale of investments.

Return on net worth is calculated taking average of shareholders fund employed during the year.

NOTES TO ACCOUNTS :

FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDING 31ST MARCH, 1999.

Statement of Accounting Policies:

1. a. System of Accounting :

The Company follows accrual system of accounting for all items of revenue and costs.

b. Inflation :

Assets and liabilities are shown at historical cost. No adjustments are made for changes in purchasing power of money.

c. Fixed Assets :

Fixed assets are recorded at cost of acquisition or construction less MODVAT credit availed.

d. Investments :

Long Term Investments are stated at cost.

e. Depreciation :

Depreciation in respect of assets acquired upto 31st March 1995 is provided for on written down value method at the rates prescribed in schedule XIV to the Companies Act, 1956. In respect of assets acquired after 31^st March, 1995 the depreciation is provided for on Straight Line Method at the rates prescribed in schedule XIV to the Companies Act, 1956.

Leasehold land acquired under the scheme of amalgamation is being amortised on Straight Line Method considering the balance lease period .

Software utilities acquired during the year are been written off at the rate of 20% on Pro-rata basis.

In respect of Assets at Foreign Branch, the same are depreciated @25% on the cost, irrespective of the period of use of the same.

f. Lease Equalisation Adjustment :

This represents Annual Lease Charges (i.e. Annually Apportioned cost of net investments in the leased assets over the least term) less statutory depreciation on the related leased assets.

g. Inventories :

Raw materials, Work-in Process, finished goods are valued at cost (net of MODVAT) or net realisable value whichever is lower on First In First Out basis.

Cost of Software Projects in progress has been arrived at by allocating the personnel cost and related overheads of the Software Division in the ratio of manhours utilised on such projects to the total manhours of the Division after deducting the cost of progressive billings, if any and is determined on the basis of the Management's estimate of the profit margin, taking into account subsequent cost overruns, if any.

h. Foreign Currency Transactions :

Fixed Assets are accounted at the rate prevailing on the date of transaction. Current Assets and Current Liabilities are accounted at the rate prevailing on the date of Balance Sheet. All the income/expenditure other than those relating to foreign branch is accounted on the basis of exchange rate prevailing on the date of transaction. Net foreign exchange on foreign currency transactions is recognised in the Profit and Loss Account during the year.

i. Translation of Financial Statement of Foreign Branch :

All the income and expenditure transaction during the year are reported at an average rate.

All the current assets balances are started at the rate prevailing on the date of Balance Sheet.

Fixed Assets/Depreciation are stated at the rate prevailing on the date of transaction.

The difference between Head Office Account and Branch Audit is recognised in Profit and Loss Account under Foreign Exchange rate difference.

j. Deferred Revenue Expenditure :

Deferred revenue expenditure incurred upto 31/03/95 were being written off over a period of five years. Expenses incurred upto 31/03/97 on Advertisement for launching of IBM Products, Software market development expenses etc., against which benefits were expected to flow in future were also treated as deferred revenue expenditure and charged to Revenue account over a period of three years. However, during the year it was decided to write off such expenses entirely.

k. Share Issue Expenditure :

Share issue expenses were being amortised over a period of ten years from the year ending 31st March, 1996. However during the year it was decided to write of such expenses entirely.

l. Excise Duty :

Excise Duty payable in respect of finished goods lying at factory premises are accounted for on clearance of goods. Modvat Credit utilised during the year is accounted in Excise Duty and unutilised Modvat balance at the year end is considered as advance Excise Duty.

m. Retirement Benefits :

1. Contribution to Provident Fund and Family Pension Fund is charged to Revenue.

The liability in respect of Gratuity is charged to revenue account based on acturial valuation.

The Leave Encashment benefit which was accounted for on cash basis, has now been provided for on acturial valuation.

n Sales :

Sales include excise duty but exclude sales tax and is net of Sales Returns during the year.

(Rs. in lacs)

31/03/99 31/03/98

2. Estimated amount of contracts remaining 81.18 143.66

to be executed on Capital account and

not provided for.

3. Contingent Liabilities in respect of :-

a. Letters of Credit outstanding 302.36 232.79

b. Bank Guarantees outstanding 87.62 64.45

c. Claim against the Company not

acknowledged as debt in respect

of customs penalty and compounding N I L 6.00

charges of Rs. 6.00 lacs recovered

by Customs department, disputed

by the Company till last year – Debited

to Profit and Loss Account under Extraordinary

items during the current year.

4. Breakup of Auditor's Remuneration (Including Service Tax) is as follows:

Current Year Previous Year

a. Audit Fees 84,000 80,000

b. For Company Law Matters 42,000 42,000

c. For Tax Audit 21,000 20,000

d. For Others 52,000 42,000

---------- ----------

1,99,000 1,84,000

---------- ----------

5. Additional information pursuant to the provisions of paragraphs 3, 4 (c) and (d) of part II of schedule VI to the Companies Act, 1956.

A. CAPACITY & PRODUCTION LICENSED PRODUCTION

(In Nos.)

a. Computer Systems 6,000 115

with Peripherals (6,000) (1,523)

b. Electronic Goods* 22,50,000 N I L

(22,50,000) (68603)

* Blinkers/lanterns, vibrating shavers, Mini Fans, CD Players and massagers have been merged under the head Electronic goods.

Installed Capacity is a function of product wise and cannot be expressed in terms of value/members.

B. DETAILS OF TURNOVER AND STOCKS

____________________________________________________________________________________________________________________

OPENING STOCK SALES CLOSING STOCK

UNIT QTY VALUE QTY VALUE QTY VALUE

PRODUCT (Rs.) (Rs.) (Rs.)

____________________________________________________________________________________________________________________

Enterprise Solutions/ Nos72 3,01,54,853 834 12,78,62,470 17 48,90,241

Hardware Sales & (452) (6,73,41,895) (4,441) (36,94,21,298) (72) (3,01,54,853)

Peripherals

Electronic Goods Nos 30,384 15,65,180 13,481 5,87,779 16,873* --

(16,728) (7,83,220) (54,947) (52,11,071) (30,384) (15,65,180)

Software -- 2,89,46,917 -- 17,99,22,204 -- --

(--) (37,61,940) (--) (4,52,17,359) (--) (2,89,46,917)

Other Items -- -- -- 4,86,004 -- -- (--) (--) (--) (8,80,114) (--) (--)

____________________________________________________________________________________TOTAL 30,456 6,06,66,950 14,315 30,88,58,457 16,890 48,90,241

(17,180) (7,18,87,025) (59,388) (42,07,29,842) (30,456) (6,06,66,950)

===========================================================================

Note:

1. The value for sale of Enterprise Solutions/Hardware and peripherals include value of entire system sold as well as certain peripherals/ networking components which though purchased independently are sold jointly with the system . The independent sales of peripherals or components excluding Enterprise Solutions/ Hardware sales and peripherals is also shown in Enterprise Solutions / Hardware and perpherals sales and no quantities have been furnished since there are number of items involved.

2. Blinkers/Lanterns, Vibrarting, Mini Fans, CD Player and Massagers have been merged under the head Electronic Goods.

3. Consumer Goods Sales/Purchase includes inter division sales of Rs.Nil which are not reflected in the quantitative details. (Previous year Rs.3,41,436/-)

4. (*) These items have been valued at Nil as at 31^st March, 1999.

C. PURCHASE OF FINISHED GOODS

PARTICULARS UNIT QTY VALUE

SOFTWARE - - 9,29,91,717

(-) (3,68,83,186)

COMPUTER SYSTEMS/ NOS 664 7,72,80,002

PERIPHERALS/ NETWORKING ETC (2,538) (26,88,27,179)

OTHERS - - --

(-) (3,46,161)

--------------------------------------------------------------------------------------------------------

TOTAL 664 17,02,71,719

(2,538) (30,60,56,526)

--------------------------------------------------------------------------------------------------------

D. RAW MATERIALS CONSUMED 1998-99 1997-98

Qty Value Qty Value

a. Computer Components & Accessories, - 80,29,786 - 5,14,35,041

Peripherals Plastic Powder etc. ------------ -------------

80,29,786 5,14,35,041

======= ========

In view of items which differ in size and nature each being less than 10% of the total value, the quantitative details have not been furnished.

E. PERCENTAGE THEREOF TO TOTAL CONSUMPTION

1998-99 1997-98

1. Raw Materials Value % Value %

a. Imported 29,52,438 38 1,97,04,916 38

b. Indigenous 50,77,348 62 3,17,30,125 62

-------------------------------------------

80,29,786 100 5,14,35,041 100

===========================

2. STORES & SPARES

a. Indigenous 35,307 100 2,17,770 100

-----------------------------------------

35,307 100 2,17,770 100

========================

F. C.I.F. VALUE OF IMPORTS

(Including Stock in Transit)

Raw Materials / Finished Goods 3,40,520 1,37,43,869

---------- -------------

3,40,520 1,37,43,869

====== ========

G. EXPENDITURE IN FOREIGN CURRENCY

Current Year Previous Year

Travelling 76,50,951 28,49,079

Other Expenses 41,040 62,019

Import of Capital Goods 1,43,55,432 -- Expenses by Foreign Branch 1,64,90,536 --

-------------- ------------

3,85,37,959 29,11,098

======== ========

H. EARNINGS IN FOREIGN CURRENCY

FOB Value of Exports 10,49,71,887 1,98,26,054

(Including Exports through third party Rs.3,95,11,786/- (previous year Rs. 68,12,228/-), Software Exports Rs.4,87,41,645/-, (previous year Rs. 1,30,13,826/-) & Billing by a Foreign Branch Rs.1,67,18,456/- (previous year Rs.Nil)

6. Sundry Debtors / Loan & Advances (Refer schedule 'H' & 'J') include following amounts due from Companies/ Firms in which directors are interested as Directors:

Current Previous

Year Year

- Melstar Exports & 2,08,85,114 * --

Technologies Pvt. Ltd.

- Melstar Industries Ltd. (Deposit) -- 1,11,90,000

(Others) -- 16,99,487

- Melstar Inc, USA (100% Subsidiary) 1,04,29,433 20,52,759

- Directors -- 8,02,638

* Since recovered

7. Amalgamation

No liability has been provided for in respect of Stamp Duty on the amalgamation with Emco Polymers Private Limited under the Maharashtra Stamp Act as the same has not been determined/assessed as such the same shall be capitalised as and when paid.

b)

Pursuant to the Scheme of Amalgamation of the erstwhile Melstar Industries Limited (MIL) with company as sanctioned by the Honourable Bombay High Court on 8^th July, 1999 with retrospective effect from 1^st March, 1999 (appointed date), accordingly, the same has been given effect to in the accounts. However, the certified copy of the order of the Honourable High Court shall be filed with Registrar of Companies, Maharasthra on the receipt of the same.

The Amalgamation has been accounted for under the "Pooling of Interest" method as prescribed by accounting standards (AS 14) issued & Institute of Chartered Accountant of India. Accordingly all the assets and liabilities have been taken over at the fair market value or their realisable value. Accordingly Rs.14,469/- have been credited to General Reserve in respect of difference between Assets & Liabilities taken over.

Pursuant to scheme referred above, 5000 Equity Shares of Rs.10/- each are to be issued to the shareholders of MIL. Pending allotment as at 31^st March, 1999 the amount has been included in share capital suspense account in Schedule "A". These shares have since been alloted on July 14,1999.

Figures for the current year includes figures for the erstwhile MIL for 1 month i.e. 1^st March, 99 to 31^st March, 99. Accordingly the current years figures are not comparable with those of previous year.

8. Consequent to change in its Policy to write off deferred revenue Expenditure/Share Issue Expenses, the entire amount under these heads have been written off during the year. Consequently the loss is higher by Rs.7.25 lacs.

9. Expenses incurred on Advertisement on launching of IBM Products, Software market development expenses against which benefits are expected to flow in future were also treated as deferred revenue expenditure and charged to Revenue account over a period of three years from the year ending 31st March, 1996. However during the year it was decided to write off such expenses entirely.

10. The liability in respect of Gratuity is charged to revenue account based on acturial valuation. The Leave Encashment which was accounted for on cash basis till last year have now been provided for under extra ordinary item, on the basis of acturial valuation, as such loss is overstated by Rs.7.82 lacs.

11. The Company has been supplied on loan basis from Informix Software Inc, USA certain capital equipments worth Rs.196.82 at its software development unit in Seepz,Mumbai for a period of 5 years as such the same are not reflected in the Schedule of Fixed Assets.

12. In the opinion of Board of Directors, Current Assets, Loans and Advances have a value on realisation, in the ordinary course of business, at least equal to the amount at which they are started in the Balance Sheet, except where otherwise indicated. The provisions for all known liabilities are made and the same are adequate.

13. There are no amount dues to small scale undertaking to whom company owed a sum exceeding Rs.1.00 lacs which was outstanding for more than thirty days as at the end of the Financial year.

14. In view of the change in the focus of the company’s activity from Hardware to Software Development the management have reviewed the current assets in respect of hardware/electronic goods division & accordingly the following amounts has been written off as extraordinary items.

Item Rs. In lacs

A. Goodwill 6.21

B. Loans & Advances 27.99

C. Sundry Debtors 128.38

D. Deposits 9.09

E. Software Utilities 10.45

F. Diminution in value of Hardware/Electronics Goods Inventories 303.13

G. Leave Encashment Provision 7.82

H Share Issue Expenses 7.25

------

TOTAL 500.32

===

Accordingly a sum of Rs.505.00 lacs have been withdrawn from General Reserve to offset the above amount, as it pertains to past years.

The company has not deposited unpaid/unclaimed dividend aggregating to Rs.25,698 in respect of years ending March 31, 1997 & March 31, 1998 to a separate Bank Account as required under Section 205A of the Companies Act, 1956.

Due to restructuring and consequent upon inadequacy of profits during the year, the payment of managerial remuneration has exceeded the amount payable as per the provision of Companies Act, 1956 by Rs.6.99 lacs. Central Government permission for the excess amount paid is being obtained.

17. Balances of Sundry Debtors, Sundry Creditors, Loans and Advances, Deposits and certain bank balances are subject to confirmation and reconcilation, if any.

18.Previous years figures have been regrouped/ rearranged and reclassified wherever necessary. Figures have been rounded off to the nearest rupee. Figures in brackets are in respect of previous year.

CAPITALISATION STATEMENT

Pre offer as
As adjusted for offer

at Rs. 60/-
As adjusted for offer

at Rs. 72/-

Debt

at 31.03.99

Short Term Debts

465.23

285.23

285.23

Long Term Debts

156.10

0.00

0.00

Total Debts

621.33

285.23

285.23

Shareholder Funds

Share Capital

856.38

1215.00

1215.00

Reserve & Surplus

72.04

1871.60

2142.92

Total

928.42

3086.60

3357.92

Long Term Debt/Equity

0.17

-

-

TAXATION STATEMENT FOR LAST FIVE YEARS

1993-94

1994-95

1995-96

1996-97

1997-98

Notional Rate

0.50

0.46

0.46

0.40

0.35

Profit before tax

32.71

128.18

118.13

156.95

38.14

Tax at Notional Rate

-

58.96

54.34

62.78

13.35

Export Profit Exempt U/S 10A

39.44

131.68

-

-

-

Deduction u/s 80HHE

-

-

1.69

0.71

1.05

Deduction u/s 80IA

-

-

46.80

94.18

-

Deduction u/s 80G

-

-

-

-

2.50

Difference in Depreciation

6.21

1.93

(21.82)

(28.65)

(36.39)

between books & income tax.

Other Adjustments

0.69

(0.56)

(22.68)

2.73

71.38

Net Adjustments

6.90

1.37

(44.50)

(25.92)

34.99

Loss carried forward

-

-

(2.13)

-

-

Taxable Income

0.17

(2.13)

23.01

36.14

69.58

Tax paid

0.09

-

10.59

14.46

24.35

The figures for 98-99 are not compiled pending completion of Tax Audit and filing of Income Tax return for the year ended March 31,1999.

Following are the Financial results based on the accounts of the company's wholly owned subsidiary, Melstar Inc. for the two financial years ended December' 1998 and December 1997.

The following is a review of the Income and retained earnings and cash flows for the year ended December 31^st 1997 and December 31^st 1998 in accordance with the Statement on Standards for Accounting and Review services issued by the American Institute of Certified Public Accountants.

MELSTAR , Inc.

Balance Sheet

Year ended 31.12.1998 ( US$)

Year ended 31.12.1997 ( US$)

ASSETS

CURRENT ASSETS

Cash

11,252.14

7,403.51

Account Receivable

608,301.00

95,000.00

Advances to MITL, the parent company

80,000.00

-

Total Current Assets

699,553.14

102,403.51

FIXED ASSETS

At Cost

19,425.38

12,326.25

Less : Accumulated Depreciation

19,425.38

-

11,621.38

704.87

Investments

450.00

450.00

-

-

Total Fixed Assets

450.00

704.87

OTHER ASSETS

Deposits

4,300.00

4,300.00

500.00

500.00

Organisational Expenses

3,000.00

3,000.00

Less : Written off

3,000.00

-

2,400.00

600.00

Total Other Assets

4,300.00

1,100.00

TOTAL ASSETS

704,303.14

104,208.38

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES

Accounts payables To MITL, the parent Company

237,500.00

81,500.00

Total Current Liabilities

237,500.00

81,500.00

Long term liabilities

400,000.00

-

STOCKHOLDER’S EQUITY

Common Stock

32,500.00

45,000.00

Retained earning

(9,791.62)

(40,260.57)

Net Income of (loss)

44,094.76

17,968.95

Total Stockholder’s Equity

66,803.14

22,708.38

Total Liabilities and Stockholder’s Equity

704,303.14

104,208.38

The following is the Statement of Income of Melstar Inc. for the year ended December 31^st 1997 and December 31^st 1998 in accordance with the Statement on Standards for Accounting and Review services issued by the American Institute of Certified Public Accountants.

MELSTAR Inc.
Year ended 31.12.1998

( US$)
Year ended 31.12.1997

( US$)

Statements of Income, Expenses and Retained Earnings

INCOME

Consulting Revenue

899134.00

136695.00

Total Sales

899134.00

136695.00

COST OF SALES

Hardware purchases

0.00

20000.00

Services provided by MITL , the parent company

677243.00

81500.00

Total cost of sales

677243.00

101500.00

Gross Profit

221891.00

35195.00

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Salaries and Benefits

56583.33

0.00

ADP Payroll Fees

746.85

124.50

Bank Charges

294.50

130.00

Rent

20,486.24

5042.90

Advertising

13,598.70

0.00

Insurance

3,150.21

1081.00

Amortisation

600.00

0.00

Taxes – Payroll and others

34,354.81

0.00

Telephone

6,160.13

396.29

Depreciation

7,804.00

691.38

Relocation Expenses

5,993.60

0.00

Postage & Forex

2,770.23

0.00

Legal, Accounting & Professional fees

17,628.64

0.00

Office Supplies

5,794.60

1664.00

Utilities

36.65

82.41.00

Travelling Expenses

1,793.75

4264.91

Miscellaneous

0.00

232.40

Late Fees

0.00

202.12

Per Deim Exp

0.00

3314.14

Total Operating Expenses

177796.24

17226.05

Operating Income(Loss) Before taxes

44094.76

17968.95

Net Income(Loss)

44094.76

17968.95

X. MANAGEMENT DISCUSSION AND ANALYSIS OF PAST PERFORMANCE

ANALYSIS OF PROFIT & LOSS FOR LAST 3 YEARS

( Rs. In lakhs)

1996-97

1997-98

1998-99

I SEGMENTWISE SALES

SOFTWARE SALES

179.29

452.17

1,799.22

INFOTECH SERVICES

62.29

473.33

424.35

ENTERPRISE SOLUTION SALES

382.77

1,168.12

1,240.76

HARDWARE SALES

3,892.09

2,526.09

37.85

ELECTRONIC GOODS SALES

794.48

60.91

10.74

TOTAL

5,310.92

4,680.62

3,512.92

SOFTWARE SALES AS % OF TOTAL SALES

3.38%

9.66%

51.22%

II SEGMENTWISE EXPORTS

SOFTWARE EXPORTS

75.94

198.26

1,049.71

OTHER EXPORTS

388.42

-

-

TOTAL EXPORTS

464.36

198.26

1,049.71

% OF SOFTWARE EXPORTS AS

42.36%

43.85%

58.34%

COMPARED TO TOTAL SOFTWARE SALES

III DETAILS OF EXPENSES & PROFITABILITY

PERSONEL EXPENSES

229.14

270.79

316.21

ADMINISTRATIVE EXPENSES

250.59

375.55

457.69

FINANCE CHARGES

121.24

152.87

126.89

SELLING & DISTRIBUTION EXPENSES

98.64

146.77

60.81

DEPRECIATION

64.47

86.00

90.27

PROFIT BEFORE TAX

156.95

38.14

69.11

PROVISION FOR TAXATION

20.00

5.00

17.66

PROFIT FOR THE YEAR AFTER TAX

136.95

33.14

51.45

Comparison of 1997-98 & 1998-99

Software Sales during 98-99 rose to 1799.22 Lakhs showing a growth of 398% compared to the previous year.

The company has set up two units for software development during the year under the Software Technology Park of India Scheme, one at Bangalore with IBM Global services India Pvt. Ltd. and the other at Mumbai for E-Business.In addition to this the company has opened a branch in UK for looking after the company’s software business in Europe. The Bangalore unit recorded a turnover of 126.75 Lakhs in seven months of operations Where as the UK Branch has achieved sales of 167.19 Lakhs in almost the same time.

The share of software exports to total software sales has increased from 43.85 % to 58.34 % signifying the thrust of the company in software exports.

Due to the increased focus of the company in the export market the co has been able to record a massive jump in software exports to Rs.1049.71 Lakhs which is 528% of what the co had achieved in 97-98.

The basic nature of activities and company’s focus has undergone a change from hardware to software development. The sale of hardware has virtually become NIL in 98-99. It stood at 1.5% of 97-98 sales. The company has switched its focus from selling hardware to providing enterprise solution services which has generated revenue to the tune of ‘Rs.1240.76 Lakhs.

In order to strengthen its position in the software market the company has exited from other lines of business. In 98-99 the company has sold off the Electronic goods division at Daman and shut down the hardware assembling unit at Kalwa.

Personnel expenses have increased by 16.78 % due to the higher salaries in the Information Technologies field. The company has recruited highly qualified Personnel for its software activities during the year, which has resulted in increased costs.

Communication Expenses (Telephone, Telex, Satellite Link Charges, Internet Lines, etc) during 98-99 grew by 66.37% which is very peculiar to this industry since it directly relates to the development expenses.

Travel Expenses has increased by 71.06 %. In a bid to capture software market abroad the travel expenses also increased during the year. The company has opened a Branch in UK for which the directors had to incur travel expenses.

The finance cost of the company has come down in 98-99 to Rs 126.89 Lakhs, which reflected the better handling of the Working Capital. The Inventories have come down and the receivable position has also improved.

Selling & Distribution expenses have come down to Rs. 60.81 Lakhs from 146.77 Lakhs basically due to reduced activities in the hardware business and focus on service based activities.

Operating profit ratio stood at 1.97% in 98-99 compared to 0.81 % in 97-98 generally due to the contribution of software business, which has taken a major leap forward in this year.

During the year 1998-99 the company has written off inventories, receivables and other items relating to Hardware/Electronic goods division aggregating to Rs. 500.32 lakhs against withdrawal from General Reserves of Rs. 505 Lakhs.

The company has taken over assets worth Rs. 630.48 Lakhs on amalgamation of Melstar Industries Ltd. due to which the company has a strong asset base of Rs. 1648.26 Lakhs.

Though there has been a reduction in sales from 468 Lakhs to 3512 Lakhs but the software sales have increased from 9.66% in 1997-98 to 51.22% in 1998-99. The export of software increased from 4.24 % of total sales in 97-98 to 29.88% of total sales in 98-99.

Out of total addition of fixed assets of Rs. 342.16(other than acquired on amalgamation) Rs. 207.29 were incurred in computer hardware & software and setting up of STP at Banglore and E Business at Mumbai.

The export earnings have shown a faster growth as a result of deliberate strategy of entering the more lucrative export markets. The company expects growth in exports over next few years due to the establishment of local offices in UK and operations of the subsidiary Meltsar Inc in USA.

The software Development business is now strengthened with the setting up of the following:

SEEPZ, Mumbai with Informix software (India) Pvt. Ltd.

Banglore STP with IBM Global Services India Pvt. Ltd.

STP unit at Mumbai for E-business.

UK Branch for on site/ off site Projects.

Melstar Inc, Subsidiary for US business

As such it can be observed that during the year the company has restructured its business totally and is poised for full software and Enterprise solution provider by 1999-2000.

The business of the wholly owned subsidiary also increased and the figures are as under:

( In USD )

31.12.97 31.12.98 % Increase

Consulting Revenue 1,36,695 8,99,134 558

Gross Profit 35,195 2,21,891 530

Net Profit 17,969 44,095 145

Though there is increase in revenue by 558% the net profit is not increased in the same proportion due to fixed expenses incurred like rent, salaries and wages, advertisement, etc. The subsidiary is in consolidation stage and it is expected to earn revenue of over 1.5 million US$ in the current year ending 31^st December 1999 and increase the profitability as compared to last year.

Comparison of 1996-97 & 1997-98

Since the company had just entered the software business the software sales stood at low figure of Rs. 1.79 Crores in 96-97. In 97-98 software sales increased by 252% to reach Rs 452.17 Lakhs.

Hardware Sales which constituted the principal revenue producing activity of the company had come down from 38.92 crores to 25.26 crores marking the gradual decline of the company’s focus on Hardware Business.

Electronic goods sales had also come down to Rs. 60.91 Lakhs form 794.48 Lakhs. In 96-97 The Company had received a huge export order for consumer goods of Rs. 380 Lakhs due to which there was higher sales in this segment.

Even in the initial period of operation the software exports registered growth of 261% in 97-98 as compared to last year.

In December 97 the company entered in to agreement with Informix software (India) Pvt. Ltd. for software development at its unit in SEEPZ which contributed Rs. 68.12 Lakhs to the software export turnover of the company in the year 97-98.

In 97-98 the company had incurred loss on sale of leased assets (computers) to the tune of Rs. 12.43 and also there has a loss on sale of assets of other division amounting to Rs. 12.25 lakhs due to which the administrative expenses have shown a rise in 97-98.

The company had to bear higher interest cost in 97-98 because of the worsening of the receivable position in the hardware business. The interest paid to the banks increased to Rs. 82.27 Lakhs from 52.6 Lakhs.

In 97-98 Selling expenses increased due to rise in the advertisement expenses. Advertisement expenses increased from 15.14 Lakhs to 58.36 Lakhs.

Operating Profit in 96-97 was higher due to the unusual export order of Electronic goods. In 97-98 the electronic goods sales have also come down thereby effecting the operating margin of the company.

The company’s focus has shifted more on service area and as such infotech services increased from 62.29 lakhs to 473.33 showing a jump of 760%.

Further the company’s focus have shifted from hardware to solutions business and as such the Enterprise solution sales have increased from 382.77 lakhs to 1168.12 lakhs.

DETAILS OF OTHER INCOME

PARTICULARS

31-Mar-98

31-Mar-96

Net Profit

33.14

95.13

20% of Profit

6.62

19.03

Other Income

37.48

20.62

Interest Received

2.02

2.57

Other Income

2.40

0.83

Liabilites no longer required writen back

23.86

-

Lease Rental Income

7.93

14.72

Exchange Rate Difference

-

-

Insurance Claims Received

1.28

-

Profit on sale of Assets

-

0.22

Export incentives

-

2.28

Total

37.48

20.62

Unusual or Infrequent transactions

In 96-97 the company had received an export order of Rs.380 lakhs of electronic goods due to which the profits of the company was at higher level.
Significant Economic changes

From fiscal 1998 software imports have been exempted from customs duty. The government has withdrawn the benefits under section 80 O under the Income Tax Act, 1961. The company is availing benefits under Section 10A and section 80 HHE. The following changes were introduced by the Finance Bill 1999:

A 10-year tax holiday (initial period of 10 years) is now available to EOU/EPZ/STP/EHTP units under section 10/10B of the Income Tax Act. Earlier the tax holiday was for a block of five years in the 8 years of operation.

Corporate tax was revised through levy of 10% surcharge on corporate tax on domestic companies, thus raising the corporate tax from 35% to 38.5%.
Known trends or uncertainties

There are no known trends or uncertainties that we have had or are expected to have a material adverse impact on sales, income or revenue from continuing business. The growth in the software exports market and its major contribution to the country’s income has been recognised by the government of India.
Future relationship between Costs & Revenues

Future variable costs, as a percentage of sales, are not likely to register any adverse trend. Since the company projects to earns a major share of revenue from exports and therefore essentially accounts for the revenues in foreign currency and incur its expenses in rupees any further depreciation of the rupee against the dollar will be favorable to the company. Further the most important component among fixed costs is salaries and wages which is increasing and is expected to increease faster. However the company has taken necessary initiative to bill the customers based on the cost incurred on a particular project.
Industry Turnover

The Software industry turnover for the year ended March 31,2000 is estimated to be Rs. 25,700 crores( including Exports of Rs.17,500 crores) ( As reported by NASSCOM)
Seasonality of the business:

The software business is not seasonal compared to other industries as companies require software implementation through out the year.

Dependence on customers and suppliers:

The company has widened its customer base by the operations of the UK branch and does not depend on any single or few customers or suppliers.
Competitive condition:

The company is in a globally competitive business.
Export:

The company’s export of software was Rs. 1049.71 for the year ended March 31,1999 and it is expected that for the year ended March 31,2000 the same shall be twice of the previous figures. The company’s major export is to USA, UK and Switzerland.

>

XI. PROFITABILITY PROJECTIONS :

The auditors Gupta, Maheshwari and Jain have stated vide their certificate dated 30^th September 1999, that the arithmetical calculations involved in the profit forecast for the year ending 31^st March 2000 are correct and in accordance with the following major assumptions made by the company:

The major assumptions considered by the management in the compilation of the profit forecast are as under:

Sales are estimated on the basis of existing contracts continued from previous year and contracts under negotiation with existing/new clients.

Other Financial forecast is based on the Business Plan of the Company.

Finance cost is estimated assuming interest on the existing Term loans and Working Capital Loans.

Depreciation is estimated on the basis of the company’s predetermined policies.

Increase in Employee cost is estimated on the basis of Impact of higher cost per employee because of change in composition of employees.

Any gain/loss on account of exchange rate fluctuation has not been considered in the forecast. Exchange rate for 1 US$ = Rs.43 and 1 GBP=Rs.71.40.

Estimates under other various heads are estimated on the basis of future planning, expansion needs of the company as prepared by the management of the company.

The expenses relating to the Public offer are to be amortized over a period of 5 years as such one fifth of the estimated expenses are considered in Profit & Loss Account.

No provision for taxation is assumed in view of the carried forward loss of the accounting year 98-99 and the benefits available to the company under the Income Tax Act, 1961 in respect of profits derived from software exports.

FORECAST FOR THE ESTIMATED FINANCIAL STATEMENTS OF THE COMPANY FOR THE YEAR ENDED MARCH 31,2000.

PROJECTED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDE MARCH 31,2000.

AMOUNT

Rs. in Lacs

PARTICULARS

Software sales

2,333.27

Enterprise Solution Sales

700.00

PSD

148.00

ORC

84.00

932.00

Total Revenue

3,265.27

Direct Cost

-

Software Development Expenses

-

1,188.95

Material Expenses

-

745.00

Increase/(Decrease) in inventories

-

(25.47)

Overheads & Fixed Cost

-

-

Director's salaries

-

45.00

Other Salaries

-

205.80

other fixed costs

-

124.90

Travelling Expenses

-

59.70

Electricity expenses

-

21.00

Telephone Charges

-

20.10

Vehicle expenses

-

12.80

Restructuring costs

-

40.00

Audit Fees

-

4.00

Miscellaneous expenses

-

10.00

Share Issue expenses

15.00

Depreciation

-

138.00

Interest

-

120.00

Total expenses

-

2,724.78

Profit before Tax

-

540.49

Taxation

-

-

Profit after tax

-

540.49

PROJECTED BALANCE SHEET AS AT MARCH 31,2000

Amount

( Rs. in Lacs)

Issue Price Rs 60 Per share

Issue Price Rs 72 Per share

Sources of Funds

Equity Capital

1,215.00

1215.00

Reserves & Surplus

1,443.04

1714.36

Profit & Loss

4 28.56

428.56

Loan Fund

Secured loans

200.00

200.00

Total

3286.60

3557.92

Application of Funds

Fixed Assets

2,300.00

2300.00

Less: Depreciation Reserve

330.63

330.63

Net Fixed Assets

1,969.37

1969.37

Investments

730.00

730.00

Current Assets

Debtors

450.00

450.00

Inventories

200.00

200.00

Loans & Advances

170.00

170.00

Cash & Bank Balances

117.23

388.55

Total

937.23

1208.55

Current Liabilities & Provisions

Sundry creditors

300.00

300.00

Provisions

130.00

130.00

Total

430.00

430.00

Net Current Assets

507.23

778.55

Share issue expenses

80.00

80.00

Total

3286.60

3557.92

DETAILS OF ISSUES MADE BY THE COMPANY/ ASSOCIATE COMPANIES DURING THE LAST 3 (THREE) YEARS.

Melstar Information Technologies Ltd and its associate and Group companies have not made any issues to the public during the last three years.

XII. STOCK MARKET DATA AND BASIS FOR OFFER PRICE

STOCK MARKET DATA

The equity shares of the company are not listed on any Stock exchange
BASIS FOR OFFER PRICE

Qualitative Factors :

The company has a highly successful Software Development Centres with IBM Global Services India Pvt. Ltd. in Bangalore, Informix Software India Pvt. Ltd. a subsidiary of Informix Inc. USA at SEEPZ, Mumbai with longterm renewable contracts.

The company has entered into stretigic business alliances with global software majors like IBM and Lotus for there software applications.

Melstar has set up a dedicated centre for e-Business which has a good future revenue and growth potential.

Melstars software exports have increased consistently over the last few years and constituted more than 51 % of the company’s total revenues.

Melstar has signed a Product Development contract jointly with British and Irish companies in which Melstar shall receive substantial offshore development work along with a 20% ownership on the Intellectual Property Rights.

Melstar has multiple longterm agreements with IBM covering services, solution, software and resources to be deployed for IBM and its blue chip customers in India and abroad.

Melstar’s subsidiary in USA has promoted a Joint Venture in New York alongwith US and Swiss companies which has won large outsourcing contracts from Citibank USA. The Company has extensive international presence through its 100% subsidiary in California, Joint Venture in New York, Branch operation in UK and business association in Switzerland.

The company operates in India which is emeging as one of the major outsourcing centers in the world due to its huge pool of skilled english speaking technical manpower.

Quantitative Factors :

The following financial ratios have been audited by the company's auditors vide their certificate dated September 30^th 1999

Adjusted EPS (Rs.) :

Annualised EPS Weight

Year ended 31^st March 1997 1.50 1

Year ended 31^st March 1998 0.06 2

Year ended 31^st March 1999 0.90 3

Quarter ended 31^st June 1999 1.63 4

Weighted Average Earnings per share 1.08
2. Price/Earning Ratio in relation to Offer Price :

(Source: Details available at Capital Market issue dated 17^th October 1999 for computer software – medium / small companies )

Lowest 0.50

Highes 162.90

Average 46.50

Based on EPS for quarter ending 30^th June 1999 taken on annualised basis: 36.81 to 44.17 (based on a premium of Rs. 50 to Rs 62 per share)

3. Average Return on Networth Weight

(a) 1996-97 : 6.02 1

(b) 1997-98 : 0.23 2

(c) 1998-99 : 5.71 3

(d) As on 30^th June 1999 : 3.46 4

Weighted Average 3.75%
Minimum return on Total Net worth after Issue needed to maintain EPS at Rs. 1.08 is 6.54% at an issue price of Rs 60 per share

Minimum return on Total Net worth after Issue needed to maintain EPS at Rs. 1.08 is 6.12% at an issue price of Rs 72 per share

Net Asset Value (NAV)

(a) As on 30.6.99 Rs. 13.48

(b) After Issue Rs. 24.75 (As against issue price of Rs 60 per share)

After Issue Rs. 26.98 (As against issue price of Rs 72 per share)

XIII. OUTSTANDING LITIGATION, DEFAULTS, ADVERSE EVENTS AND MATERIAL DEVELOPMENT

Against the Company and its Directors

The Company (MITL), Melstar Exports & Technologies Pvt. Ltd. and Melstar Fashions Pvt. Ltd. alongwith three out of four of the Company’s Promoters, viz S.K.Bansal, S.A.Shaikh and B.V.Ramani who were Directors and Shareholders of another Private Limited Company and to whom MITL (then SIFA India Pvt. Ltd.) had supplied some Computer Systems and Peripherals during the year 1990-91 (prior to the Promoters acquired control over the affairs of MITL) and in 1991-92 for Exports to USSR, have been involved in a Petition U/S 397/398 of the Companies Act, 1956 for alleged oppression of minority and mismanagement, filed against them by some other shareholders of that Company, constituting a minority.

MITL’s role essentially was that of a supporting manufacturer to that company which has not been in business since 1992 as envisaged under the Import Trade Control Policy as well as the Income Tax Act, 1961.

The Original Petition, filed by the Petitioner in June, 1992, was "consigned to record" by the Hon’ble Company Law Board, Principal Bench, New Delhi in February, 1993. The Petitioner filed a fresh Petition in April 1994, canvassing the same charges which was for the first time to come up for hearing on 20.7.95. However at the request of the Petitioner it was adjourned to 29.1.96. Since then there have been nine further adjournments (six at the request of the Petitioner’s Advocate, 2 suo motu by the CLB Bench and one at the request of the Company’s Senior Advocate). The matter has not progressed at all and the Petition is now re-scheduled to be heard on 22/23^rd February, 2000 at the behest of the petitioner.

MITL has been legally advised that no liability is likely to devolve on it even in the unlikely event of the verdict of the Company Law Board being adverse to the three concerned Directors of MITL.

b) Appeal before The State Consumer Disputes Redressal Commission - New Delhi

Appeal before The State Consumer Disputes Redressal Commission - New Delhi - Ms.Reena Saxena versus CDM Technologies P. Ltd. and Melstar Industries Ltd.

One Reena Saxena filed before the Consumer Disputes Redressal Forum-II, New Delhi a Complaint bearing No.2307/95 against CDM Technologies Pvt. Ltd. of Delhi (CDM), CDM’s Marketing Manager and Melstar Industries Limited (MIL) (a Melstar Group Company) inter alia alleging that the Opposite party No.1 and 2, CDM Technologies Pvt. Ltd. and CDM’s Marketing Manager, had supplied to the complainant a Computer of different specifications than the type 486 which the Complainant had ordered on Respondent No.1 (CDM).

The Relationship between MIL and the CDM was that CDM was a Distributor of MITL products as also IBM products in the domestic market. This arrangement ended in June ‘95, when MITL decided to market its products directly and IBM Distributorship was also transferred to the Company.

CDM was a Reseller of the products marketed by Melstar Industries Ltd. (MIL) at the relevant time. In its submissions before the District Forum MIL emphasised that it had never supplied to the Reseller, Personal Computers of the Type 486 DX2 which the complainant had ordered on CDM and all MIL’s supplies of PCs to the Reseller at the material time were of PC 386 range. As such MIL could in no way be held responsible or answerable for any deficiencies allegedly found by the Complainant in the product supplied by CDM to her. In its order dated 19^th March, 1998 the Hon’ble District Forum up-held MIL’s submissions based on the facts and did not give any adverse findings against it. The Complainant being aggrieved by the Order of the District Forum, filed an Appeal against it with the State Consumer Dispute Redressal Commission, New Delhi claiming relief against CDM only and not against MIL, though MIL was made a party thereto. MIL was advised that having been impleaded as a Respondent, it must file an Affidavit in Reply and be represented by our Advocate before the Commission when the matter came up for hearing. Accordingly, MIL in its Affidavit reiterated its submissions made before the District Forum drawing specific attention of the Hon’ble Commission to the aforesaid facts. The Appeal came up for hearing on 15^th September 1999. The matter is now scheduled to be heard for arguments on 14^th December 1999.

As stated above, since the Hon’ble District Forum has not given any adverse finding nor has the complainant claimed any relief against MIL, no liability is likely to devolve on MIL or the Company.

MIL has since been amalgamated with the Company pursuant to Order dated 8^th July, 1999 of the Honourable Bombay High Court .
Against the Company’s Subsidiary

There are no litigations against the subsidiary of the Company.
Interest of Directors

The promoters and Directors do not have any interest/business dealings with the Company other than those as mentioned in the notes to accounts and elswhere in the offer document.
Material developments

There are no material developments after the date of the latest Balance Sheet that are likely to materially affect the performance and the prospects of the Company or is likely to affect the trading or profitability of the company or the value of its assets or its ability to pay its liabilities within the next twelve months.
Adverse events

There have not been any adverse events affecting the operations of the Company in the past one year. Further in the opinion of the Directors, the Company has not faced any circumstances since the date of the last financial statement which materially and adversely affect the profitability of the Company or the value of its assets or its ability to pay liabilities arising within the next twelve months from September 30,1999.

Defaults

The company has not defaulted in meeting any statutory dues, institutional dues or bank dues. The company has not defaulted in making any payments/refunds for debentures, fixed deposits and interest on debentures and fixed deposits.

XIV. OTHER MATTERS

GOVERNMENT APPROVALS / CONSENTS

The Information Technology and Electronics industry have been de-licensed in terms of Department of Industrial Development notification No.477/E dated 25^th July, 1991. Expansions at existing undertakings require only registration with the Secretariat of Industrial Approvals (SIA).

Details of current industrial valid industrial licenses / registrations issued to the company by the Government of India, Department of Industrial Development are:

Registration No.NUS.APL:34692:Vol-II/1534 dated 19th May, 1992 for diversification into development of Computer Software in SEEPZ at Mumbai from the Development Commissioner, SEEPZ, Ministry of Commerce, Government of India. (Renewal No. No.NUS.APL:346:95:Vol-IV/1795 dated 21st May, 1998 for the period 1998-99 to 2002-2003)

Letter of Approval No. No.STP/P/VIII(A)(140)/96/9903 dated 5.12.96 issued by Software Technology Park, Pune for establishment of a new unit under STP Scheme at Melstar House, G-4, MIDC, Cross Road "A", Andheri East, Mumbai – 400 093 for Software Development.

License Certificate No.VIII/40/12/98 dated 10.9.1998 from Assistant Commissioner of Customs, 100% E.O.U., Customs Divisioon – IV, Bangalore for establishment of a Bonded Warehouse to obtain / clear capital goods, components / spares at 100% EOU located at Connection Point, Bangalore.

Licence No.dated S/15-192/99-2000B dated issued by the Assistant Commissioner of Customs, Bond Department, Mumbai for setting up a Private Bonded Warehouse at 11.6.99 Melstar House, G-4, MIDC, Cross Road "A", Andheri East, Mumbai – 400 093.

6. Licence No.NUS:APL:345:95:Vol-IV/4552 dated 1st July, 1998 for Export of Computer Software through Data Link – through Informix Software India Pvt. Ltd., SEEPZ, Mumbai.

7. The Company has applied for the allotment of a unit in SEEPZ which is under consideration of the SEEPZ authorities. Once the unit is alloted all the relevant approvals shall be deemed to be received.

8. Necessary approvals are to be obtained for the setting up of the software development centre at UK and for additional investments in Melstar Inc., US. Application for the approval of the same shall be made in due course.

Investor Grievance Redressal System

The investor grievances against the Company will be handled by the Registrars and Transfer Agents in consultation with the secretarial department of the Company

To handle the grievances received, the company has appointed Shri Rajesh Shah as the Compliance Officer. He will supervise redressal of complaints received from the investors at the office of the Company as well as the Registrars to the offer and ensures timely settlement.

Transactions with Companies in Promoter Group

For the year ended March 31,1999 the company has entered into the following transactions with the companies in the Promoter group

(Rs. In Lakhs)

Name Purchase Sale

Melstar Exports & Technologies Limited NIL 338.48

Melstar Inc NIL 397.50

The details in respect of Melstar Industries Ltd. are not furnished as the same has been amalgamated with the company w.e.f. March 1,1999.
RISK FACTORS AND MANAGEMENT’S PERCEPTION THEREOF:

INTERNAL RISK FACTOR

Banks or Financial Institutions have not appraised the cost of the Project for which the funds are being raised.

Management Perception: The Company believes that it has the professional expertise to assess the cost of project and has not approached any institution or banks for an appraisal.

The Company has not yet placed orders for the total equipment required for the project i.e. Computers and allied equipment, software, telecommunication equipment etc.

Management Perception: The market for these equipment continues to be competitive. The Company has long term relationships with the existing suppliers and expects to procure these within a lead-time of 45 days.

The Company is yet to receive the allotment for the proposed second unit at SEEPZ and is yet to place orders for equipment and take other necessary steps towards setting up this unit.

Management Perception : The Company already has one Unit in Seepz. It does not foresee any difficulty in getting allotment for another unit for which an Application has been made. However if the allotment is not received by March 2000 the company shall take a unit in the same area on a lease basis. The deposit for the same shall be met out of the internal accruals of the company.

Melstar is yet to get necessary approval from the Government to promote a joint software development centre in UK which has the attendant risk of some delay.

Management Perception : The current Fast Track Policy of Govt. of India envisages speedy clearances for investments abroad, particularly by IT industry. The Management is confident of receiving the requisite clearance well within the projected time frame keeping in mind that business operations have already started in UK and are progressing positively.

The Company is yet to get the approval of RBI for additional investments in Melstar Inc. in USA.

Management Perception : An application to RBI seeking approval to grant a loan of USD 200,000 to Melstar Inc is pending with the RBI. The application confirms to all RBI guidelines and the approval shall be available in normal course.

The Company has newly set up a few Joint Venturex with foreign parties in the US and is also planning to set up a new subsidiary / Joint Venture in UK, which faces risks in association with any other start up company.

Management Perception : Under the present Policy, Exchange Earner's are permitted to make investments out of the EEFC account up to USD 15.00 million in JVs abroad without prior approval of the RBI, and when required the Company will take necessary steps in that behalf. In view of substantial current and potential business both in USA and Europe it does not apprehend any problem to make necessary investments with or without the prior approval of RBI

The Company proposes to establish an Offshore Development Centre in the US and the UK during the next 12 months. Establishment of such Centres abroad for the first time could expose the company to some risks.

Management Perception : The Company has sufficient experience of establishing and managing Software Development Centres in India. Besides, it has successful partnerships both in the US and in Europe. for Software Development. The management is confident that its experience in India, its knowledge and familiarity with business environment abroad, and the support of its associates abroad will stand it in good stead to effectively establish and manage such Centres abroad.

.

Melstar and its subsidiary / Joint Venture entered into Software Service Contracts with its clients. These contracts contain clauses that may lead to potential liability for the company.

Management Perception : Any Business has certain attendant risks. A business largely dependent upon knowledge application, like Software development, has to reckon with a higher degree of risk since it also brings in relatively higher returns on investment. Any business Contract has protective clauses for safeguarding mutual rights of the parties. All contracts entered into by the Company are negotiated on terms which expose it to minimal risks.

The company has written off certain extraordinary items aggregating to Rs 500.32 lacs against transfer from genaral reserve of Rs. 505.00 lacs as at March 1999.

Management Perception : In the process of restructuring the company’s business and with the shift in its focus on Software Development Business the company discontinued its business of manufacturing electronic goods and hardware components. The write-off by the Company arose due to certain inventories, debtors and other current assets of the hardware / electronic goods division.

CONTINGENT LIABILITIES

The contingent liabilities of the company as on 31^st March, 1999 were as under:

i) Estimated amount of contract remaining - 81.18 lacs

to be executed on Capital Account.

ii) Letter of Credit outstanding - 302.36 lacs

iii)Bank Guarantee - 87.62 lacs

Management Perception : Such contingent liabilities do arise in the usual course of business and shall not have any negative impact on the company’s operations.

Any fluctuations in the exchange rate will have an impact on the Company’s export income and also on the cost of the project.

Management Perception : The company has a natural hedge against adverse Foreign exchange fluctuation due to its export revenue. With the rupee depreciating against US dollars and other European currencies the currency risk should not be a problem.

Under the Software Technology Park Scheme, the Company could have export obligation based on capital goods imported and the wage bill.

Management Perception : The Company has in the past met its export obligations and does not foresee any problem in meeting the same for the new project.

13. The following dispute/ litigations are pending against the Company

a) Company Petition No 40 of 1994 U/S 397/398 of the Companies Act, 1956 before the Company law Board, Principal bench, New Delhi.

b) Appeal before The State Consumer Disputes Redressal Commission - New Delhi-Ms Reena saxena versus CDM Technologies Pvt Ltd and Melstar Industries Limited.
Management Perception

a) The dispute essentially is between some minority shareholders of another company and amongst others Mr. Suresh Banasl , Mr.Sattar Shaikh and Mr. Bharat Ramani who are amongst the promoters / Directors of Melstar Information Technologies Limited. No effective hearing has taken place though the dispute surfaced in 1992. The Position in this behalf is explained elsewhere in the Offer Document. No liability is likely to devolve on Melstar Information Technologies Limited even in the unlikely event of the verdict of the Company Law Board being adverse to the aforesaid three Directors Of Melstar Information Technologies Limited.

b.) This dispute was raised against one of the resellers of the Company’s Personal Computers and the company was made a Respondent. The Consumer Disputes Redressal Forum before whom the complaint was filed by the Complainant, having regard to the facts and submissions of the company passed no adverse order against it nor the Complainant has sought any releif against the Company in her appeal. The management expects the aforesaid verdict to be upheld by The State Consumer Disputes Redressal Commission - New Delhi and no liability is likely to devolve on the company.

14. Data Communication facilities including internet are being used as delivery mechanism. Security issue poses a risk to the company.

Management Perception : Melstar is in application development only and not in Products. Since the delivery involved is in receiving and sending data, using an Internet server within Melstar, the security risk is minimal

15. The following companies in which promoters have an interest have made losses for past two years:

1998 1997

Melstar Exports & Technologies Pvt. Ltd. 24.72 lacs 22.76 lacs

Melstar Fashions Pvt. Ltd. 38.27 lacs 11.63 lacs

Management Perception : The losses have arisen since the directors of the companies decided to concentrate there attention to promote the business of MITL. As the businesses have been closed down ,the losses have been incurred due to certain routine overheads which the companies had to bear.

16. The company has invoiced Melstar Inc; USA for the year ended 1999 for Rs 397.50 lacs which exceeds 10% of the turnover of the company. This raises concerns regarding the basis for transfer pricing for transactions between the Company and its overseas subsidiary / Joint Ventures.

Management Perception : Melstar Inc. a 100% subsidary of the company has been setup to promote and enhance the companys business in the US markets. For all the transactions entered between the company and its subsidary/Joint Ventures there are agreements executed which the management feels are in the best intrests of the company and the same would not have any adverse impact on the companys profitability

17. The Company proposes to prepay the term loan of R 250 Lacs to Punjab National Bank out of the proceeds of this offer , the consent of which is not yet obtained.

Management Perception : The company would approach Punjab National Bank at the appropriate time to obtain there consent.
EXTERNAL RISK

The company is in a globally competitive business

Management Perception : The Company has inherent strengths like a track record of successful execution, timely delivery of projects, marketing infrastructure, certified software engineering processes, constant technology up-gradation and professional qualified, experienced and trained manpower which will provide the competitive edge. Further India has a competitive advantage over its compititors due to cheaper english speaking software engineers.0

The IT industry is prone to high risk of technological obsolescence.

Management Perception : Melstar is into a wide range of Software applications/developments and services business and has always proactively upgraded skill sets of all employees and its Infrastructure facilities to keep pace with changing technological needs e.g. it is focussing on emerging technologies such as e-commerce, COM/DCOM, Web based technologies etc.

Success in the software services industry is dependent on skilled manpower, low availability levels or high attrition rates could have an adverse impact on profitability.

Management Perception : The Company’s philosophy of rewarding performance through incentives and ESOP Scheme along with other Human Resource initiatives has helped in providing a conducive work environment which the Company believes will play an important role in attracting and retaining talent.

Changes in Government of India ("GOI") fiscal policy announcements from time to time can have an adverse impact on the profitability of the Company.

Management Perception : The software industry has been identified as a thrust area by the GOI and the Company believes that it is unlikely that the GOI would initiate policies which could be detrimental to the growth of this industry.

Employees working on site at client facilities in the U.S. on temporary and extended assignments are typically required to obtain Visas. While there is no limit to L1 visas there is a limit to the number of new H1 B visas that the U.S. immigration and Naturalisation Services may approve in any Government fiscal year.

Management Perception : The Company has in the past anticipated and accordingly planned for new H1 B Visas. The Company shall continue to be proactive in anticipating the needs of new H1B Visas. However with the focussed increase in offsite business of the company the aforesaid factor would not cause any problems to the company’s offshore business activities.

Reduction in business opportunities from the "millenium bug- Y2K"

Management Perception : Y2K business was never a focus area for the Company as such the Company has not undertaken any dedicated Y2K projects in fiscal 1999.

PART II

GENERAL INFORMATION
A.1 CONSENTS

Consents in writing of the Directors, Lead Managers, Auditors, Legal Advisor, Company Secretary, Bankers to the Company, Bankers to the Offer, Underwriters to the Offer, and Registrars to the Offer to act in their respective capacities have been obtained and filed alongwith the copy of this Offer Document with the Registrar of Companies as required under section 60 of the Act and none of them have withdrawn the said consent upto the time of delivery of the copy of this Offer Document for registration with ROC.

M/s. Gupta Maheshwari & Jain , the Auditors of the Company have also given their written consent for inclusion of their report in this Offer Document, as also the inclusion of their opinion on tax benefits accruing to the Company, to the members of the Company and to the equity shares holders appearing hereinafter in the form and context in which it appears in this Offer Document and such consents and report have not been withdrawn upto the time of delivery of the copy of this Offer Document for registration with the ROC.
A.2 EXPERT OPINION OBTAINED, IF ANY

Save as mentioned elsewhere in the Offer Document, the company has not obtained any expert opinion.
A.3 CHANGE IN DIRECTORS AND AUDITORS DURING THE LAST THREE YEARS

A.3.1 Changes among Directors in the last three years

Name

Date of Appointment

Date of Cessation

Reasons for change

Mr.M.R.Bansal

17.7.1995

25.05.1998

Personal

Mr.P.N.Wakhlu

19.09.1996

25.05.1998

Personal

Mr. Prashant Jhawar

20.04.1999

--

Representative of Usha Martin Ventures on its acquisition of Equity stake in the Company

A.3.2 Change of Auditors in Last three years

During the last three years there has been no change in the Company’s Auditors except that M/s.Deloitte Haskins & Sells, Chartered Accountants have been appointed as Co-Statutory Auditors of the Company in the Companys Annual General Meeting held on 23^rd August 1999
A.4 AUTHORITY FOR THE PRESENT OFFER

The present offer of equity shares is being made pursuant to a special resolution passed by the shareholders under Section 81 and 81 (1A) of the Act at the Annual General Meeting held on August 23^rd , 1999 and Board resolution passed at the Board of Directors meeting held on August 30^th , 1999.

The Board of Usha Martin Ventures Limited had at its meeting held on 5^th October 1999, approved the disinvestment through a public offer for sale of upto 7,76,000 shares held by it.

The Board of Brij Investments Pvt. Ltd. had at its meeting held on 5^th October 1999 approved the disinvestment through a public offer for sale of 1,14,000 shares held by it.

The Board of Multibis Financial Services Ltd.had at its meeting held on 23^rd September 1999 approved the disinvestment through a public offer for sale of 1,31,000 shares held by it.

A.5 DISPOSAL OF APPLICATIONS AND APPLICATION MONEY

No receipt will be issued for application money. However, the Bankers to the offer receiving the applications will acknowledge the receipt of the application by stamping and returning the detachable acknowledgment slip appended to each application.

The sum received in respect of the offer will be kept in separate bank accounts and the company will not have any access to the funds unless approval of the regional stock exchange i.e. The Mumbai Stock Exchange, is obtained for the basis of allotment and listing approval from all the stock exchange where listing is proposed.

The Board reserves the right to accept or reject any application in whole or part and in either case without assigning any reason thereof.

A.6 ALLOTMENT LETTERS / SHARE CERTIFICATES / REFUND ORDERS

Letters of Allotment/ Share Certificates as the case may be will be despatched by Registered Post to the sole/first applicant within ten weeks from the date of closure of the Offer. The Company shall pay interest @15% per annum on the entire amount if the allotment of the equity shares has not been made within 30 days from the date of closure of the Offer. This interest will be paid from the 31^st day from the closure of the Offer until the actual date of allotment. Alternatively, in case of any delay in the dispatch of refund orders beyond 30 days from the closure of the Offer, interest @15% per annum, except to applicants applying through Stockinvests, will be paid on the refund amount from the 31^st day from the closure of the Offer until the date of dispatch of the refund orders.

The company therefore agrees that:-

as far as possible allotment of securities offered to the public shall be made within 30 days of the closure of the public offer’.

it shall pay interest @ 15% p.a if the allotment has not been made and/or the refund orders have not been despatched to the investors within 30 days from the date of the closure of the offer.

The Company shall ensure despatch of refund orders of value upto Rs.1500 under certificate of posting and Share Certificate/ Allotment advice and /or regret letters together with refund orders over Rs.1500 by Registered Post only.

The Company has undertaken to make available necessary funds to the Registrar for the purpose of despatch of Allotment Letters / Share Certificates / Refund Orders as stated above.

A.7 INTEREST ON EXCESS APPLICATION MONEY

Payment of interest @15% per annum on excess application money will be made to the applicants, if refund orders are not dispatched within 30 days from the date of the closure of the Offer as per the Guidelines issued by the Government of India, Ministry of Finance vide their letter No. F-8/6/SE/79 dated July 21, 1983, as amended vide their letter no. F/14/SE/85 dated September 27, 1985 addressed to the Stock Exchanges, and as further modified by SEBI’s circular number SMD/RCG/33/1819/96 dated May 15, 1996.
A.8 DISPOSAL OF APPLICATIONS MADE BY STOCKINVEST

The procedure for disposal of applications made by cash/cheque/demand draft will apply mutatis mutandis to Stockinvest except the following:

In case of non-allotment, stockinvest will be cancelled by the registrar to the Offer and returned to the applicant.

In case of allotment / partial allotment, the registrar to the offer shall fill in the amount in the stockinvest which would be less than or equal to the amount filled by the investor and present the stockinvest duly discharged on behalf of the company for collection.

In case the cancelled / partially utilised stockinvest is not received by the investor from the registrar, lien will be lifted by the issuing branch on expiry of four months from the date of issue against an indemnity bond from the applicant.

Inquiries relating to stockinvest may be addressed to the registrars and not to the issuing bank.

Multiple application under a stockinvest are liable to be rejected as each application is required to be accompanied by a separate instrument.

The Registrars to the Offer have, pursuant to a resolution of the Board of Directors of the company on ----- 1999 been authorised to sign on behalf of the Company for realising the proceeds of stockinvest of the allottees from the issuing bank or to cancel the stockinvests of the non/partial allottees. The cancelled instruments with non-allotment advice shall be returned by the Registrars to the investors directly.

A.9 ISSUE OF CERTIFICATES

In case the Company issues letters of allotment, the related equity share certificates will be dispatched through Registered post within two (2) months from the date of allotment in exchange for the letters of allotment

Basis Of Allotment

In the event of this offer of equity shares being oversubscribed, the basis of allotment will be finalised by the Board of Directors in consultation with the Stock Exchange, Mumbai. Investors may note that in case of oversubscription, allotment will be on a proportionate basis in marketable lots and a SEBI nominated public representative shall be associated in the process of finalisation of the Basis of allotment in case of oversubscription of more than 2 times.

Further in the event of the public Offer being oversubscribed, the allotment will be on a proportionate basis subject to market lots as explained below:

A minimum 50% of the net Offer to the Indian public will be made available for allotment in favour of those individual applicants who have applied for 1000 equity shares or less. This percentage may be increased in consultation with the regional Stock Exchange depending on the extent of response to the Offer from investors in this category. In case allotments are made to a lesser extent than 50% because of lower subscription in the above category, the balance equity shares would be added to the higher category and allotment made on a proportionate basis as per relevant SEBI Guidelines.

The balance of Net Offer to Indian Public shall be made available to investors including corporate bodies/institutions and individual applicants who have applied for allotment of more than 1000 equity shares.

The unsubscribed portion of the net Offer to any of the categories specified in (a) or (b) shall be made available for allotment to applicants in the other category, if so required.

Applicants will be categorised according to the number of equity shares applied for.

The total number of equity shares to be allotted to each category as a whole shall be arrived at on a proportionate basis i.e. the total number of shares applied for in that category (number of applications in the category multiplied by the number of equity shares applied for) multiplied by the inverse of the over subscription ratio.

Number of equity shares to be allotted to the successful allottees will be arrived on a proportionate basis i.e. total number of equity shares applied for by each applicant in that category multiplied by the inverse of the over subscription ratio.

In all the applications where the proportionate allotment works out to less than 100 equity shares per applicant, the allotment shall be made as follows :

Each successful applicant shall be allotted a minimum of 100 equity shares, and

The successful applicants out of the total applicants of that category shall be determined by drawal of lots in such a manner that the total number of equity shares allotted in that category is equal to the number of equity shares worked out as per (b) above.

If the proportionate allotment to an applicant works out to a number that is more than 100 but is not a multiple of 100 (which is the marketable lot) the number in excess of the multiple of 100 would be rounded off to the higher multiple of 100 if that number is 50 or higher. If that number is lower than 50, it would be rounded off to the lower multiple of 100. All applicants in such categories would be allotted equity shares arrived at after such rounding off.

If the equity shares allocated on a proportionate basis to any category are more than the equity shares allotted to the applicants in that category, the balance available equity shares for allotment shall be first adjusted against any other category where the allotted equity shares are not sufficient for proportionate allotment to the successful applicants in that category. The balance equity shares if any, remaining after such adjustment will be added to the category comprising of applicants applying for minimum number of equity shares.

In the event of over subscription, in the process of rounding off to ensure allotment in marketable lots, the Company may make such adjustments in the basis of allotment, as may be necessary, in consultation with SEBI/the Mumbai Stock Exchange. As the basis of allotment is on proportionate basis, in the process of rounding off to the nearest multiple of 100, the offer size may increase by a maximum of 10% of the present Offer.

The Company agrees that :

There will be atleast 5 public shareholders for every Rs 1 lakh of net capital offer made to the public out of the public offer.

Explanation:

For the purpose of this clause a public shareholder shall mean a person who is neither a promoter nor holds more than 1% equity capital of MITL.

A.10 REGISTERED OFFICE

Melstar Information Technologies Ltd

Melstar House, G-4, M.I.D.C.

Cross Road `A', Andheri (East)

Mumbai 400 093, India

Phone: 91-22-8310505 Fax: 91-22- 8310520

Web-site: www.melstar.com
A.11 LIST OF INTERMEDIARIES/ CONCERNED OFFICIALS

COMPANY SECRETARY

The company has appointed a CFO cum Company Secretary who shall join the company by 1^st November 1999.

LEAD MANAGERS TO THE OFFER

ICICI Securities and Finance Company Limited

41/44, Minoo Desai Marg,

Colaba

Mumbai 400 005

Phone : (022) 288 2460 / 70

Fax : (022) 2837045

Kotak Mahendra Capital Company

Bakhtawar, 1^st floor, 229,

Nariman Point,

Mumbai 400 021.

Phone : (022) 2826655

Fax : (022) 2826632

REGISTRARS TO THE OFFER

MCS Limited

Sri Padmavati Bhavan,

Plot No. 93, Road No.16

MIDC, Andheri (East ),

Mumbai 400 093

Phone. (022) 8201785

Fax (022) 8201783

AUDITORS OF THE COMPANY

Deloitte Haskins & Sells Gupta Maheshwari & Jain

Chartered Accountants Chartered Accountants

Mafatlal House, 6^th floor, Behind Times Bank, Sir M. V. Road

Backbay Reclamation, Andheri ( East ), Mumbai 400 069

Mumbai 400 020 Mumbai 400 069

Phone : (022) 2854330-35 Phone : (022) 8215145/6/7

Fax: (022) 2024337 Fax: (022) 8302221

COMPLIANCE OFFICER

Rajesh Shah – Financial Controller

Melstar House, G-4, M.I.D.C.

Cross Road `A', Andheri (East)

Mumbai 400 093.

Phone : 022-8310505

LEGAL ADVISOR

Mr M. R. Lal

Advocate & Consultant

F-2/701, Poonam Kunj,

Poonam Nagar, Andheri (East)

Mumbai 400 093.

Phone : 022-8371353.

Fax No.8377094

The investors may contact the aforesaid compliance officer in case of any pre-offer/ post-offer related problems.
BANKER TO THE COMPANY

Punjab national Bank b) The Vysya Bank Ltd

SEEPZ Branch, Floral Deck Plaza

Mumbai 400 093. MIDC, Andheri ( East )

Ph No.: (022) 8291619,8292167 Mumbai 400 093

Fax No.: (022) 8290942 Ph No.: (022) 8213367/68.

Fax No.: (022) 8213095.
BANKER TO THE OFFER

BROKERS TO THE ISSUE

All registered members of the Stock Exchanges who are authorised by the stock exchanges to act as brokers to the offer would also be brokers to the present offer.

B. FINANCIAL INFORMATION

AUDITORS' REPORT

GUPTA MAHESHWARI & JAIN

Chartered Accountants

C-002, Vishal Appartments

Sir. M.V. Road

Andheri East

Mumbai 400 069

PROFIT AND LOSS ACCOUNTS

The profit & Losses of the company for each of the five financial ended on March 31'1999 and quarter ended June 30, 1999 as set out below. The profit read with significant Accounting Policies and Notes annexed hereto have been arrived at after charging all expenses of management including depreciation and after making such regrouping and adjustment as are, in our opinion, appropriate.

The auditors have examined the books of Melstar Information Technologies Ltd for the five years ended on March 31'1999 being the last date upto which the accounts of the company have been made up and audited by them and adopted by the members and for the quarter ended June 30, 1999 which have been adopted by the Board of Directors of the company. The auditors have certified vide their certificate dated September 30 1999, that as of date they are not aware of any material adjustment which would affect the result shown by these accounts in accordance with the requirement of Part II of Schedule II to the Companies Act, 1956 and read with requirement of the Securities and Exchange Board of India vide its clarification No. XIII and XIV of the Guidelines for Disclosure and Investors' Protection :

The profit & Losses of the company for each of the five financial years ended on March 31'1999 and quarter ended June 30, 1999 as set out below. The profit read with significant Accounting Policies and Notes annexed hereto have been arrived at after charging all expenses of management including depreciation and after making such regrouping and adjustment as are, in the auditors opinion, appropriate.

Profit & Loss Account for the year/quarter ended

30-06-99

31-03-99

31-03-98

31-03-97

31-03-96

31-03-95

SALES

A. Software sales

Own

325.92

1,281.29

204.80

33.88

77.73

67.29

Trading

-

1,045.94

247.37

145.41

62.95

8.60

B.Other Products

Own

46.41

283.41

1,052.70

936.30

748.66

1,514.48

Trading

196.67

902.29

3,175.76

4,195.34

2,224.63

47.25

C.Other Income

5.23

10.00

37.48

26.62

39.98

1.82

D.Increase / (Decrease) in Inventories

19.52

(248.52)

21.32

501.35

230.35

16.04

Total Income

593.75

3,274.41

4,739.43

5,838.90

3,384.30

1,655.48

Less :

Interest & Finance charges

30.58

126.89

152.87

121.24

40.41

3.56

Depreciation

29.79

90.27

86.00

64.47

45.36

15.32

Material consumed

176.11

1,750.91

3,530.43

4,722.40

2,668.08

1,160.49

Net income from operation

357.27

1,306.34

970.13

930.79

630.45

476.11

Total expenditure

318.28

1,237.23

931.99

773.84

512.32

347.92

Profit from operations

38.99

69.11

38.14

156.95

118.13

128.19

Taxation

-

17.66

5.00

20.00

23.00

1.00

Net profit after tax

38.99

51.45

33.14

136.95

95.13

127.19

Dividend Rate ( % )

-

-

5

15

15

15

Dividend

-

-

24.63

71.25

53.95

16.73

Dividend Tax

-

-

2.46

7.12

-

-

Adjustments:

Items writen back

13.17

1.43

Prioir year expenses

(11.76)

(56.43)

(0.46)

(10.03)

2.01

-

Extra ordinary items

-

500.32

-

-

-

-

Transfer to/(from )General Reserve

-

(505.00)

10.00

75.00

46.00

100.00

Profit Brought forward from previous year

1.94

2.24

6.65

19.93

22.74

10.85

Retained Profits

29.17

1.94

2.24

6.65

19.93

22.74

Profit after giving effect to Qualificatons in Auditor's report and prior year adjustments

Net profit for the year

38.99

51.45

33.14

136.95

95.13

127.19

Adjustments arising from Auditors qualification:

Non Provision for Leave encashment

-

-

(10.49)

(6.14)

(2.26)

-

Prior year expenses

-

(11.44)

(3.13)

(46.52)

(10.50)

2.57

Provision for taxation for ealier years

-

16.50

-

(13.17)

-

-

Provision for taxation

-

-

(16.50)

-

13.17

-

Write off of Share issue expenses

-

7.25

-

-

-

-

Loss of Melstar Industries Ltd.

-

1.72

-

-

-

-

Net Adjusted Profits

38.99

65.48

3.02

71.12

95.54

129.76

The Assets and Liabilities as given below read with Significant Accounting Policies and Notes as annexed hereto have been arrived at after making such regrouping as are, in the auditors opinion, considered appropriate:

Balance Sheet as at

30/6/99

31/3/99

31/3/98

31/3/97

31/3/96

31/3/95

Fixed assets

1,723.50

1,648.26

965.50

894.35

519.48

122.79

Less : Depreciation

222.35

192.63

173.54

209.80

122.35

52.91

Net fixed assets

1,501.15

1,455.63

791.96

684.55

397.13

69.88

Capital work in progress

41.19

27.45

11.09

94.83

111.98

-

Investments

10.33

10.33

40.37

20.37

20.37

18.48

Current assets

Cash and Bank balances

61.25

76.22

121.27

97.53

125.97

77.45

Accounts receivables

530.12

643.31

980.13

1,036.61

910.71

584.51

Loans and advances

172.80

151.42

356.19

400.10

242.49

115.16

Closing stock

244.23

225.47

840.25

920.94

404.21

231.05

Total Current assets

1,008.40

1,096.42

2,297.84

2,455.18

1,683.38

1,008.17

Current Liabilities

Accounts payable

618.97

825.75

1,046.56

1,485.51

595.12

110.71

Advance received from customers

39.49

31.30

31.03

50.92

13.10

2.57

Other Liabilities

-

155.90

120.01

144.55

205.84

-

Proposed dividend

-

-

24.63

71.25

53.95

16.73

Provision for tax

27.11

27.11

27.46

27.13

24.00

1.00

Total current liabilities

685.57

1,040.06

1,249.69

1,779.36

892.01

131.01

NET CURRENT ASSETS

322.83

56.36

1,048.15

675.82

791.37

877.16

Miscellaneous expenditure

-

-

20.10

47.94

42.55

3.75

TOTAL

1,875.50

1,549.77

1,911.67

1,523.51

1,363.40

969.27

CAPITAL AND RESERVES

Share Capital

983.48

855.88

595.21

475.00

475.00

154.96

Advance towards Share Capital

0.50

0.50

-

-

-

-

Share Premium

265.02

22.58

200.63

200.63

200.63

234.83

Reserves and Surplus

77.06

49.47

588.42

582.83

521.11

477.50

Share Holders Funds

1326.06

928.43

1384.26

1258.46

1196.74

867.29

LOAN FUNDS

Long term debt/Car loan

191.65

156.10

156.41

21.38

6.04

1.56

Bank overdraft

357.79

465.24

342.16

243.67

160.63

100.42

Unsecured loans

-

-

28.85

-

-

-

Total Loan Funds

549.44

621.34

527.42

265.05

166.67

101.98

TOTAL

1,875.50

1,549.77

1,911.68

1,523.51

1,363.41

969.27

Accounting Ratios

Basic Earning Per Share (EPS) Rs.

1.63

0.90

0.06

1.50

2.65

12.18

Cash Earning per share Rs.

2.88

2.70

3.11

3.47

4.43

13.52

Net Asset Value per share

13.48

10.84

22.92

25.48

24.30

55.72

Return on Net Worth %

3.46%

5.71%

0.23%

6.02%

9.47%

19.24%

Number of Equity shares of Rs. 10 each

9,834,797

8,563,797

5,952,125

4,750,000

4,750,000

1,549,650

EPS represents basic earning per share calculated as Profit after tax (PAT) divided by weighted average of shares employed during the year.

Cash EPS represents PAT for the year plus non cash charges divided by weighted average of shares employed during the year.

Non cash charges compromise depreciation,amortisation of business development expenses, loss on sale of fixed assets and loss on sale of investments.

Return on net worth is calculated taking average of shareholders fund employed during the year.

NOTES TO ACCOUNTS :

FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDING 31ST MARCH, 1999.

Statement of Accounting Policies:

1. a. System of Accounting :

The Company follows accrual system of accounting for all items of revenue and costs.

b. Inflation :

Assets and liabilities are shown at historical cost. No adjustments are made for changes in purchasing power of money.

c. Fixed Assets :

Fixed assets are recorded at cost of acquisition or construction less MODVAT credit availed.

d. Investments :

Long Term Investments are stated at cost.

e. Depreciation :

Depreciation in respect of assets acquired upto 31st March 1995 is provided for on written down value method at the rates prescribed in schedule XIV to the Companies Act, 1956. In respect of assets acquired after 31^st March, 1995 the depreciation is provided for on Straight Line Method at the rates prescribed in schedule XIV to the Companies Act, 1956.

Leasehold land acquired under the scheme of amalgamation is being amortised on Straight Line Method considering the balance lease period .

Software utilities acquired during the year are been written off at the rate of 20% on Pro-rata basis.

In respect of Assets at Foreign Branch, the same are depreciated @25% on the cost, irrespective of the period of use of the same.

f. Lease Equalisation Adjustment :

This represents Annual Lease Charges (i.e. Annually Apportioned cost of net investments in the leased assets over the least term) less statutory depreciation on the related leased assets.

g. Inventories :

Raw materials, Work-in Process, finished goods are valued at cost (net of MODVAT) or net realisable value whichever is lower on First In First Out basis.

Cost of Software Projects in progress has been arrived at by allocating the personnel cost and related overheads of the Software Division in the ratio of manhours utilised on such projects to the total manhours of the Division after deducting the cost of progressive billings, if any and is determined on the basis of the Management's estimate of the profit margin, taking into account subsequent cost overruns, if any.

h. Foreign Currency Transactions :

Fixed Assets are accounted at the rate prevailing on the date of transaction. Current Assets and Current Liabilities are accounted at the rate prevailing on the date of Balance Sheet. All the income/expenditure other than those relating to foreign branch is accounted on the basis of exchange rate prevailing on the date of transaction. Net foreign exchange on foreign currency transactions is recognised in the Profit and Loss Account during the year.

i. Translation of Financial Statement of Foreign Branch :

All the income and expenditure transaction during the year are reported at an average rate.

All the current assets balances are started at the rate prevailing on the date of Balance Sheet.

Fixed Assets/Depreciation are stated at the rate prevailing on the date of transaction.

The difference between Head Office Account and Branch Audit is recognised in Profit and Loss Account under Foreign Exchange rate difference.

j. Deferred Revenue Expenditure :

Deferred revenue expenditure incurred upto 31/03/95 were being written off over a period of five years. Expenses incurred upto 31/03/97 on Advertisement for launching of IBM Products, Software market development expenses etc., against which benefits were expected to flow in future were also treated as deferred revenue expenditure and charged to Revenue account over a period of three years. However, during the year it was decided to write off such expenses entirely.

k. Share Issue Expenditure :

Share issue expenses were being amortised over a period of ten years from the year ending 31st March, 1996. However during the year it was decided to write of such expenses entirely.

l. Excise Duty :

Excise Duty payable in respect of finished goods lying at factory premises are accounted for on clearance of goods. Modvat Credit utilised during the year is accounted in Excise Duty and unutilised Modvat balance at the year end is considered as advance Excise Duty.

m. Retirement Benefits :

1. Contribution to Provident Fund and Family Pension Fund is charged to Revenue.

The liability in respect of Gratuity is charged to revenue account based on acturial valuation.

The Leave Encashment benefit which was accounted for on cash basis, has now been provided for on acturial valuation.

n Sales :

Sales include excise duty but exclude sales tax and is net of Sales Returns during the year.

(Rs. in lacs)

31/03/99 31/03/98

2. Estimated amount of contracts remaining 81.18 143.66

to be executed on Capital account and

not provided for.

3. Contingent Liabilities in respect of :-

a. Letters of Credit outstanding 302.36 232.79

b. Bank Guarantees outstanding 87.62 64.45

c. Claim against the Company not

acknowledged as debt in respect

of customs penalty and compounding N I L 6.00

charges of Rs. 6.00 lacs recovered

by Customs department, disputed

by the Company till last year – Debited

to Profit and Loss Account under Extraordinary

items during the current year.

4. Breakup of Auditor's Remuneration (Including Service Tax) is as follows:

Current Year Previous Year

a. Audit Fees 84,000 80,000

b. For Company Law Matters 42,000 42,000

c. For Tax Audit 21,000 20,000

d. For Others 52,000 42,000

---------- ----------

1,99,000 1,84,000

---------- ----------

5. Additional information pursuant to the provisions of paragraphs 3, 4 (c) and (d) of part II of schedule VI to the Companies Act, 1956.

A. CAPACITY & PRODUCTION LICENSED PRODUCTION

(In Nos.)

a. Computer Systems 6,000 115

with Peripherals (6,000) (1,523)

b. Electronic Goods* 22,50,000 N I L

(22,50,000) (68603)

* Blinkers/lanterns, vibrating shavers, Mini Fans, CD Players and massagers have been merged under the head Electronic goods.

Installed Capacity is a function of product wise and cannot be expressed in terms of value/members.

B. DETAILS OF TURNOVER AND STOCKS

____________________________________________________________________________________

OPENING STOCK SALES CLOSING STOCK

UNIT QTY VALUE QTY VALUE QTY VALUE

PRODUCT (Rs.) (Rs.) (Rs.)

____________________________________________________________________________________

Enterprise Solutions/ Nos72 3,01,54,853 834 12,78,62,470 17 48,90,241

Hardware Sales & (452) (6,73,41,895) (4,441) (36,94,21,298) (72) (3,01,54,853)

Peripherals

Electronic Goods Nos 30,384 15,65,180 13,481 5,87,779 16,873* --

(16,728) (7,83,220) (54,947) (52,11,071) (30,384) (15,65,180)

Software -- 2,89,46,917 -- 17,99,22,204 -- --

(--) (37,61,940) (--) (4,52,17,359) (--) (2,89,46,917)

Other Items -- -- -- 4,86,004 -- -- (--) (--) (--) (8,80,114) (--) (--)

____________________________________________________________________________________

TOTAL 30,456 6,06,66,950 14,315 30,88,58,457 16,890 48,90,241

(17,180) (7,18,87,025) (59,388) (42,07,29,842) (30,456) (6,06,66,950)

===========================================================================

Note:

1. The value for sale of Enterprise Solutions/Hardware and peripherals include value of entire system sold as well as certain peripherals/ networking components which though purchased independently are sold jointly with the system . The independent sales of peripherals or components excluding Enterprise Solutions/ Hardware sales and peripherals is also shown in Enterprise Solutions / Hardware and perpherals sales and no quantities have been furnished since there are number of items involved.

2. Blinkers/Lanterns, Vibrarting, Mini Fans, CD Player and Massagers have been merged under the head Electronic Goods.

3. Consumer Goods Sales/Purchase includes inter division sales of Rs.Nil which are not reflected in the quantitative details. (Previous year Rs.3,41,436/-)

4. (*) These items have been valued at Nil as at 31^st March, 1999.

C. PURCHASE OF FINISHED GOODS

PARTICULARS UNIT QTY VALUE

SOFTWARE - - 9,29,91,717

(-) (3,68,83,186)

COMPUTER SYSTEMS/ NOS 664 7,72,80,002

PERIPHERALS/ NETWORKING ETC (2,538) (26,88,27,179)

OTHERS - - --

(-) (3,46,161)

--------------------------------------------------------------------------------------------------------

TOTAL 664 17,02,71,719

(2,538) (30,60,56,526)

--------------------------------------------------------------------------------------------------------

D. RAW MATERIALS CONSUMED 1998-99 1997-98

Qty Value Qty Value

a. Computer Components & Accessories, - 80,29,786 - 5,14,35,041

Peripherals Plastic Powder etc. ------------ -------------

80,29,786 5,14,35,041

======= ========

In view of items which differ in size and nature each being less than 10% of the total value, the quantitative details have not been furnished.

E. PERCENTAGE THEREOF TO TOTAL CONSUMPTION

1998-99 1997-98

1. Raw Materials Value % Value %

a. Imported 29,52,438 38 1,97,04,916 38

b. Indigenous 50,77,348 62 3,17,30,125 62

-------------------------------------------

80,29,786 100 5,14,35,041 100

===========================

2. STORES & SPARES

a. Indigenous 35,307 100 2,17,770 100

-----------------------------------------

35,307 100 2,17,770 100

========================

F. C.I.F. VALUE OF IMPORTS

(Including Stock in Transit)

Raw Materials / Finished Goods 3,40,520 1,37,43,869

---------- -------------

3,40,520 1,37,43,869

====== ========

G. EXPENDITURE IN FOREIGN CURRENCY

Current Year Previous Year

Travelling 76,50,951 28,49,079

Other Expenses 41,040 62,019

Import of Capital Goods 1,43,55,432 -- Expenses by Foreign Branch 1,64,90,536 --

-------------- ------------

3,85,37,959 29,11,098

======== ========

H. EARNINGS IN FOREIGN CURRENCY

FOB Value of Exports 10,49,71,887 1,98,26,054

(Including Exports through third party Rs.3,95,11,786/- (previous year Rs. 68,12,228/-), Software Exports Rs.4,87,41,645/-, (previous year Rs. 1,30,13,826/-) & Billing by a Foreign Branch Rs.1,67,18,456/- (previous year Rs.Nil)

6. Sundry Debtors / Loan & Advances (Refer schedule 'H' & 'J') include following amounts due from Companies/ Firms in which directors are interested as Directors:

Current Previous

Year Year

- Melstar Exports & 2,08,85,114 * --

Technologies Pvt. Ltd.

- Melstar Industries Ltd. (Deposit) -- 1,11,90,000

(Others) -- 16,99,487

- Melstar Inc, USA (100% Subsidiary) 1,04,29,433 20,52,759

- Directors -- 8,02,638

* Since recovered

7. Amalgamation

No liability has been provided for in respect of Stamp Duty on the amalgamation with Emco Polymers Private Limited under the Maharashtra Stamp Act as the same has not been determined/assessed as such the same shall be capitalised as and when paid.

b)

Pursuant to the Scheme of Amalgamation of the erstwhile Melstar Industries Limited (MIL) with company as sanctioned by the Honourable Mumbai High Court on 8^th July, 1999 with retrospective effect from 1^st March, 1999 (appointed date), accordingly, the same has been given effect to in the accounts. However, the certified copy of the order of the Honourable High Court shall be filed with Registrar of Companies, Maharasthra on the receipt of the same.

The Amalgamation has been accounted for under the "Pooling of Interest" method as prescribed by accounting standards (AS 14) issued & Institute of Chartered Accountant of India. Accordingly all the assets and liabilities have been taken over at the fair market value or their realisable value. Accordingly Rs.14,469/- have been credited to General Reserve in respect of difference between Assets & Liabilities taken over.

Pursuant to scheme referred above, 5000 Equity Shares of Rs.10/- each are to be issued to the shareholders of MIL. Pending allotment as at 31^st March, 1999 the amount has been included in share capital suspense account in Schedule "A". These shares have been since issued on July 14,1999.

Figures for the current year includes figures for the erstwhile MIL for 1 month i.e. 1^st March, 99 to 31^st March, 99. Accordingly the current years figures are not comparable with those of previous year.

8. Consequent to change in its Policy to write off deferred revenue Expenditure/Share Issue Expenses, the entire amount under these heads have been written off during the year. Consequently the loss is higher by Rs.7.25 lacs.

9. Expenses incurred on Advertisement on launching of IBM Products, Software market development expenses against which benefits are expected to flow in future were also treated as deferred revenue expenditure and charged to Revenue account over a period of three years from the year ending 31st March, 1996. However during the year it was decided to write off such expenses entirely.

10. The liability in respect of Gratuity is charged to revenue account based on acturial valuation. The Leave Encashment which was accounted for on cash basis till last year have now been provided for under extra ordinary item, on the basis of acturial valuation, as such loss is overstated by Rs.7.82 lacs.

11. The Company has been supplied on loan basis from Informix Software Inc, USA certain capital equipments worth Rs.196.82 at its software development unit in Seepz,Mumbai for a period of 5 years as such the same are not reflected in the Schedule of Fixed Assets.

12. In the opinion of Board of Directors, Current Assets, Loans and Advances have a value on realisation, in the ordinary course of business, at least equal to the amount at which they are started in the Balance Sheet, except where otherwise indicated. The provisions for all known liabilities are made and the same are adequate.

13. There are no amount dues to small scale undertaking to whom company owed a sum exceeding Rs.1.00 lacs which was outstanding for more than thirty days as at the end of the Financial year.

14. In view of the change in the focus of the company’s activity from Hardware to Software Development the management have reviewed the current assets in respect of hardware/electronic goods division & accordingly the following amounts has been written off as extraordinary items.

Item Rs. In lacs

A. Goodwill 6.21

B. Loans & Advances 27.99

C. Sundry Debtors 128.38

D. Deposits 9.09

E. Software Utilities 10.45

F. Diminution in value of Hardware/Electronics Goods Inventories 303.13

G. Leave Encashment Provision 7.82

H Share Issue Expenses 7.25

------

TOTAL 500.32

===

Accordingly a sum of Rs.505.00 lacs have been withdrawn from General Reserve to offset the above amount, as it pertains to past years.

The company has not deposited unpaid/unclaimed dividend aggregating to Rs.25,698 in respect of years ending March 31, 1997 & March 31, 1998 to a separate Bank Account as required under Section 205A of the Companies Act, 1956.

Due to restructuring and consequent upon inadequacy of profits during the year, the payment of managerial remuneration has exceeded the amount payable as per the provision of Companies Act, 1956 by Rs.6.99 lacs. Central Government permission for the excess amount paid is being obtained.

17. Balances of Sundry Debtors, Sundry Creditors, Loans and Advances, Deposits and certain bank balances are subject to confirmation and reconcilation, if any.

18.Previous years figures have been regrouped/ rearranged and reclassified wherever necessary. Figures have been rounded off to the nearest rupee. Figures in brackets are in respect of previous year.

Following are the Financial results based on the accounts of the company's fully owned subsidiary, Melstar Inc. for the two financial year ended December' 1998 and December 1997.

The following is a review of the Income and retained earnings and cash flows for the year ended December 31^st 1997 and December 31^st 1998 in accordance with the Statement on Standards for Accounting and Review services issued by the American Institute of Certified Public Accountants.

MELSTAR , Inc.

Balance Sheet

Year ended 31.12.1998 ( US$)

Year ended 31.12.1997 ( US$)

ASSETS

CURRENT ASSETS

Cash

11,252.14

7,403.51

Account Receivable

608,301.00

95,000.00

Advances to MITL, the parent company

80,000.00

-

Total Current Assets

699,553.14

102,403.51

FIXED ASSETS

At Cost

19,425.38

12,326.25

Less : Accumulated Depreciation

19,425.38

-

11,621.38

704.87

Investments

450.00

450.00

-

-

Total Fixed Assets

450.00

704.87

OTHER ASSETS

Deposits

4,300.00

4,300.00

500.00

500.00

Organisational Expenses

3,000.00

3,000.00

Less : Written off

3,000.00

-

2,400.00

600.00

Total Other Assets

4,300.00

1,100.00

TOTAL ASSETS

704,303.14

104,208.38

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES

Accounts payables To MITL, the parent Company

237,500.00

81,500.00

Total Current Liabilities

237,500.00

81,500.00

Long term liabilities

400,000.00

-

STOCKHOLDER’S EQUITY

Common Stock

32,500.00

45,000.00

Retained earning

(9,791.62)

(40,260.57)

Net Income of (loss)

44,094.76

17,968.95

Total Stockholder’s Equity

66,803.14

22,708.38

Total Liabilities and Stockholder’s Equity

704,303.14

104,208.38

The following is the Statement of Income of Melstar Inc. for the year ended December 31^st 1997 and December 31^st 1998 in accordance with the Statement on Standards for Accounting and Review services issued by the American Institute of Certified Public Accountants.

MELSTAR Inc.
Year ended 31.12.1998

( US$)
Year ended 31.12.1997

( US$)

Statements of Income, Expenses and Retained Earnings

INCOME

Consulting Revenue

899134.00

136695.00

Total Sales

899134.00

136695.00

COST OF SALES

Hardware purchases

0.00

20000.00

Services provided by MITL , the parent company

677243.00

81500.00

Total cost of sales

677243.00

101500.00

Gross Profit

221891.00

35195.00

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Salaries and Benefits

56583.33

0.00

ADP Payroll Fees

746.85

124.50

Bank Charges

294.50

130.00

Rent

20,486.24

5042.90

Advertising

13,598.70

0.00

Insurance

3,150.21

1081.00

Amortisation

600.00

0.00

Taxes – Payroll and others

34,354.81

0.00

Telephone

6,160.13

396.29

Depreciation

7,804.00

691.38

Relocation Expenses

5,993.60

0.00

Postage & Forex

2,770.23

0.00

Legal, Accounting & Professional fees

17,628.64

0.00

Office Supplies

5,794.60

1664.00

Utilities

36.65

82.41.00

Travelling Expenses

1,793.75

4264.91

Miscellaneous

0.00

232.40

Late Fees

0.00

202.12

Per Deim Exp

0.00

3314.14

Total Operating Expenses

177796.24

17226.05

Operating Income(Loss) Before taxes

44094.76

17968.95

Net Income(Loss)

44094.76

17968.95

WORKING CAPITAL ARRANGEMENTS

The Company has the following working capital facilities with

BANK

NATURE

AMOUNT (RS IN LACS)

INTEREST RATE

The Vysya Bank Ltd.
Fund Based:

Cash Credit

Packing Credit

FDBN/FUBN/FDBP/FUBP
Non Fund Based:

Letter of Credit

Bank Gaurantee

100

100

50

200

100

19.39%

As per RBI Guidelines

As per RBI Guidelines

Punjab National Bank

Fund Based:

Cash Credit

Packing Credit

FDBN/FUBN/FDBP/FUBP
Non Fund Based:

Letter of Credit

Bank Gaurantee

120

70

50

180

90

4% over PLR + Tax

As per RBI Guidelines

As per RBI Guidelines

NOTE : All the above working capital facilities are secured by hypothecation of stocks, stores and spares, receivables and other moveable assets and second equitable mortgage / hypothecation over immovable / moveable fixed assets of the Company on pari-passu basis with Financial Institutions and personal guarantee of five Directors.

C. SALIENT FEATURES OF BUSINESS ALLIANCE AGREEMENTS.

1. INFORMIX DEVELOPMENT CENTRE (IDC)

Agreement with Informix Software (India) Pvt. Ltd. (ISIPL).

Date of Agreement: December 15, 1997.

Expiry Date of the Agreement: December 14, 2002

Title of the Agreement: Software Development Agreement (SDA)

Melstar to set up a dedicated facility on 8000 sft . in SEEPZ for Software Development;

Informix will provide loan for furnishing the facility as also needed equipment to Melstar;

- Agreement is supplemented by a letter dated 31^st March, 1999 specifying expected exports of software from Melstar’s SEEPZ Unit at Rs.27.24 crores over the five year period.

- Billing and Payment terms as mutually agreed.

The Agreement is liable to be terminated by six month's advance notice by Informix to Melstar.

2. PARTNERSHIP AGREEMENT BETWEEN LINKHAND IMAGE LTD, U.K., SINGULARITY LTD, IRELAND & MELSTAR INFORMATION TECHNOLOGIES LTD., MUMBAI.

Date of Agreement: 04^th June, 1999.

Validity - 43 months ending on 31^st march 2002.

Agreement envisages development, sale and maintenance of a Document Management System

in component form and sharing the income among the three parties in proportion to respective

contribution to capital.

- Project is based on Component Technology of Microsoft.

Melstar's share will be 20% and it will have similar ownership rights in the product as well.

The three participating Companies will jointly develop the product as per the agreed Business Plan.

Besides, Melstar has an exclusive right to sell the product in India as also a right to appoint a

Reseller in the US. It is also entitled to an additional 60% of the sale price for marketing and

providing support for the product.

The Agreement also envisages setting up of a Joint Venture Company in India.
3. TECHNOLOGY LICENCE AGREEMENT WITH IBM CORPORATION, USA

Effective Date: 25^th March, 1999

Licence Reference No. S991122

The Agreement grants knowhow licence to Melstar to -

- use San Fransco Technology from IBM for development of Patents & Applications

- reproduce copies of base technology in combination with original Product

Development;

Right to licence a third party to prepare complementary product for Melstar product;

IBM to provide Technical support to Melstar covering FAQ… and technology, and

Technical Managers to prepare new version for San Fransisco for a period of 18 months.
4. AGREEMENT WITH IBM GLOBAL SERVICES INDIA PVT. LTD

Date of Original Agreement … 24^th February, 1997.

Date of Supplemental Agreement …. 16^th February, 1999.

The Agreements envisage -

setting up by Melstar of a dedicated facility for development of Software for IBM at

Bangalore with an office space of 4020 sft. and all fit and equipment detailed in the

Agreement with 42 software professionals;

To manage attrition rate, Melstar to provide additional 10% staff.

The Centre will be a 100% dedicated export unit for exports to IBM US in Dollar terms;

IBM shall provide all requisite software tools and process development support and has

the right to supervise and monitor quality besides providing support in project management

and other strategic areas.

- Billing and Payment terms as mutually agreed.

IBM can terminate the Agreement on 30 days advance notice to Melstar.

D. STATUTORY AND OTHER INFORMATION
D.1 MINIMUM SUBSCRIPTION

In case of non receipt by the company of 90% of the offerd amount aggregating to Rs 17.01 Crores to Rs 20.41 Crores from public subscription plus accepted devolvement from underwriters in case the offer is under subscribed, within 60 days from the date of closure of the offer, or the subscription level falls below 90% after the closure of the offer on account of cheques having being returned unpaid or withdrawal of applications, the company shall refund the subscription amount in full. If there is a delay beyond 78 days from the date of closure of the offer in the refund of such subscription , the company shall pay interest @ 15% per annum for the delayed period, and the company and directors of the company shall be jointly and severally liable to repay the amount due.
D.2 EXPENSES OF THE PRESENT OFFER

The expenses of the offer payable by the Company including underwriting commission, brokerage, fees to the Lead Managers, and Registrars to the Offer, stamp duty, printing, distribution and publication expenses, advertisement expenditure, registration fees, legal and professional charges, bank charges, auditors fees, and other miscellaneous expenses are estimated at Rs.140 lacs out of which the portion to be borne by the company is Rs 100 Lacs and which will be met out of the proceeds of the present offer and balance expenses of Rs. 40 Lakhs shall be beared by the offerers in the ratio of Shares offered by them.
D.3 FEES PAYABLE TO LEAD MANAGERS, TO THE OFFER

The fees payable to the lead managers to the offer (excluding out of pocket expenses on actuals) for offer management as set out in the relevant documents, copies of which are kept open for inspection at the Registered Office of the Company.

D.4 FEES PAYABLE TO THE REGISTRARS TO THE OFFER.

The fees payable to MCS Ltd., the Registrars to the offer are set out in the relevant documents and these are kept open for inspection at the Registered Office of the Company.

D.5 UNDERWRITING COMMISSION & BROKERAGE

Underwriting commission is payable @ ---- to the underwriters on the offer price of equity shares offered by the company and the offerers through this offer document to the public for subscription and underwritten in the manner mentioned earlier in the offer document. The shares reserved for the employees of the company are not proposed to be underwritten.

Brokerage will be paid by the company at the rate @ 1.5% on the offer price of the equity shares on the basis of allotment made against application bearing the stamp of a member of any recognised Stock Exchange in India. Brokerage at the same rate will also be payable to the Bankers to the Offer in respect of allotment made against applications procured by them provided the relative forms of applications bear their respective stamps in the Brokers column.

In case of tampering or overstamping of broker/agents codes on the application form, the offerr’s decision to pay brokerage in this respect will be final and no further correspondence will be entertained in this manner.
D.6 PREVIOUS OFFER OF CAPITAL DURING LAST FIVE YEARS

The Company has not issued shares to the public in the past.
D.7 COMMISSION AND BROKERAGE ON PREVIOUS ISSUES

No sums have been paid or payable as commission, brokerage or discount for subscribing or agreeing to subscribe or procuring or for agreeing to procure subscriptions for any previous issue of the company during last five years.
D.8 ISSUE OF SHARES OR DEBENTURES FOR CONSIDERATION OTHER THAN FOR CASH

There have been no issue of shares or debentures for consideration other than for cash other than the bonus issue as explained in point C.10 & C.10.1
D.9 DEBENTURE AND REDEEMABLE PREFERENCE SHARES

The company has not issued any debentures or preference shares till date.
D.10.1 CAPITALISATION OF RESERVES OR PROFITS

The Company had issued the following shares as bonus to the shareholders out of Share premium/free reserves of the company.

Date of Allotment

Ratio of Allotment

Number of Shares

13^th October 1992

2:1

2,70,000

8^th June 1994

2:1

8,10,000

22^nd August 1995

3:2

28,50,000

18^th September 1998

2:5

23,80,850

Total

63,10,850

D.10.1 Issue of shares for consideration other than cash

The Company has issued 5000 shares to the shareholders of Melstar Industries on 14^th July 1999 on its amalgamation with the Company
D.11 ISSUE AT A PREMIUM OR DISCOUNT

The company has not made any public issue of shares at a premium or discount since incorporation.
D.12 OPTION TO SUBSCRIBE

The company has not entered into any contract or arrangement and does not presently propose to enter into any contract or arrangement, whereby any option or preferential right of any kind has been or is proposed to be given to any person to subscribe for any equity shares or Shares of the Company, except as otherwise stated elsewhere in the offer document in respect of ESOP warrants.
D.13 CLASS OF SHARES

The company has only one class of shares issued viz. Equity share of the nominal value of Rs 10/- each.
D.14 PROPERTY

Save as elsewhere stated in this Offer Document and save in respect of the property purchased or acquired or to be purchased or acquired under the contracts referred to under the heading "Material Contracts" there is no property which the company has purchased or acquired or proposes to purchase or acquire which is to be paid for wholly or partly out of the proceeds of the present offer or the purchase or acquisition of which has not been completed on the date of the issue of this Offer Document, other than property: The contract for the purchase or acquisition whereof was entered into in the ordinary course of the Company’s business, such contract not being made in contemplation of the issue nor the issue in consequence of the contract; in respect of which the amount is not material.

The company has not purchased any property in which any of its Promoters and / or Directors, have any direct or indirect interest in any payment made thereof.
D.15 ACQUISITION OF RUNNING BUSINESS

The company does not propose to acquire any running business and no part of the proceeds of the present offer is to be applied direct or indirectly for any of the purposes set out in clause B-4 of the part II of schedule II to the Act.
D.16 REVALUATION OF ASSETS DURING LAST FIVE YEARS

The company has not revalued any of its assets at any time in the past.
D.17 DETAILS OF DIRECTORS

The details of directors are as given in the earlier part of the Offer Document :
D.18 MANAGING DIRECTOR AND WHOLE TIME DIRECTORS

The shareholders at their Annual General Meeting of the Company held on 23^rd August 1999, passed resolutions reappointing Mr S. M. Arora as Managing Director and approved increase in the remuneration of other wholetime directors on the following terms and conditions:
1. RE-APPOINTMENT OF MR.S.M.ARORA AS MANAGING DIRECTOR

In pursuance of the provisions of Sections 198, 269, 309 and 311 read with Schedule XIII and other applicable provisions of the Companies Act, 1956, Mr.S.M.Arora has been re-appointment of as Managing Director of the Company for a period of five years effective from1.4.1999 on the following terms subject however to the condition that the remuneration payable to Mr.S.M.Arora in any financial year together with that payable to other Whole-Time Directors of the Company shall not exceed ten (10) per cent of the net profits of the Company computed in the manner provided in Section 349/350 of the Act and where in any year the Company has no profits, or its profits are inadequate, the remuneration payable to Mr.S.M.Aroa shall not exceed the applicable ceiling laid down in Schedule XIII to the Act:

(i). Salary : Rs.1,25,000/- per month with authority to the

Board to sanction annual increases as they deem fit, not exceeding Twenty (20) per cent of the

salary drawn before such increase.

(ii). Helper Allowance : Rs.2,000/- per month.

(iii). Medical Benefits : Reimbursement of expenses on domiciliary

(for self and family). treatment at actuals, besides a mediclaim

policy for hospitalization.

(iv). Reimbursement of

Gas & Electricity : At actuals – Upto Rs.8,000/- per month.

(v). Leave Travel facility : At actuals - The Company shall

reimburse the expenditure incurred on

travel for self and family to and fro any

place in India once a year subject to a

ceiling of 40% of a month’s salary.

(vi). Commission : Not exceeding 100% of the Annual Salary as may be sanctioned by the Board within the overall ceiling of 10% of the net profits of the Company in any year.

(vii). Other Benefits:

Leave – as per Company Rules and Encashment of unavailed privilege leave at the time of retirement or cessation of employment shall be permitted.

Conveyance – Company Car with Chauffeur for official use. Monetary value for the private use, if any, shall be evaluated as per Income Tax Rules.

Benefits of Company’s contribution of Provident Fund, Superannuation Fund and payment of Gratuity as per Company Rules

2. MR.SURESH BANSAL, EXECUTIVE CHAIRMAN

The remuneration payable to Mr.Suresh Bansal as Executive Chairman of the Company has been increased as set forth hereinafter effective from 1.4.1999 for the remainder of his current tenure ending on 31.5.2001

In pursuance of the provisions of Section 198, 309, 310, 311 and other applicable provisions of the Companies Act, 1956 and in modification of the Resolution passed at the AGM held on 30.9.96 the remuneration of Mr.Suresh Bansal Executive Chairman of the Company is increased as under effective from 1.4.99 for the remainder of his tenure ending on 31.5.2001,

subject however to the condition that the remuneration payable to Mr.Suresh Bansal in any financial year together with that payable to the Managing Director and other Whole-Time Director of the Company shall not exceed ten (10) per cent of the net profits of the Company computed in the manner provided in Section 349/350 of the Act and where in any year the Company has no profits, or its profits are inadequate, the remuneration payable to Mr.Suresh Bansal shall not exceed the applicable ceiling laid down in Schedule XIII to the Act:

(i). Salary : Rs.1,25,000/- per month with authority to the

Board to sanction annual increases as they deem fit, not exceeding Twenty (20) per cent of the

salary drawn before such increase.

(ii). Helper Allowance : Rs.2,000/- per month.

(iii). Medical Benefits : Reimbursement of expenses on domiciliary

(for self and family). treatment at actuals, besides a mediclaim

policy for hospitalization.

(iv). Reimbursement of

Gas & Electricity : At actuals – Upto Rs.8,000/- per month.

(v). Leave Travel facility : At actuals - The Company shall

reimburse the expenditure incurred on

travel for self and family to and fro any

place in India once a year subject to a

ceiling of 40% of a month’s salary.

(vi). Commission : Not exceeding 100% of the Annual Salary as may be sanctioned by the Board within the overall ceiling of 10% of the net profits of the Company in any year.

(vii). Other Benefits:

Leave – as per Company Rules and Encashment of unavailed privilege leave at the time of retirement or cessation of employment shall be permitted.

Conveyance – Company Car with Chauffeur for official use. Monetary value for the private use, if any, shall be evaluated as per Income Tax Rules.

Benefits of Company’s contribution of Provident Fund, Superannuation Fund and payment of Gratuity as per Company Rules

3. MR.SATTAR SHAIKH, WHOLE-TIME DIRECTOR

The remuneration payable to Mr.Sattar Shaikh as Whole-Time Director of the Company has been increased as set forth hereinafter effective from 1.4.1999 for the remainder of his current tenure ending on 31.8.2002

In pursuance of the provisions of Section 198, 309, 310, 311 and other applicable provisions of the Companies Act, 1956 and in modification of the Resolution passed at the AGM held on 3.9.97 the remuneration of Mr.Sattar Shaikh a whole time Director of the Company is increased as under effective from 1.4.99 for the remainder of his tenure ending on 31.8.2002,

subject however to the condition that the remuneration payable to Mr.Sattar Shaikh in any financial year together with that payable to the Managing Director and other Whole-Time Director of the Company shall not exceed ten (10) per cent of the net profits of the Company computed in the manner provided in Section 349/350 of the Act and where in any year the Company has no profits, or its profits are inadequate, the remuneration payable to Mr.Suresh Bansal shall not exceed the applicable ceiling laid down in Schedule XIII to the Act:

(i). Salary : Rs.1,25,000/- per month with authority to the

Board to sanction annual increases as they deem fit, not exceeding Twenty (20) per cent of the

salary drawn before such increase.

(ii). Helper Allowance : Rs.2,000/- per month.

(iii). Medical Benefits : Reimbursement of expenses on domiciliary

(for self and family). treatment at actuals, besides a mediclaim

policy for hospitalization.

(iv). Reimbursement of

Gas & Electricity : At actuals – Upto Rs.8,000/- per month.

(v). Leave Travel facility : At actuals - The Company shall

reimburse the expenditure incurred on

travel for self and family to and fro any

place in India once a year subject to a

ceiling of 40% of a month’s salary.

(vi). Commission : Not exceeding 100% of the Annual Salary as may be sanctioned by the Board within the overall ceiling of 10% of the net profits of the Company in any year.

(vii). Other Benefits:

Leave – as per Company Rules and Encashment of unavailed privilege leave at the time of retirement or cessation of employment shall be permitted.

Conveyance – Company Car with Chauffeur for official use. Monetary value for the private use, if any, shall be evaluated as per Income Tax Rules.

Benefits of Company’s contribution of Provident Fund, Superannuation Fund and payment of Gratuity as per Company Rules

D.19 PAYMENT OF AMOUNT OR BENEFITS TO PROMOTERS OR OFFICERS OF THE COMPANY

Except as otherwise stated elsewhere in the Offer Document, no amount of benefit has been paid or given to the company’s promoters or officers within the two years preceding the date of this Offer Document nor is intended to be paid or given to any promoter or to any officer of the company except their normal remuneration and reimbursement of expenses incurred for the business of the company and incurred by them as directors, officers or employees of the company to which they are entitled to or become entitled to under the articles of the company or otherwise in accordance with the law.
D.20 INTEREST OF PROMOTERS AND DIRECTORS

Except for the remuneration receivable by the managing/whole time Directors or their shareholding in the company as promoters as set out elsewhere in the offer document none of the directors have any other interest of any nature in any contract entered into in by the company with outside parties.

E. MAIN PROVISIONS OF THE ARTICLES OF ASSOCIATION OF THE COMPANY

FORFEITURE & LEIN

Article 66

If any member fails to pay any call or installment of a call on or before the date appointed for the payment of the same, the Directors may at any time thereafter, during such time as the call or installment remains unpaid, serve a notice on such member requiring him to pay the same together with any interest that may be accrued and all expenses that may have been incurred by the Company by reason of such non-payment.

Article 67

The notice shall name a day (not being earlier than the expiry of fourteen days from the date of service of the notice) and a place or places, on and at which such call or installment and such interest expenses as aforesaid are to be paid. The notice shall also state that in the event of non-payment on or before the time and at the place appointed, the shares in respect of which the call was made or installment is payable, will be liable to be forfeited.

Article 68

If the requisitions of any such notice as aforesaid are not complied with any shares in respect of which such notice has been given may, at any time thereafter before payment of all calls or installment, interest and expenses due in respect thereof, be forfeited by a resolution of the Directors to that effect. Such forfeiture shall include all dividends declared in respect of the forfeited Shares and not actually paid before the forfeiture.

Article 69

When any share shall have been so forfeited notice of the forfeiture shall be given to the member in whose name it stood immediately prior to the forfeiture and any entry of the forfeiture with the date thereof shall forthwith be made in the Register provided however that the failure to give the notice will not in any way invalidate the forfeiture.

Article 70

Any Shares so forfeited shall be deemed to be the property of the Company and the Directors may sell, reallot and otherwise dispose of the same in such manner as they think fit.

Article 71

The Directors may at any time before any share so forfeited shall have been sold, reallotted or otherwise disposed of, annul the forfeiture thereof as a measure of grace and favor but not as of right upon such terms and conditions as they may think fit.

Article 72

Any members whose shares shall have been forfeited shall, notwithstanding be liable to pay and shall forthwith pay to the Company all calls, installments, interests and expenses owing upon or in respect of such shares at the time of the forfeiture together with . interest thereon from the time of the forfeiture until payment at the rate of eighteen percent per annum and the Directors may enforce the payment of such moneys or any part thereof if they think fit, but shall not be under any obligation so to do.

Article 73

The forfeiture of a share shall involve the extinction of all interest in, and also all claims and demands made against the Company in respect of the share and all other rights incidental to the share except only such of those rights as by these Articles are expressly saved.

Article 74

A duly verified declaration in writing that the declarant is a Director, the Manager or Secretary of the Company and that a share in the Company has been duly forfeited on a date stated in the declaration shall be conclusive evidence of the facts therein stated as against all persons entitled to the share.

Article 75

The Company may receive the consideration if any given for the share on any sale, re-allotment or other disposal thereof and may execute a transfer of the share in favor of the person to whom such share is sold, re-allotted or disposed of and the person to whom such share is sold, re-allotted or disposed of may not (unless by express agreement) be liable to pay any calls, amounts, installments, interest and expenses owing to the Company prior to such purchase or allotment nor shall he be entitled (unless by express agreement) to any of the dividends, interest or bonuses accrued or which might have accrued or before such allotment. Such purchaser or allottee shall not be bound to see to the application of the purchase money, if any nor shall his title to the share be affected by any irregularity or invalidity in the proceedings with reference to the forfeiture, sale re-allotment or disposal of the share.

Article 76

Neither a judgment nor a decree in favor of the Company for calls or other moneys due in respect of any shares nor any part payment or satisfaction thereof nor the receipt by the Company of a portion of any money which shall from time to time be due from any member in respect of any shares either by way of principal or interest nor any indulgence granted by the Company in respect of payment of any such money shall preclude the Company from thereafter proceeding to enforce a forfeiture of such shares as herein provided.

Article 77

The provisions of these Articles as to forfeiture shall apply to the case of non-payment of any sum which by the terms of issue of a share become payable at a fixed time whether on account of the nominal value of the share or by way of premium, as if the same had been payable by virtue of a call duly made and notified.

Article 78

The Company shall have no lien on its fully paid shares. In the case of partly paid up shares, the Company shall have a first and paramount lien thereon only in respect of all moneys (whether presently payable or not) called or payable at a fixed time in respect of such shares and such lien shall extend to all dividends from time to time declared and payable in respect of such shares. Unless otherwise, agreed, the registration of a transfer of shares shall operate as a waiver of the Company's lien, if any, on such shares. The Directors may at any time declare any share to be wholly or in part exempt from the provisions of this clause.

Article 79

For the purpose of enforcing such lien the Board of Director may sell the shares subject thereto in such manner as they think fit but no sale shall be made unless a sum in respect of which the lien exists is presently payable and until notice in writing of the intention to sell shall have been served on such member or the person or persons entitled by transmission to the shares and default shall have been made by him or them in the payment of the sum payable as a aforesaid for seven days after the date of such notice.

Article 80

The net proceeds of any such sale, after payment of the cost of such sale, shall be applied in or towards satisfaction of all moneys called and payable in respect of such shares and the residue (if any) paid to such member or to the person (if any) entitled by transmission to the shares so sold.

Article 81

Upon any sale after forfeiture or for enforcing a lien in purported exercise of the powers hereinbefore given, the Directors may appoint some person to execute an instrument of transfer of the shares sold and cause the purchaser's name to be entered in the Register in respect of the shares sold and the purchaser shall not be bound to see the regularity of the proceedings or to the application of the purchase money and after his name has been entered in the Register in respect of such shares, the validity of the sale shall not be impeached by any person and the remedy of any person aggrieved by the sale shall be in damages only and against the Company exclusively.
TRANSFER AND TRANSMISSION OF SHARES

Article 37

The Company shall keep a book called "The Register of Transfers" and therein shall fairly and distinctly enter the particulars of every transfer or transmission of any shares.

Article 38

No transfer shall be registered unless a proper instrument of transfer has been delivered to the Company. The instrument of transfer of any share shall be duly stamped and be executed by or on behalf of the transferor and by or on behalf of the transferee and shall specify the name, address and occupation, if any of the transferee and the transferor shall be deemed to remain the holder of such share until the name of the transferee is entered in the Register in respect thereof. Shares of different Classes shall not be included in the same instrument of transfer.

Article 39

The instrument of transfer of any share shall be in writing in the usual common form or in such form as may be approved by or is current in any Recognised Stock Exchange or as near thereto as circumstances may require.

Article 40

a) The Directors may subject to the provisions of Section 111 of the Act in their absolute and uncontrolled discretion decline to register any transfer of or the transmission by operation of law of the right to any shares in or debentures of the Company to any person of whom they do not approve and in particular, may so decline in any case in which the Company has a lien upon the shares or any of them. The registration of a transfer shall be conclusive evidence of the approval by the Board of the Transferee but so far only as regards the share or shares in respect of which the transfer is so registered and not further or otherwise and not so as to debar the Directors from declining to register any subsequent or other transfer of other shares applied for in the name of such transferee. Provided that registration of any transfer shall not be refused on the ground of the transferor being either alone or jointly with any other person or persons indebted to the Company on any account whatsoever except as stated herein above.

b) The Directors may decline to register a transfer of shares on the ground that the share transfer is not of a marketable lot. The marketable lot will be decided in consultation with the concerned Stock Exchange.

Article 41

(1) An application for registration of transfer of a share or shares may be made either by the transferor or the transferee.

(2) Where the application is made by the transferor and relates to partly paid shares, the transfer shall not be registered unless the Company gives notice of the application to the transferee and the transferee makes no objection to the transfer within two weeks from the receipt of the notice.

3) For the purpose of sub-clause (2) hereof notice to the transferee shall be deemed to have been duly given if it is dispatched by prepaid registered post to the transferee at the address given in the instrument of transfer and shall be deemed to have been duly delivered in the ordinary course of post.

(4) It shall be lawful for the Company to refuse to register a transfer of any shares, unless a proper instrument of transfer duly stamped and executed by or on behalf of the transferee and specifying the name, address and occupation, if any, of the transferee has been delivered to the Company along with the certificate relating to the shares or if no such certificate is in existence along with the letter of allotment of shares provided that where on an application in writing made to the Company by the transferee and bearing the stamp required for an instrument of transfer, it is proved to the satisfaction of the Board of Directors that the instrument of transfer signed by or on behalf of the transferor and by or on behalf of the transferee has been lost the Company may register the transfer on such terms as to indemnity as the Board may think fit.

(5) If the Company refuses to register any such transfer or transmission of right, the Company shall within two months from the date on which the instrument of transfer or the intimation of such transmission as the case may be was delivered to the Company send notice of the refusal to the transferee and the transferor or to the person giving intimation of such transmission as the case may be giving reasons for such refusal.

Nothing in sub-clauses (4) hereof shall prejudice any power of the Company hereunder to refuse to register the transfer of or the transmission by operation of law of the right to any shares in or debentures of the Company. The Company shall comply with the provisions of Section 108 of the Act.

Article 42

Where any instrument of transfer of shares has been delivered to the Company for registration and the transfer of such shares has not been registered by the Company, it shall notwithstanding anything contained in any other provision of these Articles.

(a) transfer the dividend in relation to such shares to the Special Account referred to in Section 205-A of the Act, unless the Company is authorised by the registered holder of such shares in writing to pay such Dividend to the transferee specified in such instrument of transfer; and

(b) keep in abeyance in relation to such shares any offer of rights shares under clause (a) of sub-section (1) of Section 81 and any issue of fully paid-up bonus shares in pursuance of sub-section (3) of Section 205.

Article 43

Every instrument of transfer duly executed and stamped shall be left at the office for registration accompanied by the certificate of the shares to be transferred and such other evidence as the Company may require to prove the title of the transferor or his right to transfer the shares.

Article 44

All instruments of transfer which shall be registered shall be retained by the Company but any instrument of transfer which the Directors may decline to register shall, on demand, be returned to the Šperson depositing the same. The Directors may cause to be destroyed all transfer deeds lying with the Company after such periods as they may determine.

Article 45

The Directors may after giving not less than seven days previous notice by advertisement as required by Section 154 of the Act close the Register of Members or the Register of Debenture holders for any period or periods not exceeding in the aggregate forty-five days in each year but not exceeding thirty days at any one time.

Article 45A

(i) Every holder of Shares in, or holder of Debentures of the Company may, at any time nominate, in the prescribed manner under Section 109A of The Act, a person to whom his Shares, in or Debentures of the Company shall vest in the event of his death.

Where the Shares in, or debentures of the Company are held by more than one person, jointly, the joint holders may together nominate, in the prescribed manner under Section 109A of the Act, a person to whom all the rights in the Shares or Debentures of the Company shall vest in the event of death of all the joint holders.

Notwithstanding anything contained in any other law for the time being in force or in any disposition, whether testamentary or otherwise, in respect of shares in, or debentures of the Company, where a nomination made in the prescribed manner under Section 109A of the Act, purports to confer on any person the right to vest the Shares in, or Debentures of the Company, the nominees shall, on the death of the Shareholder or holder of Debentures of the Company or, as the case may be, on the death of the joint holders, become entitled to all the rights in the Shares or Debentures of the Company or, as the case may be, all the joint holders, in relation to such Shares in, or Debentures of the Company to the exclusion of all other persons, unless the nomination is varied or cancelled in the prescribed manner under Section 109A of the Act.

Where the nominee is a minor, it shall be lawful for the holder of the Shares, or holder of Debentures, to make the nomination to appoint, in the prescribed manner under Section 109A of the Act, any person to become entitled to Shares in, or Debentures of the Company, in the event of his death, during the minority."

Article 45B

(i). Any person who becomes a nominee by virtue of the provisions of the Section 109A of the Act, upon the production of such evidence as may be required by the Board and subject to as hereinafter provided, elect, either:-

a. to be registered himself as holder of the Shares or Debentures, as the case may be; or

b. to make such transfer of the Share or Debenture, as the case may be, as the deceased Shareholder or Debenture holder, as the case may be, could have made.

(ii) The Board shall, in either case, have the right to decline or suspend registration as it would have had, if the deceased Shareholder or Debenture holder had transferred the Shares or Debentures, as the case may be, before his death.

(iii) If the person being a nominee, so becoming entitled, elects to be registered as holder of the Shares or Debentures, himself, as the case may be, he shall deliver or send to the Company a notice in writing signed by him stating that he so elects and such notice shall be accompanied with the death certificate of the deceased Shareholder or Debenture holder, as the case may be.

(iv) All the limitations, restrictions and provisions of the Act relating to the right to transfer and the registration of transfers of Shares or Debentures shall be applicable to any such notice or transfer as aforesaid as if the death of the member had not occurred and the notice or transfer were a transfer signed by that Shareholder or Debenture holder, as the case may be.

A person, being a nominee, becoming entitled to a Share or Debenture by reason of the death of the holder shall be entitled to the same dividends and other advantages to which he would be entitled if he were the registered holder of the Share or Debenture except that he shall not, before being registered as holder in respect of his Share or Debenture, be entitled in respect of it to exercise any right conferred by membership in relation to meetings of the Company.

Provided that the Board may, at any time, give notice requiring any such person to elect either to be registered himself or to transfer the Share or Debenture, and if the notice is not complied with within 90 days, the Board may thereafter withhold payment of all dividends, bonuses or other monies payable in respect of the Share or Debenture, until the requirements of the notice have been complied with."

Article 46

Subject to the provisions of Articles 45A and 45B the Executors or administrators or a deceased shareholder (whether European, Hindu, Mohammedan, Parsi and otherwise) or the holder of a succession certificate shall be the only persons to be recognised by the Company as having any title to his share except in case of joint holders in which case the surviving holder or holders or the executors or administrators of the last surviving holders shall be the only persons entitled to be so recognised but nothing herein contained shall release the estate of a deceased joint holder from any liability in respect of any shares held jointly by him. The Company shall not be bound to recognise such executor or administrator or the holder of a succession certificate unless he shall have obtained Probate or Let ters or Administration or a Succession Certificate or other legal representation as the case may be from a duly constituted competent court in India or from any court or authority authorised by any Act of the Legislature of India or by any order or notification of the president of India to grant such Probate, Letters of Administration, Succession Certificate or other legal representation provided nevertheless that it shall be lawful for the Directors in their absolute discretion to dispense with the production of Probate or Letters of Administration or Succession Certificate or other legal representation upon such terms as to indemnity or otherwise as the Directors may deem fit.

Article 47

Any person becoming entitled to shares in consequence of the death, lunacy or insolvency of any member, upon producing proper evidence of the grant of Probate or Letters of Administration or Succession Certificate or such other evidence that he sustains the character in respect of which he proposes to act under this Clause or of his title, as the Directors (which they shall not be under any obligation to give) be registered as a member in respect of such share or may subject to the regulations as to transfer hereinbefore contained, transfer such shares. This Clause is herein referred to as the "Transmission Clause".

Article 48

The Directors shall subject to the provisions of Article 40 hereof have the same right to refuse to register a person entitled by transmission to any shares or his nominee, as if he were the ransferee named in an ordinary transfer presented for registration.

Article 49

Every transmission of share shall be verified in such manner as the Directors may require and the Company may refuse to register any such transmission until the same be so verified or until and unless an indemnity be given to the Company with regard to such registration which the Directors in their discretion shall consider sufficient; provided nevertheless that there shall not be any obligations on the Company or the Directors to accept an indemnity.

Article 50

A fee not exceeding twenty five paise per share may be charged in respect of the transfer or transmission to the same party of any number of shares of any class or denomination subject to such Šmaximum on any transfer or transmission as may from time to time be fixed by the Directors. Such maximum may be a single fee payable on any one transfer or transmission of any number of shares of one class or denomination or may be on a graded scale varying with the number of shares of any one class comprised in one transfer or transmission or may be fixed in any other manner as the Directors in their discretion determine. It is clarified that the Directors may resolve not to charge any fee on transfer or transmission in respect of all or any class or any number of shares.

Article 51

The certification of the Company of any instrument of transfer of shares in or debentures of the Company shall be taken as a representation by the Company to any person acting on the faith of the certification that there have been produced to the Company such documents as on the face of them show a prima facie title to the shares or debentures in the transferor named in the instrument but not as a representation that the transferor has any title to the shares or debentures.

Article 52

The Company shall incur no liability or responsibility whatsoever in consequence of its registering or giving effect to any transfer of shares made or purported to be made by any apparent legal owner thereof (as shown or appearing on the Register of Members) to the prejudice of persons having or claiming any equitable right, title or interest to or in the same shares notwithstanding that the Company may have had notice of such equitable right, title or interest, or notice prohibiting registration of such transfer and may have entered such notice or referred thereto in any book of the Company and the Company shall not be bound or required to attend or give effect to any such notice which may be given to it of any equitable right, title or interest, or be under any liability whatsoever for refusing or neglecting to do so, though it may have been entered or referred to in some book of the Company, but the Company shall nevertheless be at liberty to regard and attend to any such notice and give effect thereto if the Directors shall so think fit.

Article 53

The provisions of these Articles mutatis mutandis apply to the transfer of or the transmission by operation of law of the right to debentures of the Company.

Article 53A
DEMATERIALISATION OF SECURITIES

For the purpose of this Article:

"SEBI" means the Securities and Exchange Board of India established under Section 3 of the Securities and Exchange Board of India Act, 1992.

"Depositories Act" means the Depositories Act, 1996, including any statutory modifications or re-enactment thereof for the time being in force.

"Depository" means a company formed and registered under the Companies Act, 1956 and which has been granted a certificate of registration under sub-section (1A) of Section 12 of the Securities and Exchange Board of India Act, 1992.

"Bye-laws" means bye-laws made by a Depository under Section 26 of the Depositories Act.

"Beneficial Owner" means a person whose name is recorded as such with a Depository.

"Member" means the duly registered holder from time to time of the shares of the Company and includes every person whose name is entered as a Beneficial Owner in the records of the Depository.

"Participant" means a person registered as such under Section 12(1A) of the Securities and Exchange Board of India Act, 1992.

"Record" includes the records maintained in the form of books or stored in Computer or in such other form as may be determined by regulations made by SEBI in relation to the Depositories Act.

"Regulations" means the regulations made by SEBI.

"Security" means such security as may be specified by SEBI.

Words imparting the singular number only include the plural number and vice versa.

Words imparting persons include corporations.

Words and expressions used and not defined in the Act but defined in the Depositories Act, shall have the same meanings respectively assigned to them in that Act.

Either the company or the investor may exercise an option to issue, deal in, hold the securities (including shares) with a Depository in electronic form and the certificates in respect thereof shall be dematerialised, in which event the rights and obligations of the parties concerned and matters connected therewith or incidental thereof, shall be governed by the provisions of the Depositories Act, as amended from time to time or any statutory modification thereto or re-enactment thereof.

Notwithstanding anything contained in these Articles, the Company shall be entitled to dematerialise its existing securities, rematerialise its securities held in the Depositories and/or offer its fresh securities in a dematerialised form pursuant to the Depositories Act, and the rules framed thereunder, if any.

Every person subscribing to or holding securities of the Company shall have the option to receive security certificates or to hold the securities with a Depository.

If a person opts to hold his security with Depository, the Company shall intimate such Depository the details of allotment of the security, and on receipt of the information, the Depository shall enter in its records the name of the allottees as the Beneficial Owner of the security.

5. All securities held by a Depository shall be dematerialised and be in fungible form. Nothing contained in Sections 153, 153A, 153B, 187B, 187C and 372 of the Act, shall apply to a Depository in respect of the securities held by it on behalf of the Beneficial Owner.

6. (a) Notwithstanding anything to the contrary contained in the Act, or these Articles, a Depository shall be deemed to be registered owner for the purposes of effecting transfer of ownership of security on behalf of the Beneficial Owner.

(b) Save as otherwise provided in (a) above, the Depository as the registered owner of the securities shall not have any voting rights or any other rights in respect of the security held by it.

(c) Every person holding securities of the Company and whose name is entered as the Beneficial Owner in the records of the Depository shall be deemed to be a member of the Company. The Beneficial Owner of securities shall be entitled to all the rights and benefits and be subject to all the liabilities in respect of his securities which are held by a Depository.

7. Except as ordered by a Court of competent jurisdiction or as required by law, the Company shall be entitled to treat the person whose name appears on the Register of Members as the holder of any share or where the name appears as the Beneficial Owner of shares in the records of the Depository as the absolute owner thereof and accordingly shall not be bound to recognise any benami trust or equitable, contingent, future or partial interest in any share, or (except only as is by these Articles otherwise expressly provided) any right in respect of a share other than absolute right thereto in accordance with these Articles, on the part of any other person whether or not it has express or implied notice thereof, but the Board shall be entitled at their sole discretion to register any share in the joint names of any two or more persons or the survivors of them

8. Every Depository shall furnish to the Company information about the transfer of securities in the name of the Beneficial Owner at such intervals and in such manner as may be specified by the bye-laws and the Company in that behalf.

9. Upon receipt of certificate of securities on surrender by a person who has entered into an agreement with the Depository through a Participant, the Company shall cancel such certificate and substitute in its records the name of Depository as the registered owner in respect of the said securities and shall also inform the Depository accordingly.

10. If a Beneficial Owner seeks to opt out of a Depository in respect of any security, the Beneficial Owner shall inform the Depository accordingly.

The Depository shall on receipt of information as above make appropriate entries in its records and shall inform the Company.

The Company shall within thirty (30) days of the receipt of intimation from the Depository and on fulfillment of such conditions and payment of such fees as may be specified by the regulations, issue the certificate of securities to the Beneficial Owner or the transferee as the case may be.

11. Notwithstanding anything in the act, or these Articles to the contrary, where securities are held in a Depository, the records of the beneficial ownership may be served by such Depository on the Company by means of electronic mode or by delivery of floppies or discs.

12. Except as specifically provided in these Articles, the provisions relating to joint holders of shares, calls, lien or shares, forfeiture of shares and transfer and transmission of shares shall be applicable to shares held in Depository so far as they apply to shares in physical form subject to the provisions of the Depository Act.

13. Notwithstanding anything in the Act, or these Articles where securities are dealt with by a Depository, the Company shall intimate the details thereof to the Depository immediately on allotment of such securities.

14. The Shares in the capital shall be numbered progressively according to their several denominations provided, however, that the provision relating to progressive numbering shall not apply to the shares of the Company which are dematerialised or may be dematerialised in future or issued in future in dematerialised form. Except in the manner hereinbefore mentioned, no share shall be sub-divided. Every forfeited or surrendered share held in material form shall continue to bear the number by which the same was originally distinguished.

15. The Company shall cause to keep a Register and Index of Members and a Register and Index of Debenture holders in accordance with Section 151 and 152 of the Act respectively, and the Depositories Act, with details of shares and debentures held in material and dematerialised forms in any media as may be permitted by law including in any form of electronic media. The Register and Index of Beneficial Owners maintained by a Depository under Section 11 of the Depositories Act, shall be deemed to be Register and Index of Members and Register and Index of Debenture holders, as the case may be, for the purpose of the Act. The Company shall have the power to keep in any state or country outside India a branch Register of Members resident in that state or country.

16. The Company shall keep a Register of Transfers and shall have recorded therein fairly and distinctly particulars of every transfer or transmission of any share held in material form.
DIVIDEND

Article 210

(a) Subject to the provisions of the Act and these presents and subject to the right of persons entitled to shares with special rights as to dividend, the profits of the Company which it shall from time to time be determined to distribute as dividends, shall be divisible amongst the members in proportion to the capital paid up or credited as paid up on the shares held by them respectively.

(b) No amount paid or credited as paid on a share in advance of calls shall be treated for the purposes of this Clause as paid on the share.

(c) All dividends shall be apportioned and paid proportionately to the amounts paid or credited as paid on the shares during any portion or portions of the period in respect of which the dividend is paid but if any share is issued on terms providing that it shall rank for dividend as from a particular date, such share shall rank for dividend accordingly.

Article 211

The Company in General Meeting may declare a dividend to be paid to the members according to their rights and interests in the profits and may fix the time for payment.

Article 212

No larger dividend shall be declared than is recommended by the Directors but the Company in General Meeting may declare a smaller dividend.

Article 213

No dividend shall be payable except out of the profits of the Company and no dividend shall carry interest as against the Company.

Article 214

The declaration of the Directors as to the amount of the net profits of the Company shall be conclusive.

Article 215

The Directors may from time to time pay to the members such interim dividends, as in their judgment the position of the Company justifies.

Article 216

The Directors may retain any dividends on which the Company has a lien and may apply the same in or towards the satisfaction of the debts, liabilities or engagements in respect of which the lien exists.

Article 217

Any General Meeting declaring a dividend may make a call on the members of such amount as the meeting fixes but so that the call on each member shall not exceed the dividend payable to him and so that the call may be made payable at the same time as the dividend and the dividend may, if so arranged between the Company and the member, be set off against the call. The making of a call under this clause shall be deemed ordinary business of an Ordinary General Meeting which declares a dividend.

Article 218

A transfer of shares shall not pass the right to any dividend declared thereon before the registration of the transfer.

Article 219

The Directors may retain the dividends payable upon shares in respect of which any person is under the transmission Clause Article No. 44 entitled to become a member or which any person under that Article is entitled to transfer until such person shall become a member in respect thereof or shall duly transfer the same.

Article 220

No dividend shall be payable except in cash. A dividend payable in cash may be paid by cheque or warrant sent through the post directed to the registered address of the member entitled to the payment of the dividend or in the case of joint holders to the registered address of that one of the joint holders which is the first named on the Register of Members or to such person and to such address as the member or the joint holders may in writing direct, and every cheque or warrant so sent shall be made payable to the order of the person to whom it is sent. The Company shall not be responsible or liable for any cheque or warrant lost in transmission or for any dividend lost to the member or person entitled thereto by the forged endorsement of any cheque or warrant or the fraudulent recovery thereof by any other means.

Article 221

Notice of the declaration of any dividend whether interim or otherwise shall be given to the holder of registered shares in the manner hereinafter provided.

Article 222

The Company shall pay the dividend or post the cheque or warrant in respect thereof to the shareholders entitled to the payment thereof within forty two days from the date of the declaration of dividend except-

(a) where the dividend could not be paid by reason of the operation of any law;

(b) where member has given directions to the Company regarding the payment of the dividend and these directions cannot be complied with;

(c) where there is a dispute regarding the right to receive the dividend;

(d) where the dividend has been lawfully adjusted by the Company against any sum due to it from the member;

(e) where for any reason, the failure to pay the dividend or to post the warrant within the aforesaid period was not due to any default on the part of the Company.

Article 223

As regards all dividends unpaid or unclaimed the Company shall comply with the provisions of Section 205 A of the Act.
VOTING RIGHTS

Article 117

A member paying the whole or a part of the amount remaining unpaid on any shares held by him, although no part of that amount has been called up shall not be entitled to any voting rights in respect of the moneys so paid by him until the same would but for such payment become presently payable.

Article 118

No member shall exercise any voting right in respect of any shares registered in his name, on which any calls or other sums presently payable by him have not been paid or in regard to which the Company has and has exercised any right of lien.

Article 119

Subject to the provision of Articles 117 and 118.

(a) every member of the Company holding any Equity Share Capital and otherwise entitled to vote shall on a show of hands when present in person, have one vote.

(b) every member of the Company holding any Equity Share Capital and otherwise entitled to vote shall on a poll when present in person or by proxy have one vote for each Equity Share of the nominal value of Rs.10/- held by them.

(c) every member of the Company holding Equity Share Capital and otherwise entitled to vote shall on a poll when present in person or by proxy have voting right in proportion to his share of the paid up Equity Capital of the Company.

Article 120

Subject to the provisions of Section 87 of the Companies Act, 1956, the holder of the Preference Shares shall have, in respect of such Preference Shares held by them, the right to vote only on resolutions placed before the Company in General Meeting which directly affect the rights attached to such Preference Shares.

Article 121

1. Subject to the provisions of Article 117 and 118 every member of the Company holding Preference Share Capital, be entitled to vote on every resolution placed before the Company at any meeting, if the dividend due on such capital or any of such dividend has remained unpaid :-

(i) In the case of Cumulative Preference Shares, in respect of an aggregate period of not less than two years preceding the date of commencement of the meeting; and

(ii) In the case of Non-Cumulative Preference Shares either in respect of a period of not less than two years ending with the expiry of the financial year immediately preceding the commencement of the meeting or in respect of any aggregate period of not less than three years comprised in the six years ending with the expiry of the financial year aforesaid.

2. For the purpose of sub-clause (1) hereof, dividend shall be deemed to be due on Preference Shares in respect of any period whether a dividend has been declared by the Company on such shares for such period or not -

(a) on the last day specified for the payment of such dividend for such period, in any instrument executed by the Company in that behalf; or

(b) in case no day is so specified on the day immediately following such period.

3. Where the holder of any Preference Share has a right to vote on any resolution in accordance with the provisions of sub- clause (1) hereof, his voting right on a poll, as the holder of such share, shall subject to the provisions of Section 89 and sub-section (2) of section92 of the Act, be in the same proportion as the capital paid up in respect of the Preference share bears t the total paid up Equity Capital of the Company.

Article 122

No member not personally present shall be entitled to vote on a show of hands unless such member is a company or a corporation present by proxy or by a representative duly authorised under section 187 of the Act in which case, such proxy or representative may vote on a show of hands as if he were a member of the Company.

Article 123

Votes may be given either personally or by proxy or in the case of the Company or other Corporation, by a representative duly authorised as aforesaid.

Article 124

The instrument appointing a proxy shall be in writing and signed by the appointer or his attorney duly authorised in writing or if the appointer is a body corporate be under its seal or be signed by an officer or attorney duly authorised by it.

Article 125

Every notice convening a meeting of the Company shall state that a member entitled to attend and vote at the meeting is entitled to appoint a proxy to attend and vote instead of himself and that a proxy need not be a member of the Company.

Article 126

The instrument appointing a proxy and the Power of Attorney or other authority (if any) under which it is signed or a notarially certified copy of that Power of Attorney or authority shall be deposited at the Registered Office of the Company not less than 48 hours before the time for holding the meeting or adjourned meeting at which the person named in the instrument proposes to vote and in default the instrument of proxy shall not be treated as valid.

Article 127

A vote given in accordance with the terms of an instrument of proxy shall be valid, notwithstanding the previous death or insanity of the principal or the revocation of the proxy or the transfer of the share in respect of which the vote is given provided that no intimation in writing of such death, insanity, revocation or transfer shall have been received by the Company at its office before the commencement of the meeting or adjourned meeting at which the proxy is used.

Article 129

Every member entitled to vote at a meeting of the Company or on a resolution to be moved thereat, shall be entitled during the period beginning twenty-four hours before the time fixed for the commencement of the meeting and ending with the conclusion of the meeting to inspect the proxies lodged, at any time during the business hours of the Company provided not less than three days notice in writing of the intention so to inspect is given to the Company.

Article 130

Any person entitled under the Transmission Clause to transfer any shares, may vote in a General Meeting in respect thereof in the same manner as if he were the registered holder of such share provided that forty-eight hours at least before the time of holding the meeting or adjourned meeting as the case may be, at which he proposes to vote, he shall satisfy the Directors of his right to transfer such shares unless the Directors shall have previously admitted his right to vote at such meeting in respect thereof.

Article 131

Where there are joint-holders of any shares, any of such persons may vote at any meeting either personally or by proxy or by agent duly authorised under a power of attorney in respect of such share as if he were solely entitled thereto, and if more than one such joint holders be present at any meeting personally or by proxy or by an agent duly authorised under a power of attorney that one of the said persons so present whose name stands first or higher as the case may be on the register in respect of such share shall alone be entitled to vote in respect thereof but the other or others of the joint-holders shall be entitled to be present at the meeting provided always that a person present at any meeting personally shall be entitled to vote in preference to a person present by proxy although the name of such person present by an agent or by proxy stands first or higher in the Register in respect of such share. Several executors or administrators of a deceased member in whose (deceased member's) solo name any shares stand, shall for purposes of this clause be deemed joint-holders thereof.

Article 132

A member of unsound mind in respect of whom an order has been made by a court having jurisdiction in lunacy may vote whether on a show of hands or on a poll by his committee or other legal guardian and any such committee or guardian may on a poll vote by proxy. A member who is a minor may vote by his guardians if more than one to be elected in case of dispute by the Chairman of the Meeting.

Article 133

No objection shall be raised to the qualification of any voter except at the meeting or the adjourned meeting at which the vote objected is given or tendered and every vote not disallowed at such meeting, shall be valid for all purposes. Any such objection made in due time shall be referred to the Chairman of the Meeting whose decision shall be final and conclusive.

Article 134

(a) Any member of the Company entitled to attend and vote at a meeting of the Company shall be entitled to appoint another person (whether a member or not) .PA as his proxy to attend and vote instead of himself, but a proxy so appointed shall not have any right to speak at the meeting.

(b) A proxy shall not be entitled to vote except on a poll.

Article 135

If such instrument of appointment be confined to the object of appointing an attorney or proxy or substitute, it shall remain permanently and for such time, as the Directors may determine, in the custody of the Company, if embracing other objects, a copy thereof examined with original shall be delivered to the Company to remain in the custody of the Company.
WINDING UP

Article 231

If the Company shall be wound up the Liquidator may with the sanction of a special resolution of the Company and any other sanction required by the Act divide amongst the members in specie or in kind the whole or any part of the assets of the Company whether they shall consist of the property of the same kind or not.

Article 232

For the purpose aforesaid the Liquidator may set such value as he deems fair upon every property to be divided as aforesaid and may determine how much divisions can be carried out as between the members or different classes of members.

Article 233

The Liquidator may with the like sanction vest the whole or any part of such assets in trustees upon such trust for the whole or any part of such assets in trustees .PA upon such trust for the benefit of the contributories as the Liquidator with the like sanction shall think fit, but so that no member shall be compelled to accept any shares or other securities whereon there is any liability.
INDEMNITY

Article 234

Subject to the provisions of the Companies Act, 1956 every Director, Manager, Managing Director, Wholetime Director or other Officer of the Company or any person (whether an Officer of the Company or not) employed by the Company as Auditor shall be indemnified out of the funds of the Company against all liability incurred by him as such Director, Officer or Auditor in which judgment is given in his favor or in which he is acquitted or in connection with any application under Section 633 of the Act in which relief is granted to him by the court.

Article 235

Subject to the provisions of the Companies Act, 1956 no Director, Auditor or other Officer of the Company shall be liable for the Acts, receipts, neglects or defaults of any other Director or Officer or for joining in any receipt or other Act for conformity or for any loss or expenses happening to the Company through the insufficiency or deficiency of title to any property acquired by order of the Directors for and on behalf of the Company or for the insufficiency or deficiency of any security in or upon which any of the moneys of the Company shall be invested or for any loss or damage arising from the bankruptcy, insolvency or tortuous act of any person, firm or Company to or with whom any moneys, securities or effects shall be entrusted or deposited or for any loss occasioned by any error or judgment, omission, default or oversight on his part or for any other loss, damage or misfortune whatever which shall happen in relation to the execution of the duties of his office or in relation thereto unless the same shall happen through his own dishonesty.
BORROWING POWERS

Article 181

Subject to the provisions of Section 292 and 293 of the Act the Board of Directors may from time to time at their discretion and by means of resolutions passed at their meetings accept deposits from members either in advance of calls or otherwise or borrow or secure the payment of any sum or sums of money for the purpose of the Company. Provided however that where the moneys to be borrowed together with money already borrowed by the Company (apart from temporary loans obtained from the Company's bankers in the ordinary course of business) exceed the aggregate of the paid up capital of the Company and its free reserves that is to say, reserves not set apart for any specific purpose, the Directors shall not borrow such moneys without the consent of the Company in General Meeting. Every resolution passed by the Company in General Meeting in relation to the exercise of the power to borrow moneys shall specify the total amount upto which moneys may be borrowed by the Board of Directors. No debt incurred by the Company in excess of the limit imposed by this clause shall be valid or effectual unless the lender proves that he advanced the loan in good faith and without knowledge that the limit imposed by this Article has been exceeded.

NUMBER OF DIRECTORS

Article 136

The number of Directors shall not be less than three or until otherwise determined by a General Meeting, more than twelve, excluding the debenture director or corporation director, if any.

ALTERNATE DIRECTOR

Article 165

The Directors may appoint an Alternate Director to act for a Director (hereinafter in this Article called the Original Director) during his absence for a period of not less than three months from the State in which meetings of the Board are ordinarily held. An Alternate Director shall not be bound to hold any qualification shares. An Alternate Director so appointed shall not hold office as such for a period longer than permissible to the original director in whose place he has been appointed and shall vacate office if and when the Original Director returns to the State in which meetings of the Board are ordinarily held. If the term of the office of the Original Director is determined before he so returns to the State aforesaid any provision for the automatic re-appointment of a retiring Director in default of another appointment shall apply to the original and not the Alternate Director.

CORPORATION OR NOMINEE DIRECTOR

Article 167

Notwithstanding anything to the contrary contained in these Articles, so long as any moneys remain owing by the Company to any Public Financial Institution or any other Company or body (hereinafter in this Article referred to as "the Corporation") continues to hold debentures in the Company by direct subscription or Private placement, or so long as the Corporation holds shares in the Company as a result of underwriting or direct subscription or so long as any liability of the Company arising out of any loans granted or any guarantee furnished by the Corporation on behalf of the Company remains outstanding, the Corporation shall have a right to appoint from time to time, any persons as a Director or Directors, (which Director or Directors is/are hereinafter referred to as "Nominee Director/s") on the Board of the Company and to remove from such office any person or persons so appointed and to appoint any other person or persons in his or their places.

The Board of Directors of the Company shall have no power to remove from office the Nominee Director/s . At the option of the Corporation such Nominee Director/s shall not be required to hold any share qualification in the Company. Also at the option of the Corporation such Nominee Director/s shall not be liable to retirement by rotation of Directors. Subject as aforesaid, the Nominee Director/s shall be entitled to the same rights and privileges and be subject to the same obligations as any other Director of the Company.

Any such Director shall ipso facto vacate such office immediately the money owing by the Company to the Corporation is paid off or of the corporation ceasing to hold Debentures/shares in the Company or on the satisfaction of the liability of the Company arising out of any guarantee furnished by the Corporation.

The Nominee Director/s appointed under this Article shall be entitled to receive all notices of and attend all General Meetings, Board Meetings and of the Meetings of the Committee of which the Nominee Director/s is/are member/s as also the minutes of such meetings, the corporation shall also be entitled to receive all such notices and minutes.

The Company shall pay to the Nominee Director/s sitting fees and expenses which the other Directors of the Company are entitled, but if any other fees, commission, moneys or remuneration in any form is payable to the Directors of the Company, the fees, commission, moneys and remuneration in relation to such Nominee Director/s shall accrue to the Corporation and shall accordingly be paid by the Company directly to the Corporation. Any expenses that may be incurred by the Corporation or such Nominee Director/s in connection with their appointment or Directorship shall also be paid or reimbursed by the Company to the Corporation or as the case may be to such Nominee Director/s.

Provided that if any such Nominee Director/s is an officer of the Corporation the sitting fees, in relation to such Nominee Director/s shall if so required by the Corporation also accrue to the Corporation and the same shall accordingly be paid by the Company directly to the Corporation.

Provided also that in the event of the Nominee Director/s being appointed as Whole-time Director/s such Nominee Director/s shall exercise such powers and duties as may be approved by the Lenders and have such right as are usually exercised or available to a Whole-time Director, in the management of the affairs of the Borrower. Such Nominee Director/s shall be entitled to receive such remuneration, fees, commission and moneys as may be approved by the Lenders.

QUALIFICATION OF DIRECTOR

Article 141

It shall not be necessary for a Director to hold any share in the Company to qualify for the Office of a Director.
REMUNERATION OF DIRECTOR

Article 142

(a) Subject to the provisions of Section 310 of the Act, each director shall be entitled to be paid out of the funds of the Company by way of remuneration for his services, such sum not exceeding the amount prescribed under that section from time to time as applicable for each meeting of the Board or Committee of the Board, attended by him as may be decided by the Board from time to time. Subject to the sanction of the General Meeting the Directors may in addition to the fee for each meeting attended or in substitution thereof as the Directors may consider expedient distribute as commission such sum not exceeding 1% of the net profits of the Company computed under the Act, in such manner and in such proportion, as the Directors may in their absolute discretion decide, among some or all non- working Directors of the Company.

(b) In addition to the remuneration payable as above, the Board of Directors may allow and pay to any Director who is not a bonafide resident of the place where a meeting is held and who shall come to such place for the purpose of attending the meeting such sum as the board may consider fair compensation for travelling, hotel and other expenses properly incurred by him.

i) in attending and returning from meeting of the Board of Directors or any Committee or General Meeting of the Company; or

ii) in connection with the business of the Company.
APPOINTMENT OF MANAGING/WHOLE TIME DIRECTOR

Article 158

(1) Subject to the provision of Section 269 of the Act read with Schedule XIII thereof the Directors may from time to time appoint one or more of their body to be the Managing Director or Managing Directors or Whole-time Directoror whole time Directors of the Company for a term not exceeding five years at a time and may from time to time subject to the provisions of any contract between the Company and him or them remove or dismiss him or them from office and appoint another or others in him or their place or places.

(2) The Managing Director or Managing Directors or Whole-time Director or Whole-time Directors, while he or they continues or continue to hold that office, shall not be subject to retirement by rotation and shall not be taken into account in determining the retirement by rotation of Directors or the number of Directors to retire, but he or they shall be subject to the same provisions as to resignations or removal of the other Directors of the Company and he or they shall ipso facto and immediately cease to be a Managing Director or Managing Directors or Whole-time Director or Whole-time Directors if he or they ceases or cease to hold the office of a Director for any cause.

3) Subject to the provisions of the Act, the remuneration of a Managing Director or Managing Directors or Whole-time Director or Whole-time Directors shall subject to the provisions of any

contract between the Company and him or them, be from time to time fixed by the Directors and subject to the provisions of the Act, may be by way of fixed salary or commission and/or in any other mode and may be in addition to the remuneration for attendance of the Board Meetings and any other remuneration which may be provided under any other Articles.

(4) The Directors may from time to time subject to the provisions of the Act entrust to or confer upon the Managing Director or Managing Directors or Whole-time Director or Whole-time Directors for the time being such of the powers exercisable by the Directors under these presents or by law, as they may think fit, and may confer such powers for such time and to be exercised for such objects and purposes and upon such terms and conditions and with such restrictions, as they think expedient, and they may confer such powers either collaterally with or to the exclusion of or in substitution for all or any of the powers of the Directors in that behalf and may from time to time revoke, withdraw, alter or vary all or any of such powers.

MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION

The following contracts and agreements referred to in paragraph ‘A’ below ( not being entered into the ordinary course of business carried on or intended to be carried on by the company or contracts entered into more than two years before the date of this Offer Document) which are or may be deemed to be material have been entered into by or on behalf of the company. Copies of these contracts together with copies of the documents referred to in Para (B) below have been attached with the Offer Document and delivered to the Registrar of Companies, Mumbai for registration and may be inspected at the Registered office of the company between 10.00 am and 1.00 PM on any working day until the closing date of the subscription list.
A. Material contracts

Memorandum of understanding between the Company and the lead managers dared 12^th October 1999.

Agreement between the Company and the Registrar to the company dated 12^th October 1999.

Letter of Underwriting from all underwriters and acceptance thereof by the company.

Copies of the agreement with Punjab National Bank for term loan as detailed below for sanction of loans for the projects:

Institution

Agreement Date

PNB

Rs. 2.10 crs sanctioned, the agreement dt. 17.01.99

For Rs.0.75 crs, the agreement dt. 02.02.98

B. Material Documents

Memorandum and Articles of Association of the company

Copies of the resolution passed under Section 81 and 81 (1A) of the Act at the Annual General Meeting of the company held on August 23, 1999. Board resolutions of Usha Martin Ventures Ltd. Brij Investments Private Ltd dated 5^th Ooctober, 1999 and Multibis financial services Ltd dated 23^rd September 1999.

Consents from Lead Managers, Registrars, Bankers to the Issue, Bankers to the company, Auditors, Legal Advisor,to the company to act in their respective capacities.

Reports from Auditors of the company dated September 30,1999 referred to in the Offer Document in part I and auditors statement dated September 30, 1999 in part II and their consent for inclusion of the report in the Offer Document.

Certificate of Auditors on Tax benefits dated September 30, 1999 and their consent for inclusion in the Offer Document.

Copies of Annual reports for the last 5 accounting years ending March 31, 1999.

Copies of Initial listing applications made to Stock Exchanges at Mumbai and the National Stock Exchange of India for listing of the equity shares of the company.

Letter dated from SEBI regarding the offer document filed with it.

Letter dated 21^st April, 1999 from Punjab National Bank approving Term loan and working capital facilities.

Mortgage Agreement dated 19^th March, 1998 between MIDC, MITL & PNB

Letter No 1/3/93-EP (OI) approving the setting of a Joint Venture Company in USA and RBI approval letter for the same.

Agreement for Software Export Technology Park, Mumbai dated 30^th November, 1998.

Letter No. STPB/Melstar/95/2044 dated 26^th September, 1995 approving the setting up of STP Unit at Bangalore .

Bombay High Court order dated 8^th August. 1996 sanctioning the scheme of Amalgmation of EMCO Polymers Private Ltd with Melstar Information Technologies Ltd.

Bombay High Court order dated 8^th July. 1999 sanctioning the scheme of Amalgmation of Melstar Industries Ltd with Melstar Information Technologies Ltd.

Licence No EC.Mumbai.Proj.Exp./445/10.03.01/M.91/98-99 from RBI approving holding foreign currency shares for its setting up of wholly owned subsidiaries.

Agreements with Global Systems Development Inc. for Project development services

Software Programming Agreement between IBM Global Services India Pvt. Ltd and MITL

Legal agreement for Unit –35 SDF, SEEPZ

Software development agreement with Informix Software India Pvt Ltd.
f. DECLARATION

We declare that all the provisions of the Act and the guidelines issued by SEBI and the Government have been complied with and no statement made in this Offer Document is contrary to the provisions of the Act and Rules made thereunder.

We, the directors of Melstar Information Technologies Ltd. declare and confirm that no information/ material likely to have a bearing on the decision of the investors in respect of the equity shares offered in terms of the Offer Document has been suppressed/ withheld and / or incorporated in a manner that would amount to misstatement/ mis-representation and in the event of it transpiring at any point of time till allotment/ refund, as the case may be, that any information/material has been suppressed/ withheld and/ or amounts to mis-statement/ mis- representation, we undertake to refund the entire application moneys to all the subscribers within seven days thereafter, without prejudice to the provisions of section 63 of the Act.

The issuers accepts no responsibility for statements made otherwise than in the Offer Document or in the advertisement or any other material issued by or at the instance of the company and that any one placing reliance on any other source of information would be doing so at is own risk.
SIGNED BY DIRECTORS OF MELSTAR INFORMATION TECHNOLOGIES LTD.

Mr. Suresh Bansal*

Mr. Surinder Mohan Arora*

Mr. Sattar Shaikh

Mr. Bharat Ramani*

Mr. Prashant Jhavar*

* through their duly constituted attorney Mr -----------------

For and on behalf of Usha Martin Ventures Limited.

By constituted attorney

For and on behalf of Brij Investments Pvt. Ltd.

By constituted Attorney

For and on behalf of Multibis Financial Services Ltd..

By constituted attorney

Place : Mumbai

Dated : ____, 1999

ICICI Securities and Finance Company Limited 41/44, Minoo Desai Marg, Colaba Mumbai 400 005 Phone : (022) 288 2460 / 70 Fax : (022) 2837045		Kotak Mahendra Capital Company Bakhtawar, 1^st floor, 229, Nariman Point, Mumbai 400 021. Phone : (022) 2826655 Fax : (022) 2826632

	No. of Shares	Date of Transfer
Mr. S. M. Arora & Family	43225	17.05.1999
Mr Suresh Bansal & Family	3625 258565	29.04.1999 17.05.1999
Mr. Sattar Sheikh & Family	55370	17.05.1999
Mr Bharat Ramani & Family	55370	17.05.1999
Total Shares	416255

Particulars	1999-2000	2000-2001	Total
Melstar Development Centre – MIDC Mumbai	80.50	120.00	200.50
Software Development Centre – SEEPZ Mumbai	240.50		240.50
Investment in Melstar Inc.	420.00		420.00
Infracture upgradation	40.00	60.00	100.00
Investment in UK Development Centre	84.00	126.00	210.00
Prepayment of Term Loans	195.00		195.00
Reduction in Fund based limits	180.00		180.00
Issue Expenses	100.00		100.00
Total	1340.00	306.00	1646.00

Institution	Agreement Date	Amount Sanctioned	Rate Of Interest	Repayment Schedule	Security
Punjab National Bank	2^nd February 1998	Rs. 75 Lacs Note: Amt O/s as on 30^th September 99 Rs. 43.75 Lacs	4% over PNB’s Term Lending rate presently 16.32%	12 equal quarterly installments of 6.25 lacs after a morotarium period of 6 months from the date of 1^St disbursement and Interest to be recovered seperately as and when charged.	Hypotecation of various assets at SEEPZ officeand at G-4 Melstar House and Personal Gaurantee of Directors.
Punjab National Bank	17^th June 1999	Rs.210 Lacs Note: Amt O/s as on 30^th September 99 Rs. 150.90 Lacs	4% over PNB’s Term Lending rate presently 16.32%	12 equal quarterly installments of 17.50 lacs after a morotarium period of 6 months from the date of 1^St disbursement and Interest to be recovered seperately as and when charged.	Hypotecation of various assets at SEEPZ office, G-4 Melstar House and at Bangalore, Pari passu charge with consortium agreement with Vysya Bank and personal gaurantee of Directors.

MELSTAR , Inc.
Balance Sheet	Year ended 31.12.1998 ( US$)		Year ended 31.12.1997 ( US$)
ASSETS

CURRENT ASSETS
Cash		11,252.14		7,403.51
Account Receivable		608,301.00		95,000.00
Advances to MITL, the parent company		80,000.00		-
Total Current Assets		699,553.14		102,403.51
FIXED ASSETS
At Cost	19,425.38		12,326.25
Less : Accumulated Depreciation	19,425.38	-	11,621.38	704.87
Investments	450.00	450.00	-	-
Total Fixed Assets		450.00		704.87
OTHER ASSETS
Deposits	4,300.00	4,300.00	500.00	500.00
Organisational Expenses	3,000.00		3,000.00
Less : Written off	3,000.00	-	2,400.00	600.00
Total Other Assets		4,300.00		1,100.00
TOTAL ASSETS		704,303.14		104,208.38
LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES
Accounts payables To MITL, the parent Company		237,500.00		81,500.00
Total Current Liabilities		237,500.00		81,500.00
Long term liabilities		400,000.00		-

STOCKHOLDER’S EQUITY
Common Stock		32,500.00		45,000.00
Retained earning		(9,791.62)		(40,260.57)
Net Income of (loss)		44,094.76		17,968.95
Total Stockholder’s Equity		66,803.14		22,708.38

Total Liabilities and Stockholder’s Equity		704,303.14		104,208.38

MELSTAR Inc.	Year ended 31.12.1998 ( US$)		Year ended 31.12.1997 ( US$)
Statements of Income, Expenses and Retained Earnings
INCOME
Consulting Revenue		899134.00		136695.00
Total Sales		899134.00		136695.00
COST OF SALES
Hardware purchases		0.00		20000.00
Services provided by MITL , the parent company		677243.00		81500.00

Total cost of sales		677243.00		101500.00

Gross Profit		221891.00		35195.00

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Salaries and Benefits		56583.33		0.00
ADP Payroll Fees		746.85		124.50
Bank Charges		294.50		130.00
Rent		20,486.24		5042.90
Advertising		13,598.70		0.00
Insurance		3,150.21		1081.00
Amortisation		600.00		0.00
Taxes – Payroll and others		34,354.81		0.00
Telephone		6,160.13		396.29
Depreciation		7,804.00		691.38
Relocation Expenses		5,993.60		0.00
Postage & Forex		2,770.23		0.00
Legal, Accounting & Professional fees		17,628.64		0.00
Office Supplies		5,794.60		1664.00
Utilities		36.65		82.41.00
Travelling Expenses		1,793.75		4264.91
Miscellaneous		0.00		232.40
Late Fees		0.00		202.12
Per Deim Exp		0.00		3314.14
Total Operating Expenses		177796.24		17226.05

Operating Income(Loss) Before taxes		44094.76		17968.95


Net Income(Loss)		44094.76		17968.95

Particulars	31/3/98	31/3/97	31/3/96	31/3/95
Equity Capital	10.00	10.00	10.00	10.00
Reserves	315.69	368.68	393.66	428.84
Total Income	4.40	50.20	739.73	1,212.68
Profit after Tax / Loss	(24.72)	(22.76)	(13.18)	5.66
Earning per Share(Rs.)	-	-	-	56.60
Book value per share (Rs.)	3,256.90	3,764.60	3,975.70	4,291.80

Particulars	31/3/98	31/3/97	31/3/96	31/3/95
Equity Capital	10.00	10.00	10.00	10.00
Reserves	132.68	171.14	195.64	254.25
Total Income	-	8.06	407.69	561.10
Profit after Tax / Loss	(38.27)	(11.64)	(58.64)	2.66
Earning per Share	-	-	-	2.66
Book value per share (Rs.)	142.68	181.14	205.63	264.23

Promoter	Name Of Company
Mr. Suresh Bansal	Melstar Exports & Technologies Pvt. Ltd. Melstar Fashions Pvt. Ltd. Melstar Inc. USA. Global Systems Development Inc, USA
Mr. S. M. Arora	Melstar Exports & Technologies Pvt. Ltd. Melstar Fashions Pvt. Ltd. Melstar Inc. USA.
Mr. Sattar Shaikh	Melstar Exports & Technologies Pvt. Ltd. Melstar Fashions Pvt. Ltd. Melstar Inc. USA. Microedge Technologies Pvt Ltd.
Mr. Bharat V. Ramani	Melstar Exports & Technologies Pvt. Ltd. Melstar Fashions Pvt. Ltd. Melstar Inc. USA.

	Designation	Age (Years)	Qualification	Other Directorships / Interests
Mr. Suresh Bansal S/o. Mr. Sadhu Ram Bansal. Jolly High Rise P-2 16th Floor Palli Mala Road Palli Hill. Bandra Mumbai - 400 050	Executive Chairman	42	B.Com, DBIM	Melstar Exports & Technologies Pvt. Ltd. Melstar Fashions Pvt. Ltd. Melstar Inc. USA. Global System Development. Inc. USA
Mr. S. M. Arora S/o. Late. D. M. Arora 502, Jewel Mahal Seven Bungalows Versova Mumbai 400 061	Managing Director	64	MBA	Melstar Exports & Technologies Pvt. Ltd. Melstar Fashions Pvt. Ltd. Melstar Inc. USA.
Mr. Sattar Shaikh S/o. Late Shaikh Abdul Gaffar Adore Apts Rebello Road, Near Mehboob Studio Bandra Mumbai 400 050	Whole time Director	42	B.Com	Melstar Exports & Technologies Pvt. Ltd. Melstar Fashions Pvt. Ltd. Melstar Inc. USA. Microedge Technologies Pvt Ltd.
Mr. Bharat V. Ramani S/o. Mr. Vithaldas G. Ramani 3606, Clithore Court Alexandra Avenue Rayners Lane, Harrow Middlesex HAZ 9UQ (UK)	Non-Executive Director	37	B.E. (VJTI) MMS (NMIMS)	Melstar Exports & Technologies Pvt. Ltd. Melstar Fashions Pvt. Ltd. Melstar Inc.
Mr. Prashant Jhawar S/o. Mr. Basant kumar Jhawar, Appartment No. 319, London Crown II Post Box No. 50151 Dubai UAE. Mr Brajesh .Kumar Biyani Son of Mr Gajanad Biyani Alternate to Mr Prashant Jhawar : Flat No. 8D, Bally High No.1,Ballygunge Park Road, Calcutta 700019	Non-Executive Director Alternate Director	36 48	B.Com B. Tech ( Chemical Engg.), PGD.	Usha Beltron Ltd. Usha Audiotel Ltd. Usha Martin Telematics Ltd. Usha Martin Europe Ltd. Usha Breco Ltd. Summit Usha Martin Finance Ltd. UMT Investments Ltd. UMTL Holding Company Ltd. UMI Princep Investments Ltd. MA FoI Management Consultants Ltd.

Name	Date of Appointment	Date of Cessation	Reasons for change
Mr.M.R.Bansal	17.7.1995	25.05.1998	Personal
Mr.P.N.Wakhlu	19.09.1996	25.05.1998	Personal
Mr. Prashant Jhawar	20.04.1999	--	Appointed in terms of the Share holder Agreement dated 20^th April 1999 with Usha Martin Ventures Ltd on acquisition of Equity in the Company

Name	Designation	Area	Qualification	Total Experience Yrs.
K.Selvaraj	Vice President	Software Development (CS)	B.E., M.E.	21
Jeremy D'lima	Vice President	Software Development (Banking)	B.Sc.	20
Dr.P.Paul	General Manager	Software Development (OTDC)	M.Tech, PhD, IIT Kharagpur.	9
Sandeep Sawant	General Manager	E-Business	B.Tech.	11
Praveen Shetty	Asst. General Manager	Solution & Services	B.E. M.M.M.	8
Akhil Tulyani	Project Manager	Software Development (CS)	M.S.(Computer Sci.) USA	11
Ajay Aggarwal	Manager	SEPG	B.S.(Computer Sci.)USA	12
Rajesh Shah	Finance Controller	Finance	C.A.	13
Sushil Wakhlu	Asst. General Manager	Commercial Market Operations	B. E. Chemical PGD	17
Prasenjit Phukan	Manager	Human Resourses	B.Com Masters in Personal Management	6
Ajit Krishna	General Manager	Software IGC Bangalore	B. Sc. (Engg.)PGDM, IIM Bangalore	10
T. Sukruth Kumar	Zonal Manager	Sales	B.E.	11

Year	Revenue	Profit (Amount in USD)
1998	899134	44095
1997	136695	17969
1996	500715	2990

Details of Existing Infrastructure - Mumbai (Head Office)
Sr. No.	Description	Configuration	Client / Server	E-Commerce	ESD / Corporate
1	Servers	Pentium III 500MHz.		2
		AS400			1
		Pentium II 350MHz.			1
		Pentium Pro 200MHz.	2
		Pentium 133MHz.	1
		Pentium 100MHz.	1
2	Clients	Pentium III 500MHz.		15
		Pentium MMX 200MHz.	10		1
		Pentium MMX 166/167MHz.	5		3
		Pentium 166/167MHz.	4		9
		Pentium 150MHz.			3
		Pentium 133MHz.	7		1
		Pentium 120MHz.	1
		Pentium 100MHz.	9		3
		Pentium 75MHz.			7
		486DX4-100			1
		486DX2-66			2
		IBM ThinkPad	4
3	Printers	LaserJet	1		1
		InkJet	1		2
		DMP	1		5
4	Other Items	Modems	1
		Switches/Hubs	5	2	5
		MultiMedia Kit		4
5	Other Office Items	Copier	1		1
		EPABX			1
		UPS			1
		OHP			3
		Tea/Coffee Machine			1
6	Software	Microsoft	Yes	Yes	Yes
		IBM		Yes	Yes
		Oracle	Yes	Yes
		Lotus		Yes	Yes

DETAILS OF EXISTING INFRASTRUCTURE AT IGC, BANGALORE

		CONFIGURATION	QTY
1	SERVER NETFINITY	PII 333MHZ/64MB RAM/4.5 GB SCSI HDD/1.44 MB FDD/24X CDROM DRIV ON BOARD 10/100 IBM ETHERJET NETWORK CARD	2
2	IBM GL 300 GL	PII 233Mhz/32MB RAM	48
		PCI IMB VRAM/IBM G-42
	IBM PC 100	100Mhz	2
3	OTHER ITEMS LIKE MODEMS/CTD/DAT DRIVER/SWITCHES/HUBS/ MMKIT/CD ROM DRIVE/ CD WRITE		YES
4	OTHER OFFICE EQUIPMENTS LIKE COPIER/ COFEE MACHINE, EPABX, OHP, DATA PROJECTOR		YES
5	UPS		YES
6	GENSET		YES
7	AREA		12000
8	OWN/LEASE/RENT		OWN
DETAILS OF EXISTING INFRASTRUCTURE AT INFORMIX DEVELOPMENT CENTRE- SEEPZ

		CONFIGURATION	QTY
1	SERVER	SUN WORKSTATION UIE/170	9
2	CLIENTS WITH PENTIUM/486 (DESKTOP OR LAPTOP)	SERVER UE 3500/91GB CD ROM WRTIER	1
		SUN WORKSTATION US/270, 19" CM/4 2GB	24
		PENTIUM 133 MHZ	12
		PC 300PL, MONITOR MEMORY CD ROM	5
2		SUN WORKSTATION UIE/170	9
		SERVER UE 3500/91GB CD ROM WRTIER	1
3	PRINTERS	LASER	4
4	OTHER ITEMS LIKE UPS/ POWER PCS/ DIGITAL PHONES, 3 COM CARDS, RAD, MODEMS		YES
5	OTHER OFFICE ITEMS LIKE SERVER RACK, TELEPHONE INSTRUMENT, REFRIGERATORS, MICROWAVE, VACUUM CLEANER, WHITE BOARD, PROJECTOR, CANNON FAX, COLOUR, GODREJ PARTITION PANELS		YES
7	AREA		4000
8	OWN/LEASE/RENT		LEASE

City	Area (Sq. Ft.)	Computers	Tel.	Fax	Xerox	Printers

Harrow, UK	Lease Hold	4	2	1	2	1

Mumbai	2500	92	32	2	2	11

Bangalore	925	6	2	1		3

Hyderabad	1300	6	5	1		3

Chennai	1300	2	1	1		1

Delhi	650	7	4	1		2

Calcutta	625	5	4	1		2

Pune	600	3	2	1		2

Melstar Development Centre – MIDC Mumbai	1999-2000	2000-2001	Total
a. Furniture and Fixtures / Electricity/Airconditiong	60.00	10.00	70.00
b. Hardware/Software/Networking/Communication	18.00	78.00	96.00
c. Office Equipment		10.00	10.00
d. Motor Car		15.00	15.00
e. Contigencies	2.50	7.00	9.50
Total	80.50	120.00	200.50

Particulars	2000-2001		Total

Software Development Centre – SEEPZ Mumbai
a. Furniture and Fixtures / Electricity/Airconditiong		84.00		84.00
b. Hardware/Software/Networking/Comm		120.00		120.00
c. Office Equipment		10.00		10.00
d. Motor Car		15.00		15.00
e. Contigencies		10.00		10.00
		240.00		240.00

	Nos.
Servers – MDC	5
Workstations Intel P-III-450 MHz, 4.3 GB HDD,48 xCD Drive, 14" colour monitor
MDC – Client Server	50
MDC – E-Commerce	20
Hyderabad	10

	Nos.
Windows – Upgrade	60
Windows – NT Server/Client	10
Oracle 8i / tools / other packages	15
IBM – E-commerce	10
Microsoft Products V studio, Internet, Transaction Servers	30
Front Page MS Projects	30
MSO	35
Java Dev. Kit, Adobe, Proxy, Netscape Apache/ Internet S/W	35

*ISSUE EXPENSES DETAILS FOR THE SHARES ISSUED BY COMPANY*	Rs. in Lacs.
Brokerage	24.42
Underwriting Commission, Issue Management Fees and other expenses	75.58
Total	100.00

The auditors have examined the books of Melstar Information Technologies Ltd for the five years ended on March 31'1999 audited by them and adopted by the members and for the quarter ended June 30, 1999 being the last date upto which the accounts of the company have been made and adopted by the Board of Directors. The auditors have certified vide their certificate dated 30^th September 1999, that as of date they are not aware of any material adjustment which would affect the result shown by these accounts in accordance with the requirement of Part II of Schedule II to the Companies Act, 1956 and read with requirement of the Securities and Exchange Board of India vide its clarification No. XIII and XIV of the Guidelines for Disclosure and Investors' Protection :


Rupees in Lacs
Profit & Loss Account for the year/quarter ended	30-06-99	31-03-99	31-03-98	31-03-97	31-03-96	31-03-95
SALES
A. Software sales
Own	325.92	1,281.29	204.80	33.88	77.73	67.29
Trading	-	1,045.94	247.37	145.41	62.95	8.60
B.Other Products
Own	46.41	283.41	1,052.70	936.30	748.66	1,514.48
Trading	196.67	902.29	3,175.76	4,195.34	2,224.63	47.25

C.Other Income	5.23	10.00	37.48	26.62	39.98	1.82
D.Increase / (Decrease) in Inventories	19.52	(248.52)	21.32	501.35	230.35	16.04

Total Income	593.75	3,274.41	4,739.43	5,838.90	3,384.30	1,655.48

Less :
Interest & Finance charges	30.58	126.89	152.87	121.24	40.41	3.56
Depreciation	29.79	90.27	86.00	64.47	45.36	15.32
Material consumed	176.11	1,750.91	3,530.43	4,722.40	2,668.08	1,160.49

Net income from operation	357.27	1,306.34	970.13	930.79	630.45	476.11

Total expenditure	318.28	1,237.23	931.99	773.84	512.32	347.92

Profit from operations	38.99	69.11	38.14	156.95	118.13	128.19
Taxation	-	17.66	5.00	20.00	23.00	1.00

Net profit after tax	38.99	51.45	33.14	136.95	95.13	127.19

Dividend Rate ( % )	-	-	5	15	15	15
Dividend	-	-	24.63	71.25	53.95	16.73
Dividend Tax	-	-	2.46	7.12	-	-
Adjustments:
Items writen back				13.17		1.43
Prioir year expenses	(11.76)	(56.43)	(0.46)	(10.03)	2.01	-
Extra ordinary items	-	500.32	-	-	-	-
Transfer to/(from )General Reserve	-	(505.00)	10.00	75.00	46.00	100.00
Profit Brought forward from previous year	1.94	2.24	6.65	19.93	22.74	10.85
Retained Profits	29.17	1.94	2.24	6.65	19.93	22.74

Profit after giving effect to Qualificatons in Auditor's report and prior year adjustments

Net profit for the year	38.99	51.45	33.14	136.95	95.13	127.19
Adjustments arising from Auditors qualification:
Non Provision for Leave encashment	-	-	(10.49)	(6.14)	(2.26)	-
Prior year expenses	-	(11.44)	(3.13)	(46.52)	(10.50)	2.57
Provision for taxation for ealier years	-	16.50	-	(13.17)	-	-
Provision for taxation	-	-	(16.50)	-	13.17	-
Write off of Share issue expenses	-	7.25	-	-	-	-
Loss of Melstar Industries Ltd.	-	1.72	-	-	-	-
Net Adjusted Profits	38.99	65.48	3.02	71.12	95.54	129.76

Balance Sheet as at	30/6/99	31/3/99	31/3/98	31/3/97	31/3/96	31/3/95

Fixed assets	1,723.50	1,648.26	965.50	894.35	519.48	122.79
Less : Depreciation	222.35	192.63	173.54	209.80	122.35	52.91
Net fixed assets	1,501.15	1,455.63	791.96	684.55	397.13	69.88
Capital work in progress	41.19	27.45	11.09	94.83	111.98	-

Investments	10.33	10.33	40.37	20.37	20.37	18.48

Current assets
Cash and Bank balances	61.25	76.22	121.27	97.53	125.97	77.45
Accounts receivables	530.12	643.31	980.13	1,036.61	910.71	584.51
Loans and advances	172.80	151.42	356.19	400.10	242.49	115.16
Closing stock	244.23	225.47	840.25	920.94	404.21	231.05

Total Current assets	1,008.40	1,096.42	2,297.84	2,455.18	1,683.38	1,008.17

Current Liabilities
Accounts payable	618.97	825.75	1,046.56	1,485.51	595.12	110.71
Advance received from customers	39.49	31.30	31.03	50.92	13.10	2.57
Other Liabilities	-	155.90	120.01	144.55	205.84	-
Proposed dividend	-	-	24.63	71.25	53.95	16.73
Provision for tax	27.11	27.11	27.46	27.13	24.00	1.00

Total current liabilities	685.57	1,040.06	1,249.69	1,779.36	892.01	131.01

NET CURRENT ASSETS	322.83	56.36	1,048.15	675.82	791.37	877.16

Miscellaneous expenditure	-	-	20.10	47.94	42.55	3.75

TOTAL	1,875.50	1,549.77	1,911.67	1,523.51	1,363.40	969.27

CAPITAL AND RESERVES
Share Capital	983.48	855.88	595.21	475.00	475.00	154.96
Advance towards Share Capital	0.50	0.50	-	-	-	-
Share Premium	265.02	22.58	200.63	200.63	200.63	234.83
Reserves and Surplus	77.06	49.47	588.42	582.83	521.11	477.50
Share Holders Funds	1326.06	928.43	1384.26	1258.46	1196.74	867.29

LOAN FUNDS
Long term debt/Car loan	191.65	156.10	156.41	21.38	6.04	1.56
Bank overdraft	357.79	465.24	342.16	243.67	160.63	100.42
Unsecured loans	-	-	28.85	-	-	-
Total Loan Funds	549.44	621.34	527.42	265.05	166.67	101.98

TOTAL	1,875.50	1,549.77	1,911.68	1,523.51	1,363.41	969.27


Accounting Ratios
Basic Earning Per Share (EPS) Rs.	1.63	0.90	0.06	1.50	2.65	12.18
Cash Earning per share Rs.	2.88	2.70	3.11	3.47	4.43	13.52
Net Asset Value per share	13.48	10.84	22.92	25.48	24.30	55.72
Return on Net Worth %	3.46%	5.71%	0.23%	6.02%	9.47%	19.24%
Number of Equity shares of Rs. 10 each	9,834,797	8,563,797	5,952,125	4,750,000	4,750,000	1,549,650

EPS represents basic earning per share calculated as Profit after tax (PAT) divided by weighted average of shares employed during the year.
Cash EPS represents PAT for the year plus non cash charges divided by weighted average of shares employed during the year.
Non cash charges compromise depreciation,amortisation of business development expenses, loss on sale of fixed assets and loss on sale of investments.
Return on net worth is calculated taking average of shareholders fund employed during the year.

CAPITALISATION STATEMENT
	Pre offer as		As adjusted for offer at Rs. 60/-	As adjusted for offer at Rs. 72/-
Debt	at 31.03.99
Short Term Debts	465.23		285.23	285.23
Long Term Debts	156.10		0.00	0.00
Total Debts	621.33		285.23	285.23

Shareholder Funds
Share Capital	856.38	1215.00		1215.00
Reserve & Surplus	72.04	1871.60		2142.92
Total	928.42	3086.60		3357.92

Long Term Debt/Equity	0.17	-		-

TAXATION STATEMENT FOR LAST FIVE YEARS
	1993-94	1994-95	1995-96	1996-97	1997-98
Notional Rate	0.50	0.46	0.46	0.40	0.35
Profit before tax	32.71	128.18	118.13	156.95	38.14
Tax at Notional Rate	-	58.96	54.34	62.78	13.35
Export Profit Exempt U/S 10A	39.44	131.68	-	-	-
Deduction u/s 80HHE	-	-	1.69	0.71	1.05
Deduction u/s 80IA	-	-	46.80	94.18	-
Deduction u/s 80G	-	-	-	-	2.50
Difference in Depreciation	6.21	1.93	(21.82)	(28.65)	(36.39)
between books & income tax.
Other Adjustments	0.69	(0.56)	(22.68)	2.73	71.38
Net Adjustments	6.90	1.37	(44.50)	(25.92)	34.99
Loss carried forward	-	-	(2.13)	-	-
Taxable Income	0.17	(2.13)	23.01	36.14	69.58
Tax paid	0.09	-	10.59	14.46	24.35
The figures for 98-99 are not compiled pending completion of Tax Audit and filing of Income Tax return for the year ended March 31,1999.

ANALYSIS OF PROFIT & LOSS FOR LAST 3 YEARS
		( Rs. In lakhs)
	1996-97	1997-98	1998-99
I SEGMENTWISE SALES
SOFTWARE SALES	179.29	452.17	1,799.22
INFOTECH SERVICES	62.29	473.33	424.35
ENTERPRISE SOLUTION SALES	382.77	1,168.12	1,240.76
HARDWARE SALES	3,892.09	2,526.09	37.85
ELECTRONIC GOODS SALES	794.48	60.91	10.74
TOTAL	5,310.92	4,680.62	3,512.92
SOFTWARE SALES AS % OF TOTAL SALES	3.38%	9.66%	51.22%
II SEGMENTWISE EXPORTS
SOFTWARE EXPORTS	75.94	198.26	1,049.71
OTHER EXPORTS	388.42	-	-
TOTAL EXPORTS	464.36	198.26	1,049.71

% OF SOFTWARE EXPORTS AS	42.36%	43.85%	58.34%
COMPARED TO TOTAL SOFTWARE SALES
III DETAILS OF EXPENSES & PROFITABILITY
PERSONEL EXPENSES	229.14	270.79	316.21
ADMINISTRATIVE EXPENSES	250.59	375.55	457.69
FINANCE CHARGES	121.24	152.87	126.89
SELLING & DISTRIBUTION EXPENSES	98.64	146.77	60.81
DEPRECIATION	64.47	86.00	90.27

PROFIT BEFORE TAX	156.95	38.14	69.11
PROVISION FOR TAXATION	20.00	5.00	17.66
PROFIT FOR THE YEAR AFTER TAX	136.95	33.14	51.45

DETAILS OF OTHER INCOME

PARTICULARS	31-Mar-98	31-Mar-96
Net Profit	33.14	95.13
20% of Profit	6.62	19.03
Other Income	37.48	20.62

Interest Received	2.02	2.57
Other Income	2.40	0.83
Liabilites no longer required writen back	23.86	-
Lease Rental Income	7.93	14.72
Exchange Rate Difference	-	-
Insurance Claims Received	1.28	-
Profit on sale of Assets	-	0.22
Export incentives	-	2.28
Total	37.48	20.62

FORECAST FOR THE ESTIMATED FINANCIAL STATEMENTS OF THE COMPANY FOR THE YEAR ENDED MARCH 31,2000.
PROJECTED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDE MARCH 31,2000.
	AMOUNT	Rs. in Lacs
PARTICULARS
Software sales		2,333.27

Enterprise Solution Sales	700.00
PSD	148.00
ORC	84.00	932.00
Total Revenue		3,265.27
Direct Cost	-
Software Development Expenses	-	1,188.95
Material Expenses	-	745.00
Increase/(Decrease) in inventories	-	(25.47)
Overheads & Fixed Cost	-	-
Director's salaries	-	45.00
Other Salaries	-	205.80
other fixed costs	-	124.90
Travelling Expenses	-	59.70
Electricity expenses	-	21.00
Telephone Charges	-	20.10
Vehicle expenses	-	12.80
Restructuring costs	-	40.00
Audit Fees	-	4.00
Miscellaneous expenses	-	10.00
Share Issue expenses		15.00
Depreciation	-	138.00
Interest	-	120.00
Total expenses	-	2,724.78
Profit before Tax	-	540.49
Taxation	-	-
Profit after tax	-	540.49

PROJECTED BALANCE SHEET AS AT MARCH 31,2000
	Amount	( Rs. in Lacs)
	Issue Price Rs 60 Per share	Issue Price Rs 72 Per share

Sources of Funds
Equity Capital	1,215.00	1215.00
Reserves & Surplus	1,443.04	1714.36
Profit & Loss	4 28.56	428.56
Loan Fund
Secured loans	200.00	200.00
Total	3286.60	3557.92

Application of Funds
Fixed Assets	2,300.00	2300.00
Less: Depreciation Reserve	330.63	330.63
Net Fixed Assets	1,969.37	1969.37
Investments	730.00	730.00
Current Assets
Debtors	450.00	450.00
Inventories	200.00	200.00
Loans & Advances	170.00	170.00
Cash & Bank Balances	117.23	388.55
Total	937.23	1208.55
Current Liabilities & Provisions
Sundry creditors	300.00	300.00
Provisions	130.00	130.00
Total	430.00	430.00
Net Current Assets	507.23	778.55
Share issue expenses	80.00	80.00
Total	3286.60	3557.92