Directors Report of SQL Star International Ltd.

Mar 31, 2010

The Directors take pleasure to present the 23rd Annual Report on the business and operations of the Company together with the Audited Financial Accounts for the year ended 31st March, 2010.

The financial highlights of the Company :- (Rupees in Lakhs)

SQL Star SQL Star, India

Group Consolidated (Stand alone)

Particulars Financial Year Financial Year

2009-10 2008-09 2009-10 2008-09

INCOME:

- Sales/Income from Operations 5,381.01 8,685.35 2,545.59 4,208.91

Total 5,381.01 8,685.35 2,545.59 4,208.91

EXPENDITURE

-Direct 540.50 1,649.31 348.22 1,649.31

-Personnel 3,462.61 5,378.91 1,077.96 1,400.66

-Others 1,188.75 1,346.89 861.69 914.92

-Provisions 1,441.71 2,744.86 1,441.71 2,744.86

- Depreciation /Amortisation

/ Impairment Loss 830.68 423.08 820.59 217.42

Total 7,464.26 11,543.05 4,550.17 6,927.17

ProfitALoss) from Operations

before Other Income,

Interest & Exceptional Items (2,083.25) (2,857.70) (2,004.58) (2,718.26)

-Other Income 132.10 33.15 90.47 32.25

ProfitALoss) before Interest

& Exceptional Items (1,951.15) (2,824.55) (1,914.12) (2,686.02)

- Interest 108.94 175.90 103,23 125.51

Profit/Loss) before

Exceptional Items & Tax (2,060.09) (3,000.44) (2,017.35) (2,811.53)

- Exceptional

Items 49.35 2.49 49.35 2.49

Profit/Loss) from Ordinary

Activities before Tax (2,109.45) (3,002.94) (2,066.70) (2,814.02)

- Tax Expenses (234.62) 270.29 (238.47) 256.31

Profit/Loss) from Ordinary

Activities after Tax (1,874.82) (3,273.23) (1,828.23) (3,070.33)

Business Performance

On a Consolidated basis, the Parent Company reported total income of Rs. 5,381.01 Lakhs as compared to Rs. 8,685.35 Lakhs in the previous financial year, registering a decline of 38%. The Loss before Tax is Rs. (2,109.45) Lakhs as against Rs. (3,002.94) Lakhs in the previous year, registering a 30% decline.

On a Standalone basis, the Parent Company reported total income of Rs 2,545.59 Lakhs as compared to Rs. 4,208.91 Lakhs in the previous financial year, registering a decline of 40%. The Loss before Tax is Rs. (2,066.70) Lakhs as against Rs. (2,814.02) Lakhs in the previous year, registering a 27% decline.

During the last fiscal, the Company had suffered a set back with one of the e-Governance projects ("Mandi Project") that the Company is executing with Madhya Pradesh State Agricultural Marketing Board ("Mandi Board). The Mandi Board hac resorted to unilateral and un-lawful termination of the Service Contract and further, withheld dues to the Company frorr April 08 onwards aggregating to Rs. 28.77 Crores (out of which Rs. 20.22 Crores pertains to billing raised on behalf o outsourcing partner). The Company is advised by their Counsel that the unlawful retention is not sustainable and the dispute is referred to Arbitration. The Mandi Project is one of the major contributors to the Revenues and Margins of the Company and the unilateral and un-lawful termination has severely impacted the Company in terms of loss of revenues and margins, Due to non- payment of software development charges by the Mandi Board, the Intellectual Property Rights (IPR) over the Mandi Software rests with the Company.

Dividend

Due to the loss incurred during the year, the Board of Directors of your Company does not recommend any dividend for the financial year 2009-10.

Auditors

The Statutory Auditors, M/s. Maharaj N. R. Suresh & Co, Chartered Accountants, retire at the ensuing Annual General Meeting and have confirmed their eligibility and willingness to be re-appointed as the statutory auditors for the financial yeai 2010-2011.

Explanation to Auditors Report as required under section 217(3) of the Companies Act, 1956.

Qualification in

Clause No. of

the Directors Reply

Auditors Report

3 (jji)(d) The Company has borrowed unsecured loans from

Promoter Group Companies. Due to cash flow

pressures, the Company could not pay the

interest from March, 2008

onwards and the outstanding interest

will be cleared once the cash flow

pressure is eased out.

3(ix)(a) The Company is facing tremendous pressure on

working capital due to long pending receivables

from Madhya Pradesh State

Agricultural Marketing Board ("Mandi Board).

While, the Company is regularly

following-up with all concerned

Department Officials, but all steps

have been futile, as the Mandi

Board had resorted to unilateral

and un-lawful termination of the

Service Contract and further,

withheld dues to the Company from April

08 onwards aggregating to Rs. 28.77

Crores (out of which Rs. 20.22

Crores pertains to billing raised

on behalf of outsourcing partner).

Further, due to external market

conditions, the revenues from all

business units have suffered,

which has further put the pressures on

the working capital.

Due to this reasons, the undisputed

statutory dues including Provident

Fund, Income Tax deducted from

various Services/Payments and Service

Tax have not been regularly deposited

with the appropriate authorities

and there have been delays in number

of cases. The Company is taking

necessary steps to regularize the

remittances of various statutory dues

with appropriate authorities.

Directors

As per Article 51 of the Articles of Association, Mr. C P Khandelwal retires by rotation at the ensuing Annual General Meeting and being eligible offers himself for re-appointment.

A brief resume of Mr. C P Khandelwal as stipulated under Clause 49 of the Listing Agreement with the Stock Exchanges, is forming part of this report.

Mr. N. R. Ganti and Mr. K. Jayabharath Reddy, Directors have resigned from the Board with effect from 30.11.2009 and 12.03.2010 respectively.

Public Deposits

In terms of the Provision of section 58A of the Companies Act, 1956 read with the Companies (Acceptance of Deposits Rules) 1975, Your Company has not accepted any deposits from the public during the year under review and did not have any outstanding deposits.

Corporate Governance Code

Your Company has been practicing the principles of good Corporate Governance. A detailed report on Corporate Governance is given as Annexure to this Annual Report. Certificate of the Statutory Auditors regarding compliance with the conditions of Corporate Governance as stipulated in Clause 49 of the Listing Agreement is also given in this Annual Report.

Management Discussion and Analysis

Management Discussion and Analysis Report as required under Clause 49 (IV) (F) is disclosed separately in this Annual Report.

Internal Control

Your Company has established reasonably sound system of controls in the operational areas. Internal controls evolved inline with the size of the operations and organizational requirements are adequate to protect the enterprise resources. The Audit Committee reviews the adequacy of internal control system from time to time.

People Management - Human Resources

Your Company fosters a culture that encourages and values diversity and promotes personal and professional development. Your Company administers a comprehensive human resources management system which includes attracting, developing and retaining a highly qualified and continuously learning workforce.

We believe that a satisfied employee can actually be the differentiating factor in the struggle to gain market share, to deliver customer delight, to innovate product and services and, ultimately, to deliver a better bottom line. The main objectives of the HR system are to achieve the support of various business units of the company and to streamline the different functions related to HRM.

Your Company is continuously striving towards the implementation of certain HR best practices, with a greater focus on fulfilling and supporting our business needs and simultaneously catering to the enhancement of people, process and procedures in the organisation. We are trying to add value to the organisation by maintaining consistency in routine HR transactions such that the entire system becomes one unique, dynamic and fluid whole.

Quality

Continuous Quality improvement and adherence to quality standards and processes are important to remain competitive in the global market. During the year, your Company has focused on improving quality in every process, including project designs, product development and delivery, Testing and Implementation and maintenance. Your company is in the process of performance improvement through various quality measures and initiatives. As a part of continuous improvement program, during the year, your Company obtained ISO 9001-2000 recertification. Further, to keep pace with organizational growth and deliver value propositions to customer, your Company is planning to implement Quality Management System based on ISO 9001 : 2008 and to ensure continual improvement in the effectiveness of the system.

Awards and Recognitions

The following are some of the recognitions that your Company won during the last year.

The UT Administration, Chandigarh awarded "Republic Day Commendation Certificate for Outstanding e-Citizen Services" rendered by Mr. Ziauddin Khan, the Project Incharge, e-Sampark Project, one of the e-Governance Projects of M/s. SQL Star International Limited.

Material changes and commitments affecting the financial position of the Company which have occurred between the end of the financial year of the company to which the balance sheet relates and the date of this report

Pursuant to provisions of Section 21 7(1 )(d) of the Companies Act, 1956, there has been no material change and commitment affecting the financial position of the Company that has occurred between the end of the financial year of the company, related to the balance sheet and the date of the report.

Conservation of Energy, Technology absorption etc.

Information in accordance with the provisions of section 217(1)(e) of the Companies Act, 1956 read with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 is given in Annexure-A forming part of this report.

Wholly Owned Overseas Subsidiaries

Your Company has three wholly owned subsidiaries i.e. SQL Star International Inc., USA, International SQL Star Pte. Ltd., Singapore, SQL Star International Pty Ltd, Australia.

(a) SQL Star International Inc., USA

During the year under review, SQL Star International Inc., USA, has generated Rs. 1,714.50 Lakhs in revenue and reported earnings before Interest, Depreciation and Tax of Rs.26.32 Lakhs, with loss after Tax of Rs. 274.58 Lakhs.

(b) International SQL Star Pte. Ltd., Singapore

During the year under review, International SQL Star Pte Ltd., Singapore, has generated Rs. 1,094.63 Lakhs in revenue and reported earnings before Interest, Depreciation and Tax of Rs. 27.04 Lakhs, with Profit after Tax of Rs. 21.50 Lakhs.

(c) SQL Star International Pty Ltd., Australia

During the year under review, SQL Star International Pty Ltd., Australia, has generated Rs. 135.72 Lakhs in revenue and reported earnings before Interest, Depreciation and Tax of Rs. (27.67) Lakhs, with loss after Tax of Rs. 28.02 Lakhs.

As per Section, 212 of the Companies Act, 1956, the Directors Report, Balance Sheet and Profit and Loss account of these subsidiaries, and the consolidated final accounts for the year ended 31s March, 2010 in accordance with the Accounting Standard AS-21 on Consolidated Financial Statements, read with Accounting Standard AS-23 on Accounting for Investment in Associates, are appended with this report.

Particulars of Employees

The information required under Section 217(2A) of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975 and forming part of Directors Report for the year ended March 31st, 2010.

Name Designation Qualification Age Date of Joining Experience

N. R.Ganti* Chairman & MBA 57 27.06.2006 31

Managing (appointed as

Director CMD)

Sunil Gupta Co-Chairman B.E, PCM 48 26.02.2010 26

& Managing

Director

Name Gross Last

Remuneration emplopyment

(inlNR) and

designation

N. R.Ganti* 20.28 Management

Consultant

Sunil Gupta 6.92 Collabera

Enterprise

Solutions Pvt Ltd as Director

* Resigned on November 30, 2009

Directors Responsibility Statement

Pursuant to the requirement of provisions of Section 217(2AA) of the Companies Act, 1956 with respect to Directors Responsibility Statement, it is hereby confirmed that:

(i) In the preparation of the annual accounts for the year ended March 31st, 2010, the applicable accounting standards read with requirements set out under Schedule VI of the Companies Act, 1956, have been followed and there are no material departures from the same;

(ii) The Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at March 31st, 2010 and the Loss of the Company for the year ended as on date.

(iii) The Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and

(iv) The Directors have prepared the annual accounts of the Company on a "going concern" basis.

Acknowledgements

Your Directors would like to express their gratitude for the continued co-operation,support and patronage received from the Customers,Shareh -olders,Suppliers,Bankers,Legal advisors,Consultants and all Government and Semi-Government departments.Your Directors wish to place on record, their appreciation for the contribution made by the employees at all levels,who,through their proficiency,sincerity,hard work,team spirit and committed support,enabled your company to make rapid strides.

For and on behalf of the Board SQL Star International Limited

C.P.Khandelwal

Chairman Place:Hyderabad Date:26th July,2010

Sunil Gupta

Co-Chairman and Managing Director