California Software

Though all our Divisions on their own are quite valuable, last year we
 have not been able to get the sum of the value of the parts reflected
 in the total value of the Calsoft Group. I would like to assure all of
 you that we will take all measures to ensure that our shareholders are
 able to realize the true value of the company in the coming years.
 
 Dear Shareholder,
 
 Last year was a very tough one for Calsoft. With revenues of Rs.268
 crores and net loss of Rs.22 crores, this was the worst year in the
 history of Calsoft.
 
 During the previous four years of continuous growth, when we grew from
 under Rs. 50 crores revenue in 2004-05 to Rs. 234 crores in 2007-08, we
 had also maintained our profitability reaching a net profit of Rs.15.4
 crores in 2007-08. However, for the year under report, though the
 revenue did increase by about 14%, this was mostly due to the
 depreciation of the rupee and the factor that counts most - profit,
 took a net negative swing of about Rs.38 crores from the previous year.
 
 Though the results look distressing at first glance, on a more detailed
 examination, we can see that most of the losses were due to one time
 events caused by the global recession and streamlining of the strategic
 investments that we had made. I would like to take you briefly through
 the factors that contributed to the loss and the steps that we have
 taken to get back to profitability.
 
 The majority of the losses came from provisions for doubtful debts of
 Rs.14.3 crores that we had to provide for two of our U.S accounts -
 Nortel Networks and American Healthnet. Nortel Networks, which was our
 largest customer, went into bankruptcy last year and the receivables
 from them are in doubt.
 
 American Healthnet was one of our strategic investments in 2005 and
 though we had divested our majority stake in 2007, the company owed us
 significant amounts which they were unable to pay. Last year, we had
 also moved to our new campus and this increased our interest payments
 and depreciation by Rs.8.3 crores. As a part of our restructuring
 process, we divested some of our other investments leading to a one
 time loss of Rs.4.3 crores. We have provided details of this swing in
 profitability from the previous year in page 24 of this report.
 
 We took aggressive steps to handle the situation, including salary cuts
 of 5 to 15% for all employees with the larger reductions for senior
 management, subletting office space in our new building Robert V
 Chandran Towers and our Tidel Park property, reduction of corporate
 overheads and focused efforts in getting new customers. This has
 started yielding results and I am confident that we will get back to
 profitability this year. At the same time, I would like to point out
 that we would not have been able to handle this critical phase but for
 the timely financial help from our promoter, Chemoil Corporation.
 
 Takeover of Calsoft by Chemoil Corporation
 
 Chemoil Corporation and Calsoft have had a very special relationship
 since the inception of our company. Starting as our Joint Venture
 minority partner, Chemoil had moved into being the majority stake
 holder and promoter of Calsoft during 2007-08 time period.  The
 takeover process was completed in May 2008, when Chemoil received 18%
 of the shares from the public based on their open offer to buy up to
 20% of the shares at Rs.100 per share.  This has taken Chemoils stake
 in Calsoft to 66%.As a result of this development, our Company has
 
 become a subsidiary of Chemoil Corporation and now has the backing of
 the 8 billion dollar Chemoil Group.
 
 New Accounts
 
 Inspite of the downturn, Calsoft has managed to retain most of its
 old customers and has acquired some new marquee customers like Radware,
 IXIA, PEQ, Motability, Bank of Dubai, Aitken Spence, Interoute etc.
 
 Strategic Focus & Company Value
 
 The Indian IT Industry is continuing to consolidate and our belief that
 smaller companies will need to specialize in order to provide value,
 has been strengthened. Accordingly, our business divisions continue to
 focus on their specialized areas; more details of their activities are
 provided in this report. On the Strategic Investments side, we have
 streamlined our investments by divesting two smaller units and
 completely integrating three others into the business divisions. That
 now leaves only two companies - Informed Decisions Corp (IDC) in
 Alameda, USA , and Aspire Communications in Mysore, India, in the
 Strategic Investments Division.  Today, IDC is on a growth path and has
 increased its customer base from 65 customers to 200 customers and
 continues to grow well. Though this has added to our top line, the
 company had not yet turned profitable and hence could not supplement
 our bottom line.  Nevertheless, the company has been able to generate
 cash through advances from its customers and could not only finance its
 own growth but also had enough surplus to provide Calsoft a M loan to
 overcome the current years crisis. From this year onwards, we are
 confident that IDC would be able to contribute to Calsofts bottom
 line.
 
 It is unfortunate that though all our divisions on their own are quite
 valuable, last year we have not been able to get the sum of the value
 of the parts reflected in the total value of the Calsoft Group. I would
 like to assure all of you that we will take all measures to ensure that
 our shareholders are able to realize the true value of the company in
 the future. I thank all our investors, employees and all our
 stakeholders for standing by the company in this difficult year and
 having the same confidence in the management team as we enter a new
 phase of our journey.
 
                                                  S. (Sam) Santhosh 
                                                  Managing Director