Megasoft

Letter to Shareholders
 
 It gives us great pleasure to present to you the excellent performance
 and turn-around of your Company over the last twelve months.
 Entrepreneurial Spirit & Innovation, the two corner stones of
 Megasoft's continuing growth and success have enabled us to achieve a
 good financial performance in 2005. Our aim of achieving higher
 profitability by moving towards more and more domain centric & IPR led
 revenues has started yielding results with 116% growth in EBITDA,
 jumping from 15% in 2004 to 23% in 2005 with Telecom leading the way
 and contributing close to 58% of the overall segmental profits of the
 Company. Launch of new Products & Services and new clients in telecom
 has set a great foundation for the coming years and the future looks
 even more promising.
 
 In the telecom sector, your Company has come out with a path breaking
 and revolutionary Platform the XIUS VOISE (Virtual Operator Integrated
 Services Engine) that marks a paradigm shift in the telecommunication
 technology and service delivery. The Platform has already met with
 considerable success globally and the demand for the same is very
 encouraging. With the telecom industry witnessing a robust growth in
 demand world wide and increasing acceptance of Products & Services from
 Specialist OSS Vendors like us, the coming year should see a sharp
 growth in high margin Telecom revenues. Your Company has stepped up its
 marketing and sales efforts into mature & developed markets with
 special focus on North American and European markets. The acquisition
 of BEAM AG, Germany in September 2005, should further boost the
 Company's sales efforts in continental Europe
 
 The Company is continuing with strong R&D focus and has sharply
 expanded its manpower and expenditure in telecom R&D and plans to
 invent, develop & launch many new technologies and cutting edge
 applications in the fast growing Convergent OSS infrastructure &
 Inter-operability segments in the coming months and years.
 
 Your Company has made some strategic moves in the Life Sciences
 Practice, with a new look sales team in USA and re-aligning of its
 products Et services portfolio. The team has plans for aggressive
 growth starting this year and the management is confident of showing
 robust performance improvement in this fledgling area.
 
 Stability of the Management Team and low attrition levels has been
 another hall mark of your Company in 2005, as it continues to add new
 team members at all levels in India and its overseas offices.  Today's
 Megasoft is a multi-cultural melting pot and is fast becoming a truly
 transnational company, with a global work force. We will continue to
 strive to implement strong HR practices with an aim to become one of
 the most preferred employers globally in our field of operations.
 
 With revenues at Rs 1154 million and net profit of Rs 201 million the
 Company has had a great growth year in 2005 and this has led to a
 favourable impact on the valuation of your Company and our stock prices
 have increased significantly over the last 12 months.
 
 We take this opportunity to once again thank the Shareholders for the
 continued faith and support in your Company.
 
 Chennai              Ravindra Sannareddy    G V Kumar
 22 February 2006     Chairman               Managing Director