Megasoft

The Directors are pleased to present their report on the business and
 operations of your company for the financial year ended 31 December
 2007.
 
 Financial Results                                   Rs million
                                            Standalone    Consolidated
 Year ended  31   December              2007     2006    2007     2006
 
 Revenues                          1,530.33  1,041.77  2,971.67 1,783.28
 Total Expenditure                   928.39    593.59  1,991.97 1,320.90
 EBIDTA                              601.94    448.18    979.70   462.38
 Finance Cost                         33.25     11.77     66.74    20.29
 Depreciation a Amortisation         191.08     74.94    224.00    83.81
 Operating Profit                    377.61    361.47    688.96   358.28
 Other Income / (Expenses)          (127.17)   (15.21)  (121.73)  (6.42)
 Profit before tax                   250.44    346.26    567.23  351.86
 Less: Taxes                           6.68     19.70      7.66   25.38
 Profit after tax                    243.76    326.56    559.57  326.48
 Less: Provision for diminution in 
 value of investments                (29.43)        -         -       -
 Less: Minority Interest profit / (loss)  -         -         -    3.26
 Balance brought forward             326.09     66.72    355.20   92.65
 Profit / (loss) available for 
 appropriations                      540.42    393.28    914.77  422.39 
 Appropriations:
 Proposed dividend on Equity Shares   53.12     44.27     53.12   44.27
 Proposed dividend on Preference Shares   -      1.50         -    1.50
 Dividend distribution tax            10.39      6.42     10.39    6.42
 Transfer to General Reserve          30.00     15.00     30.00   15.00
 Balance carried to Balance Sheet    446.91    326.09    821.26  355.20 
 Earnings per share (equity shares, 
 par value Rs 10 each)
 Basic (Rs)                            5.51      9.31     12.64    9.31
 Diluted (Rs)                          5.46      9.23     12.47    9.22
 
 The consolidated financial results for the current year include the
 business performance of Boston Communications Group, Inc., USA and its
 subsidiaries w.e.f. 30 August 2007, consequent to the acquisition. The
 financial results of both standalone and consolidated for the previous
 financial year include the business performance of VisualSoft
 Technologies Limited w.e.f.  1 October 2006, consequent to the
 amalgamation. Hence, the results are not comparable.
 
 Overview
 
 During the financial year ended 31 December 2007, your company recorded
 consolidated revenues of Rs 2972 million compared to Rs 1783 million in
 the previous financial year, registering a growth of 67%. The Operating
 Profit at Rs 689 million as against Rs 358 million in the previous year
 represented a growth of 92%.
 
 Dividend
 
 Your Directors recommend a dividend of 12% (previous year - 10%) on
 equity share of Rs 10 each for the year ended 31 December 2007. The
 Dividend including dividend tax aggregates to Rs 62 million as against
 Rs 52 million for the previous year.
 
 Issue of securities
 
 Your company issued following securities during the financial year
 ended 31 December 2007:
 
 (i) 2,250,000 warrants of Rs 128 each convertible into equivalent
 equity shares of Rs 10 each on conversion to M/s Ravindra Babu S (HUF),
 Promoter, subsequent to the approval of the shareholders through a
 postal ballot process during June 2007 on preferential basis in
 accordance with the SEBI (Disclosure and Investor Protection)
 Guidelines, 2000.
 
 (ii) 13,600 equity shares of Rs 10 each to employees on exercise of
 stock options under the various ESOP schemes.
 
 (iii)Allotted 12,484,800 equity shares of Rs 10 each to the
 shareholders of VisualSoft Technologies Limited in terms of the scheme
 of amalgamation duly approved by the High Courts.
 
 Consequent to the above, your companys subscribed, issued and paid-up
 equity share capital increased to Rs 442.67 million.
 
 FCCB Issue
 
 Your company had issued 8,000 1.5% Foreign Currency Convertible Bonds
 (FCCB) of USD 1,000 each on preferential basis on 16 September 2005
 pursuant to the approval of the shareholders of the company at the
 Extra-ordinary General Meeting held on 26 August 2005 aggregating to
 USD 8 million.  FCCB are convertible on or before 17 September 2008 at
 an initial conversion price of Rs 115 per equity share. FCCB were
 listed on Luxembourg Stock Exchange on 22 September 2005.  FCCB
 aggregating to USD 6 million have already been converted into equity
 shares during the previous financial year. The funds raised through the
 FCCB issue have been utilised by the company for the purpose the same
 was raised and in terms of the FEMA Regulations.
 
 Future outlook
 
 A detailed discussion on the performance of the company, industry
 structure, threats, opportunities, risks, future outlook and strategy
 have been given separately in the Management Discussion and Analysis
 (MDA) section which forms part of this Annual Report.
 
 Strategic Investment
 
 Your company made a strategic investment of US$ 3,000,000 in Keystone
 Wireless, LLC, USA during June 2007 as 5% stakeholder.  Keystone is a
 mobile telecom service provider based out of the United States.
 
 During August 2007, your company made an open offer through Tea Party
 Acquisition Corp., USA, (TPAC) a wholly owned subsidiary established as
 a special purpose vehicle for acquisition of Boston Communications
 Group, Inc. (BCGI), a Nasdaq listed company.  The shareholders of BCGI
 were offered US$ 3.60 per share as the offer price. The acquisition
 process was completed on 30 August 2007. BCGI became a wholly-owned
 subsidiary of your company from that date.
 
 Subsidiary Companies
 
 During the year, your company completed the process of deregistration
 of wholly owned (step-down) subsidiary companies at Australia and New
 Zealand wherein there were no operations during the previous financial
 years. Subsequent to the acquisition of BCGI, your company deregistered
 some of the wholly owned subsidiary companies of BCGI as part of its
 strategic plan.
 
 Your company has applied to the Ministry of Corporate Affairs, under
 Section 212(8) of the Companies Act, 1956 for the exemption from
 attaching the full text of the financial statements of the companys
 subsidiaries along with the companys accounts for the year ended 31
 December 2007.
 
 Necessary disclosures will be made in respect of the said subsidiaries
 in this Annual Report apart from the statement pursuant to Section 212
 of the Companies Act, 1956. The annual accounts of the said
 subsidiaries and the related detailed information will be made
 available to the investors of the company subsidiaries, seeking such
 information at any point of time.  The annual accounts of the
 subsidiary companies will also be kept for inspection by any investor
 at the Registered Office of the company.
 
 Corporate Governance
 
 In accordance with clause 49 of the Listing Agreement with the Stock
 Exchanges, a separate report on Corporate Governance and Management
 Discussion 6 Analysis together with a certificate from the companys
 Auditors are provided as part of this Annual Report.
 
 Disclosure as per the Companies (Disclosure of Particulars in the
 Report of Board of Directors) Rules, 1988 In terms 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, your
 Directors furnish the required details below:
 
 (a) Conservation of Energy: The nature of the companys operations
 requires a very low level of energy consumption.
 
 (b) Research and Development (R&D): The company is actively engaged in
 the research and development of Software.
 
 (c) Technology Absorption: The company has not imported any technology
 during the year.
 
 (d) Foreign Exchange Earnings and Outgo: The details of foreign
 exchange earnings and outgo are mentioned in note no. 13 & 14 of
 Schedule 17 - Notes to Accounts, forming part of the Balance Sheet and
 Profit & Loss Account of the company.
 
 Particulars of Employees
 
 In terms of Section 217(2A) of the Companies Act, 1956 read with the
 Companies (Particulars of Employees) Rules, 1975, as amended, the names
 and other particulars of employees are set out in the annexure included
 in this report. The Department of Company Affairs, has vide circular
 No.GSR.212(E) dated 24/03/ 2004, amended the Companies (Particulars of
 employees) Rules, 1975 to the effect that the particulars of employees
 of the companies engaged in Information Technology Sector posted and
 working outside India not being directors or their relatives, drawing
 more than rupees twenty four lakhs per financial year or rupees two
 lakhs per month, as the case may be, need not be included in the
 statement but, such particulars shall be furnished to the Registrar of
 Companies.
 
 Accordingly, the statement annexed to this report does not contain the
 particulars of employees who are posted and working outside India not
 being directors or their relatives. However, on specific request, such
 particulars shall be made available to any shareholder during the
 course of the Annual General Meeting.
 
 Fixed Deposits
 
 Your company has not accepted any fixed deposits and as such no amount
 of principal or interest was outstanding on the date of the Balance
 Sheet.
 
 Directors
 
 Mr GV Kumar and Mr P Mukunda Reddy, directors of the company, retire by
 rotation at the ensuing Annual General Meeting and being eligible,
 offer themselves for re-appointment.
 
 Mr D Sudhakar Reddy was reappointed as a Whole-time Director for a
 further period of five years w.e.f. 1st April 2007 and the same was
 approved by the members at the last Annual General Meeting held on 27th
 June 2007.
 
 Mr Jan Erik Boers and Mr Ben Li Hu have resigned from the Board on 28
 April 2007. The Board of Directors place on record their appreciation
 for the services rendered by them during their tenure as directors of
 the company.
 
 Prof S Sadagopan, Mr Anil Kumar Sood and Mr J Srihari Raju were
 appointed as additional directors on 28th April 2007. Their
 appointments were confirmed by the members at the last Annual General
 Meeting held on 27th June 2007.
 
 Mr J Srihari Raju, director of the company, expired on 14th October
 2007 due to illness. The Board of Directors place on record their
 appreciation for the services rendered by him during his tenure as
 director of the company.
 
 Human Resources Development
 
 Your company recognises the importance of human resources as it forms
 the backbone for its success. Your company strongly believes in
 nurturing and encouraging human resources rather than exploiting them.
 The prime focus of the company is to enhance the professional value of
 its employees and create a win-win situation for both the organisation
 and its employee. Your company continues to adopt best HR practices to
 recruit and retain talented employees. Your company is confident of
 reaping the best from its talent pool and sharing the benefits with its
 employees on an equitable basis in the years to come.
 
 Auditors
 
 The joint statutory auditors, M/s Srikanth & Shanthi Associates and M/s
 TN Rajendran 6 Co., Chartered Accountants, retire at the ensuing Annual
 General Meeting and have confirmed their eligibility and willingness to
 accept office, if re-appointed.
 
 Directors responsibility statement
 
 As required under Section 217(2AA) of the Companies Act, 1956, it is
 hereby stated that:
 
 (i) in the preparation of the annual accounts, the applicable
 accounting standards had been followed along with proper explanations
 relating to material departures;
 
 (ii) the directors had selected such accounting policies and applied
 them consistently and made judgements and estimates that are reasonable
 and prudent so as to give a true and fair view of the state of affairs
 of the company at the end of the financial year and of the profits of
 the company for the year;
 
 (iii)the directors had taken proper and sufficient care for the
 maintenance of adequate accounting records in accordance with the
 provisions of this Act for safeguarding the assets of the company and
 for preventing and detecting fraud and other irregularities; and
 
 (iv)the Directors had prepared the annual accounts on a going concern
 basis.
 
 Employee Stock Option Schemes
 
 As required by clause 12 of SEBI (Employee Stock Option Scneme and
 Employee Stock Purchase Scheme) Guidelines, 1999, the particulars of
 the stock options schemes are furnished as annexure.
 
 Acknowledgements
 
 Your directors take this opportunity to thank all Investors, Customers,
 Vendors, Banks, regulatory and Government authorities for their
 continued support to your company. Your directors also wish to place on
 record their appreciation of the contribution made by Employees at all
 levels.
 
                           For and on behalf of the Board of Directors
 
 Hyderabad                     G V Kumar       Ravindra Sannareddy
 22 February 2008           Managing Director      Chairman