United States
Securities and Exchange Commission

FORM 6-K

Commission File Number 000-27663

SIFY LIMITED

Not Applicable

Chennai, Tamilnadu, India

Tidel Park, 2nd Floor

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F. Form 20F þ Form 40 F o

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934. Yes o No þ

     If “Yes” is marked, indicate below the file number assigned to registrant in connection with Rule 12g3-2(b). Not applicable.

Sify Limited is incorporating by reference the information and exhibits set forth in this Form 6-K into its registration statements on Form S-8 (Registration Nos. 333-101322 and 333-107938) and on Form F-3 (Registration Nos. 333-101915 and 333-121047).

     The number of equity shares of the Registrant outstanding as on January 27, 2005 was 35,377,361.

Table of Contents

SIFY LIMITED

FORM 6-K

For the Quarter ended December 31, 2004

INDEX

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Currency of Presentation and Certain Defined Terms

     Unless the context otherwise requires, references herein to “we,” “us,” the “company” or “Sify” are to Sify Limited (formerly known as Satyam Infoway Limited), a limited liability company organized under the laws of the Republic of India. References to “U.S.” or the “United States” are to the United States of America, its territories and its possessions. References to “India” are to the Republic of India. Until December 2002, we were a majority-owned subsidiary of Satyam Computer Services Limited (“Satyam Computer Services”), a leading Indian information technology services company which is traded on the New York Stock Exchange and the major Indian stock exchanges. In January 2003, we changed the name of our company from Satyam Infoway Limited to Sify Limited. “Satyam” is a trademark owned by Satyam Computer Services, which licensed the use of the “Satyam” trademark to us subject to specified conditions. “Sify.com,” “Sify,” “Sify iway,” “SifyOnline,” “SatyamOnline,” “SatyamNet,” “satyamonline.com” and “Satyam iway” are trademarks used by us for which we have registration applications pending in India. All other trademarks or tradenames used in this quarterly report are the property of their respective owners.

     In this report, references to “$,” “US$,” “Dollars” or “U.S. dollars” are to the legal currency of the United States, and references to “Rs.,” “rupees” or “Indian Rupees” are to the legal currency of India. References to a particular “fiscal” year are to our fiscal year ended March 31 of that year.

     For your convenience, this report contains translations of some Indian rupee amounts into U.S. dollars which should not be construed as a representation that those Indian rupee or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Indian rupees, as the case may be, at any particular rate, the rate stated below, or at all. Except as otherwise stated in this report, all translations from Indian rupees to U.S. dollars contained in this report have been based on the noon buying rate in the City of New York on December 31, 2004 for cable transfers in Indian rupees as certified for customs purposes by the Federal Reserve Bank of New York. The noon buying rate on December 31, 2004 was Rs.43.27 per $1.00.

     Our financial statements are prepared in Indian rupees and presented in accordance with United States generally accepted accounting principles, or U.S. GAAP. In this report, any discrepancies in any table between totals and the sums of the amounts listed are due to rounding.

     Information contained in our websites, including our principal corporate website, www.sifycorp.com, is not part of this report.

Forward-looking Statements May Prove Inaccurate

     IN ADDITION TO HISTORICAL INFORMATION, THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE REFLECTED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THE SECTION ENTITLED “RISK FACTORS” AND ELSEWHERE IN THIS REPORT. YOU ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH REFLECT MANAGEMENT’S ANALYSIS ONLY AS OF THE DATE OF THIS REPORT. IN ADDITION, YOU SHOULD CAREFULLY REVIEW THE OTHER INFORMATION IN THIS REPORT AND IN OUR PERIODIC REPORTS AND OTHER DOCUMENTS FILED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (THE “SEC”) FROM TIME TO TIME. OUR FILINGS WITH THE SEC ARE AVAILABLE ON ITS WEBSITE, WWW.SEC.GOV.

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Item 1. Financial Statements

SIFY LIMITED AND SUBSIDIARIES

See accompanying notes to unaudited condensed consolidated financial statements

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SIFY LIMITED AND SUBSIDIARIES

See accompanying notes to unaudited condensed consolidated financial statements

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SIFY LIMITED AND SUBSIDIARIES

See accompanying notes to unaudited condensed consolidated financial statements

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SIFY LIMITED AND SUBSIDIARIES

See accompanying notes to unaudited condensed consolidated financial statements

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SIFY LIMITED AND SUBSIDIARIES

Sify Limited (“Sify”) together with its subsidiaries (the “Company”) and its affiliates is engaged in providing various services, such as Corporate Network and Data Services, Internet Access Services, Online Portal and Content Offerings.

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States (US GAAP) in Indian Rupees (Rs.), the national currency of India. Solely for the convenience of the reader, the financial statements as of and for the quarter and nine months ended December 31, 2004 have been translated into United States dollars at the noon buying rate in New York City on December 31, 2004 for cable transfers in Indian rupees, as certified for customs purposes by the Federal Reserve Bank of New York of US$1 = Rs. 43.27. No representation is made that the Indian rupee amounts have been, could have been or could be converted into United States dollars at such a rate or at any other rate on December 31, 2004 or at any other date.

Interim information presented in the condensed consolidated financial statements has been prepared by the management without audit and, in the opinion of management, includes all adjustments of a normal recurring nature that are necessary for the fair presentation of the financial position, results of operations, and cash flows for the periods shown, is in accordance with the generally accepted accounting principles in the United States. These financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s annual report on Form 20-F for the fiscal year ended March 31, 2004.

Cash and cash equivalents as on December 31, 2004 amounted to Rs. 1,561,852 (Rs. 1,325,803 as on March 31, 2004). This excludes restricted cash included in current assets of Rs. 16,883 (Rs. 101,587 as on March 31, 2004) and restricted cash included in non-current assets of Rs. 7,472 (Rs. 10,146 as on March 31, 2004) representing deposits held under lien against bank guarantees given by the Company towards future performance obligations and letters of credit given to suppliers of the Company against purchase obligations.

The restricted cash balances in current and non-current assets represent deposits earmarked against financial guarantees and letters of credit procured in the course of business, including guarantees given to The Telegraph Authority of India of Rs. 10,000 and letters of credit for Axxcelera Broadband Wireless Inc., of Rs. 1,864, JQ Network of Rs. 1,573, Wipro Limited of Rs. 1,433 and Controller of Certifying Authorities of Rs. 10,000.

The Company acquired the business of E Alcatraz Consulting Private Limited (“EAP”) for cash on March 1, 2004. As a result of this acquisition, the Company offers value-added consulting services, such as security risk assessment, security policy and procedure consulting and managed security services, which provide end to end security solutions to the Company’s corporate clients.

During the quarter ended September, 30 2004, the total purchase price has been allocated to the acquired assets and assumed liabilities as follows:

The Company has considered the Financial Accounting Standards Board Statement No. 141 (“SFAS 141”), Business Combinations, and relevant interpretive guidance for allocation of the purchase price and has estimated the fair value of the customer contracts, and customer relationship at Rs. 29,084 with a weighted average useful life of five years.

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5. Goodwill and intangibles

At December 31, 2004, the Company’s goodwill and other intangible assets amounted to Rs. 14,595 and Rs. 71,556 respectively (Rs. 14,595 and Rs. 93,786 as on December 31, 2003 respectively). The following are the details of other intangible assets:

The aggregate amortization expense for the quarters ended December 31, 2003 and 2004 was Rs. 12,103 and Rs. 12,938, respectively, and the nine months ended December 31, 2003 and 2004 was Rs. 60,931 and Rs. 39,471, respectively.

Estimated amortization expense

In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, the Company does not amortise goodwill but tests it for impairment on an annual basis. The Company has not recognized any impairment of goodwill during the years ended March 31, 2003 and 2004 and for the nine months ended December 31, 2004.

6. Employee Stock Options

The Company has adopted pro forma disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation and SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, to stock based employee compensation.

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The fair value of each option is estimated on the date of grant using the Black-Scholes model with the following assumptions:

7. Gratuity

The Company provides for gratuity, a defined benefit retirement plan (the “Gratuity Plan”) covering all employees. The Gratuity Plan commenced on April 1, 1997. The plan provides a lump sum payment to vested employees at retirement or termination of employment, an amount based on the respective employee’s salary and the years of employment with the Company. The Company provides the gratuity benefit through annual contributions to a fund managed by the Life Insurance Corporation of India (“LIC”). Under this scheme, the settlement obligation remains with the Company, although the LIC administers the scheme and determines the contribution premium required to be paid by the Company. The Gratuity Plan is accounted for in accordance with SFAS No. 87, Employers’ Accounting for Pensions.

The following table sets out the funded status of the Gratuity Plan and the amounts recognized in the Company’s financial statements.

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The Company’s best estimate of contributions expected to be paid to the plan during the year ending March 31, 2005 amounts to Rs. 10,000. Further, the benefits expected to be paid in each of the next five fiscal years, and in the aggregate for the five fiscal years thereafter are:

8. Deferred revenue:

Deferred revenue includes the following amounts of unearned income:

9. Advertising costs

Advertising costs incurred during the quarter have been expensed. The total amount of advertising costs expensed during the quarters ended December 31, 2003 and 2004 was Rs. 4,778 and Rs. 8,715, respectively, and nine months ended December 31, 2003 and 2004 was Rs. 35,074 and Rs. 22,613, respectively.

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10. Products and services

Breakup of revenues and cost of revenues against products and services are as follows:

11. Segment reporting

SFAS No 131, “Disclosures about Segments of an Enterprise and Related Information,” establishes standards for the way that public business enterprises report information about operating segments and related disclosures about products and services, geographic areas and major customers. The Company’s operations predominantly relate to connectivity to enterprises and providing Internet access to retail subscribers (both home access and public access). The Company also operates a portal, “Sify.com.” that provides a variety of India-related content to audiences both in India and abroad, and which generates revenue from advertisements and other value added services. The Company also has a subsidiary, which deals with digital signatures and Internet security.

The primary operating segments of the Company are:

The chief operating decision maker (“CODM”) evaluates the Company’s performance and allocates resources to various strategic business units that are identified based on the products and services that they offer and on the basis of the market catered to. Revenue in relation to segments is categorized based on items that are individually identifiable to that segment.

Bandwidth costs, which form a significant part of the total expenses, are of three kinds – international, national and last mile. These are allocated primarily between the corporate network/data services and Internet access services businesses as described below.

International bandwidth refers to bandwidth that is required for access to sites and offices outside the country. For all these businesses, bandwidth is allocated based on actual utilization captured by monitoring traffic per IP pool assigned, at the egress points. The Company has packet shapers in the main locations to monitor bandwidth use by each of the above categories of users. This information is used in determining norms like bandwidth per port and bandwidth per PC. The actual utilization are cross validated against assumptions / norms for each business.

National bandwidth refers to the inter-city link bandwidth implemented within the country. Inter-city link bandwidth was allocated based on the number of subscribers or iway cybercafés at “non gateway” points and the bandwidth sold to and used by business enterprises (determined using packet shapers). However, due to strategic reasons aimed at furthering the corporate business, the national backbone was enhanced to carry traffic to the international fibre gateways moving away from its hybrid

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satellite and fibre gateways to only fibre gateways for international bandwidth. Local exit of international traffic through the satellite gateways has reduced and this traffic has been loaded onto the national backbone. National bandwidth costs are now allocated based on international bandwidth allocation ratios. This is because most of the traffic carried on the national backbone is finally aimed towards the international gateways. The Company believes that the resulting allocations are reasonable.

Last mile costs in the dial up access (E1/R2 costs) and spectrum fees for wireless connectivity that can be directly identified to businesses are allocated directly.

Certain expenses, such as depreciation and overheads incurred by the support functions including finance, human resources, administration, technology and corporate, which form a significant component of total expenses, are not specifically allocable to specific segments as the underlying services are used interchangeably. Management believes that it is not practical to provide segment disclosure of these expenses and, accordingly, they are separately disclosed as “unallocated corporate expenses” and adjusted only against the total income of the Company.

A significant part of the fixed assets used in the Company’s business are not identifiable to any of the reportable segments and can be used interchangeably between segments. Management believes that it is not practicable to provide segment disclosures relating to total assets since a meaningful segregation of the available data is onerous. The Company’s operating segment information for the quarters and nine months ended December 31, 2003 and 2004 is presented below:

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12. Leases

The Company’s leasing arrangement consist of leasing various types of routers, modems and other equipment for setting up virtual private network and providing bandwidth to its customers in corporate connectivity business. The leases are classified as Sales-Type Leases and expire after a period of three years.

The following lists the components of the net investment in sales-type leases as of December 31, 2004:

The minimum lease payments for each of the fiscal years are as follows:

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The Company’s leasing operations include sales-type leases with Satyam Computer Services Limited, a related party, for leasing networking equipment over a period of 3 years with an annual minimum lease payment of Rs. 300. The sale value of the assets covered under the lease for the quarter ended December 31, 2004 was Rs. NIL.

13. Legal proceedings

Sify and certain of its officers and directors are named as defendants in a securities class action lawsuit filed in the United States District Court for the Southern District of New York. This action, which is captioned In re Satyam Infoway Ltd. Initial Public Offering Securities Litigation, also names several of the underwriters involved in Sify’s initial public offering of American Depositary Shares as defendants. This class action is brought on behalf of a purported class of purchasers of Sify’s ADS from the time of Sify’s Initial Public Offering (“IPO”) in October 1999 through December 2000. The central allegation in this action is that the underwriters in Sify’s IPO solicited and received undisclosed commissions from, and entered into undisclosed arrangements with, certain investors who purchased Sify’s ADSs in the IPO and the aftermarket. The complaint also alleges that Sify violated the United States federal securities laws by failing to disclose in the IPO prospectus that the underwriters had engaged in these allegedly undisclosed arrangements. More than 300 issuers have been named in similar lawsuits.

In July 2002, an omnibus motion to dismiss all complaints against issuers and individual defendants affiliated with issuers was filed by the entire group of issuer defendants in these similar actions. In October 2002, the cases against the Company’s executive officers who were named as defendants in this action were dismissed without prejudice. In February 2003, the court in this action issued its decision on defendants’ omnibus motion to dismiss. This decision denied the motion to dismiss the Section 11 claim as to the Company and virtually all of the other issuer defendants. The decision also denied the motion to dismiss the Section 10(b) claim as to numerous issuer defendants, including the Company. On June 26, 2003, the plaintiffs in the consolidated IPO class action lawsuits currently pending against Sify and over 300 other issuers who went public between 1998 and 2000, announced a proposed settlement with Sify and the other issuer defendants. The proposed settlement provides that the insurers of all settling issuers will guarantee that the plaintiffs recover $.1 billion from non-settling defendants, including the investment banks who acted as underwriters in those offerings. In the event that the plaintiffs do not recover $1 billion, the insurers for the settling issuers will make up the difference. The Company believes that it has sufficient insurance coverage to cover the maximum amount that it may be responsible for under the proposed settlement. It is possible that the Federal District Court may not approve the settlement in whole or part. The maximum financial exposure under this, in the event that the plaintiffs recover nothing from the underwriter, is estimated to be US $3.9 million, an amount we believe which is fully recoverable from Sify’s insurer.

The charges for international gateways and other services presently being provided by Videsh Sanchar Nigam Limited (VSNL) are the subject of a dispute pending before the Telecom Regulatory Authority of India (“TRAI”) and the Telecom Disputes Settlement and Appellate Tribunal between VSNL and private Internet service providers, including Sify, represented by the Internet Service Providers Association of India (“ISPAI”). VSNL has priced these services at levels that Sify believes are inconsistent with the terms and conditions on which VSNL has secured the bandwidth for its international gateways. The Telecom Disputes Settlement and Appellate Tribunal remanded the matter back to the TRAI, which decided against the ISPAI. The ISPAI has not yet decided on a further course of action. Sify is currently paying for bandwidth from VSNL at the higher rates and therefore believes that the outcome of this matter will not have any material adverse financial effect on the Company.

Sify is party to additional legal actions arising in the ordinary course of business. Based on the available information, as at December 31, 2004, Sify believes that it has adequate legal defenses for these actions and that the ultimate outcome of these actions will not have a material adverse effect on Sify.

14. ISP License Matters

In December 2004, the Government of India (“GOI”) issued guidelines for permission to offer Virtual Private Network (“VPN”) services by Internet Service Providers (“ISPs”). Consequently, the Company applied for the permission and the GOI has issued a Letter of Intent (“LOI”) to the Company on December 30, 2004 for amendment of the existing ISP license to include provision of VPN services. In January 2005, the Company paid Rs.100,000 as a one time entry fee and submitted a financial bank guarantee of Rs. 10,000 as required by the LOI.

On January 11, 2005 the GOI issued provisional permission to the Company to offer VPN service in accordance with the new guidelines. Final permission to offer VPN service shall be effective only after the Company signs the amendment to the license agreement. However the provisional permission does not carry any terms and conditions relating to the license.

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The Indian Department of Telecommunications, or DOT, also requires the ISP licensees to pay an annual fee of 8% of the gross revenues generated under the ISP license. To date, the DOT has not issued any guidelines or procedures for implementing this decision. However, it is our understanding that the license fee provisions will become effective only after amendments to the license. We believe that this will not have any effect on Sify’s net earnings / losses for periods prior to January 1, 2005. The ISPAI has been contesting the DOT decision. If not successful, the DOT decision will have an impact on the earnings to the extent of annual fee and amortization of the license fee.

15. Recent Accounting Pronouncements

Recently, the Financial Accounting Standards Board issued FASB Statement No. 123 (revised 2004), Share Based Payment, requiring companies to change their accounting policies to record the fair value of stock options issued to employees as an expense. Currently, the Company does not deduct the expense of the employee stock options grants from its income based on the fair value method as it had adopted the pro forma disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation. The unamortized stock compensation expense as of December 31, 2004, determined under the fair value method is approximately $0.29 million. The Company is required to adopt SFAS 123R on July 1, 2005. The Company is evaluating the impact of the standard on the existing grants of employee stock options and future grants, if any.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

          The following discussion of the financial condition and results of operations of our company should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes included elsewhere in this report and the audited financial statements and the related notes contained in our Annual Report on Form 20-F for the fiscal year ended March 31, 2004. This discussion contains forward-looking statements that involve risks and uncertainties. For additional information regarding these risks and uncertainties, please see the section in this report captioned “Risk Factors.”

Overview

     Our company, Sify Limited (formerly known as Satyam Infoway Limited), was organized as a limited liability company under the laws of the Republic of India pursuant to the provisions of the Companies Act on December 12, 1995. Until December 2002, we were a majority-owned subsidiary of Satyam Computer Services, a leading Indian information technology services company traded on the New York Stock Exchange and the principal Indian stock exchanges. Our company was formed as a separate business unit of Satyam Computer Services to develop and offer connectivity-based corporate services allowing businesses in India to exchange information, communicate and transact business electronically. We conduct substantially all of our business in India. The address of our principal executive office is Tidel Park, 2nd Floor, No. 4, Canal Bank Road, Taramani, Chennai 600 113, India, and our telephone number is (91) 44-2254-0777.

     From December 1995 through 1997, we focused on the development and testing of our private data network. In 1997, we began forming strategic partnerships with a number of leading technology and electronic commerce companies, including UUNet Technologies, in order to broaden our product and service offerings to our corporate customers. In March 1998, we obtained network certification for conformity with Indian and international network operating standards from the Technical Evaluation Committee of India. In April 1998, we began offering private network services to businesses in India. Our initial products and services included electronic data interchange, e-mail and other messaging services, virtual private networks and related customer support.

     In October 1998, we initiated our online content offerings with two websites: carnaticmusic.com and indiaupdate.com. We also developed www.sify.com, our online portal, and other related content sites for personal finance, movies and automobiles with the goal of offering a comprehensive suite of websites offering content specifically tailored to Indian interests worldwide.

     On November 6, 1998, the Indian government opened the Internet service provider market place to private competition. Capitalizing on our existing private data network, we launched our Internet service provider business, SifyOnline (formerly known as SatyamOnline), on November 22, 1998 and became the first private national Internet service provider in India. We began offering SifyOnline Internet access and related services to India’s consumer market as a complement to the network services offered to our business customers. Our SifyOnline service was the first in India to offer ready-to-use CD-ROMs enabling online registration and immediate usage.

     Initial Public Offering and Subsequent Financing Transactions

     In October 1999, we completed our initial public offering on the Nasdaq National Market and issued 4,801,250 ADSs (representing 4,801,250 equity shares) at a price of $18.00 per ADS. We received approximately $79.2 million, net of underwriting discounts, commissions and other offering costs. In February 2000, we completed a secondary offering and issued 467,175 ADSs (representing 467,175 equity shares) at a price of $320.00 per ADS. We received approximately $141.2 million, net of underwriting discounts, commissions and other costs.

     In October 2002, we agreed to sell an aggregate of 7,558,140 ADSs to SAIF Investment Company Limited, or SAIF, for consideration of $13.0 million and to sell an aggregate of 2,034,884 equity shares to Venture Tech for consideration of $3.5 million. This

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transaction was approved by our stockholders at our Extraordinary General Meeting held on December 9, 2002. In December 2002, we completed the sale of the ADSs to SAIF and the sale of 2,034,884 equity shares to Venture Tech. In April 2003, we sold an additional 1,017,442 equity shares to Venture Tech pursuant to our subscription agreement with Venture Tech. In July 2003, we sold a further 1,017,441 ADSs to an affiliate of Venture Tech pursuant to our subscription agreement with Venture Tech. In connection with this financing, the parties entered into a stockholders agreement providing for, among other things, a Board of Directors comprised of nine directors to be nominated as follows: SAIF—two nominees; Venture Tech—two nominees; Satyam Computer Services—two nominees; South Asia Regional Fund (“SARF”) – one nominee; one independent nominee; and one nominee who shall be the Managing Director of Sify. In early 2004, SARF disposed of its entire shareholding and SAIF disposed of a portion of its shares in the company and in accordance with the stockholders agreement, the SARF nominee and one of the SAIF nominees resigned from the Board of Directors. The stockholders agreement has also granted the investors consent rights with respect to specified corporate transactions.

     Investment Strategy

     In evaluating investment opportunities, we consider important factors, such as strategic fit, competitive advantage and financial benefit, through a formal net present value evaluation. There is no significant difference in the analysis undertaken in connection with an investment in an affiliate compared to other uses of cash. Our investment strategy has not undergone major changes in the last four years.

Revenues

     In our financial statements, we provide supplemental segment data which provides separate revenue and operating income (loss) information for each of these business segments. Please see Note 11 to our financial statements above.

     Corporate network/data services

     Corporate network/data services revenues primarily include connectivity services and, to a lesser extent, revenues from the sale of hardware and software purchased from third-party vendors, installation of the link and other ancillary services, such as e-mail and domain registration services. Generally, these elements are sold as a package consisting of all or some of the elements. Consequent to our acquisition of E-Alcatraz, we have also started providing security consultancy and compliance services for enterprises in India and abroad.

     On packaged deals we sell hardware/software, provide installation services and connectivity services as a package. In these circumstances the revenue attributable to connectivity services is recognized ratably over the period of the contract, the revenue attributable to hardware/software is recognized on delivery and the revenue attributable to the installation of the link is recognized on completion of the installation work. Revenue from ancillary services, such as e-mail facilities and domain registration, is recognized over the period such services are provided. Revenue from security consulting projects is based on either the fixed man-hour rates or the proportionate performance method, based on the terms of the contracts. All revenues are shown exclusive of sales tax and service tax and net of applicable discounts and allowances.

     Web-hosting service revenues primarily include co-location services, managed services and security services. On occasion, we also sell related hardware/software to our web-hosting customers. Revenue from these sales is recognized on delivery. Revenue from hosting services is recognized over the period during which the service is provided.

     Internet access services

     Internet access services include Internet access at homes and businesses through dial-up or cable operator and Internet access through a network of cybercafés. It also includes revenues from VoIP or Internet telephony.

     Dial-up Internet access is sold to customers either for a specified number of hours or for an unlimited usage within a specified period of time. Customers purchase “user accounts” or “top-ups” that enable them to access the Internet for a specified quantum of usage or for a specified period of time all within a contracted period. The amounts received from customers on the sale of these user accounts or top-ups are not refundable. We recognize revenue from sale of user accounts or top-ups based on usage (where access is for a specified quantum of usage) and based on time (where access is for a specified period of time) by the customer. Any unused hours at the end of the contracted period are recognized as revenue.

     VoIP services are mainly provided through Internet Telephony Booths at iway cybercafés and to a smaller extent through Cable TV operators, or CTOs, and through multi-dwelling units, or MDUs. The user purchases the packs that enables them to use the Internet telephone facility through CTO and MDUs. We recognize revenue on the basis of usage by the customer. The customer uses Internet telephony facilities at the iway cybercafés and makes the payment to the extent of usage of the facility. We recognize revenue on the basis of usage.

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     Internet access at homes and businesses through cable networks is provided through a franchised network of cable operators in India. Customers buy “user accounts” for a specified usage or volume of data transfer or for a specified period of time all within a contracted period. We recognize revenue on actual usage by customer (where access is for a specified quantum of usage) and based on time (where access is for a specified period of time). Any unused hours at the end of the contracted period are recognized as revenue.

     Public Internet access is provided to customers through a chain of 2,270 cybercafés as of December 31, 2004. Of these, 2,236 are franchisee-owned and 34 are Sify-owned.

     In the case of franchised cybercafé operators, we enter into an agreement with the franchisee that establishes the rights and obligations of each party and grants each franchisee a non-exclusive license to operate the cybercafés using our logo, brand and trade names. The cybercafés are owned and operated by the franchisees. The franchisee procures the retail space, invests in furniture, interior decor, PCs, and point of sale signage and employs and trains the franchisee staff. The franchisee is responsible for the maintenance of the premises and interface with customers. We provide the complete backend support, including bandwidth, the authentication/usage engine and the billing and collection system.

     In the case of franchised cable network operators and franchised cybercafé operators, we enter into a standard arrangement with franchisees that provides for the payment of an initial non-refundable franchisee fee in consideration for establishing the franchisee relationship and providing certain initial services. The fee covers the following upfront services rendered by us:

The initial franchisee fee revenue is recognized at the time of commencement of operations by the franchisee, in accordance with SFAS 45, Accounting for Franchisee Fee Revenue. Internet access revenue and Internet telephony revenues are recognized based on usage by the customer

     Online portal and content offerings

     Online portal and content offerings revenues include advertising revenues from the various channels of our Internet portal, www.sify.com. We enter into contracts with customers to serve advertisements in the portal, and we are paid on the basis of impressions, click-throughs or leads. Revenues are also earned through sponsorships, through commissions earned through sale of third-party products from the shopping portal, sifymall.com, and through commissions earned from enabling downloads of ring tones.

     Other services

     Other services include revenue from e-learning software development services to facilitate web-based learning in various organizations. Revenue from such projects is recognized on either the fixed man-month rates or the proportionate performance method, based on the terms of the contracts.

Expenses

     Corporate network/data services

     Cost of revenues for the corporate network/data services division predominantly consists of telecommunications costs necessary to provide services, customer support costs, cost of goods in respect of communication hardware and security products sold, costs of direct manpower deployed in providing security consulting solutions and the cost of providing network operations. Telecommunication costs include the costs of international bandwidth procured from VSNL and other fiber and satellite gateway providers, providing local telephone lines to our points of presence, use of third-party networks between and within the cities where we have our points of presence, and spectrum fees paid to the Wireless Planning Commission for enabling provision of wireless connectivity. Depreciation of plant and equipment has not been included in the cost of revenues since a significant part of the fixed assets are not directly identifiable.

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     Internet access services

     Cost of revenues for the Internet access services division consists primarily of recurring telecommunications costs necessary to provide service to subscribers, direct costs paid to franchisees for running the iways and to cable television operators for providing Internet services to customers, and termination charges paid to overseas carriers for terminating Internet telephony calls that originate from India. Another recurring cost included in cost of revenues is the personnel and related operating expenses associated with customer support and network operations.

     Online portal services and content offerings

     Cost of revenues for the online portal and content offerings division includes the cost of procuring and managing content for the websites and the cost of third-party software.

     Other Services

     Cost of revenues for the eLearning division include the cost of direct manpower that is involved in the design and uploading of content for facilitating web-based learning.

Others

     Selling, general and administrative expenses consists of salaries and commissions for sales and marketing personnel, salaries and related costs for executive, financial and administrative personnel, sales, marketing, advertising and other brand building costs, travel costs, and occupancy and overhead costs.

     We have an Associate Stock Option Plan, which we refer to as our Employee Stock Option Plan or ASOP. A total of approximately 1.8 million equity shares are reserved for issuance under our ASOP. As of December 31, 2004, we had an aggregate of 783,328 options (net of 848,574 options expired or forfeited by employees and 547,278 options exercised for equity shares) outstanding under our ASOP with a weighted-average exercise price equal to approximately Rs.178.7 per equity share. The unamortized deferred compensation related to these grants amounted to Rs.4.9 million as of December 31, 2004.

     We depreciate our tangible assets on a straight-line basis over the useful life of assets, ranging from two to five years and, in the case of buildings, 28 years.

     We assess for impairment of long-lived assets under SFAS No. 144, Impairment and disposal of long-lived assets. The carrying values of long-lived assets are compared with the adjusted estimated future cash flows at the identifiable business segment level. If the sum of such undiscounted cash flows is less than the aggregate carrying amount, the asset is not recoverable and the impairment loss is recognized.

     In addition to our operations and those of our consolidated subsidiaries, our financial statements include our pro rata share of the financial results of Refco-Sify, a company in which we have a significant, non-controlling minority interest. This investment is accounted for under the equity method of accounting.

     Since our inception, we have incurred net losses. Our ability to generate positive cash flow from operations and achieve profitability is dependent on our ability to continue to grow our revenues base and achieve further operating efficiencies.

     For fiscal 1999 through 2003, we incurred negative cash flow from continuing operations of approximately Rs.172.1 million, Rs.596.9 million, Rs.1,133.4 million, Rs.775.7 million and Rs.238.3 million, respectively. During fiscal 2004, we generated cash from operating activities of Rs.274.0 million and for the nine months ended December 31, 2004, we generated a cash surplus from operations of Rs.388.8 million ($9.0 million). For fiscal 1999 through 2004 and the nine months ended December 31, 2004, we incurred net losses of approximately Rs.187.4 million, Rs.381.9 million, Rs.2,509.0 million, Rs.7,202.5 million, Rs.1,329.4 million, Rs.371.3 million and Rs.196.0 million ($4.5 million), respectively. As of December 31, 2004, we had an accumulated deficit of approximately Rs.12,305.0 million ($284.4 million).

Recent Accounting Pronouncements

     Recently, the Financial Accounting Standards Board issued FASB Statement No. 123 (revised 2004), Share Based Payment, requiring companies to change their accounting policies to record the fair value of stock options issued to employees as an expense. Currently, we do not deduct the expense of employee stock options grants from our income based on the fair value method as we had adopted the pro forma disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation. The unamortized stock compensation expense as of December 31, 2004, determined under the fair value method is approximately $0.29 million. We are required to adopt SFAS 123R on July 1, 2005. We are evaluating the impact of the standard on the existing grants of employee stock options and future grants, if any.

Results of Operations

Quarter ended December 31, 2004 compared to quarter ended December 31, 2003

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     Revenues. We recognized Rs.945.6 million ($21.9 million) in revenues for the quarter ended December 31, 2004, as compared to Rs.711.4 million for the quarter ended December 31, 2003, representing an increase of Rs.234.2 million, or 32.9%.

     This increase was attributable to a Rs.175.7 million, or 50.3%, increase in the corporate network/data services businesses, which was attributable to increases in connectivity revenues of Rs.62.8 million, installation revenues of Rs.33.4 million and security consultancy revenues of Rs.22.4 million (consequent to the acquisition of EAP), as well as an increase in hardware and software sales of Rs.57.1 million. The corporate network/data services businesses successfully obtained a significant number of new orders and large incremental orders from existing customers with operations throughout India. There are more than 1,000 enterprises in India to whom we now provide network/connectivity services.

     Revenues generated by our consumer Internet access services business increased by Rs.100.7 million, or 36.3%, over the same period in the prior year. The increase in consumer Internet access revenues was as a result of a Rs.46.3 million increase in the revenues from the public Internet access business, increased revenues of Rs.21.3 million from Voice-over-IP services and increased revenues of Rs.52.7 million from broadband subscribers from homes — direct and through the cable operators. The number of cybercafés in operation increased from approximately 1,480 as of December 31, 2003 to 2,270 as of December 31, 2004, while the number of broadband subscribers increased from over 16,000 as of December 31, 2003 to over 67,000 as of December 31, 2004. The franchise fees recognized were marginally higher by Rs.0.4 million. Hardware sales accounted for an increase of Rs.14.1 million during the quarter ended December 31, 2004 as compared with the quarter ended December 31, 2003. The above increases were partially offset by a decrease of Rs.34.1 million in the revenues from the dial-up business. This business has been facing pricing pressure from the public sector telephone companies, BSNL and MTNL, which have been bundling their Internet services with basic telecom services, resulting in a shift in the subscriber base to these players. With increasing focus by the Government of India in promoting the use of the Internet and broadband in India, we expect the market for consumer Internet access, especially the nascent broadband market, to grow rapidly, but at the same time to also remain extremely price competitive.

     Our online portal and content offerings division accounted for Rs.26.3 million of revenues for the quarter ended December 31, 2004, as compared to Rs.17.4 million for the quarter ended December 31, 2003, representing an increase of Rs.8.9 million, or 51.2%. Increased revenues from Internet advertising as well as revenues earned from providing value added services such as downloadable ring tones and mobile content, have contributed to the increase.

     Our other business contributed Rs.16.4 million to revenues for the quarter ended December 31, 2004 as compared to Rs.67.5 million for the quarter ended December 31, 2003, representing a decrease of Rs.51.1 million, or 75.7%. The decrease can be attributed to the loss of revenues from Element K, which was the largest customer of this division in the previous financial year. There were no revenues generated from this customer during the quarter ended December 31, 2004. This division continues its operations serving other customers.

     Cost of Revenues. Cost of revenues was Rs.529.2 million ($12.2 million) for the quarter ended December 31, 2004, compared to Rs.376.4 million for the quarter ended December 31, 2003, representing an increase of Rs.152.8 million, or 40.6%. This increase was primarily due to a Rs.43.8 million increase in cost of revenues attributable to an increase in direct expenses paid to franchisees and Cable Television Operators or CTOs (for providing broadband delivery through cable), a Rs.27.7 million increase in cost of goods, an increase of Rs.40.4 million in personnel expenses, an increase of Rs.19.0 million in leased line expenses and a Rs.21.9 million increase in other expenses. The increase in bandwidth costs is a combination of increased business from value added and other services as well as a decrease in bandwidth rates, resulting from lower rates negotiated on higher volumes as well as the result of competitive forces that have driven down costs both in international and national bandwidth. During the course of the current year, we have generated revenues in security consulting and compliance services that require deployment of additional manpower in India and abroad. The increase in direct personnel expenses can be attributed in part to this new additional stream of revenue.

     Selling, general and administrative expenses. Selling, general and administrative expenses were Rs.364.8 million ($8.4 million) for the quarter ended December 31, 2004, compared to Rs.312.3 million for the quarter ended December 31, 2003, representing an increase of Rs.52.5 million, or 16.8%. This increase was mainly due to an increase of Rs.45.6 million in administrative and other expenses and an increase of Rs.9.8 million in personnel expenses, partially offset by a decrease of Rs.2.9 million in marketing and promotion expenses. The increase in personnel expenses resulted from an increase in manpower in the Internet access services division relating to growth in the cybercafés and broadband businesses, and additional manpower recruited for the remote network management, application services and compliance services, provided to enterprises abroad.

     Provision for doubtful receivables and advances. Provision for doubtful receivables and advances was Rs.13.8 million ($0.3 million) for the quarter ended December 31, 2004, compared to Rs.8.0 million for the quarter ended December 31, 2003, representing an increase of Rs.5.8 million, or 73%. This corresponds to 1.46% of the revenues for the quarter ended December 31, 2004, as compared to 1.12% of revenues for the quarter ended December 31, 2003.

     Depreciation. Depreciation for the quarter ended December 31, 2004 was Rs.130.1 million ($3.0 million), compared to Rs.121.3 million for the quarter ended December 31, 2003, representing an increase of Rs.8.8 million, or 7.2%. The increase was partially due to the higher capital expenditure incurred in the last few quarters, consequent to the expansion of points of presence to more cities.

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     Amortization of intangible assets. Amortization of intangible assets for the quarter ended December 31, 2004 was Rs.12.9 million ($0.3 million), compared to Rs.12.1 million for the quarter ended December 31, 2003, representing an increase of Rs.0.8 million, or 6.9%. The increase is mainly due to an increase of amortization of intangibles pertaining to EAP amounting to Rs.1.4 million which was partially offset by a decrease in amortization of other intangibles amounting to Rs.0.6 million.

     Amortization of Deferred Stock Compensation expenses. Amortization of deferred stock compensation expenses was Rs.2.7 million ($0.1 million) for the quarter ended December 31, 2004, compared to Rs.6.6 million for the quarter ended December 31, 2003, representing a decrease of Rs.3.9 million, or 59.4%. The decrease is mainly due to full amortization of 2001 stock option grants before December 2004, therefore impacting only a portion of the quarter ended December 31, 2004.

     Foreign exchange loss. Foreign exchange loss for the quarter ended December 31, 2004 was Rs.32.9 million ($0.8 million), compared to a foreign exchange loss of Rs.1.8 million for the quarter ended December 31, 2003, representing an increase of Rs.31.1 million. The foreign exchange loss is a result of the depreciation of the U.S. Dollar to the Indian Rupee that has impacted the value of our U.S. Dollar denominated cash deposits of approximately $11 million. During the quarter ended December 31, 2004, the rupee appreciated from Rs.45.91 per dollar as of September 30, 2004 to Rs.43.27 per dollar as of December 31, 2004. In January 2005, after the close of the quarter, the company converted $5 million into Indian Rupees to reduce, in the future, further impact of foreign exchange translation effects. The balance amount of $6 million of U.S. Dollar denominated cash deposits has not been hedged, and therefore any further decline of the US Dollar to the Indian Rupee could result in further foreign exchange losses.

     Other income (net). Other income was Rs.28.4 million ($0.7 million) for the quarter ended December 31, 2004, compared to Rs.15.3 million for the quarter ended December 31, 2003, representing an increase of Rs.13.1 million. The increase was mainly due to write back of expenses provided for in prior quarters amounting to Rs.15.7 million, partially offset by a decrease in interest income and others amounting to Rs.2.6 million.

     Equity in profits of affiliates. Equity in profits of affiliates was Rs.17.3 million ($0.4 million) for the quarter ended December 31, 2004, compared to Rs.9.3 million for the quarter ended December 31, 2003, representing an increase of Rs.8.0 million. Our share of Refco-Sify’s profit was Rs.17.3 million for the quarter ended December 31, 2004, and our share of Refco-Sify’s profit was Rs.12.6 million for the quarter ended December 31, 2003. For the quarter ended December 31, 2003 this profit was offset by our share of Rs 3.3 million in the loss in Wisden CricInfo. Our stake in Wisden CricInfo was sold in February 2004.

     Net Loss. Our net loss was Rs.95.0 million ($2.2 million) for the quarter ended December 31, 2004, compared to a net loss of Rs.102.5 million for the quarter ended December 31, 2003.

Nine months ended December 31, 2004 compared to nine months ended December 31, 2003

     Revenues. We recognized Rs.2,584.3 million ($59.7 million) in revenues for the nine months ended December 31, 2004, as compared to Rs.1,976.2 million for the nine months ended December 31, 2003, representing an increase of Rs.608.1 million, or 30.8%.

     The revenues generated by our corporate network/data services businesses increased by Rs.486.8 million, or 51.0%, over the same period in the prior year. The increase is attributable to increases in connectivity revenues of Rs.203.3 million, installation revenues of Rs.93.1 million, and security consultancy revenues of Rs.53.6 million (consequent to the acquisition of EAP), as well as an increase in hardware and software sales of Rs.136.8 million. The corporate network/data services businesses successfully obtained a significant number of new orders and a large number of incremental orders from customers with operations throughout India.

     The increase in consumer Internet access revenues was Rs.244.7 million, or 32.0%, over the same period of the previous year. The increase was as a result of an increase in public internet access revenues of Rs.160.5 million, increased revenues of Rs.51.2 million from voice-over-IP services and increased revenues from home based broadband subscribers of Rs.135.4 million. Hardware sales and others accounted for an increase of Rs.11.9 million during the nine month period ended December 31, 2004 as compared to the nine month period ended December 31, 2003. These increases were partially offset by a decrease of Rs.123.4 million in the revenues from the dial-up business. The franchise fees recognized were marginally higher at Rs.81.1 million for the nine month period ended December 31, 2004, compared with Rs.72 million for the nine month period ended December 31, 2003.

     Our online portal and content offerings division accounted for Rs.72.8 million of revenues for the nine months ended December 31, 2004, as compared to Rs.63.2 million for the nine months ended December 31, 2003, representing an increase of Rs.9.6 million, or 15.1%. There was an increase of Rs.14.5 million on account of increased revenues from advertising, commissions earned from e-commerce, value-added services like downloadable ring tones and mobile content. This increase was partially offset by a decrease of Rs.4.9 million resulting from the sale of substantially all of the assets of Indiaplaza to a third party.

     Our other business contributed to a decrease of Rs.133.0 million, or 68.6%. The decrease was due to the loss of revenues from Element K, which was the largest customer of this division in the previous financial year. Revenues from Element K accounted for 0.6% of our revenues during the nine months ended December 31, 2004, compared with 8.3% of our revenues for the nine months ended December 31, 2003. This division continues its operations serving other customers.

     Cost of Revenues. Cost of revenues were Rs.1,417.7 million ($32.8 million), for the nine months ended December 31, 2004, compared to Rs.1,034.1 million for the nine months ended December 31, 2003, representing an increase of Rs.383.6 million, or 37.1%. This increase was primarily due to a Rs.141.7 million increase in cost of revenues attributable to an increase in direct expenses paid to

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franchisees and Cable Television Operators or CTOs (for providing broadband delivery through cable), a Rs.114.0 million increase in cost of goods sold, an increase of Rs.58.5 million in personnel expenses, an increase of Rs.39.5 million in lease line expenses, and a Rs.29.9 million increase in other expenses.

     Selling, general and administrative expenses. Selling, general and administrative expenses were Rs.1,012.4 million ($23.4 million) for the nine months ended December 31, 2004, compared to Rs.930.6 million for the nine months ended December 31, 2003, representing an increase of Rs.81.8, million or 8.8%. This increase was due to an increase of Rs.111.6 million in administration and other expenses and an increase of Rs.41.7 million in personnel expenses, partially offset by a decrease of Rs.71.5 million in marketing and promotion expenses.

     Provision for doubtful receivables and advances. Provision for doubtful receivables and advances was Rs.39.5 million ($0.9 million) for the nine months ended December 31, 2004, compared to Rs.62.3 million for the nine months ended December 31, 2003, representing a decrease of Rs.22.8 million, or 36.6%.

     Depreciation. Depreciation for the nine months ended December 31, 2004 was Rs.374.4 million ($8.7 million), compared to Rs. 360.6 million for the nine months ended December 31, 2003, representing an increase of Rs.13.8 million, or 3.8%.

     Amortization of intangible assets. Amortization of intangible assets was Rs.39.5 million ($0.9 million) for the nine months ended December 31, 2004, compared to Rs.60.9 million for the nine months ended December 31, 2003 representing a decrease of Rs.21.4 million, or 35.2%. The decrease is mainly because certain intangible assets were fully written off and due to reassessment of the useful life of the Kheladi.com employment contracts, which resulted in an accelerated amortization of Rs.22.6 million in September 2003. This has been partially offset on account of amortization of intangibles pertaining to EAP amounting to Rs.4.9 million.

     Amortization of Deferred Stock Compensation expenses. Amortization of deferred stock compensation expenses were Rs.9.4 million ($0.2 million) for the nine months ended December 31, 2004, compared to Rs.22.5 million for the nine months ended December 31, 2003, representing a decrease of Rs.13.1 million, or 58.2%. The decrease is due to major portion of stock option grants that were fully amortized by 2004 and also because there were fewer stock option grants during the nine months ended December 31, 2004 as compared with the nine months ended December 31, 2003.

     Equity in profits of affiliates. Equity in profits of affiliates was Rs.35.6 million ($0.8 million) for the nine months ended December 31, 2004, compared to equity in losses of affiliates of Rs.6.4 million for the nine months ended December 31, 2003, representing an increase of Rs.42.0 million. The increase is on account of better performance of our affiliate Refco-Sify during the nine months ended December 31, 2004. The change is also on account of sale of our stake in Wisden Cricinfo in February 2004. Our share of the loss of Wisden CricInfo for the nine months ended December 31, 2003 was Rs.21.6 million.

     Foreign exchange loss. Foreign exchange loss for the nine months ended December 31, 2004 was Rs.3.0 million ($0.1 million), compared to a foreign exchange loss of Rs.24.5 million for the nine months ended December 31, 2003, representing a decrease of Rs.21.5 million. During the period from April 2003 to December 2003, the U.S. Dollar depreciated from Rs.47.53 to Rs.45.55, whereas during the period from April 2004 to December 2004, it depreciated from Rs.43.40 to Rs.43.27.

     Other income (net). Other income was Rs.80.0 million ($1.9 million) for the nine months ended December 31, 2004, compared to Rs.131.4 million for the nine months ended December 31, 2003, representing a decrease of Rs.51.4 million, or 39.1%. The decrease in other income is on account of the profit on the sale of investment in Dr Reddy’s Bio-Sciences Limited (formerly Satyam Institute of E Business Limited) of Rs.75.6 million and profit on the sale of substantially all of the Indiaplaza assets of Rs.3.7 million that was recognized during the nine months ended December 31, 2003. During the nine months ended December 31, 2004, the balance of Rs.15.7 million on the sale of investment in Dr. Reddy’s Bio-Sciences Limited was recognized consequent to a court verdict that was settled in favour of the company after an injunction order was vacated.

     Net Loss. Our net loss was Rs.196.0 million ($4.5 million) for the nine months ended December 31, 2004, compared to a net loss of Rs.394.4 million for the nine months ended December 31, 2003. Excluding the impact of the one time profit pertaining to profit on sale of investment in Dr Reddy’s Biosciences Limited for both the relevant periods, the company’s net loss for the nine months ended December 31, 2004 would have been Rs.211.7 million ($4.9 million) compared to a net loss of Rs.470.0 million for the nine months ended December 31, 2003.