UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2004

Commission File Number 000-50849

KANBAY INTERNATIONAL, INC.(Exact Name of Registrant as Specified in its Charter)

|Delaware(State or Other Jurisdiction of
Incorporation of Organization) |  | 36-4387594(I.R.S. Employer Identification No.)
|---------------------------------------------------------------------- |  | ----------------------------------------------

6400 Shafer Court, Suite 100
Rosemont, Illinois 60018
Phone: (847) 384-6100(Address, including zip code, and telephone number
(including area code) of registrant's principal executive office)

Securities registered pursuant to Section 12 (b) of the Act:

None.

Securities registered pursuant to Section 12 (g) of the Act:

|Title of each class Common Stock, $0.001 par value |  | Name of each exchange on which registered Nasdaq National Market
|-------------------------------------------------- |  | ----------------------------------------------------------------

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes: ý    No: o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K ý.

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange
Act). Yes: o    No: ý

The aggregate market value of the Registrant's common stock held by non-affiliates of the Registrant on July 27, 2004, which was the day the
Registrant completed an initial public offering of shares of its common stock, based on the closing sale price of $14.90 per share on such date on the Nasdaq National Market, was $245,683,120. Shares
of common stock beneficially owned by each director and executive officer and by each person who beneficially owned 5% or more of the outstanding common stock have been excluded because such persons
may be deemed to be affiliates of the Registrant. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As
of March 23, 2005, the Registrant had 33,881,482 shares of common stock, $0.001 par value per share, outstanding.

Documents Incorporated By Reference

Certain sections of the Registrant's Notice of Annual Meeting of Stockholders and Proxy Statement for its Annual Meeting of Stockholders for the year ended
December 31, 2004 (the "2005 Proxy Statement") are to be filed with
the Securities and Exchange Commission within 120 days after the Registrant's fiscal year ended December 31, 2004 are incorporated by reference into Part III of this Report.



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KANBAY INTERNATIONAL, INC.        TABLE OF CONTENTS

|           |  |                                                                                                |  | Page
|---------- |  | ---------------------------------------------------------------------------------------------- |  | ----
|PART I.   
|Item 1.    |  | Business                                                                                       |  | 3   
|Item 2.    |  | Properties                                                                                     |  | 12  
|Item 3.    |  | Legal Proceedings                                                                              |  | 12  
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                            |  | 12  
|PART II.  
|Item 5.    |  | Market for Registrant's Common Equity and Related Stockholder Matters                          |  | 13  
|Item 6.    |  | Selected Financial Data                                                                        |  | 15  
|Item 7.    |  | Management's Discussion and Analysis of Financial Condition and Results of Operations          |  | 16  
|Item 7A.   |  | Quantitative and Qualitative Disclosures About Market Risk                                     |  | 31  
|Item 8.    |  | Financial Statements and Supplementary Data                                                    |  | 32  
|Item 9.    |  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure           |  | 76  
|Item 9A.   |  | Controls and Procedures                                                                        |  | 76  
|Item 9B.   |  | Other Information                                                                              |  | 76  
|PART III. 
|Item 10.   |  | Directors and Executive Officers of the Registrant                                             |  | 77  
|Item 11.   |  | Executive Compensation                                                                         |  | 77  
|Item 12.   |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |  | 77  
|Item 13.   |  | Certain Relationships and Related Transactions                                                 |  | 77  
|Item 14.   |  | Principal Accountant Fees and Services                                                         |  | 77  
|PART IV.  
|Item 15.   |  | Exhibits and Financial Statement Schedule                                                      |  | 77  
|SIGNATURES |  | 81                                                                                            

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PART I.

Item 1. Business

General

We are a global provider of information technology, or IT, services and solutions focused on the financial services industry. We combine technical expertise with
deep industry knowledge to offer a broad suite of services, including business process and technology advice, software package selection and integration, application development, maintenance and
support, network and system security and specialized services through our global delivery model. Our three tier global delivery model combines onsite client relationship teams, senior technical and
industry experts at our offsite regional service centers and cost-effective global delivery centers in India. The three tiers of our global delivery model help us to provide our clients
with value-enhancing solutions using a seamless, consistent and cost-effective client service approach.

We
focus on the financial services industry and provide our services primarily to credit service companies, banking institutions, capital markets firms and insurance companies. In
providing our services, we utilize a wide array of technologies to develop customized solutions that address our clients' specific needs. As of December 31, 2004, Household International (and
its affiliates within the HSBC Group), Morgan Stanley, and CitiFinancial (an affiliate of Citigroup), were among our top clients.

Our
engagements with our top clients typically involve numerous projects and multiple business units within each client and vary in complexity, scope and duration. We seek to expand our
client relationships and migrate each client over time from discrete initial engagements to
longer-term, recurring projects. For example, over the past several years we have successfully deepened our relationship with our largest client, Household International. For the year
ended December 31, 2004, Household International, which is also our largest stockholder with approximately 14.2% of our common stock, and its affiliates within the HSBC Group, accounted for
55.6% of our total revenues. Similarly, we have successfully developed our relationship with our second largest client, Morgan Stanley, which owns approximately 4.7% of our common stock and accounted
for 10.3% of our total revenues in the year ended December 31, 2004. Our five largest clients together accounted for 80.4% of our total revenues in the year ended December 31, 2004. For
each of 2004 and 2003, we received at least 90% of our total revenues from clients that we worked with during the prior year.

We
have operated our business since 1989 and converted from a limited liability company to a corporation in August 2000. Our corporate headquarters are located in Rosemont,
Illinois. We have regional offices located in eight countries and delivery centers in Pune and Hyderabad, India, where 2,619 technical professionals were based as of December 31, 2004. We own a
49.0% interest in SSS Holdings Corporation Limited ("SSS"), which is based in Liverpool, England and focuses on providing IT services to the securities industry.

Initial Public Offering

On July 27, 2004, we completed the initial public offering of shares of our common stock. In connection with our initial public offering, we issued and
sold 5,362,500 shares of common stock and Household Investment Funding, Inc. ("HIFI"), which is our largest stockholder and an affiliate of our largest client, Household International, sold
1,787,500 shares of common stock at an offering price of $13.00 per share. On August 4, 2004, certain other selling stockholders sold an aggregate of 1,072,500 shares of common stock at the
initial public offering price of $13.00 per share upon the exercise of the underwriters' over-allotment option. We did not receive any proceeds from the sale of the 1,787,500 shares sold
by HIFI or the 1,072,500 shares sold by the other selling stockholders pursuant to the underwriters' over-allotment option. After deducting underwriting discounts, commissions and
offering-related expenses, the initial public offering resulted in net proceeds to us of approximately $60 million.

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Secondary Public Offering

On December 13, 2004, we completed a secondary public offering of shares of our common stock. In connection with this offering, certain of our
stockholders, including HIFI and certain members of our management team, sold 5,000,000 shares of common stock at a public offering price of $26.50 per share. On December 28, 2004, certain of
these selling stockholders sold an additional 750,000 shares of
common stock at the public offering price of $26.50 per share upon the exercise of the underwriters' over-allotment option. We did not receive any proceeds from this offering.

Accurum Acquisition

On March 3, 2005, we acquired Accurum, Inc., an IT services provider to the capital markets industry. Accurum provides application development,
enterprise application integration, web services, data warehousing and quality assurance and testing within the front and middle office of capital markets firms, including sales and trading, risk
management and research. We expect that this acquisition will complement the solutions that we offer to our capital markets clients in the areas of asset management, investment banking and securities
trading. Accurum has 169 employees worldwide, located in offices in New York and New Jersey and a solution center in Chennai, India. The purchase price consisted of a $5 million closing
payment, subject to certain adjustments, plus contingent payments of up to $7 million payable upon the achievement of certain performance targets. Accurum will continue to operate under its own
name as a wholly-owned subsidiary of ours.

Industry Background

The role of IT has evolved from simply supporting business enterprises to enabling their expansion and transformation. To succeed in today's marketplace,
companies must respond rapidly to market trends, create new business models and improve productivity. Multiple technology platforms and an enhanced emphasis on security and back-up
facilities have increased the complexity and cost of IT systems, resulting in greater IT-related risks. The increased complexity, cost and risk have created a growing need for specialists
with experience in leveraging technology to support business strategy and expansion.

Many
companies have been forced to reduce their IT budgets as well as place a greater emphasis on closely managing IT spending and improving their return on investments. To accomplish
these objectives, many IT departments have shifted all or a portion of their IT development, integration and maintenance requirements to outside IT service providers. In the current market
environment, the global financial services industry is faced with a number of challenges, including increased regulatory scrutiny, growing competition and ongoing domestic and international
consolidation. Consequently, companies within the financial services industry are looking externally for solutions that allow them to reduce costs and improve performance. Total global IT services
spending within the financial services industry is expected to increase from $138.6 billion in 2004 to $177.7 billion in 2008, representing a compound annual growth rate of 6.4%. The
financial services industry is expected to account for approximately 23% of total global IT services spending from 2004 to 2008.

Competitive Strengths

We believe our competitive strengths include:

Deep industry expertise.We have developed expertise in the financial services industry, with a specific focus on credit
services companies, banking institutions, capital markets and insurance. Our industry focus has enabled us to acquire a thorough understanding of our clients' business issues and applicable
technologies, which allows us to deliver services and solutions tailored to each client's needs. We combine our deep knowledge of industry practices and challenges with an understanding of our
clients' requirements to provide high quality, timely services. Because of our specific industry focus, a significant economic downturn in the financial services industry could negatively affect our
business.

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Three-tier global delivery model.Our global delivery model allows us to provide each of our clients with a
responsive and accessible relationship management team at the client's location, a readily available offsite team of technology and industry experts at one of our regional delivery centers and a
cost-effective application development, maintenance and support team at one of our global delivery centers in India. We believe the processes and technology infrastructure comprising our
three-tier global delivery model enable us to effectively integrate our onsite and offsite execution capabilities to deliver seamless, consistent services on a global basis. Although our
global delivery model allows us to provide these benefits to our clients, demand for our services could decline as a result of negative public perception regarding, or new legislation restricting, the
use of offshore IT service providers.

Commitment to attracting, developing and retaining the highest quality employees.We believe we have established a business
culture throughout Kanbay that enables us to attract and retain the best available industry talent. From 2002 to 2004, we retained an average of 88% of our employees even though the number of our
employees grew significantly. We believe that our high employee retention rate provides tangible benefits to our clients, such as low turnover on long-term engagements, retention of
knowledge which can be applied to new projects, consistent quality and competent and responsive personnel. We expect that we will continue to grow and our anticipated growth could place a significant
strain on our ability to maintain our culture and provide these tangible benefits to our clients.

Long-term client relationships.We have long-standing relationships with many large, international
companies within the financial services industry. We focus on building enduring relationships with both existing and new clients and strive to achieve close interaction at every level of their
organizations. Our ability to successfully deliver consistent, seamless solutions on a global basis combined with our deep knowledge of the financial services industry helps us expand the breadth and
scope of our engagements with existing clients. We manage client relationships with our relationship development methodology, which helps us to migrate our clients over time from discrete
initial engagements to longer-term, recurring projects. Because of our long-standing relationships, we have historically earned, and believe that in the future we will continue
to earn, a significant portion of our revenues from a limited number of clients.

Scalable global business model.We believe that the combination of our three-tier global delivery model and our
financial services industry focus allows us to quickly deploy project teams to engage new projects and rapidly meet client needs. Our ability to rapidly deploy our project teams on new engagements and
to provide our services to our clients is dependent on many factors, including continued compliance with various immigration restrictions and the maintenance of our global communications
infrastructure.

Risk Factors

Our
business, financial condition and operating results may suffer if any of the following risks are realized:



For
a more detailed discussion of the risk factors that may affect our business, financial condition and operating results, please see Exhibit 99.1 to this report, which is
incorporated by reference herein.

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Our Services

We offer a broad suite of services to companies in the financial services industry that combines our industry expertise and technology capabilities. Our service
offerings are fully integrated and include the following:

Business process and technology advisory services.We assist our clients by recommending the solution that is most
appropriate to accomplish their objective in a cost-effective and timely manner. Through our business process and technology advisory services, we deploy our senior consultants and
industry and technical experts to advise clients about how to best address business challenges and achieve objectives through the appropriate use of technology. Our consultants and experts offer
industry perspectives and best practices in order to assist our clients with defining, optimizing and aligning their business objectives.

Software package selection and integration.We assist our clients in the selection and integration of software packages
developed by third party vendors. Our employees have expertise in various software packages spanning our target sectors within the financial services industry, including electronic notification
software for the banking industry, real-time credit card transaction processing applications, application and payment processing solutions for insurance companies and portfolio accounting
applications for investment management firms.

Application development, maintenance and support.We provide application development, maintenance and support services for
our clients' technology platforms, from web servers to legacy mainframes. Our application development capabilities span the software development life cycle, including defining software requirements,
writing software programs and designing, prototyping, building, integrating, producing and implementing custom applications.

Network and system security.Our network and system security services include consulting on internet security assessment and
strategy, developing internet security solutions and reviewing and monitoring internet security on an ongoing basis. In addition, we implement network and system security solutions such as identity
authentication, encryption, firewalls, intrusion detection, anti-virus shields, virtual private networks, content management, application traffic management and biometrics. We have entered
into reseller agreements with certain network and system security software vendors to license and support their software products.

Specialized services.Some of the specialized services we offer our clients include business intelligence, application
management outsourcing and application testing and validation. Our business intelligence services utilize our tools and third party software to enable our clients to discover trends in their internal
business or customer data and compare those trends to market data. Our application management outsourcing services can include employing clients' existing application support employees, transitioning
to new applications, transforming legacy applications and executing longer-term service level agreements. Our application testing and validation services offer a unique
pay-per-use model that enables clients to minimize costs by paying for these services as needed.

Our Clients

We provide our services to companies in the financial services industry with a particular focus on credit service companies, banking institutions, capital markets
firms and insurance companies.

We
have long-standing relationships with many large, international companies within the financial services industry. We focus on building enduring relationships with both
existing and new clients through our relationship development methodology, which helps us migrate our clients from discrete initial engagements to longer-term, recurring projects. As a
result, we have historically earned, and believe that we will continue to earn, a significant portion of our revenues from a limited number of clients. Household International, which is our largest
client and our largest stockholder, accounted for 55.6%, 53.2% and 47.4% of our total revenues in the years ended December 31, 2004, 2003 and 2002,

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which
in 2004 and 2003, included revenues from its affiliates within the HSBC Group. Morgan Stanley, which is our second largest client, accounted for 10.3%, 13.0% and 13.5% of our total revenues in
the years ended December 31, 2004, 2003 and 2002. Our five largest clients together accounted for 80.4%, 80.7% and 74.7% of our total revenues in the years ended December 31, 2004, 2003
and 2002.

Credit Services

We service various credit services companies, including, bank card and retail (private label) card issuers, payment processors and technology vendors. We have
long-standing relationships with credit services companies around the world, such as Household International, CitiFinancial, Development Bank of Singapore and HDFC Bank.

We
provide our services to these credit services companies to help them accomplish various objectives, including:



Banking Institutions

The banking institutions we serve include multi-national commercial and retail banks and consumer finance companies around the world. These institutions include
Household International (and its affiliates within the HSBC Group), CitiFinancial, and American General Finance (an affiliate of AIG).

Our
solutions help these institutions:



Capital Markets Firms

We serve various types of capital markets firms, including asset management institutions, securities brokerage firms, private wealth management firms, investment
banking institutions, securities exchanges and hedge funds. Our largest client in this industry is Morgan Stanley.

Our
services to these capital markets firms enhance their ability to:



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Insurance Companies

We serve insurance companies that provide life, property and casualty, health, commercial and supplemental life insurance. These clients include such companies as
Sun Life Financial, Winterthur Life, Advocate Health and The Regence Group (an affiliate of Blue Cross and Blue Shield).

We
design, develop and implement solutions for our insurance clients that:



Our Global Delivery Model

We believe that our three-tier global delivery model is a significant competitive strength for us because it provides the following benefits to our
clients:



The
objective of our three-tier global delivery model is to effectively integrate our onsite and offsite execution capabilities to deliver seamless, consistent services on a
global basis. For most engagements, a multi-site team of our employees is assembled that includes a relationship management team at the client's location, offsite senior technical and
industry experts at one of our regional service centers and an application development, maintenance and support team at one of our delivery centers in India. The client's system is then connected to
our system to enable simultaneous processing of project components by our onsite and offsite personnel. Our onsite and offsite project managers have joint accountability for each project.

Our
regional service centers are typically located in the client's region to offer technical and industry expertise and timely responses. Our delivery centers in Pune and Hyderabad,
India offer technology and industry expertise in addition to cost-effective delivery. We intend to expand our facilities in Pune, India and to commence construction of a new facility in
Hyderabad, India to replace the delivery center that we currently lease.

Our
quality control programs and processes are designed to proactively identify and effectively resolve potential problems. Our programs and processes are CMM Level
5-assessed on a global basis. In addition, we have been ISO 9001-certified each year since 2001. Our quality control employees track

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relevant
metrics to ensure adherence to our processes, conduct periodic internal quality audits of our projects to facilitate project level defect prevention and perform various process improvement
activities.

Our
significant investment in our communications infrastructure is designed to provide uninterrupted service to our clients. Our communications infrastructure is composed of redundant
high-speed optical fiber, backup satellite links and multiple path routing between our delivery centers in India and our clients' facilities. Our delivery centers in India rely on
high-speed fiber optic intra-company connectivity and an on-premises satellite earth station for redundancy. In addition, our proprietary software tools provide our clients
real-time access to global project status reports and a searchable central repository for project documents. These tools also enable us to monitor and synchronize different versions of
software development projects being worked on in multiple centers and minimize management overhead costs.

Global Business Development

We market our services through our global business development group, which is divided into the following groups:



Our
sales approach emphasizes our combination of deep knowledge of the financial services industry, technical expertise and reliable delivery of cost-effective solutions. The
goals of our sales approach include increasing the average order amount, decreasing the length of the sales cycle, developing new and innovative business solutions and expanding our relationships with
existing clients to achieve close interaction at every level of their organizations.

SSS Holdings Corporation Limited

As of December 31, 2004, we held 49.0% of the ownership interest in SSS Holdings Corporation Limited ("SSS"), which we originally acquired in
November 2000 in exchange for 2,086,697 shares of our common stock valued at approximately $15.9 million. SSS is a Liverpool, England based IT services firm focused primarily on
providing software maintenance and development and business process outsourcing services to U.K. securities firms. We do not control the business, operations or dividend policy of SSS. For the year
ended December 31, 2004, SSS had revenues of £34.9 million, or approximately $63.9 million, and our share of the earnings of SSS provided us with $2.5 million
of equity in earnings of affiliate.

Intellectual Property

We do not rely on patents and do not believe that patents are important to our business. We rely upon a combination of trade secrets and nondisclosure and other
contractual arrangements to protect our intellectual property rights and proprietary methodologies. It is our policy to enter into confidentiality agreements with our employees and consultants, and we
generally control access to and distribution of our proprietary information. We pursue the registration of certain of our trademarks and service marks
in the United States and other countries. We have registered "Kanbay" and our logo in the United States, New Zealand, Japan, the European Community, China and Australia.

We
generally implement safeguards designed to protect our clients' intellectual property in accordance with our clients' needs and specifications. Compliance with these safeguards is the

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responsibility
of our management and is generally monitored by our clients through inspections or audits. The safeguards we implement may include some or all of the following:



Competition

We believe that the principal competitive factors in our business include the ability to:



We
believe that we compete effectively on all of these factors.

The
global IT service providers with whom we compete fall into three broad categories: offshore IT service providers, large consulting and other professional service firms and
in-house IT departments of large corporations. Some of our competitors have significant resources and financial capabilities combined with much larger numbers of IT professionals. As a
result, these competitors may be better positioned to use significant economic incentives to secure contracts with our existing and prospective clients. These competitors may also be better able to
compete for skilled professionals by offering them more attractive compensation or other incentives.

Offshore
IT service providers generally have some sales presence and software consultants working in North America or Europe, but execute most of their work offshore. In India alone,
there are many offshore IT service providers, with a few top companies firmly established in the global market. The offshore IT service providers with whom we primarily compete include Cognizant
Technology Solutions, Infosys Technologies and Wipro.

We
also compete with large multinational IT service providers such as Accenture, BearingPoint, Cap Gemini and Deloitte & Touche, many of which have established global delivery
centers in such countries as India and China to leverage the cost benefits of global delivery.

We
believe that we are well positioned against competition because we are one of the few companies that cater primarily to the financial services industry. Through our global delivery
model, we combine our onsite and offsite capabilities to balance cost and customer proximity. Many offshore service providers have business operations primarily in India, which allows them to offer
lower-cost services, but their lack of onsite and offsite regional capabilities causes them to sacrifice customer intimacy. On the other hand, most multi-national service providers have
extensive onsite client management capabilities, but these capabilities generally include large overhead costs which increase the cost of their services. We have a strong presence in the U.S., which
we believe enables us to couple proximity to customers with a strong and cost-effective global delivery and support function.

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Operating Segment and Geographic Information

We provide IT management consulting services and operate our business as a single operating segment. The majority of our services continue to be provided to
clients in North America. In 2004, approximately 86% of our revenues came from work performed in North America, 10% from Asia/Pacific and 4% from Europe. Information regarding our revenues and total
assets by geographic area for the three-year period ended December 31, 2004 is presented in note 14 of the audited consolidated financial statements included in this report.

Employees

As of December 31, 2004, we had 3,708 full-time employees. In North America, we had a total of 670 employees, including 538 IT professionals
and 132 sales, marketing and administrative personnel. We have one office in the United Kingdom, with a total of 24 employees. In the Asia-Pacific region, we operate from three offices in
Australia and one each in Hong Kong, Singapore and Japan, with a total of 106 employees. Our India staff works from our delivery centers in Pune and Hyderabad with a total of 2,908 employees,
including 2,619 IT professionals and 289 finance, recruiting, staffing, facility management and administrative personnel.

Available Information

Our Internet website is http://www.kanbay.com. We make available free of charge on or through our Internet website this annual report on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonable practicable
after such material is electronically filed with or furnished to the Securities and Exchange Commission.

Information
contained on our website is not part of this report and shall not be deemed to be incorporated by reference into this report or any other public filing made by us with the
SEC.

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Item 2. Properties

Our principal executive offices are located in Rosemont, Illinois. Our delivery center in Pune, India consists of four buildings and houses an onsite satellite
earth station, dedicated communication links to clients and a technology learning training center. We own one of the buildings in Pune and lease the other three. We currently lease our delivery center
in Hyderabad, India. We have multiple leases for our facilities in Pune and Hyderabad. The terms of these leases vary and have expiration dates ranging from March 2006 to September 2007.

As
of December 31, 2004, we conducted our business from the following properties:

Location

Use

Leased
or OwnedNorth America(1)Rosemont, Illinois

Corporate Headquarters

LeasedNew York, New York

Business Development

LeasedEncino, California

Business Development

LeasedToronto, Ontario, Canada

Business Development

LeasedSt. Louis, Missouri

Business/Software Development

LeasedInternational(1)Pune, India

Software Development

OwnedPune, India

Software Development

LeasedPune, India

Software Development

LeasedPune, India

Software Development

LeasedHyderabad, India

Software Development

LeasedBrisbane, Australia

Business Development

LeasedMelbourne, Australia

Business Development

LeasedSt. Leonards, Australia

Business Development

LeasedHong Kong

Business/Software Development

LeasedTokyo, Japan

Business Development

LeasedSingapore

Business Development

LeasedCambridge, United Kingdom

Support Functions

Leased


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Item 3. Legal Proceedings

We are not a party to any litigation or other legal proceedings that we believe would have a material adverse effect on our business, financial condition or
operating results.

Item 4. Submission of Matters to a Vote of Security Holders

None.

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Item 5. Market for the Company's Common Equity and Related Stockholders Matters

Market Information

Our common stock has been traded on the Nasdaq National Market under the symbol "KBAY" since July 22, 2004. Prior to that time, there was no public market
for our common stock. The following table sets forth, for the periods indicated in the fiscal year ended December 31, 2004, the high and low sales price per share for our common stock as
reported on the Nasdaq National Market.

2004QuartersHigh

LowThird (from July 22, 2004)

$
24.13

$
12.70Fourth

$
31.87

$
20.15


Holders

As of March 28, 2005, there were 48 holders of record of our common stock.

Dividends

We have never declared or paid cash dividends on our common stock. We currently intend to retain all available funds and any future earnings for use in the
operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. In addition, our ability to pay dividends is restricted by certain provisions
contained in our revolving credit facility which provides that we may not pay any dividends without written consent from Silicon Valley Bank.

Securities Authorized for Issuance under Equity Compensation Plans

Plan Category

Number of securities
to be issued upon
exercise of
outstanding options

Weighted-average
exercise price of
outstanding options

Number of securities
remaining available
for future issuance
under equity
compensation plansEquity compensation plans approved by security holders

8,188,383

$
7.65

1,662,979


In
addition, as of December 31, 2004, there were 500,000 shares available for issuance under our Employee Stock Purchase Plan, which is an equity compensation plan approved by
security holders. There are no equity compensation plans that have not been approved by security holders.

Recent Sales of Unregistered Securities

On December 19, 2003, we issued and sold 440,062 shares of common stock in connection with the exercise of options for an aggregate exercise price of
$558,570. The options were exercised by six former employees and one estate of a former employee. The options were granted in 1999 pursuant to the Kanbay International, Inc. 1998
Non-Qualified Option Plan. At the time the options were granted, each former employee was employed by or providing services to us. The sale of these shares was exempt from registration
under the Securities Act pursuant to Rule 701 promulgated under Section 3(b) of the Securities Act as transactions pursuant to a written compensatory benefits plan.

On
May 21, 2004, we issued and sold 62,596 shares of common stock upon the exercise of a warrant for an aggregate exercise price of $294,043. The warrant was exercised by The
Co-Investment 2000 Fund, L.P. The sale of these shares was exempt from registration under the Securities Act pursuant to Section 4(2) as a transaction not involving a public
offering.

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On
November 19, 2004, we issued 40,963 shares of common stock upon the conversion of a warrant by Silicon Valley Bancshares. The sale of these shares was exempt from registration
under the Securities Act pursuant to Section 4(2) as a transaction not involving a public offering.

Use of Proceeds

On July 27, 2004, we completed our initial public offering of shares of our common stock. In connection with our initial public offering, we offered and
sold 5,362,500 shares of our common stock and HIFI offered and sold 1,787,500 shares of our common stock at a price of $13.00 per share. The offer and sale of the shares in the initial public offering
were registered under the Securities Act of 1933, as amended, pursuant to a registration statement on Form S-1, as amended (File No. 333-113495), which was
declared effective by the Securities and Exchange Commission on July 21, 2004. The managing underwriters in this offering were UBS Securities LLC, Robert W. Baird & Co. Incorporated and
Janney Montgomery Scott LLC. On August 4, 2004, certain
selling stockholders offered and sold 1,072,500 additional shares of our common stock at a price of $13.00 per share upon the exercise of the underwriters' over-allotment option.

The
aggregate price of the shares sold in our initial public offering, including the shares sold pursuant to the underwriters over-allotment option, was
$106.9 million. Our portion of the net proceeds from the initial public offering was $60.4 million. In connection with the initial public offering, we paid underwriting discounts and
commissions of $4.9 million and offering expenses of $4.5 million. We did not receive any proceeds from the sale of the 1,787,500 shares sold by HIFI or the 1,072,500 shares sold by
other selling stockholders pursuant to the underwriters' over-allotment option. The net proceeds were invested in interest bearing short term and long term marketable securities. We
currently plan to spend approximately $45 million of the net proceeds for the construction of a new delivery center in Hyderabad, India and the expansion of our delivery center in Pune, India.
Since June 30, 2004, we spent approximately $8 million for the renovation of our facilities in India. We plan to spend approximately $28 million in 2005 and $9 million in
2006 on facility expansion activities.

On
December 13, 2004, we completed a secondary public offering of shares of our common stock. In connection with this offering, certain of our stockholders, including HIFI and
certain members of our management team, sold 5,000,000 shares of common stock at a public offering price of $26.50 per share. On December 28, 2004, certain of these selling stockholders sold an
additional 750,000 shares of common stock at the public offering price of $26.50 per share upon the exercise of the underwriters' over-allotment option. We did not receive any proceeds
from this offering.

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Item 6. Selected Financial Data

The following table presents selected historical consolidated financial data as of, and for the years ended, December 31, 2000, 2001, 2002, 2003, and 2004,
which has been derived from our audited consolidated financial statements. You should read this information together with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our audited consolidated financial statements and related notes for the years ended December 31, 2002, 2003 and 2004, which are included in the audited consolidated financial
statements.

|                                                                     |                                                    | 2000 |         | 2001   |   | 2002   |        | 2003 |        | 2004   |  
|-------------------------------------------------------------------- | -------------------------------------------------- | ---- | ------- | ------ | - | ------ | ------ | ---- | ------ | ------ | -
|Consolidated statements of operations data:                          |                                                    |      |         |        |   |        |        |      |        |        |  
|Net revenuesrelated parties                                         |                                                    | $    | 14,377  |        | $ | 38,001 |        | $    | 50,253 |        | $
|Net revenuesthird parties                                           |                                                    |      | 43,144  |        |   | 31,653 |        |      | 32,336 |        |  
|                                                                     |                                                    |      |         |        |   |        |        |      |        |        |  
|Total revenues                                                       |                                                    |      | 57,521  |        |   | 69,654 |        |      | 82,589 |        |  
|Cost of revenues                                                     |                                                    |      | 34,526  |        |   | 39,786 |        |      | 46,977 |        |  
|                                                                     |                                                    |      |         |        |   |        |        |      |        |        |  
|Gross profit                                                         |                                                    |      | 22,995  |        |   | 29,868 |        |      | 35,612 |        |  
|Selling, general and administrative expenses:                        |                                                    |      |         |        |   |        |        |      |        |        |  
|                                                                     | Sales and marketing expenses                       |      |         | 7,464  |   |        | 7,176  |      |        | 6,129  |  
|                                                                     | General and administrative expenses                |      |         | 22,703 |   |        | 21,368 |      |        | 22,056 |  
|                                                                     | Stock compensation expense                         |      |         | 1,652  |   |        | 2,521  |      |        | 1,571  |  
|                                                                     |                                                    |      |         |        |   |        |        |      |        |        |  
|                                                                     | Total selling, general and administrative expenses |      |         | 31,819 |   |        | 31,065 |      |        | 29,756 |  
|Depreciation and amortization                                        |                                                    |      | 2,171   |        |   | 2,437  |        |      | 2,682  |        |  
|(Gain) loss on sale of fixed asset                                   |                                                    |      | (9      | )      |   | 57     |        |      | 38     |        |  
|                                                                     |                                                    |      |         |        |   |        |        |      |        |        |  
|Income (loss) from operations                                        |                                                    |      | (10,986 | )      |   | (3,691 | )      |      | 3,136  |        |  
|Other income (expense):                                              |                                                    |      |         |        |   |        |        |      |        |        |  
|Interest expense and other, net                                      |                                                    |      | (1,364  | )      |   | (296   | )      |      | (332   | )      |  
|Equity in earnings of affiliate(1)                                   |                                                    |      | 29      |        |   | 861    |        |      | 2,241  |        |  
|Loss on investment                                                   |                                                    |      |        |        |   | (644   | )      |      |       |        |  
|                                                                     |                                                    |      |         |        |   |        |        |      |        |        |  
|Income (loss) before income taxes                                    |                                                    |      | (12,321 | )      |   | (3,770 | )      |      | 5,045  |        |  
|Income tax expense (benefit)                                         |                                                    |      | (11     | )      |   | 18     |        |      | 226    |        |  
|                                                                     |                                                    |      |         |        |   |        |        |      |        |        |  
|Income (loss) before cumulative effect of accounting change          |                                                    |      | (12,310 | )      |   | (3,788 | )      |      | 4,819  |        |  
|Cumulative effect of accounting change(2)                            |                                                    |      |        |        |   |       |        |      | (2,043 | )      |  
|                                                                     |                                                    |      |         |        |   |        |        |      |        |        |  
|Net income (loss)                                                    |                                                    |      | (12,310 | )      |   | (3,788 | )      |      | 2,776  |        |  
|Dividends on preferred stock                                         |                                                    |      | (610    | )      |   | (608   | )      |      | (608   | )      |  
|(Increase) decrease in carrying value of stock subject to repurchase |                                                    |      | (864    | )      |   | (676   | )      |      | 4,077  |        |  
|                                                                     |                                                    |      |         |        |   |        |        |      |        |        |  
|Income (loss) available to common stockholders                       |                                                    | $    | (13,784 | )      | $ | (5,072 | )      | $    | 6,245  |        | $
|                                                                     |                                                    |      |         |        |   |        |        |      |        |        |  
|Income (loss) per share of common stock(3):                          |                                                    |      |         |        |   |        |        |      |        |        |  
|Basic                                                                |                                                    |      |         |        | $ | (0.25  | )      | $    | 0.30   |        | $
|Diluted                                                              |                                                    |      |         |        |   | (0.25  | )      |      | 0.23   |        |  
|The composition of stock compensation expense is as follows:         |                                                    |      |         |        |   |        |        |      |        |        |  
|Cost of revenues                                                     |                                                    | $    | 75      |        | $ | 728    |        | $    | 772    |        | $
|Sales and marketing expenses                                         |                                                    |      | 119     |        |   | 261    |        |      | 260    |        |  
|General and administrative expenses                                  |                                                    |      | 1,458   |        |   | 1,532  |        |      | 539    |        |  
|                                                                     |                                                    |      |         |        |   |        |        |      |        |        |  
|                                                                     |                                                    | $    | 1,652   |        | $ | 2,521  |        | $    | 1,571  |        | $
|                                                                     |                                                    |      |         |        |   |        |        |      |        |        |  
|Consolidated balance sheet data:                                     |                                                    |      |         |        |   |        |        |      |        |        |  
|Cash and cash equivalents                                            |                                                    | $    | 4,655   |        | $ | 5,340  |        | $    | 10,127 |        | $
|Working capital                                                      |                                                    |      | 4,025   |        |   | 2,891  |        |      | 7,117  |        |  
|Total assets                                                         |                                                    |      | 41,381  |        |   | 41,974 |        |      | 51,129 |        |  
|Long-term debt                                                       |                                                    |      | 1,428   |        |   | 2,668  |        |      | 1,761  |        |  
|Preferred stock                                                      |                                                    |      | 3       |        |   | 3      |        |      | 3      |        |  
|Total stockholders' equity                                           |                                                    |      | 17,521  |        |   | 14,593 |        |      | 24,809 |        |  

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes, which appear
elsewhere in this report. It contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking
statements as a result of various factors, including those discussed below and elsewhere in this report.

Overview

We are a global provider of information technology services and solutions focused on the financial services industry. We combine technical expertise with deep
industry knowledge to offer a broad suite of services, including business process and technology advice, software package selection and integration, application development, maintenance and support,
network and system security and specialized services, through our global delivery model. We focus on the financial services industry and provide our services primarily to four industry groups with
whom we workcredit services, banking, capital markets and insurance.

Revenues
increased to $182.6 million in 2004, from $107.2 million in 2003 and $82.6 million in 2002. Net income increased to $27.4 million, or $0.83 diluted
earnings per share in 2004, from $11.4 million and $2.8 million, or $0.50 and $0.23 diluted earnings per share, in 2003 and 2002, respectively. Revenues increased in each industry group
we serve and the increases were particularly strong in the insurance and capital markets industries. Revenues from both related parties and third parties have increased in 2004 over the prior year.
The majority of our services continue to be provided to clients in North America. Approximately 86% of our revenues came from work performed in North America, 10% from Asia/Pacific and 4% from Europe
in 2004.

Our
income from operations increased to $31.1 million in 2004, compared to $8.3 in 2003 and $3.1 in 2002. As a percentage of revenues, income from operations increased to 17.0% in
2004, from 7.7% and 3.8% in 2003 and 2002, respectively. The growth was primarily due to higher gross margins and a decrease in selling, general and administrative expenses as a percentage of revenue.
Gross margins increased primarily due to an increase in the amount of our services delivered from our offshore delivery centers in India, which yield higher gross margins than services performed at
our onsite and
offsite locations. Our selling, general and administrative expenses have decreased as a percentage of revenue as our basic support infrastructure, including finance, human resources and IT support
functions, enabled us to increase our volume of activity with limited increases in expenditures.

Initial Public Offering

On July 27, 2004, we completed the initial public offering of shares of our common stock. In connection with our initial public offering, we issued and
sold 5,362,500 shares of common stock and Household Investment Funding, Inc. ("HIFI"), which is our largest stockholder and an affiliate of our largest client, Household International, sold
1,787,500 shares of common stock at an offering price of $13.00 per share. On August 4, 2004, certain other stockholders sold 1,072,500 shares of common stock at the initial public offering
price of $13.00 per share upon the exercise of the underwriters' over-allotment option. We did not receive any proceeds from the sale of the 1,787,500 shares sold by HIFI or the 1,072,500
shares sold by other selling stockholders pursuant to the underwriters' over-allotment option. After deducting underwriting discounts, commissions and offering-related expenses, the
initial public offering resulted in net proceeds to us of approximately $60 million.

Secondary Public Offering

On December 13, 2004, we completed a secondary public offering of shares of our common stock. In connection with this offering, certain of our
stockholders, including HIFI and certain members of our management team, sold 5,000,000 shares of common stock at a public offering price of $26.50 per share. On December 28, 2004, certain of
these selling stockholders sold an additional 750,000 shares of

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common
stock at the public offering price of $26.50 per share upon the exercise of the underwriters' over-allotment option. We did not receive any proceeds from this secondary public
offering.

Accurum Acquisition

On March 3, 2005, we acquired Accurum, Inc., an IT services provider to the capital markets industry. Accurum provides application development,
enterprise application integration, web services, data warehousing and quality assurance and testing within the front and middle office of capital markets firms, including sales and trading, risk
management and research. We expect that this acquisition will complement the solutions that we offer to our capital markets clients in the areas of asset management,
investment banking and securities trading. Accurum has 169 employees worldwide, located in offices in New York and New Jersey and a solution center in Chennai, India. The purchase price consisted of a
$5 million closing payment, subject to certain adjustments, plus contingent payments of up to $7 million payable upon the achievement of certain performance targets. Accurum will
continue to operate under its own name as a wholly-owned subsidiary of ours.

Sources of Revenues

Our revenues are generated principally from IT services provided on either a time-and-materials or a fixed-price basis. Revenues from
services provided on a time-and-materials basis are recognized as the related services are performed. Revenues from services provided on a fixed-price basis are recognized
pursuant to the proportionate performance method. In addition, our service level agreements call for us to provide a fixed number of hours of service per year, but do not have defined deliverables.
Revenues from these agreements are also recognized in accordance with the proportionate performance method. Most of our client contracts, including those that are on a fixed-price basis, can be
terminated with or without cause on 30 to 90 days notice. All services provided by us through the date of cancellation are due and payable under the contract terms. Because we bear the risk of
cost overruns and inflation with respect to fixed-price projects, our operating results could be adversely affected by inaccurate estimates of contract completion costs. Losses on contracts, if any,
are provided for in full in the period when determined. In order to manage these risks, we have a strictly enforced process for approval of project estimates during the preparation of engagement
proposals. We then closely monitor the progress on all projects and account relationships.

Our
decision to focus on the financial services industry has allowed us to develop a high level of expertise in the markets we serve, which has played an important role in our growth in
recent years. We have been particularly successful in enhancing our ability to serve the credit services market through the development of our knowledge of the systems, processes and business issues
specific to this market. We continue to focus on further developing our capabilities in the other financial services markets we serve, through training programs and the hiring of industry experts.
Because of the size of the financial services industry and the projected compound annual growth rate of approximately 6.4% in global IT services spending within the financial services industry, we
believe there is significant opportunity to expand our business. However, we also believe we will be facing increased competition. Many IT services firms have obtained or are obtaining an offshore
delivery capability to be more competitive on price and many clients and potential clients are developing an internal offshore capability. While this is a challenge, we believe we can limit the impact
by continuing the development of our technical and business knowledge in the markets we serve. This is evidenced by the fact that some of our largest clients have had an internal offshore capability
in place for many years but continue to use our services because of our technical capability and industry expertise.

Revenues
from services provided on a time-and-materials basis are derived from the rates at which we bill our clients and the number of billable hours in a
period. The number of billable hours in a period is impacted by the number of technical professionals on staff and employee utilization. We define employee utilization as the total billable hours
divided by the total available hours of our professionals.

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We
also generate revenues through the sale of third party software licenses and related maintenance contracts. Revenues from these sources accounted for $9.2 million of our
revenues in 2004. These revenue levels have remained relatively constant in recent years, while services revenues have grown. Consequently, revenues from the sale of third party software licenses and
related maintenance contracts have gradually declined as a percentage of total revenues, decreasing from 11.9% in 2000 to 5.0% in 2004. We provide software development services to our clients, but we
do not develop software for sale or license to our clients or other third parties. The software development services we provide involve software that is owned by our clients and we provide our
services in exchange for a fee.

Revenues
from our largest client, Household International, have grown significantly, increasing from $31.3 million in 2001 to $101.6 million in 2004. This growth has been
driven by rapid expansion at Household International and the acquisition of Household International by HSBC Holdings plc in March 2003.

By
employing our relationship development methodology, we have successfully retained and grown many of our long term client relationships. This has enabled us to effectively grow our
business and expand our industry knowledge. However, it has also resulted in a high customer concentration. In order to drive additional growth and reduce our dependence on a small number of clients,
we have made significant investments in business development, including the creation of a dedicated business development team focused exclusively on generating engagements with new clients. Our
spending on business development grew from $6.1 million in 2002 to $17.5 million in 2004, a 186.9% increase.

Many
companies have been forced to reduce their IT project spending, resulting in pricing pressures within the IT service market. As a result, we have experienced pricing pressure which
has had an adverse effect on our revenues, gross margins and net income. However, we believe that our in-depth knowledge of the processes and applications in the areas of the financial
services industry that we serve has partially shielded us from pricing pressure. Despite some pricing pressure, we increased our gross margins and net income in each of 2002, 2003 and 2004 by
improving our employee utilization and performing more of our services at our delivery centers in India, which yield significantly higher gross margins than services performed at client sites or at
our offices located outside of India. Our gross margins in 2002, 2003 and 2004 were 43.1%, 45.2% and 47.4%, respectively. While the market conditions that impact our pricing are difficult to predict,
we do not expect a material impact, either positive or negative, on our pricing in 2005.

Our
actual billing rates are impacted by the type and size of our engagements. For example, we typically charge higher rates on complex development projects than we do on maintenance
projects. Also, we may discount larger engagements as compared to comparable engagements of a smaller size. Our marketing efforts are not concentrated on a particular type or size of engagement.
Therefore, it is difficult to predict the impact that new engagements will have on our average billing rates.

Cost of Revenues and Gross Profit

Our cost of revenues consists primarily of the cost of salaries, payroll taxes and employee benefits for our technical professionals, including quality assurance
personnel and certain client relationship management personnel. Also included in cost of revenues are the travel costs of these employees, fees for subcontractors working on client engagements, the
communications costs associated with connectivity to our clients and the purchase of products for resale.

The
proportion of work performed at our facilities and at client sites varies from quarter to quarter. We charge higher rates and incur higher compensation and other expenses for work
performed at client sites and our offices located outside of India. Services performed at client sites or our offices located outside of India typically generate higher revenues per-capita
at lower gross margins than the same services performed at our delivery centers in India. As a result, our total revenues, cost of revenues and gross profits in absolute terms and as a percentage of
revenues fluctuate from quarter to quarter based on the proportion of work performed in India. We hire subcontractors on a limited basis

18

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from
time to time to supplement our technical staff. In 2004, approximately 6.3% of our cost of revenues was attributable to subcontracting costs. We do not anticipate that our subcontracting needs
will increase significantly as we expand our business.

We
charge our related parties, Household International and Morgan Stanley, rates that are consistent with those charged to other clients, with an appropriate level of discount for
volume. The ratio of offshore to onsite employees staffed on our engagements with Household International varies for each engagement. Consequently, some of those engagements result in gross margins
that are at or above our average gross margins, while others result in gross margins that are at or below our average gross margins. In 2004, our average gross margins on our engagements with
Household International were slightly above our average gross margins. Our engagements with Morgan Stanley are not staffed with a high ratio of offshore to onsite employees. As a result, our average
gross margins on our engagements with Morgan Stanley are usually below our average gross margins.

Under
the consulting agreement with Household International, we perform a broad range of information systems services for various business units within the HSBC Group. Under the
consulting agreement with Morgan Stanley, we perform systems analysis and design, computer programming and
other consulting services. The services provided, economic terms and the other provisions of these agreements are similar to those prevailing with unrelated parties.

According
to Hewitt Associates, salary levels of software development professionals in India rose 11.2% in 2002, 13.7% in 2003 and 14.5% in 2004. This is the result of the strong demand
for these professionals in India. Salary increases in the other regions in which we operate have been more reflective of increases in the costs of living. We anticipate that salaries for software
development professionals in India will continue to rise at those levels in the foreseeable future. In 2002, 2003 and 2004, our gross margins increased despite these salary increases because of
increases in the amount of services performed at our delivery centers in India and increased utilization of our IT professionals. However, we believe we are now operating at near optimal levels in
these areas of efficiencies. We believe we will be able to command higher billing rates and maintain our gross margins in the future if we continue to strengthen our financial services industry
expertise.

Our
revenues and gross profits are also impacted by our ability to efficiently manage and utilize our employees. As of December 31, 2004, we had 3,708 employees, of which 3,243
were technical professionals. We manage employee utilization by continuously monitoring project requirements and timetables to ensure that we have effectively staffed our projects to meet our clients'
needs. The number of employees assigned to a project will vary according to the size, complexity, duration and demands of the project. An unanticipated termination of a significant project could cause
us to experience a higher than expected number of unassigned IT professionals, thereby lowering IT professional employee utilization. In addition, we do not fully utilize our IT professionals when
they are enrolled in training and educational programs. In 2004, 2003 and 2002, utilization rates for our Indian employees were 74.0%, 74.0% and 70.0%, respectively, and utilization rates for our
onsite employees were 89.3%, 85.8% and 81.5%, respectively.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of salaries, employee benefits, travel, promotion, communications, management, finance,
administrative and occupancy costs as well as stock compensation expense. Selling, general and administrative expenses as a percentage of revenue were 36.0%, 34.4% and 27.2% in 2002, 2003 and 2004,
respectively.

Other Income and Expense

Other income and expense includes interest income, interest expense, foreign currency exchange gains and losses, equity in earnings of affiliate and provisions
for losses on investments. Foreign currency gains and losses are generated primarily by fluctuations of the Indian rupee against the U.S. dollar. As explained in note 1 to our audited
consolidated financial statements, our Indian

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subsidiary's
functional currency is the U.S. dollar, which results in non-monetary assets and liabilities being translated at historical exchange rates, while monetary assets and
liabilities are translated at current exchange rates. This may result in gains or losses which are reflected in other income.

We
own 49.0% of SSS Holdings Corporation Limited ("SSS"), which is a Liverpool, England based IT services firm that focuses primarily on the securities industry with revenues earned
predominantly in the United Kingdom. Because we own less than 50% of SSS, its results of operations are not consolidated into our financial results. Our share of the earnings of SSS is accounted for
under the equity method of accounting for investments in common stock, which is described in more detail in note 4 to our audited consolidated financial statements.

Income Tax Expense

Our net income earned from providing services is subject to tax in the country in which we perform the work. We have benefited from net operating loss carry
forwards in the United States, the remaining balance of which was used in 2003. Currently, we benefit from the tax holidays in India, which are available to export-oriented IT services firms. As a
result of these net operating loss carry forwards and tax holidays, our operations have been subject to minimal tax liabilities. With the net operating loss carry forwards in the United States no
longer available, our effective tax rate increased to approximately 20% in the fourth quarter of 2003. Our exact effective tax rate in future periods will vary based on our geographic earnings. Our
tax holidays in India will phase out partially on March 31, 2005 and will phase out completely on March 31, 2009. Once these holidays begin to phase out, our effective tax rate will
materially increase.

CRITICAL ACCOUNTING POLICIES, ESTIMATES AND RISKS

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in
accordance with generally accepted accounting principles. The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including the recoverability of tangible and intangible assets,
disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reported period.

On
an ongoing basis, we evaluate our estimates. The most significant estimates relate to the allowance for doubtful accounts, reserves for employee benefits, income taxes, depreciation
of fixed assets and long-lived assets and the recognition of revenue and profits based on the proportionate performance method of accounting for fixed-bid contracts. We base
our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the
carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could vary from the estimates and assumptions used in the preparation of the accompanying
financial statements.

We
market our services internationally and most of our technical professionals are located in India. As a result, we may be subject to certain risks associated with international
operations, including risks associated with foreign currency exchange rate fluctuations and risks associated with the application and imposition of protective legislation and regulations relating to
import and export or otherwise resulting from foreign policy or the variability of foreign economic conditions. Additional risks associated with international operations include difficulties in the
burdens of complying with a wide variety of foreign laws, potentially adverse tax consequences, tariffs, quotas and other barriers.

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We
believe the following critical accounting policies affect the significant judgments and estimates used in the preparation of our consolidated financial statements:

Revenue Recognition

Our service contracts are entered into on either a time-and-materials or fixed-price basis. Our fixed-price contracts primarily relate to
application development and enhancement projects. Revenues related to time-and-materials contracts are recognized as the service is performed. Revenues related to fixed-price
contracts are recognized as the service is performed using the proportionate performance method of accounting, under which the sales value of performance, including estimated earnings thereon, is
recognized on the basis of the percentage that each contract's cost to date bears to the total estimated cost.

In
general, fixed-price contracts are cancelable subject to a specified notice period. All services provided by us through the date of cancellation are due and payable under the contract
terms. We issue invoices related to fixed-price contracts based upon achievement of milestones during a project or
other contractual terms. Differences between the timing of billings, based upon contract milestones or other contractual terms, and the recognition of revenue, based upon the proportionate performance
method of accounting, are recognized as either unbilled or deferred revenue. We do not incur significant up-front costs associated with these fixed-price contracts, and all costs related
to the services provided are expensed as incurred. Estimates are subject to adjustment as a project progresses to reflect changes in expected completion costs or dates. The cumulative impact of any
revision in estimates of the percentage of work completed is reflected in the financial reporting period in which the change in estimate becomes known, and any anticipated losses on contracts are
recognized immediately. Warranty provisions exist under some contracts, which generally exist for a period ranging from 30 to 90 days past contract completion. If warranty provisions exist,
they are included in the total estimated cost when we calculate proportionate performance. However, a reserve is not maintained as the amounts of such potential warranty obligations are not material.
Our failure to estimate accurately the resources and time required for a fixed-price project, or our failure to complete our contractual obligations within the time frame committed, could have a
material adverse effect on our business, operating results and financial condition. We carefully monitor fixed-price projects. Project managers periodically submit percentage of completion data to our
accounting department, which then makes any necessary adjustments. Our fixed-price contract estimates have been accurate in the past, properly reflecting revenue as it was earned.

In
addition, certain contracts, which we refer to as service level agreements, call for us to provide a fixed number of hours of service per year, but do not contain defined
deliverables. Revenues from these agreements are also recognized in accordance with the proportionate performance basis.

Our
Australian subsidiary sells third party software licenses and maintenance agreements for the support of those products. Revenues from the sale of third party licenses are recognized
in the financial reporting period in which the licenses are delivered. Maintenance agreements generally cover a period of 12 months from the date of sale. Revenues from maintenance contracts
are amortized over the term of the agreement. The unrecognized portion of the revenue at the end of each period is recorded as deferred revenue.

Foreign Currency Translation

The assets and liabilities of our Canadian, Asian and European subsidiaries are translated into U.S. dollars from local currencies at current exchange
rates and revenues and expenses are translated from local currencies at average monthly exchange rates. The resulting translation adjustments are recorded in a separate component of stockholders'
equity. For our Indian subsidiary, the functional currency is the U.S. dollar. Because our sales are made primarily in the United States, the sales price is predominantly in U.S. dollars
and there is a high volume of intercompany transactions denominated in U.S. dollars between the Indian and U.S. entities. Non-monetary assets and liabilities are translated
at

21

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historical
exchange rates, while monetary assets and liabilities are translated at current exchange rates. The resulting gain or loss is included in other income. A 5.0% decrease in the value of the
U.S. dollar against the Indian rupee would result in a reduction in other income of approximately $2.9 million based on our current operations.

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our clients to make required payments. Our allowance for
doubtful accounts is determined by evaluating the credit-worthiness of each client and the size and aging of our receivables. A significant portion of our receivables are due from a few clients with
very strong credit ratings and with whom we have a good payment history. As we attempt to diversify our client base, we will continue to evaluate our method of determining our allowance for doubtful
accounts to ensure that we are maintaining appropriate balances. Our allowance for doubtful accounts as of December 31, 2004 was $1.1 million, which represented 4.4% of our gross
receivables. If actual defaults are higher than our historical experience, our allowance for doubtful accounts may be insufficient to cover the uncollectible receivables, which would have an adverse
impact on our operating results in the period of occurrence.

Income Taxes

We record a valuation allowance to reduce our deferred tax assets to the amount that we expect to realize. Our allowance as of December 31, 2004 was
$2.3 million. While we have considered future taxable income and on-going prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the
event we were to determine that we would be able to realize our deferred tax assets in the future in excess of our net recorded amount, an adjustment to the deferred tax asset would increase income in
the period such determination was made. Similarly, if we determine that we would not be able to realize all or part of our net deferred tax asset in the future,
an adjustment to the deferred tax asset would be charged to income in the period such determination was made.

Our
Indian subsidiary, Kanbay Software (India) Limited ("KSIL"), is an export-oriented company, which, under the Indian Income Tax Act of 1961, is entitled to claim various tax holidays
for a period of 10 years with respect to its export profits. Substantially all of the earnings of KSIL are attributable to export profits and, therefore, are currently entitled to a 100%
exemption from Indian income tax. This exemption resulted in decreases in our income tax expense of $5.1 million, $1.7 million and $655,000 in 2004, 2003 and 2002, respectively, when
compared to the effective tax rates that we estimate would have applied if these incentives had not been available, without accounting for double taxation treaty set-offs, if any. The tax
holidays will phase out partially on March 31, 2005. We expect our effective tax rate to increase by approximately 2.8% as a result. The remainder of the holidays will remain in place until
March 31, 2009, at which time our effective tax rate would increase by approximately 14.0%. Recently, the Government of India has disallowed these tax exemptions for certain software companies
and required the companies to pay additional taxes. Although we believe that we have complied with and are eligible for our tax holidays and taxable income deduction, we cannot be certain that the
Government of India will not attempt to disallow our tax holidays or taxable income deduction or require us to pay additional taxes. The exact impact of the phase out of the tax holidays will vary
based on our growth in India and would be negatively affected if the Government of India disallows our tax holidays or requires us to pay additional taxes. We have and will continue to use the
earnings of KSIL for expansion outside of the United States instead of repatriating these earnings to the United States. Accordingly, pursuant to Accounting Principles Board Opinion No. 23,
"Accounting for Income TaxesSpecial Areas," we do not accrue taxes on the repatriation of earnings from KSIL. If such earnings are repatriated in the future, or are no longer deemed to be
indefinitely reinvested, we will accrue the applicable amount of taxes associated with such earnings.

22

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Employee Benefits

Our U.S. subsidiary maintains a self-funded medical plan with stop loss insurance coverage to limit our exposure under the plan. We maintain an
accrual for unpaid claims that is estimated based on the weighted average of recent claims.

RESULTS OF OPERATIONS

The following table sets forth the items in our consolidated income statements as a percentage of revenues for the periods presented.

|                                                                      |                                     | Years ended December 31,                           |     
|--------------------------------------------------------------------- | ----------------------------------- | -------------------------------------------------- | ----
|
|Consolidated statements of operations data:                           |                                     |                                                    |     
|Net revenues                                                          |                                     | 100.0                                              | %   
|Cost of revenues                                                      |                                     | 52.6                                               |     
|                                                                      |                                     |                                                    |     
|                                                                      | Gross profit                        |                                                    | 47.4
|                                                                      |                                     |                                                    |     
|Selling, general and administrative expenses:                         |                                     |                                                    |     
|                                                                      | Selling and marketing expenses      |                                                    | 9.6 
|                                                                      | General and administrative expenses |                                                    | 17.0
|                                                                      | Stock compensation expense          |                                                    | 0.6 
|                                                                      |                                     |                                                    |     
|                                                                      |                                     | Total selling, general and administrative expenses |     
|Depreciation and amortization                                         |                                     | 3.1                                                |     
|                                                                      |                                     |                                                    |     
|                                                                      | Income from operations              |                                                    | 17.0
|Other income (expense):                                               |                                     |                                                    |     
|Interest expense                                                      |                                     |                                                   |     
|Interest income                                                       |                                     | 0.4                                                |     
|Foreign exchange gain (loss)                                          |                                     | (0.1                                               | )   
|Equity in earnings of affiliate                                       |                                     | 1.4                                                |     
|                                                                      |                                     |                                                    |     
|                                                                      |                                     | 1.7                                                |     
|                                                                      |                                     |                                                    |     
|Income before income taxes and cumulative effect of accounting change |                                     | 18.7                                               |     
|Income tax expense (benefit)                                          |                                     | 3.7                                                |     
|                                                                      |                                     |                                                    |     
|Income before cumulative effect of accounting change                  |                                     | 15.0                                               |     
|Cumulative effect of accounting change                                |                                     |                                                   |     
|                                                                      |                                     |                                                    |     
|                                                                      |                                     | Net income                                         |     
|                                                                      |                                     |                                                    |     

Year ended December 31, 2004 compared to year ended December 31, 2003

Revenues

Our revenues increased by $75.4 million, or 70.3%, from $107.2 million in 2003 to $182.6 million in 2004. Of the $75.4 million
increase, $49.4 million resulted from increased sales to related parties, while third party sales increased by $26.0 million during 2004. Revenues increased in 2004 over the prior year
due to a $73.5 million increase in service revenues and a $1.9 million increase in product revenues. Of the $73.5 million increase in service revenues, $75.4 million
resulted from increased billable hours as a result
of hiring additional technical professionals and $922,000 resulted from increased utilization in 2004 over the prior year; however, these increases were offset in part by $2.8 million due to a
decline in our average bill rates in 2004 as compared to the prior year. Our actual bill rates are impacted by the type, size and duration of our engagements. For instance, we typically charge higher
rates on complex development projects and lower rates on maintenance projects.

23

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Cost of Revenues

Our cost of revenues increased by $37.4 million, or 63.7%, from $58.7 million in 2003 to $96.1 million in 2004. Of the $37.4 million
increase, $35.4 million resulted from increased services sold during the current year and $2.0 million resulted from increased product sales. The increased service cost was primarily due
to an increase in the number of technical professionals, which increased from 2,001 as of December 31, 2003 to 3,243 as of December 31, 2004, resulting in a $33.8 million increase
in cost of revenues. Salary and benefit increases in 2004 over the prior year contributed an additional $985,000. Also, an increase in the average exchange rate of the Indian rupee resulted in an
additional $631,000 to cost of revenues in 2004 compared to 2003.

Gross Profit

Our gross profit increased by $38.0 million, or 78.4%, from $48.5 million in 2003 to $86.5 million in 2004. As a percentage of revenue, our
gross margin increased from 45.2% in 2003 to 47.4% in 2004. Gross margins increased primarily due to an increase in the amount of our services delivered from our offshore delivery centers in India,
which yield higher gross margins, and cause increased utilization of our technical staff.

Selling, General and Administrative Expenses

Sales and marketing expenses increased by $6.1 million, or 53.5%, from $11.4 million in 2003 to $17.5 million in 2004. This increase is the
result of our significant investment in our business development operation since 2003, which is designed to facilitate future growth and add new clients. As part of this investment, we hired
additional sales and marketing staff, which added approximately $5.3 million in salary and benefit costs in 2004 over the prior year. As a percentage of revenue, sales and marketing expenses
decreased from 10.6% in 2003 to 9.6% in 2004.

General
and administrative expenses increased by $6.9 million, or 28.6%, from $24.1 million in 2003 to $31.0 million in 2004. The increase is attributable to a
$2.2 million increase in rent and facility costs, a $2.0 million increase in recruiting, utilities and other general administrative costs, a $1.4 million increase
in salary, benefit and employee related expenses, a $560,000 increase in professional services and a $700,000 increase in bad debt expense. We are expanding our capacity in India to meet future demand
for our service offerings. During 2004, our facility expansions in Hyderabad and Pune, India resulted in increases to our rental, general office and utility costs over the prior year. Our professional
service fees increased in 2004 compared to 2003, primarily due to an increased use of outside experts on legal, accounting and tax related matters relating to our initial public offering. Our bad debt
expense increased in 2004 as a result of a slow down in the payment cycle for one of our largest clients. As a percentage of revenue, general and administrative expenses decreased from 22.5% in 2003
to 17.0% in 2004. General and administrative expenses have decreased as a percentage of revenue as our basic support infrastructure, including finance, human resources and IT support functions,
enabled us to increase our volume of activity with limited increases in expenditures.

Depreciation and Amortization

Depreciation and amortization increased by $2.4 million, or 72.7%, from $3.3 million in 2003 to $5.7 million in 2004. The increase was
primarily attributable to additions to computer equipment and software, leasehold improvements and furniture and fixtures at our Hyderabad and Pune facilities, which accounted for $2.2 million
of the increase.

Income from Operations

Income from operations increased by $22.8 million, or 274.7%, from $8.3 million in 2003 to $31.1 million in 2004. As a percentage of revenue,
income from operations increased from 7.7% in 2003 to 17.0% in 2004. This was the result of an improvement in gross margin and a reduction in

24

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selling,
general and administrative expenses and depreciation and amortization as a percentage of revenue.

Other Income and Expense

Interest income increased $620,000, from $39,000 in 2003 to $659,000 in 2004, due to the purchase of marketable security investments in July 2004 with the
proceeds received from the initial public offering of shares of our common stock. Interest expense decreased by $270,000, or 94.1%, in 2004 compared to 2003, as a result of the repayment of our
outstanding long term debt in 2003. Equity in earnings of affiliate increased $471,000, from $2.0 million in 2003 to $2.5 million in 2004, due to improved operating performance of SSS
Holdings Limited in 2004. Foreign currency exchange loss increased by $120,000,
from a loss of $120,000 in 2003 to $240,000 in 2004, as a result of exchange rate fluctuations in the currencies of the countries in which we operate.

Provision for Income Taxes

We recorded an income tax provision of $6.7 million in 2004, which represented an effective tax rate of 19.6%. In 2003, we recorded an income tax benefit
of $1.5 million, which was attributable to the deferred tax benefit that we recognized when we used the remaining net operating loss carry forwards in the United States in the third quarter of
2003.

State
income taxes were paid in 2003 to states with minimum tax amounts not offset by net operating loss carry forwards in those states.

Net Income

Net income increased by $15.9 million, or 139.5%, from $11.4 million in 2003 to $27.3 million in 2004. As a percentage of revenue, net income
increased from 10.7% in 2003 to 15.0% in 2004.

Year ended December 31, 2003 compared to Year ended December 31, 2002

Revenues

Our revenues increased by $24.6 million, or 29.8%, from $82.6 million in 2002 to $107.2 million in 2003. The increase was primarily
attributable to an increase in billable hours, which resulted in an increase in revenue of $26.4 million, offset by a decrease in average billing rates of approximately 2.1%, which resulted in
a decrease in revenue of $2.3 million. The increase in billable hours was primarily due to the addition of technical professionals, particularly at our delivery centers in India, to meet
increased demand, principally from existing clients. Increased utilization of existing technical professionals also contributed to the increase in billable hours. Of the $26.4 million increase
in revenue attributable to the increase in billable hours, $4.1 million was due to an increase in utilization and $22.3 million was due to an increase in technical staff. The decrease in
average billing rates was due to pricing pressure.

Cost of Revenues

Our cost of revenues increased by $11.7 million, or 24.9%, from $47.0 million in 2002 to $58.7 million in 2003. The increase was due
primarily to costs resulting from an increase in the number of technical professionals from 1,253 as of December 31, 2002 to 2,001 as of December 31, 2003, adding approximately
$8.2 million in costs in 2003. Most of this increase occurred at our delivery centers in India, where 81.7% of our technical staff was located as of December 31, 2003 as compared to
72.9% as of December 31, 2002. In addition, salary level increases added approximately $2.9 million to cost of revenues in 2003 as a result of strong demand for technical professionals
in India.

Approximately
23.6% of our cost of revenues in 2003 was incurred in India. A decrease in the value of the U.S. dollar against the Indian rupee in 2003 increased our cost of revenues by

25

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approximately
$372,000, or approximately 0.3% of our revenues. We have not historically used hedging tools to mitigate this currency exposure.

Gross Profit

Our gross profit increased by $12.9 million, or 36.2%, from $35.6 million in 2002 to $48.5 million in 2003. Our gross margin increased to
45.2% from 43.1%. Gross margin on our services performed in India is significantly higher than the gross margin on our services performed elsewhere. Most of the additional revenue realized in 2003 as
compared to 2002 was attributable to increased services performed at our delivery centers in India, thereby increasing the average gross margin. In addition, improved utilization of our technical
staff contributed to increased gross margin.

Selling, General and Administrative Expenses

Sales and marketing expenses increased by $5.3 million, or 86.9%, from $6.1 million in 2002 to $11.4 million in 2003. As a percentage of
revenue, sales and marketing expenses increased from 7.4% in 2002 to 10.6% in 2003. We made a significant investment in our business development operation in 2003 in order to facilitate future growth
and add new clients. The largest contributors to the increase over 2002 were $2.4 million in additions to the sales and marketing staff based in the United States, $1.4 million in costs
of staffing and other costs associated with establishing business development support for our new application management outsourcing services and approximately $1.0 million in additional travel
related expenses.

General
and administrative expenses increased by $2.0 million, or 9.0%, from $22.1 million in 2002 to $24.1 million in 2003. Salary increases constituted $700,000 of
the increase in 2003. Approximately $200,000 of the increase was due to the decrease in the value of the U.S. dollar against the Indian rupee. The remainder of the increase was the result of cost
escalation in many areas, such as rent, utilities and insurance premiums. We had the support infrastructure in place prior to 2003 that enabled us to realize growth in 2003 without incurring
significant additional expenditures. As a result, general and administrative expenses decreased as a percentage of revenue from 26.7% in 2002 to 22.5% in 2003.

Depreciation and Amortization

Depreciation and amortization increased by $600,000, or 22.2%, from $2.7 million in 2002 to $3.3 million in 2003. The increase was attributable
primarily to additional hardware and software associated with the increase in technical personnel and improvements to additional leased facilities in India.

Income from Operations

Income from operations increased by $5.2 million, or 167.7%, from $3.1 million in 2002 to $8.3 million in 2003. As a percentage of revenue,
income from operations increased from 3.8% in 2002 to 7.7% in 2003. This was the result of an improvement in gross margin and a reduction in selling and marketing expenses and depreciation and
amortization as a percentage of revenue.

Other Income and Expense

Interest expense decreased by $137,000, or 32.3%, from $424,000 in 2002 to $287,000 in 2003. The decrease was attributable to the repayment of bank loans and the
continued repayment of long-term debt. Our remaining long-term debt was repaid in October 2003. Equity in earnings of affiliate decreased $200,000, from
$2.2 million in 2002 to $2.0 million in 2003, due to a decline in operating performance of SSS Holdings Limited in the current year. In 2003, we recorded a foreign currency exchange loss
of $120,000, while in 2002 we recorded a foreign currency exchange gain of $69,000, as a result of exchange rate fluctuations in the currencies of the countries in which we operate.

26

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Provision for Income Taxes

We recorded an income tax provision of $226,000 in 2002, which represented an effective tax rate of 4.5%. In 2003, we recorded an income tax benefit of
$1.5 million, which was attributable to the deferred tax benefit that we recognized when we used the remaining net operating loss carry forwards in the United States in the third quarter of
2003.

The
Government of India imposed a one time tax on 10.0% of the profits generated by export-oriented IT services firms in India during the Indian tax year of April 1, 2002 through
March 31, 2003. As a result, our earnings in India for the three-month period ended March 31, 2003 and the nine-month period ended December 31, 2002 were subject to
this tax. Income taxes paid in India in 2003 totaled $26,000 as compared to $105,000 in 2002.

Income Before Cumulative Effect of Accounting Change

Income before cumulative effect of accounting change increased by $6.6 million, or 137.5%, from $4.8 million in 2002 to $11.4 million in
2003. As a percentage of revenue, income before cumulative effect of accounting change increased from 5.8% in 2002 to 10.6% in 2003.

Cumulative Effect of Accounting Change

In 2002, we recorded a non-cash charge of $2.0 million to reduce the carrying value of goodwill related to our 1999 acquisition of Megatec Pty
Limited in Australia. This non-cash charge was recorded as a cumulative effect of an accounting change.

Net Income

Net income increased by $8.6 million, or 307.1%, from $2.8 million in 2002 to $11.4 million in 2003. As a percentage of revenue, net income
increased from 3.4% in 2002 to 10.7% in 2003.

Liquidity and Capital Resources

As of December 31, 2004, we had $91.7 million in cash and investments compared to $17.4 million as of December 31, 2003. Of the
$91.7 million, we had $29.1 million in non-restricted cash, $2.5 million in restricted cash, $35.7 million in short-term investments and
$24.4 million in long-term investments. Of the $29.1 million non-restricted cash balance as of December 31, 2004, $22.2 million was held in accounts
in the United States, $2.6 million was held in accounts in India, and $2.3 million was held in Europe with the balance of $2.0 million held in Asia Pacific. As of
December 31, 2004, we had restricted cash in the form of certificates of deposit for $2.5 million which secure letters of credit issued by our U.S. lender in lieu of security deposits
for the leases of our offices in Rosemont, Illinois and New York, New York. Of the $17.4 million cash balance as of December 31, 2003, $13.4 million was held in accounts in the
United States, $2.0 million was held in accounts in India and $2.0 million was held in accounts in our other regions. The funds held at locations outside of the United States are for
future operating expenses, and we have no intention of repatriating those funds. We are not, however, restricted from repatriating those funds back to the United States, if necessary. While we expect
that cash generated by our Indian subsidiary will be reinvested in India to support expansion of our business, to the extent that funds were remitted to the United States in the form of dividend
payments, those payments would be subject to a withholding tax of 12.8%.

Operating
activities resulted in a source of funds of $26.6 million during 2004 as compared to $14.8 million during 2003. Net cash provided by operations in 2004 was
attributable to $35.8 million in net income net of non-cash adjustments, a $14.3 million increase in other liabilities, and a $1.6 million increase in accounts payable
offset by a $13.9 million increase in accounts receivable and a $11.2 million increase in other assets. Other liabilities increased in 2004 as a result of receiving an
$8.0 million customer advance from one of our clients, a related party, in September 2004 in addition to increases to our salary and benefit related accruals as a result of increased
staffing levels in 2004

27

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over
2003 levels. Accounts payable increased by $1.6 million primarily due to the deferral in payment of certain 2004 invoices to January 2005 relating to subcontracting, legal and
accounting services. Accounts receivable increased by $13.9 million primarily due to increased revenues in 2004, and a larger prepayment of services by certain clients in December of 2003.
Other assets increased by $11.2 million in 2004 due to additional deposits of $1.5 million made in 2004 relating to the occupancy of additional facilities in Hyderabad and Pune, India
and the construction of our new office in Rosemont, Illinois, together with a $7.8 million increase in our U.S. federal tax receivable as a result of an overpayment made in 2004.

Net
cash provided by operating activities in 2003 was due primarily to $11.9 million in net income, net of non-cash adjustments, a net change in working capital of
$2.9 million and a tax benefit of $300,000 related to our stock option plan. The non-cash items consisted primarily of depreciation and amortization, deferred income taxes,
non-cash stock compensation expense and equity in earnings of affiliate. Earnings from our affiliate, SSS, are reflected in non-cash items as a use of cash in the operating
activities section of the statement of cash flows. Dividends received from SSS are reflected as an investing activity.

Net
cash used in investing activities was $76.5 million in 2004 and $5.2 million in 2003. We purchased $60.2 million of marketable security investments with short
and long-term durations with the proceeds received from the initial public offering of shares of our common stock in July 2004. We used $2.5 million to secure a letter of
credit issued by our bank in lieu of a security deposit for additional office space in Rosemont, Illinois and New York, New York to support future growth. We used $15.3 million of cash in 2004
and $6.0 million of cash in 2003 to purchase property and equipment primarily for the Hyderabad and Pune, India facilities. These cash expenditures were partially offset by $1.4 million
in dividends received from SSS during 2004 and $763,000 during the prior year.

Financing
activities generated cash of $61.4 million in 2004 as a result of receiving net proceeds of $60.4 million from the initial public offering of shares of our common
stock in July 2004, $794,000 as a result of stock option exercises and $294,000 as a result of warrant exercises. We used $2.3 million for financing activities during 2003 to repay
$406,000 outstanding under our credit facility, $1.7 million of our long term debt and $653,000 of related party debt, offset by $559,000 cash received as a result of stock option exercises.
Related-party debt represented funds borrowed from our early stage investors and founders.

The
effect of exchange rates on cash was an increase of $172,000 in 2004 and $20,000 in 2003.

We
have a $7.5 million revolving line of credit with Silicon Valley Bank, all of which was available on December 31, 2004. Our credit facility is secured by the grant of a
security interest in all of our assets in favor of the bank and contains covenants and limitations, including limitations on our ability to dispose of assets, incur indebtedness, create liens, make
certain investments, pay dividends and merge or consolidate. Our credit facility also contains certain financial statement reporting obligations and requires us to maintain certain financial
covenants, including a quick ratio of at least 1.25 to 1 and an EBITDA ratio not to exceed 2 to 1. Under our credit facility, our quick ratio is the ratio of our current assets to our current
liabilities minus deferred revenue and any current portion of subordinated debt. Our EBITDA ratio is the ratio of all amounts we owe to Silicon Valley Bank under our credit facility to EBITDA.
Advances made under our credit facility accrue interest at a per annum rate equal to the prime rate. Our credit facility expires on April 29, 2005 and we are currently evaluating refinancing
alternatives.

We
are currently in compliance with the covenants contained in our credit facility and believe that our credit facility provides sufficient flexibility so that we will remain in
compliance with its terms. However, a breach of any of the covenants or our inability to comply with any requirements in the future could result in a default. A default under our credit facility, if
not cured or waived, could result in the immediate acceleration of all obligations due and payable or restrict our ability to obtain additional credit. If we are unable to borrow under our credit
facility, we may be required to divert money that we could otherwise use to expand our business or to develop an alternative source of

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liquidity,
which may include raising additional funds through public or private financing, strategic relationships or other arrangements. There is no assurance that any of these alternatives could, if
necessary, be effected on commercially reasonable terms, or at all.

Our
Indian subsidiary, KSIL, has a credit facility with Citibank India which provides for a line of credit of approximately $2.0 million maturing in December 2006. This
credit facility provides for bank guarantees and letters of credit in foreign currency. As of December 31, 2004, KSIL had a bank guarantee of $959,000 outstanding.

We
expect to continue our facilities expansion program in India and expect our capital spending for the full year 2005 to be approximately $28 million, relating primarily to the
construction of our new delivery center in Hyderabad, India and the expansion of our delivery center in Pune, India. We have spent approximately $8 million in 2004 relating to our facility
expansion program.

We
currently lease space for our employees in Hyderabad, India. These leases expire at the time construction of our new facility in Hyderabad is scheduled to be completed. We have
options for short term lease extensions if we experience construction delays, which will allow us to move our Hyderabad employees from leased space to our new facility upon its completion.
Construction of the remainder of our new facility will be completed in phases, based on the need to meet increased client demand, which will allow us to minimize the impact on future financial
performance if we experience an unexpected hiring reduction. As a result, the projected impact on our operating profit due to unoccupied space in the initial occupancy periods of our new facility is
projected to be a maximum of $28,000 per month. The transfer of employees from leased space to our new facility in Hyderabad will result in a net reduction in expenses of approximately $770,000 per
year. This net reduction will result from reduced general and administrative expenses of approximately $1.1 million per year partially offset by an increase in depreciation of approximately
$357,000 per year.

In
August 2004, we entered into an agreement to acquire the real estate for our new delivery center in Hyderabad, India from an Indian government entity. At that time, we were not
required to make payment for the real estate. Under the terms of the agreement, we must invest approximately $11 million in our Hyderabad delivery center and employ at least 3,000 persons at
the center in order to acquire title to the real estate. We are only required to make payment to the seller to the extent we employ fewer than 3,000 persons by August 2011. The amount we will
be required to pay, if any, will be up to $959,000 based on the number of employees at August 2011, if less than 3,000. For example, if we only employ 2,000 persons at the new delivery center
in August 2011, we will be required to pay the seller $319,667. In November 2004, we provided a bank guarantee of $959,000 toward the purchase price for the real estate. The bank
guarantee will be revised in 2006, and each year thereafter, based upon the number of employees actually employed at the new delivery center in proportion to our commitment to hire at least 3,000
employees at the new delivery center.

In
February 2004, we established a regional off-site development center in the United States, using approximately 80 former employees of one of our clients as the
initial staff. In connection with this initiative, we entered into a service agreement with the client. The service agreement expired in February 2005. If we are unable to redeploy the staff of
the development center on new or existing projects our financial results could suffer from either the employee termination costs resulting from a reduction in our workforce or the costs of carrying
staff at the development center until full utilization is achieved again, or both. At the current time, we estimate that our net income will be negatively impacted by approximately $1 million,
primarily in the second quarter of 2005, in connection with the redeployment of the workforce at the development center.

Based
upon our current level of operations together with our current investment balances, we expect that our cash flow will be adequate to meet our anticipated needs for at least the
next two years. Although we currently have no specific plans to do so, to the extent we decide to pursue one or more significant strategic acquisitions, we may incur additional debt or sell additional
equity to finance those acquisitions.

29

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Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, investments in special purpose entities or undisclosed borrowings or debt. In addition, we have not
entered into any derivative contracts (other than those described below in "Qualitative and Quantitative Disclosures about Market Risk") or any synthetic leases.

Contractual Obligations

We have no long-term debt, and, as of December 31, 2004, we had the following contractual obligations:

Payments due by periodTotal

Less than
1 year

1-3
years

3-5
years

More than
5 years(in thousands)Operating leases(1)

13,039

3,126

3,742

951

5,220Purchase obligations(2)

1,558

1,558








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Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") 123(R) "Share-Based
Payment" which replaces SFAS 123 "Accounting for Stock-Based Compensation" and supersedes Accounting Principles Board Opinion 25, "Accounting for Stock Issued to Employees." SFAS 123R
requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values beginning with the first interim or
annual period after June 15, 2005, with early adoption encouraged. The pro forma disclosures previously permitted under SFAS 123 no longer will be an alternative to financial statement
recognition. We are required to adopt SFAS 123R by July 1, 2005. Under SFAS 123R, we must determine the appropriate fair market value model to be used for valuing share-based
payments, the amortization method for compensation cost and the transition method to be used at date of adoption. The transition methods include modified prospective and modified retroactive
alternative options. Under the modified retroactive option, prior periods may be restated either as of the beginning of the year of adoption or for all periods presented; however, expense amounts for
grants prior to adoption are based on SFAS 123 not SFAS 123R The modified prospective method requires that compensation expense be recorded for all unvested stock options and restricted
stock at the beginning of the first quarter of adoption of SFAS 123R. We are evaluating the requirements of SFAS 123R and expect that the adoption of SFAS 123R will have a
material impact on our consolidated statements of income and earnings per share. We have not yet determined the method of adoption and have not determined whether the adoption will result in amounts
that are similar to the current pro forma disclosures under SFAS 123.

In
October 2004, FASB issued Staff Position ("FSP") No. 109-2, "Accounting and Disclosure Guidance for Foreign Earnings Repatriation Provision within the
American Jobs Creation Act of 2004" ("FSP 109-2"). FSP 109-2 provides guidance under FASB Statement No. 109, "Accounting for Income Taxes", with respect to recording the
potential impact of the repatriation provisions of the American Jobs Creation Act of 2004 (the "Jobs Act") on enterprises' income tax expense and deferred tax liability. FSP 109-2 states
that an enterprise is allowed time beyond the financial reporting period of enactment to evaluate the effect of the Jobs Act on its plan for reinvestment or repatriation of foreign earnings for
purposes of applying FASB Statement No. 109. Based upon our preliminary evaluation of the effects of the repatriation provision, we do not expect to apply this provision.

30

---



In
December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary AssetsAn Amendment of APB Opinion No. 29, Accounting for Nonmonetary
Transactions" ("SFAS 153"). SFAS 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21 (b) of APB
Opinion No. 29, Accounting for Nonmonetary Transactions, and replaces it with an exception for exchanges that do not have commercial substance. SFAS 153 specifies that a nonmonetary
exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective for the fiscal periods beginning
after June 15, 2005 and is required to be adopted by us in the three months ended September 30, 2005. We are currently evaluating the effect that the adoption of SFAS 153 will
have on our consolidated statements of income and financial condition but do not expect it to have a material impact.

Forward-Looking Statements and Risk Factors

This annual report on Form 10-K, including "Management's Discussion and Analysis of Financial Condition and Results of Operations," contains
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements often are proceeded by words such as "believes," "expects," "may,"
"anticipates," "plans," "intends," "assumes," "will" or similar expressions. Forward-looking statements reflect management's current expectations, as of the date of this report, and involve certain
risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors. Some of the factors that could cause
future results to materially differ from the recent results or those projected in forward-looking statements described in Exhibit 99.1 hereto.

Item 7A. Qualitative and Quantitative Disclosures About Market Risk

We transact business primarily in U.S. dollars. We are subject, however, to adverse movements in foreign currency exchange rates in those countries where we
conduct business. We have historically entered into, and we may enter into in the future, forward foreign currency exchange contracts to hedge certain commitments in Australian dollars. The purpose of
this foreign currency hedging activity is to protect us from the risk that the eventual cash flows from sales of third-party software licenses and maintenance contracts to Australian customers will be
adversely affected by changes in the exchange rate. Our most significant foreign currency exchange rate exposure relates to fluctuations in the Indian rupee. A 5.0% decrease in the value of the U.S.
dollar against the Indian rupee would result in a reduction in other income of approximately $2.9 million based on our current operations.

In
December 2004, we adopted a foreign currency exchange management policy. This policy authorizes us to hedge our exposure to the Indian rupee to offset the effects of changes in
the exchange rate. At December 31, 2004, we did not hedge any foreign currency exposure to offset the effects of changes in exchange rates. We do not use derivative financial instruments for
speculative trading purposes.

31

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Item 8. Financial Statements and Supplementary Data

INDEX TO HISTORICAL  CONSOLIDATED FINANCIAL STATEMENTS

|                                                                                                                |  | Page
|--------------------------------------------------------------------------------------------------------------- |  | ----
|Consolidated Financial Statements of Kanbay International, Inc.                                                 |  |     
|Report of Independent Registered Public Accounting Firm                                                         |  | 33  
|Consolidated Balance Sheets at December 31, 2004 and 2003                                                       |  | 34  
|Consolidated Statements of Income for the years ended December 31, 2004, 2003 and 2002                          |  | 35  
|Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2004, 2003 and 2002 |  | 36  
|Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002                      |  | 37  
|Notes to Consolidated Financial Statements                                                                      |  | 38  

|                                                                                                                 |  | Page
|---------------------------------------------------------------------------------------------------------------- |  | ----
|Consolidated Financial Statements of SSS Holdings Corporation Limited                                            |  |     
|Report of Independent Registered Public Accounting Firm                                                          |  | 55  
|Consolidated Profit and Loss Accounts for the years ended December 31, 2004, 2003 and 2002                       |  | 56  
|Consolidated Statement of Total Recognised Gains and Losses for the years ended December 31, 2004, 2003 and 2002 |  | 57  
|Consolidated Balance Sheets at December 31, 2004 and 2003                                                        |  | 58  
|Consolidated Cash Flow Statements for the Years Ended December 31, 2004, 2003 and 2002                           |  | 59  
|Notes to the Consolidated Financial Statements                                                                   |  | 60  

32

---





Report of Independent Registered Public Accounting Firm

The
Board of Directors and Shareholders
Kanbay International, Inc.

We
have audited the accompanying consolidated balance sheets of Kanbay International, Inc. (the Company) as of December 31, 2004 and 2003, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2004. Our audits also included the financial statement
schedule listed in the index at Item 15 (b). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial
reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements and the schedule referred to above present fairly, in all material respects, the financial position of Kanbay
International, Inc. at December 31, 2004 and 2003, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31,
2004, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information set forth therein.

As
described in Note 2 to the consolidated financial statements, effective January 1, 2002, the Company changed its method of accounting for goodwill and other intangibles
to conform with Financial Accounting Standard No. 142, "Goodwill and Other Intangible Assets."

|                                                                                             | /s/ Ernst & Young LLP
|-------------------------------------------------------------------------------------------- | ---------------------
|Chicago, Illinois
February 2, 2005 except for Note 15,
as to which the date is March 3, 2005 |                      

33

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Kanbay International, Inc.        CONSOLIDATED BALANCE SHEETS        (dollars in thousands)

|                                                          |                                                                                                                                                                                          | December 31,
2004 |         | December 31,
2003 |  
|--------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------- | ------- | ----------------- | -
|Assets                                                    |                                                                                                                                                                                          |                   |         |                   |  
|Current assets:                                           |                                                                                                                                                                                          |                   |         |                   |  
|                                                          | Cash and cash equivalents                                                                                                                                                                |                   | $       | 29,126            |  
|                                                          | Restricted cash                                                                                                                                                                          |                   |         | 2,478             |  
|                                                          | Short term investments, held to maturity at amortized cost                                                                                                                               |                   |         | 35,730            |  
|                                                          | Accounts receivablerelated parties                                                                                                                                                      |                   |         | 10,007            |  
|                                                          | Accounts receivablethird parties                                                                                                                                                        |                   |         | 14,657            |  
|                                                          | Employee and other receivables                                                                                                                                                           |                   |         | 1,599             |  
|                                                          | Deferred income taxes                                                                                                                                                                    |                   |         | 1,084             |  
|                                                          | Prepaid expenses and other                                                                                                                                                               |                   |         | 14,416            |  
|                                                          |                                                                                                                                                                                          |                   |         |                   |  
|Total current assets                                      |                                                                                                                                                                                          |                   | 109,097 |                   |  
|Property and equipment:                                   |                                                                                                                                                                                          |                   |         |                   |  
|                                                          | Land and building                                                                                                                                                                        |                   |         | 6,291             |  
|                                                          | Computer equipment                                                                                                                                                                       |                   |         | 17,538            |  
|                                                          | Computer software                                                                                                                                                                        |                   |         | 5,407             |  
|                                                          | Furniture and fixtures                                                                                                                                                                   |                   |         | 5,691             |  
|                                                          | Leasehold improvements                                                                                                                                                                   |                   |         | 3,105             |  
|                                                          |                                                                                                                                                                                          |                   |         |                   |  
|                                                          |                                                                                                                                                                                          |                   | 38,032  |                   |  
|                                                          | Less accumulated depreciation                                                                                                                                                            |                   |         | 17,141            |  
|                                                          |                                                                                                                                                                                          |                   |         |                   |  
|                                                          |                                                                                                                                                                                          |                   | 20,891  |                   |  
|Investment in affiliate                                   |                                                                                                                                                                                          |                   | 25,094  |                   |  
|Long term investments, held to maturity at amortized cost |                                                                                                                                                                                          |                   | 24,424  |                   |  
|Deferred income taxes                                     |                                                                                                                                                                                          |                   | 660     |                   |  
|Other assets                                              |                                                                                                                                                                                          |                   |        |                   |  
|                                                          |                                                                                                                                                                                          |                   |         |                   |  
|Total assets                                              |                                                                                                                                                                                          | $                 | 180,166 |                   | $
|                                                          |                                                                                                                                                                                          |                   |         |                   |  
|Liabilities and stockholders' equity                      |                                                                                                                                                                                          |                   |         |                   |  
|Current liabilities:                                      |                                                                                                                                                                                          |                   |         |                   |  
|                                                          | Accounts payable                                                                                                                                                                         |                   | $       | 3,973             |  
|                                                          | Amounts due to subcontractors                                                                                                                                                            |                   |         | 565               |  
|                                                          | Deferred revenue                                                                                                                                                                         |                   |         | 4,017             |  
|                                                          | Customer deposit                                                                                                                                                                         |                   |         | 4,106             |  
|                                                          | Accrued liabilities                                                                                                                                                                      |                   |         | 24,425            |  
|                                                          |                                                                                                                                                                                          |                   |         |                   |  
|Total current liabilities                                 |                                                                                                                                                                                          |                   | 37,086  |                   |  
|                                                          |                                                                                                                                                                                          |                   |         |                   |  
|Total liabilities                                         |                                                                                                                                                                                          |                   | 37,086  |                   |  
|                                                          |                                                                                                                                                                                          |                   |         |                   |  
|Stockholders' equity:                                     |                                                                                                                                                                                          |                   |         |                   |  
|                                                          | Series A-1 Preferred Stock, par value $0.001 per share, 402,857 shares authorized, 35,000 shares issued and outstanding in 2003 (liquidation preference of $139 in 2003)                 |                   |         |                  |  
|                                                          | Series A-2 Preferred Stock, par value $0.001 per share, 3,298,333 shares authorized, issued and outstanding in 2003 (liquidation preference of $13,119 in 2003)                          |                   |         |                  |  
|                                                          | Preferred Stock, par value $0.001 per share, no shares authorized, in 2003; 5,000,000 shares authorized, no shares issued and outstanding, at December 31, 2004                          |                   |         |                  |  
|                                                          | Common Stock, par value $0.001 per share, 200,000,000 shares authorized, 32,989,935 and 20,725,776 shares issued and outstanding at December 31, 2004 and December 31, 2003 respectively |                   |         | 33                |  
|                                                          | Additional paid-in capital                                                                                                                                                               |                   |         | 120,641           |  
|                                                          | Retained earnings (accumulated deficit)                                                                                                                                                  |                   |         | 16,554            |  
|                                                          | Cumulative foreign currency translation adjustments                                                                                                                                      |                   |         | 5,852             |  
|                                                          |                                                                                                                                                                                          |                   |         |                   |  
|Total stockholders' equity                                |                                                                                                                                                                                          |                   | 143,080 |                   |  
|                                                          |                                                                                                                                                                                          |                   |         |                   |  
|Total liabilities and stockholders' equity                |                                                                                                                                                                                          | $                 | 180,166 |                   | $
|                                                          |                                                                                                                                                                                          |                   |         |                   |  

See accompanying notes to consolidated financial statements.

34

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Kanbay International, Inc.        CONSOLIDATED STATEMENTS OF INCOME        (dollars in thousands except per share amounts)

|                                                                      |                                     | Year ended December 31, |        
|--------------------------------------------------------------------- | ----------------------------------- | ----------------------- | -------
|
|Net revenuesrelated parties                                          |                                     | $                       | 120,377
|Net revenuesthird parties                                            |                                     |                         | 62,229 
|                                                                      |                                     |                         |        
|Total revenues                                                        |                                     |                         | 182,606
|Cost of revenues                                                      |                                     |                         | 96,139 
|                                                                      |                                     |                         |        
|Gross profit                                                          |                                     |                         | 86,467 
|Sales and marketing expenses                                          |                                     |                         | 17,501 
|General and administrative expenses                                   |                                     |                         | 30,958 
|Stock compensation expense                                            |                                     |                         | 1,179  
|                                                                      |                                     |                         |        
|Total selling, general and administrative expenses                    |                                     |                         | 49,638 
|Depreciation and amortization                                         |                                     |                         | 5,712  
|Loss on sale of fixed assets                                          |                                     |                         | 32     
|                                                                      |                                     |                         |        
|Income from operations                                                |                                     |                         | 31,085 
|Other income (expense):                                               |                                     |                         |        
|Interest expense                                                      |                                     |                         | (17    
|Interest income                                                       |                                     |                         | 659    
|Foreign exchange gain (loss)                                          |                                     |                         | (240   
|Equity in earnings of affiliate                                       |                                     |                         | 2,517  
|Other, net                                                            |                                     |                         | 29     
|                                                                      |                                     |                         |        
|                                                                      |                                     |                         | 2,948  
|                                                                      |                                     |                         |        
|Income before income taxes and cumulative effect of accounting change |                                     |                         | 34,033 
|Income tax expense (benefit)                                          |                                     |                         | 6,679  
|                                                                      |                                     |                         |        
|Income before cumulative effect of accounting change                  |                                     |                         | 27,354 
|Cumulative effect of accounting change                                |                                     |                         |       
|                                                                      |                                     |                         |        
|Net income                                                            |                                     |                         | 27,354 
|Dividends on preferred stock                                          |                                     |                         | (277   
|Increase in carrying value of stock subject to repurchase             |                                     |                         |       
|                                                                      |                                     |                         |        
|Income available to common stockholders                               |                                     | $                       | 27,077 
|                                                                      |                                     |                         |        
|Income per share of common stock                                      |                                     |                         |        
|                                                                      | Basic                               |                         | $      
|                                                                      | Diluted                             |                         | $      
|The composition of stock compensation expense is as follows:          |                                     |                         |        
|                                                                      | Cost of revenues                    |                         | $      
|                                                                      | Sales and marketing expenses        |                         |        
|                                                                      | General and administrative expenses |                         |        
|                                                                      |                                     |                         |        
|                                                                      |                                     | $                       | 1,179  
|                                                                      |                                     |                         |        

See
accompanying notes to consolidated financial statements.

35

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Kanbay International, Inc.        CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY        (dollars in thousands)

|                                                                  |  |            |   |   |    |   |            |   |   |    |  |   |         | Cumulative
foreign
currency
translation
adjustments |   |         |  
|----------------------------------------------------------------- |  | ---------- | - | - | -- | - | ---------- | - | - | -- |  | - | ------- | --------------------------------------------------- | - | ------- | -
|
|
|
|Balance at December 31, 2001                                      |  | 2,533,333  |   | $ | 3  |   | 18,994,561 |   | $ | 10 |  | $ | 52,222  |                                                     | $ | (37,612 | )
|Expiration of repurchase rights on stock subject to repurchase    |  | 372,671    |   |   |   |   | 694,174    |   |   | 1  |  |   |        |                                                     |   |        |  
|Change in fair value of stock subject to repurchase               |  |           |   |   |   |   |           |   |   |   |  |   |        |                                                     |   | 4,077   |  
|Stock compensation expense                                        |  |           |   |   |   |   |           |   |   |   |  |   | 1,571   |                                                     |   |        |  
|Change in ownership of investment in affiliate and other          |  |           |   |   |   |   |           |   |   |   |  |   | 92      |                                                     |   |        |  
|Effect of stock dividend                                          |  |           |   |   |   |   | (11        | ) |   | 9  |  |   | (9      | )                                                   |   |        |  
|Comprehensive income:                                             |  |            |   |   |    |   |            |   |   |    |  |   |         |                                                     |   |         |  
|Net income                                                        |  |           |   |   |   |   |           |   |   |   |  |   |        |                                                     |   | 2,776   |  
|Foreign currency translation adjustments                          |  |           |   |   |   |   |           |   |   |   |  |   |        |                                                     |   |        |  
|                                                                  |  |            |   |   |    |   |            |   |   |    |  |   |         |                                                     |   |         |  
|Total comprehensive income                                        |  |           |   |   |   |   |           |   |   |   |  |   |        |                                                     |   |        |  
|                                                                  |  |            |   |   |    |   |            |   |   |    |  |   |         |                                                     |   |         |  
|Balance at December 31, 2002                                      |  | 2,906,004  |   |   | 3  |   | 19,688,724 |   |   | 20 |  |   | 53,876  |                                                     |   | (30,759 | )
|Repurchase and retirement of stock subject to repurchase          |  |           |   |   |   |   |           |   |   |   |  |   | (1,118  | )                                                   |   |        |  
|Expiration of repurchase rights on stock subject to repurchase    |  | 427,329    |   |   |   |   | 596,990    |   |   | 1  |  |   | (1      | )                                                   |   | 8,520   |  
|Stock compensation expense                                        |  |           |   |   |   |   |           |   |   |   |  |   | 1,354   |                                                     |   |        |  
|Change in ownership of investment in affiliate and other          |  |           |   |   |   |   |           |   |   |   |  |   | (90     | )                                                   |   |        |  
|Exercise of stock options                                         |  |           |   |   |   |   | 440,062    |   |   |   |  |   | 559     |                                                     |   |        |  
|Impact of tax deduction less than stock compensation expense, net |  |           |   |   |   |   |           |   |   |   |  |   | (10     | )                                                   |   |        |  
|Comprehensive income:                                             |  |            |   |   |    |   |            |   |   |    |  |   |         |                                                     |   |         |  
|Net income                                                        |  |           |   |   |   |   |           |   |   |   |  |   |        |                                                     |   | 11,439  |  
|Foreign exchange currency adjustments                             |  |           |   |   |   |   |           |   |   |   |  |   |        |                                                     |   |        |  
|                                                                  |  |            |   |   |    |   |            |   |   |    |  |   |         |                                                     |   |         |  
|Total comprehensive income                                        |  |           |   |   |   |   |           |   |   |   |  |   |        |                                                     |   |        |  
|                                                                  |  |            |   |   |    |   |            |   |   |    |  |   |         |                                                     |   |         |  
|Balance at December 31, 2003                                      |  | 3,333,333  |   |   | 3  |   | 20,725,776 |   |   | 21 |  |   | 54,570  |                                                     |   | (10,800 | )
|Change in ownership of investment in affiliate and other          |  |           |   |   |   |   |           |   |   |   |  |   | (91     | )                                                   |   |        |  
|Stock compensation expense                                        |  |           |   |   |   |   |           |   |   |   |  |   | 1,179   |                                                     |   |        |  
|Exercise of stock options                                         |  |           |   |   |   |   | 589,102    |   |   | 1  |  |   | 793     |                                                     |   |        |  
|Tax benefit related to stock option plan                          |  |           |   |   |   |   |           |   |   |   |  |   | 3,548   |                                                     |   |        |  
|Exercise of warrants.                                             |  | 33,605     |   |   |   |   | 40,963     |   |   |   |  |   | 294     |                                                     |   |        |  
|Recapitalization                                                  |  | (3,366,938 | ) |   | (3 | ) | 6,271,594  |   |   | 6  |  |   | (3      | )                                                   |   |        |  
|IPO proceeds, net of costs                                        |  |           |   |   |   |   | 5,362,500  |   |   | 5  |  |   | 60,351  |                                                     |   |        |  
|Comprehensive income:                                             |  |            |   |   |    |   |            |   |   |    |  |   |         |                                                     |   |         |  
|Net income                                                        |  |           |   |   |   |   |           |   |   |   |  |   |        |                                                     |   | 27,354  |  
|Foreign exchange currency adjustments                             |  |           |   |   |   |   |           |   |   |   |  |   |        |                                                     |   |        |  
|                                                                  |  |            |   |   |    |   |            |   |   |    |  |   |         |                                                     |   |         |  
|Total comprehensive income                                        |  |           |   |   |   |   |           |   |   |   |  |   |        |                                                     |   |        |  
|                                                                  |  |            |   |   |    |   |            |   |   |    |  |   |         |                                                     |   |         |  
|Balance at December 31, 2004                                      |  |           |   | $ |   |   | 32,989,935 |   | $ | 33 |  | $ | 120,641 |                                                     | $ | 16,554  |  
|                                                                  |  |            |   |   |    |   |            |   |   |    |  |   |         |                                                     |   |         |  

See accompanying notes to consolidated financial statements.

36

---





Kanbay International, Inc.        CONSOLIDATED STATEMENTS OF CASH FLOWS        (dollars in thousands)

|                                                                                     |                                        | Year ended December 31, |        
|------------------------------------------------------------------------------------ | -------------------------------------- | ----------------------- | -------
|
|OPERATING ACTIVITIES                                                                 |                                        |                         |        
|Net income                                                                           |                                        | $                       | 27,354 
|Adjustments to reconcile net income to net cash provided by operating activities:    |                                        |                         |        
|                                                                                     | Depreciation and amortization          |                         |        
|                                                                                     | Cumulative effect of accounting change |                         |        
|                                                                                     | Loss on sale of fixed assets           |                         |        
|                                                                                     | Stock compensation expense             |                         |        
|                                                                                     | Equity in earnings of affiliate        |                         |        
|                                                                                     | Deferred income taxes                  |                         |        
|Tax benefit due to (deduction less than) stock compensation expense, net             |                                        |                         | 3,548  
|Changes in operating assets and liabilities:                                         |                                        |                         |        
|                                                                                     | Accounts receivable                    |                         |        
|                                                                                     | Other current assets                   |                         |        
|                                                                                     | Accounts payable                       |                         |        
|                                                                                     | Other current liabilities              |                         |        
|                                                                                     |                                        |                         |        
|Net cash provided by operating activities                                            |                                        |                         | 26,619 
|INVESTING ACTIVITIES                                                                 |                                        |                         |        
|Additions to property and equipment                                                  |                                        |                         | (15,329
|Proceeds from sale of fixed assets                                                   |                                        |                         | 27     
|Purchases of short and long term investments                                         |                                        |                         | (60,154
|Increase in restricted cash                                                          |                                        |                         | (2,478 
|Dividends received from affiliate                                                    |                                        |                         | 1,406  
|                                                                                     |                                        |                         |        
|Net cash used in investing activities                                                |                                        |                         | (76,528
|FINANCING ACTIVITIES                                                                 |                                        |                         |        
|Payments on line of credit, net                                                      |                                        |                         |       
|Payments on long-term debt                                                           |                                        |                         |       
|Payments on amounts due related parties                                              |                                        |                         |       
|Proceeds from IPO, net of costs                                                      |                                        |                         | 60,356 
|Proceeds from exercise of stock options                                              |                                        |                         | 794    
|Proceeds from exercise of warrants                                                   |                                        |                         | 294    
|                                                                                     |                                        |                         |        
|Net cash provided by (used in) financing activities                                  |                                        |                         | 61,444 
|Effect of exchange rates on cash                                                     |                                        |                         | 172    
|                                                                                     |                                        |                         |        
|Increase in cash and cash equivalents                                                |                                        |                         | 11,707 
|Cash and cash equivalents at beginning of period                                     |                                        |                         | 17,419 
|                                                                                     |                                        |                         |        
|Cash and cash equivalents at end of period                                           |                                        | $                       | 29,126 
|                                                                                     |                                        |                         |        
|NONCASH INVESTING AND FINANCING ACTIVITIES                                           |                                        |                         |        
|Accrued liability for repurchase of common stock                                     |                                        | $                       |       
|Acquisition of software and maintenance in exchange for deferred payment arrangement |                                        | $                       |       
|SUPPLEMENTAL INFORMATION:                                                            |                                        |                         |        
|Cash paid for interest                                                               |                                        | $                       | 17     

See accompanying notes to consolidated financial statements.

37

---





Kanbay International, Inc.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        December 31, 2004, 2003 and 2002        (dollars in thousands, except share and per share
amounts)

1.     Description of Business

Kanbay International, Inc. ("the Company") is a global provider of information technology services and solutions dedicated to the financial services
industry. The Company combines technical expertise with in-depth industry knowledge to offer a comprehensive suite of services, including business process and technology advice, software
package selection and integration, application development, maintenance and support, network and system security and specialized services, through its global delivery model. The Company provides
services primarily to credit service companies, banking institutions, capital market firms and insurance companies in North America, Asia-Pacific and Europe.

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its wholly and majority owned subsidiaries, after elimination of significant
intercompany accounts and transactions.

The
Company accounts for its interest (48.98% at December 31, 2004 and 49.06% at December 31, 2003) in SSS Holdings Corporation Limited ("SSS"), a company based in the
United Kingdom, under the equity method of accounting. Under the equity method of accounting, the Company's share of income or loss of SSS is recorded as "equity in earnings of affiliate" in the
consolidated statements of operations. The Company accounts for any gains or losses arising from the issuance by SSS of its own stock, principally related to the exercise of stock options, as a direct
charge or credit to additional paid-in-capital.

Stock Split

On June 15, 2004, the Company effectuated a 1.8627 for 1 stock split of the Company's Common Stock in the form of a stock dividend to stockholders (see
Note 10). All references in the accompanying financial statements and notes to Common Stock, including number of shares authorized and outstanding, price per share, per share amounts, and stock
option data, have been restated to reflect the split.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. The Company has certificates of
deposit for $2,478 that secure letters of credit issued by our bank in lieu of security deposits on two office leases which are classified as restricted cash.

Investments

At December 31, 2004 the Company has investments in current and non-current maturities of corporate and government bonds, commercial paper and
mortgage backed securities totaling $60,154. Maturities greater than one year are classified as non-current and all non-current investments mature

38

---



within
two years. It is management's intent and we have the ability to hold the securities to maturity. Securities held to maturity are stated at amortized cost, which approximates the market value of
those securities.

Accounts Receivable

The collectibility of the Company's accounts receivable is based upon a combination of factors. In circumstances where a specific customer is unable to meet its
financial obligations (e.g., bankruptcy filings), a specific reserve for bad debts is recorded against amounts due to reduce the net recognized receivable to the amount reasonably expected to be
collected. For all other customers, reserves for bad debts are based on historical collection experience.

The
allowance for doubtful accounts at December 31, 2004 and 2003 totaled $1,143 and $659, respectively. Unbilled accounts receivable was $8,798 and $2,015 at December 31,
2004 and 2003, respectively.

Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximated fair value as of December 31, 2004 and 2003, due
to the short maturities of these instruments. The aggregate fair value of current and non-current investments at December 31, 2004 is $60,032, which reflects unrealized losses of
$122.

Property and Equipment

Property and equipment, including software acquired for internal use and assets under capital leases, are stated at cost. Depreciation is calculated using the
straight-line method over the following estimated useful lives:

Buildings

28 yearsComputer equipment

3 yearsComputer software

3 yearsFurniture and fixtures

7 yearsLeasehold improvements

2 - 7 years


Impairment of Long-Lived Assets

Long lived assets with finite lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be
recoverable. If the sum of the expected undiscounted cash flows is less than the carrying value of the related asset or group of assets, a loss is recognized for the difference between the fair value
and carrying value of the asset or group of assets. Such analyses necessarily involve significant judgment.

Income Taxes

The Company recognizes deferred tax assets and liabilities for the future tax consequences of temporary differences between the tax basis of assets and
liabilities and their reported amounts in the financial statements. Deferred tax assets are reduced by a valuation allowance if, based upon management's estimates, it is more likely than not that a
portion of the deferred tax assets will not be
realized in a future period. The estimates utilized in the recognition of deferred tax assets are subject to revision in future periods based on new facts or circumstances.

Foreign Currency Translation

The financial statements of Kanbay Software (India) Private Limited ("KSIL"), which has the U.S. dollar as its functional currency, are remeasured
into U.S. dollars using current rates of exchange for

39

---



monetary
assets and liabilities and historical rates of exchange for nonmonetary assets. Adjustments from remeasurement are included in operations.

All
of the Company's other international subsidiaries use the local currency as their functional currency. Accordingly, assets and liabilities are translated into U.S. dollars at
exchange rates as of the balance sheet date, and revenues and expenses are translated at weighted average exchange rates. The adjustments resulting from translation are included as a component of
stockholders' equity.

Revenue Recognition

The Company provides business process and technology services, software package selection and integration services, application development, maintenance and
support services, network and system security services, and specialized services. The Company does not track, market or sell its services based on these categories. The Company's engagements often
involve aspects of more than one service. However, each engagement consists of a single deliverable. Each of these services are described below followed by a description of the Company's methods of
recognizing revenues from these services.

Business
Process and Technology ServicesThe Company assists its clients by first understanding their business objectives and then informing clients of the options available
and recommending the solution that is most appropriate to accomplish their objectives. These services are provided either on a time-and-materials or a fixed-price basis as
described below.

Software
Package Selection and Integration ServicesThe Company assists clients in the selection and/or integration of large software packages developed by third party
vendors. The Company does not sell licenses for these third party software vendors nor does the Company receive any form of compensation from the third party software vendors in delivering these
services. All selection and
integration services are provided either on a time-and-materials or a fixed-price basis as described below.

Application
Development, Maintenance and Support ServicesThe Company provides services associated with the custom development, maintenance and support of software for its
clients. The Company does not develop software for resale. All development is specific to a client's needs and the client retains the intellectual property rights to the software. Maintenance and
support may be provided on the software the Company has developed for the client or on software otherwise acquired by the client. Separate contractual agreements are entered into for maintenance
provided on custom software developed by the Company for its clients, and these maintenance agreements are generally not entered into contemporaneously with software development agreements. These
services are provided either on a time-and-materials or a fixed-price basis as described below.

Network
and Systems Security ServicesThe Company consults with its clients on internet security assessment and strategy, develops internet security solutions and reviews and
monitors internet security on an ongoing basis. The Company also implements network and system security solutions such as identity authentication, encryption, firewalls, intrusion detection,
anti-virus shields, virtual private network, content management, application traffic management and biometrics. In addition, the Company sells third party software products and sells
maintenance contracts on that software. The consulting and implementation services are provided either on a time-and-materials or a fixed-price basis as described below. The
third party software sold by the Company is installed by the client. Revenues from the sale of third party software licenses are recognized in the period in which the licenses are delivered. The
revenues from third party software sales and third party maintenance agreement sales are recorded on a gross basis in accordance with Emerging Issues Task Force ("EITF") 99-19 "Reporting
Revenue Gross as a Principal versus Net as an Agent." The Company recognizes the revenue allocable to software licenses upon delivery of the software product to the end-user, unless the
fee is not fixed or determinable, collectibility is not probable or a signed agreement is not in effect. The maintenance agreements sold require the Company to provide some first line support before
issues are escalated to the software vendor for further support and are sold under separate agreements from the sale of third party software. When contemporaneous transactions occur, the Company
allocates

40

---



revenue
to the software and the maintenance agreement based on vendor specific objective evidence. The Company is not responsible for providing upgrades or enhancements to the products. The
maintenance agreements generally cover a period of twelve months from the date of sale. Revenues from maintenance agreements are amortized over the term of the agreement. The unrecognized portion of
the revenue at the end of each accounting period is recorded as deferred revenue.

Specialized
ServicesThese services include business intelligence, application management outsourcing, and application testing and validation. In the performance of these
services, the Company may use certain software tools. These tools are not sold to the client, but rather are used internally to facilitate the work. These services are provided either on a
time-and-materials or a fixed-price basis as described below. Application management outsourcing is a new service offering for the Company and may result in more complex types
of contractual arrangements than the Company has historically undertaken. It is possible that some of the engagements may involve multiple deliverables, in which case the Company will record
revenues in accordance with EITF 00-21 "Revenue Arrangements with Multiple Deliverables."

As
referenced above, the Company's services are provided on either a time-and-materials or a fixed-price basis. Revenues related to
time-and-materials contracts are recognized as the service is performed.

Revenues
related to fixed-price contracts, which primarily relate to application development and enhancement projects, are recognized as the service is performed using the proportionate
performance method of accounting, under which the sales value of performance, including estimated earnings thereon, is recognized on the basis of the percentage that each contract's cost to date bears
to the total estimated cost. In general, fixed-price contracts are cancelable subject to a specified notice period. All services provided through the date of cancellation are due and payable under the
contract terms. The Company invoices fixed-price contracts based upon the terms of the contract or upon achievement of milestones during the project. Differences between the timing of billings and the
recognition of revenue are recognized as either unbilled or deferred revenue. The Company does not incur significant up-front costs associated with fixed-price contracts and all costs
related to the services provided are expensed as incurred. Estimates are subject to adjustment as a project progresses to reflect changes in expected completion costs or dates. The cumulative impact
of any revision in estimates is reflected in the financial reporting period in which the change in estimate becomes known and any anticipated losses on contracts are recognized immediately. Warranty
provisions exist under some contracts, which generally exist for a period ranging from 30 to 90 days past contract completion. If warranty provisions exist, they are included in the total
estimated cost when calculating proportionate performance, however, a reserve is not maintained as the amounts of such potential warranty obligations are not material. Failure to accurately estimate
the resources and time required for a fixed-price project, or failure to complete contractual obligations within the time frame committed, could have a material adverse effect on the Company's results
of operations and financial condition. In addition, certain contracts require the Company to provide a fixed number of hours of service per year, but do not contain defined deliverables. Revenues from
these contracts are also recognized on the same proportionate performance basis.

Revenues
related to services performed without a signed agreement or work order are not recognized until there is evidence of an agreement, such as when agreements or work orders are
signed, or if collection is uncertain, when payment is received; however, the cost related to the performance of these services is recognized in the period the services are rendered. Services provided
without a signed agreement or work order have been time and material engagements with existing clients under a master services agreement. Billings to these clients are based on established terms with
the clients and processes are in place to ensure that the client has ordered and accepted the services provided before revenue is recognized.

41

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For
all services, revenue is recognized when, and if, evidence of an arrangement is obtained and the other criteria to support revenue recognition are met, including the price is fixed
and determinable, services have been rendered and collectibility is reasonably assured.

Reimbursements
received for out of pocket expenses incurred are included in revenues and cost of revenues and totaled $905, $524 and $969 during 2004, 2003 and 2002, respectively.

Advertising Costs

Advertising costs are charged to operations as incurred and totaled $317, $188 and $108 during 2004, 2003 and 2002, respectively.

Derivatives

The Company accounts for derivative instruments in accordance with Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Statement requires the Company to recognize all derivatives in the balance sheet at fair value. Derivatives that are not hedges are adjusted to fair value
through operations. If the Company elects to account for a derivative as a hedge, depending on the nature of the hedge, changes in the fair value of such derivatives are either offset against the
change in the fair value of the respective assets or liabilities through operations, or recognized in other comprehensive income until the hedged item is recognized in operations.

Stock Options

The Company has one stock-based employee compensation plan (see Note 11). SFAS No. 123, "Accounting for Stock-Based Compensation," encourages, but
does not require companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to apply Accounting Principles Board Opinion ("APB")
No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its stock option plans. For options granted where the number of shares is fixed and the
exercise price of the stock options equals the market price of the underlying stock on the date of grant, no compensation expense has been recognized. For options granted where the number of shares is
fixed and the exercise price is less than the market price of the underlying stock on the date of grant, the Company has recognized stock compensation expense for the difference between the market
price and the exercise price over the vesting period using the straight line method.

42

---



Had
compensation cost been determined based upon the fair value at the grant date for awards under the plans based on the provisions of SFAS No. 123, the Company's pro forma
earnings and earnings per share would have been as follows:

Year ended December 312004

2003

2002Net income, as reported

$
27,354

$
11,439

$
2,776Compensation expense, as reported, net of tax


948


1,209


1,571Compensation expense, under the fair value method, net of tax


(2,939
)

(550
)

(1,156
)Pro forma net income

$
25,363

$
12,098

$
3,191Pro forma net income available to common stockholdersbasic

$
25,086

$
14,553

$
6,660Pro forma net income available to common stockholdersdiluted

$
25,363

$
15,161

$
7,268


Year ended December 312004

2003

2002Income Per Share:As reported:Basic

$
1.02

$
0.68

$
0.30Diluted


0.83


0.50


0.23Pro forma:Basic

$
0.94

$
0.71

$
0.33Diluted


0.77


0.52


0.25


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

Year ended December 312004

2003

2002Dividend yield

0%

0%

0%Average expected option life

5 years

5 years

5 yearsRisk-free interest rate

3.71%

4.96%

5.43%Expected volatility

50%

70%

70%


Based
on these assumptions, the weighted-average fair value of the options granted was $6.22 in 2004, $1.47 in 2003 and $1.57 in 2002.

Because
of the use of highly subjective assumptions, the pro forma disclosures are not likely to be representative of the effects on reported net income or loss in future years.

43

---



Income per Share of Common Stock

The following table sets forth the computation of basic and diluted income per share of common stock:

Year ended December 312004

2003

2002Basic:Net income, as reported

$
27,354

$
11,439

$
2,776Dividends on preferred stock


(277
)

(608
)

(608
)Decrease in carrying value of stock subject to repurchase





3,063


4,077Income available to common stockholders

$
27,077

$
13,894

$
6,245Weighted-average number of shares of common stock outstanding


26,573,373


20,493,852


20,484,721Basic income per share

$
1.02

$
0.68

$
0.30Diluted:Net income

$
27,354

$
11,439

$
2,776Decrease in carrying value of stock subject to repurchase





3,063


4,077$
27,354

$
14,502

$
6,853Weighted-average number of shares of common stock outstanding


26,573,373


20,493,852


20,484,721Effect of conversion of preferred stock


2,835,875


6,208,998


6,208,998Effect of dilutive stock options and warrants


3,678,306


2,262,061


2,613,841Denominator for diluted income per share calculation


33,087,554


28,964,911


29,307,560Diluted income per share

$
0.83

$
0.50

$
0.23Securities that are not included in the computation of diluted per share as their impact is antidilutive:Stock options and warrants





435,136


435,136


New Accounting Standards

In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS 123R, "Share-Based Payment" which replaces SFAS 123
"Accounting for Stock-Based Compensation" and supersedes APB 25, "Accounting for Stock Issued to Employees." SFAS 123R requires all share-based payments to employees, including grants of
employee stock options, to be recognized in the financial statements based on their fair values beginning with the first interim or annual period after June 15, 2005, with early adoption
encouraged. The pro forma disclosures previously permitted under SFAS 123 no longer will be an alternative to financial statement recognition. We are required to adopt SFAS 123R
beginning July 1, 2005. Under SFAS 123R, we must determine the appropriate fair market value model to be used for valuing share-based payments, the amortization method for compensation
cost and the transition method to be used at date of adoption. The transition methods include modified prospective and modified retroactive alternative options. Under the modified retroactive option,
prior periods may be restated either as of the beginning of the year of adoption or for all periods presented; however, expense amounts for grants prior to adoption are based on SFAS 123 not
SFAS 123R. The modified prospective method requires that compensation expense be recorded for all unvested stock

44

---



options
and restricted stock at the beginning of the first quarter of adoption of SFAS 123R. We are evaluating the requirements of SFAS 123R and expect that the adoption of
SFAS 123R will have a material impact on our consolidated statements of income and earnings per share. We have not yet determined the method of adoption and have not determined whether the
adoption will result in amounts that are similar to the current pro forma disclosures under SFAS 123.

In
October 2004, the FASB issued Staff Position ("FSP") No. 109-2, "Accounting and Disclosure Guidance for Foreign Earnings Repatriation Provision within the
American Jobs Creation Act of 2004" ("FSP 109-2"). FSP 109-2 provides guidance under FASB Statement No. 109, "Accounting for Income Taxes," with respect to recording the
potential impact of the repatriation provisions of the American Jobs Creation Act of 2004 (the "Jobs Act") on enterprises' income tax expense and deferred tax liability. FSP 109-2 states
that an enterprise is allowed time beyond the financial reporting period of enactment to evaluate the effect of the Jobs Act on its plan for reinvestment or repatriation of foreign earnings for
purposes of applying FASB Statement No. 109. Based upon our preliminary evaluation of the effects of the repatriation provision, we do not expect to apply this provision.

In
December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary AssetsAn Amendment of APB Opinion No. 29, Accounting for Nonmonetary
Transactions" ("SFAS 153"). SFAS 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion
No. 29, "Accounting for Nonmonetary Transactions," and replaces it with an exception for exchanges that do not have commercial substance. SFAS 153 specifies that a nonmonetary exchange
has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective for the fiscal periods beginning after
June 15, 2005 and is required to be adopted by us in the three months ended September 30, 2005. We are currently evaluating the effect that the adoption of SFAS 153 will have on
our consolidated statement of income and financial condition but do not expect it to have a material impact.

2.     Cumulative Effect of Accounting Change

Effective January 1, 2002, the Company adopted SFAS No. 142 "Goodwill and Other Intangible Assets." Under SFAS No. 142, goodwill is deemed to
be impaired if the net book value of a reporting unit exceeds its estimated fair value. Upon adoption of SFAS No. 142, the Company recorded a noncash charge of $2,043 to reduce the carrying
value of goodwill of the reporting unit in Australia to zero. The Company estimated the fair value of the reporting unit in Australia by discounting estimated future cash flows. This reporting unit
had operated at a loss and had generated negative cash flows from operations since its acquisition by the Company in October 1999. This charge is reported as a cumulative effect of accounting
change in the consolidated statement of operations for the year ended December 31, 2002. The effect of this cumulative effect of accounting change is to decrease basic and dilutive earnings per
share by $0.10 and $0.07 respectively for the year ended December 31, 2002.

3.     Prepaid Expenses and Other

Prepaid
expenses and other consist of the following:

2004

2003Income taxes receivable

$
7,781

$
Other prepaid expenses


6,635


4,147$
14,416

$
4,147


4.     Investment in Affiliate

On November 30, 2000, the Company acquired a 49.44% interest in SSS for 2,086,697 shares of the Company's common stock valued at $15,941. The Company
accounts for its investment in SSS

45

---



under
the equity method and has included its share of the net income of SSS since the date of acquisition, net of goodwill amortization in 2001, in operations. Prior to the adoption of SFAS
No. 142 (see Note 2), the Company amortized the excess of its investment in SSS over its interest in the underlying net assets of SSS as of the date of acquisition of $14,296, on a
straight-line basis over ten years.

Changes
in the carrying value of SSS consist of the following:

2004

2003Carrying value in SSS at beginning of year

$
22,185

$
18,858Equity in earnings of SSS


2,517


2,046Cash dividend received from SSS


(1,406
)

(763
)Foreign currency translation adjustments


1,889


2,134Change in ownership percentage and other


(91
)

(90
)Carrying value in SSS at end of year

$
25,094

$
22,185


In
accordance with SFAS No. 142, the Company no longer amortizes the excess of its investment in SSS over its interest in SSS's underlying assets determined at the
November 30, 2000, date of acquisition. The carrying value of the Company's equity investment in SSS will continue to be tested for impairment in accordance with APB No. 18, "The Equity
Method of Accounting for Investments in Common Stock."

Condensed
statement of operations and balance sheet information of SSS are presented below. All amounts are presented in accordance with accounting principles generally accepted in the
United States. In addition, the assets and liabilities of SSS have been translated at exchange rates as of the balance sheet date and revenues and expenses of SSS have been translated at
weighted-average exchange rates.

Year ended December 312004

2003

2002Condensed statement of operations informationNet revenues

$
63,858

$
54,684

$
44,081Net income


5,143


4,053


4,761


December 312004

2003Condensed balance sheet informationCurrent assets

$
16,096

$
13,971Non-current assets


8,994


10,057Total assets

$
25,090

$
24,028Current liabilities

$
9,110

$
9,838Long-term liabilities


191


1,706Stockholders' equity


15,789


12,484Total liabilities and stockholders' equity

$
25,090

$
24,028


5.     Lines of Credit

The Company has a credit facility, which provides for a $7,500 revolving line of credit maturing on April 30, 2005. Borrowings under the revolving line of
credit are limited to the borrowing base, as defined in the credit facility, and bear interest at 1/2 to 11/2 percentage points over prime based on the profitability of
the Company. The credit facility also provides for a $3,500 sub limit for letters of credit. There were no outstanding borrowings on the revolving line of credit at December 31, 2004 or 2003.

46

---



Letters
of credit outstanding at December 31, 2004 totaled $2,478, and at December 31, 2003 totaled $78. The credit facility also requires the Company to maintain certain financial
covenants, including minimum profitability and a minimum quick ratio.

KSIL
has a credit facility with Citibank India which provides for a line of credit of approximately $2,000 and matures in December 2006. This credit facility provides for bank
guarantees and letters of credit in foreign currency. As of December 31, 2004 KSIL, had a bank guarantee of $959 outstanding. There was no indebtedness outstanding under this credit facility
during 2003.

6.     Accrued Liabilities

Accrued liabilities consist of the following:

December 312004

2003Accrued bonus and commissions

$
9,833

$
5,808Accrued vacation


2,694


2,118Accrued salaries, withholding and taxes


3,898


1,742Obligation for common stock repurchase





1,118Other


8,000


4,756$
24,425

$
15,542


7.     Income Taxes

The components of income tax expense (benefit) are as follows:

Years ended December 312004

2003

2002Current:Federal

$
4,782

$
729

$
State


755


127


94Foreign


692


215


132Deferred


450


(2,523
)

$
6,679

$
(1,452
)
$
226


Income
tax expense (benefit) differs from the U.S. federal statutory rate due to the following items:

Years ended December 312004

2003

2002Provision at U.S. federal statutory rate

$
11,571

$
3,396

$
1,715State taxes, net of federal effect


660


242


135Foreign tax holiday


(5,922
)

(1,637
)

(655
)Undistributed earnings of SSS


(212
)

(510
)

(402
)Foreign tax credit


(200
)

(259
)

Non-deductible items


92


470


326Change in valuation allowance


(43
)

(2,772
)

(1,002
)Other


733


(382
)

109$
6,679

$
(1,452
)
$
226


47

---



Components
of income before income taxes were as follows:

Years ended December 312004

2003

2002United States

$
19,363

$
6,044

$
3,374Foreign


14,670


3,943


1,671$
34,033

$
9,987

$
5,045


Total
taxes paid by the Company amounted to $10,851, $743 and $107 in 2004, 2003 and 2002, respectively.

The
Company's Indian subsidiary, KSIL, is an export oriented company which, under the Indian Income Tax Act of 1961, is entitled to claim various tax holidays for a period of ten years
with respect to its export profits. Substantially all of the earnings of KSIL are attributable to export profits and, therefore are currently substantially exempt from Indian income tax. These tax
holidays will begin to expire in March 2005, and under current law, will be completely phased out by March 2009. The effect of the income tax holiday was to reduce income tax expense in
2004, 2003 and 2002 and increase net income in 2004, 2003 and 2002 by approximately $5,099, $1,742 and $655, respectively, and increase diluted income per share in 2004, 2003 and 2002 by $0.15, $0.06
and $0.02, respectively.

The
Government of India recently enacted new transfer pricing rules and began audits of companies, including the Company, that may be subject to the new rules. The Company is uncertain
whether the audits will result in adjustments to its Indian taxable income given the lack of precedent in applying the new rules. To the extent the Company's income in India is adjusted upon audit,
such adjustments would not be exempt from tax under the tax holiday and would increase the Company's Indian tax liability and decrease its net income.

No
provision for U.S. income taxes for foreign taxes has been made on the undistributed earnings of consolidated foreign subsidiaries as such earnings are considered to be permanently
invested. At December 31, 2004, the undistributed earnings amounted to $26,671. Determination of the amount of unrecognized deferred tax liability on the undistributed earnings is not
practicable. In addition, no provision or benefit for U.S. income taxes has been made on foreign currency translation adjustments.

Undistributed
earnings of the Company's investment in SSS amounted to approximately $7,582 at December 31, 2004. Upon distribution of those earnings in the form of dividends or
otherwise, the Company expects to have foreign tax credits available to offset any federal income tax liability. Accordingly, the Company has not recorded a deferred tax liability at
December 31, 2004.

48

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The tax effects of temporary differences of assets and liabilities between income and financial reporting are as follows:

December 312004

2003Deferred tax assets:Net operating loss carry forwards

$
1,884

$
1,898Write-off of investment


250


250Accrued vacation


719


553Allowance for doubtful accounts


406


231Stock compensation expense


1,187


1,383Other


97


2454,543


4,560Deferred tax liabilities:Depreciation


(509
)

(33
)4,034


4,527Valuation allowance


(2,290
)

(2,333
)Net deferred tax asset

$
1,744

$
2,194


At
December 31, 2004, the Company has foreign net operating loss carry forwards of approximately $7,251 which may be carried forward indefinitely. These operating
loss carry forwards are subject to audit by the various taxing authorities.

The
Company established a valuation allowance at December 31, 2003 and 2004, due to uncertainty regarding the realization of certain deferred tax assets, principally the net
operating loss carry forwards in foreign countries and the investment write-off because the Company does not have an established history of profitability in the respective foreign tax
jurisdictions and does not have an established history of generating capital gains in the United States. The reduction in the valuation allowance in 2003, was due principally to the utilization in
full of net operating loss carry forwards in the United States.

8.     Lease Commitments

The Company leases various facilities and computer equipment under noncancelable operating leases. Total rent expense during the year ended December 31,
2004, 2003 and 2002, was $2,936, $1,678 and $1,473, respectively.

Future
minimum payments under non cancelable operating leases with terms in excess of one year are $3,126 in 2005, $2,625 in 2006, $1,117 in 2007, $466 in 2008, $485 in 2009 and $5,220
thereafter.

9.     Benefit Plans

Kanbay Incorporated, a wholly-owned subsidiary of the Company, sponsors a defined-contribution plan that qualifies under Section 401(k) of the Internal
Revenue Code. The plan covers all eligible employees of Kanbay Incorporated. Any subsidiary or affiliate, as defined in the plan document, of Kanbay Incorporated may also adopt the plan with the
Company's consent. Participants in the plan may contribute up to 15% of their before-tax earnings to the plan. In addition, Kanbay Incorporated matched 40% of employee contributions up to
6% of the employee's annual salary during 2004, 2003 and 2002. The Company's expense related to the plan was $454, $296 and $268 during the year ended December 31, 2004, 2003 and 2002,
respectively.

KSIL
has an employee benefit plan that covers substantially all India-based employees. The employees' provident fund, pension and family pension plans are statutory defined contribution
retirement benefit plans. Under the plans, employees contribute up to 12% of their base compensation, which is matched by an equal contribution by the company and deposited with the Regional Provident

49

---



Fund
Commissioner. The expense recognized was $1,173, $695 and $434 for the years ended December 31, 2004, 2003 and 2002, respectively.

KSIL
has a statutory gratuity plan that is a statutory post-employment benefit plan. The expense recognized was $165, $146 and $119 for the years ended December 31,
2004, 2003, and 2002, respectively, based on the actuarial valuations.

10.   Stockholders' Equity

On June 15, 2004, the Company effectuated the recapitalization of its capital structure. The recapitalization consisted of (a) the voluntary
conversion of all outstanding shares of the Company's Series A-1 and A-2 Preferred Stock into shares of the Company's Class A Common Stock; (b) the
reclassification of all of its then outstanding shares of Class A Common Stock into a newly-reclassified and redesignated class of Common Stock; (c) the authorization of a new class of
preferred stock; and (d) a 1.8627 for 1 stock split of the Company's Common Stock.

As
indicated in Note 1, all references in the financial statements to Common Stock including number of shares authorized and outstanding, price per share, per share amounts and
stock option plan data have been restated to reflect the split.

On
July 27, 2004, the Company completed the initial public offering of shares of its common stock. In connection with our initial public offering, the Company issued and sold
5,362,500 shares of its common stock at an offering price of $13.00 per share. After deducting underwriting discounts, commissions and estimated offering-related expenses, the initial public offering
resulted in net proceeds to the Company of approximately $60 million.

On
December 13, 2004, the Company completed a registered public offering of shares of its common stock. In connection with this offering, certain of our stockholders sold an
aggregate of 5,000,000 shares of common stock at a public offering price of $26.50 per share. On December 28, 2004, certain of these selling stockholders sold an additional 750,000 shares of
common stock at the public offering price of $26.50 per share upon the exercise of the underwriters' over-allotment option. The Company did not receive any proceeds from this registered
public offering.

Holders
of Series A-1 and Series A-2 Preferred Stock (collectively, the Preferred Stock) were entitled to receive a cash dividend of $.0005 per
share per day. Each share of Series A-1 Preferred Stock was convertible at the option of the holder at any time into 1.8627 shares of common stock. Each share of
Series A-2 Preferred Stock was convertible at the option of the holder at any time into 1.8627 shares of common stock. As described above, on June 15, 2004, all outstanding
shares of Series A-1 and Series A-2 Preferred Stock were converted into common stock. Upon liquidation, holders of Preferred Stock were entitled to receive, prior
to any distributions with respect to common stock, an amount equal to the greater of $3.00 per share plus any accrued but unpaid dividends or the amount to which each share of Preferred Stock would
otherwise be entitled if such share were converted into common stock immediately prior to such liquidation. As of December 31, 2003, cumulative Preferred Stock dividends in arrears were $3,258
($0.9774 per share of Preferred Stock). Upon the recapitalization and initial public offering of the Company's common stock the dividends in arrears were foregone.

Holders
of common stock are entitled to one vote for each share held. Holders of Preferred Stock were entitled to the number of votes, which the holder would cast if all shares of
Preferred Stock were converted into common stock.

At
December 31, 2004, the Company had the following warrants outstanding: (1) warrants to purchase 223,524 shares of common stock at an exercise price of $3.36 per share
which expire in October 2009; and (2) warrants to purchase 372,540 shares of common stock at an exercise price of $7.64 per share which expire in September 2010.

50

---



An
aggregate of 8,893,610 shares of common stock are reserved for: (1) the exercise of warrants (705,227 shares); and (3) the exercise of stock options (8,188,383).

In
connection with certain agreements related to investments in the Company by Global Perspectives Limited, Overseas Asia Limited and Safeguard Scientifics, Inc., at
December 31, 2002, the Company had 795,985 shares of common stock and 427,329 shares of Series A-2 Preferred Stock subject to repurchase at the option of the respective
stockholders. These stockholders had the option to require the Company to repurchase these shares at a price determined pursuant to a formula specified in the agreements, which was based on a multiple
of revenues. The fair value of this obligation was reflected outside of stockholders' equity in the balance sheet at December 31, 2002. At December 31, 2003, 198,995 shares of common
stock were required to be redeemed by the Company and the repurchase obligation with respect to all remaining common stock and Series A-2 Preferred Stock expired. The Company
completed the redemption of the 198,995 shares of common stock in January 2004.

11.   Stock Option Plan

Options may be granted to employees, outside directors, and consultants under a stock option plan with varying agreements based on the provisions of the plan at
the time of grant. Generally, outstanding options vest over periods not exceeding four years and expire either ten years after the date of grant or five years after vesting depending on the agreement.
In the event of a termination of employment (other than a result of death or disability), the vested portion of an Employee's options is forfeited either 60 or 90 days after such termination
depending on the agreement and the unvested portion is immediately forfeited. In the event of a termination of employment as a result of death or disability, the unvested portion of an Employee's
option vests upon such event and the option is forfeited 1 year after such termination. In any case, the plan administrator may authorize a change to such forfeiture provisions.

A
summary of stock option activity is as follows:

Shares
Available
for Grant

Options
Outstanding

Price Per
Share

Weighted-
Average
Exercise
PriceDecember 31, 2001

1,618,948

5,184,220

$
0.90 - 3.46

$
1.57Options granted

(470,331
)
470,331


3.46


3.46Options canceled

511,497

(511,497
)

0.90 - 3.46


1.46December 31, 2002

1,660,114

5,143,054


0.90 - 3.46


1.71Options granted

(251,464
)
251,464


3.46 - 4.07


3.59Options exercised



(440,066
)

0.90 - 1.45


1.27Options canceled

332,538

(332,538
)

0.90 - 3.46


1.45December 31, 2003

1,741,188

4,621,914


0.90 - 4.07


1.88Additional shares authorized

4,077,362Options granted

(4,224,498
)
4,224,498


13.00 - 27.54


13.06Options exercised



(589,102
)

0.90 - 1.61


1.25Options canceled

68,927

(68,927
)

1.45 - 13.00


9.25December 31, 2004

1,662,979

8,188,383

$
0.90 - $27.54

$
7.65


51

---



The
following table summarizes information about options outstanding at December 31, 2004:

Number Outstanding

Average Remaining
Contractual Life

Weighted-Average
Exercise Price

Options
Exercisable505,951

4.3 years

$
0.90

505,9511,662,065

4.7 years


1.45

1,662,065663,627

5.9 years


1.69

529,4911,123,209

7.2 years


3.46

574,40355,882

8.7 years


4.07

13,9704,150,649

7.0 years


13.00

82,61427,000

7.2 years


23.01

8,188,383






3,368,494


12.   Segment Information and Significant Customers

The Company operates in one line of businessproviding information management consulting services. The Company earns a significant portion of its
revenues from a limited number of customers. During the years ended December 31, 2004, 2003 and 2002, its largest customer accounted for 55.6%, 53.2% and 47.4% of net revenues and its second
largest customer accounted for 10.3%, 13.0% and 13.5% of net revenues. Both of these customers are stockholders of the Company. The
Company's five largest customers accounted for 80.4%, 80.7% and 74.7% of net revenues for the years ended December 31, 2004, 2003 and 2002, respectively. At December 31, 2004 and 2003,
the two largest customers collectively accounted for 42.2% and 58.5% of accounts receivable, respectively.

13.   Foreign Forward Exchange Contracts

During 2002, the Company entered into several foreign exchange forward contracts to reduce its exposure with respect to certain future commitments and anticipated
cash flows in Australia. The Company elected not to use hedge accounting. At December 31, 2002, the Company had contracts outstanding for the purchase of AUS $986 for $547 through
March 2003. As of December 31, 2002, the fair market value of these contracts totaled AUS $969, and in accordance with SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," the Company recorded a charge to operations in 2002 of $10.

During
2003, the Company discontinued using foreign exchange forward contracts in Australia and has no contracts outstanding at December 31, 2004 and 2003.

14.   Geographic Information

The Company operates in various foreign countries. Net revenues and total assets in these various countries are as follows:

Year ended December 31, 2004Net
Revenues

Intercompany
Elimination

Consolidated
Net RevenuesAustralia

$
11,797

$



11,797Hong Kong


1,209





1,209India


58,674


(58,657
)

17Japan


448





448Singapore


4,987





4,987United Kingdom


7,897





7,897United States


156,251





156,251$
241,263

$
(58,657
)
$
182,606


52

---



Year ended December 31, 2003Net
Revenues

Intercompany
Elimination

Consolidated
Net RevenuesAustralia

$
10,583

$


$
10,583Hong Kong


1,267





1,267India


28,342


(28,284
)

58Japan


742





742Singapore


1,939





1,939United Kingdom


4,310





4,310United States


88,254





88,254$
135,437

$
(28,284
)
$
107,153


Year ended December 31, 2002Net
Revenues

Intercompany
Elimination

Consolidated
Net RevenuesAustralia

$
11,662

$


$
11,662Hong Kong


1,735





1,735India


17,083


(17,083
)

Japan


589





589Singapore


981





981United Kingdom


2,279





2,279United States


65,343





65,343$
99,672

$
(17,083
)
$
82,589


December 312004

2003Total assets:Australia

$
4,328

$
3,397Canada


91


34Hong Kong


305


583India


22,534


12,037Japan


269


432Singapore


3,622


990United Kingdom


4,262


1,777United States


144,755


49,109$
180,166

$
68,359


53

---



December 312004

2003Net long-lived assets:Australia

$
328

$
243Canada


1


2Hong Kong


36


24India


16,707


8,459Japan


22


34Singapore


53


11United Kingdom


5


2United States


53,917


24,725$
71,069

$
33,500


15.   Subsequent Events

On March 3, 2005, the Company acquired Accurum, Inc. an IT services provider to the capital markets industry. Accurum provides application
development, enterprise application integration, web services, data warehousing and quality assurance and testing within the front and middle office of capital markets firms, including sales and
trading, risk management and research. Accurum has 169 employees worldwide, located in offices in New York and New Jersey, and a solution center in Chennai, India. The purchase price consists of a
$5 million closing payment, subject to certain adjustments, plus contingent payments of up to $7 million, payable upon the achievement of certain performance targets. Accurum will
continue to operate under its own name as a wholly-owned subsidiary of ours.

16.   Quarterly Financial Information (Unaudited)

The following table represents unaudited statement of operations data for our most recent eight fiscal quarters. You should read the following table in
conjunction with our consolidated financial statements and related notes appearing elsewhere in this report. The results of operations of any quarter are not necessarily indicative of the results that
may be expected for any future period.

|                                  |  | Dec. 31,
2004 |        | Sept. 30,
2004 |   | June 30,
2004 |  | Mar. 31,
2004 |        | Dec. 31,
2003 |   | Sept. 30,
2003 |  | June 30,
2003 |        | Mar. 31,
2003
|--------------------------------- |  | ------------- | ------ | -------------- | - | ------------- |  | ------------- | ------ | ------------- | - | -------------- |  | ------------- | ------ | -------------
|Net revenues                      |  | $             | 50,878 |                | $ | 49,973        |  | $             | 44,750 |               | $ | 37,005         |  | $             | 31,729 |              
|Gross profit                      |  | $             | 24,065 |                | $ | 23,561        |  | $             | 20,601 |               | $ | 18,240         |  | $             | 14,471 |              
|Net income                        |  | $             | 8,037  |                | $ | 7,558         |  | $             | 6,430  |               | $ | 5,329          |  | $             | 4,684  |              
|Income per share of common stock: |  |               |        |                |   |               |  |               |        |               |   |                |  |               |        |              
|Basic                             |  | $             | 0.25   |                | $ | 0.24          |  | $             | 0.29   |               | $ | 0.25           |  | $             | 0.49   |              
|Diluted                           |  | $             | 0.21   |                | $ | 0.22          |  | $             | 0.21   |               | $ | 0.18           |  | $             | 0.36   |              

54

---





SSS Holdings Corporation Limited  REPORT OF INDEPENDENT AUDITORS

To:
The Board of Directors
SSS Holdings Corporation Limited

We
have audited the accompanying consolidated balance sheets of SSS Holdings Corporation Limited as of December 31, 2004 and 2003, and the related consolidated profit and loss
accounts and statements of total recognized gains and losses, cash flows and movements in shareholders' funds for each of the three years in the period ended December 31, 2004. These financial
statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with United Kingdom auditing standards and generally accepted auditing standards in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control
over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of SSS Holdings Corporation Limited at
December 31, 2004 and 2003, and the consolidated results of its operations and its consolidated cash flows for each of the three years in the period ended December 31, 2004 in conformity
with accounting principles generally accepted in the United Kingdom which differ in certain respects from those generally accepted in the United States (see Note 28 of Notes to the consolidated
financial statements).

| |  | /s/ERNST & YOUNG LLP
| |  | --------------------

Manchester,
England
March 29, 2005

55

---





SSS HOLDINGS CORPORATION LIMITED        Consolidated profit and loss accounts

|                                              |  | Note  |  | 2002       |  | 2003       |  | 2004      
|--------------------------------------------- |  | ----- |  | ---------- |  | ---------- |  | ----------
|
|Turnovercontinuing operations                |  | 2     |  | 29,375,857 |  | 33,482,295 |  | 34,869,258
|Cost of sales                                 |  |       |  | 18,286,411 |  | 20,109,021 |  | 22,320,286
|                                              |  |       |  |            |  |            |  |           
|Gross profit                                  |  |       |  | 11,089,446 |  | 13,373,274 |  | 12,548,972
|Administrative expenses                       |  |       |  | 6,486,360  |  | 9,378,640  |  | 8,470,601 
|                                              |  |       |  |            |  |            |  |           
|Operating profit                              |  | 3     |  | 4,603,086  |  | 3,994,634  |  | 4,078,371 
|Interest receivable and similar income        |  |       |  | 42,009     |  | 46,488     |  | 50,249    
|Interest payable and similar charges          |  | 6     |  |           |  | 31,644     |  |          
|                                              |  |       |  |            |  |            |  |           
|Profit on ordinary activities before taxation |  |       |  | 4,645,095  |  | 4,009,478  |  | 4,128,620 
|Taxation on profit on ordinary activities     |  | 7     |  | 1,429,650  |  | 1,538,114  |  | 1,288,702 
|                                              |  |       |  |            |  |            |  |           
|Profit for the financial year(1)              |  |       |  | 3,215,445  |  | 2,471,364  |  | 2,839,918 
|Dividends                                     |  | 8     |  | 1,548,640  |  | 1,100,244  |  | 1,422,086 
|                                              |  |       |  |            |  |            |  |           
|Retained profit for the year                  |  | 17,18 |  | 1,666,805  |  | 1,371,120  |  | 1,417,832 
|                                              |  |       |  |            |  |            |  |           

---

The
notes on pages 60 to 75 form part of these consolidated financial statements.

56

---





SSS HOLDINGS CORPORATION LIMITED        Consolidated statement of total recognised gains and losses

|                                                     |                | 2002      |        | 2003      |         | 2004      |        
|---------------------------------------------------- | -------------- | --------- | ------ | --------- | ------- | --------- | -------
|
|Profit for the financial year                        |                | 3,215,445 |        | 2,471,364 |         | 2,839,918 |        
|Currency translation differences on foreign currency |                |           |        |           |         |           |        
|                                                     | Net investment |           | (6,128 | )         | (18,650 | )         | (82,216
|                                                     |                |           |        |           |         |           |        
|Total recognised gains and losses for the year       |                | 3,209,317 |        | 2,452,714 |         | 2,757,702 |        
|                                                     |                |           |        |           |         |           |        

---

The
statement of comprehensive income required under United States generally accepted accounting principles is set out in note 28 to the consolidated financial statements

The
notes on pages 60 to 75 form part of these consolidated financial statements.

57

---





SSS HOLDINGS CORPORATION LIMITED        Consolidated balance sheets

|                                                        |                          | Note |    | 2003      |           | 2004     
|------------------------------------------------------- | ------------------------ | ---- | -- | --------- | --------- | ---------
|
|Fixed assets                                            |                          |      |    |           |           |          
|                                                        | Intangible assets        |      | 9  |           | 1,574,328 |          
|                                                        | Tangible assets          |      | 10 |           | 3,750,072 |          
|                                                        | Investments              |      | 11 |           | 73,000    |          
|                                                        |                          |      |    |           |           |          
|                                                        |                          |      |    | 5,397,400 |           | 4,539,481
|Current assets                                          |                          |      |    |           |           |          
|                                                        | Debtors                  |      | 12 |           | 5,081,282 |          
|                                                        | Cash at bank and in hand |      |    |           | 2,777,180 |          
|                                                        |                          |      |    |           |           |          
|                                                        |                          |      |    | 7,858,462 |           | 8,357,127
|Creditors: amounts falling due within one year          |                          | 13   |    | 5,527,141 |           | 4,682,741
|                                                        |                          |      |    |           |           |          
|Net current assets                                      |                          |      |    | 2,331,321 |           | 3,674,386
|                                                        |                          |      |    |           |           |          
|Total assets less current liabilities                   |                          |      |    | 7,728,721 |           | 8,213,867
|Creditors: amounts falling due after more than one year |                          | 14   |    | 587,206   |           |         
|Provisions for liabilities and charges                  |                          |      |    |           |           |          
|                                                        | Deferred taxation        |      | 15 |           | 372,280   |          
|                                                        |                          |      |    |           |           |          
|                                                        |                          |      |    | 6,769,235 |           | 8,114,756
|                                                        |                          |      |    |           |           |          
|Capital and reserves                                    |                          |      |    |           |           |          
|                                                        | Called up share capital  |      | 16 |           | 918       |          
|                                                        | Share premium account    |      | 17 |           | 57,701    |          
|                                                        | Capital reserve          |      | 17 |           | 9,962     |          
|                                                        | Profit and loss account  |      | 17 |           | 6,700,654 |          
|                                                        |                          |      |    |           |           |          
|Equity shareholders' funds(1)                           |                          | 18   |    | 6,769,235 |           | 8,114,756
|                                                        |                          |      |    |           |           |          

---

The
notes on pages 60 to 75 form part of these consolidated financial statements.

58

---





SSS HOLDINGS CORPORATION LIMITED        Consolidated cash flow statements

|                                          |  | Note |  | 2002       |   | 2003       |   | 2004       |  
|----------------------------------------- |  | ---- |  | ---------- | - | ---------- | - | ---------- | -
|
|Net cash inflow from operating activities |  | 19   |  | 3,140,657  |   | 6,948,523  |   | 3,090,828  |  
|Returns on investments                    |  | 20   |  | 42,009     |   | 14,844     |   | 50,249     |  
|Corporation tax paid                      |  |      |  | (2,043,339 | ) | (1,307,917 | ) | (1,580,543 | )
|Capital expenditure                       |  | 20   |  | (1,529,722 | ) | (1,734,984 | ) | (554,587   | )
|Acquisitions                              |  | 22   |  |           |   | (587,130   | ) | (427,036   | )
|Financing                                 |  | 20   |  | 700        |   | 28,225     |   | 9,905      |  
|Equity dividends paid                     |  |      |  | (1,548,640 | ) | (961,865   | ) | (1,560,465 | )
|                                          |  |      |  |            |   |            |   |            |  
|(Decrease)/increase in cash               |  |      |  | (1,938,335 | ) | 2,399,696  |   | (971,649   | )
|                                          |  |      |  |            |   |            |   |            |  

Reconciliation of net cash flow to movement in net funds(see note 20)

|                                        |  |  |  | 2002       |   | 2003      |  | 2004      |  
|--------------------------------------- |  |  |  | ---------- | - | --------- |  | --------- | -
|
|(Decrease)/increase in cash in the year |  |  |  | (1,938,335 | ) | 2,399,696 |  | (971,649  | )
|Exchange differences                    |  |  |  |           |   |          |  | (29,339   | )
|Net funds at 1 January                  |  |  |  | 2,315,819  |   | 377,484   |  | 2,777,180 |  
|                                        |  |  |  |            |   |           |  |           |  
|Net funds at 31 December                |  |  |  | 377,484    |   | 2,777,180 |  | 1,776,192 |  
|                                        |  |  |  |            |   |           |  |           |  

---

The
significant differences between the cash flow statements presented above and those required under United States generally accepted accounting principles are set out in note 28
to the consolidated financial statements.

The
notes on pages 60 to 75 form part of these consolidated financial statements.

59

---





SSS HOLDINGS CORPORATION LIMITED        Notes to the consolidated financial statements

1      Accounting policies

The consolidated financial statements have been prepared under the historical cost convention and are in accordance with applicable United Kingdom accounting
standards. The principal accounting policies are:

Basis of consolidation

The consolidated financial statements incorporate the financial statements of SSS Holdings Corporation Limited and its subsidiary undertakings (together "the
group") made up to 31 December each year. The group uses the acquisition method of accounting to consolidate the results of subsidiary undertakings. The results of a subsidiary undertaking are
included from the date of acquisition.

Goodwill

Goodwill arising on an acquisition of a subsidiary is the difference between the fair value of the consideration paid and the fair value of the assets and
liabilities acquired. It is capitalised and amortised through the profit and loss account over the directors' estimate of its useful economic life, which is 15 years.

Negative
goodwill arising on consolidation on acquisitions pre 23 December 1998 is credited to a capital reserve.

Turnover

Turnover represents sales to external customers at invoiced amount less value added tax. Turnover is recognized as services are provided on a time basis in
accordance with the customer agreement.

Depreciation

Depreciation is provided to write off the cost, less estimated residual values, of all fixed assets, over their expected useful lives. It is calculated at the
following annual rates on a straight line basis:

Fixtures and fittings and office equipment



10% - 20%Leasehold improvements



10% or the life of the lease, if shorterComputer equipment



331/3%Motor vehicles



25%Nursery equipment



10%


Deferred taxation

Deferred tax balances are recognised in respect of all timing differences that have originated but not reversed by the balance sheet date except that:



60

---





Deferred
tax balances arising from underlying timing differences in respect of tax allowances on industrial buildings are reversed if and when all conditions for retaining those
allowances have been met.

Deferred
tax balances are not discounted.

Pension costs

Contributions to defined contribution pension schemes are charged to the profit and loss account in the year in which they become payable.

Investments

Investments are stated at cost less any provision for a permanent diminution in value.

Operating leases

Annual rentals on operating leases are charged to the profit and loss account on a straight line basis over the term of the lease.

Employee benefit trust

The group is deemed to have control of the assets, liabilities, income and costs of its Employee Benefit Trust (EBT). It has therefore been included in the
financial statements of the company in accordance with UITF 32 "Employee benefit trusts and other intermediate payment arrangements."

Contributions
made to the Trust are charged to the profit and loss account to the extent that the assets held by the Trust as a result of the contribution have been unconditionally
gifted to the beneficiaries or, if earlier, when a constructive obligation has arisen and created a liability of the company. The value of any assets held by the Trust that have not been
unconditionally transferred to beneficiaries is included within cash. In accordance with FRS 12 "Provisions, Contingent Liabilities and Contingent Assets", constructive obligations to employees in
respect of past services to the business have been charged to the profit and loss account in the period to which they relate.

Government grants

Grants relating to expenditure on tangible fixed assets are credited to the profit and loss account at the same rate as the depreciation on the assets to which
the grant relates. The deferred element of grants is included in creditors as deferred income.

Grants
of a revenue nature are credited to the profit and loss account in the year to which they relate.

Research and development

Expenditure on pure and applied research is charged to the profit and loss account in the year in which it is incurred.

Development
costs are also charged to the profit and loss account in the year of expenditure, unless individual projects satisfy all of the following criteria:



61

---





In
such circumstances the costs are carried forward and amortised in line with the future sales from the related project.



Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction or at the contracted rate if the transaction is covered by a
forward foreign currency contract. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the
balance sheet date or if appropriate at the forward contract rate. All differences are taken to the profit and loss account.

The
financial statements of overseas subsidiary undertakings are translated at the rate of exchange ruling on the balance sheet date. The exchange difference arising on the retranslation
of opening net assets is taken directly to reserves.

2      Turnover

Analysis by geographical origin:

2002

2003

2004£

£

£United Kingdom

29,375,857

30,136,581

31,081,389United States of America



3,328,967

3,185,325China



16,747

602,54429,375,857

33,482,295

34,869,258


Turnover
by geographical destination is not materially different to the analysis provided above.

Analysis
by class of business:

2002

2003

2004£

£

£IT consultancy services

29,313,782

31,675,545

31,428,455Back-office administration

62,075

1,575,009

2,938,276Other



231,741

502,52729,375,857

33,482,295

34,869,258


3      Operating profit

This is arrived at after charging/(crediting):

2002

2003

2004£

£

£Depreciation of tangible fixed assets

1,021,594

1,148,231

1,099,810Amortisation of intangible fixed assets



102,471

105,903Hire of other assetsoperating leases

655,967

874,701

1,133,067Research and development

617,833

135,000

165,000Auditors' remunerationaudit services

14,500

16,500

26,350Government grants

(30,833
)
(66,250
)
(28,500
)Profit on sale of fixed assets

(7,873
)





62

---



4      Employees

The average monthly number of employees of the group during the year, including executive directors, was as follows:

2002

2003

2004£

£

£Client delivery

377

437

454Other

119

108

119496

545

573


Staff
costs for all employees, including executive directors, consist of:

2002

2003

2004£

£

£Wages and salaries

17,435,642

18,884,232

20,178,207Social security costs

1,680,187

2,133,114

2,227,523Other pension costs

773,747

935,356

833,66619,889,576

21,952,702

23,239,396


5      Directors

2002

2003

2004£

£

£Directors' emoluments consist of:Emoluments

517,528

507,144

850,000Contributions to defined contribution pension schemes

72,000

72,000

72,000589,528

579,144

922,000Emoluments of the highest paid director are as follows:Emoluments (excluding pension contributions)

260,382

257,144

425,000Contributions to defined contribution pension scheme

36,000

36,000

36,000296,382

293,144

461,000


Two
directors (2002two) were members of defined contribution pension schemes.

6      Interest payable and similar income

2002

2003

2004£

£

£Other interest



31,644




63

---



7      Taxation on profit on ordinary activities

2002

2003

2004£

£

£Current taxCorporation tax

1,363,383

1,007,069

1,653,649Adjustments in respect to prior years

(23,692
)
1,648

(150,734
)Foreign tax



306,950

58,9561,339,691

1,315,667

1,561,871Deferred taxOrigination and reversal of timing differences (note 15)

89,959

222,447

(273,169
)Taxation on profit on ordinary activities

1,429,650

1,538,114

1,288,702


The
tax assessed for the year differs from the standard rate of corporation tax in the UK. The differences are explained below:

2002

2003

2004£

£

£Profit on ordinary activities before tax

4,645,095

4,009,478

4,128,620Profit on ordinary activities at the standard rate of corporation tax in the UK of 30%

1,393,528

1,202,843

1,238,586Effects of:Expenses not deductible for tax purposes

12,459

62,290

15,521Adjustment to tax in respect of previous years

(23,692
)
1,648

(150,734
)Overseas tax rate differences

25,141

52,873

71,651Depreciation in excess of capital allowances

(67,745
)
(3,987
)
278,122Losses carried forward





108,725Total current tax

1,339,691

1,315,667

1,561,871


Factors
that may affect future tax charges

The
group has tax losses of £370,000 that are available for offset against future taxable profits of those companies in which the losses arose. Deferred tax assets have not
been recognised as the group does not anticipate making sufficient taxable profits in the near future to absorb the tax losses.

No
deferred tax is recognised on the unremitted earnings of overseas subsidiaries as the group has no liability to additional taxation should such amounts be remitted due to the
availability of double taxation relief.

8      Dividends

2002

2003

2004£

£

£Ordinary dividend paid

1,548,640

961,865

1,422,086Ordinary dividend proposed



138,379

1,548,640

1,100,244

1,422,086


64

---



9      Intangible fixed assets

Group

Goodwill£CostAt 1 January 2004

1,676,799Exchange differences

(88,253
)At 31 December 2004

1,588,546AmortisationAt 1 January 2004

102,471Charge for the year

105,903Exchange differences

(5,394
)At 31 December 2004

202,980Net book valueAt 31 December 2003

1,574,328At 31 December 2004

1,385,566


10    Tangible assets

|Group                |  | Fixtures,
fittings and
office
equipment |   | Leasehold
improvements |   | Computer
equipment |   | Motor
vehicles |   | Childcare
nursery |  | Total     |  
|-------------------- |  | --------------------------------------- | - | ---------------------- | - | ------------------ | - | -------------- | - | ----------------- |  | --------- | -
|
|Cost                 |  |                                         |   |                        |   |                    |   |                |   |                   |  |           |  
|At 1 January 2003    |  | 1,751,897                               |   | 687,075                |   | 3,259,770          |   | 18,098         |   | 472,238           |  | 6,189,078 |  
|Additions            |  | 733,348                                 |   | 407,300                |   | 424,679            |   |               |   | 262,165           |  | 1,827,492 |  
|Disposals            |  |                                        |   |                       |   |                   |   | (18,098        | ) |                  |  | (18,098   | )
|                     |  |                                         |   |                        |   |                    |   |                |   |                   |  |           |  
|At 31 December 2003  |  | 2,485,245                               |   | 1,094,375              |   | 3,684,449          |   |               |   | 734,403           |  | 7,998,472 |  
|Additions            |  | 139,763                                 |   | 107,575                |   | 244,249            |   |               |   | 63,000            |  | 554,587   |  
|Exchange differences |  | (24,396                                 | ) | (9,683                 | ) | (21,417            | ) |               |   |                  |  | (55,496   | )
|                     |  |                                         |   |                        |   |                    |   |                |   |                   |  |           |  
|At 31 December 2004  |  | 2,600,612                               |   | 1,192,267              |   | 3,907,281          |   |               |   | 797,403           |  | 8,497,563 |  
|                     |  |                                         |   |                        |   |                    |   |                |   |                   |  |           |  
|Depreciation         |  |                                         |   |                        |   |                    |   |                |   |                   |  |           |  
|At 1 January 2003    |  | 401,198                                 |   | 374,436                |   | 2,314,355          |   | 7,540          |   | 12,820            |  | 3,110,349 |  
|Charge for the year  |  | 223,037                                 |   | 173,293                |   | 684,423            |   | 2,640          |   | 64,838            |  | 1,148,231 |  
|Disposals            |  |                                        |   |                       |   |                   |   | (10,180        | ) |                  |  | (10,180   | )
|                     |  |                                         |   |                        |   |                    |   |                |   |                   |  |           |  
|At 31 December 2003  |  | 624,235                                 |   | 547,729                |   | 2,998,778          |   |               |   | 77,658            |  | 4,248,400 |  
|Charge for the year  |  | 269,561                                 |   | 160,336                |   | 594,052            |   |               |   | 75,861            |  | 1,099,810 |  
|Exchange differences |  | (1,388                                  | ) | (1,053                 | ) | (2,121             | ) |               |   |                  |  | (4,562    | )
|                     |  |                                         |   |                        |   |                    |   |                |   |                   |  |           |  
|At 31 December 2004  |  | 892,408                                 |   | 707,012                |   | 3,590,709          |   |               |   | 153,519           |  | 5,343,648 |  
|                     |  |                                         |   |                        |   |                    |   |                |   |                   |  |           |  
|Net book value       |  |                                         |   |                        |   |                    |   |                |   |                   |  |           |  
|At 31 December 2003  |  | 1,861,010                               |   | 546,646                |   | 685,671            |   |               |   | 656,745           |  | 3,750,072 |  
|                     |  |                                         |   |                        |   |                    |   |                |   |                   |  |           |  
|At 31 December 2004  |  | 1,708,204                               |   | 485,255                |   | 316,572            |   |               |   | 643,884           |  | 3,153,915 |  
|                     |  |                                         |   |                        |   |                    |   |                |   |                   |  |           |  

65

---



11    Fixed asset investments

Other unlisted
investments£CostAt 1 January 2003

Additions

230,000At 31 December 2003 and 31 December 2004

230,000Provision for impairmentAt 1 January 2003

Impairment

157,000At 31 December 2003

157,000Impairment

73,000At 31 December 2004

230,000Net book valueAt 31 December 2003

230,000At 31 December 2004




Other
unlisted investments represent the cost of a 23% shareholding in The Monocle Holdings Corporation Limited.

During
the year to 31 December 2004, the group sold its 50% shareholding in Strategic Investments Solutions Limited realising a profit on dispoal of £5,000.

The
principal undertakings in which the company's interest at the year end is more than 20% and are not included in the consolidated financial statements, are as follows:

|Name                                     |  | Country of
incorporation
or registration |  | Proportion of
voting
rights and
ordinary share
capital held |      | Nature of business           
|---------------------------------------- |  | ---------------------------------------- |  | ----------------------------------------------------------- | ---- | -----------------------------
|The Monocle Holdings Corporation Limited |  | England                                  |  | 23                                                          | %    | Computer software development
|The Monocle Corporation Limited          |  | England                                  |  | 23                                                          | %(*) | Computer software development

---

Unless
otherwise stated, the following figures have been extracted from the audited financial statements for the years ended 30 June 2002, 2003 and 2004:

Aggregate share capital and reserves

2003

2004£

£The Monocle Holdings Corporation Limited(*)

237,500

237,500The Monocle Corporation Limited(*)

(250,588
)
(237,498
)


66

---



Profit/(loss) for the year

2002

2003

2004£

£

£The Monocle Holdings Corporation Limited(*)





The Monocle Corporation Limited(*)

(60,367
)
(59,902
)
(9,010
)


---

These
investments are treated as fixed asset investments as, in the opinion of the directors, the group does not exert significant influence over the operating and financial policies of
these entities.

The
Monocle Corporation Limited ceased to trade during the year.

12    Debtors

2003

2004£

£Due within one yearTrade debtors

2,106,394

3,379,098Amounts due by undertakings in which the group has a participating interest

105,986

Prepayments and accrued income

2,838,222

3,159,233Corporation tax recoverable

30,680

5,081,282

6,538,331


13    Creditors: amounts falling due within one year

2003

2004£

£Bank overdraft



42,604Trade creditors

335,800

817,819Amounts due to undertakings in which the group has a participating interest

75,788

Deferred consideration (note 21)

587,053

685,420Taxation and social security

1,356,755

1,141,252Dividend proposed

138,379

Corporation tax

595,374

535,389Accruals and deferred income

2,438,042

1,460,2575,527,141

4,682,741


Included
with accruals and deferred income is an amount of £225,000 (2003 £29,000) in relation to government grants not yet released to the profit and loss
account. The grants may become liable to be repaid if the group breaches certain criteria during the period of the grants.

67

---



14    Creditors: amounts falling due after more than one year

2003

2004£

£Deferred consideration (note 21)

587,206




15    Deferred taxation

Deferred taxation

£At 1 January 2003

149,833Charge to profit and loss account

222,447At 31 December 2003

372,280Charge to profit and loss account

(273,169
)At 31 December 2004

99,111


Deferred taxation analysis

2003

2004£

£Accelerated capital allowances

421,766

111,216Short term timing differences

(49,486
)
(12,105
)372,280

99,111


There
is an unprovided deferred tax asset of £108,725 (2003 £nil). This relates to unutilised trading losses. This asset has not been recognised in the financial
statements as the group does not anticipate making sufficient taxable profits in the near future to absorb the underlying timing differences.

16    Share capital

Authorised

2002

2003

2004£

£

£10,000,000 ordinary shares of 0.01p each

1,000

1,000

1,000


Allotted, called up and fully paid

2002

2003

2004£

£

£Ordinary shares of 0.01p each

914

918

919


During
the year to 31 December 2002, 1,000 ordinary shares of 0.01p each with a total nominal value of 10p were allotted for a total consideration of £700. The premium
on the shares of £700 has been credited to the share premium account (note 17).

During
the year to 31 December 2003, 40,000 ordinary shares of 0.01p each with a total nominal value of £4 were allotted for a total consideration of
£28,225. The premium on the shares of £28,221 has been credited to the share premium account (note 17).

During
the year to 31 December 2004, 10,000 ordinary shares of 0.01p each with a total nominal value of £1 were allotted for a total consideration of
£9,905. The premium on the shares of £9,904 has been credited to the share premium account (note 17).

68

---



17    Reserves

Share
premium
account

Capital
reserve

Profit
and loss
account£

£

£At 1 January 2002

28,780

9,962

3,687,507Profit for year





1,666,805Premium on new shares issued

700



Translation differences on foreign currency investment





(6,128
)At 31 December 2002

29,480

9,962

5,348,184Profit for year





1,371,120Premium on new shares issued

28,221



Translation differences on foreign currency investment





(18,650
)At 31 December 2003

57,701

9,962

6,700,654Profit for year





1,417,832Premium on new shares issued

9,904



Translation differences on foreign currency investment





(82,216
)At 31 December 2004

67,605

9,962

8,036,270


18    Reconciliation of movement in shareholders' funds

2002

2003

2004£

£

£Profit for the financial year

3,215,445

2,471,364

2,839,918Dividends

1,548,640

1,100,244

1,422,0861,666,805

1,371,120

1,417,832Issue of shares, including premium

700

28,225

9,905Translation differences on foreign currency investment

(6,128
)
(18,650
)
(82,216
)Net addition to shareholders' funds

1,661,377

1,380,695

1,345,521Opening shareholders' funds

3,727,163

5,388,540

6,769,235Closing shareholders' funds

5,388,540

6,769,235

8,114,756


19    Reconciliation of operating profit to net cash inflow from operating activities

2002

2003

2004£

£

£Operating profit

4,603,086

3,994,634

4,078,371Depreciation

1,021,594

1,148,231

1,099,810Amortisation



102,471

105,903Impairment in fixed asset investments



157,000

73,000Profit on sale of fixed assets

(7,873
)


Decrease/(increase) in debtors

(2,285,573
)
51,210

(1,538,890
)Increase/(decrease) in creditors

(190,577
)
1,494,977

(727,366
)Net cash inflow from operating activities

3,140,657

6,948,523

3,090,828


69

---



20    Notes to the cash flow statement



2002

2003

2004£

£

£Returns on investmentsInterest received

42,009

46,488

50,249Interest paid



(31,644
)
42,009

14,844

50,249Capital expenditurePayments to acquire tangible assets

(1,538,722
)
(1,742,902
)
(554,587
)Receipts from sale of tangible fixed assets

9,000

7,918

(1,529,722
)
(1,734,984
)
(554,587
)FinancingIssue of ordinary share capital

700

28,225

9,905




At 1 January
2002

Cash
flows

At 31 December
2002£

£

£Cash at bank and in hand

2,315,819

(1,938,335
)
377,484


At 1 January
2003

Cash
flows

At 31 December
2003£

£

£Cash at bank and in hand

377,484

2,399,696

2,777,180


At 1 January
2004

Cash
flow

Other
non-cash
changes

At 31 December
2004£

£

£

£Cash in hand and at bank

2,777,180

(929,045
)
(29,339
)
1,818,796Bank overdraft



(42,604
)


(42,604
)2,777,180

(971,649
)
(29,339
)
1,776,192


70

---



21    Acquisitions

The following acquisition was made in the year to 31 December 2003:

Acquisition of assets of the Deutsche Bank AG New York Branch Horsham.

On 3 February 2003, the company purchased the assets of the Deutsche Bank AG New York Branch Horsham, which provided software development services to
Deutsche Bank AG New York. The total consideration was €3,000,000 (£1,761,389) and is payable in six instalments ending 3 August 2005.

Fair value
to the group£Net assets acquired:Fixtures and fittings (at book value)

84,590Goodwill (note 9)

1,676,7991,761,389Satisfied by:Cash

587,130Deferred consideration

1,174,2591,761,389


There
is no financial information available for the Deutsche Bank AG New York Branch Horsham prior to the acquisition by the company and therefore the company is unable
to provide details of the pre-acquisition results of the acquired business.

22    Effect on cash flows of acquisitions and disposals

2002

2003

2004£

£

£Payments to acquire subsidiary undertaking and goodwill (note 21)

(75
)
(587,130
)
(427,036
)Net cash and bank balances acquired

75





(587,130
)
(427,036
)


23    Commitments and contingencies



2003

2004£

£Operating leases which expire:In 2-5 years

217,664

538,525After five years

861,754

831,5031,079,418

1,370,028


24    Pension costs

The group contributes to defined contribution pension schemes. The assets of the schemes are held separately from those of the group in independently administered
funds. The pension cost charge for the year ended 31 December 2004 was £833,666 (2003£935,356; 2002£773,747). The unpaid pension
contributions outstanding at the year end were £113,638 (2003£105,482).

71

---



25    Employee Benefit Trust

The following assets and liabilities relating to the Employee Benefit Trust have been included within the financial statements, in accordance with UITF 32
"Employee benefit trusts and other intermediate payment arrangements" and FRS 12 "Provisions, Contingent Liabilities and Contingent Assets":

2003

2004£

£Cash at bank

494

Accruals



494




26    Companies Act 1985

These consolidated financial statements do not comprise the company's "statutory accounts" within the meaning of section 240 of the Companies Act 1985 of
Great Britain. Statutory accounts for the years
ended 30 June 2002 and 2003 and 2004 have been delivered to the Registrar of Companies for England and Wales. The statutory auditors' reports on such accounts were unqualified.

27    Related party transactions

During the period ended 31 December 2002 the group performed work for Kanbay International Inc. which owns 49% of the issued share capital of SSS
Holdings Corporation Limited. £2,600 was invoiced during the year to 31 December 2002 in respect of this work. No work was performed for Kanbay International Inc. during the
years ended 31 December 2003 and 31 December 2004. There were no amounts outstanding at 31 December 2004 (2003Nil). In addition Kanbay Europe Limited, a subsidiary of
Kanbay International Inc performed work for the group during the year ended 31 December 2004 for which £28,180 (2003£42,208) was invoiced. There were no
outstanding balances due to Kanbay Europe Limited at 31 December 2004 (2003£nil).

SSS
Holdings Corporation Limited, together with Morgan Stanley and Co International Inc. and the directors own 100% of the issued share capital of The Monocle Holdings Corporation
Limited, the ultimate parent company of The Monocle Corporation Limited.

During
the year to 31 December 2003 the group performed work for The Monocle Corporation Limited. No work has been performed during the year to 31 December 2004.
£26,000 was invoiced during the year to 31 December 2003 in respect of this work (2002£nil). The amount due from the Monocle Corporation Limited at 31
December 2004 was £nil (2003£333,860) against which a provision of £nil has been recorded (2003£230,518).

During
the year to 31 December 2004, The Monocle Corporation Limited invoiced the group £7,095 (2003£6,540;
2002£nil). The amount due to The Monocle Corporation Limited at 31 December 2004 was £nil (2003£75,788).

During
the year to 31 December 2004 the group received computer equipment for £155,309 and cash of £95,668 in full settlement of the net amounts due from The
Monocle Corporation Limited and the provision recorded in previous years was released to the profit and loss account.

Until
September 2004, SSS Holdings Corporation Limited owned 50% of the share capital of Strategic Investment Solutions Limited. During the year to 31 December 2004, the
group charged a management fee of £10,575 (2003£10,575; 2002£10,575) to Strategic Investment Solutions Limited. The amount outstanding at
31 December 2004 was £nil (2003£2,644).

72

---



28    Difference between United Kingdom and United States Generally Accepted Accounting Principles

The Company's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United Kingdom ("UK GAAP") which
differ from United States generally accepted accounting principles ("US GAAP"). The significant differences applicable to the Company are summarised below:



2002

2003

2004£

£

£Profit for the year as reported in the consolidated profit and loss account under UK GAAP

3,215,445

2,471,364

2,839,918Amortisation of goodwill



102,471

105,903Amortisation of customer contract



(113,521
)
(123,840
)Vacation expense

(17,000
)
35,000

57,000Equity (loss)/income from investments

(42,000
)
31,000

Capitalised software costs

197,068

138,055

64,397Depreciation on capitalised software costs

(181,448
)
(213,552
)
(176,450
)Tax effects of US GAAP adjustments

414

30,585

41,194Net income for the year under US GAAP

3,172,479

2,481,402

2,808,122


73

---





2002

2003

2004£

£

£Net income for the year under US GAAP

3,172,479

2,481,402

2,808,122Currency translation differences on foreign currency net investment

(6,128
)
(18,650
)
(82,216
)Comprehensive income under US GAAP

3,166,351

2,462,752

2,725,906




2003

2004£

£Shareholders' funds as reported in the consolidated balance sheet under UK GAAP

6,769,235

8,114,756US GAAP adjustments:Intangible assetsGoodwillcost

(743,048
)
(743,048
)Customer contractcost

743,048

743,048Amortisation

(11,050
)
(28,987
)Tangible assets: softwareCost

822,744

887,141Depreciation

(551,644
)
(728,094
)Creditors amounts falling due within one yearVacation accrual

(118,000
)
(61,000
)Dividend payable

138,379

Tax effects on US GAAP adjustments

(27,494
)
13,700Shareholders' funds under US GAAP

7,022,170

8,197,516




74

---





Year ended 31 December2002

2003

2004£

£

£Cash flow provided by operating activities

1,139,327

5,655,450

1,603,138Cash used in investing activities

(1,529,722
)
(2,322,114
)
(981,623
)Cash used in financing activities

(1,547,940
)
(933,640
)
(1,550,560
)Exchange differences





(29,339
)Beginning of the period

2,315,819

377,484

2,777,180End of the period

377,484

2,777,180

1,818,796


75

---





Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

As
of December 31, 2004, our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based on their evaluation of our disclosure controls and procedures, our Chief
Executive Officer and Chief Financial Officer, with the participation of our management, have concluded that our disclosure controls and procedures are effectively designed to ensure that information
required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms and are operating in an effective manner.

There
were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the fourth quarter of 2004 that
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

None.

76

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PART III.

Item 10. Directors and Executive Officers of the Company.

See the information under the captions "Executive Officers and Directors," "Board of Directors" and "Committees of the Board of Directors" in the 2005 Proxy
Statement.

Item 11. Executive Compensation.

See the information under the captions "Director Compensation" and "Executive Compensation" in the 2005 Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

See the information under the captions "Stock Ownership by Certain Beneficial Owners and Ownership by Management of Equity Securities" in the 2005 Proxy
Statement.

Item 13. Certain Relationships and Related Transactions.

See the information under the caption "Certain Transactions" in the 2005 Proxy Statement.

Item 14. Principal Accountant Fees and Services.

See the information under the caption "Proposal to Approve the Selection of Auditors" in the 2005 Proxy Statement.

PART IV.

Item 15. Exhibits and Financial Statement Schedule.

(a)   Documents filed as part of this report

|                                                                                                                |  | Page
|--------------------------------------------------------------------------------------------------------------- |  | ----
|Consolidated Financial Statements of Kanbay International, Inc.                                                 |  |     
|Report of Independent Registered Public Accounting Firm                                                         |  | 33  
|Consolidated Balance Sheets at December 31, 2004 and 2003                                                       |  | 34  
|Consolidated Statements of Income for the years ended December 31, 2004, 2003 and 2002                          |  | 35  
|Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2004, 2003 and 2002 |  | 36  
|Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002                      |  | 37  
|Notes to Consolidated Financial Statements                                                                      |  | 38  

|                                                                                                                 |  | Page
|---------------------------------------------------------------------------------------------------------------- |  | ----
|Consolidated Financial Statements of SSS Holdings Corporation Limited                                            |  |     
|Report of Independent Registered Public Accounting Firm                                                          |  | 55  
|Consolidated Profit and Loss Accounts for the years ended December 31, 2004, 2003 and 2002                       |  | 56  
|Consolidated Statement of Total Recognised Gains and Losses for the years ended December 31, 2004, 2003 and 2002 |  | 57  
|Consolidated Balance Sheets at December 31, 2004 and 2003                                                        |  | 58  
|Consolidated Cash Flow Statements for the Years Ended December 31, 2004, 2003 and 2002                           |  | 59  
|Notes to the Consolidated Financial Statements                                                                   |  | 60  

77

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2.    Financial
Statement Schedule

The
following financial statement schedule is a part of this Form 10-K and should be read in conjunction with our audited consolidated financial statements.

SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS  (in thousands)  Years ended December 31, 2004, 2003 and 2002

|Description |                                             | Balance at
Beginning
of Year |   | Charged to
Costs and
Expenses |  | Deduction |   | Balance at
End of
Year
|----------- | ------------------------------------------- | ---------------------------- | - | ----------------------------- |  | --------- | - | ----------------------
|2004:       |                                             |                              |   |                               |  |           |   |                       
|            | Valuation allowance for accounts receivable |                              | $ | 659                           |  | 727       |   | (243                  
|            | Valuation allowance for deferred tax assets |                              |   | 2,333                         |  |           |   | (43                   
|2003:       |                                             |                              |   |                               |  |           |   |                       
|            | Valuation allowance for accounts receivable |                              |   | 874                           |  | (169      | ) | (46                   
|            | Valuation allowance for deferred tax assets |                              |   | 5,105                         |  |          |   | (2,772                
|2002:       |                                             |                              |   |                               |  |           |   |                       
|            | Valuation allowance for accounts receivable |                              |   | 805                           |  | 373       |   | (304                  
|            | Valuation allowance for deferred tax assets |                              |   | 6,107                         |  |          |   | (1,002                

---

All
other schedules not listed above have been omitted because the information required to be set forth therein is not applicable, not required or is included in the financial statements
or notes thereto.

78

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Exhibit Index

|Exhibit No. |  | Description                                                                                                                                                                                                                                   
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1         |  | Second Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.3 of Amendment No. 3 to the Form S-1 Registration Statement filed by the Registrant on June 17,
2004).                                       
|3.2         |  | Amended and Restated By-laws (incorporated by reference to Exhibit 3.5 of Amendment No. 3 to the Form S-1 Registration Statement filed by the Registrant on June 17, 2004).                                                                   
|4.1         |  | Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 of Amendment No. 2 to the Form S-1 Registration Statement filed by the Registrant on June 10, 2004).                                                              
|4.2         |  | Second Amended and Restated Registration Rights Agreement (incorporated by reference to Exhibit 4.2 of Amendment No. 3 to the Form S-1 Registration Statement filed by the Registrant on June 17,
2004).                                      
|4.3         |  | Class A Common Stock Purchase Warrant dated September 4, 2003 issued to Household Investment Funding, Inc. (incorporated by reference to Exhibit 4.4 of the Form S-1 Registration Statement filed by
the Registrant on March 11, 2004).       
|4.4         |  | Warrant to Purchase Common Stock No. CA-002 dated September 14, 2000 issued to Household Investment Funding, Inc. (incorporated by reference to Exhibit 4.5 of the Form S-1 Registration Statement
filed by the Registrant on March 11, 2004).
|10.1        |  | Kanbay International 1998 Non-Qualified Option Plan (incorporated by reference to Exhibit 10.1 of the Form S-1 Registration Statement filed by the Registrant on March 11, 2004).                                                             
|10.2        |  | Kanbay International, Inc. Stock Incentive Plan (incorporated by reference to Exhibit 10.2 of Amendment No. 4 to the Form S-1 Registration Statement filed by the Registrant on July 2,
2004).                                                
|10.3        |  | Kanbay International, Inc. 2005 Employee Stock Purchase Plan, as amended.                                                                                                                                                                     
|10.4        |  | Kanbay International, Inc. 2004 Global Leadership Bonus Plan (incorporated by reference to Exhibit 10.3(a) of Amendment No. 4 to the Form S-1 Registration Statement filed by the Registrant on July 2,
2004).                                
|10.5        |  | Kanbay Outside Directors Compensation Plan (incorporated by reference to Exhibit 10.3(b) of Amendment No. 4 to the Form S-1 Registration Statement filed by the Registrant on July 2,
2004).                                                  
|10.6        |  | Severance Agreement between the Registrant and Raymond J. Spencer (incorporated by reference to Exhibit 10.4 of Amendment No. 4 to the Form S-1 Registration Statement filed by the Registrant on July 2,
2004).                              
|10.7        |  | Severance Agreement between the Registrant and William F. Weissman (incorporated by reference to Exhibit 10.5 of Amendment No. 4 to the Form S-1 Registration Statement filed by the Registrant on July 2,
 2004).                            
|10.8        |  | Severance Agreement between the Registrant and Jean A. Cholka (incorporated by reference to Exhibit 10.6 of Amendment No. 4 to the Form S-1 Registration Statement filed by the Registrant on July 2,
2004).                                  
|10.9        |  | Severance Agreement between the Registrant and Cyprian D'Souza (incorporated by reference to Exhibit 10.7 of Amendment No. 4 to the Form S-1 Registration Statement filed by the Registrant on July 2,
2004).                                 
|10.10       |  | Severance Agreement between the Registrant and Shrihari Gokhale (incorporated by reference to Exhibit 10.8 of Amendment No. 4 to the Form S-1 Registration Statement filed by the Registrant on July 2,
2004).                                
|10.11       |  | Form of Indemnification Agreement (incorporated by reference to Exhibit 10.9 of the Form S-1 Registration Statement filed by the Registrant on March 11, 2004).                                                                               
|            |  |                                                                                                                                                                                                                                               

79

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|10.12 |  | Consulting Agreement dated November 14, 1994 between the Registrant and Household International, Inc. (incorporated by reference to Exhibit 10.10 of Amendment No. 2 to the Form S-1 Registration
Statement filed by the Registrant on June 10, 2004).
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.13 |  | Consulting Agreement dated July 28, 2000 between the Registrant and Morgan Stanley & Co., Inc. (incorporated by reference to Exhibit 10.11 of Amendment No. 2 to the Form S-1 Registration
Statement filed by the Registrant on June 10, 2004).       
|21.1  |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                       
|23.1  |  | Consent of Ernst & Young LLP.                                                                                                                                                                                                                         
|23.2  |  | Consent of Ernst & Young LLP.                                                                                                                                                                                                                         
|31.1  |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                   
|31.2  |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                   
|32.1  |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                    
|32.2  |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                    
|99.1  |  | Risk Factors.                                                                                                                                                                                                                                         

80

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

|                     |  | KANBAY INTERNATIONAL, INC.
|-------------------- |  | --------------------------
|Date: March 30, 2005 |  | By:                       

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.

|Signature                                       |  | Title                                                                                   |  | Date          
|----------------------------------------------- |  | --------------------------------------------------------------------------------------- |  | --------------
|/s/RAYMOND J. SPENCERRaymond J. Spencer         |  | Chairman of the Board and Chief Executive Officer (Principal executive officer)         |  | March 30, 2005
|/s/WILLIAM F. WEISSMANWilliam F. Weissman       |  | Vice President and Chief Financial Officer (Principal financial and accounting officer) |  | March 30, 2005
|/s/MARK L. GORDONMark L. Gordon                 |  | Director                                                                                |  | March 30, 2005
|/s/DONALD R. CALDWELLDonald R. Caldwell         |  | Director                                                                                |  | March 30, 2005
|/s/KENNETH M. HARVEYKenneth M. Harvey           |  | Director                                                                                |  | March 29, 2005
|/s/B. DOUGLAS MORRISSB. Douglas Morriss         |  | Director                                                                                |  | March 30, 2005
|/s/MICHAEL E. MIKOLAJCZYKMichael E. Mikolajczyk |  | Director                                                                                |  | March 30, 2005
|/s/CYPRIAN D'SOUZACyprian D'Souza               |  | Director                                                                                |  | March 30, 2005
|Harry C. Gambill                                |  | Director                                                                                |  |               

81

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