<PAGE>
 
                                                                  Exhibit 13.1






                            Infosys Annual Report
                                     For
                                 Fiscal 1999



<PAGE>
 

                                              Information Technology in the Next
                                                                      Millennium
                              - the Challenges for the Chief Information Officer

                                                               [GRAPHIC OMITTED]

                                                     Nothing endures but change.
                                                                      Heraclitus
                                                               (540 - 480 B. C.)

--------------------------------------------------------------------------------
The growth of Information Technology (IT) has been most spectacular in the last
fifteen years. This period has demonstrated that the only constant in the IT
field is change. This industry has attracted a large number of visionary
entrepreneurs, an abundance of venture capital, and a vast pool of high quality
professionals. Not since the industrial revolution, has an industry brought
about such improvements in value-for-money to users as has the IT industry.
However, the best is yet to come. As we move into the next millennium, this
industry will shape the lives of billions of people from the boardrooms of New
York to the bazaars of Nepal. This year, Infosys brings you an abridged version
of a very informative panel discussion on Information Technology in the Next
Millennium - the Challenges for the Chief Information Officer.
<PAGE>
 
<TABLE>
<CAPTION>
Contents
--------------------------------------------------------------------------------------------------
<S>                                                                                            <C>
The year at a glance                                                                             3
Awards for excellence - 1998-99                                                                  4
Nandan M. Nilekani, Managing Director, President and Chief Operating Officer                     7
Letter to the shareholders                                                                       9
IT in the Next Millennium - The Challenges for the Chief Information Officer                    12
Board of directors                                                                              20
Management council                                                                              20
Directors' report                                                                               23
Risk management                                                                                 36
Corporate governance                                                                            43
Report of the committees of the board                                                           51
Management statement                                                                            54
Auditors' report                                                                                55
Financial statements prepared in accordance with
  Indian Generally Accepted Accounting Principles (Indian GAAP)                                 58
Management's discussion and analysis of financial condition and results of operations           72
Statement of cash flows                                                                         81
Balance sheet abstract and company's general business profile                                   83
Statement pursuant to section 212 of the 
  Companies Act, 1956 relating to subsidiary company                                            84
Financial statements of Yantra Corporation (a subsidiary)                                       85
Financial statements prepared in accordance with the
  United States Generally Accepted Accounting Principles (US GAAP)                             109
   Summary of consolidated financial data                                                      110

Information in Form 20-F of United States Securities and Exchange Commission                   147
Shareholder information                                                                        178
Frequently asked questions                                                                     183
Additional information to shareholders
   Share performance chart                                                                     187 
   Intangible assets scoresheet                                                                188
   Human Resources Accounting and Value-Added statement                                        191
   Brand valuation                                                                             193
   Balance Sheet (including the intangible assets)                                             195
   Economic-Value-Added (EVA) statement                                                        196
   Ratio Analysis                                                                              197
   Statutory obligations / segment reporting                                                   200
Management structure                                                                           203
A historical perspective                                                                       204
Consolidated financial statements of Infosys and its subsidiary                                208
Infosys Foundation                                                                             209
Financial statements prepared in substantial compliance with
  GAAP requirements of Australia, Canada, France,
  Germany, the United Kingdom and Japan                                                        208
</TABLE>
<PAGE>
 
The year at a glance
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                       In millions, except per equity share data
-------------------------------------------------------------------------------------------------
                                                          March 31, 1999          March 31, 1998
                                                         Rs.          US$          Rs.       US$
-------------------------------------------------------------------------------------------------
<S>                                                   <C>           <C>        <C>          <C>  
For the year
Total revenue                                         5,127.38      121.96     2,603.66     69.86
Exports                                               5,002.54      118.99     2,509.38     67.33
Operating profit (PBIDT)                              1,917.48       45.61       886.12     23.78
Profit after tax (PAT) from ordinary activities       1,329.15       31.62       603.63     16.20
PBIDT as a percentage of total revenue                   37.40%      37.40%       34.03%    34.03%
PAT (from ordinary activities)
 as a percentage of total revenue                        25.92%      25.92%       23.18%    23.18%
Earnings per share (from ordinary activities)            40.19        0.96        18.25      0.49
Dividend per share (pro-rata)                             7.50        0.18         6.00      0.16
Dividend amount                                         121.08        2.88        70.29      1.89
Capital investment                                      716.79       17.05       344.10      9.23
PAT as a percentage of average net worth                 54.16%      54.16%       42.24%    42.24%

At the end of the year
Total assets                                          5,744.31      136.31     1,729.57     43.81
Fixed assets (net)                                    1,007.16       23.90       649.54     16.45
Liquid assets                                         4,166.59       98.87       511.42     12.95
Working capital                                       4,729.60      112.24       972.26     24.63
Total debt                                               --          --           --        --
Net worth                                             5,744.31      136.31     1,729.57     43.81
Equity                                                  330.70        7.85       160.17      4.06
Market capitalization                                96,728.00    2,295.40    29,634.22    750.61
-------------------------------------------------------------------------------------------------
</TABLE>

Figures in US$ were calculated by converting Indian GAAP figures at the average
conversion rate for the year for all Profit and Loss Account items, and at the
closing rate for all Balance Sheet items to facilitate comparison. The above
figures are for information purposes only. 

Market capitalization is calculated by considering the Indian market price for
shares outstanding at year-end.

[GRAPHIC OMITTED]
<PAGE>
 
Awards for excellence - 1998-99
--------------------------------------------------------------------------------

AON team

[GRAPHIC OMITTED]

Basab Pradhan o Pravin Rao o Rajiv Raghu o Manish Tandon o Padmanabhan D.

NYNEXPR CMM Level 4 team

[GRAPHIC OMITTED]

Shinju Damodaran o Santosh K. Srivastava o Savita Patkar

SAP implementation team

[GRAPHIC OMITTED]

Balakrishnan V. o Sastry M. S. o Ramadas Kamath U. o Venkatesh Gadiyar H.
Raghavan S.o Vinayak Pai V. o Sivaramakrishnan K.
<PAGE>
 
"Y2K-as-an-entry-strategy" team

[GRAPHIC OMITTED]

Dheeshjith V. G. o Krishnamurthy T. S. o Subramanyam S. V. o Ravi Kiran
o Harsha H. M. o Ganesh G.
Ramaa Sivaram o Muralikrishna K. o Samson David o Srikanta Kumar o Shaji
Mathew o Chittibabu B.

Corporate Communications team

[GRAPHIC OMITTED]

Sudha Kumar
B. M. Rao
Jessie Paul

Internal customer champions

[GRAPHIC OMITTED]

Col. Krishna C.V. o Srivathsa P. S.
Madhu Krishna Rao o Suresh Kamath
Revanna S. o Chandrappa
<PAGE>
 
[GRAPHIC OMITTED]
<PAGE>
 
                                                              Nandan M. Nilekani
--------------------------------------------------------------------------------
                                                Managing Director, President and
                                                         Chief Operating Officer

I am very happy that I share the authorship of this year's Letter to the
shareholders with my colleague, Mr. Nandan M. Nilekani (Nandan, as he is
affectionately known), the new managing director of Infosys. As the company
takes on new challenges of growth and globalization, I felt the need to share my
responsibility with another person. The board of directors, after due
deliberations, decided to appoint Nandan as the new managing director, president
and chief operating officer, to take over the operational responsibilities from
me so that I could concentrate on strategic issues as we move to the next
millennium. Mr. N. S. Raghavan, the joint managing director, requested that the
board not consider him as he felt that Infosys needed a much younger person for
such a role. Once again, as he has always done, Raghavan demonstrated his
farsighted views on leadership keeping in mind the long-term challenges that
Infosys would face.

Nandan became the new managing director, president, and chief operating officer
on February 11, 1999. He looks after all day-to-day operations and reports to
me. I continue as the chairman and chief executive officer.

I have known Nandan closely ever since he walked into my room as a 23-year-old
and charmed me into recruiting him as a software engineer when I was the head of
software at PCS, Bombay in 1979. In fact, he is the first of more than three
thousand software engineers who have worked with me and have emerged with flying
colors from the tough battery of tests for learnability. My 25-year-old
hypothesis is that, in a rapidly changing industry like software, learnability,
rather than knowledge base, is critical for sustained success. Nandan is a
flourishing icon of this idea that has been independently accepted and practised
by other well-known companies.

Nandan has demonstrated the power of learnability by successfully handling a
variety of responsibilities including software development, sales and marketing.
He is a rare example of one endowed with the best of left and right brain
capabilities. Whether it is analytics or articulation, you will find him always
at his best. Tough when needed but always gentle at heart, he is a great asset
to this growing company. Nobody knows better than he does that energy,
enthusiasm and excellence in execution are the attributes of a great leader. I
have no doubt that he will continue to demonstrate these attributes in every
task that he takes up in his new role. I am excited at the prospect of shaping
the future of Infosys jointly with him.

Best of everything, Nandan!

                                                                              Sd
April 9, 1999                                              N. R. Narayana Murthy
Bangalore                                   Chairman and Chief Executive Officer
<PAGE>
 
[GRAPHIC OMITTED]

Board of Directors

Left to right:   top : Shibulal S. D., Dinesh K., Susim M. Datta, Nandan M.
Nilekani, Prof. Marti Subrahmanyam
      bottom : Raghavan N. S., N. R. Narayana Murthy, Ramesh Vangal,
Gopalakrishnan S.,  Deepak M. Satwalekar
<PAGE>
 
Letter to the shareholders
--------------------------------------------------------------------------------
Dear Shareholder,

At the outset, we welcome our new investors who have purchased the Infosys
American Depositary Shares (ADS) consequent to our listing on the NASDAQ. We had
announced last year, as part of our globalization strategy, our intention to
list on a stock exchange in the United States. On March 11, 1999, Infosys became
the first India-registered company to be listed on a stock exchange in the
United States. The listing will enhance our visibility in the marketplace, and
also provide an acquisition currency. Infosys has also created an ADS-based
Employees Stock Option Plan (ESOP), and the first lot of such stock options has
been granted.

We are happy to report on another successful year. The total revenue, exports,
PBIDT and PAT grew from Rs. 260.37 crore, Rs. 250.94 crore, Rs. 88.61 crore and
Rs. 60.36 crore in 1997-98 to Rs. 512.74 crore, Rs. 500.25 crore, Rs. 191.75
crore and Rs. 135.27 crore respectively in 1998-99. Despite the sluggish
domestic economy, domestic sales of Bancs2000 grew from Rs. 6.70 crore in
1997-98 to Rs. 8.32 crore in 1998-99. Achieving such overall growth without
impacting quality, delivery schedule and cost is a rare phenomenon.

Our business is customized software development, re-engineering and maintenance
in many vertical areas including retailing and distribution, banking and
finance, insurance, manufacturing and data communication. We bring expertise in
several technologies including hardware and software platforms for leveraging
the capabilities of the Internet, open systems, the mid-ranges and the
mainframes. Our growth strategy is based on our global software delivery model.
This model provides a framework for scoping development, re-engineering and
maintenance projects as fixed-price, fixed-time-frame projects. It leverages the
availability of high-quality professionals in large numbers in India, our
ability to operate world-class software development centers, fast implementation
of new quality and productivity models, and our lower cost of operations. We are
happy to state that the fixed-price, fixed-time-frame projects have contributed
about 36% of the total revenue during the year.

Growth in sales and improvement in margins come from repeat transactions with
the same client. Around 90% of the revenue this year has come from companies who
were clients in the prior fiscal year. We have used the Year 2000 opportunity to
establish relationships with thirteen new clients with eight of whom we have
started our mainstream business of development, re-engineering and maintenance.
Most of our growth in future is likely to come from the mainstream services of
development, re-engineering and maintenance. Internet, package implementation,
engineering services and telecom services are likely to be the services of the
future registering significant growth rates, though on a small base.
<PAGE>
 
E-commerce is the vehicle for growth in the next millennium. Your company
designs, erects and maintains robust and secure Internet, intranet and extranet
infrastructure both for improving internal productivity as well as for
leveraging the power of e-commerce. This practice has shown considerable growth
during the past year contributing 3.7% to the total revenue. We intend to focus
even more on this growing market opportunity in the future.

Prudent risk management is a key requirement for any global business and is an
integral part of the business strategy at Infosys. The business de-risking model
of Infosys does not allow excessive dependence on any one client, technology,
service or vertical market. The largest client contributed 6.4% to the total
revenue. The top five clients contributed 28.4% of the total revenue this year
as compared to 35.1% last year.

Right at the time of starting the Year 2000 services in 1997, we had prescribed
a limit of 25% contribution to total revenue from the Year 2000 practice. The
contribution from this service was: 8% in 1997, 23% in 1998 and 20% in 1999. The
quarterly contribution of this service to total revenue during the year has been
- 24% in Q1, 23% in Q2, 19% in Q3 and 15% in Q4. Thus, the de-risking model is
working well. Efforts were also made to increase the share of revenue from
countries other than the United States. Infosys invested Yen 24 million in
JASDIC Park Company during this year. JASDIC Park is promoted by Mr. Kenichi
Ohmae of the Heisei Research Institute. JASDIC Park, along with our branch
office in Japan, will focus on increasing our presence in the Japanese market.
Our Maastricht office has moved to Frankfurt, Germany.

As we move forward, our challenge is to grow while protecting our margins. This
requires that we improve our per-capita revenue productivity and contain our
costs. The composite per-capita revenue productivity has grown by 9.4% this year
over last year. The company spent over 9% of its revenue on technology, and
training to enhance the productivity of its professionals. Costs are under
control and the benefits of economies of scale are visible. Our strategy of
diversifying the base of software professionals by setting up software
development centers at multiple locations in India has helped increase the pool
of software professionals to 3,158 (3,389 IT professionals including those in
support functions) at the year-end from 2,186 last year.

We have made significant investments in physical and technological
infrastructure, tools, methodologies and processes to fine-tune the concurrent,
distributed development module of our global delivery model. In future, this
investment will reduce cycle times and costs, and improve quality and
productivity for our customers. Infrastructural expansion, when completed in the
next two to three years, is expected to add approximately 8,90,000 square feet
of office space for over 6,000 employees in India. We completed the construction
of 1,67,600 square feet of space at Infosys Park, our new campus in Bangalore.
We added 23,000 square feet of office space at Chennai. We have started the
development of a new campus at Pune. Our investments in technological
infrastructure and telecommunications ensure that adequate capacity is built to
meet increased demand from our clients.
<PAGE>
 
Effective management of growth demands a user-friendly, robust, and secure
information infrastructure. During the third quarter, your company went live on
R/3 - SAP's end-to-end integrated information infrastructure. The implementation
was completed in just over 5 months one of the fastest ever. Infosys managed the
entire project primarily using internal resources and expertise.

During the year, the company won several awards including the prestigious
Company of the Year award instituted by The Economic Times, a highly-respected
business daily in India.

As we move to the next  millennium,  IT is likely  to play a greater  role
in shaping the destiny of  corporations  worldwide.  Thus,  the management
council  decided  to  hold  a  panel  discussion  at New  Orleans,  USA on
October 8-9,  1998 to discuss the topic:  IT in the Next  Millennium - the
Challenges for the Chief Information  Officer.  Mr. Phaneesh Murthy,  Head
(Worldwide Sales) - Infosys,  moderated this discussion.  The participants
were: Mr. Bill Gauld, CIO,  Textron;  Mr. Ivo Cools, CIO, Belgacom Mobile;
Mr. S. D. Shibulal,  Director, Infosys; Prof. Vijay Gurbaxani,  Professor,
University of California,  Irvine;  Mr. Wolly Morin, CIO, Ann Taylor;  Mr.
Charlie Mitchell,  Vice-President - Information Services,  Nordstrom; Paul
Strassmann,  a  well-known  consultant;  and  David  Grossmann,   Managing
Director  at  Thomas  Wiesel  Partners  LLC.  We  are  thankful  to  these
well-known thinkers and practitioners.

[GRAPHIC OMITTED]

Infoscions are men and women of high discipline, integrity, quality,
productivity, creativity and commitment. On behalf of the board of directors and
the management council, and on your behalf, we place on record our appreciation
and gratitude to these high achievers.

                                Sd                                            Sd
Bangalore               Nandan M. Nilekani                 N. R. Narayana Murthy
April 9, 1999      Managing Director, President                         Chairman
                   and Chief Operating Officer       and Chief Executive Officer

The forward-looking statements in the Letter to the Shareholders should be read
in conjunction with the following cautionary statements. Certain expectations
and projections regarding future performance of the company referenced in this
Annual Report are forward-looking statements. These expectations and projections
are based on currently available competitive, financial, and economic data along
with the company's operating plans and are subject to certain future events and
uncertainties, that could cause actual results to differ materially.
<PAGE>
 
Information Technology in the Next Millennium -
the Challenges for the Chief Information Officer
--------------------------------------------------------------------------------

            --------------------------------------------------------------------
            In the last twenty years, Information Technology (IT) has influenced
            our lives and the way we do business like no other technology has.
            Change, speed of change, and adaptability to change have become the
            key concerns of every Chief Information Officer (CIO). To understand
            the challenges for CIOs as we move into the next millennium, Infosys
            invited several well-known thinkers and practitioners of IT from
            across the globe for a panel discussion on this topic at New
            Orleans, Louisiana, USA on October 8-9, 1998.

            Mr. Phaneesh Murthy, Head (Worldwide Sales) - Infosys, moderated the
            discussion. The participants were:

[GRAPHIC OMITTED]

            Mr. Bill Gauld (Bill)
            CIO, Textron

            Mr. Ivo Cools (Ivo)
            CIO, Belgacom Mobile

            Mr. S. D. Shibulal (Shibu)
            Director, Infosys

            Prof. Vijay Gurbaxani (Vijay)
            Professor, University of California, Irvine

            Mr. Wolly Morin (Wolly)
            CIO, Ann Taylor

            Mr. Charles Mitchell (Charles)
            Vice-President - Information Services, Nordstrom

            Mr. Paul Strassmann (Paul)
            Consultant

            Mr. David Grossmann (David)
            Managing Director at Thomas Wiesel Partners LLC.

            The editors of this annual report provide below an abridged version
            of the panel discussion. Infosys accepts full responsibility for any
            possible errors in abridging the views of the panelists. However,
            Infosys is not responsible for the views expressed by the panelists.
<PAGE>
 
Phaneesh
--------------------------------------------------------------------------------
Welcome to the panelists and the audience. I request the opinion
of the panelists on the challenges that the CIOs face as they
move to the next millennium.

Bill
--------------------------------------------------------------------------------
            I see three challenges in the future. First, realizing that we have
            to change the way we deliver information technology solutions to our
            businesses, which are likely to change even faster as we move to the
            next millennium. We may benefit from using the finer principles of
            supply chain management in delivering IT solutions to our end users.

            The second challenge is to create an IT infrastructure that is
            robust, secure, inexpensive and, most importantly, flexible - able
            to handle the unplanned as easily as the planned. An IT
            infrastructure that is highly reusable and adaptively evolving can
            cumulatively strengthen the competitive advantage of the
            organization. In the 21st century, thanks to the high velocity of
            market dynamics, we will not be able to disrupt our entire business
            and replace all our applications and platforms, as we have done many
            times in the past. In addition, the imperative to reduce the cost of
            operations will force us to reuse our huge existing investment in
            IT. 

            The third challenge is a standard one - people shortage. The
            conventional wisdom is that this shortage will reduce post-Y2K. But,
            I think the shortage will continue at the current level, if not
            increase.

                                                               [GRAPHIC OMITTED]

Ivo
--------------------------------------------------------------------------------
            Today, we need people with the skills of at least the last three
            generations of IT. This will continue in future. In addition, in
            technical areas like Telecommunications, we will need professionals
            with both engineering as well as IT skills. Finding these resources
            will become even harder in future. 

            I agree with Bill that our future systems will have to be highly
            adaptable and reusable to handle the higher pace of change that we
            will see in future. Our systems will have to become more
            object-oriented to handle changes inexpensively while causing
            minimum perturbation to the current operations. This requirement
            will become most pronounced in Europe as they integrate
            multi-currency, multi-lingual, and even multi-company operations. 

            We will also continue to face the challenge of de-risking the
            outsourcing strategy given the speed of change in business
            practices, marketplace and technology. 

            The IT professional must show greater speed in acquiring domain
            knowledge to help the organization innovate for success in a
            marketplace with a volatile customer base. 

            I also believe the 24-by-7 paradigm will become critical in
            development, maintenance and operational support of IT systems in
            future.

Shibu
--------------------------------------------------------------------------------
            I believe there are only two things constant in our profession - IT
            is here to stay, and it will be in a constant state of change!
            Business imperatives rather than technology advances will drive the
            changes. Thanks to advances in technology, the any-time-any-where
            paradigm will become the norm in solving the increasingly complex
            problems that the next millennium will force on us. Such a focus on
            decentralization in business operations will require similar
            decentralization even in IT application development, maintenance and
            operations. Corporate IT would, then, focus on network and security
            issues and on enterprise-wide solutions. Thus, IT will play a
            greater role in corporate strategy and the CIO is likely to be on
            the board. The challenge is to train the staff of IT departments to
            become more business-oriented and strategic in their thinking.
<PAGE>
 
Vijay
--------------------------------------------------------------------------------
            We, in academia, have been studying how newer and better business
            models are easily outperforming the older ones. The first-mover
            advantage is becoming increasingly critical. There is immense
            pressure on the IT organization to deliver the capability to quickly
            catch up with the first-movers. Thus, the strength of the IT group
            in an organization will be measured by the learnability and quick
            implementation skills of its staff rather than the suite of
            applications it possesses currently. Developing these competencies
            will be a big challenge. 

            The pressures from e-commerce on price and delivery time will result
            in increased enterprise integration based on common information
            infrastructure - information utilities that perform all the
            transaction processing for many organizations. Designing
            enterprise-specific front-office applications, and deriving business
            intelligence from innovative data mining will become the key
            determinants for success in the marketplace.

[GRAPHIC OMITTED]

Wolly
--------------------------------------------------------------------------------
            Our challenge is to use technology and innovation of our people to
            improve customer satisfaction, cost, cycle time, response time, and
            productivity. Motivating our staff is one of our biggest challenges.

            In the beginning of the IT era, we took people out of business and
            made them technologists. In the recent past, we have been putting
            them back in the business functions where they belong. In the next
            millennium, the IS organization would be responsible only for
            databases, networks, standards, support, and security. Business
            functions would themselves create the IT systems they need,
            following the policies and standards set by the IS departments. The
            challenge is to learn these new skills.

[GRAPHIC OMITTED]

Charles
--------------------------------------------------------------------------------
            Finding experienced technical people is a big challenge. Secondly,
            the management of an enterprise expects to see a direct, short-term
            correlation between money spent on IT and improvement in
            profitability. As we all know, this is not always possible. Thus,
            the education of management is a key challenge.

Paul
--------------------------------------------------------------------------------
            The challenge of the future is to manage business risks arising out
            of IT applications. Recent IT developments and activities do
            decrease costs but also increase risks. The increasing risk of IT
            will be managed, not through IT vendors, but through third party
            verification and protection against risk - an independent
            information audit. Organizations will spend huge amounts on
            insurance policies for their information systems. This has already
            begun. The expanding market for Y2K insurance policies is a good
            example. 

            The next fifty years will focus on innovation and on the way we
            integrate IT into our socio-economic structure. Independent
            verification and insurance is the way society will deal with the
            risks associated with this process.

David
--------------------------------------------------------------------------------
            I will frame some of the previous comments in the context of IT
            services. In the recent past, a lot of thought has gone into
            leveraging external service providers to complement internal
            weaknesses, such as manpower shortage. The US continues to lag
            behind other economies in creating new supply. This is a big
            challenge.
<PAGE>
 
            Companies are not looking for technical partners anymore. They are,
            in fact, looking for business partners. The customer is not really
            the CIO; the customer is the end user who drives the need for new
            applications. Therefore, a service provider needs to understand the
            business issues to add value as a long-term partner. Making this
            transition from technology expertise to business domain expertise is
            a critical challenge for services companies.

Phaneesh
--------------------------------------------------------------------------------
We have discussed challenges arising out of the imperatives to manage rapid
changes in business and technology, competitive pressures, cycle time reduction,
response time improvement and cost reduction. Thus, we have to master
sophistication in technology and complexities of business. Given the trend of
user-friendliness of technology in all aspects of our life, future end-users are
likely to be much more IT literate than they are now. With this increasing
sophistication at the user end, do you see a diminishing role for IT in the
future?

                                                               [GRAPHIC OMITTED]

Charles
--------------------------------------------------------------------------------
            In digital times, when a manufacturer understands customer service,
            technology will enable him to sell directly to the customer instead
            of coming through us. So, we are developing a different view of what
            Nordstrom is. We are a relationship company now and will, through
            the use of technology and the Internet, be more aggressive in future
            instead of being defensive and reactive. We will maintain optimal
            staffing levels in the process. We will move towards virtualization
            of the corporation. In the digital era of the next millennium, IT
            people will have an increasing role in creating this virtual
            corporation that includes all the players in the supply chain.

Wolly
--------------------------------------------------------------------------------
            I think the trend of end-user sophistication is here to stay. In my
            opinion, the role of IS - as analytical people to help the users -
            is going to diminish, and the users' role - as intelligent users of
            technical capabilities - will increase.

Ivo
--------------------------------------------------------------------------------
            The closer you move to the customers, the more complex and
            challenging IT becomes. Therefore, the importance of IT will
            continue to increase, though the importance of IT people may
            decrease.

Bill
--------------------------------------------------------------------------------
            The trend of the end user doing more IT work will continue. This
            trend will permeate up the organization as we see a new generation
            of management take over. We will see more sophisticated tools that
            would become the basis for eliminating old applications. Our
            challenge is to manage our one real asset - information. Managing
            information would be a big responsibility in future. We will see
            end-user sophistication manifest itself in the form of functional
            people with quasi-systems responsibilities.

Shibu
--------------------------------------------------------------------------------
            I don't see the role of IT going down. The role will move from
            operational to strategic. Decentralization of applications would
            continue. The IT function will become part of the corporate group
            with responsibility for IT strategy, policies, standards and
            security. Corporate IT will be the custodian of organization-wide
            knowledge and will manage enterprise-wide IT infrastructure.
<PAGE>
 
Vijay
--------------------------------------------------------------------------------
            As we move into a knowledge economy, the demand for information
            processing goes up. As the end user becomes more sophisticated, the
            demands on IT infrastructure and security standards increase. I see
            the roles of end-users and IT people as complementary rather than
            substitutable. Both these roles will increase significantly in the
            context of an information economy.

Phaneesh
--------------------------------------------------------------------------------
The role of the CFO became strong in the 1930s after auditing requirements were
introduced. Given the likelihood of audits on information assets of a company in
addition to financial assets, do you think it would be necessary to put the CIO
into the boardroom?

Paul
--------------------------------------------------------------------------------
            The SEC recently issued a regulation - 5A - mandating the disclosure
            of the magnitude of financial exposure arising out of the Y2K
            problem. The kind of questions being asked by SEC and the possible
            legal action against non-compliance have phenomenal implications on
            the issue of who is to decide SEC disclosure. The CFO is deeply
            steeped in the industrial age paradigm. He is unlikely to be
            equipped to account for the safety and risk of the large information
            assets. The most likely scenario is the emergence of a second
            fiduciary - the CIO - as being responsible for information assets.

[GRAPHIC OMITTED]

Phaneesh
--------------------------------------------------------------------------------
The regulation that Paul mentioned also requires disclosure on the status of
Y2K-related projects. Based on this trend, do you think the SEC will now start
asking for progress on other mission-critical projects as well?

Paul
--------------------------------------------------------------------------------
            In all likelihood, SEC would require the implementation of the
            Executive Order 65. This order deals with the security of national
            information infrastructure, especially for banking, utilities,
            communication and transportation. It requires every relevant
            organization to confirm that its IT infrastructure is secure against
            terrorist attacks and failures. IT is now the choice target for
            terrorist attack. Thus, we will see increasing government regulation
            in the IT area because you cannot let the economic well-being and
            security of a civilization continue to rest on the flimsy foundation
            of the current times.

Phaneesh
--------------------------------------------------------------------------------
Is such a pro-active move by the SEC, in demanding disclosure on the safety and
risk of IS projects, likely to bring significant changes in the oversight,
quality and completion time of IT projects?

Bill
--------------------------------------------------------------------------------
            Oversight responsibilities have always been strong in our
            businesses. The forthcoming developments such as the SEC disclosure
            only formalize activities that are already in place and are not a
            big surprise. This may give the CIO a little bit more legitimacy in
            the boardroom but would have only a minor impact on our business
            processes.
<PAGE>
 
Wolly
--------------------------------------------------------------------------------
            The disclosure requirement has not really changed our project plans.
            I already report to the chairman of the board and have good
            relationships with many of the members. Our projects are all
            business-sponsored. IT only owns projects internal to the
            department.

Paul
--------------------------------------------------------------------------------
            I would like to comment on the question whether the SEC requirements
            are business as usual. There is a specific question in the SEC
            disclosure requirements regarding the source of independent
            verification and validation. Now this is a very different
            development - the beginning of IT really becoming a fiduciary
            element rather than something that is just stated to be in good
            shape by the CIO himself.

                                                               [GRAPHIC OMITTED]

Bill
--------------------------------------------------------------------------------
            We added mandatory external audits a year ago on our critical
            applications for exactly that reason.

Charles
--------------------------------------------------------------------------------
            I do believe that somebody has to be holding the CIOs accountable if
            they are turning over at 40% a year. Further, I don't see the
            management often allowing the CIO to present the information at the
            desired level of detail.

Paul
--------------------------------------------------------------------------------
            It is precisely because of the high turnover among CIOs that the
            question of the company paying the liability becomes critical. The
            instability among CIOs will necessitate proxy monitoring of risk.
            This would impose requirements on system vendors to produce test
            results for their deliverables. I predict that the vendor will have
            to give a regulated statement of test results with standard
            indicators of reliability and maintainability.

Charles
--------------------------------------------------------------------------------
            Why is the turnover of CIOs at such a high level? Better job offers.
            Well, isn't that a management problem?

Paul
--------------------------------------------------------------------------------
            The better job opportunities are a consequence, not the cause. The
            cause is that management is confused as to what is a CIO. The
            fundamental reason why CIOs fail is that it is not at all clear what
            is expected of them.

Phaneesh
--------------------------------------------------------------------------------
At present, there are very few technology-driven businesses in the Fortune 500
or the Global 500. Do you see this trend changing over the next five years?
<PAGE>
 
David
--------------------------------------------------------------------------------
            In my opinion, yes. Businesses want to reach as many different
            people as possible, and as quickly as possible. The Internet and
            other technology-related developments facilitate this and would play
            a significant role in shaping the future of business.

Paul
--------------------------------------------------------------------------------
            The average ratio of IT cost to payroll cost in the Fortune
            industrials is now 11%. The average IT ratio in the banking and
            financial sectors is 18%. In the next 10 years, that number is going
            to increase by about 5 points in each sector. So, you can expect, in
            the banking and financial sector, the IT budget to be about 25% of
            the payroll cost and in the industrial sector about 16%.

Charles
--------------------------------------------------------------------------------
            A lot of high-growth IT companies - Amazon and a few others - that
            have not made any money yet are now worth more than some of the
            companies that have been around a hundred years. Yes, the presence
            of technology businesses in the Fortune 500 is likely to grow
            dramatically.

[GRAPHIC OMITTED]

Paul
--------------------------------------------------------------------------------
            The answer is yes. Companies that are highly information intensive,
            especially if they can deliver information over the Internet, have a
            good chance of getting into the Fortune 500.

Vijay
--------------------------------------------------------------------------------
            Yes, I agree with that. You have got to believe that high-growth IT
            companies will occupy a bigger and bigger share of the Fortune 500.

Shibu
--------------------------------------------------------------------------------
            Increasing customer expectations are going to necessitate a shift in
            focus from the product to the customer. This will definitely need
            extended use of technology.

Ivo
--------------------------------------------------------------------------------
            In the telecom business, my opinion is that technology will drive
            business more and more. Voice recognition and wireless data will
            have increased value-add for businesses.
<PAGE>
 
Wolly
--------------------------------------------------------------------------------
            Look at the evolution of computing in the West. In the beginning, a
            few companies automated their businesses successfully and they were
            recognized as being experts in using computing at that time. In the
            next phase, process reengineering really took off. Now, we have more
            companies figuring out how to do that well and they too have become
            successful. We will see these successes increase dramatically
            because we are going through a transformation of the customer
            relationship - IT is between the customer and the company. These
            developments are going to fundamentally change the dependence of
            businesses on technology.

                                                               [GRAPHIC OMITTED]

Phaneesh
--------------------------------------------------------------------------------
Well, this discussion on the challenges for the CIOs as IT moves to the next
millennium has been very informative. On behalf of Infosys, I would like to
thank every one of the panelists for his seminal contribution to this dialogue.
<PAGE>
 
Board of Directors
----------------------------------------
N. R. Narayana Murthy
Chairman and Chief Executive Officer
                                      
Nandan M. Nilekani
Managing Director, President
and Chief Operating Officer
                                      
Susim M. Datta
Director
                                      
Deepak M. Satwalekar
Director
                                      
Ramesh Vangal
Director
                                      
Prof. Marti G. Subrahmanyam
Director
                                      
Raghavan N. S.
Joint Managing Director
                                      
Gopalakrishnan S.
Deputy Managing Director
                                      
Dinesh K.
Director
                                      
Shibulal S. D.
Director
                                      
Audit committee
Deepak M. Satwalekar, Chairman
Susim M. Datta
Ramesh Vangal
Prof. Marti G. Subrahmanyam
                                      
Compensation committee
Susim M. Datta, Chairman
Deepak M. Satwalekar
Ramesh Vangal
                                      
Nominations committee
Susim M. Datta, Chairman
Deepak M. Satwalekar
Ramesh Vangal
Prof. Marti G. Subrahmanyam

Management Council
----------------------------------------
Nandan M. Nilekani
Managing Director, President,
and Chief Operating Officer,
Chairman - Management Council

Mohandas Pai T. V.
Senior Vice President and
Head - Finance & Administration,
Secretary - Management Council

Ajay Dubey
Vice President - Strategic Business Unit-2

Ashwani K. Khurana
Senior Vice President and
Head - Sales and Support, Banking Business Unit

Balasubramanian P. Dr.
Senior Vice President and
Head - Strategic Business Unit-2

Dinesh K.
Director and Head - Quality & Productivity and MIS

Girish G. Vaidya
Senior Vice President and Head, Banking Business Unit (SBU-6)

Gopalakrishnan S.
Deputy Managing Director and
Head - Customer Delivery and Technology

Hema Ravichandar
Senior Vice President and
Head - Human Resource Development

Jan DeSmet
Vice President - Consulting Services and
Head - Strategic Business Unit-4

Phaneesh Murthy
Senior Vice President and Head - Worldwide Sales

Prabhu M. S. S. Dr.
Senior Vice President and Head - Strategic Business Unit-7

Raghavan N. S.
Joint Managing Director and Head - Human Resources Development,
and Education & Research

Raghavan S.
Associate Vice President and Head - Quality & Productivity

Raghupathi G. Bhandi
Vice President - Strategic Business Unit-9

Rajiv Kuchhal
Associate Vice President and Head - Strategic Business Unit-8

Shibulal S. D.
Director and Head - Strategic Business Units 1 and 5

Srinath Batni
Senior Vice President and Head - Strategic Business Unit-3

Vasudeva Rao L.
Vice President - Strategic Business Unit-1

Yegneshwar S. Dr.
Associate Vice President and Head - Education & Research
<PAGE>
 
Directors' report
--------------------------------------------------------------------------------
To the Members,

Your directors are pleased to present their report on the business and
operations of your company for the year ended March 31, 1999.


Financial results                                                 Rs. in crore *
--------------------------------------------------------------------------------
Year ended March 31                                    1999                1998
--------------------------------------------------------------------------------
Total revenue                                         512.74              260.37
Operating profit (PBIDT)                              191.75               88.61
Interest                                                   -                   -
Depreciation                                           35.89               22.75
Profit before tax from ordinary activities            155.86               65.86
Provision for tax                                      22.94                5.50
Profit after tax from ordinary activities             132.92               60.36
Extraordinary income                                    2.34                   -
Net profit                                            135.26               60.36
--------------------------------------------------------------------------------
Appropriation
Interim dividend paid                                   4.00                1.76
Dividend recommended - final                            8.11                5.27
Total dividend                                         12.11                7.03
Dividend tax                                            1.21                0.70
Transferred to capital reserve                          2.34                   -
Transferred to general reserve                        119.60               52.63
--------------------------------------------------------------------------------
* Rs. One crore equals to Rs. 10 million.

Results of operations

Your company continued its rapid growth during this year as well. Total revenue
has grown to Rs. 512.74 crore during the current year from Rs. 260.37 crore, a
growth rate of 96.93%. The operating profit has grown to Rs. 191.75 crore
(37.40% of total revenue) from Rs. 88.61 crore (34.03% of total revenue), a
growth rate of 116.39%. The operating profit margins have increased due to
enhanced revenue productivity, lower growth in administrative expenses and a
broadening of the business mix. Profit after tax, from ordinary activities, has
increased to Rs. 132.92 crore (25.92% of total revenue) from Rs. 60.36 crore
(23.18% of total revenue), an increase of 120.19%. An extraordinary income of
Rs. 2.34 crore (net of tax of Rs. 0.29 crore) was realized from the sale of part
of your company's holding in preferred stock in its subsidiary Yantra
Corporation.

Your company has instituted a contingency plan to meet any possible disruption
in its business due to the Y2K impact on the technology and communication
infrastructure provided to the company by its service providers. A provision of
Rs. 6.66 crore has been made towards such a contingency. The losses incurred by
Yantra Corporation, exceed your company's contribution to its capital. As a
result, a provision of Rs. 7.06 crore has been made, as a matter of prudence.
The provision for income tax has increased, as a percentage of total revenue, to
4.47% due to increase in income taxes payable outside India.

During the current year, your company revised the estimate of useful lives of
buildings (software center and others) from 28 years and 58 years to 15 years,
resulting in an additional charge for depreciation of Rs. 0.42 crore. A capital
expenditure of Rs. 71.68 crore was incurred, compared to Rs. 34.41 crore in the
previous year.

Dividend

An interim dividend of Rs. 2.50 per share (25% on par value of Rs. 10), was paid
in November 1998. Your directors, now, recommend a final dividend of Rs. 5.00
per share (50% on par value of Rs. 10), pro rata, making in all, a total
dividend of Rs. 7.50 per share (75% on par value of Rs. 10), pro rata, for the
current year. The total
<PAGE>
 
amount of dividend is Rs. 12.11 crore as against Rs. 7.03 crore for the previous
year. Dividend (including dividend tax), as a percentage of net profit after tax
from ordinary activities, is 10.02% as compared to 12.81% in the previous year.
The dividend is payable, pro rata, on the bonus shares and the ADS listed on the
NASDAQ. Under the Indian Income Tax Act 1961, the receipt of dividend is
tax-free in the hands of the shareholders. The tax on distributed profits,
payable by the company, increased to Rs. 1.21 crore from Rs. 0.70 crore.

ADS (American Depositary Shares) issue

In the previous year, your directors had announced their intention to seek a
listing on a stock exchange in the United States. Government approvals were
received for this issue as well as for the issue of ADS-linked stock options
during the year. Infosys became the first Indian-registered company to be listed
on a stock exchange in the United States when it listed its American Depositary
Shares (ADS) on the NASDAQ on March 11, 1999. The issue was priced at US$ 34 per
ADS in the ratio of 2 ADS per equity share corresponding to a price of Rs. 2,890
per equity share, a discount of 9.72% to the closing price on the NSE on March
11, 1999. An amount of US$ 70.38 million (Rs. 296.86 crore) was realized through
the issue of 2.07 million ADSs. The ADSs have quoted above the issue price since
the listing day.

Increase in share capital

During the year, upon your approval, a bonus issue of 1:1 was made by
capitalizing a sum of Rs. 16,01,72,000 from the general reserve. The paid-up
capital also increased by Rs. 1,03,50,000 consequent to the listing of the ADSs
on the NASDAQ. In all, the issued, subscribed and paid-up capital increased by
Rs. 17,05,22,000 with the issue of 1,70,52,200 equity shares of Rs. 10 each. To
provide for the issue of these additional shares, the authorized capital of your
company was increased to Rs. 50,00,00,000 consisting of 5,00,00,000 shares of
Rs. 10 each.

Business

The software export market continued to be buoyant during the year. Exports from
India grew rapidly. Opinion is divided on whether the export market for Indian
firms will continue to grow at the current high rates after the ebbing of the
Year 2000 conversion opportunity. Your company has a clear de-risking model for
its business through a breadth of service offerings and has used Year 2000
conversion services business as an entry opportunity to new marques clients.
Therefore, it is not likely to witness a significant slowdown in business due to
the ebbing of the Year 2000 conversion opportunity. Your company's software
export revenue grew by 99.35% to Rs. 500.25 crore from Rs. 250.94 crore. 39 new
clients were added during the year. Your company invested Yen 24 million (Rs.
0.75 crore) during the current year in JASDIC Park Company furthering the
relationship with JASDIC. New markets in Europe were also opened up. Your
company continues to focus on offshore software development, maintenance and
products. During the year, there were 137 new installations of Bancs2000 across
nine banks. The share of the fixed-price component of the business is 36%, same
as in the previous year. Revenue productivity also grew during the year in tune
with your company's strategy.

Branding of services

Our strategy for branding services (such as creating tools, techniques, and
methodologies, and training people to execute such projects as well as
proactively marketing them) has been successful. In2000(R) is the service
created as a solution for the millennium problem. InEuro is the service created
for conversion to Euro currency. IntERPryz is the ERP package implementation
service. InRevive is the service for reengineering of existing systems. All
these services have performed satisfactorily during the year. We see continued
opportunity for all the services except In2000(R). The contribution of the
In2000(R) practice declined approximately to 20% of the total revenue as
compared to 23% in the previous year. However, clients with whom we built a
relationship using In2000(R) as an entry strategy have given us business in
mainstream areas of development, reengineering and maintenance. It is our
intention to further reduce the contribution from the In2000(R) practice to the
total revenue, as we move forward into the next year. The rapid growth of the
Internet has opened a new market segment. In
<PAGE>
 
the previous year, your company had initiated an Internet and E-Commerce
solutions practice. During this year, the revenue from this practice grew to Rs.
18.97 crore making up 3.7% of the total revenue.

Domestic market

The economic slowdown witnessed last year continued during this year also. Yet,
sales opportunities for Bancs2000 in India improved during the year. The revenue
from Bancs2000 during 1998-99 increased by 24.18% over the previous year. Your
directors hope that this trend will accelerate in the future. Your company
hosted BancIT 1998 as a platform to bring banking and technology professionals
together to discuss issues of leveraging technology advances for business
growth. Your company proposes to make BancIT an annual event. There were 370
installations (across 18 banks) of Bancs2000 in India, as on March 31, 1999.

Overseas branches

Marketing efforts were enhanced by the opening of a new sales office in Seattle
in the US and moving the Maastricht office to Frankfurt, Germany. During the
coming year, additional sales offices are expected to be opened in North America
and Europe. Expansion of the overseas marketing network will enable the opening
of new markets and broadening of the client base. As at the year-end, your
company has thirteen marketing offices overseas (nine in the US, one each in
Canada, Germany, the UK, and Japan).

Yantra Corporation

The sales effort at Yantra has been further intensified. Such accelerated effort
requires funds as well as close links with prospective-client and
prospective-employee networks. To meet additional cash requirements, Yantra
issued 4.8 million shares of preferred stock at US$ 1.25 per stock to raise 
US$ 6 million. Several investors expressed a desire that Infosys bring its 
economic interest in Yantra to below 50% for independent operations. Hence, your
company sold 1,363,637 shares from its preferred stock holding in Yantra
corporation at US$ 1.10 per share (cost price for Infosys was US$ 0.75 per share
in October 1997). The profit on sale arising due to exchange differences and
also higher price realization has been disclosed as extraordinary income due to
its non-recurring nature. As Yantra continues to be a subsidiary under the
Companies Act, 1956, your company has provided fully towards its investment in
Yantra as the losses in Yantra have exceeded your company's investment. The
revenue of Yantra has grown significantly in the year under report and your
directors are informed that Yantra is on the growth path.

JASDIC

JASDIC Park Company is an Indo-Japanese consortium founded by Mr. Kenichi Ohmae,
the well-known management strategist and author, along with a few Japanese
companies and three Indian companies including your company. The aim of JASDIC
Park is to provide high-quality software services from India to the Japanese
market. This is in line with your company's strategy to diversify its geographic
client base. During the year, your company invested Yen 24 million (Rs. 0.75
crore) in the equity of JASDIC Park. Such an investment has increased the client
base in Japan and shows promise of further growth.

New development centers and infrastructure

The progress on the new software development center - Infosys Park - at
Electronics City, Bangalore, adjoining the existing facility, has been
satisfactory. Four blocks, with a built-up area of 1,67,600 square feet and a
seating capacity for up to 1,215 employees, have become operational during the
year, along with a power generation block. The fifth software development block,
a food court and additional recreational facilities will become operational
during the first quarter of 1999-2000. This state-of-the-art facility, including
the corporate block and a library, is expected to be completed by December 1999.

Your company inaugurated its second software center at Chennai in November 1998.
This facility is spread over 23,000 square feet and has the capacity to seat up
to 240 employees. Your company has also acquired 20 acres of land at Pune
Infotech Park, Hinjawadi, Pune, and has begun the construction of a new software
development 
<PAGE>
 
campus. The first phase of the project includes four software blocks, a computer
center, a food court and recreational facilities with a built-up area of over
1,83,000 square feet. Eventually, this campus is expected to accommodate over
2,000 employees. Over the next two-to-three years, your company expects to add
8,90,000 square feet (including the above development centers) of space to house
over 6,000 software professionals.

Quality

The pursuit of quality at Infosys is relentless. The metrics database has
expanded considerably during the year. The Quality Systems Documentation (QSD)
was enhanced to include processes for the development and maintenance of
software for engineering applications. The Bhubaneswar development center and
the engineering services group received ISO 9001/TickIT certification in
November 1998. The banking unit received certification to Level 4 of the
Capability Maturity Model of the Software Engineering Institute, USA.

The new information infrastructure

During the third quarter, your company went live on R/3 - SAP's end-to-end
integrated business solution for erecting an enterprise-wide information
infrastructure. The implementation was completed in just over 5 months -- one of
the fastest implementations in the world. Infosys managed the entire project
primarily using internal resources and expertise.

Additional information to shareholders

In earlier years, your company had provided additional information in the form
of an Intangible assets scoresheet, Human Resources Accounting, Value-Added
analysis, Brand Accounting, Economic-Value-Added analysis and financial
statements according to the GAAP of six countries in addition to the US and
India. Such information is provided in the current year also.

Corporate governance

With increasing globalization, there has been a renewed thrust on corporate
governance in India. Your company has been a pioneer in benchmarking its
corporate governance policies with the best in the world. Your company's efforts
in this direction have been widely recognized by the investors in India and
abroad. As in earlier years, a compliance report on the Code of Best practices
in Corporate Governance adopted by the Confederation of Indian Industry (CII)
and on the recommendations of the Cadbury Committee has been included in this
report. In addition, your directors have stated your company's internal policies
on corporate governance. The increasing diversity of the investing community and
the integration of global capital markets make corporate governance a key issue
in the investment decisions of our investors.

Capital market developments

During the year, Infosys became a part of the 30-share Sensitive Index (Sensex)
of the Stock Exchange, Mumbai. Your company has, for the last three years, been
a part of the BSE Dollex of the Stock Exchange, Mumbai, and S&P CNX NIFTY Index
of the National Stock Exchange. The Securities and Exchange Board of India
(SEBI) mandated the trading of Infosys shares only in the dematerialized form
with effect from January 4, 1999. Over 77% of the company's shares are presently
held in electronic form. As stated earlier, 2.07 million American Depositary
Shares (ADSs) representing 1.035 million equity shares are listed on the NASDAQ
in the United States. The market capitalization of your company increased to Rs.
9,672.80 crore as on March 31, 1999 as compared to Rs. 2,963.42 crore as on
March 31, 1998, based on the quotations on the Indian stock exchanges. The
equity shares listed on the NASDAQ continue to quote at a premium to the Indian
price.

Employees Stock Offer Plan (ESOP)

The Employees Stock Offer Plan, initiated in 1994, has been successful in
enhancing employee commitment and reducing attrition. As on March 31, 1999,
1,747 employees have become beneficiaries under this ESOP. During the year
5,71,100 letters of right were granted to 1,713 employees. With these grants,
only 54,800 shares were left to be granted. Your company also obtained the
approval of the Government of India to institute an ADS-linked,
dollar-denominated stock option plan. Consequent to the listing of the ADS on
the NASDAQ, 2,13,000 options corresponding to 1,06,500 equity shares were
granted to 36 employees, both in India and abroad, at the 
<PAGE>
 
ADS issue price of US$ 34 per ADS. The details of the options granted under the
1998 ADS-linked ESOP are given below:

--------------------------------------------------------------------------------
     Description                           Details
--------------------------------------------------------------------------------
1.   Total number of shares                Equity shares corresponding to a
                                           total grant value of US$ 50 million
2.   The pricing formula                   Not less than 90% of the fair
                                           market value as on date of grant
3.   Ratio of ADS to equity shares         One share represents two ADS 
4.   Price per option granted              US$ 34 (100% of fair market value) 
5.   Options granted during the year       2,13,000 options for 1,06,500 equity 
                                           shares 
6.   Options exercised during the year     NIL 
7.   Total number of options in force      2,13,000

8.   Grant to senior management
     Jan DeSmet               40,000       Raghupathi G. Bhandi         3,000
     Phaneesh Murthy          40,000       Rajiv Kuchhal                3,000
     Balasubramanian P.        3,000       Srinath Batni                3,000
     Hema Ravichandar          3,000       Vasudeva Rao L.              3,000
     Mohandas Pai T. V.        3,000       Yegneshwar S.                3,000
--------------------------------------------------------------------------------
     Prabhu M. S. S.           3,000       Total                     1,07,000
--------------------------------------------------------------------------------

9.   Employees holding 5% or more of the
     total number of options granted 
     during the year.                      2

In March 1999, SEBI announced a new regulatory framework for ESOPs. Your
directors have decided to place before the members, for their approval, the
creation of a new ESOP for the grant of options for up to 33,00,000 new equity
shares, to be issued, during the next few years at fair market value. Your
directors consider the ESOP to be a key instrument in implementing the business
strategy of your company.

Liquidity

A liquid balance sheet is a key element of the financial strategy of your
company. Enhanced liquidity reduces financial risk and allows a rapid shift in
direction should the market so demand. During the current year, internal cash
accruals have more than adequately covered working capital requirements, capital
expenditure and dividend payments, and have resulted in a surplus of Rs. 85.99
crore. As on March 31, 1999, excluding the funds collected under the ADS issue,
your company had liquid assets of Rs. 137.13 crore as against Rs. 51.14 crore as
at the previous year end. Including the funds collected under the ADS issue,
your company had liquid assets of Rs. 416.66 crore. These funds have been
invested both in rupee and dollar deposits with banks and financial
institutions. 

A high level of liquidity reduces return on shareholders funds. However, a
balance between high returns on funds deployed in the business and the ready
availability of cash for strategic decisions on growth will have to be
maintained. The creation of physical and technological infrastructure will take
away a significant part of the liquid assets over the next three years.

Year 2000 risks and issues

Many existing computer systems, software applications and other control devices
use only two digits to identify a year in the date field without considering the
impact of the approaching new millennium. A few software applications do not
correctly process 'leap year' dates. As a result, when corporations move to the
next millennium, such systems and applications may fail or produce erroneous
results. These applications have to be suitably remedied to correctly process
dates in the next millennium. SEBI has directed companies to provide a report on
the Year 2000 issues that affect the company's operations and the action taken
to address the Year 2000 risks. Following is the report of your directors on the
Year 2000 risks and issues.
<PAGE>
 
Client IT services and products: Your company offers software services and sells
a banking automation product - Bancs2000. Your company has evaluated each of its
IT services and software products and believes that each is substantially Year
2000 compliant. In making such evaluations, the company has utilized its
experience in providing Year 2000 compliance services to its clients. The
company has a project team that will complete Year 2000 compliance before the
end of 1999.

Internal infrastructure: The Year 2000 problem may affect office automation,
information and transaction processing systems, computers and other information
devices used by the company to operate and monitor all major aspects of its
business including quality, client service, sales and marketing, finance, human
resources development, infrastructure, materials requirement planning, master
project scheduling, data communications and telecommunications facilities. This
year, your company switched over to R/3, SAP's enterprise-wide integrated
information system. This system has been certified by the suppliers as being
Year 2000 compliant. Your company has identified and initiated action to remedy
other major systems, software applications and related equipment used for its
internal operations.

Third party suppliers: Your company relies directly and indirectly on computer
software systems utilized by its suppliers of telecommunications, power, water,
electronic hardware and software products. The global delivery model adopted by
your company requires voice and data communication facilities between its main
offices in Bangalore, the offices of its clients and its other software
development facilities. Although your company maintains redundant software
facilities and satellite communication links, any sustained disruption of your
company's ability to transmit voice and data through satellite and telephone
communications would have a material adverse effect on the company's business,
results of operations and financial condition. To assess the supplier-readiness
for handling the Year 2000 issue, the company has sent two separate
questionnaires to a majority of its third party suppliers and has completed the
assessment process.

Operations: Your company is currently developing contingency plans to address
the Year 2000 issues that may pose a risk to its operations and expects such
plans to be completed in the first quarter of 1999-2000. Such plans may include
accelerated replacement of any remaining affected systems or software, temporary
use of redundant or back-up systems or the implementation of manual procedures.
Your company believes that the likely worst case scenario, should Infosys
vendors not achieve Year 2000 compliance, is the intermittent or temporary
disruption in telecommunications which could cause inefficiencies and delays in
providing support services to clients. To minimize the impact of any potential
telecommunications disruptions, your company is evaluating temporary measures
such as placing additional IT professionals at client sites. In assessing the
worst case scenario, your company has taken into account the nature of its
operations as well as the availability of its IT professionals to attend to any
internal problems that may arise. Your company has made a provision of Rs. 6.66
crore towards this contingency plan and propose to provide a total of Rs. 20
crore till March 31, 2000, subject to periodic evaluation. 

Organizational changes 

Mr. Nandan M. Nilekani was appointed by the board as the managing director,
president, and chief operating officer. He looks after all day-to-day operations
and reports to Mr. N. R. Narayana Murthy who continues as the chairman and chief
executive officer.

Ms. Hema R. Ravichandar rejoined your company as Senior Vice President and Head,
(HRD). Mr. Girish Vaidya joined Infosys as Senior VP and Head, Banking Business
Unit. A new strategic business unit - SBU 9 - was added during the year to focus
on ERP services with Mr. Raghupathi G. Bhandi as its head. Another strategic
business unit - SBU 4 - was also created this year to provide consulting
services based in the US. Mr. Jan DeSmet was appointed Vice President,
Consulting Services to head this SBU. These organizational changes reflect the
continued efforts made by your directors to meet the challenges ahead. 

Research and educational initiatives 

Your company has instituted the Infosys Fellowship Program at five Indian
Institutes of Technology, the Indian Institute of Science, the National Center
for Software Technology, Pune University, three Indian Institutes of Management,
the National Law School of India University and the Institute of Chartered
Accountants of India 
<PAGE>
 
for Ph.D. programs in computer science, management, law and accounting. This is
part of your company's initiative to foster excellence in education. Twenty-six
fellowships have been instituted (at two fellowships per institution) at a total
cost of Rs. 2.34 crore during the year. 

Infosys Foundation 

To further your company's commitment to the social causes of our milieu, Infosys
Foundation was promoted last year by your company as a not-for-profit trust. The
focus of this foundation is to help organizations devoted to the cause of
destitutes, disadvantaged people, spastics, rural poor, senior citizens, and
illiterates. A sum of Rs. 136.00 lakhs was paid to the Foundation during
1998-99, and a sum of Rs. 146.20 lakhs was utilized by the Foundation towards
various social causes. A summary of the work of the Foundation appears elsewhere
in this report. On your behalf, your directors thank the honorary trustees for
sparing their valuable time and energy for the activities of the Foundation.

Community services 

Your company continued the three social programs initiated last year -- Catch
them Young, Train the Trainer and Rural Reach. We are glad to report
satisfactory progress. The 'Rural Reach' program taught village children to use
computers, the 'Catch them Young' program selected promising students for
intensive computer training, and the 'Train the Trainer' program familiarized
college lecturers with advances in the IT industry. This year, your company,
along with Microsoft, launched a new program - Computers@Classrooms. As part of
this initiative, your company committed a donation of 433 computers from its
purchases in earlier years to 154 institutions in various states of India. In
addition, Infosys development centers outside Karnataka will each give 50 PCs to
educational institutions in their respective areas.

Awards

Your directors are happy to report on some of the awards that your company
received during the year.

a.  Infosys won the maiden 'Company of the Year' award instituted as part of The
    Economic Times Awards for Corporate Excellence 1998. The contribution made
    by Infosys towards corporate excellence in enhancing stakeholder values and
    in pushing the frontiers of technology was recognized by a readers' poll and
    a CEO's poll conducted by the Times of India group, the publishers of The
    Economic Times.
b.  For the third year in succession, your company received the Silver Shield
    from the Institute of Chartered Accountants of India for the Best Presented
    Accounts, amongst the entries received from non-financial, private sector
    companies, for the year 1996-97.
c.  The AsiaMoney magazine poll of financial analysts voted Infosys the best in
    management among the listed companies in India for the third time and the
    fifth best in Asia.
d.  The South Asian Federation of Accountants (SAFA) presented Infosys with the
    Award for Excellence for the Best Corporate Report in the non-financial
    sector for the year 1996-97.
e.  National Export Award by the Ministry of Commerce, Government of India, for
    outstanding performance in 1996-97 and 1997-98.
f.  All India ESC Award for Excellence in Export (Electronics and Computer
    Software Export Promotion Council, sponsored by Ministry of Commerce) for
    the year 1996-97.

Fixed deposits

Your company has not accepted any deposits and, as such, no amount of principal
or interest was outstanding on the date of the Balance Sheet.

Directors

According to the terms of Article 122 of the Articles of Association, Mr. N. S.
Raghavan, Mr. S. Gopalakrishnan, and Mr. S. D. Shibulal retire by rotation in
the forthcoming Annual General Meeting, and being eligible, offer themselves for
re-appointment.
<PAGE>
 
Auditors

The auditors, Bharat S Raut & Co. Chartered Accountants, retire at the
forthcoming Annual General Meeting and have confirmed their eligibility and
willingness to accept the office, if re-appointed.

Conservation of energy, research and development, technology absorption, foreign
exchange earnings and outgo

The particulars as prescribed under subsection (1)(e) of section 217 of the
Companies Act, 1956, read with the Companies (Disclosure of particulars in the
report of board of directors) Rules, 1988, are set out in the annexure included
in this report.

Particulars of employees

As required under the provisions of section 217(2A) of the Companies Act, 1956,
read with the Companies (Particulars of employees) Rules, 1975, as amended, the
names and other particulars of employees are set out in the annexure included in
this report.

Acknowledgments

Your directors thank the clients, vendors, investors and bankers for their
continued support of your company's growth. Your directors place on record their
appreciation of the contribution made by the employees at all levels, who,
through their competence, hard work, solidarity, co-operation and support, have
enabled the company to achieve rapid growth.

Your directors thank the Government of India, particularly the Department of
Electronics, the Customs and Excise departments, Software Technology Parks -
Bangalore, Chennai, Pune, Bhubaneswar and New Delhi, the Ministry of Commerce,
RBI, VSNL, the Department of Telecommunications, the state governments, and
other governmental agencies for their support during the year, and look forward
to their continued support.

                                For and on behalf of the board of directors

                                               Sd                             Sd
Bangalore                      Nandan M. Nilekani          N. R. Narayana Murthy
April 9, 1999        Managing Director, President                       Chairman
                      and Chief Operating Officer    and Chief Executive Officer
<PAGE>
 
Annexure to the directors' report
--------------------------------------------------------------------------------

a)    Particulars pursuant to Companies (Disclosure of particulars in the report
      of board of directors) Rules, 1988

1.    Conservation of energy

      The operations of your company are not energy-intensive. Adequate measures
      have, however, been taken to reduce energy consumption by using
      energy-efficient computer terminals and by the purchase of
      energy-efficient equipment incorporating the latest technology. Your
      company has replaced the existing incandescent lamps with CFL fittings and
      has shifted to the use of electronic ballast to reduce the power
      consumption of fluorescent tubes. Your company constantly evaluates new
      technologies and invests in them to make its infrastructure more
      energy-efficient. Energy-efficient transformers and UPS systems have been
      purchased. Energy-saving air conditioners are being purchased and
      air-conditioned areas have been treated with heat-resistant material to
      reduce heat absorption. These measures have enhanced energy efficiency. As
      energy cost forms a very small part of the total cost, the impact on cost
      is not material.

2.    Research and Development (R & D)

      Your company continues to make investments in research and development
      activities that are crucial to the company's continued success. Your
      company is recognized as a leader in innovation in all aspects of business
      - both technical and non-technical. Your company will continue to innovate
      through research and development in order to maintain its leadership
      position.

      a.    R & D initiative at institutes of national importance

      This initiative has been described in the Directors' report.

      b.    Specific areas for R & D at Infosys

      Since businesses and technologies are changing constantly, continuous
      investments in research and development need to be made. Your company has
      taken the approach that its research must be beneficial to the company and
      to its clients either in the short term or in the medium term. As in
      earlier years the your company continues to do research in the areas of
      software engineering, offshore project management, the global delivery
      model, emerging technologies, new tools and techniques and product lines.
      Your company has also initiated research in the area of education and
      training delivery. Continuous education is required to keep up with
      changes around. The traditional form of classroom training is synchronous,
      and requires the trainer and trainee to be physically present in the same
      location at the same time. Effectiveness of non-traditional and
      asynchronous modes of training is an area of research at your company.

      Your company has, as a result of research, been able to develop processes
      and methodologies for engineering services. This was instrumental in your
      company getting quality certification for the engineering services group.
      A consulting methodology has been developed. Research has been initiated
      in the areas of software architecture and performance engineering. This is
      to help projects deliver high performance/high transaction volume software
      solutions to clients. Research has also been started in object and
      component technologies to create modules for repeatability of projects.
      Your company continues to undertake research in the following areas:

            o     General software engineering - This includes development and
                  refinement of methodologies, tools and techniques,
                  implementation of metrics, improvements in the estimation
                  process, and adoption of new technologies. These will improve
                  quality and productivity on an ongoing basis.

            o     Branded services - Branding involves creating tools and
                  reusable components for enhancing the quality and productivity
                  of each service, preparing training material for quick
                  enabling of programmers and analysts, and producing marketing
                  and sales collateral for efficiency in selling.
<PAGE>
 
            o     New technologies - Technology is changing constantly and
                  businesses need to leverage the latest technologies for
                  creating competitive advantages. Your company will continue to
                  research these technologies, absorb them for internal use, and
                  create services, which can then help clients be successful.

            o     Products - Your company will continue to improve its existing
                  products and enhance the power of these products.

            o     Management techniques - Your company has pioneered the use of
                  several leading-edge management principles in the software
                  industry in India, and will continue to innovate in these
                  areas.

      c.    Benefits derived as a result of the above R & D

      Your company has seen continued improvements in revenue productivity due
      to the above effort. Your company has so far been able to maintain its
      margins despite increasing manpower costs. Services like In2000(R) (to
      address the Year 2000 problem), migration to new technologies,
      Eurocurrency conversion, and ERP package implementation services are some
      of the business benefits of the R & D effort. 

      The Internet services group has started offering network security audit
      and implementation services. This addresses one of the biggest concerns of
      information technology executives - how to provide a secure technology
      infrastructure when there is a need to integrate the internal systems with
      external systems. BankAway has been successfully installed at a bank in
      India.

      d.    Future plan of action

      There will be continued focus and investment in the above categories of R
      & D. Future benefits are expected to flow in from the initiatives
      undertaken this year.

      e.    Expenditure on R & D for the year ended March 31        Rs. in crore
      --------------------------------------------------------------------------
                                                            1999           1998
      --------------------------------------------------------------------------
      Revenue expenditure                                   9.51           4.63
      Capital expenditure                                   0.30           0.71
      Total R & D expenditure                               9.81           5.34
      R & D expenditure as a percentage of total revenue    1.91%          2.05%
      --------------------------------------------------------------------------

3.    Technology absorption, adaptation and innovation

      As technologies change rapidly, your company continues to invest in new
      technologies in order to leverage them for improving productivity and
      quality. It is essential to have a technology infrastructure that is on
      par with the best in the world. Your company has upgraded its NT and UNIX
      servers, and added several IBM AS/400 systems. The current standard for
      the desktop environment is Pentium II 350 MHz with 64MB of RAM, 4 GB of
      storage capacity, 32x CD ROM, 15 inch color monitor and Windows98. Senior
      managerial and project staff use notebook computers during client
      interactions.

      Your company continues to invest in additional telecommunications links to
      connect to clients as well as to its various development centers in India.
      ISDN lines have been added as a backup facility at all the development
      centers and this technology would be used in future to harness video
      conferencing facility at all development centers outside Bangalore. With
      the implementation of Unicenter/TNG at all centers, your company is able
      to manage its network better. At its campuses, gigabit ethernets have been
      installed to connect buildings with 100Mbps between servers, and 10Mbps
      from the servers to the desktop using level 3 switched technology. Such
      high bandwidth is required on the campus network since the network traffic
      in future will contain video, audio, still images and data. Collaborative
      software development requires good communication capabilities - desktop
      video, real video / audio broadcasting and chat.
<PAGE>
 
      Your company has invested in CASE tools like Rational Rose; testing tools
      like Purify, Quantify, SQA and Teamtest; integrated development and
      re-engineering tools like Cobol Analyst, and Revolve to improve the
      quality and productivity of projects.

      Your company is setting up concept centers in order to showcase technology
      in action. It has already set up the Banking Concept Center where a
      visitor can understand how technologies like ATM, Internet Kiosk, and
      Internet Banking work together with existing technologies.

4.    Foreign exchange earnings and outgo

      a.    Activities relating to exports, initiatives taken to increase
            exports, development of new export markets for products and
            services, and export plans

      Your company has always had a predominant export focus. In 1998-99, 97.57%
      of the revenues came from exports. Your company has, over the years, built
      up a substantial direct marketing network all over the world. The
      marketing offices are situated in North America, Europe and Asia, and are
      staffed with sales and marketing people who directly sell your company's
      services to large, international clients. The export thrust of your
      company will continue in the future. During the year, your company opened
      an office in Seattle, US, and moved its European office from Maastricht to
      Frankfurt, Germany. The Banking Business Unit has expanded its client base
      to Africa, Sri Lanka, Seychelles and Mauritius.

      Your company has launched a plan to increase the awareness of the Infosys
      brand, and of its products and services, globally. Several press and
      public relations exercises have been launched in the US to enhance your
      company's visibility. Your company plans to take part in several
      international exhibitions to promote its products and services.

      The long-term goal of your company is to be a highly respected name in the
      global market for its services and products, and to continue to realize a
      significant portion of its revenue from exports.

      b.    Foreign exchange used and earned for the year ended 
            March 31                                                Rs. in crore
      --------------------------------------------------------------------------
                                                          1999             1998
      --------------------------------------------------------------------------
       Foreign exchange earnings                         477.44           226.12
       Foreign exchange outgo                            192.56            98.65
         (including capital goods and imported software packages)
      --------------------------------------------------------------------------

                                For and on behalf of the board of directors

                                               Sd                             Sd
Bangalore                      Nandan M. Nilekani          N. R. Narayana Murthy
April 9, 1999        Managing Director, President                       Chairman
                      and Chief Operating Officer    and Chief Executive Officer
<PAGE>
 
Annexure to the directors' report
--------------------------------------------------------------------------------
Information as per Section 217(2A) of the Companies Act, 1956, read with the
Companies (Particulars of employees) Rules, 1975, and forming part of the
Directors' Report for the year ended March 31, 1999
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------

  Sl. Name                         Designation                           Qualification                       Age     Date of joining

  No.                                                                                                      (Years)                  

                                                                                                                                    

------------------------------------------------------------------------------------------------------------------------------------

<S>                              <C>                                   <C>                                    <C>       <C>         

  1.  Ajay Dubey                 Vice President                        B.Tech. (IITK)                         41        07.06.1993  

  2.  Ashwani Kumar Khurana      Senior Vice President                 B.Tech. (IITD)                         48        01.02.1994  

  3.  Balakrishnan V.            Senior Manager (Finance)              B.Sc., ACA, ACS, AICWA                 34        02.09.1991  

  4.  Balasubramanian P. Dr.     Senior Vice President                 M.Tech. (IITM), Ph.D (Purdue)          49        01.10.1995  

  5.  Bhandi R. G.               Vice President                        B.E., M.Tech. (IITK)                   38        07.07.1988  

  6.  Bhashyam M. R.             Senior Manager (Quality)              M.E.                                   48        07.07.1995  

  7.  Bibhu R. Pattanayak        Senior Project Manager                M.Tech. (IITM)                         41        11.08.1997  

 *8.  Bikramjit Maitra           Senior Project Manager                B.Sc., B.Tech.                         44        22.02.1999  

  9.  Binod H. R.                Senior Manager (Commercial)           B.E.                                   36        02.08.1993  

*10.  C. S. Srinivas             Associate Vice President              B.E.                                   42        15.10.1998  

*11.  Chandra Shekar Kakal       Senior Consultant                     B.E., MBA                              38        01.03.1999  

 12.  Col. Krishna C. V.         Advisor (Infrastructure)              B.E., MBA                              52        01.04.1998  

 13.  Dheeshjith V. G.           Senior Project Manager                B.Sc., M.E. (IISc)                     34        14.09.1987  

 14.  Dinesh K.                  Director                              M.Sc.                                  43        01.09.1981  

*15.  Girish G. Vaidya           Senior Vice President (BBU)           B.E., PGD (IIMC)                       48        22.01.1999  

 16.  Gopalakrishnan S.          Deputy Managing Director              M.Tech. (IITM)                         43        18.10.1994  

*17.  Hema Ravichandar           Senior Vice President (HRD)           BA, PGD (IIMA)                         37        30.12.1998  

 18.  Krishnamoorthy A. S.       Associate Vice President              B.Tech. (IITM), M.Sc.                  37        10.01.1986  

 19.  Krishnamurthy T. S.        Senior Project Manager                B.E.(Hon.)                             36        26.10.1987  

 20.  Mallya P. D.               Associate Vice President              M.Tech. (IITM)                         44        15.12.1986  

 21.  Merwin Fernandes           Senior Manager                        B.Com.                                 39        06.08.1997  

                                 (Sales & Marketing)
 22.  Mohan M. M.                Senior Manager (HRD)                  B.Com., PGDBM                          53        11.07.1992  

 23.  Mohandas Pai T. V.         Senior Vice President (F&A)           B.Com., LL.B, FCA                      40        17.10.1994  

 24.  Nandan M. Nilekani         Managing Director, President          B.Tech. (IITB)                         43        01.09.1981  

                                 and Chief Operating Officer
 25.  N. R. Narayana Murthy      Chairman and                          M.Tech. (IITK)                         52        01.04.1982  

                                 Chief Executive Officer
 26.  Padmanabhan D.             Senior Project Manager                B.Sc.                                  36        02.11.1992  

 27.  Parameswar Y.              Senior Project Manager                B.E., M.Tech. (IITK)                   42        14.10.1996  

 28.  Prabhu M. S. S. Dr.        Senior Vice President                 B.E., Ph.D (IISc)                      51        01.08.1997  

*29.  Prahlad D. N.              Senior Vice President                 B.E. (IISc)                            43        01.04.1989  

 30.  Pravin Rao U. B.           Associate Vice President              B.E.                                   37        04.08.1986  

 31.  Priti J. Rao               Senior Project Manager                M.Sc. (IITB)                           39        02.07.1997  

 32.  Raghavan N. S.             Joint Managing Director               B.E.                                   55        01.09.1981  

 33.  Raghavan S.                Associate Vice President              B.E.                                   37        16.04.1987  

                                 (Quality)
*34.  Rajan N. V.                Associate Vice President              B.Sc., PGDPM (XLRI)                    40        20.01.1997  

                                 (HRD)

<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
  Sl.  Experience         Gross          Previous employment - Designation
  No.    (Years)     Remuneration
                             (Rs.)
-----------------------------------------------------------------------------------------------------------------------
<S>        <C>         <C>               <C>
  1.       17          7,82,519.00       ANZ Bank, New Zealand - Technical Team Leader
  2.       26         10,65,613.00       Infosys Digital Systems Pvt. Ltd. - Managing Director
  3.       14          6,06,581.00       AMCO Batteries Ltd. - Senior Accounts Executive
  4.       26         12,45,693.00       Hitek Software Systems Ltd. - Technical Director
  5.       15          8,65,925.00       Wipro Infotech Ltd. - Systems Engineer
  6.       25          6,54,725.00       Aeronautical Development Agency - Scientist
  7.       16          6,36,068.00       Universal Card, USA - Project Manager
 *8.       19            62,850.00       R. S. Software - Vice President, Technology
  9.       13          6,10,032.00       Motor Industries Company Ltd. - Senior Engineer (Technical Sales)
*10.       16          3,06,209.00       Textronics - India Engg. Manager
*11.       16            51,327.00       Ramco Systems - Product Manager
 12.       23          6,01,162.00       Indian Army - General Engineering
 13.       11          6,25,087.00       -
 14.       23         12,72,496.00       Patni Computer Systems Pvt. Ltd. - Senior Software Engineer
*15.       24          2,31,532.00       ANZ Grindlays - Director and Head Operations India
 16.       19         12,53,711.00       Sofware Sourcing Company, Atlanta, USA - Vice President (Technical)
*17.       15          2,38,290.00       Empower Associates (HR Consultancy) - Proprietrix
 18.       15          6,61,579.00       Urban Transport Dev. Corp., Canada - Research Asst.
 19.       14          6,18,428.00       Zenith Electro Systems Pvt. Ltd. - Software Executive
 20.       21          6,59,726.00       Infosys Digital Systems Pvt. Ltd. - Associate Vice President
 21.       17          6,71,718.00       Systems Software Associates India - Regional Accounts Manager
      
 22.       29          6,10,068.00       Motor Industries Company Ltd. - Asst. Officer (HRD)
 23.       19         10,82,874.00       Prakash Leasing Ltd. - Executive Director
 24.       21         12,82,169.00       Patni Computer Systems Pvt. Ltd. - Asst. Project Manager
      
 25.       30         13,12,601.00       Patni Computer Systems Pvt. Ltd. - Head (Software Group)
      
 26.       15          6,26,555.00       PSI Data Systems Ltd. - Product Support Manager
 27.       19          6,26,246.00       C-DOT - Divisional Manager
 28.       25         11,65,425.00       Tata Consultancy Services - Vice President
*29.       16          5,24,992.00       Datacons Pvt. Ltd. - Project Leader
 30.       13          6,80,635.00       Indian Institute of Science - Programmer Trainee
 31.       16          6,33,750.00       Larsen & Toubro Ltd. - Systems Manager
 32.       35         12,43,081.00       Patni Computer Systems Pvt. Ltd. - Asst. Manager
 33.       15          7,00,983.00       Bharat Heavy Electricals Ltd. - Maintenance Engineer
      
*34.       16          6,42,136.00       Maxworth Home Ltd. - Associate Vice President (HRD & Legal)
</TABLE>
<PAGE>
 
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------

  Sl. Name                         Designation                           Qualification                       Age     Date of joining

  No.                                                                                                      (Years)                  

                                                                                                                                    

------------------------------------------------------------------------------------------------------------------------------------

<S>                              <C>                                   <C>                                    <C>       <C>         

 35.  Rajasekaran K. S.          Manager (Business                     M.Sc.                                  40        08.11.1983  

                                 Development, Banking)
 36.  Rajiv Kuchhal              Associate Vice President              B.Tech. (IITD)                         33        05.02.1990  

 37.  Ramadas Kamath U.          Senior Manager                        BBM, FCA                               38        01.07.1994  

                                 (Accounts & Administration)
 38.  Ravi C.                    Senior Project Manager                B.E.                                   33        02.05.1988  

 39.  Rohan Joshi                Senior Manager (Corporate             B.E., MBA                              37        02.11.1993  

                                 Business Development Support)
 40.  Seshan P.                  Senior Project Manager                B.E.(Hon.)                             37        01.06.1993  

 41.  Sharad K. Hegde            Senior Vice President                 B.Tech. (IITM), PGDIE (NITIE)          40        01.07.1983  

 42.  Shibulal S. D.             Director                              M.Sc., MS (Boston Univ.)               44        10.01.1997  

 43.  Shivaprasad K. G.          Associate Vice President              B.Sc.(Hon.), M.Sc.                     43        10.06.1996  

*44.  Sivashankar J.             Senior Manager (MIS)                  B.Tech., MMS                           39        22.01.1999  

 45.  Srinath Batni              Senior Vice President                 M.E. (IISc)                            44        15.06.1992  

 46.  Srinivasan V.              Senior Project Manager                B.Tech. (IITD)                         37        03.03.1997  

 47.  Subbaraya Sastry M.        Associate Vice President              B.Tech., PGDBM (IIMB)                  40        13.05.1995  

 48.  Sudheer K.                 Associate Vice President              B.Tech. (IITM)                         38        14.11.1986  

 49.  Vasudeva Rao L.            Vice President                        B.E.                                   37        01.08.1994  

 50.  Vijay Kumar C.             Senior Manager                        B.E.                                   37        03.11.1987  

                                 (Infrastructure Development)
 51.  Yegneshwar S. Dr.          Associate Vice President              B.E.(Hon.), Ph.D (IITB)                38        06.04.1993  

------------------------------------------------------------------------------------------------------------------------------------


<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
  Sl.  Experience         Gross          Previous employment - Designation
  No.    (Years)     Remuneration
                             (Rs.)
-----------------------------------------------------------------------------------------------------------------------
<S>        <C>         <C>               <C>
 35.       15          6,16,742.00       Voores High School - Teacher
      
 36.       12          7,26,851.00       Telecommunications Consultants (I) Ltd. - Asst. Manager
 37.       14          6,06,581.00       Manipal Printers & Publishers Ltd. - Accountant
      
 38.       11          6,13,781.00       -
 39.       12          6,45,695.00       Philips International - Junior Vice President
      
 40.       15          6,04,393.00       Infosys Manufacturing Systems Pvt. Ltd. - Asst. Project Manager
 41.       18         11,75,378.00       Patni Computer Systems Pvt. Ltd. - Software Engineer Trainee
 42.       23         12,23,336.00       Sun Micro Systems - Senior IR Manager
 43.       22          7,19,807.00       Oman Computer Services - Software Development Manager
*44.       14          1,11,581.00       Anuvin Business Solutions. - Director
 45.       21          9,73,591.00       PSI Bull Ltd. - Senior Manager (Marketing Technical Support)
 46.       13          6,03,565.00       Deutsche Software - Asst. Systems Manager
 47.       16          6,82,208.00       Verifone India Pvt. Ltd. - Manager (MIS)
 48.       14          8,00,886.00       Indian Organic Chemicals Ltd. - Programmer Analyst
 49.       14          7,69,893.00       Software Sourcing Company, Atlanta, USA - Project Manager
 50.       18          6,47,314.00       Self employed
      
 51.       11          6,74,593.00       IIM, Ahmedabad - Asst. Professor
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

NOTE:
Remuneration comprises basic salary, allowances and taxable value of
perquisites.
*Employed for part of the year.
None of the employees are related to any director of the company.

                                   For and on behalf of the board of directors

                                            Sd                                Sd
Bangalore                   Nandan M. Nilekani             N. R. Narayana Murthy
April 9, 1999     Managing Director, President                          Chairman
                   and Chief Operating Officer       and Chief Executive Officer
<PAGE>
 
Risk management
--------------------------------------------------------------------------------
The management cautions readers that the risks outlined below are not exhaustive
and are for information purposes only. Investors are requested to exercise their
own judgement in assessing various risks associated with the company and to
refer to discussions of some of these risks in the company's earlier annual
reports and Securities and Exchange Commission filings.

Prudent risk management practices form a key element of business strategy,
especially in companies characterized by high growth and innovation. As Infosys
moves towards globalizing its operations, these practices will have to be
constantly reviewed in response to changing environmental and internal
imperatives.

Infosys has an integrated approach to risk management. The board of directors is
responsible for monitoring risk levels, and the management council is
responsible for ensuring implementation of mitigation measures, if required.
Senior management personnel and line officers aid the board in this process.
Formal reporting and control mechanisms ensure timely and comprehensive
information availability and facilitate proactive risk assessment. 

The risk management system currently monitors the following risks :

      1.    Business portfolio risks
                  Service concentration
                  Client concentration
                  Geographical concentration
                  Vertical domain concentration
                  Technology concentration

      2.    Financial risks
                  Foreign currency rate fluctuations
                  Liquidity
                  Leverage

      3.    Legal and statutory risks 
                  Contractual liabilities
                  Statutory compliance

      4.    Internal process risks
                  Project execution
                  Disaster prevention and recovery
                  Technological obsolescence
                  Human resource management
                  Internal control systems
                  Acquisitive growth

      5.    Political risks

1.    Business portfolio risks

Excessive dependence on any single business segment increases risk and therefore
needs to be avoided. To this end, the company has adopted prudential norms to
prevent undesirable concentration. Systems to facilitate continuous tracking are
in place; these include on-line reports to senior management (with exception
reporting mechanisms) and detailed quarterly analyses of the data. Based on this
information, the management takes appropriate corrective steps, when required.

      1.1   Service concentration

      Infosys has an array of service offerings across various horizontal and
      vertical business segments. To prevent excessive dependence on any service
      offering that caters to one-time market opportunities, the company has
      adopted a norm to restrict business from any such service to less than 25%
      of total revenue.

      Further, these opportunities (Y2K and Euro) have been used to make inroads
      into hitherto untapped client accounts. These have resulted in a broader
      client base for other services and have also helped build fruitful,
      long-
<PAGE>
 
      term client relationships. For example, for the 13 clients who started
      their association with the company through the Y2K service, the proportion
      of FY 1999 billings from non-Y2K services is around 35%.

      1.2   Client concentration

      Excessive exposure to a few large clients has the potential to impact
      profitability and to increase credit risk. However, large clients and high
      repeat business lead to higher revenue growth and lower marketing costs.
      Therefore, the company needs to strike a balance. Infosys has chosen to
      limit the revenue from any one client to 10% of total revenue.

      In addition to increasing revenues from existing clients, Infosys actively
      seeks new business opportunities and clients to minimize concentration.
      Efforts have also been made to reduce the proportion of revenues from the
      company's top-five and top-ten clients. These steps ensure a wider client
      base and lower volatility in revenues. 

      The following table provides historical data on client concentration
      (based on Indian GAAP).

      --------------------------------------------------------------------------
                                              FY 1999  FY 1998  FY 1997  FY 1996
      --------------------------------------------------------------------------
      Active clients                            115       93       69       31
      Clients added during the year              39       45       45       17
      % revenues from the top-five clients     28.4%    35.1%    43.1%    59.7%
      % revenues from the top-ten clients      44.0%    50.1%    59.9%    77.5%
      Clients accounting for > 5% of 
         total revenue                            5        5        5        6
      --------------------------------------------------------------------------

      1.3   Geographical concentration

      A high geographical concentration of business could lead to volatility
      because of political and economic factors in target markets. However,
      individual markets have distinct characteristics - growth, IT spends,
      willingness to outsource, costs of penetration, and price points. Further,
      the cost and difficulty of penetrating new geographies is a key factor.
      Cultural issues such as language, work culture and ethics, and acceptance
      of global talent also come into play. Further, due to these business
      considerations the company has decided not to impose rigid limits on
      geographical concentration.

      This risk is managed by proactively looking for business opportunities in
      new geographical areas and thereby increasing their contribution to total
      revenues.

      The following table provides historical data relating to geographical
      concentration (based on Indian GAAP).

      --------------------------------------------------------------------------
      Geographical area               FY 1999   FY 1998     FY 1997    FY 1996
      --------------------------------------------------------------------------
      North Americas                    81.4%     81.5%       75.8%      71.6%
      Europe                             9.3%      8.9%        8.0%      12.9%
      Rest of the World                  6.9%      6.0%        1.6%       1.5%
      India                              2.4%      3.6%       14.6%      14.0%
      --------------------------------------------------------------------------
      Total                            100.0%    100.0%      100.0%     100.0%
      ==========================================================================

      1.4   Vertical domain concentration

      Vertical domains relate to the industry in which clients operate. Infosys
      has chosen to focus on certain vertical segments with a view to leverage
      accumulated domain expertise to deliver enhanced value to its clients. To
      ensure that cyclicality in any one industry does not adversely impact
      revenues, proportion of revenue from each vertical domain is closely
      monitored. Focussed marketing efforts in chosen domains serve to mitigate
      this risk.

      The following table provides historical information on the proportions of
      revenue from various domains (based on Indian GAAP).
<PAGE>
 
      --------------------------------------------------------------------------
      Industry Class                                    FY 1999         FY 1998
      --------------------------------------------------------------------------
      Manufacturing                                       24.6%           21.1%
      Insurance, Banking and Financial Services           23.3%           19.7%
      Telecom                                             14.2%           16.8%
      Retail                                              13.8%           17.6%
      Others                                              24.1%           24.8%
      --------------------------------------------------------------------------
      Total Revenue                                      100.0%          100.0%
      ==========================================================================

      1.5   Technology concentration

      Being a company exposed to rapid shifts in technology, an undue focus on
      any particular technology could adversely affect the risk profile of the
      company. However, given the rapid pace of technological change, Infosys
      has chosen not to impose rigid concentration limits. Often, the choice of
      technology is determined by industry characteristics. 

      Focussed efforts to solicit business from sunrise technologies has served
      to keep the risk on this parameter within manageable limits.

      The following table provides historical technology-related data (based on
      Indian GAAP).

      --------------------------------------------------------------------------
      Technology                                       FY 1999         FY 1998
      --------------------------------------------------------------------------
      Distributed systems                                41.5%           36.4%
      Mainframe / Mid-range                              37.1%           38.9%
      Internet                                            3.7%            0.1%
      Proprietary Telecom systems                        12.1%           19.2%
      Others                                              5.6%            5.4%
      --------------------------------------------------------------------------
      Total                                             100.0%          100.0%
      ==========================================================================

2.    Financial risks

      2.1   Foreign currency rate fluctuations

      Infosys derives its revenue from more than 20 countries around the world.
      The US constitutes a significant portion of total revenue with 88% of
      revenue in FY 1999 being dollar-denominated. A large proportion of its
      expenses are in Indian rupees. Operating profits are therefore subject to
      foreign currency rate fluctuations. While the depreciation of the Indian
      rupee would have a favorable bottom-line impact, an appreciation would
      affect the company's profitability adversely. As Infosys is a net foreign
      currency earner, it has a natural hedge on all forex-related payments.

      The table below gives the foreign currency receipts and payments.

                                                                    Rs. in crore
      --------------------------------------------------------------------------
                                              FY 1999  FY 1998  FY 1997  FY 1996
      --------------------------------------------------------------------------
      Earnings in foreign curency              477.44   226.12   114.03    74.46
      Revenue expenditure in foreign currency  162.75    79.12    42.59    26.82
      Net revenue foreign currency earnings    314.69   147.00    71.44    47.64
      Capital expenditure in foreign currency   29.81    19.53    13.58     6.53
      Net foreign currency earnings            284.88   127.47    57.86    41.11
      --------------------------------------------------------------------------

      To avoid risks arising from short-term foreign currency rate fluctuations,
      Infosys hedges a part of its dollar receivables in the forward market.
      Dollar expenses are met out of foreign currency accounts. A significant
      part of the surplus funds of the company is maintained in foreign currency
      deposits. The company does not take active trading positions in the
      foreign currency markets and operates only to hedge its receivables. Any
      bad debt write-offs in foreign currencies are effected only after
      obtaining permission from the Reserve Bank of India.

      2.2   Liquidity

      An essential part of the financial strategy of Infosys is to have a liquid
      balance sheet. The company aims to have liquid assets at 25% of revenue
      and around 40% of total assets. Operating as it does in a high technology
      area, a high level of liquidity enables quick responses to rapid changes
      in the environment.
<PAGE>
 
      Infosys also has a policy to settle its payables well within stipulated
      time frames. Further, the nature of business is such that significant
      investments may have to be made in marketing, and research and development
      activities.

      All these factors call for considerable liquidity.

      The following table gives the data on the liquidity position of the
      company based on Indian GAAP.

      --------------------------------------------------------------------------
      Ratio                                  FY 1999  FY 1998   FY 1997  FY 1996
      --------------------------------------------------------------------------
      Operating cash flow as % of revenue     30.98%   22.19%    16.95%   24.95%
      Days of sales receivable                   61       57        47       46
      Cash and equivalents as % of assets     72.51%   29.57%     25.5%   35.41%
      Cash and equivalents as % of revenue    81.26%   19.64%     20.01%  31.88%
      --------------------------------------------------------------------------

      2.3   Leverage

      Infosys has been a zero-debt company for the past 3 financial years.
      Currently, the company has a policy to use debt financing only for
      short-term funding requirements.

3.    Legal and statutory risks

      3.1   Contractual liabilities

      Litigation regarding intellectual property rights, patents and copyrights
      is increasing in the software industry. Litigation due to Year 2000
      services is also on the rise. In addition, there are other general
      corporate legal risks.

      The management has clearly charted out a review and documentation process
      for contracts. This process focuses on evaluating the legal risks involved
      in a contract, on ascertaining the legal responsibilities of the company
      under the applicable law of the contract, on restricting its liabilities
      under the contract and covering risks. The management has also taken
      sufficient insurance cover abroad to cover possible liabilities arising
      out of non-performance of the contract. The management reviews this on a
      continuous basis and takes corrective action. As a matter of policy the
      company does not enter into contracts which have open-ended legal
      obligations.

      To date, the company has no material litigation in relation to contractual
      obligations pending against it in any court in India or abroad.

      3.2   Statutory compliance

      Infosys has a compliance officer to advise the company on compliance
      issues with respect to the laws of various jurisdictions in which the
      company has its business activities and to ensure that the company is not
      in violation of the laws of any jurisdiction where the company has
      operations. The compliance officer reports from time to time on the
      compliance or otherwise of the laws of various jurisdictions to the board
      of directors. Various business heads give compliance certificates to the
      board of directors and the compliance officer reports deviations, if any.
      Generally, the company takes appropriate business decisions after
      ascertaining from the compliance officer and, if necessary, from
      independent legal counsels, that the business operation of the company is
      not in contravention of any law in the jurisdiction in which it is
      undertaken. Legal compliance issues are an important factor in assessing
      all new business proposals. The company has strengthened its legal team
      and put in place appropriate policies towards legal compliance. The
      company follows an affirmative policy in protecting its trade name and
      trademark/service mark and is actively pursuing trademark infringement
      suits against various persons / companies in India.

4.    Internal process risks

      4.1   Project execution

      Risk management processes at the operational level are a key requirement
      for reducing uncertainty in delivering high-quality software solutions to
      clients within budgeted time and cost. Adoption of quality models such as
      the Capability Maturity Model (CMM) has ensured that risks are identified
      and measures are taken to mitigate them at the project plan stage itself.
      A Risk Management Guideline is in place to provide guidance to project
      leaders and module leaders on ways in which risks can be identified and
      mitigated. Important metrics are also collected and analyzed for all
      projects and a database of such information is maintained to focus
      attention on key
<PAGE>
 
      improvement areas. Standard methodologies, perfected through accumulated
      experience, form the basis for execution of projects in most of Infosys'
      service offerings.

      Infosys also has an effective system in place to ensure creation,
      documentation and dissemination of experiential knowledge. The backbone of
      this system is a user friendly, searchable database known as the "Body of
      Knowledge (BoK)" comprising of knowledge components contributed by
      employees of the company. Incentive schemes are in place to encourage a
      knowledge sharing culture in the organization. 

      4.2   Disaster prevention and recovery

      Adherence to ISO 9001 and CMM Level 4 quality standards has ensured that
      the company has a robust disaster prevention and recovery system in place.
      The company has a disaster recovery plan for each of its work locations as
      well as for each technology category. Possible risks for each category
      have been identified and action plans have been put in place to cope with
      any contingencies. These plans are reviewed and updated periodically to
      make sure that they are in sync with changes in technology and risks. 

      All software media brought into the company's offices are scanned for
      viruses before being used. Further, Infosys has firewalls in place on all
      connections to clients and to the Internet. 

      The Year 2000 problem has the potential to affect systems, transaction
      processing, computer applications and devices used by the company to
      operate and monitor major aspects of its business. Towards reducing this
      risk, the company has converted its financial applications software to
      programs certified by the suppliers as Year 2000 compliant and is
      currently in the process of modifying and upgrading all other affected
      systems in the company. The company has also taken up an assessment of the
      Year 2000 preparedness of its third party suppliers. Suitable steps to
      ensure compliance at their end would be taken based on the results of this
      assessment. 

      The company has instituted a contingency plan to meet any possible
      disruption in client support due to the Y2K impact on the technology and
      communication infrastructure of the company. A provision of Rs. 6.66 crore
      has been made during the financial year towards such a contingency plan.
      Further, to avoid failure of telecommunications infrastructure, which is
      the lifeline of the company, Infosys has installed multiple links supplied
      by different service providers for redundancy. These links take different
      routes to client locations.

      4.3   Technological obsolescence

      The company evaluates technological obsolescence and the associated risks
      on a continuing basis and makes investments accordingly. Information
      technology is possibly the only area where costs for a given technology
      reduce over time. The cost of acquiring technology also includes the cost
      of installation and retraining.

      The technology requirements of the company can be classified into three
      categories and different strategies are used to manage risk in each
      category. The first category is the company's desktop environment
      consisting of PCs along with associated software. In this category,
      volumes are large and retraining costs are high. The company considers
      this as a commodity product and goes for a technology that is mature - not
      leading edge - so that costs are low. The company has also standardized
      its user interface software so that retraining costs are minimal. Once the
      warranty period on these systems expires, they are donated to educational
      and charitable institutions, after obtaining suitable approval.

      The second category of systems are proprietary systems used for
      development of software for clients as well as the servers used for
      running internal IS applications. The technological obsolescence in these
      areas is not rapid, especially in the mainframe segment. Purchase
      decisions in this category are determined by client requirements. The
      company has standardized on the Windows NT platform for internal MIS
      needs. Network components also fall into this category and the company is
      standardizing its network components, based on a few suppliers.

      The third category of systems are the tools required for software
      development including project management tools, integrated software
      development environments, testing and other CASE tools, collaborative
      software development tools, etc. In this category, the company
      continuously looks out for leading-edge products that help increase
      productivity and also give the company an advantage over its competitors.
      In its technology infrastructure, Infosys aims to be on par with or better
      than the best anywhere in the world including its clients. The company's
      clients would like it to advise them on emerging products and
      technologies. Hence, Infosys continuously invests in these technologies.
      Several research initiatives are going on in the company to review and
      adopt the technology for use internally as well as on client projects.
<PAGE>
 
      The company's amortization strategy reflects the requirements of the
      various categories of systems. Infosys has an aggressive amortization
      program under which category 1 and 2 are amortized in 2 years except for
      mainframe technology. Further, purchase of software is treated as revenue
      expenditure in the same year. Other assets are also aggressively amortized
      to ensure that the investment is current and that any change in technology
      would not lead to large write-offs. Such an amortization policy also
      ensures full cost recovery as part of current costs.

      The following table gives depreciation expense and software expense as a
      proportion of revenues for the last four years (based on Indian GAAP).

      --------------------------------------------------------------------------
                                             FY 1999  FY 1998   FY 1997  FY 1996
      --------------------------------------------------------------------------
      Depreciation / average gross block       26.2%    25.8%     17.8%    23.9%
      Depreciation / total revenue              7.0%     8.7%      7.3%     9.2%
      Software for own use / total revenue      2.9%     3.4%      2.7%     3.1%
      --------------------------------------------------------------------------

      4.4   Human resource management

      The key resource for Infosys is its people. The company has been able to
      create a favorable work environment that encourages innovation and
      meritocracy. This, combined with a well-balanced compensation package,
      ensures that Infosys has one of the lowest attrition rates in the
      industry, today. The table below gives attrition rates for the past two
      years:

      --------------------------------------------------------------------------
                                                     FY 1999            FY 1998
      --------------------------------------------------------------------------
      Attrition rate                                  11.5%               15.9%
      --------------------------------------------------------------------------

      One of the reasons for the low attrition has been the company's stock
      option scheme. As the current scheme is coming to a close, a new scheme is
      being put in place.

      Infosys enjoys very good relations with universities locally, and thus,
      has a huge talent pool to draw from. The company has grown from 480
      software professionals as on March 31, 1994 to 3,158 software
      professionals as on March 31, 1999 (3,389 IT professionals including those
      in support functions). This has been achieved in-spite of the stiff entry
      criteria the company sets for aspiring employees.

      To enable access to a wider talent pool, the company has started building
      relationships with universities outside India. Given Infosys' track record
      and the awareness it has created in this segment, the company is confident
      of scaling up to the numbers required to support growth.

      4.5   Internal control systems

      Being a process-oriented company, Infosys has in place clear processes and
      well-defined roles and responsibilities for people at various levels.
      This, coupled with robust internal information systems, ensures
      appropriate information flow to facilitate monitoring. Adherence to these
      processes is ensured through frequent internal audits. Additionally, the
      following measures are in place to ensure proper control:

      o     Any unbudgeted expense has to be approved by the managing director.

      o     Any policy change is approved by a committee headed by the chairman
            after a 5-year profitability impact assessment.

      o     Senior management personnel submit periodic reports on their
            activities and achievements and these are reviewed by the managing
            director.

      4.6   Acquisitive growth

      Infosys has grown organically in the past. In the future, however, Infosys
      may consider mergers and acquisitions as a possible route for its
      discontinuous growth. To ensure preparedness for such growth, a team has
      been formed to set strategic objectives, evaluation guidelines, and
      tentative implementation mechanisms for any such possibility.
<PAGE>
 
5.    Political risks

      Recognizing that India's education system, its world-class professionals,
      and its low cost structure give it an intrinsic comparative advantage in
      software exports, successive governments have accorded a special status to
      this industry. Task Forces comprising politicians, bureaucrats and
      industrialists have recommended policy measures to give a fillip to the
      Indian IT industry. Implementation of these recommendations is in
      progress. On the whole, the Government's favorable disposition towards the
      IT industry - and specifically towards software exports - is highly
      encouraging. Given the consensus among all leading political parties on
      the importance of the software industry, it is likely to remain a focus
      area for governmental policy in the years to come. However, in order to
      mitigate the risk of operating from a single country, Infosys is exploring
      the possibility of establishing development centers in countries other
      than India.
<PAGE>
 
Corporate governance
--------------------------------------------------------------------------------

Corporate governance policies

Infosys has been a pioneer in benchmarking its corporate governance policies
with the best in the world. Your directors present below for your information,
the internal policies on corporate governance.

A.    Board composition

      1.    Responsibilities of the CEO and the COO

      The current policy of the company is to have an executive chairman and
      chief executive officer (CEO) and a managing director, president and chief
      operating officer (COO). There is a clear demarcation of responsibilities
      and authority between the two. The CEO is responsible for corporate
      strategy, brand equity, planning, external contacts, acquisitions, and
      board matters. The COO is responsible for all day-to-day operational
      issues and achievement of the annual targets in client satisfaction,
      sales, profits, quality, productivity, employee enabling and retention.
      The CEO, COO, executive directors and the senior management staff make
      periodic presentations to the board on their targets, responsibilities and
      performance.

      2.    Size of the board

      The board has ten members, and periodically reviews the need for its
      expansion. As per the bye laws of the company, the board can have up to
      twelve members.

      3.    Executive and independent directors

      The current policy is to have an appropriate mix of executive and
      independent directors to maintain the independence of the board, and to
      separate the board functions of governance and management. To ensure
      independence of the board, the members of the audit committee, the
      nominations committee and the compensation committee are composed entirely
      of independent directors. The current board has four independent directors
      and six executive directors. All the executive directors are also the
      founders of the company.

      4.    Board membership criteria

      The board members are expected to possess the expertise, skills and
      experience required to manage and guide a high growth, hi-tech software
      company deriving revenue primarily from G-7 countries. Expertise in
      strategy, technology, finance, quality and human resources is essential.
      Generally, they will be between 40 and 55 years of age. They will not be a
      relative of an executive director or of an independent director. They are
      not expected to serve in any executive or independent position in any
      company in direct competition with Infosys. The board members are expected
      to rigorously prepare for, attend, and participate in all board and
      applicable committee meetings. Each board member is expected to ensure
      that other existing and planned future commitments do not materially
      interfere with the member's responsibility as a director of Infosys.

      5.    Membership term

      The board constantly evaluates the contribution of its members, and
      recommends to shareholders their re-appointment periodically as per
      statute. The current law in India mandates the retirement of one third of
      the board members every year and qualifies the retiring members for
      re-appointment. The executive directors are appointed by the shareholders
      for a maximum period of five years at one time but are eligible for
      re-appointment upon completion of their term. The nominations committee of
      the board, composed entirely of independent directors, recommends such
      appointment / re-appointment. However, the membership term is limited by
      the retirement age for members.

      6.    Retirement policy

      The board has adopted a retirement policy for its members. Under this
      policy, the maximum age of retirement of executive directors, including
      the CEO, is 60 years which is the age of superannuation for the employees
      of the company. Their continuation as members of the board upon
      superannuation / retirement is determined by the nominations committee.
      The age limit for retirement from the board is 65 years.
<PAGE>
 
      7.    Board compensation review

      The compensation committee determines and recommends to the board, the
      compensation payable to the members of the board. The compensation of the
      executive directors consists of a fixed component that is paid monthly,
      and a variable component which is paid quarterly based on performance. A
      quarterly appraisal of their performance is made by the compensation
      committee. The annual compensation of the executive directors is approved
      by the compensation committee within the parameters set by the
      shareholders at the shareholders meetings. The shareholders determine the
      compensation of the executive directors for the entire period of their
      term.

      The compensation of the independent directors is approved at a meeting of
      the full board. The components are a fixed amount, and a variable amount
      based on their attendance of the board and committee meetings. The total
      compensation payable to all the independent directors together is limited
      to a fixed sum per year determined by the board. This sum is within the
      limit of 0.5% of the net profits of the company for the year calculated as
      per the provisions of the Companies Act and as approved by the
      shareholders and is separately disclosed in the financial statements. The
      compensation payable to the independent directors and the method of
      calculation are also disclosed separately in the financial statements. As
      founders of the company, the executive directors have voluntarily excluded
      themselves from the 1994 ESOP and the 1998 ADS-linked ESOP. The
      independent directors are also not eligible for stock options under both
      the plans. However, under the proposed 1999 India-ESOP, the independent
      directors of the board, would be eligible for stock options. The founder
      directors are excluded.

      8.    Memberships of other boards

      The executive directors are excluded from serving on the board of any
      other company / body unless the said entity is an industrial body whose
      interests are germane to the business of the software industry, or
      government bodies that have a relevance to the software industry, or
      bodies whose objective is the upliftment of society. The independent
      directors are not expected to serve on the boards of competing companies.
      Other than this, there is no limitation save that imposed by law and good
      corporate governance.

B.    Board meetings

      1.    Scheduling and selection of agenda items for board meetings

      Normally, the board meetings are scheduled at least a month in advance.
      Most of the meetings are held at the company's registered office at
      Electronics City, Bangalore, India. The chairman of the board and the
      company secretary draft the agenda along with the explanatory notes for
      each board meeting and distribute it in advance to the board members.
      Every board member is free to suggest the inclusion of items on the
      agenda. Normally, the board meets once a quarter to review the quarterly
      results and other items on the agenda. The board also meets on the
      occasion of the annual shareholders' meeting. Based on the need,
      additional meetings are held. The independent directors are expected to
      attend at least four board meetings in a year. A committee of the board
      meets as and when required for transacting business of a routine nature.

      2.    Availability of information to the members of the board

      The board has unfettered and complete access to any information within the
      company, and to any employee of the company. At the meetings of the board,
      the board welcomes the presence of managers who can provide additional
      insights into the items being discussed.

C.    Board committees

      1.    The committees of the board

      Currently, the board has three committees - the audit committee, the
      compensation committee and the nominations committee. The functions of
      these committees have been described elsewhere in this report. These
      committees are composed entirely of independent directors.

      2.    Assignment and terms of service of committee members

      The board decides, in consultation with the chairman and considering the
      views of individual board members, terms of service of various committees
      and the assignment of specific board members to various committees.
<PAGE>
 
      3.    Frequency and duration of committee meetings and committee agenda

      The chairman of the board, in consultation with the company secretary of
      the company and the committee chairman, determines the frequency and
      duration of the committee meetings. Normally, the committees meet at least
      twice a year. The committee agenda and the minutes of the committee
      meeting are submitted to the full board for approval.

D.    Management review and responsibility

      1.    Formal evaluation of officers

      A committee headed by the chairman and CEO reviews, evaluates and decides
      the annual compensation for officers of the company from the level of
      associate vice president excluding members of management council. The
      grant of stock options under the 1994 ESOP are decided by the advisory
      board constituted under the plan. The compensation committee of the board
      will administer the 1998 ADS-linked-ESOP and the proposed 1999-India-ESOP.

      2.    Succession planning and management development

      The chairman reviews succession planning and management development with
      the board from time to time.

      3.    Board interaction with clients, employees, institutional investors
            and the press

      The chairman and CEO manages all interaction with the investors, media,
      and the government. In this task, he seeks advice and help from the
      managing director, president and COO as well as the CFO, where necessary.
      The managing director and COO manages all interaction with the clients
      taking the advice and the help of the CEO, where necessary. Both the CEO
      and the COO handle employee communication.

Compliance with corporate governance codes

Corporate governance has assumed great significance in India in the recent past.
Even though the Companies Act provided a framework for corporate governance,
defined the powers, duties and responsibilities of the board, instituted a
system of checks and balances with punishment for transgression of law, there
was a felt need for a comprehensive code of corporate governance. Indian
industry associations have taken the lead in framing such a code. Globally, the
Cadbury Committee on corporate governance has framed a similar code. As already
stated, the company is committed to good corporate governance and has
benchmarked itself against global best practices. As additional disclosure of
the company's compliance with the industry-set-standards, a report on compliance
with the Confederation of Indian Industry Code and the Cadbury Committee code is
given hereunder.

1.    Compliance with the CII code on corporate governance

      "Corporate Governance deals with laws, procedures, practices and implicit
      rules that determine a company's ability to take managerial decisions
      vis-a-vis its claimants - in particular, its shareholders, creditors,
      clients, the state and employees. There is a global consensus about the
      objective of "good" corporate governance - maximizing long-term
      shareholder value. Since shareholders are residual claimants, this
      objective follows from a premise that, in well performing capital and
      financial markets, whatever maximizes shareholder value must necessarily
      maximize corporate prosperity, and best satisfy the claims of shareholders
      and the state".
                       Desirable Corporate Governance - A Code: Confederation of
                                                           Indian Industry (CII)

      The CII has taken the initiative to improve corporate governance by
      publishing a code of corporate governance. Your company has been complying
      with most recommendations of this code, for several years. Your company
      supports this initiative and believes that this will considerably improve
      investor protection and governance.

      The CII committee on corporate governance has made seventeen specific
      recommendations. Your company complies with substantially all these
      recommendations except for the following:

      The CII has recommended that no single person should hold directorship in
      more than ten companies.

       Two non-executive directors hold directorship in more than ten companies.

      The CII has recommended that non-executive directors be entitled to stock
      options to enable them to bring in long-term value to the shareholders.
<PAGE>
 
      Currently, non-executive directors are not entitled to stock options due
      to regulatory constraints. In the proposed 1999-India-ESOP, non-executive
      directors will be eligible.

      Board of directors

      Recommendation 1 - The full board should meet a minimum of six times a
      year, preferably at an interval of two months, and each meeting should
      have agenda items that require at least half a day's discussion. 

      The board of directors met nine times during the year with a clearly
      defined agenda for each meeting.

      Recommendation 2 - Any listed company with a turnover of Rs. 100 crore and
      higher should have professionally competent, independent, non-executive
      directors, who should constitute at least 30% of the board if the chairman
      of the company is a non-executive director, or at least 50% of the board
      if the chairman and managing director is the same person.

      In fiscal 1999, non-executive directors constituted 40% of the board. The
      board has divided the responsibility for the management of the company
      between an executive chairman and CEO, and a managing director, president
      and COO. The non-executive directors are independent and accomplished
      professionals in the corporate and academic worlds.

      Recommendation 3 - No single person should hold directorships in more than
      ten companies. 

      Except for two of the non-executive directors, none of the other directors
      hold directorship in more than ten companies.

      Recommendation 4 - For non-executive directors to play a material role in
      corporate decision making and maximizing long term shareholder value, they
      need to become active participants on the board, not passive advisors;
      have clearly defined responsibilities within the board such as the audit
      committee; and know-how to read a balance sheet, profit and loss account,
      cash flow statements and financial ratios and have some knowledge of
      various company laws. This, of course, excludes those who are invited to
      join boards as experts in other fields such as science and technology. 

      The Infosys board has four non-executive directors. The non-executive
      directors play an active role in all the board meetings. The board has
      constituted three committees - the audit committee, the nominations
      committee, and the compensation committee, consisting entirely of
      non-executive directors. The reports of the above committees are provided
      elsewhere in this annual report.

      Recommendation 5 - To secure better effort from non-executive directors,
      companies should pay a commission over and above the sitting fees for the
      use of professional inputs. The present commission of 1% of net profits
      (if the company has a managing director), or 3% (if there is no managing
      director) is sufficient; Consider offering stock options, so as to relate
      rewards to performance. Commissions are rewards on current profits. Stock
      options are rewards contingent upon future appreciation of corporate
      value. An appropriate mix of the two can align a non-executive director
      towards keeping an eye on short-term profits as well as long term
      shareholder value. 

      The non-executive directors are eligible for a commission of up to 0.5% of
      the net profits of the company. During the financial year 1998-99, the
      total commission payable to the non-executive directors amounted to Rs. 24
      lakhs. However, they were not eligible for any stock options due to
      regulatory constraints. The new regulations issued by SEBI make them
      eligible for stock options. The 1999-India-ESOP, to be submitted for
      shareholder approval, would include non-executive directors as
      beneficiaries.

      Recommendation 6 - While re-appointing members of the board, companies
      should give the attendance record of the concerned directors. If a
      director has not been present (absent with or without leave) for 50% or
      more meetings, then this should be explicitly stated in the resolution
      that is put to vote. As a general practice, one should not re-appoint any
      director who has not had the time to attend even one half of the meetings.

      In the Internet age, the contribution of a director cannot be measured
      only by physical presence at a board meeting. If a company has global
      ambitions, it has to invite well-known persons from across the globe to
      serve on the board. It is not reasonable to expect these busy and
      accomplished people to travel to India for every meeting, particularly
      when there are other effective means of participation. In the case of
      every non-executive director, without exception, the company has been able
      to tap their expertise, wisdom and experience in solving strategic and
      operational issues using teleconferencing, e-mail and video conferencing.
      Therefore, the definition of physical presence should include presence by
      way of teleconferencing or videoconferencing in addition to 
<PAGE>
 
      physical presence in counting the number of meetings attended. For the
      sake of completeness, the number of board meetings held during the year,
      and the number attended by the directors is given below.

      --------------------------------------------------------------------------
      Director                               No. of meetings     No. of meetings
                                                  held              attended
      --------------------------------------------------------------------------
      Susim M. Datta                                9                  5
      Deepak M. Satwalekar                          9                  7
      Ramesh Vangal                                 9                  2
      Prof. Marti G. Subrahmanyam                   9                  5
      N. R. Narayana Murthy                         9                  8
      Nandan M. Nilekani                            9                  9
      N. S. Raghavan                                9                  8
      S. Gopalakrishnan                             9                  7
      K. Dinesh                                     9                  9
      S. D. Shibulal                                9                  8
      --------------------------------------------------------------------------

      Key information

      Recommendation 7 - Key information that must be reported and placed before
      the board must contain:

      o     Annual operating plans and budgets, together with up-dated long term
            plans
      o     Capital budgets, manpower and overhead budgets
      o     Quarterly results for the company as a whole and its operating
            divisions or business segments
      o     Internal audit reports, including cases of theft and dishonesty of a
            material nature
      o     Show cause, demand and prosecution notices received from revenue
            authorities that are considered to be materially important.
            (Material nature of any exposure that exceeds 1% of the company's
            net worth)
      o     Fatal or serious accidents, dangerous occurrences, and any effluent
            or pollution problems 
      o     Default in payment of interest or non-payment of the principal on
            any public deposit, and/or to any secured creditor or financial
            institution
      o     Defaults such as non-payment of inter-corporate deposits by or to
            the company, or materially substantial non-payment for goods sold by
            the company
      o     Any issue which involves possible public or product liability claims
            of a substantial nature, including any judgement or order which may
            have either passed strictures on the conduct of the company, or
            taken an adverse view regarding another enterprise that can have
            negative implications for the company
      o     Details of any joint venture or collaboration agreement
      o     Transactions that involve substantial payment towards goodwill,
            brand equity, or intellectual property
      o     Recruitment and remuneration of senior officers just below the board
            level, including appointment or removal of the chief financial
            officer and the company secretary
      o     Labor problems and their proposed solutions
      o     Quarterly details of foreign exchange exposure and the steps taken
            by management to limit the risks of adverse exchange rate movement,
            if material.

      The required key information is being provided to the board at regular
      intervals.

      Audit committee

      Recommendation 8 - Listed companies with either a turnover of over Rs. 100
      crore or a paid-up capital of Rs. 20 crore, should set up audit committees
      within two years. Audit committees should consist of at least three
      members, all drawn from a company's non-executive directors, who should
      have adequate knowledge of finance, accounts and basic elements of company
      law. To be effective, the audit committee should have clearly defined
      terms of reference and its members must be willing to spend more time on
      the company's work vis-a-vis other non-executive directors. Audit
      committees should assist the board in fulfilling its functions relating to
      corporate accounting and reporting practices, financial and accounting
      controls, and financial statements and proposals that accompany the public
      issue of any security- and thus provide effective supervision of the
      financial reporting process. The audit committee should periodically
      interact with the statutory auditors and the internal auditors to
      ascertain the quality and veracity of the company's accounts as well as
      the capability of the 
<PAGE>
 
      auditors themselves. For the audit committee to discharge its fiduciary
      responsibilities with due diligence, it must be incumbent upon the
      management to ensure that members of the committee have full access to
      financial data of the company, its subsidiary and associated companies,
      including data on contingent liabilities, debt exposure, current
      liabilities, loans and investments. By the fiscal year 1998-99, listed
      companies with either a turnover of over Rs. 100 crore or a paid-up
      capital of Rs. 20 crore, should have in place a strong internal audit
      department, or an external auditor to carry out internal audits; without
      this, any audit committee will be toothless. 

      The audit committee consists of four non-executive directors with Mr.
      Deepak M. Satwalekar as chairman. The committee deals with accounting
      matters, financial reporting and internal controls. The committee meets at
      least twice a year and reviews the reports of the internal auditors and
      the statutory auditors. The committee also monitors proposed changes in
      the accounting policy, reviews the internal audit functions, and discusses
      the accounting implications of major transactions. The committee members
      have free access to information and employees across the company. 

      The system of internal financial control comprises those controls
      established in order to provide reasonable assurance of: 

      a)    The safety of assets against unauthorized use or disposition,
      b)    The maintenance of proper accounting records and the reliability of
            financial information used within the business or for publication,
            and
      c)    Internal controls and internal checks within the company.

      Disclosures

      Recommendation 9 - Under "Additional Shareholder's Information", listed
      companies should give data on high and low monthly averages of share
      prices in a major stock exchange where the company is listed for the
      reporting year; greater detail on business segments, up to 10% of
      turnover, giving share in sales revenue, review of operations, analysis of
      markets and future prospects. 

      The information on high and low monthly averages of share prices in all
      the stock exchanges where the company is listed is provided under
      Shareholder information. The segmental information of revenue is provided
      elsewhere in this report.

      Recommendation 10 - Consolidation of group accounts should be optional and
      subject to the financial institutions allowing companies to leverage on
      the basis of the group's assets and the income tax department using the
      group concept in assessing corporate income tax. If a company chooses to
      voluntarily consolidate, it should not be necessary to annex the accounts
      of its subsidiary companies under Section 212 of the Companies Act.
      However, if a company consolidates, then the definition of "group" should
      include the parent company and its subsidiaries (where the reporting
      company owns over 50% of the voting stake) 

      Infosys has been providing consolidated financial statements under US
      GAAP. Consolidated, unaudited financial statements under Indian GAAP are
      being provided as additional information to shareholders. However,
      effective November 1998, Infosys economic interest in Yantra under US GAAP
      has dropped below 50% due to sale of part of its holding and consolidation
      under US GAAP has ceased from such date.

      Recommendation 11 - Major Indian Stock Exchanges should gradually insist
      upon a compliance certificate, signed by the CEO and CFO which clearly
      states that, the management is responsible for the preparation, integrity
      and fair presentation of the financial statements and other information in
      the annual report, and which also suggest that the company will continue
      in business in the course of the following year; the accounting policies
      and principles confirm to standard practice, and where they do not, full
      disclosure has been made of any material departures; the board has
      overseen the company's system of internal accounting and administrative
      controls systems either directly or through its audit committee (for
      companies with a turnover of Rs. 100 crore or paid-up capital of Rs. 20
      crore). 

      The management statement on the integrity and fair presentation of the
      financial statements is provided elsewhere in this report.

      Recommendation 12 - For all companies with a paid-up capital of Rs. 20
      crore or more, the quality and quantity of disclosure that accompanies a
      GDR issue should be the norm for any domestic issue.

      Financial information prepared in compliance with US GAAP is provided
      elsewhere in this report. As a policy, the disclosure policies are as per
      global standards.
<PAGE>
 
      Capital market issues

      Recommendation 13 - Government must allow far greater funding to the
      corporate sector against the security of shares and other paper. 

      Not applicable.

      Creditors' rights

      Recommendation 14 - It would be desirable for financial institutions as
      pure creditors to re-write their covenants to eliminate having nominee
      directors except in the event of serious and systematic debt default and
      in case of the debtor company not providing six-monthly or quarterly
      operational data to the concerned financial institutions. 

      Not applicable.

      Recommendation 15 - If any company goes to more than one credit rating
      agency, then it must divulge in the prospectus and issue document, the
      rating of all the agencies that did such an exercise. It is not enough to
      state the ratings. These must be given in a tabular format that shows
      where the company stands relative to higher and lower ranking. It makes
      considerable difference to an investor to know whether the rating agency
      or agencies placed the company in the top slots, or in the middle, or in
      the bottom. It is essential that we look at the quantity and quality of
      disclosures that accompany the issue of company bonds, debentures, and
      fixed deposits in the USA and Britain - if only to learn what more can be
      done to inspire confidence and create an environment of transparency.
      Finally, companies that are making foreign debt issues cannot have two
      sets of disclosure norms: an exhaustive one for the foreigners, and a
      relatively minuscule one for Indian investors. 

      Not applicable.

      Recommendation 16 - Companies that default on fixed deposits should not be
      permitted to accept further deposits and make inter-corporate loans or
      investments until the default is made good, and declare dividends until
      the default is made good.

      Not applicable.

      Financial institutions and nominee directors

      Recommendation 17 - Reduction in the number of companies where there are
      nominee directors. It has been argued by Financial Institutions that there
      are too many companies where they are on the board, and too few competent
      officers to do the task properly. So, in the first instance, financial
      institutions should take a policy decision to withdraw from boards of
      companies where their individual shareholding is 5% or less, or total
      financial institutions holding is under 10%. 

      Not applicable.

2.    Compliance with the Cadbury Committee recommendations

      The Cadbury Committee was set up in May 1991 in the United Kingdom. The
      stated objective of the committee was "to help raise the standards of
      corporate governance and the level of confidence in financial reporting
      and auditing by setting out clearly what it sees as the respective
      responsibilities of those involved and what it believes is expected of
      them".

      The Infosys management is committed to global levels of transparency and
      disclosure. In pursuance of this, an attempt has been made to provide
      voluntarily, hereunder, the information as required under the
      recommendations of the Cadbury Committee on corporate governance. The
      management informs the shareholders that Infosys is not, as yet, legally
      required to provide this information and that this is provided for
      information purposes only.

      Compliance

      The Cadbury Committee on corporate governance has made nineteen
      recommendations. The company complies with substantially all
      recommendations except for the following:

      1.    The board should consist of a majority of non-executive directors -
            currently, the company has six executive directors and four
            non-executive directors.

      The company has set up committees of the board to focus on substantive
      issues in the form of the audit committee, the compensation committee and
      the nominations committee. The reports of these committees are disclosed
      in this chapter.
<PAGE>
 
      Going concern

      On the basis of current financial projections and facilities available,
      the directors have a reasonable expectation that the company has adequate
      resources to continue in operational existence for the foreseeable future
      and, accordingly, consider that it is appropriate to adopt the Going
      Concern basis in preparing accounts.

                                               Sd                             Sd
Bangalore                      Nandan M. Nilekani          N. R. Narayana Murthy
April 9, 1999        Managing Director, President                       Chairman
                      and Chief Operating Officer    and Chief Executive Officer
<PAGE>
 
Report of the committees of the board
--------------------------------------------------------------------------------
1. Compensation committee

The compensation committee of the board consists of:

Mr. Susim M. Datta, Chairman
Mr. Deepak M. Satwalekar
Mr. Ramesh Vangal

The compensation committee met four times during the year.

Compensation policy

The overall policy of the committee is to institute such compensation and
benefits for board members, as well as for the members of the management
council, which reward performance as per set criteria. Periodic evaluation of
the performance decides the variable component of the compensation.

Salaries

The committee reviewed and approved the compensation payable to the executive
directors of the company within the overall limits approved by the shareholders.
The information on compensation and other benefits provided to executive
directors is disclosed elsewhere in the report. The committee also reviewed the
compensation proposed for all the management council members of the company. The
committee believes that the proposed compensation and benefits along with stock
options is adequate to motivate and retain senior officers of the company.

Stock option scheme

Executive directors (excluding the founders) and the management council members
are eligible for stock options issued by the company. A statement of stock
options issued to management council members in the last fiscal, is given below:

--------------------------------------------------------------------------------
                            Options linked to ADSs*   Option on equity shares**
--------------------------------------------------------------------------------
Name                         Average   No. of          Average      No. of
                            exercise   options         exercise     options
                             price($)                 price(Rs.)
--------------------------------------------------------------------------------
Jan DeSmet                     34      40,000              --          --
Phaneesh Murthy                34      40,000              --          --
Balasubramanian P. Dr.         34       3,000             100       3,500
Hema Ravichandar               34       3,000             100      32,000
Mohandas Pai T. V              34       3,000             100       3,500
Prabhu M. S. S. Dr.            34       3,000             100       3,500
Raghupathi G. Bhandi           34       3,000             100       2,500
Rajiv Kuchhal                  34       3,000             100       2,500
Srinath Batni                  34       3,000             100       3,200
Vasudeva Rao L                 34       3,000             100       3,000
Yegneshwar S. Dr.              34       3,000             100       1,500
Girish Vaidya                  --          --             100       8,000
Raghavan S                     --          --             100       2,000
Ajay Dubey                     --          --             100       1,300
--------------------------------------------------------------------------------
                                      107,000                      66,500
--------------------------------------------------------------------------------

*    Options vesting period - March 2000-March 2003
**   Options vesting date - Five years from date of grant
<PAGE>
 
Independent directors

Independent directors are paid compensation not exceeding the limit specified by
statute and based on the approval of the members of the company. Of the
compensation payable for the year, 60% is paid pro rata and the balance 40% is
paid in proportion to the board/committee meetings attended. This is to
compensate the independent directors for the time spent and also for the
responsibilities undertaken. The table, below, discloses the compensation
payable to independent directors.

                                                                    Rs. in lakhs
--------------------------------------------------------------------------------
                                  Pro rata          Compensation
Name                             compensation         payable on       Total
                                                     attendance
--------------------------------------------------------------------------------
Susim M. Datta                       3.60                3.00           6.60
Deepak M. Satwalekar                 3.60                3.60           7.20
Ramesh Vangal                        3.60                1.00           4.60
Prof. Marti G. Subrahmanyam          3.60                2.00           5.60
================================================================================
Total                               14.40                9.60          24.00
================================================================================

Save as disclosed, none of the directors had a material beneficial interest in
any contract of significance to which the company or any of its subsidiary
undertakings was a party, during the financial year.

                                                                             Sd
April 9, 1999                                                     Susim M. Datta
                                                Chairman, Compensation Committee

2. Nominations committee

The nominations committee of the board consists of:

Mr. Susim M. Datta, Chairman
Mr. Deepak M. Satwalekar
Mr. Ramesh Vangal
Prof. Marti G. Subrahmanyam

The nominations committee met twice during the year

The committee discussed the request of Mr. N. R. Narayana Murthy for the
appointment of a managing director, president and COO to handle the day-to-day
operations of the company so that he could concentrate on strategic issues.
After an appraisal of various options and the request of Mr. N. S. Raghavan that
a younger candidate be considered, the committee recommended the appointment of
Mr. Nandan M. Nilekani as the managing director, president and COO. The
shareholders were informed by way of a statutory notice of such appointments.

The committee considered the issue of the retirement of members of the board as
per statute. As one third of the members have to retire every year based on the
date of appointment, Mr. N. S. Raghavan, Mr. S. Gopalakrishnan and Mr. S. D.
Shibulal will retire. The committee considered their performance and recommended
that they be considered for re-appointment by the shareholders.

The committee considered expansion of the board and decided against the
induction of any other member.

                                                                              Sd
April 9, 1999                                                     Susim M. Datta
                                                Chairman, Nominations Committee
<PAGE>
 
3. Audit committee

The audit committee of the board consists of:

Mr. Deepak M. Satwalekar, Chairman
Mr. Susim M. Datta
Mr. Ramesh Vangal
Prof. Marti G. Subrahmanyam

The audit committee met twice during the year.

The audit committee is responsible for effective supervision of the financial
reporting process, ensuring financial and accounting controls, and ensuring
compliance with financial policies of the company. The committee periodically
interacts with the statutory auditors and the internal auditors to ascertain the
quality and veracity of the company's transactions; to review the manner in
which they are performing their responsibilities; and to discuss auditing,
internal control and financial reporting issues. The committee provides the
overall direction on the risk management policies including the focus of
internal and management audits. The committee has full access to financial data
and to members of the company's staff.

The committee reviews the annual and half yearly financial statements
before they are submitted to the board. The committee also monitors proposed
changes in the accounting policy, reviews the internal audit functions and
discusses the accounting implications of major transactions.

Financial controls

The system of internal financial control comprises those controls established in
order to provide reasonable assurance of:

a)    The safety of assets against unauthorized use or disposition

b)    The maintenance of proper accounting records and the reliability of
      financial information used within the business or for publication, and

c)    Internal controls and internal checks within the company.

The system of internal audit and statutory audit is designed to bring out any
material weaknesses in the internal control systems of the organization, and to
ensure that the accounts of the company are properly maintained and the
transactions are in accordance with prevailing laws and regulations. While
acknowledging their responsibility for the system of internal financial control,
the directors are aware that such a system cannot provide an absolute assurance
against material misstatement or loss.

The key elements of this system are:

1.    The "Quality charter of the company" - a statement of corporate values
      distributed to every employee of the company.

2.    The organization chart.

3.    Corporate policies for financial reporting, accounting, risk management,
      corporate governance, and security and confidentiality of information
      belonging to the company and to its clients.

4.    Annual budgets and long-term business plans for all operating units,
      identifying key risks and opportunities.

5.    Monitoring performance against plans and budgets, and reporting thereon on
      a monthly basis.

6.    The internal auditor who reviews key business processes and controls.

7.    The audit committee which reviews audit plans and deals with significant
      control issues raised by internal and external auditors.

Review by the audit committee

The committee reviewed the reports submitted by both the internal auditors as
well as the statutory auditors of the company. The committee also reviewed the
action taken on various items discussed in the previous audit committee meeting.
The committee reviewed the internal controls to ensure that the accounts of the
company are properly maintained and that the transactions are in accordance with
prevailing laws and regulations.

The committee found no material discrepancy or weakness in the internal control
systems of the company.

                                                                              Sd
April 9, 1999                                               Deepak M. Satwalekar
                                                       Chairman, Audit Committee
<PAGE>
 
Management statement
--------------------------------------------------------------------------------
The financial statements are in full conformity with the requirements of the
Companies Act, 1956 and the Generally Accepted Accounting Principles (GAAP) in
India. The management of Infosys accepts responsibility for the integrity and
objectivity of these financial statements as well as for estimates and
judgements relating to matters not concluded by the year end. The management
believes that the financial statements reflect fairly the form and substance of
transactions and reasonably present the company's financial condition, and
results of operations. To ensure this, the company has installed a system of
internal controls which is reviewed, evaluated and updated on an ongoing basis.
Our internal auditors have conducted periodic audits to provide reasonable
assurance that the established policies and procedures of the company have been
followed. However, there are inherent limitations that should be recognized in
weighing the assurances provided by any system of internal controls.

The financial statements have been audited by Bharat S Raut & Co., Chartered
Accountants, the independent auditors.

The audit committee, at Infosys, meets periodically with the board of directors,
the internal auditors and the independent auditors to review the manner in which
they are performing their responsibilities, and to discuss auditing, internal
controls and financial reporting issues. To ensure complete independence, the
independent auditors and the internal auditors have full and free access to the
members of the audit committee to discuss any matter of substance.

The audit committee for 1998-99 was:

     Deepak M. Satwalekar, Chairman

     Susim M. Datta

     Ramesh Vangal

     Prof. Marti G. Subrahmanyam

                                         Sd                                   Sd
Bangalore                T. V. Mohandas Pai                   Nandan M. Nilekani
April 9, 1999         Senior Vice President         Managing Director, President
                 (Finance & Administration)          and Chief Operating Officer

                                                                              Sd
                                                           N. R. Narayana Murthy
                                                                        Chairman
                                                     and Chief Executive Officer
<PAGE>
 
Auditors' report                                  
--------------------------------------------------------------------------------
To
The Members,
Infosys Technologies Limited

We have audited the attached Balance Sheet of Infosys Technologies Limited (the
Company) as at March 31, 1999 and the Profit and Loss Account of the company for
the year ended on that date, annexed thereto, and report that:

1.    As required by the Manufacturing and Other Companies (Auditor's Report)
      Order, 1988 issued by the Company Law Board in terms of Section 227 (4A)
      of the Companies Act, 1956, we enclose in the Annexure a statement on the
      matters specified in paragraphs 4 and 5 of the said Order.

2.    Further to our comments in the Annexure referred to in paragraph (1)
      above:

      (a)   we have obtained all the information and explanations which to the
            best of our knowledge and belief were necessary for the purpose of
            our audit;

      (b)   in our opinion, proper books of account as required by law have been
            kept by the company so far as appears from our examination of these
            books;

      (c)   the Balance Sheet and Profit and Loss Account dealt with by this
            report are in agreement with the books of account;

      (d)   in our opinion, the Balance Sheet and Profit and Loss Account dealt
            with by this report have been prepared in compliance with the
            accounting standards referred to in subsection (3C) of Section 211
            of the Companies Act, 1956, to the extent applicable;

      (e)   in our opinion and to the best of our information and according to
            the explanations given to us, the said accounts give the information
            required by the Companies Act, 1956, in the manner so required and
            give a true and fair view:

            (i)   in the case of the Balance Sheet, of the state of affairs of
                  the company as at March 31, 1999; and

            (ii)  in the case of the Profit and Loss Account, of the profit for
                  the year ended on that date.

3.    We have also examined the attached Cash Flow Statement of the company for
      the year ended March 31, 1999.

      The Statement has been prepared by the company in accordance with the
      requirements of Clause 32 of the listing agreements entered into with the
      Stock Exchanges.

                                                         for Bharat S Raut & Co.
                                                           Chartered Accountants

                                                                              Sd
Bangalore                                                              Ravi Ramu
April 9, 1999                                                            Partner
<PAGE>
 
Annexure to the Auditors' report
--------------------------------------------------------------------------------
The Annexure referred to in paragraph 1 of the auditors' report to the members
of Infosys Technologies Limited (the company) for the year ended March 31, 1999.
We report that:

Internal controls

1.    In our opinion and according to the information and explanations given to
      us, having regard to the explanations that certain items purchased are of
      a special nature in respect of which suitable alternative sources do not
      exist for obtaining comparative quotations, there are adequate internal
      control procedures commensurate with the size of the company and the
      nature of its business for the purchase of computer hardware and software,
      consumables, plant and machinery, equipment and other assets. The
      activities of the company during the year did not involve the sale of
      goods.

2.    In our opinion and according to the information and explanations given to
      us, in respect of the service activities, the company, commensurate with
      the size and the nature of its business, has a reasonable system of:

      o     recording receipts, issues and consumption of materials and
            allocating materials consumed to each project;

      o     allocating man-hours utilized to each project; and

      o     authorization and control over the allocation of labour costs to
            each project.

3.    In our opinion, the company has an internal audit system, commensurate
      with its size and the nature of its business.

Fixed assets

4.    The company has maintained proper records of fixed assets showing full
      particulars, including quantitative details and location. The company has
      a regular programme of physical verification of its fixed assets which, in
      our opinion, is reasonable having regard to the size of the company and
      the nature of its assets. In accordance with this programme, certain fixed
      assets have been physically verified by Management during the year and no
      material discrepancies have been identified on such verification.

5. None of the fixed assets have been revalued during the year.

Inventories

6.    The company has not maintained any inventories during the year and
      consequently, paragraphs 4(A)(iii) to 4(A)(vi), 4(A)(xii), 4(A)(xiv),
      4(A)(xvi) and 4(C)(ii) of the Manufacturing and Other Companies (Auditor's
      Report) Order, 1988, are not applicable in relation to its activities.

Loans and advances

7.    The parties to whom loans or advances in the nature of loans have been
      given by the company are regular in repaying the principal amounts as
      stipulated and interest where applicable. In a case where the repayments
      have not been as stipulated, Management has taken adequate follow-up
      action.

8.    The company has not taken any loans, secured or unsecured from companies,
      firms, or other parties listed in the register maintained under Section
      301 of the Companies Act, 1956, or from companies under the same
      management as defined under Section 370(1B) of the Companies Act, 1956,
      the rate of interest and other terms and conditions of which are, prima
      facie, prejudicial to the interest of the company.

9.    The company has not granted any loans, secured or unsecured to companies,
      firms, or other parties listed in the register maintained under Section
      301 of the Companies Act, 1956, or to companies under the same management
      as defined under Section 370(1B) of the Companies Act, 1956, the rate of
      interest and other terms and conditions of which are, prima facie,
      prejudicial to the interest of the company.

Related parties

10.   In our opinion, and according to the information and explanations given to
      us, the transactions for the purchase of goods and materials and sale of
      goods, materials and services, made in pursuance of contracts or
      arrangements 
<PAGE>
 
      entered in the register maintained under Section 301 of the Companies Act,
      1956 and aggregating during the year to Rs. 50,000 or more in respect of
      each party, have been made at prices which are reasonable having regard to
      prevailing market prices as available with the company for such goods,
      materials or services or the prices at which transactions for similar
      goods, materials or services have been made with the other parties.

Fixed deposits

11.   The company has not accepted any deposits from the public and consequently
      the provisions of Section 58A of the Companies Act, 1956, and the rules
      framed thereunder are not applicable.

Staff welfare

12.   Provident Fund and Employees' State Insurance dues have been regularly
      deposited during the year with the appropriate authorities.

13.   On the basis of the examination of the books of account carried out by us
      in accordance with generally accepted auditing practices and according to
      the information and explanations given to us, no personal expenses of
      employees or directors have been charged to the profit and loss account,
      other than those payable under contractual obligations or in accordance
      with generally accepted business practice.

Taxation

14.   According to the information and explanations given to us, there are no
      undisputed amounts payable in respect of income tax, wealth tax, sales
      tax, customs duty and excise duty which are outstanding as at March 31,
      1999 for a period of more than six months from the date that they became
      payable.

Others

15.   The company is not a sick industrial company within the meaning of Section
      3(1)(o) of the Sick Industrial Companies (Special Provisions) Act, 1985.

                                                         for Bharat S Raut & Co.
                                                           Chartered Accountants

                                                                              Sd
Bangalore                                                              Ravi Ramu
April 9, 1999                                                            Partner
<PAGE>
 
Balance Sheet as at March 31
--------------------------------------------------------------------------------

                                                                          in Rs.
--------------------------------------------------------------------------------
                                   Schedule               1999             1998
--------------------------------------------------------------------------------

SOURCES OF FUNDS

SHAREHOLDERS' FUNDS
Share capital                             1       33,06,95,500     16,01,73,500
Reserves and surplus                      2      541,36,15,748    156,93,99,419
--------------------------------------------------------------------------------
                                                 574,43,11,248    172,95,72,919
================================================================================

APPLICATION OF FUNDS

FIXED ASSETS                              3
Gross block                                      168,92,38,345    105,13,90,563
Less : Depreciation                               83,09,14,934     47,50,66,754
--------------------------------------------------------------------------------
Net block                                         85,83,23,411     57,63,23,809

Add :  Capital work-in-progress                   14,88,35,800      7,32,13,272
--------------------------------------------------------------------------------
                                                 100,71,59,211     64,95,37,081

INVESTMENTS                               4          75,48,469     10,77,71,960

CURRENT ASSETS, LOANS AND ADVANCES
Sundry debtors                            5       84,51,88,425     39,88,48,667
Cash and bank balances                    6      405,04,82,999     43,86,55,723
Loans and advances                        7       68,35,96,522     39,18,00,686
--------------------------------------------------------------------------------
                                                 557,92,67,946    122,93,05,076

Less : Current liabilities                8       42,83,42,481     11,20,36,854
       Provisions                         9       42,13,21,897     14,50,04,344
--------------------------------------------------------------------------------
NET CURRENT ASSETS                               472,96,03,568     97,22,63,878
--------------------------------------------------------------------------------
                                                 574,43,11,248    172,95,72,919
================================================================================

SIGNIFICANT ACCOUNTING POLICIES AND
NOTES ON ACCOUNTS                                            13

--------------------------------------------------------------------------------
The Schedules referred to above and the notes thereon form an integral part of
the Balance Sheet.

This is the Balance Sheet
referred to in our report
of even date.

for Bharat S Raut & Co.
Chartered Accountants

Ravi Ramu            N. R. Narayana Murthy        Nandan M. Nilekani           
Partner              Chairman and                 Managing Director, President 
                     Chief Executive Officer      and Chief Operating Officer
                                                  
                     Ramesh Vangal                Prof. Marti G. Subrahmanyam  
                     Director                     Director                     
                                                  
Bangalore            K. Dinesh                    S. D. Shibulal             
April 9, 1999        Director                     Director                   
                                                  
                     Susim M. Datta               Deepak M. Satwalekar     
                     Director                     Director                 
                                                                             
                     N. S. Raghavan               S. Gopalakrishnan        
                     Jt. Managing Director        Dy. Managing Director    
                                                                             
                     T. V. Mohandas Pai           V. Viswanathan           
                     Senior Vice President        Company Secretary        
                    (Finance & Administration)                          
<PAGE>
 
Profit and Loss Account for the year ended March 31
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                           in Rs.
-------------------------------------------------------------------------------------------------
                                               Schedule              1999                    1998
-------------------------------------------------------------------------------------------------
<S>                                                  <C>   <C>                     <C>        
INCOME
Software development services and products
    Overseas                                                500,25,40,418           250,93,75,443
    Domestic                                                  8,63,71,250             6,70,33,205
Sale of imported software packages                                     --                1,64,840
Other income                                         10       3,84,71,833             2,70,83,794
-------------------------------------------------------------------------------------------------
                                                            512,73,83,501           260,36,57,282
=================================================================================================
EXPENDITURE
Cost of imported software packages sold                                --                1,30,429
Software development expenses                        11     261,51,74,052           141,20,17,617
Administration and other expenses                    12      45,75,30,137            30,53,93,818
Provision for contingencies                                   6,66,00,000                      --
Provision for investment in subsidiary                        7,05,95,674                      --
-------------------------------------------------------------------------------------------------
                                                            320,98,99,863           171,75,41,864

Operating profit (PBIDT)                                    191,74,83,638            88,61,15,418
Interest                                                               --                      --
Depreciation                                                 35,89,30,078            22,74,82,339

Profit before tax                                           155,85,53,560            65,86,33,079
Provision for tax --  earlier year                            4,32,00,000             1,50,50,000
                  --  current year                           18,62,00,000             3,99,50,000
Profit after tax from ordinary activities                   132,91,53,560            60,36,33,079
Extraordinary income (net of tax)                             2,34,54,103                      --
Net profit                                                  135,26,07,663            60,36,33,079
-------------------------------------------------------------------------------------------------
AMOUNT AVAILABLE FOR APPROPRIATION                          135,26,07,663            60,36,33,079
-------------------------------------------------------------------------------------------------
Dividend
   Interim                                                    4,00,43,011             1,75,73,859
   Final (proposed)                                           8,10,32,734             5,27,17,738
   Dividend Tax                                               1,21,07,574               70,29,160
Amount transferred   -- capital reserve                       2,34,54,103                      --
                     -- general reserve                     119,59,70,241            52,63,12,322
-------------------------------------------------------------------------------------------------
                                                            135,26,07,663            60,36,33,079
=================================================================================================
</TABLE>

SIGNIFICANT ACCOUNTING POLICIES AND
NOTES ON ACCOUNTS                                    13
--------------------------------------------------------------------------------
The Schedules referred to above and the notes thereon form an integral part of
the Profit and Loss Account. 

This is the Profit and Loss 
Account referred to inour
report of even date.

for Bharat S Raut & Co.
Chartered Accountants

Ravi Ramu            N. R. Narayana Murthy        Nandan M. Nilekani           
Partner              Chairman and                 Managing Director, President 
                     Chief Executive Officer      and Chief Operating Officer
                                                  
                     Ramesh Vangal                Prof. Marti G. Subrahmanyam  
                     Director                     Director                     
                                                  
Bangalore            K. Dinesh                    S. D. Shibulal               
April 9, 1999        Director                     Director                     
                                                  
                     Susim M. Datta               Deepak M. Satwalekar     
                     Director                     Director                 
                                                                             
                     N. S. Raghavan               S. Gopalakrishnan        
                     Jt. Managing Director        Dy. Managing Director    
                                                                             
                     T. V. Mohandas Pai           V. Viswanathan           
                     Senior Vice President        Company Secretary        
                     (Finance & Administration)                          
<PAGE>
 
Schedules to the Balance Sheet as at March 31
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                              in Rs.
--------------------------------------------------------------------------------------------------------------------
                                                                                               1999            1998
--------------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>             <C>         
1. SHARE CAPITAL

   AUTHORIZED
   5,00,00,000 (3,00,00,000) equity shares of Rs. 10 each                              50,00,00,000    30,00,00,000
--------------------------------------------------------------------------------------------------------------------
   ISSUED, SUBSCRIBED AND PAID UP
   3,30,69,400 (1,60,17,200)
     equity shares of Rs. 10 each fully paid up                                        33,06,94,000    16,01,72,000
     [Of the above, 2,89,44,100 (1,29,26,900) equity shares of Rs. 10 each
     fully paid up have been issued as bonus shares by
     capitalization of general reserve]
   Add  : Forfeited shares                                                                    1,500           1,500
--------------------------------------------------------------------------------------------------------------------
                                                                                       33,06,95,500    16,01,73,500
====================================================================================================================

2. RESERVES AND SURPLUS
   Capital reserve as at April 1, 1998                                                  3,59,00,000     3,59,00,000
   Add  : Transferred from Profit and loss account                                      2,34,54,103              --
--------------------------------------------------------------------------------------------------------------------
                                                                                        5,93,54,103     3,59,00,000
--------------------------------------------------------------------------------------------------------------------

   Share premium account as at April 1, 1998                                           41,49,51,460    34,75,41,460
   Add : Received during the year
         On conversion of warrants                                                               --     6,74,10,000
         On issue of American Depositary Shares (ADS)                                 295,82,78,400              --
--------------------------------------------------------------------------------------------------------------------
                                                                                      337,32,29,860    41,49,51,460

   Less : ADS issue expenses written off                                               17,33,14,415              --
--------------------------------------------------------------------------------------------------------------------
                                                                                      319,99,15,445    41,49,51,460
--------------------------------------------------------------------------------------------------------------------

   Investment allowance reserve (utilized) as at April 1, 1998                                   --        6,65,000
   Less : Transferred to general reserve                                                         --        6,65,000
--------------------------------------------------------------------------------------------------------------------

   General reserve as at April 1, 1998                                                111,85,47,959    67,16,56,637
   Less : Capitalized for issue of bonus shares                                        16,01,72,000     8,00,86,000
--------------------------------------------------------------------------------------------------------------------
                                                                                       95,83,75,959    59,15,70,637

   Add  : Transferred during the year from
            investment allowance reserve (utilized)                                              --        6,65,000
          Transferred from Profit and Loss Account                                    119,59,70,241    52,63,12,322
--------------------------------------------------------------------------------------------------------------------
                                                                                      215,43,46,200   111,85,47,959
--------------------------------------------------------------------------------------------------------------------
                                                                                      541,36,15,748   156,93,99,419
====================================================================================================================
</TABLE>
<PAGE>
 
Schedules to the Balance Sheet as at March 31
-------------------------------------------------------------------------------

3. FIXED ASSETS

<TABLE>
<CAPTION>
                                                                                                   in Rs.
---------------------------------------------------------------------------------------------------------
                                                 Gross block                                Depreciation     
---------------------------------------------------------------------------------------------------------
                                             Additions      Deductions            Cost                           
                               Cost as          during          During           as at            As at          
Assets                       at 1.4.98        the year        the year         31.3.99           1.4.98          
---------------------------------------------------------------------------------------------------------
<S>                      <C>              <C>                <C>         <C>              <C>         
Land - free-hold           1,89,83,650              --              --     1,89,83,650              -- 
Land - lease-hold          2,90,22,980     6,07,53,525              --     8,97,76,505              -- 
Buildings                 19,35,72,375     9,42,90,059              --    28,78,62,434     1,13,62,346
Plant and machinery       19,56,27,346    11,52,37,182          57,656    31,08,06,872     7,13,00,057
Computer equipment        48,45,37,704    28,94,72,182       32,63,958    77,07,45,928    32,42,95,817
Furniture and fixtures    12,78,89,938     8,14,16,448              --    20,93,06,386     6,78,28,663
Vehicles                     17,56,570              --              --       17,56,570        2,79,871
---------------------------------------------------------------------------------------------------------
Total                    105,13,90,563    64,11,69,396       33,21,614   168,92,38,345    47,50,66,754
Previous year             71,29,16,621    34,13,26,052       28,52,110   105,13,90,563    25,02,44,587
---------------------------------------------------------------------------------------------------------

<CAPTION>
---------------------------------------------------------------------------------------------------------
                                                Depreciation                      Net block
---------------------------------------------------------------------------------------------------------
                                 For       Deductions                                                     
                                 the          during           As at           As at            As at    
                                year        the year         31.3.99         31.3.99          31.3.98    
---------------------------------------------------------------------------------------------------------
<S>                      <C>              <C>                <C>         <C>              <C>         
Land - free-hold                    --              --              --     1,89,83,650     1,89,83,650
Land - lease-hold                   --              --              --     8,97,76,505     2,90,22,980
Buildings                  1,20,60,428              --     2,34,22,774    26,44,39,660    18,22,10,029
Plant and machinery        6,91,43,525          30,103    14,04,13,479    17,03,93,393    12,43,27,289
Computer equipment        19,38,87,312       30,51,795    51,51,31,334    25,56,14,594    16,02,41,887
Furniture and fixtures     8,32,08,343              --    15,10,37,006     5,82,69,380     6,00,61,275
Vehicles                      6,30,470              --        9,10,341        8,46,229       14,76,699
---------------------------------------------------------------------------------------------------------
Total                     35,89,30,078       30,81,898    83,09,14,934    85,83,23,411    57,63,23,809
Previous year             22,74,82,339       26,60,172    47,50,66,754    57,63,23,809
---------------------------------------------------------------------------------------------------------
</TABLE>

Note: Buildings include Rs. 250 being the value of 5 shares of Rs. 50 each in
Mittal Towers Premises Co-operative Society Ltd.
<PAGE>
 
Schedules to the Balance Sheet as at March 31
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                 in Rs.
-------------------------------------------------------------------------------------------------------
                                                                             1999              1998
-------------------------------------------------------------------------------------------------------

4. INVESTMENTS

     TRADE (UNQUOTED) - at cost                    No. of shares
<S>                                                   <C>             <C>               <C>        
     Long- term investments

     Yantra Corporation, a subsidiary company
     incorporated in the USA

       Common stock at US$ 0.20 each,                 75,00,000       5,32,51,600       5,32,51,600
       fully paid, par value US$ 0.01 each 

       Series A Convertible Preferred Stock
       at US$ 0.75 each, fully paid,
       par value US$ 0.01 each                         6,36,363       1,73,44,074       5,45,10,000
                                                 (previous year
                                                     20,00,000)
-------------------------------------------------------------------------------------------------------
                                                                      7,05,95,674      10,77,61,600
     Less : Provision for investment in subsidiary                    7,05,95,674                --
-------------------------------------------------------------------------------------------------------
                                                                               --      10,77,61,600
-------------------------------------------------------------------------------------------------------
     JASDIC Park Company                                    480         75,38,109                --
       (common stock at Yen 50,000 each, fully paid up)
     Software Services Support Education Center Limited       1                10                10
       (Equity shares of Rs. 10 each fully paid up)
     The Saraswat Co-operative Bank Limited
       (Equity shares of Rs. 10 each fully paid up)       1,035            10,350            10,350
-------------------------------------------------------------------------------------------------------
                                                                        75,48,469      10,77,71,960
=======================================================================================================
     Aggregate of unquoted investments - carrying value / cost          75,48,469      10,77,71,960

5.   SUNDRY DEBTORS
     Debts outstanding for a period exceeding six months
     Unsecured
          Considered good                                                      --                --
          Considered doubtful                                         1,27,23,349       1,52,12,216

     Other debts - unsecured, considered good *                      84,51,88,425      39,88,48,667
-------------------------------------------------------------------------------------------------------
                                                                     85,79,11,774      41,40,60,883
     Less: Provision for doubtful debts                               1,27,23,349       1,52,12,216
-------------------------------------------------------------------------------------------------------
                                                                     84,51,88,425      39,88,48,667
=======================================================================================================
     *Due by subsidiary - Yantra Corporation                          1,06,80,297         62,89,036
</TABLE>
<PAGE>
 
Schedules to the Balance Sheet as at March 31
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                 in Rs.
---------------------------------------------------------------------------------------
                                                               1999            1998
---------------------------------------------------------------------------------------
<S>                                                            <C>             <C>     
6.   CASH AND BANK BALANCES
     Cash on hand                                              8,80,351        5,30,077
     Balances with scheduled banks
       in current accounts *                               15,18,51,331    10,60,52,806
       in deposit accounts in Indian rupees                12,41,56,133       42,06,643
       certificates of deposit in Indian rupees                      --    15,52,06,706
       in deposit accounts in foreign currency            346,11,46,800     5,20,55,249

     Balances with non-scheduled banks - in current accounts
       ABN Amro Bank, Heerlen, Netherlands                    19,06,318       10,72,838
       Bank of America, Los Angeles, USA                       7,09,257        3,53,326
       Bank of America, Milpitas, USA                         36,81,071    11,07,73,736
       Bank of America, Palo Alto, USA                     29,27,16,702              --
       Bank of Boston, Boston, USA                            18,01,647       45,81,111
       Barclays Bank, London, UK                              26,34,197        4,58,195
       Deutsche Bank, Frankfurt, Germany                       6,71,259              --
       First Chicago Bank, Chicago, USA                       25,28,864          88,850
       Hongkong Bank of Canada, Toronto, Canada               12,68,577        8,87,116
       Michigan National Bank, Detroit, USA                    5,54,105              --
       Nations Bank, Dallas, USA                              11,25,702        5,98,598
       Nations Bank, Georgia, USA                              8,88,657              --
       Seafirst Bank, Seattle, USA                             5,19,580              --
       Sanwa Bank, Tokyo, Japan                                9,07,608          43,845
       Summit Bank, Bridgewater, USA                           5,34,840       17,46,627
---------------------------------------------------------------------------------------
                                                          405,04,82,999    43,86,55,723
=======================================================================================

     Maximum balance held during the year:
       ABN Amro Bank, Heerlen, Netherlands                    19,55,717       28,77,014
       Bank of America, Los Angeles, USA                      48,32,906       16,31,113
       Bank of America, Milpitas, USA                      27,81,50,845    14,99,74,560
       Bank of America, Palo Alto, USA                     34,45,46,960              --
       Bank of Boston, Boston, USA                            56,13,937     5,50,09,836
       Barclays Bank, London, UK                              60,22,293       24,05,326
       Deutsche Bank, Frankfurt, Germany                       8,81,045              --
       First Chicago Bank, Chicago, USA                       25,42,183       24,23,279
       Hongkong Bank of Canada, Toronto, Canada               19,90,796        8,87,116
       Michigan National Bank, Detroit, USA                   10,01,950              --
       Nations Bank, Dallas, USA                              14,58,595       12,94,793
       Nations Bank, Georgia, USA                             11,31,832              --
       Seafirst Bank, Seattle, USA                             6,97,458              --
       Sanwa Bank, Tokyo, Japan                               18,47,164       13,28,328
       Summit Bank, Bridgewater, USA                          37,29,977       17,96,076
</TABLE>

      *     Includes Rs. 12,98,113 (previous year Rs. 11,66,513) being the
            balance in the unclaimed dividend account.
<PAGE>
 
Schedules to the Balance Sheet as at March 31
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                             in Rs.
---------------------------------------------------------------------------------------------------------------------
                                                                                   1999                    1998
---------------------------------------------------------------------------------------------------------------------
    <S>                                                                   <C>                     <C>        
7.   LOANS AND ADVANCES 
     Unsecured, considered good 
     Advances recoverable in cash or
       in kind or for value to be received                                  8,93,38,338             5,21,21,294
     Advance income tax                                                    19,10,80,222             9,59,04,567
     Loans and advances to employees *                                     21,82,98,877             7,54,56,651
     Other advances                                                           96,29,958             4,16,88,775
     Rent and maintenance deposits                                          5,91,41,182             5,38,65,413
     Deposits with Financial Institution / body corporate                  11,61,07,945             7,27,63,986
---------------------------------------------------------------------------------------------------------------------
                                                                           68,35,96,522            39,18,00,686
     Unsecured, considered doubtful
     Deposit with company                                                   1,19,02,331               70,10,039
     Loans and advances to employees                                           4,01,814                      --
---------------------------------------------------------------------------------------------------------------------
                                                                           69,59,00,667            39,88,10,725
     Less : Provision for doubtful loans and advances                       1,23,04,145               70,10,039
---------------------------------------------------------------------------------------------------------------------
                                                                           68,35,96,522            39,18,00,686
=====================================================================================================================
     * Due by non-director officers of the company                          1,11,95,272               89,71,524
     Maximum amount due at any time during the year                         1,60,70,546             1,07,49,219

8.   CURRENT LIABILITIES
     Sundry creditors
          for goods                                                           31,73,360               39,38,682
          for accrued salaries and benefits                                13,13,31,791             6,23,37,905
          for other liabilities                                             9,79,73,278             3,70,85,711
     Advances received from clients                                            7,80,446               50,56,601
     Deferred revenue                                                         94,94,534               24,51,442
     Unearned Revenue                                                      18,42,90,959                      --
     Unclaimed dividend                                                       12,98,113               11,66,513
---------------------------------------------------------------------------------------------------------------------
                                                                           42,83,42,481            11,20,36,854
=====================================================================================================================

9.   PROVISIONS

     Provision for taxation                                                23,94,60,761             7,99,76,791
     Proposed dividend                                                      8,10,32,734             5,27,17,738
     Provision for contingencies                                            6,66,00,000                      --
     Provision for post-sales client support                                3,42,28,402             1,23,09,815
---------------------------------------------------------------------------------------------------------------------
                                                                           42,13,21,897            14,50,04,344
=====================================================================================================================
</TABLE>
<PAGE>
 
Schedules to the Profit and Loss Account for the year ended March 31
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                              in Rs.
----------------------------------------------------------------------------------------------------------------------
                                                                                   1999                    1998
----------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                     <C>        
10.  OTHER INCOME
     Interest received on deposits with banks and others                    3,67,00,927             1,58,69,826
       Tax deducted at source Rs. 21,21,726 (Rs. 17,60,067)
     Profit on sale of assets                                                        --                1,09,159
     Sale of special import licenses                                                 --             1,01,26,872
     Miscellaneous income                                                     17,70,906                9,77,937
----------------------------------------------------------------------------------------------------------------------
                                                                            3,84,71,833             2,70,83,794
======================================================================================================================
11.  SOFTWARE DEVELOPMENT EXPENSES
     Salaries and bonus including overseas staff expenses                 151,56,56,923            87,45,07,472
     Staff welfare                                                          3,06,17,200             2,37,53,531
     Contribution to provident and other funds                             11,42,90,209             3,90,03,595
     Foreign tour and travel                                               58,11,20,975            25,21,33,000
     Consumables                                                            1,06,44,207               58,70,353
     Cost of software packages
       for own use                                                         14,86,91,737             8,74,93,506
       for domestic software development                                    1,78,19,890             1,98,37,506
     Provision for post-sales client support                                2,19,18,587             1,23,09,815
     Computer maintenance                                                   3,29,08,467             1,53,49,718
     Communication expenses                                                 9,59,08,515             5,74,16,558
     Consultancy charges                                                    4,55,97,342             2,43,42,563
======================================================================================================================
                                                                          261,51,74,052           141,20,17,617
======================================================================================================================
12.  ADMINISTRATION AND OTHER EXPENSES
     Travelling and conveyance                                              4,15,37,200             2,96,75,343
     Rent                                                                   7,44,54,587             5,35,80,219
     Telephone charges                                                      5,15,34,846             3,37,04,179
     Legal and professional charges                                         5,37,56,388             2,67,63,969
     Printing and stationery                                                1,76,34,923             1,13,49,709
     Advertisements                                                           76,84,502             1,15,01,922
     Office maintenance                                                     2,95,44,190             2,76,24,915
     Repairs to building                                                    1,08,24,460               65,00,864
     Repairs to plant and machinery                                           86,47,678               45,54,587
     Power and fuel                                                         2,73,37,769             1,67,48,311
     Insurance charges                                                      1,28,78,968               43,57,933
     Rates and taxes                                                        1,16,79,290             1,11,51,246
     Donations                                                              1,49,82,357               52,34,364
     Auditors' remuneration   - audit fees                                    14,35,000                9,00,000
                              - certification charges                          2,00,000                      --
                              - other services                                 8,00,000                      --
                              - out-of-pocket expenses                         1,50,000                  30,000
     Provision for bad and doubtful debts                                    (13,06,919)            1,52,12,216
     Provision for doubtful loans and advances                                52,94,106               70,10,039
     Bank charges and commission                                              38,95,031               29,27,262
     Commission charges                                                        7,40,413               10,58,955
     Obsolete stock written off                                                       -                2,26,729
     Miscellaneous expenses                                                 5,29,25,348             3,52,81,056
     Research grants                                                        3,09,00,000                      --
----------------------------------------------------------------------------------------------------------------------
                                                                           45,75,30,137            30,53,93,818
======================================================================================================================
</TABLE>
<PAGE>
 
Schedules to the Balance sheet and Profit and loss account
--------------------------------------------------------------------------------

13. SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS

      13.1 Significant accounting policies

      13.1.1 Basis for preparation of financial statements

      The financial statements are prepared under the historical cost
      convention, in accordance with the Generally Accepted Accounting
      Principles (GAAP) and the provisions of the Companies Act, 1956, as
      adopted consistently by the company. All income and expenditure having a
      material bearing on the financial statements are recognized on the accrual
      basis.

      The preparation of the financial statements in conformity with the GAAP
      requires that the management make estimates and assumptions that affect
      the reported amounts of assets and liabilities, and disclosure of
      contingent assets and liabilities as of the date of the financial
      statements, and the reported amounts of revenue and expenses during the
      reporting period. Examples of such estimates include, estimates of
      expected contract costs to be incurred to complete software development,
      provision for doubtful debts, future obligations under employee retirement
      benefit plans and the useful lives of fixed assets. Actual results could
      differ from those estimates.

      13.1.2 Revenue recognition 

      Revenue from software development on a time-and-material basis is
      recognized based on software developed and billed to clients as per the
      terms of specific contracts. In the case of fixed-price contracts, revenue
      is recognized based on the milestones achieved as specified in the
      contracts, on the percentage of completion basis. Revenue from the sale of
      software products is recognized when the sale has been completed with the
      passing of title. Revenues from Annual Technical Services (ATS) is
      recognized on a pro rata basis over the period in which such services are
      rendered. Interest on deployment of surplus funds is recognized using the
      time-proportion method, based on interest rates implicit in the
      transaction. Dividend income is recognized when the right to receive
      dividend is established. Revenue from the sale of Special Import Licences
      is recognized when the licences are actually sold.

      13.1.3 Expenditure

      Expenses are accounted on the accrual basis and provisions are made for
      all known losses and liabilities. Provisions are made for future
      unforeseeable factors which may affect the ultimate profit on fixed-price
      software development contracts. The cost of software purchased for use in
      software development and services is charged to revenue in the same year.
      The leave encashment liability of the company is provided on the basis of
      actuarial valuation. Provisions are made towards likely expenses on
      providing post-sales client support for fixed-price contracts.

      13.1.4 Fixed assets

      Fixed assets are stated at the cost of acquisition, less accumulated
      depreciation. Direct costs are capitalized till the assets are ready to be
      put to use. These costs include financing costs relating to specific
      borrowing(s) attributable to fixed assets. 

      13.1.5 Capital work-in-progress 

      Advances paid towards the acquisition of fixed assets, and the cost of
      assets not put to use before the year-end, are disclosed under capital
      work-in-progress.

      13.1.6 Depreciation

      Depreciation on fixed assets is provided using the straight-line method,
      based on useful lives as estimated by the management. Depreciation is
      charged on a pro rata basis for assets purchased / sold during the year.
      Individual assets costing less than Rs. 5,000 are depreciated in full in
      the year of purchase. The management's estimate of useful lives for the
      various fixed assets is given below.
<PAGE>
 
          Buildings                                           15 years

          Plant and machinery                                  5 years

          Computer equipment                                 2-5 years

          Furniture and fixtures                               5 years

          Vehicles                                             5 years

      13.1.7 Inventories

      Inventories are valued at the lower of the historic cost and the net
      realizable value. A periodic review is made of slow-moving stock, and
      appropriate provisions are made for anticipated losses, if any. Cost is
      determined using the first-in, first-out (FIFO) method.

      13.1.8 Retirement benefits to employees

      13.1.8a Gratuity

      In accordance with the Indian law, the company provides for gratuity, a
      defined benefit retirement plan covering all employees. The plan provides
      a lump sum payment to vested employees at retirement, death or termination
      of employment, based on the respective employee's salary, and the years of
      employment with the company.

      The company has established the Infosys Technologies Limited Employees'
      Group Gratuity Fund Trust (the Trust). Liabilities with regard to the
      gratuity plan are determined by actuarial valuation, based upon which, the
      company makes contributions to the Trust. Trustees administer the
      contributions made to the Trust. The funds contributed to the Trust are
      invested in specific designated securities as mandated by law, and
      generally comprise central and state government bonds, and debt
      instruments of government-owned corporations.

      13.1.8b Superannuation

      Apart from being covered under the gratuity plan described above, the
      senior officers of the company are also participants of a defined
      contribution benefit plan. The plan is termed the superannuation plan to
      which the company makes monthly contributions, based on a specified
      percentage of each covered employee's salary. The company has no further
      obligations under the plan beyond its monthly contributions.

      13.1.8c Provident fund

      In addition to the above benefits, all employees receive benefits from a
      provident fund which is a defined contribution plan. Both the employee and
      the employer make monthly contributions to the plan equal to 12% of the
      covered employee's salary.

      The company has established a Provident Fund Trust to which a part of the
      contributions are made each month. The remainder of the contributions are
      made to the Government's provident fund. The company has no further
      obligations under the plan beyond its monthly contributions.

      13.1.9 Research and development 

      Capital and revenue expenditure incurred on research and development is
      charged off to revenue in the same year in which such expenditure is
      incurred.

      13.1.10 Foreign currency transactions

      Sales made to clients outside India and realizations deposited into
      foreign currency bank accounts are accounted for on the basis of the
      exchange rate as on the date of the transaction. Adjustments are made for
      any variations in the sale proceeds on conversion into Indian currency
      upon actual receipt. Expenditure in foreign currency is accounted at the
      exchange rate prevalent when such expenditure is incurred. Disbursements
      made out of foreign currency bank accounts are reported at a rate that
      approximates the actual monthly rate. Fixed assets purchased at overseas
      offices are accounted for on the basis of the actual cost incurred at the
      exchange rate prevalent at the time of purchase. Depreciation is charged
      as per company policy. Exchange differences arising on foreign currency
      transactions are recognized as income or expense in the year in which they
      arise. 

      Current assets and current liabilities denominated in foreign currency are
      translated at the exchange rate prevalent at the date of the balance
      sheet. The resulting difference is accounted for in the profit and loss
      account. In the case of forward contracts, the difference between the
      forward rate and the exchange rate on the date of the transaction is
      recognized as income or expense over the life of the contract.
<PAGE>
 
      13.1.11 Investments
     
      Investments are classified into current investments and long-term
      investments. Current investments are carried at the lower of the cost and
      the fair value, and provision is made to recognize any decline in the
      carrying value. Long-term investments are carried at cost, and provision
      is made to recognize any decline, other than temporary, in the value of
      such investment. Overseas investments are carried at their original rupee
      cost. 

      13.1.12 Investment in subsidiary

      The investment in the subsidiary is accounted on the cost method, whereby,
      the company recognizes only dividends received from the subsidiary as
      income. In case of losses made by the subsidiary, other than temporary,
      adequate provision is made to recognize any decline in the value of the
      investment.

      13.1.13 Income tax

      Provision is made for income tax on a yearly basis, under the tax-payable
      method, based on the tax liability as computed after taking credit for
      allowances and exemptions. In case of matters under appeal, due to
      disallowances or otherwise, full provision is made when the said
      liabilities are accepted by the company.

      13.2 Notes on accounts

      The previous year's figures have been recast / restated, wherever
      necessary, to conform to the current year's classification. 

      13.2.1 Contingent liabilities

      a.    The estimated amount of contracts remaining to be executed on
            capital account, and not provided for (net of advance) is Rs.
            24,90,40,333. The amount of such contracts as at the previous
            year-end was Rs. 10,95,12,576.

      b.    The company has outstanding counter guarantees of Rs. 3,20,40,263 as
            at March 31, 1999, to various banks, in respect of guarantees given
            by the said banks in favor of various government authorities. The
            counter guarantees outstanding, as at the previous year-end, were
            Rs. 1,73,09,161.

      c.    Claims against the company, not acknowledged as debts, amounted to
            Rs. 17,91,814 as at March 31, 1999. Such claims for the previous
            year-end were Rs. 25,17,576.

      13.2.2 Quantitative details

      The company is engaged in the development and maintenance of computer
      software. The production and sale of such software cannot be expressed in
      any generic unit. Hence, it is not possible to give the quantitative
      details of sales and the information as required under paragraphs 3, 4C
      and 4D of part II of Schedule VI of the Companies Act, 1956. 

      13.2.3 Managerial remuneration paid to the chairman, managing director and
             whole-time directors

<TABLE>
<CAPTION>
                                                                                 in Rs.
--------------------------------------------------------------------------------------
                                                                  1999           1998
--------------------------------------------------------------------------------------
     <S>                                                     <C>            <C>      
     Salary                                                  38,95,200      28,92,000
     Contribution to Provident Fund and other funds          12,39,120       9,19,944
     Perquisites                                             36,92,197      22,50,981
</TABLE>

      13.2.4 Managerial remuneration paid to non-whole-time directors

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
                                                                  1999           1998
--------------------------------------------------------------------------------------
     <S>                                                     <C>             <C>     
     Commission                                              24,00,000       9,00,000
     Sitting fees                                               58,000         22,000
     Reimbursement of expenses                                7,58,645       1,74,138
</TABLE>
<PAGE>
 
      13.2.5  Computation of net profit in accordance with Section 349 of the
              Companies Act, 1956, and calculation of commission payable to
              non-whole-time directors

<TABLE>
<CAPTION>
                                                                                                  in Rs.
--------------------------------------------------------------------------------------------------------
                                                                             1999                  1998
--------------------------------------------------------------------------------------------------------
<S>                                                                 <C>                    <C>         
Profit after tax from ordinary activities                           132,91,53,560          60,36,33,079

Add :

Whole-time directors' remuneration (including perquisites)              88,26,517             60,62,925
Directors' sitting fees                                                    58,000                22,000
Commission to non-whole-time directors                                  24,00,000              9,00,000
Depreciation as per the accounts                                     35,89,30,078          22,74,82,339
Provision for investment in subsidiary                                7,05,95,674                     -
Provision for taxation                                               22,94,00,000           5,50,00,000
--------------------------------------------------------------------------------------------------------
                                                                    199,93,63,829          89,31,00,343
Less :
Depreciation as per Section 350 of the Companies Act, 1956           19,35,60,009          16,04,87,054
Profit on sale of fixed assets as per Profit and Loss Account                  --              1,09,159
Loss on sale of fixed assets (net) as per Section 350
  of the Companies Act, 1956                                                   --              4,05,438
--------------------------------------------------------------------------------------------------------
Net profit on which commission is payable                           180,58,03,820          73,20,98,692

Commission payable to non-whole-time directors
  @ 0.50% per annum of net profit                                       90,29,019             17,34,974
Commission approved by the board                                        24,00,000              9,00,000
</TABLE>

      13.2.6 Imports on CIF basis

<TABLE>
<CAPTION>
                                                                                                    in Rs.
----------------------------------------------------------------------------------------------------------
                                                                             1999                  1998
----------------------------------------------------------------------------------------------------------
<S>                                                                  <C>                   <C>         
Capital goods                                                        27,12,27,684          15,01,26,347
Software packages                                                     2,69,36,735           4,52,03,814
</TABLE>

      13.2.7 Expenditure in foreign currency

<TABLE>
<CAPTION>
                                                                                                    in Rs.
----------------------------------------------------------------------------------------------------------
                                                                             1999                  1998
----------------------------------------------------------------------------------------------------------
<S>                                                                  <C>                   <C>         
Travel expenses                                                      50,72,37,245          18,54,56,374
Professional charges                                                  2,88,63,027           1,77,59,820
Other expenditure incurred overseas for software development        109,13,62,546          58,79,49,763
</TABLE>

      13.2.8 Earnings in foreign exchange

<TABLE>
<CAPTION>
                                                                                                 in Rs.
-------------------------------------------------------------------------------------------------------
                                                                             1999                  1998
-------------------------------------------------------------------------------------------------------
<S>                                                                 <C>                   <C>          
Income from software development
  services and products on a receipts basis                         475,29,01,875         226,03,94,056
Interest received on deposits with banks                              2,14,60,480              8,35,309
</TABLE>

      13.2.9 Particulars in respect of traded items (imported and other software
             packages)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
                                                      1999                           1998
------------------------------------------------------------------------------------------------------
                                              Qty.    Value (Rs.)            Qty.          Value (Rs.)
------------------------------------------------------------------------------------------------------
<S>                                             <C>             <C>           <C>             <C>     
Opening stock                                   --             --             118             4,10,878
Purchases                                       --             --              --                   --
Closing stock                                   --             --              --                   --
Turnover                                        --             --             118             4,10,878
</TABLE>
<PAGE>
 
13.2.10 Depreciation on assets costing less than Rs. 5,000 each

During the year, the company charged depreciation at one hundred percent in
respect of assets costing less than Rs. 5,000 each, amounting to Rs.
11,37,41,697. The corresponding figure for the previous year was Rs.
2,86,94,241.

13.2.11 Post-sales client support

With effect from July 1, 1997, the company commenced making a provision for
post-sales client support on fixed-price contracts. The provision for the
current year is Rs. 2,19,18,587. The corresponding figure for the previous year
was Rs. 1,23,09,815.

13.2.12 Depreciation

With effect from October 1, 1998, the company revised the estimates of useful
lives of buildings (software centers and others) from 28 years / 58 years to 15
years. Due to this change, depreciation for the current year is higher by Rs.
42,23,419. As a result, the profit for the current year is lower by Rs.
42,23,419 on a comparative basis.

13.2.13 Annual Technical Services (ATS)

With effect from July 1, 1997, the company accounts for revenue from ATS on a
pro rata basis over the period in which such services are rendered.
Consequently, an amount of Rs. 94,94,534, forming the ATS for the current year,
has been deferred and will be recognized in future. The corresponding figure for
the previous year was Rs. 24,51,442.

13.2.14 Exchange differences

Income from overseas software development services and products includes net
realized and unrealized exchange gains of Rs. 2,77,93,084. The corresponding
figure for the previous year was Rs. 3,43,20,847.

13.2.15 Research and development expenditure

Research and development expenses charged to the Profit and Loss Account on both
capital and revenue accounts amount to Rs. 9,81,06,490 (previous year - Rs.
7,79,72,734). This includes Rs. 30,30,000 being the depreciation charged at 100%
in respect of R & D assets acquired during the year (previous year - Rs.
3,93,85,138).

13.2.16 Investment in subsidiary

During the year, the company sold a part of its holding of preferred stock in
Yantra Corporation resulting in an extraordinary income of Rs. 2,34,54,103 net
of tax (gross Rs. 2,62,54,103). The company also made a provision for its
investment in Yantra Corporation of Rs. 7,05,95,674 as the losses of Yantra
Corporation exceeded the company's contribution to its capital.

13.2.17 Provision for contingencies

The company has instituted a contingency plan to meet any possible disruption in
client support due to the Y2K impact on the technology and communication
infrastructure provided to the company by vendors. The company had made a
provision of Rs. 6,66,00,000 during the year towards such a contingency plan.

13.2.18 Unearned revenue

Unearned revenue as of March 31, 1999 consists primarily of advance client
billings on fixed-price, fixed-time-frame contracts for which related costs were
not yet incurred.

13.2.19 Dues to Small-Scale Industrial undertakings

As of March 31, 1999, the company had no outstanding dues to small-scale
industrial undertakings.
<PAGE>
 
Management's discussion and analysis of financial condition and results of
operations
--------------------------------------------------------------------------------

Overview

The financial statements have been prepared in compliance with the requirements
of the Companies Act, 1956, and the Generally Accepted Accounting Principles
(GAAP) in India. The management of Infosys accepts responsibility for the
integrity and objectivity of these financial statements, as well as for various
estimates and judgements used therein. In addition to the historical information
contained herein, the following discussion includes forward-looking statements
which involve risks and uncertainties, including, but not limited to, risks
inherent in the company's growth strategy, dependence on certain clients,
dependence on availability of qualified technical consultants and other factors
discussed in this report.

A     Financial condition

1. Share capital

      The company has, at present, only one class of shares. During the year
      10,35,000 shares (equivalent to 20,70,000 ADSs) were issued under the
      American Depositary Shares (ADS) program at US$ 34 per ADS (equivalent to
      US$ 68 per equity share) and the same were listed on the NASDAQ stock
      exchange. During March 1999, the company also issued 1,60,17,200 shares as
      bonus shares to its shareholders in the ratio of 1:1 as approved by the
      shareholders in the Extraordinary General Meeting of the company held in
      January 1999. To provide for the creation of new shares, the authorized
      capital of the company was increased to Rs. 50,00,00,000 consisting of
      5,00,00,000 shares of Rs. 10 each.

      The increase in share capital during the previous year was due to the
      issue of 7,49,000 shares arising out of the conversion of warrants issued
      under the Employees Stock Offer Plan (ESOP) to employees and to the
      Employees Welfare Trust and also due to the issue of 80,08,600 shares as
      bonus shares in the ratio of 1:1 as approved by the shareholders in the
      Annual General Meeting of the company held in June 1997.

2. Reserves and surplus

      The addition to the share premium account, of Rs. 295,82,78,400 during the
      year, is due to the premium received on issue of 10,35,000 equity shares
      (equivalent to 20,70,000 ADSs) under the American Depositary Shares (ADS)
      program. The addition to the share premium was reduced by the cost of the
      issue of Rs. 17,33,14,415 comprising of the underwriters spread, legal
      fees, accounting fees and travel expenses, etc., representing bills
      received to date. Bills for additional costs are still awaited. The
      details of ADS issue expenses are given as under.

      -------------------------------------------------------------------
      Nature of expenses                                         in Rs.
      -------------------------------------------------------------------
      Travel expenses                                         35,91,484
      India advisor's fees                                  1,48,43,142
      Legal and accounting fees                             1,79,01,524
      Registration and filing fee                             30,86,211
      Stamp duty                                              29,88,150
      Underwriters' spread                                 14,28,61,129
      Contribution received from depositary                (1,19,57,225)
      -------------------------------------------------------------------
                                                           17,33,14,415
      -------------------------------------------------------------------

      The addition to the share premium account, of Rs. 6,74,10,000, during the
      previous year, was due to the premium of Rs. 90 per share received upon
      conversion of 7,49,000 warrants under the ESOP scheme. During the year,
      the company transferred the balance profit of Rs. 119,59,70,241 to the
      General Reserve, after transferring a sum of Rs. 2,34,54,103 to Capital
      Reserve and after providing for a dividend payment of Rs. 12,10,75,745 and
      dividend tax of Rs. 1,21,07,574. During the previous year, the company
      transferred the balance profit of Rs. 52,63,12,322 to the General Reserve,
      after providing for a dividend payment of Rs. 7,02,91,597 and dividend tax
      of Rs. 70,29,160.
<PAGE>
 
3. Fixed assets

      During the year, the company added Rs. 64,11,69,396 to its gross block,
      including investment in technology assets of Rs. 28,94,72,182. During the
      previous year, the company added Rs. 34,13,26,052 to its gross block,
      including investment in technology assets of Rs. 17,50,02,584. The capital
      work-in-progress as on years ended March 31, 1999 and 1998, represents
      advances paid towards acquisition of fixed assets, and the cost of assets
      not put to use. During the year, the company donated computer systems
      costing Rs. 30,02,107 (book value Nil) to certain educational institutions
      and the same is disclosed under the heading Deductions during the year,
      under both Gross block and Depreciation. The same stood at Rs. 15,71,400
      during the previous year. 
      
      The company estimates that it would be able to fund its capital
      acquisition program from its internal accruals and liquid assets. The
      company may also take recourse to borrowings to meet its capital
      expenditure, should it be deemed necessary.

4. Investments

      The company's subsidiary, Yantra Corporation, is incorporated in the US.
      The company had made an investment of US$ 500,000 (Rs. 1,73,51,600) by a
      cash remittance, after obtaining the necessary approvals, during the year
      ended March 31, 1996, towards the issue of 2,500,000 shares of common
      stock at US$ 0.20 per share with a par value of US$ 0.01 per share. During
      the year ended March 31, 1997, the company sold its software product,
      Eagle, to Yantra Corporation for an amount of US$ 1,000,000 (Rs.
      3,59,00,000). The sale was paid for by the issue of 5,000,000 shares of
      common stock at US$ 0.20 per share with a par value of US$ 0.01 per share.
      Thus, the cumulative investment by the company in the capital of Yantra
      Corporation till the year ended March 31, 1997, was US$ 1,500,000 (Rs.
      5,32,51,600). During the year ended March 31, 1998, the company invested
      an amount of US$ 1,500,000 (Rs. 5,45,10,000), towards the issue of
      2,000,000 shares of Convertible Preferred Stock in Yantra Corporation at
      US$ 0.75 per share, by way of cash remittance. At the same time, the
      capital of Yantra also increased by US$ 2,250,000 due to the issue of
      3,000,000 shares of Convertible Preferred Stock at US$ 0.75 each to
      venture capitalists.

      During September 1998, further capital was raised from venture capital
      funds amounting to US$ 6,000,000 (Rs. 25,47,00,000), by the issue of
      4,800,000 shares of Convertible Preferred Stock along with convertible
      warrants in Yantra Corporation at US$ 1.25 per share, by way of cash
      remittance.

      During October 1998, Infosys sold part of its Convertible Preferred Stock
      holding of 1,363,637 shares at US$ 1.10 per share amounting to US$
      1,500,000 (Rs. 6,34,20,030) to a venture capital firm and received the
      consideration in cash. Post this sale, the economic interest of Infosys in
      Yantra Corporation stands at 47%. The Yantra accounts have not been
      consolidated with Infosys from that date as per US GAAP but Yantra is
      still deemed a subsidiary in terms of the Companies Act 1956.

      The losses in Yantra have exceeded the investments, to date. Hence, a
      provision of Rs. 7,05,95,674 was made during the year towards investments
      in Yantra Corporation. With this provision, the investments in Yantra
      Corporation have a carrying value of nil in the books. 

      The financial statements of the subsidiary are provided elsewhere in this
      report.

      During the year, Infosys invested an amount of Yen 24 million (Rs.
      75,38,109) towards the issue of 480 shares of JASDIC Park Company.

5. Sundry debtors

      Sundry debtors amount to Rs. 84,51,88,425 (net of provisions for bad and
      doubtful debts) as at March 31, 1999, as compared with Rs. 39,88,48,667 as
      at March 31, 1998. These debtors are considered good and realizable, and
      provision has been made for all debtors outstanding for more than 180
      days. The debtors as a percentage of total software revenue is 16.61% for
      the year ended March 31, 1999, as compared with 15.48% for the previous
      year. This amounts to an outstanding of 61 days and 57 days of software
      revenue for the respective years. The age profile is as given below:
<PAGE>
 
<TABLE>
<CAPTION>
      --------------------------------------------------------------------------------------------------------------
      Period in days                                                      March 31, 1999          March 31, 1998
      --------------------------------------------------------------------------------------------------------------
      <S>                                                                        <C>                     <C>       
       0 - 30                                                                     58.03%                  60.88%    
      31 - 60                                                                     24.09%                  29.90%
      61 - 90                                                                     10.66%                   6.43%
      More than 90                                                                 7.22%                   2.79%
      --------------------------------------------------------------------------------------------------------------
                                                                                 100.00%                 100.00%
      --------------------------------------------------------------------------------------------------------------
</TABLE>

6. Cash and bank balances

<TABLE>
<CAPTION>


                                                                                                              in Rs.
      --------------------------------------------------------------------------------------------------------------
                                                                          March 31, 1999          March 31, 1998
      --------------------------------------------------------------------------------------------------------------
      <S>                                                                  <C>                      <C>     
      Cash balances                                                             8,80,351                5,30,077
      Bank balances in India    - current accounts                          15,18,51,331            10,60,52,806
                                - deposit account                           12,41,56,133            15,94,13,349
                                - EEFC deposit account in US$               62,06,68,810             5,20,55,249
      Bank balances - overseas  - current account                           31,24,48,384            12,06,04,242
                                - deposit account                          284,04,77,990                      --
      --------------------------------------------------------------------------------------------------------------
                                                                           405,04,82,999            43,86,55,723
      --------------------------------------------------------------------------------------------------------------
</TABLE>
    
      The bank balances in India include both rupee accounts and foreign
      currency accounts. They also include Rs. 12,98,113 and Rs. 11,66,513 in
      the unclaimed dividend account for the years ended March 31, 1999 and
      1998. The deposit account represents deposits for short tenures. The
      company also has a deposit of US$ 14,728,758 (Rs. 62,06,68,810) in the
      Exchange Earners Foreign Currency (EEFC) account as at March 31, 1999. The
      bank balances in overseas deposit accounts include a net amount of US$
      66,993,060 (Rs. 282,57,67,270) received on completion of the American
      Depositary Shares (ADS) program and maintained as a deposit with State
      Bank of India, Nassau, OBU, New York. The bank balances in overseas
      accounts are maintained to meet the expenditure of the overseas branches
      in USA and other countries, and to meet project-related expenditure
      overseas. 

      The cash and cash equivalents as at March 31, 1999 and 1998,
      amounted to Rs. 416,65,90,944 (including Rs. 11,61,07,945 deposited with a
      financial institution and body corporate) and Rs. 51,14,19,709. This
      represents 73% and 30% of the total assets as at March 31, 1999 and 1998.

7. Loans and advances

      Advances recoverable in cash or in kind or for value to be received, are
      primarily towards amounts paid in advance for value and services to be
      received in future. Advance income tax represents payments made towards
      tax liability for the years ended March 31, 1999 and 1998, and so also
      refunds due for previous years. The company's liability towards income tax
      has been fully provided for. Deposits with financial institution and body
      corporate of Rs. 11,61,07,945 represent amounts kept with Housing
      Development Finance Corporation Limited and GE Capital Services India as
      deposits. The company's treasury policy calls for investing only in highly
      rated companies for short maturities with a limit for individual
      companies. Loans to employees are made to enable the purchase of assets by
      employees and to meet any emergency requirements. The loans to employees
      increased significantly during the year, due to an increase in the number
      of employees taking such loans, and also due to the introduction of
      various new loan schemes. Other advances represent electricity deposits
      and advances of a similar nature. The company has taken on lease, several
      buildings for its software development centers in various cities and also
      for housing its staff. The deposits paid towards the above are shown under
      rent and maintenance deposits.

8. Current liabilities

      Sundry creditors for goods represent the amount payable to vendors for the
      supply of goods. Sundry creditors for accrued salaries and benefits
      include the provision for bonus payable to the staff, and towards the
      company's liability for leave encashment valued on an actuarial basis.
      Sundry creditors for other liabilities represent amounts accrued for
      various other operational expenses. Advances received from clients denote
      monies received for the delivery of future services. Unclaimed dividends
      represent dividend paid, but not encashed by shareholders, and are
      represented by a bank balance of equivalent value.
<PAGE>
 
9. Unearned revenue

      Unearned revenue as on March 31, 1999 consists primarily of advance client
      billing on fixed-price, fixed-time-frame contracts for which related costs
      were not yet incurred.

10. Provisions

      Provisions for taxation represent estimated income tax liabilities, both
      in India and abroad, for the years ended March 31, 1999 and 1998. The
      provisions and the advance tax payments would be set-off upon assessment.
      The proposed dividend represents the final dividend recommended to the
      shareholders by the board, and would be paid after the Annual General
      Meeting, upon approval by the shareholders.

B. Results of operations

1. Income

      The company derives its income from software services and the sale of
      software products. Approximately, 98% of the company's income is derived
      from export activities. During the year, the income from exports increased
      by more than 99%. The increase in export income is due to an all-round
      growth in various segments of the business.

      Domestic software income represents the licence fee from the sale of
      Bancs2000, a banking automation software product. During the year,
      domestic software income has increased by approximately 29%. 

      Other income is from investment of surplus funds. 

      The total income of the company grew by 97% during the year, as compared
      with 81% during the previous year. Details of the geographical
      segmentation and business segmentation of income are provided elsewhere in
      this report.

2. Expenditure

      2.1   Software development expenses

      Employee costs constitute around 32% and 36% of total revenue for the
      years ended March 31, 1999 and 1998. Foreign tour and travel expenses,
      representing cost of travel abroad for software development and marketing,
      constituted approximately 11% and 10% of total revenue for the years ended
      March 31, 1999 and 1998.

      The company spent a sum of Rs. 14,86,91,737 and Rs. 8,74,93,506, for the
      years ended March 31, 1999 and 1998, towards the cost of software packages
      and tools procured for internal use, to enhance the quality of its
      services and also to meet the needs of software development for some of
      its clients. The cost of software packages purchased for own use has
      increased by approximately 70% during the year, and was around 3% of the
      total income for the years ended March 31, 1999 and 1998. The company's
      policy is to charge such purchases to revenue in the year of purchase. The
      company has also spent a sum of Rs. 1,78,19,890 and Rs. 1,98,37,506
      towards software products used in Bancs2000 for the years ended March 31,
      1999 and 1998.

      A major part of the company's revenue comes from offshore software
      development. This involves the large-scale use of satellite connectivity
      in order to be online with clients. A sum of Rs. 9,59,08,515 and Rs.
      5,74,16,558 was incurred towards meeting this expenditure for the years
      ended March 31, 1999 and 1998. This represents approximately 2% of total
      revenue for the years ended March 31, 1999 and 1998.

      During the year, the company provided an amount of Rs. 2,19,18,587 towards
      post-sales client support. This represents a provision for post-sales
      obligations of the company in respect of the outstanding fixed-price
      projects as at the year end.

      The company also utilizes outside consultants for part of its software
      development work. This usage is primarily in the area of Year 2000
      conversion projects. During the year, the company spent a sum of Rs.
      4,55,97,342 towards such consultancy as compared with Rs. 2,43,42,563
      during the previous year.

      2.2 Administration and other expenses

      The company incurred administration and other expenses at 8.92% of its
      total revenue during the year, as compared with 11.73% during the previous
      year.
<PAGE>
 
      The rent expenses increased by approximately 39% during the year.
      Telephone charges increased by 53% due to greater usage. Legal and
      professional charges represent fees paid for availing various services
      like tax consultancy, visa processing, US GAAP audit, etc. The office
      maintenance expenses increased by 27% due to the increased volume of
      business. The increase in other expenses is primarily due to an increased
      level of business.

      2.3 Provision for contingencies

      The majority of the software development work in Infosys is carried out in
      India. There were concerns across the world of the possible disruption in
      telecommunication links to the US due to Y2K non-compliance by the
      telecommunication switches or the satellite systems provided by the
      service providers. This is a concern for Infosys as well, even though
      these links are provided by major carrier networks. Such failures may
      result in disruption of business and may result in financial losses.

      Infosys has instituted a contingency plan to meet any possible disruption
      in client support due to the Y2K impact on the technology and
      communication infrastructure provided to the company by its vendors. The
      company has made a provision of Rs. 6.66 crore during fiscal 1999 towards
      such a contingency plan.

      2.4 Provision for investment in subsidiary

      The company has provided a sum of Rs. 7,05,95,674 towards its investment
      in Yantra Corporation during the current year, due to the losses of Yantra
      exceeding the company's contribution to its equity.

3. Operating profits

      During the year, the company earned an operating profit (profit before
      interest, depreciation and tax) of Rs. 191,74,83,638 representing 37.40%
      of total revenue as compared with Rs. 88,61,15,418, representing 34.03% of
      total revenue during the previous year. The increase was due to an
      increase in per capita revenue productivity, lower growth in
      administration costs and broadening of the business mix.

4. Interest

      The company continued to be debt-free during the year.

5. Depreciation

      The company provided a sum of Rs. 35,89,30,078 and Rs. 22,74,82,339
      towards depreciation for the years ended March 31, 1999 and 1998. This
      represents approximately 7% and 9% of total revenue for the years ended
      March 31, 1999 and 1998. The depreciation for the years ended March 31,
      1999 and 1998, includes an amount of Rs. 11,37,41,697 and Rs. 2,86,94,241
      towards 100% depreciation on assets costing less than Rs. 5,000 each.

      During the year, the company revised the estimate of useful lives of
      buildings from 28 years / 58 years for software development centers and
      others to 15 years. Due to this change, the depreciation for the year is
      higher by Rs. 42,23,419. Moreover, the depreciation charges included an
      amount of Rs. 30,30,000 towards depreciation provided, in full, on assets
      acquired for research and development activities.

6. Provision for tax

      The company has provided for its tax liability both in India and overseas.
      The present Indian corporate tax rate is 35%. Export profits are entitled
      to benefit under two schemes of the Government of India. Under the first
      scheme, the proportion of the profits of the company attributable to
      export activities are deductible from the income subject to tax. Under the
      second scheme, the profits attributable to the operations of the company
      under the 100% export oriented unit scheme is entitled to a total tax
      holiday of ten years. 

      The company has provided a sum of Rs. 4,32,00,000 and Rs. 1,50,50,000
      during the years ended March 31, 1999 and 1998, for the tax liability of
      earlier years, consequent to the finalization of the tax assessments. The
      additional liability has arisen due to certain disallowances in India
      which are contested in appeal, and additional payments overseas.
<PAGE>
 
7. Net profit

      The net profit of the company from ordinary activities amounted to Rs.
      132,91,53,560 and Rs. 60,36,33,079 for the years ended March 31, 1999 and
      1998. This represents 25.92% and 23.18% of total revenue for the
      respective years.

8. Extraordinary income

      During the year, the company sold 13,63,637 shares of its preferred stock
      holding in its subsidiary, Yantra Corporation, at US$ 1.10 per share. The
      profit of Rs. 2,34,54,103, net of tax, has been disclosed as an
      "extraordinary income" in the Profit and loss account. This profit of Rs.
      2,34,54,103 has been transferred to capital reserve from the Profit and
      loss account.

9. Foreign exchange differences

      An amount of Rs. 2,77,93,084 and Rs. 3,43,20,847 is included in the Profit
      and Loss Account for the years ended March 31, 1999 and 1998, representing
      the realized and unrealized exchange gains due to currency fluctuation.
      This represents 0.54% and 1.32% of total revenue for the years ended March
      31, 1999 and 1998.

10. Employees Stock Offer Plan

      The company instituted an Employees Stock Offer Plan (ESOP) in 1994 for
      all eligible employees. Under the plan, warrants are transferred to
      employees deemed eligible by the advisory board constituted for the
      purpose. Accordingly, 7,50,000 warrants were issued by the company to the
      Infosys Technologies Limited Employees Welfare Trust, to be held in trust
      and transferred to selected employees from time to time. Warrants are
      issued at Re. 1 each and entitle the holder thereof to apply for and be
      issued one share of the company at a price of Rs. 100 after a period of
      five years from the date of issue. The warrants and the shares to be
      issued thereon are subject to a lock-in period of five years from the date
      of issue. The warrants expire on September 30, 1999, and are convertible
      before their expiration.

      Under the ESOP scheme, the warrant holders are entitled to convert the
      warrants before any bonus or rights issue. The company issued bonus shares
      in the ratio of 1:1 during October 1997 and March 1999. Accordingly, the
      warrant holders, including the trust and the employees, were given an
      option to convert their warrants. They were also issued bonus shares being
      holders of shares as on the record date.

     The number of warrants issued and outstanding is given below:

<TABLE>
<CAPTION>
     -----------------------------------------------------------------------------------------------------------------------------
     Year ended            No. of          Warrants      Shares issued on        Bonus shares        No. of     Right to shares
     March 31           employees    transferred to          conversion of          issued on     employees          offered to
                                          employees      warrants, subject   conversion, free                         employees
                                              (Net)             to lock-in       from lock-in                             (Net)
     -----------------------------------------------------------------------------------------------------------------------------
     <S>                     <C>          <C>                    <C>               <C>               <C>           <C>    
     1995                      76         1,11,100                1,11,100           1,11,100                             --
     1996                     110         1,32,600                1,32,600           1,32,600                             --
     1997                     156         1,06,200                1,06,200           1,06,200                             --
     1998                     348         2,57,200                2,57,200           2,57,200                             --
     1999                    1106         4,07,100                4,07,100           4,07,100          607          1,64,000
     -----------------------------------------------------------------------------------------------------------------------------
     Total                               10,14,200               10,14,200          10,14,200          607          1,64,000
     -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
                                                                                
     Employees hold 10,14,200 shares subject to lock-in and 1,64,000 right to
     shares as at March 31, 1999. 1,744 employees hold shares/right to shares as
     of March 31, 1999, after discounting the employees who have received
     shares/right to shares in several years.
<PAGE>
 
     Break-up of net warrants/right to shares issued to employees

<TABLE>
<CAPTION>
     ------------------------------------------------------------------------------------------------------------
     Year ended March 31                No. of      Warrants transferred/        No. of       Warrants/Right to
                                      employees   right to shares offered      employees      shares forfeited*
     ------------------------------------------------------------------------------------------------------------
     <S>                                  <C>                    <C>                  <C>                <C>
     1995                                   106                  1,44,100             30                 33,000
     1996                                   144                  1,58,000             34                 25,400
     1997                                   193                  1,24,600             37                 18,400
     1998                                   382                  2,76,800             34                 19,600
     1999                                 1,750                  5,78,100             37                  7,000
     ------------------------------------------------------------------------------------------------------------
</TABLE>

     *26,500 shares forfeited after the bonus issue are included in the
     respective years. 
     Statement of warrants/shares held by ITL Employees Welfare Trust 

<TABLE>
<CAPTION>
     <S>                                                                                                <C>      
     Warrants originally allotted to ITL Employees Welfare Trust                                        7,50,000 
     Less : Net warrants issued to eligible employees before bonus issue in October 1997                3,76,400 
     Warrants held by the Trust immediately before bonus issue
       in October 1997 and converted to shares                                                          3,73,600
     Add  : Bonus shares allotted to the Trust in October 1997                                          3,73,600
     Shares held by the Trust immediately after bonus issue in October 1997                             7,47,200
     Add  : Shares surrendered to the Trust after bonus issue in October 1997                             26,500
     Less : Net right to shares issued to eligible employees before bonus issue in March 1999           6,64,300
     Shares held by the Trust immediately before bonus issue in March 1999                              1,09,400
     Add  : Bonus shares allotted to the Trust in March 1999                                            1,09,400
     Shares held by the Trust immediately after bonus issue in March 1999                               2,18,800
     Less : Net right to shares issued to eligible employees after bonus issue in March 1999            1,64,000
     Shares held by the Trust for future grant, as of March 31, 1999                                      54,800
     -----------------------------------------------------------------------------------------------------------
</TABLE>

11. ADS-linked stock option plans

     One of the basic objectives of the ADS issue and the consequent listing in
     the NASDAQ stock exchange was to institute an ADS-linked stock option plan,
     to attract the best and the brightest across the world. The necessary
     resolutions authorizing the board to formulate the scheme have been
     approved by the shareholders in the Extraordinary General Meeting held on
     January 6, 1998. Accordingly, your directors had put in place an ADS-linked
     stock option plan termed as the "1998 stock option plan". The scheme is
     being administered by a committee of the board. The maximum aggregate
     number of shares on which options may be issued under the plan is 800,000
     shares, equivalent to 1,600,000 ADSs subject to an overall grant value of
     US$ 50,000,000. The plan is effective for a period of 10 years from the
     date of its adoption by the board. The exercise price for the ADS-linked
     stock option shall be determined by the committee of the board and in no
     case will be less than 90% of the fair market value on the date of grant.

     Accordingly, the committee of the board of directors has made a concurrent
     grant of 2,13,000 options to eligible employees at US$ 34 per option.

12. Reconciliation of Indian and US GAAP financial statements

     There are significant differences between the US GAAP and the Indian GAAP
     financial statements. The material differences arise due to the provision
     for deferred taxes, consolidation of accounts of subsidiaries and provision
     for deferred compensation due to the issue of stock options to employees.
     The reconciliation of profits as per the Indian and the US GAAP financial
     statements is given below.
<PAGE>
 
<TABLE>
<CAPTION>
                                                                                     Rs. in crore
     ------------------------------------------------------------------------------------------------
     <S>                                                               <C>           <C>  
     Profit as per the Indian GAAP financial statements                              135.26Less      
          : Loss from Yantra Corporation accounted                      8.44
            Amortization of deferred stock compensation expense        15.40                         
            Compensation expense arising from stock dividend           54.45           78.29
     ------------------------------------------------------------------------------------------------
                                                                                       56.97
     Add  : Provision for investment in Yantra Corporation             7.06
            Deferred Income tax provision                              2.65
            Provision for contingencies                                6.66           16.37
     ------------------------------------------------------------------------------------------------
     Net income as per the US GAAP financial statements                               73.34
     ------------------------------------------------------------------------------------------------
</TABLE>

      Loss from Yantra Corporation

      The Indian GAAP does not require consolidation of financial statements of
      subsidiaries with the parent company. However, the US GAAP mandates for
      consolidating the financial statements of subsidiaries with the parent
      company for reporting purposes. The consolidated financial statements for
      the year includes the results of the company's formerly majority-owned
      subsidiary, Yantra Corporation, up to October 20, 1998. The consolidated
      financial statements of Infosys for fiscal 1999 includes a net loss of Rs.
      8.44 crore of Yantra.

      Provision for investments in Yantra Corporation

      The losses incurred by Yantra Corporation exceed the contribution made by
      Infosys to the capital of Yantra Corporation. As a result, a provision of
      Rs. 7.06 crore has been made in the financial statements as per Indian
      GAAP.

      Amortization of deferred stock compensation

      The Indian GAAP does not mandate a company to recognize and amortize
      amounts relating to the deferred stock compensation arising on issue of
      stock options to employees. However, the Accounting Principles Board
      Opinion No. 25 of the US GAAP requires that deferred stock compensation
      arising on issue of stock options to employees resulting from the
      difference between the exercise price and the fair value as determined by
      the quoted market prices of the common stock underlying the warrants on
      the grant date, be accounted for.

      In complying with this requirement, Infosys has charged to revenue Rs.
      15.40 crore during fiscal 1999 as deferred stock compensation.

      Compensation arising from stock dividend 

      In fiscal 1999, the company declared a bonus issue of one equity share for
      each equity share outstanding to all its shareholders. The additional
      equity shares issued to ESOP participants as a result of the bonus issue
      were not subject to vesting. Consequently, the company recognized an
      accelerated compensation charge amounting to Rs. 54.45 crore.

      Deferred Income tax provision

      US GAAP mandates that the tax element arising on timing differences in
      amortizing various Assets and Liabilities as per the tax books and
      financial statements be accounted as deferred taxation and appropriate
      treatment be made in the income statement. There is no such requirement
      under the Indian GAAP.

C.   Outlook: Issues and risks

      These have been discussed in detail elsewhere in this report.
<PAGE>
 
Statement of cash flows for the year ended March 31
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                     in Rs.
-----------------------------------------------------------------------------------------------------------
                                                                                1999             1998
-----------------------------------------------------------------------------------------------------------
<S>                                                                         <C>              <C>         
Cash flows from operations
Profit before tax                                                           155,85,53,560     65,86,33,079
Other Income                                                                 (3,67,00,927)    (1,59,78,985)
Depreciation, depletion and amortization                                     35,89,30,078     22,74,82,339
Decrease (increase) in sundry debtors                                       (44,63,39,758)   (21,79,58,733)
Decrease (increase) in inventories                                                     --         4,10,878
Decrease (increase) in loans and advances                                   (15,32,76,222)   (10,50,83,628)
Increase (decrease) in current liabilities and provisions                    40,48,24,214      7,31,15,335
Provision for investment in subsidiary                                        7,05,95,674               --
Income taxes paid                                                           (16,79,23,184)    (4,28,37,122)
-----------------------------------------------------------------------------------------------------------
Net cash from operations                                                    158,86,63,435     57,77,83,163
===========================================================================================================
Cash flows from financing

Cash received from issuance of share capital (less expenses of issuance)    279,53,13,985      7,49,00,000
Dividends paid (including Dividend tax)                                     (10,20,36,824)    (4,66,09,004)
-----------------------------------------------------------------------------------------------------------
Net cash from financing                                                     269,32,77,161      2,82,90,996
===========================================================================================================
Cash flows from investing

Income from investments                                                       3,67,00,927      1,58,69,826
Proceeds of sale of investments (net of tax)                                  6,06,20,029               --
Proceeds of sale of fixed assets                                                 2,39,716         3,01,097
Purchase of fixed assets                                                    (71,67,91,924)   (34,40,97,344)
Investment in subsidiary                                                               --     (5,45,10,000)
Other long-term investments                                                    (75,38,109)              --
-----------------------------------------------------------------------------------------------------------
Net cash from investing                                                     (62,67,69,361)   (38,24,36,421)
===========================================================================================================
Total increase (decrease)
   in cash and equivalents during the year                                  365,51,71,235     22,36,37,738
Cash and equivalents at the
   beginning of the year                                                     51,14,19,709     28,77,81,971
-----------------------------------------------------------------------------------------------------------
Cash and equivalents at the end of the year                                 416,65,90,944     51,14,19,709
===========================================================================================================
</TABLE>

This is the Cash Flow 
Statement referred 
to in our report of even date.

for Bharat S Raut & Co.
Chartered Accountants

Ravi Ramu            N. R. Narayana Murthy        Nandan M. Nilekani           
Partner              Chairman and                 Managing Director, President 
                     Chief Executive Officer      and Chief Operating Officer
                                                  
                     Ramesh Vangal                Prof. Marti G. Subrahmanyam  
                     Director                     Director                     
                                                  
Bangalore            K. Dinesh                    S. D. Shibulal               
April 9, 1999        Director                     Director                     

                     Susim M. Datta               Deepak M. Satwalekar     
                     Director                     Director                 

                     N. S. Raghavan               S. Gopalakrishnan        
                     Jt. Managing Director        Dy. Managing Director    
                                                                             
                     T. V. Mohandas Pai           V. Viswanathan           
                     Senior Vice President        Company Secretary        
                     (Finance & Administration)                          
<PAGE>
 
Statement of cash flows for the year ended March 31
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                               in Rs.
----------------------------------------------------------------------------------------------------------------------
                                                                                     1999                1998
----------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>                 <C>         
Reconciliation of Balance sheet items with cash flow items
1.   Loans and advances
     As per Balance sheet                                                     68,35,96,522        39,18,00,686
     Less  : Deposits with financial institution / body corporate,
                included in cash equivalents                                 (11,61,07,945)       (7,27,63,986)
             Advance income taxes considered separately                      (19,10,80,222)       (9,59,04,567)
----------------------------------------------------------------------------------------------------------------------
     Balance considered for preparing the cash flow statement                 37,64,08,355        22,31,32,133
----------------------------------------------------------------------------------------------------------------------
2.   Additions to fixed assets
     As per Balance sheet                                                     64,11,69,396        34,13,26,052
     Add   : Closing capital work-in-progress                                 14,88,35,800         7,32,13,272
     Less  : Opening capital work-in progress                                 (7,32,13,272)       (7,04,41,980)
----------------------------------------------------------------------------------------------------------------------
     Balance considered for preparing the cash flow statement                 71,67,91,924        34,40,97,344
----------------------------------------------------------------------------------------------------------------------
3.   Cash and cash equivalents
     As per Balance sheet                                                    405,04,82,999        43,86,55,723
     Add   : Deposits with financial institution/
                body corporate (as per 1 above)                               11,61,07,945         7,27,63,986
----------------------------------------------------------------------------------------------------------------------
     Balance considered for preparing the cash flow statement                416,65,90,944        51,14,19,709
----------------------------------------------------------------------------------------------------------------------
4.   Income taxes paid
     As per Profit and Loss account                                           22,94,00,000         5,67,57,386
     Add   : Decrease (increase) in balance in provision for taxes account   (15,66,52,471)        1,89,94,983
     Add   : Increase (decrease) in balance in advance income tax account      9,51,75,655        (3,29,15,247)
----------------------------------------------------------------------------------------------------------------------
     Balance considered for preparing the cash flow statement                 16,79,23,184         4,28,37,122
----------------------------------------------------------------------------------------------------------------------
5.   Other income
     As per Profit and Loss account                                            3,84,71,833         2,70,83,794
     Less  : Income from operating activities                                   (17,70,906)       (1,11,04,809)
----------------------------------------------------------------------------------------------------------------------
     Balance considered for preparing the cash flow statement                  3,67,00,927         1,59,78,985
----------------------------------------------------------------------------------------------------------------------
6.   Current liabilities and provisions
     As per Balance sheet                                                     84,96,64,378        25,70,41,198
     Less  : Provision for taxation considered separately                    (23,13,57,488)       (7,47,05,017)
             Provision for dividend considered separately                     (8,10,32,734)       (5,27,17,738)
             Provision for dividend tax considered separately                   (81,03,273)         (52,71,774)
----------------------------------------------------------------------------------------------------------------------
     Balance considered for preparing the cash flow statement                 52,91,70,883        12,43,46,669
----------------------------------------------------------------------------------------------------------------------
</TABLE>

This is the Cash Flow 
Statement referred 
to in our report of even date.

for Bharat S Raut & Co.
Chartered Accountants

Ravi Ramu            N. R. Narayana Murthy        Nandan M. Nilekani           
Partner              Chairman and                 Managing Director, President 
                     Chief Executive Officer      and Chief Operating Officer
                                                  
                     Ramesh Vangal                Prof. Marti G. Subrahmanyam  
                     Director                     Director                     
                                                  
Bangalore            K. Dinesh                    S. D. Shibulal               
April 9, 1999        Director                     Director                     

                     Susim M. Datta               Deepak M. Satwalekar     
                     Director                     Director                 

                     N. S. Raghavan               S. Gopalakrishnan        
                     Jt. Managing Director        Dy. Managing Director    
                                                                             
                     T. V. Mohandas Pai           V. Viswanathan           
                     Senior Vice President        Company Secretary        
                    (Finance & Administration)                          
<PAGE>
 
Balance sheet abstract and company's general business profile
--------------------------------------------------------------------------------

Registration details

Registration No.                                                           13115
State Code                                                                    08
Balance Sheet Date                                                    31.03.1999

                                                                          in Rs.
--------------------------------------------------------------------------------

Capital raised during the year

Public issue*                                                        1,03,50,000
Rights issue                                                                  --
Bonus issue                                                         16,01,72,000
Private placement                                                             --

Position of mobilization and deployment of funds

Total liabilities                                                  574,43,11,248
Total assets                                                       574,43,11,248

Sources of funds

Paid-up capital                                                     33,06,95,500
Reserves and surplus                                               541,36,15,748
Secured loans                                                                 --
Unsecured loans                                                               --

Application of funds

Net fixed assets                                                   100,71,59,211
Investments                                                            75,48,469
Net current assets                                                 472,96,03,568
Miscellaneous expenditure                                                     --
Accumulated losses                                                            --

Performance of company

Turnover                                                           512,73,83,501
Total expenditure                                                  356,88,29,941
Profit/Loss before tax                                             155,85,53,560
Extraordinary Income                                                 2,34,54,103
Profit/Loss after tax                                              135,26,07,663
Earnings per share from ordinary activities                                40.19
Earnings per share including extraordinary income                          40.90
Dividend rate (%) - pro rata                                                  75

Generic names of principal products/services of the company

Item code no. (ITC code)                                             85249009.10

Product description                                            Computer software

*Not offered to public in India, issued pursuant to a registration statement
filed with Securities and Exchange Commission, USA., for the company's ADS
issue.

                      N. R. Narayana Murthy        Nandan M. Nilekani          
                      Chairman and                 Managing Director, President
                      Chief Executive Officer      and Chief Operating Officer 
                                                                               
                      Ramesh Vangal                Prof. Marti G. Subrahmanyam 
                      Director                     Director                    
                                                                               
                      K. Dinesh                    S. D. Shibulal              
                      Director                     Director                    
                                                                               
Bangalore             Susim M. Datta               Deepak M. Satwalekar        
April 9, 1999         Director                     Director                    
                                                                               
                      N. S. Raghavan               S. Gopalakrishnan           
                      Jt. Managing Director        Dy. Managing Director       
                                                                               
                      T. V. Mohandas Pai           V. Viswanathan              
                      Senior Vice President        Company Secretary           
                     (Finance & Administration)                                
                                                                               
<PAGE>
 
Statement pursuant to Section 212 of the Companies Act, 1956, relating to
subsidiary company

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
<S>                                                        <C>                      
1.   Name of the subsidiary                                :   Yantra Corporation
2.   Financial year ended                                  :   March 31, 1999
3.   Holding company's interest                            :   100% in common stock
                                                               12.73% in Series A Convertible Preferred Stock

4.   Shares held by the holding company in the subsidiary  :   75,00,000 nos. of common stock at US$ 0.20 each, 
                                                               fully paid, par value US$ 0.01 each, amounting to
                                                               US$ 1,500,000 (Rs. 5,32,51,600)

                                                               6,36,363 nos. of Series A Convertible Preferred 
                                                               Stock at US$ 0.75 each, fully paid, par
                                                               value US$ 0.01 each, amounting to US$ 477,272.25
                                                               (Rs. 1,73,44,074)

5.   The net aggregate of profits or losses for the 
     current financial year of the subsidiary so far as 
     it concerns the members of the holding company

     a.   dealt with or provided for in the accounts of    :   Nil
          the holding company

     b.   not dealt with or provided for in the accounts   :   Loss: US$ 4,991,441 (Rs. 21,03,39,324)
          of the holding company

6.   The net aggregate of profits or losses for previous
     financial years of the subsidiary so far as it 
     concerns the members of the holding company

     a.   dealt with or provided for in the accounts of    :   Nil
          the holding company

     b.   not dealt with or provided for in the accounts   :   Loss: US$ 2,195,016 (Rs. 9,24,97,974)
          of the holding company
</TABLE>

Note:
The company has provided a sum of Rs. 7,05,95,674 towards its investment in
Yantra Corporation during the current year, as the losses of Yantra exceeded the
company's contribution to its equity.

                      N. R. Narayana Murthy        Nandan M. Nilekani          
                      Chairman and                 Managing Director, President
                      Chief Executive Officer      and Chief Operating Officer 
                                                                               
                      Ramesh Vangal                Prof. Marti G. Subrahmanyam 
                      Director                     Director                    
                                                                               
                      K. Dinesh                    S. D. Shibulal              
                      Director                     Director                    
                                                                               
Bangalore             Susim M. Datta               Deepak M. Satwalekar        
April 9, 1999         Director                     Director                    
                                                                               
                      N. S. Raghavan               S. Gopalakrishnan           
                      Jt. Managing Director        Dy. Managing Director       
                                                                               
                      T. V. Mohandas Pai           V. Viswanathan              
                      Senior Vice President        Company Secretary           
                     (Finance & Administration)                                
<PAGE>
 
                                                              Yantra Corporation
          (a subsidiary of Infosys Technologies Limited under the Companies Act,
                                                                           1956)
--------------------------------------------------------------------------------

                                                            Financial statements
                                               for the year ended March 31, 1999

                                                               Registered office
                                                            1209, Orange Street,
                                                             City of Wilmington,
                                                              New Castle County,

                                                             Delaware 19801, USA
                                                              Board of directors

               Donald W. Feddersen...................Chairman
               Gopalakrishnan S......................Director
               Devdutt Yellurkar......Chief Executive Officer
               Phaneesh Murthy.......................Director
               Izhar Armony..........................Director
               Douglas P. Smith......................Director

                                                                       Auditors
                                                           KPMG Peat Marwick LLP
<PAGE>
 
Letter to the shareholders
--------------------------------------------------------------------------------

Dear shareholder,

Fiscal 1999 marked the completion of Yantra's third year of operation. Our
product offering - an integrated supply chain execution solution (warehouse and
transportation management) - is being well received by the clients and industry
analysts. Additionally, our product is also identified as a key component of an
Enterprise E-Commerce strategy. With the focus of E-Commerce applications
shifting from web-based ordering to robust order fulfillment, we expect the
demand for integrated Supply Chain Execution systems to grow even more.

Financing: Yantra secured its second round of financing from Charles River
Ventures and Hambrecht & Quist. Consequently, we added new board members with
experience in the Enterprise Software market. We would, once again, like to
place on record the invaluable mentoring provided by the current and past board
members and observers.

Sales & Marketing: In fiscal year 1999, Yantra's revenues more than tripled to
$4.4 million with the addition of several key clients such as Motorola,
Cutler-Hammer and Texas Instruments. In this fiscal year, we were awarded
"Partner of the Year" by Oracle. Our relationship with Oracle Corporation has
been mutually beneficial and the two companies have launched several new joint
marketing initiatives. Yantra also formed an Alliance with Vastera, a
complementary supply chain execution software provider.

Services: We worked diligently to ensure that all of our client installations
were very successful and referenceable. Based on our experience in the field, we
refined our robust implementation methodology, toolkit and a comprehensive
training program that has enabled us to scale our services organization. We
further scaled our services operations by successfully partnering with
AnswerThink Consulting, a professional services company, to jointly deliver
client implementations and training.

Product: We released version 5.0 of our Supply Chain Execution suite which is
available on UNIX (HP, IBM and SUN) as well as on NT server platforms. We are in
the process of migrating all our existing clients to our latest version. We
continue our strong relationship with Infosys and have increased the staffing in
our Bangalore-based software development center.

In summary, fiscal 1999 was a year in which we completed all our goals for the
"Gain Momentum" phase and launched the "Acceleration" phase of our company's
lifecycle. We have built a strong management team and are confident that we will
emerge as a leader in our market. With the talent and commitment of every
Yantrik, we are confident that we will achieve the goals we have set for this
coming year.

Thank you for your continued support.

                                                                              Sd
Acton, Massachusetts                                           Devdutt Yellurkar
April 6, 1999                                            Chief Executive Officer
<PAGE>
 
Independent auditors' report
--------------------------------------------------------------------------------
Board of Directors and Stockholders of
Yantra Corporation:

We have audited the accompanying balance sheet of Yantra Corporation as of March
31, 1999, and the related statements of operations, stockholders' equity and
cash flows for the year then ended. 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 audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit 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 audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Yantra Corporation at March 31,
1999, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.

                                                                              Sd
Boston, Massachusetts, USA                                 KPMG Peat Marwick LLP
April 6, 1999
<PAGE>
 
Yantra Corporation
Balance sheet as at
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
                                                                        March 31, 1999
                                                                  in US$              in Rs.*
--------------------------------------------------------------------------------------------------
<S>                                                              <C>               <C>         
Assets

CURRENT
Cash and cash equivalents                                        3,208,098         13,51,89,250
Accounts receivable (Note 3)                                     1,120,007          4,71,97,095
Prepaid expenses                                                    94,866            39,97,653
--------------------------------------------------------------------------------------------------
Total current assets                                             4,422,971         18,63,83,998
--------------------------------------------------------------------------------------------------

PROPERTY AND EQUIPMENT, NET (NOTE 2)                               777,079          3,27,46,109

OTHER ASSETS

Capitalized software, net of accumulated amortization
   of $ 747,623 (Rs. 3,15,04,833) (Note 4)                         252,377          1,06,35,167
Other Assets                                                       179,052            75,45,251
--------------------------------------------------------------------------------------------------
Total assets                                                     5,631,479         23,73,10,525
==================================================================================================
Liabilities and stockholders' equity

LIABILITIES
Accounts payable (Note 4)                                          403,347          1,69,97,043
Accrued Expenses (Note 4)                                          408,549          1,72,16,255
Deferred Revenue                                                   852,169          3,59,10,401
--------------------------------------------------------------------------------------------------
Total Current Liabilities                                        1,664,065          7,01,23,699
--------------------------------------------------------------------------------------------------

COMMITMENTS (NOTES 5, 6 AND 7)

STOCKHOLDERS' EQUITY (NOTES 6)
Series A Convertible Preferred Stock, $.01 par value,
   5,000,000 shares authorized, issued and outstanding           4,037,647         17,01,46,445
Series B Convertible Preferred Stock, $.01 par value,
   4,800,000 shares authorized, issued and outstanding           6,168,198         25,99,27,864
Series B-1 Convertible Preferred Stock, $.01 par value,
   810,811 shares authorized, none issued and outstanding               --                   --
Common stock, $.01 par value, 25,000,000 shares authorized,
   7,500,000 shares issued and outstanding                          75,000            31,60,500
Additional paid-in capital                                       1,433,108          6,03,91,170
Accumulated deficit                                             (7,746,539)       (32,64,39,153)
--------------------------------------------------------------------------------------------------
Total stockholders' equity                                       3,967,414         16,71,86,826
--------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity                       5,631,479         23,73,10,525
==================================================================================================
</TABLE>

                                 See accompanying notes to financial statements.

*  The Rupee equivalent of US dollar amounts for the year 1999 has been arrived
   at by converting at the closing exchange rate of US$ 1 = Rs. 42.14. This
   information is being provided in compliance with the directions of the
   Department of Company Affairs, Government of India, under Section 212 (8) of
   the Companies Act, 1956, vide their letter no. 47/03/98-CL:III, dated
   November 20, 1998.
<PAGE>
 
Yantra Corporation
Statement of operations
-------------------------------------------------------------------------------
Year ended March 31, 1999                      in US$               in Rs.*
-------------------------------------------------------------------------------
Net revenue (Note 1)                         4,419,479         18,62,36,845
Cost of revenue (Note 4)                     3,013,020         12,69,68,663
-------------------------------------------------------------------------------
Gross profit                                 1,406,459          5,92,68,182

Operating expenses (Note 4)

   Research and development                  2,164,105          9,11,95,385
   Selling and Marketing                     2,854,780         12,03,00,429
   General and administrative                1,559,424          6,57,14,127
-------------------------------------------------------------------------------
   Total operating expenses                  6,578,309         27,72,09,941
-------------------------------------------------------------------------------
Loss from operations                        (5,171,850)       (21,79,41,759)
Other Income (net)                             180,409            76,02,435
===============================================================================
Net Loss                                    (4,991,441)       (21,03,39,324)
===============================================================================

                                 See accompanying notes to financial statements.

Statement of stockholders' equity
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Year ended                                            Series A                      Series B                       Common           

March 31, 1999                                     Preferred Stock               Preferred Stock                    stock           

                                                Shares           Amount         Shares           Amount        Shares       Amount
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>           <C>            <C>              <C>           <C>             <C>     
Balance, April 1, 1998
    In $                                     5,000,000        3,812,647             --               --     7,500,000       75,000  

    In Indian rupees                                       16,06,64,945                              --                  31,60,500  

Issuance of Series B Convertible
    Preferred Stock, net of issuance
    costs of $ 53,978 (Rs. 22,74,633)
    In $                                            --               --      4,800,000        5,945,617            --           --  

    In Indian rupees                                                 --                    25,05,48,300                         --  

Accrued dividends on Series A
    Convertible Preferred Stock
    In $                                            --          225,000             --               --            --           --  

    In Indian rupees                                          94,81,500                              --                         --  

Accrued dividends on Series B
    Convertible Preferred Stock
    In $                                            --               --             --          222,581            --           --  

    In Indian rupees                                                 --                       93,79,563                         --  

Issuance of Series B-1 warrants
    In $                                            --               --             --               --            --           --  

    In Indian rupees                                                 --                              --                         --  

Net loss
    In $                                            --               --             --               --            --           --  

    In Indian rupees                                                 --                              --                         --  

-----------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1999
    In $                                     5,000,000        4,037,647      4,800,000        6,168,198     7,500,000       75,000  

    In Indian rupees                                       17,01,46,445                    25,99,27,863                  31,60,500  

-----------------------------------------------------------------------------------------------------------------------------------

<CAPTION>
---------------------------------------------------------------------------------------
Year ended                               Additional      Accumulated              Total
March 31, 1999                              Paid-in          Deficit      Stockholders'
                                            capital                              Equity
---------------------------------------------------------------------------------------
<S>                                    <C>              <C>               <C>         
Balance, April 1, 1998                                                                 
    In $                                 1,425,000        (2,307,517)        3,005,130
    In Indian rupees                   6,00,49,500      (9,72,38,766)     12,66,36,178
Issuance of Series B Convertible                                                       
    Preferred Stock, net of issuance                                                   
    costs of $ 53,978 (Rs. 22,74,633)                                                  
    In $                                        --                --         5,945,617
    In Indian rupees                            --                --      25,05,48,300
Accrued dividends on Series A                                                          
    Convertible Preferred Stock                                                        
    In $                                        --          (225,000)               --
    In Indian rupees                            --        (94,81,500)               --
Accrued dividends on Series B                                                          
    Convertible Preferred Stock                                                        
    In $                                        --          (222,581)               --
    In Indian rupees                            --        (93,79,563)               --
Issuance of Series B-1 warrants                                                        
    In $                                     8,108                --             8,108
    In Indian rupees                      3,41,671                --          3,41,671
Net loss                                                                               
    In $                                        --        (4,991,441)       (4,991,441)
    In Indian rupees                            --     (21,03,39,324)    (21,03,39,324)
---------------------------------------------------------------------------------------
Balance, March 31, 1999                                                                
    In $                                 1,433,108        (7,746,539)        3,967,414
    In Indian rupees                   6,03,91,171     (32,64,39,153)     16,71,86,826
---------------------------------------------------------------------------------------
</TABLE>

                                 See accompanying notes to financial statements.
<PAGE>
 
Yantra Corporation
Statement of cash flows
--------------------------------------------------------------------------------

-------------------------------------------------------------------------------
Year ended March 31, 1999                                in US$       in Rs.*
-------------------------------------------------------------------------------
Cash flows from operating activities

NET LOSS                                            (4,991,441)   (21,03,39,324)

ADJUSTMENTS TO RECONCILE NET LOSS TO
   NET CASH USED BY OPERATING ACTIVITIES
   Depreciation and amortization                       495,083      2,08,62,798
   Loss on disposal of fixed assets                     12,063         5,08,335
   Changes in operating assets and liabilities
     Accounts receivable                              (796,460)    (3,35,62,824)
     Prepaid expenses                                  (41,153)      (17,34,187)
     Other assets                                     (175,000)      (73,74,500)
     Accounts payable
       Trade                                           310,311      1,30,76,506
       Affiliate                                      (188,501)      (79,43,432)
     Accrued expenses                                  305,770      1,28,85,148
     Deferred revenue                                  568,401      2,39,52,418
-------------------------------------------------------------------------------
Net cash used by operating activities               (4,500,927)   (18,96,69,062)
-------------------------------------------------------------------------------
Cash flows from investing activities
Purchases of property and equipment                   (710,072)    (2,99,22,434)
-------------------------------------------------------------------------------
Net cash used by investing activities                 (710,072)    (2,99,22,434)
-------------------------------------------------------------------------------
Cash flows from financing activities
 Net proceeds from issuance of
   Series B Convertible Preferred Stock              5,945,617     25,05,48,300
 Proceeds from issuance of warrants                      8,108         3,41,672
-------------------------------------------------------------------------------
Net cash provided by financing activities            5,953,725     25,08,89,972
-------------------------------------------------------------------------------
Increase in cash and cash equivalents                  742,726      3,12,98,476
Cash and cash equivalents, beginning of year         2,465,372     10,38,90,776
-------------------------------------------------------------------------------
Cash and cash equivalents, end of year               3,208,098     13,51,89,252
===============================================================================

Supplemental disclosure of noncash financial activities

The company accrued dividends related to the Series A Convertible Preferred
Stock in the amount of $ 225,000 (Rs. 94,81,500) for the year ended March 31,
1999. The company accrued dividends related to the Series B Convertible
Preferred Stock in the amount of $ 222,581 (Rs. 93,79,563) for the year ended
March 31, 1999.

                                 See accompanying notes to financial statements.
<PAGE>
 
Yantra Corporation
Notes to financial statements
--------------------------------------------------------------------------------

1. Business

      Yantra Corporation (the "company") is a Delaware corporation which
      develops, markets and supports supply chain execution software products.
      The company's primary product, WMS*Yantra, is an integrated warehouse and
      transportation management system designed for companies requiring complex
      pick/pack/ship distribution. The company was a majority-owned subsidiary
      of Infosys Technologies Limited ("Infosys") until October 1998, at which
      time Infosys reduced its ownership below 50%.

2. Summary of significant accounting policies

      a. Revenue recognition

      Prior to April 1, 1998, revenues from software product licences to clients
      were generally recognized when the product was shipped, provided no
      significant obligations remain and collectibility is probable, in
      accordance with SOP 91-1, Software Revenue Recognition. Effective April 1,
      1998, Yantra adopted the provisions of SOP 97-2, Software Revenue
      Recognition. For transactions on or after April 1, 1998, revenues from
      software product licences to clients are generally recognized when: (i) a
      signed noncancelable software licence agreement exists, (ii) delivery has
      occurred, (iii) the licence fee is fixed or determinable, and (iv)
      collectibility is probable. Revenues from software product licence
      agreements which have significant customization and modifications of the
      software product are deferred and recognized using the percentage of
      completion method. There was no material change to Yantra's accounting for
      revenue as a result of SOP 97-2. 

      Professional service and maintenance revenue includes software maintenance
      and other professional service revenues, primarily from implementation,
      consulting and training. Revenues from professional services are
      recognized as the services are performed, collectibility is probable and
      such revenues are contractually non-refundable. Revenues from software
      maintenance are deferred and recognized ratably over the term of each
      maintenance agreement, typically twelve months. Amounts collected prior to
      satisfying the above revenue recognition criteria are classified as
      deferred revenues.

      b. Capitalized software development costs

      The company capitalizes software development costs in accordance with
      Statement of Financial Accounting Standards No. 86, Accounting for the
      Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed
      ("SFAS 86"). Software development costs not qualifying for capitalization
      are expensed as period expenses. Capitalized costs are amortized on an
      individual product basis, based on the greater amount computed by using
      (a) the ratio that current gross revenues for a product bear to the total
      of current and anticipated future gross revenues for that product, or (b)
      straight-line amortization using the estimated useful lives. The company
      evaluates the estimated net realizable value of each software product at
      each balance sheet date and records write-downs to net realizable value
      for any products for which the net book value is in excess of net
      realizable value.

      c. Cash and cash equivalents

      The company considers all highly liquid investments with original
      maturities of less than three months to be cash equivalents.

      d. Property and equipment

      Property and equipment are recorded at cost. Repairs and maintenance which
      do not extend the useful life of an asset are expensed as incurred.
      Depreciation is computed using the straight-line method over the following
      estimated useful lives:

      --------------------------------------------------------------------------
      Classification                                                  Years
      --------------------------------------------------------------------------
      Furniture and fixtures                                            6
      Computer equipment                                                3
      --------------------------------------------------------------------------
<PAGE>
 
      e. Impairment of long-lived assets

      In accordance with Statement of Financial Accounting Standards No. 121,
      Accounting for the Impairment of Long-Lived Assets and for Long-Lived
      Assets to be Disposed of, the company reviews its long-lived assets for
      impairment whenever events or changes in circumstances indicate that the
      carrying amount of an asset may not be recoverable. If it is determined
      that the carrying amount of an asset cannot be fully recovered, an
      impairment loss is recognized.

      f. Stock-based compensation

      In accordance with Statement of Financial Accounting Standards No. 123,
      Accounting for Stock-Based Compensation ("SFAS No. 123"), the company
      measures compensation cost in accordance with Accounting Principles Board
      Opinion No. 25, Accounting for Stock Issued to Employees ("APB Opinion No.
      25"). As such, compensation expense is recorded on the date of grant only
      if the current market price of the underlying stock exceeds the exercise
      price of the stock option. The company provides pro forma disclosures of
      net loss as if the fair value provisions of SFAS 123 had been applied.

      g. Income taxes
 
      The company uses the asset and liability method of accounting for income
      taxes. Under the asset and liability method, deferred tax assets and
      liabilities are recognized for the future tax consequences attributable to
      differences between the financial statement carrying amounts of existing
      assets and liabilities and their respective tax bases and operating loss
      and tax credit carryforwards. Deferred tax assets and liabilities are
      measured using enacted tax rates expected to apply to taxable income in
      the years in which those temporary differences are expected to be
      recovered or settled. The effect on deferred tax assets and liabilities of
      a change in tax rates is recognized in income in the period that includes
      the enactment date.

      h. Use of estimates

      Management of the company has made a number of estimates and assumptions
      relating to the reporting of assets and liabilities and the disclosure of
      contingent assets and liabilities, including certain estimates regarding
      the recoverability of capitalized software development costs, to prepare
      these financial statements in conformity with generally accepted
      accounting principles. Actual results could differ from those estimates.

2. Property and equipment

      Property and equipment consisted of the following at March 31, 1999:

-------------------------------------------------------------------------------
                                                  in US$               in Rs.
-------------------------------------------------------------------------------
     Furniture and fixtures                       171,078           72,09,227
     Computer equipment                           833,698         3,51,32,034
-------------------------------------------------------------------------------
                                                1,004,776         4,23,41,261
     Less accumulated depreciation                227,697           95,95,152
-------------------------------------------------------------------------------
                                                  777,079         3,27,46,109
===============================================================================

3. Accounts receivable

      Included in accounts receivable are $ 512,712 (Rs. 2,16,05,684) that were
      unbilled at March 31, 1999. Unbilled amounts related primarily to
      professional services rendered on a time and materials basis for which
      invoices have not yet been issued.

4. Related parties

      During 1996, Infosys (the former "Parent company") transferred all rights,
      title and interest in and to a product known as Eagle (now known as
      "WMS*Yantra"), to the company in exchange for 5,000,000 shares of the
      company's common stock. The transfer of technology was recorded at its
      book value of $ 1,000,000 as the transfer occurred between entities under
      common control.

      The company entered into an Agreement for a software center (the
      "Agreement") beginning November 1, 1995 with its former Parent company.
<PAGE>
 
      The former Parent runs a Software Center (the "Center") in Bangalore,
      India to provide professional services for Yantra and other clients. The
      Center is completely managed and staffed by the former Parent and is
      located within the Infosys software-development facility.

      The following services are available from the Center:

      o     Product Development, Enhancement, Upgrades, Version Control, etc.
      o     Product Support, including Beeper Support Operations
      o     Implementation and Implementation Consulting
      o     Documentation
      o     Training Services

      The company pays the Former Parent a flat rate per person per month for
      the number of people committed to the Center. The cost incurred under this
      contract for the year ended March 31, 1999 was $ 1,953,899 (Rs.
      8,23,37,304) and is included in the accompanying statement of operations
      under the following captions:

      -------------------------------------------------------------------------
                                            in US$                  in Rs.
      -------------------------------------------------------------------------
      Cost of revenues                       926,879             3,90,58,681
      Research and development               942,138             3,97,01,695
      General and administrative              84,880               35,76,843
      -------------------------------------------------------------------------

      At March 31, 1999, amounts due to the related-party supplier amounted to $
      38,752 (Rs. 16,33,009) included in accounts payable and $ 198,940 (Rs.
      83,83,332) included in accrued expenses. 

5. Commitments

      The company leases its office space under an operating lease which expires
      on December 31, 2004. Total rent expense for the year ended March 31, 1999
      was $ 159,714 (Rs. 67,30,348).

      The schedule of minimum future rental payments is as follows:

      --------------------------------------------------------------------------
      Year ended March 31,                       in US$                  in Rs.
      --------------------------------------------------------------------------
      2000                                       470,638             1,98,32,685
      2001                                       642,670             2,70,82,114
      2002                                       642,670             2,70,82,114
      2003                                       676,334             2,85,00,715
      2004                                       679,394             2,86,29,663
      Thereafter                                 509,546             2,14,72,268
      --------------------------------------------------------------------------
      Total minimum lease payments             3,621,252            15,25,99,559
      ==========================================================================

6. Stockholders' equity
 
      a. Common stock and preferred stock

      In September 1995, the board of directors authorized 3,000,000 shares of
      common stock. In September 1997, the board of directors amended its
      certificate of incorporation to authorize two classes of stock to be
      designated "common stock" and "Series A Convertible Preferred Stock"
      ("Series A Preferred Stock"). Under the amended certificate, the company
      is authorized to issue 25,000,000 shares of common stock and 5,000,000
      shares of Series A Preferred Stock. In August 1998, the board of directors
      further amended its certificate of incorporation to authorize the company
      to issue 4,800,000 shares of Series B Convertible Preferred Stock ("Series
      B Preferred Stock") and 810,811 shares of Series B-1 Convertible Preferred
      Stock ("Series B-1 Convertible Preferred Stock").

      Each series of Preferred Stock is fully participating, redeemable and
      convertible at any time initially into one common share. Each series of
      Preferred Stock votes on an as-if converted basis with the common stock.
      The holders of each series of Preferred Stock shall be entitled to receive
      cumulative dividends at the per share rate of 6% per annum, when and if
      declared by the board of directors.

      The holders of the shares of Preferred Stock have liquidation preference
      over the holders of common stock, and shall receive an amount per share
      equal to the original issue price plus all unpaid accrued dividends.

      Beginning September 29, 2004, the holders of the Preferred Stock, voting
      together as a class and representing at least sixty percent of the shares
      then outstanding, may require the company to redeem their shares annually
      over 
<PAGE>
 
      a three-year period. The Series A Preferred Stock may be redeemed at $.75
      per share plus any declared but unpaid dividends. The Series B Preferred
      Stock may be redeemed at $ 1.25 per share plus any declared but unpaid
      dividends.

      At March 31, 1999, the company had 5,000,000 shares of Series A Preferred
      Stock outstanding from issuances during fiscal year 1998. In August 1998,
      the company issued 4,800,000 shares of Series B Preferred Stock at a price
      of $ 1.25 per share for proceeds of $ 5,945,617 (Rs. 25,05,48,300), net of
      issuance costs of $ 53,978 (Rs. 22,74,633).

      b. Warrants

      In August 1998, in connection with the Series B Preferred Stock issuance,
      the company issued warrants for the purchase of 810,811 shares of Series
      B-1 Preferred Stock at $ 1.48 per share. The warrants are exercisable
      through August 2005.
     
      c. The 1997 stock plan

      Effective September 29, 1997, the board of directors and stockholders
      approved the company's 1997 Stock Plan (the "Plan"). The maximum number of
      shares of common stock that may be subject to outstanding awards,
      determined immediately after the grant of any award, may not exceed
      4,000,000 shares, as amended. The Plan provides for the issuance of up to
      4,000,000 stock options, as defined in the Plan. Stock options granted
      under the Plan will allow eligible participants to purchase the company's
      common stock at a price determined by the company's board of directors on
      the date of grant. The purchase price per share of Incentive Stock Options
      ("ISOs") shall not be less than 100% (110% in the case of ISOs granted to
      a greater-than-10% shareholder) of the fair-market value of the company's
      common stock on the date of grant. The Plan also allows for the issuance
      of options which do not qualify as ISOs ("Non-Qualified Options").

      Stock option activity is as follows:

      --------------------------------------------------------------------------
                                                       Shares    Exercise price
                                                                      per share
      --------------------------------------------------------------------------
      Outstanding at April 1, 1998                    700,000              $.10
      Granted during fiscal 1999                    1,632,400               .35
      Forfeited during fiscal 1999                    (77,500)              .35
      Outstanding at March 31, 1999                 2,225,000              $.35
      ==========================================================================
      Weighted-average remaining contractual life   9.0 years
      ==========================================================================
      Exercisable at March 31, 1999                   646,138
      ==========================================================================
      Shares available for grant at March 31, 1999  1,745,000
      ==========================================================================

      The per-share weighted-average fair value of stock options granted during
      fiscal 1999 was $.08 on the date of grant, using the minimum value
      option-pricing model with the following weighted-average assumptions:

      o     No expected dividend yield
      o     Risk-free interest rate of 5.75%; and
      o     An expected life of five years

      The company applies APB Opinion No. 25 in accounting for its Plan and,
      accordingly, no compensation cost has been recognized for its stock
      options issued to employees during the year ended March 31, 1999. 

      Had the company determined compensation cost based on the fair value at
      the grant date for its stock under SFAS No. 123, the company's net loss
      would have been increased to the pro forma amount indicated below for the
      year ended March 31, 1999:

      -------------------------------------------------------------------------
      Net loss:                                    in US$               in Rs.
      -------------------------------------------------------------------------
      As reported                              (4,991,441)       (21,03,39,324)
      Pro forma                                (5,037,242)       (21,22,69,378)
      -------------------------------------------------------------------------
<PAGE>
 
7. Income taxes

      At March 31, 1999, the company had available approximately $ 6,379,000
      (Rs. 26,88,11,060) of federal net operating loss (NOL) carryforwards and $
      6,319,000 (Rs. 26,62,82,660) of state NOL carryforwards, which are
      available to offset future federal and state taxable income. The federal
      and state net operating loss carryforwards expire at various dates through
      2019 and 2004, respectively. These federal and state NOL carryforwards are
      subject to limitation in their utilization based on changes in the
      company's ownership under Internal Revenue Code, Section 382.

      Temporary differences which give rise to a significant portion of the
      deferred tax assets and liabilities are NOL carryforwards, noted above,
      and tax depreciation in excess of financial statement amounts. At March
      31, 1999, the company had a net deferred tax asset of $ 2,574,000 (Rs.
      10,84,68,360). A full valuation allowance was established against the net
      deferred tax asset based on management's belief that it is more likely
      than not that this asset will not be realized.
<PAGE>
 
                                                              Yantra Corporation
    (a subsidiary of Infosys Technologies Limited under the Companies Act, 1956)
--------------------------------------------------------------------------------

                                                            Financial statements
                                       for the three months ended March 31, 1998
                                            and the year ended December 31, 1997

                                                               Registered office
                                                            1209, Orange Street,
                                                             City of Wilmington,
                                                              New Castle County,
                                                             Delaware 19801, USA

                                                              Board of directors

              Donald W. Feddersen...................Chairman

              Devdutt Yellurkar......Chief Executive Officer

              Bill Draper...........................Director

              Gopalakrishnan S......................Director

              Phaneesh Murthy.......................Director

                                                                        Auditors
                                                                BDO Seidman, LLP
                                                     Accountants and Consultants
<PAGE>
 
Independent auditors' report
--------------------------------------------------------------------------------

To the Board of Directors and Stockholder of
Yantra Corporation

Acton, Massachusetts

We have audited the accompanying balance sheets of Yantra Corporation (a
subsidiary of Infosys Technologies Limited) as of March 31, 1998 and December
31, 1997, and the related statements of loss, stockholder's equity (deficit) and
cash flows for the three months ended March 31, 1998 and the year ended December
31, 1997. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit 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 financial statements referred to above present fairly, in
all material respects, the financial position of Yantra Corporation at March 31,
1998 and December 31, 1997, and the results of its operations and its cash flows
for the periods then ended in conformity with generally accepted accounting
principles.

                                                                              Sd
Boston, Massachusetts                                           BDO Seidman, LLP
April 3, 1998
<PAGE>
 
Yantra Corporation
Balance sheets as at
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
                                                               March 31, 1998              December 31, 1997
                                                             in US$         in Rs.*        in US$       in Rs.*
---------------------------------------------------------------------------------------------------------------
<S>                                                       <C>           <C>            <C>         <C>         
ASSETS

Current

Cash and cash equivalents                                 2,465,372     9,73,32,887    3,301,005   12,93,99,396
Accounts receivable                                         323,547     1,27,73,636       86,089      33,74,689
Prepaid expenses                                             53,714       21,20,629       65,369      25,62,465
---------------------------------------------------------------------------------------------------------------
Total current assets                                      2,842,633    11,22,27,152    3,452,463   13,53,36,550
---------------------------------------------------------------------------------------------------------------

Property and equipment, net (Note 2)                        243,196       96,01,378      172,947      67,79,522

Other assets

Organizational costs, net of accumulated amortization of
   $ 4,329 (Rs. 1,70,909) and
   $ 2,235 (Rs. 87,612), respectively                         4,052        1,59,973        4,471       1,75,263
Software license, net of accumulated amortization of
   $ 416,666 (Rs. 1,64,49,974) and
   $ 333,333 (Rs. 1,30,66,654) (Note 3)                     583,334     2,30,30,026      666,667    2,61,33,347
---------------------------------------------------------------------------------------------------------------
Total assets                                              3,673,215    14,50,18,529    4,296,548   16,84,24,682
===============================================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Liabilities

Accounts payable  - Trade                                    54,284       21,43,132      115,120      45,12,704
   - Affiliate (Note 3)                                     227,253       89,71,948      312,385    1,22,45,492
Accrued expenses                                            102,779       40,57,715       42,212      16,54,710
Deferred revenue                                            283,768     1,12,03,161       43,534      17,06,533
---------------------------------------------------------------------------------------------------------------
Total liabilities                                           668,084     2,63,75,956      513,251    2,01,19,439
---------------------------------------------------------------------------------------------------------------

Series A Convertible Preferred Stock, $0.01 par value;
   5,000,000 shares authorized and outstanding (Note 5)   3,812,647    15,05,23,305    3,756,397   14,72,50,763

Commitments (Notes 4, 5 and 6)

Stockholders' equity (Notes 3 and 6):

Common stock, $ 0.01 par value;
   20,000,000 shares authorized;
   7,500,000 shares outstanding                              75,000       29,61,000       75,000      29,40,000
Additional paid-in capital                                1,425,000     5,62,59,000    1,425,000    5,58,60,000
Accumulated deficit                                      (2,307,516)   (9,11,00,732)  (1,473,100)  (5,77,45,520)

---------------------------------------------------------------------------------------------------------------
Total stockholders' equity (deficit)                       (807,516)   (3,18,80,732)      26,900      10,54,480

===============================================================================================================
Total liabilities and stockholders' equity (deficit)      3,673,215    14,50,18,529    4,296,548   16,84,24,682
===============================================================================================================
</TABLE>

                                 See accompanying notes to financial statements.

*     The Rupee equivalent of US dollar amounts for the three months ended March
      31, 1998 and the year ended December 31, 1997 have been arrived at by
      converting at the closing exchange rate of US$ 1 = Rs. 39.48 and US$ 1 =
      Rs. 39.20 respectively. This information is being provided in compliance
      with the directions of the Department of Company Affairs, Government of
      India, under Section 212(8) of the Companies Act, 1956, vide their letter
      no. 47/3/98-CL:III, dated November 20, 1998.
<PAGE>
 
Yantra Corporation
Statements of Loss
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
                                                          For the three months ended      For the year ended
                                                               March 31, 1998              December 31, 1997
                                                             in US$         in Rs.*       in US$        in Rs.*
---------------------------------------------------------------------------------------------------------------
<S>                                                         <C>           <C>          <C>          <C>        
Net revenues (Note 1)                                       245,489       96,91,906    1,419,845    5,56,57,924

Cost of revenues (Note 3)                                   216,281       85,38,774      617,316    2,41,98,787
---------------------------------------------------------------------------------------------------------------
Gross profit                                                 29,208       11,53,132      802,529    3,14,59,137

Operating expenses (Note 3)

Research and development                                    331,999     1,31,07,321      907,557    3,55,76,234

Selling expense                                             242,553       95,75,992      274,868    1,07,74,826

General and administrative                                  155,351       61,33,257      480,659    1,88,41,833

Depreciation and amortization                               104,466       41,24,318      372,539    1,46,03,529
---------------------------------------------------------------------------------------------------------------
Total operating expenses                                    834,369     3,29,40,888    2,035,623    7,97,96,422
---------------------------------------------------------------------------------------------------------------
Loss from operations                                       (805,161)   (3,17,87,756)  (1,233,094)  (4,83,37,285)

Other income, net                                            26,995       10,65,763       42,154      16,52,437
---------------------------------------------------------------------------------------------------------------
Net loss                                                   (778,166)   (3,07,21,993)  (1,190,940)  (4,66,84,848)
===============================================================================================================
</TABLE>

                                 See accompanying notes to financial statements.

Statement of Stockholders' Equity (Deficit)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                              Common stock            Additional    Accumulated
                                           Shares        Amount  Paid-in capital        Deficit         Total
-------------------------------------------------------------------------------------------------------------
<S>                                     <C>           <C>            <C>           <C>           <C>      
Balance, December 31, 1996
   (amount in US$)                      7,500,000        75,000        1,425,000       (225,910)    1,274,090
   (amount in Rs.)                                    26,92,500      5,11,57,500     (81,10,169)  4,57,39,831

Net loss for the year
   (amount in US$)                             --            --               --     (1,190,940)   (1,190,940)
   (amount in Rs.)                                           --               --   (4,66,84,848) (4,66,84,848)

Accrued dividends on Series A
   Convertible Preferred Stock
   (amount in US$)                             --            --               --        (56,250)      (56,250)
   (amount in Rs.)                                           --               --     (22,05,000)   (22,05,000)
-------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997
   (amount in US$)                      7,500,000        75,000        1,425,000     (1,473,100)       26,900
   (amount in Rs.)                                    29,40,000      5,58,60,000   (5,77,45,520)    10,54,480

Net loss for the period
   (amount in US$)                             --            --               --       (778,166)     (778,166)
   (amount in Rs.)                                           --               --   (3,07,21,994) (3,07,21,994)

Accrued dividends on Series A
   Convertible Preferred Stock
   (amount in US$)                             --            --               --        (56,250)      (56,250)
   (amount in Rs.)                                           --               --     (22,20,750)   (22,20,750)
-------------------------------------------------------------------------------------------------------------
Balance, March 31, 1998
   (amount in US$)                      7,500,000        75,000        1,425,000     (2,307,516)     (807,516)
   (amount in Rs.)                                    29,61,000      5,62,59,000   (9,11,00,732) (3,18,80,732)
=============================================================================================================
</TABLE>

                                 See accompanying notes to financial statements.
<PAGE>
 
Yantra Corporation
Statements of Cash Flows
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
                                                                       For the three months ended          For the year ended
                                                                              March 31, 1998                December 31, 1997
                                                                        in US$             in Rs.*        in US$        in Rs.*
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>            <C>               <C>         <C>         

CASH FLOWS FROM OPERATING ACTIVITIES

Net loss                                                                 (778,166)    (3,07,21,994)    (1,190,940)   (4,66,84,848)

Adjustments to reconcile net loss to net cash
     used by operating activities
      Depreciation and amortization                                       104,466        41,24,318        372,539     1,46,03,529
      Changes in operating assets and liabilities
         Accounts receivable                                             (237,458)      (93,74,842)        52,527       20,59,058
         Prepaid expenses                                                  11,655         4,60,139        (49,879)     (19,55,257)
         Accounts payable - Trade                                         (60,836)      (24,01,805)        98,241       38,51,047
         Accounts payable - Affiliate                                     (85,132)      (33,61,011)       120,649       47,29,441
         Accrued expenses                                                  60,567        23,91,185         15,624        6,12,461
         Deferred revenue                                                 240,234        94,84,438         11,659        4,57,033
---------------------------------------------------------------------------------------------------------------------------------
Net cash used by operating activities                                    (744,670)     (293,99,572)      (569,580)   (2,23,27,536)
---------------------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of property and equipment                                        (90,963)      (35,91,219)       (144,335)    (56,57,932)
---------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities                                     (90,963)      (35,91,219)       (144,335)    (56,57,932)
---------------------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES

Net proceeds from issuance of
     Series A Convertible Preferred Stock                                      --               --       3,700,147   14,50,45,762
---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities                                      --               --       3,700,147   14,50,45,762
---------------------------------------------------------------------------------------------------------------------------------

Increase (decrease) in cash and cash equivalents                         (835,633)    (3,29,90,791)      2,986,232   11,70,60,294

Cash and cash equivalents, beginning of year                            3,301,005     13,03,23,677         314,773    1,23,39,102
---------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year                                  2,465,372      9,73,32,886       3,301,005   12,93,99,396
=================================================================================================================================

SUPPLEMENTAL DISCLOSURES OF CASH INFORMATION

Cash paid during the year for
    Interest                                                                   --               --              27          1,058
</TABLE>

SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCIAL ACTIVITIES:

The company accrued dividends related to the Series A Convertible Preferred
Stock in the amount of $56,250 (Rs. 22,05,000) for both the three months ended
March 31, 1998 and the period of issuance (September 29, 1997) to December 31,
1997.

                                 See accompanying notes to financial statements.
<PAGE>
 
Yantra Corporation
Notes to Financial Statements
--------------------------------------------------------------------------------

1. Summary of Accounting Policies

      Business operations

      Yantra Corporation (the "company") is a Delaware Corporation formed for
      the purposes of developing, providing and implementing support for
      software products. The company is a subsidiary of Infosys Technologies
      Limited, an Indian corporation.

      Assumptions and estimates

      The preparation of financial statements in conformity with generally
      accepted accounting principles requires company's management to make
      estimates and assumptions that affect the reported accounts of assets and
      liabilities and disclosure of contingent assets and liabilities at the
      date of the financial statements and the reported amounts of revenues and
      expenses during the reporting period. Actual results could differ from
      those estimates.

      Revenue recognition

      In 1998 the company adopted Statement of Position 92-2 "Software Revenue
      Recognition" ("SOP 97-2"). This statement provides guidance on applying
      generally accepted accounting principles in recognizing revenue on
      software transactions as follows:

      o     If an arrangement to deliver software or software system requires
            significant production, modification, or customization of software,
            the entire arrangement should be accounted for in conformity with
            Accounting Research Bulletin No. 45 "Long-Term Construction-Type
            Contracts", and Statement of Position 81-1 "Accounting for the
            Performance of Construction-Type and Certain Production-Type
            Contracts".

      o     If an arrangement to deliver software or software system does not
            require significant production, modification, or customization of
            software, revenue is recognized when the following criteria are met;
            1) persuasive evidence of an arrangement exists, ii) delivery has
            occurred, iii) the vendor's fee is fixed or determinable, iv)
            collectibility is probable.

      o     Software arrangements may provide licenses for multiple software
            deliverables such as, additional software products, upgrades/
            enhancements, post contract customer service, or services, which are
            termed multiple elements. A number of the elements may be described
            in the arrangement as being a when-and-if-available basis.
            When-and-if available deliverables is considered to be an element of
            the arrangement, revenue must be allocated to the when-and-if
            available deliverable and are deferred until the when-and-if
            available deliverable is delivered.

      Cash equivalents

      All highly liquid investments with a maturity of three months or less when
      purchased are considered to be cash equivalents.

      Stock options

      The company has adopted the provisions of the Statement of Financial
      Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
      Compensation." SFAS No. 123 allows the company to account for its
      stock-based employee compensation plans based upon either a
      fair-value-based method or the intrinsic value method previously allowed.
      The company uses the intrinsic value method of accounting for stock-based
      employee compensation plans. The company is required to disclose the pro
      forma net income or loss in the notes to the financial statements using
      the fair-value-based method. Transactions in which non-employee services
      are received in exchange for the issuance of stock options are accounted
      for based on the fair value of the services received or the fair value of
      the stock options issued, whichever is more reliably measurable.
<PAGE>
 
      Significant sales and concentration of risk

      In the three months ended March 31, 1998 and the year ended December 31,
      1997, the company derived revenue from a single client totaling
      approximately $181,000 (Rs. 71,45,880) or 74% and $1,226,000 (Rs.
      4,80,59,200) or 86% of total revenues, respectively. The company's
      accounts receivable are from clients in various industries. Although
      collateral is not required, the company provides for estimated reserves
      for potential credit losses, and such losses have not exceeded
      management's expectation.

      Property and equipment

      Property and equipment is stated at cost. Depreciation is computed using
      the straight-line method over the following estimated useful lives:

      --------------------------------------------------------------------------
      Classification                                                       Years
      --------------------------------------------------------------------------
      Furniture and fixtures                                                   6
      Computers                                                                3
      --------------------------------------------------------------------------

      Organization costs

      Organization costs are being amortized over 60 months using the
      straight-line method.

      License

      The value assigned to the company's software license (see Note 3) is being
      amortized using the straight-line method over the estimated economic life
      of 3 years. The company reviews at each balance sheet date the value of
      its software license for impairment. The company's valuation is
      principally based on the ongoing value of the related product and its
      estimated future cash flows.

      Income taxes

      The company accounts for income taxes in accordance with SFAS No. 109,
      "Accounting for Income Taxes". Under SFAS No. 109, deferred tax assets or
      liabilities are computed based on the differences between the financial
      statement and the income tax basis of assets and liabilities using the
      enacted tax rates. The company records a valuation allowance against
      deferred tax assets unless it is more likely than not that such assets
      will be realized in future periods. Deferred income tax expenses or
      credits are based on changes in the assets or liabilities from period to
      period.

2. Property and equipment

      Property and equipment consist of the following:

<TABLE>
<CAPTION>
      -----------------------------------------------------------------------------------------------
                                                       March 31, 1998            December 31, 1997
                                                      in US$       in Rs.        in US$        in Rs.
      -----------------------------------------------------------------------------------------------
<S>                                                  <C>      <C>               <C>        <C>      
           Furniture and fixtures                     92,398    36,47,873        75,686     29,66,891
           Computers                                 226,339    89,35,864       152,094     59,62,085
      -----------------------------------------------------------------------------------------------
                                                     318,737  1,25,83,737       227,780     89,28,976

           Less accumulated depreciation             (75,541)  (29,82,359)      (54,833)   (21,49,454)
      -----------------------------------------------------------------------------------------------
           Net property and equipment                243,196    96,01,378       172,947     67,79,522
      ===============================================================================================
</TABLE>

3. Related parties

      During 1996 Infosys Technologies Limited (the "Parent Company")
      transferred all the rights, title and interest in and to the product Eagle
      (known as "WMSYantra"), to the company in exchange for 5,000,000 shares of
      the company's common stock. Management assigned a value of $1,000,000 to
      the software license based on its estimate of market value. Management
      determined the estimated market value based on the product's discounted
      future cash flows.

      The company entered into an Agreement for a software center (the
      "Agreement") beginning November 1, 1995 with its parent Infosys
      Technologies Limited, an Indian corporation.

      The Parent Company set up a Software Center (the "Center") in Infosys,
      Bangalore to cater to Yantra's exclusive needs. The Center is completely
      managed and staffed by the Parent Company and is located within the
      Infosys
<PAGE>
 
      Software development facility. The Center has a number of employees
      trained in Yantra's practices and standards who work exclusively on
      Yantra's products and projects. The Center will be viewed as an extension
      to Yantra's product development facility and all prioritization of work is
      done by Yantra.

      The following services are available from the Center:

      o     Product Development, Enhancement, Upgrades, Version Control, etc.

      o     Product Support, including Beeper Support Operations

      o     Implementation and Implementation Consulting

      o     Documentation

      o     Training Services

      The company pays the Parent Company a flat rate per person per month for
      the number of people committed to the Center. The cost incurred under this
      contract for the three months ended March 31, 1998 and the year ended
      December 31, 1997 was $541,284 (Rs. 2,13,69,892) and $1,475,862 (Rs.
      5,78,53,790) respectively, and is included in the accompanying statements
      of operations under the following captions:

<TABLE>
<CAPTION>
      --------------------------------------------------------------------------------------------
                                               For the three months ended     For the year ended
                                                     March 31, 1998            December 31, 1997
                                                   in US$       in Rs.        in US$        in Rs.
      --------------------------------------------------------------------------------------------
<S>                                               <C>      <C>               <C>       <C>        
      Cost of revenues                            214,111    84,53,102       617,316   2,41,98,787
      Research and development                    309,173  1,22,06,150       849,546   3,33,02,203
      General and administrative                   18,000     7,10,640         9,000      3,52,800
      --------------------------------------------------------------------------------------------
</TABLE>

      For the three months ended March 31, 1998 and the year ended December 31,
      1997, the company purchased approximately 95% and 84% respectively, of its
      services from a related party. At December 31, 1997 and 1996, amounts due
      to the related party supplier amounted to $227,253 (Rs. 89,08,318) and
      $312,385 (Rs. 1,12,14,622), respectively.

4. Commitments

      The company leases its operating facilities under an operating lease which
      expires on October 14, 1998. Total rent expense for the year ended March
      31, 1998 and for the year ended December 31, 1997 was $21,740 (Rs.
      8,58,295) and $61,039 (Rs. 23,92,729), respectively.

5. Series A Convertible Preferred Stock

      On September 29, 1997 the company sold 5,000,000 shares of Series A
      Convertible Preferred Stock $.01 par value for $3,750,000 in cash, less
      related offering costs of $49,853. Under the company's Amendment of the
      Certificate of Incorporation, the holders of the Series A Convertible
      Preferred shares shall be entitled to the following rights, privileges and
      restrictions:

      Dividends

      In the event a dividend is declared for the common stock of the company,
      then the holders of the Series A Convertible Preferred Stock shall be
      entitled to receive in addition to any accrued dividends, dividends at the
      same rate as dividends paid with respect to the common stock (treating
      each share of Series A Convertible Preferred Stock as being equal to the
      number of shares of common stock into which each share of Series A
      Convertible Preferred Stock is then convertible).

      The holders of the Series A Convertible Preferred Stock are entitled to
      dividends at 6% per annum in $.75, being the original issued price. At
      March 31, 1998, accrued dividends amounted to $112,500 (Rs. 44,41,500).
      There were no dividends paid during 1998 and 1997.

      Right to convert

      The company's Series A Preferred Stock may, at the option of the holder,
      be converted at any time into common stock, at a conversion rate as
      defined in the company's Amendment of the Certificate of Incorporation.

      All outstanding shares of Series A Convertible Preferred Stock shall be
      converted automatically into shares of common stock in the event of an
      initial public offering with aggregate gross proceeds of at least
      $10,000,000.
<PAGE>
 
      Mandatory redemption

      On or after September 29, 2004, the company shall, at the written election
      of holders of at least 75% of the then outstanding shares of Series A
      Convertible Preferred Stock, be required to redeem the outstanding shares
      at a price of $.75 per share plus any accrued dividends.

6. Stock options

      Effective September 29, 1997, the company implemented the 1997 Stock Plan
      (the "Plan"). The Plan provides for the issuance of up to 2,500,000 stock
      options, as defined in the Plan. Stock options granted under the Plan will
      allow eligible participants to purchase the company's common stock at a
      price determined by the company's Board of Directors on the date of grant.
      The purchase price per share of Incentive Stock Options ("ISOs"), as
      defined under Internal Revenue Code Section 422(b), shall not be less than
      100% (110%, in the case of ISOs granted to a greater-than-10% shareholder)
      of the fair market value of the company's common stock on the date of
      grant. The Plan also allows for the issuance of options which do not
      qualify as ISOs ("Non-Qualified Options").

      On September 29, 1997, the company granted certain officers of the company
      options to purchase a maximum of 700,000 shares of its common stock, $.01
      par value, at the price of $.10 per share. Shares of common stock issuable
      under these options vest as follows:

      ------------------------------------------------------------------------
      December 31                        Non-Qualified               Incentive
                                         Stock options           Stock options
      ------------------------------------------------------------------------

      1997                                     10,000                  60,000
      1998                                     15,000                  90,000
      1999                                     20,000                 120,000
      2000                                     25,000                 150,000
      2001                                     30,000                 180,000
      ------------------------------------------------------------------------
                                              100,000                 600,000
      ------------------------------------------------------------------------

      The above options expire on September 29, 2007. At March 31, 1998, no
      options were exercised.

      The company accounts for its stock-based compensation using the intrinsic
      value method. Accordingly, no compensation cost has been recognized for
      its stock options issued to employees during the periods ended March 31,
      1998 and December 31, 1997. Vesting of the above options may accelerate
      upon certain events, as defined in the Plan. The compensation cost related
      to the company's 70,000 vested employee stock options at December 31,
      1997, based on the fair value of the options at the grant date, was
      determined not to be material to the company's results of operations or
      financial position as of March 31, 1998 and December 31, 1997.

7. Income taxes

      The Company has a net operating loss carryforward for US Federal and State
      tax purposes of approximately $2,190,000 (Rs. 8,58,48,000) as of December
      31, 1997, which is available to offset future taxable income. The net
      operating loss carryforward expires at various dates through 2011. The
      deferred tax asset related to such carryforward benefit was approximately
      $854,000 (Rs. 3,37,15,920) and $558,000 (Rs. 2,18,73,600) at March 31,
      1998 and December 31, 1997, respectively. The Company has established a
      valuation allowance equal in amount to the deferred tax asset, as there is
      uncertainty about the realizability of the deferred tax assets.

8. Reclassifications

      Certain previously reported amounts have been reclassified to conform to
      the 1998 presentation.
<PAGE>
 
Independent Auditors' Report on Supplemental Material
--------------------------------------------------------------------------------

Our audits of the basic financial statements included in the preceding section
of this report were performed for the purpose of forming an opinion on those
statements taken as a whole. The supplemental material presented in the
following section of this report is presented for purposes of additional
analysis and is not a required part of the basic financial statements. Such
information has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.

                                                                              Sd
Boston, Massachusetts                                           BDO Seidman, LLP
April 3, 1998

Schedules of General and Administrative Expenses
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
                                                            For the three months ended     For the year ended
                                                                  March 31, 1998            December 31, 1997
                                                                in US$      in Rs.*        in US$       in Rs.*
---------------------------------------------------------------------------------------------------------------
<S>                                                            <C>        <C>             <C>       <C>        
Audit fee                                                       30,459    12,02,521         4,125      1,61,700
Travel, entertainment and vehicle expenses                      24,965     9,85,618        63,362     24,83,790
Professional salaries                                           23,998     9,47,441        90,000     35,28,000
Rent                                                            19,670     7,76,572        33,172     13,00,342
Legal and professional                                          14,505     5,72,657        59,219     23,21,385
Excise tax                                                       8,511     3,36,014         7,829      3,06,897
Telephone                                                        8,081     3,19,038        13,131      5,14,735
Office salaries                                                  6,338     2,50,224        17,750      6,95,800
Payroll taxes                                                    4,913     1,93,965        10,456      4,09,875
Office supplies and expenses                                     4,363     1,72,251         6,502      2,54,878
Outside services                                                 3,698     1,45,997        92,320     36,18,944
Insurance                                                        1,931       76,236         9,152      3,58,758
Repairs and maintenance                                          1,876       74,064         6,332      2,48,214
Postage and delivery                                             1,157       45,678        10,202      3,99,918
Equipment rental                                                   431       17,016         3,020      1,18,384
Utilities                                                          197        7,778           704        27,597
Payroll processing                                                 180        7,106           374        14,661
License                                                             59        2,329         5,644      2,21,245
Bank service charges and filing fees                                19          750         5,434      2,13,013
Computer expenses                                                   --           --        22,380      8,77,296
Dues and subscriptions                                              --           --         7,880      3,08,896
Printing                                                            --           --         6,526      2,55,819
Other operating expenses                                            --           --         3,461      1,35,671
Fines and penalties                                                 --           --         1,091        42,767
Contributions                                                       --           --           300        11,760
Interest expense                                                    --           --           293        11,486
---------------------------------------------------------------------------------------------------------------
Total general and administrative expenses                      155,351    61,33,255       480,659   1,88,41,831
===============================================================================================================
</TABLE>

                      See Independent Auditors' Report on Supplemental Material.
<PAGE>
 
                                                    Financial statements for the
                                                       year ended March 31, 1999
                                                     prepared in accordance with
                United States Generally Accepted Accounting Principles (US GAAP)
--------------------------------------------------------------------------------

                                                                       [GRAPHIC]

--------------------------------------------------------------------------------
                                         Learning without thought is labor lost;
                                           thought without learning is perilous.

                                                                      Confucious
                                                               (551 - 479 B. C.)
<PAGE>
 
Summary of consolidated financial data
--------------------------------------------------------------------------------

Five-year data

<TABLE>
<CAPTION>
                                                                     In thousands, except per equity share data
---------------------------------------------------------------------------------------------------------------
                                                 1999           1998          1997           1996          1995

                                                                   (Audited)                         (Unaudited)
---------------------------------------------------------------------------------------------------------------
<S>                                        <C>              <C>          <C>             <C>           <C>     
Statement of operations 1,2

Revenue                                     $ 120,955       $ 68,330     $ 39,586        $ 26,607      $ 18,105
Cost of revenue                                65,331         40,157       22,615          15,638        10,606
Gross profit                                   55,624         28,173       16,971          10,969         7,499
Operating expenses:
Selling, general and administrative expenses   16,199         13,225        7,010           4,350         3,344
Amortization of deferred stock
     compensation expense                       3,646          1,520          768             361            46
Compensation arising from stock split          12,906          1,047           --              --            --
Total operating expenses                       32,751         15,792        7,778           4,711         3,390
Operating Income                               22,873         12,381        9,193           6,258         4,109
Equity in loss of deconsolidated subsidiary    (2,086)            --           --              --            --
Other income, net                               1,537            801          769           1,460           747
Income before income taxes                     22,324         13,182        9,962           7,718         4,856
Provision for income taxes                      4,877            770        1,320             894           893
Subsidiary preferred stock dividends               --             68           --              --            --
Net income                                   $ 17,446       $ 12,344      $ 8,642         $ 6,824       $ 3,963
Earnings per equity share 1,3
Basic                                          $ 0.57         $ 0.41       $ 0.30          $ 0.24        $ 0.14
Diluted                                        $ 0.57         $ 0.41       $ 0.29          $ 0.23        $ 0.14
Equity shares used in computing
    earnings per equity share: 1,3
Basic                                          30,689         29,788       29,036          29,034        28,292
Diluted                                        30,754         30,404       29,704          29,284        28,376
Cash dividend per equity share 4               $ 0.18         $ 0.07       $ 0.04          $ 0.04        $ 0.04
Balance sheet data:
Cash and cash equivalents                   $  98,875       $ 15,419      $ 8,320         $ 7,769       $ 8,046
Total assets                                  153,658         48,782       32,923          27,261        23,051
Total long-term debt                               --             --           --             526         1,398
Total shareholders' equity                  $ 139,610       $ 41,146     $ 30,640        $ 23,925      $ 19,668
---------------------------------------------------------------------------------------------------------------
</TABLE>

1.    The information presented above reflects the company's 2-for-1 stock split
      by means of a stock dividend announced on December 20, 1998.
2.    The accounts of Yantra Corporation, an erstwhile subsidiary, were
      consolidated with the financial statements of the company prior to April
      1, 1998 and have been accounted for by the equity method in fiscal 1999.
3.    The earnings per share calculations for fiscal year 1999, includes
      1,035,000 equity shares (representing 2,070,000 ADSs) issued during March
      1999.
4.    The dividends are declared in Indian rupees as a percentage to the par
      value of shares. Amounts presented have been translated into US dollars
      and are indicative. The dividends are paid pro rata from the date of
      holding of shares.

                                      111
<PAGE>
 
Management's discussion and analysis of financial condition and results of
operations
--------------------------------------------------------------------------------

Investors are cautioned that this discussion contains forward-looking statements
that involve risks and uncertainties. When used in this discussion, the words
"anticipate", "believe", "estimate", "intend", "will" and "expect" and other
similar expressions as they relate to the company or its business are intended
to identify such forward-looking statements. The company undertakes no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events, or otherwise. Actual results,
performances or achievements could differ materially from those expressed or
implied in such forward-looking statements. Factors that could cause or
contribute to such differences include those described under the heading "Risk
Factors" in the Prospectus filed with the SEC, as well as the factors discussed
elsewhere in the Form 20-F, included in this report. Readers are cautioned not
to place undue reliance on these forward-looking statements that speak only as
of their dates. The following discussion and analysis should be read in
conjunction with the company's financial statements included herein and the
notes thereto.

1. Overview

      Infosys is an India-based IT services company formed in 1981 that utilizes
      an extensive offshore infrastructure to provide managed software solutions
      to clients worldwide. The company's services include custom software
      development, maintenance (including Year 2000 conversion) and
      re-engineering services as well as dedicated Offshore Software Development
      Centers (OSDC) for certain clients. From fiscal 1995 through fiscal 1999,
      total revenue increased from $ 18.1 million to $ 120.96 million, the
      number of the company's software professionals worldwide increased from
      approximately 585 to approximately 3,160, and the number of its
      India-based software development centers increased from two to eleven.

      The company's revenues are generated principally from software services
      provided on either a fixed-price, fixed-time frame or a time-and-materials
      basis. Revenues from services provided on a time-and-materials basis are
      recognized in the month that services are provided and related costs are
      incurred. Revenues from services provided on a fixed-price, fixed-time
      frame basis are recognized upon the achievement of specified milestones
      identified in the related contracts, in accordance with the percentage of
      completion method. Cost of completion estimates are subject to periodic
      revisions. Although the company has revised its project completion
      estimates from time to time, such revisions have not, to date, had a
      material adverse effect on the company's operating results or financial
      condition. Since the company bears the risk of cost overruns and inflation
      with respect to its fixed-price, fixed-time frame projects, the company's
      operating results could be adversely affected by inaccurate estimates of
      contract completion costs and dates, including wage inflation rates and
      currency exchange rates that may affect cost projections. The company also
      develops and markets certain software products, including banking software
      that is licensed primarily to clients in Asia and Africa. Such software
      products represented 3.2% of total revenue in fiscal 1999. The company
      derived 82.0% of its total revenue from North America, 9.3% from Europe,
      1.7% from India and 7.0% from ROW in fiscal 1999.

      In fiscal 1999 and fiscal 1998, the company derived 19.8% and 23.3% of its
      total revenue, respectively, from Year 2000 conversion projects. The
      company expects that Year 2000 conversion projects will decline
      substantially during fiscal 2000. In line with its risk management
      policies, the company has consistently limited its dependence on Year 2000
      conversion projects, and has only accepted such projects where there are
      opportunities to create long-term relationships with its clients. The
      company expects that the decline in Year 2000 conversion projects will be
      adequately made up by other projects from these and other clients, and
      that the decline in Year 2000 conversion projects will not have a material
      adverse effect upon the company's business, financial condition and
      results of operations. However, there can be no assurance that: the
      company will be successful in generating additional business from its Year
      2000 clients for other services; the company will be successful in
      replacing Year 2000 conversion projects with other projects as the Year
      2000 business declines; or the margins from any such future projects will
      be comparable to those obtained from Year 2000 conversion projects.

      Cost of revenue consists, primarily, of salary and other compensation
      expenses, depreciation, data communications expenses, computer
      maintenance, cost of software for internal use, certain pre-opening
      expenses

                                      112
<PAGE>
 
      for new software development centers, and foreign travel expenses. The
      company depreciates personal computers and servers over two years and
      mainframe computers over three years. Third party software is expensed in
      the period in which it is acquired.

      The company assumes full project management responsibility for each
      project that it undertakes. Approximately 80% of the work on a project is
      performed at the company's facilities in India, and the balance of the
      work is performed at the client site. The proportions of work performed at
      company facilities and at client sites varies from quarter to quarter. The
      company charges higher rates and incurs higher compensation expenses for
      work performed at the client site. Services performed at a client site
      typically generate higher revenues per capita, but at a lower gross
      margin, than the same quantum of services performed at company facilities
      in India. As a result, total revenue, cost of revenue and gross profit in
      absolute terms, and as a percentage of revenue, fluctuate from quarter to
      quarter based on the proportions of work performed offshore at company
      facilities and at client sites.

      Revenue and gross profit are also affected by employee utilization rates.
      Utilization rates depend, among other factors, on the number of employees
      enrolled for in-house training programs, particularly the 14-week training
      course provided to new employees. Since a large percentage of new hires
      begin their training in the second quarter, utilization rates have
      historically been lower in the second and third quarters of a fiscal year.

      Selling, general and administrative expenses consist primarily of expenses
      relating to salary and other compensation, travel, marketing,
      telecommunications, management, finance, administration and rentals.

      Other income includes interest income and income from the sale of special
      import licenses. Under current export-import policy, exports by Indian
      companies generate credits for the exporter called "special import
      licenses". These credits can be sold and also used for the import of goods
      included on a "restricted list" maintained by the Government of India. The
      value of these special import licenses has declined over time, as the
      restricted list has been shortened. The company's general policy is to
      sell such special import licenses in the period in which it receives such
      credits.

2. Results of operations

      2.1 Fiscal year ended March 31, 1999 compared to fiscal year ended March
      31, 1998

      Revenue. Total revenue was $ 120.96 million for fiscal 1999, representing
      an increase of 77.1% over total revenue of $ 68.3 million for fiscal 1998.
      Revenue continued to increase in all segments of the company's services.
      Custom software development, re-engineering, maintenance and software
      development through OSDCs formed a majority of the company's revenues. The
      increase in revenue was attributable, in part, to a substantial increase
      in business from certain existing clients and from certain new clients,
      particularly in the manufacturing and financial services industries.
      Revenue growth was also attributable to an increase in Year 2000
      conversion projects, which represented 19.8% of total revenue for fiscal
      1999 as compared to 23.3% of total revenue for fiscal 1998. Net sales of
      Bancs2000 and other products represented 3.2% of total revenue for fiscal
      1999 as compared to 5.4% for fiscal 1998. Revenue from services
      represented 96.8% of total revenue for fiscal 1999 as compared to 94.6%
      for fiscal 1998. Revenue from fixed-price, fixed-time frame contracts and
      from time-and-materials contracts represented 36.0% and 64.0%,
      respectively, of total revenue for fiscal 1999 as compared to 35.8% and
      64.2%, respectively, for fiscal 1998. Revenue from North America and
      Europe represented 82.0% and 9.3%, respectively, of total revenue for
      fiscal 1999 as compared to 82.3% and 9.0%, respectively, for fiscal 1998.

      Cost of Revenue. Cost of revenue was $ 65.3 million for fiscal 1999,
      representing an increase of 62.7% over the cost of revenue of $ 40.2
      million for fiscal 1998. The cost of revenue represented 54.0% and 58.8%
      of total revenues for fiscal 1999 and 1998. This marginal decrease in
      costs as a percentage of total revenue was attributable to a favorable
      business mix and a decrease in depreciation and software expenses, which
      represented 10.0% of total revenues in fiscal 1999 as compared to 12.5% of
      total revenue for fiscal 1998. The decrease was partially offset by an
      increase in compensation rates. The cost of revenue for services
      represented 53.4% and 58.9% of revenues for services for fiscal 1999 and
      1998. Cost of revenue for product sales represented 75.8% and 57.2% of
      revenues for product sales for fiscal 1999 and 1998.

      Gross Profit. As a result of the foregoing, the gross profit was $ 55.6
      million for fiscal 1999, representing an increase of 97.4% over the gross
      profit of $ 28.2 million for fiscal 1998. This increase was attributable
      to a 

                                      113
<PAGE>
 
      favorable business mix and a decrease in depreciation and software
      expenses as a percentage of total revenue due to improved infrastructure
      utilization. As a percentage of total revenue, the gross profit increased
      to 46.0% for fiscal 1999 from 41.2% for fiscal 1998. The gross profit from
      the sales of Bancs2000 and other products was $ 0.9 million for fiscal
      1999, a decrease of 47.1% from the gross profit of $ 1.7 million for
      fiscal 1998. The gross profit from services was $ 54.7 million for fiscal
      1999, an increase of 107.2% over the gross profit of $ 26.4 million for
      fiscal 1998. As a percentage of product revenue, the gross profit from
      product sales decreased to 24.2% for fiscal 1999 from 42.8% for fiscal
      1998. As a percentage of service revenues, the gross profit from services
      increased to 46.6% for fiscal 1999 from 41.1% for fiscal 1998.

      Selling, General and Administrative expenses. Selling, general and
      administrative (SGA) expenses were $ 16.2 million for fiscal 1999, an
      increase of 22.5% over selling, general and administrative expenses of $
      13.2 million for fiscal 1998. Selling, general and administrative expenses
      were 13.4% and 19.4% of total revenue for fiscal 1999 and 1998. This
      decrease in SGA expense as a percentage of revenues was a result of the
      company's ability to increase revenues in 1999 without a proportionate
      increase in management, finance, administrative, and occupancy costs.
      Salaries for support staff represented 4.4% of total revenue for fiscal
      1999, while rent and office maintenance represented 2.5% of total revenue
      for fiscal 1999 as compared to 5.5% and 3.6%, respectively, for fiscal
      1998.

      Amortization of Deferred Stock Compensation Expense. Amortization of
      deferred stock compensation expense was $ 16.6 million for fiscal 1999, an
      increase of 544.9% over amortization of deferred stock compensation
      expense of $ 2.6 million for fiscal 1998. Compensation expense increased
      for new grants of stock purchase rights in part because of the rising
      market price of the equity shares. The increase in deferred stock
      compensation expense also reflects the continued amortization of
      compensation expense from stock purchase rights granted in prior periods.

      In the third quarter of fiscal 1998, the company recognized a non-cash
      compensation expense of $ 1.6 million. Charges were higher in that quarter
      because additional equity shares were issued to participants in the
      Employee Stock Option Plan (ESOP) as part of the company's 1997 stock
      dividend. Since these additional equity shares were not subject to
      vesting, the non-cash compensation expense for such shares was accelerated
      in one quarter rather than amortized over the remaining vesting period. In
      the fourth quarter of fiscal 1999, the company recognized a non-cash
      compensation expense of $ 14.1 million, including an accelerated charge of
      $ 12.9 million as part of the company's 1998 stock dividend. As in fiscal
      1998, the equity shares issued to ESOP participants in connection with the
      stock dividend were not subject to vesting. As a result, one-half of the
      deferred stock compensation expense that would have been amortized over
      the remaining vesting periods for the equity shares issued under the ESOP
      was accelerated in the fourth quarter of fiscal 1999.

      Operating Income. The operating income was $ 22.9 million for fiscal 1999,
      an increase of 84.7% over the operating income of $ 12.4 million for
      fiscal 1998. As a percentage of revenues, operating income increased to
      18.9% for fiscal 1999 from 18.0% for fiscal 1998. Excluding the
      amortization of deferred stock compensation expense, the operating margin
      is 32.6% for fiscal 1999 as compared to 21.8% for fiscal 1998.

      Other Income. Other income was $ 1.54 million for fiscal 1999 as compared
      to $ 0.80 million for fiscal 1998. This increase in other income was due
      to an increase in interest income resulting from the investment of a
      larger cash balance, partly arising out of proceeds of the ADS issue
      during March 1999, and from the sale of Yantra preferred stock, offset in
      part by a decrease in income from the sale of special import licenses
      during fiscal 1999, as compared to fiscal 1998.

      Provision for Income Taxes. Provision for income taxes was $ 4.9 million
      for fiscal 1999 as compared to $ 0.8 million for fiscal 1998. The
      company's effective tax rate increased to 21.8% for fiscal 1999 as
      compared to 5.8% for fiscal 1998. The effective tax rate increased due to
      an increase in amortization of deferred stock compenstation expense which
      reduced the pretax income substantially, and an increase in foreign tax
      liabilities offset, in part, by a decrease in Indian tax liability
      resulting from a higher proportion of the company's operations qualifying
      for Indian tax exemptions applicable to designated Software Technology
      Parks.

      Net Income. The net income was $ 17.4 million for fiscal 1999, an increase
      of 41.3% over the net income of $ 12.4 million for fiscal 1998. As a
      percentage of total revenue, the net income decreased to 14.4% for fiscal
      1999 from 18.1% for fiscal 1998.

                                      114
<PAGE>
 
      2.2 Fiscal year ended March 31, 1998 compared to fiscal year ended March
      31, 1997

      Revenue. Total revenue was $ 68.3 million for fiscal 1998, representing an
      increase of 72.6% over total revenue of $ 39.6 million for fiscal 1997.
      This increase was attributable in part to significant increases in
      revenues from Year 2000 conversion projects, which represented 23.3% of
      total revenue for fiscal 1998 as compared to 7.5% of total revenue for
      fiscal 1997. The revenue growth in fiscal 1998 included a substantial
      increase in revenues from existing clients, particularly in the retailing
      industry, as well as revenues from new clients, particularly in the
      financial services and telecommunications industries. This increase was
      partially offset by a reduction in sales of the Bancs2000 product
      resulting from a slowdown of computerization activities by Indian banks.

      Net sales of Bancs2000 and other products represented 5.4% of total
      revenue for fiscal 1998 as compared to 12.7% for fiscal 1997. Revenues
      from services represented 94.6% of total revenue for fiscal 1998 as
      compared to 87.3% for fiscal 1997. Revenues from fixed-price, fixed-time
      frame contracts and from time-and-materials contracts represented 35.8%
      and 64.2%, respectively, of total revenue for fiscal 1998 as compared to
      37.0% and 63.0%, respectively, for fiscal 1997. North America and Europe
      represented 82.3% and 9.0%, respectively, of total revenue for fiscal 1998
      as compared to 78.5% and 8.2%, respectively, for fiscal 1997.

      Cost of Revenues. Cost of revenues was $ 40.2 million for fiscal 1998,
      representing an increase of 77.6% over cost of revenues of $ 22.6 million
      for fiscal 1997. Cost of revenues represented 58.8% and 57.1% of total
      revenue for fiscal 1998 and 1997, respectively. This marginal increase as
      a percentage of revenues is attributable to an increase in depreciation
      and software expenses, which represented 12.5% of total revenues for
      fiscal 1998 as compared to 10.4% for fiscal 1997. The increase was
      partially offset by a favorable business mix, especially in certain
      fixed-price, fixed-time frame services. Cost of revenues for services
      represented 58.9% and 57.1% of total revenue for services for fiscal 1998
      and 1997, respectively. Cost of revenues for product sales represented
      57.2% and 57.3% of total revenue for product sales for fiscal 1998 and
      1997, respectively.

      Gross Profit. As a result of the foregoing, gross profit was $ 28.2
      million for fiscal 1998, representing an increase of 66.0% over gross
      profit of $ 17.0 million for fiscal 1997. As a percentage of total
      revenue, gross profit decreased to 41.2% for fiscal 1998 from 42.9% for
      fiscal 1997. Gross profit from sales of Bancs2000 and other products was $
      1.7 million for fiscal 1998, a decrease of 22.7% from gross profit of $
      2.2 million for fiscal 1997. Gross profit from services was $ 26.4 million
      for fiscal 1998, an increase of 78.4% over gross profit of $ 14.8 million
      for fiscal 1997. As a percentage of product revenues, gross profit from
      product sales increased to 42.8% for fiscal 1998 from 42.7% for fiscal
      1997. As a percentage of service revenues, gross profit from services
      decreased to 41.1% for fiscal 1998 from 42.9% for fiscal 1997.

      Selling, General and Administrative expenses. Selling, general and
      administrative expenses were $ 13.2 million for fiscal 1998, an increase
      of 88.7% over selling, general and administrative expenses of $ 7.0
      million for fiscal 1997. Selling, general and administrative expenses were
      19.4% and 17.7% of total revenue for fiscal 1998 and 1997, respectively.
      This increase as a percentage of revenues was a result of an increase in
      salaries for administrative and support staff and an increase in rent and
      other expenses as the company expanded the number of sales offices and
      offshore software development facilities. Salaries for support staff
      represented 5.5% of total revenue and rent and office maintenance
      represented 3.6% of total revenue for fiscal 1998 as compared to 4.7% and
      2.9%, respectively, for fiscal 1997.

      Amortization of Deferred Stock Compensation Expense. Amortization of
      deferred stock compensation expense was $ 2.6 million for fiscal 1998, an
      increase of 234.2% over amortization of deferred stock compensation
      expense of $ 768,000 for fiscal 1997. The expense recorded in fiscal 1998
      included a charge of $ 1.6 million recognized in the third quarter of the
      year. Compensation expense was higher in that quarter because equity
      shares issued to participants in the ESOP in connection with the company's
      1997 stock dividend were not subject to vesting, and accordingly, the
      compensation expense related to such shares was recognized in one quarter
      rather than being amortized over five years. Amortization of deferred
      stock compensation expense was 3.8% of revenues in fiscal 1998 as compared
      to 1.9% of revenues in fiscal 1997.

      Operating Income. As a result of the foregoing, operating income was $
      12.4 million for fiscal 1998, an increase of 34.7% over operating income
      of $ 9.2 million for fiscal 1997. As a percentage of total revenue,
      operating income decreased to 18.0% for fiscal 1998 from 23.3% for fiscal
      1997. Excluding the amortization of deferred 

                                      115
<PAGE>
 
      stock compensation expense, the operating margin would have been 21.8% for
      fiscal 1998 as compared to 25.2% for fiscal 1997.

      Other Income. Other income was $ 801,000 for fiscal 1998 as compared to $
      769,000 for fiscal 1997 as a result of an increase in interest income.

      Provision for Income Taxes. Provision for income taxes was $ 770,000 for
      fiscal 1998 as compared to $ 1.3 million for fiscal 1997. The company's
      effective tax rate decreased to 5.8% for fiscal 1998 as compared to 13.3%
      for fiscal 1997. The effective tax rate declined as a higher proportion of
      the company's operations qualified for Indian tax exemptions applicable to
      designated Software Technology Parks.

      Net Income. As a result of the foregoing, net income was $ 12.4 million
      for fiscal 1998, an increase of 43.6% over net income of $ 8.6 million for
      fiscal 1997. As a percentage of total revenue, net income decreased to
      18.1% for fiscal 1998 from 21.9% for fiscal 1997.

      2.3 Liquidity and capital resources

      The growth of the company has been financed largely from cash generated
      from operations and, to a lesser extent, from the proceeds of equity
      issues and borrowings. In 1993, the company raised approximately $ 4.4
      million in gross aggregate proceeds from its intial public offering of
      equity shares on Indian stock exchanges. In 1994, the company raised an
      additional $ 7.7 million through private placements of its equity shares
      with foreign institutional investors. As on March 31, 1999, the company
      had $ 98.9 million in cash and cash equivalents, $ 110.6 million in
      working capital and no outstanding bank borrowings. As on March 31, 1999,
      the company also had an aggregate facility of $ 1.2 million in working
      capital line of credit from two commercial banks.

      Net cash provided by operating activities was $ 40.9 million, $ 17.2
      million and $ 9.4 million in fiscal 1999, 1998 and 1997, respectively. Net
      cash provided by operations consisted primarily of net income offset, in
      part, by an increase in accounts receivable. In recent years, accounts
      receivable have increased at a rate faster than sales. Accounts receivable
      as a percentage of total revenue, represented 16.6%, 15.0% and 12.6%, for
      fiscal 1999, 1998 and 1997, respectively. Further, the average days
      outstanding of accounts receivable has increased in the 31-60, 61-90 and
      greater than 90 day aging periods and decreased in the 0-30 day aging
      period. The company believes that this is due to an increase in proportion
      of revenue from large companies, who tend to have better cash management
      practices than smaller companies. The company does not expect significant
      additional increases in the average-days-outstanding of its accounts
      receivable. The company's policy on accounts receivable includes a
      periodic review of all such outstandings. The company reviews, among other
      things, the age, amount, and quality of each account receivable; the
      relationship with, size of, and history of the client; and the quality of
      service delivered by the company for the client to determine the
      classification of an account receivable. Should the review so demand, the
      company will classify the accounts into secured and unsecured (doubtful)
      accounts. The company makes provisions for all accounts receivable
      classified as unsecured or doubtful and for all accounts receivable that
      are outstanding more than 180 days.

      Prepaid expenses and other current assets increased by $ 2.0 million, $
      0.9 million and $ 1.2 million during fiscal 1999, 1998 and 1997,
      respectively. The increase in fiscal 1997 was primarily due to an increase
      in rental deposits for the new software development centers. The increases
      during fiscal 1999 and 1998 were primarily due to loans to employees,
      which increased by $ 1.1 million and $ 0.5 million.

      Unearned revenue as on March 31, 1998 consists primarily of advance client
      billings on fixed-price, fixed-time frame contracts for which related
      costs were not yet incurred.

      Net cash used in investing activities was $ 17.0 million, $ 8.4 million
      and $ 4.6 million in fiscal 1999, 1998 and 1997, respectively. Net cash
      used in investing activities in fiscal 1997 consisted primarily of $ 7.2
      million for property, plant and equipment offset by sales of equity
      investments in other companies and in mutual funds. Net cash used in
      investing activities in fiscal 1999 and 1998 consisted primarily of $ 16.1
      million and $ 7.9 million, respectively, for property, plant and
      equipment.

      Publicly-traded Indian companies customarily pay dividends. For fiscal
      1999, the company declared a dividend of $ 3.2 million, which was paid
      partly in fiscal 1999. For fiscal 1998, the company declared a dividend of
      $ 1.5 

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      million, which was paid partly in fiscal 1998 and partly in fiscal 1999.
      For fiscal 1997, the company declared a dividend of $ 1.1 million, which
      was paid partly in fiscal 1997 and partly in fiscal 1998.

      As on March 31, 1999, the company had contractual commitments for capital
      expenditure of $ 5.9 million. The company has not yet made contractual
      commitments for the majority of its budgeted capital expenditure.

      2.4 Reconciliation between the US and the Indian GAAP

      There are material differences between the financial statements prepared
      as per the Indian and the US GAAP. The material differences arise due to
      provision for deferred taxes, accounting for stock-based compensation and
      valuation of short-term investments, which are marked to market and
      adjusted against retained earnings, and consolidation of accounts of
      subsidiary, as required by US GAAP. The Indian GAAP does not require
      provision for deferred taxes, amortization of deferred stock compensation,
      consolidation of accounts of subsidiaries and only requires a provision
      for diminution in the value of current investments.

      Reconciliation of net income

<TABLE>
<CAPTION>
      -------------------------------------------------------------------------------------------------
                                                                   1999            1998            1997
      -------------------------------------------------------------------------------------------------
<S>                                                        <C>             <C>             <C>         
      Net profit as per Indian GAAP
        (excluding extraordinary income)                   $ 32,207,070    $ 16,041,966    $  9,390,263

      Adjustments:
      Translation difference in depreciation                         --              --         (58,855)
      Deferred tax                                              625,427         707,553         249,220
      Net income of subsidiary included on consolidation     (2,085,887)     (1,563,718)       (170,700)
      Provision for retirement benefits to employees                 --        (275,000)             --
      Employee stock-based compensation plan                 (3,645,576)     (1,046,874)       (767,926)
        charge under APB Opinion no. 25
      Compensation arising from stock split                 (12,906,962)     (1,519,739)             --
      Provision for loss - Yantra Corporation                 1,675,060              --              --
      Provision for contingency                               1,576,956              --              --
      -------------------------------------------------------------------------------------------------
      Net income as per US GAAP                            $ 17,446,088    $ 12,344,188    $  8,642,002
      -------------------------------------------------------------------------------------------------
</TABLE>

3 Risk factors

      3.1 Management of growth

      The company has experienced significant growth in recent periods. The
      company's revenues in fiscal 1999 grow 77.1% over fiscal 1998. As of March
      31, 1999, the company employed approximately 3,160 software professionals
      worldwide with 11 software development facilities in India as compared to
      approximately 2,190 with nine facilities as of March 31, 1998 and 1,410
      with seven facilities as of March 31, 1997. In fiscal 1998, the company
      approved major expansions to its existing facilities and the building of
      new facilities. The company's growth is expected to place significant
      demands on its management and other resources and will require it to
      continue to develop and improve its operational, financial and other
      internal controls, both in India and elsewhere. In particular, continued
      growth increases the challenges involved in: recruiting and retaining
      sufficient skilled technical, marketing and management personnel;
      providing adequate training and supervision to maintain the company's high
      quality standards; and preserving the company's culture and values and its
      entrepreneurial environment. The company's inability to manage its growth
      effectively could have a material adverse effect on the quality of the
      company's services and projects, its ability to attract clients as well as
      skilled personnel, its business prospects, and its results of operations
      and financial condition.

      3.2 Potential fluctuations in future operating results

      Historically, the company's operating results have fluctuated, and may
      continue to fluctuate in future, depending on a number of factors,
      including: the size, timing and profitability of significant projects; the
      proportion of services that are performed at client sites rather than at
      the company's offshore facilities; the accuracy of estimates of resources
      and time required to complete ongoing projects, particularly projects
      performed under fixed-price, fixed-time frame contracts; a change in the
      mix of services provided to its clients or in the relative proportion of
      services and product revenues; the timing of tax holidays and other
      Government of India incentives; the effect of seasonal hiring patterns and
      the time required to train and productively utilize new

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      employees; the size and timing of facilities expansion; unanticipated
      increases in wage rates; the company's success in expanding its sales and
      marketing programs; currency exchange rate fluctuations and other general
      economic factors. A high percentage of the company's operating expenses,
      particularly personnel and facilities, are fixed in advance of any
      particular quarter. As a result, unanticipated variations in the number
      and timing of the company's projects or in employee utilization rates may
      cause significant variations in operating results in any particular
      quarter. The company believes that period-to-period comparisons of its
      results of operations are not necessarily meaningful and should not be
      relied upon as indications of future performance. Due to all of the
      foregoing factors, it is possible that in some future quarter the
      company's operating results may be below the expectations of public market
      analysts and investors. In such event, the market price of the equity
      shares and ADSs are likely to be materially adversely affected.

      3.3 Risks related to investments in Indian securities

      The company is incorporated in India, and substantially all of its assets
      and a substantial majority of its employees are located in India.
      Consequently, the company's performance may be affected by changes in
      exchange rates and controls, interest rates, Government of India policies,
      including taxation policy, as well as political, social and economic
      developments affecting India.

      Political and Economic Environment. During the past decade and
      particularly since 1991, the Government of India has pursued policies of
      economic liberalization, including significant relaxations of restrictions
      on the private sector. Nevertheless, the role of the Indian central and
      state Governments in the Indian economy as producers, consumers and
      regulators has remained significant. Additionally, since 1996, the
      Government of India has changed three times. The current Government of
      India, formed in March 1998, has announced policies and taken initiatives
      that support the continuation of the economic liberalization policies
      pursued by previous governments and has, in addition, set up a special IT
      task force to promote the IT industry. However, the speed of economic
      liberalization could change, and specific laws and policies affecting IT
      companies, foreign investment, currency exchange rates and other matters
      affecting investment in the company's securities could change as well.
      Further, there can be no assurance that the liberalization policies will
      continue in the future. A significant change in the Government of India's
      economic liberalization and deregulation policies could adversely affect
      business and economic conditions in India generally and the company's
      business in particular. On May 13, 1998, the United States imposed
      economic sanctions against India in response to India's testing of nuclear
      devices. While these sanctions imposed on India have not had a material
      impact on the company to date, there can be no assurance that additional
      economic sanctions of this nature will not be imposed, or that such
      sanctions will not have a material adverse effect on the company's
      business. Furthermore, financial turmoil in certain Asian countries,
      Russia and elsewhere in the world has affected market prices in the
      world's securities markets, including the United States and Indian
      markets. Continued or increased financial downturns in these countries
      could cause further decreases in securities prices on the United States
      and Indian exchanges, including the market prices of the company's equity
      shares and its ADSs. South Asia has from time to time experienced
      instances of civil unrest and hostilities among neighboring countries.
      Events of this nature in the future could influence the Indian economy and
      could have a material adverse effect on the market for securities of
      Indian companies and on the business of the company.

      Government of India Incentives and Regulation. The company benefits from a
      variety of incentives given to software firms in India, such as relief
      from import duties on hardware, a tax exemption for income derived from
      software exports, and tax holidays and infrastructure support for
      companies, such as Infosys, operating in specially designated "Software
      Technology Parks". There can be no assurance that these incentives will
      continue in future. Further, there is a risk that changes in tax rates or
      laws affecting foreign investment, currency exchange rates or other
      regulations will render the Government of India's regulatory scheme less
      favorable to the company and could adversely affect the market price of
      the company's equity shares and its ADSs. Should the regulations and
      incentives promulgated by the Government of India become less favorable to
      the company, the company's results of operations and financial condition
      could be adversely affected.

      Restrictions on Foreign Investment. Foreign investment in Indian
      securities is generally regulated by the Foreign Exchange Regulation Act,
      1973. In certain emerging markets, including India, Global Depositary
      Shares and ADSs may trade at a discount or premium, as the case may be, to
      the underlying shares, in part because of 

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<PAGE>
 
      restrictions on foreign ownership of the underlying shares. In addition,
      under current Indian laws and regulations, the Depositary cannot accept
      deposits of outstanding equity shares and issue ADRs evidencing ADSs
      representing such equity shares. Therefore, a holder of ADSs who
      surrenders ADSs and withdraws equity shares is not permitted subsequently
      to deposit such equity shares and obtain ADSs nor would a holder to whom
      such equity shares are transferred be permitted to deposit such equity
      shares. This inability to convert equity shares into ADSs increases the
      probability that the price of the ADSs will not trade on par with the
      price of the equity shares as quoted on the Indian stock exchanges.
      Holders who seek to sell in India any equity shares withdrawn from the
      depositary facility and to convert the rupee proceeds from such sale into
      foreign currency and repatriate such foreign currency from India will have
      to obtain RBI approval for each such transaction. Further, under current
      Indian regulations and practice, the approval of the RBI is required for
      the sale of equity shares underlying ADSs by a non-resident of India to a
      resident of India as well as for renunciation of rights to a resident of
      India. There can be no assurance that any such approval can be obtained.

      Exchange Rate Fluctuations. The exchange rate between the rupee and the US
      dollar has changed substantially in recent years and may fluctuate
      substantially in the future. During the four-year period from March 31,
      1995 through March 31, 1999, the value of the rupee against the US dollar
      declined by 35.2%. For fiscal 1999 and fiscal 1998, the company's US
      dollar-denominated revenues represented 88.1% and 90.0%, respectively, of
      total revenue. The company expects that a majority of its revenues will
      continue to be generated in US dollars for the foreseeable future and that
      a significant portion of the company's expenses, including personnel costs
      as well as capital and operating expenditures, will continue to be
      denominated in rupees. Consequently, the company's results of operations
      will be adversely affected to the extent the rupee appreciates against the
      US dollar. The company has sought to reduce the effect of exchange rate
      fluctuations on operating results by periodically purchasing foreign
      exchange forward contracts to cover a portion of outstanding accounts
      receivable. For the first three quarters of fiscal 1999, the company
      purchased foreign exchange forward contracts worth an aggregate notional
      amount of $5.5 million. As of March 31, 1999, the company had no such
      forward contracts outstanding. These contracts typically mature within
      three months, must be settled on the day of maturity and may be canceled
      subject to the payment of any gains or losses in the difference between
      the contract exchange rate and market exchange rate on the date of
      cancellation. The company uses these instruments only as a hedging
      mechanism and not for speculative purposes. There can be no assurance that
      the company will purchase contracts adequate to insulate itself from
      foreign exchange currency risks or that any such contracts will perform
      adequately as a hedging mechanism. Depreciation of the rupee will result
      in foreign currency translation losses. For example, for fiscal 1998 and
      fiscal 1999, the company's foreign currency translation losses were
      approximately $3.5 million and $2.1million, respectively. Fluctuations in
      the exchange rate between the rupee and the US dollar also will affect the
      US dollar conversion by the Depositary of any cash dividends paid in
      rupees on the equity shares represented by the ADSs. In addition,
      fluctuations in the exchange rate between the Indian rupee and the US
      dollar will affect the US dollar equivalent of the Indian rupee price of
      equity shares on the Indian Stock Exchanges and, as a result, are likely
      to affect the market prices of the ADSs in the United States, and vice
      versa. Such fluctuations will also affect the dollar value of the proceeds
      a holder would receive upon the sale in India of any equity shares
      withdrawn from the Depositary under the Depositary Agreement. There can be
      no assurance that holders will be able to convert rupee proceeds into US
      dollars or any other currency or with respect to the rate at which any
      such conversion could occur.

      3.4 Substantial investment in new facilities

      As of March 31, 1999, the company had contractual commitments of $5.9
      million for capital expenditure and has budgeted for significant
      infrastructural expansion in the near future. Since such an expansion will
      significantly increase the company's fixed costs, the company's results of
      operations will be materially adversely affected if the company is unable
      to grow its business proportionately. Although the company has
      successfully developed new facilities in the past, there can be no
      assurance that the company will not encounter cost overruns or project
      delays in connection with any or all of the new facilities. Furthermore,
      there can be no assurance that future financing for additional facilities,
      whether within India or elsewhere, would be available on attractive terms
      or at all.

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<PAGE>
 
      3.5 Restrictions on US immigration

      The company's professionals who work on-site at client facilities in the
      United States on temporary and extended assignments are typically required
      to obtain visas. As of March 31, 1999, substantially all of the company's
      personnel in the United States were working pursuant to H-1B visas (300
      persons) or L-1 visas (125 persons). Although there is no limit to new L-1
      petitions, there is a limit to the number of new H-1B petitions that the
      United States Immigration and Naturalization Service may approve in any
      government fiscal year. In years in which this limit is reached, the
      company may be unable to obtain the H-1B visas necessary to bring its
      critical Indian IT professionals to the United States on an extended
      basis. This limit was reached in May 1998 for the US government's fiscal
      year ending September 30, 1998. While the company anticipated that such
      limit would be reached prior to the end of the US government's fiscal year
      and made efforts to plan accordingly, there can be no assurance that the
      company will continue to be able to obtain a sufficient number of H-1B
      visas. Changes in existing US immigration laws that make it more difficult
      for the company to obtain H-1B and L-1 visas could impair the company's
      ability to compete for and provide services to clients and could have a
      material adverse effect on the company's results of operations and
      financial condition.

      3.6 Risks related to international operations

      While to date all of the company's software development facilities are
      located in India, the company intends to develop new software development
      facilities in other regions, including potentially Southeast Asia, Latin
      America and Europe. The company has not yet made substantial contractual
      commitments to develop such new software development facilities, and there
      can be no assurance that the company will not significantly alter or
      reduce its proposed expansion plans. The company's lack of experience with
      facilities outside of India subject the company to further risk with
      regard to foreign regulation and overseas facilities management.
      Increasing the number of software development facilities and the scope of
      operations outside of India subjects the company to a number of risks,
      including, among other things, difficulties relating to administering its
      business globally, managing foreign operations, currency exchange rate
      fluctuations, restrictions against the repatriation of earnings, export
      requirements and restrictions, and multiple and possibly overlapping tax
      structures. Such developments could have a material adverse effect on the
      company's business, results of operations and financial condition.

      3.7 Dependence on skilled personnel; risks of wage inflation

      The company's ability to execute project engagements and to obtain new
      clients depends, in large part, on its ability to attract, train, motivate
      and retain highly skilled IT professionals, particularly project managers,
      software engineers and other senior technical personnel. An inability to
      hire and retain additional qualified personnel will impair the company's
      ability to bid for or obtain new projects and to continue to expand its
      business. The company believes that there is significant competition for
      IT professionals with the skills necessary to perform the services offered
      by the company. There can be no assurance that the company will be able to
      assimilate and manage new IT professionals effectively. Any increase in
      the attrition rates experienced by the company, particularly the rate of
      attrition of experienced software engineers and project managers, would
      adversely affect the company's results of operations and financial
      condition. There can be no assurance that the company will be successful
      in recruiting and retaining a sufficient number of replacement IT
      professionals with the requisite skills to replace those IT professionals
      who leave. Further, there can be no assurance that the company will be
      able to redeploy and retrain its IT professionals to keep pace with
      continuing changes in IT, evolving standards and changing client
      preferences. Historically, the company's wage costs in India have been
      significantly lower than wage costs in the United States for comparably
      skilled IT professionals. However, wage costs in India are presently
      increasing at a faster rate than those in the United States. In the
      long-term, wage increases may have an adverse effect on the company's
      profit margins unless the company is able to continue increasing the
      efficiency and productivity of its professionals.

      3.8 Client concentration

      The company has derived, and believes that it will continue to derive, a
      significant portion of its revenues from a limited number of large
      corporate clients. For fiscal 1998 and fiscal 1999, the company's largest
      client accounted for 10.5% and 6.4%, respectively, of the company's total
      revenue and its five largest clients accounted for 35.1% and 28.4%,
      respectively, of the company's total revenue. The volume of work performed
      for specific clients is 

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      likely to vary from year to year, particularly since the company is
      usually not the exclusive outside service provider for its clients. Thus,
      a major client in one year may not provide the same level of revenues in a
      subsequent year. The loss of any large client could have a material
      adverse effect on the company's results of operations and financial
      condition. Since many of the contracted projects are critical to the
      operations of its clients' businesses, any failure to meet client
      expectations could result in a cancellation or non-renewal of a contract.
      However, there are a number of factors other than the company's
      performance that could cause the loss of a client and that may not be
      predictable. For example, in 1995, the company chose to reduce
      significantly the services provided to its then-largest client rather than
      accept the price reductions and increased company resources sought by the
      client. In other circumstances, the company reduced significantly the
      services provided to its client when the client either changed its
      outsourcing strategy by moving more work in-house and reducing the number
      of its vendors, or replaced its existing software with packaged software
      supported by the licensor. There can be no assurance that the same
      circumstances may not arise in future.

      3.9 Fixed-price, fixed-time frame contracts

      As a core element of its business strategy, the company continues to offer
      a significant portion of its services on a fixed-price, fixed-time frame
      basis, rather than on a time-and-materials basis. Although the company
      uses specified software engineering processes and its past project
      experience to reduce the risks associated with estimating, planning and
      performing fixed-price, fixed-time frame projects, the company bears the
      risk of cost overruns, completion delays and wage inflation in connection
      with these projects. The company's failure to estimate accurately the
      resources and time required for a project, future rates of wage inflation
      and currency exchange rates or its failure to complete its contractual
      obligations within the time frame committed could have a material adverse
      effect on the company's results of operations and financial condition.

      3.10 Infrastructure and potential disruption in telecommunications

      A significant element of the company's business strategy is to continue to
      leverage its various software development centers in Bangalore,
      Bhubaneshwar, Chennai, Mangalore and Pune, India and to expand the number
      of such centers in India as well as outside India. The company believes
      that the use of a strategically located network of software development
      centers will provide the company with cost advantages, the ability to
      attract highly skilled personnel in various regions, the ability to
      service clients on a regional and global basis, and the ability to provide
      24-hour service to its clients. Pursuant to its service delivery model,
      the company must maintain active voice and data communication between its
      main offices in Bangalore, the offices of its clients, and its other
      software development facilities. Although the company maintains redundant
      software development facilities and satellite communications links, any
      significant loss of the company's ability to transmit voice and data
      through satellite and telephone communications would have a material
      adverse effect on the company's results of operations and financial
      condition.

      3.11 Expected decrease in demand for Year 2000 services

      Year 2000 conversion projects represented 23.3% and 19.8% of the company's
      total revenue for fiscal 1998 and fiscal 1999, respectively. The company
      expects that Year 2000 conversion projects will continue to represent a
      material portion of the company's business in fiscal 2000. The high demand
      for these time-sensitive projects results in pricing and margins that are
      favorable to the company. The company believes that demand for Year 2000
      conversion services will begin to diminish rapidly after fiscal 1999 as
      many Year 2000 conversion solutions are implemented and tested. There can
      be no assurance that the company will be successful in generating
      additional business from its Year 2000 clients for other services, that
      the company will be successful in replacing Year 2000 conversion projects
      with other projects as the Year 2000 business declines or that margins
      from any such future projects will be comparable to those obtained from
      Year 2000 conversion projects. There is an additional risk that the
      company may be unable to retrain and redeploy IT professionals who are
      currently assigned to Year 2000 conversion projects involving legacy
      computer systems after such projects are completed. Furthermore, as Year
      2000 conversion projects are completed, there is a likelihood of increased
      competition for other types of projects from firms formerly dependent on
      Year 2000 business.

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      3.12 Competition

      The market for IT services is highly competitive. Competitors include IT
      services companies, large international accounting firms and their
      consulting affiliates, systems consulting and integration firms, temporary
      employment agencies, other technology companies and client in-house MIS
      departments. Competitors include international firms as well as national,
      regional and local firms located in the United States, Europe and India.
      The company expects that future competition will increasingly include
      firms with operations in other countries, potentially including countries
      with lower personnel costs than those prevailing in India. Historically,
      one of the company's key competitive advantages has been a cost advantage
      relative to service providers in the United States and Europe. Since wage
      costs in India are presently increasing at a faster rate than those in the
      United States, the company's ability to compete effectively will become
      increasingly dependent on its reputation, the quality of its services, and
      its expertise in specific markets. Many of the company's competitors have
      significantly greater financial, technical and marketing resources and
      generate greater revenue than the company, and there can be no assurance
      that the company will be able to compete successfully with such
      competitors and will not lose existing clients to such competitors. The
      company believes that its ability to compete also depends in part on a
      number of factors outside its control, including the ability of its
      competitors to attract, train, motivate and retain highly skilled IT
      professionals, the price at which its competitors offer comparable
      services, and the extent of its competitors' responsiveness to client
      needs.

      3.13 Dependence on key personnel

      The company's success depends to a significant degree upon continued
      contributions of members of the company's senior management and other key
      research and development and sales and marketing personnel. The company
      generally does not enter into employment agreements with its senior
      management and other key personnel that provide for substantial
      restrictions on such persons leaving the company. The loss of any of such
      persons could have a material adverse effect on the company's business,
      financial condition and results of operations.

      3.14 Potential liability to clients; risk of exceeding insurance coverage

      Many of the company's contracts involve projects that are critical to the
      operations of its clients' businesses and provide benefits that may be
      difficult to quantify. Any failure in a client's system could result in a
      claim for substantial damages against the company, regardless of the
      company's responsibility for such failure. Although the company attempts
      to limit its contractual liability for damages arising from negligent
      acts, errors, mistakes or omissions in rendering its services, there can
      be no assurance the limitations of liability set forth in its service
      contracts will be enforceable in all instances or will otherwise protect
      the company from liability for damages. The company maintains general
      liability insurance coverage, including coverage for errors or omissions;
      however, there can be no assurance that such coverage will continue to be
      available on reasonable terms or will be available in sufficient amounts
      to cover one or more large claims, or that the insurer will not disclaim
      coverage as to any future claim. The successful assertion of one or more
      large claims against the company that exceed available insurance coverage
      or changes in the company's insurance policies, including premium
      increases or the imposition of large deductible or co-insurance
      requirements, could adversely affect the company's results of operations
      and financial condition.

      3.15 Risks associated with possible acquisitions

      The company intends to evaluate potential acquisitions and strategic
      investments on an ongoing basis. As of the date, however, the company has
      no understanding, commitment or agreement with respect to any material
      future acquisition or investment. Since the company has not made any
      acquisitions in the past, there can be no assurance that the company will
      be able to identify suitable acquisition candidates available for sale at
      reasonable prices, consummate any acquisition, or successfully integrate
      any acquired business into the company's operations. Further, acquisitions
      may involve a number of special risks, including diversion of management's
      attention, failure to retain key acquired personnel and clients,
      unanticipated events or circumstances, legal liabilities and amortization
      of acquired intangible assets, some or all of which could have a material
      adverse effect on the company's results of operations and financial
      condition. Under Indian law, except in certain limited circumstances, the
      company may not make any acquisition of, or investment in, a non-Indian
      company without 

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      RBI and, in most cases, Government of India approval. Even if the company
      does encounter an attractive acquisition candidate, there can be no
      assurance that RBI and, if required, Government of India approval can be
      obtained.

      3.16 Risks related to software product sales

      In fiscal 1999, the company derived 3.2% of its total revenue from the
      sale of software products. The development of the company's software
      products requires significant investments. The markets for the company's
      primary software product are competitive and currently located in
      developing countries, and there can be no assurance that such a product
      will continue to be commercially successful. In addition, there can be no
      assurance that any new products developed by the company will be
      commercially successful or that the costs of developing such new products
      will be recouped. A decrease in the company's product revenues or margins
      could adversely affect the company's results of operations and financial
      condition. Additionally, software product revenues typically occur in
      periods subsequent to the periods in which the costs are incurred for
      development of such products. There can be no assurance that such delayed
      revenues will not cause periodic fluctuations of the company's results of
      operations and financial condition.

      3.17 Restrictions on exercise of preemptive rights by ADS holders

      Under the Indian Companies Act, 1956 (the "Indian Companies Act"), a
      company incorporated in India must offer its holders of equity shares
      preemptive rights to subscribe and pay for a proportionate number of
      shares to maintain their existing ownership percentages prior to the
      issuance of any new equity shares, unless such preemptive rights have been
      waived by three-fourths of the company's shareholders. US holders of ADSs
      may be unable to exercise preemptive rights for equity shares underlying
      ADSs unless a registration statement under the Securities Act of 1933, as
      amended (the "Securities Act"), is effective with respect to such rights
      or an exemption from the registration requirements of the Securities Act
      is available. The company's decision to file a registration statement will
      depend on the costs and potential liabilities associated with any such
      registration statement as well as the perceived benefits of enabling the
      holders of ADSs to exercise their preemptive rights and any other factors
      the company considers appropriate at the time. No assurance can be given
      that the company would file a registration statement under these
      circumstances. If the company issues any such securities in future, such
      securities may be issued to the Depositary, which may sell such securities
      for the benefit of the holders of the ADSs. There can be no assurance as
      to the value, if any, the Depositary would receive upon the sale of such
      securities. To the extent that holders of ADSs are unable to exercise
      preemptive rights granted in respect of the equity shares represented by
      their ADSs, their proportional interests in the company would be reduced.

      3.18 Intellectual property rights

      The company relies upon a combination of non-disclosure and other
      contractual arrangements and copyright, trade secrets and trademark laws
      to protect its proprietary rights. Ownership of software and associate
      deliverables created for clients is generally retained by or assigned to
      the client, and the company does not retain an interest in such software
      and deliverables. The company also develops foundation and application
      software products, or software "tools", which are licensed to clients and
      remain the property of the company. The company has obtained registration
      of INFOSYS as a trademark in India but not in the United States, and does
      not have any patents or registered copyrights in the United States. The
      company currently requires its IT professionals to enter into
      non-disclosure and assignment of rights agreements to limit use of, access
      to, and distribution of its proprietary information. There can be no
      assurance that the steps taken by the company in this regard will be
      adequate to deter misappropriation of proprietary information or that the
      company will be able to detect unauthorized use and take appropriate steps
      to enforce its intellectual property rights.

      Although the company believes that its services and products do not
      infringe upon the intellectual property rights of others, there can be no
      assurance that such a claim will not be asserted against the company in
      future. Assertion of such claims against the company could result in
      litigation, and there can be no assurance that the company would be able
      to prevail in such litigation or be able to obtain a license for the use
      of any infringed intellectual property from a third party on commercially
      reasonable terms. There can be no assurance that the company will be able
      to protect such licenses from infringement or misuse, or prevent
      infringement claims

                                      123
<PAGE>
 
      against the company in connection with its licensing efforts. The company
      expects that the risk of infringement claims against the company will
      increase if more of the company's competitors are able to obtain patents
      for software products and processes. Any such claims, regardless of their
      outcome, could result in substantial cost to the company and divert
      management's attention from the company's operations. Any infringement
      claim or litigation against the company could, therefore, have a material
      adverse effect on the company's results of operations and financial
      condition.

      3.19 Control by principal shareholders, officers and directors;
      anti-takeover provisions

      The company's officers and directors, together with members of their
      immediate families, in the aggregate, beneficially own approximately 31.2%
      of the company's issued equity shares. As a result, such persons, acting
      together, will likely still have the ability to exercise significant
      control over most matters requiring approval by the shareholders of the
      company, including the election and removal of directors and significant
      corporate transactions. Such control by the company's officers and
      directors could delay, defer or prevent a change in control of the
      company, impede a merger, consolidation, takeover or other business
      combination involving the company, or discourage a potential acquiror from
      making a tender offer or otherwise attempting to obtain control of the
      company.

      The Indian Companies Act and the company's Articles of Association (the
      "Articles") require that: (i) at least two-thirds of the company's
      directors shall serve for a specified term and shall be subject to
      re-election by the company's shareholders at the expiration of such terms;
      and (ii) at least one-third of the company's directors who are subject to
      re-election shall be up for re-election at each annual meeting of the
      company's shareholders. In addition, the company's Articles provide that
      Mr. N. R. Narayana Murthy, one of the company's principal founders and its
      Chairman of the Board and Chief Executive Officer, shall serve as the
      company's Chairman of the Board and shall not be subject to re-election as
      long as he and his relatives, own at least 5% of the company's outstanding
      equity securities. Furthermore, any amendment to the company's Articles
      would require the affirmative vote of three-fourths of the company's
      shareholders. Finally, foreign investment in Indian companies is highly
      regulated. These provisions could delay, defer or prevent a change in
      control of the company, impede a business combination involving the
      company or discourage a potential acquiror from attempting to obtain
      control of the company.

      3.20 Year 2000 compliance

      Many existing computer systems, software applications and other control
      devices use only two digits to identify a year in the date field, without
      considering the impact of the upcoming change in the century. Others do
      not correctly process "leap year" dates. As a result, such systems and
      applications could fail or create erroneous results unless modified so
      that they can correctly process data related to the year 2000 and beyond.
      While the company has evaluated each of its IT services and software
      products and believes that each is substantially Year 2000 compliant,
      there can be no assurance that the company's IT services and products are
      or will ultimately be Year 2000 compliant. The company relies on its
      systems, computer applications and devices to operate and monitor all
      major aspects of its business, including financial systems (such as
      general ledger, accounts payable and payroll), customer services,
      infrastructure, materials requirement planning, master project scheduling,
      networks and telecommunications systems. Although the company has
      converted its financial applications software to programs certified by the
      suppliers as Year 2000 compliant and is currently in the process of
      modifying and upgrading all other affected systems, there can be no
      assurance that such modifications and upgrades will be completed in a
      timely manner at reasonable costs, or that such modifications and upgrades
      will be able to anticipate all of the problems resulting from the actual
      impact of the year 2000. The company relies directly and indirectly on
      systems utilized by its suppliers for telecommunications, utilities,
      electronic hardware and software applications. Although the company
      maintains redundant software facilities and satellite communications
      links, any significant loss of the company's ability to transmit voice and
      data through satellite and telephone communications would have a material
      adverse effect on the company's business, results of operations and
      financial condition. Any failure of these third party suppliers to resolve
      their Year 2000 problems in a timely manner could disrupt the company's
      operations, which could have a material adverse effect on the company's
      business, results of operations and financial condition.

                                      124
<PAGE>
 
Report of management
--------------------------------------------------------------------------------

The management is responsible for preparing the company's financial statements
and related information that appears in this annual report. The management
believes that the financial statements fairly reflect the form and substance of
transactions, and reasonably present the company's financial condition and
results of operations in conformity with United States Generally Accepted
Accounting Principles. The management has included, in the company's financial
statements, amounts that are based on estimates and judgments, which it believes
are reasonable under the circumstances.

The company maintains a system of internal procedures and controls intended to
provide reasonable assurance, at appropriate cost, that transactions are
executed in accordance with company authorization and are properly recorded and
reported in the financial statements, and that assets are adequately
safeguarded.

KPMG Peat Marwick audits the company's financial statements in accordance with
the generally accepted auditing standards and provides an objective, independent
review of the company's internal controls and the fairness of its reported
financial condition and results of operations.

The board of directors of Infosys has appointed an audit committee composed of
outside directors. The committee meets with the management, internal auditors,
and the independent auditors to review internal accounting controls and
accounting, auditing, and financial reporting matters.

                                             Sd                               Sd
Bangalore                    T. V. Mohandas Pai               Nandan M. Nilekani
April 9, 1999             Senior Vice President     Managing Director, President
                     (Finance & Administration)      and Chief Operating Officer
                    and Chief Financial Officer
                                                                              Sd
                                                           N. R. Narayana Murthy
                                                                        Chairman
                                                     and Chief Executive Officer
     
<PAGE>
 
Independent auditors' report
--------------------------------------------------------------------------------

To the Board of Directors and Stockholders
Infosys Technologies Limited

We have audited the accompanying balance sheets of Infosys Technologies Limited
(the company) as of March 31, 1999 and 1998, and the related statements of
income, stockholders' equity and cash flows for each of the years in the
three-year period ended March 31, 1999. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit 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 financial statements referred to above present fairly, in
all material respects, the financial position of Infosys Technologies Limited as
of March 31, 1999 and 1998, and the results of its operations and its cash flows
for each of the years in the three-year period ended March 31, 1999, in
conformity with accounting principles generally accepted in the United States.

As explained in Note 1.3 in the accompanying notes to the financial statements,
the accounts of Infosys Technologies Limited's wholly owned subsidiary, Yantra
Corporation, which were consolidated with the financial statements of the
Company prior to April 1, 1998, have been accounted for by the equity method in
fiscal 1999.

                                                                              Sd
Bangalore, India                                               KPMG Peat Marwick
April 9, 1999
<PAGE>
 
Balance Sheets as of March 31
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                        1999             1998
-------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>              <C>          
ASSETS

CURRENT ASSETS

Cash and cash equivalents                                                      $  98,874,963    $  15,419,265
Trade accounts receivable, net of allowances                                      20,056,678       10,263,084
Prepaid expenses and other current assets                                          5,735,323        3,751,289
Prepaid income taxes                                                                      --          536,969
-------------------------------------------------------------------------------------------------------------
Total current assets                                                             124,666,964       29,970,607

Property, plant and equipment - net                                               23,900,313       16,695,503
Deferred tax assets                                                                1,715,375        1,089,948
Investments                                                                          177,938              362
Other assets                                                                       3,197,006        1,025,605
-------------------------------------------------------------------------------------------------------------
Total assets                                                                   $ 153,657,596    $  48,782,025
=============================================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES

Accounts payable                                                               $      75,305    $     149,086
Client deposits                                                                       18,520          190,173
Other accrued liabilities                                                          8,399,800        4,979,306
Income taxes payable                                                                 955,797               --
Unearned revenue                                                                   4,598,612               --
-------------------------------------------------------------------------------------------------------------
Total current liabilities                                                         14,048,034        5,318,565

Preferred stock of subsidiary                                                             --        2,317,500

STOCKHOLDERS' EQUITY

Equity shares, $ 0.32 par value; 50,000,000 shares authorized as of 1999 and
   1998; Issued and outstanding - 33,069,400 and
   32,034,400 as of 1999 and 1998                                                  8,592,137        4,545,811
Additional paid-in-capital                                                       120,849,511       24,415,920
Accumulated other comprehensive income                                            (9,100,662)      (7,042,229)
Deferred compensation - Employee Stock Offer Plan                                (21,686,799)      (7,831,445)
Loan to trust                                                                             --         (936,365)
Retained earnings                                                                 40,955,375       27,994,268
-------------------------------------------------------------------------------------------------------------
Total stockholders' equity                                                       139,609,562       41,145,960
-------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity                                     $ 153,657,596    $  48,782,025
=============================================================================================================
</TABLE>

                                 See accompanying notes to financial statements.

ASSETS 1999                                        
                                                   
[GRAPHIC]                                          


LIABILITIES AND 
STOCKHOLDERS' EQUITY 1999           

[GRAPHIC]            
<PAGE>
 
Statements of Income for the years ended March 31
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
                                                               1999             1998            1997
----------------------------------------------------------------------------------------------------
<S>                                                   <C>              <C>             <C>          
REVENUE

Revenue                                               $ 120,955,226    $  68,329,961   $  39,585,919
Cost of revenue                                          65,331,006       40,156,509      22,615,070
----------------------------------------------------------------------------------------------------
Gross profit                                             55,624,220       28,173,452      16,970,849
====================================================================================================

OPERATING EXPENSES

Selling, general and administrative expenses             16,199,055       13,225,492       7,010,211
Amortization of deferred stock compensation expense       3,645,576        1,046,874         767,926
Compensation arising from stock split                    12,906,962        1,519,739              --
----------------------------------------------------------------------------------------------------
Total operating expenses                                 32,751,593       15,792,105       7,778,137
----------------------------------------------------------------------------------------------------

Operating income                                         22,872,627       12,381,347       9,192,712
Equity in loss of deconsolidated subsidiary              (2,085,887)              --              --
Other income, net                                         1,536,998          800,799         769,560
----------------------------------------------------------------------------------------------------

Income before income taxes                               22,323,738       13,182,146       9,962,272
Provision for income taxes                                4,877,650          770,458       1,320,270
Preferred stock dividends                                        --           67,500              --
----------------------------------------------------------------------------------------------------
Net income                                            $  17,446,088    $  12,344,188   $   8,642,002
----------------------------------------------------------------------------------------------------

EARNINGS PER EQUITY SHARE

Basic                                                 $        0.57    $        0.41   $        0.30
Diluted                                               $        0.57    $        0.41   $        0.29

Weighted equity shares used in computing
earnings per equity share

Basic                                                    30,689,425       29,787,144      29,036,394
Diluted                                                  30,753,690       30,403,904      29,704,060
----------------------------------------------------------------------------------------------------
</TABLE>

                                 See accompanying notes to financial statements.

NET INCOME
$ in millions

[GRAPHIC]                          


NET EARNINGS
PER SHARE
$

[GRAPHIC]                          


NET REVENUE
$ in millions

[GRAPHIC]                          


STOCKHOLDERS' 
EQUITY
$ in millions

[GRAPHIC]
<PAGE>
 
Statements of Stockholders' Equity
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                                  in $
----------------------------------------------------------------------------------------------------------------------
   Equity shares                               Additional           Comprehensive         Accumulated         Deferred 
                                                                          paid-in              income            other 
                                              Shares   Par value          capital                        comprehensive 
                                                                                                                income 
----------------------------------------------------------------------------------------------------------------------
<S>                                       <C>           <C>            <C>                <C>               <C>        
Balance as of March 31, 1996              29,034,400   $2,309,991     $13,687,140                          $(1,990,696)
----------------------------------------------------------------------------------------------------------------------
Cash dividends declared                           --           --              --                                   -- 
Common stock issued upon
   exercise of warrants                        4,000          279           2,510                                   -- 
Compensation related to
   stock option grants                            --           --       2,022,597                                   -- 
Amortization of compensation
   related to stock option grants                 --           --              --                                   -- 
Comprehensive income
 Net income                                       --           --              --          $8,642,002               -- 
 Other comprehensive income
   Translation adjustment                         --           --              --          (1,902,597)              -- 
   Unrealized gain on investments-- net           --           --              --             361,482               -- 
----------------------------------------------------------------------------------------------------------------------
Other comprehensive income                        --           --              --          (1,541,115)      (1,541,115)
----------------------------------------------------------------------------------------------------------------------
Comprehensive income                              --           --              --          $7,100,887               -- 
----------------------------------------------------------------------------------------------------------------------
Balance as of March 31, 1997              29,038,400    2,310,270      15,712,247                  --       (3,531,811)
----------------------------------------------------------------------------------------------------------------------
Stock split                                       --    2,028,521              --                                   -- 
Cash dividends declared                           --           --              --                                   -- 
Common stock issued upon
   exercise of warrants                    2,996,000      207,020       1,813,330                                   -- 
Compensation related to
   stock option grants                            --           --       6,890,343                                   -- 
Amortization of compensation
   related to stock option grants                 --           --              --                                   -- 
Comprehensive income
 Net income                                       --           --              --         $12,344,188               -- 
 Other comprehensive income
   Translation adjustment                         --           --              --          (3,510,418)      (3,510,418)
----------------------------------------------------------------------------------------------------------------------
   Comprehensive income                           --           --              --          $8,833,770               -- 
======================================================================================================================
Balance as of March 31, 1998              32,034,400    4,545,811      24,415,920                  --       (7,042,229)
----------------------------------------------------------------------------------------------------------------------

<CAPTION>
                                                                                                      in $
----------------------------------------------------------------------------------------------------------
   Equity shares                         Loan to trust          Retained             Total
                                         ompensation -                            earnings   stockholders'
                                         mployee Stock                                              equity
                                            Offer Plan
----------------------------------------------------------------------------------------------------------
<S>                                         <C>                  <C>            <C>             <C>       
Balance as of March 31, 1996               $(2,253,044)                --      $12,171,165     $23,924,556
----------------------------------------------------------------------------------------------------------
Cash dividends declared                             --                 --       (1,131,427)     (1,131,427)
Common stock issued upon
   exercise of warrants                             --            (24,502)              --         (21,713)
Compensation related to
   stock option grants                      (2,022,597)                --               --              --
Amortization of compensation
   related to stock option grants              767,926                 --               --         767,926
Comprehensive income
 Net income                                         --                 --        8,642,002       8,642,002
 Other comprehensive income
   Translation adjustment                           --                 --               --      (1,902,597)
   Unrealized gain on investments-- net             --                 --               --         361,482
----------------------------------------------------------------------------------------------------------
Other comprehensive income                          --                 --               --              --
----------------------------------------------------------------------------------------------------------
Comprehensive income                                --                 --               --              --
----------------------------------------------------------------------------------------------------------
Balance as of March 31, 1997                (3,507,715)           (24,502)      19,681,740      30,640,229
----------------------------------------------------------------------------------------------------------
Stock split                                         --                 --       (2,028,521)             --
Cash dividends declared                             --                 --       (2,003,139)     (2,003,139)
Common stock issued upon
   exercise of warrants                             --           (911,863)              --       1,108,487
Compensation related to
   stock option grants                      (6,890,343)                --               --              --
Amortization of compensation
   related to stock option grants            2,566,613                 --               --       2,566,613
Comprehensive income
 Net income                                         --                 --       12,344,188      12,344,188
 Other comprehensive income
   Translation adjustment                           --                 --               --      (3,510,418)
----------------------------------------------------------------------------------------------------------
   Comprehensive income                             --                 --               --              --
==========================================================================================================
Balance as of March 31, 1998                (7,831,445)          (936,365)      27,994,268      41,145,960
----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
 
Statements of Stockholders' Equity (contd.)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
   Equity shares                                Additional          Comprehensive         Accumulated         Deferred 
                                                                          paid-in              income            other 
                                              Shares   Par value          capital                        comprehensive 
                                                                                                                income 
----------------------------------------------------------------------------------------------------------------------
<S>                                       <C>          <C>            <C>                <C>               <C>         
Balance as of March 31, 1998              32,034,400   $4,545,811     $24,415,920                  --      $(7,042,229)
----------------------------------------------------------------------------------------------------------------------
Stock split                                       --    3,800,949              --                                   -- 
Cash dividends declared                           --           --              --                                   -- 
Common stock issued                        1,035,000      245,377      66,025,699                                   -- 
Compensation related to
   stock option grants                            --           --      30,407,892                                   -- 
Amortization of compensation
   related to stock option grants                 --           --              --                                   -- 
Comprehensive income
 Net income                                       --           --              --        $ 17,446,088               -- 
 Other comprehensive income
   Translation adjustment                         --           --              --          (2,058,433)      (2,058,433)
----------------------------------------------------------------------------------------------------------------------
 Comprehensive income                             --           --              --        $ 15,387,655               -- 
----------------------------------------------------------------------------------------------------------------------
Adjustment on deconsolidation
   of subsidiary                                  --           --              --                                   -- 
Repayment on loan to trust                        --           --              --                                   -- 
----------------------------------------------------------------------------------------------------------------------
Balance as of March 31, 1999              33,069,400   $8,592,137    $120,849,511                  --      $(9,100,662)
----------------------------------------------------------------------------------------------------------------------

<CAPTION>
--------------------------------------------------------------------------------------------------------
   Equity shares                       Loan to trust          Retained             Total
                                      compensation--                           earnings   stockholders'
                                      Employee Stock                                              equity
                                          Offer Plan
--------------------------------------------------------------------------------------------------------
<S>                                      <C>                  <C>            <C>             <C>        
Balance as of March 31, 1998             $(7,831,445)         $(936,365)     $27,994,268     $41,145,960
--------------------------------------------------------------------------------------------------------
Stock split                                       --                 --       (3,800,949)             --
Cash dividends declared                           --                 --       (3,152,863)     (3,152,863)
Common stock issued                               --                 --               --      66,271,076
Compensation related to
   stock option grants                   (30,407,892)                --               --              --
Amortization of compensation
   related to stock option grants         16,552,538                 --               --      16,552,538
Comprehensive income
 Net income                                       --                 --       17,446,088      17,446,088
 Other comprehensive income
   Translation adjustment                         --                 --               --      (2,058,433)
--------------------------------------------------------------------------------------------------------
 Comprehensive income                             --                 --               --              --
--------------------------------------------------------------------------------------------------------
Adjustment on deconsolidation
   of subsidiary                                  --                 --        2,468,831       2,468,831
Repayment on loan to trust                        --            936,365               --         936,365
--------------------------------------------------------------------------------------------------------
Balance as of March 31, 1999            $(21,686,799)                --      $40,955,375    $139,609,562
--------------------------------------------------------------------------------------------------------
</TABLE>

                                 See accompanying notes to financial statements.
<PAGE>
 
Statements of Cash Flows for the years ended March 31
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
                                                                             1999                     1998                   1997
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>                      <C>                     <C>        
CASH FLOWS FROM OPERATING ACTIVITIES

Net income                                                           $ 17,446,088             $ 12,344,188            $ 8,642,002

Adjustments to reconcile net income to net cash
provided by operating activities

Gain on sale of property, plant and equipment                                   -                   (2,929)                     -
Depreciation                                                            8,521,009                6,121,650              3,034,984
Deferred tax benefit                                                     (625,427)                (707,553)              (249,220)
Gain on sale of investment in deconsolidated subsidiary                  (620,958)                       -                      -
Loss on sale of short-term investments                                          -                        -                374,380
Amortization of deferred stock compensation expense                    16,552,538                2,566,613                767,926
Loss relating to deconsolidated subsidiary                              2,085,887                        -                      -
Subsidiary preferred stock dividend                                             -                   67,500                      -

Changes in assets and liabilities

Accounts receivable                                                   (10,113,425)              (5,268,477)            (1,534,731)
Inventories                                                                     -                   11,458                 40,022
Prepaid expenses and other current assets                              (2,035,203)                (924,783)            (1,200,316)
Prepaid income taxes                                                    1,492,766                  446,890               (591,147)
Accounts payable                                                          (24,459)                  23,507                 62,203
Client deposits                                                          (171,653)                  (6,537)               (65,304)
Unearned revenue                                                        4,598,612                        -                      -
Other accrued liabilities                                               3,015,104                2,482,653                134,397
---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                              40,120,879               17,154,180              9,415,196
=================================================================================================================================

CASH FLOWS FROM INVESTING ACTIVITIES

Expenditure on property, plant and equipment                          (16,123,557)              (7,891,441)            (7,201,749)
Proceeds from sale of property, plant and equipment                         5,704                    8,079                 33,453
Loans to employees                                                     (2,181,715)                (552,526)              (418,790)
Proceeds from sale of investment in
   deconsolidated subsidiary                                            1,500,000                        -                      -
Proceeds from sale of investments in affiliates                                 -                        -                 78,819
Proceeds from sale of short-term investments                                    -                        -              2,859,420
Purchase of investments in affiliates                                    (177,576)                       -                      -
---------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                                 (16,977,144)              (8,435,888)            (4,648,847)
=================================================================================================================================

CASH FLOWS FROM FINANCING ACTIVITIES

Repayment of long-term borrowings                                               -                        -             (1,253,125)
Net proceeds from issuance of equity shares                            66,271,076                2,020,350                  2,789
Net proceeds from issuance of preferred stock by subsidiary                     -                2,250,000                      -
Payment of cash dividends                                              (2,371,673)              (1,467,427)            (1,062,475)
Loan to trust                                                             936,365                 (911,863)                     -
---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities                    64,835,768                1,891,060             (2,312,811)
=================================================================================================================================

Effect of exchange rate changes on cash                                (2,058,433)              (3,510,418)            (1,902,597)
Effect of deconsolidation on cash                                      (2,465,372)                       -                      -
Net increase in cash and cash equivalents during the year              83,455,698                7,098,934                550,941
Cash and cash equivalents at the beginning of the year                 15,419,265                8,320,331              7,769,390
---------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the year                     $ 98,874,963             $ 15,419,265            $ 8,320,331
=================================================================================================================================

Supplementary information:
Cash paid for interest                                                          -                        -              $ 172,268
Cash paid for taxes                                                   $ 3,364,318                $ 323,568            $ 1,856,548
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                 See accompanying notes to financial statements.
<PAGE>
 
Notes to financial statements
--------------------------------------------------------------------------------

1. Significant accounting policies

      1.1 The company

      Infosys Technologies Limited (the "company") is one of India's leading
      information technology ("IT") services companies. Infosys utilizes an
      extensive offshore infrastructure to provide managed software solutions to
      clients worldwide. Headquartered in Bangalore, India, the company has 11
      state-of-the-art offshore software development facilities located
      throughout India that enable it to provide high quality, cost-effective
      services to clients in a resource-constrained environment. The company's
      services, which are offered on either a fixed-price, fixed-time frame or a
      time-and-materials basis, include custom software development, maintenance
      (including Year 2000 conversion) and re-engineering services as well as
      dedicated offshore software development centers for certain clients. In
      addition, the company develops and markets certain software products.

      1.2 Basis of preparation of financial statements

      The accompanying financial statements have been prepared in accordance
      with United States Generally Accepted Accounting Principles ("US GAAP").
      All amounts are stated in US dollars.

      1.3 Principles of consolidation

      The financial statements of the company were consolidated with the
      accounts of its wholly owned subsidiary, Yantra Corporation ("Yantra")
      during fiscal 1997 and 1998. On October 20, 1998, the company's voting
      control of Yantra declined to approximately 47%. Accordingly, the company
      has followed the equity method of accounting for Yantra in fiscal 1999.

      The company continues to own all the outstanding common shares of Yantra
      but has no financial obligations or commitments to Yantra and does not
      intend to provide Yantra with financial support. Accordingly, no losses
      subsequent to October 20, 1998 have been recognized by the company. The
      excess of the company's previously recognized losses over the basis of its
      investments in Yantra as of October 20, 1998 have been credited to
      retained earnings.

      Yantra was incorporated in the United States in fiscal 1996 for the
      development of software products in the retail and distribution areas. All
      inter-company transactions between the company and Yantra have been
      eliminated.

      1.4 Use of estimates

      The preparation of financial statements in conformity with generally
      accepted accounting principles requires that management make estimates and
      assumptions that affect the reported amounts of assets and liabilities,
      and disclosure of contingent assets and liabilities on the date of the
      financial statements and the reported amounts of revenues and expenses
      during the reporting period. Examples of such estimates include estimates
      of expected contract costs to be incurred to complete software
      development, allowance for doubtful accounts, future obligations under
      employee benefit plans and useful lives of property, plant and equipment.
      Actual results could differ from those estimates.

      1.5 Revenue recognition

      The company derives its revenues primarily from software services and from
      the licensing of software products. Revenue with respect to
      time-and-material contracts is recognized as related costs are incurred.
      Revenue from fixed-price, fixed-time frame contracts is recognized upon
      the achievement of specified milestones identified in the related
      contracts, in accordance with the percentage of completion method.
      Selling, general and administrative expenses are charged to expense as
      incurred. Provisions for estimated losses on uncompleted contracts are
      recorded in the period in which such losses become probable based on the
      current contract estimates. The company provides its clients with a
      three-month warranty for corrections of errors and telephone support for
      all its fixed-price, fixed-time frame contracts. Costs associated with
      such services are accrued at the time the related revenue is recorded.

      Revenue from licensing of software products is recognized upon shipment of
      products and fulfillment of acceptance terms, if any, provided that no
      significant vendor obligations remain and the collection of the related
      receivable is probable. When the company receives advance payments for
      software products, such payments are 
<PAGE>
 
      reported as client deposits until all conditions for revenue recognition
      are met. Maintenance revenue arising due to the sale of software products
      is deferred and recognized ratably over the term of the agreement,
      generally 12 months. Revenue from client training, support, and other
      services arising due to the sale of software products is recognized as the
      service is performed.

      1.6 Cash and cash equivalents

      The company considers all highly liquid investments with a remaining
      maturity at the date of purchase/ investment of three months or less to be
      cash equivalents. Cash and cash equivalents consist of cash, cash on
      deposit with banks, marketable securities and deposits with corporations.

      1.7 Property, plant and equipment

      Property, plant and equipment are stated at cost. The company computes
      depreciation for all property, plant and equipment using the straight-line
      method. The estimated useful lives of assets are as follows:

            Buildings                                            15 years
            Furniture and fixtures                                5 years
            Computer equipment                                  2-5 years
            Plant and equipment                                   5 years
            Vehicles                                              5 years

      The cost of software purchased for use in software development and
      services is charged to the cost of revenues at the time of acquisition.
      The third party software expense in fiscal 1999, 1998, and 1997 was $
      3,538,590, $ 2,381,626, and $ 1,102,733, respectively.

      Deposits paid towards the acquisition of property, plant and equipment
      outstanding at each balance sheet date and the cost of property, plant and
      equipment not put to use before such date are disclosed under Capital
      work-in-progress.

      1.8 Impairment of long-lived assets

      The company evaluates the recoverability of its long-lived assets and
      certain identifiable intangibles, if any, whenever events or changes in
      circumstances indicate that their carrying amounts may not be recoverable.

      Recoverability of assets to be held and used is measured by a comparison
      of the carrying amount of an asset to future undiscounted net cash flows
      expected to be generated by the asset. If such assets are considered to be
      impaired, the impairment to be recognized is measured by the amount by
      which the carrying value of the assets exceed the fair value of the
      assets. Assets to be disposed are reported at the lower of the carrying
      value or the fair value less cost to sell.

      1.9 Research and development

      Research and development costs are expensed as incurred. Software product
      development costs are expensed as incurred until technological feasibility
      is achieved. Software product development costs incurred subsequent to the
      achievement of technological feasibility have not been significant and
      have been expensed as incurred.

      1.10 Foreign currency translation

      The accompanying financial statements are reported in US dollars. The
      functional currency of the company is the Indian rupee. The translation of
      the Indian rupee into US dollars is performed for balance sheet accounts
      using the exchange rate in effect at the balance sheet date, and for
      revenue and expense accounts using a monthly simple average exchange rate
      for the respective periods. The gains or losses resulting from such
      translation are reported as other comprehensive income, a separate
      component of stockholders' equity. The method for translating expenses of
      overseas operations depends upon the funds used. If the payment is made
      from a rupee denominated bank account, the exchange rate prevailing on the
      date of the payment would apply. If the payment is made from a foreign
      currency, i.e., non-rupee denominated account, the translation into rupees
      is performed at the average monthly exchange rate.

      1.11 Foreign currency transactions

      The company enters into foreign exchange forward contracts to limit the
      effect of exchange rate changes on its foreign currency receivables. Gains
      and losses on these contracts are recognized as income or expense in the
      statements of income as incurred, over the life of the contract.

      1.12 Earnings per share

      On January 1, 1998, the company adopted Statement of Financial Accounting
      Standards ("SFAS") No. 128, "Earnings Per Share". In accordance with SFAS
      No. 128, the basic earnings per share is computed using the 
<PAGE>
 
      weighted average number of common shares outstanding during the period.
      Diluted earnings per share is computed using the weighted average number
      of common and dilutive common equivalent shares outstanding during the
      period, using the treasury stock method for options and warrants, except
      where the results would be anti-dilutive.

      1.13 Income taxes

      Income taxes are accounted for using the asset and liability method.
      Deferred tax assets and liabilities are recognized for future tax
      consequences attributable to differences between the financial statement
      carrying amounts of existing assets and liabilities, and their respective
      tax bases and operating loss carryforwards. Deferred tax assets and
      liabilities are measured using enacted tax rates expected to apply to
      taxable income in the years in which those temporary differences are
      expected to be recovered or settled. The effect of changes in tax rates on
      deferred tax assets and liabilities is recognized as income in the period
      that includes the enactment date. The measurement of deferred tax assets
      is reduced, if necessary, by a valuation allowance for any tax benefits of
      which future realization is uncertain.

      1.14 Fair value of financial instruments

      The carrying amounts reflected in the balance sheets for cash, cash
      equivalents, accounts receivable and accounts payable approximate their
      respective fair values due to the short maturities of these instruments.

      1.15 Concentration of risk

      Financial instruments that potentially subject the company to
      concentrations of credit risk consist principally of cash equivalents and
      trade receivables. The company's cash resources are invested with
      corporations, financial institutions and banks with high investment grade
      credit ratings. Limitations have been established by the company as to the
      maximum amount of cash that may be invested with any such single entity.
      To reduce its credit risk, the company performs ongoing credit evaluations
      of clients.

      1.16 Retirement benefits to employees

      1.16.1 Gratuity

      In accordance with the Indian law, the company provides for gratuity, a
      defined benefit retirement plan (the "Gratuity Plan") covering all
      employees. The plan provides a lump sum payment to vested employees at
      retirement or termination of employment of an amount based on the
      respective employee's salary and the years of employment with the company.
      Until March 31, 1997, the company contributed each year to a gratuity fund
      maintained by the Life Insurance Corporation of India based upon actuarial
      valuations. No additional contributions were required to be made by the
      company in excess of the unpaid contributions to the plan.

      Effective April 1, 1997, the company established the Infosys Technologies
      Limited Employees' Group Gratuity Fund Trust (the "Gratuity Fund Trust").
      Liabilities with regard to the Gratuity Plan are determined by actuarial
      valuation, based upon which the company makes contributions to the
      Gratuity Fund Trust. Trustees administer the contributions made to the
      Gratuity Fund Trust. The funds contributed to the Gratuity Fund Trust are
      invested in specific securities as mandated by the law and generally
      consist of federal and state government bonds and the debt instruments of
      government-owned corporations.

      1.16.2 Superannuation

      Apart from being covered under the Gratuity Plan described above, the
      senior officers of the company are also participants in a defined
      contribution benefit plan maintained by the company. The plan is termed
      the superannuation plan to which the company makes monthly contributions
      based on a specified percentage of each covered employee's salary. The
      company has no further obligations under the plan beyond its monthly
      contributions.

      1.16.3 Provident Fund

      In addition to the above benefits, all employees receive benefits from a
      provident fund, which is a defined contribution plan. Both the employee
      and employer make monthly contributions to the plan, each equal to 12% of
      the covered employee's salary. Until July 1996, the company contributed to
      the employees' provident fund maintained by the Government of India.
      Effective August 1996, the company established a provident fund trust to
      which a part of the contributions are made each month. The remainder of
      the contributions are made to the
<PAGE>
 
      Government's provident fund. The company has no further obligations under
      the plan beyond its monthly contributions.

      1.17 Investments

      Investments where the company controls between 20% and 50% of the voting
      interest, are accounted for using the equity method. Investment securities
      in which the company controls less than 20% voting interest are currently
      classified as "available-for-sale" securities.

      Investment securities designated as "available-for-sale" are carried at
      fair value based on quoted market prices, with unrealized gains and
      losses, net of deferred income taxes, reported as a separate component of
      stockholders' equity. Realized gains and losses and declines in value
      judged to be other than temporary on available-for-sale securities are
      included in the statements of income. The cost of securities sold is based
      on the specific identification method. Interest and dividend on securities
      classified as "available-for-sale" are included in interest income.

      1.18 Stock-based compensation

      The company uses the intrinsic value-based method of Accounting Principles
      Board ("APB") Opinion No. 25 to account for its employee stock-based
      compensation plan. The company has therefore adopted the pro forma
      disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
      Compensation".

2. Notes to financial statements

      2.1 Cash and cash equivalents

      The cost and fair values for cash and cash equivalents as of March 31,
      1999 and 1998 are as follows:

      --------------------------------------------------------------------------
                                                             Cost and fair value
      --------------------------------------------------------------------------
      1999
      Cash and cash equivalents
      Cash and bank deposits                                        $ 96,119,672
      Deposits with corporations                                       2,755,291
      --------------------------------------------------------------------------
                                                                    $ 98,874,963
      --------------------------------------------------------------------------
      1998
      Cash and cash equivalents
      Cash and bank deposits                                        $ 13,576,206
      Deposits with corporations                                       1,843,059
      --------------------------------------------------------------------------
                                                                    $ 15,419,265
      --------------------------------------------------------------------------

      2.2 Accounts receivable

      The accounts receivable, as of March 31, 1999, amounted to $ 20,056,678,
      net of allowance for doubtful accounts of $ 301,930. The accounts
      receivable, as of March 31, 1998, amounted to $ 10,263,084, net of
      allowance for doubtful accounts of $ 393,799. The age profile is as given
      below.
                                                                           in %
      -------------------------------------------------------------------------
      Period in days                           1999                        1998
      -------------------------------------------------------------------------
            0   -  30                          58.8                        61.5
            31  -  60                          24.5                        29.4
            61  -  90                          10.8                         6.3
      More than 90                              5.9                         2.8
      -------------------------------------------------------------------------
                                              100.0                       100.0
      -------------------------------------------------------------------------
<PAGE>
 
      2.3 Prepaid expenses and other current assets

      Prepaid expenses and other current assets consist of the following:

      --------------------------------------------------------------------
                                                         1999         1998
      --------------------------------------------------------------------
      Rent deposits                                $1,403,445   $1,364,372
      Deposits with government organizations          172,386       53,675
      Loans to employees                            1,983,319      895,971
      Prepaid expenses                              2,120,036      434,999
      Other deposits                                   56,137    1,002,272
      --------------------------------------------------------------------
                                                   $5,735,323   $3,751,289
      --------------------------------------------------------------------

      Other deposits represent advance payments to vendors for the supply of
      goods and rendering of services. Deposits with government organizations
      relate principally to leased telephone lines and electricity supplies.

      2.4 Property, plant and equipment - net

      Property, plant and equipment consist of the following:

      --------------------------------------------------------------------
                                                   1999              1998
      --------------------------------------------------------------------
      Land                                 $  2,580,924      $  1,215,973
      Buildings                               6,831,097         4,903,049
      Furniture and fixtures                  4,966,929         3,331,759
      Computer equipment                     18,290,126        12,499,330
      Plant and machinery                     7,375,578         4,955,100
      Vehicles                                   41,684            44,493
      Capital work-in-progress                3,531,936         1,854,440
      -------------------------------------------------------------------
                                             43,618,274        28,804,144
      Accumulated depreciation              (19,717,961)      (12,108,641)
      -------------------------------------------------------------------
                                           $ 23,900,313      $ 16,695,503
      -------------------------------------------------------------------

      Depreciation expense amounted to $ 8,521,009, $ 6,121,650 and $ 3,034,984
      for fiscal years 1999, 1998 and 1997 respectively.

      2.5 Other assets

      Other assets mainly represent the non-current portion of loans to
      employees.

      2.6 Related parties

      The company grants loans to employees for acquiring assets such as
      property and cars. Such loans are repayable over fixed periods ranging
      from 1 to 100 months. The rates at which the loans have been made to
      employees vary between 0% to 4%. No loans have been made to employees in
      connection with equity issues. The loans are generally secured by the
      assets acquired by the employees. As of March 31, 1999 and 1998, amounts
      receivable from officers amounting to $ 265,669 and $ 227,242, are
      included in prepaid expenses and other current assets and other assets in
      the accompanying balance sheets.

      The required repayments of loans by employees are as detailed below.

      -----------------------------------------------------------------------
                                                     1999                1998
      -----------------------------------------------------------------------
      1999                                             --           $ 895,971
      2000                                    $ 1,983,319             294,215
      2001                                        953,440             241,304
      2002                                        755,672             147,898
      2003                                        528,918             104,415
      2004                                        394,854                   -
      Thereafter                                  564,122             237,773
      -----------------------------------------------------------------------
      Total                                   $ 5,180,325         $ 1,921,576
      -----------------------------------------------------------------------
<PAGE>
 
      The estimated fair value amounts of the related party receivables at the
      balance sheet date, amounts to $ 4,858,797 and $ 1,653,373 as of March 31,
      1999 and 1998. These amounts have been determined using available market
      information and appropriate valuation methodologies. Considerable
      judgement is required to develop the estimates of fair value. Thus, the
      estimates provided herein are not necessarily indicative of the amounts
      that the company could realize in the market.

      2.7 Other accrued liabilities

      -----------------------------------------------------------------------
                                                     1999                1998
      -----------------------------------------------------------------------
      Accrued compensation to staff           $ 3,116,559         $ 1,853,974
      Accrued dividends                         2,146,039           1,364,849
      Provision for post sales client support     829,964             311,799
      Others                                    2,307,238           1,448,684
      -----------------------------------------------------------------------
                                              $ 8,399,800         $ 4,979,306
      -----------------------------------------------------------------------

      Accrued dividends represent dividends recommended and proposed by the
      board of directors, subject to the approval of the shareholders.

      2.8 Employee post-retirement benefits

      2.8.1 Gratuity benefits

      The following table sets forth the funded status of the plan, and the
      amounts recognized in the company's balance sheets as of March 31, 1999
      and 1998.

<TABLE>
<CAPTION>
      ----------------------------------------------------------------------------------------------------
                                                                                      1999            1998
      ----------------------------------------------------------------------------------------------------
<S>                                                                           <C>             <C>         
      Change in benefit obligation
      Projected Benefit Obligations (PBO) at the beginning of the year        $  1,804,504    $  1,356,650
      Effect of changes in assumptions used                                      7,370,968              --
      Service cost                                                                 657,328         330,318
      Interest cost                                                                906,157         189,931
      Benefits paid                                                                (73,983)        (72,395)
      Effect of exchange rate changes                                             (113,905)             --
      ----------------------------------------------------------------------------------------------------
      PBO at the end of the year                                              $ 10,551,069    $  1,804,504
      ----------------------------------------------------------------------------------------------------
      Change in plan assets
      Fair value of plan assets at the beginning of the year                  $    680,499    $    301,232
      Effect of exchange rate changes                                              (48,977)             --
      Actual return on plan assets                                                 179,004          41,892
      Employer contributions                                                     1,760,792         409,770
      Benefits paid                                                                (73,983)        (72,395)
      ----------------------------------------------------------------------------------------------------
      Plan assets at the end of the year                                      $  2,497,335    $    680,499
      ----------------------------------------------------------------------------------------------------
      Funded status                                                           $ (8,053,734)   $ (1,124,005)
      Excess of actual over estimated return on plan assets                        (41,723)       (129,192)
      Unrecognized actuarial gain                                                       --          (7,219)
      Unrecognized transitional obligation                                         830,826         985,058
      Unrecognized actuarial cost                                                7,252,766              --
      ----------------------------------------------------------------------------------------------------
      Net amount recognized                                                   $     11,865    $   (275,358)
      ----------------------------------------------------------------------------------------------------
      Amounts recognized in the statement of financial position consist of:
      Accrued benefit cost                                                    $    (11,865)   $    275,358
      ----------------------------------------------------------------------------------------------------
</TABLE>

      Net gratuity cost for fiscal 1999 and 1998 included the following
components:

<TABLE>
<CAPTION>
      ----------------------------------------------------------------------------------------------------
                                                                                      1999            1998
      ----------------------------------------------------------------------------------------------------
<S>                                                                           <C>             <C>         
      Service cost                                                            $    657,328    $    330,318
      Interest cost                                                                906,157         189,931
      Expected return on assets                                                   (143,038)        (49,111)
      Amortization                                                                  63,910          70,361
      ----------------------------------------------------------------------------------------------------
      Net gratuity cost                                                       $  1,484,357    $    541,499
      ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
 
      The assumptions used in accounting for the Gratuity Plan in fiscal 1999
      and 1998 are set out below.

<TABLE>
<CAPTION>
      ----------------------------------------------------------------------------------------------------
                                                                                      1999            1998
      ----------------------------------------------------------------------------------------------------
<S>                                                                           <C>             <C>         
      Discount rate                                                                     10%             14%
      Rate of increase in compensation levels                                           12%            7.5%
      Rate of return on plan assets                                                     10%             12%
      ----------------------------------------------------------------------------------------------------
</TABLE>

      As the assumed rates used above have a significant effect on the amounts
      reported, the company has assessed these rates as compared with prevalent
      industry standards and its projected long-term plans of growth.

      In fiscal 1997, the company contributed $ 161,606 to the gratuity plan
      managed by the Life Insurance Corporation of India.

      2.8.2 Superannuation benefits

      The company contributed $ 145,051, $ 99,206 and $ 64,695 to the
      superannuation plan in fiscal 1999, 1998 and 1997, respectively.

      2.8.3 Provident fund benefits

      In addition, the company contributed $ 812,117, $ 537,663 and $ 237,833 to
      the provident fund plan in fiscal 1999, 1998 and 1997, respectively.

      2.9 Preferred stock of subsidiary

      In September 1997, the company's subsidiary, Yantra, sold 5,000,000 shares
      of Series A Convertible Preferred Stock, par value $ 0.01 per share
      ("Series A Convertible Preferred") at $ 0.75 per share for $ 3,750,000 in
      cash. The related offering costs of $ 49,853 were offset against the
      proceeds of the issue. Of these, 2,000,000 shares were issued to the
      company and 3,000,000 shares were issued to third party investors. The
      preferred stock issued to the company is eliminated upon consolidation.
      Preferred stock issued to third party investors is reported in the balance
      sheet as preferred stock of subsidiary.

      In August 1998, Yantra sold 4,800,000 shares of Series B Convertible
      Preferred Stock, par value $ 0.01 per share ("Series B Convertible
      Preferred") at $ 1.25 per share for $ 6,000,000 in cash to venture
      capitalists. The related offering costs of $ 44,416 were offset against
      the proceeds of the issue. In connection with this sale, Yantra issued
      warrants to purchase 810,811 shares of Series B-1 Convertible Preferred
      Stock, par value $ 0.01 per share ("Series B-1 Convertible Preferred"), at
      $ 0.01 per share for $ 8,108 in cash. Such warrants are immediately
      exercisable and expire in seven years. The exercise price of the warrants
      is based upon the then current market price of the Series B-1 Convertible
      Preferred at the time of exercise.

      The holders of Series A Convertible Preferred are entitled to the
      following rights, privileges and restrictions:

      Holders of Series A Convertible Preferred vote with holders of common
      stock on an as-converted basis, except as otherwise required by Delaware
      law. The Series A Convertible Preferred are convertible into common stock
      at a 1:1 ratio (subject to certain adjustments): (i) automatically in the
      event of an initial public offering with gross proceeds of $ 10,000,000 or
      more; or (ii) at any time at the holder's option. The holders of Series A
      Convertible Preferred are entitled to a 6% cumulative dividend ($ 0.045
      per share) and to receive additional dividends at the same rate of
      dividends, if any, declared and paid on the common stock, calculated on an
      as-converted basis. Upon a liquidation or sale of Yantra, holders of the
      Series A Convertible Preferred are entitled to a liquidation preference of
      $ 0.75 per share plus accrued and unpaid dividends; and any remaining
      assets will be distributed to holders of the common stock. The Series A
      Convertible Preferred is redeemable at the election of holders of 75% of
      the outstanding shares of Series A Convertible Preferred at any time after
      September 29, 2004 at a redemption price of $ 0.75 per share plus accrued
      but unpaid dividends.

      The holders of Series B and B-1 Convertible Preferred are entitled to
      similar rights, privileges and restrictions as that of Series A
      Convertible Preferred.

      In October 1998, Infosys sold 1,363,637 shares of Series A Convertible
      Preferred in Yantra, having a cost basis of $ 879,042 to a third party
      investor for $ 1,500,000 thereby recognizing a gain of $ 620,958 and
      reducing its voting interest in Yantra to approximately 47%. The company
      presently accounts for Yantra by the equity method. De-consolidation of
      Yantra has resulted in a credit to the company's retained earnings of an
      amount of $ 2,468,831 representing the excess of Yantra's losses
      previously recognized by the company, amounting to $ 4,445,903, over the
      company's residual investment basis in Yantra amounting to $ 1,977,072.
      The net assets
<PAGE>
 
      and liabilities of Yantra as of March 31, 1998 and October 20, 1998
      (unaudited) respectively, are presented below:

<TABLE>
<CAPTION>
      -----------------------------------------------------------------------------------------------
                                                         October 20, 1998              March 31, 1998
                                                              (unaudited)
      -----------------------------------------------------------------------------------------------
<S>                                                           <C>                         <C>        
      Preferred stock (net of Infosys' holdings)              $ 9,485,228                 $ 2,317,500
      Current liabilities                                       1,288,913                     325,947
      -----------------------------------------------------------------------------------------------
      Total liabilities                                        10,774,141                   2,643,447
      -----------------------------------------------------------------------------------------------
      Current assets                                            7,422,303                   2,836,372
      Property, plant and equipment                               491,044                     243,196
      Other assets                                                391,963                      10,314
      -----------------------------------------------------------------------------------------------
      Total assets                                            $ 8,305,310                 $ 3,089,882
      -----------------------------------------------------------------------------------------------
      Net (Assets)/Liabilities                                $ 2,468,831                  $ (446,435)
      ===============================================================================================
</TABLE>

      2.10 Stockholders' equity

      The company has only one class of capital stock referred to herein as
      equity shares. In fiscal 1999 and 1998, the board of directors authorized
      a two-for-one stock split of the company's equity shares effected in the
      form of a stock dividend. All references in the financial statements to
      number of shares, per share amounts and market prices of the company's
      equity shares have been retroactively restated to reflect the increased
      number of shares outstanding resulting from the stock split.

      2.11 Equity shares

      Voting

      Each holder of equity shares is entitled to one vote per share.

      Dividends

      Should the company declare and pay dividends, such dividends will be paid
      in Indian Rupees and is paid pro rata from the date of holding such
      shares.

      Indian law mandates that any dividend be declared out of distributable
      profits only after the transfer of up to 10% of net income computed in
      accordance with current regulations to a general reserve. Also, the
      remittance of dividends outside India is governed by Indian law on foreign
      exchange. Such dividend payments are also subject to applicable
      withholding taxes. The company declared a cash dividend of $ 3,152,863, $
      2,003,139 and $ 1,131,427 for fiscal 1999, 1998 and 1997, respectively.

      Liquidation

      In the event of any liquidation of the company, the holders of common
      stock shall be entitled to receive all of the remaining assets of the
      company, after distribution of all preferential amounts, if any. Such
      amounts will be in proportion to the number of shares of equity shares
      held by the shareholders.

      Stock options

      There are no voting, dividend or liquidation rights to the holders of
      warrants issued under the company's stock option plan.

      2.12 Other income, net

      Other income, net, consists of the following:

<TABLE>
<CAPTION>
      -------------------------------------------------------------------------------------
                                                           1999          1998          1997
      -------------------------------------------------------------------------------------
<S>                                                 <C>           <C>           <C>        
      Interest income and others                    $   916,040   $   526,508   $ 1,035,749
      Gain on sale of investment in subsidiary          620,958            --            --
      Income from sale of special import licenses            --       274,291       280,459
      Interest expense                                       --            --      (172,268)
      Realized loss on sale of investments                   --            --      (374,380)
      -------------------------------------------------------------------------------------
                                                    $ 1,536,998   $   800,799   $   769,560
      -------------------------------------------------------------------------------------
</TABLE>
<PAGE>
 
      2.13 Operating leases

      The company has various operating leases for office buildings that are
      renewable on a periodic basis at its option. Rental expense for operating
      leases for fiscal years 1999, 1998 and 1997 were $ 1,770,413, $ 1,432,447
      and $ 679,705, respectively. The operating leases are can be cancelled at
      the company's option.

      2.14 Research and development

      Selling, general and administrative expenses in the accompanying
      statements of income include research and development expenses of $
      2,819,326, $ 1,777,703 and $ 2,092,368, for fiscal years 1999, 1998 and
      1997, respectively.

      2.15 Employees Stock Offer Plan

      1994 Employees Stock Offer Plan. In September 1994, the company
      established the Employees Stock Offer Plan ("ESOP") which provides for the
      issuance of 3,000,000 warrants (as adjusted for the stock split effective
      June 1997 and December 1998) to eligible employees. The warrants were
      issued to an employee welfare trust (the "Trust") at Re.1 each. The
      warrants were purchased by the Trust using the proceeds of a loan obtained
      from the company. The Trust holds the warrants and transfers them to
      eligible employees. The warrants are transferred to employees at Re.1 each
      and each warrant entitles the holder to purchase one of the company's
      equity shares at a price of Indian Rs.100 per share. The warrants and the
      equity shares received upon the exercise of warrants are subject to a
      five-year aggregate vesting period from the date of issue of warrants to
      employees. The warrants expire upon the earlier of five years from the
      date of issue or September 1999. The fair market value of each warrant is
      the market price of the underlying equity shares on the date of the grant.

      In 1997, in anticipation of a share dividend to be declared by the
      company, the Trust exercised all warrants held by it and converted them
      into equity shares with the proceeds of a loan obtained from the company.
      In connection with the warrant exercise and the share dividend, on an
      adjusted basis, 1,505,600 equity shares were issued to employees of the
      company who exercised stock purchase rights and 1,494,400 equity shares
      were issued to the Trust for future issuance to employees pursuant to the
      ESOP. Following such exercise, there were no longer any rights to purchase
      equity shares from the company in connection with the ESOP. Only equity
      shares held by the Trust remained for future issues to employees, subject
      to vesting provisions. The equity shares acquired upon the exercise of the
      warrants vests 100% upon the completion of five years of service. The
      warrant holders were entitled to exercise early, but the shares received
      are subject to the five year vesting period. As of March 31, 1999, the
      company's outstanding equity shares included 218,800 shares held by the
      Trust of which 164,000 were allotted to employees, subject to vesting
      provisions and have been included in the calculation of diluted earnings
      per share. The 54,800 equity shares reserved for future grants have not
      been considered outstanding in the diluted earnings per share
      calculations. The warrants allotted and the underlying equity shares are
      not subject to any repurchase obligations by the company.

      The company has elected to use the intrinsic value-based method of APB
      Opinion No. 25 to account for its employee stock-based compensation plan.
      During the years ended March 31, 1999, 1998 and 1997, the company recorded
      deferred compensation of $ 30,407,892, $ 6,890,343 and $ 2,002,597,
      respectively, for the difference, on the grant date, between the exercise
      price and the fair value as determined by quoted market prices of the
      common stock underlying the warrants. The deferred compensation is
      amortized on a straight-line basis over the vesting period of the
      warrants/equity shares.

      In fiscal 1998, the company declared a stock split of two equity shares
      for each equity share outstanding in the form of a stock dividend to all
      its shareholders including participants in the ESOP. Under the terms of
      the ESOP, the additional equity shares issued to ESOP participants as a
      result of the stock dividend were not subject to vesting. Consequently,
      the amortization of deferred stock compensation of $ 1,519,739 relating to
      these shares was accelerated at the time of the stock dividend. Similarly,
      in fiscal 1999, the company declared a stock split of two equity shares
      for each equity share outstanding to all its shareholders including
      participants in the ESOP in the form of a stock dividend and consequently
      recognized an accelerated compensation charge at the time of the stock
      dividend amounting to $ 12,906,962.

      1998 Employees Stock Offer Plan. The company's 1998 stock offer plan
      provides for the grant of non-statutory stock options and incentive stock
      options to employees of the company. The establishment of the 1998 plan
      was approved by the board of directors in December 1997 and by the
      shareholders in January 1998. The Government of India has approved the
      1998 plan, subject to a limit of $ 50 million on the aggregate market
      value of the equity
<PAGE>
 
      shares reserved pursuant to the 1998 plan. Accordingly, the total equity
      shares reserved for issuance may be reduced by the board of directors from
      time to time to comply with the Government of India's $ 50 million limit.
      A total of 800,000 equity shares are currently reserved for issuance
      pursuant to the 1998 plan. Unless terminated sooner, the 1998 plan will
      terminate automatically in January 2008. All options under the 1998 plan
      will be exercisable for equity shares represented by American Depositary
      Shares (ADSs). The 1998 plan may be administered by the board of directors
      or a committee of the board. Options to acquire an aggregate of 106,500
      equity shares were granted at an exercise price equal to the Initial
      Public Offering (IPO) issue price concurrent with the company's IPO in the
      United States.

      The company has adopted the pro forma disclosure provisions of SFAS No.
      123. Had compensation cost for the company's stock-based compensation plan
      been determined in a manner consistent with the fair value approach
      described in SFAS No. 123, the company's net income and basic earnings per
      share as reported would have been reduced to the pro forma amounts
      indicated below:

<TABLE>
<CAPTION>
      ----------------------------------------------------------------------------------------------------------------------------
                                                                     1999                         1998                        1997
      ----------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>                       <C>                           <C>        
      Net income                    As reported                $ 17,446,088              $ 12, 344,188                 $ 8,642,002
                                    Adjusted pro forma           16,964,703                 12,067,107                   8,488,121
      Basic earnings per share      As reported                        0.57                       0.41                        0.30
                                    Adjusted pro forma               $ 0.55                     $ 0.41                      $ 0.29
      ----------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

<TABLE>
<CAPTION>
      ----------------------------------------------------------------------------------------------------------------------------
                                                                     1999                         1998                        1997
      ----------------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>                          <C>                         <C>    
      Dividend yield %                                               0.1%                         0.1%                        0.1%
      Expected life                                               5 years                      5 years                     5 years
      Risk free interest rates                                      10.8%                        10.8%                       10.8%
      Volatility                                                    90.0%                        90.0%                       90.0%
      ----------------------------------------------------------------------------------------------------------------------------
</TABLE>

      Activity in the warrants/equity shares held by the 1994 and 1998 Employees
      Stock Offer Plan during the periods is as follows:

<TABLE>
<CAPTION>
      ------------------------------------------------------------------------------------------------------------------------------

                                                      1999                            1998                         1997
      ------------------------------------------------------------------------------------------------------------------------------

                                     Shares arising        Weighted            Shares       Weighted          Shares       Weighted
                                     out of options         average            arising       average         arising        average
                                                           exercise            out of       exercise          out of       exercise
                                                              price            options         price         options          price
      ------------------------------------------------------------------------------------------------------------------------------

<S>                                       <C>              <C>              <C>              <C>           <C>              <C>   
      1994 Option plan:
      Outstanding at the
         beginning of the year              518,600                          1,501,600                     1,024,400
          Granted                           992,200          $ 1.18            553,600        $ 0.69         498,400         $ 0.71
          Forfeited                         (18,200)         $ 1.18            (35,000)       $ 0.69         (17,200)        $ 0.71
          Exercised                      (1,328,600)                        (1,501,600)                       (4,000)            --
      ------------------------------------------------------------------------------------------------------------------------------

      Outstanding at the
         end of the year                    164,000                            518,600            --       1,501,600
      Exercisable at the
         end of the year                                                            --                            --
      Weighted-average fair value
         of grants during the year
         at less than market                                $ 36.85                           $ 7.33                         $ 4.78
      ------------------------------------------------------------------------------------------------------------------------------

</TABLE>
<PAGE>
 
<TABLE>
<CAPTION>
                                                    1999                               1998                         1997
      -----------------------------------------------------------------------------------------------------------------------------
                                     Shares arising        Weighted           Shares        Weighted          Shares       Weighted
                                     out of options         average            arising       average        arising         average
                                                           exercise            out of       exercise          out of       exercise
                                                              price            options         price         options          price
      -----------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>              <C>              <C>              <C>           <C>              <C>   
      1998 Option plan:
      Outstanding at the
         beginning of the year                   --                                 --                            --
          Granted                           106,500         $ 68.00                 --            --              --             --
          Forfeited                              --              --                 --            --              --             --
          Exercised                              --                                 --                            --             --
      -----------------------------------------------------------------------------------------------------------------------------
      Outstanding at the
         end of the year                    106,500                                 --            --              --
      Exercisable at the
         end of the year                                                            --                            --
      Weighted-average fair value
         of grants during the year                          $ 68.00                               --                             --
      -----------------------------------------------------------------------------------------------------------------------------
</TABLE>

      The following table summarizes information about stock options outstanding
      as of March 31, 1999:

<TABLE>
<CAPTION>
      ----------------------------------------------------------------------------------------------------------------
                                                 Outstanding                                       Exercisable
      ----------------------------------------------------------------------------------------------------------------
      Range of               Number of           Weighted             Weighted            Number of           Weighted
      exercise Price         shares arising      average              average             shares arising      average
                             out of options      remaining            exercise            out of options      exercise
                                                 contractual life     price                                   price
      ----------------------------------------------------------------------------------------------------------------
<S>                          <C>                 <C>                 <C>                  <C>                 <C>                 
      $ 0.69-$ 68.00         270,500             3.63 years           $ 27.69             270,500             $ 27.69
      ----------------------------------------------------------------------------------------------------------------
</TABLE>

      2.16 Income taxes

      The provision for income taxes was composed of:

<TABLE>
<CAPTION>
      ----------------------------------------------------------------------------------------------------------------------------
                                                                     1999                         1998                        1997
      ----------------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>                          <C>                       <C>    
      Current taxes
      Domestic taxes                                            $ 777,351                    $ 803,116                 $ 1,269,490
      Foreign taxes                                             4,725,726                      674,895                     300,000
      ----------------------------------------------------------------------------------------------------------------------------
                                                                5,503,077                    1,478,011                   1,569,490
      ----------------------------------------------------------------------------------------------------------------------------
      Deferred taxes
      Domestic taxes                                             (625,427)                    (707,553)                   (249,220)
      Foreign taxes                                                    --                           --                          --
      ----------------------------------------------------------------------------------------------------------------------------
                                                                 (625,427)                    (707,553)                   (249,220)
      ----------------------------------------------------------------------------------------------------------------------------
      Aggregate taxes                                         $ 4,877,650                    $ 770,458                 $ 1,320,270
      ============================================================================================================================
</TABLE>

      The tax effects of significant temporary differences that resulted in
      deferred tax assets and liabilities and a description of the financial
      statement items that created these differences are:

<TABLE>
<CAPTION>
      ----------------------------------------------------------------------------------------------------------------------------
                                                                     1999                         1998                        1997
      ----------------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>                          <C>                           <C>      
      Deferred tax assets:
      Property, plant and equipment                           $ 2,315,375                  $ 1,089,948                   $ 382,395
      Net operating loss in Yantra                                     --                      558,000                      94,000
      ----------------------------------------------------------------------------------------------------------------------------
                                                                2,315,375                    1,647,948                     476,395
      Less  : Valuation allowance                                (600,000)                    (558,000)                    (94,000)
      ----------------------------------------------------------------------------------------------------------------------------
      Net deferred tax assets                                 $ 1,715,375                  $ 1,089,948                   $ 382,395
      ============================================================================================================================
</TABLE>

      In assessing the realizability of deferred tax assets, management
      considers whether it is more likely than not that some portion or all of
      the deferred tax assets will not be realized. The ultimate realization of
      deferred tax assets is dependent upon the generation of future taxable
      income during the periods in which the temporary differences become
      deductible. Management considers the scheduled reversal of the projected
      future taxable income, and tax planning strategies in making this
      assessment. Based on the level of historical taxable income and
      projections for future taxable income over the periods in which the
      deferred tax assets are deductible, management believes that it is more
      likely than not the company will realize the benefits of those deductible
      differences, net of the existing 
<PAGE>
 
      valuation differences at March 31, 1999. The amount of the deferred tax
      assets considered realizable, however, could be reduced in the near term
      if estimates of future taxable income during the carryforward period are
      reduced.

      The difference in net deferred tax expense (benefit) during fiscal years
      1999, 1998 and 1997 has been allocated as follows:

<TABLE>
<CAPTION>
      ----------------------------------------------------------------------------------------------------------------------------
                                                                     1999                         1998                        1997
      ----------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>                          <C>                         <C>        
      Deferred tax expense/ (benefit) allocated to:
      Continuing operations                                    $ (625,427)                  $ (707,553)                 $ (249,220)
      Stockholders' equity--
         Unrealized gain on investment                                 --                           --                     307,473
      ----------------------------------------------------------------------------------------------------------------------------
                                                               $ (625,427)                  $ (707,553)                   $ 58,253

<CAPTION>
      ----------------------------------------------------------------------------------------------------------------------------
                                                                     1999                         1998                        1997
      ----------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>                          <C>                         <C>        
      Net income before taxes                                $ 22,323,738                 $ 13,182,146                 $ 9,962,272
      Enacted tax rates in India                                    35.0%                        35.0%                       43.0%
      ----------------------------------------------------------------------------------------------------------------------------

      Computed expected tax expense                             7,813,308                    4,613,751                   4,283,777
      Less  : Tax effect due to non-taxable
                 export income                                 (7,680,942)                  (4,493,920)                 (3,816,452)
               Others                                              19,558                     (355,821)                    277,594
      Effect of tax rate change                                        --                      (71,143)                    (28,738)
      Effect of prior period tax adjustments                           --                      402,696                     304,089
      ----------------------------------------------------------------------------------------------------------------------------
      Provision for Indian income tax                             151,924                       95,563                   1,020,270
      Effect of tax on foreign income                           3,701,898                      674,895                     300,000
      Effect of prior period foreign tax adjustments            1,023,828                           --                          --
      ----------------------------------------------------------------------------------------------------------------------------
      Total current taxes                                     $ 4,877,650                    $ 770,458                 $ 1,320,270
      ============================================================================================================================
</TABLE>

      The provision for foreign taxes is due to income taxes payable overseas,
      principally in the United States.

      At present, in India, profits from export activities are deductible from
      taxable income. Further, most of the company's operations come from "100%
      export oriented units", which are entitled to a tax holiday for a period
      of ten years from the date of commencement of operations.

      2.17 Earnings per share

      The following is a reconciliation of the equity shares used in the
      computation of basic and diluted earnings per equity share:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                                       1999                     1998                    1997
----------------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>                      <C>                     <C>       
Basic earnings per equity share - weighted average
   number of common shares outstanding                           30,689,425               29,787,144              29,036,394
Effect of dilutive common equivalent shares -
   stock options outstanding                                         64,265                  616,760                 667,666
Diluted earnings per equity share - weighted
   average number of common shares and common
   equivalent shares outstanding                                 30,753,690               30,403,904              29,704,060
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

      2.18 Lines of credit

      The company has a line of credit from its bankers for its working capital
      requirement of $ 1,200,000, bearing interest at prime lending rates as
      applicable from time to time. As of March 31, 1999, the prime lending rate
      for all its bankers was 13.5%. This facility is secured by inventories and
      accounts receivable. The line of credit contains certain financial
      covenants and restrictions on indebtedness and is renewable every 12
      months. As of March 31, 1999, the company had no balance outstanding under
      this facility.

      2.19 Financial instruments

      Foreign exchange forward contracts

      The company enters into foreign exchange forward contracts to offset the
      foreign currency risk arising from the accounts receivable denominated in
      currencies other than the Indian rupee, primarily the US dollar.
<PAGE>
 
      The counterparty to the company's foreign currency forward contracts is
      generally a bank. The company considers that risks or economic
      consequences of non-performance by the counterparty are not material.

      There were no significant foreign exchange gains and losses for the years
      1999, 1998 and 1997. The table, below, summarizes - by currency - the
      contractual amounts of the company's open foreign exchange forward
      contracts as of March 31, 1999, 1998 and 1997. The "sell" amounts
      represent the Indian rupee equivalent of contracts to sell foreign
      currencies.

<TABLE>
<CAPTION>
      -----------------------------------------------------------------------------------------------------------------------------
      Year-end                                           Type of contract                     Currency             Contract amount
      -----------------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>                        <C>                        <C>
      1999                                                           Sell                   US dollars                          --
      1998                                                           Sell                   US dollars                 $ 3,800,000
      1997                                                           Sell                   US dollars                 $ 2,400,000
      -----------------------------------------------------------------------------------------------------------------------------
</TABLE>

      All the above contracts mature within a period of one year. The fair value
      of the foreign currency contracts as of March 31, 1998 and 1997 was $
      3,716,000 and $ 2,434,000 respectively.

      2.20 Segment reporting

      2.20.1 Revenue by geographic area

<TABLE>
<CAPTION>
      ----------------------------------------------------------------------------------------------------------------------------
                                                                     1999                         1998                        1997
      ----------------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>                          <C>                         <C>         
      North America                                          $ 99,203,989                 $ 56,211,753                $ 31,057,917
      Europe                                                   11,302,791                    6,179,621                   3,256,502
      India                                                     2,051,492                    1,799,368                   3,921,741
      Rest of the world                                         8,396,954                    4,139,219                   1,349,759
      ----------------------------------------------------------------------------------------------------------------------------
                                                            $ 120,955,226                 $ 68,329,961                $ 39,585,919
      ----------------------------------------------------------------------------------------------------------------------------
</TABLE>

      2.20.2 Significant clients

      One client accounted for 10.5% and 15.1% of the total revenue in 1998 and
      1997. As of March 31, 1999, the accounts receivable from that client was $
      1,133,189. The largest client accounted for 6.4% of the total revenue in
      1999. As of March 31, 1999, the accounts receivable from this client was $
      1,726,880.

      2.21 Year 2000

      Certain organizations anticipate that they will experience operational
      difficulties at the beginning of the Year 2000 as a result of operational
      computer programs using two digits rather than four to define the
      applicable year. The company's plan for the Year 2000 calls for:
      compliance verification with external vendors supplying the company
      software; verifying compliance by the in-house engineering and
      manufacturing software tools; verifying compliance by the software for the
      company's products for the Year 2000; and communication with significant
      suppliers to determine the readiness of these third parties for compliance
      with the Year 2000 problem.

      Any Year 2000 compliance problems of the company or of its clients or of
      suppliers can have a material adverse effect on the company's business,
      financial condition and on the results of the company's operations. During
      the past three years, the company completed an effort to upgrade its
      financial systems to well-known commercial products that, according to
      their suppliers, are Year 2000 compliant. The company has received
      confirmations from its primary suppliers indicating that they are either
      Year 2000 compliant or have plans in place to ensure readiness. As part of
      the company's assessment, the company is evaluating the level of
      validation required of the third parties to ensure their Year 2000
      readiness.

      To date, the company has not encountered any material Year 2000 issues
      concerning its computer programs. The company plans to complete its Year
      2000 research and testing by early 1999. All costs associated with
      carrying out the company's plan for the Year 2000 problem are being
      expensed as incurred. The costs associated with preparation for the Year
      2000 remediation are not expected to have a material adverse effect on the
      company's business, financial condition and the results of operations.
      Nevertheless, there is an uncertainty concerning the potential costs and
      effects associated with any Year 2000 compliance.

      2.22 Commitments and contingencies

      The company has various letters of credit outstanding to different vendors
      totaling $ 948,583 as of March 31, 1997. The letters of credit are
      generally established for the import of hardware, software and other
      capital items.

      The company has outstanding performance guarantees for various statutory
      purposes totaling $ 760,329, $ 438,429 and $ 556,393 as of March 31, 1999,
      1998 and 1997 respectively. These guarantees are generally provided to
      governmental agencies.
<PAGE>
 
      2.23 Litigation

      The company is subject to legal proceedings and claims which have arisen
      in the ordinary course of its business. These actions, when ultimately
      concluded and determined, will not, in the opinion of management, have a
      material effect on the results of operations or the financial position of
      the company.

      2.24 Recent accounting pronouncements

      The American Institute of Certified Public Accountants recently issued
      Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer
      Software Developed or Obtained for Internal Use". SOP 98-1 requires that
      certain costs related to the development of software for internal-use be
      capitalized or amortized over the estimated useful life of the software.
      SOP 98-1 is effective for financial statements issued for fiscal years
      beginning after December 15, 1998. The company estimates that all software
      acquired for internal use has a relatively short useful life, usually less
      than a year. The company, therefore, currently charges, to income, the
      cost of acquiring such software, entirely at the time of acquisition. The
      company does not believe that adopting the provisions of SOP 98-1 will
      have a significant impact on its financial statements.

      2.25 Quarterly financial data (unaudited)

<TABLE>
<CAPTION>
                                                                                                                              in $
      ----------------------------------------------------------------------------------------------------------------------------
      Quarter ended                               June 30      September 30        December 31         March 31              Total
      ----------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>               <C>                <C>              <C>               <C>        
      Fiscal 1999:
      Net revenue                              23,665,088        28,237,129         33,041,304       36,011,705        120,955,226
      Operating income                          6,049,541         8,181,651         10,810,441       (2,169,006)        22,872,627
      Net income                                4,775,766         6,159,382          9,581,679       (3,070,739)        17,446,088
      Earnings per share:
         Basic                                       0.16              0.20               0.31            (0.10)              0.57
         Diluted                                     0.16              0.20               0.31            (0.10)              0.57
      Equity share price   - high                   29.50             31.92              34.92            81.46              81.46
                           - low                    22.32             25.51              26.06            34.69              22.32
      ----------------------------------------------------------------------------------------------------------------------------
      Fiscal 1998:
      Net revenue                              12,791,408        16,849,466         18,771,524       19,917,563         68,329,961
      Operating income                          2,528,415         3,545,491          2,845,120        3,462,321         12,381,347
      Net income                                2,170,029         3,634,370          2,709,337        3,830,452         12,344,188
      Earnings per share:
         Basic                                       0.07              0.13               0.09             0.12               0.41
         Diluted                                     0.07              0.13               0.09             0.12               0.41
      Equity share price   - high                   13.35             22.07              20.32            23.12              23.12
                           - low                     7.07             13.30              14.24            13.67               7.07
      ----------------------------------------------------------------------------------------------------------------------------
      Fiscal 1997:
      Net revenue                               7,442,914         9,515,206         10,326,195       12,301,604         39,585,919
      Operating income                          1,123,276         2,600,252          2,091,089        3,378,095          9,192,712
      Net income                                1,020,570         2,389,326          2,263,700        2,968,406          8,642,002
      Earnings per share:
         Basic                                       0.04              0.08               0.08             0.10               0.30
         Diluted                                     0.03              0.08               0.08             0.10               0.29
      Equity share price   - high                    5.07              5.00               5.32             8.20               8.20
                           - low                     3.33              4.42               4.44             5.33               3.33
      ----------------------------------------------------------------------------------------------------------------------------
</TABLE>

o     The third quarter of fiscal 1998 and the fourth quarter of fiscal 1999
      includes charges of $ 1.52 million and $ 12.91 million respectively due to
      compensation charges arising out of stock split.

o     Changes in estimates in the fourth quarter of fiscal 1999 includes a
      charge of $ 1.0 million ($ 0.03 per share) resulting from a change in the
      effective income tax rate for the period.
<PAGE>
 
["The Company's Annual Report on Form 20-F, as filed with the U.S. Securities 
and Exchange Commission on May 14, 1999 is included here"]

<PAGE>
 
                                                         Shareholder information

                                                                         [PHOTO]

            o     Shareholder information
            o     Frequently asked questions (FAQ)
            o     Additional information to shareholders
                  -     Share performance chart
                  -     Intangible assets scoresheet
                  -     Human Resources Accounting and Value-Added statement -
                  -     Brand valuation - Balance Sheet (including intangible
                        assets) - Economic-Value-Added (EVA) statement
                  -     Ratio analysis - Statutory obligations / segment
                        reporting
            o     Management structure
            o     A historical perspective
            o     Consolidated financial statements of Infosys and its
                  subsidiary
            o     Infosys Foundation
<PAGE>
 
Shareholder information
--------------------------------------------------------------------------------
1.    Dates of book closure         June 4, 1999 to June 12, 1999 (both days
                                    inclusive)
2.    Date and venue of the         3.00 p.m. on June 12, 1999, at Hotel Taj
      annual general meeting        Residency, No. 41/3, M. G. Road, Bangalore -
                                    560 001.
3.    Dividend payment              On or after June 12, 1999, but within the
                                    statutory time limit.
4.    Listing on stock exchanges    Bangalore Stock Exchange Ltd.
      in India at                   Stock Exchange Towers, No. 51, 1st Cross,
                                    J.C. Road, Bangalore - 560 027.
                                    Tel.: 91-80-299 5234, Fax: 91-80-299 5242
                                    The Stock Exchange, Mumbai
                                    Phiroze Jeejeebhoy Towers, Dalal Street,
                                    Mumbai - 400 001.
                                    Tel.: 91-22-265 5581, Fax: 91-22-265 8121
                                    National Stock Exchange of India Ltd.
                                    Trade World, Senapati Bapat Marg,
                                    Lower Parel, Mumbai - 400 013.
                                    Tel.: 91-22-497 2950,
                                    Fax: 91-22-491 4275 / 85
5.    Listing fees                  Paid for all the above stock exchanges for
                                    1998-99 and 1999-2000.
6.    Listing on stock exchanges    NASDAQ National Market in the United States
      outside India                 33 Whitehall Street, New York, NY-1004-4087
                                    Tel.: 1-212-709-2400, Fax: 1-212-709-2496
7.    Registered office             Electronics City, Hosur Road,
                                    Bangalore - 561 229, India.
                                    Tel.: 91-80-852 0261, Fax: 91-80-852 0362
                                    Homepage: www.itlinfosys.com
8.    Stock market data relating to shares listed in India
      a.    The company's market capitalization is included in the computation
            of the BSE-30 Sensitive Index (Sensex), the BSE Dollex and S&P CNX
            NIFTY Index.
      b.    Monthly high and low quotations as well as the volume of shares
            traded at Mumbai and National Stock Exchanges for 1998-99 are:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
                                      BSE                                             NSE
                         High         Low        Volume                  High         Low       Volume
                          Rs.         Rs.         Nos.                    Rs.         Rs.         Nos.
-------------------------------------------------------------------------------------------------------------
<S>                      <C>         <C>     <C>                         <C>         <C>     <C>
April, 1998              2,458       1,838     11,18,500                 2,439       1,842     17,27,100
May                      2,535       2,151     12,84,805                 2,550       2,150     25,48,100
June                     2,624       1,872     15,01,280                 2,600       1,870     20,84,000
July                     2,678       2,142     17,88,240                 2,682       2,149     24,13,400
August                   2,798       2,475     14,03,200                 2,786       2,465     19,72,900
September                2,610       2,291     13,11,424                 2,580       2,291     14,10,400
October                  2,470       2,141     15,26,800                 2,475       2,140     18,77,600
November                 2,467       2,272      6,35,501                 2,479       2,273      8,34,300
December                 3,079       2,323     14,12,781                 3,110       2,319     14,99,334
January, 1999            5,000       2,933      8,69,996                 4,998       2,946      7,29,303
February                 4,978       2,300*     7,39,438                 5,150       2,430*    10,04,597
March                    3,499       2,610     28,11,605                 3,457       2,600     29,48,453
-------------------------------------------------------------------------------------------------------------
Total                                        1,64,03,570                                     2,10,49,487
-------------------------------------------------------------------------------------------------------------
% of volume traded to average      1998-99       102.41%#                                        131.42%#
shares outstanding                 1997-98        25.49%                                          51.67%
                                   1996-97         7.15%                                           7.82%
-------------------------------------------------------------------------------------------------------------
</TABLE>

*     Ex-bonus price

#     The number of shares outstanding have been taken to be 1,60,17,200, as the
      bonus shares were not listed on the stock exchanges as at March 31, 1999.

Note: There was no trading in the shares of Infosys on the Bangalore Stock
      Exchange during the period May 1998 to March 1999. The last trade on the
      Bangalore Stock Exchange was on April 24, 1998. The highest share price in
      April 1998 was Rs. 2,240, while the lowest was Rs. 1,225 with a volume of
      2,100 shares.
<PAGE>
 
 9.   Share transfers in physical form       
      and other communication regarding      
      share certificates, dividends, and     
      change of address, etc., in India      
      may be addressed to                    

      Karvy Consultants Limited                       
      Registrars and Share Transfer Agents            
      T.K.N. Complex, No. 51/2, Vanivilas Road,       
      Opp. National College, Basavanagudi,            
      Bangalore - 560 004.                            
      Tel.: 91-80-662 1184, Fax: 91-80-662 1169       
      Email: KARVY.BGL@KARVY.sprintrpg.ems.vsnl.net.in

10.   Share transfer system

      The Securities and Exchange Board of India (SEBI) has mandated that
      investors should compulsorily trade in dematerialized form in the
      securities of Infosys from January 4, 1999. Investors are required to open
      an account with a Depositary Participant to trade in dematerialized form.
      The list of Depositary Participants are available with the National
      Securities Depositary Limited (NSDL). A booklet - An Investor's Guide to
      Depositaries is available at www.itlinfosys.com.

      Shares sent for physical transfer would be registered and returned within
      a period of 15 days from the date of receipt, if the documents are clear
      in all respects. The Share Transfer Committee of the company meets as
      often as required. The total number of shares transferred in physical form
      during the year 1998-99 were 19,79,276 (previous year - 22,22,907). 85.53%
      of transfers (previous year - 62.05%) were completed within 15 days.
      Shares in dematerialized form were transferred within 10 days.

<TABLE>
<CAPTION>
      -----------------------------------------------------------------------------------------------------------------------
                                          1998-99                                             1997-98
      -----------------------------------------------------------------------------------------------------------------------
       Transfer                  No. of            No. of                           No. of              No. of
       period              transferees (folios)    shares         %           transferees (folios)       shares         %
       in days               New     Existing                                   New    Existing
      -----------------------------------------------------------------------------------------------------------------------
<S>                         <C>         <C>      <C>           <C>             <C>        <C>          <C>           <C>
           1 - 10           1,609       152      14,33,242      72.41            279       39           3,91,575      17.62
          11 - 15             237        76       2,59,601      13.12            497       67           9,87,647      44.43
          16 - 20             291       103       2,26,857      11.46            264       42           7,81,310      35.15
      * 21 and above          108        37         59,576       3.01             68       23             62,375       2.80
      -----------------------------------------------------------------------------------------------------------------------
                            2,245       368      19,79,276     100.00          1,108      171          22,22,907     100.00
      -----------------------------------------------------------------------------------------------------------------------
</TABLE>

      *     Delays beyond 21 days were due to compliance of legal requirements

11.   Investors' services - Complaints received during the year

<TABLE>
<CAPTION>
      ---------------------------------------------------------------------------------------------------------------
        Nature of complaints                                            1998-99                    1997-98
      ---------------------------------------------------------------------------------------------------------------
                                                                Received     Cleared        Received     Cleared
      ---------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>         <C>             <C>         <C>
      1.  Non-receipt of share certificates                           78          78              82          82
      2.  Non-receipt of bonus shares                                 10          10              58          58
      3.  Letters from Stock Exchanges, SEBI, etc.                     1           1              12          12
      4.  Non-receipt of dividend warrants                            44          44             102         102
      ---------------------------------------------------------------------------------------------------------------
                                                                     133         133             254         254
      ---------------------------------------------------------------------------------------------------------------
</TABLE>

      The company has attended to most of the investors'
      grievances/correspondence within a period of 10 days from the date of
      receipt of the same, during the year 1998-99.

12.   Legal proceedings

      There are some pending cases relating to disputes over title to shares, in
      which the company is made a party. These cases are however not material in
      nature.
<PAGE>
 
13.   Distribution of shareholding as on March 31

<TABLE>
<CAPTION>
      ----------------------------------------------------------------------------------------------------------------------------
                                                     1999                                            1998             
      ----------------------------------------------------------------------------------------------------------------------------
                                                                                                                      
           No. of equity           No. of      % of         No. of      % of       No. of       % of       No. of        % of
           shares held             share-     share-        shares     share-      share-     share-       shares      share-
                                  holders    holders                  holding     holders    holders                  holding
      ----------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>       <C>      <C>             <C>          <C>       <C>     <C>              <C>   
                   1 -    100       2,270      23.83        60,666       0.19         792      11.96       73,085        0.46
                 101 -    200       1,661      17.44      3,25,240       1.02       1,934      29.21     3,69,468        2.31
                 201 -    500       1,884      19.78      7,43,110       2.32       2,459      37.13     9,24,934        5.77
                 501 -   1000       2,077      21.80     15,92,225       4.97         759      11.46     5,69,817        3.56
                1001 -   5000       1,235      12.96     26,85,624       8.38         469       7.08     8,84,952        5.53
                5001 -  10000         154       1.62     11,16,090       3.48          65       0.98     4,80,740        3.00
              10001 and above         245       2.57   2,55,11,445      79.64         144       2.18  1,27,14,204       79.37
                                                                                                                      
      ----------------------------------------------------------------------------------------------------------------------------
           Total                    9,526     100.00   3,20,34,400     100.00       6,622     100.00  1,60,17,200      100.00
           American Depositary                                                                                        
             Shares                     1*               10,35,000                     --                      --     
      ----------------------------------------------------------------------------------------------------------------------------
           Total                    9,527              3,30,69,400                                                    
      ----------------------------------------------------------------------------------------------------------------------------
</TABLE>

      *     Held by beneficial owners outside India.

14.   Categories of shareholders as on March 31

<TABLE>
<CAPTION>
      -------------------------------------------------------------------------------------------------------------------------
                                                          1999                                            1998
      -------------------------------------------------------------------------------------------------------------------------
                                                    
      Category                       No. of          Voting    No. of shares           No. of         Voting    No. of shares
                               shareholders    strength (%)             held     shareholders   strength (%)             held
      -------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>            <C>         <C>                    <C>           <C>         <C>
      Individuals                     8,923           25.14        83,14,380            6,305          28.41        45,49,823
      Companies                         323            3.60        11,89,070              152           2.81         4,49,577
      FIIs                              142           24.79        81,96,512               62          24.45        39,15,700
      OCBs and NRIs                      47            0.52         1,74,034               27           0.23           37,600
      Founders and their families        18           29.69        98,19,600               18          30.96        49,58,900
      Mutual Funds, Banks, FIs           73           13.13        43,40,804               58          13.14        21,05,600
      American Depositary Shares          1*           3.13        10,35,000               --             --               --
      -------------------------------------------------------------------------------------------------------------------------
        Total                         9,527          100.00      3,30,69,400            6,622         100.00      1,60,17,200
      -------------------------------------------------------------------------------------------------------------------------
</TABLE>

      *     Held by beneficial owners outside India.

15.   Shares under lock-in

      Details of shares held by employees under the Employee Stock Offer Plan
      (ESOP) subject to lock-in are given below. These shares are also included
      in the categories of shareholders given in (14) above.

<TABLE>
<CAPTION>
      ---------------------------------------------------------------------------------------------------------------
                                       No. of shares subject to lock-in as on March 31
      ---------------------------------------------------------------------------------------------------------------
                                                         1999                                 1998
      ---------------------------------------------------------------------------------------------------------------
      Period of lock-in                     No. of shares  No. of employees      No. of shares   No. of employees
      ---------------------------------------------------------------------------------------------------------------
<S>                                              <C>                  <C>             <C>                     <C>
      4-5 years                                  4,07,100             1,106                 --                 --
      3-4 years                                  2,57,200               348           1,14,800                171
      2-3 years                                  1,06,200               156           1,37,400                113
      1-2 years                                  1,32,600               110           1,13,900                 78
      0-1 years                                  1,11,100                76                 --                 --
      ---------------------------------------------------------------------------------------------------------------
</TABLE>

      During the year, rights to 1,64,000 shares were awarded to 607 employees,
      which are subject to a lock-in of 4-5 years as on March 31, 1999. During
      1997-98, rights to 2,69,600 shares were awarded to 366 employees.
      Currently, 1,744 employees are beneficiaries of the ESOP. The ITL
      Employees Welfare Trust holds, as on March 31, 1999, 54,800 shares for
      future grants. Shares subject to lock-in held by the employees will be
      transferred back to the ITL Employees Welfare Trust when such employees
      leave the services of the company.
<PAGE>
 
16.   Dematerialization of shares and liquidity

      Your company was the first in India to pay a one-time custodial fee of Rs.
      44.43 lakh to National Securities Depositary Limited (NSDL). Consequently,
      the company's shareholders are exempted from paying to the depositary
      participants, custodial fee charged by the NSDL on their holding. This
      payment of one-time custodial fee extends to the issue of bonus shares
      also. The company hopes that this initiative will enthuse shareholders to
      dematerialize their holding in the company. Over 77% of the company's
      shares are now held in electronic form.

      A detailed letter explaining the methodology of using the Depositary as
      well as a booklet - An Investor's Guide to Depositories - was sent by the
      company to all its shareholders during November 1998. Copies of the
      booklet will be made available to shareholders on request.

      The Stock Exchange, Mumbai has permitted trading of your company's shares
      in the `A' group. This move is expected to increase the liquidity of your
      company's shares.

17.   Financial calendar (tentative and subject to change)

<TABLE>
<S>                                                                             <C>
      Annual General Meeting                                                    June 12, 1999
      Financial reporting for the first quarter ending June 30, 1999            July 9, 1999
      Financial reporting for the second quarter ending September 30, 1999      October 8, 1999
      Interim dividend payment (if any)                                         November 1999
      Financial reporting for the third quarter ending December 31, 1999        January 11, 2000
      Financial results for the year ending March 31, 2000                      April 11, 2000
      Annual General Meeting for the year ending March 31, 2000                 May 2000
</TABLE>

<TABLE>
<S>                                                         <C>
18.   Investors' correspondence in India                    Any queries relating to the financial statements of
      may be addressed to:                                  the company may be addressed to:
      Mr. V. Viswanathan,                                   Mr. T. V. Mohandas Pai,
      Company Secretary, Investors' Service Cell,           Senior Vice President (F&A),
      Infosys Technologies Ltd., Electronics City,          Infosys Technologies Ltd., Electronics City,
      Hosur Road, Bangalore - 561 229, India.               Hosur Road, Bangalore - 561 229, India.
      Tel.: 91-80-852 1518, Fax: 91-80-852 0362             Tel.: 91-80-852 0396, Fax: 91-80-852 0362
      (e-mail address: invest@itlinfosys.com)               (e-mail address: mdpai@itlinfosys.com)

19.   Reuters code - INFO.BO (BSE)                          Bloomberg code - INFO IN (BSE)
                   - INFO.NS (NSE)                                         - NINFO IN (NSE)
</TABLE>

20.   Stock market data relating to American Depositary Shares (ADSs)

      a.    ADS listed at                    NASDAQ National Market in the
                                             United States

      b.    Ratio of ADS to equity shares    2 ADS for one equity share

      c.    ADS symbol                       INFY

      d.    The American Depositary Shares issued under the ADS program of the
            company were listed on the NASDAQ National Market in the United
            States on March 11, 1999. The monthly high and low quotations as
            well as the volume of ADSs traded at NASDAQ National Market for
            1998-99 are:

<TABLE>
<CAPTION>
      ---------------------------------------------------------------------------------------------------------------
         High                                                         Low               Volume
         $                                                     Rs.*          $      Rs.*       Nos
      ---------------------------------------------------------------------------------------------------------------
<S>                                                         <C>         <C>       <C>       <C>        <C>
      March, 1999                                             50.00     2,107#    37.375    1,575#     49,13,500
      ---------------------------------------------------------------------------------------------------------------

      Percentage of volume traded to total float            237.37%
</TABLE>

      *     Converted as 1 US $ = Rs. 42.14.

      #     2 ADS = 1 equity share
<PAGE>
 
      e.    American Depositary Shares premium to the shares traded on the
            Indian Stock Exchanges

                                  ADS Premium

                                    [GRAPHIC]

      *     2 ADS = 1 equity share

      f.    Investor correspondence in      P. R. Ganapathy
            the US may be addressed to      Investor Relations Officer
                                            Infosys Technologies Limited
                                            42808 Christy Street, Suite 203
                                            Fremont CA 94538, USA.

                                            Tel.: 1-510-770-3400 Ext. 412,
                                            Mobile: 1-510-872-4412,
                                            Fax: 1-510-770-9469,
                                            E-mail: prganapathy@itlinfosys.com

      g.    Name and address of the         Bankers Trust Company
            Depositary Bank                 Corporate Trust and Agency Services
                                            4 Albany Street
                                            New York, NY 10006, USA.
                                            Tel.: 1-212-250-8500,
                                            Fax: 1-212-250-5644.

                                            Bankers Trust Company
                                            702, Dalamal House
                                            Jamnalal Bajaj Marg, Nariman Point
                                            Mumbai - 400 021, India.
                                            Tel.: 91-22-284 3593,
                                            Fax: 91-22-284 3652.

      i.    Name and address of the         ICICI Limited
            Custodian in India              Mistry Bhavan, 1 Floor
                                            Sir Dinshaw Vacha Road
                                            122, Backbay Reclamation
                                            Mumbai - 400 020, India.
                                            Tel.: 91-22-204 4370,
                                            Fax: 91-22-204 4237.

      j.    ADS-linked stock options

            During the year 213,000 options corresponding to 106,500 equity
            shares were granted to 36 employees both in India and abroad at the
            ADS issue price of US$ 34 per ADS.
<PAGE>
 
Frequently asked questions
--------------------------------------------------------------------------------

 1.   What is an American Depositary Share ("ADS")?

      Ans: An ADS is a negotiable certificate evidencing ownership of an
      outstanding class of stock in a non-US company. ADSs are created when
      ordinary shares are delivered to a custodian bank in the domestic market,
      which then instructs a depositary bank in the US to issue ADSs based on a
      predetermined ratio. ADSs are SEC registered securities and may trade
      freely, just like any other security, either on an exchange or in the
      over-the-counter market.

 2.   What is the difference between an ADS and a GDR?

      Ans: ADSs and GDRs (Global Depositary Receipts) are the same in their
      functionality - they both evidence ownership of foreign securities
      deposited with a custodian bank. ADSs represent securities that are listed
      in the United States, while GDRs represent securities listed outside of
      the United States, typically in London.

 3.   Do the ADSs have voting rights?

      Ans: Yes. In the event of a matter submitted to the holders of ordinary
      shares for a vote, the ADS holders on record as at a particular date will
      be allowed to instruct the depositary bank to exercise the vote in respect
      of the equity shares representing the ADS held by them.

 4.   Where and in which year was Infosys incorporated?

      Ans: Infosys was incorporated at Mumbai, in the state of Maharashtra, in
      India on July 2, 1981.

 5.   Are the ADSs entitled to cash dividends?

      Ans: Yes, whenever dividends are paid to ordinary shareholders. Cash
      dividends to ADS holders are declared in local currency and paid in
      dollars (based on the prevailing exchange rate) by the depositary bank,
      net of the depositary's fees and expenses. The dividends are paid on a pro
      rata basis.

 6.   When did Infosys have its initial public offer (IPO) and what was the
      initial listing price? Was there any follow-on offering?

      Ans: Infosys made an initial public offer in February 1993 and was listed
      on stock exchanges in India in June 1993. Trading opened at Rs. 145 per
      share compared to an IPO price of Rs. 95 per share. In October 1994,
      Infosys made a private placement of 5,50,000 shares at Rs. 450 each to
      Foreign Institutional Investors (FIIs), Financial Institutions (FIs) and
      Corporates. During March 1999, Infosys issued 2,070,000 ADSs (equivalent
      to 10,35,000 equity shares) at US$ 34 per ADS under the American
      Depositary Shares Program and the same were listed on the NASDAQ National
      Market.

 7.   Which are the stock exchanges where Infosys shares are listed and traded?

      Ans: Shares of Infosys are listed and traded in India on the Bangalore
      Stock Exchange, The Stock Exchange, Mumbai, and the National Stock
      Exchange. The ADSs of Infosys are traded on the NASDAQ National Market in
      the US.

 8.   What is the Reuters code and Bloomberg code for Infosys stock?

      --------------------------------------------------------------------------
      Ans:    Exchange                         Reuters code       Bloomberg code
      --------------------------------------------------------------------------
              The Stock Exchange, Mumbai       INFO.BO            INFO IN
      --------------------------------------------------------------------------
              National Stock Exchange          INFO.NS            NINFO IN
      --------------------------------------------------------------------------

 9.   What is the Infosys ADS ratio?

      Ans: Each Infosys ADS represents one-half of one ordinary equity share of
      Infosys.

10.   What is the symbol for Infosys ADS and where is it traded ?

      Ans: The symbol is "INFY" and the same is traded on the NASDAQ National
      Market in the US.
<PAGE>
 
11.   When is the next earnings release? What is the fiscal year of Infosys?

      Ans: The tentative dates of earnings releases are given below. The
      earnings release date will also be posted on our homepage -
      www.itlinfosys.com, after announcement to the stock exchanges.

<TABLE>
<CAPTION>
      -------------------------------------------------------------------------------------------------
      Quarter                                   Earnings release date (tentative and subject to change)
      -------------------------------------------------------------------------------------------------
<S>                                                                                    <C>
      First quarter ending June 30, 1999                                                   July 9, 1999
      Second quarter ending September 30, 1999                                          October 8, 1999
      Third quarter ending December 31, 1999                                           January 11, 2000
      Year ending March 31, 2000                                                         April 11, 2000
      -------------------------------------------------------------------------------------------------
</TABLE>

      The fiscal year of the company is a period of 12 months starting April 1,
      every year.

12.   What is the employee strength of Infosys?

      Ans: As of March 31, 1999, Infosys employs 3,766 people, as compared to
      2,605 on March 31, 1998, on a full-time basis. The distribution of the
      employees is:

<TABLE>
<CAPTION>
      ----------------------------------------------------------------------------------------------------------
                                                               1999                               1998
      ----------------------------------------------------------------------------------------------------------
<S>                                                    <C>             <C>                <C>            <C>
      Software development including trainees          3,158            83.86%            2,186           83.92%
      Support services                                   608            16.14%              419           16.08%
      ----------------------------------------------------------------------------------------------------------
      Total                                            3,766           100.00%            2,605          100.00%
      ----------------------------------------------------------------------------------------------------------
      The gender classification of employees is:
      Male                                              3212            85.29%            2,228           85.53%
      Female                                             554            14.71%              377           14.47%
      ----------------------------------------------------------------------------------------------------------
      Total                                            3,766           100.00%            2,605          100.00%
      ----------------------------------------------------------------------------------------------------------
</TABLE>

      The age profile of employees is:

<TABLE>
<CAPTION>
      ----------------------------------------------------------------------------------------------------------
                                                               1999                               1998
      ----------------------------------------------------------------------------------------------------------
<S>                                                    <C>             <C>                <C>            <C>
      Between 20 and 25 years                          1,955               52%            1,040              40%
      Between 26 and 30 years                          1,286               34%            1,200              46%
      Between 31 and 40 years                            448               12%              308              12%
      Between 41 and 50 years                             68                2%               50               2%
      Between 51 and 60 years                              9                 -                7                -
      ----------------------------------------------------------------------------------------------------------
      Total                                            3,766           100.00%            2,605          100.00%
      ----------------------------------------------------------------------------------------------------------
</TABLE>

13.   Does Infosys issue quarterly reports?

      Ans: Yes. Infosys issues audited quarterly reports conforming to the
      Indian GAAP and unaudited quarterly reports conforming to the US GAAP and
      the same are mailed to all shareholders.

14.   How do I transfer my shares in India or change my address with the
      transfer agent?

      Ans: To transfer shares in physical form, you have to write to the
      company's registrars: Karvy Consultants Limited, Registrars and Share
      Transfer Agents, T.K.N. Complex, No. 51/2, Vanivilas Road, Opp. National
      College, Basavanagudi, Bangalore - 560 004, India. Tel.: 91-80-662 1184,
      Fax: 91-80-662 1169, Email: KARVY.BGL@KARVY.sprintrpg.ems.vsnl.net.in or
      write to

      Mr. V. Viswanathan (viswav@itlinfosys.com), Company Secretary,
      Infosys Technologies Ltd.,
      Electronics City, Hosur Road, Bangalore - 561 229, India.
      Tel.: 91-80-852 1518, Fax: 91-80-852 0362.

      You can also address your queries to the e-mail id: invest@itlinfosys.com

      Transfer of shares in electronic form are effected through your depositary
      participant.

      General correspondence regarding shares may be addressed to the company's
      registrars, Karvy Consultants Limited, or to Mr. V. Viswanathan, Company
      Secretary.
<PAGE>
 
15.   Who are the depositary and custodian for the ADS program?

      Ans:  Depositary      Bankers Trust Company
                            Corporate Trust Office
                            4 Albany Street, New York
                            NY 10006, USA.
                            Tel.: 1-510-970-3400.
            Custodian       ICICI Limited,
                            Mistry Bhavan, 1 Floor
                            Sir Dinshaw Vacha Road
                            122, Backbay Reclamation
                            Mumbai - 400 020, India.
                            Tel.: 91-22-204 4370, Fax: 91-22-204 4237.

16.   What is the history of bonus issues (equivalent to stock split in the form
      of stock dividend) at Infosys?

<TABLE>
<CAPTION>
      -------------------------------------------------------------------------------------------------------
      Ans:     Year                      1986      1989       1991      1992      1994       1997      1999
      -------------------------------------------------------------------------------------------------------
<S>            <C>                      <C>       <C>        <C>       <C>       <C>        <C>       <C>
               Bonus issue ratio          1:1       1:1        1:1       1:1       1:1        1:1       1:1
               Stock split ratio        2 for 1   2 for 1    2 for 1   2 for 1   2 for 1    2 for 1   2 for 1
      -------------------------------------------------------------------------------------------------------
</TABLE>

17.   How many software development centers does Infosys have?

      Ans: Infosys has 11 development centers in India, of which six are in
      Bangalore, and one each in Bhubaneswar, Mangalore, Pune and two in
      Chennai.

18.   How many marketing offices are there outside India?

      Ans: There are 13 marketing offices outside India, of which 9 are located
      in USA, and one each in the UK, Germany, Canada and Japan.

19.   What are branded services? Are they going to increase the margins of
      Infosys?

      Ans: Branded services are services that have unique methodologies, tool
      sets, processes, training material, sales collateral and knowledge base.
      They facilitate high reusability of the company's knowledge base, improve
      productivity, make selling easier and bring better value-for-money to our
      clients. A good example of a branded service is In2000(R), Infosys'
      solution to the millennium problem.

20.   What percentage of Infosys revenue is derived from Year 2000?

      Ans: In fiscal 1999, In2000(R) contributed 20% to revenues.

21.   What are the new service offerings from Infosys?

      Ans: The new areas that Infosys is addressing are engineering services,
      Euro conversion, ERP implementation and Internet and e-commerce
      consulting.

22.   What was the employee strength and revenue growth since 1993, when the
      company went for an IPO?

      Ans: The employee strength and revenue growth since 1993 have been:

<TABLE>
<CAPTION>
      As per US GAAP
      ----------------------------------------------------------------------------------------------------------
      Fiscal year ended     Total no. of        Net revenues        Growth           Net income           Growth
      March 31                 employees              in US$             %               in US$                %
      ----------------------------------------------------------------------------------------------------------
<S>                                <C>           <C>                    <C>          <C>                      <C>
      1994                           573           9,534,321            82            2,669,727              106
      1995                           903          18,105,010            90            3,963,367*              48
      1996                         1,172          26,607,009            47            6,823,637*              72
      1997                         1,705          39,585,919            49            8,642,002*              27
      1998                         2,605          68,329,961            73           12,344,188*              43
      1999                         3,766         120,955,226            77           17,446,088*              41
      ----------------------------------------------------------------------------------------------------------
</TABLE>

      * After amortization of deferred stock compensation amounting to US$
      16,552,538, US$ 2,566,613, US$ 767,926, US$ 360,853 and US$ 45,884 for
      fiscal years 1999, 1998, 1997, 1996 and 1995, respectively.
<PAGE>
 
<TABLE>
<CAPTION>
      As per Indian GAAP
      ----------------------------------------------------------------------------------------------------------
      Fiscal year ended     Total no. of             Revenue        Growth                 PAT*           Growth
      March 31                 employees        Rs. in lakhs             %         Rs. in lakhs                %
      ----------------------------------------------------------------------------------------------------------
<S>                                <C>             <C>                  <C>           <C>                    <C>
      1994                           573            30,08.47           110              8,09.19              131
      1995                           903            57,70.43            92             13,32.44               65
      1996                         1,172            93,41.34            62             21,00.94               58
      1997                         1,705           143,80.77            54             33,68.06               60
      1998                         2,605           260,36.57            81             60,36.33               79
      1999                         3,766           512,73.84            97            132,91.54              120
      ----------------------------------------------------------------------------------------------------------
</TABLE>

      * From ordinary activities

23.   Does Infosys pay a dividend? What is the dividend payment policy of
      Infosys?

      Ans: Currently, Infosys pays dividend to its shareholders. The current
      dividend policy is to distribute up to 20% of the PAT as dividend. The
      board of directors reviews the dividend policy periodically.

24.   How do I contact Infosys by telephone, mail or in person?

      Ans: Members of the press can contact the following Infosys' personnel for
      any information.

      N. R. Narayana Murthy,
      Chairman and Chief Executive Officer        Tel: 91-80-852 0363/ 852 0399

      Nandan M. Nilekani,
      Managing Director, President
      and Chief Operating Officer                 Tel: 91-80-852 0351

      T. V. Mohandas Pai,
      Senior Vice President
      (Finance & Administration)                  Tel: 91-80-852 0396

      The Infosys corporate mailing address is:

      Infosys Technologies Limited, Electronics City, Hosur Road, Bangalore -
      561 229, India. 
      Tel.: 91-80-852 0261, Fax: 91-80-852 0362

      For direct correspondence, the general electronic address is
      infosys@itlinfosys.com.

25.   Is there any investor relations contact in the US?

      Ans: Mr. P. R. Ganapathy, Investor Relations Officer, is based at our
      Fremont office and will be available at the following address to answer
      any queries from investors.

      Infosys Technologies Limited 
      42808 Christy Street, Suite 203 
      Fremont CA 94538, USA.

      Tel.: 1-510-770-3400 Ext. 412, Mobile: 1-510-872-4412,
      Fax: 1-510-770-9469, E-mail: prganapathy@itlinfosys.com
<PAGE>
 
Additional information to shareholders
Share performance chart

--------------------------------------------------------------------------------

Infosys management consistently cautions that the stock price performance shown
in the graph below should not be considered indicative of potential future stock
price performance.

                                    [GRAPHIC]

The share price has been adjusted for three bonus issues of 1:1 during October
1994, October 1997 and March 1999
<PAGE>
 
Additional information to shareholders (contd.)

--------------------------------------------------------------------------------

Intangible assets scoresheet

A knowledge-intensive company leverages know-how, innovation and reputation for
success in the marketplace. Hence, these attributes should be measured and
improved, year after year, to achieve the best performance. The profitability of
a knowledge firm depends on its ability to leverage the learnability of its
professionals, and in enhancing the re-usability of their knowledge and
expertise.

The stock price of a company is the result of the market's valuation of the
future earnings and growth potential of the company. Thus, the market provides a
value to the off-balance-sheet assets of the company - that is, those assets
which are invisible or which are not accounted for in the traditional financial
statements. The intangible assets of a company include its brand, products and
the ability to attract, develop and nurture a cadre of competent professionals,
and the ability to attract and retain marque clients.

Today's discerning investors take a critical look at the financial and
non-financial parameters that determine the long-term success of a company.
These new non-financial parameters challenge the usefulness of evaluating
companies solely on the traditional measures, as they appear in the financial
reports of a company. Thus, the intangible assets of the company have been
receiving considerable attention from corporate leaders.

The intangible assets of a company can be classified into four major categories
- Human Resources, Intellectual Property Assets, Internal Assets and External
Assets.

Human resources

Human resources represent the collective expertise, innovation, leadership,
entrepreneurial and managerial skills endowed in the employees of an
organization.

Intellectual property assets

Intellectual property assets include know-how, copyright, patent, products and
tools that are owned by a corporation. These assets are valued based on their
commercial potential. A corporation derives its revenues by licensing these
assets to outside users.

Internal assets

Internal assets are systems, technologies, methodologies, processes and tools
that are specific to the organization. These assets give the organization a
unique advantage over its competitors in the marketplace. These assets are not
licensed to outsiders. Examples of internal assets include methodologies for
assessing risk, methodologies for managing projects, risk policies, and
communication systems.

External assets

External assets are the market-related intangibles that enhance the fitness of
an organization for succeeding in the marketplace. Examples are customer loyalty
(reflected by the repeat business of the company) and brand value.

The Score sheet

Infosys published models for valuing the two most valuable, intangible assets of
the company - Human Resources and the Infosys Brand. Last year, an attempt was
made to publish data on some of the internal and external assets of Infosys. The
score sheet published was broadly adopted from the Intangible asset score sheet
provided in the book titled The New Organizational Wealth written by Karl Erik
Sveiby and published by Berrett-Koehler Publishers Inc., San Francisco. We
believe such representation of intangible assets provides a tool to our
investors for evaluating the market-worthiness of a company.

The Infosys management cautions investors that these data are provided only as
additional information to investors. Using such reports for predicting the
future of Infosys, or any other company, is risky. The Infosys management is not
responsible for any direct, indirect or consequential losses suffered by any
person using these data.
<PAGE>
 
The Infosys Intangible Assets Scoresheet

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
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                                                                                      Knowledge Capital
------------------------------------------------------------------------------------------------------------------------------------

                  Our clients                                     Our organization                                 Our people
             (External structure)                               (Internal structure)                              (Competence)
------------------------------------------------------------------------------------------------------------------------------------

                           1998-99  1997-98                             1998-99  1997-98                            1998-99  1997-98

------------------------------------------------------------------------------------------------------------------------------------

<S>                            <C>      <C>  <C>                          <C>      <C>    <C>                        <C>       <C>
Growth/Renewal
------------------------------------------------------------------------------------------------------------------------------------

Revenue growth over             97       81  IT investment/ value added   11.71    14.12  Education index of all     10,731    7,326

previous year (%)                            (%)                                          staff
------------------------------------------------------------------------------------------------------------------------------------

Percentage of revenue           49       46  R&D/                          2.62     2.88
from  image-enhancing                        value added (%)
clients
------------------------------------------------------------------------------------------------------------------------------------

Percentage of revenue           98       96  Total investment in          19.16    18.52
from exports                                 organization/ value added
                                             (%)
------------------------------------------------------------------------------------------------------------------------------------

No. of new clients              39       45
added during the year
------------------------------------------------------------------------------------------------------------------------------------

Efficiency
------------------------------------------------------------------------------------------------------------------------------------

Sales/Client                   407      243  Average proportion           14.90    17.10  Value added per software    13.69    10.67

(Rs. in lakhs)                               of support staff (%)                         engineer (Rs. in lakhs)
------------------------------------------------------------------------------------------------------------------------------------

                                             Sales per support staff        107       72  Value added per employee    11.65     8.84

                                             (Rs. in lakhs)                               (Rs. in lakhs)
------------------------------------------------------------------------------------------------------------------------------------

Stability
------------------------------------------------------------------------------------------------------------------------------------

Repeat-business revenue/        90       83  Average age of support       30.88    31.15  Average age of all          26.14    26.56

total revenue (%)                            staff                                        employees
                                             (Years)                                      (Years)
------------------------------------------------------------------------------------------------------------------------------------

Sales from the five             28       35
largest
clients/total revenue (%)
------------------------------------------------------------------------------------------------------------------------------------

Sales from the ten largest      44       50
clients/total revenue (%)
------------------------------------------------------------------------------------------------------------------------------------

</TABLE>

The figures above are based on Indian GAAP financial statements.