REDIFF.COM INDIA LIMITED
(Exact name of Registrant as specified in its charter)

Mahalaxmi Engineering Estate
1^st Floor, L. J. First Cross Road
Mahim (West)
Mumbai—400016, India
+91-22-2444-9144
(Address of principal executive offices)

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

American Depositary Shares,
each represented by one-half of one equity share, par value Rs 5 per share.
(Title of Class)

Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act:
Not Applicable
(Title of Class)

Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report: 12,795,200 equity shares.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark which financial statement item the registrant has elected to follow.

		Page
Cross Reference Sheet		1
Currency of Presentation and Certain Defined Terms		3
Forward-Looking Statements		3
Exchange Rates		4
Selected Consolidated Financial Data		5
Risk Factors		6
Business		27
	Overview		27
	Our Markets		28
	Our Opportunity		29
	The Rediff.com Solution		30
	Strategy		32
	Our Product and Service Offerings		35
	Sales and Marketing		38
	Technology and Network Infrastructure		39
	Competition		40
	Seasonality		42
	Intellectual Property		42
	Government Regulation		43
	Ownership of Foreign Securities		45
	Organizational Structure		45
	Facilities		46
	Legal Proceedings		46
Management's Discussion and Analysis of Financial Condition and Results of Operations		49
Management		62
Related Party Transactions		69
Exchange Controls		71
Trading Market		72
Restriction on Foreign Ownership of Indian Securities		73
Principal Shareholders		77
Taxation		79
Use of Proceeds		86
Controls and Procedures		87
Presentation of Financial Information		87
Additional Information		87
Exhibit Index		E-1
Index to U.S. GAAP Financial Statements		F-1


Item 1.		Identity of Directors, Senior Management and Advisers
		Not applicable.
Item 2.		Offer Statistics and Expected Timetable
		Not applicable.
Item 3.		Key Information
		See "Exchange Rates", "Risk Factors" and "Selected Consolidated Financial Data".
Item 4.		Information on the Company
		See "Business", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Additional Information".
Item 5.		Operating and Financial Review and Prospects
		See "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations".
Item 6.		Directors, Senior Management and Employees
		See "Management".
Item 7.		Major Shareholders and Related Party Transactions.
		See "Principal Shareholders" and "Related Party Transactions".
Item 8.		Financial Information
		See the Independent Auditors' Reports on Rediff.com India Limited and Rediff Holdings Inc., and Rediff's U.S. GAAP Consolidated Financial Statements and the notes thereto. Also see "Business—Legal Proceedings" and "Management's Discussion and Analysis of Financial Condition and Results of Operations".
Item 9.		The Offer and Listing
		See "Trading Market".
Item 10.		Additional Information
		See "Management's Discussion and Analysis of Financial Condition and Results of Operations—"Exchange Controls", "Restriction on Foreign Ownership of Indian Securities", "Taxation" and "Additional Information".
Item 11.		Quantitative and Qualitative Disclosures About Market Risk
		See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Market Risks".
Item 12.		Description of Securities Other than Equity Securities
		Not applicable.


Item 13.		Defaults, Dividend Arrearages and Delinquencies
		Not applicable.
Item 14.		Material Modifications to the Rights of Security Holders and Use of Proceeds
		See "Use of Proceeds".
Item 15.		Controls and Procedures
		See "Controls and Procedures".
Item 16.		[Reserved]
		Not applicable.


Item 17.		Financial Statements
		Not applicable.
Item 18.		Financial Statements
		See the Independent Auditors' Reports on Rediff.com India Limited and Rediff Holdings Inc., and Rediff's U.S. GAAP Consolidated Financial Statements and the notes thereto.
Item 19.		Exhibits
		See the Exhibit Index and the attached exhibits.

In this annual report all references to "we", "our", "us", "Rediff", "rediff.com" and the "Company", unless otherwise relevant to the context, are to Rediff.com India Limited, a limited liability company organized under the laws of the Republic of India, and its consolidated subsidiaries. References to "U.S." or the "United States" are to the United States of America, its territories and its possessions. References to "India" are to the Republic of India.

In this annual report, references to "$" or "U.S.$" or "dollars" or "U.S. dollars" are to the legal currency of the United States and references to "Rs." or "rupees" or "Indian rupees" are to the legal currency of India. Our financial statements are prepared in Indian rupees and presented in U.S. dollars except in case of our U.S. subsidiaries which are prepared in U.S. dollars. Our financial statements are prepared in accordance with United States Generally Accepted Accounting Principles ("U.S. GAAP"). References to a particular "fiscal" or "financial" year are to Rediff's fiscal year ended March 31 of such year.

Although we have presented Indian rupee amounts in this annual report in U.S. dollars, this does not mean that the Indian rupee amounts referred to have been, or could be, converted into dollars at any particular rate, the rates stated below in the section of this annual report entitled "Exchange Rates", or at all. Except as otherwise stated in this annual report and for information derived from our financial statements included in this annual report, all translations from Indian rupees to U.S. dollars contained in this annual report are based on the noon buying rate, in the City of New York, on March 31, 2003, for cable transfers in Indian rupees as certified for customs purposes by the Federal Reserve Bank of New York, which was Rs. 47.53 per U.S.$ 1.00.

We have included statements in this annual report which contain words or phrases such as "may", "will", "aim", "will likely result", "believe", "expect", "will continue", "anticipate", "estimate", "intend", "plan", "contemplate", "seek to", "future", "objective", "goal", "project", "should", "will pursue" and similar expressions or variations of such expressions, that are "forward-looking statements", within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and reflect our current expectations. We have made forward-looking statements with respect to the following, among others:

Actual results may differ materially from those suggested by the forward-looking statements due to certain risks or uncertainties associated with our expectations with respect to, but not limited to, our ability to successfully implement our strategy, our ability to successfully integrate the businesses we have acquired with our business, demand for e-commerce and changes in the Internet marketplace, technological changes, investment income, cash flow projections and our exposure to market risks. By their nature, certain of the market risk disclosures are only estimates and could be materially different from what actually occur in the future. As a result, actual future gains, losses or impact on net interest income could materially differ from those that have been estimated.

In addition, other factors that could cause actual results to differ materially from those estimated by the forward-looking statements contained in this document include, but are not limited to, general economic and political conditions in India and the United States, changes in the value of the rupee, foreign exchange rates, equity prices or other rates or prices and level of Internet penetration in India and globally, changes in domestic and foreign laws, regulations and taxes, changes in competition, and other factors beyond our control. For further discussion on the factors that could cause actual results to differ, see the discussion under "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in this annual report. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof. In addition, readers should review the other information contained in this annual report and in the Company's periodic reports filed with the U.S. Securities and Exchange Commission (the "SEC"), from time to time. We undertake no obligation to update forward-looking statements to reflect events or circumstances after the date hereof.

Fluctuations in the exchange rate between the Indian rupee and the U.S. dollar may affect the market price of our American Depositary Shares (the "ADSs") which, beginning on June 24, 2002, have been traded on the NASDAQ Small Cap Market. Such fluctuations will also affect the U.S. dollar conversion by our depositary for the ADSs, Citibank, N.A., (the "Depositary"), of any cash dividends paid in Indian rupees on our equity shares represented by the ADSs.

The following table sets forth, for the periods indicated, certain information concerning the exchange rates between Indian rupees and U.S. dollars based on the noon buying rate in the City of New York for cable transfers in rupees as certified for customs purposes by the Federal Reserve Bank of New York:

Fiscal Year ended March 31	Period End(1)	Average(1)(2)
1999	42.50	42.27
2000	43.65	43.46
2001	46.85	45.88
2002	48.83	47.80
2003	47.53	48.36
Month	High	Low
October 2002	48.45	48.34
November 2002	48.36	48.21
December 2002	48.32	47.96
January 2003	48.10	47.83
February 2003	47.92	47.65
March 2003	47.85	47.53
April 2003	47.46	47.34
May 2003	47.35	46.85
June 2003	47.15	46.40
July 2003	46.49	46.06
August 2003	46.18	45.80

Our financial statements are presented in U.S. dollars and prepared in accordance with U.S. GAAP. The selected data set forth below as of March 31, 2002 and 2003 and for the fiscal years ended March 31, 2001, 2002 and 2003 has been derived from our audited financial statements presented elsewhere in this annual report and which have been audited by Deloitte Haskins & Sells, independent auditors. The selected financial data set forth below as of March 31, 1999, 2000 and 2001 and for the fiscal years ended March 31, 1999 and 2000 are derived from U.S. GAAP financial statements which are not included in this annual report.

The foregoing table and calculations assume no exercise of outstanding options to purchase equity shares.

You should consider carefully the risks and uncertainties described below, together with all of the other information contained in this annual report for the purpose of evaluating our business and us. If any of the following risks actually occur, our business, operating results and financial condition would likely suffer.

Pending and potential litigation against us could have a material adverse effect on our business and operating results and lower the market price of our ADSs.

On April 16, 2001, the Company, four of its officers and directors, including Ajit Balakrishnan, its Chairman and Managing Director, and a group of investment banks that acted as underwriters in our June 2000 initial public offering (the "IPO") and listing of ADSs were named as defendants in Khanna v. Rediff.com India Ltd. et al., (the "Khanna Action"), a class action lawsuit filed in the U.S. District Court for the Southern District of New York. The plaintiffs allege that our registration statement filed with the SEC contained misleading statements and omissions in violation of the U.S. Securities Act of 1933, as amended (the "Securities Act"), the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 10b-5 of the Exchange Act. The plaintiff class in this lawsuit has been defined as all persons who purchased ADSs from the time of the IPO through April 14, 2001 and seeks unspecified damages. Subsequent to the filing of the Khanna Action, several other actions have been filed against Rediff and the other defendants setting forth substantially the same allegations. All the cases have been consolidated before a single judge in the United States District Court for the Southern District of New York. On May 11, 2001, we received from our underwriters in our IPO a demand for indemnification of the underwriters' legal fees and liabilities. Our board of directors resolved to indemnify our officers and directors named as defendants against their legal fees and liabilities, to the extent permitted under Indian law. At the time of the IPO, we purchased Directors & Officers liability insurance (the "D&O Policy"), providing coverage against federal securities law claims. The D&O Policy includes coverage for our cost of defending the class action lawsuits, our indemnification liabilities to our officers and directors, and our indemnification liabilities to our underwriters. The coverage of the D&O Policy is denominated in Indian Rupees, but the policy proceeds are payable in U.S. dollars. Based on the noon buying rate at March 31, 2003, the face amount of the D&O Policy is approximately U.S.$ 18.8 million. The proceeds of the D&O Policy available to satisfy any judgment against us, or any judgment against persons whom we are obligated to indemnify, will be reduced by the amount of the legal fees and associated expenses in the defense of the Company, the individual defendants and the underwriters which are paid from the D&O Policy. The D&O Policy includes a deductible of approximately U.S.$ 234,326 (based on the noon buying rate at March 31, 2003), which must be paid by us before the D&O Policy proceeds would be available. The D&O Policy contains various exclusions, which, if met, may result in the denial of insurance coverage. We have been advised by the insurance carriers who wrote the D&O Policy that they are not currently aware of any facts or circumstances that would cause any of the exclusions to apply, but that the carriers have reserved their rights to claim that the exclusions do apply if any such facts or circumstances come to their attention.

On June 5, 2001, twenty-four companies, including us, who had issued securities to the public in their initial public offerings, together with the investment banks who acted as underwriters in these initial public offerings, were named as defendants in the action of Shives et al. v. Bank of America Securities, LLC et al., (the "Shives Action"), a class action lawsuit filed in the U.S. District Court for the Southern District of New York. Also named as defendants in this lawsuit were four of our officers and directors, including Ajit Balakrishnan. The plaintiffs in this lawsuit allege that the underwriter defendants combined and conspired to inflate the underwriting compensation they received in connection with the initial public offerings of the defendant companies, to manipulate and inflate the prices paid by plaintiffs for securities issued in the initial public offerings and to restrain and suppress competitive pricing for underwriting compensation. The plaintiffs allege claims pursuant to the U.S.

Sherman Antitrust Act, 1890, as amended, the U.S. Clayton Antitrust Act, 1914, as amended, and the Securities Act against the underwriter defendants. The plaintiffs further allege that the defendants, including our Company and certain of its officers and directors, made material misstatements and omissions in violation of the Securities Act and the Exchange Act by concealing or failing to disclose the compensation earned by the underwriters in the initial public offerings. As against the Company and its officers and directors, the Complaint defines a "Rediff.com Sub-Class" consisting of all persons who purchased securities of Rediff.com India Limited from the time of the IPO through April 4, 2001 and seeks unspecified damages. This case has been consolidated with several hundred other similar cases filed against other issuers who had IPOs in 2000 and 2001.

We believe that the allegations in the Khanna Action and its related cases, and in the Shives Action are without merit and we intend to defend the law suits vigorously. We are not able at this point to predict the course or the outcome of the litigation. In the event either action results in a substantial judgment against us, said judgment could have a severe material adverse effect on our financial position and results of operations.

On June 21, 2000, Rediff, its directors and others (Ajit Balakrishnan, Arun Nanda, Abhay Havaldar, Sunil Phatarphekar, Charles Robert Kaye and Tony Janz) were named as accused in a criminal complaint (RCC Complaint Number 76 of 2000, the "Complaint"), filed by Mr. Abinav Bhatt, a 22 year old student, before the Judicial Magistrate, First Class, Pune, India, alleging commission of an offense under Section 292 of the Indian Penal Code, 1860, as amended, or IPC, for distributing, publicly exhibiting and putting into circulation obscene, pornographic and objectionable material. The Complaint alleged that we, through our web site "www.rediff.com", provided a search facility that enabled Internet users to view pornographic, objectionable and obscene material. On November 27, 2000, the Judicial Magistrate passed an order in the Complaint holding that a prima facie case under Section 292 of the IPC had been made out against us and directed commencement of criminal proceedings against all the defendants. A criminal writ petition, or Writ Petition, was filed in the High Court of Mumbai (Criminal Writ Petition Number 1754 of 2000) seeking, among other things, relief setting aside of the order of the Judicial Magistrate. The High Court of Mumbai in its order dated December 20, 2000, while granting ad-interim relief to the petitioners in the Writ Petition, stayed the order of the Judicial Magistrate pending final disposal of the Writ Petition. The Writ Petition has been admitted by the High Court of Mumbai. While we believe that the lawsuit is without merit, and that we and our directors have a valid defense to the Complaint, in the event that we are unsuccessful in our defense, we and our directors may face both criminal penalties and monetary fines.

An action was brought by the publishers of "Gujarat Samachar" in August 2000, asserting that India Abroad, our wholly-owned subsidiary, allegedly breached the parties' agreements concerning the marketing and sale of Gujarat Samachar's International Weekly in North America. India Abroad vigorously disputed these allegations, and asserted various counterclaims against Gujarat Samachar including breach of contract. The action was tried before a jury (Hon. Preska, J., presiding), in a one-week trial commencing December 3, 2001. On December 7, 2001, the jury returned a verdict in favor of India Abroad for the sum of $560,000. After deducting $279,000—being the sums which had been withheld from Gujarat Samachar by India Abroad and which India Abroad had conceded—Judge Preska entered judgment in favor of India Abroad in the sum of $281,000 ("Judgment"). Gujarat Samachar filed an appeal against the Judgment, and India Abroad filed a Notice of Cross-Appeal with the United States Court of Appeals for the Second Circuit. By order entered October 29, 2002, the Second Circuit dismissed Gujarat Samachar's appeal. Thereupon, India Abroad decided not to pursue its cross-appeal. No further proceedings are expected on this appeal. Gujarat Samachar also filed a motion to vacate the Judgment before Judge Preska. India Abroad filed a cross-motion for sanctions. By an order dated March 31, 2003, Judge Preska denied both motions. A Notice of Appeal was subsequently filed on behalf of Gujarat Samachar and we will file a response to this appeal. No scheduling order has been entered by the United States Court of Appeals for the Second Circuit.

A complaint was filed by the Indian Music Industry ("IMI"), a society representing various music companies in Magistrate's Court India against three of our directors. The complaint alleges that by providing links to MP3 sites through its directory we have been guilty of violating Section 51 of the Copyright Act 1957. The complaint alleges that the MP3 sites to which links were provided, permitted downloading of music, which had not been authorized to be so downloaded by copyright owners who are members of IMI. Our directors are named as parties to the lawsuit because, according to the complaint, the directors are in charge of our affairs and are hence deemed to be guilty of committing the offense. Our directors have presently been exempted from personal appearance. Our directors are filing an application for discharge of the complaint before the Magistrate. Although our directors believe they have valid defenses to the action, if they are unsuccessful after exhausting all legal remedies, our directors could face both criminal penalties and monetary fines.

The Company is also subject to other legal proceedings and claims, which have arisen in the ordinary course of its business. Those 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.

For additional information regarding pending litigation filed against us, please see the section of this annual report entitled "Business—Legal Proceedings".

The slowdown in the Indian and the U.S. economies and in certain sectors could adversely affect our business, operating results and financial condition.

We are substantially dependent on the health of the Indian and the U.S. economies. For the fiscal years ended March 31, 2002 and 2003, a substantial portion of our total revenues was derived in the United States. According to the U.S. Department of Commerce, there has been a substantial slowdown in the U.S. economy since the fourth quarter of 2000. Although the recessionary fears appear to have receded, a slowdown in the United States and Indian economies or sectors in which our clients are based, including the Internet and technology-based sectors, or an overall reduction in consumer and business spending, could have a materially adverse impact on our business and our prospects. A significant portion of our revenues are derived from retail customers and from companies that operate in various sectors, including the Internet and technology-based sectors as well as insurance, financial services, banking and consumer goods sectors. Many of these sectors are believed to be experiencing slowdown in growth. As a result, many advertisers are reducing advertising expenditures or are not spending as much money on online and offline advertising as we had anticipated. A prolonged or material decline in Internet advertising expenditure will have a material adverse effect on our operating results. Further, the slowdown in the Indian and the U.S. economies may make it difficult for us to raise money in the equity and debt markets on terms favorable to us or at all, which may have an adverse effect on our financial condition and operating results.

We may not benefit from our acquisitions and investments and our acquired businesses could increase our net losses.

During the years ended March 31, 2002 and 2003, we have made strategic acquisitions and investments in order to penetrate new markets, generate additional revenue streams and provide value-added services to our users. Although we have no current plans, agreements or commitments to do so, we may, if an opportunity arises, acquire or invest in products, technologies or companies in the future. However, there can be no assurance that our acquisition and investment strategy will be successful or that we will realize the anticipated benefits from such acquisitions or investments. Such transactions are accompanied by a number of risks, including:

We may not be successful in addressing these risks or any other problems encountered in connection with such acquisitions.

We face specific risks associated with our acquisitions of ValuCom and India Abroad.

In March 2001, we acquired ValuCom, a company based in Illinois focusing primarily on Internet-based marketing of prepaid long distance calling cards. In April 2001, we acquired India Abroad, a company based in New York publishing a weekly newspaper targeted primarily at the Indian community in the United States. We have limited experience in operating a business outside of India or in providing prepaid long distance phone services or in providing publishing services. As a result, our ability to successfully manage these businesses, fully integrate them into our existing business, generate revenues from such acquired companies or affect cost reductions in them is not proven.

The long distance calling card business is highly competitive in the United States. ValuCom revenues declined during the year primarily due to lower usage of U.S. to India prepaid phone services, reduced rates per minute, shifting of calls originating from the U.S. to calls originating in India as well as our decision to exit from the low margin prepaid wholesale phone card business. The ValuCom business will be adversely impacted if an increasing number of large, well capitalized companies, including existing providers of airtime to ValuCom, such as AT&T, enter the market of providing prepaid long distance calling cards. The recent introduction of voice over Internet telephony in India will result in lower telecommunications rates, which we expect will also adversely affect our communications business. Competition from existing or new competitors could reduce our revenues from the sale of our virtual prepaid calling cards and other services. Further, the market for prepaid calling cards is an emerging business with a large number of market entrants. Therefore, it is difficult to accurately determine what the demand will be for our products and services in this area. Substantial markets may not develop for prepaid calling cards, and we may not be able to sustain or increase our sales of these products and services. Our ability to compete also depends on our ability to anticipate and adapt to rapid technological and other changes occurring in the telecommunications industry. A general decrease in telecommunications rates charged by international long distance carriers could also have a negative effect on our operations. With the privatization of international long distance telecommunications by the Government of India, there has been a reduction in the rates offered by international long distance carriers in India for calls originating from India. Additionally, there is the possibility that there will be an increase in the volume of international calls originating from India to the Unites States, which may have the potential to affect the ValuCom business.

Additionally, the offline publication business may not continue to integrate well with our online business model. We face competition in this business from print and television media companies targeting the Indian community in the United States. Historically, India Abroad has been run as a family-owned, closely held business, and therefore it may be difficult to assimilate this business into our centralized management structure. Furthermore, we may face potential unknown liabilities associated

with acquiring this business, face difficulty in incorporating its content and rights into our products or incur unanticipated expenses related to such acquisition, each of which could have a material adverse effect on our financial condition and operating results.

We have initiated a series of cost containment initiatives. Our workforce reductions, the volatility in our stock price and the negative business environment in which we operate may create anxiety and uncertainty, which may adversely affect employee morale and cause us to lose employees whom we would prefer to retain. To the extent that we are unable to retain our existing personnel, our business and financial results may suffer.

We have a history of net losses. We expect to continue to incur net losses and we may not achieve or maintain profitability.

We have incurred significant net losses and negative cash flows from operations since our inception in January 1996, including a net loss of approximately U.S.$ 19.0 million for the year ended March 31, 2003. As of March 31, 2003, we had an accumulated deficit of approximately U.S.$ 48.7 million. We expect to continue to have net losses and negative operating cash flows for the foreseeable future. We expect to increase our spending significantly as we continue to expand our services, advertise and promote our brand, and invest in the expansion of our infrastructure and sales and marketing staff. We have incurred and in the future will incur expenses in connection with our recent acquisitions and integration of these businesses with the existing business. Accordingly, we will need to generate significant additional revenues, while controlling our expenses, to achieve profitability. We may not be able to do so. Our business model is not yet proven in India or the United States, and we cannot assure you that we will ever achieve or sustain profitability or that our operating losses will not continue to increase in the future. If we are unable to achieve or maintain profitability, we will be unable to build a sustainable business. In this event, the price of our ADSs and the value of your investment would likely decline.

Our quarterly operating results are likely to fluctuate significantly and may fail to meet the expectations of securities analysts and investors, which may cause the price of our ADSs to decline.

We expect our quarterly results to fluctuate significantly in the future based on a variety of factors. These factors are also expected to affect our long-term performance. Some of these factors include:

Due to all these factors, we expect our operating results to be volatile and difficult to predict. As a result, quarter-to-quarter comparisons of our operating results may not be good indicators of our future performance. In addition, it is possible that our operating results in any future quarter could be below the expectations of investors generally and any published reports or analyses of our Company. In that event, the market price of our ADSs may decline, perhaps substantially.

Our marketing campaign to establish brand recognition and loyalty for the Rediff.com brand, the ValuCom brand and the India Abroad brand could be unsuccessful, which could harm our business.

In order to expand our customer base and increase traffic on our web site, we must establish, maintain and strengthen the Rediff.com brand, the ValuCom brand and the India Abroad brand. We plan to continue to incur substantial marketing expenditures to establish brand recognition and brand loyalty. If our marketing efforts do not produce a significant increase in consumer traffic or if an increase in consumer traffic does not lead to an increase in revenues to offset our marketing expenditures, our losses will be increased or, to the extent that we are generating profits, our profits will be decreased.

Our success in promoting and enhancing the three brands will depend on our ability to provide high quality content, functionality and product offerings. Furthermore, our portal will be more attractive to advertisers if we have a large user base with demographic characteristics that advertisers perceive as favorable. If we fail to promote our brands successfully, increase the number of visitors to our web site or maintain the quality of our advertising services, the value of the Rediff.com brand, the ValuCom brand and the India Abroad brand could be diminished.

Intense competition in our businesses could prevent us from achieving or sustaining profitability.

Our businesses compete in industries that are extremely competitive and many of our competitors have greater management, financial, technical, marketing, sales and other resources than we do. Our business faces significant competition from other well-established online content providers, as well as numerous new entrants. We also compete with foreign online content providers, companies in the United States providing communications services on the Internet, as well as with traditional print and television media companies. Additionally, we are competing with other forms of advertising for advertising customers. Competition for visitors, customers, advertisers and e-commerce partners is intense and is expected to increase significantly in the future because there are no substantial barriers to entry in our market. Furthermore, it is difficult to predict which online advertising pricing model, if any, will emerge as the industry standard. This makes it difficult to predict our future advertising rates and revenues. Our revenues could be adversely affected if we are unable to adapt to new forms of pricing for the services and products we offer. Increased competition may result in:

For additional information regarding our competition, please see the section of this annual report entitled "Business-Competition".

Terrorist attacks in various parts of the Indian sub-continent and other acts of violence or war, such as the recent terrorist attacks in India and the Iraq conflict have the potential to directly impact our business. Continued terrorist threats and such attacks, wars or other civil disturbances may lead to economic instability adversely affecting our business.

The loss of one or more significant advertisers could adversely affect our revenues.

We derive a considerable portion of our revenues from certain key advertisers. Any failure to meet advertiser expectations could result in cancellation or non-renewal of a contract. The loss of, or a significant reduction in the volume of business from, one or more of our large advertisers could have a material adverse effect on our operating results and financial condition.

Disruptions in telecommunications could harm our business and result in a reduction of our revenues.

Our online businesses rely heavily on the Internet and, accordingly, depend upon the continuous, reliable and secure operation of Internet servers, related hardware and software and network infrastructure such as telephone lines leased from service providers. We have secured back-up facilities for some of our businesses. However, failure of key primary or back-up systems could lead to the disruption of our services and the loss of important data. This in turn could lead to a loss of users, advertisers and retail customers and damage to our reputation. These failures, which could have a material adverse effect on our business and operating results, could also lead to significant negative publicity and litigation and to a decline in the market price of our ADSs. In the past, several large Internet companies have suffered highly publicized system failures which resulted in significant decreases in the market price of their listed securities.

We have suffered temporary service outages from time to time that have resulted in a disruption of our services. However, longer outages could have a material adverse effect on our operating results and prospects. As a result of such outages, Internet users are temporarily unable to access our content, community and e-commerce offerings. Any sustained disruption will reduce the number of visitors to our web site and have a material adverse impact on the revenues from e-commerce transactions handled through our web site. Such disruptions could also reduce the number of advertisers on our site and materially affect our operating results.

Our computer and communications hardware are protected through physical and software safeguards. However, they are still vulnerable to fire, storm, flood, power loss, telecommunications failures, physical or software break-ins and similar events. We do not carry material business interruption insurance to protect us in the event of a catastrophe even though such an event could lead to a significant negative impact on our business. Any sustained disruption in Internet access provided by third parties could also significantly harm our business.

Our business and growth will be impaired if we are unable to retain our existing key personnel and hire additional skilled employees.

We are highly dependent on the principal members of our management team. In particular, our success depends upon the continued efforts of our Chairman and Managing Director, Mr. Ajit Balakrishnan. Substantially all of our employees are located in India and the United States, and each may voluntarily terminate his or her employment with us. Our planned activities will require additional expertise in sales and marketing and other areas. The labor market for skilled employees is extremely competitive, and the process of hiring employees with the necessary skills is time consuming and requires the diversion of significant resources. While we have not experienced difficulty in employee retention or integration to date, we may not be able to continue to retain existing personnel or identify, hire and successfully integrate additional qualified personnel in the future. The loss of the services of

key personnel, especially the unexpected death or disability of such personnel, or the inability to attract additional or replacement qualified personnel, could impair the growth of our business.

We are highly dependent on our agreements with third parties to provide products and services to our customers and any termination of these relationships could harm our business.

We rely on our relationships with third parties to provide high quality products and services to our e-commerce customers. However, because these agreements are not exclusive, our competitors may offer the same or similar products and services as we do. Although we generally enter into agreements with more than one vendor or manufacturer for a specific product category, not all of these vendors and manufacturers can supply the same or similar products. Factors such as brand name, quality and supply can affect our ability to obtain and sell products online. We rely on two major telecommunications companies in the United States to provide us with airtime and enable us to operate our prepaid long distance calling card business. We also rely on our agreements with third parties to provide us with online credit card transactions processing, courier delivery services and cash on delivery, transaction services for our e-commerce customers. Currently, there are a very limited number of third-party credit card transaction processing companies and couriers in India. Since there are a limited number of third-party credit card transaction processing companies, our agreements with them impose onerous obligations on us, such as guaranteeing the performance of all customer orders for which payment has been processed, indemnifying such third-party for any breach of security between our site and the payment mechanism and providing other indemnities as specified in each such agreement. Although we seek to establish relationships with additional suppliers of these services, any unexpectedly terminated agreements with these suppliers will significantly impair our e-commerce and communications offerings and our ability to generate revenues from merchandizing or communications services.

We also rely on third-party content providers to develop our content. However, these content providers may also make their content available to our competitors. Because most of these relationships are not exclusive, our competitors could use the same content we do. Although we constantly attempt to determine what content, features and functionality our users want, other competitors may present the same or similar content in a superior manner and thereby decrease our visitor traffic. Such a decrease in traffic could reduce our revenues and have a material adverse effect on our business.

Our short messaging services depend mainly on the cooperation of a large number of private and government cellular operators and their subsidiaries who have the necessary licenses to provide cellular services to consumers across various states/cities in India. We rely on all of these cellular operators for providing the network and gateway for our short messaging services. We also utilize their billing systems to collect service fees from short messaging subscribers.

If any or all of these private cellular operators encounter technical problems, or if they refuse to cooperate with us, our short messaging services may cease or be severely disrupted, which would have a significant and adverse impact on our future operating results.

We rely on increased sales of, and high renewal rates for, our subscription and fee based products and services.

A substantial part of our online revenue growth for the year ended March 31, 2003 was from the development of our fee-based Internet services consisting primarily of short messaging service, paid email service and subscription service in India. We are deriving an increased portion of our revenues from these services. If users do not adopt our fee-based Internet services at a sufficient rate, our revenues will be negatively affected.

Potential liability for information we publish may require us to defend against legal claims, which may cause significant operational expenditures.

We may be subject to claims for defamation, libel, copyright or trademark infringement or other legal actions relating to the information we publish. These types of claims have been brought, sometimes successfully, against news and opinion publishing businesses in the past. We could also be subject to claims based upon the content that is accessible from our web site through link to other web sites. Our insurance coverage may not adequately protect us against these claims. Liability claims could require us to spend significant time and money in litigation and to pay significant damages. As a result, liability claims, whether or not successful, could seriously damage our reputation and business.

Privacy concerns may prevent us from selling demographically targeted advertising in the future and make us less attractive to advertisers.

We collect personal data from our user base in order to understand better our users and their needs and to help our advertisers target specific demographic groups. If privacy concerns or regulatory restrictions prevent us from selling demographically targeted advertising, we may become less attractive to advertisers. For example, as part of our future advertisement delivery system, we may integrate user information such as advertisement response rate, name, address, age or email address, with third-party databases to generate comprehensive demographic profiles for individual users. However, if we are unable to construct demographic profiles for Internet users because users refuse to give consent, we will be less attractive to advertisers and our business will suffer.

We may not be able to manage our operations effectively if we grow, which could harm our business.

We anticipate significant expansion of our business in India as we address growth in our customer base and market opportunities. In order to manage the expected growth of our operations and personnel, we will be required to improve existing and implement new operational and financial systems, procedures and controls, and to expand, train and manage our employee base. Further, our management will be required to maintain and expand our relationships with various other partners, cellular operators, Internet and other online service providers and other third parties necessary to our business. We cannot assure you that our current and planned personnel, systems, procedures and controls will be adequate to support our future operations.

Our future acquisitions, investments, strategic partnerships or other ventures, even if completed on favorable terms, may strain our managerial, operational and financial resources.

We may acquire or make further investments in complementary businesses, technologies, services or products, or enter into strategic partnerships with parties who can provide access to those assets. From time to time we have had discussions and negotiations with companies regarding our acquiring, investing in or partnering with their businesses, products, services or technologies, and we regularly engage in such discussions and negotiations in the ordinary course of our business. We may not identify suitable acquisition, investment or strategic partnership candidates, or if we do identify suitable candidates, we may not complete those transactions on terms commercially acceptable to us or at all. If we acquire another company, we could have difficulty in assimilating that company's personnel, operations, third-party relationships, technology or software. In addition, the key personnel of the acquired company may decide not to work for us. If we make other types of acquisitions, we could have difficulty in integrating the acquired products, services or technologies into our operations. These difficulties could disrupt our ongoing business, distract our management and employees and increase our expenses. Furthermore, we may incur indebtedness or issue equity securities to pay for any future acquisitions. The issuance of equity securities would dilute the ownership interests of the owners of our equity shares and ADSs. Incurrence of additional indebtedness could increase our interest expenses and cost of capital. Certain acquisitions of businesses organized outside India may require the approval of the Reserve Bank of India and in certain cases, the Government of India. We cannot assure you that any required approval from the Government of India, the Reserve Bank of India or any other government agency can be obtained.

Currency exchange rate fluctuations may adversely impact our operating results and financial condition.

The exchange rate between the Indian rupee and the U.S. dollar has changed substantially in recent years and may fluctuate substantially in the future. During the period from the fiscal year ended March 31, 1997 to the fiscal year ended March 31, 2003, the value of the Indian rupee against the U.S. dollar declined by approximately 32.5% from Rs. 35.88 to Rs. 47.53 per U.S. dollar. Devaluation or further depreciation of the value of the Indian rupee will result in higher expenses for us, in Indian rupee terms, for the purchase of capital equipment, such as telecommunications and computer equipment, which we purchase in the United States. In addition, our market valuation could be materially adversely affected by the devaluation of the Indian rupee if U.S. investors analyze our value based on the U.S. dollar equivalent of our financial condition and operating results. Also, the net proceeds from our IPO, pending their intended use, have been invested in U.S. dollar denominated bank deposits. The Reserve Bank of India has the authority to compel us to bring the IPO proceeds to India and have them invested in Indian rupee denominated bank accounts in India. Currency exchange rate fluctuations, in particular an appreciation of the value of the Indian rupee against the U.S. dollar, may adversely impact our operating results.

If we are unable to adapt to the rapid technological changes, our business could suffer.

Our success will depend, in part, on our ability to respond to technological advances and practices on a cost-effective and timely basis. The development and implementation of such technology entails significant technical and business risks. There can be no assurance that we will successfully implement new technologies effectively. If we are unable, for technical, legal, financial or other reasons, to adapt in a timely manner to changing market conditions or customer requirements, our business and our future financial performance could be materially adversely affected.

Significant security breaches and fraud could adversely impact our business.

We seek to protect our computer systems and network infrastructure from physical break-ins as well as security breaches and other disruptive problems caused by our increased use of the Internet.

Computer break-ins and power disruptions could affect the security of information stored in and transmitted through such computer systems and network infrastructure. We employ security systems, including firewalls and password encryption, designed to minimize the risk of security breaches. Though, we intend to continue to implement security technology and establish operational procedures to prevent break-ins, damage and failures, there can be no assurance that these security measures will be successful. A significant failure of security measures could have a material adverse effect on our business and our future financial performance.

Much of our business operations are transaction-oriented. Although we take adequate measures to safeguard against fraud, there can be no assurance that we would be able to prevent fraud. Our reputation could be adversely affected by significant fraud committed by employees or outsiders.

In addition, if someone penetrates our network security or otherwise misappropriates sensitive data about our users, we could be subject to liability. These liabilities could include fraud claims and other claims for misuses of personal information, such as unauthorized marketing purposes. These claims could result in litigation and could have a material adverse effect on our business, results of operations and financial conditions.

A small group of our existing shareholders control our company and may have interests which conflict with those of our other shareholders or owners of our ADSs.

As of March 31, 2003, our six largest shareholders beneficially owned an aggregate of approximately 88% of our equity shares. As a result, such shareholders acting collectively are able to exercise control over most matters requiring approval by our shareholders, including the election of directors and approval of significant corporate transactions. Under Indian law, a simple majority is sufficient to control all shareholder action except for those items which require approval by a special resolution. In case of a special resolution, approval of three-fourths of the shareholders present and voting is required. Examples of actions that require a special resolution include:

The interests of this group may differ from our other shareholders or owners of our ADSs and could result in a delay or prevention of a change in control of our Company even if a transaction of that sort would be beneficial to our other shareholders, including the owners of our ADSs, or in the best interest of our Company. For additional information regarding our principal shareholders, please see the section of this annual report entitled "Principal Shareholders".

The laws of India do not protect intellectual property rights to the same extent as those of the United States, and we may be unsuccessful in protecting our intellectual property rights, which could lead to a reduction in our revenues and an increase in our expenses.

Our intellectual property rights are important to our business. We rely on a combination of copyright and trademark laws, trade secrets, confidentiality procedures and contractual provisions to protect our intellectual property.

Our efforts to protect our intellectual property may not be adequate. Our competitors may independently develop similar technology or duplicate our products or services. Unauthorized parties may infringe upon or misappropriate our products, services or proprietary information. In addition, the laws of India do not protect proprietary rights to the same extent as laws in the United States, and the global nature of the Internet makes it difficult to control the ultimate destination of our products and

services. For example, Indian statutory law does not currently protect service marks. The misappropriation or duplication of our intellectual property could disrupt our ongoing business, distract our management and employees, reduce our revenues and increase our expenses. We may need to litigate to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others. Any such litigation could be time-consuming and costly and may not ultimately prove successful.

We could be subject to intellectual property infringement claims as the number of our competitors grows and the content and functionality of our web site or other product or service offerings overlap with competitive offerings. Defending against these claims, even if not meritorious, could be expensive and divert our attention and resources from operating our company. If we become liable to third parties for infringing their intellectual property rights, we could be required to pay a substantial damage award and forced to develop non-infringing technology, obtain a license or cease selling the applications that contain the infringing technology. We may be unable to develop non-infringing technology or obtain a license on commercially reasonable terms, or at all. For additional information regarding our intellectual property rights, please see the section in this annual report entitled "Business—Intellectual Property".

We do not anticipate paying cash dividends to the owners of our equity shares or ADSs in the foreseeable future. Accordingly, investors must rely on sales of their equity shares or ADSs, which may increase or decrease in value, as the only way to realize cash from their investment. Investors seeking cash dividends should not purchase our ADSs.

We may be a passive foreign investment company for U.S. federal income tax purposes, which could increase the U.S. tax costs to U.S. holders of ADSs.

It is uncertain whether or not we will be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for the current or future taxable years. PFIC status is a factual determination that is based on the composition of our income and the value of our assets during each year. Valuation of our assets, including goodwill, is based on the market price of the ADSs, which is subject to change from time to time. If we are a PFIC, U.S. holders of ADSs may incur significantly increased U.S. income tax costs on the sale or disposition of ADSs and on the receipt of distributions on ADSs to the extent such distributions are treated as "excess distributions" under the U.S. income tax rules. Please also see the section in this annual report entitled "Taxation—United States Federal Tax—Passive Foreign Investment Company Rules".

We are incorporated in India, and a large part of our assets, business operations and employees are located in India. Consequently, our financial performance and the market price of our ADSs will be affected by social and economic developments in India, policies of the Government of India including taxation and foreign investment policies, as well as changes in exchange rates, interest rates and controls.

Regional conflicts in South Asia could adversely affect the Indian economy and cause our business to suffer.

South Asia has from time to time experienced instances of civil unrest and hostilities among neighboring countries, including between India and Pakistan. In recent years there have been military confrontations between India and Pakistan that have occurred in the region of Kashmir. 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, including our ADSs, and on the market for our services.

Political instability related to the current multi-party coalition government could halt or delay the liberalization of the Indian economy and adversely affect economic conditions in India generally and our business in particular.

Since 1991, successive Indian governments have pursued policies of economic liberalization, including significantly relaxing restrictions on the private sector. Nevertheless, the roles of the Indian central and state governments in the Indian economy as producers, consumers and regulators has remained significant. In October 1999, the Government changed for the fifth time since 1996. The current Government of India, formed as a multi-party coalition, has announced certain policies and taken initiatives that support the continued economic liberalization policies that have been pursued by previous governments. We cannot assure you that these liberalization policies will continue in the future. The rate of economic liberalization could change, and specific laws and policies affecting technology companies, foreign investment, currency exchange rates and other matters affecting investment in our securities could change as well. A significant change in India's economic liberalization and deregulation policies could adversely affect business and economic conditions in India generally, including our business.

Indian law limits our ability to raise capital and the ability of others to acquire us, which could prevent us from operating our business or entering into a transaction that is in the best interests of our shareholders.

Indian law constrains our ability to raise capital through the issuance of equity or convertible debt securities. Foreign investment in an Indian company may require approval from relevant government authorities in India including the Reserve Bank of India. The Government of India has classified existing businesses into various categories for automatic approval of foreign direct investment up to certain prescribed percentages. Under the current guidelines, the Government of India provides for approval under the automatic route for foreign direct investment proposals relating to the information technology sector.

We cannot assure you that equity or other forms of financing will be available on terms favorable to us, or at all. If adequate funds are not available or are not available on acceptable terms, our ability to fund our operations, take advantage of unanticipated opportunities, develop or enhance our infrastructure and services, or otherwise respond to competitive pressures would be significantly limited. Our business, operating results and financial condition could be materially adversely affected by any such limitation.

Currently there is no public trading market for our equity shares in India or elsewhere which, together with existing Indian laws that restrict the conversion of outstanding equity shares into ADSs, reduce your ability to sell our ADSs.

Currently there is no public trading market for our equity shares in India or elsewhere nor can we assure you that we will take steps to develop one or that we will be able to meet applicable listing guidelines or regulations to list our equity shares on a stock exchange in India or elsewhere. Our equity shares are only traded on the NASDAQ Small Cap Market, or NASDAQ, in the form of ADSs. Under current Indian laws and regulations, outstanding equity shares not listed in India may not be deposited into our depositary facility. Thus, if you elect to surrender your ADSs and receive equity shares, you will not be able to trade those equity shares on any securities market. Further, you will be prohibited from re-depositing such unlisted outstanding equity shares with our depositary.

Under proposed regulations in India, our depositary may be allowed to accept deposits of outstanding equity shares and issue American Depositary Receipts, or ADRs, evidencing ADSs representing such equity shares only to the extent, and limited to the number, of ADSs converted into underlying equity shares, if such equity shares are listed in recognized Indian stock exchanges. In the

present case, since our outstanding equity shares are unlisted, you would be unable to deposit outstanding equity shares with our depositary and receive ADRs.

Under current Indian regulations and practice, the approval of the Reserve Bank of India or 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 a renunciation of rights in favor of a resident of India unless the sale of the outstanding equity shares is made through a recognized stock exchange. Since our outstanding equity shares are unlisted, any such transfer would require the approval of the RBI. Under currency exchange controls that are in effect in India, any such approval granted by the Reserve Bank of India will specify the price at which the equity shares may be transferred based on a specified formula, and a higher price per share may not be permitted. Additionally, shareholders who seek to convert the rupee proceeds from a sale of equity shares in India into foreign currency and repatriate that foreign currency from India will have to obtain Reserve Bank of India approval for each transaction. We cannot assure you that any required approval from the Reserve Bank of India or any other government agency can be obtained on any particular terms or at all.

If in the future a market for our equity shares is established in India, our equity shares may trade at a discount or premium to the ADSs in part because of such restrictions.

Our ability to acquire companies organized outside India may depend on the approval of the Government of India. Our failure to obtain approval from the Government of India for acquisitions of companies organized outside India may restrict our growth, which could negatively affect our revenues.

As part of our business strategy, we may plan to acquire complementary businesses, including businesses based outside of India. For the acquisition of a business based outside India we may be required to obtain approval of the Reserve Bank of India and/or the Government of India. The Government of India has recently issued guidelines permitting acquisitions on an automatic basis, subject to certain conditions, of companies organized outside India with a transaction value:

We cannot assure you that we will be able to obtain any required approval from the Reserve Bank of India and/or the Government of India. Our failure to obtain approval from the Government of India for acquisitions of companies organized outside India may restrict our growth, which could negatively impact our revenues.

It may be difficult for you to enforce any judgment obtained in the United States against us or our affiliates.

We are incorporated under the laws of the Republic of India and many of our directors and executive officers reside outside the United States. In addition, a large part of our assets and the assets of many of these persons are located outside the United States. As a result, you may be unable to:

We have been advised by our Indian counsel that the United States and India do not currently have a treaty providing for reciprocal recognition and enforcement of judgments of courts in the United States in civil and commercial matters. Therefore, a final judgment for the payment of money rendered by any federal or state court in the United States on civil liability, whether or not predicated solely upon the federal securities laws of the United States, would not be enforceable in India. However, the party in whose favor such final judgment is rendered may bring a new suit in a competent court in India based on a final judgment which has been obtained in the United States. A judgment of the courts in the United States shall be conclusive as to any matter directly adjudicated between the parties to the suit except if Indian courts were of the opinion that such judgment:

Our success will depend in large part on the increased use of the Internet by consumers and businesses in India and, as a result of our acquisitions, increased use by consumers and businesses in the United States. However, our ability to exploit the online advertising, e-commerce, subscription and communications markets in India and the United States is inhibited by a number of factors such as the ones discussed below. In addition, if India's limited Internet usage does not grow substantially, our current business strategy may not succeed.

Changes in the regulation of the Internet may restrict the growth of our business.

Due to the increasing popularity and use of the Internet and other online services, it is possible that a number of laws and regulations may be adopted with respect to the Internet or other online services covering issues such as user privacy, pricing, content, copyrights, distribution, antitrust and characteristics and quality of products and services. Furthermore, the growth and development of the market for electronic commerce may prompt calls for more stringent consumer protection laws that may impose additional burdens on companies conducting business online. The adoption of any additional laws or regulations may decrease the growth of the Internet or other online services, which could, in turn, decrease the demand for our products and services and increase our cost of doing business.

Moreover, the applicability to the Internet and other online services of existing laws in various jurisdictions governing issues such as property ownership, sales and other taxes, libel and personal privacy is uncertain and may take years to resolve. For example, tax authorities in a number of states in the United States are currently reviewing the appropriate tax treatment of companies engaged in electronic commerce, and new state tax regulations may subject us to additional state sales and income taxes. We may be required to pay income tax in jurisdictions outside India because of our virtual presence in such jurisdictions. Any new legislation or regulation, the application of laws and regulations from jurisdictions whose laws do not currently apply to our business, or the application of existing laws and regulations to the Internet and other online services could significantly disrupt our operations.

Pursuant to the New Telecom Policy, 1999, while National Long Distance (NLD) services have been opened to private service providers effective January 1, 2000, International Long Distance (ILD) services have been opened to private service providers effective April 1, 2002. Pursuant to the

Guidelines issued by the Department of Telecommunications (DOT), it appears that we may not be able to resell prepaid phone-cards of these Internet Service Provider under our own brand since the same permit Internet Service Provider to sell such facilities directly.

While Internet Telephony has been legalized in India effective April 1, 2002, these services may be provided by Internet Service Providers only.

The high cost of accessing the Internet in India limits our pool of potential customers and the growth of our business.

Our growth is limited by the high cost of obtaining the hardware, software and communications links necessary to connect to the Internet in India. If the costs required to access the Internet do not significantly decrease, most of India's population will not be able to afford to use our services. The failure of a significant number of additional Indians to obtain affordable access to the Internet would make it very difficult to execute our business strategy.

The limited installed personal computer base in India limits our pool of potential customers and restricts the growth of our business.

The market penetration of, or access to, personal computers and the Internet in India are far lower than in the United States. According to Internet Service Providers' Association of India, in March 2003 India had approximately 3.8 million Internet users compared to a total population in India of more than 1 billion, while, according to the United Nations Conference on Trade and Development, the United States had approximately 143 million Internet users compared to a total population in the United States of 270.3 million. Alternate methods of obtaining access to the Internet, such as through cable television modems or set-top boxes for televisions although available, are available in a limited manner in India. We cannot assure you that the market penetration of personal computers in India will increase rapidly or at all, or that alternate means of accessing the Internet will develop and become widely available in India. If these events do not occur we will not be able to expand our customer base, which will make it difficult for us to execute our business strategy.

The success of our business depends on the acceptance of the Internet in India, which may be slowed by high bandwidth costs, and other technical obstacles in India.

As with many developing nations, the fixed line telecommunications infrastructure in India is not well developed. Although this industry has been opened for private sector participation, the current service remains inferior to service in most developed countries. Further, the number of telephone lines per one thousand persons in India is low when compared to most developed countries. Bandwidth, the measurement of the volume of data capable of being transported in a communications system in a given amount of time, remains very expensive in India, especially when compared to bandwidth costs in the United States. Bandwidth rates are commonly expressed in terms of Kbps (kilobits per second, or thousands of bits of data per second) or Mbps (megabits per second, or millions of bits of data per second). Prices for bandwidth capacity are set by the Government of India and have remained high due to, among other things, capacity constraints. Further, limitations in network architecture in India sometimes limit Internet connection speeds to 28 Kbps or less, which are less than the 56 Kbps connection speeds on conventional dial-up telephone lines, and significantly less than the up to 1.5 Mbps connection speed on direct satellite link, digital subscriber lines and cable modems in the United States. These speed and cost constraints may severely limit the quality and desirability of using the Internet in India, which consequently may limit our ability to expand our pool of customers, and reduce our desirability to online advertisers.

We may not be able to grow our business if online advertising in our markets does not expand.

Our business strategy depends on the anticipated growth of online advertising in our markets and the growth of our revenues depends on increased revenues generated by advertising. We anticipate that a high portion of our future revenues will be derived from hosting advertising space on our web site. Online advertising is an unproven business and our ability to generate and maintain significant advertising revenues will depend on:

Different pricing models are used to sell online advertising and it is difficult to predict which, if any, of the models will emerge as the industry standard. This makes it difficult to project our future advertising rates and revenues. A reduction in traffic on our web site may cause new advertisers to not enter into contracts with us and could cause existing advertisers not to renew their contractual arrangements with us, each of which, in turn, would reduce our potential advertising revenues. Additionally, any development of Internet software that blocks advertisements before they appear on a user's screen may hinder the growth of online advertising and could materially and adversely affect our ability to grow our online advertising and our business. Also, a slowdown in economic growth, and in particular a slowdown in the growth of companies that advertise on the Internet, will result in a reduction in our advertising revenues.

Our contracts with advertising customers do not commit our advertising customers to provide us with a specific volume of business and can typically be terminated by our advertising customers with or without cause, with little or no advance notice and without penalty, which could significantly reduce our revenues. Additionally, our contracts with advertising customers typically are limited to a specific project and not any future work. There are also a number of factors other than our performance and not within our control that could cause the loss of an advertising customer. Early termination of a material contract or non-renewal of an expired material contract could have a material adverse effect on our business and our future financial performance.

The success of our merchandizing business depends on the acceptance and growth of e-commerce in India, which is uncertain.

Many of our existing and proposed products and services are designed to facilitate e-commerce in India, although there is very little e-commerce currently being conducted in India. Demand and market acceptance for these products and services by businesses and consumers, therefore, are highly uncertain. Critical issues concerning the commercial use of the Internet, such as legal recognition of electronic records, validity of contracts entered into through the Internet and the validity of digital signatures are governed in India by the Information Technology Act, 2000 (the "IT Act"). In addition, many Indian businesses have deferred purchasing Internet access and deploying e-commerce initiatives for a number of reasons, including the existence or perception of, among other things:

If usage of the Internet and e-commerce in India does not substantially increase and the legal infrastructure and network infrastructure in India are not further developed, we are not likely to achieve significant growth of our e-commerce products and services. Also, a slowdown in economic growth in India may result in an overall reduction in consumer and business spending, which will adversely affect our merchandizing services revenues.

We may be liable to third parties for information retrieved from our web site.

We could be exposed to liability for the selection of listings that may be accessible through our portal or through content and materials that we develop or that our users may post in message boards, chat rooms, or other interactive services. For example, we are a party to a criminal writ petition filed in the High Court of Mumbai, India, for providing unrestricted access to Internet users to pornographic and other objectionable material through our search engine. Please see the section in this annual report on "Business—Legal Proceedings" for more information on this litigation. We may also be subject to claims for defamation, negligence, copyright or trademark infringement, personal injury or other legal theories relating to the information we post on our web site. We could also become liable if confidential information is disclosed inappropriately on or through our web site. It is also possible that if any information provided through our services contains errors, third parties could make claims against us for losses incurred in reliance on the information. We offer Internet-based e-mail services, which expose us to potential liabilities or claims resulting from:

The laws in India and the United States relating to the liability of companies which provide online services, like ours, for activities of their users are currently unsettled. Investigating and defending these claims is expensive, even if they do not result in liability. We do not carry insurance to protect us against these types of claims, and there is no precedent on such liabilities under Indian law. Further, our business is based on establishing the rediff.com portal as a trustworthy and dependable provider of content and services. Allegations of impropriety, even if unfounded, could damage our reputation, disrupt our ongoing business, distract our management and employees, reduce our revenues and increase our expenses.

Consumers may sue us if any of the products or services that we offer online are defective, fail to perform properly or injure the user. We have limited experience in online sale of products, including Internet-based marketing of prepaid long distance calling cards, and the development of relationships with manufacturers or suppliers of such products. Although our agreements with manufacturers and distributors typically contain provisions intended to limit our exposure to liability claims, these limitations may not prevent all potential claims. We currently accept full responsibility for any loss, damage or inconsistency in quality of the products offered online. Liability claims could require us to spend a considerable amount of resources, time and money in litigation and to pay significant damages. Allegations of impropriety, even if unfounded, could damage our reputation, disrupt our ongoing business, distract our management and employees, reduce our revenues and increase our expenses.

Currently we do not collect any sales taxes on the products sold through our web site. However, we may be required to collect such taxes in the future. The Government of India may impose sanction against us for failure to collect sales taxes on products sold by us through our web site. This may materially adversely affect our business, financial condition and operating results.

In addition, the laws relating to the online sale of goods is not fully developed. The various laws and regulations that cover online sales of products and their interpretation involve a significant degree of uncertainty. For example, we may have to register our business under various laws relating to the sale of goods. Our business, financial condition and operating results would be materially affected if we would be required to obtain the necessary registrations.

Computer viruses may cause our systems to incur delays or interruptions and may adversely affect our ability to provide our services online

Computer viruses may cause our systems to incur delays or other interruptions. In addition, the inadvertent transmission of computer viruses could expose us to a material risk of loss or litigation and possible liability. Moreover, if a computer virus affecting our system is highly publicized, our reputation and brand could be materially damaged and our visitor traffic and advertising customers may decrease.

equity shares were purchased through SEBI registered stock brokers which would imply our shares are listed in a recognized Indian stock exchange. Therefore, if you elect to surrender your ADSs and receive equity shares, you would be unable to deposit outstanding equity shares with our Depositary and receive ADRs because the number of ADRs that can be issued cannot, at any time, exceed the number of ADRs converted into underlying equity shares. Therefore, unless the law is changed, the number of outstanding ADSs and trading volumes will decrease to the extent that equity shares are withdrawn from our depositary facility and not deposited for the re-issuance of ADSs, which may adversely affect the market price and the liquidity of the market for the ADSs.

Our management has broad discretion in using the proceeds from our equity offerings and therefore investors will be relying on the judgment of our management to invest those funds effectively.

Our management has broad discretion with respect to the expenditure of the net proceeds from our equity offerings. As of March 31, 2003, approximately U.S.$ 14.38 million of the net proceeds from our ADS offering completed in June 2000 remain as cash and cash equivalents in banks on which we are earning interest. We intend to use these proceeds primarily to develop content for our Internet portal, to advertise and promote our brand and for general corporate purposes, including capital expenditures and strategic investments, partnerships and acquisitions. However, there is a possibility that we may be unable to make potential strategic investments, partnerships or acquisitions in the near future and a risk that our management may use the net proceeds from our equity offerings in an inefficient or ineffective manner.

Our ADS market price may be highly volatile and could drop unexpectedly in the future.

The stock markets in the United States have from time to time experienced significant price and volume fluctuations that have affected the market prices for the securities of technology companies, particularly Internet companies. Volatility in the price of our ADSs may be caused by factors outside of our control and may be unrelated or disproportionate to our operating results. In the past, following periods of volatility in the market price of a public company's securities, securities class action litigation has often been instituted against that company. The securities class action litigation has been instituted against us in the United States. Such litigation brought against us, even if unsuccessful, could damage our reputation and result in substantial costs and a diversion of our management's attention and resources.

Owners of our ADSs may be restricted in their ability to exercise preemptive rights and thereby may suffer future dilution of their ownership position.

Under the Indian Companies Act, 1956, as amended (the "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 the preemptive rights have been waived by adopting a special resolution by holders of three-fourths of the company's equity shares which are voted on the resolution. U.S. owners of ADSs may not be able to exercise preemptive rights for equity shares underlying ADSs unless a registration statement under the Securities Act is effective with respect to the rights or an exemption from the registration requirements of the Securities Act is available. Our decision to file a registration statement will depend on the costs and potential liabilities associated with any given registration statement as well as the perceived benefits of enabling the owners of our ADSs to exercise their preemptive rights and any other factors that we deem appropriate to consider at the time the decision must be made. We may elect not to file a registration statement related to preemptive rights otherwise available by law to our shareholders. In the case of such future issuance, the new securities may be issued to our Depositary, which may sell the securities for the benefit of the owners of our ADSs. The value, if any, our Depositary would receive upon the sale of such securities cannot be

predicted. To the extent that owners of ADSs are unable to exercise preemptive rights granted in respect of the equity shares represented by their ADSs, their proportional interests in our company would be reduced.

Owners of our ADSs may be restricted in their ability to exercise voting rights because of the practical and legal limitations associated with instructing the depositary to vote on your behalf.

Holders of ADSs may exercise voting rights only through a depositary, unlike an owner of equity shares, who can exercise voting rights directly. An owner of ADSs generally will have the right under the deposit agreement to instruct the Depositary to exercise the voting rights for the equity shares represented by the ADSs. Owners of ADSs have no rights pursuant to the Companies Act, under which we are incorporated, and are limited to those rights granted to them pursuant to the deposit agreement.

It is our expectation that our Depositary will mail to the owners of ADSs any notice of shareholders' meeting timely received from us together with information explaining how to instruct the Depositary to exercise the voting rights of the equity shares represented by ADSs. If the Depositary timely receives voting instructions from an owner of ADSs, it will endeavor to vote the securities represented by those ADSs in accordance with such voting instructions. In the event that voting takes place by a show of hands, the depositary bank will cause the custodian to vote all deposited securities in accordance with the instructions received from owners of a majority of the ADSs for which the depositary bank receives voting instructions. However, the ability of the Depositary to carry out voting instructions may be limited by practical and legal limitations and the terms of the securities on deposit. We cannot assure that holders of ADSs will receive voting materials in time to enable them to return voting instructions to the Depositary in a timely manner.

Sales of substantial amounts of securities in the public market could depress the price of our ADSs and could impair our ability to raise capital through the sale of additional equity securities.

The market price of our ADSs could decline as a result of sales of a large number of equity securities on an Indian stock exchange or elsewhere, or the perception that such sales could occur. Such sales also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. As of March 31, 2003, we had an aggregate of 12,795,200 equity shares outstanding. Of the outstanding equity shares, 5,290,000 ADSs, representing 2,645,000 equity shares are freely tradable. The remaining equity shares may be sold in the United States only pursuant to a registration statement under the Securities Act or an exemption from the registration requirements of the Securities Act.

Your ability to sell in India any equity shares withdrawn from the depositary facility may be subject to delays if specific government approval is required.

Investors seeking to sell in India any equity shares withdrawn upon surrender of ADSs, other than to non-residents of India, will require Reserve Bank of India approval for each such transaction unless the sale of such equity shares is made on a stock exchange or in connection with an offer made under the regulations regarding takeovers. Currently, our equity shares are not publicly traded on any stock exchange in India. If approval is required, we cannot guarantee that any approval will be obtained in a timely manner or at all. Because of possible delays in obtaining requisite approvals, investors in equity shares may be prevented from realizing gains during periods of price increases or limiting losses during periods of price declines.

Our legal name is Rediff.com India Limited. We were incorporated on January 9, 1996 as Rediff Communication Private Limited under the Indian Companies Act. We converted to a public company on May 29, 1998. On February 15, 2000 we changed our name to Rediff.com India Limited. Our principal office is located at Mahalaxmi Engineering Estate, 1^st Floor, L.J. First Cross Road, Mahim (West), Mumbai 400 016, India, and our telephone number is +91-22-2444-9144. Our Internet address is www.rediff.com.

We are a leading Internet destination in India, focusing on India and the global Indian community. Our websites in India and the U.S. consists of several interest specific channels, extensive community features, local language editions, sophisticated search capabilities, wireless short messaging services (SMS) and e-commerce. Our interest specific channels include cricket, finance, movies, astrology, contest, lifestyle, home décor, women and several other topics of interest tailored to meet the needs of Indians worldwide. Our community features and products include free and paid e-mail, chat, instant messaging, blogs (personal diaries posted on the Internet), matchmaker, astrology services, 'Rediff on palm' and wireless SMS. E-commerce through our marketplace program provides merchants a platform to showcase and sell their products and services to a large online consumer base in India and the United States. We offer a range of payment options to our consumers, including dollar and rupee denominated credit cards, charge cards, debit cards, local checks, demand drafts, direct debit to savings accounts and cash on delivery (C.O.D.) payment services.

We also provide Internet-based marketing of prepaid long distance calling cards through our acquisition of Value Communications Corporation ("ValuCom") and publish a weekly newspaper aimed at the Indian American community based in the United States and Canada through the acquisition of India Abroad Publications ("India Abroad").

For the fiscal year ended March 31, 2003, our management reclassified the Company's business segments and reviewed the Company's performance on this new basis. Revenues derived during the fiscal year were segmented under India Online business (formerly "media services and merchandising services"), U.S. Publishing business which include 'Rediff U.S.A.' and 'India Abroad' (formerly "media services" and Phone Card business (formerly known as "communication services").

On June 14, 2000, we issued 4.6 million ADSs, representing 2.3 million equity shares at a price of U.S.$ 12.00 per ADS raising net proceeds of U.S.$ 49.8 million after underwriting discounts and expenses and we listed our ADSs on the NASDAQ National Market. On June 20, 2000, the underwriters of our offering exercised their over-allotment option and we issued an additional 690,000 ADSs, representing 345,000 equity shares at a price of U.S.$ 12.00 per ADS for the net proceeds of U.S.$ 7.5 million. The net proceeds of the ADS offering have been used by us, and in future, are intended to be used by us, to develop content for our Internet portal, to advertise and promote our brand and for general corporate purposes, including capital expenditures, strategic investments, partnerships and acquisitions.

Our investments and acquisitions have been an important part of our initial growth strategy. We completed two strategic acquisitions during 2001. First, in March 2001, we acquired ValuCom for U.S.$ 3 million plus deferred consideration payable over a period of 2 years. Then, in April 2001 we acquired India Abroad for approximately U.S.$ 10 million. In July 2002 we concluded the acquisition of ValuCom, for an additional consideration of U.S.$ 3.25 million. We believe that these acquisitions have enabled us to create diversified revenue streams across multiple service segments.

Following the acquisition of India Abroad, we initiated the process of integrating the operations of Rediff.com Inc, (formerly 'thinkindia.com' or 'Thinkindia'), with those of India Abroad, including relocating Thinkindia's operations from California to New York. On completion of the restructuring,

the Company evaluated and concluded that the goodwill that arose on Thinkindia's acquisition was impaired. Accordingly, we wrote off the unamortized balance outstanding as of September 2001.

Similarly, keeping the then market environment in mind and after reviewing whether the values of our Internet investments in Apnaloan.com, Travelgini.com and Billjunction.com were appropriate, we concluded that our investments in these dot.com companies had suffered permanent impairment, due to the downturn in valuations of dot.com companies together with the general conditions affecting the technology industry. Accordingly, we wrote off the value of our investments in these companies and recorded the appropriate impairment expense.

During the fiscal year ended March 31, 2003, we initiated the process of integrating the operations of ValuCom with that of India Abroad, including relocating ValuCom's operations from Chicago to New York. Consequently, during the year ended March 31, 2003 we assessed and re-evaluated the goodwill that arose on ValuCom's and India Abroad's acquisitions. Based on the application of SFAS No. 142, management concluded that goodwill relating to ValuCom and India Abroad was impaired. Management determined the fair values of ValuCom and India Abroad with the assistance of an independent valuation specialist and recorded an impairment charge of U.S.$ 5,100,000 and U.S.$ 3,200,700 for ValuCom and India Abroad respectively during the year.

We believe that the following factors will help in the growth of Internet usage in India:

The Government of India continues to support initiatives to provide Internet connectivity in towns and villages across the country.

We believe, the opening up of the internet service provider ("ISP") market in India to private competition since 1998 and the subsequent privatization of India's leading ISP—Videsh Sanchar Nigam Limited ('VSNL') in April 2002, will help in increasing the growth of Internet in India. According to a report dated March 2002 by the Internet Service Providers Association of India, the total number of Internet subscribers in India was approximately 4 million individuals. The report also indicates that a total of 486 ISP licenses have been issued by the Government of India under various categories, of which approximately 132 were operational as of December 31, 2001.

We believe the de-regulation and resulting privatization of the telecom industry and the steady growth in ISP licenses will help in the expansion of Internet in India, thus increasing the opportunities for fee based services (online subscriptions, mobile services on the SMS platform and online shopping) and online advertising. We believe that Internet users will rely on the web for access to content, community and fee based offerings that will provide advertisers and merchants with a demographically attractive and targeted audience.

We also intend to target the Indian community in the United States. According to Census 2000 data released by the U.S. Census Bureau, the population of Indian nationals living in the United States is approximately 2 million, which has more than doubled since the last census in 1990. Our in-house study indicates that the Indian community in the United States regularly accesses Indian news and events through a combination of India-relevant services. With the steady growth of the Indian community in the United States and Canada, we believe that the demand for online and offline content, community and e-commerce offerings relevant to Indians will slowly increase.

Internet usage is at an early stage in India and is currently experiencing slow to modest growth. However, the growing urban and semi-urban middle class population is progressively adopting Internet related services and we believe that a dominant online brand that understands and responds to their requirements can capture a sustainable market share in India. High quality and culturally relevant web sites will further accelerate the growth of the Internet in India and also increase the usage of such sites by the global Indian community. The growth in cellular services in the country will also help fuel the need for Internet related services that can be accessed over mobile phones in India. We believe our opportunities are driven by the following four factors:

We believe Indians living overseas access a combination of online and offline product offerings to fulfill their personal India-related needs. We believe that there is demand for a comprehensive online-offline consumer service enterprise that provides Indians living overseas with relevant online as well as offline content, online community and e-commerce offerings. Although there are local companies that cater to the community needs of Indians living overseas, we believe consumers in such countries prefer to have access to Indian news, products and services through India-focused Internet companies such as ours. We believe that by combining the content from India Abroad, the weekly news publication with our online content, we have strengthened our focus on the Indian community in the United States and Canada.

We believe there are few Internet sites in India that are recognized nationally and have a universal appeal among Indians worldwide. Moreover, some companies that are currently seeking to build online brands are doing so on a segmented or fragmented basis. Many of these companies are merely content aggregators and therefore have limited appeal to users. Currently, there are a few sites with substantial product offerings in the areas of content, community and fee based services like subscriptions, e-commerce and mobile services. Most Indian sites with in-depth content offerings are focused on interest specific topics while most horizontal web sites have limited content offerings. We believe an increasing number of Internet users in India are seeking a full-service Internet destination with a range of personalized and innovative product offerings similar to leading international online enterprises which provide them with:

The retail industry in India is relatively underdeveloped and fragmented as compared to the United States. Low credit card penetration has resulted in an inability for potential customers to make payments online. Moreover, distribution and fulfillment facilities are not integrated nationally. As a result, a significant population of Internet users, particularly people in smaller cities and towns, do not have access to a wide variety of world class branded products and services. Online commerce provides an opportunity to make a greater variety of goods and services available to people in such places more conveniently, particularly through greater penetration and usage of the Internet outside of the large metropolitan cities. We believe some of these initiatives are driven by the Government of India's endeavor to provide superior Internet infrastructure that will enable Internet access in smaller towns and villages and also through the proliferation of privately owned cyber cafes. Anticipated improvement in infrastructure, increase in credit card penetration, and development of alternative payment mechanisms for online purchases such as cash on delivery (C.O.D) payment system is expected to fuel the growth of e-commerce in India.

The percentage of online advertising expenditure to total advertising expenditure is significantly lower in India as compared to other developed countries, such as the United States. As penetration and usage of the Internet grows in India, we believe advertisers will increasingly use this medium as an additional advertising channel. The Internet allows advertisers to target desired demographic groups or consumers in specific geographic locations. It also allows them to interact more effectively with consumers and capture valuable information about buying patterns, preferences and demands. We believe that most advertisers will advertise on leading online destinations that attract significant and relevant users.

We are a leading Internet destination focusing on India and the global Indian community. We believe we are known for being one of the first with news and providing accurate and trustworthy information. We provide a platform for Indians worldwide to connect with one another online quickly and reliably. Rediff.com is committed to offering a personalized and a secure surfing and shopping environment.

Our quarterly page views have grown from approximately 1.54 billion for the quarter ended March 2002 to approximately 3.27 billion for the quarter ended March 2003. During this period, we believe we have created highly desirable advertising and online commerce and entertainment services on the wireless short messaging platform for our users. We believe our limited success to date is attributable to the following four key factors:

We serve the online needs of Indians worldwide and have through our acquisitions targeted the offline needs of the Indian community in the United States. We have developed our offerings based on the demands and the requirements of our users. We have been in the online business since 1996, and hence have a large online archive of content focused on India and the global Indian community. We provide our users with:

We have a comprehensive suite of community offerings designed to meet the cultural interests of our users. We respond to the needs of our users in India and overseas by tailoring our community offerings with significant consumer insights. We draw from the diverse backgrounds of our employees, consultants and consumers at large to constantly innovate and upgrade our offerings.

We are among the pioneers of online commerce in India. We believe that we were among the first to start an online book, music, and gift shop in India. Currently, we offer products and services in more than 50 categories and accept payments in U.S. dollar and Indian rupee credit cards, charge cards, debit cards, local checks, demand drafts, direct debit to savings account and cash on delivery payment system. Our customer service executive addresses customer inquiries over voice, chat and mail. We also target the Indian community in the United States by providing them virtual prepaid long distance calling cards online through our subsidiary ValuCom.

We believe we provide an attractive combination of online and offline advertising mediums to advertisers in India and in the United States seeking an online-offline offering. We believe this is primarily due to the following reasons:

Given the early stages of development of online advertising in the country, many of the well-known consumer brands in India do not have a substantial local online presence. Our sales force introduces such corporate clients to the benefits of having an online brand presence to effectively tap consumers across the country over the Internet. To help these advertisers reach their target audience through our web site, we offer a broad spectrum of web solution services to assist their online marketing efforts.

Our objective is to consolidate our position as a leading Internet destination in India and increase our online and offline penetration among the Indian community in the United States. With this objective in mind, we intend to define our business for the fiscal year ending March 31, 2004 across the following geographic and revenue segments:

This includes online advertising and fee based services. Fee based services consist of consumer subscription services, mobile services on the text messaging platform and merchandising services.

This includes a combination of online-offline media services and fee based services, primarily composed of consumer subscription services and mobile services based on the text messaging platform and merchandising services aimed at the Indian-American community in the U.S.

Our communication services, through our subsidiary ValuCom, consist of Internet-based marketing of prepaid long distance calling cards to consumers in the United States. However, our ability to capitalize on the opportunities provided by this line of business are subjected to lower usage of U.S. to India pre-paid phone services, reduced rates per minute, shifting of calls originating from the U.S. to calls originating in India as well as the Company's decision to exit from the low margin prepaid wholesale phone card business in our ValuCom subsidiary during the fiscal year ended March 31, 2003. In order to better capitalize on the opportunities presented by this business, we may continue to grow the business, collaborate with a strategic partner or sell this business.

We intend to provide news, information and entertainment services through various combinations of online and offline media and derive revenue from providing access to this audience to advertisers, direct marketers and others.

We intend to continue to build our brand as a leading online destination for Indians in India and in the United States. Our brand building activities will include:

Continue rapid expansion of our online and offline product and service offerings

We intend to continue adding original and innovative content and services to our online and offline offering in India and the United States. We believe this will:

Promote online commerce in India and extend similar services to Indians in the United States

The Rediff.com Marketplace provides merchants a platform to showcase and sell their products and services to a large online consumer base in India. We believe we have developed an extensive commerce platform using world-class software solutions. In order to increase the volume and value of our online commerce transactions within India and to extend our shopping base to Indians in the United States, we intend to:

Although we believe we receive a high portion of the total online advertising revenues in India, the online advertising market in India is still at an early stage of development. We have focused on building relationships with the top 200 advertisers in India by educating them about the advantages of online advertising. To this effect, we initiated a unique online advertising workshop and seminar for brand managers, media planners, creative partners and account servicing personnel of leading advertising agencies in India in the cities of Mumbai and Delhi. Our sales team will continue to inform advertisers about the merits of online advertising and help them in drawing a realistic expectation from this medium. We intend to continue to provide advertisers with detailed feedback on the effectiveness of their campaigns and provide suggestions on how to improve consumer responsiveness.

During the fiscal year ended March 2003, we launched a series of SMS based value added services targeted at mobile users in the age group of 18 to 35 years. We are now in the process of consolidating our position in this nascent but growing business segment. We distribute our mobile services through most of the leading mobile operators, providing us with a 90% footprint of the mobile user base in India. Some of our mobile operator partners are Orange, Airtel, Idea, BPL Mobile, Reliance and Escotel. We believe, that the growth in the mobile user base in India is being fuelled by large investments in technology and marketing by all telecom operators, declining prices for mobile handsets as well as the charges for making calls, and the rapid launch of the latest handset models by manufacturers like Nokia, Motorola, Ericsson and others.

Prior to December 2000, we organized our product and service offerings into content, community and e-commerce categories. Our content offerings commenced in February 1996 with news, sports, business, travel and movies. Later we added other service offerings which included, among others, special events, education, newsflash, chart busters, astrology, food, health, auto, U.S. edition, money channel, scoreboard and Women channel. Our community offerings included online chat, e-mail, e-cards, romance, free home page, jobs and instant messenger.

In December 2000, Rediff.com re-launched its web site "www.rediff.com" based on its user experiences and insights. The re-designed web site was made more user-friendly, and it includes several enhanced features that targets the growing base of Internet users in India and overseas.

In January 2003, we launched the "Rediff Personal Edition' powered by XML technology, thus making it one of the first personalized websites in India, where users are provided with news and content based on their surfing habits and preferences.

Rediff Personal Edition offers implicit personalization by publishing content highly relevant to individual users based on their surfing pattern on the website. The recommendation engine based on the theory of collaborative filtering intelligently figures out the reader and then recommends news stories of interest that have not been read by him or her. The categorizer, an artificial intelligence system, sorts content by subject categories through a complex process of algorithms while the "related content' and "personalization' engines together ensure users a personal surfing experience by providing content and services per individual tastes and preferences.

As part of explicit personalization, Rediff Personal Edition allows users to individually set-up "topics of interest' based on their preference which are placed on the latter portion of the home page. Sections currently included are:

In addition, Rediff Personal Edition displays a new contemporary design with a user friendly navigation system. Discussion boards allow users to post their comments and also view related comments on a given story.

The Rediff Personal Edition also includes new services such as match making, astrology and blogs that offer users a range of product and features tailored to individual needs.

Blogs, a conversational and personal site that allows users to publish their thoughts and ideas directly and instantly to the web, is being introduced for the first time on any Indian site.

Rediff.com U.S.A, our web site in the United States, has been enhanced and personalized with content that is customized for the Indian community in the United States, under the following sections:

Our content and community offerings are designed to be seamlessly integrated with our online commerce offerings. Users can buy relevant products and services by simply clicking on the buttons displayed on the content and community sections and complete the purchase with minimal distraction and separation from the current product section that they are browsing.

We also recognize the need for online customer service and have provided this support through e-mail, voice and chat. Help buttons are strategically displayed throughout our site and our customer service executives attend to all inquiries within a reasonable response time.

We believe that we are among the pioneers of online commerce in India, having commenced our Indian operations in August 1998. We believe we were among the first to start an online book, music and gift shop in India. We believe we have used world-class software solutions to build a scalable and extensible e-commerce platform. Currently, we offer products and services in more than 50 categories including apparel and accessories, confectionery, CD-ROMs, dry fruits, flowers, food and beverages, footwear, fragrance, gift certificates, handicrafts, health and fitness, household, Indian sweets, jewelry, kids stuff, office, personal care and beauty, personalized gifts, services, sports, stationery, travel and watches and clocks.

We were among the first Internet companies in India to accept credit cards over the Internet and introduced C.O.D. as a method of payment for online purchases. Currently, we accept payments in dollar and rupee credit cards, charge cards, debit cards, local checks, demand drafts and direct debit to savings account. We have entered into agreements with ICICI Bank Limited to facilitate online Visa and MasterCard credit card payments through our web site. Additionally, we have relationships for conducting online commerce with certain other major banks in India. All transactions are secured by SSL technology provided by Verisign.

Our customer service executives address customer inquiries over voice, chat and mail and solicit feedback from users to continuously improve our service and product offerings. A toll-free number allows customers to make a free call from anywhere in India to our customer service executives for answering all types of shopping queries.

We created the Rediff.com MarketPlace, which provides merchants a platform to showcase and sell their products and services to a large online consumer base for transactions concluded in India. Our logistics partners are Blue Dart, Federal Express and Skypak. The online tracking order system allows users to monitor their online purchases until the date of delivery.

The shopping platform has a host of user-friendly features such as a price sensitive gift matcher, product search and a detailed product category listing. The "tracking order", "view account" and "shopping bag details" features make online shopping simpler for users. Besides, a variety of product-price offers and special event offers allow for an enriching online experience. We expect to enhance our partnerships with leading financial services companies in the fields of banking, equity broking, mutual funds and insurance which we believe will provide a broader and more comprehensive online-offline commerce experience.

Online advertising on our site currently consists of banner-style advertisements, buttons and sponsorships. Currently, our advertisers enter into wide ranging agreements pursuant to which they either pay a fixed fee for a given time-period, usually ranging from one month to one year or a combination of fixed and variable fee depending upon the leads provided to them. Some of our advertisers also enter into agreements pursuant to which they pay a fixed fee or cost for a guaranteed number of impressions on our site. Our standard cost per thousand impressions, commonly referred to as CPMs, for banner advertisements varies depending on location of the advertisements on our site, the targeted country, and the extent to which the advertisements are targeted to a particular audience. Discounts from standard CPM rates may be provided for higher volume, longer-term advertising contracts.

We had more than 146 advertisers on our site during the fiscal year ended March 31, 2003, including:

ING Vasya Bank
Hindustan Levers
Hero Honda
Hewlett Packard
Carrier Aircon
Nestle India
Bharat Petroleum
Johnson & Johnson India
Oracle
Proctor & Gamble
Xerox Modicorp
NIIT
KLM Royal Dutch Airlines
IBM
Asian Paints
Godrej
Colgate Palmolive
Sony India
Panasonic
Electrolux
LG Electronics
Bacardi
Seagrams
Kodak India
Samsonite
Philips India

The above advertisers, in the aggregate, accounted for approximately 47% percent of our India media services revenues for the fiscal year ended March 31, 2003.

Through India Abroad, we provide offline publishing services and we believe we offer an attractive platform to advertisers seeking an online-offline solution. India Abroad is one of the oldest weekly newspapers with a focus on the Indian community in the United States. Accordingly, we also target advertisers in India who seek to tap this community in the United States.

We also offer web site development services with a range of Internet solutions designed to improve the implementation of Internet technology in marketing and business development in India. Our services are mainly focused on strategic consulting, analysis, creative design, and maintenance for customers on our site. Once we establish a relationship with a corporate client by building and maintaining their web site, we endeavor to make them advertisers on our site and, if appropriate, our e-commerce partners. We have certain large corporate clients as our customers. We believe that by helping build the Internet market, we are enhancing our brand identity, attracting new advertisers and vendors, creating vendor and retailer loyalty and uniquely blending our services with our role as an advertising host. However, our dependency on web development services for revenue is minimal.

We pursue a variety of marketing initiatives designed to build brand awareness, attract additional advertisers and promote our e-commerce and web site development businesses. As of March 31, 2003, our sales department consisted of 57 sales and marketing professionals across all of our businesses. These sales and marketing professionals are responsible for seeking additional advertisers, conducting marketing and media relation campaigns as well as obtaining and analyzing customer feedback.

We believe that building brand recognition of Rediff.com is critical to attracting additional traffic and advertisers. We use multiple advertising channels to increase visibility and cultivate brand identity. Advertisements for Rediff.com appear in a variety of media, including national newspapers and magazines, national television in India, and outdoor locations such as billboards, kiosks and banners. Our marketing professionals also promote our brand name at cyber cafes, universities and computer training institutes through the sponsorship of events and festivals. Other promotion efforts include participation in industry exhibitions held by Nasscom.

Currently, a large part of our sales team is assigned to selling advertising space on our web site. They focus their sales efforts on the top 200 advertisers in India. Currently most of our agreements with advertisers are for fixed advertising rates for a fixed time-period. We believe that by targeting the top 200 advertisers in India, our sales efforts remain highly focused and we are able to leverage a relatively small sales force efficiently to generate advertising sales revenues. Our sales team consults regularly with advertisers on design and placement of their web-based advertising, provides advertisers with advertising measurement analysis and focuses on providing a high level of customer service satisfaction.

Our sales force targets manufacturers and vendors of the leading products in India in order to secure the leading brands and products for e-commerce offerings. We also target manufacturers and vendors that supply products in categories that are fast moving over the Internet thus being critical to the breadth of our e-commerce product offerings. We have also entered into agreements with certain major banks in India to facilitate and promote shopping on our site. We require merchants participating in our e-commerce programs to pay a one-time entry fee and also take a percentage of the value of the goods ordered through our site. We seek to enhance our e-commerce offerings by offering merchants advice and opportunity to create, implement and monitor an Internet sales strategy through our web development services. Our sales efforts target existing and potential clients interested in developing an Internet sales strategy.

We maintain our production servers at the Abovenet, Inc. data center in San Jose California and at the Mumbai facility of VSNL. Our operating infrastructure is designed to serve and deliver sufficient page views a day to allow India-based users to access India specific services quickly. We continually update our capacity on these servers as our page views and web base increases.

Abovenet provides us with Ethernet backbone facility and continuous support. The architecture of our services and infrastructure allow our users to access our services efficiently regardless of their geographical location.

Our servers run on Red Hat, Inc.'s Linux operating system with an Apache web server and on Microsoft Windows NT operating system with Internet Information Server, Inc. and Sun Solaris Services with weblogic. We endeavor to configure our servers with enough resources to meet the load requirements of the visitors to our site.

We use in-house and third-party monitoring software and tools and have continuous monitoring to ensure that all of our services are available and operational all the time. Our core services run on multiple servers which provides redundancy and load balancing of the services to ensure fast and continuous access to all the users.

In an effort to maintain effective advertising and measure the success of advertising for our clients, we have licensed Realmedia Ad Server from Real Media, Inc. and Webtrends Enterprise Suite from WebTrends Corporation to obtain detailed information on user behavior.

Our content and archives are supported by search technologies that are internally-developed. Our core search engine is licensed from Google, Inc. We use Lyris list management software to send daily news and events to our subscribers' e-mail inboxes.

Most of our community services are internally-developed. Our e-mail system was developed internally using open source programming technologies which can be scaled to millions of users without loss of performance. We have licensed Expressions 4.0 chat software from eShare Technologies, Inc. to enable our Internet chat service offerings.

Our e-commerce service is based on Sun Solaris Platform using web logic application server. Our e-commerce offerings are located on multiple servers to provide increased performance and redundancy in order to minimize service disruptions.

Components or features of our network including our community support system and e-commerce support system have in the past suffered outages or experienced slower response times because of equipment or software downtime. These events did not have a material adverse effect on our business.

Our internal computer network is protected by F-Secure anti-virus system for enterprises. We back-up our information and content regularly to protect our data.

There are a few of companies that provide web sites focusing on India and the global Indian community. All of these companies compete with us for visitors, online advertising and e-commerce revenues. Competition for visitors and e-commerce is intense and is expected to increase in the future because there are no substantial barriers to entry in our market.

Any one of these factors could materially and adversely affect our business, financial condition and operating results.

We compete with providers of Indian content and services over the Internet, including web directories, search engines, content sites, portals, ISPs and sites maintained by government and educational institutions. Our current and anticipated competitors include:

This may allow them to devote greater resources than we can to the development and promotion of new and existing services. These competitors may also be able to:

Our competitors may develop content that is equal or superior to ours or that achieves greater market acceptance. It is also possible that new competitors may emerge and rapidly acquire significant market share. This could have a material adverse effect on our business, financial condition and operating results.

We also face competition in our U.S. businesses that were acquired in the last fiscal year. The long distance calling card service is highly competitive in the United States and larger, well-capitalized companies, including existing providers of airtime to ValuCom, such as AT&T, may enter the market for providing prepaid long distance services. The market for prepaid calling cards is an emerging market and there are a large number of market entrants. Our ability to compete in this business also depends on our ability to anticipate and adapt to rapid technological and other changes occurring in the telecommunications industry. The publication business is also competitive in the United States and we face competition from print and television media companies targeting the Indian community in the United States. For further information, please see also the section in the annual report entitled "Risks Factors—Risks Related to our Business".

We also compete with other forms of media, such as print media, radio and television, for advertisers and advertising revenue. If advertisers perceive our web site, or the Internet in general, to be a limited or an ineffective advertising medium, they may be reluctant to devote a portion of their advertising budget to Internet advertising or to advertising on our web site.

Given the early stage of the development of the Internet in India, the rapidly evolving nature of our business and our limited operating history, we cannot accurately predict to what extent, if at all, our operation will prove to be seasonal. However, we do experience peaks in our business because of the festival seasons in the Indian winter months of November through February and because of extended vacation in the Indian summer months of April through June. India Abroad experiences its peak season during the Christmas holiday season in the United States.

Intellectual property rights are important to our business. We rely on a combination of copyright, trademark and trade secret laws, confidentiality procedures and contractual provisions to protect our intellectual property. We require employees, independent contractors and, when practicable, vendors to enter into confidentiality agreements upon the commencement of their relationships with us. These agreements generally provide that confidential information developed or made known during the course of a relationship with us must be kept confidential.

Our efforts to protect our intellectual property may not be adequate. Our competitors may independently develop similar technology or duplicate our products or services. Unauthorized parties may infringe upon or misappropriate our products, services or proprietary information, including our domain name. For example, there are some parties who have registered domain names similar to or slightly different from our domain name, rediff.com, and we have filed lawsuits in India to protect our

rights in respect of our domain name. We do not believe that the outcome of these lawsuits will have a material adverse effect on our business. However, the laws of India do not protect proprietary rights to the same extent as laws in the United States. For example, currently Indian intellectual property law does not protect service marks. Further, the global nature of the Internet makes it difficult to control the ultimate destination of our products and services. In the future, further litigation may be necessary to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others. Any such litigation could be time-consuming and costly.

We could be subject to intellectual property infringement claims as the number of our competitors grows and the content and functionality of our web site or other product or service offerings overlap with competitive offerings. Defending against these claims, even if not meritorious, could be expensive and divert our attention from our operations. If we become liable to third parties for infringing their intellectual property rights, we could be required to pay a substantial damage award and be forced to try to obtain or develop non-infringing technology, obtain a license or cease selling the applications that contain the infringing technology. If this were to occur, we may be unable to develop non-infringing technology or obtain a license on commercially reasonable terms, or at all.

We also rely on a variety of technologies that are licensed from third parties. The software developed by these third parties is used in our web site to perform key functions. These and other third-party licenses may not be available to us on commercially reasonable terms in the future. The loss or inability to obtain or retain any of these licenses could delay the introduction of software enhancements, interactive tools and other features until equivalent technology could be licensed or developed. Any such delays could materially adversely affect our business, operating results and financial condition.

We have filed trademark applications for "www.rediff.com" and "Rediff On The Net" in India and for "Rediff" and "Rediff.com" in the United States, which are pending. Certificate of Registration of "Rediff On The Net" and Design (Square) bearing no.2511409 for the mark being registered on November 27, 2001 under International classes 35, 36, 38, 41 and 42, has been received by the Company from the United States Patent and Trademark Office.

Our online business is primarily subject to regulation by the Ministry of Information Technology, which was formed in October 1999 and is a part of the Government of India. We may also be subject to regulation by the Ministry of Communications of the Government of India and the Telecom Regulatory Authority of India (the "TRAI").

On June 9, 2000, the IT Act was enacted and was made effective as of October 17, 2000.

Although the IT Act has been enacted, clarity on various issues including legal recognition of electronic records, validity of contracts entered into through the Internet, validity of digital signatures needs to be established.

The New Telecom Policy, 1999, or the New Telecom Policy, deals with restructuring of the Indian telecommunications sector. The New Telecom Policy states that ISPs who wish to provide applications such as tele banking, tele-medicine, tele-education, tele trading and e-commerce, will be allowed to operate using infrastructure provided by various Internet access providers. The New Telecom Policy also provides that no license fees will be charged for providing the specific services but registration with the Government of India will be required. The New Telecom Policy prohibits such service providers to provide switched telephony.

If the New Telecom Policy is enforced in its current form, we may have to register our services with the Government of India and we may also be governed by the regulations issued by the TRAI.

The TRAI was established in January 1997 by the Government of India under the provisions of the Telecom Regulatory Authority of India Act, 1997, as an autonomous body to regulate the telecommunications industry. On January 24, 2000, the President of India passed an ordinance to recast the TRAI. The ordinance set up a Telecom Disputes Settlement and Appellate Tribunal to adjudicate any dispute between a licensor and licensee, between service providers, appeals of telecom service providers and between service providers and groups of consumers. This ordinance has been replaced by the Telecom Regulatory Authority of India (Amendment) Act, 2000. The TRAI under the amended Act has powers to decide on new licenses and their terms and conditions, the levy of fees and charges on services, interconnectivity between the telecom service providers and perform administrative and financial functions entrusted to it by the Government of India. The new TRAI has no adjudicatory powers, as these powers now vest in a Telecom Disputes Settlement and Appellate Authority. Telecom service providers can approach this appellate authority and the orders of this authority can be challenged only in the Supreme Court of India.

At present India does not have any specific legislation to prevent invasion of privacy by private parties. The Constitution of India protects the privacy of private parties against any invasion by the state or government, but it may not be possible to invoke this protection against violation by private parties. There is no pending or proposed legislation that seeks to penalize or regulate violation of privacy by private parties.

Telecommunications in India are governed by the Indian Telegraph Act, 1885, as amended (the "Telegraph Act"), and the Indian Wireless Telegraphy Act, 1933, as amended (the "Wireless Act"). Pursuant to the Telegraph Act, the provision of any telecommunications services in India requires a license from the Government of India obtained through the Department of Telecommunications. While the Telegraph Act sets the legal framework for regulation of the telecommunications industry, the Wireless Act regulates the possession of wireless telegraphy equipment. Encryption hardware may be considered as an instrument capable of being used for the transmission and reception of

telecommunications signals. Any person intending to use encryption hardware may be required to obtain prior permission from the Department of Telecommunications of the Government of India.

The guidelines for ISPs permit the use of encryption equipment for providing secrecy in transmission up to a level of encryption specified by the Government of India. However, if the encryption equipment of levels higher than specified is to be deployed, ISPs have to obtain the clearance of the Government of India and should deposit one set of keys with the Department of Telecommunications.

These guidelines are applicable to ISPs and it is uncertain whether they will apply to us. For using encryption hardware, we may have to obtain prior approval from the Department of Telecommunications. However, it is uncertain whether we are required to obtain any approval from the Department of Telecommunications or any other department for using encryption software. Furthermore, there may be certain restrictions in relation to the import of encrypted software into India.

We may be required to import into India computer hardware and Internet related software purchased from foreign manufacturers for our business. These imports will be subject to the Export and Import Policy issued by the Ministry of Commerce of the Government of India. At the time of import, we will be required to pay a customs duty pursuant to the Customs Tariff Act, 1975, as amended. We will also be subject to the Foreign Exchange Management Act, 1999, and the rules thereunder, ("FEMA"), in connection with payments in foreign currency to the manufacturers of these products. We will require the approval of the Reserve Bank of India if the payment in respect of such import is made beyond a period of 6 months from the date of shipment.

We may wish to invest in the securities of foreign companies. The FEMA may require that we obtain permission from the Reserve Bank of India prior to making any such investment.

Rediff Holdings, Inc., or Rediff Holdings, is our wholly owned subsidiary and is incorporated in the State of Delaware. Rediff Holdings holds all of the outstanding and voting shares of Rediff.com Inc. (formerly, thinkindia.com) and substantially all of the outstanding and voting shares of India Abroad. We directly hold all of the voting and outstanding shares of ValuCom. We also have acquired a total of 19.9% of the outstanding and voting shares of Apnaloan.com, 10% of the outstanding and voting shares of Traveljini.com and 5% of the outstanding and voting shares of Bill Junction.

Rediff.com Inc., which is a U.S.-based Internet portal focusing on Indians worldwide, is incorporated in Delaware. India Abroad is a New York corporation, which publishes weekly newspaper targeted primarily at the Indian community in the United States. ValuCom, an Illinois corporation, was founded in 1996, and currently focuses on the Internet-based marketing of prepaid long distance calling cards to Indians in the United States.

Apnaloan.com is a private company registered under the Companies Act. It is a web-enabled loan marketplace and offers a wide spectrum of personal financial products, including credit cards, car loans, personal loans and housing loans.

Bill Junction and Traveljini.com are companies registered under the Companies Act and are indirect subsidiaries of ICICI Limited. Bill Junction provides easy online bill payment solutions and Traveljini.com provides travel related information.

Our corporate headquarters are located in Mumbai, India, where we lease approximately 14,000 square feet, located in two buildings. In one facility we lease approximately 11,000 square feet and in the other, we lease approximately 3,000 square feet. These leases expire on April 25, 2005 and January 31, 2004, respectively. We also lease approximately 2,500 square feet of office space in New Delhi, India, which serves as a branch office. This lease expires on December 31, 2006.

Our India Abroad subsidiary leases approximately 6,250 square feet of office space in New York, the lease for which expires on October 31, 2007. Of these 6,250 square feet of office space in New York, approximately 2,500 square feet is allocated to ValuCom. We lease an additional 3,100 square feet of office space in the same building as the offices of India Abroad, for our Rediff.com Inc., U.S.A operations, the lease for which expires on November 30, 2004.

As we expand our operations, we anticipate leasing additional facilities in each location in which we develop a presence.

On May 11, 2001, we received from our underwriters in our IPO a demand for indemnification of the underwriters' legal fees and liabilities. Our board of directors resolved to indemnify our officers and directors named as defendants against their legal fees and liabilities, to the extent permitted under Indian law. At the time of the IPO, we purchased Directors and Officers Liability insurance (the "D&O Policy"), providing coverage against federal securities law claims. The D&O Policy includes coverage for our cost of defending the class action lawsuits, our indemnification liabilities to our officers and directors, and our indemnification liabilities to our underwriters. The coverage of the D&O

Policy is denominated in Indian rupees, but the policy proceeds are payable in U.S. dollars. Based on the noon buying rate on March 31, 2003, the face amount of the D&O Policy is approximately U.S.$ 18.8 million. The proceeds of the D&O Policy available to satisfy any judgment against us, or any judgment against persons whom we are is obligated to indemnify, will be reduced by the amount of the legal fees and associated expenses in the defense of we, the individual defendants and the underwriters which are paid from the D&O Policy. The D&O Policy includes a deductible of approximately U.S.$ 234,326 (based on the noon buying rate at March 31, 2003), which must be paid by us before the D&O Policy proceeds would be available. The D&O Policy contains various exclusions, which, if met, may result in the denial of insurance coverage. We have been advised by the insurance carriers who wrote the D&O Policy that they are not currently aware of any facts or circumstances that would cause any of the exclusions to apply, but that the carriers have reserved their rights to claim that the exclusions do apply if any such facts or circumstances come to their attention.

We believe that the allegations in the Khanna Action and the related cases and the Shives Action are without merit and we intend to defend the lawsuits vigorously. We are not able at this point to predict the course or the outcome of the litigation. In the event either action results in a substantial judgment against us, the said judgment could have a severe material effect on our financial position and its results of operations

A complaint was filed by the Indian Music Industry ("IMI"), a society representing various music companies in Magistrate's Court India against three of our directors. The complaint alleges that by providing links to MP3 sites through its directory we have been guilty of violating Section 51 of the Copyright Act 1957. The complaint alleges that the MP3 sites to which links were provided, permitted downloading of music which had not been authorized to be so downloaded by copyright owners who are members of IMI. Our directors are named as parties to the lawsuit because, according to the complaint, the directors are in charge of our affairs and are hence deemed to be guilty of committing the offense. Our directors have presently been exempted from personal appearance. Our directors are filing an application for discharge of the complaint before the Magistrate. Although our directors believe they have valid defenses to the action, if they are unsuccessful after exhausting all legal remedies, our directors could face both criminal penalties and monetary fines.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and operating results should be read in conjunction with the financial statements and the related notes included elsewhere in this annual report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this annual report particularly in the "Risk Factors" section of this annual report.

We are a leading Internet destination focusing on India and the global Indian community. Our websites in India and the United States include interest specific channels relevant to Indians such as cricket, astrology, matchmaker and movies, content on various matters like news and finance, search facilities, a range of community features such as e-mail, chat, messenger, e-commerce and broadband wireless content. We provide these online services paid as well as free of subscription to our users. We also provide wireless short messaging services to cellular phone subscribers in India. With 24.9 million online registered users worldwide as at March 31, 2003, we believe Rediff.com is the most recognized online brand in India and among the Indian community worldwide.

Additionally, we publish a weekly newspaper, India Abroad, in the United States and Canada and also provide prepaid long distance communication services primarily to the Indian community in the United States and Canada.

In February 1996, we initiated our online content offerings with rediff.co.in and rediffindia.com. We later combined the sites into rediff.com, our online portal in India. With the acquisition of thinkindia.com Inc. (later renamed Rediff.com Inc.) in December 2000, we launched Rediff U.S.A., an online portal providing content, community and e-commerce for our users in the United States. Subsequently, on March 23, 2001 we acquired Value Communications Corporation Inc. to provide long distance communications services and on April 27, 2001 we acquired India Abroad Publications Inc, which publishes the weekly newspaper India Abroad targeted at Indians in the United States and Canada.

During the second quarter of the fiscal year ended March 31, 2003 our management reclassified the company's business segments and assessed our performance on a new basis. These new business segments are India Online business (formerly segmented under "media services and merchandising services"), U.S. Publishing business (formerly segmented under "media services") and Phone Card business (formerly segmented under "communication services").

India Online business includes revenues from online advertising and fee based services. Online advertising includes advertisements and sponsorships and designing and managing customers' websites. Fee based services include e-commerce, subscription services and wireless short messaging services.

U.S. Publishing business includes subscription and advertising revenues from the publication of India Abroad, a weekly newspaper published in the United States and Canada. It also includes the advertising revenues from Rediff U.S.A., a website catering to the Indian community in the United States.

Phone Card business primarily includes internet based marketing of prepaid long distance call services targeted at the Indian community in the United States and Canada.

Note: Revenues for the years ended March 31, 2001 and 2002 have been reclassified to conform to the above disclosure.

During June 2000, we issued a total of 5.3 million ADSs, representing 2.6 million equity shares, in an underwritten initial public offering at a price of U.S.$ 12.00 per ADS for aggregate net proceeds of U.S.$ 57.3 million. The net proceeds of the ADS offering have been used by us, and in the future are intended to be used by us, to develop content for our Internet portals, to advertise and promote our brand and for general corporate purposes, including strategic investments, partnerships and acquisitions.

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including but not limited to allowances for doubtful accounts, the valuation of investments, income taxes, restructuring costs, contingencies, goodwill impairment and litigation. We base our estimates on historical experience and on other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

The following are the significant accounting policies used in the preparation of our financial statements.

India Online business includes revenues from online advertising and fee based services. Online advertising includes advertisement and sponsorships and designing and managing customers websites. Fee based services include e-commerce, subscription services and wireless short messaging services. E-commerce revenues primarily consist of commission earned on sale of items to customers who shop online while subscription services consist of subscriptions received for using our e-mail, matchmaker

and other services. Wireless short messaging services include revenues derived from mobile operators based on value added text messages received and sent by mobile subscribers over the mobile phone.

Advertisement and sponsorship income is derived from customers who advertise on our website or to whom direct links from our website to their own websites are provided and income earned from designing and managing customers' websites.

Revenues from advertisement and sponsorships are recognized ratably over the contractual period of the advertisement, commencing from the time the advertisement is placed on the website. Revenues are also derived from sponsor buttons placed in specific areas of our website, which generally provide users with direct links to sponsor websites. Such revenues are recognized ratably over the period in which the advertisement is displayed, provided that no significant obligations remain and collection of the resulting receivable is probable. Our obligations typically include guarantee of a minimum number of impressions or number of times that an advertisement appears in pages viewed by users of our portal. To the extent that minimum guaranteed impressions are not met, we defer recognition of corresponding revenues until the guaranteed impression levels are achieved.

We also earn revenues on sponsorship contracts which include fees relating to the design, coordination, and integration of the customers' content, which are recognized ratably over the term of the contract.

Website development services principally consist of services relating to the designing of graphics, layout, artwork and content of the customers website. Revenue from such services on large contracts that relatively take longer periods of time to complete are recognized upon completion of milestones specified in the contract. At each such milestone, the services are either billed or billable, and as they relate to completed work, are earned. Revenue from such services on contracts that take relatively shorter periods of time is recognized on completion of the entire contract. During fiscal 2002 and 2003, short-term contracts constituted substantially all of these services.

Fee based services include e-commerce, subscription services and wireless short messaging services. E-commerce revenues consist of commission from the sale of books, music, apparel, confectionery, gifts and other items to retail customers who shop online at our website. With effect from July 1, 2000 customers directly place orders with vendors through our website. When an order is placed, we inform the vendor through an intranet and also confirm whether payment had already been collected by us through credit card/ debit card or checks, or whether the payment is to be made by the customer on a C.O.D. basis. The vendor then dispatches the products to the customers. The vendor sends a monthly summary of transactions executed during the month for which we collected payments on its behalf. We make payment to the vendor after deduction of our share of commission and costs. We recognize as revenues commissions earned on these transactions. Revenues from e-commerce services also include fees charged to vendors for creating, designing and hosting the vendors' product information on our website. Such fees are amortized over the hosting contract period.

Subscription revenues primarily include income from various subscription based products, such as paid email and match maker that cater to a cross section of our registered user base. Revenues for subscription based service products are recognized ratably over the period of subscription.

We also derive revenues from providing value added short messaging services such as e-mail and other related products to mobile phone users. Our contracts are with third- party mobile operators for sharing revenues from these services. SMS based revenues are recognized when the service is performed.

U.S. Publishing business primarily includes advertising and sponsorship revenues and consumer subscription revenues earned from the publication of India Abroad, a weekly newspaper distributed

primarily in the United States and Canada. It also includes advertising revenues of Rediff U.S.A., a website catering to the Indian community in the U.S.

We recognize advertising revenues at the time of publication of the related advertisement. Subscription income is deferred and recognized pro rata over the term of the subscription. Revenues from banners and sponsorships on our Rediff U.S.A. portal are recognized over the contractual period of the advertisement, commencing from the date the advertisement is placed on the website, provided that no significant obligations remain and collection of the resulting receivable is probable. Obligations may include guarantee of a minimum number of impressions, or times that an advertisement appears in pages viewed by users of our portal. To the extent that minimum guaranteed impressions are not met, we defer recognition of the corresponding revenues until the guaranteed impression levels are achieved.

Phone Card business services consist of Internet based marketing of prepaid long distance calling services targeted at the Indian community in the United States and Canada.

These services are provided by buying prepaid identification numbers (PINS) from telecommunication companies and then branding and packaging such PINS for sale to retail customers over the Internet or through our call center. We recognize revenues on delivery of PINS to the customers.

We maintain allowances for doubtful accounts receivable and for other recoverables for estimated losses resulting from the inability of our customers to make contractually agreed payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

We depreciate our tangible assets on a straight-line basis over the useful life of the assets which range from three to ten years. Costs incurred for website development are accounted for in accordance with EITF 00-02—Accounting for Web Site Development Costs. Eligible costs are capitalized and amortized over the estimated useful life of three years. Maintenance expenses or costs that do not result in new features or functions are expensed as product development costs.

Until March 31, 2001, we amortized the cost of such goodwill and intangibles using the straight line method over their estimated useful lives, ranging from three to seven years for goodwill and generally not exceeding three years for intangibles.

With effect from April 1, 2001, we adopted Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets", and ceased to amortize the remaining cost at March 31, 2001 of goodwill and intangibles that do not have a finite life. Instead, in accordance with the two-step methodology required by SFAS No. 142, we test unamortized balances for goodwill and intangible assets that do not have a finite life for impairment annually, or earlier upon the occurrence of a triggering event. During the years ended March 31, 2002 and 2003, we have recognized U.S.$ 3.3 million and U.S.$ 8.3 million as goodwill impairment expense.

On March 23, 2001, we acquired the entire outstanding common stock of ValuCom, a company engaged in providing prepaid long distance communication services primarily to the Indian community in the United States and Canada. The purchase consideration consisted of U.S.$ 3.0 million, which was paid by us on March 23, 2001 plus a deferred consideration (called earn-out payments) payable over a period of two years which was contingent upon ValuCom achieving specified earning's levels in those years.

The transaction was accounted for by the purchase method in accordance with APB Opinion No. 16, which resulted in creation of initial goodwill of U.S.$ 3.7 million at March 23, 2001. Such goodwill increased to approximately U.S.$ 6.82 million at March 31, 2002, as a result of provisions for earn-out payments to ValuCom's former shareholders and cash-out of ValuCom options. Such goodwill further increased to approximately U.S.$ 7.1 million at March 31, 2003, as a result of final earn-out payments made to ValuCom's option holders.

On April 27, 2001, we acquired substantially all the outstanding voting shares of India Abroad Publications Inc., a New York corporation primarily engaged in the publication of a weekly newspaper, India Abroad.

Pursuant to the stock purchase agreement (as amended) entered into between us and certain of India Abroad's shareholders, at the closing of the acquisition, we paid approximately U.S.$ 11.4 million to the selling shareholders of India Abroad. Simultaneously with the acquisition, the former principal shareholder repurchased certain assets for approximately U.S.$ 1.1 million resulting in an estimated gain of approximately U.S.$ 314,000, which has been recorded as reduction of goodwill. Of the amount to be paid to the former principal shareholder, we had placed U.S.$ 2.0 million in an escrow account. At March 31, 2003, U.S.$ 1 million remained in the escrow account.

We have accounted for this acquisition by the purchase method, in accordance with APB Opinion No. 16, which resulted in the creation of goodwill of approximately U.S.$ 10.5 million.

During the year ended March 31 2003, we identified the following three triggering events to warrant testing of goodwill on the ValuCom acquisition, for impairment:

Following the triggering events, we re-evaluated goodwill that arose on ValuCom's acquisition.

We also annually assessed the goodwill that arose on India Abroad's acquisition. Based on the application of SFAS No. 142, we concluded that goodwill relating to both ValuCom and India Abroad was impaired.

We determined the fair values of ValuCom and India Abroad with the assistance of an independent valuation specialist and recorded an impairment charge of U.S.$ 5.1 million and U.S.$ 3.2 million for ValuCom and India Abroad respectively during the year. Consequently, goodwill of ValuCom and India Abroad as on March 31, 2003 stood at U.S.$ 2.0 million and U.S.$ 7.3 million respectively.

Following the acquisition of India Abroad on April 27, 2001, we initiated a process of integrating the operations of Rediff.com Inc. (formerly thinkindia.com, Inc.) with those of India Abroad, including relocating the operations of Rediff.com Inc. from California to New York. Based upon this restructuring, we re-evaluated the goodwill stemming from the Rediff.com Inc. acquisition for impairment. After applying SFAS No. 142, management concluded that goodwill relating to Rediff.com Inc. was impaired and, accordingly, wrote off the unamortized balance of U.S.$ 3,316,508 as an expense for the year ended March 31, 2002.

During the year ended March 31, 2001, we made investments in certain Internet companies in India aggregating approximately U.S.$ 3.4 million. We recognized an impairment charge of U.S.$ 95,408 for the year ended March 31, 2001.

The market environment, including general conditions affecting the technology industry together with the downturn in valuations of dot.com companies caused us to re-examine whether the values of our Internet investments were appropriate. After reviewing key financial indicators for such investments, which were unlisted and illiquid, we concluded that such investments had suffered permanent impairment. Accordingly, during the year ended March 31, 2002, we wrote off the value of these investments and recorded an impairment expense of U.S.$ 3,261,248.

The fiscal year ended March 2003 has seen us strengthen our leadership position in the Indian online space while continuing to face challenging times in our businesses. In India, we continue to be a dominant player in the online business as demonstrated by the growth of our registered user base and the challenge continues to be that of monetizing our large user base through fee based services. The India Online advertising industry has not yet entered a growth phase and is dependant on the evangelization that the main players do in this segment.

Our U.S. Publishing businesses, which consist of Rediff U.S.A. Online and the India Abroad newspaper, consolidated their leadership position and are now seen as one of the most credible news providers to the Indian American community. Both businesses are dependent on retail advertising in the New York area which faced pressure throughout the fiscal year ended March 2003 due to tough U.S. economic conditions.

Our ValuCom subsidiary is persistently faced with the challenge of continuous decline in calling rates between U.S. and India. This business has a strong model with direct-to-consumer online sign-ups

and an average order size of over $100 but is caught in the cycle of having to sell additional minutes for the same revenue every quarter.

The outlook for our business during the remainder of the fiscal year ending March 2004, will be highly dependent on our ability to grow our Indian online revenues, tighter integration of our U.S. Publishing business with our Indian operations, efficiently scaling our ValuCom business to optimal levels in the context of falling per minute prices for U.S.-India calling rates and successfully effecting cost rationalization initiatives across our U.S. and Indian operations.

Actual results may differ materially from those suggested by our forward-looking statements due to certain risks or uncertainties associated with our expectations with respect to, but not limited to the impact on our business of a continued economic slowdown or a downturn in the sectors in which our clients operate, our ability to successfully implement our strategy, our ability to successfully integrate the business we have acquired with our business, demand for our online and offline service offerings, changes in the Internet marketplace, technological changes, investment income, cash flow projections and our exposure to market risks. By their nature, certain of the market risk disclosures are only estimates and could be materially different from what actually occur in the future. As a result, actual future gains, losses or impact on net interest income could materially differ from those that have been estimated. For further discussion on forward-looking statements, see the discussion under the "Forward-Looking Statements" section of this annual report.

Total revenue for the fiscal year ended March 31, 2003 was U.S.$ 17.3 million as compared to U.S.$ 24.8 million for the fiscal year ended March 31, 2002. This represents a decrease of U.S.$ 7.5 million or 30%. This decrease is principally attributable to the decrease in revenue of U.S.$ 8.2 million in the Phone Card business., marginally offset by increases of U.S.$ 191,000 and U.S.$ 522,000 in the India Online business and the U.S. Publishing business respectively.

India Online business. We recognized U.S.$ 2.8 million as revenues for the India Online business for the year ended March 31, 2003 as compared to U.S.$ 2.6 million for the year ended March 31, 2002, representing an increase of U.S.$ 191,000, or 7% over the previous year. The increase in revenue included an increase of U.S.$ 346,000 in fee based revenue due to the launch of Rediffmail mobile, Rediffmail Pro, a paid email service, and SMS based value added services like games, contest, dating services and an increase of U.S.$ 180,000 in e-commerce services. During the year online shopping orders grew by 131% over the previous year. This increase was partially offset by a decline of U.S.$ 330,000 in advertising revenue.

U.S. Publishing business. We recognized U.S.$ 5.8 million for U.S. Publishing business for the year ended March 31, 2003 as compared to U.S.$ 5.3 million for the year ended March 31, 2002, representing an increase of U.S.$ 522,000 or 10% over the previous year. The increase in revenue principally consists of an increase of U.S.$ 545,000 in advertising revenue. This increase was marginally offset by a decline of U.S.$ 24,000 in subscription revenues. During the year we launched a number of special interest supplements in the India Abroad newspaper which have been well received by advertisers in the United States and India.

Phone Card business. We recognized revenues of U.S.$ 8.7 million for the Phone Card business for the year ended March 31, 2003 as compared to U.S.$ 16.9 million for the year ended March 31, 2002, representing an decrease of U.S.$ 8.2 million or 49% over the previous year. The decline in revenues is primarily attributable to lower long distance calling rates and management's decision to exit the low margin wholesale phone card business during the year.

Cost of goods sold. Cost of goods sold consist of costs of prepaid identification numbers or "PINS" purchased from long distance carriers. For the year ended March 31, 2003. cost of goods sold was U.S.$ 7.1 million compared to U.S.$ 12.6 million for the fiscal year ended March 31, 2002, representing a decrease of U.S.$ 5.5 million or 43% over the previous year. The decline is primarily due to a lower average unit price of "PINS" and a lower number of "PINS" purchased.

Cost of revenues. Cost of revenues primarily includes cost of content for the Rediff Portal, editorial costs, printing and circulation costs for the India Abroad newspaper, e-commerce related costs and related salaries. For the year ended March 31, 2003, cost of revenues was U.S.$ 5.8 million or 33% of revenues compared to U.S.$ 5.5 million or 22% of revenues for the fiscal year ended March 31, 2002. This represents an increase of U.S.$ 238,000 or 4%. The increase is attributable to an increase of U.S $495,000 in U.S. Publishing editorial costs, an increase of U.S.$ 237,000 in U.S. publishing circulation costs and an increase of U.S.$ 170,000 in India Online e-commerce costs. The above increase is partially offset by decreases of U.S.$ 430,000 in India Online cost of revenue and U.S.$ 225,000 in the Phone Card business.

Sales and marketing expenses. Sales and marketing expenses primarily include employee compensation for sales and marketing personnel, advertising and promotion and market research costs. For the year ended March 31, 2003, sales and marketing expenses were U.S.$ 3.7 million compared to U.S.$ 4.2 million for the year ended March 31, 2002, representing a decrease of U.S.$ 444,000 or 11% over the previous year. This decrease was primarily attributable to curtailment in marketing expenditure and cost savings from workforce reductions in our Phone Card business.

Product development expenses. Product development costs primarily include employee compensation, Internet communications costs, software usage charges and amortization of website development cost. For the year ended March 31, 2003, product development expenses were U.S.$ 2.1 million compared to U.S.$ 3.3 million for the year ended March 31, 2002, representing a decrease of U.S.$ 1.2 million or 36%. Major reasons include a decrease of U.S.$ 760,000 in bandwidth charges, decrease of U.S.$ 220,000 in the professional charges and a decrease of U.S.$ 290,000 on account of lower website development amortization costs.

General and administrative expenses. General and administrative costs primarily consist of compensation for personnel, fees for legal and professional services, allowances for doubtful accounts insurance premiums, depreciation and sundry administrative costs. For the year ended March 31, 2003, general and administrative expenses were U.S.$ 8.0 million compared to U.S.$ 8.5 million for the year ended March 31, 2002, representing a decrease of U.S.$ 512,000 or 6%. This decrease was largely on account of lower legal and professional fees and a lower allowance for doubtful accounts receivable.

Restructuring costs and legal fees. Restructuring costs and legal fees for the year ended March 31, 2003 were U.S.$ 1 million compared to U.S.$ 0.8 million for the year ended March 31, 2002. During the year ended March 31, 2003, ValuCom operations were integrated with India Abroad and relocated to New York. Restructuring expenses primarily consisted of payments made to the former shareholders of ValuCom for transition assistance, lease termination costs, staff related expenses for commuting from Chicago to New York and severance payments. Restructuring costs for the year ended March 31, 2002 relate to restructuring and relocating Rediff.com Inc. from California to New York, and its integration with India Abroad. Such expenses of U.S.$ 848,000 include U.S.$ 598,000 primarily consisting of lease termination costs, expenses for relocation of equipment and staff and severance payments. The balance of U.S.$ 250,000 represents our retention under our D&O Policy for legal fees relating to the class action suit described under "Legal Proceedings".

Other income, net. Other income, net primarily consists of interest income and foreign exchange gain or loss. During the year ended March 31, 2003, other income (net) was U.S.$ 64,000 compared to U.S.$ 2.0 million for the year ended March 31, 2002. Interest income for the year was U.S.$ 398,000 compared to U.S.$ 917,000 for the year ended March 31, 2002. The decrease in interest income was due to lower interest rates and lower average cash and cash equivalents. Foreign exchange loss for the year was U.S.$ 400,000 as compared to a gain of U.S.$ 1.1 million for the year ended March 31, 2002. The net foreign exchange loss was as a result of appreciation of the Indian rupee against the U.S. dollar during the year.

Net loss. As a result of the above, our net loss was U.S.$ 19.0 million for the year ended March 31, 2003, compared to a net loss of U.S.$ 14.8 million for the year ended March 31, 2002.

Total revenue for the fiscal year ended March 31, 2002 was U.S.$ 24.8 million as compared to U.S.$ 5.6 million for the fiscal year ended March 31, 2001. This represents an increase of U.S.$ 19.1 million or 341% over previous year. Of the increase in revenue, U.S.$ 16.5 million arose in the Phone Card business and U.S.$ 5.3 million arose due to purchase of U.S. Publishing business, offset by a decline in India Online revenue of U.S.$ 2.6 million.

India Online business. We recognized U.S.$ 2.6 million for the India Online business for the year ended March 31, 2002 as compared to U.S.$ 5.2 million for the year ended March 31, 2001, representing a decrease of U.S.$ 2.6 million, or 51% over the previous year. Of the decrease in revenue, U.S.$ 2.4 million arose in the advertising services and U.S.$ 266,000 in e-commerce services.

Until June 30, 2000, e-commerce revenues were recognized on the basis of the gross value of products sold. Revenues were recorded net of sales discounts and returns. From July 1, 2000, we have been operating under the new "marketplace" model. In the "marketplace" model, we recognized as revenues the net margin earned from our online sale of products. We recognized U.S.$ 326,000 in e-commerce revenues for the year ended March 31, 2002 as compared to U.S.$ 592,000 for the year ended March 31, 2001, representing a decrease of U.S.$ 266,000, or 45%.

U.S. Publishing business. We recognized U.S.$ 5.3 million for U.S. Publishing business for the year ended March 31, 2002 as compared to U.S.$ 10,738 for the year ended March 31, 2001. The increase of revenue was due to the acquisition of India Abroad on April 27, 2001.

Phone Card business. As a result of the acquisition of ValuCom completed on March 23, 2001 we recognized U.S.$ 16.9 million for the Phone Card business for the year ended March 31, 2002 as compared to U.S.$ 388,000 for the year ended March 31, 2002.

Cost of goods sold. Cost of goods sold consisted of the cost of "PINS" purchased from long distance carriers and, for the period up until June 30, 2000, the cost of products purchased from vendors for sale to e-commerce customers. For the year ended March 31, 2002, cost of goods sold was U.S.$ 12.6 million compared to U.S.$ 451,000 for the fiscal year ended March 31, 2001. The cost of goods sold for the fiscal year ended March 31, 2001 included U.S.$ 147,000 being the cost of products purchased from vendors under our previous e-commerce model for the period from April 1, 2000 to June 30, 2000. During the year ended March 31, 2002, the cost of goods sold was higher due to the acquisition of the Phone Card business, which was concluded on March 23, 2001.

Cost of revenues. Cost of revenues primarily include the cost of content for the Rediff portal, editorial cost, printing and circulation cost for the India Abroad newspaper, e-commerce related cost and related salaries. For the year ended March 31, 2002, cost of revenues was U.S.$ 5.5 million or 22% of revenues compared to U.S.$ 2.2 million or 39% of revenues for the fiscal year ended March 31, 2001. This represents an increase of U.S.$ 3.3 million or 155%. The increase was primarily due to our acquisition of India Abroad on April 27, 2001, which resulted in additional cost in production and circulation of U.S.$ 2.3 million, and an increase in content and editorial cost of U.S.$ 800,000. The increase of U.S.$ 416,000 was also due to costs of fulfillment of the Phone Card business, which was acquired on March 23, 2001.

Sales and marketing expenses. Sales and marketing expenses primarily include employee compensation for sales and marketing personnel, advertising, promotion and market research costs. For the year ended March 31, 2002 sales and marketing expenses were U.S.$ 4.2 million compared to U.S.$ 7.5 million for the year ended March 31, 2001, representing a decrease of U.S.$ 3.3 million or 44%. This decrease was primarily due to a decrease of U.S.$ 5.0 million in advertising and promotional activity in India. This decrease was partially offset by sales and marketing support and expenses at India Abroad in the U.S. Publishing business and Phone Card business of U.S.$ 1.0 million.

Product development expenses. Product development expenses primarily include employee compensation, Internet communications costs, software usage charges, amortization of web site development cost and until June 30, 2000, purchased software costs and developments to enhance the features and functionality of our website. For the year ended March 31, 2002 product development expenses were U.S.$ 3.3 million compared to U.S.$ 2.7 million for the year ended March 31, 2001, representing an increase of U.S.$ 670,000 or 25%. The increase in product development expenses includes U.S.$ 372,000 resulting from increased traffic/users of the India Online business and the addition of Phone Card and U.S. Publishing business.

General and administrative expenses. General and administrative costs primarily consist of compensation for personnel, fees for legal and professional services, provision for doubtful accounts, insurance premium, depreciation and sundry administrative costs. For the year ended March 31, 2002, general and administrative expenses were U.S.$ 8.5 million, compared to U.S.$ 4.6 million for the year ended March 31, 2001, representing an increase of U.S.$ 3.9 million, or 86%. Of this increase, U.S.$ 2.2 million was due to general and administration expenses resulting from our acquisitions of India Abroad and ValuCom. The balance increase is attributable to depreciation charges, legal and professional fees and other general expenses.

Restructuring costs and legal fees. Restructuring costs and legal fees for the year ended March 31, 2002 of U.S.$ 848,000 include U.S.$ 598,000 for restructuring expenses in accordance with SAB 100 and EITF 94—3 primarily consisting of lease termination costs, expenses for relocation of equipment and staff and severance payments. These costs relate to restructuring and relocating think India's operations from California to New York and its integration with India Abroad. The balance of U.S.$ 250,000 represents our retention under our D&O Policy for legal fees relating to the class action suit described under "Legal Proceedings".

Other income, net. Other income, net primarily consists of interest income and foreign exchange gain. During the year ended March 31, 2002, other income (net) was U.S.$ 2.0 million compared to U.S.$ 5.6 million for the year ended March 31, 2001, representing a decrease of U.S.$ 3.6 million, or 64%. Interest income for the year ended March 31, 2002 was U.S.$ 917,000 compared to U.S.$ 2.9 million for the year ended March 31, 2001. The decrease in interest was due to lower interest rates and lower average cash and cash equivalents. The net foreign exchange gain for the year ended March 31, 2002 was U.S.$ 1.1 million as compared to U.S.$ 2.6 million for the year ended March 31, 2001. The decrease in foreign exchange gain was due to lower period end dollar balances.

Net loss. As a result of the above, our net loss was U.S.$ 14.8 million for the year ended March 31, 2002, compared to a net loss of U.S.$ 6.4 million for the year ended March 31, 2001.

Given the early stage of the development of the Internet in India, the rapidly evolving nature of our business and our limited operating history, we cannot accurately predict to what extent, if at all. our operation will prove to be seasonal. However, we do experience peaks in our business because of the festival seasons in the Indian winter months of November through February and because of extended vacation in the Indian summer months of April through June. India Abroad experiences its peak season during the Christmas holiday season in the United States.

From our inception on January 9, 1996, through the date of this annual report, we have financed our operations primarily from the private sales of equity securities, sale of ADSs and from cash received from India Online business, U.S. Publishing business and Phone Card business. During the

fiscal year ended March 31, 2001 we received U.S.$ 57.3 million in net proceeds from the sale of our ADSs.

As of March 31, 2003, our accounts receivable balance was U.S.$ 1,477,000 compared to U.S.$ 1,093,000 as of March 31, 2002, net of allowances of U.S.$ 1,034,000 and U.S.$ 841,000 as of March 31, 2003 and 2002, respectively. The net accounts receivable balance as of March 31, 2003 represents 31 days of gross revenue uncollected, as compared to 16 days as of March 31, 2002.

During the years ended March 31, 2001, 2002 and 2003, we have written off or provided allowances of U.S.$ 510,000, U.S.$ 405,000 and U.S.$ 202,000 for delinquent trade receivables respectively. These write-offs and allowances constituted 9.1%, 1.6% and 1.2% of total revenues in those years.

Net cash used in operating activities of U.S.$ 8.9 million during the fiscal year ended March 31, 2003 was primarily attributable to a net loss of U.S.$ 19.0 million which included non-cash items of depreciation and amortization of U.S.$ 2.0 million and goodwill impairment of U.S.$ 8.3 million. Other cash flows include decreases in accounts payable and accrued liabilities of U.S.$ 524,000, increase in accounts receivable of U.S.$ 384,000 and increase in other assets of U.S.$ 163,000. This is offset by a reduction in working capital, namely a reduction in inventories of U.S.$ 198,000, an increase in unearned revenues of U.S.$ 103,000, and a decrease in other current assets and prepaid expenses of U.S.$ 418,000.

Net cash used in investing activities during the fiscal year ended March 31, 2003 was U.S.$ 3.7 million, comprising principally of payments aggregating U.S.$ 3.4 million to ValuCom's option holders and former shareholders and purchases of computers and other capital equipment in connection with the expansion of our network and our offices aggregating U.S.$ 346,000.

No cash was used or provided by financing activities during the year ended March 31, 2003.

As of March 31, 2003, we had aggregate commitments for capital expenditures of approximately U.S.$ 34,000. We expect to incur operating losses and negative cash flows from operations for the foreseeable future. As of March 31, 2003, we had U.S.$ 14.4 million of cash and cash equivalents for our working capital needs, as compared to U.S.$ 26.5 million as of March 31, 2002.

Net cash used in operating activities of U.S.$ 7.2 million during the fiscal year ended March 31, 2002 was primarily attributable to a net loss of U.S.$ 14.8 million which included non-cash items of depreciation and amortization of U.S.$ 3.0 million, goodwill impairment of U.S.$ 3.3 million, and write offs of investments of U.S.$ 3.3 million. Other cash outflows include decreases in accounts payable and accrued liabilities of U.S.$ 2.4 million, and increases in prepaid expenses of U.S.$ 765,000, unearned revenue of U.S.$ 279,000 and prepaid income taxes of U.S.$ 313,000. This was offset by a reduction in working capital, namely, reduction in inventories of U.S.$ 470,000, reduction in accounts receivable of U.S.$ 233,000, and a reduction in other assets of U.S.$ 715,000.

Net cash used in investing activities during the fiscal year ended March 31, 2002 was U.S.$ 11.6 million, principally for the acquisition of India Abroad for U.S.$ 10.9 million and purchases of computers and other capital equipment in connection with the expansion of our network and our offices aggregating U.S.$ 1.5 million.

Net cash used by financing activities during the year ended March 31, 2002 was U.S.$ 862,000 due to repayment of long-term debt relating to India Abroad on its acquisition

Net cash used in operating activities of U.S.$ 5.2 million during the fiscal year ended March 31, 2001 was primarily attributable to a net loss of U.S.$ 6.4 million, increases in accounts receivable of U.S.$ 40,000, unearned revenue of U.S.$ 249,000, recoverable income taxes of U.S.$ 179,000 and other assets of U.S.$ 876,000, partially offset by depreciation of property, plant and equipment of U.S.$ 1.1 million, amortization of goodwill and intangibles of U.S.$ 132,000, a decrease in inventory of U.S.$

150,000 and an increase in accounts payable and accrued liabilities of U.S.$ 701,000 and decrease in prepaid expenses and other current assets of U.S.$ 337,000.

Net cash used in investing activities during the fiscal year ended March 31, 2001 was U.S.$ 12.6 million, principally as a result of the purchase of routers, modems, ports, servers and other capital equipment in connection with the expansion of our network and in expansion of our offices amounting to U.S.$ 3.6 million, in investments of U.S.$ 3.3 million in three vertical portals namely Apnaloan.com, Traveljini.com and Bill Junction and in acquisitions of U.S.$ 6.7 million primarily in two companies, ValuCom and Rediff.com Inc., U.S.A (formerly, thinkindia.com).

Net cash provided by financing activities during the year ended March 31, 2001 was U.S.$ 57.3 million consisting of net proceeds raised in our IPO.

Our principal capital expenditures are for purchases of computer equipment, such as servers for our portal and leasehold improvements. In fiscal 2003, 2002 and 2001, we had capital expenditures of U.S.$ 346,000, U.S.$ 1.5 million and U.S.$ 3.6 million, respectively.

We have not declared or paid any cash dividends on our equity shares since our inception and do not expect to pay any cash dividends for the foreseeable future. We currently intend to retain future earnings, if any, to finance the expansion of our business. For additional information, please see the sections of this annual report entitled "Risk Factors—Risks Related to our Business" and "Taxation".

We believe our cash balances and liquid assets, cash generated from future operations and our existing credit facilities will be adequate to satisfy anticipated working capital requirements, capital expenditures and investment commitments for the next twelve months. As business and market conditions permit, we may from time to time, invest in or acquire complementary businesses, products or technologies. These activities may require us to seek additional equity or debt to fund financing such activities, which could result in ownership dilution to existing shareholders, including holders of our ADSs.

As of March 31, 2003, we had a net operating loss carry forwards for our Indian operations aggregating approximately U.S.$ 18.5 million for financial reporting purposes, which expire in 8 years. If we do not have sufficient taxable business income or, if the applicable period expires, we will lose the potential tax benefit of the relevant loss carry forward.

As of March 31, 2003, ValuCom has net operating loss carry forwards of U.S.$ 2.2 million available to offset future federal taxable income, which expire in 2023.

As of March 31, 2003, Rediff Holdings Inc., our U.S. subsidiary and the holding company for our Rediff.com Inc. and India Abroad investments, had net operating loss carryforwards of approximately U.S.$ 6.7 million for federal income tax purposes, which expire in years 2019 through 2023 and has tax credits of approximately U.S.$ 90,000 and U.S.$ 56,000 for federal and state income tax liabilities, respectively. The utilization of approximately U.S.$ 1.6 million of the net operating loss carry forwards for federal income tax purposes, U.S.$ 1.7 million of the net operating loss carry forwards for state income tax purposes and U.S.$ 146,000 of the tax credits are limited by certain sections of the federal and state revenue codes.

Our primary market risk exposures are to foreign exchange rate fluctuations, principally relating to the fluctuation of U.S. dollar to Indian rupee exchange rate. We face foreign exchange risk with respect to funds held in foreign currency and in particular will have foreign exchange loss if there is an further appreciation in the value of the Indian rupee compared to the U.S. dollar. We also face foreign

exchange risk from accounts payable to overseas vendors. This risk is partially mitigated as we have receipts in foreign currency from overseas customers and hold balances in foreign currency with overseas banks.

The following table sets forth information about our net foreign exchange exposure as of March 31, 2003:

		As of March 31, 2003
		(In thousands)
Accounts payable in U.S. dollars		155
Accounts receivable in U.S. dollars, net of allowance		3
Cash balances held in U.S. dollars		11,208

Net foreign exchange exposure		11,056

If the U.S. dollar-Indian rupee exchange rate appreciated as at March 31, 2003 by one Indian rupee, the net foreign exchange loss would be approximately U.S.$ 232,000.

We hold interest-bearing accounts outside India and fluctuations in interest rates have impacted our interest earnings for fiscal year ended March 31, 2003. These interest rates are linked to the interest rates prevalent in the United States and have consistently declined over the fiscal year ended March 31, 2003. In future, our interest earnings may be affected by fluctuations in interest rates.

In June 2002, the Financial Accounting Standard Board ("FASB") issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 supersedes Emerging Issues Task Force (or EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity," under which a liability for an exit cost was recognized at the date of an entity's commitment to an exit plan. The principal difference between SFAS No. 146 and EITF Issue 94-3 relates to SFAS No. 146's requirements for recognition of a liability for a cost associated with an exit or disposal activity. SFAS No. 146 requires a liability for a cost associated with an exit or disposal activity be recognized at fair value when the liability is incurred. Under EITF Issue 94-3, a liability for an exit cost was recognized at the date of an entity's commitment to an exit plan. A fundamental conclusion reached by the FASB in this Statement is that an entity's commitment to a plan, by itself, does not create an obligation that meets the definition of a liability. Therefore, this statement eliminates the definition and requirements for recognition of exit costs in EITF Issue 94-3. This statement also establishes that fair value is the objective for initial measurement of the liability. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. We are currently evaluating the effect of adopting SFAS No. 146 on our results of operations and financial position.

In November 2002, the EITF reached a consensus on Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables" ("EITF No. 00-21"). This issue addresses how revenue arrangements with multiple deliverables should be divided into separate units of accounting and how the arrangement consideration should be allocated to the identified separate accounting units. EITF No. 00-21 is effective for fiscal periods beginning after June 15, 2003. We are currently evaluating the impact, if any, of adopting EITF No. 00-21 on its results of operations and financial position.

an entity's accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. SFAS No. 148's amendment of the transition and annual disclosure provisions of SFAS No. 123 are effective for fiscal years ending after December 15, 2002, with earlier application permitted. We do not presently intend to change our accounting for stock based compensation to the fair value model of SFAS No 123. We have adopted the disclosure provisions of SFAS No. 148 for the year ended March 31, 2003.

The following table sets forth, as of March 31, 2003, the name, age and position of each director and executive officer of our company.

Name	Age	Position
Ajit Balakrishnan(1)(2)	55	Chairman and Managing Director
Nitin Gupta	42	President and Chief Operating Officer
Rick J. Filippelli	47	Chief Financial Officer
Joy Basu(4)	42	Vice President, Finance
Diwan Arun Nanda(1)(2)	59	Director
Sunil N. Phatarphekar(1)(2)(3)	39	Director
Abhay Havaldar(1)(3)	41	Director
Pulak Prasad(1)(3)	35	Director
Ashok Narasimhan(1)(3)	56	Director

Ajit Balakrishnan is the founder, Chairman and Managing Director of the Company. Mr. Balakrishnan is also the Managing Director of Rediffusion-Dentsu, Young & Rubicam Private Limited, where he has served since March 1993, and a director of Rediffusion Holdings Private Limited (earlier called Rediffusion Advertising Private Limited), Klaas Equipment Private Limited, Wunderman India Private Limited, India Abroad Publications, Inc., India In New York, Inc., Rediff.Com Inc., Rediff Holdings Inc., Value Communications Corporation, AB Technologies LLC. U.S.A, Ajit Balakrishnan Estates & Securities Private Limited and Quintrol Technologies Private Limited. Mr. Balakrishnan holds a Bachelors degree in Physics from Kerala University and a Post Graduate Diploma in Management from the Indian Institute of Management, Calcutta. Mr. Balakrishnan's current term of appointment as Managing Director of the Company expired on August 24, 2003. Our board has re-appointed Mr. Balakrishnan for an additional five year term as our Managing Director subject to the approval of the shareholders at our annual general meeting to be held on or before September 30, 2003.

Nitin Gupta served as our President and Chief Operating Officer from February 2000 until July 2003. From September 1997 to January 2000, he served as President, Retail Finance of GE Capital Services India, and from October 1992 to September 1997, he served as Executive Vice President of

Contract Advertising India Limited. Mr. Gupta holds a Bachelors degree in Economics from Delhi University, a Bachelors degree in Law from Bombay University, and a Post Graduate Diploma in Management from the Indian Institute of Management, Ahmedabad. Effective July 31, 2003, Mr. Gupta resigned from the services of the Company.

Rick J. Filippelli served as Rediff's Chief Financial Officer from October 2001 until September 2003. Effective September 5, 2003 Mr. Filippelli resigned from the services of the Company. Prior to joining Rediff, Mr. Filippelli spent 16 years with Financial Guaranty Insurance Company. He served as CFO during his last three years with Financial Guaranty. Prior to joining Financial Guaranty, he worked for the accounting firm of Ernst and Young. He holds a BS in Accounting from Brooklyn College and is a Certified Public Accountant licensed in the State of New York.

Joy Basu has been our Vice President, Finance since April 2003 and effective September 6, 2003, will serve as our Chief Financial Officer. From October 2002 to April 2003, he served as Chief Financial Officer of Sahara India Media Communication Limited. From April 2000 to September 2002, he served with the Sterlite Group of Companies, as Chief Financial Officer of Sterlite Optical Technologies-Limited. from April 2000 to April 2002 and as Vice President, Corporate Finance from April 2002 to September 2002. From 1993 to 2000 he served with the RPG Group of companies, where the last position he held was General Manager—Strategic Planning. From 1986 to 1993 he served with the Tata Group in various capacities. Mr. Basu hold a Bachelors degree in Commerce from St Xaviers College, Calcutta University. He is also a member of the Institute of Chartered Accountants of India and has completed the Senior Executive Course at the Manchester Business School, U.K.

Diwan Arun Nanda has been a director of Rediff.com India Limited since its inception in December 1995. Mr. Nanda is also the Chairman and Managing Director of Rediffusion-Dentsu, Young & Rubicam Pvt. Ltd., and Director of Klaas Equipment Private Limited, Wunderman India Private Limited, Arion Horse Co. Pvt. Ltd., Rediffusion Holdings Private Limited (previously called Rediffusion Advertising Private Limited), Dentsu, Young & Rubicam Advertising Co Ltd, China, Dentsu, Young & Rubicam Limited, Hong Kong, Dentsu, Young & Rubicam Pte Ltd, Singapore, Dentsu, Young & Rubicam Tokyo, Japan, Dentsu, Young & Rubicam, Korea, LG Ad. Inc, Korea and Royal Western India Turf Club, Ltd. and Chairman and Director of Everest Integrated Communications Pvt. Ltd. Mr. Nanda holds a Bachelors degree in commerce from Loyola College, Chennai University, and a Post-Graduate Diploma in Management from the Indian Institute of Management, Ahmedabad.

Sunil N. Phatarphekar has been a director of the Company since February 1998. Mr. Phatarphekar is a partner of Doijode, Phatarphekar & Associates, a Mumbai law firm. After obtaining his Bachelors degree in Commerce from Jai Hind College, Bombay University, and a Bachelors degree in Law from Government Law College, Bombay University, he joined Crawford Bayley & Company, a Mumbai law firm. Thereafter he was a partner at two Mumbai law firms, Mahimtura & Co. and Shah Desai Doijode & Phatarphekar.

Abhay Havaldar has been a director of the Company since August 1998. Mr. Havaldar has also been a Principal with General Atlantic Partners, LLC., a worldwide private equity firm, since 2002. Prior to joining General Atlantic in 2002, Mr. Havaldar has been involved in the private equity industry in India as a partner with ConnectCapital and Draper International for over 7 years. Prior to Draper, Mr. Havaldar spent twelve years in operations management in the Indian IT industry at Tata Infotech and HCL-Hewlett Packard. Mr. Havaldar holds a Bachelors degree in electrical engineering from the University of Bombay and a masters in management degree from the Sloan Fellow program of the London Business School.

Pulak Prasad has been director of Rediff.com India Limited since 1999. Since 2000, he has also been a Managing Director of Warburg, Pincus & Co. Mr. Prasad holds a Bachelor's degree in

Technology from the Indian Institute of Technology, Delhi and a Post Graduate Diploma in Management from the Indian Institute of Management, Ahmedabad.

Ashok Narasimhan has been a director of Rediff.com India Limited since June 25, 2002. He is currently Chairman, CEO and co-founder of July Systems, Inc. He is also a limited partner, advisor, and board member for a number of U.S. venture capital funds. He was earlier founder of Prio, Inc. where he served as Chairman and CEO from early 1996 until its merger with InfoSpace. He subsequently served as COO and a board member of InfoSpace. Prior to this, he served as Head of Worldwide Marketing and Business Development of VeriFone, a leader in automated electronic payment transactions. He holds a Bachelors Degree in Physics from Madras University and a Post Graduate Diploma in Management from the Indian Institute of Management, Calcutta.

On March 16, 2000, we amended our Articles of Association. Our Amended Articles of Association set the minimum number of directors at three and the maximum number of directors at seven. We currently have six directors. Our Articles of Association provide as follows:

On August 25, 1998, the Board of Directors appointed Mr. Ajit Balakrishnan as Managing Director of Rediff.com India Limited for a term of five years, effective August 25, 1998. Mr. Ajit Balakrishnan's appointment as Managing Director was approved by the shareholders as required under the Companies Act on August 25, 1998. Mr. Balakrishnan's current appointment as Managing Director expired on August 24, 2003. Our board has re-appointed Mr. Balakrishnan for an additional five year term as our Managing Director subject to the approval of the shareholders at our annual general meeting to be held on or before September 30, 2003.

In connection with our acquisition of ValuCom on March 23, 2001, we entered into employment agreements with the former founder shareholder of ValuCom. These agreements provided for compensation and other benefits to such employees and require such employees to be in employment for one year from the date of such agreement. These agreements also provided that upon termination of such employees' employment for any reason, we are required to pay the employee his accrued but unpaid base salary through the date of termination plus unpaid vacation and unreimbursed costs and expenses. In addition to such amounts, if such employee terminates his employment for good reason or the employees' employment is terminated by us without cause, we are required to pay an amount equal to the higher of U.S.$ 450,000 or three times the annual amount of such employee's base salary.

On July 30, 2002, the Company entered into a settlement agreement with ValuCom's former founder shareholders for full and final settlement of all obligations and earn-out payments. Final earn-out consideration of U.S.$ 3.25 million related to the acquisition was paid to the former founding

shareholders. In addition the Company paid such shareholders severance payments in the amount of U.S.$ 19,038.

The Audit Committee of the Board of Directors reviews, acts on and reports to the Board of Directors with respect to various auditing and accounting matters, including the recommendation of our independent auditors, the scope of the annual audits, fees to be paid to the independent auditors, the performance of our independent auditors and our accounting practices. The members of the Audit Committee are Messrs. Abhay Havaldar. Sunil N. Phatarphekar, Pulak Prasad and Ashok Narasimhan.

The Compensation Committee of the Board of Directors determines the salaries, benefits and stock option grants for our employees, consultants, directors and other individuals compensated by us. The Compensation Committee also administers our compensation plans. The members of the Compensation Committee are Messrs. Ajit Balakrishnan, Diwan Arun Nanda and Sunil N. Phatarphekar.

As of March 31, 2003, we had 236 employees and full-time consultants. Of such employees, 34 are administrative, 57 are in our sales and marketing teams, 85 are creative and editorial, 12 are dedicated to production and circulation, 20 are dedicated to e-commerce and 28 are dedicated to product development. We believe that our relationship with our employees is good. The table sets forth the distribution of our employees by geographic location of our facilities and by department:

Department		Mumbai	Delhi	New York	Total
Creative		21	3	0	24
Editorial		44	6	11	61
Production		0	0	5	5
Circulation		0	0	7	7
Sales and Marketing		24	9	24	57
Product Development		22	1	5	28
E-Commerce		20	0	0	20
Administration		20	0	14	34

	Total	151	19	66	236

Our Amended and Restated Articles of Association provide that each of our directors may receive an attendance fee for every Board and Committee meeting, provided that no director shall be entitled to an attendance fee in excess of Rs.2,000 per meeting. In fiscal year 2003, we did not pay any fees to our non-employee directors. Mr. Ajit Balakrishnan, who is our Managing Director, does not receive any additional compensation for his service on our Board of Directors. Directors are reimbursed for travel and out-of-pocket expenses in connection with their attendance at Board and Committee meetings.

The total remuneration received by our executive officers and directors for their services to us for the fiscal year ended March 31, 2003 was approximately U.S.$ 949,000.

The dollar amounts in the following table are based on the weighted average of the exchange rate used in our financial statements for such period.

	Annual compensation in fiscal 2003	Equity shares
Name	Salary	Bonus	Other annual compensation	Equity Shares arising out of warrants granted since inception under the 1999 ESOP, 1999 ASOP and the 2002 ADR ESOP		Grant price	Expiration date
Ajit Balakrishnan	U.S.$175,000	U.S.$—	U.S.$—	—		—
Rick J. Filippelli	215,000	20,000	—	27,500	(1)	2.28	January 1, 2007
Nitin Gupta	164,548	—	5,736	12,000 4,000 19,000 50,000	(1)	9.62 12.65 9.14 2.28	January 6, 2004 February 1, 2004 October 17, 2004 January 1, 2007
Sunil Phatarphekar	—	—	—	6,000 6,000	(1)	16.65 2.28	January 15, 2004 January 1, 2007
Abhay Havaldar				16,000 16,000	(1)	16.65 2.28	January 15, 2004 January 1, 2007
Ashok Narasimhan	—	—	—	6,000	(1)	2.28	January 1, 2007

Our 1999 Employee Stock Option Plan (the "1999 ESOP"), allows for the grant to our employees of warrants to purchase our equity shares. Each warrant granted gives the employee the right to purchase a specified number of our equity shares under the 1999 ESOP. The 1999 ESOP was approved by our Board of Directors in August 1998 and by our shareholders in February 1999. A total of 280,000 equity shares, after giving effect to our 2 for 5 reverse share split effective as of May 3, 2000, were reserved for issuance under the 1999 ESOP. As of March 31, 2000, we had granted, under the 1999 ESOP, warrants, equivalent to the right to purchase 222,300 equity shares, after giving effect to our 2 for 5 reverse share split effective as of May 3, 2000, at a weighted average exercise price of U.S.$ 6.73 (Rs.293) per share. From April 1, 2001 to March 31, 2002, we had granted additional warrants equivalent to the right to purchase 19,000 equity shares at a weighted average exercise price of U.S.$ 2.25 (Rs.108) per share under the 1999 ESOP. During the same period, there was a forfeiture of warrants, equivalent to 13,450 equity shares from the employees who had left the Company. During the year ended March 31, 2003, warrants equivalent to 12,900 equity shares were forfeited due to the resignation of employees from the services of the Company.

Unless otherwise determined by the Board of Directors, the warrants granted under the 1999 ESOP vest at a rate of 25% on each successive anniversary of the grant date, until fully vested. Equity shares acquired pursuant to the 1999 ESOP are subject to a 4-year lock-up period from the date of grant of the respective warrants. In the case of termination of the employee, the employee shall have

the right to exercise only the warrants vested up to the time of termination, and the unvested warrants shall lapse. In the case of death, incapacitation, or retirement at the normal retirement age of an employee, all warrants granted to him or her shall vest in full either on the employee or his or her legal heirs, as appropriate. The period during which vested warrants may be exercised expires 5 years after the date of grant.

We have an Associate Stock Option Plan 1999 (the "1999 ASOP"), which allows for the grant to our associates, such as key vendors, software developers, retainers, consultants, and all other persons or legal entities not eligible to participate in the 1999 ESOP, of warrants to purchase our equity shares. Each warrant granted gives the associate the right to purchase a specified number of our equity shares under the 1999 ASOP. The 1999 ASOP was approved by our Board of Directors in April 1999 and by our shareholders in February 1999. A total of 198,000 equity shares, after giving effect to our 2 for 5 reverse share split effective as of May 3, 2000, were reserved for issuance under the 1999 ASOP. As of March 31, 2000, we had granted warrants under the 1999 ASOP, equivalent to the right to purchase 73,600 equity shares, after giving effect to our 2 for 5 reverse share split effective as of May 3, 2000, at a weighted average exercise price of U.S.$ 11.73 (Rs.511) per share. From April 1, 2001 to March 31, 2002 there was a fresh issuance of warrants equivalent to 1000 equity shares to Associates at the rate of U.S.$ 2.25 (Rs.108) under the 1999 ASOP. During the same period, there was a forfeiture of warrants, equivalent to 5,750 equity shares from the associates who had terminated their association with Rediff. Warrants equivalent to 28,000 equity shares were issued on January 1, 2003 at an exercise price of U.S.$ 2.28 (Rs.109) to three Directors of the Company.

The warrants granted under the 1999 ASOP vest at rates set forth on each warrant. Equity shares acquired pursuant to the 1999 ASOP are subject to a 4-year lock-up period from the date of grant of the respective warrants. In the case of termination of the relationship, the associate shall have the right to exercise only the warrants vested up to the time of termination, and the unvested warrants shall lapse. In the case of death of the associate, all warrants granted to him or her shall vest in full on his or her legal heirs, as appropriate. The period during which vested warrants may be exercised expires 5 years after the date of grant.

Our 2000 Stock Option Plan (the "2000 Plan"), provides for the grant of two types of options to our employees. Incentive stock options may provide our U.S. based employees with beneficial tax treatment in the U.S. and non-statutory stock options which do not qualify as incentive stock options. The 2000 Plan was approved by our Board of Directors in February 2000. Unless terminated sooner by the Board, the 2000 Plan will terminate automatically in February 2010. All options granted under the 2000 plan are exercisable for ADSs. A total of 280,000 of our equity shares, after giving effect to our 2 for 5 reverse share split effective as of May 3, 2000, were reserved for issuance upon the deposit of the ADS with our Depositary. While the 2000 plan is currently effective, none of the options granted pursuant thereto qualify as "incentive stock options" under current U.S. tax law.

Either our Board of Directors or a committee of our Board of Directors will administer the 2000 Plan. The committee has the power to determine the terms of the options granted, including the exercise price, the number of ADSs subject to each option, the exercisability thereof, and the form of consideration payable upon such exercise. In addition, the governing body has the authority to amend, suspend or terminate the 2000 Plan, provided that no such action may affect any ADS previously issued and sold or any option previously granted under the 2000 Plan.

The 2000 Plan generally does not allow for the transfer of options, and only the optionee may exercise an option during his or her lifetime. An optionee generally must exercise an option within

three months of termination of service. If an optionee's employment is terminated due to death or disability, his or her option will fully vest and become exercisable and the option must be exercised within twelve months after such termination. The exercise price of non-statutory stock options granted under the 2000 Plan must at least equal 90% the fair market value of the ADSs on the date of grant. The term of options granted under the 2000 Plan may not exceed ten years.

The 2000 Plan provides that in the event of our merger with or into another corporation or a sale of substantially all of our assets, the successor corporation shall either assume the outstanding options or grant equivalent options to the holders. If the successor corporation neither assumes the outstanding options nor grants equivalent options, such outstanding options shall vest immediately, and become exercisable in full. There have been no grants made under the 2000 plan during the year ended March 31, 2003 and during prior years.

On April 1, 2000, ValuCom adopted the Value Communications Corporation 2000 Stock Incentive Compensation Plan as a means of encouraging stock ownership by its employees, officers, directors and advisors. Under terms of this plan, non-qualified options to purchase up to 300,000 shares of common stock of ValuCom were reserved for issuance, were generally granted at not less than fair market value, became exercisable as established by ValuCom (generally over four years) and generally expire seven years from the date of grant

On the date of ValuCom's acquisition, the Company contractually agreed to replace the existing employee stock options of ValuCom employees with the Company's options once the Company obtained approvals necessary to establish a stock option plan in the U.S. Each outstanding ValuCom option shall thereafter immediately be exchanged for or converted into an option to acquire the Company's shares under such stock option plan, on terms and conditions which are in all material respects similar to the terms and conditions applicable to the outstanding ValuCom options. In addition, on the conversion date, the Company may, at its option, pay to vested ValuCom option holders a lump-sum cash payment equal to the greater of the difference, if any, between $3.00 or the Company's current market price and the exercise price for each vested ValuCom option.

As of March 31, 2002, under the terms of the agreement, the Company agreed to pay employees the cash value of their vested options as of that date. The value of the options was calculated pursuant to a formula included in the stock purchase agreement. An amount of U.S.$ 133,000 was recorded as of that date and included in goodwill. During the year ended March 31, 2003, an aggregate of U.S.$ 176,299 was paid to employees and U.S.$ 43,299 was recorded as a compensation expense.

In January 2002 the Company's board of directors approved the 2002 Stock Option Plan ("2002 plan") which provides for the grant of incentive stock options and non-statutory stock options to the Company's employees. All options under these plans are exercisable for the ADSs of the Company. Necessary approvals from the regulators in India have been obtained and the Company expects to make appropriate filings with the SEC prior to the first vesting date. Unless terminated sooner, this plan will terminate automatically in January 2012. A total of 280,000 of our equity shares were reserved for issuance under the 2002 plan. As of March 31, 2003, we had granted under the 2002 stock option plan, warrants equivalent to the right to purchase 220,500 equity shares at an exercise price of Rs. 109. Unless otherwise determined by the Board of Directors, the warrants granted under the 2003 plan vest at a rate of 25% on each successive anniversary of the grant date, until fully vested.

Gratuity. The Company provides for gratuity, an unfunded defined benefit retirement plan covering its eligible employees in India based on third-party actuarial valuations. This plan provides for a lump-sum payment to be made to vested employees at retirement or termination of employment in an amount equivalent to 15 days salary, payable for each completed year of service. These gratuity benefits vest upon an employee's completion of five years of service.

Net periodic pension cost for the years ended March 31, 2003 and the unfunded benefit liability as of March 31, 2003 are as follows:

	Fiscal Year Ended March 31, 2003
Projected benefit obligations—beginning of the year	U.S.$	53,729
Service cost		7,775
Interest cost		2,877
Amortization of gain		381
Effect of exchange rate changes		1,697

Net periodic pension cost		12,710

Projected benefit obligations—end of the year	U.S.$	66,439

The assumptions used in accounting for gratuity in the year ended March 31, 2003 were as follows:

		Fiscal Year Ended March 31, 2003
Rupee discount rate		8	%
Rate of increase in rupee compensation		8	%

Provident Fund. Employees based in India and the Company each contribute at the rate of 12% of salaries to a provident fund maintained by the Government of India for the benefit of such employees. The provident fund is a defined contribution plan. Accordingly, the Company expenses such contributions to operations as incurred. The amount contributed by the Company to the provident fund, in the aggregate, was U.S.$ 76,727 for the year ended March 31, 2003.

In October 1998, we entered into an agreement with Rediffusion-Dentsu, Young & Rubicam Limited, a company in which Mr. Ajit Balakrishnan and Diwan Arun Nanda are shareholders and directors, whereby we occupied the offices in New Delhi formerly occupied by Rediffusion-Dentsu, Young & Rubicam Limited, and reimburse Rediffusion-Dentsu, Young & Rubicam Limited for the respective lease payments. This lease was terminated in December 2001. Total lease payments made during the years ended March 31, 2001 and 2002 were U.S.$ 9,600 and U.S.$ 7,000, respectively. There were no payments made during the year ended March 31, 2003.

On December 28, 1998, we entered into an agreement with Rediffusion-Dentsu, Young & Rubicam Private Limited, a company in which Mr. Ajit Balakrishnan and Diwan Arun Nanda are shareholders and directors, for advertising services. Under the terms of the engagement letter, Rediffusion-Dentsu, Young & Rubicam Limited provide advertising services to us and we pay them ten percent commission on the amounts charged by third parties for the execution of such advertising. Aggregate commission

payments made to Rediffusion-Dentsu, Young & Rubicam Limited for the fiscal ended March 31, 2001 and 2002 were approximately U.S.$ 486,100 and U.S.$ 113,808, respectively. There were no payments made during the year ended March 31, 2003.

During the year ended March 31, 2003, we received U.S.$ 1,300 as advertising revenues from Rediffusion-Dentsu, Young & Rubicam Limited, a company in which Mr. Ajit Balakrishnan and Diwan Arun Nanda are shareholders and directors. We did not receive any such amounts during the years ended March 31, 2002 and 2003.

There are restrictions on the conversion of Indian rupees into U.S. dollars. Before February 29, 1992, the Reserve Bank of India determined the official value of the rupee in relation to a weighted basket of currencies of India's major trading partners. In the February 1992 budget, a new dual exchange rate mechanism was introduced by allowing conversion of 60% of the foreign exchange received on trade or current account at a market-determined rate and the remaining 40% at the official rate. All importers were, however, required to buy foreign exchange at the market rate except for certain specified priority imports. In March 1993, the exchange rate was unified and allowed to float. In February 1994 and again in August 1994, the Reserve Bank of India announced relaxation in payment restrictions in the case of a number of transactions. Since August 1994, the Government of India has substantially complied with its obligations owed to the IMF, under which India is committed to refrain from using exchange restrictions on current international transactions as an instrument in managing the balance of payments. Effective July 1995, the process of current account convertibility was advanced by relaxing restrictions on foreign exchange for various purposes, such as foreign travel and medical treatment.

In December 1999, the Indian Parliament passed the Foreign Exchange Management Act, which became effective on June 1, 2000 ("FEMA"), replacing the earlier Foreign Exchange Regulation Act, 1973 ("FERA"). This new legislation indicates a major shift in the policy of the government with regard to foreign exchange management in India. While FERA was aimed at the conservation of foreign exchange and its utilization for the economic development of the country, the objective of FEMA is to facilitate external trade and promote the orderly development and maintenance of the foreign exchange market in India.

FEMA permits most transactions involving foreign exchange except those prohibited or restricted by the Reserve Bank of India. FEMA has eased restrictions on current account transactions. However the Reserve Bank of India continues to exercise control over capital account transactions (i.e., those which alter the assets or liabilities, including contingent liabilities, of persons). The Reserve Bank of India has issued regulations under FEMA to regulate the various kinds of capital account transactions, including certain aspects of the purchase and issuance of shares of Indian companies.

Restrictions on Sale of the Equity Shares Underlying the ADSs and for Repatriation of Sale Proceeds

ADSs issued by Indian companies to non-residents have free transferability outside India. However, under Indian regulations and practice, the approval of the Reserve Bank of India is required for the sale of equity shares underlying the ADSs (other than a sale on a stock exchange or in connection with an offer made under the takeover regulations) by a non-resident of India to a resident of India as well as for renunciation of rights to a resident of India. Further, under current Indian law the Depository cannot accept deposits of outstanding equity shares and issue ADRs evidencing ADSs representing such equity shares. Our depository will be allowed to accept deposits of outstanding equity shares and issue ADRs, evidencing ADSs representing such equity shares only to the extent, and limited to the number, of ADSs converted into underlying equity shares and sold in the domestic market and provided such outstanding equity shares which are to be deposited are purchased on a recognized stock exchange through SEBI registered stock brokers. Investors who seek to sell in India to resident Indians any equity shares (other than a sale on a stock exchange or in connection with an offer made under the takeover regulations) withdrawn from the depository facility and to convert the rupee proceeds from such sale into foreign currency and repatriate such foreign currency from India will, subject to the foregoing, have to obtain Reserve Bank of India approval for each such transaction. Since our equity shares are not listed on a recognized stock exchange, the prior approval of the RBI would be required for such sale of our equity shares to resident Indians.

Active, liquid trading markets generally result in lower price volatility and more efficient execution of buy and sell orders for investors. Liquidity of a securities market is often a function of the volume of the shares that are publicly held by unrelated parties. Although ADS owners are entitled to withdraw the equity shares underlying the ADSs from the depository facility at any time, subject to certain legal restrictions, there is no public market for our equity shares in India or elsewhere. Under current Indian law, equity shares not listed in India may not be deposited into our depository facility in exchange for ADSs. Our depository will be allowed to accept deposits of outstanding equity shares and issue ADRs, evidencing ADSs representing such equity shares only to the extent, and limited to the number, of ADSs converted into underlying equity shares and sold in the domestic market. If you elect to surrender your ADSs and receive equity shares, you may still be unable to deposit outstanding equity shares with our depository and receive ADRs because the number of ADRs that can be issued cannot, at any time, exceed the number of ADRs converted into underlying equity shares and sold in the domestic market. Since our equity shares are unlisted, any such re-deposit of our equity shares would not be allowed on an automatic basis under existing laws.

From November 2002, the RBI has permitted existing shareholders of Indian companies to sell their shares through the issuance of ADR's against the block of existing shares of the Indian company, subject to the following conditions:

There is no public market for our equity shares in India, the United States or any other market. Our ADSs evidenced by ADRs have been traded in the United States on the Nasdaq National Market under the ticker symbol "REDF" since June 14, 2000, when they were issued by our depositary, Citibank, N.A., pursuant to a Deposit Agreement. On June 24, 2002, our ADSs began trading on the

NASDAQ Small Cap Market under the same ticker symbol. Each ADS represents one-half of one equity share.

The number of outstanding equity shares as of March 31, 2003, was 12,795,200. We have been informed by our depository that as of March 31, 2003, there were approximately 30 record holders of ADRs evidencing 5,290,000 ADSs (representing 2,645,000 equity shares) in the United States.

The tables below set forth high and low trading prices for our ADSs on the NASDAQ National Market until June 24, 2002, and thereafter on the NASDAQ Small Cap Market:

	Price Per American Depositary Share (in U.S. dollars)
	High	Low
Fiscal year ended March 31, 2001	27.9	0.45
Fiscal year ended March 31, 2002	4.95	0.45
Fiscal year ended March 31, 2003	4.78	0.21
First Quarter (April 2001 to June 2001)	4.95	1.75
Second Quarter (July 2001 to September 2001)	2.2	0.61
Third Quarter (October 2001 to December 2001)	1.1	0.45
Fourth Quarter (January 2002 to March 2002)	1.73	0.61
First Quarter (April 2002 to June 2002)	1.28	0.35
Second Quarter (July 2002 to September 2002)	0.48	0.32
Third Quarter (October 2002 to December 2002)	1.15	0.21
Fourth Quarter (January 2003 to March 2003)	4.78	1.06

	Price Per American Depositary Share (in U.S. dollars)
Previous six months	High	Low
March 2003	3.23	1.90
April 2003	4.38	2.76
May 2003	7.92	4.05
June 2003	5.65	3.20
July 2003	10.55	5.22
August 2003	7.44	4.11

Prior to June 1, 2000, foreign investment in Indian securities, including the acquisition, sale and transfer of securities in Indian companies, was regulated by the FERA. As of June 1, 2000, foreign investment in and divestment from Indian securities have been regulated by the provisions of FEMA, the rules and regulations issued by the Reserve Bank of India thereunder, and the notifications issued by the Ministry of Finance of the Government of India. A summary of the regulatory environment for foreign investment in India is provided below.

Subject to the fulfillment of certain conditions, Indian companies issuing ADSs are no longer required to obtain approval of the Ministry of Finance or the Reserve Bank of India under the Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depositary Receipt Mechanism) Scheme, 1993, as amended from time to time, or the 1993 Scheme. Although we will not require approval of either the Ministry of Finance or the Reserve Bank of India, we are required to furnish a quarterly return to the Reserve Bank of India and the Ministry of Finance within 15 days of the close of each calendar quarter.

The 1993 Scheme is distinct from other policies described below relating to investments in Indian companies by foreign investors. The issuance of ADSs pursuant to the 1993 Scheme also affords to holders of ADSs the benefits of Sections 115AC and 115ACA of the Income-tax Act, 1961 for purposes of the application of Indian tax law.

Currently, subject to certain exceptions, foreign direct investment and investment by individuals of Indian nationality or origin residing outside India, or non-resident Indians, and overseas corporate bodies at least 60% owned by such persons, does not require the prior approval of the Government of India, or the Reserve Bank of India. We applied for and obtained the approval of the Government of India for our ADS offering. The Government of India has indicated that in all cases the Reserve Bank of India would continue to be the primary agency for the purposes of monitoring and regulating foreign investment. In cases where Government of India approval is obtained, no prior approval of the Reserve Bank of India is required, although a declaration in the prescribed form, detailing the foreign investment must be filed with the Reserve Bank of India once the foreign investment is made in the Indian company. The foregoing description applies only to an issuance of shares by, and not to a transfer of shares of, Indian companies. Any transfer of shares of an Indian company by a non-resident Indian requires the prior approval of the Government of India and the Reserve Bank of India.

A variety of methods for investing in shares of Indian companies are available to non-resident Indians. Subject to certain terms and conditions, these methods allow non-resident Indians to make portfolio investments in shares and other securities of Indian companies on a basis not generally available to other foreign investors. In addition to portfolio investments in Indian companies, non-resident Indians may also make foreign direct investments in Indian companies pursuant to the foreign direct investment route discussed above.

In September 1992, the Government of India issued guidelines which enable foreign institutional investors, including institutions such as pension funds, investment trusts, asset management companies, nominee companies and incorporated/institutional portfolio managers, to make portfolio investments in all securities of listed and unlisted companies in India. Under the guidelines, foreign institutional investors must be registered with SEBI and obtain a general permission from the Reserve Bank of India to engage in transactions regulated under FEMA.

Foreign institutional investors are required to comply with the provisions of the Securities and Exchange Board of India (Foreign Institutional Investors) Regulations, 1995, or Foreign Institutional Investor Regulations. A registered foreign institutional investor may buy, subject to the ownership restrictions discussed below, and sell freely securities issued by any Indian company, realize capital gains on investments made through the initial amount invested in India, subscribe to or renounce rights offerings for shares, appoint a domestic custodian for custody of investments made and repatriate the

capital, capital gains, dividends, income received by way of interest and any compensation received towards sale or renunciation of rights offerings of shares. Investment by foreign institutional investors in unlisted Indian companies would require the prior approval of the RBI.

In addition to making portfolio investments in Indian companies, foreign institutional investors may make foreign direct investments in Indian companies pursuant to the foreign direct investment route discussed above.

SEBI and the Reserve Bank of India regulations restrict portfolio investments in Indian companies by foreign institutional investors and non-resident Indians, all of which we refer to as foreign portfolio investors.

Foreign Institution Investors—Under current Indian law, foreign institutional investors in the aggregate may hold no more than 24% of the equity shares of an Indian company, and non-resident Indians in aggregate may hold no more than 10% of the shares of an Indian company through portfolio investments. The 24% limit referred to above may be increased up to the sectoral cap/statutory ceiling, as applicable if the shareholders of the company pass a special resolution to that effect. The 10% limit referred to above may be increased to 24% if the shareholders of the company pass a special resolution to that effect. No single foreign institutional investor may hold more than 10% of the shares of an Indian company if investing through proprietary funds, or 5% if investing through funds of a individual or corporate sub-account of the shares of an Indian Company and no single non-resident Indian may hold more than 5% of the shares of an Indian company.

There is uncertainty under Indian law as to the tax regime applicable to foreign institutional investors that hold and trade ADSs. Foreign institutional investors are urged to consult with their Indian legal and tax advisors.

More detailed provisions relating to investment by foreign institutional investors have been introduced by SEBI with the introduction of the Foreign Institutional Investors Regulations. These provisions relate to the registration of foreign institutional investors, their general obligations and responsibilities, and certain investment conditions and restrictions. One such restriction is that the total investment in equity and equity-related instruments should not be less than 70% of the aggregate of all investments of a foreign institutional investor in India. SEBI has also permitted private placements of shares by listed companies with foreign institutional investors, subject to the prior approval of the Reserve Bank of India under FEMA.

Under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, as amended, or Takeover Code, upon the acquisition of more than 5% of the outstanding shares or voting rights of a listed public Indian company, a purchaser is required to notify the company, and the company and the purchaser are required to notify all the stock exchanges on which the shares of such company are listed. Upon the acquisition of 15% or more of such shares or voting rights or a change in control of the company, the purchaser is required to make an open offer to the other shareholders offering to purchase at least 20% of all the outstanding shares of the company at a minimum offer price as determined pursuant to the Takeover Code. Upon conversion of ADSs into equity shares, an ADS holder will be subject to the Takeover Code; provided the Indian company is listed in India. Similarly, appropriate disclosures would have to be made under the SEBI (Prohibition of Insider Trading), Regulations, 1992, or Insider Trading Regulations, if the equity shares of the Indian Company are listed on a recognized stock exchange in India. Please note that since our equity shares are unlisted in India, the provisions of the Takeover Code and the Insider Trading Regulations will not be applicable.

There are restrictions on the conversion of rupees into dollars. Before February 29, 1992, the Reserve Bank of India determined the official value of the rupee in relation to a weighted basket of currencies of India's major trading partners. In the February 1992 budget, a new dual exchange rate mechanism was introduced by allowing conversion of 60% of the foreign exchange received on trade or current account at a market-determined rate and the remaining 40% at the official rate. All importers were, however, required to buy foreign exchange at the market rate except for certain specified priority imports. In March 1993, the exchange rate was unified and allowed to float. In February 1994 and again in August 1994, the Reserve Bank of India announced relaxation in payment restrictions in the case of a number of transactions. Since August 1994, the Government of India has substantially complied with its obligations owed to the IMF, under which India is committed to refrain from using exchange restrictions on current international transactions as an instrument in managing the balance of payments. Effective July 1995, the process of current account convertibility was advanced by relaxing restrictions on foreign exchange for various purposes, such as foreign travel and medical treatment.

In December 1999, the Indian parliament passed the Foreign Exchange Management Act, which became effective on June 1, 2000, replacing the earlier Foreign Exchange Regulation Act, 1973, or FERA. This new legislation indicates a major shift in the policy of the government with regard to foreign exchange management in India. While FERA was aimed at the conservation of foreign exchange and its utilization for the economic development of the country, the objective of FEMA is to facilitate external trade and promote the orderly development and maintenance of the foreign exchange market in India.

The following table provides information relating to the beneficial ownership of our equity shares for:

	Shares Beneficially Owned As of June 30, 2003	Shares Beneficially Owned As of March 31, 2002		Shares Beneficially Owned As of March 31, 2001
Name and Address of Beneficial Owner	Number of equity shares held	Percent of total equity shares outstanding		Number of equity shares held	Percent of total equity shares outstanding		Number of equity shares held	Percent of total equity shares outstanding
Officers and Directors
Ajit Balakrishnan(1)(1A)(1B)(IC)	3,463,982	27.07	%	3,300,192	25.8	%	3,300,192	25.8	%
Diwan Arun Nanda(1)	3,444,742	26.92	%	3,300,202	25.8	%	3,300,202	25.8	%
Sunil N. Phatarphekar	0	*		0	*		0	*
Abhay Havaldar(2)	2,200,000	17.2	%	2,200,000	17.2	%	2,200,000	17.2	%
Pulak Prasad(3) c/o Warburg, Pincus & Co. 466 Lexington Avenue, New York, NY 10017	2,132,804	16.7	%	2,445,499	19.1	%	2,008,000	15.7	%
All Directors and Officers as a Group (5 persons)	9,041,526	70.66	%	9,045,891	70.70	%	8,608,392	67.28	%
5% Shareholders
Rediffusion Holdings Private Limited(1)Ready Money Terrace, 167, Dr. Annie Besant RoadWorli, Mumbai, 400 018, India	2,200,002	17.2	%	2,200,002	17.2	%	2,200,002	17.2	%
Draper-India International c/o Multiconsult Ltd. Les Jamalacs, Vieux Conseil Street, Port Louis, Mauritius	2,200,000	17.2	%	2,200,000	17.2	%	2,200,000	17.2	%
Queenswood Investments Ltd
C/O Multiconsult Limited, Les Jamalacs, Vieux Conseil StreetPort Louis, Mauritius	2,132,804	16.7	%	2,445,499	19.1	%	2,008,000	15.7	%

The following discussion of Indian tax consequences for investors in ADSs and equity shares received upon redemption of ADSs who are not resident in India, whether of Indian origin or not, is based on the current provisions of the Indian Income Tax Act, 1961, including the special tax regime for ADSs contained in Section 115AC, as amended, and certain regulations implementing the Section 115AC regime. The Indian Income Tax Act is amended every year by the Finance Act of the relevant year. Some or all of the tax consequences of the Section 115AC and other relevant provisions may be amended or modified by future amendments to the Indian Income Tax Act. Furthermore, please note that the tax rates described herein are only those set forth in the Indian Income Tax Act read together with the Finance Act, 2003. In the event there is any double taxation avoidance agreement between two states and an investor is a resident of either of the states, then to the extent the provisions of the double taxation avoidance agreement are more favorable to the investor, under the Indian Income Tax Act, the provisions of the double taxation avoidance agreement would prevail.

The summary is not intended to constitute a complete analysis of the tax consequences under Indian law of the acquisition, ownership and sale of ADSs and equity shares by non-resident investors. Potential investors should, therefore, consult their own tax advisers on the tax consequences of such acquisition, ownership and sale, including specifically the tax consequences under Indian law, the law of the jurisdiction of their residence, any tax treaty between India and their country of residence, and in particular the application of the regulations implementing the Section 115 AC regime.

For the purpose of the Income Tax Act, an individual is a resident of India during any fiscal year, if he (i) is in India in that year for 182 days or more or (ii) having within the four years preceding that year been in India for a period or periods amounting in all to 365 days or more, is in India for period or periods amounting in all to 60 days or more in that year. The period of 60 days is substituted by 182 days in case of Indian citizen or person of Indian origin who being resident outside India comes on a visit to India during the financial year or an Indian citizen who leaves India for the purposes of his employment during the financial year. A company is resident in India in any fiscal year if it is incorporated in India or the control and management of its affairs is situated wholly in India in that year. A firm or other association of persons is resident in India except where the control and the management of its affairs are situated wholly outside India.

Dividend distributed to shareholders will not be subject to tax in the hands of the shareholders. Consequently, withholding tax on dividends paid to shareholders does not apply. However, if dividends are declared, the Company is required to pay as tax 12.81%, including applicable surcharge, of the total dividend declared.

Any transfer of ADSs outside India by a non-resident investor to another non-resident investor does not give rise to Indian capital gains tax.

Though there is no specific provision exempting the redemption of ADSs, it can be inferred from the provisions of section 47(viia) of the Indian Income Tax Act that the acquisition of underlying equity

shares upon a redemption of ADSs by a non-resident investor should not give rise to a taxable event for Indian tax purposes.

Subject to any relief under any relevant double taxation treaty, a gain arising on the sale of an equity share by a non-resident investor will generally give rise to a liability for Indian capital gains tax and tax is required to be withheld at source. Capital gains on sale of equity shares, which have been held for more than 12 months (measured from the date of advice of redemption of the ADS by the Depositary in the case of non resident sellers) are considered as long-term capital gains and generally taxable at the rate of 10%. Surcharge on this tax would be applicable at the rate of 2.5% in the case of corporations whereas for individuals and association of persons, the rate of surcharge would be 10% if their Indian taxable income exceeds Rs. 850,000. Though section 115AC provides for lower rate of tax (i.e. 10% plus surcharge where applicable) on long term capital gains arising from transfer of ADS (other than between two non-residents), it is unclear whether the lower rate of tax would also extend to such gains arising from transfer of shares converted from ADS under the amended provisions of Section 115AC. However, it may be noted that certain other provisions of the Indian Income Tax Act also provide for lower rate of tax (i.e. 10% plus surcharge where applicable) for specific class of taxpayers e.g. Foreign Institutional Investors registered with the Securities and Exchange Board of India.

If section 115AC and the Issue of Foreign Currency Convertible Bonds and Ordinary Shares Scheme are not applicable to a non-resident holder, long-term capital gains realized on the sale of such equity shares which are listed in India will still be subject to tax at the rate of 10% plus surcharge wherever applicable (as mentioned above). The non-resident holders will also be able to avail of the benefits of exchange rate fluctuations for the computation of capital gains tax, which are not available to a non-resident holder under section 115AC and the Issue of Foreign Currency Convertible Bonds and Ordinary Shares Scheme.

Where the equity shares have been held for 12 months or less, the rate of tax varies and will be subject to tax at normal rates of income-tax applicable to non-residents under the provisions of the Indian Income Tax Act, subject to a maximum of 40% (plus applicable surcharge as mentioned above.) The actual rate of tax on short term gains depends on a number of factors, including the legal status of the non-resident holder and the type of income chargeable in India. During the period the underlying equity shares are held by non-resident investors on a transfer from the Depositary upon redemption of ADSs, the provisions of the Avoidance of Double Taxation Agreement entered into by the Government of India with the country of residence of the non-resident investors will be applicable in the matter of taxation of any capital gain arising on a transfer of the equity shares. The double taxation treaty between the United States and India does not provide U.S. residents with any relief from Indian tax on capital gains.

Under the regulations, the purchase price of equity shares received in exchange for ADSs will be the price of the underlying shares on the date that the depositary gives notice to the custodian of the delivery of the equity shares in exchange for the corresponding ADSs. In the case of companies listed in India, the purchase price of the equity shares would be the price of the equity shares prevailing on the BSE or the NSE on the date the depositary gives notice to the custodian of the delivery of the equity shares in exchange for the corresponding ADSs. This deemed method of determining the purchase price of the equity shares is not provided for under the Income Tax Act. In the event that the tax department denies this benefit, the original purchase price of ADSs would be considered the purchase price for computing the capital gains tax.

However, the regulations and Section 115AC do not provide a basis for determining the cost of acquisition for the purposes of computing capital gains tax where the shares of the Indian company are

not listed on the BSE or the NSE. Therefore, in the case of our company, which is not listed on either the BSE or the NSE, the determination of the purchase price of equity shares is unclear.

Distribution to non-resident holders of additional ADSs or equity shares or rights to subscribe for equity shares made with respect to ADSs or equity shares are not subject to tax in the hands of the non-resident holder.

It is unclear as to whether capital gain derived from the sale of rights by a non-resident holder, not entitled to exemption under a tax treaty, to another non-resident holder outside India will be subject to Indian capital gains tax. If rights are deemed by the Indian tax authorities to be situated within India, as our status is in India, the gains realized on the sale of rights will be subject to Indian taxation. Such rights would generally be in the nature of short-term capital assets.

Upon the issuance of the equity shares underlying the ADSs, we are required to pay a stamp duty of 0.1% per share of the issue price. A transfer of ADSs is not subject to Indian stamp duty. Normally, upon the acquisition of equity shares from the depositary in exchange for ADSs representing such equity shares in physical form, an investor would be liable for Indian stamp duty at the rate of 0.5% of the market value of the equity shares at the date of registration. Similarly, a sale of equity shares by an investor would also be subject to Indian stamp duty at the rate of 0.5% of the market value of the equity shares on the trade date, although customarily such tax is borne by the transferee, that is, the purchaser. In case the equity shares of the company are held in a dematerialized form, no stamp duty would be payable on the acquisition or transfer of such equity shares.

At present, there are no Indian taxes on wealth, gifts and inheritance, which may apply to the ADSs and underlying equity shares.

Brokerage or commissions paid to stockbrokers in connection with the sale or purchase of shares traded in India is subject to a service tax of 8% The stockbroker is responsible for collecting the service tax and paying it to the relevant authority.

Our business is primarily subject to regulation by the Ministry of Information Technology, which was formed in October 1999 and is a part of the Government of India. We may also be subject to regulation by the Ministry of Communications of the Government of India and the Telecom Regulatory Authority of India, or the TRAI.

On June 9, 2000, the Information Technology, Act was enacted and was made effective as of October 17, 2000.

Since the IT Act is a recently enacted legislation, it is uncertain how issues such as legal recognition of electronic records, validity of contracts entered into through the Internet and validity of digital signatures will be resolved under this legislation.

The following discussion describes certain U.S. federal income tax consequences of the acquisition, ownership and sale of ADSs that are generally applicable to U.S. investors. For these purposes, you are a U.S. investor if you are:

Please note that this discussion does not discuss all of the tax consequences that may be relevant in light of your particular circumstances. In particular, it does not address investors subject to special tax rules, including:

This discussion is based on the tax laws of the United States currently in effect (including the Internal Revenue Code of 1986, as amended, referred to as "the Code"), Treasury Regulations, Revenue Rulings and judicial decisions. These laws may change, possibly with retroactive effect.

For U.S. federal income tax purposes, if you own an ADS, you will generally be treated as the owner of the equity shares underlying the ADS.

Please consult your own tax advisor with regard to the application of the U.S. federal income tax laws to the ADSs in your particular circumstances, including the passive foreign investment company

rules described below, as well as any tax consequences arising under the laws of any state, local or other taxing jurisdiction.

Subject to the passive foreign investment company rules described below, dividends you receive on the ADSs, other than certain pro rata distributions of common shares or rights to acquire common shares or ADSs, will generally constitute taxable dividend income (as determined for U.S. federal income tax purposes) and foreign source "passive income" or "financial services income" for U.S. foreign tax credit purposes. The amount of the dividend you will be required to include in income will equal the U.S. dollar value of the rupees constituting such taxable dividend, calculated by reference to the spot exchange rate in effect on the date the payment is received by the depositary, regardless of whether the payment is converted into U.S. dollars. If you realize gain or loss on a sale or other disposition of rupees, it will generally be U.S. source ordinary income or loss.

You will generally recognize gain or loss on the sale or exchange of ADSs equal to the difference between the amount realized on such sale or exchange and your U.S. tax basis in the ADSs. Subject to the passive foreign investment company rules described below, such gain or loss will be capital gain or loss, and will generally be long-term capital gain or loss if the ADSs were held for more than one year. Gain or loss, if any, recognized by a U.S. investor generally will be treated as U.S. source gain or loss for U.S. foreign tax credit purposes. The deductibility of capital losses may be subject to limitation.

An individual shareholder who is a citizen or resident of the United States as determined for U.S. federal estate tax purposes will have the value of the equity shares or ADSs owned by such holder included in his or her gross estate for U.S. federal estate tax purposes. An individual holder who actually pays Indian estate tax with respect to the equity shares will, however, be entitled to credit the amount of such tax against his or her U.S. federal estate tax liability, subject to certain conditions and limitations.

A foreign corporation is a PFIC for any taxable year in which (i) 75.0% or more of its gross income consists of passive income (such as dividends, interest, rents and royalties) or (ii) 50.0% or more of the average quarterly value of its assets consists of assets that produce, or are held for the production of, passive income (including cash).

If a foreign corporation owns at least 25% by value of the stock of another corporation, the foreign corporation is treated for purposes of the PFIC tests as owning its proportionate share of the assets of the other corporation and as receiving directly its proportionate share of the other corporation's income.

It is uncertain whether or not we will be a PFIC for U.S. federal income tax purposes for the current or future taxable years. PFIC status is a factual determination that is based on the composition of our income and the value of our assets during each year. Valuation of our assets, including goodwill, is based on the market price of the ADSs, which is subject to change from time to time. As described below, if we are treated as a PFIC, U.S. investors in ADSs may incur significantly increased U.S. federal income tax costs on the sale or disposition of ADSs and on the receipt of distributions on ADSs to the extent such distributions are treated as "excess distributions" under the U.S. federal income tax rules.

If we are treated as a PFIC, and you are a U.S. investor in ADSs that did not make a mark-to-market election, as described below, you will be subject to special rules with respect to:

Special rules apply for calculating the amount of the foreign tax credit with respect to excess distributions by a PFIC.

If you own shares in a PFIC that are treated as marketable stock, you may make a mark-to-market election. So long as our ADSs are traded on the NASDAQ Small Cap Market, our shares should be treated as marketable stock for this purpose. If you make this election, you will not be subject to the PFIC rules described above. Instead, in general, you will include as ordinary income each year the excess, if any, of the fair market value of your shares at the end of the taxable year over your adjusted basis in your shares. You will also be allowed to take an ordinary loss in respect of the excess, if any, of the adjusted basis of your shares over their fair market value at the end of the taxable year (but only to the extent of the net amount of previously included income as a result of the mark-to-market election). Your basis in the shares will be adjusted to reflect any such income or loss amounts.

Upon request, we will furnish you with the information that you would need in order to make a qualifying electing fund election to include your share of income on current basis."

If you own shares during any year that we are a PFIC, you must file Internal Revenue Service Form 8621 that describes the distributions received on the shares and the gain realized on the disposition of the shares.

Please consult your own tax advisor about the possibility that we will be a PFIC and the rules that would apply to you if we were.

If you are a non-corporate U.S. investor, information reporting requirements, on Internal Revenue Service Form 1099, generally will apply to:

Additionally, backup withholding may apply to such payments if you are a non-corporate U.S. investor that:

Payment of the proceeds from the sale of shares effected at a foreign office of a broker generally will not be subject to information reporting or backup withholding. However, a sale of shares that is effected at a foreign office of a broker will be subject to information reporting and backup withholding if:

In addition, a sale of shares effected at a foreign office of a broker will be subject to information reporting if the broker is:

unless the broker does not have actual knowledge or reason to know that you are a United States person and the documentation requirements described above are met or you otherwise establish an exemption. Backup withholding will apply if the sale is subject to information reporting and the broker has actual knowledge that you are a United States person.

You generally may obtain a refund of any amounts withheld under the backup withholding rules that exceed your income tax liability by filing a refund claim with the United States Internal Revenue Service.

In our initial offering of our ADSs, completed in June 2000, we sold a total of 5,290,000 ADSs, representing 2,645,000 equity shares, to an underwriting syndicate (including the underwriters' over-allotment option of 690,000 ADSs representing 345,000 equity shares) at an initial offering price of U.S.$ 12.00 per ADS. The managing underwriters were Goldman, Sachs & Co., Credit Suisse First Boston, and Robert Fleming Inc. We received U.S.$ 57.3 million in net proceeds from the offering.

The gross proceeds from our ADS offering were U.S.$ 63.48 million, out of which U.S.$ 4.4 million was paid as underwriting and management consulting fees and U.S.$ 1.7 million was paid for other expenses.

As of March 31, 2003, the net proceeds of our ADS offering, together with our existing cash balances as of the date of the ADS offering, were utilized as follows:

As of March 31, 2003, U.S.$ 14.4 million of the net proceeds of our ADS offering remain as cash and cash equivalents in banks. We are able to withdraw these deposits on demand. The Reserve Bank

of India has the authority to compel us to bring the proceeds to India and have them invested in Indian rupee denominated bank accounts in India. None of the net proceeds from the IPO were paid, directly or indirectly, to any of our directors, officers or general partners or any of their associates, or to any persons owning ten per cent or more of any class of our equity securities, or any affiliates.

Our Chairman, who serves as our principal executive officer, and our Chief Financial Officer, after evaluating the effectiveness of the Company's "disclosure controls and procedures" (as defined in the Securities and Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report, have concluded that our disclosure controls and procedures were adequate and designed to ensure that material information relating to us and our consolidated subsidiaries would be made known to them by others within those entities.

There were no significant changes in our internal controls over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

The financial information in this annual report has been prepared in accordance with U.S. GAAP, unless indicated otherwise. Our fiscal year ends on March 31 of each year so all references to a particular fiscal year are to the year ended March 31 of that year. The financial statements, including the notes to these financial statements, audited by Deloitte Haskins and Sells, independent accountants, are set forth at the end of this annual report.

Although we have translated in this annual report certain Indian rupee amounts into U.S. dollars, this does not mean that the Indian rupee amounts referred to could have been, or could be, converted into U.S. dollars at any particular rate, the rates stated earlier in this annual report, or at all. The Federal Reserve Bank of New York certifies the exchange rate for customs purposes on each date the rate is given. The noon buying rate on March 31, 2003 was Rs.47.53 per U.S.$ 1.00.

The main object as stated in our Memorandum of Association is to carry on and undertake the business of providing online information services in various languages via electronic and other forms of communications for local and other subscribers in India and abroad and to deal in all the materials connected therewith. For purposes of carrying out this main object, we are also authorized under our Memorandum of Association to carry on and undertake the business of publishers of dailies, weeklies, fortnightly, newspapers, periodicals, journals, magazines, directories, souvenirs, year-books and other literary works in the electronic and other forms in any language and on any subject and marketing including export markets, sell/distribute such published items to subscribers in India and abroad.

The following description of equity shares does not purport to be complete and is subject to and qualified in its entirety by the Company's Articles of Association and Memorandum of Association, as amended, the provisions of the Companies Act, as currently in effect, and other applicable provisions of Indian law.

Our authorized share capital is 20,000,000 equity shares, par value Rs. 5 per share (after giving effect to our 2 for 5 reverse share split effective May 3, 2000). As of March 31, 2003, 12,795,200 equity shares were issued and outstanding.

The equity shares are our only class of share capital. However, our Amended and Restated Articles of Association and the Companies Act permit us to issue classes of securities in addition to the equity shares. For the purposes of this annual report, "shareholder" means a shareholder who is registered as a member in the register of members of our company.

In connection with our sales of equity shares to our investors from April 1998 through December 1999, we entered into nine separate shareholders rights agreements with our shareholders which provide for, among other things, certain preemptive, registration, co-sale and information rights, as well as the right of some shareholders to appoint members or observers of our Board of Directors. Some of the agreements also provide the shareholders with protective provisions that require us to obtain our shareholders' consent to take certain actions that would otherwise only require our Board's approval.

On February 24, 2000 we entered into an Amended and Restated Shareholders' Rights Agreement with all of our shareholders to amend, restate, supersede and replace all nine previous shareholder agreements we entered into with our shareholders. The Amended and Restated Shareholders' Rights Agreement, which became effective on the completion of our ADR offering, provides for the following shareholder rights:

Holders of at least 30% of our equity shares can require us, subject to limitations, to effect a registration or qualification of the securities either with the NASDAQ National Market, the National Stock Exchange of India or The Stock Exchange, Mumbai. We are not required to effect:

At any time after we become eligible to file a registration statement on Form F-3, holders of our equity shares may require us to file registration statements on Form F-3 with respect to their equity shares. We are not required to effect this registration:

Each of the foregoing registration rights is subject to conditions and limitations, including the right of the underwriters in any underwritten offering to limit the number of equity shares to be included in such registration. We are required to bear all the expenses of all such registrations, except underwriting discounts and commissions. The registration rights with respect to any holder thereof terminate upon the earlier of when the holder may sell the equity shares within a three month period pursuant to Rule 144 of the Securities Act, or the time when the holder is able to convert the registrable securities into ADSs which, beginning on June 24, 2002, are traded on the NASDAQ Small Cap Market.

The Amended and Restated Shareholders' Rights Agreement also provides certain preemptive, information and co-sale rights to our shareholders.

Under the Companies Act, unless our Board of Directors recommends the payment of a dividend, we may not declare a dividend. Similarly, under our Amended and Restated Articles of Association, although the shareholders may, at the annual general meeting, approve a dividend in an amount less than that recommended by the Board of Directors, they cannot increase the amount of the dividend. In India, dividends generally are declared as a percentage of the par value of a company's equity shares. Any dividend recommended by the Board of Directors subject to the limitations described above, will be distributed and paid to shareholders in proportion to the paid up value of their shares within 30 days of the approval by the shareholders at the annual general meeting. The Board of Directors may also declare interim dividend and the amount of dividend, including interim dividend, is required to be deposited in a separate bank account within five days from the date of declaration of such dividend. If such dividend, including interim dividend, has not been paid or claimed within 30 days of declaration of such dividend, we are required to transfer the total amount of dividend which remains unpaid or unclaimed within 7 days of the expiry of the 30 day period, to a special bank account. Under the Companies Act if a dividend has been declared by a company but has not been paid within 30 days from the date of declaration to any shareholder entitled to the payment of the dividend, each director of the company, if he is knowingly a party to the default, will be punishable with imprisonment and also liable to a fine. Pursuant to our Amended and Restated Articles of Association, our Board of Directors has discretion to declare and pay interim dividends without shareholder approval. With respect to equity shares issued during a particular fiscal year (including any equity shares underlying ADSs issued to the Depositary in connection with the offering or in the future), cash dividends declared and paid for such fiscal year generally will be prorated from the date of issuance to the end of such fiscal year. Under the Companies Act, dividends can only be paid in cash to the registered shareholder at a record date fixed on or prior to the annual general meeting or to his order or his banker's order.

Under the Companies Act, dividends and interim dividends may be paid out of profits of a company in the year in which the dividend is declared or out of the undistributed profits of previous fiscal years. Before declaring a dividend the Companies Act requires that we provide for depreciation in accordance with the Companies Act and also transfer to its reserves a minimum percentage of its profits for that year, ranging between 2.5% to 10.0% depending upon the dividend percentage to be declared in such year. The Companies Act further provides that, in the event of an inadequacy or absence of profits in any year, a dividend may be declared for such year out of the company's accumulated profits, subject to the following conditions:

In addition to permitting dividends to be paid out of current or retained earnings as described above, the Companies Act permits us to distribute an amount transferred from the general reserve or surplus in our profit and loss account to our shareholders in the form of bonus shares, which are similar to a stock dividend. The Companies Act also permits the issuance of bonus shares from a securities premium account. These bonus shares must be distributed to shareholders in proportion to the number of equity shares owned by them. Bonus shares are distributed to shareholders in the proportion recommended by the Board of Directors. Shareholders of record on a fixed record date are entitled to receive such bonus shares.

The Companies Act gives shareholders the right to subscribe for new shares in proportion to their respective existing shareholdings unless otherwise determined by a special resolution passed by a general meeting of the shareholders. For approval, this special resolution must be approved by a number of votes which is not less than three times the number of votes against the special resolution. If the special resolution is not approved, the new shares must first be offered to the existing shareholders as of a fixed record date. The offer must include: (1) the right, exercisable by the shareholders of record, to renounce the shares offered in favor of any other person; and (2) the number of shares offered and the period of the offer, which may not be less than 15 days from the date of offer. If the offer is not accepted it is deemed to have been declined. Our Board of Directors is authorized under the Companies Act to distribute any new shares not purchased by the preemptive rights holders in the manner that it deems most beneficial to the Company.

We must convene an annual general meeting of shareholders within 15 months of the previous annual general meeting or within six months after the end of each fiscal year and may convene an extraordinary general meeting of shareholders when necessary or at the request of a shareholder or shareholders holding at least 10.0% of our paid up capital carrying voting rights. The annual general meeting of the shareholders is generally convened by our Secretary pursuant to a resolution of the Board. Written notice setting out the agenda of the meeting must be given at least 21 days (excluding the days of mailing and receipt) prior to the date of the general meeting to the shareholders of record. Shareholders who are registered as shareholders on the date of the general meeting are entitled to attend or vote at such meeting.

The annual general meeting of shareholders must be held at our registered office or at such other place within the city in which the registered office is located; meetings other than the annual general meeting may be held at any other place if so determined by the Board of Directors. Our registered office is located at 1st floor, Mahalaxmi Engineering Estate, L. J. Road No.1, Mahim (West), Mumbai 400 016.

Our Articles of Association provide that a quorum for a general meeting is the presence of at least five shareholders in person.

At any general meeting, voting is by show of hands unless a poll is demanded by a shareholder or shareholders present in person or by proxy holding at least 10.0% of the total shares entitled to vote on the resolution or by those holding shares with an aggregate paid up capital of at least Rs. 50,000. Upon a show of hands, every shareholder entitled to vote and present in person has one vote and, on a poll, every shareholder entitled to vote and present in person or by proxy has voting rights in proportion to the paid up capital held by such shareholders.

Any shareholder may appoint a proxy. The instrument appointing a proxy must be delivered to us at least 48 hours prior to the meeting. A proxy may not vote except on a poll. A corporate shareholder may appoint an authorized representative who can vote on behalf of the shareholder, both upon a show of hands and upon a poll.

Ordinary resolutions may be passed by simple majority of those present and voting at any general meeting for which the required period of notice has been given. However, specified resolutions such as amendments to our Amended and Restated Articles of Association and the Memorandum of Association, commencement of a new line of business, the waiver of preemptive rights for the issuance of any new shares and a reduction of share capital, require that votes cast in favor of the resolution (whether by show of hands or poll) are not less than three times the number of votes, if any, cast against the resolution.

Pursuant to the Companies (Issue of Share Capital with Differential Voting Rights) Rules, 2001, issued on March 9, 2001, by the Department of Company Affairs, Government of India, a company limited by shares is authorized to issue shares with differential voting rights if the articles of association of the company so authorizes. Our Amended and Restated Articles of Association do not authorize issue of shares with differential voting rights.

Pursuant to Section 192A of the Companies Act, a listed public company has an option to pass any resolution relating to such businesses as notified by the Central Government through a postal ballot. Since as of the date of this annual report, the Company is not a "listed public company", the provisions of Section 192A of the Companies Act do not currently apply to us.

Holders of our ADSs may exercise voting rights only through a depositary, unlike an owner of equity shares, who can exercise voting rights directly. An owner of ADSs generally will have the right under the deposit agreement to instruct the Depositary to exercise the voting rights for the equity shares represented by the ADSs. Owners of ADSs have no rights pursuant to the Companies Act, under which we were incorporated, and are limited to those rights granted to them pursuant to the Deposit Agreement.

We maintain a register of shareholders. For the purpose of determining the shares entitled to annual dividends, the register is closed for a specified period prior to the annual general meeting. The date on which this period begins is the record date.

To determine which shareholders are entitled to specified shareholder rights, we may close the register of shareholders. The Companies Act requires us to give at least seven days' prior notice to the public before such closure. We may not close the register of shareholders for more than thirty consecutive days, and in no event for more than forty-five days in a year.

Following the introduction of the Depositories Act, 1996, as amended, and the repeal of Section 22A of the Securities Contracts (Regulation) Act, 1956, as amended, which enabled companies to refuse to register transfers of shares in some circumstances, the equity shares of a public company are freely transferable, subject only to the provisions of Section 111A of the Companies Act. Since we are a public limited company, the provisions of Section 111A will apply to us. Our Articles currently contain provisions which give our directors discretion to refuse to register a transfer of shares in some circumstances. Furthermore, in accordance with the provisions of Section 111A(2) of the Companies Act, our directors may refuse to register a transfer of shares if they have sufficient cause to do so. If our directors refuse to register a transfer of shares, the shareholder wishing to transfer his, her or its shares may file a civil suit or an appeal with the Company Law Board constituted under Section 10E of the Companies Act. Pursuant to Section 111A(3) of the Companies Act, if a transfer of shares contravenes any of the provisions of the Indian Securities and Exchange Board of India Act, 1992 or the regulations issued there under or the Indian Sick Industrial Companies (Special Provisions) Act, 1985 or any other Indian laws, the Company Law Board may, on application made by the company, a depository incorporated in India, an investor, the Securities and Exchange Board of India or other parties, direct the rectification of the register of records. The Company Law Board may, in its discretion, issue an interim order suspending the voting rights attached to the relevant shares before making or completing its investigation into the alleged contravention. Notwithstanding such investigation, the rights of a shareholder to transfer the shares will not be restricted.

Under the Companies Act, unless the shares of a company are held in a dematerialized form, a transfer of shares is effected by an instrument of transfer in the form prescribed by the Companies Act and the rules thereunder together with delivery of the share certificates.

Section 187C of the Companies Act requires beneficial owners of shares of Indian companies who are not holders of record to declare to us details of the holder of record and the holder of record to declare details of the beneficial owner. Any person who fails to make the required declaration within 30 days may be liable for a fine of up to Rs. 1,000 for each day the declaration is not made. Any lien, promissory note or other collateral agreement created, executed or entered into with respect to any equity share by its registered owner, or any hypothecation by the registered owner of any equity share, shall not be enforceable by the beneficial owner or any person claiming through the beneficial owner if such declaration is not made. Failure to comply with Section 187C will not affect our obligation to register a transfer of shares or to pay any dividends to the registered holder of any shares pursuant to which the declaration has not been made. While it is unclear under Indian law whether Section 187C applies to holders of ADSs, investors who exchange ADSs for the underlying equity shares will be subject to the restrictions of Section 187C. The provisions of Section 187C of the Companies Act do not, however, apply to a trustee holding shares of a company for the benefit of the beneficiaries of a trust.

At least 21 days before the annual general meeting of shareholders excluding the days of mailing and receipt, we must distribute to our shareholders a detailed version of our audited balance sheet and profit and loss account and the related reports of the Board and the auditors, together with a notice convening the annual general meeting. Under the Companies Act, we must file the balance sheet and annual profit and loss account presented to the shareholders within 30 days of the conclusion of the annual general meeting with the Registrar of Companies in Mumbai, which is in the State of Maharashtra, India. Our registered office is located in Mumbai. We must also file an annual return containing a list of our shareholders and other information, within 60 days of the conclusion of the meeting.

Under the Companies Act, approval of at least 75.0% of a company's shareholders voting on the matter and approval of the High Court of the State in which the registered office of the company is situated is required to reduce a company's share capital. A company may, under some circumstances, acquire its own equity shares without seeking the approval of the High Court. However, a company would have to extinguish the shares it has so acquired within the prescribed time period. A company is not permitted to acquire its own shares for treasury operations. An acquisition by a company of its own shares (without having to obtain the approval of the High Court) must comply with prescribed rules, regulations and conditions as laid down in the Companies Act. In addition, private and unlisted public companies. such as ours, would have to comply with the Private Limited Company and Unlisted Public Limited Company (Buy-back of Securities) Rules, 1999, notified by the Ministry of Law, Justice and Company Affairs of the Government of India on July 6, 1999 and public companies which are listed on a recognized stock exchange in India would have to comply with the provisions of the Securities and Exchange Board of India (Buy-back of Securities) Regulations, 1998, or Buy-back Regulations. Since we are not listed on any recognized stock exchange in India, we would have to comply with the relevant provisions of the Companies Act and the Private Limited Company and Unlisted Public Limited Company (Buy-back of Securities) Rules, 1999.

Subject to the rights of creditors, workmen and the holders of any shares entitled by their terms to preferential repayment over the equity shares, if any, in the event of our winding-up the holders of the equity shares are entitled to be repaid the amounts of paid up capital or credited as paid upon those equity shares. Further, in the event of a winding up, the shareholders of the Company would be liable for an amount not exceeding the aggregate unpaid amount of the face value of shares of the Company held by such shareholders. All surplus assets after payments to the holders of any preference shares and other creditors shall be paid to holders of equity shares in proportion to their shareholdings at the commencement of the winding-up.

This annual report and other information filed or to be filed by the Company can be inspected and copied at the public reference facilities maintained by the SEC at:

Copies of these materials can also be obtained from the Public Reference Section of the SEC, 450^th Street, N.W., Washington, D.C. 20549, at prescribed rates.

The SEC maintains a web site at www.sec.gov that contains reports and other information regarding registrants that make electronic filings with the SEC using its EDGAR system. With effect from November 4, 2002, the SEC has issued a Rule mandating use of EDGAR system of filing for all international filers. The Company has accordingly been following the Rule.

Additionally, documents referred to in this Form 20-F may be inspected at our Registered office, which are located at Mahalaxmi Engineering Estate, 1^st Floor, L.J. First Cross Road, Mahim (West), Mumbai 400 016, India.

Exhibit No.		Description of Document
*3.1		Articles of Association, as amended.
*3.2		Memorandum of Association, as amended.
*3.3		Certificate of Incorporation, as amended.
*4.1		Form of Deposit Agreement among Rediff.com, Citibank, N.A., and holders from time to time of American Depository Receipts issued thereunder (including as an exhibit, the form of American Depository Receipt).
*4.2		Rediff.com's specimen certificate for equity shares.
*4.3		Amended and Restated Shareholder Rights Agreement dated February 24, 2000 between Rediff.com and the shareholders of Rediff.com.
*10.1		1999 Employee Stock Option Plan.
*10.2		1999 Associate Stock Option Plan.
*10.3		2000 Stock Option Plan.
*10.4		Form of Indemnification Agreement.
*10.5		Sublease dated July 5, 1999 between Shreenathji Balaji Computech Private Limited and Rediff.com.
*10.6		Letter Agreement dated December 28, 1998 between Rediffusion-Dentsu, Young & Rubicam Limited and Rediff.com.
*10.7		Promoters Agreement dated January 9, 1996 between Ajit Balakrishnan and Diwan Arun Nanda
**10.8		Stock Purchase Agreement among Rediff.com, ValuCom and shareholders of ValuCom dated March 21, 2001.
**10.9		Stock Purchase Agreement among Rediff.com, India Abroad and shareholders of India Abroad dated March 21, 2001, as amended on April 27, 2001.
**10.10		Amended and Restated Agreement and Plan of Reorganization among Rediff.com, Thinkindia.com, Inc., Rediff Holdings, Inc., the principal stock holders of Think India and certain other parties thereto dated February 27, 2001.
10.11		2002 Stock Option Plan
31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of Principal Executive Officer pursuant to 18. U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

		Page
Independent Auditors' Report on the Consolidated Financial Statements		F-2
Independent Auditors' Report on the Financial Statements of Subsidiary Company, Rediff Holdings, Inc.		F-3
Consolidated Balance Sheets at March 31, 2002 and 2003		F-4
Consolidated Statements of Operations for the years ended March 31, 2001, 2002 and 2003		F-5
Statements of Shareholders' Equity for the years ended March 31, 2001, 2002 and 2003		F-6
Consolidated Statements of Cash Flows for the years ended March 31, 2001, 2002 and 2003		F-7
Notes to Consolidated Financial Statements		F-8
Independent Auditors' Report on Financial Statement Schedule of Valuation and Qualifying Accounts		F-33
Schedule of Valuation and Qualifying Accounts		F-34

We have audited the accompanying consolidated balance sheets of Rediff.com India Limited and subsidiaries ("the Company") as of March 31, 2002 and 2003, and the related consolidated statements of operations, cash flows and shareholders' equity for each of the years in the three year period ended March 31, 2003. These consolidated 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 did not audit the financial statements of a consolidated subsidiary of the Company, (Rediff Holdings Inc. and its subsidiaries, Rediff.com Inc. and India Abroad Publications Inc.) for the years ended March 31, 2002 and March 31, 2003, which statements reflect total assets constituting 25% and 31% respectively of the related consolidated total assets for those years and total revenues constituting 21% and 34%, respectively, of the related consolidated total revenues for those years. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for the Company for the years ended March 31, 2002 and March 31, 2003 is based solely on the report of such other auditors.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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, based on our audits and the report of the other auditors, such consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of March 31, 2002 and 2003 and the results of its operations and its cash flows for each of the years in the three year period ended March 31, 2003 in conformity with accounting principles generally accepted in the United States of America.

As described in Note 2(b), these consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which differ in certain material respects from accounting principles generally accepted in India, which form the basis of the Company's general purpose financial statements.

As discussed in Note 2(j) to the consolidated financial statements, on April 1, 2001, the Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible assets."

We have audited the accompanying consolidated balance sheets of Rediff Holdings, Inc. and Subsidiaries (the "Company") as of March 31, 2003 and 2002, and the related consolidated statements of operations, changes in shareholders' equity, and cash flows for the years 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 audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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 consolidated financial position of Rediff Holdings, Inc. and Subsidiaries at March 31, 2003 and 2002, and the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States.

REDIFF.COM INDIA LIMITED

CONSOLIDATED BALANCE SHEETS
As of March 31, 2002 and 2003

REDIFF.COM INDIA LIMITED

CONSOLIDATED STATEMENTS OF OPERATIONS
For each of the years ended March 31, 2001, 2002 and 2003

STATEMENTS OF SHAREHOLDERS' EQUITY
For each of the years ended March 31, 2001, 2002 and 2003

REDIFF.COM INDIA LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS
For each of the years ended March 31, 2001, 2002 and 2003

Rediff.com India Limited (the "Company") was incorporated in India on January 9, 1996 under the Indian Companies Act, 1956. It was converted to a public limited Company on May 29, 1998. On June 14, 2000, the Company listed its ADSs on the NASDAQ National Market through an initial public offering. On June 24, 2002, the Company's ADSs ceased to be listed on the NASDAQ National Market and were listed instead on the NASDAQ Small Cap Market.

In February 2001, the Company established Rediff Holdings, Inc ("RHI"), a Delaware Corporation, as a wholly-owned subsidiary to be a holding company for certain of its investments in the United States of America. On February 27, 2001, RHI acquired thinkindia.com Inc ("thinkindia"), later renamed Rediff.com Inc. In March 2001, the Company acquired Value Communications Corporation ("ValuCom"), an Illinois Corporation that provides internet-based marketing of prepaid long distance service in the United States. On April 27, 2001, RHI acquired India Abroad Publications, Inc ("India Abroad"), an offline and online news company. For further information, see note 4.

The Company is one of the leading Internet destinations, or portals, focusing on India and the global Indian community. Its websites consists of interest specific channels relevant to Indian interests such as cricket, astrology, matchmaker and movies, content on various matters like news and finance, search facilities, a range of community features such as e-mail, chat, messenger, e-commerce, broadband wireless content and wireless short messaging services to cellular phone subscribers in India. Additionally, the Company publishes a weekly newspaper, India Abroad, in the United States and Canada and also provides prepaid long distance communication services primarily to the Indian community in the United States and Canada.

The consolidated financial statements include the accounts of the Company and its directly and indirectly held subsidiaries RHI, India Abroad, thinkindia (now Rediff.com Inc) and ValuCom, which have been consolidated from their respective dates of acquisition (See note 4). All material inter-company accounts and transactions are eliminated on consolidation.

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). All amounts have been stated in U.S. dollars. U.S. GAAP differs in certain material respects from accounting principles generally accepted in India, which form the basis of the Company's general-purpose financial statements. Principal differences insofar as they relate to the Company include consolidation of subsidiaries, accounting for business combinations, valuation of investments, accounting for deferred income taxes, stock based compensation and website development costs, and the presentation and format of the financial statements and related notes.

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to 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

consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

India Online business includes revenues from online advertising and fee based services. Online advertising includes advertisement and sponsorships and designing and managing customers' websites. Fee based services include e-commerce, subscription services and wireless short messaging services. E-commerce revenues primarily consist of commission earned on sale of items to customers who shop online while subscription services consist of subscriptions received for using e-mail, matchmaker and other subscriber services. Wireless short messaging services include revenues derived from mobile operators based on value added text messages received and sent by mobile subscribers over their mobile phones.

Advertisement and sponsorship income is derived from customers who advertise on the Company's website or to whom direct links from the Company's website to their own websites are provided, and, income earned from designing and managing customers' websites.

Revenue from advertisement and sponsorships is recognized ratably over the contractual period of the advertisement, commencing when the advertisement is placed on the website. Revenues are also derived from sponsor buttons placed in specific areas of the Company's website, which generally provide users with direct links to sponsor websites. These revenues are recognized ratably over the period in which the advertisement is displayed, provided that no significant Company obligations remain and collection of the resulting receivable is probable. Company obligations may include guarantees of a minimum number of impressions, or times, that an advertisement appears in pages viewed by users of the Company's portal. To the extent that minimum guaranteed impressions are not met, the Company defers recognition of the corresponding revenues until the guaranteed impression levels are achieved.

The Company also earns revenues on sponsorship contracts for fees relating to the design, coordination, and integration of the customers' content, which is recognized ratably over the term of the contract.

Website development services principally consist of services relating to the designing of graphics, layout, artwork and content of the client's website. Revenue from such services on large contracts that take relatively longer periods of time to complete are recognized upon completion of milestones specified in the contract. At each such milestone, the services are either billed or billable, and as they relate to completed work, are earned. Revenue from such services on contracts that take relatively shorter periods of time are recognized on completion of the entire contract. During fiscal 2002 and 2003, such short-term contracts constituted substantially all of these services.

E-commerce revenue primarily consists of commission from the sale of books, music, apparel, confectionery, gifts and other items to retail customers who shop at the Company's online store. E-commerce services are described below.

Until June 30, 2000, the Company sourced products from a network of vendors with whom it had established contractual relationships relating to terms of supply and pricing. The Company was the "principal" in such transactions, and has recognized as revenue the gross value of such sales. Revenues were recorded net of sales discounts and returns. From July 1, 2000 customers directly place orders

with vendors through the Company's website. When an order is placed, the Company informs the vendor through an intranet and also confirms whether payment has already been collected by the Company through credit card/ debit card or checks, or whether the payment is to be made by the customer on C.O.D. basis. The vendor then dispatches the products to the customers. The vendor sends a monthly summary of the transactions executed during the month for which the Company has collected payments on its behalf. The Company makes payment to the vendor after deduction of its share of margin and costs. The Company recognizes as revenues the commission earned on these transactions. Accordingly, the presentation of the consolidated statement of operations reflects the cost of goods and cost of revenues separately.

Revenues from E-commerce services also include fees charged to vendors for creating, designing and hosting the vendors' product information on the Company's website. Such fees are amortized over the hosting contract period.

Subscription service revenues primarily include income from various paid email service products that cater to a cross section of the Company's registered user base. The revenue for subscription based service products is recognized ratably over the period of subscription.

Subscription revenues are also derived from providing value added short messaging services such as e-mail and other related products to mobile phone users. The Company contracts with third-party mobile operators for sharing revenues from these services. SMS based revenues are recognized when the service is performed.

U.S. Publishing business primarily includes advertising and sponsorship revenues and consumer subscription revenues earned from the publication of India Abroad, a weekly newspaper distributed primarily in the United States and Canada. It also includes the advertising revenues of Rediff.com Inc, the website catering to the Indian community in the U.S.

Advertising revenues are recognized at the time of publication of the related advertisement. Subscription income is deferred and recognized pro rata as fulfilled over the terms of such subscription. Revenues from banners and sponsorships are recognized over the contractual period of the advertisement, commencing when the advertisement is placed on the website, provided that no significant obligations remain and collection of the resulting receivable is probable. Obligations may include guarantee of a minimum number of impressions, or times that an advertisement appears in pages viewed by users of the Company's portal. To the extent that minimum guaranteed impressions are not met, the Company defers recognition of the corresponding revenues until the guaranteed impression levels are achieved.

Phone Card business services primarily include Internet based marketing of prepaid long distance calling services.

Revenue from communication services is derived from marketing services to retail consumers and small businesses. These are provided by buying prepaid identification numbers (PINS) from telecommunication companies and then branding and packaging such PINS for sale to retail customers

on its Internet site or through their call center. The Company recognizes revenue as PINs are delivered to customers.

Costs and expenses have been classified according to their primary functions within the enterprise in the following categories:

These costs primarily includes the cost of prepaid long distance service purchased from long distance carriers, and for the period till June 2000, the cost of products purchased from vendors for sale to e-commerce customers.

These costs primarily include employee compensation of staff that are directly involved or related to the production of services, fees paid to third-party content providers, outward freight on e-commerce sales and direct cost associated with subscription services which are spread over the period of subscription.

These costs primarily include employee compensation to sales and marketing personnel, advertising, business promotion expenses and market research costs.

These costs primarily include employee compensation, Internet communications costs, and, until June 30, 2000, purchased software costs and developments to enhance the features and functionality of the Company's website. Effective July 1, 2000, the Company prospectively adopted EITF 00-02, "Accounting for website development costs" (See note 2(i)). Product development expenses include bandwidth costs of U.S.$ 945,367, U.S.$ 1,368,281 and U.S.$ 730,607 for the years ended March 31, 2001, 2002 and 2003, respectively.

These costs primarily include employee compensation of administrative, operations and supervisory staff whose time is mainly devoted to strategic and managerial functions, depreciation, rent, insurance premiums, electricity, telecommunication costs, legal and professional fees, valuation allowances and other general expenses.

The Company considers all highly liquid investments with a remaining maturity at the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents consist of cash on hand and cash on deposit with banks.

Inventory comprising prepaid long distance service PINs are reported at the lower of average cost and market.

Property, plant and equipment are stated at cost. The Company computes depreciation for all property, plant and equipment using the straight-line method over the estimated useful lives of assets. The estimated useful lives of assets are as follows:

Furniture and fixtures		5 to 10 years
Computer equipment and software		3 to 5 years
Office equipment		5 to 10 years
Vehicles		8 years
Leasehold improvements		6 years
Website development costs		3 years

With effect from July 1, 2000, the Company prospectively adopted EITF 00-02, "Accounting for website development costs." Costs incurred in the operations stage that provides additional functions or features to the Company's website are capitalized and amortized over their estimated useful life of three years. Maintenance expenses or costs that do not result in new features or functions are expensed as product development costs as incurred.

Until March 31, 2001, the Company amortized the cost of such goodwill and intangibles using the straight line method over their estimated useful lives, ranging from three to seven years for goodwill and generally not exceeding three years for intangibles.

With effect from April 1, 2001, the Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets", and ceased to amortize the remaining cost at March 31, 2001 of goodwill and intangibles that do not have a finite life. Instead, in accordance with the two-step methodology required by SFAS No. 142, the Company tests unamortized balances for goodwill and intangible assets that do not have a finite life for impairment annually or earlier upon the occurrence of a triggering event. During the years ended March 31, 2002 and 2003, the Company has recognized U.S.$ 3.3 million and U.S.$ 8.3 million as goodwill impairment expense.

The accompanying financial statements are reported in U.S. dollars. The functional currency of the parent is the Indian rupee ("Rs." or "rupee") while that of its subsidiaries is the U.S. Dollar. For the purposes of presenting the consolidated financial statements, rupees have been converted into U.S. dollars for balance sheet accounts using the exchange rate in effect at the balance sheet date, and for revenue and expense accounts using a weighted-average exchange rate for the respective periods. The gains or losses resulting from such translation are reported as other comprehensive income or loss, which is a separate component of shareholders' equity. Such translation should not be construed as representation that the rupee amounts have been or could be translated into U.S. dollars at any particular rate, or at all.

Transactions in foreign currency are recorded at the original rates of exchange in force at the time the transactions are effected. Monetary items denominated in a foreign currency are restated using the exchange rates prevailing at the date of the balance sheet. Exchange differences arising on settlement of transactions and restatement of assets and liabilities at the balance sheet date are recognized in operations.

The Company had entered into foreign exchange forward contracts during the year ended March 31, 2001, to limit the effect of exchange rate fluctuations on its foreign currency balances. The counter parties to such transactions were banking companies. The Company recognized the gains and losses in accordance with SFAS No. 52, Foreign Currency Translation, which was the applicable pronouncement in that year. On April 1, 2001, the Company adopted SFAS No. 133, Accounting for derivative instruments and hedging activities. The Company did not enter into any foreign exchange forward contracts during the years ended March 31, 2002 and 2003.

The Company reports basic and diluted loss per share in accordance with SFAS No. 128, Earnings Per Share. Basic loss per share has been computed by dividing the net loss for the year by the weighted average number of equity shares outstanding during the period, including equity share equivalents for ADSs issued. Diluted loss per share is computed using the weighted average number of equity shares including equity share equivalents for ADSs issued and dilutive potential equity shares outstanding during the period, using the treasury stock method for options and warrants, except where the results would be anti-dilutive. The Company also reports loss per ADS, where two ADSs are equal to one equity share.

Income taxes consist of current income taxes and the change in the deferred tax balances during the year. Deferred income taxes are accounted for using the liability method. Deferred tax assets and liabilities are recognized for each entity and taxing jurisdiction for future tax consequences attributable to temporary differences between the carrying amounts of assets and liabilities and their respective tax bases and operating loss carry-forwards, measured using the enacted tax rates expected to apply in the years in which such temporary differences are expected to be recovered or settled. The effect of changes in tax rates is recognized in 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 for which future realization is uncertain.

The carrying amounts for cash, cash equivalents, accounts receivable, accounts payable and bank overdrafts approximate their fair values due to the short maturity of these instruments.

The Company classifies investments into held to maturity, trading or available for sale based on management's intent at the time of purchase. Available for sale equity securities with readily determinable market values and all debt securities are carried at fair value. Available for sale equity securities for which there are no readily determinable market values are carried at cost, less an allowance for impairments that are other than temporary. Unrealized gains or losses on available for sale securities are treated as other comprehensive income or loss, a separate component of shareholders' equity.

Effective April 1, 2002, the Company adopted SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which addresses financial accounting and reporting for the impairment and disposal of long-lived assets. While SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment of long-lived Assets and for Long-Lived Assets to be disposed of, it retains the fundamental provisions of SFAS No. 121.

Whenever events or changes in circumstances indicate that the carrying amount of tangible long lived assets may not be recoverable, the Company subjects such long lived assets to a test of recoverability, based on the undiscounted cash flows expected from use or disposition of such assets. Such events or circumstances would include changes in the market, technological obsolescence, adverse changes in profitability or regulation. If the asset is impaired, the Company recognizes an impairment loss based on the estimated fair values using discounted cash flows and the carrying value of the asset. Assets to be disposed of are reported at the lower of the carrying value or the fair value less the cost to sell.

The Company uses the intrinsic value method specified under APB Opinion No. 25 to account for the compensation cost of stock options and awards granted to officers, employees and retainers in full time service of the Company and non-employee directors for their services as directors and the fair value method specified in SFAS 123 to account for the compensation cost of stock options and awards granted to associates of the Company. The Company also applies FASB Interpretation No. 44 "Accounting for Certain Transactions involving Stock Compensation—an interpretation of APB Opinion No. 25" to account for its stock option plans. Pro forma disclosures, as applicable, required under SFAS No. 123 and SFAS No. 148 have been provided in note 17.

Certain prior years' balances have been reclassified to conform to the current year's presentation. These have no effect on previously reported results of operations or shareholders' equity.

In June 2002, the Financial Accounting Standard Board ("FASB") issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 supersedes Emerging Issues Task Force (or EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity," (Including Certain Costs Incurred in a Restructuring) under which a liability for an exit cost was recognized at the date of an entity's commitment to an exit plan. The principal difference between SFAS No. 146 and EITF Issue 94-3 relates to SFAS No. 146's requirements for recognition of a liability for a cost associated with an exit or disposal activity. SFAS No. 146 requires a liability for a cost associated with an exit or disposal activity be recognized at fair value when the liability is incurred. Under EITF Issue 94-3, a liability for an exit cost was recognized at the date of an entity's commitment to an exit plan. A fundamental conclusion reached by the FASB in this Statement is that an entity's commitment to a plan, by itself, does not create an obligation that meets the definition of a liability. Therefore, this Statement eliminates the definition and requirements for recognition of exit costs in EITF Issue 94-3. This Statement also establishes that fair value is the objective for initial measurement of the liability. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. The company is currently evaluating the effect of adopting SFAS No. 146 on its results of operations and financial position.

In November 2002, the EITF reached a consensus on Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables" ("EITF No. 00-21"). This issue addresses how revenue arrangements with multiple deliverables should be divided into separate units of accounting and how the arrangement consideration should be allocated to the identified separate accounting units. EITF No. 00-21 is effective for fiscal periods beginning after June 15, 2003. The company is currently evaluating the impact, if any, of adopting EITF No. 00-21 on its results of operations and financial position.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure". SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation", to provide alternative methods of transition to the fair value method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure provisions of SFAS No. 123 to require disclosure in the summary of significant accounting policies of the effects of an entity's accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. SFAS No. 148's amendment of the transition and annual disclosure provisions of SFAS No. 123 are effective for fiscal years ending after December 15, 2002, with earlier application permitted. The Company does not presently intend to change its accounting for stock based compensation to the fair value model of SFAS No. 123. The disclosure provisions of SFAS No. 148 have been adopted by the Company for the year ended March 31, 2003.

The market environment, including general conditions affecting the technology industry together with the downturn in valuations of dot.com companies caused the Company to re-examine whether the values of its Internet investments were appropriate. After reviewing key financial indicators for such investments, which were unlisted and illiquid, the Company concluded that such investments had suffered permanent impairment. Accordingly, during the year ended March 31, 2002, the Company wrote off the value of these investments and recorded an impairment expense of U.S.$ 3,261,248.

On March 23, 2001, the Company acquired the entire outstanding common stock of ValuCom. In terms of the Stock Purchase Agreement between the Company and ValuCom's shareholders, the

consideration consisted of U.S.$ 3.0 million which was paid by the Company on March 23, 2001 plus a deferred consideration (called earn-out payments) payable over a period of two years which was contingent upon ValuCom achieving specified earnings' levels in those years.

The transaction was accounted for by the purchase method in accordance with APB Opinion No. 16, which resulted in creation of an initial goodwill of U.S.$ 3.7 million at March 23, 2001. Such goodwill increased to U.S.$ 6.82 million at March 31, 2002, as a result of provisions for earn-out payments to ValuCom's former shareholders and cash-out of ValuCom options (see note 17). Such goodwill further increased to U.S.$ 7.13 million at March 31, 2003, as a result of final earn-out payments made to ValuCom's option holders. During the year ended March 31, 2003, the Company assessed goodwill on the ValuCom acquisition and recognized an impairment of U.S.$ 5.1 million. See note 8 for further details.

The fair values of assets acquired and liabilities assumed, on the ValuCom acquisition are as follows:

Cash and cash equivalents	U.S.$	749,814
Trade accounts receivable		10,688
Inventory		1,092,768
Prepaid expenses and other current assets		71,229
Property, plant and equipment, net		74,827
Other Assets		5,543
Goodwill net, (see table below)		7,132,810
Accounts payable and accrued liabilities		(2,002,835	)

Total purchase consideration, including direct costs of acquisition	U.S.$	7,134,844

	2002		2003
Goodwill after adjustments to purchase price	U.S.$	6,824,693	U.S.$	7,132,810
Goodwill impairment (See note 8)		—		(5,100,000	)

	U.S.$	6,824,693	U.S.$	2,032,810

The operating results of ValuCom have been consolidated from March 23, 2001, the date of its acquisition.

On April 27, 2001, the Company acquired substantially all of the outstanding voting shares of India Abroad Publications Inc, a New York corporation, for an aggregate net consideration of approximately U.S.$ 10 million.

Pursuant to the stock purchase agreement (as amended) entered into between the Company and certain of India Abroad's shareholders, at the closing of the acquisition, the Company paid approximately U.S.$ 11.4 million to the selling shareholders of India Abroad. Simultaneously with the acquisition, the former principal shareholder repurchased certain assets for approximately U.S.$ 1.1 million resulting in an estimated gain of approximately U.S.$ 314,000, which has been recorded as reduction of goodwill. Of the amount to be paid to the former principal shareholder, the Company had placed U.S.$ 2 million in an escrow account. At March 31, 2003, U.S.$ 1 million remains in the escrow account.

The Company has accounted for this acquisition by the purchase method, in accordance with APB Opinion No. 16, which resulted in the creation of goodwill of approximately U.S.$ 10.5 million.

The fair value of assets acquired and liabilities assumed on the India Abroad acquisition are as follows:

Cash and cash equivalents		U.S.$	116,048
Accounts receivable			435,512
Due from former shareholder			741,248
Prepaid expenses and other current assets			66,273
Prepaid taxes			24,782
Net assets held for sale			1,040,914
Deferred income taxes—current			36,000
Property, plant and equipment, net			267,811
Deferred income taxes—non current			138,000
Other assets			42,516
Goodwill, net (See below)			10,515,168
Borrowings			(861,929	)
Accounts payable and accrued liabilities			(530,535	)
Customer deposits			(242,503	)
Unexpired subscription revenues			(354,447	)

	Total purchase consideration, including direct costs of acquisition	U.S.$	11,434,858

On June 29, 2001 the Company repaid the borrowing amounting to U.S.$ 861,929 assumed in the India Abroad acquisition.

The operating results of India Abroad have been consolidated from April 27, 2001, the date of its acquisition. During the year ended March 31, 2003, the Company assessed goodwill arising on the India Abroad acquisition and recorded an impairment of approximately U.S.$ 3.2 million. See note 8 for further details.

Following the acquisition of India Abroad on April 27, 2001, the Company integrated the operations of Rediff.com Inc., with those of India Abroad, including relocating Rediff.com Inc.'s operations from California to New York. During the year ended March 31, 2002, the Company provided U.S.$ 598,398 for restructuring expenses in accordance with Staff Accounting Bulletin ("SAB") 100 and EITF 94-3, primarily consisting of lease termination costs, expenses for relocation of equipment and staff, and severance payments.

Following the settlement agreement entered into on July 30, 2002 with the former shareholders of ValuCom for full and final settlement of all obligations and earn-out payments, the Company initiated a process of integration by co-locating the ValuCom operations with the New York operations of Rediff.com Inc and India Abroad. During the year ended March 31, 2003 the Company provided U.S.$ 1,010,900 in accordance with SAB 100 and EITF 94-3, primarily consisting of payments made to the former shareholders of ValuCom for transition assistance, lease termination costs, staff travel expenses for commuting from Chicago to New York and severance payments.

Following the triggering event of the restructuring during the year ended March 31, 2002, as described in Note No. 7 above, the Company re-evaluated the goodwill that arose on Rediff.com Inc.'s acquisition for impairment. Based on the application of SFAS No. 142, during the year ended March 31, 2002, management concluded goodwill relating to that acquisition was impaired and accordingly wrote off the unamortized balance of U.S.$ 3,316,508 as an expense.

During the year ended March 31, 2003, management identified the following three triggering events to warrant testing of goodwill on the ValuCom acquisition, for impairment:

Following the triggering events, the Company re-evaluated goodwill that arose on ValuCom's acquisition. The Company also annually assessed the goodwill that arose on India Abroad's acquisition. Based on the application of SFAS No. 142, management concluded that goodwill relating to ValuCom and India Abroad were impaired. Management determined the fair values of ValuCom and India Abroad with the assistance of an independent valuation specialist and recorded an impairment charge of U.S.$ 5,100,000 and U.S.$ 3,200,700 for ValuCom and India Abroad respectively during the year.

The Company applied the provisions of SFAS No. 142, effective April 1, 2001. Had the provisions of SFAS No. 142 been applied for the year ended March 31, 2001, the Company's net loss and net loss per share would have been as follows:

	Years ended March 31,
	2001		2002		2003
Reported net loss	U.S.$	(6,364,516	)	U.S.$	(14,765,006	)	U.S.$	(18,981,150	)
Effect of SFAS No. 142		106,356			—			—
Adjusted net loss	U.S.$	(6,258,160	)	U.S.$	(14,765,006	)	U.S.$	(18,981,150	)

Reported basic and diluted net loss per share	U.S.$	(0.52	)	U.S.$	(1.15	)	U.S.$	(1.48	)

Effect of SFAS No. 142	U.S.$	0.01		U.S.$	—		U.S.$	—

Adjusted basic and diluted net loss per share	U.S.$	(0.51	)	U.S.$	(1.15	)	U.S.$	(1.48	)

Other assets mainly consist of rental deposits, which at balance sheet date are outstanding for more than one year and the non current portion of loans to employees.

The Company's principal related parties are its founder shareholders and companies that the founder shareholders control. The Company enters into transactions with such related parties in the normal course of business.

Included in the determination of net loss are the following significant transactions with related parties:

	As of March 31,
	2002		2003
Receivable for advertising income	U.S.$	3,789		U.S.$	—
Loans to officers	U.S.$	58,805		U.S.$	84,941

The Company grants unsecured loans to employees for acquiring assets such as housing property and vehicles and also for other personal purposes. These are recovered from the employee's salaries. The rates at which the loans are made to employees vary between 0% to 2%.

Years ended March 31,
2004	U.S.$	49,834
2005		36,681
2006		30,404
2007		24,235
2008 and thereafter		18,287

Total payments	U.S.$	159,441

On May 3, 2000, the Company effected a 2 for 5 reverse share split, pursuant to which the authorized capital of 50,000,000 equity shares with a par value of Rs.2 per share was redesignated to 20,000,000 equity shares with a par value of Rs.5 per share and the Company's issued capital as on that date of 25,375,500 equity shares with a par value of Rs.2 per share has been redesignated to 10,150,200 equity shares with a par value of Rs.5 per share. All share amounts noted in these financial statements reflect this reverse share split.

On June 14, 2000, the Company made an initial public offering of 4,600,000 American Depositary Shares ("ADS") representing 2,300,000 equity shares of the Company at a price of U.S.$ 12.00 per ADS raising net proceeds of U.S.$ 49,786,190 after underwriting discount and expenses. On June 20, 2000, the underwriters exercised their over-allotment option and the Company issued an additional 690,000 ADSs equivalent to 345,000 equity shares at a price of U.S.$ 12.00 per ADS for net proceeds of U.S.$ 7,467,928.

The Company provides for gratuity, an unfunded defined benefit retirement plan covering eligible employees in India based on third-party actuarial valuations. This plan provides for a lump-sum payment to be made to vested employees at retirement, death or termination of employment in an amount equivalent to 15 days salary, payable for each completed year of service. These gratuity benefits vest upon an employee's completion of five years of service.

Net periodic pension cost for the years ended March 31, 2001, 2002 and 2003 and the unfunded benefit liability as of March 31, 2001, 2002 and 2003 are as follows:

The assumptions used in accounting for gratuity in the years ended March 31, 2001, 2002 and 2003 were as follows:

	Years ended March 31,
	2001		2002		2003
Rupee discount rate	11	%	10	%	8	%
Rate of increase in rupee compensation	12	%	12	%	8	%

Employees based in India and the Company each contribute at the rate of 12% of salaries to a provident fund maintained by the Government of India for the benefit of such employees. The provident fund is a defined contribution plan. Accordingly, the Company expenses such contributions to operations as incurred. Amounts contributed by the Company to the provident fund, in the aggregate, were U.S.$ 67,857, U.S.$ 84,487 and U.S.$ 76,727 for the years ended March 31, 2001, 2002 and 2003, respectively.

The Company leases office space, computer equipment, high-speed telephone lines and residential apartments for employees under various operating leases. Operating lease expense that has been included in the determination of the net loss is as follows:

	Years ended March 31,
	2001		2002		2003
Office space	U.S.$	184,495	U.S.$	358,329	U.S.$	423,658
Computers		5,364		—		—
Telecom leased lines		369,818		886,829		576,211
Residential apartments for employees		126,385		176,656		121,008

Total operating lease expense	U.S.$	686,044	U.S.$	1,421,814	U.S.$	1,120,877

The minimum annual rental commitments under non-cancelable operating leases that have initial or remaining terms in excess of one year are as follows:

Years ended March 31,
2004	U.S.$	295,188
2005		135,000
2006		83,000
2007		84,000
2008 and thereafter		60,000

Total payments	U.S.$	657,188

	Years ended March 31,
	2001		2002			2003
Current taxes—all foreign	U.S.$	24,502	U.S.$	(185,809	)	U.S.$	237,932
Deferred taxes, net of allowance		—		174,000			—

Net income tax expense (benefit)	U.S.$	24,502	U.S.$	(11,809	)	U.S.$	237,932

The tax effects of significant temporary differences that resulted in deferred tax assets and liabilities are as follows:

	As of March 31,
	2002			2003
Depreciation	U.S.$	(272,803	)	U.S.$	97,886
Bad debt allowance		304,932			381,297
Net operating loss carry forwards		6,607,411			10,428,326
Unabsorbed depreciation carry forward		1,561,878			1,896,945
Retirement benefits—Gratuity		19,181			58,784
Web site development costs		(27,322	)		(8,573	)
Other		171,000			186,993

		8,364,277			13,041,658
Less: Valuation allowance		(8,364,277	)		(13,041,658	)

Net deferred tax asset	U.S.$	—		U.S.$	—

The Company has not generated any taxable income in India to date, and therefore has not had to pay any Indian income tax since its inception. The Company has provided a full valuation allowance against the deferred tax asset since it is more likely than not that the asset will not be recovered. The Company's net operating loss carry forwards for its Indian operations aggregating approximately U.S.$ 18.5 million will expire between April 1, 2004 and March 31, 2011.

Recoverable income taxes mainly consist of tax deducted at source on income from advertising services and interest income, which the Company will claim as refund.

As of March 31, 2003, ValuCom has net operating loss carryforwards available to offset future federal taxable income of U.S.$ 2,200,000, which expire in 2023.

As of March 31, 2003, Rediff Holdings Inc., has net operating loss carryforwards of approximately U.S.$ 6,662,000 for federal income tax purposes, which expire in years 2019 through 2023, and has tax credits of approximately U.S.$ 90,000 and U.S.$ 56,000 for federal and state income tax liabilities, respectively. The utilization of approximately U.S.$ 1,630,000 of Rediff Holdings Inc's net operating loss carryforwards for federal income tax purposes, U.S.$ 1,705,000 of its net operating loss carryforwards for state income tax purpose and U.S.$ 146,000 of its tax credits are limited by certain sections of the federal and state revenue codes.

During the year, the Chief Executive Officer of the Company, who is its chief operating decision maker, reclassified the Company's business segments and assessed the Company's performance on a new basis. The new business segments are:

Following a change in the composition of reportable segments, the corresponding segment data for previous years has been restated on a basis comparable to the current year.

Summarized segment information for the years ended March 31, 2001, 2002 and 2003 is as follows:

	Years ended March 31,
	2001		2002		2003
United States	U.S.$	1,320,812	U.S.$	22,272,977	U.S.$	14,253,192
India		4,205,736		2,472,460		2,757,482
Rest of the world		94,319		16,128		241,199

Total revenues	U.S.$	5,620,867	U.S.$	24,761,565	U.S.$	17,251,873

	As of March 31,
	2002		2003
United States	U.S.$	819,620	U.S.$	512,729
India		3,030,933		1,744,287

Total	U.S.$	3,850,553	U.S.$	2,257,016

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents and accounts receivable. The Company maintains the majority of its cash and cash equivalents in U.S. Dollars with reputed banks outside India.

The Company's advertising revenues from the India Online business are primarily derived from large corporate clients in India. Advertising revenues from the U.S. Publishing business are primarily derived from corporate clients and retail customers in the United States and Canada. The Company's fee based revenues from the India Online business and U.S. Publishing business and revenues from the Phone Card business are primarily derived from retail customers in India, the United States and Canada. These do not expose the Company to any material concentrations of credit risk.

No single client accounted for more than 10% of the total revenue for the years ended March 31, 2002 and 2003.

Two clients accounted for 13.5% and 11.8% of the total revenue, respectively, during the year ended March 31, 2001. Amounts receivable from such clients as of March 31, 2001, net of allowances, were U.S.$ 47,874 and U.S.$ 0 respectively.

On February 22, 1999, the Company approved the Employee Stock Option Plan 1999 ("1999 ESOP") and the Associate Stock Option Plan 1999 ("1999 ASOP") (collectively "Option Plans") which cover present and future employees, retainers in full time service of the Company and certain associates of the Company. The 1999 ESOP and 1999 ASOP have similar terms. Under the terms of the 1999 ESOP, a committee of the board may award stock options to eligible employees in the form of warrants. Such options vest at the rate of 25% on each successive anniversary of the grant date, until fully vested. Under the terms of the 1999 ASOP, a committee of the board may award stock options to eligible associates in the form of warrants. Such warrants vest at the rates set forth in each warrant.

Each allotted warrant carries with it the right to purchase a specified number of the Company's equity shares at the exercise Price during the exercise period, which expires five years from the date of grant.

The Exercise Price is determined by the awarding committee, and is intended to be at least the fair value of the Company's equity shares on the date of the grant.

Under the Option Plans, the Company reserved 280,000 equity shares for the 1999 ESOP and 198,000 equity shares for the 1999 ASOP, respectively. The Option Plans also permit the board of directors to reserve additional warrants under either plan to be issued to eligible parties on such terms and conditions as may then be decided by the board at its absolute discretion.

The Company has elected to use the intrinsic value method of APB Opinion No. 25 to account for its stock-based compensation plans regarding options awarded to officers, employees, retainers in full time service of the Company and non-employee directors for their services as directors, and the fair value method specified in SFAS 123 in respect of the options awarded to associates of the Company. Management believes that the exercise prices approximate or exceed the fair market value of the Company's equity shares on grant dates prior to June 2000 based on transactions in the Company's equity shares with unrelated parties and its IPO price, adjusted for illiquidity as the underlying equity shares were neither traded in India nor available to be sold on NASDAQ.

During the year ended March 31, 2003 the company has recognized a compensation cost of U.S.$ 403, in respect of stock options granted to associates of the company in accordance with SFAS 123.

Activity in the warrants available to be granted under the 1999 ESOP is as follows:

	Shares available to be granted as options
	Years ended March 31,
Employee Stock Option Plan 1999:	2001		2002		2003
Shares available to be granted, beginning of year	57,700		10,900		5,350
Equity shares allocated for grant under the plan	—		—		—
Forfeited	19,200		13,450		12,900
Options granted	(66,000	)	(19,000	)	—

Shares available to be granted, end of year	10,900		5,350		18,250

Activity in the warrants of the 1999 ESOP for the years ended March 31, 2001, 2002 and 2003 is as follows:

Activity in the warrants available to be granted under the 1999 ASOP is as follows:

Activity in the warrants of the 1999 ASOP for the years ended March 31, 2001, 2002 and 2003 is as follows:

In February 2000, and January 2002 the Company's board of directors approved the 2000 Stock Option Plan ("2000 plan") and 2002 Stock Option Plan ("2002 plan") respectively, which provide for the grant of incentive stock options and non-statutory stock options to the Company's employees. All options under these plans are exercisable for the ADSs of the Company. Necessary approvals from the regulators in India have been obtained and the Company expects to make appropriate filings with the SEC prior to the first vesting date. The 2000 and 2002 plans will be accounted for using the intrinsic value method of APB Opinion No. 25. Unless terminated sooner, these plans will terminate automatically in February 2010 and January 2012 respectively. A total of 80,000 and 280,000 of the Company's equity shares are currently reserved for issuance pursuant to 2000 and 2002 plan, respectively.

Activity in the warrants available to be granted under the 2002 plan is as follows:

	Shares available to be granted as options Years ended March 31,
	2002	2003
ADR linked Employee Stock Option Plan 2002:
Shares available to be granted, beginning of year	—	280,000
Equity shares allocated for grant under the plan	280,000	—
Options granted	—	(220,500	)

Shares available to be granted, end of year	280,000	59,500

Activity in the warrants of the 2002 plan for the year ended March 31, 2003 is as follows:

	Year ended March 31, 2003
	Shares arising out of options	Weighted average exercise price
Outstanding at the beginning of the year	—		—	—
Granted	220,500	U.S.$	2.26	Rs 109

Outstanding at the end of the year	220,500	U.S.$	2.30	Rs 109

The Company has adopted the pro forma disclosure provisions of SFAS No. 123 and SFAS No. 148 for the aforementioned plans. Had compensation cost for the Company's stock-based compensation plans been determined in a manner consistent with the fair value approach described in

SFAS No. 123, the Company's net loss and basic loss per share as reported would have been reduced to the pro forma amounts indicated below:

	Years ended March 31,
	2001			2002			2003
Net Loss As reported	U.S.$	(6,364,516	)	U.S.$	(14,765,006	)	U.S.$	(18,981,150	)
Less: Total stock-based employee compensation expense determined under fair value based method for all awards		(181,510	)		(224,745	)		(257,166	)
Adjusted pro forma	U.S.$	(6,546,026	)	U.S.$	(14,989,751	)	U.S.$	(19,238,316	)
Loss per share—basic and diluted As reported	U.S.$	(0.52	)	U.S.$	(1.15	)	U.S.$	(1.48	)
Adjusted pro forma	U.S.$	(0.53	)	U.S.$	(1.17	)	U.S.$	(1.50	)

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

	Years ended March 31,
	2001	2002	2003
Dividend yield	0%	0%	0%
Expected life	4 years	4 years	4 Years
Risk free interest rates	9.75%	8%	5.75%
Volatility	115.6%	99.32%	118.59%

The following table summarizes information about stock options outstanding as at March 31, 2003:

	Options Outstanding
Range of Exercise Price	Number of shares arising out of options	Weighted average remaining contractual life	Weighted average Exercise price
U.S.$ 1.58-2.39	389,250	2.18 years	U.S.$	2.09	Rs 99
U.S.$ 5.92-8.57	9,550	1.73 years	U.S.$	6.19	Rs 294
U.S.$ 9.01-12.15	103,100	1.08 years	U.S.$	9.88	Rs 469
U.S.$ 12.47-18.42	64,900	0.88 years	U.S.$	16.20	Rs 770
U.S.$ 18.76-22.88	3,800	1.11 years	U.S.$	21.52	Rs 1,022

Prior to its acquisition, on April 1, 2000, ValuCom adopted the Value Communications Corporation 2000 Stock Incentive Compensation Plan as a means of encouraging stock ownership by its employees, officers, directors and advisors. Under terms of this plan, non-qualified options to purchase up to 300,000 shares of common stock of ValuCom were reserved for issuance, were generally granted at not less than fair market value, became exercisable generally over four years and generally expired seven years from the date of grant.

Company's shares under such stock option plan, on terms and conditions which are in all material respects similar to the terms and conditions applicable to the outstanding ValuCom options. In addition, on the conversion date, the Company may, at its option, pay to vested ValuCom option holders a lump-sum cash payment equal to the greater of the difference, if any, between $3.00 or the Company's current market price and the exercise price for each vested ValuCom option.

A reconciliation of the numerators and denominators used in the computation of the basic and diluted per equity share has not been provided, since 177,813, 61,114 and 29,145 stock options outstanding as on March 31, 2001, 2002 and 2003 respectively, which can potentially dilute basic EPS in the future were anti dilutive in those years.

On April 16, 2001, the Company, four of its officers and directors, and a group of investment banks that acted as underwriters in the Company's June 2000 initial public offering (the "IPO") and listing of ADSs were named as defendants in the legal action of Khanna v. Rediff.com India Ltd. et al., a class action lawsuit filed in the United States District Court for the Southern District of New York. Plaintiffs in Khanna allege that the Company's registration statement filed with the SEC contained misleading statements and omissions in violation of the U.S. Securities Act of 1933, as amended ("Securities Act"), the U.S. Securities Exchange Act of 1934, as amended ("Exchange Act") and SEC Rule 10b-5. The plaintiff class in this lawsuit has been defined as all persons who purchased American Depositary Shares ("ADSs") from the time of the IPO through April 14, 2001 and seeks unspecified damages. Subsequent to the filing of the Khanna Action, several other actions have been filed against the Company and the other defendants setting forth substantially the same allegations.

On May 11, 2001, the Company received from the firms that served as underwriters in the IPO a demand for indemnification of the underwriters' legal fees and liabilities. The Company's board of directors also has resolved to indemnify its officers and directors named as defendants against their legal fees and liabilities, to the extent permitted under Indian law. At the time of the IPO, the Company purchased Directors & Officers liability insurance, or D&O Policy, providing coverage against federal securities law claims. The D&O Policy includes coverage cost of defending the class action lawsuits, indemnification liabilities to its officers and directors, and indemnification liabilities to its underwriters. The coverage of the D&O Policy is denominated in Indian Rupees, but the policy proceeds are payable in United States dollars. Based on the noon buying rate at March 31, 2003, the face amount of the D&O Policy is approximately U.S.$ 18.8 million. The proceeds of the D&O Policy available to satisfy any judgment against the Company, or any judgment against persons whom the Company is obligated to indemnify, will be reduced by the amount of the legal fees and associated expenses in the defense of the Company, the individual defendants and the underwriters which are paid from the D&O Policy. The coverage of the D&O Policy for the payment of legal fees, cost of defense and judgment, if any, is subject to a retention of approximately U.S.$ 234,000 (based on the noon buying rate at March 31, 2003), which must be satisfied by the Company before the D&O Policy proceeds would be available to the Company. During the year ended March 31, 2002, the Company recorded a recoverable from the Insurance carrier of U.S.$ 67,955 paid by the Company towards legal fees in excess of the self-insured retention for this case. The insurance carriers have informed the Company that this amount would be paid on the settlement of the cases. The D&O Policy contains

various exclusions, which, if met, may result in the denial of insurance coverage. The Company has been advised by the insurance carriers who wrote the D&O Policy that they are not currently aware of any facts or circumstances that would cause any of the exclusions to apply, but that the carriers have reserved their rights to claim that the exclusions do apply if any such facts or circumstances come to their attention.

On June 5, 2001, twenty-four companies, including the Company, who had issued securities to the public in their initial public offerings, together with the investment banks who acted as underwriters in these initial public offerings, were named as defendants in the lawsuit of Shives v. Bank of America Securities, LLC et al., a class action lawsuit filed in the United States District Court for the Southern District of New York. Also named, as defendants in this lawsuit were four of the Company's officers and directors. The plaintiffs in Shives allege that the underwriter defendants combined and conspired to inflate the underwriting compensation they received in connection with the initial public offerings of the defendant companies, to manipulate and inflate the prices paid by plaintiffs for securities issued in the initial public offerings and to restrain and suppress competitive pricing for underwriting compensation. Plaintiffs allege claims pursuant to the U.S. Sherman Antitrust Act of 1890, as amended, the Clayton Antitrust Act of 1914, as amended, and the Securities Act of 1933, as amended against the underwriter defendants. The plaintiffs further allege that the defendants, including the Company and certain of its officers and directors, made material misstatements and omissions in violation of the Securities Act and Exchange Act of 1933 by concealing or failing to disclose the compensation earned by the underwriters in the initial public offerings.

The Company believes that the allegations in the Khanna Action and its related cases, and in the Shives Action are without merit and intends to defend the lawsuits vigorously. The Company is not able at this point to predict the course or the outcome of the litigation. In the event the class action law suits result in substantial judgments against the Company and the Company's Directors and Officers Liability insurance coverage proves inadequate, the said judgments could have a severe material effect on the Company's financial position and its results of operations.

In connection with the Company's acquisition of India Abroad in April 2001, the Company has been advised by a holdout shareholder that he believes his shares in India Abroad are worth approximately U.S.$ 1.2 million. The Company disputes this assertion and has offered the claimant approximately U.S.$ 50,000 for his shares. The Company does not know if this offer will be acceptable to the shareholder or if the shareholder will file a legal action against the Company if the matter is not resolved. The Company believes that the outcome will have no impact on the Company's financial position, results of operations or cash flows.

Indian Music Industry ("IMI"), an association claiming to represent 50 Indian companies, which purportedly own copyrights to sound recordings, filed a complaint with the Mumbai Police Department in February, 2000, alleging that the Company was aiding and abetting violations of the Indian Copyright Act of 1957, as amended, because the Company, through its website, provided links to websites containing downloadable music files copyrighted by IMI members. In July 2001, the Mumbai Metropolitan Magistrate issued bailable warrants concerning the complaint against three of the Company's directors. The warrants as against two of the Company's directors were promptly cancelled and the warrant against one director was stayed. The Company is continuing to investigate the underlying facts of the complaint. The directors have presently been exempted from personal appearance. The directors are filing an application for discharge of the complaint before the Magistrate.

INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE OF
VALUATION AND QUALIFYING ACCOUNTS

We have audited the consolidated financial statements of Rediff.com India Limited as of March 31, 2003 and 2002 and for each of the years in the three year period ended March 31, 2003 and have issued our report thereon dated June 24, 2003 (included elsewhere in the Annual Report on Form 20-F), which report expresses an unqualified opinion. Our audits also included the accompanying Schedule of Valuation and Qualifying Accounts. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audit. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

(Mark One)
o	Registration statement pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934
ý	Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended March 31, 2003
o	Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the transition period from to

	Fiscal Years Ended March 31,
	1999		2000		2001		2002		2003
	(In thousands, except per share data)
Statement of Operations data:
Revenues	U.S.$855		U.S.$1,906		U.S.$5,621		U.S.$24,762		U.S.$17,252
Cost of goods sold	71		392		451		12,573		7,104
Cost of revenues	250		561		2,165		5,524		5,762
Gross profit	534		954		3,005		6,665		4,386
Operating expenses	1,545		7,869		14,916		23,456		23,193
Loss from operations	(1,011	)	(6,915	)	(11,911	)	(16,791	)	(18,807	)
Net loss	U.S.$(985	)	U.S.$(6,666	)	U.S.$(6,365	)	U.S.$(14,765	)	U.S.$(18,981	)
Loss per equity share after adjusting for 2:5 reverse share split—basic and diluted	U.S.$(0.15	)	U.S.$(0.76	)	U.S.$(0.52	)	U.S.$(1.15	)	U.S.$(1.48	)
Weighted equity shares used in computing loss per equity share after adjusting for 2:5 reverse share split	6,389		8,765		12,253		12,795		12,795

	As of March 31,
	1999		2000		2001		2002		2003
	(In thousands)
Balance Sheet Data:
Cash and cash equivalents	U.S.$247		U.S.$11,576		U.S.$47,654		U.S.$26,520		U.S.$14,384
Working capital	8		10,522		43,507		22,412		13,422
Total assets	1,073		16,062		67,497		52,250		30,332
Long-term debt, including current installments	449		—		—		—		—
Total shareholders' equity	287		12,722		60,249		44,004		25,541

		March 31,
		2002			2003
Assets
Current Assets
Cash and cash equivalents		U.S.$	26,519,847		U.S.$	14,383,786
Trade accounts receivables, (net of allowances of U.S.$841,160 and U.S.$1,034,360 at March 31, 2002 and 2003, respectively)			1,092,931			1,476,773
Inventories			472,926			275,321
Prepaid expenses and other current assets			1,874,839			1,406,002
Recoverable income taxes			577,322			540,856

Total current assets			30,537,865			18,082,738
Property, plant and equipment—net			3,850,553			2,257,016
Goodwill—net			17,339,861			9,347,278
Intangible assets—net			40,132			—
Other assets			481,679			644,594
Total assets		U.S.$	52,250,090		U.S.$	30,331,626

Liabilities and shareholders' equity
Current liabilities
Accounts payable and accrued liabilities		U.S.$	7,709,068		U.S.$	4,155,545
Customer deposits			214,343			221,600
Unearned revenues			137,501			240,420
Bank balance overdrawn			65,130			43,208

Total current liabilities			8,126,042			4,660,773
Unexpired subscription revenues			119,750			115,990
Other liabilities			—			13,941

Total Liabilities			8,245,792			4,790,704

Commitments and contingencies (See note 19)			—			—
Shareholders' equity
	Equity shares: par value—Rs.5, Authorized: 20,000,000 shares; Issued and outstanding: 12,795,200 (See note 11)		1,534,308			1,534,308
Additional paid in capital			76,903,671			76,903,671
Other comprehensive loss			(4,739,065	)		(4,221,694	)
Deferred compensation expense (See note 17)			(1,539	)		(1,136	)
Accumulated deficit			(29,693,077	)		(48,674,227	)

Total shareholders' equity			44,004,298			25,540,922

Total liabilities and shareholders' equity		U.S.$	52,250,090		U.S.$	30,331,626

		Years ended March 31,
		2001			2002			2003
Operating revenues
	India Online	U.S.$	5,222,483		U.S.$	2,575,918		U.S.$	2,767,244
	U.S. Publishing		10,738			5,283,037			5,804,598
	Phone Card		387,646			16,902,610			8,680,031

Total revenues			5,620,867			24,761,565			17,251,873
Cost of goods sold
	India Online		147,019			—			—
	Phone Card		303,548			12,572,725			7,104,368

Total cost of goods sold			450,567			12,572,725			7,104,368

Net Revenues			5,170,300			12,188,840			10,147,505

Cost of revenues
	India Online		2,126,084			1,337,183			1,078,472
	U.S. Publishing		28,932			3,760,841			4,481,618
	Phone Card		10,243			426,100			201,768

Total cost of revenues			2,165,259			5,524,124			5,761,858

Gross profit			3,005,041			6,664,716			4,385,647

Operating expenses
	Sales and marketing		7,459,907			4,165,050			3,721,367
	Product development		2,651,834			3,325,719			2,133,461
	General and administrative		4,602,966			8,538,825			8,026,608
Restructuring costs (See note 7) and legal fees			—			848,398			1,010,900
Goodwill written off (See note 8)			106,356			3,316,508			8,300,700
Investments written off (See note 3)			95,408			3,261,248			—

Total operating expenses			14,916,471			23,455,748			23,193,036

Loss from operations			(11,911,430	)		(16,791,032	)		(18,807,389	)

	Other income, net:
	Interest income		2,920,721			917,378			397,941
	Foreign exchange gain(loss), net		2,569,513			1,079,260			(400,387	)
	Miscellaneous income		81,182			17,579			66,617

			5,571,416			2,014,217			64,171

Loss before income taxes			(6,340,014	)		(14,776,815	)		(18,743,218	)
Income tax (expense) benefit			(24,502	)		11,809			(237,932	)

Net loss		U.S.$	(6,364,516	)	U.S.$	(14,765,006	)	U.S.$	(18,981,150	)

Weighted average number of equity shares—basic and diluted			12,253,282			12,795,200			12,795,200

Loss per share—basic and diluted		U.S.$	(0.52	)	U.S.$	(1.15	)	U.S.$	(1.48	)
Loss per ADS—(where 2 ADSs are equal to 1 equity share)—basic and diluted		U.S.$	(0.26	)	U.S.$	(0.58	)	U.S.$	(0.74	)

			Years ended March 31,
			2001		2002		2003
Cash flows from operating activities
Net loss			U.S.$ (6,364,516	)	U.S.$ (14,765,006	)	U.S.$ (18,981,150	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			1,087,430		2,981,939		2,012,505
Amortization of goodwill			106,356		—		—
Amortization of intangibles			25,326		35,848		40,132
Allowance for impairment of goodwill (See note 8)			—		3,316,508		8,300,700
Other than temporary diminution in the value of investments			95,408		3,261,248		—
Loss on sale of property, plant and equipment			39,016		44,304		7,975
Stock based compensation expense			—		67		403
Changes in assets and liabilities:
	Trade accounts receivable		(39,548	)	233,283		(383,842	)
	Prepaid expenses and other current assets		336,553		(765,332	)	418,357
	Accounts payable and accrued liabilities		700,622		(2,397,299	)	(524,306	)
	Unearned revenues		(249,252	)	(278,917	)	102,919
	Inventories		149,857		469,985		197,605
	Customer deposits		—		(28,160	)	7,257
	Recoverable income taxes		(178,781	)	(313,124	)	36,466
	Unexpired subscription revenues		—		119,750		(3,760	)
	Deferred income taxes		—		174,000		—
	Other assets		(876,259	)	715,389		(162,915	)

Net cash used in operating activities			(5,167,788	)	(7,195,517	)	(8,931,654	)

Cash flows from investing activities
	Payments to acquire property, plant and equipment		(3,573,432	)	(1,535,885	)	(345,629	)
	Purchase consideration for acquisitions		(6,705,630	)	(10,953,875	)	(3,411,720	)
	Refund from stockholder		—		741,248		—
	Cash acquired on acquisitions		864,638		116,048		—
	Purchases of investments		(3,311,517	)	—		—
	Sale of investments		68,805		—		—
	Proceeds from sales of property, plant and equipment		11,210		12,042		35,571

		Net cash used in investing activities	(12,645,926	)	(11,620,422	)	(3,721,778	)

Cash flows from financing activities
	Repayment of long term debt		—		(861,929	)	—
	Net proceeds from issue of ADSs		57,254,118		—		—

		Net cash provided by (used in) financing activities	57,254,118		(861,929	)	—

Effect of exchange rate changes on cash			(3,362,475	)	(1,456,041	)	517,371
Net increase (decrease) in cash and cash equivalents			36,077,929		(21,133,909	)	(12,136,061	)
Cash and cash equivalents at the beginning of the year			11,575,827		47,653,756		26,519,847

Cash and cash equivalents at the end of the year			U.S.$ 47,653,756		U.S.$ 26,519,847		U.S.$ 14,383,786

	Supplemental disclosure of cash flow information:
		U.S. Federal income taxes paid	U.S.$ 3,900		U.S.$ 12,208		U.S.$ —
		Bank interest paid	U.S.$ 2,109		U.S.$ 19,773		U.S.$ 4,105
Supplemental disclosure of non-cash activity:
	Conversion of optionally convertible preference shares into equity shares		U.S.$ 68,807		U.S.$ —		U.S.$ —

	Equity Shares
	(See note 11)
	Number of Shares	Amount		Additional Paid in Capital		Other Comprehensive Income (Loss)			Deferred Compensation Expense			Accumulated Deficit			Total
Balance, as of April 1, 2000	10,150,200	U.S.$	1,236,913	U.S.$	19,945,342	U.S.$	103,119		U.S.$	—		U.S.$	(8,563,555	)	U.S.$	12,721,819
Issue of new ADS,(where 2 ADS are equal to 1 equity shares), net of expenses	2,645,000		297,395		56,956,723		—			—			—			57,254,118
Net loss	—		—		—		—			—			(6,364,516	)		(6,364,516	)
Other comprehensive income- translation adjustment	—		—		—		(3,362,475	)		—			—			(3,362,475	)

Balance, as of March 31, 2001	12,795,200		1,534,308		76,902,065		(3,259,356	)		—			(14,928,071	)		60,248,946
Compensation related to stock option grants	—				1,606		—			(1,606	)		—			—
Amortization of compensation related to stock option grants	—		—		—		—			67			—			67
Net loss	—		—		—		—			—			(14,765,006	)		(14,765,006	)
Other comprehensive income translation adjustment	—		—		—		(1,479,709	)		—			—			(1,479,709	)

Balance, as of March 31, 2002	12,795,200		1,534,308		76,903,671		(4,739,065	)		(1,539	)		(29,693,077	)		44,004,298
Amortization of compensation related to stock option grants	—		—		—		—			403			—			403
Net loss	—		—		—		—			—			(18,981,150	)		(18,981,150	)
Other comprehensive income- translation adjustment	—		—		—		517,371			—			—			517,371

Balance, as of March 31, 2003	12,795,200	U.S.$	1,534,308	U.S.$	76,903,671	U.S.$	(4,221,694	)	U.S.$	(1,136	)	U.S.$	(48,674,227	)	U.S.$	25,540,922

	2002		2003
Goodwill	U.S.$	10,515,168	U.S.$	10,515,168
Goodwill impairment		—		(3,200,700	)

	U.S.$	10,515,168	U.S.$	7,314,468

	As of March 31,
	2002		2003
Prepaid expenses and deferred costs	U.S.$	500,293	U.S.$	585,034
Vendor advances for capital purchases		50,479		—
Other deposits and advances		125,948		153,812
Rent Deposits		986,846		534,168
Loans to employees		74,299		49,834
Accrued interest		69,019		15,199
Insurance recoverable (See note 19)		67,955		67,955

	U.S.$	1,874,839	U.S.$	1,406,002

	As of March 31,
	2002			2003
Goodwill, on acquisition	U.S.$	17,821,458		U.S.$	17,821,458
Adjustments to purchase price and its allocation		2,941,267			3,249,384
Accumulated amortization/ impairment		(3,422,864	)		(11,723,564	)

Goodwill, net		17,339,861			9,347,278

Intangible assets, acquired (with finite life)		101,306			101,306
Accumulated amortization		(61,174	)		(101,306	)

Intangible assets, net		40,132			—

Goodwill and intangible assets, net	U.S.$	17,379,993		U.S.$	9,347,278

	Shares available to be granted as options Years ended March 31,
Associate Stock Option Plan 1999:	2001	2002		2003
Shares available to be granted, beginning of year	124,400	132,900		137,650
Forfeited	8,500	5,750		—
Options granted	—	(1,000	)	(28,000	)

Shares available to be granted, end of year	132,900	137,650		109,650

Description		Balance at Beginning of Period			Acquired on Acquisition			Charged to cost and expenses			Write offs			Balance at end of period
Fiscal 2003		U.S.$	841,160			—		U.S.$	213,588		U.S.$	(20,388	)	U.S.$	1,034,360
Fiscal 2002		U.S.$	443,343		U.S.$	40,000		U.S.$	357,817			—		U.S.$	841,160

		REDIFF.COM INDIA LIMITED
		By:	/s/ AJIT BALAKRISHNAN Name: Ajit Balakrishnan Title: Chairman and Managing Director

		REDIFF.COM INDIA LIMITED
		By:	/s/ RICK FILIPPELLI Name: Rick Filippelli Title: Chief Financial Officer