REDIFF COM INDIA LTD, 6-K, 2000-11-14

REDIFF COM INDIA LTD
6-K, 2000-11-14
COMPUTER PROGRAMMING, DATA PROCESSING, ETC.

Previous: ELVA INC, 10QSB, EX-27, 2000-11-14

Next: REDIFF COM INDIA LTD, 6-K, EX-27.1, 2000-11-14

<PAGE> 1
--------------------------------------------------------------------------------

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM 6-K

REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 2000

Commission File Number 333-37376

REDIFF.COM INDIA LIMITED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

Not Applicable
(Translation of Registrant's name into English)

Mumbai, Maharashtra, India
(Jurisdiction of incorporation or organization)

Mahalaxmi Engineering Estate,
1st Floor, L. J. First Cross Road
Mahim (West), Mumbai 400 016, India
+91-22-444-9144
(Address of principal executive offices)

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

Form 20-F [X] Form 40-F [ ]

Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g 3-2(b) under the Securities Exchange Act of
1934.

Yes [ ] No [X]

If "Yes" is marked, indicate below the file number assigned to registrant in
connection with Rule 12g 3-2(b).

Not applicable.

<PAGE> 2

CURRENCY OF PRESENTATION AND CERTAIN DEFINED TERMS

Unless the context otherwise requires, references herein to "us," "we,"
the "company" or to "Rediff" are to Rediff.com India Limited, a limited
liability company organized under the laws of the Republic of India. References
to "U.S." or "United States" are to the United States of America, its
territories and its possessions. References to "India" are to the Republic of
India. All trademarks or tradenames used in this Quarterly Report on Form 6-K
("Quarterly Report") are the property of their respective owners.

In this Quarterly Report, all references to "Indian rupees," "rupees"
and "Rs." are to the legal currency of India and all references to "U.S.
dollars," "dollars" and "US$" are to the legal currency of the United States.
For the convenience of the reader, this Quarterly Report contains translations
of Indian rupee amounts into U.S. dollars. This should not be construed as a
representation that those Indian rupee or U.S. dollar amounts could have been,
or could be, converted into U.S. dollars or Indian rupees, as the case may be,
at any particular rate, the rate stated below, or at all. Except as otherwise
stated in this Quarterly Report, all translations from Indian rupees to U.S.
dollars contained in this Quarterly Report have been based on the noon buying
rate in the City of New York on September 30, 2000 for cable transfers in Indian
rupees as certified for customs purposes by the Federal Reserve Bank of New
York, which was Rs. 46.06 per US$1.00.

In this Quarterly Report, any discrepancies in any table between totals
and the sums of the amounts listed are due to rounding.

FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE

Included in this Quarterly Report are various forward-looking statements
which can be identified by the use of forward-looking terminology such as "may,"
"will," "expect," "anticipate," "estimate," "continue," "believe" or other
similar words. We have made forward-looking statements with respect to the
following, among others:

- our goals and strategies;

- the importance and expected growth of Internet technology;

- the pace of change in the Internet market;

- the demand for Internet services; and

- advertising demand and revenues.

These statements are forward looking and reflect our current
expectations. They are subject to a number of risks and uncertainties, including
but not limited to, changes in the economic and political environments in India
and Asia, changes in technology and changes in the Internet marketplace. In
light of the many risks and uncertainties surrounding Rediff.com, India, Asia
and the Internet marketplace, readers should keep in mind that we cannot
guarantee that the forward-looking statements described in this Quarterly Report
will transpire.

<PAGE> 3

PART I -- FINANCIAL INFORMATION

Item 1. Financial Statements

REDIFF.COM INDIA LIMITED
BALANCE SHEETS
AS OF SEPTEMBER 30, 2000 AND MARCH 31, 2000.

<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 MARCH 31, 2000
(UNAUDITED) (AUDITED)
------------------ ---------------
<S> <C> <C>
ASSETS

CURRENT ASSETS
Cash and cash equivalents ............................................. US$ 60,651,730 US$ 11,575,827
Trade accounts receivable, ............................................ 553,566 827,216
(net of allowances of $55,964 and $50,389 at September 30, 2000 and
March 31, 2000, respectively)
Prepaid expenses and other current assets ............................. 1,962,568 1,670,908
Prepaid income taxes .................................................. 138,182 60,635
--------------- ---------------
Total current assets ........................................... 63,306,046 14,134,586
Property, plant and equipment - net ....................................... 2,847,721 1,789,674
Intangible assets ......................................................... 94,340 --
Investments available for sale ............................................ 2,452,841 137,612
--------------- ---------------
TOTAL ASSETS ................................................... US$ 68,700,948 US$ 16,061,872
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts Payable ...................................................... US$ 4,550,722 US$ 3,021,777
Other accrued liabilities ............................................. 35,623 7,053
Unearned revenues ..................................................... 144,975 311,223
--------------- ---------------
Total current liabilities ...................................... 4,731,320 3,340,053
Commitments and contingencies ......................................... -- --
SHAREHOLDERS' EQUITY
Equity shares: par value - Rs.5
Authorized: 20,000,000 shares at September 30, 2000 and
March 31, 2000; Issued and outstanding:
12,795,200 shares and 10,150,200 shares at September 30, 2000 and
March 31, 2000, respectively ......................................... 1,534,308 1,236,913
Additional paid in capital ............................................ 76,480,172 19,945,342
Accumulated deficit ................................................... (11,545,954) (8,563,555)
Cumulative translation adjustment ..................................... (2,498,898) 103,119
--------------- ---------------
TOTAL SHAREHOLDERS' EQUITY ................................................ 63,969,628 12,721,819
--------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................................ US$ 68,700,948 US$ 16,061,872
=============== ===============
</TABLE>

See accompanying notes to financial statements.

-2-
<PAGE> 4

REDIFF.COM INDIA LIMITED

STATEMENTS OF OPERATIONS
FOR EACH OF THE QUARTERS AND SIX MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999 AND FOR THE YEAR ENDED MARCH 31, 2000.

<TABLE>
<CAPTION>
YEAR ENDED
QUARTERS ENDED SEPTEMBER 30, SIX MONTHS ENDED SEPTEMBER 30, MARCH 31,
--------------------------------- --------------------------------- --------------
2000 1999 2000 1999 2000
-------------- -------------- -------------- -------------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (AUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES

Advertising and services ........... US$ 1,241,929 US$ 288,217 US$ 2,063,809 US$ 573,113 US$ 1,464,648
E-commerce ..................... 94,544 83,347 278,325 135,006 441,452
-------------- -------------- -------------- -------------- --------------
Total revenues ..................... 1,336,473 371,564 2,342,134 708,119 1,906,100
Cost of goods sold ................. -- 42,000 133,091 115,000 392,000
-------------- -------------- -------------- -------------- --------------
Net Revenues ....................... 1,336,473 329,564 2,209,043 593,119 1,514,100
-------------- -------------- -------------- -------------- --------------
COST OF REVENUES
Advertising and services ........ 447,454 95,217 771,565 180,049 548,905
E-commerce ...................... 14,841 32,218 34,568 32,218 11,654
-------------- -------------- -------------- -------------- --------------
Total cost of revenues ...... 462,295 127,435 806,133 212,267 560,559
-------------- -------------- -------------- -------------- --------------
Gross profit ............. 874,178 202,129 1,402,910 380,852 953,541
-------------- -------------- -------------- -------------- --------------
OPERATING EXPENSES
Sales and marketing ............. 2,320,603 280,242 4,681,262 685,791 5,275,918
Product development ............. 521,032 146,036 988,937 271,556 866,170
General and administrative ...... 1,077,813 324,408 1,865,821 584,151 1,726,532
-------------- -------------- -------------- -------------- --------------
Total operating expenses ........ 3,919,448 750,686 7,536,020 1,541,498 7,868,620
-------------- -------------- -------------- -------------- --------------
Loss from operations ................ (3,045,270) (548,557) (6,133,110) (1,160,646) (6,915,079)
Other income ........................ 2,942,188 321 3,159,055 646 252,838
-------------- -------------- -------------- -------------- --------------
Loss before income taxes ............ (103,082) (548,236) (2,974,055) (1,160,000) (6,662,241)
Provision for income taxes .......... (8,344) -- (8,344) -- (3,456)
-------------- -------------- -------------- -------------- --------------
NET LOSS ............................ US$ (111,426) US$ (548,236) US$ (2,982,399) US$ (1,160,000) US$ (6,665,697)
============== ============== ============== ============== ==============
Weighted average number of
equity shares-basic .............. 12,795,200 8,608,400 11,714,326 8,146,619 8,765,495
============== ============== ============== ============== ==============
Weighted average number of
equity shares-diluted ............ 12,968,818 8,713,322 11,910,753 8,229,363 8,777,318
============== ============== ============== ============== ==============
Loss per share - basic and diluted .. US$ (0.01) US$ (0.06) US$ (0.25) US$ (0.14) US$ (0.76)
============== ============== ============== ============== ==============
</TABLE>

See accompanying notes to the financial statements

-3-
<PAGE> 5

REDIFF.COM INDIA LIMITED

STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
FOR EACH OF THE SIX MONTHS ENDED SEPTEMBER 30, 1999 AND 2000

<TABLE>
<CAPTION>
EQUITY SHARES
------------------------------- OTHER
NUMBER OF ADDITIONAL COMPREHENSIVE ACCUMULATED
SHARES AMOUNT PAID-IN CAPITAL INCOME DEFICIT TOTAL
-------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, AS OF
APRIL 1, 1999 ............. 7,245,400 US$ 901,705 US$ 1,183,501 US$ 99,640 US$ (1,897,858) US$ 286,988

Issue of new equity shares
net of expenses ............. 1,363,000 157,989 3,363,120 3,521,109
Net Loss for the period ....... (1,160,000) (1,160,000)
Other comprehensive income
- translation adjustment .... (11,174) (11,174)
-------------- -------------- -------------- -------------- -------------- --------------
BALANCE AS OF
SEPTEMBER 30, 1999 .......... 8,608,400 US$ 1,059,694 US$ 4,546,621 US$ 88,466 (3,057,858) 2,636,923
Issue of new equity shares
net of expenses ............. 1,541,800 177,219 15,398,721 15,575,940
Net Loss for the period ....... (5,505,697) (5,505,697)
Other comprehensive income
- translation adjustment .... 14,653 14,653
-------------- -------------- -------------- -------------- -------------- --------------
BALANCE, AS OF
MARCH 31, 2000 .............. 10,150,200 US$ 1,236,913 US$ 19,945,342 US$ 103,119 US$ (8,563,555) US$ 12,721,819
Issue of new ADSs, (where 2
ADSs are equal to 1 equity
share), net of expenses ..... 2,645,000 297,395 56,534,830 56,832,225
Net Loss for the period ....... (2,982,399) (2,982,399)
Other comprehensive Income
- translation adjustment .... (2,602,017) (2,602,017)
-------------- -------------- -------------- -------------- -------------- --------------
BALANCE, AS OF
SEPTEMBER 30, 2000 .......... 12,795,200 US$ 1,534,308 US$ 76,480,172 US$ (2,498,898) US$(11,545,954) US$ 63,969,628
============== ============== ============== ============== ============== ==============
</TABLE>

See accompanying notes to the financial statements.

-4-
<PAGE> 6

REDIFF.COM INDIA LIMITED

STATEMENTS OF CASH FLOWS
FOR EACH OF THE SIX MONTHS ENDED SEPTEMBER 30, 2000
AND 1999 AND YEAR ENDED MARCH 31, 2000.

<TABLE>
<CAPTION>
YEAR ENDED
SIX MONTHS ENDED SEPTEMBER 30, MARCH 31,
------------------------------------- --------------
2000 1999 2000
-------------- -------------- --------------
(UNAUDITED) (UNAUDITED) (AUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss .................................................. US$ (2,982,399) US$ (1,160,000) US$ (6,665,697)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ............................. 381,338 62,247 229,344
Loss on sale of property, plant and equipment ............. -- -- 4,246
Changes in assets and liabilities:
Trade accounts receivable ................................. 273,650 (354,837) (489,530)
Prepaid expenses and other current assets ................. (414,942) (218,474) (1,495,029)
Accounts payable .......................................... 1,487,215 392,618 2,706,569
Other accrued liabilities ................................. 28,570 15,001 (698)
Unearned revenues ......................................... (166,248) 47,118 297,840
Prepaid income taxes (net) ................................ (77,547) (9,258) (28,400)
-------------- -------------- --------------
Net cash used in operating activities ..................... (1,470,363) (1,225,585) (5,441,355)
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments to acquire property, plant and equipment ......... (1,262,534) (376,170) (1,754,322)
Purchase of business ...................................... (106,179) -- --
Purchases of available for sale investments ............... (2,385,727) -- (137,612)
Sale of available for sale of investments ................. 70,498 -- --
Proceeds from sale of property, plant and equipment ....... -- -- 10,482
-------------- -------------- --------------
Net cash used in investing activities ..................... (3,683,942) (376,170) (1,881,452)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loans from related parties .................. -- 163,660 163,660
Repayment of loans to related parties ..................... -- (612,917) (612,917)
Net proceeds from issue of equity shares .................. -- 3,521,109 19,097,049
Net proceeds from issue of ADSs ........................... 56,832,225 -- --
-------------- -------------- --------------
Net cash provided by financing activities ................. 56,832,225 3,071,852 18,647,792
-------------- -------------- --------------
Effect of exchange rate changes on cash ................... (2,602,017) (11,174) 3,479
Net increase in cash and cash equivalents ................. 49,075,903 1,458,923 11,328,464
Cash and cash equivalents at the beginning of the
year/period ........................................... 11,575,827 247,363 247,363
-------------- -------------- --------------
Cash and cash equivalents at the end of the year/period ... US$ 60,651,730 US$ 1,706,286 US$ 11,575,827
============== ============== ==============
Supplemental disclosure of cash flow information:
U.S. Federal Income taxes paid ............................ -- -- US$ 50
Supplemental disclosure of non-cash activity:
Barter transaction included as revenue and expenses
(See Note 2(c)) ....................................... -- -- US$ 9,813
Conversion of optionally convertible preference shares
into equity shares (See note 3) ....................... US$ 65,118 -- --
</TABLE>

See accompanying notes to the financial statements.

-5-
<PAGE> 7

REDIFF.COM INDIA LIMITED

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND BUSINESS

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 NASDAQ through an initial public offering.

The Company is one of the leading Internet destinations, or portals,
focusing on India and the Indian global community. Its website consists of
interest specific channels relevant to Indian interests including cricket and
movies, extensive community features including e-mail and chat, and e-commerce
offerings. The Company also offers broadband and wireless content to users who
have access to these services.

2. SIGNIFICANT ACCOUNTING POLICIES

(a) BASIS OF PREPARATION OF FINANCIAL STATEMENTS

The accompanying financial statements have been prepared in accordance
with accounting principles generally accepted in the United States ("US GAAP").
All amounts have been stated in U.S. dollars. US 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.

(b) USE OF ESTIMATES

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

ADVERTISING AND SERVICES

Revenue from banners 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.
Revenue related to the design, coordination and integration of the customer's
content is recognized ratably over the term of the contract.

-6-
<PAGE> 8

Website development services principally comprise services relating to
designing a client's Internet strategy, marketing approach and assistance with
graphics, layout, artwork and content of the client's website. Revenue from such
services is 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.

E-COMMERCE

Revenue from e-commerce activities primarily consists of sales of books,
music, movie tickets, apparels, confectioneries, gifts and other items to retail
customers who shop at the Company's online store.

During the quarter ended September 30, 2000, revenues were primarily
derived from a new business model which the Company refers to as the
"marketplace" model, under which the 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 is
already collected by the Company through credit 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 his behalf. The Company makes payment to the vendor after deduction
of its share of margin and costs. In the "marketplace" model, the Company
recognizes net revenues as the net margin earned on these transactions.

Previously the Company sourced products from a network of vendors with
whom it had established contractual relationships relating to terms of supply
and pricing. When a customer placed an order with the Company, the Company
placed a corresponding order with the appropriate vendor. Once the goods are
dispatched by the vendor, the Company booked a receivable (from the customer in
the case of C.O.D. orders, or from the Company's bank or credit card processing
agent, in the case of credit card orders), and a payable to the vendor. Upon
dispatch of the goods, the Company normally took on inventory and credit risk,
as well as an obligation to pay the vendor. The Company therefore had to bear
losses related to undelivered, damaged or returned goods. The Company controlled
the selling price to the customer. The Company was the "principal" in such
transactions, and therefore recognized as revenue the gross value of such sales
upon dispatch. Revenues were recorded net of sales discounts and returns.

Revenues from e-commerce activities 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.

NON-MONETARY EXCHANGES

The Company enters into barter arrangements with other parties for
advertising on the Company's website in exchange for the Company's advertising
on the other party's media. Such transactions are recorded at the fair value of
the services received from the other party, or at the fair value of the service
provided by the Company if it is not feasible to determine the fair value of the
services received. Revenue from non-monetary transactions for the year ended
March 31, 2000 was US$9,813; there was no revenue from non-monetary transactions
in prior years and during the quarters and six months ended September 30, 2000
and 1999. Advertising revenue is a main source of revenue for the Company, and
the surrendered transactions would be no different from the routine transactions
that the Company enters in the normal course of its business. Management
believes that the application of EITF 99-17 will have no impact on the Company's
financial position and results of operations in future periods.

-7-
<PAGE> 9

(d) COSTS AND EXPENSES

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

COST OF GOODS SOLD

These costs primarily include costs of products purchased from vendors
for sale to e-commerce customers, under the business model previously adopted by
the Company.

COST OF REVENUES

These costs primarily include employee compensation of editorial staff
that are directly related to the production of services, fees paid to
third-party content providers and outward freight on e-commerce sales.

SALES AND MARKETING

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

PRODUCT DEVELOPMENT

These costs primarily include employee compensation, Internet
communication costs, and until June 30, 2000, software costs and development to
enhance the features and functionality of the Company's website.

GENERAL AND ADMINISTRATIVE

These costs primarily include employee compensation of administrative,
operations and supervisory staff whose time is mainly devoted to strategic and
managerial functions, depreciation, rent, repairs, electricity and other general
expenses.

(e) CASH AND CASH EQUIVALENTS

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.

(f) PROPERTY, PLANT AND EQUIPMENT

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

<TABLE>
<S> <C>
Furniture and fixtures ......... 10 years
Computer equipment ............. 3 years
Office equipment ............... 10 years
Vehicles ....................... 8 years
Leasehold improvements ......... 6 years
</TABLE>

-8-
<PAGE> 10

(g) WEBSITE DEVELOPMENT COSTS

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

(h) INTANGIBLE ASSETS

Purchased intangibles such as domain names, content and non-compete fees
are deferred and amortized over their estimated useful lives of three years.

(i) FOREIGN CURRENCY TRANSLATION

The accompanying financial statements are reported in U.S. dollars. The
functional currency of the Company is the Indian rupee ("Rs." or "rupee"). The
translation of rupees into U.S. dollars is performed for balance sheet accounts
using the exchange rate in effect at the balance sheet date, and for revenue and
expense accounts using a weighted-average exchange rate for the respective
periods. The gains or losses resulting from currency translations are reported
as other comprehensive income, 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 enters into foreign exchange forward contracts to limit the
effect of exchange rate fluctuations on its foreign currency bank balances. The
counter parties to the Company's foreign currency forward contracts generally
are banks. Gains and losses on these contracts are recognized in the statement
of operations in accordance with Statement of Financial Accounting Standards
(SFAS) No. 52, Foreign Currency Translation.

(j) LOSS PER SHARE

The Company reports basic and diluted loss per share in accordance with
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share.
Basic loss per share has been computed by dividing the net loss for the period
by the weighted average number of equity shares outstanding during the period
including equity share equivalents for advances received for equity shares.
Diluted loss per share is computed using the weighted average number of equity
shares including equity share equivalents for advances received for equity
shares 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.

(k) INCOME TAXES

Income taxes are accounted for using the liability method. Deferred tax
assets and liabilities are recognized 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 the period that includes the enactment

-9-
<PAGE> 11

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.

(l) FAIR VALUE OF FINANCIAL INSTRUMENTS

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

(m) INVESTMENTS

The Company classifies investments into held to maturity, trading or
available for sale based on management's intent at the time of purchase. As of
September 30, 2000, all investments are classified as available for sale and
carried at fair value. Unrealized gains or losses on available for sale
securities are treated as other comprehensive income, a separate component of
shareholders' equity.

(n) IMPAIRMENT OF LONG LIVED ASSETS

Whenever events or changes in circumstances indicate that the carrying
amount of a tangible or intangible asset 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. If the
asset is impaired, the Company recognizes an impairment loss.

(o) STOCK BASED COMPENSATION

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 the
fair market value method specified in SFAS No. 123 to account for the
compensation cost of stock options and awards granted to associates of the
Company. Pro forma disclosures, as applicable, required under SFAS No. 123 have
been provided in Note 15.

3. INVESTMENTS AVAILABLE FOR SALE

Investments available for sale comprised of:

<TABLE>
<CAPTION>
GROSS UNREALIZED
-----------------------
AS OF SEPTEMBER 30, 2000 COST GAINS LOSSES FAIR VALUE
-------------------------------- ------------- ----- ------ -------------
<S> <C> <C> <C> <C>
Equity Shares ...... US$ 2,452,841 -- -- US$ 2,452,841
============= ===== ====== =============
</TABLE>

<TABLE>
<CAPTION>
GROSS UNREALIZED
-----------------------
AS OF MARCH 31, 2000 COST GAINS LOSSES FAIR VALUE
------------------------------ ---------- ----- ------ -----------
<S> <C> <C> <C> <C>
Optionally convertible
preference shares ......... US$137,612 -- -- US$137,612
========== ===== ====== ===========
</TABLE>

The Company's investments have been made in Internet companies
incorporated in India. Investments outstanding on September 30, 2000 have been
made in companies that have recently commenced commercial operations. The fair
value of these investments at September 30, 2000 approximates its cost due

-10-
<PAGE> 12

to the proximity of these transactions to the quarter-end. Investments in
optionally convertible preference shares outstanding as of June 30, 2000 were
converted into equity shares during September 2000.

4. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets are comprised of:

<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, 2000 MARCH 31, 2000
------------------ --------------
<S> <C> <C>
Rent deposits ............................................ US$ 1,089,982 US$ 368,054
Loans to employees ....................................... 132,365 30,564
Prepaid expenses ......................................... 427,146 272,521
Advance payment for investment (1) ....................... 40,699 34,404
Other deposits and advances(net of allowance of $32,559 at
September 30, 2000 and $22,936 at March 31, 2000) .... 170,141 251,216

Deferred offering expenses ............................... -- 482,724
Accrued interest ......................................... 101,975 231,425
------------- -------------
US$ 1,962,308 US$ 1,670,908
============= =============
</TABLE>

(1) Advance payment for investment has been made for prospective investment
in an Internet company. Pending the negotiation and completion of the
material provisions of such an investment, the payment is treated as an
advance.

5. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is comprised of:

<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, 2000 MARCH 31, 2000
------------------ --------------
<S> <C> <C>
Furniture and fixtures .................. US$ 354,026 US$ 199,146
Computer equipment ...................... 2,768,147 1,529,048
Office equipment ........................ 152,579 144,028
Vehicles ................................ 169,346 130,149
Leasehold Improvements .................. 122,043 140,214
Capital work in progress ................ 3,990 --
-------------- --------------
Property, plant and equipment, cost ..... 3,570,131 2,142,585
Accumulated depreciation and amortization 722,410 352,911
-------------- --------------
Property, plant and equipment, net ...... US$ 2,847,721 US$ 1,789,674
============== ==============
</TABLE>

6. RELATED PARTY TRANSACTIONS

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.

-11-
<PAGE> 13

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

Balances with related parties include:

<TABLE>
<CAPTION>
AS OF
----------------------------------------
SEPTEMBER 30, 2000 MARCH 31, 2000
------------------ --------------
<S> <C> <C>
Payable for operating expenses ....... US$ 717,988 US$1,457,619
Receivable for advertising income .... US$ -- US$ 1,949
</TABLE>

7. SHAREHOLDERS' EQUITY

The Company has executed the following transactions in its equity shares
during the six months ended September 30, 2000:

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 par
value of Rs.2 per share has been 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 ("ADSs") representing 2,300,000 equity
shares of the Company at a price of US$12 per ADS for an aggregate sale price of
US$55,200,000. On June 20, 2000, the underwriters exercised their overallotment
option and the Company issued an additional 690,000 ADSs equivalent to 345,000
equity shares at a price of US$12 per ADS for an aggregate sale price of
US$8,280,000.

8. FORWARD EXCHANGE CONTRACTS

On September 30, 2000, open forward exchange contracts amounted to
US$4,000,000; there were no open forward exchange contracts as of March 31,
2000. Foreign exchange loss (net) on forward exchange contracts during the
quarter and six months ended September 30, 2000, amounted to US$73,757; there
were no forward exchange contracts during the quarter and six months ended
September 30, 1999, and during the year ended March 31, 2000.

Management believes that the risks or economic consequences of
non-performance by the counter party are not material to its financial position
or results of operations.

9. RETIREMENT BENEFITS

GRATUITY

The Company provides for gratuity, an unfunded defined benefit
retirement plan covering all its employees, based on annual third-party
actuarial valuations. This plan provides for a lump-sum payment to

-12-
<PAGE> 14

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 and the unfunded benefit liability are as
follows:

<TABLE>
<CAPTION>
YEAR ENDED
QUARTERS ENDED SEPTEMBER 30, SIX MONTHS ENDED SEPTEMBER 30, MARCH 31,
----------------------------- ------------------------------ ----------
2000 1999 2000 1999 2000
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Projected benefit obligations -
beginning of the period ..... US$ 19,958 US$ 7,168 US$ 15,484 US$ 4,251 US$ 4,251
---------- ---------- ---------- ---------- ----------
Service cost .................... 3,566 2,330 7,190 4,693 9,284
Interest cost ................... 837 546 1,687 1,100 2,100
Amortization of gain ............ -- -- -- -- --
Effect of exchange rate changes . -- -- -- -- (151)
---------- ---------- ---------- ---------- ----------
Net periodic pension cost ....... 4,403 2,876 8,877 5,793 11,233
---------- ---------- ---------- ---------- ----------
Projected benefit obligations -
end of the period ........... US$ 24,361 US$ 10,044 US$ 24,361 US$ 10,044 US$ 15,484
========== ========== ========== ========== ==========
</TABLE>

-13-
<PAGE> 15
The assumptions used in accounting for gratuity in the quarters and six
months ended September 30, 2000 and 1999 and the year ended March 31, 2000 were
as follows:

<TABLE>
<CAPTION>
QUARTERS AND SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, MARCH 31,
----------------------------- ----------
2000 1999 2000
---------- ---------- ----------
<S> <C> <C> <C>
Rupee discount rate ............................ 12% 12% 12%
Rate of increase in rupee compensation ......... 15% 15% 15%
</TABLE>

PROVIDENT FUND

Employees and the Company each contribute at the rate of 12% of an
employee's salary to a provident fund maintained by the Government of India for
the benefit of 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
US$17,044, US$8,597, US$33,505, US$16,918 and US$32,232 for the quarters and six
months ended September 30, 2000 and 1999 and the year ended March 31, 2000
respectively.

10. OTHER INCOME

Other income comprises the following:

11. OPERATING LEASES

The Company leases office space, computer equipment, high-speed
telephone lines and residential apartments for employees under various operating
leases. Operating lease expense is as follows:

<TABLE>
<CAPTION>
YEAR ENDED
QUARTERS ENDED SEPTEMBER 30, SIX MONTHS ENDED SEPTEMBER 30, MARCH 31,
----------------------------- ------------------------------ ------------
2000 1999 2000 1999 2000
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Office space .......................... US$ 43,856 US$ 38,804 US$ 81,762 US$ 59,097 US$ 146,302
Computers ............................. 185 2,271 1,930 4,574 8,631
Telecom leased lines .................. 88,443 21,162 149,980 38,341 254,548
Residential apartments for employees... 30,772 14,621 54,110 25,502 62,102
------------ ------------ ------------ ------------ ------------
Total operating lease expense ......... US$ 163,256 US$ 76,858 US$ 287,782 US$ 127,514 US$ 471,583
============ ============ ============ ============ ============
</TABLE>

-14-
<PAGE> 16

Future minimum lease rentals payable are as follows:

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------------------------------------------------
<S> <C>
2001 .......................................................................... US$ 475,419
2002 .......................................................................... 223,560
2003 .......................................................................... 196,218
2004 .......................................................................... 189,827
2005 and thereafter ........................................................... 142,370
--------------
Total payments ........................................................... US$ 1,227,394
==============
</TABLE>

12. INCOME TAXES

The income tax provision is comprised of:

<TABLE>
<CAPTION>
QUARTERS ENDED SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, MARCH 31,
-------------------------- -------------------------- ----------
2000 1999 2000 1999 2000
--------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Current Taxes - all foreign ......... US$ 8,344 -- US$ 8,344 -- US$ 3,456
Deferred Taxes, net of allowance .... -- -- -- -- --
--------- --------- --------- --------- ---------
US$ 8,344 US$ -- US$ 8,344 US$ -- US$ 3,456
========= ========= ========= ========= =========
</TABLE>

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

<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, 2000 MARCH 31, 2000
------------------ --------------
<S> <C> <C>
Depreciation ...................... US$ (249,784) US$ (149,447)
Bad debt allowance ................ 70,417 49,506
Net operating loss carryforwards .. 4,263,460 3,235,581
Retirement benefits - Gratuity .... 8,985 5,962
Other ............................. 22 23
------------- -------------
4,093,100 3,141,625
Less: valuation allowance ........ (4,093,100) (3,141,625)
------------- -------------
Net deferred tax asset ............ US$ -- US$ --
============= =============
</TABLE>

The Company has not generated any taxable income to date, and therefore
has not had to pay any Indian income tax its since inception. The Company has
provided for a full valuation allowance against the deferred tax asset since it
is likely that the asset will not be recovered.

The Company's net operating loss carry forwards aggregating
US$11,511,477 will expire between April 1, 2004 and March 31, 2008.

13. SEGMENTS

The Company operates in two segments - Advertising and Services and
E-commerce. Advertising and Services consists of all services relating to the
Internet portal "Rediff.com." The E-commerce segment primarily consists of
purchase and sale of products and services. The revenues and related expenses
and the Company's recognition policy are set out in Notes 2(c) and 2(d).

-15-
<PAGE> 17

Summarized segment information for the quarters and six months ended
September 30, 2000 and 1999 and the year ended March 31, 2000 are as follows:

<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------------------------------
2000 1999
------------------------------------- -------------------------------------
ADVERTISING AND ADVERTISING
SERVICES E-COMMERCE AND SERVICES E-COMMERCE
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues
Advertising ............... US$ 1,815,758 US$ 288,284
Services .................. 248,051 284,829
--------------- ---------------
2,063,809 US$ 278,325 573,113 US$ 135,006
Cost of goods sold ........... -- 133,091 -- 115,000
--------------- --------------- --------------- ---------------
Net revenues ................. 2,063,809 145,234 573,113 20,006

Cost of revenues ............. 771,565 34,568 180,049 32,218
--------------- --------------- --------------- ---------------
Gross profit/(loss) .......... 1,292,244 110,666 393,064 (12,212)
Operating expenses:
Sales and marketing .......... 2,697,613 1,983,649 464,181 221,610
Product development .......... 748,033 240,904 237,572 33,984
General and administrative ... 1,417,658 448,163 456,181 127,970
--------------- --------------- --------------- ---------------
4,863,304 2,672,716 1,157,934 383,564
Operating loss ............... US$ (3,571,060) US$ (2,562,050) US$ (764,870) US$ (395,776)
=============== =============== =============== ===============
Segmental total assets ....... US$ 63,210,540 US$ 5,490,408 US$ 2,839,951 US$ 610,830
=============== =============== =============== ===============

QUARTERS ENDED SEPTEMBER 30,
---------------------------------------------------------------------------------
2000 1999
------------------------------------- -------------------------------------
ADVERTISING AND ADVERTISING AND
SERVICES E-COMMERCE SERVICES E-COMMERCE
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues
Advertising ............... US$ 1,116,800 US$ 118,787
Services .................. 125,129 169,430
--------------- ---------------
1,241,929 US$ 94,544 288,217 US$ 83,347
Cost of goods sold ........... -- -- -- 42,000
--------------- --------------- --------------- ---------------
Net revenues ................. 1,241,929 94,544 288,217 41,347

Cost of revenues ............. 447,454 14,841 95,217 32,218
--------------- --------------- --------------- ---------------
Gross profit/(loss) .......... 794,475 79,703 193,000 9,129
Operating expenses:
Sales and marketing .......... 1,435,060 885,543 208,721 71,521
Product development .......... 356,408 164,624 128,276 17,760
General and administrative ... 856,138 221,675 245,720 78,688
--------------- --------------- --------------- ---------------
2,647,606 1,271,842 582,717 167,969
Operating loss ............... US$ (1,853,131) US$ (1,192,139) US$ (389,717) US$ (158,840)
=============== =============== =============== ===============
Segmental total assets ....... US$ 63,210,540 US$ 5,490,408 US$ 2,839,951 US$ 610,830
=============== =============== =============== ===============

YEAR ENDED MARCH 31,
-------------------------------------
2000
-------------------------------------
ADVERTISING AND
SERVICES E-COMMERCE
--------------- ---------------
<S> <C> <C>
Revenues
Advertising ............... US$ 798,410
Services .................. 666,238
---------------
1,464,648 US$ 441,452
Cost of goods sold ........... -- 392,000
--------------- ---------------
Net revenues ................. 1,464,648 49,452

Cost of revenues ............. 548,905 11,654
--------------- ---------------
Gross profit/(loss) .......... 915,743 37,798
Operating expenses:
Sales and marketing .......... 4,037,798 1,238,120
Product development .......... 744,297 121,873
General and administrative ... 1,330,320 396,212
--------------- ---------------
6,112,415 1,756,205
Operating loss ............... US$ (5,196,672) US$ (1,718,407)
=============== ===============
Segmental total assets ....... US$ 12,509,982 US$ 3,551,890
=============== ===============
</TABLE>

-16-
<PAGE> 18

The geographical analysis of revenues is as follows:

<TABLE>
<CAPTION>
QUARTERS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, YEAR ENDED
-------------------------------- -------------------------------- MARCH 31,
2000 1999 2000 1999 2000
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
United States ........ US$ 296,728 US$ 60,079 US$ 609,319 US$ 84,823 US$ 241,196
India ................ 1,036,527 299,670 1,644,411 603,710 1,563,310
Rest of the world .... 3,218 11,815 88,404 19,586 101,594
------------- ------------- ------------- ------------- -------------
Total revenues ... US$ 1,336,473 US$ 371,564 US$ 2,342,134 US$ 708,119 US$ 1,906,100
============= ============= ============= ============= =============
</TABLE>

Net property, plant and equipment by location is as follows:

<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, 2000 MARCH 31, 2000
------------------ --------------
<S> <C> <C>
United States ................... US$ 118,023 US$ 147,357
India ........................... 2,729,698 1,642,317
------------- -------------
Total ....................... US$ 2,847,721 US$ 1,789,674
============= =============
</TABLE>

14. CONCENTRATIONS OF CREDIT RISK

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 balances in India
with a single bank, while the proceeds from the initial public offering have
been maintained in U.S. Dollars with two reputed banks outside India.

The Company's advertising and services revenues are primarily derived
from large corporate clients in India. The Company's e-commerce revenues are
derived from retail customers and do not expose the Company to any material
concentrations of credit risk.

SIGNIFICANT CLIENTS

One client accounted for 18.68% and 19.33% of the total revenue,
respectively, during the quarter and six months ended September 30, 2000. There
were no amounts receivable from such clients as of September 30, 2000.

No single client account for more than 10% of the total revenue for the
quarter and six months ended September 30, 1999 and for the year ended March 31,
2000.

15. STOCK BASED COMPENSATION

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 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.

-17-
<PAGE> 19

Each allotted warrant carries with it the right to purchase 50 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 has reserved 5,600 warrants for the
1999 ESOP and 3,960 warrants for the 1999 ASOP, respectively, which entitle the
warrant holders to purchase 280,000 and 198,000 equity shares, 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.

In April 1999, the Company granted warrants for the purchase of 152,000
equity shares under the Option Plans to eligible parties at an exercise price of
Rs.75 per equity share. In June 1999, the Company granted warrants for the
purchase of 7,000 equity shares under the Option Plans to eligible parties at an
exercise price of Rs.113.50 per equity share. In December 1999, the Company
granted warrants for the purchase of 10,000 equity shares under the Option Plans
to eligible parties at an exercise price of Rs.450.50 per equity share. In
January 2000, on various dates, the Company granted warrants for the purchase of
15,000 equity shares at an exercise price of Rs.450.50 per equity share, 58,300
equity shares at an exercise price of Rs.520 per equity share, 43,600 equity
shares at an exercise price of Rs.780 per equity share, and 6,000 equity shares
at an exercise price of Rs.592.50 per equity share. In March 2000, the Company
granted warrants for the purchase of 14,000 equity shares under the Option Plans
to eligible parties at an exercise price of Rs.875 per equity share. In April
2000, on various dates, the Company granted warrants for the purchase of 1,200
equity shares at an exercise price of Rs. 875 per equity share and 2,400 equity
shares at an exercise price of Rs.1,018 per equity share. In May 2000, on
various dates, the Company granted warrants for the purchase of 600 equity
shares at an exercise price of Rs.1,018 per equity share and 800 equity shares
at an exercise price of Rs.1,087 per equity share. In June 2000, the Company
granted warrants for the purchase of 400 equity shares at an exercise price of
Rs.1,087 per equity share. In September 2000, the Company granted warrants for
the purchase of 200 equity shares at an exercise price of Rs.891 per equity
share.

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, employers and retainers in full time service of the
Company, and the fair value method specified in SFAS No. 123 in respect of the
options awarded to associates of the Company. Management believes that the
exercise prices above approximate or exceed the fair market value of the
Company's equity shares on the grant dates based on transactions in the
Company's equity shares with unrelated parties and its IPO price as adjusted for
illiquidity as the underlying equity shares are neither traded in India or
available to be sold on NASDAQ.

The Company has adopted the pro forma disclosure provisions of SFAS No.
123. 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:

<TABLE>
<CAPTION>
QUARTERS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, YEAR ENDED
------------------------- ----------------------------- MARCH 31,
2000 1999 2000 1999 2000
----------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net Loss As reported US$(111,426) US$(548,236) US$(2,982,399) US$(1,160,000) US$(6,665,697)
Adjusted pro forma US$(143,220) US$(553,796) US$(3,046,603) US$(1,171,413) US$(6,705,284)
</TABLE>

-18-
<PAGE> 20

<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Loss per share As reported US$ (0.01) US$ (0.06) US$ (0.25) US$ (0.14) US$ (0.76)
Adjusted pro forma US$ (0.01) US$ (0.06) US$ (0.26) US$ (0.14) US$ (0.76)
</TABLE>

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

<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30, 2000
------------------
<S> <C>
Dividend yield ............................................................ 0%
Expected life ............................................................. 4 years
Risk free interest rates .................................................. 9.75%
Volatility ................................................................ 0
</TABLE>

EMPLOYEE BENEFIT PLANS

Activity in the warrants of the 1999 ESOP for the six months ended
September 30, 2000 is as follows:

<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30, 2000
------------------------------------------------
SHARES ARISING WEIGHTED AVERAGE
OUT OF OPTIONS EXERCISE PRICE
-------------- ------------------------
<S> <C> <C> <C>
EMPLOYEE STOCK OPTION PLAN: 1999
Outstanding at the beginning of the period ......... 222,300 US$ 6.73 Rs.293
Granted ............................................ 5,600 US$ 21.65 Rs.998
Forfeit/Lapsed...................................... (13,850) US$ 6.58 Rs.303
------- --------- ------
Outstanding at the end of the period ............... 214,050 US$ 6.76 Rs.311
------- --------- ------
</TABLE>

Activity in the warrants of the 1999 ASOP for the six months ended
September 30, 2000 is as follows:

<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30, 2000
-----------------------------------------------
SHARES ARISING WEIGHTED AVERAGE
OUT OF OPTIONS EXERCISE PRICE
-------------- ------------------------
<S> <C> <C> <C>
ASSOCIATE STOCK OPTION PLAN: 1999
Outstanding at the beginning of the period ......... 73,600 US$ 11.73 Rs.511
Forfeit/Lapsed...................................... (6,250) US$ 3.17 Rs.146
------ --------- ------
Outstanding at the end of the period ............... 67,350 US$ 11.82 Rs.545
------ --------- ------
</TABLE>

The following table summarizes information about stock options available
as at September 30, 2000:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------------------------------------------------------------------------------------
NUMBER OF WEIGHTED AVERAGE
SHARES ARISING OUT REMAINING
RANGE OF EXERCISE PRICE OF OPTIONS CONTRACTUAL LIFE WEIGHTED AVERAGE EXERCISE PRICE
---------------------------- ------------------ ---------------- -------------------------------
<S> <C> <C> <C> <C>
US$1.63 - 23.59 281,400 2.93 years US$7.97 Rs.367
</TABLE>

-19-
<PAGE> 21

16. LOSS PER SHARE

The following is a reconciliation of the equity shares used in the
computation of basic and diluted loss per equity share:

<TABLE>
<CAPTION>
QUARTERS ENDED SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, MARCH 31,
----------------------- ----------------------- ---------
2000 1999 2000 1999 2000
---------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Loss per equity share - weighted average
number of equity shares outstanding ....................... 12,795,200 8,608,400 11,714,326 8,146,619 8,765,495
Effect of dilutive equity equivalent shares -
stock options outstanding ................................. 173,618 104,922 196,427 82,744 11,823
Diluted loss per equity share- weighted average number of equity
shares and equity equivalent shares outstanding ........... 12,968,818 8,713,322 11,910,753 8,229,363 8,777,318
</TABLE>

-20-
<PAGE> 22
Item 2. Management's Discussion and Analysis of Financial Conditions and Results
of Operations

The following discussion of our financial condition and results of
operations should be read in conjunction with the financial statements and the
related notes included elsewhere in this filing. 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 report
particularly in "Risk Factors."

OVERVIEW

We are one of the leading Internet destinations, or portals, focusing on
India and the global Indian community. Our website consists of 21 interest
specific channels, geographic and local language editions, extensive community
features, sophisticated search capabilities, and online shopping. We provide
these services to our users for free. Our revenues are derived from online
advertising and services as well as e-commerce.

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, which includes channels that offer content on various subject
matters like news, personal finance, movies and sports with the goal of offering
a comprehensive suite of content channels specifically focused on India and the
global Indian community.

In April 1998, we sold 2.2 million equity shares (after giving effect to
our 2 for 5 reverse share split effective as of May 3, 2000) to Draper-India
International for Rs.38.5 million (US$965,000). In 1999, we sold an aggregate of
3.5 million additional equity shares (after giving effect to our 2 for 5 reverse
share split effective as of May 3, 2000) to Intel Corporation, Queenswood
Investments Limited, GE Capital Services India, Citicorp Finance (India) Ltd.
and Pacific Century Cyberworks India Pvt. Ltd. for an aggregate of Rs.872.2
million (US$20.1 million). We used the funds from these private financings
primarily to expand our content business and develop our consumer e-commerce
business.

On June 14, 2000, we issued 4.6 million American Depositary Shares, or
ADSs, representing 2.3 million equity shares at a price of US$12 per ADS for an
aggregate sale price of US$55.2 million. On June 20, 2000, the underwriters
exercised their option to purchase an additional 690,000 ADSs equivalent to
345,000 equity shares for an aggregate sale price of US$8.3 million. After
providing for the expenses of the issuances, the ADS offering resulted in net
proceeds of US$56.8 million. We intend to use these proceeds to develop content
for our Internet portal, to advertise and promote our brand and for general
corporate purposes, including possible strategic investments, partnerships and
acquisitions.

We conduct our business in India and most of our revenues and expenses
are denominated in Indian rupees. However, a portion of our revenues are
generated from advertisers and from our e-commerce purchasers overseas, and a
portion of our hardware and software purchasing expenses are denominated in U.S.
dollars.

REVENUES

For reporting purposes, we classify our revenues into two segments:

- advertising and services; and

- e-commerce.

-21-
<PAGE> 23

Our advertising revenues consist of fees from the sales of third-party
banner advertisements and sponsorships hosted on our website. Revenue from
banners and sponsorships is recognized ratably over the contractual period of
the advertisement, commencing when the advertisement is placed on the website.
We also derive revenue from sponsor buttons placed in specific areas of our
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 obligations of our company remain and
collection of the resulting receivable is probable. Our obligations may include
guarantees 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 met.

We also earn revenues on sponsorship contracts for fees relating to
design, coordination and integration of customer's content. Revenues related to
the design, coordination and integration of the customer content are recognized
ratably over the term of the contract.

Website development services principally comprise services relating to
designing a client's internet strategy, marketing approach and assistance with
graphics, layout, artwork and content of the client's websites. Revenue from
such services is recognized upon completion of milestones specified in the
contract. At each such milestones, the services are either billed or billable,
and as they relate to completed work, are earned.

We began a second segment, e-commerce, in August 1998. Our e-commerce
revenues consist primarily of revenues from the sale of products on our site. We
recognize product revenues when the product is shipped from the manufacturer or
distribution warehouse to the consumer. We are liable to the consumer for
product fulfillment and we recognize as revenue the gross amount of the product
sales. Our e-commerce revenues also include fees charged to vendors for
creating, designing and hosting the vendor's product information on our website.
We recognize such fees ratably over the contract period.

In response to the growing product volumes of our e-commerce business
and the corresponding increase in inventory risk to which we are exposed, we
decided in June 2000 to progressively adopt a new business model, where
customers place orders directly with vendors through our website. When an order
is placed, we inform the vendor through an Intranet, and also confirm whether
payment is already collected by us through credit 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 customer. The vendor sends a monthly summary of
the transactions executed during the month for which we have collected payments
on its behalf. We make payments to the vendor after deducting our share of the
margin and costs. Consistent with this model, we have re-negotiated our
contracts with our existing vendors and are entering into contracts with the new
vendors which reflect the new "Marketplace" model. For the quarter ended
September 30, 2000, all our revenues reflect the "margins" of the marketplace
model.

EXPENSES

Cost of goods sold primarily includes cost of products purchased from
vendors for sale to e-commerce customers under our previous business model.

Our cost of revenues is made up primarily of compensation of editorial
staff that directly relates to the production of services and fees paid to third
party content providers.

-22-
<PAGE> 24

The primary elements of our sales and marketing expenses are brand
building and marketing costs for our site. Other elements of these sales and
marketing expenses include compensation for sales and marketing personnel,
travel costs, business promotion and market research costs.

As we expand the scope of our operations, we expect sales and marketing
expenses to continue to increase for the foreseeable future. We intend to
increase our brand building through advertising and other related activity and
hire additional sales and marketing personnel for each of our new markets. Our
business strategy assumes these costs will negatively impact our financial
results in the short term but will be offset by anticipated increases in
revenues from overall subscriber growth.

Product development expenses are made up of employee compensation and
software costs related to developing and enhancing the features and
functionality of our site, as well as Internet communication costs. Our general
and administrative expenses consist primarily of compensation for general
management and supervisory operational staff, depreciation, occupancy costs,
repairs and other general expenses.

We depreciate our tangible assets on a straight-line basis over the
useful life of the assets, ranging from 3 to 10 years. The costs for software
used in product development and services are charged to operations as incurred.

We have a limited operating history upon which you can evaluate our
business and prospects. We have not achieved profitability, and we expect to
continue to incur net losses in fiscal year 2001 and subsequent periods. We
expect to continue to incur significant operating expenses and, as a result, we
need to generate significant revenues in order to achieve profitability, which
may not occur. Even if we do achieve profitability, we may be unable to sustain
or increase profitability on a quarterly or annual basis in the future. We
believe that quarter-to-quarter comparisons of our operating results may not be
a good indication of our future performance, nor would our operating results for
any particular period be indicative of future operating results. As of September
30, 2000, we had an accumulated deficit of approximately US$11.5 million.

-23-
<PAGE> 25

QUARTERLY RESULTS OF OPERATIONS

The following table presents our operating results for the quarters
ended on September 30, 1999 and September 30, 2000. The operating results set
forth below should be read together with our financial statements and the
related notes appearing elsewhere in this report. These operating results do not
necessarily indicate what our results of operations will be in any future
period. Accordingly, we believe that quarter to quarter comparisons of our
operating results are not necessarily meaningful and are not a good indication
of our future performance.

<TABLE>
<CAPTION>
QUARTERS ENDED
------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 2000
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Statement of Operations Data:
Revenues
Advertising and services .......... US$ 288 $ 1,242
E-commerce ........................ 83 95
------- -------
Total Revenues .................... 371 1,336
Cost of Goods Sold ................ 42 0
------- -------
Net Revenue ....................... 329 1,336
------- -------
Cost of Revenue ................... 127 462
------- -------
Gross profit ...................... 202 874
------- -------
Operating expenses:
Sales and marketing expenses ...... 280 2,321
Product development expenses ...... 146 521
General and administrative expenses 324 1,078
------- -------
Total operating expenses ......... 751 3,919
------- -------
Operating Loss ........................ US$(548) $(3,045)
======= =======
OTHER INCOME .......................... 0 2,942
LOSS BEFORE INCOME TAXES .............. (548) (103)
TAX ................................... 0 8
LOSS AFTER TAX ........................ (548) (111)
</TABLE>

QUARTER ENDED SEPTEMBER 30, 2000 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1999

Advertising and services revenues. We recognized US$1.2 million in
advertising and services revenues for the quarter ended September 30, 2000 as
compared to US$288,000 for the quarter ended September 30, 1999, representing an
increase of US$954,000 or 331%. The revenue growth included an increase of
US$998,000 in banner and sponsorship revenues and decrease of US$44,000 in
revenues from web development services. The increase in banner and sponsorship
revenues was attributable to the growing awareness of the Internet in India and
its use as a medium for advertising and the introduction of sponsored partner
channels on our site.

E-commerce revenues. During the quarter ended September 30, 2000,
e-commerce revenue are derived from the "Marketplace" model. In this model gross
revenue from e-commerce only reflects the margin.

During the quarters ended September 30, 2000 and 1999 the revenues from
e-commerce were US$95,000 and US$83,000, respectively.

Cost Of Goods Sold. Commencing from the quarter ended September 30,
2000, we have started recording margin as our net revenues. Therefore, there are
no cost of goods sold during the quarter ended

-24-
<PAGE> 26
September 30, 2000. The corresponding figure during the quarter ended September
30, 1999 was US$42,000.

Net Revenues. On comparable basis e-commerce (net) revenue for the
quarter ended September 30, 2000 and 1999 was US$95,000 and US$41,000
respectively, representing an increase of US$54,000.

Cost of revenues. Cost of revenues was US$462,000, or 35% of net
revenues for the quarter ended September 30, 2000, compared to US$127,000, or
39% of net revenues for the quarter ended September 30, 1999, representing an
increase of US$335,000 or 264%. The costs of third-party editorial contributions
increased by US$161,000, and compensation expenses increased by US$183,000 as a
result of increases in editorial fees, salary levels and in the number of
employees.

Sales and marketing expenses. Sales and marketing expenses were US$2.32
million for the quarter ended September 30, 2000, compared to US$280,000 for the
quarter ended September 30, 1999, representing an increase of US$2.04 million,
or 728%. A US$1.58 million increase in advertising and market research expenses
accounted for most of the increase. Compensation expenses increased by US$94,000
and professional expenses increased by US$344,000.

Product development expenses. Product development expenses were
US$521,000 for the quarter ended September 30, 2000 compared to US$146,000 for
the quarter ended September 30, 1999, representing an increase of US$375,000, or
257%. The increase in product development expenses included a US$161,000
increase in software purchase and development costs associated with the growing
number of products and services on our site and a US$153,000 increase in
Internet communication charges due to an increase in the numbers of our web
servers.

General and administrative expenses. General and administrative expenses
for the quarter ended September 30, 2000 and 1999 and June 30, 2000 were
US$1,078,000, US$324,000 and US$790,000 respectively. The increase in the
quarter ended September 30, 2000 from the quarter ended September 30, 1999 was
US$754,000 or 232%. The increase in General and administrative expenses included
a US$84,000 increase in compensation costs resulting from an increase in
operational staff, an increase of US$21,000 in occupancy costs, an increase of
US$99,000 in insurance and an increase of US$113,000 in professional charges.

Depreciation and amortization. Depreciation and amortization was
US$245,000 for the quarter ended September 30, 2000, compared to US$32,000 for
the quarter ended September 30, 1999, representing an increase of US$213,000, or
662%. The increase in depreciation and amortization resulted from capital
expenditures for leasehold improvements and for furniture, fixtures and
equipment, including computer equipment and also on account of amortization of
intangible assets amounting to US$9,000.

Other income. Other income was US$2.9 million for the quarter ended
September 30, 2000, compared to US$321 for the quarter ended September 30, 1999,
representing an increase of US$2.9 million. Substantially all of the increase
resulted from an increase in interest income amounting to US$953,000 and net
foreign exchange gain amounting to US$2.0 million.

Net loss. Our net loss was US$111,000 for the quarter ended September
30, 2000, compared to a net loss of US$548,000 for the quarter ended September
30, 1999.

-25-
<PAGE> 27

SEASONALITY

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 operations 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 vacations in the Indian summer months of April through June.

LIQUIDITY AND CAPITAL EXPENDITURES

From our inception on January 9, 1996, through the date of our initial
public offering of ADSs on June 14, 2000, we have financed our operations
primarily from the private sales of equity and cash received from net revenue
from advertisements and e-commerce. During the quarter ended June 30, 2000 we
raised US$57 million in net aggregate proceeds from the initial public offering
and sale of our ADSs.

As of September 30, 2000 our accounts receivable balance was US$554,000
compared to US$476,000 as of June 30, 2000 and US$827,000 as of March 31, 2000,
net of allowances of US$56,000, US$60,000 and US$50,000 at September 30, 2000,
June 30, 2000 and March 31, 2000 respectively. The net accounts receivable
balance as of September 30, 2000 represents 38 days of gross revenue
uncollected, as compared to 43 days as of June 30, 2000 and 104 days as of March
31, 2000, validating our cash collection efforts.

In addition to increasing our collection efforts we also have changed
our terms of credit for banner advertisements placed by our channel partners,
who currently account for approximately 60% of our banner advertisement income.
Prior to March 2000, we issued invoices for banner advertisements for the month
in which the banners were placed on our web site. Since March 2000, we have
required our channel partners to pay us an advance, ranging from three to six
months of the annual contract amount. As a result of this new policy, as of
September 30, 2000, we have unearned revenues that have been collected in cash
of US$145,000. We believe that this change in the terms of our contracts
significantly reduces our credit exposure.

In the three years ended March 31, 1998, 1999 and 2000 and quarters
ended June 30, 2000 and September 30, 2000, we have written off or provided
US$12,000, US$52,000, US$71,000, US$29,000 and US$33,000 for delinquent trade
accounts receivable. These writeoffs and allowances constitute 2.3%, 6.7%, 4.9%,
3.5% and 2.7% of advertising and services revenues, respectively.

Cash used in operating activities of US$293,000 during the quarter ended
September 30, 2000 was primarily attributable to a net loss of US$111,000, an
increase in unearned revenues of US$66,000, an increase in trade receivables of
US$78,000 and a decrease in accounts payable of US$364,000, partially offset by
depreciation of plant and equipment of US$245,000 decrease in prepaid expenses
US$105,000 and increase in other accrued liabilities US$27,000.

Cash used in investment activities during the quarter ended September
30, 2000 was US$2.9 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 of US$495,000, investment in two Internet portals
amounting to US$2.4 million and amounts paid as non compete fee, and for
contents and domain name amounting to US$106,000.

We expect to incur operating losses and negative cash flows from
operations for the foreseeable future.

-26-
<PAGE> 28

As of September 30, 2000 we had US$61.0 million in cash and cash
equivalents, compared to US$66.0 million as of June 30, 2000.

We may use a portion of the proceeds from our ADS offering for possible
strategic investments, partnerships and acquisitions. If appropriate
opportunities can be developed, we believe that our growth could be accelerated
by selective investments or acquisitions in India, the United States or
elsewhere. We will become more aggressive in our efforts to identify one or more
investment or acquisition opportunities. However, we cannot assure you that we
will be able to identify or complete any such transaction on favorable terms, or
at all.

We currently believe that the net proceeds from our initial public
offering, together with our current cash resources, will be sufficient to meet
our anticipated cash needs for working capital and capital expenditures for at
least 12 months. If cash generated from operations is insufficient to satisfy
our liquidity requirements, we may need to raise additional funds through public
or private financings, strategic relationships or other arrangements. Our
ability to raise funds through the sale of equity is limited by foreign
ownership restrictions imposed on us by Indian law. These restrictions provide
that the maximum total foreign equity investment in our company is 60%. If
additional funds are to be raised through the issuance of equity or convertible
debt securities, the percentage ownership of our shareholders and the holders of
our ADSs will be reduced and those securities may have rights, preferences or
privileges senior to those of our shareholders and the holders of our ADSs. We
cannot assure you that additional 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 and expand our operations, take advantage
of unanticipated opportunities, or otherwise respond to competitive pressures
will be significantly limited. Our business, results of operations and financial
condition could be materially adversely affected by such limitation.

INVESTMENTS

As part of our strategic relationship with ICICI Limited, during the
quarter ended September 30, 2000, we purchased 88,350 equity shares of
Traveljini.com Private Limited, for an aggregate purchase price of US$1.3
million.

Also as part of our strategic relationship with ICICI Limited, during
the same period we purchased 587,500 shares of Billjunction Payments Limited,
for an aggregate purchase price of US$1.1 million.

INCOME TAX MATTERS

As of September 30, 2000, we had a net operating loss carryforwards
aggregating approximately US$11.5 million for financial reporting purposes.
Under current Indian law, loss carryforwards from a particular year may be used
to offset taxable income over the next eight fiscal years. If we do not have
sufficient taxable income or if the applicable eight year period expires, we
will lose the potential tax benefit of the relevant loss carryforwards.

The statutory corporate income tax rate in India is currently 35.0%.
This tax rate is presently subject to an 11% surcharge resulting in an effective
tax rate of 38.9%. Dividends declared, distributed or paid by an Indian company
are subject to a dividend tax of 22.2%, including the presently applicable
surcharge, of the total amount of the dividend declared, distributed or paid.
This tax is not paid by shareholders nor is it a withholding requirement, but
rather it is a direct tax payable by the company.

-27-
<PAGE> 29

MARKET RISKS

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 do not consider these risks to be material to our
business today. Our foreign exchange risk principally arises 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 an overseas bank. Our foreign currency sensitive
instruments usually settle within a short time period.

We enter into foreign exchange forward contracts to effect the foreign
currency risk arising from the bank balances denominated in U.S. Dollars. The
counter-parties to our foreign currency forward contracts are banks. Management
believes that the risks or economic consequences of non-performance by the
counter-parties are not material to our financial position or results of
operations. Foreign exchange loss on forward exchange contracts during the
quarter ended September 30, 2000, were US$74,000. There were no forward exchange
contracts during the quarter ended September 30, 1999, and the year ended March
31, 2000. Open forward exchange contracts as of September 30, 2000, amounted to
US$4.0 million. There were no open forward exchange contracts as of September
30, 1999 and March 31, 2000.

The following table sets out information about our major foreign
currency sensitive instruments as of September 30, 2000:

<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 2000
------------------
(IN MILLIONS)
<S> <C>
Accounts Payable in U.S. dollars..................... US $ (0.2)
Cash balances held in U.S. dollars................... 56
Net foreign exchange exposure........................ US $ 56
=========
</TABLE>

We have little or no exposure to fluctuations in interest rates, and
hold no equity price-risk investments.

IMPACT OF THE YEAR 2000

We have evaluated our technology infrastructure and believe that it is
substantially Year 2000 compliant. In addition, we have obtained Year 2000
compliance certifications from all of our third party suppliers to date. As of
the date of this Quarterly Report, neither we nor our third-party suppliers have
experienced any material Year 2000 related service disruptions that would affect
our business. However, we cannot assure you that modifications and upgrades made
to our internal systems will be able to anticipate all of the problems resulting
from the actual impact of the Year 2000 problem. There can also be no assurance
that we may not face any problems in the future.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards, or SFAS No. 133, "Accounting for
Derivative Financial Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. In June 1999, FASB issued SFAS No. 137 "Accounting for
Derivative Instruments and Hedging Activities Deferral of Effective Date of FASB
Statement No. 133," which deferred the effective date of SFAS No. 133 to all
fiscal quarters of fiscal years beginning after June 15, 2000. We currently do
not hold any derivative

-28-
<PAGE> 30

instruments or engage in hedging activities and have no plans to do so.
Accordingly, we do not expect this standard to have an impact on our financial
position or results of operations.

In December 1999, the SEC issued Staff Accounting Bulletin 101, "Revenue
recognition in Financial Statements" ("SAB101"), which provides guidance related
to revenue recognition based on interpretations and practices followed by the
SEC. Our management believes that its revenue recognition policy is in
compliance with SAB101 and does not believe that adoption of the same will have
a material impact on the Company's financial position or results of operations.

In June 2000, the SEC issued SAB101B which delays the implementation
date of SAB101 until no later than the fourth fiscal quarter of the fiscal year
beginning after December 15, 1999.

-29-
<PAGE> 31

RISK FACTORS

RISKS RELATED TO INVESTMENTS IN INDIAN COMPANIES

We are incorporated in India, and the majority of our assets, business
operations and all of our employees are located in India. Consequently, social
and economic developments in India, including taxation and foreign investment
policies, currency exchange controls, as well as changes in exchange rates and
interest rates will affect our financial performance and the market price of our
ADSs.

POLITICAL INSTABILITY OR CHANGES IN THE GOVERNMENT OF INDIA COULD DELAY THE
LIBERALIZATION OF THE INDIAN ECONOMY AND ADVERSELY AFFECT ECONOMIC CONDITIONS IN
INDIA GENERALLY AND OUR BUSINESS IN PARTICULAR.

Our business model relies, in part, on general economic and business
conditions in India. A significant change in India's economic liberalization and
deregulation policies could adversely affect business and economic conditions in
India generally and our business in particular if new restrictions on the
private sector are introduced or if existing restrictions are not relaxed over
time. During the past decade and 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 have remained significant. The Government of
India recently changed for the fifth time since 1996. The current Government of
India, formed in October 1999, has announced 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 and other matters affecting investment in our
securities could change as well.

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 April 1999, India and Pakistan conducted long-range nuclear capable
missile tests. Since May 1999, military confrontations between India and
Pakistan have occurred in the disputed 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.

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. Any foreign investment in an Indian
company requires 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. The foreign investment
policy of the Government of India in information technology enabled services or
e-commerce related companies is unclear. While the Government of India has not
specifically restricted foreign investment in information technology enabled
services or e-commerce related companies, we understand that it is currently
considering imposing restrictions that would limit the aggregate percentage of
foreign equity ownership in such companies to 49%. If the Government of India
decides to apply this

-30-
<PAGE> 32

limit, it may restrict the foreign equity investment in our company to 49%. If
the Government of India decides to implement a 49% limit on foreign equity
ownership, our ability to seek and obtain additional equity investment by
foreign investors will be constrained.

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, results of operations and
financial condition could be materially adversely affected by any such
limitation. If the Government of India decides to impose a 49% limit on foreign
equity ownership, it may also restrict our ability to be acquired by a
non-Indian company. This may prevent us from entering into a transaction that
would otherwise be beneficial for our company and our shareholders.

CURRENTLY THERE IS NO PUBLIC TRADING MARKET FOR OUR EQUITY SHARES IN INDIA OR
ELSEWHERE WHICH, TOGETHER WITH INDIAN LAWS THAT RESTRICT THE CONVERSION OF
OUTSTANDING EQUITY SHARES INTO ADSs, REDUCE OUR INVESTORS' ABILITY TO SELL OUR
ADSs.

Currently there is no public trading market for our equity shares in
India, nor can we assure you that we will take steps to develop one. Our equity
shares are only be traded on the NASDAQ, in the form of ADSs as described in the
Prospectus filed with the SEC. Under current Indian laws and regulations, our
depositary cannot accept deposits of outstanding equity shares and issue ADRs
evidencing ADSs and representing such equity shares without prior approval of
the Government of India. Thus, if an investor elects to surrender ADSs and
receive equity shares, such investor will not be able to trade those equity
shares on any securities market and unless there is a change in current Indian
laws and regulations, such investor will be prohibited from re-depositing those
outstanding equity shares with our depositary.

Under current Indian regulations and practice, the approval of the
Reserve Bank of India 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 to a resident of India. Under currency exchange controls 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
restrictions on foreign ownership of the underlying equity shares.

BECAUSE WE OPERATE OUR BUSINESS IN INDIA, CURRENCY EXCHANGE RATE FLUCTUATIONS
MAY INCREASE OUR COSTS AND AFFECT THE MARKET PRICE OF OUR ADSs.

The exchange rate between the rupee and the U.S. dollar has changed
substantially in recent years and may fluctuate substantially in the future.
During the period from January 3, 1995 through September 30, 2000, the value of
the rupee against the U.S. dollar declined by approximately 31.9% from Rs.31.37
to Rs.46.06 per U.S. dollar. Devaluations or further depreciation of the value
of the rupee will result in higher expenses to our company, in rupee terms, for
the purchase of imported 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 rupee if U.S. investors analyze our value based on the U.S. dollar
equivalent of our financial condition and results of operations.

-31-
<PAGE> 33

RISKS RELATED TO THE INTERNET MARKET IN INDIA

Our success depends in large part on the increased use of the Internet
by consumers and businesses in India. However, our ability to exploit the online
advertising and e-commerce markets in India is inhibited by a number of factors
such as the ones discussed below. If India's limited Internet usage does not
grow substantially, our business may not succeed.

CHANGES IN THE REGULATION OF OUR BUSINESS IN INDIA MAY RESTRICT THE GROWTH OF
OUR BUSINESS.

The Indian legal regime with respect to information technology software
enabled services and e-commerce companies is uncertain. The Government of India
may apply existing laws to our business or may introduce specific laws to
regulate our business without our consent, and any such change could restrict
the growth of our business by preventing us from expanding into new areas,
decrease our revenues and increase our costs by limiting our ability to conduct
our business, any of which would adversely affect our operating results.

It is unclear whether we are required to register with any Indian
regulatory authority for carrying on our business. The Government of India may
in the future require us to register with any relevant regulatory authorities.
Furthermore, the Government of India may impose sanctions against us for failure
to register with such authorities. This may decrease our revenues, increase our
costs or limit our ability to grow our business.

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 the
International Data Corporation, in 1999 India had approximately 1.0 million
Internet users compared to a total population in India of 986.9 million, while
the United States had approximately 80.8 million Internet users compared to a
total population in the U.S. of 270.3 million. Alternate methods of obtaining
access to the Internet, such as through cable television modems or set-top boxes
for televisions, are currently unavailable 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 telecommunications infrastructure
in India historically has been controlled by government-controlled
telecommunication service providers. The current service has been and remains
inferior to service in most developed countries. Further, the number of
telephone lines per one

-32-
<PAGE> 34

thousand persons, or teledensity, 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 limit Internet connection speeds to 28 Kbps and below, which are less than
the 33 to 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, or DSL, 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 THE INDIAN
MARKET DOES NOT EXPAND.

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

- advertisers' acceptance of the Internet as an effective and
sustainable medium;

- our ability to generate and continue to grow a large community
of users with demographics attractive to advertisers;

- our ability to contract with a diverse group of advertisers that
will generate attractive traffic patterns and user demographics;

- the effectiveness of our advertising delivery, tracking and
reporting systems;

- our ability to attract advertisers at profitable rates in light
of intense competition; and

- our ability to adapt to new forms of Internet advertising.

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 website may cause advertisers not to
renew their contractual arrangements with us, which, in turn, would reduce our
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.

THE SUCCESS OF OUR E-COMMERCE 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,

-33-
<PAGE> 35

validity of contracts entered into through the Internet and the validity of
digital signatures, remain unresolved. 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:

- inconsistent quality of service;

- lack of legal infrastructure relating to e-commerce in India;

- lack of security of commercial data such as credit card numbers;
and

- low number of users in India.

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.

RISKS RELATED TO OUR FINANCIAL CONDITION AND BUSINESS MODEL

OUR LIMITED OPERATING HISTORY AND DEPENDENCE ON THE INTERNET MAKES IT DIFFICULT
TO EVALUATE OUR FUTURE PROSPECTS.

We commenced operations and launched our Internet portal in February
1996. Accordingly, we have limited historical financial information and
operating history upon which you may evaluate us and our prospects. You should
consider the challenges that an early stage company like ours faces. These
challenges include our need to:

- increase awareness of the Rediff.com brand and continue to build
user loyalty;

- expand the content and services on our portal;

- attract a larger audience;

- attract a larger number of advertisers from a variety of
industries;

- attract, maintain and motivate qualified personnel;

- maintain and develop strategic relationships with business
partners;

- respond effectively to competitive pressures;

- continue to develop and upgrade our technology; and

- promptly address the challenges faced by early stage, rapidly
growing businesses which do not have an experience or
performance base to draw on.

We cannot be sure we will be successful in meeting these challenges and
risks.

-34-
<PAGE> 36

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 US$6.7 million for the year ended March 31, 2000. As of September
30, 2000, we have an accumulated deficit of US$11.5 million. We expect to have
increasing net losses and negative operating cash flows for the foreseeable
future. Although our revenues have grown in recent quarters, our expenses have
grown even faster and we expect to increase our spending significantly as we
expand our services, advertise and promote our brand, and invest in expansion of
our infrastructure and sales and marketing staff. 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, 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 a shareholder's 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:

- the timing of our expansion plans in India and additional
geographic markets;

- changes in pricing policies or our product and service
offerings;

- increases in personnel, marketing and other operating expenses
to support our anticipated growth;

- our ability to attract new users and retain existing users at
reasonable costs;

- our ability to adequately maintain, upgrade and develop our
portal, our computer network and the systems that we use to
process customer orders and payments;

- increased competition;

- seasonality in retail sales because of the festival seasons in
the Indian winter months of November through February, and
extended vacations in the Indian summer months of April through
June; and

- technical difficulties, system or website downtime or Internet
service disruptions.

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.

-35-
<PAGE> 37

OUR MARKETING CAMPAIGN TO ESTABLISH BRAND RECOGNITION AND LOYALTY FOR THE
REDIFF.COM BRAND COULD BE UNSUCCESSFUL, WHICH COULD HARM OUR BUSINESS.

In order to expand our customer base and increase traffic on our
website, we must establish, maintain and strengthen the Rediff.com brand. We
plan to increase substantially our 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 Rediff.com brand 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 brand successfully, increase
the number of visitors to our website or maintain the quality of our advertising
services, the value of the Rediff.com brand could be diminished.

WE ARE CURRENTLY EXPERIENCING A PERIOD OF RAPID GROWTH AND MAY NOT BE ABLE TO
MANAGE THIS GROWTH.

As of September 30, 2000, we had 181 employees and full-time
consultants, an increase of 4% from the 174 employees and full-time consultants
we had as of June 30, 2000. Furthermore, we are planning for additional employee
increases which will expand our organization significantly. Our growth has
placed, and the future growth we anticipate in our operations will continue to
place, a significant strain on our managerial, operational, financial, and
information systems resources. As part of this growth, we will have to:

- expand our current, or seek additional, office facilities;

- implement new operational and financial systems as well as
procedures and controls;

- control expense and seek higher cost efficiencies;

- train and manage our employee base; and

- maintain close coordination among our technical, accounting,
finance, marketing, sales and editorial staffs.

If we are unable to manage our growth effectively, our business could be
adversely affected.

INTENSE COMPETITION IN THE INTERNET PORTAL BUSINESS COULD PREVENT US FROM
ACHIEVING OR SUSTAINING PROFITABILITY.

Our business faces significant competition from other well-established
Indian online content providers, as well as numerous new entrants. We also
compete with foreign online content providers 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, 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 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:

-36-
<PAGE> 38

- loss of visitors and website traffic;

- loss of advertisers;

- different pricing, service or marketing decisions;

- reduced operating margins;

- loss of market share; and

- diminished value in our services.

BECAUSE WE LACK FULL REDUNDANCY FOR OUR TELECOMMUNICATION AND COMPUTER SYSTEMS,
A SYSTEMS FAILURE COULD PREVENT US FROM OPERATING OUR BUSINESS.

We rely 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 lines leased from service providers operated
by the Government of India. We have partial back-up facilities but we do not
have full redundancy for all of our telecommunication and computer facilities.
As a result, failure of key primary or back-up systems could lead to disruption
of our services and loss of important data. This in turn could lead to a loss of
users and customers and damage to our reputation. These failures, which could
have a significant adverse effect on our business and results of operations,
could also lead to significant negative publicity and litigation and to a
decline in the market price of our ADSs. Recently, several large Internet
companies have suffered highly publicized system failures which resulted in
adverse reactions to their stock prices, significant negative publicity.

We have suffered temporary service outages from time to time, which have
resulted in a disruption of our services that have lasted no longer than 30
minutes. 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 website and have a material adverse
impact on the number of revenues from e-commerce transactions handled through
our website. Such disruptions could also reduce the number of advertisers on our
site and materially affect our results of operations.

Our computer and communications hardware is protected through physical
and software safeguards. However, they are still vulnerable to fire, storm,
flood, power loss, telecommunication failures, physical or software break-ins
and similar events. We do not carry 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 each may voluntarily terminate his or her employment
with us. Our planned activities will require additional expertise in the sales
and marketing and other areas. The labor market for skilled employees in India
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

-37-
<PAGE> 39

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 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. Currently, most of our
e-commerce product manufacturers and vendors that we have agreements with do not
provide their products and services to our competitors. However, because these
agreements are not exclusive, our competitors may offer the same or similar
products and services 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
e-commerce products. We also rely on our agreements with third parties to
provide us with online credit card transactions processing, courier delivery
services and C.O.D. transaction services for our e-commerce customers.
Currently, there is a very limited number of third party credit card transaction
processing companies and couriers in India. Although we seek to establish
relationships with additional suppliers of these services, any unexpectedly
terminated agreements with these will significantly impair our e-commerce
offerings and our ability to generate revenues from e-commerce.

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 advertising and e-commerce revenues and have a material adverse effect on
our business.

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 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 and
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. As of the date of this
prospectus, we have no agreement to enter into any material investment or
acquisition transaction. The Reserve Bank of India and, in certain cases, the
Government of India must approve under the Foreign Exchange Regulation Act,
1973, any acquisition by our company of any company organized outside of India.
We cannot assure you that any

-38-
<PAGE> 40

required approval from the Government of India, the Reserve Bank of India or any
other government agency can be obtained.

FAILURE TO MEET MERCHANDISING, INVENTORY MANAGEMENT AND ORDER FULFILLMENT
OBLIGATIONS FOR OUR E-COMMERCE BUSINESS COULD RESULT IN DISRUPTION OF OUR
OPERATIONS.

We handle merchandising, inventory management and order fulfillment for
our e-commerce business. Our failure to perform these functions efficiently and
in a timely manner could result in the disruption of operations, including
shipment delays. This in turn could lead to a loss of customers and damage to
our reputation, which may cause the price of our ADSs to decline.

A SMALL GROUP OF OUR EXISTING SHAREHOLDERS CONTROLS OUR COMPANY AND MAY HAVE
INTERESTS WHICH CONFLICT WITH THOSE OF OUR OTHER SHAREHOLDERS OR OWNERS OF OUR
ADSs.

Our eight largest shareholders beneficially own an aggregate of
approximately 75.56% 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. If a special resolution is required,
approval requires the number of votes cast in favor of the resolution to be not
less than three times the number of votes cast against it. Examples of actions
that require a special resolution include:

- altering our Articles of Association;

- issuing additional shares of capital stock, except for pro rata
issuances to existing shareholders;

- commencing any new line of business; and

- commencing a liquidation.

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.

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 protect service marks. The misappropriation or duplication of our
intellectual property could disrupt our ongoing business, distract our
management and employees, reduce our revenues

-39-
<PAGE> 41

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.

We could be subject to intellectual property infringement claims as the
number of our competitors grows and the content and functionality of our website
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.

WE DO NOT PLAN TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE.

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.

RISKS RELATED TO THE INTERNET

WE MAY BE LIABLE TO THIRD PARTIES FOR INFORMATION RETRIEVED FROM OUR WEBSITE.

We may be subject to claims for defamation, negligence, copyright, or
trademark infringement, personal injury or other legal theories relating to the
information we publish on our website. 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. Claims have been made
against Internet portal companies like ours in the past. We could be subject to
similar claims and incur significant costs in their defense. In addition, 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. 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:

- unsolicited e-mail;

- lost or misdirected e-mail;

- illegal or fraudulent use of e-mail; and

- interruptions or delays in e-mail service.

Investigating and defending these claims is expensive, even if they do
not result in liability. We could also become liable if confidential information
is disclosed inappropriately. Others could also sue us for the content and
services that are accessible from our website through links to other websites or
through content and materials that may be posted by our users in chat rooms or
bulletin boards. 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

-40-
<PAGE> 42

reputation, disrupt our ongoing business, distract our management and employees,
reduce our revenues and increase our expenses.

WE MAY BE LIABLE TO THIRD PARTIES FOR THE PRODUCTS WE SELL THROUGH E-COMMERCE.

Consumers may sue us if any of the products or services that we offer
are defective, fail to perform properly or injure the user. To date, we have
very limited experience in the sale of products through our e-commerce business
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 through our e-commerce business. Liability claims could require us to
spend a considerable amount of resources, time and money in litigation and to
pay any 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 website. However, we may be required to collect such taxes in the future.
The Government of India may impose sanctions against us for failure to collect
sales taxes on products sold by us through our website. This may materially
adversely affect our business, financial condition and operations.

In addition, the laws relating to the sale of goods through e-commerce
are 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
operations 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.

-41-
<PAGE> 43

Item 3. Quantitative and Qualitative Disclosure About Market Risk

Please see "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Market Risks."

-42-
<PAGE> 44

PART II -- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The company is not currently a party to any material legal proceedings.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

The effective date of our registration statement, filed on Form F-1
under the Securities Act of 1933 (File No. 333-37376) relating to the initial
public offering of our American Depositary Shares, or ADSs, was June 13, 2000.
We sold a total of 5,290,000 ADSs, representing 2,645,000 equity shares, to an
underwriting syndicate (including the underwriters' overallotment option of
690,000 ADSs representing 345,000 equity shares). The managing underwriters were
Goldman, Sachs & Co., Credit Suisse First Boston, and Robert Fleming Inc. The
initial public offering commenced and was completed on June 14, 2000, at an
initial offering price of US$12.00 per ADS. We received US$56.8 million in net
proceeds from the offering.

As of September 30, 2000, US$2.4 million from the net proceeds of our
ADS offering in June 2000, were invested in equity participation in two internet
companies. The balance of the initial public offering proceeds remain as cash
and cash equivalents in banks and we are earning interest at preferred rates.
These deposits are withdrawable on demand. None of the net proceeds from the
initial public offering 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 percent or more of any class of our equity securities, or any
affiliates.

ITEM 3. DEFAULT UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company held its Annual General Meeting, or AGM, on September 29, 2000.

Diwan Arun Nanda's term as Director was retired by rotation at the meeting.
As Mr. Nanda was eligible for reappointment, Mr. Nanda nominated himself as a
Director and was appointed. Mr. Richard T. K. Li, who was earlier appointed as a
Director during a Board meeting held on April 28, 2000, was reappointed as a
Director and will retire by rotation.

The following Directors continued their terms as Director after this
meeting: Ajit Balakrishnan, Sunil Phatharphekar, Abhay Havaldar, and Charles R.
Kaye.

Below is a brief description of the matters voted upon at the AGM of the
Company held on September 29, 2000, along with the number of votes cast for,
against or withheld, as well as the number of abstentions and broker non-votes,
as to each matter. The shareholders on record and all Registered Holders of the
American Depositary Receipts (the "ADRs") on a record date determined by the
Depositary were notified regarding the matters to be voted upon at the meeting.
A notice to the shareholders containing the business transactions and the
matters voted upon during the AGM were filed with the SEC as an Exhibit to Form
6-K on September 12, 2000.

-43-
<PAGE> 45

<TABLE>
<CAPTION>
Votes Votes
Matters Put to a Vote Votes For * Against* Abstaining*
--------------------- ----------- -------- -----------
<S> <C> <C> <C> <C>
1. To receive, consider and adopt the Company's
Balance Sheet as of March 31, 2000, the
Profit & Loss, Account for the year ended on
that date, and the Report of the Directors
and Auditors thereon. 6 -- 8

2. To appoint Diwan Arun Nanda as Director to
fill the vacancy left by his retirement by
rotation. 6 -- 8

3. To appoint Deloitte, Haskins & Sells,
Chartered Accountants, as auditors of the
Company, to hold office from the conclusion
of this meeting until the conclusion of the
next AGM. 6 -- 8

SPECIAL BUSINESS

4. To appoint Mr. Richard T. K. Li as a Director
of the Company. 6 -- 8
</TABLE>

*NOTE:

Under the Indian Companies Act, voting is by show of hands unless a poll is
demanded by a member or members present in person, or by proxy holding at least
one-tenth of the total shares entitled to vote on the resolution or by those
holding paid-up capital of at least Rs.50,000. Under our Articles a member
present by proxy shall be entitled to vote only on a poll but not on a show of
hands, unless such member is a body corporate present by a representative in
which case such proxy shall have a vote on the show of hand as if he were a
member.

Under the Indian Companies Act and as per our Articles, on a show of hands
every member present in person shall have one vote and upon a poll the voting
rights of every member whether present in person or by proxy, shall be in
proportion to his share of the paid-up capital of the Company.

The votes represent the number of votes in a show of hands. No poll was
demanded during the AGM.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K

(a) The Exhibit Index attached hereto is incorporated by reference to this
item.

(b) We filed no reports on form 8-K during the quarter ended September 30,
2000.

-44-
<PAGE> 46

SIGNATURES

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

Dated: November 14, 2000 REDIFF.COM INDIA LIMITED

By: /s/ Rajiv Warrier
--------------------------------------
Rajiv Warrier
Chief Financial Officer

-45-

<PAGE> 47

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<S> <C>
27.1 Financial Data Schedule

99.1 Earnings Press Release Dated October 12, 2000.
</TABLE>