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Pre-Feasibility Study SOFTWARE HOUSE

Small and Medium Enterprises Development Authority Government of Pakistan www.smeda.org.pk HEAD OFFICE 6th Floor LDA Plaza Egerton Road, Lahore Tel (042)111 111 456, Fax: (042) 36304926-7 helpdesk@smeda.org.pk

REGIONAL OFFICE PUNJAB REGIONAL OFFICE SINDH REGIONAL OFFICE KHYBER PAKTUNKHWA REGIONAL OFFICE BALOCHISTAN

8th Floor LDA Plaza, Egerton Road, Lahore. Tel: (042) 111 111 456, Fax: (042) 36370474 helpdesk.punjab@smeda.org.pk

5TH Floor, Bahria Complex II, M.T. Khan Road, Karachi.

Tel: (021) 111-111-456 Fax: (021) 35610572 helpdesk.sindh@smeda.org.pk

Ground Floor State Life Building The Mall, Peshawar. Tel: (091)111 111 456, 9213046-7 Fax: (091) 286908 helpdesk.NWFP@smeda.org.pk

Bungalow No. 15-A Chamn Housing Scheme Airport Road, Quetta. Tel: (081) 2831623, 2831702 Fax: (081) 2831922 helpdesk.balochistan@smeda.org.pk

June, 2010

1 EXECUTIVE SUMMARY............................................................. ....................................................1 2 INTRODUCTION TO SMEDA......................................................... ...............................................2 3 PURPOSE OF THE DOCUMENT....................................................... ............................................2 4 OPPORTUNITY RATIONALE......................................................... ...............................................3 5 INDUSTRY STRUCTURE............................................................ ....................................................3 5.1 CLASSIFICATION OF INDUSTRY.................................................. ...................................................5 5.1.1 Product/Service Based Classification...................................... ...............................................6 5.1.2 Market Based Classification............................................... ....................................................7 6 MARKET ANALYSIS............................................................... ........................................................9 6.1 MARKET DEMAND............................................................... ........................................................9 6.2 OPPORTUNITIES IN MARKET..................................................... ..................................................10 7 QUALITY MANAGEMENT............................................................ ...............................................11 7.1 MANAGERIAL BEST PRACTICES................................................... ..............................................11 7.2 OBJECT ORIENTED DESIGN AND QUALITY ASSURANCE................................ .............................11 7.3 MARKETING STRATEGY.......................................................... ...................................................12 8 PRODUCT/SERVICE............................................................... .......................................................12 8.1 SERVICES.................................................................... ...............................................................12 The main technological services that will be offered, by category, include:..... .................................12 8.1.1 Systems Integration....................................................... ........................................................12 8.1.2 Technology Outsourcing.................................................... ...................................................13 8.1.3 Business Process Outsourcing (BPO)........................................ ..........................................13 8.1.4 Customized Application Development........................................ ..........................................13 8.1.5 IT and Business Processes Consultancy..................................... ..........................................13 8.1.6 Information Security...................................................... .......................................................14 8.1.7 Products Based Solutions.................................................. ...................................................14 8.2 INDUSTRIES.................................................................. ..............................................................15 8.2.1 Leasing and Finance....................................................... .....................................................15 8.2.2 Insurance................................................................. .............................................................15 8.2.3 Banking................................................................... ..............................................................15 8.2.4 Government................................................................

..........................................................15 8.2.5 Defence................................................................... ..............................................................15 8.2.6 Manufacturing............................................................. .........................................................16 8.2.7 Health.................................................................... ...............................................................16 8.2.8 Education................................................................. .............................................................16 8.2.9 Information Technology.................................................... ....................................................16 9 HUMAN RESOURCES............................................................... .....................................................16 10 MACHINERY & EQUIPMENT........................................................ .............................................17 10.1 IT EQUIPMENT............................................................... .............................................................17 10.2 FURNITURE AND FIXTURE...................................................... ....................................................17 10.3 VEHICLE.................................................................... .................................................................17 11 INFRASTRUCTURE............................................................... ........................................................17 12 PROJECT DETAIL............................................................... ...........................................................18 12.1 PROJECT COST............................................................... ............................................................18 12.2 PROJECT FINANCING.......................................................... ........................................................19 12.3 PROJECT VIABILITY.......................................................... .........................................................19 12.4 PROPOSED BUSINESS LEGAL STATUS............................................. ............................................19

13 ASSUMPTIONS.................................................................. ..............................................................19 13.1 REVENUE ASSUMPTIONS........................................................ ....................................................19 13.2 OPERATING EXPENSES ASSUMPTIONS............................................. ...........................................19 13.2.1 Working Capital Assumptions.............................................. ............................................20 13.2.2 Accounting Depreciation on Assets........................................ .........................................20 13.2.3 Debt Assumptions......................................................... ...................................................20 13.2.4 Miscellaneous Assumptions................................................ .............................................20 14 FINANCIAL PROJECTIONS........................................................ .................................................21 14.1 PROJECTED INCOME STATEMENT................................................. ..............................................21 14.2 PROJECTED BALANCE SHEET.................................................... .................................................22 14.3 PROJECTED CASH FLOW STATEMENT.............................................. ...........................................23 15 ANNEXURE..................................................................... .................................................................24 15.1 ANNEXURE 1 PROJECT COST AND MEANS OF FINANCING............................. ............................24 15.2 ANNEXURE 2 REVENUE GENERATION.............................................. .........................................25 15.3 ANNEXURE 3 LIST OF FIXED ASSETS............................................ ..............................................26 15.4 ANNEXURE 4 STAFF SALARIES.................................................. ................................................27 15.5 ANNEXURE 5 IMPORTANT CONTACTS.............................................. .........................................28 15.6 ANNEXURE 6 TAX DEDUCTION INCOME SLABS...................................... ....................................30

DISCLAIMER The purpose and scope of this information memorandum is to introduce the subject matter and provide a general idea and information on the said area. All the material in cluded in this document is based on data/information gathered from various sources and is based on certain assumptions. Although, due care and diligence has been taken to compile this doc ument, the contained information may vary due to any change in any of the concerned factors , and the actual results may differ substantially from the presented information. SMEDA do es not assume any liability for any financial or other loss resulting from this memoran dum in consequence of undertaking this activity. The prospective user of this memorandu m is encouraged to carry out additional diligence and gather any information he/she f eels necessary for making an informed decision. For more information on services offered by SMEDA, please contact our website: www.smeda.org.pk DOCUMENT CONTROL Document No. PREF-93 Prepared by SMEDA-Punjab Revision 2 Issue Date May 2006 Revision Date June 2010 Issued by Library Officer

11 EEXXEECCUUTTIIVVEE SSUUMMMMAARRYY This project entails opening up a Software House that will cater to both local a nd export markets in the Middle East, USA and UK. The company s corporate office will be ope ned in Lahore, Pakistan. The Software House will provide automated and Information Tech nology (IT) enabled solutions catering to businesses across various verticals in Pakist an, Middle East, UK and USA. The Software House will have IT specialists with vast industry experience and kn owledge. The company will offer a wide range of consulting services and cost-effective de velopment of customized application softwares. In addition to this, the focus of the firm will be to become a multi-dimensional technology company deriving revenue and customer sati sfaction from a variety of Information Technology services and custom software offerings including Technology Outsourcing, Systems Integration, Application Development, Processes Consulting, Business Intelligence Consulting, and Information Security Consultin g among others. Foreign-based companies have entered a recovery phase and started outsourcing th eir multiple services to the IT and IT-enabled companies of various countries. Pakis tan has potential to grab its share in IT-enabled services market as well as contribute towards providing software applications to various developed countries. The demand is ex pected to flourish in the upcoming years. Many countries prefer outsourcing from Pakistan because of the lower cost of manpower and advanced technological infrastructure. This enabl es the IT sector to bring in good investment opportunities in the country. This will also be helpful in making more job opportunities in Pakistan. The estimated cost of the project is Rs.16.24 million. The project is proposed t o be financed through 50% debt and 50% equity. The project NPV is around Rs. 19.89 million, wi th an IRR of 43.5% and payback period of 3.35 years. The project will be run by qualified professionals. The legal business status of this project is proposed as Sole Prop rietorship .

22 IINNTTRROODDUUCCTTIIOONN TTOO SSMMEEDDAA The Small and Medium Enterprises Development Authority (SMEDA) was established w ith the objective to provide fresh impetus to the economy through the launch of an a ggressive SME support program. Since its inception in October 1998, SMEDA had adopted a sectoral SME developmen t approach. A few priority sectors were selected on the criterion of SME presence. In depth research was conducted and comprehensive development plans were formulated after identification of impediments and retardants. The all-encompassing sectoral deve lopment strategy involved recommending changes in the regulatory environment by taking i nto consideration other important aspects including finance, marketing, technology a nd human resource development. SMEDA has so far successfully formulated strategies for industries such as horti culture, including export of fruits and vegetables, marble and granite, gems and jeweller y, marine fisheries, leather and footwear, textiles, surgical instruments, transport, dair y etc. Whereas the task of SME development at a broader scale still requires more coverage and enha nced reach in terms of SMEDA s areas of operation. Along with the sectoral focus a broad spectrum of business development services is also offered to the SMEs by SMEDA. These services include identification of viable bu siness opportunities for potential SME investors. In order to facilitate these investor s, SMEDA provides business guidance through its help desk services as well as development of project specific documents. These documents consist of information required to make well researched investment decisions. Pre-feasibility studies and business plan devel opment are some of the services provided to enhance the capacity of individual SMEs to expl oit viable business opportunities in a better way. This document is in the continuation of this effort to enable potential investor s to make wellinformed investment decisions.

33 PPUURRPPOOSSEE OOFF TTHHEE DDOOCCUUMMEENNTT This particular pre-feasibility comes under the Information Technology sector, a s

ub-sector of Information and Communication Technology re House in any big city of Pakistan.

and is in regard to setting up a Softwa

The objective of this pre-feasibility study is primarily to provide an overview of the IT and IT Enabled Services (ITeS) business. This project pre-feasibility may form the basi s of an important investment decision and in order to serve this objective, the document covers various aspects of the business concept development, start-up, marketing, financ e and business management.

44 OOPPPPOORRTTUUNNIITTYY RRAATTIIOONNAALLEE Competing in a worldwide scale, Pakistan s IT industry has experienced massive gro wth in IT exports. With the fast paced industry growth rate and government s investor fri endly policies, Pakistan has become a major player in the IT industry, not just on the South Asian but on a global scale as well. One of the biggest reasons to invest in IT is the fact that the Government of Pa kistan has allowed 100% ownership of equity and 100% repatriation of profits for foreign in vestors. Major tax incentives for companies have been allowed till 2016. Also, the Govern ment has given tax exemption on the income from export of computer software and related s ervices. 55 IINNDDUUSSTTRRYY SSTTRRUUCCTTUURREE Information technology (IT) with its revolutionary power as a critical enabler o f growth, development, and modernization is increasingly moving to the core of national competitiveness strategies worldwide. Recent economic history has shown that, as developed countries approach the technological frontier, IT is crucial for them to continu e innovating in their processes and products and to maintain their competitive advantage. Equall y importantly, IT has proven instrumental for enabling developing and middle-incom e economies to leapfrog to higher stages of development and fostering economic and social transformation. In the recent past, global recession has slowed down the economies, but informat ion technology is showing the way to recovery of the businesses and economies throug h innovative and smarter solutions. Pakistan s economy has been under tremendous pre ssure during the period. This has also adversely affected the IT Sector. The growth ha s slowed down with no significant and sizeable investments coming during the year 2009-10 into the country. Despite this slow-down, the IT Sector is still vibrant enough and is en visaged to pick-up by the end of next year 2010-11. The overall size of the Information and Communication Technology (ICT) industry in Pakistan has risen above $12 billion, including $1 billion under foreign direct investment (FDI). It is expected that IT exports in 2009-10 will reach US$ 250 million appr oximately against a target of US$ 280 million. This under-achieved status is mainly attrib

uted to the overall uncertain situation that prevailed during the year 2009-10, which made t he international investors reluctant to invest and undertake business in Pakistan a nd many local companies in expanding initiatives within the country. According to a report by the Pakistan Software Export Board (PSEB), the top five companies that have contributed the m ost to the IT sector are Netsol Technologies, Ovex Technologies, TRG Private Ltd, Systems P rivate Ltd, and Elixir Technologies.1 In the Public Sector Development Programme (PSDP) the amounts given in Table1-1 were allocated for information technology sector for various projects. These projects were executed by various Ministries/ Divisions. Table 5-1 PSDP Budget Allocation for IT Sector Projects2

2009-10 2010-11 Budget Allocation (Rs.) 2.0 billion 3.2 billion IT Projects (Nos.) 65 71 Cost of Projects (Rs.) 16 billion 14 billion

1 PSEB Pakistan IT Industry Yearbook 07-08 (http://www.pseb.org.pk) 2 Planning Commission pk/) Government of Pakistan (http://www.planningcommission.gov.

There are 1082 active IT companies in the country out of which 110 are ISO certi fied while over 25 companies are undergoing Capability Maturity Model Integration (CMMI)3 assessment currently. The country has 110,000 IT professionals including expatri ates from North America and Europe.4 Several global IT companies such as NCR, IBM and Oracle use Pakistan as a region al hub for South Asia and Middle East. The year 2009-10 saw slight improvement in the n etwork readiness index rankings. It increased from 98 in last year to 87 in the current year, showing the potential of Information Technology (IT) sector to perform well. Pakistan of fers various competitive advantages over other outsourcing destinations, such as high quality software development, swift and easy establishment of business, low cost basis, emerging and state-ofthe-art telecommunication and IT infrastructure. In spite of this, Pakistan stil l ranks much lower than its regional competitors. The Government of Pakistan has been proactively taking measures to develop the I T sector in Pakistan. It is working to extend a greater cooperation and interaction between the government, industry and academia to get maximum benefits of information technol ogy.5 A few of the incentives offered include tax exemption till 2016, establishment of IT Parks with low rent, foreign ownership of equity invested in IT and 100% repatriation of pr ofit allowed to IT companies.4 Table 5-2 Statistics of Pakistan s IT/ITES Industry4 IT companies registered with PSEB 1082 Substantial IT companies region-wise:

Karachi 611 Islamabad/Rawalpindi 479 Lahore 544 Other regions

105 Foreign IT and telecommunication companies 60 Number of CMMI-assessed companies:

CMM Level 5 1 CMMI Level 5 2 CMMI Level 3 3 CMMI Level 2 16 Total industry size US$ 2.8 billion IT and IT-enabled services exports US$ 1.4 billion Percentage growth in exports (2009-2010) 19% IT graduates produced per year Approx. 20,000 Export targets for fiscal year 2010-2011 US$ 350 million Number of institutes offering IT/CS programs 110 IT professionals in export-oriented activities More than 15,000 IT professionals employed in Pakistan 110,000 Space utilized in IT & Software Technology parks

11 parks covering 750,000 sq ft

3 Capability Maturity Model Integration (CMMI) is a process improvement approach that helps organizations improves their performance. 4 Pakistan Software Export Board (http://www.pseb.org.pk/) 5 Pakistan Telecom and IT news (http://propakistani.pk/2010/05/10/size-pakistanict-industry-rises-12-billion/)

The major achievements for 2009-10 are delineated below: 6 Human Resource Development The educated and highly skilled human resource is imperative for the growth of i nformation technology. Pakistan has to equip not only its educational institutions at all l evels with the information technology facilities but also it has to establish new vocational tr aining centres throughout the country which focus on providing training to convert the latent h uman resource available into a highly skilled IT workforce that is competitive at the world level. Information Technology Industry Development In order to strengthen the local information technology industry to compete in t he international markets, following projects were executed during the year 2009-10: Purchase of Land in Karachi and Lahore for Establishment of IT Parks was approve d for capacity building of IT industry. This project will boost the information techno logy infrastructure and facilitate more companies to establish their business in Paki stan. IT Parks Construction projects consultancy for both Karachi and Lahore airports w as launched during the year. These parks will facilitate more IT firms to establish their businesses in the country. Standardization of Pakistani Software Industry Program was initiated to obtain internationally recognized certifications by local companies. As a result, the n umber of Capability Maturity Model Integration (CMMI) assessed companies has increased. Currently CMMI certified companies according to their level include, two CMMI Le vel-5, three CMMI Level-3 and sixteen CMMI Level-2 companies. Also, now there are 110 I SO9000 certified. ISO 27001 consultancy and audit of ten IT companies has been com pleted this year. Automation of Domestic Industry on Open Source Systems. This project was initiat ed to encourage the local companies to develop expertise in open source arena as well as to provide automation at low cost for domestic industry

5.1 Classification of Industry

On the basis of reports and research software industry can be categorized as fol low:

i) Product /Service Base Product Focused Services Focused Hybrid Operation ii) Market Base Domestic-Focused Local Firms Export-Focused Foreign Firm Export-Focused Local Firms Export-Focused Foreign Firms Dedicated Development Centre

6 Planning Commission Annual Plan mission.gov.pk/)

Government of Pakistan (http://www.planningcom

5.1.1 Product/Service Based Classification

In terms of product/service strategy there are product focused or packaged softw are companies, software/IT services and software/IT consulting companies working in a niche product/service market. 5.1.1.1 Product Focused In Pakistan numbers of products have been developed and are successfully working in multiple organizations. However, there is still plenty of room for growth in thi s area. Potential Areas for Product-Focused Companies i) Financial Management System ii) Payroll/ Supply Chain Mgt. System iii) Share & Portfolio Mgt. System iv) Flagship Product. v) Medical Insurance Plan vi) PBM (Project Building & Monitoring) vii) E-Call , E-Share and E-CRM Solutions in B2C viii) Purchase & Inventory Mgt. System ix) Fixed Assets Management System x) Real-Estate-Property System xi) Hospital Mgt. & Patient Filing System xii) MOR (Manage Your Own Risks) xiii) Software Measurement and Metric Tool (SMMT) xiv) E-CRM Solutions in B2B, E-DoX, E-FaX, E-College

5.1.1.2 Service Focused

The second largest focus area is the customized services. Companies focusing on customized services provide standardized software applications with some customization. In this category a software house can work on more than one project. The customized services prov ided by the software houses are given in Table 5-4. Potential Areas for Service-Focused Companies i) EPR Solutions & B2C & B2B Business Model- KalPoint IVR Systems Public Map-Geographic Info System

ii) Web Designing and Development TTI Voice hardware platform mostly for banking sector

5.1.1.3 Hybrid operations-Changes in Existing Product

Another area that has potential in Pakistan market is implementation of already developed Standard ERP Solutions like Oracle, SAP-R/3, SAGE and ACCPAC etc. In this area t here is very little competition prevailing in local market.

5.1.2 Market Based Classification Another way of classifying the software industry is according to their market or ientation i.e. those companies that are predominantly export-focused, domestic-focused and with hybrids working in between in both export and domestic markets.

5.1.2.1 The Export-Focused Local Firm These firms are owned by Pakistan-based entrepreneurial team (that may or may no t have been aided/encouraged by a group of expatriates), but with an explicit purpose o f exporting software products or services. Majority of firms are targeting on offshore progr amming and coding for foreign clients. In this category, the companies focusing on products have numbers relatively smaller than those focusing on export of services. Companies that are following this business model are: i) Three sixty Degrees (Lahore) ii) Post Amazers (Karachi) iii) Advanced Communications (Islamabad) iv) Makabu (Islamabad) v) Netsol (Lahore, Karachi and Islamabad) vi) Autosoft Dynamics (Karachi and Islamabad)

5.1.2.2 The Export-Focused Foreign (Expatriate) Firm

These firms are based either overseas or in Pakistan and are usually run by an e xpatriate entrepreneurial team, with an explicit purpose of using Pakistan-based offshore development facility to deliver a product or service demanded by foreign market. This type o f business model has been adopted by services and product-focused companies alike. Within b oth services and products domains, this type of model has been more valuable than Ex portFocused Local Firm model. Some salient examples of companies following this busi ness model are: i) Elixir Technologies (Islamabad) ii) Etilize Inc. (Karachi) iii) Ultimus (Islamabad) iv) MixIT (Karachi) v) TechLogix (Lahore)

vi) Prosol (Islamabad) vii) Xavor (Lahore)

5.1.2.3 The Domestic-Focused Local Firm

These firms plan to export its products or services abroad and are merely using the domestic market as a vehicle to gain reputation. These companies first do enough large proj ects fairly quickly in the local market to build a reputable portfolio of customers, to develop a domain expertise, and to migrate effectively to a much more sophisticated and qu ality conscious foreign market. The more successful of these firms have already begun to look overseas, primarily the Middle Eastern region, for a portion of the export marke t and have been fairly successful. Some salient examples of this type of business model are : i) 2B Technologies (Karachi)

ii) ZRG (Karachi) iii) TPS (Karachi) iv) Lumensoft (Lahore) v) Yevolve (Karachi) vi) SI3 (Karachi) vii) Softech Systems (Lahore) viii) AppXS (Karachi) ix) Genesis Solutions (Karachi)

5.1.2.4 The Domestic-Focused Foreign Firm

The Domestic-Focused Foreign (Expatriate) Firm is almost non-existent due to the small size and lack of maturity of the local market. It does, however, find some expression in the relocation of Pakistani expatriates back to Pakistan with a desire to set up com panies that either serve the local the prime example being SI3 whose expressed purpose is to w ork on the domestic front or the export market but who end up doing quite a fair bit of w ork in the domestic market as well.

5.1.2.5 Dedicated Offshore Development Centre There are fairly limited offshore development foreign companies. It is different from the Export-Focused Foreign (Expatriate) Firm in the sense that it is often an add-on t o an already existing company who s strategic and managerial processes and controls are quite well-established. It, therefore, does not get an equal say in the long-term visi on and strategic direction of its parent. Some salient examples of this type of business model ar e: i) MetaApps (Lahore) ii) ITIM Associates (Karachi) iii) Clickmarks (Karachi) iv) Trivor Systems (Islamabad) v) Strategic Systems International (Lahore) Table 5-3 Market Base Business Model Domestic-Focused Local Firms Export-Focused Local Firm

Export-Focused Foreign Firm Dedicated Development ZRG Three Sixty Degree Etilize ITIM Associates TPS Post Amazers Prosol MetaApps Lumensoft Advanced Comm. Adamsoft Clickmarks Yevolve Netsol Ultimus Enabling Tech. 2B Technologies Makabu MixIT Trivor System S13 Autosoft Dynamics Techlogix Strategic System Softech System Sidaat Hyder Xavor

ESP Global Genesis Solution Avanza Solution Elixer

Alchemy Technology Gonet

AppXS Kalsoft

Oratech Jinn Technologies

Askari Info System Secure network

Acrologix Systems Ltd.

Comcept Progressive System

LMKR Millennium Software

CARE Cressoft

66 MMAARRKKEETT AANNAALLYYSSIISS

6.1 Market Demand Foreign-based companies have entered the recovery phase and started outsourcing their multiple services to the IT and IT-enabled companies of various countries. Pakis tan has potential to grab its share in IT-enabled services market although it is also co mpetent in providing software applications to various developed countries, demand will be f lourishing in the upcoming years. United States of America is the largest buyer of Pakistan IT-enabled services wi th the share of 58 percent in the overall country s exports. It is followed by UK, where the ex ports are hovering around 10 percent. The pie of total exports shows 16 percent share to t he other

countries including Australia, Canada, Thailand, UAE and others. Companies such as IBM, Microsoft, Cisco Systems, Hewlett Packard, and Novell cho ose to get services from sub-contractors in low cost countries with strong IT capabilit y, HR capital and infrastructure and low risk. These companies are also moving many developmen t and support jobs to such locations. Ratios of revenue generation from export and domestic market are approximately 6 0:40. In export, revenues generate from products and services are 22.55% and 38.55% respe ctively. Majority of the product-exports are customized rather than shrink-wrapped products. Exporters are optimistic on the sustainability of export growth gradually in tan dem with the recovery of developed economies where country has good markets. The demand of lo cal IT services has gotten better in the traditional exports market in the recent times. Pakistan s market demand can be viewed by last year s growth at around 37% in revenu e and 27% in terms of technical and professional employment. Another encouraging sign is the reverse brain drain caused by returning Pakistani entrepreneurs who see the rela tively less competitive and virgin market at home as a tremendous opportunity for setting up a Pakistan based company. There are quite a few hundreds of software houses in Pakistan and the count is i ncreasing rapidly. These software houses are working to make Pakistan a bright mark in the world of IT. They are producing many useful products which have modernized the processes of traditional industries and also increased their productivity. As we see, compute r has become a significant part of every walk of our lives and many processes have become autom atic now. All the big shopping malls have computerized billing system now. Almost every or ganization keeps its data in computerized form. Computer and internet awareness is also inc reasing and the trend of e-commerce is emerging fast. People, whatever field they belong to, consult internet for any queries which come into mind. Most of the Pakistani companies are working for financial institutions, automobi le, call centres and miscellaneous services sectors in different countries. The demand in the market exists for the following solutions and services

Table 6-1 Market Demand Financial and Leasing Solutions Banking, ATM Solutions Inventory, Payroll and Marketing Retail Store Systems Mortgages, Portfolio Management Call Center Automations Health Care Solutions VOIP Billing Manufacturing and ERP Solutions Traveling & Hotel Management Project Management & Business Human Resource Solutions

Table 6-2 Services Available in the Market ZRG Call Center & Telephony Solutions Softech Systems Financial & Trading Systems TPS Banking and Switching Solutions

Genesis Solutions ATMs, Info &Vending Kiosks

Lumensoft

ERP & Inventory Systems Risk-Mgmt

Alchemy Technologies Solutions

Yevolve Software for Handheld in Transport/SCM AppXS Systems Financial & Trading

2B Technologies Oratech

Call Center Solutions

Oracle-based Applications

SI3 System Integration & Back-Office Outsourcing Askari Info Systems Financials-Accounting ERP,

Acrologix ERP, Archiving, foreignlanguage OCR Concept LMKR etc. Communications Systems Large DBs, GIS, Petrochemicals

CARE - Telecom Eqpt., ASICs, EDA Tools etc.

6.2 Opportunities in Market

The following opportunities are present in IT Sector of Pakistan: Development of packaged software Quality training and development of specialized human resources Re-engineering and computerization of government/public sector and private secto r organizations installation of network (LANS, WANS, etc)

E-information switch over to Urdu as a computer language Reorganization and growth of communications infrastructure Foreign exchange earning potential utilization of available educated human resou rces pool unlimited e-commerce potential Global and domestic Internet explosion World-wide growth and lowering of cultural barriers due to the use of the intern et and globalization will drive IT usage Government drive for documentation will provide growth opportunities Entertainment potential of IT and the internet

77 QQUUAALLIITTYY MMAANNAAGGEEMMEENNTT

7.1 Managerial Best Practices

The proposed Managerial Best Practices (MBP s) for the project could be as follows : Develop effective export-focused operations, to the extent possible, seek a stro ng expatriate connection (e.g. a founder or co-founder either based abroad or opera ting equally from home and abroad) and use his/her personal connections and networks to get a foot-in-the-door or even acquire first customers. Actively pursue alliances with synergistic entities and off-shoring and marketin g relationships with past clients Engage with software multinationals (e.g. Microsoft, IBM, SAP, NCR, Oracle etc.) in development and marketing arrangements. Understand the importance of developing a domain expertise and maintaining a foc us. Develop a domain expertise by learning to take the big-picture view of the clien t s business operations and look for opportunities to sell business rather than tech nology solutions. Get domain experts involved, if need be. Avoid the temptation of on-to dayoff-tomorrow type of contracts. Focus on better-developed segments of market. Understand requirements and diffic ulties in creating a market single-handedly and plan accordingly. Price innovatively. Use the financial clout, domain knowledge, and regional network of locally opera tive multi-nationals (MNCs) to fund start-up. Understand where you need help (e.g. management, marketing, institution building , legal, accounting) and seek it. Be creative and innovative about projecting Pakistan as a responsible country. P ersuade your customers and foreign partners to visit Pakistan and see for themselves. Develop strong domain expertise to lock in customers, move towards value additio n to avoid being pressed by the pressures of the commodity business, or continually c ut costs by automating your own processes. Counter the shortage of quality labour by hiring expatriate or returning Pakista nis. Hire people with the right attitude, not skill-set or coursework. Know the land, its people and their customs and, to the extent possible, play by its rules.

Make use of connections to get your way around. Make use of facilitation agencie s e.g. SMEDA, PSEB. BoI, or P@SHA where possible. 7.2 Object Oriented Design and Quality Assurance

Quality design is the foundation of a quality product. The assurance of software quality should start from the design phase. Formal object-oriented design methodology sh ould be followed to ensure code understandability, reusability, extensibility, and maint ainability, The quality assurance process has a lifecycle of its own, which runs parallel wi th the design/development process, it begins when the specifications are delivered, and continues for the entire life of the project.

7.3 Marketing Strategy If we look the software industry and its various marketing approaches used by so ftware houses and their perception of successfulness . The following seven successes of ma rketing strategies are used by them; Word of Mouth Approach (Client referrals etc) Advertising in trade local/foreign journals Attending local/foreign trade conferences Initiate 1-to-1 communication with potential clients Use pre established networks/personal relationships Alliances and agreements with channel partners Depend on a Captive client since formation

88 PPRROODDUUCCTT//SSEERRVVIICCEE

The project concept is of a software development house, catering to both local a nd export markets, with corporate presence in Lahore, Pakistan. The company will offer a f ull range of business application solutions for the corporate, financial and industrial secto rs and its international target market will be USA and UK. The project's strategic vision w ill provide the clients with quality systems to stimulate their growth in the existing compe titive markets. Three important aspects are being considered while developing the project: 1. Robust, and extensible architecture and design 2. Good software quality 3. On-time delivery The strategies required to achieve these objectives are: Employing a highly professional and experienced staff in all aspects project man agement, architecture, design, development and Quality Assurance Ensuring continuous personal and professional growth through on-going training Having a well-developed organization structure, and well-defined responsibilitie s within the company in order to ensure good teamwork, coordination, and timely product d elivery Providing good customer support and services

8.1 Services

The main technological services that will be offered, by category, include: 8.1.1 Systems Integration Due to the dynamic nature of the business environment and the increasing demand for efficiency in today s world, expertise is required in systems integration at enter prise wide scale. Systems integration capabilities are required to help minimize risk and maximize security, interoperability and compatibility. For any organization to make the best possib le decisions the existing systems should be well-integrated with the new technologies; new te chnologies that provide the best possible platform to suit any organizations business needs .

The services will plement and deploy the Oracle gement, Manufacturing and include Risk Management, Asset

include helping organizations successfully plan, customize, im Applications suites that include Financials, Supply Chain Mana Inventory. Other offerings specific to the financial industry, Liability Management and Treasury Management solutions.

8.1.2 Technology Outsourcing Technology Outsourcing solutions will be offered to clients all across the globe by providing technology, processes, domain, resources and management experience and expertise that are crucial to navigate various business environments. There is a high level of comp etition in the fast-paced IT industry; Technology Outsourcing is a necessity to maximize a comp any s potential by outsourcing resource-consuming processes and controllable costs. However, understandably there are numerous risks associated with this. Using exp erience and management skills one should ensure that the offshore solution is predictable an d costeffective by successfully managing and mitigating risks associated with outsourc ing and hence, enabling the customers greater profitability by extracting maximum reward with minimal risk. Consistent and reliable communication channels aid in virtually el iminating the risk of an off-shore partner by use of state of the art video conferencing equip ment and a dedicated high speed fibre optic connection. 8.1.3 Business Process Outsourcing (BPO) The most successful businesses of today have outsourced their processes and save d time and money to focus on customers and marketplaces. Companies are looking for ways to reduce overheads and focus on their core business, thus outsourcing is the best solutio n available to them. In most countries, the acute shortage of qualified personnel combined with the ever increasing salary levels has placed an enormous burden on firms and businesses a like. In a recent Accenture survey of more than 800 companies, in the US and Europe, 8 6% of the companies said outsourcing gives them more control over business results in a va riety of critical areas, the most important being the ability to plan. While cost savings are an important consideration the executives also reported a number of other benefits such as reliability and the effective implementation of ideas. Pakistan has an abundant supply of

qualified accountants at all levels to undertake the necessary work for clients. 8.1.4 Customized Application Development This service should include creating customized e-business software solutions ba sed on unique specifications to give the competitive edge in an increasingly competitiv e market. The company's core business principles should include a methodical, solutions-based approach to developing software applications. 8.1.5 IT and Business Processes Consultancy Information technology services are valuable only if they fulfil the business st rategy and project objectives set forth. The company's expert consultants should have the t echnical knowledge and business experience to ensure the optimization of the development process in alignment with basic business principles. The consultants will aim at maximizing organizational efficiencies through enhanced business processes and cost savings measures that cater, not only to the clients immediate needs but also to the long-term goa ls. The company will provide the streamlining, realignment and restructuring of the busi ness processes of an organization that help gain meaningful business value from plann ed IT implementations. As the state of affairs of businesses change, organizations feel the need of mov ing to state-ofthe-art IT enabled solutions to survive and participate in the competitive marke t. This particular service will help organizations to do just that virtually trouble-fre e.

The company will undertake the following tasks to make software technology work for its clients: 1. Check commercial viability of client's existing technology 2. Determine new technology outside of the client's industry 3. Compare client's technology with the best in its industry 4. Suggest, develop and implement the best solution 5. Integrate and automate client's work flows and business processes 8.1.6 Information Security

Information is the lifeblood of all organizations be it written, printed, electr onically stored, transmitted or communicated verbally. In today s global economy, the success or fa ilure of an organization, from SMEs and large corporations, depends upon the confidential ity, integrity and availability of corporate information. As a result, Information Se curity has become one of the most important topics for modern organizations. The information security services will be designed to ensure protection from thr eats and vulnerabilities while ensuring seamless operations for organizations. Professional Services: 1. 2. 3. 4. 5. Security Policy Development ISO 27001 ISMS Life Cycle Consulting Penetration Testing and Vulnerability Assessment Business Continuity Planning / Disaster Recovery Secure Network Architecture Design and Deployment

Benefits: 1. Lower operating costs 2. Better regulatory compliance 3. Dedicated expertise allow focus on core business 4. Professional processes 5. Continuous management and support 6. Network and System integrity 8.1.7 Products Based Solutions

The company will provide a number of mature and comprehensive IT solutions succe ssfully implemented. These products extend to various domains; standing out in which is LeaseSoft, a comprehensive end-to-end product for the lease and finance industry. The major products are: 1. LeaseSoft - a suite of four software applications, an end-to-end solution for

the lease and finance industry 2. Motor Transport Management Information System - a distributed database system for the complete automation of motor transport information 3. iBanking - A fully integrated solution for the Wholesale & Finance industry 4. KB Vault - A Knowledge Base Management System

8.2 Industries

A wide range of potential industries that can be catered include: 8.2.1 Leasing and Finance The constituent software applications are: i) Credit Application Processing System (CAP) Automated robust credit application processing: The system is equipped with stro ng workflow management, integrated link to credit rating agencies, automated point scoring strategy for automatic approval/rejection/referral. Moreover, it can be customiz ed for linking with any point of sale system. ii) Contract Activation & Management System (CMS) Automated comprehensive contract management throughout the life of the loan / le ase: System provides comprehensive business functionality that enables its users to e ffectively and smoothly manage and maintain a contract with the most comprehensive details throughout its life cycle. It also provides interfaces with the company s banks an d accounting systems. System also effectively maintains details of all business stakeholders, e.g., customers, dealers, debtors, guarantors, insurance companies, banks, etc. iii) Wholesale Finance System (WFS) Automate and manage wholesale finance activities: The system covers credit limit requests, payment of loan, billing, settlement, auditing of stocks, agent/dealer informati on and ultimately the pay-off function. A Dealer Access System enables dealers/agents a nd auditors to connect with the system, see relevant information and carry out transactions. 8.2.2 Insurance The services for the insurance industry include business analysis, software qual ity assurance, configuration expertise, technical publication and analysis & reporting. 8.2.3 Banking The products and services in the banking sector include: 1. iBanking

2. Business Intelligence 3. Electronic Credit Information Bureau (e-CIB) 8.2.4 Government

With the help of advanced hardware and technology turnkey solutions can be provi ded to various government and semi-government organizations. This includes services ran ging from software development, data entry, project management, training, implementation, maintenance and support to provision of hardware and network infrastructure. 8.2.5 Defence The domains that can be catered to in the Defence sector are: 1. 2. 3. 4. Command & Control Systems Office Automation Applications Education & Training Institutions Statistical & Analytical Applications

5. Computer Based Training (CBT) Applications 6. Processes Analyses & Reengineering consulting 8.2.6 Manufacturing

The services for a Manufacturing concern include System Integration of Enterpris e Resource Planning (ERP) applications catering to the different parts of an organization i ncluding Financials, Supply Chain Management, Manufacturing and Inventory, Asset Manageme nt Software and Services through the dedicated Enterprise Asset Management Solution s of Info Data Stream. 8.2.7 Health The healthcare industry in Pakistan is growing at a huge rate and is one of the areas that have the most urgent need of automation. The requirement is to developed a strategic collaboration with hospitals and medical centres as part of a long term commitment for IT deve lopment in Pakistan s Health Sector. 8.2.8 Education Services for automation of the Education sector involve supply and installation of software licenses of 3 rd party software applications, systems integration, customized ap plication development, deployment, configuration, customization in addition to end user tr aining and maintenance services. Diverse range of IT solutions include computer based train ing, data management and knowledge sharing, business process reengineering and network infrastructure development. 8.2.9 Information Technology Information technology services are valuable only if they fulfil the business st rategy and project objectives set forth. Expert consultants having the technical knowledge and business experience will ensure the optimization of the development process in alignment with basic business principles. IT Consultancy services are extended in domains such as Inf ormation Security and Software Process Consultancy. 99 HHUUMMAANN RREESSOOUURRCCEESS The project should have highly educated and skilled manpower to support its soft

ware development operations. Success of a software house is mostly dependant on the qualification, experience and dedication of its staff. The CEO should have Ph.D. / M.S. degrees from leading foreign universities prefe rably from USA and UK, with experience of export software. The CEO will provide the overall technical and business direction for software development activities. The Chief Software Architect - CSA, will have a strong background in software de sign and architecture, with special focus on Object-Oriented Design and implementation. H is role will be streamlining the software development methodology and life cycle, and softwar e design processes. Validating object designs and acting as technical consultant for team lead and developers. The majority of technical team would have full command on methods, tools and tec hnology necessary to develop high quality enterprise software systems and would be capab le to generate an idea from scratch, analyze it, form a solution, implement it and the n deploy it. Staff should be trained and fully equipped with latest technology and advancemen t. This software house will require a total of 35 employees, 23 of which is the tec hnical staff that will be directly involved in revenue generation. The other 12 non-technical employees will be required of office administrative functions.

The details of staff and their salaries for the first year are given in Annexure 4. The annual salary growth rate is taken to be 10%. Table 9-1 Monthly Staff Salary Staff No of Employees Salary Per Month (Rs.) Technical Staff 23 1,205,000 Non Technical 12 262,000 Total Staff 35 1,467,000

1100 MMAACCHHIINNEERRYY && EEQQUUIIPPMMEENNTT

10.1 IT equipment The IT equipment includes Computers, Laptop PCs, Servers, UPS for PCs and networ king equipment. The detail list of Computer and equipment is given in Annexure 3. Thi s IT equipment will be re-purchased after every three years.

10.2 Furniture and Fixture The list of office furniture and fixture is given in Annexure 3.

10.3 Vehicle

The list of vehicles and other conveyance is given in Annexure 3. 1111 IINNFFRRAASSTTRRUUCCTTUURREE The proposed location in Lahore is Gulberg or Defence Housing Authority and in I slamabad highly maintained available infrastructure areas are Sector E, Sector F, Evacuee Trust Building, and Software Technology Park etc. An office can be rented out in any o f these locations. The rent for an office in the proposed areas is estimated at Rs. 300, 000 per month. PSEB has established Software Technology Parks (STPs) in Islamabad, Karachi, and Lahore to facilitate the IT and IT-enabled Services (ITeS) companies operating in Pakis tan. Designed with a view to getting business ventures up and running in the shortest possible time, these STPs provide office space with all the modern conveniences in prime business loc ations in these major cities. These dedicated premises provide a comfortable working envir onment, high-speed international data connectivity, and an uninterrupted power supply, w ith minimal regulatory overheads and paperwork, to its registered companies. The STPs in all these cities have facilities for conferences/seminars, business centres, adequate security ar rangements, and ample parking space. Investors can lease out office space in an existing Sof tware Technology Park (STP). The contact information for details on leasing office spa ce is given below:

Contact Information: Mr. Nasir Khan Afridi Director Infrastructure Pakistan Software Export Board (G) Limited 2nd Floor Evacuee Trust Complex F-5, Aga Khan Road Islamabad - 44000 Telephone: 92-51-9204074 Extension 115, 92-51-9220813 Fax: 92-51-9204075 E-mail:nafridi@pseb.org.pk

1122 PPRROOJJEECCTT DDEETTAAIILL

12.1 Project Cost The detail of the project cost is as follows. There is an initial licensing fee of US$ 1,900, which is a one time fee. Table 12-1 Project Cost

Rupees Capital Investment Requirement 9,520,000 Working Capital Requirements 6,724,670 Total Project Investment Requirement 16,244,670

Table 12-2 Project cost break down Project Cost

Rs. Rs. Land

Project Development cost

Equipment 3,332,500 Furniture & Fixture 1,887,000

Motor Vehicles 3,265,000 8,484,500 Preliminary Expenses

Copy rights-Licensing & Trade Marks 161,500 Other Expenses 874,000 1,035,500 Working Capital

6,724,670 Intangible Assets

Total Assets

16,244,670 Total Capital Employed By:

Equity Contribution by Sponsor 50%

Loan Bank 50%

Total Capital Cost 100%

16,244,670

Table 12-3 Working Capital break down

Year 1 Current Assets Receivables 5,692,960 Advances to Employees 2,000,455 Total Current Assets 7,693,415 Current Liabilities Utilities Payable 73,744 Salary Payable 895,000 Total Current Liabilities 968,744 Net Working Capital 6,724,670

12.2 Project Financing Project financing will be done through 50% equity and 50% debt. Table 12-4 Project Financing

Rupees Debt @ 50 % 8,122,335 Equity @ 50 % 8,122,335 Total Project Investment Requirement 16,244,670

12.3 Project Viability Table 12-5 Project Viability NPV Rs. 19,896,000 IRR 43.5 % Pay Back Period 3.35 Years

12.4 Proposed Business Legal Status The legal structure of the business entity can either be sole proprietorship or partnership. Although the selection totally depends upon the choice of the entrepreneur, this particular feasibility is based on a Sole Proprietorship. 1133 AASSSSUUMMPPTTIIOONNSS

13.1 Revenue Assumptions The potential of each employee for revenue generation is around US$ 19,200 based on 50% capacity utilization during Year-1. This capacity utilization goes up to 95% in Year-10. The project is based on 8 working hours in a day, with revenue generation of US$ 26 per hour. The annual increase in this rate is 5%. 264 days in a year are assumed to be wor king days. The export vs. local sales ratio is as follows: Table 13-1 Export-Local Sales Ratio Year 1 Year 2 Year 3 Year 4 Year 5 0% : 100% 10% : 90% 15%: 85% 20%: 80% 25% : 75% Year 6 Year 7 Year 8 Year 9 Year 10 30% : 70% 30% : 70% 35%: 65% 35%: 65% 35% : 65%

13.2 Operating Expenses Assumptions Operating Expenses for the project and there basis are taken as follows: Table 13-2 Operating Expenses

YEAR 1 Description Basis (Rs.) Staff Benefit 5% of Payroll 880,200 Bonuses and other Allowances 5% of Payroll 880,200 Repair & Maintenance 2% of Equipment 2,036,280 Insurance 5% ofEquipmentCost 166,625 Foreign Traveling (a year) 4 trips @ 550,000 2,200,000 Traveling & Conveyance

4500 Per person 1,890,000

Entertainment 300 Per person 126,000 Printing & Stationary 500 Per person 210,000 Books & Periodicals 10 Magazines @ 900 108,000 General and Administration 300 Per person 126,000 Communications Fixed 1,200,000 Rent Fixed 3,600,000 Utilities Elec. & Dieselexpense 884,933 Advertising Fixed 60,000 Total 14,368,238

13.2.1 Working Capital Assumptions Our working capital for the first year is Rs. 6,724,670 which is also initial wo rking capital. Working capital is calculated on the basis of following assumptions: Table 13-3 Working Capital Description Days Basis No of Working days 264 Days Accounts Receivable 40 Sales Advance to Employee 30 Payroll Benefits Utility Payable 22 One Month Bill Salary Payable 30 One Month Salary

13.2.2 Accounting Depreciation on Assets Table 13-4 Depreciation Assumptions IT equipment depreciation rate 33% Machinery & Equipment depreciation rate

10% Vehicles depreciation rate 10% Furniture & Fixtures depreciation rate 10%

13.2.3 Debt Assumptions Table 13-5 Debt Assumptions Debt Tenure 5 Years Interest Rate on Long Term Debt 16% Debt Payments Semi Annually Working Capital Loan 14% Debt Payment Monthly

13.2.4 Miscellaneous Assumptions Table 13-6 Miscellaneous Assumptions Inflation Rate 10% Tax rate 25%7 Salaries growth rate 10% Repair and Maintenance growth rate 5%

Utilities expense growth rate 10%

7 This tax rate is fixed through out since the income falls in 25% tax deduction slab.

1144 FFIINNAANNCCIIAALL PPRROOJJEECCTTIIOONNSS

14.1 Projected Income Statement Year 1 Year 2Year 3Year 4Year 5Year 6Year 7Year 8Year 9Year 10RevenueExport4,339,743 7,456,468 11,308,977 16,679,795 23,455,962 26,270,677 34,192,929 38,014,491 42,132,728 Local37,573,536 39,057,691 42,253,320 45,235,907 50,039,386 54,730,578 61,298,247 63,501,153 70,598,341 78,246,494 Total Revenue37,573,536 43,397,434 49,709,788 56,544,884 66,719,181 78,186,540 87,568,925 97,694,082 108,612,832 120,379,222 Operating Expenses31,972,238 35,655,986 36,402,742 44,564,784 50,544,066 60,066,012 67,172,783 74,760,215 83,206,749 92,996,198 Depriciation1,614,925

1,200,496 915,516 2,174,155 1,562,608 1,146,000 2,786,781 1,955,560 1,394,752 3,573,694 Amortization of Deferred Cost207,100 207,100 207,100 207,100 207,100 33,794,263 37,063,581 37,525,358 46,946,039 52,313,774 61,212,012 69,959,564 76,715,775 84,601,501 96,569,893 Profit before Tax and Interest3,779,273 6,333,853 12,184,430 9,598,845 14,405,407 16,974,529 17,609,361 20,978,306 24,011,331 23,809,330 Interest on Long term Loan1,288,744 1,245,425 1,202,106 1,158,786 1,115,467 1,072,148 1,028,829 985,510 942,191 898,872 Interest

on short term Loan941,454 941,454 Profit / (Loss) before Tax1,549,075 4,146,974 10,982,325 8,440,058 13,289,940 15,902,380 16,580,532 19,992,796 23,069,141 22,910,458 Taxation187,868 1,291,703 2,712,506 2,111,832 2,827,792 3,156,667 3,066,114 4,789,581 7,373,461 5,678,774 Profit after Tax1,361,207 2,855,271 8,269,818 6,328,226 10,462,148 12,745,714 13,514,418 15,203,216 15,695,680 17,231,684

14.2 Projected Balance Sheet

YEARStart upYear 1Year 2Year 3Year 4Year 5Year 6Year 7Year 8Year 9Year 10FIXED ASSETSTangible8,484,5006,869,5755,669,0794,798,9387,060,3415,554,1004,470,1057,5 87,0515,706,5174,394,2938,661,953Intangible8,484,5006,869,5755,669,0794,798,9387 ,060,3415,554,1004,470,1057,587,0515,706,5174,394,2938,661,953DEFERRED COSTProject development expenditure161,500129,20096,90064,60032,300Preliminary Expenses874,000699,200524,400349,600174,8009,520,0007,697,9756,290,3795,213,1387,267,4415,554,1004,470,1057,587,0515,706,51 74,394,2938,661,953CURRENT ASSETSAccounts Recb. 5,692,9606,575,3697,531,7868,567,40710,108,96711,846,44513,268,01914,802,13416,4 56,49018,239,276Advances to Employees2,000,4552,200,5002,073,3632,662,6053,008,7263,419,4063,761,3464,137,48 14,551,2295,006,352Cash & Bank Balances6,724,6709,637,15819,368,37120,997,29823,492,83233,638,83545,191,47453,7 10,70668,785,08183,642,91794,305,9456,724,67017 ,330,57328,144,24030,602,44634,722,84446,756,52860,457,32570,740,07187,724,69510 4,650,635117,551,573LESS: CURRENT LIABILITIESShort Term Borrowings6,724,6706,724,670.1 -

Utilities Payable73,74481,11989,23198,154107,969118,766130,643143,707158,078173, 886Salary Payable895,000984,5001,082,9501,191,2451,310,3701,441,4061,585,5471,744,1021,918 ,5122,110,363Dividend Payable07,693,4157,790,2891,172,1811,289,3991,418,3391,560,1731,716,1901,887,8092,076,5 902,284,249Working Capital6,724,6709,637,15820,353,95129,430,26633,433,44545,338,18958,897,15369,02 3,88185,836,886102,574,046115,267,325TOTAL CAPITAL EMPLOYED16,244,67017,335,13326,644,33034,643,40440,700,88550,892,28963,367,25876 ,610,93291,543,403106,968,338123,929,278CAPITAL EMPLOYED REPRESENTED BY: SHARE CAPITAL812,234 Shares @ Rs.10/each8,122,3358,122,3358,122,3358,122,3358,122,3358,122,3358,122,3358,122,3358,12 2,3358,122,3358,122,335UNAPP. PROFIT/ (LOSS) 1,361,2074,216,47912,486,29718,814,52329,276,67142,022,38555,536,80370,740,01986 ,435,699103,667,3838,122,3359,483,54212,338,814 20,608,63226,936,85837,399,00650,144,72063,659,13878,862,35494,558,034111,789,71 8LONG TERM LOANS8,122,3357,851,59114,305,51614,034,77213,764,02713,493,28313,222,53812 ,951,79412,681,04912,410,30512,139,5608,122,3357,851,59114,305,51614,034,77213,7 64,02713,493,28313,222,53812,951,79412,681,04912,410,30512,139,560TOTAL16,244,67 017,335,13326,644,3 3034,643,40440,700,88550,892,28963,367,25876,610,93291,543,403106,968,338123,929 ,278

14.3 Projected Cash Flow Statement

YEARYear 1Year 2Year 3Year 4Year 5Year 6Year 7Year 8Year 9Year 10SOURCESFROM OPERATIONProfit Before Tax1,549,0754,146,97410,982,3258,440,05813,289,94015,902,38016,580,53219,992,796 23,069,14122,910,458Add: Depreciation1,614,9251,200,496915,5162,174,1551,562,6081,146,0002,786,7811,955,5 601,394,7523,573,694 Amortization207,100207,100207,100207,100207,1003,371,1005,554,57012,104,94110,821,31315,059,64817,048,38019,367,31321,948,35724 ,463,89326,484,152OTHER SOURCESShort Term Borrowings6,724,670 6,724,670 Sponsor's Loan6,724,670 6,724,670 10,095,77012,279,24012,104,94110,821,31315,059,64817,048,38019,367,31321,948,357 24,463,89326,484,152APPLICATIONCapital Expenditure0045,3754,435,55856,36862,0055,903,72775,02682,5287,841,355Repayments Long

term Loan270,745270,745270,745270,745270,745270,745270,745270,745270,745270,745Tax Paid187,8681,291,7032,712,5062,111,8322,827,7923,156,6673,066,1144,789,5817,373, 4615,678,774Repayments Short Term Loan6,724,670Dividend Paid Cash458,6121,562,4479,753,2966,818,1343,154,9043,489,4169,240,5855,135,3517,726,7331 3,790,873SURPLUS / ( DEFICIT) 9,637,15810,716,7932,351,6454,003,17911,904,74413,558,96410,126,72816,813,00616, 737,15912,693,279INCREASE/( DECREASE) IN WORKING CAPITAL6,724,670985,580722,7181,507,6451,758,7412,006,3251,607,4971,738,6301,879 ,3232,030,250NET INCREASE/(DECREASE) 2,912,4889,731,2131,628,9272,495,53410,146,00311,552,6398,519,23115,074,37514,85 7,83610,663,029OPENING BANK BALANCES6,724,670 9,637,15819,368,37120,997,29823,492,83233,638,83545,191,47453,710,70668,785,0818 3,642,917CLOSING CASH BALANCE9,637,15819,368,37120,997,29823,492,83233,638,83545,191,47453,710,70668,7 85,08183,642,91794,305,945

1155 AANNNNEEXXUURREE

15.1 Annexure 1 Project Cost and Means of Financing

Project Cost RupeesRupeesLandLand considered on RentProject Development costEquipment3,332,500 Furniture & Fixture1,887,000 Motor Vehicles3,265,000 8,484,500 Preliminary ExpensesCopy rights-Licensing & Trade Marks161,500 Other Expenses874,000 1,035,500 Working Capital6,724,670 Intangible AssetsCapital Work in ProgressInterest during DevelopmentTotal Assets 16,244,670Rs. Total Capital Employed By: % RupeesEquity Contribution bySponsor50% 8,122,335 LoanBank50% 8,122,335 Total Capital including land100% 16,244,670Rs.

15.2 Annexure 2 Revenue Generation Revenue GenerationNo. of days in year264 Working Hrs. per day8 Hourly US $ Rate26 US Dollar Rate85.00 As per SBP on May 24, 2010Increase in Conversion Rate0% Growth rate in Sales Price5% Year 1Year 2Year 3Year 4Year 5Year 6Year 7Year 8Year 9Year 10Technical StaffNumber of Employees23232323242525252525Total Hours Worked: Increase in Employees23000110000Increased hrs. 48,5760002,1122,1120000Average Employed70% 70% 70% 70% 70% 70% 70% 70% 70% 70% Increased Hours34,0030001,4781,4780000Total Hrs. 34,00334,00334,00334,00335,48236,96036,96036,96036,96036,960Utilization in Percentage 50% 55% 60% 65%

70% 75% 80% 85% 90% 95% Hours Used17,002 18,702 20,402 22,102 24,837 27,720 29,568 31,416 33,264 35,112 Hourly Rate USD $ 26 27 29 30 32 33 35 37 38 40 Revenue in US $ 442,042 510,558 584,821 665,234 784,932 919,842 1,030,223 1,149,342 1,277,798 1,416,226 Conversion Rs=US D85 85 85 85 85 85 85 85 85 85 Total Revenue37,573,536 43,397,434 49,709,788 56,544,884

66,719,181 78,186,540 87,568,925 97,694,082 108,612,832 120,379,222 Export Selling Ratio-Export10% 15% 20% 25% 30% 30% 35% 35% 35% Local100% 90% 85% 80% 75% 70% 70% 65% 65% 65% Revenue in Break UpExport4,339,743 7,456,468 11,308,977 16,679,795 23,455,962 26,270,677 34,192,929 38,014,491 42,132,728 Local37,573,536 39,057,691 42,253,320 45,235,907 50,039,386 54,730,578 61,298,247 63,501,153 70,598,341 78,246,494 Total Revenue37,573,536 43,397,434 49,709,788 56,544,884 66,719,181 78,186,540 87,568,925 97,694,082 108,612,832 120,379,222 Per employee Earning in PKR.

1,633,6321,886,8452,161,2952,458,4732,779,9663,127,4623,502,7573,907,7634,344,51 34,815,169Per employee Earning in US$ 19,21922,19825,42728,92332,70536,79441,20945,97451,11256,649

15.3 Annexure 3 List of Fixed Assets

EQUIPMENTYEAR 1TitleUnitsUnit CostTotal CostPCs2930,000870,000Laptop PCs260,0001 20,000Servers2155,000310,000UPS for PCs318,500263,500UPS for Servers/Network Equ ipment210,50021,000Network Equipment1100,000100,000Printer (LASER)218,00036,000P rinter (dot matrix wide carriage)215,00030,000Printer-Ink Jet23,5007,000Software (Servers/PCs Development Tools, Office and Project Management Tools, Database Tools)11,000,0001,000,000Modems070 00Data Show for On-site Presentations/Multimedia1150,000150,000Power Generator B ackup1325,000325,000Miscellaneous 1100,000100,000Total 3,332,500FURNITURE & FIXT URE ItemsNumberUnit CostTotal CostComputer furniture2225,000550,000Office furniture2 35,00070,000Furniture CEO1100,000100,000Furniture senior staff530,000150,000Furn iture reception area 150,00050,000Furniture conference room1120,000120,000A/Cs S plit1236,000432,000Telephone exchange/phones150,00050,000Facsimile115,00015,000P hoto Copier1100,000100,000Library (Books) 1150,000150,000Miscellaneous1100,00010 0,000Total 1,887,000MOTOR VEHICLES ItemsNumberUnit CostTotal CostCEO11,350,0001,350,000Chief Software Architect1850 ,000850,000Office Vahicle11,000,0001,000,000Motor Cycle165,00065,000Total3,265,0 00GRAND TOTAL8,484,500

15.4 Annexure 4 Staff Salaries

Technical Staff YEAR 1PersonnelNo. Monthly SalaryAnnaul SalaryChief Executive Officer1150,000150,0001,800,000Chief Software Architect110 0,000100,0001,200,000Senior Software Architect175,00075,000900,000Senior Analyst 255,000110,0001,320,000Analyst440,000160,0001,920,000Database Administrator250,0 00100,0001,200,000Senior Software Engineer255,000110,0001,320,000Software Engine ers840,000320,0003,840,000System Administrator (facility management)240,00080,00 0960,000Total23645,00014,460,000 Non-Technical Staff YEAR 1PersonnelNo. Monthly SalaryAnnaul SalaryOperations Manager150,00050,000600,000Admin & Finance Manager155,00055,000 660,000Asstt. Manager Admin130,00030,000360,000Receptionist115,00015,000180,000A sstt. Manager Accounts140,00040,000480,000Accountant125,00025,000300,000Office B oy27,00014,000168,000Driver110,00010,000120,000Security Guard28,00016,000192,000 Cleaner17,0007,00084,000Total12250,0003,144,000Total (Technical + Non Technical) 35895,00017,604,000

15.5 Annexure 5 Important Contacts For Software House Registration: Pakistan Software Export Board (PSEB) Ministry of Information Technology, Govt. of Pakistan

Head Office -Islamabad 2nd Floor, Evacuee Trust Building, F-5 Agha Khan Road, Islamabad Tel.: +92-51-9204074, Fax: +92-51-9204075

Lahore Office 5th floor, Admin Block Awain-e-Iqbal Complex, Egerton Road, Lahore Tel: +92-42-6307825-6, Fax: +92-42-6307827

Karachi Office Room 1201, 12th Floor, National IT Park, Ceaser's Tower, Shahrah-e-Faisal, Karac hi Tel: +92-21-9217381, Fax: +92-21-9217382 UAN: 111-333-666 E-mail: info@pseb.org.pk, Website: http://www.pseb.org.pk

Pakistan Software Houses Association (P@SHA) P@SHA Secretariat 172/P Najeeb Corner 4th Floor, Block 2 PECHS Karachi, Pakistan Tel: (92 - 21) - 5418121 Email: secretariat@pasha.org.pk www.pasha.org.pk

IT and office equipment Suppliers: A-Tech Laptop Gallery Grind lays Market, Bank Road

Rawalpindi Saddar, Rawalpindi 051-5581458 www.atechcomputers.com

FAST Technologies Suit no.4-A, Ist Floor, Mehmood Plaza,Fazal-e-Haq Road, Blue Area,Islamabad.(Nea r Fresco sweets) Ph: 051-2605818-9 http://www.hrbox.net fasttechnologies1@gmail.com

IK Computers Fround Floor No 3 Mezzaine No 1087 w, Abbas Center Blue Area, Islamabad Ph: 051-2875257 Email: ikc@isbn.comsats.net.pk

Hafeez Centre Hall Road Blue area Saddar

Lahore

Lahore Islamabad Rawalpindi

6th Road - Rawalpindi

Furniture Suppliers: Decora Furniture Lahore

Address: 47-Ferozpur Road, Lahore, Pakistan Tel: +92-42-37554862

Interwood Mobel

Lahore

Address: 117-E-1,Gulberg-III,Lahore Tel: +92-42-35870222-6549123-5711117 Fax: +92-42-36549126 Email: sales@interwoodmobel.com URL: http://www.interwoodmobel.com

Javaid & Co.

Lahore

Address: 29130-Nishter Road, Lahore Tel: +92-42-37653007

Master Fibre Glass

Lahore

Address: 47-C,3 Miraj Building, Ferozepur Road, Lahore Tel: +92-42-35010010

Koncept Furniture - Gujrat Address: Dheerkay By Pass, G.T. Road, Gujrat, Pakistan Tel: +92-300-6233455

Nisbat Road Market - Lahore

Ferozepur Road Market

Lahore

15.6 Annexure 6 Tax deduction income slabs

Income Slabs Tax Rate

0.00% 100,000 0.50% 110,000 1.00% 125,000 2.00% 150,000 3.00% 175,000 4.00% 200,000 5.00% 300,000 7.50% 400,000 10.00% 500,000 12.50% 600,000 15.00% 800,000 17.50% 1,000,000 1,300,000 1,000,000 800,000 600,000 500,000 400,000 300,000 200,000 175,000 150,000 125,000 110,000

21.00% 1,300,000 and above 25.00%