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BOARD OF DIRECTORS Mr. Subhash Ghai, Chairman & Managing Director Mr. Parvez A. Farooqui, Executive Director Mrs. Meghna Ghai Puri Mr. Anil Harish Mr. Vijay Choraria Mr. Pradeep Guha

Company Secretary & Compliance Officer Mr. Ravi B Poplai

Auditors M/s Shamit Majmudar Associates Chartered Accountants

Bankers Punjab National Bank Limited HDFC Bank Limited Standard Chartered Bank

Registrar & Transfer Agents Intime Spectrum Registry Limited C-13, Pannalal Silk Mills Compound L.B.S. Marg, Bhandup (W) Mumbai – 400 078

Registered Office 6, Bashiron, 28th Road TPS – III, Bandra (W) Mumbai – 400 050

CONTENTS

Financial Highlights 2 Chairman’s Statement 3 Management Discussion & Analysis 5 Notice 7 Directors’ Report 9 Corporate Governance 13 FINANCIALS Mukta Arts Limited 21 Consolidated Financial of Mukta Arts Limited & 39 it’s Subsidiaries Whistling Woods International Limited 52 Connect.1 Limited (Formerly known as Mukta Art International Limited) 72 Mukta Tele Media Limited 81 1

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PERFORMANCE

Performance at a glance Rupees in millions

Year Year Year Year Period ended ended ended ended ended 31st March 31st March 31st March 31st March 31st March 2007 2006 2005 2004 2003 15 months

Realisation from productions, 965.21 374.80 451.44 187.00 286.02

distribution & exhibition

Equipment Hire Income 2.22 25.09 28.60 29.84 39.74

Other Income 49.12 36.12 31.59 96.89 101.74

TOTAL INCOME 1,016.55 436.01 511.63 313.72 427.49

Profit/(Loss) before Interest,

Depreciation and Tax 167.04 (27.15) (134.86) 88.36 112.80

Depreciation 22.64 29.98 32.14 29.61 40.19

Interest 0.63 0.60 0.56 0.30 0.50

Profit/Loss) before Tax 143.77 (57.73) (167.56) 58.45 72.11

Profit/(Loss) after Tax 137.16 (56.46) (169.67) 33.93 71.32

Dividend 45.16 - - 22.58 45.16

Dividend Rate 40% - - 20% 40%

Gross Fixed Assets 313.31 369.84 361.98 343.82 308.74

Net Fixed Assets 157.09 184.06 204.73 216.14 198.68

Total Assets 1,279.66 1,195.53 1,144.66 1,314.89 1,305.22

Equity Share Capital 112.92 112.92 112.92 112.92 112.92

Reserves and Surplus 1,060.92 975.25 1,029.60 1,199.55 1,191.10

Net Worth 1,173.83 1,088.17 1,142.52 1,312.47 1,304.02

Earnings per Share (EPS)

In Rupees

EPS Basic 6.07 - - 1.50 3.16

EPS Adjusted to Rs. 5 6.07 - - 1.50 3.16 2

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CHAIRMAN’S STATEMENT

In my statement last year I had indicated that the Company had begun its upward march and I assured you that the outlook for the Company would only get better hereafter. I am pleased to inform you that in the year under review, the Company has delivered the promise with its best ever performance to date, a top line growth of over 130% which is twice the highest turnover ever before and one of the highest post tax profit that the Company has ever shown. Some cynics and analysts may conclude that this performance was largely due to a one-off revenue earning owing to the Satellite re-issue rights deal done with a TV channel. Let me dispel this mistaken notion. Anyone who understands financial statements would be aware that the Company has been consistently following a policy of amortizing 100% of the costs of a film in the year of release of the film, despite the fact that a film by its nature has a commercial longevity and shelf life that runs into decades if not perpetuity. This policy pushes forward profits to future years while booking all costs immediately. If one were to normalize the revenues from library sales and pursue amortization policies followed by most other film production houses, the Company would show far larger profits currently instead of in years to come. Many of the film production companies tend to amortise only 60-65% of the production costs in the year of release of the film thereby recording higher profits immediately but pushing forward the contingent liability of the unamortized value of the film. The total earning potential of the fully amortised library of 26 movies of Mukta Arts is upward of Rs. 400 millions in every five year window. The revenue earning potential comes from re-issue rights of Satellite, DTH, cable, home video, terrestrial TV and other electronic media rights. This implies that the Company would on an average harvest about Rs. 80 millions per annum from its fully amortised library alone. Add to this the fact that the Company has been paying Rs. 40 millions as Keyman Insurance premium (which is also a current expenditure for a future gain) and if the amortization was readjusted you would have better profits than those posted. I am happy to inform you that in the year under review the Company released four movies “Shaadi Se Pehle” directed by Satish Kaushik starring Akshaye Khanna, Ayesha Takia, Mallika Sherawat, “36 China Town” directed by Abbas-Mastan, starring Akshaye Khanna, Kareena Kapoor, Shahid Kapur, “Apna Sapna Money Money” directed by Sangeeth Sivan starring Riteish Deshmukh, Shreyas Talpade, Riya Sen, Celina Jetley, Koena Mitra and “Khanna and Iyer” directed by Hemant Hegde starring Sarwar Ahuja and Aditi Sharma the winners of the “Zee Cinestar Ki Khoj”. The de-risking policy of the Company of selling some territories and distributing other territories itself ensured profits for each of these movies despite the movies being fully amortised. The Company also undertook during the period, production of several new projects to ensure a strong pipeline. Movies in the pipeline include my own film “Black & White” starring Anil Kapoor, Anurag Sinha and others. Other movies released/expected to be released during 2007-08 include “Good Boy Bad Boy” directed by Ashwini Chaudhary which has already been released, “Bombay to Bangkok” directed by Nagesh Kukunoor, starring Shreyas Talpade, “Cycle Kick” a teenage growing up angst story directed by Shashi Sudigala, and “Right Yaaa Wrong” a film by Neeraj Pathak starring Sunny Deol, Irfan Khan and others. A Marathi film, “Kaande Pohe” the first regional film under the MALPIX banner of Mukta Arts Limited is also on the floors and expected to be released in 2007-08. During the year Mukta Arts has been able to consolidate the distribution and exhibition business and take on additional theatres for booking including the Fun (E-City) and PVR theatres. We have seen significant growth in the exhibition business of the Company. Having put on track Whistling Woods International as promised, I now have more time to devote to my creative urges. I am aware the market is expecting me to direct movies. While “Black & White” will be 3 released in the coming year, I am starting “Yuvraaj” starring Anil Kapoor, Salman Khan, Katrina Kaif

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and Zayed Khan with music by A. R. Rahman by September 2007 and the film will be ready for release in 2008-09. Whistling Woods International, which commenced last year, has received very good response from the student community, parents of the students, media and educationists. The Institute’s first P&L statement indicates that we are on track as proposed and the first year losses should be seen as investments by the Company. We have seen investor interest in Whistling Woods International, but we would consider offers only if it brings good strategic value to the Company. In the meanwhile we have accepted the offer made by Whistling Woods International and invested further 200 millions from Mukta Arts Limited in WWI into cumulative 8% coupon redeemable preferential shares. This includes the surrendered preferential shares of our JV partners MFSCDC Ltd. (Film City). We believe that the Company’s investments in Whistling Woods International will yield slow but rich dividends in years to come. During the period, Whistling Woods International has had key personalities visiting the Institute and/or addressing the students including Raj Kumar Hirani, Nagesh Kukunoor, Farah Khan, Shah Rukh Khan, Karan Johar, Rakeysh Omprakash Mehra, Kunal Kohli, Vishal Bhardwaj, Shabana Azmi, Syd field, Victor Tsao and many others. The Institute as of September 2007 has over 200 students. We expect to reach peak capacity of about 400 students by 2009. I am happy to inform you that the Audeus Commercial Complex project is progressing as per schedule and already the pile foundation and the dual basement blocks are completed. Work above the ground has commenced. We expect to complete the complex before the end of the calendar year 2008. This complex would contribute over 50,000 sq.ft. of FSI to the Company in the prime Andheri Link Road area located opposite Yash Raj Studios. The Company will take a decision on the use of this valuable space in a way to maximize revenues and profits for the Company. During the year, the Company had tendered for a partly constructed Communication Centre in Film City opposite Whistling Woods International. The Company saw in this building an opportunity to consolidate all the Company’s offices in a single premise. Mukta Arts Limited’s bid emerged victorious against Adlabs, the other bidder. The Company will commence work on this building soon. This building consisting of 57,000 sq.ft. FSI would house the Company’s offices. We expect the Mukta Tower in Film City to be ready by end 2008. The surplus FSI will be exploited gainfully. The office shift in 2009 will help Mukta Arts redevelop its properties in Bandra or sell these off and book profits. I am increasingly concerned that with the growing number of TV channels and new content outlets such as DTH, VoD, mobile phones, internet down loads etc the Company needs to focus on its core strength of delivering movies. I am therefore proposing that Mukta would focus on entertaining big budget movies for theatres and Mukta Searchlight would focus on mid budget movies with good quality and a new brand MALPIX has been introduced for production of low budget and regional movies. We expect that in years to come we should be able to add upto 12 movies a year to our library including movies produced for release directly on digital format. Imagine the strength of the Company with its IPR value once our library size crosses a hundred movies. The talent from Whistling Woods International will certainly ensure this acceleration. I am aware that we were unable to reward the shareholders in the previous two years, and hence the management declared 40% interim dividends in the current year, keeping in mind the good profits made by the Company. I am grateful to all investors who have shown confidence in me, the Company and my management team and we would like to assure you that we would do all that we must to ensure growth and adequate returns minimizing the risk of the shareholders. While the stock prices of the Company have shown significant growth (and volatility) I can only assure you quoting Warren Buffet that “If the business does well, the stock eventually follows” and “It is far better to buy a wonderful company at a fair price than a fair company at a wonderful price”.

4 Subhash Ghai

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MANAGEMENT DISCUSSION AND ANALYSIS (On Operations and Select Financial Data)

The accounting statements have been are INX, NDTV, BAG and TV 18. Since many of prepared in compliance with the Companies Act these channels are high cost Hindi General 1956 (as amended up to date) and in conformity Entertainment Channels the competition in this with the generally accepted accounting standards segment is expected to increase. The and practices in India. The review of annual undisputed monopoly of Star Plus with Zee TV operations and discussions on select financial closing in on the leader, establishes once again data have been made on a prudent and that the success of a few programmes does not reasonable basis in order that the financial necessarily mean that channel loyalty is assured. statements reflect in a true and fair manner A channel will have to churn out consistently the Company’s state of affairs for the period. programmes acceptable to audiences in order Industry Performance: As per the Price to retain eyeballs. Waterhouse Cooper report for the year 2007 Management sees in the growth of Television a presented at FICCI Frames 2007, the Film and growing opportunity for good content. Television industry continues to outpace the GDP During the year, there was significant expansion growth of about 8% by clocking 18% growth in in cinema systems and UFO itself has now over the Film sector and 31% growth in the Television 650 screens with about a third of them in “A” sector during the year. The growth in Television centres. The growth of digital exhibition in “A” sector is partly owing to the growth in DTH with 4 centres and multiplexes is likely to throw up new millions subscribers on Doordarshan DTH, over opportunities for the production sector to produce 2 millions on Dish TV, over one million on Tata movies for distribution in HD format. During the Sky. It is expected that this growth will further year, growth in multiplexes was significant and accelerate as DTH is expected to make in-roads this growth is now moving into tier 2 cities. into the cable dominated market. The in-road is likely to be spurred once CAS becomes A REVIEW OF OPERATIONS: mandatory in tier 2 and tier 3 cities. CAS itself The Company during the year released four did not make significant progress during the year movies “Shaadi Se Pehle” directed by Satish and the conversion to CAS in the notified areas Kaushik starring Akshaye Khanna, Ayesha Takia, of the metros has been below expectation, Mallika Sherawat, “36 China Town” directed by particularly in Delhi and Calcutta. The expansion Abbas-Mastan, starring Akshaye Khanna, of CAS is also on hold due to the delay of several Kareena Kapoor, Shahid Kapur, “Apna Sapna issues including pricing, sharing of revenues, cap Money Money” directed by Sangeeth Sivan on price of each channel, consumer resistance starring Riteish Deshmukh, Shreyas Talpade, and political issues. The growth of television Celina Jetley, Riya Sen, Koena Mitra and revenues is heavily dependant on CAS and its “Khanna and Iyer” directed by Hemant Hegde free market pricing policies. On the DTH front starring Sarwar Ahuja and Aditi Sharma the Sun, Reliance and Bharati Telemedia the other winners of the “Zee Cinestar Ki Khoj”. licensees are waiting to launch their services. India would be the first country in the world to The Company clocked the highest ever turnover have six DTH operators. Across the world, there doubling the earlier highest turnover of Rs. 511.6 are only one or two DTH players per country given millions. The top line growth over the previous the high investments involved. In years to come year was 130%. It also clocked one of the highest we can expect consolidation in this area. ever profit of about Rs.143 millions. While it is Television however continues to be attractive for true that the satellite deal with a TV channel has investors and several companies have contributed significantly to the top line and bottom announced major plans of increasing existing line, this has only been the reaping of efforts in 5 channels or launch new channels. Among these the earlier year. Similarly, activities and

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production of recent years would contribute to for booking by tying up with PVR for their revenues and profits in years to come. As properties at Juhu, Mulund, Indore, Hyderabad, explained in the Chairman’s Statement, the Aurangabad and Latur. Exhibition has contributed normalization of the so-called one-off revenues about 34% of the Company’s revenues. This is actually indicates that the Company’s profits a low margin business but with low capital would have been better. deployment. During the year, the Company distributed several movies in some select Fluctuations in quarterly reports do continue territories, these included “Nishabd”, “Corporate”, to pose a challenge to the management as the “Aparichit”, “Risk”, “Aryan”, “I See U”, “Banares”, variations depend on release of a movie “Casino Royale”, “Superman”, “Zindagi Rocks” in a quarter. Management does plan to address etc. apart from the Company’s own productions, this problem by enhancing the bandwidth of “Shaadi Se Pehle”, “36 China Town”, “Apna production of movies. The Company does Sapna Money Money” and “Khanna and Iyer”. plan to enter into production of small budget movies by cherry picking talent from among WHISTLING WOODS INTERNATIONAL: Whistling Woods International students One of the Company’s major achievements was and producing movies in high definition for digital launching the Whistling Woods International exhibition in cinemas followed by release on institute on July 18th 2006. The Institute was DVD and satellite channels. inaugurated by the Minister of Information & The Company also has the following under Broadcasting, Shri Priyaranjan Dasmunshi on production movies “Bombay to Bangkok” directed July 18th 2006 in the presence of Shri Praful Patel, by Nagesh Kukunoor, starring Shreyas Talpade, Shri Dilip Kumar, Shahrukh Khan and many other “Cycle Kick” a teenage growing up angst story celebrities. As of July 2007, the institute has over directed by Shashi Sudigala, “Right Yaaa Wrong” 200 students and by 2009 we expect to nearly a film by Neeraj Pathak starring Sunny Deol, Irfan double the number. Khan and others, “Black & White” directed by OTHER INCOME: Subhash Ghai starring Anil Kapoor, Anurag Sinha The investment of surplus funds in debt related and “Kaande Pohe” a Marathi film directed by mutual funds and permissible investment have Rajiv Patil. yielded decent returns. A loan of Rs. 150 millions The Company has paid the last installment has been given to subsidiary Whistling Woods of Keyman Insurance and expects to cash in on International Limited at 9% interest. The the insurance on maturity in 2011. The Company has also subscribed to the cumulative Company’s library now has strength of 26 movies 8% coupon redeemable preferential shares of and although this library is indicated as zero value Whistling Woods International Limited. in the books of accounts, it has capacity to raise OUTLOOK: Rs. 400 millions in every five year window. This is a significant hidden value. Among the other In the forthcoming year the Company expects to hidden values of the Company are the Audeus release four or five movies including one by Complex which would be ready by 2008 adding Subhash Ghai. The Company has sold a part of about 50,000 sq.ft of commercial FSI which the its video rights to Shemaroo Entertainment Pvt. Company can gainfully exploit and the recently Ltd for Rs. 32.5 millions for a period of five years. bagged 57,000 sq.ft. of FSI in the partly The Company has also sold the remake rights completed building known as Communication of its film “Karz” to T-series. The Company Centre in Film City. expects to launch Greenlight Films in 2008-09 as a division of Mukta Arts Limited and will focus DISTRIBUTION AND EXHIBITION: on movies made by cherry picked talent from The Company showed significant growth in Whistling Woods International students. These 6 distribution and exhibition during the year and may be for direct release through digital exhibition this year has further added additional theatres in cinemas followed by satellite and DVD release.

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NOTICE

Notice is hereby given that the 25th Annual General Meeting of Mukta Arts Limited will be held on Saturday, the 29th of September, 2007 at 4.00 p.m. at the Whistling Woods Institute Auditorium, Dada Saheb Phalke Chitra Nagari, Goregaon (E), Mumbai- 400 065 to transact the following business: Ordinary Business: 1 To receive, consider, and adopt the audited Profit and Loss Account of the Company for the year ended 31st March, 2007 and the Balance Sheet as at that date together with the Director’s Report and Auditor’s Report thereon. 2 To appoint a Director in place of Mrs. Meghna Ghai Puri who retires by rotation and, being eligible, offers herself for reappointment. 3 To consider and pass with or without modifications, the following resolution as an Ordinary Resolution: “RESOLVED THAT pursuant to section 224 of the Companies Act, 1956 M/s. Shamit Majmudar Associates, Chartered Accountants, Mumbai, be and are hereby appointed as the Statutory Auditors of the Company to hold office from the conclusion of the Twenty-fifth Annual General Meeting until the conclusion of the Twenty-sixth Annual General Meeting, on such remuneration as may be approved by the Board of Directors.” Special Business: 4 To consider and if thought fit to pass with or without modification(s) the following resolution as a Special Resolution: “RESOLVED THAT pursuant to the provisions of the Companies Act, 1956 (including any amendment thereto or modifications(s) of re-enactments(s) thereof) and in accordance with the provisions of the Memorandum and Articles of Association of the Company and the regulations/guidelines, if any, prescribed by the Securities and Exchange Board of India (SEBI) and all other concerned and relevant authorities form time to time, to the extent applicable and subject to such approvals, consents, if any the Board of Directors be and are hereby authorised to allot 800,000 Equity shares of the aggregate nominal face value not exceeding Rs. 4,000,000 (Rs. Four Millions Only) to the present and future Senior Employees of the Company under an employee stock purchase scheme ( hereinafter referred to “ESPS) on the terms and conditions as set out in the Explanatory Statement to this item and on such other terms and conditions and in such trench/s as may be decided by the Board/Remuneration Committee in its absolute discretion. FURTHER RESOLVED THAT the allottment of 400,000 Equity Shares of face value of Rs. 5/- each aggregating to Rs. 2,000,000 to Mr. Ravi Gupta, Chief Executive Officer (CEO) of the Company as part of ‘‘ESPS’’ be and is hereby approved and the decision of the Board of Directors for transferring 200,000 Equity Shares out of the above said 400,000 Equity Shares taken at the Board Meeting held on 31st July, 2006 and also approved by the Remuneration Committee at their duly held Meeting on 19th July, 2006 be and is hereby ratified. 5 To consider and if thought fit to pass with or without modification(s) the following resolution as a Special Resolution: “RESOLVED THAT pursuant to Section 314 of the Companies Act, 1956 and other applicable provisions, if any, and subject to the permission of the Central Government in this regard, approval is hereby given to the reappointment of Mr. Siraj A. Farooqui as Chief Operating Officer ( Production and Studio) of the Company, relative of Mr. Parvez A. Farooqui, (Executive Director), for a period of five years with effect from 1st April, 2007 on the terms and conditions contained in the draft agreement placed before the meeting and initialled by the Chairman for the sake of identification.” Registered Office: By Order of the Board 6, Bashiron, 28th Road TPS – III, Bandra (W) Mumbai – 400 050 Ravi B Poplai Company Secretary Place :Mumbai Date :27th August 2007 NOTES: 1. A MEMBER ENTITLED TO ATTEND AND VOTE AT THE MEETING IS ENTITLED TO APPOINT A PROXY / PROXIES INSTEAD OF HIMSELF AND THE PROXY NEED NOT BE A MEMBER OF THE COMPANY. THE PROXY FORMS, TO BE EFFECTIVE SHOULD BE DEPOSITED AT THE REGISTERED OFFICE OF THE COMPANY NOT LATER THAN 48 HOURS BEFORE THE COMMENCEMENT OF THE MEETING. 2. The Explanatory Statement pursuant to section 173 of the Companies Act, 1956 that sets out details relating to the Special Business under Item No. 4 & 5 is annexed hereto. 3. The Register of Members and Share Transfer Books of the Company will remain closed from Saturday, the 22nd September, 2007 to Saturday, the 29th September, 2007 (both days inclusive). 4. Members seeking any information or clarification on the Accounts are requested to send in written queries to the Company, at least seven days before the date of the meeting. Replies to such written queries received, will be provided only at the meeting. 5. Members/proxies should bring the Attendance Slip sent herewith, duly filled in, alongwith the Annual Report for attending the meeting. Registered Office: By Order of the Board

6, Bashiron, 28th Road TPS – III, Bandra (W) Mumbai – 400 050 Ravi B Poplai Company Secretary Place :Mumbai 7 Date :27th August 2007

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ANNEXURE TO NOTICE EXPLANATORY STATEMENT PURSUANT TO SECTION 173 (2) OF THE COMPANIES ACT, 1956: Item No. 4: To consider and if thought fit to pass Special Resolution for ESPS The Company has always believed in aptly rewarding and motivating the employees with the intention to attract and retain the best talent. One of the measures adopted by the Company towards this end is to grant Company’s Shares to the employees form time to time. To achieve this purpose the Trust namely MAL EMPLOYEES WELFARE TRUST was formed and the shares were purchased by the trust. The Remuneration Committee of the Company is empowered to issue shares in the name of the eligible employees on the following terms and conditions. 1. The ESPS scheme has been set up so as to encourage outstanding talent that can bring value to Mukta Arts and its subsidiaries to join the Company and to motivate them to stay with the Company and have a feeling of partnership in the Company. 2. The Trust shall procure from the market shares and build a corpus for allotment of the shares to achieve the objective stated in (1) above. 3. The scheme shall be applicable to senior executives only of and above the level of General Manager/ Vice President. 4. ESPS’s shall be allotted to only those employees who can bring value to the Company by way of their industry contacts, past experience and proven vision. 5. The scheme shall be applicable to such employees who have demonstrated capability of generating good results for the Company and have demonstrated loyalty to the Company. 6. The amount of ESPS to be allotted in each case shall be decided from time to time by the Trustees and shall be co-related with the potential of the employee to bring value to the Company. 7. ESPS may be allotted to an employee in pursuance of negotiated terms of contract with the employee at the time of joining the Company. 8. ESPS will be granted at par value of the shares or at a premium which shall be below the market value as may be decided by the Trustees. 9. The value at which the ESPS is granted to the employee will be payable by the employee within 30 days of allotment. 10. The Trust may decide on such lock in period of the shares allotted under ESPS as the Trust deems appropriate. 11. Taxes or capital gain taxes if any applicable shall be payable by the employee. 12. All the guidelines of SEBI or any other government regulatory body shall be applicable as appropriate. Therefore, the above resolutions no. 4 is recommended for your approval. None of the Directors is interested in the resolution. Item No. 5: To consider and if thought fit to pass Special Resolution for reappointment of Mr. Siraj A. Farooqui is Chief Operating Officer (Production and Studio) Mr. Siraj A. Farooqui is Chief Operating Officer (Production and Studio) of the Company and has experience of over 30 years in Film Industry. He has been associated with Mukta Arts Limited since its inception and has had experience in cinematography, editing, special effect, art direction etc. His continued association with the Company would prove to be an asset for the Company. This reappointment is for a period of 5 years from 1st April, 2007 on the terms and conditions outlined below. SALARY: Basic salary starting with Rs.90,000/- per month – with the liberty to the Board to review and increase the same from time to time up to and not exceeding Rs. 200,000/- per month during the tenure of his contract of five years. PERQUISITIES: In addition to the aforesaid salary, the Chief Operating Officer (Production and Studio) shall be entitled to the following perquisites: a) HRA at the rate to be decided from time to time. b) Annual bonus not exceeding the monthly basic salary. c) A car with driver for official purpose. d) Telephones (including Mobile phone), fax and other communication facilities at residence for official purpose. All personal usage will be charged to his account, e) Performance Bonus as may be decided from time to time. f) Contribution to provident fund, superannuation fund or annuity fund to the extent these either singly or put together are not taxable under the Income Tax Act, 1961, and g) Gratuity at rate not exceeding half month salary for each completed year of service, and h) Leave as per Company’s rules. Your Directors recommend the reappointment of Mr. Siraj A. Farooqui as Chief Operating Officer (Production and Studio) of the Company. None of the Directors other than Mr. Parvez A. Farooqui is interested in this resolution. A Draft Copy of the agreement to be entered into between the Company and Mr. Siraj A. Farooqui will be available for inspection at the Registered Office of the Company during business hours and will also be available at the meeting. Brief profile of Mrs. Meghna Ghai Puri Director, who retires by rotation and is eligible for re-appointment. Mrs. Meghna Ghai Puri became Director of the Company on 24.03.2000 as Additional Director. Subsequently she became Director of the Company at an Annual General Meeting held on 16.04.2001. Mrs. Meghna Ghai Puri is B.Sc. (Hons) in Business Management from Kings College London, University of London and has experience in matters relating to the Film Industry. She was Director- Business Development from 01.05.2002 till 30th June, 2006. Currently she is President of Whistling Woods International Limited and is handling the affairs of the said Company. By Order of the Board

Ravi B Poplai Company Secretary 8 Place :Mumbai Date :27th August 2007

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DIRECTORS’ REPORT To the members, Your Directors take pleasure in presenting the twenty-fifth Annual Report and Audited Statement of Accounts of the Company for the Accounting year ended 31st March, 2007

Financial Results: (Figures in millions) Particulars Year ending Year ending 31.03.2007 31.03.2006 (Rs.) (Rs.) ------Profit / (Loss) before interest, depreciation & tax 167.04 (27.15) Less: Interest 0.63 0.60 ------Profit / (Loss)after interest, before depreciation & tax 166.41 (27.75) Less: Depreciation 22.64 29.98 ------Profit / (Loss)before tax 143.77 (57.73) Less: Provision for taxation 6.00 – Fringe Benefit Tax 1.48 0.97 Deferred Tax Liability/ (Asset) (0.87) (2.25) ------Profit / (Loss)for the year 137.16 (56.45) Add: Balance brought forward (56.35) (2.00) Less: Interim Dividend 45.16 – Tax on Interim Dividend 6.33 – Income Tax of earlier years – (2.10) ------Profit / (Loss) Carried forward to Balance Sheet 29.32 (56.35) ======Dividend The Company has declared Interim Dividend of 40% and distributed the same before the 31st March, 2007 and the same has been treated as final dividend. Company’s Performance During the year the total revenues of the Company rose to Rs. 1016.55 millions as compared to Rs. 436 millions of last year. This is the highest turnover of the Company for any financial year till date. The Company’s performance has been discussed in the Management Analysis in details. New Initiatives The development work of building a commercial complex at the Audeus, prime location has begun in May 2006. Share Capital The Share Capital remained the same during the year under review. Directors During the year Mr. Pradeep Guha was appointed as Director. Mrs. Meghna Ghai Puri, Director, retires by rotation at the ensuing Annual General Meeting and being eligible offers herself for reappointment. The requisite particulars in respect of director seeking re-appointment are given in Annexure I. Employees Stock Purchase Scheme During the year 200,000 shares of the Company have been transferred in the name of Mr. Ravi Gupta, Chief Executive Officer of the Company on the recommendation of the Remuneration Committee and as approved by the Board of Directors. Auditors’ Report and Certificate The Company’s explanation to the Auditors’ observation in their Report have been detailed in Note Nos. 2 (f) & 2 (g) in the notes forming part of Accounts contained in Schedule “P” which forms part of the Annual Report. The Auditors have also certified the Company’s Compliance of the requirements of Corporate Governance in terms of Clause 49 of the Listing Agreement and the same is enclosed as an Annexure to the Report on Corporate Governance. 9

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Directors’ Responsibility Statement [Section 217 (2AA)] The Directors confirm that: z in the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures; z the Directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give true and fair view of the state of affairs of the Company at the end of the financial year and of the profit of the company for that period; z the Directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities; z the Directors had prepared the annual accounts on a going concern basis; Auditors M/s Shamit Majmudar Associates, Chartered Accountants retire at the ensuing Annual General Meeting and being eligible offer themselves for reappointment as the Auditors of the Company. Statutory Disclosures The Statements relating to the three subsidiary companies viz. Whistling Woods International Limited, Connect.1 limited (Formerly known as Mukta Arts International Limited), and Mukta Tele Media. Ltd., pursuant to Section 212 of the Companies Act, 1956 are attached to the Balance Sheet. Particulars of employees required under Section 217 (2A) of the Companies Act, 1956 and the Companies (Particulars of Employees) Rules, 1975, as amended, are given in Annexure II. Particulars regarding foreign exchange earnings and outgo required under Section 217 (1) (e) of the Companies Act, 1956 and Companies (Disclosure of Particulars in the report of the Board of Directors) Rules, 1988 are given in Schedule P (Statement of Significant Accounting Policies and Notes forming Part of Accounts) of this report. A cash flow statement for the year ended 31.03.2007 is included with the Balance Sheet. Corporate Governance The Company has been proactive in following the principles and practices of good corporate governance. The company has taken adequate steps to ensure that the conditions of Corporate Governance as stipulated in clause 49 of the Listing Agreements of the Stock Exchanges are complied with. A separate statement on corporate governance is produced as a part of the Annual Report along with the Auditors certificate on its compliance. Conservation of Energy and Technology Absorption The Company is not engaged in manufacturing activities, and as such the particulars relating to conservation of energy and technology absorption are not applicable. The Company makes every effort to conserve energy as far as possible in its post-production facilities, Studios, Offices, etc. Fixed Deposits The Company has not accepted any deposits during the year and as such no amount of principal or interest was outstanding at the Balance Sheet date. Social Commitments Your Company is aware of its social responsibility and has been from time to time contributing to social causes. Acknowledgements The Board of Directors wishes to thank and record its appreciation to the Artistes, Technicians, Film Distributors, Bankers, Media and Shareholders who have extended their continued support to the Company. Your Directors thank especially all employees of the Company for their dedicated services to the Company. On Behalf of the Board of Directors

Subhash Ghai Chairman & Managing Director Place :Mumbai Date :27th August 2007

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Anexure-I

PARTICULARS ABOUT DIRECTORS SEEKING RE-APPOINTMENT Name Qualification Age Area of Directorship of other Companies expertise Mrs. Meghna Bsc. Hon 29 Business Ghai Puri (Landon) Management 1 Whistling Woods International Limited 2 Connect.1 Limited (Formerly known as Mukta Arts International Limited) 3 Mukta Tele Media Limited

Annexure-II ANNEXURE TO DIRECTORS’ REPORT Information as per Section 217 (2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975 and forming part of the Directors’ Report: Name Designation Qualification Age Date of Experience Gross Previous Joining Remuneration Employment (Rs.) Subhash Chairman & B.Com, Ghai Managing Diploma in 64 Promoter of Director Cinema from years 07.09.1982 38 years 11,058,546 the Company FTII, Pune Ravi Gupta CEO M.Sc., M.B.A 55 1.04.2004 32 years 3,304,000 Global CEO years LMB Holdings Limited Isle of Man

Notes: Remuneration includes salary and other allowances.

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CORPORATE INFORMATION Mr. Subhash Ghai, Chairman & Managing Director Mr. Parvez A. Farooqui, Executive Director Mrs. Meghna Ghai Puri Mr. Anil Harish Mr. Vijay Choraria Mr. Pradeep Guha

Company Secretary and Compliance Officer Mr. Ravi B Poplai

Auditors M/s Shamit Majmudar Associates Chartered Accountants

Registered Office 6, Bashiron, 28th Road TPS – III, Bandra (W) Mumbai – 400 050

Audit Committee Mr. Vijay Choraria - Chairman Mr. Anil Harish Mr. Parvez A. Farooqui

Remuneration Committee Mr. Anil Harish - Chairman Mr. Vijay Choraria Mr. Parvez A. Farooqui

Shareholders/Investors Grievances Committee: Mr. Vijay Choraria - Chairman Mr. Parvez A. Farooqui Mr. Pradeep Guha

Share Transfer Committee Mr. Parvez A. Farooqui - Chairman Mr. Vijay Choraria Mr. Pradeep Guha

Bankers Punjab National Bank Limited HDFC Bank Limited Standard Chartered Bank

Registrar & Transfer Agents Intime Spectrum Registry Limited C-13, Pannalal Silk Mills Compound LBS Marg, Bhandup (W) Mumbai – 400 078

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CORPORATE GOVERNANCE

Mukta Arts Limited believes in good Corporate Governance, which results in corporate excellence by practising and attaining maximum level of transparency, disclosure, accountability and equity in all its interaction with its Stakeholders. Corporate Governance envisages disclosures on various facets of Company’s operations to achieve corporate excellence. The Company continued to share with you from time to time various information through public notices, press releases, and through Annual Reports. In addition, we give below the information on areas covered under Corporate Governance section under clause 49 of the Listing Agreement. COMPANY’S PHILOSOPHY ON CODE OF GOVERNANCE The Company’s Corporate Governance policies recognize the Company’s commitment to good and efficient Corporate Governance. The Board of Directors, the Company’s highest policymaking body, is committed in its responsibility for all decisions to all constituents, including investors, employees and regulatory authorities. The Company recognizes that the shareholders are ultimately the persons who are catalyst to the economic activities and also the ultimate beneficiaries thereof. COMPOSITION OF BOARD The Chairman of the Board of Mukta Arts Limited is also its Managing Director. All Directors including Non-Executive Directors are suitably qualified, experienced and competent. At present, the Board consists of six members, of which three are Non-Executive & Independent Directors. During the year Mrs. Meghna Ghai Puri had ceased to be Executive Director since she has been appointed as President in one of the Subsidiary namely Whistling Woods International limited. During the year Mr. Pradeep Guha has been appointed as Director at the Annual General Meeting held on 12.08.2006. The list of Executive and Non-Executive Directors is given below: S.No Name of the Director Designation Status of the Director 1 Mr. Subhash Ghai Chairman & Managing Director Executive Director 2 Mr. Parvez A. Farooqui Executive Director Executive Director 3 Mrs. Meghna Ghai Puri Director- Business Development Non Executive Director (from 01.07.2006) 4 Mr. Anil Harish Director Non–Executive Director & Independent 5 Mr. Vijay Choraria Director Non–Executive Director & Independent 6 Mr. Pradeep Guha Director Non–Executive Director & Independent

BOARD MEETINGS AND ATTENDANCE Six Board meetings were held during the year ended 31st March, 2007. Agenda for the said meetings is sent to the Directors sufficiently in advance to allow them to examine and interact on the issues involved. Also the senior Executives of the Company are invited to make presentation from time to time. The information as required under Annexure IA to Clause 49 of the Listing Agreement is made available to the Board. The agenda and the papers for consideration at the Board meeting are circulated sufficiently in advance prior to the meeting. Adequate information is circulated as part of the Board papers and is also made available at the Board meeting to enable the Board take informed decisions. The dates on which meetings were held are as follows: S. No. Date of Meeting Board Strength No. of Directors Present 1 30.05.2006 6 4 2 30.06.2006 6 4 3 31.07.2006 6 4 4 28.10.2006 6 5 5 25.01.2007 6 4 6 14.03.2007 6 5

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ATTENDANCE OF EACH DIRECTOR AT THE BOARD MEETINGS AND LAST ANNUAL GENERAL MEETING (AGM) AND THE NUMBER OF COMPANIES AND COMMITTEES WHERE HE IS DIRECTOR / MEMBER (AS ON THE DATE OF THE DIRECTOR’S REPORT) Directors No. of Attendance No. of No. of Memberships meetings at the last Directorship in other Board Attended AGM in other Committees held during the held on Boards as on in other Companies ** period 12.08.2006 31.03.2007* For whole year Chairman Member Mr. Subhash Ghai 6 Yes 3 Nil 1 Mrs. Meghna Ghai Puri 6 Yes 3 Nil Nil Mr. Parvez A. Farooqui 6 Yes 2 Nil Nil Mr. Anil Harish 3 Yes 15 3 9 Mr. Vijay Choraria 3 Yes 7 4 3 Mr. Pradeep Guha 2 No 6 NIL NIL * Directorships in Private Companies, Foreign Companies and Not for Profit Companies are excluded for this purpose. ** For this purpose Audit Committee, Shareholders/Investors’ Grievance and Remuneration Committee is considered. COMMITTEES OF DIRECTORS The Board of Directors provide guidance to operating management on policy matters as well as in the monitoring of the actions of operating management. This involvement is formalized through the constitution of designated committees of the Board. The committees are intended to provide regular exchange of information and ideas between the Board and operating management. AUDIT COMMITTEE To provide assistance to the Board of Directors of the Company the Audit Committee was constituted. It consists of Chairman and two other members. The Chairman of the Audit Committee is independent Non-Executive Director. The Audit Committee provides direction to and oversees the Audit and Risk Management functions, reviews the financial accounts, interacts with statutory auditors and reviews matters of special interest. COMPOSITION, NAME OF MEMBERS, CHAIRMAN AND OTHERS DETAILS Mr. Vijay Choraria Chairman Mr. Anil Harish Member Mr. Parvez A. Farooqui Member During the year under review, the Audit Committee met four times and the no. of times each member attended the meeting is given below. Meetings & attendance during the year: Members Meetings held during the Meetings Attended tenure of the Directors Mr. Vijay Choraria 4 2 Mr. Anil Harish 4 3 Mr. Parvez A. Farooqui 4 4

REMUNERATION COMMITTEE The Committee comprises of following Directors Mr. Anil Harish Chairman Mr. Vijay Choraria Member Mr. Parvez A. Farooqui Member The Remuneration Committee was constituted to recommend and review remuneration package of Directors and Senior Executives and to present report to the Board on remuneration package of Directors and other Senior Management Officials. The Company follows the market linked remuneration policy which is aimed at enabling the Company to attract and retain the best talent. Compensation is also linked to individual and team performance as they support the achievement of Corporate Goals. 14

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Meetings & attendance during the year Members Meetings held during the Meetings Attended tenure of the Directors Mr. Vijay Choraria 2 2 Mr. Anil Harish 2 1 Mr. Parvez A. Farooqui 2 2

DETAILS OF REMUNERATION TO EXECUTIVE DIRECTORS Particulars Mr. Subhash Ghai Mr. Parvez A. Farooqui Mrs. Meghna Ghai Puri Chairman & Executive Director Director - Business Managing Director Development till 30.06.2006 Salary 10,895,000 1,092,000 300,000 Employers Contribution to – 108,000 36,000 Provident Fund Perquisites 163,546 15,395 88,338 Total 11,058,546 1,215,395 424,338

DETAILS OF SERVICE CONTRACT Names Period of Contract Dates of Appointment Mr. Subhash Ghai 5 Years 1st April, 2005 Mr. Parvez A. Farooqui 5 Years 1st April, 2005 Mrs. Meghna Ghai Puri 5 Years 1st May, 2002 Terminated on 30.06.2006

DETAILS OF REMUNERATION TO NON-EXECUTIVE DIRECTORS Names Sitting fees Salary & perquisites Commission Total (Rs.) (Rs.) (Rs.) (Rs.) Mrs. Meghna Ghai Puri 20,000 Nil Nil 20,000 Mr. Anil Harish 15,000 Nil Nil 15,000 Mr. Vijay Choraria 15,000 Nil Nil 15,000 Mr. Pradeep Guha 10,000 NIL Nil 10,000 TOTAL 60,000

DETAILS OF SHARES ISSUED UNDER EMPLOYEES STOCK PURCHASE SCHEME Employee No. of Shares Mr. Ravi Gupta 200,000

EQUITY SHARES OF MUKTA ARTS LIMITED HELD BY DIRECTORS AS ON 31ST MARCH, 2007 Members No. of Shares held Mr. Subhash Ghai 12,392,990 Mrs. Meghna Ghai Puri 1,650,000 Mr. Parvez A. Farooqui 77,300 Mr. Anil Harish NIL Mr. Vijay Choraria NIL Mr. Pradeep Guha NIL SHAREHOLDERS / INVESTOR GRIEVANCE COMMITTEE Shareholders / Investor Grievance Committee comprising the following Directors, approves transfer of shares, splitting and consolidation of shares, issuance of duplicate shares and reviewing shareholder’s complaints and resolution thereof. COMPOSITION, NAME OF MEMBERS AND CHAIRMAN Mr. Vijay Choraria Chairman Mr. Parvez A. Farooqui Member Mr. Pradeep Guha Member 15

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MEETINGS AND ATTENDANCE DURING THE YEAR Members Meetings held during the Meetings Attended tenure of the Director Mr. Vijay Choraria 4 4 Mr. Parvez A. Farooqui 4 4 Mr. Pradeep Guha 4 1 Company Secretary is the Compliance Officer of the Company for matters relating to shareholders, Stock Exchanges, The Securities Exchange Board of India (SEBI) and other related regulatory authorities. NO. OF COMPLAINTS PENDING WITH THE COMPANY The Company’s Registrar & Transfer Agents M/s Intime Spectrum Registry Limited has received 11 letters / complaints during the financial year ended 31st March, 2007, and all are replied to the satisfaction of the shareholders. SHARE TRANSFER COMMITTEE Share Transfer Committee provides assistance to the Board of Directors in ensuring that the transfer of shares takes place within the stipulated period of one month from the date they are lodged with the Company. The Committee frames the policy for ensuring timely transfer of shares including transmission, splitting of shares into marketable lots, consolidation, changing joint holding into single holding and vice versa and also for issuing duplicate share certificates in lieu of those torn/destroyed, lost or defaced. COMPOSITION, NAME OF MEMBERS AND CHAIRMAN Mr. Parvez A. Farooqui Chairman Mr. Vijay Choraria Member Mr. Pradeep Guha Member MEETINGS AND ATTENDANCE DURING THE YEAR Members Meetings held during the Meetings Attended tenure of the Director Mr. Parvez A. Farooqui 2 2 Mr. Vijay Choraria 2 2 Mr. Pradeep Guha 2 0

GENERAL BODY MEETINGS Location and time of the General Body Meetings held during the last three years Description of Location Date Time Meeting 24th AGM Whistling Woods Institution’s Auditorium 12.08.2006 4.00 P.M. Dada Saheb Phalke Chitra Nagari Goregaon (E), Mumbai-400 065 23rd AGM** Adlabs Films Limited’s Auditorium 29.09.2005 4.00 P.M. Dada Saheb Phalke Chitra Nagari Goregaon (E), Mumbai-400 065 22nd AGM * Rang Sharda Natya Mandir, K.C. Marg, 09.09.2004 3.30 P.M Bandra Reclamation Bandra (W) Mumbai – 400 050 * * In the 23rd AGM the following special resolutions were passed 1. Reappointment of Mr. Subhash Ghai as Managing Director. 2. Reappointment of Mr. Parvez A. Farooqui as Executive Director. * In the 22nd AGM the following special resolutions were passed 1. Appointment of Mr. Rahul Puri as Vice President (Finance & Strategy) 2. Appointment of Mr. Vashdev Bajaj as Zonal Director- Zone A for distribution of films.

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Disclosures 1) The Company has entered into certain transactions with Directors and / or companies in which the Directors or the Management or their relatives, etc., have interest. However, these transactions are of routine nature and do not have any potential conflict with the interest of the Company at large. 2) Neither has any non-compliance with any of the legal provisions of law been made by the Company nor any penalty or stricture imposed by the Stock Exchanges or SEBI or any other statutory authority, on matters related to the capital markets, during the last 3 years. RISK MANAGEMENT The Company appreciates that the Film Industry is prone to the vagaries of varying likes and dislikes of viewing public. To mitigate such risks, an attempt is being made to produce large number of Films covering wider spectrum of viewership. The Company is also widening its distribution network in domestic and foreign markets to expand its reach. Whistling Woods Institute, the Film and Television Institute promoted by the Company’s subsidiary Whistling Woods International Limited, had commenced its operations from 18th July 2006. This endeavour will help in sourcing and grooming pool of talent for the Company’s projects in future. CEO/ CFO CERTIFICATION The Chief Executive Officer has signed a certificate accepting responsibility for the financial statements and confirming the effectiveness of the internal control systems, as required in Clause 49 of the Listing Agreement. The certificate is contained in this Annual Report. AUDITORS’ CERTIFICATE ON CORPORATE GOVERNANCE The company has obtained a certificate from the auditors of the company regarding compliance with the provisions relating to Corporate Governance laid down in Clause 49 of the Listing Agreement with Stock Exchanges which is attached here with. MEANS OF COMMUNICATION Information like Quarterly Financial Results and Press Releases on significant developments in the Company has been made available from time to time to the Press and has also been submitted to the Stock Exchanges to enable them to put them on their web sites. The quarterly Financial Results are published in English and vernacular newspapers. The Company has its own website and all the vital information relating to the Company is displayed on the said website. The address of the website is www.muktaarts.com. SHAREHOLDERS’ INFORMATION A. Annual General Meeting : 25th Annual General Meeting Date: 29th September, 2007 Time 4.00 P.M. Venue: Whistling Woods Auditorium, Whistling Woods Institute Dada Saheb Phalke Chitra Nagari Goregaon (E), Mumbai – 400 065 B. Financial Calendar : Financial Year 1st April to 31st March Adoption of Quarterly Results I st Quarter By the end of July 2007 II nd Quarter By the end of October, 2007 III rd Quarter By the end of January, 2008 IV th Quarter By the end of June, 2008 C. Date of Book Closure: 22nd September, 2007 to 29th September, 2007 (both days inclusive) D. Registered Office : 6, Bashiron 28th Road, TPS – III Bandra (W), Mumbai – 400 050 E. Listing on Stock Exchanges : The Stock Exchange, Mumbai, Phiroze Jeejeebhoy Towers, Dalal Street, Mumbai – 400 001 Tel: + 91 – 22 – 2265 5581 Fax: + 91 – 22 –2272 3719 / 2272 2039 National Stock Exchange Association Ltd. Exchange Plaza, Bandra Kurla Complex, Bandra (E), Mumbai – 400 051 Tel: +91-22- 26598100 - 8114 Fax: + 91 – 22 – 2659 8237 / 38 17

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The Calcutta Stock Exchange Association Ltd. 7, Lyons Range, Kolkata – 700 001 Tel: + 91 – 33 – 2210 4470 - 77 Fax:+ 91 – 33 – 2210 4492 / 2210 4500 The Listing fees for the year 2007–08 have already been paid to all the Stock Exchanges where the Company’s shares are listed. F. Stock Code : The Stock Exchange, Mumbai Code No: 532357 Symbol: MUKTARDM ISIN No. INE374B01019 National Stock Exchange Association Ltd. Symbol: MUKTAARTS The Calcutta Stock Exchange Association Ltd. Scrip Code – 23922 G. Market Price Data Given below is the Market Price Data in respect of The Stock Exchange, Mumbai and National Stock Exchange of India Limited. Month BSE NSE April 2006 Highest Rate Lowest Average Highest Lowest Average to Rate Volume Rate Rate Volume March 2007 (Rs.) (Rs.) Traded (Rs.) (Rs.) Traded (Nos.) April 58.80 47.65 18295 59.15 48.70 31348 May 56.45 40.85 10473 56.50 41.05 9980 June 44.15 31.30 7280 42.95 30.40 6423 July 39.90 32.90 3473 39.80 33.05 2374 August 51.45 37.55 8175 51.65 38.00 6832 September 59.95 46.80 22976 59.75 47.55 26129 October 66.10 55.00 35547 66.75 43.10 27657 November 66.80 51.00 24875 66.80 52.15 12889 December 61.65 47.00 7154 61.75 47.50 7512 January 65.80 51.00 46910 65.95 50.70 39301 February 79.70 55.00 190338 79.90 48.60 169785 March 77.35 59.00 30168 79.00 59.10 24327 H. Address of Registrars and Transfer Agents Intime Spectrum Registry Limited C-13, Pannalal Silk Mills Compound L.B.S. Marg, Bhandup (W) Mumbai – 400 078. I. Share Transfer System The Company has entrusted the administrative work of share transfers, transmissions, issuance of duplicate certificates etc., and all tasks related to shareholdings to Intime Spectrum Registry Limited, the Registrars and Share Transfer Agents. J. Distribution of Shareholding as on 31st March, 2007 Shareholding of No. of % of Total Share Amount % of Total Nominal Value (Rs) Shareholders Shareholders (Rs.) Share Amount Range 1 - 5000 6885 92.95 6395100 5.66 5001 - 10000 226 3.05 1793430 1.59 10001 - 20000 107 1.44 1585010 1.40 20001 - 30000 65 0.88 1615880 1.43 30001 - 40000 17 0.23 580450 0.52 40001 - 50000 29 0.39 1378770 1.22 50001 - 100000 33 0.45 2330120 2.07 18 100000 and above 45 0.61 97227240 86.11 TOTAL 7407 100.00 112906000 100.00

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K. Dematerialization of Shares As on 31st March, 2007, 22,553,057 shares were dematerialised, which is 99.87% of total paid up capital. L. Company’s Branches/Locations Production House Bait-Ush-Sharaf 29th Road, Bandra, Mumbai- 400 050. Premises under Construction “Audeus” Plot No. A – 18, Opp. Laxmi Industrial Estate, Off Link Road, Andheri (w), Mumbai – 400 053 M. Address for correspondence Shareholders can address their correspondence to the Registered Office of the Company at Mumbai and/or at Company’s Registrar and Transfer Agents: Company Registrar and Transfer Agents Contact Person Mr. Ravi B Poplai Mr. N. Mahadevan Iyer Mr. Parvez A. Farooqui Mrs. Anita Pate Address 6, Bashiron28th Road, Intime Spectrum Registry Limited TPS – IIIBandra (W) C-13, Pannalal Silk Mills Compound, Mumbai – 400 050 L.B.S. Marg, Bhandup (W) Mumbai – 400 078 Telephone No. (022) 2642 1332 (022) 2596 3838 Fax No. (022) 2640 7449 (022) 2596 2691/ 2594 6969

N. NOMINATION FACILITY Shareholders holding shares in physical form and desirous of making a nomination in respect of their shareholding in the Company, as permitted under Section 109A of the Companies Act, 1956, are requested to submit their request to the Registrar and Transfer Agents, M/s Intime Spectrum Registry Limited.

AUDITOR’S REPORT ON CORPORATE GOVERNANCE To the Board of Directors of Mukta Arts Limited We have read the Report of the Board of Directors on Corporate Governance and have examined relevant records relating to compliance of conditions of Corporate Governance by Mukta Arts Limited, for the year ended 31st March, 2007, as stipulated in Clause 49 of the Listing Agreement of the said Company with the Stock Exchanges. The Compliance of conditions of Corporate Governance is the responsibility of the management. Our examination, conducted in the manner described in the “Guidance Note on Certification of Corporate Governance” issued by the Institute of Chartered Accountants of India, was limited to procedures and implementation thereof adopted by the Company for ensuring compliance with the conditions of Corporate Governance. Our examination was neither an audit nor was it conducted to express an opinion on the financial statements of the Company. In our opinion and to the best of our information and according to the explanation given to us and on the basis of our examination described above, the Company has complied with the conditions of Corporate Governance as stipulated in Clause 49 of the above mentioned Listing Agreement. We further state that such compliance is neither an assurance as to the future viability of the Company nor the efficiency or effectiveness with which the management has conducted the affairs of the Company. M/s Shamit Majmudar Associates Chartered Accountants Shamit Majmudar Proprietor Membership No. 10595

Place :Mumbai Date :27th August 2007 19

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CEO CERTIFICATION

I Ravi Gupta, Chief Executive Officer certify that: (a) I have reviewed financial statements and the cash flow statement for the year and that to the best of my knowledge and belief: (i) these statements do not contain any materially untrue statement or omit any material fact or contain statements that might be misleading; (ii) these statements together present a true and fair view of the company’s affairs and are in compliance with existing accounting standards, applicable laws and regulations. (b) There are, to the best of my knowledge and belief, no transactions entered into by the company during the year which are fraudulent, illegal or violative of the company’s code of conduct. (c) I accept responsibility for establishing and maintaining internal controls for financial reporting and that I have evaluated the effectiveness of the internal control systems of the company pertaining to financial reporting and I have disclosed to the auditors and the Audit Committee, deficiencies in the design or operation of internal controls, if any, of which I am aware and the steps I have taken or propose to take to rectify these deficiencies. (d) I have indicated to the auditors and the Audit committee (i) significant changes in internal control over financial reporting during the year; (ii) significant changes in accounting policies during the year and that the same have been disclosed in the notes to the financial statements; and (iii) instances of significant fraud of which I become aware and the involvement therein, if any, of the management or an employee having a significant role in the company’s internal control system over financial reporting.

For and on behalf of Mukta Arts Limited

Ravi Gupta Chief Executive Officer Place :Mumbai Date :27th August 2007

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AUDITORS’ REPORT

To the Members 1. We have audited the attached Balance Sheet of Mukta Arts Ltd. as at 31st March 2007 and the related Profit and Loss Account and the Cash Flow Statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. 2. We have conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3. As required by the Companies (Auditor’s Report) Order, 2003 issued by the Central Government of India in terms of sub-section (4A) of Section 227 of the Companies Act, 1956, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order. 4. Further to our comments in the Annexure referred to in paragraph 3 above: (i) we have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit; (ii) in our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of such books; (iii) the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books of account; (iv) in our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report comply with the requirements of the Accounting Standards referred to in sub-section (3C) of Section 211 of the Companies Act, 1956; (v) on the basis of the written representations received from the directors as on 31st March, 2007, and taken on record by the Board of Directors, we report that none of the directors is disqualified as on 31st March, 2007 from being appointed as a director in terms of clause (g) of sub-section (1) of Section 274 of the Companies Act, 1956. 5. In our opinion and to the best of our information and according to the explanations given to us, the said accounts read with significant accounting policies and other notes thereon, give the information required by the Companies Act, 1956, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India: (i) in the case of the Balance Sheet, of the state of affairs of the Company as at 31st March, 2007; (ii) in the case of Profit and Loss Account of the profit of the Company for the year ended on that date, and (iii) in the case of Cash Flow Statement, of the cash flows for the year ended on that date.

For SHAMIT MAJMUDAR ASSOCIATES Chartered Accountants

Place : Mumbai SHAMIT MAJMUDAR Dated : 27th August 2007 Proprietor Membership No. 10595

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ANNEXURE TO THE AUDITORS’ REPORT [Referred to in paragraph (3) thereof]

(i) The nature of the Company’s business/ activities during the year is such that clauses (viii) and (xiii) of paragraph 4 of the Companies (Auditor’s Report) order, 2003 are not applicable to the Company for the year ending 31st March 2007. (ii) In respect of fixed assets: (a) The Company has maintained proper records showing full particulars including quantitative details and situation of fixed assets. (b) The fixed assets of the company have been physically verified by the management at the end of the year and we are informed that no discrepancies between book records and the physical inventory have been noticed. (c) In our opinion and according to the information and explanations given to us, the Company has not made any substantial disposals during the year. (iii) In respect of inventories: (a) As explained to us, inventories were physically verified during the year by the management at reasonable intervals. (b) In our opinion and according to the information and explanations given to us, the procedures of physical verification of inventories followed by the management were reasonable and adequate in relation to the size of the Company and the nature of its activity during the year. (c) In our opinion and according to the information and explanations given to us, the Company has maintained proper records of its inventories and no material discrepancies were noticed on physical verification. (iv) In respect of loans, secured or unsecured, granted or taken by the Company to or from companies, firms or other parties covered in the register maintained under section 301 of The Companies Act, 1956: According to the information and explanations given to us the Company has given unsecured loan of Rs 250 millions to a subsidiary Company and the outstanding interest on the same as on 31.03.2007 is 13.91 millions. The same is not overdue and the rate of interest and other terms and conditions of loan is in our opinion not prima facie prejudicial to the interest of the Company. Apart from the above the Company has neither granted nor taken any loans, secured or unsecured, to or from companies, firms or other parties covered in the register maintained under section 301 of The Companies Act, 1956. (v) In our opinion and according to the information and explanations given to us, there are adequate internal control procedures commensurate with the size of the Company and nature of its business, for purchase of inventory and fixed assets. There are no sale of goods. (vi) In respect of transactions entered in the register maintained in pursuance of section 301 of the Companies Act 1956: (a) To the best of our knowledge and belief and according to the information and explanations given to us, transactions that needed to be entered into the register have been so entered. (b) According to the information and explanations given to us, there are transactions/arrangements in excess of Rs 0.50 millions in respect of subsidiary companies in which directors are interested and prices are reasonable having regard to the prevailing market prices at the relevant time. (vii) The Company has not accepted any deposits from the public to which the provisions of Section 58A and section 58AA of the Companies Act, 1956 and the Companies (Acceptance of Deposits) Rules 1975, are applicable. (viii) In our opinion, the Company has an adequate internal audit system commensurate with the size and the nature of its business. (ix) According to the information and explanations given to us in respect of statutory and other dues: (a) The Company has been generally regular in depositing undisputed statutory dues, including Provident Fund, Employees’ State Insurance, Income Tax, Sales Tax, Wealth Tax, Customs Duty, cess and any other statutory dues with the appropriate authorities during the year. There were no undisputed amount of outstanding statutory dues as at 31st March 2007 for more than six months from the date they became payable. (b) Disputed dues in respect of Income Tax (TDS) is Rs 4.96 millions out of which Rs 2.48 millions has not been paid since the matter is pending before Commissioner of Income Tax (Appeals). (Kindly refer Note no.2(f)(ii) in Schedule P). Disputed dues in respect of Service Tax is Rs 2.12 millions out of which Rs 0.88 millions has not been paid 22 since the matter is pending before CESTAT. (kindly refer Note no. 2(g) in schedule P)

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(x) The Company has no accumulated losses as at the end of the year. The Company has not incurred cash losses during the financial year however it has incurred cash losses in the last financial year. (xi) According to the information and explanations given to us, the Company was not liable to repay any dues to any financial institution and bank, and there were no debenture holders during the year. (xii) According to the information and explanations given to us, the Company has not given any loans and advances on the basis of security by way of pledge of shares, debentures and other securities. (xiii) The company is not a chit fund or a nidhi / mutual benefit fund / society. Therefore, the provisions of clause 4(xiii) of the companies (Auditor’s Report) Order, 2003 are not applicable to the company. (xiv) According to the information and explanations given to us and on the basis of our examination of the Company’s records we are of the opinion that the Company is maintaining adequate records regarding transactions in it’s trading activities in the units of Mutual Funds (Debt Schemes) and timely entries have been made in these records. The investments have been held by the Company in it’s own name. (xv) According to the information and explanations given to us, the Company has given guarantee for loans taken by subsidiary Whistling Woods International Limited from Punjab National Bank during the year. (xvi) To the best of our knowledge and belief and according to the information and explanations given to us, the Company has not taken any term loan during the year. (xvii) According to the cash flow statement and other records examined by us and the information and explanations given to us, on an overall basis, funds raised on short term basis have, prima facie, not been used during the year for long term investment (fixed assets etc.) and vice versa. (xviii) The Company has not made any preferential allotment during the year. (xix) The Company has not issued any debentures during the year. (xx) The Company has not raised any money by public issues during the year. (xxi) To the best of our knowledge and belief and according to the information and explanations given to us, no fraud on or by the Company was noticed or reported during the year.

For SHAMIT MAJMUDAR ASSOCIATES Chartered Accountants

SHAMIT MAJMUDAR Place : Mumbai Proprietor Dated : 27th August 2007 Membership No. 10595

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BALANCE SHEET AS AT 31ST MARCH, 2007

Current Year Previous Year SCHEDULE 31.03.2007 31.03.2006 Amount in Rs. Amount in Rs. –––––––––––––––––––––––––––––––––––––––––––––––––––––––– SOURCES OF FUNDS Shareholders’ Fund Share Capital A 112,917,500 112,917,500 Reserves & Surplus B 1,060,916,631 975,254,648 Loan Funds Secured Loans C 105,822,182 107,354,934 –––––––––––––––––––––––––––––––––––––––––––––––––––––––– TOTAL 1,279,656,313 1,195,527,082 ======APPLICATION OF FUNDS Fixed Assets D Gross Block 313,308,687 369,839,214 Less : Depreciation 159,746,841 185,782,455 –––––––––––––––––––––––––––––––––––––––––––––––––––––––– Net Block without WIP 153,561,846 184,056,759 Add : Capital Work in Progress 3,531,529 – –––––––––––––––––––––––––––––––––––––––––––––––––––––––– Net Block 157,093,375 184,056,759 Investments E 718,411,130 631,069,878 Deferred Tax Asset/(Liability) (9,061,949) (9,934,338) Current Assets, Loans & Advances Inventories F 144,596,923 273,714,038 Debtors G 116,424,936 78,128,175 Cash & Bank Balances H 68,185,799 22,863,066 Loans, Advances & Deposits I 336,482,069 298,548,249 –––––––––––––––––––––––––––––––––––––––––––––––––––––––– 665,689,727 673,253,528 Less : Current Liabilities & Provisions J 267,868,840 303,442,571 –––––––––––––––––––––––––––––––––––––––––––––––––––––––– Net Current Assets 397,820,887 369,810,957 Miscellaneous Expenditure 15,392,870 20,523,826 (to the extent not written off) –––––––––––––––––––––––––––––––––––––––––––––––––––––––– TOTAL 1,279,656,313 1,195,527,082 ======Statement of Significant Accounting Policies P and Notes forming part of Accounts

As per our report of even date For and on behalf of the Board

For SHAMIT MAJMUDAR ASSOCIATES SUBHASH GHAI PARVEZ A. FAROOQUI Chartered Accountants Chairman & Managing Director Executive Director

SHAMIT MAJMUDAR MEGHNA GHAI PURI VIJAY CHORARIA Proprietor Director Director Membership No. 10595

24 Place : Mumbai RAVI GUPTA RAVI POPLAI Date : 27th August 2007 Chief Executive Officer Company Secretary

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PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2007

Current Year Previous Year SCHEDULE 31.03.2007 31.03.2006 Amount in Rs. Amount in Rs. –––––––––––––––––––––––––––––––––––––––––––––––––––––––– INCOME Realisation from Productions, Distribution & Exhibition K 965,207,645 374,798,378 Equipment Hire Income 2,220,883 25,085,222 Other Income L 49,117,783 36,124,922 –––––––––––––––––––––––––––––––––––––––––––––––––––––––– 1,016,546,311 436,008,522 ======EXPENDITURE Cost of Production, Distribution & Exhibition M 729,590,308 351,709,192 Administrative and other expenses N 115,066,292 104,557,130 Depreciation 22,648,786 29,976,815 Preliminary Expenses Written off 5,130,956 5,130,956 –––––––––––––––––––––––––––––––––––––––––––––––––––––––– 872,436,342 491,374,093 –––––––––––––––––––––––––––––––––––––––––––––––––––––––– Profit/(Loss) Before Extraordinary, Non Recurring 144,109,969 (55,365,571) and Prior Period items Less:Extraordinary, Non Recurring & Prior Period Exp. O 343,948 2,366,476 –––––––––––––––––––––––––––––––––––––––––––––––––––––––– Profit/(Loss) Before Tax 143,766,021 (57,732,047) Less : a) Provision for Taxation 6,000,000 - b) Fringe Benefit Tax 1,480,000 975,000 c) Deferred Tax Liability/(Asset) (872,389) (2,251,216) –––––––––––––––––––––––––––––––––––––––––––––––––––––––– Profit/(Loss) after Tax 137,158,410 (56,455,831) Add: Balance brought forward from last year (56,345,266) (1,995,712) –––––––––––––––––––––––––––––––––––––––––––––––––––––––– Profit available for Appropriation 80,813,144 (58,451,543) Less: Interim Dividend paid during the year 45,162,400 - Tax on Interim Dividend 6,334,027 - Income Tax of earlier years - (2,106,277) –––––––––––––––––––––––––––––––––––––––––––––––––––––––– Balance carried forward 29,316,717 (56,345,266) ======Statement of Significant Accounting Policies P and Notes forming part of Accounts

As per our report of even date For and on behalf of the Board

For SHAMIT MAJMUDAR ASSOCIATES SUBHASH GHAI PARVEZ A. FAROOQUI Chartered Accountants Chairman & Managing Director Executive Director

SHAMIT MAJMUDAR MEGHNA GHAI PURI VIJAY CHORARIA Proprietor Director Director Membership No. 10595

Place : Mumbai RAVI GUPTA RAVI POPLAI 25 Date : 27th August 2007 Chief Executive Officer Company Secretary

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CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH 2007

Current Year Previous Year 31.03.2007 31.03.2006 Amount in Rs. Amount in Rs. –––––––––––––––––––––––––––––––––––––––––––––––––––––––– A. CASH FROM OPERATING ACTIVITIES Net Profit /(Loss) before tax and extraordinary items : 144,109,969 (55,365,571) Adjustments for : Depreciation 22,648,786 29,976,815 Interest, dividend, etc., received (45,945,632) (35,725,521) Miscellaneous expenditure written off 5,130,956 5,130,956 (Profit)/Loss on sale of fixed assets (1,593,929) (24,489) (Gain)/Loss on exchange fluctuation 2,951 – Provision for Dimunation of LIC Mutual fund 245,767 – Operating profit before working capital changes 124,598,868 (56,007,810) Adjustments for : (Increase)/ Decrease in Inventories 129,117,115 (236,198,788) (Increase)/ Decrease in Receivables (38,296,761) 26,573,544 (Increase)/ Decrease in Loans and advances (22,904,183) (8,964,402) Increase/(Decrease) in Trade Creditors 15,854,121 26,986,979 Inc./ (Dec.) in Other current liabilities and provisions (58,907,851) 124,285,315 Cash generated from/(used in) operations 149,461,309 (123,325,162) Direct Taxes paid (15,029,637) 2,106,277 Prior period adjustments (343,948) (2,366,476) Cash flow before extraordinary items 134,087,724 (123,585,361) Extraordinary items : Miscellaneous Expenditure – – Net Cash Generated from/(used in) Operating Activities 134,087,724 (123,585,361) B. CASH FLOW FROM INVESTING ACTIVITIES Purchases of fixed assets (10,101,473) (9,718,295) Sale/disposal of fixed assets 16,010,000 443,000 (Additions to)/Redemption of investments (87,587,019) (10,452,300) Interest, dividend, etc. received 45,945,632 35,725,521 Net cash generated from/(used in) investing activities (35,732,860) 15,997,926 C. CASH FLOW FROM FINANCING ACTIVITIES Loans borrowed (net) (1,532,752) 105,219,651 Dividend paid (45,162,400) – Tax on Dividend paid (6,334,027) – Loss on exchange fluctuation (2,951) – Net cash recovered from/(used in) financing activities (53,032,130) 105,219,651 Net increase/(decrease) in cash and cash equivalents 45,322,734 (2,367,784) (A+B+C) Cash and cash equivalents (opening) 22,863,066 25,230,850 Cash and cash equivalents (closing) 68,185,800 22,863,066

As per our report of even date For and on behalf of the Board

For SHAMIT MAJMUDAR ASSOCIATES SUBHASH GHAI PARVEZ A. FAROOQUI Chartered Accountants Chairman & Managing Director Executive Director

SHAMIT MAJMUDAR MEGHNA GHAI PURI VIJAY CHORARIA Proprietor Director Director Membership No. 10595

Place : Mumbai RAVI GUPTA RAVI POPLAI Date : 27th August 2007 Chief Executive Officer Company Secretary 26

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SCHEDULES FORMING PART OF THE ACCOUNTS

Current Year Previous Year 31.03.2007 31.03.2006 Amount in Rs. Amount in Rs. –––––––––––––––––––––––––––––––––––––––––––––––––––––––– SCHEDULE A Share Capital Authorised Share Capital 24,000,000 Equity Shares of Rs. 5/- each 120,000,000 120,000,000 (Previous year 24,000,000 Equity Shares of Rs. 5/- each) ======Issued, Subscribed & Paid-up Capital 22,581,200 Equity Shares of Rs.5/- each 112,906,000 112,906,000 (Previous year 22,581,200 Equity Shares of of Rs 5/- each out of which 16,490,000 shares were allotted as fully paid up by way of Bonus Shares by capitalisation of reserves) Add:- Forfeited shares 11,500 11,500 (Amount originally paid up) –––––––––––––––––––––––––––––––––––––––––––––––––––––––– 112,917,500 112,917,500 ======SCHEDULE B Reserves & Surplus Share Premium 973,360,000 973,360,000 General Reserve Balance as per last balance sheet 58,239,914 58,239,914 Add : Transfer during the year - - –––––––––––––––––––––––––––––––––––––––––––––––––––––––– 58,239,914 58,239,914 Balance as per Profit & Loss account 29,316,717 (56,345,266) –––––––––––––––––––––––––––––––––––––––––––––––––––––––– 1,060,916,631 975,254,648 ======SCHEDULE C Secured Loans From banks against finance of cars 2,122,182 3,654,934 From LIC against Keyman Insurance Policy of CMD 103,700,000 103,700,000 –––––––––––––––––––––––––––––––––––––––––––––––––––––––– 105,822,182 107,354,934 ======

SCHEDULE D Fixed Assets (Amount in Rs.) GROSS BLOCK DEPRECIATION NET BLOCK Particulars As on Additions Ded./Adj. Total Depreciation Additions Ded./Adj. Total As on As on 01.04.2006 during the during as on up to during during Depreciation 31.03.2007 31.03.2006 year the year 31.03.2007 31.03.2006 the year the year up to 31.03.2007 Block ‘A’ Ownership Premises 107,594,600 – – 107,594,600 22,957,827 852,638 – 23,810,465 83,784,135 84,636,773 Block ‘B’ Plant & Machinery 217,810,021 3,692,087 63,100,472 158,401,637 139,927,580 16,014,445 48,684,400 107,257,625 51,144,012 77,882,441 Block ‘C’ Motor Vehicles & Others 24,940,652 777,600 – 25,718,252 10,745,227 3,671,034 – 14,416,261 11,301,991 14,195,425 Block ‘D’ Furniture Fixture & 16,374,531 2,100,257 – 18,474,788 10,329,010 1,838,070 – 12,167,080 6,307,708 6,045,521 Office Equipments Block ‘E’ Computer Software 619,410 – – 619,410 602,811 16,599 – 619,410 – 16,599 Intangible Assets Exhibition Rights 2,500,000 – – 2,500,000 1,220,000 256,000 – 1,476,000 1,024,000 1,280,000 TOTAL 369,839,214 6,569,944 63,100,472 313,308,687 185,782,455 22,648,786 48,684,400 159,746,841 153,561,846 184,056,759 Previous Year 361,978,633 9,718,295 1,857,714 369,839,214 157,244,843 29,976,815 1,439,203 185,782,455 184,056,759 204,733,790 Capital WIP – 3,531,529 – 3,531,529 – – – – 3,531,529 – 27 TOTAL 369,839,214 10,101,473 63,100,472 316,840,216 185,782,455 22,648,786 48,684,400 159,746,841 157,093,375 184,056,759

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SCHEDULES FORMING PART OF THE ACCOUNTS

Current Year Previous Year 31.03.2007 31.03.2006 Amount in Rs. Amount in Rs. –––––––––––––––––––––––––––––––––––––––––––––––––––––––– SCHEDULE E Investments A UNITS OF MUTUAL FUNDS - QUOTED Units of DSP Merrill Lynch Mutual Fund : DSP Merrill Lynch Liquidity Fund - Growth – 11,648,469 (Previous year —No. of Units 679,941.201) Units of LIC Mutual Fund : LICMF Floating Rate Fund - Growth Plan 199,398,124 50,397,396 ( No. of Units 19,604,118.381, Previous year 49,86,650.098) –––––––––––––––––––––––––––––––––––––––––––––––––––––––– 199,398,124 62,045,865 Less: Provision for Dimunation of LIC Mutual fund 245,767 – –––––––––––––––––––––––––––––––––––––––––––––––––––––––– 199,152,357 62,045,865 PRINCIPAL PNB MF FIXED MATURITY 10,000,000 - (A) 209,152,357 62,045,865 (NAV as on 31.03.2007 is Rs 199,152,357) (NAV as on 31.03.2006 was Rs 62,190,037) B INTER CORPORATE DEPOSITS (UNQUOTED) With Companies (B) 334,389,015 156,889,015 (Includes loan to a subsidiary Rs 250,000,000 Previous year Rs.142,500,000) C LONG TERM INVESTMENTS IN EQUITY SHARES In wholly owned subsidiaries (Unquoted) Equity Shares of Connect.1 Ltd. 594,000 594,000 (594 shares of Rs.1000/- each, Previous year 594 shares) Equity Shares of Whistling Woods International Ltd. 169,997,000 169,997,000 (169,997 shares of Rs 1000/- each, Previous year 169,997 shares) Equity Shares of Mukta Tele Media Ltd. 499,600 499,600 (4,996 shares of Rs.100/- each, Previous year 4,996 shares) Others (Unquoted) Shares of Bashiron Co. Op. Hsg. Society Ltd. 500 500 (10 Shares of Rs. 50/- each, Previous year - 10 shares) Shares of Bait-Ush-Sharaf Co. Op. Hsg.Society. Ltd. 500 500 (10 Shares of Rs. 50/- each, Previous year - 10 shares) Equity Shares of Mukta Adlabs Digital Exhibition Pvt. Ltd. – 50,000 (Nil, Previous year 500 shares) Equity Shares of Indiasound Ltd. 3,778,158 3,778,158 (7,500,000 Equity Shares of 0.1 Pence each, Previous year 7,500,000 Equity Shares) (C) 174,869,758 174,919,758 D BONDS (UNQUOTED) IDFC Bonds 2026 (Previous Year -Bonds 1015) (D) – 237,215,240 –––––––––––––––––––––––––––––––––––––––––––––––––––––––– TOTAL (A + B+ C +D) 718,411,130 631,069,878 28 ======

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SCHEDULES FORMING PART OF THE ACCOUNTS

Current Year Previous Year 31.03.2007 31.03.2006 Amount in Rs. Amount in Rs. –––––––––––––––––––––––––––––––––––––––––––––––––––––––– SCHEDULE F Inventories Rights of Films (Exhibition, Distribution & other commercial rights including Copyrights) 4,550,000 4,550,000 Work In Progress - Under production films 139,769,276 265,239,861 - Stock of Materials 277,647 3,924,177 –––––––––––––––––––––––––––––––––––––––––––––––––––––––– 144,596,923 273,714,038 ======SCHEDULE G Sundry Debtors (Unsecured) a) Debts outstanding for a period exceeding six months - considered good 30,121,895 34,247,057 - considered doubtful 3,256,002 – b) Other Debts Considered good - considered good 83,047,039 43,881,118 –––––––––––––––––––––––––––––––––––––––––––––––––––––––– 116,424,936 78,128,175 ======SCHEDULE H Cash & Bank balances Cash in Hand 459,693 946,499 With Scheduled Banks: In Current Accounts 43,151,421 11,358,459 (Includes Rs. 143,343 in EEFC account, Previous year Rs.146,294) Fixed Deposit with Scheduled Banks 24,574,685 10,558,108 –––––––––––––––––––––––––––––––––––––––––––––––––––––––– 68,185,799 22,863,066 ======SCHEDULE I Loans & Advances Advances recoverable in cash or in kind or for value 126,028,342 147,456,326 to be received (Includes Rs 58,049,175 from Subsidiary Companies Previous year Rs 16,617,509) (Includes Rs Nil from a firm in which Managing Director is a partner, Previous year Rs - 150,000) (Includes Rs Nil from a Company under the same management, Previous year Rs 49,417,765) (Includes Rs 21,000,000 from a trust in which one of the Directors is Trustee, Previous year Rs 22,030,000) Advance Taxes and other payments 151,573,853 136,544,216 Advances to Staff 929,028 685,823 Deposits 57,950,846 13,861,884 {Including Rs.300,000 to a firm of which Managing Director is proprietor, Previous year Rs.300,000} {Including Rs 500,000 to Managing Director for use of premises, Previous year Rs.500,000} {Including Rs.1,000,000 to a Company in which Managing Director is Director, Previous year Rs 7,000,000} (Includes Rs 34,000,000 to a Subsidiary Company Previous year Rs 3,500,000) –––––––––––––––––––––––––––––––––––––––––––––––––––––––– 336,482,069 298,548,249 29 ======

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SCHEDULES FORMING PART OF THE ACCOUNTS

Current Year Previous Year 31.03.2007 31.03.2006 Amount in Rs. Amount in Rs. –––––––––––––––––––––––––––––––––––––––––––––––––––––––– SCHEDULE J Current Liabilities & Provisions: Sundry Creditors for goods and services rendered 74,652,186 58,798,066 (Includes due to firm of which Managing Director is proprietor Rs Nil, Previous year Rs 80,000) HDFC Bank (Due to Cheques issued) – 14,197 Provision for Taxation 93,122,980 75,286,978 Advances towards films and other services 99,743,742 168,992,728 Unclaimed Dividend 349,932 350,602 –––––––––––––––––––––––––––––––––––––––––––––––––––––––– 267,868,840 303,442,571 ======SCHEDULE K Realisation from Production, Distribution & Exhibition Recovery from Music 6,500,000 25,000,000 Recovery from New Productions 418,126,850 45,550,251 Recovery from old films, Distribution & Exhibition 540,580,795 304,248,127 –––––––––––––––––––––––––––––––––––––––––––––––––––––––– 965,207,645 374,798,378 ======SCHEDULE L Other Income Interest 39,102,023 31,564,355 Other Income 1,578,222 399,401 Profit on Sale of Assets 1,593,929 – Dividend / Income from Units of Mutual Funds 6,843,609 4,161,166 –––––––––––––––––––––––––––––––––––––––––––––––––––––––– 49,117,783 36,124,922 ======SCHEDULE M Cost of Production, Distribution & Exhibition Cost of Music 1,904,451 7,308,860 Cost of New Productions 395,852,188 53,695,305 Expenses of old films, Distribution & Exhibition 331,833,669 290,705,027 –––––––––––––––––––––––––––––––––––––––––––––––––––––––– 729,590,308 351,709,192 ======

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SCHEDULES FORMING PART OF THE ACCOUNTS

Current Year Previous Year 31.03.2007 31.03.2006 Amount in Rs. Amount in Rs. –––––––––––––––––––––––––––––––––––––––––––––––––––––––– SCHEDULE N Administrative and Other Expenses Personnel Expenses 33,186,551 27,452,389 (Including Directors Remuneration of Rs 12,519,338 Previous year - Rs.13,024,288) Repairs & Maintenance : Buildings 1,649,034 927,138 Machinery 1,001,527 1,184,479 Others 234,496 374,783 Printing & Stationery 1,177,358 1,186,672 Telephone & Trunkcalls 2,185,581 2,706,011 Insurance 40,787,158 40,919,559 Brokerage & Commission 30,000 – Electricity Charges 721,868 2,310,237 Rent 1,203,547 1,092,751 Travelling Expenses 2,208,467 1,599,757 Auditors Remuneration 1,256,750 1,235,100 Professional Expenses 4,168,456 6,809,596 Legal Expenses 276,775 422,877 Interest 242,202 184,558 Bank Charges 383,575 417,421 Rates & Taxes 9,865,261 1,113,413 Bad Debts -Written off 5,020,677 4,514,329 Publicity Expenses 419,411 962,628 Motor Car Expenses 2,268,066 1,943,646 Miscellaneous Expenses 6,779,533 7,199,786 –––––––––––––––––––––––––––––––––––––––––––––––––––––––– 115,066,292 104,557,130 ======SCHEDULE O Extraordinary, Non Recurring & Prior Period Exp. Loss on sale of Investments – 2,342,700 Prior Period Expenses 343,948 23,776 –––––––––––––––––––––––––––––––––––––––––––––––––––––––– 343,948 2,366,476 ======

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SCHEDULE “P” Statement of Significant Accounting Policies and Notes forming Part of Accounts 1 Significant Accounting Policies (a) Basis of Preparation of Accounts The financial statements have been prepared under the historical cost convention, in accordance with Accounting Standards issued by the Institute of Chartered Accountants of India and the provisions of the Companies Act, 1956, as adopted consistently by the Company. All income and expenditure having a material bearing on the financial statements are recognised on accrual basis. The preparation of financial statements in conformity with Accounting Standards requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of financial statements, and the reported amounts of revenues and expenses during the year. (b) (i) Fixed Assets Fixed Assets are stated at cost of acquisition including the attributable costs to bring the assets to their working condition. Exhibition Rights (Intangible assets) are recorded at the consideration paid for acquisition. (ii) Depreciation Depreciation has been provided on Written Down Value Method as per the provision of Companies Act, 1956 and at the rate specified in Schedule XIV of the Companies Act, 1956. (iii) Capital work in progress Capital work in progress is shown in Asset Schedule, however pending completion of project no depreciation is provided on the same. (c) Investments Investments in the units of Mutual Funds are stated at lower of ‘Cost’ or ‘Net Asset Value’ at the end of the financial year and where ever the net asset value is less than the cost the same is treated as diminution and provided for in the accounts. Other investments are stated at cost. Holding of investments in subsidiaries and Associate Companies are of strategic importance to the Company and therefore the company does not consider it necessary to provide decrease in the book value of such investments, till such relationship continues with the investee Company. (d) Inventories Inventories of under production films and serials are valued at actual amount spent,which includes amount paid, bills settled and advance paid for which bills are awaited.The residual value of old films are valued at Nil as total cost of production is charged to revenue at the time of first release of such film. Other inventories are stated at cost. (e) Transactions in Foreign Currencies Transactions in Foreign Currencies are accounted at standard exchange rates. Current assets and current liabilities in foreign currencies are realigned with rates ruling on Balance Sheet date. Any gain/loss arising on realignment or realisation is charged to the Profit and Loss Account. (f) Revenue recognition (i) Recovery of old films are recognised at Gross overflows and royalties earned. Sales/Realisations are recognised on despatch of softwares to the respective parties. (ii) Interest Income is accounted on accrual basis. (iii) Dividend income is accounted for when right to receive is established. (g) Miscellaneous Expenditure Share issue expenses are amortised over a period of 10 years. (h) Retirement benefits (i) Contribution to Provident Fund and other recognised dues are charged to revenue. (ii) Gratuity is provided on the basis of actuarial valuation made by LIC in accordance with its group gratuity scheme 32 However, for the current year based on the acturial valuation no further provision was required.

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Current Year Previous Year 31.03.2007 31.03.2006 2 Contingent Liabilities Rupees Rupees –––––––––––––––––––––––––––––––––––––––––––––––––––––––– a Claims against the company not acknowledged as Debts Nil Nil b Guarantees given by Bank on behalf of the company 40,147,120 39,647,120 c Letters of Credit given by bank on behalf of the company Nil Nil d Estimated amount of contracts remaining to be executed on Capital Account & not provided for (net of advance) Nil Nil e Legal suits filed against the company (having monetory implication) Nil Nil f (i) The Income Tax Assessment of the Company is completed upto Assessment Year 2004-05. There are certain additions made in various assessment for which various appeals are pending at first appellate stage and Tribunal stage (including the appeal decided in favour of Company where in Department is in further appeal). The disputed Tax amount in respect of the above is : 21,119,173 21,068,923 (ii) Survey action was conducted by the Income Tax TDS department in the registered office of the Company on 27.08.2003. The assessment of the same was completed during the previous year and demand of Rs 4,957,270 was raised. Aggrieved by the order the Company had filed appeal before the CIT(Appeals). The Company had paid Rs. 2,478,636 under protest against the said demand. The Directors are of the opinion that at this stage no further provision is required for the above pending matters. g Department of Service Tax has levied service tax of Rs 2.12 million on sponsorship fees received for various films treating the Company as an ‘Advertising Agency’. Further the department has issued show cause notice proposing to levy Rs 2.02 millions service tax on a similar issue. Against the levy of Rs 2.12 million, the Company filed appeal before the Commissioner of Central Excise (Appeals) and subsequently before Honorable Tribunal, claiming that the provisions of Service Tax Act is not applicable in this matter. The Company has paid Rs 1.24 millions under protest and the same is shown as ‘advance recoverable in cash or kind’ since the matter is pending before the CESTAT and based on legal opinion sought, the management is of the opinion that the Company will have no liability on this account and that no provision is necessary. h The Company Law Board has passed an order directing Central Government to undertake the investigation under section 237 of the Companies Act, 1956. The Company aggrieved by the order has moved the Bombay High Court and obtained stay on order. The management believes that the Order of Company Law Board is defective and management has not voilated any rules, laws or regulations and there is no cause of concern in this regard. i The Company has given Corporate Guarantee for loans taken by Subsidiary Whistling Woods International Limited from Punjab National Bank during the year. 3 Additional information required to be given pursuant to Part II of Schedule VI to the Companies Act, 1956 is as follows : The Company is in the business of production, distribution and exhibition of Entertainment software, hiring of equipments etc. which is not subject to any licence and as such information regarding consumption of Raw Materials, Production and sales is not applicable. Further the nature of business of the Company is such that the installed capacity is not quantifiable 4 Business segment-wise Report (as per the reporting requirements of AS-17) Current Year Previous Year 31.03.2007 31.03.2006 Rs. in millions Rs. in millions –––––––––––––––––––––––––––––––––––––––––––––––––––––––– a. Revenue Software Division 965.21 374.80 Equipment Division 2.22 25.09 Others 49.12 36.13 –––––––––––––––––––––––––––––––––––––––––––––––––––––––– TOTAL 1,016.55 436.02 33 ======

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Current Year Previous Year 31.03.2007 31.03.2006 Rs. in millions Rs. in millions –––––––––––––––––––––––––––––––––––––––––––––––––––––––– b. Results Software Division 235.62 23.09 Equipment Division (18.65) (9.81) Others 49.12 36.13 –––––––––––––––––––––––––––––––––––––––––––––––––––––––– TOTAL 266.09 49.41 ======c. Capital Employed Software Division 347.93 215.81 Equipment Division 145.88 169.45

Current Year Previous Year 31.03.2007 31.03.2006 Rupees Rupees –––––––––––––––––––––––––––––––––––––––––––––––––––––––– 5 Earnings in Foreign Exchange Realisation from Films & Music (Exploitation of Rights) 846,599 4,829,367 Cost of prints – 397,618 –––––––––––––––––––––––––––––––––––––––––––––––––––––––– 846,599 5,226,985 ======6 Expenditure in Foreign Currency Travelling 747,931 521,090 For Films * 16,154,434 27,221,755 –––––––––––––––––––––––––––––––––––––––––––––––––––––––– 16,902,365 27,742,845 ======(*) Expenses include expenditure incurred on overseas locations towards travelling, lodging & boarding, payments to artists remuneration, etc. 7 Auditors Remuneration : Statutory Audit Fees 551,000 551,000 Tax Audit Fees 150,000 137,750 For Taxation matters 300,000 300,000 For Other Services 125,000 125,000 Reimbursement of Expenses 130,750 121,350 –––––––––––––––––––––––––––––––––––––––––––––––––––––––– 1,256,750 1,235,100 ======8 Managerial Remuneration u/s 198 of the Companies Act, paid or payable during the year : Salary 12,287,000 12,687,000 Contribution to Provident Fund 144,000 184,800 Perquisites 88,338 152,488 –––––––––––––––––––––––––––––––––––––––––––––––––––––––– 12,519,338 13,024,288 ======9 Value of imports of material on CIF basis Machinery Spares – 2,710,738 10 a) Fixed deposits with scheduled banks include interest accrued (net of taxes) upto 31.03.07 Rs 0.61 million (Previous year Rs 1.21 million). Fixed deposits of Rs 24.59 million (Previous Year Rs 9.35 million) are pledged as security against bank guarantees for the Company. b) Lien has been marked on Investments to the extent of 4,950,000 units, previous year - 4,950,000 units of LIC 34 MF Floating Rate Fund - Dividend Re-investment Plan in favour of Punjab National Bank against bank guarantees for the Company.

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11 Taxes on Income (a) Current Tax - Provision for Income Tax is determined in accordance with the provisions of Income Tax Act, 1961 (b) Deferred Tax Position - For the purpose of quantifying deferred tax amount as on Balance Sheet date deferred tax is recognised on timing differences being difference between the taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent periods. Deferred Tax Liability till balance sheet date amounts to Rs 9,061,948 (Previous year Deferred Tax Liability Rs 9,934,338). 12 Related Party Transaction (A) The list of related parties and nature of their relationship is furnished below: Companies under the same management- Whistling Woods International Ltd. 84.99% - subsidiary Connect.1 Ltd. (Formerly known as 99% - subsidiary Mukta Arts International Ltd.) Mukta Tele Media Ltd. 99.92% - subsidiary Mukta Adlabs Digital Exhibition Pvt. Ltd. 50% - Shareholding Mukta Tele Arts Pvt. Ltd. CMD is director Firms- Mukta Arts Proprietory firm of CMD Mukta Shakti Combine CMD is a partner Metro Films CMD is a partner Trusts- MAL Employees Welfare Trust Executive Director is settler and One of the Directors is Trustee Directors of the company- Chairman & Managing Director Mr.Subhash Ghai Executive Director Mr.Parvez A. Farooqui Whole-time Director Ms. Meghna Ghai Puri (Upto 30.06.2006) Non Executive Directors Mr. Anil Harish Mr. Vijay Choraria Mr. Pradeep Guha Relatives of Directors- Mr. Ashok Ghai Brother of CMD Mr. Siraj Farooqui Brother of Executive Director Mr. Sameer Farooqui Brother of Executive Director Mr. Rahul Puri CMD’s Son-in-law and spouse of Whole-time Director (B) Transactions with and outstanding balances of related parties are furnished below. (Amount in Rupees) Volume of transactions during the year Subsidiaries Associates Key Relatives of Total Outstanding Management key Balance personnel management 31.03.2007 personnel

Purchase & Other Services Mukta Tele Arts Pvt. Ltd. – 10,000 – – 10,000 – Connect.1 Ltd. 240,000 – – – 240,000 – Mukta Arts – 140,000 – – 140,000 – Mukta Tele Media Ltd. 108,000 – – – 108,000 – Sales & other Recoveries Whistling Woods International Ltd. 17,936,038 – – – 17,936,038 – Receiving of Services Ashok Ghai – – – 1,500,000 1,500,000 – Payment of Salaries Rahul Puri – – – 1,020,000 1,020,000 – Siraj Farooqui – – – 1,160,000 1,160,000 – Sameer Farooqui – – – 197,500 197,500 –

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(Amount in Rupees) Volume of transactions during the year Subsidiaries Associates Key Relatives of Total Outstanding Management key Balance personnel management 31.03.2007 personnel

Investments Shares of Whistling Woods International Ltd. – – – – – 169,997,000 Shares of Connect.1 Ltd. – – – – – 594,000 Shares of Mukta Tele Media Ltd. – – – – – 499,600 Shares of Mukta Adlabs Digital Exhibition Pvt. Ltd. – 50,000 – – 50,000 – Loans Given Whistling Woods International Ltd. 107,500,000 107,500,000 250,000,000 Advances recoverable MAL Employees Welfare Trust - 1,030,000 - - 1,030,000 21,000,000 Mukta Adlabs Digital Exibition Pvt. Ltd. - 49,417,765 - - 49,417,765 - Whistling Woods International Ltd. 13,911,191 13,911,191 13,911,191 Mukta Shakti Combine - 200,000 - - 200,000 - Mukta Tele Media Ltd. 3,985,000 3,985,000 6,637,984 Managerial Remuneration Subhash Ghai - - 11,058,546 - 11,058,546 - Parvez A. Farooqui - - 1,215,395 - 1,215,395 - Meghna Ghai Puri - - 424,338 - 424,338 - Deposits for Premises taken on lease or otherwise Connect.1 Ltd. - - - - - 3,500,000 Mukta Tele Arts Pvt. Ltd. - 6,000,000 - - 6,000,000 1,000,000 Mukta Arts - - - - - 300,000 Subhash Ghai - - - - - 500,000 Muka Tele Media Ltd. 4,000,000 - - - 4,000,000 4,000,000 Whistling Woods International Ltd. 30,000,000 - - - 30,000,000 30,000,000 Note: The company has paid to it’s Non-executive Directors, the sitting fees @ Rs.5,000/- per Board-meeting attended. 13 (a) There were no amounts payable to Small Scale Industrial Undertaking on the Balance Sheet date. (b) The Company has not received any intimation from “Suppliers” regarding their status under the Micro, Small and Medium Enterprises Development Act, 2006 and hence disclosures, if any, relating to amounts unpaid as at the year end together with interest paid / payable as required under the said Act have not been given. 14 Current Investments bought and sold during the year No. of units LIC MF FLOATING RATE FUND 14,617,468.283 15 Previous year figures have been regrouped wherever necessary.

As per our report of even date For and on behalf of the Board

For SHAMIT MAJMUDAR ASSOCIATES SUBHASH GHAI PARVEZ A. FAROOQUI Chartered Accountants Chairman & Managing Director Executive Director

SHAMIT MAJMUDAR MEGHNA GHAI PURI VIJAY CHORARIA Proprietor Director Director Membership No. 10595 Place : Mumbai RAVI GUPTA RAVI POPLAI Date : 27th August 2007 Chief Executive Officer Company Secretary 36

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BALANCE SHEET ABSTRACT AND COMPANY’S GENERAL BUSINESS PROFILE

I REGISTRATION DETAILS

Registration No.: L92110MH1982PTC028180 State Code: 011

Balance Sheet Date: 31-03-2007

II CAPITAL RAISED (AMOUNT IN RS. THOUSANDS)

Public Issue NIL Rights Issue NIL

Bonus Issue NIL Private Placement NIL

III POSITION OF MOBILISATION AND DEPLOYMENT OF FUNDS (AMOUNT IN RS. THOUSANDS)

Total Liabilities 1279656 Total Assets 1279656

SOURCES OF FUNDS

Paid-up Capital 112918 Reserves & Surplus 1060917

Secured Loans 105821 Unsecured Loans NIL

APPLICATION OF FUNDS

Net Fixed Assets 157093 Investments 718411

Net Current Assets 388760 Misc. Expenditure 15392

Accumulated Losses NIL

IV PERFORMANCE OF COMPANY (AMOUNT IN RS. THOUSANDS)

Turnover 1016546 Total Expenditure 872780

Profit/(Loss) Before Tax 143766 Profit/(Loss) After Tax 137158

Earnings Per Share in Rs. 6.07 Dividend Rate % 40%

V GENERIC NAMES OF PRINCIPAL PRODUCTS/ SERVICES OF THE COMPANY

Item Code No. Not Applicable

Product Description SOFTWARE PRODUCTION, DISTRIBUTION & EQUIPMENT HIRE

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STATEMENT PURSUANT to SECTION 212 of the COMPANIES ACT, 1956 RELATING to SUBSIDIARY COMPANIES

1 Name of the Company Whistling Connect. 1 Ltd. Mukta Tele Media Ltd. Woods (Formerly known as International Ltd. Mukta Arts International Ltd.) 2 Financial Year of the Subsidiary Company 31 March, 2007 31 March, 2007 31 March, 2007 3 Holding Company’s Interest Number of shares 169,997 594 4,996 (Equity shares Rs.1000/- (Equity Shares of (Equity Shares of fully paid up) Rs.1,000/- each Rs. 100/- each fully paid-up) fully paid-up) Extent of shareholding 84.99% 99.00% 99.92% 4 The Net aggregate of profit/loss Accounts of Whistling Accounts of Connect.1 Accounts of Mukta of the Company for the financial Woods International Ltd. (Formerly known Tele Media Ltd. year, so far as it concerns the Ltd. are annexed as Mukta Arts are annexed members of Mukta Arts Ltd. International Ltd.) are annexed

6 Net Aggregate of profit/loss of Since the project is Accounts of Connect.1 Accounts of Mukta the Company for the previous under construction Ltd. (Formerly known Tele Media Ltd. year, so far as it concerns the stage all expenses and as Mukta Arts are annexed members of Mukta Arts Ltd. income are shown as International Ltd.) Capital Work in Progress are annexed

For and on behalf of the Board

SUBHASH GHAI PARVEZ A. FAROOQUI Chairman & Managing Director Executive Director

MEGHNA GHAI PURI VIJAY CHORARIA Director Director

Place : Mumbai RAVI GUPTA RAVI B. POPLAI Date : 27th August 2007 Chief Executive Officer Company Secretary

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Auditors’ report to the Board of Directors of Mukta Arts Limited on the Consolidated Financial Statement of Mukta Arts Limited and its Subsidiaries

1. We have audited the attached consolidated Balance Sheet of Mukta Arts Ltd. (the company) and its subsidiaries as at 31st March, 2007 the consolidated Profit and Loss Account for the year ended on that date annexed thereto, and the consolidated cash flow statement for the year ended on that date, which we have signed under reference to this report. These consolidated financial statements are the responsibility of the management of Mukta Arts Limited. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

2. We report that the consolidated financial statements have been prepared by the Company in accordance with the requirements of Accounting Standard (AS) 21, Consolidated Financial Statements, issued by the Institute of Chartered Accountants of India and on the basis of the separate audited financial statements of Mukta Arts Limited and its Subsidiaries included in the consolidated financial statements.

3. On the basis of the information and explanations given to us and on consideration of the separate audit reports on individual audited financial statements of Mukta Arts Limited and its Subsidiaries, in our opinion, the consolidated financial statements together with the notes thereon and attached thereto give a true and fair view in conformity with the accounting principles generally accepted in India:

(a) in the case of the consolidated balance sheet of the consolidated state of affairs of Mukta Arts Limited and its Subsidiaries as at 31st March 2007 ;

(b) in the case of the consolidated profit and loss account, of the consolidated results of operations of Mukta Arts Limited and its Subsidiaries for the year ended on that date ;

(c) in the case of the consolidated cash flow statement, of the consolidated cash flows of Mukta Arts Limited and its subsidiaries for the year ended on that date .

For SHAMIT MAJMUDAR ASSOCIATES Chartered Accountants

Place: Mumbai SHAMIT MAJMUDAR Dated: 27th August 2007 Proprietor Membership No. 10595

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CONSOLIDATED BALANCE SHEET OF MUKTA ARTS LIMITED AND ITS SUBSIDIARIES AS AT 31ST MARCH, 2007

Current Year Previous Year SCHEDULE 31.03.2007 31.03.2006 Amount in Rs. Amount in Rs. –––––––––––––––––––––––––––––––––––––––––––––––––––––––––– SOURCES OF FUNDS Shareholders’ Fund Share Capital A 112,917,500 112,917,500 Minority Interest 29,916,902 29,893,771 Reserves & Surplus B 916,962,654 971,648,095 Loan Funds Secured Loans C 227,976,025 108,282,892 –––––––––––––––––––––––––––––––––––––––––––––––––––– TOTAL 1,287,773,081 1,222,742,258 ======APPLICATION OF FUNDS Fixed Assets D Gross Block 909,623,837 709,351,213 Less : Depreciation 224,265,621 186,884,334 –––––––––––––––––––––––––––––––––––––––––––––––––––– Net Block without WIP 685,358,216 522,466,879 Add : Capital Work in Progress 3,531,529 – –––––––––––––––––––––––––––––––––––––––––––––––––––– Net Block 688,889,745 522,466,879 Investments E 297,844,509 317,979,778 Deferred Tax Asset/(Liability) (9,061,949) (9,934,338) Current Assets, Loans & Advances Inventories F 148,331,931 277,449,045 Debtors G 124,180,837 78,128,175 Cash & Bank Balances H 73,254,049 23,157,004 Loans, Advances & Deposits I 297,483,250 306,268,772 –––––––––––––––––––––––––––––––––––––––––––––––––––– 643,250,067 685,002,996 Less : Current Liabilities & Provisions J 349,148,992 314,052,625 –––––––––––––––––––––––––––––––––––––––––––––––––––– Net Current Assets 294,101,075 370,950,371 Miscellaneous Expenditure 15,999,701 21,279,568 (to the extent not written off) –––––––––––––––––––––––––––––––––––––––––––––––––––– TOTAL 1,287,773,081 1,222,742,258 ======Statement of Significant Accounting Policies P and Notes forming part of Accounts

As per our report of even date For and on behalf of the Board

For SHAMIT MAJMUDAR ASSOCIATES SUBHASH GHAI PARVEZ A. FAROOQUI Chartered Accountants Chairman & Managing Director Executive Director

SHAMIT MAJMUDAR MEGHNA GHAI PURI VIJAY CHORARIA Proprietor Director Director Membership No. 10595

Place : Mumbai RAVI GUPTA RAVI POPLAI Date : 27th August 2007 Chief Executive Officer Company Secretary

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CONSOLIATED PROFIT & LOSS ACCOUNT OF MUKTA ARTS LTD AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31ST MARCH 2007

Current Year Previous Year 31.03.2007 31.03.2006 SCHEDULE Amount in Rs. Amount in Rs. –––––––––––––––––––––––––––––––––––––––––––––––––––––––––– INCOME Realisation from Productions, Distribution & Exhibition K 965,207,645 374,798,378 Equipment Hire Income 2,220,883 25,085,222 Other Income L 99,619,215 36,485,252 –––––––––––––––––––––––––––––––––––––––––––––––––––– 1,067,047,743 436,368,852 ======EXPENDITURE Cost of Production, Distribution & Exhibition M 729,590,310 351,709,192 Administrative and other expenses N 231,904,427 105,343,470 Share of Joint Venture of ASP Group – 176,429 Depreciation 84,229,730 30,355,694 Preliminary Expenses Written off 5,302,998 5,149,121 –––––––––––––––––––––––––––––––––––––––––––––––––––– 1,051,027,465 492,733,906 –––––––––––––––––––––––––––––––––––––––––––––––––––– Profit/(Loss) Before Extraordinary, 16,020,278 (56,365,054) Non Recurring and Prior Period items Less:Extraordinary, Non Recurring and Prior Period Items O 12,113,181 2,366,476 –––––––––––––––––––––––––––––––––––––––––––––––––––– Profit/(Loss) Before Tax 3,907,097 (58,731,530) Less : a) Provision for Taxation 6,013,500 (250) Less : b) Fringe Benefit Tax 1,955,000 975,000 Less : c) Deferred Tax Liability/(Asset) (872,389) (2,251,216) –––––––––––––––––––––––––––––––––––––––––––––––––––– Profit/(Loss) after Tax (3,189,014) (57,455,064) Add: Balance brought forward from last year (59,951,819) (4,603,032) –––––––––––––––––––––––––––––––––––––––––––––––––––– Profit available for Appropriation (63,140,833) (62,058,096) Less: Interim Dividend paid during the year 45,162,400 – Tax on Interim Dividend 6,334,027 – Income Tax of earlier years - (2,106,277) –––––––––––––––––––––––––––––––––––––––––––––––––––– Balance carried forward (114,637,260) (59,951,819) ======

Statement of Significant Accounting Policies P and Notes forming part of Accounts

As per our report of even date For and on behalf of the Board

For SHAMIT MAJMUDAR ASSOCIATES SUBHASH GHAI PARVEZ A. FAROOQUI Chartered Accountants Chairman & Managing Director Executive Director

SHAMIT MAJMUDAR MEGHNA GHAI PURI VIJAY CHORARIA Proprietor Director Director Membership No. 10595 Place : Mumbai RAVI GUPTA RAVI POPLAI Date : 27th August 2007 Chief Executive Officer Company Secretary 41

41 MAGENTA BLACK MAGENTA BLACK

CONSOLIDATED CASHFLOW STATEMENT OF MUKTA ARTS LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31ST MARCH 2007

Current Year Previous Year 31.03.2007 31.03.2006 Amount in Rs. Amount in Rs. –––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– A. CASH FROM OPERATING ACTIVITIES Net Profit/(Loss) before tax and extraordinary items : 16,020,278 (56,365,054) Adjustments for : Depreciation 84,229,730 30,355,694 Interest, dividend, etc., received (46,119,733) (35,725,768) Miscellaneous expenditure written off 5,302,998 5,149,121 (Profit)/Loss on sale of fixed assets (1,593,929) (24,489) (Gain)/Loss on exchange fluctuation 2,951 – Provision for Dimunation of Investment 245,767 – –––––––––––––––––––––––––––––––––––––––––––––––––––– Operating profit before working capital changes 58,088,062 (56,610,496) –––––––––––––––––––––––––––––––––––––––––––––––––––– Adjustments for : (Increase)/ Decrease in Inventories 129,117,114 (236,198,788) (Increase)/ Decrease in Receivables (46,052,662) 26,589,024 (Increase)/ Decrease in Loans and advances 25,987,810 (23,883,855) Increase/(Decrease) in Trade Creditors 78,875,204 18,926,888 Inc./ (Dec.) in Other current liabilities and provisions (43,778,837) 124,480,414 Cash generated from/(used in) operations 202,236,691 (146,696,813) Direct taxes paid (17,202,289) 2,106,277 Prior period adjustments (12,113,181) (2,366,476) Cash flow before extraordinary items 172,921,221 (146,957,012) Extraordinary items : Miscellaneous Expenditure – – –––––––––––––––––––––––––––––––––––––––––––––––––––– Net Cash Generated from/(used in) Operating Activities 172,921,221 (146,957,012) –––––––––––––––––––––––––––––––––––––––––––––––––––– B. CASH FLOW FROM INVESTING ACTIVITIES Purchases of fixed assets (273,282,934) (167,708,104) Sale/disposal of fixed assets 16,010,000 443,000 (Additions to)/Redemption of investments 20,135,269 145,431,492 Interest, dividend, etc. received 46,119,733 35,725,768 Net cash generated from/(used in) investing activities (191,017,932) 13,892,156 C. CASH FLOW FROM FINANCING ACTIVITIES Loans borrowed (net) 119,693,133 106,147,609 Dividend paid (45,162,400) – Tax on Dividend paid (6,334,027) – Loss on exchange fluctuation (2,951) – Net cash recovered from/(used in) financing activities 68,193,755 106,147,609 –––––––––––––––––––––––––––––––––––––––––––––––––––– Net increase in cash and cash equivalents (A+B+C) 50,097,045 (26,917,247) –––––––––––––––––––––––––––––––––––––––––––––––––––– Cash and cash equivalents (opening) 23,157,004 50,074,251 Cash and cash equivalents (closing) 73,254,049 23,157,004

As per our report of even date For and on behalf of the Board

For SHAMIT MAJMUDAR ASSOCIATES SUBHASH GHAI PARVEZ A. FAROOQUI Chartered Accountants Chairman & Managing Director Executive Director

SHAMIT MAJMUDAR MEGHNA GHAI PURI VIJAY CHORARIA Proprietor Director Director Membership No. 10595 42 Place : Mumbai RAVI GUPTA RAVI POPLAI Date : 27th August 2007 Chief Executive Officer Company Secretary

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SCHEDULES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Current Year Previous Year 31.03.2007 31.03.2006 Amount in Rs Amount in Rs. –––––––––––––––––––––––––––––––––––––––––––––––––––––––––– SCHEDULE A Share Capital Authorised Share Capital 24,000,000 Equity Shares of Rs. 5/- each 120,000,000 120,000,000 (Previous year 24,000,000 Equity Shares of Rs. 5/- each) ======Issued, Subscribed & Paid-up Capital 22,581,200 Equity Shares of Rs.5/- each 112,906,000 112,906,000 (Previous year 22,581,200 Equity Shares of Rs 5/- each out of which 16,490,000 shares were allotted as fully paid up by way of Bonus Shares by capitalisation of reserves)

Add:- Forfeited shares 11,500 11,500 (Amount originally paid up) –––––––––––––––––––––––––––––––––––––––––––––––––––– 112,917,500 112,917,500 ======SCHEDULE B Reserves & Surplus Share Premium 973,360,000 973,360,000 General Reserve Balance as per last balance sheet 58,239,914 58,239,914 Add : Transfer during the year – – –––––––––––––––––––––––––––––––––––––––––––––––––––– 58,239,914 58,239,914 Balance as per Profit & Loss account (114,637,260) (59,951,819) –––––––––––––––––––––––––––––––––––––––––––––––––––– 916,962,654 971,648,095 ======

SCHEDULE C

Secured Loans From banks against finance of cars 3,499,427 4,582,892 From LIC against Keyman Insurance Policy of CMD 103,700,000 103,700,000 Term Loan from Banks 120,776,598 – –––––––––––––––––––––––––––––––––––––––––––––––––––– 227,976,025 108,282,892 ======

43

43 MAGENTA BLACK MAGENTA BLACK – – – – – – 16,599 4,959,463 1,280,000 39,114,528 30,000,000 95,285,786 80,935,509 15,288,471 10,799,298 385,379,102 244,787,225 233,605,663 522,466,879 – – (Amount in Rs.) – NET BLOCK 4,437,087 3,531,529 1,024,000 31.03.2007 31.03.2006 71,089,994 33,937,541 259,233,758 86,978,355 22,341,276 13,148,518 69,266,740 688,889,745

522,466,879 93,900,947

– 30,000,000 – – – tal As on As on – 666,964– 2,586,811 25,950,273 31.03.2007 1,109,272 9,459,474 2,225,823 1,476,000 9,310,794 15,032,853 21,476,370 186,884,334 Depreciation 224,265,621 685,358,216 111,516,308 23,454,679 48,684,400 224,265,621 – – – – – – Additions Ded./Adj To DEPRECIATION ––– 24,565,184 1,385,089 – Depreciation 188,720,291 84,229,730 – – – 10,775,464 12,679,215 – 188,720,291 84,229,730 48,684,400 140,000,24320,200,465 48,684,400 10,824,204 4,208,649 – 1,220,000 256,000 – 501,400 165,564 – 173,6682,413,143 – 660,12820,816,242 – – –1,109,272 – – –9,459,474 –2,225,823 –9,310,794 – tal – – 666,964 5,546,359 31.03.2007 31.03.2006 the year the yearto up 30,000,000 3,531,529 2,586,811 2,500,000 90,743,110 24,567,099 28,181,371 57,392,220 80,400,788 268,693,232 198,494,663 909,623,837 119,851,220 during as on upto during during – year the year GROSS BLOCK Additions Ded./Adj. To during the 40,761,383 63,100,472 24,567,099 –80,400,788 – 796,097,913 592,191,760 913,155,366 167,861,982 1,857,714709,351,213 157,967,843 30,355,694 1,439,203 245,597,558485,017,297 550,500,355 63,100,472 268,693,232 – 501,400 165,564– 173,6682,413,143 – 2,500,000 – 4,959,463 – 4,959,463 01.04.2006 19,850,970 250 – 30,000,000 – – 39,114,528 –39,114,528 21,574,76235,817,458 – 242,951,268 422,325,954 220,935,752 543,346,945

44 Previous Year Particulars As on RightProperty Capital Work- in-progress Capital WIP - Buildings –5,546,359 – Equipments& TOTAL 709,351,213 and expenses capitalised Furnitures Machineries Block ‘B’ Ownership Premises 1 BuildingInstitute Block ‘C’ Plant & Machinery – Block ‘A’ Land RightsShed Temporary Electrical InstallationElectrical –Equp.Cinematography – Block ‘D’ Motor Vehicles Others& 26,112,675 2,068,696 – Intangible Asset Exhibition Rights Intellectual Block ‘E’ Furniture Fixture & EquipmentsOffice Block ‘G’ Library Block ‘F’ Computer Software Equp.IT & Computer 676,727 90,066,383 – SCHEDULES TO THE CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL THE CONSOLIDATED SCHEDULES TO SCHEDULE D Fixed Assets

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SCHEDULES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Current Year Previous Year 31.03.2007 31.03.2006 Amount in Rs. Amount in Rs. –––––––––––––––––––––––––––––––––––––––––––––––––––––––––– SCHEDULE E Investments A UNITS OF MUTUAL FUNDS - QUOTED Units of DSP Merrill Lynch Mutual Fund : DSP Merrill Lynch Liquidity Fund - Growth – 11,648,469 (Previous year —No. of Units 679,941.201) Units of LIC Mutual Fund : LICMF Floating Rate Fund - Growth Plan 199,398,124 50,397,396 ( No. of Units 19,604,118.381, Previous year 49,86,650.098) –––––––––––––––––––––––––––––––––––––––––––––––––––– 199,398,124 62,045,865 Less: Provision for Dimunation of LIC Mutual fund 245,767 – –––––––––––––––––––––––––––––––––––––––––––––––––––– 199,152,357 62,045,865 PRINCIPAL PNB MF FIXED MATURITY 10,000,000 – (A) 209,152,357 62,045,865 (NAV as on 31.03.2007 is Rs 199,152,357) (NAV as on 31.03.2006 was Rs 62,190,037) B INTER CORPORATE DEPOSITS (UNQUOTED) With Companies (B) 84,389,015 14,389,015 C LONG TERM INVESTMENTS IN EQUITY SHARES In wholly owned subsidiaries (Unquoted) Shares of Bashiron Co. Op. Hsg. Society Ltd 500 500 (10 Shares of Rs. 50/- each, Previous year - 10 shares ) Shares of Bait-Ush-Sharaf Co. Op. Hsg.Society. Ltd. 750 1,000 (15 Shares of Rs. 50/- each, Previous year - 20 shares) Equity Shares of Mukta Adlabs Digital Exhibition Pvt. Ltd. – 50,000 (Nil, Previous year 500 shares) Equity Shares of Indiasound Ltd. 3,778,158 3,778,158 (7,500,000 Equity Shares of 0.1 Pence each, Previous year 7,500,000 Equity Shares) (C) 3,779,408 3,829,658 D BONDS (UNQUOTED) IDFC Bonds 2026 (Previous Year -Bonds 1015) (D) – 237,215,240 E FIXED DEPOSIT With Banks (E) 523,729 500,000 –––––––––––––––––––––––––––––––––––––––––––––––––––– TOTAL (A + B+ C +D+E ) 297,844,509 317,979,778 ======SCHEDULE F Inventories Rights of Films (Exhibition, Distribution & other commercial rights including Copyrights) 4,750,000 4,750,000 Work In Progress - Under production films 143,304,284 265,239,861 - TV Serials – 3,535,007 - Stock of Materials 277,647 3,924,177 –––––––––––––––––––––––––––––––––––––––––––––––––––– 148,331,931 277,449,045 ======

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SCHEDULES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Current Year Previous Year 31.03.2007 31.03.2006 Amount in Rs. Amount in Rs. –––––––––––––––––––––––––––––––––––––––––––––––––––––––––– SCHEDULE G Sundry Debtors (Unsecured) a) Debts outstanding for a period exceeding six months - considered good 32,377,270 34,247,057 - considered doubtful 3,256,002 – b) Other Debts Considered good - considered good 88,547,565 43,881,118 –––––––––––––––––––––––––––––––––––––––––––––––––––– 124,180,837 78,128,175 ======SCHEDULE H Cash & Bank balances Cash in Hand 512,859 981,465 With Scheduled Banks: In Current Accounts 45,766,505 11,617,431 (Includes Rs. 143,343 in EEFC account, Previous year Rs.146,294) Fixed Deposit with Scheduled Banks 26,974,685 10,558,108 –––––––––––––––––––––––––––––––––––––––––––––––––––– 73,254,049 23,157,004 ======SCHEDULE I Loans & Advances Advances recoverable in cash or in kind or for value to be received 70,944,208 152,040,185 (Includes Rs Nil from a firm in which Managing Director is a partner, Previous year Rs - 150,000) (Includes Rs Nil from a Company under the same management, Previous year Rs 49,417,765) (Includes Rs 21,000,000 from a trust in which one of the Directors is Trustee, Previous year Rs 22,030,000) Advance Taxes and other payments 156,210,759 139,008,470 Advances to Staff 929,028 744,823 Deposits 69,399,255 14,475,294 {Including Rs.300,000 to a firm of which Managing Director is proprietor, Previous year Rs.300,000} {Including Rs 500,000 to Managing Director for use of premises, Previous year Rs.500,000} {Including Rs.1,000,000 to a Company in which Managing Director is Director, Previous year Rs 7,000,000} –––––––––––––––––––––––––––––––––––––––––––––––––––– 297,483,250 306,268,772 ======SCHEDULE J Current Liabilities & Provisions: Sundry Creditors for goods and services rendered 148,088,224 69,213,020 (Includes due to firm of which Managing Director is proprietor Rs NIL Previous year Rs 80,000) HDFC Bank (Due to Cheques issued) – 14,197 Provision for Taxation 95,790,783 75,482,078 Advances towards films and other services 104,920,053 168,992,728 Unclaimed Dividend 349,932 350,602 –––––––––––––––––––––––––––––––––––––––––––––––––––– 46 349,148,992 314,052,625 ======

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SCHEDULES FORMING PART OF THE ACCOUNTS

Current Year Previous Year 31.03.2007 31.03.2006 Amount in Rs. Amount in Rs. –––––––––––––––––––––––––––––––––––––––––––––––––––––––––– SCHEDULE K Realisation from Production, Distribution & Exhibition Recovery from Music 6,500,000 25,000,000 Recovery from New Productions 418,126,850 45,550,251 Recovery from old films, Distribution & Exhibition 540,580,795 304,248,127 –––––––––––––––––––––––––––––––––––––––––––––––––––– 965,207,645 374,798,378 ======SCHEDULE L Other Income Interest 39,276,124 31,564,602 Other Income 51,905,553 734,995 Profit on Sale of Assets 1,593,929 24,489 Dividend / Income from Units of Mutual Funds 6,843,609 4,161,166 –––––––––––––––––––––––––––––––––––––––––––––––––––– 99,619,215 36,485,252 ======SCHEDULE M Cost of Production, Distribution & Exhibition Cost of Music 1,904,451 7,308,860 Cost of New Productions 395,852,190 53,695,305 Expenses of old films, Distribution & Exhibition 331,833,669 290,705,027 –––––––––––––––––––––––––––––––––––––––––––––––––––– 729,590,310 351,709,192 ======SCHEDULE N Administrative and Other Expenses Personnel Expenses 58,569,035 27,452,389 (Including Directors Remuneration of Rs 13,747,213 Previous year - Rs.13,024,288) Repairs & Maintenance : Buildings 1,649,034 927,138 Machinery 1,001,527 1,184,479 Others 4,065,414 374,783 Printing & Stationery 3,556,170 1,186,672 Telephone & Trunkcalls 5,176,730 2,706,011 Insurance 40,864,136 40,919,559 Brokerage & Commission 30,000 – Electricity Charges 9,586,909 2,310,237 Rent 3,847,687 1,092,751 Travelling Expenses 4,821,626 1,599,757 Auditors Remuneration 1,605,954 1,235,100 Professional Expenses 19,715,218 6,809,596 Legal Expenses 284,443 422,877 Interest 21,467,619 184,558 Bank Charges 383,700 417,421 Rates & Taxes 15,484,371 1,113,413 Bad Debts -Written off 5,020,677 4,514,329 Publicity Expenses 13,101,980 962,628 Motor Car Expenses 2,831,779 1,943,646 Miscellaneous Expenses 18,840,418 7,199,786 –––––––––––––––––––––––––––––––––––––––––––––––––––– 231,904,427 104,557,130 ======SCHEDULE O Extraordinary, Non Recurring & Prior Period Exp. Loss on sale of Investments – 2,342,700 Prior Period Expenses 12,113,181 23,776 –––––––––––––––––––––––––––––––––––––––––––––––––––– 12,113,181 2,366,476 47 ======

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SCHEDULES TO THE CONSOLIDATED FINANCIAL STATEMENTS SCHEDULE “P” Statement of Significant Accounting Policies and Notes forming Part of Consolidated Accounts 1 Significant Accounting Policies (a) Basis of Preparation of Accounts The financial statements have been prepared under the historical cost convention, in accordance with Accounting Standards issued by the Institute of Chartered Accountants of India and the provisions of the Companies Act, 1956, as adopted consistently by the Company. All income and expenditure having a material bearing on the financial statements are recognised on accrual basis. The preparation of financial statements in conformity with Accounting Standards requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of financial statements, and the reported amounts of revenues and expenses during the year. (b) Principles of consolidation The consolidated financial statements relate to Mukta Arts Limited (“The Company”) and its subsidiaries. The consolidated financial statements have been prepared on the following basis: 1. The financial statements of the Company and its subsidiaries have been combined on a line-by-line basis by adding together the book values of like items of assets, liabilities, income and expenses (other than those allocated to particular films & serials), after eliminating intra-group balances and intra-group transactions. 2. The consolidated financial statements have been prepared using uniform accounting policies for like transactions and other events in similar circumstances and are presented to the extent possible, in the same manner as Company’s separate financial statements. % voting power % voting power as on 31.03.07 as on 31.03.06 (c) The Subsidiaries considered in the consolidated financial statement are : Connect.1 Limited 99.00 99.00 (Formerly known as Mukta Arts International Limited) Whistling Woods International Limited 84.99 84.99 Mukta Tele Media Limited 99.92 99.92 2 Other Significant Accounting Policies These are set out in the notes to the financial statements under significant of Accounting Policies of the financial statements of the company and its Subsidiaries. Current Year Previous Year 31.03.2007 31.03.2006 Rupees Rupees 3 Contingent Liabilities a Claims against the company not acknowledged as Debts- Nil Nil b Guarantees given by Bank on behalf of the company 40,147,120 39,647,120 c Letters of Credit given by bank on behalf of the company Nil Nil d Estimated amount of contracts remaining to be executed on Capital Account and not provided for (net of advances) Whistling Woods International Ltd. 348,950 34,601,496 e Legal suits filed against the company (having monetary implication) Nil Nil f (i) The Income Tax Assessment of the Company is completed upto Assessment Year 2004-05. There are certain additions made in various assessment for which various appeals are pending at first appellate stage and Tribunal stage (including the appeal decided in favour of Company where in Department is in further appeal). The disputed Tax amount in respect of the above is : 21,119,173 21,068,923 (ii) Survey action was conducted by the Income Tax TDS department in the registered office of the Company on 27.08.2003. The assessment of the same was completed during the previous year and demand of Rs 4,957,270 was raised. Aggrieved by the order the Company had filed appeal before the CIT(Appeals). The Company had paid Rs 2,478,636 under protest against the said demand. The Directors are of the opinion that at this stage no further provision is required for the above pending 48 matters.

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SCHEDULES TO THE CONSOLIDATED FINANCIAL STATEMENTS g Department of Service Tax has levied service tax of Rs 2.12 million on sponsorship fees received for various films treating the Company as an ‘Advertising Agency’. Further the department has issued show cause notice proposing to levy Rs 2.02 millions service tax on a similar issue. Against the levy of Rs 2.12 million, the Company filed appeal before the Commissioner of Central Excise (Appeals) and subsequently before Honorable Tribunal, claiming that the provisions of Service Tax Act is not applicable in this matter. The Company had paid Rs 1.24 millions under protest and the same is shown as ‘advance recoverable in cash or kind’ since the matter is pending before the CESTAT and based on legal opinion sought, the management is of the opinion that the Company will have no liability on this account and that no provision is necessary. h The Company Law Board had passed an order directing Central Government to undertake the investigation under section 237 of the Companies Act, 1956. The Company aggrieved by the order had moved the Bombay High Court and obtained stay on order. The management believes that the Order of Company Law Board is defective and management has not voilated any rules, laws or regulations and there is no cause of concern in this regard. i The Company has given Corporate Guarantee for loans taken by Subsidiary Whistling Woods International Limited from Punjab National Bank during the year. j Matters in respect of Whistling Woods International Ltd. (i) The Income Tax Assessment of the Company is made for the Assessment Year 2003-04. There are certain additions made in the assessment and demand raised for Rs 1,301,570. Aggrieved by the Assessment Order the Company has filed appeal before Commissioner of Income Tax (Appeals). The Company has paid Rs 650,785 against the said demand. The Directors are of the opinion that at this stage no provision is required. (ii) The Income Tax Assessment of the Company is made for the Assessment Year 2004-05. There are certain additions made in the assessment and demand raised for Rs 3,478,871. Aggrieved by the Assessment Order the Company has filed appeal before Commissioner of Income Tax (Appeals). The Company has paid Rs 1,739,435 against the said demand. The Directors are of the opinion that at this stage no provision is required. (iii) The Public Interest Litigation filed by one Mr. Abdul Hamid Patel & others is admitted and pending. No injunction/interim relief was however granted to the petitioners. In the year 1973-74, the Government of Maharashtra (‘GOM’) as per the scheme invited applications of plots for development of film industry infrastructure in film city at Goregaon east, Mumbai. Many applications were received and M/s PDR Videotronics (India) Private Limited (‘PDR’) was one of the applicants. The GOM issued a letter to PDR for allotment of one hectare of land. Thereafter MFSCDCL was formed for development of film city and as per the recommendation of Godbole Committee the above scheme was scrapped. However before scrapping the scheme PDR filed a suit in the high court demanding specific performance of the scheme. High court admitted the suit and same is still pending. Meanwhile PDR took out a notice of motion saying that MFSCDCL is carrying out the activities on the allotted land thereby affecting their rights. Since the MFSCDCL didn’t argue, high court granted the injuction in favour of PDR. There after in the year 2003 the contempt petition was filed by PDR alleging that the construction work is being carried out on the said allotted land in violation of injuction. However, subsequently the contempt petition was disposed off by the high court. PDR took out another notice of Motion on the same issue. The high court refused to grant any relief to PDR and directed that the notice of motion be clubbed with the original suit of PDR against MFSCDCL and same suit to be expedited. With a view to peacefully resolve the issue, the Company has offered to earmark one hectare of land out of the available free land for a possible assignment to PDR, incase of the final decision of the high court is in the favour of PDR. In the opinion of the management the Company has a good chance of wining the case. The Company may be liable towards Provident Fund contributions on leave encashment paid from 2001 to 30 April 2005 based on the final decision to be taken by Central Board of Trustees of Employees Fund Organisation. The amount is currently not ascertainable. 4 Business segment-wise Report (as per the reporting requirements of AS-17) (Rs in millions) Current Year Previous Year 31.03.2007 31.03.2006 –––––––––––––––––––––––––––––––––––––––––––––––––––––––– a. Revenue Software Division 965.21 374.80 Equipment Division 2.22 25.09 Others 99.62 36.49 –––––––––––––––––––––––––––––––––––––––––––––––––––––––– 49 TOTAL 1,067.05 436.38 ––––––––––––––––––––––––––––––––––––––––––––––––––––––––

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SCHEDULES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Rs in millions) Current Year Previous Year 31.03.2007 31.03.2006 –––––––––––––––––––––––––––––––––––––––––––––––––––––––– b. Results Software Division 235.62 23.09 Equipment Division (18.66) (9.81) Others 53.26 36.49 –––––––––––––––––––––––––––––––––––––––––––––––––––––––– TOTAL 270.22 49.77 –––––––––––––––––––––––––––––––––––––––––––––––––––––––– c. Capital Employed Software Division 406.61 215.98 Equipment Division 145.88 169.45 5 Related Party Transaction (A) The list of related parties and nature of their relationship is furnished below: Companies under the same management- Whistling Woods International Ltd. 84.99% - subsidiary Connect.1 Limited 99% - subsidiary Mukta Tele Media Ltd. 99.92% - subsidiary Mukta Adlabs Digital Exhibition Pvt. Ltd. 50% - Shareholding Mukta Tele Arts Pvt. Ltd. CMD is director Firms- Mukta Arts Proprietory firm of CMD Mukta Shakti Combine CMD is a partner Metro Films CMD is a partner Trusts- MAL Employees Welfare Trust Executive Director is settler & One of the Directors is Trustee Directors of the company- Chairman & Managing Director Mr.Subhash Ghai Executive Director Mr.Parvez A. Farooqui Whole-time Director Ms. Meghna Ghai Puri Non Executive Directors Mr. Anil Harish Mr. Vijay Choraria Mr. Pradeep Guha Relatives of Directors- Mr. Ashok Ghai Brother of CMD Mr. Siraj Farooqui Brother of Executive Director Mr. Sameer Farooqui Brother of Executive Director Mr. Rahul Puri CMD’s Son-in-law and spouse of Whole-time Director (B) Transactions with and outstanding balances of related parties are furnished below. (Amount in Rupees) Volume of transactions during the year Key Relatives Total Outstanding Associates management of key Balance personnel management 31.03.2007 Personnel Purchase & Other Services Mukta Tele Arts Pvt. Ltd. 10,000 – – 10,000 – Mukta Arts 140,000 – – 140,000 – Receiving of services Ashok Ghai – – 1,500,000 1,500,000 – Payment of Salaries Rahul Puri – – 1,020,000 1,020,000 – Siraj Farooqui – – 1,160,000 1,160,000 – Sameer Farooqui – – 197,500 197,500 – 50 Investments Shares of Mukta Adlabs Digital Exhibition Pvt. Ltd. 50,000 – – 50,000 –

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SCHEDULES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amount in Rupees) Volume of transactions during the year Key Relatives Total Outstanding Associates management of key Balance personnel management 31.03.2007 Personnel Advances recoverable MAL Employees Welfare Trust 1,030,000 – – 1,030,000 21,000,000 Mukta Adlabs Digital Exhibition Pvt. Ltd. 49,417,765 – – 49,417,765 – Mukta Shakti Combine 200,000 – – 200,000 – Managerial Remuneration Subhash Ghai – 11,058,546 – 11,058,546 – Parvez A. Farooqui – 1,215,395 – 1,215,395 – Meghna Ghai Puri – 1,652,163 – 1,652,163 – Deposits for Premises taken on lease or otherwise Mukta Tele Arts Pvt. Ltd. 6,000,000 – – 6,000,000 1,000,000 Mukta Arts – – – – 300,000 Subhash Ghai – – – – 500,000

Current Year Previous Year 31.03.2007 31.03.2006 Rupees Rupees –––––––––––––––––––––––––––––––––––––––––––––––––––––––– 6 Calculation of Minority Interest a) Whistling Woods International Ltd. Paid up value of 15.0015% shares 30,003,000 30,003,000 Less: 15.0015% of Preliminary Expenses 92,335 115,419 –––––––––––––––––––––––––––––––––––––––––––––––––––– 29,910,665 29,887,581 ======b) Mukta Tele Media Ltd. Paid up value of 0.08% shares 400 400 Less: 0.08% of Preliminary Expenses 59 70 –––––––––––––––––––––––––––––––––––––––––––––––––––– 341 330 ======c) Connect.1 Limited (Formerly known as Mukta Arts International Limited) Paid up value of 1% shares 6,000 6,000 Less: 1% of Preliminary Expenses 105 140 –––––––––––––––––––––––––––––––––––––––––––––––––––– 5,895 5,860 ======Total Minority Interest 29,916,902 29,893,771 7 The consolidated financial statements have been prepared in accordance with the Accounting Standard (AS-21) “Consolidated Financial Statements” issued by the Institute of Chartered Accountants of India, except for those income and expenses allocated to particular films. 8 Previous year figures have been regrouped wherever necessary.

As per our report of even date For and on behalf of the Board

For SHAMIT MAJMUDAR ASSOCIATES SUBHASH GHAI PARVEZ A. FAROOQUI Chartered Accountants Chairman & Managing Director Executive Director

SHAMIT MAJMUDAR MEGHNA GHAI PURI VIJAY CHORARIA Proprietor Director Director Membership No. 10595 Place : Mumbai RAVI GUPTA RAVI POPLAI Date : 27th August 2007 Chief Executive Officer Company Secretary 51

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WHISTLING WOODS INTERNATIONAL LTD.

DIRECTORS’ REPORT

Dear Members, Your Directors take pleasure in presenting the Sixth Annual Report and the Audited Statement of Accounts for the Accounting Year ended 31st March 2007. Operations The Institute was inaugurated on 18th July, 2006 and is successfully running its operations. The Gross Block of Fixed Assets of the Company as on 31.03.2007 excluding capital work-in-progress was placed at Rs. 588.19 millions as compared to previous year figures of Rs. 44.25 millions, which included Rs. 30 millions towards the right to use of the land as per the agreement with Maharashtra Film, Stage and Cultural Development Corporation Limited, in lieu of which shares of Rs. 30 millions have been allotted to them. The Capital Work In Progress as at 31st March 2007 stood at Nil as compared to previous year figure of Rs. 301.86 millions. During the year the Company has recorded an income of Rs. 50.12 Millions and the total Loss after tax is Rs. 140.12 millions. Being the first year of operation, the Company is still in investment mode and the losses have to be seen as investments. The expenses include a significant amount of Rs. 61.22 millions as depreciation. The Institute has enrolled the first two batches and is operating at about 25% occupancy and is expected to reach optimum capacity utilization by year 3. Share Capital The authorised Share Capital of the Company has been increased from Rs. 200 millions to Rs. 400 millions. The Paid up Share Capital remains the same during the year under review. Directors Mr. Subhash Ghai and Mr. Vijay Choraria retire by rotation at the ensuing Annual General Meeting and being eligible offer themselves for reappointment. Auditors’ Report The Company’s explanation to the Auditors’ observation in their Report have been detailed in the notes forming part of Accounts contained in Schedule “22” which forms part of the Annual Report. To ensure better control and transparency, the fixed assets registers are being prepared in details. Management has taken steps to ensure that all the statutory dues will be paid timely and regularly. At present the Institute is working on 25% occupancy. Being the first year of operation, the Company has incurred losses which is exceeding 50% of the networth, which will be fully recovered in the coming year once the Institute work on full fledged basis. During the project development stage, the short term funds available with the Company have been utilised for project related capital expenditures. Directors’ Responsibility Statement [Section 217 (2AA)] The Directors confirm that: i) in the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to any material departures; ii) the Directors have selected such accounting policies & applied them consistently and made judgments and estimates that are reasonable and prudent so as to give true and fair view of the state of affairs of the company at the end of the financial year and of the loss of the Company for that period; iii) the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities; iv) the annual accounts are prepared on a going concern basis; Auditors M/s BSR & Co., Chartered Accountants retire at the ensuing Annual General Meeting and being eligible offer themselves for reappointments as the Auditors of the Company. The Directors recommend the appointment of M/s. BSR & Co., Chartered Accountants as the Auditors of the Company for the year 2007-08. Statutory Disclosures Particulars of employees required under Section 217 (2A) of the Companies Act, 1956 and the Companies (Particulars of Employees) Rules, 1975, as amended, are given in Annexure I. Particulars regarding foreign exchange earnings and outgo required under Section 217 (1) (e) of the Companies Act, 1956 and Companies (Disclosure of Particulars in the report of the Board of Directors) Rules, 1988 are given in 52 Schedule 30 (Statement of Significant Accounting Policies and Notes forming Part of Accounts) of this report. The particulars regarding disclosure about Conservation of energy, technology absorption are not applicable to the Company.

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Acknowledgements The Board of Directors wishes to thank and record its appreciation to the Government of Maharashtra, The Maharashtra Film Stage and Cultural Development Corporation Limited, Film Fraternity, Bankers and Media who have extended and are expected to extend their continued support to the company. Your Directors thank all Governing Council Members, Advisory Board Members, employees and faculty members of the company for their dedicated services to the company On Behalf of the Board of Directors

Place: Mumbai Subhash Ghai Date: 27th August 2007 Chairman

Annexure - I

ANNEXURE TO DIRECTORS’ REPORT Information as per Section 217 (2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975 and forming part of the Director’s Report: Name Designation Qualification Age Date of Experience Gross Previous Joining Remu- Employment neration (Rs.) Kurt Inderbitzin Dean M.B.A (Fin)- 43 1.02.2006 19 years 5,646,960 Professor at Chicago, M.F.A- years University of (Master in Fine La Verne Arts-New Orleans)

Notes: Remuneration includes salary and other allowances.

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WHISTLING WOODS INTERNATIONAL LTD.

AUDITORS’ REPORT To the Members of Whistling Woods International Limited We have audited the attached Balance Sheet of Whistling Woods International Limited (‘the Company’) as at 31 March 2007 the related Profit and Loss Account and Cash Flow Statement of the Company for the year ended on that date, annexed thereto. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. We report as follows: 1 As required by the Companies (Auditor’s Report) Order, 2003 (‘Order’) issued by the Central Government of India in terms of sub-section (4A) of Section 227 of the Companies Act, 1956 (‘the Act’), we enclose in the Annexure, a statement on the matters specified in paragraphs 4 and 5 of the said Order. 2 As more fully explained in schedule 22, the Company has disputed the demand from income tax authorities aggregating to Rs 4.78 million for financial year ended 31 March 2003 (assessment year 2003-04) and 31 March 2004 (assessment year 2004-05) and the matter is subjudice. The relevant liability for the subsequent financial year 2005-06 has not yet been crystallised. No provision has been made in the financial statements for such liabilities. The impact of non- provision on the loss for the year and net assets position as at year end is presently not ascertainable pending final adjudication. 3 Further to our comments in the Annexure referred to above, we report that: a. we have obtained all the information and explanations which, to the best of our knowledge and belief were necessary for the purposes of our audit; b. in our opinion, proper books of account as required by law have been kept by the Company, so far as appears from our examination of those books; c. the Balance Sheet, the Profit and Loss account and the Cash Flow Statement dealt with by this report are in agreement with the books of account; d. in our opinion, the Balance Sheet, the Profit and Loss account and the Cash Flow Statement dealt with by this report comply with the Accounting Standards referred to in sub-section (3C) of Section 211 of the Act; e. on the basis of written representations received from the directors as on 31 March 2007, and taken on record by the Board of Directors, we report that none of the directors is disqualified as on 31 March 2007 from being appointed as a director in terms of clause (g) of sub-section (1) of Section 274 of the Act; and f. in our opinion, except for the effects of any adjustments, that may arise from the matters stated in paragraph 2 above, and to the best of our information and according to the explanations given to us, the said financial statements give the information required by the Act, 1956, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India i) in case of the Balance Sheet, of the state of affairs of the Company as at 31 March 2007; ii) in case of the Profit and Loss account, of the loss of the Company for the year ended on 31 March 2007; and iii) in the case of the cash flow statement, of the cash flows for the year ended on that date.

For BSR & Co. Chartered Accountants

Place : Mumbai Akeel Master Dated : 27th August 2007 Partner Membership No. 046768

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ANNEXURE TO THE AUDITORS’ REPORT With reference to the annexure referred to in paragraph 1 of the report of the Auditors to the Members of Whistling Woods International Limited on the financial statements for the year ended 31 March 2007, we report that: (i) (a) The Company is in the process of updating its fixed asset records to show greater details of particulars including quantitative details and situation of fixed assets. (b) The Company has a policy of physically verifying the fixed assets in a phased manner, to cover all the items over a period of two years. During the year as per the phased plan, the Company has not carried out the physical verification of fixed assets. (c) The Company has not disposed off any fixed asset during the year. (ii) The Company is a service company, primarily rendering training to the students. Accordingly it does not hold any physical inventories. Thus, paragraph 4(ii) of the Order is not applicable. (iii) (a) The Company has not granted any loans to companies/firms/ other parties covered in the register maintained under section 301 of the Act. Accordingly, reporting in respect of rate of interest and other terms and conditions, regular in repaying the principal amounts and payment of interest and overdue amount of more than Rupees one lakh in respect of loans granted is not applicable. (b) The Company has taken loans from one company covered in the register maintained under section 301 of the Act. The maximum amount outstanding during the year was Rs 250 million and the year-end balance of such loans was Rs 250 million. (c) In our opinion, the rate of interest and other terms and conditions on which loans have been taken from company listed in the register maintained under section 301 of the Act are not, prima facie, prejudicial to the interest of the Company. (d) In the case of loans taken from company listed in the register maintained under section 301 of the Act, the Company has been regular in repaying the principal amounts as stipulated and in the payment of interest. (iv) In our opinion and according to the information and explanations given to us, there is an adequate internal control system commensurate with the size of the Company and the nature of its business with regard to purchase of fixed assets and with regard to the sale of services. The Company’s nature of operations does not involve purchase of inventory and sale of goods. We have not observed any major weakness in the internal control system during the course of the audit. (v) (a) In our opinion and according to the information and explanations given to us, the particulars of contracts or arrangements referred to in section 301 of the Act have been entered in the register required to be maintained under that section. (b) In our opinion, and according to the information and explanations given to us, the transactions made in pursuance of contracts and arrangements referred to in (a) above and exceeding the value of Rs 5 lakh with any party during the year have been made at prices which are reasonable having regard to the prevailing market prices at the relevant time. (vi) The Company has not accepted any deposits from the public. (vii) In our opinion, the Company has an internal audit system commensurate with the size and nature of its business. (viii) The Central Government has not prescribed the maintenance of cost records under Section 209(1)(d) of the Act for any of the service rendered by the Company. (ix) (a) According to the information and explanations given to us and on the basis of our examination of the records of the Company, amounts deducted/accrued in the books of account in respect of undisputed statutory dues including Sales-tax, Customs duty, and other material statutory dues except Provident fund and Income tax, have been generally regularly deposited during the year by the Company with the appropriate authorities. As explained to us, the Company did not have any dues on account of Investor Education and Protection Fund, ESIC, Service tax, Excise duty and Wealth tax. According to information and explanation given to us, no undisputed amounts payable in respect of Provident fund, Income tax, Sales-tax, Customs duty and other material statutory dues were in arrears as at 31 March 2007 for a period of more than six months from the date they became payable. There were no dues on account of Cess under Section 441A of the Act since the aforesaid section has not yet been made effective by the Central Government. (b) According to the information and explanations given to us, the following dues of income-tax have not been deposited by the Company on account of disputes:

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Name of Nature of Amount Period to which Forum where dispute the Statute the Dues (Rs.) the amount relates is pending Income tax Assessment dues 650,785 Assessment Income tax appellate Act, 1961 Year 2003-04 tribunal 1,739,435 Assessment CIT(Appeals) Year 2004-05 (x) The Company has accumulated losses at the end of the financial year which is exceeding 50% of its net worth. The Company has incurred cash losses in the current financial year but not in the immediately preceding financial year. (xi) In our opinion and according to the information and explanations given to us, the Company has not defaulted in repayment of dues to its bankers. The Company did not have any outstanding debenture or dues to any financial institutions during the year. (xii) The Company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and other securities. (xiii) In our opinion and according to the information and explanations given to us, the Company is not a chit fund or a nidhi/ mutual benefit fund/ society. (xiv) According to the information and explanations given to us, the Company is not dealing or trading in shares, securities, debentures and other investments. (xv) According to the information and explanations given to us, the Company has not given any guarantee for loans taken by others from banks or financial institutions. (xvi) In our opinion and according to the information and explanations given to us, the term loans taken by the Company have been applied for the purpose for which they were raised. (xvii) According and information and explanations given to us and on an overall examination of the balance sheet of the Company, we report that the Company has used funds raised on short term basis for long term investment. The Company has used short term credit from the suppliers aggregating to Rs 93.71 million to fund fixed assets. (xviii) The Company has not made any preferential allotment of shares to companies/firms/parties covered in the register maintained under Section 301 of the Act. (xix) The Company did not have any outstanding debentures during the year. (xx) The Company has not raised any money by public issues. (xxi) According to the information and explanations given to us, no fraud on or by the Company has been noticed or reported during the course of our audit.

For BSR & Co. Chartered Accountants

Place : Mumbai Akeel Master Dated : 27th August 2007 Partner Membership No. 046768

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BALANCE SHEET AS AT 31ST MARCH, 2007

Current Year Previous Year 31.03.2007 31.03.2006 Schedule Amount in Rs. Amount in Rs. ------SOURCES OF FUNDS Shareholders’ funds Share capital 3 200,000,000 200,000,000 Loan funds Secured loans 4 122,153,843 927,958 Unsecured loan 5 250,000,000 142,500,000 ------572,153,843 343,427,958 ======APPLICATION OF FUNDS Fixed assets 6 Gross block 588,180,237 44,250,076 Accumulated depreciation / Amortisation 63,057,455 1,835,957 ------Net block 525,122,782 42,414,119 Capital work in progress 7 - 301,864,382 ------525,122,782 344,278,501 Deferred tax asset (net) 8 - - Current Asset, Loans & Advances Sundry debtors 9 7,755,900 - Cash and bank balances 10 4,708,857 243,062 Loans and advances 11 18,935,850 14,692,941 ------31,400,607 14,936,003 Current liabilities and provisions Current liabilities 12 122,458,672 16,360,827 Provisions 13 2,654,303 195,100 ------Net current assets (93,712,368) (1,619,924) Miscellaneous expenditure (to the extend not written off) 14 615,504 769,381 Profit and loss account 140,127,925 ------572,153,843 343,427,958 ======Significant accounting policies 2 Notes to the Accounts 21-34 The Schedules referred to above form an integral part of the Balance sheet.

As per our report of even date For and on behalf of the Board

For BSR & CO. SUBHASH GHAI MEGHNA GHAI PURI Chartered Accountants Chairman Director

AKEEL MASTER MANMOHAN SHETTY VIJAY CHORARIA Partner Director Director Membership No: 046768

Place : Mumbai BHUSHAN GAGRANI HEMANT K BORADE Date : 27th August 2007 Director Company Secretary 57

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PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 MARCH 2007

Year Ended 31.03.2007 Schedule Amount in Rs. ------Income Fees from students 15 46,363,449 Other income 16 10,819,020 ------57,182,469 ======Expenditure Personnel costs 17 25,382,484 Other expenses 18 77,237,962 Depreciation/Amortisation 6 61,221,498 Interest & financial expense 19 21,225,417 ------185,067,361 ======(Loss) before tax (127,884,892) Prior period expenses 20 11,768,033 Fringe benefit tax 475,000 Deferred tax ------loss carried forward to balance sheet (140,127,925) ======

Earnings per share of face value of Rupees 1,000 each (in Rs.) 33 (701) Significant accounting policies 2 Notes to the accounts 21-34

The Schedules referred to above form an integral part of the Profit and Loss Account.

As per our report of even date For and on behalf of the Board

For BSR & CO. SUBHASH GHAI MEGHNA GHAI PURI Chartered Accountants Chairman Director

AKEEL MASTER MANMOHAN SHETTY VIJAY CHORARIA Partner Director Director Membership No: 046768

Place : Mumbai BHUSHAN GAGRANI HEMANT K BORADE Date : 27th August 2007 Director Company Secretary

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CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH 2007

Year Ended 31.03.2007 Amount in Rs. ------Cash flows from Operating activities Net loss before tax (127,884,892) Adjustments: Prior period expenses (11,768,033 Depreciation / Amortisation for the year 61,221,498 preliminary expenses written off 153,877 Interest and financial expenses 21,225,417 Interest income (139,433) –––––––––––––– Operating profit before working capital changes (57,191,566) (Increase) in sundry debtors (7,755,900) (Increase) in loans and advances (2,043,087) Increase in current liabilities 95,207,962 Increase in provisions 2,459,203 –––––––––––––– Cash generated from operations 30,676,612 Income tax paid (2,674,822) –––––––––––––– Net cash generated from operating activities 28,001,790 –––––––––––––– Cash flows from Investing Activities Purchase of fixed assets (236,924,191) Interest received 139,433 –––––––––––––– Net cash (used) in investing activities (236,784,758) Cash flows from Financing Activities Secured loans received 121,721,148 Unsecured loans received 182,000,000 Secured loans repaid (495,263) Unsecured loans repaid (74,500,000) Interest and financial expenses paid * (15,477,122) –––––––––––––– Net cash generated from financing activities 213,248,763 –––––––––––––– Net increase in cash and cash equivalents 4,465,795 Cash and cash equivalents at the beginning of the year 243,062 –––––––––––––– Cash and cash equivalents at the end of the year 4,708,857 ======* Includes Rs 5,141,588 which has been capitalised The Company follows indirect method as prescribed in AS -3 Cash Flow Statements.

As per our report of even date For and on behalf of the Board

For BSR & CO. SUBHASH GHAI MEGHNA GHAI PURI Chartered Accountants Chairman Director

AKEEL MASTER MANMOHAN SHETTY VIJAY CHORARIA Partner Director Director Membership No: 046768 Place : Mumbai BHUSHAN GAGRANI HEMANT K BORADE 59 Date : 27th August 2007 Director Company Secretary

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SCHEDULES FORMING PART OF THE ACCOUNTS 1 Background Whistling Woods International Limited (or ‘the Company’) was incorporated in 2001 and is as 85% subsidiary of Mukta Arts Limited (‘MAL ‘or the ‘holding company’). The Company is an education, research and training institute and imparts training in various skills related to films, television and media industry. The Company was in the construction phase up to previous year and has started the commercial operations in the current year. 2 Summary of significant accounting policies 2.1 Basis of preparation of financial statements The financial statements are prepared under the historical cost convention, on the accrual basis of accounting and comply with the Accounting Standards issued by the Institute of Chartered Accountants of India (‘ICAI’) and the relevant provisions of the Companies Act, 1956 (‘the Act’) to the extent applicable. 2.2 Use of Estimates The preparation of the financial statements in conformity with Generally Accepted Accounting Principles (GAAP) in India requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent liabilities as of the date of financial statements, and the reported amount of revenue and expenses during the reporting period. The estimates and assumptions used in the accompanying financial statements are based upon management’s evaluation of the relevant facts and circumstances as of the date of the financial statements. Actual results may differ from the estimates used in preparing the accompanying financial statements. Any revision to accounting estimates is recognised prospectively in current and future periods. 2.3 Going Concern The company’s net worth stands partly eroded as at 31 March 2007. However, these financial statements have been prepared on a going concern basis as the Company’s management believes that the company will be able to operate as a going concern in the foreseeable future as it is dependent on its principal shareholders for operating and financial support. These financial statements do not include any adjustments relating to the recoverability and classifications of carrying amount of assets or to the amounts and classification of liabilities that may be necessary if the entity is unable to continue as a going concern. 2.4 Fixed assets and depreciation Tangible Assets Fixed assets are carried at cost of acquisition or construction or revalued amounts less accumulated depreciation. Intangible Assets Expenses incurred on internal development of course curriculum are capitalised in the form of intellectual property rights, in accordance with the requirements of Accounting Standard 26, “Intangible Assets” issued by the Institute of Chartered Accountants of India. Depreciation / Amortisation Depreciation on tangible assets is provided pro-rata to the period of use, under the written down value method at the rates prescribed in Schedule XIV to the Companies Act, 1956. Tangible assets individually costing up to Rs 5,000 are depreciated fully in the year of capitalisation. The amortisation on intangible assets is provided on straight line basis over the useful life of the intangibles as mentioned below. The amortisation is done for the full year irrespective of period of use during the year. Intangible assets Useful life Intellectual property rights (course curriculum) 5 years Library (books and copyrights) 1 year 2.5 Expenditure during construction period All indirect / incidental revenue expenditure incurred by the Company towards the project under construction period have been capitalized as project related expenses in accordance with the guidance note on Expenditure during construction period issued by the Institute of Chartered Accountants of India. 2.6 Impairment In accordance with accounting standard 28 on ‘Impairment of assets’ issued by ICAI, where there is an indication of impairment of the Company’s assets the carrying amount of the Company’s assets are reviewed at each balance sheet date to determine impairment, if any. The recoverable amount of the assets (or where applicable that of the cash generating unit to which the asset belongs) is estimated at the higher of its net selling price and its value in use. 60 An impairment charge is recognised whenever the carrying amount of the asset or cash-generating unit exceeds its recoverable amount.

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SCHEDULES FORMING PART OF THE ACCOUNTS 2.7 Retirement Benefits Contributions payable to recognised provident fund, which is defined contribution scheme, are charged to the profit and loss account. Leave encashment and gratuity costs, which are defined benefits, are accrued based on managements estimation at the balance sheet date, based on employee’s entitlement at current basic salary. 2.8 Revenue recognition The revenue in respect of sale of prospectus and other goods is recognised on delivery of the material to the student. The revenue from the tuition activity is recognised over the period of the course programmes, revenue from admission fees is recognised upfront at time of admission of the student. 2.9 Foreign currency transactions Transactions in foreign currency are recorded at the exchange rate prevailing on the date of the transactions. Foreign currency denominated monetary current assets and liabilities at the balance sheet date are translated at the exchange rate prevailing on date of balance sheet. Exchange rate differences resulting from foreign exchange transactions settled during the year, including year-end translation of current assets and liabilities are recognised in the profit and loss account other than those exchange differences arising in relation to liabilities incurred for acquisition of fixed assets from outside India, which are adjusted to the carrying value of the underlying fixed assets. 2.10 Taxes on Income Income tax expense comprises of current tax (i.e. amount of tax for the period determined in accordance with the income tax law) and deferred tax charge or credit (reflecting the tax effects of timing differences between accounting income and taxable income for the period.) The deferred tax charge or credit and the corresponding deferred tax liabilities or assets are recognised using the tax rates that have been enacted or substantively enacted at the balance sheet date. Deferred tax assets are recognised only to the extent that there is a reasonable certainty that the assets can be realised in future; however, where there is unabsorbed depreciation or carried forward loss under taxation laws, deferred tax assets are recognised only if there is a virtual certainty of realisation of such assets. Deferred tax assets are reviewed as at each balance sheet date and written down or written up to reflect the amount that is reasonable / virtually certain (as the case may be) to be realised. 2.11 Fringe Benefit Tax (FBT) Provision for FBT has been recognized on the basis of harmonious contextual interpretation of provision of Income Tax Act, 1961. 2.12 Provisions and Contingencies Provision is recognized in the balance sheet when the Company has a present obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation and reliable estimation can be made of the amount required to settle the obligation. Contingent liabilities arising from claims, litigation, assessment, fines, penalties etc. are disclosed when there is a possible obligation or a present obligation as a result of a past event where it is not probable that an outflow of economic benefits will be required to settle the obligation, and the amount can be reasonably estimated. When there is a possible obligation or a present obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made. 2.13 Earnings per share (‘EPS’) The basic earnings per share is computed by dividing the net loss attributable to the equity shareholders for the period by the weighted average number of equity shares outstanding during the reporting period. 2.14 Borrowing costs Borrowing costs directly attributable to the acquisition / construction of qualifying assets are capitalised as part of the cost of those assets. Other borrowing costs are recognised as an expense in the year in which they are incurred. 2.15 Operating lease Lease rentals payable as per agreements are charged as expenditure on Straight Line basis over the lease term. 2.16 Amortisation of miscellaneous expenditure Preliminary expenses and expenses on underwriting or subscription of shares are amortised on a straight line-basis 61 over a period of ten years.

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SCHEDULES FORMING PART OF THE ACCOUNTS

Current Year Previous Year 31.03.2007 31.03.2006 Amount in Rs. Amount in Rs. –––––––––––––––––––––––––––––––––––––––––––––––––––– 3. Share capital Authorised 200,000 (previous year: 200,000) equity shares of Rupees 1,000 each 200,000,000 200,000,000 200,000 (previous year: Nil) 8% redeemable preference shares of Rupees 1,000 each 200,000,000 – ------400,000,000 200,000,000 ======Issued , Subscribed and Paid-up 200,000 (previous year: 200,000) equity shares of Rupees 1,000 each, fully paid 200,000,000 200,000,000 ======Of the above: (a) 30,000 (previous year: 30,000) equity shares have been alloted as fully paid-up, pursuant to a contract without being payment received in cash. (b) 169,997 (previous year: 169,997) equity shares are held by Mukta Arts Ltd., the holding company. 4. Secured loans Term Loan from Bank 120,776,598 - ( Secured against hypothecation of building and machinery) Other loans from bank 1,377,245 927,958 ( Secured against hypothecation of vehicles) ------122,153,843 927,958 ======5. Unsecured Loans Long term borrowings from holding company - Mukta Arts Ltd. 250,000,000 142,500,000 ( repayable within one year-Nil, previous year-Nil) Refer schedule No. 24 ------250,000,000 142,500,000 ======

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SCHEDULES FORMING PART OF THE ACCOUNTS

SCHEDULE 6 Fixed Assets (Amount in Rs.)

GROSS BLOCK DEPRECIATION NET BLOCK Description As on Additions Ded./Adj. Total Depreciation Additions Ded./Adj. Total As on As on 1.04.2006 during during as on upto during during Dep. upto 31.03.2007 31.03.2006 the Year the Year 31.03.2007 31.03.2006 the Year the Year 31.03.2007 Tangible Assets A Leasehold land # 30,000,000 - - 30,000,000 - - - - 30,000,000 30,000,000 B Ownership Premises * 4,064,606 - - 4,064,606 523,334 177,051 - 700,385 3,364,221 3,541,272 C Institute Building - 268,693,232 - 268,693,232 - 9,459,474 - 9,459,474 259,233,758 - D Temporary Shed 501,400 165,564 - 666,964 501,400 165,564 - 666,964 - - E Plant & Machinery 3,125,731 37,069,296 - 40,195,027 72,663 4,186,020 - 4,258,683 35,936,344 3,053,068 F Motor Vehicles 1,172,023 1,291,096 - 2,463,119 78,977 537,615 - 616,592 1,846,527 1,093,046 G Furniture and Fixture 1,162,951 32,309,668 - 33,472,619 37,778 10,336,057 - 10,373,835 23,098,784 1,125,173 H Office Equipments 3,466,512 1,407,533 - 4,874,045 205,977 501,042 - 707,019 4,167,026 3,260,535 I Electrical Installation - 24,567,099 - 24,567,099 - 2,225,823 - 2,225,823 22,341,276 - J Cinamatography Equipments - 80,400,788 - 80,400,788 - 9,310,794 - 9,310,794 71,089,994 - K Computers & Accessories & IT Equipments 583,185 90,066,383 - 90,649,568 242,160 20,799,643 - 21,041,803 69,607,765 341,025 Intangible Assets A Intellectual Property Rights (Course Curriculum) - 5,546,359 - 5,546,359 - 1,109,272 - 1,109,272 4,437,087 - B Library (Books & Copy Rights) 173,668 2,413,143 - 2,586,811 173,668 2,413,143 - 2,586,811 - - Total 44,250,076 543,930,161 - 588,180,237 1,835,957 61,221,498 - 63,057,455 525,122,782 42,414,119 Previous year 34,603,088 9,646,988 - 44,250,076 560,304 1,275,653 - 1,835,957 42,414,119 34,042,535

Note # The company has perpetual right to use the land,and hence the same is not amortised. Also refer schedule 22 * The shares of Bait Ush Sharaf C.H.S valuing Rs 250 has been capitalised

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SCHEDULES FORMING PART OF THE ACCOUNTS

Current Year Previous Year 31.03.2007 31.03.2006 Amount in Rs. Amount in Rs. –––––––––––––––––––––––––––––––––––––––––––––––––––– 7 Capital work in progress Opening balance 301,864,382 152,092,030 Additions during the year 248,692,224 114,491,669 Add:Incidental expenses Institute model expenses - 257,076 Systems & network project - 110,200 Consultancy fees - 2,200,192 Advertisement, seminar & sponsorship exp - 2,712,207 Auditors remuneration - 80,550 Printing & stationery - 826,196 Legal & professional chgs - 6,698,309 Personal expenses - 9,832,619 Security chgs - 803,124 Electricity chgs - 226,415 Power & fuel expenses - 330,980 Motor car exp - 163,755 Rent - 375,000 Rates & taxes - 1,659,980 Repairs and maintenance - 414,610 Telephone exp - 382,280 Internet & website exp - 399,912 Travelling exp - 1,358,717 Miscellaneous exp - 1,689,785 Interest & financial expense 5,141,588 3,950,180 Depreciation - 1,275,653 Preliminary expenses written off - 153,877 ------Total 5,141,588 35,901,617 ------Less: Income Rent income - (224,520) Interest on fixed deposits - (98,388) Income from units of mutual funds - (493,126) ------35,085,583 Add: Fringe benefit tax - 195,100 ------Total 555,698,194 301,864,382 Less: Capitalised 543,930,161 - Less: Expensed out during the year (refer schedule 20) 11,768,033 ------301,864,382 ======8 Deferred tax asset (net) - - Deffered tax liabilities Excess of depreciation allowable under income-tax law over depreciation provided in accounts 10,241,418 - Deferred tax asset Unabsorbed depreciation as per Income tax act 10,241,418 ------======Deferred tax asset, which is on account of unabsorbed depreciation has been recognised only to the extent of the deferred tax liabilities, as this amount is considered to be virtually certain of realisation.

9 Sundry debtors Unsecured Outstanding for more than six months - considered good 2,255,375 - - considered doubtful - - Other debts, considered good 5,500,525 ------7,755,900 - 64 ======

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Current Year Previous Year 31.03.2007 31.03.2006 Amount in Rs. Amount in Rs. ------

10 Cash and bank balances Cash in hand 49,171 27,693 Balances with scheduled banks - in current account 2,259,686 215,369 - in term deposit 2,400,000 ------4,708,857 243,062 ======11 Loans and advances (Unsecured and considered good) Advances recoverable in cash or in kind or for value to be received 2,965,042 8,256,955 Deposits 11,448,410 4,113,410 Advance tax & tax deducted at source 3,914,332 2,154,444 Fringe benefit tax 608,066 168,132 ------18,935,850 14,692,941 ======Amounts recoverable from Companies under the same management Name of the Company: Mukta Arts Ltd - - Advances recoverable (considered good) include Rs Nil (2006: Rs Nil). Maximum amount due at any time during the year Rs 91,342 (2006: Rs Nil)). 12 Current liabilities Sundry creditors for goods and services (Refer Schedule No 28) 45,227,001 11,744,202 Unearned revenue 28,196,168 - Deposit received 30,000,000 - Interest accrued but not due 13,911,191 3,021,308 Other liabilities 5,124,312 1,595,317 ------122,458,672 16,360,827 ======13 Provisions Fringe Benefit Tax 670,100 195,100 Gratuity 1,296,394 - Leave encashment 687,809 ------2,654,303 195,100 ======14 Preliminary expenses Balance brought forward 769,381 923,258 Less: written off during the year 153,877 153,877 ------615,504 769,381 ======

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SCHEDULES FORMING PART OF THE ACCOUNTS Year ended 31.03.2007 Amount in Rs. ------15 Fees from students Admission fees 13,454,047 Tuition fees 32,297,500 Sale of prospectus 611,902 ------46,363,449 ======16 Other income Interest income (Tax deducted at source Rs 19,443) 139,433 Sale of laptops and other accessories to students 3,353,688 Facililitaion charges recovered from students 7,063,705 Miscellaneous income 262,194 ------10,819,020 ======17 Personnel expenses Salaries, bonus and allowances 23,045,630 Contributions to provident and other funds 312,919 Staff welfare expenses 2,023,935 ------25,382,484 ======18 Operating expenses and administrative expenses Rent 9,318,000 Travelling and conveyance 2,613,159 Telephone 2,991,149 Electricity expenses 8,840,847 Repairs and maintenance 3,830,918 Printing and stationery 2,378,812 Legal and professional fees 15,541,710 Insurance 466,823 Courier and postage 314,258 Advertisement & Publicity Expenses 12,682,569 Laptop and other accessories purchased 3,353,688 Motor Car Expenses 563,713 Auditors’ remuneration 300,000 Rates and taxes 5,619,110 Security Charges 3,526,762 Film set for training students 981,144 Miscellaneous expenses 3,761,423 Preliminary Expenses Written off 153,877 ------77,237,962 ======19 Interest & financial expenses Interest On term loans from banks 6,365,684 On term loans from others 17,936,038 ------24,301,722 On other loans for vehicles from banks 121,441 Less: Capitalised (Refer Schedule No. 7) (5,141,588) ------19,281,575 Financial expenses Loan processing and other bank charges 1,943,842 ------21,225,417 ======20 Prior period expenses Personnel expenses 572,280 Travelling expenses 3,276,722 Advertisement expenses 5,439,861 Preliminary Expenses written off 769,385 Miscellaneous expenses 1,709,785 66 ------11,768,033 ======

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SCHEDULES FORMING PART OF THE ACCOUNTS 21 Capital commitments The estimated amount of contracts remaining to be executed on capital account and not provided for at 31 March 2007 aggregates Rs 348,950, (2006: Rs 34,601,496) 22 Contingencies Income tax ƒ Assessment Year 2003-2004; There are certain additions made in the assessment and demand raised for Rs.1,301,570/-. Aggrieved by the assessment order the company had filed appeal before CIT (Appeal) which has been upheld. The Company has preferred an appeal with the Income Tax Appellate Tribunal on the above order. The Company has paid Rs.650,785 being 50% of the demand. The Company’s management is of the view that at this stage no provision is required. ƒ Assessment Year 2004-2005: Certain additions are made in the assessment and a demand of Rs.3,478,871/- has been raised. Aggrieved by the assessment order, the Company has filed appeal before the CIT (Appeal). The Company has paid Rs.1,739,435/- being 50% of the demand. The Company’s management is of the view that at this stage no provision is required. Others ƒ Public Interest Litigation (‘PIL’) has been filed by Mr.Abdul Hamid Patel & Others alleging that the Maharashtra Film Stage and Cultural Development Corporation Limited (MFSCDCL) has not followed proper procedure while allotting the 20 acre land to the Company. The PIL is admitted and pending before the high court. However no injunction/interim relief was granted to the petitioners. In the opinion of the management the Company has a good chance of wining the case. ƒ In the year 1973-74, the Government of Maharashtra (‘GOM’) as per the scheme invited applications of plots for development of film industry infrastructure in film city at Goregaon east, Mumbai. Many applications were received and M/s PDR Videotronics (India) Private Limited (‘PDR’) was one of the applicants. The GOM issued a letter to PDR for allotment of one hectare of land. Thereafter MFSCDCL was formed for development of film city and as per the recommendation of Godbole Committee the above scheme was scrapped. However before scrapping the scheme PDR filed a suit in the high court demanding specific performance of the scheme. High court admitted the suit and same is still pending. Meanwhile PDR took out a notice of motion saying that MFSCDCL is carrying out the activities on the allotted land thereby affecting their rights. Since the MFSCDCL didn’t argue, high court granted the injuction in favour of PDR. There after in the year 2003 the contempt petition was filed by PDR alleging that the construction work is being carried out on the said allotted land in violation of injuction. However, subsequently the contempt petition was disposed off by the high court. PDR took out another notice of Motion on the same issue. The high court refused to grant any relief to PDR and directed that the notice of motion be clubbed with the original suit of PDR against MFSCDCL and same suit to be expedited. With a view to peacefully resolve the issue, the Company has offered to earmark one hectare of land out of the available free land for a possible assignment to PDR, incase of the final decision of the high court is in the favour of PDR. In the opinion of the management the Company has a good chance of wining the case. ƒ The Company may be liable towards Provident Fund contributions on leave encashment paid from 2001 to 30 April 2005 based on the final decision to be taken by Central Board of Trustees of Employees Fund Organisation. The amount is currently not ascertainable. Current Year Previous Year 31.03.2007 31.03.2006 Rupees Rupees –––––––––––– –––––––––––– 23 Managerial remuneration Salaries, bonus and allowances 1,000,000 – Contribution to provident and other fund 108,000 – Perquisites 119,825 – –––––––––––– –––––––––––– Total 1,227,825 – ======67 The above does not include gratuity and leave encashment.

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WHISTLING WOODS INTERNATIONAL LTD.

SCHEDULES FORMING PART OF THE ACCOUNTS

24 Pursuant to the Extra Ordinary General Meeting of the members of the Company held on 24 February 2007, the members had authorized board for issuance of 200,000 8% Redeemable Cumulative Preference Shares of Rs.1,000 each (‘RCPS’) to the persons who at 4 April 2007 (date of offer) are the holders of the equity shares of the Company in proportion of 1 RCPS for 1 equity shares. Consequently the Board of Directors have passed a resolution in the meeting dated 21 June 2007 to allot all the RCPS to MAL as other equity holder had denied the offer, accordingly from the existing term loan from MAL, amount aggregating to Rs 200,000,000 was converted to preference share capital. 25 Related Party Disclosures (A) Related parties and their relationship: Sr. Category of related parties Names No I Related parties where control exists Holding Company Mukta Arts Limited II Related parties with whom transactions have taken place during the year Enterprise over which key managerial person along with the relatives exercises significant influence Mukta Tele Arts Private Limited. III Key managerial personnel Mrs. Meghana Ghai Puri (Whole time director) (B) Transactions with related parties: (Amount in Rupees)

Particulars Holding Enterprise Key Total Company over which managerial key managerial personnel person along with the relatives exercises significant influence Loan received 182,000,000 - - 182,000,000 (142,500,000) (-) (-) (142,500,000) Repayment of loan 74,500,000 - - 74,500,000 (-) (-) (-) (-) Advance received 902,000 - - 902,000 (600,000) (-) (-) (600,000) Payment of interest on loan 17,936,038 - 17,936,038 - (3,895,446) (-) (3,895,446) (-) Rent expenses - 90,000 - 90,000 (-) (-) (-) (-) Deposit received 30,000,000 - - 30,000,000 (-) (-) (-) (-) Advance refunded 3,875,217 - - 6,895,525 (3,708,642) (-) (-) (3,708,642) Security Deposit paid - 6,300,000 - 6,300,000 (-) (-) (-) (-) Remuneration paid - - 1,227,825 1,227,825 (Refer Schedule 23) (-) (-) (-) (-) Note: - Previous Year Figures are given within brackets.

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SCHEDULES FORMING PART OF THE ACCOUNTS

(C) Balances with related parties: (Amount in Rupees) Particulars Holding Enterprise Key Total Company over which managerial key managerial personnel person along with the relatives exercises significant influence Unsecured Loan payable 250,000,000 - - 250,000,000 (142,500,000) (-) (-) (142,500,000) Interest accrued but not due 13,911,191 - - 13,911,191 (3,021,308) (-) (-) (3,021,308) Deposit receivable - 6,300,000 - 6,300,000 (-) (-) (-) (-) Current account balance payable - 90,000 - 90,000 (2,973,217) (-) (-) (-) Note: - Previous Year Figures are given within brackets. 26 The Company is engaged in imparting training in various skills related to films, television and media field which is the primary business segment. The Company does not have any exports. The Company has only one reportable business segment, which is imparting training in various skills related to films, television and media and only one reportable geographical segment which is India. Accordingly, the segment information as required by the Accounting Standard 17 on Segment Reporting has not been separately disclosed. 27 The Company has taken certain assets under operating leases. Total minimum lease payments in this respect are as follows: Current Year Previous Year 31.03.2007 31.03.2006 Rupees Rupees –––––––––––– –––––––––––– Due Not later than one year 4,021,000 – Later than one year but not later than five years 1,035,000 – ------Total 5,056,000 – ======Lease rent of Rs.9,318,000 (Previous Year Rs.Nil.) has been included under ‘Rent’ in the Profit and Loss Account. 28 Under the Micro, Small and Medium Enterprises Development Act, 2006 which came into force from October 2, 2006, certain disclosures are required to be made relating to Micro, Small & Medium enterprises. The Company is in the process of compiling relevant information from its suppliers about their coverage under the Act. Since the relevant information is not readily available, no disclosures have been made in the accounts. However, in view of the management, the impact of interest, if any, that may be payable in accordance with the provisions of this Act is not expected to be material. The Company’s management is not aware of any amounts payable to small scale industrial undertakings. 29 Information with regard to other matters specified in Part II of Schedule VI to the Companies Act, 1956 of India, is either nil or not applicable to the Company for the year. Current Year Previous Year 31.03.2007 31.03.2006 Rupees Rupees –––––––––––– –––––––––––– 30 Expenditure in Foreign Currency Particulars Travelling expenses 339,052 1,481,569 Advertisement expenses 86,842 Nil Storage & health Expenses 303,083 Nil DVD Purchased ( shown under library) 266,981 Nil 69

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WHISTLING WOODS INTERNATIONAL LTD.

SCHEDULES FORMING PART OF THE ACCOUNTS Current Year Previous Year 31.03.2007 31.03.2006 Rupees Rupees –––––––––––– –––––––––––– 31 CIF Value of Imports Capital Goods 30,825,520 11,585,188

32 Auditor’s Remunerations Statutory Audit fees 300,000 27,550 Taxation Matters - 25,000 Fees for other services - 18,000 Reimbursement of expenses - 10,000 ------Total 300,000 80,550 ======33 Earnings per share (‘EPS’) Year ended 31.03.2007 Rupees –––––––––––– a) Net Loss attributable to equity share holders 140,127,925 b) Weighted average no of shares 200,000 Basic / diluted earning per share of Rs 1,000 each (701) Previous year numbers have not been given as the Company didn’t had the profit and loss account in the previous year. 34 Previous year’s figures were audited by a firm of Chartered Accountants other than BSR & Co. These figures have been regrouped/reclassified wherever necessary to conform to the current year’s presentation.

For and on behalf of the Board

SUBHASH GHAI MEGHNA GHAI PURI Chairman Director

MANMOHAN SHETTY VIJAY CHORARIA Director Director

Place : Mumbai BHUSHAN GAGRANI HEMANT K BORADE Date : 27th August 2007 Director Company Secretary

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BALANCE SHEET ABSTRACT AND COMPANY’S GENERAL BUSINESS PROFILE

I REGISTRATION DETAILS

Registration No.: U92141MH2001PTC130394 State Code: 011

Balance Sheet Date: 31-03-2007

II CAPITAL RAISED (AMOUNT IN RS. THOUSANDS)

Public Issue NIL Rights Issue NIL

Bonus Issue NIL Private Placement NIL

III POSITION OF MOBILISATION AND DEPLOYMENT OF FUNDS (AMOUNT IN RS. THOUSANDS)

Total Liabilities 572154 Total Assets 572154

SOURCES OF FUNDS

Paid-up Capital 200000 Reserves & Surplus NIL

Secured Loans 122154 Unsecured Loans 250000

APPLICATION OF FUNDS

Net Fixed Assets 525123 Investments NIL

Net Current Assets (93712) Misc. Expenditure 616

Accumulated Losses 140127

IV PERFORMANCE OF COMPANY (AMOUNT IN RS. THOUSANDS)

Turnover 57182 Total Expenditure 196835

Profit/(Loss) Before Tax (127885) Profit/(Loss) After Tax (140128)

Earnings Per Share NIL Dividend Rate % NIL

V GENERIC NAMES OF PRINCIPAL PRODUCTS/SERVICES OF COMPANY

Item Code No. Not Applicable

Product Description Education, Research & Training Institute

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CONNECT.1 LIMITED (Formerly known as Mukta Arts International Limited)

DIRECTORS’ REPORT

To the Members, Your Directors hereby present the Seventh Annual Report and the Audited Accounts of the Company for the Accounting Year ended 31st March 2007. The Company has changed the name from Mukta Arts International Limited to Connect.1 Limited with effect from 6th July 2007. Operations The efforts were made to commence operations during the year under review. The Income to the tune of Rs. 274,668 has been earned during the year. The Company has a profit of Rs. 63,030 after tax during the year. The Directors are hopeful that the Company will improve operations during the forthcoming year. Directors Mr. Parvez A. Farooqui retires by rotation at the ensuing Annual General Meeting and being eligible offers himself for reappointment. Share Capital The Share Capital remains the same during the year under review. Directors' Responsibility Statement [Section 217 (2AA)] The Directors confirm that: i) in the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures; ii) the directors had selected such accounting policies & applied them consistently and made judgments and estimates that are reasonable and prudent so as to give true & fair view of the state of affairs of the company at the end of the financial year and of the profit of the company for that period; iii) the directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities; iv) the annual accounts are prepared on a going concern basis; Auditors M/s Shamit Majmudar Associates, Chartered Accountants retire at the ensuing Annual General Meeting and being eligible offer themselves for reappointment as the Auditors of the Company. The Directors recommend the reappointment of M/s Shamit Majmudar Associates as the Auditors of the Company for the year 2007-08. Disclosure about conservation of energy, technology absorption and foreign exchange outgo and earnings The Company is not engaged in manufacturing activities and as such particulars regarding disclosure about Conservation of energy, technology absorption are not applicable to the Company. There has been no foreign exchange outgo and earnings. Other Statutory Information The Company does not have any employees requiring disclosure as required under Section 217 (2A) of the Companies Act, 1956. Acknowledgements The Board of Directors wishes to thank and record its appreciation to the Government Authorities and the Bankers, who have extended their continued support to the company.

Registered Office On Behalf of Board of Directors 11, Bait-Ush-Sharaf, 29th Road, TPS - III, Bandra (W), Mumbai - 400 050 Subhash Ghai Chairman

Place: Mumbai Date : 27th August 2007

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AUDITORS REPORT

To the Members 1. We have audited the attached Balance Sheet of CONNECT.1 LIMITED (Formerly known as Mukta Arts International Ltd). as at 31st March 2007 and the related Profit and Loss Account and the Cash Flow Statement for the year ended on that date, which we have signed under reference to this report. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. 2. We have conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3. As required by the Companies (Auditor’s Report) Order, 2003 issued by the Central Government of India in terms of sub-section (4A) of Section 227 of the Companies Act, 1956, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order. 4. Further to our comments in the Annexure referred to in paragraph 3 above: (i) we have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit; (ii) in our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of such books; (iii) the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books of account; (iv) in our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report comply with the requirements of the Accounting Standards referred to in sub-section (3C) of Section 211 of the Companies Act, 1956; (v) on the basis of the written representations received from the directors as on 31st March, 2007, and taken on record by the Board of Directors, we report that none of the directors is disqualified as on 31st March, 2007 from being appointed as a director in terms of clause (g) of sub-section (1) of Section 274 of the Companies Act, 1956. 5. In our opinion and to the best of our information and according to the explanations given to us, the said accounts read with significant accounting policies and other notes thereon, give the information required by the Companies Act, 1956, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India: (i) in the case of the Balance Sheet, of the state of affairs of the Company as at 31st March, 2007; (ii) in the case of Profit and Loss Account of the profit of the Company for the year ended on that date, and (iii) in the case of Cash Flow Statement, of the cash flows for the year ended on that date.

For SHAMIT MAJMUDAR ASSOCIATES Chartered Accountants

Place: Mumbai SHAMIT MAJMUDAR Dated: 27th August 2007 Proprietor Membership No. 10595

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CONNECT.1 LIMITED (Formerly known as Mukta Arts International Limited)

Annexure to the Auditors’ Report [Referred to in paragraph (3) thereof] (i) The nature of the Company’s business/ activities during the year is such that clauses (ii), (vii), (viii), (x), (xi), (xii), (xiii), (xiv), (xv), (xvi), (xvii), (xviii), (xix) & (xx) of paragraph 4 of the Companies (Auditor’s Report) order, 2003 are not applicable to the Company for the year ended. (ii) In respect of fixed assets: (a) The Company has maintained proper records showing full particulars including quantitative details and situation of fixed assets. (b) The fixed assets of the company have been physically verified by the management at the end of the year and we are informed that no discrepancies between book records and the physical inventory have been noticed. (c) In our opinion and according to the information and explanations given to us, the Company has not made any disposals during the year. (iii) In respect of loans, secured or unsecured, granted or taken by the Company to or from companies, firms or other parties covered in the register maintained under section 301 of The Companies Act, 1956: According to the information and explanations given to us the Company has neither granted nor taken any loans, secured or unsecured, to or from companies, firms or other parties covered in the register maintained under section 301 of The Companies Act, 1956. (iv) In our opinion and according to the information and explanations given to us, there are adequate internal control procedures commensurate with the size of the Company and nature of its business, for purchase of fixed assets. There are no purchase of inventories and no sale of goods. (v) In respect of transactions entered in the register maintained in pursuance of section 301 of the Companies Act 1956: (a) To the best of our knowledge and belief and according to the information and explanations given to us, transactions that needed to be entered into the register have been so entered. (b) According to the information and explanations given to us, there are transactions/arrangements in excess of Rs 0.50 million in respect of holding company in which directors are interested and prices are reasonable having regard to the prevailing market prices at the relevant time. (vi) The Company has not accepted any deposits from the public to which the provisions of Section 58A and section 58AA of the Companies Act, 1956 and the Companies (Acceptance of Deposits) Rules 1975, are applicable. (vii) According to the information and explanations given to us in respect of statutory and other dues there were no undisputed amount payable in respect of Income Tax, Wealth Tax, Sales Tax, Customs Duty and Excise Duty outstanding as at 31st March, 2007 for more than six months from the date they became payable. viii) To the best of our knowledge and belief and according to the information and explanations given to us, no fraud on or by the Company was noticed or reported during the year. For SHAMIT MAJMUDAR ASSOCIATES Chartered Accountants

Place: Mumbai SHAMIT MAJMUDAR Dated: 27th August 2007 Proprietor Membership No. 10595

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BALANCE SHEET AS AT 31ST MARCH 2007

Current Year Previous Year SCHEDULE 31.03.2007 31.03.2006 Amount in Rs. Amount in Rs. ------SOURCES OF FUNDS Shareholders’ Fund Share Capital A 600,000 600,000 ------TOTAL 600,000 600,000 ======APPLICATION OF FUNDS Fixed Assets B Gross Block 3,931,950 3,931,950 Less: Depreciation 701,712 531,699 ------3,230,238 3,400,251 ======Investments C 523,729 500,000 Current Assets, Loans & Advances Cash & Bank Balance D 301,074 41,087 Loans & Advances E 114,508 141,925 ------415,582 183,012 Less : Current Liabilities & Provisions F 3,526,368 3,506,612 ------Net Current Assets (3,110,786) (3,323,600) Miscellaneous Expenditure G 10,500 14,000 Profit & Loss Account (53,681) 9,349 ------TOTAL 600,000 600,000 ======Statement of Significant Accounting Policies I and Notes forming part of accounts

As per our Report of even date For and on behalf of the Board

For SHAMIT MAJMUDAR ASSOCIATES SUBHASH GHAI Chartered Accountants Director

SHAMIT MAJMUDAR PARVEZ A. FAROOQUI Proprietor Director Membership No.10595

Place: Mumbai MEGHNA GHAI PURI Date: 27th August 2007 Director

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CONNECT.1 LIMITED (Formerly known as Mukta Arts International Limited)

PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2007

Current Year Previous Year SCHEDULE 31.03.2007 31.03.2006 Amount in Rs. Amount in Rs. ------Income Rental Income 240,000 240,000 Interest Income 34,668 247 ------274,668 240,247 ======Expenditure Administration and other expenses H 24,625 25,969 Depreciation B 170,013 178,961 Preliminary Expenses Written off 3,500 3,500 ------198,138 208,430 ======Profit/(Loss) before Taxation 76,530 31,817 Less: Provision for Tax 13,500 (250) ------Profit/(Loss) after Tax 63,030 32,067 Add: Balance brought forward from last year (9,349) (41,416) ------Balance Carried to Balance Sheet 53,681 (9,349) ======Statement of Significant Accounting Policies I and Notes forming part of accounts

As per our Report of even date For and on behalf of the Board

For SHAMIT MAJMUDAR ASSOCIATES SUBHASH GHAI Chartered Accountants Director

SHAMIT MAJMUDAR PARVEZ A. FAROOQUI Proprietor Director Membership No.10595

Place: Mumbai MEGHNA GHAI PURI Date: 27th August 2007 Director

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CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH 2007

Current Year Previous Year 31.03.2007 31.03.2006 Amount in Rs. Amount in Rs. ------A. CASH FROM OPERATING ACTIVITIES Net Profit before tax and extraordinary items : 76,530 31,817 Adjustments for : Depreciation 170,013 178,961 Interest, dividend, etc., received (34,668) (247) Miscellaneous expenditure written off 3,500 3,500 ––––––––––– ––––––––––– Operating profit before working capital changes 215,375 214,031 ––––––––––– ––––––––––– Adjustments for : (Increase)/ Decrease in Inventories - - (Increase)/ Decrease in Receivables - - (Increase)/ Decrease in Loans and Advances 247 (247) Increase/(Decrease) in Trade Creditors 6,256 (1,800) Inc./ (Dec.) in other Current Liabilities and Provisions 13,500 –– ––––––––––– ––––––––––– Cash generated from/(used in) operations 235,378 211,984 ––––––––––– ––––––––––– Direct Taxes paid 13,670 (53,856) Prior period adjustments - - Cash flow before extraordinary items 249,048 158,128 Extraordinary items : Miscellaneous Expenditure - - Net Cash Generated from/(used in) Operating Activities 249,048 158,128 B. CASH FLOW FROM INVESTING ACTIVITIES (Addition to)/ Redemption of Investments (23,729) (500,000) Interest, dividend, etc., received 34,668 247 Net cash generated from/(used in) investing activities 10,939 (499,753) C. CASH FLOW FROM FINANCING ACTIVITIES Net cash recovered from/(used in) financing activities - - Net increase/(decrease) in cash and cash equivalents 259,987 (341,625) (A+B+C) Cash and cash equivalents (opening) 41,087 382,712 Cash and cash equivalents (closing) 301,074 41,087

As per our Report of even date For and on behalf of the Board

For SHAMIT MAJMUDAR ASSOCIATES SUBHASH GHAI Chartered Accountants Director

SHAMIT MAJMUDAR PARVEZ A. FAROOQUI Proprietor Director Membership No.10595

Place: Mumbai MEGHNA GHAI PURI Date: 27th August 2007 Director

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CONNECT.1 LIMITED (Formerly known as Mukta Arts International Limited)

SCHEDULES FORMING PARTS OF ACCOUNTS

Current Year Previous Year 31.03.2007 31.03.2006 Amount in Rs. Amount in Rs. ------SCHEDULE - A SHARE CAPITAL Authorised Capital 5,000 Equity Share of Rs 1,000/- each (Previous year 5,000 equity shares of Rs 1,000/- each) 5,000,000 5,000,000 ======Issued, subscribed & paid up 600,000 600,000 600 Equity Shares of Rs 1,000/- each ( Previous year 600 equity shares of Rs 1,000/- each ) ------Total 600,000 600,000 ======SCHEDULE - B Fixed Assets (Amount in Rs.) GROSS BLOCK DEPRECIATION NET BLOCK Particulars As on Additions Total Depreciation Depreciation Total As on As on 01.04.2006 during the as on as on for the Depreciation 31.03.2007 31.03.2006 year 31.03.2007 31.03.2006 year upto 31.03.2007 Block ‘A’ Ownership Premises 3,931,950 - 3,931,950 531,699 170,013 701,712 3,230,238 3,400,251 TOTAL 3,931,950 - 3,931,950 531,699 170,013 701,712 3,230,238 3,400,251 Previous year 3,931,950 - 3,931,950 352,738 178,961 531,699 3,400,251 3,579,212

Current Year Previous Year 31.03.2007 31.03.2006 Amount in Rs. Amount in Rs. ------SCHEDULE - C Investments Fixed Deposit with Scheduled bank 523,729 500,000 ------523,729 500,000 ======SCHEDULE - D Cash & Bank Balances Cash in hand 1,464 2,464 With Scheduled Bank (in current account) 299,610 38,623 ------301,074 41,087 ======SCHEDULE - E Loans & Advances Interest Accrued but not due - 247 Advance Taxes & Other Payments 114,508 141,678 ------114,508 141,925 ======SCHEDULE - F Current Liabilities & Provision Sundry Creditors 12,868 6,612 Deposits 3,500,000 3,500,000 Provision for Income Tax 13,500 ------3,526,368 3,506,612 ======SCHEDULE - G Miscellaneous Expenditure Preliminary Expenses (to the extent not written off) 10,500 14,000 ------10,500 14,000 ======

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Current Year Previous Year 31.03.2007 31.03.2006 Amount in Rs. Amount in Rs. ------SCHEDULE - H Administration and other expenses Printing & Stationary –– 2,101 Electricity Expenses 7,032 9,000 Audit Fees 6,742 6,612 Professonal Fees 2,526 - Bank Charges 125 56 Filing Fees 1,000 1,000 Society Charges 7,200 7,200 ------24,625 25,969 Schedule I ======Statement of Significant Accounting Policies and Note forming part of Accounts 1. Significant Accounting Policies (a) Basis of Preparation of Accounts The financial statements have been prepared under the historical cost convention, in accordance with Accounting Standards issued by the Institute of Chartered Accountants of India and the provisions of the Companies Act, 1956, as adopted consistently by the Company. All expenditure having a material bearing on the financial statements are recognised on accrual basis. The preparation of financial statements is in conformity with Accounting Standards requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of financial statements, and the reported amounts of expenses during the year. (b) (i) Fixed Assets Fixed Assets are stated at cost of acquisition and attributable costs. (ii) Depreciation Depreciation has been provided on Written Down Value Method as per the provision of Companies Act, 1956 and at the rate specified in Schedule XIV of the Companies Act, 1956. (c) Taxes on Income Provision for Income Tax (if any) is determined in accordance with the provisions of Income Tax Act, 1961. (d) Preliminary Expenses Preliminary expenses are amortised over a period of 10 years. 2. Previous year’s figures have been regrouped wherever necessary. 3. Contingent Liabilities Current Year Previous Year Rupees Rupees ------Nil Nil 4. (a) There were no amounts payable to Small Scale Industrial Undertaking on the Balance Sheet date. (b) The Company has not received any intimation from “suppliers” regarding their status under the Micro, Small and Medium Enterprises Development Act, 2006 and hence disclosures, if any, relating to amounts unpaid as at the year end together with interest paid /payable as required under the said Act have not been given. 5. Auditors’ Remuneration Current Year Previous Year Rupees Rupees ------Statutory Audit Fees 6,742/- 6,612/-

As per our Report of even date For and on behalf of the Board

For SHAMIT MAJMUDAR ASSOCIATES SUBHASH GHAI Chartered Accountants Director

SHAMIT MAJMUDAR PARVEZ A. FAROOQUI Proprietor Director Membership No.10595

Place: Mumbai MEGHNA GHAI PURI 79 Date: 27th August 2007 Director

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CONNECT.1 LIMITED (Formerly known as Mukta Arts International Limited)

BALANCE SHEET ABSTRACT AND COMPANY’S GENERAL BUSINESS PROFILE

I REGISTRATION DETAILS

Registration No.: U92110MH2000PLC124018 State Code: 011

Balance Sheet Date: 31-03-2007

II CAPITAL RAISED (AMOUNT IN RS. THOUSANDS)

Public Issue NIL Rights Issue NIL

Bonus Issue NIL Private Placement NIL

III POSITION OF MOBILISATION AND DEPLOYMENT OF FUNDS (AMOUNT IN RS. THOUSANDS)

Total Liabilities 600 Total Assets 600

SOURCES OF FUNDS

Paid up Capital 600 Reserves & Surplus NIL

Secured Loans NIL Unsecured Loans NIL

APPLICATION OF FUNDS

Net Fixed Assets 3230 Investments 524

Net Current Assets (3111) Misc. Expenditure 11

Accumulated Losses (54)

IV PERFORMANCE OF COMPANY (AMOUNT IN RS. THOUSANDS)

Turnover 275 Total Expenditure 198

Profit/(Loss) Before Tax 77 Profit/(Loss) After Tax 63

Earnings Per Share-Rs. 105.05 Dividend Rate % NIL

V GENERIC NAMES OF PRINCIPAL PRODUCTS / SERVICES OF COMPANY

Item Code No. Not Applicable

Product/Services Marketing of films Description

80

80 MAGENTA BLACK MAGENTA BLACK

DIRECTORS’ REPORT To the Members, Your Directors hereby present the Fifth Annual Report and the Audited Accounts of the Company for the Accounting year ended 31st March 2007. Operations The Company’s object is to take up production of tele-serials, management of event shows and entertainment software. The Income to the tune of Rs. 108,000 has been earned during the year. Due to administrative expenses and other fixed expenses the result for the year show a net loss of Rs. 180,526. Share Capital The Capital remains the same during the year under review. Directors Mr. Parvez A. Farooqui retires by rotation at the ensuing Annual General Meeting and, being eligible, offers himself for re- appointment. Auditors’ Report In response to the Auditor’s comment on the negative networth of the Company, the management is hoping to start some of the serials and other programmes on small screen in the near future, which will help to eradicate the negative networth. Directors’ Responsibility Statement [Section 217 (2AA)] The Directors confirm that i) in the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures; ii) the directors had selected such accounting policies & applied them consistently and made judgments and estimates that are reasonable and prudent so as to give true & fair view of the state of affairs of the company at the end of the financial year and of the loss of the company for that period; iii) the directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities; iv) the annual accounts are prepared on a going concern basis despite the fact, that the Company’s net worth is negative Auditors M/s Shamit Majmudar Associates, Chartered Accountants, the Auditors, retire at the ensuing Annual General Meeting and being eligible offer themselves for reappointment as the Auditors of the Company. The Directors recommend the reappointment of M/s Shamit Majmudar Associates as Auditors of the Company for the year 2007-08. Disclosure about conservation of energy, technology absorption and foreign exchange outgo and earnings The Company is not engaged in manufacturing activities and as such particulars regarding disclosure about Conservation of energy, technology absorption are not applicable to the Company. There has been no foreign exchange outgo and earnings. Other Statutory Information The Company does not have any employees requiring disclosure as required under Section 217 (2A) of the Companies Act, 1956. Acknowledgements The Board of Directors places on record its gratitude to, bankers, and the media for their continued support, patronage and goodwill. The Board also expresses its deep sense of appreciation to the employees and consultants for their guidance and support. Registered Office: By Order of Board of Directors 6, Bashiron, 28th Road, TPS – III, Bandra (W), Mumbai – 400 050 Vijay Choraria Chairman Place: Mumbai Date : 27th August 2007 81

81 MAGENTA BLACK MAGENTA BLACK

MUKTA TELE MEDIA LTD.

AUDITORS REPORT

To the Members 1. We have audited the attached Balance Sheet of Mukta Tele Media Ltd. as at 31st March 2007 and related the Profit and Loss Account and Cash Flow Statement for the year ended on that date, which we have signed under reference to this report. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. 2. We have conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3. As required by the Companies (Auditor’s Report) Order, 2003 issued by the Central Government of India in terms of sub-section (4A) of Section 227 of the Companies Act, 1956, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order. 4. Further to our comments in the Annexure referred to in paragraph 3 above: (i) we have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit; (ii) in our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of such books; (iii) the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books of account; (iv) in our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report comply with the requirements of the Accounting Standards referred to in sub-section (3C) of Section 211 of the Companies Act, 1956; (v) on the basis of the written representations received from the directors as on 31st March, 2007, and taken on record by the Board of Directors, we report that none of the directors is disqualified as on 31st March, 2007 from being appointed as a director in terms of clause (g) of sub-section (1) of Section 274 of the Companies Act, 1956. 5. In our opinion and to the best of our information and according to the explanations given to us, the said accounts read with significant accounting policies and other notes thereon, give the information required by the Companies Act, 1956, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India: (i) in the case of the Balance Sheet, of the state of affairs of the Company as at 31st March, 2007; (ii) in the case of Profit and Loss Account of the profit of the Company for the year ended on that date, and (iii) in the case of Cash Flow Statement, of the cash flows for the year ended on that date.

For SHAMIT MAJMUDAR ASSOCIATES Chartered Accountants

Place: Mumbai SHAMIT MAJMUDAR Dated: 27th August 2007 Proprietor Membership No. 10595

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82 MAGENTA BLACK MAGENTA BLACK

ANNEXURE TO THE AUDITORS’ REPORT

[Referred to in paragraph (3) thereof] (i) The nature of the Company’s business/ activities during the year is such that clauses (vii), (viii), (xi), (xii), (xiii), (xiv), (xv), (xvi), (xvii), (xviii), (xix) & (xx) of paragraph 4 of the Companies (Auditor’s Report) order, 2003 are not applicable to the Company for the year ended. (ii) In respect of fixed assets: (a) The Company has maintained proper records showing full particulars including quantitative details and situation of fixed assets. (b) The fixed assets of the company have been physically verified by the management at the end of the year and we are informed that no discrepancies between book records and the physical inventory have been noticed. (c) In our opinion and according to the information and explanations given to us, the Company has not made any disposals during the year. (iii) In respect of inventories: (a) As explained to us, inventories were physically verified during the year by the management at reasonable intervals. (b) In our opinion and according to the information and explanations given to us, the procedures of physical verification of inventories followed by the management were reasonable and adequate in relation to the size of the Company and the nature of its activity during the year. (c) In our opinion and according to the information and explanations given to us, the Company has maintained proper records of its inventories and no material discrepancies were noticed on physical verification. (iv) In respect of loans, secured or unsecured, granted or taken by the Company to or from companies, firms or other parties covered in the register maintained under section 301 of The Companies Act, 1956: According to the information and explanations given to us the Company has neither granted nor taken any loans, secured or unsecured, to or from companies, firms or other parties covered in the register maintained under section 301 of The Companies Act, 1956. (v) In our opinion and according to the information and explanations given to us, there are adequate internal control procedures commensurate with the size of the Company and nature of its business, for purchase of inventory and fixed assets. There are no sale of goods. (vi) In respect of transactions entered in the register maintained in pursuance of section 301 of the Companies Act 1956: (a) To the best of our knowledge and belief and according to the information and explanations given to us, transactions that needed to be entered into the register have been so entered. (b) According to the information and explanations given to us, there are transactions/arrangements in excess of Rs 0.50 million in respect of holding company in which directors are interested and prices are reasonable having regard to the prevailing market prices at the relevant time. (vii) The Company has not accepted any deposits from the public to which the provisions of Section 58A and section 58AA of the Companies Act, 1956 and the Companies (Acceptance of Deposits) Rules 1975, are applicable. (viii) According to the information and explanations given to us in respect of statutory and other dues there were no undisputed amount payable in respect of Income Tax, Wealth Tax, Sales Tax, Customs Duty and Excise Duty outstanding as at 31st March, 2007 for more than six months from the date they became payable. (ix) The Company has accumulated losses at the beginning of the year. The Company has incurred loss during the year. The accumulated losses have exceeded the entire net worth of the Company. (x) To the best of our knowledge and belief and according to the information and explanations given to us, no fraud on or by the Company was noticed or reported during the year. For SHAMIT MAJMUDAR ASSOCIATES Chartered Accountants

Place: Mumbai SHAMIT MAJMUDAR Dated: 27th August 2007 Proprietor Membership No. 10595 83

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MUKTA TELE MEDIA LTD.

BALANCE SHEET AS AT 31ST MARCH 2007

Current Year Previous Year SCHEDULE 31.03.2007 31.03.2006 Amount in Rs. Amount in Rs. –––––––––––––––––––––––––––––––––––––––––––––––––––– SOURCES OF FUNDS Shareholders’ Fund Share Capital A 500,000 500,000 –––––––––––––––––––––––––––––––––––––––––––––––––––– TOTAL 500,000 500,000 ======APPLICATION OF FUNDS Fixed Assets B Gross Block 4,304,963 4,304,963 Less: Depreciation (759,614) (570,181) –––––––––––––––––––––––––––––––––––––––––––––––––––– 3,545,349 3,734,782 Investments C 250 250 Current Assets, Loans & Advances Inventories D 3,735,007 3,735,007 Cash and Bank Balances E 58,319 9,789 –– –––––––––––––––––––––––––––––––––––––––––––––––––––– 3,793,326 3,744,797 Current Liabilities & Provisions F 10,689,982 10,665,024 –––––––––––––––––––––––––––––––––––––––––––––––––––– Net Current Assets (6,896,656) (6,920,227) Balance as per Profit & Loss Account 3,777,732 3,597,205 Preliminary Expenses 73,325 87,990 (to the extent not written off) –––––––––––––––––––––––––––––––––––––––––––––––––––– TOTAL 500,000 500,000 ======Statement of Significant Accounting Policies H and Notes forming part of accounts

As per our report of even date For and on Behalf of the Board

For SHAMIT MAJMUDAR ASSOCIATES VIJAY CHORARIA Chartered Accountants Chairman

SHAMIT MAJMUDAR PARVEZ A. FAROOQUI Proprietor Director Membership No. 10595 MEGHNA GHAI PURI Place : Mumbai Director Date : 27th August 2007

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PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH, 2007

Current Year Previous Year SCHEDULE 31.03.2007 31.03.2006 Amount in Rs. Amount in Rs. –––––––––––––––––––––––––––––––––––––––––––––––––––– INCOME Miscellaneous Income - 360,083 Rental Income 108,000 - –––––––––––––––––––––––––––––––––––––––––––––––––––– Total 108,000 360,083 ======EXPENDITURE Administration and other Expenses G 84,428 1,000,372 Share of Joint Venture to APS Group - 176,429 Depreciation 189,433 199,918 Preliminary Expenses written Off 14,665 14,665 –––––––––––––––––––––––––––––––––––––––––––––––––––– Total 288,526 1,391,384 ======Profit before Extraordinary, Non-recurring and Profit/(Loss) before Tax (180,526) (1,031,301) Profit/(Loss) after tax (180,526) (1,031,301) Add: Balance brought forward from last year (3,597,206) (2,565,905) –––––––––––––––––––––––––––––––––––––––––––––––––––– Balance carried to Balance Sheet (3,777,732) (3,597,206) ======Statement of Significant Accounting Policies H

and Notes forming part of accounts

As per our report of even date For and on Behalf of the Board

For SHAMIT MAJMUDAR ASSOCIATES VIJAY CHORARIA Chartered Accountants Chairman

SHAMIT MAJMUDAR PARVEZ A. FAROOQUI Proprietor Director Membership No. 10595 MEGHNA GHAI PURI Place : Mumbai Director Date : 27th August 2007

85

85 MAGENTA BLACK MAGENTA BLACK

MUKTA TELE MEDIA LTD.

CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH 2007

Current Year Previous Year 31.03.2007 31.03.2006 Amount in Rs. Amount in Rs. ––––––––––––––––––––––––––––––––––––––––––––––––––––

A. CASH FROM OPERATING ACTIVITIES Net Loss before tax and extraordinary items : (180,526) (1,031,301) –––––––––––––––––––––––––––––––––––––––––––––––––––– Adjustments for : Depreciation 189,433 199,918 Miscellaneous expenditure written off 14,665 14,665 Operating profit before working capital changes 23,572 (816,718) –––––––––––––––––––––––––––––––––––––––––––––––––––– Adjustments for : (Increase)/ Decrease in Loans and advances –– 1,038 Increase/(Decrease) in Trade Creditors 9,958 (193,971) Inc./ (Dec.) in Other current liabilities and provisions 15,000 897,337 Cash generated from/(used in) operations 48,530 (112,314) Cash flow before extraordinary items 48,530 (112,314) Extraordinary items : Miscellaneous Expenditure –– –– Net Cash Generated from/(used in) Operating Activities 48,530 (112,314) B. CASH FLOW FROM INVESTING ACTIVITIES Net cash generated from/(used in) investing activities –– –– C. CASH FLOW FROM FINANCING ACTIVITIES Net cash recovered from/(used in) financing activities –– –– Net increase/(decrease) in cash and cash equivalents 48,530 (112,314) (A+B+C) Cash and cash equivalents (opening) 9,789 122,103 Cash and cash equivalents (closing) 58,319 9,789

As per our report of even date For and on Behalf of the Board

For SHAMIT MAJMUDAR ASSOCIATES VIJAY CHORARIA Chartered Accountants Chairman

SHAMIT MAJMUDAR PARVEZ A. FAROOQUI Proprietor Director Membership No. 10595 MEGHNA GHAI PURI Place : Mumbai Director Date : 27th August 2007

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SCHEDULES FORMING PARTS OF ACCOUNTS

Current Year Previous Year 31.03.2007 31.03.2006 Amount in Rs. Amount in Rs. –––––––––––––––––––––––––––––––––––––––––––––––––––– SCHEDULE - A Share Capital Authorised Share Capital 50,000 Equity Shares of Rs.100/- each (Previous year 50,000 Equity Shares of Rs.100/- each) 5,000,000 5,000,000 ======Issued, subscribed & paid up Capital 5,000 Equity Shares of Rs. 100/- fully paid-up (Previous year 5,000 Equity Shares of Rs. 100/- fully paid-up) 500,000 500,000 –––––––––––––––––––––––––––––––––––––––––––––––– 500,000 500,000 ======SCHEDULE - B Fixed Assets GROSS BLOCK DEPRECIATION NET BLOCK Particulars As on Additions Total Depreciation Depreciation Total As on As on 01.04.2006 during the as on as on for the Depreciation 31.03.2007 31.03.2006 year 31.03.2007 31.03.2006 year up to 31.03.2007 Block 'A' Ownership Premises 4,260,063 - 4,260,063 552,325 185,387 737,712 3,522,351 3,707,738 Block 'B' Furniture & Fixture 10,800 - 10,800 4,004 1,230 5,234 5,566 6,796 Block 'C' Mobile Handset 5,000 - 5,000 4,999 - 4,999 1 1 Air Conditioners 29,100 - 29,100 8,853 2,816 11,669 17,431 20,247 TOTAL 4,304,963 - 4,304,963 570,181 189,433 759,614 3,545,349 3,734,782

Previous year 4,304,963 - 4,304,963 370,263 199,918 570,181 3,734,782 3,934,700

Current Year Previous Year 31.03.2007 31.03.2006 Amount in Rs. Amount in Rs. –––––––––––––––––––––––––––––––––––––––––––––––––––– SCHEDULE - C Investments Shares of Bait-Ush-Sharaf Co. Op. Hsg. Society Ltd. (5 shares of Rs. 50 each, previous year 5 shares) 250 250 –––––––––––––––––––––––––––––––––––––––––––––––– 250 250 ======

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MUKTA TELE MEDIA LTD.

SCHEDULES FORMING PARTS OF ACCOUNTS

Current Year Previous Year 31.03.2007 31.03.2006 Amount in Rs. Amount in Rs. –––––––––––––––––––––––––––––––––––––––––––––––––––– SCHEDULE - D Inventories Remake Rights of Films 200,000 200,000 Under Production T.V.Serials 3,535,007 3,535,007 –––––––––––––––––––––––––––––––––––––––––––––––– 3,735,007 3,735,007 ======SCHEDULE - E Cash & Bank Balances Cash in hand 2,531 4,809 With Scheduled Banks: In Current Account 55,788 4,980 –––––––––––––––––––––––––––––––––––––––––––––––– 58,319 9,789 ======

SCHEDULE - F Current Liability & Provisions Amount due (to Holding Company ) 10,637,984 10,622,984 Sundry Creditors for goods and services rendered 51,998 42,040 –––––––––––––––––––––––––––––––––––––––––––––––– 10,689,982 10,665,024 ======SCHEDULE - G Administrative Expenses Printing & Stationery - 2,121 Telephone Expenses - 1,500 Electricity Charges 17,162 14,950 Auditors Remuneration 42,472 42,040 Professional Fees 2,526 797,097 Prior Period Expenses 1,200 - Bank Charges - 450 Subscription Charges 400 - Society Charges 14,000 - Rates & Taxes - 13,500 Motor Car Expenses - 12,788 Petrol & Oil Expenses - 113,619 Filing Fees 6,668 2,306 –––––––––––––––––––––––––––––––––––––––––––––––– 84,428 1,000,372 ======

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SCHEDULE “H” Statement of Significant Accounting Policies and Notes forming Part of Accounts 1 Significant Accounting Policies (a) Basis of Preparation of Accounts The financial statements have been prepared under the historical cost convention, in accordance with Accounting Standards issued by the Institute of Chartered Accountants of India and the provisions of the Companies Act, 1956, as adopted consistently by the Company. All income and expenditure having a material bearing on the financial statements are recognised on accrual basis. The preparation of financial statements in conformity with the Accounting Standards require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of financial statements, and the reported amounts of expenses during the year. (b) (i) Fixed Assets Fixed Assets are stated at cost of acquisition and attributable costs. (ii) Depreciation Depreciation has been provided on Written Down Value Method as per the provisions of Companies Act, 1956 and at the rates specified in Schedule XIV of the Companies Act, 1956. (c) Inventories Inventories of under production of serials are valued at actual cost. (f) Revenue recognition Sales/Realisations are recognised on despatch of softwares to the respective parties. (g) Preliminary Expenses Preliminary Expenses are amortised over a period of 10 Years 2 Previous year figures have been regrouped wherever necessary. Current Year Previous Year Rupees Rupees –––––––––––––––––––––––––––––––––––––––––––––––––––– 3 Contingent Liabilities Nil Nil

4 The Company’s accumulated losses as at 31st March 2007 far exceeds its paid-up capital and reserves as at that date. Since the Directors are looking for right opportunity to explore the similar line of business activity, the Directors consider that it is appropriate to prepare the financial statements on going concern basis. 5 (a) There were no amounts payable to Small Scale Industrial Undertaking on the Balance Sheet date. (b) The Company has not received any intimation from “Suppliers” regarding their status under the Micro, Small and Medium Enterprises Development Act, 2006 and hence disclosures, if any, relating to amounts unpaid as at the year end together with interest paid / payable as required under the said Act have not been given. 6 Additional information required to be given pursuant to Part II of Schedule VI to the Companies Act, 1956 is as follows : The Company is in the business of production of software which is not subject to any licence and as such information regarding consumption of Raw Materials, Production and sales is not applicable. Further the nature of business of the Company is such that the installed capacity is not applicable. 7 Auditors Remuneration : Current Year Previous Year Rupees Rupees –––––––––––––––––––––––––––––––––––––––––––––––––––– Statutory Audit Fees 22,472 22,040 For Other Services 20,000 20,000 –––––––––––––––––––––––––––––––––––––––––––––––––––– 42,472 42,040 –––––––––––––––––––––––––––––––––––––––––––––––––––– As per our report of even date For and on Behalf of the Board

For SHAMIT MAJMUDAR ASSOCIATES VIJAY CHORARIA Chartered Accountants Chairman

SHAMIT MAJMUDAR PARVEZ A. FAROOQUI Proprietor Director Membership No. 10595 MEGHNA GHAI PURI Place : Mumbai Director Date : 27th August 2007 89

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MUKTA TELE MEDIA LTD.

BALANCE SHEET ABSTRACT AND COMPANY’S GENERAL BUSINESS PROFILE

I REGISTRATION DETAILS

Registration No.: U92100MH2002PTC137312 State Code: 011

Balance Sheet Date: 31-03-2007

II CAPITAL RAISED (AMOUNT IN RS. THOUSANDS)

Public Issue NIL Rights Issue NIL

Bonus Issue NIL Private Placement NIL

III POSITION OF MOBILISATION AND DEPLOYMENT OF FUNDS (AMOUNT IN RS. THOUSANDS)

Total Liabilities 500 Total Assets 500

SOURCES OF FUNDS

Paid up Capital 500 Reserves & Surplus –

Secured Loans – Unsecured Loans –

APPLICATION OF FUNDS

Net Fixed Assets 3545 Investments –

Net Current Assets (6897) Misc. Expenditure 73

Accumulated Losses 3779

IV PERFORMANCE OF COMPANY (AMOUNT IN RS. THOUSANDS)

Turnover 108 Total Expenditure 289

Profit/(Loss) Before Tax (181) Profit/(Loss) After Tax (181)

Earnings Per Share in Rs. – Dividend Rate % NIL

V GENERIC NAMES OF PRINCIPAL PRODUCTS/ SERVICES OF COMPANY

Item Code No. Not Applicable

Product Description Product of Television Software

90

90 MAGENTA BLACK Registered Office : 6, Bashiron, 28th Road, TPS – III, Bandra (W), Mumbai – 400 050 ATTENDANCE SLIP I hereby record my presence at the 25th Annual General Meeting of the Company at Whistling Woods Institute Auditorium, Dada Saheb Phalke Chitranagri, Goregaon (East), Mumbai - 400 065 on Saturday, the 29th of September, 2007 at 4.00 p.m.

Member’s / Benefical Owner’s Name (In block letters) : ______

Folio No. / Beneficiary Account No. : ______

Signature of the Member / Beneficial Owner :______

Proxy / Authorised Representative______

Note : Shareholder / Proxy holder wishing to attend the Meeting must bring the Attendance Slip to the Meeting and hand it over at the entrance of the Meeting venue duly signed.

Registered Office : 6, Bashiron, 28th Road, TPS – III, Bandra (W), Mumbai – 400 050 PROXY FORM

I / W e ______o f ______being a Member(s) / Beneficial Owner(s) of the above Company hereby appoint ______o f ______or failing whom ______o f ______as my / our proxy to attend and vote for me / us on my / our behalf at the 25th Annual General Meeting of Mukta Arts Limited to be held on Saturday, the 29th of September, 2007 at 4.00 p.m. at Whistling Woods Institute Auditorium, Dada Saheb Phalke Chitranagri, Goregaon (East), Mumbai - 400 065 and at any adjournment(s) thereof.

Signed this …...... ………….. day of …………………………….2007 Affix Revenue Folio No. / Beneficiary Account No. : ______Stamp

Signature of the Member / Beneficial Owner :______Note : This Proxy form must reach the Registered Office of the Company not less than 48 hours before the time of holding the meeting.