Celebrating a decade of excellence

of our own and co-owned ‘Intellectual properties’ and thereby enhancing our capabilities for worldwide licensing and distribution for all platforms of entertainment including FeatureFilms, TV, Home video, Publishing, Merchandising and Licensing with offices in India, Paris, Tokyo, LA, London and Ireland.

DQE has established a diverse client-partner base DQ Entertainment is a leading global entertainment group consisting of over 100 major producers, licensees and in the business of animation, gaming and live action content distributors from Europe, the USA, the UK and Asian production, licensing and distribution. DQE’s pedigree is countries namely Walt Disney Animation Group – associated globally with major Intellectual Property (IP) worldwide, multiplex of Disney channels, Nickelodeon brands such as The Jungle Book, Charlie Chaplin, Peter Animation Studio Inc. USA, Electronic Arts – USA, Marvel Pan, Iron Man, Casper and many more supported by client- Comics, American Greetings, NBC Universal and BBC partnership with International and national broadcasters, Group-UK, F2-F3-F4-F5 public broadcaster-France, TF1 distributors, licensees and large independent producers TV and TF1 Enterprises - France, M6 TV and distribution, specially in Europe & the USA. France, Canal+ - France, ZDF TV & ZDF Enterprises as well as WDR TV Group – Germany, ABC Australia, We have produced or co-produced and distributed more Al Jazeera –Middle East, TVO/Tele Quebec – Canada, than 60 TV series, direct-to-home videos and feature Turner Asia including Cartoon Network, POGO etc. The films, created real time game animation for online, mobile wide spread client - partner base has enabled us to spread and next-gen console games and now diversified into our business risk. production and distribution of 3D stereoscopic animated feature films.

We commenced our journey in the year 2000 and are now entering our 10th year since establishment of this group. The DQE group has evolved its integrated business model from that of pure service to co-ownership and co- production of international iconic brands with high profile partners across the globe. We are now in development Contents 36 Corporate Governance Report 45 Management Discussion & 03 Financial Highlights Analysis Report

55 Auditors’ Report on 05 Chairman’s Statement Financial Statements

58 Financials 09 Business Update

Auditors’ Report on Consolidated 78 Financial Statements 19 Human Resources @ DQE

79 Consolidated Financials 23 Awards

99 Company Information 25 Board of Directors 100 29 Directors’ Report AGM Notice

Report on Corporate Attendance Slip and Proxy Form 35 Social Responsibility 102 A walk down A WALK DOWN MEMORY LANE... memory lane…..

ain ch ue al 2008-2010 v e h t p u ISO 9001: 2000 certification by Det Norske Veritas for high g n quality of process management i across the company v 2004-2007 o Co-production of prestigious M Establised 3D animation and brands eg. ‘Little Prince’ , gaming divisions ‘Little Nick’, ‘Pinky and Perky’, ‘Large Family’ ‘Charlie Chaplin’, Set-up 4 more Schools of Visual ‘Twisted Whiskers’, ’Tara Arts to train high-end 3D animation Duncan’, ‘Casper’, ‘Iron Man’ 2000-2003 and Gaming talents for rapid and more scaling up Service Productions namely Developed proprietary ‘Production ‘Fan Boy & Chum Chum, The Tracking’ and ‘Resource Penguins of Madagascars – 2 Management’ ERP solutions seasons for Nickelodeon. 2 seasons of Mickey Mouse Club Established 2D traditional & Awarded prestigious contracts House for Disney, USA digital animation division from world majors – ‘Mickey Mouse Club House’ from Disney in 3D Established in-house ‘Training format, ‘TAK’ from Nickelodeon, Launch of own international Center’ the first school of visual God Father/Simpsons/Medal of IP’s ‘The Jungle Book’, ‘Peter arts to train traditional, digital Honour and many game-art and Pan’ and Indian IP’s - Balkand, and rotoscopic animation talents cinematics from Electronic Arts Ravan, Omkar- all supported for scaling up by national and international DQE is the first Indian Company to broadcasters, distributors and Rolled out the animated TV win the prestigious Emmy Award licensees. series ‘Hoze Houndz and for its co-produced TV series ‘Benjamin Bear’ for Canada, ‘Tutenstein’ Listed on Bombay Stock ‘Potatoes and Dragons’ ‘Delta Exchange on March 29 2010 State’,Todd World, Jet Groove Co-production and co-ownership with a record oversubscription of of IPR’s in Television and home and many more for France, the 86.33 times entertainment started with UK, Canada and the USA international partners

Listing of the equity shares of DQE plc at AIM Market of LSE

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Annual Report 2010 DQ Entertainment (International) Ltd. DQE takes pride….

To be the first animation company to obtain ISO 9001 :2008 certification, by DNV Netherlands

In being the first Asian Company to win an EMMY Award and have 16 EMMY nominations to its credit

First to develop own proprietary ERP solutions for vast and complex production tracking and resource management solutions to integrate creative and technical functions directly with HR and accounts functions

In being the first leading animation and entertainment company with over 3000 associates plus many free lancers in Philippines, China, Europe and USA making DQE the largest such production house in its category

First company in its domain to have direct business relations with over 100 marquee clients/partners across the globe

Disney trusted DQE to bring the legendary Mickey Mouse Club House productions to be produced for the first time in a new 3D Avatar

To be the first company to produce several 3D stereoscopic TV series keeping abreast with the current trends in broadcast and audio visual needs globally in future

In being the first Indian Company to create its own international iconic IP’s such as The Jungle Book, Peter Pan and many more for global audiences

To be recognized as one of the top animation producers dqe TAKES PRIDE... worldwide under the Global Animation industry report, published by Screen Digest

To be the first to unleash the power of training high-end animation and gaming as well as VFX in its own and with public-private partnerships, five schools of visual arts to support rapid scaling up of capacity 2 To be the first company in this region trusted to produce a 3D stereoscopic feature film by Warner Bros, France, Studio 37 and Fidelitie Films france with Onyx Films, France for release worldwide in 2011

Annual Report 2010 DQ Entertainment (International) Ltd. Financial Highlights F inancial highlights Financial Highlights

Revenue up by 17% to INR 1,755 million (Previous year: INR 1,498 million)

Adjusted EBIDTA up by 30% to INR 697* million (Previous year: INR 537 million)** Revenue 20000 18000 Profit before tax of INR 269 million 16000 (Previous year: INR 199 million) 14000 12000 CAGR: 39.18% Cash and cash equivalents of INR 582 million 10000 after the investments in expansion 8000 (Previous year: INR 105 million) 6000 4000 2000

* The EBIDTA figure above includes non-recur- Amount in INR lacs ring IPO expenses of INR 95.5 million. 0 2006 2007 2008 2009 2010 ** The EBIDTA figure above does not include the non-recurring gain.

Profit after tax EBIDTA 3,000 7,000 6,000 2,500 5,000 2,000 4,000 CAGR: 57.37% 1,500 CAGR: 90.97% 3,000 1,000 2,000 Amount in INR lacs Amount in INR lacs 500 1,000

0 0 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010

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Annual Report 2010 DQ Entertainment (International) Ltd. F inancial & operational highlights

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Annual Report 2010 DQ Entertainment (International) Ltd. Chairman’s statement Chairman’s Statement

Dear Investors,

It has been a great journey for me and my team, with a decade full of ups and downs in global economies, when DQites have stood together to create, to innovate and lead the change. We have looked at every obstacle as an opportunity to work harder, to achieve and accomplish with humility.

This has been a decade of digital explosion. Increased availability of internet broadband connectivity has enhanced internet usage while 3G technology has further accelerated social networking through Facebook, Orkut, Linked-in or C hairman ’ s S tatement Skype. You-Tube and Twitter have transformed lives like never before. The world has never been so connected as it is now and we are linked far better with our markets. Companies engaged in IP creation have a better understanding of consumer needs and able to develop content better suited for their audiences

We at DQE have watched the changing technical and creative landscape and have been nimble footed to embrace changes quickly or bring changes in our own technology pipeline ahead of time. A perfect example is 3D stereoscopic technology for television and feature films that we have been working on for the last 3 years. Today most of our 3D productions are stereoscopic even for television content while the whole world is gearing up to distribute this fantastic technology to homes and theatres alike.

Tapaas Chakravarti, CMD & CEO DQ Entertainment (International) Limited 5

Annual Report 2010 DQ Entertainment (International) Ltd. The DNA of DQE has embedded strong human value systems of brutal honesty, humility, quality at any cost, keeping promises, ethics and integrity. This has been LEVERAGING ON THE COMBINED EXPERTISE the differentiator for the company and the growth in OF DQE’S GLOBAL DEVELOPMENT AND the top line or bottom line is the effect of these deep LARGE INDIAN WORKFORCE human values and total professionalism at all levels of business practices. I believe that one of the most important differentiators of the Company has been the extraordinary talent and We love what we do, and we do what we love, and commitment of our associates. The young and dynamic it is this that brings us back each morning to help us workforce at DQE has been acknowledged worldwide fulfill our vision and promises to our client partners, for their creative abilities and dedicated team work. We colleagues and investors. We are the dream chasers. have managed to attract and retain the best talent while We are chasing our dream to be one of the world’s finest constantly nurturing and upgrading their skills through houses of animation and entertainment. That dream is internal training and development programmes. Our now close to realisation, as we are now considered objective is to build and consolidate our talent base a respected global producer and one of the largest to achieve bigger milestones and push the bar for creative and high technology shop floor capacities in creativity and quality. Morale and motivational levels of the segment of animation. a highly creative workforce is being very ably managed by a robust HR team while incentives are often non- DQites understand their social responsibilities in a monetary and contribute to a great extent in achieving country like India very well. Through the DQ Smile results. This is further bolstered by high quality creative foundation supported by the associates of DQ we have support from France, the UK, Ireland and the USA. The become one of the largest donors of blood for the needy result is in front of you with the examples of Jungle in our city while other activities are being pursued to Book, Peter Pan, Balkand, Ravan, Iron Man, Casper change the lives of many. and many more.

This journey of a decade towards excellence has been Proprietary ERP solutions created in-house has made very fulfilling and exciting for me and my colleagues. it possible for us to monitor very large productions The company’s financial results are a direct derivative involving over 20 television series, 10+ telemovies and proof of all that I have mentioned above. and a feature film as well as several game art and cinematics at a time.

GLOBAL FOOTPRINT FOCUS AREAS FOR GROWTH

I am proud to report that the credibility of your company C hairman ’ s S tatement has been established amongst the elite entertainment Apart from sizeable organic growth through our fraternity worldwide as recognised by the achievement several production and co-production verticals, we of the highest international quality standards and are targeting several other revenue streams through timely deliveries by its professional, creative and highly high quality branded IP exploitations. We have already motivated workforce. demonstrated high growth potential from:

DQE’s reach and networking is truly global partnering 1. Development and co-development of branded and with the best in India, Europe, North America, Austarila popular intellectual properties; and New Zealand, Asia, the Middle East and Africa 2. Licensing for TV, consumer products and publishing; as well as CIS countries. Licensing of Jungle Book and TV rights in over 160 countries is fine proof of DQE’s 3. Joint development, production and distribution of global sales, distribution and licensing reach. The stereoscopic animated feature films with global Company has a strong presence for high quality partners. development in the US, the UK, France, the Phillipines with a large work force of over 3000+ in India alone. I The Company expects to generate significant growth believe that one of the most important differentiators in its licensing and merchandising business with the of the Company has been the extraordinary talent and exploitation of the rights acquired by the group through 6 committment of our associates. DQE is leveraging on various co production deals, thereby adding to a the best talents available for pre-creative work such healthy bottom line. The Company currently holds a as primary designing, script writing, voice, music and programming library of over 450 hours for TV broadcast some other pre-production from its subsidiaries in with rights in various territories including South East Europe and offices in Ireland, France, the UK and the Asia, Australia and New Zealand, Arabic nations and Phillipines to support the main production in India. Europe, while for its own international IP’s – Jungle

Annual Report 2010 DQ Entertainment (International) Ltd. Book and Peter Pan, the Company holds all worldwide rights including feature films and game publishing. COMMITMENT TO STAKEHOLDERS Our licensing and merchandising deals with global heavy weights such as TF1 Enterprises-France, ZDF As you are aware the IPO of your Company DQ Enterprises-Germany, CPLG-London, Belltex-Belgium, Entertainment International limited, India, received Hachette Livre- for French language publishing an overwhelming response from the market with an worldwide and a plethora of many more licensing oversubscription of 86.33 times. The shares were listed contracts signed are testimony to the potential of our on the Bombay Stock Exchange Limited (BSE) with a brands. magnificient premium of 69% to the issue price listing at Rs. 135 per share while the issue price was Rs 80 The development of IP will also provide the necessary per share. Given the choppy market situation, DQE impetus to the Company to achieve accelerated growth still managed to get a tremendous response from the and the possibility of a 360 degree monetisation of the markets showcasing the strong fundamentals that the C hairman ’ s S tatement IP across various platforms of content distribution. Company has been built on. Currently under development are the iconic productions of The Jungle Book, Peter Pan, Lassie, Charlie Chaplin, We are humbled and inspired by this phenomenal and several Indian IP’s which have been conceptualised response and strive to achieve new heights and deliver and developed by the creative and dynamic Global-I.P. value to all our stakeholders. division of the Company. I take pleasure in presenting the audited results for the A recent article in the Daily Telegraph, UK (16th June, year 2009-10. The entire DQ group is committed to 2010 http://alturl.com/pe3ib) recognised the importance pursue this amazing new journey post listing at BSE of IP development, and how hugely successful with renewed vigor for even better performance in the businesses have been built around IP’s including DQE’s coming years. strategy in developing IP for maximising revenues through 360 degree monetisation. I am happy to announce that in spite of an adverse global economic situation and strengthening of the Rupee, DQE has forayed as mentioned earlier into production of your company has recorded growth in revenues at a 3D animated stereoscopic feature film ‘The Prodigies’ 17% and the PAT has grown 65%. Fiscal year 2010-11 for Warner Bros, Fidelite Films, Studio 37 and Onyx also looks promising, backed by a solid client-partner Films, France. DQE holds rights to develop and base, pure-service and co-production service orders to produce 3D stereoscopic feature films for Jungle Book the tune of INR 620 crores. and Peter Pan - its own IP’s, while negotiations are currently happening with various producers in Europe We are grateful to our esteemed investors, client- and the Middle East for production of animated 3D partners, all DQE associates and learned Board of featue films. I am optimistic as to the positive financial Directors for their continued support, as we strive impact these 3D films will have on the Group’s results to create long-term value for our investors and from 2010 onwards. associates.

The Group has been delivering revenues at a cumulative average growth rate (CAGR) of 27.85% for the last 5 years. The growth has been driven partly by the economies of scale but largely by the changing of its product /revenue mix and moving up the value chain by developing its business model from one of the pure services to major co-productions and original IP Tapaas Chakravarti creation and exploitation worldwide. Chairman, Managing Director & Chief Executive Officer

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Annual Report 2010 DQ Entertainment (International) Ltd. 8

Annual Report 2010 DQ Entertainment (International) Ltd. Business update Business Update

DQE ENTERS GLOBAL MARKETS WITH OWN INTERNATIONAL IP’S IN FINANCIAL PARTNERSHIP AND CO-PRODUCTION WITH Jungle Book originally written Rudyard Kipling and the WORLD MAJORS quality of animation has attracted several networks like Al Jazeera in the Middle East, Disney Multiplex of channels for South East Asia, TVO Canada, EBS Korea and many other TV channels which has resulted in a record pre-sales in approximately 160 countries.

DQE holds world-wide all rights for Free TV, Pay TV, Home Entertainment Video, Theatricals, Publishing, Merchandising and licensing including Gaming. A plethora of licensing deals for consumer products

B usiness update have already been signed for Jungle Book in Europe while a publishing deal has been signed with Hachette, the 80 year old publishing giant in Paris. Jungle Book first appeared in 2D traditional animation in 70’s by Disney and grossed over $ 300 Mn. DQE already has been approached by all the broadcasters and Home entertainment companies to go for a Christmas Special as well as second season i.e, another 52x11’ stereoscopic 3D TV series. This wholly owned IP has opened up multiple revenue streams for the group and is adding substantially to the top line and bottom line and still presents excellent opportunities in the future.

The New Adventures of Peter Pan – This € 9.97 million 3D stereoscopic TV series 26x22’ is being co- produced with Method Animation France, Storyboard Animation France, France Television while several other European and Asian broadcasters and The Jungle Book – 52x11’ 3D HD TV Series and distributors of Home Entertainment have entered into Stereoscopic 60’ TV special will debut world-wide financial and distribution understanding which will be by winter of 2010 co-produced in partnership for announced soon. funding production & distribution with world majors ZDF TV & ZDF Enterprises Germany, TF1 TV This stereoscopic TV series which is pre-sold and in and TF1 International Distribution, France, ABC production now is DQE’s second International global Australia TV, Universal Studio for home video sales IP completely home grown with a quality partnership and co-production with long term co-production with Method Animation, France. It has even better partner Moonscoop - France at a global budget of prospects than The Jungle Book, as predicted by € 9.2 million. The excellent adaptation of the famous French and the German TV giants and licensees.

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Annual Report 2010 DQ Entertainment (International) Ltd. which also have been produced as several full length feature films in the Bengali language for the last 3 decades resulting in being hugely successful with a large cult following. B usiness update

DQE holds the right to produce TV series, Theatrical movie, Home video, Gaming, Licensing for consumer products and publishing of novels, graphic novels and comics as a complete 360° approach to children’s entertainment with this great international property which is well known world-wide.

The Mysteries and FELUDA’ – The first TV movie Balkand, the movie – I and more sequels - ‘Mysteries and Feluda’ based on The late Satyajit Balkand II & III – The 70’ multimillion $ tele-movie Ray’s writings - “The Kathmandu Caper” will debut completely developed and produced by DQE is an on the Disney channels. DQE has world-wide rights adaptation from Ramayana, supported by Turner while Disney multiplex of channels have Indian rights Asia debuted on Cartoon Network & Pogo which for TV broadcast. was a run away success. The Home Entertainment video sales deal for this property has been signed DQE is already developing a complete TV series with Sony Entertainment. and 2 more tele-movies and the commercial process will be announced soon with a leading broadcaster. Now DQE has moved forward with Balkand movie 2 & 3 commissioned by Turner Asia as a result of Mysteries and Feluda has received very good 10 response in Germany, France, Italy and the UK tremendous consumer demand across the nation. while response has also been good in South East Asia. DQE holds right for several detective stories of Balkand was the first Indian initiative by DQE which Satyajit Ray and is weaving tremendous commercial received resounding success in India on Cartoon opportunities around these fantastic children’s Network & Pogo and generating very good traction detective stories written by the maestro himself

Annual Report 2010 DQ Entertainment (International) Ltd. Omkar - I – 70’ Movie completely adapted and developed by DQE’s IP Division will debut this winter on Turner Asia networks’ - Cartoon Network and Pogo. DQE is already in discussionfor development of the second movie which is to be announced soon. B usiness update

world-wide amongst Indian diaspora. Major deals are to be announced soon. This has also triggered Ravan - I – 70’ Tele-movie, the third Indian property several multimillion US$ deals for Indian IP’s conceived and produced at DQE was acquired by produced by DQE . Turner Asia which debuted on Cartoon Network & Pogo is all set to go for second movie soon.

The successful run of Indian properties in India by the International TV Broadcasters has opened up a new window of opportunities for DQE which has started several TV movies and TV series development and production in collaboration with major international broadcasters.

Indian IP revenue stream for television and licensing is multiplying with the increased demand to fill up the gap with much needed high quality Indian animated content for India while produced at a quality suitable for the global market.

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Annual Report 2010 DQ Entertainment (International) Ltd. DQE’ NEW BUSINESS VERTICAL: 3D STEREOSCOPIC ANIMATED FEATURE FILM DIVISION DQE’S MAJOR INTERNATIONAL COPRODUCTIONS THE PRODIGIES: A major break through came with the production of 3-D animated (motion The Little Prince: 52 x 26 minute 3D stereoscopic capture) theatrical feature film “The Prodigies” being animated TV series being produced at a global produced by DQE in partnership with Onyx Films budget of € 18.4 million, is in co-production with France supported by Fidelite Films France, Warner Method Animation, France, French Television major Bros and Studio 37 France at a global budget of $ - France 3, LLPTV-France, Sony BMG, RAI TV Italy, 28 Million. This high quality stereoscopic theatrical OnyxLux, Luxembourg and WDR - Germany. movie will be released in March 2011 by Warner Bros, Studio 37 from Orange group and Kinology world-wide.

DQE forayed into the stereoscopic 3D feature film production with ‘The Prodigies’ while it is already developing four stereoscopic 90’ animated feature films to be released, one each year, starting from 2012 onwards. These announcements will be made public soon after DQE closes its pre-sales and major distribution deals with US and European majors.

With DQE’s philosophy of raising majority of the funds by presales to eliminate any risk these feature films will substantially increase DQE’s revenues and profitability from 2012 onwards. B usiness update

The Little Prince (French: Le Petit Prince) which is now being co-produced at DQE is based on the world famous books of Antoine de saint-Exupery written in 1943. It has been translated into more than 180 languages and has sold more than 80 million copies, making it one of the best selling books ever. Little Prince appeared in theatricals, television, broadway kind of shows non-stop for decades and now for the first time goes into hi-end 3D stereoscopic TV series to be followed by a silver screen theatrical release by 2013. In Japan and France, Little Prince is so famous that they even have a museum of ‘Little Prince’ which includes paintings, portraits and details of all the Broadway and theatre releases and the book releases including display of the various worlds and planets featured in the books of Little Prince. 12 Little Prince museum in Hakone-Japan, Gyongee - Korea and Le petit in Le garde-France have very strong cult following of kids and adults alike.

Annual Report 2010 DQ Entertainment (International) Ltd. Iron Man: 52x11 minutes – Armored Adventures of Iron Man (now in second series) – - is a 3D animated co-production with Method Animation, France and Marvel Animation, USA produced at a Global Budget of €8.2 million. Broadcasters on board are Nicktoons-USA and France Televisions and Disney Channels in many countries. The first season of Iron Man: An armored adventure debuted in the United States on Nicktoons Network in 2009 and continues to air on various networks all over the world. B usiness update –Germany, SND France and Disney Pay TV in many countries with a global budget of € 8.7 million. After successful run for last one year, now Little Nick has gone for second season for another 52x13’ with DQE procuring much larger territories for audio visual and other rights besides co-production service revenues.

Little Nick, the book has sold over 10 million copies in more than 30 countries and has also appeared The character Iron Man debuted in Tales of Suspense first as a Live Action feature film and now slated #39 (March 1963), and was created by writer-editor for an animated feature film to be produced by M6 Stan Lee, scripter Larry Lieber, and artists Don Heck group France. and Jack Kirby. Iron Man has appeared in USA and world-wide as Home Video movie for last 20 years and finally debuted as a major Feature Film with Robert Downey Jr in 2008 and the second one Iron Casper’s Scare School 3D 52x11’ TV Man 2 (2010) grossing over $ 1.18 billion. DQE Iron series Man 3D TV series is riding on the success of the feature films and goes into second season. Warner ‘Casper’ the cute, pudgy ghost-child is one of the Bros. and Marvel are already working on Iron Man 3, most famous properties and the most lovable ghost the live action & animated version of feature film for recognized by children worldwide. After a very 2012 release. successful live action cum animation feature and animated home video, this iconic brand debuted as a high quality animated action packed TV series Little Nick: 52x13 minutes – 3D animated series world-wide, produced by DQE at a global budget based on famous story and character created by of $9.36 million in co production with Moonscoop - late Rene Goscinny, (also the creator of Asterix) is a France, Classic Media - USA , TF1-France, Harvey co-production by DQE, M6 Television & Distribution Entertainment - UK, Nickelodeon, Cartoon Network, company, France; ZDF TV & ZDF Enterprises and YTV. It is also now gearing up for a second season of production. 13

Annual Report 2010 DQ Entertainment (International) Ltd. Tara Duncan’s magical adventures have already captured the minds of millions of children throughout the world. The English translation of the book is set for a spring 2010 release worldwide while the TV series will follow to be broadcasted worldwide in 2011. DQE has sizeable backend and territorial rights for television and home entertainment for this production.

Casper was created in the late 1930s by Seymour Reit and Joe Oriolo. Casper appeared in two more subsequent books by Seymour Reit and Joe Oriol. These were later adapted into Noveltoons before Paramount started a Casper the Friendly Ghost series in 1950, and ran the theatrical releases until the summer of 1959 B usiness update

Galactik Football - 3D animated 26x22 TV series – The third series of this 3D animated series in co-production with Gaumont Alphanim, one of the leading animation and film producers in France and partnering with France 2, Welkin-Animation, Disney XD Europe, Gulli and TV5 is being produced at an estimated production budget of € 6.9 million. Following two successful seasons of the same show, it started airing its 3rd, 26-episode season (produced by DQE) in territories around Europe in June 2010. DQE has greater Asia and Arabic nations as its exclusive territories including a sizeable global backend for this futuristic TV series in its third season.

Tara Duncan- 26x22 minute HD animated 14 series, based on the best selling books by Sophie Audouin-Mamikonian - published in more than 10 countries, is a co-production with Moonscoop, France, M6 Studios-France with a global budget of € 6.4 million. Touted as Harry Potter’s younger sister,

Annual Report 2010 DQ Entertainment (International) Ltd. Lassie and Friends: 52 x 11 minute – Animated series Co-produced at a global budget of $7.8million, based on the iconic canine who even has her own star on the Hollywood walk of Fame and has acted alongside Hollywood legends such as Elizabeth Taylor, Peter O’Toole in so many live action films. Lassie made her Live Action small-screen debut in an Emmy award winning TV series in 1954. Lassie in its multi billion dollar revenue stream for last 50+ years has a colorful history of 12 live action feature films between 1945-2005 acting with Elizabeth Taylor, Paul Stewart or Peter O’Toole and getting her PAW imprinted on the Walk of Fame in Hollywood. The Live Action Lassie appeared in TV series with more than 670 x 1/2 hour shows for 20 years till late 1990’s. B usiness update

Charlie Chaplin: 104 3D Stereoscopic shortfilms – DQE is co-producing with Method Animation and MK2 France in collaboration with France Television and WDR TV Germany at a budget of Euro 8 million.

Method Animation, a partner company of DQE has now obtained rights for one Charlie Chaplin feature film in 3D stereoscopic to be co-produced with DQE. 3 time Oscar winner, 5 Oscar nominated Sir Charlie Chaplin is known as “the only genius of the movie industry” quoted by Sir George Bernard Shaw. DQE is extremely fortunate to have got along with its French partners MK2 and Method Animation rights from the Charlie Chaplin Estate to co-produce 3D Lassie for the first time in her new adventure goes Stereoscopic 104 short films and is also developing into hi-end animated series co-produced by DQE and will announce shortly about a full Charlie Chaplin with Classic Media USA, Gaumont-Alphanim, theatrical movie with Method Animation. France and ZDF TV & Distribution group – Germany to debut in the winter of 2011 globally. DQE has all DQE holds complete Greater Asia rights for television rights for television and home entertainment for rest and home entertainment and also has backend profit of the world except North America including sizeable sharing on the global licensing and TV deals with its backend sharing globally with its co producer Classic coproducers. Media Group, USA. Classic Media the original right owners of the property are also original rights owners of Casper the friendly ghost and will hold rights for North America while rest of the world will be handled by DQE.

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Annual Report 2010 DQ Entertainment (International) Ltd.

DQE has an asset base of over 400 hours of animation content from which it can earn annuity revenues through licensing and distribution. The Hive” 3D HD, 78x7’ – colorful animated series being co-produced by DQE with UK based conglomerate, The Hive Entertainment, Lupus Films, Monumental Productions, Bejuba Entertainment which has been pre sold to Play House Disney channel in 150 countries and is being produced at a global budget of Rs 24 Crores. This is the second co-production with the UK based conglomerate after successful co-production of Pinky & Perky 3D 52x11’ with BBC UK and France 5 Television – France. DQE has major terrestrial and back end rights for this beautiful 3D series for pre school children. B usiness update

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Annual Report 2010 DQ Entertainment (International) Ltd. DQE‘s Successful Licensing Deals for Merchandising and Publishing

DQE with the success of its IP’s and co productions, has concluded several global licensing for merchandising, deals for all platforms of television, home entertainment, DVD sales, publishing of books and video games

Exclusive publishing-licensing deal for The Jungle Book with Hachette Livre, France for French language worldwide. Hachette has the right for publication of The Jungle Book in six key segments that include story books, activity books, novelty books, workbooks and home learning, chapter books-novelisation and e-books.

World Series 2, Maryoku Yummy Season I and

B usiness update The Jungle Book Season I on Media Corp’s Okto channel in Singapore.

Exclusive licensing deal with Sony Pictures Home Entertainment for Home Video distribution of 7 animated properties co-produced by DQE.

A broadcast deal with Walt Disney Television International’s – Hungama TV for broadcast of “Twisted whiskers” a CG animated TV series co- produced by DQE with American Greetings and Mike Young Productions USA, on India’s favourite children’s TV channel.

Broadcasting agreement with Israel’s leading independent television content producer & broadcaster, “Noga Communications Ltd”(Noga), Israel for the broadcast of “The Jungle Book”, a 52 episodes 3D-HD animated series. The Noga’s multiplex of channels , “The Children Channel”, “ Channel 8” and “Logi Channel” have a large share of the entertainment market in Israel.

Deal for exclusive free-to-air TV rights with MediaCorp Pte, Singapore Ltd for three of its Animation TV properties. Under the terms of this agreement, MediaCorp can broadcast Todd

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Annual Report 2010 DQ Entertainment (International) Ltd. An exclusive broadcast deal with Al Jazeera Children’s Channel (JCCTV) for the 52 episode animated series and the 60 minute TV Feature of The Copyright Promotions Licensing Group ‘The Jungle Book’. This agreement will allow Al Limited (“CPLG”), Europe’s leading licensing Jazeera exclusive broadcasting rights across 22 agency, for licensing and merchandising has Arabic countries for a term of five years. signed a 3 year agreement with DQE for the high-end 3D animation TV series ‘The Jungle Book’. CPLG will be responsible for product merchandising, publishing, promotions and direct to retail strategy for multiple territories in Italy, including Canton Ticino, San Marino, Vatican City, United Kingdom and Eire, Spain, Portugal and Japan. Under the terms of the deal CPLG will act as DQE’s licensing & merchandising agent for these territories. The collaboration will provide additional opportunity to maximize licensing and distribution revenue from the Jungle Book production.

In addition, DQE has signed a second deal for ‘fabric products’ with Belgium based N V Belltex and some more deals as follows for “The Jungle Book”:

Free-to-air TV deal with Tele – Quebec, Canada

Merchandising deal with School Pack, France, A Free-to-air Television license agreement with for back-to-school items B usiness update Metropolis TV Inc for the 26 episode animated television series of Iron Man with the right to Free-to-air TV deal with EBS Korea, Korea broadcast in ASEAN countries. The Pay-TV rights for the ASEAN region were acquired by Merchandising deal with Off Road Ltd., France, Turner Entertainment Network Asia ( TENA) for for snickers and shoes their leading kid’s channel - Carton Network from DQE which owns the audio visual rights to the Licensing deal with Quick Times, France, a fast Iron Man animated series in this region. food chain of restaurants

Multiple deals for licensing and merchandising for DQE firmly believes in all inclusive growth by de- ‘The Jungle Book’ with D’arpeje SA, Paris, School risking the budgeting process but have expanded Pack, Paris for manufacturing and sale of ‘back- horizontally into major IP ownerships for globally to-school’ products ( including school bags, packs renowned brands with marquee partners which has and other school related items.) D’arpeje SA, opened up several additional revenue streams which paris has also been authorised to manufacture will accelerate growth and profitability. outdoor products such as tents, balls, inflatables, punching bags, gloves, garden equipment, tyres among a range of other products with Jungle Book characters and themes.

Ahim Fried Limited, Israel along with D&C TV limited TV Israel will manufacture and sell a 18 variety of bedroom items for children branded with Jungle Book characters, including quilts, pillows, blankets, bed linen, towels and other items.

Annual Report 2010 DQ Entertainment (International) Ltd. Human Resources @ DQE

Identifying right talent, hiring and retaining skilled associates are critical success factors for Human those candidates who clear the technical test are Resources (HR) in DQE. required to appear for a personal interview. The interview panel comprises of technical heads and In DQE, HR department is part of the strategic recruitment heads who select the candidates based decision making team and is involved in several on their technical abillity and individual profile. functions i.e.

Sourcing the right talent Compensation & Benefits

Compensation & benefits One of the major drivers for HR to retain the highly trained / skilled manpower is rewarding of Performance appraisal & performers. From time to time the Management Associate Development reviews its current compensation parameters and

H uman resources @ DQE proactively recommends the changes for all critical Associate engagement positions. All associates undergo a review of their compensation vis-a-vis their performance annually. Awards & Recognition

Welfare Measures – Mediclaim, Group Term Performance Appraisal & Associate Development Insurance etc. The organization has a very robust appraisal system, Quality Certification – ISO 9001:2008 wherein the individual productivity is being tracked through an on-line tracker. One on one quarterly Automation of HR Processes reviews between the artist and their Team Leads along with Project HR are undertaken. DQ Smile Foundation (CSR Activity) Annual review by the Project Manager on individual Training & Development performance results in recommendation for higher job responsibilities. Head of the Functions form as a part of the Review Panel and approvals are given Sourcing the right talent based on the overall scenario.

One of the major and critical functions of HR in DQE is identifying the right skill and placing them Associate Engagement at the right time. A robust recruitment system and selection process involves two levels of screening. One of the critical role being played by Project HR First the applicant has to give a technical test which is engaging artists with various floor activities from incorporates international project complexities and time to time which helps them to overcome the monotony at work place and help associates to be more energetic & enthusiastic.Various activities 19

Annual Report 2010 DQ Entertainment (International) Ltd. such as – Theme Day (Traditional Attire), Rangoli, Treasure Hunt, Quiz, Project Completion parties, Inter Divisional Sports, Health Awareness programs etc. are conducted.

Awards & Recognition

Annually in the month of December, an Awards Night is conducted wherein best talent is recognized and appreciated. There are circa 43 categories, for which there are four nominations per category, Winners receive momentoes & a certificate of appreciation from our Chairman and distinguished guests.

Long Service Awards are awarded to all the associates who have completed minimum FIVE Painting Competition conducted at Government High School, years of association with DQE. Hyderabad on the occasion of celebrating DQE’s 10 years of excellence

Automation of HR Processes H uman resources @ DQE The exponential growth of the Company has required us to upgrade to a Technology driven HR function. Our journey towards paper less processes has resulted in online processes of – HR Information Systems (HRIS), Online Leave Management Systems (OLMS), Payroll Management, ISO portal, Training & Development (ILEAD), Recruitment Management System (ORMS), Time Office, Joining & Induction (OJD). A dedicated team is working on integrating all databases and designing an ERP package specific to the Industry.

DQ Smile Foundation presented a cheque to LV Prasad Eye Institute

Welfare Measures

DQE Management is very concerned about the well being of its associates and all associates are covered under the Group Mediclaim policy wherein the individual and their immediate family members are covered under Group Mediclaim Policy.

Another policy is the Group Term Insurance Policy which covers all DQ associates under this policy.

Quality Certificate – ISO 9001:2008 20 Sumedha Saraogi, Sr.Vice President-Global Business Development We are an ISO 9001:2008 certified organization with & DQE Team presenting the mementoes to the winners of painting competition conducted at Government High School, Hyderabad Det Norske Veritas (DNV), Netherlands being the audit body which periodically audits our processes. A recently concluded audit confirms our compliance to the latest guidelines by DNV globally.

Annual Report 2010 DQ Entertainment (International) Ltd. DQE’s associates can log into “I LEAD”, an exclusive Training Portal, (http://training.dqentertainment.com) and select the training programme of their choice.

Percentage of Various Training Programs during April 09 - 10

19% 31% English Language

Soft Skills & Business Communication

External / Technical Visit to a charitable society in Hyderabad Training 50% DQ Smile Foundation DQE has been a trend setter in the Indian Animation As part of “GIVING BACK TO SOCIETY” the Smile industry with our various HR initiatives. Our Foundation has been formed and there are various transparent working culture and various Associate activities which are carried out under the aegis of engagement initiatives help us to attract & retain the DQ Smile Foundation. Some of the recent activities best talent. Last year, close to 358 professionals performed through the foundation are – Donation for were hired and have become DQE family members. Flood victims, Blood donation camp etc. H uman resources @ DQE Training & Development (T&D)

DQE believes that staff empowerment occurs only through proper training-both internal and external. We follow the methodology of making our training innovative, interactive and participative. In DQE, training is a planned effort to facilitate Associates’ learning of job-related competencies, to master the knowledge & skills emphasized in training programs, and to apply them in their day-to-day activities.

At the very outset, T & D identifies measurable learning objectives. Evaluation plays an important part in planning and choosing a training method. Visit to Ashritha Children’s Home Quality is our motto at DQE, hence the methods and processes are meticulously designed to suit the needs of the clients/partners and also the Associates who come from a wide variety of backgrounds, ages, education, ethnicities, physical abilities, and races by creating a work environment that allows them to be innovative. Training effectiveness is checked periodically through follow-up sessions, to see if the trainees are able to apply the knowledge and skills acquired in the Training Workshops.

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Annual Report 2010 DQ Entertainment (International) Ltd. H uman resources @ DQE H uman resources at DQE

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Annual Report 2010 DQ Entertainment (International) Ltd. AWARDS Awards

DQE has received recognition and awards at several national and international forums. This has not only been an affirmation of the quality of work produced at DQE but has helped to foster creativity and excellence.

E & Y : Entrepreneur of the Award Ceremony – 2009

Ernst & Young, Entrepreneur of the Year – 2009 India Awards: Tapaas Chakravarti was nominated as a finalist for the awards Ernst & Young, Entrepreneur of the Year – 2009 India Awards, short-listed as one of the 18 finalists from a total of 310 nominees from different industry segments for the prestigious Ernst & Young’s annual business award this year.

Movers & Shakers of 2009 award at the 6th Annual 24 FPS Animation Awards 2009

The UK Broadcast Awards 2010: ‘Pinky & Perky’, 52-part CGI animated series was nominated for the Best Children’s Series Award at The UK Broadcast Awards 2010.

Sichuan TV Festival International “Gold Panda” Awards: ‘Skyland’, 26 x 22” TV Series co-produced by DQE and Method Films was nominated under Best Playright at the Sichuan TV Festival International “Gold Panda” Awards for animation-China.

The Emmy Awards, administered by the National Academy of Television Arts & Sciences, recognizes excellence within various areas of the television industry.

Tutenstein TV series co-produced by DQE with Porchlight Entertainment, USA, for Discovery Kids USA, won the 2007-Day Time Emmy in the Outstanding Special Class Animated Program.

Disney’s Mickey Mouse Club House and PBS; Postcards From Buster, service productions by DQE received nominations at the 35th Day Time Emmy awards.

Todd World TV series produced by DQE for Discovery Kids & BBC was nominated in 2007-Day Time Emmy Awards. This series was also nominated for an Emmy in 2005 and 2006.

Curious George a service production for Universal and PBS Kids, was nominated in 2007.

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Annual Report 2010 DQ Entertainment (International) Ltd. Tapaas Chakravarti, Chairman & CEO of DQE has been inducted as a lifetime member of the board of the International Academy of Television Arts & Sciences.

Pulcinella Awards: at Cartoons on the Bay, Italy - the annual festival of television animation organised by RAI Trade, the most prestigious animation awards in the region:

The Pinky & Perky show, a DQE, Pinky and Perky Enterprises and Method Films co-production for CBBC and France 3 was nominated in Pulcinella Awards 2009 under TV Series for Teen Generation.

Twisted Whiskers, a DQ Entertainment, American Greetings, USA and Taffy Productions, LLC and Pet Pals, a Gruppo Alcuni & DQ Entertainment Co Production were nominated for Pulcinella Awards 2009 under Crossmedia Project category.

Annecy 2009 : The Pinky & Perky show, a DQ Entertainment, Pinky and Perky Enterprises and Method Films co- production for CBBC and France 3 was nominated for Annecy Awards 2009.

CIAK JR Film Festival 2009, Italy – Dreams come true: DQE has been representing India at the CIAK JR Film Festival for four years and won Jury Awards every year. ‘Dreams Come True’ Live Action Short Film produced by DQ Entertainment for CIAK JUNIOR Festival has won the JURY Award at Ciak Junior festival in Treviso, Italy, under the Traditional Category. awards

AIM Awards 2008: DQ Entertainment (International) Ltd was nominated under the Best Newcomer category for the AIM Awards 2008.

FICCI BAF Awards 2008 - Tapaas Chakravarti, CMD & CEO of DQ Entertainment, was awarded a special recognition award at the 2008 FICCI BAF for his contribution to the Indian Animation Industry.

At Asia’s largest convention on the business of entertainment ‘FICCI Frames’ saw DQE productions received 4 nominations; Fantastic Four, Sky Land, Tak & Mickey’s Great Club House Hunt, service and co-productions of DQE, in various categories. Skyland, the futuristic TV series co-produced with Method Films SA, France, won the 2007 BAF award, at FRAMES, for best VFX in the TV series category.

London Manga Festival’07: Skyland TV series received a nomination.

Best Entrepreneur of the Year: Tapaas Chakravarti was awarded the “Best Entrepreneur of the Year” by the All

India Management Association, HMA, Hyderabad, India. This award recognised outstanding entrepreneurship, D irectors ’ R eport innovation and strategy, exemplified by the high levels of growth and performance of the organisation.

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Annual Report 2010 DQ Entertainment (International) Ltd. Board of Directors

TAPAAS CHAKRAVARTI Chairman, Managing Director & Chief Executive Officer As on March 31, 2010, Mr. Tapaas Chakravarti held directorships in DQ Entertainment plc, DQ Entertainment (Mauritius) Limited and Zenithal Private Tapaas Chakravarti with over Limited. two decades of International Corporate Management experience has helped to shape the success story K BALASUBRAMANIAN of his creation, DQ Entertainment group. Tapaas Non-Executive Independent began his career with Sandoz India Limited (now Director Novartis, a Swiss Multinational) and later joined STP Limited, an infrastructure company. Tapaas K.Balasubramanian (Bala) has has held senior positions in Sales and Projects at close to 40 years of experience Coats of India, (a British multinational). He was in international banking and Head of Special Projects for Sriram Group where finance. After working in India he developed countrywide contract manufacturing with two of the largest banks activities. Tapaas is a science graduate with Post for around 10 years, he joined American Express Graduate Qualification in Business Management Bank in 1973. He held senior positions in marketing, backed with over 23 years of experience spanning credit, risk management and general management across industries both national and multinational. in several countries across Asia (Singapore, Hong Kong, Korea and Indonesia) and Europe (Italy and the Tapaas believes in individual excellence to be UK) during his 25 years with American Express. His B oard of directors integrated into a well-knit teamwork and unstinted last three assignments with American Express Bank support to ethical business practices. This has were Country Head for Korea (1988-1991), Country lead to the creation of a large workforce in DQE, Head- India (1992- 1994) and Chief Credit Officer for cohesively knit together with very high quality Asia, Pacific and Indian Sub Continent (1994 – 1997). business, operational and creative leaders driving He was an Advisor to National Bank of Kuwait, the the exceptional growth of the company. largest bank in Kuwait, between 1997 and 2001 and subsequently the Managing Director & CEO of ING He is a part of several national and international Vysya Bank (2001- 2002). Bala is currently associated charitable organizations, which includes extensive with GMR Group, which is a leader in development work for orphans, AIDS effected children and and operation of infrastructure assets in airports, education for the deprived eg. AGAPE, India, Figli roads and energy. He is a graduate in Commerce and Del Mondo, Italy. He is also an active member on has done an advanced Management Program from the Board of the Indo-British Partnership and is a the Harvard Business School. member of the Young Presidents Organization. He has been recently elected as a member of EMMY As on March 31, 2010, K Balasubramanian held – The Academy of Television Arts & Sciences, directorships in DQ Entertainment plc, GMR Holdings Los Angles, USA. In the year 2009 he has been Private Limited, Easy Access Financial Services nominated for the ‘Ernst & Young, Entrepreneur of Limited, GMR Industries Limited, Raxa Security the year 2009 India Awards’. Services Limited, GMR Varalakshmi Foundation, Grow Talent Company Limited and Coromandel Fertilizers Limited. 25

Annual Report 2010 DQ Entertainment (International) Ltd. THERESA PLUMMER- ANDREWS Non-Executive Independent corporate clients and advised institutional investors Director in their investment decisions. Girish also had shared responsibility for asset allocation across different Theresa Plummer-Andrews asset classes (equity and fixed income). He has brings to the Board over 40 years extensive public markets experience, having been of experience in the creation and involved in more than 30 IPOs in the Indian capital production of children’s programming. Starting from market and several M&A assignments. Portman Productions, UK as a Production Manager with a domain spanning over Asia, Australia and UK, Girish received a Bachelors Degree in Engineering Theresa rose to the position of global Production from the Indian Institute of Technology, Mumbai, Manager. In 1974, she became Head of Production India in 1987 and a Masters Degree in Business for Global Television to look after ABC, Australia Administration from the Indian Institute of and TVNZ, New Zealand, Scottish Television and Management at Ahmedabad, India in 1989. He Southern TV Limited. In 1986 she joined the BBC as serves on the Board of Directors of Bill Forge, an Executive Producer for Children’s Programming. Cbay Systems, Enzen Global Solutions, Sansera B oard of directors Her role was extended as Head of Acquisitions Engineering, Servion Global Solutions, and KSK and Creative Development for BBC Children’s Energy Ventures. International programming. She was responsible for BBC World-Wide, while still retaining her role as As on March 31, 2010, Girish Kulkarni held Head of Acquisitions and Co-Productions at BBC. directorships in Suyash Outsourcing Private Limtied, Topwave Trading Company Private Limited, GNS As on March 31, 2010, Theresa Plummer Andrews Outsourcing Private Limited, Sansera Engineering held directorship in DQ Entertainment plc. Private Limited, Bill Forge Private Limited, CBay Systems (India) Private Limited, Enzen Global Solutions Private Limited, KSK Energy Ventures GIRISH KULKARNI Limited, Serviont Global Solutions Limited and Gatil Non-Executive Independent Properties Private Limited Director

Girish Kulkarni is the Founder RASHMI CHAKRAVARTI and Managing Director of Executive Non Independent Suyash Advisors, the advisors Director to Monsoon Capital, an India dedicated alternative asset fund, managing $ 500 Rashmi Chakravarti holds million for investment in Indian publicly traded bachelors degree in fine arts equities, private unlisted companies and real estate. followed by bachelor’s degree He is also the Founder and Managing Director of TDA in education for multimedia. She Capital India, which manages the India Technology founded DQ School of Visual Arts and has been Fund, an early stage venture fund, invested in IT and instrumental as the principal of the school and head BPO Services companies. of the training division to train and produce over 2000 students since 1999 who are high quality employees Girish has a total of 20 years operating and of the Company. investment experience in different aspects of the Indian capital markets. He started his professional For the last 11 years she has dedicated to the career as a Project Finance Officer with ICICI where development of training programs/ modules of International standards for various forms of animation he was involved in leading term lending transactions 26 with more than 30 Indian corporations. After that, he and acting skills. She has helped the Company to was head of Equity Sales, Trading and Research at expand its training facilities in Hyderabad, Mumbai ICICI Securities, then a joint venture between ICICI and Chennai including public/private partnership and JP Morgan. Girish was responsible for founding in Kolkata with Government of West Bengal, two and leading a team of 40 professionals that made training units in collaboration with the Government proprietary investments, raised equity capital for of Madhya Pradesh, one training unit with the Government of Rajasthan. In another initiative under

Annual Report 2010 DQ Entertainment (International) Ltd. the train the trainers program she has now trained over 70 mentors of International quality who are not only mentoring new students time to time but also As on the date of his appointment, Neelesh Wagle helping existing employees to upgrade technical held directorships in Suyash Outsourcing Private skills. Limited, Topwave Trading Company Private Limited and GNS Outsourcing Private Limited. As on March 31, 2010, Rashmi Chakravarti did not hold any directorship in any other companies.

CA S.SUNDAR SRINIVASA RAGHAVAN NEELESH WAGLE Additional Non-Executive Alternate Non-Executive Independent Director Independent Director to Girish Kulkarni CA S.SUNDAR SRINIVASA RAGHAVAN is the founder- Neelesh Wagle Managing partner of the chartered Director, Suyash Advisors accountant firm S Sonny Associates based in Neelesh Wagle is a Managing Chennai, started in 1986. A Fellow Chartered Director of Suyash Advisors, Accountant, Sundar has over twenty years of post- the India advisory team for Monsoon Capital, qualification professional practice experience to his and is responsible for research on public market credit. His key focus area is Statutory Audit and investments since 1994. Neelesh has investment Internal Audit of Government Organizations, Public experience in Indian capital markets, both on the Sector Undertakings, Private Limited Companies sell side and buy side in international investment apart from Public Sector and Private Sector Banks. firms. Neelesh re-joined Mr. Girish Kulkarni in 2000 He also has extensive exposure to Systems Audit, at Suyash’s predecessor firm, TDA Capital, where Credit Audit, Computer-to-Computer Link and he has been directly responsible for investments in Internet Based transaction Facility Audit. His firm public equities, PIPEs, private companies as well as is empanelled with Comptroller & Auditor General

B oard of directors a sub-advisor to several multi-billion dollar US hedge of India and RBI, among others. His firm is one of funds. Prior to TDA, he was a Senior Associate the Central Statutory Auditors of Syndicate Bank. with Bank of America Equity Partners (BAEP-Asia) He was Chairman of Audit Committee of Chennai from 1998-2000. At BAEP-Asia, Neelesh was part Central Co-Operative Bank Ltd., Tiruvannamalai of a 2-member team responsible for investing and District Central Co-operative Bank Ltd., Vellore managing $43 million of Indian investments in a District Central Co-operative Bank Ltd., and $250 million Asian principal investment portfolio. He Kancheepuram District Central Co-operative Bank was also involved in technology investments in the Ltd. He has passed the Information Systems Audit- Asian region. Prior to BAEP-Asia, Neelesh worked as ISA (Indian equivalent to CISA of USA) of the Institute technology and telecommunications analyst at ING of Chartered Accountants of India. Barings in Mumbai and at ICICI Securities between 1994 and 1998 advising foreign institutional clients on investments in Indian equities. Neelesh received a Bachelors Degree in Electrical Engineering from the Indian Institute of Technology, Mumbai, India in 1992 and a Masters Degree in Business Administration from the Indian Institute of Management at Calcutta, India in 1994.

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Annual Report 2010 DQ Entertainment (International) Ltd. Animated Series 52x11' B oard of directors and management

28 in HD

DQ Entertainment (Ireland) Limited, Ireland & Classic Media Distributors Limited, UK

Annual Report 2010 DQ Entertainment (International) Ltd. Directors’ Report Directors’ Report

D irectors ’ R eport To The Members DQ Entertainment (International) Limited

Your Directors have pleasure in presenting the third annual report on the business and operations of DQ Entertainment (International) Limited (“The Company”) and its 100% subsidiary company DQ Entertainment (Ireland) Limited (together referred to as the Group) for the period ended March 31, 2010.

Business

The year gone by has been quite eventful and DQE’s first home grown IP, ‘The Jungle Book’ is exciting especially as the Group is slowly and being produced with International partners as a steadily making its way into the distribution, licensing high end 3D 52x11 minutes TV series and is slated and merchandising segment of the entertainment for release in mid 2011 while several Indian IPs like industry. DQE has established itself as a recognized Mysteries & Feluda, Omkar, Balkand I, II and III are entertainment group world wide with marquee brand being produced with International Broadcasters. ownerships such as The Jungle Book, Charlie Chaplin, Peter Pan, Iron Man and many more. During the year DQE had an impressive foray into the production of 3D animated stereoscopic feature The total income for 2009-10 has gone up by 17 films % from Rs. 1509.08 million in Fiscal 2009 to Rs. 1766.07 million during fiscal 2010. Our revenues from Licensing and Distribution have increased from Financial Highlights Rs. in Thousands Rs. 74.63 million to Rs. 215.10 million at a growth rate of 188%. Profit after tax increased by 65% to Particulars For the For the Rs. 266.72 million as against Rs. 161.23 million in year ended year ended the previous year. March 31, March 31, 2010 2009 Our strategy has been to expand our footprint in the Total Income 1,766,067 1,509,076 entertainment segment and consolidate our portfolio Total Expenditure 1,497,555 1,309,986 of global and Indian IPs for worldwide distribution, licensing and merchandising. Profit before tax 268,512 199,090 Tax Expense (Current (1,791) (37,858) Currently our library has a little over 450 hours of Tax+ Deferred Tax+ content for TV broadcast with rights in various Fringe Benefit Tax) territories including South East Asia, Australia-New Profit after tax 266,721 161,232 Zealand, Arabic nations, Europe etc. DQE’s library comprises legendary brands including Iron Man, Casper, Jungle Book, Peter Pan, Charlie Chaplin, Little Prince, Feluda, Tara Duncan, Lassie for DIVIDEND revenue exploitation. The Directors do not recommend payment of any dividend for this financial year. 29

Annual Report 2010 DQ Entertainment (International) Ltd. INITIAL PUBLIC OFFER

As you are aware, the Company’s Initial Public Offer SUBSIDIARY (“IPO”) which was open from March 8th to March 10th 2010, received an overwhelming response from Our Company has a wholly owned subsidiary, DQ investors and was subscribed 86.33 times. The HNI Entertainment (Ireland) Limited (“DQ Ireland”), portion was subscribed 272.88 times. The qualified incorporated in Ireland which is engaged in the institutional and retail investors’ reserved portions business of content development for animation and were subscribed 93.86 times and 19.45 times, live action for TV series, movies and various other respectively. The equity shares of the Company media. were listed on the Bombay Stock Exchange Limited (BSE) on March 29 2010. The opening price was Rs. The Company has been granted exemption for 135 per share, representing a premium of around the year ended March 31, 2010 by the Ministry of 68.75% to the issue price of Rs. 80 per share. SBI Corporate Affairs from attaching to its Balance Capital Markets Limited, were the book running Sheet, the individual Annual Report of its subsidiary lead managers and the syndicate members to the company. As per the terms of the Exemption Letter, issue were SBICAP Securities Limited, India Infoline a statement containing brief financial details of the Limited and Yes Bank Limited. Karvy Computershare Company’s subsidiary for the year ended March Private Limited is the Registrar to the issue. 31, 2010 is included in the Annual Report. The annual accounts of this subsidiary and the related We would like to thank the investors for their detailed information will be made available to any overwhelming response and trust in the fundamentals Member of the Company/its subsidiary seeking such of the Company. information at any point of time and are also available for inspection by any Member of the Company/ its subsidiary at the Registered Office of the Company/ INCREASE IN SHARE CAPITAL its subsidiary and would be posted on the website of the Company. Authorised Capital: The authorised share capital of Rs. 38,100,000 divided into 3,010,000 Equity Shares and 800,000 1% Redeemable Optionally Convertible DIRECTORS Non Cumulative Preference Shares of Rs. 10 each was reclassified and increased to Rs. 800,000,000 Mr. Rusi Brij, the co-promoter and Director of the divided into 80,000,000 Equity Shares of Rs.10 Company unexpectedly passed away on May 20, each, pursuant to a resolution of the shareholders 2009. The Board of Directors and all the associates passed on September 15, 2009. of DQE condone this untimely demise and stand by the family with full support. Paid up Capital: On September 17, 2009, the Company had issued 58,011,920 bonus shares in Mrs. Rashmi Chakravarti was appointed as the ratio of 40:1 pursuant to capitalisation of the Additional Director on May 25, 2009 and was share premium account. The Company had allotted regularized at the Annual General Meeting held on an aggregate of 3,772,771 Equity Shares for cash September 15, 2009. D irectors ’ R eport at a price of Rs. 68.11 per Equity Share (including a share premium of Rs. 58.11 per Equity Share) Mr. K Balasubramanian, Ms. Theresa Plummer on December 23, 2009 and January 06, 2010. Andrews, Mr. Girish Kulkarni and Mr. Sanjay Further, the Company issued 16,048,011 equity Saxena were appointed as Additional Directors of shares of Rs. 10 each for cash at an issue price of the Company on August 26, 2009 and regularized Rs.80 determined through the 100% book-building at the Annual General Meeting held on September mechanism in accordance with the SEBI (Issue of 15, 2009. Capital and Disclosure Requirements) Regulations 30 2009 in the Initial Public Offering (“IPO”). Mr. Akula Ramakrishna and Mr. Laxminarayana Nagu resigned from the Board on August 26, 2009. Due to this, the outstanding issued, subscribed Mr. Sanjay Saxena resigned from the Board on and paid-up equity share capital increased from September 17, 2009. 1,422,912 shares in March 31, 2009 to 79,283,000 shares as at March 31, 2010.

Annual Report 2010 DQ Entertainment (International) Ltd. On April 30, 2010, Mr. Neelesh Wagle was appointed as an Alternate Non-Executive Director to Mr. Girish Kulkarni. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS On July 26, 2010, Mr. S Sundar was appointed as an AND OUTGO Additional Director of the Company. (i) Energy Conservation: The operations of the D irectors ’ R eport As per Article 109 to 115 of the Articles of Association, Company involve low energy consumption. Adequate Mrs. Rashmi Chakravarti and Ms.Theresa Plummer measures have however been taken to conserve Andrews shall retire by rotation at the ensuing energy. Annual General Meeting. Mrs. Rashmi Chakravarti and Ms. Theresa Plummer being eligible are liable (ii) Technology Absorption: We have developed in- for re-appointment. house plug- ins to maximise technology absorption at minimal cost. The Company produces TV series The detailed profiles of all the directors are available in the 3D stereoscopic technology which is the latest under the chapter Board of Directors. offering in the entertainment industry. (iii) Foreign Exchange Earnings and Outgo: AUDITORS (Rs. in Thou- (Rs. in sands) Thousands) M/s. Deloitte, Haskins and Sells, Chartered 2009-10 2008-09 Accountants, Hyderabad, the statutory auditors of the Company shall retire at the ensuing Annual a) Value of export earnings: General Meeting and have confirmed their eligibility Income from production 1,358,447 1,344,366 and willingness to accept office, if re-appointed. License Fees 90,516 43,472 b) Value of export out flows towards: PARTICULARS OF EMPLOYEES AND OTHER Travel 1,837 4,229 ADDITIONAL INFORMATION Production Expenses 62,693 17,928 In terms of the provisions of Section 217 (2A) of the Professional and Consultancy 7,516 19,459 Companies Act, 1956, read with the Companies Charges (Particulars of Employees) Rules, 1975, the names Financial Charges 5,242 16,634 and other particulars of employees are required to Others 1,523 4,963 be set out in the Annexure to the Directors’ Report. However, the provisions of Section 219 (1) (b)(iv) of the Companies Act, 1956 exempts the Company from publishing the same in the Annual Report. Hence, the Annual Report excluding the aforesaid DIRECTORS’ RESPONSIBILITY STATEMENT information is being sent to all the members of the Company and others entitled thereto. Any member Pursuant to Section 217 (2AA) of the Companies interested in obtaining such particulars may write to Act, 1956, your Directors confirm that; the Company Secretary at the Registered Office of the Company. i) In the preparation of the annual accounts for the financial year ended on March 31, 2010, the applicable accounting standards had been followed along with proper explanation relating to material departures, if any.

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Annual Report 2010 DQ Entertainment (International) Ltd. ii) The directors had selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a 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. iii) Proper and sufficient care had been taken for the maintenance of adequate accounting records in accordance with the provisions of this Companies Act, 1956 for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities; iv) The Directors had prepared the annual accounts for the financial year ended on March 31, 2010 on a ‘Going Concern Basis’.

CORPORATE GOVERNANCE REPORT AND MANAGEMENT DISCUSSION AND ANALYSIS STATEMENT

A report on Corporate Governance is attached to this Report as also a Management Discussion and Analysis statement.

ACKNOWLEDGEMENT

Your directors would like to thank all the clients, vendors, investors, advisors and bankers for their continued support during the year. We place on record our appreciation for the contribution made by our employees at all levels. Our consistent growth was made possible by their hard work, solidarity, cooperation and support. We look forward to their continued support in the future.

The Annual General Meeting of the Company will be held on September 29, 2010

Place: Hyderabad For and on behalf of the Board Date: July 26, 2010 DQ Entertainment (International) Limited D irectors ’ R eport Tapaas Chakravarti CMD & CEO

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Annual Report 2010 DQ Entertainment (International) Ltd. Statement pursuant to Section 212 of the Companies Act, 1956

Sl. Particulars No 1. Name of Subsidiary DQ Entertainment (Ireland) Limited 2. Financial year ended 31st March, 2010 3. Date from which it became a subsidiary November 12, 2008

D irectors ’ R eport Extent of interest of the Holding Company in the capital 4. 100% of the Subsidiary. Number of shares held by the holding Company as on 5. 15,29,000 March 31, 2010.

6. Net aggregate amount of subsidiary’s profits/(losses) so far as it concerns the members of the holding company

a) Not dealt with in the holding company’s accounts -  for the financial year ended on 31st March, 2010 -  for the previous financial year of the subsidiary - company since it became the holding company’s subsidiary

b) Dealt with in the holding company’s accounts  for the financial year ended on 31st March, 2010 Rs. 68,513,654 /-  for the previous financial years of the subsidiary Rs.(272,869)/- company since it became the holding company’s subsidiary

Closing Rate INR / EURO - 7. Exchange rate as at March 31, 2010 Rs. 60.59 8. Issued and subscribed share capital of the subsidiary Rs. 104,142,490 9. Reserves Loans of the subsidiary Rs. 48,434,169 10. Total Assets of the subsidiary Rs. 343,567,724 11. Total Liabilities of the subsidiary Rs. 190,991,065 Investments of the subsidiary 12. Nil (a) Long term (b) Current Nil 13. Turnover of the subsidiary Rs. 273,602,050 14. Profit/(Loss) before taxation of the subsidiary Rs. 78,030,567 15. Provision for taxation of the subsidiary Rs. 9,516,913 16. Profit/(Loss) after taxation of the subsidiary Rs. 68,513,654

Hyderabad Tapaas Chakravarti K.Balasubramanian 26 July, 2010 CMD & CEO Director

Sanjay Choudhary Anita Sunil Shankar Financial Controller Company Secretary 33

Annual Report 2010 DQ Entertainment (International) Ltd. D irectors ’ R eport

34

Annual Report 2010 DQ Entertainment (International)Corporate Ltd. Social Responsibility Report on Corporate

C orporate S ocial R esponsibility Social Responsibility

Set up in 2008, DQ Smile Foundation is a non-profit initiative of DQ Entertainment. Driven by its philosophy “The happiest people are not those getting more, but All CSR Activities of DQ are initiated under the aegis those giving more”. We endeavor to make a positive of DQ Smile Foundation. In the last year, we have contribution to the underprivileged and economically done substantial work in the fields of education, poor communities of society, by supporting a wide health, caring for the old and also creating awareness range of socio-economic, educational and health about Global warming and Water Conservation. benefits. Some of the notable activities have been –

Vision: The Foundation’s vision is to live in a world Supply of flood relief materials to flood affected of peace and prosperity where all people, regardless areas. of geography, background or economic status, enjoy and employ the full range of their talents and Encouraging and promoting the art of healthy abilities. competition among Govt. School students, distribution of steel plates for mid-day meal Mission: The mission of the Foundation is improving, schemes, distributing school uniforms to orphans guiding and inspiring the lives of the underprivileged and taking care of health and hygiene of mentally in the society. The Foundation facilitates programs retarded children(Swayamkrushi) and gives direct assistance and resources to the needy in the society and other charitable NGO Blood donation and health & dental camps. organizations. Many of the community projects and programs are driven by active participation from our Supply of drinking water in summer in the slum Associates. areas.

Core Values: DQ Smile Foundation is founded on Visiting old age homes and distributing clothes the following set of Core values. and provisions for the elderly and visiting orphanages for children and sharing stories and We care for our communities and see value in playing games. supporting the civic organizations that provide the backbone for economic progress and the Donating money for noble causes like treatment charitable organizations that provide the support of renal failure(Sophiya Glory) as well as helping and safety net for our citizens. children suffering from retinoblastoma by donating We share with our communities through the some amount(LV Prasad Eye Institute) financial support of and volunteer participation with community organizations that demonstrate Created awareness on Global Warming and values reflective of our organization. Water Conservation through posters and emails. We invest in our communities by offering our resources wherever appropriate, in support of From responsive activities to sustainable initiatives, the causes and needs of civic and charitable DQE has clearly exhibited its ability to make a organizations. significant difference in the society and improve the We grow, as a result of the leadership overall quality of life. development opportunities, the satisfaction of making a difference. 35

Annual Report 2010 DQ Entertainment (International) Ltd. Corporate Governance Report

(i) Company’s philosophy on Corporate Governance: (i) As on March 31, 2010, the Company has five At DQE we endeavor to blend growth and efficiency directors. Of the five Directors, three (i.e. 60%) are with governance and ethics. Our philosophy of Independent and Non-Executive Directors. Corporate Governance envisages upholding highest standards of integrity, transparency and (ii) The composition of the Board is in conformity with accountability in all facets of our activities, operations Clause 49 of the Listing Agreement entered into with and continuous interaction with all the stakeholders. Bombay Stock Exchange. It relates to decisions that define expectations, grant power, or verify performance. (iii) None of the Directors on the Board are members of more than ten Committees or Chairman of more Towards fulfilling our vision of being a “Global than five Committees across all the companies in Entertainment Group” we constantly strive to ensure which they are Directors. Necessary disclosures higher standards of quality and content levels for regarding Committee positions in other public all our partners; providing equal importance and no companies as on March 31, 2010 have been made compromise on ethics and honor of standing by the by the Directors. promises made. (iv) Nineteen (19) Board Meetings were held during The Company has adopted a Code of Conduct for the year and the gap between two meetings did not Board Members and Senior Management team. exceed four months. The dates on which the said In addition, the Company has adopted a Code of Meetings were held are as follows: May 25 2009,

Conduct for prevention of Insider Trading in securities July 24 2009, July 25 2009 , August 18 2009, August corporate governance report of the Company. Both these codes are available on 22 2009, August 26 2009, September 17 2009, the Company’s website. September 29 2009, October 12 2009, November 09 2009, December 16 2009, December 23 2009,

The Company is in compliance with the requirements January 06 2010, February 15 2010 , February 20 D irectors ’ R eport of the guidelines on corporate governance stipulated 2010, March 3 2010, March 11 2010, March 18 2010 under Clause 49 of the Listing Agreement entered and March 23 2010. into with the Bombay Stock Exchange. (v) None of the Non-Executive Directors have any (ii) Board of Directors material pecuniary relationship or transactions with the Company. The Board provides strategic direction to the company’s senior management and oversees the (vi) The details of other directorships held by the interests of all stakeholders. It reviews corporate Board are available under the profiles of Board of 36 policies, overall performance, accounting and Directors. reporting standards and other significant areas of management, corporate governance and regulatory (vii) The names and categories of the Directors compliance. on the Board, their attendance at Board and Audit Comittee Meetings held during the year are given herein below.

Annual Report 2010 DQ Entertainment (International) Ltd. Particulars Board Audit Number of Meetings 19 4 (ii)Recommending the appointment and removal Mr. Tapaas Chakravarti 19 3 of external auditors, fixation of audit fee and also approval for payment for any other services; Mr. Akula Ramakrishna 6 N.A (Resigned w.e.f August 26, 2009) (iii)Discussion with external auditors before the audit Mr. Laxminarayana Nagu 6 N.A commences, of the nature and scope of audit as (Resigned w.e.f August 26, 2009) well as post-audit discussion to ascertain any area Mr. K. Balasubramanian 13 4 of concern; (Appointed w.e.f August 26, 2009) (iv)Reviewing the financial statements and draft

corporate governance report Ms. Theresa Plummer – Andrews 4 1 (Appointed w.e.f August 26, 2009) audit report, including quarterly / half yearly financial information; Ms. Rashmi Chakravarti 18 N.A (Appointed w.e.f May 25, 2009) (v)Reviewing with management the annual financial Mr. Girish Kulkarni 13 4 statements before submission to the Board, focusing (Appointed w.e.f August 26, 2009) primarily on: Mr. Sanjay Saxena 0 N.A (Resigned w.e.f September 17, 2009) (a) Any changes in accounting policies and practices; (iii) Audit Committee (b) Major accounting entries based on exercise of judgment by management; The Audit Committee was constituted at the Board (c) Qualifications in draft audit report; meeting held on August 26, 2009. The Audit (d) Significant adjustments arising out of audit; Committee was reconstituted on September 17, 2009 (e) The going concern assumption; and on October 12, 2009 as under. The purpose of (f) Compliance with the Indian GAAP; the Audit Committee is to ensure the objectivity, credibility and correctness of our financial reporting (vi) Reviewing with the management, external and and disclosure processes, internal controls, risk internal auditors, and the adequacy of internal control management policies and processes, tax policies, systems; compliance and legal requirements and associated matters. The Audit Committee comprises: (vii) Reviewing the adequacy of internal audit function, including the audit charter, the structure of (i) Mr. K Balasubramanian, Chairman; the internal audit department, approval of the audit (ii) Ms. Theresa Plummer-Andrews; plan and its execution, staffing and seniority of the (iii) Mr. Girish Kulkarni official heading the department, reporting structure, (iv) Mr. Tapaas Chakravarti coverage and frequency of internal audit;

Mr. Sanjay Choudhary, Financial Controller of the (viii) Discussion with internal auditors of any Company is a permanent invitee at all the meetings significant findings and follow-up thereon; of the Audit Committee. (ix) Reviewing the findings of any internal The terms of reference of the Audit Committee are investigations by the internal auditors into matters as follows: where there is suspected fraud or irregularity or a failure of internal control systems of a material nature (i) Overview of the Company’s financial reporting and reporting the matter to the Board; process and the disclosure of its financial information to ensure that the financial statements reflect a true (x) Looking into the reasons for substantial defaults and fair position and that sufficient and credible in payments to the shareholders (in case of non- information disclosed. payment of declared dividends) and creditors; and 37

Annual Report 2010 DQ Entertainment (International) Ltd. (xi) Reviewing compliances as regards the Company’s whistle blower policy.

The Audit Committee met four times during the year (iii) Such other matters as may from time to time on March 23, 2010, February 15, 2010, November be required by any statutory, contractual or other 09, 2009 and September 29, 2009. regulatory requirements to be attended to by such committee. (iv) Remuneration Committee (iv) Details of investor complaints received and The Remuneration Committee was constituted at resolved from March 24, 2010 to June 30 2010 are the Board meeting held on August 26, 2009. The as follows: Remuneration Committee comprises: Received Resolved Opening Closing (i) Ms. Theresa Plummer-Andrews, Chairman; during during Balance Balance (ii) Mr. K Balasubramanian. the year the year

The Remuneration Committee has been empowered Nil 145 145 Nil with the role and function as per the provisions as specified under Annexure I D(2) of the Corporate (vi) General Shareholder Information Governance Code under Clause 49 of the Listing Agreement including the appointment and finalizing (i) Annual General Meeting: the remuneration of senior level employees of our Date: September 29, 2010 Company. Time: 02:30 pm Venue: Hotel NKM’s Grand 6-3-563/31/1, Except for Mr. Tapaas Chakravarti and Mrs. Rashmi Somajiguda, Erramanzil, Chakravarti, who hold 41 shares as nominees of Hyderabad-500082, Andhra Pradesh. DQ Entertainment (Mauritius) Limited, none of the directors hold any shares in the Company. (ii) As required under Clause 49(IV)(G)(i) of the Listing The Company has not issued any convertible Agreement entered into with BSE, particulars of debentures. Directors seeking re-appointment at the forthcoming Annual General Meeting (AGM) are given in the (v) Shareholder/Investors Grievance Committee Notice of the AGM The Investor Grievance Committee was constituted (iii) Date of Book Closure: As mentioned in the Notice at the Board meeting held on August 26, 2009. of the AGM This Committee is responsible for the redressal of corporate governance report shareholder grievances. The Investor Grievances (iv) Listed at : Committee comprises: Bombay Stock Exchange Limited

(i) Mr. Girish Kulkarni- Chairman; D irectors ’ R eport Floor 25, P. J. Towers, Dalal Street (ii) Mr. Tapaas Chakravarti; and Mumbai 400 001 (iii) Mr. K Balasubramanian. (v) Stock Codes/Symbol at Bombay Stock Exchange The Committee performs inter alia the role/functions Limited: 533176 as set out in Clause 49 of the listing agreements with the Stock Exchanges and includes: (vi) Listing Fees as applicable have been paid. (i) Investor relations and redressal of shareholders (vii) Corporate Identification Number (CIN) of the grievances in general and relating to non receipt of 38 Company: U92113AP2007PLC053585 dividends, interest, non- receipt of balance sheet etc.;

(ii) Oversee the performance of Registrar and Transfer Agent; and

Annual Report 2010 DQ Entertainment (International) Ltd. (vii) Market Price Data:

The equity shares of the Company were listed on (ix) Share Transfer System March 29, 2010 on the Bombay Stock Exchange (BSE). 24.84% of the equity shares of the Company are in electronic form as on June 30, 2010. Transfer The monthly high and low of the market price of the of these shares is done through the depositories equity shares of the Company having a face value of with no involvement of the Company. As regards Rs.10/- each on the Bombay Stock Exchange for the transfer of shares held in physical form the transfer period upto July 25, 2010 are as follows: documents can be lodged with Karvy at any of the

corporate governance report above mentioned addresses. Month High Low (in Rs.) (in Rs.) Transfer of shares in physical form is normally March 2010 140 103 processed within ten to twelve days from the date of receipt, if the documents are complete in all April 2010 119.5 100 respects. May 2010 109.8 88.1 (x) Dematerialisation of shares and liquidity June 2010 104.75 90.5 July 2010 122.50 98.75 The Company’s shares are compulsorily traded in The market capitalization of the Company as on July dematerialised form and are available for trading on 26, 2010 is Rs.8990.6 million. both the depositories in India viz. National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL).

The Company’s equity shares are regularly traded on the Bombay Stock Exchange Limited, in dematerialised form. Under the Depository System, the International Securities Identification Number (ISIN) allotted to the Company’s shares is INE656K01010.

Graph representing the fluctuations in (xi) Outstanding GDRs/ADRs/Warrants or any DQE’s share price at BSE. Convertible instruments, conversion date and likely impact on equity (viii) Registrar and Transfer Agents & Place for Acceptance of Documents As on March 31, 2010, the Company did not have any outstanding GDRs/ADRs/Warrants or any Karvy Computershare Private Limited Convertible instruments. Plot No. 17-24, Vittal Rao Nagar Madhapur Hyderabad – 500 081, India Telephone: +91 40 2342 0815 Facsimile: +91 40 2342 0814 Email: [email protected] Website: www.karvycomputershare.com

39

Annual Report 2010 DQ Entertainment (International) Ltd. (xii) Shareholding pattern as on March 31, 2010

STATEMENT SHOWING SHAREHOLDING PATTERN IN CLAUSE-35 NAME OF THE COMPANY:DQ ENTERTAINMENT(INTERNATIONAL) LTD SCRIP CODE: 533176 QUARTER ENDED: 31/03/2010 TOTAL SHAREHOLDING SHARES PLEDGE OR AS A % OF TOTAL NO OTHERWISE ENCUMBERED OF SHARES CATE- NO OF GORY CATEGORY OF SHAREHOLDER NO OF TOTAL As a SHARES AS a PER- NUM- AS CODE SHARE- NUM- PERCENT- HELD IN DE- CENTAGE BER OF a PERCENT- HOLD- BER OF AGE of MATERIAL- of (A+B) SHARES AGE ERS SHARES (A+B+C) IZED FORM (IX)=(VIII)/ (I) (II) (III) (IV) (V) (VI) (VII) (VIII) (IV)*100 PROMOTER AND PROMOTER (A) GROUP (1) INDIAN (a) Individual /HUF 6 246 0 0.00 0.00 0 0.00 Central Government/State (b) 0 0 0 0.00 0.00 0 0.00 Government(s) (c) Bodies Corporate 0 0 0 0.00 0.00 0 0.00 (d) Financial Institutions / Banks 0 0 0 0.00 0.00 0 0.00 (e) Others 0 0 0 0.00 0.00 0 0.00

Sub-Total A(1) : 6 246 0 0.00 0.00 0 0.00

(2) FOREIGN (a) Individuals (NRIs/Foreign Individuals) 0 0 0 0.00 0.00 0 0.00 (b) Bodies Corporate 1 59461972 0 75.00 75.00 0 0.00 (c) Institutions 0 0 0 0.00 0.00 0 0.00 (d) Others 0 0 0 0.00 0.00 0 0.00 Sub-Total A(2) : 1 59461972 0 75.00 75.00 0 0.00

Total A=A(1)+A(2) 7 59462218 0 75.00 75.00 0 0.00

(B) PUBLIC SHAREHOLDING (1) INSTITUTIONS (a) Mutual Funds /UTI 42 5217500 5217500 6.58 6.58 (b) Financial Institutions /Banks 6 166774 166774 0.21 0.21 Central Government / State (c) 0 0 0 0.00 0.00 Government(s) (d) Venture Capital Funds 0 0 0 0.00 0.00 (e) Insurance Companies 0 0 0 0.00 0.00 (f) Foreign Institutional Investors 19 1853613 1853613 2.34 2.34 (g) Foreign Venture Capital Investors 0 0 0 0.00 0.00 (h) Others 0 0 0 0.00 0.00

Sub-Total B(1) : 67 7237887 7237887 9.13 9.13 corporate governance report

(2) NON-INSTITUTIONS (a) Bodies Corporate 512 3199590 3199590 4.04 4.04 (b) Individuals

(i) Individuals holding nominal share D irectors ’ R eport 32258 5827876 5827876 7.35 7.35 capital upto Rs.1 lakh (ii) Individuals holding nominal share 32 1156116 1156116 1.46 1.46 capital in excess of Rs.1 lakh (c) Others TRUSTS 4 132650 132650 0.17 0.17 NON RESIDENT INDIANS 98 398130 398130 0.50 0.50 FOREIGN COMPANIES 1 128624 0 0.16 0.16 CLEARING MEMBERS 368 1739909 1739909 2.19 2.19

Sub-Total B(2) : 33273 12582895 12454271 15.87 15.87

Total B=B(1)+B(2) : 33340 19820782 19692158 25.00 25.00 40

Total (A+B) : 33347 79283000 19692158 100.00 100.00

Shares held by custodians, against (C) which Depository Receipts have been 0 0 0 0.00 0.00 issued

GRAND TOTAL (A+B+C) : 33347 79283000 19692158 100.00 100.00 0 0.00

Annual Report 2010 DQ Entertainment (International) Ltd. Certificate on Corporate Governance

TO THE MEMBERS OF DQ ENTERTAINMENT (INTERNATIONAL) LIMITED

We have examined the compliance of conditions of corporate governance by DQ ENTERTAINMENT (INTERNATIONAL) LIMITED (“the Company”), for the year ended on March 31, 2010, as stipulated in Clause 49 of the Listing Agreement of the Company with the stock exchanges.

The compliance of conditions of corporate governance is the responsibility of the management. Our examination was limited to a review of the procedures and implementation thereof, adopted by the Company for ensuring the

C ertificate on corporate governance compliance of the conditions of Corporate Governance. It is neither an audit nor an expression of opinion on the financial statements of the Company.

In our opinion and to the best of our information and according to the explanations given to us and the representations made by the Directors and the management, we certify that the Company has complied with the conditions of Corporate Governance as stipulated in the above mentioned Listing Agreement.

We state that such compliance is neither an assurance as to the future viability of the Company nor of the efficiency or effectiveness with which the management has conducted the affairs of the Company.

Place: Hyderabad For R & A Associates Date: July 26, 2010 Company Secretaries

Partner

41

Annual Report 2010 DQ Entertainment (International) Ltd. CEO and Financial Controller’s Certification

To The Board of Directors DQ Entertainment (International) Limited Hyderabad

We, Tapaas Chakravarti, Chairman, Managing Director and Chief Executive Officer, and Sanjay Choudhary, Financial Controller of DQ Entertainment (International) Limited, to the best of our knowledge and belief, certify that :

1. We have reviewed the Balance Sheet and Profit and Loss account (standalone and consolidated), and all the schedules and notes on accounts, as well as the Cash Flow statements, and the Directors’ report.

2. Based on our knowledge and information, these statements do not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the statements made.

3. Based on our knowledge and information, the financial statements, and other financial information included in this report, present in all material respects, a true and fair view of the Company’s affairs, the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report, and are in compliance with the existing accounting standards and / or applicable laws and regulations.

4. To the best of our knowledge and belief, no transactions entered into by the Company during the year are fraudulent, illegal or violative of the Company’s code of conduct.

5. We are responsible for establishing and maintaining disclosure controls and procedures and internal controls CEO & F inancial C ontroller ’ s ertification over financial reporting for the Company, and we have :

a) Designed such disclosure controls and procedures to ensure that material information relating to the Company, including its subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared.

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Generally Accepted Accounting Principles (GAAP).

c) Evaluated the effectiveness of the Company’s disclosure, controls and procedures.

d) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal year that has materially affected, or is reasonably likely to materially 42 affect, the Company’s internal control over financial reporting.

Annual Report 2010 DQ Entertainment (International) Ltd. e) We have disclosed based on our most recent evaluation, wherever applicable, to the Company’s auditors and the audit committee of the Company’s Board of Directors (and persons performing the equivalent functions) :

(i) There were no significant changes in internal controls during the year covered by this report.

(ii) All significant changes in accounting policies during the year, if any, and that the same have been disclosed in the notes to the financial statements.

(iii) There were no instances of fraud of which we are aware, that involve the Management or other employees who have a significant role in the Company’s internal control system.

CEO & F inancial C ontroller ’ s ertification (iv) All significant changes in accounting policies during the year, if any, and that the same have been disclosed in the notes to the financial statements.

f) We affirm that we have not denied any personnel, access to the audit committee of the Company (in respect of matters involving alleged misconduct) and we have provided protection to whistleblowers from unfair termination and other unfair or prejudicial employment practices.

g) We further declare that all Board members and senior managerial personnel have affirmed compliance with the code of conduct for the current year. For the purpose of this declaration, Senior Management Team means the personnel of the Company who are members of its core management team excluding Board of Directors. This would normally mean [one level below the Executive Directors including all functional heads as on March 31, 2010.

Hyderabad July 26, 2010

Tapaas Chakravarti Sanjay Choudhary CMD & CEO Financial Controller

43

Annual Report 2010 DQ Entertainment (International) Ltd. CEO & F inancial C ontroller ’ s ertification

44

Annual Report 2010 DQ EntertainmentM anagement(International) Ltd. ’s Discussions And analysis Management’s Discussion and Analysis of Financial Condition and Results of Operations

The financial statements have been prepared in compliance with the requirements of the Companies Act, 1956, provisions of listing agreement and Generally Accepted Accounting Principles (GAAP) in India. Our Management accepts responsibility for the integrity and objectivity of these financial statements, as well as for various estimates and judgments used therein. The estimates and judgments relating to the financial statements have been made on a prudent and reasonable basis, so that the financial statements reflect in a true and fair manner the form and substance of transactions, and reasonably present our state of affairs, profits and cash flows for the year. The financial details mentioned in this chapter pertain to the consolidated audited accounts of DQ Entertainment (International) Limited, (“the Company”) for the year ended March 31 2010. management ’ s discussions & A nalysis In addition to the historical information contained herein, the following discussion may include forward looking statements whch involve risks and uncertainties, including but not limited to risks inherent in the company’s growth strategy, dependency on certain clients, dependency on availability of qualified technical personnel and other factors discussed in this report.

A. Industry Overview Estimates for the Indian M&E industry indicate robust growth over next five years. Global Media and Entertainment Industry: The overall M&E industry size grew from INR 579 The global M&E market, as a whole, will grow by billion in 2008 to INR 587 billion at a rate of 1.4 5.0 per cent compounded annually for the forecast percent. The growth rate is expected to increase period to 2014 reaching US$1.7 trillion, up from to ~11.2 percent in 2010, as the industry witnesses US$1.3 trillion in 2009. a recovery. The CAGR from 2006 to 2009 has remained at 10 percent and the industry is expected Over the next five years digital technologies will to grow at a rate of 13 percent in next five years. progressively increase their impact across all segments of entertainment and media (E&M) Percentage contribution of sectors as digital transformation continues to expand 100% 3% 2% 2% 1% 0% 1% 3% 3% 1% Films and escalate. Consumers are embracing new 2% 3% 3% 1% 1% 90% 1% 4% media experiences with staggering speed. The 2% 2% Television

advancing digital transformation is driving audience 80% 31% 30% 25% Print fragmentation to a level not previously seen. 70% Radio 60% Brazil, Russia, India and China (BRIC) economies Music are the future building blocks of the world economy. 50% Animation& BRIC economies together account for over 25% 40% 41% 44% 48% VFX of the world’s land coverage, 40% of the world’s 30% Gaming population and hold a combined (GDP) of US$8.7 trillion. Together, they are among the fastest- 20% Internet Advertising emerging economies and will be the growth engines 10% 18% 15% 13% Outdoor of the global economy. 0% 2006 2009 2014 45 (Source: KPMG Analysis, Industry discussions) Annual Report 2010 DQ Entertainment (International) Ltd. The Global Scenario: Animation Market Gaining Maturity: Global Animation Industry, Demand Perspective, USD billion, 2004-10 The Global Animation Industry continues to show 90 resilience and remains one of the fastest growing 79.7 components of the global media and entertainment 80 industry. 70 CAGR 7.7 over 2004-1068.4 59.0 60 The global animation market touched US$ 59 billion 51.0 in 2006 and is expected to expand at a CAGR of eight 50 percent, during the 2006-2010 period, to touch US$ 40 100 billion by 2012. From the software development 30 perspective, the market for animated content and related services currently stands at US$ 25-26 20 billion, with the potential to cross US$ 34 billion by 10 2010. The entertainment segment is projected to be 0 the key driver of the animation market, contributing 2004 2006 2008 2010 almost three-fourths of the revenues generated. CAGR 7.82

The rapid advancement of technology has made Entertainment will remain the largest segment for animation driven by demand for animated movies and computer animation available to the masses television content. and the animation industry is one of the fastest Entertainment Web Designing E-Education growing industries. The demand for animated entertainment has expanded with the increase (Source: Roncarelli Report (2004), Primary Research and Analysis) in broadcasting hours by cable and satellite TV Share of Various Animation Segments, 2006-10 along with the growing popularity of the Internet. In the past, animation series were aimed at children 2006 2010 aged nine and below. In recent years however, TV 10% 9% 74% stations have been producing animation series for 16% 14% teenagers, adults and the whole family. Animation management ’ s discussions & A nalysis series like The Simpsons and King of the Hill have Entertainment Web Designing E-Education been successfully aired on primetime TV. The major markets include the United States, Canada, Japan, Market Size Market Size France, Britain and Germany. Licensing operations USD 59.2 Billion USD 80 Billion for T-shirts, caps and other items have also been a major source of revenue for animation companies. Key Facts: In Japan, several successful computer games have crossed over and have become animated series In the past, animation series were aimed at like Pokemon, Monster Farm, Power Stone and children aged nine and below. TV stations have been producing animation series for teenagers, Detective Conan. More broadly speaking, animation D irectors ’ R eport is increasingly used in video games, and movies are adults and the whole family. also increasingly reliant on animation and computer graphic special effects. The rapid advancement of computer technology has made computer animation available to the Another key trend we are witnessing is the masses. outsourcing/co-production of animation content with Asia. This market is increasingly being tapped The major animation markets include the United by North American film and television program States, Canada, Japan, France, Britain, Korea producers. The major factor behind this shift of and Germany. 46 computer animation production to the Asia/Pacific region continues to be the availability of relatively The emerging animation countries are China and lower cost, powerful computer animation platforms India. and advanced technology and skill sets in the Asian and Pacific Rim countries compared to North The outsourced computer animation production America and Europe. market is increasingly being tapped by North American film and television program producers.

Annual Report 2010 DQ Entertainment (International) Ltd. Indian Animation Industry:

The Indian Animation market has been logging in healthy growth, in tune with the segments that it touches directly—entertainment, mobile and online gaming. Global trends, which have witnessed considerable activity in these segments, helped spur the performance of the Indian Animation industry as well, both on home turf and within the global marketplace

The Animation and VFX industry has seen an overall growth of 13.6 percent over 2008 and is expected to grow at a CAGR of 18.7 percent in the coming years to reach INR 46.6 billion by 2014 driven by increased consumption of animated content, creation of global IP formats, acceptance of 3D graphics and venturing into international markets.

Animation and VFX 2006 2007 2008 2009 CAGR 2010P 2011P 2012P 2013P 2014P CAGR Industry (INR billion) (2006-09) (2009-14) Total industry size 12.0 14.5 17.4 19.8 17.9% 23.2 27.8 33.0 39.2 46.6 18.7%

50

management ’ s discussions & A nalysis 45 Future trends:

40 16.8 35 1) Increased consumption of animated content world 14.0 wide has triggered launch of many new kids channels 30 11.7 to name a few: Al Jazeera Kids for 22 Arabic nations, 25 10.3 10.0 Noga TV-Israel, A TV Kids-Turkey, Disney XD for 20 8.6 teens and similarly several new channels even in 8.5 7.2 7.4 15 6.8 5.7 8.3 India have cropped up with a need for high quality 4.4 6.9 10 3.2 4.8 5.8 content. 2.3 3.9 3.7 3.6 11.1 5 8.4 9.7 4.8 5.5 6.3 7.3 2) 3D stereoscopic animated feature films like Avatar, 0 2008 2009 2010 2011 2012 2013 2014 Alice in Wonderland, UP, Shrek 3 have completely changed the landscape of animated production and (Source: KPMG Analysis, Industry discussions) viewing for cinema. Television is not far beyond as Post-production Animation Product Creation 3D stereoscopic TV and polarized TV is already out VFX Animation Services in the market which will require huge content in 3D stereoscopic in coming years even for television. The revenue composition of the animation industry Over 17 large 3D stereoscopic feature films are in indicates that the commoditized outsourcing model production in Hollywood alone triggering tremendous continues to dominate the Indian animation arena. A growth of animated content consumption. limited number of Indian studios have ventured into IP creation or the relatively low risk co-production 3) Intellectual Property (IP) creation and co-ventures agreements, Nevertheless India continues to remain with global partners has become imperative and will a CG animation outsourcing destination. fuel growth further.

Distribution of work currently executed by Indian Key Opportunities: Animation studios across media formats The fast-paced growth of the global animation Television 55% industry can be attributed to the following factors. Direct to DVD 25% Wider availability of dissemination mediums for Movies for Theatrical release 20% accessing film and entertainment content that includes increasing number of TV channels, increase in broadcasting hours, new digital media 47

Annual Report 2010 DQ Entertainment (International) Ltd. formats like digital and satellite services, mobile B. Financial Condition phones, internet access, advertising and direct- to-home formats. Sources of Funds:

Rapidly advancing technology and software I. Shareholder funds applications have facilitated animation to become more life-like and realistic. The quality of animation movies has greatly improved with incorporation 1. Share Capital: The authorized share capital of of 3D. Rs. 38,100,000 was reclassified and increased to Rs. 800,000,000 divided into 80,000,000 Equity Animation is increasingly being used in the Shares of Rs.10 each on September 15, 2009. The gaming industry. Several characters that were outstanding issued, subscribed and paid-up equity originally produced for gaming are now being share capital increased from 1,422,912 shares in cast in movies and TV series. March 31, 2009 to 79,283,000 shares as at March 31, 2010. During the year 77,860,088 equity shares Animated Feature Films, since the first success of face value Rs.10 each were issued during the of Toy Story 1 in 1997, have not looked back year, and 176,386 1% Redeemable Optionally and have increased today into a phenomenon Convertible Preference were redeemed for cash of Entertainment covering not only children but during the year. the whole family. The box office collections of recently released 3D stereoscopic feature films Increase in Share capital is on account of the like Avatar ( $ 2.73 Billion in first 8 weeks) , How following: to Train your Dragon ( $ 479 million), Alice in Wonderland ( $ 1.02 Billion 8 weeks), Toy Story 27,381 equity shares by way of conversion of 3 ( $ 576 Million in 3 weeks) and Shrek - 3 ( $ 791 27,381 preference shares into equity shares Million) are a clear indication of market potential for productions of this nature.. The stereoscopic 58,011,920 equity shares by way of issued of pipeline required for these movies is available bonus shares in the ratio of 40 shares for each management ’ s discussions & A nalysis with very few companies. share held as on September 15, 2009

Critical mass, dedicated viewership and 3,772,776 equity shares were issued prior to the extremely valuable IP have enabled the IP owning Intial Public Offering (IPO) companies to focus on multiple revenue streams which include setting up of licensing, publication, 16,048,011 equity shares (172,960 equity shares distribution and merchandising divisions. under employee category and 15,875,051 equity shares to other investors) were issued vide the North American and European film and television Initial Public Offer(“IPO”). program producers are looking at Asia for

animation production driven by production 2. Reserves and Surplus: D irectors ’ R eport capabilities, powerful computer animation platforms and availability of skill sets. The balance of Reserves and Surplus as on March 31 2010 stands Rs. 2,455.23 million. Reserves and It is expected that as Indian animation studios surplus consists of Securities Premium Rs. 1,946.68 mature, co-production with Indian partners will be million,Capital Redemption Reserve Rs. 1.76 million, seen as significant trend in the future. General Reserve Rs. 5.49 million, Profit and Loss Rs. 518.96 million and Foreign Currency Translation Source: E & Y Report- Tune in to emerging entertainment markets- Reserve Rs. (18.46) million Spotlight on Brazil, Russia, India and China PWC Report- Global 48 Entertainment and Media Outlook: 2010-2014 forecast KPMG Report Increase in Reserves and surplus is on account of on Indian Media and Entertainment Industry Report. increase in share premium by Rs 761.27 million and increase in profit and loss balance by Rs 264.96 million and creation of Capital Redemption Reserve Rs. 1.76 million in lieu of the redemption of preference shares.

Annual Report 2010 DQ Entertainment (International) Ltd. 2. Accumulated Depreciation: Depreciation and amortization on fixed assets & Intangibles amount to Movement in share premium is explained below: Rs 174.65 million & Rs. 99.12 million respectively. The amortization of intangibles includes an impairment Share premium on Pre IPO issue Rs 219.24 charge of Rs. 16.07 million million (Premium per share Rs 58.11) 3. Capital Work-in-Progress: There was a decrease Share Premium on shares issued under employee in Capital Work-In-Progress of Rs. 223.32 million quota in the IPO Rs 10.90 million ( Premium per mainly on account of capitalization of Distribution share Rs 63.00)) rights.

Share Premium on shares issued to other retail II. Investments investors in the IPO Rs 1,111.25 million (premium per share Rs 70.00) Investments of Rs. 870 million consists of investments made in short term liquid schemes of mutual funds Reduction of share premium on account of - SBI mutual funds Rs 860 million and IDFC Mutual issue of bonus shares aggregating to Rs 580.12 funds Rs. 10 million. million III. Current Assets, Loans & Advances II. Loan funds management ’ s discussions & A nalysis 4. Sundry Debtors: Sundry debtor balance of Rs. 3. Secured Loans: The balance of secured loans 831.27 million (Previous Year Rs 415.69 million) is stands at 470.55 million. Increase in secured loans on account of sales in the last quarter (Rs 753.00 is on account of Borrowings from Term Loans Rs million) and the average realization period of debtors 211.19 million, Working Capital Loans (Net) Rs. moving to 130 days in 2009-10 as against 79 days 113.03 million and Repayment of Term Loans by Rs. during the 2008-09. 213.66 million. The realization period has gone up due to the 4. Unsecured Loans: Unsecured loan of Rs. 118.39 multiplicity of parties involved in financing of each million is the loan received by DQ Entertainment of the project. While this results in financial security (Ireland) Limited ( the wholly owned subsidiary of the for the project, the additional procedural time has Company) from DQ Entertainment plc(the ultimate resulted in increased realization period. holding Company of the Company). 5. Unbilled Revenue: Unbilled revenue of Rs 239.14 III. Deferred Tax Liability million consists of revenue pertaining to projects for which work is in progress but invoice is not raised There is no deferred tax liability during current year. The opening balance of deferred tax liability i.e. Rs. 6. Cash and Bank Balances: Cash and Bank 12.47 million was reversed during the current year Balances as on 31 March 2010 consists of balances by creation of equivalent deferred tax asset resulting in Current Accounts Rs. 123.22 million (Includes in no deferred tax liability as on 31 March 2010 Rs 50.00 million of unutilized funds of IPO) and in deposit Accounts Rs. 365.42 million (Includes Rs Application of funds 326 million of unutilized funds of IPO)

I. Fixed Assets 7. Loans and Advances: Loans & Advances of Rs 172.04 million (Previous Year Rs 93.59 million) 1. Gross Block: There was an increase in the Gross consists of advances recoverable in cash, kind Block of Rs 653.34 million owing to additions of or value to be received , advance taxes paid , Intangible Assets aggregating to Rs 665.44 million payments made towards tax liability, and deposits. and Net Decrease in Tangible Assets by Rs 12.09 The increase in loans and advances is mainly on million ( Net impact of increase of Rs 38.98 million account of advances to suppliers of Rs 55.70 million, and decrease of Rs 51.07 million). increase in claims receivable by 16.61 million (on account of service tax credit input) and MAT Credit Entitlement of Rs. 30.16. 49

Annual Report 2010 DQ Entertainment (International) Ltd. IV. Current Liabilities and Provisions

8. Current Liabilities: Increase in the current Distribution: Distribution revenue increased from liabilities of Rs 91.90 million is mainly on account Rs. 74.63 million during fiscal 2009 to Rs. 215.10 of increase in sundry creditors balance by Rs 92.18 million during fiscal 2010 there by resulting in an million. Sundry creditors as on March 31, 2010 increase by Rs. 140.47 million (188% increase) includes provisions aggregating to Rs 79.84 million as against Rs. 13.56 million as on March 31, 2009. II. Expenditure: Increase in provision is on account of provision of Rs 56.58 million for fee for the Book Running Lead Production expenses have increased significantly Manager from Rs 52.67 million in fiscal 2009 to Rs. 241.31 million in fiscal 2010. The main increase in production 9. Provisions: Increase in provisions of Rs 7.92 expenses is attributable to following reasons: million is mainly on account of increase in provision for taxation balance by Rs 4.01 million; increase in DQ Entertainment Ireland (wholly owned subsidiary employee benefits is Rs 6.28 million and decrease in of DQ India) started its production operations during provision for retakes by Rs 2.37 million fiscal 2010. Out of the total of Rs. 241.31 million of production expenses Rs 183.13 million of production expenses pertain to DQ Entertainment Ireland. There C. Result of Operations were no significant operations in DQ Ireland during the previous year. I. Income: Personnel Costs : Fiscal 2010 has witnessed an increase in income Break up of personnel costs is as follows to Rs. 1,766.07 million from Rs. 1,509.08 million in (Rs. in Millions) fiscal 2009. The total income from operations has increased by 17% when compared to fiscal 2009. Personnel Costs 31 March 31 March 2010 2009

Increase in sales is attributed to following reasons: management ’ s discussions & A nalysis Salaries and Wages 578.25 634.20 Contribution to Provident Increase in export sales by 12% when compared 37.10 39.81 to fiscal 2009. i.e. from Rs. 1,346.42 million for Fund fiscal 2009 to Rs 1,502.89 million for fiscal 2010 Staff Welfare Expenses 11.48 13.29 resulting in an increase of Rs. 156.47 million. Gratuity 6.61 8.64 Increase in Distribution income by 188% when Leave Encashment 1.69 (2.54) compared to fiscal 2009. I.e. from Rs. 74.63 Total 635.13 693.40 million for fiscal 2009 to Rs 215.10 million for fiscal 2010 resulting in an increase of Rs. 140.47 There is a decrease in Salaries and Wages from D irectors ’ R eport million. Rs. 634.20 million during fiscal 2009 to Rs. 578.25 million during fiscal 2010. The decrease in Salaries The following is the business segment wise sales and Wages is due to rationalization in employee recorded by the Company head count from 3,179 during fiscal 2009 to 2,811 during fiscal 2010. Animation: Animation revenue increased from Rs. 1,356.58 million during fiscal 2009 to Rs. 1,523.65 III. Administration, selling and distribution million during fiscal 2010 there by resulting in an expenses: increase by Rs. 167.07 million (12% increase) 50

Gaming: Gaming revenue decreased from Rs. Summary of Major expenses included in 66.96 million during fiscal 2009 to Rs. 15.99 million Administration, selling and distribution expenses during fiscal 2010 there by resulting in an decrease by Rs. 50.97million (76% decrease)

Annual Report 2010 DQ Entertainment (International) Ltd. (Rs. in Millions)

Administrative and Other 31 March 31 March Expenses 2010 2009 Depreciation and Amortization Communication 10.10 10.59 (Rs. in Millions) Expenses Professional and Depreciation and 31 March 31 March 58.22 89.21 Consultancy Charges Amortization 2010 2009 Rent 43.65 47.37 Depreciation 174.65 173.91 Traveling and Amortization 99.09 108.28 13.58 23.96 Conveyance Expenses Total 273.74 282.19 Provision for doubtful 6.81 5.79 debts Decrease in Amortization cost is on account of Foreign Exchange reduced impairment loss on Intangibles of Rs.16.07 38.50 60.78 Fluctuation Loss million in the fiscal 2010 as compared to Rs.62.18 million in the fiscal 2009. Public issue related 95.45 - expenses Profit Before Tax: management ’ s discussions & A nalysis Total 266.30 237.70 There is an increase in Profit before Tax by Rs. 68.42 million (35 % increase). The increase is due Reasons for movement in expenses to increase in sales by17% when compared to fiscal 2009. Decrease in Professional and Consultancy Charges by Rs. 30.99 million Taxation: Taxation primarily consists of Current Tax Rs. 44.43 million, this provision is off set by deferred Decrease in Rent expenses by Rs. 3.72 million tax asset of Rs. 12.47 and MAT Credit Entitlement of Rs. 30.16 million. Decrease in traveling and conveyance expenses by Rs. 10.38 million Profit After Tax: There is an increase in Profit after Tax by Rs. 105.49 million (65% increase). The Decrease in Foreign Exchange Fluctuation loss increase is due to increase in sales by 17% when by Rs. 22.28 million compared to fiscal 2009

The above decrease is offset by increase in the following expenses D. Opportunities: During the year the company has raised share capital through initial public offer. The IPO 1. Capitalise on the growth of the animation expenses of Rs. 95.45 million are included in industry across the globe including India. Administrative and Other Expenses Animation is one of the fastest growing industries Profit Before Interest, Depreciation and Tax in the world. Global animation market estimated at (“PBIDT”): There is an increase of PBIDT by 12% USD 68 billion in 2008 and expected to reach USD when compared to fiscal 2009. There is an increase 100 billion by 2012. The Indian animation industry is in PBIDT from Rs. 536.88 million during fiscal 2009 expected to reach US $ 791 mn by 2 013, implying a to Rs. 601.18 million during fiscal 2010 CAGR of 17.8% over 2009-13. Among the different segments of animation industry, the product creation Interest and Financial Charges: Interest and segment is estimated to grow fastest with a CAGR Financial Charges have increased from Rs. 55.60 21.9% to US $ 195 mn in 2013.* Increased emphasis million for fiscal 2009 to Rs. 58.89 million. The on IP creation and attractive domestic opportunity increase of 6% when compared to previous year is have been the principal growth drivers for the not significant animation production services. 51 *Source: KPMG report on Entertainment and Media 2009

Annual Report 2010 DQ Entertainment (International) Ltd. DQE intends to capitalise on such growth factors by leveraging its unique positioning, international presence, global partnerships and expertise in this open a number of opportunities to co-produce iconic sector by developing its own iconic international IP’s properties with the leading producers, broadcaster for global audiences and Indian IP’s for India and and distributors from far east to far west. Indian Diaspora across the globe. DQE has been recognized as one of the top animation 2. Continued efforts to develop our presence in producers worldwide under the Global Animation the market for animation services industry report, published by Screen Digest

Outsourcing from overseas countries is likely to 5. Exploitation of our large asset content continue due to an inherent cost advantage and the increasing maturity of Indian animation studios The success and growth of the peer companies in our in enabling creation of quality content. DQE would business sphere has been on account of the huge continue to focus on expanding its footprint in the library of content which they have been exploiting animation production services segment and enlarging year on year by way of broadcasting, licensing and its client base in diverse geographical regions of the merchandising. world. DQE has also adopted a similar model and has 3. Continued focus on our co-production been slowly and steadily building its library of IP’s business model through its co-production deals and now with the development of its own home grown IP’s. Presently DQE is committed to the sustainable business model it has 450 hours of animated content for exploitation which we believe is a low-risk model. It continues which DQE can monetize over the years through to move along the animation value chain, into IP various distribution channels globally. creation and distribution of animation content. We hope to continue: 6. Acquisitions, strategic investments and joint Continued focus on our co-production business ventures model management ’ s discussions & A nalysis We intend to grow through acquisitions of, strategic Consolidate our portfolio of global and Indian investments in and joint ventures with creative IP’s companies to ensure co-development of global intellectual property on a partnership basis. As and Leverage our portfolio and content library when opportunities arise, DQE aims to make similar for worldwide distribution, licensing and strategic investments or enter into joint ventures with merchandising content-rich companies to take advantage of the tremendous growth this industry is seeing for next Backward and forward integration by diversifying decade

the range of offerings to include pre-production D irectors ’ R eport and post-production services E. Risks & Concerns Expand our footprint in entertainment segment and enlarge our client base in diverse geographical regions (i) Operational Risks

4. Backward and forward integration Given the seasonality of our business our revenues and expenses are difficult to predict DQE’s activities are currently focused on the and can vary significantly from period to period. 52 production of animated content either on an Our business will suffer if we fail to further explore outsourced basis or a co-production basis. Our new IPs and enhance the existing library in order foray into providing services from script to screen to keep pace with the increasing demand of the i.e. pre-production to post-production has given us industry. a status of an Independent producer and thrown

Annual Report 2010 DQ Entertainment (International) Ltd. The Company derives a significant portion of its revenue from a relatively small number of clients. DQE has an impressive blue-chip client DQE provides a significant portion of its list including names such as Disney Group, outsourced production services on a fixed-price, Nickelodeon Entertainment, Electronic Arts, NBC- fixed-time frame basis. The Company therefore Universal, BBC etc. It is extremely unlikely that bears the risk of cost overruns, completion delays work will cease from all of these simultaneously. and wage inflation related to these projects. Strong order pipeline provides a revenue visibility Additionally, any material which clients reject due for next two years. to non-compliance with their specifications must be reproduced. Our success depends largely upon our highly skilled creative artists. The Indian animation To manage this risk DQE has developed a market is still relatively immature and the supply propriety resource planning software which of manpower has yet to catch up with demand. facilitates scheduling and resource management This is currently halting the industry’s growth across projects to mitigate these risks. In addition, potential. With over 3,500 associates at all the size of DQE’s workforce means management locations including freelancers, DQE has access can redeploy staff from one project to another if to the largest workforce worldwide in the animation required, thereby avoiding problems of slippage. management ’ s discussions & A nalysis production industry. Taxes and other levies imposed by the The Company has taken a long-term perspective Government of India or state governments, as well and established DQ School of Visual Arts. It has as tax exemptions, financial policies, subsidies also setup training schools in partnership with and regulations, may have a material adverse a few state governments. The training schools effect on DQE’s business, financial condition and generate circa 800 skilled animators annually. results of operations.

DQE’s relative size compared to its powerful blue- Terrorist attacks or a war could adversely affect chip client base could be seen as cause for some our business, results of operations and financial concern. DQE has built a successful track record conditions and it would not benefit their clients to abuse the relationship. DQE’s relative position compared to (ii) Financial Risks its peers in India is strong - it is seven times larger than its closest competitor as measured by the DQE generates revenues broadly in line with the workforce. overall Indian animation industry; nearly 90% of commissions come from either North America or Competitive pressures may also arise from Europe. This means there is a substantial currency overseas. This is particularly the case where the risk in terms of the US dollar and the Euro versus the local governments are supporting the animation Indian Rupee. industry in the form of tax incentives, infrastructural and/or financial support e.g. China, Taiwan and Financial and Other Derivative Instruments Singapore. Our primary market risk exposures are interest India has strong and established IT and IT rate and foreign currency exchange rate risk. The enabled services infrastructure. India offers following table sets forth the details of the derivative competitive advantages namely, large media contracts entered into by the Company for hedging and entertainment industry; growing domestic currency and interest rate related risks outstanding. demand, cost arbitrage, English language proficiency. The company uses Forward Exchange Contracts and Currency Options to hedge its exposures in foreign currency related to firm commitments and highly probable forecasted transactions. 53

Annual Report 2010 DQ Entertainment (International) Ltd. The information on Derivative instruments is as follows: F. Internal control systems and their Derivative Instrument Outstanding as it the year end. adequacy Currency 31 March 2010 31 March 2009 The CEO and CFO certification provided in the CEO Buy Sell Buy Sell and CFO Certification section of the Annual Report I) Forward Exchange Contracts discusses the adequacy of our internal control USD - $450,000 - $500,000 systems and procedures.

INR - 20,263,500 26,085,000 - II) Currency Options G. Human Resources Strategy USD - $1,200,000 - $10,800,000 The Company continues to invest in human INR - 54,036,000 - 563,436,000 resources development. The Company has recruited 358 employees in fiscal 2010. Quantitative and qualitative disclosure about market risk The detailed chapter on HR strategy, initiatives taken by the HR department and training and development General: Market risk is the risk of loss related are available in the report for your reference. to adverse changes in market rates and prices, such as interest rates, foreign exchange rates and commodity prices. We are exposed to various types of market risks, in the normal course of business. The following discussion and analysis, which constitute

“forward-looking statements” that involve risk and management ’ s discussions & A nalysis uncertainties, summarise our exposure to different market risks.

Interest Rate: We have, and expect to continue to have, significant borrowings. An increase in the interest rates for our existing and future borrowings may adversely affect our ability to service long-term debt and to finance our projects, all of which in turn may adversely affect our construction plans, planned capital expenditures, financial condition and results D irectors ’ R eport of operations.

Foreign Currency Exchange Rates

USD EURO Exchange Average Closing Average Closing rates 31-Mar-09 46.47 52.17 65.96 68.91 54 30-Sep-09 49.02 48.34 68.39 70.54 31-Mar-10 47.74 45.03 67.47 60.59

Annual Report 2010 DQ Entertainment (International) Ltd. Auditors’ Report

TO THE MEMBERS OF DQ ENTERTAINMENT (INTERNATIONAL) LIMITED (c) the Balance Sheet, the Profit and Loss Account and the Cash Flow Statement dealt with by this report 1. We have audited the attached Balance Sheet of are in agreement with the books of account; DQ ENTERTAINMENT (INTERNATIONAL) LIMITED (“the Company”) as at 31st March, 2010, the Profit (d) in our opinion, the Balance Sheet, the Profit and Loss Account and the Cash Flow Statement of and Loss Account and the Cash Flow Statement the Company for the year ended on that date, both dealt with by this report are in compliance with the annexed thereto. These financial statements are Accounting Standards referred to in Section 211(3C) the responsibility of the Company’s Management. of the Companies Act, 1956; Our responsibility is to express an opinion on these financial statements based on our audit. (e) in our opinion and to the best of our information and according to the explanations given to us, the 2. We conducted our audit in accordance with the said accounts give the information required by the auditing standards generally accepted in India. Companies Act, 1956 in the manner so required Those Standards require that we plan and perform and give a true and fair view in conformity with the the audit to obtain reasonable assurance about accounting principles generally accepted in India: whether the financial statements are free of material misstatements. An audit includes examining, on a (i) in the case of the Balance Sheet, of the state of test basis, evidence supporting the amounts and affairs of the Company as at 31March, 2010; the disclosures in the financial statements. An audit auditors ’ report also includes assessing the accounting principles (ii) in the case of the Profit and Loss Account, of the used and the significant estimates made by the profit of the Company for the year ended on that Management, as well as evaluating the overall date and financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. (iii) in the case of the Cash Flow Statement, of the cash flows of the Company for the year ended on 3. As required by the Companies (Auditor’s that date. Report) Order, 2003 (CARO) issued by the Central Government in terms of Section 227(4A) of the 5. On the basis of the written representations Companies Act, 1956, we enclose in the Annexure a received from the Directors as on 31st March, 2010 statement on the matters specified in paragraphs 4 taken on record by the Board of Directors, none of and 5 of the said Order. the Directors is disqualified as on 31st March, 2010 from being appointed as a director in terms of Section 4. Further to our comments in the Annexure referred 274(1)(g) of the Companies Act, 1956. to in paragraph 3 above, we report as follows: For Deloitte Haskins & Sells (a) we have obtained all the information and Chartered Accountants explanations which to the best of our knowledge and (Registration No.008072S) belief were necessary for the purposes of our audit; Ganesh Balakrishnan (b) in our opinion, proper books of account as required Partner by law have been kept by the Company so far as it (Membership No.201193) appears from our examination of those books; Secunderabad, 26th July, 2010 55

Annual Report 2010 DQ Entertainment (International) Ltd. Annexure to the Auditors’ Report

(Referred to in paragraph 3 of our report of even date) the Companies Act, 1956. Accordingly clause (v) of (i) Having regard to the nature of the Company’s CARO is not applicable. business/activities/result, (ii), (vi), (viii), (x), (xii), (xiii), (xiv), (xv), and (xix) clauses of CARO are not (vi) In our opinion, the internal audit functions applicable. carried out during the year by a firm of Chartered Accountants appointed by the Management have (ii) In respect of its fixed assets: been commensurate with the size of the Company and the nature of its business. (a) The Company has maintained proper records showing full particulars, including quantitative (vii) According to the information and explanations details and situation of the fixed assets. given to us in respect of statutory dues:

(b) The fixed assets were physically verified during (a) The Company has generally been regular in

the year by the Management in accordance with depositing undisputed dues, including Provident auditors ’ report a regular programme of verification which, in our Fund, Employees’ State Insurance, Income-tax, opinion, provides for physical verification of all the Sales Tax, Wealth Tax, Service Tax, Custom fixed assets at reasonable intervals. According Duty, Excise Duty, Cess and other material to the information and explanation given to us, statutory dues applicable to it with the appropriate no material discrepancies were noticed on such authorities. verification. (b) There were no undisputed amounts payable (c) The fixed assets disposed off during the year, in respect of Income-tax, Wealth Tax, Custom in our opinion, do not constitute a substantial part Duty, Excise Duty, Cess and other material of the fixed assets of the Company and such statutory dues in arrears as at 31st March, 2010 disposal has, in our opinion, not affected the for a period of more than six months from the date going concern status of the Company. they became payable.

(iii) The Company has neither granted nor taken any (c) Details of dues of Income-tax which have loans, secured or unsecured, to/from companies, not been deposited as on 31st March, 2010 on firms or other parties listed in the Register maintained account of disputes is given below: under Section 301 of the Companies Act, 1956. Statute Nature of Forum Period to Amount (iv) In our opinion and according to the information Dues where which the involved Dispute is amount (Rs) and explanations given to us, having regard to the pending relates D irectors ’ R eport explanations that some of the items purchased are of special nature and suitable alternative sources Non deduction Appellate Income are not readily available for obtaining comparable of TDS for Tribunal, Tax Act, 2008-09 9,642,147 quotations, there is an adequate internal control payments Hydera- 1961 system commensurate with the size of the Company to non bad and the nature of its business with regard to purchases residents of fixed assets and for the sale of services. During the course of our audit, we have not observed any There were no amounts in respect of sales tax, major weakness in such internal control system. wealth tax, service tax, custom duty, excise duty 56 and cess which have not been deposited on (v) To the best of our knowledge and belief and account of any dispute. according to the information and explanations given to us, in our opinion there were no contracts (viii) In our opinion and according to the information or arrangements that need to be entered into the and explanations given to us, the Company has not Register maintained in pursuance of Section 301 of defaulted in the repayment of dues to banks and financial institutions.

Annual Report 2010 DQ Entertainment (International) Ltd. (ix) In our opinion and according to the information and explanations given to us, the term loans have been applied for the purposes for which they were obtained, other than temporary deployment pending application.

(x) In our opinion and according to the information and explanations given to us and on an overall examination of the Balance Sheet, we report that funds raised on short-term basis have not been used during the year for long- term investment.

(xi) During the current year, the Company has not made any preferential allotment of shares to parties and companies covered under section 301 of the companies Act, 1956 at a price which is prejudicial to the interests of the company.

(xii) The Management has disclosed the end use of money raised by public issue and we have verified the same.

(xiii) To the best of our knowledge and according to the information and explanations given to us, no fraud by the Company and no fraud on the Company has been noticed or reported during the year.

For Deloitte Haskins & Sells Chartered Accountants (Registration No.008072S)

Ganesh Balakrishnan Partner (Membership No.201193) auditors ’ report Secunderabad, 26th July, 2010

57

Annual Report 2010 DQ Entertainment (International) Ltd. Balance Sheet as at 31 March, 2010

As at 31 March 2010 As at 31 March 2009 Schedule Rs. Rs. Rs. I. Sources of Funds 1 Shareholders’ Funds a) Share Capital 1 792,830,000 16,266,790 b) Reserves and Surplus 2 2,409,384,862 1,445,974,953

3,202,214,862 1,462,241,743 2 Loan Funds Secured Loans 3 470,545,263 364,734,329 3 Deferred Tax Liability 12,474,002 - F inancials (Refer Note 6 (b) of Schedule 17(II)) Total 3,672,760,125 1,839,450,074

II. Application of Funds 1 Fixed Assets 4 a) Gross Block 1,897,478,629 1,350,443,395 b) Less: Accumulated Depreciation 810,568,857 586,827,810 and Amortisation c) Net Block 1,086,909,772 763,615,585 d) Capital Work-in-Progress 402,692,248 626,683,506 (Refer Note 5 of Schedule 17(II))

2 Investments 5 974,142,490 6,891

3 Current Assets, Loans and Advances a) Sundry Debtors 6 707,653,061 415,692,790 b) Unbilled Revenue 178,939,248 183,946,161 c) Cash and Bank Balances 7 578,725,043 105,400,386 d) Loans and Advances 8 174,390,010 93,526,449 1,639,707,362 798,565,786 Less: Current Liabilities and Provisions a) Current Liabilities 9 336,552,117 254,653,254 b) Provisions 10 94,139,630 94,768,440 430,691,747 349,421,694 Net Current Assets 1,209,015,615 449,144,092 D irectors ’ R eport Total 3,672,760,125 1,839,450,074 Notes and Accounting Policies 17

Schedules refer to above form an integral part of the Balance Sheet

In terms of our report attached For and on behalf of the Board

For Deloitte Haskins & Sells Tapaas Chakravarti K. Balasubramanian Chartered Accountants (CMD & CEO) (Director) 58

Ganesh Balakrishnan Anita Sunil Shankar Sanjay Choudhary Partner (Company Secretary) (Financial Controller)

Place: Secunderabad Date: July 26, 2010

Annual Report 2010 DQ Entertainment (International) Ltd. Profit and Loss Account for the year ended 31 March, 2010

For the year ended For the year ended Schedule 31 March 2010 31 March 2009 Rs. Rs. INCOME : Sales 11 1,481,150,053 1,498,165,681 Other Income 12 15,530,802 10,910,444 1,496,680,855 1,509,076,125 EXPENDITURE : Production Expenses 13 58,173,312 52,671,895 Personnel Costs 14 635,126,717 693,399,277 Administrative and other expenses 15 319,293,602 296,613,541 Financial Expenses 16 55,655,715 55,595,909 Depreciation and Amortisation 4 268,385,393 282,190,366 Less: Expenditure transferred to capital account (34,371,209) (70,757,595) 1,302,263,530 1,309,713,393 Profit before Tax 194,417,325 199,362,732 Provision for Taxation - Current Tax (includes Rs. 736,680 (34,908,957) (22,387,865) (31.03.2009 : Rs. Nil) of earlier years) - Deferred Tax 12,474,002 (12,474,002) - Fringe Benefit Tax - (2,996,255) - MAT Credit Entitlement 30,160,880 - Profit after Tax 202,143,250 161,504,610 Balance brought forward 254,277,531 92,772,921 Amount available for appropriation 456,420,781 254,277,531 Appropriation Transfer to Capital Redemption Reserve (1,763,860) - Balance Carried forward 454,656,921 254,277,531

Earnings Per Share (Refer Note 20 of Schedule 17(II)

F inancials Basic- Rs 3.35 2.77 Diluted- Rs 3.34 2.76 Notes and Accounting Policies 17

Schedules refer to above form an integral part of the Profit and Loss Account In terms of our report attached For Deloitte Haskins & Sells Chartered Accountants Tapaas Chakravarti K.Balasubramanian (CMD & CEO) (Director)

Ganesh Balakrishnan Anita Sunil Shankar Sanjay Choudhary Partner (Company Secretary) (Financial Controller)

Place: Secunderabad Date: July 26, 2010

59

Annual Report 2010 DQ Entertainment (International) Ltd. Cash Flow Statement for the year ended 31 March, 2010

For the year ended For the year ended 31 March 2010 31 March 2009 Rs. Rs. Rs. Rs. A. Cash flow from Operating Activities Profit Before Tax 194,417,325 199,362,732 Adjustments for Depreciation and amortisation 268,385,393 282,190,366 Depreciation transferred to capital account 847,650 1,583,449 Interest Income (2,459,055) (7,112,517) Interest Expenses 28,267,398 31,869,673 Wealth Tax 25,856 22,692 Public issue related expenses 95,446,711 - (Profit)/loss on sale of fixed assets (4,299,059) 178,830 Unrealised loss due to exchange differences 15,240,870 53,627,017 401,455,764 362,359,510 F inancials Operating profit before working capital changes 595,873,089 561,722,242 Adjustments for changes in Trade and other receivables (499,062,800) (565,221,905) Trade payables, other liabilities and provisions 16,975,325 73,372,533 (482,087,475) (491,849,372) Income tax paid (35,530,751) (9,747,692)

Net Cash from Operating activities (517,618,226) (501,597,064) 78,254,863 60,125,178 B. Cash flow from Investing Activities

Purchase of fixed assets (239,157,737) (264,525,439) Sale of fixed assets 57,504,735 2,277,301 Investment in Subsidiary (146,140,375) - Investment in Mutual funds (870,000,000) - Interest received on deposits with Banks and other deposits etc., 842,614 9,180,978

Net Cash used in Investing activities (1,196,950,763) (253,067,160)

C. Cash flow from Financing Activities (27,060,404) (16,428,600) Interest and financing charges paid 198,207,870 - Issue of Equity shares 1,341,385,859 - Premium on issues of share (1,763,860) - Payment to preference shareholders on redemption (29,344,742) - Public issue related expenses 211,199,743 30,000,004 Proceeds from Borrowings from Term Loans (213,663,671) (181,262,095) Repayment of Term Loans 113,033,712 36,493,338 Proceeds on account of Working Capital Loans (Net) Net Cash from /(used in) Financing activities 1,591,994,507 (131,197,353)

Net increase/(decrease) in cash and cash equivalents 473,298,607 (324,139,335)

(A+B+C) D irectors ’ R eport

Cash and cash equivalents as at the beginning of the year 105,400,386 429,322,307 26,050 217,414 Net foreign exchange difference Cash and cash equivalents as at the end of the year* 578,725,043 105,400,386 (refer Schedule No.7) * Including restricted balance of Rs.39,207,402 (31.03.2009: Rs.3,393,556)

In terms of our report attached 60

For Deloitte Haskins & Sells Tapaas Chakravarti K.Balasubramanian Chartered Accountants (CMD & CEO) (Director)

Ganesh Balakrishnan Anita Sunil Shankar Sanjay Choudhary Partner (Company Secretary) (Financial Controller) Place: Secunderabad Date: July 26, 2010

Annual Report 2010 DQ Entertainment (International) Ltd. Schedules forming part of the Balance Sheet

As at As at Sl Particulars 31 March 2010 31 March 2009 Rs. Rs. 1 Share Capital (Refer Note 2 of Schedule 17(II)) Authorised 80,000,000 Equity Shares of Rs.10/- each (31.03.2009 : 3,010,000 shares of 800,000,000 30,100,000 Rs.10/- each) Nil 1% Redeemable Optionally Convertible Preference Shares of Rs.10/- - 8,000,000 each (31.03.2009: 800,000 shares of Rs.10/- each) 800,000,000 38,100,000 Issued, Subscribed and Paid up 79,283,000 Equity Shares of Rs.10/- each fully paid up (31.03.2009: 1,422,912 Equity shares of Rs.10/- each fully paid up) (59,462,218 Equity Shares of Rs.10/- each fully paid up are held by the holding company DQ Entertainment (Mauritius) Limited, the ultimate holding company is DQ Entertainment Plc.) (58,011,920 Equity 792,830,000 14,229,120 shares are allotted as fully paid up by way of bonus shares issued by capitalisation from Securities Premium Account.) (During the year 27,381 Redeemable Optionally Convertible Preference Shares were converted into 27,381 equity shares of Rs.10/- each fully paid up) Nil 1% Redeemable Optionally Convertible Preference Shares of Rs.10/- each (31.03.2009: 203,767 shares of Rs.10/- each fully paid

up) (During the period 27,381 preference shares of Rs.10/- each were - 2,037,670 converted into 27,381 equity shares of Rs.10/- each fully paid up and preference shares of 176,386 are redeemed for cash) 792,830,000 16,266,790 2 Reserves and Surplus

Capital Subsidy (Refer Note 3 of Schedule 17(II)) 800,000 800,000 Capital Redemption Reserve Balance as per last account Add: Transfer from Profit and Loss account 1,763,860 - 1,763,860 Securities Premium Account

F inancials Balance as per last account 1,185,410,028 1,185,410,028 Less: Issue of bonus shares (580,119,200) - Add: On shares issued 1,341,385,859 - 1,946,676,687 1,185,410,028 General Reserve Balance as per last account 5,487,394 5,487,394 Profit and Loss Account Balance Carried forward 454,656,921 254,277,531 2,409,384,862 1,445,974,953

3 Secured Loans (Refer Note 8 of Schedule 17(II)) a) From Banks - Term Loans 288,987,897 299,078,281 - Working Capital Loans 178,689,760 65,656,048 b) From others: - Vehicle Loans 2,867,606 - 61 470,545,263 364,734,329

Annual Report 2010 DQ Entertainment (International) Ltd.

- - 2009 As at 14,139,149 10,668,716 23,563,980 7,008,789 31 March 392,800,422 309,409,976 763,615,585 6,024,553

(Amount in Rs.) Net Block 2010 6,880,159 8,314,066 As at 13,704,344 18,673,129 5,757,832 31 March 258,776,758 774,803,484 763,615,585 1,086,909,772

645,656 2010 As at As at 3,768,775 14,666,512 12,356,382 31 March 25,546,250 498,725,925 254,859,357 586,827,810 810,568,857 F inancials

year 1,612,885 1,169,811 4,214,522 37,626,638 during the Deduction 51,464,147 44,644,346 - - - - Adjustment/ 20,490

434,805 3,600,345 4,705,006 4,181,098 160,876,146 850,547 93,737,446 282,190,366 268,385,393 For the year Depreciation/Amortisation

210,851 As at 2,938,718 12,679,052 12,389,806 22,011,055 1 April 2009 375,476,417 161,121,911 356,101,591 586,827,810

21,546,671 44,219,379 20,670,448 As at As at 757,502,683 14,350,000 9,526,607 1,029,662,841 1,350,443,395 1,897,478,629 31 March 2010

year 2,019,270 2,059,319 5,034,233 - - - - during the Deduction 41,900,442 61,202 51,074,466 Adjustment/ 53,920,278

Gross Block 703,663 year D irectors ’ R eport 6,306,086 218,173 Additions during the 31,126,286 - - 624,538 559,130,954 598,109,700 401,725,154

As at As at 23,347,768 45,575,035 19,398,595 14,350,000 768,276,839 1 April 2009 8,963,271 470,531,887 1,350,443,395 1,002,638,519

62 Particulars Tangible Assets Leasehold Land Leasehold Improvements Plant & Machinery Hardware & Software) Office Equipments Furniture, Fixtures & Interiors Vehicles Intangible Assets Distribution Rights* Total Previous year figures 3 7 Sl 4.A 1 2

4 5 6 4.B

Note : * Amortisation amount of Rs 93,737,446 on Distribution Rights for the current year includes Rs.16,067,608 ( 31.03.2009: Rs. 62,177,325) towards Impairment Loss Intangibles and accumulated Impairment Loss as at 31.03.2010 is Rs.78,244,933 (31.03.2009: Rs.62,177,325)

Schedules forming part of the Balance Sheet 4. Fixed Assets

Annual Report 2010 DQ Entertainment (International) Ltd. Schedules forming part of the Balance Sheet

As at As at Sl Particulars 31 March 2010 31 March 2009 Rs. Rs. 5 Investments Long Term, Unquoted, Trade. In Subsidiary Company

- DQ Entertainment (Ireland) Limited 6,891 104,142,490 (1,529,000 (31.03.2009 : 100 ) ordinary shares of face value Euro 1,

fully paid) (1,528,900 (31.03.2009 : 100) ordinary shares of face value Euro 1,

fully paid was acquired during the current year) Current Investment (at lower of cost and fair value) Investments in Mutual Funds (quoted) (Includes Rs 850,000,000 made 870,000,000 - from the unutilised funds of IPO) (Refer Note. 7 of Schedule 17(II)) 974,142,490 6,891 Notes Market value of quoted investments 870,019,186 - Book value of quoted investments 870,000,000 - Book value of unquoted investments 104,142,490 6,891

6 Sundry Debtors (Unsecured) A)Over six months Considered good 141,125,754 39,187,329 Considered doubtful 9,217,081 4,289,441 B)Other Debts Considered good 566,527,307 376,505,461 Considered doubtful 3,939,865 1,501,045 720,810,007 421,483,276

F inancials Less: Provision for Doubtful Debts (13,156,946) (5,790,486) 707,653,061 415,692,790

7 Cash and Bank Balances

Cash balance on hand 34,797 81,264

Remittance in transit 20,567,203 24,236,000

Cheques on hand - 69,363,379 Balance with Scheduled Banks Current Accounts (Includes Rs 50,000,000 (31.03.2009 : Rs. Nil) 119,617,916 35,634,982 of unutilised funds of IPO) Deposit Accounts (Includes Rs 326,000,000 (31.03.2009 : Rs. Nil) 365,426,484 49,163,404 made from the unutilised funds of IPO) 578,725,043 105,400,386

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Annual Report 2010 DQ Entertainment (International) Ltd. Schedules forming part of the Balance Sheet

8 Loans and Advances (Unsecured, Considered Good) Interest accrued on deposits 1,616,441 - Advances recoverable in cash or in kind or for value to be received :- Other Advances 30,437,827 19,121,504 Advance to DQ Entertainment plc (Parent of holding company) - 27,057,703

Advance towards share application money 41,997,885 - F inancials Deposits * 34,656,604 30,193,207 Claims Receivable 33,538,469 17,154,035 MAT Credit Entitlement 30,160,880 - Advance Tax (Net of provision of Rs. 34,912,120) 1,981,904 - 174,390,010 93,526,449 * Deposits include Balance with Government Authorities Rs.6,068,950 (31.03.2009: Rs.5,514,482) 9 Current Liabilites Sundry creditors - Total outstanding dues of micro enterprises and small enterprises - - - Total outstanding dues of creditors other than micro enterprises and 317,037,129 227,708,228 small enterprises * Advance from Customers 3,003,848 13,286,466 Other liabilities 14,484,870 12,200,943 Interest accrued but not due on Secured Loans 2,026,270 1,457,617 336,552,117 254,653,254 *Includes liabilities on account of capital nature Rs.750,881

(31.03.2009: Rs.1,556,000) 10 Provisions Taxation (Net of advance tax of Rs.26,102,978 (31.03.2009: 14,912,892 Rs.26,123,991)) 10,383,906 Employee benefits 62,350,279 56,071,204 Retakes (Refer Note i of Schedule 17(I))

Opening balance 23,784,344 17,371,406 D irectors ’ R eport Add: Additional provision for the year 18,885,686 17,716,670 Less: Utilised during the year (21,264,585) (11,303,732) Closing balance 21,405,445 23,784,344

94,139,630 94,768,440

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Annual Report 2010 DQ Entertainment (International) Ltd. Schedules forming part of the Profit and Loss Account

For the year For the year Sl Particulars 31 March 2010 31 March 2009 Rs. Rs. 11 Sales Production : Export 1,353,440,546 1,346,416,980 : Domestic 36,757,519 77,119,296 Distribution Income 90,951,988 74,629,405

1,481,150,053 1,498,165,681

12 Other Income Interest from banks and others (including TDS of Rs.245,691 2,459,055 7,061,684 (31.03.2009 : Rs.1,454,704))

Profit on Sale of Fixed Assets 4,299,059 - Miscellaneous Income 4,108,270 2,736,239 Liabilities no longer required written back 733,675 1,112,521 Insurance claims 3,930,743 - 15,530,802 10,910,444

13 Production Expenses Production Expenses - Direct 35,191,828 26,454,047 Power and Fuel 22,981,484 26,217,848 58,173,312 52,671,895

14 Personnel Costs Salaries and Wages 578,253,789 634,203,393

F inancials Contribution to Provident Fund 37,096,514 39,805,586 Staff Welfare Expenses 11,481,627 13,292,647 Gratuity 6,606,226 8,643,133 Compensated absences 1,688,561 (2,545,482) 635,126,717 693,399,277

15 Administrative and Other Expenses

65

Annual Report 2010 DQ Entertainment (International) Ltd. Schedules forming part of the Profit and Loss Account

Communication Expenses 10,100,018 10,589,421 Printing and Stationery 1,110,713 1,911,997 Professional and Consultancy Charges 57,645,440 88,954,419 Repairs and Maintenance : Building 3,418,186 2,454,367 Plant and Machinery 5,536,428 5,996,380 F inancials Others 1,887,733 791,534 Insurance 1,024,977 2,182,439 Business Promotion 5,039,115 4,183,889 Rates and Taxes 5,515,171 772,855 Rent 43,654,269 47,372,720 Auditors Remuneration 3,950,000 2,478,080 Directors Remuneration 9,877,055 8,400,000 Selling and Distribution Expenses 6,974,661 12,279,813 Recruitment Expenses 33,493 3,268,076 Travelling and Conveyance Expenses 13,244,899 23,959,773 Loss on sale of assets - 178,830 Bad debts 31,557 783,471 Provision for doubtful debts (net) 6,806,375 5,790,486 Foreign Exchange Fluctuation Loss (net) 40,431,568 60,777,915 Public issue related expenses 95,446,711 - Miscellaneous Expenses 7,565,233 13,487,076 319,293,602 296,613,541 16 Financial Expenses Interest on Bank Loans - Term loans 19,412,655 27,103,022 - Working capital Loans 8,433,144 4,311,575 - Vehicle loans 421,598 455,076

D irectors ’ R eport Other Financial Charges - Bank charges 20,596,813 4,149,670 - Other charges 6,791,505 19,576,566 55,655,715 55,595,909

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Annual Report 2010 DQ Entertainment (International) Ltd. 17. Accounting Policies - Financials

I. Significant Accounting Policies

a. Basis for Preparation of Financial Statements: The financial statements have been prepared under the historical cost convention on an accrual basis of accounting in accordance with Generally Accepted Accounting Principles, Accounting Standards notified under section 211(3C) of the Companies Act, 1956 and the relevant provisions thereof.

b. Fixed Assets: Fixed Assets are valued at cost inclusive of freight, installation cost, finance cost, duties and taxes and other incidental expenses incurred during the construction / installation stage. Fixed Assets include expenditure incurred on creation of infrastructure facilities at work premises.

Distribution rights represent the cost incurred on acquisition of animation contents for exploitation.

Capital work-in-progress comprises outstanding advances paid to acquire fixed assets and the cost of fixed asset (including expenditure during construction) that are not yet ready for their intended use before the balance sheet date.

Direct or indirect expenses incurred on the Development of Projects in order to create Intellectual Property or Content, which are exploited on any form of media are capitalized as an intangible asset under development in accordance with AS 26 (intangible assets). In the event, the project is not scheduled for production within three years, or project is abandoned, the carrying value of the Development Rights would be expensed in the year in which such project is discontinued or abandoned.

c. Depreciation and Amortization: Depreciation on fixed assets other than leasehold improvements is provided on straight-line method at rates which are as follows:

Hardware & Software (CGI*) 30.00% Hardware & Software (Others) 16.21% Generators 16.21% Office Equipment 10.00% Furniture & Fixtures 10.00% Vehicles 25.00%

*Computer Generated Imagery

Individual assets costing less than Rs.5,000 are fully depreciated in the period of purchase. Where the aggregate actual cost of individual items of

A ccounting P olicies - F inancials Plant and Machinery costing Rs.5,000 or less constitutes more than 10% of the total actual cost of Plant and Machinery, depreciation is provided at normal rates stated above.

Leasehold improvements are amortized over the primary period of lease.

Cost of Distribution Rights is amortized over the period of the right including extended period or ten years whichever is lower.

d. Investment: Long-term investments are stated at cost, less provision for other than temporary diminution in value. Current investment comprising investments in mutual funds are stated at the lower of cost and fair value.

e. Licensing Rights In respect of Licensing Rights acquired against a specific sale contract, the costs are charged off as Production Costs.

f. Revenue Recognition (i) Production Revenue : Service revenue from fixed-price contracts is recognised using the Proportionate Completion Method. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined.

“Unbilled Revenue” represents services provided to the customers till the balance sheet date, which are billed subsequent to period-end. All such amounts are anticipated to be realised in the following period.

(ii) Distribution Revenue : Revenue from the licensing of distribution rights (including withholding tax) is recognised on a straight line basis over the term of the licensing agreement and in the case of the license fee from co-production rights on the date declared by the licensee.

(iii) Training Revenue : Training Revenue is recognized over the period of instruction.

No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due.

g. Foreign Currency Transactions: Foreign Currency Transactions (FCT) and Forward Exchange Contracts (FEC) used to hedge FCT (including firm commitments and forecast 67 transactions) are initially recognized on the spot rate on the date of the transaction / Contract.

Annual Report 2010 DQ Entertainment (International) Ltd. Monetary assets and liabilities relating to FCT and FEC remaining unsettled at the end of the year are translated at the exchange rate prevailing as on the date of balance sheet.

The difference in translation and realized gains and losses on Foreign Exchange Transactions (including option Contracts) are recognized in Profit and Loss Account. Further, in respect of transactions covered by FEC, the difference between contract rate and spot rate on the date of the transaction is charged to Profit and Loss Account over the period of the contract. h. Employee benefits i) Post-employment benefit plans Post employment benefits are recognised as an expense in the Profit and Loss Account for the year in which the employee has rendered services.

For defined benefit schemes, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses are recognised in full in the profit and loss account for the period in which they occur. ii) Short-term employee benefits The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employees is recognised during the period when the employee renders the service. These benefits include compensated absences such as paid annual leave. iii) Long-term employee benefits Compensated absences which are not expected to occur within twelve months after the end of the period in which the employee renders the related services are recognized as a liability at the present value of the defined benefit obligation at the balance sheet date. i. Public Issue related expenses Public issue related expenses are recognised as an expense in the profit and loss account in the year in which the expenses are incurred.

j. Taxation A ccounting P olicies - F inancials i) Provision for Income Tax is made on the assessable income, at the applicable tax rates, in accordance with the provisions of the Income-tax Act, 1961. Income derived from the animation division and related services are exempt under section 10A of the Income-tax Act, 1961 upto 31st March 2011. The Company has provided tax on its other taxable income earned during the year. ii) Minimum Alternate Tax (MAT) paid in accordance to the tax laws, which gives rise to future economic benefits in the form of adjustment of future income tax liability, is considered as an asset if there is convincing evidence that the Company will pay normal income tax after the tax holiday period. Accordingly, MAT is recognized as an asset in the balance sheet when it is probable that the future economic benefit associated with it will flow to the Company and the asset can be measured reliably. iii) Deferred tax expense or benefit is recognised on timing differences being the difference between taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent periods. Deferred tax assets and liabilities are measured using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date.

In the event of unabsorbed depreciation and carry forward of losses, deferred tax assets are recognised only to the extent that there is virtual certainty that sufficient taxable income will be available to realise such assets. In other situations, deferred tax assets are recognised only to the extent that there is reasonable certainty that sufficient future taxable income will be available to realise these assets. k. Provision for retakes Provisions for retakes are recognised wherever they are considered to be material. Retakes include creative changes to the final product delivered to the customer, performed on the specific request of the customer at the Company’s own cost. Requests for retakes from customers are expected to be received by the Company within a period of three months from the final delivery. l. Leases Lease payments for assets taken on Operating Lease are recognized in the Profit and Loss Account over the lease term in accordance with the Accounting Standard 19 – Leases. D irectors ’ R eport m. Earnings Per Share The Company reports basic and diluted Earnings per Share (EPS) in accordance with Accounting Standard 20 – EPS. • Basic Earnings per Equity Share has been computed by dividing Net Profit for the year by the weighted average number of Equity Shares outstanding for the period. • Diluted Earnings per Equity Share has been computed using the Weighted average number of Equity Shares and dilutive potential Equity Shares outstanding during the period except where the results are anti dilutive. n. Provisions, Contingent Liabilities and Contingent Assets Provisions involving substantial degree of estimation in measurement are recognized when there is a present obligation as a result of past events and it is possible that there will be an outflow of resources. Contingent Liabilities are not recognized but are disclosed in the Notes. Contingent Assets are neither recognized nor disclosed in the Financial Statements. 68 o. Impairment The carrying amounts of the Company’s assets, other than inventories and deferred tax assets, are reviewed at each Balance Sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognized whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognized in the income statement. A cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Impairment losses recognized in respect of cash-generating units are allocated to reduce the carrying amount of assets in the unit on a pro rata basis.

Annual Report 2010 DQ Entertainment (International) Ltd. II Notes to Financial Statements

1 Company overview:

The Company is engaged in the business of providing services relating to animation production for television and film production companies and rendering training for acquiring skills for production services in relation to the production of animation television series and movies. The Company also provides services for gaming consoles and licensing of programme distribution rights to broadcasters, television channels and home video distributors.

Pursuant to a special resolution of the members passed at an Annual General Meeting on July 25, 2009, DQ Entertainment (International) Private Limited became a public limited company and the name was changed to DQ Entertainment (International) Limited. A fresh certificate of incorporation consequent to conversion of Company from private to public was granted on September 10, 2009 by the Registrar of Companies, Andhra Pradesh at Hyderabad.

2 Share Capital:

Authorised share capital

On 15th September 2009 the Company increased its authorised equity share capital from 3,010,000 shares of face value of Rs 10/- each to 80,000,000 shares of face value of Rs 10/- each and cancelled the 800,000 1% Redeemable Optionally Convertible Preference share capital.

Issued, Subscribed & Paid up

a) Equity Shares :

The Company made an Initial Public Offer (“IPO”) of 16,048,011 equity shares of Rs.10/- each. Out of 16,048,011 equity shares, 172,960 equity shares were allotted to employees at a premium of Rs.63 per share and 15,875,051 equity shares to others at a premium of Rs.70 per share. The Company made a pre-IPO placement of 3,772,771 equity shares of Rs.10/- each at a premium of Rs.58.11 per equity share. The aggregate share premium received in IPO and pre-IPO is Rs. 1,341,385,773 million. On 29 March 2010, the equity shares of the Company were listed on the Bombay Stock Exchange.

b) Preference Shares :

During the period out of 203,767 1% Redeemable Optionally Convertible Non Cumulative Preference Shares of the face value Rs.10/- each. 27,381 shares are converted in to 27,381 equity shares of Rs 10/- each and the balance of 176,386 1% Redeemable Optionally Convertible Non Cumulative Preference Shares were redeemed for cash at Rs 10/- per share.

F inancials c) Dividends:

Each Preference Share shall carry an annual preference dividend of 1% (one percent), such dividends to be non cumulative and payable annually prior to the payment of dividends on the equity shares. The Preference Shares being non-cumulative in nature, any dividend unpaid for any financial year shall not be carried forward and/or accumulate in the subsequent financial year. No dividend shall be paid on the Equity Shares if the preference dividends or any portion thereof on Preference Shares are in arrears.

Redemption: The Company shall be entitled, at its option to call for redemption of all or part of the Preference Shares in one or more trenches, at a redemption price of Rs. 10/- per Preference Share plus an amount equal to any accrued but unpaid dividend on such Preference Shares.

3 Reserves and Surplus

Capital Subsidy :

Erstwhile DQ Entertainment Limited was sanctioned a Capital Subsidy of Rs. 2,000,000 under clause 7(f) of ICT Incentive Policy of the Government of Andhra Pradesh, to be released in five equal annual installments of Rs.400,000 each as per G.O.Rt.No.284 dated 10th September 2004. The Company has received Rs.800,000 (31.03.2009: Rs.800,000) and has been transferred to Capital Subsidy.

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Annual Report 2010 DQ Entertainment (International) Ltd. 4 Distribution Rights

Distribution rights (Schedule 4 of the financial statements) aggregating to Rs1,029,662,841 (31.03.2009: Rs.470,531,887) represent the unamortized value of costs incurred in acquiring distribution rights. The Company started acquiring these rights from the year 2003-04 and till date 30 series (31.03.2009: 23) of Animation rights have been acquired for different territories across the globe. The Company has started earning revenues from usage of rights since 2006-07. The Company has performed testing for impairment of intangibles which resulted in an impairment loss of Rs. 16,067,608 (31.03.2009: Rs.62,177,325) on account of recoverable amount of intangibles being less than its carying amount. These have been included in the line item “Depreciation & Amortisation” in the Statement of Profit and Loss.The accumulated Impairment Loss as at 31.03.2010 on distribution righhts amounted to Rs.78,244,933 (31.03.2009: Rs.62,177,325).

5 Capital Work-in-progress

a) Includes Rs.48,572,918 (31.03.2009: Rs.19,503,551) on account of advances to suppliers of capital goods and Rs. 318,608,602 (31.03.2009: Rs.535,788,957) incurred under various co-production agreements for which distribution rights are yet to be received. Pending receipt of distribution rights and considering the potential benefits likely to accrue to the Company in future, the carrying amount of Capital work-in-progress have been valued at cost. F inancials

b) Includes Rs.35,510,728 (31.03.2009: Rs.71,390,998) incurred towards projects under development to be exploited as Telivision Series/Films and others. Based on review of estimated future realizations the management is of the view that estimated future recoverable amount from these projects are more than its carrying unamortized cost and consequently no provision for impairment is considered necessary by the management at this stage.

6 (a) The company is an Export Oriented Unit registered with Software Technology Parks of India and its business income is exempted from tax in terms of section 10A of the Income Tax Act, 1961. Currently Tax provision on book profit is provided as per the provisions of Section 115JB (MAT) of the Income Tax Act, 1961. As a measure of prudence, in the absence of virtual certainty of future profits and having regard to the nature of Company’s busines, the deferred tax asset of Rs. 12,474,002 has not been recognized.

6 (b) Deferred Tax

The major components of the Deferred Tax (net) are as under :

Current year (Liability) / Asset at (Liability) / Asset at Timing Differences (Charge) / Credit 31 March 2009 (Rs.) 31 March 2010 (Rs.) (Rs.) Depreciation (86,472,029) (23,712,026) (62,760,003) Gratuity 10,719,494 (1,819,239) 12,538,733 Leave Encashment 7,626,538 (216,368) 7,842,906 Sick leaves 712,570 (98,651) 811,221 Provision for Doubtful Debts 1,968,186 (2,503,860) 4,472,046 Amalgamation expenses us 35DD - (327,154) 327,154 IPO Expenses u/s 35 D - (8,497,500) 8,497,500 Past losses and unabsorbed depreciation 52,971,239 24,700,796 28,270,443 Deferred Tax Asset/(Liability)-Net (12,474,002) (12,474,002) -

7 Investment in Mutual funds D irectors ’ R eport

Investment in Mutual funds Purchase during the year * Sold during the year Balance as at 31 March 2010 Name of the Mutual fund No of units Rupees No of units Rupees No of Units Rupees SBI - Ultra Short term Fund - 71,699,442 860,000,000 - 71,699,442 860,000,000 Institutional PLAN - Growth

GCBG IDFC Cash Fund - 605,627 10,000,000 605,627 10,001,090 - - 70 Inst Plan B - Growth GCBG IDFC Money manager fund - Treasury 680,281 10,000,000 - - 680,281 10,000,000 plan - Inst Plan B - Growth

• - Opening balance NIL (all units purchased during the year)

Annual Report 2010 DQ Entertainment (International) Ltd. 8(a) Secured Loans

31 March 2010 31 March 2009 Rs. Rs. a) Term Loans from Banks :

i) Vehicle loans Secured by hypothecation of Vehicles acquired 1,365,049 3,239,596

ii) Denominated in Foreign Currency The loan is secured by a first charge on all the Fixed Assets of the Company 24,074,196 255,838,685 and a collateral second charge on all the current assets of the company, both present and future both ranking pari-passu with the Working Capital and Term Lenders of the Company.

iii) Denominated in INR The loan is secured by a first charge on all the Fixed Assets of the company 263,548,652 40,000,000 and a collateral second charge on all the current assets of the company, both present and future both ranking pari-passu with the Working Capital and Term Lenders of the Company.

b) Working Capital Loan from Banks : Denominated in Foreign currency Packing credit Loan is secured by a first charge on all current assets of the 135,821,152 - Company along with other working capital lender to the company including all receivables, cash flows and other monies and a second charge on all fixed assets of the company Denominated in INR Working Capital Loan is secured by a first charge on all current assets of 42,868,608 65,656,048 the Company, both present and future, including all receivables, cash flows and other monies and a second charge on all fixed assets of the company, both ranking pari-passu with the Working Capital and Term Lender of the Company. c) Term Loan from others : i) Vehicle loans

F inancials Secured by hypothecation of Vehicles acquired 2,867,606 - TOTAL 470,545,263 364,734,329

8(b) Particulars of Loans and Advance in the nature of loans as required by clause 32 of the listing agreement

During the year there are no loans and advances which are in the nature of loans given to subsidiary.

9 Contingent Liabilities

31 March 2010 31 March 2009

Rs. Rs.

a) Bonds executed in favour of customs and excise authorities 37,250,000 37,250,000

b) Letters of Credit 302,192,625 316,578,819

71

Annual Report 2010 DQ Entertainment (International) Ltd. c) Income tax assessment of DQ Entertainment (International) Limited has been completed till Assessment Year 2007-08 (financial year 2006-07). Income Tax department has preferred an appeal for the Assessment Years 2004-05 and 2006-07 and is pending before the Income Tax Appellate Tribunal (ITAT). No demand has been raised by the Department on the above. d)Claims against the Company not acknowledged as debts is Rs.9,642,147 (31.03.2009: Rs. 9,642,147). This comprise of demands raised by the Income Tax department for non deduction of TDS on payments to non residents on which the Company has gone on appeal and the appeal is allowed before the Commissioner of Income Tax (Appeals), Hyderabad in favor of the company. The department has gone for an appeal and the same is pending before the Income tax appellate tribunal (ITAT).

31 March 2010 31 March 2009 Rs. Rs. 10 CIF Value of Imports 2,236,979 43,954,386 Capital Goods F inancials

11 Earnings in Foreign Currency

Income from production 1,358,447,458 1,344,366,458

License Fees 90,516,158 43,471,833

12 Expenditure in Foreign Exchange Travel 1,837,101 4,228,661 Production Expenses 31,983,859 17,928,164 Professional and Consultancy Charges 7,515,898 19,458,852 Financial Charges 5,241,636 16,633,999 Others 1,446,577 4,962,627 48,025,071 63,212,303

13 (a) The company uses Forward Exchange Contracts and Currency Options to hedge its exposures in foreign currency related to firm commitments and highly probable forecasted transactions. The information on Derivative instruments is as follows:

Derivative Instrument outstanding as at the year end: 31 March 2010 31 March 2009 Currencies Buy Sell Buy Sell Rs. Rs. Rs. Rs. I) Forward Exchange Contracts

USD - $450,000 $500,000

- D irectors ’ R eport

INR - 20,263,500 26,085,000 - II) Currency Options

USD - $1,200,000 $10,800,000 - INR - 54,036,000 - 563,436,000

13 (b) Exchange difference in respect of forward exchange contracts to be recognised in the Profit and Loss Account in the subsequent accounting period amounts to Rs. 783,375 (31.03.2009: Rs.299,000). 72

Annual Report 2010 DQ Entertainment (International) Ltd. 13 (C) The year end foreign currency exposures that have not been hedged by a derivative instrument or otherwise are given below.

i) Amounts receivable in foreign currency on account of the following:

31 March 2010 31 March 2009 Rs. Foreign Currency Rs. Foreign Currency Export of goods 45,125,148 $1,002,113 65,163,460 $1,249,060 606,916,094 € 10,016,770 294,681,628 € 4,276,326 2,262,989 GBP 33,343 - - License Fees 5,978,183 $132,760 27,994,687 € 406,250 34,918,181 € 576,303 3,967,528 $76,050 695,200,595 391,807,303

ii) Amounts payable in foreign currency on account of the following:

31 March 2010 31 March 2009 Rs. Foreign Currency Rs. Foreign Currency Import of goods and services 3,825,268 $84,949 97,527,403 $1,869,415 352,028 € 5,810 344,550 € 5,000 50,903 GBP 750 - - Interest on Foreign currency term loans 390,676 $8,676 1,918,423 $36,773 Foreign currency term loans 159,895,317 $3,550,862 255,838,685 $4,903,943 Total 164,514,192 355,629,061

14 Auditors’ Remuneration 31 March 2010 31 March 2009 Rs. Rs. t

Audit fees 1,950,000 551,500 Tax Audit fees 150,000 110,300

F inancials Other matters * 6,350,000 1,816,280

8,450,000 2,478,080

* Includes professional charges of Rs. 4,500,000 paid in connection with the issue of equity shares through IPO included in Public issue related expenses

15 Remuneration to Whole-time Director 31 March 2010 31 March 2009 Rs. Rs. Salaries and allowances 3,584,000 3,360,000 Other perquisite 896,000 840,000 Commission 5,397,055 4,200,000 9,877,055 8,400,000

The above figure does not include provision for gratuity and leave encashment liability acturially valued as separate figure are not available 73

Annual Report 2010 DQ Entertainment (International) Ltd. Computation on Net Profit in accordance with Section 349 of the Companies Act, 1956

31 March 2010 31 March 2009 Rs. Rs. Profit before taxation 194,417,325 199,362,732 Add: Managerial remuneration 9,877,055 8,400,000 Provision for Doubtful debts 6,806,375 5,790,486 Loss on sale of Fixed assets as per books - 178,830

Depreciation as per books 268,385,393 282,190,366

Less F inancials

Profit on sale of Fixed assets 8,229,802 - Profit / Loss on sale of Fixed assets as per Companies Act, 1956 13,482,309 17,238,688 Adjustments / Bad debts written off against the provision created 1,180,405 - earlier Depreciation as per Section 350 of the Companies Act, 1956 188,339,201 145,401,567 Profit for the year as per Section 349 of the Companies Act, 1956 268,254,431 333,282,159 Commission to Managing Director @ 3% 8,047,633 9,998,465 Commission to Managing Director ristricted to as per 5,397,055 4,200,000 resolution

16 Micro, Small and Medium Enterprises Development Act, 2006

The Company has received intimation from certain “suppliers” regarding their status under the Micro, Small and Medium Enterprises Development Act 2006 confirming that they do not fall under the Micro, Small & Medium Enterprises Category while other “Suppliers have not intimated regarding their status, 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.

17 Related party disclosures

17 a) Related parties and their relationships

i) Holding and Subsidiary Companies

a. DQ Entertainment (Mauritius) Limited - Holding company b. DQ Entertainment Plc - Parent of holding company c. DQ Entertainment (Ireland) Limited - Subsidiary company D irectors ’ R eport ii) Key management personnel

Mr. Tapaas Chakravarti - Managing director & Chief executive officer Ms. Sumedha Saraogi, (Vice President – Management Office and After Sales)

iii) Relatives of Key Management Personnel with whom the Company had transactions during the year -

Mrs. Rashmi Chakravarti (wife of Mr. Tapaas Chakravarti) (Director with effect from 25 May 2009)

Ms. Nivedita Chakravarti (Daughter of Mr. Tapaas Chakravarti) 74

iV) Associate of the Ultimate Holding Company

Method Animation SAS

17 b) Transactions with above in the ordinary course of business

Annual Report 2010 DQ Entertainment (International) Ltd.

31 March 2010 31 March 2009 Rs. Rs. i) Holding Companies Issue of equity share capital by conversion of Redeemable Optionally Convertible Preference Shares by held by DQ Entertainment (Mauritius) Limited 273,810 - Issues of bonus shares to DQ Entertainment (Mauritius) Limited by capitalisation from Securities Premium Account 580,116,800 - Consultancy charges - DQ Entertainment (Mauritius) Limited 37,053,448 94,681,274 Consultancy charges - DQ Entertainment Plc - 27,057,703 ii) Subsidiary Company Investment in DQ Entertainment (Ireland) Limited 104,135,599 6,891 Sale of asset to DQ Entertainment (Ireland) Limited 53,620,000 -

iii) Key management personnel Issues of Equity shares in the Company 20 - Issues of bonus shares by capitalisation from Securities Premium Account 800 - Remuneration 9,877,055 8,400,000 iv) Relative of key management personnel Issues of Equity shares in the Company 20 - Issues of bonus shares by capitalisation from Securities Premium Account 800 - Remuneration 2,850,000 2,850,000

v) Associate of the Ultimate Holding Company Revenue from Animation 323,479,993 359,639,360 Revenue from disrtubtion 4,749,042 -

17 (C) Balances outstanding

As at 31st March As at 31st March 2009 2010 F inancials i) Holding Companies Rs. Rs. Amount payable at year end - DQ Entertainment (Mauritius) Limited 116,032,608 94,681,274 Amount receivable at year end - DQ Entertainment Plc - 27,057,703 ii) Subsidiary Company Amount payable at year end - DQ Entertainment (Ireland) Limited - 6,891 Amount receivable at year end - DQ Entertainment (Ireland) Limited 10,365,240 - iii) Associate of the Ultimate Holding Company Amounts receivable at the year end 208,195,112 215,079,346

18 Leases

The Company’s significant leasing arrangement is in respect of operating lease for premises. The Company has exclusive right to cancel the lease with prior notice. The aggregate lease rents payable are charged as rent in the Profit and Loss Account. The aggregate amount of Lease rentals charged to Profit and Loss account is Rs.41,263,801 (31.03.2009: Rs.44,697,657).

75

Annual Report 2010 DQ Entertainment (International) Ltd.

8% 4% (In Rupees) - (563,616) Gratuity 563,616 1,876,615 13,113,171 1,876,615 13,113,171 23,457,683 8,643,132 31,537,199 (6,346,654) (6,346,654) 8% 4% Year ending 31 March 2009 F inancials - (810,021) 810,021 2,059,354 22,437,593 11,254,741 2,059,354 11,254,741 25,741,921 Leave Encashment (2,494,307) (15,808,402) (15,808,402)

8% 4%

1,075,944 6,428,221 2,522,976 5,352,274 2,522,976 5,352,274 36,889,476 31,537,199 (1,447,029) (1,075,944) (1,447,029)

- -

Gratuity 8% 4%

- - Year ending 31 March 2010 Leave Encashment 1,198,616 1,795,007 636,563 1,795,007 636,563 22,437,593 1,835,179 23,074,156 (596,391) (1,198,616) (596,391)

D irectors ’ R eport

76

19 Employee benefits as required under Accounting Standard 15: The following table lists out disclosure requirements laid down under the Accounting Standard 15: Discount Rate % Actual Contributions Assumptions Salary Escalation % Expense recognized in the Statement of P/L Actual Contribution and Benefit Payments Actual Benefit Payments (Gain) / Actuarial Losses Interest Cost Present Value of DBO at the end of the year Expense Recognized in the statements of Profit & Loss account for year ended Current Service Cost Benefits paid Actuarial Losses /(Gains) Interest Cost Current Service Cost Present Value of DBO at the beginning of the year

Annual Report 2010 DQ Entertainment (International) Ltd. 31 March 2010 31 March 2009 20 Earnings Per Share (EPS) Rs. Rs. Particulars a) Net Profit available for Equity Shareholders 202,143,250 161,504,610 b) Nominal Value Per Share 10 10 c) Basic Earning Per Share 3.35 2.77 d) Diluted Earning Per Share 3.34 2.76 No’s No’s e) Weighted Average number of Equity Shares for Basic EPS 60,396,955 58,339,392 f) Weighted Average number of Equity Shares for Diluted EPS 60,518,657 58,543,159

21 The Initial Public offer (IPO) proceeds have been utilized as per the objects of the issues as stated in prospectus as under:

Particulars Amount in Rs. Utilisation of funds 1,539,593,593

Investment in co-production agreements, focusing on Intellectual 196,790,000 Properties content creation Investment in Subsidiary, DQ Entertainment (Ireland) Limited 87,458,851 Issues expenses 29,344,742 313,593,593 313,593,593 Investments 850,000,000 Fixed Deposits 326,000,000 Bank balance 50,000,000 Total 1,539,593,593

22 Segmental Reporting as per Accounting standard 17:

22 (a) Business Segment

The Company comprises the following main business segments: F inancials Animation:

The production services rendered to production houses and training rendered for acquiring skills for production services in relation to the production of animation television series and movies.

Gaming:

The services provided for the contents in Console / Mobile / Other platforms.

Distribution:

The revenue generated from the exploitation of the distribution rights of animated television series and movies acquired by the Company.

77

Annual Report 2010 DQ Entertainment (International) Ltd. The segment information for the year ended 31 March 2010 is as follows:

(In Rupees.)

Animation Gaming Distribution Total Revenue from customers 1,374,206,191 15,991,874 90,951,988 1,481,150,053 1,356,577,222 66,959,054 74,629,405 1,498,165,681 Total Revenue 1,374,206,191 15,991,874 90,951,988 1,481,150,053 1,356,577,222 66,959,054 74,629,405 1,498,165,681 Depreciation and - - 93,737,446 93,737,446 Amortisation 108,279,765 108,279,765 Segment result 841,563,934 6,278,375 (6,460,556) 841,381,753

812,879,381 43,250,600 (37,237,638) 818,892,343 F inancials Unallocated expenses (593,767,768) (570,995,386) Operating Profit 247,613,985 247,896,957 Net financing costs (53,196,660) (48,534,225)

Income Tax expense 7,725,925 (37,858,122) Profit for the year 202,143,250 161,504,610

Segment assets 830,347,399 9,736,932 1,076,170,820 1,916,255,151 546,223,556 35,255,436 934,116,164 1,515,595,156 Unallocated assets 2,187,196,721 673,276,612 Total assets 4,103,451,872 2,188,871,768 Segment liabilities 70,891,660 1,214,912 287,655 72,394,227 75,475,312 4,063,956 299,000 79,838,268 Unallocated liabilities 828,842,783 646,791,757 Total liabilities 901,237,010 726,630,025 Cash flows from operating 78,254,863

activities D irectors ’ R eport 60,125,178 Cash flows used in investing (1,196,950,763) activities (253,067,160) Net Cash from /(used in) 1,591,994,507 Financing activities (131,197,353) Capital expenditure Tangible Fixed Assets 46,691,349 266,585,973 78 Distribution rights 392,295,290 481,251,215

Annual Report 2010 DQ Entertainment (International) Ltd. Note: Figures in italics represent previous year

22 (b) Geographical Segment Revenue from geographic segments based on domicile of the customers is outlined below: (In Rupees)

America Europe Others Total Revenue from customers Animation 206,454,160 1,130,994,513 36,757,518 1,374,206,191 599,680,093 679,469,772 77,427,357 1,356,577,222 Gaming 6,731,174 9,260,700 - 15,991,874 22,935,456 44,023,598 - 66,959,054 Distribution 23,711,380 65,563,421 1,677,187 90,951,988 172,387 43,299,446 31,157,572 74,629,405 Total Revenue 236,896,714 1,205,818,634 38,434,705 1,481,150,053 622,787,936 766,792,816 108,584,929 1,498,165,681 Total Assets 8,742,371 875,762,713 3,218,946,788 4,103,451,872 189,119,187 386,634,277 1,613,118,304 2,188,871,768 Capital expenditure Tangible Fixed Assets 46,691,349 266,585,973 Distribution rights 392,295,290 481,251,215 Note: Figures in italics represent previous year

23 Capital Commitments

31 March 2010 31 March 2009 F inancials Amount in Rs. Amount in Rs. Estimated amount of contracts remaining to be executed on capital account not 560,149 43,384,443 provided for, net of advances Rs. Nil (31.03.2009: Rs.19,503,551)

24 Figures of previous year have been regrouped/rearranged/reclassified wherever necessary to conform to the current year presentation.

For and on behalf of the Board Tapaas Chakravarti K. Balasubramanian (CMD & CEO) (Director)

Place: Secunderabad Anita Sunil Shankar Sanjay Choudhary Date: July 26, 2010 (Company Secretary) (Financial Controller)

79

Annual Report 2010 DQ Entertainment (International) Ltd. Auditors’ Report on Consolidated Financial Statements

TO THE BOARD OF DIRECTORS OF DQ ENTERTAINMENT (INTERNATIONAL) LIMITED 4. We report that the Consolidated Financial Statements have been prepared by the Company 1. We have audited the attached Consolidated in accordance with the requirements of Accounting Balance Sheet of DQ ENTERTAINMENT Standard 21 (Consolidated Financial Statements) (INTERNATIONAL) LIMITED (“the Company”) as notified under the Companies (Accounting and its subsidiary (the Company and its subsidiary Standards) Rules, 2006. constitute “the Group”) as at 31st March, 2010, the Consolidated Profit and Loss Account and the 5. Based on our audit and on consideration of the Consolidated Cash Flow Statement of the Group for separate audit reports on the individual financial the year ended on that date, both annexed thereto. statements of the Company and the aforesaid These financial statements are the responsibility subsidiary and to the best of our information and of the Company’s Management and have been according to the explanations given to us, in our prepared on the basis of the separate financial opinion, the Consolidated Financial Statements give auditors ’ report statements and other financial information regarding a true and fair view in conformity with the accounting components. Our responsibility is to express an principles generally accepted in India: opinion on these Consolidated Financial Statements based on our audit. (i) in the case of the Consolidated Balance Sheet, of the state of affairs of the Group as at 31st March, 2. We conducted our audit in accordance with the 2010; auditing standards generally accepted in India. Those Standards require that we plan and perform (ii) in the case of the Consolidated Profit and Loss the audit to obtain reasonable assurance about Account, of the profit of the Group for the year ended whether the financial statements are free of material on that date and misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and (iii) in the case of the Consolidated Cash Flow the disclosures in the financial statements. An audit Statement, of the cash flows of the Group for the also includes assessing the accounting principles year ended on that date. used and the significant estimates made by the Management, as well as evaluating the overall D irectors ’ R eport financial statement presentation. We believe that our For Deloitte Haskins & Sells audit provides a reasonable basis for our opinion. Chartered Accountants (Registration No.008072S) 3. We did not audit the financial statements of the subsidiary, whose financial statements reflect total assets of Rs.218,573,070 as at 31st March, 2010, total revenues of Rs.273,602,050 and net cash Ganesh Balakrishnan outflows aggregating to Rs. 144,832,085 for the year Partner ended on that date, as considered in the Consolidated (Membership No.201193) 80 Financial Statements. These financial statements have been audited by another auditor whose report has been furnished to us and our opinion in so far as Secunderabad, 26th July, 2010 it relates to the amounts included in respect of the subsidiary is based solely on the report of the other auditor.

Annual Report 2010 DQ Entertainment (International) Ltd. Consolidated Balance Sheet as at March 31, 2010

As at 31 March 2010 As at 31 March 2009 Schedule Rs. Rs. I. Sources of Funds 1 Shareholders’ Funds a) Share Capital 1 792,830,000 16,266,790 b) Reserves and Surplus 2 2,455,225,109 1,445,689,874

3,248,055,109 1,461,956,664 2 Loan Funds Secured Loans 3a 470,545,263 364,734,329 Unsecured Loan 3b 118,394,780 -

3 Deferred Tax Liability - 12,474,002 C onsolidated F inancials (Refer Note 6 (b) of Schedule 17(II)) Total 3,836,995,152 1,839,164,995

II. Application of Funds 1 Fixed Assets 4 a) Gross Block 2,003,786,173 1,350,443,395 b) Less: Accumulated Depreciation 815,382,743 586,827,810 and Amortisation c) Net Block 1,188,403,430 763,615,585 d) Capital Work-in-Progress 403,366,160 626,683,506 (Refer Note 5 of Schedule 17(II))

2 Investments 5 870,000,000 -

3 Current Assets, Loans and Advances a) Sundry Debtors 6 831,267,520 415,692,790 b) Unbilled Revenue 239,149,349 183,946,161 c) Cash and Bank Balances 7 582,326,959 105,400,386 d) Loans and Advances 8 172,064,707 93,587,710 1,824,808,535 798,627,047 Less: Current Liabilities and Provisions a) Current Liabilities 9 346,896,882 254,992,703 b) Provisions 10 102,686,091 94,768,440 449,582,973 349,761,143 Net Current Assets 1,375,225,562 448,865,904

Total 3,836,995,152 1,839,164,995 Notes and Accounting Policies 17

Schedules refer to above form an integral part of the Balance Sheet

In terms of our report attached For and on behalf of the Board

For Deloitte Haskins & Sells Tapaas Chakravarti K. Balasubramanian Chartered Accountants (CMD & CEO) (Director)

Ganesh Balakrishnan Anita Sunil Shankar Sanjay Choudhary Partner (Company Secretary) (Financial Controller)

Place: Secunderabad Date: July 26, 2010 81

Annual Report 2010 DQ Entertainment (International) Ltd. Consolidated Profit and Loss Account for the year ended 31 March, 2010

For the year ended For the year ended Schedule 31 March 2010 31 March 2009 Rs. Rs. INCOME : Sales 11 1,754,739,620 1,498,165,681 Other Income 12 11,327,094 10,910,444 1,766,066,714 1,509,076,125 EXPENDITURE : Production Expenses 13 241,307,046 52,671,895 Personnel Costs 14 635,126,717 693,399,277 Administrative and other expenses 15 322,824,568 296,886,410 Financial Expenses 16 58,889,891 55,595,909 Depreciation and Amortisation 4 273,777,722 282,190,366 Less: Expenditure transferred to capital account (34,371,209) (70,757,595) 1,497,554,735 1,309,986,262 Profit before Tax 268,511,979 199,089,863 Provision for Taxation - Current Tax (includes Rs. 736,680 (44,425,870) (22,387,865) (31.03.2009 : Rs. Nil) of earlier years) - Deferred Tax 12,474,002 (12,474,002) - Fringe Benefit Tax - (2,996,255) - MAT Credit Entitlement 30,160,880 - Profit after Tax 266,720,991 161,231,741 Balance brought forward 254,004,662 92,772,921 Amount available for appropriation 520,725,653 254,004,662 Appropriation Transfer to Capital Redemption Reserve (1,763,860) - C onsolidated F inancials Balance Carried forward 518,961,793 254,004,662

Earnings Per Share (Refer Note 20 of Schedule 17(II)) Basic- Rs 4.42 2.76 Diluted- Rs 4.41 2.75 D irectors ’ R eport

Schedules refer to above form an integral part of the Profit and Loss Account

In terms of our report attached For and on behalf of the Board

For Deloitte Haskins & Sells Chartered Accountants Tapaas Chakravarti K. Balasubramanian (CMD & CEO) (Director) 82

Ganesh Balakrishnan Anita Sunil Shankar Sanjay Choudhary Partner (Company Secretary) (Financial Controller)

Place: Secunderabad Date: July 26, 2010

Annual Report 2010 DQ Entertainment (International) Ltd. Consolidated Cash Flow Statement for the year ended 31 March, 2010

For the year ended For the year ended 31 March 2010 31 March 2009 Rs. Rs. Rs. Rs. A. Cash flow from Operating Activities Profit Before Tax 268,511,979 199,089,863 Adjustments for Depreciation and amortisation 273,777,722 282,190,366 Depreciation transferred to capital account 847,650 1,583,449 Interest Income (2,459,055) (7,112,517) Interest Expenses 31,501,573 55,595,909 Wealth Tax 25,856 22,692 Public issue related expenses 95,446,711 - (Profit)/loss on sale of fixed assets (82,869) 178,830 Unrealised loss due to exchange differences 15,599,323 53,614,806 Operating profit before working capital changes 414,656,911 386,073,535 Adjustments for changes in 683,168,890 585,163,398 Trade and other receivables Trade payables, other liabilities and provisions (771,986,897) (560,733,171) 38,497,223 69,123,492 Income tax paid (733,489,674) (491,609,679)

C onsolidated F inancials (35,530,751) (769,020,425) (9,702,308) (501,311,987) Net Cash from Operating activities (85,851,535) 83,851,411

B. Cash flow from Investing Activities

Purchase of fixed assets Sale of fixed assets (298,270,282) (264,525,439) Investment in Mutual funds 6,430,120 2,277,301 Interest received on deposits with Banks and other deposits (870,000,000) - etc., 842,614 9,180,978 Net Cash used in Investing activities (1,160,997,548) (253,067,160)

C. Cash flow from Financing Activities

Interest and financing charges paid (27,143,792) (40,154,836) Issue of Equity shares 198,207,870 - Premium on issues of share 1,341,385,859 - Payment to preference shareholders on redemption (1,763,860) - Public issue related expenses (29,344,742) - Proceeds from Borrowings from Term Loans 211,199,743 30,000,004 Proceeds from Borrowings of unsecured loan from ultimate holding company 131,838,493 - Repayment of Term Loans (213,663,671) (181,262,092) Proceeds on account of Working Capital Loans (Net) 113,033,715 36,493,338 Net Cash from /(used in) Financing activities 1,723,749,615 (154,923,586)

Net increase/(decrease) in cash and cash equivalents (A+B+C) 476,900,532 (324,139,335)

Cash and cash equivalents as at the beginning of the year 105,400,386 429,322,307

Net foreign exchange difference 26,041 217,414 Cash and cash equivalents as at the end of the year* 582,326,959 105,400,386 (refer Schedule No.7 * Including restricted balance of Rs.39,207,402 (31.03.2009: Rs.3,393,556)

In terms of our report attached For and on behalf of the Board

For Deloitte Haskins & Sells Chartered Accountants Tapaas Chakravarti K. Balasubramanian (CMD & CEO) (Director)

Ganesh Balakrishnan Anita Sunil Shankar Sanjay Choudhary Partner (Company Secretary) (Financial Controller)

Place: Secunderabad 83 Date: July 26, 2010

Annual Report 2010 DQ Entertainment (International) Ltd. Schedules forming part of the Balance Sheet

Sl Particulars As At As At 31 March 2010 31 March 2010

Rs. Rs. 1 Share Capital (Refer Note 2 of Schedule 17(II))

Authorised

80,000,000 Equity Shares of Rs.10/- each 800,000,000 30,100,000 (31.03.2009 : 3,010,000 shares of Rs.10/- each) Nil 1% Redeemable Optionally Convertible Preference Shares of Rs.10/- each (31.03.2009: 800,000 shares of Rs.10/- each) - 8,000,000 800,000,000 38,100,000

Issued, Subscribed and Paid up

79,283,000 Equity Shares of Rs.10/- each fully paid up 792,830,000 14,229,120 (31.03.2009: 1,422,912 Equity shares of Rs.10/- each fully paid up) (59,462,218 Equity Shares of Rs.10/- each fully paid up are held by the holding company DQ Entertainment (Mauritius) Limited, the ultimate holding company is DQ Entertainment Plc.) (58,011,920 Equity shares are allotted as fully paid up by way of bonus shares issued by capitalisation from Securities Premium Account.) (During the year 27,381 Redeemable Optionally Convertible Preference Shares were converted into 27,381 equity shares of Rs.10/- each fully paid up)

Nil 1% Redeemable Optionally Convertible Preference Shares of Rs.10/- - 2,037,670 (31.03.2009: 203,767 shares of Rs.10/- each fully paid up) During the period 27,381 preference shares of Rs.10/- each were converted into 27,381 equity shares of Rs.10/- each fully paid up and preference shares of 176,386 are redeemed for C onsolidated F inancials cash)

792,830,000 16,266,790 D irectors ’ R eport

84

Annual Report 2010 DQ Entertainment (International) Ltd. 2 Reserves and Surplus

Capital Subsidy (Refer Note 3 of Schedule 17(II)) 800,000 800,000

Capital Redemption Reserve Balance as per last account Add: Transfer from Profit and Loss account 1,763,860 - 1,763,860 Securities Premium Account Balance as per last account 1,185,410,028 1,185,410,028 Less: Issue of bonus shares (580,119,200) - Add: On shares issued 1,341,385,859 - 1,946,676,687 1,185,410,028

C onsolidated F inancials General Reserve Balance as per last account 5,487,393 5,487,393

Profit and Loss Account Balance Carried forward 518,961,793 254,004,662

Foreign Currency Translation Reserve (18,464,624) (12,209)

2,455,225,109 1,445,689,874

3a Secured Loans (Refer Note 8 of Schedule 17(II))

i) From Banks - Term Loans 288,987,897 299,078,281 - Working Capital Loans 178,689,760 65,656,048

ii) From others: - Vehicle Loans 2,867,606 - - 470,545,263 364,734,329

3b Un Secured Loans Loan from DQ Entertainment Plc- Ultimate holding company 118,394,780 - - 118,394,780 -

85

Annual Report 2010 DQ Entertainment (International) Ltd. - As at As at 7,008,789 6,024,553 23,563,980 10,668,716 14,139,149 763,615,585 309,409,976 392,800,422 31 March 2009 (Amount in Rs.) Net Block As at As at 8,314,066 5,757,832 6,880,159 18,673,129 13,704,344 763,615,585 876,297,142 258,776,758 1,188,403,430 31 March 2010 645,656 3,768,775 As at As at 12,356,382 25,546,250 14,666,512 586,827,810 815,382,743 259,673,243 498,725,925 31 March 2010 - 20,490 578,443 year 4,214,522 1,169,811 1,612,885 during the Deduction 51,464,147 45,222,789 37,626,638 Adjustment/ 850,547 434,805 4,181,098 4,705,006 3,600,345 99,129,775 Depreciation/Amortisation For the year 282,190,366 273,777,722 160,876,146 210,851 As at As at 2,938,718 12,389,806 22,011,055 12,679,052 1 April 2009 356,101,591 586,827,810 161,121,911 375,476,417 9,526,607 As at As at 20,670,448 44,219,379 21,546,671 14,350,000 757,502,683 1,350,443,395 2,003,786,173 1,135,970,385 31 March 2010 - - C onsolidated F inancials 61,202 5,034,233 2,059,319 2,019,270 53,920,278 51,074,466 41,900,442 Deduction Adjustment/ during the year - Gross Block 703,663 624,538 218,173 D irectors ’ R eport 6,306,086 31,126,286 Additions 401,725,154 704,417,244 665,438,498 during the year As at As at 8,963,271 19,398,595 45,575,035 23,347,768 14,350,000 470,531,887 768,276,839 1 April 2009 1,002,638,519 1,350,443,395

86 Fixed Assets Previous year figures Total Intangible Assets Intangible Distribution Rights* Vehicles Furniture, Fixtures & Interiors Office Equipments Plant & Machinery (Including Computer Hardware & Software) Leasehold Improvements Particulars Tangible Assets Leasehold Land 4 B 7 6 5 4 3 2 SL A 1 Schedules forming part of the Balance Sheet Note : * Amortisation amount of Rs 99,129,775 on Distribution Rights for the current year includes Rs.16,067,608 ( 31.03.2009: Rs. 62, 177,325) towards Impairment Loss Intangibles towards Impairment Loss on and the accumulated as at 31.03.2010 is Rs.78,244,933 (31.0 3.2009: Rs.62,177,325)

Annual Report 2010 DQ Entertainment (International) Ltd. Schedules forming part of Balance Sheet

As at As at Sl Particulars 31 March 2010 31 March 2009 Rs. Rs. 5 Investments Current Investment (at lower of cost and fair value) 870,000,000 - Investments in Mutual Funds (quoted) (Includes Rs 850,000,000 made from the unutilised funds of IPO) (Refer Note. 7 of Schedule 17(II)) 870,000,000 -

Notes Market value of quoted investments 870,053,987 - Book value of quoted investments 870,000,000 -

6 Sundry Debtors (Unsecured) A)Over six months

C onsolidated F inancials Considered good 275,105,452 39,187,329 Considered doubtful 9,217,081 4,289,441 B)Other Debts Considered good 556,162,068 376,505,461 Considered doubtful 3,939,865 1,501,045 844,424,466 421,483,276 Less: Provision for Doubtful Debts (13,156,946) (5,790,486) 831,267,520 415,692,790 7 Cash and Bank Balances Cash balance on hand 81,264 34,797 Remittance in transit 24,236,000 20,567,203 Cheques on hand 69,363,379 Balance with Scheduled Banks Current Accounts (Includes Rs 50,000,000 (31.03.2009 : Rs. Nil) of 123,219,832 35,634,982 unutilised funds of IPO) Deposit Accounts (Includes Rs 326,000,000 (31.03.2009 : Rs. Nil) made 365,426,484 49,163,404 from the unutilised funds of IPO) 582,326,959 105,400,386 8 Loans and Advances (Unsecured, Considered Good) Interest accrued on deposits 1,616,441 - Advances recoverable in cash or in kind or for value to be received :- Other Advances 69,821,354 19,121,504 Advance to DQ Entertainment plc (Parent of holding company) - 27,057,703 Deposits * 34,656,604 30,193,207 Claims Receivable 33,827,524 17,215,296 MAT Credit Entitlement 30,160,880 - Advance Tax(Net of provision of Rs. 34,912,120) 1,981,904 - 172,064,707 93,587,710 * Deposits include Balance with Government Authorities Rs.6,068,950 (31.03.2009: Rs.5,514,482) 9 Current Liabilites Sundry creditors - Total outstanding dues of micro enterprises and small enterprises - - - Total outstanding dues of creditors other than micro enterprises and 319,886,154 227,701,304 small enterprises * Advance from Customers 7,670,096 13,286,466 Other liabilities 14,484,870 12,547,316 Interest accrued but not due on Secured Loans 4,855,762 1,457,617 346,896,882 254,992,703 * Includes liabilities on account of capital nature Rs.750,881 (31.03.2009: Rs.1,556,000) 10 Provisions Taxation (Net of advance tax of Rs.62,997,002 (31.03.2009: 18,930,367 14,912,892 Rs.26,123,991)) Employee benefits 62,350,279 56,071,204 Retakes (Refer Note i of Schedule 17(I)) Opening balance 23,784,344 17,371,406 Add: Additional provision for the year 18,885,687 17,716,670 Less: Utilised / reversed during the year (21,264,586) (11,303,732) Closing provision 21,405,445 23,784,344 87 102,686,091 94,768,440

Annual Report 2010 DQ Entertainment (International) Ltd. Schedules forming part of Profit and Loss Account

For the year For the year Sl Particulars 31 March 2010 31 March 2009 Rs. Rs. 11 Sales Production : Export 1,502,885,044 1,346,416,980 : Domestic 36,757,519 77,119,296 Distribution Income 215,097,057 74,629,405

1,754,739,620 1,498,165,681

12 Other Income Interest from banks and others (including TDS of Rs.2,45,691 2,459,055 7,061,684 (31.03.2009 : Rs.1,454,704)) Profit on Sale of Fixed Assets 82,869 - Miscellaneous Income 4,108,270 2,736,239 Liabilities no longer required written back 746,157 1,112,521 Insurance claims 3,930,743 - 11,327,094 10,910,444

13 Production Expenses Production Expenses - Direct 218,325,562 26,454,047 Power and Fuel 22,981,484 26,217,848 241,307,046 52,671,895

14 Personnel Costs Salaries and Wages 578,253,789 634,203,393 Contribution to Provident Fund 37,096,514 39,805,586 Staff Welfare Expenses 11,481,627 13,292,647 Gratuity 6,606,226 8,643,133 Compensated absences 1,688,561 (2,545,482) 635,126,717 693,399,277

15 Administrative and Other Expenses Communication Expenses 10,100,018 10,589,421 Printing and Stationery 1,110,713 1,911,997 Professional and Consultancy Charges 58,215,291 89,119,314 Repairs and Maintenance : Building 3,418,186 2,454,367 Plant and Machinery 5,536,428 5,996,380 Others 1,887,733 791,533 C onsolidated F inancials Insurance 1,024,977 2,182,439 Business Promotion 5,039,115 4,183,887 Rates and Taxes 5,515,171 772,855 Rent 43,654,269 47,372,723 Auditors Remuneration 5,299,400 2,570,423 Directors Remuneration 10,241,258 8,415,632 Selling and Distribution Expenses 9,819,994 12,279,813

Recruitment Expenses 33,493 3,268,076 D irectors ’ R eport Travelling and Conveyance Expenses 13,582,249 23,959,772 Loss on sale of assets - 178,830 Bad debts 31,557 783,471 Provision for doubtful debts (net) 6,806,375 5,790,486 Foreign Exchange Fluctuation Loss (net) 38,496,397 60,777,915 Public issue related expenses 95,446,711 - Miscellaneous Expenses 7,565,233 13,487,076 322,824,568 296,886,410 16 Financial Expenses Interest on Bank Loans - Term loan 19,412,656 27,103,022 - Working capital Loans 8,433,144 4,311,575 88 - Vehicle loans 421,598 455,076

Other Financial Charges - Bank charges 20,596,813 4,149,670 - Other charges 10,025,680 19,576,566 58,889,891 55,595,909

Annual Report 2010 DQ Entertainment (International) Ltd. 17. Accounting Policies - Consolidated Financials

I. Significant Accounting Policies

a. Basis for Preparation of Consolidated Financial Statements: The Consolidated financial statements have been prepared under the historical cost convention on an accrual basis of accounting in accordance with Generally Accepted Accounting Principles, Accounting Standards notified under section 211(3C) of the Companies Act, 1956 and the relevant provisions thereof.

b. Fixed Assets: Fixed Assets are valued at cost inclusive of freight, installation cost, finance cost, duties and taxes and other incidental expenses incurred during the construction / installation stage. Fixed Assets include expenditure incurred on creation of infrastructure facilities at work premises. Distribution rights represent the cost incurred on acquisition of animation contents for exploitation.

A ccounting P olicies -C onsolidated F inancials Capital work-in-progress comprises outstanding advances paid to acquire fixed assets and the cost of fixed asset (including expenditure during construction) that are not yet ready for their intended use before the balance sheet date.

Direct or indirect expenses incurred on the Development of Projects in order to create Intellectual Property or Content, which are exploited on any form of media are capitalized as an intangible asset under development in accordance with AS 26 (intangible assets). In the event, the project is not scheduled for production within three years, or project is abandoned, the carrying value of the Development Rights would be expensed in the year in which such project is discontinued or abandoned.

c. Depreciation and Amortization: Depreciation on fixed assets other than leasehold improvements is provided on straight-line method at rates which are as follows : Hardware & Software (CGI*) 30.00% Hardware & Software (Others) 16.21% Generators 16.21% Office Equipment 10.00% Furniture & Fixtures 10.00% Vehicles 25.00% *Computer Generated Imagery

Individual assets costing less than Rs.5,000 are fully depreciated in the period of purchase. Where the aggregate actual cost of individual items of Plant and Machinery costing Rs.5,000 or less constitutes more than 10% of the total actual cost of Plant and Machinery, depreciation is provided at normal rates stated above. Leasehold improvements are amortized over the primary period of lease. Cost of Distribution Rights is amortized over the period of the right including extended period or ten years whichever is lower.

d. Investment: Long-term investments are stated at cost, less provision for other than temporary diminution in value. Current investment comprising investments in mutual funds are stated at the lower of cost and fair value.

e. Licensing Rights In respect of Licensing Rights acquired against a specific sale contract, the costs are charged off as Production Costs.

f. Revenue Recognition (i) Production Revenue : Service revenue from fixed-price contracts is recognised using the Proportionate Completion Method. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined.

“Unbilled Revenue” represents services provided to the customers till the balance sheet date, which are billed subsequent to period-end. All such amounts are anticipated to be realised in the following period.

(ii) Distribution Revenue : Revenue from the licensing of distribution rights (including withholding tax) is recognised on a straight line basis over the term of the licensing agreement and in the case of the license fee from co-production rights on the date declared by the licensee.

(iii) Training Revenue: Training Revenue is recognized over the period of instruction.

No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due.

g. Foreign Currency Transactions: Foreign Currency Transactions (FCT) and Forward Exchange Contracts (FEC) used to hedge FCT (including firm commitments and forecast transactions) are initially recognized on the spot rate on the date of the transaction / Contract.

Monetary assets and liabilities relating to FCT and FEC remaining unsettled at the end of the year are translated at the exchange rate prevailing as on the date of balance sheet.

The difference in translation and realized gains and losses on Foreign Exchange Transactions (including option Contracts) are recognized in Profit and Loss Account. Further, in respect of transactions covered by FEC, the difference between contract rate and spot rate on the date of the transaction is charged to Profit and Loss Account over the period of the contract. 89

Annual Report 2010 DQ Entertainment (International) Ltd. The Financial statements of the subsidiary are consolidated using the following conversion rates into Indian rupees: a) All assets and liabilities, both monetary and non monetary are translated at the closing rates. b) All revenue and expenditure items are translated using the average rates for the period of consolidation. c) The resulting net exchange difference is carried in the “Foreign Currency Translation Reserve Account”. d) Contingent liabilities are translated using the closing rates. h. Employee benefits i) Post-employment benefit plans Post employment benefits are recognised as an expense in the Profit and Loss Account for the year in which the employee has rendered services.

For defined benefit schemes, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses are recognised in full in the profit and loss account for the period in which they occur. ii) Short-term employee benefits The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employees is recognised during the period when the employee renders the service. These benefits include compensated absences such as paid annual leave. iii) Long-term employee benefits Compensated absences which are not expected to occur within twelve months after the end of the period in which the employee renders the related services are recognized as a liability at the present value of the defined benefit obligation at the balance sheet date. i. Public Issue related expenses: Public issue related expenses are recognised as an expense in the profit and loss account in the year in which the expenses are incurred. j. Taxation : i) Current tax expense is calculated in accordance with the applicable tax regulations of the respective country for the entities. ii) Provision for Income Tax is made on the assessable income, at the applicable tax rates, in accordance with the provisions of the Income-tax Act, 1961. Income derived from the animation division and related services are exempt under section 10A of the Income-tax Act, 1961 upto 31st March 2011. The Company has provided tax on its other taxable income earned during the year. iii) Minimum Alternate Tax (MAT) paid in accordance to the tax laws, which gives rise to future economic benefits in the form of adjustment of future income tax liability, is considered as an asset if there is convincing evidence that the Company will pay normal income tax after the tax holiday period. Accordingly, MAT is recognized as an asset in the balance sheet when it is probable that the future economic benefit associated with it will flow to the Company and the asset can be measured reliably. iv) Deferred tax expense or benefit is recognised on timing differences being the difference between taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent periods. Deferred tax assets and liabilities are measured using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date.

In the event of unabsorbed depreciation and carry forward of losses, deferred tax assets are recognised only to the extent that there is virtual certainty that sufficient taxable income will be available to realise such assets. In other situations, deferred tax assets are recognised only to the extent that there is reasonable certainty that sufficient future taxable income will be available to realise these assets. k. Provision for retakes: Provisions for retakes are recognised wherever they are considered to be material. Retakes include creative changes to A ccounting P olicies -C onsolidated F inancials the final product delivered to the customer, performed on the specific request of the customer at the Company’s own cost. Requests for retakes from customers are expected to be received by the Company within a period of three months from the final delivery. l. Leases : Lease payments for assets taken on Operating Lease are recognized in the Profit and Loss Account over the lease term in accordance D irectors ’ R eport with the Accounting Standard 19 – Leases. m. Earnings Per Share: The Company reports basic and diluted Earnings per Share (EPS) in accordance with Accounting Standard 20 – EPS.

• Basic Earnings per Equity Share has been computed by dividing Net Profit for the year by the weighted average number of Equity Shares outstanding for the period. • Diluted Earnings per Equity Share has been computed using the Weighted average number of Equity Shares and dilutive potential Equity Shares outstanding during the period except where the results are anti dilutive. n. Provisions, Contingent Liabilities and Contingent Assets: Provisions involving substantial degree of estimation in measurement are recognized when there is a present obligation as a result of past events and it is possible that there will be an outflow of resources. Contingent Liabilities are 90 not recognized but are disclosed in the Notes. Contingent Assets are neither recognized nor disclosed in the Financial Statements. o. Impairment: The carrying amounts of the Company’s assets, other than inventories and deferred tax assets, are reviewed at each Balance Sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognized whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognized in the income statement. A cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Impairment losses recognized in respect of cash-generating units are allocated to reduce the carrying amount of assets in the unit on a pro rata basis.

Annual Report 2010 DQ Entertainment (International) Ltd. II Notes to Financial Statements 1 Principles of Consolidation:

The consolidated financial statements relate to DQ Entertainment (International) Limited (“the Company”) and its subsidiary company, having 100% ownership interest, DQ Entertainment (Ireland) Limited (“ the subsidiary”), which is incorporated and domiciled in Ireland on 12th November 2008.

The Consolidated Financial Statements have been prepared on the following basis:

The Financial statements of the Company and its subsidiary company have been combined on a line-by-line basis by adding together the book values of like items of assets, liabilities, income and expenses, after eliminating intra-group balances, intra-group transactions and the resulting unrealized profits or losses as per Accounting Standard 21- Consolidated Financial Statements notified by the Companies (Accounting Standards) Rules, 2006.

In the case of foreign subsidiary being non-integral foreign operation, revenue items are consolidated at the average rate prevailing during the period of consolidation. All assets and liabilities are converted at the rate prevailing at the end of the period. Exchange gain/(loss) arising on conversion are recognized under Foreign Currency Translation Reserve. C onsolidated F inancials The consolidated financial statements are prepared for the year ended 31 March 2010. The financial statements of the subsidiary used in the consolidation are drawn up to the same reporting date as that of the Company i.e. 31 March 2010.

Company overview:

The Company is engaged in the business of providing services relating to animation production for television and film production companies and rendering training for acquiring skills for production services in relation to the production of animation television series and movies. The Company also provides services for gaming consoles and licensing of programme distribution rights to broadcasters, television channels and home video distributors.

Pursuant to a special resolution of the members passed at an Annual General Meeting on July 25, 2009, DQ Entertainment (International) Private Limited became a public limited company and the name was changed to DQ Entertainment (International) Limited. A fresh certificate of incorporation consequent to conversion of Company from private to public was granted on September 10, 2009 by the Registrar of Companies, Andhra Pradesh at Hyderabad.

2 Share Capital: Authorised share capital On 15th September 2009 the Company increased its authorised equity share capital from 3,010,000 shares of face value of Rs 10/- each to 80,000,000 shares of face value of Rs 10/- each and cancelled the 800,000 1% Redeemable Optionally Convertible Preference share capital.

Issued, Subscribed & Paid up a) Equity Shares :

The Company made an Initial Public Offer (“IPO”) of 16,048,011 equity shares of Rs.10/- each. Out of 16,048,011 equity shares, 172,960 equity shares were allotted to employees at a premium of Rs.63 per share and 15,875,051 equity shares to others at a premium of Rs.70 per share. The Company made a pre-IPO placement of 3,772,771 equity shares of Rs.10/- each at a premium of Rs.58.11 per equity share. The aggregate share premium received in IPO and pre-IPO is Rs. 1,341,385,859. On 29 March 2010, the equity shares of the Company were listed on the Bombay Stock Exchange.

b) Preference Shares :

During the period out of 203,767 1% Redeemable Optionally Convertible Non Cumulative Preference Shares of the face value Rs.10/- each. 27,381 shares are converted in to 27,381 equity shares of Rs 10/- each and the balance of 176,386 1% Redeemable Optionally Convertible Non Cumulative Preference Shares were redeemed for cash at Rs 10/- per share.

c) Dividends: Each Preference Share shall carry an annual preference dividend of 1% (one percent), such dividends to be non cumulative and payable annually prior to the payment of dividends on the equity shares. The Preference Shares being non-cumulative in nature, any dividend unpaid for any financial year shall not be carried forward and/or accumulate in the subsequent financial year. No dividend shall be paid on the Equity Shares if the preference dividends or any portion thereof on Preference Shares are in arrears. 91

Annual Report 2010 DQ Entertainment (International) Ltd. Redemption: The Company shall be entitled, at its option to call for redemption of all or part of the Preference Shares in one or more trenches, at a redemption price of Rs. 10/- per Preference Share plus an amount equal to any accrued but unpaid dividend on such Preference Shares.

3 Reserves and Surplus

Capital Subsidy :

Erstwhile DQ Entertainment Limited was sanctioned a Capital Subsidy of Rs. 2,000,000 under clause 7(f) of ICT Incentive Policy of the Government of Andhra Pradesh, to be released in five equal annual installments of Rs.400,000 each as per G.O.Rt.No.284 dated 10th September 2004. The Company has received Rs.800,000 (31.03.2009 : Rs.800,000) and has been transferred to Capital Subsidy.

4 Distribution Rights

Distribution rights (Schedule 4 of the financial statements) aggregating to Rs1,135,970,385 (31.03.2009: Rs.470,531,887) represent the unamortized value of costs incurred in acquiring distribution rights. The Company started acquiring these rights from the year 2003-04 and till date 32 series (31.03.2009: 23) of Animation rights have been acquired for different territories across the globe. The Company has started earning revenues from usage of rights since 2006-07. The Company has performed testing for impairment of intangibles which resulted in an impairment loss of Rs. 16,067,608 (31.03.2009: Rs.62,177,325) on account of recoverable amount of intangibles being less than its carrying amount. These have been included in the line item “Depreciation & Amortization” in the Statement of Profit and Loss.

5 Capital Work-in-progress a) Includes Rs.49,246,830 (31.03.2009: Rs.19,503,551) on account of advances to suppliers of capital goods and Rs.35,510,728 (31.03.2009: Rs.535,788,957) incurred under various co-production agreements for which distribution rights are yet to be received. Pending receipt of distribution rights and considering the potential benefits likely to accrue to the Company in future, the carrying amount of Capital work-in-progress have been valued at cost. b) Includes Rs. 318,608,602(31.03.2009: Rs.71,390,998) incurred towards projects under development to be exploited as Television Series/Films and others. Based on review of estimated future realizations the management is of the view that estimated future recoverable amount from these projects are more than its carrying unamortized cost and consequently no provision for impairment is considered necessary by the management at this stage.

6 (a) The company is an Export Oriented Unit registered with Software Technology Parks of India and its business income is C onsolidated F inancials exempted from tax in terms of section 10A of the Income Tax Act, 1961. Currently Tax provision on book profit is provided as per the provisions of Section 115JB (MAT) of the Income Tax Act, 1961. As a measure of prudence, in the absence of virtual certainty of future profits and having regard to the nature of Company’s business, the deferred tax asset of Rs. 12,474,002 has not been recognized.

6 (b) Deferred Tax The major components of the Deferred Tax (net) are as under : D irectors ’ R eport

(Liability) / Asset Current year (Liability) / Asset Timing Differences at 31 March 2009 (Charge) / Credit at 31 March 2010 (Rs.) (Rs.) (Rs.) Depreciation (86,472,029) (23,712,026) (62,760,003) Gratuity 10,719,494 (1,819,239) 12,538,733 Leave Encashment 7,626,538 (216,368) 7,842,906 Sick leaves 712,570 (98,651) 811,221 Provision for Doubtful Debts 1,968,186 (2,503,860) 4,472,046 92 Amalgamation expenses u/s 35DD - (327,154) 327,154 IPO Expenses u/s 35 D - (8,497,500) 8,497,500 Past losses and unabsorbed 52,971,239 24,700,796 28,270,443 depreciation Deferred Tax Asset/(Liability) - Net (12,474,002) (12,474,002) -

Annual Report 2010 DQ Entertainment (International) Ltd. 7 Investment in Mutual funds

Name of the Purchase during the year * Sold during the year Balance as at 31 March 2010 Mutual fund No of units Rupees No of units Rupees No of units Rupees SBI - Ultra Short term Fund - 71,699,442 860,000,000 - - 71,699,442 860,000,000 Institutional PLAN - Growth GCBG IDFC Cash Fund - Inst 605,627 10,000,000 605,627 10,001,090 - - Plan B - Growth GCBG IDFC Money manager fund - Treasury 680,281 10,000,000 - - 680,281 10,000,000

C onsolidated F inancials plan - Inst Plan B - Growth

* - Opening balance NIL (all units purchased during the year)

8 (a) Secured Loans

31 March 2010 31 March 2009 PARTICULARS Amount Rs. Amount Rs.

a) Term Loans from Banks : i) Vehicle loans 1,365,049 3,239,596 Secured by hypothecation of Vehicles acquired

ii) Denominated in Foreign Currency The loan is secured by a first charge on all the Fixed Assets of the Company and a collateral second charge on all the current assets of the company, both present 24,074,196 255,838,685 and future both ranking pari-passu with the Working Capital and Term Lenders of the Company.

iii) Denominated in INR The loan is secured by a first charge on all the Fixed Assets of the company and a collateral second charge on all the current assets of the company, both present 263,548,652 40,000,000 and future both ranking pari-passu with the Working Capital and Term Lenders of the Company. b) Working Capital Loans from Banks : i) Denominated in Foreign currency Packing credit Loan is secured by a first charge on all current assets of the Company along with other working capital lender to the company including all receivables, cash flows and other monies and a second charge on all fixed assets 135,821,152 - of the company

ii) Denominated in INR Working Capital Loan is secured by a first charge on all current assets of the Company, both present and future, including all receivables, cash flows and other 42,868,608 65,656,048 monies and a second charge on all fixed assets of the company, both ranking pari-passu with the Working Capital and Term Lender of the Company.

c) Term Loans from others: i) Vehicle loans 2,867,606 - Secured by hypothecation of Vehicles acquired 93 TOTAL 470,545,263 364,734,329

Annual Report 2010 DQ Entertainment (International) Ltd. 8 (b) Particulars of Loans and Advance in the nature of loans as required by clause 32 of the listing agreement

During the year there are no loans and advances which are in the nature of loans given to subsidiary.

9 Contingent Liabilities

31 March 2010 31 March 2009 PARTICULARS Rs. Rs. a) Bonds executed in favour of customs and excise authorities 37,250,000 37,250,000 b) Letters of Credit 302,192,625 316,578,819 c) Income tax assessment of DQ Entertainment (International) Private Limited has been completed till Assessment Year 2007-08 (financial year 2006-07). Income Tax department has preferred an appeal for the Assessment Years 2004-05 and 2006-07 and is pending before the Income Tax Appellate Tribunal (ITAT). No demand has been raised by the Department on the above. d) Claims against the Company not acknowledged as debts is Rs.9,642,147 (31.03.2009: Rs. 9,642,147). This comprise of demands raised by the Income Tax department for non deduction of TDS on payments to non residents on which the Company has gone on appeal and the appeal is allowed before the Commissioner of Income Tax (Appeals), Hyderabad in favor of the company. The department has gone for an appeal and the same is pending before the Income tax appellate tribunal (ITAT).

10 CIF Values of Imports

31 March 2009 31 March 2010 Rs. Rs. Capital Goods 2,236,979 43,954,386

11 Earnings in Foreign Currency

31 March 2010 31 March 2009 Rs. Rs. Income from production 1,358,447,458 1,344,366,458 License Fees 90,516,158 43,471,833

12 Expenditure in Foreign Exchange

31 March 2010 31 March 2009 C onsolidated F inancials Rs. Rs. Travel 1,837,101 4,228,661 Production Expenses 62,693,330 17,928,164 Professional and Consultancy Charges 7,515,898 19,458,852 Financial Charges 5,241,636 16,633,999 Others 1,523,387 4,962,627 TOTAL 78,811,352 63,212,303 D irectors ’ R eport 13(a) The Company uses Forward Exchange Contracts and Currency Options to hedge its exposures in foreign currency related to firm commitments and highly probable forecasted transactions. The information on Derivative instruments is as follows:

Derivative Instrument outstanding as at the year end:

31 March 2010 31 March 2009 Currencies Buy Sell Buy Sell I) Forward Exchange Contracts 94 USD - $450,000 - $500,000 INR - Rs. 20,263,500 - Rs. 26,085,000

II) Currency Options USD - $1,200,000 - $10,800,000 INR - Rs. 54,036,000 - Rs. 563,436,000

Annual Report 2010 DQ Entertainment (International) Ltd. 13 (b) Exchange difference in respect of forward exchange contracts to be recognised in the Profit and Loss Account in the subsequent accounting period amounts to Rs. 783,375 (31.03.2009: Rs.299,000).

13 (c) The year end foreign currency exposures that have not been hedged by a derivative instrument or otherwise are given below.

i) Amounts receivable in foreign currency on account of the following:

31 March 2010 31 March 2009 Particulars Rs. Foreign Currency Rs. Foreign Currency 45,125,148 $1,002,113 65,163,460 $1,249,060 Export of goods 606,916,094 € 10,016,770 294,681,628 €4,276,326 2,262,989 GBP 33,343 - - License Fees 5,978,183 $132,760 27,994,687 € 406,250 34,918,181 € 576,303 3,967,528 $76,050 C onsolidated F inancials TOTAL 695,200,595 391,807,303

ii) Amounts payable in foreign currency on account of the following:

31 March 2010 31 March 2009 Particulars Rs. Foreign Currency Rs. Foreign Currency 3,825,268 $84,949 97,527,403 $1,869,415 Import of goods and services 352,028 € 5,810 344,550 € 5,000 404,709 GBP 5,963 - - 390,676 $8,676 1,918,423 $36,773 Interest on Foreign currency term loans 2,829,492 € 46,699 - - 159,895,317 $3,550,862 255,838,685 $4,903,943 Foreign currency term loans 118,394,758 €1,954,031 - - TOTAL 286,092,248 355,629,061

14 Auditors’ Remuneration

31 March 2010 31 March 2009 Rs. Rs. Audit fees 3,299,400 643,522 Tax Audit fees 100,000 110,300 Other matters * 6,400,000 1,816,601 Total 9,799,400 2,570,423

* Includes professional charges of Rs. 4,500,000 paid in connection with the issue of equity shares through IPO included in Public issue related expenses

15 Remuneration to Whole-time Director

31 March 2010 31 March 2009 Rs. Rs. Salaries and allowances 3,948,203 3,375,578 Other perquisite 896,000 840,000 Commission 5,397,055 4,200,000 Total 10,241,258 8,415,578

The above figure does not include provision for gratuity and leave encashment liability actuarially valued as separate figure are 95 not available.

Annual Report 2010 DQ Entertainment (International) Ltd. Computation on Net Profit in accordance with Section 349 of the Companies Act, 1956

31 March 2010 31 March 2009 Rs. Rs.

Profit before taxation 268,511,979 199,089,863 Add: Managerial remuneration 10,241,258 8,415,632 Provision for Doubtful debts 6,806,375 5,790,486 Loss on sale of Fixed assets as per books - 178,830 Depreciation as per books 273,777,722 282,190,366

Less: Profit on sale of Fixed assets 4,013,612 - Profit / Loss on sale of Fixed assets as per Companies Act, 1956 13,482,309 17,238,688 Adjustments / Bad debts written off against the provision created earlier 1,180,405 Depreciation as per Section 350 of the Companies Act, 1956 188,339,201 145,401,567 Profit for the year as per Section 349 of the Companies Act, 1956 352,321,806 332,846,092 Commission to Managing Director @ 3% 10,569,654 9,985,383

Commission to Managing Director restricted to as per resolution 5,397,055 4,200,000

16 Micro, Small and Medium Enterprises Development Act, 2006

The Company has received intimation from certain “suppliers” regarding their status under the Micro, Small and Medium Enterprises Development Act 2006 confirming that they do not fall under the Micro, Small & Medium Enterprises Category while other “Suppliers have not intimated regarding their status, 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.

17 Related party disclosures 17 (a) Related parties and their relationships

i) Holding Companies a. DQ Entertainment (Mauritius) Limited - Holding company

b. DQ Entertainment Plc - Parent of holding company C onsolidated F inancials

ii) Key management personnel Mr. Tapaas Chakravarti - Managing director & Chief executive officer Ms. Sumedha Saraogi, (Vice President – Management Office and After Sales)

iii) Relatives of Key Management Personnel with whom the Company had transactions during the year - Mrs. Rashmi Chakravarti (wife of Mr. Tapaas Chakravarti) (Director with effect from 25 May 2009)

Ms. Nivedita Chakravarti (Daughter of Mr. Tapaas Chakravarti) D irectors ’ R eport

iv) Associate of the Ultimate Holding Company Method Animation SAS

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Annual Report 2010 DQ Entertainment (International) Ltd. 17 (b) Transactions with above in the ordinary course of business

31 March 2010 31 March 2009 Rs. Rs. i) Holding Companies Issue of equity share capital by conversion of Redeemable Optionally Convertible Preference Shares by held by DQ Entertainment (Mauritius) Limited 273,810 - Issues of bonus shares to DQ Entertainment (Mauritius) Limited by capitalizationfrom Securities Premium Account 580,116,800 - Consultancy charges - DQ Entertainment(Mauritius) Limited 37,053,448 94,681,274 Consultancy charges - DQ Entertainment Plc - 27,057,703

C onsolidated F inancials ii) Key management personnel Issues of Equity shares in the Company 20 - Issues of bonus shares by capitalisation from Securities Premium Account 800 - Remuneration 9,877,055 8,400,000

iii) Relative of key management personnel Issues of Equity shares in the Company 20 - Issues of bonus shares by capitalisation from Securities Premium Account 800 - Remuneration 2,850,000 2,850,000

iv) Associate of the Ultimate Holding Company Revenue from Animation 323,479,993 359,639,360 Revenue from distribution 4,718,367 -

17 (c) Balances outstanding

31 March 2010 31 March 2009 Rs. Rs. i) Holding Companies Amount payable at year end - DQ Entertainment (Mauritius) Limited 116,032,608 94,681,274 Amount receivable at year end - DQ Entertainment Plc - 27,057,703 ii) Associate of the Ultimate Holding Company Amounts receivable at the year end 208,195,112 215,079,346

18 Leases The Company’s significant leasing arrangement is in respect of operating lease for premises. The Company has exclusive right to cancel the lease with prior notice. The aggregate lease rents payable are charged as rent in the Profit and Loss Account. The aggregate amount of Lease rentals charged to Profit and Loss account is Rs.41,263,801 (31.03.2009: Rs.44,697,657).

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Annual Report 2010 DQ Entertainment (International) Ltd. 19 Employee benefits as required under Accounting Standard 15:

The following table lists out disclosure requirements laid down under the Accounting Standard 15: (In Rupees) Year ending 31 March 2010 Year ending 31 March 2009 Leave Leave Gratuity Gratuity Encashment Encashment A. Change in Defined Benefit Obligations (DBO) Present Value of DBO at the beginning of the year 22,437,593 31,537,199 25,741,921 23,457,683

Current Service Cost 636,563 5,352,274 11,254,741 13,113,171 Interest Cost 1,795,007 2,522,976 2,059,354 1,876,615 Actuarial Losses /(Gains) (596,391) (1,447,029) (15,808,402) (6,346,654) Benefits paid (1,198,616) (1,075,944) (810,021) (563,616) Present Value of DBO at the end of the year 23,074,156 36,889,476 22,437,593 31,537,199

B. Expense Recognized in the statements of Profit & Loss account for the year ended Current Service Cost 636,563 5,352,274 11,254,741 13,113,171 Interest Cost 1,795,007 2,522,976 2,059,354 1,876,615 (Gain) / Actuarial Losses (596,391) (1,447,029) (15,808,402) (6,346,654) Expense recognized in the Statement of P/L 1,835,179 6,428,221 (2,494,307) 8,643,132

C. Actual Contribution and Benefit Payments Actual Benefit Payments 1,198,616 1,075,944 810,021 563,616 Actual Contributions - - - - Assumptions Discount Rate % 8% 8% 8% 8% Salary Escalation % 4% 4% 4% 4%

20 Earnings Per Share (EPS)

31 March 2010 31 March 2009 Particulars Rs. Rs. a) Net Profit available for Equity Shareholders 266,720,991 161,231,741 b) Nominal Value Per Share 10 10 c) Basic Earning Per Share 4.42 2.76 d) Diluted Earning Per Share 4.41 2.75 C onsolidated F inancials No’s No’s e) Weighted Average number of Equity Shares for Basic EPS 60,396,955 58,339,392 f) Weighted Average number of Equity Shares for Diluted EPS 60,518,657 58,543,159

21 The Initial Public offer (“IPO”) proceeds have been utilized as per the objects of the issues as stated in prospectus D irectors ’ R eport as under:

Particulars Rs. Rs. Utilisation of funds 1,539,593,593 Investment in co-production agreements, focusing on Intellectual Properties 196,790,000 content creation Investment in Subsidiary, DQ Entertainment (Ireland) Limited 87,458,851 Issues expenses 29,344,742 313,593,593 98 313,593,593 Investments 850,000,000 Fixed Deposits 326,000,000 Bank balance 50,000,000 Balance as at 31 March 2010 1,539,593,593

Annual Report 2010 DQ Entertainment (International) Ltd. 22 Segmental Reporting as per Accounting standard 17:

22 (a) Business Segment

The Company comprises the following main business segments:

Animation: The production services rendered to production houses and training rendered for acquiring skills for production services in relation to the production of animation television series and movies. Gaming: The services provided for the contents in Console / Mobile / Other platforms. Distribution: The revenue generated from the exploitation of the distribution rights of animated television series and movies acquired by the Company.

The segment information for the year ended 31 March 2010 is as follows: (In Rupees)

C onsolidated F inancials Animation Gaming Distribution Total 1,523,650,689 15,991,874 215,097,057 1,754,739,620 Revenue from customers 1,356,577,222 66,959,054 74,629,405 1,498,165,681 Total Revenue 1,523,650,689 15,991,874 215,097,057 1,754,739,620 1,356,577,222 66,959,054 74,629,405 1,498,165,681 Depreciation and Amortisation - - 99,129,775 99,129,775 108,279,765 108,279,765 Segment result 809,300,676 6,278,374 112,292,185 927,871,235 812,879,381 43,250,600 (37,237,638) 818,892,343 Unallocated expenses (602,928,420) (571,268,255) Operating Profit 324,942,815 247,624,088 Net financing costs (56,430,836) (48,534,225) Income Tax expense (1,790,988) (37,858,122) Profit for the year 266,720,991 161,231,741 Segment assets 964,552,855 9,736,932 1,242,462,706 2,216,752,493 546,223,556 35,255,436 934,116,164 1,515,595,156 Unallocated assets 2,069,825,632 673,330,982 Total assets 4,286,578,125 2,188,926,138 Segment liabilities 70,891,660 1,214,912 287,654 72,394,226 75,475,312 4,063,956 299,000 79,838,268 Unallocated liabilities 966,128,790 647,131,206 Total liabilities 1,038,523,016 726,969,474 Cash flows from operating activities (85,851,535) 83,851,411 Cash flows used in investing activities (1,160,997,548) (253,067,160) Net Cash (used in)/from Financing 1,723,749,615 activities (154,923,586) Capital expenditure Tangible Fixed Assets 46,691,349 266,585,973 Distribution rights 665,438,498 502,890,024 99 Note: Figures in italics represent previous year

Annual Report 2010 DQ Entertainment (International) Ltd. 22 (b) Geographical Segment

Revenue from geographic segments based on domicile of the customers is outlined below:

America Europe Others Total Revenue from customers Animation 206,454,159 1,280,439,010 36,757,520 1,523,650,689(In Rupees) 599,680,093 679,469,772 77,427,357 1,356,577,222 Gaming 6,731,174 9,260,700 - 15,991,874 22,935,455 44,023,599 66,959,054 Distribution 23,711,379 189,708,491 1,677,187 215,097,057 172,387 43,299,446 31,157,572 74,629,405 Total Revenue 236,896,712 1,479,408,201 38,434,707 1,754,739,620 622,787,935 766,792,817 108,584,929 1,498,165,681 Total Assets 8,742,371 1,069,952,512 3,207,883,242 4,286,578,125 189,119,187 386,688,647 1,613,118,304 2,188,926,138 Capital expenditure 46,691,349 Tangible Fixed Assets 266,585,973 Distribution rights 502,819,024 481,251,215

Note: Figures in italics represent previous year

23 Capital Commitments 31 March 2010 31 March 2009 Amount in Rs. Amount in Rs. Estimated amount of contracts remaining to be executed on capital account not provided for, net of advances Rs. Nil 391,365,649 43,384,443 (31.03.2009: Rs.19,503,551)

24 Figures of previous year have been regrouped/rearranged/reclassified wherever necessary to conform to the current year presentation. C onsolidated F inancials

For and on behalf of the Board

Tapaas Chakravarti K. Balasubramanian D irectors ’ R eport (CMD & CEO) (Director)

Anita Sunil Shankar Sanjay Choudhary (Company Secretary) (Financial Controller)

Place: Secunderabad Date: July 26, 2010 100

Annual Report 2010 DQ Entertainment (International) Ltd. BALANCE SHEET ABSTRACT AND COMPANY’S GENERAL BUSINESS PROFILE

I. Registration Details Registration No. U92113AP2007PLC053585 State Code (Refer Code List) 01 Balance Sheet Date 31st March 2010

II. Capital raised during the year (Amount in Rs.) Public Issue 160,480,110 Rights Issue Bonus Issue 580,119,200 Private Placement 37,727,760

III. Position of Mobilisation and Deployment of Funds (Amount in Rs.)

B alance sheet abstract Source of Funds Total Liabilities Paid-up Capital 792,830,000 Reserves & Surplus 2,455,225,109 Secured Loans 470,545,263 Unsecured Loans 118,394,780

Application of Funds Total Assets Net Fixed Assets 1,591,769,590 Investments 870,000,000 Net Current Assets 1,375,225,562 Misc. Expenditure - Accumulated Losses -

IV. Performance of Company (Amount in Rs. Thousands) Turnover 1,766,066,714 Total Expenditure 1,497,554,735 + - Profit Before Tax 268,511,979 + - Profit After Tax 266,720,991 (Please tick appropriate box + for profit, - for loss) Earning Per Share in Rs. Basic- Rs 4.42, Diluted- Rs 4.41 Divided rate % -

V. Generic Names of Three Principal Products/ Services of Company (as per monetary terms) 1. Item Code No. - (ITC Code) Product Description - 2. Item Code No. (ITC Code) - Product Description 3. Item Code No. - (ITC Code) Product Description -

For DQ Entertainment (International) Limited

Tapaas Chakravarti CMD & CEO

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Annual Report 2010 DQ Entertainment (International) Ltd. AGM N otice D irectors ’ R eport

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Annual Report 2010 DQ Entertainment (International) Ltd. Company Information Company Information

DIRECTORS

Tapaas Chakravarti Chairman, Managing Director and Chief Executive Officer

Rashmi Chakravarti Executive and Non-Independent Director

Kunchithapadam Balasubramanian Non-executive and Independent Director

Theresa Plummer-Andrews Non-executive and Independent Director

Girish Kulkarni Non-executive and Independent Director C ompany I nformation

Neelesh Wagle Alternate Non-executive and Independent Director to Girish Kulkarni

S Sundar Additional Non-executive and Independent Director

REGISTERED OFFICE STATUTORY AUDITORS

644, Aurora Colony, Deloitte Haskins & Sells Road No.3, Gowra Grand, Banjara Hills, 3rd Floor, 1-8-384 & 385 Hyderabad-500 034. S.P. Road, Secunderabad, India.

REGISTRAR & SHARE TRANSFER AGENT COMPANY SECRETARY

Karvy Computershare Private Limited Anita Sunil Shankar Plot No. 17-24, Vittal Rao Nagar Madhapur 644, Aurora Colony, Hyderabad – 500 081, India Road No.3, Telephone: +91 40 2342 0815 Banjara Hills, Facsimile: +91 40 2342 0814 Hyderabad-500 034. Email: [email protected] Website: www.karvycomputershare.com

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Annual Report 2010 DQ Entertainment (International) Ltd. NOTICE

Notice is hereby given that the Third Annual General Meeting of the members of DQ Entertainment (International) Limited will be held on Wednesday, September 29, 2010 at 2.30pm at Hotel NKM’s Grand 6-3-563/31/1, Off Taj Residency Road Somajiguda, Erramanzil, Hyderabad-500082, Andhra Pradesh, India to transact the following business:

ORDINARY BUSINESS:

1. To consider and adopt the audited Balance Sheet as at March 31, 2010, the profit and loss account for the year ended on that date and the reports of the Board of Directors and Auditors thereon.

2. To appoint Directors in place of those retiring by rotation.

3. To appoint Auditors and to fix their remuneration and in this regard to consider and if thought fit, to pass, with or without modification (s) the following resolution as an Ordinary resolution:

“RESOLVED THAT Deloitte Haskins & Sells, Chartered Accountants, be and are hereby re-appointed as the Auditors of the Company to hold office from the conclusion of this annual general meeting until the conclusion of the next annual general meeting of the Company on such remuneration as may be determined by the Board of Directors in consultation with the Auditors.”

SPECIAL BUSINESS:

To consider and if thought fit, to pass with or without modification(s), the following resolutions as Ordinary Resolutions:

4. Regularisation of Mr. S Sundar as the Director of the company

“RESOLVED THAT Mr. S Sundar who was appointed as an additional director pursuant to Section 260 of the Companies Act, 1956 by the resolution passed by the Board of Directors on July 26, 2010 and who ceases the office at this meeting, be and is hereby appointed as a Director of the company liable to retire by rotation RESOLVED FURTHER THAT any one Director or Ms. Anita Sunil Shankar, Company Secretary of the Company be and are hereby authorised to file necessary forms with the Registrar of Companies and to do all such acts, deeds and things as may be necessary to give effect to the above mentioned resolution.” AGM N otice

5. Alteration of Articles of Association of the Company “RESOLVED THAT pursuant to Section 31 and other applicable provisions if any, of the Companies Act, 1956, Clause 146 of the Articles of Association of the Company be and is hereby altered by substituting the same with the below clause: “146. The seal shall not be affixed to any instrument except by authority of a resolution of the Board or of a committee thereof and unless the Board otherwise determines every deed or other instrument to which the seal is required to be affixed shall, unless the same is executed by a duly constituted attorney for the Company be signed by any one Director of the Company or such other person as may from time to time be authorised by the Board provided nevertheless that any instrument bearing the seal of the company and issued for valuable consideration shall be binding on the company notwithstanding any irregularity touching the authority to issue the same. The share certificate shall however be sealed and signed in accordance with the provisions of the companies (issue of share certificates) rules 1960.” D irectors ’ R eport RESOLVED FURTHER THAT any one director of the Company or Ms. Anita Sunil Shankar, Company Secretary be and are hereby authorized to sign all the necessary documents and to do necessary acts/deeds, etc. to give effect to the above-mentioned resolution.”

By order of the Board of Directors for DQ Entertainment (International) Limited

104 Place: Hyderabad Anita Sunil Shankar Date: July 26, 2010 Company Secretary

Annual Report 2010 DQ Entertainment (International) Ltd. NOTES:

1. A MEMBER ENTITLED TO ATTEND AND VOTE AT THE ANNUAL GENERAL MEETING IS ENTITLED TO APPOINT A PROXY TO ATTEND AND VOTE IN THE MEETING AND THE PROXY NEED NOT BE A MEMBER OF THE COMPANY. 2. An instrument appointing proxy to be valid must be deposited at the registered office of the Company not less than 48 hours before the commencement of the meeting. 3. Corporate members intending to send their authorised representatives to attend the Meeting are requested to send to the Company a certified copy of the Board Resolution authorizing their representative to attend and vote on their behalf at the Meeting. 4. In terms of the provisions of Articles of Association of the Company, read with Section 256 of the Companies Act, 1956, Ms. Rashmi Chakravarti and Ms. Theresa Plummer – Andrews, retire by rotation at the ensuing Meeting and being eligible are liable for re-appointment. The Board of Directors of the Company recommends their respective re-appointments. 5. Brief resume of all Directors including those proposed to be appointed, names of companies in which they hold directorships and relationships between directors inter-se as stipulated under Clause 49 of the Listing Agreement with the Stock Exchange are provided in the Report on Corporate Governance forming part of the Annual Report. 6. Members/proxies are requested to bring their Attendance Slips sent herewith to attend the meeting. 7. An Explanatory Statement pursuant to Section 173(2) of the Companies Act, 1956 in respect of the Special Businesses under item 4 & 5 is annexed hereto. 8. The Company has already notified closure of Register of Members and Share Transfer Books from Wednesday September 22, 2010 to Wednesday September 29, 2010 (both days inclusive). 9. We request you to update your email address with your depositary participant to enable us to send you the quarterly reports and other business updates via email. AGM N otice

EXPLANATORY STATEMENT PURSUANT TO SECTION 173(2) OF THE COMPANIES ACT, 1956

Item no. 4

At its meeting held on July 26, 2010, the Board had appointed Mr. S. Sundar as an additional Director of the Company. In terms of Section 260 of the Companies Act, 1956, he shall hold office up to the date of the ensuing Annual General Meeting.

Mr. S. Sundar is a fellow member of the Institute of Chartered Accountants of India and is a qualified Information Systems Auditor. He has a varied experience of over two decades handling concurrent and statutory audits of some of the high profile PSUs, Insurance Companies and banks.

The Board of Directors are confident that his knowledge and vast experience will be of great value to the Company and hence recommends the resolution for approval of the members. No Director is concerned or interested in this Resolution.

Item no. 5

The Company proposes to alter clause 146 of the Articles of Association of the Company pertaining to the procedure for affixing the common seal of the Company. The existing clause 146 provides that the seal required to be affixed should be signed by two directors and Company Secretary of the Company.

Keeping in view the nature of the Companies business and the numerous contracts being executed, it is felt appropriate by the Board of Directors of the Company to have any one director or any such person authorized by the board to sign the document to which the Common Seal of the Company instead of two directors as this would expedite the process.

The Directors recommend the resolution for approval of the members. No Director is concerned or interested in this Resolution.

By order of the Board of Directors for DQ Entertainment (International) Limited

Place: Hyderabad Anita Sunil Shankar Date: July 26, 2010 Company Secretary 105

Annual Report 2010 DQ Entertainment (International) Ltd. PROXY FORM Third Annual General Meeting - 29 September 2010

Regd. Folio no./ DP Client ID

I/We………………………………………………………of…………………. being a member/members of the Company hereby appoint ……………………………………………………………………………………….of ………………………………………………………………………….or failing him/her……………………………………… ………………………………………………of………………………………………………………..………………………… …………..as my/our proxy to vote for me/us and on my/our behalf at the THIRD ANNUAL GENERAL MEETING of the Company to be held on Wednesday, September 29, 2010 at 2.30 pm and at any adjournment(s) thereof.

Affix 15 paise revenue stamp

Signed this……………..day of ………………… 2010 industry overview ……….………………….. Signature of the member

……………………………………...... Please tear here……………………………………………......

ATTENDANCE SLIP Third Annual General Meeting - 29 September 2010

Regd. Folio no. / DP Client ID

No. of shares held

I certify that I am a member/proxy for the member/representative on behalf of the member of the Company.

I hereby record my presence at the THIRD ANNUAL GENERAL MEETING of the Company held on Wednesday, 106 September 29, 2010 at 2.30pm at Hotel NKM’s Grand 6-3-563/31/1, Off Taj Residency Road Somajiguda, Erramanzil, Hyderabad-500082, Andhra Pradesh, India

……………………………….. Name of the member/proxy (in BLOCK LETTERS) ……….…………………..

Annual Report 2010 Signature of the member/proxy DQ Entertainment (International) Ltd. Notes:

1. The proxy, to be valid, should be deposited at the Registered Office of the Company at 644, Aurora Colony, Road No. 3, Banjara Hills, Hyderabad – 500 034 not less than 48 hours before the time fixed for holding the meeting or adjourned meeting.

2. A proxy need not be a member of the Company.

3. Appointing a proxy does not prevent a member from attending the meeting in person if he so wishes.

4. In the case of jointholders, the signature of any one holder will be sufficient, but names of all the jointholders should be stated. C ompany I nformation

Note: Please fill up this attendance slip and hand it over at the entrance of the meeting hall. Members are requested to bring their copies of the Annual Report to the meeting

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Annual Report 2010 DQ Entertainment (International) Ltd. DQ Entertainment (international) Limited Performance Excellence Awards 2009 industry overview

108

Annual Report 2010 DQ Entertainment (International) Ltd. BOOK POST if undelivered, please return to: Karvy Computershare Private Limited Unit: DQ Entertainment (International) Ltd Plot No. 17-24, Vittal Rao Nagar Madhapur Hyderabad – 500 081, Andhra Pradesh, India

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Annual Report 2010 DQ Entertainment (International) Ltd.