CYAN MAGENTA YELLOW BLACK - Mukta Artsmuktaarts.com/Aboutus/investorsrelation/annualreports2007.pdf · 1 CYAN MAGENTA YELLOW BLACK 1 CYAN MAGENTA YELLOW BLACK BOARD OF DIRECTORS Mr

1

CYAN MAGENTA YELLOW BLACK

CYAN MAGENTA YELLOW BLACK1

BOARD OF DIRECTORSMr. Subhash Ghai, Chairman & Managing Director

Mr. Parvez A. Farooqui, Executive Director

Mrs. Meghna Ghai Puri

Mr. Anil Harish

Mr. Vijay Choraria

Mr. Pradeep Guha

Company Secretary & Compliance Officer

Mr. Ravi B Poplai

Auditors

M/s Shamit Majmudar AssociatesChartered Accountants

Bankers

Punjab National Bank Limited

HDFC Bank Limited

Standard Chartered Bank

Registrar & Transfer Agents

Intime Spectrum Registry LimitedC-13, Pannalal Silk Mills CompoundL.B.S. Marg, Bhandup (W)Mumbai – 400 078

Registered Office

6, Bashiron, 28th RoadTPS – III, Bandra (W)Mumbai – 400 050

Financial Highlights 2

Chairman’s Statement 3

Management Discussion & Analysis 5

Notice 7

Directors’ Report 9

Corporate Governance 13

FINANCIALS

Mukta Arts Limited 21

Consolidated Financial of Mukta Arts Limited & 39it’s Subsidiaries

Whistling Woods International Limited 52

Connect.1 Limited (Formerly known asMukta Art International Limited) 72

Mukta Tele Media Limited 81

CONTENTS

2



PERFORMANCE

Performance at a glance Rupees in millions

Year Year Year Year Periodended ended ended ended ended

31st March 31st March 31st March 31st March 31st March2007 2006 2005 2004 2003

15 months

Realisation from productions, 965.21 374.80 451.44 187.00 286.02

distribution & exhibition

Equipment Hire Income 2.22 25.09 28.60 29.84 39.74

Other Income 49.12 36.12 31.59 96.89 101.74

TOTAL INCOME 1,016.55 436.01 511.63 313.72 427.49

Profit/(Loss) before Interest,

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

Depreciation 22.64 29.98 32.14 29.61 40.19

Interest 0.63 0.60 0.56 0.30 0.50

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

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

Dividend 45.16 - - 22.58 45.16

Dividend Rate 40% - - 20% 40%

Gross Fixed Assets 313.31 369.84 361.98 343.82 308.74

Net Fixed Assets 157.09 184.06 204.73 216.14 198.68

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

Equity Share Capital 112.92 112.92 112.92 112.92 112.92

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

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

Earnings per Share (EPS)

In Rupees

EPS Basic 6.07 - - 1.50 3.16

EPS Adjusted to Rs. 5 6.07 - - 1.50 3.16

3



CHAIRMAN’S STATEMENT

In my statement last year I had indicated that the Company hadbegun its upward march and I assured you that the outlook forthe Company would only get better hereafter. I am pleased toinform you that in the year under review, the Company hasdelivered the promise with its best ever performance to date,a top line growth of over 130% which is twice the highest turnoverever before and one of the highest post tax profit that theCompany has ever shown.

Some cynics and analysts may conclude that this performancewas largely due to a one-off revenue earning owing to the Satellite re-issue rights deal done with aTV channel. Let me dispel this mistaken notion. Anyone who understands financial statements wouldbe aware that the Company has been consistently following a policy of amortizing 100% of the costs ofa film in the year of release of the film, despite the fact that a film by its nature has a commerciallongevity and shelf life that runs into decades if not perpetuity. This policy pushes forward profits tofuture years while booking all costs immediately.

If one were to normalize the revenues from library sales and pursue amortization policies followed bymost other film production houses, the Company would show far larger profits currently instead of inyears to come. Many of the film production companies tend to amortise only 60-65% of the productioncosts in the year of release of the film thereby recording higher profits immediately but pushing forwardthe contingent liability of the unamortized value of the film. The total earning potential of the fully amortisedlibrary of 26 movies of Mukta Arts is upward of Rs. 400 millions in every five year window. The revenueearning potential comes from re-issue rights of Satellite, DTH, cable, home video, terrestrial TV andother electronic media rights. This implies that the Company would on an average harvest aboutRs. 80 millions per annum from its fully amortised library alone. Add to this the fact that the Companyhas been paying Rs. 40 millions as Keyman Insurance premium (which is also a current expenditure fora future gain) and if the amortization was readjusted you would have better profits than those posted.

I am happy to inform you that in the year under review the Company released four movies “Shaadi SePehle” directed by Satish Kaushik starring Akshaye Khanna, Ayesha Takia, Mallika Sherawat, “36 ChinaTown” directed by Abbas-Mastan, starring Akshaye Khanna, Kareena Kapoor, Shahid Kapur, “ApnaSapna Money Money” directed by Sangeeth Sivan starring Riteish Deshmukh, Shreyas Talpade, RiyaSen, Celina Jetley, Koena Mitra and “Khanna and Iyer” directed by Hemant Hegde starring SarwarAhuja and Aditi Sharma the winners of the “Zee Cinestar Ki Khoj”. The de-risking policy of the Companyof selling some territories and distributing other territories itself ensured profits for each of these moviesdespite the movies being fully amortised.

The Company also undertook during the period, production of several new projects to ensure a strongpipeline. Movies in the pipeline include my own film “Black & White” starring Anil Kapoor, Anurag Sinhaand others. Other movies released/expected to be released during 2007-08 include “Good Boy BadBoy” directed by Ashwini Chaudhary which has already been released, “Bombay to Bangkok” directedby Nagesh Kukunoor, starring Shreyas Talpade, “Cycle Kick” a teenage growing up angst story directedby Shashi Sudigala, and “Right Yaaa Wrong” a film by Neeraj Pathak starring Sunny Deol, Irfan Khanand others. A Marathi film, “Kaande Pohe” the first regional film under the MALPIX banner of MuktaArts Limited is also on the floors and expected to be released in 2007-08.

During the year Mukta Arts has been able to consolidate the distribution and exhibition business andtake on additional theatres for booking including the Fun (E-City) and PVR theatres.

We have seen significant growth in the exhibition business of the Company.

Having put on track Whistling Woods International as promised, I now have more time to devote to mycreative urges. I am aware the market is expecting me to direct movies. While “Black & White” will bereleased in the coming year, I am starting “Yuvraaj” starring Anil Kapoor, Salman Khan, Katrina Kaif

4



and Zayed Khan with music by A. R. Rahman by September 2007 and the film will be ready for releasein 2008-09.

Whistling Woods International, which commenced last year, has received very good response from thestudent community, parents of the students, media and educationists.

The Institute’s first P&L statement indicates that we are on track as proposed and the first year lossesshould be seen as investments by the Company. We have seen investor interest in Whistling WoodsInternational, but we would consider offers only if it brings good strategic value to the Company. In themeanwhile we have accepted the offer made by Whistling Woods International and invested further200 millions from Mukta Arts Limited in WWI into cumulative 8% coupon redeemable preferential shares.This includes the surrendered preferential shares of our JV partners MFSCDC Ltd. (Film City). Webelieve that the Company’s investments in Whistling Woods International will yield slow but rich dividendsin years to come.

During the period, Whistling Woods International has had key personalities visiting the Institute and/oraddressing the students including Raj Kumar Hirani, Nagesh Kukunoor, Farah Khan, Shah Rukh Khan,Karan Johar, Rakeysh Omprakash Mehra, Kunal Kohli, Vishal Bhardwaj, Shabana Azmi, Syd field,Victor Tsao and many others. The Institute as of September 2007 has over 200 students. We expect toreach peak capacity of about 400 students by 2009.

I am happy to inform you that the Audeus Commercial Complex project is progressing as per scheduleand already the pile foundation and the dual basement blocks are completed. Work above the groundhas commenced. We expect to complete the complex before the end of the calendar year 2008. Thiscomplex would contribute over 50,000 sq.ft. of FSI to the Company in the prime Andheri Link Road arealocated opposite Yash Raj Studios. The Company will take a decision on the use of this valuable spacein a way to maximize revenues and profits for the Company.

During the year, the Company had tendered for a partly constructed Communication Centre in Film Cityopposite Whistling Woods International. The Company saw in this building an opportunity to consolidateall the Company’s offices in a single premise. Mukta Arts Limited’s bid emerged victorious againstAdlabs, the other bidder. The Company will commence work on this building soon. This building consistingof 57,000 sq.ft. FSI would house the Company’s offices. We expect the Mukta Tower in Film City to beready by end 2008. The surplus FSI will be exploited gainfully. The office shift in 2009 will help MuktaArts redevelop its properties in Bandra or sell these off and book profits.

I am increasingly concerned that with the growing number of TV channels and new content outlets suchas DTH, VoD, mobile phones, internet down loads etc the Company needs to focus on its core strengthof delivering movies. I am therefore proposing that Mukta would focus on entertaining big budget moviesfor theatres and Mukta Searchlight would focus on mid budget movies with good quality and a newbrand MALPIX has been introduced for production of low budget and regional movies. We expect thatin years to come we should be able to add upto 12 movies a year to our library including moviesproduced for release directly on digital format. Imagine the strength of the Company with its IPR valueonce our library size crosses a hundred movies.

The talent from Whistling Woods International will certainly ensure this acceleration.

I am aware that we were unable to reward the shareholders in the previous two years, and hence themanagement declared 40% interim dividends in the current year, keeping in mind the good profits madeby the Company. I am grateful to all investors who have shown confidence in me, the Company and mymanagement team and we would like to assure you that we would do all that we must to ensure growthand adequate returns minimizing the risk of the shareholders.

While the stock prices of the Company have shown significant growth (and volatility) I can only assureyou quoting Warren Buffet that “If the business does well, the stock eventually follows” and “It is farbetter to buy a wonderful company at a fair price than a fair company at a wonderful price”.

Subhash Ghai

5



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

The accounting statements have beenprepared in compliance with the Companies Act1956 (as amended up to date) and in conformitywith the generally accepted accounting standardsand practices in India. The review of annualoperations and discussions on select financialdata have been made on a prudent andreasonable basis in order that the financialstatements reflect in a true and fair mannerthe Company’s state of affairs for the period.

Industry Performance: As per the PriceWaterhouse Cooper report for the year 2007presented at FICCI Frames 2007, the Film andTelevision industry continues to outpace the GDPgrowth of about 8% by clocking 18% growth inthe Film sector and 31% growth in the Televisionsector during the year. The growth in Televisionsector is partly owing to the growth in DTH with 4millions subscribers on Doordarshan DTH, over2 millions on Dish TV, over one million on TataSky. It is expected that this growth will furtheraccelerate as DTH is expected to make in-roadsinto the cable dominated market. The in-road islikely to be spurred once CAS becomesmandatory in tier 2 and tier 3 cities. CAS itselfdid not make significant progress during the yearand the conversion to CAS in the notified areasof the metros has been below expectation,particularly in Delhi and Calcutta. The expansionof CAS is also on hold due to the delay of severalissues including pricing, sharing of revenues, capon price of each channel, consumer resistanceand political issues. The growth of televisionrevenues is heavily dependant on CAS and itsfree market pricing policies. On the DTH frontSun, Reliance and Bharati Telemedia the otherlicensees are waiting to launch their services.India would be the first country in the world tohave six DTH operators. Across the world, thereare only one or two DTH players per country giventhe high investments involved. In years to comewe can expect consolidation in this area.Television however continues to be attractive forinvestors and several companies haveannounced major plans of increasing existingchannels or launch new channels. Among these

are INX, NDTV, BAG and TV 18. Since many ofthese channels are high cost Hindi GeneralEntertainment Channels the competition in thissegment is expected to increase. Theundisputed monopoly of Star Plus with Zee TVclosing in on the leader, establishes once againthat the success of a few programmes does notnecessarily mean that channel loyalty is assured.A channel will have to churn out consistentlyprogrammes acceptable to audiences in orderto retain eyeballs.

Management sees in the growth of Television agrowing opportunity for good content.

During the year, there was significant expansionin cinema systems and UFO itself has now over650 screens with about a third of them in “A”centres. The growth of digital exhibition in “A”centres and multiplexes is likely to throw up newopportunities for the production sector to producemovies for distribution in HD format. During theyear, growth in multiplexes was significant andthis growth is now moving into tier 2 cities.

A REVIEW OF OPERATIONS:

The Company during the year released fourmovies “Shaadi Se Pehle” directed by SatishKaushik starring Akshaye Khanna, Ayesha Takia,Mallika Sherawat, “36 China Town” directed byAbbas-Mastan, starring Akshaye Khanna,Kareena Kapoor, Shahid Kapur, “Apna SapnaMoney Money” directed by Sangeeth Sivanstarring Riteish Deshmukh, Shreyas Talpade,Celina Jetley, Riya Sen, Koena Mitra and“Khanna and Iyer” directed by Hemant Hegdestarring Sarwar Ahuja and Aditi Sharma thewinners of the “Zee Cinestar Ki Khoj”.

The Company clocked the highest ever turnoverdoubling the earlier highest turnover of Rs. 511.6millions. The top line growth over the previousyear was 130%. It also clocked one of the highestever profit of about Rs.143 millions. While it istrue that the satellite deal with a TV channel hascontributed significantly to the top line and bottomline, this has only been the reaping of efforts inthe earlier year. Similarly, activities and

6



production of recent years would contribute torevenues and profits in years to come. Asexplained in the Chairman’s Statement, thenormalization of the so-called one-off revenuesactually indicates that the Company’s profitswould have been better.

Fluctuations in quarterly reports do continueto pose a challenge to the management as thevariations depend on release of a moviein a quarter. Management does plan to addressthis problem by enhancing the bandwidth ofproduction of movies. The Company doesplan to enter into production of small budgetmovies by cherry picking talent from amongWhistling Woods International studentsand producing movies in high definition for digitalexhibition in cinemas followed by release onDVD and satellite channels.

The Company also has the following underproduction movies “Bombay to Bangkok” directedby Nagesh Kukunoor, starring Shreyas Talpade,“Cycle Kick” a teenage growing up angst storydirected by Shashi Sudigala, “Right Yaaa Wrong”a film by Neeraj Pathak starring Sunny Deol, IrfanKhan and others, “Black & White” directed bySubhash Ghai starring Anil Kapoor, Anurag Sinhaand “Kaande Pohe” a Marathi film directed byRajiv Patil.

The Company has paid the last installmentof Keyman Insurance and expects to cash in onthe insurance on maturity in 2011. TheCompany’s library now has strength of 26 moviesand although this library is indicated as zero valuein the books of accounts, it has capacity to raiseRs. 400 millions in every five year window. Thisis a significant hidden value. Among the otherhidden values of the Company are the AudeusComplex which would be ready by 2008 addingabout 50,000 sq.ft of commercial FSI which theCompany can gainfully exploit and the recentlybagged 57,000 sq.ft. of FSI in the partlycompleted building known as CommunicationCentre in Film City.

DISTRIBUTION AND EXHIBITION:

The Company showed significant growth indistribution and exhibition during the year andthis year has further added additional theatres

for booking by tying up with PVR for theirproperties at Juhu, Mulund, Indore, Hyderabad,Aurangabad and Latur. Exhibition has contributedabout 34% of the Company’s revenues. This isa low margin business but with low capitaldeployment. During the year, the Companydistributed several movies in some selectterritories, these included “Nishabd”, “Corporate”,“Aparichit”, “Risk”, “Aryan”, “I See U”, “Banares”,“Casino Royale”, “Superman”, “Zindagi Rocks”etc. apart from the Company’s own productions,“Shaadi Se Pehle”, “36 China Town”, “ApnaSapna Money Money” and “Khanna and Iyer”.

WHISTLING WOODS INTERNATIONAL:

One of the Company’s major achievements waslaunching the Whistling Woods Internationalinstitute on July 18th 2006. The Institute wasinaugurated by the Minister of Information &Broadcasting, Shri Priyaranjan Dasmunshi onJuly 18th 2006 in the presence of Shri Praful Patel,Shri Dilip Kumar, Shahrukh Khan and many othercelebrities. As of July 2007, the institute has over200 students and by 2009 we expect to nearlydouble the number.

OTHER INCOME:

The investment of surplus funds in debt relatedmutual funds and permissible investment haveyielded decent returns. A loan of Rs. 150 millionshas been given to subsidiary Whistling WoodsInternational Limited at 9% interest. TheCompany has also subscribed to the cumulative8% coupon redeemable preferential shares ofWhistling Woods International Limited.

OUTLOOK:

In the forthcoming year the Company expects torelease four or five movies including one bySubhash Ghai. The Company has sold a part ofits video rights to Shemaroo Entertainment Pvt.Ltd for Rs. 32.5 millions for a period of five years.The Company has also sold the remake rightsof its film “Karz” to T-series. The Companyexpects to launch Greenlight Films in 2008-09as a division of Mukta Arts Limited and will focuson movies made by cherry picked talent fromWhistling Woods International students. Thesemay be for direct release through digital exhibitionin cinemas followed by satellite and DVD release.

7



NOTICE

Notice is hereby given that the 25th Annual General Meeting of Mukta Arts Limited will be held on Saturday, the 29th of September,2007 at 4.00 p.m. at the Whistling Woods Institute Auditorium, Dada Saheb Phalke Chitra Nagari, Goregaon (E), Mumbai- 400065 to transact the following business:

Ordinary Business:

1 To receive, consider, and adopt the audited Profit and Loss Account of the Company for the year ended 31st March, 2007and the Balance Sheet as at that date together with the Director’s Report and Auditor’s Report thereon.

2 To appoint a Director in place of Mrs. Meghna Ghai Puri who retires by rotation and, being eligible, offers herself forreappointment.

3 To consider and pass with or without modifications, the following resolution as an Ordinary Resolution:

“RESOLVED THAT pursuant to section 224 of the Companies Act, 1956 M/s. Shamit Majmudar Associates, CharteredAccountants, Mumbai, be and are hereby appointed as the Statutory Auditors of the Company to hold office from theconclusion of the Twenty-fifth Annual General Meeting until the conclusion of the Twenty-sixth Annual General Meeting, onsuch remuneration as may be approved by the Board of Directors.”

Special Business:

4 To consider and if thought fit to pass with or without modification(s) the following resolution as a Special Resolution:

“RESOLVED THAT pursuant to the provisions of the Companies Act, 1956 (including any amendment thereto ormodifications(s) of re-enactments(s) thereof) and in accordance with the provisions of the Memorandum and Articles ofAssociation of the Company and the regulations/guidelines, if any, prescribed by the Securities and Exchange Board ofIndia (SEBI) and all other concerned and relevant authorities form time to time, to the extent applicable and subject to suchapprovals, consents, if any the Board of Directors be and are hereby authorised to allot 800,000 Equity shares of theaggregate nominal face value not exceeding Rs. 4,000,000 (Rs. Four Millions Only) to the present and future SeniorEmployees of the Company under an employee stock purchase scheme ( hereinafter referred to “ESPS) on the termsand conditions as set out in the Explanatory Statement to this item and on such other terms and conditions and in suchtrench/s as may be decided by the Board/Remuneration Committee in its absolute discretion.

FURTHER RESOLVED THAT the allottment of 400,000 Equity Shares of face value of Rs. 5/- each aggregating toRs. 2,000,000 to Mr. Ravi Gupta, Chief Executive Officer (CEO) of the Company as part of ‘‘ESPS’’ be and is herebyapproved and the decision of the Board of Directors for transferring 200,000 Equity Shares out of the above said 400,000Equity Shares taken at the Board Meeting held on 31st July, 2006 and also approved by the Remuneration Committee attheir duly held Meeting on 19th July, 2006 be and is hereby ratified.

5 To consider and if thought fit to pass with or without modification(s) the following resolution as a Special Resolution:

“RESOLVED THAT pursuant to Section 314 of the Companies Act, 1956 and other applicable provisions, if any, and subjectto the permission of the Central Government in this regard, approval is hereby given to the reappointment of Mr. Siraj A.Farooqui as Chief Operating Officer ( Production and Studio) of the Company, relative of Mr. Parvez A. Farooqui, (ExecutiveDirector), for a period of five years with effect from 1st April, 2007 on the terms and conditions contained in the draftagreement placed before the meeting and initialled by the Chairman for the sake of identification.”

Registered Office: By Order of the Board6, Bashiron, 28th RoadTPS – III, Bandra (W)Mumbai – 400 050 Ravi B Poplai

Company SecretaryPlace :MumbaiDate :27th August 2007

NOTES:

1. A MEMBER ENTITLED TO ATTEND AND VOTE AT THE MEETING IS ENTITLED TO APPOINT A PROXY / PROXIESINSTEAD OF HIMSELF AND THE PROXY NEED NOT BE A MEMBER OF THE COMPANY. THE PROXY FORMS, TO BEEFFECTIVE SHOULD BE DEPOSITED AT THE REGISTERED OFFICE OF THE COMPANY NOT LATER THAN 48 HOURSBEFORE THE COMMENCEMENT OF THE MEETING.

2. The Explanatory Statement pursuant to section 173 of the Companies Act, 1956 that sets out details relating to the SpecialBusiness under Item No. 4 & 5 is annexed hereto.

3. The Register of Members and Share Transfer Books of the Company will remain closed from Saturday, the 22nd September,2007 to Saturday, the 29th September, 2007 (both days inclusive).

4. Members seeking any information or clarification on the Accounts are requested to send in written queries to the Company,at least seven days before the date of the meeting. Replies to such written queries received, will be provided only at themeeting.

5. Members/proxies should bring the Attendance Slip sent herewith, duly filled in, alongwith the Annual Report for attendingthe meeting.

Registered Office: By Order of the Board

6, Bashiron, 28th RoadTPS – III, Bandra (W)Mumbai – 400 050 Ravi B Poplai

Company SecretaryPlace :MumbaiDate :27th August 2007

8



ANNEXURE TO NOTICEEXPLANATORY STATEMENT PURSUANT TO SECTION 173 (2) OF THE COMPANIES ACT, 1956:

Item No. 4:

To consider and if thought fit to pass Special Resolution for ESPS

The Company has always believed in aptly rewarding and motivating the employees with the intention to attract and retain the best talent.One of the measures adopted by the Company towards this end is to grant Company’s Shares to the employees form time to time. Toachieve this purpose the Trust namely MAL EMPLOYEES WELFARE TRUST was formed and the shares were purchased by the trust. TheRemuneration Committee of the Company is empowered to issue shares in the name of the eligible employees on the following terms andconditions.

1. The ESPS scheme has been set up so as to encourage outstanding talent that can bring value to Mukta Arts and its subsidiaries to jointhe Company and to motivate them to stay with the Company and have a feeling of partnership in the Company.

2. The Trust shall procure from the market shares and build a corpus for allotment of the shares to achieve the objective stated in (1) above.

3. The scheme shall be applicable to senior executives only of and above the level of General Manager/ Vice President.

4. ESPS’s shall be allotted to only those employees who can bring value to the Company by way of their industry contacts, past experienceand proven vision.

5. The scheme shall be applicable to such employees who have demonstrated capability of generating good results for the Company andhave demonstrated loyalty to the Company.

6. The amount of ESPS to be allotted in each case shall be decided from time to time by the Trustees and shall be co-related with thepotential of the employee to bring value to the Company.

7. ESPS may be allotted to an employee in pursuance of negotiated terms of contract with the employee at the time of joining theCompany.

8. ESPS will be granted at par value of the shares or at a premium which shall be below the market value as may be decided by the Trustees.

9. The value at which the ESPS is granted to the employee will be payable by the employee within 30 days of allotment.

10. The Trust may decide on such lock in period of the shares allotted under ESPS as the Trust deems appropriate.

11. Taxes or capital gain taxes if any applicable shall be payable by the employee.

12. All the guidelines of SEBI or any other government regulatory body shall be applicable as appropriate.

Therefore, the above resolutions no. 4 is recommended for your approval.

None of the Directors is interested in the resolution.

Item No. 5:

To consider and if thought fit to pass Special Resolution for reappointment of Mr. Siraj A. Farooqui is Chief Operating Officer(Production and Studio)

Mr. Siraj A. Farooqui is Chief Operating Officer (Production and Studio) of the Company and has experience of over 30 years in Film Industry.He has been associated with Mukta Arts Limited since its inception and has had experience in cinematography, editing, special effect, artdirection etc. His continued association with the Company would prove to be an asset for the Company. This reappointment is for a periodof 5 years from 1st April, 2007 on the terms and conditions outlined below.

SALARY:

Basic salary starting with Rs.90,000/- per month – with the liberty to the Board to review and increase the same from time to time up to andnot exceeding Rs. 200,000/- per month during the tenure of his contract of five years.

PERQUISITIES:

In addition to the aforesaid salary, the Chief Operating Officer (Production and Studio) shall be entitled to the following perquisites:

a) HRA at the rate to be decided from time to time.

b) Annual bonus not exceeding the monthly basic salary.

c) A car with driver for official purpose.

d) Telephones (including Mobile phone), fax and other communication facilities at residence for official purpose. All personal usage willbe charged to his account,

e) Performance Bonus as may be decided from time to time.

f) Contribution to provident fund, superannuation fund or annuity fund to the extent these either singly or put together are not taxableunder the Income Tax Act, 1961, and

g) Gratuity at rate not exceeding half month salary for each completed year of service, and

h) Leave as per Company’s rules.

Your Directors recommend the reappointment of Mr. Siraj A. Farooqui as Chief Operating Officer (Production and Studio) of the Company.None of the Directors other than Mr. Parvez A. Farooqui is interested in this resolution.

A Draft Copy of the agreement to be entered into between the Company and Mr. Siraj A. Farooqui will be available for inspection at theRegistered Office of the Company during business hours and will also be available at the meeting.

Brief profile of Mrs. Meghna Ghai Puri Director, who retires by rotation and is eligible for re-appointment.

Mrs. Meghna Ghai Puri became Director of the Company on 24.03.2000 as Additional Director. Subsequently she became Director of the Companyat an Annual General Meeting held on 16.04.2001. Mrs. Meghna Ghai Puri is B.Sc. (Hons) in Business Management from Kings College London,University of London and has experience in matters relating to the Film Industry. She was Director- Business Development from 01.05.2002 till 30th

June, 2006. Currently she is President of Whistling Woods International Limited and is handling the affairs of the said Company.

By Order of the Board

Ravi B PoplaiCompany Secretary

Place :MumbaiDate :27th August 2007

9



DIRECTORS’ REPORT

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

Financial Results:

(Figures in millions)

Particulars Year ending Year ending31.03.2007 31.03.2006

(Rs.) (Rs.)-------------------------------- --------------------------------

Profit / (Loss) before interest, depreciation & tax 167.04 (27.15)Less: Interest 0.63 0.60

-------------------------------- --------------------------------Profit / (Loss)after interest, before depreciation & tax 166.41 (27.75)Less: Depreciation 22.64 29.98

-------------------------------- --------------------------------Profit / (Loss)before tax 143.77 (57.73)Less: Provision for taxation 6.00 –

Fringe Benefit Tax 1.48 0.97Deferred Tax Liability/ (Asset) (0.87) (2.25)

-------------------------------- --------------------------------Profit / (Loss)for the year 137.16 (56.45)Add: Balance brought forward (56.35) (2.00)Less: Interim Dividend 45.16 –

Tax on Interim Dividend 6.33 –Income Tax of earlier years – (2.10)

-------------------------------- --------------------------------Profit / (Loss) Carried forward to Balance Sheet 29.32 (56.35)

================== ==================

Dividend

The Company has declared Interim Dividend of 40% and distributed the same before the 31st March, 2007 and the samehas been treated as final dividend.

Company’s Performance

During the year the total revenues of the Company rose to Rs. 1016.55 millions as compared to Rs. 436 millions of lastyear. This is the highest turnover of the Company for any financial year till date.

The Company’s performance has been discussed in the Management Analysis in details.

New Initiatives

The development work of building a commercial complex at the Audeus, prime location has begun in May 2006.

Share Capital

The Share Capital remained the same during the year under review.

Directors

During the year Mr. Pradeep Guha was appointed as Director.Mrs. Meghna Ghai Puri, Director, retires by rotation at the ensuing Annual General Meeting and being eligible offersherself for reappointment. The requisite particulars in respect of director seeking re-appointment are given in Annexure I.

Employees Stock Purchase Scheme

During the year 200,000 shares of the Company have been transferred in the name of Mr. Ravi Gupta, Chief ExecutiveOfficer of the Company on the recommendation of the Remuneration Committee and as approved by the Board ofDirectors.

Auditors’ Report and Certificate

The Company’s explanation to the Auditors’ observation in their Report have been detailed in Note Nos. 2 (f) & 2 (g) in thenotes forming part of Accounts contained in Schedule “P” which forms part of the Annual Report. The Auditors have alsocertified the Company’s Compliance of the requirements of Corporate Governance in terms of Clause 49 of the ListingAgreement and the same is enclosed as an Annexure to the Report on Corporate Governance.

10



Directors’ Responsibility Statement [Section 217 (2AA)]

The Directors confirm that:

in the preparation of the annual accounts, the applicable accounting standards have been followed along withproper explanation relating to material departures;

the Directors had selected such accounting policies and applied them consistently and made judgments and estimatesthat are reasonable and prudent so as to give true and fair view of the state of affairs of the Company at the end ofthe financial year and of the profit of the company for that period;

the Directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordancewith the provisions of this Act for safeguarding the assets of the company and for preventing and detecting fraud andother irregularities;

the Directors had prepared the annual accounts on a going concern basis;

Auditors

M/s Shamit Majmudar Associates, Chartered Accountants retire at the ensuing Annual General Meeting and being eligibleoffer themselves for reappointment as the Auditors of the Company.

Statutory Disclosures

The Statements relating to the three subsidiary companies viz. Whistling Woods International Limited, Connect.1 limited(Formerly known as Mukta Arts International Limited), and Mukta Tele Media. Ltd., pursuant to Section 212 of the CompaniesAct, 1956 are attached to the Balance Sheet.

Particulars of employees required under Section 217 (2A) of the Companies Act, 1956 and the Companies (Particulars ofEmployees) Rules, 1975, as amended, are given in Annexure II.

Particulars regarding foreign exchange earnings and outgo required under Section 217 (1) (e) of the Companies Act,1956 and Companies (Disclosure of Particulars in the report of the Board of Directors) Rules, 1988 are given in ScheduleP (Statement of Significant Accounting Policies and Notes forming Part of Accounts) of this report.

A cash flow statement for the year ended 31.03.2007 is included with the Balance Sheet.

Corporate Governance

The Company has been proactive in following the principles and practices of good corporate governance. The companyhas taken adequate steps to ensure that the conditions of Corporate Governance as stipulated in clause 49 of the ListingAgreements of the Stock Exchanges are complied with.

A separate statement on corporate governance is produced as a part of the Annual Report along with the Auditorscertificate on its compliance.

Conservation of Energy and Technology Absorption

The Company is not engaged in manufacturing activities, and as such the particulars relating to conservation of energyand technology absorption are not applicable. The Company makes every effort to conserve energy as far as possible inits post-production facilities, Studios, Offices, etc.

Fixed Deposits

The Company has not accepted any deposits during the year and as such no amount of principal or interest was outstandingat the Balance Sheet date.

Social Commitments

Your Company is aware of its social responsibility and has been from time to time contributing to social causes.

Acknowledgements

The Board of Directors wishes to thank and record its appreciation to the Artistes, Technicians, Film Distributors, Bankers,Media and Shareholders who have extended their continued support to the Company.

Your Directors thank especially all employees of the Company for their dedicated services to the Company.

On Behalf of the Board of Directors

Subhash Ghai Chairman & Managing Director


11



Anexure-I

PARTICULARS ABOUT DIRECTORS SEEKING RE-APPOINTMENT

Name Qualification Age Area of Directorship of other Companiesexpertise

Mrs. Meghna Bsc. Hon 29 Business

Ghai Puri (Landon) Management 1 Whistling Woods International Limited

2 Connect.1 Limited (Formerly known asMukta Arts International Limited)

3 Mukta Tele Media Limited

Annexure-II

ANNEXURE TO DIRECTORS’ REPORT

Information as per Section 217 (2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees)Rules, 1975 and forming part of the Directors’ Report:

Name Designation Qualification Age Date of Experience Gross PreviousJoining Remuneration Employment

(Rs.)

Subhash Chairman & B.Com,Ghai Managing Diploma in 64 Promoter of

Director Cinema from years 07.09.1982 38 years 11,058,546 the CompanyFTII, Pune

Ravi Gupta CEO M.Sc., M.B.A 55 1.04.2004 32 years 3,304,000 Global CEOyears LMB Holdings

Limited Isle of Man

Notes:

Remuneration includes salary and other allowances.

12



CORPORATE INFORMATIONMr. Subhash Ghai, Chairman & Managing Director

Mr. Parvez A. Farooqui, Executive DirectorMrs. Meghna Ghai Puri

Mr. Anil HarishMr. Vijay ChorariaMr. Pradeep Guha

Company Secretary and Compliance OfficerMr. Ravi B Poplai

AuditorsM/s Shamit Majmudar Associates

Chartered Accountants

Registered Office6, Bashiron, 28th RoadTPS – III, Bandra (W)

Mumbai – 400 050

Audit CommitteeMr. Vijay Choraria - Chairman

Mr. Anil HarishMr. Parvez A. Farooqui

Remuneration CommitteeMr. Anil Harish - Chairman

Mr. Vijay ChorariaMr. Parvez A. Farooqui

Shareholders/Investors Grievances Committee:Mr. Vijay Choraria - Chairman

Mr. Parvez A. FarooquiMr. Pradeep Guha

Share Transfer CommitteeMr. Parvez A. Farooqui - Chairman

Mr. Vijay ChorariaMr. Pradeep Guha

BankersPunjab National Bank Limited

HDFC Bank LimitedStandard Chartered Bank

Registrar & Transfer AgentsIntime Spectrum Registry Limited

C-13, Pannalal Silk Mills CompoundLBS Marg, Bhandup (W)

Mumbai – 400 078

13



CORPORATE GOVERNANCE

Mukta Arts Limited believes in good Corporate Governance, which results in corporate excellence by practising andattaining maximum level of transparency, disclosure, accountability and equity in all its interaction with its Stakeholders.Corporate Governance envisages disclosures on various facets of Company’s operations to achieve corporate excellence.The Company continued to share with you from time to time various information through public notices, press releases,and through Annual Reports. In addition, we give below the information on areas covered under Corporate Governancesection under clause 49 of the Listing Agreement.

COMPANY’S PHILOSOPHY ON CODE OF GOVERNANCE

The Company’s Corporate Governance policies recognize the Company’s commitment to good and efficient CorporateGovernance. The Board of Directors, the Company’s highest policymaking body, is committed in its responsibility for alldecisions to all constituents, including investors, employees and regulatory authorities. The Company recognizes thatthe shareholders are ultimately the persons who are catalyst to the economic activities and also the ultimate beneficiariesthereof.

COMPOSITION OF BOARD

The Chairman of the Board of Mukta Arts Limited is also its Managing Director. All Directors including Non-ExecutiveDirectors are suitably qualified, experienced and competent. At present, the Board consists of six members, of whichthree are Non-Executive & Independent Directors. During the year Mrs. Meghna Ghai Puri had ceased to be ExecutiveDirector since she has been appointed as President in one of the Subsidiary namely Whistling Woods Internationallimited. During the year Mr. Pradeep Guha has been appointed as Director at the Annual General Meeting held on12.08.2006.

The list of Executive and Non-Executive Directors is given below:

S.No Name of the Director Designation Status of the Director

1 Mr. Subhash Ghai Chairman & Managing Director Executive Director

2 Mr. Parvez A. Farooqui Executive Director Executive Director

3 Mrs. Meghna Ghai Puri Director- Business Development Non Executive Director (from 01.07.2006)

4 Mr. Anil Harish Director Non–Executive Director & Independent

5 Mr. Vijay Choraria Director Non–Executive Director & Independent

6 Mr. Pradeep Guha Director Non–Executive Director & Independent

BOARD MEETINGS AND ATTENDANCE

Six Board meetings were held during the year ended 31st March, 2007. Agenda for the said meetings is sent to theDirectors sufficiently in advance to allow them to examine and interact on the issues involved. Also the senior Executivesof the Company are invited to make presentation from time to time.

The information as required under Annexure IA to Clause 49 of the Listing Agreement is made available to the Board. Theagenda and the papers for consideration at the Board meeting are circulated sufficiently in advance prior to the meeting.Adequate information is circulated as part of the Board papers and is also made available at the Board meeting to enablethe Board take informed decisions.

The dates on which meetings were held are as follows:

S. No. Date of Meeting Board Strength No. of Directors Present

1 30.05.2006 6 4

2 30.06.2006 6 4

3 31.07.2006 6 4

4 28.10.2006 6 5

5 25.01.2007 6 4

6 14.03.2007 6 5

14



ATTENDANCE OF EACH DIRECTOR AT THE BOARD MEETINGS AND LAST ANNUAL GENERAL MEETING (AGM)AND THE NUMBER OF COMPANIES AND COMMITTEES WHERE HE IS DIRECTOR / MEMBER (AS ON THE DATEOF THE DIRECTOR’S REPORT)

Directors No. of Attendance No. of No. of Membershipsmeetings at the last Directorship in other BoardAttended AGM in other Committees held

during the held on Boards as on in other Companies **period 12.08.2006 31.03.2007*

For whole year Chairman Member

Mr. Subhash Ghai 6 Yes 3 Nil 1

Mrs. Meghna Ghai Puri 6 Yes 3 Nil Nil

Mr. Parvez A. Farooqui 6 Yes 2 Nil Nil

Mr. Anil Harish 3 Yes 15 3 9

Mr. Vijay Choraria 3 Yes 7 4 3

Mr. Pradeep Guha 2 No 6 NIL NIL

* Directorships in Private Companies, Foreign Companies and Not for Profit Companies are excluded for this purpose.

** For this purpose Audit Committee, Shareholders/Investors’ Grievance and Remuneration Committee is considered.

COMMITTEES OF DIRECTORS

The Board of Directors provide guidance to operating management on policy matters as well as in the monitoring of theactions of operating management. This involvement is formalized through the constitution of designated committees ofthe Board. The committees are intended to provide regular exchange of information and ideas between the Board andoperating management.

AUDIT COMMITTEE

To provide assistance to the Board of Directors of the Company the Audit Committee was constituted. It consists ofChairman and two other members. The Chairman of the Audit Committee is independent Non-Executive Director. TheAudit Committee provides direction to and oversees the Audit and Risk Management functions, reviews the financialaccounts, interacts with statutory auditors and reviews matters of special interest.

COMPOSITION, NAME OF MEMBERS, CHAIRMAN AND OTHERS DETAILS

Mr. Vijay Choraria Chairman

Mr. Anil Harish Member

Mr. Parvez A. Farooqui Member

During the year under review, the Audit Committee met four times and the no. of times each member attended themeeting is given below.

Meetings & attendance during the year:

Members Meetings held during the Meetings Attendedtenure of the Directors

Mr. Vijay Choraria 4 2

Mr. Anil Harish 4 3

Mr. Parvez A. Farooqui 4 4

REMUNERATION COMMITTEE

The Committee comprises of following Directors

Mr. Anil Harish Chairman

Mr. Vijay Choraria Member


The Remuneration Committee was constituted to recommend and review remuneration package of Directors and SeniorExecutives and to present report to the Board on remuneration package of Directors and other Senior ManagementOfficials.

The Company follows the market linked remuneration policy which is aimed at enabling the Company to attract and retainthe best talent. Compensation is also linked to individual and team performance as they support the achievement ofCorporate Goals.

15



Meetings & attendance during the year

Members Meetings held during the Meetings Attendedtenure of the Directors


Mr. Anil Harish 2 1


DETAILS OF REMUNERATION TO EXECUTIVE DIRECTORS

Particulars Mr. Subhash Ghai Mr. Parvez A. Farooqui Mrs. Meghna Ghai PuriChairman & Executive Director Director - Business

Managing Director Development till 30.06.2006

Salary 10,895,000 1,092,000 300,000

Employers Contribution to – 108,000 36,000Provident Fund

Perquisites 163,546 15,395 88,338

Total 11,058,546 1,215,395 424,338

DETAILS OF SERVICE CONTRACT

Names Period of Contract Dates of Appointment

Mr. Subhash Ghai 5 Years 1st April, 2005

Mr. Parvez A. Farooqui 5 Years 1st April, 2005

Mrs. Meghna Ghai Puri 5 Years 1st May, 2002

Terminated on 30.06.2006

DETAILS OF REMUNERATION TO NON-EXECUTIVE DIRECTORS

Names Sitting fees Salary & perquisites Commission Total(Rs.) (Rs.) (Rs.) (Rs.)

Mrs. Meghna Ghai Puri 20,000 Nil Nil 20,000

Mr. Anil Harish 15,000 Nil Nil 15,000

Mr. Vijay Choraria 15,000 Nil Nil 15,000

Mr. Pradeep Guha 10,000 NIL Nil 10,000

TOTAL 60,000

DETAILS OF SHARES ISSUED UNDER EMPLOYEES STOCK PURCHASE SCHEME

Employee No. of Shares

Mr. Ravi Gupta 200,000

EQUITY SHARES OF MUKTA ARTS LIMITED HELD BY DIRECTORS AS ON 31ST MARCH, 2007

Members No. of Shares held

Mr. Subhash Ghai 12,392,990

Mrs. Meghna Ghai Puri 1,650,000

Mr. Parvez A. Farooqui 77,300

Mr. Anil Harish NIL

Mr. Vijay Choraria NIL

Mr. Pradeep Guha NIL

SHAREHOLDERS / INVESTOR GRIEVANCE COMMITTEE

Shareholders / Investor Grievance Committee comprising the following Directors, approves transfer of shares, splittingand consolidation of shares, issuance of duplicate shares and reviewing shareholder’s complaints and resolution thereof.

COMPOSITION, NAME OF MEMBERS AND CHAIRMAN

Mr. Vijay Choraria Chairman


Mr. Pradeep Guha Member

16



MEETINGS AND ATTENDANCE DURING THE YEAR

Members Meetings held during the Meetings Attendedtenure of the Director



Mr. Pradeep Guha 4 1

Company Secretary is the Compliance Officer of the Company for matters relating to shareholders, Stock Exchanges,The Securities Exchange Board of India (SEBI) and other related regulatory authorities.

NO. OF COMPLAINTS PENDING WITH THE COMPANYThe Company’s Registrar & Transfer Agents M/s Intime Spectrum Registry Limited has received 11 letters / complaintsduring the financial year ended 31st March, 2007, and all are replied to the satisfaction of the shareholders.

SHARE TRANSFER COMMITTEEShare Transfer Committee provides assistance to the Board of Directors in ensuring that the transfer of shares takesplace within the stipulated period of one month from the date they are lodged with the Company. The Committee framesthe policy for ensuring timely transfer of shares including transmission, splitting of shares into marketable lots, consolidation,changing joint holding into single holding and vice versa and also for issuing duplicate share certificates in lieu of thosetorn/destroyed, lost or defaced.

COMPOSITION, NAME OF MEMBERS AND CHAIRMAN

Mr. Parvez A. Farooqui Chairman

Mr. Vijay Choraria Member

Mr. Pradeep Guha Member

MEETINGS AND ATTENDANCE DURING THE YEAR

Members Meetings held during the Meetings Attendedtenure of the Director



Mr. Pradeep Guha 2 0

GENERAL BODY MEETINGS

Location and time of the General Body Meetings held during the last three years

Description of Location Date TimeMeeting

24th AGM Whistling Woods Institution’s Auditorium 12.08.2006 4.00 P.M.Dada Saheb Phalke Chitra NagariGoregaon (E), Mumbai-400 065

23rd AGM** Adlabs Films Limited’s Auditorium 29.09.2005 4.00 P.M.Dada Saheb Phalke Chitra NagariGoregaon (E), Mumbai-400 065

22nd AGM * Rang Sharda Natya Mandir, K.C. Marg, 09.09.2004 3.30 P.MBandra Reclamation Bandra (W) Mumbai – 400 050

* * In the 23rd AGM the following special resolutions were passed

1. Reappointment of Mr. Subhash Ghai as Managing Director.

2. Reappointment of Mr. Parvez A. Farooqui as Executive Director.

* In the 22nd AGM the following special resolutions were passed

1. Appointment of Mr. Rahul Puri as Vice President (Finance & Strategy)

2. Appointment of Mr. Vashdev Bajaj as Zonal Director- Zone A for distribution of films.

17



Disclosures

1) The Company has entered into certain transactions with Directors and / or companies in which the Directors or theManagement or their relatives, etc., have interest. However, these transactions are of routine nature and do nothave any potential conflict with the interest of the Company at large.

2) Neither has any non-compliance with any of the legal provisions of law been made by the Company nor any penaltyor stricture imposed by the Stock Exchanges or SEBI or any other statutory authority, on matters related to thecapital markets, during the last 3 years.

RISK MANAGEMENT

The Company appreciates that the Film Industry is prone to the vagaries of varying likes and dislikes of viewing public. Tomitigate such risks, an attempt is being made to produce large number of Films covering wider spectrum of viewership.The Company is also widening its distribution network in domestic and foreign markets to expand its reach. WhistlingWoods Institute, the Film and Television Institute promoted by the Company’s subsidiary Whistling Woods InternationalLimited, had commenced its operations from 18th July 2006. This endeavour will help in sourcing and grooming pool oftalent for the Company’s projects in future.

CEO/ CFO CERTIFICATION

The Chief Executive Officer has signed a certificate accepting responsibility for the financial statements and confirmingthe effectiveness of the internal control systems, as required in Clause 49 of the Listing Agreement. The certificate iscontained in this Annual Report.

AUDITORS’ CERTIFICATE ON CORPORATE GOVERNANCE

The company has obtained a certificate from the auditors of the company regarding compliance with the provisionsrelating to Corporate Governance laid down in Clause 49 of the Listing Agreement with Stock Exchanges which isattached here with.

MEANS OF COMMUNICATION

Information like Quarterly Financial Results and Press Releases on significant developments in the Company has beenmade available from time to time to the Press and has also been submitted to the Stock Exchanges to enable them to putthem on their web sites. The quarterly Financial Results are published in English and vernacular newspapers. TheCompany has its own website and all the vital information relating to the Company is displayed on the said website. Theaddress of the website is www.muktaarts.com.

SHAREHOLDERS’ INFORMATION

A. Annual General Meeting : 25th Annual General Meeting

Date: 29th September, 2007Time 4.00 P.M.Venue: Whistling Woods Auditorium,

Whistling Woods InstituteDada Saheb Phalke Chitra NagariGoregaon (E), Mumbai – 400 065

B. Financial Calendar :

Financial Year 1st April to 31st March

Adoption of Quarterly Results

I st Quarter By the end of July 2007II nd Quarter By the end of October, 2007III rd Quarter By the end of January, 2008IV th Quarter By the end of June, 2008

C. Date of Book Closure: 22nd September, 2007 to 29th September, 2007 (both days inclusive)D. Registered Office : 6, Bashiron 28th Road, TPS – III

Bandra (W), Mumbai – 400 050

E. Listing on Stock Exchanges : The Stock Exchange, Mumbai,Phiroze Jeejeebhoy Towers, Dalal Street, Mumbai – 400 001Tel: + 91 – 22 – 2265 5581Fax: + 91 – 22 –2272 3719 / 2272 2039

National Stock Exchange Association Ltd.Exchange Plaza, Bandra Kurla Complex,Bandra (E), Mumbai – 400 051Tel: +91-22- 26598100 - 8114Fax: + 91 – 22 – 2659 8237 / 38

18



The Calcutta Stock Exchange Association Ltd.7, Lyons Range, Kolkata – 700 001Tel: + 91 – 33 – 2210 4470 - 77Fax:+ 91 – 33 – 2210 4492 / 2210 4500

The Listing fees for the year 2007–08 have already been paid to all the Stock Exchanges where the Company’s sharesare listed.

F. Stock Code : The Stock Exchange, MumbaiCode No: 532357Symbol: MUKTARDMISIN No. INE374B01019

National Stock Exchange Association Ltd.Symbol: MUKTAARTS

The Calcutta Stock Exchange Association Ltd.Scrip Code – 23922

G. Market Price Data

Given below is the Market Price Data in respect of The Stock Exchange, Mumbai and National Stock Exchange ofIndia Limited.

Month BSE NSE

April 2006 Highest Rate Lowest Average Highest Lowest Averageto Rate Volume Rate Rate VolumeMarch 2007 (Rs.) (Rs.) Traded (Rs.) (Rs.) Traded

(Nos.)

April 58.80 47.65 18295 59.15 48.70 31348

May 56.45 40.85 10473 56.50 41.05 9980

June 44.15 31.30 7280 42.95 30.40 6423

July 39.90 32.90 3473 39.80 33.05 2374

August 51.45 37.55 8175 51.65 38.00 6832

September 59.95 46.80 22976 59.75 47.55 26129

October 66.10 55.00 35547 66.75 43.10 27657

November 66.80 51.00 24875 66.80 52.15 12889

December 61.65 47.00 7154 61.75 47.50 7512

January 65.80 51.00 46910 65.95 50.70 39301

February 79.70 55.00 190338 79.90 48.60 169785

March 77.35 59.00 30168 79.00 59.10 24327

H. Address of Registrars and Transfer AgentsIntime Spectrum Registry LimitedC-13, Pannalal Silk Mills CompoundL.B.S. Marg, Bhandup (W) Mumbai – 400 078.

I. Share Transfer System

The Company has entrusted the administrative work of share transfers, transmissions, issuance of duplicate certificatesetc., and all tasks related to shareholdings to Intime Spectrum Registry Limited, the Registrars and Share Transfer Agents.

J. Distribution of Shareholding as on 31st March, 2007

Shareholding of No. of % of Total Share Amount % of TotalNominal Value (Rs) Shareholders Shareholders (Rs.) Share Amount

Range

1 - 5000 6885 92.95 6395100 5.66

5001 - 10000 226 3.05 1793430 1.59

10001 - 20000 107 1.44 1585010 1.40

20001 - 30000 65 0.88 1615880 1.43

30001 - 40000 17 0.23 580450 0.52

40001 - 50000 29 0.39 1378770 1.22

50001 - 100000 33 0.45 2330120 2.07

100000 and above 45 0.61 97227240 86.11

TOTAL 7407 100.00 112906000 100.00

19



K. Dematerialization of Shares

As on 31st March, 2007, 22,553,057 shares were dematerialised, which is 99.87% of total paid up capital.

L. Company’s Branches/Locations

Production HouseBait-Ush-Sharaf29th Road, Bandra, Mumbai- 400 050.

Premises under Construction“Audeus”Plot No. A – 18, Opp. Laxmi Industrial Estate,Off Link Road, Andheri (w), Mumbai – 400 053

M. Address for correspondence

Shareholders can address their correspondence to the Registered Office of the Company at Mumbai and/or atCompany’s Registrar and Transfer Agents:

Company Registrar and Transfer Agents

Contact Person Mr. Ravi B Poplai Mr. N. Mahadevan IyerMr. Parvez A. Farooqui Mrs. Anita Pate

Address 6, Bashiron28th Road, Intime Spectrum Registry LimitedTPS – IIIBandra (W) C-13, Pannalal Silk Mills Compound,Mumbai – 400 050 L.B.S. Marg, Bhandup (W) Mumbai – 400 078

Telephone No. (022) 2642 1332 (022) 2596 3838

Fax No. (022) 2640 7449 (022) 2596 2691/ 2594 6969

N. NOMINATION FACILITY

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

AUDITOR’S REPORT ON CORPORATE GOVERNANCE

To the Board of Directors ofMukta Arts Limited

We have read the Report of the Board of Directors on Corporate Governance and have examined relevant recordsrelating to compliance of conditions of Corporate Governance by Mukta Arts Limited, for the year ended 31st March, 2007,as stipulated in Clause 49 of the Listing Agreement of the said Company with the Stock Exchanges.

The Compliance of conditions of Corporate Governance is the responsibility of the management. Our examination,conducted in the manner described in the “Guidance Note on Certification of Corporate Governance” issued by theInstitute of Chartered Accountants of India, was limited to procedures and implementation thereof adopted by the Companyfor ensuring compliance with the conditions of Corporate Governance. Our examination was neither an audit nor was itconducted to express an opinion on the financial statements of the Company.

In our opinion and to the best of our information and according to the explanation given to us and on the basis of ourexamination described above, the Company has complied with the conditions of Corporate Governance as stipulated inClause 49 of the above mentioned Listing Agreement.

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

M/s Shamit Majmudar AssociatesChartered Accountants

Shamit MajmudarProprietor

Membership No. 10595


20



CEO CERTIFICATION

I Ravi Gupta, Chief Executive Officer certify that:

(a) I have reviewed financial statements and the cash flow statement for the year and that to the best of my knowledgeand belief:

(i) these statements do not contain any materially untrue statement or omit any material fact or contain statementsthat might be misleading;

(ii) these statements together present a true and fair view of the company’s affairs and are in compliance withexisting accounting standards, applicable laws and regulations.

(b) There are, to the best of my knowledge and belief, no transactions entered into by the company during the yearwhich are fraudulent, illegal or violative of the company’s code of conduct.

(c) I accept responsibility for establishing and maintaining internal controls for financial reporting and that I have evaluatedthe effectiveness of the internal control systems of the company pertaining to financial reporting and I have disclosedto the auditors and the Audit Committee, deficiencies in the design or operation of internal controls, if any, of whichI am aware and the steps I have taken or propose to take to rectify these deficiencies.

(d) I have indicated to the auditors and the Audit committee

(i) significant changes in internal control over financial reporting during the year;

(ii) significant changes in accounting policies during the year and that the same have been disclosed in the notesto the financial statements; and

(iii) instances of significant fraud of which I become aware and the involvement therein, if any, of the managementor an employee having a significant role in the company’s internal control system over financial reporting.

For and on behalf ofMukta Arts Limited

Ravi GuptaChief Executive Officer


21



AUDITORS’ REPORT

To the Members

1. We have audited the attached Balance Sheet of Mukta Arts Ltd. as at 31st March 2007 and the related Profit andLoss Account and the Cash Flow Statement for the year ended on that date annexed thereto. These financialstatements are the responsibility of the Company’s management. Our responsibility is to express an opinion onthese financial statements based on our audit.

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

3. As required by the Companies (Auditor’s Report) Order, 2003 issued by the Central Government of India in terms ofsub-section (4A) of Section 227 of the Companies Act, 1956, we give in the Annexure a statement on the mattersspecified in paragraphs 4 and 5 of the said Order.

4. Further to our comments in the Annexure referred to in paragraph 3 above:

(i) we have obtained all the information and explanations, which to the best of our knowledge and belief werenecessary for the purposes of our audit;

(ii) in our opinion, proper books of account as required by law have been kept by the Company so far as appearsfrom our examination of such books;

(iii) the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report are in agreementwith the books of account;

(iv) in our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this reportcomply with the requirements of the Accounting Standards referred to in sub-section (3C) of Section 211 of theCompanies Act, 1956;

(v) on the basis of the written representations received from the directors as on 31st March, 2007, and takenon record by the Board of Directors, we report that none of the directors is disqualified as on 31st March,2007 from being appointed as a director in terms of clause (g) of sub-section (1) of Section 274 of theCompanies Act, 1956.

5. In our opinion and to the best of our information and according to the explanations given to us, the said accountsread with significant accounting policies and other notes thereon, give the information required by the CompaniesAct, 1956, in the manner so required and give a true and fair view in conformity with the accounting principlesgenerally accepted in India:

(i) in the case of the Balance Sheet, of the state of affairs of the Company as at 31st March, 2007;

(ii) in the case of Profit and Loss Account of the profit of the Company for the year ended on that date, and

(iii) in the case of Cash Flow Statement, of the cash flows for the year ended on that date.

For SHAMIT MAJMUDAR ASSOCIATESChartered Accountants

Place : Mumbai SHAMIT MAJMUDARDated : 27th August 2007 Proprietor


22



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

(i) The nature of the Company’s business/ activities during the year is such that clauses (viii) and (xiii) of paragraph 4of the Companies (Auditor’s Report) order, 2003 are not applicable to the Company for the year ending 31st March2007.

(ii) In respect of fixed assets:

(a) The Company has maintained proper records showing full particulars including quantitative details and situationof fixed assets.

(b) The fixed assets of the company have been physically verified by the management at the end of the year andwe are informed that no discrepancies between book records and the physical inventory have been noticed.

(c) In our opinion and according to the information and explanations given to us, the Company has not made anysubstantial disposals during the year.

(iii) In respect of inventories:

(a) As explained to us, inventories were physically verified during the year by the management at reasonableintervals.

(b) In our opinion and according to the information and explanations given to us, the procedures of physicalverification of inventories followed by the management were reasonable and adequate in relation to the size ofthe Company and the nature of its activity during the year.

(c) In our opinion and according to the information and explanations given to us, the Company has maintainedproper records of its inventories and no material discrepancies were noticed on physical verification.

(iv) In respect of loans, secured or unsecured, granted or taken by the Company to or from companies, firms or otherparties covered in the register maintained under section 301 of The Companies Act, 1956:

According to the information and explanations given to us the Company has given unsecured loan of Rs 250 millionsto a subsidiary Company and the outstanding interest on the same as on 31.03.2007 is 13.91 millions. The same isnot overdue and the rate of interest and other terms and conditions of loan is in our opinion not prima facie prejudicialto the interest of the Company. Apart from the above the Company has neither granted nor taken any loans, securedor unsecured, to or from companies, firms or other parties covered in the register maintained under section 301 ofThe Companies Act, 1956.

(v) In our opinion and according to the information and explanations given to us, there are adequate internal controlprocedures commensurate with the size of the Company and nature of its business, for purchase of inventory andfixed assets. There are no sale of goods.

(vi) In respect of transactions entered in the register maintained in pursuance of section 301 of the Companies Act 1956:

(a) To the best of our knowledge and belief and according to the information and explanations given to us, transactionsthat needed to be entered into the register have been so entered.

(b) According to the information and explanations given to us, there are transactions/arrangements in excess ofRs 0.50 millions in respect of subsidiary companies in which directors are interested and prices are reasonablehaving regard to the prevailing market prices at the relevant time.

(vii) The Company has not accepted any deposits from the public to which the provisions of Section 58A and section58AA of the Companies Act, 1956 and the Companies (Acceptance of Deposits) Rules 1975, are applicable.

(viii) In our opinion, the Company has an adequate internal audit system commensurate with the size and the nature ofits business.

(ix) According to the information and explanations given to us in respect of statutory and other dues:

(a) The Company has been generally regular in depositing undisputed statutory dues, including Provident Fund,Employees’ State Insurance, Income Tax, Sales Tax, Wealth Tax, Customs Duty, cess and any other statutorydues with the appropriate authorities during the year. There were no undisputed amount of outstanding statutorydues as at 31st March 2007 for more than six months from the date they became payable.

(b) Disputed dues in respect of Income Tax (TDS) is Rs 4.96 millions out of which Rs 2.48 millions has not beenpaid since the matter is pending before Commissioner of Income Tax (Appeals). (Kindly refer Note no.2(f)(ii) inSchedule P).

Disputed dues in respect of Service Tax is Rs 2.12 millions out of which Rs 0.88 millions has not been paidsince the matter is pending before CESTAT. (kindly refer Note no. 2(g) in schedule P)

23



(x) The Company has no accumulated losses as at the end of the year. The Company has not incurred cash lossesduring the financial year however it has incurred cash losses in the last financial year.

(xi) According to the information and explanations given to us, the Company was not liable to repay any dues to anyfinancial institution and bank, and there were no debenture holders during the year.

(xii) According to the information and explanations given to us, the Company has not given any loans and advances onthe basis of security by way of pledge of shares, debentures and other securities.

(xiii) The company is not a chit fund or a nidhi / mutual benefit fund / society. Therefore, the provisions of clause 4(xiii)of the companies (Auditor’s Report) Order, 2003 are not applicable to the company.

(xiv) According to the information and explanations given to us and on the basis of our examination of the Company’srecords we are of the opinion that the Company is maintaining adequate records regarding transactions in it’strading activities in the units of Mutual Funds (Debt Schemes) and timely entries have been made in these records.The investments have been held by the Company in it’s own name.

(xv) According to the information and explanations given to us, the Company has given guarantee for loans taken bysubsidiary Whistling Woods International Limited from Punjab National Bank during the year.

(xvi) To the best of our knowledge and belief and according to the information and explanations given to us, the Companyhas not taken any term loan during the year.

(xvii) According to the cash flow statement and other records examined by us and the information and explanations givento us, on an overall basis, funds raised on short term basis have, prima facie, not been used during the year for longterm investment (fixed assets etc.) and vice versa.

(xviii) The Company has not made any preferential allotment during the year.

(xix) The Company has not issued any debentures during the year.

(xx) The Company has not raised any money by public issues during the year.

(xxi) To the best of our knowledge and belief and according to the information and explanations given to us, no fraud onor by the Company was noticed or reported during the year.


SHAMIT MAJMUDARPlace : Mumbai ProprietorDated : 27th August 2007 Membership No. 10595

MAGENTA BLACK

MAGENTA BLACK24

24

BALANCE SHEET AS AT 31ST MARCH, 2007

Current Year Previous YearSCHEDULE 31.03.2007 31.03.2006

Amount in Rs. Amount in Rs.–––––––––––––––––––––––––––– ––––––––––––––––––––––––––––

SOURCES OF FUNDS

Shareholders’ Fund

Share Capital A 112,917,500 112,917,500

Reserves & Surplus B 1,060,916,631 975,254,648

Loan Funds

Secured Loans C 105,822,182 107,354,934–––––––––––––––––––––––––––– ––––––––––––––––––––––––––––

TOTAL 1,279,656,313 1,195,527,082================================ ================================

APPLICATION OF FUNDS

Fixed Assets D

Gross Block 313,308,687 369,839,214

Less : Depreciation 159,746,841 185,782,455–––––––––––––––––––––––––––– ––––––––––––––––––––––––––––

Net Block without WIP 153,561,846 184,056,759

Add : Capital Work in Progress 3,531,529 ––––––––––––––––––––––––––––– ––––––––––––––––––––––––––––

Net Block 157,093,375 184,056,759

Investments E 718,411,130 631,069,878

Deferred Tax Asset/(Liability) (9,061,949) (9,934,338)

Current Assets, Loans & Advances

Inventories F 144,596,923 273,714,038

Debtors G 116,424,936 78,128,175

Cash & Bank Balances H 68,185,799 22,863,066

Loans, Advances & Deposits I 336,482,069 298,548,249–––––––––––––––––––––––––––– ––––––––––––––––––––––––––––

665,689,727 673,253,528

Less : Current Liabilities & Provisions J 267,868,840 303,442,571–––––––––––––––––––––––––––– ––––––––––––––––––––––––––––

Net Current Assets 397,820,887 369,810,957

Miscellaneous Expenditure 15,392,870 20,523,826(to the extent not written off) –––––––––––––––––––––––––––– ––––––––––––––––––––––––––––

TOTAL 1,279,656,313 1,195,527,082================================ ================================

Statement of Significant Accounting Policies Pand Notes forming part of Accounts

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

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

SHAMIT MAJMUDAR MEGHNA GHAI PURI VIJAY CHORARIAProprietor Director DirectorMembership No. 10595

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

MAGENTA BLACK

MAGENTA BLACK25

25

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



INCOME

Realisation from Productions, Distribution & Exhibition K 965,207,645 374,798,378

Equipment Hire Income 2,220,883 25,085,222

Other Income L 49,117,783 36,124,922–––––––––––––––––––––––––––– ––––––––––––––––––––––––––––

1,016,546,311 436,008,522================================ ================================

EXPENDITURE

Cost of Production, Distribution & Exhibition M 729,590,308 351,709,192

Administrative and other expenses N 115,066,292 104,557,130

Depreciation 22,648,786 29,976,815

Preliminary Expenses Written off 5,130,956 5,130,956–––––––––––––––––––––––––––– ––––––––––––––––––––––––––––

872,436,342 491,374,093–––––––––––––––––––––––––––– ––––––––––––––––––––––––––––

Profit/(Loss) Before Extraordinary, Non Recurring 144,109,969 (55,365,571)and Prior Period items

Less:Extraordinary, Non Recurring & Prior Period Exp. O 343,948 2,366,476–––––––––––––––––––––––––––– ––––––––––––––––––––––––––––

Profit/(Loss) Before Tax 143,766,021 (57,732,047)

Less : a) Provision for Taxation 6,000,000 -

b) Fringe Benefit Tax 1,480,000 975,000

c) Deferred Tax Liability/(Asset) (872,389) (2,251,216)–––––––––––––––––––––––––––– ––––––––––––––––––––––––––––

Profit/(Loss) after Tax 137,158,410 (56,455,831)

Add: Balance brought forward from last year (56,345,266) (1,995,712)–––––––––––––––––––––––––––– ––––––––––––––––––––––––––––

Profit available for Appropriation 80,813,144 (58,451,543)

Less: Interim Dividend paid during the year 45,162,400 -

Tax on Interim Dividend 6,334,027 -

Income Tax of earlier years - (2,106,277)–––––––––––––––––––––––––––– ––––––––––––––––––––––––––––

Balance carried forward 29,316,717 (56,345,266)================================ ================================






MAGENTA BLACK

MAGENTA BLACK26

26

CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH 2007

Current Year Previous Year31.03.2007 31.03.2006


A. CASH FROM OPERATING ACTIVITIESNet Profit /(Loss) before tax and extraordinary items : 144,109,969 (55,365,571)

Adjustments for :Depreciation 22,648,786 29,976,815Interest, dividend, etc., received (45,945,632) (35,725,521)Miscellaneous expenditure written off 5,130,956 5,130,956(Profit)/Loss on sale of fixed assets (1,593,929) (24,489)(Gain)/Loss on exchange fluctuation 2,951 –Provision for Dimunation of LIC Mutual fund 245,767 –

Operating profit before working capital changes 124,598,868 (56,007,810)Adjustments for :(Increase)/ Decrease in Inventories 129,117,115 (236,198,788)(Increase)/ Decrease in Receivables (38,296,761) 26,573,544(Increase)/ Decrease in Loans and advances (22,904,183) (8,964,402)Increase/(Decrease) in Trade Creditors 15,854,121 26,986,979Inc./ (Dec.) in Other current liabilities and provisions (58,907,851) 124,285,315

Cash generated from/(used in) operations 149,461,309 (123,325,162)Direct Taxes paid (15,029,637) 2,106,277Prior period adjustments (343,948) (2,366,476)

Cash flow before extraordinary items 134,087,724 (123,585,361)Extraordinary items :Miscellaneous Expenditure – –Net Cash Generated from/(used in) Operating Activities 134,087,724 (123,585,361)

B. CASH FLOW FROM INVESTING ACTIVITIESPurchases of fixed assets (10,101,473) (9,718,295)Sale/disposal of fixed assets 16,010,000 443,000(Additions to)/Redemption of investments (87,587,019) (10,452,300)Interest, dividend, etc. received 45,945,632 35,725,521Net cash generated from/(used in) investing activities (35,732,860) 15,997,926

C. CASH FLOW FROM FINANCING ACTIVITIESLoans borrowed (net) (1,532,752) 105,219,651Dividend paid (45,162,400) –Tax on Dividend paid (6,334,027) –Loss on exchange fluctuation (2,951) –

Net cash recovered from/(used in) financing activities (53,032,130) 105,219,651

Net increase/(decrease) in cash and cash equivalents 45,322,734 (2,367,784)

(A+B+C)

Cash and cash equivalents (opening) 22,863,066 25,230,850

Cash and cash equivalents (closing) 68,185,800 22,863,066





MAGENTA BLACK

MAGENTA BLACK27

27

SCHEDULE D

Fixed Assets (Amount in Rs.)

GROSS BLOCK DEPRECIATION NET BLOCKParticulars As on Additions Ded./Adj. Total Depreciation Additions Ded./Adj. Total As on As on

01.04.2006 during the during as on up to during during Depreciation 31.03.2007 31.03.2006year the year 31.03.2007 31.03.2006 the year the year up to

31.03.2007

Block ‘A’

OwnershipPremises 107,594,600 – – 107,594,600 22,957,827 852,638 – 23,810,465 83,784,135 84,636,773

Block ‘B’

Plant & Machinery 217,810,021 3,692,087 63,100,472 158,401,637 139,927,580 16,014,445 48,684,400 107,257,625 51,144,012 77,882,441

Block ‘C’

Motor Vehicles &Others 24,940,652 777,600 – 25,718,252 10,745,227 3,671,034 – 14,416,261 11,301,991 14,195,425

Block ‘D’

Furniture Fixture & 16,374,531 2,100,257 – 18,474,788 10,329,010 1,838,070 – 12,167,080 6,307,708 6,045,521Office Equipments

Block ‘E’

Computer Software 619,410 – – 619,410 602,811 16,599 – 619,410 – 16,599

Intangible Assets

Exhibition Rights 2,500,000 – – 2,500,000 1,220,000 256,000 – 1,476,000 1,024,000 1,280,000

TOTAL 369,839,214 6,569,944 63,100,472 313,308,687 185,782,455 22,648,786 48,684,400 159,746,841 153,561,846 184,056,759

Previous Year 361,978,633 9,718,295 1,857,714 369,839,214 157,244,843 29,976,815 1,439,203 185,782,455 184,056,759 204,733,790

Capital WIP – 3,531,529 – 3,531,529 – – – – 3,531,529 –

TOTAL 369,839,214 10,101,473 63,100,472 316,840,216 185,782,455 22,648,786 48,684,400 159,746,841 157,093,375 184,056,759

SCHEDULES FORMING PART OF THE ACCOUNTS



SCHEDULE A

Share CapitalAuthorised Share Capital24,000,000 Equity Shares of Rs. 5/- each 120,000,000 120,000,000(Previous year 24,000,000 Equity Shares of Rs. 5/- each) ================================ ================================

Issued, Subscribed & Paid-up Capital22,581,200 Equity Shares of Rs.5/- each 112,906,000 112,906,000 (Previous year 22,581,200 Equity Shares ofof Rs 5/- each out of which 16,490,000 shares wereallotted as fully paid up by way of Bonus Shares bycapitalisation of reserves)

Add:- Forfeited shares 11,500 11,500(Amount originally paid up) –––––––––––––––––––––––––––– ––––––––––––––––––––––––––––

112,917,500 112,917,500================================ ================================

SCHEDULE B

Reserves & SurplusShare Premium 973,360,000 973,360,000General Reserve

Balance as per last balance sheet 58,239,914 58,239,914 Add : Transfer during the year - -

–––––––––––––––––––––––––––– ––––––––––––––––––––––––––––58,239,914 58,239,914

Balance as per Profit & Loss account 29,316,717 (56,345,266)–––––––––––––––––––––––––––– ––––––––––––––––––––––––––––

1,060,916,631 975,254,648================================ ================================

SCHEDULE CSecured LoansFrom banks against finance of cars 2,122,182 3,654,934From LIC against Keyman Insurance Policy of CMD 103,700,000 103,700,000

–––––––––––––––––––––––––––– ––––––––––––––––––––––––––––105,822,182 107,354,934

================================ ================================

MAGENTA BLACK

MAGENTA BLACK28

28




SCHEDULE E

Investments

A UNITS OF MUTUAL FUNDS - QUOTED

Units of DSP Merrill Lynch Mutual Fund :

DSP Merrill Lynch Liquidity Fund - Growth – 11,648,469(Previous year —No. of Units 679,941.201)

Units of LIC Mutual Fund :

LICMF Floating Rate Fund - Growth Plan 199,398,124 50,397,396( No. of Units 19,604,118.381, Previous year 49,86,650.098) –––––––––––––––––––––––––––– ––––––––––––––––––––––––––––

199,398,124 62,045,865

Less: Provision for Dimunation of LIC Mutual fund 245,767 –

–––––––––––––––––––––––––––– ––––––––––––––––––––––––––––

199,152,357 62,045,865

PRINCIPAL PNB MF FIXED MATURITY 10,000,000 -

(A) 209,152,357 62,045,865

(NAV as on 31.03.2007 is Rs 199,152,357)

(NAV as on 31.03.2006 was Rs 62,190,037)

B INTER CORPORATE DEPOSITS (UNQUOTED)

With Companies (B) 334,389,015 156,889,015(Includes loan to a subsidiary Rs 250,000,000Previous year Rs.142,500,000)

C LONG TERM INVESTMENTS IN EQUITY SHARES

In wholly owned subsidiaries (Unquoted)

Equity Shares of Connect.1 Ltd. 594,000 594,000(594 shares of Rs.1000/- each, Previous year 594 shares)

Equity Shares of Whistling Woods International Ltd. 169,997,000 169,997,000(169,997 shares of Rs 1000/- each, Previous year 169,997shares)

Equity Shares of Mukta Tele Media Ltd. 499,600 499,600(4,996 shares of Rs.100/- each, Previous year 4,996 shares)

Others (Unquoted)

Shares of Bashiron Co. Op. Hsg. Society Ltd. 500 500(10 Shares of Rs. 50/- each, Previous year - 10 shares)

Shares of Bait-Ush-Sharaf Co. Op. Hsg.Society. Ltd. 500 500(10 Shares of Rs. 50/- each, Previous year - 10 shares)

Equity Shares of Mukta Adlabs Digital Exhibition Pvt. Ltd. – 50,000(Nil, Previous year 500 shares)

Equity Shares of Indiasound Ltd. 3,778,158 3,778,158(7,500,000 Equity Shares of 0.1 Pence each,

Previous year 7,500,000 Equity Shares)

(C) 174,869,758 174,919,758

D BONDS (UNQUOTED)

IDFC Bonds 2026

(Previous Year -Bonds 1015) (D) – 237,215,240

–––––––––––––––––––––––––––– ––––––––––––––––––––––––––––

TOTAL (A + B+ C +D) 718,411,130 631,069,878================================ ================================

MAGENTA BLACK

MAGENTA BLACK29

29




SCHEDULE F

Inventories

Rights of Films (Exhibition, Distribution & othercommercial rights including Copyrights) 4,550,000 4,550,000

Work In Progress

- Under production films 139,769,276 265,239,861

- Stock of Materials 277,647 3,924,177–––––––––––––––––––––––––––– ––––––––––––––––––––––––––––

144,596,923 273,714,038================================ ================================

SCHEDULE G

Sundry Debtors (Unsecured)

a) Debts outstanding for a period exceeding six months- considered good 30,121,895 34,247,057- considered doubtful 3,256,002 –

b) Other Debts Considered good

- considered good 83,047,039 43,881,118–––––––––––––––––––––––––––– ––––––––––––––––––––––––––––

116,424,936 78,128,175================================ ================================

SCHEDULE H

Cash & Bank balances

Cash in Hand 459,693 946,499

With Scheduled Banks:

In Current Accounts 43,151,421 11,358,459(Includes Rs. 143,343 in EEFC account, Previous year Rs.146,294)

Fixed Deposit with Scheduled Banks 24,574,685 10,558,108–––––––––––––––––––––––––––– ––––––––––––––––––––––––––––

68,185,799 22,863,066================================ ================================

SCHEDULE I

Loans & Advances

Advances recoverable in cash or in kind or for value 126,028,342 147,456,326to be received(Includes Rs 58,049,175 from Subsidiary CompaniesPrevious year Rs 16,617,509)(Includes Rs Nil from a firm in which Managing Director is a partner, Previous year Rs - 150,000)(Includes Rs Nil from a Company under the samemanagement, Previous year Rs 49,417,765)(Includes Rs 21,000,000 from a trust in which one of the Directorsis Trustee, Previous year Rs 22,030,000)

Advance Taxes and other payments 151,573,853 136,544,216

Advances to Staff 929,028 685,823

Deposits 57,950,846 13,861,884

{Including Rs.300,000 to a firm of which Managing Director isproprietor, Previous year Rs.300,000}

{Including Rs 500,000 to Managing Director for use of premises,Previous year Rs.500,000}

{Including Rs.1,000,000 to a Company in which Managing Directoris Director, Previous year Rs 7,000,000}

(Includes Rs 34,000,000 to a Subsidiary CompanyPrevious year Rs 3,500,000) –––––––––––––––––––––––––––– ––––––––––––––––––––––––––––

336,482,069 298,548,249================================ ================================

MAGENTA BLACK

MAGENTA BLACK30

30




SCHEDULE J

Current Liabilities & Provisions:

Sundry Creditors for goods and services rendered 74,652,186 58,798,066

(Includes due to firm of which Managing Director is proprietorRs Nil, Previous year Rs 80,000)

HDFC Bank (Due to Cheques issued) – 14,197

Provision for Taxation 93,122,980 75,286,978

Advances towards films and other services 99,743,742 168,992,728

Unclaimed Dividend 349,932 350,602–––––––––––––––––––––––––––– ––––––––––––––––––––––––––––

267,868,840 303,442,571================================ ================================

SCHEDULE K

Realisation from Production, Distribution & Exhibition

Recovery from Music 6,500,000 25,000,000

Recovery from New Productions 418,126,850 45,550,251

Recovery from old films, Distribution & Exhibition 540,580,795 304,248,127–––––––––––––––––––––––––––– ––––––––––––––––––––––––––––

965,207,645 374,798,378================================ ================================

SCHEDULE L

Other Income

Interest 39,102,023 31,564,355

Other Income 1,578,222 399,401

Profit on Sale of Assets 1,593,929 –

Dividend / Income from Units of Mutual Funds 6,843,609 4,161,166–––––––––––––––––––––––––––– ––––––––––––––––––––––––––––

49,117,783 36,124,922================================ ================================

SCHEDULE M

Cost of Production, Distribution & Exhibition

Cost of Music 1,904,451 7,308,860

Cost of New Productions 395,852,188 53,695,305

Expenses of old films, Distribution & Exhibition 331,833,669 290,705,027–––––––––––––––––––––––––––– ––––––––––––––––––––––––––––

729,590,308 351,709,192================================ ================================

MAGENTA BLACK

MAGENTA BLACK31

31




SCHEDULE N

Administrative and Other Expenses

Personnel Expenses 33,186,551 27,452,389

(Including Directors Remuneration of Rs 12,519,338Previous year - Rs.13,024,288)

Repairs & Maintenance : Buildings 1,649,034 927,138

Machinery 1,001,527 1,184,479

Others 234,496 374,783

Printing & Stationery 1,177,358 1,186,672

Telephone & Trunkcalls 2,185,581 2,706,011

Insurance 40,787,158 40,919,559

Brokerage & Commission 30,000 –

Electricity Charges 721,868 2,310,237

Rent 1,203,547 1,092,751

Travelling Expenses 2,208,467 1,599,757

Auditors Remuneration 1,256,750 1,235,100

Professional Expenses 4,168,456 6,809,596

Legal Expenses 276,775 422,877

Interest 242,202 184,558

Bank Charges 383,575 417,421

Rates & Taxes 9,865,261 1,113,413

Bad Debts -Written off 5,020,677 4,514,329

Publicity Expenses 419,411 962,628

Motor Car Expenses 2,268,066 1,943,646

Miscellaneous Expenses 6,779,533 7,199,786–––––––––––––––––––––––––––– ––––––––––––––––––––––––––––

115,066,292 104,557,130================================ ================================

SCHEDULE O

Extraordinary, Non Recurring & Prior Period Exp.

Loss on sale of Investments – 2,342,700

Prior Period Expenses 343,948 23,776–––––––––––––––––––––––––––– ––––––––––––––––––––––––––––

343,948 2,366,476================================ ================================

MAGENTA BLACK

MAGENTA BLACK32

32

SCHEDULE “P”

Statement of Significant Accounting Policies and Notes forming Part of Accounts

1 Significant Accounting Policies

(a) Basis of Preparation of Accounts

The financial statements have been prepared under the historical cost convention, in accordance with AccountingStandards issued by the Institute of Chartered Accountants of India and the provisions of the Companies Act,1956, as adopted consistently by the Company. All income and expenditure having a material bearing on thefinancial statements are recognised on accrual basis.

The preparation of financial statements in conformity with Accounting Standards requires management tomake estimates and assumptions that affect the reported amounts of assets and liabilities at the date offinancial statements, and the reported amounts of revenues and expenses during the year.

(b) (i) Fixed Assets

Fixed Assets are stated at cost of acquisition including the attributable costs to bring the assets to theirworking condition. Exhibition Rights (Intangible assets) are recorded at the consideration paid for acquisition.

(ii) Depreciation

Depreciation has been provided on Written Down Value Method as per the provision of Companies Act,1956 and at the rate specified in Schedule XIV of the Companies Act, 1956.

(iii) Capital work in progress

Capital work in progress is shown in Asset Schedule, however pending completion of project no depreciationis provided on the same.

(c) Investments

Investments in the units of Mutual Funds are stated at lower of ‘Cost’ or ‘Net Asset Value’ at the end of thefinancial year and where ever the net asset value is less than the cost the same is treated as diminution andprovided for in the accounts. Other investments are stated at cost.

Holding of investments in subsidiaries and Associate Companies are of strategic importance to the Companyand therefore the company does not consider it necessary to provide decrease in the book value of suchinvestments, till such relationship continues with the investee Company.

(d) Inventories

Inventories of under production films and serials are valued at actual amount spent,which includes amountpaid, bills settled and advance paid for which bills are awaited.The residual value of old films are valued at Nilas total cost of production is charged to revenue at the time of first release of such film. Other inventories arestated at cost.

(e) Transactions in Foreign Currencies

Transactions in Foreign Currencies are accounted at standard exchange rates. Current assets and currentliabilities in foreign currencies are realigned with rates ruling on Balance Sheet date. Any gain/loss arising onrealignment or realisation is charged to the Profit and Loss Account.

(f) Revenue recognition

(i) Recovery of old films are recognised at Gross overflows and royalties earned. Sales/Realisations arerecognised on despatch of softwares to the respective parties.

(ii) Interest Income is accounted on accrual basis.

(iii) Dividend income is accounted for when right to receive is established.

(g) Miscellaneous Expenditure

Share issue expenses are amortised over a period of 10 years.

(h) Retirement benefits

(i) Contribution to Provident Fund and other recognised dues are charged to revenue.

(ii) Gratuity is provided on the basis of actuarial valuation made by LIC in accordance with its group gratuityscheme

However, for the current year based on the acturial valuation no further provision was required.

MAGENTA BLACK

MAGENTA BLACK33

33


2 Contingent Liabilities Rupees Rupees–––––––––––––––––––––––––––– ––––––––––––––––––––––––––––

a Claims against the company not acknowledged as Debts Nil Nil

b Guarantees given by Bank on behalf of the company 40,147,120 39,647,120

c Letters of Credit given by bank on behalf of the company Nil Nil

d Estimated amount of contracts remaining to be executedon Capital Account & not provided for (net of advance) Nil Nil

e Legal suits filed against the company (having monetoryimplication) Nil Nil

f (i) The Income Tax Assessment of the Company iscompleted upto Assessment Year 2004-05. There arecertain additions made in various assessment for whichvarious appeals are pending at first appellate stage andTribunal stage (including the appeal decided in favour ofCompany where in Department is in further appeal).

The disputed Tax amount in respect of the above is : 21,119,173 21,068,923

(ii) Survey action was conducted by the Income Tax TDSdepartment in the registered office of the Company on27.08.2003. The assessment of the same was completedduring the previous year and demand of Rs 4,957,270 was raised.Aggrieved by the order the Company had filed appealbefore the CIT(Appeals). The Company had paidRs. 2,478,636 under protest against the said demand.

The Directors are of the opinion that at this stage no furtherprovision is required for the above pending matters.

g Department of Service Tax has levied service tax of Rs 2.12 million on sponsorship fees received for variousfilms treating the Company as an ‘Advertising Agency’. Further the department has issued show cause noticeproposing to levy Rs 2.02 millions service tax on a similar issue.

Against the levy of Rs 2.12 million, the Company filed appeal before the Commissioner of Central Excise(Appeals) and subsequently before Honorable Tribunal, claiming that the provisions of Service Tax Act is notapplicable in this matter.

The Company has paid Rs 1.24 millions under protest and the same is shown as ‘advance recoverable in cashor kind’ since the matter is pending before the CESTAT and based on legal opinion sought, the management isof the opinion that the Company will have no liability on this account and that no provision is necessary.

h The Company Law Board has passed an order directing Central Government to undertake the investigationunder section 237 of the Companies Act, 1956. The Company aggrieved by the order has moved the BombayHigh Court and obtained stay on order. The management believes that the Order of Company Law Board isdefective and management has not voilated any rules, laws or regulations and there is no cause of concern inthis regard.

i The Company has given Corporate Guarantee for loans taken by Subsidiary Whistling Woods InternationalLimited from Punjab National Bank during the year.

3 Additional information required to be given pursuant to Part II of Schedule VI to the Companies Act, 1956 isas follows :

The Company is in the business of production, distribution and exhibition of Entertainment software, hiring ofequipments etc. which is not subject to any licence and as such information regarding consumption of Raw Materials,Production and sales is not applicable. Further the nature of business of the Company is such that the installedcapacity is not quantifiable

4 Business segment-wise Report (as per the reporting requirements of AS-17)


Rs. in millions Rs. in millions–––––––––––––––––––––––––––– ––––––––––––––––––––––––––––

a. Revenue

Software Division 965.21 374.80

Equipment Division 2.22 25.09

Others 49.12 36.13–––––––––––––––––––––––––––– ––––––––––––––––––––––––––––

TOTAL 1,016.55 436.02================================ ================================

MAGENTA BLACK

MAGENTA BLACK34

34


Rs. in millions Rs. in millions–––––––––––––––––––––––––––– ––––––––––––––––––––––––––––

b. Results


Equipment Division (18.65) (9.81)

Others 49.12 36.13–––––––––––––––––––––––––––– ––––––––––––––––––––––––––––

TOTAL 266.09 49.41================================ ================================

c. Capital Employed




Rupees Rupees–––––––––––––––––––––––––––– ––––––––––––––––––––––––––––

5 Earnings in Foreign Exchange

Realisation from Films & Music (Exploitation of Rights) 846,599 4,829,367

Cost of prints – 397,618–––––––––––––––––––––––––––– ––––––––––––––––––––––––––––

846,599 5,226,985================================ ================================

6 Expenditure in Foreign Currency

Travelling 747,931 521,090

For Films * 16,154,434 27,221,755–––––––––––––––––––––––––––– ––––––––––––––––––––––––––––

16,902,365 27,742,845================================ ================================

(*) Expenses include expenditure incurred on overseas locationstowards travelling, lodging & boarding, payments to artistsremuneration, etc.

7 Auditors Remuneration :

Statutory Audit Fees 551,000 551,000

Tax Audit Fees 150,000 137,750

For Taxation matters 300,000 300,000

For Other Services 125,000 125,000

Reimbursement of Expenses 130,750 121,350–––––––––––––––––––––––––––– ––––––––––––––––––––––––––––

1,256,750 1,235,100================================ ================================

8 Managerial Remuneration u/s 198 of the Companies Act, paidor payable during the year :

Salary 12,287,000 12,687,000

Contribution to Provident Fund 144,000 184,800

Perquisites 88,338 152,488–––––––––––––––––––––––––––– ––––––––––––––––––––––––––––

12,519,338 13,024,288================================ ================================

9 Value of imports of material on CIF basis

Machinery Spares – 2,710,738

10 a) Fixed deposits with scheduled banks include interest accrued (net of taxes) upto 31.03.07 Rs 0.61 million(Previous year Rs 1.21 million). Fixed deposits of Rs 24.59 million (Previous Year Rs 9.35 million) are pledgedas security against bank guarantees for the Company.

b) Lien has been marked on Investments to the extent of 4,950,000 units, previous year - 4,950,000 units of LICMF Floating Rate Fund - Dividend Re-investment Plan in favour of Punjab National Bank against bank guaranteesfor the Company.

MAGENTA BLACK

MAGENTA BLACK35

35

11 Taxes on Income

(a) Current Tax - Provision for Income Tax is determined in accordance with the provisions of Income Tax Act, 1961

(b) Deferred Tax Position - For the purpose of quantifying deferred tax amount as on Balance Sheet date deferredtax is recognised on timing differences being difference between the taxable income and accounting incomethat originate in one period and are capable of reversal in one or more subsequent periods. Deferred TaxLiability till balance sheet date amounts to Rs 9,061,948 (Previous year Deferred Tax Liability Rs 9,934,338).

12 Related Party Transaction

(A) The list of related parties and nature of their relationship is furnished below:

Companies under the same management-Whistling Woods International Ltd. 84.99% - subsidiaryConnect.1 Ltd. (Formerly known as 99% - subsidiaryMukta Arts International Ltd.)Mukta Tele Media Ltd. 99.92% - subsidiaryMukta Adlabs Digital Exhibition Pvt. Ltd. 50% - ShareholdingMukta Tele Arts Pvt. Ltd. CMD is director

Firms-Mukta Arts Proprietory firm of CMDMukta Shakti Combine CMD is a partnerMetro Films CMD is a partner

Trusts-MAL Employees Welfare Trust Executive Director is settler and One of the

Directors is Trustee

Directors of the company-Chairman & Managing Director Mr.Subhash GhaiExecutive Director Mr.Parvez A. FarooquiWhole-time Director Ms. Meghna Ghai Puri (Upto 30.06.2006)

Non Executive Directors Mr. Anil HarishMr. Vijay ChorariaMr. Pradeep Guha

Relatives of Directors-Mr. Ashok Ghai Brother of CMDMr. Siraj Farooqui Brother of Executive DirectorMr. Sameer Farooqui Brother of Executive DirectorMr. Rahul Puri CMD’s Son-in-law and spouse of Whole-time Director

(B) Transactions with and outstanding balances of related parties are furnished below. (Amount in Rupees)

Volume of transactions during the year

Subsidiaries Associates Key Relatives of Total OutstandingManagement key Balance

personnel management 31.03.2007personnel

Purchase & Other Services

Mukta Tele Arts Pvt. Ltd. – 10,000 – – 10,000 –

Connect.1 Ltd. 240,000 – – – 240,000 –

Mukta Arts – 140,000 – – 140,000 –

Mukta Tele Media Ltd. 108,000 – – – 108,000 –

Sales & other Recoveries

Whistling Woods International Ltd. 17,936,038 – – – 17,936,038 –

Receiving of Services

Ashok Ghai – – – 1,500,000 1,500,000 –

Payment of Salaries

Rahul Puri – – – 1,020,000 1,020,000 –

Siraj Farooqui – – – 1,160,000 1,160,000 –

Sameer Farooqui – – – 197,500 197,500 –

MAGENTA BLACK

MAGENTA BLACK36

36

(Amount in Rupees)


Subsidiaries Associates Key Relatives of Total OutstandingManagement key Balance

personnel management 31.03.2007personnel

Investments

Shares of Whistling Woods

International Ltd. – – – – – 169,997,000

Shares of Connect.1 Ltd. – – – – – 594,000

Shares of Mukta Tele Media Ltd. – – – – – 499,600

Shares of Mukta Adlabs

Digital Exhibition Pvt. Ltd. – 50,000 – – 50,000 –

Loans Given

Whistling Woods International Ltd. 107,500,000 107,500,000 250,000,000

Advances recoverable

MAL Employees Welfare Trust - 1,030,000 - - 1,030,000 21,000,000

Mukta Adlabs Digital Exibition Pvt. Ltd. - 49,417,765 - - 49,417,765 -

Whistling Woods International Ltd. 13,911,191 13,911,191 13,911,191

Mukta Shakti Combine - 200,000 - - 200,000 -

Mukta Tele Media Ltd. 3,985,000 3,985,000 6,637,984

Managerial Remuneration

Subhash Ghai - - 11,058,546 - 11,058,546 -

Parvez A. Farooqui - - 1,215,395 - 1,215,395 -

Meghna Ghai Puri - - 424,338 - 424,338 -

Deposits for Premisestaken on lease or otherwise

Connect.1 Ltd. - - - - - 3,500,000

Mukta Tele Arts Pvt. Ltd. - 6,000,000 - - 6,000,000 1,000,000

Mukta Arts - - - - - 300,000

Subhash Ghai - - - - - 500,000

Muka Tele Media Ltd. 4,000,000 - - - 4,000,000 4,000,000

Whistling Woods International Ltd. 30,000,000 - - - 30,000,000 30,000,000

Note: The company has paid to it’s Non-executive Directors, the sitting fees @ Rs.5,000/- per Board-meetingattended.

13 (a) There were no amounts payable to Small Scale Industrial Undertaking on the Balance Sheet date.

(b) The Company has not received any intimation from “Suppliers” regarding their status under the Micro, Smalland Medium Enterprises Development Act, 2006 and hence disclosures, if any, relating to amounts unpaid asat the year end together with interest paid / payable as required under the said Act have not been given.

14 Current Investments bought and sold during the year

No. of units

LIC MF FLOATING RATE FUND 14,617,468.283

15 Previous year figures have been regrouped wherever necessary.





MAGENTA BLACK

MAGENTA BLACK37

37

BALANCE SHEET ABSTRACT AND COMPANY’S GENERAL BUSINESS PROFILE

I REGISTRATION DETAILS

Registration No.: L92110MH1982PTC028180 State Code: 011

Balance Sheet Date: 31-03-2007

II CAPITAL RAISED (AMOUNT IN RS. THOUSANDS)

Public Issue NIL Rights Issue NIL

Bonus Issue NIL Private Placement NIL

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

Total Liabilities 1279656 Total Assets 1279656

SOURCES OF FUNDS

Paid-up Capital 112918 Reserves & Surplus 1060917

Secured Loans 105821 Unsecured Loans NIL


Net Fixed Assets 157093 Investments 718411

Net Current Assets 388760 Misc. Expenditure 15392

Accumulated Losses NIL

IV PERFORMANCE OF COMPANY (AMOUNT IN RS. THOUSANDS)

Turnover 1016546 Total Expenditure 872780

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

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

V GENERIC NAMES OF PRINCIPAL PRODUCTS/ SERVICES OF THE COMPANY

Item Code No. Not Applicable

Product Description SOFTWARE PRODUCTION, DISTRIBUTION & EQUIPMENT HIRE

MAGENTA BLACK

MAGENTA BLACK38

38

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

1 Name of the Company Whistling Connect. 1 Ltd. Mukta Tele Media Ltd.Woods (Formerly known asInternational Ltd. Mukta Arts

International Ltd.)

2 Financial Year of theSubsidiary Company 31 March, 2007 31 March, 2007 31 March, 2007

3 Holding Company’s InterestNumber of shares 169,997 594 4,996

(Equity shares Rs.1000/- (Equity Shares of (Equity Shares offully paid up) Rs.1,000/- each Rs. 100/- each

fully paid-up) fully paid-up)Extent of shareholding 84.99% 99.00% 99.92%

4 The Net aggregate of profit/loss Accounts of Whistling Accounts of Connect.1 Accounts of Muktaof the Company for the financial Woods International Ltd. (Formerly known Tele Media Ltd.year, so far as it concerns the Ltd. are annexed as Mukta Arts are annexedmembers of Mukta Arts Ltd. International Ltd.)

are annexed

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

Capital Work in Progress are annexed

For and on behalf of the Board

SUBHASH GHAI PARVEZ A. FAROOQUIChairman & Managing Director Executive Director

MEGHNA GHAI PURI VIJAY CHORARIADirector Director

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

MAGENTA BLACK

MAGENTA BLACK39

39

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

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

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

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

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

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

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

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


Place: Mumbai SHAMIT MAJMUDARDated: 27th August 2007 Proprietor


MAGENTA BLACK

MAGENTA BLACK40

40

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


Amount in Rs. Amount in Rs.––––––––––––––––––––––––––––– –––––––––––––––––––––––––––––

SOURCES OF FUNDS


Share Capital A 112,917,500 112,917,500

Minority Interest 29,916,902 29,893,771

Reserves & Surplus B 916,962,654 971,648,095

Loan Funds

Secured Loans C 227,976,025 108,282,892–––––––––––––––––––––––––– ––––––––––––––––––––––––––

TOTAL 1,287,773,081 1,222,742,258================================================================================== =================================================================================


Fixed Assets D

Gross Block 909,623,837 709,351,213

Less : Depreciation 224,265,621 186,884,334–––––––––––––––––––––––––– ––––––––––––––––––––––––––

Net Block without WIP 685,358,216 522,466,879

Add : Capital Work in Progress 3,531,529 ––––––––––––––––––––––––––– ––––––––––––––––––––––––––

Net Block 688,889,745 522,466,879

Investments E 297,844,509 317,979,778

Deferred Tax Asset/(Liability) (9,061,949) (9,934,338)


Inventories F 148,331,931 277,449,045

Debtors G 124,180,837 78,128,175

Cash & Bank Balances H 73,254,049 23,157,004

Loans, Advances & Deposits I 297,483,250 306,268,772–––––––––––––––––––––––––– ––––––––––––––––––––––––––

643,250,067 685,002,996

Less : Current Liabilities & Provisions J 349,148,992 314,052,625–––––––––––––––––––––––––– ––––––––––––––––––––––––––

Net Current Assets 294,101,075 370,950,371

Miscellaneous Expenditure 15,999,701 21,279,568

(to the extent not written off)–––––––––––––––––––––––––– ––––––––––––––––––––––––––

TOTAL 1,287,773,081 1,222,742,258================================================================================== =================================================================================






MAGENTA BLACK

MAGENTA BLACK41

41

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


SCHEDULE Amount in Rs. Amount in Rs.––––––––––––––––––––––––––––– –––––––––––––––––––––––––––––

INCOME

Realisation from Productions, Distribution & Exhibition K 965,207,645 374,798,378

Equipment Hire Income 2,220,883 25,085,222

Other Income L 99,619,215 36,485,252–––––––––––––––––––––––––– ––––––––––––––––––––––––––1,067,047,743 436,368,852================================================================================== =================================================================================

EXPENDITURE

Cost of Production, Distribution & Exhibition M 729,590,310 351,709,192

Administrative and other expenses N 231,904,427 105,343,470

Share of Joint Venture of ASP Group – 176,429

Depreciation 84,229,730 30,355,694

Preliminary Expenses Written off 5,302,998 5,149,121–––––––––––––––––––––––––– ––––––––––––––––––––––––––1,051,027,465 492,733,906–––––––––––––––––––––––––– ––––––––––––––––––––––––––

Profit/(Loss) Before Extraordinary, 16,020,278 (56,365,054)Non Recurring and Prior Period items

Less:Extraordinary, Non Recurring and Prior Period Items O 12,113,181 2,366,476–––––––––––––––––––––––––– ––––––––––––––––––––––––––

Profit/(Loss) Before Tax 3,907,097 (58,731,530)

Less : a) Provision for Taxation 6,013,500 (250)

Less : b) Fringe Benefit Tax 1,955,000 975,000

Less : c) Deferred Tax Liability/(Asset) (872,389) (2,251,216)–––––––––––––––––––––––––– ––––––––––––––––––––––––––

Profit/(Loss) after Tax (3,189,014) (57,455,064)

Add: Balance brought forward from last year (59,951,819) (4,603,032)–––––––––––––––––––––––––– ––––––––––––––––––––––––––

Profit available for Appropriation (63,140,833) (62,058,096)

Less: Interim Dividend paid during the year 45,162,400 –

Tax on Interim Dividend 6,334,027 –

Income Tax of earlier years - (2,106,277)–––––––––––––––––––––––––– ––––––––––––––––––––––––––

Balance carried forward (114,637,260) (59,951,819)================================================================================== =================================================================================






MAGENTA BLACK

MAGENTA BLACK42

42

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


Amount in Rs. Amount in Rs.––––––––––––––––––––––––––––––– –––––––––––––––––––––––––––––––

A. CASH FROM OPERATING ACTIVITIES

Net Profit/(Loss) before tax and extraordinary items : 16,020,278 (56,365,054)Adjustments for :Depreciation 84,229,730 30,355,694Interest, dividend, etc., received (46,119,733) (35,725,768)Miscellaneous expenditure written off 5,302,998 5,149,121(Profit)/Loss on sale of fixed assets (1,593,929) (24,489)(Gain)/Loss on exchange fluctuation 2,951 –Provision for Dimunation of Investment 245,767 –

–––––––––––––––––––––––––– ––––––––––––––––––––––––––Operating profit before working capital changes 58,088,062 (56,610,496)

–––––––––––––––––––––––––– ––––––––––––––––––––––––––Adjustments for :(Increase)/ Decrease in Inventories 129,117,114 (236,198,788)(Increase)/ Decrease in Receivables (46,052,662) 26,589,024(Increase)/ Decrease in Loans and advances 25,987,810 (23,883,855)Increase/(Decrease) in Trade Creditors 78,875,204 18,926,888Inc./ (Dec.) in Other current liabilities and provisions (43,778,837) 124,480,414Cash generated from/(used in) operations 202,236,691 (146,696,813)Direct taxes paid (17,202,289) 2,106,277Prior period adjustments (12,113,181) (2,366,476)Cash flow before extraordinary items 172,921,221 (146,957,012)Extraordinary items :Miscellaneous Expenditure – –

–––––––––––––––––––––––––– ––––––––––––––––––––––––––Net Cash Generated from/(used in) Operating Activities 172,921,221 (146,957,012)

–––––––––––––––––––––––––– ––––––––––––––––––––––––––B. CASH FLOW FROM INVESTING ACTIVITIES

Purchases of fixed assets (273,282,934) (167,708,104)Sale/disposal of fixed assets 16,010,000 443,000(Additions to)/Redemption of investments 20,135,269 145,431,492Interest, dividend, etc. received 46,119,733 35,725,768Net cash generated from/(used in) investing activities (191,017,932) 13,892,156

C. CASH FLOW FROM FINANCING ACTIVITIESLoans borrowed (net) 119,693,133 106,147,609Dividend paid (45,162,400) –Tax on Dividend paid (6,334,027) –Loss on exchange fluctuation (2,951) –Net cash recovered from/(used in) financing activities 68,193,755 106,147,609

–––––––––––––––––––––––––– ––––––––––––––––––––––––––Net increase in cash and cash equivalents (A+B+C) 50,097,045 (26,917,247)

–––––––––––––––––––––––––– ––––––––––––––––––––––––––Cash and cash equivalents (opening) 23,157,004 50,074,251Cash and cash equivalents (closing) 73,254,049 23,157,004





MAGENTA BLACK

MAGENTA BLACK43

43

SCHEDULES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Amount in Rs Amount in Rs.––––––––––––––––––––––––––––– –––––––––––––––––––––––––––––

SCHEDULE AShare CapitalAuthorised Share Capital24,000,000 Equity Shares of Rs. 5/- each 120,000,000 120,000,000(Previous year 24,000,000 Equity Shares of Rs. 5/- each) ================================================================================== =================================================================================

Issued, Subscribed & Paid-up Capital22,581,200 Equity Shares of Rs.5/- each 112,906,000 112,906,000 (Previous year 22,581,200 Equity Sharesof Rs 5/- each out of which 16,490,000 shares wereallotted as fully paid up by way of Bonus Shares bycapitalisation of reserves)

Add:- Forfeited shares 11,500 11,500(Amount originally paid up)

–––––––––––––––––––––––––– –––––––––––––––––––––––––– 112,917,500 112,917,500

================================================================================== =================================================================================SCHEDULE BReserves & SurplusShare Premium 973,360,000 973,360,000General ReserveBalance as per last balance sheet 58,239,914 58,239,914Add : Transfer during the year – –

–––––––––––––––––––––––––– ––––––––––––––––––––––––––58,239,914 58,239,914

Balance as per Profit & Loss account (114,637,260) (59,951,819)–––––––––––––––––––––––––– ––––––––––––––––––––––––––

916,962,654 971,648,095================================================================================== =================================================================================

SCHEDULE C

Secured LoansFrom banks against finance of cars 3,499,427 4,582,892

From LIC against Keyman Insurance Policy of CMD 103,700,000 103,700,000

Term Loan from Banks 120,776,598 ––––––––––––––––––––––––––– ––––––––––––––––––––––––––

227,976,025 108,282,892================================================================================== =================================================================================

MAGENTA BLACK

MAGENTA BLACK44

44

SC

HE

DU

LE

S T

O T

HE

CO

NS

OL

IDA

TE

D F

INA

NC

IAL

STA

TE

ME

NT

SS

CH

ED

UL

E D

Fix

ed

As

se

ts(A

mo

un

t in

Rs.

)

GR

OS

S B

LO

CK

DE

PR

EC

IAT

ION

NE

T B

LO

CK

Part

icul

ars

As

onA

dditi

ons

Ded

./Adj

.To

tal

Dep

reci

atio

nA

dditi

ons

Ded

./Adj

Tota

lA

s on

As

on01

.04.

2006

durin

g th

edu

ring

as o

nup

todu

ring

durin

gD

epre

ciat

ion

31.0

3.20

0731

.03.

2006

year

the

year

31.0

3.20

0731

.03.

2006

the

year

the

year

up to

31.0

3.20

07

Blo

ck ‘A

’La

nd R

ight

s 3

0,00

0,00

0–

–30

,000

,000

––

––

30,0

00,0

0030

,000

,000

Blo

ck ‘B

’O

wne

rshi

p P

rem

ises

119,

850,

970

250

– 1

19,8

51,2

2024

,565

,184

1,38

5,08

9–

25,9

50,2

73

93,

900,

947

95,2

85,7

86Te

mpo

rary

She

d

5

01,4

00

165,

564

–

666

,964

501,

400

165

,564

–

6

66,9

64 –

–In

stitu

te B

uild

ing

– 2

68,6

93,2

32

– 2

68,6

93,2

32

–

9,4

59,4

74

–

9,4

59,4

7425

9,23

3,75

8 –

Blo

ck ‘C

’P

lant

& M

achi

nery

220

,935

,752

4

0,76

1,38

3

63,

100,

472

198

,494

,663

1

40,0

00,2

43

20,2

00,4

65

48,

684,

400

111,

516,

308

8

6,97

8,35

580

,935

,509

Ele

ctric

al In

stal

latio

n

–

24,

567,

099

–

2

4,56

7,09

9

–

2,2

25,8

23

–

2,2

25,8

23

22,

341,

276

–C

inem

atog

raph

y E

qup.

–

8

0,40

0,78

8

–

80,

400,

788

–

9

,310

,794

–

9,3

10,7

94

71,

089,

994

–B

lock

‘D’

Mot

or V

ehic

les

& O

ther

s

26,1

12,6

75

2,

068,

696

–

2

8,18

1,37

1

1

0,82

4,20

4

4,2

08,6

49

–

1

5,03

2,85

3

13,

148,

518

15,2

88,4

71B

lock

‘E’

Fur

nitu

re F

ixtu

re &

Offi

ce E

quip

men

ts

21,5

74,7

62

35,

817,

458

–

5

7,39

2,22

0

1

0,77

5,46

4

12,6

79,2

15–

23,

454,

679

3

3,93

7,54

110

,799

,298

Blo

ck ‘F

’C

ompu

ter S

oftw

are

Com

pute

r & IT

Equ

p.

6

76,7

27

90,

066,

383

–

9

0,74

3,11

0

66

0,12

8

20,8

16,2

42–

21,

476,

370

6

9,26

6,74

016

,599

Blo

ck ‘G

’Li

brar

y

1

73,6

68

2,

413,

143

–

2,5

86,8

11

17

3,66

8

2,4

13,1

43–

2

,586

,811

–

–In

tang

ible

Ass

etE

xhib

ition

Rig

hts

2,50

0,00

0

–

–

2,5

00,0

00

1,22

0,00

0

2

56,0

00–

1

,476

,000

1,0

24,0

001,

280,

000

Inte

llect

ual

Pro

pert

y R

ight

–

5,

546,

359

–

5,5

46,3

59

–

1,1

09,2

72–

1

,109

,272

4,4

37,0

87–

422,

325,

954

550

,500

,355

6

3,10

0,47

2 9

09,6

23,8

37

188

,720

,291

84

,229

,730

48

,684

,400

224,

265,

621

685

,358

,216

233,

605,

663

Cap

ital W

ork-

in-p

rogr

ess

Cap

ital W

IP- B

uild

ings

242,

951,

268

245

,597

,558

48

5,01

7,29

7

3

,531

,529

–

––

–

3,5

31,5

2924

4,78

7,22

5an

d ex

pens

esca

pita

lised

Furn

iture

s

4,9

59,4

63

–

4

,959

,463

–

–

–

–

–

–4,

959,

463

Mac

hine

ries

& E

quip

men

ts

39,1

14,5

28

–

39,

114,

528

–

–

–

–

–

–

39,1

14,5

28TO

TAL

709

,351

,213

796

,097

,913

592

,191

,760

913

,155

,366

1

88,7

20,2

91 8

4,22

9,73

0

48,

684,

400

2

24,2

65,6

21 6

88,8

89,7

45

52

2,46

6,87

9

Pre

viou

s Y

ear

543

,346

,945

167

,861

,982

1,8

57,7

14

709,

351,

213

1

57,9

67,8

43

30,3

55,6

94

1,4

39,2

0318

6,88

4,33

4

522,

466,

879

385,

379,

102

MAGENTA BLACK

MAGENTA BLACK45

45




SCHEDULE E

Investments

A UNITS OF MUTUAL FUNDS - QUOTEDUnits of DSP Merrill Lynch Mutual Fund :DSP Merrill Lynch Liquidity Fund - Growth – 11,648,469(Previous year —No. of Units 679,941.201)

Units of LIC Mutual Fund :LICMF Floating Rate Fund - Growth Plan 199,398,124 50,397,396( No. of Units 19,604,118.381, Previous year 49,86,650.098)

–––––––––––––––––––––––––– ––––––––––––––––––––––––––199,398,124 62,045,865

Less: Provision for Dimunation of LIC Mutual fund 245,767 ––––––––––––––––––––––––––– ––––––––––––––––––––––––––

199,152,357 62,045,865

PRINCIPAL PNB MF FIXED MATURITY 10,000,000 –

(A) 209,152,357 62,045,865

(NAV as on 31.03.2007 is Rs 199,152,357)(NAV as on 31.03.2006 was Rs 62,190,037)

B INTER CORPORATE DEPOSITS (UNQUOTED)

With Companies (B) 84,389,015 14,389,015

C LONG TERM INVESTMENTS IN EQUITY SHARESIn wholly owned subsidiaries (Unquoted)

Shares of Bashiron Co. Op. Hsg. Society Ltd 500 500(10 Shares of Rs. 50/- each, Previous year - 10 shares )

Shares of Bait-Ush-Sharaf Co. Op. Hsg.Society. Ltd. 750 1,000(15 Shares of Rs. 50/- each, Previous year - 20 shares)

Equity Shares of Mukta Adlabs Digital Exhibition Pvt. Ltd. – 50,000(Nil, Previous year 500 shares)

Equity Shares of Indiasound Ltd. 3,778,158 3,778,158(7,500,000 Equity Shares of 0.1 Pence each,

Previous year 7,500,000 Equity Shares)

(C) 3,779,408 3,829,658

D BONDS (UNQUOTED)

IDFC Bonds 2026

(Previous Year -Bonds 1015) (D) – 237,215,240

E FIXED DEPOSIT

With Banks (E) 523,729 500,000–––––––––––––––––––––––––– ––––––––––––––––––––––––––

TOTAL (A + B+ C +D+E ) 297,844,509 317,979,778================================================================================= =================================================================================

SCHEDULE FInventoriesRights of Films (Exhibition, Distribution & othercommercial rights including Copyrights) 4,750,000 4,750,000Work In Progress- Under production films 143,304,284 265,239,861- TV Serials – 3,535,007- Stock of Materials 277,647 3,924,177

–––––––––––––––––––––––––– –––––––––––––––––––––––––– 148,331,931 277,449,045

================================================================================= =================================================================================

MAGENTA BLACK

MAGENTA BLACK46

46




SCHEDULE GSundry Debtors (Unsecured)

a) Debts outstanding for a period exceeding six months

- considered good 32,377,270 34,247,057

- considered doubtful 3,256,002 –

b) Other Debts Considered good

- considered good 88,547,565 43,881,118–––––––––––––––––––––––––– ––––––––––––––––––––––––––

124,180,837 78,128,175===================================================================================== =====================================================================================

SCHEDULE H

Cash & Bank balances

Cash in Hand 512,859 981,465


In Current Accounts 45,766,505 11,617,431

(Includes Rs. 143,343 in EEFC account,

Previous year Rs.146,294)

Fixed Deposit with Scheduled Banks 26,974,685 10,558,108–––––––––––––––––––––––––– ––––––––––––––––––––––––––

73,254,049 23,157,004===================================================================================== =====================================================================================

SCHEDULE I

Loans & Advances

Advances recoverable in cash or in kind or for value to be received 70,944,208 152,040,185

(Includes Rs Nil from a firm in which Managing Director is a partner,Previous year Rs - 150,000)(Includes Rs Nil from a Company under the samemanagement, Previous year Rs 49,417,765)

(Includes Rs 21,000,000 from a trust in which one of theDirectors is Trustee, Previous year Rs 22,030,000)

Advance Taxes and other payments 156,210,759 139,008,470

Advances to Staff 929,028 744,823

Deposits 69,399,255 14,475,294

{Including Rs.300,000 to a firm of which Managing Director is

proprietor, Previous year Rs.300,000}

{Including Rs 500,000 to Managing Director for use of premises,

Previous year Rs.500,000}

{Including Rs.1,000,000 to a Company in which Managing Directoris Director, Previous year Rs 7,000,000}

–––––––––––––––––––––––––– ––––––––––––––––––––––––––297,483,250 306,268,772

===================================================================================== =====================================================================================SCHEDULE J

Current Liabilities & Provisions:

Sundry Creditors for goods and services rendered 148,088,224 69,213,020

(Includes due to firm of which Managing Director is proprietor

Rs NIL Previous year Rs 80,000)

HDFC Bank (Due to Cheques issued) – 14,197

Provision for Taxation 95,790,783 75,482,078

Advances towards films and other services 104,920,053 168,992,728

Unclaimed Dividend 349,932 350,602–––––––––––––––––––––––––– ––––––––––––––––––––––––––

349,148,992 314,052,625===================================================================================== =====================================================================================

MAGENTA BLACK

MAGENTA BLACK47

47




SCHEDULE K

Realisation from Production, Distribution & Exhibition

Recovery from Music 6,500,000 25,000,000

Recovery from New Productions 418,126,850 45,550,251

Recovery from old films, Distribution & Exhibition 540,580,795 304,248,127–––––––––––––––––––––––––– ––––––––––––––––––––––––––

965,207,645 374,798,378===================================================================================== =====================================================================================

SCHEDULE L

Other Income

Interest 39,276,124 31,564,602

Other Income 51,905,553 734,995

Profit on Sale of Assets 1,593,929 24,489

Dividend / Income from Units of Mutual Funds 6,843,609 4,161,166–––––––––––––––––––––––––– ––––––––––––––––––––––––––

99,619,215 36,485,252===================================================================================== =====================================================================================

SCHEDULE M

Cost of Production, Distribution & Exhibition

Cost of Music 1,904,451 7,308,860

Cost of New Productions 395,852,190 53,695,305

Expenses of old films, Distribution & Exhibition 331,833,669 290,705,027–––––––––––––––––––––––––– ––––––––––––––––––––––––––

729,590,310 351,709,192===================================================================================== =====================================================================================

SCHEDULE NAdministrative and Other Expenses Personnel Expenses 58,569,035 27,452,389(Including Directors Remuneration of Rs 13,747,213Previous year - Rs.13,024,288)Repairs & Maintenance :

Buildings 1,649,034 927,138Machinery 1,001,527 1,184,479Others 4,065,414 374,783

Printing & Stationery 3,556,170 1,186,672Telephone & Trunkcalls 5,176,730 2,706,011Insurance 40,864,136 40,919,559Brokerage & Commission 30,000 –Electricity Charges 9,586,909 2,310,237Rent 3,847,687 1,092,751Travelling Expenses 4,821,626 1,599,757 Auditors Remuneration 1,605,954 1,235,100Professional Expenses 19,715,218 6,809,596Legal Expenses 284,443 422,877Interest 21,467,619 184,558Bank Charges 383,700 417,421Rates & Taxes 15,484,371 1,113,413Bad Debts -Written off 5,020,677 4,514,329Publicity Expenses 13,101,980 962,628Motor Car Expenses 2,831,779 1,943,646Miscellaneous Expenses 18,840,418 7,199,786

–––––––––––––––––––––––––– ––––––––––––––––––––––––––231,904,427 104,557,130

===================================================================================== ====================================================================================SCHEDULE OExtraordinary, Non Recurring & Prior Period Exp.Loss on sale of Investments – 2,342,700Prior Period Expenses 12,113,181 23,776

–––––––––––––––––––––––––– ––––––––––––––––––––––––––12,113,181 2,366,476

===================================================================================== =====================================================================================

MAGENTA BLACK

MAGENTA BLACK48

48

SCHEDULES TO THE CONSOLIDATED FINANCIAL STATEMENTSSCHEDULE “P”

Statement of Significant Accounting Policies and Notes forming Part of Consolidated Accounts



The financial statements have been prepared under the historical cost convention, in accordance withAccounting Standards issued by the Institute of Chartered Accountants of India and the provisions of theCompanies Act, 1956, as adopted consistently by the Company. All income and expenditure having a materialbearing on the financial statements are recognised on accrual basis.

The preparation of financial statements in conformity with Accounting Standards requires management tomake estimates and assumptions that affect the reported amounts of assets and liabilities at the date offinancial statements, and the reported amounts of revenues and expenses during the year.

(b) Principles of consolidation

The consolidated financial statements relate to Mukta Arts Limited (“The Company”) and its subsidiaries. Theconsolidated financial statements have been prepared on the following basis:

1. The financial statements of the Company and its subsidiaries have been combined on a line-by-line basis byadding together the book values of like items of assets, liabilities, income and expenses (other than thoseallocated to particular films & serials), after eliminating intra-group balances and intra-group transactions.

2. The consolidated financial statements have been prepared using uniform accounting policies for like transactionsand other events in similar circumstances and are presented to the extent possible, in the same manner asCompany’s separate financial statements.

% voting power % voting poweras on 31.03.07 as on 31.03.06

(c) The Subsidiaries considered in the consolidatedfinancial statement are :Connect.1 Limited 99.00 99.00(Formerly known as Mukta Arts International Limited)Whistling Woods International Limited 84.99 84.99Mukta Tele Media Limited 99.92 99.92

2 Other Significant Accounting PoliciesThese are set out in the notes to the financial statements under significant of Accounting Policies of the financialstatements of the company and its Subsidiaries.


Rupees Rupees3 Contingent Liabilities

a Claims against the company not acknowledged as Debts- Nil Nilb Guarantees given by Bank on behalf of the company 40,147,120 39,647,120c Letters of Credit given by bank on behalf of the company Nil Nild Estimated amount of contracts remaining to be executed

on Capital Account and not provided for (net of advances)Whistling Woods International Ltd. 348,950 34,601,496

e Legal suits filed against the company (having monetary implication) Nil Nilf (i) The Income Tax Assessment of the Company is completed upto

Assessment Year 2004-05. There are certain additions madein various assessment for which various appeals are pendingat first appellate stage and Tribunal stage (including the appealdecided in favour of Company where in Department is infurther appeal).The disputed Tax amount in respect of the above is : 21,119,173 21,068,923

( i i) Survey action was conducted by the Income Tax TDSdepartment in the registered office of the Company on27.08.2003. The assessment of the same was completedduring the previous year and demand of Rs 4,957,270 was raised.Aggrieved by the order the Company had filed appeal beforethe CIT(Appeals). The Company had paid Rs 2,478,636 underprotest against the said demand.The Directors are of the opinion that at this stage no further provision is required for the above pendingmatters.

MAGENTA BLACK

MAGENTA BLACK49

49

SCHEDULES TO THE CONSOLIDATED FINANCIAL STATEMENTSg Department of Service Tax has levied service tax of Rs 2.12 million on sponsorship fees received for various

films treating the Company as an ‘Advertising Agency’. Further the department has issued show cause noticeproposing to levy Rs 2.02 millions service tax on a similar issue.

Against the levy of Rs 2.12 million, the Company filed appeal before the Commissioner of Central Excise(Appeals) and subsequently before Honorable Tribunal, claiming that the provisions of Service Tax Act is notapplicable in this matter. The Company had paid Rs 1.24 millions under protest and the same is shown as‘advance recoverable in cash or kind’ since the matter is pending before the CESTAT and based on legalopinion sought, the management is of the opinion that the Company will have no liability on this account andthat no provision is necessary.

h The Company Law Board had passed an order directing Central Government to undertake the investigationunder section 237 of the Companies Act, 1956. The Company aggrieved by the order had moved the BombayHigh Court and obtained stay on order. The management believes that the Order of Company Law Board isdefective and management has not voilated any rules, laws or regulations and there is no cause of concernin this regard.

i The Company has given Corporate Guarantee for loans taken by Subsidiary Whistling Woods InternationalLimited from Punjab National Bank during the year.

j Matters in respect of Whistling Woods International Ltd.

(i) The Income Tax Assessment of the Company is made for the Assessment Year 2003-04. There arecertain additions made in the assessment and demand raised for Rs 1,301,570. Aggrieved by theAssessment Order the Company has filed appeal before Commissioner of Income Tax (Appeals). TheCompany has paid Rs 650,785 against the said demand. The Directors are of the opinion that at thisstage no provision is required.

( i i) The Income Tax Assessment of the Company is made for the Assessment Year 2004-05. There arecertain additions made in the assessment and demand raised for Rs 3,478,871. Aggrieved by theAssessment Order the Company has filed appeal before Commissioner of Income Tax (Appeals). TheCompany has paid Rs 1,739,435 against the said demand. The Directors are of the opinion that at thisstage no provision is required.

( i i i ) The Public Interest Litigation filed by one Mr. Abdul Hamid Patel & others is admitted and pending. Noinjunction/interim relief was however granted to the petitioners.

In the year 1973-74, the Government of Maharashtra (‘GOM’) as per the scheme invited applications of plotsfor development of film industry infrastructure in film city at Goregaon east, Mumbai. Many applications werereceived and M/s PDR Videotronics (India) Private Limited (‘PDR’) was one of the applicants. The GOM issueda letter to PDR for allotment of one hectare of land.

Thereafter MFSCDCL was formed for development of film city and as per the recommendation of GodboleCommittee the above scheme was scrapped. However before scrapping the scheme PDR filed a suit in thehigh court demanding specific performance of the scheme. High court admitted the suit and same is stillpending.

Meanwhile PDR took out a notice of motion saying that MFSCDCL is carrying out the activities on the allottedland thereby affecting their rights. Since the MFSCDCL didn’t argue, high court granted the injuction in favourof PDR.

There after in the year 2003 the contempt petition was filed by PDR alleging that the construction work is beingcarried out on the said allotted land in violation of injuction. However, subsequently the contempt petition wasdisposed off by the high court. PDR took out another notice of Motion on the same issue. The high courtrefused to grant any relief to PDR and directed that the notice of motion be clubbed with the original suit ofPDR against MFSCDCL and same suit to be expedited.

With a view to peacefully resolve the issue, the Company has offered to earmark one hectare of land out ofthe available free land for a possible assignment to PDR, incase of the final decision of the high court is in thefavour of PDR. In the opinion of the management the Company has a good chance of wining the case.

The Company may be liable towards Provident Fund contributions on leave encashment paid from 2001 to 30April 2005 based on the final decision to be taken by Central Board of Trustees of Employees Fund Organisation.The amount is currently not ascertainable.

4 Business segment-wise Report (as per the reporting requirements of AS-17)

(Rs in millions)


–––––––––––––––––––––––––––– ––––––––––––––––––––––––––––a. Revenue

Software Division 965.21 374.80Equipment Division 2.22 25.09Others 99.62 36.49

–––––––––––––––––––––––––––– ––––––––––––––––––––––––––––TOTAL 1,067.05 436.38

–––––––––––––––––––––––––––– ––––––––––––––––––––––––––––

MAGENTA BLACK

MAGENTA BLACK50

50

SCHEDULES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Rs in millions)


–––––––––––––––––––––––––––– ––––––––––––––––––––––––––––b. Results


Equipment Division (18.66) (9.81)

Others 53.26 36.49–––––––––––––––––––––––––––– ––––––––––––––––––––––––––––

TOTAL 270.22 49.77–––––––––––––––––––––––––––– ––––––––––––––––––––––––––––

c. Capital Employed



5 Related Party Transaction

(A) The list of related parties and nature of their relationship is furnished below:

Companies under the same management-Whistling Woods International Ltd. 84.99% - subsidiaryConnect.1 Limited 99% - subsidiaryMukta Tele Media Ltd. 99.92% - subsidiaryMukta Adlabs Digital Exhibition Pvt. Ltd. 50% - ShareholdingMukta Tele Arts Pvt. Ltd. CMD is director

Firms-Mukta Arts Proprietory firm of CMDMukta Shakti Combine CMD is a partnerMetro Films CMD is a partner

Trusts-MAL Employees Welfare Trust Executive Director is settler & One

of the Directors is Trustee

Directors of the company-Chairman & Managing Director Mr.Subhash GhaiExecutive Director Mr.Parvez A. FarooquiWhole-time Director Ms. Meghna Ghai Puri

Non Executive Directors Mr. Anil HarishMr. Vijay ChorariaMr. Pradeep Guha

Relatives of Directors-

Mr. Ashok Ghai Brother of CMDMr. Siraj Farooqui Brother of Executive DirectorMr. Sameer Farooqui Brother of Executive DirectorMr. Rahul Puri CMD’s Son-in-law and spouse of Whole-time

Director

(B) Transactions with and outstanding balances of related parties are furnished below. (Amount in Rupees)Volume of transactions during the year

Key Relatives Total OutstandingAssociates management of key Balance

personnel management 31.03.2007Personnel

Purchase & Other Services

Mukta Tele Arts Pvt. Ltd. 10,000 – – 10,000 –

Mukta Arts 140,000 – – 140,000 –

Receiving of services

Ashok Ghai – – 1,500,000 1,500,000 –

Payment of Salaries

Rahul Puri – – 1,020,000 1,020,000 –

Siraj Farooqui – – 1,160,000 1,160,000 –

Sameer Farooqui – – 197,500 197,500 –

Investments

Shares of Mukta Adlabs Digital Exhibition Pvt. Ltd. 50,000 – – 50,000 –

MAGENTA BLACK

MAGENTA BLACK51

51

SCHEDULES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amount in Rupees)


Key Relatives Total OutstandingAssociates management of key Balance

personnel management 31.03.2007Personnel

Advances recoverable

MAL Employees Welfare Trust 1,030,000 – – 1,030,000 21,000,000

Mukta Adlabs Digital Exhibition Pvt. Ltd. 49,417,765 – – 49,417,765 –

Mukta Shakti Combine 200,000 – – 200,000 –

Managerial Remuneration

Subhash Ghai – 11,058,546 – 11,058,546 –

Parvez A. Farooqui – 1,215,395 – 1,215,395 –

Meghna Ghai Puri – 1,652,163 – 1,652,163 –

Deposits for Premises taken on lease or otherwise

Mukta Tele Arts Pvt. Ltd. 6,000,000 – – 6,000,000 1,000,000

Mukta Arts – – – – 300,000

Subhash Ghai – – – – 500,000


Rupees Rupees–––––––––––––––––––––––––––– ––––––––––––––––––––––––––––

6 Calculation of Minority Interesta) Whistling Woods International Ltd.

Paid up value of 15.0015% shares 30,003,000 30,003,000

Less: 15.0015% of Preliminary Expenses 92,335 115,419–––––––––––––––––––––––––– ––––––––––––––––––––––––––

29,910,665 29,887,581===================================================================================== =====================================================================================

b) Mukta Tele Media Ltd.

Paid up value of 0.08% shares 400 400

Less: 0.08% of Preliminary Expenses 59 70–––––––––––––––––––––––––– ––––––––––––––––––––––––––

341 330===================================================================================== =====================================================================================

c) Connect.1 Limited

(Formerly known as Mukta Arts International Limited)

Paid up value of 1% shares 6,000 6,000

Less: 1% of Preliminary Expenses 105 140–––––––––––––––––––––––––– ––––––––––––––––––––––––––

5,895 5,860===================================================================================== =====================================================================================

Total Minority Interest 29,916,902 29,893,771

7 The consolidated financial statements have been prepared in accordance with the Accounting Standard (AS-21)

“Consolidated Financial Statements” issued by the Institute of Chartered Accountants of India, except for thoseincome and expenses allocated to particular films.

8 Previous year figures have been regrouped wherever necessary.





WHISTLING WHISTLING WHISTLING WHISTLING WHISTLING WWWWWOODS INTERNOODS INTERNOODS INTERNOODS INTERNOODS INTERNAAAAATIONTIONTIONTIONTIONAL LTDAL LTDAL LTDAL LTDAL LTD.....

MAGENTA BLACK

MAGENTA BLACK52

52

DIRECTORS’ REPORT

Dear Members,

Your Directors take pleasure in presenting the Sixth Annual Report and the Audited Statement of Accounts for the AccountingYear ended 31st March 2007.

Operations

The Institute was inaugurated on 18th July, 2006 and is successfully running its operations.

The Gross Block of Fixed Assets of the Company as on 31.03.2007 excluding capital work-in-progress was placed atRs. 588.19 millions as compared to previous year figures of Rs. 44.25 millions, which included Rs. 30 millions towardsthe right to use of the land as per the agreement with Maharashtra Film, Stage and Cultural Development CorporationLimited, in lieu of which shares of Rs. 30 millions have been allotted to them. The Capital Work In Progress asat 31st March 2007 stood at Nil as compared to previous year figure of Rs. 301.86 millions.

During the year the Company has recorded an income of Rs. 50.12 Millions and the total Loss after tax is Rs. 140.12millions. Being the first year of operation, the Company is still in investment mode and the losses have to be seen asinvestments. The expenses include a significant amount of Rs. 61.22 millions as depreciation. The Institute has enrolledthe first two batches and is operating at about 25% occupancy and is expected to reach optimum capacity utilization byyear 3.

Share Capital

The authorised Share Capital of the Company has been increased from Rs. 200 millions to Rs. 400 millions. The Paid upShare Capital remains the same during the year under review.

Directors

Mr. Subhash Ghai and Mr. Vijay Choraria retire by rotation at the ensuing Annual General Meeting and being eligible offerthemselves for reappointment.

Auditors’ Report

The Company’s explanation to the Auditors’ observation in their Report have been detailed in the notes forming part ofAccounts contained in Schedule “22” which forms part of the Annual Report.

To ensure better control and transparency, the fixed assets registers are being prepared in details.

Management has taken steps to ensure that all the statutory dues will be paid timely and regularly.

At present the Institute is working on 25% occupancy. Being the first year of operation, the Company has incurred losseswhich is exceeding 50% of the networth, which will be fully recovered in the coming year once the Institute work on fullfledged basis.

During the project development stage, the short term funds available with the Company have been utilised for projectrelated capital expenditures.



i) in the preparation of the annual accounts, the applicable accounting standards have been followed along with properexplanation relating to any material departures;

ii) the Directors have selected such accounting policies & applied them consistently and made judgments and estimatesthat are reasonable and prudent so as to give true and fair view of the state of affairs of the company at the end ofthe financial year and of the loss of the Company for that period;

iii) the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordancewith the provisions of this Act for safeguarding the assets of the company and for preventing and detecting fraud andother irregularities;

iv) the annual accounts are prepared on a going concern basis;

Auditors

M/s BSR & Co., Chartered Accountants retire at the ensuing Annual General Meeting and being eligible offer themselvesfor reappointments as the Auditors of the Company. The Directors recommend the appointment of M/s. BSR & Co.,Chartered Accountants as the Auditors of the Company for the year 2007-08.

Statutory Disclosures

Particulars of employees required under Section 217 (2A) of the Companies Act, 1956 and the Companies (Particulars ofEmployees) Rules, 1975, as amended, are given in Annexure I.

Particulars regarding foreign exchange earnings and outgo required under Section 217 (1) (e) of the Companies Act,1956 and Companies (Disclosure of Particulars in the report of the Board of Directors) Rules, 1988 are given inSchedule 30 (Statement of Significant Accounting Policies and Notes forming Part of Accounts) of this report.

The particulars regarding disclosure about Conservation of energy, technology absorption are not applicable to the Company.

MAGENTA BLACK

MAGENTA BLACK53

53

Acknowledgements

The Board of Directors wishes to thank and record its appreciation to the Government of Maharashtra, The MaharashtraFilm Stage and Cultural Development Corporation Limited, Film Fraternity, Bankers and Media who have extended andare expected to extend their continued support to the company.

Your Directors thank all Governing Council Members, Advisory Board Members, employees and faculty members of thecompany for their dedicated services to the company

On Behalf of the Board of Directors

Place: Mumbai Subhash GhaiDate: 27th August 2007 Chairman

Annexure - I

ANNEXURE TO DIRECTORS’ REPORT

Information as per Section 217 (2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees)Rules, 1975 and forming part of the Director’s Report:

Name Designation Qualification Age Date of Experience Gross PreviousJoining Remu- Employment

neration(Rs.)

Kurt Inderbitzin Dean M.B.A (Fin)- 43 1.02.2006 19 years 5,646,960 Professor atChicago, M.F.A- years University of(Master in Fine La VerneArts-NewOrleans)

Notes:

Remuneration includes salary and other allowances.


MAGENTA BLACK

MAGENTA BLACK54

54

AUDITORS’ REPORT

To the Members ofWhistling Woods International Limited

We have audited the attached Balance Sheet of Whistling Woods International Limited (‘the Company’) as at 31 March 2007the related Profit and Loss Account and Cash Flow Statement of the Company for the year ended on that date, annexedthereto. These financial statements are the responsibility of the Company’s management. Our responsibility is to express anopinion on these financial statements based on our audit.

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

We report as follows:

1 As required by the Companies (Auditor’s Report) Order, 2003 (‘Order’) issued by the Central Government of India interms of sub-section (4A) of Section 227 of the Companies Act, 1956 (‘the Act’), we enclose in the Annexure, astatement on the matters specified in paragraphs 4 and 5 of the said Order.

2 As more fully explained in schedule 22, the Company has disputed the demand from income tax authorities aggregatingto Rs 4.78 million for financial year ended 31 March 2003 (assessment year 2003-04) and 31 March 2004 (assessmentyear 2004-05) and the matter is subjudice. The relevant liability for the subsequent financial year 2005-06 has not yetbeen crystallised. No provision has been made in the financial statements for such liabilities. The impact of non-provision on the loss for the year and net assets position as at year end is presently not ascertainable pending finaladjudication.

3 Further to our comments in the Annexure referred to above, we report that:

a. we have obtained all the information and explanations which, to the best of our knowledge and belief werenecessary for the purposes of our audit;

b. in our opinion, proper books of account as required by law have been kept by the Company, so far as appearsfrom our examination of those books;

c. the Balance Sheet, the Profit and Loss account and the Cash Flow Statement dealt with by this report are inagreement with the books of account;

d. in our opinion, the Balance Sheet, the Profit and Loss account and the Cash Flow Statement dealt with by thisreport comply with the Accounting Standards referred to in sub-section (3C) of Section 211 of the Act;

e. on the basis of written representations received from the directors as on 31 March 2007, and taken on record bythe Board of Directors, we report that none of the directors is disqualified as on 31 March 2007 from beingappointed as a director in terms of clause (g) of sub-section (1) of Section 274 of the Act; and

f. in our opinion, except for the effects of any adjustments, that may arise from the matters stated in paragraph 2above, and to the best of our information and according to the explanations given to us, the said financial statementsgive the information required by the Act, 1956, in the manner so required and give a true and fair view in conformitywith the accounting principles generally accepted in India

i) in case of the Balance Sheet, of the state of affairs of the Company as at 31 March 2007;

ii) in case of the Profit and Loss account, of the loss of the Company for the year ended on 31 March 2007; and

iii) in the case of the cash flow statement, of the cash flows for the year ended on that date.

For BSR & Co.Chartered Accountants

Place : Mumbai Akeel MasterDated : 27th August 2007 Partner


MAGENTA BLACK

MAGENTA BLACK55

55

ANNEXURE TO THE AUDITORS’ REPORT

With reference to the annexure referred to in paragraph 1 of the report of the Auditors to the Members of Whistling WoodsInternational Limited on the financial statements for the year ended 31 March 2007, we report that:

(i) (a) The Company is in the process of updating its fixed asset records to show greater details of particulars includingquantitative details and situation of fixed assets.

(b) The Company has a policy of physically verifying the fixed assets in a phased manner, to cover all the items overa period of two years. During the year as per the phased plan, the Company has not carried out the physicalverification of fixed assets.

(c) The Company has not disposed off any fixed asset during the year.

(ii) The Company is a service company, primarily rendering training to the students. Accordingly it does not hold anyphysical inventories. Thus, paragraph 4(ii) of the Order is not applicable.

(iii) (a) The Company has not granted any loans to companies/firms/ other parties covered in the register maintainedunder section 301 of the Act. Accordingly, reporting in respect of rate of interest and other terms and conditions,regular in repaying the principal amounts and payment of interest and overdue amount of more than Rupees onelakh in respect of loans granted is not applicable.

(b) The Company has taken loans from one company covered in the register maintained under section 301 of the Act.The maximum amount outstanding during the year was Rs 250 million and the year-end balance of such loanswas Rs 250 million.

(c) In our opinion, the rate of interest and other terms and conditions on which loans have been taken from companylisted in the register maintained under section 301 of the Act are not, prima facie, prejudicial to the interest of theCompany.

(d) In the case of loans taken from company listed in the register maintained under section 301 of the Act, theCompany has been regular in repaying the principal amounts as stipulated and in the payment of interest.

(iv) In our opinion and according to the information and explanations given to us, there is an adequate internal controlsystem commensurate with the size of the Company and the nature of its business with regard to purchase of fixedassets and with regard to the sale of services. The Company’s nature of operations does not involve purchase ofinventory and sale of goods. We have not observed any major weakness in the internal control system during thecourse of the audit.

(v) (a) In our opinion and according to the information and explanations given to us, the particulars of contracts orarrangements referred to in section 301 of the Act have been entered in the register required to be maintainedunder that section.

(b) In our opinion, and according to the information and explanations given to us, the transactions made in pursuanceof contracts and arrangements referred to in (a) above and exceeding the value of Rs 5 lakh with any party duringthe year have been made at prices which are reasonable having regard to the prevailing market prices at therelevant time.

(vi) The Company has not accepted any deposits from the public.

(vii) In our opinion, the Company has an internal audit system commensurate with the size and nature of its business.

(viii) The Central Government has not prescribed the maintenance of cost records under Section 209(1)(d) of the Act for anyof the service rendered by the Company.

(ix) (a) According to the information and explanations given to us and on the basis of our examination of the records of theCompany, amounts deducted/accrued in the books of account in respect of undisputed statutory dues includingSales-tax, Customs duty, and other material statutory dues except Provident fund and Income tax, have beengenerally regularly deposited during the year by the Company with the appropriate authorities. As explained to us,the Company did not have any dues on account of Investor Education and Protection Fund, ESIC, Service tax,Excise duty and Wealth tax.

According to information and explanation given to us, no undisputed amounts payable in respect of Providentfund, Income tax, Sales-tax, Customs duty and other material statutory dues were in arrears as at 31 March 2007for a period of more than six months from the date they became payable.

There were no dues on account of Cess under Section 441A of the Act since the aforesaid section has not yetbeen made effective by the Central Government.

(b) According to the information and explanations given to us, the following dues of income-tax have not been depositedby the Company on account of disputes:


MAGENTA BLACK

MAGENTA BLACK56

56

Name of Nature of Amount Period to which Forum where disputethe Statute the Dues (Rs.) the amount relates is pending

Income tax Assessment dues 650,785 Assessment Income tax appellateAct, 1961 Year 2003-04 tribunal

1,739,435 Assessment CIT(Appeals)Year 2004-05

(x) The Company has accumulated losses at the end of the financial year which is exceeding 50% of its net worth. TheCompany has incurred cash losses in the current financial year but not in the immediately preceding financial year.

(xi) In our opinion and according to the information and explanations given to us, the Company has not defaulted inrepayment of dues to its bankers. The Company did not have any outstanding debenture or dues to any financialinstitutions during the year.

(xii) The Company has not granted any loans and advances on the basis of security by way of pledge of shares, debenturesand other securities.

(xiii) In our opinion and according to the information and explanations given to us, the Company is not a chit fund or a nidhi/mutual benefit fund/ society.

(xiv) According to the information and explanations given to us, the Company is not dealing or trading in shares, securities,debentures and other investments.

(xv) According to the information and explanations given to us, the Company has not given any guarantee for loans takenby others from banks or financial institutions.

(xvi) In our opinion and according to the information and explanations given to us, the term loans taken by the Companyhave been applied for the purpose for which they were raised.

(xvii) According and information and explanations given to us and on an overall examination of the balance sheet of theCompany, we report that the Company has used funds raised on short term basis for long term investment. TheCompany has used short term credit from the suppliers aggregating to Rs 93.71 million to fund fixed assets.

(xviii) The Company has not made any preferential allotment of shares to companies/firms/parties covered in the registermaintained under Section 301 of the Act.

(xix) The Company did not have any outstanding debentures during the year.

(xx) The Company has not raised any money by public issues.

(xxi) According to the information and explanations given to us, no fraud on or by the Company has been noticed orreported during the course of our audit.

For BSR & Co.Chartered Accountants

Place : Mumbai Akeel MasterDated : 27th August 2007 Partner


MAGENTA BLACK

MAGENTA BLACK57

57

BALANCE SHEET AS AT 31ST MARCH, 2007


Schedule Amount in Rs. Amount in Rs.-------------------------------------- --------------------------------------

SOURCES OF FUNDS

Shareholders’ fundsShare capital 3 200,000,000 200,000,000Loan fundsSecured loans 4 122,153,843 927,958Unsecured loan 5 250,000,000 142,500,000

---------------------------------- ----------------------------------572,153,843 343,427,958

====================================== ======================================APPLICATION OF FUNDSFixed assets 6Gross block 588,180,237 44,250,076Accumulated depreciation / Amortisation 63,057,455 1,835,957

---------------------------------- ----------------------------------Net block 525,122,782 42,414,119Capital work in progress 7 - 301,864,382

---------------------------------- ----------------------------------525,122,782 344,278,501

Deferred tax asset (net) 8 - -

Current Asset, Loans & AdvancesSundry debtors 9 7,755,900 -Cash and bank balances 10 4,708,857 243,062Loans and advances 11 18,935,850 14,692,941

---------------------------------- ----------------------------------31,400,607 14,936,003

Current liabilities and provisionsCurrent liabilities 12 122,458,672 16,360,827Provisions 13 2,654,303 195,100

---------------------------------- ----------------------------------Net current assets (93,712,368) (1,619,924)Miscellaneous expenditure(to the extend not written off) 14 615,504 769,381Profit and loss account 140,127,925 -

---------------------------------- ----------------------------------572,153,843 343,427,958

================ ================Significant accounting policies 2Notes to the Accounts 21-34

The Schedules referred to above form an integral part of the Balance sheet.


For BSR & CO. SUBHASH GHAI MEGHNA GHAI PURIChartered Accountants Chairman Director

AKEEL MASTER MANMOHAN SHETTY VIJAY CHORARIAPartner Director DirectorMembership No: 046768

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


MAGENTA BLACK

MAGENTA BLACK58

58

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 MARCH 2007

Year Ended31.03.2007

Schedule Amount in Rs.----------------------------------------

Income

Fees from students 15 46,363,449

Other income 16 10,819,020----------------------------------

57,182,469======================================

Expenditure

Personnel costs 17 25,382,484

Other expenses 18 77,237,962

Depreciation/Amortisation 6 61,221,498

Interest & financial expense 19 21,225,417----------------------------------

185,067,361======================================

(Loss) before tax (127,884,892)

Prior period expenses 20 11,768,033

Fringe benefit tax 475,000

Deferred tax -----------------------------------

loss carried forward to balance sheet (140,127,925)======================================

Earnings per share of facevalue of Rupees 1,000 each (in Rs.) 33 (701)

Significant accounting policies 2

Notes to the accounts 21-34

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





MAGENTA BLACK

MAGENTA BLACK59

59

CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH 2007Year Ended31.03.2007

Amount in Rs.----------------------------------------

Cash flows from Operating activities

Net loss before tax (127,884,892)

Adjustments:

Prior period expenses (11,768,033

Depreciation / Amortisation for the year 61,221,498

preliminary expenses written off 153,877

Interest and financial expenses 21,225,417

Interest income (139,433)––––––––––––––

Operating profit before working capital changes (57,191,566)(Increase) in sundry debtors (7,755,900)

(Increase) in loans and advances (2,043,087)

Increase in current liabilities 95,207,962

Increase in provisions 2,459,203––––––––––––––

Cash generated from operations 30,676,612

Income tax paid (2,674,822)––––––––––––––

Net cash generated from operating activities 28,001,790––––––––––––––

Cash flows from Investing Activities

Purchase of fixed assets (236,924,191)

Interest received 139,433––––––––––––––

Net cash (used) in investing activities (236,784,758)

Cash flows from Financing Activities

Secured loans received 121,721,148

Unsecured loans received 182,000,000

Secured loans repaid (495,263)

Unsecured loans repaid (74,500,000)

Interest and financial expenses paid * (15,477,122)––––––––––––––

Net cash generated from financing activities 213,248,763––––––––––––––

Net increase in cash and cash equivalents 4,465,795

Cash and cash equivalents at the beginning of the year 243,062––––––––––––––

Cash and cash equivalents at the end of the year 4,708,857===========================

* Includes Rs 5,141,588 which has been capitalised

The Company follows indirect method as prescribed in AS -3 Cash Flow Statements.






MAGENTA BLACK

MAGENTA BLACK60

60


1 Background

Whistling Woods International Limited (or ‘the Company’) was incorporated in 2001 and is as 85% subsidiary ofMukta Arts Limited (‘MAL ‘or the ‘holding company’). The Company is an education, research and training instituteand imparts training in various skills related to films, television and media industry.

The Company was in the construction phase up to previous year and has started the commercial operations in thecurrent year.

2 Summary of significant accounting policies

2.1 Basis of preparation of financial statements

The financial statements are prepared under the historical cost convention, on the accrual basis of accounting andcomply with the Accounting Standards issued by the Institute of Chartered Accountants of India (‘ICAI’) and therelevant provisions of the Companies Act, 1956 (‘the Act’) to the extent applicable.

2.2 Use of Estimates

The preparation of the financial statements in conformity with Generally Accepted Accounting Principles (GAAP) inIndia requires management to make estimates and assumptions that affect the reported amount of assets andliabilities and disclosure of contingent liabilities as of the date of financial statements, and the reported amount ofrevenue and expenses during the reporting period. The estimates and assumptions used in the accompanyingfinancial statements are based upon management’s evaluation of the relevant facts and circumstances as of thedate of the financial statements. Actual results may differ from the estimates used in preparing the accompanyingfinancial statements. Any revision to accounting estimates is recognised prospectively in current and future periods.

2.3 Going Concern

The company’s net worth stands partly eroded as at 31 March 2007. However, these financial statements have beenprepared on a going concern basis as the Company’s management believes that the company will be able tooperate as a going concern in the foreseeable future as it is dependent on its principal shareholders for operatingand financial support. These financial statements do not include any adjustments relating to the recoverability andclassifications of carrying amount of assets or to the amounts and classification of liabilities that may be necessaryif the entity is unable to continue as a going concern.

2.4 Fixed assets and depreciation

Tangible Assets

Fixed assets are carried at cost of acquisition or construction or revalued amounts less accumulated depreciation.

Intangible Assets

Expenses incurred on internal development of course curriculum are capitalised in the form of intellectual propertyrights, in accordance with the requirements of Accounting Standard 26, “Intangible Assets” issued by the Institute ofChartered Accountants of India.

Depreciation / Amortisation

Depreciation on tangible assets is provided pro-rata to the period of use, under the written down value method at therates prescribed in Schedule XIV to the Companies Act, 1956. Tangible assets individually costing up to Rs 5,000are depreciated fully in the year of capitalisation. The amortisation on intangible assets is provided on straight linebasis over the useful life of the intangibles as mentioned below. The amortisation is done for the full year irrespectiveof period of use during the year.

Intangible assets Useful lifeIntellectual property rights (course curriculum) 5 yearsLibrary (books and copyrights) 1 year

2.5 Expenditure during construction period

All indirect / incidental revenue expenditure incurred by the Company towards the project under construction periodhave been capitalized as project related expenses in accordance with the guidance note on Expenditure duringconstruction period issued by the Institute of Chartered Accountants of India.

2.6 Impairment

In accordance with accounting standard 28 on ‘Impairment of assets’ issued by ICAI, where there is an indication ofimpairment of the Company’s assets the carrying amount of the Company’s assets are reviewed at each balancesheet date to determine impairment, if any. The recoverable amount of the assets (or where applicable that of thecash generating unit to which the asset belongs) is estimated at the higher of its net selling price and its value in use.An impairment charge is recognised whenever the carrying amount of the asset or cash-generating unit exceeds itsrecoverable amount.

MAGENTA BLACK

MAGENTA BLACK61

61


2.7 Retirement Benefits

Contributions payable to recognised provident fund, which is defined contribution scheme, are charged to the profitand loss account.

Leave encashment and gratuity costs, which are defined benefits, are accrued based on managements estimationat the balance sheet date, based on employee’s entitlement at current basic salary.

2.8 Revenue recognition

The revenue in respect of sale of prospectus and other goods is recognised on delivery of the material to thestudent.

The revenue from the tuition activity is recognised over the period of the course programmes, revenue from admissionfees is recognised upfront at time of admission of the student.

2.9 Foreign currency transactions

Transactions in foreign currency are recorded at the exchange rate prevailing on the date of the transactions.Foreign currency denominated monetary current assets and liabilities at the balance sheet date are translated atthe exchange rate prevailing on date of balance sheet. Exchange rate differences resulting from foreign exchangetransactions settled during the year, including year-end translation of current assets and liabilities are recognised inthe profit and loss account other than those exchange differences arising in relation to liabilities incurred for acquisitionof fixed assets from outside India, which are adjusted to the carrying value of the underlying fixed assets.

2.10 Taxes on Income

Income tax expense comprises of current tax (i.e. amount of tax for the period determined in accordance with theincome tax law) and deferred tax charge or credit (reflecting the tax effects of timing differences between accountingincome and taxable income for the period.) The deferred tax charge or credit and the corresponding deferred taxliabilities or assets are recognised using the tax rates that have been enacted or substantively enacted at thebalance sheet date. Deferred tax assets are recognised only to the extent that there is a reasonable certainty thatthe assets can be realised in future; however, where there is unabsorbed depreciation or carried forward loss undertaxation laws, deferred tax assets are recognised only if there is a virtual certainty of realisation of such assets.Deferred tax assets are reviewed as at each balance sheet date and written down or written up to reflect the amountthat is reasonable / virtually certain (as the case may be) to be realised.

2.11 Fringe Benefit Tax (FBT)

Provision for FBT has been recognized on the basis of harmonious contextual interpretation of provision of IncomeTax Act, 1961.

2.12 Provisions and Contingencies

Provision is recognized in the balance sheet when the Company has a present obligation as a result of a past event,and it is probable that an outflow of economic benefits will be required to settle the obligation and reliable estimationcan be made of the amount required to settle the obligation.

Contingent liabilities arising from claims, litigation, assessment, fines, penalties etc. are disclosed when there is apossible obligation or a present obligation as a result of a past event where it is not probable that an outflow ofeconomic benefits will be required to settle the obligation, and the amount can be reasonably estimated. When thereis a possible obligation or a present obligation in respect of which the likelihood of outflow of resources is remote, noprovision or disclosure is made.

2.13 Earnings per share (‘EPS’)

The basic earnings per share is computed by dividing the net loss attributable to the equity shareholders for theperiod by the weighted average number of equity shares outstanding during the reporting period.

2.14 Borrowing costs

Borrowing costs directly attributable to the acquisition / construction of qualifying assets are capitalised as part ofthe cost of those assets. Other borrowing costs are recognised as an expense in the year in which they are incurred.

2.15 Operating lease

Lease rentals payable as per agreements are charged as expenditure on Straight Line basis over the lease term.

2.16 Amortisation of miscellaneous expenditure

Preliminary expenses and expenses on underwriting or subscription of shares are amortised on a straight line-basisover a period of ten years.


MAGENTA BLACK

MAGENTA BLACK62

62



Amount in Rs. Amount in Rs.–––––––––––––––––––––––––– ––––––––––––––––––––––––––

3. Share capital

Authorised

200,000 (previous year: 200,000) equity shares of Rupees 1,000 each 200,000,000 200,000,000200,000 (previous year: Nil) 8% redeemablepreference shares of Rupees 1,000 each 200,000,000 –

---------------------------------- ----------------------------------400,000,000 200,000,000

================ ================Issued , Subscribed and Paid-up200,000 (previous year: 200,000) equity shares ofRupees 1,000 each, fully paid 200,000,000 200,000,000

================ ================Of the above:(a) 30,000 (previous year: 30,000) equity shares

have been alloted as fully paid-up, pursuant to acontract without being payment received in cash.

(b) 169,997 (previous year: 169,997) equity shares areheld by Mukta Arts Ltd., the holding company.

4. Secured loans

Term Loan from Bank 120,776,598 -( Secured against hypothecation of building and machinery)Other loans from bank 1,377,245 927,958( Secured against hypothecation of vehicles)

---------------------------------- ----------------------------------122,153,843 927,958

================ ================5. Unsecured Loans

Long term borrowings from holding company - Mukta Arts Ltd. 250,000,000 142,500,000( repayable within one year-Nil, previous year-Nil)Refer schedule No. 24

---------------------------------- ----------------------------------250,000,000 142,500,000

================ ================

MAGENTA BLACK

MAGENTA BLACK63

63


SCHEDULE 6Fixed Assets (Amount in Rs.)

GROSS BLOCK DEPRECIATION NET BLOCK

Description As on Additions Ded./Adj. Total Depreciation Additions Ded./Adj. Total As on As on1.04.2006 during during as on upto during during Dep. upto 31.03.2007 31.03.2006

the Year the Year 31.03.2007 31.03.2006 the Year the Year 31.03.2007

Tangible Assets

A Leaseholdland # 30,000,000 - - 30,000,000 - - - - 30,000,000 30,000,000

B OwnershipPremises * 4,064,606 - - 4,064,606 523,334 177,051 - 700,385 3,364,221 3,541,272

C InstituteBuilding - 268,693,232 - 268,693,232 - 9,459,474 - 9,459,474 259,233,758 -

D TemporaryShed 501,400 165,564 - 666,964 501,400 165,564 - 666,964 - -

E Plant &Machinery 3,125,731 37,069,296 - 40,195,027 72,663 4,186,020 - 4,258,683 35,936,344 3,053,068

F Motor Vehicles 1,172,023 1,291,096 - 2,463,119 78,977 537,615 - 616,592 1,846,527 1,093,046

G Furnitureand Fixture 1,162,951 32,309,668 - 33,472,619 37,778 10,336,057 - 10,373,835 23,098,784 1,125,173

H OfficeEquipments 3,466,512 1,407,533 - 4,874,045 205,977 501,042 - 707,019 4,167,026 3,260,535

I ElectricalInstallation - 24,567,099 - 24,567,099 - 2,225,823 - 2,225,823 22,341,276 -

J CinamatographyEquipments - 80,400,788 - 80,400,788 - 9,310,794 - 9,310,794 71,089,994 -

K Computers &Accessories &IT Equipments 583,185 90,066,383 - 90,649,568 242,160 20,799,643 - 21,041,803 69,607,765 341,025

Intangible Assets

A IntellectualProperty Rights(CourseCurriculum) - 5,546,359 - 5,546,359 - 1,109,272 - 1,109,272 4,437,087 -

B Library (Books& Copy Rights) 173,668 2,413,143 - 2,586,811 173,668 2,413,143 - 2,586,811 - -

Total 44,250,076 543,930,161 - 588,180,237 1,835,957 61,221,498 - 63,057,455 525,122,782 42,414,119

Previous year 34,603,088 9,646,988 - 44,250,076 560,304 1,275,653 - 1,835,957 42,414,119 34,042,535

Note

# The company has perpetual right to use the land,and hence the same is not amortised. Also refer schedule 22

* The shares of Bait Ush Sharaf C.H.S valuing Rs 250 has been capitalised


MAGENTA BLACK

MAGENTA BLACK64

64




7 Capital work in progressOpening balance 301,864,382 152,092,030Additions during the year 248,692,224 114,491,669Add:Incidental expensesInstitute model expenses - 257,076Systems & network project - 110,200Consultancy fees - 2,200,192Advertisement, seminar & sponsorship exp - 2,712,207Auditors remuneration - 80,550Printing & stationery - 826,196Legal & professional chgs - 6,698,309Personal expenses - 9,832,619Security chgs - 803,124Electricity chgs - 226,415Power & fuel expenses - 330,980Motor car exp - 163,755Rent - 375,000Rates & taxes - 1,659,980Repairs and maintenance - 414,610Telephone exp - 382,280Internet & website exp - 399,912Travelling exp - 1,358,717Miscellaneous exp - 1,689,785Interest & financial expense 5,141,588 3,950,180Depreciation - 1,275,653Preliminary expenses written off - 153,877

---------------------------------- ----------------------------------Total 5,141,588 35,901,617

---------------------------------- ----------------------------------Less: IncomeRent income - (224,520)Interest on fixed deposits - (98,388)Income from units of mutual funds - (493,126)

---------------------------------- ---------------------------------- - 35,085,583

Add: Fringe benefit tax - 195,100---------------------------------- ----------------------------------

Total 555,698,194 301,864,382Less: Capitalised 543,930,161 -Less: Expensed out during the year (refer schedule 20) 11,768,033 -

---------------------------------- ---------------------------------- - 301,864,382

================ ================8 Deferred tax asset (net) - -

Deffered tax liabilitiesExcess of depreciation allowable under income-tax lawover depreciation provided in accounts 10,241,418 -Deferred tax assetUnabsorbed depreciation as per Income tax act 10,241,418 -

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

================ ================Deferred tax asset, which is on account of unabsorbed depreciationhas been recognised only to the extent of the deferred tax liabilities,as this amount is considered to be virtually certain of realisation.

9 Sundry debtorsUnsecuredOutstanding for more than six months- considered good 2,255,375 -- considered doubtful - -Other debts, considered good 5,500,525 -

---------------------------------- ----------------------------------7,755,900 -

================ ================

MAGENTA BLACK

MAGENTA BLACK65

65



Amount in Rs. Amount in Rs.---------------------------------------- ----------------------------------------

10 Cash and bank balances

Cash in hand 49,171 27,693

Balances with scheduled banks

- in current account 2,259,686 215,369

- in term deposit 2,400,000 ----------------------------------- ----------------------------------

4,708,857 243,062================ ================

11 Loans and advances

(Unsecured and considered good)

Advances recoverable in cash or in kind or for value to be received 2,965,042 8,256,955

Deposits 11,448,410 4,113,410

Advance tax & tax deducted at source 3,914,332 2,154,444

Fringe benefit tax 608,066 168,132---------------------------------- ----------------------------------

18,935,850 14,692,941================ ================

Amounts recoverable from Companiesunder the same management

Name of the Company: Mukta Arts Ltd - -

Advances recoverable (considered good) include Rs Nil (2006: Rs Nil).Maximum amount due at any time duringthe year Rs 91,342 (2006: Rs Nil)).

12 Current liabilities

Sundry creditors for goods and services(Refer Schedule No 28) 45,227,001 11,744,202

Unearned revenue 28,196,168 -

Deposit received 30,000,000 -

Interest accrued but not due 13,911,191 3,021,308

Other liabilities 5,124,312 1,595,317---------------------------------- ----------------------------------

122,458,672 16,360,827================ ================

13 Provisions

Fringe Benefit Tax 670,100 195,100

Gratuity 1,296,394 -

Leave encashment 687,809 ----------------------------------- ----------------------------------

2,654,303 195,100================ ================

14 Preliminary expenses

Balance brought forward 769,381 923,258

Less: written off during the year 153,877 153,877---------------------------------- ----------------------------------

615,504 769,381================ ================


MAGENTA BLACK

MAGENTA BLACK66

66


Year ended31.03.2007

Amount in Rs.----------------------------------------

15 Fees from studentsAdmission fees 13,454,047Tuition fees 32,297,500Sale of prospectus 611,902

---------------------------------46,363,449

================16 Other income

Interest income (Tax deducted at source Rs 19,443) 139,433Sale of laptops and other accessories to students 3,353,688Facililitaion charges recovered from students 7,063,705Miscellaneous income 262,194

---------------------------------10,819,020

================17 Personnel expenses

Salaries, bonus and allowances 23,045,630Contributions to provident and other funds 312,919Staff welfare expenses 2,023,935

---------------------------------25,382,484

================18 Operating expenses and administrative expenses

Rent 9,318,000Travelling and conveyance 2,613,159Telephone 2,991,149Electricity expenses 8,840,847Repairs and maintenance 3,830,918Printing and stationery 2,378,812Legal and professional fees 15,541,710Insurance 466,823Courier and postage 314,258Advertisement & Publicity Expenses 12,682,569Laptop and other accessories purchased 3,353,688Motor Car Expenses 563,713Auditors’ remuneration 300,000Rates and taxes 5,619,110Security Charges 3,526,762Film set for training students 981,144Miscellaneous expenses 3,761,423Preliminary Expenses Written off 153,877

---------------------------------77,237,962

================19 Interest & financial expenses

InterestOn term loans from banks 6,365,684On term loans from others 17,936,038

---------------------------------24,301,722

On other loans for vehicles from banks 121,441Less: Capitalised (Refer Schedule No. 7) (5,141,588)

---------------------------------19,281,575

Financial expensesLoan processing and other bank charges 1,943,842

---------------------------------21,225,417

================20 Prior period expenses

Personnel expenses 572,280Travelling expenses 3,276,722Advertisement expenses 5,439,861Preliminary Expenses written off 769,385Miscellaneous expenses 1,709,785

---------------------------------11,768,033

================

MAGENTA BLACK

MAGENTA BLACK67

67


21 Capital commitments

The estimated amount of contracts remaining to be executed on capital account and not provided for at 31 March2007 aggregates Rs 348,950, (2006: Rs 34,601,496)

22 Contingencies

Income tax

Assessment Year 2003-2004;

There are certain additions made in the assessment and demand raised for Rs.1,301,570/-. Aggrieved by theassessment order the company had filed appeal before CIT (Appeal) which has been upheld. The Companyhas preferred an appeal with the Income Tax Appellate Tribunal on the above order. The Company has paidRs.650,785 being 50% of the demand. The Company’s management is of the view that at this stage no provisionis required.

Assessment Year 2004-2005:

Certain additions are made in the assessment and a demand of Rs.3,478,871/- has been raised. Aggrieved bythe assessment order, the Company has filed appeal before the CIT (Appeal). The Company has paidRs.1,739,435/- being 50% of the demand. The Company’s management is of the view that at this stage noprovision is required.

Others

Public Interest Litigation (‘PIL’) has been filed by Mr.Abdul Hamid Patel & Others alleging that the MaharashtraFilm Stage and Cultural Development Corporation Limited (MFSCDCL) has not followed proper procedurewhile allotting the 20 acre land to the Company. The PIL is admitted and pending before the high court. Howeverno injunction/interim relief was granted to the petitioners. In the opinion of the management the Company hasa good chance of wining the case.

In the year 1973-74, the Government of Maharashtra (‘GOM’) as per the scheme invited applications of plotsfor development of film industry infrastructure in film city at Goregaon east, Mumbai. Many applications werereceived and M/s PDR Videotronics (India) Private Limited (‘PDR’) was one of the applicants. The GOM issueda letter to PDR for allotment of one hectare of land.

Thereafter MFSCDCL was formed for development of film city and as per the recommendation of GodboleCommittee the above scheme was scrapped. However before scrapping the scheme PDR filed a suit in thehigh court demanding specific performance of the scheme. High court admitted the suit and same is stillpending.

Meanwhile PDR took out a notice of motion saying that MFSCDCL is carrying out the activities on the allottedland thereby affecting their rights. Since the MFSCDCL didn’t argue, high court granted the injuction in favourof PDR.

There after in the year 2003 the contempt petition was filed by PDR alleging that the construction work is beingcarried out on the said allotted land in violation of injuction. However, subsequently the contempt petition wasdisposed off by the high court. PDR took out another notice of Motion on the same issue. The high courtrefused to grant any relief to PDR and directed that the notice of motion be clubbed with the original suit of PDRagainst MFSCDCL and same suit to be expedited.

With a view to peacefully resolve the issue, the Company has offered to earmark one hectare of land out of theavailable free land for a possible assignment to PDR, incase of the final decision of the high court is in thefavour of PDR. In the opinion of the management the Company has a good chance of wining the case.

The Company may be liable towards Provident Fund contributions on leave encashment paid from 2001 to 30April 2005 based on the final decision to be taken by Central Board of Trustees of Employees Fund Organisation.The amount is currently not ascertainable.


Rupees Rupees–––––––––––– ––––––––––––

23 Managerial remuneration

Salaries, bonus and allowances 1,000,000 –

Contribution to provident and other fund 108,000 –

Perquisites 119,825 ––––––––––––– ––––––––––––

Total 1,227,825 –============== ==============

The above does not include gratuity and leave encashment.


MAGENTA BLACK

MAGENTA BLACK68

68

24 Pursuant to the Extra Ordinary General Meeting of the members of the Company held on 24 February 2007, themembers had authorized board for issuance of 200,000 8% Redeemable Cumulative Preference Shares of Rs.1,000each (‘RCPS’) to the persons who at 4 April 2007 (date of offer) are the holders of the equity shares of the Companyin proportion of 1 RCPS for 1 equity shares. Consequently the Board of Directors have passed a resolution in themeeting dated 21 June 2007 to allot all the RCPS to MAL as other equity holder had denied the offer, accordinglyfrom the existing term loan from MAL, amount aggregating to Rs 200,000,000 was converted to preference sharecapital.

25 Related Party Disclosures

(A) Related parties and their relationship:

Sr. Category of related parties NamesNo

I Related parties where control exists

Holding Company Mukta Arts Limited

II Related parties with whom transactionshave taken place during the year

Enterprise over which key managerial person alongwith the relatives exercises significant influence Mukta Tele Arts Private Limited.

III Key managerial personnel Mrs. Meghana Ghai Puri (Whole time director)

(B) Transactions with related parties: (Amount in Rupees)

Particulars Holding Enterprise Key TotalCompany over which managerial

key managerial personnelperson along

with the relativesexercises

significantinfluence

Loan received 182,000,000 - - 182,000,000(142,500,000) (-) (-) (142,500,000)

Repayment of loan 74,500,000 - - 74,500,000(-) (-) (-) (-)

Advance received 902,000 - - 902,000(600,000) (-) (-) (600,000)

Payment of interest on loan 17,936,038 - 17,936,038 -(3,895,446) (-) (3,895,446) (-)

Rent expenses - 90,000 - 90,000(-) (-) (-) (-)

Deposit received 30,000,000 - - 30,000,000(-) (-) (-) (-)

Advance refunded 3,875,217 - - 6,895,525(3,708,642) (-) (-) (3,708,642)

Security Deposit paid - 6,300,000 - 6,300,000(-) (-) (-) (-)

Remuneration paid - - 1,227,825 1,227,825(Refer Schedule 23) (-) (-) (-) (-)

Note: - Previous Year Figures are given within brackets.


MAGENTA BLACK

MAGENTA BLACK69

69


(C) Balances with related parties: (Amount in Rupees)

Particulars Holding Enterprise Key TotalCompany over which managerial

key managerial personnelperson along

with the relativesexercises

significantinfluence

Unsecured Loan payable 250,000,000 - - 250,000,000(142,500,000) (-) (-) (142,500,000)

Interest accrued but not due 13,911,191 - - 13,911,191(3,021,308) (-) (-) (3,021,308)

Deposit receivable - 6,300,000 - 6,300,000(-) (-) (-) (-)

Current account balance payable - 90,000 - 90,000(2,973,217) (-) (-) (-)

Note: - Previous Year Figures are given within brackets.

26 The Company is engaged in imparting training in various skills related to films, television and media field which isthe primary business segment. The Company does not have any exports. The Company has only one reportablebusiness segment, which is imparting training in various skills related to films, television and media and only onereportable geographical segment which is India. Accordingly, the segment information as required by the AccountingStandard 17 on Segment Reporting has not been separately disclosed.

27 The Company has taken certain assets under operating leases.

Total minimum lease payments in this respect are as follows:


Rupees Rupees–––––––––––– ––––––––––––

Due

Not later than one year 4,021,000 –

Later than one year but not later than five years 1,035,000 –--------------------------- ---------------------------

Total 5,056,000 –================= =================

Lease rent of Rs.9,318,000 (Previous Year Rs.Nil.) has been included under ‘Rent’ in the Profit and Loss Account.

28 Under the Micro, Small and Medium Enterprises Development Act, 2006 which came into force from October 2,2006, certain disclosures are required to be made relating to Micro, Small & Medium enterprises. The Company isin the process of compiling relevant information from its suppliers about their coverage under the Act. Since therelevant information is not readily available, no disclosures have been made in the accounts. However, in view of themanagement, the impact of interest, if any, that may be payable in accordance with the provisions of this Act is notexpected to be material.

The Company’s management is not aware of any amounts payable to small scale industrial undertakings.

29 Information with regard to other matters specified in Part II of Schedule VI to the Companies Act, 1956 of India, iseither nil or not applicable to the Company for the year.


Rupees Rupees–––––––––––– ––––––––––––

30 Expenditure in Foreign Currency

Particulars

Travelling expenses 339,052 1,481,569

Advertisement expenses 86,842 Nil

Storage & health Expenses 303,083 Nil

DVD Purchased ( shown under library) 266,981 Nil


MAGENTA BLACK

MAGENTA BLACK70

70


Rupees Rupees–––––––––––– ––––––––––––

31 CIF Value of Imports

Capital Goods 30,825,520 11,585,188

32 Auditor’s Remunerations

Statutory Audit fees 300,000 27,550

Taxation Matters - 25,000

Fees for other services - 18,000

Reimbursement of expenses - 10,000

--------------------------- ---------------------------Total 300,000 80,550

================= =================33 Earnings per share (‘EPS’)

Year ended31.03.2007

Rupees––––––––––––

a) Net Loss attributable to equity share holders 140,127,925

b) Weighted average no of shares 200,000

Basic / diluted earning per share of Rs 1,000 each (701)

Previous year numbers have not been given as the Company didn’t had the profit and loss account in the previousyear.

34 Previous year’s figures were audited by a firm of Chartered Accountants other than BSR & Co. These figures havebeen regrouped/reclassified wherever necessary to conform to the current year’s presentation.


For and on behalf of the Board

SUBHASH GHAI MEGHNA GHAI PURIChairman Director

MANMOHAN SHETTY VIJAY CHORARIADirector Director


MAGENTA BLACK

MAGENTA BLACK71

71



Registration No.: U92141MH2001PTC130394 State Code: 011


II CAPITAL RAISED (AMOUNT INRS. THOUSANDS)



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


SOURCES OF FUNDS

Paid-up Capital 200000 Reserves & Surplus NIL

Secured Loans 122154 Unsecured Loans 250000


Net Fixed Assets 525123 Investments NIL

Net Current Assets (93712) Misc. Expenditure 616

Accumulated Losses 140127



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

Earnings Per Share NIL Dividend Rate % NIL

V GENERIC NAMES OF PRINCIPAL PRODUCTS/SERVICES OF COMPANY


Product Description Education, Research & Training Institute

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

MAGENTA BLACK

MAGENTA BLACK72

72

DIRECTORS’ REPORT

To the Members,

Your Directors hereby present the Seventh Annual Report and the Audited Accounts of the Company for the AccountingYear ended 31st March 2007.

The Company has changed the name from Mukta Arts International Limited to Connect.1 Limited with effect from 6th July2007.

Operations

The efforts were made to commence operations during the year under review. The Income to the tune of Rs. 274,668 hasbeen earned during the year. The Company has a profit of Rs. 63,030 after tax during the year. The Directors are hopefulthat the Company will improve operations during the forthcoming year.

Directors

Mr. Parvez A. Farooqui retires by rotation at the ensuing Annual General Meeting and being eligible offers himself forreappointment.

Share Capital

The Share Capital remains the same during the year under review.

Directors' Responsibility Statement [Section 217 (2AA)]


i) in the preparation of the annual accounts, the applicable accounting standards have been followed along with properexplanation relating to material departures;

ii) the directors had selected such accounting policies & applied them consistently and made judgments and estimatesthat are reasonable and prudent so as to give true & fair view of the state of affairs of the company at the end of thefinancial year and of the profit of the company for that period;

iii) the directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordancewith the provisions of this Act for safeguarding the assets of the company and for preventing and detecting fraud andother irregularities;

iv) the annual accounts are prepared on a going concern basis;

Auditors

M/s Shamit Majmudar Associates, Chartered Accountants retire at the ensuing Annual General Meeting and being eligibleoffer themselves for reappointment as the Auditors of the Company. The Directors recommend the reappointment ofM/s Shamit Majmudar Associates as the Auditors of the Company for the year 2007-08.

Disclosure about conservation of energy, technology absorption and foreign exchange outgo and earnings

The Company is not engaged in manufacturing activities and as such particulars regarding disclosure about Conservationof energy, technology absorption are not applicable to the Company.

There has been no foreign exchange outgo and earnings.

Other Statutory Information

The Company does not have any employees requiring disclosure as required under Section 217 (2A) of the CompaniesAct, 1956.

Acknowledgements

The Board of Directors wishes to thank and record its appreciation to the Government Authorities and the Bankers, whohave extended their continued support to the company.

Registered Office On Behalf of Board of Directors11, Bait-Ush-Sharaf, 29th Road,TPS - III, Bandra (W),Mumbai - 400 050 Subhash Ghai

Chairman

Place: MumbaiDate : 27th August 2007

MAGENTA BLACK

MAGENTA BLACK73

73

AUDITORS REPORT

To the Members

1. We have audited the attached Balance Sheet of CONNECT.1 LIMITED (Formerly known as Mukta Arts InternationalLtd). as at 31st March 2007 and the related Profit and Loss Account and the Cash Flow Statement for the year endedon that date, which we have signed under reference to this report. These financial statements are the responsibilityof the Company’s management. Our responsibility is to express an opinion on these financial statements based onour audit.








(v) on the basis of the written representations received from the directors as on 31st March, 2007, and taken onrecord by the Board of Directors, we report that none of the directors is disqualified as on 31st March, 2007 frombeing appointed as a director in terms of clause (g) of sub-section (1) of Section 274 of the Companies Act,1956.









MAGENTA BLACK

MAGENTA BLACK74

74

Annexure to the Auditors’ Report[Referred to in paragraph (3) thereof]

(i) The nature of the Company’s business/ activities during the year is such that clauses (ii), (vii), (viii), (x), (xi), (xii),(xiii), (xiv), (xv), (xvi), (xvii), (xviii), (xix) & (xx) of paragraph 4 of the Companies (Auditor’s Report) order, 2003 are notapplicable to the Company for the year ended.




(c) In our opinion and according to the information and explanations given to us, the Company has not made anydisposals during the year.

(iii) In respect of loans, secured or unsecured, granted or taken by the Company to or from companies, firms or otherparties covered in the register maintained under section 301 of The Companies Act, 1956:

According to the information and explanations given to us the Company has neither granted nor taken any loans,secured or unsecured, to or from companies, firms or other parties covered in the register maintained under section301 of The Companies Act, 1956.

(iv) In our opinion and according to the information and explanations given to us, there are adequate internal controlprocedures commensurate with the size of the Company and nature of its business, for purchase of fixed assets.There are no purchase of inventories and no sale of goods.

(v) In respect of transactions entered in the register maintained in pursuance of section 301 of the Companies Act 1956:


(b) According to the information and explanations given to us, there are transactions/arrangements in excess ofRs 0.50 million in respect of holding company in which directors are interested and prices are reasonablehaving regard to the prevailing market prices at the relevant time.

(vi) The Company has not accepted any deposits from the public to which the provisions of Section 58A and section58AA of the Companies Act, 1956 and the Companies (Acceptance of Deposits) Rules 1975, are applicable.

(vii) According to the information and explanations given to us in respect of statutory and other dues there were noundisputed amount payable in respect of Income Tax, Wealth Tax, Sales Tax, Customs Duty and Excise Dutyoutstanding as at 31st March, 2007 for more than six months from the date they became payable.

viii) To the best of our knowledge and belief and according to the information and explanations given to us, no fraud onor by the Company was noticed or reported during the year.




MAGENTA BLACK

MAGENTA BLACK75

75

BALANCE SHEET AS AT 31ST MARCH 2007


Amount in Rs. Amount in Rs.------------------------------------ ------------------------------------

SOURCES OF FUNDSShareholders’ Fund

Share Capital A 600,000 600,000-------------------------------- --------------------------------

TOTAL 600,000 600,000================== ==================


Fixed Assets B

Gross Block 3,931,950 3,931,950

Less: Depreciation 701,712 531,699

-------------------------------- -------------------------------- 3,230,238 3,400,251

================== ==================Investments C 523,729 500,000


Cash & Bank Balance D 301,074 41,087

Loans & Advances E 114,508 141,925

-------------------------------- -------------------------------- 415,582 183,012

Less : Current Liabilities & Provisions F 3,526,368 3,506,612

-------------------------------- --------------------------------Net Current Assets (3,110,786) (3,323,600)

Miscellaneous Expenditure G 10,500 14,000

Profit & Loss Account (53,681) 9,349

-------------------------------- --------------------------------TOTAL 600,000 600,000

================== ==================Statement of Significant Accounting Policies I

and Notes forming part of accounts

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

For SHAMIT MAJMUDAR ASSOCIATES SUBHASH GHAIChartered Accountants Director

SHAMIT MAJMUDAR PARVEZ A. FAROOQUIProprietor DirectorMembership No.10595

Place: Mumbai MEGHNA GHAI PURIDate: 27th August 2007 Director


MAGENTA BLACK

MAGENTA BLACK76

76

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


Amount in Rs. Amount in Rs.-------------------------------------- --------------------------------------

Income

Rental Income 240,000 240,000

Interest Income 34,668 247-------------------------------- -------------------------------- 274,668 240,247

================== ==================Expenditure

Administration and other expenses H 24,625 25,969

Depreciation B 170,013 178,961

Preliminary Expenses Written off 3,500 3,500-------------------------------- --------------------------------

198,138 208,430================== ==================

Profit/(Loss) before Taxation 76,530 31,817

Less: Provision for Tax 13,500 (250)-------------------------------- --------------------------------

Profit/(Loss) after Tax 63,030 32,067

Add: Balance brought forward from last year (9,349) (41,416)

-------------------------------- --------------------------------Balance Carried to Balance Sheet 53,681 (9,349)

================== ==================Statement of Significant Accounting Policies I






MAGENTA BLACK

MAGENTA BLACK77

77


Current Year Previous Year 31.03.2007 31.03.2006



Net Profit before tax and extraordinary items : 76,530 31,817

Adjustments for :

Depreciation 170,013 178,961

Interest, dividend, etc., received (34,668) (247)

Miscellaneous expenditure written off 3,500 3,500––––––––––– –––––––––––

Operating profit before working capital changes 215,375 214,031––––––––––– –––––––––––

Adjustments for :

(Increase)/ Decrease in Inventories - -

(Increase)/ Decrease in Receivables - -

(Increase)/ Decrease in Loans and Advances 247 (247)

Increase/(Decrease) in Trade Creditors 6,256 (1,800)

Inc./ (Dec.) in other Current Liabilities and Provisions 13,500 ––––––––––––– –––––––––––

Cash generated from/(used in) operations 235,378 211,984––––––––––– –––––––––––

Direct Taxes paid 13,670 (53,856)

Prior period adjustments - -

Cash flow before extraordinary items 249,048 158,128

Extraordinary items :

Miscellaneous Expenditure - -

Net Cash Generated from/(used in) Operating Activities 249,048 158,128

B. CASH FLOW FROM INVESTING ACTIVITIES

(Addition to)/ Redemption of Investments (23,729) (500,000)Interest, dividend, etc., received 34,668 247Net cash generated from/(used in) investing activities 10,939 (499,753)

C. CASH FLOW FROM FINANCING ACTIVITIESNet cash recovered from/(used in) financing activities - -Net increase/(decrease) in cash and cash equivalents 259,987 (341,625)(A+B+C)Cash and cash equivalents (opening) 41,087 382,712Cash and cash equivalents (closing) 301,074 41,087






MAGENTA BLACK

MAGENTA BLACK78

78

SCHEDULES FORMING PARTS OF ACCOUNTS



SCHEDULE - ASHARE CAPITALAuthorised Capital5,000 Equity Share of Rs 1,000/- each(Previous year 5,000 equity shares of Rs 1,000/- each) 5,000,000 5,000,000

================= =================Issued, subscribed & paid up 600,000 600,000600 Equity Shares of Rs 1,000/- each( Previous year 600 equity shares of Rs 1,000/- each )

----------------------------------------- -----------------------------------------Total 600,000 600,000

================= =================SCHEDULE - BFixed Assets (Amount in Rs.)


Particulars As on Additions Total Depreciation Depreciation Total As on As on01.04.2006 during the as on as on for the Depreciation 31.03.2007 31.03.2006

year 31.03.2007 31.03.2006 year upto 31.03.2007

Block ‘A’OwnershipPremises 3,931,950 - 3,931,950 531,699 170,013 701,712 3,230,238 3,400,251

TOTAL 3,931,950 - 3,931,950 531,699 170,013 701,712 3,230,238 3,400,251

Previous year 3,931,950 - 3,931,950 352,738 178,961 531,699 3,400,251 3,579,212



SCHEDULE - CInvestmentsFixed Deposit with Scheduled bank 523,729 500,000

----------------------------------------- ----------------------------------------- 523,729 500,000

================= =================SCHEDULE - DCash & Bank BalancesCash in hand 1,464 2,464With Scheduled Bank (in current account) 299,610 38,623

----------------------------------------- ----------------------------------------- 301,074 41,087

================= =================SCHEDULE - ELoans & AdvancesInterest Accrued but not due - 247Advance Taxes & Other Payments 114,508 141,678

----------------------------------------- ----------------------------------------- 114,508 141,925

================= =================SCHEDULE - FCurrent Liabilities & ProvisionSundry Creditors 12,868 6,612Deposits 3,500,000 3,500,000Provision for Income Tax 13,500 -

----------------------------------------- ----------------------------------------- 3,526,368 3,506,612

================= =================SCHEDULE - GMiscellaneous ExpenditurePreliminary Expenses (to the extent not written off) 10,500 14,000

----------------------------------------- ----------------------------------------- 10,500 14,000

================= =================

MAGENTA BLACK

MAGENTA BLACK79

79



SCHEDULE - HAdministration and other expensesPrinting & Stationary –– 2,101Electricity Expenses 7,032 9,000Audit Fees 6,742 6,612Professonal Fees 2,526 -Bank Charges 125 56Filing Fees 1,000 1,000Society Charges 7,200 7,200

----------------------------------------- ----------------------------------------- 24,625 25,969

================= =================Schedule I

Statement of Significant Accounting Policies and Note forming part of Accounts

1. Significant Accounting Policies


The financial statements have been prepared under the historical cost convention, in accordance with AccountingStandards issued by the Institute of Chartered Accountants of India and the provisions of the Companies Act,1956, as adopted consistently by the Company. All expenditure having a material bearing on the financialstatements are recognised on accrual basis.

The preparation of financial statements is in conformity with Accounting Standards requires management tomake estimates and assumptions that affect the reported amounts of assets and liabilities at the date of financialstatements, and the reported amounts of expenses during the year.


Fixed Assets are stated at cost of acquisition and attributable costs.

(ii) Depreciation

Depreciation has been provided on Written Down Value Method as per the provision of Companies Act,1956 and at the rate specified in Schedule XIV of the Companies Act, 1956.

(c) Taxes on Income

Provision for Income Tax (if any) is determined in accordance with the provisions of Income Tax Act, 1961.

(d) Preliminary Expenses

Preliminary expenses are amortised over a period of 10 years.

2. Previous year’s figures have been regrouped wherever necessary.

3. Contingent LiabilitiesCurrent Year Previous Year

Rupees Rupees----------------------------------------- -----------------------------------------

Nil Nil

4. (a) There were no amounts payable to Small Scale Industrial Undertaking on the Balance Sheet date.

(b) The Company has not received any intimation from “suppliers” regarding their status under the Micro, Smalland Medium Enterprises Development Act, 2006 and hence disclosures, if any, relating to amounts unpaid asat the year end together with interest paid /payable as required under the said Act have not been given.

5. Auditors’ RemunerationCurrent Year Previous Year

Rupees Rupees----------------------------------------- -----------------------------------------

Statutory Audit Fees 6,742/- 6,612/-






MAGENTA BLACK

MAGENTA BLACK80

80



Registration No.: U92110MH2000PLC124018 State Code: 011


II CAPITAL RAISED (AMOUNT INRS. THOUSANDS)



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


SOURCES OF FUNDS

Paid up Capital 600 Reserves & Surplus NIL

Secured Loans NIL Unsecured Loans NIL


Net Fixed Assets 3230 Investments 524


Accumulated Losses (54)



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

Earnings Per Share-Rs. 105.05 Dividend Rate % NIL

V GENERIC NAMES OF PRINCIPAL PRODUCTS / SERVICES OF COMPANY


Product/Services Marketing of filmsDescription

MAGENTA BLACK

MAGENTA BLACK81

81

DIRECTORS’ REPORT

To the Members,

Your Directors hereby present the Fifth Annual Report and the Audited Accounts of the Company for the Accounting yearended 31st March 2007.

Operations

The Company’s object is to take up production of tele-serials, management of event shows and entertainment software.The Income to the tune of Rs. 108,000 has been earned during the year. Due to administrative expenses and other fixedexpenses the result for the year show a net loss of Rs. 180,526.

Share Capital

The Capital remains the same during the year under review.

Directors

Mr. Parvez A. Farooqui retires by rotation at the ensuing Annual General Meeting and, being eligible, offers himself for re-appointment.

Auditors’ Report

In response to the Auditor’s comment on the negative networth of the Company, the management is hoping to start someof the serials and other programmes on small screen in the near future, which will help to eradicate the negative networth.


The Directors confirm that

i) in the preparation of the annual accounts, the applicable accounting standards have been followed along with properexplanation relating to material departures;

ii) the directors had selected such accounting policies & applied them consistently and made judgments and estimatesthat are reasonable and prudent so as to give true & fair view of the state of affairs of the company at the end of thefinancial year and of the loss of the company for that period;

iii) the directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordancewith the provisions of this Act for safeguarding the assets of the company and for preventing and detecting fraud andother irregularities;

iv) the annual accounts are prepared on a going concern basis despite the fact, that the Company’s net worth isnegative

Auditors

M/s Shamit Majmudar Associates, Chartered Accountants, the Auditors, retire at the ensuing Annual General Meetingand being eligible offer themselves for reappointment as the Auditors of the Company. The Directors recommend thereappointment of M/s Shamit Majmudar Associates as Auditors of the Company for the year 2007-08.

Disclosure about conservation of energy, technology absorption and foreign exchange outgo and earnings

The Company is not engaged in manufacturing activities and as such particulars regarding disclosure about Conservationof energy, technology absorption are not applicable to the Company.

There has been no foreign exchange outgo and earnings.

Other Statutory Information

The Company does not have any employees requiring disclosure as required under Section 217 (2A) of the CompaniesAct, 1956.

Acknowledgements

The Board of Directors places on record its gratitude to, bankers, and the media for their continued support, patronageand goodwill. The Board also expresses its deep sense of appreciation to the employees and consultants for theirguidance and support.

Registered Office: By Order of Board of Directors6, Bashiron, 28th Road,TPS – III, Bandra (W),Mumbai – 400 050 Vijay Choraria

ChairmanPlace: MumbaiDate : 27th August 2007

MUKTMUKTMUKTMUKTMUKTA A A A A TELE MEDIA LTDTELE MEDIA LTDTELE MEDIA LTDTELE MEDIA LTDTELE MEDIA LTD.....

MAGENTA BLACK

MAGENTA BLACK82

82

AUDITORS REPORT

To the Members

1. We have audited the attached Balance Sheet of Mukta Tele Media Ltd. as at 31st March 2007 and related the Profitand Loss Account and Cash Flow Statement for the year ended on that date, which we have signed under referenceto this report. These financial statements are the responsibility of the Company’s management. Our responsibility isto express an opinion on these financial statements based on our audit.








(v) on the basis of the written representations received from the directors as on 31st March, 2007, and taken onrecord by the Board of Directors, we report that none of the directors is disqualified as on 31st March, 2007 frombeing appointed as a director in terms of clause (g) of sub-section (1) of Section 274 of the Companies Act,1956.








MAGENTA BLACK

MAGENTA BLACK83

83

ANNEXURE TO THE AUDITORS’ REPORT

[Referred to in paragraph (3) thereof]

(i) The nature of the Company’s business/ activities during the year is such that clauses (vii), (viii), (xi), (xii), (xiii), (xiv),(xv), (xvi), (xvii), (xviii), (xix) & (xx) of paragraph 4 of the Companies (Auditor’s Report) order, 2003 are not applicableto the Company for the year ended.




(c) In our opinion and according to the information and explanations given to us, the Company has not made anydisposals during the year.

(iii) In respect of inventories:

(a) As explained to us, inventories were physically verified during the year by the management at reasonableintervals.

(b) In our opinion and according to the information and explanations given to us, the procedures of physicalverification of inventories followed by the management were reasonable and adequate in relation to the size ofthe Company and the nature of its activity during the year.

(c) In our opinion and according to the information and explanations given to us, the Company has maintainedproper records of its inventories and no material discrepancies were noticed on physical verification.

(iv) In respect of loans, secured or unsecured, granted or taken by the Company to or from companies, firms or otherparties covered in the register maintained under section 301 of The Companies Act, 1956:

According to the information and explanations given to us the Company has neither granted nor taken any loans,secured or unsecured, to or from companies, firms or other parties covered in the register maintained under section301 of The Companies Act, 1956.

(v) In our opinion and according to the information and explanations given to us, there are adequate internal controlprocedures commensurate with the size of the Company and nature of its business, for purchase of inventory andfixed assets. There are no sale of goods.

(vi) In respect of transactions entered in the register maintained in pursuance of section 301 of the Companies Act1956:


(b) According to the information and explanations given to us, there are transactions/arrangements in excess ofRs 0.50 million in respect of holding company in which directors are interested and prices are reasonablehaving regard to the prevailing market prices at the relevant time.

(vii) The Company has not accepted any deposits from the public to which the provisions of Section 58A and section58AA of the Companies Act, 1956 and the Companies (Acceptance of Deposits) Rules 1975, are applicable.

(viii) According to the information and explanations given to us in respect of statutory and other dues there were noundisputed amount payable in respect of Income Tax, Wealth Tax, Sales Tax, Customs Duty and Excise Dutyoutstanding as at 31st March, 2007 for more than six months from the date they became payable.

(ix) The Company has accumulated losses at the beginning of the year. The Company has incurred loss during the year.The accumulated losses have exceeded the entire net worth of the Company.

(x) To the best of our knowledge and belief and according to the information and explanations given to us, no fraud onor by the Company was noticed or reported during the year.





MAGENTA BLACK

MAGENTA BLACK84

84

BALANCE SHEET AS AT 31ST MARCH 2007



SOURCES OF FUNDS


Share Capital A 500,000 500,000–––––––––––––––––––––––––– ––––––––––––––––––––––––––

TOTAL 500,000 500,000====================================================== ======================================================


Fixed Assets B

Gross Block 4,304,963 4,304,963

Less: Depreciation (759,614) (570,181)–––––––––––––––––––––––––– ––––––––––––––––––––––––––

3,545,349 3,734,782

Investments C 250 250


Inventories D 3,735,007 3,735,007

Cash and Bank Balances E 58,319 9,789

–––––––––––––––––––––––––––– ––––––––––––––––––––––––––

3,793,326 3,744,797

Current Liabilities & Provisions F 10,689,982 10,665,024–––––––––––––––––––––––––– ––––––––––––––––––––––––––

Net Current Assets (6,896,656) (6,920,227)

Balance as per Profit & Loss Account 3,777,732 3,597,205

Preliminary Expenses 73,325 87,990(to the extent not written off)

–––––––––––––––––––––––––– ––––––––––––––––––––––––––TOTAL 500,000 500,000

====================================================== ======================================================Statement of Significant Accounting Policies H


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

For SHAMIT MAJMUDAR ASSOCIATES VIJAY CHORARIAChartered Accountants Chairman

SHAMIT MAJMUDAR PARVEZ A. FAROOQUIProprietor DirectorMembership No. 10595

MEGHNA GHAI PURIPlace : Mumbai Director

Date : 27th August 2007

MAGENTA BLACK

MAGENTA BLACK85

85

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



INCOME

Miscellaneous Income - 360,083

Rental Income 108,000 -–––––––––––––––––––––––––– ––––––––––––––––––––––––––

Total 108,000 360,083===================================================== =====================================================

EXPENDITURE

Administration and other Expenses G 84,428 1,000,372

Share of Joint Venture to APS Group - 176,429


Preliminary Expenses written Off 14,665 14,665–––––––––––––––––––––––––– ––––––––––––––––––––––––––

Total 288,526 1,391,384===================================================== =====================================================

Profit before Extraordinary, Non-recurring and

Profit/(Loss) before Tax (180,526) (1,031,301)

Profit/(Loss) after tax (180,526) (1,031,301)

Add: Balance brought forward from last year (3,597,206) (2,565,905)–––––––––––––––––––––––––– ––––––––––––––––––––––––––

Balance carried to Balance Sheet (3,777,732) (3,597,206)===================================================== =====================================================

Statement of Significant Accounting Policies H








MAGENTA BLACK

MAGENTA BLACK86

86





Net Loss before tax and extraordinary items : (180,526) (1,031,301)–––––––––––––––––––––––––– ––––––––––––––––––––––––––

Adjustments for :


Miscellaneous expenditure written off 14,665 14,665

Operating profit before working capital changes 23,572 (816,718)–––––––––––––––––––––––––– ––––––––––––––––––––––––––

Adjustments for :

(Increase)/ Decrease in Loans and advances –– 1,038

Increase/(Decrease) in Trade Creditors 9,958 (193,971)

Inc./ (Dec.) in Other current liabilities and provisions 15,000 897,337

Cash generated from/(used in) operations 48,530 (112,314)

Cash flow before extraordinary items 48,530 (112,314)

Extraordinary items :

Miscellaneous Expenditure –– ––

Net Cash Generated from/(used in) Operating Activities 48,530 (112,314)

B. CASH FLOW FROM INVESTING ACTIVITIES

Net cash generated from/(used in) investing activities –– ––

C. CASH FLOW FROM FINANCING ACTIVITIES

Net cash recovered from/(used in) financing activities –– ––

Net increase/(decrease) in cash and cash equivalents 48,530 (112,314)(A+B+C)

Cash and cash equivalents (opening) 9,789 122,103

Cash and cash equivalents (closing) 58,319 9,789






MAGENTA BLACK

MAGENTA BLACK87

87



SCHEDULE - C

Investments

Shares of Bait-Ush-Sharaf Co. Op. Hsg. Society Ltd.(5 shares of Rs. 50 each, previous year 5 shares) 250 250

–––––––––––––––––––––––– ––––––––––––––––––––––––250 250

================================================== ==================================================




SCHEDULE - A

Share Capital

Authorised Share Capital

50,000 Equity Shares of Rs.100/- each(Previous year 50,000 Equity Shares of Rs.100/- each) 5,000,000 5,000,000

================================================== ==================================================Issued, subscribed & paid up Capital5,000 Equity Shares of Rs. 100/- fully paid-up(Previous year 5,000 Equity Shares of Rs. 100/- fully paid-up) 500,000 500,000

–––––––––––––––––––––––– ––––––––––––––––––––––––500,000 500,000

================================================== ==================================================

SCHEDULE - B

Fixed Assets


Particulars As on Additions Total Depreciation Depreciation Total As on As on01.04.2006 during the as on as on for the Depreciation 31.03.2007 31.03.2006

year 31.03.2007 31.03.2006 year up to31.03.2007

Block 'A'

OwnershipPremises 4,260,063 - 4,260,063 552,325 185,387 737,712 3,522,351 3,707,738

Block 'B'Furniture& Fixture 10,800 - 10,800 4,004 1,230 5,234 5,566 6,796

Block 'C'Mobile Handset 5,000 - 5,000 4,999 - 4,999 1 1

Air Conditioners 29,100 - 29,100 8,853 2,816 11,669 17,431 20,247

TOTAL 4,304,963 - 4,304,963 570,181 189,433 759,614 3,545,349 3,734,782

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


MAGENTA BLACK

MAGENTA BLACK88

88




SCHEDULE - D

Inventories

Remake Rights of Films 200,000 200,000

Under Production T.V.Serials 3,535,007 3,535,007–––––––––––––––––––––––– ––––––––––––––––––––––––

3,735,007 3,735,007 ====================================================== ======================================================

SCHEDULE - E

Cash & Bank Balances

Cash in hand 2,531 4,809


In Current Account 55,788 4,980–––––––––––––––––––––––– ––––––––––––––––––––––––

58,319 9,789 =================================================== ===================================================

SCHEDULE - F

Current Liability & Provisions

Amount due (to Holding Company ) 10,637,984 10,622,984

Sundry Creditors for goods and services rendered 51,998 42,040–––––––––––––––––––––––– ––––––––––––––––––––––––

10,689,982 10,665,024 =================================================== ===================================================

SCHEDULE - G

Administrative Expenses

Printing & Stationery - 2,121

Telephone Expenses - 1,500

Electricity Charges 17,162 14,950

Auditors Remuneration 42,472 42,040

Professional Fees 2,526 797,097

Prior Period Expenses 1,200 -

Bank Charges - 450

Subscription Charges 400 -

Society Charges 14,000 -

Rates & Taxes - 13,500

Motor Car Expenses - 12,788

Petrol & Oil Expenses - 113,619

Filing Fees 6,668 2,306–––––––––––––––––––––––– ––––––––––––––––––––––––

84,428 1,000,372 =================================================== ===================================================

MAGENTA BLACK

MAGENTA BLACK89

89

SCHEDULE “H”

Statement of Significant Accounting Policies and Notes forming Part of Accounts



The financial statements have been prepared under the historical cost convention, in accordance with AccountingStandards issued by the Institute of Chartered Accountants of India and the provisions of the Companies Act,1956, as adopted consistently by the Company. All income and expenditure having a material bearing on thefinancial statements are recognised on accrual basis.

The preparation of financial statements in conformity with the Accounting Standards require management tomake estimates and assumptions that affect the reported amounts of assets and liabilities at the date offinancial statements, and the reported amounts of expenses during the year.


Fixed Assets are stated at cost of acquisition and attributable costs.

(ii) Depreciation

Depreciation has been provided on Written Down Value Method as per the provisions of Companies Act,1956 and at the rates specified in Schedule XIV of the Companies Act, 1956.

(c) Inventories

Inventories of under production of serials are valued at actual cost.

(f) Revenue recognition

Sales/Realisations are recognised on despatch of softwares to the respective parties.

(g) Preliminary Expenses

Preliminary Expenses are amortised over a period of 10 Years

2 Previous year figures have been regrouped wherever necessary.Current Year Previous Year

Rupees Rupees–––––––––––––––––––––––––– ––––––––––––––––––––––––––

3 Contingent Liabilities Nil Nil

4 The Company’s accumulated losses as at 31st March 2007 far exceeds its paid-up capital and reserves as at thatdate. Since the Directors are looking for right opportunity to explore the similar line of business activity, the Directorsconsider that it is appropriate to prepare the financial statements on going concern basis.

5 (a) There were no amounts payable to Small Scale Industrial Undertaking on the Balance Sheet date.

(b) The Company has not received any intimation from “Suppliers” regarding their status under the Micro, Smalland Medium Enterprises Development Act, 2006 and hence disclosures, if any, relating to amounts unpaid asat the year end together with interest paid / payable as required under the said Act have not been given.

6 Additional information required to be given pursuant to Part II of Schedule VI to the Companies Act, 1956 isas follows :

The Company is in the business of production of software which is not subject to any licence and as such informationregarding consumption of Raw Materials, Production and sales is not applicable.

Further the nature of business of the Company is such that the installed capacity is not applicable.

7 Auditors Remuneration :Current Year Previous Year

Rupees Rupees–––––––––––––––––––––––––– ––––––––––––––––––––––––––

Statutory Audit Fees 22,472 22,040For Other Services 20,000 20,000

–––––––––––––––––––––––––– ––––––––––––––––––––––––––42,472 42,040

–––––––––––––––––––––––––– ––––––––––––––––––––––––––




MEGHNA GHAI PURIPlace : Mumbai DirectorDate : 27th August 2007


MAGENTA BLACK

MAGENTA BLACK90

90



Registration No.: U92100MH2002PTC137312 State Code: 011


II CAPITAL RAISED (AMOUNT IN RS. THOUSANDS)



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


SOURCES OF FUNDS

Paid up Capital 500 Reserves & Surplus –

Secured Loans – Unsecured Loans –


Net Fixed Assets 3545 Investments –


Accumulated Losses 3779



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

Earnings Per Share in Rs. – Dividend Rate % NIL

V GENERIC NAMES OF PRINCIPAL PRODUCTS/ SERVICES OF COMPANY


Product Description Product of Television Software

ATTENDANCE SLIP

I hereby record my presence at the 25th Annual General Meeting of the Company at Whistling WoodsInstitute Auditorium, Dada Saheb Phalke Chitranagri, Goregaon (East), Mumbai - 400 065 on Saturday,the 29th of September, 2007 at 4.00 p.m.

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

Folio No. / Beneficiary Account No. : _____________________________________________________

Signature of the Member / Beneficial Owner :_____________________________________________

Proxy / Authorised Representative____________________________________________________

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

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

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

PROXY FORM

I / We________________________________________________________________________________________________________________________

of__________________________________________________________________________________________________________________

being a Member(s) / Beneficial Owner(s) of the above Company hereby appoint________________________________________________________________________________________________________________________

of___________________________________________________________________________________________________________________________

or failing whom ______________________________________________________________________________________________________

of _______________________________________________________________________________________________________________________

as my / our proxy to attend and vote for me / us on my / our behalf at the 25th Annual General Meetingof Mukta Arts Limited to be held on Saturday, the 29th of September, 2007 at 4.00 p.m. at WhistlingWoods Institute Auditorium, Dada Saheb Phalke Chitranagri, Goregaon (East), Mumbai - 400 065 andat any adjournment(s) thereof.

Signed this …. ............………….. day of …………………………….2007

Folio No. / Beneficiary Account No. : ___________________________________

Signature of the Member / Beneficial Owner :____________________________

Note : This Proxy form must reach the Registered Office of the Company not less than 48 hours beforethe time of holding the meeting.

AffixRevenue

Stamp

Documents

CYAN MAGENTA YELLOW BLACK - Mukta Artsmuktaarts.com/Aboutus/investorsrelation/annualreports2007.pdf · 1 CYAN MAGENTA YELLOW BLACK 1 CYAN MAGENTA YELLOW BLACK BOARD OF DIRECTORS Mr