Celebrating a decade of excellence...Celebrating a decade of excellence of our own and co-owned ‘Intellectual properties’ and thereby enhancing our capabilities for worldwide licensing

Celebrating a decade of excellence

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

DQE has established a diverse client-partner base consisting of over 100 major producers, licensees and distributors from Europe, the USA, the UK and Asian countries namely Walt Disney Animation Group – worldwide, multiplex of Disney channels, Nickelodeon Animation Studio Inc. USA, Electronic Arts – USA, Marvel Comics, American Greetings, NBC Universal and BBC Group-UK, F2-F3-F4-F5 public broadcaster-France, TF1 TV and TF1 Enterprises - France, M6 TV and distribution, France, Canal+ - France, ZDF TV & ZDF Enterprises as well as WDR TV Group – Germany, ABC Australia, Al Jazeera –Middle East, TVO/Tele Quebec – Canada, Turner Asia including Cartoon Network, POGO etc. The wide spread client - partner base has enabled us to spread our business risk.

DQ Entertainment is a leading global entertainment group in the business of animation, gaming and live action content production, licensing and distribution. DQE’s pedigree is associated globally with major Intellectual Property (IP) brands such as The Jungle Book, Charlie Chaplin, Peter Pan, Iron Man, Casper and many more supported by client- partnership with International and national broadcasters, distributors, licensees and large independent producers specially in Europe & the USA.

We have produced or co-produced and distributed more than 60 TV series, direct-to-home videos and feature films, created real time game animation for online, mobile and next-gen console games and now diversified into production and distribution of 3D stereoscopic animated feature films.

We commenced our journey in the year 2000 and are now entering our 10th year since establishment of this group. The DQE group has evolved its integrated business model from that of pure service to co-ownership and co-production of international iconic brands with high profile partners across the globe. We are now in development

Contents

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Financial Highlights

Chairman’s Statement

Human Resources @ DQE

Board of Directors

Directors’ Report

Business Update

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Report on Corporate Social Responsibility

Corporate Governance Report

Management Discussion & Analysis Report

Auditors’ Report on Financial Statements

Auditors’ Report on Consolidated Financial Statements

Consolidated FinancialsAwards

Financials

AGM Notice

Attendance Slip and Proxy Form

Company Information

Annual Report 2010DQ Entertainment (International) Ltd.

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A walk downmemory lane…..

Established 2D traditional & digital animation division

Established in-house ‘Training Center’ the first school of visual arts to train traditional, digital and rotoscopic animation talents for scaling up

Rolled out the animated TV series ‘Hoze Houndz and ‘Benjamin Bear’ for Canada, ‘Potatoes and Dragons’ ‘Delta State’,Todd World, Jet Groove and many more for France, the UK, Canada and the USA

Establised 3D animation and gaming divisions

Set-up 4 more Schools of Visual Arts to train high-end 3D animation and Gaming talents for rapid scaling up

Developed proprietary ‘Production Tracking’ and ‘Resource Management’ ERP solutions

Awarded prestigious contracts from world majors – ‘Mickey Mouse Club House’ from Disney in 3D format, ‘TAK’ from Nickelodeon, God Father/Simpsons/Medal of Honour and many game-art and cinematics from Electronic Arts

DQE is the first Indian Company to win the prestigious Emmy Award for its co-produced TV series ‘Tutenstein’

Co-production and co-ownership of IPR’s in Television and home entertainment started with international partners

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

ISO 9001: 2000 certification by Det Norske Veritas for high quality of process management across the company

Co-production of prestigious brands eg. ‘Little Prince’ , ‘Little Nick’, ‘Pinky and Perky’, ‘Large Family’ ‘Charlie Chaplin’, ‘Twisted Whiskers’, ’Tara Duncan’, ‘Casper’, ‘Iron Man’ and more

Service Productions namely ‘Fan Boy & Chum Chum, The Penguins of Madagascars – 2 seasons for Nickelodeon. 2 seasons of Mickey Mouse Club House for Disney, USA

Launch of own international IP’s ‘The Jungle Book’, ‘Peter Pan’ and Indian IP’s - Balkand, Ravan, Omkar- all supported by national and international broadcasters, distributors and licensees.

Listed on Bombay Stock Exchange on March 29 2010 with a record oversubscription of 86.33 times

2000-2003

2004-2007

2008-2010

Mov

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DQE takes pride….

To be the first animation company to obtain

ISO 9001 :2008 certification, by DNV Netherlands

In being the first Asian Company to win an EMMY Award and

have 16 EMMY nominations to its credit

First to develop own proprietary ERP solutions for vast and

complex production tracking and resource management

solutions to integrate creative and technical functions directly

with HR and accounts functions

In being the first leading animation and entertainment company with over 3000 associates plus many free lancers in Philippines, China, Europe and USA making DQE the largest such production house in its categoryFirst company in its domain to have direct business relations with over 100 marquee clients/partners across the globeDisney trusted DQE to bring the legendary Mickey Mouse Club House productions to be produced for the first time in a new 3D Avatar

To be the first to unleash the power of training high-end animation and gaming as well as VFX in its own and with public-private partnerships, five schools of visual arts to support rapid scaling up of capacity

To be the first company in this region trusted to produce a 3D stereoscopic feature film by Warner Bros, France, Studio 37 and Fidelitie Films france with Onyx Films, France for release worldwide in 2011

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

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

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


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

Adjusted EBIDTA up by 30% to INR 697* million (Previous year: INR 537 million)**

Profit before tax of INR 269 million (Previous year: INR 199 million)

Cash and cash equivalents of INR 582 million after the investments in expansion (Previous year: INR 105 million)

* The EBIDTA figure above includes non-recur-ring IPO expenses of INR 95.5 million.

** The EBIDTA figure above does not include the non-recurring gain.

2006

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CAGR: 39.18%

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CAGR: 57.37%

CAGR: 90.97%


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CHAIRMAN’S STATEMENT


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Chairman’s StatementDear Investors,

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

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

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

Tapaas Chakravarti, CMD & CEODQ Entertainment (International) Limited

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The DNA of DQE has embedded strong human value systems of brutal honesty, humility, quality at any cost, keeping promises, ethics and integrity. This has been the differentiator for the company and the growth in the top line or bottom line is the effect of these deep human values and total professionalism at all levels of business practices.

We love what we do, and we do what we love, and it is this that brings us back each morning to help us fulfill our vision and promises to our client partners, colleagues and investors. We are the dream chasers. We are chasing our dream to be one of the world’s finest houses of animation and entertainment. That dream is now close to realisation, as we are now considered a respected global producer and one of the largest creative and high technology shop floor capacities in the segment of animation.

DQites understand their social responsibilities in a country like India very well. Through the DQ Smile foundation supported by the associates of DQ we have become one of the largest donors of blood for the needy in our city while other activities are being pursued to change the lives of many.

This journey of a decade towards excellence has been very fulfilling and exciting for me and my colleagues. The company’s financial results are a direct derivative and proof of all that I have mentioned above.

GLOBAL FOOTPRINT

I am proud to report that the credibility of your company has been established amongst the elite entertainment fraternity worldwide as recognised by the achievement of the highest international quality standards and timely deliveries by its professional, creative and highly motivated workforce.

DQE’s reach and networking is truly global partnering with the best in India, Europe, North America, Austarila and New Zealand, Asia, the Middle East and Africa as well as CIS countries. Licensing of Jungle Book TV rights in over 160 countries is fine proof of DQE’s global sales, distribution and licensing reach. The Company has a strong presence for high quality development in the US, the UK, France, the Phillipines with a large work force of over 3000+ in India alone. I believe that one of the most important differentiators of the Company has been the extraordinary talent and committment of our associates. DQE is leveraging on the best talents available for pre-creative work such as primary designing, script writing, voice, music and some other pre-production from its subsidiaries in Europe and offices in Ireland, France, the UK and the Phillipines to support the main production in India.

LEVERAGING ON THE COMBINED EXPERTISE OF DQE’S GLOBAL DEVELOPMENT AND LARGE INDIAN WORKFORCE

I believe that one of the most important differentiators of the Company has been the extraordinary talent and commitment of our associates. The young and dynamic workforce at DQE has been acknowledged worldwide for their creative abilities and dedicated team work. We have managed to attract and retain the best talent while constantly nurturing and upgrading their skills through internal training and development programmes. Our objective is to build and consolidate our talent base to achieve bigger milestones and push the bar for creativity and quality. Morale and motivational levels of a highly creative workforce is being very ably managed by a robust HR team while incentives are often non-monetary and contribute to a great extent in achieving results. This is further bolstered by high quality creative support from France, the UK, Ireland and the USA. The result is in front of you with the examples of Jungle Book, Peter Pan, Balkand, Ravan, Iron Man, Casper and many more.

Proprietary ERP solutions created in-house has made it possible for us to monitor very large productions involving over 20 television series, 10+ telemovies and a feature film as well as several game art and cinematics at a time.

FOCUS AREAS FOR GROWTH

Apart from sizeable organic growth through our several production and co-production verticals, we are targeting several other revenue streams through high quality branded IP exploitations. We have already demonstrated high growth potential from:

Development and co-development of branded and 1. popular intellectual properties;Licensing for TV, consumer products and publishing; 2. and Joint development, production and distribution of 3. stereoscopic animated feature films with global partners.

The Company expects to generate significant growth in its licensing and merchandising business with the exploitation of the rights acquired by the group through various co production deals, thereby adding to a healthy bottom line. The Company currently holds a programming library of over 450 hours for TV broadcast with rights in various territories including South East Asia, Australia and New Zealand, Arabic nations and Europe, while for its own international IP’s – Jungle

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Book and Peter Pan, the Company holds all worldwide rights including feature films and game publishing.

Our licensing and merchandising deals with global heavy weights such as TF1 Enterprises-France, ZDF Enterprises-Germany, CPLG-London, Belltex-Belgium, Hachette Livre- for French language publishing worldwide and a plethora of many more licensing contracts signed are testimony to the potential of our brands.

The development of IP will also provide the necessary impetus to the Company to achieve accelerated growth and the possibility of a 360 degree monetisation of the IP across various platforms of content distribution. Currently under development are the iconic productions of The Jungle Book, Peter Pan, Lassie, Charlie Chaplin, and several Indian IP’s which have been conceptualised and developed by the creative and dynamic Global-I.P. division of the Company.

A recent article in the Daily Telegraph, UK (16th June, 2010 http://alturl.com/pe3ib) recognised the importance of IP development, and how hugely successful businesses have been built around IP’s including DQE’s strategy in developing IP for maximising revenues through 360 degree monetisation.

DQE has forayed as mentioned earlier into production of 3D animated stereoscopic feature film ‘The Prodigies’ for Warner Bros, Fidelite Films, Studio 37 and Onyx Films, France. DQE holds rights to develop and produce 3D stereoscopic feature films for Jungle Book and Peter Pan - its own IP’s, while negotiations are currently happening with various producers in Europe and the Middle East for production of animated 3D featue films. I am optimistic as to the positive financial impact these 3D films will have on the Group’s results from 2010 onwards.

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

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Tapaas ChakravartiChairman, Managing Director & Chief Executive Officer

COMMITMENT TO STAKEHOLDERS

As you are aware the IPO of your Company DQ Entertainment International limited, India, received an overwhelming response from the market with an oversubscription of 86.33 times. The shares were listed on the Bombay Stock Exchange Limited (BSE) with a magnificient premium of 69% to the issue price listing at Rs. 135 per share while the issue price was Rs 80 per share. Given the choppy market situation, DQE still managed to get a tremendous response from the markets showcasing the strong fundamentals that the Company has been built on.

We are humbled and inspired by this phenomenal response and strive to achieve new heights and deliver value to all our stakeholders.

I take pleasure in presenting the audited results for the year 2009-10. The entire DQ group is committed to pursue this amazing new journey post listing at BSE with renewed vigor for even better performance in the coming years.

I am happy to announce that in spite of an adverse global economic situation and strengthening of the Rupee, your company has recorded growth in revenues at a 17% and the PAT has grown 65%. Fiscal year 2010-11 also looks promising, backed by a solid client-partner base, pure-service and co-production service orders to the tune of INR 620 crores.

We are grateful to our esteemed investors, client-partners, all DQE associates and learned Board of Directors for their continued support, as we strive to create long-term value for our investors and associates.


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BUSINESS UPDATE


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DQE ENTERS GLOBAL MARKETS WITH OWN INTERNATIONAL IP’S IN FINANCIAL PARTNERSHIP AND CO-PRODUCTION WITH WORLD MAJORS

The Jungle Book – 52x11’ 3D HD TV Series and Stereoscopic 60’ TV special will debut world-wide by winter of 2010 co-produced in partnership for funding production & distribution with world majors ZDF TV & ZDF Enterprises Germany, TF1 TV and TF1 International Distribution, France, ABC Australia TV, Universal Studio for home video sales and co-production with long term co-production partner Moonscoop - France at a global budget of € 9.2 million. The excellent adaptation of the famous

Business UpdateJungle Book originally written Rudyard Kipling and the quality of animation has attracted several networks like Al Jazeera in the Middle East, Disney Multiplex of channels for South East Asia, TVO Canada, EBS Korea and many other TV channels which has resulted in a record pre-sales in approximately 160 countries.

DQE holds world-wide all rights for Free TV, Pay TV, Home Entertainment Video, Theatricals, Publishing, Merchandising and licensing including Gaming. A plethora of licensing deals for consumer products have already been signed for Jungle Book in Europe while a publishing deal has been signed with Hachette, the 80 year old publishing giant in Paris. Jungle Book first appeared in 2D traditional animation in 70’s by Disney and grossed over $ 300 Mn. DQE already has been approached by all the broadcasters and Home entertainment companies to go for a Christmas Special as well as second season i.e, another 52x11’ stereoscopic 3D TV series. This wholly owned IP has opened up multiple revenue streams for the group and is adding substantially to the top line and bottom line and still presents excellent opportunities in the future.

The New Adventures of Peter Pan – This € 9.97 million 3D stereoscopic TV series 26x22’ is being co-produced with Method Animation France, Storyboard Animation France, France Television while several other European and Asian broadcasters and distributors of Home Entertainment have entered into financial and distribution understanding which will be announced soon.

This stereoscopic TV series which is pre-sold and in production now is DQE’s second International global IP completely home grown with a quality partnership with Method Animation, France. It has even better prospects than The Jungle Book, as predicted by French and the German TV giants and licensees.

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

The Mysteries and FELUDA’ – The first TV movie ‘Mysteries and Feluda’ based on The late Satyajit Ray’s writings - “The Kathmandu Caper” will debut on the Disney channels. DQE has world-wide rights while Disney multiplex of channels have Indian rights for TV broadcast.

DQE is already developing a complete TV series and 2 more tele-movies and the commercial process will be announced soon with a leading broadcaster. Mysteries and Feluda has received very good response in Germany, France, Italy and the UK while response has also been good in South East Asia. DQE holds right for several detective stories of Satyajit Ray and is weaving tremendous commercial opportunities around these fantastic children’s detective stories written by the maestro himself

which also have been produced as several full length feature films in the Bengali language for the last 3 decades resulting in being hugely successful with a large cult following.

Balkand, the movie – I and more sequels - Balkand II & III – The 70’ multimillion $ tele-movie completely developed and produced by DQE is an adaptation from Ramayana, supported by Turner Asia debuted on Cartoon Network & Pogo which was a run away success. The Home Entertainment video sales deal for this property has been signed with Sony Entertainment.

Now DQE has moved forward with Balkand movie 2 & 3 commissioned by Turner Asia as a result of tremendous consumer demand across the nation.

Balkand was the first Indian initiative by DQE which received resounding success in India on Cartoon Network & Pogo and generating very good traction

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world-wide amongst Indian diaspora. Major deals are to be announced soon. This has also triggered several multimillion US$ deals for Indian IP’s produced by DQE .

Omkar - I – 70’ Movie completely adapted and developed by DQE’s IP Division will debut this winter on Turner Asia networks’ - Cartoon Network and Pogo. DQE is already in discussionfor development of the second movie which is to be announced soon.

Ravan - I – 70’ Tele-movie, the third Indian property conceived and produced at DQE was acquired by Turner Asia which debuted on Cartoon Network & Pogo is all set to go for second movie soon.

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

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

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DQE’ NEW BUSINESS VERTICAL: 3D STEREOSCOPIC ANIMATED FEATURE FILM DIVISION

THE PRODIGIES: A major break through came with the production of 3-D animated (motion capture) theatrical feature film “The Prodigies” being produced by DQE in partnership with Onyx Films France supported by Fidelite Films France, Warner Bros and Studio 37 France at a global budget of $ 28 Million. This high quality stereoscopic theatrical movie will be released in March 2011 by Warner Bros, Studio 37 from Orange group and Kinology world-wide. DQE forayed into the stereoscopic 3D feature film production with ‘The Prodigies’ while it is already developing four stereoscopic 90’ animated feature films to be released, one each year, starting from 2012 onwards. These announcements will be made public soon after DQE closes its pre-sales and major distribution deals with US and European majors.

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

DQE’S MAJOR INTERNATIONAL COPRODUCTIONS

The Little Prince: 52 x 26 minute 3D stereoscopic animated TV series being produced at a global budget of € 18.4 million, is in co-production with Method Animation, France, French Television major - France 3, LLPTV-France, Sony BMG, RAI TV Italy, OnyxLux, Luxembourg and WDR - Germany.

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

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Iron Man: 52x11 minutes – Armored Adventures of Iron Man (now in second series) – - is a 3D animated co-production with Method Animation, France and Marvel Animation, USA produced at a Global Budget of €8.2 million. Broadcasters on board are Nicktoons-USA and France Televisions and Disney Channels in many countries. The first season of Iron Man: An armored adventure debuted in the United States on Nicktoons Network in 2009 and continues to air on various networks all over the world.

The character Iron Man debuted in Tales of Suspense #39 (March 1963), and was created by writer-editor Stan Lee, scripter Larry Lieber, and artists Don Heck and Jack Kirby. Iron Man has appeared in USA and world-wide as Home Video movie for last 20 years and finally debuted as a major Feature Film with Robert Downey Jr in 2008 and the second one Iron Man 2 (2010) grossing over $ 1.18 billion. DQE Iron Man 3D TV series is riding on the success of the feature films and goes into second season. Warner Bros. and Marvel are already working on Iron Man 3, the live action & animated version of feature film for 2012 release.

Little Nick: 52x13 minutes – 3D animated series based on famous story and character created by late Rene Goscinny, (also the creator of Asterix) is a co-production by DQE, M6 Television & Distribution company, France; ZDF TV & ZDF Enterprises

–Germany, SND France and Disney Pay TV in many countries with a global budget of € 8.7 million. After successful run for last one year, now Little Nick has gone for second season for another 52x13’ with DQE procuring much larger territories for audio visual and other rights besides co-production service revenues.

Little Nick, the book has sold over 10 million copies in more than 30 countries and has also appeared first as a Live Action feature film and now slated for an animated feature film to be produced by M6 group France.

Casper’s Scare School 3D 52x11’ TV series

‘Casper’ the cute, pudgy ghost-child is one of the most famous properties and the most lovable ghost recognized by children worldwide. After a very successful live action cum animation feature and animated home video, this iconic brand debuted as a high quality animated action packed TV series world-wide, produced by DQE at a global budget of $9.36 million in co production with Moonscoop - France, Classic Media - USA , TF1-France, Harvey Entertainment - UK, Nickelodeon, Cartoon Network, and YTV. It is also now gearing up for a second season of production.

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

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

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

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

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DQE has an asset base of over 400 hours of animation content from which it can earn annuity revenues through licensing and distribution.

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

Lassie for the first time in her new adventure goes into hi-end animated series co-produced by DQE with Classic Media USA, Gaumont-Alphanim, France and ZDF TV & Distribution group – Germany to debut in the winter of 2011 globally. DQE has all rights for television and home entertainment for rest of the world except North America including sizeable backend sharing globally with its co producer Classic Media Group, USA. Classic Media the original right owners of the property are also original rights owners of Casper the friendly ghost and will hold rights for North America while rest of the world will be handled by DQE.

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

Method Animation, a partner company of DQE has now obtained rights for one Charlie Chaplin feature film in 3D stereoscopic to be co-produced with DQE. 3 time Oscar winner, 5 Oscar nominated Sir Charlie Chaplin is known as “the only genius of the movie industry” quoted by Sir George Bernard Shaw. DQE is extremely fortunate to have got along with its French partners MK2 and Method Animation rights from the Charlie Chaplin Estate to co-produce 3D Stereoscopic 104 short films and is also developing and will announce shortly about a full Charlie Chaplin theatrical movie with Method Animation.

DQE holds complete Greater Asia rights for television and home entertainment and also has backend profit sharing on the global licensing and TV deals with its coproducers.

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The Hive” 3D HD, 78x7’ – colorful animated series being co-produced by DQE with UK based conglomerate, The Hive Entertainment, Lupus Films, Monumental Productions, Bejuba Entertainment which has been pre sold to Play House Disney channel in 150 countries and is being produced at a global budget of Rs 24 Crores. This is the second co-production with the UK based conglomerate after successful co-production of Pinky & Perky 3D 52x11’ with BBC UK and France 5 Television – France. DQE has major terrestrial and back end rights for this beautiful 3D series for pre school children.

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World Series 2, Maryoku Yummy Season I and The Jungle Book Season I on Media Corp’s Okto channel in Singapore.

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

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

DQE‘s Successful Licensing Deals for Merchandising and Publishing

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

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

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

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

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An exclusive broadcast deal with Al Jazeera Children’s Channel (JCCTV) for the 52 episode animated series and the 60 minute TV Feature of ‘The Jungle Book’. This agreement will allow Al Jazeera exclusive broadcasting rights across 22 Arabic countries for a term of five years.

A Free-to-air Television license agreement with Metropolis TV Inc for the 26 episode animated television series of Iron Man with the right to broadcast in ASEAN countries. The Pay-TV rights for the ASEAN region were acquired by Turner Entertainment Network Asia ( TENA) for their leading kid’s channel - Carton Network from DQE which owns the audio visual rights to the Iron Man animated series in this region.

Multiple deals for licensing and merchandising for ‘The Jungle Book’ with D’arpeje SA, Paris, School Pack, Paris for manufacturing and sale of ‘back-to-school’ products ( including school bags, packs and other school related items.) D’arpeje SA, paris has also been authorised to manufacture outdoor products such as tents, balls, inflatables, punching bags, gloves, garden equipment, tyres among a range of other products with Jungle Book characters and themes.

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

The Copyright Promotions Licensing Group Limited (“CPLG”), Europe’s leading licensing agency, for licensing and merchandising has signed a 3 year agreement with DQE for the high-end 3D animation TV series ‘The Jungle Book’. CPLG will be responsible for product merchandising, publishing, promotions and direct to retail strategy for multiple territories in Italy, including Canton Ticino, San Marino, Vatican City, United Kingdom and Eire, Spain, Portugal and Japan. Under the terms of the deal CPLG will act as DQE’s licensing & merchandising agent for these territories. The collaboration will provide additional opportunity to maximize licensing and distribution revenue from the Jungle Book production.

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

Free-to-air TV deal with Tele – Quebec, Canada Merchandising deal with School Pack, France, for back-to-school items

Free-to-air TV deal with EBS Korea, Korea

Merchandising deal with Off Road Ltd., France, for snickers and shoes

Licensing deal with Quick Times, France, a fast food chain of restaurants

DQE firmly believes in all inclusive growth by de-risking the budgeting process but have expanded horizontally into major IP ownerships for globally renowned brands with marquee partners which has opened up several additional revenue streams which will accelerate growth and profitability.

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Human Resources @ DQE

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Identifying right talent, hiring and retaining skilled associates are critical success factors for Human Resources (HR) in DQE.

In DQE, HR department is part of the strategic decision making team and is involved in several functions i.e.

Sourcing the right talent

Compensation & benefits

Performance appraisal & Associate Development

Associate engagement

Awards & Recognition

Welfare Measures – Mediclaim, Group Term Insurance etc.

Quality Certification – ISO 9001:2008

Automation of HR Processes

DQ Smile Foundation (CSR Activity)

Training & Development

Sourcing the right talent

One of the major and critical functions of HR in DQE is identifying the right skill and placing them at the right time. A robust recruitment system and selection process involves two levels of screening. First the applicant has to give a technical test which incorporates international project complexities and

those candidates who clear the technical test are required to appear for a personal interview. The interview panel comprises of technical heads and recruitment heads who select the candidates based on their technical abillity and individual profile.

Compensation & Benefits

One of the major drivers for HR to retain the highly trained / skilled manpower is rewarding of performers. From time to time the Management reviews its current compensation parameters and proactively recommends the changes for all critical positions. All associates undergo a review of their compensation vis-a-vis their performance annually.

Performance Appraisal & Associate Development The organization has a very robust appraisal system, wherein the individual productivity is being tracked through an on-line tracker. One on one quarterly reviews between the artist and their Team Leads along with Project HR are undertaken.

Annual review by the Project Manager on individual performance results in recommendation for higher job responsibilities. Head of the Functions form as a part of the Review Panel and approvals are given based on the overall scenario.

Associate Engagement

One of the critical role being played by Project HR is engaging artists with various floor activities from time to time which helps them to overcome the monotony at work place and help associates to be more energetic & enthusiastic.Various activities


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such as – Theme Day (Traditional Attire), Rangoli, Treasure Hunt, Quiz, Project Completion parties, Inter Divisional Sports, Health Awareness programs etc. are conducted.

Awards & Recognition

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

Long Service Awards are awarded to all the associates who have completed minimum FIVE years of association with DQE.

Welfare Measures

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

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

Quality Certificate – ISO 9001:2008

We are an ISO 9001:2008 certified organization with Det Norske Veritas (DNV), Netherlands being the audit body which periodically audits our processes. A recently concluded audit confirms our compliance to the latest guidelines by DNV globally.

Automation of HR Processes

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

Sumedha Saraogi, Sr.Vice President-Global Business Development & DQE Team presenting the mementoes to the winners of painting

competition conducted at Government High School, Hyderabad

DQ Smile Foundation presented a cheque to LV Prasad Eye Institute

Painting Competition conducted at Government High School, Hyderabad on the occasion of celebrating

DQE’s 10 years of excellence


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Percentage of Various Training Programs during April 09 - 10

19%

50%

31%English Language

Soft Skills & BusinessCommunication

External / TechnicalTrainingVisit to a charitable society in Hyderabad

Visit to Ashritha Children’s Home

DQ Smile Foundation

As part of “GIVING BACK TO SOCIETY” the Smile Foundation has been formed and there are various activities which are carried out under the aegis of DQ Smile Foundation. Some of the recent activities performed through the foundation are – Donation for Flood victims, Blood donation camp etc.

Training & Development (T&D)

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

At the very outset, T & D identifies measurable learning objectives. Evaluation plays an important part in planning and choosing a training method. Quality is our motto at DQE, hence the methods and processes are meticulously designed to suit the needs of the clients/partners and also the Associates who come from a wide variety of backgrounds, ages, education, ethnicities, physical abilities, and races by creating a work environment that allows them to be innovative. Training effectiveness is checked periodically through follow-up sessions, to see if the trainees are able to apply the knowledge and skills acquired in the Training Workshops.

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

DQE has been a trend setter in the Indian Animation industry with our various HR initiatives. Our transparent working culture and various Associate engagement initiatives help us to attract & retain the best talent. Last year, close to 358 professionals were hired and have become DQE family members.

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Awards

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

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

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

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

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

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

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

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

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

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

E & Y : ENTrEPrENEUr OF THE AWArD CErEMONY – 2009


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Tapaas Chakravarti, Chairman & CEO of DQE has been inducted as a lifetime member of the board of the International Academy of Television Arts & Sciences.

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

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

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

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

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

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

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

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

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

Best Entrepreneur of the Year: Tapaas Chakravarti was awarded the “Best Entrepreneur of the Year” by the All India Management Association, HMA, Hyderabad, India. This award recognised outstanding entrepreneurship, innovation and strategy, exemplified by the high levels of growth and performance of the organisation.


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Board of Directors

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TAPAAS CHAKRAVARTIChairman, Managing Director & Chief Executive Officer

Tapaas Chakravarti with over two decades of International Corporate Management

experience has helped to shape the success story of his creation, DQ Entertainment group. Tapaas began his career with Sandoz India Limited (now Novartis, a Swiss Multinational) and later joined STP Limited, an infrastructure company. Tapaas has held senior positions in Sales and Projects at Coats of India, (a British multinational). He was Head of Special Projects for Sriram Group where he developed countrywide contract manufacturing activities. Tapaas is a science graduate with Post Graduate Qualification in Business Management backed with over 23 years of experience spanning across industries both national and multinational.

Tapaas believes in individual excellence to be integrated into a well-knit teamwork and unstinted support to ethical business practices. This has lead to the creation of a large workforce in DQE, cohesively knit together with very high quality business, operational and creative leaders driving the exceptional growth of the company.

He is a part of several national and international charitable organizations, which includes extensive work for orphans, AIDS effected children and education for the deprived eg. AGAPE, India, Figli Del Mondo, Italy. He is also an active member on the Board of the Indo-British Partnership and is a member of the Young Presidents Organization. He has been recently elected as a member of EMMY – The Academy of Television Arts & Sciences, Los Angles, USA. In the year 2009 he has been nominated for the ‘Ernst & Young, Entrepreneur of the year 2009 India Awards’.

As on March 31, 2010, Mr. Tapaas Chakravarti held directorships in DQ Entertainment plc, DQ Entertainment (Mauritius) Limited and Zenithal Private Limited.

K BALASUBRAMANIANNon-Executive Independent Director

K.Balasubramanian (Bala) has close to 40 years of experience in international banking and finance. After working in India with two of the largest banks

for around 10 years, he joined American Express Bank in 1973. He held senior positions in marketing, credit, risk management and general management in several countries across Asia (Singapore, Hong Kong, Korea and Indonesia) and Europe (Italy and the UK) during his 25 years with American Express. His last three assignments with American Express Bank were Country Head for Korea (1988-1991), Country Head- India (1992- 1994) and Chief Credit Officer for Asia, Pacific and Indian Sub Continent (1994 – 1997). He was an Advisor to National Bank of Kuwait, the largest bank in Kuwait, between 1997 and 2001 and subsequently the Managing Director & CEO of ING Vysya Bank (2001- 2002). Bala is currently associated with GMR Group, which is a leader in development and operation of infrastructure assets in airports, roads and energy. He is a graduate in Commerce and has done an advanced Management Program from the Harvard Business School.

As on March 31, 2010, K Balasubramanian held directorships in DQ Entertainment plc, GMR Holdings Private Limited, Easy Access Financial Services Limited, GMR Industries Limited, Raxa Security Services Limited, GMR Varalakshmi Foundation, Grow Talent Company Limited and Coromandel Fertilizers Limited.


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THERESA PLUMMER-ANDREWSNon-Executive Independent Director

Theresa Plummer-Andrews brings to the Board over 40 years of experience in the creation and

production of children’s programming. Starting from Portman Productions, UK as a Production Manager with a domain spanning over Asia, Australia and UK, Theresa rose to the position of global Production Manager. In 1974, she became Head of Production for Global Television to look after ABC, Australia and TVNZ, New Zealand, Scottish Television and Southern TV Limited. In 1986 she joined the BBC as an Executive Producer for Children’s Programming. Her role was extended as Head of Acquisitions and Creative Development for BBC Children’s International programming. She was responsible for BBC World-Wide, while still retaining her role as Head of Acquisitions and Co-Productions at BBC.

As on March 31, 2010, Theresa Plummer Andrews held directorship in DQ Entertainment plc.

GIRISH KULKARNINon-Executive Independent Director

Girish Kulkarni is the Founder and Managing Director of Suyash Advisors, the advisors to Monsoon Capital, an India

dedicated alternative asset fund, managing $ 500 million for investment in Indian publicly traded equities, private unlisted companies and real estate. He is also the Founder and Managing Director of TDA Capital India, which manages the India Technology Fund, an early stage venture fund, invested in IT and BPO Services companies.

Girish has a total of 20 years operating and investment experience in different aspects of the Indian capital markets. He started his professional career as a Project Finance Officer with ICICI where he was involved in leading term lending transactions with more than 30 Indian corporations. After that, he was head of Equity Sales, Trading and Research at ICICI Securities, then a joint venture between ICICI and JP Morgan. Girish was responsible for founding and leading a team of 40 professionals that made proprietary investments, raised equity capital for

corporate clients and advised institutional investors in their investment decisions. Girish also had shared responsibility for asset allocation across different asset classes (equity and fixed income). He has extensive public markets experience, having been involved in more than 30 IPOs in the Indian capital market and several M&A assignments.

Girish received a Bachelors Degree in Engineering from the Indian Institute of Technology, Mumbai, India in 1987 and a Masters Degree in Business Administration from the Indian Institute of Management at Ahmedabad, India in 1989. He serves on the Board of Directors of Bill Forge, Cbay Systems, Enzen Global Solutions, Sansera Engineering, Servion Global Solutions, and KSK Energy Ventures.

As on March 31, 2010, Girish Kulkarni held directorships in Suyash Outsourcing Private Limtied, Topwave Trading Company Private Limited, GNS Outsourcing Private Limited, Sansera Engineering Private Limited, Bill Forge Private Limited, CBay Systems (India) Private Limited, Enzen Global Solutions Private Limited, KSK Energy Ventures Limited, Serviont Global Solutions Limited and Gatil Properties Private Limited

RASHMI CHAKRAVARTIExecutive Non Independent Director

Rashmi Chakravarti holds bachelors degree in fine arts followed by bachelor’s degree in education for multimedia. She

founded DQ School of Visual Arts and has been instrumental as the principal of the school and head of the training division to train and produce over 2000 students since 1999 who are high quality employees of the Company.

For the last 11 years she has dedicated to the development of training programs/ modules of International standards for various forms of animation and acting skills. She has helped the Company to expand its training facilities in Hyderabad, Mumbai and Chennai including public/private partnership in Kolkata with Government of West Bengal, two training units in collaboration with the Government of Madhya Pradesh, one training unit with the Government of Rajasthan. In another initiative under


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NEELESH WAGLEAlternate Non-Executive Independent Director to Girish Kulkarni

Neelesh Wagle Managing Director, Suyash Advisors Neelesh Wagle is a Managing Director of Suyash Advisors,

the India advisory team for Monsoon Capital, and is responsible for research on public market investments since 1994. Neelesh has investment experience in Indian capital markets, both on the sell side and buy side in international investment firms. Neelesh re-joined Mr. Girish Kulkarni in 2000 at Suyash’s predecessor firm, TDA Capital, where he has been directly responsible for investments in public equities, PIPEs, private companies as well as a sub-advisor to several multi-billion dollar US hedge funds. Prior to TDA, he was a Senior Associate with Bank of America Equity Partners (BAEP-Asia) from 1998-2000. At BAEP-Asia, Neelesh was part of a 2-member team responsible for investing and managing $43 million of Indian investments in a $250 million Asian principal investment portfolio. He was also involved in technology investments in the Asian region. Prior to BAEP-Asia, Neelesh worked as technology and telecommunications analyst at ING Barings in Mumbai and at ICICI Securities between 1994 and 1998 advising foreign institutional clients on investments in Indian equities. Neelesh received a Bachelors Degree in Electrical Engineering from the Indian Institute of Technology, Mumbai, India in 1992 and a Masters Degree in Business Administration from the Indian Institute of Management at Calcutta, India in 1994.

the train the trainers program she has now trained over 70 mentors of International quality who are not only mentoring new students time to time but also helping existing employees to upgrade technical skills.

As on March 31, 2010, Rashmi Chakravarti did not hold any directorship in any other companies.

As on the date of his appointment, Neelesh Wagle held directorships in Suyash Outsourcing Private Limited, Topwave Trading Company Private Limited and GNS Outsourcing Private Limited.

CA S.SUNDAR SRINIVASA RAGHAVANAdditional Non-Executive Independent Director

CA S.SUNDAR SRINIVASA RAGHAVAN is the founder-partner of the chartered

accountant firm S Sonny Associates based in Chennai, started in 1986. A Fellow Chartered Accountant, Sundar has over twenty years of post-qualification professional practice experience to his credit. His key focus area is Statutory Audit and Internal Audit of Government Organizations, Public Sector Undertakings, Private Limited Companies apart from Public Sector and Private Sector Banks. He also has extensive exposure to Systems Audit, Credit Audit, Computer-to-Computer Link and Internet Based transaction Facility Audit. His firm is empanelled with Comptroller & Auditor General of India and RBI, among others. His firm is one of the Central Statutory Auditors of Syndicate Bank. He was Chairman of Audit Committee of Chennai Central Co-Operative Bank Ltd., Tiruvannamalai District Central Co-operative Bank Ltd., Vellore District Central Co-operative Bank Ltd., and Kancheepuram District Central Co-operative Bank Ltd. He has passed the Information Systems Audit- ISA (Indian equivalent to CISA of USA) of the Institute of Chartered Accountants of India.


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Animated Series

52x11'

in HD

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

DIRECTORS’ REPORT


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Directors’ ReportToThe MembersDQ Entertainment (International) Limited

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

BUSINESS

The year gone by has been quite eventful and exciting especially as the Group is slowly and steadily making its way into the distribution, licensing and merchandising segment of the entertainment industry. DQE has established itself as a recognized entertainment group world wide with marquee brand ownerships such as The Jungle Book, Charlie Chaplin, Peter Pan, Iron Man and many more.

The total income for 2009-10 has gone up by 17 % from Rs. 1509.08 million in Fiscal 2009 to Rs. 1766.07 million during fiscal 2010. Our revenues from Licensing and Distribution have increased from Rs. 74.63 million to Rs. 215.10 million at a growth rate of 188%. Profit after tax increased by 65% to Rs. 266.72 million as against Rs. 161.23 million in the previous year.

Our strategy has been to expand our footprint in the entertainment segment and consolidate our portfolio of global and Indian IPs for worldwide distribution, licensing and merchandising.

Currently our library has a little over 450 hours of content for TV broadcast with rights in various territories including South East Asia, Australia-New Zealand, Arabic nations, Europe etc. DQE’s library comprises legendary brands including Iron Man, Casper, Jungle Book, Peter Pan, Charlie Chaplin, Little Prince, Feluda, Tara Duncan, Lassie for revenue exploitation.

Particulars For the year ended March 31,

2010

For the year ended March 31,

2009

Total Income 1,766,067 1,509,076

Total Expenditure 1,497,555 1,309,986

Profit before tax 268,512 199,090

Tax Expense (Current Tax+ Deferred Tax+ Fringe Benefit Tax)

(1,791) (37,858)

Profit after tax 266,721 161,232

DQE’s first home grown IP, ‘The Jungle Book’ is being produced with International partners as a high end 3D 52x11 minutes TV series and is slated for release in mid 2011 while several Indian IPs like Mysteries & Feluda, Omkar, Balkand I, II and III are being produced with International Broadcasters.

During the year DQE had an impressive foray into the production of 3D animated stereoscopic feature films

FINANCIAL HIGHLIGHTS

DIVIDEND

The Directors do not recommend payment of any dividend for this financial year.


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INITIAL PUBLIC OFFER

As you are aware, the Company’s Initial Public Offer (“IPO”) which was open from March 8th to March 10th 2010, received an overwhelming response from investors and was subscribed 86.33 times. The HNI portion was subscribed 272.88 times. The qualified institutional and retail investors’ reserved portions were subscribed 93.86 times and 19.45 times, respectively. The equity shares of the Company were listed on the Bombay Stock Exchange Limited (BSE) on March 29 2010. The opening price was Rs. 135 per share, representing a premium of around 68.75% to the issue price of Rs. 80 per share. SBI Capital Markets Limited, were the book running lead managers and the syndicate members to the issue were SBICAP Securities Limited, India Infoline Limited and Yes Bank Limited. Karvy Computershare Private Limited is the Registrar to the issue.

We would like to thank the investors for their overwhelming response and trust in the fundamentals of the Company.

INCREASE IN SHARE CAPITAL

Authorised Capital: The authorised share capital of Rs. 38,100,000 divided into 3,010,000 Equity Shares and 800,000 1% Redeemable Optionally Convertible Non Cumulative Preference Shares of Rs. 10 each was reclassified and increased to Rs. 800,000,000 divided into 80,000,000 Equity Shares of Rs.10 each, pursuant to a resolution of the shareholders passed on September 15, 2009.

Paid up Capital: On September 17, 2009, the Company had issued 58,011,920 bonus shares in the ratio of 40:1 pursuant to capitalisation of the share premium account. The Company had allotted an aggregate of 3,772,771 Equity Shares for cash at a price of Rs. 68.11 per Equity Share (including a share premium of Rs. 58.11 per Equity Share) on December 23, 2009 and January 06, 2010. Further, the Company issued 16,048,011 equity shares of Rs. 10 each for cash at an issue price of Rs.80 determined through the 100% book-building mechanism in accordance with the SEBI (Issue of Capital and Disclosure Requirements) Regulations 2009 in the Initial Public Offering (“IPO”).

Due to this, the outstanding issued, subscribed and paid-up equity share capital increased from 1,422,912 shares in March 31, 2009 to 79,283,000 shares as at March 31, 2010.

SUBSIDIARY

Our Company has a wholly owned subsidiary, DQ Entertainment (Ireland) Limited (“DQ Ireland”), incorporated in Ireland which is engaged in the business of content development for animation and live action for TV series, movies and various other media.

The Company has been granted exemption for the year ended March 31, 2010 by the Ministry of Corporate Affairs from attaching to its Balance Sheet, the individual Annual Report of its subsidiary company. As per the terms of the Exemption Letter, a statement containing brief financial details of the Company’s subsidiary for the year ended March 31, 2010 is included in the Annual Report. The annual accounts of this subsidiary and the related detailed information will be made available to any Member of the Company/its subsidiary seeking such information at any point of time and are also available for inspection by any Member of the Company/ its subsidiary at the Registered Office of the Company/ its subsidiary and would be posted on the website of the Company.

DIRECTORS

Mr. Rusi Brij, the co-promoter and Director of the Company unexpectedly passed away on May 20, 2009. The Board of Directors and all the associates of DQE condone this untimely demise and stand by the family with full support.

Mrs. Rashmi Chakravarti was appointed as Additional Director on May 25, 2009 and was regularized at the Annual General Meeting held on September 15, 2009.

Mr. K Balasubramanian, Ms. Theresa Plummer Andrews, Mr. Girish Kulkarni and Mr. Sanjay Saxena were appointed as Additional Directors of the Company on August 26, 2009 and regularized at the Annual General Meeting held on September 15, 2009.

Mr. Akula Ramakrishna and Mr. Laxminarayana Nagu resigned from the Board on August 26, 2009. Mr. Sanjay Saxena resigned from the Board on September 17, 2009.


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On April 30, 2010, Mr. Neelesh Wagle was appointed as an Alternate Non-Executive Director to Mr. Girish Kulkarni.

On July 26, 2010, Mr. S Sundar was appointed as an Additional Director of the Company.

As per Article 109 to 115 of the Articles of Association, Mrs. Rashmi Chakravarti and Ms.Theresa Plummer Andrews shall retire by rotation at the ensuing Annual General Meeting. Mrs. Rashmi Chakravarti and Ms. Theresa Plummer being eligible are liable for re-appointment.

The detailed profiles of all the directors are available under the chapter Board of Directors.

AUDITORS

M/s. Deloitte, Haskins and Sells, Chartered Accountants, Hyderabad, the statutory auditors of the Company shall retire at the ensuing Annual General Meeting and have confirmed their eligibility and willingness to accept office, if re-appointed.

PARTICULARS OF EMPLOYEES AND OTHER ADDITIONAL INFORMATION

In terms of the provisions of Section 217 (2A) of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975, the names and other particulars of employees are required to be set out in the Annexure to the Directors’ Report. However, the provisions of Section 219 (1) (b)(iv) of the Companies Act, 1956 exempts the Company from publishing the same in the Annual Report. Hence, the Annual Report excluding the aforesaid information is being sent to all the members of the Company and others entitled thereto. Any member interested in obtaining such particulars may write to the Company Secretary at the Registered Office of the Company.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO

(i) Energy Conservation: The operations of the Company involve low energy consumption. Adequate measures have however been taken to conserve energy.

(ii) Technology Absorption: We have developed in- house plug- ins to maximise technology absorption at minimal cost. The Company produces TV series in the 3D stereoscopic technology which is the latest offering in the entertainment industry.

(iii) Foreign Exchange Earnings and Outgo:

DIRECTORS’ RESPONSIBILITY STATEMENT

Pursuant to Section 217 (2AA) of the Companies Act, 1956, your Directors confirm that;

i) In the preparation of the annual accounts for the financial year ended on March 31, 2010, the applicable accounting standards had been followed along with proper explanation relating to material departures, if any.

(Rs. in Thou-sands)

2009-10

(Rs. in Thousands)

2008-09

a) Value of export earnings:

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

License Fees 90,516 43,472

b) Value of export out flows towards:

Travel 1,837 4,229

Production Expenses 62,693 17,928

Professional and Consultancy Charges

7,516 19,459

Financial Charges 5,242 16,634

Others 1,523 4,963


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For and on behalf of the Board DQ Entertainment (International) Limited

Tapaas ChakravartiCMD & CEO

Place: Hyderabad Date: July 26, 2010

ii) The directors had selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit of the company for that period.

iii) Proper and sufficient care had been taken for the maintenance of adequate accounting records in accordance with the provisions of this Companies Act, 1956 for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities;

iv) The Directors had prepared the annual accounts for the financial year ended on March 31, 2010 on a ‘Going Concern Basis’.

CORPORATE GOVERNANCE REPORT AND MANAGEMENT DISCUSSION AND ANALYSIS STATEMENT

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

ACKNOWLEDGEMENT

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

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


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Statement pursuant to Section 212 of the Companies Act, 1956

Sl. No

Particulars

1. Name of Subsidiary DQ Entertainment (Ireland) Limited

2. Financial year ended 31st March, 2010

3. Date from which it became a subsidiary November 12, 2008

4.Extent of interest of the Holding Company in the capital of the Subsidiary.

100%

5.Number of shares held by the holding Company as on March 31, 2010.

15,29,000

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

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

Dealt with in the holding company’s accounts b) for the financial year ended on 31 st March, 2010for the previous financial years of the subsidiary company since it became the holding company’s subsidiary

--

Rs. 68,513,654 /-Rs.(272,869)/-

7. Exchange rate as at March 31, 2010Closing Rate INR / EURO -

Rs. 60.59

8. Issued and subscribed share capital of the subsidiary Rs. 104,142,490

9. Reserves Loans of the subsidiary Rs. 48,434,169

10. Total Assets of the subsidiary Rs. 343,567,724

11. Total Liabilities of the subsidiary Rs. 190,991,065

12.Investments of the subsidiary

Long term(a) Nil

Current(b) Nil

13. Turnover of the subsidiary Rs. 273,602,050

14. Profit/(Loss) before taxation of the subsidiary Rs. 78,030,567

15. Provision for taxation of the subsidiary Rs. 9,516,913

16. Profit/(Loss) after taxation of the subsidiary Rs. 68,513,654

Hyderabad26 July, 2010

Tapaas Chakravarti CMD & CEO

Sanjay Choudhary Financial Controller

Anita Sunil ShankarCompany Secretary

K.BalasubramanianDirector


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CORPORATE SOCIAL RESPONSIBILITY


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Set up in 2008, DQ Smile Foundation is a non-profit initiative of DQ Entertainment. Driven by its philosophy “The happiest people are not those getting more, but those giving more”. We endeavor to make a positive contribution to the underprivileged and economically poor communities of society, by supporting a wide range of socio-economic, educational and health benefits.

Vision: The Foundation’s vision is to live in a world of peace and prosperity where all people, regardless of geography, background or economic status, enjoy and employ the full range of their talents and abilities.

Mission: The mission of the Foundation is improving, guiding and inspiring the lives of the underprivileged in the society. The Foundation facilitates programs and gives direct assistance and resources to the needy in the society and other charitable NGO organizations. Many of the community projects and programs are driven by active participation from our Associates.

Core Values: DQ Smile Foundation is founded on the following set of Core values.

We care for our communities and see value in supporting the civic organizations that provide the backbone for economic progress and the charitable organizations that provide the support and safety net for our citizens.We share with our communities through the financial support of and volunteer participation with community organizations that demonstrate values reflective of our organization.We invest in our communities by offering our resources wherever appropriate, in support of the causes and needs of civic and charitable organizations.We grow, as a result of the leadership development opportunities, the satisfaction of making a difference.

Report on Corporate Social Responsibility

All CSR Activities of DQ are initiated under the aegis of DQ Smile Foundation. In the last year, we have done substantial work in the fields of education, health, caring for the old and also creating awareness about Global warming and Water Conservation. Some of the notable activities have been –

Supply of flood relief materials to flood affected areas.

Encouraging and promoting the art of healthy competition among Govt. School students, distribution of steel plates for mid-day meal schemes, distributing school uniforms to orphans and taking care of health and hygiene of mentally retarded children(Swayamkrushi)

Blood donation and health & dental camps.

Supply of drinking water in summer in the slum areas.

Visiting old age homes and distributing clothes and provisions for the elderly and visiting orphanages for children and sharing stories and playing games.

Donating money for noble causes like treatment of renal failure(Sophiya Glory) as well as helping children suffering from retinoblastoma by donating some amount(LV Prasad Eye Institute)

Created awareness on Global Warming and Water Conservation through posters and emails.

From responsive activities to sustainable initiatives, DQE has clearly exhibited its ability to make a significant difference in the society and improve the overall quality of life.


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(i) Company’s philosophy on Corporate Governance:

At DQE we endeavor to blend growth and efficiency with governance and ethics. Our philosophy of Corporate Governance envisages upholding highest standards of integrity, transparency and accountability in all facets of our activities, operations and continuous interaction with all the stakeholders. It relates to decisions that define expectations, grant power, or verify performance.

Towards fulfilling our vision of being a “Global Entertainment Group” we constantly strive to ensure higher standards of quality and content levels for all our partners; providing equal importance and no compromise on ethics and honor of standing by the promises made. The Company has adopted a Code of Conduct for Board Members and Senior Management team. In addition, the Company has adopted a Code of Conduct for prevention of Insider Trading in securities of the Company. Both these codes are available on the Company’s website.

The Company is in compliance with the requirements of the guidelines on corporate governance stipulated under Clause 49 of the Listing Agreement entered into with the Bombay Stock Exchange.

(ii) Board of Directors

The Board provides strategic direction to the company’s senior management and oversees the interests of all stakeholders. It reviews corporate policies, overall performance, accounting and reporting standards and other significant areas of management, corporate governance and regulatory compliance.

Corporate Governance Report

(i) As on March 31, 2010, the Company has five directors. Of the five Directors, three (i.e. 60%) are Independent and Non-Executive Directors.

(ii) The composition of the Board is in conformity with Clause 49 of the Listing Agreement entered into with Bombay Stock Exchange.

(iii) None of the Directors on the Board are members of more than ten Committees or Chairman of more than five Committees across all the companies in which they are Directors. Necessary disclosures regarding Committee positions in other public companies as on March 31, 2010 have been made by the Directors.

(iv) Nineteen (19) Board Meetings were held during the year and the gap between two meetings did not exceed four months. The dates on which the said Meetings were held are as follows: May 25 2009, July 24 2009, July 25 2009 , August 18 2009, August 22 2009, August 26 2009, September 17 2009, September 29 2009, October 12 2009, November 09 2009, December 16 2009, December 23 2009, January 06 2010, February 15 2010 , February 20 2010, March 3 2010, March 11 2010, March 18 2010 and March 23 2010.

(v) None of the Non-Executive Directors have any material pecuniary relationship or transactions with the Company.

(vi) The details of other directorships held by the Board are available under the profiles of Board of Directors.

(vii) The names and categories of the Directors on the Board, their attendance at Board and Audit Comittee Meetings held during the year are given herein below.


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(iii) Audit Committee

The Audit Committee was constituted at the Board meeting held on August 26, 2009. The Audit Committee was reconstituted on September 17, 2009 and on October 12, 2009 as under. The purpose of the Audit Committee is to ensure the objectivity, credibility and correctness of our financial reporting and disclosure processes, internal controls, risk management policies and processes, tax policies, compliance and legal requirements and associated matters. The Audit Committee comprises:

(i) Mr. K Balasubramanian, Chairman;(ii) Ms. Theresa Plummer-Andrews;(iii) Mr. Girish Kulkarni(iv) Mr. Tapaas Chakravarti

Mr. Sanjay Choudhary, Financial Controller of the Company is a permanent invitee at all the meetings of the Audit Committee.

The terms of reference of the Audit Committee are as follows:

(i) Overview of the Company’s financial reporting process and the disclosure of its financial information to ensure that the financial statements reflect a true and fair position and that sufficient and credible information disclosed.

Particulars Board Audit

Number of Meetings 19 4

Mr. Tapaas Chakravarti 19 3

Mr. Akula Ramakrishna(Resigned w.e.f August 26, 2009)

6 N.A

Mr. Laxminarayana Nagu(Resigned w.e.f August 26, 2009)

6 N.A

Mr. K. Balasubramanian(Appointed w.e.f August 26, 2009)

13 4

Ms. Theresa Plummer – Andrews(Appointed w.e.f August 26, 2009)

4 1

Ms. Rashmi Chakravarti(Appointed w.e.f May 25, 2009)

18 N.A

Mr. Girish Kulkarni(Appointed w.e.f August 26, 2009)

13 4

Mr. Sanjay Saxena(Resigned w.e.f September 17, 2009)

0 N.A

(ii)Recommending the appointment and removal of external auditors, fixation of audit fee and also approval for payment for any other services;

(iii)Discussion with external auditors before the audit commences, of the nature and scope of audit as well as post-audit discussion to ascertain any area of concern;

(iv)Reviewing the financial statements and draft audit report, including quarterly / half yearly financial information;

(v)Reviewing with management the annual financial statements before submission to the Board, focusing primarily on:

(a) Any changes in accounting policies and practices;(b) Major accounting entries based on exercise of judgment by management;(c) Qualifications in draft audit report;(d) Significant adjustments arising out of audit;(e) The going concern assumption;(f) Compliance with the Indian GAAP;

(vi) Reviewing with the management, external and internal auditors, and the adequacy of internal control systems;

(vii) Reviewing the adequacy of internal audit function, including the audit charter, the structure of the internal audit department, approval of the audit plan and its execution, staffing and seniority of the official heading the department, reporting structure, coverage and frequency of internal audit;

(viii) Discussion with internal auditors of any significant findings and follow-up thereon;

(ix) Reviewing the findings of any internal investigations by the internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the Board;

(x) Looking into the reasons for substantial defaults in payments to the shareholders (in case of non-payment of declared dividends) and creditors; and


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(xi) Reviewing compliances as regards the Company’s whistle blower policy.

The Audit Committee met four times during the year on March 23, 2010, February 15, 2010, November 09, 2009 and September 29, 2009.

(iv) Remuneration Committee

The Remuneration Committee was constituted at the Board meeting held on August 26, 2009. The Remuneration Committee comprises:

(i) Ms. Theresa Plummer-Andrews, Chairman;(ii) Mr. K Balasubramanian.

The Remuneration Committee has been empowered with the role and function as per the provisions as specified under Annexure I D(2) of the Corporate Governance Code under Clause 49 of the Listing Agreement including the appointment and finalizing the remuneration of senior level employees of our Company.

Except for Mr. Tapaas Chakravarti and Mrs. Rashmi Chakravarti, who hold 41 shares as nominees of DQ Entertainment (Mauritius) Limited, none of the directors hold any shares in the Company. The Company has not issued any convertible debentures.

(v) Shareholder/Investors Grievance Committee

The Investor Grievance Committee was constituted at the Board meeting held on August 26, 2009. This Committee is responsible for the redressal of shareholder grievances. The Investor Grievances Committee comprises:

(i) Mr. Girish Kulkarni- Chairman;(ii) Mr. Tapaas Chakravarti; and(iii) Mr. K Balasubramanian.

The Committee performs inter alia the role/functions as set out in Clause 49 of the listing agreements with the Stock Exchanges and includes:

(i) Investor relations and redressal of shareholders grievances in general and relating to non receipt of dividends, interest, non- receipt of balance sheet etc.;

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

(iii) Such other matters as may from time to time be required by any statutory, contractual or other regulatory requirements to be attended to by such committee.

(iv) Details of investor complaints received and resolved from March 24, 2010 to June 30 2010 are as follows:

(vi) General Shareholder Information

(i) Annual General Meeting:Date: September 29, 2010Time: 02:30 pmVenue: Hotel NKM’s Grand 6-3-563/31/1, Somajiguda, Erramanzil,

Hyderabad-500082, Andhra Pradesh.

(ii) As required under Clause 49(IV)(G)(i) of the Listing Agreement entered into with BSE, particulars of Directors seeking re-appointment at the forthcoming Annual General Meeting (AGM) are given in the Notice of the AGM

(iii) Date of Book Closure: As mentioned in the Notice of the AGM

(iv) Listed at :

Bombay Stock Exchange LimitedFloor 25, P. J. Towers, Dalal StreetMumbai 400 001

(v) Stock Codes/Symbol at Bombay Stock Exchange Limited: 533176

(vi) Listing Fees as applicable have been paid.

(vii) Corporate Identification Number (CIN) of the Company: U92113AP2007PLC053585

Opening Balance

Received during

the year

Resolvedduring

the year

Closing Balance

Nil 145 145 Nil


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(vii) Market Price Data:

The equity shares of the Company were listed on March 29, 2010 on the Bombay Stock Exchange (BSE).

The monthly high and low of the market price of the equity shares of the Company having a face value of Rs.10/- each on the Bombay Stock Exchange for the period upto July 25, 2010 are as follows:

(viii) Registrar and Transfer Agents & Place for Acceptance of Documents

Karvy Computershare Private LimitedPlot No. 17-24, Vittal Rao Nagar MadhapurHyderabad – 500 081, IndiaTelephone: +91 40 2342 0815Facsimile: +91 40 2342 0814Email: [email protected]: www.karvycomputershare.com

(ix) Share Transfer System

24.84% of the equity shares of the Company are in electronic form as on June 30, 2010. Transfer of these shares is done through the depositories with no involvement of the Company. As regards transfer of shares held in physical form the transfer documents can be lodged with Karvy at any of the above mentioned addresses.

Transfer of shares in physical form is normally processed within ten to twelve days from the date of receipt, if the documents are complete in all respects.

(x) Dematerialisation of shares and liquidity

The Company’s shares are compulsorily traded in dematerialised form and are available for trading on both the depositories in India viz. National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL).

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

(xi) Outstanding GDRs/ADRs/Warrants or any Convertible instruments, conversion date and likely impact on equity

As on March 31, 2010, the Company did not have any outstanding GDRs/ADRs/Warrants or any Convertible instruments.

Graph representing the fluctuations in DQE’s share price at BSE.

Month High (in Rs.)

Low (in Rs.)

March 2010 140 103

April 2010 119.5 100

May 2010 109.8 88.1

June 2010 104.75 90.5

July 2010 122.50 98.75

The market capitalization of the Company as on July 26, 2010 is Rs.8990.6 million.


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(xii) Shareholding pattern as on March 31, 2010

STATEMENT SHOWING SHAREHOLDING PATTERN IN CLAUSE-35NAME OF THE COMPANY:DQ ENTERTAINMENT(INTERNATIONAL) LTD

SCRIP CODE: 533176 QUARTER ENDED: 31/03/2010

CATE-GORY CODE

CATEGORY OF SHAREHOLDER

TOTAL SHAREHOLDING

AS A % OF TOTAL NO OF SHARES

SHARES PLEDGE OR OTHERWISE ENCUMBERED

NO OF SHARE-HOLD-ERS

TOTAL NUM-

BER OF SHARES

NO OF SHARES

HELD IN DE-MATERIAL-IZED FORM

AS a PER-CENTAGE of (A+B)

As a PERCENT-

AGE of (A+B+C)

NUM-BER OF SHARES

AS a PERCENT-

AGE

(I) (II) (III) (IV) (V) (VI) (VII) (VIII) (IX)=(VIII)/(IV)*100

(A) PROMOTER AND PROMOTER GROUP

(1) INDIAN (a) Individual /HUF 6 246 0 0.00 0.00 0 0.00(b) Central Government/State

Government(s) 0 0 0 0.00 0.00 0 0.00(c) Bodies Corporate 0 0 0 0.00 0.00 0 0.00(d) Financial Institutions / Banks 0 0 0 0.00 0.00 0 0.00(e) Others 0 0 0 0.00 0.00 0 0.00 Sub-Total A(1) : 6 246 0 0.00 0.00 0 0.00 (2) FOREIGN (a) Individuals (NRIs/Foreign Individuals) 0 0 0 0.00 0.00 0 0.00(b) Bodies Corporate 1 59461972 0 75.00 75.00 0 0.00(c) Institutions 0 0 0 0.00 0.00 0 0.00(d) Others 0 0 0 0.00 0.00 0 0.00 Sub-Total A(2) : 1 59461972 0 75.00 75.00 0 0.00 Total A=A(1)+A(2) 7 59462218 0 75.00 75.00 0 0.00 (B) PUBLIC SHAREHOLDING (1) INSTITUTIONS (a) Mutual Funds /UTI 42 5217500 5217500 6.58 6.58 (b) Financial Institutions /Banks 6 166774 166774 0.21 0.21 (c) Central Government / State

Government(s) 0 0 0 0.00 0.00 (d) Venture Capital Funds 0 0 0 0.00 0.00 (e) Insurance Companies 0 0 0 0.00 0.00 (f) Foreign Institutional Investors 19 1853613 1853613 2.34 2.34 (g) Foreign Venture Capital Investors 0 0 0 0.00 0.00 (h) Others 0 0 0 0.00 0.00 Sub-Total B(1) : 67 7237887 7237887 9.13 9.13 (2) NON-INSTITUTIONS (a) Bodies Corporate 512 3199590 3199590 4.04 4.04 (b) Individuals (i) Individuals holding nominal share

capital upto Rs.1 lakh 32258 5827876 5827876 7.35 7.35

(ii) Individuals holding nominal share capital in excess of Rs.1 lakh 32 1156116 1156116 1.46 1.46

(c) Others TRUSTS 4 132650 132650 0.17 0.17 NON RESIDENT INDIANS 98 398130 398130 0.50 0.50 FOREIGN COMPANIES 1 128624 0 0.16 0.16 CLEARING MEMBERS 368 1739909 1739909 2.19 2.19 Sub-Total B(2) : 33273 12582895 12454271 15.87 15.87 Total B=B(1)+B(2) : 33340 19820782 19692158 25.00 25.00 Total (A+B) : 33347 79283000 19692158 100.00 100.00 (C) Shares held by custodians, against

which

Depository Receipts have been issued 0 0 0 0.00 0.00

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


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Certificate on Corporate Governance

TO THE MEMBERS OFDQ ENTERTAINMENT (INTERNATIONAL) LIMITED

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

The compliance of conditions of corporate governance is the responsibility of the management. Our examination was limited to a review of the procedures and implementation thereof, adopted by the Company for ensuring the compliance of the conditions of Corporate Governance. It is neither an audit nor an expression of opinion on the financial statements of the Company.

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

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

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

Partner


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CEO and Financial Controller’s Certification

ToThe Board of DirectorsDQ Entertainment (International) LimitedHyderabad

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

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

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

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

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

5. We are responsible for establishing and maintaining disclosure controls and procedures and internal controls over financial reporting for the Company, and we have :

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

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

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

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


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

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

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

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

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

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

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

Hyderabad July 26, 2010


Sanjay ChoudharyFinancial Controller


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MANAGEMENT’S DISCUSSIONS AND ANALYSIS


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Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe financial statements have been prepared in compliance with the requirements of the Companies Act, 1956, provisions of listing agreement and Generally Accepted Accounting Principles (GAAP) in India. Our Management accepts responsibility for the integrity and objectivity of these financial statements, as well as for various estimates and judgments used therein. The estimates and judgments relating to the financial statements have been made on a prudent and reasonable basis, so that the financial statements reflect in a true and fair manner the form and substance of transactions, and reasonably present our state of affairs, profits and cash flows for the year. The financial details mentioned in this chapter pertain to the consolidated audited accounts of DQ Entertainment (International) Limited, (“the Company”) for the year ended March 31 2010.

In addition to the historical information contained herein, the following discussion may include forward looking statements whch involve risks and uncertainties, including but not limited to risks inherent in the company’s growth strategy, dependency on certain clients, dependency on availability of qualified technical personnel and other factors discussed in this report.

A. Industry Overview

Global Media and Entertainment Industry:

The global M&E market, as a whole, will grow by 5.0 per cent compounded annually for the forecast period to 2014 reaching US$1.7 trillion, up from US$1.3 trillion in 2009.

Over the next five years digital technologies will progressively increase their impact across all segments of entertainment and media (E&M) as digital transformation continues to expand and escalate. Consumers are embracing new media experiences with staggering speed. The advancing digital transformation is driving audience fragmentation to a level not previously seen.

Brazil, Russia, India and China (BRIC) economies are the future building blocks of the world economy. BRIC economies together account for over 25% of the world’s land coverage, 40% of the world’s population and hold a combined (GDP) of US$8.7 trillion. Together, they are among the fastest-emerging economies and will be the growth engines of the global economy.

Estimates for the Indian M&E industry indicate robust growth over next five years.

The overall M&E industry size grew from INR 579 billion in 2008 to INR 587 billion at a rate of 1.4 percent. The growth rate is expected to increase to ~11.2 percent in 2010, as the industry witnesses a recovery. The CAGR from 2006 to 2009 has remained at 10 percent and the industry is expected to grow at a rate of 13 percent in next five years.

Percentage contribution of sectors

(Source: KPMG Analysis, Industry discussions)

Films

Television

Print

Radio

Music

Animation&VFX

Gaming

InternetAdvertising

Outdoor

3%

2006 2009 2014

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

1% 0% 2% 2%1% 3%1%

3%3%

3%4%

2% 1%2%

1%1%

2%

31% 30% 25%

41% 44% 48%

18% 15% 13%


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The Global Scenario: Animation Market Gaining Maturity:

The Global Animation Industry continues to show resilience and remains one of the fastest growing components of the global media and entertainment industry.

The global animation market touched US$ 59 billion in 2006 and is expected to expand at a CAGR of eight percent, during the 2006-2010 period, to touch US$ 100 billion by 2012. From the software development perspective, the market for animated content and related services currently stands at US$ 25-26 billion, with the potential to cross US$ 34 billion by 2010. The entertainment segment is projected to be the key driver of the animation market, contributing almost three-fourths of the revenues generated. The rapid advancement of technology has made computer animation available to the masses and the animation industry is one of the fastest growing industries. The demand for animated entertainment has expanded with the increase in broadcasting hours by cable and satellite TV along with the growing popularity of the Internet. In the past, animation series were aimed at children aged nine and below. In recent years however, TV stations have been producing animation series for teenagers, adults and the whole family. Animation series like The Simpsons and King of the Hill have been successfully aired on primetime TV. The major markets include the United States, Canada, Japan, France, Britain and Germany. Licensing operations for T-shirts, caps and other items have also been a major source of revenue for animation companies. In Japan, several successful computer games have crossed over and have become animated series like Pokemon, Monster Farm, Power Stone and Detective Conan. More broadly speaking, animation is increasingly used in video games, and movies are also increasingly reliant on animation and computer graphic special effects.

Another key trend we are witnessing is the outsourcing/co-production of animation content with Asia. This market is increasingly being tapped by North American film and television program producers. The major factor behind this shift of computer animation production to the Asia/Pacific region continues to be the availability of relatively lower cost, powerful computer animation platforms and advanced technology and skill sets in the Asian and Pacific Rim countries compared to North America and Europe.

Key Facts:

In the past, animation series were aimed at children aged nine and below. TV stations have been producing animation series for teenagers, adults and the whole family.

The rapid advancement of computer technology has made computer animation available to the masses.

The major animation markets include the United States, Canada, Japan, France, Britain, Koreaand Germany.

The emerging animation countries are China and India.

The outsourced computer animation production market is increasingly being tapped by North American film and television program producers.

(Source: Roncarelli Report (2004), Primary Research and Analysis)

Entertainment Web Designing E-Education

Global Animation Industry, Demand Perspective, USD billion, 2004-10

CAGR 7.82

Entertainment will remain the largest segment for animation driven by demand for animated movies and

television content.

51.0

59.0

68.4

79.7

2004 2006 2008 2010

CAGR 7.7 over 2004-10

90

80

70

60

50

40

30

20

10

0

10% 9%16% 14%74%

2006 2010

Share of Various Animation Segments, 2006-10

Entertainment Web Designing

Market SizeUSD 59.2 Billion

Market SizeUSD 80 Billion

E-Education


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Indian Animation Industry:

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

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

The revenue composition of the animation industry indicates that the commoditized outsourcing model continues to dominate the Indian animation arena. A limited number of Indian studios have ventured into IP creation or the relatively low risk co-production agreements, Nevertheless India continues to remain a CG animation outsourcing destination.

Post-production

VFX

Animation Product Creation

Animation Services

Animation and VFXIndustry (INR billion)

2006 2007 2008 2009 CAGR(2006-09)

2010P 2011P 2012P 2013P 2014P CAGR(2009-14)

Total industry size 12.0 14.5 17.4 19.8 17.9% 23.2 27.8 33.0 39.2 46.6 18.7%

50

45

40

35

30

25

20

15

10

5

02008 2009 2010 2011 2012 2013 2014

6.87.4

8.5

10.0

11.7

14.0

16.8

10.3

3.6 3.73.9 4.8 5.8

6.98.3

4.8 5.5 6.3 7.3 8.4 9.711.1

2.3 3.24.4

5.77.2

8.6

(Source: KPMG Analysis, Industry discussions)

Distribution of work currently executed by Indian Animation studios across media formats

Television 55%

Direct to DVD 25%

Movies for Theatrical release 20%

Future trends:

1) Increased consumption of animated content world wide has triggered launch of many new kids channels to name a few: Al Jazeera Kids for 22 Arabic nations, Noga TV-Israel, A TV Kids-Turkey, Disney XD for teens and similarly several new channels even in India have cropped up with a need for high quality content.

2) 3D stereoscopic animated feature films like Avatar, Alice in Wonderland, UP, Shrek 3 have completely changed the landscape of animated production and viewing for cinema. Television is not far beyond as 3D stereoscopic TV and polarized TV is already out in the market which will require huge content in 3D stereoscopic in coming years even for television. Over 17 large 3D stereoscopic feature films are in production in Hollywood alone triggering tremendous growth of animated content consumption.

3) Intellectual Property (IP) creation and co-ventures with global partners has become imperative and will fuel growth further.

Key Opportunities:

The fast-paced growth of the global animation industry can be attributed to the following factors.

Wider availability of dissemination mediums for accessing film and entertainment content that includes increasing number of TV channels, increase in broadcasting hours, new digital media


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formats like digital and satellite services, mobile phones, internet access, advertising and direct-to-home formats.

Rapidly advancing technology and software applications have facilitated animation to become more life-like and realistic. The quality of animation movies has greatly improved with incorporation of 3D.

Animation is increasingly being used in the gaming industry. Several characters that were originally produced for gaming are now being cast in movies and TV series.

Animated Feature Films, since the first success of Toy Story 1 in 1997, have not looked back and have increased today into a phenomenon of Entertainment covering not only children but the whole family. The box office collections of recently released 3D stereoscopic feature films like Avatar ( $ 2.73 Billion in first 8 weeks) , How to Train your Dragon ( $ 479 million), Alice in Wonderland ( $ 1.02 Billion 8 weeks), Toy Story 3 ( $ 576 Million in 3 weeks) and Shrek - 3 ( $ 791 Million) are a clear indication of market potential for productions of this nature.. The stereoscopic pipeline required for these movies is available with very few companies.

Critical mass, dedicated viewership and extremely valuable IP have enabled the IP owning companies to focus on multiple revenue streams which include setting up of licensing, publication, distribution and merchandising divisions.

North American and European film and television program producers are looking at Asia for animation production driven by production capabilities, powerful computer animation platforms and availability of skill sets.

It is expected that as Indian animation studios mature, co-production with Indian partners will be seen as significant trend in the future.

Source: E & Y Report- Tune in to emerging entertainment markets-Spotlight on Brazil, Russia, India and China PWC Report- Global Entertainment and Media Outlook: 2010-2014 forecast KPMG Report

on Indian Media and Entertainment Industry Report.

B. Financial Condition

Sources of Funds:

I. Shareholder funds

1. Share Capital: The authorized share capital of Rs. 38,100,000 was reclassified and increased to Rs. 800,000,000 divided into 80,000,000 Equity Shares of Rs.10 each on September 15, 2009. The outstanding issued, subscribed and paid-up equity share capital increased from 1,422,912 shares in March 31, 2009 to 79,283,000 shares as at March 31, 2010. During the year 77,860,088 equity shares of face value Rs.10 each were issued during the year, and 176,386 1% Redeemable Optionally Convertible Preference were redeemed for cash during the year.

Increase in Share capital is on account of the following:

27,381 equity shares by way of conversion of 27,381 preference shares into equity shares

58,011,920 equity shares by way of issued of bonus shares in the ratio of 40 shares for each share held as on September 15, 2009

3,772,776 equity shares were issued prior to the Intial Public Offering (IPO)

16,048,011 equity shares (172,960 equity shares under employee category and 15,875,051 equity shares to other investors) were issued vide the Initial Public Offer(“IPO”).

2. Reserves and Surplus:

The balance of Reserves and Surplus as on March 31 2010 stands Rs. 2,455.23 million. Reserves and surplus consists of Securities Premium Rs. 1,946.68 million,Capital Redemption Reserve Rs. 1.76 million, General Reserve Rs. 5.49 million, Profit and Loss Rs. 518.96 million and Foreign Currency Translation Reserve Rs. (18.46) million

Increase in Reserves and surplus is on account of increase in share premium by Rs 761.27 million and increase in profit and loss balance by Rs 264.96 million and creation of Capital Redemption Reserve Rs. 1.76 million in lieu of the redemption of preference shares.


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Movement in share premium is explained below:

Share premium on Pre IPO issue Rs 219.24 million (Premium per share Rs 58.11)

Share Premium on shares issued under employee quota in the IPO Rs 10.90 million ( Premium per share Rs 63.00))

Share Premium on shares issued to other retail investors in the IPO Rs 1,111.25 million (premium per share Rs 70.00)

Reduction of share premium on account of issue of bonus shares aggregating to Rs 580.12 million

II. Loan funds

3. Secured Loans: The balance of secured loans stands at 470.55 million. Increase in secured loans is on account of Borrowings from Term Loans Rs 211.19 million, Working Capital Loans (Net) Rs. 113.03 million and Repayment of Term Loans by Rs. 213.66 million.

4. Unsecured Loans: Unsecured loan of Rs. 118.39 million is the loan received by DQ Entertainment (Ireland) Limited ( the wholly owned subsidiary of the Company) from DQ Entertainment plc(the ultimate holding Company of the Company).

III. Deferred Tax Liability

There is no deferred tax liability during current year. The opening balance of deferred tax liability i.e. Rs. 12.47 million was reversed during the current year by creation of equivalent deferred tax asset resulting in no deferred tax liability as on 31 March 2010

Application of funds

I. Fixed Assets

1. Gross Block: There was an increase in the Gross Block of Rs 653.34 million owing to additions of Intangible Assets aggregating to Rs 665.44 million and Net Decrease in Tangible Assets by Rs 12.09 million ( Net impact of increase of Rs 38.98 million and decrease of Rs 51.07 million).

2. Accumulated Depreciation: Depreciation and amortization on fixed assets & Intangibles amount to Rs 174.65 million & Rs. 99.12 million respectively. The amortization of intangibles includes an impairment charge of Rs. 16.07 million

3. Capital Work-in-Progress: There was a decrease in Capital Work-In-Progress of Rs. 223.32 million mainly on account of capitalization of Distribution rights.

II. Investments

Investments of Rs. 870 million consists of investments made in short term liquid schemes of mutual funds - SBI mutual funds Rs 860 million and IDFC Mutual funds Rs. 10 million.

III. Current Assets, Loans & Advances

4. Sundry Debtors: Sundry debtor balance of Rs. 831.27 million (Previous Year Rs 415.69 million) is on account of sales in the last quarter (Rs 753.00 million) and the average realization period of debtors moving to 130 days in 2009-10 as against 79 days during the 2008-09.

The realization period has gone up due to the multiplicity of parties involved in financing of each of the project. While this results in financial security for the project, the additional procedural time has resulted in increased realization period.

5. Unbilled Revenue: Unbilled revenue of Rs 239.14 million consists of revenue pertaining to projects for which work is in progress but invoice is not raised 6. Cash and Bank Balances: Cash and Bank Balances as on 31 March 2010 consists of balances in Current Accounts Rs. 123.22 million (Includes Rs 50.00 million of unutilized funds of IPO) and in deposit Accounts Rs. 365.42 million (Includes Rs 326 million of unutilized funds of IPO)

7. Loans and Advances: Loans & Advances of Rs 172.04 million (Previous Year Rs 93.59 million) consists of advances recoverable in cash, kind or value to be received , advance taxes paid , payments made towards tax liability, and deposits. The increase in loans and advances is mainly on account of advances to suppliers of Rs 55.70 million, increase in claims receivable by 16.61 million (on account of service tax credit input) and MAT Credit Entitlement of Rs. 30.16.


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IV. Current Liabilities and Provisions

8. Current Liabilities: Increase in the current liabilities of Rs 91.90 million is mainly on account of increase in sundry creditors balance by Rs 92.18 million. Sundry creditors as on March 31, 2010 includes provisions aggregating to Rs 79.84 million as against Rs. 13.56 million as on March 31, 2009. Increase in provision is on account of provision of Rs 56.58 million for fee for the Book Running Lead Manager

9. Provisions: Increase in provisions of Rs 7.92 million is mainly on account of increase in provision for taxation balance by Rs 4.01 million; increase in employee benefits is Rs 6.28 million and decrease in provision for retakes by Rs 2.37 million

C. Result of Operations

I. Income:

Fiscal 2010 has witnessed an increase in income to Rs. 1,766.07 million from Rs. 1,509.08 million in fiscal 2009. The total income from operations has increased by 17% when compared to fiscal 2009.

Increase in sales is attributed to following reasons:

Increase in export sales by 12% when compared to fiscal 2009. i.e. from Rs. 1,346.42 million for fiscal 2009 to Rs 1,502.89 million for fiscal 2010 resulting in an increase of Rs. 156.47 million.

Increase in Distribution income by 188% when compared to fiscal 2009. I.e. from Rs. 74.63 million for fiscal 2009 to Rs 215.10 million for fiscal 2010 resulting in an increase of Rs. 140.47 million.

The following is the business segment wise sales recorded by the Company

Animation: Animation revenue increased from Rs. 1,356.58 million during fiscal 2009 to Rs. 1,523.65 million during fiscal 2010 there by resulting in an increase by Rs. 167.07 million (12% increase)

Gaming: Gaming revenue decreased from Rs. 66.96 million during fiscal 2009 to Rs. 15.99 million during fiscal 2010 there by resulting in an decrease by Rs. 50.97million (76% decrease)

Distribution: Distribution revenue increased from Rs. 74.63 million during fiscal 2009 to Rs. 215.10 million during fiscal 2010 there by resulting in an increase by Rs. 140.47 million (188% increase)

II. Expenditure:

Production expenses have increased significantly from Rs 52.67 million in fiscal 2009 to Rs. 241.31 million in fiscal 2010. The main increase in production expenses is attributable to following reasons:

DQ Entertainment Ireland (wholly owned subsidiary of DQ India) started its production operations during fiscal 2010. Out of the total of Rs. 241.31 million of production expenses Rs 183.13 million of production expenses pertain to DQ Entertainment Ireland. There were no significant operations in DQ Ireland during the previous year.

Personnel Costs :Break up of personnel costs is as follows

There is a decrease in Salaries and Wages from Rs. 634.20 million during fiscal 2009 to Rs. 578.25 million during fiscal 2010. The decrease in Salaries and Wages is due to rationalization in employee head count from 3,179 during fiscal 2009 to 2,811 during fiscal 2010.

III. Administration, selling and distribution expenses:

Summary of Major expenses included in Administration, selling and distribution expenses

Personnel Costs 31 March 2010

31 March 2009

Salaries and Wages 578.25 634.20

Contribution to Provident Fund

37.10 39.81

Staff Welfare Expenses 11.48 13.29

Gratuity 6.61 8.64

Leave Encashment 1.69 (2.54)

Total 635.13 693.40

(Rs. in Millions)


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Depreciation and Amortization

Decrease in Amortization cost is on account of reduced impairment loss on Intangibles of Rs.16.07 million in the fiscal 2010 as compared to Rs.62.18 million in the fiscal 2009.

Profit Before Tax:There is an increase in Profit before Tax by Rs. 68.42 million (35 % increase). The increase is due to increase in sales by17% when compared to fiscal 2009.

Taxation: Taxation primarily consists of Current Tax Rs. 44.43 million, this provision is off set by deferred tax asset of Rs. 12.47 and MAT Credit Entitlement of Rs. 30.16 million.

Profit After Tax: There is an increase in Profit after Tax by Rs. 105.49 million (65% increase). The increase is due to increase in sales by 17% when compared to fiscal 2009

D. Opportunities:

1. Capitalise on the growth of the animation industry across the globe including India.

Animation is one of the fastest growing industries in the world. Global animation market estimated at USD 68 billion in 2008 and expected to reach USD 100 billion by 2012. The Indian animation industry is expected to reach US $ 791 mn by 2 013, implying a CAGR of 17.8% over 2009-13. Among the different segments of animation industry, the product creation segment is estimated to grow fastest with a CAGR 21.9% to US $ 195 mn in 2013.* Increased emphasis on IP creation and attractive domestic opportunity have been the principal growth drivers for the animation production services.*Source: KPMG report on Entertainment and Media 2009

Administrative and Other Expenses

31 March 2010

31 March 2009

Communication Expenses

10.10 10.59

Professional and Consultancy Charges

58.22 89.21

Rent 43.65 47.37

Traveling and Conveyance Expenses

13.58 23.96

Provision for doubtful debts

6.81 5.79

Foreign Exchange Fluctuation Loss

38.50 60.78

Public issue related expenses

95.45 -

Total 266.30 237.70

Depreciation and Amortization

31 March 2010

31 March 2009

Depreciation 174.65 173.91

Amortization 99.09 108.28

Total 273.74 282.19

Reasons for movement in expenses

Decrease in Professional and Consultancy Charges by Rs. 30.99 million

Decrease in Rent expenses by Rs. 3.72 million

Decrease in traveling and conveyance expenses by Rs. 10.38 million

Decrease in Foreign Exchange Fluctuation loss by Rs. 22.28 million

The above decrease is offset by increase in the following expenses

During the year the company has raised share capital through initial public offer. The IPO expenses of Rs. 95.45 million are included in Administrative and Other Expenses

Profit Before Interest, Depreciation and Tax (“PBIDT”): There is an increase of PBIDT by 12% when compared to fiscal 2009. There is an increase in PBIDT from Rs. 536.88 million during fiscal 2009 to Rs. 601.18 million during fiscal 2010

Interest and Financial Charges: Interest and Financial Charges have increased from Rs. 55.60 million for fiscal 2009 to Rs. 58.89 million. The increase of 6% when compared to previous year is not significant

(Rs. in Millions)

(Rs. in Millions)


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DQE intends to capitalise on such growth factors by leveraging its unique positioning, international presence, global partnerships and expertise in this sector by developing its own iconic international IP’s for global audiences and Indian IP’s for India and Indian Diaspora across the globe.

2. Continued efforts to develop our presence in the market for animation services

Outsourcing from overseas countries is likely to continue due to an inherent cost advantage and the increasing maturity of Indian animation studios in enabling creation of quality content. DQE would continue to focus on expanding its footprint in the animation production services segment and enlarging its client base in diverse geographical regions of the world.

3. Continued focus on our co-production business model

DQE is committed to the sustainable business model which we believe is a low-risk model. It continues to move along the animation value chain, into IP creation and distribution of animation content. We hope to continue:

Continued focus on our co-production business model

Consolidate our portfolio of global and Indian IP’s Leverage our portfolio and content library for worldwide distribution, licensing and merchandising

Backward and forward integration by diversifying the range of offerings to include pre-production and post-production services

Expand our footprint in entertainment segment and enlarge our client base in diverse geographical regions

4. Backward and forward integration

DQE’s activities are currently focused on the production of animated content either on an outsourced basis or a co-production basis. Our foray into providing services from script to screen i.e. pre-production to post-production has given us a status of an Independent producer and thrown

open a number of opportunities to co-produce iconic properties with the leading producers, broadcaster and distributors from far east to far west.

DQE has been recognized as one of the top animation producers worldwide under the Global Animation industry report, published by Screen Digest

5. Exploitation of our large asset content

The success and growth of the peer companies in our business sphere has been on account of the huge library of content which they have been exploiting year on year by way of broadcasting, licensing and merchandising.

DQE has also adopted a similar model and has been slowly and steadily building its library of IP’s through its co-production deals and now with the development of its own home grown IP’s. Presently it has 450 hours of animated content for exploitation which DQE can monetize over the years through various distribution channels globally.

6. Acquisitions, strategic investments and joint ventures

We intend to grow through acquisitions of, strategic investments in and joint ventures with creative companies to ensure co-development of global intellectual property on a partnership basis. As and when opportunities arise, DQE aims to make similar strategic investments or enter into joint ventures with content-rich companies to take advantage of the tremendous growth this industry is seeing for next decade

E. Risks & Concerns

(i) Operational Risks

Given the seasonality of our business our revenues and expenses are difficult to predict and can vary significantly from period to period. Our business will suffer if we fail to further explore new IPs and enhance the existing library in order to keep pace with the increasing demand of the industry.


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The Company derives a significant portion of its revenue from a relatively small number of clients. DQE has an impressive blue-chip client list including names such as Disney Group, Nickelodeon Entertainment, Electronic Arts, NBC-Universal, BBC etc. It is extremely unlikely that work will cease from all of these simultaneously. Strong order pipeline provides a revenue visibility for next two years.

Our success depends largely upon our highly skilled creative artists. The Indian animation market is still relatively immature and the supply of manpower has yet to catch up with demand. This is currently halting the industry’s growth potential. With over 3,500 associates at all locations including freelancers, DQE has access to the largest workforce worldwide in the animation production industry.

The Company has taken a long-term perspective and established DQ School of Visual Arts. It has also setup training schools in partnership with a few state governments. The training schools generate circa 800 skilled animators annually.

DQE’s relative size compared to its powerful blue-chip client base could be seen as cause for some concern. DQE has built a successful track record and it would not benefit their clients to abuse the relationship. DQE’s relative position compared to its peers in India is strong - it is seven times larger than its closest competitor as measured by the workforce.

Competitive pressures may also arise from overseas. This is particularly the case where the local governments are supporting the animation industry in the form of tax incentives, infrastructural and/or financial support e.g. China, Taiwan and Singapore.

India has strong and established IT and IT enabled services infrastructure. India offers competitive advantages namely, large media and entertainment industry; growing domestic demand, cost arbitrage, English language proficiency.

DQE provides a significant portion of its outsourced production services on a fixed-price, fixed-time frame basis. The Company therefore bears the risk of cost overruns, completion delays and wage inflation related to these projects. Additionally, any material which clients reject due to non-compliance with their specifications must be reproduced.

To manage this risk DQE has developed a propriety resource planning software which facilitates scheduling and resource management across projects to mitigate these risks. In addition, the size of DQE’s workforce means management can redeploy staff from one project to another if required, thereby avoiding problems of slippage.

Taxes and other levies imposed by the Government of India or state governments, as well as tax exemptions, financial policies, subsidies and regulations, may have a material adverse effect on DQE’s business, financial condition and results of operations.

Terrorist attacks or a war could adversely affect our business, results of operations and financial conditions

(ii) Financial Risks

DQE generates revenues broadly in line with the overall Indian animation industry; nearly 90% of commissions come from either North America or Europe. This means there is a substantial currency risk in terms of the US dollar and the Euro versus the Indian Rupee.

Financial and Other Derivative Instruments

Our primary market risk exposures are interest rate and foreign currency exchange rate risk. The following table sets forth the details of the derivative contracts entered into by the Company for hedging currency and interest rate related risks outstanding.

The company uses Forward Exchange Contracts and Currency Options to hedge its exposures in foreign currency related to firm commitments and highly probable forecasted transactions.


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Quantitative and qualitative disclosure about market risk

General: Market risk is the risk of loss related to adverse changes in market rates and prices, such as interest rates, foreign exchange rates and commodity prices. We are exposed to various types of market risks, in the normal course of business. The following discussion and analysis, which constitute “forward-looking statements” that involve risk and uncertainties, summarise our exposure to different market risks.

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

Foreign Currency Exchange Rates

The information on Derivative instruments is as follows:

F. Internal control systems and their adequacy

The CEO and CFO certification provided in the CEO and CFO Certification section of the Annual Report discusses the adequacy of our internal control systems and procedures.

G. Human Resources Strategy

The Company continues to invest in human resources development. The Company has recruited 358 employees in fiscal 2010.

The detailed chapter on HR strategy, initiatives taken by the HR department and training and development are available in the report for your reference.

Derivative Instrument Outstanding as it the year end.

Currency 31 March 2010 31 March 2009

Buy Sell Buy Sell

I) Forward Exchange Contracts

USD - $450,000 - $500,000

INR - 20,263,500

- 26,085,000

II) Currency Options

USD - $1,200,000 - $10,800,000

INR - 54,036,000 - 563,436,000

USD EURO

Exchange rates

Average Closing Average Closing

31-Mar-09 46.47 52.17 65.96 68.91

30-Sep-09 49.02 48.34 68.39 70.54

31-Mar-10 47.74 45.03 67.47 60.59


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Auditors’ ReportTO THE MEMBERS OF DQ ENTERTAINMENT (INTERNATIONAL) LIMITED

1. We have audited the attached Balance Sheet of DQ ENTERTAINMENT (INTERNATIONAL) LIMITED (“the Company”) as at 31st March, 2010, the Profit and Loss Account and the Cash Flow Statement of the Company for the year ended on that date, both annexed thereto. These financial statements are the responsibility of the Company’s Management. Our responsibility is to express an opinion on these financial statements based on our audit.

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

3. As required by the Companies (Auditor’s Report) Order, 2003 (CARO) issued by the Central Government in terms of Section 227(4A) of the Companies Act, 1956, we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order.

4. Further to our comments in the Annexure referred to in paragraph 3 above, we report as follows: (a) we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit;

(b) in our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books;

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

(d) in our opinion, the Balance Sheet, the Profit and Loss Account and the Cash Flow Statement dealt with by this report are in compliance with the Accounting Standards referred to in Section 211(3C) of the Companies Act, 1956;

(e) in our opinion and to the best of our information and according to the explanations given to us, the said accounts give the information required by the Companies Act, 1956 in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India:

(i) in the case of the Balance Sheet, of the state of affairs of the Company as at 31March, 2010;

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

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

5. On the basis of the written representations received from the Directors as on 31st March, 2010 taken on record by the Board of Directors, none of the Directors is disqualified as on 31st March, 2010 from being appointed as a director in terms of Section 274(1)(g) of the Companies Act, 1956.

For Deloitte Haskins & Sells Chartered Accountants

(Registration No.008072S)

Ganesh BalakrishnanPartner

(Membership No.201193)

Secunderabad, 26th July, 2010


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Annexure to the Auditors’ Report(Referred to in paragraph 3 of our report of even date)

(i) Having regard to the nature of the Company’s business/activities/result, (ii), (vi), (viii), (x), (xii), (xiii), (xiv), (xv), and (xix) clauses of CARO are not applicable.

(ii) In respect of its fixed assets:

(a) The Company has maintained proper records showing full particulars, including quantitative details and situation of the fixed assets.

(b) The fixed assets were physically verified during the year by the Management in accordance with a regular programme of verification which, in our opinion, provides for physical verification of all the fixed assets at reasonable intervals. According to the information and explanation given to us, no material discrepancies were noticed on such verification.

(c) The fixed assets disposed off during the year, in our opinion, do not constitute a substantial part of the fixed assets of the Company and such disposal has, in our opinion, not affected the going concern status of the Company.

(iii) The Company has neither granted nor taken any loans, secured or unsecured, to/from companies, firms or other parties listed in the Register maintained under Section 301 of the Companies Act, 1956.

(iv) In our opinion and according to the information and explanations given to us, having regard to the explanations that some of the items purchased are of special nature and suitable alternative sources are not readily available for obtaining comparable quotations, there is an adequate internal control system commensurate with the size of the Company and the nature of its business with regard to purchases of fixed assets and for the sale of services. During the course of our audit, we have not observed any major weakness in such internal control system.

(v) To the best of our knowledge and belief and according to the information and explanations given to us, in our opinion there were no contracts or arrangements that need to be entered into the Register maintained in pursuance of Section 301 of

the Companies Act, 1956. Accordingly clause (v) of CARO is not applicable.

(vi) In our opinion, the internal audit functions carried out during the year by a firm of Chartered Accountants appointed by the Management have been commensurate with the size of the Company and the nature of its business.

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

(a) The Company has generally been regular in depositing undisputed dues, including Provident Fund, Employees’ State Insurance, Income-tax, Sales Tax, Wealth Tax, Service Tax, Custom Duty, Excise Duty, Cess and other material statutory dues applicable to it with the appropriate authorities.

(b) There were no undisputed amounts payable in respect of Income-tax, Wealth Tax, Custom Duty, Excise Duty, Cess and other material statutory dues in arrears as at 31st March, 2010 for a period of more than six months from the date they became payable.

(c) Details of dues of Income-tax which have not been deposited as on 31st March, 2010 on account of disputes is given below:

There were no amounts in respect of sales tax, wealth tax, service tax, custom duty, excise duty and cess which have not been deposited on account of any dispute.

(viii) In our opinion and according to the information and explanations given to us, the Company has not defaulted in the repayment of dues to banks and financial institutions.

Statute Nature of Dues

Forum where

Dispute is pending

Period to which the amount relates

Amount involved

(Rs)

Income Tax Act, 1961

Non deduction of TDS for payments

to non residents

Appellate Tribunal, Hydera-

bad

2008-09 9,642,147


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

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

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

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

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







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Balance Sheet as at 31 March, 2010

As at 31 March 2010 As at 31 March 2009Schedule Rs. Rs. Rs.

I. Sources of Funds1 Shareholders’ Funds

Share Capitala) 1 792,830,000 16,266,790Reserves and Surplusb) 2 2,409,384,862 1,445,974,953

3,202,214,862 1,462,241,743

2 Loan FundsSecured Loans 3 470,545,263 364,734,329

3 Deferred Tax Liability

(Refer Note 6 (b) of Schedule 17(II))- 12,474,002

Total 3,672,760,125 1,839,450,074

II. Application of Funds1 Fixed Assets 4

a) Gross Block 1,897,478,629 1,350,443,395b) Less: Accumulated Depreciation

and Amortisation810,568,857 586,827,810

c) Net Block 1,086,909,772 763,615,585d) Capital Work-in-Progress 402,692,248 626,683,506(Refer Note 5 of Schedule 17(II))

2 Investments 5 974,142,490 6,891

3 Current Assets, Loans and

Advancesa) Sundry Debtors 6 707,653,061 415,692,790b) Unbilled Revenue 178,939,248 183,946,161c) Cash and Bank Balances 7 578,725,043 105,400,386d) Loans and Advances 8 174,390,010 93,526,449

1,639,707,362 798,565,786Less: Current Liabilities and Provisions

a) Current Liabilities 9 336,552,117 254,653,254b) Provisions 10 94,139,630 94,768,440

430,691,747 349,421,694 Net Current Assets 1,209,015,615 449,144,092

Total 3,672,760,125 1,839,450,074Notes and Accounting Policies 17

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

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

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

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

Place: SecunderabadDate: July 26, 2010


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Profit and Loss Account for the year ended 31 March, 2010

For the year ended For the year ended

Schedule 31 March 2010 31 March 2009

Rs. Rs.

INCOME :

Sales 11 1,481,150,053 1,498,165,681

Other Income 12 15,530,802 10,910,444

1,496,680,855 1,509,076,125

EXPENDITURE :

Production Expenses 13 58,173,312 52,671,895

Personnel Costs 14 635,126,717 693,399,277

Administrative and other expenses 15 319,293,602 296,613,541

Financial Expenses 16 55,655,715 55,595,909

Depreciation and Amortisation 4 268,385,393 282,190,366

Less: Expenditure transferred to capital account (34,371,209) (70,757,595)

1,302,263,530 1,309,713,393

Profit before Tax 194,417,325 199,362,732

Provision for Taxation

- Current Tax (includes Rs. 736,680 (31.03.2009 : Rs. Nil) of earlier years)

(34,908,957) (22,387,865)

- Deferred Tax 12,474,002 (12,474,002)

- Fringe Benefit Tax - (2,996,255)

- MAT Credit Entitlement 30,160,880 -

Profit after Tax 202,143,250 161,504,610

Balance brought forward 254,277,531 92,772,921

Amount available for appropriation 456,420,781 254,277,531

Appropriation

Transfer to Capital Redemption Reserve (1,763,860) -

Balance Carried forward 454,656,921 254,277,531

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

Basic- Rs 3.35 2.77

Diluted- Rs 3.34 2.76

Notes and Accounting Policies 17

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

In terms of our report attached

For Deloitte Haskins & Sells

Chartered Accountants Tapaas Chakravarti K.Balasubramanian

(CMD & CEO) (Director)

Ganesh Balakrishnan Anita Sunil Shankar Sanjay Choudhary

Partner (Company Secretary) (Financial Controller)

Place: Secunderabad

Date: July 26, 2010


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Cash Flow Statement for the year ended 31 March, 2010

For the year ended 31 March 2010


Rs. Rs. Rs. Rs.

A. Cash flow from Operating ActivitiesProfit Before TaxAdjustments forDepreciation and amortisationDepreciation transferred to capital accountInterest IncomeInterest ExpensesWealth TaxPublic issue related expenses(Profit)/loss on sale of fixed assetsUnrealised loss due to exchange differences

Operating profit before working capital changesAdjustments for changes inTrade and other receivablesTrade payables, other liabilities and provisions

Income tax paid

Net Cash from Operating activities

B. Cash flow from Investing Activities

Purchase of fixed assetsSale of fixed assetsInvestment in SubsidiaryInvestment in Mutual fundsInterest received on deposits with Banks and other deposits etc.,

Net Cash used in Investing activities

C. Cash flow from Financing Activities

Interest and financing charges paidIssue of Equity sharesPremium on issues of sharePayment to preference shareholders on redemptionPublic issue related expensesProceeds from Borrowings from Term LoansRepayment of Term LoansProceeds on account of Working Capital Loans (Net)Net Cash from /(used in) Financing activities

Net increase/(decrease) in cash and cash equivalents (A+B+C)

Cash and cash equivalents as at the beginning of the year

Net foreign exchange differenceCash and cash equivalents as at the end of the year*(refer Schedule No.7)* Including restricted balance of Rs.39,207,402 (31.03.2009: Rs.3,393,556)

268,385,393 847,650

(2,459,055)28,267,398

25,85695,446,711(4,299,059)15,240,870

(499,062,800) 16,975,325

(482,087,475)(35,530,751)

(239,157,737)57,504,735

(146,140,375)(870,000,000)

842,614

(27,060,404)198,207,870

1,341,385,859(1,763,860)

(29,344,742)211,199,743

(213,663,671)113,033,712

194,417,325

401,455,764595,873,089

(517,618,226)78,254,863

(1,196,950,763)

1,591,994,507

473,298,607

105,400,386 26,050

578,725,043

282,190,3661,583,449

(7,112,517)31,869,673

22,692-

178,83053,627,017

(565,221,905)73,372,533

(491,849,372)(9,747,692)

(264,525,439)2,277,301

--

9,180,978

(16,428,600)----

30,000,004(181,262,095)

36,493,338

199,362,732

362,359,510561,722,242

(501,597,064)60,125,178

(253,067,160)

(131,197,353)

(324,139,335)

429,322,307217,414

105,400,386

In terms of our report attached


Tapaas Chakravarti(CMD & CEO)

K.Balasubramanian(Director)


Anita Sunil Shankar(Company Secretary)

Sanjay Choudhary(Financial Controller)



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Schedules forming part of the Balance Sheet

Sl Particulars

As at As at

31 March 2010 31 March 2009

Rs. Rs.

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

Authorised

80,000,000 Equity Shares of Rs.10/- each (31.03.2009 : 3,010,000 shares of Rs.10/- each)

800,000,000 30,100,000

Nil 1% Redeemable Optionally Convertible Preference Shares of Rs.10/- each (31.03.2009: 800,000 shares of Rs.10/- each)

- 8,000,000

800,000,000 38,100,000

Issued, Subscribed and Paid up

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

792,830,000 14,229,120

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

-

2,037,670

792,830,000 16,266,790

2 Reserves and Surplus

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

Capital Redemption Reserve

Balance as per last account

Add: Transfer from Profit and Loss account 1,763,860 -

1,763,860

Securities Premium Account

Balance as per last account 1,185,410,028 1,185,410,028

Less: Issue of bonus shares (580,119,200) -

Add: On shares issued 1,341,385,859 -

1,946,676,687 1,185,410,028

General Reserve

Balance as per last account 5,487,394 5,487,394

Profit and Loss Account


2,409,384,862 1,445,974,953

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

a) From Banks

- Term Loans 288,987,897 299,078,281

- Working Capital Loans 178,689,760 65,656,048

b) From others:

- Vehicle Loans 2,867,606 -

470,545,263 364,734,329


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Sl Particulars

As at As at

31 March 2010 31 March 2009

Rs. Rs.

5 Investments

Long Term, Unquoted, Trade.

In Subsidiary Company

- DQ Entertainment (Ireland) Limited

104,142,490 6,891

(1,529,000 (31.03.2009 : 100 ) ordinary shares of face value Euro 1, fully paid)

(1,528,900 (31.03.2009 : 100) ordinary shares of face value Euro 1, fully paid was acquired during the current year)

Current Investment (at lower of cost and fair value)

Investments in Mutual Funds (quoted) (Includes Rs 850,000,000 made from the unutilised funds of IPO)

870,000,000 -

(Refer Note. 7 of Schedule 17(II))

974,142,490 6,891

Notes

Market value of quoted investments 870,019,186 -

Book value of quoted investments 870,000,000 -

Book value of unquoted investments 104,142,490 6,891

6 Sundry Debtors (Unsecured)

A)Over six months

Considered good 141,125,754 39,187,329

Considered doubtful 9,217,081 4,289,441

B)Other Debts

Considered good 566,527,307 376,505,461

Considered doubtful 3,939,865 1,501,045

720,810,007 421,483,276

Less: Provision for Doubtful Debts (13,156,946) (5,790,486)

707,653,061 415,692,790

7 Cash and Bank Balances

Cash balance on hand

81,264 34,797

Remittance in transit

24,236,000 20,567,203

Cheques on hand

69,363,379 -

Balance with Scheduled Banks

Current Accounts (Includes Rs 50,000,000 (31.03.2009 : Rs. Nil)

of unutilised funds of IPO)119,617,916 35,634,982

Deposit Accounts (Includes Rs 326,000,000 (31.03.2009 : Rs. Nil)

made from the unutilised funds of IPO)365,426,484 49,163,404

578,725,043 105,400,386


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8 Loans and Advances

(Unsecured, Considered Good)

Interest accrued on deposits 1,616,441 -

Advances recoverable in cash or in kind or for value

to be received :-

Other Advances 30,437,827 19,121,504

Advance to DQ Entertainment plc (Parent of holding company) - 27,057,703

Advance towards share application money 41,997,885 -

Deposits * 34,656,604 30,193,207

Claims Receivable 33,538,469 17,154,035

MAT Credit Entitlement 30,160,880 -

Advance Tax (Net of provision of Rs. 34,912,120) 1,981,904 -

174,390,010 93,526,449

* Deposits include Balance with Government Authorities Rs.6,068,950 (31.03.2009: Rs.5,514,482)

9 Current Liabilites

Sundry creditors

- Total outstanding dues of micro enterprises and small enterprises - -

- Total outstanding dues of creditors other than micro enterprises and small enterprises *

317,037,129 227,708,228

Advance from Customers 3,003,848 13,286,466

Other liabilities 14,484,870 12,200,943

Interest accrued but not due on Secured Loans 2,026,270 1,457,617

336,552,117 254,653,254

*Includes liabilities on account of capital nature Rs.750,881 (31.03.2009: Rs.1,556,000)

10 Provisions

Taxation (Net of advance tax of Rs.26,102,978 (31.03.2009: Rs.26,123,991))

10,383,906

14,912,892

Employee benefits 62,350,279 56,071,204

Retakes (Refer Note i of Schedule 17(I))

Opening balance 23,784,344 17,371,406

Add: Additional provision for the year 18,885,686 17,716,670

Less: Utilised during the year (21,264,585) (11,303,732)

Closing balance 21,405,445 23,784,344

94,139,630 94,768,440



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Sl Particulars

For the year For the year 31 March 2010 31 March 2009

Rs. Rs.

11 Sales

Production : Export 1,353,440,546 1,346,416,980

: Domestic 36,757,519 77,119,296

Distribution Income 90,951,988 74,629,405

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

12 Other Income

Interest from banks and others (including TDS of Rs.245,691 (31.03.2009 : Rs.1,454,704))

2,459,055 7,061,684

Profit on Sale of Fixed Assets 4,299,059 -

Miscellaneous Income 4,108,270 2,736,239

Liabilities no longer required written back 733,675 1,112,521

Insurance claims 3,930,743 -

15,530,802 10,910,444

13 Production Expenses

Production Expenses - Direct 35,191,828 26,454,047

Power and Fuel 22,981,484 26,217,848

58,173,312 52,671,895

14 Personnel Costs

Salaries and Wages 578,253,789 634,203,393

Contribution to Provident Fund 37,096,514 39,805,586

Staff Welfare Expenses 11,481,627 13,292,647

Gratuity 6,606,226 8,643,133

Compensated absences 1,688,561 (2,545,482)

635,126,717 693,399,277

15 Administrative and Other Expenses

Schedules forming part of the Profit and Loss Account


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Communication Expenses 10,100,018 10,589,421

Printing and Stationery 1,110,713 1,911,997

Professional and Consultancy Charges 57,645,440 88,954,419

Repairs and Maintenance :

Building 3,418,186 2,454,367

Plant and Machinery 5,536,428 5,996,380

Others 1,887,733 791,534

Insurance 1,024,977 2,182,439

Business Promotion 5,039,115 4,183,889

Rates and Taxes 5,515,171 772,855

Rent 43,654,269 47,372,720

Auditors Remuneration 3,950,000 2,478,080

Directors Remuneration 9,877,055 8,400,000

Selling and Distribution Expenses 6,974,661 12,279,813

Recruitment Expenses 33,493 3,268,076

Travelling and Conveyance Expenses 13,244,899 23,959,773

Loss on sale of assets - 178,830

Bad debts 31,557 783,471

Provision for doubtful debts (net) 6,806,375 5,790,486

Foreign Exchange Fluctuation Loss (net) 40,431,568 60,777,915

Public issue related expenses 95,446,711 -

Miscellaneous Expenses 7,565,233 13,487,076

319,293,602 296,613,541

16 Financial Expenses

Interest on Bank Loans

- Term loans 19,412,655 27,103,022

- Working capital Loans 8,433,144 4,311,575

- Vehicle loans 421,598 455,076

Other Financial Charges

- Bank charges 20,596,813 4,149,670

- Other charges 6,791,505 19,576,566

55,655,715 55,595,909

Schedules forming part of the Profit and Loss Account


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17. Accounting Policies - Financials

I. Significant Accounting Policies

a. Basis for Preparation of Financial Statements: The financial statements have been prepared under the historical cost convention on an accrual basis of accounting in accordance with Generally Accepted Accounting Principles, Accounting Standards notified under section 211(3C) of the Companies Act, 1956 and the relevant provisions thereof. b. Fixed Assets:Fixed Assets are valued at cost inclusive of freight, installation cost, finance cost, duties and taxes and other incidental expenses incurred during the construction / installation stage. Fixed Assets include expenditure incurred on creation of infrastructure facilities at work premises.

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

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

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

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

*Computer Generated Imagery

Individual assets costing less than Rs.5,000 are fully depreciated in the period of purchase. Where the aggregate actual cost of individual items of Plant and Machinery costing Rs.5,000 or less constitutes more than 10% of the total actual cost of Plant and Machinery, depreciation is provided at normal rates stated above.

Leasehold improvements are amortized over the primary period of lease.

Cost of Distribution Rights is amortized over the period of the right including extended period or ten years whichever is lower. d. Investment:Long-term investments are stated at cost, less provision for other than temporary diminution in value. Current investment comprising investments in mutual funds are stated at the lower of cost and fair value.

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

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

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

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

No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due. g. Foreign Currency Transactions:Foreign Currency Transactions (FCT) and Forward Exchange Contracts (FEC) used to hedge FCT (including firm commitments and forecast transactions) are initially recognized on the spot rate on the date of the transaction / Contract.


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

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

h. Employee benefits i) Post-employment benefit plansPost employment benefits are recognised as an expense in the Profit and Loss Account for the year in which the employee has rendered services.

For defined benefit schemes, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses are recognised in full in the profit and loss account for the period in which they occur.

ii) Short-term employee benefitsThe undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employees is recognised during the period when the employee renders the service. These benefits include compensated absences such as paid annual leave.

iii) Long-term employee benefitsCompensated absences which are not expected to occur within twelve months after the end of the period in which the employee renders the related services are recognized as a liability at the present value of the defined benefit obligation at the balance sheet date.

i. Public Issue related expensesPublic issue related expenses are recognised as an expense in the profit and loss account in the year in which the expenses are incurred.

j. Taxationi) Provision for Income Tax is made on the assessable income, at the applicable tax rates, in accordance with the provisions of the Income-tax Act, 1961. Income derived from the animation division and related services are exempt under section 10A of the Income-tax Act, 1961 upto 31st March 2011. The Company has provided tax on its other taxable income earned during the year.

ii) Minimum Alternate Tax (MAT) paid in accordance to the tax laws, which gives rise to future economic benefits in the form of adjustment of future income tax liability, is considered as an asset if there is convincing evidence that the Company will pay normal income tax after the tax holiday period. Accordingly, MAT is recognized as an asset in the balance sheet when it is probable that the future economic benefit associated with it will flow to the Company and the asset can be measured reliably.

iii) Deferred tax expense or benefit is recognised on timing differences being the difference between taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent periods. Deferred tax assets and liabilities are measured using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date.

In the event of unabsorbed depreciation and carry forward of losses, deferred tax assets are recognised only to the extent that there is virtual certainty that sufficient taxable income will be available to realise such assets. In other situations, deferred tax assets are recognised only to the extent that there is reasonable certainty that sufficient future taxable income will be available to realise these assets.

k. Provision for retakesProvisions for retakes are recognised wherever they are considered to be material. Retakes include creative changes to the final product delivered to the customer, performed on the specific request of the customer at the Company’s own cost. Requests for retakes from customers are expected to be received by the Company within a period of three months from the final delivery.

l. Leases Lease payments for assets taken on Operating Lease are recognized in the Profit and Loss Account over the lease term in accordance with the Accounting Standard 19 – Leases.

m. Earnings Per ShareThe Company reports basic and diluted Earnings per Share (EPS) in accordance with Accounting Standard 20 – EPS. • Basic Earnings per Equity Share has been computed by dividing Net Profit for the year by the weighted average number of Equity Shares outstanding for the period. • Diluted Earnings per Equity Share has been computed using the Weighted average number of Equity Shares and dilutive potential Equity Shares outstanding during the period except where the results are anti dilutive.

n. Provisions, Contingent Liabilities and Contingent AssetsProvisions involving substantial degree of estimation in measurement are recognized when there is a present obligation as a result of past events and it is possible that there will be an outflow of resources. Contingent Liabilities are not recognized but are disclosed in the Notes. Contingent Assets are neither recognized nor disclosed in the Financial Statements.

o. ImpairmentThe carrying amounts of the Company’s assets, other than inventories and deferred tax assets, are reviewed at each Balance Sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognized whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognized in the income statement. A cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Impairment losses recognized in respect of cash-generating units are allocated to reduce the carrying amount of assets in the unit on a pro rata basis.


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II Notes to Financial Statements

1 Company overview:

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

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

2 Share Capital:

Authorised share capital

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

Issued, Subscribed & Paid up

Equity Shares :a)

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

Preference Shares :b)

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

Dividends:c)

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

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

Reserves and Surplus3

Capital Subsidy :

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


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Distribution Rights4

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

Capital Work-in-progress5

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

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

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

6 (b) Deferred Tax

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

Timing Differences(Liability) / Asset at

31 March 2009 (Rs.)

Current year (Charge) / Credit

(Rs.)

(Liability) / Asset at 31 March 2010 (Rs.)

Depreciation (86,472,029) (23,712,026) (62,760,003) Gratuity 10,719,494 (1,819,239) 12,538,733 Leave Encashment 7,626,538 (216,368) 7,842,906 Sick leaves 712,570 (98,651) 811,221 Provision for Doubtful Debts 1,968,186 (2,503,860) 4,472,046

Amalgamation expenses us 35DD - (327,154) 327,154

IPO Expenses u/s 35 D - (8,497,500) 8,497,500 Past losses and unabsorbed depreciation 52,971,239 24,700,796 28,270,443 Deferred Tax Asset/(Liability)-Net (12,474,002) (12,474,002) -

7 Investment in Mutual funds

Investment in Mutual funds

Name of the Mutual fund Purchase during the year * Sold during the year Balance as at 31 March 2010

No of units Rupees No of units Rupees No of Units Rupees

SBI - Ultra Short term Fund - Institutional PLAN - Growth

71,699,442 860,000,000 - 71,699,442 860,000,000

GCBG IDFC Cash Fund - Inst Plan B - Growth

605,627 10,000,000 605,627 10,001,090 - -

GCBG IDFC Money manager fund - Treasury plan - Inst Plan B - Growth

680,281 10,000,000 - - 680,281 10,000,000

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


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8(a) Secured Loans

31 March 2010 31 March 2009

Rs. Rs. a) Term Loans from Banks :

i) Vehicle loans

Secured by hypothecation of Vehicles acquired

1,365,049 3,239,596

ii) Denominated in Foreign Currency

The loan is secured by a first charge on all the Fixed Assets of the Company and a collateral second charge on all the current assets of the company, both present and future both ranking pari-passu with the Working Capital and Term Lenders of the Company.

24,074,196 255,838,685

iii) Denominated in INR

The loan is secured by a first charge on all the Fixed Assets of the company and a collateral second charge on all the current assets of the company, both present and future both ranking pari-passu with the Working Capital and Term Lenders of the Company.

263,548,652 40,000,000

b) Working Capital Loan from Banks :

Denominated in Foreign currency

Packing credit Loan is secured by a first charge on all current assets of the Company along with other working capital lender to the company including all receivables, cash flows and other monies and a second charge on all fixed assets of the company

135,821,152 -

Denominated in INR

Working Capital Loan is secured by a first charge on all current assets of the Company, both present and future, including all receivables, cash flows and other monies and a second charge on all fixed assets of the company, both ranking pari-passu with the Working Capital and Term Lender of the Company.

42,868,608 65,656,048

c) Term Loan from others :

i) Vehicle loans

Secured by hypothecation of Vehicles acquired 2,867,606 -

TOTAL 470,545,263 364,734,329

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

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

9 Contingent Liabilities

31 March 2010 Rs.

31 March 2009Rs.

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

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


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

31 March 2010 31 March 2009 Rs. Rs.

10 CIF Value of Imports Capital Goods

2,236,979 43,954,386

11 Earnings in Foreign Currency

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

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

12 Expenditure in Foreign Exchange

Travel 1,837,101 4,228,661

Production Expenses 31,983,859 17,928,164

Professional and Consultancy Charges 7,515,898 19,458,852

Financial Charges 5,241,636 16,633,999

Others 1,446,577 4,962,627

48,025,071 63,212,303

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

Derivative Instrument outstanding as at the year end:

Currencies 31 March 2010 31 March 2009

Buy Sell Buy Sell

Rs. Rs. Rs. Rs.

I) Forward Exchange Contracts

USD - $450,000 -

$500,000

INR - 20,263,500

- 26,085,000

II) Currency Options

USD - $1,200,000

- $10,800,000

INR - 54,036,000 - 563,436,000

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


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

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

31 March 2010 31 March 2009

Rs. Foreign Currency Rs. Foreign Currency Export of goods 45,125,148 $1,002,113 65,163,460 $1,249,060

606,916,094 € 10,016,770 294,681,628 € 4,276,326

2,262,989 GBP 33,343 - -

License Fees 5,978,183 $132,760 27,994,687 € 406,250

34,918,181 € 576,303 3,967,528 $76,050

695,200,595 391,807,303

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

31 March 2010 31 March 2009

Rs. Foreign Currency Rs. Foreign Currency

Import of goods and services 3,825,268 $84,949 97,527,403 $1,869,415

352,028 € 5,810 344,550 € 5,000

50,903 GBP 750 - -

Interest on Foreign currency term loans 390,676 $8,676 1,918,423 $36,773

Foreign currency term loans 159,895,317 $3,550,862 255,838,685 $4,903,943

Total 164,514,192 355,629,061

14 Auditors’ Remuneration 31 March 2010 31 March 2009

Rs. Rs. t

Audit fees 1,950,000 551,500

Tax Audit fees 150,000 110,300

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

8,450,000 2,478,080

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

15 Remuneration to Whole-time Director 31 March 2010 31 March 2009

Rs. Rs.

Salaries and allowances 3,584,000 3,360,000

Other perquisite 896,000 840,000

Commission 5,397,055 4,200,000

9,877,055 8,400,000

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


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Computation on Net Profit in accordance with Section 349 of the Companies Act, 1956

31 March 2010Rs.

31 March 2009Rs.

Profit before taxation 194,417,325 199,362,732

Add:

Managerial remuneration 9,877,055 8,400,000

Provision for Doubtful debts 6,806,375 5,790,486

Loss on sale of Fixed assets as per books - 178,830

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

Less

Profit on sale of Fixed assets 8,229,802 -

Profit / Loss on sale of Fixed assets as per Companies Act, 1956 13,482,309 17,238,688

Adjustments / Bad debts written off against the provision created earlier

1,180,405 -

Depreciation as per Section 350 of the Companies Act, 1956 188,339,201 145,401,567

Profit for the year as per Section 349 of the Companies Act, 1956 268,254,431 333,282,159

Commission to Managing Director @ 3% 8,047,633 9,998,465

Commission to Managing Director ristricted to as per resolution

5,397,055 4,200,000

Micro, Small and Medium Enterprises Development Act, 200616

The Company has received intimation from certain “suppliers” regarding their status under the Micro, Small and Medium Enterprises Development Act 2006 confirming that they do not fall under the Micro, Small & Medium Enterprises Category while other “Suppliers have not intimated regarding their status, and hence disclosures, if any, relating to amounts unpaid as at the year end together with interest paid/payable as required under the said Act have not been given.

Related party disclosures17

a) Related parties and their relationships17

Holding and Subsidiary Companiesi)

DQ Entertainment (Mauritius) Limited - Holding companya. DQ Entertainment Plc - Parent of holding companyb. DQ Entertainment (Ireland) Limited - Subsidiary companyc.

Key management personnelii)

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

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

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

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

iV) Associate of the Ultimate Holding Company

Method Animation SAS

b) Transactions with above in the ordinary course of business17


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31 March 2010Rs.

31 March 2009Rs.

i) Holding Companies Issue of equity share capital by conversion of Redeemable Optionally

Convertible Preference Shares by held by DQ Entertainment (Mauritius) Limited 273,810 -

Issues of bonus shares to DQ Entertainment (Mauritius) Limited by capitalisation

from Securities Premium Account 580,116,800 -

Consultancy charges - DQ Entertainment (Mauritius) Limited 37,053,448 94,681,274

Consultancy charges - DQ Entertainment Plc - 27,057,703

ii) Subsidiary Company

Investment in DQ Entertainment (Ireland) Limited 104,135,599 6,891

Sale of asset to DQ Entertainment (Ireland) Limited 53,620,000 -

iii) Key management personnel

Issues of Equity shares in the Company 20 -

Issues of bonus shares by capitalisation from Securities Premium Account 800 -

Remuneration 9,877,055 8,400,000

iv) Relative of key management personnel

Issues of Equity shares in the Company 20 -

Issues of bonus shares by capitalisation from Securities Premium Account 800 -

Remuneration 2,850,000 2,850,000

v) Associate of the Ultimate Holding Company

Revenue from Animation 323,479,993 359,639,360

Revenue from disrtubtion 4,749,042 -

17 (C) Balances outstanding

As at 31st March 2010

As at 31st March 2009

i) Holding Companies Rs. Rs. Amount payable at year end - DQ Entertainment (Mauritius) Limited 116,032,608 94,681,274

Amount receivable at year end - DQ Entertainment Plc - 27,057,703

ii) Subsidiary Company

Amount payable at year end - DQ Entertainment (Ireland) Limited - 6,891

Amount receivable at year end - DQ Entertainment (Ireland) Limited 10,365,240 -

iii) Associate of the Ultimate Holding Company

Amounts receivable at the year end 208,195,112 215,079,346

Leases18

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


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20 Earnings Per Share (EPS) 31 March 2010

Rs. 31 March 2009

Rs.

Particulars a) Net Profit available for Equity Shareholders 202,143,250 161,504,610

b) Nominal Value Per Share 10 10

c) Basic Earning Per Share 3.35 2.77

d) Diluted Earning Per Share 3.34 2.76

No’s No’s

e) Weighted Average number of Equity Shares for Basic EPS 60,396,955 58,339,392

f) Weighted Average number of Equity Shares for Diluted EPS 60,518,657 58,543,159

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

Particulars Amount in Rs. Utilisation of funds 1,539,593,593 Investment in co-production agreements, focusing on Intellectual Properties content creation

196,790,000

Investment in Subsidiary, DQ Entertainment (Ireland) Limited 87,458,851 Issues expenses 29,344,742 313,593,593 313,593,593 Investments 850,000,000Fixed Deposits 326,000,000Bank balance 50,000,000Total 1,539,593,593

Segmental Reporting as per Accounting standard 17:22

22 (a) Business Segment

The Company comprises the following main business segments:

Animation:

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

Gaming:

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

Distribution:

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


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The segment information for the year ended 31 March 2010 is as follows:

(In Rupees.)

Animation Gaming Distribution Total Revenue from customers 1,374,206,191 15,991,874 90,951,988 1,481,150,053 1,356,577,222 66,959,054 74,629,405 1,498,165,681 Total Revenue 1,374,206,191 15,991,874 90,951,988 1,481,150,053 1,356,577,222 66,959,054 74,629,405 1,498,165,681 Depreciation and Amortisation

- - 93,737,446 93,737,446

108,279,765 108,279,765 Segment result 841,563,934 6,278,375 (6,460,556) 841,381,753 812,879,381 43,250,600 (37,237,638) 818,892,343 Unallocated expenses (593,767,768) (570,995,386) Operating Profit 247,613,985 247,896,957 Net financing costs (53,196,660) (48,534,225) Income Tax expense 7,725,925 (37,858,122) Profit for the year 202,143,250 161,504,610 Segment assets 830,347,399 9,736,932 1,076,170,820 1,916,255,151 546,223,556 35,255,436 934,116,164 1,515,595,156 Unallocated assets 2,187,196,721 673,276,612 Total assets 4,103,451,872 2,188,871,768 Segment liabilities 70,891,660 1,214,912 287,655 72,394,227 75,475,312 4,063,956 299,000 79,838,268 Unallocated liabilities 828,842,783 646,791,757 Total liabilities 901,237,010 726,630,025 Cash flows from operating activities

78,254,863

60,125,178 Cash flows used in investing activities

(1,196,950,763)

(253,067,160) Net Cash from /(used in) Financing activities

1,591,994,507

(131,197,353) Capital expenditure Tangible Fixed Assets 46,691,349 266,585,973 Distribution rights 392,295,290 481,251,215


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Note: Figures in italics represent previous year

22 (b) Geographical Segment

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

America Europe Others Total

Revenue from customers

Animation 206,454,160 1,130,994,513 36,757,518 1,374,206,191

599,680,093 679,469,772 77,427,357 1,356,577,222

Gaming 6,731,174 9,260,700 - 15,991,874

22,935,456 44,023,598 - 66,959,054

Distribution 23,711,380 65,563,421 1,677,187 90,951,988

172,387 43,299,446 31,157,572 74,629,405

Total Revenue 236,896,714 1,205,818,634 38,434,705 1,481,150,053

622,787,936 766,792,816 108,584,929 1,498,165,681

Total Assets 8,742,371 875,762,713 3,218,946,788 4,103,451,872

189,119,187 386,634,277 1,613,118,304 2,188,871,768

Capital expenditure

Tangible Fixed Assets 46,691,349

266,585,973

Distribution rights 392,295,290

481,251,215


23 Capital Commitments

31 March 2010 Amount in Rs.


Estimated amount of contracts remaining to be executed on capital account not provided for, net of advances Rs. Nil (31.03.2009: Rs.19,503,551)

560,149 43,384,443

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

For and on behalf of the Board

Tapaas Chakravarti K. Balasubramanian

(CMD & CEO) (Director)

Place: Secunderabad Anita Sunil Shankar Sanjay Choudhary

Date: July 26, 2010 (Company Secretary) (Financial Controller)


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Auditors’ Report on Consolidated Financial StatementsTO THE BOARD OF DIRECTORS OFDQ ENTERTAINMENT (INTERNATIONAL) LIMITED

1. We have audited the attached Consolidated Balance Sheet of DQ ENTERTAINMENT (INTERNATIONAL) LIMITED (“the Company”) and its subsidiary (the Company and its subsidiary constitute “the Group”) as at 31st March, 2010, the Consolidated Profit and Loss Account and the Consolidated Cash Flow Statement of the Group for the year ended on that date, both annexed thereto. These financial statements are the responsibility of the Company’s Management and have been prepared on the basis of the separate financial statements and other financial information regarding components. Our responsibility is to express an opinion on these Consolidated Financial Statements based on our audit.

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

3. We did not audit the financial statements of the subsidiary, whose financial statements reflect total assets of Rs.218,573,070 as at 31st March, 2010, total revenues of Rs.273,602,050 and net cash outflows aggregating to Rs. 144,832,085 for the year ended on that date, as considered in the Consolidated Financial Statements. These financial statements have been audited by another auditor whose report has been furnished to us and our opinion in so far as it relates to the amounts included in respect of the subsidiary is based solely on the report of the other auditor.

4. We report that the Consolidated Financial Statements have been prepared by the Company in accordance with the requirements of Accounting Standard 21 (Consolidated Financial Statements) as notified under the Companies (Accounting Standards) Rules, 2006. 5. Based on our audit and on consideration of the separate audit reports on the individual financial statements of the Company and the aforesaid subsidiary and to the best of our information and according to the explanations given to us, in our opinion, the Consolidated Financial Statements give a true and fair view in conformity with the accounting principles generally accepted in India:

(i) in the case of the Consolidated Balance Sheet, of the state of affairs of the Group as at 31st March, 2010;

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

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







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Consolidated Balance Sheet as at March 31, 2010

As at 31 March 2010 As at 31 March 2009Schedule Rs. Rs.

I. Sources of Funds1 Shareholders’ Funds

Share Capitala) 1 792,830,000 16,266,790Reserves and Surplusb) 2 2,455,225,109 1,445,689,874

3,248,055,109 1,461,956,6642 Loan FundsSecured Loans 3a 470,545,263 364,734,329Unsecured Loan 3b 118,394,780 -

3 Deferred Tax Liability

(Refer Note 6 (b) of Schedule 17(II))- 12,474,002

Total 3,836,995,152 1,839,164,995

II. Application of Funds1 Fixed Assets 4

a) Gross Block 2,003,786,173 1,350,443,395b) Less: Accumulated Depreciation

and Amortisation815,382,743 586,827,810

c) Net Block 1,188,403,430 763,615,585d) Capital Work-in-Progress 403,366,160 626,683,506

(Refer Note 5 of Schedule 17(II))

2 Investments 5 870,000,000 -

3 Current Assets, Loans and

Advancesa) Sundry Debtors 6 831,267,520 415,692,790b) Unbilled Revenue 239,149,349 183,946,161c) Cash and Bank Balances 7 582,326,959 105,400,386d) Loans and Advances 8 172,064,707 93,587,710

1,824,808,535 798,627,047Less: Current Liabilities and

Provisionsa) Current Liabilities 9 346,896,882 254,992,703b) Provisions 10 102,686,091 94,768,440

449,582,973 349,761,143 Net Current Assets 1,375,225,562 448,865,904

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

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

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

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

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



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Consolidated Profit and Loss Account

for the year ended 31 March, 2010

For the year ended For the year ended

Schedule 31 March 2010 31 March 2009

Rs. Rs.

INCOME :

Sales 11 1,754,739,620 1,498,165,681

Other Income 12 11,327,094 10,910,444

1,766,066,714 1,509,076,125

EXPENDITURE :

Production Expenses 13 241,307,046 52,671,895

Personnel Costs 14 635,126,717 693,399,277

Administrative and other expenses 15 322,824,568 296,886,410

Financial Expenses 16 58,889,891 55,595,909

Depreciation and Amortisation 4 273,777,722 282,190,366

Less: Expenditure transferred to capital account (34,371,209) (70,757,595)

1,497,554,735 1,309,986,262

Profit before Tax 268,511,979 199,089,863

Provision for Taxation

- Current Tax (includes Rs. 736,680 (31.03.2009 : Rs. Nil) of earlier years)

(44,425,870) (22,387,865)

- Deferred Tax 12,474,002 (12,474,002)

- Fringe Benefit Tax - (2,996,255)

- MAT Credit Entitlement 30,160,880 -

Profit after Tax 266,720,991 161,231,741

Balance brought forward 254,004,662 92,772,921

Amount available for appropriation 520,725,653 254,004,662

Appropriation

Transfer to Capital Redemption Reserve (1,763,860) -


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

Basic- Rs 4.42 2.76

Diluted- Rs 4.41 2.75

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

In terms of our report attached For and on behalf of the Board For Deloitte Haskins & Sells Chartered Accountants Tapaas Chakravarti K. Balasubramanian (CMD & CEO) (Director) Ganesh Balakrishnan Anita Sunil Shankar Sanjay ChoudharyPartner (Company Secretary) (Financial Controller) Place: Secunderabad Date: July 26, 2010


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Consolidated Cash Flow Statement for the year ended 31 March, 2010



Rs. Rs. Rs. Rs.A. Cash flow from Operating ActivitiesProfit Before TaxAdjustments forDepreciation and amortisationDepreciation transferred to capital accountInterest IncomeInterest ExpensesWealth TaxPublic issue related expenses(Profit)/loss on sale of fixed assetsUnrealised loss due to exchange differencesOperating profit before working capital changesAdjustments for changes inTrade and other receivablesTrade payables, other liabilities and provisions

Income tax paid

Net Cash from Operating activities

B. Cash flow from Investing Activities

Purchase of fixed assetsSale of fixed assetsInvestment in Mutual fundsInterest received on deposits with Banks and other deposits etc.,

Net Cash used in Investing activities

C. Cash flow from Financing Activities

Interest and financing charges paidIssue of Equity sharesPremium on issues of sharePayment to preference shareholders on redemptionPublic issue related expensesProceeds from Borrowings from Term LoansProceeds from Borrowings of unsecured loan from ultimate holding companyRepayment of Term LoansProceeds on account of Working Capital Loans (Net)Net Cash from /(used in) Financing activities

Net increase/(decrease) in cash and cash equivalents (A+B+C)

Cash and cash equivalents as at the beginning of the year

Net foreign exchange differenceCash and cash equivalents as at the end of the year*(refer Schedule No.7* Including restricted balance of Rs.39,207,402 (31.03.2009: Rs.3,393,556)

273,777,722847,650

(2,459,055)31,501,573

25,85695,446,711

(82,869)15,599,323

(771,986,897)38,497,223

(733,489,674)(35,530,751)

(298,270,282)6,430,120

(870,000,000)

842,614

(27,143,792)198,207,870

1,341,385,859(1,763,860)

(29,344,742)211,199,743

131,838,493(213,663,671)

113,033,715

268,511,979

414,656,911683,168,890

(769,020,425)(85,851,535)

(1,160,997,548)

1,723,749,615

476,900,532

105,400,386

26,041582,326,959

282,190,3661,583,449

(7,112,517)55,595,909

22,692-

178,83053,614,806

(560,733,171)69,123,492

(491,609,679)(9,702,308)

(264,525,439)2,277,301

-

9,180,978

(40,154,836)----

30,000,004

-(181,262,092)

36,493,338

199,089,863

386,073,535585,163,398

(501,311,987)83,851,411

(253,067,160)

(154,923,586)

(324,139,335)

429,322,307

217,414105,400,386

In terms of our report attached For and on behalf of the Board For Deloitte Haskins & Sells Chartered Accountants Tapaas Chakravarti K. Balasubramanian (CMD & CEO) (Director) Ganesh Balakrishnan Anita Sunil Shankar Sanjay ChoudharyPartner (Company Secretary) (Financial Controller) Place: Secunderabad Date: July 26, 2010


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Sl Particulars As At 31 March 2010

As At 31 March 2010

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

Authorised

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

Issued, Subscribed and Paid up

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

Nil 1% Redeemable Optionally Convertible Preference Shares of Rs.10/-

(31.03.2009: 203,767 shares of Rs.10/- each fully paid up) During the period 27,381 preference shares of Rs.10/- each were converted into 27,381 equity shares of Rs.10/- each fully paid up and preference shares of 176,386 are redeemed for cash)

800,000,000

-800,000,000

792,830,000

-

792,830,000

30,100,000

8,000,00038,100,000

14,229,120

2,037,670

16,266,790


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Capital Subsidy (Refer Note 3 of Schedule 17(II))

Capital Redemption ReserveBalance as per last accountAdd: Transfer from Profit and Loss account

Securities Premium AccountBalance as per last accountLess: Issue of bonus sharesAdd: On shares issued

General ReserveBalance as per last account

Profit and Loss AccountBalance Carried forward

Foreign Currency Translation Reserve

800,000

1,763,8601,763,860

1,185,410,028(580,119,200)1,341,385,8591,946,676,687

5,487,393

518,961,793

(18,464,624)

2,455,225,109

800,000

-

1,185,410,028--

1,185,410,028

5,487,393

254,004,662

(12,209)

1,445,689,874

3a

3b

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

i) From Banks- Term Loans- Working Capital Loans

ii) From others:- Vehicle Loans

Un Secured LoansLoan from DQ Entertainment Plc- Ultimate holding company

288,987,897178,689,760

2,867,606

470,545,263

118,394,780

118,394,780

299,078,28165,656,048

--

364,734,329

---


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Schedules forming part of Balance Sheet

Sl Particulars As at As at


5 InvestmentsCurrent Investment (at lower of cost and fair value) 870,000,000 -

Investments in Mutual Funds (quoted) (Includes Rs 850,000,000 made from the unutilised funds of IPO)

(Refer Note. 7 of Schedule 17(II)) 870,000,000 -

NotesMarket value of quoted investments 870,053,987 - Book value of quoted investments 870,000,000 -

6 Sundry Debtors (Unsecured)A)Over six months Considered good 275,105,452 39,187,329 Considered doubtful 9,217,081 4,289,441 B)Other Debts Considered good 556,162,068 376,505,461 Considered doubtful 3,939,865 1,501,045

844,424,466 421,483,276 Less: Provision for Doubtful Debts (13,156,946) (5,790,486)

831,267,520 415,692,790 7 Cash and Bank Balances

Cash balance on hand 81,264 34,797 Remittance in transit 24,236,000 20,567,203 Cheques on hand 69,363,379 Balance with Scheduled BanksCurrent Accounts (Includes Rs 50,000,000 (31.03.2009 : Rs. Nil) of unutilised funds of IPO)

123,219,832 35,634,982

Deposit Accounts (Includes Rs 326,000,000 (31.03.2009 : Rs. Nil) made from the unutilised funds of IPO)

365,426,484 49,163,404

582,326,959 105,400,386 8 Loans and Advances

(Unsecured, Considered Good)Interest accrued on deposits 1,616,441 - Advances recoverable in cash or in kind or for valueto be received :- Other Advances 69,821,354 19,121,504 Advance to DQ Entertainment plc (Parent of holding company) - 27,057,703 Deposits * 34,656,604 30,193,207 Claims Receivable 33,827,524 17,215,296 MAT Credit Entitlement 30,160,880 - Advance Tax(Net of provision of Rs. 34,912,120) 1,981,904 -

172,064,707 93,587,710 * Deposits include Balance with Government Authorities Rs.6,068,950 (31.03.2009: Rs.5,514,482)

9 Current Liabilites Sundry creditors- Total outstanding dues of micro enterprises and small enterprises - - - Total outstanding dues of creditors other than micro enterprises and small enterprises *

319,886,154 227,701,304

Advance from Customers 7,670,096 13,286,466 Other liabilities 14,484,870 12,547,316 Interest accrued but not due on Secured Loans 4,855,762 1,457,617

346,896,882 254,992,703 * Includes liabilities on account of capital nature Rs.750,881 (31.03.2009: Rs.1,556,000)

10 ProvisionsTaxation (Net of advance tax of Rs.62,997,002 (31.03.2009: Rs.26,123,991))

18,930,367 14,912,892

Employee benefits 62,350,279 56,071,204 Retakes (Refer Note i of Schedule 17(I)) Opening balance 23,784,344 17,371,406 Add: Additional provision for the year 18,885,687 17,716,670 Less: Utilised / reversed during the year (21,264,586) (11,303,732)Closing provision 21,405,445 23,784,344

102,686,091 94,768,440


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Schedules forming part of Profit and Loss Account

Sl Particulars For the year For the year


11 SalesProduction : Export 1,502,885,044 1,346,416,980 : Domestic 36,757,519 77,119,296 Distribution Income 215,097,057 74,629,405

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

12 Other IncomeInterest from banks and others (including TDS of Rs.2,45,691 (31.03.2009 : Rs.1,454,704))

2,459,055 7,061,684

Profit on Sale of Fixed Assets 82,869 - Miscellaneous Income 4,108,270 2,736,239 Liabilities no longer required written back 746,157 1,112,521 Insurance claims 3,930,743 -

11,327,094 10,910,444

13 Production ExpensesProduction Expenses - Direct 218,325,562 26,454,047 Power and Fuel 22,981,484 26,217,848

241,307,046 52,671,895

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

635,126,717 693,399,277

15 Administrative and Other ExpensesCommunication Expenses 10,100,018 10,589,421 Printing and Stationery 1,110,713 1,911,997 Professional and Consultancy Charges 58,215,291 89,119,314 Repairs and Maintenance : Building 3,418,186 2,454,367 Plant and Machinery 5,536,428 5,996,380 Others 1,887,733 791,533 Insurance 1,024,977 2,182,439 Business Promotion 5,039,115 4,183,887 Rates and Taxes 5,515,171 772,855 Rent 43,654,269 47,372,723 Auditors Remuneration 5,299,400 2,570,423 Directors Remuneration 10,241,258 8,415,632 Selling and Distribution Expenses 9,819,994 12,279,813 Recruitment Expenses 33,493 3,268,076 Travelling and Conveyance Expenses 13,582,249 23,959,772 Loss on sale of assets - 178,830 Bad debts 31,557 783,471 Provision for doubtful debts (net) 6,806,375 5,790,486 Foreign Exchange Fluctuation Loss (net) 38,496,397 60,777,915 Public issue related expenses 95,446,711 - Miscellaneous Expenses 7,565,233 13,487,076

322,824,568 296,886,410 16 Financial Expenses

Interest on Bank Loans- Term loan 19,412,656 27,103,022 - Working capital Loans 8,433,144 4,311,575 - Vehicle loans 421,598 455,076

Other Financial Charges- Bank charges 20,596,813 4,149,670 - Other charges 10,025,680 19,576,566

58,889,891 55,595,909


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17. Accounting Policies - Consolidated Financials

I. Significant Accounting Policies

a. Basis for Preparation of Consolidated Financial Statements: The Consolidated financial statements have been prepared under the historical cost convention on an accrual basis of accounting in accordance with Generally Accepted Accounting Principles, Accounting Standards notified under section 211(3C) of the Companies Act, 1956 and the relevant provisions thereof. b. Fixed Assets: Fixed Assets are valued at cost inclusive of freight, installation cost, finance cost, duties and taxes and other incidental expenses incurred during the construction / installation stage. Fixed Assets include expenditure incurred on creation of infrastructure facilities at work premises.Distribution rights represent the cost incurred on acquisition of animation contents for exploitation.

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

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

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

Individual assets costing less than Rs.5,000 are fully depreciated in the period of purchase. Where the aggregate actual cost of individual items of Plant and Machinery costing Rs.5,000 or less constitutes more than 10% of the total actual cost of Plant and Machinery, depreciation is provided at normal rates stated above.Leasehold improvements are amortized over the primary period of lease.Cost of Distribution Rights is amortized over the period of the right including extended period or ten years whichever is lower. d. Investment:Long-term investments are stated at cost, less provision for other than temporary diminution in value. Current investment comprising investments in mutual funds are stated at the lower of cost and fair value.

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

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

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

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

No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due. g. Foreign Currency Transactions: Foreign Currency Transactions (FCT) and Forward Exchange Contracts (FEC) used to hedge FCT (including firm commitments and forecast transactions) are initially recognized on the spot rate on the date of the transaction / Contract.

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

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

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The Financial statements of the subsidiary are consolidated using the following conversion rates into Indian rupees:

a) All assets and liabilities, both monetary and non monetary are translated at the closing rates.b) All revenue and expenditure items are translated using the average rates for the period of consolidation.c) The resulting net exchange difference is carried in the “Foreign Currency Translation Reserve Account”.d) Contingent liabilities are translated using the closing rates.

h. Employee benefits i) Post-employment benefit plansPost employment benefits are recognised as an expense in the Profit and Loss Account for the year in which the employee has rendered services.

For defined benefit schemes, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses are recognised in full in the profit and loss account for the period in which they occur.

ii) Short-term employee benefitsThe undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employees is recognised during the period when the employee renders the service. These benefits include compensated absences such as paid annual leave.

iii) Long-term employee benefitsCompensated absences which are not expected to occur within twelve months after the end of the period in which the employee renders the related services are recognized as a liability at the present value of the defined benefit obligation at the balance sheet date.

i. Public Issue related expenses: Public issue related expenses are recognised as an expense in the profit and loss account in the year in which the expenses are incurred.

j. Taxation :

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

In the event of unabsorbed depreciation and carry forward of losses, deferred tax assets are recognised only to the extent that there is virtual certainty that sufficient taxable income will be available to realise such assets. In other situations, deferred tax assets are recognised only to the extent that there is reasonable certainty that sufficient future taxable income will be available to realise these assets.

k. Provision for retakes: Provisions for retakes are recognised wherever they are considered to be material. Retakes include creative changes to the final product delivered to the customer, performed on the specific request of the customer at the Company’s own cost. Requests for retakes from customers are expected to be received by the Company within a period of three months from the final delivery. l. Leases : Lease payments for assets taken on Operating Lease are recognized in the Profit and Loss Account over the lease term in accordance with the Accounting Standard 19 – Leases.

m. Earnings Per Share: The Company reports basic and diluted Earnings per Share (EPS) in accordance with Accounting Standard 20 – EPS.

• Basic Earnings per Equity Share has been computed by dividing Net Profit for the year by the weighted average number of Equity Shares outstanding for the period. • Diluted Earnings per Equity Share has been computed using the Weighted average number of Equity Shares and dilutive potential Equity Shares outstanding during the period except where the results are anti dilutive.

n. Provisions, Contingent Liabilities and Contingent Assets: Provisions involving substantial degree of estimation in measurement are recognized when there is a present obligation as a result of past events and it is possible that there will be an outflow of resources. Contingent Liabilities are not recognized but are disclosed in the Notes. Contingent Assets are neither recognized nor disclosed in the Financial Statements.

o. Impairment: The carrying amounts of the Company’s assets, other than inventories and deferred tax assets, are reviewed at each Balance Sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognized whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognized in the income statement. A cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Impairment losses recognized in respect of cash-generating units are allocated to reduce the carrying amount of assets in the unit on a pro rata basis.

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II Notes to Financial Statements1 Principles of Consolidation:

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

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

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

In the case of foreign subsidiary being non-integral foreign operation, revenue items are consolidated at the average rate prevailing during the period of consolidation. All assets and liabilities are converted at the rate prevailing at the end of the period. Exchange gain/(loss) arising on conversion are recognized under Foreign Currency Translation Reserve.

The consolidated financial statements are prepared for the year ended 31 March 2010. The financial statements of the subsidiary used in the consolidation are drawn up to the same reporting date as that of the Company i.e. 31 March 2010.

Company overview:

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

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

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

Issued, Subscribed & Paid upEquity Shares :a)

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

Preference Shares :b)

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

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


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


Capital Subsidy :

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

4 Distribution Rights

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

5 Capital Work-in-progress

a) Includes Rs.49,246,830 (31.03.2009: Rs.19,503,551) on account of advances to suppliers of capital goods and Rs.35,510,728 (31.03.2009: Rs.535,788,957) incurred under various co-production agreements for which distribution rights are yet to be received. Pending receipt of distribution rights and considering the potential benefits likely to accrue to the Company in future, the carrying amount of Capital work-in-progress have been valued at cost.

b) Includes Rs. 318,608,602(31.03.2009: Rs.71,390,998) incurred towards projects under development to be exploited as Television Series/Films and others. Based on review of estimated future realizations the management is of the view that estimated future recoverable amount from these projects are more than its carrying unamortized cost and consequently no provision for impairment is considered necessary by the management at this stage.

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

6 (b) Deferred TaxThe major components of the Deferred Tax (net) are as under :

Timing Differences(Liability) / Asset at 31 March 2009

(Rs.)

Current year (Charge) / Credit

(Rs.)

(Liability) / Asset at 31 March 2010

(Rs.)Depreciation (86,472,029) (23,712,026) (62,760,003)

Gratuity 10,719,494 (1,819,239) 12,538,733

Leave Encashment 7,626,538 (216,368) 7,842,906

Sick leaves 712,570 (98,651) 811,221

Provision for Doubtful Debts 1,968,186 (2,503,860) 4,472,046

Amalgamation expenses u/s 35DD - (327,154) 327,154

IPO Expenses u/s 35 D - (8,497,500) 8,497,500Past losses and unabsorbed depreciation

52,971,239 24,700,796 28,270,443

Deferred Tax Asset/(Liability) - Net (12,474,002) (12,474,002) -


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7 Investment in Mutual funds

Name of the Mutual fund

Purchase during the year * Sold during the year Balance as at 31 March 2010

No of units Rupees No of units Rupees No of units Rupees

SBI - Ultra Short term Fund - Institutional PLAN - Growth

71,699,442 860,000,000 - - 71,699,442 860,000,000

GCBG IDFC Cash Fund - Inst Plan B - Growth

605,627 10,000,000 605,627 10,001,090 - -

GCBG IDFC Money manager fund - Treasury plan - Inst Plan B - Growth

680,281 10,000,000 - - 680,281 10,000,000

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

8 (a) Secured Loans

PARTICULARS31 March 2010

Amount Rs.31 March 2009

Amount Rs.

a) Term Loans from Banks :i) Vehicle loansSecured by hypothecation of Vehicles acquired

1,365,049 3,239,596

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

24,074,196 255,838,685

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

263,548,652 40,000,000

b) Working Capital Loans from Banks :i) Denominated in Foreign currencyPacking credit Loan is secured by a first charge on all current assets of the Company along with other working capital lender to the company including all receivables, cash flows and other monies and a second charge on all fixed assets of the company

135,821,152 -

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

42,868,608 65,656,048

c) Term Loans from others:i) Vehicle loansSecured by hypothecation of Vehicles acquired

2,867,606 -

TOTAL 470,545,263 364,734,329


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

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

9 Contingent Liabilities

PARTICULARS 31 March 2010Rs.

31 March 2009Rs.

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

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

c) Income tax assessment of DQ Entertainment (International) Private Limited has been completed till Assessment Year 2007-08 (financial year 2006-07). Income Tax department has preferred an appeal for the Assessment Years 2004-05 and 2006-07 and is pending before the Income Tax Appellate Tribunal (ITAT). No demand has been raised by the Department on the above.

d) Claims against the Company not acknowledged as debts is Rs.9,642,147 (31.03.2009: Rs. 9,642,147). This comprise of demands raised by the Income Tax department for non deduction of TDS on payments to non residents on which the Company has gone on appeal and the appeal is allowed before the Commissioner of Income Tax (Appeals), Hyderabad in favor of the company. The department has gone for an appeal and the same is pending before the Income tax appellate tribunal (ITAT).

10 CIF Values of Imports

31 March 2010 Rs. 31 March 2009Rs.

Capital Goods 2,236,979 43,954,386

11 Earnings in Foreign Currency

31 March 2010Rs.

31 March 2009Rs.

Income from production 1,358,447,458 1,344,366,458License Fees 90,516,158 43,471,833

12 Expenditure in Foreign Exchange

31 March 2010Rs.

31 March 2009Rs.

Travel 1,837,101 4,228,661Production Expenses 62,693,330 17,928,164Professional and Consultancy Charges 7,515,898 19,458,852Financial Charges 5,241,636 16,633,999Others 1,523,387 4,962,627TOTAL 78,811,352 63,212,303

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

Derivative Instrument outstanding as at the year end:

Currencies31 March 2010 31 March 2009

Buy Sell Buy Sell

I) Forward Exchange ContractsUSDINR

--

$450,000Rs. 20,263,500

--

$500,000Rs. 26,085,000

II) Currency OptionsUSDINR

--

$1,200,000Rs. 54,036,000

--

$10,800,000Rs. 563,436,000


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

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

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

Particulars31 March 2010 31 March 2009


Export of goods 45,125,148

606,916,0942,262,989

$1,002,113€ 10,016,770 GBP 33,343

65,163,460294,681,628

-

$1,249,060€4,276,326

-

License Fees 5,978,18334,918,181

$132,760€ 576,303

27,994,6873,967,528

€ 406,250$76,050

TOTAL 695,200,595 391,807,303

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

Particulars31 March 2010 31 March 2009


Import of goods and services3,825,268

352,028404,709

$84,949€ 5,810

GBP 5,963

97,527,403344,550

-

$1,869,415€ 5,000

-

Interest on Foreign currency term loans390,676

2,829,492$8,676

€ 46,6991,918,423

-$36,773

-

Foreign currency term loans159,895,317118,394,758

$3,550,862€1,954,031

255,838,685-

$4,903,943-

TOTAL 286,092,248 355,629,061

14 Auditors’ Remuneration

31 March 2010 Rs.

31 March 2009Rs.

Audit fees 3,299,400 643,522

Tax Audit fees 100,000 110,300

Other matters * 6,400,000 1,816,601

Total 9,799,400 2,570,423

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

15 Remuneration to Whole-time Director

31 March 2010 Rs.

31 March 2009Rs.

Salaries and allowances 3,948,203 3,375,578

Other perquisite 896,000 840,000

Commission 5,397,055 4,200,000

Total 10,241,258 8,415,578

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


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Computation on Net Profit in accordance with Section 349 of the Companies Act, 1956

31 March 2010 Rs.

31 March 2009Rs.

Profit before taxationAdd:Managerial remunerationProvision for Doubtful debtsLoss on sale of Fixed assets as per booksDepreciation as per books

Less:Profit on sale of Fixed assetsProfit / Loss on sale of Fixed assets as per Companies Act, 1956Adjustments / Bad debts written off against the provision created earlierDepreciation as per Section 350 of the Companies Act, 1956Profit for the year as per Section 349 of the Companies Act, 1956Commission to Managing Director @ 3%

Commission to Managing Director restricted to as per resolution

268,511,979

10,241,2586,806,375

-273,777,722

4,013,61213,482,3091,180,405

188,339,201352,321,80610,569,654

5,397,055

199,089,863

8,415,6325,790,486

178,830282,190,366

-17,238,688

145,401,567332,846,092

9,985,383

4,200,000

16 Micro, Small and Medium Enterprises Development Act, 2006

The Company has received intimation from certain “suppliers” regarding their status under the Micro, Small and Medium Enterprises Development Act 2006 confirming that they do not fall under the Micro, Small & Medium Enterprises Category while other “Suppliers have not intimated regarding their status, and hence disclosures, if any, relating to amounts unpaid as at the year end together with interest paid/payable as required under the said Act have not been given.

17 Related party disclosures17 (a) Related parties and their relationships

i) Holding Companies a. DQ Entertainment (Mauritius) Limited - Holding company b. DQ Entertainment Plc - Parent of holding company

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

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

iv) Associate of the Ultimate Holding CompanyMethod Animation SAS


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

31 March 2010 Rs.

31 March 2009Rs.

i) Holding CompaniesIssue of equity share capital by conversion of Redeemable OptionallyConvertible Preference Shares by held by DQ Entertainment (Mauritius) LimitedIssues of bonus shares to DQ Entertainment (Mauritius) Limited by capitalizationfrom Securities Premium AccountConsultancy charges - DQ Entertainment(Mauritius) LimitedConsultancy charges - DQ Entertainment Plc

273,810

580,116,80037,053,448

-

-

-94,681,27427,057,703

ii) Key management personnelIssues of Equity shares in the CompanyIssues of bonus shares by capitalisation from Securities Premium AccountRemuneration

20800

9,877,055

--

8,400,000

iii) Relative of key management personnelIssues of Equity shares in the CompanyIssues of bonus shares by capitalisation from Securities Premium AccountRemuneration

20800

2,850,000

--

2,850,000

iv) Associate of the Ultimate Holding CompanyRevenue from AnimationRevenue from distribution

323,479,9934,718,367

359,639,360-

17 (c) Balances outstanding

31 March 2010 Rs.

31 March 2009Rs.

i) Holding CompaniesAmount payable at year end - DQ Entertainment (Mauritius) LimitedAmount receivable at year end - DQ Entertainment Plc

116,032,608-

94,681,27427,057,703

ii) Associate of the Ultimate Holding CompanyAmounts receivable at the year end 208,195,112 215,079,346

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


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19 Employee benefits as required under Accounting Standard 15:

The following table lists out disclosure requirements laid down under the Accounting Standard 15:

Year ending 31 March 2010 Year ending 31 March 2009Leave

EncashmentGratuity

Leave Encashment

Gratuity

A. Change in Defined Benefit Obligations (DBO)Present Value of DBO at the beginning of the year

Current Service CostInterest CostActuarial Losses /(Gains)Benefits paid

Present Value of DBO at the end of the year

22,437,593

636,5631,795,007(596,391)

(1,198,616)23,074,156

31,537,199

5,352,2742,522,976

(1,447,029)(1,075,944)36,889,476

25,741,921

11,254,7412,059,354

(15,808,402)(810,021)

22,437,593

23,457,683

13,113,1711,876,615

(6,346,654)(563,616)

31,537,199

B. Expense Recognized in the statements of Profit & Loss account for the year ended

Current Service CostInterest Cost(Gain) / Actuarial Losses

Expense recognized in the Statement of P/L

636,5631,795,007(596,391)1,835,179

5,352,2742,522,976

(1,447,029)6,428,221

11,254,7412,059,354

(15,808,402)(2,494,307)

13,113,1711,876,615

(6,346,654)8,643,132

C. Actual Contribution and Benefit PaymentsActual Benefit PaymentsActual Contributions

1,198,616-

1,075,944-

810,021-

563,616-

AssumptionsDiscount Rate %Salary Escalation %

8%4%

8%4%

8%4%

8%4%

20 Earnings Per Share (EPS)

Particulars31 March 2010

Rs.31 March 2009

Rs.

a) Net Profit available for Equity Shareholders 266,720,991 161,231,741

b) Nominal Value Per Share 10 10

c) Basic Earning Per Share 4.42 2.76

d) Diluted Earning Per Share 4.41 2.75

No’s No’s

e) Weighted Average number of Equity Shares for Basic EPS 60,396,955 58,339,392

f) Weighted Average number of Equity Shares for Diluted EPS 60,518,657 58,543,159

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

Particulars Rs. Rs.

Utilisation of funds 1,539,593,593Investment in co-production agreements, focusing on Intellectual Properties content creation

196,790,000

Investment in Subsidiary, DQ Entertainment (Ireland) Limited 87,458,851

Issues expenses 29,344,742

313,593,593

313,593,593

Investments 850,000,000

Fixed Deposits 326,000,000

Bank balance 50,000,000

Balance as at 31 March 2010 1,539,593,593

(In Rupees)


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22 Segmental Reporting as per Accounting standard 17:

22 (a) Business Segment

The Company comprises the following main business segments:

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

The segment information for the year ended 31 March 2010 is as follows:

Animation Gaming Distribution Total

Revenue from customers1,523,650,6891,356,577,222

15,991,87466,959,054

215,097,05774,629,405

1,754,739,6201,498,165,681

Total Revenue 1,523,650,689 15,991,874 215,097,057 1,754,739,6201,356,577,222 66,959,054 74,629,405 1,498,165,681

Depreciation and Amortisation - - 99,129,775 99,129,775108,279,765 108,279,765

Segment result 809,300,676 6,278,374 112,292,185 927,871,235812,879,381 43,250,600 (37,237,638) 818,892,343

Unallocated expenses (602,928,420)(571,268,255)

Operating Profit 324,942,815247,624,088

Net financing costs (56,430,836)(48,534,225)

Income Tax expense (1,790,988)(37,858,122)

Profit for the year 266,720,991 161,231,741

Segment assets 964,552,855 9,736,932 1,242,462,706 2,216,752,493546,223,556 35,255,436 934,116,164 1,515,595,156

Unallocated assets 2,069,825,632673,330,982

Total assets 4,286,578,1252,188,926,138

Segment liabilities 70,891,660 1,214,912 287,654 72,394,22675,475,312 4,063,956 299,000 79,838,268

Unallocated liabilities 966,128,790647,131,206

Total liabilities 1,038,523,016726,969,474

Cash flows from operating activities (85,851,535)83,851,411

Cash flows used in investing activities (1,160,997,548)(253,067,160)

Net Cash (used in)/from Financing activities

1,723,749,615

(154,923,586)Capital expenditureTangible Fixed Assets 46,691,349

266,585,973Distribution rights 665,438,498

502,890,024Note: Figures in italics represent previous year

(In Rupees)


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22 (b) Geographical Segment

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

America Europe Others TotalRevenue from customersAnimation 206,454,159 1,280,439,010 36,757,520 1,523,650,689

599,680,093 679,469,772 77,427,357 1,356,577,222Gaming 6,731,174 9,260,700 - 15,991,874

22,935,455 44,023,599 66,959,054Distribution 23,711,379 189,708,491 1,677,187 215,097,057

172,387 43,299,446 31,157,572 74,629,405Total Revenue 236,896,712 1,479,408,201 38,434,707 1,754,739,620

622,787,935 766,792,817 108,584,929 1,498,165,681Total Assets 8,742,371 1,069,952,512 3,207,883,242 4,286,578,125

189,119,187 386,688,647 1,613,118,304 2,188,926,138Capital expenditureTangible Fixed Assets

46,691,349

266,585,973Distribution rights 502,819,024

481,251,215


23 Capital Commitments


31 March 2009Amount in Rs.

Estimated amount of contracts remaining to be executed on capital account not provided for, net of advances Rs. Nil (31.03.2009: Rs.19,503,551)

391,365,649 43,384,443

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

For and on behalf of the Board

Tapaas Chakravarti K. Balasubramanian(CMD & CEO) (Director)

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


(In Rupees)


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BALANCE SHEET ABSTRACT AND COMPANY’S GENERAL BUSINESS PROFILE

I. Registration DetailsRegistration No. U92113AP2007PLC053585State Code (Refer Code List) 01Balance Sheet Date 31st March 2010

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

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

Source of FundsTotal LiabilitiesPaid-up Capital 792,830,000Reserves & Surplus 2,455,225,109Secured Loans 470,545,263Unsecured Loans 118,394,780

Application of Funds Total Assets

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

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

Diluted- Rs 4.41Divided rate % -

V. Generic Names of Three Principal Products/ Services of Company (as per monetary terms)1. Item Code No. -(ITC Code)Product Description -2. Item Code No.(ITC Code) -Product Description3. Item Code No. -(ITC Code)Product Description -

For DQ Entertainment (International) Limited



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COMPANY INFORMATION


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Company InformationDIRECTORS

Tapaas ChakravartiChairman, Managing Director and Chief Executive Officer

Rashmi ChakravartiExecutive and Non-Independent Director

Kunchithapadam BalasubramanianNon-executive and Independent Director

Theresa Plummer-AndrewsNon-executive and Independent Director

Girish KulkarniNon-executive and Independent Director

Neelesh WagleAlternate Non-executive and Independent Director to Girish Kulkarni

S SundarAdditional Non-executive and Independent Director

REGISTERED OFFICE

644, Aurora Colony, Road No.3, Banjara Hills, Hyderabad-500 034.

REGISTRAR & SHARE TRANSFER AGENT

Karvy Computershare Private LimitedPlot No. 17-24, Vittal Rao Nagar MadhapurHyderabad – 500 081, IndiaTelephone: +91 40 2342 0815Facsimile: +91 40 2342 0814Email: [email protected]: www.karvycomputershare.com

STATUTORY AUDITORS Deloitte Haskins & SellsGowra Grand,3rd Floor, 1-8-384 & 385S.P. Road, Secunderabad,India.

COMPANY SECRETARY

Anita Sunil Shankar644, Aurora Colony, Road No.3, Banjara Hills, Hyderabad-500 034.


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NOTICE

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

ORDINARY BUSINESS:

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

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

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

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

SPECIAL BUSINESS:

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

Regularisation of Mr. S Sundar as the Director of the company4.

“RESOLVED THAT Mr. S Sundar who was appointed as an additional director pursuant to Section 260 of the Companies Act, 1956 by the resolution passed by the Board of Directors on July 26, 2010 and who ceases the office at this meeting, be and is hereby appointed as a Director of the company liable to retire by rotation

RESOLVED FURTHER THAT any one Director or Ms. Anita Sunil Shankar, Company Secretary of the Company be and are hereby authorised to file necessary forms with the Registrar of Companies and to do all such acts, deeds and things as may be necessary to give effect to the above mentioned resolution.”

Alteration of Articles of Association of the Company5.

“RESOLVED THAT pursuant to Section 31 and other applicable provisions if any, of the Companies Act, 1956, Clause 146 of the Articles of Association of the Company be and is hereby altered by substituting the same with the below clause:

“146. The seal shall not be affixed to any instrument except by authority of a resolution of the Board or of a committee thereof and unless the Board otherwise determines every deed or other instrument to which the seal is required to be affixed shall, unless the same is executed by a duly constituted attorney for the Company be signed by any one Director of the Company or such other person as may from time to time be authorised by the Board provided nevertheless that any instrument bearing the seal of the company and issued for valuable consideration shall be binding on the company notwithstanding any irregularity touching the authority to issue the same. The share certificate shall however be sealed and signed in accordance with the provisions of the companies (issue of share certificates) rules 1960.”

RESOLVED FURTHER THAT any one director of the Company or Ms. Anita Sunil Shankar, Company Secretary be and are hereby authorized to sign all the necessary documents and to do necessary acts/deeds, etc. to give effect to the above-mentioned resolution.”

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

Place: Hyderabad Anita Sunil ShankarDate: July 26, 2010 Company Secretary


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NOTES:

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

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

Item no. 4

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

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

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

Item no. 5

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

Keeping in view the nature of the Companies business and the numerous contracts being executed, it is felt appropriate by the Board of Directors of the Company to have any one director or any such person authorized by the board to sign the document to which the Common Seal of the Company instead of two directors as this would expedite the process. The Directors recommend the resolution for approval of the members. No Director is concerned or interested in this Resolution.

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

Place: Hyderabad Anita Sunil ShankarDate: July 26, 2010 Company Secretary


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PROXY FORMThird Annual General Meeting - 29 September 2010

Regd. Folio no./ DP Client ID

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

Signed this……………..day of ………………… 2010

……….………………….. Signature of the member

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

Affix15 paise revenue stamp

ATTENDANCE SLIPThird Annual General Meeting - 29 September 2010

Regd. Folio no. / DP Client ID

No. of shares held

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

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

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

……….…………………..

Signature of the member/proxy


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

Notes:

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

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

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

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


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Performance excellence awards 2009Performance excellence awards 2009dQ entertainment (international) limiteddQ entertainment (international) limited


109

BOOK POST if undelivered, please return to:Karvy Computershare Private Limited

Unit: DQ Entertainment (International) Ltd Plot No. 17-24, Vittal Rao Nagar Madhapur

Hyderabad – 500 081, Andhra Pradesh, India