information technology · pdf filepbdt (4,362) (97) less: depreciation & amortization...

HTMT Inc ................................................... 93

HTMT Europe Limited..................................... 100

Hinduja TMT France ..................................... 105

Source One Communications Inc. ....................... 107

Source One Communications Asia Inc. .................. 113

Customer Contact Center Inc. ........................... 119

C-Cubed (Antilles) N.V. ............. ..................... 129

C-Cubed B.V. ............. ................................. 131

Information Technology Subsidiaries


92

General Information

Customer Contact Center, Inc.

Board of Directors

M. S. Varadan

Ludwell Denny

Jose Xavier Gonzales

Pushkar Misra

Gian Carlo Bautista

Management Team

Pushkar Misra

Edmund Lazo

Bryce C. Hayes

Joy Padlan

Jose John Arvisu III

Michael Quiambao

Jan Bengzon

Anna Liza Cagaoan

Tina Salmo

Company Secretary

Atty. Virginia V. Viray

Puyat, Jacinto and Santos Law Office

12th

Floor, Manila Bank Building

Ayala Avenue, Makati City, Philippines

Statutory Auditors

SyCip Gorres Velayo & Co.

(A member practice of Ernst & Young Global)

6760 Ayala Avenue 1226 Makati City, Philippines

Registered Office

1 E-Commerce Avenue,

Eastwood City Cyberpark,

E-Rodriguez Jr. Ave.,

Bagumbayan, Quezon City, Philippines.

Source One Communications Asia, Inc.

Board of Directors

Zayber Protacio

M. S. Varadan

Pushkar Misra

Ludwell Denny

Virginia B. Viray

Management Team

Pushkar Misra

Edmund Lazo

Bryce C. Hayes

Joy Padlan

Jose John Arvisu III

Michael Quiambao

Jan Bengzon

Anna Liza Cagaoan

Tina Salmo

Company Secretary

Atty. Virginia V. Viray

Puyat, Jacinto and Santos Law Office

12th

Floor, Manila Bank Building

Ayala Avenue, Makati City, Philippines

Statutory Auditors

Punongbayan & Araullo

(Member of Grant Thornton International)

20th

Floor, Tower 1 The Enterprise Center.,

6766 Ayala Avenue, Makati City.

Philippines

Registered Office



E-Rodriguez Jr. Ave.,

Bagumbayan, Quezon City, Philippines.

HTMT Europe Limited

Board of Directors

Dheeraj G. Hinduja

Ashok Dani

V. Venkatesan

Business Development Manager

Pradeep J. Kololgi

Company Secretary

Abhijit Mukhopadhyay

Statutory Auditors

Lubbock Fine

Chartered Accountants

Russel Bedford House

City Forum, 250 City Road

London EC1V 2QQ, UK

Registered Office

New Zealand House

80, Haymarket,

London SW1Y 4TE, U.K.

Hinduja TMT France

U.M. Nair, Gerant

Statutory Auditors

Pierre Sorel

Expert Comptable,

19, rue Jean Mermoz- BP 473

75366 Paris Cedex 08, France

Registered Office

4 Rue de l’ Abreuvoir 92400

Courbevoie, Paris, France

Source One Communications Inc.

Board of Directors

Kenneth D. Peterson

Ramkrishan P. Hinduja

K. Thiagarajan

M.S. Varadan

Ali Ganjaei

Management Team

M.S. Varadan

Danielle Grisoni

Ken Gary

Company Secretary

Ali Ganjaei

Statutory Auditors

Neal J. Nissel

6, East 45th

Street

New York, MY-10017

Registered Office

1013 Centre Road

City Wilmington,

Delaware-19805

HTMT Inc.

Board of Directors

Kenneth D. Peterson

Dheeraj G. Hinduja

Ali Ganjaei

R. Mohan

Management Team

M. S. Varadan

V. Prasanna Kumar

Company Secretary

Ali Ganjaei

Statutory Auditors

Neal J. Nissel

6, East 45th

Street

New York, MY-10017

Registered Office

520, Madison Avenue

40th

Floor, New York

N.Y. 10022


93

Directors Report

To the Members,

Your Directors are pleased to present the consolidated report on the

business and operations of the Company and its two subsidiaries, HTMT

Europe and HTMT France for the 12 months ended 31st

March 2005

Financial Results

‘000s

Rupees US Dollars

2005

Revenues 804,019 17,879

Expenditure 772,765 17,184

Gross Profit 31,254 695

Operating expenses 37,685 838

PBDIT (6,431) (143)

ADD: Interest 180 4

Gain on currency valuation 540 12

Gain on sale of assets 1,349 30

PBDT (4,362) (97)

Less: Depreciation & Amortization 1,709 38

Less: Provision for Taxation 45 1

Loss from operations before

Minority Interest (6,116) (136)

Less: Minority Interest in results of

consolidated operations 2,608 58

Net Loss (3,508) (78)

Financial Review

HTMT Inc. USA is a wholly owned subsidiary of Hinduja TMT Ltd, a

Company incorporated in India. The Company’s principal business consists

of marketing and providing Information Technology (“IT”) services and

solutions to its clientele primarily in the form of professional IT staffing,

claims processing, call center, software development and consulting

services. The Company has its operations in the USA and also in the

United Kingdom, through a 51% owned subsidiary, HTMT Europe Limited

(HTMT Europe) and in France through another 51% owned subsidiary,

Hinduja TMT France ( HTMT France)

During the year ended 31 March 2005, your Company generated Gross

Income of USD 17.879 million as against USD 11.314 million in the

previous year. Your Company is confident of further improving business

in the coming year.

The net loss incurred by your Company during the year was lower at

USD 0.078 million as against USD 0.161 million incurred in the previous

year following substantial cost reduction measures instituted by your

Company for reducing the General and Administration expenses.

HTMT Inc.

Review of Subsidiaries

The two subsidiaries incurred a substantially reduced net loss of USD

119,011 for the year under review as against a net loss of USD 552,566

incurred in the previous year. As of 31st

March 2005 the total assets and

liabilities of the two subsidiaries amounted to USD 462,979 and USD

662,903 respectively. The funding of the operations was provided

primarily by HTMT Inc., USA, Hinduja TMT Ltd, India and the 49% minority

shareholders.

Recent Developments:

In March 2005, your Company inducted M. S. Varadan, Executive Director

of Hinduja TMT Ltd, as President of the Company.

With the approval of the shareholders, your Company, with effect from

1st

April 2005, has merged with Source One Communications Inc. USA

(Source One), another 100% subsidiary of Hinduja TMT Ltd

The merged entity is renamed as Source1 HTMT Inc.. The merger is

expected to generate synergies from the consolidation of the marketing

and client relationship management functions of both the companies

and benefit from the reduction in cost of independent operations of

both entities.

HTMT Europe and HTMT France would continue their operations as

subsidiaries of Source1 HTMT Inc.

Statement of Directors’ responsibilities in respect of the financial

statements

Your Directors based on the information and documents made available

to them, confirm that:

i) in the preparation of the accounts for the period under review,

the applicable accounting standards have been followed. There are

no material departures in the adoption and application of the

accounting standards.

ii) they have 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 your Company at the end of the the period under

review and of the loss of your Company for that period;

iii) they have taken proper and sufficient care to the best of their

knowledge and ability for the maintenance of adequate accounting

records in accordance with the applicable laws for safeguarding

the assets of your Company and for preventing and detecting

fraud and other irregularities;

iv) they have prepared the annual accounts on a going concern basis

Your Directors wish to place on record their appreciation of the

continued support from your Company’s clients, valuable contributions

and co-operation of its employees and the excellent co-operation from

US Government agencies and bankers.

Kenneth D. Peterson

Director

29th

July 2005


94

NEAL J. NISSEL

Certified Public Accountant

6 East 45th Street,

New York, N.Y. 10017

(212) 661-1610

Fax : (212) 986-9728

To the Board of Directors and Stockholder of HTMT, Incorporated

We have audited the accompanying consolidated balance sheets of HTMT,

Incorporated and Subsidiaries as of March 31, 2005 and 2004, and the

related consolidated statements of operations, changes in stockholder’s

equity, and cash flows for the years then ended. These consolidated

financial statements are the responsibility of the Company’s

management. Our responsibility is to express an opinion on these

consolidated financial statements based on our audit. We did not audit

the financial statements of HTMT Europe Limited and Hinduja TMT

France, majority owned subsidiaries, which statements reflect total

assets of $462,979 and $359,660 as of March 31, 2005 and 2004,

respectively, and revenues of $663,341 and $770,397 for the years

ended March 31, 2005 and 2004, respectively. Those statements were

audited by other auditors whose reports have been furnished to us,

and our opinion, insofar as it relates to the amounts included for HTMT

Europe Limited and Hinduja TMT France, is based solely on the reports

of the other auditors.

We conducted our audits in accordance with auditing standards generally

accepted in the United States of America. Those standards require that

we plan and perform the audit to obtain reasonable assurance about

whether the consolidated financial statements are free of material

misstatements. An audit includes examining, on a test basis, evidence

supporting the amounts and disclosures in the consolidated financial

statements. An audit also includes assessing the accounting principles

used and significant estimates made by management, as well as evaluating

the overall financial statement presentation. We believe that our audit

provides a reasonable basis for our opinion.

In our opinion, based on our audits, the consolidated financial statements

referred to above present fairly, in all material respects, the

consolidated financial position of HTMT, Incorporated and Subsidiaries

as of March 31, 2005 and 2004, and the results of its operations and its

cash flows for the years then ended, in conformity with accounting

principles generally accepted in the United States of America.

New York, New York

June 20, 2005

Independent Auditors’ Report

Liabilities And Stockholder’s Equity

2005 2004

$ $

Current Liabilities:

Accounts Payable 950,459 604,814

Due to HTMT (India) (Note 5) 2,528,666 1,390,945

Due to HBI Incorporated, N.V. (Note 6) 137,144 127,092

Deferred Income — 21,350

Income Taxes Payable 1,682 1,660

Total Current Liabilities 3,617,951 2,145,861

Minority Interest In

Consolidated Subsidiaries (96,188) (37,829)

Stockholder’s Equity:

Capital Stock (Note 1) 2,900,000 2,900,000

Accumulated Deficit (2,540,082) (2,461,625)

Translation Adjustment (12.429) (9.078)

Total Stockholder’s Equity 347,489 429,297

3,869,252 2,537,329

Consolidated Balance Sheets March 31, 2005 and 2004

Assets

2005 2004

$ $

Current Assets:

Cash in Bank (Note 2) 494,523 487,884

Accounts Receivable - Trade (Note 2) 3,083,595 1,767,570

Other Receivables 3,410 3,058

Prepaid Expenses and Other Current Assets 18,411 5,411

Deferred Income Taxes (Note 4) 200,000 199,000

Total Current Assets 3,799,939 2,462,923

Property and Equipment: (Note 2)

Office Equipment 161,519 165,935

Less: Accumulated Depreciation 92,206 91,529

Property and Equipment, Net 69,313 74,406

3,869,252 2,537,329

The accompanying notes are an integral part of the consolidated financial statement.

HTMT Inc.

Consolidated Statements of Operations for the years ended March 31, 2005 and 2004


95

2005 2004

$ $

Revenues 17,878,842 11,314,215

Cost of Revenues 17,184,364 10,124,360

Gross Profit 694,478 1,189,855

General and Administrative Expenses 876,153 1,540,379

Loss from Operations (181,675) (350,524)

Other Income (Expense):

Gain (Loss) on Currency Valuation 12,601 (21,440)

Gain (Loss) on Disposal of Assets 29,985 (42,762)

Interest Income 3,806 929

Interest Expense — (40)

Total Other Income (Expense) 46,392 (63,313)

Loss From Continuing Operations

Before Income Tax Provision and Minority Interest (135,283) (413,837)

Provision for Income Taxes (Note 4) 1,533 18,115

Loss From Continuing Operations Before Minority Interest (136,816) (431,952)

Minority Interest in Results of Operations of Consolidated Subsidiaries (58,359) (270,757)

Net Loss (78,457) (161,195)


TOTAL

PREFERRED COMMON ACCUMULATED TRANSLATION STOCKHOLDER’S

STOCK STOCK DEFICIT ADJUSTMENT EQUITY

Balance, April 1,2003 2,500,000 200,000 (2,300,430) (27,935) 371,635

Preferred Stock Issued August, 2003 200,000 — — — 200,000

Translation Adjustment — — — 18,857 18,857

Net Loss — — (161,195) — (161,195)

Balance, March 31,2004 2,700,000 200,000 (2,461,625) (9,078) 429,297

Translation Adjustment — — — (3,351) (3,351)

Net Loss — — (78,457) — (78,457)

Balance, March 31,2005 2,700,000 200,000 (2,540,082) (12,429) 347,489

Consolidated Statements of Changes In Stockholder’s Equity

for the years ended March 31, 2005 and 2004

(figures in $)

HTMT Inc.

Consolidated Statements of Operations for the years ended March 31, 2005 and 2004


96

HTMT Inc.

Consolidated Statments of Cash Flow for the years ended March 31, 2005 and 2004

2005 2004

$ $

Cash Flows from Operating Activities:

Net Loss (78,457) (161,195)

Adjustments to Reconcile Net Loss

to Net Cash from Operating Activities:

Depreciation 37,817 50,659

Deferred Income Taxes (1,000) 14,000

Translation Adjustment (3,351) 18,857

Minority Interest in Results of Operations of Subsidiaries (58,359) (270,757)

(Gain) Loss on Disposal of Equipment (29,985) 42,762

(Increase) Decrease in Assets:

Accounts Receivable-Trade (1,316,025) (1,073,668)

Other Receivables (352) 8,156

Security Deposits — 2,089

Prepaid Expenses and Other Current Assets (13,000) 49,175

Increase (Decrease) in Liabilities:

Accounts Payable 345,645 199,955

Deferred Income (21,350) 21,350

Income Taxes Payable 22 378

Total Adjustments (1,059,938) (937,044)

Net Cash Used by Operating Activities (1,138,395) (1,098,239)

Cash Flows from Investing Activities:

Acquisition of Properly and Equipment (39,696) (160,689)

Proceeds from Sale of Equipment 36,957 —

Net Cash Used by Investing Activities (2,739) (160,689)

Cash Flows from Financing Activities:

Decrease in Subscription Receivable — 183,907

Increase in Due to HTMT (India) 1,137,721 891,461

Increase in Due to HBI Incorporated, N.V. 10,052 67,108

Issuance of Preferred Stock — 200,000

Issuance of Stock by Subsidiaries-Minority Interest — 156,555

Net Cash Provided by Financing Activities 1,147,773 1,499,031

Net Increase in Cash 6,639 240,103

Cash, Beginning of Year 487,884 247,781

Cash, End of Year 494,523 487,884

Supplemental Disclosure of Cash Flow Information:

Cash Paid During the Year for: Interest 8,618 40

Income Taxes 2,511 3,737



97

Note 1 Corporate Organization and Description of Business

HTMT, Incorporated (“HTMT”) is a wholly owned subsidiary of

Hinduja TMT Ltd. (“HTMT (India)”) a company incorporated in

India. HTMT was organized on March 23, 1995, under the laws

of the State of New York and has an authorized capital of

200,000 shares of common stock, $1 par value and 3,400,000

shares of preferred stock, $1 par value. As of March 31, 2005,

200,000 shares of common and 2,700,000 shares of preferred

are issued and are outstanding.

The Company’s principal business consists of providing

information technology (“IT”) services and solutions to its

clientele primarily in the form of professional IT staffing,

claims processing, call center, software development and

consulting services. The Company has operations in the United

Kingdom, through a 51% owned subsidiary, HTMT Europe

Limited (“HTMT (Europe)”) and has operations in France

through a 51% owned subsidiary, Hinduja TMT France (“HTMT

(France)”).

Note 2 Summary of Significant Accounting Policies:

Basis of Accounting

The Company uses the accrual method of accounting. Certain

items of income and expenses, and asset valuation are

recognized for financial statement purposes in different time

periods than for tax purposes. (Refer to Note 4)

Principles of Consolidation

The accompanying consolidated financial statements include

the accounts of the Company and its majority owned

subsidiaries, HTMT Europe Limited and Hinduja TMT France

(“Companies”). All material intercompany transactions and

intercompany accounts have been eliminated in consolidation.

(Refer to Note 3)

Basis of Reporting

The accompanying consolidated financial statements are

presented on the basis that the Company is a going concern.

Going concern contemplates the realization of assets and the

satisfaction of liabilities in the normal course of business over

a reasonable length of time. The accompanying consolidated

financial statements show that the company has accumulated

substantial losses. Management of the Company developed a

plan to increase profitability by reducing operating expenses

and increase marketing activities to stimulate growth and to

increase the company’s concentration in the offshore

development of software and services. This resulted in an

increase in revenues but the Company sustained a small loss in

the United States operation. Operations in the United Kingdom

continue to generate losses while the operations in France

have remained profitable. The ability of the Company to

continue as a going concern is dependent on the Company’s

continued financial support from its parent company and other

related parties. (Refer to Notes 5 & 6)

Revenue Recognition

The Company recognizes revenue for the leasing of software

engineers based upon the time expended by the engineers.

Revenue from software development is recognized under the

percentage-of-completion method based on labor inputs. Fees

charged for processing services are on a per unit basis.

Concentrations of Credit Risk

Financial instruments, which could subject the Company to a

concentration of credit risk, include its free cash balances and

trade accounts receivable. The Company maintains its cash

balances in a major New York financial institution. At times

the balances may exceed federally insured limits of $100,000.

HTMT’s clients range from large multi-national companies to

small regional IT staffing firms. During the years ended March

31, 2005 and 2004 the Company had revenues from two

unaffiliated clients, which accounted for approximately 96%

and 92% of revenues, respectively. During the years ended

March 31, 2005 and 2004, no other client accounted for more

than 5% revenues. The aggregate accounts receivable balances

for these clients at March 31, 2005 and 2004 were $2,695,440

and $1,600,004, respectively.

Accounts Receivable -Trade

An allowance for doubtful accounts receivable may be provided

based on historical collection experience and evaluation of

outstanding accounts receivable at the end of each year. As of

March 31, 2005 and 2004, no allowance for doubtful accounts

receivable was necessary to be recorded.

Property and Equipment

Property and equipment is stated at cost. Major additions

are capitalized while minor betterments are charged to

expense. Depreciation of equipment is provided using the

straight-line method over estimated useful lives of three years.

The cost and related accumulated depreciation of assets retired

or sold are removed from the respective accounts, and any

resulting gain or loss is included in the consolidated statement

of income and expenses.

Income Taxes

The Company records deferred tax assets and liabilities for

differences between the financial statement and tax bases of

assets and liabilities (“Temporary differences”), as well as for

net operating loss carryforwards. These are measured using

enacted tax rates in effect for the year in which the differences

are expected to reverse. Valuation allowances are established,

when necessary, to reduce deferred tax assets to the amounts

expected to be realized.

Management Estimates

The consolidated financial statements are prepared in

conformity with accounting principles generally accepted in

the United States of America, which require management to

make estimates and assumptions that affect the reported

amounts of assets and liabilities and disclosure of contingent

assets and liabilities at the date of the consolidated financial

statements and the reported amounts of revenues and

expenses during the reporting periods. Actual results could

differ from those estimates.

Foreign Currency Translation

Local currencies are generally considered to be the functional

currency of operations outside the U.S. Translation gains and

losses are included as a separate component of consolidated

stockholder’s equity. The functional currency for the operations

in the United Kingdom and France, are the British pound and

the euro, respectively.

Note 3 Foreign Operations

The Company has a 51% interest in two foreign subsidiaries.

Operations are conductet in the United Kingdom through its

HTMT (Europe) subsidiary and in France through its HTMT

(France) subsidiary.

For the years ended March 31, 2005 and 2004 the subsidiaries

incurred net losses of $119,101 and $552,566, respectively. At

March 31, 2005 and 2004, the subsidiaries’ assets total $462,979

and $359,660 and liabilities total $662,903 and $436,702,

respectively. During the years then ended, funding was provided

primarily by HTMT, HTMT (India) and the 49% minority

stockholder.

Note 4 Income Taxes

Income taxes are provided for the tax effects of transactions

reported in the consolidated financial statements.

The provision for income taxes consist of the following:

2005 2004

$ $

Current Tax Expense 2,533 4,115

Deferred Tax Expense (Benefit) (1,000) 14,000

Net Income Tax Expense 1,533 18,115

The provision for income taxes differs from the amount,

which would be computed if statutory federal income tax

rates were applied to pre-tax income. This is principally due

to taxes imposed by state and local regulations, net of federal

income tax benefit, and the nondeductibility of certain

expenses.

HTMT Inc.

Notes to Consolidated Financial Statements March 31, 2005 and 2004


98

The significant components of the net deferred tax asset

consists of approximately the following:

2005 2004

$ $

Net Operating Loss Carryforwards 1,070,000 1,036,000

Accrued Vacation and Taxes 31,000 23,000

Depreciation (1,000) —

1,100,000 1,059,000

Valuation Allowance (900,000) (860,000)

Net Deferred Tax Asset 200,000 199,000

As of March 31, 2005 and 2004, a valuation allowance has been

recognized to partially offset the deferred tax asset due to

the uncertainty of realizing the entire future benefit. As of

March 31, 2005 the net operating loss carryforward in the

United States of approximately $1,930,000 is available to be

carried forward to offset future taxable income and will

begin to expire in 2012. As of March 31, 2005 the net operating

loss carryforward in the foreign subsidiaries of approximately

$1,650,000 is available to be carried forward to offset future

taxable income.

Note 5 Due to HTMT (India) - Related Party Transactions

The Companies reimburse HTMT (India) for direct expenses

incurred on its behalf, including, recruiting and training

software engineers in India. For the years ended March 31,

2005 and 2004, HTMT (India) charged the Companies for expenses

amounting to $2,761 and $10,620, respectively. In addition, for

the years ended March 31, 2005 and 2004, the Companies were

engaged in offshore contract related transactions with HTMT

(India) for a net amount totaling $13,937,864 and $8,223,347,

respectively. As of March 31, 2005 and 2004, the balance due

HTMT (India) was $2,528,666 and $1,390,945, respectively.

Note 6 Due to HBI Incorporated, N.V. - Affiliated Company

HBI Incorporated, N.V. (“HBI”), an affiliated company, provides

office space, personnel, and administrative services for HTMT.

For the years ended March 31, 2005 and 2004, HTMT was

charged a fee for these services in the amount of $197,500

and $230,000, respectively. The Company has an agreement

with HBI to pay commissions on revenues generated from

two customers. For the years ended March 31, 2005 and

2004, HTMT recorded commission expense to HBI of $1,262,298

and $841,077, respectively.

As of March 31, 2005 and 2004, the unpaid balance of the

advances and administrative services amounted to $137,144

and $127,092, respectively.

Note 7 Retirement Plan

The Company maintains a 401 (K) Retirement Plan that covers

all employees with a minimum of three months of service.

Eligible employees may elect to make contributions to the

plan through a salary reduction arrangement not to exceed

15% of their gross pay. At the discretion of the Board of

Directors, the Company may elect to contribute to the plan.

For the years ended March 31, 2005 and 2004, the Company

did not make a contribution to the plan.

Note 8 Subsequent Events

Effective April 1, 2005 HTMT agreed to merge with Source

One Communications, Inc. (“Source1”), a Delaware corporation,

in a tax free reorganization. A common parent, HTMT (India),

owns both Source1 and HTMT. Source1 will be the surviving

corporation and the name of the merged company will be

Source 1 HTMT, Inc.

NEAL J. NISSEL


6 East 45th Street,


(212) 661-1610

Fax : (212) 986-9728

Independent Auditors’ Report on Supplementary Information

To the Board of Directors and Stockholder of HTMT, Incorporated

Our report on our audit of the basic consolidated financial statements

of HTMT, Incorporated and Subsidiaries for the years ended March 31,

2005 and 2004 appears on page 3. That audit was made for the purpose

of forming an opinion on the basic consolidated financial statements

taken as a whole. The information in Schedules I and II is presented for

purposes of additional analysis and is not a required part of the basic

consolidated financial statements. Such information has been subjected

to the auditing procedures applied in the audit of the basic consolidated

financial statements. In our opinion, which insofar as it relates to

HTMT Europe Limited and Hinduja TMT France, is based on the report

of other auditors, such information is fairly stated in all material

respects in relation to the basic consolidated financial statements

taken as a whole.

New York, New York

June 20, 2005

HTMT Inc.

Notes to Consolidated Financial Statements March 31, 2005 and 2004


99

2005 2004

$ $

Schedule I

Cost of Revenues:

Compensation – Programmers 384,891 246,672

Payroll Taxes 58,368 33,885

Employee Health and Welfare 25,831 11,017

Offshore Development and Services 14,960,666 8,622,786

Technical Fees 165,482 234,493

Visa Expense 2,870 1,850

Commissions 1,586,256 973.657

Total Cost of Revenues 17,184,364 10,124,360

Schedule II

General and Administrative Expenses:

Compensation – Office 277,601 734,854

Payroll and Other Taxes 42,093 100,954

Employee Health and Welfare 18,629 32,822

Administrative Fees 197,500 230,000

Professional Fees 111,596 93,089

Telephone 8,536 28,467

Auto and Travel 60,782 119,938

Office Expense 92,609 107,621

Postage and Delivery 12,372 4,647

Depreciation and Amortization 37,817 50,659

Advertising and Trade Shows 15,264 22,191

Recruitment fees 1,354 15,137

Total General and Administrative Expenses 876,153 1,540,379

See independent auditors’ report on supplementary information.

HTMT Inc.

Consolidated Schedules of Operating Costs and Expenses for the years ended

March 31, 2005 and 2004


100

HTMT Europe Limited

The Directors present their report and the financial statements of the

Company for the year ended 31 March 2005.

Principal Activities and Business Review

The principal activity of the company was that of the provision of

information technology consultancy services.

During the year, the Company continued to supply IT consultants to

software development projects in the UK and France and also to new

operations in Australia and Italy. Although the French operations have

been transferred to the Group’s French subsidiary, further prospects

exist in the UK and overseas.

Although the level of activity in the IT sector is still depressed following

the global economic downturn and the level of investment in IT

development and consequently the demand for IT consultants are less

than was previously hoped, the Directors are confident that, given the

strength of the Hinduja TMT Group as a whole and its commitment to

maintaining a presence in this sector, the long term outlook is

satisfactory.

Results and Dividends

The trading results for the year and the Company’s financial position at

the end of the year are shown in the attached financial statements.

The Directors have not recommended a dividend.

The Directors and their interests in the shares of the Company

The Directors who served the company during the year together with

their beneficial interests in the shares of the company were as follows:

Ordinary Shares of £1 each

At At

31 March 2005 1 April 2004

Mr D G Hinduja — —

Mr V Venkatesan — —

Mr A Dani — —

Directors’ Responsibilities

Company law requires the Directors to prepare financial statements

for each financial year which give a true and fair view of the state of

affairs of the Company at the end of the year and of the profit or loss

for the year then ended. In preparing those financial statements, the

Directors are required to:

– select suitable accounting policies, as described on pages 8 to 9, and

then apply them consistently;

– make judgements and estimates that are reasonable and prudent;

– state whether applicable accounting standards have been followed,

subject to any material departures disclosed and explained in the

financial statements; and

– prepare the financial statements on the going concern basis unless

it is inappropriate to presume that the Company will continue in

business.

The Directors are responsible for keeping proper accounting records

which disclose with reasonable accuracy at any time the financial

position of the Company and to enable them to ensure that the financial

statements comply with the Companies Act 1985. The Directors are

also responsible for safeguarding the assets of the Company and hence

for taking reasonable steps for the prevention and detection of fraud

and other irregularities.

Auditors

A resolution to re-appoint Lubbock Fine as auditors for the ensuing

year will be proposed at the annual general meeting in accordance

with section 385 of the Companies Act 1985.

Signed on behalf of the Directors

Mr A Dani

Director

Approved by the Directors on 21 June 2005

Directors’ Report

We have audited the financial statements of HTMT Europe Limited for

the year ended 31 March 2005 on pages 5 to 15 which have been

prepared under the historical cost convention and the accounting policies

set out on pages 8 to 9.

This report is made solely to the company’s shareholders, as a body, in

accordance with Section 235 of the Companies Act 1985. Our audit

work has been undertaken so that we might state to the company’s

shareholders those matters we are required to state to them in an

auditors’ report and for no other purpose. To the fullest extent

permitted by law, we do not accept or assume responsibility to anyone

other than the company and the company’s shareholders as a body, for

our audit work, for this report, or for the opinions we have formed.

Respective Responsibilities of Directors and Auditors

As described in the Statement of Directors’ Responsibilities the

company’s directors are responsible for the preparation of the financial

statements in accordance with applicable law and United Kingdom

Accounting Standards.

Our responsibility is to audit the financial statements in accordance

with relevant legal and regulatory requirements and United Kingdom

Auditing Standards.

We report to you our opinion as to whether the financial statements

give a true and fair view and are properly prepared in accordance

with the Companies Act 1985. We also report to you if, in our opinion,

the Directors’ Report is not consistent with the financial statements,

if the company has not kept proper accounting records, if we have not

received all the information and explanations we require for our

audit, or if information specified by law regarding directors’

remuneration and transactions with the company is not disclosed.

We read the Directors’ Report and consider the implications for our

report if we become aware of any apparent misstatements within it.

Basis of Audit Opinion

We conducted our audit in accordance with United Kingdom Auditing

Standards issued by the Auditing Practices Board. An audit includes

examination, on a test basis, of evidence relevant to the amounts and

disclosures in the financial statements. It also includes an assessment of

the significant estimates and judgements made by the directors in the

preparation of the financial statements, and of whether the accounting

policies are appropriate to the company’s circumstances, consistently

applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information

and explanations which we considered necessary in order to provide

us with sufficient evidence to give reasonable assurance that the

financial statements are free from material misstatement, whether

caused by fraud or other irregularity or error. In forming our opinion

we also evaluated the overall adequacy of the presentation of

information in the financial statements.

Opinion

In our opinion the financial statements give a true and fair view of the

state of the company’s affairs as at 31 March 2005 and of its loss for the

year then ended, and have been properly prepared in accordance with

the Companies Act 1985.

Lubbock Fine Russell Bedford House

Chartered Accountants City Forum, 250 City Road

& Registered Auditors London EC1V 2QQ

Date: 21st June, 2005

Auditors’ Report


101

Profit And Loss Account

for the year ended 31st March, 2005

2005 2004

Note £ £

TURNOVER 2 180,820 300,187

Cost of sales 149,223 205,663

Gross Profit 31,597 94,524

Administrative expenses 221,940 514,321

Other operating income 3 (109,835) (75,132)

OPERATING LOSS 4 (80,508) (344,665)

Interest receivable 245 402

Loss on Ordinary Activities

before Taxation (80,263) (344,263)

Tax on loss on ordinary activities 6 — —

Loss for the financial year (80,263) (344,263)

Balance brought forward (788,287) (444,024)

Balance carried forward (868,550) (788,287)

All of the activities of the company are classed as continuing.

The company has no recognised gains or losses other than the

results for the year as set out above.

Balance Sheet As At 31st March, 2005

Cash Flow Statement for the year ended 31st March, 2005

2005 2004

Note £ £ £ £

NET CASH OUTFLOW FROM OPERATING ACTIVITIES 15 (78,584) (105,006)

RETURNS ON INVESTMENTS AND

SERVICING OF FINANCE

Interest received 245 402

NET CASH INFLOW FROM RETURNS ON INVESTMENTS AND SERVICING OF FINANCE 245 402

CAPITAL EXPENDITURE

Payments to acquire intangible fixed assets — (25,000)

Payments to acquire tangible fixed assets — (25,003)

Receipts from sale of fixed assets 19,867 —

NET CASH INFLOW/(OUTFLOW) FROM CAPITAL EXPENDITURE 19,867 (50,003)

CASH OUTFLOW BEFORE FINANCING (58,472) (154,607)

FINANCING

Issue of equity share capital — 196,100

NET CASH INFLOW FROM FINANCING — 196,100

(DECREASE)/INCREASE IN CASH 16 (58,472) 41,493

The notes to accounts form part of these financial statements.

HTMT Europe Limited

2005 2004

Note £ £

FIXED ASSETS

Intangible assets 7 — —

Tangible assets 8 — 7,115

— 7,115

CURRENT ASSETS

Debtors 9 141,861 114,645

Cash at bank 343 58,046

142,204 172,691

CREDITORS: Amounts falling

due within one year 10 245,454 202,793

Net Current Liabilities (103,250) (30,102)

Total Assets Less Current Liabilities (103,250) (22,987)

Capital and Reserves

Called-up equity share capital 13 765,300 765,300

Profit and loss account (868,550) (788,287)

(Deficiency) 14 (103,250) (22,987)

These financial statements were approved by the directors on the

21st June, 2005 and are signed on their behalf by:

A. Dani

Director


102

HTMT Europe Limited

Notes to Accounts

1. ACCOUNTING POLICIES

Basis of accounting

The Financial statements have been prepared under the historical

cost convention, and in accordance with applicable accounting

standards.

Going concern

The company meets its day to day working capital requirements

from the support of its ultimate parent undertaking. The directors

believe that it is appropriate to prepare the financial statements

on a going concern basis which assumes that the company will

continue in operational existence for the foreseeable future on

the basis of the company’s plans and the continued support of the

ultimate parent undertaking.

If the company is unable to continue in operational existence for

the foreseeable future, adjustments would have to be made to

reduce the balance sheet values of assets to their recoverable

amounts, provide for further liabilities that might arise and

reclassify fixed assets and long term liabilities as current assets

and liabilities.

Turnover

The turnover shown in the profit and loss account represents

amounts invoiced and amounts received and receivable during the

year, exclusive of Value Added Tax.

Recharged disbursements

The company excludes from turnover and administrative expenses

those disbursements which it incurred as agent on behalf of its

shareholders and group companies. This reflects the fact that

these disbursements have been recharged in full.

Amortisation

Amortisation is calculated so as to write off the cost of an asset,

less its estimated residual value, over the useful economic life of

that asset as follows:

Software Licence - fully written off during the previous

year due to impairment

Depreciation

Depreciation is calculated so as to write off the cost of an asset,

less its estimated residual value, over the useful economic life of

that asset as follows:

Plant & Hardware - 75% reducing balance per annum

Equipment - 33% of cost per annum

Operating lease agreements

Rentals applicable to operating leases where substantially all of the

benefits and risks of ownership remain with the lessor are charged

against profits on a straight line basis over the period of the

lease.

Deferred taxation

Deferred tax is recognised in respect of all timing differences that

have originated but not reversed at the balance sheet date where

transactions or events have occurred at that date that will result

in an obligation to pay more, or a right to pay less or to receive

more tax, with the following exceptions:

Provision is made for tax on gains arising from the revaluation

(and similar fair value adjustments) of fixed assets, and gains

on disposal of fixed assets that have been rolled over into

replacement assets, only to the extent that, at the balance

sheet date, there is a binding agreement to dispose of the

assets concerned. However, no provision is made where, on

the basis of all available evidence at the balance sheet date, it

is more likely than not that the taxable gain will be rolled

over into replacement assets and charged to tax only where

the replacement assets are sold;

Deferred tax assets are recognised only to the extent that

the directors consider that it is more likely than not that

there will be suitable taxable profits from which the future

reversal of the underlying timing differences can be

deducted.

Deferred tax is measured on an undiscounted basis at the tax

rates that are expected to apply in the periods in which timing

differences reverse, based on tax rates and laws enacted or

substantively enacted at the balance sheet date.

Foreign currencies

Assets and liabilities in foreign currencies are translated into

sterling at the rates of exchange ruling at the balance sheet date.

Transactions in foreign currencies are translated into sterling at

the rate of exchange ruling at the date of the transaction. Exchange

differences are taken into account in arriving at the operating

profit.

2. TURNOVER

The turnover and loss before tax are attributable to the one

principal activity of the company.

An analysis of turnover is given below:

2005 2004

£ £

United Kingdom 2,400 19,350

Overseas 178,420 280,837

180,820 300,187

3. OTHER OPERATING INCOME

2005 2004

£ £

Other operating income 109,835 75,132

4. OPERATING LOSS

Operating loss is stated after charging/(crediting):

2005 2004

£ £

Directors’ emoluments — —

Amortisation — 25,000

Depreciation of owned fixed assets 3,370 19,902

Profit on disposal of fixed assets (16,122) —

Auditors’ remuneration

- as auditors 4,000 7,650

- for other services 4,525 800

Net loss / (profit) on foreign

currency translation (3,530) 12,534

The operating loss for the year was after charging an amount of

£11,800 in respect of costs arising in the prior years.

5. PARTICULARS OF EMPLOYEES

The average numjaer of staff employed by the company during the

financial year amounted to:

2005 2004

£ £

Number of administrative staff 2 4

Number of management staff 1 1

Number of consultant staff 2 2

5 7

The aggregate payroll costs of the above were:

2005 2004

£ £

Wages and salaries 206,114 359,123

Social security costs 20,238 35,920

226,352 395,043

6. TAXATION ON ORDINARY ACTIVITIES

No charge to corporation tax arises due to the loss incurred

during the year, which will be carried forward and offset against

future profits.


103

7. INTANGIBLE FIXED ASSETS

Software

Licence

£

COST

At 1 April 2004 25,000

Disposals (25,000)

At 31 March 2005 —

AMORTISATION

At 1 April 2004 25,000

On disposals (25,000)

At 31 March 2005 —

NET BOOK VALUE

At 31 March 2005 —

At 31 March 2004 —

8. TANGIBLE FIXED ASSETS

Plant &

Hardware Equipment Total

£ £ £

COST

At 1 April 2004 23,964 5,476 29,440

Disposals (23,964) — (23,964)

At 31 March 2005 — 5,476 5,476

DEPRECIATION

At 1 April 2004 17,973 4,352 22,325

Charge for the year 2,246 1,124 3,370

On disposals (20,219) — (20,219)

At 31 March 2005 — 5,476 5,476

NET BOOK VALUE 31st March-05 — — —

At 31 March 2004 5,991 1,124 7,115

9. DEBTORS

2005 2004

£ £

Trade debtors 83,307 49,539

Amounts owed by group undertakings 49,427 64,372

VAT recoverable 6,016 —

Other debtors 146 56

Prepayments and accrued income 2,965 678

141,861 114,645

10. CREDITORS: Amounts falling due within one year

2005 2004

£ £

Bank loans and overdrafts 769 —

Trade creditors 5,605 7,707

Amounts owed to group undertakings 72,662 54,636

PAYE and social security 5,662 17,360

VAT — 1,348

Other creditors 137,908 102,933

Accruals and deferred income 22,848 18,809

245,454 202,793

11. DEFERRED TAXATION

No provision has been made in the financial statements and the

amounts unprovided at the end of the year are as follows:

2005 2004

£ £

Tax losses available 157,842 142,783

The deferred tax asset in respect of trading losses has not

been recognised on the basis that its future recoverability is

uncertain. The asset will be recovered in the future in the

event that the company makes sufficient taxable profits to

utilise these losses.

12. RELATED PARTY TRANSACTIONS

Sangam Limited

During the year, the company was charged £27,312 (2004 - £39,643)

in respect of office accommodation and facilities provided by Sangam

Limited, a company that holds 49% of the share capital of HTMT

Europe Limited. The balance due to Sangam Limited at the year

end in respect of the above charges was £74,154 (2004 - £46,841).

The company also recharged part of the salary of two members of

staff who undertake work on behalf of Sangam Limited. The amount

recharged for the year ended 31 March 2005 was £67,782 (2004 -

£75,132). The balance due from Sangam Limited in respect of the

above charges was £25,981 (2004 - £nil).

During the previous year, the company issued 96,089 ordinary

shares of £1 each to Sangam Limited.

Group companies

During the year, the company had the following transactions with

fellow group companies:

The company was charged £86,567 (2004 - £96,423) for technical

services and recharged expenses by its ultimate parent company,

Hinduja TMT Limited. At the balance sheet date an amount of

£72,662 (2004 - debtor of £44,962) was due to the ultimate parent

company.

During the year, the company recharged the salaries of two

members of staff who undertake work on behalf TMT France SARL

totalling £32,995 (2004 - £nil). At the balance sheet date an amount

of £49,427 (2004 - £64,354) was due from this company.

During the previous year, the company issued 100,011 ordinary

shares of £1 each at par to its immediate parent undertaking,

HTMT Inc. The total balance outstanding and due to the company at

the year-end was £nil (2004 - £18).

Other companies

Finac Services Limited, a company controlled by a member of the

Hinduja family, provides accounting services, office accommodation

and facilities to HTMT Europe Limited. The total charges for the

year amounted to £6,000 (2004 - £12,000) and the balance at the

year end was £nil (2004-£10,575).

During the previous year, the company paid fees of £4,000 to Amas

Investments & Project Services Limited, a company controlled by a

member of the Hinduja family, for promotional work.

13. SHARE CAPITAL

Authorised share capital:

2005 2004

£ £

2,000,000 Ordinary shares of £1 each 2,000,000 2,000,000

Allotted, called up and fully paid:

2005 2004

No. £ No. £

Ordinary shares of £1 each 765,300 765,300 765,300 765,300

14. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS’ FUNDS

2005 2004

£ £

Loss for the financial year (80,263) (344,263)

New equity share capital subscribed — 196,100

Net reduction to shareholders’ equity

(deficit)/funds (80,263) (148,163)

Opening shareholders’ equity

(deficit)/funds (22,987) 125,176

Closing shareholders’ equity deficit (103,250) (22,987)

HTMT Europe Limited

Notes to Accounts


104

15. RECONCILIATION OF OPERATING LOSS TO

NET CASH OUTFLOW FROM OPERATING ACTIVITIES

2005 2004

£ £

Operating loss (80,508) (344,665)

Amortisation — 25,000


Profit on disposal of fixed assets (16,122) —

(lncrease)/decrease in debtors (27,216) 128,206

Increase in creditors 41,892 66,551

Net cash outflow from

operating activities (78,584) (105,006)

16. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET

DEBT

2005 2004

£ £

(Decrease)/!ncrease in cash in the period (58,472) 41,493

Movement in net debt in the period (58,472) 41,493

Net funds at 1 April 2004 58,046 16,553

Net debt at 31 March 2005 (426) 58,046

HTMT Europe Limited

Notes to Accounts

17. ANALYSIS OF CHANGES IN NET DEBT

At

1 Apr.04 Cash flows 31 Mar.05

£ £ £

Net cash:

Cash in hand and at bank 58,046 (57,703) 343

Ovedrafts — (769) (769)

Net debt 58,046 (58,472) (426)

18. CONTROLLING PARTY

The company is ultimately controlled by the Hinduja family.

19. ULTIMATE PARENT COMPANY

The company’s immediate parent undertaking, and the parent

undertaking of the smallest group for which group financial

statements are prepared, is HTMT Inc, a company incorporated in

the United States of America. HTMT Inc has included the results of

the company in its group accounts, copies of which are available

from 520 Madison Avenue, New York NY1022, USA.

In the directors’ opinion, the ultimate parent company, and the

parent undertaking of the largest group for which group financial

statements are prepared, is Hinduja TMT Limited, a company

incorporated in India. Copies of its consolidated group’ accounts,

which include the results of HTMT Europe Limited, are available

from Hinduja House, 1st Floor, 171 Dr. A.B. Road, Worli, Mumbai

400018, India


105

Hinduja TMT France


To the Board of Directors and

Stockholder

of Hinduja TMT France

4, Rue de l’Abreuvoir

92400 COURBEVOIE

We have audited the balance sheets of Hinduja TMT France as of March

31, 2005. 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.


accepted in FRANCE.

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 disclosures in the financial statements.

An audit also includes assessing the accounting principles used and

significant estimates made by management, as well as evaluating the

overall financial statement presentation.

We believe that our audit provides a reasonable basis for our opinion.

In our opinion, based on our audits, the financial statements referred

to above present fairly, in all material respects, the financial position

of Hinduja TMT France as for March 31, 2005 and the results of its

operations and its cash flows for the years then ended, in conformity

with accounting principles generally accepted in France.

Pierre Sorel

Paris, June 29, 2005

Report on The Trial Account 03/31/2005

We have established the accounts for the period 04/01/2004 – 03/31/2005

We express our opinion on the accounts, the balance sheet and profit

and loss ending 03/31/2005. These are genuine and true.

We have audited the accounts and we certify that they have been done

in accordance of the French bookkeeping standard (IASC)

We confirm that Cabinet SOREL is independent in the performance of all

professional services with regard to Hinduja TMT France and their

related and affilliated companies, and that there are no independence

issues. Moreover, all members of our audit engagement team have no

financial interests in the client and have the ability to act with integrity

and objectivity.

We also confirm that at 31st March 2005 HTMT Europe was due

∈95857,60 from Hinduja TMT France.

Pierre Sorel

Paris, June 29, 2005

Statement of Income

For the year ended March 31, 2005

Amount in Euros

2005 2004

Net Products Sales 259425 221531

Gross profit 259425 221531

Selling, general and administrative expenses (135286) (188274)

Income (profit) from operations 124139 33257

Financial expenses (income), net — (234)

Income before taxes on income 124139 33023

Other income — —

NET INCOME (LOSS) 124139 33023

Balance Sheet

as at 31st March, 2005

Amount in Euros

2005 2004

ASSETS

Current Assets:

Cash and cash equivalents 102241 105117

Trade accounts receivable, net 45338 21713

Other receivables and prepaid expenses 4286 3147

Inter Company receivables 38862 —

Total Current Assets 190727 129977

Fixed Assets, net 1162 1162

Other Assets, net 528 528

Amortization (856) (468)

TOTAL ASSETS 191561 131199

LIABILITIES AND STOCKHOLDERS’ EQUITY


Accounts payable 6271 7727

Income Tax 34243 —

Credit facility outstanding and

short-term borrowing — 110

Accrued expenses and other liabilities 55149 55465

VAT taxes payable 2 2

Intercompany payables — 96138

Total current liabilities 95665 159442

Common stock 8000 8000

Loss 2002-2003 (69266) (69266)

Profit at 31/03/04 33023 —

Profit for Year to Date 124139 33023

Total stockholders’ equity 95896 (28243)

TOTAL LIABILITIES AND

STOCKHOLDERS’ EQUITY 191561 131199


106

Statements of Cash Flows

For the year ended March 31, 2005

Amount in Euros

2005 2004

Cash Flows from Operating Activities : 124139 33023

Adjustments to reconcile Net Loss to net cash from Operating Act

Depreciation 387 388

Increase Decrease in Assets :

Accounts receivable trade (23625) 47227

Other receivables (1139) (629)

Increase Decrease in Liabilities :

Accounts Payable (102918) (125244)

Total Adjustments (127295) (78258)

Net cash Used by Operating Activities (3156) (45235)

Cash flows from Investing Activities :

Acquisition of Property and Equipement — 1690

Net Cash Used by Investing Activities — 1690

Cash flow from Financing Activities :

Increase in due to HTMT EUROPE 280 96138

Issuance of stock by Subsidiaries minority interest

Net Decrease in Cash (2876) 52593

Cash beginning of Year 105117 52524

Cash end of the year 102241 105117

Note 1 Corporate Organisation and Description of Business

Hinduja TMT France is a wholly owned subsidiary of HTMT

Incorporated a company incorporated in United States for 51%

of the share, be ∈4080.00 and SANGAM Ltd. (HTMT Europe) a

company incorporated in United Kingdom for 49% of the share,

be ∈3920. Hinduja TMT France was organised on March 06,

2002 under the laws of France and has an authorised capital of

800 shares of preferred stock, ∈10 par value. These shares

were issued for a consideration of ∈8000.

The company principal business consists of providing information

technology (“IT”) services and solutions to its clientele primarily

in the form of professional IT staffing, claims processing,

software development and consulting services.

Note 2 Summary of Significant Accounting Policies

Basis of Accounting

The company uses the accrual method of Accounting. Certain



periods than for tax purposes.

Revenue recognition

The company recognises revenue for the leasing of software

engineers based upon the time expended by the engineers.

Revenue from software development is recognised under the

percentage of completion method based on labor inputs. Fees

charged for processing services are on a per unit basis.


Hinduja TMT France’s clients range from large multi-national

companies to small regional IT staffing firms. During the year

ended March 31, 2005 the company had revenues from only an

unaffiliated client, SOLECTRON BV EUROPE, which accounted for

100% of revenues. The aggregate accounts receivable balance

at March 31, 2005 were ∈45337.50

Property and equipment

Property and equipment is stated at cost. Depreciation of

equipment is provided using the straight-line method over

estimated useful lives of three years. The cost and related

accumulated depreciation of assets retired or sold are removed

from the respective accounts, and any resulting gain or loss is

included in the consolidated statement of income and expenses.


The consolidated financial statements are prepared in conformity

with accounting principles generally accepted in France, which

require management to make estimates and assumptions that

affect reported amounts of assets and liabilities and disclosure

of contingent assets and liabilities at the date of the consolidated

financial statements and the reported amounts of revenues and

expenses during the reporting periods. Accrual results could




currency of operations outside the U.S. translation gains and

losses are include as a separate component of consolidated


in France is the euro.

Note 3 Foreign Operations

The company Hinduja TMT France began full operations in France

during the year ended March 31, 2003.

For the year ended March 31, 2004 Hinduja TMT France get

profit for ∈33023, the company’s assets total ∈986134 and

liabilities total ∈953111, whereas the company incurred net

losses of ∈69266 for the year ended March 31, 2003. Then

funding was provided primarily by HTMT Europe.

For the year ended March 31, 2005 Hinduja TMT France get

profit for ∈23663 and the Company’s assets total ∈152890 and

liabilities total ∈152890

Note 4 Income taxes

For the year ended March 31, 2005, the basis of Income tax for

Hinduja TMT France is ∈NIL (profit 23662 less deficit 36 243).

Note 5 Due to HTMT Europe – Related party Transactions

The company reimburse HTMT Europe for direct expenses

incurred on its behalf, including, recruiting and training

software engineers in India. For the year ended March 31,

2003, HTMT Europe charged the company for expenses amounting

∈135596, and for the year ended March 31, 2004 the company

reimburse HTMT Europe ∈39458, then the unpaid balance of

advances and administrative services amounted to ∈96138.

For the financial period from April 01, 2004 to March 31, 2005,

Hiduja TMT France reimburse HTMT Europe ∈135000 and the

debt at the end of the period is ∈95858 due to HTMT Europe UK.

Note 6 Retirement Plan

Hinduja TMT France have no Retirement Plan.

Notes to Consolidated Financial Statements March 31, 2005

Hinduja TMT France


107


To the Members,

Your Directors are pleased to present the consolidated financial results

of your Company for the period September 17, 2004 to March 31,2005:

Financial Results

‘000s

Rupees US Dollars

2005

Revenues 384,449 8,549


PBDIT 23,565 524

Add Interest income 1,754 39

Less: Depreciation & Amortization 8,185 182

Loss on currency valuation 10,523 234

Profit before Minority Interest

and taxation 6,611 147

Less: Provision for taxation (225) (5)

Net profit before Minority Interest 6,836 152

Less: minority Interest 3,328 74

Net Income 3,508 78

Add : Other Income 2,743 61

Comprehensive income 6,251 139

Background

Effective 17th

September 2004, Source One Communications Inc., USA

(Source One) is a wholly owned subsidiary of Hinduja TMT Ltd (HTMT

India), a company incorporated In India. Your Company’s principal business

consists of marketing and providing customer contact center services

to its clientele primarily in the form of call centers. The Company has

its headquarters and a call center in New Jersey and a branch office in

Toronto, Canada. Your Company has investments in a 57.5% subsidiary,

Source One Communications Asia, Inc. (SOCA), located at Manila,

Philippines.

SOCA is a joint venture between Customer Contact Center Inc. (C3),

Manila and Source One. HTMT India is the controlling shareholder of C3

which owns the remaining 42.5% of SOCA.

Financial Review:

During the six and half months ended 31st

March 2005, your Company

has earned a Gross Revenue of USD 8.549 million and earned a net

profit of USD 0.078 million.

Review of Operations:

In the period under review, your Company has performed satisfactorily

amid external pressures on pricing and available human resources.

Through its’ own call centers in New Jersey and Toronto and SOCA

owned call centers in Manila, your Company serves over a dozen

customers, some of who are Fortune 500 companies engaged in different

businesses like Consumer Electronics, Pharmaceuticals, Utilities, Fuel

and Power, Consumer goods etc.

Some of the clients have shown greater confidence in your Company’s

quality capabilities by increasing volumes and adding new lines. Infact,

the Toronto Call Center has achieved the distinction of being the number

one center for the highest quality of service amongst various service

providers to one of it’s clients.

Your Company is continually looking at ways to streamline the

organization to rationalize costs of rendering service and make for a

better-functioning company. The major steps initiated to this end

include merging of the Training and Quality functions into one team and

the greater involvement of the Workforce group in the decision process

relating to agent hiring and manpower rationalisation.

Recent Developments:

Effective 1st

April 2005, with the approval of the shareholders, HTMT

Inc., USA, the 100% owned subsidiary of HTMT India, has merged with

Source One.

The merged entity is renamed as Source1 HTMT Inc., The merger is

expected to generate synergies from the consolidation of the marketing

and client relationship management functions of both the companies

and benefit from the reduction in cost of independent operations of

both entities.

Directors:

Following the acquisition of the Company by HTMT India, the Company’s

Board was reconstituted in November 2004, with the following as

directors:

Ken Peterson, Chairman

R.P.Hinduja, Director (Co-Chairman of HTMT India)

K. Thiagarajan, Director (MD and CEO of HTMT India)

Ali Ganjaei, Director (CEO Amas group, USA)

M.S.Varadan, Director & President

Following the merger of HTMT Inc., USA with Source One, Dheeraj G.

Hinduja, (Director-HTMT India) has joined the Board of your Company.


statements











review and of the profit of your Company for that period;








continued support from customers, valuable contributions and co-

operation of its employees, its bankers and the excellent co-operation

received from the Governments of USA, Canada and Philippines including

PEZA.

Kenneth D. Peterson

Director

29th

July 2005

Directors’ Report


108


NEAL J. NISSEL


6 East 45th Street,


(212) 661-1610

Fax : (212) 986-9728

To the Board of Directors and Stockholder of Source One Communications,

Inc.

We have audited the accompanying consolidated balance sheet of Source

One Communications, Inc and Subsidiary as of March 31, 2005, and the

related consolidated statements of income and comprehensive income,

changes in stockholder’s equity, and cash flows for the period September

17 2004 to March 31, 2005. These consolidated financial statements are

the responsibility of the Company’s management. Our responsibility is

to express an opinion on these consolidated financial statements based

on our audit. We did not audit the financial statements of Source One

Communications Asia, Inc., a majority owned subsidiary, which

statements reflect total assets of $3,929,804 as of March 31, 2005, and

revenues of $6,529,663 for the period from September 17, 2004 to

March 31, 2005. Those statements were audited by another auditor

whose report has been furnished to us, and our opinion, insofar as it

relates to the amounts included for Source One Communications Asia,

Inc., is based solely on the report of the other auditor.


accepted in the United States of America. Those standards require that

we plan and perform the audit to obtain reasonable assurance about

whether the consolidated financial statements are free of material

misstatements. An audit includes examining, on a test basis, evidence

supporting the amounts and disclosures in the consolidated financial

statements. An audit also includes assessing the accounting principles

used and significant estimates made by management, as well as evaluating

the overall financial statement presentation. We believe that our audit

provides a reasonable basis for our opinion.

In our opinion, based on our audits, the consolidated financial statements

referred to above present fairly, in all material respects, the

consolidated financial position of Source One Communications, Inc. and

Subsidiary as of March 31, 2005, and the results of its operations and

its cash flows for the period September 17, 2004 to March 31, 2005, in

conformity with accounting principles generally accepted in the United

States of America.

New York, New York

June 24, 2005



2005

$ $


Accounts Payable 1,272,812

Due to Georgeson Shareholder

Communication, Inc. 1,306,013

Due to HBI Incorporated, N.V. (Note 5) 149,772

Sales Tax Payable 11,429

Income Taxes Payable 1.340

Total Current Liabilities 2,741,366

Minority Interest In

Consolidated Subsidiary 1,717,065

Stockholder’s Equity:

Common Stock (Note 1) 10

Additional Paid-in Capital 9,671,945

Accumulated Deficit (6,459,506)

Accumulated Other

Comprehensive Income:

Foreign Currency Translation Adjustment 30,904

Total Stockholder’s Equity 3,243,353

7,701,784

Consolidated Balance Sheets March 31, 2005

Assets

2005

$ $

Current Assets:

Cash and Cash Equivalents (Note 2) 4,217,555

Certificate of Deposit -

Restricted (Note 6) 80,000

Accounts Receivable - Trade, Net (Note 2) 1,948,073

Prepaid Expenses and

Other Current Assets 139,492

Due from Customer Contract

Center, Inc. (Note 3) 514,137

Deferred Income Taxes (Note 4) 148,400

Total Current Assets 7,047,657

Property and Equipment: (Note 2)

Office Furniture and Equipment 2,267,218

Leasehold Improvements 123,224

2,390,442

Less: Accumulated Depreciation 1,751,781

Property and Equipment, Net 638,661

Security Deposit 15,466

7,701,784



109


Consolidated Statements of Income and Comprehensive Incomefor the period September 17, 2004 to March 31, 2005

2005

$ $

Revenues 8,549,037

Cost of Revenues, General and Administrative Expenses 8,207,755

Income from Operations 341,282

Other Income (Expense):

Loss on Currency Valuation (234,121)

Interest Income 39,368

Total Other Income (Expense) (194,753)

Income From Continuing Operations Before

Income Tax Provision and Minority Interest 146,529

Provision for Income Taxes (Benefit) (Note 4) (5,660)

Income From Continuing Operations

Before Minority Interest 152,189

Minority Interest in Consolidated Subsidiary’s Earnings 73,853

Net Income 78,336

Other Comprehensive Income:

Foreign Currency Translation Adjustment 81,598

Income Tax Expense Related to Other Comprehensive Income 20,600

Other Comprehensive Income 60,998

Comprehensive Income 139,334


CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY

FOR THE PERIOD SEPTEMBER 17, 2004 TO MARCH 31, 2005

COMMON ADDITIONAL ACCUMULATED ACCUMULATED TOTAL

STOCK PAID—IN DEFICIT OTHER STOCKHOLDER’S

CAPITAL COMPREHENSIVE EQUITY

INCOME

Balance, September 17,2004 10 9,671,945 (6,626,645) (30,094) 3,015,216

Prior Period Adjustment (Note 7) — — 88,803 — 88,803

Adjusted Balance, September17,2004 10 9,671,945 (6,537,842) (30,094) 3,104,019

Translation Adjustment — — — 60,998 60,998

Net Income — — 78,336 — 78,336

Balance, March 31,2005 10 9,671,945 (6,459,506) 30,904 3,243,353

(figures in $)


110

2005

$ $


Net Income 78,336

Adjustments to Reconcile Net Income

to Net Cash from Operating Activities:

Allowance for Doubtful Accounts (31,072)

Deferred Income Taxes 13,600

Depreciation 182,055

Translation Adjustment 60,998

Minority Interest in Net Income of Consolidated Subsidiary 73,853

(Increase) Decrease in Assets:

Accounts Receivable - Trade 322,838

Prepaid Expenses and Other Current Assets (22,400)

Security Deposit (4,768)

Increase (Decrease) in Liabilities:

Accounts Payable (62,658)

Sales Tax Payable 11,429

Income Taxes Payable 1,340

Total Adjustments 545,215

Net Cash Provided by Operating Activities 623,551

Cash Flows from Investing Activities:

Investment in Certificate of Deposit - Restricted (80,000)

Acquisition of Property and Equipment (249,165)

Net Cash Used by Investing Activities (329,165)

Cash Flows from Financing Activities:

Decrease in Due to Hinduja TMT Ltd. (19,447)

Increase in Due to HBI Incorporated, N.V. 149,772

Net Payments to Customer Contract Center, Inc. (562,781)

Increase in Due to Georgeson Shareholder Communication 1,306.013

Net Cash Provided by Financing Activities 873,557

Net Increase in Cash 1,167,943

Cash and Cash Equivalents, Beginning of Year 3,049,612

Cash and Cash Equivalents, End of Year 4,217,555


Consolidated Statements of Cash Flows for the period September 17, 2004 to March 31, 2005



111



Note 1 Corporate Organization and Description of Business

Source One Communications, Inc. (“Source 1” or the

“Company”) is a wholly owned subsidiary of Hinduja TMT Ltd.

(“HTMT (India)”) a company incorporated in India. Source 1

was organized on June 30, 2000, under the laws of the State

of Delaware and has an authorized capital of 1,000 shares of

common stock, $.01 par value, all of which are issued and are

outstanding.

The Company’s principal business consists of providing

customer contact services to its clientele primarily in the

form of call centers. The Company has its headquarters’ and

a call center in New Jersey, a branch office in Toronto, Canada

and a 57.5% owned subsidiary, Source One Communications

Asia, Inc. (“SOCA”), located in the Philippines.

Effective September 17, 2004, HTMT (India) acquired Source 1

from Georgeson Shareholder Communications, Inc. HTMT (India)

is also the controlling shareholder of Customer Contact Center,

Inc. (“C3

”), which owns the remaining 42.5% of the outstanding

shares of SOCA.

Note 2 Summary of Significant Accounting Policies:

Basis of Accounting

The Company uses the accrual method of accounting. Certain



periods than for tax purposes. (Refer to Note 4)

Principles of Consolidation

The accompanying consolidated financial statements include

the accounts of the Company and its majority owned

subsidiary, SOCA. All material intercompany transactions and

intercompany accounts have been eliminated in consolidation.

(Refer to Note 3)

Cash and Cash Equivalents

The consolidated Company considers all highly liquid

investments purchased with an original maturity of three

months or less to be cash equivalents.

Revenue Recognition

The consolidated Company recognizes revenue for the call

centers based upon the performance of contractually agreed

tasks, which coincides with the billing of services. Fees for

services provided include per minute fee for talk time, based

on monthly call volume.


Financial instruments, which could subject the consolidated

Company to a concentration of credit risk, include its free

cash balances and trade accounts receivable. The Company

maintains its cash balances in major financial institutions,

which have federally insured limits of $100,000. SOCA

maintains its cash balances in financial institutions located in

the Philippines that contain minimal insurance limits. At March

31, 2005, the uninsured cash balances of the Company and

SOCA total approximately $2,750,000 and $1,380,000,

respectively.

The consolidated company’s clients range from large multi-

national companies to small regional firms. During the period

September 17, 2004 to March 31, 2005 the consolidated

Company had revenues from seven clients, which accounted

for approximately 93% of revenues. During the period

September 17, 2004 to March 31, 2005, no other client

accounted for more than 5% revenues. The aggregate accounts

receivable balance for these clients at March 31, 2005 is

$1,829,519.

Accounts Receivable - Trade

An allowance for doubtful accounts receivable may be provided

based on historical collection experience and evaluation of

outstanding accounts receivable at the end of each year. As of

March 31, 2005, the consolidated company has recorded an

allowance for doubtful accounts receivable in the amount of

$30,337.


Property and equipment is stated at cost. Major additions

are capitalized while minor betterments are charged to

expense. Depreciation of equipment is provided using the

straight-line method over the estimated useful lives of three

to five years. The cost and related accumulated depreciation

of assets retired or sold are removed from the respective

accounts, and any resulting gain or loss is included in the

consolidated statement of income and expenses.

Income Taxes

The Company records deferred tax assets and liabilities for

differences between the financial statement and tax bases of

assets and liabilities (“Temporary differences”), as well as for

net operating loss carryforwards. These are measured using

enacted tax rates in effect for the year in which the differences

are expected to reverse. Valuation allowances are established,

when necessary, to reduce deferred tax assets to the amounts

expected to be realized.

Comprehensive Income

The Company accounts for comprehensive income in accordance

with Statement of Financial Accounting Standards No. 130,

“Reporting Comprehensive Income” (SFAS 130) which requires

the reporting of comprehensive income in addition to net

income. Comprehensive income is a more inclusive financial

reporting methodology that include disclosures of certain

financial information that historically has not been recognized

in calculating net income. For the period September 17, 2004

to March 31, 2005, comprehensive income as presented in the

consolidated statement of income and comprehensive income

consists of net income and foreign currency translation

adjustments net of income taxes and has no impact on total

stockholder’s equity.


The consolidated financial statements are prepared in

conformity with accounting principles generally accepted in

the United States of America, which require management to

make estimates and assumptions that affect the reported

amounts of assets and liabilities and disclosure of contingent

assets and liabilities at the date of the consolidated financial

statements and the reported amounts of revenues and

expenses during the reporting periods. Actual results could




currency of operations outside the U.S. Translation gains and

losses are included as a separate component of consolidated


in the Philippines is the Philippine Peso.

Note 3 Due from Customer Contract Center, Inc. - Related Party

Transactions

Pursuant to a rental agreement, C3

provides office space,

equipment and personnel to SOCA in return for a fee

computed on a percentage of total operating expenses. For

the period September 17, 2004 to March 31, 2005, C3

charged

SOCA $1,235,562 for the above expenses. SOCA and C3

have

entered into a discounted rental agreement wherein SOCA

prepaid C3

for rental services in consideration for monthly

discounts of approximately 7.57%. As of March 31, 2005 the

unused portion of the prepayment is $929,802 and is reflected

in due from C3

.

In addition, C3

provides IT and telephony support, human

resources, finance, planning and marketing services in

consideration for a monthly service fee of approximately

$120,000. For the period September 17, 2004 to March 31,

2005, C3

charged SOCA $734,635 for the above services. As of

March 31, 2005 the unpaid portion of the service fee is $415,665

and is reflected in due from C3

.

As of March 31, 2005, the net balance due from C3

is

$514,137.


112



Note 4 Income Taxes

Income taxes are provided for the tax effects of transactions

reported in the consolidated financial statements.

The provision for income taxes consist of the following:

$

Current Tax Expense 1,340

Deferred Tax Benefit (7,000)

Net Income Tax Benefit (5,660)

The provision for income taxes differs from the amount,

which would be computed if statutory federal income tax

rates were applied to pre-tax income. This is principally due

to taxes imposed by state regulations, net of federal income

tax benefit, the nondeductibility of certain expenses and a

temporary tax holiday in the information technology zone in

the Philippines.

The significant components of the net deferred tax asset

consists of approximately the following:

$

Net Operating Loss Carryforwards

- Post Acquisition 49,000

Net Operating Loss Carryforwards

- Pre Acquisition 753,000

Allowance for Doubtful Accounts 6,000

Accrued Payroll Taxes 3,000

Translation Adjustment (20,600)


901,400

Valuation Allowance (753,000)

Net Deferred Tax Asset 148,40O

As of March 31, 2005, a valuation allowance has been recognized

to partially offset the deferred tax asset due to the

uncertainty of realizing any future benefit of the state net

operating loss carryforward arising prior to the date of

acquisition on September 16, 2004. As of March 31, 2005 the

federal net operating loss carryforward in the United States

of approximately $121,000 is available to be carried forward

to offset future taxable income and will expire in 2025.

Note 5 Due to HBI Incorporated, N.V. - Affiliated Company

An affiliated company provided transition and financial services

for Source 1 in exchange for fees aggregating $150,000. As of

March 31, 2005, the unpaid balance amounted to $149,772.

Note 6 Commitments

The Company leases space for its main office at 1280 Wall

Street West, Lyndhurst, New Jersey, at an annual base rent of

$220,395 until March 31, 2007, $230,890 until March 31, 2009

and $241,385 until June 30, 2010, which is the expiration of

the lease.

The Company leases space for its office in Toronto, Canada at

an annual rental of $236,652 until March 31, 2007, which is the

expiration of the lease.

The approximate minimum rental commitments under the

above leases are as follows:

Fiscal Year Ending Amount ($)

2006 457,047

2007 457,047

2008 230,890

2009 230,890

2010 241,385

2011 60,346

Total 1,677,605

The above leases provide for additional rent based upon

escalations for real estate taxes and building operating

expenses.

SOCA has entered into an agreement with C3

, to lease office

space, equipment and personnel in Manila, Philippines based

upon a percentage of operating expenses for an initial term

of four years expiring November 15, 2005. (Refer to Note 3)

In lieu of a security deposit, the Company provides a standby

letter of credit in the amount of $80,000 in favor of its payroll

service provider. The letter of credit is cotlateralized by a

certificate of deposit in the amount of $80,000.

SOCA has entered into various contracts with

telecommunication providers relating to the lease of

international private lines for a term of one year, with options

to renew.

Note 7 Prior Period Adjustment

During the period ended March 31, 2005, the Company

discovered errors made in prior periods. As of September

16, 2004, the balance due SOCA was understated on the

books of Source 1 by $184,169. In addition as of September

16, 2004, Source 1’s investment in SOCA was overstated by

$257,366. Since these transactions occurred prior to the

date of acquisition of Source 1 by HTMT (India), it is not

practical to ascertain the effect on the prior period financial

statements. As of September 16, 2004 net deferred tax

assets totaling $162,000 was not recorded. This would have

resulted a prior period tax benefit. The net effect of these

prior period adjustments to current retained earnings was

$88,803.

Note 8 Subsequent Events

Effective April 1, 2005 Source 1 agreed to merge with HTMT,

Inc. (“HTMT (NY)”), a New York corporation in a tax free

reorganization. A common parent, HTMT (India), owns both

Source 1 and HTMT (NY). Source 1, will be the surviving

corporation and the name of the merged company will be

Source 1 HTMT, Inc. In addition, effective April 1 2005, the

Company has resotved to spin off its call center operations in

New Jersey and Toronto to HTMT (India). Although the tax

ramifications of the spin off have not yet been determined,

it is not expected to have a material effect on the Company.

113



Directors’ Report

To the Members,

Your Directors are pleased to present the financial results of your

Company for the period September 17, 2004 to March 31,2005:

Financial Results:

‘000s

Rupees Pesos

2005

Revenues 291,067 361,754


Gross Profit 8,933 11,103

Add:Interest/other income 1,122 1,394

Less:Depreciation & Amortization 2,309 2,870

Profit before tax 7,746 9,627

Provision for Taxation — —

Net Income 7,746 9,627

Your Company is a joint venture between Customer Contact Center Inc.

Manila (C3) and Source One Communications Inc., USA, (Source One). The

Company is a subsidiary of Source One, which holds 57.5% of the equity

capital of the Company. Following the acquisition of 100% stake of

Source One by Hinduja TMT Ltd. (HTMT), a Company incorporated under

the laws of India, with effect from 17th

September 2004, your Company

has become a subsidiary of Hinduja TMT Ltd.

Financial Review

During the period under review, your Company’s gross revenue

amounted to Peso 361.8 million; it earned a net profit of Peso 9.6 Mn

Review of Operations

Your Company has focused on implementing efficiency and productivity

measures and has succesfully handled intense competition pressures.

Just-in-time provisioning of resources and boosting agent productivity

by better workforce management were some of the initiatives adopted

by your Company.

Your Company avails Infrastructure facilities and support services from

C3. Your Company has a marketing arrangement with the parent and

pays marketing fees to Source One.

Change in Accounting Year

At the Board Meeting held on 21st

February 2005, the Board approved

the change in the accounting year of the corporation to begin on the 1st

day of April and end on the 31st

day of March of each year. This is to

synchronize your Company’s accounting year with its ultimate parent

company, HTMT.

Directors

At the Board meeting held on 21st

February 2005, Atty. Virginia B.

Viray was appointed as Corporate Secretary and a Board Director of

your Company. Mr. Pushkar Misra continues on the board and as President

& Chief Executive Officer.


statements

Your Directors, based on the information and documents made available


















valuable contributions and co-operation of its employees and the

excellent co-operation from PEZA and other Government agencies and

bankers.

Pushkar Misra

Director

Date: July 13, 2005

The Board of Directors


We have audited the accompanying balance sheet of Source One

Communications Asia, Inc. as of March 31, 2005, and the related

statements of income, changes in equity and cash flows for the period

September 17, 2004 to March 31, 2005. These financial statements are

the responsibility of the Company’s management. Our responsibility is

to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing

standards in the Philippines. Those standards require that we plan and

perform the audit to obtain reasonable assurance about whether the

financial statements are free of material misstatement. An audit includes

examining, on a test basis, evidence supporting the amounts and

disclosures in the financial statements. An audit also includes assessing

the accounting principles used and significant estimates made by

management, as well as evaluating the overall financial statement

presentation. We believe that our audit provides a reasonable basis

for our opinion.

In our opinion, the financial statements referred to above present

fairly, in all material respects, the financial position of Source One

Communications Asia, Inc. as of March 31, 2005, and the results of its

operations and its cash flows for the period September 17, 2004 to

March 31, 2005, in accordance with generally accepted accounting

principles in the Philippines.

Our report is intended solely for the use of the Company’s management

and its parent company for consolidation purposes and should not be

used by parties other than those who agreed with the scope of this

engagement.

Punongbayan & Araullo

PTR No. 9454911

January 14, 2005

Makati City

Date: July 13, 2005


114


2005

P

Net Revenues (Note 11) 361,754,150

Cost Of Services (Notes 7 and 8) 236,174,335

Gross Profit 125,579,815

Operating Expenses

Marketing and services fees (Note 7) 45,349,262

Shared services fees (Note 7) 40,651,113

Transportation and travel 6,765,878

Outside services 5,282,608

Taxes and licenses 2,913,198

Rental 2,667,391

Supplies 1,071,459

Communication 1,025,721

Other operating expenses (Note 9) 3,075,736

108,802,366

Income From Operations 16,777,449

Other Charges - Net (Note 10) 7,150,242

Net Income (Note 11) 9,627,207


2005

P


Trade and other payables (Note 6) 52,569,917

Due to related parties (Note 7) 71,444,274

Total Current liabilities 124,014,191

Equity

Capital stock 10,344,000

Retained earnings 213,324,999

Total Equity 223,668,999

Total Liabilities and Equity 347,683,190

BALANCE SHEET AS AT MARCH 31, 2005

Assets

2005

P

Current Assets:

Cash and cash equivalents (Note 3) 76,427,872

Trade and other receivables - net (Notes 4 and 7) 212,171,171

Due from a related party (Notes 7 and 8) 50,920,180

Prepayments and other current assets 1,297,757


Non-current Assets

Property and equipment - net (Note 5) 6,019,210

Other non-current assets 847,000

Total Non-current Assets 6,866,210

Total Assets 347,683,190


Statement of Income for the period September 17, 2004 to March 31, 2005

See Notes to Financial Statements.

115



Statement of Changes In Equity for the period September 17, 2004 to March 31, 2005

2005

P

Capital Stock - P1 par value

Authorized - 20,000,000 shares

Issued and outstanding - 10,344,000 shares 10,344,000

Retained Earnings

Balance at beginning of period 203,697,792

Net income 9,627,207

Balance at end of period 213,324,999

Total Equity 223,668,999

2005

P



Adjustments for:

Depreciation 2,869,529

Unrealized foreign currency losses 2,820,574

Interest income (1,391,645)

Operating income before working capital changes 13,925,665

Increase in trade and other receivables (62,825,107)

Decrease in prepayments and other current assets 2,533,475

Increase in due from a related party (50,920,180)

Increase in other non-current assets (247,000)

Increase in trade and other payables 6,843,888

Increase in due to related parties 62,653,097

Net Cash Used in Operating Activities (28,036,162)

Cash Flows From Investing Activities

Acquisitions of property and equipment (263,972)

Interest received 1,391,645

Net Cash From Investing Activities 1,127,673

Effects of Exchange Rate Changes on Cash (927,063)

NET DECREASE IN CASH AND CASH EQUIVALENTS ( 27,835,552)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 104,263,424

CASH AND CASH EQUIVALENTS AT END OF PERIOD 76,427,872

See Notes to Financial Statements

Statement of Cash Flows for the period September 17,2004 to March 31, 2005

116


1. Corporate Information

Source One Communications Asia, Inc. (the “Company”) was

incorporated in the Philippines on February 7, 2002. The Company

was formed by the strategic alliance of Source One Communications,

Inc. (“SOCI”) and Customer Contact Center, Inc. (“C3

”), both major

stockholders of the Company. In September 2004, Hinduja TMT

(“HTMT”), who owns controlling interest in C3

, acquired 100% of

SOCI from Georgeson Shareholder Communications, Inc. (“GSCI”).

With the acquisition of SOCI and its current shareholdings in the

Company, HTMT has consolidated its ownership of the Company.

The Company is mainly engaged in the customer contact service

business commonly referred to as call centers.

The registered office of the Company is located at 1E-Commerce

Avenue, Eastwood City Cyberpark, E. Rodriguez Jr. Avenue,

Bagumbayan, Quezon City.

On February 22, 2005, the Board of Directors approved the change

in the Company’s accounting period from fiscal year ending May 31

to fiscal year ending March 31. The approval of the Securities and

Exchange Commission was obtained on June 24, 2005. The Bureau

of Internal Revenue’s approval on the change in accounting period

is still pending.

The Company operates within the Philippines and had 705 employees

as of March 31, 2005.

The financial statements of the Company for the period ended

March 31, 2005 were authorized for issue by the Company’s Board

of Directors on July 13, 2005.

2. Summary of Significant Accounting Policies

Basis of Preparation of Financial Statements

The financial statements have been prepared in accordance with

generally accepted accounting principles in the Philippines.

The financial statements have been prepared on a historical cost

basis.

The accounting policies have been consistently applied by the

Company and are consistent with those used in the previous year,

except for the adoption of new accounting standards as stated on

the next page.

Adoption of New Accounting Standards

In 2004, the Company adopted the following Statements of Financial

Accounting Standards (“SFAS”) /International Accounting Standards

(“IAS”) issued by the Accounting Standards Council (“ASC”) which

became effective for financial statements beginning January 1,

2004:

SFAS 12/IAS 12 : Income Taxes

SFAS 17/IAS 17 : Leases

The Company’s adoption of the new accounting standards did not

have any material effects on the financial statements, hence, did

not result in any adjustments in the financial statements.

Impact of New Accounting Standards Effective Subsequent

to Fiscal Year 2005

In 2004, the ASC issued a series of new accounting standards that are

adopted from existing IAS, revised IAS and new International Financial

Reporting Standards (“IFRSs”) issued by the International Accounting

Standards Board (“IASB”). The new ASC accounting standards are

effective in the Philippines for financial statements covering periods

beginning on or after January 1, 2005. Also, the ASC re-named its

accounting standards to correspond better with the IASB

pronouncements. Philippine Accounting Standards (“PASs”) correspond

to the adopted lASs, while Philippine Financial Reporting Standards

(“PFRSs”) correspond to the adopted IFRSs. Existing SFASs and SFASs/

IASs not yet superseded will be reissued by the ASC as PASs.

Of the new ASC pronouncements, the following standards are

relevant to the Company:

PAS 1 : Presentation of Financial Statements

PAS 8 : Accounting Policies, Changes in Accounting Estimates

and Errors

PAS 10 : Events after the Balance Sheet Date

PAS 16 : Property, Plant and Equipment

PAS 17 : Leases

PAS 19 : Employee Benefits

PAS 21 : The Effects of Changes in Foreign Exchange Rates

PAS 24 : Rekted Party Disclosures

PAS 32 : Financial Instruments: Disclosures and Presentation

PAS 36 : Impairment of Assets

PAS 39 : Financial Instruments: Recognition and Measurement

PFRS 1 : First-time Adoption of PFRS

The Company will apply the relevant new accounting standards in

fiscal year 2006 in accordance with their transitional provisions.

It is currently evaluating the impact of those standards on its

financial statements and has initially determined that PAS 19,

Employee Benefits, will have significant effects on its financial

statements for fiscal year 2006, as well as for prior and future

periods. This new accounting standard prescribes the accounting

and disclosure by employers for employee benefits. Employee

benefits are all forms of consideration given by an entity in

exchange for service rendered by employees. These benefits include

short-term benefits (such as short-term compensated absences

and profit sharing and bonus plans), post-employment benefits

(such as pension plans), other long-term benefits (such as long-

service leave or sabbatical leave) and termination benefits.

Presently, the Company provides short-term benefits to its

employees and has not yet recognized the retirement benefits of

its employees. The Company’s application of PAS 19 may increase

the employee benefits that it will recognize as expense starting

fiscal year 2006.


Cash and cash equivalents are defined as cash on hand, demand

deposits and short-term, highly liquid investments readily

convertible to known amounts of cash and which are subject to

insignificant risk of changes in value.

Trade Receivables

Trade receivables, which generally have a 60-day term, are

recognized and carried at original invoice amounts less allowance

for any uncollectible amounts. An estimate for doubtful debts is

made when collection of the full amount is no longer probable. Bad

debts are written off when identified.


Property and equipment are stated at cost less accumulated

depreciation and any impairment in value. The cost of an asset

comprises its purchase price and directly attributable costs of

bringing the asset to working condition for its intended use.

Expenditures for additions, major improvements, and renewals

are capitalized; expenditures for repairs and maintenance are

charged to income as incurred. When assets are sold, retired or

otherwise disposed of, their cost and related accumulated

depreciation and impairment losses are removed from the

accounts and any resulting gain or loss is reflected in income for

the period.

Depreciation is computed on the straight-line basis over the

estimated useful lives of the assets as follows:

Software 5 years

EDP equipment 5 years

Other property and equipment 5 years

Switch equipment 4 years

The carrying values of property and equipment are reviewed

for impairment when events or changes in circumstances


Notes to Financial Statements March 31, 2005

117


indicate that their carrying values may not be recoverable. If

any such indication exists and where the carrying values

exceed the estimated recoverable amount, the assets or cash

generating units are written down to their recoverable

amount. The recoverable amount of property and equipment

is the greater of net selling price and value in use. In assessing

value in use, the estimated future cash flows are discounted to

their present value using a pre-tax discount rate that .reflects

current market assessments of time value of money and the

risks specific to the asset. Impairment losses are recognized

in the statement of income.

If there is any indication at the balance sheet date that an

impairment loss recognized for an asset in prior years may no

longer exist or may have decreased, the Company estimates the

recoverable amount of that asset and the carrying amount of the

asset is adjusted to the recoverable amount resulting in the

reversal of the impairment loss.

Revenue Recognition

Revenue is recognized to the extent that it is probable that the

economic benefits will flow to the Company and the revenue can be

reliably measured. Revenue is generally recognized at the

performance of contractually agreed tasks, which coincides with

the billing of the services.

Leases

Leases, which do not transfer to the Company substantially all the

risks and benefits of ownership of the asset, are classified as

operating leases. Operating lease payments are recognized as

expense in the statement of income on a straight-line basis over

the lease term.

Foreign Currency Transactions

The accounting records of the Company are maintained in Philippine

pesos. Foreign currency transactions during the year are

translated into Philippine pesos at exchange rates which

approximate those prevailing on transaction dates. Foreign

currency monetary assets and liabilities at the balance sheet date

are translated into Philippine pesos at exchange rates which

approximate those prevailing on that date. Exchange gains and

losses are recognized in income for the period.

Income Taxes

Deferred income tax is provided, using the balance sheet liability

method effective 2005, on all temporary differences at the balance

sheet date between the tax bases of assets and liabilities and

their carrying amounts for financial reporting purposes.

Under the balance sheet liability method, with certain exceptions,

deferred tax liabilities are recognized for all taxable temporary

differences and deferred tax assets are recognized for all deductible

temporary differences and the carryforward of unused tax losses

and unused tax credits to the extent that it is probable that

taxable profit will be available against which the deferred tax

assets can be utilized.

The carrying amount of deferred tax assets is reviewed at each

balance sheet date and reduced to the extent that it is probable

that sufficient taxable profit will be available to allow all or part

of the deferred income tax asset to be utilized.

Deferred tax assets and liabilities are measured at the tax rates

that are expected to apply to the period when the asset is realized

or the liability is settled, based on tax rates and tax laws that have

been enacted or substantively enacted at the balance sheet date.

3. Cash and Cash Equivalents

This account consists of:

Cash on hand and in banks P 62,427,872

Short-term cash pkcements 14,000,000

P 76,427,872

Cash accounts with the banks generally earn interest at rates

based on daily bank deposit rates. Short-term placements are

made for varying periods of between 22 to 37 days and earn

interest at the respective short-term placement rate of 7.75%.

4. Trade and Other Receivables

The components of this account are as follows:

Trade (see Note 7) P 209,398,560

Others 3,613,614

213,012,174

Allowance for doubtful accounts (841,003)

P 212,171,171



5. Property and Equipment

A reconciliation of the carrying amounts at September 17, 2004 and March 31, 2005 and the gross carrying amounts and the

accumulated depreciation of property and equipment are shown below:

Other

Switch EDP Property and

Equipment Equipment Software Equipment Total

Cost: P P P P P

Balance at

September 17,2004 19,872,842 1,699,020 15,789 87,090 21,674,741

Additions — 250,653 13,319 — 263,972

Balance at

March 31,2005 19,872,842 1,949,673 29,108 87,090 21,938,713

Accumulated Depreciation:

Balance at

September 17,2004 12,627,535 388,851 3,553 30,035 13,049,974

Depreciation charges

for the period 2,691,114 166,139 2,935 9,341 2,869,529

Balance at

March 31,2005 15,318,649 554.990 6,488 39,376 15,919,503

Net book value at

March 31,2005 4,554,193 1,394,683 22,620 47,714 6,019,210

118


6. Trade And Other Payables

The components of this account are as follows:

Trade P 26,388,245

Accrued expenses 22,057,360

Others 4,124,312

P 52,569,217

7. Related Party Transactions

The significant transactions of the Company with related parties

are described below:

Memorandum of Agreement (“MOA”)

On November 15, 2001, SOCI and C3

executed a MOA for the purpose

of setting up a customer contact and service center in the Philippines

which will initially serve principally the North American market.

This MOA served as the basis for the formation of the Company.

SOCI and C3

also entered into several agreements which were

covered in the MOA concerning the Company. These agreements

involving the Company are described below:

• Facilities Agreement with C3

for an initial term of four years

with an option to extend for one or more additional terms

upon mutual agreement of the parties. In consideration for

the facilities, equipment and personnel provided by C3

, the

Company shall pay the former facilities fee computed at a

certain percentage of total operating expenses as defined in

the Facilities Agreement. The facilities fees charged against

the Company for the period amounted to P68.5 million and is

included as part of Cost of Services in the statement of income

(see Note 8).

On November 11, 2004 and February 4, 2005, the Company

and C3

entered into Discounted Facilities Fees Agreements

(“Agreements”) wherein the Company agreed to pay in advance

the facilities fees due to C3

. The advance payments shall be

amortized in accordance with the terms of the Agreements.

In consideration for the advance payment, C3

granted monthly

discounts on the facilities fees. The unamortized balance of

prepaid facilities fees amounted to P50.9 million or US$921,332

as of March 31, 2005 and is shown as Due from a Related Party

in the balance sheet.

• Marketing and Services Agreement with SOCI for an initial

term of four years with an option to extend for one or more

additional terms upon mutual agreement of the parties. In

consideration for the marketing and promotion, collection of

receivables, facility management, and technical operating

support provided by SOCI, the Company shall pay the former a

monthly service fee. Part of this fee is payment for the license

of Charm Software and Trademark Agreement with SOCI, also

for an initial term of four years with an option to extend for

one or more additional terms upon mutual agreement of the

parties. On March 21, 2005, the Company agreed to an increase

in fees of US$115,000 per month. For the period September

17, 2004 to March 31, 2005, the Company incurred service

fees from this agreement amounting to P45.3 million. This is

shown as part of Marketing and Services Fees in the statement

of income. As of March 31, 2005, the unpaid balance of

Marketing and Services Fees amounted to P34.9 million, and is

shown as part of Due to Related Parties account in the balance

sheet.

As of March 31, 2005, the trade receivables due from SOCI

arising from this agreement amounted to P209.4 million and

is presented as part of Trade and Other Receivables in the

balance sheet (see Note 4).

• Shared Services Agreement with C3

for an initial term of four

years with an option to extend for one or more additional

terms upon mutual agreement of the parties. In consideration

for the IT and telephony support, human resources, finance

and planning and strategic marketing provided by C3

, the

Company shall pay the former a monthly service fee. On March

21,2005, the Company agreed to an increase in fees of US$85,000

per month. For the period September 17, 2004 to March 31,

2005, the Company incurred service fees from this agreement

amounting to P40.7 million and is shown as Shared Services

Fees in the statement of income. As of March 31, 2005, the

unpaid portion relating to this agreement amounted to P23.3

million and is shown as part of Due to Related Parties account

in the balance sheet.

Advances

In the normal course of business, the Company is charged for

certain costs and expenses that are advanced by C3

and SOCI.

Outstanding advances to related parties arising from these

transactions amounting to P13.2 million are shown as part of Due

to Related Parties account in the balance sheet.

8. Cost of Services

Cost of services consists of:

Salaries and wages P 131,049,033

Materials, supplies and facilities (see Note 7) 102,434,188

Depreciation 2,691,114

P 236,174,335

The Company has contracts with various telecommunication

providers relating to the lease of international private lines for

a term of one year with option to extend for one or more

additional terms upon mutual agreement of the parties.

Telecommunication charges arising from these contracts are

included as part of Cost of Services under the Materials, Supplies

and Facilities account.

9. Other Operating Expenses

This account is composed of the following:

Repairs and maintenance P 884,665

Professional fees 869,849

Doubtful accounts 841,003


Miscellaneous 301,804

P 3,075,736

10. Other Charges

This account includes the following:

Foreign currency losses - net P 8,544,701

Interest income ( 1,391,645)

Other income ( 2,814)

P 7,150,242

11. Registration With The Philippine Economic Zone Authority

(Peza)

The Company’s operations at the information technology (“IT”)

zone is registered with the PEZA under Republic Act No. 7916 as a

zone enterprise engaged in the operations of a call center that

will provide high value added phone, e-mail, chat and web

communications handling within the North American markets.

As an IT zone registered enterprise, the Company enjoys certain

tax and non-tax incentives, including an income tax holiday (“ITH”)

up to February 2006. Upon expiry of the ITH incentive, the Company,

in lieu of all local and national taxes, shall be subjected to the

preferential tax rate of 5% of gross revenue, net of certain

deductions specifically provided for in the Act. As supplier of services

within the Ecozone, the Company is also entitled to the benefit of

value-added tax at zero percent.

12. Commitments And Contingencies

There are commitments and contingent liabilities that arise in the

normal course of the Company’s operations, which are not reflected

in the accompanying financial statements. Management is of the

opinion that losses, if any, from these commitments and

contingencies will not have material effects on the Company’s

financial statements.



119


Customer Contact Center Inc.

Directors’ Report

To the Members,

Your Directors are pleased to present their report on the business and

operations of the Company for the 9 months ended 31st

March 2005.

Financial Results

‘000s

Rupees Pesos

2005

Total Income 305,748 380,000


Operating Profit 86,312 107,273

Add: Equity in net earnings of JV (SOCA) 21,107 26,233

PBDIT 107,419 133,506

Less: Interest (net) 8,192 10,182

PBDT 99,227 123,324

Less: Depreciation & Amortization 49,052 60,964

PBT 50,175 62,360

Provision for Taxation 1,407 1,749

PAT 48,768 60,611

Financial Review

Your Company became a subsidiary of Hinduja TMT Ltd. a Company

incorporated under the laws of India, in July 2004.

During the period 1 July 2004 to 31 March 2005, your Company generated

Gross income of PhP 380 Mn and posted a net profit of PhP 60.6 Million.

Your Company and Source One Communications Inc., USA, are operating

a Joint Venture, viz. Source One Communications Asia, Manila (SOCA).

The total income reported by your Company for the 9 months period

ended 31.03.05 includes as share of net profit of PhP 26.2 Million from

the Joint Venture.

The total assets of your Company as of March 31, 2005 amounted to PhP

480 Mn, PhP 219.9 Mn of which are in fixed assets. Cash and cash

equivalents are at PhP 38.7 Mn.


Sustained growth was the hall mark of the year for your Company.

During the year your Company increased the number of agent seats in

its Eastwood facility to 990 agent seats, including the seats assigned to

SOCA.

A leading financial services firm, a principal client of your Company,

placed new work orders in 2004. This has resulted in better utilization

of seats as these accounts are geared towards the Asia-Pacific region

and thus operate in the day time.

Another existing account, a direct broadcast satellite services provider,

approached your Company to handle its emerging markets Australia

and Europe in the 2nd

half of 2004, in addition to servicing its clients in

North America, which is its biggest market.

During the year, your Company was also chosen by one of the largest

global life insurance firms to be its Tier 1 provider to service the

company’s employees, vendors, consultants and others, accessing its

applications in different locations in the US and selected offices

worldwide. This includes providing problem resolution, documentation,

and escalation 24 x 7.

Recent Developments and Challenges

Your Company’s growth in business in the last few months is as

impressive as the growth of call center business in Philippines. In the

last two months, capacity was raised by 150 agent seats, largely to

cater to the increased business routed by the leading financial services

firm mentioned earlier. This is in line with the client’s commitment of

increasing its seat requirement to 420 by year end.

Your Company has been pro-active in attracting and retaining call

center agents by regularly upgrading the quality of its in-house training,

re-assessing its Compensation and Benefits structure to ensure

competitiveness and by cultivating a “Fun” work environment for all

the employees.

Change in Accounting Year

At the Board Meeting held on 21st

February 2005, the Board approved

the change in the accounting year of the corporation to begin on the 1st

day of April and end on the 31st

day of March of each year. This is to

synchronize your Company’s accounting year with its parent company,

HTMT.

Directors

At the Board Meeting held on 2nd

March 2005, Jose Xavier Gonzales

relinquished his post as President of your Company and was appointed

as Non-executive Chairman of the Board. Pushkar Misra, President of

SOCA was appointed as President of your Company and was inducted as

Director, in the vacancy caused by the resignation of Zayber Protacio

due to his other pre-occupations. The Board wishes to thank Zayber

Protacio and Jose Xavier Gonzales for the valuable services rendered

by them during their tenure as Chairman and as President of the

Company respectively.


statements.

Your Directors, based on the information and documents made available

to them confirm that:





ii) They have selected such accounting policies and applied them

consistently and make judgements and estimates that are


state of affairs of your Company at the end of the period under

review and of the profit of your Company for that period

iii) They have taken proper and sufficient care to the best of their




fraud and other irregularities.

iv) they have prepared the annual accounts on a going concern basis.

Employees

As of end-March, your Company had a total manpower complement of

862, out of which 783 are directly associated in operations.


continued support from customers, valuable contributions and co-

operation of its employees and the excellent co-operation from PEZA

and other Government agencies and bankers.

Pushkar Misra

Director

July 12, 2005

120



Report of Independent Auditors

The Stockholders and the Board of Directors Customer Contact Center,

Inc.

We have audited the accompanying balance sheet of Customer Contact

Center, Inc. (a wholly owned subsidiary of C-Cubed B.V.) as of March 31,

2005 and the related statements of income, changes in stockholders’

equity and cash flows for the period July 1, 2004 to March 31, 2005.

These financial statements are the responsibility of the Company’s


financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally

accepted in the Philippines. Those standards require that we plan and







presentation. We believe that our audit provide a reasonable basis for

our opinion.

In our opinion, the financial statements referred to above present

fairly, in all material respects, the financial position of Customer Contact

Center, Inc. as of March 31, 2005, and the results of its operations and

its cash flows for the period July 1, 2004 to March 31, 2005 in conformity

with accounting principles generally accepted in the Philippines.

Maria Vivian G. Cruz

Partner

CPA Certificate No. 83687

SEC Accreditation No. 0073-A

Tax Identification No. 102-084-744

PTR No. 1195841, January 3, 2005, Makati City

July 12, 2005


2005

P

Current Liabilities

Accounts payable and other

current liabilities (Notes 2, 8, 15 and 17) 151,634,879

Current portion of:

Obligations under capital lease

(Notes 2, 5, 9 and 17) 13,712,462

Long-term debt (Notes 5, 10 and 17) 10,025,604

Income tax payable 1,324,538

Total Current Liabilities 176,697,483

Noncurrent Liabilities

Due to related parties

(Notes 11, 12 and 17) 170,183,800

Obligations under capital lease -

net of current portion (Notes 2, 5, 9 and 17) 3,923,663

Long-term debt - net of current portion

(Notes 5, 10 and 17) 7,276,618

Total Noncurrent Liabilities 181,384,081

Stockholders’ Equity

Capital stock (Note 12) 100,000,000

Retained earnings (Note 2) 22,018,435

Total Stockholders’ Equity 122,018,435

480,099,999

Balance Sheet as at March 31, 2005

Assets

2005

P

Current Assets

Cash and cash equivalents (Notes 3 and 17) 38,696,964

Receivables - net (Notes 4, 7 and 17) 106,890,349

Prepayments and other current assets 3,479,887


Noncurrent Assets

Property and equipment - net

(Notes 2,5,9,10 and 20) 219,924,516

Interest in a joint venture

(Notes 6, 11 and 18) 96,039,542

Due from a related party

(Notes 11 and 17) 167,327

Other noncurrent assets - net

(Notes 4 and 7) 14,901,414

Total Noncurrent Assets 331,032,799

480,099,999

See Accompanying Notes to Financial Statement

121




Statement of Income For the Period July 1, 2004 to March 31, 2005

Statement of Changes in Stockholders’ Equity for the Period

July 1, 2004 to March 31, 2005

2005

P

CAPITAL STOCK (NOTE NO. 12) P 10 PAR VALUE

Authorized and issued - 10,000,000 shares 100,000,000

RETAINED EARNINGS (DEFICIT)

Balance at beginning of period, as previously reported (29,913,414)

Change in accounting for leases (Note 2) (8,679,247)

Balance at beginning of period, as restated (38,592,661)

Net income for the period 60,611,096


122,018,435

2005

P

REVENUES (Notes 6, 11 and 19)

Call center 202,930,300

Others 177,068,326

379,998,626

COST OF SERVICES (Notes 2, 13, 15 and 19) 297,969,964

GROSS INCOME 82,028,662

GENERAL AND ADMINISTRATIVE EXPENSES

(Notes 2, 14, 15 and 19) 32,308,986

INCOME FROM OPERATIONS 49,719,676

EQUITY IN NET EARNINGS OF

A JOINT VENTURE (Note 6) 26,232,831

FINANCE INCOME (EXPENSES)

Interest expense (Notes 2, 9, 10, 11 and 12) (10,519,827)

Foreign exchange loss - net (Note 17) (3,013,127)

Bank and other service charges (397,392)

Interest income 337,953

(13,592,393)

INCOME BEFORE INCOME TAX 62,360,114

PROVISION FOR CURRENT INCOME TAX

(Notes 16 and 18) 1,749,018

NET INCOME 60,611,096

122



Statement of Cash Flows For the Period July 1, 2004 To March 31, 2005

2005

P

Cash Flows from Operating activities

Income before income tax 62,360,114

Adjustments for:

Depriciation and amortization 60,964,386

Equity in net earnings of a joint venture (26,232,831)

Interest expense 10,519,827

Provisions for:

Doubtful accounts 4,070,832

Retirement expense 2,892,722

Unrealized foreign exchange loss 768,279

Interest income (337,953)

Gain on sale of property and equipment (17,283)

Operating income before working capital changes 114,988,093

Increase in:

Receivables (42,339,061)

Prepayments and other current assets (726,838)

Accounts payable and other current liabilities 31,775,857

Net cash provided by operating activites 103,698,051

Cash Flows from Investing activities

Acquisitions of property and equipment (68,315,697)

Increase in:

Due from a related party (567,169)

Other noncurrent assets (28,560)

Interest rececived 337,953

Proceeds form sale of property and equipment 28,619

Net cash used in investing activities (68,544,854)

Cash Flow from Financing activites

Increase in due to related parties 30,772,301

Payments to long-term debt (18,973,786)

Payments of obligations under capital lease (11,239,927)

Interest paid (5,624,227)

Net cash used in financing activities (5,065,639)

Effect of exchange rate changes on cash and cash equivalents (1,183,370)

Net increase in cash and cash equivalents 28,904,188

Cash and cash equivalents at beginning of period 9,792,776

Cash and cash equivalents at end of period 38,696,964


123


1. Corporate Information

Customer Contact Center, Inc. (the Company) was incorporated in

the Philippines on May 12, 2000. The Company is a wholly owned

subsidiary of C-Cubed B.V., a corporation organized and existing

under the laws of the Netherlands. The shares are held in trust by

Universal Vision Corporation (UVC), a British Virgin Islands

company. The Company is primarily engaged in the customer contact

service business, commonly referred to as “call centers,” for the

purpose of satisfying relationship requirements of clients through

various multimedia and personal access services. It also designs

and develops information databases and provides consultancy,

advisory, management and staffing services to its clients.

The Company has a total of 862 employees as of March 31, 2005.

The registered office address of the Company is #1 E-Commerce

Avenue, Eastwood City, Cyberpark, Libis, Quezon City.

The accompanying financial statements were approved and

authorized for issue by the Board of Directors (BOD) on July 12,

2005.

2. Summary of Significant Accounting Policies

Basis of Preparation

The accompanying financial statements have been prepared in

conformity with accounting principles generally accepted in the

Philippines using the historical cost basis.

Use of Estimates

The preparation of financial statements in conformity with

generally accepted accounting principles requires management to

make estimates and assumptions that affect the amounts reported

in the financial statements and accompanying notes. The estimates

and assumptions used in the accompanying financial statements

are based upon management’s evaluation of relevant facts and

circumstances as of the date of the financial statements. Actual

results could differ from such estimates.

Changes in Accounting Policies

The Company adopted the following Statements of Financial

Accounting Standards (SFAS)/ International Accounting Standards

(IAS) which became effective on January 1, 2004:

• SFAS 12/IAS 12, “Income Taxes,” prescribes the accounting

treatment for current and deferred income taxes. The

standard requires the use of a balance sheet liability method

in accounting for deferred income taxes. It requires the

recognition of a deferred tax liability and, subject to certain

conditions, asset for all temporary differences with certain

exceptions. The standard provides for the recognition of

deferred tax asset when it is probable that taxable income

will be available against which the deferred tax asset can be

used. Adoption of this standard has no material impact on the

Company’s financial position and results of operations.

• SFAS 17/IAS 17, “Leases,” resulted in the capitalization of

finance leases as assets at the lower of the fair value of the

leased asset and the present value of the minimum lease

payments. Finance leases are those that transfer substantially

all risks and rewards of ownership to the lessees. Adoption of

the standard resulted in the recognition of lease payments

under operating leases on a straight-line basis and additional

capital lease assets. Previously, certain leases were considered

as operating leases and lease payments expensed on the basis

of the terms of the lease agreements. The changes in policy

were reflected in the financial statements on a retroactive

basis. The restatement resulted in the recognition of additional

capitalized leased assets amounting to P4,923,490 and liabilities

amounting to P17,032,410 on March 31, 2005. Net income

decreased by P3,429,673 for the period July 1, 2004 to March

31, 2005. Deficit increased by P8,679,247 as of July 1, 2004.

New Accounting Standards Effective in 2005

New accounting standards based on IAS and International Financial

Reporting Standards, referred to as Philippine Accounting Standards

(PAS) and Philippine Financial Reporting Standards (PFRS), respectively,

will become effective in 2005. The Company will adopt the following

relevant new accounting standards effective January 1, 2005:

• PAS 19, “Employee Benefits,” requires the use of the projected

unit credit method in measuring retirement benefit expense and

a change in the manner of computing benefit expense relating to

past service cost and actuarial gains and losses. It requires a

company to determine the present value of defined benefit

obligations and the fair value of any plan assets with sufficient

regularity that the amounts recognized in the financial statements

do not differ materially from the amounts that would be determined

at the balance sheet date. The Company will avail of the services of

a qualified actuary to perform an actuarial valuation of the

Company’s employee benefit obligations in accordance with PAS 19,

and to determine the amount of transitional liability or asset that

will be adjusted against retained earnings upon adoption of this

standard.

• PAS 32, “Financial Instruments: Disclosure and Presentation,” covers

the disclosure and presentation of all financial instruments. The

standard requires more comprehensive disclosures about a

company’s financial instruments, whether recognized or

unrecognized in the financial statements. New disclosure

requirements include terms and conditions of financial instruments

used by a company, types of risks associated with both recognized

and unrecognized financial instruments (price risk, credit risk,

liquidity risk, and cash flow risk), fair value information of both

recognized and unrecognized financial assets and financial liabilities,

and a company’s financial risk management policies and objectives.

The standard also requires financial instruments to be classified as

liabilities or equity in accordance with its substance and not its

legal form.

• PAS 39, “Financial Instruments: Recognition and Measurement,”

establishes the accounting and reporting standards for the

recognition and measurement of a company’s financial assets and

financial liabilities. The standard requires a financial asset or

financial liability to be recognized initially at fair value. Subsequent

to initial recognition, a company should continue to measure

financial assets at their fair values, except for loans and receivables

and held-to-maturity investments, which are to be measured at

cost or amortized cost using the effective interest rate method.

Financial liabilities are subsequently measured at cost or amortized

cost, except for liabilities classified as “at fair value through

profit and loss” and derivatives, which are to be measured at fair

value subsequently.

PAS 39 also covers the accounting for derivative instruments. This

standard has expanded the definition of a derivative instrument

to include derivatives (and derivative-like provisions) embedded

in non-derivative contracts. Under the standard, every derivative

instrument is recorded in the balance sheet as either an asset or

liability measured at its fair value. Derivatives that do not qualify

as hedges are adjusted to fair value through income. If a derivative

is designated and qualify as a hedge, depending on the nature of

the hedging relationship, changes in the fair value of the derivative

are either offset against the changes in fair value of the hedged

assets, liabilities, and firm commitments through earnings, or

recognized in stockholders’ equity until the hedged item is

recognized in earnings. A company must formally document,

designate and assess the hedge effectiveness of derivative

transactions that receive hedge accounting treatment.

The Company has not yet determined the impact of adopting PAS 32 and

PAS 39 due to certain process/system changes that are needed to

quantify the impact. However, the Company expects an increase in

volatility in net earnings due to fair value accounting for financial

instruments.

• PFRS 1, “First-time Adoption of Philippine Financial Reporting

Standards,” requires an entity to comply with PFRS effective at

the reporting date for its first PFRS financial statements. In

particular, the PFRS requires an entity to do the following in the

opening PFRS balance sheet that it prepares as a starting point for

its accounting under PFRS: (a) recognize all assets and liabilities

whose recognition is required by PFRS; (b) not recognize items as

assets or liabilities if PFRS do not permit such recognition; (c)

reclassify items that it recognized under previous generally

accepted accounting principles as one type of asset, liability or

component of equity, but are a different type of asset, liability or

component of equity under PFRS; and (d) apply PFRS in measuring

all recognized assets and liabilities. Any additional disclosure

requirements by this standard will be presented accordingly.


Notes to Financial Statements

124


The Company will also adopt in 2005 the following new standards:

• PAS 1, “Presentation of Financial Statements,” provides a

framework within which an entity assesses how to present fairly

the effects of transactions and other events; provides the base

criteria for classifying liabilities as current or noncurrent; prohibits

the presentation of income from operating activities and

extraordinary items as separate line items in statement of income;

and specifies the disclosures about key sources of estimation,

uncertainty and judgments management has made in the process

of applying the entity’s accounting policies.

• PAS 8, “Accounting Policies, Changes in Accounting Estimates and

Errors,” removes the concept of fundamental error and the allowed

alternative to retrospective application of voluntary changes in

accounting policies and retrospective restatement to correct prior

period errors. It defines material omissions or misstatements,

and describes how to apply the concept of materiality when applying

accounting policies and correcting errors.

• PAS 10, “Events After the Balance Sheet Date,” provides a limited

clarification on the accounting for dividends declared after the

balance sheet date.

• PAS 16, “Property, Plant and Equipment,” provides additional

guidance and clarification on recognition and measurement of

items of property, plant and equipment. It also provides that each

part of an item of property, plant and equipment with a cost that

is significant in relation to the total cost of the item shall be

depreciated separately. In addition, the standard requires the

inclusion of the cost of dismantling, removal or restoration of an

asset as part of the cost of an item of property, plant and

equipment. Such obligation should be recognized when the asset is

installed or put into use.

• PAS 17, “Leases,” provides a limited revision to clarify the

classification of a lease of land and building and prohibits the

expensing of initial direct costs in the financial statements of the

lessors.

• PAS 24, “Related Party Disclosures,” provides additional guidance

and clarity in the scope of the standard, the definitions and

disclosures for related parties. It also requires disclosure of the

compensation of key management personnel by benefit type.

Except for the impact of PAS 16 and PAS 19, the Company does not

expect any significant changes in the accounting policies when it adopts

the above new standards in 2005. Required disclosures will be included

in the 2005 financial statements where applicable.


Cash includes cash on hand and in banks. Cash equivalents are short-

term, highly liquid investments that are readily convertible to known

amounts of cash with original maturities of three months or less and

are subject to an insignificant risk of change in value.

Receivables

Trade receivables are recognized and carried at original invoice amounts

less an allowance for any uncollectible amount. Other receivables are

stated at face value less allowance for any uncollectible amount. An

estimate for doubtful accounts is made when collection of the full

amount is no longer probable.


Property and equipment are stated at cost less accumulated depreciation

and amortization and any impairment in value.

The initial cost of property and equipment comprises its purchase

price, including import duties, taxes and any directly attributable

costs of bringing the asset to its working condition and location for its

intended use. Expenditures incurred after the property and equipment

have been put into operation, such as repairs and maintenance and

overhaul costs, are normally charged to income in the period the costs

are incurred. In situations where it can be clearly demonstrated that

the expenditures have resulted in an increase in the future economic

benefits expected to be obtained from the use of an item of property

and equipment beyond its originally assessed standard of performance,

the expenditures are capitalized as additional costs of property and

equipment.

Depreciation and amortization are calculated on a straight-line basis

over the following estimated useful lives:

Electronic Data Processing (EDP)

hardware and software 1-5 years

Leasehold improvements 5 years or term of the lease,

whichever is shorter

Furniture, fixtures and equipment 5 years

Transportation equipment 1 -4 years

The useful lives and depreciation and amortization method are reviewed

periodically to ensure that the periods and method of depreciation and

amortization are consistent with the expected pattern of economic

benefits from items of property and equipment.

When assets are sold or otherwise disposed of, the cost and the related

accumulated depreciation and amortization are eliminated from the

accounts and any resulting gain or loss is credited or charged to

current operations.

Impairment of Assets

The carrying values of property and equipment and other long-lived

assets are reviewed for impairment when events or changes in

circumstances indicate that the carrying value may not be recoverable.

If any such indication exists and where the carrying values exceed the

estimated recoverable amount, the assets or cash-generating units

are written down to their recoverable amounts. The recoverable

amount of property and equipment and other long-lived assets is the

greater of net selling price or value in use. The net selling price is the

amount obtainable from the sale of the asset in an arm’s-length

transaction. In assessing value in use, the estimated future cash flows

are discounted to their present value using a pre-tax discount rate

that reflects current market assessments of the time value of money

and the risks specific to the asset. For an asset that does not generate

largely independent cash inflows, the recoverable amount is determined

for the cash-generating unit to which the asset belongs. Impairment

losses, if any, are recognized in the statement of income.

A previously recognized impairment loss is reversed only if there has

been a change in the estimates used to determine the recoverable

amount of an asset, however, not to an amount higher than the carrying

amount that would have been determined (net of any depreciation),

had no impairment loss been recognized for the asset in prior years.

A reversal of an impairment loss is credited to current operations.

Interest in a Joint Venture

The Company’s interest in its joint venture is accounted for under the

equity method of accounting. The interest in joint venture is carried in

the balance sheet at cost plus post-acquisition changes in the Company’s

share in the net assets of the joint venture, less any impairment in

value. The statement of income reflects the Company’s share of the

results of operations of the joint venture.

Revenues

Revenues are recognized to the extent that it is probable that the

economic benefits will flow to the Company and the amount of revenue

can be measured reliably. The following specific recognition criteria

must also be met before revenue is recognized:

• Revenue from call center services is recognized when service is

rendered in accordance with the terms of contracts.

• Facilities and shared service fees (shown as part of “Revenues -

Others” account in the statement of income) are recognized under

the accrual basis in accordance with the terms of the agreements.

• Interest income is recognized as the interest accrues.

Retirement Costs

Retirement costs are actuarially determined using the projected unit

credit method. This method reflects services rendered by employees

to the date of valuation and incorporates assumptions concerning

employees’ projected salaries. Retirement costs include current service

cost plus amortization of past service cost, experience adjustments,

and changes in actuarial assumptions over the expected average

remaining lives of the covered employees.



125


Leases

Finance leases, which substantially transfer to the Company all the

risks and benefits incidental to ownership of the leased item, are

capitalized at the inception of the lease at the fair value of the leased

property or, if lower, at the present value of the minimum lease

payments. Lease payments are apportioned between the finance charges

and reduction of the lease liability so as to achieve a constant rate of

interest on the remaining balance of the liability. Finance charges are

directly charged against income.

Capitalized leased assets are depreciated over the shorter of the

estimated useful life of the asset or the lease term.

Leases where the lessor substantially retains all the risks and benefits

of ownership of the asset are classified as operating leases. Operating

lease payments are recognized as an expense in the statement of

income on a straight-line basis over the lease term.

For income tax purposes, rental expense is deductible based on the

provisions of the lease contracts.

Income Tax

Deferred income tax is provided, using the balance sheet liability

method, on all temporary differences at the balance sheet date between

the tax bases of assets and liabilities and their carrying amounts for

financial reporting purposes.

Deferred income tax liabilities are recognized for all taxable temporary

differences. Deferred income tax assets are recognized for all deductible

temporary differences, carryforward of unused tax credits from excess

minimum corporate income tax (MCIT) and net operating loss carryover

(NOLCO), to the extent that it is probable that taxable profit will be

available against which the deductible temporary differences and

carryforward of MCIT and NOLCO can be utilized. Deferred income tax,

however, is not recognized when it arises from the initial recognition

of an asset or liability in a transaction that is not a business combination

and, at the time of the transaction, affects neither the accounting

profit nor taxable profit or loss.

The carrying amount of deferred income tax assets is reviewed at

each balance sheet date and reduced to the extent that it is no longer

probable that sufficient taxable profit will be available to allow all or

part of the deferred income tax asset to be utilized.

Deferred income tax assets and liabilities are measured at the tax

rates that are expected to apply to the period when the asset is

realized or the liability is settled, based on tax rates (and tax laws)

that have been enacted or substantively enacted at the balance sheet

date.

Foreign Currency Transactions

Transactions in foreign currencies are recorded using the exchange

rate at the date of the transactions. Monetary assets and liabilities

denominated in foreign currencies are restated using the closing rate

at the balance sheet date. All differences are taken to the statement of

income in the period in which they arise. For income tax purposes,

these gains and losses are treated as taxable income or deductible

expense in the period such are realized.

Provisions

Provisions are recognized when the Company has a present obligation

(legal or constructive) as a result of a past event, it is probable that an

outflow of resources embodying economic benefits will be required to

settle the obligation and a reliable estimate can be made of the amount

of the obligation.

Contingencies

Contingent liabilities are not recognized in the financial statements.

They are disclosed unless the possibility of an outflow of resources

embodying economic benefits is remote. A contingent asset is not

recognized in the financial statements but disclosed when an inflow of

economic benefits is probable.

Subsequent Events

Subsequent events that provide additional information about the

Company’s position at the balance sheet date (adjusting events) are

reflected in the financial statements. Subsequent events that are not

adjusting events are disclosed in the notes to financial statements

when material.

3. Cash and Cash Equivalents P

Cash on hand and in banks (see Note 17) 38,102,871

Short-term deposits (see Note 17) 594,093

38,696,964

Cash in banks earn interest at the respective bank deposit rates.

Short-term deposits are made for varying periods of up to three

months, depending on the immediate cash requirements of the Company,

and earn interest at the respective short-term deposit rates.

4. Receivables P

Trade (see Notes 7 and 17) 105,466,192

Advances to suppliers 3,717,622

Advances to officers and employees 1,247,558

Others 1,190,492

111,621,864

Less allowance for doubtful accounts 4,731,515

106,890,349

5. Property and Equipment

EDP Furniture,

Hardware and Leasehold Fixtures and Transportation

Software Improvements Equipment Equipment Total

Cost P P P P P

Beginning of period (see Note 2) 248,756,735 46,473,414 36,306,595 5,833,661 337,370,405

Additions (see Note 20) 82,115,160 1,508,501 3,800,654 — 87,424,315

Disposals (122,176) — — (235,622) (357,798)

End of year 330,749,719 47,981,915 40,107,249 5,598,039 424,436,922

Accumulated depreciation

and amortization

Beginning of period (see Note 2) 100,868,919 26,129,429 13,850,641 3,045,493 143,894,482

Depreciation and amortization for the period 44,596,887 9,494,189 5,708,642 1,164,668 60,964,386

Disposals (122,176) — — (224,286) (346,462)

End of period 145,343,630 35,623,618 19,559,283 3,985,875 204,512,406

Netbookvalue 185,406,089 12,358,297 20,547,966 1,612,164 219,924,516

Cost and accumulated depreciation of property and equipment held under capital lease follows (see Note 9):

P

Cost 44,637,094

Accumulated depreciation 16,350,528

Net book value 28,286,566

Certain property and equipment of the Company with a carrying value of PI,612,164 as of March 31, 2005 were used as collateral for the Company’s

long-term debt (see Note 10).



126


6. Interest in a Joint Venture

On November 15, 2001, the Company entered into a joint venture

(JV) agreement with Source One Communications, Inc. (SOC), a

foreign entity, and formed Source One Communications Asia, Inc.

(SOCA), a jointly-controlled entity, for an equity share of 42.5%. The

purpose of the JV is to set up a customer contact and service

center in the Philippines. SOC handles the marketing and

promotional activities in North America for SOCA. SOCA was

incorporated in February 2002. Its application with the Philippine

Economic Zone Authority (PEZA) as an information technology zone

enterprise was approved on May 22, 2002.

Details of the Company’s interest in SOCA follow:

P

Acquisition cost 4,396,200

Accumulated equity in net earnings:

Balance at beginning of period 65,410,511

Equity in net earnings for the period 26,232,831


96,039,542

Undistributed earnings of SOCA included in the Company’s retained

earnings which are not available for dividend distribution as of

March 31, 2005 amounted to P91,643,342.

Condensed financial information of SOCA follows:

P

Current assets 290,373,521

Noncurrent assets 61,129,945

Current liabilities 51,847,389

Noncurrent liabilities 73,680,684

Net assets 225,975,393

Gross revenues 510,923,378

Cost of services 325,672,125

Operating expenses 117,376,014

Other expenses - net 6,150,931


The Company provides, among others, the following services to

SOCA: (a) support services on areas of human resource, finance,

strategic support and information technology; (b) co-location of

the operating requirements of SOCA in the Company’s call center

facility; and (c) management of SOCA’s call center operations within

the facility (see Note 18). As consideration for such services, the

Company’s total billings to SOCA amounted to P142,052,581 for the

period July 1, 2004 to March 31, 2005, and is included under

“Revenues - Others” account in the statement of income.

7. Other Noncurrent Assets

P

Deposits and bonds 14,074,093

Trade receivables - net of current

portion of1,648,200 (see Note 4) 827,321

Others - net of allowance

for doubtful accounts of P630,869 —

14,901,414

In 2004, the Company entered into an agreement with one of its

customers to restructure the payment terms of certain trade

receivables. Under the restructured terms, the receivable will be

collected over a period of 2 years until May 2006.

8. Accounts Payable and Other Current Liabilities

Accounts payable (see Note 17):

P

Trade 41,780,742

Non-trade 11,168,068

52,948,810

Accrued expenses:

Retirement (see Note 15) 38,519,295

Rent (see Note 2) 17,099,094

Penalties 12,909,005

Salaries and employee benefits 4,870,264

Taxes 4,244,475

Others 7,234,891

84,877,024

Others 13,809,045

151,634,879

9. Obligations Under Capital Lease

Certain property and equipment of the Company are held under

lease arrangements, which require the payment of monthly lease

amortizations (see Note 5). The equipment held under capital

lease (shown under “Property and equipment” account in the

balance sheet) and the corresponding obligations under capital

lease are included in the balance sheet at the fair market value of

the equipment at the inception of the lease or present value of the

minimum lease payments, whichever is lower.

The aggregate future minimum payments under the leases are as

follows:

March 31 P

2006 14,956,139

2007 3,841,240

2008 325,581

Total minimum lease obligation 19,122,960

Less amount representing interest 1,486,835

Present value of minumum lease payments 17,636,125

Less current portion 13,712,462

3,923,663

10. Long-term Debt

P

Notes payable with chattel mortgage 1,344,135

Installment contracts payable 15,958,087

17,302,222


7,276,618

Notes Payable with Chattel Mortgage

The Company obtained several loans from a local bank to finance

its acquisition of transportation equipment. Effective interest

rates range from 13% to 16% for the period July 1, 2004 to March

31, 2005. The said transportation equipment were pledged as

collateral to secure the Company’s long-term debt (see Note 5).

Loan maturities are as follows:

March 31 P

2006 804,221

2007 322,861

2008 217,053

1,344,135

Installment Contracts Payable

The Company entered into several installment sales agreement

with its suppliers for the purchase of EDP hardware. The equipment

purchased and the corresponding obligations under the installment

sales contracts are included in the balance sheet at the present

value of the installment payments.

The aggregate future installment payments under the installment

contracts are as follows:

March 31 P

2006 9,741,245

2007 6,458,659

2008 465,960

Total installment payments 16,665,864

Less amount representing interest 707,777

Present value of installment payments 15,958,087


6,736,704

11. Related Party Transactions

In addition to the related party transactions discussed in Note 12,

significant transactions with SOCA follow:

P

Facilities fees, shared services and people cost

advances charged by the Company under an

existing memorandum of agreement (see Note 6) 142,052,581

Interest-bearing cash advance granted to the

Company for working capital requirements* 25,649,323

* Interest expense of the Company for the interest-bearing cash

advance amounted to P978,385 for the period July 1, 2004 to

March 31, 2005.

The outstanding balances from the above transactions are reflected

in the Company’s balance sheet under the following accounts:

Due to related parties (see Note 12) 170,183,800

Due from a related party 167,327



127


12. Stockholders’ Equity

On July 31, 2003, BHC sold its 100% ownership interest in the

Company and its remaining receivable from the Company to UVC.

In relation to BHC’s sale of its stake in the Company, the Company

and BHC entered into a Deed of Assignment whereby the parties

have agreed to set-off the receivables and payables of the Company

to BHC and its related parties, leaving a balance due from the

Company of $0.34 million. Such balance and an additional amount of

$ 1.46 million in payment of the Company’s loan, were paid for by

C-Cubed B.V. The settlement of these obligations was recognized

as interest-bearing advance included under “Due to related parties”

account in the balance sheet.

On December 11, 2002, the BOD approved a resolution to accept

subscription deposits amounting to P26.0 million from a director

of the Company. In September 2003, these deposits were assigned

by the director to C-Cubed N.V., a stockholder of C-Cubed B.V., in

exchange for a portion of its interest in C-Cubed B.V. C-Cubed N.V.,

in turn, assigned the deposits to C-Cubed B.V. and converted the

deposits into an interest-bearing advance included under “Due to

related parties” account in the balance sheet.

Both advances are subject to interest of 7.5% per annum effective

July 31, 2003, and are payable within 3 years in equal annual

installments commencing on July 31, 2006. Accrued interest expense

for these advances amounted to P7,l 17,005 for the period July 1,

2004 to March 31, 2005, and is included under “Due to related

parties” account in the balance sheet.

13. Cost of Services P

Salaries and employee benefits (see Note 15) 139,590,159

Facilities-related expenses (see Notes 2 and 19) 65,023,279

Depreciation and amortization

(see Notes 2 and 5) 58,474,945

Contracted services 13,517,628

Training and professional development 6,611,708

Travel and transportation 5,348,779

Repairs and maintenance 5,022,342

Taxes and licenses 420,158

Representation and entertainment 33,986

Others 3,926,980

297,969,964

14. General and Administrative Expenses P

Salaries and employee benefits (see Note 15) 11,951,100

Travel and transportation 4,593,986

Provision for doubtful accounts 4,070,832

Depreciation and amortization

(see Notes 2 and 5) 2,489,441

Training and professional development 2,156,640

Taxes and licenses 1,576,619

Facilities-related expenses

(see Notes 2 and 19) 1,317,692

Contracted services 1,101,471

Representation and entertainment 192,791

Others 2,858,414

32,308,986

15. Retirement Benefits

The Company has an unfunded, noncontributory and actuarially

computed pension plan covering substantially all of its employees.

The benefits are based on years of service and compensation

during the last year of employment.

As of December 31, 2004, the latest actuarial valuation date, the

actuarial present value of pension benefits amounted to P30.8

million. The principal actuarial assumptions used to determine the

pension benefits were a discount rate, annual salary increase and

annual return on plan assets of 9.5%. Actuarial valuations are made

at least every three years. Total retirement expense amounted

to P2.9 million for the period July 1, 2004 to March 31, 2005.

16. Income Tax

a. The following deferred tax assets were not recognized in the

balance sheet because management believes that the

corresponding benefits will not be realized in the future:

P

NOLCO 4,136,695

Accrued retirement 1,882,600

Lease differential 377,469

Allowance for doubtful accounts 73,017

MCIT 42,064

6,511,845

b. The current provision for income tax represents 5% gross

income tax on the Company’s PEZA-registered activities which

are not covered by the income tax holiday (ITH) incentive (see

Note 18).

c. MCIT can be claimed as tax credits against future regular

income tax due until 2007.

d. NOLCO can be claimed as deduction from future taxable income

as follows:

Year Incurred Expiry Date P

2002 2005 1,345,125

2003 2006 8,518,539

2004 2007 491,315

2005 2008 2,572,192

12,927,171

NOLCO amounting to PI,047,394 expired during the period.

e. The reconciliation of provision for income tax computed at

the statutory income tax rate to provision for income tax as

shown in the statement of income is as follows:

P

Income tax computed at statutory tax rate 19,955,236

Income tax effects of:

Income from operations subject to

income tax holiday (Note 18) (18,605,446)

Nondeductible expenses 16,267,030

Difference on taxation using a

special rate (see Note 18) (8,433,473)

Equity in net earnings of a

joint venture (8,394,506)

Income already subjected to

final tax at a lower rate (116,062)

Change in value of unrecognized

deferred tax assets 1,076,239

1,749,018

17. Foreign Currency-Denominated Monetary Items

The Company has outstanding foreign currency-denominated

monetary assets and liabilities as follows:

Philippine Peso

US Dollar Equivalent

Foreign currency-denominated:

Monetary assets 2,590,958 142,347,233

Monetary liabilities 4,413,640 242,485,382

Net (1,822,682) (100,138,149)

The exchange rate used to translate the foreign currency-

denominated assets and liabilities is P54.94 to US$1 as of March 31,

2005. Net foreign exchange losses charged against income

amounted to P3,013,127 for the period July 1, 2004 to March 31,

2005.

18. PEZA Registration

The Company’s operations in the IT zone are registered with the

PEZA under Republic Act No. 7916 (the Act) as a zone enterprise

engaged in the operation of a call center that provides high value-

added phone, e-mail, chat and web communication handling within

the Asia Pacific, European and US markets. The Act created the

PEZA, which is currently responsible for the operation,

administration, management and development of the economic

zone (Ecozone) according to the principles and provisions set forth

in the Act, and the regulation and supervision of the enterprises in

the Ecozone.



128


As an IT zone-registered enterprise, the Company enjoys certain

tax and non-tax incentives, including an ITH up to August 2005.

Upon expiry of the 1TH incentive, the Company, in lieu of all local

and national taxes, shall be subject to the prescribed tax rate of

5% of gross revenues, net of certain deductions specifically provided

for in the Act. As a supplier of goods, property or services within

the Ecozone, the Company is also entitled to the benefit of zero

percent (0%) value added tax.

On October 28, 2002, the PEZA approved the Company’s application

for amendment of its registered activities to include the following:

(a) to provide and lease out facilities to SOCA for the latter’s call

center services; (b) to act as administrative arm of SOCA relating

to IT and telephony support, human resource policies, finance and

planning and strategic marketing. Such additional activities are

subject to 5% gross income tax rate and are not covered by the ITH

incentive (see Note 16).

Tax incentives availed by the Company for the period July 1, 2004

to March 31, 2005 are as follows:

P

ITH 2,907,101

Duty free importations 1,795,539

19. Significant Contracts

a. The Company entered into various contracts and agreements

with its clients to provide call center services under various

periods, terms and conditions.

b. The Company leases the call center facility, for a period of 5

years beginning November 2000, renewable upon mutual

agreement of both parties. In February 2004, the lease

agreement was extended for another 3 years. Rent expense

charged to operations amounted to P21,188,600 for the period

July 1, 2004 to March 31, 2005.

The annual future lease commitments for the call center facility

are as follows:

March 31 P

2006 30,851,616

2007 32,919,024

2008 33,347,958

2009 25,557,361

20. Note to Statement of Cash Flows

Noncash investing and financing activity:

Long-term debt and capital lease obligations

for the purchase of property and equipment:

P

Acquisition cost 23,310,046

Less: Downpayment 4,201,428

Long-term debt and capital lease obligations 19,108,618

21. Other Matters

On March 28, 2005, the Securities and Exchange Commission approved

a resolution changing the accounting period of the Company from a

calendar year to a fiscal year ending March 31.




129

C-Cubed (Antilles) N.V.

To the Members,

The Directors present their annual report, together with the audited

financial statements of the Company as at 31st

March 2005.

Principal Activity

The pricipal activities of the Company comprise of holding and financing

of group entities.


The Company’s net income for the year ended 31st

March 2005 is US

$ 26’122.58.

The Directors do not recommend any dividend for the year under

review.

Directorate

Amas Trust (Services) S.A.was appointed as a Director of your Company

on August 5th

2005.


statements

Directors’ Report

Shareholder’s Equity And Liabilities

March 31st

2005

US$

Capital And Reserves

Issued share capital - 6000 Shares

issued at Nominal value of US$ 1.- each 6’000.00

Accumulated results 16’764.57

Result for the financial year 26’122.58

Shareholders Equity 48’887.15

Creditors: Long Term Debt

Shareholders Loan 4’917’085.35

(including interest accrued of

US$ 453’950.- and US$ 111’944

as at March 31" and Dec. 31

st

respectively)

Creditors: Amounts falling due

within one year

Due to affiliate 28’200.21

Other creditors and accrued expenses 566’609.85

Shareholders Equity and Liabilities 5’560’782.56

Balance Sheet as at 31 March 2005

(Before appropriation of result)

The accompanying notes form an integral part of these accounts

Assets

March 31st

2005

US$

Long Term Assets

Investments 43’107.81

Loan due from affiliate 5’504’945.58


US$ 566’395 and US$ 139’352

as at March 31

st

and Dec. 31

st

respectively)

Current Assets

Unpaid Share Capital issued 6’000.00

Due from affiliate 6’729.17

Total Assets 5’560’782.56

Accountants’ Report

To the Members,

The Directors are responsible for the preparation of the accounts and

they consider that the company is exempt from a statutory audit.

In accordance with your instructions and in order to assist you to fulfil

your reporting responsibilities to your shareholders, we have prepared

the accompanying Financial Statements as at March 31st, 2005 in


















For and on behalf of the Board

Director

August 8th

2005

accordance with Generally Accepted Accounting Standards from the

accounting records, information and explanations supplied to us.

Yours Truly,

Amas Trust Services (Switzerland) Ltd.

July 28th

2005


130

Profit And Loss Account For The Period Ended 31 March 2005

The accompanying notes form an integral part of these accounts.

15 months

period ended

March 31st 2005

US$

Interest income on loans due from affiliate 427’043.26

Interest expense on loans due to Shareholders 342’005.94

Foreign exchange differences 600.71

Net financial income / (expense) 85’638.03

Operating expenses (59’515.46)

Result Before Taxation —

Corporate income tax

Result After Taxation 26’122.58

C-Cubed (Antilles) N.V.

GENERAL

Group affiliation and principal activities

C-Cubed NV. (“the Company”), a corporation with limited liability,

having its statutory seat in Curacao was incorporated under the laws

of The Netherland Antilles on the 19th

of September 2003. The Company

holds the full ownership interest in C-Cubed BV, Tilburg, The Netherlands.

The principal activities of the Company consist of holding and financing

of group entities.

ACCOUNTING POLICIES

Basis of presentation

The accompanying accounts have been prepared under the historical

cost convention in accordance with Generally Accepted Accounting

Principles. Unless indicated otherwise, assets and liabilities are stated

at nominal value.

Consolidation

The consolidation would not improve insight to the financial position of

the Company, due to different activities of its affiliates. As far as required

the financial statements of the participation are included as an enclosure

to these financial statements. The financial statements of this participation

are presented on the basis of local accounting principles.

Foreign currency translation

Assets and liabilities denominated in other currencies are translated

into US Dollar at the rates of exchange prevailing on the balance sheet

date. Transactions in foreign currencies have been translated at the

rates of exchange prevailing on the balance sheet date.

The following exchange rate have been applied as at 31 March 2005

(31s!

Dec. 2003) 1 US$0 = 1.3641 (1.2423) US Dollar (USD)

Long-term investments

Interests in group entities are stated at cost less a provision for any

permanent or long-term diminution in value.

Recognition of income

Dividends from interests in group entities are recognized as income if

and when received. Other revenues and expenses are accounted for in

the period these items concern.

NOTES ON SPECIFIC ITEMS OF THE BALANCE SHEET


As at 31 March 2005 the long-term investments comprise the following

interests in group entities

Name Statutory seat Percent of

ownership interest

C-Cubed BV Tilburg, The Netherlands 100 %

Issued share capital

The authorized share capital of the Company consists of 6000 issued

shares of USD 1 each

Movements in capital and reserves

Issued Share Accumu- P&L Total

Share premium lated FY

Capital reserve results

Opening Balance 6’000 16’764.57 22’764.57

Appropriation of

Results 16764.57 (16’764.57) —

Share capital

issued — — —

Result from P&L 26’122.58 26’122.58

Balance as at

March 31st

, 2005 6’000 16’764.57 26’122.58 48’887.15

OTHER NOTES

Employees

The Company does not employ any staff other than the directors and

hence incurred no further salary and related social security expenses

or pension costs during the period ending 31 March 2005.

Contingent liabilities

The Company has granted Mr. Jose Xavier Gonzales a right to acquire

19.6% of the issued Share Capital of C-Cubed B.V. Tilburg by conversion

of the amount due to him by the Company and stated at US$ 475’415.-

in the Company’s balance sheet as at March 31st

, 2005.

OTHER INFORMATION

Statutory provisions concerning the appropriation of results

In accordance with the Articles of Association the result for the period

is at the disposal of the General Meeting of Shareholders. No profit may

be distributed to the shareholders as long as the Company has no free

reserves available.

Post balance sheet events

No events have occurred since 31 March 2005 that would make the

present financial position substantially different from that shown in

the balance sheet at the balance sheet date, or which would require an

adjustment to or disclosure in the annual accounts.

NOTES TO THE BALANCE SHEET AND PROFIT AND LOSS ACCOUNT


131

C-Cubed B.V.

Directors’ Report

To the Members,

The Directors present their annual report, together with the audited financial statements of the Company for the period ended 31st

March 2005.

Principal Activity

The pricipal activities of the Company comprise of holding and financing of group entities.

During the period under review, the Company has acquired the total issued share capital of Customer Contact Center (“C-Cubed”) Inc, Phillippines,

a corporation active in Call – Center outsourcing and mainly operating in South-East Asia.


During the period under review, the Company incurred a loss of Euro 4’855. To a large extent this loss was on account of professional fees and

interest charges arising from debt funding for the acquisition of C-Cubed.

The Directors recommend that no dividend be declared for the year under review.

Directorate

Amas Trust (Services) S.A.was appointed as a Director of your Company on 25th

July, 2005.

Statement of Directors’ responsibilities in respect of the financial statements

Your Directors, based on the information and documents made available to them, confirm that:

i) in the preparation of the accounts for the period under review, the applicable accounting standards have been followed. There are no material

departures in the adoption and application of the accounting standards.

ii) they have 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 the period under review and of the loss of the Company

for that period;

iii) they have taken proper and sufficient care to the best of their knowledge and ability for the maintenance of adequate accounting records in

accordance with the applicable laws for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;


By Order of the Board

Director

July 26th

2005

Auditors’ Report

Introduction

We have audited the financial statements of C-Cubed B.V., Tilburg, The

Netherlands, for the period January 1, 2004 till March 31, 2005. These

financial statements are the responsibility of the company’s


financial statements based on our audit.

Scope

We conducted our audit in accordance with auditing standards generally

accepted in the Netherlands. Those standards require that we plan and






management, as well as evaluating the overall presentation of the

financial statements. We believe that our audit provides a reasonable

basis for our opinion.

Opinion

In our opinion, the financial statements give a view of the financial

position of the company as at March 31, 2005 and of the result for the

period then ended as is required in this case in accordance with the

accounting policies as defined in the notes to the financial statements.

Meeuwsen Ten Hoopen


July 26th

2005


132

Shareholder’s Equity And Liabilities

March 31st

2005

EURO

Capital And ReservesIssued share capital - 227 Shares issued

at Nominal value of Euro 100.- each 22’700

Accumulated results (54’566)

Result for the financial year (4’855)

Result for the financial year (36’721)

Creditors: Long Term Debt

Shareholder’s Loan 4’035’676


Eur. 313’065.- and Eur. 112’173.-

as at March 31

st

and

Dec. 31

st

respectively)

Creditors: Amounts falling due

within one year

Other creditors and accrued expenses 46’813

Shareholders Equity and Liabilities 4’045’767

Balance Sheet as at 31 March 2005

(Before appropriation of result)

The accompanying notes form an integral part of these accounts

Assets

March 31st

2005

EURO

Long Term Assets

Investments 2’141’670

Loan due from subsidiary 1’877’267

(including interest

accrued of Eur. 156’020

and Eur. 57’606 as at

March 31 and Dec. 31

st

respectively)

Current Assets

Unpaid Share Capital issued 22’700

VAT receivable 4’130

Total Assets 4’045767

Profit And Loss Account For The Period Ended 31 March 2005

The accompanying notes form an integral part of these accounts.

15 months

period ended

March 31st 2005

EURO

Interest income on loans due from group entities 156’020

Interest expense on loans due to Shareholders (313’065)

Foreign exchange differences 194’874

Net financial income / (expense) 37’829

Operating expenses (42’684)

RESULT BEFORE TAXATION (4’855)

Corporate income tax —

Result After Taxation (4’855)

C-Cubed B.V.


133

GENERAL

Group affiliation and principal activities

C-Cubed B.V. (“the Company”), a corporation with limited liability,

having its statutory seat in Tilburg, The Netherlands, The Netherlands,

was incorporated under the laws of The Netherlands on the 2nd

May

1989. The Company considers C-CUBED NV, Netherlands Antilles, to be

its parent company.

The principal activities of the Company consist of holding and financing

of group entities.

ACCOUNTING POLICIES

Basis of presentation

The accompanying accounts have been prepared under the historical

cost convention in accordance with Generally Accepted Accounting

Principles in The Netherlands. Unless indicated otherwise, assets and

liabilities are stated at nominal value.

Consolidation

The Company applies Article 406, Part 9, Book 2 of the Netherlands Civil

Code due to the fact that its participation has different activities and

consolidation would not improve insight to the financial position. As far

as required the financial statements of the participation are included as

an enclosure to these financial statements. The financial statements of

this participation are presented on the basis of local accounting principles.

Foreign currency translation

Assets and liabilities denominated in other currencies are translated

into euro at the rates of exchange prevailing on the balance sheet

date. Transactions in foreign currencies have been translated at the

rates of exchange prevailing on the balance sheet date.

The following exchange rate have been applied as at 31 March 2005

(2004): 1 Euro = 1.3641 (1.2423) US Dollar (USD)


Interests in group entities are stated at cost less a provision for any

permanent or long-term diminution in value.

Recognition of income

Dividends from interests in group entities are recognized as income if

and when received. Other revenues and expenses are accounted for in

the period these items concern.

NOTES ON SPECIFIC ITEMS OF THE BALANCE SHEET


As at 31 March 2005 the long-term investments comprise the following

interests in group entities

Name Statutory seat Percent of

ownership interest

C-Cubed Inc Manilla, Philippines 100 %

Issued share capital

The authorized share capital of the Company consists of 1000 shares of

EUR 100 each, of which 227 have been issued.

Movements in capital and reserves

Issued Share Accumu- P&L Total

Share premium lated FY

Capital reserve results

Opening Balance 22’700 — — (54’566) (31’866)

Appropriation of

Results — — (54’566) 54’566 —

Share capital

issued — — — — —

Result from P&L — — — (4’855) (4’855)

Balance as at

March 31st

, 2005 22’700 — (54’566) (4’855) (36’721)

OTHER NOTES

Employees

The Company does not employ any staff other than the directors and

hence incurred no further salary and related social security expenses

or pension costs during the period ending 31 March 2005.

OTHER INFORMATION

Statutory provisions concerning the appropriation of results

In accordance with article 16 of the Articles of Association the result

for the period is at the disposal of the General Meeting of Shareholders.

No profit may be distributed to the shareholders as long as the Company

has no free reserves available.

Proposed appropriation of result

The Board of Management proposes to carry forward the loss for the

year ending 31 March 2005 in the amount of EUR 4’8S6.- to next year’s

accounts. No dividend will be declared and paid due to the accumulated

losses.

Post balance sheet events

No events have occurred since 31 March 2005 that would make the

present financial position substantially different from that shown in

the balance sheet at the balance sheet date, or which would require an

adjustment to or disclosure in the annual accounts.

Notes to the Balance Sheet and Profit and Loss Account

C-Cubed B.V.

HTMT’s Media Facility atInCentre, MIDC Andheri

InNetwork Entertainment Limited ............................137

Grant Investrade Limited.......................................149

IndusInd Media & Communications Limited ..................154

Tele Video Communications India Limited ................... 169

In2cable (India) Limited........................................ 177

IndusInd Telecom Network Limited. .......................... 189

Media & Telecom Subsidiaries

Media-Telecom Subsidiaries

136

InNetwork Entertainment Ltd.

Board of Directors

A.K Das, Chairman

Ravi Mansukhani, CEO, Manager

Ashok Mansukhani

Sanjeev R. Pandit

Sanjay Asher

Management Team

Ravi Mansukhani, CEO, Manager

Satheesh Kumar, VP-Finance

Anand Girdhar, VP-Movie Division

Milind Kulkarni, VP-Technical

Company Secretary

Jatin Shah

Statutory Auditors

Shah & Co.


Registered Office

InCentre

49/50, MIDC

12th

Road, Andheri (E)

Mumbai 400 093

In2Cable (India) Limited

Board of Directors

R.P. Hinduja, Chairman

S. Solomon Raj

K.C. Samdani

Management Team

Brig. T.M. Sridharan (Retd.), CEO, Manager

Sudhir Gosar, CTO

Milind Hukeri, CFO & Company Secretary

Anil Srivastava, GM – Marketing

Statutory Auditors

Price Waterhouse


Registered Office

InCentre

49/50, MIDC

12th

Road, Andheri (E)

Mumbai 400 093

Indusind Media & Communications Ltd.

Board of Directors

A.K Das, Chairman

Sanjay Asher

Sanjeev R. Pandit

Ashok Mansukhani, Executive Director – Corporate Services

K.C Samdani

Ravi Mansukhani

Brig. T.M. Sridharan (Retd.)

Srinivas Palakodeti, Chief Operating Officer, Manager

Board Observers

Varun Kapur, Intel Pacific Inc.

Ms. Adrienne Corbud Fumagalli, Kudelski S.A.

Management Committee

Srinivas Palakodeti, Chief Operating Officer, Manager

Brig. T.M. Sridharan VSM (Retd.), CEO In2Cable

Manoj Motwani, Sr. Vice President – Operations

Brig. R. Deshpande (Retd.), Sr. Vice President - Technical

Shankar Devrajan, Vice President - Finance

Company Secretary

Viresh Dhaibar, G.M Legal & Company Secretary

Statutory Auditors

Deloitte Haskins & Sells


Registered Office

315 –G, New Charni Road,

Mumbai – 400 004

Administrative Office:

InCentre

49/50, MIDC

12th

Road, Andheri (E)

Mumbai 400 093

Grant Investrade Limited

Board of Directors

R.P. Hinduja

K. Thiagarajan

Srinivas Palakodeti

Company Secretary

Hasmukh Shah

Statutory Auditors

Deloitte Haskins & Sells


Registered Office

Hinduja House

171, Dr. Annie Besant Road

Worli, Mumbai 400 018

IndusInd Telecom Network Limited

Board of Directors

Y.M. Kale, Chairman

K. Thiagarajan

Hidemoto Fukuzawa

Marian Menezes

(Alternate Director to Hidemoto Fukuzawa)

Company Secretary

Rajkumar Ghoshal

Statutory Auditors

Shah & Co.


Registered Office

Hinduja House

171, Dr. Annie Besant Road

Worli, Mumbai 400 018

Tele Video Communications India Ltd.

Board of Directors

K. C. Samdani

Srinivas Palakodeti

Ashok H. Mansukhani

Statutory Auditors

Shah & Co.


Registered Office

315-G, New Charni Road,

Mumbai – 400 004

General Information


137


To The Members,

Your Directors are pleased to present their report on the business and

operations of the Company for the year ended 31st

March 2005.

Financial Results

(Rs. in ‘000s)

Year ended 31st

March 2005 2004

Total Income 186,929 241,172


PBDIT 107,520 163,346

Less: Interest 51,993 69,376

PBDT 55,527 93,970

Less: Depreciation 11,509 11,372

Amortization 28,740 67,040

Restrictive Rights /

Preliminary Exp. W/off 4,683 5,209

PBT 10,595 10,349

Provision written back 585 —

Deferred Tax (Liability)/Asset — (9,967)

PAT/(Loss) 11,180 382

Review of operations:

The Company’s performance during the year under review has been good.

This was possible due to the management’s focus on assets productivity,

cost reduction and internal efficiency. Viewed against the backdrop of

an economy recovering from a slow down, surfeit of channels offering

content similar to that of your Company, increased burden of Service

Tax, Software issues etc which had led to stagnation in the revenue in

comparison to the earlier years, the achievement is gratifying.

Factors like competitive pricing, differentiated content along with

aggressive marketing and distribution drive have helped your Company

to retain its share of the media pie.

The channel has substantially shifted from Cassette based play-out to

DVD based play-out. During the year 2005-2006, the shift would be

complete. This has resulted in substantial savings in cost as well as

improved quality of play-out owing to the digitized content.

The company invested in energy saving devices that has resulted in 10%

saving in power costs.

The company had been steadily investing in equipments for digitization

of content. Digitization facilitates ease of handling and storing, mitigates

generation loss resulting in substantial saving in storage costs. The

company is now ready to offer thematic content leveraging the strength

of its library. The offerings could be in the form of multiple channels or

through the Set Top Boxes of In Cable on a Pay Per View mode, which is

subject to implementation of CAS.

During the year under review, your Company’s total revenues of Rs.

187 Mn included Film Finance revenue of Rs.52 Mn, Films Export revenue

of Rs. 3 Mn, Advertisement revenue of Rs. 61 Mn and Income from

Royalties of Rs.38 Mn.

Advertisement revenues increased by a healthy 35% over the previous

year largely due to the contribution of CVO channel, which demonstrated

the brand loyalty the channel commands. Large agencies and corporates

have understood the impact of CVO in influencing consumer behavior

with the channel straddling across all Socio Economic Segments.

IN Mumbai due to its restricted presence to Mumbai city, competing

with large channels with pan India presence and a Metro segment largely

devoted to Mumbai, has managed to garner revenues through events as

was largely anticipated.

With a view to consolidate its film distribution and financing activity,

the Company substantially reduced its exposures in new projects.

The Directors do not recommend any dividend for the current year.

Industry Structure, Market share and Developments:

The entertainment industry grew by a healthy 15% over the previous

year, a growth rate that is double of that predicted growth rate for the

economy.

The industry is poised for a leap with the introduction of CAS, DTH, and

Digitized content both for TV and Cinema, IP TV and wireless

dissemination of content facilitating viewer ship across a wider

geographic area. All this is bound to positively impact the entertainment

landscape.

The key enabler is the change in the regulatory environment. Efforts of

TRAI, the regulator in the convergence arena, and change in legislations

to attract players in DTH, revision of the ground rules for FM radio,

rationalization of Entertainment Tax structure, and sops for multiplexes

would spur the growth of the industry.

To build scale, augment streams of revenue and to tide over the cyclical

downturn, consolidation and investment across various segments of the

industry will be the focus of your company in the near future.

Your company continues to be a key player in the content aggregation

and distribution space. However, due to the lackluster performance of

the Film industry in the year 2003, the company adopted a strategy of

consolidation during 2004. Fresh investments were being evaluated

against viability parameters.

CVO continues to be leader in the cable movie segment. Despite severe

competition from other satellite channels, upward revision in the Service

tax, scarcity in quality software, the division managed to maintain its

distinct identity. The feather in the cap was the return of a large FMCG

multinational that realized the potential of the channel and has made

large media buying commitments for the following year.

The channel has been able to maintain its position with innovative

packaging and aggressive distribution in major centers spread as far and

wide as Nepal and Assam. Increased presence of IN Cable in the northern

parts of India like Delhi and Uttar Pradesh has augmented the reach of

CVO in to the Hindi heartland.

Opportunities and Threats

The year 2004 was a reasonably good one for the film industry. The large

Indian population across the world along with demand from countries

with cultural similarities to India is an un-satiated market for quality

movies. With greater purchasing power and a predominantly young

population, the demand for a variety of entertainment is robust.

Corporatization of the film industry, funding available from financial

institutions at reasonable rates, legislative support for multiplexes and

digital cinema projections has opened new vistas for the film industry.

These steps would result in improved transparency of financial

transactions, wider and quicker release of films and an effective lid on

piracy justifying larger investments.

With a young and discerning viewer, opportunities present themselves

for production of movies that would be a targeted at a niche audience,

offering a steady stream of software for multiplexes away from the

conventional and run of the mill movies.

TV has caught the attention of the viewers and the ad community as the

most effective medium of reaching target audience. India has a C&S

household of 4.4 Crore in a total of 20 Crore household. The key revenue

streams are Subscription and Advertising, contributing 63% and 33%

respectively of the total revenues. While Satellite and Terrestrial

advertising corner a substantial chunk, a small portion of the revenue

goes to cable, the domain in which, your Company operates. Distribution

strength, content differentiation apart, advertisers are now looking into

more non-conventional methods like in-script advertising and innovative

brand placements.

CVO and IN Mumbai have a strong brand identity that commands loyalty

cutting across all SEC’s. The channels have continuously innovated in

content and packaging keeping the viewers interest alive. The strong

distribution network of IN Cablenet has resulted in the channels reaching

a large number of homes across the country, giving a national reach akin

to a satellite channel. The medium is cost effective offering exclusive

content and effective branding for various advertisers to leverage on

the excellent TRP’s that the channels garner.

Directors’ Report


138


Directors’ Report (Contd.)

Should Conditional Access System (CAS) be introduced , multiple windows

of opportunities in the nature of Pay per View and Video on Demand

would open. Movies could be played on the network a day before the

release in theaters offering a unique opportunity to the subscribers.

CAS would further help your Company to offer thematic channels utilizing

the large library that it has to further consolidate its position as a content

aggregator.

Events have been a steady source of revenue for the Company. Your

Company in recognition of the potential Events offer, has set up a separate

events cell, which, apart from organizing regular events like Ganeshotsav,

Miss IN Mumbai, Salute Mumbai and Navratri will execute special events

to carve a niche for itself.

Attempts at digitizing content for theater exhibition have not been

successful owing to lack of support from exhibitors. Entertainment tax

varies from state to state thereby impacting the revenues of the industry

and leading to under declaration of revenues and occupancy rates.

Standalone cinemas have suffered in comparison to the multiplexes due

to the legislative support offered to the latter.

Risks and Concern

Films have traditionally been a high-risk business. The single digit

percentage success rate of films is an indicator of the morass the industry

is in. Viewer likes and dislikes are hard to fathom and therefore there

can be no single formula for success. Piracy and rejection of digitized

projection is another area of concern.

In the near future, more and more channels will be jostling for the

viewer’s eyeballs. With the launch of more channels there is a fear of

supply exceeding demand leading to a fall in Ad revenues. Small channels

without the strength of software would opt to form part of a bouquet of

channels thereby ensuring visibility.

Non-implementation of CAS has permitted the last mile operators to

perpetuate under declaration of connectivity and therefore the revenue

numbers. There is no fair sharing of revenue among the operators, MSO’s

and the broadcasters. Unless CAS is implemented, cash flow for content

aggregators would be severely affected thereby impacting further

investments in software. Set top boxes would facilitate value added

services to the subscribers.

With a surfeit of channels and compression of software telecast and

storage not yet mandated, small channels would be lost without carriage.

Digitalization of software would challenge distribution orthodoxies.

Digitalization would offer carriage of more channels on the network.

This would prevent hegemony of large corporates that would otherwise

dominate networks because of the bouquet under their command. The

Government is seized of the matter and has presented a paper on

Digitalization of Networks, to mandate the MSO’s to facilitate

transmission of larger number of channels.

Human resources development / Industrial relation

Employees are your Company’s most valuable asset and believe that

your Company’s employees are central to its sustainable success.

Developing, motivating, rewarding and retaining talent at all levels, is a

business priority and a key responsibility of your Company’s senior

Management. Your Company has a competitive team of professionals to

manage its day-to-day affairs and has in place, a suitable training program

to upgrade skills of its employees at regular intervals.

Internal Control System

Management Information System constitutes the backbone of the

Company’s control mechanism. All operating parameters are monitored

and controlled. Specialized software packages, bar coding and other

monitoring equipments that were introduced last year have ensured

that all systems are under control.

Clearly defined roles and responsibilities down the line for all the

managerial positions have been institutionalized. Regular internal audits

and checks ensure that responsibilities are executed effectively and

that the MIS is flawless as a result of a well conceived annual planning

and budgeting system.

Fixed Deposits

During the year under review the Company did not accept any Fixed

Deposits.

Conservation of Energy, Technology Absorption etc.:

There are no particulars to be disclosed under Section 217 (1) (e) of The

Companies Act, 1956 relating to conservation of energy, technology

absorption , considering the nature of your company’s activities.

Foreign Exchange earnings and outgo

Details of foreign exchange earnings and outflow during the year are

given as under:

Foreign Exchange Earnings: Rs. 31.90 Lac Foreign Exchange Outgo:

Rs. NIL

Directors:

Mr. Ashok Mansukhani is liable to retire by rotation at the ensuing annual

general meeting and being eligible offers himself for reappointment.

Directors’ Responsibility Statement:

Pursuant to Section 217 (2AA) of the Companies Act, 1956 your

Directors, based on the information and documents made available

to them, confirm that :

(i) in the preparation of annual accounts for the year ended 31st

March 2005, the applicable accounting standards have been

followed. There are no material departures in the adoption

and application of the accounting standards.

(ii) they have selected such accounting policies and applied them

consistently and made judgments and estimates that are

reasonable and prudent so as to give a true and fair view of

the state of affairs of your Company at the end of the financial

year and of the profit of your Company for that period;

(iii) they have taken proper and sufficient care to the best of

their knowledge and ability for the maintenance of adequate

accounting records in accordance with the provisions of the

Companies Act,1956 for safeguarding the assets of your

Company and for preventing and detecting fraud and other

irregularities;

(iv) they have prepared the annual accounts on a going concern

basis.

Auditors report & Auditors:

M/s. Shah & Co, Chartered Accountants, Auditors of the Company,

retire at the conclusion of the ensuing Annual General Meeting of the

Company and are eligible for re-appointment.

Statement in respect of subsidiaries:

The statement pursuant to Section 212 (3) of the Companies Act, 1956

in respect of the subsidiary companies is attached.

Particulars of employees:

During the year under review, none of the employees of your company

was in receipt of remuneration in excess of the limit prescribed under

Section 217 (2A) of the Companies Act 1956 read with the Companies

(Particulars of Employees) Rules 1975 as amended from time to time.

Acknowledgements:

Your Directors place on record their sincere appreciation of valuable

assistance and support provided by all the Bankers. Your Directors also

recognise and appreciate the excellent services rendered by staff across

all levels.

For and on behalf of the Board of Directors

InNetwork Entertainment Limited

Place: Mumbai A.K. Das

Date : 28th

June, 2005 Chairman


139


Auditors’ Report

To The Members of InNetwork Entertainment Limited

1. We have audited the attached Balance Sheet of InNetWork

Entertainment Limited as at 31st March 2005 and also the Profit

and Loss Account and Cash Flow Statement of the Company for the

year ended on that date annexed thereto. These financial

statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on these financial

statements based on our audit.

2. We conducted out audit in accordance with auditing standards

generally accepted in India. Those Standards require that we plan

and perform the audit to obtain reasonable assurance about

whether the financial statements are free of material

misstatement. An audit includes examining, on a test basis, evidence

supporting the amounts and disclosures in the financial statements.


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 (Auditors’ Report) Order, 2003,

issued by the Central Government of India in terms of sub-section

(4A) of Section 227 of the Companies Act, 1956, we 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 state that:

(a) We have obtained all the information and explanations, which

to the best of our knowledge and belief were necessary for

the purpose of our audit.

(b) In our opinion proper books of account as required by law

have been kept by the Company so far as appears from our

examination of such books.

(c) In our opinion, the Balance Sheet, the Profit and Loss Account

and Cash Flow Statement referred to in this report are in

agreement with the books of account.

(d) In our opinion, the Balance Sheet, the Profit and Loss Account

and Cash Flow Statement dealt with by this report comply

with the Accounting Standards referred to in Section 211 (3C)

of the Companies Act, 1956.

(e) On the basis of the written representations received from

the directors, and taken on record by the Board of Directors,

we report that none of the Directors are disqualified as on

31st

March 2005 from being appointed as a Director in terms

of clause (g) of sub-section (1) of section 274 of the Companies

Act, 1956.

(f) in our opinion and to the best of our information and according

to the explanations given to us, the said Accounts subject to

Note No. A(4) read together with the other notes in schedule

18 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 on 31st March 2005,

(ii) In the case of Profit and Loss Account, of the “Profit” of

the Company for the year ended on that date.

(iii) In the case of the Cash Flow Statement of the cash flows

for the year ended on that date.

For SHAH & CO.


Indulal H. Shah

Place : Mumbai Partner

Dated : 28th

June, 2005 Membership No. 798


140


Annexure to the Auditors Report

(Referred in Para 3 of our Report of even date)

i. (a) The Company has maintained proper records showing full

particulars including quantitative details and situation of fixed

assets.

(b) We have been informed that the fixed assets have been

physically verified by the Management at regular intervals

and no material discrepancies have been noticed on such

verification.

(c) There has been no disposal substantial part of any fixed assets

during the year.

ii. (a) Films, television software, shares and cassettes held as stock

in trade have been physically verified by the management at

regular intervals during the year

(b) The procedure of physical verification of stocks followed by

the management appears reasonable and adequate in relation

to the size of the company and the nature of its business.

(c) The company is maintaining proper records of films, television

software, shares and cassettes. We are informed that no

material discrepancies were noticed on such verification as

compared to book records.

iii. According to the information and explanations given to us, the

Company has not granted/taken any loans secured or unsecured

to/from companies firms or other parties covered in the register

maintained under Section 301 of the Companies Act 1956. As such

provisions of clause 4(iii) (b), (c), (d), (f) and (g) are not applicable.

iv. According to the information and explanations given to us, there

are adequate internal control procedures commensurate with the

size of the company and the nature of its business with regards to

purchase of film rights, shares, cassettes, fixed assets and with

regard to assignment of film rights and services. During the

course of audit, we have not observed any continuing failure to

correct major weaknesses in internal control system.

v. As explained to us and according to the information and explanations

given to us, there are no transactions during the year that need

to be entered in the register maintained under section 301 of the

Companies Act, 1956 and exceeding the value of five lac rupees in

respect of each party.

vi. As the company has not accepted any deposits from the public

provisions of clause 4(vi) of the Companies (Auditors’ Report) Order

2003 are not applicable to the company.

vii. In our opinion, the company has an internal audit system

commensurate with the size and nature of its business.

viii. (a) According to the information and explanations given to us,

the company is generally regular in depositing with

appropriate authorities undisputed statutory dues including

provident fund investor education and protection fund,

employees state insurance, income tax, sale tax, wealth tax,

service tax, custom duty, excise duty, cess and other material

statutory dues applicable to it. We are informed that there

are no undisputed statutory dues which were in arrears as

at 31st March, 2005 for a period of more than six months

from the date they became payable.

(b) According to the information and explanations given to us,

there are no statutory dues which have not been deposited

on account of disputes pending at various forums.

ix. The accumulated losses of the company are not more than fifty

percent of its net worth. The company has not incurred cash losses

during the financial year covered by our audit or in the immediately

preceeding financial year.

x. According to the information and explanations given to us, the

company has not defaulted in repayment of dues to banks. The

company has not issued any debentures.

xi. According to the information and explanations given to us, the

company has not granted any loans and advances on the basis of

security by way of pledge of shares, debentures and other securities.

xii. In our opinion, the company is not a chit fund or a nidhi / mutual

benefit fund/society. Therefore the provisions of clause 4 (xiii) of

the Companies (Auditors report) Order 2003 are not applicable to

the company.

xiii.In our opinion and according to the information and explanations

given to us, the company is not a dealer or trader in shares,

securities, debentures and other investments.

xiv. In our opinion, the terms and conditions on which the company has

given guarantee for loans taken by others from banks or financial

institutions are not prejudicial to the interest of the company.

xv. The company has not obtained any terms loans during the year.

xvi. Based on the information and explanations given to us and on an

overall examination of the Balance Sheet of the company, there

are no funds raised on short term basis which have been used for

long term investment.

xvii.During the year, the company has not made any preferential

allotment of shares to parties and companies covered in the register

maintained under section 301 of the Companies Act, 1956.

xviii.The company has not issued any debentures during the year.

xix.The company has not raised any money by way of public issues

during the year.

xx. According to the information and explanation given to us no fraud

on or by the company has been noticed or reported during the

year.

xxi. Clause 4 (viii) of the companies (Auditors’ Report) Order 2003 is

not applicable to the company for the year under report.

FOR SHAH & CO.,


Indulal H. Shah


Date : 28th



141


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

Ashok Mansukhani Ravi Mansukhani

For Shah & Co. Director Director


I. H. Shah Jatin Shah

Partner Company Secretary

Membership No. 798

Mumbai, Dated : 28

th

June, 2005 Mumbai, Dated : 28

th

June, 2005


for the year ended March 31, 2005

(Rs. in ’000s)

Schedule 2005 2004

INCOME

Operating Income 10 176,192 226,738

Other Income 11 10,737 14,434

186,929 241,172

EXPENDITURE

Operating Expenses 12 20,857 30,890

Commission & Discount 13 4,123 4,020

Ammortization of

Film rights 14 28,740 67,040

Employee Cost 15 22,184 24,456

Restrictive Rights W/off 4,252 4,252

Other Expenses 16 32,245 47,921

Interest 17 51,993 69,376

164,394 247,955

Less: Software Expenses

transferred to

Stock in Trade — 29,461

164,394 218,494


Less: Transferred from

Revaluation Reserve 4,251 4,251

11,509 11,372

Preliminary Expenses W/Off 431 957

176,334 230,823

Profit/(Loss) For The Year

Before Taxation 10,595 10,349

Add: Excess Provision Written Back 585 —

Provision for Taxation

-Current — —

-Defferred Tax Liability — (9,967)

Profit/(Loss) After Taxation 11,180 382

Add:Balance brought forward

from pervious year (132,514) (132,896)

Net Loss transferred to

Balance Sheet (121,334) (132,514)

Basic & Diluted Earnings per share (2.01) (5.20)

Balance Sheet As At March 31, 2005

(Rs. in ’000s)

Schedule 2005 2004

SOURCES OF FUNDS

Shareholders’ Funds

Share Capital 1 489,100 489,100

Reserves and Surplus 2 84,846 89,097

Loan Funds

Secured Loans 3 39,699 404

Unsecured Loans 4 991,600 1,053,300

Deferred Tax Liability 24,483 24,483

1,629,728 1,656,384

APPLICATION OF FUNDS

Fixed Assets 5

Gross Block 458,820 457,708


Net Block 324,675 339,319

Investments 6 614,300 600,086

Current Assets

Loans and Advances 7

Inventories 271,321 215,258

Sundry Debtors 91,280 89,013

Cash and Bank Balances 58,099 83,031

Loans and Advances 333,750 371,492

754,450 758,794

Less: Current Liabilities

and Provisions 8

Current Liabilities 188,077 182,057

Provisions 1,424 1,424

189,501 183,481

Net Current Assets 564,949 575,313

Miscellaneous Expenditure 9 4,470 9,152

Profit & Loss Account 121,334 132,514

1,629,728 1,656,384

Significant accounting policies and notes to accounts 18


142


Schedules forming part of the Balance Sheet as at March 31, 2005

(Rs.in ’000s)

2005 2004

SCHEDULE 1

Share Capital

Authorised

35,00,000 Equity Shares

of Rs 100/— each 350,000 350,000

15,00,000 Cumulative

Redeemable Preferance

Shares of Rs.100/— each 150,000 150,000

500,000 500,000

Issued,Subscribed and Paid-Up


of Rs. 100 each fully paid up 339,100 339,100

(All the Equity Shares are held by

Hinduja TMT Ltd.,

the Holding Company).

15,00,000 12% Cumulative

Redeemable Convertible 150,000 150,000

Pref Shares of Rs. 100 each,

fully paid up.

(All the preference shares

are held by Hinduja TMT Ltd.,

the Holding Company).

489,100 489,100

(Rs.in ’000s)

2005 2004

SCHEDULE 2

Reserves and Surplus

Revaluation Reserve

Balance as per last Balance Sheet 89,097 93,348

Less: Transferred to

Profit & Loss Account 4,251 4,251

84,846 89,097

SCHEDULE 3

Secured Loans

From UTI Bank Ltd. 39,489 —

(Secured against hypothecation of

Stock & Book Debts)

From ICICI Bank Ltd. 210 404

(Secured against hypothecation of car)

39,699 404

SCHEDULE 4

Unsecured Loans

From Holding Company 981,400 1,026,500

From Subsidiaries 10,200 11,700

Overdrawn Balance against

cheques issued — 15,100

991,600 1,053,300

SCHEDULE 5

Fixed Assets

(Rs. in ’000s)

GROSS BLOCK DEPRECIATION/AMORTISATION NET BLOCK

Particulars As at Additions Deletions As at Upto For the Deletions Upto As at As at

01.04.2004 during during 31.03.2005 31.03.2004 Year 31.03.2005 31.03.2005 31.03.2004

the year the year

Goodwill 133,495 — — 133,495 — — — — 133,495 133,495

Land & Building 176,553 — — 176,553 52,047 5,897 — 57,944 118,609 124,506

Plant & Machinery 40,543 1,105 — 41,648 13,894 2,866 — 16,760 24,888 26,649

Office Equipments 4,048 19 — 4,067 1,493 199 — 1,692 2,375 2,555

Furniture & Fixtures 53,130 1 13 53,118 25,397 3,362 4 28,755 24,363 27,733

Computer & Accessories 763 — — 763 284 122 — 406 357 479

Vehicles 1,370 — — 1,370 180 130 — 310 1,060 1,190

Equipment H/E 35,915 — — 35,915 20,639 2,539 — 23,178 12,737 15,276

E.D.P. Equipment 707 — — 707 520 115 — 635 72 187

Electrical Installation 11,184 — — 11,184 3,935 530 — 4,465 6,719 7,249

Total 457,708 1,125 13 458,820 118,389 15,760 4 134,145 324,670 339,319

Previous Year 456,700 1,008 — 457,708 102,766 15,622 — 118,389 339,319


143


Schedules forming part of the Balance Sheet as at 31st March, 2005

SCHEDULE 6

Investments (Long Term At Cost)

A. QUOTED:

1. 4,500 Equity shares of Gulf Oil 151 151

Corporation Ltd of Rs.10/— each

fully paid up.

(Previous year — 4500 shares)

(Market Value as on 31.3.05

Rs.9,95,625/—)

B. UNQUOTED:

a) In Subsidiary Companies

1. 325,06,000 Equity Shares of

Indusind Media & Communications 326,523 326,523

Ltd of Rs.10/— each fully paid up

(Previous year 325,06,000 shares)

2. 15,000 Equity Shares of 1,500 1,500

Televideo Communications (I) Ltd

of Rs.100/— each fully paid up

(Previous year 15,000 shares)

b) Others

1. 9,60,000 Equity Shares of Planet 9,600 9,600

E Shop Holdings India Pvt Ltd


(Previous Year 9,60,000 shares)

2. 60,000 Equity Shares of 600 600

Shop 24 Seven India Pvt Ltd


(Previous Year 60,000 shares)

3. 1,04,73,775 Equity Shares of 271,996 257,782

IndusInd Telecom Network Ltd


(Previous Year 1,00,00,000 shares)

4. 3,93,000 Equity Shares of 3,930 3,930

Star Ya Kalaakar.Com Ltd.


(Previous Year 3,93,000 shares)

614,300 600,086

SCHEDULE 7

Current Assets Loans & Advances

A CURRENT ASSETS

INVENTORIES

Films 197,724 181,590

Television Software 32,055 32,055

Equity Shares 41,169 —

Cassettes 373 1,613

271,321 215,258

Sundry Debtors

(Unsecured and considered

good, unless otherwise stated)

a) Debts outstanding for a

period exceeding six months.

– Debts due from companies

under the same Mangement. 18,475 2,686

– Other debtors

Debts considered good 47,273 62,698

Debts considered doubtful 18,114 18,114

83,862 83,498

Less:Provision for doubtful Debts 18,114 18,114

65,748 65,384

(Rs. in ’000s)

2005 2004

(Rs. in ’000s)

2005 2004

SCHEDULE 7 (Contd.)

b) Other Debts

– Debts due from companies

under the same Mangement. 9,511 115

– Other debtors 16,021 23,514

91,280 89,013

CASH & BANK BALANCES

a) Cash on hand 92 99

b) With scheduled banks

In current Accounts 3,292 12,472

In Margin Money Accounts 54,572 54,672

c) Cheques on hand 143 15,788

58,099 83,031

B LOANS & ADVANCES

(Unsecured & Considered good)

Advance recoverable in Cash or

in kind or for value to be received 230,177 262,415

Interest Accrued on Inter

corporate deposits and Others 1,081 10,810

Inter corporate deposits 51,600 51,350

Prepaid Expenses 857 267

Staff Advance 83 755

Deposits 10,467 10,387

Advance Payment of Tax &

Tax Deducted at Source 39,485 35,508

333,750 371,492

SCHEDULE 8

Current Liabilities & Provisions

A CURRENT LIABILITIES

Sundry Creditors 20,537 16,326

Advances from Customers 10,638 8,479

Deposits 137,033 136,971

Other Liabilities 19,869 20,281

188,077 182,057

B PROVSIONS

Provision for Taxation 1,424 1,424

1,424 1,424

SCHEDULE 9

Miscellaneous Expenditure

(to the extent not written off

or adjusted)

Preliminary Expenses 217 647

Restrictive Rights 4,253 8,505

4,470 9,152


144


Schedules forming part of the Profit & Loss Account for the year ended March 31, 2005

(Rs. in ’000s)

2005 2004

SCHEDULE 10

Operating Income

Infrastructure Charges 16,170 14,792

Income from film finance 52,349 50,272

Income from film Exports 3,190 66,521

Income from film rights 4,500 —

Advertisement Revenue 61,474 45,224

Royalties 38,040 47,040

Profit from sale of Shares 469 —

Revenue from Projects — 2,889

176,192 226,738

SCHEDULE 11

Other Income

Dividend 27 23

Interest On ICD 5,187 4,501

Interest — Others 3,233 3,905

Sundry Credit Balances W/back 229 —

Commission received 1,176 —

Exchange Rate Fluctuation — 228

Miscellaneous Receipts 885 5,777

10,737 14,434

SCHEDULE 12

Operating Expenses

Rates & Taxes 3,105 3,675

Processing Charges — (Films) 706 7,507

Consumable 3,728 5,755

Programming 405 558

Carriage Fees 6,612 4,720

Equipment Hire Charges 2,001 2,509

Courier Charges 947 2,561

Events Expenses 2,704 2,966

Logo Fees 649 639

20,857 30,890

SCHEDULE 13

Commission & Discount

Discount 504 171

Commission 3,619 3,849

4,123 4,020

(Rs. in ’000s)

2005 2004

SCHEDULE 14

Ammortization of Film Rights

Opening Stock 213,645 188,444

Add: Film Rights Acquired 44,874 92,241

Less : Closing Stock 229,779 213,645

Ammortised 28,740 67,040

SCHEDULE 15

Employee Cost

Salaries,Wages,Allowances & Bonus 20,295 22,134

Contribution to PF / FPF & ESIC 1,350 1,522

Staff Welfare 539 800

22,184 24,456

SCHEDULE 16

Other Expenses

Communication Expenses 1,851 2,478

Electricity Expenses 2,641 3,656

Infrastructure Service charges 40 121

Repairs & Maintenance 2,992 4,030

Lease Rental — 3

Legal & Professional Charges 6,975 11,849

Printing & Stationery 1,012 1,203

Travelling & Conveyance 5,379 7,843

Advertising & Sales Promotion 5,853 10,560

Auditors’ Remuneration

– Audit Fees 866 491

– Tax Audit Fees 110 108

Insurance 669 981

Membership & Subscription 1,418 1,403

Other Expenses 2,439 3,195

32,245 47,921

SCHEDULE 17

Interest

Interest paid to Bank 866 3,433

Interest paid to Others 51,127 65,943

51,993 69,376


145

SCHEDULE 18

Significant Accounting Policies And Notes To Accounts

A. SIGNIFICANT ACCOUNTING POLICIES

1. Accounting Convention:

• The financial statements are prepared under the historical

cost convention in accordance with the applicable

accounting standards & relevant presentation

requirements of the Companies Act, 1956, except

otherwise stated.

• The Company generally follows the mercantile system of

accounting and recognises income and expenditure on an

accrual basis except those with significant uncertainties.

• Revenue Recognition: The Company generally recognises

revenue on mercantile basis.

2. Fixed Assets:

• Fixed Assets are stated at cost/book value less accumulated

depreciation. Cost comprises of the purchase price, duties

& taxes and any other cost attributable to bringing the

asset to its working condition for its intended use.

• Value of the building has been stated at the value as per

revaluation done as at 31st

March 1995.

3. Depreciation:

Depreciation is provided on Straight Line Method on pro-rata

basis at the rates prescribed under Schedule XIV of the

Companies Act, 1956.

4. Inventories:

• Cost of television programs, news, current affairs or

chat shows produced by the company for telecast on its

own television channel are charged to the Profit & Loss

Account in the year under report. These costs were

amortized on straight-line basis over a period of 36

months in the earlier years (i.e.) upto 31st

March 2004.

Consequently, the change in method of accounting has

resulted in lowering the profit for the current year by

Rs. 97.28 Lacs.

• Cost of telecast rights of films acquired for telecast on its

own channel is amortized in the year of exploitation.

• Cost of films acquired for sale are amortized on a straight-

line basis over a period of 60 months.

• Stocks of tapes have been valued at cost or market value

whichever is lower.

• Equity Shares held as Stock in Trade are valued at the cost

or market value whichever is lower.

5. Amortization of Miscellaneous expenditure:

• Preliminary & share issue expenses are amortized over

a period of five years.

• Restrictive covenants are amortized over a period of

ten years.

6. Investments:

Long Term Investments are stated at cost of acquisition.

Provision for diminution in value is made, if otherwise than

temporary.

7. Foreign Currency transactions:

All income and expenditure in foreign currency are recorded

at the rate of exchange prevalent on the dates when the

transactions were executed.

8. Retirement benefits:

The Company has taken a Group Gratuity cum Life Assurance

policy with Life Insurance Corporation of India (LIC). Provision

for gratuity has been made at the rate of contribution

computed by LIC.

9. Borrowing costs are recognised as an expense in the period

in which these are incurred.


Schedules Annexed To And Forming Part of Accounts

B. NOTES ON ACCOUNTS:

1. Contingent liabilities not provided for:

Estimated amount of contract remaining to be executed on

Capital Account and not provided for – Rs. NIL – (Previous year

– Rs. NIL).

2. Guarantee issued by bank on behalf of the company and

outstanding as at 31st

March 2005 – Rs.54,572 (000’s); Previous

year – Rs.54,572 (000’s).

3. Legal and Professional charges include Rs. NIL paid to a partner

of auditors for other services; Previous year – Rs. 456 (000’s).

4. According to the information and explanations given to us,

there are no dues to SSI undertakings as at 31st

March 2005.

5. Arrears of dividend on 12% Cumulative Redeemable Convertible

Preference shares for the period upto 31st

March 2005 –

Rs. 61,500 (000’s); Previous year – Rs.43,500 (000’s).

6. In the opinion of the Board, Current Assets, Loans and Advances

have approximately the same value as stated in the Balance

Sheet if realized in the ordinary course of business.

(Rs. in ‘000s)

Current Previous

Year Year

7. Earnings in Foreign Currency 3,190 66,521

8. Expenditure in Foreign Currency NIL 1,191

(Incurred for travel)

9. Sundry Debtor’s include the following amounts due from

companies under the same management:

(Rs. in ’000s)

Name of the Balance Maximum Balance

Company as at Balance as at

31st March, during 31st March,

2005 the year 2004

IndusInd Media &

Communications Ltd. 796 9,930 8,936

Shop 24Seven-India P. Ltd. 11,749 11,749 2,800

In2Cable India Ltd. 2,167 2,167 1,380

10. Loans and Advances include the following amounts due from

Companies under the same management:

(Rs. in ’000s)

Name of the Balance Maximum Balance

Company as at Balance as at

31st March, during 31st March,

2005 the year 2004

IndusInd Media &

Communications Ltd. 12,620 13,232 7,775

Shop24Seven India P. Ltd. 42,250 45,292 45,292

Planet E Shop Holdings

India Pvt. Ltd. 9,250 9,536 9,536

11 a. Provision for Income Tax is not made in view of the

unabsorbed carried forward losses

b. The company has not recognized deferred tax asset in

view of prudential accounting norms followed by the

company. Break up of Deferred Tax Liability as at 31st

March 2005 is as follows:

(Rs. in 000’s)

Deferred Tax Liability

Amortization of Film Rights 29,879

Preliminary Expenses 23

Depreciation of Fixed Assets 24,115

Leave Encashment 171

Total Deferred Tax Liability 54,188

Deferred Tax Asset

Unabsorbed Depreciation 3,348

Losses Carried Forward 7,767

Gratuity 17

Provision for Doubtful Debts 7,626

Loss of previous Year 10,947

Total Deferred Tax Asset 29,705

Net Deferred Tax Liability 24,483


146

Deferred Tax Assets are recognised and carried forward only

to the extent that there is reasonable certainty that sufficient

future taxable income will be available against which such

Deferred Tax Asset can be realized.

12. The Company operates in a single business segment namely

“Media & Entertainment”; as such there are no reportable

primary business segments. The Company caters only to the

domestic market where there are no differing risks and returns

as such there are no reportable geographical segments.

13. Related party disclosures:

Related Parties & Relationships

Category Party Relationship

A

1 Aasia Management Enterprises where common

& Consultancy control exists

Pvt. Ltd.

2 In2Cable India Ltd. Enterprises where common

control exists

3 Shop24Seven Enterprises where common

India Pvt. Ltd. control exists

4 Planet E Shop Enterprises where

Holdings India control exists

Pvt. Ltd.

B IndusInd Media & Subsidiary Company

Communications Ltd.

C Hinduja TMT Ltd. Holding Company

Persons Persons Persons

referred referred referred

Nature of Transactions to in A to in B to in C (Rs.000’s)

During the year above above above Total

Infrastructure Charges

IndusInd Media &

Communications Ltd. — 4,741 — 4,741

In2Cable India Ltd. 1,372 — — 1,372

Hinduja TMT Ltd. — — 7,745 7,745

Royalty Income

IndusInd Media &


Revenue Share

Shop24Seven India Pvt. Ltd. 1,460 — — 1,460

Interest Income


Planet E—Shop Holdings

India Pvt. Ltd. 925 — — 9 2 5

Reimbursement of

Expenses — Income

In2Cable India Ltd. 163 — — 1 6 3

IndusInd Media &

Communications Ltd. — 267 — 2 6 7

Shop24Seven India Pvt. Ltd. 107 — — 1 0 7

Interest paid

Hinduja TMT Ltd. — — 51,102 51,102

Reimbursement of Expenses

Hinduja TMT Ltd. — — 331 3 3 1

Aasia Management &

Consultancy Ltd. 168 — — 1 6 8

IndusInd Media &

Communications Ltd. — 87 — 8 7

Carriage Fees

IndusInd Media &


Internet Subscription


Royalty — Logo Fees

IndusInd Media &


Balances at year—end

Secured Loans

IndusInd Media &


Hinduja TMT Ltd. — — 981,400 981,400

Current Liabilities

Aasia Management &

Consultancy Ltd. 305 — — 3 0 5


IndusInd Media &


Hinduja TMT Ltd. — — 10,316 10,316

Sundry Debtors

In2Cable India Ltd. 2,167 — — 2,167


IndusInd Media &


Loans & Advances


Planet E Shop Holdings 9,250 — — 9,250

India pvt. Ltd.

Indusind Media & Comm. Ltd. 12,620 — — 12,620

14. Earning Per Equity Share

(Rs. in ’000s)

Year Ended Year Ended

31st March, 31st March,

2005 2004

Profit/(Loss) 11, 180 382

Add: Preference Dividend 18, 000 18,000

Total Loss (6, 820) (17,618)

Weighted average Number of Equity

Shares Outstanding during the year

For Basic EPS (number in 000’s) 3,391 3,391

Weighted average Number of Equity

Shares Outstanding during the year

For Diluted EPS 4,891 4,891

Basic and Diluted E.P.S (2.01) (5.20)

Since the effect of potential equity shares on Earnings per share

is anti-dilutive, the same has been ignored.

15. Note on Managerial Remuneration:

Employee cost as per Schedule XIII include remuneration paid

to a Director as under:

Rs. in 000’s

Salary & Other Allowances 1,604

Contribution to Provident Fund & Other Fund 106

Other perquisites 14

1,724

16. Quantitative details:

The Company traded in equity shares during the last financial

year. The relevant information in quantities & values is as

follows:

Unit Opening Purchases Sales Closing

Stock Stock

Quantity – NIL 9,97,900 1,75,000 8,22,900

Numbers

Quantity – NIL 4,98,59,260 91,59,500 4,11,68,636

Value

17. Previous year figures have been regrouped wherever

considered necessary.


Schedules Annexed To And Forming Part of Accounts

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

Ashok Mansukhani

For Shah & Co. Director

Chartered Accountants. Ravi Mansukhani

Indulal H. Shah Director

Partner Jatin Shah

Membership No. 798 Company Secretary

Place : Mumbai Place : Mumbai

Dated : 28

th

June, 2005 Dated : 28

th

June, 2005

Persons Persons Persons

referred referred referred

Nature of Transactions to in A to in B to in C (Rs.000’s)

above above above Total


147

I Registration Details

Registration No. 1 1- 2 1 5 5 1 State Code. 1 1

Balance Sheet Date 3 1 0 3 2 0 0 5

I I Capital raised during the period (Amount in Rs. Thousands)

Public Issue Rights Issue

N I L N I L

Bonus Issue Private Placement

N I L N I L

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

Total Liabilities Total Assets

0 1 6 2 9 7 2 8 0 1 6 2 9 7 2 8

Sources of Funds

Paid-Up Capital Reserves and Surplus

0 0 4 8 9 1 0 0 0 0 0 8 4 8 4 6

Secured Loans Unsecured Loans

0 0 0 3 9 6 9 9 0 0 9 9 1 6 0 0

Application of Funds

Net Fixed Assets Investments

0 0 3 2 4 6 7 5 0 0 6 1 4 3 0 0

Net Current Assets Miscellaneous Expenditure

0 0 5 6 4 9 4 9 0 0 0 0 4 4 7 0

Deferred Tax Liability Accumulated Losses

0 0 0 2 4 4 8 3 0 0 1 2 1 3 3 4

IV Performance of Company (Amount in Rs. Thousands)

Total Income Total Expenditure

0 0 1 8 6 9 2 9 0 1 7 5 7 4 9

(Please tick appropriate box + for Profit, - for Loss)

Profit/Loss Before Tax Profit/Loss After Tax

+ 0 0 0 1 1 1 8 0 + 0 0 0 1 1 1 8 0

(Please tick appropriate box + for positive, - for negative)

+ - Earning per Share in Rs. Dividend Rate %

� 2 . 0 1 N I L

V Generic Names of Three Principal Products/Services of the Company (as per monetary terms)

ITEM CODE NO. (ITC CODE) PRODUCT DESCRIPTION

N O T M E D I A A N D

A P P L I C A B L E E N T E R T A I N M E N T


Ashok Mansukhani Ravi Mansukhani Jatin Shah

Director Director Company Secretary

Mumbai

Dated : 28

th

June, 2005

Additional information pursuant to Part IV of the Companies Act, 1956

Balance Sheet Abstract and Company’s General Business Profile



148

(Rs.in ‘000s)

PARTICULARS TOTAL

Cash flow from operating activities

Net profit /(loss) after taxation,

and extraordinary item 11,180

Adjustment for :

Depreciation 11,509

Bad debts written off —

Defferred tax liability —

Preliminary, deferred

and share issue Expenses 4,683

Interest income (8,420)

Profit/(loss) from sale of assets —

Interest expenses 51,993

Operating Profit before

working capital changes 70,945

Decrease in Sundry Debtors (2,267)

Decrease in Inventories (56,063)

Decrease in Loans & Advances 37,742

Increase in Sundry Creditors

& other payables 6,020


Cash Flow Statement For The Year Ended March 2005

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


For Shah & Co. Director Director


I. H. Shah Jatin Shah


Membership No. 798

Mumbai, Dated : 28

th

June, 2005 Mumbai, Dated : 28

th

June, 2005

(Rs.in ‘000s)

PARTICULARS TOTAL

Cash generated from operations 56,377

Income taxes paid —

Cash flow before extaordinary items 56,377

Extraordinary items —

Net Cash from operating activities 56,377

Cash flow from investing activities

Purchase of fixed assets (1,125)

Investments made (14,214)

Interest received 8,420

Sale of Fixed Asset 8

Net cash from investing activities (6,911)

Cash flow from financing activities

Proceeds from unsecured loan (61,700)

Interest paid (51,993)

Repayment of Secured Loan 39,295

Net cash from financing activities (74,398)

Net increase in cash and cash equivalents (24,932)

Cash and cash equivalents at beginning of period 83,031

Cash and cash equivalents at end of period 58,099

STATEMENT PURSUANT TO SECTION 212 OF THE COMPANIES ACT, 1956. (FORMING PART OF DIRECTORS’ REPORTS

(Rs. in ‘000s)

IndusInd Media & Tele Video

Communications Communication

Ltd. India Ltd.

1. The Financial Year of the Subsidiary 31.03.2005 31.03.2005

Companies ended on

2. Date on which they became subsidiaries 10-4-2000 14-9-2001

3. Number of shares held by InNetwork Entertainment Ltd. 325,06,000 15,000

(Holding Company) in the Subsidiary Companies at the end of

the financial year the Subsidiary Companies.

4. Extent of interest of Holding Company as at the end of the 57.50% 60%

financial year of the Subsidiary Companies.

5. The net aggregate amount(‘000) of the Subsidiary Companies’ Profit/(loss)

so far as it concerns members of the Holding Company and is not dealt with

in the Holding Company’s Accounts

i. For the year ended 31st March 2005. (374,234) (640)

ii. For the financial years since they became Subsidiaries (1,283,800) (2,001)

6. The net aggregate amount of the Subsidiary Companies’ Profit/(loss) so far as

it concerns members of the Holding Company and dealt with in the Holding Company’s Accounts

i. For the year ended 31st March 2005. Nil Nil

ii. For the financial years since they became Subsidiaries Nil Nil

For and on behalf of the board


Director Director

Place : Mumbai Jatin Shah

Date : 28th June, 2005 Company Secretary


149

Grant Investrade Ltd.

To The Members,

Your Directors have pleasure in presenting herewith the Annual Report

together with the Audited Accounts of the Company for the year ended

31st

March 2005.

Financial Results

(Fig in Rs.)

2004-05 2003-04

Total Income 88,949 98,989

Total Expenses 184,166 174,304

Loss Before Tax 95,217 75,315

Loss After Tax 98,595 75,315

Your Company has incurred a net loss of Rs.98,595/ - for the year 2004-

2005.

In view of the losses, the Directors of your Company do not recommend

any dividend.

Company’s Activities

Your Company continues to be a Special Purpose Vehicle for holding

6.69% of the effective share capital of IndusInd Media & Communications

Ltd. (IMCL) The Company’s Directors and its corporate parent, Hinduja

TMT Ltd., have participated in guiding IMCL to strengthen itself in Cable

Television business.

Fixed Deposits

The Company has not accepted and/ or renewed any Fixed Deposits

during the year under review.

Directors

Mr.R.P.Hinduja Director of your Company retires by rotation at the

ensuing Annual General Meeting and being eligible, offers himself for

re-appointment.

Mr.S.Solomon Raj resigned as Director with effect from the close of

business hours of 22nd December 2004. The Board places on record its

special appreciation for the services rendered by Mr. S.Solomon Raj during

his tenure as a Director of the Company.

Mr. K.Thiagarajan was appointed as an Additional Director at the Board

Meeting held on 22nd

December 2004.

Mr. K. Thiagarajan is an MBA from IIM, Ahmedabad and B. Tech from IIT,

Madras. He brings with him 28 years of rich experience in the Chemical,

Automotive, Engineering and IT sectors both in India and abroad. He is

the Managing Director and Chief Executive Officer of the corporate

parent, Hinduja TMT Ltd.

Mr. K. Thiagarajan holds office upto the date of the ensuing Annual

General Meeting and the Company has received a notice in writing under

Section 257 of the Companies Act, 1956 from member proposing his

candidature for the office of Director of the Company at the ensuing

Annual General Meeting.

Conservation of Energy etc.

Considering the nature of the business of your Company, there are

no particulars to be disclosed relating to the year under review in

respect of Conservation of Energy, Research and Development &

Technology Absorption pursuant to Section 217(1)(e) of the

Companies Act, 1956.

There are no Foreign Exchange earnings or outgo during the year.

Employees

During the year under review, none of the employees of your

Company was in receipt of remuneration in excess of the limit

prescribed under Section 217 (2A) of the Companies Act, 1956 read

with the Companies (Particulars of Employees) Rules, 1975 as

amended from time to time.

Directors’ Responsibility Statement

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

based on the information and documents made available to them, confirm

that:

i) in the preparation of the annual accounts, for the year ended

31st

March 2005, applicable accounting standards have been

followed. There are no material departures in the adoption and

application of the accounting standards.




state of affairs of your Company at the end of the financial year

and of the loss of your Company for that period.



records in accordance with the provisions of the Companies Act

1956 for safeguarding the assets of your Company and for preventing

and detecting fraud and other irregularities.


Auditors

M/s. Deloitte Haskins & Sells, Chartered Accountants, the statutory

auditors of the Company retire at the conclusion of the ensuing Annual

General Meeting of the Company and are eligible for re-appointment.


Place : Mumbai K. Thiagarajan S. Palakodeti

Date : 28th June, 2005 Director Director

Directors’ Report


150

To The Shareholders of Grant Investrade Limited

1. We have audited the attached Balance Sheet of Grant Investrade

Limited as at March 31, 2005 and also the Profit and Loss account

of the Company for the year ended on that date. These financial




2. We conducted our audit in accordance with auditing standards

generally accepted in India. Those standards require that we

plan and perform the audit to obtain reasonable assurance about


misstatement. An audit includes examining, on a test basis,

evidence supporting the amounts and disclosures in the financial

statements. An audit also includes assessing the accounting

principles used and significant estimates made by the


presentation. We believe that our audit provides a reasonable

basis for our opinion.

3. As required by the Companies [Auditors’ Report] Order 2003,

issued by the Central Government in terms of Section 227

(4A) of the Companies Act, 1956, we give in the annexure a

statement on the matters specified in paragraph 4 and 5 of

the said Order, to the extent applicable and based on such

checks we considered appropriate.

4. Further to our comments in the annexure referred to above, we

report that: -

a) We have obtained all the information and explanations, which


the purposes of our audit;

b) In our opinion, proper books of account as required by law


examination of the books;

c) The Balance Sheet and Profit and Loss account dealt with by

this report are in agreement with the books of account;

d) In our opinion, the Balance Sheet and Profit and Loss account

dealt with by this report are in compliance with the

accounting standards referred to in sub- section (3C) of

section 211 of the Companies Act, 1956;

e) On the basis of written representations received from

directors, and taken on record by the board of directors,

we report that none of the directors is disqualified as on

March 31, 2005 from being appointed as director in terms

of clause (g) of sub-section (1) of section 274 of the Companies

Act, 1956;

f) In our opinion and to the best of information and according to

the explanations given to us, the accounts read with notes

give the information required by the Companies Act, 1956 in

the manner so required and give a true and fair view in


in India;

(i) in the case of the Balance Sheet, of the state of affairs

of the Company as at March 31, 2005,

(ii) in the case of the Profit and Loss account, of the loss

for the year ended on that date,

and

(iii) in the case of Cash Flow satement, of the cash flows of

the Company for the year ended as on that date

For Deloitte Haskins & Sells


R.Raghavan

Partner

Mumbai : 28th June, 2005 Membership No. 9483


Auditors’ Report

In our opinion and according to the information and explanations given

to us, the nature of the Company’s business/activities during the year

are such that clauses (i), (ii), (iii), (iv), (v), (vi) (viii), (xi), (xii), (xiii),

(xiv), (xv), (xvi), (xvii), (xviii), (xix), (xx) of Companies (Auditors’

report) Order, 2003 are not applicable to the Company and we report

that:

i. The company has an adequate internal audit system

commensurate with the size and the nature of its business.

ii. (a) The company has been regular in depositing undisputed

statutory dues, including Provident Fund, Investor Education

and Protection Fund, Employees’ State Insurance, Income

tax, Sales tax, Wealth tax, custom duty, excise duty, cess

and any other statutory dues with the appropriate

authorities during the year.

(b) There are no unpaid disputed demands relating to sales

tax/income tax/custom tax/wealth tax/excise duty/cess.

Annexure To The Auditors’ Report

(Referred to in Para 3 of our Report)

iii. The accumulated losses of the Company does not exceed fifty

percent of its net worth as at the end of the year. However, the

Company has incurred cash losses during the current year and

the immediately preceding financial year.

iv. To the best of our knowledge and belief and according to the

information and explanations given to us, no fraud on or by the

company was noticed or reported during the year.



R. Raghavan


Date : 28th June, 2005 Membership No. 9483


151

In terms of our report of even date For and on behalf of the Board

For Deloitte Haskins & Sells K. Thiagarajan S. Palakodeti

Chartered Accountants Director Director

R. Raghavan Hasmukh Shah


Membership No. 9483

Mumbai, Dated : 28th June, 2005 Mumbai, Dated : 28th June, 2005


(Rs. in ’000s)

Schedule 2005 2004

SOURCES OF FUNDS

Shareholder’s Funds

Capital A 41,549 41,549

Reserves and surplus B 2,175,791 2,175,791

TOTAL 2,217,340 2,217,340


Investments C 2,215,146 2,215,146

Current Assets,

Loans and Advances

Cash and Bank balances D 1,630 1,662

Other Current assets E 7 6

Loans and Advances F 39 71

1,676 1,739

Less : Current Liabilites

and Provisions

Liabilties G 127 120

NET CURRENT ASSETS 1,549 1,619


(to the extent not written

off or adjusted) H 114 142

Profit and Loss Account 531 433

TOTAL 2,217,340 2,217,340

Profit and Loss Account


(Rs. in ’000s)

Schedule 2005 2004

INCOME

Interest — Bank (Gross) 85 97

(Tax Deducted at Source

Rs. 18; Previous Year: Rs. 20)

— Tax refunds 4 2

89 99

EXPENDITURE

Administrative Expenses I 184 174

184 174

Loss Before Tax 95 75

Taxation -Prior Year 3 —

Loss After Tax 98 75

Balance being loss brought

forward 433 358

Balance carried forward to

Balance Sheet 531 433

Earning per share

Basic (0.02) (0.02)


NOTES J


152

(Rs. in ’000s)

2005 2004

SCHEDULE A

Share Capital

Authorised

5,000,000 (2004 : 5,000,000)

Equity Shares of Rs. 10 each 50,000 50,000

50,000 50,000

Issued, Subscribed and

Paid-up Capital

4,154,902 (2004 : 4,154,902)

Equity Shares of Rs. 10, each fully paid-up 41,549 41,549

41,549 41,549

Note:

Of above, 2,119,002 (2004 : 2,119,002) Equity Shares of Rs. 10 each are

held by Hinduja TMT Limited, the Holding Company.

SCHEDULE B

Reserves And Surplus

Securities Premium Account

Balance as per last Balance sheet 2,175,791 2,175,791

2,175,791 2,175,791

SCHEDULE C

Investments - Long term at cost,

Non-trade-unquoted

4,153,000 (2004:4,153,000) 2,215,146 2,215,146

Equity Shares of Rs. 10 each,

fully paid-up in IndusInd Media

and Communications Limited 2,215,146 2,215,146

SCHEDULE D

Cash And Bank Balances

Cash on hand 1 1

Balances with scheduled bank in:

- Current account 129 111

- Deposit account 1,500 1,550

1,630 1,662

SCHEDULE E

Other Current Assets

Interest Accrued on fixed deposits 7 6

7 6

SCHEDULE F

Loans and Advances - Unsecured

Taxation 39 71

39 71

SCHEDULE G

Liabilities

Sundry Creditors -

(small scale undertakings) — —

Others 127 120

127 120

SCHEDULE H


(To the extent not

written off or adjusted)

Preliminary Expenses 103 129

Share Issue Expenses 11 13

114 142

SCHEDULE I

Administrative Expenses

Corporate Service Charges 66 65

Legal & Professional Chgs. 30 21

Rates & taxes 1 2

Auditors’ Remuneration:

– Audit Fee 55 54

- Out of Pocket Expenses — 2

Filing Fees 3 2

Preliminary expenses written-off 26 26

Share issue expenses written-off 2 2

Miscellaneous Expenses 1 —

184 174


Schedules annexed to and forming part of accounts for the year ended March 31, 2005

SCHEDULE J

NOTES

All rupee figures are in thousands unless stated otherwise.

1. SIGNIFICANT ACCOUNTING POLICIES

Financial statements

The financial statements are prepared under the historical cost

convention in accordance with applicable accounting standards

and provisions of the Companies Act, 1956.

Investment

Investments are stated at cost. Provision is made for diminution

in value, if otherwise than temporary.

Income

Interest on fixed deposits is accounted on accrual basis.


Preliminary Expenses and Share Issue Expenses are amortised

over a period of ten years.

Taxation

Provision for current taxes, if any, is made as per the applicable

Finance Act and provisions of Income Tax Act 1961.

Deferred tax is recognized subject to the consideration of

prudence, on timing differences, being the difference between

taxable income and accounting income that originate in one period

and are capable of reversals in one or more subsequent periods.

Deferred tax assets are not recognized on carry forward of

losses unless there is virtual certainty that sufficient future taxable

income will be available against which such deferred taxes can be

realized.

2. NOTES

1. The Company has reckoned its investment in “Indusind Media

& Communications Limited” as a strategic investment,

accordingly no provision for diminution of the value in

investment is considered necessary.

2. No provision for income tax is made in view of the loss for

the year and unabsorbed carry forward losses. The Company

has not recognised deffered tax asset in view of uncertainty

of profits on account of continuing losses for the past few

years.

3. Earning per share (EPS):

2005 2004

Loss after Tax (Rs. in ‘000s) (98) (75)

Weighted Average Number of

Equity Shares outstanding

during the period 4,154,902 4,154,902

Loss Per Equity Share (Rs.) (0.02) (0.02)

4. Related party disclosures:

(a) List of related parties and relationship

Party Relationship

Hinduja TMT Limited Holding Company

(b) Related Party transactions during the year

Transactions Amount (Rs.)

Corporate Service Charges 0.66

0.65

Professional Fee 0.25

0.00

(c) Balances as at year end

Amount (Rs.)

Payable 24

15

a) Figures in Italics pertain to previous year.

5. Previous year’s figures have been regrouped / rearranged,

wherever considered necessary.

Schedules A to J form part of the accounts for the year ended March 31, 2005.

Signatories to the accounts and schedules ‘A’ to ‘J’

In terms of our report on even date For and on behalf of the Board



R Raghavan K. Thiagarajan S. Palakodeti Hasmukh Shah

Partner Director Director Company Secretary

Membership No. 9483

Mumbai, 28th June, 2005 Mumbai, 28th June, 2005


153


Registration No. 1 0 6 6 7 6 State Code 1 1




N I L N I L


N I L N I L



2 2 1 7 3 4 0 2 2 1 7 3 4 0

Sources of Funds


4 1 5 4 9 2 1 7 5 7 9 1


N I L N I L



N I L 2 2 1 5 1 4 6


1 5 4 9 1 1 4

Accumulated Losses

5 3 1



0 8 5 1 8 4


+ - Profit/Loss Before Tax + - Profit/Loss After Tax

� 9 5 � 9 8



� 0 . 0 2 N I L


Item Code No. (ITC Code) Product Description

N O T I N V E S T M E N T

A P P L I C A B L E C O M P A N Y


K. Thiagarajan S. Palakodeti Hasmukh Shah

Director Director Company Secretary

Mumbai

Dated : 28th June 2005


Additional information pursuant to Part IV of Schedule VI to the Accounts

Balance Sheet Abstract and Company’s General Business Profile:


154

Directors’ Report

To the Members,

Your Directors have pleasure in presenting the Tenth Annual Report

together with Audited Statement of Accounts of the Company for the

Financial Year ended 31st

March, 2005.

(in Rs. 000s)

Year Ended 31st March 2005 2004

Income from Operations

- Cable Television Transmission 830,406 758,886

Operating Expenditure

- Cable Television Operations 798,598 837,087

- Other operating expenses 377,038 126,900

Total Operating Expenses 1,175,636 963,987

Operating Profit / (loss) (345,230) (205,101)

Add: Miscellaneous Income 58,310 298,338

Less : Interest 2,150 749


Impairment Loss 287,144 —

Deferred and share issue expenses 317 1,268

Tax 25 20

Profit / (Loss) for the year (650,841) (41,413)

Financial Review

Cable television transmission income grew by over 9.4%, to Rs.830 million

in the current year from Rs.759 million in the previous year. This was

driven by the increase in the subscription fees, which grew by 10% to

Rs.689 million and channel placement charges which increased by 71%.

While Cable Television Operational expenditure decreased by around 5 %,

total operating expenses increased by 22% from Rs.964 million in the

previous year to Rs.1176 million in the year under review. The increase in

expenses is on account of maintenance costs on Digital Headend and CAS

Systems, shortfall in recovery of service tax and provision for bad debts.

The financial position of your Company continues to remain adverse as

the pay channel and other operating costs are not being recovered in full.

Your Company started operations in 1995, based on co-axial fibre and

550 MHz amplifiers. Over the years, fibre based transmission of signals

has developed and your Company has deployed Hybrid Fibre Co-axial

System in its cities of operations. Keeping in view Accounting Standard

(AS) 28 issued by the Institute of Chartered Accountants of India (ICAI),

your Company has reviewed the returns from certain analog headends,

network equipment and other equipment. Keeping in view the assets

which have become obsolete/redundant, an amount of Rs.287 million

has been provided as impairment loss.

After taking into account the impairment loss, depreciation and other

expenses, the loss for the year ended 31/03/05 stands at Rs.651 million

As on 31st

March, 2005, your Company had cash and cash equivalents of

around Rs.257.1 million.


The Company continued to consolidate its operations during the current

year. Scope for increase in rates is limited in view of the TRAI tariff

orders of January 2004 and October 2004. Efforts to increase declarations

from operators met with limited success.

Additional investments were made during the year in upgrading the

network by deploying fibre optic cables for providing quality transmission

and value added services like internet over cable. The Company has also

started leasing excess dark fibre capacity to telecom companies and

ISPs and is taking steps to build this as a separate business activity.

Pending implementation of Conditional Access System (CAS), your

Company has been promoting Digital Services under the brand name

“INDIGITAL” using Digital Set Top Boxes.

The benefits offered by Digital Set Top Boxes are as under :

� DVD quality pictures and Stereophonic sound

� Possible to view more than 300 channels with digital quality

� All channels with same consistent quality viewing, plus extra Regional

and International channels

� Language selection feature in Select Dual Audio feed channels

� Parental Child Lock for Channels

� Weekly Channels Program Guide for more than 80 Channels and

film/programme brief for more than 20 channels

Your Company is now delivering over 165 digital television and FM

radio channels through the Set-Top-Boxes in Mumbai and Delhi.

Equity Investment by Kudelski S.A.

In 2003, your Company entered into a Heads of Agreement with Kudelski

SA, Switzerland for issuing around 3% of its equity for approximately US

$ 12 million.

FIPB approvals for Kudelski’s equity investment was received in January

2004 and May 2005 and the Company is in the process of completing the

required formalities for issue of shares.

Industry Structure, Market Shares and Developments

As per the Price Waterhouse Coopers’ FICCI Report, “The Indian

Entertainment Industry – An unfolding opportunity” March 2005, India is

the third largest television market in the world. Of the total 200 million

homes in the country, around 65% i.e. around 119 million homes have

television sets. Out of the 119 million TV homes, only 42% i.e. around 50

million homes have cable television. The low penetration of cable in TV

homes show huge potential for future growth.

As per the above Report, the Indian Television industry has been estimated

at Rs.129 billion of which subscription revenues account for 58%,

advertising 37% and television software 5%. The television industry is

expected to grow at 18% p.a. over the next 5 years.

Addressability

The Telecom Regulatory Authority of India (TRAI), through its report

dated 1st

October 2004 has recommended 3 models for introduction of

addressability in the country. This report is under consideration of the

Ministry of Information & Broadcasting. TRAI has noted that CAS

implementation in Chennai has left TV viewers in Chennai satisfied.

The MSO Alliance, (of which your Company is a member) has filed a

petition in the Delhi High Court challenging the February 2004 notification

of the Government of India for keeping CAS in abeyance and the matter

is scheduled for final hearing on 11th July 2005.

Trai Interconnect Order

TRAI, through its Order dated 8/10/2004 mandates the broadcasters/

MSOs to provide signals on a non discriminatory basis. It has made it

mandatory for broadcasters/MSOs to give a stipulated notice period (30

days for non-payment of outstandings and 2 days for piracy/copyright

violation) prior to switch off of signals to MSOs/Operators.

Pricing of Channels

TRAI, through its order of 1st

October 2004, has permitted channels which

have turned pay after 26/12/2003 or new pay channels after 26/12/

2003 to be charged separately. TRAI, through its order of December

2004 has permitted a 7% increase in the tariffs frozen at December 2003

level and the revised tariffs would be effective from 1st

January 2005.

The Tariff Order of 1/10/2004 does not provide for situations where

channels have moved from one bouquet to another (e.g. HBO, Ten Sports)

and the MSO Alliance has sought intervention of TRAI for amendment of

its Tariff Orders.

Digitalisation of Cable

In January 2005, TRAI has issued its consultation paper on Digitalisation

of Cable for introduction of digital cable in a phased manner. Your

Company has submitted its views to TRAI on the consultative paper.

TRAI’s final recommendations are expected by July 2005.

Increase in the Number of Channels

The year 2004-05 saw several new channels being launched across

different genres. Currently, there are over 300 channels being beamed

over India. With the biggest analog headend in Mumbai, your Company

can transmit a maximum of 107 channels. In view of severe shortage of

channel capacity, it is a tremendous challenge to select channels which

would meet the requirements of a diverse television audience.

In the long run, it would be the introduction of addressability and digital

cable which would give the customer the right to choose channels as

well as overcome the infrastructural bottleneck of limited bandwidth.

Opportunities and Threats

During 2004-05, Doordarshan has launched its Free-to-Air DTH service

called DD Direct. The Government has issued Letters of Intent to Tata-

Star joint venture and Sun Group. Taking into account the existing Zee

IndusInd Media & Communications Ltd.


155

DTH service, the total number of DTH operators in India is expected to

touch four by March 2006.

While DTH services and new technologies such as IPTV pose challenges

for the cable television industry, your Company has clear plans to meet

these challenges by offering a bouquet of digital choices with matching

quality and content and is moving ahead on PPV. It may be noted that,

internationally, DTH services and cable television services have been

found to co-exist.

Current Trends and Future Outlook

As mentioned earlier, your Company has launched Digital Cable Services.

Your Company believes that digital cable services are well positioned

to meet the challenges of DTH and IPTV services.

It may be noted that all new services such as DTH and IPTV required

usage of addressability. Your Company has already installed digital

addressability and has started deploying Set Top Boxes and has the

completed digital back-end. Thus, your Company is well positioned to

meet the challenges of DTH and IPTV.

Risk Management

Rising costs on account of periodic pay channel rates revision, inability

to raise tariffs to customers and franchisee operators continue to

adversely affect the financials of your Company. Failure to renew the

contract with a broadcaster on mutually acceptable terms may, at

times, lead to disruption in the transmission of signals. While your

Company adopts a proactive approach and takes all reasonable steps to

ensure continuity of service to its customers, the risk of signal disruption

due to confrontation with the broadcaster continues to pose a challenge

to the Company. Implementation of CAS would negate the risks. Successful

and timely implementation of CAS would not only benefit subscribers

but also your Company in this regard.

Human Resources

Till 31st

March 2005, your Company was procuring services from a

group company, Tele Video Communications India Ltd. (TVCIL). With a

view to simplifying the overall structure, increasing transparency and

reducing overall costs, the employees of TVCIL have been taken on the

rolls of your Company, w.e.f. 1st

April 2005.

Your Company has conducted training programmes related to quality

improvement, cost control, performance management, job related

areas to improve the overall skill sets.

Internal Control Systems

Your Company has a Committee of Directors, which meets periodically

to review the performance of the Company and discuss critical issues

influencing the business of your Company. Minutes of various meetings

of the Committee of Directors are placed before the Board of Directors

of your Company.

The operations of each branch and headend are reviewed by Internal

Audit to ensure compliance with procedures and policies laid by the

management of the Company.

The minutes of the Audit Committee are placed before the Board of

Directors of your Company. Your Company is taking necessary steps to

further strengthen and streamline its internal audit systems.

Shareholding

There has been no change in the shareholding pattern of your Company

during the financial year 2004-2005.

Fixed Deposit

During the year under review your Company has not accepted any

Fixed Deposits.

Directors / Management

Major Gen C . L. Anand (Retd), Managing Director, has retired from the

services of the Company on 31st

March 2005.

With effect from 12/04/2005, Mr. Srinivas Palakodeti has been appointed

as Chief Operating Officer of your Company. He will be assisted by a

Management Committee comprising Brig. T.M. Sridharan (Retd.), Mr.

Ashok Mansukhani, Mr. Manoj Motwani, Brig. R. Deshpande (Retd.) and

Mr. Shankar Devarajan.

With effect from 6/5/2005, Mr. Ashok Mansukhani has been appointed

as Executive Director – Corporate Services, of your Company.

During the year, Mr. Ram T. Hingorani (former Vice Chairman & Whole

Time Director) and Mr. K.V. Seshasayee, resigned from the Board of

Directors of your Company.

The Board wishes to place on record its sincere appreciation of the

valuable services rendered by Major Gen. Anand (Retd.), Mr. Ram T.

Hingorani and Mr. K.V. Seshasayee.

Mr.Sanjay Asher and Mr. Sanjeev R. Pandit, Directors of the Company are

liable to retire by rotation at the ensuing Annual General Meeting of the

Company and being eligible, have offered themselves for re-appointment.

Mr. Ravi Mansukhani, Brig. T.M. Sridharan (Retd.) and Mr. Srinivas

Palakodeti have been appointed as Directors of the Company w.e.f. 27/

6/2005. They shall hold office upto date of the ensuing Annual General

Meeting. The Company has received notices in writing under Section

257 of the Companies Act 1956 from shareholders proposing their

candidature for the office of Directors of the Company. Mr. Srinivas

Palakodeti was appointed as Manager of the Company w.e.f. 27/6/

2005.


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

based on the information and documents made available to them, confirm

that:

i) in the preparation of the annual accounts for the year ended 31st

March 2005, the applicable accounting standards have been followed.

There are no material departures in the adoption and application

of the accounting standards;


consistently and made judgments and estimates that are reasonable

and prudent so as to give a true and fair view of the state of affairs

of your Company at the end of the financial year and of the loss of

your Company for that period;



records in accordance with the provisions of the Companies Act,

1956 for safeguarding the assets of your Company and for preventing

and detecting fraud and other irregularities;


Auditors and Auditors’ Report

M/s. Deloitte Haskins & Sells, Chartered Accountants, Auditors of the

Company, retire at the conclusion of the ensuing Annual General Meeting

of the Company and are eligible for re-appointment.

Conservation of Energy, Research & Development & Technology

Absorption

The prescribed particulars Under Section 217 (1) (e) of the Companies

Act, 1956 relating to Conservation of Energy, Research and Development,

Technology Absorption and Foreign Exchange earnings and outgo are

furnished in Annexure - “A” to this report.

Employees

Information as per section 217 (2A) of the Companies Act, 1956 read

with the Companies (Particulars of Employees) Rules, 1975 forms part

of this report and is furnished as Annexure - “B”.

Acknowledgements

The Cable Television business is highly competitive and your Company

has successfully met with the challenges posed by its competitors. The

Directors wish to place on record the vigorous efforts and unstinted

support of the Company’s management team and employees. Your

Directors also place on record their sincere appreciation to all business

partners and shareholders for their sustained support and co-operation.


Place :Mumbai A. K. Das

Date : 27th

June 2005 Chairman



156

Auditors’ Report

To The Shareholders of IndusInd Media & Communications

Limited

1. We have audited the attached balance sheet of IndusInd Media &

Communications Limited as at March 31, 2005, the profit and loss

account and the cash flow statement of the company for the year

ended on that date annexed thereto. These financial statements

are the responsibility of the company’s management. Our

responsibility is to express an opinion on these financial statements

based on our audit.


generally accepted in India. Those standards require that we plan






significant estimates made by the management, as well as



3. As required by the Companies [Auditor’s Report] Order 2003,

issued by the Central Government in terms of Section 227 (4A) of

the Companies Act, 1956, we give in the annexure, a statement on

the matters specified in paragraphs 4 and 5 of the said Order to

the extent applicable and based on such checks we considered

appropriate.

4. Further to our comments in the annexure referred to above, we

report that : -



the purposes of our audit.;

b) In our opinion, proper books of account as required by law

have been kept by the company so far as appears from our

examination of the books.;

c) The balance sheet, profit and loss account and cash flow

statement dealt with by this report are in agreement with

the books of account;

d) In our opinion, the balance sheet, profit and loss account and

cash flow statement dealt with by this report are in compliance

with the accounting standards referred to in sub- section (3C)

of section 211 of the Companies Act, 1956.

e) On the basis of written representations received from

directors, and taken on record by the board of directors, we

report that none of the directors is disqualified as on March

31, 2005 from being appointed as director in terms of clause

(g) of sub-section (1) of section 274 of the Companies Act, 1956;

f) In our opinion and to the best of information and according to

the explanations given to us, the accounts read with notes

give the information required by the Companies Act, 1956 in

the manner so required and give a true and fair view in


in India;

(i) in the case of the balance sheet, of the state of affairs of

the company as at March 31, 2005,

(ii) in the case of the profit and loss account, of the loss for

the year ended on that date

and

(iii) in the case of cash flow statement, of the cash flows of the

company for the year ended as on that date



R. Raghavan

Place: Mumbai Partner


Information as per Section 217 (1) (e) read with the Companies

(Disclosure of Particulars in the Report of the Board of Directors)

Rules, 1988 and forming part of the Director’s Report for the year

ended 31st

March, 2005.

Conservation of Energy, Research & Development & Technology

Absorption

Considering the nature of the business of your Company, there are no

particulars to be disclosed relating to the year under review.

Annexure ‘A’ To The Director’s Report

Foreign Exchange Earnings & Outgo

(Rs. in’000s)

2004-05 2003-04

A) Earnings in Foreign Exchange

– Reimbursement of expenses Nil 1410

– Compliance Fees 544 Nil

B) Expenditure in Foreign Exchange

- C.I.F. Value of Imports 1342 730923

– Travelling 9 535

– Repairs & Maintenance of Plant 5166 Nil

& Machinery


Place : Mumbai A. K. Das

Date : 27th June, 2005 Chairman


Directors’ Report (Contd.)

Annexure “B” To The Directors’ Report

Particulars of employees pursuant to section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees)

Rules,1975 and forming part of the Directors’ Report for the year ended March 31,2005

Employed part of the financial year and in receipt of remuneration exceeding Rs. 2.00 lacs per month.

Sr. Name of Employee A g e Designation Gross Qualification Date of Experience Last Designation

No. Remuneration joining in years Employment

(Rs)

1 Mr. Ram T. Hingorani 69 Vice Chairman & 27,00,103/- M.Com., 4/1/1999 46 Cable Video Chief Executive

Whole-time Director- M.B.A., India limited Officer

Strategic Planning Finance

2 Maj. Gen. C.L. Anand 65 Managing Director 29,98,896/- B.Tech 19/6/2001 36 Reminiscent Chief Executive

(Retd.) (Elec. & Telecom India Officer

Eng.) and EDPS Television

(Elec. Data Limited

Processing Systems)

M.Tech (Managt.

& Systems)

Notes:

1) Remuneration includes Salary,Allowance,Contribution to Gratuity

and taxable value of perquisities.

2) The above appointments were contractual.

3) The above employees were not related to any of the Directors.


Place : Mumbai A. K. Das

Date : 27th June, 2005 Chairman


157

(Referred to in para 3 of our report)

In our opinion and according to the information and explanation given

to us, the nature of the company’s business/activities during the year

are such that clauses (i) (c), (iii) (e) (f) (g), (vi), (viii), (xi), (xii), (xiii),

(xiv), (xv), (xvi), (xviii), (xix), (xx) of Companies (Auditor’s report )

order , 2003 are not applicable to the company and we report that:

(i) In respect of its fixed assets:

(a) The company has maintained proper records showing full

particulars, including quantitative details and situation of

fixed assets.

(b) The fixed assets have been physically verified by the

management during the year and the reconciliation with the

records is in progress and adjustments for the discrepancy, if

any, would be made on the completion of reconciliation, which

in the opinion of the management may not be material.

(ii) In respect of its inventories:

(a) Inventories were physically verified during the year by the

management at reasonable intervals.

(b) The procedures of physical verification of inventories followed

by the management are reasonable and adequate in relation

to the size of the company and the nature of its business.

(c) The company has maintained proper records of its inventories

and no material discrepancies were noticed on physical

verification.

(iii) In respect of unsecured loans granted by the company to companies,

firms or other parties covered in the register maintained under

section 301 of the Companies Act 1956, we state:

a. The Company has not granted any loans during the year. At

the year-end, the outstanding loans granted aggregated to

Rs.122,200 (‘000) (number of parties-2).

b. The rate of interest and other terms and conditions of such

loans are, in our opinion, prima facie not prejudicial to the

interest of the company except in respect of interest free

loan granted to a party in previous years.

c. The receipt of principal amounts has been regular/ as per

stipulations, however receipt of interest has not been regular

and the company has written-off interest, due from a party,

relating to the previous year.

d. In respect of overdue amounts of over Rs.1 lakh remaining

outstanding at the year- end, as explained to us, management

has taken reasonable steps for recovery of the principal

amounts and interest.

(iv) There are adequate internal control procedures commensurate

with the size of the Company and the nature of its business for the

purchase of inventory and fixed assets and for the sale of goods

and services and we have not observed any continuing failure to

correct major weaknesses in such internal controls.

Schedule A

Statement of disputed statutory dues on account of pending appeals

Name of statute Year Nature of dues Demand (Rs. (‘000s) Forum

Gujarat Entertainment Tax, 1977 1996-97 Entertainment Tax 16,705 High court of Gujarat

Mumbai Entertainment Tax Act, 1923* 1999-00 Entertainment Tax 1,897 Revenue ministry

Mumbai Entertainment Tax Act, 1923 1998-99 Entertainment Tax 462 Revenue ministry

Customs Act, 1962 1995-96 Custom Duty 80,586 Customs, Excise &

Service Tax Appellate Tribunal

* Net of payment


Annexure to the Auditors’ Report

(v) In respect of contracts or arrangements entered in the register

maintained in pursuance of section 301 of the Companies Act 1956,

to the best of our knowledge and belief and according to the

information and explanations given to us:

a. The particulars of contracts or arrangements referred to in

Section 301 that needed to be entered into the register,

maintained under the said section have been so entered.

b. Where each of such transactions (excluding loans reported

under paragraph (iii) above) is exceeding Rs 5 lacs in value,

the transactions have been made at prices which are prima

facie reasonable having regard to the prevailing market prices

at the relevant time.

(vi) The company has an adequate internal audit system commensurate

with the size and the nature of its business.

(vii) In respect of statutory and other dues:

a. The company has been generally regular in depositing

undisputed statutory dues, including Provident Fund,

Employees’ State Insurance, Income Tax, Sales Tax, Wealth

Tax, Service Tax, Custom Duty, Excise Duty, cess and any

other statutory dues with the appropriate authorities during

the year.

b. Disputed dues aggregating to Rs. 99,650 (‘000) has not been

deposited with the respective statutory authorities

(schedule A).

(viii)The accumulated losses exceed 50% of the net worth as at the end

of the year. The Company has incurred cash losses during the

financial year. There were no cash losses in the immediately

preceding financial year.

(ix) On an overall examination of the balance sheet of the company,

funds raised on short-term basis have, prima facie, not been used

during the year for long-term investment.

(x) To the best of our knowledge and belief and according to the

information and explanations given to us, no fraud on or by the

company was noticed or reported during the year.



R. Raghavan

Place: Mumbai Partner



158

(Rs.in ’000s)

Schedule 2005 2004

SOURCES OF FUNDS

Shareholders Funds

Share capital A 1,907,978 1,907,978

Reserves and surplus B 1,134,429 1,134,429

TOTAL 3,042,407 3,042,407


Fixed Assets C

Gross block 738,205 1,286,771

Less : deprecation 171,434 752,161

Net block 566,771 534,610

Capital work in progress 13,476 456,452

580,247 991,062

Investments D 7,308 7,088

Current Assets, Loans and Advances

Inventories E 26,029 42,258

Sundry debtors F 207,828 224,938

Cash and bank balances G 155,539 126,047

Other current assets H 15,243 19,733

Loans and advances I 313,299 625,444

717,938 1,038,420

Less : CURRENT LIABILITIES AND PROVISIONS

Liabilities J 343,312 423,865

Net Current Assets 374,626 614,555

Miscellaneous Expenditure K — 317

( to the extent not written off or adjusted )

Profit and Loss Account 2,080,226 1,429,385

TOTAL 3,042,407 3,042,407

Notes S

In terms of our report of even date For and on behalf of the Board of Directors

For Deloitte Haskins & Sells A.K. Das Ashok Mansukhani

Chartered Accountants Chairman Director

R Raghavan S. Palakodeti Viresh Dhaibar

Partner Director Company Secretary

Membership No. 9483


Date : 27th June, 2005 Date : 27th June, 2005


Balance Sheet As At March 31, 2005


159

(Rs.in ’000s)

Schedule 2005 2004

INCOME

Cable television transmission L 830,406 758,886

Miscellaneous M 58,310 298,338

888,716 1,057,224

EXPENDITURE

Cable television operations N 798,598 837,087

Employees remuneration and benefits O 36,234 31,786

Others P 340,804 95,114

Financial Q 2,150 749

1,177,786 964,736

Profit / (loss) before depreciation, impairment

loss, deferred & share issue expenses and tax (289,070) 92,488



Deferred and share issue expenses R 317 1,268

Loss after depreciation, impairment loss, 650,816 41,393

deferred & share issue expenses and before tax

Taxation 25 20

Loss after tax 650,841 41,413

Loss brought forward 1,429,385 1,387,972

Loss carried forward 2,080,226 1,429,385

Basic Earning per share of Rs. 10 each — ( in Rupees) (13.09) (2.42)

Diluted Earning per share of Rs. 10 each — ( in Rupees) (10.24) (0.65)

Notes S


Profit And Loss Account for the year ended March 31, 2005






Membership No. 9483




160

Schedules Annexed to and forming part of Accounts for the year ended March 31, 2005

(Rs.in ’000s)

2005 2004

A Share Capital

Authorised

59,500 (2004:59,500)

Equity share of Rs 10 each 595,000 595,000

5,500(2004:5,500)

Class I 12% Cumulative optionally

convertible preference share of

Rs 10 each 55,000 55,000

75,000 (2004:75000)

Class II 12% Cumulative redeemable

non convertible preference share of

Rs 10 each 750,000 750,000

1,400,000 1,400,000

Issued, subscribed and paid-up

56,534 (2004:56,534)

Equity share of Rs 10 each

fully paid up 565,340 565,340

5,500 (2004:5,500)

Class I 12% Cumulative optionally

convertible preference share of

Rs.10 each fully paid up 55,000 55,000

(Option exercised awating approval

for conversion to equity -

refer Schedule S (Note 2 (b)))

74,150 (2004:74,150)12% Cumulative

redeemable non convertible

preference shares of Rs 10 each

fully paid up 741,500 741,500

1,361,840 1,361,840

Share application money

Share application money pending

allotment 546,138 546,138

1,907,978 1,907,978

C Fixed Assets

(Rs. in ’000s)

Gross Block AT COST Depreciation Net Block AS AT

Particulars As at Impaired Addi- Deduc- As at Upto Impaired For the Deduc- Upto

1.4.2004 Assets tions tions 31.3.2005 1.4.2004 Assets year tions 31.3.2005 31.3.2005 31.3.2004

Goodwill 34,876 — — — 34,876 28,862 — 3,492 — 32,354 2,522 6,014

Building * 384 — — — 384 48 — 13 — 61 323 336

Machinery and

equipment 1,197,344 906,953 393,642 16,060 667,973 699,810 633,873 68,165 11,367 122,735 545,238 497,534

Furniture and

fixtures 30,143 21,046 4,350 112 13,335 7,905 7,168 841 24 1,554 11,781 22,238

EDP equipment 16,469 2,192 154 2 14,429 12,026 2,006 1,166 2 11,184 3,245 4,443

Vehicles 7,555 — 551 898 7,208 3,510 — 608 572 3,546 3,662 4,045

TOTAL 1,286,771 930,191 398,697 17,072 738,205 752,161 643,047 74,285 11,965 171,434 566,771 534,610

Previous year 1,250,790 — 37,582 1,601 1,286,771 620,456 — 132,613 911 752,158 534,613 630,332

Capital work in progress 13,476 456,452

* Building- Includes shares in co-operative society.


B Reserves and surplus

Securities premium account 1,134,429 2,067,760

Less : Applied towards approved

capital reduction — 933,331

1,134,429 1,134,429

(Rs.in ’000s)

2005 2004


161



(Rs.in 000’s)

2005 2004

D Investments—long term at cost

Trade—unquoted

2.4 (2004: 2.4)Equity shares of

Rs 100 each fully paid up of

U.S.N Networks Private Limited

includes 4 (2004: 4) equity share

held by nominees. 240 240

14.4 (2004: 14.4)10% Non convertible

redeemable preference share of

Rs 100 each fully paid up of U.S.N.

Networks Private Limited. 1,440 1,440

14.6 (2004: 14.6 )Equity share of

Rs 100/— each fully paid up of

United Mysore Network Pvt. Limited 4,985 4,985

Non—trade—unquoted

National Savings Certificate at

face value. 423 423

Add: acquired during the year

Rs. 615 (2004: Nil) 615 —

Less: matured during the year

Rs. 395 (2004: Nil) 395 —

643 423

(Lodged with Entertainment

Department as security deposit.

Investments are held in the joint

names of directors and officers

of the company)

Indira Vikas Patra [face value

Rs.Four Hundred

(2004:Rs. Four Hundred] — —

7,308 7,088

E Inventories

Network cables and equipments 26,029 42,258

26,029 42,258

F Sundry debtors—unsecured

Outstanding for more than 6 months

Considered — good 27,606 70,163

— doubtful 109,478 —

137,084 70,163

Less : provision 109,478 —

27,606 70,163

Others

— considered good 180,222 154,775

— doubtful 5,922 —

186,144 154,775

Less : provision 5,922 —

180,222 154,775

207,828 224,938

(Rs.in 000’s)

2005 2004

G Cash and bank balances

Cash on hand 1,064 280

Cheques on hand 6,506 8,168

Balances with scheduled banks in :

— Current account 16,514 5,691

— Deposit account 71,139 51,513

Balances with Non—scheduled banks

in ABN Amro Bank N.V., London. 60,316 60,395

(Maximum Balance during the year

Rs.60,395 (2004: 546,138)) — —

155,539 126,047

H Other current assets

Interest accrued on Inter—

corporate deposits 14,538 16,302

Interest accrued on investments 76 384

Interest accrued — others 629 3,047

15,243 19,733

I Loans and advances—unsecured

Loans — Inter—corporate deposits 122,200 446,950

Advances recoverable in cash or

in kind or for value to be

received considered :

good 186,755 173,970

doubtful 20,745 24,687

207,500 198,657

Less : provision 20,745 24,687

186,755 173,970

Taxation (net) 4,344 4,524

313,299 625,444

J Liabilities

Sundry creditors

: Due to small scale industries 24 224

: Due to others 217,031 310,433

217,055 310,657

Trade deposits 4,356 7,479

Advance from customers 9,606 3,522

Other liabilities 112,295 102,207

343,312 423,865

K Miscellaneous expenditure

(To the extent not written off

or adjusted)

Deferred revenue expenditure — 317

— 317


162

(Rs.in ’000s)

2005 2004

INCOME

L Cable television transmission

Subscription — Direct Subscribers 149,185 124,529

— Cable Operators 540,101 543,261

— Internet Subscribers 18,201 19,840

Advertisement 39,971 20,312

Channel Placement 80,530 47,063

Installation charges 2,418 3,881

830,406 758,886

M Miscellaneous

Interest — banks 3,028 6,718

— others 19,073 68,209

(Tax deducted at source

Rs. 482 (2004 : Rs. 1405)

Profit from sale of fixed assets (net) 1,460 —

Exchange difference (net) — 3,254

Provision for expenses / liabilities

written back 9,813 2,961

Provision for loans written back — 4,667

Provision for doubtful debts/advances

written back 3,043 203,061

Others 21,893 9,468

58,310 298,338

EXPENDITURE

N Cable television operations

Subscription — Pay channels 629,886 687,243

Less : Recovered 5,700 5,040

624,186 682,203

Consumables 8,832 11,609

Purchase of Set top Boxes — 585,557

Lease rental — duct 11,867 —

Cassette hiring 472 1,079

Rates & taxes 14,209 12,430

Power and fuel 10,242 10,664

Rent 7,755 8,842

Repairs and maintenance

— Building 4 48

— Plant and machinery 20,266 18,860

Freight 426 1,768

Hiring charges 396 2,960

Production expenses 190 1,094

Commission 55,693 47,317

Contract — services 44,060 44,424

798,598 1,428,855

Less : capitalised — 6,211

Less : Set—top boxes adjusted against

securities premium account — 585,557

798,598 837,087



(Rs.in ’000s)

2005 2004

O Employees remuneration and

benefits

Salaries and wages 30,824 34,700

Contribution to provident/other funds 2,578 2,612

Staff welfare 2,832 3,425

36,234 40,737

Less : capitalised — 8,951

36,234 31,786

P Others

Communication 7,258 9,913

Rent 7,886 11,703

Power and fuel 6,178 6,797

Repairs and maintenance — others 5,498 7,732

Insurance 3,815 1,078

Lease rental 1,360 291

Legal and professional fees 32,535 37,489

Printing and stationery 1,652 2,301

Traveling and conveyance 13,101 18,581

Auditors remuneration

— Audit fees 1,818 1,716

— Other services 990 956

— Out of pocket expenses 62 57

Loss on sales of fixed assets (net) — 296

Fixed Assets Scrapped 1,413 —

CWIP written off 96,032 —

Exchange difference (net) 477 —

General 25,349 42,224

Bad debts — 347,774

Sundry balances / Advances written off 19,981 876

Loans written off — 4,674

Provision for doubtful debts / advances 115,399 1,900

340,804 496,358

Less : Capitalised — 53,470

Less : Bad debts transferred to

securities premium account — 347,774

340,804 95,114

Q Financial charges

Interest — others 1,592 427

Bank charges 558 5,499

2,150 5,926

Less : Capitalised — 5,177

2,150 749

R Deferred and share issue expenses

Deferred revenue expenditure 317 1,268

317 1,268

S Notes

All rupee figures are in thousands unless stated otherwise.

1. Significant Accounting Policies

Basis of accounting

The financial statements are prepared under the historical cost

convention in accordance with generally accepted accounting

principles in India including applicable accounting standards and

provisions of the Companies Act, 1956.

Use of Estimates

The presentation of the financial statements requires estimates

and assumptions to be made that affect the reported amount of

assets and liabilities on the date of the financial statement and the

reported amount of revenues and expenses during the reporting

period. The difference between the actual results and the estimates

are recognized in the period in which the results are known /

materialized.

Fixed assets

Tangible and intangible fixed assets are recorded at cost including

expenses upto commissioning/ putting the assets into use.

Fixed assets are stated at cost less accumulated depreciation /

amortization. Cost comprises of the purchase price and any

attributable cost (including financing cost and expenditure during

construction). Costs incurred for acquisition of subscriber points

are capitalized as cable points (included in machinery and

equipment).

Impairment of Fixed Assets

The carrying values of fixed assets are evaluated for impairment, if

any. Impairment is charged to profit and loss account.

Depreciation

Depreciation is provided for fixed assets on straight-line method,

on month basis, at rates prescribed under Schedule XIV of the

Companies Act, 1956, except assets costing up to Rs.5000/- each

are not fully depreciated. Goodwill is amortized over a period of

ten years. Furniture & fixture at leased premises are depreciated

over the lease period.


163



Leases

In respect of operating lease, rentals and all other expenses are

treated as revenue expenditure.

Investment

Investments are stated at cost. Provision is made for diminution in

value, if otherwise than temporary.

Inventories

Inventory consisting of cables, head-end equipments and other

network items are valued at cost on first in first out basis.

Sundry debtors

Sundry debtors are reflected net of provision for doubtful debts.

Provision is made for doubtful debts based on ageing and specific

identification.

Income

Cable television transmission income by subscription, advertisement

and carriage fees are recognized on basis of bills raised on direct

subscribers or cable operators, actual telecast and agreements with

parties respectively.

Employees’ retirement benefits

The company has an approved gratuity scheme for employees. Liability

towards Gratuity is recognized on the basis of premium paid under

Group Gratuity policy with Life Insurance Corporation of India (LIC).

The adequacy of the accumulated fund balance with LIC is also

reconfirmed on the basis of independent actuarial valuation as at

the year-end and shortfall, if any, is provided in the accounts.

The company provides for leave encashment, not being in the nature

of retirement benefit, based on actuals.

Foreign currency transactions

Transactions in foreign currency are accounted at exchange rate

prevailing on the date of the transaction. Year-end balances of

current assets / liabilities are restated at closing / contracted rate.

Exchange difference on settlement / restatement is charged to Profit

& Loss account except in the case of imported fixed assets where it

is included as cost to the asset.

Taxation

Provision for current taxes, if any, is made as per the applicable

Finance Act and provisions of Income Tax Act, 1961 after taking into

consideration judicial pronouncements and opinion of the companies

tax advisors. Tax payments are setoff against provisions.

Provision for wealth tax, if any, is made as per the provisions of

Wealth Tax Act, 1957.

Deferred tax is recognized subject to the consideration of prudence,

on timing differences, being the difference between taxable income

and accounting income that originate in one period and are capable

of reversals in one or more subsequent periods. Deferred tax assets

are not recognized unless there is virtual certainty that sufficient

future taxable income will be available against which such deferred

taxes can be realized.

Borrowing cost

Interest on specific borrowing relating to qualifying assets is included

in the cost of the asset. Other borrowing cost is charged to profit

and loss account.

Deferred revenue expenditure

Expenses relating to channel network consolidation is recognized

as deferred revenue expenditure.

Pre-operative and preliminary expenses and deferred revenue

expenditure are written off over a period of five years.

Share issue expenses incurred prior to March 31, 2000 were written

off over five years and those subsequent to March 31, 2000 are

adjusted to securities premium account.

Contingent Liabilities

Contingent liabilities as estimated are appropriately disclosed.

2. Share capital

a. Of the issued, subscribed and paid up capital, 32,505,990 (2004:

32,505,990) equity share of Rs. 10 each are held by InNetwork

Entertainment Limited (formerly Aasia Industrial Technologies

Limited)- Holding company and the ultimate holding company

is Hinduja TMT Limited.

b. 12% Cumulative optionally convertible preference shares of

Rs. 10 each were convertible into equity shares, at par, at the

option of the holders on or before March 31, 2004. The

Preference Share holders have exercised their option for

conversion to equity shares but the same has not been complied

with pending requisite approval.

c. 12% Cumulative redeemable non-convertible preference shares

of Rs. 10 each are redeemable, at par, at the end of seventh

year from the date of allotment (July 10, 1998).

During 2003-04, the company has executed an agreement with

“Kudelski S.A” and “Nagravision S.A” Switzerland for

subscription to the share capital to the company and for

utilization of proceeds to acquire set-top boxes, smart cards

and certain capital equipments, which is part of the conditional

access system (CAS) to be implemented by the company. Pending

requisite approval, the monies received towards 15,34,400 no.

equity shares of Rs. 10 each at a premium of Rs. 345.93 has

been disclosed as share application money in the financial

statements.

The monies received has been retained in an “Escrow Account”

with “ABN Amro Bank” London UK, aggregating to Rs. 546,138

($ 11,914) out of which Rs. 477,840 ($ 10,545) have been utilized

to defray part of the cost of imported set-top boxes and CAS

equipments.

3. Contingent Liabilities:

(a) Claims against the company not acknowledged as debts.

- Entertainment tax. Rs. 17,167 (2004: Rs. 16,705)

- Telecasting of films,

copyright etc. Amount not ascertainable

- Others Rs. 585 (2004: Rs. 1,234)

(b) Guarantees/counter guarantees

given by the company to

- Custom authorities Rs.295,031 (2004: Rs.294,733)

- Banks for guarantees given Rs.39,233 (2004: Rs.37,233)

to various authorities

(c) Custom duty liability Rs.80,586 (2004 : Nil)

(d) Arrears of preference dividend

12 % optionally convertible Rs 13,200 (2004: Rs. 13,200)

12 % redeemable Rs.444,900 (2004: Rs.355,920)

non-convertible

4. Unexecuted contracts on capital account not provided for Rs. 1,506

(2004:16,009).

5. In conformity with Accounting Standard 28 (Impairment of Assets)

issued by the Institute of Chartered Accountants of India, the

company has recognized impairment of identified Plant & Machinery,

Furniture& Fixtures and EDP equipment as at April 1, 2004, amounting

to Rs.273,080, Rs. 13,878 and Rs. 186 respectively by charge to

Profit and loss account.

6. Capital Work-in-progress (CWIP) written off during the year pertains

to developmental expenses aggregating to Rs. 96,032 on account of

uncertainty of certain projects to which they relate.

7. The Company has reckoned its investments in USN Network Private

Limited and United Mysore Network Private Limited as strategic

investments, accordingly no provision for diminution of the value in

investments is considered necessary.

8. Names of small-scale industrial undertakings, outstanding for more

than thirty days: Modern Communication & Broadcast Systems: Rs.

24 (2004: Rs. 224).

9. Subscription Income is net of discount Rs. 8,500 (2004: Rs. 25,722).

10. Exchange difference adjusted to the carrying cost of fixed assets

amount to Rs.334 (2004: Rs.6,446).

11. No provision for income tax is made in view of the loss for the year

and unabsorbed carry-forward losses. The company has not

recognized deferred tax asset in view of uncertainty of profits on

account of continuing losses for the past few years. Taxation for the

year represents wealth tax Rs. 25 (2004: Rs. 20).


164



16. The Company operates in a single business segment namely Cable Television Transmission. The company caters only to the domestic market

where there are no differing risks and returns and there are no reportable geographical segments.

17. Related party disclosures

(a) List or related parties and relationships


A1 Aasia Corporation Associate entities

A2 Aasia Management & Consultancy Limited Associate entities

A3 Aasia Properties Development Limited Associate entities

B InNetwork Entertainment Limited Holding Company

C Hinduja TMT Limited Ultimate Holding Company

D1 In2cable (India) Limited. Fellow Subsidiary

D2 Tele Video Communications India Limited Fellow Subsidiary

E IndusInd Cable Television (Bombay) Limited Subsidiary

F1 United Mysore Network Private Limited Enterprises in which company has significant influence.

F2 USN Network Private Limited Enterprises in which company has significant influence.

G1 R. T. Hingorani Key management personnel

G2 Maj. Gen. C.L. Anand Key management personnel

(b) Related Party transactions during the year

(Categories A to G relate to details given in the above paragraph) (Rupees)

Transactions Categories

A1 A2 A3 B C D1 D2 E F1 F2 G1 G2 Total

Interest Income 18,457 — — 491 73 19,021

60,130 2,842 195 349 313 63,829

Channel Placement 6,612 6,612

income 4,720 4,720

Internet - subscription 17,850 17,850

income 19,840 19,840

Advertisement income — —

68 68

Local connectivity 275 275

charges received — —

Technical fees received —

—

Sbscription Income 649 376 1,025

639 — 639

Internet - sale of modem —

—

12. a. Loans and advances include amounts due from companies under

the same management:

Name of Company Balance Maximum

outstanding outstanding

2005 2004 2005 2004

Rs. Rs. Rs. Rs.

Tele Video Communications 6,527 5,634 13,840 11,582

India Limited

b. Sundry Debtors include amounts due from companies under

same management:

Name of Company Balance Maximum

outstanding outstanding

2005 2004 2005 2004

Rs. Rs. Rs. Rs.

In2cable India Limited 15,643 9,926 15,643 12,860

13. Payments made to or provided for whole-time directors

2005 2004

(Rupees) (Rupees)

Salaries 2,890 2,285

Perquisites 1,459 443

Gratuity 1,350 98

Total 5,699 2,826

14. CIF Value of Imports

-Revenue Nil 561,282

-Capital 1,342 169,641

15. a. Expenditure in foreign currency

Travelling 9 535

Repairs & Maintenance –

Plant & Machinery 5,166 Nil

b. Earnings in foreign currency

Others – Reimbursement of expenses Nil 1,410

Compliance Fees 544 Nil


165





Expense Reimb. 38 38

Received. — —

Hiring charges paid 1,102 168 1,270

1,102 933 2,035

Royalty Headend 305 305

Equipment — —

Rent paid 1,440 4,436 5,876

3,210 7,916 11,126

Infrastructure charges (839) (573) (270) 448 (1,233)

paid/(received) (1,911) (83) (268) — (2,262)

Subscription Cable Master 12,000 12,000

12,000 12,000

Internet charges 801 801

1,361 1,361

Purchase of modems 131 131

53 53

CAS expenses — — —

88 28,333 28,421

PLATCO project 553 553

1,524 1,524

Expense Reimb. Paid 5 26 31

3 — 3

Payment for man 110 117 33,289 33,517

power supply 314 — 33,108 33,422

Professional fees — 14,362 (1,244) 13,117

paid/(Recd.) 1,033 16,375 — 17,408

Managerial 2,700 2,999 5,699

remuneration 2,728 — 2,728

Commission paid — —

1,840 1,840

Write (Off) /Back — —

of amounts due (876) (876)

Interest Receivable 13,461 13,461

Written Off — —

Intercorporate — —

Deposit Given 34,000 34,000

Intercorporate Deposit 322,500 1,500 — 750 324,750

Received Back

474,500 149,350 — 2,350 — 626,200

(c) Balances as at year-end

Categories


Receivables net 5,191 223 15,643 7,748 3,784 2,014 34,604

of payables 2,517 — 9,926 4,585 3,293 1,496 21,817

Rent Deposit 97,500 97,500

Given 97,500 97,500

Payables net 1,837 2,172 12,460 — 16,469

of receivables 735 1,031 16,710 3,219 21,695

Interest receivable 11,695 2,842 14,537

On ICD 13,461 2,842 16,303

Inter Corporate Deposits 112,000 10,200 — 122,200

434,500 11,700 750 446,950

Investments 1,680 4,985 6,665

1,680 4,985 6,665

a. Figures in Italics pertain to previous year

b. Previous Years figures are regrouped wherever necessary


166








Membership No. 9483



18. Earnings per share (EPS):

2005 2004

(i) Loss for the year

650,841 41,413

Add: Preference dividend 88,980 95,580

Total loss (Rupees) 739,821 136,993

(ii) Nominal value of ordinary shares Rs.10 Rs.10

(iii) Weighted average number of ordinary shares for Basic EPS 56,534,000 56,534,000

(iv) Weighted average number of ordinary shares for Diluted EPS 63,568,400 63,568,400

(v) Basic earnings per ordinary shares (Rs. 13.09) (Rs. 2.42)

(vi) Diluted earnings per ordinary shares (Rs. 10.24) (Rs. 0.65)

Diluted EPS is disclosed though it is anti-dilutive

19. Previous years figures have been regrouped and rearranged, wherever necessary for comparative purposes.

Schedules ‘A’ to ‘S’ form part of accounts for the year ended March 31, 2005.

Signatories to the accounts and schedules ‘A’ to ‘S’


167

In (000’s)

Particulars 2005 2004

Cash flow from operating activities

Net profit /(loss) before taxation, and extraordinary item (650,816) (41,393)

Add : Adjustment for :



Provision for expenses / liabilities written back (9,813) (2,961)

Provision for loans written back — (4,667)

Advances / Sundry written off 19,982 —

Provision for doubtful debts / advances written back (3,043) (203,061)

Provision for doubtful debts / advances 115,399 1,900

Preliminary, deferred and share issue Expenses 317 1,268

Interest income (22,101) (74,927)

Assets written off 1,413 —

CWIP written off 96,032 —

(Profit)/loss from sale of assets (1,460) 296

Interest expenses 2,150 749

560,305 (148,790)

Operating profit before working capital changes (90,511) (190,183)

Increase in sundry debtors (98,288) 193,399

Decrease /(increase) in inventories 16,229 (2,327)

Increase in loans & advances (16,081) (8,020)

Increase in Sundry creditors & other payables (70,770) 725,415

(168,910) 908,467

Cash generated from operations (259,421) 718,284

Cash flow from investing activities

Purchase of fixed assets (51,753) (406,647)

Proceeds from sale of Fixed Assets 5,156 393

Inter corporate Deposits 324,750 592,200

Decrease in - interest accrued (8,970) 17,488

Investments (221) —

Purchase of Set top Boxes — (585,557)

Interest received 22,101 74,927

Net cash from investing activities 291,063 (307,196)

Cash flow from financing activities

Repayments of secured loans — (303)

Interest expenses (2,150) (749)

Proceeds from issue of shares-Share application money — 546,138

Reduction of Share Premium — (933,331)

Net cash from financing activities (2,150) (388,245)

Net increase in cash and cash equivalents 29,492 22,843

Cash and cash equivalents at beginning of period 126,047 103,204

Cash and cash equivalents at end of period 155,539 126,047


Cash Flow Statement for the year ended March 31, 2005






Membership No. 9483




168



Registration No. 0 0 8 5 8 3 5 State Code. 1 1

Balance Sheet Date 3 1 3 2 0 0 5



N I L N I L


N I L N I L



3 0 4 2 4 0 7 3 0 4 2 4 0 7

Sources of Funds


1 9 0 7 9 7 8 1 1 3 4 4 2 9


N I L N I L



5 8 0 2 4 7 7 3 0 8


3 7 4 6 2 6 N I L

Accumulated Losses

2 0 8 0 2 2 6



8 8 8 7 1 6 1 5 3 9 5 3 2



� 6 5 0 8 1 6 � 6 5 0 8 4 1



� 1 3 . 0 9 N I L


ITEM CODE NO. (ITC CODE) PRODUCT DESCRIPTION

0 0 8 5 2 4 9 0 0 2 V I D E O / C A S S E T T E S

C O N T A I N I N G P R O G —

R A M M E D A D V T. / P U B —

L I C I T Y / S O F T W A R E







Membership No. 9483




169


To the Members,

Your Directors are presenting the Tenth Annual Report together with

the Audited Accounts for the year ended 31st March, 2005

Financial Performance

During the year under review your Company has earned Net Revenue of

Rs. 33.36 million as compared to Rs. 33.48 million during the previous

year. Your Company has incurred Net Loss of Rs. 1.06 million during the

year under review as compared to a loss of Rs. 1.15 million during the

previous year. Till 31st March 2005, your Company was rendering services

to IndusInd Media & Communications Ltd. (“IMCL”). With effect from1st

April 2005, all the employees have been taken on the rolls of IMCL.

Dividend

Your directors do not recommend any dividend considering the loss

incurred during the year.

Fixed Deposits

During the year under review, your Company has not accepted any

Fixed Deposits.

Employees

During the year under review, none of the employees of your

Company was in receipt of remuneration in excess of the limit

prescribed under Section 217 (2A) of the Companies Act, 1956 read

with the Companies (Particulars of Employees) Rules, 1975 as

amended from time to time.

Directors

Mr K C Samdani, Director of the Company is liable to retire by rotation

at the ensuing Annual General Meeting of the Company and being

eligible has offered himself for re-appointment. Mr. Arun Kumar resigned

from the Board with effect from 24th March 2005 and Mr. Ashok

Mansukhani was appointed as a Director with effect from 29th March,

2005.

Auditors

M/s Shah & Company, Chartered Accountants, Auditors of the Company

retire at the conclusion of the ensuing Annual General Meeting of the

Company and are eligible for re-appointment.

Conservation of Energy, etc


no particulars to be disclosed relating to the year under review in

respect of Conservation of Energy, Research and Development &

Technology Absorption pursuant to Section 217(1)(e) of the Companies

Act, 1956.

There are no Foreign Exchange earnings or outgo during the year.

Compliance Certificate

In accordance with Section 383A(1) of the Companies Act, 1956, and the

Companies (Compliance Certificate) Rules, 2001, the Company has obtained

a Certificate from Secretary in the whole time practice confirming that

the Company has complied with all the provisions of the Companies Act,

1956 and a copy of such certificate is attached to this Report.


Pursuant to the requirement under Section 217(2AA) of the Companies

Act, 1956 your Directors based on the information and documents

made available to them, confirm that :

i. in the preparation of the annual accounts for the year ended 31st

March, 2005 the applicable accounting standards have been followed.

There are no material departures in the adoption and application

of the accounting standards.

ii. they have selected such accounting policies and applied them



state of affairs of your Company at the end of the financial year

and of the loss of your Company for that period;

iii. they have taken proper and sufficient care to the best of their

knowlede and ability for the maintenance of adequate accounting

records in accordance with the provision of the Companies Act,

1956 for safeguarding the assets of your Company and for

preventing and detecting fraud and other irregularities;

iv. they have prepared the annual accounts on a going concern basis.

Acknowledgements

Your Directors place on record their sincere appreciation of valuable

assistance and support provided by the Bankers. Your Directors also

wish to place on record their deep appreciation of excellent services

rendered by employees of the Company at all the levels.


Place : Mumbai Ashok Mansukhani S.Palakodeti

Date : 27th June, 2005 Director Director

Directors’ Report

To,

The Members

Tele Video Communications India Limited

Mumbai.

I have examined the registers, records, books and papers of Tele Video

Communications India Limited (the Company) as required to be

maintained under the Companies Act, 1956, (the Act) and the rules made

thereunder and also the provisions contained in the Memorandum and

Articles of Association of the Company for the financial year ended on

31st

March, 2005 (financial year). In my opinion and to the best of my

information and according to the examinations carried out by me and

explanation furnished to me by the Company, its officers, I certify that

in respect of the aforesaid financial year :

1. The Company has kept and maintained all registers as stated in the

Annexure ‘A’ to this certificate, as per the provisions of the Act

and rules made thereunder and all entries therein have been duly

recorded.

2. The Company has duly filed the forms and returns as stated in the

Annexure ‘B’ to this certificate, with the Registrar of Companies,

within the time prescribed under the Act and the rules made

thereunder.

3. The Company being a Public Limited Company, has the minimum

prescribed Paid up Capital. The Paid up Capital is Rs. 25,00,000/-.

4. The Board of Directors duly met Five times on 17th

June, 2004,

22nd

July, 2004, 11th

October, 2004, 17th

December, 2004 and 29th

March, 2005 in respect of which meetings proper notices were

Secretarial Compliance Certificate

Registration No. : 11-84610 Nominal Capital : Rs. 6,00,00,000/-

given and the proceedings were properly recorded and signed in

the Minutes Book maintained for the purpose.

5. The Company has closed its Register of Members from 20th

September,

2004 to 25th

September, 2004 (both days inclusive) and necessary

compliance of Section 154 of the Act has been done.

6. The Annual General Meeting for the financial year ended on 31st

March, 2004 was held on 27th

September, 2004 after giving due

notice to the members of the Company and the resolutions passed

there at were duly recorded in the Minutes Book maintained for the

purpose.

7. No Extra – ordinary General Meeting was held during the financial

year under review.

8. The Company has not advanced any loans to its Directors or Persons

or Firms or Companies referred under Section 295 of the Companies

Act, 1956.

9. The company has duly complied with the provisions of Section 297

of the Act in respect of contracts specified in that section.

10. The Company has made necessary entries in the register maintained

under Section 301 of the Act.

11. As there were no instances falling under the purview of Section 314

of the Act, the Company has not obtained any approvals of the

Board of Directors, Members or Central Government.

12. The Company has not issued any duplicate Share Certificate(s) during

the financial year under review.


170


13. The Company has :

(i) not allotted/transferred/transmitted any securities during the

financial year under review.

(ii) the Company has not deposited any amount in separate Bank

Account as no Dividend was declared during the financial year.

(iii) The Company has not posted any amount to any Member of the

Company as no Dividend was declared during the financial year.

(iv) not transferred any amount to Investor Education and Protection

Fund, as there was no unpaid dividend, application money due

for refund, matured deposits, matured debentures and the

interest accrued thereon which have remained unclaimed or

unpaid.

(v) duly complied with the requirements of section 217 of the Act.

14. The Board of Directors of the Company is duly constituted. Mr. A. H.

Mansukhani was appointed as an additional director on 29th

March,

2005. Mr. Arun S. Kumar, the Director resigned on 24th

March, 2005.

There was no appointment of alternate Directors and to fill casual

vacancy during the Financial year under review.

15. The company has not appointed any Managing Director/Wholetime

Director/Manager during the financial year under review.

16. The Company has not appointed any sole selling agents during the

year under review.

17. The Company was not required to obtain any approval of the Central

Government, Company Law Board, Regional Director, Registrar of

Companies and / or such authorities prescribed under the various

provisions of the Act during the financial year.

18. The Directors have disclosed their interest in other firms/companies

to the Board of Directors pursuant to the provisions of the Act and

the rules made thereunder.

19. The Company has not issued shares, debentures or other securities

during the financial year under review.

20. The Company has not bought back any shares during the financial

year under review.

21. There was no redemption of Preference Shares or Debentures during

the financial year.

22. There were no transactions necessitating the Company to keep in

abeyance the rights to dividend, right shares and bonus shares

pending registration of the transfer of shares in compliance with

the provisions of the Act.

23. The Company has not accepted/invited any deposits including any

unsecured loans falling within the purview of Section 58A of the

Act, during the financial year.

24. The Company has not made any borrowings during the financial

year.

25. The Company, has not made any loans or advances or given

guarantees or provided securities to other bodies corporate and

consequently no entries have been made in the register kept for

the purpose.

26. The Company has not altered the provisions of the Memorandum

with respect to situation of the Company’s registered office from

one State to another during the year under scrutiny.


with respect to objects of the Company during the year under

scrutiny.


with respect to name of the Company during the year under scrutiny.


with respect to share capital of the company during the year under

scrutiny.

30. The Company has not altered its Articles of Association during the

financial year.

31. There was no prosecution initiated against or show cause notices

received by the Company during the financial year, for the offences

under the Act.

32. The Company has not received any money as security from its

employees during the financial year.

33. The Company has not constituted a Provident Fund under Section

418 of the Companies Act, 1956.

The above report is based on the information/records and registers made

available to me as were found, to the best of my knowledge, to be

necessary for the purpose of Audit.

Company Secretary

Place : Mumbai Prashant Diwan

Date : 27th June, 2005 C.P. No. : 1979

Annexure A

Registers as maintained by the Company.

1. Register of Members u/s 150 of the Companies Act, 1956.

2. Register of Transfers.

3. Register of particulars of Contracts, in which directors are interested u/s 301.

4. Register of Directors u/s 303.

5. Minutes of the Annual General Meeting and Board Meeting u/s 193 alongwith the Attendance Register.

Annexure B

Forms and Returns as filed by the Company with the Registrar of Companies, Maharashtra, Mumbai during the financial year ended on 31st

March, 2005.

1. Balance Sheet as at 31.03.2004 & Profit and Loss Account for the year ended on that date as adopted by the members at the Annual General

Meeting of the Company held on 27th

September, 2004 were filed with the ROC on 26th

October, 2004 vide ROC Receipt No. 982704.

2. Compliance Certificate for the year ended 31.03.2004 filed on 26th

October, 2004 vide ROC Receipt No. 982029.

3. Form No. 23 dated 27th

September, 2004 filed on 26th

October, 2004 vide Receipt No. 981472 in respect of Special Resolution passed under Section


4. Annual Return made up to 27th

September, 2004 filed on 23rd

November, 2004 vide ROC Receipt No.1001027

5. Form No. 29 filed in respect of the consent of Mr. A. H. Mansukhani to act as Director vide ROC Receipt No. 1054311 dated 26th

April, 2005.

6. Form No. 32 filed in respect of Resignation of Mr. Arun S. Kumar as Director w.e.f. 24th

March, 2005 and Appointment of Mr. A. H. Mansukhani as

Additional Director w.e.f. 29th

March, 2005 vide ROC Receipt No. 1054008 dated 25th

April, 2005.

Prashant Diwan

Place : Mumbai Company Secretary

Date : 27th June, 2005 C.P. No. : 1979


171

Auditors’ Report

To the Members of Tele Video Communications India Limited

1. We have audited the attached Balance Sheet of TELE VIDEO

COMMUNICATIONS INDIA LIMITED as at 31st

March 2005, the

Profit and Loss Account and Cash Flow Statement for the year

ended on that date annexed thereto, in which the accounts of TVCI

Delhi Division of the company audited by other Auditors have been

incorporated. 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.



and perform the audit to obtain reasonable assurance about whether

the financial statements are free of material misstatement. An audit

includes examining, on a test basis, evidence supporting the amounts

and disclosures in the financial statements. An audit also includes

assessing the accounting principles used and significant estimates

made by management, as well as evaluating the overall financial

statement presentation. We believe that our audit provides a

reasonable basis for our opinion.




Annexure a statement on the matters specified in paragraphs 4

and 5 of the said order to the extent applicable.


(3) above, we state that:

(i) We have obtained all the information and explanations, which

to the best of our knowledge and belief were necessary for the

purpose of our audit.

(ii) In our Opinion proper books of account as required by law have

been kept by the Company so far as appears from our

examination of those books.

(iii) The Balance Sheet and Profit and Loss Account and the Cash

Flow Statement dealt with by this report are in agreement

with the books of account.

(iv) In our opinion, the Balance Sheet and Profit and Loss Account

and the Cash Flow Statement dealt with by this report comply

with the Accounting Standards referred to in Section 211(3C)


(v) On the basis of the written representations received from

the directors as on 31st

March 2005 and taken on record by

the Board of Directors, we report that none of the directors

is disqualified as on 31st

March 2005 from being appointed as

a director in terms of clause (g) of sub-section (1) of section


(vi) In our opinion and to the best of our information and according

to the explanations given to us, the said accounts read together

with the Notes in Schedule 7, 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:

(a) In the case of the Balance Sheet, of the state of affairs of

the Company as on 31st

March 2005.

(b) In the case of the Profit and Loss Account, of the “Loss” of

the Company for the year ended on that date.

(c) In the case of Cash Flow statement of the Cash flows for

the year ended on that date.

For SHAH & CO.


Indulal H.Shah


Date :27th June, 2005 Membership No. 798

(i) The Company does not have any fixed assets and therefore

provisions of sub clauses (a), (b) & (c) of clause (1) of the Companies

(Auditors’ Report) Order, 2003 are not applicable to the company.

(ii) (a) According to the information and explanations given to us the

Company during the year has not granted any loans, secured

or unsecured to Companies, Firms or other parties covered

in the Register maintained under Section 301 of the Companies

Act, 1956. Accordingly Paragraph 4 (iii) (a), (b) (c) & (d) of the

order are not applicable.


the company has during the year, not taken any loans, secured

or unsecured from companies, firms or other parties covered

in the register maintained under Section 301 of the Companies

Act, 1956. Accordingly, paragraphs 4 (iii) (e), (f) & (g) of the

order are not applicable.

(iii) In our opinion and according to the information and explanations

given to us, there are adequate internal control procedures

commensurate with the size of the company and the nature of

its business with regard to the services given. During the course

of audit, we have not observed any continuing failure to correct

major weaknesses in internal control systems.

(iv) (a) According to the information and explanations given to us

we are of the opinion that the transactions that need to be

entered in the register maintained under section 301 of the

companies Act, 1956 have been so entered.


the transactions made in pursuance of contracts or

arrangements entered in the register maintained under

section 301 of the Companies Act, 1956 and exceeding the

value of rupees five lakhs in respect of any party during the

year have been made at prices which are reasonable having

regard to prevailing market prices at the relevant time.

(v) As the company has not accepted during the year any deposits

from the public, PROVISIONS OF clause 4 (vi) of the Companies

(Auditors’ Report) Order, 2003 are not applicable.

(vi) In our opinion, the company has an internal audit system


(vii) (a) The company is regular in depositing with appropriate

authorities undisputed statutory dues including provident fund,

investor education protection fund, employees state insurance,

income tax, sales tax, wealth tax, service tax custom duty,

excise duty, cess and other statutory dues applicable to it. We

are informed that there are no undisputed statutory dues as

at 31st March, 2005 outstanding for a period of more than six

months from the date they became payable.


there are no dues of sale tax, income tax, customs duty,

wealth tax, excise duty and cess which have not been

deposited on account of any dispute.

(viii) The accumulated losses of the company are more than 50% of its

net worth. The company has incurred cash losses during the

financial year ended 31st March, 2005 and in the immediately

preceding financial year.

(ix) According to the information and explantions given to us, the

company has not given any guarantee during the year for loans

taken by others from Banks or Financial Institutions.

(x) According to the information and explanations given to us, no

fraud on or by the company has been noticed or reported during

the year ended 31st March, 2005.

(x) The provisions of clauses (ii) (a), (b) & (c), (viii), (xi), (xii), (xiii),

(xiv), (xvi), (xvii), (xviii), (xix) and (xx) of the Companies

(Auditors’ report) Order, 2003 are not applicable to the company

for the year under report.

For SHAH & CO.


Indulal H.Shah


Date :27th June, 2005 Membership No. 798

Annexure to the Auditors’ Report

(Referred to in Paragraph (3) of our report of even date)



172

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

For Shah & Co.


Indulal H. Shah Ashok Mansukhani S. Palakodeti

Partner Director Director

Membership No. 798



Profit and Loss Account


(Rs.in ’000s)

Schedule 2005 2004

INCOME

Reimbursement of

Expenses including

Service Charges 33,357 33,108

Other income — 375

33,357 33,483

EXPENDITURE

a) Employees Remuneration

& Benefits 5 30,300 29,194

b) Other Expenses 6 4,124 5,445

34,424 34,639

Profit/(Loss) Before Taxes (1,067) (1,156)

Income Tax for prior years — —

Net Profit/(Loss) for the year

after tax (1,067) (1,156)

Balance Brought Forward

from previous year (8,536) (7,380)

Balance Carried

to Balance Sheet (9,603) (8,536)

Earning per Share-Basic and Diluted (42.68) (46.24)


(Rs.in ’000s)

Schedule 2005 2004

SOURCES OF FUNDS


Share Capital 1 2,500 2,500

TOTAL 2,500 2,500


Current Assets, Loans

And Advances

a) Cash and Bank Balances 2 311 586

b) Loans & Advances 3 3,569 1,977

3,880 2,563

Less:Current Liabilities

And Provisions

a) Current Liabilities 4 10,983 8,599

b) Provisions — —

10,983 8,599

Net Current Assets (7,103) (6,036)

Profit & Loss A/C 9,603 8,536

TOTAL 2,500 2,500

Notes to accounts 7



173



(Rs.in ’000s)

2005 2004

SCHEDULE 4

A Current Liabilities

Sundry Creditors 39 56


10,983 8,599

SCHEDULE 5

Employees Remuneration and Benefits

Salary, Wages & Bonus 25,904 24,425

Staff Welfare 1,693 1,495

Contribution to P.F & Other Funds 1,835 2,418

Contribution to ESIC & EDLI 868 856

30,300 29,194

SCHEDULE 6

Other Expenses

Communication Expenses 68 132

Rent 60 60

Legal & Prof. Charges 160 882

Printing & Stationery 20 6

Travelling & Conveyance 3,709 4,224

Auditors Remuneration

(Ref Note No B - 1 in Schedule 7 ) 55 55

Misc. Exps. 50 82

Bank Charges 2 4

4,124 5,445

(Rs.in ’000s)

2005 2004

SCHEDULE 1

Share Capital

Authorised

600,000 Equity Shares of Rs.100/- each 60,000 60,000

Issued, Subscribed and Paid—up

25,000 2,500 2,500

Equity Shares of Rs.100/- each,

fully paid-up 2,500 2,500

SCHEDULE 2

Cash And Bank Balances

Cash on hand 31 16

Bank Balances

With scheduled banks in Current Accounts 280 570

311 586

SCHEDULE 3

Loans And Advances

(Unsecured and considered good)

Advance payment of Income Tax 2,156 1,473

Loans /Advance to staff 846 374

Others Advances 567 130

3,569 1,977


174

SCHEDULE 7

Notes forming part of the accounts

A. SIGNIFICANT ACCOUNTING POLICIES

1. Financial statements

The financial statements are prepared under the historical cost convention in accordance with applicable accounting standards and

relevant provisions of the Companies Act, 1956.

2. Employees retirement benefits

The company has a gratuity scheme. Contributions to the gratuity scheme, funded with Life Insurance Corporation of India (based on

actuarial valuation), are charged to Profit And Loss Account.

The Company provides for leave encashment based on actuals.

3. Taxation

Provision for current taxes, if any, is made as per the Income Tax Act, 1961.

B. OTHER NOTES

1. Auditor’s remuneration of Rs. 54,971/- includes Audit Fees of Rs. 27,840/- and Tax Audit Fees of Rs. 10,050/- and Branch Audit Fees of

Rs. 17,081/-

2. In view of the financial support from InNetwork Entertainment Ltd, the holding company, to meet any obligations as they fall due, the

accounts of the company are prepared on a going concern basis though the net worth of the company is in negative.

3. No provision for income tax is made in view of the loss for the year and unabsorbed carry forwards losses.

4. Earning per share (EPS)

2004 - 2005 2003 - 2004

Loss after tax (Rs. In ‘000) 1,067 1,156

Weighted Average number of

equity shares outstanding during the period 25,000 25,000

Loss per equity share (Rs.) 42.68 46.24

5. Related party disclosures :

a. List of related parties and relationship


A IndusInd Media & communications Ltd. Fellow Subsidiary

B Aaisa Management & Consultancy Pvt. Ltd. Associate Company

b. Related Party transactions

(Categories A to B relate to details given in the above paragraph) Rs. in ‘000


A B Total

Service charges for man power supply 33,289 33,289

(33,108) (33,108)

Rent 60 60

(60) (60)

(c) Balances as at year end Categories

A B Total

Receivables net of payables 0

Rent Deposit 0

Given 0

Payables net of receivables 7,748 0 7,748

(5,690) (3,500) (5,725)

6. Previous year figures have been regrouped and rearranged wherever necessary.

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

For Shah & Co.




Membership No. 798






175


Balance Sheet Abstract And Company’s General Business Profile


Registration No. 8 4 6 1 0 State Code 1 1




N I L N I L


N I L N I L



2 5 0 0 2 5 0 0

Sources of Funds


2 5 0 0 N I L


N I L N I L



N I L N I L


(7 1 0 3) N I L

Accumulated Losses

9 6 0 3



3 3 3 5 7 3 4 4 2 4



� 1 0 6 7 � 1 0 6 7


Earning per Share in Rs. Dividend Rate %

(4 2 . 6 8) N I L


Item Code No. (ITC Code): Product Description

N O T C A B L E N E T W O R K

A P P L I C A B L E D I S T R I B U T I O N


For Shah & Co.




Membership No. 798




176


Cash Flow Statement for the year ended 31st

March, 2005

(Rs. In ‘000s)

Particulars 2005 2004

A Cash Flow from Operating Activities :

Net Profit / (Loss) before tax and extraordinary items (1,067) (1,156)

Adjustments for :

Interest Expenses — 11

Operating profit before working capital changes (1,067) (1,145)

Increasing Loans & Advances (1,592) 314

Increase in Sundery Creditors & Other payable 2,384 1,172

Cash generated from operations (275) 341

Cash Flow from Investing Activities : — —

Cash Flow from Financing Activities :

Interest Expeness — (11)

Net Cash from Financing Activities — (11)

Net Increase in Cash and Cash equivalents (275) 330

Cash and Cash equivalents at beginning of period 586 256

Cash and Cash equivalents at the end of period 311 586


For Shah & Co.




Membership No. 798




177

Directors’ Report

To The Members,

In2cable (India) Ltd.

Your Directors have pleasure in presenting the tenth Annual Report

together with the Audited Statements of Accounts for the year ended

31st

March, 2005.

1. Financial Results

Your Company has posted a net loss of Rs. 20.17 million on a total

income of Rs. 72.83 million for the year ended 31st

March, 2005.

The highlights of the financial results of your Company are:

(in Rs. ‘000)

Year ended 31

st

March 2005 2004

Total Income 72,833 82,351

Operating Expenditure 77,721 85,250

PBDIT (4.888) (2,899)

Less : Interest — 3,252

PBDT (4.888) (6,151)


PBT (20,170) (21,079)

Provision for taxation — —

PAT/(Loss) (20,170) (21,079)

Add : Loss brought forward

from the previous year (82,820) (61,741)

Loss carried forward to Balance Sheet (102,990) (82,820)

2. Financial Review

During the year your Company posted a total income Rs. 72.83

million, lower by 14 % from Rs. 82.35 million in previous year.

Your Company’s income from its core business of Broadband Internet

Services dropped by 13% to Rs. 70.03 million from Rs. 78.84 million

in the previous year. Though the cable modem trading activities

were discontinued generally, the Company took up a short term

promotional scheme to offer modems at a concessional rate for

such new subscribers who would commit a certain minimum period

and value which resulted in acquiring a new subscriber for every

such modem sold . The sale of modems during the year was Rs 1.52

million against Rs 0.54 million in the previous year.

The Company posted a net loss of Rs. 20.17 million after providing

Rs. 15.28 million towards depreciation.

Since the Company does not have any distributable profits, your

Directors do not recommend any dividend for the year ended 31st

March, 2005.

3. Operations Review

Internet Access

The Company had rolled out its LAN based Broadband Internet variant

“IN2NET” which was designed to offer cheaper solution to the

customers and offer bulk sales at wholesale rates to operators who

would install their own LAN network.

The scheme got a very good response from the market with the

Company achieving a peak of Rs 1.00 million sale and an average

monthly sale of of Rs 0.72 million during the year, despite the stiff

competition in the overall market.

Internet Bandwidth

The Company has continued the effort to optimize bandwidth by

procurement of more “clean” bandwidth than “shared” bandwidth,

backed by adequate Service Level Agreements (SLAs). The Company

also shifted the entire intra city backhaul network from MTNL to

Tata Power Broadband resulting in sizeable savings in costs.

The Company continued efforts to reduce the number of bandwidth

vendors to achieve economies of scale and stability in bandwidth .

However significant reduction in the bandwidth costs could not be

achieved as there were no major reductions in prices by vendors

and the vendors like VSNL, Bharti themselves entering into retail

distribution of internet services.

Internet Telephony (VoIP)

The “PC based” VoIP service on the Media Ring platform has

continued to have good response from Mumbai, Indore & Baroda

markets; however the growth individually for the Company and

generally in the country has been very slow.

4. Business Development & Marketing

The Company continued to introduce various usage based MB

packages and hourly packages in pre-paid and post-paid categories

suitable to various segments keeping in mind the trend in the

market. In the light of the competition from unorganized /

unlicenced sectors and the larger players like Bharti, Reliance,

VSNL, MTNL and BSNL the Company had to concentrate on

retention of the existing subscribers .The Company was

successful in retaining of customers generally in major operating

parts, however had to revise subscription tariffs downward to

maintain competitive rates.

5. Technology

Your Company has maintained and improved technical expertise

to offer customized solutions to its subscribers. The Company has

been keeping a strict vigil on the operation of bandwidth and the

users at the centralized NOC situated at MIDC,Mumbai.

There was demand from consumers for internet access with low

initial investment mainly in modem which was met by more spread

of LAN based services through the “IN2NET” software, customized

for specific requirements of the company . The scheme primarily

operates on prepaid module and the risk of recovery / bad debts

is fully mitigated.

6. Human Resource Development

Your Company has continued the thrust to better its human

resources. Regular reporting from the branches about the conduct

of business and solving the bottlenecks has been ensured for better

understanding and contentment. All new branch employees are

offered extensive technical training at the NOC in Mumbai before

final posting at branch level.

Cordial industrial relations were maintained due to the Company’s

pro-active HR policy.

7. Indian Internet Market: Major Developments

A recent study of ISPs in India indicated that over 700 private

Internet service providers (ISPs) were operating in India; however

several of them have exited business in the past four years due to

flawed business models, rapid changes in technology making the

installed technology going obsolete and slow / delayed announcement

of policies by the regulators, besides the unhealthy competition

thrown by the unlicensed / unregulated operators . Despite the

challenges faced, the Company has kept itself abreast of the changes

on technological front and has kept the systems up to date

conforming to the requirements of the business.

The study as regards the mechanics of Internet Services Business

reveals that operational costs for ISPs have remained high mainly

due to high tariffs for international and domestic leased lines.

Most ISPs who kept their tariffs low and expected the losses to be

made up by rapid increase in subscriber base failed as subscriber

bases never went anywhere near projections for a host of reasons.

ISPs had hoped that regulation would take care of the high tariffs

for international and domestic leased lines.


178


Directors’ Report (Cont’d.)

8. Future Outlook

The government agencies, TRAI & DoT are looking at the growth of

Internet as an important means of improving both Broadband as

well as telecommunication in India.

Growth of broadband and its availability at an affordable rate has

been the main attention of the Government. There have been

number of papers, which have been published in the current year,

which suggest a method that will be adopted for Broadband growth.

The availability of Broadband services at an affordable price level

will have a favourable impact both on GDP as well as knowledge

base.

During this financial year, your Company will continue to use Cable

Modem, Ethernet and VoIP technology to penetrate the Market. Your

Company will consolidate Internet growth in major cities and then

will plan expansion in other cities, keeping in view the quality, cost

and profit.

Your Company was asked by Hinduja Group to set up IP based Audio

Video Conferencing Facility, connecting all Hinduja Group Companies

in India and abroad. The Project was completed in stipulated time

in a cost effective manner. The Network has enabled the Group

Companies to improve co-ordination significantly and reduce

communication cost considerably. Your Company will also, through

the expertise gained, will provide Audio and Video Conferencing

Facilities and establish Close User Group (CUG).

9. Risks & Concerns

As brought out from time to time by various analysts, Internet

industry is a long term investment. Your Company’s detailed planning

process helps in understanding the strategic risk and evolve effective

risk management strategies and programs. The ISP industry overall

is going through a lean period and major players also find it difficult

to break even. Further, high Bandwidth cost combined with low

retail price results in loss. Further, the volume of customers, as

visualized, is not happening causing stagnation. The Companies like

VSNL & MTNL, with deep pockets, have come out with low price

offrings that have affected other companies directly.

10. Share Capital

During the year there was no increase in the authorized or paid

up capital of the Company.

11. Internal Control Systems

The Company has successfully implemented and operated the

software integration of Financial Accounting system “Navision” with

the EliteCore SMS and Billing system resulting in flawless transfer of

billing / customer related data to the Financial accounts without

manual interference and enabling the Company to maintain

adequate internal control over commercial transactions . Both the

Elite Core SMS and the IN2NET software have adequate controls to

strictly enforce bandwidth policies. This provides the Company an

effective safeguard against possible misuse and leakage.

The Company’s accounts and other records are regularly offered

to independent internal auditor for audit. The reports of internal

and external auditors with comments of the management are

regularly placed before the audit committee, which are discussed

with the management and the auditors to satisfy about the internal

control environment.

12. Fixed Deposit

During the year under review your Company has not accepted any

Fixed Deposit.

13. Directors

During the year under review Mr. K V Seshasayee and Mr. R T

Hingorani resigned as directors of the Company. The Board wishes

to place on record their valuable contribution to the Company

during their tenure.

Mr K C Samdani retires by rotation at the ensuing Annual General

Meeting and offers himself for re-appointment.

14. Appointment of Manager

Brig T M Sridharan (Masters degree in Satellite Communication &

Post Graduate qualification in Management from College of Defence

Management with wide experience of over 35 years in the

telecommunications arena) who was already holding the charge as

Chief Executive Officer, was appointed as Manager of the Company

with effect from 30th June 2004.

15. Directors’ Responsibility Statement

Pursuant to Section 217 (2AA) of the Companies Act, 1956 your

Directors, based on the information and documents made available

to them, confirm that :

(i) in the preparation of annual accounts for the year ended 31st

March 2005, the applicable accounting standards have been

followed. There are no material departures in the adoption

and application of the accounting standards.

(ii) they have selected such accounting policies and applied them

consistently and made judgments and estimates that are


state of affairs of your Company at the end of the financial

year and of the loss of your Company for that period;

(iii) they have taken proper and sufficient care to the best of their

knowledge and ability for the maintenance of adequate

accounting records in accordance with the provisions of the

Companies Act,1956 for safeguarding the assets of your Company

and for preventing and detecting fraud and other irregularities;

(iv) they have prepared the annual accounts on a going concern

basis.

16. Auditors and Auditors’ Report

M/s Price Waterhouse, Chartered Accountants, auditors of the

Company, retire at the conclusion of the ensuing Annual General

Meeting of the Company and being eligible offer themselves for

reappointment.

The observations made by the Auditors in their report with

reference to notes on the accounts for the current period are self

explanatory and need no further comments from the Directors.

17. Conservation of Energy, Research & Development,

Technology Absorption and Foreign Exchange Earnings &

Outgoings

The prescribed particulars under Section 217 (1) (e) of the Companies

Act, 1956 relating to Conservation of Energy, Research &

Development & Technology Absorption and foreign exchange earnings

and outgoings are annexed herewith as Annexure A.

18. Employees

During the year under review, none of the employees of your company

was in receipt of remuneration in excess of the limit prescribed

under Section 217 (2A) of the Companies Act 1956 read with the

Companies (Particulars of Employees) Rules 1975 as amended from

time to time.

19. Acknowledgement

The Board wishes to express its deep appreciation of the commitment

of all staff members and thank shareholders and Bankers for their

sustained support.


of In2cable ( India) Limited

Place : Mumbai R P Hinduja

Date : 28th

June 2005 Chairman


179


Directors’ Report (Cont’d.)

Annexure A to the Directors’ Report

Information as per Section 217 (1) (e) read with the Companies

(Disclosure of Particulars in the Report of the Board of Directors)

Rules, 1988 and forming part of the Directors’ Report for the year

ended 31st

March, 2005.

1. Conservation of Energy, Research & Development &

Technology Absorption


no particulars to be disclosed relating to the year under review.

2. Foreign Exchange Earnings & Outgoings

The foreign exchange earnings and outgoings in during the year

are as follows:

(Rs. in ‘000)

Particulars 2004-05 2003-04

A. Total Foreign Exchange earned Nil Nil

B. Total Foreign Exchange Outgo :

i) On import of Capital Goods Nil Nil

ii) On import of cable modems Nil Nil

iii) Expenditure in Foreign

currencies for Travel,

subscription etc. 229 263


of In2cable ( India) Limited

Place : Mumbai R P Hinduja

Date : 28th

June 2005 Chairman

Auditors’ Report

To The Members of In2cable (India) Limited

(c) The Balance Sheet, Profit and Loss Account and Cash Flow

Statement dealt with by this report are in agreement with

the books of account;

(d) In our opinion, the Balance Sheet, Profit and Loss Account and

Cash Flow Statement dealt with by this report have been

prepared in compliance with the applicable accounting

standards referred to in sub-section 3C of Section 211 of the

Act;

(e) On the basis of written representations received from the

Directors as on March 31, 2005 and taken on record by the

Board of Directors of the Company, none of the Directors is

disqualified as on March 31, 2005 from being appointed as a

Director in terms of clause (g) of sub-section (1) of Section 274

of the Act;

(f) In our opinion and to the best of our information and according

to the explanations given to us, the Balance Sheet and Profit

and Loss Account and the Cash Flow Statement, together with

the Notes thereon and attached thereto, give in the prescribed

manner, the information required by the Act and also give a

true and fair view in conformity with accounting principles

generally accepted in India:

(i) in the case of the Balance Sheet, of the state of affairs of

the Company as at March 31, 2005;

(ii) in the case of the Profit and Loss Account, of the loss for

the year ended on that date.

(iii) in the case of the Cash Flow Statement, of the cash flows

for the year ended on that date.

Partha Ghosh

Partner

Membership No. F - 055913

For and on behalf of

Place : Mumbai Price Waterhouse

Dated : 28th June, 2005 Chartered Accountants

1. We have audited the attached Balance Sheet of In2cable (India)

Limited, as at March 31, 2005, Profit and Loss Account and the

Cash Flow Statement for the year ended on that date annexed

thereto, which we have signed under reference to this report.

These financial statements are the responsibility of the Management

of the Company. Our responsibility is to express an opinion on

these financial statements based on our audit.

2. We have 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




significant estimates made by the Management, as well as



3. We draw your attention to Note 4 on Schedule Q, regarding the

preparation of accounts on a going concern basis taking into account

the financial support provided by the Holding Company and the

proposed merger with IndusInd Media and Communications Limited

effective April 1, 2005.

4. As required by the Companies (Auditor’s Report) Order, 2003 as

amended by the Companies (Auditor’s Report) (Amendment) Order,

2004 issued by the Central Government of India in terms of sub-

section 4A of Section 227 of The Companies Act, 1956, of India (the

Act), and on the basis of such checks of the books and records of the

Company as we considered appropriate and according to the

information and explanations given to us, we give in the Annexure

a statement on the matters specified in Paragraphs 4 and 5 of the

said Order.


4 above, we report that:

(a) We have obtained all the information and explanations, which


the purposes of our audit;

(b) In our opinion, proper books of account as required by law


examination of those books;


180


Annexure to Auditors’ Report

1. (a) The Company is maintaining proper records to show full

particulars, including quantitative details and situation of its

fixed assets.

(b) The fixed assets of the Company have been physically verified

by the Management during the year and no material

discrepancies between the book records and the physical

inventory have been noticed. In our opinion, the frequency of

verification is reasonable.

(c) In our opinion and according to the information and

explanations given to us, a substantial part of the fixed assets

has not been disposed off by the Company during the year.

2. (a) The inventory of the Company has been physically verified by

the Management at the year-end at all its locations. In our

opinion, the frequency of verification is reasonable.

(b) In our opinion, the procedures of physical verification of

inventory followed by the Management are reasonable and

adequate in relation to the size of the Company and the

nature of its business.

(c) On the basis of our examination of the records of inventory,

in our opinion, the Company is maintaining proper records of

inventory and the discrepancies between the physical

inventory and the book records noticed on physical verification

were not material.

3. (a) The Company has not granted any loans, secured or unsecured,

to companies, firms or other parties listed in the Register

maintained under Section 301 of The Companies Act, 1956, of

India (the Act).

(b) The Company has taken a interest –free loan from the holding

company covered in the Register maintained under Section

301 of the Act. The maximum amount involved during the

year and the year-end balances of such loans aggregates Rs.

24,000(000s) and Rs. 24,000(000s), respectively.

(c) In our opinion, the rate of interest and other terms and

conditions of such loans are not prima facie prejudicial to the

interest of the Company.

(d) In respect of the aforesaid loan, the loan is repayable on

demand.

4. In our opinion and according to the information and explanations

given to us, having regard to the explanation that certain items

purchased are of special nature for which suitable alternative

sources of supply do not exist for obtaining comparative quotations,

there are adequate internal control procedures commensurate

with the size of the Company and the nature of its business, for

purchase of inventory, fixed assets and for the sale of goods and

services. Further, on the basis of our examination of the books

and records of the Company, and according to the information and

explanations given to us, we have neither come across nor have

we been informed of any continuing failure to correct major

weaknesses in the aforesaid internal control system.

5. (a) In our opinion and according to the information and

explanations given to us, the particulars of contracts or

arrangements referred to in Section 301 of the Act have been

entered in the register required to be maintained under that

Section.

(b) In our opinion and according to the information and

explanations given to us, for purchase and sale of services,

sale of goods and fixed assets made in pursuance of contracts

or arrangements entered in the register maintained under

Section 301 of the Act and exceeding the value of Rupees Five

Lacs in respect of each party during the year, which have

been made at prices which are reasonable having regard to

the prevailing market prices at relevant time, except in case

of certain transactions where no comparison of prices could

be made available as these transactions are of special nature.

There are no purchase of goods, materials and fixed assets

during the year.

6. The Company has not accepted any deposits from the public within

the meaning of Sections 58A and 58AA of the Act and the rules

framed there under.

7. In our opinion, the Company’s present internal audit system is

commensurate with its size and the nature of its business.

8. The Central Government of India has not prescribed the maintenance

of cost records under clause (d) of sub-section (1) of Section 209 of

the Act for any of the products of the Company.

9. (a) According to the information and explanations given to us and

the records of the Company examined by us, in our opinion,

the Company is generally regular in depositing undisputed

statutory dues including provident fund, employees’ state

insurance, income-tax, sales-tax, service tax and other

material statutory dues, as applicable, with the appropriate

authorities.

(b) According to the information and explanations given to us and

the records of the Company examined by us, there are no

dues of sales tax, income tax, service tax and wealth tax

which have not been deposited on account of dispute.

10. The net worth of the Company has completely eroded as at March

31, 2005 and it has incurred cash losses during the financial year

ended on that date as well as in the immediately preceding financial

year.

11. According to the records of the Company examined by us and the

information and explanation given to us, the Company has not

defaulted in repayment of dues to any banks during the year.

Further, there were no dues payable to the financial institutions

and debenture holders during the year.

12. The Company has not granted any loans and advances on the basis

of security by way of pledge of shares, debentures and other

securities.

13. The provisions of any special statute applicable to chit fund/ nidhi/

mutual benefit fund/ societies are not applicable to the Company.

14. In our opinion, the Company is not a dealer or trader in shares,

securities and other investments.

15. In our opinion, and according to the information and explanations

given to us, the Company has not given any guarantee for loans

taken by others from banks or financial institutions during the

year.

16. In our opinion, and according to the information and explanations

given to us on an overall basis, the term loans have been applied

for the purpose for which they were obtained.

17. On the basis of an overall examination of the Balance Sheet of the

Company, in our opinion and according to the information and

explanations given to us, there are no funds raised on a short-

term basis which have been used for long-term investment.

18. The Company has not made any preferential allotment of shares to

parties and companies covered in the Register maintained under

Section 301 of the Act during the year.

19. The Company has not issued any debentures during the year.

20. The Company has not raised any money by public issue during the

year.

21. During the course of our examination of the books and records of

the Company, carried out in accordance with the generally accepted

auditing practices in India, and according to the information and

explanations given to us, we have neither come across any instance

of fraud on or by the Company, noticed or reported during the

year, nor have we been informed of such case by the Management.

Partha Ghosh

Partner

Membership No. F - 055913

For and on behalf of

Price Waterhouse

Place : Mumbai Chartered Accountants.

Date : 28th June, 2005

(Referred to in paragraph 4 of our report of even date)


181


Schedules referred to herein form an integral Schedules referred to herein form an integral

part of the Balance Sheet. part of the Profit & Loss Account.

This is the Balance Sheet referred to in our report of even date. This is the Profit & Loss Account referred to in our report of

even date.


Partha Ghosh S. Solomon Raj K. C. Samdani


Membership No. F-055913

For and on behalf of Brig. T.M. Sridharan (Retd.) Milind Hukeri

Price Waterhouse Chief Executive Officer Company Secretary



Date : June 28th, 2005 Date : June 28th, 2005

Balance Sheet as at 31st March, 2005

(Rs.in’000s)

As at As at

Schedule 2005 2004

SOURCES OF FUNDS


Share Capital A 100,000 100,000

Loan Funds

Secured Loans B 437 —

Unsecured Loans C 24,000 22,000

24,437 22,000

TOTAL 124,437 122,000


Fixed Assets

Gross Block D 93,654 93,551

Less : Depreciation /

Amortisation 54,864 40,519

Net Block 38,790 53,032

Current Assets,

Loans And Advances

Stock-in-Trade E 143 163

Sundry Debtors F 968 4,014

Cash and Bank Balances G 2,719 2,277

Loans and Advances H 4,198 3,455

8,029 9,909

Less: Current Liabilities

and Provisions I

Current Liabilities 24,711 22,853

Provisions 1,284 1,656

25,995 24,509


Miscellaneous Expenditure J 624 748

(to the extent not written

off or adjusted)

Profit and Loss Account 102,990 82,820

TOTAL 124,437 122,000



(Rs.in’000s)

Schedule 2005 2004

INCOME

Income from Internet

Operations (Gross) 70,034 78,839

[Tax Deducted at Source

Rs. 9 (’000s);

Previous Year: Rs. 19 (’000s)]

Trading Sales 1,525 535

Other Income K 1,274 2,977

72,833 82,351

EXPENDITURE

Cost of Traded Goods L 1,935 915

Internet Bandwidth Charges 28,501 35,368

Internet Carriage/Access Charges 21,838 23,369

Employee Costs M 14,158 13,854

Administrative and

Other Expenses N 11,276 11,744


Financial Expenses O 13 3,252

93,003 103,430

Loss Before Tax 20,170 21,079

Provision for Tax

(Refer Note 2 on Schedule Q) — —

20,170 21,079

Loss Brought Forward

From Previous Year 82,820 61,741

Loss Carried Forward

to Balance Sheet 102,990 82,820

Loss per Equity Share

(Basic and Diluted) (in Rs.) 2.02 4.06

Significant Accounting Policies P

Notes to Accounts Q


182


Cash Flow Statement for the year ended 31st March, 2005

2004-2005

(Rs. in ‘000s)

A. Cash Flow from Operating Activities

Net Profit / ( Loss ) before Taxation (20,170)

Adjustment for :

Depreciation 15,282

Preliminary and Share Issue

Expenses written off 125

Interest Income (174)

Profit on Sale of Fixed Assets (442)

Provision for Gratuity and

Leave Encashment (372)

Provisions/ Bad Debts Written Off 326 14,745

Operating profit before

working capital changes (5,425)

Adjustments for:

Trade Receivables 2,720

Inventories 20

Other Receivables / Loans

and Advances (743)

Trade Payables 1,857 3,854

Net Cash generated from

Operating Activities (A) (1,571)

B. Cash flow from Investing Activities

Purchase of Fixed Assets (1,605)

Proceeds from Sale of Fixed Assets 1,007

Interest Income 174 (424)


Investing Activities (B) (424)

C. Cash Flow from Financing Activities

Payments/ Proceeds of

Long Term Borrowings 2,000

Payments / Proceeds of

Short Term Borrowings 437 2,437


Financing Activities (C ) 2,437

Net Increase in Cash and

Cash Equivalents 442


at beginning of the year 2,277


at end of the year 2,719

Cash and Cash Equivalents As at

comprises of 31-03-2005

(Rs. in ‘000s)

Cash on Hand 12

Balance with Scheduled Banks in :

- Current Accounts 1,702

- Deposit Accounts 1,005

2,719

Notes

1 The above cash flow statement has been prepared under the

“Indirect Method” as set out in the Accounting Standard-3 on Cash

Flow Statement, issued by the Institute of Chartered Accountants

of India.

2 This is the first year of applicability of account of Accounting

Standard - 3 - Cash Flow Statement. Accordingly previous year figures

have not been given.

2004-2005

(Rs. in ‘000s)

This is the Cash Flow Statement referred in our report of even date.











183

SCHEDULE D

Fixed Assets

(Refer Note 2 on Schedule P) (Rs. in’000s)

GROSS BLOCK DEPRECIATION / AMORTISATION NET BLOCK

Particulars As at Additions Deductions As at Upto For the On Upto As at As at

01.04.2004 during the during the 31.03.2005 31.03.2004 Year Deletions 31.3.2005 31.3.2005 31.03.2004

year year

Intangible Assets

Software 3,343 — — 3,343 597 542 — 1,139 2,204 2,746

Tangible Assets

Internet Equipments 86,476 676 1,502 85,650 38,408 14,120 937 51,591 34,059 48,068

Computers 2,866 186 — 3,052 1,185 489 — 1,674 1,378 1,681

Furniture and Fixtures 155 5 — 160 69 8 — 77 83 86

Office Equipments 44 13 — 57 29 14 — 43 14 15

Motor Vehicles 667 725 — 1,392 231 109 — 340 1,052 436

Total 93,551 1,605 1,502 93,654 40,519 15,282 937 54,864 38,790 53,032

Previous Year 88,155 5,396 — 93,551 25,591 14,928 — 40,519 53,032 64,597

(Rs.in’000s)

2005 2004

SCHEDULE A

Share Capital

Authorised


of Rs. 10 each 100,000 100,000

Issued, Subscribed and Paid-up Capital


of Rs. 10 each, fully paid-up. 100,000 100,000

100,000 100,000

Notes:

1 All the Shares are held by Hinduja TMT Limited, the Holding Company

and its nominees.

(Rs.in’000s)

2005 2004

SCHEDULE B

Secured Loan

Vehicle Finance Loan 437 —

(Secured against hypothecation of

Motor Car)

[Repayable within one year Rs. 194;

Previous Year : Rs. Nil]

437 —

SCHEDULE C

Unsecured Loan

Loan from the Holding Company 24,000 22,000

[Repayable within one year Rs. Nil ;

Previous Year; Rs. 22,000 (‘000s)]

[Including Interest Accrued and Due

Rs. Nil; Previous Year; Rs. Nil]

24,000 22,000


Schedules annexed to and forming part of accounts for the year ended 31st March, 2005


184



(Rs.in’000s)

As at As at

31-03-2005 31-03-2004

SCHEDULE E

Stock- In- Trade

Cable Modems 143 163

143 163

SCHEDULE F

Sundry Debtors

(Unsecured)

(Refer Note 3 on Schedule Q)

Debts Outstanding for a Period

exceeding Six Months

- Considered Good — 870

- Considered Doubtful 3,039 4,006

3,039 4,876

Other Debts

- Considered Good 968 3,144

- Conidered Doubful 30 —

998 3,144

4,037 8,020

Less: Provision for Doubtful Debts 3,069 4,006

968 4,014

SCHEDULE G

Cash and Bank Balances

Cash on Hand 12 9

Balance with Scheduled Banks in :

- Current Accounts 1,702 2,263

- Deposit Accounts 1,005 5

[under lien with bank Rs. 5 (‘000);

Previous year Rs. 5 (‘000)] 2,719 2,277

SCHEDULE H

Loans and Advances

(Unsecured and Considered Good)

Advances Recoverable in Cash or in

Kind or for Value to be Received 3,724 2,109

Deposits 439 989

Tax Deducted at Source 35 357

4,198 3,455

SCHEDULE I

Current Liabilities And Provisions

Current Liabilities

Sundry Creditors * 22,457 16,314

(includes Dues to Small Scale

Industrial Undertakings Rs. Nil;

Previous Year: Rs. Nil)

Subscription Billed in Advance — 1,581

Advance Received from Customers 1,460 3,531

Other Liabilities 794 1,427

24,711 22,853

Provisions

(Refer Note 5 on Schedule P)

Gratuity — 203

Leave Encashment 1,284 1,453

1,284 1,656

25,995 24,509

* There are no amounts due to be credited

to Investor Education Protection Fund.

SCHEDULE J


(to the extent not written off or adjusted)

(Refer Note 7 on Schedule P)

Preliminary and Share Issue Expenses 624 748

624 748

(Rs.in’000s)

2004-2005 2003-2004

SCHEDULE K

Other Income

Interest (Gross)

- on Fixed Deposit

[Tax Deducted at Source Rs. 7 (‘000) ;

Previous Year: Rs. Nil] 174 167

- on Others — —

Service Charges 37 108

Liability no longer required written back — 2,526

Profit on Sale of Assets 442 —

Miscellaneous 621 176

1,274 2,977

SCHEDULE L

Cost of Sale of Modems

Opening Stock 163 1,174

Add : Purchases 1,915 —

2,078 1,174

Less : Closing Stock 143 163

Less : Modems / VoIP boxes

capitalisations during the year — 96

1,935 915

SCHEDULE M

Employee Costs

Salary and Other Benefits 12,653 12,125

Contribution to Employees’

Provident and Other Funds 1,173 1,308

Staff Welfare 332 421

14,158 13,854

SCHEDULE N

Administrative and Other Expenses

Rent 1,348 1,385

Rates and Taxes 28 40

Electricity 213 301

Repairs and Maintenance - Others 490 720

Training and Recruitment 11 138

Communication 1,125 1,114

Travelling and Conveyance 2,717 2,683

Legal and Professional Charges 740 685

Advertisement and Business Promotion 935 927

Insurance 522 475

Membership and Subscription 545 401

Printing and Stationery 458 519

Software Expenses 987 131


- As Auditors 250 250

- Other Services — 100

- Out of pocket expenses 16 13

Provisions/ Bad Debts Written Off (net) 326 1,200

Preliminary Expenses Written-Off 125 125

Bank Charges and Commission 261 432

Miscellaneous 171 105

Donations 8 —

11,276 11,744

SCHEDULE O

Financial Expenses

Interest on :

- Inter-corporate Deposits — 3,248

- Others 13 4

13 3,252


185

SCHEDULE P

Significant Accounting Policies

1 Accounting Convention

These Accounts have been prepared under historical cost

convention, on accrual basis and comply with the Accounting

Standards referred to in Section 211(3C) of The Companies Act,

1956, of India (The Act).

2 Fixed Assets and Depreciation

Fixed assets are stated at cost of acquisition, including any

attributable cost for bringing the asset to its working condition for

its intended use, less its accumulated depreciation.

Tangible Assets

Depreciation on fixed assets is computed on Straight Line Method

at the rates specified in Schedule XIV to The Act, except for modems

and VoIP boxes capitalised, which are amortised over a period of

three years. Depreciation is charged on a pro-rata basis for all the

assets purchased and sold during the year. Depreciation on assets

individually costing up to Rs. 5,000 is charged at 100% in the year of

addition.

Intangible Assets

Computer Software is amortised over the period of six years.

3 Stock in Trade

Stock in Trade is valued at lower of cost (ascertained on “First In

First Out” basis) or market value.

4 Foreign Currency Transactions

a) All foreign currency transactions are recorded at the rates

prevailing on the date of the transaction. Gains and losses arising

out of subsequent fluctuations in exchange rates are accounted

for on realisation/ payment.

b) All foreign currency current assets and liabilities are translated

at the exchange rate prevailing at the year-end and the

exchange difference has been ascertained and recognised in

the financial statements.

5 Retirement Benefits

a) Liability towards gratuity has been recognised on the basis of

premium paid/payable under the Group Gratuity policy of Life

Insurance Corporation of India (LIC). In respect of gratuity, the

adequacy of the accumulated fund balance available with LIC

has been confirmed on the basis of actuarial valuation

performed at the year-end and shortfall, if any, has been

provided in the financial statements.

b) Liability for leave encashment is made on unavailed

accumulated leave balances of employees on the basis of their

current salaries.

6 Revenue Recognition

Subscription income for internet services rendered is recognised

on a pro-rata basis over the period in which such services are

rendered.

Sale of modems is accounted on installation of modems at

subscribers’ location.

7 Preliminary and Share Issue Expenses

Preliminary and Share Issue expenses are amortised equally over a

period of ten years.

8 Deferred Tax is recognised, subject to the consideration of

prudence, on timing difference, 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 are not recognised unless there are timing

differences, the reversal of which, will result in sufficient income

or there is a virtual certainty that sufficient future taxable income

will be available against which such deferred tax asset can be

realised.

SCHEDULE Q

Notes To Accounts

1. Contingent Liabilities and Capital Commitments

a) Estimated amount of contract (net of capital advance)

remaining to be executed on Capital Account not provided for

is Rs. Nil; Previous Year: Rs. 87 (‘000s).

b) Contingent Liabilities at the year-end not provided for in

respect of:

2004-2005 2003-2004

(Rs. in ‘000s) (Rs. in ‘000s)

Guarantees given by Bank

on behalf of the Company 10,005 10,005

2. No provision has been made for income tax in view of loss incurred

by the Company in the current year. The Company has recognised

following deferred tax liabilities/assets:

2004-2005 2003-2004

(Rs. in ‘000s) (Rs. in ‘000s)

Deferred Tax Liability

Depreciation on Fixed Assets 12,643 15,773

Unamortised Miscellaneous

Expenditure 139 102

Total Deferred Tax Liability 12,782 15,875

Deferred Tax Asset

Provision for Retirement Benefits 470 594

Provisions for Doubtful Debts 1,466 1,437

Allowance for carry forward loss

and unabsorbed depreciation 10,846 13,844

Total Deferred Tax Asset 12,782 15,875

Net Deferred Tax Asset /

(Liability) — —

Note:

As a matter of prudence, deferred tax asset is recognised only to

the extent of deferred tax liability.

3. The Company is in the process of reconciling / obtaining

confirmations from certain Sundry Debtors. However, as a matter

of prudence the Company has made a provision for doubtful debts

of Rs. 3,069 (‘000s) in respect of debts outstanding for a period

exceeding six months.

4. In view of the erosion of net worth and losses incurred by the

Company in the current financial year as well as in the previous

financial years, the financial statements have been prepared on a

going concern basis, with regard to the financial support from

Hinduja TMT Limited, the Holding Company and proposed merger

of the Company with its Group Media Company.

5. Segment Information

Primary Segment

In accordance with Accounting Standard 17 “ Segment Reporting”

issued by the Council of the Institute of Chartered Accountants of

India, the Company is engaged in a single domestic business segment

namely “ Provision of Internet over Cable” and hence there is no

other primary reportable segment. Accordingly, the segment

revenue, segment liabilities, total carrying amount of segment

assets, total carrying amount of segment liabilities, total cost

incurred to acquire segment assets, total amount of charge of

depreciation and amortisation during the year are as reflected in

the financial statement as of and for the year ended March 31, 2005.

Secondary Segment

The performance of the company is mainly driven by domestic

sales made / services provided and hence no separate geographical

segment is identified. Accordingly, revenue from external

customers, carrying amount of segment assets and addition to

fixed assets during the year are all reflected in the financial

statements as of and for the year ended March 31, 2005.




186

6. Related party disclosures

I : Holding Company

1. Hinduja TMT Limited

II : Fellow subsidiaries – Subsidiaries of holding company (including indirect subsidiaries)

1. Indusind Media and Communication Limited

2. InNetwork Entertainment Limited

III : Companies under the common control

1. Hinduja Group India Limited

2. Aasia Management and Consultancy Limited

3. USN Networks Private Limited

IV : Key Managerial Personnel

1. Brig. T M Sridharan, Chief Executive Officer

The following details pertain to transactions carried out with the related parties in the ordinary course of business and the balances

outstanding at the year-end.

(Rs.in ‘000s)

Nature of Transaction Parties Parties Parties Parties Total

referred to referred to referred to referred to

in I above in II above in III above in IV above

Income

Internet Subscription

Hinduja TMT Limited 1,551 — — — 1,551

Indusind Media and Communication Limited — 801 — — 801

Hinduja Group India Limited — — 747 — 747

Others — 245 284 — 529

Total 1,551 1,046 1,031 — 3,628

Sale of Assets


Aasia Management and Consultancy Limited — — 123 — 123

Total 1,651 — 123 — 1,774

Trading Sales

Indusind Media and Communication Limited — 131 — — 131

Total — 131 — — 131

Expenses

Internet Carriage / Access Charges

Indusind Media and Communication Limited — 17,850 — — 17,850

USN Networks Private Limited — — 1,191 — 1,191

Total — 17,850 1,191 — 19,041

Rent

InNetwork Entertainment Limited — 1,372 — — 1,372

Total — 1,372 — — 1,372

Managerial Remuneration

Brig. T M Sridharan — — — 1,345 1,345

Total — — — 1,345 1,345

Inter—Corporate Deposit Received


Total 2,000 — — — 2,000

Year End Balances

Receivables net of payables at the year—end


Others — — 214 — 214

Total 23,961 — 214 — 24,175

Payable net of receivables at the year—end

Indusind Media and Communication Limited — 15,488 — — 15,488

Others — 1,343 — — 1,343

Total — 16,831 — — 16,831

Note :

This is the first year of applicability of account of Accounting Standard –17 “Segment Reporting” for the Company. Accordingly, previous year

figures have not been given.




187

7. Managerial Remuneration

Employee Costs include remuneration to Chief Executive Officer ( appointed as Manager under the Companies Act, 1956 )

(Rs. in ’000s)

Particulars Year ended Year ended

31-03-2005 31-03-2004

Salary and Allowances 1,195.40 NIL

Contribution to Provident Fund 135.60 NIL

Perquisites ( valued as per IncomeTax Act 1961 , wherever applicable ) 14.40 NIL

8. Expenditure in Foreign Currency on account of:

Travelling — 35

Subscription 229 228

9. Additional information pursuant to the provisions of paragraphs 3, 4C and 4D of Part II of Schedule VI to The Act.

Class of Goods Cable Modems VoIP Boxes

Year 2004-05 2003-04 2004-05 2003-04

Opening Stock

Quantity (Nos.) 138 202 — 12

Value (Rs. in ‘000s) 163 1,058 — 116

Purchases (net of returns)

Quantity (Nos.) 600 — — —

Value (Rs. in ‘000s) 1,909 — — —

Adjustment for modems capitalized

Quantity (Nos.) — — — (10)

Value (Rs. in ‘000s) — — — (96)

Sales

Quantity (Nos.) 681 64 — 2

Value (Rs. in ‘000s) 1,563 500 — 35

Closing Stock

Quantity (Nos.) 57 138 — —

Value (Rs. in ‘000s) 143 163 — —

10. Earning Per Share (Basic and Diluted)

2004-2005 2003-2004

Loss after Tax (Rs. in ‘000) 20,170 21,079

Weighted Average Number of Equity Shares 10,000,000 52,04,918

Loss Per Share (Rs.) 2.02 4.06

Nominal value of Equity Share 10 10

11. Information, to the extent not disclosed, with regard to other matters specified in Part II of the Schedule VI to The Act, are either nil or not

applicable to the Company for the year ended 31st

March 2005.

12. Refer annexure for additional information pursuant to Part IV of Schedule VI to the Act.

13. Previous year’s figures have been regrouped/ rearranged, wherever necessary.

Schedules A to Q form an integral part of the Accounts.













188



Registration No. 8 8 4 8 7 State Code 1 1

Balance Sheet Date 3 1 0 3 0 5

I I Capital raised during the year (Amount in Rs. Thousands)


N I L N I L


N I L N I L



1 2 4 4 3 7 1 2 4 4 3 7

Sources of Funds


1 0 0 0 0 0 N I L


4 3 7 2 4 0 0 0



3 8 7 9 0 N I L


+ — Net Current Assets Miscellaneous Expenditure

� 1 7 9 6 6 6 2 4

Accumulated Losses

1 0 2 9 9 0


Turnover Total Expenditure

7 2 8 3 3 9 3 0 0 3


+ — Profit/Loss Before Tax + — Profit/Loss After Tax

� 2 0 1 7 0 � 2 0 1 7 0


+ — Earning per Share in Rs. Dividend Rate %

� 2 . 0 2 N I L


Item Code No. (ITC Code): NA Product Description

N O T I N T E R N E T

A P P L I C A B L E S E R V I C E

P R O V I D E R


S. Solomon Raj K.C. Samdani Brig. T.M. Sridharan (Retd.) Milind Hukeri

Director Director Chief Executive Officer Company Secretary

Mumbai

Dated : 28th June, 2005


Additional information pursuant to Part IV of Schedule VI to the Act


189

IndusInd Telecom Network Ltd.

Directors’ Report

TO THE MEMBERS OF INDUSIND TELECOM NETWORK LIMITED, MUMBAI

Your Directors are pleased to present their Ninth Annual Report

together with Audited Accounts for the year ended March 31st, 2005.

Financial Results

During the year ended 31st March 2005, we are pleased to report that

your Company has made a net profit of Rs. 2549.99 million as against a

net loss of Rs. 6.93 million in the previous year. Although there is no

operating profit during the year, the net profit represents the book

profit arising out of the exchange of shares of Fascel Ltd. against

shares of Hutchison Max Telecom Ltd.

The net Profit carried forward in the books as at the end of the year

is as under:

(Rs. in 000s)

Profit for the year ended 31.3.2005 25,49,996

Less: Balance brought forward from

the previous year (DR) 1,70,064

Net Profit carried to Balance Sheet. 23,79,932

Dividend

Your Directors do not recommend any dividend as there is no operating

profit during the period under review.

Consolidation of Fascel Ltd. (Fascel) with Hutchison Max Telecom

Ltd. (HMTL)

Hutch Group, prior to the IPO of its Cellular Telecom holdings in India,

started the process of consolidating all its cellular operating companies

with HMTL, which is the cellular operator in Mumbai. The consolidation

of Fascel, being one of the operating companies, with HMTL was

completed on 1st February, 2005.

Based on valuation of all circles, taking into account their current

performance and future potential, Fascel’s equity valuation was placed

at around 17.03% of the consolidated entity. In exchange for its equity

in Fascel, the company was allotted 5.11% of the equity in HMTL. This

translated into 1,75,35,271 equity shares of Rs.10 each in HMTL.

In view of the above consolidation, Fascel has become a 100% subsidiary

of HMTL. Consequently all the directors of the Company on the Board of

Fascel tendered their resignations effective 1st February, 2005 and

Mr. Y. M. Kale, Chairman of your Company was appointed as Director

on the Board of HMTL with effect from 1st February, 2005.

Performance Review of Hutchison Max Telecom Ltd.

During the year under review, HMTL has widened its innovative and

user-friendly services to include GPRS and EDGE services on a wider

scale. It achieved a landmark of reaching 1.4 million subscribers and

continues to be the market leader, having a market share of 40% as at

31 December 2004 in a very competitive 6-player market. The subscriber

base increased by 43% from 1,004,197 subscribers to 1,439,568.

The blended Minutes of Usage (MOU) per subscriber increased to 398 per

month in the current year as against 350 per month in the previous year.

The blended Airtime Revenue per Subscriber (ARPU) was Rs. 558/- per

month in the current year as against Rs. 642/- per month in previous

year. The reduction was largely due to lower tariffs in an increasingly

competitive environment.

HMTL has further expanded its network to increase its coverage.

During the year the Company added 124 cell sites to enhance its

network coverage, closing with 755 cell sites as at 31 December 2004.

The sharing of infrastructure (cell sites) was continued during the

previous year and as at 31 December 2004, 197 cell sites were shared

with other cellular operators.

Outlook of HMTL

The year 2004 was a benchmark year for HMTL having achieved

substantial growth in the subscriber base. The year ahead is expected

to bring a change in the regulatory environment for HMTL with the

proposed regulations for spectrum, interconnection, unified licensing

and foreign ownership. Further market consolidation is expected,

which should rationalize the competitive environment. HMTL continues

to focus not just on subscriber growth but on revenue and profit

growth and aims to continue to be the preferred supplier of world

class services at costs that are affordable to the Indian consumer.

Rights issue

In view of the exchange of Fascel shares for shares of HMTL, your

Company was liable to pay the Minimum Alternate Tax (MAT) of Rs.

21.75 crores. In order to arrange the MAT payment as also other

estimated tax liabilities, your Company made a rights issue of 75,00,000

equity shares of Rs. 10/- each at a premium of Rs. 20/- per share

pursuant to approval of the shareholders at the Extra-ordinary General

Meeting held on 21st February, 2005. The Authorised Capital of the

Company was also increased from Rs. 165 crores to Rs. 165.80 crores

to accommodate the aforesaid rights issue.

Dematerialisation of shares

During the year, the shares of your Company were admitted for

dematerialization with National Securities Depository Limited. M/s.

Sharepro Services has been appointed as the Registrar and Share

Transfer Agent of your Company.

Public Deposit

During the year under review, your Company has not accepted any

deposits from the public pursuant to the provisions of Section 58A of

the Companies Act, 1956 and the Rules made thereunder.

Directors

During the year under review, Mr. K. V. Seshasayee and Mr. Toshiyuki

Kato resigned from your Company’s Board with effect from 11th October,

2004 and 21st February, 2005 respectively. The Board wishes to place

on record its sincere appreciation of the valuable guidance provided by

Mr. Seshasayee and Mr. Kato during their tenure as Directors.

Mr. K. Thiagarajan was appointed as Additional Director of your

Company with effect from 11th October, 2004 and will hold office upto

the date of the ensuing Annual General Meeting. The Company has

received a notice from a Member of your Company signifying its

intention to propose the candidature of Mr. K. Thiagarajan as Director

liable to retire to by rotation.

Mr. Hidemoto Fukuzawa was appointed as Director in place of Mr.

Toshiyuki Kato with effect from 21st February, 2005.

Mr. Marian Menezes ceased to be an alternate director of Mr. Toshiyuki

Kato with effect from 21st February, 2005 and was simultaneously

appointed as alternate director to Mr. Hidemoto Fukuzawa with effect

from the said date.

In accordance with the Articles of Association of the Company, Mr. Y. M.

Kale will retire by rotation and being eligible, offer himself for re-

appointment.

Audit Committee

In view of changes in directorate, the Audit committee was reconstituted

during the year. At present the members of the Audit Committee are

as under:-

1. Mr. K. Thiagarajan (Chairman)

2. Mr. Y. M. Kale

3. Mr. Hidemoto Fukuzawa

Directors Responsibility Statement

Your Directors confirm:

1. That in the preparation of the annual accounts, the applicable

accounting standards have been followed;

2. That the Directors have selected such accounting policies and applied

them consistently and made judgments and estimates that are


state of affairs of the Company for that year;

3. That the Directors had taken proper and sufficient care for the

maintenance of adequate accounting records in accordance with

the provisions of the Companies Act, 1956 for safeguarding the

assets of the Company and for preventing and detecting fraud and

other irregularities;

4. That the Directors have prepared the annual accounts on a going

concern basis.

Auditors

M/s. Shah & Co. the Auditors of the Company retire and are eligible for re-

appointment. The members are requested to appoint Auditors for the

current year and fix their remuneration at the Annual General Meeting.

The observations made by the Auditors in the Auditors’ Report with

reference to notes on the accounts for the current period are self-

explanatory and need no further comments from the Directors.

Particulars of employees

No employee of the Company is in receipt of remuneration aggregating

of Rs. 24,00,000/- or more per annum.

Information as per Section 217(1)(e) of the Companies Act, 1956

read with the Companies (Disclosure of Particulars in the Report

of the Board of Directors) Rules, 1988

A. Conservation of energy & technology absorption:


no particulars to be disclosed relating to the year under review.

B. Foreign exchange earnings and outgo: NIL

On behalf of the Board

Place: Mumbai Y. M. Kale

Date : 28th

June, 2005 Chairman


190

To The Members of Indusind Telecom Network Limited

1. We have audited the attached Balance Sheet of Indusind Telecom

Network Limited, as at 31st March 2005 and also the Profit and

Loss Account and the Cash Flow Statement of the Company for the

year ended on that date annexed thereto. These financial




2. We conducted our audit in accordance with the auditing standards







significant estimates made by management, as well as evaluating

the overall financial statement presentation. We believe that our

audit provides a reasonable basis for our opinion.




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 above, we

report that:



the purpose of our audit.

b) In our Opinion proper books of account as required by law


examination of such books.


March, 2005 but the company has incurred cash losses in the

immediately preceding financial year.

viii. According to the information and explanations given to us the

company has not granted any loans or advances on the basis of

security by way of pledge of shares, debentures and other

securities.

ix. The company is not a chit fund/nidhi/mutual benefit fund/society.

Therefore, the provisions of clause 4(xiii) of the Companies

(Auditors’ report) Order, 2003 are not applicable to the company.

x. The company is not dealing in or trading in shares, securities,

debentures and other investments. Accordingly, the provisions of

clause 4(xiv) of the Companies (Auditors’ report) Order, 2003 are

not applicable to the company.

xi. According to the information and explanations given to us the

company has not given any guarantee during the year for loans

taken by others from banks or financial institutions.

xii. According to the information and explanations given to us, the

company has not taken any term loans during the year.

xiii.According to the information and explanations given to us, the

company has made preferential allotment of shares to parties and

companies covered in the register maintained under section 301

of the Act. In our opinion the price at which shares have been

issued is not prejudicial to the interest of the company.

xiv. The company has not issued any debentures in the year under

report.

xv. The company has not raised any money by way of public issue

during the year.

xvi.According to the information and explanations given to us, no

fraud on or by the company has been noticed or reported during

the year ended 31st March 2005.

xvii.Other Clauses No 4. (ii) (a) to (c), 4 (iv), 4 (viii), 4 (xi) and 4 (xvii)

of the Companies (Auditor’s Report) Order, 2003 are not applicable

to the Company for the year under report.

FOR SHAH & CO.,


Indulal H. Shah


Date : 28th


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) The Balance Sheet the Profit and Loss Account and the Cash

Flow Statement dealt with by this report comply with the

accounting standards referred to in section 211(3C) of the of

the Companies Act, 1956.

e) On the basis of the written representations received from

the directors as on 31st March 2005 and taken on record by

the Board of Directors we report that none of the directors

are disqualified as on 31st March, 2005 from being appointed

as a director in terms of clause (g) of sub-section (1) of section


f) In our opinion and to the best of our information and according

to the explanations given to us, the said accounts read together

with the notes in schedule I, 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 Balance Sheet of the state of affairs of the

company as at 31st March,2005.

ii) In the case of Profit and Loss Account of the “PROFIT” of

the company for the year ended on that date.

and

iii) in the case of Cash Flow Statement of the cash flows of the

company for the year ended on that date.

FOR SHAH & CO.


Indulal H. Shah


Date : 28th


i. The Company does not have any Fixed Assets and hence, provision

of clasue 4(i)(a,b,c) are not applicable to the company.

ii. (a) The Company has not accepted any loans during the year from

the parties covered in the register maintained under section


In view of clause 4 (iii)(a) of the Comapnies (Auditor’s Report)

Order, 2003 clause 4 (iii)(b, c & d) are not applicable to the

Company.

(b) The Company has not granted any loans during the year to the

parties covered in the register maintained under section 301


In view of clause 4 (iii)(e) of the Companies (Auditor’s Report)

Order, 2003 clause 4 (iii) (f & g) are not applicable to the

Company.

iii. According to the information and explanations given to us, there

are no transactions that need to be entered into the register

maintained under section 301 of the companies Act, 1956.

Accordingly, clause v(b) of paragraph 4 of the order is not applicable

to the company for the current year.

iv. As the company has not accepted any Deposits from the public

within the meaning of Sections 58A and 58AA or any other relevant

provisions of the Companies Act, 1956, Clause 4(vi) of the Companies

(Auditors’ Report) Order 2003 is not applicable to the Company.

v. In our opinion, the company has an internal audit system


vi. (a) The company is regular in depositing with appropriate

authorities undisputed statutory dues including provident fund,

Investor Education and Protection Fund, employees state

insurance, income tax, sales tax, wealth tax, service tax,

custom duty, excise duty, cess and other material statutory

dues wherever applicable to it.


there are no dues of wealth tax, service tax, sales tax,

customs duty, excise duty and cess which have not been

deposited on account of any dispute. Income tax of Rs. 25.37

Lacs has not been deposited on account of a dispute (Refer

Note No. B(1) in Schedule I).

vii. The company has no accumulated losses as at 31st March, 2005 and

it has not incurred any cash losses in the financial year ended 31st

Annexure To The Auditors’ Report

(Referred in Para 3 of our Report of even date)

Auditors’ Report


191


For Shah & Co. Y.M. Kale Yagnesh Sanghrajka

Chartered Accountants Chairman Manager

K.Thiagarajan Rajkumar Ghoshal

Director Company Secretary

Indulal H. Shah M. Menezes

Partner Director

Membership No. 798


Date : 28th

June, 2005 Date : 28th

June, 2005



(Rs.in’000s)

For the For the

Schedule Year ended Year ended

31-03-2005 31-03-2004

INCOME

Interest 30 80

Dividend 45 65

Profit on Sale of Long Term

Investment 2,769,357 —

TOTAL 2,769,432 145

EXPENDITURE

Administrative and

other Expenses H 1,408 1,341

Financial Expenses

(Interest) — 1,572

TOTAL 1,408 2,913

Profit/ (Loss) Before Taxation 2,768,024 (2,768)

Provision for Current Tax

(Refer Note B 10 in Schedule I) 217,500 —

2,550,524 (2,768)

Income Tax provision for Earlier Year 528 4,164

Profit/ (Loss) for the Year 2,549,996 (6,932)

Add : Balance brought forward

from last year (170,064) (163,132)

Balance carried to Balance Sheet 2,379,932 (170,064)

Earning Per Share (Rs.)

(Basic and Diluted) 16.103 (0.044)

Balance Sheet as at 31st March, 2005

(Rs.in’000s)

Schedule As at As at

31-03-2005 31-03-2004

SOURCES OF FUNDS


Share Capital A 1,657,906 1,582,906

Reserves and Surplus B 2,696,977 167,045

4,354,883 1,749,951

TOTAL 4,354,883 1,749,951


Investments C 4,356,894 1,580,080

Current Assets,Loans

and Advances

Cash and Bank Balances D 130 1,654

Loans and Advances E — 16

130 1,670

Less : Current Liabilities

and Provisions

Current Liabilities F 3,341 3,363

3,341 3,363


Miscellaneous Expenditure G 1,200 1,500

(To the extent not written

off or adjusted)

Profit & Loss Account — (170,064)

TOTAL 4,354,883 1,749,951


Significant Accounting Policies and Notes To Accounts I


192


(Rs.in ’000s)

As at As at

31-03-2005 31-03-2004

SCHEDULE D

Cash and Bank Balances

Cash on hand ** — —

Bank balance with a Scheduled Bank

in current account 130 1,654

TOTAL 130 1,654

** (As at 31.03.2005 : Rs. 631/-)

SCHEDULE E

Loans and Advances

Advance Tax and TDS (Net of — 16

provisions)

TOTAL — 16

SCHEDULE F

Current Liabilities and Provision


Provision for Taxation

(Net of Advance Tax) 502 —

TOTAL 3,341 3,363

SCHEDULE G


(To the extent not written off

or adjusted)

Preliminary Expenses 1,200 1,500

TOTAL 1,200 1,500

SCHEDULE H

Administrative and Other Expenses

Salaries — 738

Legal and Professional Fees 791 178


– As Auditors 22 22

– For Other Matters 2 2

Filing Fees 10 7

Share Issue Expenses Written Off 281 —

Other Expenses 2 94

Preliminary Expenses / Share Issue

Expenses written-off 300 300

TOTAL 1,408 1,341


Schedules Forming Part of the Balance Sheet and Profit & Loss Account for the year

ended 31st March, 2005






I.H. Shah M. Menezes

Partner Director

Membership No. 798


Date : 28th


June, 2005

(Rs.in ’000s)

As at As at

31-03-2005 31-03-2004

SCHEDULE A

Share Capital

Authorised


of Rs. 10 /- each (As at

31 st March 2004 :

165,000,000 shares) 1,658,000 1,650,000

Issued, Subscribed and Paid Up

165,790,550 Equity Shares of

Rs. 10/- each 1,657,906 1,582,906

fully paid - up

(Refer Note B 3 in Schedule I)

(As at 31 st March 2004 :

158,290,550 shares)

SCHEDULE B

Reserves and Surplus

Share Premium Account

As per last Balance Sheet 57,295 57,295

Addition during the year 150,000 —

(Refer Note B 3 in Schedule I)

207,295 57,295

Capital Redemption Reserve

As per last Balance Sheet 109,750 109,750

Profit and Loss Account 2,379,932 —

TOTAL 2,696,977 167,045

SCHEDULE C

Investments (At Cost) - Long Term

Unquoted

Nil (previous Year 150,000,000

Equity Shares of Rs. 10/- each — 1,579,215

of Fascel Limited, fully paid - up.)

17,535,271 Equity Shares of

Rs. 10/- each of 4,348,572 —

Hutchison Max Telecom Limited.

Received in exchange of

150,000,000 Equity shares

of Rs.10/- each of Fascel Limited,

at a premium of Rs.237.99 per

Equity share.

Quoted

Mutual Fund Investment — 865

(81,702 units of Rs.10.58 each

of Grindlays Cash Fund)

(Previous Year Rs.8.65 Lacs)

Mutual Fund Investment 8,322 —

(8,32,125 units of Rs.10.0007

each of Principal Pnb Asset

Management company Pvt. Ltd.)

(Market Value Rs.83.22 Lacs)

(Previous Year: Rs.Nil)

TOTAL 4,356,894 1,580,080

Aggregate Value of Unquoted

Investments 4,348,572 1,579,215

Aggregate Value of Quoted

Investments 8,322 865

4,356,894 1,580,080


193

SCHEDULE I

Notes Forming part of the Balance Sheet and Profit & Loss Account for

the year ended 31 st March, 2005.

A Significant Accounting Policies

1. Method of Accounting

The Company is following accrual basis of accounting.

2. Long-term investments are stated at Book Value (Refer Note

No. B (4) below)

3. Transactions in Foreign Currency:

Transactions in Foreign currency are recorded at the exchange

rate prevailing on the date of transaction.

4. (a) The provision for taxation is ascertained on the basis of

assessable profits computed in accordance with the

provisions of the Income-tax Act, 1961.

(b) Deferred tax is recognized, subject to the consideration

of prudence, 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 are

not recognized on unabsorbed depreciation and carry

forward of losses unless there is virtual certainty that

sufficient future taxable income will be available against

which such deferred tax assets can be realized.

5. Preliminary/ share issue expenses are being written off over

a period of ten years.

B Notes to Accounts

1. Contingent Liabilities in respect of:

Taxation Matters - Rs.2,537(000) (Previous Year Rs. Nil)

pertaining to the Assessment Year 1999 – 2000. The Company

expects the appeals to be decided in its favour.

2. Share Capital – Of the Issued, Subscribed and Paid up Capital,

101,302,525 Equity Shares of Rs.10/- each are held by the

Holding Company, Hinduja TMT Limited.

3. Rights Issue: As per the provisions of Section 81 of the

Companies Act 1956, in the year under review, the Company

has issued 7,500,000 Equity Shares of Rs.10/- each at a premium

of Rs.20/- per share aggregating to Rs.225,000(000) on Rights

Basis to the existing Shareholders of the Company

4. During the year under review the company has received

17,535,271 Equity shares of Rs.10/- each of Hutchison Max

Telecom Ltd at a premium of Rs.237.99 per Equity Share in

Exchange of 150,000,000 Equity Shares of Rs.10/- each of

Fascel Ltd.,

5. As per the Accounting Standard 22 (AS 22) “Accounting for

Taxes on Income”, the accumulated Deferred Tax Asset as on

31.03.2005 has not been recognized in the books of account in

view of Prudential Accounting Norms followed by the company.

6. Earning per Equity Share 2004-05 2003-04

(Basic and Diluted)

Profit /(Loss) (Rs.’000s) 2,549,996 (6,932)

Weighted Average Number

of Equity Shares outstanding

during the year 158,352,658 156,503,249

Basic and Diluted Earnings

Per Equity Share (Rs.) 16.103 (0.044)

7. Related Party Transactions :

a) Related party where control exists :

1. Ultimate Parent Company: Hinduja TMT Ltd.

2. Associate Company : Hinduja Group India Ltd.

b) The Company has entered into following transactions with

the related parties :

Nature of (Rs. ‘000s)

Transactions 2004-05 2003-04

Ultimate Parent Reimbursement

Company of Legal Expenses 30 —

Interest Paid — 1,532

Associate Reimbursement

Company of Deputation 519 738

Expenses

Net outstanding payable at the year end

Hinduja TMT Ltd 28 NIL

Hinduja Group 123 700

India Ltd

8. Segment Reporting : The Company’s main object is to undertake

and to provide Basic and Cellular Mobile Telephone Services

and has an investment in Telecommunication company’s shares

which constitutes a single business segment. As such, segment-

reporting disclosure as envisaged in AS-17 is not applicable to

the Company.

9. Additional Information pursuant to paragraph 4C and 4D has

not been given, as the company has not done any trading

business or service Activity.

10. Income Tax Matter:

Provision for Income Tax under MAT (As per Section 115JB) of

Rs.217,500(000) for the assessment year 2005-06 has been

made in the accounts as approved by the Board of Directors.

11. Expenditure in foreign currency Rs. Nil.

12. Previous year’s figures have been regrouped wherever

necessary.


Schedules Forming Part of the Balance Sheet and Profit & Loss Account for the year

ended 31st March, 2005







Partner Director

Membership No. 798


Date : 28th


June, 2005


194


Cash Flow Statement for the year ended 31st

March, 2005

(Rs. In ‘000s)

2004-2005

A Cash Flow from Operating Activities :

Net Profit before tax and extraordinary items 2,768,024

Adjustments for :

Share Issue and Deferred Revenue Expenses Written off 300

Profit on sale of Long Term Investments (2,769,357)

(2,769,057)

Operating profit before working capital changes (1,033)

Adjustments for :

Trade Payables (22)

Other Receivables 16

(6)

Operating profit after working capital changes (1,039)

Direct Taxes Paid (218,028)

(218,028)

Net Cash from Operating Activities (A) (219,067)

B Cash Flow from Investing Activities :

Investments Made (1,587,559)

Investments Sold 1,580,102

(7,457)

Net cash from Investing Activities (B) (7,457)

C Cash Flow from Financing Activities :

Proceeds from Right Issue 225,000

225,000.00

Net Cash from Financing Activities (C) 225,000.00

Net Increase/ (decrease) in Cash and Cash equivalents (A + B + C) (1,524)

Cash and Cash equivalents as at the beginning of the year 1,654

Cash and Cash equivalents as at the end of the year 130

Cash and Cash Equivalents comprise :

Cash on Hand —

Balances with Scheduled Banks in

- Current Accounts 130

- Margin Money Account

130

Notes

1 The above cash flow statement has been prepared under the “Indirect Method” as set out in the Accounting Standard-3 on Cash Flow Statement,

issued by the Institute of Chartered Accountants of India.

2 This is the first year of applicability of account of Accounting Standard-3 “ Cash Flow Statement “ for the Company. Accordingly, previous year

figures have not been given.







Partner Director

Membership No. 798


Date : 28th


June, 2005


195


Registration No. 8 7 6 5 7 State Code. 1 1

Balance Sheet Date 3 1 0 3 0 5



N I L 7 5 0 0 0


N I L N I L



4 3 5 4 8 8 3 4 3 5 4 8 8 3

Sources of Funds


1 6 5 7 9 0 6 2 6 9 6 9 7 7

Share Application Money Unsecured Loans

N I L N I L



N I L 4 3 5 6 8 9 4


(3 2 1 1) 1 2 0 0

Accumulated Losses

N I L


Turnover Total Expenditure

2 7 6 9 4 3 2 1 4 0 8



� 2 7 6 8 0 2 4 � 2 5 4 9 9 9 6



� 1 6 . 1 0 3 N I L


Item Code No. (HS Code): Product Description

N O T N O T

A P P L I C A B L E A P P L I C A B L E



Additional information pursuant to part IV Schedule VI to the Act








Partner Director

Membership No. 798


Date : 28th


June, 2005

REGISTERED & CORPORATE OFFICE

BANGALORE

MUMBAI

Hinduja TMT Ltd.

Hinduja House, 171, Dr. Annie Besant Road

Worli, Mumbai 400 018 INDIA

91-22-24966350/51

91-22-24937374

[email protected]

Hinduja TMT Ltd.

HTMT House No. 614, Vajpayee Nagar,

Bommanahalli Hosur Road,

Bangalore - 560 068 INDIA

91-80-25732620/50

91-80-25731592

[email protected]

Hinduja TMT Ltd.

In-Centre, 49/50 MIDC, 12th Road,

Marol, Andheri (East),

Mumbai 400 093 INDIA

91-22-28248300/4/8

91-22-28248366/67

MAURITIUS

NEW JERSEY, USA

Hinduja TMT Ltd.Wing 'A', 3rd Floor,Cyber Tower,Ebene, Cybercity Rose HillMauritius

00230 7249886

Source 1 HTMT Inc.

1280 Wall Street West

Lyndhurst, New Jersey 07071

201-508-5000

201-508-5088

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NEW YORK, USA

TORONTO, CANADA

MANILA, PHILIPPINES

LONDON, UK

PARIS, FRANCE

HTMT Inc.

520, Madison Avenue, 40th Floor,

New York,

NY 10022, USA

212-471-8688

212-7527312

[email protected]

Source 1 HTMT Inc.th777 Bay Street, 27 Floor

Toronto Ontario M5G 2C8

416-847-7199

416-642-7119


Source One Communications Asia Inc.



E. Rodriguez Jr. Avenue,

Libis, Quezon City 1110

Philippines

63-2-434-5144

63-2-434-5122

[email protected]

HTMT Europe Ltd.

New Zealand House,th13 Floor, 80 Haymarket,

London, SW1Y UK

44-207-839-4661

44-207-839-4337

[email protected]

Hinduja TMT France

33, Rue Galilee

75116, Paris

[email protected]

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HTMT - Annual Report 2005196

Contact us...

Services

Head Office

Development / Delivery Centres

Marketing Offices

Share Data :

Stock Exchanges

Stock code (BSE/NSE)

Reuters Code

52 week Range

Current Market Price (Rs.)

Market Capitalisation (Rs. Crs)

Shareholding Pattern (30-6-2005)

Financial Data

Total Income

Stand Alone

Consolidated

Net Profit

Stand Alone

Consolidated

Share Capital

EPS (Rs.)

Stand Alone

Consolidated

Book Value (Rs.)

Stand Alone

Consolidated

Key Subsidiaries

Customer Care Centre Inc.

Source One HTMT Inc.

IndusInd Media & Communications Ltd

InNetwork Entertainment Ltd

In2Cable (India) Ltd

IT & ITES-BPO services

Mumbai

Mumbai, Bangalore, Manila, New Jersey &

Toronto

New York, London, Paris

BSE / NSE

500189 / HTMT

HTMT.BO / HTMT.NS

127 - 403

339 (as on 19th August, 2005)

1,386

Promoters - 67.75%

Institutional Investors - 18.32%

Corporate Bodies - 7.07%

Individuals / Others - 6.86%

Rs. 167 Crores

Rs. 614 Crores

Rs. 70 Crores

Rs. 231 Crores

Rs. 40.9 Crores

17.13

56.54

119

130

Call Center Services

Call Center & Mktg. Services

Multiple System Operator

Television-Film content

Broadband Internet Services

up 3% yoy

up 115% yoy

down 7% yoy

up 175% yoy

51%

100%

62%

100%

100%

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_______________________________________

_______________________________________

_______________________________________

_______________________________________

_______________________________________

Key data 2005

Key data

2005

Annual Report 2005

Web Presence

www.htmtoutsourcing.com

Websites

www.hindujatmt.com

www.c-cubeservices.com

www.sourceonehtmt.com

www.hindujagroup.com

Forward-looking statements

In this Annual Report we may have disclosed certain forward-looking realised, although we believe we have been prudent in assumptions.

information to enable investors to comprehend our prospects and take The achievement of results is subject to risks, uncertainties and even

informed investment decisions. This report and other statements - inaccurate assumptions at times.

written and oral - that we periodically make may contain forward-

looking statements that set out anticipated results based on the Should known or unknown risks or uncertainties materialise, or should

management's plans and assumptions. We have tried wherever underlying assumptions prove inaccurate, actual results could vary

possible to identify information with words such as 'anticipate', materially from those anticipated, estimated or projected. Readers

'estimate', 'expects', 'projects', 'intends', 'plans', 'believes', and words should bear this in mind.

of similar substance in connection with any discussion of future

performance. We undertake no obligation to publicly update any forward-looking

statements, whether as a result of new information, future events

We cannot guarantee that these forward-looking statements will be or otherwise.

H I N D U J A G R O U P

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