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Notes to Accounts of UFO Moviez India Ltd.

Mar 31, 2015

1. Corporate information

UFO Moviez India Limited (the Company) is a public company domiciled in India and incorporated on June 14, 2004 under the provisions of the Companies Act, 1956. The Company is into the business of providing digital cinema services.

On May 14, 2015, the Company completed the IPO through offer for sale of 9,600,000 equity shares of Rs. 10 each at a price of Rs. 625 per equity share of Qualified Institutional Bidders, Non Institutional Bidders and Retail Individual Bidders aggregating upto Rs. 6,000,000,000 and the equity shares of the Company were listed on the National Stock Exchange of India Limited and The BSE Limited.

2. Basis of preparation

The financial statements of the company have been prepared in accordance with generally accepted accounting principles in India (Indian GAAP). The company has prepared these financial statements to comply in all material respects with the accounting standards notified under section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules 2014. The financial statements have been prepared under the historical cost convention on an accrual basis.

The accounting policies adopted in the preparation of financial statements are consistent with those of previous year.

3. Terms/rights attached to equity shares

Voting rights:

Each holder of equity shares having a par value of Rs. 10 per equity share is entitled to one vote per equity share.

Rights to Dividend:

The equity shareholders have right to receive dividend when declared by the Board of Directors, subject to approval in the General Meeting.

Subsequent to the year end, the following rights and restrictions as at March 31,2015 were automatically terminated on the commencement of trading of the Equity Shares of the Company on any recoginsed stock exchange pursuant to the IPO i.e. on May 14, 2015.

Pre-emption rights:

In the event the Company proposes to issue any securities to any person, then P5 Asia Holding Investments (Mauritius) Ltd. (P5) and 3i Research (Mauritius) Limited (3i) (collectively called Investor Group and individually Investor) have a right to subscribe to the issue on a pro-rata basis, in proportion to their respective shareholding in the Company on the same terms, as the issue is proposed, such that their respective shareholding is maintained at least at the level prior to such issuance.

Right of First Offer, Right of Sale and tag along rights:

In the event Apollo Group (comprising of Apollo International Limited and an individual shareholder) and VTL Group (comprising of Valuable Technologies Limited, Valuable Media Limited and two individual shareholders) (collectively called Group A Shareholders) propose to transfer all or part of their securities to any person, shall first offer to the Investor Group, a pro rata right to purchase all their Shares. Investors Group shall have the right to exercise certain specified tag along rights in case the Group A shareholders proposes to transfer any securities to any person in certain cases as defined in Articles of Association (AOA).

In the event either of 3i or P5 propose to sell any or all of their securities held by them in the Company, it shall first offer the other Investor and the Group A Shareholders a right to purchase all their shares.

The Investor Group has the right to sell their entire shareholding in the Company at any time after expiry of certain specified period subject to certain specified conditions as defined in the AOA of the Company. Such shareholders also have the right to exercise drag along rights as stipulated in the AOA of the Company.

Rights pertaining to repayment of capital:

In the event of certain specified liquidation events as defined in the AOA, the proceeds of such events will be distributed between shareholders in the manner specified in the AOA of the Company.

Other rights:

P5, 3i, Apollo Group and VTL Group have right to have their representatives on the Board of Directors of the Company.

Certain specified reserved matters such as change in the share capital of the Company, material related party transactions, raising of debt, declaration of dividends, change in senior management including key business matters requires the consent of the Investor Group Shareholders.

Restrictions:

The Securities held by Group A Shareholders are locked-in and they cannot transfer any securities held by them without Investors' consent, until the shareholding of each of the Investors in the Company falls below the Minimum Requisite Shareholding as defined in the AOA.

The Investor Group cannot transfer shares held by them in favour of any competitor as defined in the AOA of the Company or enter into an agreement for the transfer of shares to any competitor, subject to certain specified conditions.

4. Gratuity and other post-employment benefit plans

The Company has a defined benefit gratuity plan. Every employee who has completed five years or more of service gets a gratuity on departure at 15 days salary (last drawn salary) for each completed year of service. The scheme is funded with an insurance company in the form of a qualifying insurance policy.

5. Employee stock option plans

The Company has three ESOP Schemes viz.,ESOP Scheme 2006,ESOP Scheme 2010 and ESOP Scheme 2014.

Employee Stock Option Scheme 2006 ('ESOP Scheme 2006')

All Options granted under ESOP Scheme 2006 are vested. The Shareholders of the Company in their Annual General Meeting held on August 17, 2011 had revised the terms and conditions of the Exercise Period of the Options granted under ESOP Scheme 2006 to make it in consonance with ESOP Scheme 2010. The salient features with respect to the revised terms and conditions of the Exercise Period for ESOP Scheme 2006 are as follows:

i) For the employees while in employment of the Company : All options vested can be exercised within a period of one year from the date on which the shares of the Company get listed on a recognized stock exchange.

ii) For the retired employees, termination due to permanent disability, death: All vested options may be exercised immediately after but in no event later than six months from the date of listing with a recognised stock exchange.

6. Employee Stock Option Scheme 2010 (‘ESOP Scheme 2010’)

Based on the recommendations of the Compensation Committee the ESOP Scheme 2010 was approved by the Board at its meeting held on October 15, 2010 and was subsequently approved by the shareholders at the annual general meeting held on November 22, 2010.

Under ESOP Scheme 2010 a total number of 1,413,497 options were granted in the year ended March 31, 2011 at an exercise price of Rs. 161.87 per share. As per the ESOP Scheme 2010, 25% of the options shall vest at the end of each year from the date of grant.

During the year 2013-14, the Company granted a total number of 174,157 options at an exercise price of Rs. 178.18 per share to certain employees and key managerial personnel of the Company and certain employees of subsidiaries. Out of the options granted, in respect of 82,157 options 25% vest equally over a period of 4 years from the date of grant and in respect of 92,000 options entire options vest at the end of one year from the date of grant.

The Board at its Extra Ordinary General Meeting held on October 24, 2014 approved the modification in vesting period of 82,157 options from being vested equally over a period of 4 years from the date of grant to one year from the date of grant.

The Board at its Extra Ordinary General Meeting held on October 24, 2014 approved the change in exercise period of vested options from two year to one year from the date on which the shares of the Company get listed on a Recognized Stock Exchange.

Exercise period for options under ESOP 2010 is as follows:

i) For the employees while in employment of the Company : All options vested can be exercised within a period of one year from the date on which the shares of the Company get listed on a Recognized Stock Exchange.

ii) For the retired employees, termination due to permanent disability, death: All vested options may be exercised immediately after but in no event later than six months from the date of listing with a recognised stock exchange.

7. Employee Stock Option Scheme 2014 (‘ESOP Scheme 2014’) :

The Compensation Committee recommended the new ESOP Scheme 2014 and the Board approved the new ESOP Scheme 2014 at its meeting held on November 11,2014 and Shareholders approved this ESOP Scheme 2014 at its meeting held on November 20, 2014.

Under ESOP Scheme 2014,the aggregate number of options to be granted is such number of stock options exercisable into 1,150,000 Equity Shares. Each option granted under the ESOP 2014 is convertible into one Equity Share. During the year ended March 31,2015, 932,500 options were granted at an exercise price of Rs. 600 per share. As per the ESOP Scheme 2014, 25% of the options shall vest at the end of each year from the date of grant.

The exercise period of these options is as follows :

i) For the employees while in employment of the Company : All options vested can be exercised within a period of two years from the date of Vesting of the respective Employee Stock Options.

ii) For the retired employees, termination due to permanent disability, death: All vested options may be exercised immediately after but in no event later than six months from the date of retirement, termination due to physical disability and death respectively.

8. Investments during the year Investments by the Company

(a) Scrabble Entertainment Limited (SEL):

During the year ended March 31, 2014, the Company exercised the option to redeem all 34,782 6% Optionally Convertible Redeemable Preference Shares (OCRPS) of Rs. 1,150 each of Rs. 39,999,300 invested in SEL.

During the year ended March 31, 2015, the Company acquired additional 14.91% stake (114,568 equity shares) in Scrabble Entertainment Limited from the minority shareholders for Rs. 249,987376. Out of the above the Company has paid Rs. 50,000,000 and balance of Rs. 199,987,376 is payable in four six monthly equal installments ending on December 31,2016. Post this investment, the Company holds 91.33% of equity share capital of SEL as at March 31,2015.

(b) Southern Digital Screenz India Private Limited (SDS)

During the year ended March 31,2015, the Company acquired additional 9% stake 386,895 equity shares in Southern Digital Screenz India Private Limited (SDS) from the minority shareholders for Rs. 109,998,117 Out of above the Company has paid Rs. 83,500,000 till March 31,2015 and balance of Rs. 26,498,117 has been paid by June 30, 2015. Post this investment, the Company holds 84.18% of equity share capital of SDS as at March 31,2015.

(c) Valuable Digital Screens Private Limited (VDSPL)

During the year ended March 31, 2015, the Company acquired 7105 equity shares representing 71.05% of equity share capital of VDSPL from Valuable Technologies Limited (VTL) for a consideration of Rs. 27,000,421. Further the Company has incurred Rs. 5,926,990 towards acquisition cost of this Investment. Subsequent to the acquisition the Company invested Rs. 17,005,895 in 4475 equity shares (fresh issue) of VDSPL. Post this investment, the Company now holds 80% equity share capital of VDSPL.

The Company will acquire the remaining 20% equity of VDSPL from VTL in the financial year 2017-18 for a further consideration to be calculated in accordance with the terms of the investment agreement.

(d) The advance of Rs. 20,000,000 paid in the previous year for acquiring stake in a company has been received back by the Company as the deal was terminated.

9. Leases

Operating lease : Company as lessee

The Company's significant leasing arrangements are in respect of operating leases taken for Office Premises, Stores & Digital Equipment's. These leases are cancellable operating lease agreements that are renewable on a periodic basis at the option of both the lessor and the lessee. The initial tenure of the office lease generally is for 11 to 36 months. The initial tenure of the digital equipments on lease generally is for 36 to 72 months.

The Company has leased out Digital Cinema Equipment to theaters, franchisees and subsidiary companies on operating lease arrangement. The lease term is generally for 5 to 10 years. The Company as well as the theaters and franchisees have an option of terminating this lease arrangement any time during the tenure of the lease as per the provisions of the lease agreement.

10. Segment reporting

The Company is engaged in the business of Digital Cinema Services and sale of digital cinema equipments ancillary to sale of services, which are subject to same risk and rewards and the financial statements reflect the result of this business segment, which is the primary segment in accordance with the requirement of Accounting Standard 17 on Segment Reporting. The Company's operations are based in same geographical segment, India.

11. Related party disclosure

Names of related parties where control exists irrespective of whether transactions have occurred or not

Subsidiaries Edridge Limited, Cyprus V N Films Private Limited Scrabble Entertainment Limited Valuable Digital Screens Private Limited (from December 31,2014) Southern Digital Screenz India Private Limited United Film Organisers Nepal Private Limited, Nepal

Step-down Subsidiaries DCLP Limited, Cyprus (upto October 3,2013) UFO Europe Limited, Cyprus* UFO International Limited, Cyprus Scrabble Entertainment DMCC, Dubai (erstwhile known as Scrabble Entertainment JLT) UFO Lanka Private Limited, Sri Lanka Scrabble Entertainment (Lebanon) Sarl, Lebanon UFO Software Technologies Private Limited, India Scrabble Digital Inc. (from August 6, 2013) Scrabble Entertainment Mauritius Limited, Mauritius Scrabble Entertainment Israel Ltd, Israel* United Film Organisers (UFO) (Mauritius) Private Limited, Mauritius

*Under voluntary liquidation

Names of other related parties with whom transactions have taken place during the year

Key management personnel Mr. Sanjay Gaikwad - Managing Director Mr. Kapil Agarwal - Joint Managing Director

Relatives of Key Ms. Apeksha Agarwal management personnel

Enterprises owned or significantly influenced by key management personnel or their relatives

Media Infotek Park Shree Enterprises Valuable Media Limited Valuable Technologies Limited Qwik Entertainment India Limited Impact Media Exchange Limited Dusane Infotech (India) Private Limited

Associate of Subsidiary Scrabble Digital Limited

Joint venture of Mukta VN Films Limited (from June 10, 2013) Subsidiary

12. Capital and other commitments

a) The Company has issued a letter of comfort to a bank for term loan of Rs. 300,000,000 (March 31, 2014 : Nil) and cash credit facility of Rs 30,000,000 (March 31,2014 : Nil) taken by subsidiary company, assuring that it will take all necessary steps so that the repayment of the loan by the subsidiary is honored as and when due and payable.

b) As indicated in note 28 (c) to the financial statements, the Company will acquire the remaining 20% equity of VDSPL from VTL in the financial year 2017-18 for a further consideration to be calculated in accordance with the terms of the investment agreement.

13. Contingent liabilities (In Rs.) 31 March 2015 31 March 2014

Dividend on 4,885,925 - 6% Cumulative Convertible Preference Shares 31,002,198 31,002,198 of Rs. 100/- each.

Corporate Guarantee to a bank on behalf of Joint venture of 70,000,000 Nil Subsidiary (Refer Note a)

Corporate Guarantee to a bank on behalf of enterprises owned or 10,000,000 Nil

significantly influenced by Key management personnel or their relatives (Refer Note b)

Pending litigations / matters

(i) In respect of Income Tax matters

In respect demand order raised 22,710,000 Nil against the Company in income tax matter for the financial year 2006-07, 2007-08, 2008-09 and 2009-10

In respect of demand raised against 1,897,700 1,897,700 the company in Mumbai TDS matter for the financial year 2006-07 & 2007-08, company has filed an appeal to the Commissioner of Income Tax.

In respect of demand raised against 717,353 717,353 the Company of penalty u/s 271 (1) (C) for the financial year 2006-07, the company has filed an appeal to the Commissioner of Income Tax.

(ii) In respect of Indirect Tax matters

In respect of show cause notice raised against the Company in Mumbai 233,200,000 Nil Service Tax matter for the financial year 2008-09,2009-10,2011-12, 2012-13 and 2013-14 ( refer note c)

In respect of demand raised against Company in Bihar VAT matter due to 5,302,273 5,302,273 non-submission of "F" forms for the financial year 2007-08 and 2008-09.

In respect of demand raised against company in West Bengal VAT matter 4,195,703 4,195,703 for the financial year 2007-08.

In respect of demand raised against company in Andhra Pradesh VAT 630,162 630,162 matter due to non-submission of "F" forms for the financial year 2008-09 & 2009-10.

379,655,389 43,745,389

(iii) The Company had made downstream investments and being a foreign owned or controlled company, there have been delays in filings to be made with the regulators within the specified period as required by exchange control regulations. The ultimate outcome of these delays in filing cannot be estimated currently on the company's financial position and results of operations.

(iv) The Company is in discussions with another media company for resolving certain disputes with respect to patents allegedly held by that company. If such disputes are decided against the Company, there could be a payment of a fee for use of such patent, which cannot be quantified as of date. Based on legal opinion obtained by the Company, the Company believes that its position is likely to be upheld.

Notes:

a) The Company has provided Corporate guarantee to bank for Overdraft facility of Rs 70,000,000 (March 31,2014 : Nil) taken by joint venture of subsidiary assuring that it will take all necessary steps so that the repayment of the loan is honored as and when due and payable.

b) The Company has provided bank guarantee of Rs 10,000,000 (March 31, 2014 : Nil) to Chief Secretary, Revenue Department, Government of Maharashtra on behalf of Impact Exchange Media Private Limited, for managing and operating satellite based computer ticketing system provider in Maharashtra.

c) The Company has received show cause notices from service tax authorities challenging the qualification of Digital Cinema Equipments as 'capital goods' under the Cenvat Credit legislation, and accordingly denying the Cenvat Credit availed on procurement of such goods which have been leased out to various theatres / third parties. The Company has filed its responses to the authorities. In an event, any liability crystallising on the Company, the Company will consider capitalising the CENVAT credit. The above liability does not include interest, if any, payable under the provision for service tax from the date of receipt of order.

d) The Company is contesting the demand/matter relating to pending litigations listed above and the management, including its advisors, believe that its position will likely be upheld in the appellate process. No expense has been accrued in the financial statements for the demand raised. The management believes that the ultimate outcome of these proceedings will not have a material adverse effect on the company's financial position and results of operations to the date of financial statements.

14. Details of dues to micro and small enterprises as defined under the MSMED Act, 2006

Based on information available with the management, there is no amount due to micro, small scale and medium enterprises as per the Micro, Small and Medium Enterprises Development Act, 2006.

15. Corporate social responsibility

As per section 135 of the Companies Act, 2013 and rules therein, the Company is required to spend at least 2% of average net profit of past three years towards Corporate Social Responsibility (CSR). Details of corporate social responsibilities

16. Other receivables (share issue expenses)

Other receivables comprises share issue expenses incurred in connection with proposed Initial Public offer (IPO) only by way of offer for sale by existing shareholders of the Company. These receivables includes fees paid to bankers, stock exchanges, SEBI, lawyers, auditors, etc., in connection with the IPO of the Company. As per offer agreement between the Company and the selling shareholders, all expenses with respect to the IPO will be borne by the selling shareholders. Accordingly, the Company has classified the expenses incurred in connection with the IPO as receivable from selling shareholders under Other receivables, since these are not the expenses for the Company.

17. Loans and advances in the nature of loans given to subsidiaries in which directors are interested

VN Films Private Limited

Balance as at March 31,2015 Rs. 36,250,000 (March 31,2014 : Rs. 4,500,000)

Maximum amount outstanding during the year Rs. 79,000,000 (March 31,2014 : Rs. 4,500,000)

This loan is repayable on demand.

18. Previous year figures have been regrouped / reclassified, where necessary, to conform to current year classification..

 
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