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Updated:13 Dec, 2019, 15:40 PM IST

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Updated:13 Dec, 2019, 16:01 PM IST

DIRECTORS REPORT

TO,

THE MEMBERS,

Your Directors have pleasure in presenting their Eighth Annual Report on the business and operations of DQ Entertainment (International) Limited ("the Company" or DQE India) together with the Audited Statement of Accounts for the financial year ended March 31, 2015.

2. performance and operations

The financial year I4–I5 was challenging year on account of continued slowdown in children's entertainment business in Europe and USA. After sustaining for several years, this year it did effect the company. Revenue from operations declined from Rs.24II Mn for FY 20I3–I4 to Rs.I96I Mn for FY 20I4–I5. Although our revenues are down by nearly 23% as compared to the previous year, our earnings before tax, finance costs and foreign exchange increased by 33% as compared to the previous year. This is because of the various cost efficiency measures taken by the Company. The EBITDA margin also improved from 43% in the previous year to 58% in FY 20I4–I5.

One of the significant reasons for the reduction in turnover was change in the accounting process and business model in the case of development and production of its own IP's. Earlier, the company was producing its own properties through a special purpose vehicle, whereby it was recognizing the revenue from production. But from the financial year 20I4–I5, the Company has been directly producing and capitalizing the costs of its own IP's and will only recognize the revenue once the pre–sales distribution and post–production distribution revenues start coming in for such projects, once delivered to the anchor broadcasters and broadcasting sales world–wide.

BUSINESS REVIEW:

DQE's strategy is focused on becoming a global independent media company with a comprehensive portfolio of iconic brands and intellectual property supported by a technologically advanced and cost–effective production platform. DQE is developing content that is platform independent, has global appeal and those benefit from an expanding global licensing and distribution infrastructure. The overall strategy focuses on developing a 360–degree global monetization strategy across TV networks and online distribution, mobile applications, gaming, feature films, and merchandising.

DQE's production division operates in three main business segments:

a. Animation Production Services (Work for hire)

DQE began its business in animation production services, taking advantage of the highly skilled and cost–effective Indian work force. Many prestigious global media companies trust your company for the production of their content. Pure service order book remains healthy with projects like Sheriff Callie, Eshafan, Shabiyat, Peg Heads and many more.for the next 30

b. Content Development & Production (IPs and Co–production)

DQE has been able to differentiate itself from other animation studios through its co–production business. DQE has partnered with numerous studios such as Marvel, Nickelodeon India, DreamWorks, Cartoon Network and ZeeQ for projects including Iron Man, Keymon Ache, Casper's Scare School, Lassie, Charlie Chaplin and Chimpoo and Shimpoo to name a few.

Through these partnerships, DQE owns part of the content and its agreement allows the Company to license this content in certain territories, thus diversifying and generating more income streams for the Company.

Jungle Book, Peter Pan, Lassie, 5 & IT are DQE's homegrown properties of which Jungle Book, Peter Pan and Lassie have been well received in the global markets. The 3rd season of Jungle Book, 2nd Season of Peter Pan and Ist season of 5 & IT are in production.

c. Licensing & Distribution (IPs and Co–Owned Content)

Through its experience in animation production and co–production, DQE has effectively built its Licensing & Distribution (L&D) business division. The L&D team follows a "360–degree monetization strategy" to exploit the various rights owned by DQE.

3. FUND RAISING

The year 20I4 has been of great significance for the Company. DQE group has successfully concluded it's fund raising by way of issue of bonds on 9th December 20I4 and has received the first tranche of money of USD 32 Mn net of the fund raising costs. DQE group has entered into an arrangement with OL Master Limited, a private credit fund managed by OCP Asia (Hong Kong) Limited for the issuance of Secured Convertible Bonds up to USD 50 Mn in two tranches. The first tranche for USD 35 Mn has been issued, while the second tranche up to USD I5 Mn is to be drawn down at the option of the investor. The proceeds of the funds are to be utilized to fund the development of DQE–owned IP's and co–production projects, for the repayment of certain debts, and for general working capital purposes. Bonds have a maturity period of five years from the Closing Date. The necessary reporting in this regard has been done in the Indian Stock exchanges where the Company is listed and also with Alternative Investment Market (AIM) – London Stock Exchange, in respect of Ultimate Holding Company – DQ Entertainment PLC, London.

The board has not recommended any dividend for the year and Decided to plough back the profits to conserve the financial resources for the growth of the company.

5. MANAGEMENT'S DISCUSSION AND ANALYSIS REPORT

Management's Discussion and Analysis Report for the year under review, as stipulated under Clause 49 of the Listing Agreement with the Stock Exchanges in India, is presented in a separate section forming part of the Annual Report.

6. CONSOLIDATED FINANCIAL STATEMENT

In accordance with the Companies Act, 20I3 ("the Act") and Accounting Standard (AS) – 2I on Consolidated Financial Statements read with AS –23 on Accounting for Investments in Associates and AS – 27 on Financial Reporting of Interests in Joint Ventures, the audited consolidated financial statement is provided in the Annual Report.

7. DIRECTORS' RESPONSIBILITY STATEMENT AS REQUIRED UNDER SECTION I34(3)(C) OF THE COMPANIES ACT, 2013

Your Directors state that:

a) in the preparation of the annual accounts for the year ended March 3I, 20I5, the applicable accounting standards read with requirements set out under Schedule III to the Act, have been followed and there are no material departures from the same;

b) the Directors 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 as at March 3I, 20I5 and of the profit of the Company for the year ended on that date;

c) the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

d) the Directors have prepared the annual accounts on a 'going concern' basis;

e) the Directors have laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and are operating effectively; and

f) the Directors have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively.

8. CORPORATE GOVERNANCE

The report on Corporate Governance as stipulated under the Listing Agreement forms an integral part of this Report. The requisite certificate from the Practicing Company Secretary confirming compliance with the conditions of corporate governance is attached to the report on Corporate Governance.

The declaration by CEO/CFO that the Board Members and Senior Management Personnel have complied with the Code of Conduct forms part of the Annual Report.

The Board on the CSR Committee's recommendation and looking into the practical aspects of not being able to spend into big money in a particular timeframe had in February I3, 20I5 allocated an initial amount of Rs.I5 lacs towards the aforesaid activity. However due to a very limited period thereafter, no expenditure was incurred. The Board proposes to carry forward this unspent amount to be expended during the financial year 20I5–I6.

The CSR Policy may be accessed on the Company's website and can be viewed on <http://> www.dqentertainment.com/Investors.html

The CSR annual report is attached separately and forms part of this report – Annexure III

9. IRANSACIIONS WIIH RELAIED PARIIES

All contracts / arrangements / transactions entered by the Company during the financial year with related parties were in the ordinary course of business and on an arm's length basis.

In pursuance to Section I88 of the Companies Act, 20I3, the material related party transactions were approved by the members through the Postal Ballot process held during the year, the results whereof were announced on 3Ist March 20I5. Information on transactions with related parties pursuant to Section I34(3)(h) of the Act read with rule 8(2) of the Companies (Accounts) Rules, 20I4 are given in Annexure I in Form AOC–2 and the same forms part of this report.

The Policy on materiality of related party transactions and dealing with related party transactions as approved by the Board may be accessed on the Company's website at the link: <http://> www. dqentertainment.com/Investors.html

10. EXTRACT OF ANNUAL RETURN

As provided under Section 92(3) of the Act, the extract of annual return is given in Annexure II in Form MGT–9, which forms part of this report.

11. CORPORATE SOCIAL RESPONSIBILITY  (CSR)

As part of the CSR activities, the Company intends to initiate projects aimed at promoting quality education and employability for vulnerable sections of society, either directly or through DQ Smile Foundation.   

The Board on the CSR Committee’s recommendation and looking into the practical aspects of not being able to spend into big money in a particular timeframe had in February 13, 2015allocated an initial amount of Rs.15 lacs towards the aforesaid activity. However due to a very limited period thereafter, no expenditure was incurred. The Board proposes to carry forward this unspent amount to be expended during the financial year 2015–16.

The CSR Policy may be accessed on the Company’s website and can be viewed on http:// www.dqentertainment.com/Investors.html The CSR annual report is attached separately and forms part of this report – Annexure III

12. RISK MANAGEMENT

The Company is exposed to inherent uncertainties owing to the sectors in which it operates. The Company's Risk Management process focuses on ensuring that these risks are identified on a timely basis and addressed. The Company has developed and implemented a Risk Management policy, which includes:

¦ ensuring that all the current and future material risk exposures of the company are identified, assessed, quantified, appropriately mitigated and managed;

¦ establishing a framework for the company's risk management process and to ensure the group wide implementation;

¦ ensuring systematic and uniform assessment of risks related with the intellectual property and production services rendered;

¦ enabling compliance with appropriate regulations, wherever applicable, through the adoption of best practices and

¦ assuring business growth with financial stability.

The Risk Management Policy was reviewed and approved by the Audit Committee. The Company manages, monitors and reports on the principal risks and uncertainties that can impact its ability to achieve its strategic objectives.

13. INTERNAL FINANCIAL CONTROLS

The Company has an internal control system, commensurate with the size, scale and complexity of its operations. The details on the internal control system is more elaborately explained in the Management's Discussion and Analysis Report.

14. DIRECTORS

Mr. K. Balasubramanian, Mr. S. Sundar, Mr. Girish Kulkarni and Mr. V. Santhanaraman, were appointed as Independent Directors for a period of five years with effect from 30th September 20I4, by the members of the Company in the 7th Annual General Meeting (AGM) held on September 30, 20I4 pursuant to the provisions of Section I49 & I52 of Companies Act 20I3.

Mr. K. Balasubramanian resigned as Independent Director with effect from May 27, 20I5. The Board places on record its gratitude for the services rendered by Mr. K. Balasubramanian during his long association with the Company and thanks him for his guidance and invaluable contribution.

Mr. Girish Kulkarni and Mr. Neelesh Wagle (Alternate Director to Mr. Girish Kulkarni), have resigned as Independent Directors of the Company with effect from May 27, 20I5. The Board thanks them for providing valuable guidance to the Company during their tenure and places on record its sincere appreciation for their fruitful association with the Company.

Mr. V. Santhanaraman has resigned as Independent Director with effect from 5th August, 20I5. The Board thanks him for his efforts in driving quality excellence for the Company and places on record its deep appreciation for the valuable contribution made by him during his tenure as Director of the Company.

Ms. Manjiri Bhalerao was appointed as Nominee Director representing Export Import Bank of India on May 30, 20I4 and her nomination was withdrawn on December 8, 20I4.

In accordance with the provisions of the Act and the Articles of Association of the Company, Ms. Rashida Adenwala, Director of the Company, retires by rotation at the ensuing Annual General Meeting and being eligible has offered herself for re–appointment.

INDUCTIONS TO THE BOARD

On the recommendation of the Nomination and Remuneration Committee, the Board has appointed Mr. B.N.Sirish and Mr. Auknoor Goutam as Additional (Independent) Directors with effect from August I3, 20I5.

Mr. B.N. Sirish is enrolled as a member of ICAI in I989 and has experience of more than 25 years in the areas of statutory audits, internal audits, bank branch audits, taxation including international  taxation, indirect taxes, NRI taxation and remittances, appeals and management advisory services. The Board hopes to benefit from his vast experience in finance and taxation.

Mr. Auknoor Goutam has more than 24 years of experience in corporate–leadership, project management, human resources management, administration, operations, finance, and technology adaptation, strategy, planning and alignment. He has worked extensively in the entertainment industry as creative Director with various studios and animation companies. The Board hopes to benefit from his vast experience in the media and entertainment industry.

We seek your support in confirming the appointment of Mr. B.N. Sirish and Mr. Goutam Auknoor in the ensuing Annual General Meeting.

15. KEY MANAGERIAL PERSONNEL

The Board in the meeting held on 30th May 20I4 noted that the following officials of the Company viz. Mr. Tapaas Chakravarti – CMD & CEO, Mr. Sanjay Choudhary – CFO and Ms. Sindhu M.S. – Company Secretary would function as Key Managerial Personnel.

16. BOARD EVALUAIION

Clause 49 of the Listing Agreement mandates that the Board shall monitor and review the Board evaluation framework. The Companies Act, 20I3 states that a formal annual evaluation needs to be made by the Board of its own performance and that of its committees and individual Directors. Schedule IV of the Companies Act, 20I3 states that the performance evaluation of independent Directors shall be done by the entire Board of Directors, excluding the Director being evaluated.  

The Company has devised a Policy for performance evaluation of Independent Directors, Board, Committees and other individual Directors which include criteria for performance evaluation of the non–executive Directors and executive Directors. On the basis of the Policy for performance evaluation of Independent Directors, Board, Committees and other individual Directors, a process of evaluation was followed by the Board for its own performance and that of its Committees and individual Directors.

In a separate meeting of Independent Directors, performance of non–independent Directors, performance of the board as a whole and performance of the Chairman was evaluated, taking into account the views of executive Directors and non–executive Directors. The same was discussed in the board meeting that followed the meeting of the independent Directors, at which the performance of the Board, its committees and individual Directors was also discussed.  

17. BOARD DIVERSITY

The Company recognizes and embraces the importance of a diverse board in its success. We believe that a truly diverse board will leverage differences in thought, perspective, knowledge, skill, regional and industry experience, cultural and geographical background, age, ethnicity, race and gender, which will help us retain our competitive advantage. The Board has adopted the Board Diversity Policy which sets out the approach to diversity of the Board of Directors. The Board Diversity Policy is available on our website, <http://> www.dqentertainment.com/Investors.html

18. POLICY ON DIRECTORS' APPOINTMENT AND REMUNERATION AND OTHER DETAILS

The Company's policy on Directors' appointment and remuneration and other matters provided in Section I78(3) of the Act has been disclosed in the Corporate Governance report, which forms part of the Directors' report.

19. TRAINING OF INDEPENDENT DIRECTORS

The details of programme for familiarization of Independent Directors with the Company, their roles, rights, responsibilities in the Company, nature of the industry in which the Company operates, and related matters are put up on the website of the Company at the link <http://> www.dqentertainment.com/Investors html

Further, at the time of appointment of an independent Director, the Company issues a formal letter of appointment outlining his/her role, function, duties and responsibilities as a Director. The format of the letter of appointment is available on our website, <http://> www.dqentertainment.com/Investors.html

20. MEETINGS OF THE BOARD

During the Financial Year 20I4–I5, four meetings of the Board of Directors of the Company were held during the year on May 30, 20I4, August I4, 20I4, November I3, 20I4 and February I3, 20I5. For further details, please refer report on Corporate Governance of this Annual Report.

21. AUDITORS AND AUDITORS' REPORT

Your Company has at its Annual General Meeting held on September 30, 20I4, appointed M/s. MZSK & Associates, Chartered Accountants, Hyderabad,  as statutory auditors of the Company. In terms of the first proviso to Section I39 of the Companies Act, 20I3, the appointment of the auditors shall be placed for ratification at every Annual General Meeting. Accordingly, the appointment M/s. MZSK & Associates, Chartered Accountants, Hyderabad, as statutory auditors of the Company, is placed for ratification by the shareholders. In this regard, the Company has received a certificate from the auditors to the effect that if they are reappointed, it would be in accordance with the provisions of Section I4I of the Companies Act, 20I3.

The Auditors' Report does not contain any qualification, reservation or adverse remark.

22. SECRETARIAL AUDIT REPORT

Mr. R. Ramakrishna Gupta of M/s. PI & Associates, Practicing Company Secretaries, New Delhi, was appointed by the Board to conduct the secretarial audit of the Company for the financial year 20I4 –I5, as required under Section 204 of the Companies Act, 20I3 and Rules thereunder. The secretarial audit in prescribed format – MR 3 report for FY 20I4 –I5, forms part of the Annual Report as Annexure IV to the Board's report.

The following qualifications were observed by the Secretarial Auditor in his Report to which the Board has shared the following explanations:

1. The Company has appointed Mr. Sanjay Choudhary as Chief Financial Officer (CFO) of the Company in its Board Meeting held on May 30, 20I4 but as on the last date of the audit period the company has not filed Form MR–I and Form DIR –I2 intimating the Registrar of Companies, Andhra Pradesh & Telangana about the appointment of CFO.

Response to point I: The Company had missed the filing due to oversight and this has now been rectified by filing the necessary forms on  I5/06/20I5.

2. The Company has not published the notice of closure of register of members closed in connection with the 7th Annual General Meeting in Principal vernacular language in vernacular newspaper  as required under Section 9I of the Companies Act, 20I3 read with Rule I0 of The Companies (Management and Administration) Rues, 20I4.

3. The advertisement given by the Company for dispatch of the Postal ballot Notice in respect of the resolutions passed on I0th October, 20I4 and on 3Ist March, 20I5 were not published in Principal vernacular language in the vernacular newspaper as required under Section II0 of the Companies Act, 20I3 read with Rule 22 of The Companies (Management and Administration) Rules, 20I4.

Response to point 2 & 3: As is the practice with most of the companies, the Company has published the notice in the vernacular newspaper, but not in the principal vernacular language. The Company undertakes to publish the same in the vernacular language for all the notices which are to be served henceforth.

4. The Company is yet to constitute a Vigil Mechanism as required under Section I77 of the Companies Act, 20I3 read with Rule 7 of the Companies (Meetings of Board and its Powers) Rules, 20I4.

Response to point 4: The Company has constituted the vigil mechanism at its board meeting held on May 27, 20I5.

23. COMMITTEES

The Board has the formed following Committees:

(i) Audit Committee

(ii) Nomination and Remuneration Committee

(iii) Corporate Social Responsibility Committee

(iv) Stakeholders Relationship Committee

The details of the membership and attendance of the meetings of the above Committees of the Board are included in the Corporate Governance Report, which forms part of this report.

24. VIGIL MECHANISM

As part of our corporate governance practices, the Company has formulated a Whistle Blower Policy to provide Vigil Mechanism for employees including Directors of the Company to report genuine concerns. The provisions of this policy are in line with the provisions of the Section I77(9) of the Act and the revised Clause 49 of the Listing Agreements with stock exchanges.

25. PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS

The particulars of loans, guarantees and investments have been disclosed in the financial statements.

26. DEPOSITS

The Company has not accepted any deposits from public and as such, no amount on account of principal or interest on deposits from public was outstanding as on the date of the balance sheet.

27. PARTICULARS OF ENERGYCONSERVATION, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO REQUIRED UNDER THE COMPANIES (ACCOUNTS) RULES, 20I4

The particulars as prescribed under Sub–section (3) (m) of Section I34 of the Companies Act, 20I3, read with the Companies (Accounts) Rules, 20I4, are given hereunder:

(i) Energy Conservation: The operations of the Company involve low energy consumption. The Company has undertaken various energy efficient practices to conserve energy and strengthened the Company's commitment towards becoming an environment friendly organisation.

(ii) Technology Absorption: We have developed in–house plug–ins to maximize technology absorption at minimal cost. The Company produces majority of the content in the 3D stereoscopic technology which is the latest offering in the entertainment industry.

(iii) Research & Development: The Company's constantly endeavors to be more efficient and effective in planning of production activities for achieving and maintaining the highest standards of quality.

RELATED DISCLOSURES

The information required under Section I97 of the Act read with rule 5(I) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 20I4 are given as Annexure V.

29. DECLARATION BY INDEPENDENT DIRECTORS

The Company has received necessary declaration from each independent Director under Section I49(7) of the Companies Act, 20I3, that he/she meets the criteria of independence laid down in Section I49(6) of the Companies Act, 20I3 and Clause 49 of the Listing Agreement.

30. SWEAT EQUITY SHARES

There was no issue of shares (including sweat equity shares) to employees of the Company under any scheme.

31. ISSUE OF EQUITY SHARES WITH  DIFFERENTIAL RIGHTS

There was no issue of equity shares with differential rights as to dividend, voting or otherwise as stated in Rule 4(4) of Companies (Share Capital and Debenture Rules, 20I4) for the Financial Year in which such issue was completed.

32. ISSUE OF EMPLOYEE STOCK OPTIONS

There were no stock options issued to employees as stated in Rule I2(9) of Companies (Share Capital and Debenture Rules, 20I4).

33. COMMISSION BY MANAGING DIRECTOR OR WHOLE–TIME DIRECTOR

Neither the Managing Director nor the Whole–time Directors of the Company receive any remuneration or commission from any of its subsidiaries.

34. GOING CONCERN

No significant or material orders were passed by the Regulators or Courts or Tribunals which impact the going concern status and Company's operations in future.

35. INFORMATION REQUIRED UNDER SEXUAL HARASSMENT OF WOMEN AT WORKPLACE (PREVENTION, PROHIBITION & REDRESSAL) ACT, 20I4

Your Company has adopted a policy on prevention, prohibition and redressal of sexual harassment at workplace in line with the provisions of the Sexual Harassment of Women at Workplace (Prevention,

Prohibition and Redressal) Act, 20I3 and the rules thereunder for prevention and redressal of complaints of sexual harassment at workplace. During the year under review, there were no cases filed pursuant to the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 20I3.

36. DETAILS OF SUBSIDIARIES/JOINT VENTURES/ASSOCIATE COMPANIES

DQ Entertainment (Ireland) Limited is the wholly owned subsidiary of the Company in Ireland. The Company has two Indian subsidiaries DQ Powerkidz Private Limited and DQE ITES Park Private Limited. An application has been filed for winding up of DQ Powerkidz Private Limited and DQE ITES Park Private Limited, as there are no operations carried out in these companies. Further, there has been no material change in the nature of the business of the subsidiaries.

DQ Entertainment (International) Films Limited is a Joint Venture between DQ Entertainment (International) Limited and DQ Entertainment plc, which was formed for the production and distribution of the Jungle Book Feature Film. The sharing ratio of DQE Plc is 60% and DQE India is 40% in the JV.The objective to form the JV was to benefit from the synergies of both the companies and to ensure that the interests of all the stakeholders are aligned.

There are no associate companies of DQE India within the meaning of Section 2(6) of the Companies Act, 20I3 ("Act"). Method Animation S.A.S. is an associate company of DQ Entertainment plc, Ultimate Holding Company.

Further, the report on the performance and financial position of each of the subsidiaries and Joint venture and salient features of the financial statements in the prescribed form AOC – I is annexed as Annexure VI to the Boards report.

In accordance with Section I36 of the Companies Act, 20I3, the audited financial statements, including the consolidated financial statements and related information of the Company and audited accounts of its subsidiary, DQ Entertainment (Ireland) Limited, are available on the Company website.

During the year the Board of Directors has formulated a policy for determining Material Subsidiaries. The policy is disclosed on the company's website and is accessible on <http://> www.dqentertainment.com/ Investors.html

37. GREEN INITIATIVE

Electronic copies of the Annual Report 20I4 –I5 and Notice of the 8th Annual General Meeting are sent to all members whose email addresses are registered with the Company / Depository Participant(s). For members who have not registered their email addresses, physical copies of the Annual Report 20I5 and the Notice of the 8th Annual General Meeting are sent in the permitted mode. Members requiring physical copies can send a request to the Company.

We encourage the other shareholders and request them to support us on this nationwide Green Initiative by registering/updating their email addresses with their Depository Participant(s) as required for receiving the notices and other documents via email.

The Company provides e–voting facility to all its members to enable them to cast their votes electronically on all resolutions set forth in the Notice. The instructions for e–voting are provided in the Notice.

38. ACKNOWLEDGEMENT

Your Directors would like to express their sincere appreciation for the assistance and co–operation received from the banks, Government authorities, customers, vendors and members during the year under review. Your Directors also wish to place on record their deep sense of appreciation for the committed services by every member of the DQE family.

For and on behalf of the Board

DQ Entertainment (International) Limited

Tapaas Chakravarti

CMD & CEO

Date : I3 August, 20I5

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