Prime Focus

1.  Nature of Operations:
 
 Prime Focus Limited is engaged in the business of Post Production and
 Visual Effects services for Films and Television content.
 
 2.  The Company does not have suppliers who are registered as micro,
 small or medium enterprise under the Micro, Small and Medium
 Enterprises Development Act, 2006 as at March 31, 2009. The information
 regarding micro, small and medium enterprises has been determined on
 the basis of information available with the management.
 
 3.  Changes in Accounting Policy:
 
 During the previous year, the Company had adjusted Mark-to-Market
 losses on loans/liabilities for fixed assets as per the requirement of
 Schedule VI of the Companies Act, 1956 as per legal advice received.
 Consequent to recent amendment to AS-11, the company has debited the
 foreign exchange fluctuation including Mark-to- Market loss on
 loans/liability on derivative contract aggregating to Rs. 45,167,461 as
 at March 31, 2008 to Profit and Loss Account.
 
 4.  Changes in Accounting Estimates:
 
 During the year ended March 31, 2009, the company has changed the
 useful life of certain Plant & Machinery items prospectively from April
 1, 2008. Consequent to such change, the unamortised depreciable amount
 will be charged over the revised remaining useful life of those assets.
 This change in estimate has resulted in profit after tax being higher
 by Rs. 29,046,386.
 
 5.  During the year the Company was allotted 2,020,202 ordinary shares
 of 5 pence each in Prime Focus London Pic, a subsidiary of the Company,
 at a premium of 44.50 pence each, as fully paid up.
 
 Also, the Company was allotted 505,050 ordinary shares of 5 pence each
 in Prime Focus London Pic, a subsidiary of the Company, as fully paid
 up for consideration other than cash for providing an undertaking on
 certain future obligations, to the vendors under the Share Purchase
 Agreement entered by Prime Focus London Pic. to acquire Machine Effects
 Limited.
 
 The outcome of these obligations is dependent on uncertain future
 events for which no reliable estimate can be made. Hence no provision
 is considered necessary (Refer Note No. 13 (iv)).
 
 6.  The Company is presently operating an integrated post production
 setup. The entire operations are governed by the same set of risks and
 returns and hence have been considered as representing a single
 segment. The said treatment is in accordance with the guiding
 principles enunciated in the Accounting Standard on Segment Reporting
 (AS-17).
 
 7.  Related party disclosures:
 
 a.  List of Parties where control exists, irrespective of transactions:
 
 i) Subsidiary Companies
 
 Prime Focus London Pic (formerly known as VTR Pic.)
 
 Prime Focus Technologies Private Limited
 
 Flow Post Solutions Private Limited
 
 Prime Focus Investments Limited
 
 GVS Software Private Limited
 
 Prime Focus Motion Pictures Limited
 
 ii) Step-down Subsidiaries
 
 Post Logic Studios, Inc
 
 1800 Vine Street LLC
 
 Prime Focus VFX Services I Inc
 
 Prime Focus VFX Services II Inc
 
 Prime Focus VFX Technology Inc
 
 Prime Focus VFX Pacific Inc
 
 Prime Focus VFX USA Inc
 
 Prime Focus VFX Australia Pty Limited
 
 Blue Post Production Limited
 
 The Machine Room Limited
 
 VTR Media Investments Limited
 
 The Hive Animation Limited
 
 Clipstream Limited
 
 K Post Limited
 
 United Sound & Vision Limited
 
 Machine Effects Limited
 
 PF (Post Production) Limited
 
 8 Dean Street Limited
 
 a.  List of related parties with whom transactions have taken place
 during the year
 
 i) Key Management Personnel
 
 Mr. Naresh Malhotra - Chairman
 
 Mr. Namit Malhotra - Managing Director
 
 ii) Relatives of Key Management Personnel
 
 Ms. Neha Malhotra
 
 Mr. Premnath
 
 
 iii) Enterprises owned or significantly influenced by Key Management
 Personnel or their relatives Blooming Buds Coaching Private Limited
 
 9.  Contingent Liabilities not provided for:
 
 In Rupees
 
                                             2009          2008
 
 i.    Estimated amount of contracts 
 remaining to be executed on             16,154,431         Nil
 
 capital account and not provided for:
 
 ii.   On account of undertakings 
 given by the Company in favour of      797,033,046  596,854,904
 Customs authorities at the time of 
 import of capital goods under
 EPCG Scheme. The Company is confident 
 of meeting its future
 obligations on such undertakings in 
 the normal course of
 business.
 
 iii. Guarantees given by Banks on 
 behalf of the Company                   36,344,600   28,794,600
 
 iv. On account of undertaking given 
 on future probable obligation           69,357,145        Nil
 on behalf of subsidiary company in 
 the course of acquisitions
 made (Refer Note No. 8)
 
 v. On account of Unexpired 
 Letters of Credit.                          Nil     109,447,659
 
 vi. Matters pending with Tax 
 Authorities (TDS Scrutiny)                  Nil         581,804
 
 vii. Matters pending with Tax 
 Authorities (Block Assessment)           1,046,969   37,560,468
 Company has been advised that 
 it has a valid case based
 on similar decided matters.
 
 viii.Matters pending with Customs 
 Authorities for which appeal is          2,117,500    2,117,500
 pending with Appellate Tribunal. 
 On the basis of legal advice
 obtained, the Company is confident 
 that no provision is
 required in respect of this case at 
 this point of time.
 
 ix. Guarantee for Lease taken by 
 step-down subsidiary                   506,400,000       Nil
 (USD 10,000,000)
 
 x. Premium on conversion of 
 FCCB (Refer Note No. 18 (c))           269,140,513    49,453,774
 
 xi. Compounding application pending with Reserve Bank of India (Refer
 Note No. 18 (e))
 
 10.  Gratuity and other post-employment benefit plans: a.  Define
 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 Company did not make any provision in respect of the gratuity
 benefit in previous year as amount was not material. In Current year,
 the Company has adopted Accounting Standard 15 (Revised 2005) which is
 mandatory from accounting periods starting from April 1, 2007. However,
 this adoption does not have a material impact on the profit and loss
 account. Hence, the entire charge of Rs. 1,224,852 has been debited to
 the profit and loss account for the year and accordingly amounts for
 the previous year have not t>een furnished.
 
 The following tables summarise the components of net benefit expense
 recognised in the profit and loss account and the funded status and
 amounts recognised in the balance sheet for the respective plans.
 
 Changes in the fair value of plan assets are as follows:
 
 The Company does not fund the gratuity nor it has plans presently to
 contribute in the next year and hence the disclosure relating to fair
 value of plan assets is not applicable.
 
 11.  Details of loans given to subsidiaries and associates and
 firms/companies in which directors are interested:
 
 1.  Prime Focus London Pic:
 
 Balance as at March 31, 2009 : Rs. 12,974,350.
 Maximum Amount outstanding during the year Rs. 251,316,179 (Previous
 year Rs. 491,937,500)
 
 The amount will be due for payment by end of March 2010.
 
 2.  Post Logic Studios, Inc.:
 
 Balance as at March 31, 2009 : Rs. Nil
 
 Maximum Amount outstanding during the year Rs. 150,542,131 (Previous
 year Rs. 104,187,973)
 
 3.  Prime Focus Technologies Private Limited: Balance as at March 31,
 2009 : Rs. 33,600,998
 
 Maximum Amount outstanding during the year Rs. 35,675,198 (Previous
 year Rs. Nil)
 
 12.  Foreign Currency Convertible Bonds (FCCB):
 
 a.  On December 12, 2007, the Company issued 550 Foreign Currency
 Convertible Bonds (FCCBs) of a face value of USD 100,000 each,
 aggregating to USD 55.00 million (equivalent - Rs. 2,162,696,800).  The
 net proceeds from the issue of the Bonds are to be used for strategic
 acquisitions and/or strategic alliances outside of India, for
 investment into wholly owned subsidiaries and/or joint ventures outside
 of India, for announced and future acquisitions, for foreign currency
 capital expenditure or for any other use, as may be permitted under
 applicable laws or regulations from time to time.
 
 b.  As per the terms of the issue, the holders have an option to
 convert FCCB into Equity Shares at an initial conversion rate of Rs.
 1,386.79 per equity share at a fixed exchange rate of Rs. 39.39 per USD
 subject to certain adjustments as per the terms of the issue. Further,
 under certain conditions, the Company has the option to redeem the
 bonds on or after December 12, 2010. Unless previously converted or
 redeemed or purchased and cancelled, the Company will redeem these
 bonds, at 143.66% at the end of the five years from the date of issue
 i.e. on December 13, 2012. As at March 31, 2008, no bonds have been
 converted into equity shares of Rs. 10 each and the entire balance of
 550 bonds have been included and disclosed in the Schedule of
 Unsecured Loans.
 
 c.  The FCCBs as detailed above are hybrid instruments with an option
 of conversion into specified number of shares and an underlying foreign
 currency liability with the redemption at a premium in the event of non
 conversion at the end of the period. The bonds are redeemable only if
 there is no conversion of bonds earlier. The payment of premium on
 redemption is contingent in nature, the outcome of which is dependent
 on uncertain future events. Hence no provision is considered necessary
 nor has been made in the accounts in respect of such premium amounting
 to.  Rs. 269.14 million (Previous year : Rs. 49.45 million). However,
 in the event of redemption, the premium payable would be adjusted
 against the balance in the Securities Premium Account.
 
 d.  The management is of the opinion that the bonds are a non monetary
 liability and hence, the exchange gain/ loss on translation of FCCB
 liability in the event of redemption have not been recognized.
 
 e.  Subsequent to year-end, the Company has received a letter from the
 Reserve Bank of India (RBI) stating that it is not an eligible
 borrower to issue the Foreign Currency Convertible Bonds (FCCB) of
 USD 55 million under External commercial borrowings (ECB) guidelines.
 The Company has obtained legal opinion confirming its eligibility and
 is in process of filing for compounding application with the RBI for
 the above mentioned matter and resultant compliances. The ultimate
 outcome of the matter cannot presently be determined, and no provision
 for any liability that may result has been made in the financial
 statements.
 
 13.  Miscellaneous Income:
 
 Miscellaneous Income includes income from production of TV Programme
 and distribution of films of Rs. 11,550,000 (Previous year : Rs.
 34,599,670) against which cost of Rs. 10,597,920 (Previous year :
 28,011,996) is incurred.
 
 14. Previous years figures have been regrouped where necessary to
 confirm to this years classification.  The figures of previous year
 were audited by a firm of Chartered accountants other than S.R.
 BATLIBOI & ASSOCIATES.