Reliance MediaWorks

1.  We have audited the attached Balance Sheet of Adlabs Films limited
 (the Company) as at 31 March 2009 and the related Profit and loss
 Account and Cash Flow Statement 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 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 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.
 
 3.  Without qualifying our report, we draw attention to Note 19 of
 Schedule 22 to the financial statements regarding accounting of the
 Foreign Currency Convertible Bonds (FCCB’). During the previous
 financial period ended 31 March 2008, the Company rel classified the
 liability towards FCCB as non–monetary liability interlalia on the
 basis of the trend of earnings, movement of the Company’s share prices
 and conversion option exercised by the FCCB holders. The Company
 continues to classify the liability towards FCCB as non– monetary
 liability as in its view the current fall in the market price of the
 Company’s share price and non- conversion by bond holders during the
 year is a temporary aberration, consequently, the foreign exchange
 fluctuation (net loss) for the year aggregating Rs 113.01 million (nine
 months ended 31 March 2008: Rs 405.99 million) has not been recognized
 and the said liability has not been restated at the periodlend exchange
 rate.
 
 An alternate view exists that the liability towards FCCB is a monetary
 liability and should be restated at the periodlend exchange rate in
 accordance with Accounting Standard 11 - The Effects of Changes in
 Foreign Exchange Rates’ prescribed in the Companies (Accounting
 Standards) Rules, 2006 issued by the Central government in consultation
 with the National Advisory Committee on Accounting Standards. There is
 no specific guidance of The Institute of Chartered Accountants of India
 on accounting for foreign currency bonds convertible into equity shares
 at the option of the holder. Had the said liability been considered as
 a monetary liability, the loss before tax for the current year would be
 higher by Rs 113.01 million (nine months ended 31 March 2008: profit
 would be lower by Rs 405.99 million) and the reserves and surplus would
 be lower by Rs 299.04 million (2008: Rs 186.04 million).
 
 4.  Without qualifying our opinion, we draw attention to Note 2 of
 Schedule 22 to the financial statements. As more fully explained in the
 said Note, during the year, the Hon’ble High Court of Judicature at
 Mumbai vide its order dated 8 May 2009 sanctioned the Scheme of
 Amalgamation of the Company with its wholly owned subsidiaries Adlabs
 Multiplex and Theatres limited, Adlabs Multiplex limited, Rave
 Entertainment Private limited and Mahimna Entertainment Private
 limited, under sections 391 to 394 of the Act. Pursuant to the said
 Scheme the Company has the made an adjustment for diminution in value
 of its assets (production and distribution rights, fixed assets,
 investments, debtors and loans and advances) aggregating Rs 1,566.97
 million by debiting the same to capital reserve instead of the profit
 and loss account. Had the Company debited the profit and loss account
 the loss before tax for the year would be higher by the said amount.
 
 5.  As required by the Companies (Auditor’s Report) Order, 2003 (the
 Order’) issued by the Central Government of India in terms of
 sublsection (4A) of Section 227 of the Act, we enclose in the Annexure
 a statement on the matters specified in paragraphs 4 and 5 of the said
 Order. Further to our comments in the Annexure referred to above, we
 report that:
 
 a) We have obtained all the information and explanations which to the
 best of our knowledge and belief were necessary for the purposes of our
 audit;
 
 b) In our opinion, proper books of account as required by law have been
 kept by the Company so far as appears from our examination of those
 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 comply with the Accounting
 Standards referred to in sublsection (3C) of Section 211 of the
 Companies Act, 1956 (the Act);
 
 e) On the basis of written representations received from the directors
 of the Company as at 31 March 2009 and taken on record by the Board of
 Directors, we report that none of the directors is disqualified as on
 31 March 2009 from being appointed as a director in terms of clause (g)
 of sub-section (1) of Section 274 of the Act; and
 
 f) In our opinion, and to the best of our information and according to
 the explanations given to us, read with paragraph 3 and 4 above, the
 said accounts give the information required by the Act in the manner so
 required, and give a true and fair view in conformity with the
 accounting principles generally accepted in India:
 
 i) in the case of the Balance Sheet, of the state of affairs of the
 Company as at 31 March 2009;
 
 ii) in the case of the Profit and loss Account, of the loss of the
 Company for the year ended on that date; and
 
 iii) in the case of the Cash Flow Statement, of the cash flows of the
 Company for the year ended on that date.
 
 ANNEXURE TO THE AUDITORS’ REPORT – 31 MARCH 2009
 
 (Referred to in 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) The Company has a regular programme of physical verification of its
 fixed assets by which all fixed assets are verified in a phased manner
 over a year of two years. In our opinion, this periodicity of physical
 verification is reasonable having regard to the size of the Company and
 the nature of its assets. Pursuant to the programme, certain fixed
 assets were physically verified during the year and no material
 discrepancies were noted on such verification.
 
 (c) As more fully explained in note 1 of Schedule 22 to the financial
 statements, pursuant to the Scheme of Arrangement, the Company has
 transferred the fixed assets of the Radio business to its wholly owned
 subsidiary Reliance Unicom limited. In our opinion, the aforementioned
 transfer and other disposals during the year, does not affect the going
 concern assumption.
 
 (ii) (a) The inventory has been physically verified by the management
 during the year. In our opinion, the frequency of such verification is
 reasonable.
 
 (b) The procedures for the 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 is maintaining proper records of inventory. The
 discrepancies noticed on verification between the physical stocks and
 the book records were not material.
 
 (iii) The Company has neither granted nor taken any loans, secured or
 unsecured, to or from companies, firms or other parties covered in the
 register maintained under Section 301 of the Act.
 
 (iv) In our opinion and according to the information and explanations
 given to us, and having regard to the explanation that purchases of
 certain items of fixed assets are for the Company’s specialised
 requirements and similarly certain services rendered/ rights and goods
 sold are of a specialised nature and rendered/ sold to specific buyers
 and suitable alternative sources are not available to obtain comparable
 quotations, there is an adequate internal control system commensurate
 with the size of the Company and the nature of its business with regard
 to purchase of inventory and fixed assets and with regard to the sale
 of goods and services.
 
 (v) In our opinion, and according to the information and explanations
 given to us, there are no contracts and arrangements the particulars of
 which need to be entered into the register maintained under Section 301
 of the Act.
 
 (vi) The Company has not accepted any deposits from the public.
 
 (vii) In our opinion, the Company has an internal audit system
 commensurate with its size and the nature of its business.
 
 (viii) The Central Government has not prescribed the maintenance of
 cost records under Section 209(1)(d) of the Act for any of the products
 manufactured/services rendered by the Company.
 
 (ix) (a) According to the information and explanations given to us and
 on the basis of our examination of the records of the Company, amounts
 deducted/accrued in the books of account in respect of undisputed
 statutory dues including Provident Fund, Employees’ State Insurance,
 Income tax, Sales-tax / VAT, Customs duty, Entertainment tax, Investor
 Education & Protection Fund, Cess and other material statutory dues
 have been generally regularly deposited during the year by the Company
 with the appropriate authorities. In respect of service tax, management
 is in the process of reconciling the amounts accrued as per the books
 of account on a monthly basis as compared to the payment records
 maintained. Based on the payment records examined by us, the Company
 has been generally regular in depositing the said amounts with the
 appropriate authorities. As informed to us, the Company did not have
 any dues on account of Wealth tax. There were no dues on account of
 cess under Section 441A of the Act since the date from which the
 aforesaid section comes into force has not yet been notified by the
 Central Government. According to the information and explanations given
 to us and except for the outcome of the reconciliation referred to
 above, no undisputed amounts payable in respect of Provident fund,
 Employees’ State Insurance, Income tax, Sales-tax/ VAT, Service tax,
 Customs duty, Entertainment tax, Investor Education & Protection Fund
 and other material statutory dues were in arrears as at 31 March 2009
 for a period of more than six months from the date they became payable
 except for Rs 39.13 million being entertainment tax pertaining to
 multiplexes / single screens where the Company has made an application
 for availing exemption under the relevant Act retrospectively from the
 date of commencement of operations of the said multiplex. Also, as more
 fully explained in note 3 of Schedule 22 to the financial statements,
 no amount has been accrued in respect of Maharashtra Value Added Tax.
 
 (b) According to the information and explanations given to us, the
 following statutory dues have not been deposited by the Company on
 account of disputes:
 
 Name of the   Nature of the    Amount    Year to which    Forum where
 statute       dues         (Rs million)     the amount    dispute is 
                                               relates     pending
 
 Central       Duty and          20.32      2007-2008    Central Excise 
                                                         and Service
 Excise Act,   penalty                                   tax Appellate 
                                                         Tribunal
                                                         (CESTAT)
 
                                 11.92      2006-2007
 
                                 12.75      2004-2006
 
                                 12.33      2004-2005
 
                                   1.2      2003-2004
 
                                 12.15      2002-2003
 
                                   8.2      2003
 
                                 14.26      2003-2004
 
                                  8.22      2004-2005
 
                                 29.53     1998-99 to
 
                                            2001-02
 Entertainment Entertainment     10.74      2006-2007     High Court of 
                                                          Judicature of
                     tax                                      Ahmedabad
 
                                  9.64      2007-2008
 
 (x) The accumulated losses of the Company are less than 50% of its net
 worth and it has not incurred cash losses in the financial year and in
 the immediately preceding financial year.
 
 (xi) In our opinion and according to the information and explanations
 given to us, the Company has not defaulted in repayment of dues to its
 bankers or bondholders. The Company did not have any outstanding dues
 to any financial institution during the year.
 
 (xii) The Company has not granted any loans and advances on the basis
 of security by way of pledge of shares, debentures and other
 securities.
 
 (xiii) In our opinion and according to the information and explanations
 given to us, the Company is not a chit fund or a nidhi / mutual benefit
 fund / society.
 
 (xiv) According to the information and explanations given to us, the
 Company is not dealing or trading in shares, securities, debentures and
 other investments.
 
 (xv) In our opinion and according to the information and explanations
 given to us, the terms and conditions on which the Company has given
 guarantees for loans / credit facilities taken by others from banks /
 others are not prejudicial to the interest of the Company.
 
 (xvi) In our opinion and according to the information and explanations
 given to us, the term loans taken by the Company have been applied for
 the purpose for which they were raised.
 
 (xvii) According to the information and explanations given to us and on
 an overall examination of the balance sheet of the company, we are of
 the opinion that the funds raised on shortterm basis have not been used
 for longlterm investment.
 
 (xviii) The Company has not made any preferential allotment of shares
 during the year to companies/firms/parties covered in the register
 maintained under Section 301 of the Act.
 
 (xix) According to the information and explanations given to us, the
 Company has not issued any secured debentures during the year.
 
 (xx) According to the information and explanations given to us, the
 Company has not raised any money by public issues during the year.
 
 (xxi) According to the information and explanations given to us, no
 fraud on or by the Company has been noticed or reported during the
 course of our audit.
 
                                                     For B S R & Co.
                                               Chartered Accountants
                                                    Bhavesh Dhupelia
 Mumbai                                                     Partner
 30 June 2009                                  Membership No: 042070