Directors Report of Crest Animation Studios Ltd.

Mar 31, 2012

The Directors hereby present the Twenty-second Annual Report of the Company with the Audited Statement of Accounts and the Auditors' Report for the year ended 31March 2012.

FINANCIAL RESULTS (Rs. in Million)

2011-2012 2010-2011 Operating Revenue 141.68 371.16

Other Income 50.76 5.60

Total Income 192.45 376.76

Profit before Interest, Depreciation, Tax, Exceptional Items and prior period adjustment (89.11) 59.35

Less: Interest & financial charges 59.60 72.68 Profit before Depreciation, Tax, Exceptional Items and before prior period adjustment (148.71) (13.33)

Less: Depreciation 56.88 87.58

Profit before Tax and before prior period adjustment (205.59) (100.91)

Less: Provision for Tax - -

Add: Excess provision for tax written back - -

Add: Prior period income - -

Profit after Tax (205.59) (100.91)

Less: Surplus / (Deficit) in Profit & Loss account brought forward from previous year - -

Net surplus / (Deficit) carried forward to Balance Sheet (205.59) (100.91)

Note: Figures for the previous period have been regrouped / restated wherever necessary.

DIVIDEND

Since the operations of the Company have registered a loss for the year, the directors express their inability to recommend any divided on the equity shares of the Company.

OPERATIONS DURING THE YEAR AND PROSPECTS

Financial Year 2011-12 has been a very challenging year for the Company and it continued to battle multiple concerns.

A gloomy and dismal global economy resulted in reduction of fully financed entertainment products. The Company's outsourcing revenues suffered immensely on this account.

Financing for proposed Joint Venture with an American Studio was also not possible.

Primary amongst these were the twin blows which the Company suffered last year, i.e. the bankruptcy filing by one of the Company's client and the backing out of the financing arrangement on the second feature film "Norm of the North" by one of the financiers. The full impact of this was felt in the year where it was not possible to have the loss of business replaced immediately.

A lackluster stock market also did not allow for recapitalization and the company had to resort to short term borrowings to keep the operations going. The Company was able to place a small portion of the treasury stock only in April 2012. The Company's bankers, employees and vendors have been very supportive in these difficult times as they have had to face delays in getting their dues cleared.

The Company continued work on the second feature film "Norm of the North" despite lack of financial closure, inviting qualification from the auditors. Alternate financing arrangements which the Company hoped to finalize this year were not successful in the period. The Company is working on financial closure in the coming 2-3 months.

The Company has taken Television contracts for execution like Brown Bag, Gloe, Swan Princess-5 after the successful completion and fine delivery of Swan Princess-4. Inadequacy of contracts both in the television and feature film space has put pressure on the revenues, resulting in the low performance during the year.

The management and the artists along with support staff, despite deferring their compensation for months, continued to do multiple tasks for marketing.

One unfeasible, non-contributing and demanding TV contract was discontinued and alternatives are on for more viable projects.

Alpha & Omega, co-produced by the Company along with Lions Gate performed reasonably well with gross box office collections over US$ 50 million and sale of direct to video's and television rights raising more than US$ 22 million. As mentioned last year, the waterfall accruing to the Company will be over a longer period of time than originally anticipated.

Due to the tight liquidity situation faced by the Company during the year, no additional work could be carried out on the Indian Feature Film; however, continued interest from Cable and satellite networks and from distributors is testimony to the creative and animation quality ability of the Company. The tentative release date is summer of 2013.

However the worst seems well behind us. The first quarter of 2012- 13 has shown results on the work put in by the Company on different DVD/Television contracts, as the collections have been robust enough to take care of ongoing operational requirements as well retiring small portion of short term borrowings.

Continued negotiations and discussions are on for new contracts as well as for new Joint Venture initiatives for ensuring a robust and predictable future pipeline and guaranteed work for hire services.

The Direct to Video sales of "The Little Engine that Could", co- produced by the Company with Universal Studios, are in line with their expectations and during the year the US subsidiary received a total of US$ 300,000 from Universal Studios towards the subsidiary's share. In line with the accounting practice followed by the US subsidiary, this amount has gone towards reducing the carrying value of the inventory.

INFORMATION TECHNOLOGY

The Company's information technology division known as "STG" i.e System and Technical Group which has been innovating and deploying technology successfully since past few years through various means like high-performance storage, workflow and asset management tools, grid computing based render farm etc. These deployments have enhanced project delivery capabilities removed bottle necks related to transfer of files and approval delays. Currently the Company is working on next-generation computing based on "Hardware Accelerators" for visualization and computation to increase the productivity of the studio at highest level. Crest is the only studio in the Asia-Pacific region working on such technologies to enhance the performance of studio.

CORPORATE GOVERNANCE

The Board of Directors supports the broad principles of Corporate Governance and the Company has been in compliance with the mandatory provisions of Corporate Governance as stipulated in Clause 49 of the Listing Agreement entered into with the Stock Exchanges. In addition to the basic governance issues, the Board lays strong emphasis on transparency, accountability and integrity.

A detailed report on Corporate Governance Compliance and Management Discussion and Analysis as stipulated in the Listing Agreement is annexed and forms part of this report.

DIRECTORS

In accordance with the requirements of the Companies Act, 1956 Mr. Randhir Kochhar, Mr. Rajen Damani and Mr. S. Balasubramanian Directors of the Company retire by rotation and, being eligible, offer themselves for re-appointment.

Mr. Shyam Benegal, Director, has resigned with effect from 14 June 2012 from the Directorship of the Company. Your Board recorded its gratitude for the guidance and counsel provided by Mr.Shyam Benegal during his tenure as Director and accepted his resignation.

Brief particulars and expertise of directors seeking appointment/ re-appointment and details of their other directorship and committee membership have been given in the Annexure to the Notice convening the Annual General Meeting.

Directors recommend the resolutions pertaining to re-appointment of Directors for approval of the members.

AUDITORS

M/s. Chaturvedi and Shah and M/s. S. R. Batliboi & Associates (Member firm of Ernst & Young Global) Chartered Accountants, Mumbai will retire as the Auditors of the Company at the conclusion of the ensuing Annual General Meeting. M/s. Chaturvedi & Shah have given their consent for re-appointment as required under the provisions of Section 224(1B) of the Companies Act, 1956. M/s. S.R. Batliboi & Associates have expressed their inability to continue as Auditors. The Board of Directors of your Company recommend re-appointment of M/s. Chaturvedi and Shah as Statutory Auditors of the Company. A resolution seeking your approval for re- appointment of Auditors is included as item 5 of the Notice convening Annual General Meeting.

DEPOSITS

During the year under review the Company has not accepted any deposits from the Public under section 58A and 58AA of the Companies Act, 1956 read with Companies (Acceptance of Deposit) Rules, 1975.

DIRECTORS' RESPONSIBILITY STATEMENT

Pursuant to Section 217(2AA) of the Companies Act, 1956 (the Act) amended as per the Companies (Amendment) Act, 2000, the Directors confirm that:

- in the preparation of the Annual Accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures;

- the Directors 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 the Company at the end of the financial year and of the profit or loss of the Company for that period;

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

- the Directors have prepared the annual accounts on a going concern basis.

AUDITORS REPORT

As regards the qualifications made by the auditors as stated in paragraphs 4, 5 & 6 of their report on the accounts of Crest Animations Studios Limited and paragraphs 5, 6 & 7 of the report on the consolidated financial statements of the Company respectively, attention is invited to Note Nos 23, 24, 25 & 26 forming part of the accounts of the Company and Note Nos 23, 24, 25 and 26 of the consolidated financial statements of the Company, wherein the detailed explanation are provided which in the opinion of the Board of Directors are self explanatory.

Further the Auditors have laid emphasis on the accounts of the Company in their report, with respect to continuance of the Company as a going concern. In response, the factual situation is as follows.

(a) The Company was not a non performing account with any of the lenders on 31 March, 2012 or at any time thereafter until the date of this report.

(b) The Company has been able to get the limits and loans with the lenders realigned with respect to repayments and maturities.

(c) The Company has been able to service the interest on the private loans and has even repaid/renewed some of these temporary loans since the date of the balance sheet.

(d) Since the balance sheet date the Company has executed

Rs.95,859,642 of work on hire projects and collected Rs.133,002,805 from debtors.

(e) There have been delays and salaries to employees are outstanding. However, this has not impacted execution of work and in the past three months the Company has in fact, recruited additional artists to serve new contracts.

(f) The Company is not in default with respect to statutory dues and obligations except Tax deducted at source which have all since been paid with delays.

(g) Despite the overall negative sentiments prevailing in the business environment the Company was able to place a small portion of the treasury shares and is confident of completing additional placements before December 2012.

h) The Company has adequate positive net worth remaining after adjusting losses and has not witnessed the loss of any of its critical clients nor the stoppage of work from them.

CHANGES IN GROUP STRUCTURE

By Virtue of Amalgamation which came in to effect 26 July, 2011, the following downstream subsidiaries have become direct subsidiaries now.

1. Crest Animation Inc. (CAI)

2. Crest Animation Productions Inc.(CAP)

3. Roop BDR Productions Inc. (RBP)

During the year, the company entered into television contract with Moonscoop LLC for producing 13 episodes of 11 minutes each titled "Gloe". The company took television contract for Ireland based studio Brown Bag Films Ltd, for producing 52 episodes of television series titled "Octonauts".

The company has successfully completed and delivered DVD project Swan princess 4 for Sony pictures. Due to success of fourth series of Swan Princess, the company has bagged the contract for the fifth series of Swan Princess.

During the year the company entered into agreement with Snapdragon Inc for producing televised version of the movie "How to train you Dragon". The company started work on the project simultaneously along with the other projects which the company executed. However, due to technical complexities, the company had to terminate the contract in order to concentrate on the delivery of other projects.

The company continued to work on the second feature film "Norm of the North" which is a part of Lionsgate deal. However, one of the financiers to this project defaulted their obligation to fund due to financial crisis in their region. The company is reviewing intended legal recourse to be initiated against the financier. Alternate financing arrangements are also under negotiation.

The company continued to work on "Ribbit", another CGI feature for limited release which your company is co-producing with KRU Capital Sdn. Bhd, Malaysia

CONSOLIDATED FINANCIAL STATEMENTS

In compliance with the Listing Agreement entered with the Stock Exchanges, a Consolidated Financial Statement of the Company and all its subsidiaries is attached. The Consolidated Financial Statement has been prepared in accordance with Accounting Standards 21, 23 and 27 issued by the Institute of Chartered Accountants of India and show the financial resources, assets, liabilities, income, profits and other details of the Company, its associates companies, joint venture companies and its subsidiaries after elimination of minority interest, as a single entity. The statement pursuant to section 212 of the Companies Act, 1956 forms part of this report.

The consolidated accounts present a full and fair picture of the state of affairs and the financial condition. A statement of summarized financials of all the subsidiaries is attached along with the consolidated financial statement. However, on request by any member of the Company/statutory authority interested in obtaining them, these documents will be made available for examination at the Company's registered office.

In terms of general exemption granted by the Ministry of Corporate Affairs under section 212(8) of the Companies Act, 1956, the Copy of the Balance Sheet, etc. of the subsidiaries are not required to be attached with the Balance Sheet of the Company. The Company Secretary will make these documents available upon receipt of request from any member of the Company interested in obtaining the same. These documents will be available at the Registered Office of the Company, during working hours up to the date of the Annual General Meeting.

PARTICULARS AS PER SECTION 217 OF THE COMPANIES ACT, 1956

ENERGY AND FOREIGN EXCHNAGE

The particulars as required under section 217(1)(e) of the Companies Act, 1956 read with Companies (Disclosure of particulars in the report of the Board of Directors) Rules, 1988, are attached as annexure to this report.

PARTICULARS OF EMPLOYEES

As required by section 217 (2A) of the Companies Act, 1956 read with the Companies (Particular of Employees) Rules, 1975 forms part of this report. However, as permitted by section 219(1)(b)(iv) of the Companies Act, 1956, the report and accounts are being sent excluding the statement containing the particulars to be provided under section 217(2A) of the Act. Any member interested in obtaining such particulars may inspect the same at the Registered Office of the Company or write to Company Secretary for a copy thereof.

ACKNOWLEDGEMENT

Your Directors place on record its sincere appreciation towards Company's valued overseas customers for the support and the confidence reposed by them in the Company and look forward to the continuance of this mutually supportive relationship in future. Your Directors gratefully acknowledge the contributions made by employees towards the success of your Company. Your Directors are also thankful for the co-operation and assistance received from its vendors, bankers, STPI, regulatory and Governmental authorities in India and abroad and its shareholders.

FOR AND ON BEHALF OF THE BOARD

Sd/- Place: Mumbai Seemha Ramanna Date : 21 August 2012 Chairperson & Managing Director

---

Mar 31, 2011

Dear Members,

The Directors are pleased to present the Twenty-first Annual report of the Company with the Audited Statement of Accounts and the Auditors' Report for the year ended 31st March 2011.

FINANCIAL RESULTS

(Rs. in Million)

2010-2011 2009-2010

Operating Revenue 371.16 353.60

Other Income 5.60 29.91

Total Income 376.76 383.51

Profit before Interest,

Depreciation, Tax, Exceptional

Items and prior period adjustment 59.35 139.52

Less: Interest & financial charges 72.68 34.31

Profit before Depreciation, Tax,

Exceptional Items and before prior

period adjustment (13.33) 105.21

Less: Depreciation 87.58 100.89

Profit before Tax and before prior

period adjustment (100.91) 4.32

Less: Provision for Tax - -

Add: Excess provision for tax

written back - 0.11

Add: Prior period income - 2.01

Profit after Tax (100.91) 6.44

Less: Surplus / (Deficit) in Profit

& Loss account brought forward

from previous year - (168.73)

Net surplus / (Deficit) carried

forward to Balance Sheet (100.91) (162.29)

*Note: Figures for the previous period have been regrouped / restated wherever necessary. Further, During the year, the Company went through the process of amalgamating its two overseas subsidiaries, Crest Animation Holdings Inc., USA, Crest Communication Holdings Limited, Mauritius and one Indian Wholly Owned Subsidiary, Crest Interractive Limited with the Company. The effect of the Scheme of Amalgamation has been given while preparing financial results of the Company for the financial year ended on 31st March, 2011 with effect from the Appointed Date being 1st April, 2010 and hence are not strictly comparable with those of previous financial year 2009-10.

DIVIDEND

Since the operations of the Company have registered a loss for the year, the directors express their inability to recommend any divided on the equity shares of the Company.

OPERATIONS DURING THE YEAR AND PROSPECTS

During the year, the Company went through the process of amalgamating its two overseas subsidiaries, Crest Animation Holdings Inc., USA, Crest Communication Holdings Limited, Mauritius and one Indian Wholly Owned Subsidiary, Crest Interractive Limited with the Company. This would enable

Crest to conduct its business more efficiently and advantageously with better economies of scale, more productive and optimum utilisation of various resources and give the ability to raise resources for conducting business, achieve synergies in business activities for further development and growth of the business. It would also help to eliminate unnecessary duplication of costs and help capture the entire IPR value in Crest Animation Holdings Inc., USA viz. rights in Alpha and Omega LLC, Norm of the North LLC, Magic Pebble LLC. As per the fair valuation report obtained for the purpose of amalgamation, the net carrying value of these IPR's stands at USD 3.5 millions as on 1st April, 2010.

During the year, the Company's first CGI Animated 3D Stereoscopic film, titled "Alpha & Omega" was released world wide by Lionsgate, a Hollywood Distributor. The film was initially released in North America accross 2,625 Screens on 17th September, 2010. As on 31st March, 2011, the estimated world wide gross box office collections from the film were over USD 50 millions and collections from DVD Sales were around USD 11 millions. In India, the film was released on 4th February, 2011 by Fox Star Studios, India. The estimated collections from India were around Rs. 27 Lakhs. Additionally, projected estimates from output deals and further sales of DVD's etc. are more than USD 15 millions. However, due to high marketing expenses and distribution fee, the waterfall accruing to the Company will accrue over a longer period than anticipated. Your Company received critical views on the creative but respectable reactions on the animation quality of the film. The management is considering all the experiences and incorporating new strategies for future productions.

Unfortunately, during the year under review, Word World LLC, an Independent Television Producer, a client of the Company filed petition for bankruptcy under Chapter 11 of Title 11 of the United States Code. The Company is pursuing its claims and dues as per the legal processes in USA.

The Company continued to work on the second feature film "Norm of the North" which is part of the lionsgate deal. However, one of the financiers to this project defaulted their obligation to fund due to financial crisis in their region. The Company is reviewing intended legal recourse to be initiated against the financier. Alternate financing arrangements are also been under negotiation.

All these challenges have created a temporary liquidity crunch for your Company and certain arrangement for short term borrowings had to be made to meet statutory obligations and operational requirements. The management intends to retire these debts from funds to be raised through placement of treasury stock created under the Scheme of Amalgamation and held by CAS Benefit Trust.

In March, 2011, Universal Studios released a Direct to Video Product called 'The Little Engine that Could" which is co- produced by your Company. As per the understanding given by Universal, the sales are in line with their expectations.

The production of the Indian Feature film is under progress. Cable and satellite networks have shown interest in taking rights in India as well as major distributors have shown interest in distributing the same in India and in other South East Asian countries. The film is expected to be released by November, 2012.

The Company also continued to work on "Ribbit", another CGI feature for limited release which your Company is co- producing with KRU Capital Sdn. Bhd., Malaysia.

Post the experience in Alpha & Omega and Norm of the North, the management is now more focused in addressing the challenges requiring predictable and sustainable cash flows and revenue streams in the changing environment. Your Company has entered into negotiations with other studios in Hollywood who share, common objectives and have strong and stable financial background. These relationships will enable your Company to work on predictable pipeline of projects within specific time period and ensure guaranteed work for hire services.

The Company is in negotiations and discussions for joint ventures with strong creative partner and financial investors. These joint ventures will ensure sustainable services revenues over a longer period with precommitted funds in place and depending upon the negotiations, the Company ensures future interest in multiple IPR's.

SCHEME OF AMALGAMATION

The Board of Directors of the Company at its meeting held on 23rd August, 2010 considered a proposal to consolidate the business of its two overseas subsidiaries i.e. Crest Animation Holdings Inc., USA, Crest Communication Holdings Limited, Mauritius and its wholly owned Indian subsidiary Company viz; Crest Interractive Limited, into the Company by way of Scheme of Amalgamation under Section 391 to 394 (read with Section 78 and Sections 100 to 104 of the Companies Act, 1956) and other applicable provisions of the Companies Act, 1956. At the Court Convened Meeting held on 8th December, 2010, the equity shareholders have approved the Scheme of Amalgamation. The Hon'ble Bombay High Court vide its order dated 1st April, 2011 sanctioned the said Scheme of Amalgamation. Pursuant to the Scheme of Amalgamation, the entire assets and business of transferor companies have been transferred and vested in the Company with effect from the appointed date being 1st April, 2010. The order of the Hon'ble Bombay High Court has been filed with the Registrar of Companies, Maharashtra on 5th May, 2011. The Scheme of Amalgamation has become effective with effect from 26th July, 2011, upon filing of the order of the Hon'ble Bombay High Court with the Registrar of Companies, Maharashtra, Mumbai and other statutory approvals, compliances in overseas jurisdictions. Consequently, the financial and operating results of Crest Animation Holdings Inc., USA, Crest Communication Holdings Limited, Mauritius and Crest Interractive Limited, India with effect from the Appointed Date of the Scheme being 1st April, 2010 have been included with the financial results of the Company for the financial year ended on 31st March, 2011 and hence are not strictly comparable with those of previous financial year 2009-10.

In pursuance of the Scheme, the Company has utilized a sum of Rs. 1772.90 million from the Securities Premium Account for adjusting debit balance in Profit and Loss Account after giving effect to the Scheme of Amalgamation and impairment in the value of goodwill of Rs. 1610.61 million arising pursuant to the Scheme of Amalgamation.

Changes in Capital Structure

a) Increase in Authorised Capital

Pursuant to the Scheme of Amalgamation, the Authorised Capital of the Company has been increased to Rs. 50,00,00,000/- (Rupees Fifty Crores) divided into 5,00,00,000 equity shares of Rs. 10/- each.

b) Allotment of Equity Shares pursuant to the Scheme of Amalgamation

Upon the Scheme becoming effective, the Company has issued and allotted 2,16,26,958 equity shares of Rs.10 each at a premium of Rs. 71.27 per share based on the valuation done by the valuers. These include an aggregate of 1,20,00,000 equity shares allotted to the CAS Benefit Trust in accordance with the terms of the Scheme. Post allotment of the aforesaid shares, the paid-up equity share capital of the Company has been increased to Rs. 44,21,21,360/-. Necessary applications have been made to the National Stock Exchange of India Limited and Bombay Stock Exchange Limited for obtaining listing and trading permissions in respect of allotment of shares under the Scheme of Amalgamation.

Post allotment of the aforesaid shares under the Scheme of Amalgamation, the shareholding structure of the Company is as follows:

Sr. Category % of

No. holding

1. Promoters and persons belonging to 10.42 Promotes group

2. D. E. Shaw group 20.54

3. CAS Benefit Trust 27.14

4. Global Depository Receipts 3.39 5 Others 38.51

Total 100.00

The trustees of CAS Benefit Trust along with the management of your Company have initiated the process to find strategic and sound investors for the placement of treasury stock.

INFORMATION TECHNOLOGY

The entire movie "Alpha & Omega" is done on high end graphics workstations, as technology plays a very significant role in 3D CGI theatrical production. It is not only essential to be "State-of-the-Art" in hardware and software but also it is important to constantly develop proprietary tools to get the desired effect. The quality benchmark gets pushed to higher levels every year and therefore your company is constantly taking efforts for utilization of high end technology. Your Company is using some of the best technology amongst animation players out of India / Asia.

CORPORATE GOVERNANCE

The Board of Directors supports the broad principles of Corporate governance and the Company has been in compliance with the mandatory provisions of Corporate Governance as stipulated in Clause 49 of the Listing Agreement entered with the Stock Exchanges. In addition to the basic governance issues, the Board lays strong emphasis on transparency, accountability and integrity.

A detailed report on Corporate Governance Compliance & Management Discussion and Analysis as stipulated in the listing agreement is annexed and forms part of this report.

DIRECTORS

During the year under review, Mr. Shyam Ramanna resigned as Chairman of the Company and continues to be Member on the Board effective from 2nd November, 2010.

In view of resignation of Mr. Syam Ramanna as Chairman, your Board of Directors appointed Mrs. Seemha Ramanna as Chairperson & Managing Director effective from 10th November, 2010.

Mr. S. Balasubramanian & Mr. Rajen J Damani were appointed as Independent and Non-Executive Directors of the Company effective from 23rd August, 2010 which was duly approved by members in Annual General Meeting held on 27th September, 2010.

In accordance with the requirements of the Companies Act, 1956, Mr. T.N.V. Ayyar, Mr. Shyam Benegal and Mr. Anil Chawla, Directors of the Company retire by rotation and, being eligible, offer themselves for re-appointment.

Brief particulars and expertise of directors seeking re- appointment and details of their other directorship and committee membership have been given in the annexure to the Notice convening the Annual General Meeting.

Directors recommend the resolutions pertaining to re- appointment of Directors, for approval of the members.

AUDITORS

M/s. S. R. Batliboi & Associates (Member firm of Ernst & Young Global) and M/s. Chaturvedi and Shah, Chartered Accountants, Mumbai will retire as the Auditors of the Company at the conclusion of the ensuing Annual General Meeting and have given their consent for re-appointment as required under the provisions of Section 224(1B) of the Companies Act, 1956. The Board of Directors of your Company recommend their re-appointment as Joint Statutory Auditors of the Company. A resolution seeking your approval for re-appointment of Auditors is included as item 5 of the Notice convening Annual General Meeting.

DEPOSITS

During the year under review the Company has not accepted any deposits from the Public under section 58A and 58AA of the Companies Act, 1956 read with Companies (Acceptance of Deposit) Rules.

DIRECTORS' RESPONSIBILITY STATEMENT

Pursuant to Section 217(2AA) of the Companies Act, 1956 (the Act) amended as per the Companies (Amendment) Act, 2000, the Directors confirm that:

- in the preparation of the Annual Accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures;

- the Directors 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 the Company at the end of the financial year and of the profit or loss of the Company for that period;

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

- the Directors have prepared the annual accounts on a going concern basis.

AUDITORS' REPORT

As regards the qualifications made by the Auditors as stated in paragraph 4 & 5 of their report on the accounts of Crest Animation Studios Limited and paragraph 5 & 6 of their report on the Consolidated Financial Statements of the Company respectively, attention is invited to Note nos. 6 & 7 of Schedule R on significant Accounting Policies and Notes forming part of the Accounts of the Company and Note nos. 6 & 7 of schedule S of consolidated financial statements of the Company, wherein the detail explanation provided which in the opinion of the Board of Directors are self explanatory.

CHANGES IN GROUP STRUCTURE

During the year under review, the process of amalgamation of your Company i.e. Crest Communication Holdings Limited, Mauritius (CCHL), Crest Animation Holdings Inc., USA,(CAH) and Crest Interractive Limited (CIL) with Crest Animation Studios Limited was initiated. The Scheme of Amalgamation has become effective from 26th July, 2011. Due to the amalgamation of all the abovementioned subsidiary companies, interest of CAH in the SPVs viz., Alpha & Omega LLC, Norm Financing LLC & Magic Pebble LLC has been transferred to your Company. CAH was also holding 100% stake in Crest Animation Inc., USA which has also transferred to CASL. Due to corporate restructuring by way of amalgamation, Crest Animation Inc.(CAI) has become direct overseas subsidiary of the Company. The subsidiary of CAI i.e. Crest Animation Production(CAP) & subsidiary of CAP i.e. Roop BDR Productions have become step down overseas subsidiaries of your Company. Overseas subsidiaries and step down subsidiaries will have the operational activities of development, pre production and post production to be done in Hollywood which is required to be carried out in USA. Due to winding up of CCHL, Crest will now be the investing partner in prospective investment vehicles such as joint ventures or Limited Liability Partnerships producing Intellectual Property Rights etc.

SUBSIDIARIES

I. OVERSEAS

Crest Communication Holdings Ltd. Mauritius (CCHL)

Crest Communication Holdings Limited, a wholly subsidiary of the Company has filed necessary application for striking off the name of the Company as the Scheme of Amalgamation provides for dissolution of CCHL without winding up. The Order sanctioning the Scheme was passed by the Hon'ble High Court of Bombay on 1st April, 2011. Upon accomplishment of the applicable formalities under the law, the Scheme has come into effect from 26th July, 2011. The effect of the amalgamation has been given in the books of accounts of the Company for the year ended on 31st March, 2011 with effect from the Appointed Date.

Crest Animation Holdings Inc., USA (CAH)

Crest Animation Holdings Inc., USA, a step down subsidiary of the Company has filed necessary application for striking off the name of the Company as the Scheme of Amalgamation provides for dissolution of CAH without winding up. The Order sanctioning the Scheme was passed by the Hon'ble High Court of Bombay on 1st April, 2011. Upon accomplishment of the applicable formalities under the law, the Scheme has come into effect from 26th July, 2011. The effect of the amalgamation has been given in the books of accounts of the Company for the year ended on 31st March, 2011 with effect from the Appointed Date.

Crest Animation Intermediate (CAI) and its downstream subsidiaries

CAI was the wholly owned Subsidiary of CAH. Upon the Scheme of Amalgamation becoming effective, CAI has now become wholly owned subsidiary of your Company. CAI and its downstream subsidiaries provides services in the developments and pre & post-production of CGI- animated properties for theatrical, television, home entertainment and interactive distribution. CAI is presently operating in Burbank, California. CAI is having a wholly owned subsidiary, Crest Animation Productions, Inc. (CAP) and CAP owns 100% of Roop BDR Productions Inc. (RBP). The name of Crest Animation Intermediate, Inc. has been changed to Crest Animation, Inc. in May, 2011.

During the year, CAI on a standalone basis incurred operation losses of USD 0.73 millions.

II. INDIAN

Crest Interractive Limited (CIL)

Crest Interractive Limited, a Indian wholly owned subsidiary of the Company has filed necessary application for striking off the name of the Company as the Scheme of Amalgamation provides for dissolution of CIL without winding up. The Order sanctioning the Scheme was passed by the Hon'ble High Court of Bombay on 1st April, 2011. Upon accomplishment of the applicable formalities under the law, the Scheme has come into effect from 26th July, 2011. The effect of the amalgamation has been given in the books of accounts of the Company for the year ended on 31st March, 2011 with effect from the Appointed Date being 1st April, 2010.

CONSOLIDATED FINANCIAL STATEMENTS

In compliance with the Listing Agreements entered with the Stock Exchanges, a Consolidated Financial Statement of the Company and all its subsidiaries is attached. The Consolidated

Financial Statement has been prepared in accordance with Accounting Standards 21, 23 and 27 issued by the Institute of Chartered Accountants of India and show the financial resources, assets, liabilities, income, profits and other details of the Company, its associates companies, joint venture companies and its subsidiaries after elimination of minority interest, as a single entity. The statement pursuant to section 212 of the Companies Act, 1956 forms part of this report. The consolidated accounts present a full and fair picture of the state of affairs and the financial condition. A statement of summarized financials of all the subsidiaries is attached along with the consolidated financial statement. However, on request by any member of the Company/statutory authority interested in obtaining them, these documents will be made available for examination at the Company's registered office. In terms of general exemption granted by the Ministry of Corporate Affairs under section 212(8) of the Companies Act, 1956, the Copy of the Balance Sheet & Profit and Loss Account etc. of the subsidiaries are not required to be attached with the Balance Sheet of the Company. The Company Secretary will make these documents available upon receipt of request from any member of the Company interested in obtaining the same. These documents will be available at Registered Office of the Company, during working hours up to the date of the Annual General Meeting.

PARTICULARS AS PER SECTION 217 OF THE COMPANIES ACT, 1956

ENERGY AND FOREIGN EXCHNAGE

The particulars as required under section 217(1)(e) of the Companies Act, 1956 read with Companies (Disclosure of particulars in the report of the Board of Directors) Rules, 1988, are attached as annexure to this report.

PARTICULARS OF EMPLOYEES

As required by section 217 (2A) of the Companies Act, 1956 read with the Companies (Particular of Employees) Rules, 1975 forms part of this report. However, as permitted by section 219(1)(b)(iv) of the Companies Act, 1956, the report and accounts are being sent excluding the statement containing the particulars to be provided under section 217(2A) of the Act. Any member interested in obtaining such particulars may inspect the same at the Registered Office of the Company or write to Company Secretary for a copy thereof.

ACKNOWLEDGEMENT

Your Directors place on record its sincere appreciation towards Company's valued overseas customers for the support and the confidence reposed by them in the Company and look forward to the continuance of this mutually supportive relationship in future. Your Directors gratefully acknowledge the contributions made by employees towards the success of your Company. Your Directors are also thankful for the co-operation and assistance received from its vendors, bankers, STPI, regulatory and Governmental authorities in India and abroad and its shareholders.

For and on behalf of the Board

Sd/- Seemha Ramanna Place: Mumbai Chairperson &

Date: August 29, 2011 Managing Director