(DQE) DQ Entertainment

Condensed Consolidated Statement of Cash Flows for the period ended 30 September 2011

Condensed Consolidated Statement of Cash Flows for the period ended 30 September, 2011 (continued)

Notes to Condensed Consolidated Financial Statements

NOTE A -       BASIS OF PREPARATION

1. General information

DQ Entertainment plc (the 'Company' or "DQ plc") is a company domiciled and incorporated in the Isle of Man on 19 April 2007 and was admitted to the Alternative Investment Market of London Stock Exchange on 18 December 2007. The Company raised approximately USD 54 million (£26.83 million) at listing (before Admission costs).

The condensed consolidated financial statements of the Company for the six months period ended 30 September 2011, comprises the financial Information of the Company, its subsidiaries and associate (together referred to as the 'Group').

As at 30 September 2011 the following companies formed part of the Group:

The Company's registered address is 15-19, Athol Street, Douglas, Isle of Man.

The Group is primarily engaged in the business of providing traditional and digital animation for television, home video, feature films and the like, and game art development. The Group also is engaged in exploitation of its distribution rights to broadcasters, television channels, home video distributors and others.

The functional currencies of the respective Group companies are:

2. Significant accounting policies

The accompanying condensed consolidated financial information of the Company have been presented for the six months ended 30 September 2011 along with comparatives for the six months ended  30 September 2010 and the year ended 31 March 2011. Condensed consolidated interim financial statements have been prepared on an accruals basis of accounting using accounting policies consistent with IAS-34 'Interim Financial Reporting' as issued by the International Accounting Standards Board ('IASB').

NOTE A - BASIS OF PREPARATION (continued)

2. Significant accounting policies (continued)

The condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 31 March 2011, which have been prepared in accordance with International Financial Reporting Standards ('IFRS).

In the opinion of management, all adjustments, which are of a normal recurring nature and necessary for a fair presentation, have been included. The Company has chosen to present the condensed consolidated financial position & condensed consolidated income statement, condensed consolidated comprehensive income statement, condensed consolidated statement of cash flows and condensed consolidated statement of changes in shareholders' equity along with selected explanatory notes. Accordingly, certain information and note disclosures normally included in annual financial statements prepared in accordance with IFRS have been condensed or omitted, although the Company believes that the disclosures made are adequate to make the information presented not misleading. These condensedconsolidated financial statements have been prepared using the same accounting policies that were applied in the preparation of the Company's annual financial statements for the year ended 31 March 2011.

The directors have had regard to the 12 month period from the date of approval of the interim financial statements and have reviewed the forecasted cash flows.  The Company has been cash generative in the interim period and has sufficient resources to meet its ongoing liabilities as they fall due.  Consequently the directors confirm the appropriateness of the going concern basis of preparation of these condensed consolidated financial statements.

NOTE B -       STANDARDS AND INTERPRETATIONS NOT YET APPLIED

The following new Standards and Interpretations, which are yet to become mandatory, have not been applied in the Company's Financial Statements.

Based on the Company's current business model and accounting policies, management does not expect any material impact on the Company's financial statements when any of the other standards or interpretations becomes

The Company does not intend to apply any of these pronouncements early.

NOTE C -       SEGMENT REPORTING

Segment information is presented in respect of the Group's business and geographical segments. The primary format, business segments, is based on the Group's management and internal reporting structure.

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly interest-bearing loans, borrowings and expenses, and corporate assets and expenses.

Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period.   

Business segments

The Company comprises the following main business segments:    

Animation:

The production services rendered to production houses and training rendered for acquiring skills for production services in relation to the production of animated television series and movies.           

Gaming:

The services provided for the contents in Console / Mobile / other platforms.

Distribution:

The revenue generated from the exploitation of the distribution rights of animated television series and movies acquired by the Company

The following is an analysis of the Company's revenue and results by operating segment for the periods under review:

NOTE D -      CASH AND CASH EQUIVALENTS

NOTE E -      FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

Financial assets at fair value through profit or loss comprise of plain vanilla currency option contracts held by the Group as at 30 September 2011. The fair value of these derivative instruments is as follows:

NOTE F -       INTANGIBLE ASSETS

NOTE G -      ADVANCES PAID FOR DISTRIBUTION RIGHTS

Advances paid for distribution rights include amounts paid to the producers for acquisition of the distribution rights and amounts incurred on internally generated intellectual property rights pending for capitalisation. These advances are transferred to distribution rights on completion of the entire production activities and when the asset is ready for exploitation.

NOTE H -      OTHER FINANCIAL ASSETS

NOTE I -        INTEREST BEARING LOANS AND BORROWINGS

Interest bearing loans and borrowings comprise the following:

NOTE J -        NOTE J -        PROVISION FOR RETAKES

Retakes include creative changes to the final product delivered to the customer, performed on the specific request of the customer at the Group's own cost. Requests for retakes will be accepted from customers by the Group for a maximum period of three months from the final delivery and hence the provision is not discounted.

NOTE K -       PERSONNEL  COSTS

Details of personnel expenses included in cost of sales, administrative and distribution expenses are as follows:

NOTE L -       NET FINANCING COSTS

NOTE M -      EARNINGS PER SHARE ("EPS")

Profit attributable to ordinary shareholders    

The Group does not have any dilutive instruments for the period ended 30 September 2011, 30 September 2010 and for the year ended 31 March, 2011 and as such Diluted EPS equals Basic EPS.

NOTE N -       NON - CONTROLLING INTERESTS

NOTE O -      EQUITY

a)   Ordinary shares

DQ plc presently has only one class of ordinary shares. For all matters submitted to vote in the shareholders' meeting, every holder of ordinary shares, as reflected in the records of the Company on the date of the shareholders' meeting, has one vote in respect of each share held. All shares are equally eligible to receive dividends and the repayment of capital in the event of liquidation of the Company.

The Company has authorised share capital of 50,000,000 equity shares of 0.1 pence each.

Issue of ordinary shares

Share premium - The amount received by the company over and above the par value of shares issued is shown under this head.

The share premium reserve can be utilised by the Company for the declaration of bonus shares and for offsetting incremental costs directly attributable to the issues of new shares

 b)  Reserves

Translation reserve - Assets, liabilities, income, expenses and cash flows are translated into USD (presentation currency) from Indian Rupees (functional currency of DQ India), Euros (functional currency of DQ Ireland) and Great British Pounds (functional currency of DQ plc). The exchange difference arising out of the period-end translation is debited or credited to foreign currency translation reserve.

The movements in this reserve are set out below:

Exchange differences relating to the translation of the net assets of the Group's foreign operations from their functional currencies to the Group's presentation currency (i.e. USD) are recognised directly in other comprehensive income and accumulated in the foreign currency translation reserve.

Accumulated earnings - Accumulated earnings include all current and prior period results as disclosed in the income statement. The movements in the accumulated earnings are set out below:

The accumulated earnings are in the nature of distributable reserves for the purposes of distribution of dividend.

Other Reserves - The Reverse Acquisition Reserve, Equity component of convertible instruments and Capital Redemption Reserve are non-distributable in nature.

NOTE P -       CAPITAL COMMITMENTS AND CONTINGENT LIABILITIES

NOTE Q -      RELATED PARTIES

Identity of related parties

DQ plc has a related party relationship with its directors, executive officers, subsidiaries and associate.

DQ plc does not have any ultimate controlling entity.

Related parties and their relationships

a)    Subsidiaries

      DQ Entertainment (Mauritius) Limited (with effect from 27 November 2007)

      DQ Entertainment (International) Limited (with effect from 18 February 2008)

      DQ Entertainment (Ireland) Limited (with effect from 12 November 2008)

b)    Associate

Method Animation SAS (with effect from 28 March 2008)

RELATED PARTIES -

c)    Key management personnel

Mr. Tapaas Chakravarti - Director

      Mr. K. Balasubramanian - Director

            Ms. Theresa Plummer - Director

            Mr. Anthony BM (Tony) Good - Director

d)   Relatives of key management personnel with whom DQ India had transactions during the period - Mrs. Rashmi Chakravarti (wife of Mr. Tapaas Chakravarti)

e)    Relationship with Common Director ( Galaway Films Ltd)

Trading transactions   

Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below.

Revenue from production from related parties was at prices arising out of the Group's usual trade practices. The amounts outstanding are unsecured and will be settled in cash. No guarantees have been given or received. No expense has been recognised in the period for bad or doubtful debts in respect of the amounts owed by related parties.

Compensation of key management personnel

Directors of the company and their immediate relatives control 14.47 per cent of the voting shares of the company.

The remuneration of directors and other members of key management during the period were as follows:

Other related party transactions

Remuneration paid to relatives of key management personnel during the period was USD 33,000 (30 September 2010: USD26,000; 31 March 2011: USD 65,000) and the outstanding balance as at 30 September 2011 was USD 5,000 (30 September 2010: USD 5,000 and 31 March 2011: USD 5,000).