The company raised huge sums of money - USD 40 Millions by GDR/FCCB and also reportedly - and strangely, got it fully subscribed for such high risk outfit having no significant history. Who bought them?

It then went ahead to buy Hollywood’s 8000 films rights paying Rs 160 crores ( as understood). No one spends such huge amount overnight just for purchasing rights of foreign films which do not have much following in India.

The promoters at the same time pared their stake in the company with less than 5% holding. How could they still control the company with such pittance shareholding?  Are the current promoters just “front” and what is the reason for such surreptious activity in raising the large amount by GDR and then spending it all at one time?

The company’s GDRs are almost illiquid. Yes, some international arbitrage brokers like BNP are active, but that is only for arbitrage purpose.

Looks to me, that GDR got subscribed by hawala transfer from India and then buying so called Hollywood Rights for 8000 old films only on paper The average price per film for such old films works out huge Rs 22 Lakhs which is just unimaginable. These rights and internet rights are intangible assets subject to heavy depreciation and ammortaization.

In any case, right to very old Hindi/Tamil films do not exceed even Rs 50,000 . How the sum of Rs 24 lakhs per foreign films will compare when it does not have even 10% of Hindi/Regional film volume?

Regarding application of funds, the Auditors G. Parthasarthy makes only vague statement (based on Management’s certificate - Auditors have not physically verified) as under:

QUOTE (from Annual Report for YE 31-3-2007)
16. Utilisation of Funds raised
The company had raised funds through Global Depository Receipts and by issue of Foreign Currency Convertible Bonds in Foreign Currency. The funds were partiy applied for the purpose for which it was raised and the un-utilized funds are kept in the account as per RBI regulations. The company has ear marked the residual funds for the project in progress.

The management has disclosed the end use of money so raised and the same has been verified.
UNQUOTE

Thus, the Auditors have not physically verified the application of the funds. They relied on the management certification. If Management certificate has to be relied on, where is the need for the Auditors?

The Sundry debtors also shows extremely large Outstanding at Rs 16.65 crores which are outstanding over 6 months (others Rs 5.70 crores) - total Rs 22.35 crores against sales of Rs 45 crores, that is, debtors are turning over at every 180 days, very long period by any means.

Legal and Professional fees are paid to the extent of Rs 1.69 crores which is a huge sum for company of this size. It account for almost 4% of revenue. Never seen anything like this before. There is also Rs 1.89 crores of Travelling expenses which is nearly 5% of revenue.

The company shows the Cash Balance of just Rs 68 crores and shows sharp jump in Loans and Advances of Rs 52 crores (to Rs 56 crores),. Who were recipient of such large loans/Advance largesse of Rs 52 crores?

The Company has been using the name Deloitte Haskins for restructuring, giving the impression that such reputed company is their Auditors - they are not . They seem to have hired them for specific purpose of restructuring advice. the real Auditors are G Parthasarthy who appear to have audited the company’s accounts more on the basis of Management certification rather than physical inspection.

There is also huge sum of Goodwill estimated at Rs 30 crores of Omni Ltd. which was amalgamated into this company. This amount is prposed to be written off in this year itself against Share capital premium itself, and then they are proposing cancellation of share capital of GV Films Ltd. The question is - Who is Omni Ltd.? How that company could have Goodwill assets of Rs 30 crores? Why such huge amount is sought to be written off in single year when the permissible period is 5 years? The company is not making that much money, and money raised by FCCB is a liability. (Rs 37 crores as per report)

In spite of raising such huge amount and applied for some unknown purposes, the stock price has headed only South, having lost over 40% in last 2 months alone. Someone knows what wishy-fishy going on in the company. There is something really wrong with this company. The BSE/SEBI needs to look into this matter immediately before it is too late.

Kalidas, Hong Kong
22-Oct-07