Contents. Page. Independent Auditors report 1. Consolidated Balance Sheet 1. Consolidated Statement of Income 3

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1 Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards India Hospitality Corp. and its subsidiaries

2 India Hospitality Corp. and its subsidiaries Contents Page Independent Auditors report 1 Consolidated Balance Sheet 1 Consolidated Statement of Income 3 Consolidated Statement of Changes in Shareholders' Equity 4 Consolidated Statement of Cash Flows 6 Notes to Consolidated Financial Statements 8

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5 Consolidated Balance Sheet (All amounts in USD, unless otherwise stated) March 31, 2008 December 31, 2006 ASSETS Notes Non Current Goodwill 30,922,539 - Property, plant and equipment B 85,528,629 - Capital work in progress C 6,343,325 - Intangible assets D 55,987,070 - Deferred tax assets S 844,558 - Other financial assets E 5,212,618 - Prepayments and accrued income F 5,863,523 - Restricted cash G 1,043,516 - Investments H 2,617 - Total non current assets 191,748,395 - Current Inventories I 519,447 - Trade receivables, net J 8,133,181 - Other financial assets K 2,897, ,745 Prepayments and accrued income L 59,943 - Restricted cash M 8,772 - Cash and cash equivalents N 18,102,932 99,592,211 Total current assets 29,721, ,149,956 Total assets 221,470, ,149,956 LIABILITIES AND STOCKHOLDERS EQUITY Stockholders equity Issued capital 27,583 21,334 Additional paid in capital 147,369,662 98,523,828 Translation reserve 79,646 - Accumulated earnings (1,299,706) 1,266,390 Total stockholders equity 146,177,185 99,811,552

6 March 31, 2008 December 31, 2006 Notes Non current liabilities Interest bearing loans and borrowings, net of current portion O 30,318,607 - Employee benefit obligations Q 558,007 - Deferred tax liability S 21,589,638 - Other liabilities 109,873 - Total non current liabilities 52,576,125 - Current liabilities Interest bearing loans and borrowings 7,622,718 - Trade and other payables P 14,780, ,404 Income tax payable R 313,411 - Total current liabilities 22,716, ,404 Total liabilities 75,293, ,404 Total liabilities and stockholders equity 221,470, ,149,956 (The accompanying notes are an integral part of these consolidated financial statements)

7 Consolidated Statement of Income (All amounts in USD, unless otherwise stated) Fifteen months ended Period ended December 31, 2006 Notes Revenues Operating Revenues U 24,893,304 - Finance income 3,401,448 2,110,915 Other income 349,581 - Total 28,644,333 2,110,915 Expenses Direct Operating Expenses V 19,561,542 - Administrative Expenses W 10,030, ,525 Selling Expenses X 126,396 - Finance Charges 1,859,799 - Total 31,578, ,525 Result from continuing operations before tax (2,934,092) 1,266,390 Taxes T Current tax benefit 7,952 - Deferred tax benefit 360,044 - Net result attributable to shareholders of India Hospitality Corp. (2,566,096) 1,266,390 Earnings/(loss) per share Basic (in USD.) (0.10) 0.08 Diluted (in USD.) (0.10) 0.08 (The accompanying notes are an integral part of these consolidated financial statements)

8 Consolidated Statement of Changes in Shareholders' Equity (All amounts in USD, unless otherwise stated) Total stockholders' equity Common stock Amount Additional paid in capital Translation reserve Accumulated earnings Total stockholders equity On incorporation Net income for the period ,266,390 1,266,390 Total income and expense recognised for the period ,266,390 1,266,390 Issue of shares 23, ,982, ,006,852 Redemption of shares (2,083) (2,083) Share issue expenses - (4,459,007) - - (4,459,007) Balance as at December ,334 98,523,828-1,266,390 99,811,552

9 (All amounts in USD, unless otherwise stated) Common stock Amount Additional paid in capital Total stockholders' equity Translation reserve Accumulated earnings Total stockholders equity Balance as at January 1, ,334 98,523,828-1,266,390 99,811,552 Translation adjustment ,646-79,646 Income recognised directly in equity ,646-79,646 Net income for the period (2,566,096) (2,566,096) Total income and expense recognised for the period ,646 (2,566,096) (2,486,450) Issue of shares 4,688 28,120, ,125,000 Shares issue expenses - (3,075,000) - - (3,075,000) Issue of shares in connection with business combination. 3,067 20,604, ,608,003 Stock compensation reserve relating to share based payments 3,150, ,150,000 Redemption of shares (1,505) (8,998,395) - - (8,999,900) Issue of sellers option - 9,043, ,043,981 Balance as at March 31, , ,369,662 79,537 (1,299,706) 146,177,077 (The accompanying notes are an integral part of these consolidated financial statements)

10 Consolidated Statement of Cash Flows (All amounts in USD, unless otherwise stated) Particulars Fifteen months ended Period ended December 31, 2006 (A) Cash inflow/ (outflow) from operating activities Net result before tax (2,934,092) 1,266,390 Adjustments to reconcile net income before tax to net cash provided by operating activities: Depreciation and amortization 4,739,110 - Interest expense 1,669,175 - Interest income (2,852,004) (2,110,915) Dividend received (219,377) - Profit/Loss on sale of asset (1,450) - Provision for diminutions in value of investments 1,223 - Profit on sale of investments (181,161) - Changes in operating assets and liabilities Increase in current liability 5,838, ,404 Decrease in current assets (3,308,242) (127,298) Net changes in operating assets and liabilities 2,751,789 (639,419) Direct Tax paid 16,065 - Net cash provided by operating activities 2,767,854 (639,419) (B) Cash inflow/ (outflow) from investing activities Interest income 2,852,004 1,680,468 Income from sale of investments 181,161 - Acquisition of subsidiaries (75,809,275) - Acquisition expenses (3,173,443) - Purchase of intangibles (4,900,000) - Purchase of tangible assets (27,957,874) -

11 Fifteen months ended Period ended December 31, 2006 Particulars Proceeds from sale of assets 280,814 - Dividend received 219,377 - Net cash used in investing activities (108,307,237) 1,680,468 (C ) Cash inflow / (outflow) from financing activities Proceeds from secured loan 9,084,910 6,000 Repayment of secured loans (562,536) - Proceeds from issue of share capital 28,125, ,006,252 Redemption of capital (8,999,900) (2,083) Interest paid (1,715,721) - Share issue expenses (1,500,000) (4,459,007) Net cash provided by financing activities 24,431,753 98,551,162 Net increase in cash and cash equivalents (82,497,288) 99,592,211 Effect of exchange rate changes on cash (381,650) - Cash and cash equivalents at the beginning of the period 100,981,870 - Cash and cash equivalents at the end of the period 18,102,932 99,592,211 Cash and cash equivalents comprise Cash in hand 134,876 - Balances with banks 1,635,347 99,592,211 Investment in highly liquid funds 16,332,709-18,102,932 99,592,211 (The accompanying notes are an integral part of these consolidated financial statements)

12 Notes to Consolidated Financial Statements (All amounts in USD, unless otherwise stated) NOTE A BACKGROUND INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. NATURE OF OPERATIONS India Hospitality Corp. ( the Company ) and its subsidiaries (together referred to as the Group ), the Company was formed on May 12, 2006 as blank-check Company to acquire Indian businesses or assets in the hospitality, leisure, tourism, travel and related industries, including but not limited to hotels, resorts, timeshares, serviced apartments and restaurants. In July 2007, the Group completed the acquisition of India-based Mars Restaurants Private Limited ( MRPL or Mars), an emerging hotel and restaurant company, and Sky Gourmet Catering Private Limited ( SCPL or SkyGourmet), an airline catering company. Mars was incorporated in the year 2000 with the objective of operating and managing restaurants. Since its incorporation, Mars has diversified into bakery outlets and operating and managing food courts and hotels. SkyGourmet was incorporated in the year 2002 and currently provides inflight catering services to a number of domestic and international airlines. It has operations in Mumbai, Bangalore, New Delhi, Pune, Hyderabad and Chennai. 2. GENERAL INFORMATION The Company was incorporated in the Cayman Islands on 12 May 2006 and its shares are publicly traded on the Alternate Investment Market of the London Stock Exchange. As of 31 March 2008, the Company had wholly owned subsidiaries incorporated in Mauritius, Netherlands and India. The Company expects to conduct business, including the making of acquisitions, through its Mauritius subsidiary. To align Company s year end with those of acquired entities the Company has changed its financial year end from March 31 to December 31 and therefore is presenting 15 months financial statements. As the current financial statements are for 15 months and these also include operation of acquired entities from the date of acquisition, the comparatives presented for period ended December 31, 2006 may be not comparable. The consolidated financial statements of the Group have been prepared in accordance with the International Financial Reporting Standards ( IFRS ) issued by the International Accounting Standards Board effective for accounting periods commencing on 1 January, These financial statements

13 include comparative financial information as at and for the period ended 31 December, 2006, as required by IAS 1 - Presentation of Financial Statements ( IAS 1 ). The consolidated financial statements have been prepared on a going concern basis. The consolidated financial statements of the Group are prepared and presented in United States Dollar ( USD ), the Company s Reporting currency. The financial statements for the period ended 31 March, 2008 were approved by a committee of the board of directors on September 18, 2008 Financial statements once approved by the Board of Directors are generally not amended. 3. CHANGE IN ACOUNTING POLICIES 3.1 Overall considerations The Group has adopted for the first time IFRS 7 Financial Instruments: Disclosures in its 2007 consolidated financial statements. The Standard has been applied retrospectively, ie with amendments to the 2006 accounts and their presentation. Other Standards or Interpretations relevant for IFRS financial statements have not become effective during the current financial year. Significant effects on current, prior or future periods arising from the first-time application of the standards listed below in respect of presentation, recognition and measurement of accounts are described in the following notes. An overview of Standards and Interpretations that will become mandatory for the Group in future periods is given in note Amendment of IAS 1 Presentation of Financial Statements In accordance with the amendment of IAS 1 Presentation of Financial Statements, the Group now reports on its capital management objectives, policies and procedures in each annual financial report. The new disclosures that become necessary due to this change in IAS 1 can be found in note JJ. 3.3 Adoption of IFRS 7 Financial Instruments: Disclosures IFRS 7 Financial Instruments: Disclosures is mandatory for all reporting periods beginning on 1 January 2007 or later. The new Standard replaces and amends disclosure requirements previously set out in IAS 32 Financial Instruments: All disclosures relating to financial instruments including all comparative information have been updated to reflect the new requirements. The first-time application of IFRS 7, however, has not resulted in any prior-period adjustments of cashflows, net income or balance sheet line items. 3.4 Standards and Interpretations not yet applied The following new Standards and Interpretations, which are yet to become mandatory, have not been applied in the Group s 2008 Group Financial Statements. Standard or Interpretation IAS 1: Presentation of Financial Statements (Revised) IAS 23: Borrowing costs (Revised) IAS 27: Consolidated and Separate Financial Statements (Revised 2008) IAS 32: Financial Instruments: Presentation- Puttable Financial Instruments and Obligations Arising on Liquidation Amendment Effective dates Annual periods beginning on or after 1 January 2009 Annual periods beginning on or after 1 January 2009 Annual periods beginning on or after 1 July 2009 Annual periods beginning on or after 1 January 2009

14 Standard or Interpretation IFRS 2: Share- based Payment (Amendment) Effective dates Annual periods beginning on or after 1 January 2009 IFRS 3: Business Combinations (Revised 2008) For acquisition dated on or after the beginning of the first annual reporting period beginning on or after 1 January 2009 IFRS 8: Operating Segments periods beginning on or after 1 January 2009 IRIC 11 IFRS 2: Group and Treaury Share Transactions Annual periods beginning on or after 1 March IFRIC 15 Agreements for the Construction of Real Estate Annual periods beginning on or after 1 January IFRIC 16 Hedges of a Net Investment in a Foreign Operation Annual periods beginning on or after 1 October 2008 IFRIC 13: Customer Loyalty Programmes Annual periods beginning on or after 1 July 2008 IFRIC 14: IAS 19. The limit on a Defined Benefit Asset Minimum funding requirements and their interaction. Annual periods beginning on or after 1 January 2008 Based on the Group s current business model and accounting policies, management does not expect material impacts on the Group s consolidated Financial Statements when the Interpretations become effective. The Group does not intend to apply any of these pronouncements early. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 4.1. OVERALL CONSIDERATIONS The significant accounting policies that have been used in the preparation of these consolidated financial statements are summarised below. The consolidated financial statements have been prepared using the measurement basis specified by IFRS for each type of asset, liability, income and expense. The measurement bases are more fully described in the accounting policies below. All accounting estimates and assumptions that are used in preparing the financial statements are consistent with the Group's latest approved budged forecast, where applicable. Judgements are based on the information available at each balance sheet date. Although these estimates are based on the best information available to management, actual results may ultimately differ from those estimates. Estimates of life of various tangible and intangible assets, allowance for uncollectable amounts, and assumptions used in the determination of employee-related obligations represent certain of the significant judgements and estimates made by management. The preparation of these consolidated financial statements are in conformity with IFRS and requires the application of judgment by management in selecting appropriate assumptions for calculating financial estimates, which inherently contain some degree of uncertainty. Management estimates are based on historical experience and various other assumptions that are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the reported carrying

15 values of assets and liabilities and the reported amounts of revenues and expenses that may not be readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. In the process of applying the Group s accounting policies, the following judgments have been made apart from those involving estimations, which have the most significant effect on the amounts recognised in the financial information: Leases The Company has evaluated each lease agreement for its classification between finance lease and operating lease. The Company has reached its decisions on the basis of the principles laid down in IAS 17, Leases for the said classification. Also, the Company has used IFRIC 4, Determining whether an arrangement contains a lease for determining whether an arrangement is, or contains, a lease is based on the substance of the arrangement and based on the assessment whether: Deferred Tax a) fulfillment of the arrangement is dependent on the use of a specific asset or assets (the asset); and b) the arrangement conveys a right to use the asset. Management judgment is required in determining provisions for income taxes, deferred tax assets and liabilities and the extent to which deferred tax assets can be recognised. If the final outcome of these matters differs from the amounts initially recorded, differences will impact the income tax and deferred tax provisions in the period in which such determination is made. Post employment benefits The cost of post employment benefits is determined using actuarial valuations. The actuarial valuation involves making assumptions about discount rates, expected rate of return on assets, future salary increases, and mortality rates. Due to the long term nature of these plans such estimates are subject to significant uncertainty. For net employee liability at the end of the respective dates Refer to note AA. Allocation of Banyan Tree Company (BTC) option value During the period, the Company has made certain share based payments to Banyan Tree Company against services rendered by them. The management estimates efforts of Banyan tree to be apportioned in following ratio o 50% towards share issue expenses o 40% towards the successful completion of the acquisition of MRPL and SGCPL. o 10% towards the efforts in relation to an acquisition opportunity, that wasn t ultimately completed BASIS OF CONSOLIDATION The group financial statements consolidate those of the Company and all of its subsidiary undertakings drawn up to the dates specified in Note 6. Subsidiaries are all entities over which The Company has the power to control the financial and operating policies. The Company obtains and exercises control through voting rights.

16 Unrealised gains and losses on transactions between the Company and its subsidiaries are eliminated. Where unrealised losses on intra-group asset sales are reversed on consolidation, the underlying asset is also tested for impairment losses from the Group s perspective. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group. Entities whose economic activities are controlled jointly by the Company and by other ventures independent of the Group are accounted for using proportionate consolidation INVESTMENT IN JOINT VENTURES Entities whose economic activities are controlled jointly by the Company and by other ventures independent of the Company ( joint ventures ) are accounted for using proportionate consolidation. Unrealised gains and losses on transactions between the group and its joint venture entities are eliminated to the extent of group s interest. Where unrealised losses on intra-group asset sales are reversed on consolidation, the underlying asset is also tested for impairment losses from the Company s group perspective. Amounts reported in the financial statements of jointly controlled entities have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group FOREIGN CURRENCY TRANSLATION The consolidated financial statements are presented in United States Dollar ( USD ), which is the functional currency of the parent company, India Hospitality Corp., being the currency of the primary economic environment in which it operates. In the separate financial statements of the consolidated entities, foreign currency transactions are translated into the functional currency of the individual entity using the exchange rates prevailing at the dates of the transactions (spot exchange rate). Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of remaining monetary balances at year-end exchange rates are recognised in the income statement under other income or other expenses, as applicable. In the consolidated financial statements, all separate financial statements of subsidiaries, originally presented in a currency different from the the Group s presentation currency, have been converted into USD. Assets and liabilities have been translated into USD at the closing rate at the balance sheet date. Income and expenses have been converted into the the Group s presentation currency at the average rates over the reporting period. The resulting translation adjustments are recorded under the currency translation reserve in equity REVENUE RECOGNITION Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received, excluding discounts, rebates, and other sales taxes or duty. The following specific recognition criteria must also be met before revenue is recognised: Sale of goods Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer, usually on acceptance of the goods and other revenue recognition criteria is met.

17 Rendering of services Revenue from rendering of services includes Handling Income, Transportation Income and Laundry Income. Revenue is recognised on these when the services are rendered to the customers. Dividends Revenue is recognised when the Group s right to receive the payment is established. Revenue Sharing Revenue from revenue sharing is recognised based on the contractual terms of the agreement. Finance revenue Revenue is recognised as interest accrues (using the effective interest method that is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument to the net carrying amount of the financial asset) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost, excluding the costs of the day-to-day servicing, less accumulated depreciation and accumulated impairment in value. Such cost includes the cost of replacing part of such plant and equipment when that cost is incurred if the recognition criteria are met. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement in the year the asset is derecognised. The asset s residual values, useful lives and methods are reviewed, and adjusted if appropriate, at each financial year end. Capital work in progress Capital work in progress includes assets under construction and capital advances. Depreciation Freehold land is not depreciated as useful life for land cannot be determined. Depreciation on other property plant and equipment is calculated on a straight-line basis over the estimated useful life of the asset less estimated residual value of property plant and equipment. The useful lives of the assets are taken as follows: - Buildings Plant and machinery Kitchen Equipments Computers Electrical Fitting Furniture and Fixtures Commercial Vehicles Motor Vehicles Office equipments Leasehold improvements 60 years 8 years 8 years 4 years 7 years 7 years 7 years 5 years 3 years Lease period or the useful life whichever is lower 4.7. BORROWING COSTS Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use.

18 All other borrowing costs are recognised in the income statement in the period in which they are incurred INTANGIBLE ASSETS Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. Intangible assets include goodwill arising on consolidation, brand name, catering agreements; non compete agreement and concession agreements acquired through business combination. Intangible assets are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortization method for an intangible asset with a finite useful life are reviewed at each financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognised in the income statement in the expense category consistent with the function of the intangible asset. These assets are currently amortized over a period of three to seven years and included under Depreciation and Amortization in the statement of income. Certain intangible assets have an indefinite life and are evaluated for impairment tests at each reporting period. The estimated useful lives of the intangibles are given as follows: - Designs Customer contracts Trade names Non compete agreement 5 years 5-20 years Indefinite life 7 years 4.9. GOODWILL Goodwill represents the excess of the acquisition cost in a business combination over the fair value of the group's share of the identifiable net assets acquired. Goodwill is carried at cost less accumulated impairment losses. Refer to Note 4.10 for a description of impairment testing procedures IMPAIRMENT TESTING OF GOODWILL, OTHER INTANGIBLE ASSETS AND PROPERTY, PLANT AND EQUIPMENT The Group s intangible assets, goodwill on acquisition and property, plant and equipment are subject to impairment testing. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Goodwill is allocated to those cashgenerating units that are expected to benefit from synergies of the related business combination and represent the lowest level within the Group at which management monitors goodwill. Cash-generating units to which goodwill has been allocated are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

19 An impairment loss is recognised for the amount by which the asset's or cash-generating unit's carrying amount exceeds its recoverable amount. To determine the recoverable amount, the Group's management estimates expected future cash flows from each cash generating unit and determines a suitable interest rate in order to calculate the present value of those cash flows. The data used for the Group's impairment testing procedures are directly linked to the Group's latest approved budget, adjusted as necessary to exclude the effects of future reorganisations and asset enhancements. Discount factors are determined individually for each cash-generating unit and reflect their respective risk profiles as assessed by the Group s management. Impairment losses for cash-generating units reduce first the carrying amount of any goodwill allocated to that cash-generating unit. Any remaining impairment loss is charged pro rata to the other assets in the cash-generating unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. An impairment charge that has been recognised is reversed if the cash-generating unit s recoverable amount exceeds its carrying amount FINANCIAL ASSETS Financial assets, other than hedging instruments, can be divided into categories such as loans and receivables, financial assets at fair value through profit or loss, available-for-sale financial assets and heldto-maturity investments. Financial assets are assigned to the different categories by management on initial recognition, depending on the purpose for which the investments were acquired. Derecognition of financial instruments occurs when the rights to receive cash flows from the investments expire or are transferred and substantially all of the risks and rewards of ownership have been transferred. An assessment for impairment is undertaken at least at each balance sheet date, whether or not there is objective evidence that a financial asset or a group of financial assets is impaired. Available-for-sale financial assets include non-derivative financial assets that are either designated to this category or do not qualify for inclusion in any of the other categories of financial assets. All financial assets within this category are subsequently measured at fair value, unless otherwise disclosed, with changes in value recognised in equity, net of any effects arising from income taxes. Gains and losses arising from securities classified as available-for-sale are recognised in the income statement when they are sold or when the investment is impaired. In the case of impairment, any loss previously recognised in equity is transferred to the income statement. Losses recognised in the income statement on equity instruments are not reversed through the income statement. Losses recognised in prior period consolidated income statements resulting from the impairment of debt securities are reversed through the income statement. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are initially recognised at fair values. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivables. Loans and receivables are subsequently measured at amortised cost using the effective interest method, less provision for impairment. Any change in their value is recognised in profit or loss. Trade receivables are provided against when objective evidence is received that the Group will not be able to collect all amounts due to it in accordance with the original terms of the receivables. The amount of the write-down is determined as the difference between the asset s carrying amount and the present value of estimated future cash flows.

20 4.12. INVENTORIES Inventory comprises food and provision, packing and other materials and is valued at the lower of cost and net realisable value. Costs incurred in bringing each product to its present location and conditions are included on a weighted average basis. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale ACCOUNTING FOR INCOME TAXES Current income tax assets and/or liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior reporting period, that are unpaid at the balance sheet date. Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. Deferred tax is, however, neither provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Deferred tax on temporary differences associated with shares in subsidiaries and joint ventures is not provided if reversal of these temporary differences can be controlled by the group and it is probable that reversal will not occur in the foreseeable future. In addition, tax losses available to be carried forward as well as other income tax credits are assessed for recognition as deferred tax assets. Deferred tax assets and liabilities are calculated, without discounting, at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date. Deferred tax liabilities are always provided for in full. Deferred tax assets are recognised to the extent that it is probable that they will be able to be offset against future taxable income. The Group's management bases its assessment of the probability of future taxable income on the Group's latest approved budget forecast, which is adjusted for significant nontaxable income and expenses and specific limits to the use of any unused tax loss or credit. The specific tax rules in the numerous legislations the Group operates in are also carefully taken into consideration. If a positive forecast of taxable income indicates the probable use of a deferred tax asset, especially when it can be utilised without a time limit, that deferred tax asset is usually recognised in full. The recognition of deferred tax assets that are subject to certain legal or economic limits or uncertainties is assessed individually by the Group's management based on the specific facts and circumstances. Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income statement, except where they relate to items that are charged or credited directly to equity in which case the related deferred tax is also charged or credited directly to equity CASH AND CASH EQUIVALENTS Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value LEASING ACTIVITIES Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Assets held under finance leases are recognised as assets of the Group at their fair value or present value of minimum lease payments if lower at the date of acquisition. The corresponding liability to the lessor is

21 included in the balance sheet as a finance lease obligation. Finance costs, which represent the difference between the total leasing commitments and the fair value of the assets acquired, are charged to the income statement over the term of the relevant lease so as to produce a constant periodic rate of charge on the remaining balance of the obligations for each accounting period EQUITY Share capital is determined using the nominal value of shares that have been issued. Additional paid-in capital includes any premium received on the initial issue of share capital. Any transaction costs associated with the issue of shares is deducted from additional paid-in capital and stock based compensation costs, net of any related income tax benefits. Foreign currency translation differences are included in the translation reserve. Accumulated earnings include all current and prior period results, as disclosed in the income statement. Due to non exercise of Seller s option by Navis such lapse of seller options has been reversed in APIC and disclosed in Statement Showing Changes in Equity EMPLOYEE BENEFITS Employee benefits are provided through a defined benefit plan as well as certain defined contribution plans. The Group provides for gratuity, a defined benefit plan, which defines an amount of pension benefit that an employee will receive on termination or retirement, usually dependent on one or more factors such as age, years of service and remuneration. The legal obligation for any benefits from this kind of plan remains with the Group. The Group also provides for provident fund benefit, a defined contribution plan, under which the Group pays fixed contributions into an independent entity. The Group has no legal or constructive obligations to pay further contributions after payment of the fixed contribution. The liability recognised in the balance sheet for defined benefit plans is the present value of the defined benefit obligation (DBO) at the balance sheet date less the fair value of plan assets, together with adjustments for actuarial gains or losses and past service costs. The DBO is calculated annually by independent actuaries using the projected unit credit method. The present value of the DBO is determined by discounting the estimated future cash outflows using interest rates of high quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating to the terms of the related pension liability. Actuarial gains and losses are recognised as an income or expense in the period in which they arise. Pastservice costs are recognised immediately in the income statement, unless the changes to the plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, the past service costs are amortised on a straight-line basis over the vesting period. The contributions recognised in respect of defined contribution plans are expensed as they fall due. Liabilities and assets may be recognised if underpayment or prepayment has occurred and are included in current liabilities or current assets as they are normally of a short-term nature. Interest expenses related to pension obligations are included in finance costs in the income statement. All other pension related benefit expenses are included in Employee benefit expense.

22 Short-term employee benefits are recognised for the number of paid leave days (usually holiday entitlement) remaining at the balance sheet date. They are included in employee obligations at the undiscounted amount that the Group expects to pay as a result of the unused entitlement. Paid leave days which are likely to be encashed at the time of retirement are valued at the rates at which they are estimated to be paid out, and the present value of the same is included under Long term Employee obligations FINANCIAL LIABILITIES The Group s financial liabilities include trade and other payables and borrowings, which are measured at amortised cost using effective interest rate method. They are included in balance sheet line items longterm financial liabilities and trade and other payables. Financial liabilities are recognised when the Group becomes a party to the contractual agreements of the instrument. All interest related charges is recognised as an expense in finance cost in the income statement. Trade payables are recognised initially at their fair value and subsequently measured at amortised cost less settlement payments PROVISIONS AND CONTINGENT LIABILITIES Provisions are recognised when present obligations will probably lead to an outflow of economic resources from the Group and they can be estimated reliably. Timing or amount of the outflow may still be uncertain. A present obligation arises from the presence of a legal or constructive commitment that has resulted from past events. Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the balance sheet date, including the risks and uncertainties associated with the present obligation. In those cases where the possible outflow of economic resource as a result of present obligations is considered improbable or remote, or the amount to be provided for cannot be measured reliably, no liability is recognised in the consolidated balance sheet EQUITY BASED COMPENSATION All goods and services received in exchange for the grant of any share-based remuneration are measured at their fair values. These are indirectly determined by reference to the fair value of the share options awarded. Their value is appraised at the grant date and excludes the impact of any non-market vesting conditions (for example, profitability and sales growth targets). All share-based remuneration is ultimately recognised as an expense in statement of income or as allocable to issue of shares and costs of business combination with a corresponding credit to additional paid-in capital, net of deferred tax where applicable. If vesting periods or other vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. Estimates are subsequently revised, if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in current period. Upon exercise of share options, the proceeds received net of any directly attributable transaction costs up to the nominal value of the shares issued are allocated to share capital with any excess being recorded as additional paid-in capital.

23 5. BUSINESS COMBINATION On 18 June 2007, India Hospitality Corp. entered into a share purchase agreement to acquire 100 per cent of the issued and outstanding stock of Sky Gourmet Catering Private Limited (SCPL) and Mars Restaurant Private Limited (MRPL). SCPL currently provides in-flight catering services to a number of domestic and international airlines. It has operations in Mumbai, Bangalore, New Delhi, Pune, Hyderabad and Chennai. MRPL is primarily into operating and managing restaurants. It has diversified into bakery outlets and operating and managing food courts and hotels. Pursuant to this agreement, the Group acquired 100% stake on 18 July 2007, India Hospitality Corp. acquired 100% of the equity instruments of SCPL and MRPL on fulfilment of certain conditions precedent to acquisition of majority stake. The acquisition of SCPL and MRPL was made as initiative to establish its presence into the hospitality and leisure industries. For accounting purposes, the date of acquisition is considered to be 31 July The total cost of acquisition includes the components stated below. The purchase price was settled in cash and issuance of equity instruments of the Group. The Company issued 3,066,667 number of equity shares and the same were valued at prevailing market price on the date of issue. Purchase price 99,053,369 Acquisition related cost 3,173,443 Total 102,226,812 The allocation of the purchase price to the assets and liabilities of SCPL and MRPL was completed in The amounts recognised for each class of the acquiree's assets, liabilities and contingent liabilities recognised at the acquisition date are as follows: Non current assets: Goodwill 30,922,539 Other intangible assets 53,240,102 Property, plant and equipment Capital work in progress 38,972,500 24,784,986 Current assets 24,155,252 Investments 250,000 Total assets 172,325,379 Current liabilities 26,764,826 Long term liabilities 43,333,771 Total liabilities 70,098,597 Assets acquired on the business combination also included Cash of USD 1,389,659. Disclosure of the carrying amounts of the acquiree s assets and liabilities immediately before the combination in accordance with IFRS was impracticable. SCPL and MRPL has not applied IFRS prior to its acquisition as at 31 July Therefore, essential data needed for pro-forma IFRS accounts of SCPL and MRPL prior to the date of acquisition was not available. No major line of business will be disposed of as a result of the combination. A significant part of the acquisition costs can be attributed to the assembled workforce and the sales know-how of key personnel of SCPL and MRPL. At the acquisition however, no intangible asset qualified for recognition in this respect. These circumstances contributed to the amount recognised as goodwill.

24 Goodwill arising on the business combination had been allocated to cash-generating units by 31 March BASIS OF CONSOLIDATION The group companies which consolidate under India Hospitality Corp. comprise of the entities listed below: Name of the Entity Year End Date Holding Co. Country of Incorporation Effective Group Shareholding (%) India Hospitality Corp. (IHC) BVI 100 IHC Mauritius (IHC M) IHC Mauritius 100 Mars Restaurants Private Limited IHC M India 100 (MRPL) SkyGourmet Catering Private Limited IHC M India 100 (SCPL) New India Glass Private Limited SCPL India 98 Gordon House Estates Private Limited MRPL India 100 Navigate India Investments B.V IHC M Netherlands 100 IBEA Mars and GHH Holdings B.V IHC M Netherlands 100 S.C. Ventures Ltd IBEA Mauritius 100 Karia Investments B.V Navigate Netherlands 100 MRPL holds a 49 % stake in Gourmet Restaurants Private Limited, a joint venture company. The remaining 51% shares are held by Tendulkar & family. All of the above entities follow uniform accounting policies. NOTE B. PROPERTY, PLANT AND EQUIPMENT, NET Property, plant and equipment comprise the following: December 31, 2006 Costs Freehold land 31,980,896 - Building 34,944,909 - Leasehold Improvements 1,179,202 - Plant and Machinery 7,761,376 - Computer 439,049 - Electrical fitting 1,196,871 - Kitchen equipments 4,910,627 - Furniture and fixture 1,423,661 - Commercial vehicles 3,066,281 - Motor vehicles 503,142 - Exchange gain 677,291-88,083,305 -

25 Accumulated Depreciation Freehold land - - Building 477,328 - Leasehold Improvements 170,173 - Plant and Machinery 497,142 - Computer 91,019 - Electrical fitting 104,313 - Kitchen equipments 415,694 - Furniture and fixture 174,819 - Commercial vehicles 365,752 - Motor vehicles 56,102 - Exchange gain 202,336-2,554,677 - Net book value Freehold land 31,980,896 - Building 34,467,582 - Leasehold Improvements 1,009,029 - Plant and Machinery 7,264,233 - Computer 348,030 - Electrical fitting 1,092,558 - Kitchen equipments 4,494,934 - Furniture and fixture 1,248,842 - Commercial vehicles 2,700,529 - Motor vehicles 447,040 - Exchange gain 474,956-85,528,629 - Movements in the cost and accumulated depreciation of property, plant and equipment are as follows: Period ended Period ended December 31, 2006 Cost Assets acquired on acquisition Additions Disposals Additions Disposals Freehold land 2,935,182 29,045, Building 24,277,147 10,667, Leasehold Improvements 1,179, Plant and Machinery 3,882,467 3,880,335 1, Computer 328, ,242 8, Electrical fitting 455, , Kitchen equipments 2,056,417 2,854, Furniture and fixture 1,344,800 78, Commercial vehicles 1,987,147 1,079, Motor vehicles 526,616 24,015 47, ,972,500 48,490,952 57,

26 Accumulated Depreciation Charge for the period Period ended Adjustment on disposals Period ended December 31, 2006 Charge for the period Adjustment on disposals Freehold land Building 477, Leasehold Improvements 170, Plant and Machinery 497,142 (1,365) - - Computer 91,019 (4,663) - - Electrical fitting 104, Kitchen equipments 415, Furniture and fixture 174, Commercial vehicles 365, Motor vehicles 56,102 (44,128) - - Exchange difference 580, ,933,109 (50,156) - - Of the total depreciation expense, USD 2,191,283 is classified in direct operating expenses and USD 741,825 is classified in administrative expenses. Please refer Note O for restrictions on titles and property, plant and equipment pledged as securities for respective loans NOTE C. CAPITAL WORK IN PROGRESS December 31, 2006 Balance acquired on acquisition 24,784,986 - Additions 508,346 - Capitalised during the period 18,950,007-6,343,325 - NOTE D. INTANGIBLE ASSETS Intangible assets are recognised at the stage of acquisition as part of the purchase price allocation. Carrying amount of intangible assets comprises of the following: December 31, 2006 Costs Designs 4,900,000 - Customer contracts 25,979,003 - Trade names 21,555,655 - Non compete agreement 5,705,444 - Exchange difference ,140,102 -

27 Accumulated Amortisation Designs 153,125 - Customer contracts 1,466,740 - Trade names - - Non compete agreement 547,184 - Exchange difference (14,017) - 2,153,032 - Net book value Designs 4,746,875 Customer contracts 24,512,263 - Trade names 21,555,655 - Non compete agreement 5,158,260 - Exchange difference 14,017 - Movements in the cost and accumulated amortisation of intangible assets are as follows: Cost Period ended 55,987,070 - Period ended December 31, 2006 Assets acquired on acquisition Additions Disposals Additions Disposals Designs - 4,900,000 - Customer contracts 25,979, Trade names 21,555, Non compete agreement 5,705, ,240,102 4,900, Accumulated Amortisation Charge for the period Period ended Adjustment on disposals Period ended December 31, 2006 Charge for the period Adjustment on disposals Designs 153, Customer contracts 1,466, Trade names Non compete agreement 547, Exchange difference (14,017) The amortisation charge has been classified as administrative expenses 2,153,

28 NOTE E. OTHER FINANCIAL ASSETS- NON CURRENT Other financial assets comprise of the following Particulars December 31, 2006 Deposits 4,623,991 - Others 588,627 Total 5,212,618 - NOTE F. PREPAYMENTS AND ACCRUED INCOME- NON CURRENT Particulars December 31, 2006 Prepaid lease rentals 5,619,644 - Others 243,879 Total 5,863,523 - NOTE G. RESTRICTED CASH- NON CURRENT Restricted cash comprise the following: Particulars December 31, 2006 Fixed deposits 1,043,516 - Total 1,043,516 - The group has given bank guarantees for performance of air catering units. These bank guarantees have been given against fixed deposits pledged with the banks and the group is restricted to withdraw such funds until the guarantees are valid. The carrying value of restricted cash is representative of their fair values at the respective balance sheet dates. NOTE H. INVESTMENTS- NON CURRENT Investments comprise of the following Particulars December 31, 2006 E-Quest India Private Limited Gordon House Estate Private Limited 2,501 Total 2,617 - Investments represent equity investments which do not have a quoted market price and whose fair value cannot be reliably measured. Therefore, such investments are recorded at cost. NOTE I. INVENTORIES Inventories comprise the following: Particulars December 31, 2006 Food and Provisions 271,895 - Packing and other materials 111,307 - Raw materials 92,045 - Share in joint venture 44,199 - Total 519,446 -