23 ANNUAL REPORT rd - Mercatormercator.in/investors/AnnualReport/AnnualReport2006-07.pdf · Mercator Lines I 23rd Annual Report ... The brief resume of ... The terms of appointment

Registerd Office 3rd floor, Mittal Tower, B- Wing, Nariman Point, Mumbai- 400 021.Tel: +91 - 22 - 66373333. Fax: + 91 - 22 66373344.Website : www.mercator.inEmail: [email protected] / [email protected]

rd23 ANNUAL REPORT2006-07

Driven by growth… Sustained by values

Chairman’s Message 3

Year at a Glance 5

Our Vision 9

Report

The Financials

Financial Data Analyses 184

Consolidated Balance Sheet and 188P&L Account in USD 189

Directors’ Report 11Corporate Governance Report 18Management Discussion & Analysis 33Auditors’ Report 40

Balance Sheet 45Profit & Loss Account 46Cash Flow Statement 47Schedules 48Consolidated Financials 66Financials of Subsidiaries 84

Board Of Directors:

Audit Committee:

Shareholders’ Grievance Committee:

Expansion Committee:

Senior Management Team:

Company Secretary:

Auditors:

Bankers:

Registered Office:

Registrar & Transfer Agents:

Harish Kumar Mittal Chairman & Managing DirectorAtul J. Agarwal Joint Managing DirectorManohar Bidaye DirectorAnil Khanna DirectorM.G. Ramkrishna DirectorK.R. Bharat Director (w.e.f. July 30, 2007)

Anil Khanna ChairmanManohar Bidaye MemberM.G. Ramkrishna Member

Manohar Bidaye ChairmanAnil Khanna MemberAtul J. Agarwal Member

Manohar Bidaye ChairmanAnil Khanna MemberM.G. Ramkrishna Member

Harish Kumar Mittal ChairmanAtul J. Agarwal MemberAnil Khanna Member

Arun NandaAtul MalhotraJoshua KandulaKowshik KuchrooRanjen AgrawaalS. M. RaiT.V. Shanbhag

Supriya Joshi

M/s. Contractor, Nayak & Kishnadwala

State Bank of India, HDFC Bank, UTI Bank, ICICI Bank

3rd floor, Mittal Tower, B- Wing, Nariman Point, Mumbai- 400 021.Tel: +91-22-66373333. Fax: +91-22-66373344Website: www.mercator.inE-mail: [email protected] / [email protected]

Intime Spectrum Registry Ltd. C-13, Pannalal Silk Mills Compound,LBS Marg, Bhandup (W), Mumbai – 400 078.Tel: 022-25963838 Fax: 022-25946969E-mail: [email protected] / [email protected]

Remuneration Cum Selection Committee:

CHAIRMAN’S MESSAGE

CHAIRMAN’S MESSAGE

Pg. 3

Dear Shareholders,

As the curtain draws on another year, if I may quote the closingstatement of the last year's address, “Mercator is sailing in the rightdirection and steadily widening its horizons”. We feel satisfied insharing with you; we have done just that! We strengthened theplatform to value-add and broad-base the service package to ourcustomers. Maintaining the legacy of continual growth; we aresteadfastly positioning to firm our foothold in international markets.

Ladies and Gentlemen, may I welcome you to the covetedRs. 10 Billion club that your company joins this year! We have had asatisfactory year, in as much as milestones identified in recentpast, have successfully been achieved. Having consolidated theDry Bulk segment; we forayed into chemical tankers and dredgingthis year; targeting as comprehensive offerings as possible, in thesector. The entire fleet was consciously rationalized to improvelong term sustainability. The average age of our fleet hasplummeted from 16.36 years to 10.67 years; this trend is expectedto continue next year as the new additions to the fleet have anaverage age of 1.7 years only.

Our customer base is rapidly growing and diversifying; there is adefinite and considerable shift from Indian majors to thecompanies of international repute; to name but a few are; ArcelorMittal, Unipec, Petronas, Glencore and North China etc. One of ourvessels; Prem Mala has received “highest ratings” from DoradoPool, we take it as a humble reward from our happy customers.

The Singapore based subsidiary has gained feet quicker thanmeasured by any yardstick in the industry. This company hassuccessfully raised FCCB of USD 51 million and is making aconsiderable mark at the regional hub in rather short span of lessthan two years.

Mercator has rapidly transformed into a world class organizationredefining professionalism and quickly benchmarking with worldbest practices for the industry, both in Indian and Globalperspective. We have laid emphasis on risk based managementand operating processes; covering the entire gamut of functionslike safety, quality and environment. Our growing businesses todayaresupported and driven byunarguably the industry's best talent.

We are committed to deliver value to you, our shareholders; weare, therefore, in constant pursuit of creative ways to build further on the foundation laid over past couple of years; the results ofwhich will be seen in not too distant a future. We remain – Driven byGrowth; Sustained by Values!

Thank You,

Yours Sincerely,

H. K. MittalPlace: MumbaiDated: July 30, 2007

YEAR AT A GLANCE

Pg. 5

�H.K.Mittal, Chairman & Managing Director received for Corporate Excellence for

“Entrepreneur of the Year 2005-06.”from Prime Minister of India.

The Economic Times Award

�

�

H.K.Mittal was also awarded “NITIE Empresario - Most Inspiring Entrepreneur 2006”by NITIE (National Institute of Industrial Engineering).

M.T. Punita, a vessel of the Company and its members received“Award for Maritime Bravery” by Indian Coast Guard.

Mercator Lines 23rd Annual Report - 2006-07IPg. 6

YEAR AT A GLANCE

20,000.00

40,000.00

60,000.00

80,000.00

100,000.00

120,000.00

02-03 03-04 04-05 05-06 06-07

Financial Year

6,121

24,223

56,065

Rs.

InLa

cs

112,275

82,624

�RevenueThe company’s revenue crossed Rs. 11 billion mark.

�DividendHighest ever dividend pay out of Rs. 2214 Lacs.

Rs.

InLa

cs

2400.00

0.00

200.00

400.00

600.00

800.00

1000.00

1200.00

1400.00

1600.00

1800.00

2000.00

Financial Year

2200.00

02-03 03-04 04-05 05-06 06-07

137

340

1,613

1,891

2,214

Mercator Lines 23rd Annual Report - 2006-07I Pg. 7

YEAR AT A GLANCE

�Fixed Assets and Net WorthThe performance reflects in the over-all growth.

Rs.

InLa

cs

-

20,000.00

40,000.00

60,000.00

80,000.00

100,000.00

120,000.00

140,000.00

160,000.00

180,000.00

200,000.00

02-03 03-04 04-05 05-06 06-07

Financial Year

Fixed Assets

7,603

20,283

87,316

147,831

189,446

-

20,000.00

40,000.00

60,000.00

80,000.00

Financial Year

Net Worth

2,964

9,037

34,336

54,097

63,836

Rs.

InLa

cs

02-03 03-04 04-05 05-06 06-07

OUR VISION

Pg. 9

Our Core Values

Our Core Purpose

Our Goal

Honouring Commitments towards all the stake holders.Consistent growth.Ensuring that every employee feels pride in being called a “Mercatorian”.Innovation……We believe in doing things differently.

Giving the best solutions and offering outstanding value and service to our customers.

To become a dominant player in the international shipping and offshore.

DIRECTORS’ REPORTCORPORATE GOVERNANCE REPORT

MANAGEMENT DISCUSSION & ANALYSIS REPORTAUDITORS’ REPORT

Mercator Lines 23rd Annual Report - 2006-07I

ToThe Members,Mercator Lines Limited

rdWe take great pleasure in presenting 23 annual report of your Company for the year ended on March 31, 2007.

Pg. 11

DIRECTORS’ REPORT

* Amount Rs in Lacs

112276

115002

32291

8077

10380

13834(8)

(327)Nil

(13)

13486

15099

(43)

Nil28542

Nil1600

750

320

Nil1892

367

23613

Income from operations

Total Income

Operating Profit

Interest

Depreciation

Profit before Tax & Minority InterestMinority Interest

Taxes- Current Year- Deferred- Fringe Benefit Tax

Net Profit After Tax

Balance brought forward from last year

Prior Period Adjustments

Depreciation written backProfit available for appropriations:

Less: AppropriationsTransfers to Reserves

- Debenture Redemption Reserve- Tonnage Tax Reserve- General Reserve

Interim Dividend on Preference SharesInterim Dividend on Equity Shares Provision for final Dividend on Equity SharesTax on Dividend

Balance carried to Balance Sheet

82625

84332

36518

7077

9367

20074Nil

(439)180(12)

19803

13870

(85)

36533953

112533564

1782

320

1090568

277

15099

FINANCIAL HIGHLIGHTS

Particulars Year ended

31.03.2007 31.03.2006 31.03.2007 31.03.2006

Consolidated Consolidated Standalone Standalone

Year ended Year ended Year ended

78326

80847

23578

6338

9754

7486Nil

(310) Nil (13)

7163

13115

(43)

Nil20235

Nil 1600 750

320

Nil 1892

367

15306

62186

63785

33085

5629

9367

18089Nil

(438)180(12)

17819

13870

(85)

36531969

1125335641782

320

1090568

277

13115


On consolidated basis, the turnover for the year under review was Rs. 115,002 lacs againstRs. 84,332 lacs in the previous year; registering a growth of 36.37%. However, the operating profitfor the year at Rs. 32,292 lacs was lower by 11.57% over Rs. 36,518 lacs of the previous year. Theunderlying factors for the same being; entire write-off of dry docking expenses Rs. 5,482 lacs(previous year Rs. 2,149 lacs); higher interest costs Rs. 8,077 lacs (previous year Rs. 7,077 lacs);loss on exchange fluctuations Rs. 733 lacs (previous year gain on exchange fluctuations Rs. 379lacs); and higher depreciation Rs. 10380 lacs (previous year Rs. 9,367 lacs). Consequently, the Profit before Tax decreased by 31.08 % to Rs 13,834 lacs as against Rs. 20,074 lacs in theprevious year. Correspondingly, Profit After Tax shrank by 31.90% to Rs. 134,86 lacs as against Rs.19,803 lacs for the previous year.

On the other hand, on standalone basis, the turnover of the Company for the year under review was Rs. 80,847 lacs against Rs. 63,785 lacs in the previous year, registering growth of about26.75 % for the year. However, the operating profit for the year under review at Rs. 23,578 lacs waslower by 28.74% as against Rs. 33085 lacs of the Previous Year; Consequently, the Profit BeforeTax decreased by 58.62% to Rs. 7,486 lacs as against Rs. 18,089 lacs in the Previous YearCorrespondingly, Profit After Tax shrank by 59.81% to Rs. 7,162 lacs as against Rs. 17,819 lacs forthe Previous Year.

AWARDS AND RECOGNITIONS

Your Company has been recognized by various forums, both within and outside the industry.During the year, the Company and management were bestowed upon several recognitions ofnational repute.

The Economic Times – India's premier financial publication in its annual; The Economic TimesAward for Corporate Excellence bestowed; the ET Award for “Entrepreneur of the Year 2005-06."The award was presented by the Prime Minister of India to H. K. Mittal, the Chairman andManaging Director of the Company in October 2006.

He was also awarded “NITIE Empresario - Most Inspiring Entrepreneur 2006” by NITIE (NationalInstitute of Industrial Engineering).

M.T. Punita, a vessel of the Company and its members also received “Award for Maritime Bravery”by Indian Coast Guard for rescuing four fishermen in distress trapped in an overturned fishingtrawler in the high seas at New Mangalore.

EXPANSION AND FINANCE

The Company continued its expansion drive and acquired one Aframax tanker; one Panamax andone Kamsarmax vessel; adding thereby a total tonnage of 2,65,067 MT during the year underreview (previous year's addition to tonnage being 3,22,775 MT). The Panamax and Kamsarmaxvessels were acquired through the subsidiaries of the Company. The total cost of acquisitions wasRs.41,054.68 lacs, which was financed by a mix of internal accruals, sale proceeds of vessels anddebt.

In March 2007, Mercator Lines (Singapore) Pte. Ltd., a subsidiary of the Company hassuccessfully concluded its maiden offering of FCCB for an amount of US$ 51 million (equivalent toRs.22016.70 lacs). The bonds are listed on Singapore Stock Exchange.

In July 2007, the Company allotted 32,00,000 Equity Shares of Rs.1/- each at a premium ofRs.136/50 per share to the Promoter Group Company on Preferential Basis in lieu of exercise ofoption attached to 32,00,000 warrants issued to them on February 1, 2006 and further 48,00,000Equity Shares of Rs.1/- each as Bonus Shares in the ratio of 3:2 thereon; pursuant to Special

DIRECTORS’ REPORT


Resolution passed by the shareholders in their meeting held on January 17, 2006 in accordancewith the guidelines of SEBI on Preferential Issues.

The above allotment of shares increased the paid-up capital of the Company from Rs.1892 lacs toRs.1972 lacs and share premium account has increased by Rs.4368 lacs.

BUSINESS OPERATIONS AND FUTURE OUTLOOK

Your Company is now an accepted participant in drilling sector we are hopeful of employing theJack Up during the course of the year which would then substantially add to top & bottom line fromthe year 2009.

Your company’s tankers Fleet continues to be fully employed and at same time option of fleetrenewal/viability are being explored through solutions such as sale/purchase and conversions.The seasonal upturn in market is now round the corner.

The Bulk Carrier division is now performing beyond expectation. The near period continues to bevery firm and long terms prospects are bullish. Your company’s recent acquisitions in thissegment have been highly profitable and the Company will continue to look for opportunities inthis sector which will further enhance shareholder value.

DIVIDEND

The Board of Directors are pleased to recommend a 100% Dividend i.e. Re. 1/- per equity share ofRe. 1/- each for the financial year 2006-07 on the enlarged capital base post bonus issue;(previous year total dividend 180% i.e. Rs.1.80 per share, comprising interim dividend of 150% onpre bonus capital and final dividend of 30% on post bonus capital) for your approval. Theaggregate amount of dividend on equity shares for the financial year 2006-07 would beRs. 2,214 lacs including corporate tax & surcharge thereon (Rs. 1891 lacs in the previous year).The dividend pay out has therefore increased in absolute value significantly i. e. by 17.08 % .

A dividend of 8% on Redeemable Cumulative Preference shares of Rs. 4000 lacs, amounting toRs. 320 lacs; Corporate Tax & surcharge thereon amounted to Rs.44.88 lacs (Rs. 364 lacs in theprevious year) was also paid during the year.

DIRECTORS

In accordance with the provisions of the Companies Act, 1956 and the Articles of Association ofthe Company, Manohar Bidaye is the Director liable to retire by rotation at the ensuing AnnualGeneral Meeting and being eligible, has offered himself for re-appointment. The brief resume ofManohar Bidaye is included under the Corporate Governance section of this report.

The terms of appointment of H. K. Mittal as Managing Director and Atul J. Agarwal as JointManaging Director are expiring on July 31, 2007. The Board of Directors in its meeting held onJune 29, 2007 has re-appointed them for a further period of five years with re-designation ofH. K. Mittal as Executive Chairman and Atul J. Agarwal as Managing Director; subject to approvalof members of the Company. Their terms of remuneration has also been approved by theRemuneration Committee at its meeting held on June 29, 2007. The terms of re-appointments aredisclosed in the notice to the Annual General Meeting accompanying the annual accounts.

The Board of Directors in its meeting held on July 30, 2007 appointed K. R. Bharat as anAdditional Director of the Company to hold office up to the date of ensuing Annual GeneralMeeting. His candidature is proposed for the office of Director.

Your Directors recommend for your approval the aforesaid appointment/ re-appointments.

DIRECTORS’ REPORT


SUBSIDIARY COMPANIES

Your company has following subsidiaries:

1. Mercator International Pte. Ltd. Incorporated in Singapore2. Mercator Offshore Ltd. Incorporated in Singapore3. Mercator Lines (Singapore) Pte. Ltd. Incorporated in Singapore4. Varsha Marine Pte. Ltd. Incorporated in Singapore5. Vidya Marine Pte. Ltd. Incorporated in Singapore6. Mercator Lines (Panama) Inc. Incorporated in Panama7. Mercator Oil & Gas Ltd. Incorporated in India

AUDITORS

PARTICULARS OF EMPLOYEES

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION; EXPORT MARKETDEVELOPMENT AND FOREIGN EXCHANGE EARNINGS AND OUTGO

Pursuant to Accounting Standard (AS 21) issued by the Institute of Chartered Accountants ofIndia, consolidated financial statements presented by the Company include financial informationof its subsidiaries.

A statement in respect of the said subsidiaries pursuant to Section 212 of the Companies Act,1956 is enclosed herewith as required. The Audited statement of accounts along with the Reportof Directors and Auditors for the period ended on March 31, 2007 of the above subsidiaries alsoform part of this Annual report.

The Auditors of your Company, M/s. Contractor, Nayak & Kishnadwala, Chartered Accountants,retire at the ensuing Annual General Meeting and have confirmed their eligibility forre-appointment under Section 224 (1-B) of the Companies Act, 1956.

The Directors recommend their re-appointment for approval of the members.

At Mercator, we believe that employees are our partners in success, and hence our partners inrewards. It is their dedication, hard work and team spirit that enable the Company to touch new milestones in business.

As required under provisions of Section 217(2A) of the Companies Act, 1956, read with theCompanies (Particulars of Employees) Rules 1975 as amended, the requisite particulars inrespect of the employees of the Company, who were in receipt of remuneration in excess of thelimits specified under the said section are set out in the annexure herewith and form part of this report.

The Conservation of Energy and Technology Absorption under the Companies (Disclosure ofParticulars in the Report of the Board of Directors) Rules, 1988 are not applicable to yourCompany. All the same, the Directors would like to assure you that every measure is taken to saveand conserve energy at all the stages of operation of the vessels as well as shore activities.

Your Company has not imported any technology during the year. It has earned foreign exchangeof Rs. 20173 lacs (previous year Rs. 31087 lacs) and spent Rs.75175 lacs (previous year

Pg. 14

DIRECTORS’ REPORT


Rs. 90927) in foreign exchange on account of acquisition of vessels, charter hire & other vesselexpenses etc.

To increase its business in international market, your Company has formed new subsidiariesduring the year.

Your Company complies with the provisions laid down in Corporate Governance laws. It believesin and practices good corporate governance. Mercator maintains transparency, creates valueand wealth for its shareholders, and also enhances corporate accountability.

A separate report on the Corporate Governance, along with the requisite certificate from theAuditors of the Company is annexed herewith as part of this Annual Report.

Every organization is an integral part of the society it is located in. At Mercator, we honour ourcommitment to a better society and better life for all by supporting the cause of primary education.Good education will ensure a good life; with this in view your company continued to makecontribution in the field of education.

Pursuant to the provisions of section 217(2AA) of the Companies Act, 1956, the Directors herebyconfirm that:

(i) In preparation of the annual accounts, the applicable accounting standards have beenfollowed along with proper explanation relating to material departures;

(ii) We have selected such accounting policies and applied them consistently and madejudgments and estimates that are reasonable and prudent, so as to give a true and fair view ofthe state of affairs of the Company at the end of the financial year and of the profit for the yearunder review;

(iii) We have taken proper and sufficient care for the maintenance of adequate accountingrecords in accordance with the provision of the Companies Act 1956, for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

(iv) we have prepared the annual accounts on a going concern basis.

CORPORATE GOVERNANCE

VOLUNTARY DELISTING OF EQUITY SHARES OF THE COMPANY FROM AHMEDABADSTOCK EXCHANGE LIMITED

Presently, the Equity Shares of your Company are listed on Bombay Stock Exchange Limited(BSE), National Stock Exchange Limited (NSE) and Ahmedabad Stock Exchange Limited (ASE).With a view to saving administrative costs, it is proposed to voluntarily de-list Equity Shares of theCompany from Ahmedabad Stock Exchange Limited. This would not affect the convenience ofthe Shareholders, since the Shares of the Company would continue to be listed on BSE and NSE,which have nationwide terminals and provides easy liquidity. An approval of the Shareholders inthis regard is proposed to be sought vide special resolution at the ensuing Annual GeneralMeeting.

OUR SOCIAL RESPONSIBILITY

DIRECTORS' RESPONSIBILITY STATEMENT

Pg. 15

DIRECTORS’ REPORT


GROUP FOR INTERSE TRANSFER OF SHARES

APPRECIATION:

ANNEXURE- A TO THE DIRECTORS’ REPORT

As required under clause 3(1) (e) of the Securities and Exchange Board of India (SubstantialAcquisition of Shares and Takeovers) Regulations, 1997 persons constituting “Group” (within themeaning as defined in the Monopolies and Restrictive Trade Practices Act, 1969) for the purposeof availing exemption from applicability of the provisions of Regulation 10 to 12 of the aforesaidRegulations, are given in the annexure B attached herewith and forms part of this Annual Report.

Your Directors express their sincere thanks to all customers, charterers, vendors, investors,shareholders, shipping agents, bankers, insurance companies, protection and indemnity clubs,consultants and advisors for their continued support throughout the year. Your Directors alsosincerely acknowledge the significant contributions made by all the employees for their dedicatedservices to the Company.

Your Directors are grateful to the Ministry of Shipping, Ministry of Petroleum & Natural Gas,Ministry of Finance, Transchart, Directorate General of Shipping, Mercantile Marine Department,Port Authorities and various other authorities for their co-operation. Your Directors look forward totheir continued support.

For and on behalf of the Board

H. K. MITTALChairman & Managing Director

Regd. Office:rd

3 Floor, Mittal Tower, B-wing,Nariman Point, Mumbai - 400021Dated: July 30, 2007

Information as per Section 217(2-A) of the Companies Act, 1956 read with Companies (Particularsof Employees) Rules, 1975 and forming part of the Report of the Board of Directors for the year ended on March 31, 2007.

Pg. 16

DIRECTORS’ REPORT

Name Nature of Gross Qualification Experience Date of Particulars of AgeDuties Remuneration (Yrs.) Commencement of Previous Yrs.

(Rs. In Lacs) Employment Employment

H.K. Mittal Chairman &ManagingDirector

399.03 M.Tech. 31 01.08.1992 Managing Director withNatraj Organic Ltd. for 17 years.

57

A. J. Agarwal Jt. ManagingDirector

399.03 F.C.A. 26 01.08.1988 Proprietor of A.J.Agarwal & Co.Chartered Accountantsfor 7 years.

49

Arun Nanda * V. P.- Tankers 25.84 Master- ForeignGoing

34 28.08.2006 Marshall Produce Ship Brokers, Bombay for 6 months

53


NOTES

1. The employments at 1 & 2 above are on contractual basis. All others are on non-contractual basis.2. Gross Remuneration includes salary, commission, reimbursement of medical expenses and all other monetary benefits.3. None of the above is relative of any Director of the Company.4. * indicates the employees employed for part of the financial year.

For the purpose of interest transfer of shares under Regulation 3 (1) (e) of the Securities and Exchange board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, the following person constitute “Group” as defined in the Monopolistic & Restrictive Trade Practices, 1969, (54 of 1969):

ANNEXURE – B TO THE DIRECTORS' REPORT

1. Mercator Healthcare Ltd. 14. Varsha Marine Pte Ltd.2. MLL Logistics Pvt. Ltd. 15. Vidya Marine Pte. Ltd.3. AHM Investments Pvt. Ltd. 16. H. K. Mittal4. Mercator Mechmarine Ltd. 17. A. J. Agarwal5. Ankur Fertilizers Pvt. Ltd. 18. Archana H. Mittal6. Rishi Holdings Pvt. Ltd. 19. Manjuli Agarwal7. Mercator International Pte. Ltd. 20. Shalabh Mittal8. Mercator Oil & Gas Limited 21. Shruti Mittal9. Mercator Petroleum Pvt. Ltd. 22. Adip Mittal10. AAAM Properties Pvt. Ltd. 23. Aayush Agarwal11. Mercator Lines (Singapore) Pte. Ltd. 24. Arooshi Agarwal12. Mercator Lines (Panama) Inc.13. Mercator Offshore Limited

DIRECTORS’ REPORT

Atul M. Malhotra G. M.Logistics

30.07 B.Com, DCA 13 22.09.1996 NA 34

Jayesh Doshi* C.F.O. 47.90 F.C.A., L.L.B. 20 13/06/2006 Gujarat Ambuja CementLtd. for 15 years

42

JoshuaKandula*

V. P. -Offshore 45.32 B Tech(Electrical)

MBA (IIMS)

24 21.08.2006 The Great EasternShipping Co. Of IndiaLtd. for 9 years

47

KowshikKuchroo

V.P.BusinessDevelopment

43.53 HND(Nautical Science)

MICS.

14 01.04.2005 Mundo Gas for 7 years 43

Kirtipal Raheja* G. M.Projects

8.15 B. Tech MiningMBA- XLRI.

13 03.01.2007 TATA Steel for 13 years 37

RanjenAgrawaal*

C.E. O.- Oil &Gas

29.33 B. Tech(Chemical Engg.)

PGDBM.

24 10.07.2006 Reliance Industries Ltdfor 2.5 years

46

T. V. Shanbhag AdvisorShipping

35.61 MA Economic,F.I.C.S. (LONDON),

A.I.I I..

35 18.04.2005 Chief Controller of Chartering GOI for 10 years

60

Valentine Dias Marine Superintendent

29.20 Master Mariner 25 01.02.2006 Wallem Ship Management Hong Kong for 7 Months

44

COMPANY'S PHILOSOPHY

The Company has always attached a lot of importance to corporate governance. It believes inpromoting corporate fairness, transparency and accountability.

The Company recognizes its responsibility towards its shareholders and therefore constantly endeavorstocreateandenhanceshareholder'swealthandvalueby implementing itsbusinessplansatappropriatetimes and thus taking maximum advantage of available opportunities to benefit the Company, itsshareholders and society at large. The Company believes in monitoring its performance regularly andwithutmost transparencysoastoenabletheoptimumutilizationof its resources.

The Company upholds its relationship with society and hence its social responsibility ofenvironmental safety and human welfare.

I. BOARD OF DIRECTORS

The Board of Directors of the Company comprises of five Directors with a combination of twoExecutive Directors and three Non-executive Independent Directors as at March 31, 2007. Amongthe two Executive Directors, one is Chairman & Managing Director and the other is Joint ManagingDirector. The Company has complied with the requirement of atleast half of the Board comprisingof Independent Directors as the Chairman of the Board is an Executive Director. Subsequent to theyear end on July 30, 2007 K. R. Bharat was appointed as an Additional Director on the Board.

There is no Nominee Director on the Board of the Company.

No Director of the Company is either member in more than ten committees and/ or Chairman ofmore than five committees across all Companies in which he is Director and necessary disclosuresto this effect has been received by the Company from all the Directors.

During the year, in all Seven Board meetings were held i.e. on May 31, 2006; July 6, 2006; July 25,2006; September 11, 2006; October 20, 2006; January 30, 2007; and February 28, 2007. The timegap between any two meetings was not more than 4 months.

The details of Directors and their attendance record at Board Meetings held during the year, at lastAnnual General Meeting and number of other directorships and chairmanships/ memberships ofcommittees is given below:

Pg. 18

REPORT ON CORPORATE GOVERNANCEst

(Forming part of Directors' report for the year ended on 31 March 2007)

Mercator Lines 23rd Annual Report - 2006-07I Mercator Lines 23rd Annual Report - 2006-07I

*In accordance with clause 49 of the Listing agreement, membership/chairmanships of only theAudit committee and Shareholders’/Investors’ Grievance Committees of all public Limitedcompanies have been considered.

All the information required to be furnished to the Board was made available to them along withdetailed agenda notes.

The Board periodically reviews compliance reports of all laws applicable to the Company,presented by Managing Director at the meeting.

CODE OF CONDUCT

The Board has laid down a Code of Conduct for all Board members and senior managementpersonnel of the Company, which has been posted on the website of the Companywww.mercator.in

All Board members and senior management personnel have affirmed compliance with the codefor the year ended on March 31, 2007. Declaration to this effect signed by the Chief ExecutiveOfficer for the year ended on March 31, 2007 has been included elsewhere in this report.

II. AUDIT COMMITTEE

Composition

Pursuant to the provisions of Section 292(A) of the Companies Act, 1956 and Clause 49 of theListing Agreements, the Company has a qualified and independent Audit Committee comprisingof three Independent Non-executive Directors. Anil Khanna, a senior member of Institute ofChartered Accountants of India, having a sound accounting and financial background, is theChairman of the Committee with the other members being Manohar Bidaye, a senior member ofInstitute of Company Secretaries of India and M. G. Ramkrishna, a veteran from the banking &finance industry. The Joint Managing Director, Head of Finance Department and other FunctionalManagers along with the Internal Auditors and Statutory Auditors are invitees to the AuditCommittee Meeting, as and when necessary. The Company Secretary act as a Secretary to the

Pg. 19

REPORT ON CORPORATE GOVERNANCE

Sr. Name of Category No. of Attendance No. of other No. of No. of

No. BoardMeetings Membership ChairmanshipAttended in other in other

Companies* Companies*

Director of last AGM Directorship Committee Committee

1 H. K. Mittal Chairman & 6 Yes 5 Nil NilManaging Director-Executive- Promoter

2 A.J. Agarwal Joint 7 Yes 4 1 NilManaging Director,Executive-Promoter

3 Manohar Non-Executive 7 Yes 6 1 1Bidaye Independent Director

4 Anil Khanna Non-Executive 7 Yes 10 1 NilIndependent Director

5 M.G. Non-Executive 4 Yes 2 Nil NilRamkrishna Independent Director


Committee. The Committee is vested inter alia with following powers and terms of references as prescribed under relevant provisions of the Companies Act, 1956 and Stock Exchanges ListingAgreement:

Powers

a) To investigate any activity within its terms of reference.b) To seek information from any employee.c) To obtain outside legal or other professional advice.d) To secure attendance of outsiders with relevant expertise, if it considers necessary.

Terms of Reference

The Audit committee has been entrusted with job to review the reports of the Internal Auditors andthe Statutory Auditors periodically and discuss their findings and suggest the corrective measures.The role of the Audit Committee is as follows: -

1. Oversight of the company's financial reporting process and the disclosure of its financialinformation to ensure that the financial statement is correct, sufficient and credible.

2. Recommending to the Board, the appointment, re-appointment and, if required, thereplacement or removal of the statutory auditor and the fixation of audit fees.

3. Approvalofpayment tostatutoryauditors foranyotherservicesrenderedbythestatutory auditors.4. Reviewing, with the management, the annual financial statements before submission to

the board for approval, with particular reference to:a. Matters required to be included in the Director's Responsibility Statement to be

included in the Board's Report in terms of clause (2AA) of Section 217 of theCompanies Act, 1956.

b. Changes, if any, in accounting policies and practices and reasons for the same.c. Major accounting entries involving estimates based on the exercise of judgment by

management.d. Significantadjustmentsmadeinthefinancialstatementsarisingoutof theaudit findings.e. Compliance with listing and other legal requirements relating to financial statements.f. Disclosure of any related party transactions.g. Qualifications in the draft audit report.

5. Reviewing, with the management, the quarterly financial statements before submission to theboard for approval.

6. Reviewing, with the management, performance of statutory and internal auditors, andadequacy of the internal control systems.

7. Reviewing the adequacy of internal audit function, if any, including the structure of the internalaudit department, staffing and seniority of the official heading the department, reportingstructure coverage and frequency of internal audit.

8. Discussion with internal auditors any significant findings and follow up there on.9. Reviewing the findings of any internal investigations by the internal auditors into matters where

there is suspected fraud or irregularity or a failure of internal control systems of a materialnature and reporting the matter to the board.

10. Discussion with statutory auditors before the audit commences, about the nature and scopeof audit as well as post-audit discussion to ascertain any area of concern.

11. To look into the reasons for substantial defaults in the payment to the depositors, debentureholders, shareholders (in case of non payment of declared dividends) and creditors.

12. To review the functioning of the Whistle Blower mechanism, in case the same is existing.13. Carrying out any other function as is mentioned in the terms of reference of the Audit

Committee.

Pg. 20




Meetings

During the year in all four meetings of the Committee were held i.e. May 31, 2006; July 25, 2006;October 20, 2006 and January 30, 2007. The time gap between two meetings of the Committeewas not more than four months.

Attendance of each member at the Audit Committee Meetings:

Anil Khanna 4Manohar Bidaye 4M. G. Ramkrishna 2

Statutory Auditors and Internal Auditors attended all the four meetings. The Joint ManagingDirector was present at all the meetings. The Company Secretary acted as the Secretary to the committee.

Review of Information

The Audit committee has reviewed following information:

1. Management discussion and analysis of financial condition and results of operations;2. Statement of significant related party transactions (as defined by the audit committee),

submitted by management.3. Internal audit reports ; and4. The appointment, removal and terms of remuneration of the chief internal auditor.

There was no instance of management letter/letter of internal control weaknesses issued by theStatutory Auditors during the financial year 2006-07.

Expansion Committee

The Company has Expansion Committee comprising of two Executive Directors viz H. K. Mittal &A. J. Agarwal and one Non-executive Independent Director Anil Khanna. The Committee isauthorized to assess the business opportunities and take the decisions from time to time onexpansion projects and funding them, within the limits sanctioned by the Board. During the year,All the Committee members met Eight times.

ESPS Committee

The Company has Employee Stock Purchase Committee (ESPS) of Directors comprising of twoExecutive Directors viz. H. K. Mittal & A. J. Agarwal and three Non-executive IndependentDirectors viz. Manohar Bidaye; Anil Khanna & M. G. Ramkrishna, to implement the EmployeeStock Purchase Scheme of the Company.

Name of Director No. of Audit CommitteeMeetings attended



III. SUBSIDIARY COMPANIES

As at March 31,2007, the Company had following subsidiaries:

1. Mercator International Pte. Ltd. Incorporated in Singapore2. Mercator Offshore Ltd. Incorporated in Singapore3. Mercator Lines (Singapore) Pte. Ltd. Incorporated in Singapore4. Varsha Marine Pte. Ltd. Incorporated in Singapore5. Vidya Marine Pte. Ltd. Incorporated in Singapore6. Mercator Lines (Panama) Inc. Incorporated in Panama7. Mercator Oil & Gas Ltd. Incorporated in India

The Indian subsidiary is not listed.

The Audit Committee reviews the financial statements of the unlisted subsidiary companiesincluding the investment made by the Company.

The Minutes of the Directors Board Meetings of the subsidiary companies are placed before the Board from time to time.

The management periodically reviews a statement of all significant transactions, if any, entered intoby the subsidiary companies.

IV. DISCLOSURES

(A) Basis of related party transactions

i. A statement in summary form of transactions with related parties in the ordinary course ofbusiness are placed periodically before the audit committee.

ii. Details of material individual transaction with related parties, which are not in the normalcourseof business, areplaced before theaudit committee, whenever applicable.

iii. During the year, there was no material individual transaction with related parties or others,which was not on an arm's length basis.

(B) Disclosure of Accounting Treatment

In the preparation of financial statements for the year ended on March 31, 2007; there was notreatment different from that prescribed in an accounting standard had been followed.

(C) Board Disclosures-Risk Management

The Company has laid down procedures to inform Board members about the risk assessment andminimization procedures. These procedures are periodically reviewed to ensure that executivemanagement controls risk through means of properly defined framework.

(D) Proceeds from public issues, rights issues,preferential issuesetc.

During the year, there was no money raised through public Issue, rights issue, preferential issue orany other issue.

However, during the year an overseas subsidiary Mercator Lines (Singapore) Pte. Ltd., raisedfunds by way of issue of Foreign Currency Convertible Bonds (FCCB) aggregating US$ 51 million.As at March 31, 2007, pending utilisation of funds the same was invested in short term bankdeposits, which has since been utilised for intended purposes.


(E) Remuneration cum Selection Committee & Remuneration of Directors

The Company has Remuneration cum Selection Committee comprising of three Non-executive Independent Directors, to comply with and meet the requirements of the listing agreement and schedule XIII to the Companies Act, 1956. Manohar Bidaye is the Chairman of the Committeewith Anil Khanna and M. G. Ramkrishna being other members. The committee, on behalf of theBoard and the shareholders, determines with agreed terms of reference, the Company's policyon specific remuneration packages for Executive Directors and senior management people.TheCommittee also acts as a Selection Committee under Section 314 of the Companies Act, 1956.

Three meetings of Remuneration Commitee were held during the year which were attended by allthe members.

The remuneration of non-executive Directors is decided by the Board/Shareholders.

The Company did not have any pecuniary relationship or transaction with the Non-executiveDirectors during the year other than those disclosed elsewhere in this report. Except commissionon net profits for the year ended on March 31, 2007 as fixed by the Board of Directors andapproved by the shareholder's resolution; no Non-Executive Director was paid anyfees/compensation.

DetailsofremunerationpaidtoDirectorsfor thefinancialyearended31-03-2007:

Executive Directors

H.K. Mittal 24.00 363.11 11.92Chairman & Managing Director

A.J. Agarwal 24.00 365.12 9.91Joint Managing Director

The remuneration to the Executive Directors is governed by the agreements executed with themas approved by the members of the Company in their General Meeting. As per the agreement, salary and perquisites are a fixed component and the commission is based on the performance ofthe Company, i.e. on the net profit of the year, calculated as per the provisions of the CompaniesAct, 1956. The present terms & conditions of appointment agreements of both the ExecutiveDirectors were approved by the shareholders at the Annual General Meeting of the Company heldon August 27, 2002. As per the terms of respective agreements, the appointments of ManagingDirector and Joint Managing Director are valid upto July 31, 2007. The Board of Directors in itsmeeting held on, June 29, 2007 have approved their re-appointment under the designation ofExecutive Chairmen and Managing Director respectively; for a further period of five years effectiveAugust 1, 2007 on the terms & conditions disclosed in the accompanying notice convening the

rd23 Annual General Meeting of the Company. The Executive Directors were not issued any StockOptions during the year.

Name Salary Commission Perquisites

Pg. 23


Amount Rs in Lacs



2005-06 31/07/2006 12.00 C. K. Nayudu Hall, 1. Alteration of Object Clause of (A.G.M.) Noon Brabourne Stadium Memorandum of Association.

Churchgate, 2. Approval for commencing newMumbai-400020 business activity set out in the object

clause of Memorandum of Association.

Financial Date Time Venue Special Resolution(s)Year

Non-executive DirectorsDuring the year, non-executive Directors were paid following remuneration for the financial year 2006-07:

Manohar Bidaye 2.50

Anil Khanna 2.50

M.G. Ramkrishna 2.50

The Board decided the payment of commission to Non-executive directors within the limitsapproved by members of the Company in their Annual General Meeting held on August 27, 2002.Presently the Company pays to Non-executive Directors only commission not exceeding 1% of itsnet profit. No sitting fees are being paid to non-executive Directors.

Details of shares of the Company held by Non-executive Directors

Manohar Bidaye 90,000

Anil Khanna 2,76,620

M.G. Ramkrishna 25,000

No other convertible instrument was held by any of the above Non-executive Directors.

No stock options were issued to the Non-executive Directors during the year.

Manohar Bidaye the Non-Executive Director retiring by rotation has declared his shareholding in the Company and the same has been disclosed in the notice of the Annual General Meeting.

(F) Management

A Management Discussion and Analysis report forming part of this Directors’ report is attached herewith.

During the year, there was no material financial and commercial transaction by seniormanagement that may have a potential conflict with the interest of the Company at large.

(G) Shareholders

(i) GENERAL BODY MEETINGS

Details of General Meetings held during last three years are given below:

CommissionNameAmount Rs In lacs

No. of equity shares heldNameas on 31/03/2007



2005-06 17/01/2006 4.30 C. K. Nayudu Hall, 1. Increase in Authorised Share(E.G.M.) P.M. Brabourne Stadium, Capital and amendments to the

Churchgate, capital clauses ofMumbai-400020 Memorandum and Articles of

Association of the Company.2. Issue of Bonus shares3. Issue of warrants on preferential

basis to Promoter's group Company.

4. Increase in the limit of investments by FIIs in the capital of the Company.

2005-06 28/09/2005 4.00 C. K. Nayudu Hall, 1. Approval to payment of sitting (A.G.M.) P.M. Brabourne Stadium, fees to Non- Executive Directors.

Churchgate, 2. Appointment of Whole-time Mumbai-400020 Director & approval of

remuneration

2004-05 14/03/2005 4.30 C. K. Nayudu Hall, 1. Issue of Foreign Currency (E.G.M.) P.M. Brabourne Stadium, Convertible Bonds

Churchgate, 2. Increase in the limits of investmentMumbai-400020 By Foreign Institutional Investors/

Other Foreign entities in the Company

3. Issue of preference shares notExceeding Rs.200 crores in one or more tranches

2004-05 10/11/2004 12.30 Walchand 1. Issue of shares on preferential (E.G.M.) P.M. Hirachand Hall, basis to Foreign Institutional

LNM IMC Building, investorChurchgate, 2. Issue of warrants on preferential Mumbai-400020 basis to the promoters.

3. Issue of shares under Employee Stock Purchase Scheme

4. Subdivision in the face value of equity shares and consequential amendments to the capitalclauses in Memorandum and Articles of Association of the Company.

2004-05 31/08/2004 4.00 C. K. Nayudu Hall, 1. Increase in authorised share (A.G.M.) P.M. Brabourne Stadium, capital and consequential

Churchgate, amendments to capital clauses inMumbai-400020 Memorandum and Articles of

Association of the Company.2. Re-designation and appointment

of Joint Managing director.

2003-04 14/02/2004 12.30 C. K. Nayudu Hall, 1. Alterations to Articles of (E.G.M.) P.M. Brabourne Stadium, Association of the Company.

Churchgate, 2. Increase in limits of investmentsMumbai-400020 by Foreign Institutional Investors.

3. Issue of shares on preferential basis to the promoters and a Foreign Institutional Investors.

4. Issue of warrants on preferential basis to the promoters.


All the above special resolutions except resolution in respect of Alteration of Object Clause ofMemorandum of Association of the Company were voted for unanimously by show of hands. Theaforesaid special resolution in respect Alteration of Object Clause of Memorandum of Associationof the Company was approved by way of postal ballot pursuant to the provisions of Section 192A ofthe Companies Act, 1956. The result of the said postal ballot was declared at the annual generalmeeting of the company held on July 31, 2006. Mr. Vijay Mehta, Practicing Chartered Accountantconducted postal ballot exercise and submitted his report to the Chairman.

The result of the Postal Ballot was as under:

The aforesaid result was declared at the Annual General Meeting of the company held on July 31,2006.

(ii) DISCLOSURES

Presently the Company does not have any Whistle Blower Policy.

(iii) MEANS OF COMMUNICATION

(iv) ANNUAL GENERAL MEETING

(v) RE-APPOINTMENT OF NON-EXECUTIVE DIRECTOR

During the year, there were no transactions of materially significant nature with the Promoters orDirectors or the Management or their subsidiaries or relatives etc. that had potential conflict with the interest of the Company. However, the transactions entered into with the related parties as perAccounting Standard 18 are reported at Note No. 21 of Notes Forming part of the Accounts underSchedule I (B) annexed to the Accounts for the year under review.

There were no instances of non-compliance on any matter related to the capital market during thepast three years and that no penalties or strictures were imposed on the Company by any Stock Exchange or SEBI.

Quarterly/half-yearly/yearly results are normally published in Business Standard and Sakal. Theaudited annual results are posted to every member of the Company. Quarterly shareholdingdistribution and quarterly/half yearly/yearly results submitted to the Stock Exchanges are posted on the website of the Company www.mercator.in and SEBI i.e. www.sebiedifar.nic.in.The Companyalso displays official news releases on its website i.e. www.mercator.in. The Company has createda new email id [email protected] to facilitate redressal of investors/ shareholders grievances.During the year, no presentation was made to any institutional investor/analysts.

Twenty Third Annual General Meeting is scheduled to be held on Wednesday, September 26, 2007,at Y. B. Chavan Centre, General Jagannath Bhosle Marg, Nariman Point, Mumbai-400 021 at3.00 p.m.

Manohar Bidaye, the Director retiring by rotation at the ensuing Annual General Meeting hasoffered himself for re-appointment as Director of the Company. Manohar Bidaye, aged 44 years isa master of Commerce (M.Com) with a General Degree in Law and also a senior Member ofInstitute of Company Secretaries of India and is associated with the Company since 1994. He has

Pg. 26


No. of Ballot Forms received

3,899177054

AssentAgainstInvalidAbstain

% of Total Forms received

96.5150.42%1.73%1.34%100%

Shares Held and Voted

91,466,65611,40751,37635,58391,565,022

% of Holding/ Votes

99.89%0.01%0.06%0.04%100%


varied experience in corporate counseling with special expertise in corporate laws and taxation laws. He is a Chairman of Remuneration Committee & Shareholders/ Investor grievanceCommittee and a member of Audit Committee as well as ESPS Committee of the Company. He isalso Promoter & Chairman of Zicom Electronic Security System Limited and is also a Director offollowing Companies: 1. Progressive Equifin Pvt. Ltd. 2. Success Equifin Pvt. Ltd. 3. BaronetProperties & Investments Pvt. Ltd. 4. Coronet Properties & Investments Pvt. Ltd. 5. RiveriaInvestments & Properties Pvt. Ltd. 6. Chaitra Telenet Pvt. Ltd.

He has been actively associated with the Company and his advisory Services have always beenof great importance in the growth of the Company.

(vi) RE-APPOINTMENT OF EXECUTIVE DIRECTORS

The Board of Directors in its meeting held on June 29, 2007, have approved re-appointment ofHarish Kumar Mittal as Managing Director designated as Executive Chairman and Atul J. Agarwalas Managing Director of the Company for a further period of five years effective from August 1, 2007.

Harish Kumar Mittal, aged 57 years, is M.Tech and Chief Promoter of the Company. It is his visionand strive which brought the Company to its present status. Under his able guidance, theCompany achieved manifold increase in capacity, turnover and Profits of the Company andfloated subsidiaries in India as well as overseas. He is associated with the Company since1988and has been holding the office of Managing Director since 1992. He is also a Director of thefollowing Companies: 1. Ankur Fertilizers Pvt. Ltd. 2. Mercator Oil & Gas Ltd. 3. MercatorMechmarine Ltd. 4. AHM Investments Pvt. Ltd. 5. Mercator Offshore Limited.

Atul J. Agarwal, aged 49 years is F.C.A. and one of the promoters of the Company. He has beeninstrumental in successful implementation of many projects of the Company. He is associatedwith the Company since inception and was holding the office of Whole-time Director from 1988 to1992. Since 1992 he has been holding the office of Jt. Managing Director of the Company.Besides this he is also a Director of the following Companies: 1. Mercator Healthcare Limited 2.Thirumalai Chemicals Limited 3. Indian National Shipowners’ association 4. AAAM PropertiesPvt. Ltd.

(vii) APPOINTMENT OF DIRECTOR

K. R. Bharat was appointed as an additional director of the Company w.e.f. July 30, 2007.Pursuant to the provisions of Section 260 of the Companies Act, 1956, K.R. Bharat holds the officeup to the date of the ensuing Annual General meeting. A member has left at the office of theCompany in writing under his hand a notice signifying candidature of K. R. Bharat for the office ofDirector along with necessary deposit; pursuant to the provisions of Section 257 of theCompanies Act, 1956.

K. R. Bharat, aged 45 years is MBA from Indian Institute of Management. He has been associatedwith Capital Market for more than 24 years in various segments like Merchant Banking, Equitiesand Investment banking; Risk Management, research etc. He worked as Managing Director atCredit Suisse First Boston Securities (CSFB) India and Pregrine Securities (India). Before that hehad a successful stint of 10 yrs with Citi Bank. He was also member of Market Advisory Committeeof Bombay Stock Exchange.

He joined Mercator Lines Limited in July 2007 as an Additional Director. He is also a Director of thefollowing Companies: 1. Advent Advisory Services Pvt. Ltd. 2. Model Buckets & Attachments Pvt.Ltd. 3. Uttaranchal Biodiesel Ltd.

The Management feels that the appointment of K. R. Bharat would go a long way in the progressof the Company.

Pg. 27




(viii) FINANCIAL CALENDER

First Quarter Results (June, 30) End July 2007

Mailing of Annual Reports End August 2007

Annual General Meeting September 26, 2007

stPayment of Dividend 1 week of October 2007

Second Quarter Results (September, 30) End October 2007

Third Quarter Results (December, 31) End January 2008

Fourth Quarter/ Annual Results End June 2008

(ix) DATES OF BOOK-CLOSURE

The Share Transfer Books and Register of Members of the Company will remain closed from Friday,the September 14, 2007 to Wednesday the September 26, 2007 (Both days inclusive), for decidingentitlement of shareholders for payment of final dividend on Equity share Capital.

(x) DIVIDEND

The Board of Directors has recommended dividend on Equity Shares of the Company @ 100% i.e.Re.1/- per share for the year ended on March 31, 2007. This dividend, if declared at the ensuingAnnual General Meeting, will be paid to those members/deemed members whose name appearsin the Register of Members/statement of beneficial ownership furnished by depositories; at the endof business hours on September 13, 2007.

The Board of Directors had declared and paid dividend of 8% on redeemable cumulativepreference shares of Rs. 4000 lacs, amounting to Rs. 320 lacs; corporate tax & surcharge there onamounted to Rs. 44.88 lacs.

(xi) LISTING OF SHARES

The Equity Shares of the Company are listed on Bombay Stock Exchange (BSE) (Scrip Code526235); National Stock Exchange (NSE) (Scrip Code MLL EQ) and Ahmedabad StockExchange(ASE) (Scrip code 36400) and the annual listing fees in respect of the year 2007-2008have been paid to these exchanges.

The monthly high-low closing quotations of the equity shares of the Company on Bombay Stock Exchange and National Stock Exchange during the financial year 2006-07 vis-à-vis Sensexperformance is given below:



BSE

April 2006 45.95 41.65 12042.56 11237.23

May 2006 54.55 39.85 12612.38 10398.61

June 2006 41.05 32.65 10609.25 8929.44

July 2006 33.95 29.05 10930.09 10007.34

August 2006 39.90 28.75 11723.92 10751.66

September 2006 43.50 37.20 12454.42 11550.69

October 2006 42.90 40.60 13024.26 12204.01

November 2006 41.00 35.60 13773.59 13033.04

December 2006 36.20 32.40 13972.03 12995.02

January 2007 50.50 36.25 14282.72 13362.16

February 2007 46.80 36.45 14652.09 12938.09

March 2007 35.95 31.95 13308.03 12415.04

NSE

April 2006 47.65 40.00 3598.95 3290.35

May 2006 57.00 35.30 3774.15 2896.40

June 2006 44.00 30.75 3134.15 2595.65

July 2006 35.90 28.65 3208.85 2878.25

August 2006 41.75 27.60 3452.30 3113.60

September 2006 44.75 37.00 3603.70 3328.45

October 2006 44.55 40.05 3782.85 3508.65

November 2006 41.75 34.50 3976.80 3737.00

December 2006 37.80 31.30 4046.85 3657.65

January 2007 52.60 35.20 4167.15 3833.60

February 2007 48.10 34.25 4245.30 3674.85

March 2007 37.40 31.00 3901.75 3554.50

No transaction in the Company’s Share was recorded on the Ahmedabad Stock Exchange during

the year.

Further the company’s 40,00,000 - 8% Cumulative Redeemable Preference Shares of Rs. 100/-each are listed on the Bombay Stock Exchange Limited with scrip code: 700097 and ISIN:INE934B01014

(xii) SHARE TRANSFER

SHAREHOLDERS'/ INVESTORS' GRIEVANCES COMMITTEE

The Company has Shareholders'/Investors' Grievances Committee comprising of one ExecutiveDirector and two Non-executive Directors to look after share transfer and other related matters,including the shareholders' grievances. Manohar Bidaye, a senior member of Institute of CompanySecretaries of India, is the Chairman of the Committee with the other members being, A. J. Agarwaland Anil Khanna, both senior members of Institute of Chartered Accountants of India. TheCommittee normally meets fortnightly and looks into the shareholder & investor grievances that are

Share Price (Rupees) Sensex Performance (Rupees)Month

High Low High Low

Share Price (Rupees) Sensex Performance (Rupees)Month

High Low High Low



not settled at the level of the Company Secretary/Compliance Officer and helps to expedite sharetransfers & related matters.Twenty four meetings of the Committee were held during the year. All the members attended all themeetings.

Nilesh Jain, Company Secretary, who was acting as Compliance Officer of the Company resignedw.e.f. March 6, 2007. Subsequently Supriya Joshi, who was working as Dy. Company Secretary ofthe Company was appointed as Company Secretary (under the designation of Dy. CompanySecretary) within the meaning of the Companies Act, 1956 w.e.f. March 7, 2007. As on March 31,2007 Supriya Joshi, Dy. Company Secretary and Deepak Dalvi, Assistant Company Secretary actas Compliance officers. During the year, the Company received 160 complaints from theshareholders which were duly resolved. Further, during the year requests for transfer of 2,66,327equity shares; and for demat of 13,17,394 equity shares were received and processed.

Registrar and Transfer Agents and Share Transfer System:

Intime Spectrum Registry Ltd., having their office at C-13, Pannalal Silk Mills Compound, LBSMarg, Bhandup (W), Mumbai-400 078 (Tel No.91-22-25963838) and branch office at 203, Dawer House, 197/199, D.N. Road, Mumbai-400 001 (Tel No. 91-22-22694127) are the Registrar andTransfer Agents (RTA) as also the registrar for electronic connectivity. Entire functions of ShareRegistry, both for physical transfer as well as dematerialisation/rematerialisation of shares, issue ofduplicate/split/consolidation of shares is being carried out by the RTA at their above address.

The correspondence regarding query of dividends shall be addressed to Compliance Officer at theregistered office of the Company.

(xiii) DISTRIBUTION OF SHAREHOLDING AS ON MARCH 31, 2007

UPTO 5000 57,719 97.18 3,28,99,399 17.385001 10000 774 1.30 58,15,449 3.07

10001 20000 464 0.78 65,21,710 3.4520001 30000 171 0.29 42,80,314 2.2630001 40000 75 0.13 26,18,158 1.3840001 50000 50 0.08 23,36,718 1.2450001 100000 73 0.12 50,32,414 2.66

100001 AND ABOVE 69 0.12 12,97,38,338 68.56

TOTAL 59,395 100.00 18,92,42,500 100.00

(xiv) SHAREHOLDING PATTERN AS ON MARCH 31, 2007

1 Promoters, Directors and their Relatives 8,15,17,725 43.08 10

2 Mutual Funds / UTI 23,87,800 1.26 5

3 Banks 10,82,439 0.57 3

4 FIIs 2,84,09,705 15.01 15

5 Private Corporate Bodies 1,55,58,890 8.22 1200

6 Indian Public 5,76,10,515 30.44 57177

7 NRIs /OCBs 18,47,451 0.98 855

8 Non-promoter Independent Directors 5,05,095 0.27 7and their relatives

9 Clearing members 3,22,880 0.17 123

Total 18,92,42,500 100.00 59,395

(xv) DEMATERIALISATION OF SECURITIES

The shares of the Company are under compulsory trading in de-mat form. Total 18,50,82,555

Shareholding of No. of % to total No. of % to totalnominal value of Shareholders Shareholders Shares Capital

Sr. No Category No. of Shares % to Capital No. of Holders


equity shares representing 97.80% were held in de-mat form and balance 41,59,945 equity shares representing 2.20% were in physical form as on March 31, 2007. The ISIN of the equity shares of the Company is INE934B01028.

Other Listed SecuritiesThe Company has issued following series of Secured Redeemable Non-Convertible Debentureson private placement basis in dematerialized form:

I 12,00,000 12.50% Rs. 25/- each Rs. 3.00 crores INE934B07017

IV 30,00,000 10.00% Rs. 30/- each Rs. 9.00 crores INE934B07033

V 30,00,000 10.00% Rs. 40/- each Rs. 12.00 crores INE934B07041

VII-A 1600 7.50% Rs. 8,12,500/- each Rs. 130 crores INE934B07066

VII-B 50 7.50% Rs. 8,75,000/- each Rs. 4.38 crores INE934B07074

UTI Bank Ltd., Central Office, Maker Tower - F, Cuff Parade, Mumbai 400 005 is appointed as Trustees to the Debenture holders of all above mentioned Debenture Series.

Pursuant to guidelines of SEBI, all above securities are listed on Bombay Stock Exchange Ltd.

(xvi) OUTSTANDING GDRs/ADRs OR WARRANTS OR ANY CONVERTIBLE INSTRUMENTS,CONVERSION DATE AND LIKELY IMPACT ON EQUITY

32,00,000 Warrants carrying an option to apply for 32,00,000 equity shares of Re. 1/- each in the Company; issued to its promoters' group Company on February 1, 2006, on preferential basis inaccordance with SEBI Guidelines on Preferential Issue, as approved by shareholders in theirmeeting held on January 17, 2006 and the same were outstanding as on March 31, 2007.Consequently, entitlement of 48,00,000 bonus equity shares which were kept in abeyance andwould be allotted upon exercise of options attached to these warrants; in the ratio of Three newshares for every two shares held; as per terms of the issue, were also outstanding as at year end.Subsequent to year end, the Warrant Holder has exercised the option and accordingly 80,00,000Equity Shares (inclusive of 48,00,000 shares as bonus entitlement) have been allotted on July 30,2007.

Further, none of the bondholders of 1.50% Foreign Currency Convertible Bonds of USD 10,000each aggregating USD 60 millions allotted on April 26, 2005 have exercised option to convert thebonds into shares and hence were outstanding as at March 31, 2007. The initial conversion price ofthe Bonds was fixed at Rs. 149.53 per share with a fixed rate of exchange on conversion of Rs.43.73= USD 1.00 with due date as April 27, 2010. Post issue of bonus shares; the price has beenreset at Rs. 59.812. If all the FCCB holders exercise their rights to convert FCCB into equity sharesthen the paid up equity capital of the Company would increase by 43,867,450 of Re. 1/- each.

On March 26, 2007, 'Mercator Lines (Singapore) Pte. Ltd', a subsidiary of the company, concludedits issue of the Convertible Bonds aggregating USD 51 million, consisting of Bonds-A of USD 35 Million and Bonds-B of USD 16 Million. The Bonds-A are mandatory convertible in the event of IPOwithin 24 months from the date of issue of these Bonds. Bonds-B are optionally convertible after 45days from the date of IPO. The conversion price for Bonds-A will be fixed at the time of IPO and willbe at a fixed discount to the IPO price. The conversion price for Bonds-B is at a premium on 45 daysvolume weighted average of the share price after listing of the shares. In absence of IPO, the Bondswill be redeemed at a fixed redemption price. These Bonds are listed on Singapore StockExchange. However, these bonds will not impact on equity capital of the Company.

Other than above there was no outstanding GDRs/ADRs or warrants or any other convertibleinstruments.

Series No. of Coupon rate O/s. Face value Outstanding ISINNo NCDs As on 31/03/07 Amount

Pg. 31



V. CEO/CFO CERTIFICATION

VI. COMPLIANCE

VII. PLANT LOCATIONS

The Company does not have any plant.

Address for correspondence:Mercator Lines Limited3rd Floor, Mittal Tower, B-wingNariman Point, Mumbai-400 021Tel Nos: 91-22-66373333Fax Nos: 91-22-66373344E-mail:[email protected] / [email protected]


H.K.MITTALChairman & Managing Director

Regd. Office:3rd Floor, Mittal Tower,B-Wing, Nariman Point,Mumbai-400021July 30, 2007

The necessary certification from Chief Executive Officer H. K. Mittal and Chief Financial Officer AtulJ. Agarwal in respect of the financial year ended on March 31, 2007 has been annexed tothis report.

The Company has complied with all the mandatory requirements of Corporate Governance Clause49 of the Listing Agreement with Stock Exchanges. Further, the Company has also adoptedRemuneration committee requirements out of Non-mandatory requirements of the Clause.A certificate from the Auditors of the Company regarding compliance of conditions of corporategovernance is annexed to the Directors' Report.

As at March 31, 2007, the Company owns total Eleven vessels of aggregate tonnage of 12,14,047DWT consisting of one Very Large Crude Carrier (VLCC); one Suezmax tanker; six Aframax tankers;two MR Tankers and one Panamax. Two vessels of aggregate tonnage of 1,55,840 MT were ownedby Subsidiary of the Company consisting of one panamax and other Kansarmaxes. The vessels are deployed on various sea-route.

Pg. 32



SHIPPING INDUSTRY STRUCTURE

The maritime shipping industry is a primary means of international transportation of many

essential commodities. The global shipping industry is broadly classified into wet bulk; dry bulk

and Liners. Under wet bulk it has Tankers and Offshore. Under Liners, it has Containers, MPP and

Ro-Ros type of vessels.

Offshore Industry is logical offshoot of Shipping Industry. The Offshore sector is further

segmented into drilling, exploration and production, development and floating production

systems etc. fundamentally based on the services offered.

As with any commodity, the sub sectors are driven by a combination of demand and supply with

pricing being the key. The underlying trend for demand for shipping is mainly driven by the

strength of the global economy and global trade. The tanker segment or even offshore segment is

further driven by oil demand, while the Dry Bulk segment is influenced by commodity demand,

primarily iron ore and coal. In each segment of the market the freight rates, profitability and,

consequently, vessel values have exhibited volatility in varying degrees across various market

segments and at various points in time. These fluctuations have been primarily due to changes in

the level and pattern of global economic growth, the degree of competition in the global shipping

industry and changes in the availability of vessels.

DEVELOPMENTS

SHIPPINGTanker Markets

Dry bulk Markets

Offshore

India's offshore has seen a high level of Exploration and Production activity over the past five

years, and all indicators point to increasing E&P activities in the years to come.

The launch of the NELP VI blocks has initiated exploration in an additional area of about 300,000

sq km (115,831 sq mi), 89% of which is offshore. A major part of this area falls in the offshore

The year 2006 was the year of opposite seen by tanker owners. The anti seasonal firm market

seen in the summer was followed by a short period of bullish future perception (due to aggressive

initial estimates on break down of BP crude pipelines in Alaska which later found to be over

exaggerated) ending with a weak winter tanker market. Weak tanker market was due to a warmer

winter than before and correction of oil prices due to a big hedge fund crashing whereby refiners

who had stocked up in summer were left with inventory bought at high cost. They therefore

refrained from purchases in winter although prices were lower. These two reasons coupled

together led to very slack oil market and thereby tanker demand.

The firm market seen in 2005 saw a correction for a few months when India & China were

reworking their growth strategy. These contributed to freight rates dipping in last quarter of 2006

but have since seen a rebound, a trend that is likely to continue well into next year. The dry bulk

market is now accepted to be driven by demand in China and India. During the year 2006, China

became coal importer for the first time. The increasing steel capacity & thirst for cheap energy

(coal) in these countries is driving the bulk market towards historical high in 2007.

MANAGEMENT DISCUSSION & ANALYSIS REPORT(Forming part of Directors’ report for the year ended on 31 March 2007)

Pg. 33


MANAGEMENT DISCUSSION & ANALYSIS REPORT

blocks of the East and West Coasts, and in the Andaman Sea. New areas will see the drill bit for the

first time in the next couple of years.

In the past five years, there have been 97 significant hydrocarbon discoveries made in India,

according to Director General of Hydrocarbons of India (DGH). The most noteworthy offshore

discoveries are in the East Coast KG and Mahanadi-NEC basins.

The DGH, under the Ministry of Petroleum & Natural Gas, has identified 50-60 blocks that will be

offered in the next bidding round, NELP VII.

DISCUSSION OF FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL

PERFORMANCE

OPPORTUNITIES AND OUTLOOK

Tanker Markets

The Company owns ships and is into shipping operations, mainly with Tankers & Bulk Carriers.

The consolidated turnover of the Company was Rs. 115,002 lacs during the year under review.

(Rs. 84332 lacs in the previous year).

In the tanker segment, the Company operated with eleven tankers totaling 12,13,312 DWT

capacity at the beginning of the year. During the year, the Company acquired one tanker of

1,09,227 DWT. The Company sold two of its tankers of combined capacity of 1,77,778 DWT. Thus at

the end of the year; the Company had total available tonnage of 11,44,761 DWT.

The company owned one drybulk carrier of 69286 DWT at the beginning of the year which was sold

during the year. Further, the company, through its subsidiary acquired two dry bulk carriers of

combined capacity of 1,55,840 DWT. The subsidiary also chartered in bulk carriers of

356,108 DWT; thus aggregating the dry bulk capacity to the tune of 511,948 DWT, as at the end of

the year.

Through a mega deal contracted by the Company in the second half of the last financial year to

charter 9 bulk carriers; the results were seen in full swing, during the year under review. The turnover

increased by 36.37% amounting to Rs. 115,002 lacs over the previous year's turnover of Rs. 84,332

lacs. However, to maintain ships properly, the Company had to spend and write off Rs.5482 lacs on

dry-docking of vessels during the year. The Company earned profit of Rs.13834 lacs as against

Rs. 20,074 lacs in the previous year.

The Company also earned profit of Rs.400.65 lacs against previous year (Rs. 48 lacs) on sales of

assets and investments.

During the year, the Company has seeded offshore business, results of which are expected in the

coming years with substantial increase in turnover and bottom line.

Tanker market has been range bound for some time now and will continue to be so till advent of

cargoes for North American winter. Although, the oil industry, as a whole, does not perceive any

fundamental increase in demand, however, gasoline demand in the West has been on rise. New

tonnage coming in is not only efficient but in large numbers. Consequently, there could be some

pressure on freight rates in this segment. Aframax shall continue to be at attractive levels, being

work horse of the crude industry. VLCCs and Suezmaxes are dependent on increased demand,

change in tonne mile, political stability and weather; all of which are absent in case of Aframaxes.

Pg. 35


Dry Bulk Markets

Offshore

THREATS, RISKS AND CONCERNS

Fuel Cost

Counter-Party Risk

Company caters to transportation of liquid cargo that may cause polluting activity

Our foray into the dry bulk segment is an acknowledged success world over. The aim of our dry

bulk division is now to create a fleet which is very modern; working for the first class Charterers,

earning steady revenue, thus ensuring sustainable profits. This goal, primarily stems from the

massive demand being projected in dry bulk sector. China imports its raw materials mainly from

Australia and Indonesia. All short term demand increase in Iron Ore is met by India. The most

logical alternate to these sources for China is South America which massively changes the tonne

mile leading to firming of freight rates. Port Infrastructure world over is not yet geared up to meet

these increase in demand and leads to congestions of vessels. This also adds to support firm

market. Thus we foresee that the dry bulk market will respond positively to a modern well efficient

fleet of ships.

The Company has recently forayed into offshore sector with the objective of getting Exploration

and Production (E&P) acreage and providing drilling services.

The energy needs of India are growing exponentially and there is an urgent need to expand

production of indigenous oil & gas. The Government has initiated transparent systems for

awarding acreage. Similarly there is a demand to the new sources of oil & gas internationally to

counteract the vociferous segment of about peak oil. Hence oil companies have committed huge

investments in E&P Sector.

At macro level, it is the world's demand for energy that ultimately decides the propensity of

Exploration and Production (E&P) activities, which in turn, drives the demand for E&P associated

services like Seismic, Drilling and Development activities. The jack fleet world over is aging with

about 80% of jack-up more than 20 years old. In this regard we believe that a modern Jack-up rig

will offer better operating efficiencies.

Fuel cost are major factor in our operational expenses especially with high volatility in oil markets.

The Company prefers to enter into contracts with oil majors for smooth supply of bunkers. The

same are done in two types i.e. fixed (spot) and floating (contracts) to hedge the pricing.

Majority of the company's existing revenue comes from creditworthy clients and the company will

continue to engage in charters with strong counter parties, in future as well, to avoid any defaults.

The operation of ocean-going vessels carries an inherent risk of catastrophic marine disasters

and asset losses caused by adverse weather conditions, mechanical failures, human error, and

other circumstances or events. In addition, the transportation of crude and toxic chemicals is

subject to the risk of spills and environmental damage. Any such event could have a material

adverse effect on the Company. The Company carries insurance to protect against most of the



accident-related risks involved in the conduct of its business, including environmental damage

and pollution insurance coverage. For the present, this cover may be deemed sufficient.

Phase-out of single-hull vessels has been accelerated to 2010 from 2015, despite protest from a

number of nations such as U.S. and Japan. The Company's fleet comprises of single-hull vessels

and any further acceleration before 2010 may affect the Companies business and its financials.

The Company has initiated replacement of such fleet.

A significant portion of the Company's revenue is in foreign currency either directly or linked

to; and hence is vulnerable to fluctuations in the foreign exchange rates.

The Company's expenditure, including capital expenditure, debts and operational costs are mainly

in US dollars. Thus the foreign currency risk is naturally hedged to a very large extent.

Shipping industry is cyclical in nature and its earnings are subject to fluctuations. Further,

profitability in the shipping industry varies within different sectors of the industry.

Revenues of shipping companies are exposed to the volatility and cyclical nature of the industry.

Given that crude tankers account for a large part of the Company's fleet, a significant portion of the

Company's revenues are generated from the transportation of crude oil. India's import of crude oil

is likely to keep on increasing, providing more business opportunities. With the trade and industrial

growth, even the dry bulk carriers should have good cargo availability. In the medium term, the

company does not envisage decline in its earning capacity particularly as most of its vessels are

booked on long-term charter basis. Moreover the company has is continually expanding into all

possible sectors thus the accumulated risks, if any, will get mitigated.

However, this concern is mitigated through technical collaboration with experienced drilling and

marine logistic services providers respectively.

However, Strike rate for successful discoveries is improving due to improved high precision

technologies been adopted by the E&P companies. High cost of services are being managed

through acquiring the services ”just in time” to meet the work commitment made for each block.

INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY

Regulatory risk accelerating phase-out of single hull Tanker vessels

Offshore

Oil Companies re-hiring existing assets with extended mobilization schedule and preference

for experienced companies, is a major concern for the new entrants.

Exploration & Production (E&P) business typically has high inherent risks like few

discoveries and high costs driven by demand for the services associated with the E&P.

The Company has in place adequate internal control systems. These ensure that all corporate

policies are strictly adhered to and absolute transparency is followed in accounting and all its

business dealings.

The Internal Auditors appointed by the Company take care to see that adequate internal controls

are followed and all mandatory accounting policies are complied with. The Audit Committee

Pg. 37


constituted by the Board of Directors assesses the financials of the Company at regular intervals,

in consultation with internal and statutory auditors.

HUMAN RESOURCES POLICIES

CAUTIONARY STATEMENT


H. K. Mittal

Chairman & Managing Director

Regd. Office:

3rd Floor, Mittal Tower, B-Wing,

Nariman Point, Mumbai-400021

Dated. July 30, 2007

The Company recognizes the importance of its human capital. Being a growth oriented and

progressive organization, it recognizes the importance of professionalism. The Company has

embarked on several HR initiatives to enhance the productivity of the organization and each

individual. It has also undertaken training initiative to improve capabilities and prepare people for

meeting future challenges effectively.

There has been a growth of 38% in number of employees. As on March 31, 2007; the Company

had 54 employees with average age of 37 years.

Statement in this Management Discussion and Analysis Report describing the Company's

objectives, projections, estimates, expectations or predictions may be 'forward looking

statements' within the meaning of applicable laws and regulations. Actual results might differ

substantially or materially from those expressed or implied. Important developments that could

affect the Company's operations included demand-supply conditions, changes in Government

and International regulations, tax regimes, economic developments within and outside India and

other factors such as litigation and labour relations.


CEO/CFO CERTIFICATION

To,The Board of DirectorsMercator Lines LimitedMumbai

Dear Sir,

This is to certify that:

a) We have reviewed financial statement for the F.Y. ended on 31.03.2007 and the cash flowstatement for the year (consolidated and unconsolidated) and that to the best of our knowledgeand belief:-

i) these statements do not contain any materially untrue statement or omit any material fact orcontain statements that might be misleading;

ii) these statements together present a true and fair copy of the company's affairs and are incompliance with existing accounting standards, applicable laws and regulations.

b) There are, to the best of our knowledge and belief, no transactions entered into by the companyduring the year which are fraudulent, illegal or violative of the company's code of conduct.

c) We accept responsibility for establishing and maintaining internal controls and that we haveevaluated the effectiveness of the internal control systems of the company and we havedisclosed to the auditors and the Audit Committee, deficiencies in the design or operation ofinternal controls, if any, of which we are aware and the steps we have taken or propose to take torectify these deficiencies.

d) We have indicated to the auditors and the Audit Committee:

i) significant changes in internal control during the year, whenever applicable;ii) that there were no significant changes in accounting policies during the year and that the

same have been disclosed in the notes to the financial statements; andiii) that there were no instances of significant fraud of which we have become aware and the

involvement therein, if any, of the management or an employee having such significant rolein the company's internal control system.

e) We further declare that all board members and senior managerial personnel have affirmedcompliance with the code of conduct for the current year,

For Mercator Lines Limited For Mercator Lines Limited

H.K. Mittal A. J. AgarwalChief Executive Officer Chief Financial OfficerMumbai - July 30, 2007


AUDITORS' CERTIFICATE ON CORPORATE GOVERNANCE

To the members,Mercator Lines Limited,Mumbai

We have examined the compliance of conditions of corporate governance by Mercator Linesst

Limited for the year ended on 31 March 2007, as stipulated in Clause 49 of the Listing Agreementof the said company with stock exchange.

The compliance of conditions of corporate governance is the responsibility of the management. Our examination was limited to procedure and implementation thereof, adopted by the companyfor ensuring the compliance of the conditions of the corporate Governance. It is neither an audit noran expression of the financial statement of the company.

We certify that the company has compiled with the conditions of corporate Governance asstipulated in the above mentioned Listing Agreement.

We state that such compliance is neither an assurance as to the future viability of the company northe efficiency or effectiveness with which the management has conducted the affairs of thecompany.

For and on behalf ofContractor Nayak & KishnadwalaChartered Accountants

[H V Kishnadwala]PartnerMembership No. 37391Mumbai - June 29, 2007


AUDITORS’ REPORT ON FINANCIAL STATEMENT

The Members of

MERCATOR LINES LIMITED

st1. We have audited the attached Balance Sheet of MERCATOR LINES LIMITED as at 31 March

2007, the related Profit and Loss Account and the Cash Flow Statement of the Company for

the year ended on that date annexed thereto. These financial statements are the responsibility

of the Company's management. Our responsibility is to express an opinion on these financial

statements based on our audit.

2. We conducted our audit in accordance with auditing standards generally accepted in India.

These Standards require that we plan and perform the audit to obtain reasonable assurance

about whether the financial statements are free of material misstatements. An audit includes

examining, on a test basis, evidence supporting the amounts and disclosures in financial

statements. An audit also includes assessing the accounting principles used and significant

estimates made by management, as well as evaluating the overall financial statement

presentation. We believe that our audit provides a reasonable basis for our opinion.

3. As required by the Companies (Auditor's Report) Order, 2003, issued by the Central

Government in terms of Section 227(4A) of the Companies Act, 1956, and on the basis of such

checks as considered appropriate and according to the information and explanations given to

us during the course of the audit, we enclose in the Annexure hereto a statement on the

matters specified in Paragraphs 4 and 5 of the said Order.

4. Further to our comments in the Annexure referred to in above paragraph, we report that:

a) We have obtained all the information and explanations, which to the best of our

knowledge and belief were necessary for the purposes of our audit;

b) In our opinion, proper books of account, as required by law have been kept by the

Company so far as appears from our examination of the books of the Company;

c) The Balance Sheet, Profit and Loss Account and the Cash Flow Statement dealt with by

the report are in agreement with the books of account of the Company;

d) In our opinion, the Balance Sheet, Profit and Loss Account and the Cash Flow Statement

comply with the mandatory Accounting Standards referred to in Section 211 (3C) of the

Companies Act, 1956.

e) On the basis of written representations received from the directors of the Company as onst

31 March 2007, and taken on record by the Board of Directors, we report that none of thest

directors is disqualified as on 31 March 2007, from being appointed as a director in terms

of Section 274(1)(g) of the Companies Act, 1956.

f) In our opinion and to the best of our information and according to the explanations given

to us, the said accounts read together with the Notes to Accounts in Schedule 'I' give the

information required by the Companies Act, 1956 in the manner so required and give a

true and fair view in conformity with the accounting principles generally accepted in India:



sta. In the case of the Balance Sheet, of the state of affairs of the Company as at 31

March 2007;

b. In the case of the Profit and Loss Account, of the Profit for the year ended on that date,

c. In the case of the Cash Flow Statement, of the cash flows of the Company for the year

ended on that date.

For and on behalf of

Contractor Nayak & Kishnadwala

Chartered Accountants

H. V. Kishnadwala

Partner,

Membership No 37391

Mumbai - June 29, 2007

Statement referred to in paragraph 3 of the Auditors' Report of even date to the Members ofst

MERCATOR LINES LIMITED on the accounts for the year ended 31 March 2007.

On the basis of such checks as considered appropriate and in terms of the information and

explanations given to us, we state as under:

1 (a) The company is maintaining proper records showing full particulars including

quantitative details and situation of the fixed assets;

1 (b) As explained to us, the management at reasonable intervals carries out the

physical verification of the fixed assets. The discrepancies noticed on such

verification, which were not material, have been appropriately dealt with in the

accounts.

1 (c) The fixed assets disposed off by the company were not substantial and does not

affect the going concern assumption.

2 (a) As explained to us, the inventories of bunker and lube have been physically verified

during the year by the management. In our opinion, having regard to the nature and

location of stocks, the frequency of the physical verification is reasonable.



2 (b) In our opinion and according to the information and explanations given to us, the

procedures of physical verification of the above mentioned inventory followed by

the management are reasonable and adequate in relation to the size of tie

Company and thenatureof its business.

2 (c) In our opinion, the Company is maintaining proper records of inventory and no

material discrepancies were noticed on physical verification.

3 (a) As per the information and explanations given to us, the Company has granted

unsecured loans to 6 parties covered in the register maintained under section 301st

of the Companies Act, 1956. The outstanding balance as on 31 March 2007 is

Rs. 30,602.03 Lacs and maximum balance outstanding during the year is

36,141.19 lacs.

3 (b) In case of the aforesaid unsecured loans granted to the parties covered in the

register maintained under Section 301 of the Companies Act, 1956, looking to the

long term involvement of the company in the subsidiaries and their businesses, the

rate of interest and the other terms and conditions are not prima-facie prejudicial to

the interests of the Company.

3 (c) In case of the aforesaid unsecured loan granted to the parties covered in the

register maintained under Section 301 of the Companies Act, 1956, the repayment

of principal amount and interest, where applicable is regular.

3 (d) In case of the aforesaid unsecured loans granted to the parties covered in the

register maintained under Section 301 of the Companies Act, 1956, the company is

taking reasonable steps for the timely recovery of the principal and interest.

3 (e) As per the information and explanations given to us, the Company has not taken

unsecured loans from a Company or any other party covered in the register

maintained under section 301 of the Companies Act, 1956, the provisions of

Clause 3(f) and 3(g) are not applicable.

4 In our opinion and as explained to us, there are adequate internal control

procedures commensurate with the size of the Company and the nature of its

business with regard to purchase of inventory and fixed assets and for the sale of

goods and services. During the course of our audit, no major weakness has been

noticed in the internal controls and there is no continuing failure for the same.

5 (a) Based on the audit procedures applied by us and according to the information and

explanations provided by the management, we are of the opinion that the

particulars of contracts or arrangements referred to in section 301 of the

Companies Act, 1956 have been entered in register required to be maintained

under that section.

Pg. 43


5 (b) In our opinion and as explained to us, the transactions made in pursuance of such

contracts or arrangements have been made at prices which are reasonable having

regard to the prevailing market prices at the relevant time.

6 The Company has not accepted any deposits from public during the year.

7 In our opinion, the Company has an internal audit system commensurate with the

size of the Company and the nature of its business.

8 The maintenance of cost records has not been prescribed by the Central

Government under section 209 (1) (d) of the Companies act, 1956.

9 (a) According to the information and explanations given to us and the records

examined by us, the Company is regular in depositing with appropriate authorities

undisputed statutory dues including provident fund, investor education and

protection fund, employees' state insurance, income-tax, sales-tax, wealth-tax,

service tax, custom duty, excise-duty, cess and other statutory dues and there arest

no undisputed statutory dues outstanding as at 31 March 2007, for a period of

more than six months from the date they became payable.

9 (b) According to the information and explanations given to us, there are no dues of

income-tax, sales tax, wealth tax, service tax, custom duty, excise duty and cess

which have not been deposited on account of any dispute.

st10 The company does not have any accumulated losses as on 31 March 2007 and

has not incurred any cash losses during the financial year and in the immediately

preceding financial year.

11 Based on the information and explanations given to us, the Company has not

defaulted in repayment of any dues to financial institutions and banks.

12 Based on our examination of the records and as explained to us, the Company has

not granted any loans and/or advances on the basis of security by way of pledge of

shares, debentures and other securities.

13 The activities of the company do not attract any special statute applicable to chit

fund, nidhi/mutual benefit fund/societies.

14 During the year, the Company does not have any in transactions in respect of

dealing and trading in shares, securities, debentures and other investments. All

shares, debentures and other investments held by the company are held by the

Company in its own name.

15 According to the information and explanations given to us, the terms and

conditions on which the Company has given guarantees on behalf of its

subsidiaries and considering the long term involvement of the company in these

subsidiaries are not prejudicial to the interests of the company.




16 According to the information and explanations given to us, the term loans raised

during the year were used for the purpose for which they were raised.

17 As explained to us and on an overall examination of the balance sheet of the

Company, in our opinion there are no funds raised on short-term basis which have

been used for long-term investment by the Company.

18 According to the information and explanation given to us, the Company has not

made during the year, any preferential allotment of shares to parties covered in the

register maintained under section 301 of the Companies Act, 1956.

19 During the period covered by our audit report the Company has not issued any

debentures.

20 The Company has not raised any money by public issues during the period

covered by our report.

21 As per the information and explanations given to us, no fraud on or by the Company

has been noticed or reported during the year.




H. V. Kishnadwala

Partner,

Membership No 37391



BALANCE SHEET AS AT MARCH 31, 2007

SOURCES OF FUNDS

Shareholders Funds

Share Capital

Warrants against Share Capital

Reserves and Surplus

Borrowed Funds

Secured Loans

Unsecured Loan

Total

APPLICATION OF FUNDS

Fixed Assets

Gross Block

Depreciation

Net Block

Investments

Current Assets, Loans & Advances

Inventories

Sundry Debtors

Cash and Bank Balances

Loans and Advances

Current Liabilities and Provisions

Current Liabilities

Provisions

Incomplete Voyage (Net)

Net Current Assets

Total

Significant Accounting Policies &

Notes to the Account

A

A1

B

C

D

E

F

G

H

I

5,892.43

488.00

50,292.47

56,672.90

1,07,532.52

26,262.00

1,90,467.42

1,48,335.12

(19,920.58)

1,28,414.54

10,292.34

1,491.00

13,329.61

11,966.33

35,416.23

62,203.17

7,249.80

2,246.59

946.24

10,442.63

51,760.54

1,90,467.42

Particulars ScheduleAs at

31 March 2007

As at

31 March 2006

5,892.43

488.00

45,751.60

52,132.03

1,04,115.00

26,916.00

1,83,163.03

147831.06

(13293.28)

134537.78

9,985.38

1,391.11

6,843.69

6,006.50

30,362.96

44,604.26

4,634.45

655.63

674.31

5,964.39

38,639.87

1,83,163.03

(Amount Rs In Lacs)


A. J. AgarwalJt. Mg. Director

Manohar BidayeDirector

H. K. MittalChairman & Mg. Director

Anil KhannaDirector

Supriya JoshiCompany Secretary

As per our report of even date

For Contractor Nayak & Kishnadwala


Himanshu Kishnadwala

Partner,

M No. 37391




PROFIT AND LOSS ACCOUNT

FOR THE YEAR ENDED ON MARCH 31, 2007

INCOME

Shipping Income

Other Income

Profit on Sale of Investment (Net)

Profit on Sale Assets (Net)

Total

EXPENSES

Ship Operating Expenses

Administrative and Other Expenses

Finance Charges

Depreciation

Total

Profit Before Taxes

Provision for Taxation

Current

Deferred Tax Written Back

Fringe Benefit Tax

Profit After Taxes

Depreciation written Back on change of method (See note

B2(b)of schedule I)

Prior Year Expenses / Income (Net)

Balance brought forward from last year

Available for Appropriations

Less/(Add): Appropriations

Transfer to Debentures Redemption Reserve

Transfer to General Reserve

Transfer to Tonnage Tax Reserve

Dividend on Preference Shares

Interim Dividend on Equity Shares

Proposed Final Dividend on Equity Shares

Tax on Dividend

Balance Carried to Balance Sheet

Earning Per Share (Equity Share of Re. 1/- Each)

Basic

Diluted

Significant Accounting Policies & Notes to the

Account

J

K

L

M

N

I

78,326.25

2,120.53

89.74

310.91

80,847.43

54,509.20

2,760.53

6,337.94

9,753.73

73,361.40

7,486.03

(310.00)

-

(13.50)

7,162.53

-

(42.74)

13,115.09

20,234.88

-

750.00

1,600.00

320.00

-

1,892.43

366.50

15,305.95

3.57

3.09

62,185.97

1,551.77

8.32

39.30

63,785.36

28,371.00

2,329.56

5,629.03

9,367.02

45,696.61

18,088.75

(437.50)

180.39

(12.50)

17,819.14

365.29

(84.93)

13,869.95

31,969.45

11,253.00

1,781.91

3,563.83

320.00

1,090.46

567.73

277.44

13,115.08

9.37

8.07

Particulars ScheduleYear ended

31, March 2007Year ended

31, March 2006

For and on behalf of the BoardAs per our report of even dateFor Contractor Nayak & Kishnadwala



Partner,

M No. 37391





Anil KhannaDirector



(Amount Rs In Lacs)


CASH FLOW STATEMENT FOR THE YEAR ENDED ON MARCH 31, 2007

Particulars Current Year Previous Year

Cash Flow from Operating ActivitiesNet Profit Before TaxAdjustment for:

DepreciationInterest Paid(Profit)/Loss on Fixed Assets Scrapped / Sold(Profit)/Loss on Sale of Investment Dividend Income Interest Income

Operating Profit before Working Capital Changes Adjustment for:

Trade and Other Receivables Trade Payables

Cash Generated from OperationsDirect Taxes Paid

Total Cash Generated from Operating Activities Cash Generated from Prior Period Items

Net Cash from Operating Activities Cash Flow from Investing Activities Increase in Fixed Assets including Capital Work in Progress Sale of Fixed Assets Proceed from sale of Trade Investments Purchase of Investment Interest Income Dividend Income Net Cash from Investing Activities

Cash Flow from Financing Activities Proceeds from Issue of Share CapitalProceeds on forfeiture of SharesProceeds from Long Term Borrowings

Interest PaidDividends Paid including tax thereon Net Cash from Financing Activities

Net Increase in Cash and Cash Equivalents Cash and Cash Equivalents as at beginning of the year Cash and Cash Equivalents as at end of the year

Proceeds from issue of Equity Shares to Promoters

7,486.03

9753.736,337.93(310.91)

(89.74)(624.38)

-

22,552.66

(11,639.10)4,478.23

15,391.79(323.50)

15,068.29(42.74)

15,025.55

(28,631.58)25,312.03

89.74(306.95)

-624.38

(2,912.38)

-

2,763.52

(6,337.93)(2,578.92)(6,153.33)

5,959.846,006.50

11,966.33

18,088.75

9,367.025,629.02

(39.30)(8.32)

(122.20)-

32,914.97

(30,331.42)275.08

2,858.63(269.61)

2,589.0299.97

2,688.99

(62,691.39)926.66

8.32(9,735.38)

-122.20

(71,369.59)

1,952.00

78,381.00

(5,629.02)(2,255.62)72,448.36

3,767.762,238.746,006.50

For and on behalf of the BoardAs per out report of even date




Partner,

M No. 37391


(Amount Rs In Lacs)




Anil KhannaDirector




SCHEDULES FORMING PART OF ANNUAL ACCOUNTS


SCHEDULE ‘A’

Share Capital

Authorised

35,00,00,000 Equity Shares of Re 1/- each. 3,500.00 3,500.00

200,00,000 Preference Shares of Rs 100 each. 20,000.00 20,000.00

23,500.00 23,500.00

Issued Capital

19,40,42,500 Equity Shares of Re. 1/- each fully paid up 1,940.43 1,940.43

40,00,000-8% Cumulative Redeemable Preference Shares of Rs. 100/-each

fully paid up 4,000.00 4,000.00

Subscribed and Paid Up Capital

Equity

18,92,42,500 Equity Shares of Re. 1/- each fully paid up. 1,892.43 1,892.43

Preference


fully paid up 4,000.00 4,000.00

5,892.43 5,892.43

SCHEDULE ‘A1’


32,00,000 Warrants (Each Warrant carry option / entitlement to subscribe

to 1 number of equity share of Re. 1/- each on or before July 31, 2007 at a

price not less then Rs. 137.50 per share. 440.00 440.00

48,00,000 bonus equity shares of Re. 1/- each relating to bonus

entitlement to the above warrant holders is kept in abeyance till the time

the warrant holder exercises the option to subscribe to the above 48.00 48.00

488.00 488.00

SCHEDULE ‘B’


Securities Premium Account

As per last Balance Sheet 7,532.61 7,066.07

Add: Received during the year on conversion of warrants - 1,650.00

Less: Utilised for the issue of bonus Shares - (1,183.46)

7,532.61 7,532.61

Tonnage Tax Reserve


Add: Transfer from Profit and Loss Account 1,600.00 3,563.83

Less: Transferred to Utilised Account (6,924.83)

1,600.00 6,924.83

Tonnage Tax Reserve (Utlised)

As per last Balance Sheet - -

Add: Transfer from Tonnage Tax Reserve 6,924.83 -

6,924.83 -

(Amount Rs In Lacs)

Pg. 49



Capital Reserve

As per last Balance Sheet 26.24 26.24

6,951.07 26.24

Debenture Redemption Reserve


Transfer from Profit and Loss Account - 11,253.00

Transferred to General Reserve on redemption of debentures (5,980.00) -

8,000.00 13,980.00

General Reserve


Add: Transferred From Debenture Redemption Reserve 5,980.00 -

Add: Transferred From Profit and Loss Account 750.00 1,781.91

10,902.83 4,172.83

Surplus in Profit and Loss Account 15,305.96 13,115.09

50,292.47 45,751.60

SCHEDULE ‘C’

Secured Loans

(a) Debentures

(1) 12,00,000, 12.50 % Non Convertible Secured Debentures Series I of

Rs. 25/- (Rs. 50/-) each , redeemable at the end of 3rd, 4th, 5th and 6th

year from the date of allotment i.e. January 30, 2002 in equal installments

towards face value 300.00 600.00

(2) 18,00,000, 12.25 % Non Convertible Secured Debentures Series II of

Rs. Nil (Rs. 25/-) each , redeemable at the end of 1st, 2nd, 3rd and 4th year

from the date of allotment i.e. July 30, 2002 in equal installments towards

face value - 450.00

(3) 30,00,000, 10.00 % Non Convertible Secured Debentures Series IV of

Rs. 30/ (Rs. 50/- ) each , redeemable in 10 half yearly instalments of

Rs. 300 lacs each commencing from six months after the date of allotment i.e.

July 29, 2003 towards face value 900.00 1,500.00

(4) 30,00,000, 10.00 % Non Convertible Secured Debentures Series V of

Rs. 40/ , (Rs. 60/-) each redeemable in 10 half yearly instalments of

Rs. 300 lacs each commencing from six months after the date of allotment i.e.

October 10, 2003 towards face value 1,200.00 1,800.00

(5) 1,600 (1,800) 7.50 % Non Convertible Secured Debentures Series VII A of

Rs. 8,12,500/- (Rs. 9,37,500/-) each , redeemable in 12 half yearly instalments

of 6.25% and last two of 12.50 % of face value each commencing from six

months after one year from the date of allotment i.e. June 30, 2004 toward

face value 13,000.00 16,875.00

(6) 50 (450) 7.50 % Non Convertible Secured Debentures Series VII B of

Rs. 875,000 (10,00,000/-) each , redeemable in 12 half yearly instalments


months after one year from the date of allotment i.e. February 10, 2005

toward face value 437.50 4,500.00

(7) NIL (96), 8% Non Convertible Secured Debentures Series VIII of

Rs. 10,00,000/- each , redeemable in 6 half yearly part of 4.17 % commencingth

from 30 , September 2006 and 6 half yearly part of 12.50 % commencingth

from 30 September 2010. - 960.00

(Amount Rs In Lacs)





(Amount Rs In Lacs)

(b) Foreign Currency Loans from Scheduled Banks

(1) External Commercial Borrowings 13,568.70 17,495.40

(2) Foreign Currency Non-Resident (B) Loan 22,585.32 4,934.60

(c) Term Loans from Scheduled Banks 55,541.00 55,000.00

(Amount repayable within one year Rs 15,006.00 Lacs (Rs 3,375.00)

107,532.52 104,115.00

Note:

1) Debentures referred in (a) above are secured by first mortgage on

specified vessels of the company on pari-passu basis with other lenders

and first charge on the specified immovable properties together with

structure thereon .

2) Foreign Currency Loan referred in (b) above are secured by 1st Charge

on specified vessels of the company on pari-passu basis with other lenders.

3) Term Loan referred in (c )above are secured by 1st charge on all the

vessels, on pari passu basis with other lenders.

4) Working capital facilities from Schedule Banks are secured by second

charge on specified vessels and 1st charge on all receivables and other

current assets of the company on pari-passu basis.

SCHEDULE ‘D’

Unsecured Loans

USD 60,000,000 1.50 % Foreign Currency Convertible Bondsth

These bonds are convertible at any time on or after 6 June 2005 and up toth

the close of Business on 20 April 2010 by holders into newly issued

ordinary shares of Re 1 each at agreed conversion price. The Bonds may be

redeemed in whole at the option of the Company at any time on or after

15, May 2008 and or prior to 20, April 2010 at the accreted principal amount

together with accrued interest. 26,262.00 26,916.00

26,262.00 26,916.00



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(Amount Rs In Lacs)

Items

Nos. Cost Nos. Cost

Current Year Previous Year

SHEDULE ‘F’

INVESTMENTS

Non-Trade

Long Term

In shares of Subsidiaries / associated

Companies (Unquoted)

Mercator Lines ( Singapore ) Pte.Ltd - - 25,002 7

Mercator Oil and Gas Ltd 107,140 10.71 7,140 1

Mercator International Pte. Ltd 100,000 28.80 - -

Mercator Offshore Ltd 5,226,070 1,546.13 - -

5,433,210 1,585.64 32,142 7.39

In Units of Mututal Funds

Reliance Equity Fund 1,106,501 110.65 2,000,000 200

Prudential ICICI Fusion Fund 5,000,000 500.00 5,000,000 500

Franklin India Flexi Cap Fund 371,034 57.44 - -

HDFC Equity Fund 161,279 57.06 - -

Prudential ICICI Discovery Fund 287,550 55.19 - -

Prudential ICICI Emerging Star Fund 488,059 106.36 - -

Reliance equity Opportunity Fund 348,760 60.59 - -

Standered Chartered Ent Equity Fund 1,000,000 100.00 - -

Sundaram BNP Paribas Select Midcap-Dividend 307,499 60.80 - -

DBS Chola Hedged Equity 10,000,000 100.00 - -

(Repurchase Value as on 31.3.07 is

Rs. 1276.84 Lacs (Previous Year Rs 726.70 Lacs) 19,070,682 1,208.10 7,000,000 700

In others

Lotus FMP- Series I 3,000,000 300.00 - -

Vijaya Bank Bonds 1,000,000 1,000.00 1,000,000 1,000

4,000,000 1,300.00 1,000,000 1,000

28,503,892 4,093.74 8,032,142 1,707

Current Investments (at lower of cost and Market value)

In units of Mutual Funds

G66 Standard Chartered Liquidity Manager - - 15,046,557 1,505

Reliance Mutual Fund - - 1,964,351 300

UTI Liquid cash plan Institutional - - 100,258 1,020

NLFID CANLIQUID Fund Institutional Premium - - 14,994,513 1,506

PFRDD Prudential ICICI Floating Rate Plan D - - 9,143,936 914

B503DD Birla Cash Plus institutional Plan - - 10,114,008 1,013

ICICI Institutional Fund - - 2 -

PPIDR-Principal Cash Premium Institutional Plan - - 18 -

LICMF Floating Rate Fund - - 10,000,402 1,010

LICMF Liquid Fund - - 9,238,322 1,011

Quantum Liquid Fund 5,151,487 515.15 - -

Lotus India Liquid Plus Fund - Institutional Weekly Dividend 5,001,224 500.12 - -

J P Morgan International Investment Fund 11,624,413 5,183.33

Sub Total 21,777,124 6,198.60 70,602,369 8,278

(Repurchase Value as on 31.3.07 is Rs. 6198.59

Lacs (Previous Year Rs 8284.27 Lacs)

Grand Total 50,281,016 10,292.34 78,634,511 9,985




(Amount Rs In Lacs)

SCHEDULE ‘G’

Current Assets

Sundry Debtors

(Unsecured, Considered Good)

Debts Outstanding over Six Months 1,517.35 324.85

Other Debts 11,812.26 6,518.84

13,329.61 6,843.69


Balances with Scheduled Bank

In Fixed Deposit 6,301.65 1,045.05

In Current Account 3,168.49 3,619.12

In Exchange Earners Foreign Currency Account 160.76 1,245.52

In Dividend Accounts 39.40 36.28

Bank Balance / Fixed Deposits with Foreign Banks

(Refer Note B 2 (8)) 2,142.03 53.91

Interest accrued on above 151.46 2.76

Cash in hand 2.54 3.86

11,966.33 6,006.50

Loans and Advances

(Unsecured Considered Good)

Advances recoverable in cash or in kind

or for value to be received 3,250.00 1,234.66

Deposits with Government and semi Government Bodies 15.78 13.18

Inter Corporate Deposits 413.03 478.94

Loan to Subsidiary Companies 29,831.28 27,336.75

Other Deposits 796.97 704.58

Advance payment of tax (Net of provisions) 1,109.17 594.85

35,416.23 30,362.96

SCHEDULE ‘H’

Current Liabilities

Sundry Creditors

For Services and expenses 3,956.84 4,466.77

For Others 3,125.81 13.88

Advances from Customers - 60.25

Deposits 127.75 57.26

Unclaimed Dividend * 39.40 36.28

*(There is no amount due and outstanding to be credited to Investor

Education and Protection Fund) 7,249.80 4,634.45

Provisions

For Proposed Dividend 1,892.43 567.73

For Tax on Dividend 321.62 79.62

For Employees Retirement Benefits 32.54 8.28

2,246.59 655.63




(Amount Rs In Lacs)

SCHEDULE ‘J’

Shipping Income

Freight 50,311.04 31,269.17

Charter Hire 25,111.78 29,399.98

Dispatch and Demurrage 2,903.43 1,516.82

78,326.25 62,185.97

SCHEDULE ‘K’

Other Income

Cargo Handling Services 1,477.40 1,417.16

Dividend Income 624.38 122.20

Miscellaneous Income 18.75 12.41

2,120.53 1,551.77

SCHEDULE ‘L’


Bunker Consumed 9,203.51 6,853.75

Vessel /Equipment Hire Charges 26,696.59 8,855.28

Technical, Service Expenses 3,622.21 2,875.27

Agency, Professional and Service Charges 467.43 336.23

Crew Expenses 596.27 557.24

Communication Expenses (Ships) 157.43 138.41

Miscellaneous Expenses (Ships) 208.62 99.61

Commission 910.68 1,019.85

Ship Insurance 1,096.25 1,160.00

Port Expenses 2,850.88 1,723.92

Repairs and Maintenance 8,382.37 4,411.68

Stevedoring, Transport and Freight 316.96 339.76

54,509.20 28,371.00

SCHEDULE ‘M'


Advertisement 8.16 6.70

Auditors Remuneration 13.65 11.45

Conveyance, Car Hire and Travelling 117.75 64.11

Communication expenses 29.07 22.70

Donation 35.61 25.97

Directors' Remuneration 805.56 2,026.08

Miscellaneous expenses 268.52 274.20

Exchange Fluctuations 732.34 (378.80)

Insurance 4.50 4.16

Legal, Professional and Consultancy expenses 101.57 109.50

Rents, Repairs and Maintenance 191.20 36.52

Salary, Wages, Bonus etc. 364.67 113.58

Staff Welfare, Training etc. 6.14 4.30

Contribution to Provident and other funds 18.68 3.33

Bad Debts and other amounts written off (Net) 63.11 5.76

2,760.53 2,329.56

SCHEDULE ‘N’

Finance Charges

Interest on

Debentures 1,927.28 2,517.21

Fixed Loans 5,100.18 2,752.36

Others 40.02 149.70

Loss on settlement of Foreign Currency contracts - 306.19

7,067.48 5,725.46

Less : Interest received (TDS Rs.95.12 Lacs Previous Year 19.98 Lacs) ) (729.54) (96.43)

6,337.94 5,629.03


ACCOUNTING POLICIES

SCHEDULE ‘I’

A. SIGNIFICANT ACCOUNTING POLICIES1. Basis of Accounting

The financial statements are prepared under the historical cost convention, on the accrual basis of accounting and in conformity with Generally Accepted Accounting Principles in India, Accounting Standards issued by the Institute ofChartered Accountants of India and the provisions of the Companies Act, 1956.

2. Use of EstimatesThe preparation of financial statements in conformity with Generally Accepted Accounting Principles requires themanagement to make estimates and assumptions that affect the reported balances of assets and liabilities as of the dateof the financial statements and reported amounts of income and expenses during the period. Management believes thatthe estimates used in the preparation of financial statements are prudent and reasonable.

3. Fixed Assetsa) Fixed assets are stated at cost less accumulated depreciation.b) Cost includes cost of acquisition or construction including attributable interest, duties and other incidental expenses

related to the acquisition of the asset.c) Borrowing costs incurred for the year for acquisition of vessels are capitalized till first loading of cargo, only if the time

gap between date of Memorandum of Agreement and date of delivery of vessels is more than three months.d) Operating costs including initial stores and spares of newly acquired ships till the port of first loading are included in

the cost of the respective ships.e) Exchange differences arising on repayment of foreign currency loans and year end translation of foreign currency

liabilities relating to acquisition of assets from a country outside India including substitution of one foreign currencyloan by another are adjusted to the carrying cost of the respective assets.

f) Individual fixed assets costing upto Rs. 25,000 are fully written off under the head fixed assets written off.

4. Depreciationa) Depreciation on all the vessels is computed on Straight Line Method so as to write off the original cost as reduced by

the expected/estimated scrap value over the balance useful life of the vessels. If however, the rates as prescribedunder the Schedule XIV of the Companies Act,1956, are higher, the said higher rate is applied.

b) Depreciation on all assets other than vessels is computed on the Written Down Value method in the manner and atthe rates prescribed under schedule XIV of the Companies Act, 1956.

c) On additions made to the existing ships (including adjustments resulting on account of exchange rate fluctuationsdepreciation is provided for the full year over the remaining useful life of the ships.

d) Depreciation on furniture, fixture and electrical fittings installed at the office premises taken on lease has beenprovided over the initial period of lease.

5. Capital Work in ProgressAll expenditure, including advances given to contractors and borrowings cost incurred during the vessel acquisitionperiod, are accumulated and shown under this head till the vessel is put to commercial use.

6. Retirement and Disposal of ShipsProfits on sale of ships are accounted for on completion of sale thereof.

7. InventoriesBunker and Lubes on vessels are valued at lower of cost and net Realizable value ascertained on first in first out basis.

8. Investmentsa) Investments are classified in to long term and current investments.b) Long Term Investments are stated at cost of acquisition and related expenses. Provision for diminution, if any, in the

value of such investments is made to recognise a decline, other than of a temporary nature.c) Current Investments are stated at cost of acquisition including incidental / related expenses or at fair value as at

st31 March 2007, whichever is less and the resultant decline, if any, is charged to revenue.

d) InvestmentinsharesofsubsidiaryoutsideIndiaisstatedatcostbyconvertingattherateofexchangeatthetimeoftheiracquisition.


ACCOUNTING POLICIES

9. Incomplete VoyagesIncomplete voyages represents freight received and direct operating expenses on voyage which are not complete as atthe Balance sheet date.

10. Borrowing CostsBorrowing costs incurred for the year for acquisition of vessels are capitalized till first loading of cargo, only if the time gapbetween date of Memorandum of Agreement and date of delivery of vessels is more than three months.

11. Revenue Recognitiona) Income on account of freight earnings is recognised in all cases where loading of the cargo is completed before the

close of the year. All corresponding direct expenses are also provided.b) Where loading of the cargo is not completed before the close of the year, revenue is not recognised and the

corresponding expenses are carried forward to the next accounting year.c) Income from charter hire and demurrage are recognised on accrual basis.d) Income from services is accounted on accrual basis as per the terms of the relevant agreement.

12. Foreign Exchange Transactionsa) Monetary Current assets and liabilities denominated in foreign currency outstanding at the end of the year are

valued at the rates prevalent on that date.b) Differences in translation of monetary assets and liabilities and realised gains and losses on foreign currency

transactions other than those relating to vessels acquired from a country outside India are recognised in the Profitand Loss Account.

c) The gain or loss on repayment and translation of foreign currency loans relating to acquisition of vessels from acountry outside India is adjusted to the carrying cost of such vessels.

std) Contracts in the nature of foreign currency swaps, are converted at the exchange rate prevailing as on 31 , March

2007 and the profits or losses thereon are charged to the Profit and Loss account.e) Differences on account of swap contracts for interest payable in foreign currency are accounted on accrual basis

and the profits or losses thereon are charged to the Profit and Loss account.f) Investments outside India are carried in the Balance Sheet at the rates prevailing on the date of the transaction.

13. Employees Retirement BenefitsLiability is provided for retirement benefits of provident fund, gratuity and leave encashment in respect of all eligibleemployees. Contributions under the defined contribution schemes are charged to revenue. The liability in respect ofdefined benefit schemes like gratuity and leave encashment is provided in the accounts on the basis of actuarialvaluation as at the year end. No fund is created for the amount of gratuity provided for and the company would pay thesame out of its own funds as and when the same becomes payable.

14. Earning per shareThe company reports basic and diluted earnings per share (EPS) in accordance with Accounting Standard – 20 issuedby the Institute of Chartered Accountant of India. The Basic EPS has been computed by dividing the income available toequity shareholders by the weighted average number of equity shares outstanding during the accounting year. Thediluted EPS have been computed using the weighted average number of equity shares and dilutive potential equityshares outstanding at the end of the year.

15. Provision for Taxationa) The company has opted for the tonnage tax scheme and provision for tax has been accordingly made under the

relevant provisions of the Income Tax Act, 1961.b) Tax on incomes on which the tonnage tax is not applicable is provided as per the other provisions of the Income Tax

Act, 1961.c) Deferred tax resulting from timing differences between book and tax profits is accounted for under the liability

method, at the current rate of tax, to the extent that the timing differences are expected to reverse in future.

16. Impairment of assetsThe Company reviews the carrying values of tangible and intangible assets for any possible impairment at each balancesheet date. Impairment loss, if any, is recognized in the year in which impairment takes place.


17. Provisions and Contingent LiabilitiesProvisions are recognized in the accounts in respect of present probable obligations, the amount of which can be reliablyestimated. Contingent Liabilities are disclosed in respect of possible obligations that arise from past events but theirexistence is confirmed by the occurrence or non occurrence of one or more uncertain future events not wholly within thecontrol of the Company.

B] NOTES TO THE ACCOUNTS

1. Contingent Liabilities not provided fora) Contingent Liability on account of guarantee issued by the Company’s Bankers (including for its subsidiaries)

against which company has issued counter – guarantee aggregate to Rs. 20,690.32 Lacs (841.95 Lacs)b) Comfort Letter given byCompanyonbehalf of its SubsidiaryCompanyRs. 5,500.00 Lacs (Nil)

2. Fixed Assetsa) Estimated amount of contracts remaining to be executed on capital accounts and not provided for (net of advances)

as at March 31, 2007, Rs. NIL Lacs (Rs. 700.00 Lacs).b) To follow a standard policy, the company had in FY 2005-06 changed the method of depreciation for one vessel from

Written Down Value method to Straight Line method. Due to change in the method, depreciation for that year waslower and profit for the year was higher by Rs.48.44 lacs and reserves were higher by Rs 365.28 Lacs.

3. Investments purchase and sold during financial year 2006-07

1 Birla Sun Life Birla Cash Plus-Instl.Prem 32,632,110.97 3,269.58 3,269.57Mutual Fund (Daily Dividend) (18,004,465.79) (200.37) (200.39)

- - -B511WD Birla Floating Rate Fund (18,810,096.65) (1,951.72) (1,951.69)(Weekly Fund)

2 Canbank Mutual Canliquid Fund-Institutional 26,764,226.35 2,687.40 2,687.40Fund (Daily Dividend)

3 UTI Mutual Fund UTI Liquid Cash Plan Insti. 770313.03 7,850.97 7,852.22(Daily Dividend) (364,138.31) (3,701.89) (3,703.38)

UTI Money Market Fund 4899730.93 854.06 854.07(Daily Dividend) 0 - -

4 Deutche Asset DWS Money Plus Fund Insti Plan 47118377.24 4,720.46 4,720.46Management (Daily Dividend) 0 - -

5 Franklin Templeton Templeton India Treasury ManagementInvestments Account Insti P 391,078.36 3,911.76 3,911.76

(Daily Dividend) - - -Franklin India FLEXI CAP Fund-Dividend 247,960.56 42.56 50.13Reinvestme

- - -

6 Standard Chartered Standard Chartered Liquidity Manager Plus 217,276.74 2,014.23 2,014.23Mutual Fund (Daily Dividend) - - -

GFDCGrindlays Floating Rate-ST-Plan-C(DailyDivid - - -(47,116,261.24) (4,711.63) (4,711.63)

NOTES TO THE ACCOUNTS

SrNature of Investment Quantity (Units) Sold

Amount

(Amount Rs In Lacs)

No.Name of the

CompanyPurchaseAmount



7 JM Financial Mutual JM Money Manager Fund Super Plus Plan 23,639,354.34 2,363.94 2,363.09Fund (Daily Dividend) - - -

8 DSP Merrill Lynch DSP Merrill Lynch Liquidity Fund Institutional 423,049.78 4,231.34 4,231.34Mutual Fund (Daily Dividend) - - -

9 Kotak Mutual Fund Kotak Liquid (Institutional Premium) 21,431,669.34 2,512.75 2,515.61(Daily Dividend) (3,280,696.06) (401.17) (401.17)

10 LIC Mutual Fund LIC MF Liquid Fund Dividend Plan 42,843,379.00 4,702.99 4,703.43(10,093,931.42) (1,103.26) (1,103.84)

LIC MF FMP Series 7 - 3 Months Dividend Plan 20,301,372.10 2,030.14 2,030.14- - -

LIC MF Floating Rate Fund 39,539.00 4.00 3.95- - -

11 Prudential ICICIMutual Fund Prudential ICICI institutional Liquid Plan-Super Inst. 20797215.11 2,079.72 2,079.72

(Daily Dividend) (10,023,042.40) (1002.30) (1002.30)Prudential ICICI institutional Liquid Plan 0 0 0(Daily Dividend) (2,534,402.93) (300.33) (300.33)Prudential ICICI Discovery Fund 259,740.00 50.00 54.70Prudential ICICI Emerging Star Fund 254,453.00 50.90 54.58

- - -P321PD Prudential ICICI Institutional PlusLiquid plan - - -(Daily Dividend) (4,226,772.15) (500.94) (500.94)P32ISD Prudential ICICI Institutional Plan 0 0 0(Daily Dividend) (16,056,159.09) (1,902.69) (1,902.69)PFRDD Prudential ICICI Floating Rate Plan D 0 0 0(Daily Dividend) (11,013,084.34) (1,101.31) (1,101.31)

12 Reliance Mutual Fund RLF Treasury Plan -Institutional Option 7,941,957.52 1,213.73 1,213.86(Daily Dividend) (5,241,519.31) (800.79) (800.79)Reliance Equity OpportunitiesFund-Dividend Plan 286,682.00 50.00 55.29

- 0 0Reliance Floating Rate Fund - 0 0(Daily Dividend) (1,998,087.94) (201.03) (201.02)Reliance Liquid Fund -cash Plan - 0 0(Daily Dividend) (1,806,097.97) (201.22) (201.22)

13 Lotus India Lotus India Liquid Fund Institutional Plus 17,092,415.34 1,709.24 1,709.24Mutual Fund (Daily Dividend) 0 0 0

Lotus India Liquid Plus Fund-Inst.Weekly Dividend 10,121,144.45 1,012.12 1,013.33

0 0 014 ING VYSYA Mutual Optimix Active Debt Multi- Manager

Fund FOF Scheme-Div 2,000,000.00 200.00 202.04- - -

15 DBS Chola DBS Chola Liquid Inst Reinvestment Plan 14,177,403.46 1,422.22 1,422.23Mutual Fund (Daily Dividend) - 0 0

16 TATA Mutual Fund TATA Liquid Super High Investment Fund 36,027.82 401.54 401.54(Daily Dividend) (89,908.83) (1,002.03) (1,002.03)



(Amount Rs. in lacs)

17 SBI Mutual Fund Magnum Institutional Income-Savings-Dividend 24,978,990.42 2,506.02 2,506.02- - -

18 HSBC MutualFund HSBC CashFund -InstitutionalPlan 19,877,332.66 2,012.90 2,012.90(Daily Dividend) 0 0 0

19 Sundaram BNP Sundaram BNP Paribas Select 307,498.00 68.16 54.98Paribas Mutual Midcap-Dividend - - -

20 HDFCMutualFund HDFC Equity Fund 141,295.00 50.00 60.23- - -

21 DWS Investments DWS Alpha Equity Fund- Dividend option 283,929.59 50.00 52.21

22 Fidelity Fidelity India Special Situations Fund-Dividend 1,955,990.22 200.00 238.98International

23 Principle Asset Principal Cash Prem Inst 9,233,202.00 923.38 923.38Management (Daily Dividend) (19,065,902.85) (1,906.72) (1,906.72)

4. The Company had in FY 2005-06 made preferential issue of equity shares, and warrants aggregating to Rs. 1952(including premium ) The said funds have been utilized as follows:

Working Capital: Rs. 1952.00 Lacs

5. The company has raised Foreign Currency Loan aggregating to Rs. 20,108 Lacs (Previous Year Rs.82,876.00 Lacs ) Thesame has been utilized as under

Acquisition of vessels: Rs. 20,108 Lacs ( Rs.56,916.00 Lacs)

6. Payments to vendors in the Small Scale and ancillary undertakings sector are generally made in accordance with the agreed credit terms. There was no amount due to them which is outstanding for more than 30 days as on March 31, 2007.

The company has not received any intimation from its vendors regarding the status under Micro, Small and MediumEnterprises Development Act 2006 and hence disclosure, if any, required under this act have not been made.

7. The balance in the Exchange Earners Foreign Currency account is maintained in US Dollars and shown in equivalent Indian Rupees. The balance in the said account as at the Balance Sheet date was USD 3.72 Lacs (Previous YearUSD 29.23 Lacs)

8. The details of bank balance with Foreign Banks

Citibank NA New York 50.45 53.90

(53.90) (12,451.65)

HSBC Bank Singapore 12.24 23,042.85

(Nil) (Nil)

HSBC Bank Singapore 2,079.32 37,671.60

(Fixed Deposit) (Nil) (Nil)

Name of the Bank Balance as at Maximum Balance during

March 31, 2007 the year



9) Value of material imported by the company on CIF basisduring the accounting year in respect of Stores & Spares 267.83 393.99Capital Goods 28,257.51 63,908.08

-10) Details of Spare Parts consumed -

Raw Material Imported Spares 267.83 393.99

15.07% 29.96%Indigenous Spares 1,508.83 920.91

84.93% 70.04%11) Expenditure in foreign currency during the year

On Repairs / Renovations and expenses of Vessels 4,363.77 2,157.95On Charter Hire 25,357.04 8,227.30On Vessel Expenses 16,901.45 16,225.92On Traveling 27.31 14.03On Interest 2,618.14 1,184.03

12) Disclosure as required under clause 32 of the listing agreement - -Loans and Advances include amount receivable from - -Amount Receivable from SubsidiariesMercator International Pte. Ltd.Balance outstanding at year end 267.78Maximum amount Outstanding during the year. 273.64

Mercator Lines (Singapore) Pte. Ltd.Balance outstanding at year end 27,992.16 27,336.75Maximum amount Outstanding during the year. 33,525.45 27,336.75

Mercator Oil & Gas LimitedBalance outstanding at year end 18.19Maximum amount Outstanding during the year. 18.19

Mercator Offshore LimitedBalance outstanding at year end 1,553.15Maximum amount Outstanding during the year. 3,042.56

Mercator Lines (Panama) Inc.Balance outstanding at year end - -Maximum amount Outstanding during the year. - 2,739.60

Companies in which some directors were directorsMercator Mechmarine LimitedBalance outstanding at year end - -Maximum amount Outstanding during the year. 1.64 -

Sundry Debtors includes amount receivable from companyin which some directors were director/memberMLL Logistics Private LimitedAmount Outstanding at Year End - 1,051.80Maximum amount Outstanding during the year. - 1,053.23

(Amount Rs In Lacs)



13) a) Remuneration to Directors Managing and Joint Managing DirectorsSalary 48.00 49.60Perquisites 21.83 19.85Commission 728.23 1,946.64Non-Executive Directors -Commission 7.50 10.00

b) Computation of Net Profit in accordance with section 349of the Companies Act, 1956 for calculation of commissionpayable to Managing Director and Joint Managing Director -Profit before Tax 7,486.03 18,088.75Add: Remuneration paid to Directors 805.56 2,026.09Less: Gain (loss)on sale of Fixed Assets (310.91) 30.09Net Profit on which remuneration is payable 7,980.68 20,144.94Directors' Commission within overall Remuneration - -Executive Directors 798.06 2,014.49Non Executive Directors 7.50 10.00

14) Payment to Auditors -Audit Fees 8.00 6.50Tax Audit Fees 1.25 1.00In other capacity 4.40 2.75Service Tax 1.66 1.20Total 15.31 11.45

15) Earnings in foreign currency 20,172.51 31,086.89

16) Dividend remitted in foreign currency Nil Nil

17. Segment Reporting

As the company principal business activities fall within the single segment viz Shipping and related activities, the disclosure

requirement of Accounting Standard 17 ‘Segment Reporting; issued by Institute of Chartered Accountants of India are not

applicable.

18. Derivative Instrument Outstanding


(a) Intrest Rate Swap Contracts

Total No. of Contract 3 1

Loan Value US Dollar (Million) 4.54 4.54

Loan Value JPY (Million) 5,717.45 -

(b) Currency Swap Contracts






20. Disclousre in respect of operating lease:

(a) Operating Leases

Disclosures in respect of cancelable agreements

for office and residential premises taken on lease

(I) Lease payments recognized in the Profit and Loss Account 118.01 -

(ii) Significant leasing arrangements

- The Company has given refundable interest free security

deposits under the agreements.

- The lease agreements are for a period of sixty months.

- These agreements also provided for increase in rent.

- These agreements are non cancelable by both the

parties except in certain exceptional circumstances.

(iii) Future minimum lease payments under

non-cancellable agreements

- Not later than one year 314.71 -

- Later than one year and not later than five years 1,715.14 -

- Later than five years - -

21. Related Party Disclosures:

A) (I) List of Related Parties

Subsidiaries

Mercator International Pte. Ltd (MIL)

Mercator Oil & Gas Ltd

Mercator Offshore Ltd.

Mercator Lines ( Singapore) Pte Ltd (MLS) (subsidiary of MIL)

Mercator Lines (Panama) Inc (subsidiary of MLS)

Varsha Marine Pte Limited (subsidiary of MLS)

Vidhya Marine Pte Limited (subsidiary of MLS)

(ii) Companies in which Directors / relatives of Directors have Substantial interest

MLL Logistics Pvt Ltd

Particulars Year Ended Year Ended

31/03/2007 31/03/2006

19. Earning per share:

Net Profit after Tax and preference dividend including tax thereon 6,754.91 17,734.62

Number of Shares used in computing Earning Per Share -

Basic 1,892.43 1,892.43

Diluted 2,331.10 2,250.58

Earning per share

(Equity Shares, face value Re. 1/-)

Basic (in Rs.) 3.57 9.37

Diluted (in Rs.) 3.09 8.07


31/03/2007 31/03/2006




Mercator Mechmarine Ltd

Mercator Healthcare Limited

Ankur Fertilizers Private Limited

Rishi Holding Private Limited

AHM Investments Private Limited.

(iii) Directors of the Company

H.K Mittal

A.J Agarwal

Manohar Bidaye

Anil Khanna

M.G Ramakrishna

Key Management PersonnelH.K MittalA.J Agarwal

B) Details of the transaction with above parties

Current Yr Previous Yr Current Yr Previous Yr Current Yr Previous Yr

Services Rendered 2,225.55 790.23 1,376.99 528.72 3,602.54 1,318.95

Services Received 4,548.88 2,022.26 17.64 13.32 4,566.52 2,035.58

Finance Provided

(Including Loans & Equity Contributions )

Loans 8,239.27 27,635.99 1.64 0.44 8,240.91 27,636.43

Equity Contributions 1,614.53 6.68 - - 1,614.53 6.68

Guarantees Given

(a) Guarantee Given 7,330.82

(b) Comfort Letter 5,500.00

Outstanding balances as on 31.03.2007

Advances and Receivables 33,503.48 1,470.27 770.75 1,051.80 34,274.23 2,522.08

Sundry Debtors 667.72 - 1,256.22 - 1,923.95 -


Payables - 225.46 - - - 22,545,788.15

Deposit given 15.00 15.00 - - 15.00 15.00

C) Remuneration paid to Key Management Personnel 798.06 2,014.49

D) Commission Paid to Non-Executive Directors 7.50 10.00

Companies in which Directors /

Name of Transaction Subsidiary Companies relatives of Directors have Total

Substantial interest

RELATED PARTY DISCLOSURES



I. Registration Details

Registration No. 11-31418 State Code 011

Balance Sheet Date 31/03/2007 Date Month Year

31 3 2007

II. Capital Raised during the year (Amount in Rs. Thousand)

Public Issue NIL Right Issue NIL

Bonus Issue NIL Private Placement NIL

III. Position of Mobilisation and Deployment of Funds (Amount in Rs. Thousands)

Total Liabilities 190,467.42 Total Assets 190,467.42

Source of Funds

Paid-up Capital 6,380.43 Reserves & Surplus 50,292.48

Secured Loans 107,532.52 Unsecured Loans 26,262.00

IV. Application of Funds

Net Fixed Assets 128,414.53 Investments 10,292.34

Net Current Assets 51,760.56 Misc. expenditure NIL

Deferred Tax Asst

V. Performance of Company (Amount in Rs. Thousands)

Turnover 808,474.37 Total Expenditure 73,361.40

Profit/(Loss) Before tax 7,486.03 Profit/(Loss) after tax 7,162.53

Earning per Share 3.57 Dividend Rate % 100%

VI. Generic Name of the Principal Products/Services of the Company (As per monetary terms)

Item Code No. : NA

Product Description : Shipping

BALANCE SHEET ABSTRACT AND COMPANY'SGENERAL BUSINESS PROFILE 31/03/2007


STATEMENT PURSUANT TO SECTION 212 OF THE COMPANIES ACT, 1956 RELATING TO SUBSIDIARY COMPANIES

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CONSOLIDATED FINANCIAL STATEMENTS


AUDITORS' REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS

Auditors' report to the Board of Directors on the consolidated financial statements of Mercator Lines Limited and

its subsidiaries

We have audited the attached consolidated balance sheet of Mercator Lines Limited (the Company) and its

subsidiaries (collectively called 'the Mercator Group') as at March 31, 2007, the consolidated profit and loss account

and the consolidated cash flow statement for the year ended on that date, annexed thereto. These financial statements

are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial

statements based on our audit.

We conducted our audit in accordance with the auditing standards generally accepted in India. Those Standards

require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are

free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and

disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant

estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our

audit and the reports of the other auditors provides a reasonable basis for our opinion.

We did not audit the financial statements of the Mercator International Limited (Singapore), Mercator Offshore Limited

(Singapore), Mercator Lines Singapore Pte. Limited (Singapore), Varsha Marine Pte Limited (Singapore), Vidya Marine

Pte. Limited (Singapore) whose financial statements reflect total assets of Rs. 852,81,08,783 as at 31, March, 2007 and

total revenues of Rs. 409,29,43,337 for the period ended 31, March 2007. These financial statements have been

audited by other auditors whose report has been furnished to us. We have placed reliance on the said report for the

purpose of our opinion on the consolidated financial statements.

We report that the consolidated financial statements have been prepared by the Company's management in

accordance with the requirements of Accounting Standard (AS) 21, Consolidated Financial Statements, issued by the

Institute of Chartered Accountants of India.

In our opinion and to the best of our information and according to the explanations given to us, the consolidated financial

statements givea trueand fair view in conformitywith theaccounting principles generallyaccepted in India:

a. in thecaseof theconsolidatedbalancesheet, of thestateof affairs of theMercator Groupas atMarch31, 2007;

b. in the case of the consolidated profit and loss account, of the profit of the Mercator Group for the year ended on that

date; and

c. in the case of the consolidated cash flow statement, of the cash flows of the Mercator Group for the year ended on

that date.




H. V. Kishnadwala

Partner,

Membership No 37391



CONSOLIDATED BALANCE SHEET AS AT MARCH 31, 2007




H. V. Kishnadwala

Partner,

M No. 37391


SOURCES OF FUNDS

Shareholders Funds

Share Capital A 5,892.43 5,892.43

Warrants against Share Capital A 1 488.00 488.00

Reserves and Surplus B 56,456.25 47,717.18

Minority Interest (0.06)

62,836.62 54,097.61

Borrowed Funds

Secured Loans C 150,208.27 104,115.00

Unsecured Loan D 33,265.20 26,916.00

Total 246,310.09 185,128.61


Fixed Assets E

Gross Block 189,446.46 147,831.06

Depreciation (20,547.24) (13,293.28)

Net Block 168,899.22 134,537.78

Capital work in progress 9,585.51 -

178,484.73 134,537.78

Investments F 8,706.70 9,977.99

Current Assets, Loans & Advances G

Inventories 2,499.74 2,371.85

Sundry Debtors 18,593.30 7,713.42

Cash and Bank Balances 37,877.56 11,820.30

Loans and Advances 20,878.68 25,427.70

79,849.28 47,333.27

Current Liabilities and Provisions H

Current Liabilities 16,614.64 5,390.49

Provisions 2,246.59 655.63

Incomplete Voyage (Net) 1,869.39 674.31

20,730.62 6,720.43

Net Current Assets 59,118.66 40,612.84

-

Total 246,310.09 185,128.61

Significant Accounting Policies I

& Notes to the Account


March 31, 2007

As at

March 31, 2006

(Amount Rs In Lacs)


H. K. Mittal

Anil KhannaDirector



Chairman & Mg. Director

Supriya Joshi

Company Secretary



CONSOLIDATED PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED ON MARCH 31, 2007

INCOME

Shipping Income J 112,275.75 82,624.61

Other Income K 2,326.03 1,659.66

Profit on Sale of Investments (Net) 89.74 8.32

Profit on Sale of Assets (Net) 310.91 39.30

Total 115,002.43 84,331.89

EXPENSES

Ship Operating Expenses L 79,471.09 45,405.50

Administrative and Other Expenses M 3,239.65 2,408.56

Finance Charges N 8,076.84 7,076.69

Depreciation 10,380.39 9,367.02

Total 101,167.97 64,257.77

Profit Before Minority Interest 13,834.46 20,074.12

Minority Interest (7.87)


Current (327.53) (438.97)

Deferred Tax Written Back - 180.39

Fringe Benefit Tax (13.50) (12.50)

Profit After Taxes 13,485.56 19,803.04

Depreciation written Back on change of method (See Note

B 2 (b) of Schedule I ) 365.29

Prior Year Expenses / Income (Net) (42.74) (84.93)

Balance brought forward from last year 15,098.97

- 13,869.95

Available for Appropriations 28,541.79 33,953.35

Less/(Add): AppropriationsTransferred from Ship Acquisition Reserve

Transfer to Debentures Redemption Reserve - 11,253.00

Transfer to General Reserve 750.00 1,781.91

Transfer to Tonnage Tax Reserve 1,600.00 3,563.83

Dividend on Preference Shares 320.00 320.00

Interim Dividend on Equity Shares - 1,090.46

Proposed Final Dividend on Equity Shares 1,892.43 567.73

Tax on Dividend 366.50 277.44

Balance Carried to Balance Sheet 23,612.86 15,098.98

Earning Per Share (Equity Share of Re. 1/- Each)

Basic 6.91 10.42

Diluted 5.80 8.76

Significant Accounting Policies & I

Notes to the Account

Particulars ScheduleYear Ended

March 31, 2007Year Ended

March 31, 2006

For and on behalf of the BoardAs per our report of even date



H. V. Kishnadwala

Partner,

M No. 37391


(Amount Rs In Lacs)

H. K. Mittal

Anil KhannaDirector




Supriya Joshi

Company SecretaryMumbai - June 29, 2007


CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED ON MARCH 31, 2007


Cash Flow from Operating Activities

Net Profit Before Tax 13,826.59 20,074.12

Adjustment for:

Depreciation 10,380.39 9,367.02

Interest Paid 8,076.84 7,076.69

(Profit)/Loss on Fixed Assets Scrapped / Sold (310.91) (39.30)

(Profit)/Loss on Sale of Investment (89.74) (8.32)

Dividend Income (624.38) 122.20

Interest Income 0.00 0.00

Foreign Currency Transalation Adjustment (2,124.84) (15.44)

Operating Profit before Working Capital Changes 29,133.95 36,576.97

Adjustment for:

Trade and Other Receivables (6,458.75) (27,248.09)

Trade Payables 14,010.19 1,029.63

Cash Generated from Operations 36,685.39 10,373.95

Direct Taxes Paid (341.03) (271.08)

Total Cash Generated from Operating Activites 36,344.36 10,102.87

Cash Generated from Prior Period Items (42.74) 99.97

Net Cash from Operating Activities 36,301.62 10,202.84

Cash Flow from Investing Activities

Increase in Fixed Assets including Capital Work in Progress (79,328.45) (62,691.39)

Sale of Fixed Assets 25,312.03 926.66

Proceed from sale of Non Trade Investments 89.74 8.32

Purchase of Investment 1,271.30 (9,727.90)

Interest Income 0.00 0.00

Dividend Income 624.38 (122.20)

Net Cash from Investing Activities (52,031.01) (71,606.51)

Cash Flow from Financing Activities

Proceeds from Issue of Share Capital - 1,952.00

Adjustment for Minority Interest (0.06) -

Proceeds from Long Term Borrowings 52,442.47 78,381.00

Interest Paid (8,076.84) (7,076.69)

Dividends Paid including tax thereon (2,578.93) (2,255.62)

Net Cash from Financing Activities 41,786.64 70,985.25

Net Increase in Cash and Cash Equivalents 26,057.26 9,581.58

Cash and Cash Equivalents as at beginning of the year 11,820.30 2,238.74

Cash and Cash Equivalents as at end of the year 37,877.56 11,820.30

(Amount Rs In Lacs)


H. K. Mittal

Anil KhannaDirector




Supriya Joshi

Company Secretary




H. V. Kishnadwala

Partner,

M No. 37391




SCHEDULES FORMING PART OF CONSOLIDATED ANNUAL ACCOUNTS

(Amount Rs In Lacs)


SCHEDULE ‘A’

Share Capital

Authorised

35,00,00,000 Equity Shares of Re 1/- each. 3,500.00 3,500.00

200,00,000 Preference Shares of Rs 100 each. 20,000.00 20,000.00

23,500.00 23,500.00

Issued Capital

19,40,42,500 Equity Shares of Re. 1/- each fully paid up 1,940.43 1,940.43


fully paid up 4,000.00 4,000.00


Equity

18,92,42,500 Equity Shares of Re. 1/- each fully paid up. 1,892.43 1,892.43

Preference


fully paid up 4,000.00 4,000.00

5,892.43 5,892.43

SCHEDULE ‘A1’


32,00,000 Warrants (Each Warrant carry option / entitlement to subscribe to 1

number of equity share of Re. 1/- each on or before July 31, 2007 at a price

not less then Rs. 137.50 per share. 440.00 440.00

48,00,000 bonus equity shares of Re. 1/- each relating to bonus entitlement to

the above warrant holders is kept in abeyance till the time the warrant holder

exercises the option to subscribe to the above 48.00 48.00

488.00 488.00

SCHEDULE ‘B’


Securities Premium Account


Add: Received during the year on conversion of warrants 1,650.00

Less: Utilised for the issue of bonus Shares (1,183.46)

7,532.61 7,532.61

Tonnage Tax Reserve


Add: Transfer from Profit and Loss Account 1,600.00 3,563.83

Less: Transferred to Utilised Account (6,924.83)

1,600.00 6,924.83



Tonnage Tax Reserve (Utlised) -

As per last Balance Sheet -

Add: Transfer from Tonnage Tax Reserve 6,924.83

6,924.83

Capital Reserve

As per last Balance Sheet 26.24 26.24

Debenture Redemption Reserve


Transfer from Profit and Loss Account - 11,253.00

Transferred to General Reserve on redemption of debentures (5,980.00) -

8,000.00 13,980.00

General Reserve


Add: Transferred From Debenture Redemption Reserve 5,980.00 1,781.91

Add: Transferred From Profit and Loss Account 750.00 -

10,902.83 4,172.83

Foreign Currency Translation Adjustment

On Consolidation (2,143.13) (18.30)

Surplus in Profit and Loss Account 23,612.86 15,098.97

56,456.24 47,717.18

SCHEDULE ‘C’

Secured Loans

(a) Debentures

(1) 12,00,000, 12.50 % Non Convertible Secured Debentures Series I of

Rs. 25/- (Rs.. 50/-) each , redeemable at the end of 3rd, 4th, 5th and 6th year

from the date of allotment i.e. January 30, 2002 in equal installments towards

face value 300.00 600.00

(2) 18,00,000, 12.25 % Non Convertible Secured Debentures Series II of

Rs. Nil (Rs. 25/-) each , redeemable at the end of 1st, 2nd, 3rd and 4th year

from the d ate of allotment i.e. July 30, 2002 in equal installments towards

face value

- 450.00

(3) 30,00,000, 10.00 % Non Convertible Secured Debentures Series IV of

Rs. 30/ (Rs. 50/- ) each , redeemable in 10 half yearly instalments of

Rs. 300 lacs each commencing from six months after the date of allotment

i.e. July 29, 2003 towards face value 900.00 1,500.00

(4) 30,00,000, 10.00 % Non Convertible Secured Debentures Series V of

Rs. 40/ , (Rs. 60/-) each redeemable in 10 half yearly instalments of

Rs.. 300 lacs each commencing from six months after the date of allotment

i.e. October 10, 2003 towards face value 1,200.00 1,800.00

(5) 1,600 (1,800) 7.50 % Non Convertible Secured Debentures Series VII A of

Rs. 8,12,500/- (Rs. 9,37,500/-) each , redeemable in 12 half yearly instalments


months after one year from the date 13,000.00 16,875.00

(6) 50 (450) 7.50 % Non Convertible Secured Debentures Series VII B of

Rs. 875,000 (10,00,000/-) each , redeemable in 12 half yearly instalments of

6.25% and last two of 12.50 % of face value each commencing from six

months after one year from the date 437.50 4,500.00

(7) NIL (96) , 8 % Non Convertible Secured Debentures Series VIII of

Rs. 10,00,000/- each , redeemable in 6 half yearly part of 4.17 % commencing

from 30th September 2006 and 6 half yearly part of 12.50 % commencing fromth

30 , September 2010. - 960.00


(Amount Rs In Lacs)



(b) Foreign Currency Loans from Scheduled Banks -

(1) External Commercial Borrowings 13,568.70 17,495.40

(2) Foreign Currency Non-Resident (B) Loan 22,585.32 4,934.60

(c ) Term Loans from Scheduled Banks 55,541.00 55,000.00

(d) Other Term Loans 27,356.25 -

(e) USD 35,000,000 Zero % Convertible Bonds A 15,319.50 -

(Amount repayable within one year Rs 16,931.88 Lacs (Rs 3,375.00) 150,208.27 104,115.00

Note:

1) Debentures referred in (a) above are secured by first mortgage on

specified vessels of the company on pari-passu basis with other lenders and

first charge on the specified immovable properties together with structure

thereon.

2) Foreign Currency Loan referred in (b) above are secured by 1st Charge on

specified vessels of the company on pari-passu basis with other lenders.

3) Term Loan referred in (c )above are secured by 1st charge on all the vessels,

on pari passu basis with other lenders and (d) are secured by first charge of

respective vessels.

4) Working capital facilities from Schedule Banks are secured by second

charge on specified vessels and 1st charge on all receivables and other

current assets of the company on pari-passu basis.

5) Bonds A are zero coupons secured convertible bonds due in 2009 Bonds A

are only mandatory convertible on and after April 2, 2007 in the event of an

IPO by the company on or closure of the business on March 30, 2009 The

initial conversion price of Bonds A will be at a discount which is a higher of

(a) such amount so as to yield 15 % IRR to the Bondholders or (b) 10 %

discount to the IPO Price.

SCHEDULE ‘D’

Unsecured Loans

(a) USD 60,000,000 1.50 % Foreign Currency Convertible Bonds

These bonds are convertible at any time on or after 6 June 2005 and up to the

close of Business on 20 April 2010 by holders into newly issued ordinary

shares of Re 1 each at agreed conversion price. The Bonds may be redeemed

in whole at the option of the C 26,262.00 26,916.00

(b) USD 16,000,000 2.50 % Convertible Bonds B

Bonds B are 2.50 % unsecured convertible bonds due 2012. Bonds B are

optionally convertible on and after 45 days from the date of listing of the

ordinary shares of the company in the SGX or alternative Stock Exchange

pursuant to the IPO and on or before the close of business on March 12, 2012.

7,003.20

33,265.20 26,916.00


(Amount Rs In Lacs)



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Items

Nos. Cost Nos. Cost


SCHEDULE F

Investments

In Units of Mutual Funds

Reliance Equity Fund 1,106,501 110.65 2,000,000 200.00

Prudential ICICI Fusion Fund 5,000,000 500.00 5,000,000 500.00

Franklin India Flexi Cap Fund 371,034 57.44

HDFC Equity Fund 161,279 57.06

Prudential ICICI Discovery Fund 287,550 55.19

Prudential ICICI Emerging Star Fund 283,727 106.36

Prudential ICICI Emerging Star 204,332 -

Reliance equity Opportunity Fund 348,760 60.59

Standered Cahrtered Ent Equity Fund 1,000,000 100.00

Sundaram BNP Paribas Select Midcap-Dividend 307,499 60.80

DBS Chola Hedged Equity 10,000,000 100.00

(Repurchase Value as on 31.3.07 is Rs. 1276.84 Lacs

(Previous Year Rs. 726.70 Lacs) 19,070,682 1,208.10 7,000,000 700.00

In others

Lotus FMP- Series I 3,000,000 300.00

Vijaya Bank Bond 1,000,000 1,000.00 1,000,000 1,000.00

4,000,000 1,300.00 1,000,000 1,000.00

28,503,892 2,508.10 8,000,000 1,700.00

Current Investments (at lower of cost and Market value )

In units of Mutual Funds

G66 Standard Chartered Liquidity Manager - - 15,046,557 1,504.81

Reliance Mutual Fund - - 1,964,351 300.12

UTI Liquid cash plan Institutional - - 100,258 1,019.59

NLFID CANLIQUID Fund Institutional Premium - - 14,994,513 1,505.60

PFRDD Prudential ICICI Floating Rate Plan D - - 9,143,936 914.39

B503DD Birla Cash Plus institutional Plan - - 10,114,008 1,013.37

ICICI Institutional Fund - - 2 -

PPIDR - Principal Cash Premium Institutional Plan - - 18 -

LICMF Floating Rate Fund - - 10,000,402 1,009.56

LICMF Liquid Fund - - 9,238,322 1,010.55

Quantum Liquid Fund 5,151,487 515.15 - -

Lotus India Liquid Plus Fund - Institutional Weekly Dividend 5,001,224 500.12 - -

J P Morgan International Investment Fund 11,624,413 5,183.33

Sub Total 21,777,124 6,198.60 70,602,369 8,277.99

Grand Total 44,847,806 8,706.70 78,602,369 9,977.99

(Amount Rs In Lacs)


SCHEDULE ‘G’

Current Assets

Sundry Debtors


Debts Outstanding over Six Months 1,548.01 324.85

Other Debts 17,045.29 7,388.57

18,593.30 7,713.42


Balances with Scheduled Bank

In Fixed Deposit 6,301.65 1,045.05

In Current Account 3,173.16 3,777.72

In Exchange Earners Foreign Currency Account 160.76 1,245.52

In Dividend Accounts 39.40 36.28

Bank Balance / Fixed Deposits with Foreign Banks 27,968.75 5,709.11

Interest accrued on above 231.22 2.76

Cash in hand 2.62 3.86

37,877.56 11,820.30

Loans and Advances


Advances recoverable in cash or in kind

or for value to be received 15,813.87 23,637.62

Deposits with Government and semi Government Bodies 2,764.02 13.18

Inter Corporate Deposits 413.03 478.94

Other Deposits 796.97 704.58

Advance payment of tax (Net of provisions) 1,090.78 593.38

20,878.67 25,427.70

SCHEDULE ‘H’

Current Liabilities

Sundry Creditors

For Services and expenses 12,597.71 4958.18

For Others 3,849.78 20.16

Advances from Customers - 318.61

Deposits 127.75 57.26

Unclaimed Dividend * 39.40 36.28

*(There is no amount due and outstanding to be credited to Investor Education

and Protection Fund) 16,614.64 5,390.49

Provisions

For Proposed Dividend 1,892.43 567.73

For Tax on Dividend 321.62 79.62

For Employees Retirement Benefits 32.54 8.28

2,246.59 655.63

SCHEDULE ‘J’

Shipping Income

Freight 68,457.89 37,279.60

Charter Hire 40,166.53 43,527.87

Dispatch and Demurrage 3,651.33 1,817.14

1,12,275.75 82,624.61

SCHEDULE ‘K’

Other Income

Cargo Handling Services 1,477.40 1,417.16

Dividend Income 624.38 122.20

Miscellaneous Income 224.24 120.30

2,326.03 1,659.66



(Amount Rs In Lacs)




SCHEDULE ‘L’


Bunker Consumed 14,584.78 8,558.79

Vessel /Equipment Hire Charges 43,179.56 22,761.76

Technical, Service Expenses 3,680.91 3,110.92

Agency, Professional and Service Charges 585.79 363.15

Crew Expenses 824.32 566.26

Communication Expenses (Ships) 164.95 138.41

Miscellaneous Expenses (Ships) 238.90 119.50

Commission 2,005.11 1,740.38

Ship Insurance 1,209.43 1,199.73

Port Expenses 4,205.39 2,095.16

Repairs and Maintenance 8,469.55 4,411.68

Stevedoring, Transport and Freight 322.40 339.76

79,471.09 45,405.50

SCHEDULE ‘M'


Advertisement 8.16 6.71

Auditors Remuneration 33.75 11.45

Conveyance, Car Hire and Travelling 144.70 67.81

Communication expenses 35.37 24.65

Donation 35.62 25.97

Directors' Remuneration 984.26 2,033.92

Miscellaneous expenses 373.79 330.90

Exchange Fluctuations 733.40 (378.53)

Insurance 6.11 4.16

Legal, Professional and Consultancy expenses 129.43 114.18

Rents, Repairs and Maintenance 193.83 36.52

Salary, Wages, Bonus etc. 473.21 117.45

Staff Welfare, Training etc. 6.22 4.30

Contribution to Provident and other funds 18.68 3.33

Bad Debts and other amounts written off (Net) 63.12 5.76

3,239.65 2,408.56

SCHEDULE ‘N’

Finance Charges

Interest on

Debentures 1,927.28 2,517.21

Fixed Loans 7,004.18 4,249.25

Others 40.02 172.53

Loss on settlement of Foreign Currency contracts - 306.19

8,971.48 7,245.18

Less : Interest received (TDS Rs. 95.12 Lacs Previous Year 19.98 Lacs) ) (894.64) (168.48)

8,076.84 7,076.69

(Amount Rs In Lacs)


ACCOUNTING POLICIES

SCHEDULE ‘I’

Notes to consolidated Accounts

A. Basis of ConsolidationThe Consolidated Financial Statements relate to Mercator Lines Limited (the company), its subsidiary companies andassociates. The Company and its subsidiaries constitute the Group.

a) Basis of Accounting:I. The financial statements of the subsidiary companies used in the consolidation are drawn upto the same reporting

stdate as of the Company i.e. year ended 31 , March 2007.

II. The financial statements of the Group have been prepared in accordance with the principles and proceduresrequired for the preparation and presentation of consolidated financial statements as laid down under theAccounting Standard 21 “Consolidated Financial Statements” issued by the Institute of Chartered Accountants ofIndia (ICAI).

b) Principles of Consolidation:The Consolidated Financial Statements have been prepared on the following basis:I. The financial statements of the Company and its subsidiary companies have been combined on a line-by-line basis

by adding together book values of similar items of assets, liabilities, income and expenses. The intra-groupbalances and intra-group transactions have been fully eliminated.

II. The Consolidated Financial Statements include the share of profit/loss of the associate company which has beenaccounted as per the Equity Method in accordance with Accounting Standard 23 ‘Accounting for Investment inassociates in Consolidated Financial Statements’ issued by ICAI and accordingly the share of its profit/loss hasbeen added to/deducted from the cost of investments.

III. Minority Interest in the net assets of consolidated subsidiaries consists of the amount of equity attributable to the minority shareholders at the date on which investments are made by the company in the subsidiary companies andfurther movements in their share in equity, subsequent to the date of the investment as stated above.

IV. Consolidated Financial Statements are prepared by applying uniform accounting policies in use at the group. Forthe consolidation of the foreign subsidiaries, items of revenue and expenses are consolidated at the mean rate

stprevailing during the period. All assets and liabilities are consolidated at the rate as on 31 March 2007. Exchangedifferences resulting from the differences due to translation of foreign currency assets and liabilities in subsidiariesare disclosed as “Foreign Currency Translation Adjustment”.

c) The following subsidiary companies are considered in the Consolidated Financial Statements:

Mercator International Pte. Limited (MIL) Singapore 100 -

Mercator Oil & Gas Limited India 71 14.28

Mercator Offshore Limited Singapore 100 -

Mercator Lines (Singapore) Pte Ltd. (MLS) Singapore 100 100

Mercator Panama Inc Panama 100 100

Varsha Marine Pte Limited Singapore 100 -

Vidya Marine Pte Limited Singapore 100 -

Name of the subsidiary company Country of % of holding % of holdingincorporation either directly or either directly or

through throughsubsidiary as at subsidiary as atMarch 31, 2007 March 31, 2006


ACCOUNTING POLICIES

B. SIGNIFICANT ACCOUNTING POLICIES

1. Basis of Accounting :

The financial statements are prepared under the historical cost convention, on the accrual basis of accounting and in

conformity with Generally Accepted Accounting Principles in India, Accounting Standards issued by the Institute of

Chartered Accountants of India and the provisions of the Companies Act, 1956.

2. Use of Estimates :

The preparation of financial statements in conformity with Generally Accepted Accounting Principles requires the

management to make estimates and assumptions that affect the reported balances of assets and liabilities as of the date

of the financial statements and reported amounts of income and expenses during the period. Management believes that

the estimates used in the preparation of financial statements are prudent and reasonable.

3. Fixed Assets:

a) Fixed assets are stated at cost less accumulated depreciation.

b) Cost includes cost of acquisition or construction including attributable interest, duties and other incidental expenses

related to the acquisition of the asset.

c) Borrowing costs incurred for the year for acquisition of vessels are capitalized till first loading of cargo, only if the time

gap between date of Memorandum of Agreement and date of delivery of vessels is more than three months.

d) Operating costs including initial stores and spares of newly acquired ships till the port of first loading are included in

the cost of the respective ships.

e) Exchange differences arising on repayment of foreign currency loans and year end translation of foreign currency

liabilities relating to acquisition of assets from a country outside India including substitution of one foreign currency

loan by another are adjusted to the carrying cost of the respective assets.

f) Individual fixed assets costing upto Rs. 25,000 are fully written off under the head fixed assets written off.

4. Depreciation:

a) Depreciation on all the vessels is computed on Straight Line Method so as to write off the original cost as reduced by

the expected/estimated scrap value over the balance useful life of the vessels. If however, the rates as prescribed

under the Schedule XIV of the Companies Act, 1956, are higher, the said higher rate is applied.

b) Depreciation on all assets other than vessels is computed on the Written Down Value method in the manner and at

the rates prescribed under schedule XIV of the Companies Act, 1956.

c) On additions made to the existing ships (including adjustments resulting on account of exchange rate fluctuations)

depreciation is provided for the full year over the remaining useful life of the ships.

d) Depreciation on furniture, fixture and electrical fittings installed at the office premises taken on lease has been

provided over the initial period of lease.

5. Capital Work in Progress :

All expenditure, including advances given to contractors and borrowings cost incurred during the vessel acquisition

period, are accumulated and shown under this head till the vessel is put to commercial use.

6. Retirement and Disposal of Ships :

Profits on sale of ships are accounted for on completion of sale thereof.

7. Inventories:

Bunker and Lubes on vessels are valued at lower of cost and net Realizable value ascertained on first in first out basis.

8. Investments:

a) Investments are classified in to long term and current investments.

b) Long Term Investments are stated at cost of acquisition and related expenses. Provision for diminution, if any, in the

value of such investments is made to recognise a decline, other than of a temporary nature.

c) Current Investments are stated at cost of acquisition including incidental / related expenses or at fair value as atst

31 , March 2007, whichever is less and the resultant decline, if any, is charged to revenue.


ACCOUNTING POLICIES

9. Incomplete Voyages:

Incomplete voyages represents freight received and direct operating expenses on voyage which are not complete as at

the Balance sheet date.

10. Borrowing Costs:

Borrowing costs incurred for the year for acquisition of vessels are capitalized till first loading of cargo, only if the time gap

between date of Memorandum of Agreement and date of delivery of vessels is more than three months.

11. Revenue Recognition:

a) Income on account of freight earnings is recognised in all cases where wloading of the cargo is completed before

the close of the year. All corresponding direct expenses are also provided.

b) Where loading of the cargo is not completed before the close of the year, revenue is not recognised and the

corresponding expenses are carried forward to the next accounting year.

c) Income from charter hire and demurrage are recognised on accrual basis.

d) Income from services is accounted on accrual basis as per the terms of the relevant agreement.

12. Foreign Exchange Transactions:

a) Monetary Current assets and liabilities denominated in foreign currency outstanding at the end of the year are

valued at the rates prevalent on that date.

b) Differences in translation of monetary assets and liabilities and realised gains and losses on foreign currency

transactions other than those relating to vessels acquired from a country outside India are recognised in the Profit

and Loss Account.

c) The gain or loss on repayment and translation of foreign currency loans relating to acquisition of vessels from a

country outside India is adjusted to the carrying cost of such vessels.

d) Contracts in the nature of foreign currency swaps, are converted at the exchange rate prevailing as on 31st March

2007 and the profits or losses thereon are charged to the Profit and Loss account.

e) Differences on account of swap contracts for interest payable in foreign currency are accounted on accrual basis

and the profits or losses thereon are charged to the Profit and Loss account.

f) Investments outside India are carried in the Balance Sheet at the rates prevailing on the date of the transaction.

13. Employees Retirement Benefits:

Liability is provided for retirement benefits of provident fund, gratuity and leave encashment in respect of all eligible

employees. Contributions under the defined contribution schemes are charged to revenue. The liability in respect of

defined benefit schemes like gratuity and leave encashment is provided in the accounts on the basis of actuarial

valuation as at the year end. No fund is created for the amount of gratuity provided for and the company would pay the

same out of its own funds as and when the same becomes payable.

14. Earning per share:

The company reports basic and diluted earnings per share (EPS) in accordance with Accounting Standard – 20 issued

by the Institute of Chartered Accountant of India. The Basic EPS has been computed by dividing the income available to

equity shareholders by the weighted average number of equity shares outstanding during the accounting year. The

diluted EPS have been computed using the weighted average number of equity shares and dilutive potential equity

shares outstanding at the end of the year.

15. Provision for Taxation:

a) The company has opted for the tonnage tax scheme and provision for tax has been accordingly made under the relevant

provisions of the Income Tax Act, 1961.

b) Tax on incomes on which the tonnage tax is not applicable is provided as per the other provisions of the Income Tax Act,

1961.

c) In case of subsidiaries companies incorporated in Singapore, no provision is made for taxation on qualifying shipping

income derived which is exempt from taxation under section 13 A of the Singapore Income Tax Act and the Singapore

Approved International shipping enterprise Tax Incentive.

d) Deferred tax resulting from timing differences between book and tax profits is accounted for under the liability method, at

the current rate of tax, to the extent that the timing differences are expected to reverse in future.


NOTES TO THE ACCOUNT

16. Impairment of assets:

The Company reviews the carrying values of tangible and intangible assets for any possible impairment at each balance

sheet date. Impairment loss, if any, is recognized in the year in which impairment takes place.

17. Provisions and Contingent Liabilities:

Provisions are recognized in the accounts in respect of present probable obligations, the amount of which can be reliably

estimated. Contingent Liabilities are disclosed in respect of possible obligations that arise from past events but their

existence is confirmed by the occurrence or non occurrence of one or more uncertain future events not wholly within the

control of the Company.

C. NOTES TO THE ACCOUNTS

1. Contingent Liabilities not provided for

a. Contingent Liability on account of guarantee issued by the Company’s Bankers (including for its subsidiaries)

against which company has issued counter – guarantee aggregate to Rs. 20,690.32 Lacs (841.95 Lacs)

b. Comfort Letter given by Company on behalf of its Subsidiary Company Rs. 5,500.00 Lacs ( Nil)

2. Loans and Advances:

One of the chartered vessels of subsidiary was damaged in the current financial year and could not be used. Loans and

advances include the balance unamortized charter hire for this vessel as on 31st March 2007 amounting to 4241.31 Lacs

(U.S.$ 9.69 million). The Company has lodged a claim with the charterer for either providing it with an alternate vessel or

for recovery of the advance charter hire paid and losses incurred

3. Remuneration to Directors:

current yr previous yr

Managing and Joint Managing Directors

Salary 94.95 49.60

Perquisites 31.22 19.85

Commission 843.45 1,946.64

Non-Executive Directors

Commission 7.50 10.00

4. Segment Reporting:

As the group principal business activities fall within the single segment viz Shipping and related activities, the disclosure

requirement of Accounting Standard 17 ‘Segment Reporting; issued by Institute of Chartered Accountants of India are

not applicable.

5. Derivative Note:

(a) Intrest Rate Swap Contracts



Loan Value JPY (Million) 5,717.45 -

(b) Currency Swap Contracts




(Amount Rs In Lacs)


6. Earing Per Share:

Net Profit after Tax and preference dividend including tax thereon 13,518.33 17,734.62

Number of Shares used in computing Earning Per Share-

Basic 1,892.43 1,892.43

Diluted 2,331.10 2,250.58

Earning per share

(Equity Shares, face value Re. 1/-)

Basic (in Rs.) 6.91 10.42

Diluted (in Rs.) 5.80 8.76

7. Disclosure in respect of operating lease:

(a) Operating Leases

Disclosures in respect of cancelable agreements

for office and residential premises taken on lease

(i) Lease payments recognized in the Profit and Loss Account 118.01 -

(ii) Significant leasing arrangements

- The Company has given refundable interest free security

deposits under the agreements.

- The lease agreements are for a period of sixty months.

- These agreements also provided for increase in rent.

- These agreements are non cancelable by both the parties

except in certain exceptional circumstances.

(iii) Future minimum lease payments under

non-cancellable agreements

- Not later than one year 314.71 -

- Later than one year and not later than five years 1,715.14 -

- Later than five years - -

8. Related Party Disclosures:

A) (I) List of Related Parties

Subsidiaries

Mercator International Pte. Ltd (MIL)

Mercator Oil & Gas Ltd

Mercator Offshore Ltd.

Mercator Lines ( Singapore) Pte Ltd (MLS) (subsidiary of MIL)

Mercator Lines (Panama) Inc (subsidiary of MLS)

Varsha Marine Pte Limited (subsidiary of MLS)

Vidya Marine Pte Limited (subsidiary of MLS)

(ii) Companies in which Directors / relatives of Directors have Substantial interest

MLL Logistics Pvt Ltd

Mercator Mechmarine Ltd

Mercator Healthcare Limited

Ankur Fertilizers Private Limited

Rishi Holding Private Limited

AHM Investments Private Limited



31/03/2007 31/03/2006

(Amount Rs In Lacs)

(Amount Rs In Lacs)

NOTES TO THE ACCOUNT


RELATED PARTY DISCLOSURES

(iii) Directors of the Company

H.K Mittal

A.J Agarwal

Manohar Bidaye

Anil Khanna

M.G Ramakrishna

Key Management PersonnelH.K MittalA.J AgarwalShalabh Mittal

B) Details of the transaction with above parties

Current Yr Previous Yr Current Yr Previous Yr Current Yr Previous Yr

Services Rendered 2,225.55 790.23 1,376.99 528.72 3,602.54 1,318.95

Services Received 4,548.88 2,022.26 17.64 13.32 4,566.52 2,035.58

Finance Provided

(Including Loans & Equity Contributions )

Loans 8,239.27 27,635.99 1.64 0.44 8,240.91 27,636.43

Equity Contributions 1,614.53 6.68 - - 1,614.53 6.68

Guarantees Given

(a) Guarantee Given 7,330.82

(b) Comfort Letter 5,500.00


Advances and Receivables 33,503.48 1,470.27 770.75 1,051.80 34,274.23 2,522.08

Sundry Debtors 667.72 - 1,256.22 - 1,923.95 -


Payables - 225.46 - - - 22,545,788.15

Deposit given 15.00 15.00 - - 15.00 15.00

C) Remuneration paid to Key Management Personnel 969.17 2,014.49

D) Commission Paid to Non-Executive Directors 7.50 10.00

Companies in which Directors /

Name of Transaction Subsidiary Companies relatives of Directors have Total

Substantial interest

(Amount Rs In Lacs)


Report & Financial Statements For The Period Ended 31 March 2007

Mercator Oil & Gas Limited(the company)

Registration no.

Registered Office

Board of Directors

Auditor

U63033MH2005PLC154014

3rd Floor, Mittal tower, B-Wing, Nariman Point, Mumbai-400021

1) Harish Kumar Mittal2) Archana H. Mittal3) Shalabh Mittal

M/s Contractor, Nayak & Kishnadwala

Mercator Lines 23rd Annual Report - 2006-07I I Mercator Oil & Gas Limited Pg. 85

DIRECTORS' REPORT

To,

The Members,

Mercator Oil & gas Limited.

Your Directors have pleasure in presenting their Second Annual Report together with the Audited Statement of Accounts for

the year ended March 31, 2007.

REVIEW OF OPERATIONS

During the year Company did not start any manufacturing activity. The total income of Rs.10,387.50 Lacs was earned on

account of exchange fluctuation. Besides which no other income was earned during the year under review.

DIVIDEND

As the Company did not start any operation during the year and since no profit is earned, your Directors do not recommend

any dividend for the financial year ended on March 31, 2007.

DIRECTORS

Pursuant to the provisions of the Companies Act, 1956 and the articles of association of the company, Mr. H. K. Mittal shall be

the Director liable to retire by rotation at the ensuing annual General Meeting and being eligible, he has offered himself for

reappointment.

Your Directors recommend the aforesaid appointment for your approval.

FIXED DEPOSIT

The Company has not accepted any deposits falling under the purview of Section 58A of the Companies Act, 1956.

PARTICULARS OF EMPLOYEES

As during the year under review, there was no employee in receipt of remuneration in excess of the limits specified under the

Section 217 (2A) of the Companies Act, 1956, the requisite particulars in this regard are nil.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO

The Companies activities during the period did not involve much use of energy and hence the requirement relating to the

conservation of energy and technology absorption under the Companies (Disclosure of the Particulars in the Report off the

Board of Directors) Rules, 1988 are not applicable to your Company.

The Company has not imported any foreign technology and hence the requisite particulars in this regard are nil.

AUDITORS

The present Statutory Auditors, M/s. Contractor, Nayak & Kishnadwala, Chartered Accountants, retires at the ensuing Annual

General Meeting and have given their consent and eligibility under Section 224 (1-B) of the Companies Act, 1956. Members

are requested to consider their re-appointment.


DIRECTORS’ REPORTS

DIRECTORS' RESPONSIBILITY STATEMENT:

Pursuant to the provisions of section 217 (2AA) of the companies Act, 1956, the Directors hereby confirm:

I) that in preparation of the annual accounts, the applicable accounting standards have been followed with proper

Explanation relating to material Departure.

ii) that the Directors have selected such accounting policies and applied them consistently and made judgments and

estimates that are reasonable & prudent so as to give a true and fair view of the satate of affairs of the company at the end

of the financial year under review.

iii) that the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in

accordance with the provision of the companies act, 1956 for safeguarding the assets of the company and for

preventing and detecting fraud and other irregularities.

iv) that the Directors have prepared the annual accounts on a going concern basis.

COMPLIANCE CERTIFICATE:

In accordance with Section 383-A of the Companies Act, 1956 and rules made thereunder, a compliance certificate frompracticing Company Secretary is attached herewith in respect of the year under review.

APPRECIATION:

Your Directors wish to thank the various Government Authorities, the Bankers, Customers, Suppliers, Shareholders and otherwell wishers for their whole hearted support extended to the Company for the implementation of its project.


H. K. MittalDirector

Regd. office:3rd Floor, Mittal Tower,B-Wing, Nariman point,Mumbai – 4000 021.June 22, 2007

Pg. 87

COMPLIANCE CERTIFICATE

FORM [SEE RULE 3]


To The Members,MERCATOR OIL & GAS LIMITED,

Authorised Capital: Rs.50,00,000/- Registration No.: 11-154014

We have examined the registers, records, books and papers of MERCATOR OIL & GAS LIMITED(the Company), as requiredto be maintained under the Companies Act, 1956 (the Act) and the rules made there under; and also the provisions containedin the Memorandum and Articles of Association of the Company for the financial year ended on 31st March, 2007. In ouropinion and to the best of our information and according to the examinations carried out by us and explanations furnished tous by the Company, its officers and agents, we certify that in respect of the aforesaid financial year:

1. The Company has kept and maintained all registers as stated in Annexure 'A' to this certificate, as per the provisions ofthe Act and the rules made there under and all entries therein have been duly recorded.

2. The Company has duly filed the forms and returns as stated in Annexure 'B' to this certificate, with the Registrar ofCompanies within the time prescribed under the Act and rules made there under, or where the forms and returns havebeen field beyond the time prescribed under the Act and rules made there under, the Company has filed them with therequisite additional filing fees, as stated in the Annexure 'B' to this certificate. We have been informed that during thefinancial year, the Company was not required to file any forms and returns with the Regional Director, CenterGovernment, Company Law Board, or other authority under the Act and the rules made there under.

3. The Company being a public limited Company, has the prescribed minimum paid-up capital of Rupees Five Lacs; andthe other requirements as stipulated in the clause applicable to the Private Limited Company are not applicable to theCompany.

4. During the said financial year, the Board of Directors duly met 13 times respectively on May 31, 2006; August 9, 2006;August 22, 2006; September 9, 2006; September 12, 2006; October 7, 2006; October 16, 2006; October 20, 2006;November 13, 2006; November 20, 2006; December 14, 2006; January 15, 2007 and February 28, 2007 in respect ofwhich meetings, proper notices were given and the proceedings were properly recorded and signed in the Minutes Bookmaintained for the purpose. No circular resolutions were passed by the Directors of the Company during the saidfinancial year.

5. The Company was not required to close its Register of Members or Debenture holders during the financial year.

6. The annual general meeting for the first financial year of the Company ended on 31st March2006 was held on 15thDecember 2006 after giving due notice to the members of the company and the resolutions passed thereat were dulyrecorded in the Minutes Book maintained for the purpose.

7. Three extra ordinary general meetings were held during the financial year. Due notice tothe members of the company incase of one Extra-ordinary General Meeting was given and in case of two Extra-ordinary general meetings shorter noticewere given after obtaining the requisite consent from the members concerned. the resolutions passed at such meetingswere duly recorded in the Minutes Booked maintained for the purpose.

8. The Company has not advanced any loans to its directors and/or persons or firms or companies referred in the Section295 of the Act.

9. The Company has not entered in to any contracts falling within the purview of section 297 of the Act.

10. The Company has made necessary entries in the Register maintained under section 301 of the Act.

11. As there were no instances falling within the purview of section 314 of the Act, the Company was not required to obtainany approvals from the Board of Directors, Members or Central Government.

12. The Company has not issued any duplicate share certificates during the financial year.

13. The Company:

(i) has delivered the certificate in respect of allotment of 1,00,000 equity shares made by it during the financial year inaccordancewith theprovisions of theact;

(ii) was not required to deposit any amount in a separate Bank Account, as no dividend was declared during thefinancial year.

Mercator Lines 23rd Annual Report - 2006-07I I Mercator Oil & Gas Limited


(iii) has not declared any dividend during the financial year under review and therefore it was not required to postwarrants to any members of the Company.

(iv) has no amount in unpaid dividend account, application money due for refund, matured deposits, matureddebentures and the interest accrued thereon which have remained unclaimed or unpaid for a period of seven years;and therefore, no such amount is required to be transferred to Investors' Education and Protection Fund by theCompany.

(v) complied with the requirements of Section 217 of the Act.

14. The Board of Directors of the Company is duly constituted. There was no appointment of directors, additional directors,alternate directors, or the directors to fill casual vacancy during the financial year under review.

15. the company has not appointed any Managing Director/ Whole Time Director/ Manager during the financial year.

16. The Company has not appointed any sole-selling agents during the financial year under review.

17. The Company had obtained necessary approvals of the Central Government (powers delegated to the Registrar ofCompanies)u/s. 21of the Act for change of Name of the Company from Ivory Oil & Gas Limited to Mercator Oil & Gas Limited and approval of registrar of Companies u/s 17 of the act, for change of object clause of the company besidesthis, the company was not required to obtain any approvals of the central Government, company law board, regional director, registrar and/ or such authorities prescribed under the various provisions of the Act, during the financial year under review.

18 All the directors have disclosed their interest in other firms/companies to the Board of Directors pursuant to theprovisions of the Act and the rules made thereunder.

19. The company has issued 1,00,000 Equity Shares during the financial year and complied with the provisions of the Act.The Company has not issued any debentures/other securities during the financial year.

20. The Company has not bought back any shares during the financial year.

21. There was no redemption of preference shares or debentures during the financial year

22. There were no transaction necessitating the Company to keep in abeyance the rights to dividend, rights shares andbonus shares pending registration of transfer of shares.

23. During the financial year, the Company has not invited/accepted any deposits including any unsecured loans fromPublic, which fall within the purview of section 58A, or directions issued by the Reserve Bank of India or other authority.

24. The Company has not made any borrowings during the financial year ended 31March, 2007.

25. The Company has not made any loans, or given guarantees or provided securities to other bodies corporate during thefinancial year, and consequently no entries were required to be made in the register to be kept for the purpose.

26. The Company has not altered the provisions of the memorandum with respect to situation of the Company's registeredoffice from one state to another during the year under scrutiny. However the Registered Office of the Company wasshifted to 3rd Floor, Mittal tower, B-Wing, Nariman Point, Mumbai-400021 w.e.f. 15th March 2007, from 18 for which wasfiled with the Register of Companies / Ministry of Corporate Affairs.

27. The Company has altered the provisions of the memorandum with respect to the objects of the Company during the yearunder review and complied with the requirements of the Act.

28. The Company has altered the provisions of the memorandum with respect to name of the Company during the yearunder scrutiny and complied with the requirements of the Act.


Pg. 89

29. The company has altered the provisions of the memorandum with respect to share capital of the company during theyear under scrutiny and complied with the requirments of the Act.

30. During the year under review, the company has altered its Articles of Association after obtaining necessary apporoval ofits members in the general meeting; and the amendments to the Articles ofAssociations have been duly filed withRegistrar of Companies.

31. There was no prosecution initiated against or show cause notices received by the Company and no fines or penalties orany other punishment was imposed on the Company during the financial year, for offences under the Act.

32. The Company has not received any money as security from its employees during the financial year under certification asper provisions of section 417(1) of the Act.

33. As explained to us, the provisions of the Employees Provident Fund and Miscellaneous Provisions Act, 1952, not beingapplicable to the Company during the year under review, the Company was not required to deduct any contributiontowards the Provident Fund during the financial year.

For Jignesh M. Pandya & Co.Company Secretaries

(Jignesh Pandya)Proprietor

Mumbai - June 22, 2007 ACS - 7346, CP - 7318

Annexure - A

MERCATOR OIL & GAS LIMITED

Authorised Capital: Rs.50,00,000/- Registration No.: 11-154014

Compliance Certificate for the Financial Year Ended 31st March, 2007.

Registers as maintained by the Company:

1. Register of Charges u/s. 143 (with nil entry).

2. Register of Members u/s. 150.

3. Register of Share Transfers.

4. Copies of annual returns prepared u/s. 159 together with the copies of certificates and documents required to beannexed thereto u/s. 161

5. Register of contracts, companies and firms in which directors are interested u/s. 301.

6. Register of Directors, Managing Director, Manager and Secretaries u/s.303.

7. Register of Director's Shareholding u/s. 307.

8. Register of Renewed and Duplicate Certificates under the Companies (issue of Share Certificate) Rules, 1960.

9. Minutes Book of Board Meeting u/s. 193.

10. Minutes Book of General Meetings of Members u/s. 193.







Annexure B

MERCATOR OIL & GAS LIMITED

Authorised Capital:Rs.50,00,000/- Registration No.: 11-154014

Compliance Certificate for the second Financial Year ended 31 March, 2007.

Forms and Returns as filed by the Company with the Registrar of Companies-Maharashtra, during the first financial year

ended on 31 March, 2007

1. Form 1A Section 21 Availability of Name for 17/08/2006 Not Applicable Not Applicable

Change of Name

2. Form 1B Section 21 Application for Change 04/09/2006 Yes Not Applicable

of Name of the Company

3. Form 20A Section Commencement of Business 04/09/2006

149(2A) (ii) other than the main object Yes Not Applicable

or ancillary object

4. Form 23 Section 192 Alteration of Object Clause 04/09/2006 Yes Not Applicable

and Change of Name

5. Form 5 Section 95, 97 Increase of Authorised Capital 25/09/2006 Yes Not Applicable

6. Form 23 Section 192 Increase of Authorised Capital, 25/09/2006 Yes Not Applicable

Alteration of Capital Clause,

Issue of Further Shares

7. Form 2 Section 75(1) Allotment of Shares 15/11/2006 No. Yes

8. Form 20B Section 159 Annual Return for year 09/01/2007 Yes Not Applicable

ended 31.03.2006

9. Form 23AC Section 220 Balance Sheet 09/01/2007 Yes Not Applicable

& Form 23ACA and P/L Account for the year

ended 31.03.2006

10. Form 18 Section 146 Change of Registered 17.04.2007 Yes Not Applicable

Office Address




Sr. No. Form No. / Filled Under For Date of Filling Whether filled If delay in filling

Return Section within whether

prescribed requisite

time Yes/ No additional fee

paid Yes / No


Pg. 91

AUDITORS’ REPORTAUDITORS’ REPORT

AUDITORS REPORT TO THE MEMBERS

1. We have audited the attached Balance Sheet of MERCATOR OIL & GAS LIMITED, as on 31st March, 2007, and therelated Profit and Loss Account for the year ended on that date both signed by us under reference to this report, andreport that:

2. These financial statements are the responsibility of the company's management. Our responsibility is to express anopinion on these financial statements based on our audit.

3. We have conducted our audit in accordance with auditing standards generally accepted in India. Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the financial statements arefree of material mis-statements. An audit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing the accounting principles used and significantestimates made by the management as well as evaluating the overall financial statement presentation. We believe thatour audit provides a reasonable basis for our opinion;

4. We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary forthe purpose of our audit.

5. In our opinion, the company has kept proper books of account, as required by law so far as appears from ourexamination of these books.

6. The Balance Sheet and the Profit and Loss Account dealt with by the report are in agreement with the books of account.

7. In our opinion, the Profit and Loss Account and Balance Sheet comply with the Accounting Standards referred to in sub-section (3C) of Section 211 of the Companies Act, 1956.

8. On the basis of written representations received from the directors of the Company as on 31st March 2007, and taken onrecord by the Board of Directors, we report that none of the directors is disqualified as on 31st March 2007, from beingappointed as a director in terms of Section 274(1)(g) of the Companies Act, 1956.

9. In our opinion and to the best of our information and according to the explanations given to us, the aforesaid BalanceSheet and the Profit and Loss Account read with the Notes thereon, give the information required by the Companies Act,1956 in the manner so required and give, respectively a true and fair view of the state of the Company's affairs as at 31stMarch, 2007 and of its loss for the year ended on that date.

10. In our opinion the provisions of the Companies (Auditors' Report) Order, 2003 prescribed under section 227(4A) of theCompanies Act, 1956 are not applicable to the company.

For & on behalf ofContractor, Nayak & KishnadwalaChartered Accountants

(H.V. Kishnadwala)Partner.M. No: 37391Mumbai - June 22, 2007







(H.V. Kishnadwala)

Partner,

M No. 37391


SOURCES OF FUNDS

Shareholders Funds

Share Capital A 1,500,000.00 500,000.00

Reserves and Surplus -

Total 1,500,000.00 500,000.00



Sundry Debtors - -

Cash and Bank Balances B 471,981.35 404,918.42

Loans and Advances C 116,846.00 -

588,827.35 404,918.42


Current Liabilities D 1,914,218.41 15,660.00

1,914,218.41 15,660.00

Net Current Assets (1,325,391.06) 389,258.42

Miscellaneous Expenditure E

Miscellaneous Expenditure to the extent not written off - -

Profit and loss account 2,825,391.06 110,741.58

Total 1,500,000.00 500,000.00

Significant Accounting Policies G

& Notes to the Account

Particulars ScheduleAs at 31/3/07

RsAs at 31/3/06

Rs


Archana MittalDirector


Pg. 93

PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED ON MARCH 31, 2007

INCOME

Exchange Fluctuation 10,387.50 -

Total 10,387.50 -

EXPENSES

Administrative and General Expenses F 2,725,036.98 89,788.58

Preliminary expenses w/off - 20,953.00

Total 2,725,036.98 110,741.58

Profit /Loss for the year (2,714,649.48) (110,741.58)

Balance Brought forward from earlier year (110,741.58) -

Balance Carried to Balance Sheet (2,825,391.06) (110,741.58)

Earning Per Share (Basic and Diluted) (25.84) (2.21)

Significant Accounting Policies G

& Notes to the Accounts

Particulars ScheduleAmount

Rs In LacsAmount

Rs In Lacs





(H.V. Kishnadwala)

Partner,

M No. 37391


Archana MittalDirector




(Amount Rs In Lacs)

Particulars For the year ended 31-03-2007

Rupees

For the year ended 31-03-2006

Rupees

SCHEDULE : A

Share Capital

Authorised

500,000/- Equity Shares of Rs. 10 each. 5,000,000.00 500,000.00

5,000,000.00 500,000.00

Issued Capital

150,000 (Previous Year 50,000) Equity Shares of Rs. 10 each 1,500,000.00 500,000.00


150,000 (Previous Year 50,000) Equity Shares of Rs.10 each 1,500,000.00 500,000.00

1,500,000.00 500,000.00

SCHEDULE : B



Balances with Bank 466,637.35 404,918.42

Balance of Petty Cash 5,344.00

471,981.35 404,918.42

SCHEDULE :C

Loans and Advances

Prepaid Expenses 116,643.00 -

Haresh Jani and Associates 203.00

116,846.00 -

SCHEDULE : D

Current Liabilited and Provisions

Sundry Creditors 1,897,373.41 -

For Services and Expenses 16,845.00 13,469.00

For Others - -

Taxation - 2,191.00

1,914,218.41 15,660.00

SCHEDULE : E

Miscellaneous Expenditure

Preliminary and Pre-operative expenses

Preliminary - 20,953.00

Less: W/off During the year - 20,953.00

- -

SCHEDULE : F

Administrative and General Expenses

General Expenses 137,500.00 45,000.00

Audit fees 15,000.00 13,469.00

Filing fees 111,752.00 8,500.00

Professional expenses 1,384,158.50 22,000.00

Bank Charges 932,943.00 819.58

Membership and Subscription 56,433.00 -

Printing and Stationery 3,550.00 -

Conveyance Expenses 1,630.00 -

Travelling Expenses 78,068.41 -

Communication 1,789.07 -

Service Tax (on Bills) 2,213.00 -

2,725,036.98 89,788.58

SCHEDULES FORMING PART OF ACCOUNTS FOR THE YEAR ENDED ON 31ST MARCH 2007

Pg. 95

Schedule – G

A. Background

The Company was incorporated on 16 June 2005 as Ivory Shipping Limited. The name of the company was changed on 19

January 2006 to Ivory Oil & Gas Limited and on 8th September 2006 to Mercator Oil and Gas Limited.

B. Significant Accounting Policies

1. The Company maintains accounts on historical cost basis.

2. The Company follows accrual method of accounting for expenses and income.

3. Current Assets, Loans and Advances and Liabilities are approximately of the value stated, if realised in the ordinary

course of business.

4. All fixed assets are stated at cost of acquisition. [net of Modvat Value].

5. Preliminary expenditure is written off during the year.

6. Current tax is determined as the amount of tax payable to the taxation authorities in respect of taxable income for the

period. Deferred tax is recognised, subject to the consideration of prudence, on timing difference being differences

between taxable and accounting income, that originate in on period and capable of reversal in one or more subsequent

periods. Deferred tax assets are not recognises on business losses, unless there is a virtual certainty that sufficient

taxable profit will be available against which such deferred tax assets can be realized.

C. Contingent Liabilities: Nil

D. The company has not carried out any manufacturing activities during the period. Therefore clause 4c of Part II of

Schedule VI of the Companies Act 1956 is not applicable.

E. There are no dues outstanding to small-scale and ancillary industrial undertakings for more than 30 days.

F. Previous year's figures have been regrouped wherever necessary.

For Contractor, Nayak and Kishnadwala For Mercator Oil and Gas Limited


Himanshu Kishnadwala H.K. Mittal Archana Mittal

Partner Director Director

Membership No.37391

Mumbai.

NOTES FORMING PART OF THE ACCOUNTS




Mercator Offshore Limited(the company)

Registration no.

Registered Office

Admn Office

Board of Directors

Auditor

200606365M

80, Rafffles Place #25-01, UOB Plaza 1, Singapore-048624

9, Temasek Boulevard, #42-01B, Suntec City Tower-2, Singapore-038989

1) Shalabh Mittal2) Harish Kumar Mittal3) Pushpatraj Shivlal Shah

M/S MGI N Ranjan Associates

Pg. 97

DIRECTORS' REPORT

REPORT OF THE DIRECTORS

The Directors submit their report together with the audited financial statements of the company for the period from May 3, 2006 to March 31, 2007.

Directors

The directors in office at the date of this report are:

SHALABH MITTALHARISH KUMAR MITTALPUSHPATRAJ SHIVLAL SHAH

Arrangements to enable directors to acquire shares or debentures

Neither at the end of nor at any time during the financial period was the company a party to any arrangement whose object isto enable the directors of the company to acquire benefits by means of the acquisition of shares or debentures of thecompany or any other body corporate.

Directors’ Interest in Shares or Debentures

According to the Register of Directors’ Shareholdings kept by the company under Section 164 of the Companies Act, Cap.50,none of the directors who held office at the end of the financial period was interested in shares of the company and its relatedcorporations except as follows:

NUMBER OF SHARES

The holding & ultimate holding Company-Mercator Lines Ltd, IndiaHarish Kumar Mittal 74,922,850 74,922,850

Directors’ contractual benefits:

During the period, no director has received or become entitled to receive a benefit by reason of a contract made by thecompany or by a related corporation with the director or with a firm of which he is a member or with a company in which he hasa substantial financial interest other than those disclosed in the financial statements.

Share Options

No options were granted during the financial period to take up unissued shares of the company.

No shares were issued by virtue of the exercise of options.

There were no unissued shares under option at the end of the financial period.

Auditors

The Auditors, M/S MGI N Rajan Associates have expressed their willingness to accept re-appointment.

On behalf of the directors,

SHALABH MITTAL HARISH KUMAR MITTAL

Singapore/India - June 28, 2007

At the beginning of the period At the end of the period

Mercator Lines 23rd Annual Report - 2006-07I I Mercator Offshore Limited

Pg. 98

STATEMENT BY DIRECTORS


In the opinion of the directors, the accompanying balance sheet, profit and loss account, statement of changes in equity and

cash flow statement together with the notes thereon, are drawn up in accordance with and comply with the Singapore

Statements of Accounting Standards so as to give a true and fair view of the state of affairs of the company as at 31 March

2007 and of the results of the business, changes in equity and cash flows of the company for the financial period from 3 May

2006 to 31 March 2007 and at the date of this statement there are reasonable grounds to believe that the company will be able

to pay its debts as and when they fall due.

On behalf of the directors,

SHALABH MITTAL

H.K. MITTAL

Singapore/India - June 28, 2007


AUDITORS’ REPORT

INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDER OF MERCATOR OFFSHORE LTD

We have audited the accompanying financial statements of MERCATOR OFFSHORE LTD set out on pages 6 to 18, which

comprise the balance sheet of the Company as at 31 March 2007, the statement of changes in equity of the Company, the

income statement and cash flow statement of the Company for the period 3 May 2006 to 31 March 2007, and a summary of

significant accounting policies and other explanatory notes.

Director’s Responsibility for the Financial Statements

The Company’s directors are responsible for the preparation and fair presentation of these financial statements in

accordance with Singapore Financial Reporting Standards. This responsibility includes: designing, implementing and

maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material

misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies; and making accounting

estimates that are reasonable in the circumstances.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in

accordance with Singapore Standards on Auditing. Those Standards require that we comply with ethical requirements and

plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material

misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial

statements. The procedure selected depends on the auditor’s judgment, including the assessment of the risks of material

misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor

considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to

design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the

effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies

used and the reasonableness of accounting estimates made by directors, as well as evaluating the overall presentation of the

financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

In our opinion:-

(a) the financial statements are properly drawn up in accordance with the provisions of the Companies Act, Cap.50 (the

“Act”) and Singapore Financial Reporting Standards so as to give a true and fair view of the state of affairs of the company

as at March 31, 2007 and of the results, changes in equity of the company and the cash flows of the company for the

period from January 13, 2006 to March 31, 2007; and

(b) the accounting and other records required by the Act to be kept by the Company have been properly kept in accordance

with the provisions of the Act.

MGI N RAJAN ASSOCIATES

CERTIFIED PUBLIC ACCOUNTANTS

Singapore - June 28, 2007



BALANCE SHEET

NOTE AT 31.03.2007 AT 31.03.2007

US$ Rs*

Non-Current Assets

Construction In Progress 5 20,419,196 8876.22

20,419,196 8876.22

Current Assets

Other receivables 6 184,773 80.32

Cash and cash equivalents 7 350,913 152.54

Fixed deposits 8 4,036,633 1754.72

4,572,319 1987.58

Current liabilities

Trade and other payables 9 21,861,565 9503.22

21,861,565 9503.22

Net Current (Liabilities) (17,289,246) (7515.64)

Net Assets 3,129,950 1360.59

Equity attributable to equity holders of the company

Issued capital 11 3,135,702 1363.09

(Loss) for the period (5,752) (2.50)

3,129,950 1360.59

(The annexed notes form an integral part of and should be read in conjunction with these accompanying financial statements).

(*Amount Rs in Lacs)

PROFIT & LOSS ACCOUNT

NOTE Period from 03.05.2006 Period from 03.05.2006

to 31.03.2007 to 31.03.2007

US$ Rs*

REVENUE

Other Revenue

Interest received from current account 4,309 1.87

Operating expenses (10,061) (4.37)

(Loss) from operations 3 (5,752) (2.50)

Less: Tax expense 4

Current period provision - -

Net (loss) for the period (5,752) (2.50)

(The annexed notes form an integral part of and should be read in conjunction with these accompanying financial statements.)


Pg. 101

STATEMENT OF CHANGES IN EQUITY FOR

THE PERIOD FROM 03 MAY 2006 TO 31 MARCH 2007

Issued Capital (Loss) for the period Total

US$ Rs US$ Rs US$ Rs*

At the date of incorporation 60 0.03 - - 60 0.03

Issuance of ordinary shares 3,135,642 1363.06 - - 3,135,642 1363.06

(Loss) for the period - - (5,752) (2.50) (5,752) (2.50)

Balance at 31 March 2007 3,135,702 1363.09 (5,752) (2.50) 3,129,950 1360.59

(The annexed notes form an integral part of and should be read in conjunction with these accompanying financial statements.)

NOTE Period from 03.05.2006 Period from 03.05.2006

to 31.03.2007 to 31.03.2007

US$ Rs*

Cash flows from operating activities

Net (Loss) before taxation (5,752) (2.50)

Operating (loss) before working capital changes (5,752) (2.50)

Other receivables (184,773) (80.32)

Fixed deposits (4,036,633) (1754.72)

Trade and other payables 111,645 48.53

Cash (used in) operating activities (4,115,513) (1789.01)

Tax (paid) - -

Net cash (used in) operations (4,115,513) (1789.01)

Cash flows from investing activities

Capital work-in-progress (20,419,196) (8876.22)

Net cash (used in) from investing activities (20,419,196) (8876.22)

Cash flows from financing activities

Bank loan obtained 15,366,330 6679.74

Loan from holding & ultimate holding company 3,883,590 1688.20

Loan from related party 2,500,000 1086.75

Issuance of share capital 3,135,702 1363.09

Net cash generating from financing activities 24,885,622 10817.78

Net change in cash and cash equivalents 350,913 152.54

Cash and cash equivalents at beginning of period - -

Cash and cash equivalents at the end of period 7 350,913 152.54

(The annexed notes form an integral part of and should be read in conjunction with these financial statements.)

CASH FLOW STATEMENT





NOTES

NOTES TO THE FINANCIAL STATEMENTS – 31 MARCH 2007

These notes form an integral part of and should be read in conjunction with the accompanying financial statements..1. GENERAL INFORMATION

The financial statements of the company for the period ended 31 March 2007 were authorised for issue in accordancewith a resolution of the directors on the date of the Statement by Directors.

The company is incorporated on 3 May 2006 as a Public Company Limited by Shares and domiciled in the Republic ofSingapore.

The principal activities of the Company are onshore and offshore drilling and support services.

The company’s registered office is located at:-9 Temasek Boulevard, #42-01B, Suntec Tower 2Singapore 038989.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2.1 BASIS OF PREPARATION

The financial statements have been prepared in accordance with Singapore Financial Reporting Standards (FRS)as required by the Companies Act. The financial statements have been prepared under the historical costconvention except as disclosed in the accounting policies below.

The preparation of these financial statements in conformity with FRS requires management to exercise itsjudgement in the process of applying the Company’s accounting policies. It also requires the use of certain criticalaccounting estimates and assumptions made by the Company that have a significant risk of causing a materialadjustment to the carrying amounts of assets and liabilities within the next financial year.

2.2 CONSTRUCTION IN PROGRESS

The cost of construction in progress represents all cost attributable to bringing the constructed asset to its workingcondition and getting it ready for its intended use. The accumulated costs will be classified to the appropriate assetclass when the construction is completed. No depreciation charge is provided for construction in progress until theassets are transferred and used in operation.

2.3 REVENUE

Interest income

Interest income is recognized as interest accrues.

2.4 FINANCIAL ASSETS(a) Classification

The Company classifies its financial assets in the following categories: at fair value through profit or loss, loansand receivables, held-to-maturity and available-for-sale. The classification depends on the purpose for whichthe assets were acquired. Management determines the classification of its financial assets at initial recognitionand re-evaluates this designation at every reporting date. The designation of financial assets at fair valuethrough profit or loss is irrevocable.

(i) Financial assets, at fair value through profit or lossThis category has two sub-categories: “financial assets held for trading”, and those designated at fair valuethrough profit or loss at inception. A financial asset is classified as held for trading if acquired principally forthe purpose of selling in the short term. Financial assets designated as at fair value through profit or loss atinception are those that are managed, and their performance are evaluated on a fair value basis, inaccordance with a documented Company’s investment strategy. Derivatives are also categorised as “held

Pg. 103

for trading” unless they are designated as hedges. Assets in this category are classified as current assets ifthey are either held for trading or are expected to be realised within 12 months after the balance sheet date.

(ii) Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or payments that are not quoted in anactive market. They are included in current assets, except those maturing later than 12 months after thebalance sheet date which are classified as non-current assets. Loans and receivables are classified within“trade and other receivables” and “cash and cash equivalents” on the balance sheet.

(iii) Financial assets, held-to-maturityFinancial assets, held-to-maturity are non-derivative financial assets with fixed or determinable paymentsand fixed maturities that the Company’s management has the positive intention and ability to hold tomaturity.

(iv) Financial assets, available-for-saleFinancial assets, available-for-sale are non-derivatives that are either designated in this category or notclassified in any of the other categories. They are included in non-current assets unless managementintends to dispose off the assets within 12 months after the balance sheet date.

(b) Recognition and derecognitionRegular purchases and sales of financial assets are recognised on trade-date — the date on which the Companycommits to purchase or sell the asset. Financial assets are derecognized when the rights to receive cash flows fromthe financial assets have expired or have been transferred and the Company has transferred substantially all risksand rewards of ownership.

On sale of a financial asset, the difference between the net sale proceeds and its carrying amount is taken to the income statement. Any amount in the fair value reserve relating to that asset is also taken to the income statement.

Trade receivables that are factored out to banks and other financial institutions with recourse to the Company are notderecognized until the recourse period has expired and the risks and rewards of the receivables have been fullytransferred. The corresponding cash received from the financial institutions is recorded as borrowings.

(c) Initial measurementFinancial assets are initially recognised at fair value plus transaction costs except for financial assets at fair value through profit or loss, which are recognised at fair value. Transaction costs for financial assets at fair value throughprofit and loss are recognised in the income statement.

(d) Subsequent measurementFinancial assets, available-for-sale and at fair value through profit or loss are subsequently carried at fair value.Loans and receivables and financial assets, held-to-maturity are carried at amortised cost using the effectiveinterest method.

Gains or losses arising from changes in the fair value of “financial assets, at fair value through profit or loss”,including interest and dividend income, are presented in the income statement within “other gains – net” in thefinancial period in which the changes in fair value arise.

Changes in the fair value of monetary assets denominated in a foreign currency and classified as available-for-saleare analyzed into translation differences resulting from changes in amortised cost of the asset and other changes.The translation differences are recognised in the income statement, and other changes are recognised in the fairvalue reserve within equity. Changes in fair values of other monetary and non- monetary assets that are classified asavailable for-sale are recognised in the fair value reserve within equity.

(e) Subsequent measurementInterest on financial assets, available-for-sale, calculated using the effective interest method, is recognised in the income statement. Dividends on available-for-sale equity securities are recognised in the income statement whenthe Company’s right to receive payment is established. When financial assets classified as available-for-sale aresold or impaired, the accumulated fair value adjustments recognised in the fair value reserve within equity areincluded in the income statement as “gains and losses from investment securities”.

NOTES

Mercator Lines 23rd Annual Report - 2006-07 I I Mercator Offshore Limited


NOTES

(f) ImpairmentThe Company assesses at each balance sheet date whether there is objective evidence that a financial asset or acompany of financial assets is impaired.

(i) Loans and receivablesAn allowance for impairment of loans and receivables, including trade and other receivables, is recognisedwhen there is objective evidence that the Company will not be able to collect all amounts due according to theoriginal terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor willenter bankruptcy or financial reorganization, and default or delinquency in payments are considered indicatorsthat the receivable is impaired. The amount of allowance is the difference between the asset’s carrying amountand the present value of estimated future cash flows, discounted at the original effective interest rate. Theamount of the allowance for impairment is recognised in the income statement within “Administrativeexpenses”.

(ii) Financial assets, held-to-maturityIf there is objective evidence that an impairment loss on held-to-maturity financial assets has incurred, thecarrying amount of the asset is reduced by an allowance for impairment. This allowance, calculated as thedifference between the asset’s carrying amount and the present value of estimated future cash flows,discounted at the original effective interest rate, is recognised in the income statement in the period in which theimpairment occurs. Impairment loss is reversed through the income statement. The carrying amount of theasset previously impaired is increased to the extent that the new carrying amount does not exceed theamortised cost had no impairment been recognised in prior periods.

(iii) Financial assets, available-for-saleIn the case of an equity security classified as available-for-sale, a significant or prolonged decline in the fairvalue of the security below its cost is considered an indicator that the security is impaired.

When there is objective evidence that an available-for-sale financial asset is impaired, the cumulative loss thathas been recognised directly in the fair value reserve is removed from the fair value reserve within equity andrecognised in the income statement. The cumulative loss is measured as the difference between the acquisitioncost (net of any principal repayments and amortization) and the current fair value, less any impairment loss onthat financial asset previously recognised in income statement.

Impairment losses on debt instruments classified as available-for-sale financial assets are reversed through theincome statement. However, impairment losses recognised in the income statement on equity instrumentsclassified as available-for-sale financial assets are not reversed through the income statement.

2.5 CURRENCY TRANSLATIONFunctional currencyItems included in the financial statements are measured using the currency that best reflects the economicsubstance of the underlying events and circumstances relevant to the company (“the functional currency”). Thefinancial statements are prepared in United States dollars , which is the functional currency of the Company.

Transactions and balancesMonetary assets and liabilities in foreign currencies are translated into United States dollar at rates of exchangeclosely approximating those ruling at balance sheet date. Transactions in foreign currencies are converted at ratesclosely approximating those ruling at transaction dates. Exchange differences arising from such transactions are recorded in the profit and loss account in the period in which they arise. However, where a foreign currencytransaction is to be settled at a contracted rate or is covered by a related or matching forward exchange contract, therate of exchange specified in the contract will be used and any corresponding monetary assets or liabilities will notbe retranslated.

2.6 TAXATIONThe liability method of tax effect accounting is adopted by the company. Current taxation is provided at the currenttaxation rate based on the tax payable on the income for the financial period that is chargeable to tax. Deferredtaxation is provided at the current taxation rate on all temporary differences existing at the balance sheet date

Pg. 105

between the tax bases of assets and liabilities and their carrying amounts in the financial statements.

Deferred tax liabilities are recognized for all taxable temporary differences ( unless the deferred tax liability arisesfrom goodwill or the initial recognition of an asset or liability in a transaction that is not a business combination and atthe time of the transaction, affects neither the accounting profit nor taxable profit or loss).

Deferred tax assets are recognized for all deductible temporary differences to the extent that it is probable that futuretaxable profit will be available against which the deductible temporary differences can be utilized (unless thedeferred tax asset arises from goodwill or the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit orloss).

The statutory tax rates enacted at the balance sheet date are used to determine deferred income tax.

2.7 FINANCIAL LIABILITIESFinancial liabilities include trade payables , other payables and interest bearing loans. Financial liabilities arerecognised on the balance sheet when, and only when, the company becomes a party to the contractual provisionsof the financial instrument. Financial liabilities are initially recognised at fair value of the consideration received lessdirectly attributable transaction costs and subsequently measured at amortised cost using the effective interest ratemethod.

Gains and losses are recognised in the income statement when the liabilities are derecognised as well as throughthe amortization process. The liabilities are derecognised when the obligation under the liability is discharged orcancelled or expired.

2.8 CASH AND CASH EQUIVALENTSCash and cash equivalents comprise cash in hand and bank deposit.

2.9 RELATED PARTYFor the purpose of these financial statements, parties are considered to be related to the Company if the Companyhas the ability, directly or indirectly, to control the party or exercise significant influence over the party in makingfinancial and operating decisions, or vice versa, or where the Company and the party are subject to common controlor significant influence. Related parties may be individuals or other entities.

2.10 RECEIVABLESTrade receivables and other receivables are classified and accounted for as loan and receivables under FRS 39Financial Instruments: Recognition and Measurement. They are recognised initially at fair value and subsequentlymeasured at amortised cost using effective interest method, less allowance for impairment. An allowance forimpairment of trade and other receivables is established when there is evidence that the company will not be able tocollect all amounts due according to the original terms of the receivables. The amount of allowance is recognised inthe income and expenditure statement. Bad debts are written off as incurred.

2.11 EMPLOYEE BENEFITSa) Defined contribution plans

The company contributes to the Central Provident Fund (“CPF”), a defined contribution plan regulated andmanaged by the Government of Singapore, which applies to the majority of the employees. The company’scontributions to CPF are charged to the profit and loss account in the period to which the contributions relate.

b) Employee leave entitlementEmployee entitlements to annual leave are recognized as a liability when they accrue to employees. Theestimated liability for leave as an expense in the period in which the related service is performed.

2.12 PROVISIONSProvisions are recognised when the company has a present obligation (legal or constructive) as a result of a pastevent, it is probable that an outflow of resources embodying economic benefits will be required to settle theobligation and a reliable estimate can be made of the amount of the obligation.

NOTES



NOTES

Provisions are measured at the present value of the expenditure expected to be required to settle the obligationusing a pre-tax discount rate that reflects the current market assessment of the time value of money and the risksspecific to the obligation. The increase in the provision due to passage of time is recognised in the income statementas interest expense.

2.13 SHARE CAPITALOrdinary shares are classified as equity. Incremental external costs directly attributable to the issue of new shares,other than on a business combination, are shown in equity as a deduction, net of tax, from the proceeds. Shareissue costs incurred directly in connection with a business combination are included in the cost of acquisition.

2.14 BORROWING COSTSBorrowings are generally expensed as incurred. Borrowing costs are capitalized if they are directly attributable tothe acquisition, construction or production of a qualifying asset. Capitalisation of borrowing costs commences when the activities to prepare the asset for its intended use or sale are in progress and the expenditures andborrowing costs are being incurred. Borrowing costs are capitalized until the assets are ready for their intendeduse. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is recorded.

3. (LOSS) FROM OPERATIONS

Audit fee 1,645 0.72

4. TAX EXPENSE

There is no tax expense as the Company has no chargeable income.

5. CONSTRUCTION IN PROGRESS

The Company is constructing an offshore rig in the shipyard of Keppel Fels, Singapore. The estimated cost of the projectis US$80 million plus US$131 million. The expected date of completion of the rig is March 2009. The project is underimplementation stage and therefore commercial operations have not yet started. During the financial period, progressbillings of US$18,721,126 have been made. The balance amount of US$1,698,070 represents other costs that areattributable to bringing the constructed asset to its working condition.

6. OTHER RECEIVABLES

Interest accrued on fixed deposit 184,773 80.32184,773 80.32

7. CASH AND CASH EQUIVALENTS

Cash in hand 60 0.03Cash at bank 350,853 152.51

350,913 152.54

8. FIXED DEPOSITSThese are under lien to the bank for credit facilities availed. The fixed deposits earn interest ranging from 5.61 to 5.82%per annum.

(Loss) before taxation has been arrived at after Charging: Period from Period from03.05.2006 to 31.03.2007 03.05.2006 to 31.03.2007

US$ Rs*

Period ended 31.03.2007US$ Rs*





Pg. 107

NOTES

9. TRADE AND OTHER PAYABLES

Trade payable 110,000 47.81Bills payable 15,366,303 6679.73Amount due to related party 2,500,000 1086.75Amount due to holding and ultimate holding Company 3,883,590 1688.20Other payables 1,645 0.72

21,861,538 9503.21

Trade payableTrade payable is interest bearing and is normally settled on 30-day terms.

Bills payableIt is secured by corporate guarantee of Mercator Lines Ltd and the assignment of the rights under the vessel constructioncontract on pari-passu basis. It bears an effective interest rate of 5.42%.

Amount due to related partyNon-trade amounts due to related party are non-interest bearing and are repayable on demand. These amounts areunsecured.

Amount due to holding and ultimate holding companyThe holding and ultimate holding company is Mercator Lines Ltd, a company incorporated in India.

Non- trade amounts due to holding company are non-interest bearing and are repayable on demand. These amountsare unsecured.

Other payablesOther payables are non-interest bearing and have an average term of one month.

10. SHARE CAPITAL

Issued & fully paid upOrdinary shares 3,135,702 1363.09

At the date of incorporation, 100 subscriber shares (US$ 60) were issued. During the financial period, the Companyincreased its paid-up capital from 100 to 5,226,170 by issuing 5,226,070 shares (US$3,135,642).

The ordinary shares are denominated in Singapore dollars and are converted to United States dollars at historical rates.

11. FINANCIAL RISK MANAGEMENT

The company was not engaged in any trading activities during the financial period. Hence the Company is not exposedat any liquidity risk, credit risk, foreign currency risk or market risk.

Interest rate riskInterest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates.

The company’s exposure to movements in market interest rates relate primarily to its fixed deposits placed with financialinstitutions and borrowings with financial institutions.

12. GENERALThere are no comparative figures available as this is the first financial period of the Company.

Note: The annual accounts of foreign subsidiary companies have been prepared originally in US$ as per the laws prevailing in the respective countries. The amounts have beenconverted into Indian rupees for convenience purpose; at a mean rate of Rs.43.47 per US$ for financial year ended on March 31, 2007 and at a mean rate of Rs.44.66 per US$ forfinancial year ended on March 31, 2006 respectively.







Report & Financial Statements For the Period Ended 31 March 2007

Mercator International Pte. Ltd(the company)

Registration no.

Registered Office

Board of Directors

Auditor

200700869N


1) Shalabh Mittal2) Pushpatraj Shivlal Shah

1) James Chan & Partners

Mercator Lines 23rd Annual Report - 2006-07 I I Mercator International Pte. Ltd Pg. 109

DIRECTORS' REPORT

The directors present their report together with the audited financial statements of the company for the period from 18

January 2007 (Date of Incorporation) to 31 March 2007.

(1) Directors

The directors of the company in office at the date of this report are:

Shalabh Mittal

Pushpatraj Shivlal Shah

(2) Arrangements to enable directors to acquire shares or debentures

During and as at the end of the financial period, the company was not a party to any arrangement, the object of which was

to enable the directors to acquire benefits through the acquisition of shares in, or debentures of, the company or any

other body corporate.

(3) Directors' interest in shares or debentures

According to the Register of Directors' Shareholdings kept by the company under section 164 of the Singapore

Companies Act, Cap. 50, none of the directors holding office at the end of the financial year had any interest in shares or

debentures of the company and its related corporations.

(4) Directors' contractual benefits

Since the end of the previous financial year, no director has received or become entitled to receive a benefit by reason of

a contract made by the company or a related corporation with the director or with a firm of which he is a member or with a

company in which he has a substantial financial interest, except as disclosed in the financial statements.

(5) Share options

There were no share options granted during the financial year to subscribe for unissued shares of the company.

(6) Share options exercised

During the financial year, there were no shares issued by virtue of the exercise of options to take up unissued shares of

the company.

(7) Share options outstanding

There were no unissued shares of the company under options outstanding at the end of the financial year.

(8) Auditors

The Auditors, Messrs James Chan & Partners, have expressed their willingness to accept re-appointment.

On behalf of the Board,


Shalabh Mittal





We, the undermentioned directors, state that, in the opinion of the directors, the accompanying consolidated financial

statements of the Group set out on pages 3 to 20 are drawn up so as to give a true and fair view of the state of affairs of the

Group and the company as at 31 March 2007 and of the results, balance sheet, income statement and changes in equity of

the Group and company and cash flows of the Group for the period then ended and at the date of this statement there are

reasonable grounds to believe that the company will be able to pay its debts as and when they fall due.



Shalabh Mittal


Pg. 111

AUDITORS' REPORT TO THE MEMBERS OF MERCATOR INTERNATIONAL PTE. LTD. ( Incorporated in Singapore )

We have audited the financial statements of the Company and consolidated financial statement of the group set out on pages

3 to 20, which comprise the balance sheet as at 31 March 2007, and the income statement, statement of changes in equity

and cash flow statement for the period then ended, and a summary of significant accounting policies and other explanatory

notes.

Directors' Responsibility for the Financial Statements

The Company's directors are responsible for the preparation and fair presentation of these financial statements in

accordance with the provisions of the Singapore Companies Act, Cap. 50 (the "Act") and Singapore Financial Reporting

Standards. This responsibility includes: designing, implementing, and maintaining internal controls relevant to the

preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or

error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the

circumstances.

Auditor's Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in

accordance with Singapore Standards on auditing. Those standards require that we comply with ethical requirements and

plan and perform the audit to obtain reasonable assurance as to whether the financial statements are free from material

misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial

statements. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material

misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor

considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to

design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the

effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies

used and the reasonableness of accounting estimates made by directors, as well as evaluating the overall presentation of the

financial statements.


OPINION

In our opinion,

(a) the consolidated financial statements of the Group and the balance sheet, income statement and statement of

changes in equity of the Company are properly drawn up in accordance with the provisions of the Singapore

Companies Act, Cap. 50 (the "Act") and Singapore Financial Reporting Standards so as to give a true and fair view of

the state of affairs of the Group and of the Company as at 31 March 2007 and the results, changes in equity of the

Group and of the Company, and cash flows of the Group for the financial year ended on that date; and

(b) the accounting and other records required by the Act to be kept by the Company and by those subsidiaries

incorporated in Singapore of which we are the auditors have been properly kept in accordance with the provisions of

the Act.

Without qualifying our opinion, we draw attention on the following matter:

The company had a capital deficiency amounting to US$ 704,057 as at 31 March 2007. This factor raises substantial doubt

that the Company will be able to continue as a going concern. However, the ultimate holding company as mentioned in note

15 of the financial statements had agreed to provide continuous financial support to the company so as to enable the

company to meet its financial obligation as and when fall due.

JAMES CHAN & PARTNERS

Singapore - June 7 2007 CERTIFIED PUBLIC ACCOUNTANTS

AUDITORS' REPORT

Mercator Lines 23rd Annual Report - 2006-07I I Mercator International Pte. Ltd



SHARE CAPITAL 4 60,000 26.08 60,000 26.08

RESERVE 5 22,715,578 9,874.46 ( 764,057) (332.13)

Total equity / capital deficiency 22,775,578 9,900.54 ( 704,057 ) (306.05)

REPRESENTED BY

NON-CURRENT ASSETS

Property, plant and equipment 6 93,799,591 40,774.68 -

Charter hire paid in advance 7 20,390,948 8,863.95 - -

Convertible bonds issue expenditure 1,785,000 775.94 -

Investment in subsidiary company 8 - 540,000 234.74

Investment in holding company 8 - 60,000 26.08

115,975,539 50,414.57 600,000 260.82

CURRENT ASSETS

Inventory 2,336,670 1,015.75 486,928 211.67

Charter hire paid in advance 7 7,450,670 3,238.81 -

Amount due from a related party 9 2,500,000 1,086.75 -

Trade receivables 13,739,650 5,972.62 1,436,017 624.24

Other receivables 10 7,305,100 3,175.53 -

Deferred Expenditure 11 319,910 139.06 -

Fixed deposits 12 51,117,595 22,220.82 -

Cash and bank balances 13 4,320,565 1,878.15 988,005 429.49

89,090,160 38,727.49 2,910,950 1265.40

LESS: CURRENT LIABILITIES

Trade payables 6,372,130 2,769.96 432,319 187.93

Other payables 14 1,652,391 718.29 288,400 125.37

Amount due to ultimate Holding company 15 2,116,733 920.14 570,000 247.78

Amount due to subsidiary company - 2,924,288 1271.19

Term loan – secured 16 4,400,000 1912.68 - -

Bank overdraft – unsecured 9 0.01 - -

Provision for taxation 42,000 18.25 - -

(14,583,263) (6339.34) (4,215,007) (1832.26)

Net current assets / (liabilities) 74,506,897 32388.15 (1,304,057) (566.86)

NON-CURRENT LIABILITY

Amount due to ultimate holding company 15 62,899,364 27342.35 - -


Convertible bonds 17 46,707,494 20303.75 - -

(167,706,858) 729021.83 - -

Total net assets / (liabilities) 22,775,578 9900.54 (704,057) 306.05

The accompanying notes form an integral part of these financial statements.

Particulars NotesGroup 2007

US$ Rs*Company 2007

US$ Rs*

(*Amount Rs In Lacs)

Pg. 113

Revenue 18 89,938,027 39096.06 3,626,973 1576.64

Direct operating expenses (70,219,359) (30524.35) (4,858,735) (2112.09)

Changes in inventories 130,301 56.64 486,928 211.67

Gross profit / (loss) 19,848,969 8628.35 (744,834) (323.78)

Other income 816,493 354.93 6,851 2.98

Staff costs 19 (369,512) (160.63) (2,477) (1.08)

Depreciation (1,431,715) (622.37) - -

Administrative expenses (638,328) (277.48) (23,597) (10.26)

Profit / (loss) from operations 18,225,907 7922.80 (764,057) (332.13)

Finance expenses (4,204,961) (1827.90) - -

Profit / (loss) before taxation 20 14,020,946 6094.90 (764,057) (332.13)

Taxation 21 (40,054) (17.41) - -

Net profit / (loss) for the period 13,980,892 6077.49 (764,057) (332.13)


INCOME STATEMENT

Particulars NotesGroup 2007

US$ Rs*Company 2007

US$ Rs*




STATEMENT OF CHANGES IN EQUITY FOR THE PERIOD ENDED 31 MARCH 2007

Share Other Revenue Total

Group Capital Reserves Reserve

US$ Rs* US$ Rs* US$ Rs* US$ Rs*

Company Share Capital Accumulated Losses Total

US$ Rs* US$ Rs* US$ Rs*

Balance as at date of incorporation - - - - - - - -

Pre-acquisition reserve - - 4,442,180 1931.02 4,442,180 1931.02

Balance as at 31 March 2006 - - 4,442,180 1931.02 4,442,180 1931.02

Shares issued during the period 60,000 26.08 - - - - 60,000 26.08

Convertible bonds-equity component - - 4,292,506 1,865.95 - - 4,292,506 1865.95

Net profit for the period - - - - 13,980,892 6077.49 13,980,892 6077.49

Balance as at 31 March 2007 60,000 26.08 4,292,506 1865.95 18,423,072 8008.51 22,775,578 9900.54

Balance as at date of incorporation

Pre-acquisition reserve - - - - - -

Balance as at 31 March 2006 - - - - - -

Shares issued during the period 60,000 26.08 - - 60,000 26.08

Net loss for the period - - (764,057) (332.13) (764,057) (332.13)

Balance as at 31 March 2007 60,000 26.08 (764,057) (332.13) (704,057) (306.05)




Pg. 115


CONSOLIDATED CASH FLOW STATEMENT

Consolidated Cash Flow Statement for the period ended 31 March 2007

CASH FLOWS FROM OPERATING ACTIVITIES

Profit before taxation 14,020,946 6094.90

Adjustments for:

Pre-acquisition reserve 4,442,180 1931.01

Depreciation 1,431,715 622.36

Interest expense

4,204,961 1827.90

Operating profit before working capital changes 24,099,802 10476.18

Increase in inventories (2,336,670) (1015.75)

Increase in charter hire paid in advance (27,841,618) (12102.75)

Increase in amount due from a related party (2,500,000) (1086.75)

Increase in trade and other receivables (21,044,750) (91481.15)

Increase in deferred expenditures (319,910) (139.06)

Increase in convertible bonds issue expenditure (1,785,000) (775.94)

Increase in trade and other payables 8,024,521 3488.26

Increase in amount due to ultimate holding company 2,116,733 920.11

Changes in working capital (45,686,694) (19860.00)

Net cash used in operating activities (21,586,892) 9383.82

Income tax paid (1,354) (0.59)

Subsidiary company tax 3,300 1.43

CASH FLOWS FROM INVESTING ACTIVITY

Purchase of property, plant and equipment (95,231,306) (41397.05)

CASH FLOWS FROM FINANCING ACTIVITIES

Foreign currency convertible bonds 51,000,000 22169.70

Bank borrowing 62,500,000 27168.75

Loan from ultimate holding company 62,899,364 27342.35

Issue of shares 60,000 26.08

Interest paid (4,204,961) (1827.90)

Net cash generated from financing activities 172,254,403 74878.99

Net increase in cash and cash equivalents 55,438,151 24098.96

Cash and cash equivalents at beginning of the period -

Cash and cash equivalents at end of the period 22 55,438,151 24098.96


Note Group 2007

US$ Rs*



stNOTES TO THE FINANCIAL STATEMENTS - 31 March 2007

The following notes form an integral part of the financial statements.

1. CORPORATE INFORMATION

The ultimate holding company is Mercator Lines Limited, incorporated in India. The company is incorporated as a limited

liability company and domiciled in Singapore.

Its registered office is located at 80 Raffles Place, #25-01 UOB Plaza Singapore 048624.

2. SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Accounting

The financial statements of the group and the company have been prepared in accordance with the provisions of the

Singapore Companies Act, Cap. 50 (the "Act") and the Singapore Financial Reporting Standards ("FRS").

The financial statements expressed in United States dollars are prepared in accordance with the historical cost

convention, except as disclosed in the accounting policies below.

The preparation of financial statements in conformity with FRS requires the use of estimates and assumptions that

affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of

the financial statements and the reported amounts of revenues and expenses during the financial year. Although

these estimates are based on management's best knowledge of current events and actions, actual results may

ultimately differ from those estimates.

(b) Adoption of Revised FRS

In the current financial year, the company has adopted all the new and revised FRSs and Interpretations of FRS ("INT

FRS") issued by the Council on Corporate Disclosure and Governance that are relevant to its operations and

effective for annual periods beginning on or after 1 April 2006.

The following are the FRSs and INT FRSs that are relevant to the company:

FRS 21 (revised) Effects of Changes in Foreign Currency Rates

FRS 27 (revised) Consolidated and Separate Financial Statements.

FRS 32 (revised) Financial Instruments: Disclosure and Presentation

FRS 39 (revised) Financial Instruments : Recognition and Measurement

The adoption of these new/revised FRSs and INT FRSs has no material effect on the financial statements.

(c) Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation and any impairment loss recognised in

accordance with note 2(q) to the financial statements. Depreciation is calculated on the straight line basis so as to write

off thecostof theassets over their estimated useful lives. Theannual rates of depreciationareas follows:

Vessels 20 years

Computer 40%

Furniture and fittings 18.10%

Motor vehicle 25.89%


Pg. 117

SIGNIFICANT ACCOUNTING POLICIES

Significant Accounting Policies.

(d) Functional and Presentation Currency

Items included in the financial statements of each entity in the Group are measured using the currency of the primary

economic environment in which the entity operates("the functional currency"). The consolidated financial

statements are presented in United State Dollars, which is the Company's functional and presentation currency.

(e) Foreign Currency Transactions and Balances

Transactions in a currency other than the functional currency ("foreign currency") are translated into the functional

currency at the exchange rates prevailing at the date of the transactions. Monetary assets and liabilities

denominated in foreign currencies at the balance sheet date are translated at exchange rates ruling at that date.

Foreign exchange differences arising from translation are recognised in the income statement, except for currency

translation differences on net investment in foreign entities, borrowings in foreign currencies and other currency

instruments qualifying as net investment hedges for foreign operations, which are included in the currency

translation reserve within equity, in the consolidated financial statements.

(f) Derivative financial instruments and hedging activities

A derivate financial instrument is initially recognised at its fair value on the date the contract is entered into and is

subsequently carried at its fair value. The method of recognising the resulting gain or loss depends on whether the

derivate is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group

designates certain derivatives as either (1) hedges of the fair value of firm commitments denominated in foreign

currencies (fair value hedges); or (2) hedges of highly probable forecasted transactions (cash flow hedges).

The Group documents at the inception of the transaction the relationship between hedging instruments and hedged

items, as well as its risk management objective and strategies for undertaking various hedge transactions. The

Group also documents its assessment, both at hedge inception and an ongoing basis, of whether the derivatives

designated as hedging instruments are highly effective in offsetting changes in fair value or cash flows of hedged

items.

(i) Fair value hedge

Changes in the fair value of derivates that are designated and qualify as fair value hedges are recognised in the

income statement. The changes in fair value relating to the effective portion of the derivatives are recognised in

the income statement within the same line item as the gains and losses from the hedged item. The changes in fair

values relating to the ineffective portion of the derivatives are recognised in the income statement.

(ii) Cash flow hedge

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow

hedges are recognised in the hedging reserve within equity and transferred to the income statement in the

periods when the hedged items affect the income statement. The gain or loss relating to the ineffective portion is

recognised immediately in the income statement.

(g) Basis of Consolidation

The consolidated financial statements include the financial statements of the company and its subsidiary

companies, details of which is set out in note 6 to the financial statements. All significant inter-company balances

and transactions within the group have been eliminated on consolidation.

(h) Inventory

Bunkers comprise mainly bunkers and consumable stores. Inventory is stated at the lower of cost and net realisable

value. Net realisable value is the estimated selling price in the ordinary course of business, less the costs of

completion and selling expenses.



(i) Financial Assets

Financial assets which are within the scope of FRS 39 are classified as either financial assets at fair value through

profit or loss, loans and receivables, held-to-maturity investments, or available-for-sale financial assets as

appropriate. Financial assets are assigned to the different categories by management on initial recognition,

depending on the purpose for which the assets were acquired.

The company's financial assets comprise amounts due from holding and subsidiary companies, trade and other

receivables. The financial assets are recognised in the balance sheet, when and only when, the company becomes

a party to the contractual agreements governing the financial instruments.

(j) Trade and Other Receivables

Trade and other receivables are initially recognised at fair value and subsequently re-measured at amortised cost

using the effective interest method, less allowance for impairment. An allowance for impairment of trade and other

receivables is established when there is objective evidence that the company will not be able to collect all the

amounts due according to the original terms of the receivables. The amount of the allowance is the difference

between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original

effective interest rate. The amount of the allowance is recognised in the income statement.

(k) Trade and Other Payables

Trade and other payables are initially recognized at fair value and subsequently carried at amortized cost, using the

effective interest method.

(l) Cash and Cash Equivalents

Cash and cash equivalents comprise of cash and bank balances with financial institutions which are subject to an

insignificant risk of changes in value. Cash equivalents are stated at amounts at which they are convertible into cash.

(m) Financial Liabilities

Financial liabilities include amount due from holding company, trade and other payables.

Financial liabilities are recognised when the company becomes a party to the contractual agreements governing the

instrument. Trade and other payables are initially recognised at fair value and subsequently re-measured at

amortised cost, using the effective interest method.

(n) Subsidiary

A subsidiary is an entity over which the Group has the power to govern the financial and operating policies so as to

obtain benefits from its activities. The existence and effect of potential voting rights that are currently exercisable or

convertible are considered when assessing whether the Group controls an entity.

Investment in subsidiary is stated in the Company’s financial statements at cost less any impairment losses. On

disposal of a subsidiary, the difference between net disposal proceeds and the carrying amount of the investment is

taken to income statement.

(o) Taxation

Current year taxation is based on tax payable on the income for the financial year that is chargeable to tax.

No provision is made for taxation on qualifying shipping income derived which is exempt from taxation under

Section 13A of the Singapore Income Tax Act and the Singapore’s Approved International Shipping Enterprise Tax

Incentive.


Pg. 119

Deferred tax is provided using the balance sheet liability method, providing for all taxable temporary differences

between the carrying amounts of all assets and liabilities for financial reporting purposes and the amounts used for

taxation purposes.

Deferred tax assets are recognized to the extent that it is probable that future taxable profits will be available against

which the temporary differences or tax losses can be utilized.

(p) Income Recognition

Income of freight earnings is recognised when loading of the cargo is completed before the close of the financial

year. All direct expenses of the voyage are recognised with the income. Where loading of the cargo is not completed,

revenue is not recognised and the related expenses are carried the next accounting year under loans and advances

or prepaid expenses. Income from time charter is recognised on an accrual basis.

(q) Impairment of Assets

The carrying amounts of the company’s assets are reviewed at each balance sheet date to determine whether there

is any indication of impairment. If such indication exists, the asset’s recoverable amount is estimated. An

impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount. The

recoverable amount is the greater of the asset’s net selling price and its value in use. The value in use is the present

value of estimated future cash flows expected to arise from the continuing use of the asset and from its disposal at

the end of its useful life.

An impairment loss is charged to the income statement unless it reverses a previous revaluation, in which case it will

be charged to equity. An impairment loss is reversed if there has been a change in the estimates used to determine

the recoverable amount or when there is an indication that the impairment loss recognised for the asset no longer

exists or decreases. An impairment loss is reversed only to the extent that the asset’s carrying amount does not

exceed the carrying amount that would have been determined if no impairment loss had been recognised.

(r) Provisions

Provisions are recognised when the company has a legal or constructive obligation as a result of past events, it is

probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount

can be made.

(s) Employee Benefits

Defined contribution plans

The company makes contributions to the state provident fund (Central Provident Fund). Such contributions are

recognised as compensation expense in the same period as the employment that gave rise to the contributions.

(t) Borrowing Costs

Borrowing costs are recognised as expenses in the financial year in which they are incurred.

3. PRINCIPAL ACTIVITY

The principal activity of the company consists of charter of shipping vessels.

4. SHARE CAPITAL

Issued and fully paid:100,000 ordinary shares 100,000 -

Equivalent to US$ 6 0,000 (Equivalent to Rs. 26.08 lacs)

During the period, the company issued 60,000 ordinary shares and all issued shares are fully paid.

Company 2007

S$




With effect from 30 January 2006, the concepts of authorized share capital & par value have been abolished following

amendments to the Singapore Companies Act.

5. RESERVES

(a) Composition:

Equity component of convertible bonds 4,292,506 1865.95 - -

Retained earnings 18,423,072 8008.51 (764,057) (332.13)

22,715,578 9874.46 (764,057) (332.13)

(b) Movements:

Equity component of convertible bonds

Convertible bonds-equity component 5,234,763 2275.55 - -

Tax on equity component (942,257 ) (409.60) - -

End of financial year (note 17) 4,292,506 1865.95 - -

6. PROPERTY, PLANT AND EQUIPMENT

Cost

Balance as at 1.4.2006 - - - - - - - - - -

Additions 95,100,010 41,339.97 1,260 0.55 79,336 34.49 50,700 22.04 95,231,306 41397.05

Balance as at 31.3.2007 95,100,010 41,339.97 1,260 0.55 79,336 34.49 50,700 22.04 95,231,306 41397.05

Accumulated Depreciation

Balance as at 1.4.2006 - - - - - - - - - -

Depreciation charged for the year 1,418,878 616.79 374 0.16 3,580 1.56 8,883 3.86 1,431,715 622.37

Balance as at 31.3.2007 1,418,878 616.79 374 0.16 3,580 1.56 8,883 3.86 1,431,715 622.37

Net book value

Balance as at 31.3.2007 93,681,132 40,723.19 886 0.39 75,756 32.93 41,817 18.18 93,799,591 40774.68

Balance as at 31.3.2006 - - - - - - - - - -

At the balance sheet date, the net book value amounting to US$ 93,681,132 (2006: Nil) of vessels of the Group charged by

way of legal mortgages to banks for term loans (note 16) amounted to US$ 62,500,000 (2006: Nil).

7. CHARTER HIRE PAID IN ADVANCE

Receivable within 1 year 7,450,670 3238.81 - -

Receivable after 1 year but not later than 5 years 20,390,948 8863.94 - -

27,841,618 12102.75 - -

One of the vessels chartered by a subsidiary, Mercator Lines (Singapore) Pte Ltd, was damaged in the current financial

year and could not be utilized. The balance of the unamortised charter hire for this vessel as at the financial year end was

Group 2007 Company 2007

US$ Rs* US$ Rs*

Vessels in Computer Furniture Motor Total

Operation and fittings Vehicle

US$ Rs US$ Rs* US$ Rs* US$ Rs* US$ Rs*


US$ Rs* US$ Rs*





Pg. 121

approximately $ 9.69 million. The company has lodged a claim with the charterer for either providing an alternate vessel

to the company or for recovery of the advance charter hire paid and losses incurred.

8. INVESTMENT IN SUBSIDIARY COMPANY

Unquoted equity investment - at cost 600,000 260.82

Mercator Lines Limited To carry on the business as Incorporated In India 60,000 26.08

charterers of ships

Mercator Lines (Singapore) Pte.Ltd. To carry on the business as Incorporated In 540,000 234.74

charter of shipping vessels Singapore

600,000 260.82

Shares held by the Mercator Lines (Singapore) Pte. Ltd.

*Mercator Lines (Panama) Inc. To carry on the business as Republic of 100

charterers of ships Panama

Varsha Marine Pte. Ltd Business in shipping services, Incorporated in 100

ship management, logistics and Singapore

other related services

Vidya Marine Pte. Ltd Business in shipping services, Incorporated in 100

ship management, logistics and Singapore

other related services

* The financial statements of this subsidiary was audited by other firms of auditors.

9. AMOUNT DUE FROM A RELATED PARTY

The amount due from a related party is unsecured, interest-free, non-trade in nature, and repayable on demand.


Other debtors 725,231 315.26 - -

Deposits 6,366,085 2767.34 - -

Prepayments 213,784 92.93 - -

7,305,100 3175.53 - -

Company 2007

US$ Rs*

Name of subsidiary Principal Activities Country of Incorporation Cost of

and holding companies / Place of business Investment

Shares held by the Company Company 2007

US$ Rs*

Name of subsidiary companies Principal Activities Country of Percentage

incorporation/ Place of Shareholdings %

of business


US$ Rs* US$ Rs*






11. DEFERRED EXPENDITURE

Total Pre-Operating Expenses 492,555 214.11 - -

Less: Amount recovered by subsidiary company

Charged to income statement (172,645 ) (75.05) - -

319,910 139.06 - -

12. FIXED DEPOSITS WITH BANKS

All fixed deposits mature within a year and bear interest at rates ranging from 5.16% to 5.40% per annum.

13. CASH AND BANK BALANCES

Cash and bank balances in the cash flow statement comprise the following balance sheet amount:

Cash and bank balances 4,320,565 1878.15 988,005 429.49

Cash and bank balances are denominated in the following currencies:

United States Dollar 3,742,122 1626.70 961,749 418.07

Singapore Dollar 578,443 251.45 26,256 11.41

4,320,565 1878.15 988,005 429.48

14. OTHER PAYABLES

Other creditors 83,810 36.43 - -

Provision for port expenses 812,300 353.11 270,400 117.54

Accrued expenses 491,238 213.54 18,000 7.82

Amount owing to a director* 265,043 115.21 - -

1,652,391 718.29 288,400 125.37

* The amount owing to a director is interest-free, non-trade in nature, unsecured and repayable on demand.

15. AMOUNT DUE TO ULTIMATE HOLDING COMPANY

Current liability 2,116,733 920.14 - -

Non current liability 62,899,364 27342.35 - -

65,016,097 28262.50 - -

The amount due to ultimate holding company is non-trade in nature, unsecured and repayable on demand. The effective

interest rate for this loan is 7.75% to 8.0% (2006:7.875%) per annum as at balance sheet date.

Mercator Lines Limited, a company incorporated in India is immediate and ultimate holding company. The holding

company has agreed to provide continuous financial support to the company so as to enable the company to continue

operation as going concern.


US$ Rs* US$ Rs*


US$ Rs* US$ Rs*


US$ Rs* US$ Rs*


US$ Rs* US$ Rs*


US$ Rs* US$ Rs*







Pg. 123

16. TERM LOAN - SECURED

Term loans repayable

- within one year 4,400,000 1912.68 - -

- after one year but not later than five years 26,000,000 11302.20 - -

- after five years 32,100,000 13953.87 - -

58,100,000 25256.07 - -

62,500,000 27168.75 - -

The bank term loans bears interest at 6.26% to 6.37% (2006: nil) and are secured by legal mortgages over the group and

the company vessels with a total net book value of $93,681,132 (2006: nil).

17. CONVERTIBLE BONDS

On 28 March 2007, a subsidiary Mercator Lines (Singapore) Pte Ltd, issued US$51,000,000 convertible bonds as

follows:

Secured convertible bonds due 2009 (Bonds-A) 35,000,000 15214.50 - -

Unsecured convertible bonds due 2012 (Bonds-B) 16,000,000 6955.20 - -

51,000,000 22169.70 - -

Bonds-A are zero coupon secured convertible bonds due 2009, and Bonds B are 2.5% unsecured convertible bonds

due 2012.

Bonds A are only mandatorily convertible on and after 2 April 2009 in the event of an Initial Public Offering on SGX-ST by

the company on close of business on 30 March 2009 while Bonds B are optionally convertible on and after 45 days from

the date of listing of the ordinary shares of the company on SGX-ST or an alternative Exchange pursuant to the IPO, and

on or before the close of business on 12 March 2012.

Bonds-A are secured by a second ranking mortgage on the vessel of the company.

The initial conversion price of Bonds A will be at a discount which is the higher of such amount as to yield 15% IRR to the

Bondholders or 10% discount to the IPO price.

The initial conversion price of Bonds B will be 10% premium to 45 days Volume Weighted Average Price of the shares

listed on SGX-ST or an alternative Exchange after the date of listing.

The carrying amount of the liability components of the convertible bonds at the balance sheet date is analysed as

follows:

Face value of convertible bonds issued on 28 March 2007 51,000,000 22169.70 - -

Equity conversion component (Note 5) 4,292,506 1865.95 - -

Liability component on initial recognition At 28 March 2007 46,707,494 20303.75 - -

As the convertible bonds were issued near the financial year end, the carrying amounts approximate their fair values.

The equity components were calculated on the effective interest basis by applying the interest rate of 5.2% per annum for

an equivalent non-convertible bond at the date of issue to the liability components of the convertible bonds.


US$ Rs* US$ Rs*


US$ Rs* US$ Rs*


US$ Rs* US$ Rs*





Mercator Lines 23rd Annual Report - 2006-07 I I Mercator International Pte. Ltd


18. REVENUE

Revenue represents income derived from:

Charter of ships 33,248,138 14452.97 - -

Freight income 55,038,168 23925.09 3,626,973 1576.65

Demurrage 1,651,721 718.00 - -

89,938,027 39096.06 3,626,973 1576.65

19. STAFF COSTS

Director’s remuneration 108,000 46.95 - -

Director’s accommodation 21,605 9.39 - -

Salaries and bonus 237,579 103.27 2,013 0.88

CPF and SDL 2,278 0.99 464 0.20

Staff welfare 50 0.02 -

369,512 160.62 2,477 1.08

20. PROFIT / (LOSS) BEFORE TAXATION

This is stated after charging/(crediting) the following items which have not been otherwise disclosed in the income

statement:-

Director’s commission 265,043 115.21 - -

Interest on loan from ultimate holding company 4,204,961 1827.90 - -

Loss on foreign exchange translation 4,332 1.88 - -

21. TAXATION

Provision for current year taxation 42,000 18.26 - -

Over-provision in prior year (1,946) (0.85) - -

40,054 17.41 - -

Reconciliation of tax:

Profit/(loss) before taxation 14,020,946 6094.91 (764,057) (332.14)

Taxation at statutory rate of 18% 2,523,770 1097.08 (137,530) (59.78)

Tax effects of:-

Unutilisation of tax losses 141,644 61.57 137,250 59.67


US$ Rs* US$ Rs*


US$ Rs* US$ Rs*


US$ Rs* US$ Rs*


US$ Rs* US$ Rs*


US$ Rs* US$ Rs*







Pg. 125

Non-deductible expenses 64,843 28.19 280 0.12

Qualifying shipping income exempt from tax (2,700,512) (1173.91) - -

Statutory stepped income exemption (101,483) (44.11) - -

Movement in temporary difference 113,738 (49.44) - -


40,054 17.41 - -


Cash and cash equivalents in the cash flow statement comprise cash and bank balances as shown in the balance sheet.

Fixed deposits 51,117,595 22220.82 - -

Cash and bank balances 4,320,565 1878.15 988,005 429.49

Bank overdraft – unsecured (9) (0.01) - -

55,438,151 24098.96 988,005 429.49

23. RELATED PARTY DISCLOSURES

Significant transactions and balances between the company and its related parties, not otherwise disclosed in the

financial statements, are as follows:

(a) Ultimate holding company

Shipping Income – freight 8,815,287 3832.00 - -

Ship Operating Expenses – vessel hire 4,915,532 2136.78 - -

Interest on loan 2,950,003 1282.37 - -

Related party transactions were based on terms agreed by both parties.

24. OPERATING LEASE COMMITMENTS

Lease commitments under non-cancellable operating lease where the company is a lessee are as follows:

Payable within 1 year 96,336 41.88 - -

Payable after 1 year but not later than 5 years 25,883 11.25 - -

122,219 53.13 - -

The above are based on known rental rates as at the date of this report .


The Group is exposed to the following risks: Currency risk, credit risk and liquidity risk. The Group does not hold or issue

derivative financial instruments for trading purposes or to hedge against fluctuations, if any, in interest rates and

foreign exchange.


US$ Rs* US$ Rs*


US$ Rs* US$ Rs*


US$ Rs* US$ Rs*







(i) Foreign exchange risk:

The Group’s operational activities are mainly carried out in United States dollars, the measurement and reporting

currency of the Group. The risk arising from movements in foreign exchange rates is minimized as the Group has

minimal transactions in foreign currency.

(ii) Credit risk:

Credit risk refers to the risk that counter party will default on its contractual obligations resulting in a financial loss to

the company. The Group does not expect to incur material credit losses as it is only dealing with creditworthy

counterparties. Trade receivables are monitored on an ongoing basis via management reporting procedures. The

maximum exposure to credit risk in relation to each class of recognised financial assets, is represented by the

carrying amount of each financial asset as indicated in the balance sheet.

(iii) Liquidity risk:

Liquidity or funding risk is the risk that an enterprise will encounter difficulty in raising funds to meet commitments

associated with financial instruments. Liquidity risk may result from an inability to sell a financial asset quickly at

close to its fair value.

The Group’s exposure to liquidity risk is minimal as the Group has adequate cash and cash equivalents as and when

required to meet all its obligations in a timely manner.

(iv) Fair value:

Financial assets of the Group include receivables, cash and cash equivalents. Financial liabilities of the Group

include payables and accruals. The carrying amounts of all the financial assets and liabilities of the company

approximate their fair values.

26. CONTINGENT LIABILITIES

Protection and Indemnity (’P&Id’) insurance has been arranged by the Company to cover the legal Liability of the Group

for its shipping operations. Vessels operated by the Company are entered in P&I Association which are mutual

protection and indemnity associations and members of the International Group of P&I associations. A member of the

mutual association is subject to calls payable to the associations based on the member’s claims records as well as the

claim records of all other members in the International Group of P&I Associations, premiums are paid as advance calls

during the policy year and these premiums form a basic fund out of which claims and other outgoings are met.

27. AUTHORISATION OF FINANCIAL STATEMENTS

The financial statements of the company for the financial year ended 31 March 2007 were authorized for issue in

accordance with a directors' resolution dated 7 June 2007.

Note: The annual accounts of foreign subsidiary companies have been prepared originally in US$ as per the laws prevailing in the respective countries. The amounts have beenconverted into Indian rupees for convenience purpose; at a mean rate of Rs.43.47 per US$ for financial year ended on March 31, 2007 and at a mean rate of Rs.44.66 per US$ forfinancial year ended on March 31, 2006 respectively.


Pg. 127Mercator Lines 23rd Annual Report - 2006-07 I I Mercator International Pte. Ltd



Mercator Lines (Singapore) Pte. Ltd.(Incorporated In Singapore)

Registration no.

Registered Office

Board of Directors

Auditor

200507250N


1) Shalabh Mittal2) Pushpatraj Shivlal Shah

James Chan & Partners

Pg. 129

DIRECTORS' REPORT

The directors present their report to the members together with the audited financial statements of the Group and thecompany for the financial year ended 31 March 2007.

1. DirectorsThe directors of the company in office at the date of this report are:Shalabh MittalPushpatraj Shivlal Shah (appointed on 1 July 2006)

2. Arrangements to enable directors to acquire shares or debenturesDuring and as at the end of the financial year, the company was not a party to any arrangement, the object of which was toenable the directors to acquire benefits through the acquisition of shares in, or debentures of, the company or any otherbody corporate.

3. Directors' interest in shares or debenturesAccording to the Register of Directors' Shareholdings kept by the company under section 164 of the SingaporeCompanies Act, Cap. 50, none of the directors holding office at the end of the financial year had any interest in shares ordebentures of the company and its related corporations

4. Directors' contractual benefitsSince the end of the previous financial year, no director has received or become entitled to receive a benefit by reason of acontract made by the company or a related corporation with the director or with a firm of which he is a member or with acompany in which he has a substantial financial interest, except as disclosed in the financial statements.

5. Share optionsThere were no share options granted during the financial year to subscribe for unissued shares of the company.

6. Share options exercisedDuring the financial year, there were no shares issued by virtue of the exercise of options to take upunissued shares of the company.

7. Share options outstandingThere were no unissued shares of the company under options outstanding at the end of the financial year.

8. AuditorsThe Auditors, Messrs James Chan & Partners, have expressed their willingness to accept re-appointment.


Shalabh Mittal

Pushpatraj Shivlal ShahSingapore - May 30, 2007





Singapore - May 30, 2007

Shalabh Mittal


We, the undermentioned directors, state that, in the opinion of the directors, the accompanying consolidated financialstatements of the Group set out on pages 3 to 20 are drawn up so as to give a true and fair view of the state of affairs of theGroup and the company as at 31 March 2007 and of the results, changes in equity and cash flows of the Group for thefinancial year then ended and at the date of this statement there are reasonable grounds to believe that the company will beable to pay its debts as and when they fall due.

Pg. 131

AUDITORS' REPORT

We have audited the financial statements of the Company set out on pages 3 to 21, which comprise the balance sheet as at31 March 2007, and the income statement, statement of changes in equity and cash flow statement for the year then ended,and a summary of significant accounting policies and other explanatory notes.


The Company's directors are responsible for the preparation and fair presentation of these financial statements inaccordance with the provisions of the Singapore Companies Act, Cap. 50 (the ”Act”) and Singapore Financial ReportingStandards. This responsibility includes: designing, implementing, and maintaining internal controls relevant to thepreparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in thecircumstances.


Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit inaccordance with Singapore Standards on auditing. Those standards require that we comply with ethical requirements andplan and perform the audit to obtain reasonable assurance whether the financial statements are free from materialmisstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financialstatements. The procedures selected depend on the auditor's judgement, including the assessment of the risks of materialmisstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditorconsiders internal control relevant to the entity's preparation and fair presentation of the financial statements in order todesign audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policiesused and the reasonableness of accounting estimates made by directors, as well as evaluating the overall presentation of thefinancial statements.


Opinion

In our opinion,

(a) the consolidated financial statements of the Group and the balance sheet, income statement and statement of changesin equity of the Company are properly drawn up in accordance with the provisions of the Singapore Companies Act, Cap.50 (the “Act”) and Singapore Financial Reporting Standards so as to give a true and fair view of the state of affairs of theGroup and of the Company as at 31 March 2007 and the results, changes in equity of the Group and of the Company, andcash flows of the Group for the financial year ended on that date; and

(b) the accounting and other records required by the Act to be kept by the Company and by those subsidiaries incorporatedin Singapore of which we are the auditors have been properly kept in accordance with the provisions of the Act.

Singapore - May 30, 2007 JAMES CHAN & PARTNERSCERTIFIED PUBLIC ACCOUNTANTS



Group

Notes 2007 US$ 2007 Rs* 2006 US$ 2006 Rs*

SHARE CAPITAL 4 600,000 260.82 15,000 6.70

RESERVES

5 23,479,635 10,206.60 4,442,180 1,983.88

24,079,635 10,467.42 4,457,180 1,990.58

REPRESENTED BY

NON-CURRENT ASSETS

Property, plant and equipment 6 93,799,591 40,774.68 - -

Charter hire paid in advance 7 20,390,948 8,863.95 32,436,154 14,485.99

Convertible bonds issue expenditure 1,785,000 775.94 - -

Investment in subsidiary companies 8 - - - -

115,975,539 50,414.57 32,436,154 14,485.99

CURRENT ASSETS

Inventory 1,849,742 804.08 2,206,369 985.36


Amount due from ultimate holding company - - 502,581 224.45

Amount due from immediate holding company 9 2,924,288 1,271.19 - -

Amount due from subsidiary companies 10 - - - -

Amount due from a related party 11 2,500,000 1,086.75 - -


Other receivables 12 7,305,100 3,175.53 595,699 266.04

Deferred Expenditure 13 319,910 139.06 492,555 219.97

Fixed deposits 14 51,117,595 22,220.82 - -

Cash and bank balances 15 3,332,560 1,448.66 13,078,135 5,840.70

89,103,498 38,733.29 35,707,623 15,947.02


Trade payables 5,939,811 2,582.03 1035710 462.55

Other payables 16 1,363,991 592.93 571,679 255.31


Charter hire received in advance - - 575,908 257.20

Term loan – secured 18 4,400,000 1,912.68 - -

Bank overdraft – unsecured 9 0.01 - -

Provision for taxation 42,000 18.26 3,300 1.47

(13,292,544) (5,778.27) (2,187,597) (976.98)

Net current assets 75,810,954 32,955.02 33,521,026 14970.49


Amount due to ultimate holding company 17 62,899,364 27,342.35 61,500,000 27,465.90


Convertible bonds 19 46,707,494 20,303.75 - -

(167,706,858) (72,902.17) (61,500,000) (27465.90)

Total net assets 24,079,635 10,467.42 4,457,180 1990.58


Pg. 132

BALANCE SHEET



Company

Notes 2007 US$ 2007 Rs* 2006 US$ 2006 Rs*

SHARE CAPITAL 4 600,000 260.82 15,000 6.70

RESERVES

5 22,120,189 9,615.65 4,892,376 2,184.93

22,720,189 9,876.47 4,907,376 2,191.63

REPRESENTED BY

NON-CURRENT ASSETS

Property, plant and equipment 6 32,928,423 14,313.98 - -


Convertible bonds issue expenditure 1,785,000 775.94 - -

Investment in subsidiary companies 8 10,002 4.35 10,000 4.47

55,114,373 23,958.22 32,446,154 14,490.45

CURRENT ASSETS

Inventory 1,502,635 653.20 2,206,369 985.36


Amount due from ultimate holding company - - 502,581 224.45

Amount due from immediate holding company 9 2,924,288 1,271.19 - -

Amount due from subsidiary companies 10 26,321,142 11,441.80 855,335 381.99

Amount due from a related party 11 2,500,000 1,086.75 - -


Other receivables 12 1,179,005 512.51 522,087 233.16

Deferred Expenditure 13 319,910 139.06 492,555 219.97

Fixed deposits 14 51,117,595 22,220.82 - -

Cash and bank balances 15 2,930,206 1,273.76 12,722,620 5,681.92

108,549,084 47,186.29 36,133,831 16,137.37


Trade payables 5,939,811 2,582.03 1,035,710 462.55

Other payables 16 1,307,866 568.53 557,691 249.06


Charter hire received in advance - - 575,908 257.20


Bank overdraft – unsecured - - - -

Provision for taxation 42,000 18.26 3,300 1.47

(9,836,410) (4,275.89) (2,172,609) (970.29)

Net current assets 98,712,674 42,910.49 33,961,222 15,167.08


Amount due to ultimate holding company 17 62,899,364 27,342.35 61,500,000 27,465.90


Convertible bonds 19 46,707,494 20,303.75 - -

(131,106,858) (56992.15) (61,500,000) (27,465.90)

Total net assets 22,720,189 9,876.47 4,907,376 2191.63


BALANCE SHEET(*Amount Rs In Lacs)


GROUP Share Capital Other Reserves Revenue Reserve Total


Balance as at date of incorporation 15,000 6.52 - - - - 15,000 6.52

Net profit for the financial year - - - - 4,442,180 1,931.01 4,442,180 1,931.01

Balance as at 31 March 2006 15,000 6.52 - - 4,442,180 1,931.01 4,457,180 1,937.53

Shares issued during the financial year 585,000 254.30 - - - - 585,000 254.30

Convertible bonds-equity component - - 4,292,506 1,865.95 - - 4,292,506 1,865.95

Net profit for the financial year - - - - 14,744,949 6,409.63 14,744,949 6,409.63

Balance as at 31 March 2007 600,000 260.82 4,292,506 1,865.95 19,187,129 8,340.64 24,079,635 10467.41


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FORTHE FINANCIAL YEAR ENDED 31 MARCH 2007

Group Company

Notes 2007 US$ 2007 Rs* 2006 US$ 2006 Rs* 2007 US$ 2007 Rs* 2006 US$ 2006 Rs*

Revenue 20 86,311,054 37,519.71 52,110,122 23,272.38 82,021,281 35,654.65 36,872,346 16,467.19

Direct operating expenses (65,360,624) (28,412.26) (46,922,934) (20,955.78) (63,748,666) (27,711.55) (32,181,126) (14,372.09)

Changes in inventories (356,627) (155.02) 2,206,369 985.36 (703,734) (305.91) 2,206,369 985.36

Other income 809,642 351.95 582,787 260.27 820,307 356.59 186 0.08

Staff costs 21 (367,035) (159.55) (26,193) (11.70) (367,035) (159.55) (26,193) (11.70)

Depreciation (1,431,715) (622.37) - - (799,834) (347.69) - -

Administrative expenses (614,731) (267.22) (152,922) (68.29) (592,274) (257.46) (138,949) (62.05)

Profit from operations 18,989,964 8,254.94 7,797,229 3,482.24 16,630,045 7,229.08 6,732,633 3,006.79

Finance expenses (4,204,961) (1,827.90) (3,351,749) (1,496.89) (3,654,684) (1,588.69) (1,836,957) (820.38)

Profit before taxation 22 14,785,003 6,427.04 4,445,480 1,985.35 12,975,361 5,640.39 4,895,676 2,186.41

Taxation 23 (40,054) (17.41) (3,300) (1.47) (40,054) (17.41) (3,300) (1.47)

Net profit after taxation 14,744,949 6,409.63 4,442,180 1,983.88 12,935,307 5,622.98 4,892,376 2,184.93


INCOME STATEMENT FOR THE FINANCIAL YEAR ENDED 31 MARCH 2007



Pg. 135

CONSOLIDATED CASH FLOW STATEMENT FOR THE FINANCIAL YEAR ENDED 31 MARCH 2007

Note Group Group 2006

US$ Rs* US$ Rs*

2007


Profit before taxation 14,785,003 6,427.04 4,445,480 1,985.35

Adjustments for:

Depreciation 1,431,715 622.37 - -

Interest expense 4,204,961 1,827.90 3,351,749 1,496.89

Operating profit before working capital changes 20,421,679 8,877.31 7,797,229 3,482.21

Decrease/(increase) in inventories 356,627 155.02 (2,206,369) (985.36)

Decrease/(increase) in charter hire paid in advance 22,062,341 9,590.50 (49,903,959) (22,287.11)

Increase in amount due from immediate holding company (2,924,288) (1,271.19) - -

Increase in amount due from a related party (2,500,000) (1,086.75) - -

Increase in trade and other receivables (17,648,555) (7,671.83) (1,960,178) (875.41)

Decrease/(increase) in deferred expenditures 172,645 75.05 (492,555) (219.97)

Increase in FCCB issue expenditure (1,785,000) (775.94) - -

Increase in trade and other payables 5,696,413 2,476.23 1,607,389 717.86

(Decrease)/increase in charter hire received in advance (575,908) (250.35) 575,908 257.20

Increase in amount due to ultimate holding company 1,546,733 672.36 - -

Changes in working capital 4,401,008 1,913.12 (52,379,764) (23,392.81)

Net cash generated from/(used in) operating activities 24,822,687 10,790.42 (44,582,535) (19,910.56)

Income tax paid (1,354) (0.59) - -

CASH FLOWS FROM INVESTING ACTIVITY

Purchase of property, plant and equipment (95,231,306) (41,397.05) - -


Foreign currency convertible bonds 51,000,000 22,169.70 - -

Bank borrowing 62,500,000 27,168.75 - -

Loan from ultimate holding company 1,399,364 608.30 61,500,000 27,465.90

Decrease/(increase) in amount due from holding company 502,581 218.47 (502,581) (224.45)

Issue of shares 585,000 254.30 15,000 6.70

Interest paid (4,204,961) (1,827.90) (3,351,749) (1,496.89)

Net cash generated from financing activities 111,781,984 48,591.63 57,660,670 25,751.25

Net increase in cash and cash equivalents 41,372,011 17,984.41 13,078,135 5,840.69

Cash and cash equivalents at beginning of the financial year 13,078,135 5,685.07 - -

Cash and cash equivalents at end of the financial year 24 54,450,146 23,669.48 13,078,135 5,840.69



Mercator Lines 23rd Annual Report - 2006-07 I I Mercator Lines (Singapore) Pte. Ltd.


SrNo.

Pg. 136



The ultimate holding company is Mercator Lines Limited, incorporated in India and the immediate holding company isMercator International Pte Ltd, incorporated in Singapore. The company is incorporated as a limited liability company and domiciled in the Republic of Singapore.

Its registered office is located at 80 Raffles Place, #25-01 UOB Plaza Singapore 048624.



The financial statements of the group and the company have been prepared in accordance with the provisions of theSingapore Companies Act, Cap. 50 (the “Act”) and the Singapore Financial Reporting Standards (“FRS”).

The financial statements expressed in United States dollars are prepared in accordance with the historical costconvention.

The preparation of financial statements in conformity with FRS requires the use of estimates and assumptions thataffect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expenses during the financial year. Althoughthese estimates are based on management's best knowledge of current events and actions, actual results mayultimately differ from those estimates.

(b) Adoption of Revised FRS

In the current financial year, the company has adopted all the new and revised FRSs and Interpretations of FRS (“INTFRS”) issued by the Council on Corporate Disclosure and Governance that are relevant to its operations andeffective for annual periods beginning on or after 1 April 2006.


FRS 21 (Amendment) Effects of Changes in Foreign Currency RatesFRS 27 (Amendment) Consolidated and Separate Financial Statements.FRS 32 (Amendment) Financial Instruments: Disclosure and PresentationFRS 39 (Amendment) Financial Instruments : Recognition and Measurement



Property, plant and equipment are stated at cost less accumulated depreciation and any impairment lossrecognised in accordance with note 2(q) to the financial statements. Depreciation is calculated on the reducingbalance method (except for vessels) so as to write off the cost of the assets over their estimated useful lives. Theannual rates of depreciation are as follows:Vessels 20 yearsComputer 40%Furniture and fittings 18.10%Motor vehicle 25.89%

(d) Functional and Presentation Currency

Items included in the financial statements of each entity in the Group are measured using the currency of the primaryeconomic environment in which the entity operates (“the functional currency”). The consolidated financialstatements are presented in United State Dollars, which is the Company's functional and presentation currency.

NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2007

Pg. 137

(e) Foreign Currency Transactions and Balances

Transactions in a currency other than the functional currency (foreign currency) are translated into the functionalcurrency at the exchange rates prevailing at the date of the transactions. Monetary assets and liabilitiesdenominated in foreign currencies at the balance sheet date are translated at exchange rates ruling at that date.Foreign exchange differences arising from translation are recognised in the income statement, except for currencytranslation differences on net investment in foreign entities, borrowings in foreign currencies and other currencyinstruments qualifying as net investment hedges for foreign operations, which are included in the currencytranslation reserve within equity, in the consolidated financial statements.

(f) Derivative financial instruments and hedging activities

A derivative financial instrument is initially recognised at its fair value on the date the contract is entered into and issubsequently carried at its fair value. The method of recognising the resulting gain or loss depends on whether thederivate is designated as a hedging instrument, and if so, the nature of the item being hedged. The Groupdesignates certain derivatives as either (1) hedges of the fair value of firm commitments denominated in foreigncurrencies (fair value hedges); or (2) hedges of highly probable forecasted transactions (cash flow hedges).

The Group documents at the inception of the transaction the relationship between hedging instruments and hedgeditems, as well as its risk management objective and strategies for undertaking various hedge transactions. TheGroup also documents its assessment, both at hedge inception and an ongoing basis, of whether the derivativesdesignated as hedging instruments are highly effective in offsetting changes in fair value or cash flows of hedgeditems.

(i) Fair value hedge

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognised in theincome statement. The changes in fair value relating to the effective portion of the derivatives are recognised inthe income statement within the same line item as the gains and losses from the hedged item. The changes infair values relating to the ineffective portion of the derivatives are recognised in the income statement.

(ii) Cash flow hedge

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flowhedges are recognised in the hedging reserve within equity and transferred to the income statement in theperiods when the hedged items affect the income statement. The gain or loss relating to the ineffective portion isrecognised immediately in the income statement.

(g) Basis of Consolidation

The consolidated financial statements include the financial statements of the company and its subsidiarycompanies, details of which is set out in note 6 to the financial statements. All significant inter-company balancesand transactions within the group have been eliminated on consolidation.

(h) Inventory

Bunkers comprise mainly bunkers and consumable stores. Inventory is stated at the lower of cost and net realisablevalue. Net realisable value is the estimated selling price in the ordinary course of business, less the costs ofcompletion and selling expenses.

(i) Financial Assets

Financial assets which are within the scope of FRS 39 are classified as either financial assets at fair value throughprofit or loss, loans and receivables, held-to-maturity investments, or available-for-sale financial assets asappropriate. Financial assets are assigned to the different categories by management on initial recognition,depending on the purpose for which the assets were acquired.




INCOME STATEMENT FOR THE PERIOD ENDED 31 MARCH 2007

The company's financial assets comprise amounts due from holding and subsidiary companies, trade and otherreceivables. The financial assets are recognised in the balance sheet, when and only when, the company becomesa party to the contractual agreements governing the financial instruments.

(j) Trade and Other Receivables

Trade and other receivables are initially recognised at fair value and subsequently re-measured at amortised cost using the effective interest method, less allowance for impairment. An allowance for impairment of trade and otherreceivables is established when there is objective evidence that the company will not be able to collect all theamounts due according to the original terms of the receivables. The amount of the allowance is the differencebetween the asset's carrying amount and the present value of estimated future cash flows, discounted at the originaleffective interest rate. The amount of the allowance is recognised in the income statement.

(k) Trade and Other Payables

Trade and other payables are initially recognized at fair value and subsequently carried at amortized cost, using theeffective interest method.

(l) Cash and Cash Equivalents

Cash and cash equivalents comprise of cash and bank balances with financial institutions which are subject to aninsignificant risk of changes in value. Cash equivalents are stated at amounts at which they are convertible intocash.

(m) Financial Liabilities

Financial liabilities include amount due from holding company, trade and other payables.

Financial liabilities are recognised when the company becomes a party to the contractual agreements governing theinstrument. Trade and other payables are initially recognised at fair value and subsequently re-measured atamortised cost, using the effective interest method.

(n) Subsidiary

A subsidiary is an entity over which the Group has the power to govern the financial and operating policies so as toobtain benefits from its activities. The existence and effect of potential voting rights that are currently exercisable orconvertible are considered when assessing whether the Group controls an entity.

Investment in subsidiary is stated in the Company's financial statements at cost less any impairment losses. On disposal of a subsidiary, the difference between net disposal proceeds and the carrying amount of the investment istaken to income statement.

(o) Taxation

Current year taxation is based on tax payable on the income for the financial year that is chargeable to tax.

No provision is made for taxation on qualifying shipping income derived which is exempt from taxation under Section13A of the Singapore Income Tax Act and the Singapore's Approved International Shipping Enterprise Tax Incentive.

Deferred tax is provided using the balance sheet liability method, providing for all taxable temporary differencesbetween the carrying amounts of all assets and liabilities for financial reporting purposes and the amounts used fortaxation purposes.

Deferred tax assets are recognized to the extent that it is probable that future taxable profits will be available againstwhich the temporary differences or tax losses can be utilized.

Pg. 139


(p) Income Recognition

Income of freight earnings is recognised when loading of the cargo is completed before the close of the financial year. All direct expenses of the voyage are recognised with the income. Where loading of the cargo is notcompleted, revenue is not recognised and the related expenses are carried the next accounting year under loansand advances or prepaid expenses. Income from time charter is recognised on an accrual basis.

(q) Impairment of Assets

The carrying amounts of the company's assets are reviewed at each balance sheet date to determine whether thereis any indication of impairment. If such indication exists, the asset's recoverable amount is estimated. An impairmentloss is recognised whenever the carrying amount of an asset exceeds its recoverable amount. The recoverableamount is the greater of the asset's net selling price and its value in use. The value in use is the present value ofestimated future cash flows expected to arise from the continuing use of the asset and from its disposal at the end ofits useful life.

An impairment loss is charged to the income statement unless it reverses a previous revaluation, in which case it willbe charged to equity. An impairment loss is reversed if there has been a change in the estimates used to determinethe recoverable amount or when there is an indication that the impairment loss recognised for the asset no longerexists or decreases. An impairment loss is reversed only to the extent that the asset's carrying amount does notexceed the carrying amount that would have been determined if no impairment loss had been recognised.

(r) Provisions

Provisions are recognised when the company has a legal or constructive obligation as a result of past events, it isprobable that an outflow of resources will be required to settle the obligation and a reliable estimate of the amountcan be made.

(s) Employee Benefits

Defined contribution plans

The company makes contributions to the state provident fund (Central Provident Fund). Such contributions arerecognised as compensation expense in the same period as the employment that gave rise to the contributions.

(t) Borrowing Costs



The principal activity of the company consists of the ownership and charter of shipping vessels, and shipping activities.

4. SHARE CAPITAL

During the financial year, the company issued 974,998 ordinary shares and all issued shares are fully paid.




Company2007 S$ 2007 Rs* 2006 S$ 2006 Rs*

2007 US$ 2007 Rs* 2006 US$ 2006 Rs* 2007 US$ 2007 Rs* 2006 US$ 2006 Rs*

Vessels in Computer Furniture and Motor TotalGroup Operation fittings vehicle

US$ Rs* US$ Rs* US$ Rs* US$ Rs* US$ Rs*

Issued and fully paid:

1,000,000(2006:25,002) ordinary shares 1,000,000 25,002

Equivalent to US$ 600,000 260.82 15,000 6.70

During the financial year, the company issued 974,998 ordinary shares and all issued shares are fully paid.

With effect from 30 January 2006, the concepts of authorized share capital & par value have been abolished following amendments to the Singapore Companies Act.

5. RESERVES

(a) Composition:

Equity component of convertible bonds 4,292,506 1,865.96 - - 4,292,506 1,865.96 - -

Retained earnings 19,187,129 8,340.64 4,442,180 1,983.88 17,827,683 7,749.69 4,892,376 2,184.93

23,479,635 10,206.60 4,442,180 1,983.88 22,120,189 9,615.69 4,892,376 2,184.93

(b) Movements:

Equity component of convertible bonds

Convertible bonds-equity

component (note 19) 5,234,763 2,275.55 - - 5,234,763 2,275.55 - -

Tax on equity component (942,257) (409.60) - - (942,257) (409.60) - -

End of financial year 4,292,506 1,865.95 - - 4,292,506 1,865.95 - -


Cost Balance as at 1.4.2006 - - - - - - - - - - Additions 95,100,010 41,339.97 1,260 0.55 79,336 34.49 50,700 22.04 95,231,306 41,397.05

Balance as at 31.3.2007 95,100,010 41,339.97 1,260 0.55 79,336 34.49 50,700 22.04 95,231,306 41,397.05

Accumulated depreciation Balance as at 1.4.2006 - - - - - - - - - - Depreciation charged for the financial year 1,418,878 616.79 374 0.16 3,580 1.56 8,883 3.86 1,431,715 622.37

Balance as at 31.3.2007 1,418,878 616.79 374 0.16 3,580 1.56 8,883 3.86 1,431,715 622.37

Net book valueBalance as at 31.3.2007 93,631,132 40,701.43 886 0.39 75,756 32.93 41,817 18.18 93,799,591 40774.68

At the balance sheet date, the net book value amounting to US$93,631,132 (2006: Nil) of vessels of the Group chargedby way of legal mortgages to banks for term loans (note 17) amounted to US$62,500,000 (2006: Nil).

Group Company






Pg. 141


Vessels in Computer Furniture and Motor TotalCompany Operation fittings vehicle

US$ Rs* US$ Rs* US$ Rs* US$ Rs* US$ Rs*

Group and Company 2007 Group and Company 2006 US$ Rs* US$ Rs*

Company 2007 Company 2006

US$ Rs* US$ Rs*

Cost

Balance as at 1.4.2006 - - - - - - - - - -

Additions 33,596,961 14,604.60 1,260 0.55 79,336 34.49 50,700 22.04 33,728,257 14,661.67

Balance as at 31.3.2007 33,596,961 14,604.60 1,260 0.55 79,336 34.49 50,700 22.04 33,728,257 14,661.67

Accumulated depreciation

Balance as at 1.4.2006 - - - - - - - - - -

Depreciation charged for

the financial year 786,997 342.11 374 0.16 3,580 1.56 8,883 3.86 799,834 347.69

Balance as at 31.3.2007 786,997 342.11 374 0.16 3,580 1.56 8,883 3.86 799,834 347.69

Net book value

Balance as at 31.3.2007 32,809,964 14262.49 886 0.39 75,756 32.93 41,817 18.18 32,928,423 14,313.98

At the balance date, the net book value amounting to US$ 32,809,964 (2006: Nil) of vessel of the company charged byway of legal mortgages to banks for term loans (Note 18) amounted to US$ 22,500,000 (2006: Nil).

The open market value of the vessel in operation, based on a desk - top valuation carried out by professional valuers,Messrs R. S. Platou (ASIA) Pte Ltd, on 27 September 2006 is US$ 44,000,000. The excess of this valuation amount overthe carrying cost of the vessel in operation is not recognized in the financial statements.

7. CHARTER HIRE PAID IN ADVANCE

Receivable within 1 year 7,450,670 3,238.81 17,467,805 7,801.12

Receivable after 1 year but not later than 5 years 20,390,948 8,863.94 32,436,154 14,485.97

27,841,618 12,102.75 49,903,959 22287.11

One of the chartered vessels was damaged in the current financial year and could not be utilized. The balance of theunamortized charter hire for this vessel as at the financial year end was approximately $9.69 million. The company haslodged a claim with the charterer for either providing an alternate vessel to the company or for recovery of the advancecharter hire paid and losses incurred.

8. INVESTMENT IN SUBSIDIARY COMPANY

Unquoted equity investment - at cost 10,002 4.35 10,000 4.47





9. AMOUNT DUE FROM IMMEDIATE HOLDING COMPANY

The amount due from immediate holding company is unsecured, interest-free, non-trade in nature and repayable on demand.

10. AMOUNT DUE FROM SUBSIDIARY COMPANIES

The amount due from subsidiary companies are unsecured, interest-free, non-trade in nature and repayable on demand.

11. AMOUNT DUE FROM A RELATED PARTY

The amount due from a related party is unsecured, interest-free, non-trade in nature, andrepayable on demand.


Other debtors 725,231 315.26 73,612 32.88 725,231 315.26 - -

Deposits 6,366,085 2767.34 8,932 3.99 263,669 114.61 8,932 3.99

Prepayments 213,784 9293.19 2,143 0.96 190,105 82.64 2,143 0.96

Advances to suppliers and port agents - - 511,012 228.22 - - 511,012 228.22

7,305,100 3175.52 595,699 266.04 1,179,005 512.51 522,087 233.16

13. DEFERRED EXPENDITURE

Total Pre-Operating Expenses 492,555 214.11 607,158 271.16

Less: Amount recovered by subsidiary company - - (51,126) (22.83)

Charged to income statement (172,645) (75.05) (63,477) (28.35)

319,910 139.06 492,555 219.98

Group Company


Group and Company 2007 Group and Company 2006

US$ Rs* US$ Rs*

Mercator Lines (Panama) Inc.

Varsha Marine Pte Ltd

Vidya Marine Pte Ltd

To carry on the business as charterers of ships

Business as shipping services,ship management,logistics other related services

Business as shipping services,ship management,logistics other related services

Republic of Panama

Incorporated inSingapore

Incorporated inSingapore

100

100

100

Company 2007US$ Rs*

10,000 4.34

1 0.01

1 0.01

10,002 4.36

Company 2006US$ Rs*

10,000 4.34

- -

- -

10,000 4.34

Cost ofInvestment

Principalactivities

Country of incorporation/ Place

of business

Percentage of shareholdings

Name ofsubsidiarycompanies

Cost ofInvestment




Pg. 143


14. FIXED DEPOSITS WITH BANKS

All fixed deposits mature within a year and bear interest at rates ranging from 5.16% to 5.40% per annum.

15. CASH AND BANK BALANCES

Cash and bank balances in the cash flow statement comprise the following balance sheet amount:

Cash and bank balances 2,780,373 1,208.63 13,060,248 5832.70 2,381,893 1,035.41 12,704,733 5,673.93

Cash at banks 552,187 240.04 17,887 7.99 548,313 238.35 17,887 7.99

- Group SGD837,662 (2006: SGD26,624)

- Company SGD831,786 (2006: SGD26,624)

3,332,560 1,448.67 13,078,135 5840.69 2,930,206 1,273.76 12,722,620 5,681.92

Cash at banks are not denominated in the functional currency of the group and the company.

16. OTHER PAYABLES

Withholding tax - - 502,762 224.53 - - 502,762 224.53

Other creditors 83,810 36.43 13,988 6.25 79,052 34.36 - -

Provision for port expenses 541,900 235.56 1,480 0.66 541,900 235.56 1,480 0.66

Accrued expenses 473,238 205.72 53,410 23.85 421,871 183.39 53,410 23.85

Amount owing to director* 265,043 115.21 39 0.02 265,043 115.21 39 0.02

1,363,991 592.92 571,679 255.31 1,307,866 568.52 557,691 249.06

* The amount owing is interest-free, non-trade in nature, unsecured and repayable on demand.

17. AMOUNT DUE TO ULTIMATE HOLDING COMPANY

Current liability 1,546,733 672.36 - -

Non current liability 62,899,364 27,342.35 61,500,000 27,465.90

64,446,097 28,014.72 61,500,000 27,465.90

The amount due to ultimate holding company is non-trade in nature, unsecured and repayable on demand.

The effective interest rate for this loan is 7.75% to 8.0% (2006:7.875%) per annum as at balance sheet date.

18. TERM LOAN - SECURED

Term loans repayable

- within one year 4,400,000 19,12.68 - - 1,000,000 434.70 - -

- after one year but not later

than five years 26,000,000 11,302.20 - - 9,000,000 3,912.30 - -

- after five years 32,100,000 13,953.87 - - 12,500,000 5,433.75 - -

58,100,000 25,256.07 - - 21,500,000 9,346.05 - -

62,500,000 27,1687.50 - - 22,500,000 10,048.50 - -

Group Company


Group Company



US$ Rs* US$ Rs*

Group Company







Pg. 144


The bank term loans bears interest at 6.26% to 6.37% (2006: nil) and are secured by legal mortgages over the group andthe company vessels with a total net book value of $ 98,631,132 (2006: nil) and $32,809,964 (2006:nil) respectively.

19. CONVERTIBLE BONDS

On 28 March 2007, the company issued convertible bonds at a nominal value of US $51,000,000 as follows:

Secured convertible bonds due 2009 (Bonds-A) 35,000,000 15,214.50 - -

Unsecured convertible bonds due 2012 (Bonds-B) 16,000,000 6,955.20 - -

51,000,000 22,169.70 - -

Bonds-A are zero coupon secured convertible bonds due 2009, and Bonds B are 2.5% unsecured convertible bonds due 2012.Bonds A are only mandatorily convertible on and after 2 April 2009 in the event of an Initial Public Offering on SGX-ST by thecompany on close of business on 30 March 2009 while Bonds B are optionally convertible on and after 45 days from the dateof listing of the ordinary shares of the company on SGX-ST or an alternative Exchange pursuant to the IPO, and on or beforethe close of business on 12 March 2012.Bonds-A are secured by a second ranking mortgage on the vessel of the company.

The initial conversion price of Bonds A will be at a discount which is the higher of such amount as to yield 15% IRR to theBondholders or 10% discount to the IPO price.The initial conversion price of Bonds B will be 10% premium to 45 days Volume Weighted Average Price of the shares listed onSGX-ST or an alternative Exchange after the date of listing.

The carrying amount of the liability components of the convertible bonds at the balance sheet date is analysed as follows:

Face value of convertible bonds issued

on 28 March 2007 51,000,000 22,169.70 - -

Equity conversion component (Note 5) 4,292,506 1,865.95 - -

Liability component on initial recognition

At 28 March 2007 46,707,494 20,303.75 - -

As the convertible bonds were issued near the financial year end, the carrying amounts approximate their fair values.

The equity components were calculated on the effective interest basis by applying the interest rate of 5.2% per annum for an equivalent non-convertible bond at the date of issue to the liability components of the convertible bonds.

20. REVENUE


Charter of ships 33,248,138 14,451.96 28,522,569 12,738.18 33,248,138 14452.96 18,480,099 8,253.21

Freight income 51,411,195 22,348.95 22,915,095 10,233.88 47,616,220 20698.71 17,719,789 7,913.66

Demurrage 1,651,721 718.00 672,458 300.32 1,156,923 502.91 672,458 300.32

86,311,054 37,519.41 52,110,122 23,272.38 82,021,281 35654.65 36,872,346 16,467.19


US$ Rs* US$ Rs*

Group and Company Group and Company

2007 US$ 2007 Rs* 2006 US$ 2006 Rs*

Group Company

2007 2006 2007 2006







21. STAFF COSTS

Director’s remuneration 108,000 46.95 9,529 4.26

Director’s accommodation 21,605 9.39 7,999 3.57

Salaries and bonus 235,566 102.40 8,479 3.79

CPF and SDL 1,814 0.79 180 0.08

Staff welfare 50 0.08 6 0.01

367,035 159.55 26,193 11.70

22. PROFIT BEFORE TAXATION

This is stated after charging/(crediting) the following items which have not been otherwise disclosed in the income statement:-

Key management remunerations

- Director’s remuneration 108,000 46.95 9,529 4.25 108,000 46.95 9,529 4.25

- Accommodation for director 21,605 9.39 7,999 3.57 21,605 9.39 7,999 3.57

- Director’s commission 265,043 115.21 - - 265,043 115.21 - -

Interest on loan from ultimate holding company 4,204,961 1,827.90 3,351,749 1496.89 3,654,684 1588.69 1,836,957 820.38

Loss on foreign exchange translation 4,332 1.88 346 0.15 4,332 1.88 346 0.15

Loss on forward freight agreements - - 173,836 77.63 - - 173,836 77.63

23. TAXATION

Provision for current year taxation 42,000 18.25 3,300 1.47


40,054 17.41 3,300 1.47

Reconciliation of tax

Profit before taxation 14,785,003 6,427.04 12,975,361 5,794.80 4,445,480 1,932.45 4,895,676 2,186.41

Taxation at statutory rate of 18% (2006: 20%) 2,661,301 1,156.87 2,335,565 1,043.06 889,096 386.49 979,135 437.28

Tax effects of:-

Unutilisation of tax losses 4,393 1.91 - - 90,039 39.14 - -

Non-deductible expenses 64,563 28.06 64,364 28.74 13,060 5.68 13,060 5.83

Qualifying shipping income exempt from tax (2,700,512) (1,173.91) (2,257,401) (1,008.15) (978,395) (425.31) (978,395) (436.95)

Statutory stepped income exemption (101,483) (44.11) (100,528) (44.90) (10,500) (4.56) (10,500) (4.69)

Movement in temporary difference 113,738 49.44 - - - - - -

Over-provision in prior year (1,946) (0.84) (1,946) (0.87) - - - -

40,054 17.41 40,054 17.89 3,300 1.43 3,300 1.47


US$ Rs* US$ Rs*

Group Company

2007 2006 2007 2006


Group and Company 2007 Group and Company 2006US$ Rs* US$ Rs*

Group Company Group Company2007 US$ 2007 Rs* 2006 US$ 2006 Rs* 2007 US$ 2007 Rs* 2006 US$ 2006 Rs*Particular








Cash and cash equivalents in the cash flow statement comprise cash and bank balances as shown in the balance sheet.

Fixed deposits 51,117,595 22,220.82 - - 51,117,595 22,220.82 - -

Cash and bank balances 3,332,560 1,448.65 13,078,135 5,840.70 2,930,206 1,273.76 12,722,620 5,681.92

Bank overdraft - unsecured (9) (0.01) - - - - - -

54,450,146 23,669.48 13,078,135 5,840.70 54,047,801 23,494.57 12,722,620 5,681.92

25. RELATED PARTY DISCLOSURES

Significant transactions and balances between the company and its related parties, not otherwise disclosed in thefinancial statements, are as follows:

(a) Ultimate holding company

Shipping Income – freight 8,815,287 3,832.00 4,562,355 2,037.55

Ship Operating Expenses – vessel hire 4,915,532 2,136.78 1,782,803 796.20

Interest on loan 2,950,003 1,282.32 3,353,293 1,497.58

(b) Immediate holding company

Ship Operating Expenses – vessel hire 1,366,884 594.18 - -

(c) Subsidiary company

Ship Operating Expenses – vessel hire - - 3,111,747 1,389.70

Interest recoverable - - 1,514,792 676.51

Related party transactions were based on terms agreed by both parties.

26. OPERATING LEASE COMMITMENTS

Lease commitments under non-cancellable operating lease where the company is a lessee are as follows:

Payable within 1 year 96,336 41.88 24,918 11.13

Payable after 1 year but not later than 5 years 25,883 11.25 18,688 8.35

122,219 53.13 43,606 19.48

The above are based on known rental rates as at the date of this report .


The Group is exposed to the following risks: Currency risk, credit risk and liquidity risk. The Group does not hold or issuederivative financial instruments for trading purposes or to hedge against fluctuations, if any, in interest rates and foreignexchange.

(i) Foreign exchange risk

The Group's operational activities are mainly carried out in United States dollars, the measurement and reporting currency of the Group. The risk arising from movements in foreign exchange rates is minimized as the Group hasminimal transactions in foreign currency.

Group Company


Company

2007 US$ 2007 Rs* 2006 US$ 2006 Rs*

2007 US$ 2007 Rs* 2006 US$ 2006 Rs*

Pg. 146





Pg. 147


(ii) Credit risk

Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in a financial loss tothe company. The Group does not expect to incur material credit losses as it is only dealing with creditworthycounterparties.

Trade receivables are monitored on an ongoing basis via management reporting procedures.

The maximum exposure to credit risk in relation to each class of recognised financial assets, is represented by thecarrying amount of each financial asset as indicated in the balance sheet.

(iii) Liquidity risk

Liquidity or funding risk is the risk that an enterprise will encounter difficulty in raising funds to meet commitmentsassociated with financial instruments. Liquidity risk may result from an inability to sell a financial asset quickly at close to its fair value.

The Group's exposure to liquidity risk is minimal as the Group has adequate cash and cash equivalents as and whenrequired to meet all its obligations in a timely manner.

(iv) Fair value

Financial assets of the Group include receivables, cash and cash equivalents. Financial liabilities of the Groupinclude payables and accruals. The carrying amounts of all the financial assets and liabilities of the companyapproximate their fair values.

28. CONTINGENT LIABILITIES

Protection and Indemnity (”P&I”) insurance has been arranged by the Company to cover the legal Liability of the Groupfor its shipping operations. Vessels operated by the Company are entered in P&I Association which are mutualprotection and indemnity associations and members of the International Group of P&I associations. A member of the mutual association is subject to calls payable to the associations based on the member's claims records as well as theclaim records of all other members in the International Group of P&I Associations, premiums are paid as advance callsduring the policy year and these premiums form a basic fund out of which claims and other outgoings are met.


The financial statements of the company for the financial year ended 31 March 2007 were authorised for issue inaccordance with a directors' resolution dated 30 May 2007.

Note: The annual accounts of foreign subsidiary companies have been prepared originally in US$ as per the laws prevailing in the respective countries. The amounts have beenconverted into Indian rupees for convenience purpose; at a mean rate of Rs.43.47 per US$ for financial year ended on March 31, 2007 and at a mean rate of Rs.44.66 per US$ for financial year ended on March 31, 2006 respectively.




Mercator Lines (Panama) Inc.(Incorporated in Panama)

Pg. 148

Registered Office

Board of Directors

Auditor

IBC Tower, Floor 9, Office No. 6, Manuel Espinosa, Batista Avenue, Panama City-552484

1) Shalabh Mittal2) Adip Mittal3) Aayush Agarwal

M/S Contractor, Nayak & Kishnadwala

Pg. 149

DIRECTORS' REPORT

REPORT OF DIRECTORS FOR THE PERIOD ENDED MARCH 31, 2007.

The Directors present their Report together with the Audited Financial Statements of the Company for the period ended on 31st March 2007.

Principal Activities

The Company remained dormant during the year under review.

Directors

The Directors of the Company at the date of this report are:

1) Shalabh Mittal2) Adip Mittal3) Aayush Agarwal

The Directors holding office at 31st March 2007 did not hold any beneficiary interest in the capital of the Company.

Share Option

There was no share option granted during the financial period to subscribe for unissued shares of the Company.

Auditors

The Auditors M/s Contractor Nayak & Kishnadwala have expressed their willingness to accept re-appointment.

On behalf of the Board

Shalabh MittalMay 4, 2007

Mercator Lines 23rd Annual Report - 2006-07 I I Mercator Lines (Panama) Inc

AUDITORS’ REPORT

To,The Shareholders,Mercator Lines (Panama) Inc

We have audited the attached Balance Sheet of Mercator Lines (Panama) Inc. as at March 31, 2007, the related Profit and Loss Account of the Company for the year ended on that date annexed thereto. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit conducted in accordance with auditing standards generally accepted in India.

In our opinion and to the best of our information and according to the explanations given to us, the said accounts give a true and fair view in conformity with the generally accepted accounting principles:

i) In case of Balance Sheet, of the state of affairs of the Company as at March 31, 2007;ii) In the case of Profit and Loss Account, of the loss of the company for the year ended on March 31, 2007.

For and on behalf ofContractor Nayak & KishnadwalaChartered Accountants

[H V Kishnadwala]PartnerMembership No. 37391Mumbai - May 4, 2007

Mercator Lines 23rd Annual Report - 2006-07IPg. 150 Pg. 151


For Contractor, Nayak and Kishnadwala. For and on behalf of the BoardChartered Accountants

(H.V. Kishnadwala) Shalabh MittalPartner DirectorM.No. 37391Mumbai - May 4, 2007 Singapore - May 4, 2007


31, March 2007US ($)

As at31, March 2006

SOURCES OF FUNDS

Shareholders FundsShare Capital A 10,000.00 4.35 10,000.00 4.47

Total 10,000.00 4.35 10,000.00 4.47


Current Assets, Loans & Advances CSundry Debtors - - 70,063.04 31.29Cash and Bank Balances 392,233.35 170.50 355,514.97 158.77Loans and Advances - - 3,549.00 1.58

392,233.35 170.50 429,127.01 191.65Current Liabilities and Provisions DCurrent Liabilities 855,335.26 371.81 869,323.02 388.24

855,335.26 371.81 869,323.02 388.24Net Current Assets (463,101.91) (201.31) (440,196.01) (196.59)

Miscelleneous ExpenditureProfit and Loss Account B 473,101.91 205.66 450,196.01 201.06

Total 10,000.00 4.35 10,000.00 4.47J

Notes to the AccountsSignificant Accounting Policies &

BALANCE SHEET AS AT 31 MARCH 2007

Rs* US ($) Rs*




PROFIT AND LOSS ACCOUNT

FOR THE YEAR ENDED 31 MARCH 2007


For Contractor, Nayak and Kishnadwala. For and on behalf of the BoardChartered Accountants

(H.V. Kishnadwala) Shalabh MittalPartner DirectorM.No. 37391Mumbai - May 4, 2007 Singapore - May 4, 2007


31, March 2007US ($)

As at31, March 2006

Rs. US ($) Rs.Schedule

As at31, March 2007

US ($)

As at31, March 2006

Rs* US ($) Rs*

INCOME

Shipping Income E - - 18,349,523.22 8194.90Sales and Other Income F - - 582,600.40 260.19Total - - 18,932,123.62 8455.09

EXPENSESShip Operating Expenses G - - 17,853,554.97 7973.40Administrative and General Expenses H 3,749.68 1.63 13,972.66 6.24Finance Charges I - - 1,514,792.00 676.51Total 3,749.68 1.63 19,382,319.63 8656.14

(Loss) for the year (3,749.68) (1.63) (450,196.01) (201.06)Prior Years expenses (19,156.22) (8.33) - -Balance brought forward from last year (450,196.01) (195.70) - -

Balance Carried to Balance Sheet (473,101.91) (205.66) (450,196.01) (201.06)

Significant Accounting Policies J& Notes to the Accounts


Pg. 153

CASH FLOW STATEMENT FOR THE PERIOD ENDED 31 MARCH 2007

Particulars

Cash Flow from Operating Activities

Net Profit Before Tax (3,749.68) (1.63)

Adjustment for:

Prior period expenses (19,156.22) (8.33)

Operating Profit before Working Capital Changes (22,905.90) (9.96)

Adjustment for:

Trade and Other Receivables 73,612.04 32.00

Trade Payables (13,987.76) (6.08)

Cash Generated from Operations 36,718.38 15.96

Cash Flow from Investing Activities - -

Net Cash from Investing Activities - -

Cash Flow from Financing Activities - -

Net Cash from Financing Activities - -

Net Increase in Cash and Cash Equivalents 36,718.38 15.96

Cash and Cash Equivalents as at beginning of the year 355,514.97 154.54

Cash and Cash Equivalents as at end of the year 392,233.35 170.50

Current Year

Amount Rs*

Current Year

Amount $




SCHEDULES FORMATING PART OF ANNUAL ACCOUNTS

SCHEDULE ‘A’

Share Capital

Authorised

100 Equity Shares of $ 100 each. 10,000.00 4.35 10,000.00 4.47

10,000.00 4.35 10,000.00 4.47

Issued Capital

100 Equity Shares of $. 100 each fully paid up 10,000.00 4.35 10,000.00 4.47


Equity

100 Equity Shares of $. 100 each fully paid up 10,000.00 4.35 10,000.00 4.47

10,000.00 4.35 10,000.00 4.47

SCHEDULE ‘B’


Profit and Loss Account

Surplus Balance in Profit & Loss Account (473,101.91) (205.66) (450,196.01) (201.06)

(473,101.91) (205.66) (450,196.01) (195.70)

SCHEDULE ‘C '

Current Assets

Sundry Debtors


Debts Outstanding over Six Months - - - -

Other Debts - - 70,063.04 31.29

- - 70,063.04 31.29


Balances with Bank 392,233.35 170.50 355,514.97 158.77

392,233.35 170.50 355,514.97 158.77

Loans and Advances


Advances recoverable in Cash or in Kind

or for value to be received - - 3,549.00 1.58

- - 3,549.00 1.58

SCHEDULE ‘D’

Current Liabilities

Sundry Creditors

For Services and Expenses - - 13,987.76 6.25

For Others (Mercator Singapore Pte. Ltd.) 855,335.26 371.81 855,335.26 381.99

855,335.26 371.81 869,323.02 388.24

SCHEDULE ‘E’

Shipping Income

Freight - - 5,195,305.64 2320.22

Charter Hire - - 13,154,217.58 5874.67

- - 18,349,523.22 8194.90

SCHEDULE ‘F’

Sales and Other Income

Profit on FFA - - 421,270.39 188.14

Interest received - - 161,330.01 72.05

- - 582,600.40 260.19

Particulars31-Mar-07

US ($) Rs*31-Mar-06

US ($) Rs*


Pg. 155

SCHEDULES FORMATING PART OF ANNUAL ACCOUNTS

Particulars

SCHEDULE ‘G’


Vessel /Equipment Hire - - 14,537,259.98 6429.34

Demmurrage and Despatch - - 34,147.57 15.25

Tug Hire - - 13,458.51 6.01

Agency fees - - 19,552.40 8.73

Fresh Water - - 19.82 0.01

Labour Charges - - 3,011.68 1.35

Bunker Survey Expenses - - 3,770.38 1.68

Professional and Consultancy fees - - 11,552.00 5.16

General expenses - - 1,059.45 0.47

Port expenses - - 355,311.33 158.68

Commission - - 768,750.00 343.32

Pre-operative expenses - - 51,126.00 22.83

Technical and Service Charges - - 527,656.52 235.65

Bunker Eepenses - - 1,520,495.32 679.05

Cable/Victualing Expenses - - 6,384.01 2.85

- - 17,853,554.97 7973.1

SCHEDULE ‘H'

Administrative and General Expenses

Commission - - 6,043.00 2.70

Travelling Expenses - - 1,252.00 0.56

Communication - - 557.66 0.25

Exchange Fluctuation - - 244.20 0.11

Miscellaneous Expenses - - 103.61 0.05

Bank Charges 200.75 0.09 4,272.19 1.91

Incorporation Expenses - - 1,500.00 0.67

Advances writtern-off 3,548.93 1.54 -

3,749.68 1.63 13,972.66 6.24

SCHEDULE ‘I’

Finance Charges

Interest on Loan - - 1,514,792.00 676.51

- - 1,514,792.00 676.51

- - 1,514,792.00 676.51

31-Mar-07US ($) Rs*

31-Mar-06US ($) Rs*




SCHEDULE ‘J’MERCATOR LINES (Panama) IncNOTES TO ACCOUNTS FOR THE YEAR ENDED 31st MARCH, 2007

1. SIGNIFICANT ACCOUNTING POLICIES :(a) Accounting Convention:

The financial statements are prepared under the historical cost convention and are based on accrual basis ofaccounting.

(b) Revenue Recognition:i. Income of freight earnings is recognised where loading of the cargo is completed before the close of the year.

All direct expenses of the voyage are recognised with the income. Where loading of the cargo is not completed,revenue is not recognised and the expenses related thereto are carried out to the next accounting year underloans and advances or prepaid expenses. Charter hire is recognised on accrual Basis.

ii. Discounts and settlements of off Hire claims are made as and when raised by customers, and accounted andreduced from the income in the year in which they are allowed.

2. Expenses pertains to previous year of US$ 19,156 has been debited to profit and loss account under the head “ P r i o rYear expenses”.

3. Previous years figures have been regrouped wherever necessary.

Note: The annual accounts of foreign subsidiary companies have been prepared originally in US$ as per the laws prevailing in the respective countries. The amounts have been converted into Indian rupees for convenience purpose; at a mean rate of Rs.43.47 per US$ for financial year ended on March 31, 2007 and at a mean rate of Rs.44.66 per US$ forfinancial year ended on March 31, 2006 respectively.

ACCOUNTING POLICIES

Pg. 157Mercator Lines 23rd Annual Report - 2006-07 I I Mercator Lines (Panama) Inc

Pg. 158

Report & Financial Statements ForThePeriod Ended 31 March 2007

Vidya Marine Pte. Limited

Registration no.

Registered Office

Admin Office

Sole Director

Auditor

200618095W



1) Shalabh Mittal



DIRECTORS' REPORT



December 2006 (date of incorporation) to 31 March 2007.

(1) Directors

The director of the company in office at the date of this report is:

Shalabh Mittal


During and as at the end of the financial period, the company was not a party to any arrangement, the object of which

was to enable the directors to acquire benefits through the acquisition of shares in, or debentures of, the company or

any other body corporate.

(3) Directors' interests in shares or debentures


Companies Act, Cap. 50, none of the directors holding office at the end of the financial year had any interest in shares

or debentures and its related corporations.


At the end of the financial period, no directors have received or become entitled to receive a benefit by reason of a

contract made by the company or a related corporation with the director or with a firm of which he is a member or with

a company in which he has a substantial financial interest.

(5) Share options

There were no share options granted during the financial period to subscribe for unissued shares of the company.


During the financial period, there were no shares issued by virtue of the exercise of options to take up unissued shares.



(8) Auditors



Shalabh Mittal

Singapore - May 17, 2007 Director

Mercator Lines 23rd Annual Report - 2006-07 I I Vidya Marine Pte. Limited

Pg. 160



We, the undermentioned directors, state that, in the opinion of the directors, the financial statements set out on pages 3 to 12 are drawn up so as to give a true and fair view of the state of affairs of the company as at 31 March 2007 and of the results, changes in equity and cash flows of the company for the financial period then ended and there are reasonable grounds to believe that the company will be able to pay its debts as and when they fall due.


Shalabh Mittal



We have audited the financial statements of the Company set out on pages 3 to 12, which comprise the balance sheet as at31 March 2007, and the income statement, statement of changes in equity and cash flow statement for the period thenended, and a summary of significant accounting policies and other explanatory notes.


The Company's directors are responsible for the preparation and fair presentation of these financial statements inaccordance with the provisions of the Singapore Companies Act, Cap. 50 (the “Act”) and Singapore Financial ReportingStandards. This responsibility includes: designing, implementing, and maintaining internal controls relevant to thepreparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in thecircumstances.


Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit inaccordance with Singapore Standards on auditing. Those standards require that we comply with ethical requirements andplan and perform the audit to obtain reasonable assurance whether the financial statements are free from materialmisstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financialstatements. The procedures selected depend on the auditor's judgement, including the assessment of the risks of materialmisstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditorconsiders internal control relevant to the entity's preparation and fair presentation of the financial statements in order todesign audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policiesused and the reasonableness of accounting estimates made by directors, as well as evaluating the overall presentation ofthe financial statements.

Opinion

In our opinion,

(a) the financial statements are properly drawn up in accordance with the provisions of the Singapore Companies Act,Cap. 50 (the “Act”) and Singapore Financial Reporting Standards so as to give a true and fair view of the state of affairsof the Company as at 31 March 2007 and the results, changes in equity and cash flows of the Company for the financialperiod then ended; and

(b) the accounting and other records required by the Act to be kept by the Company have been properly kept inaccordance with the provisions of the Act.

JAMES CHAN & PARTNERSCERTIFIED PUBLIC ACCOUNTANTS

Singapore - May 17, 2007

AUDITORS' REPORT TO THE MEMBERS OF VIDYA MARINE PTE. LTD.


Pg. 162

BALANCE SHEET AS AT 31 MARCH 2007

SHARE CAPITAL 4 1 0.01

REVENUE RESERVE (1,501) (0.66)

(1,500) (0.65)

REPRESENTED BY

CURRENT ASSETS

Other receivables 5 6,102,416 2652.72

LESS CURRENT LIABILITIES

Accruals 1,500 0.65

Amount owing to immediate holding company 6 6,102,407 2562.71

Bank overdraft 7 9 0.01

(6,103,916) (2653.37)

Net current liabilities

Total net liabilities (1,500) (0.65)


Particulars Notes2007US$

2007Rs*




STATEMENT OF CHANGES IN EQUITY FOR THE PERIOD ENDED 31 MARCH 2007

Revenue - -

Administrative Expenses (1,501) (0.66)

Net loss for the financial period (1,501) (0.66)


Particulars Notes2007US$

2007Rs*


Particulars

Balance as at date of incorporation 1 0.01 - - 1 0.01

Net profit for the financial period - - (1,501) (0.66) (1,501) (0.66)

Balance as at 31 March 2007 1 0.01 (1,501) (0.66) (1,500) (0.65)


Revenue Reserve TotalShare Capital

US$ Rs* US$ Rs* US$ Rs*




CASH FLOW STATEMENT FOR THE PERIOD ENDED 31 MARCH 2007


Loss before taxation (1,501) (0.66)

Operating loss before working capital changes (1,501) (0.66)

Changes in operating assets and liabilities

Increase in other receivables (6,102,416) (2,652.72)

Increase in other payables 1500 0.65

Net cash used in operating activities (6,102,417) (2,652.73)


Proceeds from borrowing from holding company 6,102,407 2,652.71

Issue of ordinary shares 1 0.01

Net cash generated from financing activities 6,102,408 2,652.72

Net (decrease) in cash and cash equivalents (9) (0.01)

Cash and cash equivalents at beginning of the financial period - -

Cash and cash equivalents at end of the financial period 7 (9) (0.01)


Particulars Notes2007

US ($) Rs*


Pg. 165




Vidya Marine Pte Ltd is a private limited company incorporated and domiciled in Singapore. Its registered office islocated at 80 Raffles Place, #25-01 UOB Plaza Singapore 048624.

The immediate holding company is Mercator Lines (Singapore) Pte Ltd, incorporated in Singapore.

The company's ultimate holding company is Mercator Lines Ltd, a company incorporated in India.

2. SIGNIFICANT ACCOUNTING POLICIES(a) Basis of Accounting

The financial statements of the group and the company have been prepared in accordance with the provisions ofthe Singapore Companies Act, Cap. 50 (the “Act”) and the Singapore Financial Reporting Standards (“FRS”).

The financial statements expressed in United States dollars are prepared in accordance with the historical costconvention, except as disclosed in the accounting policies below.

The preparation of financial statements in conformity with FRS requires the use of estimates and assumptions thataffect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dateof the financial statements and the reported amounts of revenues and expenses during the financial period.Although these estimates are based on management's best knowledge of current events and actions, actualresults may ultimately differ from those estimates.

(b) Adoption of revised FRS

In the current financial period, the company has adopted all the new and revised FRSs and Interpretations of FRS(“INT FRS”) issued by the Council on Corporate Disclosure and Governance that are relevant to its operations andeffective for annual periods beginning on or after 1 January 2005.


FRS 1 (revised) Presentation of Financial StatementsFRS 7 (revised) Cash Flow StatementsFRS 8 (revised) Accounting Policies, Changes in Accounting Estimates and ErrorFRS 10 (revised) Events after the Balance Sheet DateFRS 24 (revised) Related Party DisclosuresFRS 21 (revised) The Effects of Changes in Foreign Exchange RatesFRS 32 (revised) Financial Instruments: Disclosure and PresentationFRS 36 (revised) Impairment of AssetsFRS 39 (revised) Financial Instruments : Recognition and MeasurementFRS 101 (Amendment) First-time Adoption of Financial Reporting Standards


(c) Financial Assets

Financial assets which are within the scope of FRS 39 are classified as either financial assets at fair value throughprofit or loss, loans and receivables, held-to-maturity investments, or available-for-sale financial assets asappropriate. Financial assets are assigned to the different categories by management on initial recognition,depending on the purpose for which the assets were acquired.

The company's financial assets comprise amounts due from holding and subsidiary companies, trade and otherreceivables. The financial assets are recognised in the balance sheet, when and only when, the company becomesa party to the contractual agreements governing the financial instruments.




(i) Other Receivables

Other receivables are initially recognised at fair value and subsequently re-measured at amortised cost using theeffective interest method, less allowance for impairment. An allowance for impairment of trade and other receivablesis established when there is objective evidence that the company will not be able to collect all the amounts dueaccording to the original terms of the receivables. The amount of the allowance is the difference between the asset'scarrying amount and the present value of estimated future cash flows, discounted at the original effective interestrate. The amount of the allowance is recognised in the income statement.

(d) Cash and Cash Equivalents

Cash and cash equivalents comprise of cash and bank balances which are subject to an insignificant risk of changes invalue. Cash equivalents are stated at amounts at which they are convertible into cash.

(e) Financial Liabilities

Financial liabilities include amount due to holding company, trade and other payables.

Financial liabilities are recognised when the company becomes a party to the contractual agreements governing theinstrument. Trade and other payables are initially recognised at fair value and subsequently re-measured at amortisedcost, using the effective interest method.

(f) Taxation

No provision is made for taxation on qualifying shipping income derived which is exempt from taxation under Section 13Aof the Singapore Income Tax Act and the Singapore's Approved International Shipping Enterprise Tax Incentive.

Deferred tax is provided using the balance sheet liability method, providing for all taxable temporary differences between thecarrying amounts of all assets and liabilities for financial reporting purposes and theamounts used for taxation purposes.

Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available againstwhich the temporary differences or tax losses can be utilised.

(g) Functional and Presentation Currency

(i) Functional and presentation currency

Items included in the financial statements of the Company are measured using the currency of the primary economicenvironment in which the Company operates (the functional currency). The financial statements of the Company arepresented in United States Dollars, which is the functional and presentation currency of the Company.

(ii) Transactions and balances

Transactions in a currency other than the functional currency ("foreign currency") are translated into the functional currency at the exchange rates prevailing at the date of the transactions. Monetary assets and liabilitiesdenominated in foreign currencies at the balance sheet date are translated at exchange rates ruling at that date.Foreign exchange differences arising from translation are recognised in the income statement

(h) Income Recognition

Income of freight earnings is recognised when loading of the cargo is completed before the close of the financial period.All direct expenses of the voyage are recognised with the income. Where loading of the cargo is not completed, revenueis not recognised and the related expenses are carried to the next accounting year under loans and advances or prepaidexpenses.

(i) Impairment of Assets

The carrying amounts of the company's assets, other than receivables, are reviewed at each balance sheet date to

Pg. 167


determine whether there is any indication of impairment. If such indication exists, the asset's recoverable amount isestimated. An impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverableamount. The recoverable amount is the greater of the asset's net selling price and its value in use. The value in use isthe present value of estimated future cash flows expected to arise from the continuing use of the asset and from itsdisposal at the end of its useful life.

An impairment loss is charged to the income statement unless it reverses a previous revaluation, in which case, it willbe charged to equity. An impairment loss is reversed if there has been a change in the estimates used to determinethe recoverable amount or when there is an indication that the impairment loss recognised for the asset no longerexists or decreases. An impairment loss is reversed only to the extent that the asset's carrying amount does notexceed the carrying amount that would have been determined if no impairment loss had been recognised.

(j) Provisions

Provisions are recognised when the company has a legal or constructive obligation as a result of past events, it is probablethat an outflow of resources will be required to settle the obligation and a reliable estimate of the amount can be made.

(k) Employee Benefits

(i) Wages, salaries and annual leave

The provision for employees' entitlements to wages, salaries and annual leave represents the present amount ofobligation the company has to pay resulting from employees' services provided up to the balance sheet date. Theprovision has been calculated at undiscounted amounts based on current wages and salary rate and includesrelated on-costs. The carrying amount of the provision approximate the net fair value.

Contributions to defined contribution plans are recognized as compensation expenses in the same period as the employment that gave rise to the contributions.

(ii) Long service leave

The provision for employee entitlements to long service leave represents the present value of the estimated futurecash outflows to be made by the employer resulting from employees' services provided up to the balance sheet date.

Provision for employee entitlements, which are not expected to be settled within twelve months, are discounted usingthe rates attached to national government securities at balance sheet date, which most closely match the terms ofmaturity of related liabilities.

In determining the provision for employee entitlements, consideration has been given to future increases in wage andsalary rates, and thecompany's experiencewith staff departures. Relatedon-costs arealso included in the liability.


The principal activity of the company consists of the ownership of shipping vessels. However, the company has notcommenced trading activity since incorporation.

4. SHARE CAPITAL


2 ordinary shares of US$ 1 each 2

Equivalent to USD 1 (Equivalent to Rs. 0.01 lacs)

During the financial period, the Company issued 2 ordinary shares for a total of US$ 2. All issued shares are fully paid.

With effect from 30 January 2006, the concepts of authorized share capital and par value have been abolished following

amendments to the Companies Act.

2007 S$





Prepayment 2,416 1.05

Deposit for purchase of vessel 6,100,000 2651.67

6,102,416 2652.72

6. AMOUNT DUE TO IMMEDIATE HOLDING COMPANY

Amount due to holding company – non-trade 6,102,407 2652.71

The company's immediate holding company is Mercator Lines (Singapore) Pte. Ltd., a company incorporated in Singapore.

The amount due to holding company is non-trade in nature, interest free, unsecured and repayable on demand.


Cash and cash equivalents in the cash flow statement comprise only bank overdraft as shown in the balance sheet.


The company is exposed to the following risks: Currency risk, credit risk and liquidity risk. The company does not hold orissue derivative financial instruments for trading purposes or to hedge against fluctuations, if any, in interest rates andforeign exchange.

Foreign exchange risk

The company's operational activities are mainly carried out in United States dollars, the measurement and reportingcurrency of the Company. The risk arising from movements in foreign exchange rates is minimized as the company hasminimal transactions in foreign currency.

Credit risk

Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in a financial loss to thecompany. The company does not expect to incur material credit losses as it is only dealing with creditworthycounterparties.


The maximum exposure to credit risk in relation to each class of recognised financial assets, is represented by thecarrying amount of each financial asset as indicated in the balance sheet.

Liquidity risk

Liquidity or funding risk is the risk that an enterprise will encounter difficulty in raising funds to meet commitmentsassociated with financial instruments. Liquidity risk may result from an inability to sell a financial asset quickly at close toits fair value.

The company's exposure to liquidity risk is minimal as the company has adequate cash and cash equivalents as and when required to meet all its obligations in a timely manner.

2007 US$ 2007 Rs*

2007 US$ 2007 Rs*



Pg. 169


Fair value

Financial assets of the company include receivables, cash and cash equivalents. Financial liabilities of the companyinclude payables and accruals. The carrying amounts of all the financial assets and liabilities of the companyapproximate their fair values.

9. CAPITAL COMMITMENTS

Capital expenditure contracted for at the balance sheet date but not recognised in the financial statements are analysedas follows:

Capital commitments in respect of the purchase of a vessel 61,000,000 2651.67

10. COMPARATIVE FIGURES

There are no comparative figures available in the financial statements as this is the first financial period.


The financial statements of the company for the financial period ended March 31, 2007 were authorised for issue inaccordance with a directors' resolution dated May 17, 2007.

Note: The annual accounts of foreign subsidiary companies have been prepared originally in US$ as per the laws prevailing in the respective countries. The amounts have been

converted into Indian rupees for convenience purpose; at a mean rate of Rs.43.47 per US$ for financial year ended on March 31, 2007 and at a mean rate of Rs.44.66 per US$ for

financial year ended on March 31, 2006 respectively.

2007 US$ 2007 Rs*




Report & Financial Statements For The Period Ended 31st March 2007

Varsha Marine Pte. Limited

Registration no.

Admin Office

Registered Office

Sole Director

Auditor

200618089H



1) Shalabh Mittal


Pg. 171

DIRECTORS' REPORT



December 2006 (Date of Incorporation) to 31 March 2007.

(1) Directors

The director of the company in office at the date of this report is:

Shalabh Mittal


During and as at the end of the financialperiod, thecompanywas not a party to any arrangement, theobject of which was to

enable the directors to acquire benefits through the acquisition of shares in, or debentures of, the company or any other body

corporate.

(3) Directors' interests in shares or debentures


Companies Act, Cap. 50, none of the directors holding office at the end of the financial year had any interest in shares or

debentures of the Company and its related corporations.


At the end of the financial period, no directors have received or become entitled to receive a benefit by reason of a

contract made by the company or a related corporation with the director or with a firm of which he is a member or w i th a

company in which he has a substantial financial interest.

(5) Share options

There were no share options granted during the financial period to subscribe for unissued shares of the company.


During the financial period, there were no shares issued by virtue of the exercise of options to take up unissued shares.



(8) Auditors



Shalabh Mittal


Mercator Lines I 23rd Annual Report - 2006-07 I Varsha Marine Pte. Limited

Pg. 172



We, the undermentioned directors, state that, in the opinion of the directors, the financial statements set out on pages 3 to14 are drawn up so as to give a true and fair view of the state of affairs of the company as at 31 March 2007 and of theresults, changes in equity and cash flows of the company for the financial period then ended and there are reasonablegrounds to believe that the company will be able to pay its debts as and when they fall due.


Shalabh Mittal



We have audited the financial statements of the Company set out on pages 3 to 14, which comprise the balance sheet asat 31 March 2007, and the income statement, statement of changes in equity and cash flow statement for the financial period then ended, and a summary of significant accounting policies and other explanatory notes.


The Company's directors are responsible for the preparation and fair presentation of these financial statements inaccordance with the provisions of the Singapore Companies Act, Cap. 50 (the ”Act”) and Singapore Financial ReportingStandards. This responsibility includes: designing, implementing and maintaining internal controls relevant to thepreparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud orerror; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable inthe circumstances.


Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit inaccordance with Singapore Standards on auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from materialmisstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financialstatements. The procedures selected depend on the auditor's judgement, including the assessment of the risks ofmaterial misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, theauditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness ofaccounting policies used and the reasonableness of accounting estimates made by directors, as well as evaluating theoverall presentation of the financial statements.

In our opinion

(a) the financial statements are properly drawn up in accordance with the provisions of the Singapore Companies Act,Cap. 50 (the “Act”) and Singapore Financial Reporting Standards so as to give a true and fair view of the state ofaffairs of the Company as at 31 March 2007 and the results, changes in equity and cash flows of the Company for thefinancial period then ended; and

(b) the accounting and other records required by the Act to be kept by the Company have been properly kept inaccordance with the provisions of the Act.

JAMES CHAN & PARTNERSSingapore - May 17, 2007 CERTIFIED PUBLIC ACCOUNTANTS

AUDITORS' REPORT TO THE MEMBERS OF VARSHA MARINE PTE. LTD.(INCORPORATED IN SINGAPORE)

Mercator Lines 23rd Annual Report - 2006-07 I I Varsha Marine Pte. Limited


BALANCE SHEET

Particulars Notes 2007 US$


SHARE CAPITAL

4 1 0.01

REVENUE RESERVE 1,834,049 797.25

1,834,050 797.26

REPRESENTED BY

NON-CURRENT ASSETS

Property, plant and equipment 5 60,871,168 26,460.70

CURRENT ASSETS

Inventories 6 347,107 150.89

Prepayment 23,679 10.29

Cash and bank balances 10,121 4.40

380,907 165.58

LESS CURRENT LIABILITIES

Other payables 7 54,625 23.75

Amount owing to immediate holding company 8 19,363,400 8,417.27

Term loan 3,400,000 1,477.98

22,818,025 9,919.00

Net current liabilities 22,437,118 9,753.42


Term loan 11 (36,600,000) (15,910.02)

Total net assets 1,834,050 797.26


2007 Rs*

Pg. 175

Particulars Notes 2007 US$


Revenue 9 4,289,774 1,864.76

Cost of sales 10 (1,264,853) (549.83)

Gross profit 3,024,921 1,314.93

Other income 8,492 3.69

Administrative expenses 10 (17,205) (7.48)

Depreciation of plant and equipment 5 (631,881) (274.68)

Profit from operations 2,384,327 1,036.47

Finance cost (550,278) (239.21)

Profit before taxation 10 1,834,049 797.26

Taxation 12 - -

Net profit for the financial period 1,834,049 797.26


STATEMENT OF CHANGES IN EQUITY

INCOME STATEMENT

2007 Rs*

Balance as at date of incorporation 1 0.01 - - 1 0.01

Net profit for the financial period - - 1,834,049 797.25 1,834,049 797.25

Balance as at 31 March 2007 1 0.01 1,834,049 797.25 1,834,050 797.26


Particulars


Share CapitalUS$ Rs*

TotalRevenue ReserveUS$ Rs* US$ Rs*

Mercator Lines 23rd Annual Report - 2006-07I I Varsha Marine Pte. Limited


CASH FLOW STATEMENT FOR

THE FINANCIAL PERIOD ENDED 31 MARCH 2007



Adjustments for:

Depreciation 631,881 274.68

Interest expense 550,278 239.21

Operating profit before working capital changes 3,016,208 1,311.15

Changes in operating assets and liabilities

Increase in inventories (347,107) (150.89)

Increase in prepayment (23,679) (10.29)

Increase in other payables 54,625 23.75

Net cash generated from operating activities 2,700,047 1,173.71

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of property, plant and equipment (61,503,049) (26,735.38)

Net cash used in investing activities (61,503,049) (26,735.38)


Proceeds from bank borrowing 40,000,000 17388.00

Proceeds from loan from holding company 19,363,400 8,417.27

Proceeds from issue of ordinary shares 1 0.01

Interest paid on long term financing (550,278) (239.21)

Net cash generated from financing activities 58,813,123 25,566.06

Net increase in cash and cash equivalents 10,121 4.40

Cash and cash equivalents at beginning of the financial period -

Cash and cash equivalents at end of the financial period 13 10,121 4.40


Particulars Notes2007

US$ Rs*


Pg. 177



The holding company is Mercator Lines (Singapore) Pte Ltd, incorporated in Singapore. The company is incorporated as alimited private company and domiciled in the Republic of Singapore.Its registered office is located at 80 Raffles Place, #25-01 UOB Plaza Singapore 048624.

The Company's ultimate holding company is Mercator Lines Ltd, a company incorporated in India.



The financial statements of the group and the company have been prepared in accordance with the provisions of theSingapore Companies Act, Cap. 50 (the “Act”) and the Singapore Financial Reporting Standards (“FRS”).

The financial statements expressed in United States dollars are prepared in accordance with the historical costconvention, except as disclosed in the accounting estimates below.

The preparation of financial statements in conformity with FRS requires the use of estimates and assumptions thataffect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of thefinancial statements and the reported amounts of revenues and expenses during the financial period. Although theseestimates are based on management's best knowledge of current events and actions, actual results may ultimatelydiffer from those estimates.

(b) Adoption of revised FRS

In the current financial period, the company has adopted all the new and revised FRSs and Interpretations of FRS (“INTFRS”) issued by the Council on Corporate Disclosure and Governance that are relevant to its operations and effectivefor annual periods beginning on or after 1 January 2005.


FRS 1 (revised) Presentation of Financial StatementsFRS 2 (revised) InventoriesFRS 7 (revised) Cash Flow StatementsFRS 8 (revised) Accounting Policies, Changes in Accounting Estimates and ErrorFRS 10 (revised) Events after the Balance Sheet DateFRS 16 (revised) Property, Plant & EquipmentFRS 19 (revised) Employee BenefitsFRS 21 (revised) The Effects of Changes in Foreign Exchange RatesFRS 24 (revised) Related Party DisclosuresFRS 32 (revised) Financial Instruments: Disclosure and PresentationFRS 39 (revised) Financial Instruments : Recognition and MeasurementFRS 101 (Amendment) First-time Adoption of Financial Reporting Standards



Property, plant and equipment are stated at cost less accumulated depreciation and any impairment loss recognised inaccordance with note 2(k) to the financial statements. Depreciation is calculated on the straight line basis so as to writeoff the cost of the assets over their estimated useful lives. The annual rates of depreciation are as follows:

Vessel 20 years

NOTES TO THE FINANCIAL STATEMENTS - MARCH 31, 2007



(d) Inventories

Bunkers comprise mainly bunkers and consumable stores. Inventories are stated at the lower of cost and net realisablevalue. Net realisable value is the estimated selling price in the ordinary course of business, less the costs of completionand selling expenses.

(e) Financial Assets

Financial assets which are within the scope of FRS 39 are classified as either financial assets at fair value through profit orloss, loans and receivables, held-to-maturity investments, or available-for-sale financial assets as appropriate. Financialassets are assigned to the different categories by management on initial recognition, depending on the purpose forwhich the assets were acquired.

The company's financial assets comprise amounts due from holding and subsidiary companies, trade and otherreceivables. The financial assets are recognised in the balance sheet, when and only when, the company becomes aparty to the contractual agreements governing the financial instruments.

(i) Trade and Other Receivables

Trade and other receivables are initially recognised at fair value and subsequently re-measured at amortised costusing the effective interest method, less allowance for impairment. An allowance for impairment of trade and otherreceivables is established when there is objective evidence that the company will not be able to collect all theamounts due according to the original terms of the receivables. The amount of the allowance is the differencebetween the asset's carrying amount and the present value of estimated future cash flows, discounted at the originaleffective interest rate. The amount of the allowance is recognised in the income statement.

(f) Cash and Cash Equivalents

Cash and cash equivalents comprise of cash and bank balances which are subject to an insignificant risk of changes invalue. Cash equivalents are stated at amounts at which they are convertible into cash.

(g) Financial Liabilities

Financial liabilities include amount due to holding company, trade and other payables.

Financial liabilities are recognised when the company becomes a party to the contractual agreements governing theinstrument. Trade and other payables are initially recognised at fair value and subsequently re-measured at amortisedcost, using the effective interest method.

(h) Taxation

No provision is made for taxation on qualifying shipping income derived which is exempt from taxation under Section 13Aof the Singapore Income Tax Act and the Singapore's Approved International Shipping Enterprise Tax Incentive.

Deferred tax is provided using the balance sheet liability method, providing for all taxable temporary differences betweenthe carrying amounts of all assets and liabilities for financial reporting purposes and the amounts used for taxationpurposes.

Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against whichthe temporary differences or tax losses can be utilised.

(I) Functional and presentation currency

(i) Functional and presentation currency

Items included in the financial statements of the Company are measured using the currency of the primary economicenvironment in which the Company operates (the functional currency). The financial statements of the Company arepresented in United States Dollars, which is the functional and presentation currency of the Company.


Pg. 179


(ii) Transactions and balances

Transactions in a currency other than the functional currency ("foreign currency") are translated into the functionalcurrency at the exchange rates prevailing at the date of the transactions. Monetary assets and liabilities denominated inforeign currencies at the balance sheet date are translated at exchange rates ruling at that date. Foreign exchangedifferences arising from translation are recognised in the income statement

(j) Income Recognition

Income of freight earnings is recognised when loading of the cargo is completed before the close of the financial period.All direct expenses of the voyage are recognised with the income. Where loading of the cargo is not completed, revenueis not recognised and the related expenses are carried to the next financial year under loans and advances or prepaidexpenses.

(k) Impairment of Assets

The carrying amounts of the company's assets, other than receivables, are reviewed at each balance sheet date todetermine whether there is any indication of impairment. If such indication exists, the asset's recoverable amount isestimated. An impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount.The recoverable amount is the greater of the asset's net selling price and its value in use. The value in use is the presentvalue of estimated future cash flows expected to arise from the continuing use of the asset and from its disposal at theend of its useful life.

An impairment loss is charged to the income statement unless it reverses a previous revaluation, in which case, it will becharged to equity. An impairment loss is reversed if there has been a change in the estimates used to determine therecoverable amount or when there is an indication that the impairment loss recognised for the asset no longer exists ordecreases. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed thecarrying amount that would have been determined if no impairment loss had been recognised.

(l) Provisions

Provisions are recognised when the company has a legal or constructive obligation as a result of past events, it is probablethatan outflowof resources will be required to settle theobligation and a reliableestimateof theamountcan bemade.

(m) Employee Benefits

(i) Wages, salaries and annual leave

The provision for employees' entitlements to wages, salaries and annual leave represents the present amount ofobligation the Company has to pay resulting from employees' services provided up to the balance sheet date. The provision has been calculated at undiscounted amounts based on current wages and salary rate and includes relatedon-costs. The carrying amount of the provisions approximates fair value.

Contributions to defined contribution plans are recognized as compensation expenses in the same period as theemployment that gave rise to the contributions.

(ii) Long service leave

The provision for employee entitlements to long service leave represents the present value of the estimated futurecash outflows to be made by the employer resulting from employees' services provided up to the balance sheet date.

Provision for employee entitlements, which are not expected to be settled within twelve months, are discounted usingthe rates attached to national government securities at balance sheet date, which most closely match the terms of maturity of related liabilities.

In determining the provision for employee entitlements, consideration has been given to future increases in wage andsalary rates, and the company's experience with staff departures. Related on-costs are also included in the liability.




Pg. 180

(n) Borrowing Costs



The principal activities of the company consist of the ownership of shipping vessels.

4. SHARE CAPITAL


2 ordinary shares of S$1 each 2

Equivalent to USD 1 (Equivalent to Rs. 0.01 lacs)

During the financial period, the Company issued 2 ordinary shares for a total of US$2. All issued shares are fully paid. With

effect from January 30, 2006, the concepts of authorized share capital and par value have been abolished following

amendments to the Companies Act.


Cost

Balance as at beginning of financial period - - - -

Additions 61,503,049 26,735.38 61,503,049 26,735.38

Balance as at end of financial period 61,503,049 26,735.38 61,503,049 26,735.38

Accumulated depreciation

Balance as at beginning of financial period - - - -

Depreciation charged for the year 631,881 274.68 631,881 274.68

Balance as at end of financial period 631,881 274.68 631,881 274.68

Net book value

Balance as at 31.3.2007 60,871,168 26,460.70 60,871,168 26,460.70

(a) Security provided by way of a charge on the vessel include assignments of insurance claims and earnings

relating to the vessel.

6. INVENTORIES

Bunker 267,779 116.40

Lubricants 79,328 34.48

347,107 150.88

7. OTHER PAYABLES

Non-trade payable 4,758 2.07

Accruals 49,867 21.68

54,625 23.75

2007 S$

2007 US$ 2007 Rs*

2007 US$ 2007 Rs*

Vessel US$ Total US$Vessel Rs* Total Rs*




Particulars

Pg. 181








8. AMOUNT DUE TO IMMEDIATE HOLDING COMPANY

Amount due to immediate holding company – non-trade 19,363,400 8,417.27

The company's immediate holding company is Mercator Lines (Singapore) Pte. Ltd., a company incorporated in Singapore.

The amount due to immediate holding company is non-trade in nature, interest free, unsecured and repayable on demand.

9. REVENUE


Freight forwarding 3,794,975 1,649.68

Demurrage 4,94,779 215.09

4,289,774 1,864.77

10. PROFIT BEFORE TAXATION

This is stated after charging/(crediting) the following items which have not been otherwise disclosed in the incomestatement: -

Inventories included in cost of sales 466,420 202.75

Commission expense 496,157 215.68

Crew wages 112,336 48.83

Interest on term loan 550,278 239.20

11. TERM LOAN

Term loan repayable:

- within one year 3,400,000 1,477.98

- after one year but not later than five years 13,600,000 5,911.92

- after five years 23,000,000 9,998.10

36,600,000 15,910.02

40,000,000 17,388.80

This is a bank term loan which bears interest at rates ranging from 6.26% to 6.28%. The loan is secured on a vessel (Note

5) and repayable in instalments pursuant to the loan agreement.

12. TAXATION

Provision for current taxation - -

2007 US$ 2007 Rs*

2007 US$ 2007 Rs*

2007 US$ 2007 Rs*

2007 US$ 2007 Rs*

2007 US$ 2007 Rs*



Reconciliation of tax:


Taxation at statutory rate of 18% 330,129 143.51

Tax effects of:-

Non-deductible expenses 199 0.09

Qualifying shipping income exempt from tax (443,111) (192.62)

Statutory stepped income exemption (955) (0.42)

Movement in temporary differences 113,738 49.44


Cash and cash equivalents in the cash flow statement comprise only bank balances as shown in the balance sheet.

14. ULTIMATE HOLDING COMPANY

The company's ultimate holding company is Mercator Lines Limited., a company incorporated in India.


(a) Financial risk management policies

The company is exposed to the following risks: Currency risk, credit risk and liquidity risk. The company does not hold orissue derivative financial instruments for trading purposes or to hedge against fluctuations, if any, in interest rates andforeign exchange.

(i) Foreign exchange risk

The company's operational activities are mainly carried out in United States dollars, the measurement andreporting currency of the Company. The risk arising from movements in foreign exchange rates is minimizedas the company has minimal transactions in foreign currency.

(ii) Credit risk

Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in a financialloss to the company. The company does not expect to incur material credit losses as it is only dealing withcreditworthy counterparties.


The maximum exposure to credit risk in relation to each class of recognised financial assets, is representedby the carrying amount of each financial asset as indicated in the balance sheet.

(iii) Liquidity risk

Liquidity or funding risk is the risk that an enterprise will encounter difficulty in raising funds to meetcommitments associated with financial instruments. Liquidity risk may result from an inability to sell afinancial asset quickly at close to its fair value.

The company's exposure to liquidity risk is minimal as the company has adequate cash and cash equivalentsas and when required to meet all its obligations in a timely manner.

2007 US$ 2007 Rs*


Pg. 183


(b) Fair value

Financial assets of the company include receivables, cash and cash equivalents. Financial liabilities of the companyinclude payables and accruals. The carrying amounts of all the financial assets and liabilities of the companyapproximate their fair values.

15. COMPARATIVE FIGURES

There are no comparative figures available in the financial statements as this is the first financial period.


The financial statements of the company for the financial period ended 31 March 2007 were authorised for issue inaccordance with a directors' resolution dated 17 May 2007.

Note: The annual accounts of foreign subsidiary companies have been prepared originally in US$ as per the laws prevailing in the respective countries. The amounts have been

converted into Indian rupees for convenience purpose; at a mean rate of Rs.43.47 per US$ for financial year ended on March 31, 2007 and at a mean rate of Rs.44.66 per US$ for

financial year ended on March 31, 2006 respectively.

Mercator Lines 23rd Annual Report - 2006-07I I Varsha Marine Pte. Limited

FINANCIAL DATA ANALYSES



PER SHARE RATIO:

Book Value - Cash Earning Per Share - Earning Per Share

Book Value(Rs)Cash Earning (Rs.)

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

Ru

pees

Financial Year

2006-07

33.20

12.61

6.91

2005-06

26.21

10.42

15.41

2004-05

16.60

9.75

11.13

Basic Earning(Rs.)

39.54

30.94

0

5

10

15

20

25

30

35

40

45

50

43.30

23.48

2005-062004-05

Operational Profit/ Total Turnover (%) Net Profit / Total Turnover (%)

28.08

11.73

2006-07

FINANCIAL PERFORMANCE RATIO:

Year

Operational Profit/ Total Turnover (%)

Net Profit / Total Turnover (%)

RONW (PAT/Shareholders fund(%)

43.30

23.48

36.1

05-06

39.54

30.94

50.80

04-05

28.08

11.73

21.46

06-07



BALANCE SHEET RATIO:

Pg. 186

COMPOSITION OF FLEET:As on July 30, 2007

Debt Equity Ratio

Current Ratio

1.53

1.83

2004-05

1.92

7.04

2005-06

2.39

3.85

2006-07

Very Large Crude Carriers

Suezmax Tankers

Aframax Tankers

MR Tankers

Panamax

Kamsarmax

Chemical Tankers

Very Large Crude Carriers

23%

Kamsarmax10%

Chemical Tankers

1%

Suezmax Tankers

6%

Aframax Tankers

29%

MR Tanker4%

Panamax27%


Name Type Built DWT/Capacity Ownership

OWNED:

M.T. Premputli VLCC 1993 287875 Mercator Lines Ltd.

M.T. Prem Prachi Suezmax 1988 148349 Mercator Lines Ltd.

M.T. Prem Pride Aframax 1999 109610 Mercator Lines Ltd.

M.T. Prem Divya Aframax 1998 109227 Mercator Lines Ltd.

M.T. Sarla Aframax 1986 100488 Mercator Lines Ltd.

M.T. Premvati Aframax 1986 99999 Mercator Lines Ltd.

M.T. Sadanand Aframax 1986 94752 Mercator Lines Ltd.

M.T. Devsi Aframax 1985 94706 Mercator Lines Ltd.

M.T. Punita MR Tanker 1984 52711 Mercator Lines Ltd.

M.T. Prem Mala MR Tanker 2000 47044 Mercator Lines Ltd.

M.V. Prem Poorva Panamax 1994 69286 Mercator Lines Ltd.

M.V.Prem Varsha Kamsarmax 2006 82379 Mercator Lines (Singapore) Pte. Ltd.

M.V. Prem Vidya Kamsarmax 2006 82273 Mercator Lines (Singapore) Pte. Ltd.

M.V. Prem Veena Kamsarmax 2007 82191 Mercator Lines (Singapore) Pte. Ltd.

M.V. Gaurav Prem Panamax 2005 73901 Mercator Lines (Singapore) Pte. Ltd.

M.V. Prem Aparna Panamax 2001 73461 Mercator Lines (Singapore) Pte. Ltd.

M.V. Garv Prem Panamax 2006 74444 Mercator Lines (Singapore) Pte. Ltd.

M.V. Garima Prem Panamax 2007 74456 Mercator Lines (Singapore) Pte. Ltd.

CHARTERED IN:

M.V. Ocean Senang Panamax 2000 73652 Mercator Lines (Singapore) Pte. Ltd.

M.V. YK Sentosa Panamax 2000 73625 Mercator Lines (Singapore) Pte. Ltd.

M.V. YK Titan Panamax 1997 69221 Mercator Lines (Singapore) Pte. Ltd.

M.V. YK Taurus Panamax 1997 69186 Mercator Lines (Singapore) Pte. Ltd.

M.T. Titan Aries VLCC 1988 265243 Mercator International Pte. Ltd.

M.T. Cerigo Aframax 1989 95987 Mercator International Pte. Ltd.

M.T. SC Guoji Chemical Tanker 2006 13107 Mercator International Pte. Ltd.

FLEET LIST

As on July 30, 2007

Pg. 187

CONSOLIDATED BALANCE SHEET AS AT 31 MARCH 2007

Sources of FUNDS

Shareholders Funds

Share Capital 13.55

Warrants against Share Capital 1.12 1.09

Reserves and Surplus 129.89 106.85

Minority Interest (0.01) -

144.55 121.13

Borrowed Funds

Secured loans 345.54 233.13

Unsecured loans 76.52 60.27

Total 566.62 414.53


Fixed Assets

Gross Block 435.81 331.01

Depreciation (47.27) (29.76)

Net Block 388.54 301.25

Capital work in progress 22.05 -

410.59 301.25

Investments 20.03 22.34


Inventories 5.75 5.31

Sundry Debtors 42.78 17.27

Cash and Bank Balances 87.13 26.47

Loans and Advances 48.03 56.94

183.69 105.99


Current Liabilities 38.22 12.07

Provisions 5.17 1.47

Incomplete Voyage (Net) 4.30 1.51

47.69 15.05

Net Current Assets 136.00 90.94

Total 566.62 414.53

Rate of conversion 1 USD= Rupees 43.47 44.66

13.19

ParticularsYear Ended


March 31, 2006

Pg. 188

(Amount In USD Million)


CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE

YEAR ENDED ON MARCH 31, 2007

INCOME

Shipping Income 258..28 185.00

Other Income 5.35 3.72

Profit on Sale of Investment 0.21 0.02

Profit on Sale of Asset 0.72 0.09

Total 264.56 188.83

EXPENSES

Ship Operating Expenses 182.82 101.67

Administrative and General Expenses 7.45 5.39

Finance Charges 18.58 15.85

Depreciation 23.88 20.97

Total 232.73 143.88

Profit before Minority Interest 31.83 44.95

Minority Interest (0.02) -


Current (0.75) (0.98)

Deferred - 0.40

Frienge Benefit Tax (0.03) (0.03)

Profit After Taxes 31.03 44.34

Depreciation written back on change of method - 0.82

Prior year Expenses / Income (Net) (0.10) (0.19)

Balance brought forward from last year 34.73 31.06

Available for Appropriations 65.66 76.03

Less/(Add): Appropriations

Transfer to Ship Acquisition Reserve - -

Transfer to Debentures Redemption Reserve - 25.20

Transfer to General Reserve 1.73 3.99

Transfer to Tonnage Tax Reserve 3.68 7.98

Provision for Dividend on Preference Shares 0.74 0.72

Interim Dividend on Equity Shares - 2.44

Provision for Final Dividend on Equity Shares 4.35 1.27

Tax on Dividend 0.84 0.62

Balance Carried to Balance Sheet 54.32 33.81

Earning Per Share in U.S.D

Basic 0.16 0.23

Diluted 0.13 0.20

Rate of conversion 1 USD= Rupees 43.47 44.66

ParticularsYear Ended


March 31, 2006

Pg. 189

(Amount In USD Million)


Pg. 190 Mercator Lines 23rd Annual Report - 2006-07I Pg. 191

NOTES


Pg. 192

NOTES


Documents

23 ANNUAL REPORT rd - Mercatormercator.in/investors/AnnualReport/AnnualReport2006-07.pdf · Mercator Lines I 23rd Annual Report ... The brief resume of ... The terms of appointment