Silly Monks Entertainment Ltd Management Discussions.

a) COMPANY OVERVIEW

In this digital era, the world is no longer what it used to be. It takes courage and flexibility to embrace that change. We at Silly Monks do just that!

Drawing upon years of experience in the fields of technology, media, and content creation, we at Silly Monks Entertainment identify ourselves as an internet publishing, content creation, mobile distribution, marketing, advertising and strategic consulting company.

Our eclectic team of young men and women from a range of backgrounds; highly educated and with street smarts, make a deadly combination. This helps us bring an element of uniqueness to our work. We are constantly growing and raising our standards to improve our performance.

OUR BUSINESS LINES / MODEL ARE AS ARE AS ILLUSTRATED BELOW:

We are a ‘South India based entertainment & media startup with a focus of being a recognized & fast-growing player in areas such as digital media publishing, marketing/promotion, movie/content production, celebrities social media management, App development, Audio content Distribution, Google AdWords and online / digital Advertising, event management, and live band performances.

Content Publishing/Dissemination:

We publish our content on various platforms such as YouTube, Facebook, Amazon, Vuclip etc. The content that is being published over these platforms are either created by us i.e. by our in-house production or acquired through outright purchase or through syndicated method. In case of content which is bought by us, we own the copy rights of the content through an agreement with assignor and hence the publishing revenue is fully accrued to us. When the content is through syndication, we share the revenue with the content partner.

We are a YouTube MCN (Multi Channel Network). We have an exhaustive spread of creative endeavours. The Silly Monks creative team works towards creating interesting and innovative new content, including videos, music and movie-based entertainment. We also keep our radars on, to spot new talent and give them the break they truly deserve. Through inventive reprocessing and web optimization, we ensure the visibility and accessibility of our content. We also have trained professionals who maximize the profit and track unauthorized content duplication.

We have been doing the background work for the channel, "Sumakka" featuring leading television anchor Suma Kanakala for the past six months. We recently launched Sumakka on our Silly Monks MCN. Within two months of the launch of "Sumakka" on our network, it has amassed 1,81,000 subscribers.

Production:

We recently ventured into the business of Content (Movies, Web Series etc.,) production.

We in collaboration with Swapna C Dutt, Chakravathi Gutta, have produced a Web Series "Gangstars" for Amazon Prime Video. This Series is the first ever Amazon Prime Video original series in Telugu, and has 12 episodes with dubbed versions in Tamil and Hindi.

We in collaboration with M/s. Respect Creations have produced a Telugu feature film titled "24 Kisses". 24 Kisses is a 2018 Indian Telugu language romantic comedy film about modern age relationships and the transformation of the lead characters.

And "Maa Vintha Gadha Vinuma" and "George Reddy" are the other feature films are currently under production.

b) INDUSTRY STRUCTURE AND DEVELOPMENTS

INDIAN ECONOMIC SCENARIO

India has emerged as the fastest growing major economy in the world as per the Central Statistics Organisation (CSO) and International Monetary Fund (IMF). The Government of India has forecasted that the Indian economy will grow by 7.1 per cent in FY 2016-17. As per the Economic Survey 2016-17, the Indian economy should grow between 6.75 and 7.5 per cent in FY 2018-19.

DIGITAL MEDIA PUBLISHING INDUSTRY GLOBAL AND INDIAN ECONOMY

Global Trends: Transition to On-Demand Content

Media consumption across the globe is increasingly happening in digital formats. The increase in the number of devices capable of supporting digital media along with increasing internet access speed, has provided consumers with an option to access the media content of his choice be it information, entertainment or social activity anytime, anywhere. Media consumption in the US has shown tremendous increase and has seen a significant jump from traditional media to new (digital) media. The rise of digital media players such as Netflix, Hulu, Amazon, Apple TV, Roku, and Boxee, etc. are challenging the traditionally maintained supremacy of the television as the main entertainment hub.

Media and entertainment industry growth expected to double in five years

The media and media industry in India has reached a size of Rs 1,63,100 crore (US$ 23.33 billion) in FY19, posting a growth of 13 per cent, clocking a CAGR of 11.5 per cent over the period FY15-19, as per KPMG Indias eleventh version of its Media and Entertainment (M&E) report. Titled Indias Digital Future: Mass of Niches, the report additionally said that the advanced market is ready to turn into the second biggest section in India after TV, and also attract the greatest promoting spend by FY22.

The M&E business grew 13 per cent in FY19 on the back of quick development in advanced client base and utilization, combined with developing regional demand and monetisation.

The M&E business is expected to post a CAGR of 13.5 per cent over FY19-24, to reach a size of Rs 3,07,000 crore (US$ 43.92 billion) in FY24. This will be on the back of a greater focus on monetisation of emerging digital business model, strong regional opportunities and favourable regulatory and operating scenarios across traditional business.

However, it also distinguished headwinds like the New Tariff Order (NTO) execution vulnerabilities, and early indications of economic slowdown, which have pulled down the overall development.

With no major obliging factors, digital is relied upon to be a dominant force going ahead and in FY23, it is probably going to be the second biggest section after TV and pull in the most elevated advertising spend among all media positions. In 2019, as digital behaviour evolves, subscription models will have greater role in monetisation of digital platforms. Further, evolving technologies are also presenting opportunities for companies in the media and media industry to accomplish more operational efficiencies

Digital Media Landscape in India

In line with global trends, the Indian consumer is increasingly consuming the content on digital platforms. This trend is observed for all type of content including news (text), music (audio), or video. Increasing internet penetration and mobile device proliferation and convenience of consuming the content anytime, anywhere are the key drivers for this trend.

Rapidly increasing internet users

India added 43 million internet users (20.5% growth) from October 2013 to September 2014 and total internet users crossed 254 million 6 in September 2014. Out of these, 235 million users accessed internet through mobile devices. The growth in internet users was seen both in rural and urban parts of India. Internet users in rural India is expected to reach 138 million by June 2015, while 216 million internet users are expected to be in urban India by then. With improved networks, better access to internet, multimedia service-capable mobile devices and application development ecosystem, more and more media consumption would happen on digital platforms.

India has around 300,000 app developers and is already the second largest Android developer community in the world after the US. While the internet user base in India is growing at a rapid rate; most of these users (75%) belongs to the age group of less than 35 years. More than half of the app users in India are aged between 18 and 24 years and a further 29% between 25 and 35. 45% of these users reside in the top 4 metros.

Further, the Internet and Mobile Association of India (IAMAI) has predicted that Indias internet users are expected to register double-digit growth to reach 627 Mn in 2019, driven by rapid internet growth in rural areas.

The rise in internet users, however, is in contrast with the mobile penetration seemingly reaching its saturation point. Telecom Regulatory Authority of India (TRAI) most recent data showed that the number of mobile subscribers has seen a 1.85% decline in monthly growth rate, and the total has fallen by 21.87 Mn subscribers in March 2019. India has 1.16 Bn wireless or mobile telecom subscribers, out of a population of between 1.3 and 1.4 Bn, according to TRAI.

Higher spend on entertainment services by youth

On an average, an internet connected user in India spends 14% of his or her time and 17% of his or her monthly spending on entertainment. Combined spend by an internet user on Mobile and Entertainment increased by 34% in two years from 2012 to 2014.

India Media and Entertainment Industry

The Indian Media and Entertainment (M&E) industry is a sunrise sector for the economy and is making high growth strides. Proving its resilience to the world, the Indian M&E industry is on the cusp of a strong phase of growth, backed by rising consumer demand and improving advertising revenues. The industry has been largely driven by increasing digitization and higher internet usage over the last decade. The Internet has almost become a mainstream media for entertainment for most of the people.

Market Dynamics

Indian media and entertainment (M&E) industry grew at a CAGR of 10.90 per cent from FY17-18; and is expected to grow at a CAGR of 13.10 per cent to touch Rs 2,660.20 billion (US$ 39.68 billion) by FY23 from Rs 1,436.00 billion (US$ 22.28 billion) in FY18. Indias media consumption has grown at a CAGR of 9 per cent during 2012-18, almost nine times that of US and two times that of China. The industry provides employment to 3.5-4 million people, including both direct and indirect employment in CY 2017.

Indias online gaming industry is expected to grow at a CAGR of 22 per cent between FY18-23 to reach Rs 11,900 crore (US$ 1.68 billion) in FY23

Indias advertising revenue is projected to reach Rs 1,232.70 billion (US$ 18.39 billion) in FY23 from Rs 608.30 billion (US$ 9.44 billion) in FY18.

The Indian media & entertainment sector is expected to grow at a Compound Annual Growth Rate (CAGR) of 14.3 per cent to touch M 2.26 trillion (US$ 33.9 billion) by 2020, while revenues from advertising is expected to grow at 15.9 per cent to M 99,400 crore (US$ 14.91 billion).Over FY 2015-20, radio will likely grow at a CAGR of 16.9 per cent, while digital advertising will grow at 33.5 per cent. The largest segment, Indias television industry, is expected to grow at a CAGR of 15 per cent, while print media is expected to grow at a CAGR of 8.6 per cent. India is one of the highest spending and fastest growing advertising market globally.

The Foreign Direct Investment (FDI) inflows in the Information and Broadcasting (I&B) sector (including Print Media) in the period April 2000 March 2019 stood at US$ 8.38 billion, as per data released by Department for Promotion of Industry and Internal Trade (DPIIT).

(https://www.ibef.org/industry/media-entertainment-india.aspx)

The digital media entertainment sector is a niche space that is growing and will set the standards of things to come in the near future, globally. With media consumption across the globe increasingly happening in digital formats, marketers are shifting their advertising spends towards digital media There is a marked shift in consumer preferences towards digital media consumption as compared to traditional forms of media which include TV, print press, and radio.

Silly Monks Entertainment is one of the leading Digital Entertainment Companies in India operating successfully since 2013, headquartered in Hyderabad. SMEL is associated with some of the biggest names in digital property management, OTT platforms, social media, movies, music ... and the list goes on Facebook, YouTube, Google, Yahoo, Amazon, Yupp TV, VuClip, Spuul, Hungama, and Idea among them. Along with all else, the team has worked with producers of some of the biggest blockbusters out of the Southern movie industry in recent times viz. #Baahubali, #Rudramadevi, Shankars #I, #Aagadu, #Peruchazhi, #Kali, #Magalirmattum, #Garudavega, #GautamiputraSatakarni, #Mahanati; as well as producing the first ever Telugu web series for Amazon Prime, #Gangstars. Upping the ante, Silly Monks has consolidated a virtual monopoly in the Deccani movie world too.

Keeping in trend with the industry space it occupies, SMEL has a strong presence in the Indie music and event space too. Operating in a fast evolving and competitive industry has its perks since the players define their own niches as they grow.

c) Segment-wise or product wise performance

The segment wise performance of the company can be analyzed on the basis of the Audited Financial Statements for the financial year 2018-19 annexed with this report.

d) Opportunities and Threats:

In line with global trends, the Indian consumer is increasingly consuming the content on digital platforms. This trend is observed for all type of content including news (text), music (audio), or video. Increasing internet penetration and mobile device proliferation and convenience of consuming the content anytime, anywhere are the key drivers for this trend.

Growth opportunities/ parameters for SMEL are based on the following:

• Rapidly increasing number of internet users

• Higher spend on entertainment services by youth

• Rising data consumption with smartphone penetration

• Ever growing need for unique content for various segments

• Increasing pan-India presence to garner more visibility and which helps in acquisition of quality content

Only threats beyond our control could stop the juggernaut from its path. That is what we like to believe as we continue to grow.

(d) Outlook

The team continues to rely on the core strengths of experience and a strategically qualified team of professionals, but more so with a strong focus on quality content we believe that we have become a well- known brand name in the business of Digital Media Marketing. The growing market in that space gives us a larger playing field.

The digital media entertainment space is as yet a niche space and yet with the foreseen growth, it can only get more interesting in the days ahead. Our main strategy is to continually build on the diverse content library and strong fiscal planning and growth projections.

(e) Risks and Concerns

Risks are a part of every growing entity and especially when it concerns businesses that are in a sunrise industry as ours. There are always risks and concerns and the only way to deal with them are to plan strategically. To be aware always of every risk potential is the only thumb rule we follow.

However, the main risks that would be incomparable in terms of our growth would probably be:

• Force Majeure superior or overpowering force beyond control of mankind

• Collapse of the Internet/ shutting down of Google / Facebook servers

• Facebook monetising content that may reduce YouTube viewership

e) Internal control systems and their adequacy

The Company has adequate and efficient internal control systems that provide protection of all the assets against losses from unauthorized use and for appropriate reporting of transactions. The Company has implemented proper controls which are reviewed at regular intervals to ensure that the authenticity of the transactions.

f) Discussion on financial performance with respect to operational performance

STANDALONE FINANCIAL CONDITION:

Capital Structure: The Paid-up Share Capital of the Company as on 31st March 2019 is Rs.4,64,15,000/- divided into 46,41,500 Equity Shares of Rs.10/- each fully paid up.

Reserves and Surplus: The Reserves and Surplus of the company as on 31st March 2019 stand at Rs. 11,77,39,056 /- as compared to Rs. 11,60,36,237/- in the previous year. The increase of Reserves is due to Issue of Shares for the FY 2018-19.

Property, Plant and Equipment: The Company invested on Property, Plant and Equipment Rs.76,69,664/- in the financial year 2018-19.

Sundry Debtors: Sundry debtors increased to Rs.1,98,31,196/- as on 31st March 2019 as compare with previous year Rs2,60,24,443. These debtors are considered good and realizable.

Cash and Bank Balances: Cash and Bank balances with Scheduled Banks stood to Rs.24,17,367/- as against Rs. 6,07,64,008 in the previous years.

Loans and Advances: Long Term Loans and Advances is Rs.4,78,04,959/- as against Rs. 1,55,90,593 in the previous year. Short Term Loans and Advances is Rs.2,09,438/- as against Rs.2,102,540/- in the previous year.

Current Liabilities: Current Liabilities as on 31st March 2019 is Rs. 18,203,466/- as against Rs.62,08,994 in the previous Year.

CONSOLIDATED FINANCIAL CONDITION:

Reserves and Surplus

The Reserves and Surplus of the company as on 31st March 2019 stand at Rs.14,24,14,323/- as compared to Rs. 13,95,41,983/- in the previous year.

Property, Plant and Equipment

The Company invested on Property, Plant and Equipment Rs.98,64,060/- in the financial year 2018-19.

Sundry Debtors:

Sundry debtors increased to Rs.4,46,19,758/- as on 31st March 2019 as compare with previous year Rs4,15,80732. These debtors are considered good and realizable.

Cash and Bank Balances:

Cash and Bank balances with Scheduled Banks stood to Rs.1,47,62,676/- as against Rs.1,76,66,161/- in the previous years. Annual Report 2018-19

Loans and Advances:

Long Term Loans and Advances is Rs.3,48,63,141/- as against Rs.1,55,90,593 in the previous year. Short Term Loans and Advances is Rs.1,82,750/- as against Rs. 6,83,89,421/- in the previous year.

Current Liabilities: Current Liabilities as on 31st March 2019 is Rs.3,50,09,563/- as against Rs.1,52,53,852/- in the previous Year.

STANDALONE OPERATIONAL RESULTS:

Turnover:

During the financial year 2018-19 the turnover of the Company was Rs.11,03,62,039/- as against Rs.8,40,07,972/- in the previous year and income from other sources as on 31st March 2019 was Rs.19,55,173/- as against Rs.9,53,700/- in the previous year.

Depreciation:

The Company has provided Rs.60,30,603/- for depreciation during the financial year 2018-19 as against Rs.32,77,867/- in the previous years.

Provision for Tax:

The Company has provided for tax Rs.21,07,792/- in the financial year 2018-19 as against Rs.22,43,691/- in the previous financial year.

Net Profit:

The Net Profit of the Company after tax is Rs.74,62,411/- for the financial year 2018-19 as against Rs.94,06,499/- in the previous year.

Earnings per Share:

The Earnings per Share of the Company as on 31st March, 2019 is Rs.1.61/- per share for Face Value of Rs.10/- as against Rs.2.43/- per share for Face Value of Rs.10 in the previous year.

CONSOLIDATED OPERATIONAL RESULTS:

Turnover

During the financial year 2018-19 the turnover of the Company was Rs.20,91,96,881/- as against Rs.15,66,29,082/- in the previous year and income from other sources as on 31st March 2019 was Rs. 29,57,539 as against Rs.9,53,700/- in the previous year.

Depreciation

The Company has provided Rs.70,54,061/- for depreciation during the financial year 2018-19 as against Rs.38,11,792/- in the previous years.

Provision for Tax: The Company has provided for tax Rs.21,07,792/- in the financial year 2018-19 as against Rs.23,78,489/- in the previous financial year. Annual Report 2018-19.

Net Profit:

The Net Profit of the Company after tax is Rs.67,06,974/- for the financial year 2018-19 as against Rs.1,86,57,932/- in the previous year.

Earnings per Share:

The Earnings per Share of the Company as on 31st March, 2019 is Rs.1.52/- per share for Face Value of Rs.10/- as against Rs.4.92/- per share for Face Value of Rs.10/- in the previous year.

g) Material developments in Human Resources/Industrial Relations front including number of people employed

HUMAN CAPITAL

Our employees are our most important assets. We believe that the quality and level of service that our professionals deliver are among the highest in the Digital Media services. We are committed to remaining among the industrys leading employers.

The Company has a mix of both experienced with 20 plus years in the industry as well as others with 10 plus and some with 2 to 3 plus years experience which gives us fresh lease and extra edge to the competitors.

As on 31st March 2019, we have 70 employees in total (66 Whole-Time Employees, 4 - Contract employees). We have hired approximately 40 employees between March 2018 and April 2019 (includes attrition).

The key aspects of our HR practice include:

• Recruitment

• Training and development

• Compensation.

HUMAN CAPITAL VALUE CHAIN WORKING ETHICALLY AND UPHOLDING HUMAN RIGHTS:

Our human capital interventions are dynamic driven having different groups working here like:

• Social media marketing

• Digital Marketing/Promotions

• YouTube creators

• Company Secretary & Legal

• Content Department

• Mobile & OTT platform

• Film Productions

• Networking

• Financial Department

• Human Resources

• Graphic Designer

RECRUITMENT

Attracting and recruiting the best-in-class talent, while ensuring long term people sustainability is a key business objective. We are an equal opportunity employer and focus on meritocracy and innovate creative at all stages of the hiring and which required credible manpower in YouTube Creators, Social Media, App development, Mobile & OTT platforms, Brand Management, Film Productions, Digital promotions for films.

In FY 2019, we moved towards digitalizing and exploring new talents to get the best out for the hiring process to our organisation. We have hired efficient and experienced manpower from recruiters and employee referrals. We rely on a rigorous selection process involving technical interviews with senior management and HR interviews to identify the best applicants. This selection process is continually assessed and refined based on the performance tracking of past recruits.

COMPENSATION/REMUNERATION:

Our technology professionals receive competitive salaries and benefits. Overall compensation at the Company as compared to competitors is highly competitive. We believe to have best of talents in the organization as we deal with reputed projects.

HUMAN RIGHTS & VALUES AT SM:

SM is committed to protecting and respecting Human Rights and remedying rights violations in case they are identified. Providing equal employment opportunity, ensuring distributive, procedural and interactional fairness, creating a harassment-free, safe environment and respecting fundamental rights are some of the ways in which we do so.

CAUTIONARY STATEMENT:

Statements in this management discussion analysis describing the Companys objectives, projections, estimates, expectations may be forward looking within the meaning of applicable securities-laws and regulations. Actual results may differ materially from those expressed in the statement. Important factors that could make difference to Companys operations include economic conditions affecting the domestic market and the overseas markets in which the Company operates, changes in the Government regulations, tax laws and other statutes and other incidental factors.

By Order of The Board of Directors
For Silly Monks Entertainment Limited
Sd/-
Tekulapalli Sanjay Reddy
Place: Hyderabad Chairman & Managing Director
Date: 23.08.2019 DIN: 00297272