Arch Pharmalabs

We have audited the attached Balance Sheet of Arch Pharmalabs Limited
 as at 31st March, 2008, the Profit and Loss Account and the Cash Flow
 Statement for the year ended on that date, annexed thereto. These
 financial statements are the responsibility of the Companys
 Management. Our responsibility is to express an opinion on these
 financial statements based on our audit.
 
 1.  We conducted our audit 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 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 provides a reasonable basis for our opinion.
 
 2.  As required by the Companies (Auditors Report) Order, 2003 issued
 by the Central Government of India in terms of sub-section (4A) of
 Section 227 of the Companies Act, 1956, we enclose in the Annexure a
 statement on the matters specified in Paragraphs 4 & 5 of the said
 Order.
 
 3.  Further to our statements in the Annexure referred to above, we
 report that:
 
 i. 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;
 
 ii. 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
 those books.
 
 iii. The Balance Sheet, Profit & Loss Account and Cash Flow Statement
 dealt with by this report are in agreement with the books of account.
 
 iv. In our opinion, the Balance Sheet, Profit & Loss Account and Cash
 Flow Statement dealt with by this report comply with the mandatory
 Accounting Standards referred to in sub-section (3C) of Section 211 of
 the Companies Act, 1956.
 
 v. On the basis of written representations received from the Directors
 as on 31st March, 2008 and taken on record by the Board of Directors,
 we report that none of the Directors of the company disqualified as on
 31st March, 2008 from being appointed as a Director in terms of clause
 (g) of sub-section (1) of Section 274 of the Companies Act, 1956.
 
 vi. In our opinion and to the best of our information and according to
 the explanations given to us, the said accounts read with other notes
 thereon 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;
 
 a.  In the case of the Balance Sheet, of the state of the affairs of
 the Company as at 31st March, 2008
 
 b.  In the case of the Profit and Loss Account, of the profit for the
 year ended on that date; and
 
 c.  In the case of the Cash flow Statement, of the cash flows of the
 Company for the year ended on that date.
 
 ANNEXURE TO THE AUDITORS REPORT
 
 The Annexure referred to in the auditors report to the members of Arch
 Pharmalabs Limited (the Company) for the year ended March 31,2008. We
 report that:
 
 1) a) The Company has maintained proper records showing full
 particulars, including quantitative details and situation of fixed
 assets.
 
 b) The Company has a phased programme of physical verification of its
 fixed assets which, in our opinion, is reasonable having regard to the
 size of the Company and the nature of its assets.
 
 c) Fixed Assets disposed off during the year were not substantial and
 therefore do not affect the going concern status of the Company.
 
 2) a) During the year, the inventories have been physically verified by
 the management. In our opinion, the frequency of verification is
 reasonable.
 
 b) In our opinion and according to the information and explanations
 given to us, the procedures of physical verification of inventories
 followed by the management are reasonable and adequate in relation to
 the size of the Company and the nature of its business.
 
 c) On the basis of our examination of the record of inventories, we are
 of the opinion that, the Company is maintaining proper records of
 inventories. The discrepancies noticed on physical verification of
 inventories as compared to book records were not material and have been
 properly dealt with in the books of accounts.
 
 3) a) The Company has granted loans and taken loans to and from
 Companies, firms or other parties covered in the Register maintained
 under section 301 of the Companies Act, 1956.
 
 b) The rate of interest and other terms and conditions in respect of
 unsecured loans given by the Company to its employees and others, are
 in our opinion, prima facie not prejudicial to the interest of the
 Company.
 
 c) In respect of such loans given by the Company, where stipulations
 have been made, they have generally repaid the principal amounts as
 stipulated and have been regular in payment of interest, where
 applicable.
 
 4) According to the information and explanations given to us, there are
 adequate internal control procedures commensurate with the size of the
 Company and the nature of its business with regard to purchases of
 inventories, and with regard to the sale of goods. During the course of
 our audit, no major weakness has been noticed in the underlying
 internal controls.
 
 5) a) In our opinion and according to the information and explanations
 given to us, the transactions that need to be entered into the Register
 maintained under section 301 of the Companies Act, 1956 have been so
 entered.
 
 b) In our opinion and according to the information and explanations
 given to us, there are transactions exceeding Rupees Five Lakhs each
 which have been made at prices, which have been reasonable to the
 prevailing market prices, for such goods, materials or services at the
 relevant time.
 
 6) The Company has not accepted any deposits from the public and
 consequently, the directives issued by the Reserve Bank of India, the
 provisions of Sections 58A and 58AA of the Companies Act, 1956 and the
 rules framed there under are not applicable.
 
 7) In our opinion and according to the explanations given to us, the
 Company has an internal audit system commensurate with the size and
 nature of its business.
 
 8) We have broadly reviewed the books of accounts maintained by the
 Company pursuant to the Rules made by the Central Government for the
 maintenance of Cost records under Section 209 (1) (d) of the Companies
 Act, 1956 and are of the opinion that, prima facie, the prescribed
 accounts and records have been made and maintained. We have not,
 however, made a detailed examination of the records with a view to
 determine whether they are accurate or complete.
 
 9) a) According to the information and explanations given to us, and on
 the basis of our examination of the books of account, the Company has
 been regular in depositing with appropriate authorities undisputed
 statutory dues including provident fund, income-tax, sales-tax, customs
 duty and any other material statutory dues applicable to it. According
 to the information and explanations given to us, no undisputed dues
 payable in respect of income-tax, sales tax, customs duty and cess were
 outstanding as at 31st March, 2008 or for a period of more than six
 months from the date they became payable.
 
 b) As on 31st March, 2008 according to the records of the Company, the
 following are the particulars of disputed dues on account of Sales Tax,
 Income Tax, Customs duty, Wealth tax, Excise duty and cess matters that
 have not been deposited:
 
 Name of            Amount          Forum where
 the statute        Rs. Lakhs       dispute is Pending
 
 Customs            9.76            Commissioner of
                                    Customs, Chennai
 
 10) The Company has accumulated p rofits at the end of the financial
 year and has not incurred any cash losses during the financial year
 ended March 31,2008 and in the preceding financial year ended March
 31,2007.
 
 11) Based on our audit procedures and on the information and
 explanations given by the management, we are of the opinion that the
 Company has not defaulted in repayment of its dues to any financial
 Institution, bank or to debenture holders during the year.
 
 12) The Company has not granted loans and advances on the basis of
 security by way of pledge of shares, debentures and other securities.
 Accordingly, clause 4(xii) of the order is not applicable.
 
 13) The Company is not a chit fund, nidhi, mutual benefit fund or a
 society. Accordingly, clause 4(xiii) of the order is not applicable.
 
 14) According to the information and explanations given to us, the
 Company is not dealing or trading in shares, securities, debentures and
 other investments.  Accordingly, clause 4(xiv) of the order is not
 applicable.
 
 15) According to the information and explanations given to us, the
 Company has not given any guarantee for loans taken by others from
 banks or financial institutions.
 
 16) The Company has obtained term loans and the same was applied for
 the purpose for which the loan was taken.
 
 17) On the basis of examination of Cash Flow statement the funds raised
 on short-term basis have not been used for long term investments &
 funds raised on long-term basis have not been used for short-term
 investments.
 
 18) The Company has made allotment of equity shares on exercise of
 rights of conversion of Convertible Warrants by the Warrant holders,
 covered in the Register maintained under section 301 of the Act, and
 the price at which shares have been issued, is not prejudicial to the
 interest of the Company.
 
 19) The Company has created securities and/or charges in respect of
 Secured Debentures issued.
 
 20) The Company has issued 35,39,004 equity shares by way of Rights
 Issue amounting to Rs.106.17 Crores, during the year, thereby
 increasing the issued and paid- up share capital.
 
 21) Based upon the audit procedures performed and information and
 explanations given by the management, we report that, no fraud on or by
 the Company has been noticed or reported during the course of our audit
 for the year ended March 31,2008.
 
                                           For M/s. NAYAK & RANE 
                                           Chartered Accountants
 
                                                            Sd/-
                                                    KISHORE RANE
                                                         Partner
                                           Membership No. 100788
 Place: Mumbai
 Date : 28.08.2008