1.  We have audited the attached Balance Sheet of ZENOTECH LABORATORIES
 LIMITED (the Company) as at March 31, 2010, the Profit and Loss
 Account for the year ended on that date and the Cash Flow Statement for
 the year ended on that date, both 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.
 
 2.  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 the 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 (Auditors Report) Order, 2003 [CARO],
 issued by the Central Government of India in terms of Section 227(4A)
 of the Companies Act, 1956, we enclose in the Annexure a statement on
 the matters specified in the paragraphs 4 and 5 of the said Order.
 
 4.  We invite attention to:
 
 a) Note 21 of Schedule 21 to the Financial Statements regarding
 investment of Rs. 105.60 lakhs (31.3.2009 - Rs. 105.60 lakhs) in and
 advances of Rs.366.04 lakhs (31.3.2009 - Rs. 398.93 lakhs) made to a
 wholly owned subsidiary and in respect of which no provision has been
 made for reasons stated therein. We are unable to comment on the
 carrying cost of the investment and the recoverability of the amounts
 advanced.
 
 b) Note 22 of Schedule 21 to the Financial Statements regarding
 investment of Rs. 0.24 lakhs in and loan of Rs. 14.71 lakhs made to an
 associate company and in respect of which no provision has been made
 for reasons stated therein. We are unable to comment on the carrying
 cost of the investment and the recoverability of the loans given.
 
 c) Note 23 of Schedule 21 to the Financial Statements regarding
 carrying cost of Fixed Assets of Rs. 1,040.03 lakhs (31.3.2009 - Rs.
 1041.65 lakhs) relating to an export oriented unit which is yet to be
 commissioned. We are unable to comment on the appropriateness of the
 stated value in the financial statements.
 
 d) In the absence of an assessment of indications that the Companys
 Plant & Machinery may be impaired and consequential estimation of the
 recoverable amounts as required by Accounting Standard (AS) 28 -
 Impairment of Assets - we are unable to comment on the appropriateness
 of the carrying cost of Plant & Machinery of Rs. 4,845.58 lakhs.
 
 e) Note 25 of Schedule 21 to the Financial Statements in respect of
 Product Development Expenditure amounting to Rs. 152.32 lakhs being
 carried forward as at March 31, 2010 to be written of in future years
 for the reasons stated therein. We are unable to comment in this
 regard.
 
 The matters referred to in paragraphs (a) and (c) above, were also
 subject matters of qualifications in our audit report on the financial
 statements for the year ended March 31, 2009.
 
 5.  Attention is invited to Note 24 (c) regarding absence of
 disclosures relating to Earnings Per Share as required in terms of the
 Guidance Note on Accounting for Employee Share-based Payment issued by
 the Institute of Chartered Accountants of India.
 
 6.  The financial statements do not disclose information relating to
 amounts due to Micro enterprises and Small Enterprises as at the
 Balance Sheet date and other disclosures required in terms of Schedule
 VI to the Companies Act, 1956.
 
 7.  Further to our comments in the Annexure referred to in paragraph 3
 above and subject to paragraphs 4, 5 and 6 above, we report that:
 
 a) we have obtained all the information and explanation, 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 those
 books;
 
 c) the Balance Sheet, Profit and Loss Account and Cash Flow Statement
 dealt with by this report are in agreement with the books of account;
 
 d) in our opinion, the Balance Sheet, Profit and Loss Account and Cash
 Flow Statement dealt with by this report comply with the Accounting
 Standards referred to in Section 211(3C) of the Companies Act, 1956;
 
 e) in our opinion and to the best of our information and explanations
 given to us, the said accounts, subject to adjustments which may be
 required in respect of matters dealt with in paragraph 4 above, the
 effect of which we are unable to determine, 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:
 
 (i) in the case of Balance Sheet, of the state of affairs of the
 Company as at March, 31, 2010;
 
 (ii) in the case of Profit and Loss Account, of the loss for the year
 ended on that date, and
 
 (iii) in the case of Cash Flow Statement, of the cash flows of the
 Company for the year ended on that date.
 
 8.  On the basis of the written representations received from the
 directors as on March 31, 2010 and taken on record by the Board of
 Directors, none of the Directors is disqualified as on March 31, 2010
 from being appointed as a director in terms of Section 274 (1)(g) of
 the Companies Act, 1956.
 
 (referred to in paragraph 3 of our report of even date)
 
 (i) Having regard to the nature of the Companys business/ activities/
 result, clauses (vi), (xii), (xiii), (xiv), (xv), (xviii), (xix) and
 (xx) of CARO are not applicable.
 
 (ii) In respect of fixed assets:
 
 (a) The Company has maintained proper records showing full particulars
 including quantitative details and situation of the fixed assets.
 
 (b) The fixed assets have been physically verified during the year by
 the management in accordance with a regular programme of verification
 which, in our opinion, provides for physical verification of all fixed
 assets at reasonable intervals, having regard to the size of the
 Company and the nature of its assets. According to the information and
 explanations given to us, no material discrepancies were noticed on
 such verification.
 
 (c) The fixed assets disposed off during the year, in our opinion, do
 not constitute substantial part of the fixed assets of the Company and
 such disposal has, in our opinion, not affected the going concern
 status of the Company.
 
 (iii) In respect of inventory:
 
 (a) As explained to us, the inventories have been physically verified
 during the year by the management at reasonable intervals.
 
 (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 were reasonable and adequate in relation to
 the size of the Company and the nature of its business.
 
 (c) In our opinion and according to the information and explanations
 given to us, the Company has maintained proper records of its
 inventories and no material discrepancies were noticed on physical
 verification.
 
 (iv) The Company has neither granted nor taken any loans, secured or
 unsecured, to/from companies, firms or other parties listed in the
 Register maintained under Section 301 of the Companies Act, 1956.
 
 (v) In our opinion and according to the information and explanations
 given to us, having regard to the explanation that some of the items
 purchased are of special nature and suitable alternative sources are
 not readily available for obtaining comparable quotations, there is an
 adequate internal control system commensurate with the size of the
 Company and the nature of its business with regard to purchases of
 inventory and fixed assets and the sale of goods and services. During
 the course of our audit, we have not observed any major weakness in
 such internal control system.
 
 (vi) In respect of contracts or arrangements entered in the Register
 maintained in pursuance of Section 301 of the Companies Act, 1956, to
 the best of our knowledge and belief and according to the information
 and explanations given to us:
 
 (a) The particulars of contracts or arrangements referred to Section
 301 that needed to be entered in the Register maintained under the said
 Section have been so entered.
 
 (b) Where each such transaction is in excess of rupees five lakhs in
 respect of any party, the transactions have been made at prices which
 are prima facie reasonable having regard to the prevailing market
 prices at the relevant time except in respect of certain purchases for
 which comparable quotations are not available and in respect of which
 we are unable to comment.
 
 (vii) The Company does not have an internal audit system.  ,
 
 (viii) We have broadly reviewed the books of account maintained by the
 Company pursuant to the rules made by the Central Government for
 maintenance of cost records under Section 209 (1) (d) of the Companies
 Act, 1956 in respect of Pharmaceutical Products and are of the opinion
 that prima facie the prescribed accounts and records have been made and
 maintained. We have however, not made a detailed examination of the
 records with a view to determining whether they are accurate or
 complete. .
 
 (ix) According to the information and explanations given to us in
 respect of statutory dues:
 
 (a) The Company has generally been regular in depositing undisputed
 statutory dues including, investor education and protection fund,
 employees state insurance, income tax, sales tax, wealth tax, service
 tax, customs duty, excise duty, cess and any other statutory dues
 applicable to it with the appropriate authorities. In respect of
 provident fund there are delays in depositing dues.
 
 (b) Except for provident fund dues of Rs. 45,000, there were no
 undisputed amounts payable in respect of income tax, wealth tax,
 customs duty, excise duty, cess and other material statutory dues in
 arrears as at March 31, 2010 for a period of more than six months from
 the date they became payable.
 
 (c) There are no dues of income tax, sales tax, wealth tax, service
 tax, customs duty, excise duty and cess which have not been deposited
 as at March 31, 2010 on account of any dispute.
 
 (x) The accumulated losses of the Company at the end of the financial
 year are not less than fifty percent of its net worth. The Company has
 incurred cash loss during the financial year, and in the immediately
 preceding financial year.
 
 (xi) According to the information and explanations given to us, the
 Company has defaulted in repayment of dues to financial institutions
 and banks as stated below:
 
 Amount of default (loan and interest)       Period of delay
 (Rs. Lakhs)                                    (in days)
 
 80.28                                             121
 
 81.91                                             304
 
 83.63                                             486
 
 66.67                                             669
 
 46.15                                             852
 
 (xii) In our opinion and according to the information and explanations
 given to us, the term loans have been applied for the purposes for
 which they were obtained.
 
 (xiii) In our opinion and according to the information and explanations
 given to us and on an overall examination of the Balance Sheet of the
 Company, we report that funds raised on short term basis have not been
 used during the year for long term investment.
 
 (xiv) To the best of our knowledge and according to the information and
 explanations given to us, no fraud on or by the Company has been
 noticed or reported during the year.
 
                                        For Deloitte Haskins & Sells
 
                                               Chartered Accountants
                                           (Registration No 008072S)
 
                                                        K.Rajasekhar
 Place : Secunderabad                                        Partner
 
 Date  : August 5, 2010                        Membership No.: 23341