Zenotech Laboratories

1.  We have audited the attached Balance Sheet of Zenotech Laboratories
 Limited as at March 31, 2007 and also the 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 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 misstatement. 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 issued
 by the Central Government 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 the paragraphs 4 and 5 of the said Order.
 
 4.  Attention is invited to Note 16 of Schedule 18 forming part of the
 financial statements regarding recognition of Deferred Tax Assets of
 Rs. 893.03 lakhs on carried forward business losses and unabsorbed
 depreciation which in our opinion, is not in accordance with the
 requirements of Accounting Standard 22 (AS) on Accounting for Taxes on
 Income issued by the Institute of Chartered Accountants of India.
 
 5.  Further to our comments in the Annexure referred to in paragraph 3
 above, and subject to matters referred to in para 4 above 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 purpose 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 sub-section (3C) of section 211 of the
 Companies Act, 1956;
 
 e) We further report that had adjustments been made to matter referred
 to in para 4 above the loss for the year after taxation would have been
 Rs. 530.56 lakhs as against the reported figure of profit after taxes
 of Rs. 362.47 lakhs and the Profit and loss account debit balance would
 have been Rs. 1119.12 lakhs against the reported figure of Rs. 226.
 09lakhs.
 
 f) In our opinion and according to the information and explanations
 given to us, the said accounts give the information required by the
 Companies Act, 1956, in the manner so required and subject to our
 comments in para 5(e) above 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 31,2007,
 
 ii. in the case of Profit and Loss Account, of the profit of the
 Company for the year ended on that date, and
 
 iii. in the case of Cash Flow Statement, of the cash flows for the year
 ended on that date.
 
 6.  On the basis of the written representations received from the
 directors as on March 31,2007 and taken on record by the Board of
 Directors, we report that none of the Directors is disqualified as on
 March 31,2007 from being appointed as a director in terms of clause (g)
 of sub-section (1) of section 274 of the Companies Act, 1956.
 
 Annexure referred to in paragraph 3 of our report of even date to the
 members of Zenotech Laboratories Limited on the accounts for the year
 ended March 31,2007
 
 (i) (a) The company has maintained proper records showing full
 particulars including quantitative details and situation of its fixed
 assets.
 
 (b) All the fixed assets have not been physically verified by the
 management during the year but there is a regular programme of
 verification which, in our opinion, is reasonable, having regard to the
 size of the company and the nature of its assets and no material
 discrepancies were noticed in respect of those assets which have been
 physically verified.
 
 (c) None of the fixed assets was disposed off during the year,
 
 (ii) (a) Inventory has been physically verified by the management at
 reasonable intervals during the year. 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 inventory
 followed by the management are reasonable and adequate in relation to
 the size of the company and the nature of its business.
 
 (c) The company is maintaining proper records of inventory and
 discrepancies noticed on physical verification were not material.
 
 (iii) (a) According to the information and explanations given to us,
 the company during the year granted an unsecured loan to a company
 covered in the register maintained under section 301 of the Companies
 Act, 1956 which was received back during the year. The maximum amount
 involved during the year was Rs. 31.38 lakhs,
 
 (b) The above unsecured loan was granted interest free and was
 outstanding for a period of eleven days and is not prima facie
 prejudicial to the interest of the company.
 
 (c) According to the information and explanations given to us, the
 company during the year has taken interest free loans from companies
 covered in the register maintained under section 301 of the Companies
 Act, 1956. The terms and conditions of the loans taken were prima facie
 not prejudicial to the interest of the company. These loans were repaid
 during the year. The maximum amount involved was Rs. 53.00 lakhs.
 
 (iv) In our opinion and according to the information and explanations
 given to us, having regard to the explanation that certain items of the
 expenditure are of a special nature and their prices cannot be compared
 with alternative quotations, there are adequate internal control
 systems commensurate with the size of the company and the nature of its
 business, for the purchase of inventory and fixed assets and for the
 sale of goods and services. During the course of our audit we have not
 noticed major weaknesses in such internal control systems.
 
 (v) (a) As explained to us and according to the information and
 explanations given to us, the particulars of. contracts or arrangements
 that need to be entered in the register in pursuance of section 301 of
 the Companies Act, 1956 in respect of each party during the year have
 been entered in the register.
 
 (b) In our opinion and according to the information and explanations
 given to us, having regard to our comments in para (iv) above, the
 transactions excluding loans covered in para (iii) above, made in
 pursuance of such contracts or arrangements and exceeding the value of
 five lakhs rupees in respect of any party during the year have been
 made at prices which were reasonable having regard to the prevailing
 market prices at the relevant time.
 
 (vi) The Company has not accepted deposits from the public to which the
 provisions of Section 58(A) and 58 (AA) of the Companies Act, 1956 and
 the rules made there under apply.
 
 (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 Order made by the Central Government for the
 maintenance of cost records under Section 209 (1) (d) of the Companies
 Act, 1956, in respect of manufacture of Pharmaceutical Products 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 said records.
 
 (x) (a) According to the information and explanations given to us and
 according to the books and records as produced and examined .  by us in
 accordance with the generally accepted auditing practices in India,
 except for Employees State Insurance dues the Company has been
 generally regular in depositing undisputed statutory dues including
 provident fund, investor education and protection fund, service tax,
 income tax, wealth tax, sales tax, excise duty, customs duty, cess and
 other material statutory dues as applicable with the appropriate
 authorities during the year.
 
 According to the information and explanations given to us, as at March
 31,2007 Employees State Insurance dues amounting to Rs. 1.05 lakhs was
 outstanding for a period exceeding six months from the date it became
 payable. We are informed that the same has been deposited with
 appropriate Authorities on June 19,2007.
 
 (b) As at March 31,2007, according to the records of the Company and
 the information and explanations given to us there were no dues on
 account of income tax, sales tax, wealth tax, service tax, customs
 duty, excise duty and cess matters that have not been deposited on
 account of any dispute.
 
 (x) Without taking into consideration the impact of the matters
 referred to in paragraph 4 read along with paragraph 5(e) of our main
 report, the accumulated losses of the company as at March 31,2007, are
 less than fifty percent of its net worth as on that date. The company
 has not incurred any cash losses during the financial year ended on
 that date 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)
 
                 3.70                              5
                36.79                              6
                36.46                              8
                16.00                              9     
                44.00                             10
                16.00                             13
                68.26                             18
                46.00                             26
                16.00                             50
                 0.10*                         21-82
                 0.06*                         30-91
                 0.04*                         5-165
 
 * monthly repayments
 
 (xii) The company during the year has not granted loans and advances on
 the basis of security by way of pledge of shares, debentures and other
 securities,
 
 (xiii) The company is not a nidhi / mutual benefit fund / society to
 which the provisions of special statute relating to chit fund are
 applicable, (xiv) In our opinion and according to the information and
 explanations given to us, the company is not a dealer or trader in
 securities, (xv) As explained to us, the company has not given any
 guarantee for loans taken by others from banks or financial
 institutions, (xvi) As explained to us, the term loans taken by the
 company have been applied for the purpose for which they were obtained.
 
 (xvii) Based on the information and explanations given to us and on an
 overall examination of the balance sheet of the company, in our
 opinion, funds raised on short-term basis have not been used for long
 term investment.
 
 (xviii) During the year company has not made any preferential allotment
 of shares to parties and companies covered in the register maintained
 under Section 301 of the Companies Act, 1956.
 
 (xix) As there are no debentures outstanding as at the year end,
 paragraph (xix) of the order is not applicable,
 
 (xx) The Company has not raised any money by way of public issue during
 the year.
 
 (xxi) According to the information and explanations given to us, during
 the year, no fraud on or by the company has been noticed or reported.
 
 
                                           For Deloitte Haskins & Sells
                                                  Chartered Accountants
 
                                                              A.C.Gupta
 Place: Hyderabad                                               Partner
 Date : June 21, 2007                                         M.No.8538