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INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS OF LYKA LABS LIMITED
Report on the Financial Statements
We have audited the accompanying financial statements of LYKA LABS LIMITED (the Company), which comprise the Balance Sheet as at June 30 2015, and the Statement of Profit and Loss and Cash Flow Statement for the year ended on that date (in which are incorporated the accounts of the company's branches at Ankleshwar and Tarapur audited by other auditor's after making such changes as were considered necessary for the purpose of incorporation), and a summary of significant accounting policies and other explanatory information.
Management's Responsibility for the Financial Statements
The Company's Board of Director is responsible for the matters stated in section 134(5) of the Companies Act, 2013 ("the Act") with respect to the preparation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with accounting principles generally accepted in India, including the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014. This responsibility also includes maintenance of adequate accounting records in accordance with the provision of the Act for safeguarding of the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.
Our responsibility is to express an opinion on these financial statements based on our audit.
We have taken into account the provision of the Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the Act and the Rules made there under.
We conducted our audit in accordance with the Standards on Auditing specified under Section 143(10) of the Act. 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 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 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 financial control relevant to the Company's preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on whether the Company has in place an adequate internal financial controls system over financial reporting and the operating effectiveness of such controls. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Company's 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 qualified audit opinion.
Basis for Qualified Opinion
We draw attention to Note No.28 relating to non compliance of the provisions of Section 74 of the Companies Act, 2013 to the extent of such non repayment of overdue Fixed Deposits.
In our opinion and to the best of our information and according to the explanations given to us, except for the effects of the matters described in the Basis for Qualified Opinion paragraph, the financial statements give the information required by the Act 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 affairs of the Company as at June 30, 2015;
(b) in the case of the Statement of Profit and Loss, of the profit for the year ended on that date; and;
(c) in the case of the Cash Flow Statement, of the cash flows for the year ended on that date.
Reason for Qualification
The Company has not been able to repay overdue Fixed Deposits aggregating to Rs. 108,586,000 and interest due thereon Rs. 14,889,768 upto 30th June, 2015. Consequently, the Company has not complied with provision of Section 74 of the Companies Act, 2013 to the extent of such non repayment of overdue Fixed Deposits. Hence we have qualified the same. The liability, if any arising on account of delayed payments/non–payment of dues will be provided for in the year in which finality is reached .
Emphasis of Matters
1. The Company continues to be under severe financial stress as reflected by:
(a) Overdue Fixed Deposits and Debentures (including interest accrued and due) (Refer Note Nos. 28 and 29)
(b) Overdue loans from banks (Refer Note No. 30).
(c) Statutory dues of Rs. 29,738,746 remaining unpaid (Refer Note No. 10(B)(i))
(d) Fire Ankleshwar Plant (Refer Note No. 32).
(e) Overdue receivables (Refer Note No. 36).
2. Restructuring of Business Operations:
The Management of the Company is in the process of restructuring its business operations as also those of its subsidiaries in which it has substantial investments by:–
(a) The Company sold its manufacturing facilities for formulations at Tarapur, Maharashtra (Refer Note No. 31)
(b) Infusion of funds by promoters through subscription of Preferential issue of convertible warrants.
(c) Expanding business volumes.
3. Note No. 36 regarding Sundry Debtors outstanding for more than six months aggregating to Rs. 129,639,709 considered good for recovery by the company.
4. Note No. 37 regarding pending balance confirmation from Sundry Debtors, Sundry Creditors, Fixed Deposits, Group Companies and Loans & Advances.
5. Note No. 38 regarding non provision for diminution in value of investments.
6. Note No. 39 relating to Capital Work–in–Progress of Intangible Assets aggregating to Rs. 109,643,183.
7. Note No. 41 regarding slow/non–moving material aggregating to Rs. 12,560,316. Our opinion is not qualified in respect of all these matters.
Report on Other Legal and Regulatory Requirements
1. As required by the Companies (Auditor's Report) Order, 2015 ("the Order"), issued by the Central Government of India in terms of sub–section (11) of section 143 of the Companies Act, 2013, we give in the Annexure a statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.
2. As required by section 143(3) of the Act, we report that:
(a) We have sought and 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 those books;
(c) The reports on the accounts of the branch offices of the Company audited under Section 143(8) of the Act by branch auditors have been sent to us and have been properly dealt with by us in preparing this report;
(d) The Balance Sheet, the Statement of Profit and Loss and the Cash Flow Statement dealt with by this Report are in agreement with the books of account;
(e) In our opinion, the aforesaid financial statements comply with the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014;
(f) On the basis of written representations received from the directors as on June 30, 2015, and taken on record by the Board of Directors, none of the directors is disqualified as on June 30, 2015, from being appointed as a director in terms of section 164(2) of the Act.
(g) With respect to the other matters to be included in the Auditor's Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us:
(i) The company has disclosed the impact of pending litigation on its financial position in its financial statements – Refer to Note No. 27 (i) to 27(vi) of other notes to the financial statements.
(ii) The company does not have any long–term contracts including derivatives contracts and hence there are no material foreseeable losses.
(iii) There were no amounts which were required to be transferred to the Investor Education and Protection Fund by the Company.
ANNEXURE TO THE INDEPENDENT AUDITORS' REPORT
(Referred to in paragraph 1 of our report of even date)
(i) In respect of its Fixed Assets:
(a) The Company has maintained proper records showing full particulars, including quantitative details and situation of fixed assets.
(b) There is a phased programme of verification which, in our opinion, is reasonable having regard to the size of the company and the nature of its assets. The discrepancies noticed on such verification which are not material have been suitably dealt with in the books of account.
(ii) In respect of its Inventories:
(a) As explained to us, inventories were physically verified during the year by the management at regular intervals except the inventories lying with the third parties from whom confirmations have been obtained.
(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) In our opinion and according to the information and explanations given to us, the Company has maintained proper records of its inventories and discrepancies noticed on physical verification which are not material have been properly dealt with in the books of account.
(iii) The Company has not granted any loan to any party, covered in the register maintained under section 189 of the Companies Act, 2013 and hence clause 3(iii) of the Order is not applicable.
(iv) In our opinion and according to the information and explanations given to us, there are internal control procedures 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.
(v) The Company has not been able to repay overdue Fixed Deposits aggregating to f 108,586,000 and interest due thereon f 14,889,768 upto 30th June, 2015 (excluding Short Term Loans in respect of which, the Company has been legally advised that such loans are not deposits, as defined, in the Companies (Acceptance of Deposits) Rules, 2014). Consequently, the Company has not complied with the provisions of Section 74 of the Companies Act, 2013 to the extent of such non repayment of overdue Fixed Deposits.
The Company has filed a petition with the Company Law Board on 31st March, 2015 to seek extension of time for repayment of principal and interest (dues) thereon upto March, 2020.
(vi) We have broadly reviewed the books of account and records, to the extent, maintained by the Company relating to the manufacture of Bulk Drugs and Formulations, pursuant to the Order made by the Central Government for the maintenance of cost records under Section 148(1) of the Companies Act, 2013, and are of the opinion that prima facie most of the prescribed accounts and records have generally 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.
(vii) According to the information and explanations given to us and as per the relevant records produced before us in respect of statutory and other dues:
(a) During the year Company has not been regular in depositing undisputed statutory dues relating to Provident Fund, Professional Tax, E.S.I.C., Service Tax, Income–tax, Value Added Tax and Sales–tax. The arrears of the said dues as at the last day of the financial year and outstanding for more than six months from the date they become payable are as follows
(c) According to the information and explanations given to us, the Company does not have any amount which is pending to be transferred to the Investor Education and Protection Fund in accordance with the relevant provisions of the Companies Act ,1956 (1 of 1956) and rules made there under.
(viii) The accumulated losses of the Company have not exceeded fifty per cent of its net worth as at the end of the year. The Company has not incurred cash losses during the year. In the immediately preceding financial period, the Company had incurred cash losses.
(ix) Based on our audit procedures and according to the information and explanations given by the management, during the year, the Company, has defaulted in repayment of dues to Bank, the defaults whereof are stated hereunder.
(x) In our opinion and according to the information and explanations given to us, the terms and conditions on which the company has given a guarantee for loan taken by its subsidiary from a bank are prima facie not prejudicial to the interests of the Company.
(xi) To the best of our knowledge and belief and according to the information and explanations given to us, term loans availed by the Company were, prima facie, applied by the Company during the year for the purposes for which the loans were obtained.
(xii) To the best of our knowledge and belief, and according to the information and explanations given to us, and considering the size and nature of the Company's operations, no fraud of material significance on or by the Company has been noticed or reported during the year.
For M. A. Parikh & Co.
Firm Reg. No. 107556W
Membership No. 32489
Place : Mumbai
Date : 29th August, 2015