Cepham Milk Specialities Ltd

The Members of CEPHAM MILK SPECIALITIES LIMITED

1. We have audited the attached balance sheet of CEPHAM MILK SPECIALITIES LIMITED, as at 31st March 2008, the profit and loss account and also the cash flow statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the company's 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 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 (Auditor's 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 paragraph 4 and 5 of the said order to the extent applicable to the Company.

4. Further to our comments 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 and loss account and cash flow statement dealt with by this report are in agreement with the books of accounts;

iv. 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;

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 is 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 explanation given to us, the said accounts 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 affairs of the company as at 31st March 2008;

(b) In the case of the profit and loss account, of the loss 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.

ANNEXURE TO THE AUDITOR'S REPORT

Referred to in paragraph 3 of our report of even date,

(i) (a) According to information and explanations given to us, the company has not maintained the records to show full particulars including quantitative details and situation of fixed assets.

(b) Though the assets have not been physically verified by the management during the year but there is a regular program of verification which, in our opinion, is reasonable having regard to the size of the company and the nature of its assets. No material discrepancies were noticed on such verification.

(c) During the year, the company has not disposed off any part of the fixed assets.

(ii) (a) The inventory has been physically verified during the year by the management. In our opinion, the frequency of verification is reasonable.

(b) 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) The company is maintaining proper records of inventory. The discrepancies noticed on verification between the physical stocks and the book records were not material.

(iii) (a) The company had taken loan from other companies covered in the register maintain under section 301 of the Companies Act, 1956. The maximum amount involved during the year was Rs. 517.37 lacs and the year-end balance of loans taken from such parties was Rs. 2.54 Leas.

(b) The company has not granted loans to any group companies covered in the register maintained under section 301 of the Companies Act, 1956. The maximum amount involved during the year was Rs. Nil.

(c) In our opinion, the rate of interest and other terms and conditions on which loans have been taken from/granted to companies, firms or other parties listed in the register maintained under section 301 of the Companies Act, 1956 are prima facie, prejudicial to the interest of the company.

(d) According to the information and explanation given to us there is no agreement for the repayment of the principal amount as well as interest amount therefore we can not make any comment on the regularity of the repayment of the principal amount as well as interest amount.

(e) There is no overdue amount of loans taken from or granted to companies, firms or other parties listed in the register maintained under section 301 of the Companies Act, 1956.

(iv) In our opinion and 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 inventory, fixed assets and with regard to the sale of goods and services. During the course of our audit, we have not observed any continuing failure to correct major weaknesses in internal controls.

(v) (a) According to the information and explanations given to us, the company has not maintained the particulars or arrangement that need to be entered into the register maintained under section 301 of the Companies Act, 1956. (b) In our opinion and according to the information and explanations given to us, the transactions made in pursuance of contacts or arrangements entered in the register maintained under section 301 of the Companies Act, 1956 and exceeding the value of rupees five Lacs in respect of any party during the year have been made at prices which are reasonable having regard to prevailing market prices at the relevant time.

(vi) In our opinion and according to the information and explanation given to us, the company has not complied with the provisions of sections 58 A and 58 AA of the Companies Act, 1975 with regard to the deposits accepted from the public.

(vii) In our opinion, the company has an internal audit system commensurate with the size and nature of its business.

(viii) According to the information given to us, the company has not maintained cost records 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

(ix)(a) The company is not regular in depositing with appropriate authorities undisputed Statutory dues including provident fund, investor education protection fund, employees' state insurance, income tax, fringe benefit tax, sales tax, wealth - tax, custom duty, excise duty, service tax, cess and other material statutory dues applicable to it.

(b) According to the information and explanations given to us, no undisputed amounts payable in respect of income tax, wealth tax, sales tax, custom duty, excise duty, service tax and cess except tax deducted at source Rs. 2795836/- and fringe benefit tax Rs. 2975054/- were in arrears, as at 31st March 2008 for a period of more than six months from the date they became payable.

(c) According to the information and explanation given to us, there are dues of sale tax, income tax, custom duty, wealth tax, excise duty, service tax and cess which have not been deposited on account of any dispute.

(x) In our opinion, the accumulated losses of the company are more than fifty percent of its net worth. The company has not incurred cash losses during the financial year covered by our audit and the immediately preceding financial year.

(xi) In our opinion and according to the information and explanations given to us, the company has defaulted in repayment of dues to a financial institution, bank or debenture holder.

(xii) According to the information and explanation given to us the company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities.

(xiii) In our opinion, the company is not a chit fund or a nidhi mutual benefit fund/society. Therefore, the provisions of clause 4 (xiii) of the Companies (Auditor's Report) Order, 2003 are not applicable to the company.

(xiv) In our opinion, the company is not dealing in or trading in shares, securities, debentures and other investments. Accordingly, the provisions of clause 4 (xiv) of the Companies (Auditor's Report) Order, 2003 are not applicable to the company.

(xv) In our opinion and according to the information and explanation given to us, the company has given counter guarantee of Rs. 2.50 Lacs to bank for which the bank has given guarantee for the business purposes is not prejudicial to the interest of the company.

(xvi) In our opinion, the company has not taken any term loan during the year, therefore this clause is not applicable to the company.

(xvii) According to the information and explanations given to us and on an overall examination of the balance sheet of the company, we report that the funds raised on short-term basis have been used for long-term investment.

(xviii) According to the information and explanations given to us, the company has not made preferential allotment of shares to parties and companies covered in the register maintained under section 301 of the Act. Accordingly, the provisions of clause 4 (xviii) of the Companies (Auditor's Report) Order, 2003 are not applicable to the company.

(xix) According to the information and explanations given to us, during the period covered by our audit report, the company had not issued debentures. Accordingly, the provisions of clause 4 (xix) of the Companies (Auditor's Report) Order, 2003 are not applicable to the company.

(xx) According to information given to us, the company has not raised any money by public issue, Accordingly, the provisions of clause 4 (xx) of the Companies (Auditor's Report) Order, 2003 regarding end use of the money are not applicable to the company. _N

(xxi) According to the information and explanations given to us, no fraud on or by the company has been noticed or reported during the course of our audit