Elder Pharmaceuticals Ltd

To the Members of

Elder Pharmaceuticals Ltd.

1) We have audited the attached Balance Sheet of ELDER PHARMACEUTICALS LIMITED as atMarch 31, 2010, the related Profit and Loss Account of the Company and the Cash Flowstatement for the year ended on that date, annexed thereto. These financial statements arethe responsibility of the Company’s management. Our responsibility is to express anopinion on these financial statements based on our audit.

2) We conducted our audit in accordance with auditing standards generally accepted inIndia. Those Standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement. Anaudit includes examining, on a test basis, evidence supporting the amounts and disclosuresin the financial statements. An audit also includes assessing the accounting principlesused and significant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audit provides a reasonable basisfor our opinion.

3) As required by the Companies (Auditors’ Report) Order, 2003 as amended by theCompanies (Auditor’s Report) Order, 2004 (together ‘the Order’), issued bythe Central Government of India in terms of sub-section (4A) of the section 227 of theCompanies Act, 1956 and on the basis of such checks of the books and records of theCompany as we considered appropriate and according to the information and explanationsgiven to us, we report that:

i) a) The Company has maintained proper records to show full particulars, includingquantitative details and situation of fixed assets.

b) As explained to us, the management during the year has physically verified the fixedassets in a phased periodical manner, which in our opinion is reasonable, having regard tothe size of the Company and nature of its assets. No material. discrepancies were noticedon such physical verification

c) In our opinion, the Company has not disposed off a substantial part of its fixedassets during the year and the going concern status of the Company is not affected.

ii) a) As explained to us, the management at regular intervals during the year hasphysically verified inventories.

b) In our opinion and according to the information and explanations given to us, theprocedures verification of physical inventories followed by the management are reasonableand adequate in relation to the size of the Company and nature of its business.

c) The Company has maintained proper records of inventories. As explained to us, therewas no material discrepancies noticed on physical verification of inventory.

iii) According to the information and explanations given to us, the Company has nottaken loans from the parties listed in the Register maintained under Section 301 of theCompanies Act, 1956. We have relied on the representation of the management that themonies due from parties referred to in note No. 17 of Schedule 20, are advances and not inthe nature of loans. .

iv) In our opinion and according to the information and explanations given to us, thereare adequate internal control procedures commensurate with the size of the Company and thenature of its business for the purchase of inventory, fixed assets and for the sale ofgoods. During the course of our audit, we have not observed any major weakness in internalcontrols.

v) a) In our opinion and according to the information and explanations given to us, thetransactions made in pursuance of contracts or arrangements, that need to be entered intothe register maintained under section 301 of the Companies Act, 1956 have been so entered.

b) Based on the information and explanations given to us, we are of the opinion thatthe transactions made in pursuance of the contracts or agreements entered in the registermaintained under section 301 of the Companies Act, 1956 and exceeding the vale of Rs.5lakhs in respect of any party during the year have been made at reasonable prices, havingregard to the prevailing market price at the relevant time.

vi) In our opinion and according to the information and explanations given to us, theCompany has complied with the provisions of sections 58A and 58AA of the Companies Act andCompanies (Acceptance of Deposits) Rules, 1975 with regard to the deposits accepted fromthe public.

vii) The Company has an internal audit system commensurate with the size and the natureof its business.

viii) The Central Government has prescribed maintenance of Cost Records under Section209(1)(d) of the Companies Act, 1956 in respect of certain manufacturing activities of theCompany. We have broadly reviewed the accounts and records of the Company in thisconnection and are of the opinion, that prima facie, the prescribed accounts and recordshave been made and maintained. We have not, however, made a detailed examination of thesame.

ix) a) According to the records of the Company, undisputed statutory dues includingProvident Fund, Investor Education and Protection Fund, Employees State Insurance, IncomeTax, Sales Tax, Wealth Tax, Customs Duty, Excise Duty, Cess and other statutory dues havebeen regularly deposited with the appropriate authorities.

b) The disputed statutory dues that have not been deposited on account of matterspending before appropriate authorities are as under.

x) The Company has no accumulated losses and has not incurred any cash losses duringthe financial year covered by our audit or in the immediately preceding financial year.

xi) Based on our audit procedures and according to the information and explanationsgiven to us, we are of the opinion that the Company has not defaulted in repayment of duesto financial institutions and banks.

xii) To the best of our knowledge and belief and according to the information andexplanation given to us, term loans availed by the Company were, prima facie, applied bythe Company during the year for the purpose for which the loans were obtained.

xiii) According to the Cash Flow statement and other records examined by us and theinformation and explanations given to us, on all overall basis, funds raised on short termbasis, have prima facie, not been used during the year for long term investments.

xiv) In our opinion and according to the information and explanations given to us, nofraud on or by the Company has been noticed or reported during the year, which causes thefinancial statements to be materially misstated.

xv) In our opinion and according to the information and explanations given to us, thenature of the Company’s business/activities during the year are such that clausesxii, xiii, xiv, xviii, xix, and xx of Para 4 of the Companies (Auditors’ Report)Order are not applicable to the Company.

4) Further to our comments in paragraph (3) above, we state that:

a) We have obtained all the information and explanations, which to the best of ourknowledge 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 theCompany so far as it appears from our examination of the books;

c) The Balance Sheet, Profit and Loss Account and the Cash Flow Statement referred toin this report are in agreement with the books of account;

d) In our opinion, the Cash Flow Statement, Profit and Loss Account and the BalanceSheet comply with the Accounting Standards referred to in sub-section (3C) of Section 211of the Companies Act 1956

e) On the basis of the written representation received from the Directors and taken onrecord by the Board of Directors, we report that none of the said Directors isdisqualified as on 31^st March, 2010 from being appointed as director in termsof Clause (g) of sub-section (1) of Section 274 of the Companies Act, 1956.

f) In our opinion, and to the best of our information and according to the explanationsgiven to us, the said accounts read with the notes thereon give the information requiredby the Companies Act, 1956 in the manner so required and give a true and fair view inconformity with the accounting principles generally accepted in India:

i) In the case of the Balance Sheet of the state of affairs of the Company as at 31^stMarch, 2010 and

ii) In the case of the Profit and Loss Account of the Profit of the Company for theyear ended on that date.

iii) In the case of the Cash Flow Statement of the cash flows of the Company for theyear