Pharmaids Pharmaceuticals Ltd

To

The Members,

M/s. Pharmaids Pharmaceuticals Limited, Hyderabad.

1. We have audited the attached Balance Sheet of PHARMAIDS PHAKMACKLT1CALS LIMITED ASAT 31st March 2008 the Profit and Loss Account, and also the Cash Flow Statement for theyear ended on that annexed thereto. These financial statements are the responsibility ofthe company's management. Our responsibility is to express an opinion on these financialstatements based on our audit.

2. We conducted our audit in accordance with the auditing standards generally acceptedin India. 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 basis ofour opinion.

3. As required by the Companies (Auditor's Report) Order, 2003 issued by the CentralGovernment of India in terms of sub-sec (4A) of Sec. 227 of the Companies Act., 1956 ofIndia, we enclose in the Annexure a statement on the matters specified in paragraph 4& 5 of the said order.

4. Further to our comments in the Annexure referred to above, we report that:

(a) We have obtained all the information and explanations, which to the best of ourknow ledge and belief were necessary for the purpose of our audit;

(b) In our opinion, proper books of accounts as required by law have been kept by thecompany so far as appears from our examination of the books :

(c) The Balance Sheet, Profit and loss Account and Cash Flow Statement dealt with bythis report are in agreement with the books of account :

(d) In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statementdealt with by this report comply with the accounting standards referred to in Sub See (3C)o Sec. 211 of the Companies Act, 1956;

(e) On the basis of written representations received from the directors, as on31.08.2008 and taken on record by the Board of Directors, we report that none of thedirectors is disqualified as on 31.03.2008 from being appointed as a director in terms ofClause (g) of Sub-section (1) of the 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 accounting policies and notes forming part ofaccounts appearing in Schedule No. 12, Subject to note No. 3 of Schedule 12, regardingnon confirmation /reconciliation of balances shown under debtors, creditors, unsecuredloans and loans and advances, the impact of which is unascertained, and Note No. 4 ofSchedule 12 regarding non-provision of interest on Cash Credit & Term loan accountimpact of which is the loss is and liability understand, give the information requiredby the. Companies Act, 1956 in the manner so required and given 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 at31.03.2008;

(ii) In the case of Profit and Loss Account of the Loss for the year ended on thatdate; and

(iii) In the case of the Cash Flow Statement, of the Cash Flows for the year ended onthat date.

Ref: PHARMAIDS PHARMACEUTICALS LTD.,

(Referred to in paragraph 3 of our report of even date)

(b) All the assets have not been physically verified by the management during the year,but there is a regular programmer of verification which, in our opinion, is reasonablehaving regard to the size of the company and the nature of its assets. No materialdiscrepancies were noticed on such verification.

(c) According to the information and explanations furnished to us the company has nutdisposed off a substantial part of its fixed assets during the year.

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

(b) The procedures of physical verification of inventories followed by the managementreasonable and adequate in relation to the size of the company and the nature of itsbusiness.

(c) The Company is maintaining proper records of inventory. The discrepancies noticedon verification between the physical stocks and the book records were not material.

(iii) According to the information and explanations given to us the company has neithergranted nor taken any loans secured or unsecured to/from companies, firms or other partiescovered in the register maintained under Sec. 301 of the Companies Act. 1956 hence clauseiii (a to g) are not applicable.

(iv) In our opinion and according to the information and explanation given to us. thereare adequate internal control procedures commensurate with the size of the company and thenature of its business with regard to the purchase of inventory fixed assets and withregard 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, we are of theopinion that the transactions that need to be entered into the maintained under Sec. 301of the Companies Act. 1956 have been so entered.

(d) In our opinion and according to the information and explanations given to us, thereis no transaction made in pursuance of contracts or arrangements entered in the registermaintained under Sec 301 of the Companies Act. 1956 and exceeding the value of Rs. Fivelakhs in respect of any party during the year.

(vi) The company his not accepted any deposits from the public within the meaning of Se58A and .58AA or any other relevant provisions of the Companies Act. 1956.

(vii) In our opinion. The Company has an internal audit system by their own staff,which needs to be further strengthened.

(viii) We have broadly reviewed the books of accounts relating to materials, labour andother items of cost maintained by the company pursuant to the rules made by the CentralGovernment for the maintenance of cost records under Sec.209(1)(d) and are of the opinionthat prima facie prescribed accounts and records have been made and maintained. We havenot however, made a detailed examination of the records with a view to determine whetherthey are accurate or complete.

(ix) (a) According to the information and explanations given to us and the records ofthe company examined by as the company is generally, regular in depositing withappropriate authorities undisputed statutory dues including provident Fund investoreducation and protection fund, employees state Insurance, income tax, wealth tax, servicetax, sales tax, customs duty, fess and other material statutory dues applicable to it. (b)According to the information and explanations given to us. there are no dues of sales tax,income tax, Customs duty, wealth tax, excise duty, service tax and fess, which have notbeen deposited on account of any dispute, (x) In our opinion, the accumulated losses ofthe company at the end of the year are less than fifty percent of its net worth. It hasincurred cash losses in the current year as well as in the immediately preceding financialyear.

(xi) According to the information and explanation given to us, the company has not paiddues to Central Bank against Cash Credits Term Loan Accounts in view of the pending courtproceedings in respect of non acceptance of One Time Settlement by bank as requested bythe company. Subject to the above the Company has not defaulted in repayment of dues tofinancial institution Bank and Debenture holders has at Balance Sheet date.

(xii) In our opinion and according to the information and explanations given to us, thecompany has not granted loans and advances on the basis of security by way of pledge ofshares, debentures and other securities. Accordingly the provisions of Clause 4 (xii) ofthe Companies (Auditors Report) Order, 2003 are not applicable to the company.

(xiii) In our opinion, the company is not a chit Fund or a nidht/mutual benefitfund/society. Therefore, the provisions of Clause 4 (xiii)of the Companies (Auditor'sReport) Order. 2003 arc not applicable to the company.

(xiv) In our opinion, the company is not dealing in or trading in shares, securitiesdebentures and other investments. Accordingly, the provision of Clause 4(xiv) of theCompanies (Auditor's Report) order is not applicable to the company.

(xv) According to the information and explanation given to us, the company has notgiven any guarantee for loans taken by others from banks or financial institutions duringthe year.

(xvi) In our opinion, the term loans have been applied for the purposes for which theywere raised.

(xvii) According to the information and explanations given to us and on the overallexamination of the Balance Sheet of the Company, we report that no funds raised onshort-term basis have been used for long-term investments. .

(xviii) According to the information and explanation given to us, the company has notmade preferential allotment of shares to parties and companies covered in the registermaintained under Section 301 of the Companies Act, 1956. Accordingly, the provisions ofClause 4(xviii) of the Companies (Auditor's Report) Order, 2003 are not applicable to thecompany.

(xix) According to the information and explanation given to us. the company has notissued any debentures. Therefore, the provisions of Clause 4 (xix) of the Companies(Auditor's Report) Order, 2003 are not applicable to the company.

(xx) According to the information and explanation given to us, the company has issuedany money by public issues during the year. Accordingly, the provisions of Clause 4(xx) ofthe Companies (Auditor's Report) Order 2003 are not applicable to the company.

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