KDL Biotech Ltd

To

The Members, KDL Biotech Limited

The Current Accounting Period comprises 18 months i.e., 1st October, 2008 to 31stMarch, 2010. Your Directors hereby present the Twenty-third Annual Report together withthe Audited Statement of Accounts for the aforesaid period.

FINANCIAL RESULTS:

ACCOUNTS

Figures of the Current Accounting Period are for 18 months, whereas the figures of thePrevious Accounting Period are for 12 months and hence not comparable.

FINANCIAL PERFORMANCE

For the Current Accounting Period of 18 months, the Company has achieved Sales andOther Income aggregating to Rs. 4,008.05 lakhs, which includes export amounting to Rs.102.00 lakhs, whereas for the previous Accounting period of 12 months, the Company hadachieved Sales and other Income aggregating to Rs. 6,242.01 lakhs.

DIVIDEND

In view of the losses incurred during the period under review, no dividend has beenrecommended on Equity Shares.

CAUTIONARY STATEMENT

This part of the Report deals with expectations and risk analysis about the future,which is based on certain assumptions and events. The Company can not guarantee theseassumptions and expectations being accurate or will be realized nor the risks outlinedexhaustive. The Company assumes no responsibility to publicly amend, modify or revise anyof these statements on the basis of any subsequent developments, information or events.

REVIEW OF OPERATIONS

The scenario of Semi-Synthetic. Penicillin (SSP) Industry continued to be volatilethroughout this year. Due to technology up-gradation of penicillin manufacturing, all theChinese manufacturers of Penicillin started manufacturing of 6-APA directly fromfermentation broth without isolating the penicillin. This created a scarcity of penicillinavailability in the market resulting in higher price of Penicillin. We were compelled tobuy 6-APA and stop the production of 6-APA, an intermediate for SSP's. Our 6-APA plantremained ideal for almost 9 months before we modified this plant to manufacture otherproducts with the help of Unimark Remedies Ltd.

Also due to inadequate availability of working capital and delays in financialrestructuring, we could not start our own production and for most of the part continued towork for Unimark Remedies Ltd who supported us by providing the Raw materials.

During this period, we have settled the Charter of Demands of bargainable employees forthe period of April, 2008 to March, 2011.

OUTLOOK ON OPPORTUNITY

Now the company is exploring to diversify from SSP's products, and with this in mind wehave modified the 6-APA plant to manufacture the intermediates for Imipenem with the helpof Unimark Remedies Ltd.

We are also looking to expand the capacity of SSP's to cope up with our growingoverhead cost and get better contributions as there is still a growing demand for SSP's.

OUTLOOK ON CONCERN

Growing competition from China due to forward integration and from our Indiancounterparts remain a challenge to survive in this business.

SEGMENT WISE PERFORMANCE

The Company has only one segment i.e. Pharmaceuticals.

INTERNAL CONTROL SYSTEMS AND ADEQUACY

The Company has adequate system of internal controls to ensure that all the assets aresafeguarded and are protected. Necessary checks and balances are in place to ensure thattransactions are adequately authorised and reported correctly. The Internal Auditors ofthe Company conduct Audits of various departments to ensure that internal controls are inplace. These are being reviewed by the Audit Committee of the Board and corrective actionsare taken by the Company, when needed. The Company has appointed M/s. Rege & Thakkar,Chartered Accountants as its Internal Auditors.

HUMAN RESOURCES

The Company has continued the best HR practices to develop their employees. The Companyhas also organized training programmes on various subjects. Yearly training calendar,based on the training need identification, is prepared and followed.

Employees are suitably rewarded for their performance in order to motivate them. TheCompany has implemented a system for quarterly review of performance of employees. Lastyear, 108 employees were rewarded for their performance.

Training awards: Employees are also awarded for their maximum participation duringthe training session in Worker cadre, Staff cadre and Management cadre.

Long Service Awards: The Company has always valued the contribution of itsemployees and more than 40 employees who have continuously served our company were honoredwith memento.

With a belief that people are the source of all its successes, the Company haschannelized the perspective, experience and skills that are necessary to explore, innovateand excel.

HEALTH, SAFETY & ENVIRONMENT

The Company has well defined management goals for Health, Safety & Environment,which are strictly followed. For maintaining the safe operating practices and healthyworking environment, the Company conducted safety audits, risk analysis, mock drills andHazop studies regularly.

Being chief coordinator of the Mutual Aid Response Group (MARG) Khopoli, Rasayani &Patalganga Industrial zone, the Company organized the On-site and Off-site mock drills inneighbouring industries and to minimize the accident frequency rate, training programmeswere conducted for the contract workers in this industrial zone.

The Company is in the process to improve Health, Safety and Environment standard byobtaining the certification of ISO 14001:2004{EMS) and BS OHSAS 18001:2007.

FINANCE

It has been a constant endeavour on the part of the company to avail low cost debt byrestructuring process with the banks and others. The response was slow due to the factthat the company had to depend more on job work business than its own production whichaffected the operation of the company as well as the restructuring process with the banksand others.

The Company is negotiating with the Bankers for One Time Settlement of it's WorkingCapital facility, which will resolve our issues effectively with the banks and the Companyis hopeful of settling this issue through One-time Settlement Scheme (OTS).

With the help of Financial Advisors, the Company is also working on the alternativemode of Finance for funding OTS.

DIRECTORS

In accordance with the provisions of the Companies Act, 1956 and the Articles ofAssociation of the Company, Dr. Tushar K Srivastava and Mr. Yogendra K Chauhan retires byrotation at the ensuing Annual General Meeting and are eligible for re-appointment.

Brief resume of the Directors being appointed/re-appointed, is provided in the Noticeconvening the Annual General Meeting of the Company as required under Clause 49 of theListing Agreement.

None of the Directors of the Company are disqualified from being appointed as specifiedunder Section 274 of the Companies Act, 1956.

DIRECTORS' RESPONSIBILITY STATEMENT

In terms of Section 217 (2AA) of the Companies Act, 1956, in relation to financialstatements of the Company for the Eighteen months Accounting Period ended 31st March,2010, the Board of Directors state that:

i) the applicable Accounting Standards have been followed in preparation of thefinancial statements and there are no material departures from the said standards;

ii) reasonable and prudent accounting policies have been used in preparation of thefinancial statements and that they have been consistently applied and that reasonable andprudent judgements and estimates have been made in respect of items not concluded by theend of the Accounting Period, so as to give a true and fair view of the state of affairsof the Company at the end of the Eighteen months Accounting Period ended 31st March, 2010and of the profit/ (loss) of the Company for the period under review;

iii) proper and sufficient care has been taken for maintenance of adequate accountingrecords in accordance with the provisions of the Companies Act, 1956, for safeguarding theassets of the Company and for preventing and detecting fraud and other irregularities; and

iv) the financial statements for the Eighteen months Accounting Period ended 31stMarch, 2010 have been prepared on a going concern basis.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO

Information pursuant to Section 217 (1) (e) of the Companies Act, 1956, read with theCompanies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988is given in the Annexure - A to the Report.

PARTICULARS OF EMPLOYEES

The information required under section 217(2A) of the Companies Act, 1956, read withCompanies (Particular of Employees) Rules, 1975, forms part of this report as Annex 2.However, as permitted by section 219(1)(b)(iv) of the Companies Act, 1956, this AnnualReport is being sent to all shareholders excluding the said Annexure. Any shareholderinterested in obtaining the particulars may obtain it by writing to the Company Secretaryat the registered office of the Company.

CORPORATE GOVERNANCE

Pursuant to Clause 49 of the Listing Agreement with the Stock Exchanges, a separateReport on Corporate Governance and a Certificate from the Auditors of the Companyregarding compliance of conditions of Corporate Governance are annexed to the Directors'Report.

GROUP

Group means Jayant Mohanlal Parekh, Madhukanta Jayant Parekh, Mehul Jayant Parekh,Beena Mehul Parekh, Sandip Jayant Parekh, Nandini Sandip Parekh, Sonali Mehul Parekh,Pooja Mehul Parekh, Sarang Sandip Parekh, J. M. Parekh (HUF), Unimark Remedies Limited,Glade Organics Private Limited, India, Morganite Trading Company Limited, SynpacPharmaceuticals (UK) Limited, Synpac Pharmaceuticals Limited, UK, Synpac Limited BVI,Glade Organics Private Limited, UK and Glade Remedies Private Limited, Mauritius are partof the same Group as defined in the Monopolies and Restrictive Trade Practices Act, 1969(54 of 1969).

FIXED DEPOSITS

During the period under review, the Company has not accepted any fixed deposits.

INSURANCE

All Properties/Assets including Buildings, Plant and Machineries, Furnitures andFixtures etc. and insurable interest of the Company are adequately insured.

AUDITORS

M/s. Khandelwal Jain & Co., Chartered Accounts, Mumbai, retires at the ensuingAnnual General Meeting and are eligible for re-appointment. The Company has receivedconfirmation from them to the effect that their re-appointment, if made, would be withinthe prescribed limits under Section 224(1 B) of the Companies Act, 1956. The observationsof the Auditors in their report on Accounts read with the relevant notes areself-explanatory and therefore do not call for any further comments.

AUDITOR'S REPORT

With regard to qualifications made by the Statutory Auditors in their report, therelevant notes appended in the Schedule of the note are Self-explanatory and requires nofurther explanation and elucidation.

ACKNOWLEDGEMENTS

Your Directors would like to express the grateful appreciation for the assistance andco-operation received from the Financial Institutions, Banks, Government Authorities,Customers, Vendors, Shareholders and Employees during the period under review.

1. Energy Conservation measure implemented in 2008-10:

a) Achieved energy saving by increasing batch size from 200 kg to 215 Kg in existingutility load.

b) Achieved 35% saving in electrical consumption of Molecular sieve dryer by replacing15 HP motor by 7.5 HP motor.

c) Implemented recycling of water three times instead of one time in MCL washing toreduce electrical, chilled water & water consumption.

d) Achieved saving in electrical consumption by making reflux by gravity instead ofpump in mother liquor distillation column.

e) Achieved energy saving by replacing damaged insulation of chilled water & brinelines.

2. Additional investments & proposals for energy conservation in 2010 -11:

a) installation of Bio Briquette fired boiler instead of Furnace oil fired boiler.

b) Steam condensate recovery to reduce fuel consumption at boiler.

c) Express feeder for uninterrupted power supply & for reduction of dieselconsumption.

d) Replacement chilled brine compressors with energy efficient screw compressors.

e) Replacement of air compressors with energy efficient compressors.

f) Replacement of reactor impellors with energy efficient impellors along with gear box& motor.

g) Energy saving by improvement in solvent recovery percentage.

3. Impact of Measures:

Impact of the energy conservation measures has resulted in savings in the cost ofproduction.

FORM A Power and Fuel consumption

d) Others

It is difficult to express consumption per unit because of large numbers of packs &products of bulk drugs.

1. Process Development of SEMI SYNTHETIC PENICILLINS and its INTERMEDIATES focus on:

a) Prepare standards, impurities.

b) Conduct negative process studies.

c) MOC and Reactive Chemicals testing.

d) Physical Property testing.

e) Conduct Typical Batch Campaign.

f) Vendor Development trials of Raw Materials.

QUALITY ASSURANCE / CONTROL

Various quality management systems are adopted to assure the quality of the product.This is achieved with the help of sophisticated analytical instruments like HPCL, GC, FTIRand Head Space Analyzer etc.. which are installed in the Quality Control Laboiatory. Awater purification system is installed to provide HPLC grade water which is also used forroutine analysis. Apart from this there also exists an In-Process Quality control labwhere all the in-process control tests are carried out with the aid of dedicatedsophisticated instruments. This ensures that the Company is interested not only incontrolling the desired quality of the end products but also keen to know the pathwayfollowed for being able to assure the desired quality of the products.

Additionally, GLP systems are adhered to in the laboratory whereas cGMP is followedduring manufacturing activity. Change Control system, batch review system, Out ofspecification Systems, Vendor Qualification systems, cleaning procedures are followed toassure total adherence to GMR

Quality assurance also helps in satisfying customer and regulatory requirements. Duringthe accounting period, facility is approved by International companies from Philippines,Thailand, Iran, Tanzania & Canada and also various Indian companies.

Annual updates are being sent to USFDA & MHRA regularly and the Company also hasWHO approval along with GMP Certificate from Indian FDA.

C. FOREIGN EXCHANGE EARNINGS AND OUTGO

The required information in respect of Foreign Exchange Earnings and Outgo for theAccounting Period ended 31^sl March, 2010, has been given below:

Foreign Exchange Outgo: Rs. 34,89,349/-

(Previous period Rs. 4,41,89,641/-)

Foreign Exchange Earnings: Rs.1,02,00,185/-

(Previous period Rs. 8,99,17,114/-)