ORG Informatics Ltd Auditor Reports

ORG INFORMATICS LIMITED ANNUAL REPORT 2010-2011 AUDITORS REPORT To The Members of ORG Informatics Limited 1. We have audited the attached Balance Sheet of ORG Informatics Limited (the Company) as at March 31, 2011, 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 Companys management. Our responsibility is to express an opinion on these financial statements based on our audit. 2. We conducted our audit in accordance with 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 (Auditors Report) Order, 2003 (as amended) 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 paragraphs 4 and 5 of the said Order. 4. The financial statements have been prepared on going concern basis, despite significant losses suffered during the year, substantial contingent liabilities not provided for (Refer Note Nos. 1(a), (b), (c), (d)), legal cases filed by some of the suppliers against the Company and its officials under section 138 of the Negotiable Instruments Act, 1881 (Refer Note No. 2(a)), restriction imposed on a major customer by court, on vendors request, from making any payment to the Company (Refer Note No 2(c)), causing severe cash crunch, which had in turn resulted in defaults in payment of statutory liabilities / non compliance of statutory requirements/ loss of key management personnel / staff and considerable scaling down of operations. The Companys ability to continue as a going concern is dependent upon satisfactory resolution of the above matters besides steps being taken by management to provide / arrange for significant additional funds. 5. Attention is invited to the following: i. We are unable to opine on the adequacy of provision of TRs. 161,700 for permanent fall in the value of investments amounting to TRs 695,202 in absence of convincing evidence; ii. We are unable to opine on the realisability of non moving stock of Stores and Spares of TRs 50,286 not provided by the management for reasons stated in Note No. 7. iii. We are unable to opine on recoverability/realisability of old out standing of Sundry Debtors aggregating to TRs 2,337,024 (including TRs 4,968 due from Subsidiary) which may not be recoverable and which are not appropriately evidenced with correspondence statement of accounts, unconfirmed, unreconciled and against which no material recoveries have been made till date of completion of audit. No provision has been made for such receivables as the management considers them as good for recovery. iv. We are unable to opine on the bank balance for which Bank Balance confirmations are not available to the tune of TRs 9,565. v. We are unable to opine on recoverability/realisability of old out standing in respect of (a) advances of TRs. 20,319 given to other company (b) TRs 28,080 advance given to Vendors and (c) TRs 6,593 receivable in respect of Tender Deposit given which are not appropriately evidenced with correspondence statement of accounts, unconfirmed, unreconciled and against which no material recoveries have been made till date of completion of audit. No provision has been made for such receivables as the management considers them as good for recovery. vi. In the absence of detailed workings, convincing evidence and legal consultants opinion on the availability of TRs 28,455 in respect of CENVAT credit for set off in the future, we are unable to comment on the appropriateness of carry forward of the CENVAT recoverable. vii. In respect of guarantee of TRs 25,000 invoked by MPSEDC during the year, the management has claimed that the amount is good of recovery since the matter was sub judice and now the company is being Judgment creditor, the managements claim remains to be substantiated by the Order passed by the Court of appropriate jurisdiction. The Company has made the claim of said amount with the MPSEDC for wrongful invocation of the guarantee. We are unable to opine on the recoverability or otherwise of the amount shown under Loans and Advances. viii. We are unable to opine on collectability of dues in respect of revenue booked in respect of MTNL contract from BEL to the tune of TRs.132,069 which are dependent on achievement of certain milestones. ix. In respect of Managerial Remuneration paid during the year to Managing and Whole time Director of TRs. 7,696, (Previous year TRs. 6,015), Shareholders approval was taken in Annual General Meeting held on 29-12- 2009 and 30.9.2010. However, No approval from Central Government is obtained for reason stated in Note No 20. x. No Provision has been made for : a. Impairment loss of Fixed Assets for reasons stated in Note No. 10. b. Loans and advances of TRs. 625,403 due from Subsidiary Companies and Associate Company for the reasons stated in Note No. 9 (b). c. Invocation of bank guarantees given in respect of various projects under taken by the Company to the extent of TRs 251,708 and consequential penalties subsequent to the close of the year. d. Interest and commission of TRs 64,145, payable, in terms of agreements, to the vendors (shown as contingent liability). e. Bank and Other Charges of TRs 19,470 paid to one of the vendor (shown as contingent liability). f. Implementation, service / warranty charges aggregating to TRs 30,582 (shown as contingent liability). g. Liquidated Damages / penalty payable to customers for delays in performance / non compliance of some of the contractual Terms and conditions aggregating to TRs 448,736 (shown as contingent liability). h. Interest and Penal charges on bank loans aggregating to TRs. 102,840 for the reasons stated in Note No. 6 (shown as Contingent liability) i. Penalty and other charges which may be imposed by (a) the various Statuary /Regulatory Authorities on account of non compliance of the provisions of the various statutes including non payment of statutory dues and filing of periodic returns. (b) the Court, with respect to the cases filed by the parties against Companys officials (including some past officials) under sections 138 and 143 of the Negotiable Instruments Act, 1881, on account of dishonor of post dated cheques issued to them. Due to uncertainty involved, the impact of the above on the profit for the year is presently unascertainable. Further to our comments in the Annexure referred to in paragraph 3 and subject to our comments in paragraphs and 5 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 account; (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, except to the extent referred to hereunder: a. The Company has not determined the provision required for slow moving / non moving inventory for the purpose of arriving at the Value to be scaled down in terms of Accounting Standard 2 - Inventories; b. The Company has not appropriately determined and provided for fall in value of long term investments in subsidiary / associate companies, in terms of Accounting Standard - 13 -Investments; and c. The Company has not adequately determined impairment in assets during the year, in terms of Accounting Standard - 28 - Impairment of Assets. (v) On the basis of written representations received from directors as on March 31, 2011 and taken on record by the Board of Directors, we report that none of the directors is disqualified as on March 31, 2011 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 explanations given to us, the said accounts read together with accounting policies and notes thereon give the information required by the Companies Act, 1956, in the manner so required; 7. Subject to our remarks mentioned in paras 4 and 5 above, the impact on the financial results for the year is unascertainable and our comments contained in annexure referred to in Paragraph 3 above, in our opinion and to the best of our information and according to the explanations given to us, the said accounts read together with the notes thereon 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 March 31, 2011; (b) In the case of the profit and loss account, 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. For Sorab S. Engineer & Co. Firm Registration No. 110417W Chartered Accountants CA. Chokshi Shreyas B. Partner Membership No.: 100892 Vadodara October 5, 2011. ANNEXURE TO AUDITORS REPORT (Referred to in paragraph 3 of our report of even date) Re: ORG Informatics Limited: 1. In respect of its fixed assets: a) The Company has generally maintained proper records showing full particulars, including quantitative details and situation of fixed assets. b) Fixed assets held by the Company was not subjected to physical verification. In the absence of verification and reconciliation we are unable to state whether there are any discrepancies. c) Though the Company has disposed off considerable portion of its fixed assets, from areas wherein it had stopped operation due to closure of office, as cost saving measure during the year, its ability to continue as a going concern, we are informed by the management, is not affected by such disposals. 2. In respect of its inventories: a) As explained to us, during the year none of the inventories comprising of Projects in progress, stores and spares, trade goods etc. have been subjected to physical verification at any time during the year by the management b) In the absence of physical verification indicated herein above, there is no question of adequacy or otherwise of the procedures. c) In our opinion and according to the information and explanations given to us, the Company is maintaining proper records of its inventories. However during the year since the inventories owned by the Company had not been physically verified by the management, we are unable to state whether or not there are any discrepancies. 3. In respect of loans, secured or unsecured, granted by the Company to companies, firms or other parties covered in the register maintained under section 301 of the Companies Act, 1956, according to the information and explanations given to us: a) The Company had granted interest bearing loan to a subsidiary by converting the share application money into loan vide agreement dated 30th Oct. 2008 and interest free loans to other subsidiaries besides amounts advanced to one company covered in the register maintained under Section 301 of the Companies Act, 1956. As at the year-end, the outstanding balance of such loan granted to this company is TRs. 11,295 and the maximum amount involved during the year was TRs. 12,436. b) In our opinion and according to the information and explanations given to us, the terms and conditions of the interest free loans referred to above, keeping in view significant interest claimed by suppliers for credits provided, bankers and other parties, appear prima facie prejudicial to the interest of the Company. c) The loans granted are repayable on demand. As informed, the Company has not demanded repayment of the loans during the year and thus there is no default on the part of the parties to whom the amount is lent. d) The Company has, in the earlier years, taken interest bearing (and interest free) loan from a Party covered in the register maintained under Section 301 of the Companies Act,1956 and the outstanding balance of such loan aggregated to TRs 33,567 (including accrued interest) and the maximum amount involved during the year was TRs 33,656. e) The rate of interest and other terms and conditions of such loan is, in our opinion, prima facie not prejudicial to the interest of the Company. f) The loan is repayable on demand and the same has not been demanded. 4. In our opinion and according to the information and explanations given to us and our evaluation of the prevailing internal control structure and its operation disclosed weakness in internal control systems. The said control structure in operation can not be stated to be commensurate with the size of the Company and the nature of its business with regard to the purchase of traded goods / inventory, fixed assets and with regard to the sale of goods and rendering of services. 5. In respect of contracts or arrangements entered in the register maintained in pursuance of section 301 of the Companies Act 1956, to the best of our knowledge and belief and according to the information and explanations given to us: a) The particulars of contracts or arrangements referred to Section 301 have been entered in the register required to be maintained under the said section. b) According to the information and explanations given to us, where each of such transactions, other than interest bearing and interest free loans granted (Referred to in Para 3(b), (c) and (d) above), is in excess of Rs. 5 Lakhs in respect of any party, the transactions have been made at prices which are prima facie, reasonable having regard to the prevailing market prices at the relevant time, except that in respect of sale of services, no comparison of prices could be made since similar services are not being rendered to any other party by the Company. 6. In our opinion and according to the information and explanations given to us, the Company has not accepted any deposits from public within the meaning of Section 58A and 58AA or any other relevant provisions of the Companies Act, 1956 and the Companies (Acceptance of Deposits) Rules, 1975 with regard to the deposits accepted from the public. 7. There is no Internal Audit System in the Company during the year under review and hence we are unable to comment on this aspect. 8. As informed to us, the Central Government has not prescribed maintenance of cost records under clause (d) of sub-section (1) of Section 209 of the Companies Act, 1956. 9. According to the information and explanations given to us and as revealed by the books of accounts maintained by the Company, except for the following statutory dues, the Company has been generally regular in depositing undisputed statutory dues, including Provident Fund, Employees State Insurance, Income tax, Sales Tax, Service Tax and other statutory dues with the appropriate authorities during the year: Particulars Balance at Period 31.3.11 from Amount (TRs.) which due Contribution to PF 2,403 July 10 Staff Professional Tax 209 Oct 10 Contribution to ESI 145 July 10 Maharashtra CST 254 Aug 10 Delhi CST 107 Oct 10 Karnataka VAT 45 Mar 10 UP Sales Tax 19 Dec 08 Service Tax 16,650 Apr 08 Education Cess Payable 902 Apr 08 Secondary Higher Education Cess 409 Apr 08 During the year, the management has confirmed that there were no dues payable in respect of Investor Education and Protection Fund, Wealth Tax, Custom Duty, Excise Duty, Cess and other material statutory dues. In the case of Cess, the central government has till date not prescribed the amount of Cess payable under section 441A of the Companies Act, 1956. The details of disputed demands which have not been deposited during the year as under: Nature of Nature of Amount Period to Forum where Statue the dues (TRs.) which the dispute is amount pending relates Income Tax Penalty 9,555 2002-03 ITAT Act, 1961 9,866 2003-04 CIT(Appeal) 1,874 2004-05 CIT(Appeal) Income Tax 1,0942 2004-05 CIT(Appeal) 21,083 2005-06 CIT(Appeal) 15,396 2006-07 CIT(Appeal) 15,996 2007-08 CIT(Appeal) Sales Sales Tax 37,057 2008-09 Appellate Tax Act Tribunal Note: In respect of Income Tax demands, the Company has deposited TRs 20,000 on ad-hoc basis. 10. In our opinion and according to information and explanations given to us, the accumulated losses of the Company at the end of the financial year are more than fifty percent of its net worth and the Company has not incurred cash losses in current financial year but the Company had incurred cash losses in the immediately preceding financial year. 11. In our opinion and according to the information and explanations given to us, the Company has defaulted in repayment of dues to the banks. The period and the amount of defaults excluding interest and penal charges are as under: Description Period of Amount TRs. of Loan default involved BOI-Cash Credit Account is NPA 29,222 Since March 2008 BOI-BG Invoked October 2008 7,800 PNB-Cash Credit Account is NPA 113,372 Since June 2010 PNB-BG Invoked Account is NPA 58,000 Since June 2010 CB-Cash Credit Account is NPA 91,386 Since Feb 2010 CB-WCTL Account is NPA 8,549 Since Feb 2010 CB-BG Invoked Account is NPA 5,243 Since Feb 2010 SCB-Cash Credit Account is NPA 81,862 Since March 2010 Barclay-WCL January 2009 95,863 BOB-CC/WCTL/ Account is NPA 141,053 BG Invoked Since Feb 2010 12. According to the information and explanations given to us and based on the documents and records produced before us, the Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities. 13. In our opinion, the Company is not a chit fund or a nidhi mutual benefit fund/society. 14. According to the information and explanations given to us, the Company is not dealing in shares, securities and other investments. 15. In our opinion and according to the information and explanations given to us, the Company has, other than guarantees given to a bank on behalf of subsidiary Company, not given any guarantees for loans taken by others from banks and financial institutions. The terms and conditions whereof are not prejudicial to the interest of the Company except for the guarantees which are invoked by the banks. 16. To the best of our knowledge and belief and according to the information and explanations given to us, no term loans, except vehicle loans which are repayable in installments, and their application is as agreed were availed by the Company during the financial year, hence there is no question of any misapplication. 17. According to the information and explanations given to us, funds raised by the Company on short term basis have, prima facie, not been used during the year for long term investment. 18. According to the information and explanation given to us and as evidenced by the books and records, the Company has not issued any bonds / debentures during the year and hence there is no question of creating any security during the year. 19. The Company has not, according to the information and explanation given to us, raised any funds from public during the year hence the question of verification of end use does not arise. 20. According to the information and explanations given to us, the Company has not made during the year, any preferential allotment of shares to parties and companies covered in the Register maintained under Section 301 of the Companies Act, 1956. 21. During the course of our examination of the books and records of the Company, carried out in accordance with the generally accepted auditing practices in India, and according to the information and explanations given to us, we have neither come across any instance of fraud on or by the Company, noticed or reported during the year, nor have we been informed of such case by the management. For Sorab S. Engineer & Co. Firm Registration No. 110417W Chartered Accountants CA. Chokshi Shreyas B. Partner Membership No. 100892 Place : Vadodara Date : October 5, 2011