Zicom Electronic Security Systems Ltd Directors Report.

To the Members of Zicom Electronic Security Systems Limited

Report on the Audit of the Standalone Financial Statements Opinion

We have audited the standalone financial statements of Zicom Electronic Security Systems Limited (“the Company”), which comprise the Balance Sheet as at March 31, 2019, the Statement of Profit and Loss (including other Comprehensive Income), the Statement of Changes in Equity and the Statement of Cash Flows for the year ended on that date, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information (hereinafter referred to as “the Financial Statements”). Subject to,

1) Refer Note No. 6 of Audited Standalone Financial Statement of the Company which states that the Company has not provided for interest amounting to Rs. 2,794.23 Lakhs for the year on its outstanding loans from Banks and Financial Institution. The Company has also reversed outstanding dues from Banks and Financial Institution amounting to Rs. 6,038.86 Lakhs as the Company is in advanced negotiation with bankers for one time settlement (OTS) of its entire dues. Therefore in the opinion of the management, liability as reflected in the financial statement is sufficient to meet proposed OTS. However in the absence of OTS approval letter from each Lender confirming the final OTS amount, the liability as reflected in the financial statement may have consequential impact on Loss of the Company and Borrowings to the extent of above amount.

2) Refer Note No. 7 of Audited Standalone Financial Statement of the Company which states that the Company continues to show goodwill in its books which was on account of acquisition of a then subsidiary of the Company in 2010 amounting to Rs. 909 Lakhs. As there are no future economic benefits expected from the said goodwill, the same may lead to consequential impact on the Loss of the Company and Goodwill to the above extent.

3) Refer Note No. 8 of Audited Standalone Financial Statement of the Company which states that the Company has been incurring constant losses, the Companys accumulated losses aggregate to Rs. 36,800 Lakhs resulting in complete erosion of its net worth. Further, as of that date, companys liabilities exceeded its assets. These factors along with other matters as set forth in said note raise substantial doubt about the companys ability to continue as a going concern in the foreseeable future. However, the companys financial statement has been prepared on going concern basis.

In our opinion and to the best of our information and according to the explanations given to us, the aforesaid standalone financial statements give the information required by the Companies Act 2013 (“the Act”) in the manner so required and give a true and fair view in conformity with the India Accounting Standards prescribed under Section 133 of the Act read with the Companies (Indian Accounting Standards) Rules 2015, as amended, (“Ind As”) and other accounting principles generally accepted in India, of the state of affairs of the Company as at March 31, 2019, the loss and total comprehensive income, changes in equity and its cash flows for the year ended on that date.

Basis for Opinion

We conducted our audit in accordance with the Standards on Auditing (SAs) specified under section 143(10) of the Act. Our responsibilities under those Standards are further described in the Auditors Responsibilities for the Audit of the Standalone Financial Statements section of our report. We are independent of the Company in accordance with the Code of Ethics issued by the Institute of Chartered Accountants of India (ICAI) together with the ethical requirements that are relevant to our audit of the standalone financial statements under the provisions of the Act and the Rules made thereunder, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code of Ethics issued by the ICAI. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the financial statements.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have determined the following matter to be the Key audit matter to be communicated in our Report.

Key Audit Matter Auditors Response
Refer Note No. 9 of Audited Standalone Financial Results of the Company which states that the Company during the year has written off/ provided for (i) Trade Receivable and Advance to supplier amounting to Rs. 2,257.04 Lakhs and Rs. 1,034.08 Lakhs in view of doubtful of recovery/performance and one time settlement agreements with certain parties. (ii) The Company has identified obsolete/non moving stock and the same has been valued at Net realisable value on account of the said exercise an amount of Rs. 1,230.15 Lakhs has been written off. (iii) The Company identified and sold its obsolete/non moving/ non working condition stock costing Rs. 877.85 Lakhs at scrap value leading to loss in the year under review. The Company had been trying constantly for recovery of its Trade receivable and Advance to supplier however few of the said parties have gone into liquidation and with few the Company has agreed for one time settlement at a discounted amount as well and hence on conservative approach the Company has identified such parities and Written off/ Provided their balances amounting to Rs. 2,257.04 Lakhs. The Company in view of reduced sales and technological upgrades had few dead, non moving and slow moving inventory which has been valued at Net realizable value leading to a loss of Rs. 1,230.15 Lakhs. The Company has sold its obsolete/non moving/ non working at a scarp value there by the Company has incurred a loss of Rs. 877.57 Lakhs.

Information Other than the Financial Statements and Auditors

Report Thereon

The Companys Board of Directors is responsible for the preparation of the other information. The other information comprises the information included in the Management Discussion and Analysis, Boards Report including Annexures to Boards Report, Business Responsibility Report, Corporate Governance and Shareholders Information, but does not include the financial statements and our auditors report thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained during the course of our audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Managements Responsibility for the Standalone Financial

Statements

The Companys Board of Directors is responsible for the matters stated in section 134(5) of the Act, with respect to the preparation of these standalone financial statements that give a true and fair view of the financial position, financial performance, total Comprehensive Income, changes in equity and cash flows of the Company in accordance with the Ind AS and other accounting principles generally accepted in India. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statement that give a true and fair view and are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Companys ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. The Board of Directors are also responsible for overseeing the Companys financial reporting process.

Auditors Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As a part of an audit in accordance with the SAs, we exercise professional judgment and maintain professional scepticism throughout the Audit.

We also:

• Identify and assess the risk of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis of our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal financial controls relevant to the audit in order to design audit procedures that are appropriate in the circumstances. Under Section 143(3)(i) of the Act, we are also responsible for expressing an opinion on whether the Company has adequate internal financial controls system in place and the operating effectiveness of such controls.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of managements use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Companys ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors report. However, future events or conditions may cause the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

Materiality is the magnitude of misstatements in the financial statements that, individually or in aggregate, makes it probable that the economic decisions of a reasonably knowledgeable user of the financial statements may be influenced. We consider quantitative materiality and qualitative factors in (i) planning the scope of our audit work and in evaluating the results of our work; and (ii) to evaluate the effect of any identified misstatements in the financial statements.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters.

We describe these matters in our auditors report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditors Report) Order, 2016 (“the Order”), issued by the Central Government of India in terms of sub-section (11) of section 143 of the Companies Act, 2013, we give in the “Annexure A” a statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.

2. As required by Section 143(3) of the Act, we report that:

a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit.

b) In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books.

c) The Balance Sheet, the Statement of Profit and Loss including other Comprehensive Income, Statement of Changes in Equity and the Statement of Cash Flow dealt with by this Report are in agreement with the relevant books of accounts.

d) In our opinion, the aforesaid standalone financial statements comply with the Ind As specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014.

e) On the basis of the written representations received from the Directors as on March 31, 2019 taken on record by the Board of Directors, none of the Directors is disqualified as on March 31, 2019 from being appointed as a director in terms of Section 164 (2) of the Act.

f) With respect to the adequacy of the internal financial controls over financial reporting of the Company and the operating effectiveness of such controls, refer to our separate Report in “Annexure B”. Our report expresses a modified opinion on the adequacy and operating effectiveness of the Companys internal financial controls over financial reporting.

g) With respect to the other matters to be included in the Auditors Report in accordance with the requirements of Section 197(6) of the Act, as amended Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us:

i. The Company has disclosed the impact of pending litigations on its financial position in its financial statements.

ii. The Company does not have long-term contracts including derivative contracts requiring provision for material foreseeable losses.

iii. There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company.

For S M M P & Associates

Chartered Accountants

Firm Registration No. 120438W

Sonal Parekh

Partner

Membership No. 139852

Mumbai, dated May 28, 2019

Annexure A to the Auditors Report

(Referred to in paragraph V (1) of our report of even date)

In terms of the information and explanations given to us and the books and records examined by us and on the basis of such checks as we considered appropriate, we further report as under :

1. Property, Plant and Equipments

a) As per the information and explanation given to us the Company has maintained proper records showing full particulars, including quantitative details and situation of Property, Plant and Equipments.

b) As explained to us, the Property, Plant and Equipments have been physically verified by the management as per a phased programme of verification. In our opinion, the frequency of verification is reasonable having regard to the size of the Company and the nature of its fixed assets. The discrepancies noticed on such verification were not material and have been properly dealt with in the Companys books of accounts.

c) According to the information and explanation given to us and on the basis of our examination of the records of the Company, the title deeds of immovable properties are held in the name of the Company.

2. Inventory

As explained to us, the management has conducted physical verification of inventory at reasonable intervals during the year. In our opinion, the procedures of physical verification of inventory followed by the management needs to be strengthened in relation to the size of the Company and the nature of its business. In our opinion, the Company is maintaining proper records of inventory. The discrepancies noticed on such verification between physical inventories and the book records which were material in relation to the operations of the Company have been properly dealt with in the Companys books of account.

3. Loans to parties of Directors interest

According to the information and explanations provided to us and as per the records examined by us, during the year, the Company has not granted any unsecured loans to bodies corporate representing the parties listed in the register maintained under Section 189 of the Act.

4. Loans/Guarantees/Investments in / Provision of Security to certain parties

In our opinion and according to the information and explanations given to us, the Company has complied with the provisions of Section 185 and 186 of the Act, with respect to the loans and investments made.

5. Acceptance of Deposits

According to the information and explanations given to us, the Company has not accepted deposits as per the directives issued by Reserve Bank of India and the provisions of Sections 73 to 76 or any other relevant provisions of the Act and the rules framed there under.

6. Maintenance of Cost Records

The Central Government has prescribed maintenance of cost records under section (1) of section 148 of the Act. The Company during the year under review does not have any manufacturing facility and hence the said clause was not applicable.

7. Undisputed & Disputed Statutory Dues

a) According to the information and explanations given to us and as per the records verified by us, the Company generally not regular in depositing the undisputed statutory dues involving Provident Fund, Investor Education and Protection Fund, Professional Tax, Employee State Insurance, Customs Duty, Value Added Tax, Income Tax, Service Tax, Customs Duty, Goods & Service Tax and other statutory dues with the appropriate authorities and the arrears under the above heads which were due for more than six months from the date they become payable as at the close of the year are 1)Value Added Taxes amounting to Rs. 37.90 Lakhs,

2) Dividend Distribution Tax amounting to Rs. 49.35 Lakhs and

3) Income Tax (TDS) Rs. 24.36 Lakhs

4) Provident Fund Rs. 0.05 Lakhs .

b) As per explanations provided to us and according to the records of the Company, the following are the particulars of disputed dues on account of Income Tax that have not been deposited:

Name of the Statute Nature of Dues Amount Period to which the amount relates Forum where the dispute is pending
(Rs. in Lakhs)
Income Tax Disallowance of Expenses and penalty thereon 62.16 FY 13-14 Commissioner of Income Tax (Appeals)
Sales Tax Disallowance of Input Tax Credit 4.20 FY 11-12 Joint Commissioner Of Appeals
Sales Tax Disallowance of Input Tax Credit 10.87 FY 14-15 Joint Commissioner Of Appeals
Sales Tax Disallowance of Input Tax Credit 30.54 FY 14-15 Joint Commissioner Of Appeals
Entry tax Disallowance of Credit 1.09 FY 14-15 Joint Commissioner Of Appeals
Income Tax Transfer pricing adjustment and penalty there on 26.15 FY 11-12 Commissioner of Income Tax (Appeals)
Income Tax Transfer pricing adjustment and penalty there on 66.04 FY 13-14 Commissioner of Income Tax (Appeals)

8. Loans from Banks / Financial Institutions / Government / Debentures

Based on our audit procedures, books of account and as explained to us, we are of the opinion that, during the year, the Company has defaulted in repayment of dues to any banks as well as financial institution the same is given in table below. Further, No debentures were issued or were outstanding during the year. Further as stated in the Independent Auditors report that the Company has not provided for interest amounting to Rs. 2,794.23 Lakhs for the year on its outstanding loans from Banks and Financial Institution. The Company has also reversed outstanding dues from Banks and Financial Institution amounting to Rs. 6,038.86 Lakhs as the Company is in advanced negotiation with bankers for one time settlement (OTS) of its entire dues. Therefore in the opinion of the management, liability as reflected in the financial statement is sufficient to meet proposed OTS.

(Rs. Lakhs)
Name of Bank Amount
Industrial Development Bank of India 4,729.32
Bank of Baroda 2,690.49
Union Bank Of India 1,793.79
Allahabad Bank 2,443.54
Central Bank of India 3,887.99
The Saraswat Co op Bank Ltd 2,355.28
DBS Bank 807.43
Total Amount 18,707.86

9. Proceeds of Public issue (including debt instruments) /Term Loans

The Company has not raised any money during the year through initial / further public offer (including debt instruments). Also, the Company has not availed any term loans during the current or earlier years and hence the matter of application of the same doesnt arise.

10. Frauds on or by the Company

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 or its officers, noticed or reported during the year, nor have we been informed of such case by the management.

11. Managerial Remuneration

During under our review, the Company is provided managerial remuneration to Company Secretary Section 197 read with Schedule V.

12. Nidhi Companies

The Company is not a Nidhi company during the year under review and hence, the criteria as stipulated under Nidhi Rules 2014 is not applicable to the Company.

13. Related Party Transactions

As per the information and explanations given during the course of our verification, in our opinion, all transactions with the related parties made by the Company were in compliance with Sections 177 and 188 of the Act, to the extent applicable to the Company during the year. The relevant details in respect of the same have been appropriately disclosed as per the requirements of the Accounting Standard.

14. Preferential Issue

During the year, the Company has not made any preferential allotment or private placement of shares or convertible debentures and hence the requirements of Section 42 of the Act are not applicable.

15. Non-cash Transactions with Directors, etc.

As per the information and explanations provided to us, during the year, the Company has not entered into any non-cash transactions with directors or persons connected with the directors within the purview of Section 192 of the Act.

16. Provisions of 45-IA of the Reserve Bank of India Act,1934

As per the information and explanations provided to us and based on the overall operations of the Company, the Company is a Non-banking Finance Company within the definition of Section 45-IA of the Reserve Bank of India Act, 1934 and has been registered as such with the RBI.

For S M M P & Associates

Chartered Accountants

Firm Registration No. 120438W

Sonal Parekh

Partner

Membership No. 139852

Mumbai, dated May 28, 2019

Annexure B to the Auditors Report

(Referred to in paragraph V(2)(g) of our report of even date)

Report on the Internal Financial Controls under Section 143(3)(i) of the Companies Act, 2013 (“the Act”) We have audited the internal financial controls over financial reporting of Zicom Electronic Security Systems Limited (“the Company”) as of March 31, 2019 in conjunction with our audit of the financial statements of the Company comprising Balance Sheet as at March 31, 2019, the Statement of Profit and Loss (including other Comprehensive Income), the Statement of Changes in Equity and the Statement of Cash Flows for the year ended on that date, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information (hereinafter referred to as “the Financial Statements”).

Managements Responsibility for Internal Financial Controls :

The Companys management is responsible for establishing and maintaining internal financial controls based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls over Financial Reporting issued by the Institute of Chartered Accountants of India (the ICAI). These responsibilities include the design, implementation and maintenance of adequate internal financial controls that were operating effectively for ensuring the orderly and efficient conduct of its business, including adherence to Companys policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information, as required under the Companies Act, 2013.

Auditors Responsibility :

Our responsibility is to express an opinion on the Companys internal financial controls over financial reporting based on our audit. We conducted our audit in accordance with the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting and the Standards on Auditing, issued by the ICAI deemed to be prescribed under section 143(10) of the Companies Act, 2013, to the extent applicable to an audit of internal financial controls, both applicable to an audit of Internal Financial Controls and, both issued by the ICAI. Those standards and the Guidance Note that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether adequate internal financial controls over financial reporting was established and maintained and if such controls operated effectively in all material respects.

Our audit involves performing procedures to obtain audit evidence about the adequacy of the internal financial controls system over financial reporting and their operating effectiveness.

Our audit of internal financial controls over financial reporting included obtaining an understanding of internal financial controls over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the Companys internal financial controls system over financial reporting.

Meaning of Internal Financial Controls over Financial Reporting :

A companys internal financial control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal financial control over financial reporting includes those policies and procedures that

1) Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

2) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and

3) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.

Inherent Limitations of Internal Financial Controls over Financial

Reporting :

Because of the inherent limitations of internal financial controls over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of the internal financial controls over financial reporting to future periods are subject to the risk that the internal financial control over financial reporting may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Opinion :

In our opinion, the Company has, in all material respects, an adequate internal financial controls system over financial reporting and such internal financial controls over financial reporting were not operating effectively as per the size of the Company and nature of its business in respect of as at March 31, 2019,in respect of Sales, Purchase, Inventory, Trade Receivable, Trade Payable, Advance to supplier and Advance from customer, based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issued by the Institute of Chartered Accountants of India.

For S M M P & Associates

Chartered Accountants

Firm Registration No. 120438W

Sonal Parekh

Partner

Membership No. 139852

Mumbai, dated May 28, 2019