Notes to Accounts of KDL Biotech Ltd.

Mar 31, 2012

1. Contingent liabilities not provided for in respect of :

Opening Addition Deletions Closing Bal A. Particulars 01.04.2011 during during 31.03.2012 (Rs.) the year the year

(a) Excise Duty demands disputed in appeal 6,34,843 - 6,34,843 -

(b) Custom Duty demands disputed in appeal 30,28,397 - 30,28,397 -

(c) Show Cause/Demand Notice from Excise Department 1,64,38,674 - 1,64,38,674 -

(d) Cenvat Credit / Availed Disputed 57,72,375 - - 57,72,375

(e) Demands as per Show cause notice received from Customs (Refer Note no. 27 below) 9,96,25,716 - - 9,96,25,716

(f) Claims against the Company not acknowledeged as debt (Refer Note no. 29 below) 80,26,39,041 - - 80,26,39,041

(g) Demand as per Notice of Assessment received from Sales Tax - 15,41,288 - 15,41,288

TOTAL 92,81,39,046 15,41,288 2,01,01,914 90,95,78,420

2 Against the demand as per show cause notice pursuant to search undertaken by Directorate of Revenue Intelligence under the Custom Act, the Company had preferred an appeal before the Commissioner of Customs (adjudication) who has passed the order confirming and enhancing the demands and also levying interest and penalty aggregating to Rs. 21,46,25,716. Against this order appeal has been preferred before the Regional Bench, Customs Excise and Service Tax Appellate Tribunal. However, pending the final outcome, the amount of Rs. 11,50,00,000 which was deposited under protest, has been provided for as provision for doubtful advances. The balance amount of Rs. 9,96,25,716 has been shown as contingent liabiility. The Company expects no further liability in this regard.

3 The Company has created Mortgage on August 12, 2010 on the land acquired in the financial year 2008-09 located at Village Savroli, Taluka Khalapur, Khopoli, Dist. Raigad in favour of M/s. Unimark Remedies Ltd, to secure further borrowing of funds, outstanding balance of loan as at 31st March, 2012 is Rs. 20,80,00,000. The Company is in the process of obtaining consent of banks in this regard.

4 Synpac Limited, was the guarantor for the loan taken by the Company from the ABN Amro Bank. Due to default by the Company on repayment, the said bank had invoked the guarantee and recovered the amount of Rs.44,34,02,392 from the said party on April 07, 2008. Synpac Limited has filed Suit No. 445/2010 against the Company before the court of Civil Judge for recovery of USD 1,43,56,167.48 (equivalent to Rs.73,02,98,239 as on March 31, 2012) comprising the amount of USD 1,11,28,812 (equivalent to Rs. 56,61,22,666 as on March 31, 2012) as amount recoverd by ABN Amro Bank plus USD 32,27,355.48 (equivalent to Rs.16,41,75,573 as on March 31, 2012) as pre suit interest.

Synpac Limited has also filed Suit No. 447/2010 against the Company before the court of Civil Judge for recovery of USD 14,22,072 (equivalent to Rs. 7,23,40,802 as on March 31, 2012) comprising the amount of USD 9,41,770 (equivalent to Rs.4,79,07,840 as on March 31, 2012) as trade dues payable to Synpac Pharmaceuticals Limited (U.K.) plus USD 4,80,302 (equivalent to Rs.2,44,32,963 as on March 31, 2012) as pre suit interest.In both the above cases, the Company has filed the replies to the Plaintiff application seeking attachment of property before judgement. Stay application on the fact that the Company is before BIFR has also been filed before the Court. The Company does not expect any liability in this regard and hence, in the opinion of the management no provision is required in the books of account.

5 The company has submitted revised One Time Settlement (OTS) proposal to the bankers. Pending the consent by bankers for OTS proposal, the bankers have: -

a) Issued notice dated April 10, 2012 u/s 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFSESI) Act, 2002 to the Company. The Company has replied to the said notice.

b) The bankers have filled suits in the Debt Recovery Tribunal (DRT). In view of the reference made to the Board for Industrial and Financial Reconstruction (BIFR) by the Compnay, DRT has stayed the matter.The Company has provided for the interest on these bank loans amounting to Rs. 486.37 lacs for the year from 1st April, 2011 to 31st March, 2012 (P. Y. Rs.486.37 lacs) in the Statement of Profit and Loss.

6 The Company has made a reference under Section 15(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 on 6th June 2011, which has been registered by the Board for Industrial and Financial Reconstruction (BIFR) as case No. 35/2011. As per the direction of the BIFR in regard to registration of the reference, the Company is restrained from disposing of or alienating in any manner any fixed assets of the Company without the consent of the BIFR. However, during the year, Company has returned Plant & Equipmens purchased in FY 2010-11 from Unimark Remedies Ltd. at purchase cost of Rs. 2,34,361 (Depreciation upto the date of disposal: Rs.5,264). Further,the Company has disposed of vehicles having original cost of Rs.8,99,083 (Depreciation upto the date of sale: Rs.3,93,064) for sale consideration of Rs.3,20,529.

7 The Company has incurred losses of Rs. 17,21,23,537 during the current year and the accumulated losses amounted to Rs. 1,83,99,27,558 as at 31st March 2012. The net worth of the Company has been completely eroded. Further, the Company has a working capital deficiency. The Company is also a sick Company within the meaning of Section 3(1) (O) of the Sick Industrial Companies (Special Provisions) Act, 1985, and in accordance with the provisions of Section 15(1) of the said Act, it has made a reference to the Board for Industrial and Financial Reconstruction (BIFR). The Company has initiated efforts including developing new products and is hopeful of arresting these losses and turning around in the coming years. Accordingly, these accounts have been prepared on a going concern basis.

8 The outstanding balances as at 31st March, 2012 in respect of secured loans including interest payable thereon, Trade Receivables, and Trade Payables are subject to confirmation from the respective parties and consequential reconciliation/adjustments arising there from, if any. The management, however, does not expect any material variation.

9 In the opinion of the Board, Current Assets and Loans and Advances are approximately of the value stated, if realised in the ordinary course of business. The provision for all known and determined Liabilities are adequate and not in excess of the amounts reasonably required.

10 The classification of Plant & Machinery as "Continuous Process Plant" has been made on the basis of the opinion obtained from technical expert & certified by the management. Since this being a technical matter, it is accepted and relied upon by the Auditors.

11 Pursuant to the agreement dated 6th October , 2009 with Kopran Ltd. the Company has paid Rs. 6.75 crore as Non - Compete Fees for either not to manufacture or market the products Amoxycillin, Ampicillin, Cloxacillin, Dicloxacillin and Flucloxacillin by themselves and through its subsidiaries. Non compete fees (intangible assets) is being amortised over the period of 27 Months.

12 Disclosure under Micro, Small and Medium Enterprises Development Act, 2006 (MSMED) (Note 21 - Schedule q of Annual Accounts) Under the Micro, Small and Medium Enterprises Development Act, 2006 (MSM) which came into force from October 2, 2006, certain disclosures are required to be made relating to Micro, Small and Medium Enterprises (MSME). On the basis of the information and records available with the Company, the following disclosures are made for the amounts due to the Micro and Small Enterprises.

13 (a) Pursuant to the Scheme of Arrangement between the Company and Kopran Ltd, the Bulk drug Division situated at Khopoli (Raigad) of Kopran Ltd., being all its assets, property both moveable and immovable, and interest of every kind etc. and all its debts, liabilities and obligation have been transferred to and vested in the Company as a going concern, with effect from the appointed date i.e. 1st January 1998.

(b) The title deed for free hold/Lease hold land, building, license agreement, loan documents etc. including Lease agreements / deeds for plantation area land and administrative building block pertaining to the Bulk Drug Divison situated at Khopoli (Raigad), have been transferred in the name of the Company during financial year 2007-08.

(c) Pursuant to the Scheme of Arrangement between the Company and Kopran Ltd, the personal guarantee of Shri. Susheel Somani, Shri. Surendra Somani & Shri. Rajendra Somani continues in respect of the dues of bankers till the receipt of the letter of comfort from others with financials acceptable to the bank.

14 The company operates in a single business segment viz pharmaceutical business and accordingly there are no reportable business or geographical segments as prescribed Under Accounting Standard 17 "Segment Reporting".

15 In accordance with the Accounting Standard 20 (AS-20) " Earning per Share" issued by the Institute of Chartered Accountants of India, earning per Share is computed using the weighted average number of shares outstanding during the year as under;

16 a) In abesence of any taxable income during the year and also brought forward unabsorbed losses, no provision for current tax has been made.

b) In view of losses and unabsorbed depreciation, considering the grounds of prudence, deferred tax assets is recognized to the extent of deferred tax liabilities and balance deferred tax assets have not been recognized in the books of accounts.

17 Disclosure as required under Accounting Standard 18 'Related party disclosures' issued by the Institute of Chartered Accountants of India, are as under :

I. List of related parties:

A) Key Management Personnel

Mr. Nalin Bamzai

Dr. Rajesh Agrawal

B) Associate Enterprise

Unimark Remedies Limited

Synpac Pharmaceuticals Limited (Refer Note No. 29 above)

18 Employee Benefits :

The Company has classified the various benefits provided to employees as under:

Defined Contribution Plan

Provident Fund

During the year, the company has recognised Employers contribution to Provident Fund & Employees' Pension Scheme, 1995 Rs.44,32,776 (P Y. Rs. 49,47,437) in the Revenue Account (Included in Employees' Remuneration and Welfare Benefits).

Defined benefit Plan & other long term benefits

Valution in respect of Gratuity have been carried out by independent actuary, as at the Balance Sheet date, based on the following assumptions:-

19 The financial statements for the year ended 31st March, 2011 had been prepared as per the then applicable, pre- revised Schedule VI to the Companies Act, 1956. Consequent to the notification under the Companies Act, 1956, the financial statements for the year ended 31st March, 2012 have been prepared under revised Schedule VI. Accordingly, the previous year figures have also been reclassified, regrouped and recasted to conform to this year's classification and presentation.

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Mar 31, 2010

1 Contingent liabilities not provided for in respect of:

Opening Addition Deletions Closing Bal A. Particulars 01.10.2008 during during 31.03.10 (Rupees) Oct 08 to Oct 08 to (Rupees) Mar10 Mar10

(a) Excise Duty demands disputed in appeal 6,34,843 - - 6,34,843

(b) Custom Duty demands disputed in appeal 30,28,397 - - 30,28,397

(c) Income tax demands disputed in appeal 55,51,117 - 55,51.117 --

(d) Snow Cause/Demand Notice from Excise Department 1,64.38,674 - - 1,64,38,674

(e)Cenvat Credit/ Availed Disputed 57,72,375 - - 57,72,375

(f) Demands as per Show cause notice received from Customs -10,73,12,858 -10,73,12,858

TOTAL 25,653,031 10,73,12,858 5,551,117 13,31,87,147

2 Loans and Advances include Rs. 1,150 lakhs paid to Customs Authorities against future demand that may arise pursuant to search undertaken by Directorate of Revenue Intelligence under the Customs Act on August 2006. During the period, the Company has received show cause notice from the said authorities in this respect showing demand of Rs. 1073.13 lakhs. The Company has preferred to file an appeal against this show cause notice. The Company is of the opinion that no demand will arise and therefore no provision has been considered necessary in this regard.

3 The Company is in the process of settling the outstanding loans with the bankers through One Time Settlement (OTS) scheme. The company has not provided for interest on loan accounts, which have been classified as NPA by the bankers, amounting of Rs. 727.52 lakhs for the period from 01.10.2008 to 31.03.2010 and has reversed the interest provided on such NPA loan accounts for the period from 01.03.06 to 30.09.08 amounting to Rs. 666.19 lakhs which has been shown under the head "Exceptional Items" in the Profit and Loss account.

4 The outstanding balances as at 31st March, 2010 in respect of certain interest payable on secured loans, Sundry Debtors, and Sundry Creditors are subject to confirmation from the respective parties and consequential reconciliation/adjustments arising there from if any. The management, however, does not expect any material variation.

5 In the opinion of the Board, Current Assets and Loans and Advances are approximately of the value stated if realised in the ordinary course of business. The provision for all known and determined Liabilities are adequate and not in excess of the amounts reasonably required.

6 Raw Materials consumed, Commission on sales and Sales include exchange difference of Rs. 61,900/- (Gain) [P.Y. Rs 16,54,591/- (Gain)], Rs 28,440/- (Loss) [RY Rs. 4,290/- (Gain)] and Rs.6,131/ -(Loss) [RYRs.15,14,053/-(Gain)j respectively.

7 The classification of Plant & Machinery as "Continuous Process Plant" has been made on the basis of the opinion obtained from technical expert and certified by the management. This being a technical matter, it is accepted and relied upon by the Auditors.

8 (a) Pursuant to the agreement dated 6th October, 2009 with Kopran Ltd., the Company has paid Rs. 675 lakhs as Non - Compete Fees for not to manufacture and not to market the Active Pharmaceutical Ingredient products viz Amoxycillin, Ampicillin, Cloxacillin, Dicloxacillin and Flucloxacillin by themselves or through its subsidiaries or associate group companies. Non compete fees will be amortised over the effective period of 27 Months.

(b) Pursuant to the agreement dated 4th January, 2010 with Unimark Remedies Ltd. the Company has paid Rs 728 iakhs to acquire technical know-how for the products Cillastatin, Bicycloketone, Minocycline, Enolphosphate, Hydroxy chloro quine sulphate. Out of this, the Company has received technical know-how documents / literatures in respect of the products Cillastatin, Bicycloketone and accordingly Rs. 291 lakhs has been shown as Intangible Assets. For remaining products, the company is in process of acquiring the related technical know-how documents / literatures and accordingly Rs. 437 lakhs has been shown as Capital Work in progress.

9 (a) Sundry Creditors as at 31st March, 2010 include Rs. 10.88,726/- (RY.Rs. 24,56,407/-) due to Micro, Small and Medium Enterprises. The same is disclosed on the basis of information available with the company regarding the status of the suppliers as defined under the Industries (Development and Regulation) Act, 1951.

(b) There are no specific claims from suppliers for Interest on delayed payments as defined under the Micro, Small and Medium Enterprises Development Act, 2006.

(c) The names of small scale industrial undertaking to whom the company owes any sum, together with interest if any, and was outstanding for more than 30 days are as under :- Jaysons Chemicals Industries, Nav Gases & Chemicals, Technique Safety Devices (P) Ltd and Sheilchem Industries.

(d) The Company is in the process of compiling the additional information required to be disclosed under the Micro, Small and Medium Enterprises Development Act, 2006. The Management does not envisage any material impact on the financial statement in this regard, which has been relied upon by the auditors.

10 (a) Pursuant to the Scheme of Arrangement between the Company and Kopran Ltd, the Bulk drug Division situated at Khopoli (Raigad) of Kopran Ltd., being all its assets, property both moveable and immovable, and interest of every kind etc. and all its debts, liabilities and obligation have been transferred to and vested in the Company as a going concern, with effect from the appointed date i.e. 1st January, 1998.

(b) The title deed for free hold/Lease hold land, building, license agreement, loan documents etc. including Lease agreements / deeds for plantation area land and administrative building block pertaining to the Bulk Drug Division situated at Khopoli (Raigad), have been transferred in the name of the Company during financial year 2007-08.

(c) Pursuant to the Scheme of Arrangement between the Company and Kopran Ltd, the personal guarantee of Shri. Susheel Somani, Shri. Surendra Somani & Shri. Rajendra Somani continues in respect of the dues of bankers till the receipt of the letter of comfort from others with financials acceptable to the bank.

11 Interest paid others in schedule 18, is net of interest received Rs.15,30,860/- (Gross) TDS Rs 1,43,828/- (P.Y Rs 5,23,691/- (Gross)TDSRs61,264/-).

12 Managerial Remuneration : The Company has paid Gross remuneration of Rs. 22,74,870/- during the period to Dr. Rajesh Agrawal who is executive director of the company. Except this, company has not paid any remuneration / commission to the Managing Director/ Directors. Hence the calculation of Net Profit u/s 198 or 349 read with Section 309 of The Companies Act, 1956 is not given.

13 a) In view of losses in the current year and brought forward unabsorbed losses, no provision for income tax is considered necessary.

14 Disclosure as required under Accounting Standard 18 Related party disclosures issued by the Institute of Chartered Accountants of India, are as under:

I. List of related parties and relationship

A) Key Management Personnel

Mr. Nalin Bamzai

Dr. Rajesh Agrawal

B) Associate Enterprise

Unimark Remedies Limited

Transactions / Outstanding balances with Related Parties:

18 Prior period expenses includes Rs. 8,83,538/- MVAT setoff disallowed on purchases for which setoff had been availed during previous year and Rs. 34,12,000/- RM consumed for URL LL Production had been related to Previous Year. Prior period income includes Rs. 5,88,609/- MVAT setoff on purchases which has been previously disallowed.

15 Employee Benefits:

The Company has classified the various benefits provided to employees as under:

(i) Defined Contribution Plan

Provident Fund

During the year, the company has recognised the following amount in the Revenue Account.

Employers contribution to Provident Fund & Employees Pension Scheme, 1995 Rs.70,76,995

[Previous Year Rs.50,69,662]

(Included in Employees Remuneration and Welfare Benefits- Refer Schedule)

16 Figures of the previous year have been regrouped, reclassified and rearranged wherever necessary. The current period consists of 18 months and previous year consists of 12 months. Hence current period figures are not strictly comparable with those of previous year.

17 Additional information pursuant to the provision of paragraph 3,4C and 4D ot part II of schedule VI to the Companies Act, 1956.

A. Particulars in respect of goods manufactured:

Licenced capacity, Installed capacity and Actual Production. (As certified by the management)