Report on the Standalone Ind AS Financial Statements

We have audited the accompanying Standalone Ind AS Financial Statements of LYKA LABS LIMITED (“the Company”) which comprise the Balance Sheet as at 31st March 2018, the Statement of Profit and Loss (including other comprehensive income), the Statement of Changes in Equity and the Cash Flow Statement for the year then ended (in which are incorporated the accounts of the Company’s branch at Ankleshwar audited by another auditor after making such changes as were considered necessary for the purpose of incorporation), and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Ind AS Standalone Financial Statements

The Company’s Board of Directors is responsible for the matters stated in Section 134 (5) of the Companies Act, 2013 (“the Act”) with respect to the preparation of these Ind AS Standalone Financial Statements that give a true and fair view of the financial position, financial performance including other comprehensive income, changes in equity and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the Indian Accounting Standards (Ind AS) prescribed under Section 133 of the Act.

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 Ind AS Standalone Financial Statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these Ind AS Standalone Financial Statements based on our audit. In conducting our audit, we have taken into account the provisions of the Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the Act and the Rules made thereunder.

We conducted our audit of the Ind AS financials in accordance with the Standards on Auditing specified under Section 143 (10) of the Act. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the Ind AS Standalone Financial Statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the Ind AS Standalone Financial Statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the Ind AS Standalone Financial Statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal financial control relevant to the Company’s preparation of the Ind AS Standalone Financial Statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Company’s Directors, as well as evaluating the overall presentation of the Ind AS Standalone Financial Statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the Ind AS Standalone Financial Statements.

Basis for Qualified Opinion

1. Interest on Borrowings:

Attention is drawn to Note no. 47 of the Ind AS Standalone Financial Statements regarding reversal of interest on term loan from two banks provided for the period from April 2017 to September 2017 amounting to Rs 469.92 Lakhs and non- provision of interest on term loan from said two banks for the period from October 2017 to March 2018 amounting to Rs 471.64 Lakhs, aggregating to Rs 941.56 Lakhs.

Further the company has reversed Interest expenses for earlier years for the period from February 2016 to March 2017 amounting to Rs 344.35 Lakhs.

Further there is non-provision of penal interest on term loan from two banks and working capital limit from one bank amounting to Rs 80.04 Lakhs.

These non-provisions/reversals of provision for interest is not in compliance with Ind AS 109 Financial Instruments.

Accordingly loss for the year is understated by Rs. 1365.95 Lakhs.

2. Inventories:

Inventories include slow/non-moving raw material and packing materials procured during the earlier years amounting to Rs. 174.06 Lakhs as on 31st March 2018, which are valued at cost (Refer Note no. 44 of Ind AS Standalone Financial Statements). This is not in accordance with Ind AS 2 Inventories, which requires such inventories to be valued at lower of cost or net realizable value. Accordingly, we are unable to quantify the impact of increase in the loss for the year ended 31st March, 2018.

Qualified Opinion

In our opinion and to the best of our information and according to the explanations given to us, and based on the consideration of report of the branch auditor provided to us, except for the effects of the matter described in the Basis for Qualified Opinion paragraph, the aforesaid I nd AS Standalone Financial Statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India of the state of affairs of the Company as at 31st March, 2018, its loss, its changes in equity and its cash flows for the year then ended.

Emphasis of Matters

1. Pledged shares of a Director encashed by a Lender

We draw attention to Note No 41 regarding claims from a Director aggregating to Rs. 128.25 Lakhs being the value of equity shares of the Company pledged as security.

2. Scheme of Arrangements

We draw attention to Note No.42 (a) & (b) regarding the status of the schemes of arrangement with Lyka Exports Limited and Lyka Healthcare Limited.

3. Capital Expenditure:

We draw attention to Note No.43 (ii) regarding the review of the portfolio of products under development and applied research.

Our opinion is not qualified in respect of all these matters.

Other Matters

We did not audit the Ind AS Standalone Financial Statements of a Branch included in the Ind AS Standalone Financial Statements of the Company, whose financial statements reflect total assets of Rs. 8575.88 Lakhs as at 31st March, 2018 as well as total revenues of Rs. 3669.48 Lakhs for the year ended on that date, as considered in the Ind AS Standalone Financial Statements. These financial statements and other financial information have been audited by another auditor whose report has been furnished to us by the Management, and our opinion on these Ind AS Standalone Financial Statements, in so far as it relates to the amounts and disclosures included in respect of this branch, is based solely on the report of such auditor.

The audit of Financial Statements for the year ended 31st March, 2017, was carried out and reported by predecessor auditor, vide their modified audit report dated 29th May, 2017, whose report has been furnished to us by the management and which has been relied upon by us for the purpose of our audit of the standalone IndAS Financial Statements.

Our audit report is not qualified in respect of this matters.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor’s Report) Order, 2016 (“the Order”), issued by the Central Government of India in terms of sub-section (11) of section 143 of the Act, 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 reports on the accounts of the branch office of the Company audited under Section 143(8) of the Act by branch auditor has been sent to us and has been properly dealt with by us in preparing this report (Refer Other Matters);

(d) The Balance Sheet, the Statement of Profit and Loss including Other Comprehensive Income, the Statement of Changes in Equity and the Cash Flow Statement dealt with by this Report are in agreement with the books of account;

(e) Subject to our observations in “Basis of Qualified Opinion” para above, in our opinion, the aforesaid Ind AS Standalone Financial Statements comply with the Ind AS specified under Section 133 of the Act ;

(f) On the basis of the written representations received from the Directors as on 31st March, 2018 and taken on record by the Board of Directors, none of the directors is disqualified as on 31st March, 2018 from being appointed as a director in terms of Section 164(2) of the Act;

(g) 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 an unmodified opinion on the adequacy and operating effectiveness of the Company’s internal financial controls over financial reporting; and

(h) With respect to the other matters to be included in the Auditor’s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Amendment Rules, 2017, 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 - Refer to Note No. 36(i) to (vii) of other notes to the Standalone Ind AS Financial Statements.

(ii) The Company does not have any long-term contracts including derivative contracts and hence there are no material foreseeable losses.

(iii) There were no amounts which were required to be transferred to the Investor Education and Protection Fund by the Company.

(iv) The disclosures regarding details of specified bank notes held and transacted during 8th November 2016 to 30th December 2016 has not been made since the requirement does not pertain to financial year ended 31st March 2018.

Annexure - A to the Auditors’ Report

Annexure referred to in paragraph 1 of our report on Other Legal and Regulatory Requirements of even date

(i) In respect of its fixed assets:

(a) The Company has maintained proper records showing full particulars, including quantitative details and situation of fixed assets.

(b) The fixed assets were physically verified during the year by the Management in accordance with a regular program of verification which, in our opinion, provides for physical verification, of all the fixed assets at reasonable intervals. According to the information and explanations given to us, no material discrepancies were noticed on such verification.

(c) The title deeds of immovable properties including leasehold land, as disclosed in Note 3 on property, plant and equipment to the financial statements, are held in the name of the company.

(ii) As explained to us, inventories, excluding inventories with third parties, were physically verified during the year by the management at reasonable intervals and no material discrepancies were noticed on physical verification. In respect of inventories lying with third parties, these have substantially been confirmed by them.

(iii) During the year, the Company has not granted loan to any party covered in the register maintained under section 189 of the Act and hence clause 3(iii) of the Order is not applicable.

(iv) 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 Companies Act, 2013 in respect of the loans and investments made and security provided by it.

(v) The Company had received an Order of Company Law Board (CLB) dated 22nd January, 2016, granting extension of time for repayment of Fixed Deposits. During the year, the Company has repaid deposits that were claimed aggregating to Rs. 17.85 Lakhs. As regards the balance of unclaimed Fixed Deposits Rs. 49.52 Lakhs, the same shall be paid as and when claimed. Refer Note No. 37

(vi) We have broadly reviewed the books of accounts and records maintained by the Company relating to the manufacture of Bulk Drugs and Formulations pursuant to the order made by the Central Government for the maintenance of cost records under Section 148(1) of the Companies Act, 2013 and are of the opinion that prima facie the prescribed accounts and records have been so made and maintained. We have, however, not made a detailed examination of the cost records with a view to determining whether they are accurate or complete.

(vii) According to the information and explanations given to us and as per relevant records produced before us in respect of statutory and other dues:

(a) During the year, the Company has not been regular in depositing undisputed statutory dues relating to Provident Fund, Professional Tax, E.S.I.C., Service Tax, Income-tax, Value Added Tax and Sales Tax. The arrears of the said dues as at the last day of the financial year and outstanding for more than six months from the date they become payable are as follows:

(b) Following disputed dues have not been deposited since the matters are pending with the respective forums:

(* net of amounts paid under protest)

(viii) Based on our audit procedures and according to the information and explanations given by the management, in respect of:

a. Loan from Banks: The Company, has defaulted in repayment of dues to Banks, the defaults whereof are stated hereunder:

[Rs. in Lakhs]

b. Debentures : The Company has received Order of National Company Law Tribunal (Ahmedabad Bench) dated 22nd May, 2017, granting extension of time for repayment of Debentures Refer Note No. 38.

(ix) Based on our audit procedures and according to the information and explanations given by the management, the Company has not raised money by way of initial public offer or further public offer during the year. The Company has availed the term loans from Banks in earlier years which were applied for the purpose for which those were raised.

(x) According to the information and explanations given to us, no fraud by the Company or on the Company by its officers or employees has been noticed or reported during the year.

(xi) The Company has paid/provided managerial remuneration which is in accordance with the provisions of section 197 read with Schedule V of the Act.

(xii) In our opinion and according to the information and explanations given to us, the Company is not a nidhi company and hence clause 3(xii) of the Order is not applicable.

(xiii) According to the information and explanations given to us and based on our examination of the records of the Company, transactions with related parties are in compliance with sections 177 and 188 of the Act, where applicable and details of such transactions have been disclosed in the financial statements as required by the applicable Accounting Standards (Refer Note No. 50)

(xiv) According to the information and explanations given to us and based on our examination of the records of the Company, the Company has made a preferential allotment of equity shares during the year which is in accordance with the provisions of section 42 and the amount raised is used for the purpose as stated in the objects of the issue.

(xv) According to the information and explanations given to us and based on our examination of the records of the Company, the Company has not entered into non-cash transactions with Directors or persons connected with them and hence clause 3(xv) of the Order is not applicable.

(xvi) According to the information and explanations given to us, the Company is not required to be registered under section 45-IA of the Reserve Bank of India Act, 1934.

Annexure - B to the Auditor’s Report

Report on the Internal Financial Controls under Clause (i) of Sub-section 3 of Section 143 of the Companies Act, 2013 (“the Act”)

We have audited the internal financial controls over financial reporting of LYKA LABS LIMITED (“the Company”) as of 31st March 2018 in conjunction with our audit of the standalone Ind AS financial statements of the Company for the year ended on that date.

Management’s Responsibility for Internal Financial Controls

The Company’s 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 (‘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 Company’s 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 Act.

Auditor’s Responsibility

Our responsibility is to express an opinion on the Company’s 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 (the “Guidance Note”) and the Standards on Auditing, issued by ICAI and deemed to be prescribed under section 143(10) of the Act 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 require 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 auditor’s 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 Company’s internal financial controls system over financial reporting.

Meaning of Internal Financial Controls Over Financial Reporting

A Company’s 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 Company’s 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 expenditure of the Company are being made only in accordance with authorisations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use, or disposition of the Company’s 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, to the best of our information and according to the explanation given to us and based on consideration of report of another auditor, as referred to in the Other Matters paragraph, 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 operating effectively as at 31st March 2018, 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 ICAI.

Other Matters

Our aforesaid report under section 143(3)(i) of the Act on the adequacy and operating effectiveness of the internal financial controls over financial reporting is so far as it relates to financial statements of a branch of the Company is based on the corresponding reports of the auditor of such branch.

For MEHTA CHOKSHI & SHAH

CHARTERED ACCOUNTANTS

Firm Registration No: 106201W

Abhay R. Mehta

PARTNER

MEMBERSHIP NO. 046088

Place: Mumbai

Date: 29th May, 2018