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Auditor Report of Southern Magnesium & Chemicals Ltd.

Mar 31, 2015

1. We have audited the accompanying standalone financial statements of SOUTHERN MAGNESIUM AND CHEMICALS LIMITED, HYDERABAD, TELANGANA ("The Company"), which comprise the Balance Sheet as at 31st March2015, the Statement of Profit and Loss, Cash flow statement for the year then ended and a summary of the significant accounting policies and other explanatory information.

Management's Responsibility for the Standalone Financial Statements

2. 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 and presentation of these standalone financial Statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules 2014. 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 statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

3. Our responsibility is to express an opinion on these standalone financial statements based on 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 there under.

4. We conducted our audit 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 financial statements are free from material misstatement.

5. An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the financial statements. 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. In making those risk assessments, the auditor considers internal financial control relevant to the Company's preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on whether the Company has in place an adequate internal financial controls system over financial reporting and the operating effectiveness of such controls. 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 financial statements.

6. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion on the standalone financial statements.

Basis for Qualified Opinion

7. Company had paid preference dividend on cumulative preference shares without setting off accumulated losses and depreciation and preference shares are also redeemed despite unavailable profits for distribution of dividends, thereby the Company has not complied with the provisions of Section 55 of the Companies Act 2013.

8. The Company has not adopted and complied with the requirements of AS-15 'Employee Benefits' in respect of the Gratuity liability, which constitutes a departure from the Accounting standards referred to in section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014. In view of this the liability of the company in this regard could not be ascertained. Consequently, we are unable to comment about the impact of this on the profit for the year, income tax and shareholder's funds

Qualified Opinion

9. In our opinion and to the best of our information and according to the explanations given to us , except for the effects of the matter described in the Basis for Qualified Opinion Paragraph, the 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 31 March 2015 and its profit and its cash flows for the year ended on that date.

Emphasis of matter

10. We draw attention to Note 21.1 in the financial statements which state that the Company's current liabilities exceeded its current assets by Rs. 56.05 lakhs. Further, as indicated by the Company's Balance Sheet as at March 31,2015, the net worth of the Company has eroded completely. These conditions indicate the existence of a material uncertainty that may cast significant doubt about the Company's ability to continue as a going concern.

Report on Other Legal and Regulatory Requirements

11. As required by the Companies(Auditor's Report) Order 2015 ("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 statement on the matters specified in paragraphs 3 and 4 of the Order , to the extent applicable.

12. 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 and Cash Flow statement dealt with by this report are in agreement with the books of account;

(d) except for the matter described under the basis for qualified opinion paragraph, in our opinion, the Balance sheet, Statement of Profit and Loss, and Cash flow Statement comply with the Accounting Standards 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 31st March 2015 taken on record by the Board of Directors, none of the directors is disqualified as on 31st March 2015 from being appointed as a director in terms of Section 164 (2) of the Act and;

(f) 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) Rules 2014, in our opinion and to the best of our information and according to the explanations given to us:

i. the Company does not have any pending litigations which would impact its financial position

ii. the Company did not have any long-term contracts including derivative contracts for which there were any material foreseeable losses.

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

ANNEXURE REFERRED TO PARAGRAPH 11 OF OUR REPORT OF EVEN DATE

Statement on the Companies (Auditor's Report) Order, 2015

i) (a) The Company maintains proper records showing full particulars, including quantitative details and situation of fixed assets;

(b) The fixed assets have been physically verified by the management at reasonable intervals and no material discrepancies were noticed on such verification.

ii) (a) Management had physically verified the inventory at reasonable intervals.

(b) In our opinion the procedures of physical verification of inventory followed by the management are reasonable and adequate in relation to the size of the company and the nature of its business.

(c) The Company maintains proper records of inventory and no material discrepancies were noticed on physical verification.

iii) (a) The Company has not granted any loans, secured or unsecured to/from Companies, firms or other parties covered in the register maintained under Section 189 of the Companies Act, 2013.

(b) In view of our comment in clause iii (a) above, clause iii (b), of paragraph 3 of the aforesaid Order are not applicable to the Company.

iv) In our opinion and according to the information and explanations given to us, there are adequate internal control systems commensurate with the size of the Company and the nature of its business.

v) The Company has not accepted deposits from the public. Hence the provisions of Sections 73 to 76 and other relevant provisions of the Companies Act, 2013 and the Companies (Acceptance of Deposits) Rules, 2014 are not applicable to the Company.

vi) In view of the present activity carried on by the company the Para 3(vi) of the said Order with respect to cost records is not applicable.

vii) a) According to the records, the Company is regular in depositing with appropriate authorities undisputed statutory dues like Income-tax, Service tax and other statutory dues applicable to it.

b) According to the information and explanations given to us, no undisputed amounts payable in respect of Income-tax, Wealth tax, Service tax, Sales tax and Cess were in arrears, as at 31st March, 2015 for a period of more than six months from the date they became payable.

c) In our opinion and according to the information and explanations given to us, there are no dues of Sales tax, Income-tax, Wealth tax, Service tax and Cess which have not been deposited on account of any dispute.

viii) The Company has no accumulated losses at the end of the financial year under report and the Company has not incurred any cash losses in the financial year and in the immediately preceding financial year.

ix) According to the information and explanations given to us, the Company has not availed any loans from financial institutions or banks.

x) In our opinion and according to the information and explanations given to us, the Company has not given any guarantee for loans taken by others from banks or financial institutions.

xi) The company has not availed any term loans. Accordingly the provisions of Para 3(xi) of the above referred order are not applicable to the Company.

xii) Based upon the audit procedures performed and according to the information and explanations given to us, we report that no fraud on or by the Company has been noticed or reported during the year.

For K.S.RAO & Co Chartered Accountants Firm's Regn. No.003109S

Sd/- (P.GOVARDHANA REDDY) Place : HYDERABAD Partner Date : 30.05.2015. Membership No. 029193


Mar 31, 2014

We have audited the accompanying Financial Statements of SOUTHERN MAGNESIUM AND CHEMICALS LIMITED, HYDERABAD (A.P) ("The Company") which comprise the Balance Sheet as at 31st March, 2014, the Statement of Profit and Loss and Cash flow Statement for the year then ended, and Summary of Significant Accounting Policies and other explanatory information.

Management''s responsibility for the Financial Statements

Management is responsible for the preparation of these Financial Statements that give a true and fair view of the Financial position, Financial performance and Cash flows of the Company in accordance with the Accounting Standards referred in the sub-section(3C) of section 211 of the Companies Act 1956 ("the Act"). This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of the 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 financial statements based on our Audit. We conducted our Audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain the reasonable assurance about whether the financial statements are free from material misstatement.

An Audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor''s judgement, including the assessment of the risks of material misstatements of the financial statements, whether due to fraud or error. In making those risk assessments, the Auditor considers internal control relevant to the company''s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the entity''s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by the management, as well as evaluating the overall presentation of the financial statements

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion.

Basis for Qualified Opinion

The Company has not adopted and complied with the requirements of AS-15 ''Employee Benefits'' in respect of the Gratuity liability, which constitutes a departure from the Accounting standards referred to in section 211(3C) of the Act. In view of this the liability of the company in this regard could not be ascertained. Consequently, we are unable to comment about the impact of this on the profit for the year, income tax and shareholder''s funds.

Qualified Opinion

In our opinion and to the best of our information and according to the explanations given to us, except for the effects of the matter described in the Basis for Qualified Opinion Paragraph, the 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:

(a) In the case of the Balance Sheet, of the state of affairs of the Company as at March 31,2014;

(b) In the case of the Statement of Profit and Loss, of the profit for the year ended on the date; and

(c) In the case of the Cash flow statement, of the cash flows for the year ended on that date.

Emphasis of matter

We draw attention to Note 20.1 in the financial statements which states that the Company''s current liabilities exceeded its current assets by Rs. 2.065 crores. Further, as indicated by the Company''s Balance Sheet as at March 31, 2014, the net worth of the Company has eroded completely. These conditions indicate the existence of a material uncertainty that may cast significant doubt about the Company''s ability to continue as a going concern.

Report on other Legal and Regulatory requirements

1. As required by the Companies (Auditor''s Report) Order, 2003 ("the Order") issued by the Central Government of India in terms of sub-section (4A) of section 227 of the Act, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the Order.

2. As required by section 227(3) of the Act, we report that:

(a) we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit;

(b) 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;

(c) the Balance Sheet, the Statement of Profit and Loss and Cash Flow statement dealt with by this report are in agreement with the books of account;

(d) except for the matter described under the basis for qualified opinion paragraph, in our opinion, the Balance sheet, Statement of Profit and Loss, and Cash flow Statement comply with the Accounting Standards referred to in sub-section (3C) of section 211 of the Act;

(e) on the basis of Written representations received from the Directors as on March 31,2014 and taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2014, from being appointed as a Director in terms of clause (g) of sub-section (1) of section 274 of the Act;

(f) Since the Central Government has not issued any notification as to the rate at which cess is to be paid under section 441A of the Companies Act 1956 nor has it issued any rules under the said section prescribing the manner in which such cess is to be paid, no cess is due and payable by the company.

ANNEXURE REFERRED TO IN PARAGRAPH 1 OF OUR REPORT OF EVEN DATE Statement on the Companies (Auditor''s Report) Order 2003 Re: SOUTHERN MAGNESIUM AND CHEMICALS LIMITED

i) (a) The Company maintains proper records showing full particulars, including quantitative details and situation of fixed assets;

(b) The fixed assets have been physically verified by the management at reasonable intervals and no material discrepancies were noticed on such verification.

(c) The company had not disposed off any fixed assets during the year.

ii) (a) Management had physically verified the inventory at reasonable intervals.

(b) In our opinion the procedures of physical verification of inventory followed by the management are reasonable and adequate in relation to the size of the company and the nature of its business.

(c) The Company maintains proper records of inventory and no material discrepancies were noticed on physical verification.

iii) Sub-paras (a) to (d) of paragraph (iii) with regard to Principal Recoveries and overdue amounts, are not applicable since the Company has not granted any loans.

(e) The Company has taken unsecured loans in earlier years from two Companies and from other three parties covered in the register maintained under section 301 of the Act. The maximum amount outstanding at the beginning of the year was Rs. 240.50 lakhs and the year end balance was Rs.172.00 lakhs and

(f) In our opinion the terms and conditions on which the unsecured loans were availed by the Company are not prima facie prejudicial to the interest of the company.

(g) The company has repaid principal amount of Rs.68.50 lakhs during the year and the loans are interest free.

iv) In our opinion there are adequate internal control systems commensurate with the size of the company and the nature of its business, for the purchase of inventory and fixed assets and for the sale of goods and there were no weaknesses in internal control system.

v) (a) There were no transactions that need to be entered into a register required to be maintained under section 301 of the Act during the year except acceptance of unsecured loans from directors and inter-corporate deposits.

(b) In view of the above comment, clause v (b) of Para 4 of the said Order is not applicable.

vi) The Company has not accepted deposits from the public, so the directives issued by the Reserve Bank of India and the provisions of sections 58A, 58AA or any other relevant provisions of the Act and the rules framed there under are not applicable to the Company during the year under report.

vii) The Company has no internal audit system. However, there are adequate internal control procedures commensurate with its size and nature of its business.

viii) It is informed that Cost Accounts and records have been made and maintained and the same were not reviewed by us.

ix) (a) The Company is not regular in depositing undisputed statutory dues inrespect of Provident Fund and Sales Tax.

An undisputed amount of Rs.93,080/- in respect of interest on Sales Tax was in arrears as at 31.03.2014 for a period of more than six months from the date it became payable.

The Company deposits regularly Excise Duty, Service Tax and Income Tax. During the year under report there were no amounts depositable in respect of Investor Protection Fund, Employee''s State Insurance, Wealth Tax, Customs Duty.

(b) There are no dues of sales tax, income tax, custom tax, wealth tax, cess which have not been deposited on account of any dispute.

x) Company''s accumulated losses at the end of the financial year were more than 50% of its net worth and it had not incurred cash loss in the period under report and also in the immediately preceding financial year.

xi) Company has not borrowed money from a financial institution or from a bank. Hence, clause (xi) of the above said Order is not applicable with regard to defaults in repayments of dues.

xii) The Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities.

xiii) This clause is not applicable to the Company since this Company is neither a Chit Fund nor Nidhi/ mutual benefit fund Society.

xiv) The Company is not dealing or trading in shares, securities, debentures and other investments.

xv) As per the information given by the Company it has not given any guarantee for loans taken by others from bank or financial institutions.

xvi) During the year under report the Company has not availed term loans. Hence clause (xvi) of the above said Order is not applicable.

xvii) In our opinion the funds raised on short-term basis were not used for long term investment.

xviii) During the period under report the company had not made any preferential allotment of shares to parties and companies covered in the Register maintained under section 301 of the Act.

xix) This clause is not applicable since the Company has not issued any Debentures.

xx) During the period under report the management has not raised any money through public issue.

xxi) During the year under report no fraud on or by the company has been either noticed or reported.

For K.S.RAO & CO., Chartered Accountants Firms'' Regn.No.003109S

(P.GOVARDHANA REDDY) Place: Hyderabad Partner Date: 26.05.2014 Membership No.029193


Mar 31, 2013

Report on the Financial Statements

We have audited the accompanying Financial Statements of SOUTHERN MAGNESIUM AND CHEMICALS LIMITED, HYDERABAD (A.P) ("The Company") which comprise the Balance Sheet as at 31st March, 2013 and the Statement of Profit and Loss and Cash flow Statement for the year then ended, and Summary of Significant Accounting Policies and other explanatory information.

Management''s responsibility for the Financial Statements

Management is responsible for the preparation of these Financial Statements that give a true and fair view of the Financial position, Financial performance and Cash flows of the Company in accordance with the Accounting Standards referred in the sub-section(3C) of section 211 of the Companies Act 1956 ("the Act"). This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of the 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 financial statements based on our Audit. We conducted our Audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain the reasonable assurance about whether the financial statements are free from material misstatement. An Audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor''s judgment, including the assessment of the risks of material misstatements of the financial statements, whether due to fraud or error. In making those risk assessments, the Auditor considers internal control relevant to the company''s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by the management, as well as evaluating the overall presentation of the Financial statements

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion.

Basis for qualified opinion:

The Company has not adopted and complied with the requirements of AS-15 ''Employee Benefits'' in respect of the Gratuity liability, which constitutes a departure from the Accounting standards referred to in section 211(3C) of the Act. In view of this the liability of the company in this regard could not be ascertained. Consequently, we are unable to comment about the impact of this on the profit for the year, income tax and shareholder''s funds.

Qualified Opinion

In our opinion and to the best of our information and according to the explanations given to us, except for the effects of the matter described in the Basis for Qualified Opinion Paragraph, the 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:

(a) In the case of the Balance Sheet, of the state of affairs of the Company as at March 31, 2013;

(b) In the case of the Statement of Profit and Loss, of the profit for the year ended on the date; and

(c) In the case of the Cash flow statement, of the cash flows for the year ended on that date.

Emphasis of matter

We draw attention to Note 21.1 in the financial statements which states that the Company''s current liabilities exceeded its current assets by Rs. 2.32 crores. Further, as indicated by the Company''s Balance Sheet as at March 31,2013, the net worth of the Company has eroded completely. These conditions, indicate the existence of a material uncertainty that may cast significant doubt about the Company''s ability to continue as a going concern.

Report on other Legal and Regulatory requirements

1. As required by the Companies (Auditor''s Report) Order, 2003 ("the Order") issued by the Central Government of India in terms of sub-section (4A) of section 227 of the Act, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the Order.

2. As required by section 227(3) of the Act, we report that:

(a) we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit;

(b) 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;

(c) the Balance Sheet, the Statement of Profit and Loss and Cash Flow statement dealt with by this report are in agreement with the books of account;

(d) except for the matter described under the basis for qualified opinion paragraph, in our opinion, the Balance sheet, Statement of Profit and Loss, and Cash flow Statement comply with the Accounting Standards referred to in sub-section (3C) of section 211 of the Act;

(e) on the basis of Written representations received from the Directors as on March 31, 2013 and taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2013, from being appointed as a Director in terms of clause (g) of sub-section (1) of section 274 of the Act;

(f) Since the Central Government has not issued any notification as to the rate at which cess is to be paid under section 441A of the Companies Act 1956 nor has it issued any rules under the said section prescribing the manner in which such cess is to be paid, no cess is due and payable by the company.

ANNEXURE REFERRED TO IN PARAGRAPH 1 OF OUR REPORT OF EVEN DATE Statement on the Companies (Auditor''s Report) Order 2003 Re: SOUTHERN MAGNESIUM AND CHEMICALS LIMITED

i) (a) The Company maintains proper records showing full particulars, including quantitative details and situation of fixed assets;

(b) The fixed assets have been physically verified by the management at reasonable intervals and no material discrepancies were noticed on such verification.

(c) The company had not disposed off any fixed assets during the year.

ii) (a) Management had physically verified the inventory at reasonable intervals.

(b) In our opinion the procedures of physical verification of inventory followed by the management are reasonable and adequate in relation to the size of the company and the nature of its business.

(c) The Company maintains proper records of inventory and no material discrepancies were noticed on physical verification.

iii) Sub-paras (a) to (d) of paragraph (iii) with regard to Principal recoveries and overdue amounts, are not applicable since the Company has not granted any loans.

(e) The Company has taken unsecured loans in earlier years from two Companies and other three parties covered in the register maintained under section 301 of the Act. The maximum amount outstanding at the beginning of the year was Rs.260.50 lakhs and the yearend balance was Rs.240.50 lakhs and

(f) In our opinion the terms and conditions on which the unsecured loans were availed by the Company are not prima facie prejudicial to the interest of the company.

(g) The company has repaid principal amount of Rs.20.00 lakhs during the year and the loans are interest free.

iv) In our opinion there are adequate internal control systems commensurate with the size of the company and the nature of its business, for the purchase of inventory and fixed assets and for the sale of goods and there were no weaknesses in internal control system.

v) (a) There were no transactions that need to be entered into a register required to be maintained under section 301 of the Act during the year except acceptance of unsecured loans from directors and inter corporate deposits.

(b) In view of the above comment, clause - v (b) is not applicable.

vi) The Company has not accepted deposits from the public, so the directives issued by the Reserve Bank of India and the provisions of sections 58A, 58AA or any other relevant provisions of the Act and the rules framed there under are not applicable to the Company during the year under report.

vii) The Company has no internal audit system. However, there are adequate internal control procedures commensurate with its size and nature of its business.

viii) It is informed that Cost Accounts and records have been made and maintained and the same were not reviewed by us.

ix) (a) The Company is not regular in depositing undisputed statutory dues including Provident Fund and Sales Tax.

An undisputed amount of Rs.3,01,195/- in respect of interest on Sales Tax was in arrears as at 31.03.2013 for a period of more than six months from the date they became payable.

The Company deposits regularly Excise Duty, Service Tax and Income Tax. During the year under report there were no amounts deposit able in respect of Investor Protection Fund, Employee''s State Insurance, Wealth Tax, Customs Duty.

(b) There are no dues of sales tax, income tax, custom tax, wealth tax, cess which have not been deposited on account of any dispute.

x) Company''s accumulated losses at the end of the financial year were more than 50% of its net worth and it had not incurred cash loss in the period under report and incurred cash loss in the immediately preceding financial year.

xi) Company has not borrowed money from a financial institution or from a bank. Hence, clause (xi), of the above said order is not applicable with regard to defaults in repayments of dues.

xii) The Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities.

xiii) This clause is not applicable to the Company since this Company is neither a Chit Fund nor Nidhi/ mutual benefit fund Society.

xiv) The Company is not dealing or trading in shares, securities, debentures and other investments.

xv) As per the information given by the Company it has not given any guarantee for loans taken by others from bank or financial institutions.

xvi) During the year under report the Company has not availed term loans. Hence clause (xvi) of the above said order is not applicable.

xvii) In our opinion the funds raised on short-term basis were not used for long term investment.

xviii) During the period under report the company had not made any preferential allotment of shares to parties and companies covered in the Register maintained under section 301 of the Act.

xix) This clause is not applicable since the Company has not issued any Debentures.

xx) During the period under report the management has not raised any money through public issue.

xxi) During the year under report no fraud on or by the company has been either noticed or reported.

For K.S.RAO & CO.

Chartered Accountants

Firm Registration No.003109S

Sd/-

(P. Govardhana Reddy)

Partner

Membership No. 029193

Place : Hyderabad

Date : 30.05.2013


Mar 31, 2010

We have audited the attached Balance Sheet of SOUTHERN MAGNESIUM AND CHEMICALS LIMITED, HYDERABAD (A.P) as at 31st March, 2010, and also the Profit and Loss Account for the year ended on that date annexed thereto and the cash Flow Statement for the period ended on that date. 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.

We conducted our audit in accordance with the 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 and report that:

1. As required by the Companies (Auditors Report) Order, 2003, issued by the Central Government of India in terms of Section 227 (4A) of the Companies Act, 1956, we enclose in the Annexure a statement on the matters specified in paragraph 4 and 5 of the said Order.

2. Further to our comments in the Annexure referred to in paragraph 1 above :

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

b) 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.

c) The Balance Sheet, Profit and Loss Account and Cash Flow statement dealt with by this report are in agreement with the books of account.

d) 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 excepting AS-15, employees Benefits.

e) On the basis of written representations received from the directors, as on 31st March, 2010 and taken on record by the Board of Directors, we report that, none of the directors is disqualified as on 31st March, 2010 from being appointed as a Director in terms of clause (g) of sub-section (1) of Section 274 of the Companies Act, 1956 :

f) The Company has not adopted and complied with the requirements of AS-15 Employee Benefits in respect of gratuity liability. In view of this the liability of The Company in this regard could not be ascertained. Consequently, we are unable to comment about the impact of this on the loss for the year.

g) In our opinion and to the best of our information and according to the explanations given to us, the said accounts read in conjunction with the Schedules annexed therewith and subject to our comments given in para f above, 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 :

I) In the case of the Balance Sheet, of the state of affairs of the Company as at 31st March, 2010 :

II) In the case of the Profit and Loss account, of the Loss of the Company for the year ended on that date; and

iii) In the case of cash flow statement, of the cash flows for the year ended on that date.

ANNEXURE REFERRED TO IN PARAGRAPH 1 OF OUR REPORT OF EVEN DATE

i) (a) The Company maintains proper records showing full particulars, including quantitative details and situation of fixed assets:

(b) The fixed assets have been physically verified by the management at reasonable intervals; no material discrepancies were noticed on such verification.

(c) During the year the Company disposed of assets, in our Opinion this do not effect the going concern assumption.

ii) (a) Management had physically verified the inventory at reasonable intervals.

(b) In our opinion the procedures of physical verification of inventory followed by the management are reasonable and adequate in relation to the size of the Company and the nature of its business.

(c) The Company maintains proper records of inventory and no material discrepancies were noticed on physical verification.

iii) (a) to (d) Since the Company has not granted any loans, our comments do not arise with regard to the principal recoveries and overdue amounts in respect of loans granted.

(e) The Company has taken unsecured loans from two companies and other three parties covered in the register maintained under section 301 of the Act. The amount involved in transactions is Rs.262.5 lakhs and

(f) In our opinion the terms and conditions on which the unsecured loans were availed by the Company are not prima facie prejudicial to the interest of the Company.

(g) The Company has not repaid principal amount and the loans are interest free.

(iv) In our opinion there are adequate internal control systems commensurate with the size of the Company and the nature of its business, for the purchase of inventory and fixed assets and for the sale of goods and there were no weaknesses in internal control system.

(v) (a) There were no transactions that need to be entered into a register required to be maintained under section 301 of the Act during the year except acceptance of unsecured loans from directors and Corporate Deposits.

(b) In view of the above comment clause - V (b) is not applicable.

(vi) The Company has not accepted deposits from the public, so the directives issued by the Reserve Bank of India and the provisions of sections 58 A, 58 AA or any other relevant provisions of the Act and the rules framed there under are not applicable to the Company during the year under report.

(vii) The Company has no internal audit system. However, there are adequate internal control procedures commensurate with its size and nature of its business.

(viii) The Central Government has not prescribed u/s 209 (1) (d) of the Act the maintenance of cost records for the products of the Company.

ix) (a) The Company is regular in depositing undisputed statutory dues including provident fund, investor education protection fund, employees state insurance, income tax, sales tax, wealth tax, customs duty and excise duty etc.

(b) There are no dues of sales tax, income tax, custom tax, wealth tax, cess which have not been deposited on account of any dispute.

x) Companys accumulated losses at the end of the financial year were more than 50% of its net worth and it had incurred cash losses in the period under report and also in the immediately preceding financial year.

xi) Company has not borrowed money from a financial institution or from a Bank. Hence, clause (xi), of the above said Order is not applicable with regard to defaults in repayments of dues.

xii) The Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities.

xiii) This clause is not applicable to the Company since this Company is neither a Chit Fund or Nidhi/ Mutual benefit fund Society.

xiv) The Company is not dealing or trading in shares, securities, debentures and other investments.

xv) As per the information given by the Company it has not given any guarantee for loans taken by others from bank of financial institutions.

xvi) During the year under report the Company has not availed term loans. Hence clause (xvi) of the above said order is not applicable.

xvii) In our opinion the funds raised on short term basis were not used for long term investment.

xviii) During the period under report the Company had not made any preferential allotment of shares to parties and companies covered in the Register maintained under section 301 of the Act.

xix) This clause is not applicable since the Company has not issued any Debentures.

xx) During the period under report the management has not raised any money through public issue.

xxi) During the year under report no fraud on or by the Company has been either noticed or reported.

for K.S.Rao & Co., Chartered Accountants Sd/- Place : Hyderabad (P. Govardhan Reddy)

Date : 12-08-2010 Partner

 
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