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. () - Auditors Report

Company auditors report

COMPUDYNE WINFOSYSTEMS LIMITED ANNUAL REPORT 2004-2005 AUDITORS' REPORT We have audited the attached Balance Sheet of Compudyne Winfosystems Limited, as at at 31, 2005 and also the Profit Loss Account for the year ended on that date annexed thereto. These financial statements are responsibility of the company's management Our responsibility is to express an opinion on these financial starts based on our audit. We conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement An audit includes examining, on 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. As required by the Companies (Auditor's Report) Order, 2003 issued by the Central Government of India in terms of sub-section (4A) of section 227 of the Companies Act, 1956, we enclose in the Annexure a statement on the matters specified in paragraph 4 and 5 of the said order wherever applicable. Further to our comments in the Annexure referred to in paragraph 3 above, we report that: 1) 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; 2) 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 and regarding overseas branch transactions, records maintained at the Head Office; 3) The Balance sheet and Profit and Loss Account dealt with by this report are in agreement with the said books of account; We further report that: a) Account wise balances in sundry debtors, sundry creditors and loans & Advances are subject to confirmation and impact of variance on the accounts cannot be quantified. b) Branch balances amounting to Rs. 1,75,49,803/- (Cr) are subject to reconciliation and impact on the accounts on reconciliation can not be quantified. c) Non-provision of salary payable to staff for part of the year has resulted in loss for the year being understated, the quantification of which is not possible due to lack of relevant information. d) Non-provision of remuneration payable to directors for the year has resulted in loss for the year being understated. e) Impact on accounts due to non-quantification of cancelled contracts with respect to software in process, non-marketable products, demos and prototypes, extra efforts billed but not accepted, products under development abandoned mid-way non-usable in-house projects including work- in-progress can not be ascertained. f) In the absence of confirmation and certification with respect to physical existence of assets held abroad and in view of inadequate control measures adopted by the company towards monitoring existence of such assets and control over the same, erosion if any, in the quality and quantity of such assets can not be commented upon. g) Non-compliance of accounting standard-11 and accounting policy (f) under Schedule 18 of accounts, in case of foreign currency expenditure wherein conversion rate has been adopted at the average rate and impact on accounts to such non-compliance remains unascertained. h) Utilisation without repatriation of net UD$ 2.98 million in earlier years stated to have been deducted by Vision Art & Design Inc., USA towards meeting expenses of the company including capital expenditure are subject necessary approvals from the concerned regulatory authorities. i) The company does not have a whole-time secretary as envisaged in Section 383A of the Companies Act, 1956. 4) In our opinion, the Balance sheet and Profit and Loss Account dealt with by this report comply with the accounting standards referred to in sub- section (3C) of Section 211 of the Companies Act, 1956, to the extent applicable; 5) As on March 31, 2005, provisions of clause (g) of sub-section (1) of Section 274 of the Companies Act, 1956, are applicable to the directors of the company, in view of non-payment of matured fixed deposits from public beyond one year after maturity; 6) In our opinion and to the best of our information and according to the explanations given to us, the said accounts give the information required by the Companies Act, 1956 in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India. a) In the case of the Balance sheet, of the state of affairs of the Company as at March, 31, 2005, b) In the case of the Profit and Loss account, of the Loss for the year ended on that date, and c) In the case of the Cash Flow Statement, of the cash flows for the year ended on that date. For VNG NATH ASSOCIATES Chartered Accountants M.S. Gopinath Partner Place : Bangalore Date : 24.06.2005 ANNEXURE TO THE AUDITOR'S REPORT The annexure referred to in paragraph 3 of the Auditor's report to the members of Compudyne Winfosystems limited (the Company) for the year ended March 31, 2005. We report that: Internal Controls 1) In our opinion and according to the information and explanation given to us, there are internal adequate control procedures commensurate with the size of the company and the nature of its business except in certain functional areas such as monitoring and timely recovery of dues to the company, monitoring physical existence and exercising control over assets held abroad and expenses incurred at branch offices. The activities of the company do not involve the sale of goods. 2) There was no internal audit during the year under report. Fixed Assets 3) The company has maintained proper records of fixed assets held in India showing particulars including quantitative details and their location. Records showing particulars of assets held abroad do not indicate the exact location of such assets. 4) Fixed Assets are physically verified in accordance with the company's policy of conducting such verification at a reasonable interval of once in two year and keeping in line with the policy, the fixed assets have not been verified during the year in the absence of which material discrepancy, if any, are not ascertained. 5) In our, opinion and according cc the information and explanation given to us, a substantial part of the fixed assets have not been disposed-off by the company during the year. However we are unable to comment on assets held abroad as to the company's control over the same and their usage. Work In process 6) In the absence of age wise arid category wise analysis of items under Work-in-process, value of non-recoverable and non-marketable items, if any, included therein cannot be commented upon as to adequacy of valuation of the same. Loans and Advances 7) The Company has not taken any loans, secured or unsecured, from companies, firms other parties listed in the register maintained under Section 301 of the Companies Act, 1956, except a sum of Rs. 13,51,201/- accepted during the year from the Chairman and Managing Director of the company. 8) The company has not granted any loans, secured or unsecured, to companies, firms or other parties listed in the register maintained under Section 370 (1B) of the Companies Act 1956. 9) During the year, loans or advances in the nature of loans have been given only to staff members and in few cases, recoveries are pending since the concerned employees have left the company. 10) Payment of principle and interest in respect of term loans are not regular. Transactions with parties under Section 301 of the Companies Act, 1956 11) There have been no transactions for purchase of goods and materials, sale of goods materials made in pursuance of contracts or arrangements entered in the register maintained under section 301 of the Companies Act, 1956, which aggregated during the year to Rs 5,00,000/- or more in respect of each party. Fixed Deposits 12) In our opinion and according to the information and explanations given to us, the company has not complied with the provisions of Section 58A and Section 58AA of the Companies Act, 1956 and the Companies (Acceptance of Deposits) Rules 1975 with regard to the deposits accepted from the public, shareholders. Details of matured deposits and interest accrued thereon is not ascertainable since fixed deposits register is not available for verification. Cost Records 13) The Central Government has not prescribed maintenance of Cost records under section 209 (1) (d) of the Companies Act 1956. Staff related matters 14) The company is not regular in depositing the provident fund and employees state insurance fund dues with the concerned authorities. The extent of arrears as at the end of the year for a period exceeding six month from the date they became payable is Rs. 8,13,215/- in case of Provident Fund and Rs. 2,89,581/- in case of Profession Tax. Further, the company has not remitted income-tax deducted at source of Rs. 12,94,378/- and sales tax of Rs. 3,15,213/- both shown under 'Current Liabilities - Other Outstanding Liabilities'. Others 15) Accumulated losses of the company at the end of the year are more than fifty per cent of its net worth and the company has incurred loss in this financial year and also in the financial year immediately preceding this financial year. 16) The company has defaulted in repayments to financial institutions and banks, the details of which are as below: Bank particulars Type of facility Amount due 1. Canara Bank Packing credit Rs. 2,47,53,000 Temporary overdraft Rs. 16,01,891 2. State Bank of India Term Loan Rs. 3,63,72,069 Packing Credit Rs. 13,51,82,809 3. EXIM Bank Term loan US $19,20,529-64 17) The company has not availed any term loans over and above those existed at the beginning of this year. 18) The company has not given any guarantee for loans taken by others from banks or other financial institutions. 19) Funds raised during the year on short-term basis have not been used by the company for long-term investment and vice versa. 20) In the absence of any information about any fraud on or by the company, noticed or reported during the year, we have nothing to comment on the same. 21) The company has not made any preferential allotment of shares during the year to parties and companies covered in the register maintained under section 301 of the Companies Act, 1956. For VNG NATH ASSOCIATES Chartered Accountants M.S. Gopinath Partner Place : Bangalore Date : 24.06.2005 Management's Reply to Auditors Report: Para 3 (a & b) The balances under Sundry Debtors, Sundry Creditors and Loans & Advances as also Branch balances are under reconciliation. Para 3 (c) The Employees left the services abruptly without notice. In the absence of details for attendance etc salary could not be claimed, further any liability created towards salary (though not paid), would become taxable in the hands of the employees. However some employees have taken advance. Para 3 (e) The products developed for the specific contracts, Demos, Prototypes etc. are usable developed tools for executing future Projects with minor changes. These are also capable of being marketed for Demos, Corporate Presentation, Value addition of contracted product etc. Therefore there are no unusable WIP in-house projects. Para 3 (h) The sum of US $ 2.98 million was used on on-site works for which SOFTEX forms need not be submitted (though submitted inadvertently). The Statutory Auditors have certified accordingly. A letter in this regard has been sent to STPI, Bangalore on 24.06.2005. Para 5 The Company is under severe financial crunch. Due to this, deposits could not be repaid. However all steps will be taken by the Company to secure the depositor's interest.