DIAMOND AGRO INDUSTRIES LIMITED ANNUAL REPORT 2003-2004 AUDITORS' REPORT 1. We have audited the attached Balance Sheet of DIAMOND AGRO INDUSTRIES LTD. as at March 31, 2004 and also the Profit and Loss Account and also the (cash flow statements) for the year ended on that date annexed thereto. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. 2. 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 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 over all financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3. As requited 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 3 a statement on the matters specified in paragraphs 4 and 5 of the said Order. 4. Further to our comments in the Annexure referred to above, 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 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 appears from our examination of those books (and proper returns adequate for the purposes of our audit have been received from the branches not visited by us. The Branch Auditor's Report(s) have been forwarded to us and have been appropriately dealt with); (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 cash flow statement dealt with by this report company with the accounting standards referred to in sub-section (3c) of section 211 of the companies Act, 1956; (e) On the basis of written representations received from the directors, as on 31st March, 2004 and taken on record by the Board of Directors, We report that none of the Director is disqualified as on 31st March 2004 from being appointed as a director in terms of clause (g) of subsection (1) of section 274 of the Companies Act, 1956; (f) 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 manners so required and give a true and fair views 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, 2004; (ii) in the case of Profit and Loss Account, for the year;ended on the Date; and (iii) in the case of the cash flow statement, of the cash flows for the year ended on that date. For Kapil Kumar & CO. Chartered Accountants Date : 30/6/2004 KAPIL KUMAR Place : Chandigarh (Partner) ANNEXURE TO THE AUDITORS' REPORT REFERRED TO IN PARAGRAPH 3 OF OUR REPORT OF EVEN DATE 1. (a) The Company has maintained proper records showing full particulars including quantitative details and situation of fixed assets. (b) All the assets have not been physically verified by the management during the year but there is a regular programme of verification which, in our opinion, is reasonable having regard to the size of the company and the nature of its assets. No material discrepancies were noticed on such verification. (c) During the year Company has sold Solvent extraction Plant along with Land & Building on which the plant was installed, as approved by BIFR vide Order dated 13.03.2003. According to the information and explanations given to us, we are of the opinion that tile sale of the said part of Land & Building and plant & machinery has not affected the going concern status of the company. 2.(a) The inventory has been physically verified during the year by the management. In our opinion, the frequency of verification is reasonable. (b) The procedures of physical verification of inventories 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 is maintaining proper records of inventory. The discrepancies. noticed on verification between the physical stocks and the book records were not material. 3.(a) The company had taken loan from four companies, firms or other parties covered in the register maintained under section 301 of the companies Act, 1956. The maximum amount involved during the year was 18.02 Lacs and the year-end balance of loans taken from such parties was Rs. 18.02 Lacs. No Loans have been given to the Companies, firms or other parties listed in the register maintained U/s 301 of the Companies Act, 1956. (b) In our opinion, the rate of interest and the other terms and conditions on which loans have been taken from firms or other parties listed in the register maintained under section 301 of the Companies Act, 1956 are not, prima facie, prejudicial to the interest of the company. (c) The company is regular in repaying the principal amounts as stipulated and has been regular in the payment of interest. The parties have repaid the principal amounts as stipulated and have been regular in the payment of interest. (d) There is no overdue amount of loans taken from companies, firms or other parties listed in the register maintained under section 301 of the Companies Act, 1956. 4. In our opinion and according to the information and explanations given to us,there are adequate internal control procedures commensurate with the size of the company and the nature of its business with regard to purchases of inventory, fixed assets and the regard to the sale if goods. During the course of our audit, we have note observed any continuing failure to correct major weaknesses in internal controls. 5. According to the information and explanations given to us, There are no transactions that need to be entered into the register maintained under section 301 of the Companies Act, 1956. 6. In our opinion and according to the information and explanations given to us, the Company has complied with the provisions of section 58A and 58AA of the Companies Act, 1956 and the Companies (Acceptance of Deposits) Rules, 1975 with regard to the deposits accepted from the public. No order has been passed by the Company Law Board. 7. In our opinion, the company has an internal audit system commensurate with the size and nature of its business. 8. We have broadly reviewed the books of account relating to materials, labour and other items of cost maintained by the company pursuant to the rules made by the Central Government for the maintenance of cost records under section 209 (1) (d) of the Companies Act, 1956 and we are of the opinion that prima facie the prescribed accounts and records have been made and maintained. 9.(a) The company is depositing with appropriate authorities undisputed statutory dues including investor education protection fund, employees' state insurance, income tax, sales tax, wealth tax, custom duty, excise duty, cess and other material statutory dues applicable to it, except provident fund which has been deposited with a delay of 2 to 3 months. However there are no dues outstanding for more than six months old. (b) According to the information and explanations given to us, no undisputed amounts payable in respect of income tax, wealth tax, sales tax, customs duty, excise duty and cess were in arrears, as at 31.03.2004 for a period of more than six months from the date they became payable. (c) According to the information and explanations given to us, there are no dues of sale tax, income tax, customs duty, wealth tax, excise duty and cess which have not been deposited on account of any dispute. 10. In our opinion, the accumulated losses of the company are more than fifty percent of its net worth. The company has incurred cash losses during the financial year covered by our audit and the immediately preceding financial year. 11. The Company has availed Term loan from IFCI the repayment of which along with Interest was in default, and the Company has made an OTS as per BIFR Orders dated 13.03.2003, As per BIFR Orders the Balance OTS amout of Rs.345.00 Lacs was to be repaid in six quarterly installments starting from 24.01.2003 along with Interest PLR, However Principal amount outstanding towards IFCI as on 31.03.2004 is Rs.16845629/- out of which a Sum of Rs.11095629/- is in default and a Sum of Rs.646231/- on account of Interest on Bridge Loan against subsidy from PSIDC Chandigarh is in default. 12. No loans and advances on the basis of security by way off pledge of shares, debentures and other securities has been granted. 13. In our opinion, the company is not a chit fund or a nidhi/mutual benefit fund/ society. Therefore, the provisions of clause 4(Xiii) of the Companies (Auditor's Report) Order, 2003 are not applicable to the company. 14. In our opinion, the company is not dealing in or trading in shares, securities, debentures and other investments. Accordingly, the provisions of clause 4(XiV) of the Companies (Auditor's Report) Order, 2003 are not applicable to the company. 15. No guarantees have been given for loans taken by others from banks or financial institutions. 16. In our opinion the term loans have been applied for the purpose for which they were raised. 17. According to the information and explanations given to us and on an overall examination of the balance sheet of the company, we report that the no funds raised on short-term basis have been used for long-term investment. No long-term funds have boon used to finance short-term assets except permanent working capital. 18. No preferential allotment of shares to parties and companies covered in the register maintained under section 301 of the Act has been made. 19. The Company has not issued any debentures. 20. We have verified the end use of money raised by public issues as disclosed in the notes to the financial statements. 21. According to the information and explanations given to us, no fraud on or by the company has been noticed or reported during the course of our audit. For Kapil Kumar & CO. Chartered Accountants Date : 30/6/2004 KAPIL KUMAR Place : Chandigarh (Partner)