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MIC Electronics Ltd.

BSE: 532850 Sector: Engineering
NSE: MIC ISIN Code: INE287C01029
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OPEN 0.58
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VOLUME 8803
52-Week high 1.52
52-Week low 0.49
P/E
Mkt Cap.(Rs cr) 12
Buy Price 0.58
Buy Qty 1000.00
Sell Price 0.56
Sell Qty 4004.00

MIC Electronics Ltd. (MIC) - Auditors Report

Company auditors report

INDEPENDENT AUDITOR’S REPORT ON STANDALONE FINANCIAL STATEMENTS

To

The Members of

MIC Electronics Limited

1. Corporate Insolvency Proceedings as per Insolvency and Bankruptcy Code 2016 (IBC) :

The Hon’ble National Company Law Tribunal Hyderabad Bench ("NCLT") on13th March 2018 admitted an insolvency and bankruptcy petition filed by afinancial creditor against MIC Electronics Limited ("the Company") and appointedMr. N. Prabhakar to act as Interim Resolution Professional (IRP) with direction toinitiate appropriate action contemplated with extent provisions of the Insolvency andBankruptcy Code 2016 and other related rules. Mr N. Prabhakar was subsequently confirmedby the Committee of Creditors (CoC) as the Resolutional Professional (RP).

2. Report on the Standalone Financial Statements :

We have audited the accompanying Ind AS standalone financial statements of MICElectronics Limited("the Company") having registered office at A4 ElectronicComplex Kushaiguda Hyderabad –500 062 which comprise the Balance Sheet as at 31March 2018 the Statement of Profit and Loss including other comprehensive income theCash Flow Statement Statement of changes in equity and a summary of the significantaccounting policies and other explanatory information for the year then ended.

3. Management’s Responsibility for the Ind AS Financial Statements :

The Company’s Board of Directors is responsible for the matters stated in Section134(5) of the Companies Act2013 ("the Act") with respect to the preparation andpresentation of these standalone financial statements that give a true and fair view ofthe financial position financial performance (including other comprehensive income) cashflows and changes in equity of the Company in accordance with the accounting principlesgenerally accepted in India including the Indian Accounting Standards specified underSection 133 of the Act read with relevant Rules issued thereunder. This responsibilityalso includes maintenance of adequate accounting records in accordance with the provisionsof the

Act for safeguarding the assets of the Company and for preventing and detecting fraudsand other irregularities; selection and application of appropriate accounting policies;making judgments and estimates that are reasonable and prudent; and design implementationand maintenance of adequate internal financial controls that were operating effectivelyfor ensuring the accuracy and completeness of the accounting records relevant to thepreparation and presentation of the financial statements that give a true and fair viewand are free from material misstatement whether due to fraud or error. Pursuant toongoing Corporate Insolvency Resolution Process (CIRP) powers of the board of Directorshave been suspended and these Powers are now vested with Resolution Professional (RP).

4. Auditors’ Responsibility:

Our responsibility is to express an opinion on these standalone financial statementsbased on our audit. We have taken into account the provisions of the Act the accountingand auditing standards and matters which are required to be included in the audit reportunder the provisions of the Act and the Rules made there under. We conducted our audit ofthe standalone financial statements in accordance with the Standards on Auditing specifiedunder Section 143(10) of the Act. Those Standards require that we comply with ethicalrequirements and plan and perform the audit to obtain reasonable assurance about whetherthe standalone financial statements are free from material misstatement. An audit involvesperforming procedures to obtain audit evidence about the amounts and the disclosures inthe standalone financial statements. The procedures selected depend on the auditor’sjudgment including the assessment of the risks of material misstatement of the standalonefinancial statements whether due to fraud or error. In making those risk assessments theauditor considers internal financial control relevant to the Company’s preparation ofthe standalone financial statements that give a true and fair view in order to designaudit procedures that are appropriate in the circumstances. An audit also includesevaluating the appropriateness of the accounting policies used and the reasonableness ofthe accounting estimates made by the Company’s Directors as well as evaluating theoverall presentation of the standalone financial statements.

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

5. Basis for Qualified opinion :

We refer to following notes to standalone financial statements.

(a) Note 3.46 of the standalone financial statements in respect of preparation offinancial statements of the Company on going concern basis. During the year the Companyhas incurred a Net Loss of Rs.190.75 crores resulting into accumulated losses of Rs.127.99crores and erosion of its Net worth as at 31st March 2018. The Company hasobligations towards fund based borrowings aggregating to Rs.182.14 crores operationalcreditors and statutory dues subject to reconciliation/verification that have beendemanded/recalled by the financial/operating creditors pursuant to ongoing CorporateInsolvency Resolution Process (CIRP). These conditions indicate the existence of amaterial uncertainty that may cast significant doubt on the Company’s ability tocontinue as going concern and therefore the Company may be unable to realize its assetsand discharge its liabilities in the normal course of business. The ultimate outcome ofthese matters is at present not ascertainable.

(b) Note 3.47 to the standalone financial statements in connection with tradereceivables security deposits loans and advances other financial and current assetsaggregating to Rs.48.85 crores. There is existence of material uncertainties over therealisability of these amounts due to various factors such as disputes age of theseassets etc. Had the aforesaid assets been provided for impairment loss after tax for theyear ended 31st March 2018 would have been higher by the said provision andother equity would have been lower by the said provision.

(c) Note 3.48 to the standalone financial statements in respect of various claimssubmitted by financial creditors operational creditors workman or employee or authorizedrepresentative of workman or employees to Resolution Professional pursuing to IBC that arecurrently under consideration / reconciliation. Pending final reconciliation / admissionof such claims by RP and NCLT we are unable to comment on the consequential impact ifany on these financial statements.

(d) Note 3.49 of the standalone financial statements in respect of non availability ofconfirmation of various trade receivables trade payables etc. In absence of alternativecorroborative evidence we are unable to comment to the extent to which such balances arerecoverable.

(e) Note 3.50 of the standalone financial statements in respect of physicalverification reports of fixed assets aggregating to Rs.91.62 crores as at 31st March 2018.The management is still in the process of reconciliation of quantities as per verificationreports with fixed assets records. Pending such reconciliation physical verification andin the absence of any alternative collaborative evidence we are unable to comment ifthere is any provision for impairment that is required to be made. However physicalverification of inventory has been made by a registered valuer and the net realizablevalue of inventories has been taken in the books.

(f) Note 3.51 of the standalone financial statements in respect of application forextension of time with SEBI by the company for another six months (i.e. upto 14.02.2018)for converting 30000000 share warrants given to M/s.Leyard Hongkong Co. Ltd. intoequity shares . However no extension has been granted by SEBI till date. We are of theopinion that the company should have forfeited the share warrants application money for anamount of Rs.18.76 crores since six months time for extension of time has been elapsed andno approval has been granted by SEBI.

Had the company forfeited these amounts the share warrants application money wouldhave been squared off and the share forfeiture account would have been increased by thesaid amount.

(g) Note 3.52 of the standalone financial statements in respect of non provision ofliability of the company of Rs.84.28 Crores in respect of some parties relating toborrowings upto 31.03.2018 as per the claims submitted by the parties to ResolutionProfessional since the matter is in litigation / settlement as per the explanationsprovided by the management. Had the company made a provision for the same the loss aftertax for the year ended 31st March 2018 would have been higher by the saidamount and other equity would have been lower by the said amount.

(h) Note 3.53 of the standalone financial statements in respect of non provision ofinterest expense of

Rs.7.94 crores on operational creditors upto 31.03.2018 as per the claims submitted bythe parties to the resolution professional since the company is in the process of pursuingthe matter for settlement. Had the company made a provision for the same the loss aftertax for the year ended 31st March 2018 would have been higher by the saidamount and other equity would have been lower by the said amount.

(i) Note 3.54 of the standalone financial statements in respect of non provision ofliability against corporate guarantees issued to Andhra bank and Axis Bank Limited onbehalf of M/s.Maave Electronics Pvt Ltd and M/s.Hyperion Green Energy India Pvt Ltd whichhave been invoked by banks but not acknowledged as debt by the company as the saidcompanies are no longer related to MIC Electronics Limited. The total liability notacknowledged is Rs.8.76 crores as per the claims submitted by the said banks to ResolutionProfessional. Had the company made a provision for the same the loss after tax for theyear ended 31st March 2018 would have been higher by the said amount and otherequity would have been lower by the said amount.

6. Qualified Opinion:

In our opinion and to the best of our information and according to the explanationsgiven to us except of the effects of the matters described in para 5(g) 5(h) 5(i) (i.ehad our observation been considered the total comprehensive loss for the period would havebeen Rs.(291.74) crores other equity would have been Rs.(228.97) crores and Earning pershare for the period would have been Rs.(13.25) and possible effects of the mattersdescribed in para 5(a) 5(b) 5(c) 5(d) 5(e) & 5(f) in the basis for qualifiedopinion the aforesaid standalone financial statements give the information required bythe Act in the manner so required and give a true and fair view in conformity with theaccounting principles generally accepted in India of the state of affairs of the Companyas at March 31 2018 and its losses (including comprehensive income) its cash flows andthe changes in equity for the year ended on that date.

7. Emphasis of matters:

Attention is invited to:

(a) Note 3.55 of the standalone financial statements in respect of the claim receivedfrom Income tax regarding TDS arrears of Rs.5.32 crores. However as per company’srecords only Rs.3.55 crores is liable towards TDS Interest & penalty and an amountof Rs.1.77 crores is not liable and details have been provided to the IT Department byResolution Professional.

(b) Note 3.56 of the standalone financial statements in respect of the claim receivedfor VAT/CST by the Telangana commercial taxes department for Rs.2.15 crores. However thecompany has provided only Rs.0.93 crores in the financials of the company. Areconciliation statement has been provided to the Commercial tax department by theResolution Professional.

(c) Note 3.03 and 3.04 of the standalone financial statements in respect of investmentsand loans and advances to MIC Electronics Inc USA (related party) against which aprovision for impairment has been made for Rs.2.27 crores and Rs.5.27 crores respectively.However no necessary forms/ intimations have been made to RBI in respect of mattersrelating to the investment and impairment.

Our report is not qualified in respect of these matters.

8. Other Matters :

We did not audit the separate financial statements of two subsidiary companies includedin the standalone financial statements out of which one of the companies financialresults have not been subjected to audit.

According to the information and explanations given to us by the Management thesefinancial statements /financials information in aggregate are not material to theCompany. Hence we are unable to comment on the consequential impact if any on thefinancial statements.

9. Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor’s Report) Order 2016 ("theOrder") as amended issued by the Central Government of India in terms of section143 (11) of the Act we give in the "Annexure A" a statement on the mattersspecified in paragraphs 3 and 4 of the Order.

2. As required by section 143 (3) of the Act we report that:

a. Except of the matters as described in the "Basis for qualified opinion"paragraph we sought and obtained all the information and explanations which to the bestof our knowledge and belief were necessary for the purpose of our audit.

b. Except for the effects / possible effects of the matters described in the"Basis for qualified opinion" paragraph in our opinion proper books of accountas required by law have been kept by the Company so far as it appears from our examinationof those books.

c. The Balance Sheet the Statement of Profit and Loss (including other comprehensiveincome) the Cash Flow Statement and the statement of changes in equity dealt with bythis Report are in agreement with the books of account.

d. In our opinion due to the matters described in the "Basis for qualifiedopinion" paragraph the aforesaid standalone financial statements do not comply withthe Accounting Standards prescribed under section 133 of the Act as applicable;

e. The matter described in the "Basis for qualified opinion" and emphasis ofmatters paragraph above may have an adverse effect on the functioning of the Company.

f. In the term of section 17 (1) (b) of the Insolvency and Bankruptcy Code 2016("the Code") the powers of the board of directors have been suspended and beexercised by the interim resolution professional. Hence written representation fromdirectors have not been taken on record by the Board of Directors. Accordingly we areunable to comment whether none of the director is disqualified as on March 31 2018 frombeing appointed as a director in the terms of Section 164 (2) of the Act.

g. The qualification relating to the maintenance of accounts and other mattersconnected therewith are as stated in the "Basis for qualified opinion" paragraphabove;

h. With respect to the adequacy of the internal financial controls over financialreporting of the

Company and the operating effectiveness of such controls refer to our separate Reportin "Annexure B". Our report expresses a disclaimer of opinion on theCompany’s internal financial controls over financial reporting. i. With respect tothe other matters to be included in the Auditor’s Report in accordance with Rule 11of the Companies (Audit and Auditors) Rules 2014 in our opinion and to the best of ourinformation and according to the information and explanations given to us:

i. The company has disclosed the impact of pending litigations on its financialposition to the extent ascertained in its standalone financial statements;

ii. Except for the effect/possible effects of the matters described under "Basisfor qualified opinion" paragraph the company has made provision as required underthe applicable law or accounting standards for material foreseeable losses if any onlong-term contracts. The company did not have any derivative contracts;

iii. There were no amounts which were required to be transferred to the InvestorEducation and Protection Fund by the Company during the year ended March 31 2018;

For PAVULURI&Co.
Chartered Accountants
Firm Reg. No:012194S
(CA N. N. RAJESH)
Place: Hyderabad PARTNER
Date: 11.07.2018 M.No : 223169

"Annexure A" to the Independent Auditors’ Report

Referred to in paragraph 1 under the heading ‘Report on Other Legal &Regulatory Requirement’ of our report of even date to the financial statements of theCompany for the year ended March 31 2018:

1) (a) Subject to our comments in para 1 (b) below the Company has maintained properrecords showing full particulars including quantitative details and situation of fixedassets;

(b) According to the information and explanation given to us the Fixed Assets havebeen physically verified by the management in a phased manner designed to cover all theitems over a period of three years which in our opinion is reasonable having regard tothe size of the company and nature of its business. However the management is still inthe process of reconciliation of quantities as per verification reports with fixed assetsrecords. Pending such reconciliation and physical verification we are unable to commenton the reasonableness of the physical verification programme and discrepancies that mayarise on such reconciliation and physical verification of fixed assets.

(c) According to the information and explanation given to us title deeds of immovableproperties have been mortgaged as securities with lenders i.e. banks financialinstitutions and others for security of the borrowings raised by the company. On the basisof examination of records of the company and the copies of the title deeds available withthe company the title deeds of immovable properties are held in the name of the company.

2) (a) According to the information and explanation given to us the management hasconducted the physical verification of inventory at reasonable intervals. Physicalverification of inventory has also been made by a registered valuer and the net realizablevalue of inventories has been taken in the books.

(b) According to the information and explanation given to us the discrepancies noticedon physical verification of the inventory as compared to book records have been properlydealt with in the books of account and were material.

3) The Company has granted interest free unsecured loan to a company covered in theRegister maintained under section 189 of the Act in respect of such loans ;

(a) In our opinion the loan of Rs.35900/- is not material and the terms andconditions and the schedule of repayment is not stipulated and considered by the companyas repayable on demand.

(b) The company has made provision of doubtful loans and advances on this amount andthe recovery of this amount is doubtful.

4) In our opinion and according to the information and explanations given to us thecompany has complied with the provisions of section 185 and 186 of the Companies Act 2013in respect of loans investments guarantees and security.

5) The Company has not accepted any deposits from the public and hence the directivesissued by the Reserve Bank of India and the provisions of Sections 73 to 76 or any otherrelevant provisions of the Act and the Companies (Acceptance of Deposit) Rules 2015 withregard to the deposits accepted from the public are not applicable.

6) We have broadly reviewed the cost records maintained by the company pursuant to therules made by the Central Government under sub-section (1) of Section 148 of the Act andare of the opinion that prima facie the prescribed accounts and records have been madeand maintained. We have however not made a detailed examination of these records with aview to determining whether they are accurate or complete.

7) (a) According to information and explanations given to us and on the basis of ourexamination of the books of account and records the Company has not been regular indepositing undisputed statutory dues including Provident Fund Employees State InsuranceIncome-Tax Sales tax Service Tax Duty of Customs Duty of Excise Value added Tax Cessand any other statutory dues with the appropriate authorities. There have been significantdelays in a large number of cases in depositing these dues with the appropriateauthorities. According to the information and explanations given to us and records of thecompany examined by us the following are the undisputed amounts payable in respect ofProvident Fund Income Tax Wealth Tax Service Tax Sales Tax Duty of Customs ExciseDuty Value added tax and Other material statutory dues were in arrears as at March 312018 for a period of more than six months from the date they became payable.

Name of the statue Nature of the dues Amount Period to which the amount relates Due date date of pay ment
Finance Act 1994 Service Tax 10092802 From 2011 onwards Various dates Nil
Employees Provident Fund & Miscellaneous provisions act 1952 Provident Fund 19121255 From 2009 onwards Various dates Nil
Employees State Insurance Employee State
Act 1948 Insurance 2838459 From 2011 onwards Various dates Nil
APPT Act 1987 Professional Tax 1413660 From 2011 onwards Various dates Nil
Income Tax Act 1961 TDS 20178428 From 2012 onwards Various dates Nil
AP Valuse Added Tax Act 2005 VAT 15915916 From 2015 onwards Various dates Nil
Goods and services Tax Act GST 25140 From 2017 onwards Various dates Nil
The Central Sales Tax Act 1956 CST 10777639 From 2013 onwards Various dates Nil
T.S. Municipalities Act 1965 Property Tax 5984774 From 2013 onwards Various dates Nil
Income Tax Act 1961 Income Tax 6897374 From 2017 onwards Various dates Nil

(b) According to the information and explanations given to us and records of thecompany examined by us the following are disputed dues relating to Wealth tax Duty ofCustoms and Cess which have not been deposited with the appropriate authorities on accountof any dispute.

Name of the Statue Nature of the Dispute Amount (Rs) Period to which the amounts Forum where the dispute is pending and amount deposited relate (F.Y)
Central Excise Act 1944 Excise Duty 3896982/- 2008-2009 Customs Excise & Service Tax Appelate tribunal south zonal bench Bangalore vide appeal no.C/2303 of 2010. Amt. deposited : Rs.2896982/-
Customs Act 1962 Customs Duty 1801111/- 2008-2009 O/o. The Commissioner of Customs Central Excise and Service Tax Hyderabad III Commissionerate vide Appeal No.C/2302 of 2010.
The A.P.VAT Act 2005 APVAT 840705/- 2008-2009 Appelate Deputy Commissioner (CT) Secunderabad Division vide Appeal No.S/ 23/09-10/V. Amt. deposited :Rs. 840705/-
The A.P.VAT Act 2005 APVAT 545677/- 2007-2008 Appelate Deputy Commissioner (CT) Secunderabad Division. Amt. deposited : Rs.545677/-
The A.P.VAT Act 2005 APVAT 1809145/- 2005-2006 WP No.14764/2009 filed with High Court AP. Amt. deposited : Rs.1809145/-

8) As matters described in note 3.14 3.16 and 3.18 to the financial statements andpursuance of repayment schedule stipulated in the sanction letter the entire amount ofborrowing including interest are overdue and continuing default as on 31stMarch 2018 therefore we are unable to provide periods of default. Details of defaults inrepayment of borrowings including interest are given below as per the books of accounts ofthe company.

Sl. No. Name of the bank/institution Amount of default (Rs.)
1. UCO Bank 153183988
2. Technology Development Board 273800664
3. State Bank of India 998884007
4. Srei Equipment Finance Ltd 115430151
5. Reliance Capital Limited 35102000

However though the below amounts are admitted by the Resolution Professional as partof CIRP the company has not made a provision for these amounts in respect of the belowfinancial institutions.

Sl. No. Name of the bank/institution Amount of default not provided in the books (Rs.)
1. Srei Equipment Finance Ltd 321454641
2. Reliance Capital Limited 513741645

9) Based upon the audit procedures performed and the information and explanations givenby the management the company has not raised moneys by way of initial public offer orfurther public offer including debt instruments and term Loans. Accordingly theprovisions of clause 3 (ix) of the Order are not applicable to the Company and hence notcommented upon.

10) Based upon the audit procedures performed and the information and explanationsgiven by the management we report that no fraud by the Company or on the company by itsofficers or employees has been noticed or reported during the year.

11) Based upon the audit procedures performed and the information and explanationsgiven by the management the managerial remuneration has been paid or provided inaccordance with the requisite approvals mandated by the provisions of section 197 readwith Schedule V to the Companies Act;

12) In our opinion and according to the information and explanation given to us theCompany is not a Nidhi Company. Therefore the provisions of clause 4 (xii) of the Orderare not applicable to the Company.

13) In our opinion all transactions with the related parties are in compliance withsection 177 and 188 of Companies Act 2013 and the details have been disclosed in theFinancial Statements as required by the applicable accounting standards.

14) Based upon the audit procedures performed and the information and explanationsgiven by the management the company has not made preferential allotment or privateplacement of shares during the year under review according to the requirement of Sec 42 ofthe Companies Act 2013 and the amount raised have been used for the purposes for which thefunds were raised.

15) Based upon the audit procedures performed and the information and explanationsgiven by the management the company has not entered into any non-cash transactions withdirectors or persons connected with him. Accordingly the provisions of clause 3 (xv) ofthe Order are not applicable to the Company and hence not commented upon.

16) In our opinion the company is not required to be registered under section 45 IA ofthe Reserve Bank of India Act 1934 and accordingly the provisions of clause 3 (xvi) ofthe Order are not applicable to the Company and hence not commented upon.

For PAVULURI & Co.
Chartered Accountants
Firm Reg. No:012194S
Sd/-
(CA N. RAJESH)
Place : Hyderabad PARTNER
Date : 11/07/2018 M.No : 223169
49

"Annexure B" to the Independent Auditor’s Report of even date on theStandalone Financial Statements of MIC ELECTRONICS LIMITED

Report on the Internal Financial Controls under Clause (i) of Sub-section 3 of Section143 of the Companies Act 2013 ("the Act")

We have audited the internal financial controls over financial reporting of MICELECTRONICS LIMITED("the Company") as of March 31 2018 in conjunction with ouraudit of the standalone financial statements of the Company for the year ended on thatdate.

Management’s Responsibility for Internal Financial Controls

The Company’s management is responsible for establishing and maintaining internalfinancial controls based on "the internal control over financial reporting criteriaestablished by the Company considering the essential components of internal control statedin the Guidance Note on Audit of Internal Financial Controls over Financial Reportingissued by the Institute of Chartered Accountants of India". These responsibilitiesinclude the design implementation and maintenance of adequate internal financial controlsthat were operating effectively for ensuring the orderly and efficient conduct of itsbusiness including adherence to company’s policies the safeguarding of its assetsthe prevention and detection of frauds and errors the accuracy and completeness of theaccounting records and the timely preparation of reliable financial information asrequired under the Companies Act 2013.

Auditors’ Responsibility

Our responsibility is to express an opinion on the Company’s internal financialcontrols over financial reporting based on our audit. We conducted our audit in accordancewith the Guidance. Note on Audit of Internal Financial Controls Over Financial Reporting(the "Guidance Note") and the Standards on Auditing issued by ICAI and deemedto be prescribed under section 143(10) of the Companies Act 2013 to the extentapplicable to an audit of internal financial controls both applicable to an audit ofInternal Financial Controls and both issued by the Institute of Chartered Accountants ofIndia. Those Standards and the Guidance Note require that we comply with ethicalrequirements and plan and perform the audit to obtain reasonable assurance about whetheradequate internal financial controls over financial reporting was established andmaintained and if such controls operated effectively in all material respects.

Our audit involves performing procedures to obtain audit evidence about the adequacy ofthe internal financial controls system over financial reporting and their operatingeffectiveness. Our audit of internal financial controls over financial reporting includedobtaining an understanding of internal financial controls over financial reportingassessing the risk that a material weakness exists and testing and evaluating the designand operating effectiveness of internal control based on the assessed risk. The proceduresselected depend on the auditor’s judgment including the assessment of the risks ofmaterial misstatement of the financial statements whether due to fraud or error.

We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion on the Company’s internal financial controlssystem over financial reporting.

Meaning of Internal Financial Controls over Financial Reporting

A company’s internal financial controls over financial reporting is a processdesigned to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles. A company’s internal financial control overfinancial reporting includes those policies and procedures that (1) pertain to themaintenance of records that in reasonable detail accurately and fairly reflect thetransactions and dispositions of the assets of the company; (2) provide reasonableassurance that transactions are recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles and that receiptsand expenditures of the company are being made only in accordance with authorisations ofmanagement and directors of the company; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorised acquisition use or disposition of thecompany’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 financialreporting including the possibility of collusion or improper management override ofcontrols material misstatements due to error or fraud may occur and not be detected.Also projections of any evaluation of the internal financial controls over financialreporting to future periods are subject to the risk that the internal financial controlover financial reporting may become inadequate because of changes in conditions or thatthe degree of compliance with the policies or procedures may deteriorate.

Basis for Disclaimer of Opinion

According to the information and explanation given to us the Company is still in theprocess of establishing internal financial controls over financial reporting on criteriabased on or considering the essential components of internal controls stated in theGuidance Note on Audit of Internal Financial Controls over Financial Reporting issued bythe Institute of Chartered Accountants of India. Further the company did not have properinternal audit system during the year commensurate with the size of the company and natureof its business.

Disclaimer of Opinion

Because of the significance of matters described in the basis for a disclaimer ofopinion paragraph we are unable to obtain sufficient appropriate audit evidence toprovide a basis for our opinion whether the Company had adequate internal financialcontrols over financial reporting and whether such internal financial controls wereoperating effectively as at March 31 2018.

We have considered the disclaimer reported above in determining the nature timing andextent of audit tests applied in our audit of the financial statements of the Company andthe disclaimer has affected our opinion on the financial statements of the Company and wehave issued qualified opinion on the financial statements.

For PAVULURI & Co.
Chartered Accountants
Firm Reg. No:012194S
Sd/-
(CA N. RAJESH)
Place : Hyderabad PARTNER
Date : 11/07/2018 M.No : 223169