The Company s audited financial statements for the year ended November 30, 2010 are shown in the attached financial statements.

Transcription

1 PIRAMAL HEALTHCARE (CANADA) LIMITED Directors Report FOR THE YEAR ENDED NOVEMBER 30, 2010 The Directors present their report and the audited financial statements of the Company for the year ended November 30, PRINCIPAL ACTIVITIES The Company s principal activity is to develop chemical processes for producing active pharmaceutical ingredients for third parties, as both a service and manufacturing company. The business is broken down into 4 prime areas:- (1) Developing processes at the laboratory level (R&D); (2) Scale up of R&D processes to Kilo Lab, i.e. producing small quantities (Kilo Lab); (3) Scale up of R&D processes to pilot plant, i.e. producing larger quantities. Manufacturing demonstration, validated and repeat manufacturing batches. Product can be used at the pre-clinical, clinical and launched phase (Pilot Plant); (4) Providing analytical services for the above as well as carrying out small third party contracts such as stability studies (analytical services). RESULTS AND DIVIDENDS The Company s audited financial statements for the year ended November 30, 2010 are shown in the attached financial statements. Financial Highlights (Figures in ) Particulars November 30, 2010 November 30, 2009 INR INR Total Sales Income / (Loss) Before Taxes (0.34) (15.83) Income / (Loss ) After Taxes (3.62) (166.66) The after tax loss for the year was 3,621,450 (Rs ) [Previous Year Profit: 208,632 (Rs.9.24 )]. During the year under review, there were key mitigating factors, foremost of which was the rapid and steep decline in the value of the US Dollar versus its Canadian counterpart. Approximately 85% of Piramal Canada s sales are denominated in US dollars, while more than 90% of costs are denominated in Canadian dollars. The directors have not recommended a dividend. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Company has a risk management policy for its operations under which, it monitors and where possible mitigates the risks faced by the business. This includes credit risk, foreign exchange risk and interest rate risks. DIRECTORS The directors who served the company during the period were as follows: 1. Dr. (Mrs.) Swati A. Piramal 2. Mr. M. Cherutti 3. Mr. A. Begin 4. Ms. Nandini Piramal 5. Mr. Wen-Lung

2 Mr. Wen-Lung was appointed as Director of the Company in place of Dr. Veronica Scherrer-Pangka with effect from 5 th July, Your Directors place on record their appreciation for the services rendered by Dr. Veronica Scherrer-Pangka during her tenure on the Board of the Company. The Directors retire at the ensuing Annual General Meeting and are eligible for reappointment. The Company is a wholly owned subsidiary of Piramal Investments Holdings (Canada) Inc., a company incorporated in Canada. None of the Directors hold any shares in the Company. The ultimate parent Company is Piramal Healthcare Limited, a company incorporated in India. EMPLOYEE CONSULTATIONS The Company places considerable value on the involvement of its employees and has continued to keep them informed on matters affecting them as employees and on the various factors affecting the performance of the Company. This is achieved through formal and informal meetings. AUDITORS KNAV P.A. are the Auditors of the Company. They are eligible for reappointment as Auditors at the ensuing AGM. Signed by Order of the Directors Registered Office: 110 Industrial Parkway North PO Box 308 Aurora, Ontario, Canada L4G 3H4 Dr. (Mrs.) Swati Piramal Director Approved by the directors on April 22, 2011.

3 November 30, 2010 and 2009 KNAV P.A. Certified Public Accountants 3731 Lake Pass Lane. Suwanee, GA 30024

4 Table of Contents Auditors Report Notes to financial statements... 11

5 Report of Independent Accountants The Shareholder Piramal Healthcare (Canada) Limited We have audited the accompanying financial statements of Piramal Healthcare (Canada) Limited, ( the Company ) which comprise the balance sheets as at November 30, 2010 and November 30, 2009 and the related statements of operation, retained earnings and cash flows for the year December 01, 2009 to November 30, 2010 and December 01, 2008 to November 30, Management s Responsibility for the Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian Generally Accepted Accounting Principles issued by the Accounting Standards Board of Canada (AcSB). This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatements, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain 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 our 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, we consider 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 Company s internal control. An audit also includes evaluating the appropriateness of accounting principles 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 opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as at November 30, 2010 and November 30, 2009, its financial performance, its changes in net assets and its cash flows for the year December 01, 2009 to November 30, 2010 and December 01, 2008 to November 30, 2009 in accordance with Canadian Generally Accepted Accounting Principles issued by the Accounting Standards Board of Canada (AcSB). Khozema Anajwalla Chartered Accountant- Ontario KNAV P.A. Date: April 22, 2011 Place: Atlanta, Georgia KNAV P.A. Certified Public Accountants L a k e P a s s L a n e, S u w a n e e, G A T F E a d m i k n a v c p a. c o m

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7 Balance sheet ASSETS As At As At November 30,2010 November 30,2009 Current assets Cash and cash equivalents (Refer note D) 2,661, ,409, Accounts receivable, net of allowances (Refer note E) 1,336, ,212, Other receivables 321, , Unbilled revenues 391, , Inventories (Refer note F) 3,761, ,443, Prepaid expenses 245, , Total current assets 8,717, ,071, Due from affiliates (Refer note G) 20,464, ,674, Property, plant and equipment, net (Refer note H) 8,312, ,630, Intangible assets, net (Refer note I) 2,876, Total assets 40,370,621 1, ,376,607 1, LIABILITIES AND EQUITY Current liabilities Accounts payable and accrued liabilities 2,826, ,272, Current portion of long term debt (Refer note J) 2,160, ,410, Customer deposits (Refer note M) , Deferred revenue 314, , ,300, ,555, Long term debt (Refer Note J) - - 2,160, Due to affiliates (Refer Note K) 19,278, ,248, Total liabilities 24,579,294 1, ,963, Stockholders equity Capital stock (Refer note N) 9,031, ,031, Contributed surplus (Refer note A) 7,928, ,928, Retained earnings (1,168,784) (53.79) 2,452, ,791, ,412, Total liabilities and stockholders equity 40,370,621 1, ,376,607 1, (The accompanying notes are an integral part of these financial statements) APPROVED ON BEHALF OF THE BOARD: Dr. (Mrs.) Swati A. Piramal : Director Ms. Nandini Piramal : Director - 7 -

8 Statements of operations Sales Year Ended November 30, 2010 Year Ended November 30, 2009 Research and development contracts 11,052, ,369, Sale of manufactured products 8,135, ,104, Total Sales 19,187, ,474, Cost of materials 3,329, ,405, Gross profit 15,858, ,068, Expenses Salaries and employee benefits 11,590, ,671, Amortization 996, , Maintenance 1,116, , Utilities 1,197, ,181, Selling & general expenditures 3, , Miscellaneous 519, , Travel 662, , Taxes and insurance 417, , Laboratory chemicals, glassware and supplies 1,003, , Professional fees 538, , Communication 140, , Foreign exchange loss/(gain) 84, (31,351) (1.39) 18,270, ,441, Recognition of investment tax credits (Refer note P) (3,388,226) (155.93) (1,788,590) (79.20) Income from operations 975, ,415, Other (income)/expenses Severance cost 418, , Interest expense, net 190, , Risk management activities (Refer note T) , Miscellaneous income (54,374) (2.50) (50,488) (2.24) Write back of provision - - (335,792) (14.87) Loss on sale of property , Write down of investment 764, ,319, , (Loss)/income before income taxes (344,069) (15.83) 1,989, Income taxes ( Refer Note P) 3,277, ,781, Net (loss)/income (3,621,450) (166.66) 208, (The accompanying notes are an integral part of these financial statements) - 8 -

9 Statements of retained earnings Retained earnings as on November 30, ,244, Net income during the year 208, Retained earnings as on November 30, ,452, Net (loss) during the year (3,621,450) (166.66) Retained earnings as on November 30, 2010 (1,168,784) (53.79) (The accompanying notes are an integral part of these financial statements) - 9 -

10 Statements of cash flow For the year ended November 30,2010 For the year ended November 30,2010 Cash flows from operating activities Net (loss)/income (3,621,450) (166.66) 208, Items not affecting cash Amortization 996, , Loss on sale of property and equipments , Unrealized exchange rate fluctuation , (2,625,155) (120.81) 1,386, Change in non-cash operating assets and liabilities (Refer Note O) 1,328, ,009, Net cash (used in)/ provided by operating activities (1,296,545) (59.67) 3,395, Cash flows from investing activities Purchase of property, plant and equipment (2,280,517) (104.95) (455,630) (1.95) Purchase of intangible assets (3,001,000) (138.11) - - Payment from affiliates 210, ,493, Proceeds on disposal of property and equipment Net cash (used in)/ provided by investing activities (5,071,408) (233.39) 1,038, Cash flows from financing activities Repayment of short term loan (2,160,334) (99.42) (3,410,333) (14.60) Payment to affiliates 8,030, Repayment of current portion of bank loan (1,249,999) (57.52) - - Net cash (used in)/provided by financing activities 4,619, (3,410,333) (14.60) (Decrease)/ increase in cash and cash equivalents (1,748,010) (80.44) 1,024, Cash and cash equivalents at the beginning of the year 4,409, ,385, Cash and cash equivalents at the end of the year 2,661, ,409, Supplemental cash flow information Interest expense 190, , (The accompanying notes are an integral part of these financial statements)

11 Notes to financial statements NOTE A - NATURE OF OPERATIONS Piramal Healthcare (Canada) Limited ( PHCL or the Company ) (formerly Torcan Chemical Limited ( Torcan )) was incorporated under the Business Corporations Act of Ontario and was a wholly-owned subsidiary of N.B. Inc. (later known as Canada Inc) which was a wholly owned subsidiary of NPIL Holdings (Canada) Inc. The Company's primary business is to supply pre-clinical, clinical and commercial applications to the pharmaceutical industry. On December 1, 2006, the Company was amalgamated with its parent companies NPIL Holdings (Canada) Inc and Canada Inc. (formerly known as N.B. Inc.). The combined companies continue to operate as PHCL. PHCL is a wholly owned subsidiary of Piramal Investments Holdings (Canada) Inc. The transaction of amalgamation between the related parties has been recorded at the carrying values as reported on each company's respective financial statements as at November 30, As a result of the amalgamation, contributed surplus increased by $7,928,161 (Rs ) representing the stated capital of the amalgamating companies in excess of the stated capital of the new shares issued on amalgamation, net of intercompany shareholding eliminations. The name of the Company has changed from Torcan Chemical Limited to Piramal Healthcare (Canada) Limited with effect from July 25, The change in the name has been authorized by the Board of Directors in their board meeting held on July 25, NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These financial statements are prepared in accordance with Canadian generally accepted accounting principles. The significant policies are detailed below: 1. Basis of presentation a. The financial statements are prepared under Canadian generally accepted accounting principles. All amounts are stated in Canadian dollars, except as otherwise specified. b. The financial statements are for the years ended November 30, 2010 and November 30, Revenue recognition Revenue on research and development contracts is recognized on the basis of percentage of completion method. Revenue recognition under this method is included in unbilled revenue if it is not invoiced by year-end. Provision is made for all anticipated losses as soon as they become evident. Revenues related to materials for resale are recognized as goods are shipped. Billings in advance of work performed are included in deferred revenue. 3. Cash and cash equivalents Cash comprises cash on hand. Term deposits and certificates of deposits with an original term to maturity at purchase of three months or less are reported as cash equivalents on the balance sheet. 4. Inventories Inventories are valued at the lower of cost and net realizable value. Cost is determined using the moving average method

12 5. Provision for doubtful debts The Company follows specific identification method for providing for doubtful debts. Management analyzes accounts receivable and the composition of the accounts receivable ageing, historical bad debts, current economic trends and customer credit worthiness when evaluating the adequacy of the allowance for doubtful accounts. 6. Property, plant and equipment Property plant and equipment are recorded at cost. Amortization is provided over the estimated useful lives using the declining balance method at the following rates: Land improvements 10% Building 10% Laboratory and instrumentation equipment 14% - 20% Furniture and fixtures 20% Motor vehicles 9.5% 7. Intangible assets: The Company s intangible assets comprise of patents acquired in acquisitions and have a finite useful life. The Company regularly evaluates existing intangible assets including estimates of remaining useful lives. Patents are amortized over their estimated economic life on a straight line basis at the following rate: Patents 10% 8. Impairment of long-lived depreciable assets: The Company reviews whether there are any indicators of impairment of its capital assets and identifiable intangible assets ( long-lived depreciable assets ). If such indicators are present, the Company assesses the recoverability of the assets or group of assets by determining whether the carrying value of such assets can be recovered through undiscounted future cash flows. If the sum of undiscounted future cash flows is less than the carrying amount, the excess of the carrying amount over the estimated fair value, based on discounted future cash flows, is recorded as a charge to earnings. 9. Research and development costs The Company expenses all research costs as incurred. Product development costs are expensed in the period incurred unless such costs meet the criteria for deferral under Canadian generally accepted accounting principles. To date, no development costs have been deferred. 10. Government assistance Government assistance in the form of income tax research and development tax credits, earned on qualifying expenditures, is recognized when realized. Income tax investment tax credits related to expensed research and development costs are recorded as a reduction of the related expenditure. Income tax investment tax credits related to property and equipment are accounted for as a reduction in the cost of the related asset. 11. Foreign currency translation Monetary assets and liabilities of the Company which are denominated in foreign currencies are translated at year-end exchange rates. Other assets and liabilities are translated at rates in effect at the date the assets were acquired and liabilities incurred. Revenue and expenses are translated at the rates of exchange prevailing at the closing of the previous month. The resulting gains or losses are included in operations

13 12. Income taxes The Company uses the asset and liability method of accounting for future incomes taxes. Under the asset and liability method, future tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment or substantive enactment. 13. Use of estimates The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the year. Actual results could differ from those estimates. The managements estimates for useful life of the tangible assets, allowance for doubtful debts and realization of deferred tax assets represents certain of the particularly sensitive estimation. NOTE C ACQUISITION OF ASSETS 1. Description of the transactions In June 2010, the Company acquired specific assets of BioSyntech Inc. a Canadian corporation that specialized in the development of advanced bio-therapeutic thermogels specifically designed for tissue repair. BioSyntech Inc. had filed for liquidation under the Bankruptcy and Insolvency Act. Through a Court appointed interim receiver these specific assets were sold to the Company. These assets comprise of the research and development facility (land and building) at Laval, Quebec and patents. 2. Recording of assets acquired and liabilities assumed The following is a summary of the fair values of the assets acquired and liabilities assumed as of the date of the acquisition: Assets acquired Tangible assets: Land Freehold 422, Building Factory 1,327, Intangible assets: Patents 3,001, Fair value of assets acquired 4,751, Liabilities assumed Accounts payable 273, Fair value of liabilities assumed 273, Net assets acquired 4,477,

14 NOTE D - CASH AND CASH EQUIVALENTS Cash in hand Cash in hand- foreign currency - - 1, Checking account - Toronto Dominion Bank * 2,660, ,404, Checking account Citibank** - - 2, Total 2,661, ,409, * The Company received 2,053,200 (USD 2,000,000) (Rs ) from Piramal Holdings (Suisse) SA on November 29, 2010 to facilitate repayment of current portion of Citibank loan on December 01, **The Company closed the checking bank account on December 08, NOTE E - ACCOUNTS RECEIVABLE, NET OF ALLOWANCES The Company s accounts receivable primarily relate to supply of pre-clinical, clinical and commercial applications to the pharmaceutical industry for domestic markets, for exports primarily to USA, UK and Ireland and to affiliate companies Accounts receivable - Exports 1,246, ,731, Domestic 11, , Affiliate companies (Refer Note G) 79, , Total 1,337, ,248, Less: Provision for doubtful debts (1,200) (0.06) (36,287) (1.61) Accounts receivable, net of allowances 1,336, ,212, The activities in provision for doubtful debts account for year 2010 and 2009 are as given below Balance at beginning of the year 36, , Allowance for uncollectible written back (15,175) (0.70) (231,925) (10.27) Bad debt expense during the year (21,112) (0.97) (674) (0.03) Addition to provision for doubtful debts at year end 1, , Balance at end of the year 1, ,

15 NOTE F - INVENTORIES Raw materials 2,102, ,197, Contracts-in-progress 1,522, ,196, Finished products and material 451, , Less: Provision for obsolescence and write-off (315,198) (14.51) (247,234) (10.95) Total 3,761, ,443, NOTE G DUE FROM AFFILIATES Due from affiliates: Piramal Investments Holdings (Canada) Inc. 18,063, ,063, Piramal Life Sciences Limited 2,401, ,611, Total 20,464, ,674, Due from affiliates pertains to dues from immediate parent company Piramal Investments Holdings Canada Inc. and affiliate company Piramal Life Sciences Limited which are unsecured and non-interest bearing with no set terms of repayment. NOTE H PROPERTY, PLANT AND EQUIPMENT, NET Particulars 2010 Accumulated Cost amortization Net Land & land improvements 1,634, (127,832) (5.88) 1,506, Building 4,000, (1,018,674) (46.88) 2,981, Laboratory and instrumentation equipment 7,186, (3,731,305) (171.71) 3,455, Furniture and fixtures 1,344, (987,328) (45.44) 356, Motor vehicle 15, (2,699) (0.12) 12, Total 14,180, (5,867,838) (270.04) 8,312, Land consists of: Land 1,334, ,334, Land improvements 300, (127,832) (5.88) 172, ,634, (127,832) (5.88) 1,506, Laboratory and instrumentation consists of: Laboratory and instrumentation equipment 7,032, (3,731,305) (171.71) 3,301, Construction in progress 153, , ,186, (3,731,305) (171.71) 3,455,

16 Particulars 2009 Cost Accumulated amortization Net Land & land improvements 1,178, (111,225) (4.93) 1,067, Building 2,596, (777,370) (34.42) 1,819, Laboratory and instrumentation equipment 6,492, (3,203,756) (141.86) 3,288, Furniture and fixtures 1,344, (902,848) (39.98) 441, Motor vehicle 15, (1,401) (0.06) 13, Total 11,626, (4,996,600) (221.25) 6,630, Land consists of: Land 911, , Land improvements 266, (111,225) (4.93) 155, Laboratory and instrumentation consists of: 1,178, (111,225) (4.93) 1,067, Laboratory and instrumentation equipment 6,318, (3,203,756) (141.86) 3,114, Construction in progress 173, , ,492, (3,203,756) (141.86) 3,288, Amortization expense during the year November 30, 2010 is 871,238 (Rs ) (November 2009: 935,398 (Rs ) Particulars 2010 Accumulated Cost amortization Net Patents 3,001, (125,057) (5.76) 2,876, Total 3,001, (125,057) (5.76) 2,876, Amortization expense for the year ended November 30, 2010 is 125,057 (Rs.5.76 )

17 NOTE J LONG TERM DEBT Term loan from Citibank N.A NPIL Holdings (Canada) Inc had obtained a loan from Citibank N.A (Canadian Branch). This loan was obtained to finance the acquisition of Torcan Chemicals Limited and Avecia Pharmaceuticals Limited during the year On December 01, 2006 as part of the amalgamation, this loan was transferred to PHCL. The rate of interest for this long term loan is determined as per Canadian Deposit Offering Rate (CDOR) at each applicable interest payment date plus 90 basis points, the guarantee for which is provided by Piramal Healthcare Limited ( PHL or ultimate parent company ). The interest rate as at November 30, 2010 was 1.99% (November 30, 2009: 1.33%). The loan outstanding as at November 30, 2010 was $ 2,160,334 (Rs ) (November 30, 2009: $ 5,570,667 (Rs )). The repayment schedule of the principal amount is as stated below Loan amount 2,160, ,570, Less: Current portion * (2,160,334) (99.42) (3,410,333) (151.01) Due beyond one year - - 2,160, Principal payments until maturity are as follows: 1-Dec Dec-10 2,160, ,160, Interest expense during the year on the loan was $ 34,415 (Rs ) (November 30, 2009: $ 102,343 (Rs )). *Current portion amounting to 2,160,334 (Rs ) was repaid on December 01, 2010 NOTE K DUE TO AFFILIATES Long term debt from Piramal Holdings (Suisse) SA* 19,008, ,947, Interest payable to Piramal Holdings (Suisse) SA** 197, , Payable to: - Piramal Healthcare Limited 72, , Total 19,278, ,248,

18 * Included therein are four additional amounts of loans obtained during the year, which are as follows: Loan obtained towards Date Biosyntech specific assets purchase 14-Jun-10 4,331, Biosyntech additional funding 13-Oct-10 1,026, Citibank loan instalment repayment due on 29-Nov-10 2,053, December 01, 2010 Biosyntech funding 29-Nov-10 1,026, * Included therein is an additional amount of loan obtained on November 27, ,166,800 (USD 3,000,000) (Rs )towards repayment of instalment of Citibank Loan due in the month of December Interest on the loan from Piramal Holdings (Suisse) SA accrues on a monthly basis and is payable in Great Britain Pound (GBP). Piramal Holdings (Suisse) SA (formerly known as NPIL Holdings Suisse SA) is a related company as it is under common ownership. The average rate of interest charged by Piramal Holding Suisse SA during the year was 08.24% (November 30, 2009: 10.40%). **Interest expense during the year on the loan was $ 903,229 (Rs ) (November 30, 2009: $ 599,032 (Rs )). Out of this amount $ 197,319 (Rs ) (November 30, 2009: $ 48,652 (Rs )) is payable at the year-end. NOTE L - CREDIT FACILITY Demand Credit Facility from Toronto- Dominion Bank ( TD Bank ) From July 16, 2008, the Company has established a revolving demand credit facility with TD Bank wherein it is permitted to receive advances lesser of 2,000,000 (Rs ) or a sum total of 75% of the aggregate of equivalent accounts receivable, net of 90 days accounts, deferred revenue, contra accounts and related accounts. These funds are for the working capital requirements and for general corporate purposes. The facility is available by way of Prime Rate Based Loans in ("Prime Based Loans") United States Base Rate Loans in USD ("USBR Loans") Letters of Credit in ("UCs") Stand-by Letters of Guarantee in ("UGs") (Availability under Letter Credit ( LCs ) & UGs limited to an aggregate maximum of 200,000 (Rs ).) The rate of interest charged by TD Bank is Prime Rate plus 0.50 % per annum. The Credit facility is repayable upon demand and is renewable on demand. The agreement contains certain covenants such as maintaining tangible net worth of not less than 2,400,000 (Rs ) (to be tested quarterly) and not to use the term loan to repay the Citibank term loan. Substantially all the assets of the Company are pledged as collateral for these borrowings. For the year ended November 30, 2010 finance charges of 5,562 (Rs ) (November 30, 2009: 7,940 (Rs.0.35) have been included in interest expense in the statement of operations. As on November 30, 2010 the Company has utilized NIL (November 30, 2009: NIL) and the remaining unutilized overdraft facility was 2,000,000 (Rs ) (November 30, 2009: 2,000,000 (Rs ))

19 NOTE M- CUSTOMER DEPOSIT The Company had received a deposit of USD 2,000,000 (Rs )from one of its main customers Allergan Inc for starting materials and intermediates per a Raw Material Supply agreement dated January 1, 2001 and duly amended as on March 15, However vide letter dated September 08, 2008 the Company had agreed to repay the deposit of USD 500,000 (Rs ) by March 31, 2009 and the remaining 1,500,000 (Rs ) between April 01, 2009 and December 31, Subsequent to the issuance of this letter the total amount of customer deposit had been reclassified under current liabilities. During the previous year the Company repaid USD 1,500,000 (Rs ) and the balance sum of USD 500,000 (Rs ) was repaid on December 07, NOTE N CAPITAL STOCK Authorized Unlimited number of Class A common shares Unlimited number of Class B common shares Unlimited number of Class C common shares, voting Unlimited number of Class D common shares, voting, noncumulative annual dividend at prime less 1 %, redeemable Unlimited number of Class E preferred shares, non-voting, noncumulative dividend at 1 % per month, redeemable Unlimited number of Class F preferred shares, non-voting, noncumulative dividend at 1 % per month, redeemable Unlimited number of Class G preferred shares, non-voting, noncumulative annual dividend at prime plus 1 %, redeemable Unlimited number of Class H preferred shares, non-voting, noncumulative annual dividend of 8%, redeemable Unlimited number of Class I preferred shares, non-voting, noncumulative annual dividend of 8%, retractable Issued 3,195 Class A, common shares 31, , ,000 Class I preferred shares 9,000, ,000, Total 9,031, ,031,

20 NOTE O STATEMENT OF CASH FLOWS Changes in non-cash operating assets and liabilities Accounts receivable 875, ,501, Unbilled revenue (24,768) (1.14) 894, Inventories 682, ,593, Prepaid expenses 39, , Accounts payable and accrued liabilities 280, (119,641) (5.30) Payment of customer deposits (527,800) (24.29) (1,918,400) (84.95) Other receivables 33, , Other current liabilities - - (171,780) (7.61) Credit facility - - (620,000) (27.45) Deferred revenue (30,502) (1.40) 209, Total 1,328, ,009, NOTE P INCOME TAXES The Company has accumulated investment tax credits which can be applied to reduce future year's federal income taxes which expire as follows: Year , ,826, ,554, ,554, ,159, ,159, ,184, ,184, ,573, ,573, ,566, ,566, ,017, ,017, ,190, ,190, ,772, ,772, ,113, Total 20,918, ,847, During the year, investment tax credits of $1,602,983 (Rs ) (November 30, 2009: $1,785,243 (Rs ) were used to reduce federal and provincial taxes otherwise payable. These investment tax credits related to current expenses have been included in the determination of net income for the year

21 During the year, accumulated scientific research and development ( SR & ED ) expenses in the amount of $3,600,000 (Rs ) (November 30, 2009: $5,470,000 (Rs ) for federal and provincial tax purpose were used to reduce taxable income. The Company has accumulated SR & ED expenses in the amount of $20,387,352 (Rs ) (November 30, 2009: $12,690,400 (Rs )) for federal and provincial income tax purposes, which have not been deducted. These amounts can be carried forward for an indefinite period and can be applied against regular business income. Management has determined that taxable income will be insufficient to utilize the accumulated SR & ED expenses in the foreseeable future based on a sensitivity analysis of the future projections of the Company. Consequently, a full valuation allowance has been set off against the accumulated SR & ED expenses carried-forward. The SR & ED expenses have been recorded in the financial statements at $Nil (November 30, 2009 $Nil) because there is not a more likely than not chance that the Company will be able to utilize the benefits of these amounts. During the year ended November 30, 2009 the Company filed revised federal tax returns for years ended November 30, 2006 and November 30, 2007 with the Canada Revenue Agency with a request to permit the Company to utilize its pool of deductible SR & ED expenses instead of its investment tax credits ( ITC ). This led to changes in the pools of deductible SR & ED and ITC from the years ended November 30, 2006 till November 30, These changes comprised of the following: As filed originally As per revised return Investment tax credits 2,150, , Utilization of SR & ED 11,275, ,449, The Company had a balance of Federal SR & ED of $ 44,517,000 (Rs )as at November 30, On account of harmonization of federal and provincial taxes and based on the revised filings of the tax returns the SR & ED balance available as at November 30, 2010 for federal and provincial purpose is $ 20,387,352 (Rs )(November 30, 2009: $ 12,690,400 (Rs )). NOTE Q RELATED PARTY TRANSACTIONS Loan provided to: Piramal Investments Holdings (Canada) Inc. 18,063, ,063, Piramal Life Sciences Limited 2,401, ,611, Accounts receivable includes due from: - Piramal Healthcare Limited 7, , Piramal Investments Holdings (Canada) Inc. 68, , NPIL Pharma Inc. 2, Piramal Healthcare (UK) Limited NPIL Life Sciences Limited 0-255, Total - Piramal Critical Care Inc./Minrad Inc. 1, , ,

22 Long term debt from Piramal Holdings (Suisse) SA 19,008, ,947, Interest expense during the year on Piramal Holdings (Suisse) SA loan 896, , Interest expense payable to Piramal Holdings (Suisse) SA 197, , Payable to: - Piramal Healthcare Limited 72, , Research and development contracts include sales to: - Piramal Life Sciences Limited 89, , Services - Piramal Life Sciences Limited 0-236, Reimbursement of expenses to: - Piramal Healthcare Limited 73, , Piramal Healthcare (UK) Limited 7, Reimbursement of expenses from: - Piramal Healthcare Limited 8, , NPIL Pharma Inc 5, , Piramal Critical Care (Minrad Inc.) 16, , RX Elite Holdings Piramal Life Sciences Limited 0-3, Piramal Investment Holdings (Canada) Inc 45, , Piramal Healthcare (UK) Limited Purchases from: - Piramal Healthcare Limited 285, , Loan guarantee charges: - Piramal Healthcare Limited 24, , These transactions are in the normal course of business operations and have been valued in these financial statements at the exchange amount being the amount of consideration established and agreed to by the related parties. NOTE R PENSION PLAN The Company has a defined contribution pension plan. During the year, the Company contributed 316,345 (Rs ) (November 30, 2009: 322,752 (Rs )) to this plan. NOTE S ECONOMIC DEPENDENCE The Company earned revenue of 12,548,986 (Rs ) representing 65.40% (November 30, 2009: 9,799,877 (Rs ), %) of its total revenue from one customer

23 NOTE T RISK MANAGEMENT ACTIVITIES The Company enters into forward contracts to manage currency exposure on the United States Dollar (USD) denominated receivables. Forward contract requires the Company to sell USD at pre agreed exchange rates. At November 30, 2010 and November 30, 2009 the Company had no forward contracts outstanding. Loss on account of risk management activities amounts to NIL (November 30, 2009: 13,850 (Rs.0.61 )). NOTE U FINANCIAL INSTRUMENTS Financial instruments consist of recorded amounts of cash, accounts receivable, other receivables and due from affiliates, which will result in future cash receipts, as well as accounts payable and accrued liabilities, and bank loan which will result in future cash outlays. The Company manages its exposure to interest rate risk through a combination of fixed and floating rate borrowings. The fixed rate debt is subject to interest rate price risk, as the value will fluctuate as a result of changes in market rates. The floating rate debt is subject to interest rate cash flow risk, as the required cash flows to service the debt will fluctuate as a result of changes in market rates. The Company is exposed to the following risks in respect of certain of the financial instruments held: i. Credit risk Credit risk arises from the potential that a counter party will fail to perform its obligations. The Company is exposed to credit risk from customers. The Company is subject to a concentration of credit risk as approximately 65.40% of the Company's sales are with two customers. ii. Fair value The Company's carrying value of cash, accounts receivable, other receivables, accounts payable, accrued liabilities, and current portion of bank loan approximates its fair value due to the immediate or short-term maturity of these instruments. The fair values of the amounts due from affiliates are less than the carrying value, as these amounts are non-interest bearing. As the amounts have no terms of repayment, the fair value cannot be calculated with any degree of certainty. iii. Interest rate risk The Company is exposed to interest rate risk on its floating rate borrowings, as the required cash flows to service the debt will fluctuate as a result of changes in market rates. iv. Currency risk Currency risk is the risk to the Company's earnings that arises from fluctuations of foreign exchange rates and the degree of volatility of these rates. The details of the forward contracts entered into by the Company to manage the currency exposure on USD denominated receivables are provided in Note T above. Note: The financial statements have been converted into Indian Rupees for the sole purpose of convenience of the reader at the rate of 1 = Rs (Previous Year 1 = Rs.44.28). The convenience translation should not be or could be construed as representation that the Indian Rupee amounts of the amount referred to in these financial statements have been or could in the future be converted into or INR, as the case may be, at this or any other rate of exchange, or at all