MANAGEMENT DISCUSSION AND ANALYSIS

GLOBAL INDUSTRY STRUCTURE AND DEVELOPMENTS

Aging populations, chronic/lifestyle diseases, emerging-market expansion, and treatment and technology advances are expected to spur life sciences sector growth in 2015. However, efforts by governments, health care providers, and health plans to reduce costs, improve outcomes, and demonstrate value are dramatically altering the health care demand and delivery landscape. A dynamically changing clinical, regulatory, and business landscape is requiring that pharmaceutical, biotechnology, and medical technology companies adapt traditional research and development (R&D), pricing, supply chain, and commercial models to support value-based , contain costs by increasing their use of generics and biosimilars, maintain regulatory compliance & focus on emerging markets.The total world consumption in sales of pharmaceutical products has displayed strong growth and is expected to grow further with expanding populations in emerging markets. Seen in perspective, the pharmerging markets themselves are expected to grow at a significantly higher rate than the rest of the world.

R&D expenditures by pharmaceutical companies are, in part, a consequence of changing industry structure, particularly, with the rise of the biotechnology sector.

INDIAN SCENERIO

The country provides generic medicines to around 200 countries globally. It is responsible for about 40% of the generic and over-the-counter drugs consumed in the US. India has been able to make its name as a quality supplier of affordable medicines across the globe.

OPPORTUNITIES AND THREATS

Large numbers of drugs going off-patent in the US and Europe have offered a big opportunity for the Indian companies to capture these markets. Since generic drugs are commodities by nature, Indian producers have the competitive advantage, as they are the low cost producers of drugs in the world.

Opening up of health insurance sector and the expected growth in per capita income are key growth drivers from a long-term perspective. This leads to the expansion of healthcare industry of which pharma industry is an integral part. Being the lowest cost producer combined with largest number of FDA approved plants, Indian companies can become a global outsourcing hub for pharmaceutical products.

Biosimilars and injectable formulations brsent a huge potential in the emerging pharmaceutical market scenario. The cre­ation of a market for biomedical science and increased vertical competition within the industry are likely to spur innovation and raise productivity.

Threats from other low cost countries exist as a challenge for Indian pharma industry. However, on the quality front, India is better known for reliability as compared to most countries. Prices of drugs being subject to control and regulation by the Government may emerge as another threat to the margins.

OUTLOOK

The outlook on the Indian pharmaceutical companies remains favourable as it is believed that companies would continue to benefit from recovery in the domestic market, strong growth potential in export markets and potential outsourcing op­portunities.

RISKS AND CONCERNS

Every business carries inherent risks and all of them cannot be eliminated. The management at Zenotech has been striv­ing to minimize the known risks. Despite the fact that the Company is not fully operational due to the legacy issues, the management has been endeavoring to explore business opportunities for research, manufacturing and seeking business by offering in-house facilities to reputed companies to outsource their requirements by manufacturing at your Company's facilities.

Companies cannot afford to ignore the corporate, reputational and personal risks attached to their business activities, wherever in the world they operate. In the ultimate analysis, the industry and therefore the patients stand to benefit with enhanced operating procedures that overcome the challenges.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company endeavours to comply with all the applicable technical, legal, regulatory and other compliances.

The Company has an adequate system of internal controls towards achieving efficiency in operations, optimal utilization of available resources, effective monitoring thereof and compliance with applicable laws.

OPERATIONAL PERFORMANCE

As already stated, upon gaining access to the factories brmises, the brsent management conducted an internal as­sessment to take stock of the assets. The management also reviewed all issues relating to the technical viability of all the facilities and further steps required to be taken to restart them for bio-tech and oncology products, including the manpower requirements etc.

Assessment, review and validation of records, equipments as well as all processes were completed during the brvious two years after the takeover of the possession of the factories. The assessment revealed that DNA/human clones, tech­nical documents/registers, technical information and other proprietary information belonging to Zenotech were missing. In the absence of these necessary items, it became impossible for the brsent management to carry on production and since then the manufacturing facilities have been underutilized. Therefore, the operations at the facilities have been adversely affected which compelled the management to align the organization with the available capabilities.

The financials of the Company do not reflect the true potential of the operations. The figures given below are hence subject to the constraints and challenges faced by the brsent management.

The cash flow position of the Company continues to be under brssure and the Company is facing a severe liquidity cri-sisowing to gross mismanagement committed by the erstwhile management of Dr. Jayaram Chigurupati in the past few years,before the takeover of the factory brmises. The networth of the company stood completely eroded as on March 31, 2015 and the Board of directors at its meeting held on May 26, 2015 formed an opinion that the company has become sick as envisaged under the Sick Industrial (Special Provisions) Act, 1985.

HUMAN RESOURCES

Manufacturing facilities have never been able to carry on production at the same/similar levels for which they were set-up or to fully utilize the capacity. The brsent strength of human resource engaged by the Company is around 50. Industrial relations have been cordial during the year under report.

(Cautionary Statement: Statements in this Report, which seeks to describe the Company's objectives, projections, esti­mates, expectations or brdictions may be considered to be 'forward looking statements' and are stated as required by applicable laws and regulations. Actual results could differ from those exbrssed or implied. Several factors including global and domestic demand-supply conditions, prices, raw-materials availability, technological changes in government regulations and policies, tax laws and other statutes may affect the actual results, which can be different from what the Directors envisage in terms of future performance and outlook.)