UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K/A

Date of Report (Date of earliest event reported): January 8, 2007

MYLAN LABORATORIES INC.

(Exact Name of Registrant as Specified in Charter)

Pennsylvania		1-9114		25-1211621
(State or Other Jurisdiction of		(Commission		(I.R.S. Employer
Incorporation)		File Number)		Identification No.)
1500 Corporate Drive
Canonsburg, PA				15317
(Address of Principal Executive Offices)				(Zip Code)

Registrant’s telephone number, including area code: (724) 514-1800

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o		Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o		Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o		Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2 (b))
o		Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4 (c))

 

 

TABLE OF CONTENTS

Item 2.01 Completion of Acquisition or Disposition of Assets

Item 9.01 Financial Statements and Exhibits

SIGNATURE

EXHIBIT INDEX

EX-23.1

EX-99.1

EXPLANATORY NOTE

     As reported in a Current Report on Form 8-K filed by Mylan Laboratories Inc. (“Mylan” or the “Company”) on January 10, 2007 (the “Initial Form 8-K”), Mylan, through an indirect wholly-owned subsidiary, acquired a controlling stake in Matrix Laboratories Limited (“Matrix”) on January 8, 2007. Pursuant to Item 9.01 (a) (4), this Form 8-K/A amends the Initial Form 8-K and is being filed in order to include the required historical financial statements of Matrix and the related pro forma financial information not later than 71 calendar days after the date that the Initial Form 8-K was required to have been filed. In accordance with Securities Exchange Act Rule 12b-15, the complete text of Items 2.01 and 9.01 as amended are set forth below.

Item 2.01 Completion of Acquisition or Disposition of Assets

     As previously announced, on August 28, 2006, the Company entered into a Share Purchase Agreement (the “Share Purchase Agreement”) to acquire, through MP Laboratories (Mauritius) Ltd, its wholly-owned indirect subsidiary, approximately 51.5% of the outstanding share capital of Matrix Laboratories Limited, a publicly traded Indian company (“Matrix”), from Prasad Nimmagadda (“Mr. Prasad”), Prasad Nimmagadda-Huf, G2 Corporate Services Limited, India Newbridge Coinvestment Limited, India Newbridge Partners FDI Limited, India Newbridge Investments Limited, Maxwell (Mauritius) Pte. Limited and Spandana Foundation at a price of Rs. 306 per share.

     Also, in accordance with applicable Indian law as a result of signing the Share Purchase Agreement, the Company previously commenced an open offer to acquire up to an additional 20% of the outstanding share capital of Matrix (the “Public Offer”) from Matrix’s shareholders (other than the selling shareholders under the Share Purchase Agreement and overseas corporate bodies). On December 21, 2006, the Company issued a press release announcing the completion of the Public Offer and its acquisition of 20% of the outstanding share capital of Matrix, at a price of Rs. 306 per share.

     On January 8, 2007, in accordance with the terms of the Share Purchase Agreement, the Company completed the acquisition of approximately 51.5% of the outstanding share capital of Matrix. As previously disclosed, effective January 8, 2007, Mr. Prasad was appointed as a member of the Board of Directors and as an officer of the Company and entered into certain agreements with the Company in connection with these appointments.

     As a result of the two transactions, the Company now owns approximately 71.5% of the outstanding share capital of Matrix.

     As previously disclosed, immediately following the closing of the transactions contemplated by the Share Purchase Agreement, certain of the selling shareholders used approximately $143,000,000 of their proceeds to acquire the Company’s common stock from the Company in a private sale at a price of $20.85 per share. Mr. Prasad, through an affiliate by virtue of an assignment permitted by the Share Purchase Agreement also has invested $25,000,000 of his proceeds in the Company’s common stock, in a private sale at a price of $20.85 per share with the Company which closed in February 2007.

     On January 8, 2007, the Company and Matrix issued a joint press release announcing the closing of the Matrix acquisition. A copy of the press release is attached hereto as Exhibit 99.1 and incorporated herein by reference.

Item 9.01 Financial Statements and Exhibits

          (a) Financial statements of business acquired

          The following historical financial information of Matrix is attached to this Current Report and is incorporated by reference in this Item 9.01.

		Page
		Number
Financial Statements of Business Acquired		6
Independent Auditors’ Report		7
Consolidated Balance Sheets as of March 31, 2006 and 2005		8
Consolidated Statements of Operations for the fiscal years ended March 31, 2006 and 2005		9
Consolidated Statements of Changes in Shareholders’ Equity for the fiscal years ended March 31, 2006 and 2005		10
Consolidated Statements of Cash Flows for the fiscal years ended March 31, 2006 and 2005		11
Notes to Consolidated Financial Statements		13
Condensed Consolidated Balance Sheets as of December 31, 2006 (unaudited) and March 31, 2006		37
Condensed Consolidated Statements of Operations for the nine month periods ended December 31, 2006 and 2005 (unaudited)		38
Condensed Consolidated Statements of Changes in Shareholders’ Equity for the nine months ended December 31, 2006 and 2005 (unaudited)		39
Condensed Consolidated Statements of Cash Flows for the nine month periods ended December 31, 2006 and 2005 (unaudited)		40
Notes to Unaudited Condensed Consolidated Financial Statements		41

          (b) Pro forma financial information

          The following pro forma financial information is attached to this Current Report and is incorporated by reference in this Item 9.01.

		Page
		Number
Unaudited Condensed Combined Pro Forma Financial Statements		46
Unaudited Condensed Combined Pro Forma Statement of Earnings for the fiscal year ended March 31, 2006		47
Unaudited Condensed Combined Pro Forma Statement of Earnings for the nine months ended December 31, 2006		48
Unaudited Condensed Combined Pro Forma Balance Sheet as of December 31, 2006		49
Notes to Unaudited Condensed Combined Pro Forma Financial Statements		50

          (c) Exhibits

Exhibit No.		Description
23.1		Consent of Deloitte, Haskins and Sells, independent auditors
99.1		Press release of the registrant, dated January 8, 2007.

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Financial Statements of Business Acquired

The following financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and are presented in accordance with the requirements of Regulation S-X, Rule 3-05(b). Matrix Laboratories Limited (“Matrix”) has a fiscal year end of March 31. Mylan Laboratories Inc. acquired a controlling stake in Matrix on January 8, 2007 and, accordingly, the audited consolidated financial statements of Matrix for the fiscal years ended March 31, 2006 and 2005, and the unaudited condensed consolidated financial statements of Matrix for the nine months ended December 31, 2006 and 2005, are presented.

INDEPENDENT AUDITOR’S REPORT

To the Board of Directors and Shareholders of
Matrix Laboratories Limited:

We have audited the accompanying consolidated balance sheets of Matrix Laboratories Limited and subsidiaries (collectively referred to as “Matrix Limited” or the “Company”) as of March 31, 2006 and 2005, and the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for the years then ended. 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 audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 consideration of internal control over financial reporting as a basis for designing 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 over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Matrix Laboratories Limited and subsidiaries at March 31, 2006 and 2005, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which differ in certain material aspects from accounting principles generally accepted in India, which form the basis of Matrix Limited’s general purpose financial statements.

/s/ Deloitte Haskins & Sells
Hyderabad, India
January 5, 2007

Matrix Laboratories Limited
Consolidated Balance Sheets
(In USD thousands, except shares and per share data or as otherwise stated)

		As of March 31,
		2006				2005
Assets
Current assets:
Cash and cash equivalents		$	17,876			$	431
Short term investments			4,435				35,714
Accounts receivable, net of allowance for doubtful accounts			72,485				33,603
Inventories			95,836				46,339
Prepaid expenses and other current assets			50,978				28,357
Deferred tax asset			752				7,255
Total current assets			242,362				151,699
Restricted cash			19,853				535
Property, plant and equipment, net			126,879				89,043
Intangible assets, net			90,856				19,240
Goodwill			125,059				4,187
Investments in affiliates			22,378				170
Other assets			9,355				1,079
Total assets		$	636,742			$	265,953
Liabilities and shareholders’ equity
Liabilities
Current liabilities:
Trade accounts payable and accrued liabilities		$	102,056			$	36,165
Short-term borrowings and current portion of long-term debt			195,527				22,571
Other current liabilities			38,097				25,463
Deferred tax liability			2,646				—
Total current liabilities			338,326				84,199
Long-term debt, net of current portion			102,166				—
Other long-term liabilities			5,162				1,501
Deferred tax liability			31,327				18,235
Total liabilities			476,981				103,935
Minority interests			13,964				—
Commitments and Contingencies (see Note 22)
Shareholders’ equity
Equity Shares — par value Rs.2 per share Shares authorized: 200,000,000 in 2006 and 2005 Shares issued: 153,616,540 in 2006 and 149,720,710 in 2005			7,172				7,000
Additional paid-in capital			117,293				98,554
Deferred stock compensation			1,219				148
Retained earnings			18,542				52,867
Accumulated other comprehensive income			1,571				3,449
Total shareholders’ equity			145,797				162,018
Total liabilities and shareholders’ equity		$	636,742			$	265,953

The accompanying Notes are an integral part of the Consolidated Financial Statements

Matrix Laboratories Limited
Consolidated Statements of Operations
(In USD thousands, except shares and per share data or as otherwise stated)

		Fiscal year ended March 31,
		2006				2005
Net revenues		$	230,270			$	141,303
Cost of revenues			191,199				98,913
Research and development			11,884				3,617
Selling, general and administrative			39,098				5,176
In-process research and development written off			58,680				—
Interest expense			5,803				858
Other income:
Income from patent settlement			22,145				—
Gain on sale of intangible assets			24,137				—
Other income, net			6,940				1,101
Net (loss) / income before equity in affiliates, minority interests and income taxes			(23,172	)			33,840
Equity in losses of affiliates			1,777				348
Minority interest in loss of consolidated subsidiaries, net			(159	)			—
Income tax expense			5,497				7,169
Net (loss) / income		$	(30,287	)		$	26,323
Earnings per equity share:
Basic		$	(0.20	)		$	0.18
Diluted		$	(0.20	)		$	0.18
Weighted average equity shares outstanding:
Basic			150,624,794				146,391,940
Diluted			150,624,794				146,414,811

The accompanying Notes are an integral part of the Consolidated Financial Statements

Matrix Laboratories Limited
Consolidated Statements of Changes in Shareholders’ Equity
(In USD thousands, except shares and per share data or as otherwise stated)

																						Accumulated
		Equity Shares								Additional												other
		Number of								paid-in				Deferred Stock				Retained				comprehensive
		shares				Amount				capital				Compensation				earnings				income				Total
Balance as of March 31, 2004			136,331,035			$	6,399			$	10,653				—			$	28,553				—			$	45,605
Shares issued during the year (net of issuance cost)			13,389,675				601				87,901				—				—				—				88,502
Stock compensation			—				—				—			$	148				—				—				148
Comprehensive income:
Net income			—				—				—				—				26,323				—				26,323
Foreign currency translation adjustment			—				—				—				—				—			$	3,449				3.449
Total comprehensive income			—				—				—				—				26,323				3,449				29,772
Dividends paid (Rs.1.20 per share)			—				—				—				—				(2,009	)			—				(2,009	)
Balance as of March 31, 2005			149,720,710				7,000				98,554				148				52,867				3,449				162,018
Shares issued during the year (net of issuance cost)			3,501,500				154				17,242				—				—				—				17,396
Stock options exercised			394,330				18				1,497				(243	)			—				—				1,272
Stock compensation			—				—				—				1,314				—				—				1,314
Comprehensive income:
Net loss			—				—				—				—				(30,287	)			—				(30,287	)
Foreign currency translation adjustment			—				—				—				—				—				(1,878	)			(1,878	)
Total comprehensive loss			—				—				—				—				(30,287	)			(1,878	)			(32,165	)
Dividends paid (Rs.1.20 per share)			—				—				—				—				(4,038	)			—				(4,038	)
Balance as of March 31, 2006			153,616,540			$	7,172			$	117,293			$	1,219			$	18,542			$	1,571			$	145,797

     The accompanying Notes are an integral part of the Consolidated Financial Statements

Matrix Laboratories Limited
Consolidated Statements of Cash Flows
(In USD thousands, except shares and per share data or as otherwise stated)

		Fiscal year ended March 31,
		2006				2005
Cash flows from operating activities:
Net (loss) / income		$	(30,287	)		$	26,323
Adjustments to reconcile net (loss) income to net cash provided from operating activities:
Depreciation and amortization			12,529				7,029
Gain on sale of investments in affiliates			(1,276	)			—
Equity in losses of affiliates			1,777				348
Deferred income tax expense / (benefit)			1,231				(2,218	)
Stock compensation expense			1,306				145
In process research and development written off			58,680				—
Gain on sale of intangible assets			(24,137	)			—
(Gain) / loss on sale of property, plant and equipment			(2,625	)			124
Minority interest in (loss) of consolidated subsidiaries			(159	)			—
Changes in operating assets and liabilities:
Accounts receivable, net			3,706				(10,775	)
Inventories			8,970				(10,676	)
Prepaid expenses and other current assets			(637	)			(354	)
Other assets			(8,296	)			(1,079	)
Trade accounts payables and accrued liabilities			3,458				(7,100	)
Other current liabilities			7,249				24,048
Other long term liabilities			3,688				(114	)
Net cash (used in) provided by operating activities			35,177				25,701
Cash flows from investing activities:
Purchase of intangible assets							(64	)
Proceeds from sale of intangible assets			27,781				—
Purchase of property, plant and equipment			(33,330	)			(29,320	)
Proceeds from sale of property, plant and equipment			16,253				1,487
Purchase of short term investments			(63,045	)			(154,009	)
Proceeds from sale of short term investments			93,662				118,295
Investments in affiliates			(24,127	)			(9	)
Proceeds from sale of investments in affiliates			1,371				—
(Increase) / Decrease in restricted cash			(3,418	)			134
Cash paid for acquisition of subsidiaries, net of cash acquired			(252,636	)			54
Net cash used in investing activities			(237,489	)			(63,432	)
Cash flows from financing activities:
Cash dividends paid			(4,038	)			(2,009	)
Payment of financing fees			(929	)			—
Increase / (Decrease) in short-term borrowings			18,618				(10,827	)
Proceeds from long-term debt			188,156				—
Repayment of long term debt			—				(26,226	)
Issuance of equity stock (net of issuance cost)			17,396				74,980
Proceeds from exercise of stock options			1,272				—
Net cash provided by financing activities			220,475				35,918
Effect of changes in exchange rates			(718	)			2,227
Net increase in cash and cash equivalents			17,445				414
Cash and cash equivalents — beginning of year			431				17
Cash and cash equivalents — end of year		$	17,876			$	431

Matrix Laboratories Limited
Consolidated Statements of Cash Flows
(In USD thousands, except shares and per share data or as otherwise stated)

Supplementary cash flow information:

		Fiscal year ended March 31,
		2006				2005
Cash paid during the year for:
Income taxes		$	9,104			$	6,448
Interest			5,869				1,490
Non — cash items:
Equity shares issued for acquisitions (see Note 3)			—			$	13,522
Deferred consideration: (see Note 3)		$	16,234				—

The accompanying Notes are an integral part of the Consolidated Financial Statements

Note 1. Nature of Operations and Basis of Presentation

Matrix Laboratories Limited (“Matrix”, formerly known as Herren Drugs) was incorporated in India on November 29, 1984 and its equity shares are listed on the Bombay and National Stock Exchanges in India.

Matrix is engaged in the development, manufacture and marketing of generic and proprietary pharmaceuticals — primarily active pharmaceutical ingredients (or “APIs”), finished drug formulations (“FDFs”), other generic drugs and medical supplies. The principal markets for these products are pharmaceutical wholesalers and distributors, drug manufacturers and institutions within India, Europe and the United States of America (“USA”).

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the USA (“US GAAP”) which differ in material respects from the consolidated financial statements of Matrix prepared in accordance with accounting principles generally accepted in India, in accordance with applicable statutory requirements. Matrix and its consolidated subsidiaries are hereinafter referred to as the “Company”.

Matrix has adopted the United States Dollar (“USD” or “$”) as its reporting currency. The functional currency financial statements are translated into USD using the year end rates for the balance sheet accounts and a monthly weighted average exchange rate for the respective periods for revenue, expense and cash flow items. The gains or losses resulting from such translation are reported in accumulated other comprehensive income as a separate component of shareholders’ equity.

During the fiscal years ended March 31, 2006 and 2005, Matrix acquired equity interests in the following companies:

		Percentage of voting
Company		shares acquired				Date of acquisition
2006
Concord Biotech			55	%		February 14, 2006
Mchem Pharmaceuticals			57.5	%		January 16, 2006
Docpharma NV*			100	%		July 8, 2005 to November 2, 2005
2005
Vera Laboratories			100	%		October 1, 2004
Fine Drugs and Chemicals			51	%		October 1, 2004

See Note 3, Business Combinations, for further details.

The Company’s fiscal year ends on March 31. All references to fiscal year shall mean the 12 months ended March 31.

Note 2. Summary of Significant Accounting Policies

Principles of Consolidation. The consolidated financial statements include the accounts of Matrix Laboratories Limited and those of its subsidiaries over which control is exercised through majority ownership of voting shares and / or other means, including, but not limited to, the possession of the power to direct or cause the direction of the management and policies of entities. In situations in which Matrix has less than 100% but greater than 50% of ownership in entities, such entities are consolidated and minority interests are also recorded. All inter-company accounts and transactions have been eliminated in consolidation. The Company also evaluates whether or not it has variable interests in variable interest entities for which it is the primary beneficiary. To the extent that the Company is the primary beneficiary in variable interest entities, it consolidates such entities.

Investment in Affiliates. Investments in business entities in which Matrix has the ability to exert significant influence over operating and financial policies (generally 20% to 50% ownership) and joint ventures are accounted for using the equity method. Under the equity method, investments are initially recorded at cost and are adjusted for dividends, stock based compensation, distributed and undistributed earnings and losses, and additional investments. Any goodwill arising from differences between the cost of the investment and the fair value of the underlying equity in net assets of the entities is not recorded separately in the financial statements. Equity method investments are periodically reviewed for other-than-temporary declines in carrying value.

Business Combinations. The Company accounts for acquired businesses using the purchase method of accounting, which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values. The cost to acquire a business comprises of cash paid, the fair value of shares issued, amounts that are contingently payable and amounts payable on the basis of earn-out arrangements, deferred consideration and transaction costs. The cost is allocated to the fair value of the underlying net assets, including pre-acquisition contingencies, of the acquired business in proportion to their respective fair values. The fair value of shares issued as a part of the purchase consideration is determined based on an average of the closing share prices on the date of announcement of the acquisition and two days before and after the announcement date. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.

Amounts allocated to acquired in-process research and development (“IPR&D”) are expensed at the date of acquisition as the IPR&D had not reached technological feasibility, not received regulatory approval and do not have any alternative uses.

The judgments made in determining the estimated fair values assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact the Company’s results of operations. Accordingly, for significant items, the Company typically obtains assistance from third party valuation specialists and has a 12 month period from the date of acquisition in which to determine the fair values and allocate the purchase price. Useful lives are determined based on the expected future period of benefit of the asset, which considers various characteristics of the asset, including projected cash flows. The Company reviews goodwill for impairment annually or more frequently if impairment indicators arise.

Contingent consideration including consideration that is payable on maintaining or achieving specified earnings levels in future periods is recorded as an additional cost of the acquired entity when the contingency is resolved and consideration is issued or becomes issuable.

In cases where a part of the agreed purchase consideration is payable in future, the discounted present value of such consideration is included in the cost of acquisition and recorded as a liability. Where such future amounts payable do not carry any interest rate or an interest rate which does not approximate the Company’s incremental borrowing rate for the relevant period, interest is imputed on such amounts using the incremental borrowing rate. No discounting is done in cases where the future consideration payable includes interest payable at a stated interest rate which approximates the Company’s incremental cost of borrowing for the relevant period. The interest accrued on such amounts is recorded as an expense in the statement of operations.

Functional Currency Translation. The functional currency of Matrix Laboratories Limited is the Indian Rupee (Rs.). The translation of the functional currencies of Matrix’s subsidiaries outside of India into Indian Rupees is performed for balance sheet accounts using the exchange rates in effect at the balance sheet date and for revenue, expense and cash flow items using an appropriate monthly weighted average exchange rate for the respective periods. The gains or losses resulting from such translation are reported in accumulated other comprehensive income as a separate component of shareholders’ equity.

Transactions in foreign currencies are translated into the functional currency at the rates of exchange prevailing on the date of the transaction. Monetary assets and liabilities in foreign currencies are translated into the functional currency at the rates of exchange prevailing on the balance sheet date. The resultant exchange gains and losses are included in the consolidated statements of operations.

Use of Estimates. The preparation of financial statements, in conformity with US GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Key areas that require estimates and assumptions include valuation of assets, including intangible assets and liabilities acquired in business combinations, recoverability of long-lived assets including goodwill, assets and obligations included in employee benefit plans, accounting for income taxes and contingencies. Because of the uncertainty inherent in such estimates, actual results could differ from those estimates.

Cash and Cash Equivalents. Cash is comprised of cash in hand and cash at bank, which are unrestricted as to their use. Cash equivalents are comprised of highly liquid investments with an original maturity of three months or less at the date of purchase.

Restricted cash. Restricted cash is comprised of margin money deposits for working capital facilities and balances in bank accounts for Matrix’s dividends payable.

Inventories. Inventories are stated at the lower of cost or market value, with cost determined by the first-in, first-out or weighted average method. Allowances for potentially obsolete or slow-moving inventory are established based on our analysis of inventory levels, historical obsolescence and future sales forecasts.

Short term investments. Short term investments are comprised of units of open ended mutual funds and are recorded at fair value based on quoted market prices. Net gains or losses on sale of short term investments are computed on a specific security basis and are included in other income when such gains / (losses) are realized.

Accounts receivable. Accounts receivable are stated net of the allowance for doubtful accounts. The Company establishes an allowance for doubtful accounts primarily based on an analysis of individual customers, the aging of the accounts receivable balances and historical write-off experience.

Property, Plant and Equipment. Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed and recorded on a straight-line basis over the assets’ estimated economic useful lives. Depreciation is included in cost of sales, selling, general and administrative expenses and research and development expenses in the consolidated statements of operations. The useful lives adopted by the Company are:

		Years
Buildings		20-35
Leasehold improvements		Shorter of useful life (5 years) or lease term
Plant and Equipment		12-18
Office Equipment		5-15
Furniture and Fixtures		5-15
Vehicles		5-7
Computers		5-7

The assets’ residual values and useful lives are reviewed and adjusted, if appropriate, at each balance sheet date.

Gains and losses arising from retirement or disposal of property, plant and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the consolidated statement of operations on the date of retirement or disposal.

Costs of additions and substantial improvements to property, plant and equipment are capitalized. The costs of repairs and maintenance are charged to operating expenses.

Goodwill. Goodwill represents the excess of the cost of an acquisition over the fair value of Matrix’s share of net identifiable assets of the acquired subsidiary, jointly controlled entity or affiliate at the date of acquisition. Goodwill on acquisition of subsidiaries is disclosed separately. Goodwill on accounting of jointly controlled entities or entities in which Matrix exercises significant influence is included in investments in affiliates. Goodwill is stated at cost less impairment losses, if any.

On April 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets, (“SFAS No. 142”) which provides that goodwill acquired in a purchase business combination should not be amortized and is subject to an annual impairment test. SFAS No. 142 requires that goodwill and indefinite-lived assets be allocated to the reporting unit level. The goodwill impairment test under SFAS No. 142 is performed in two steps. The first step of the impairment test, used to identify potential impairment, compares the fair value of the reporting unit with its carrying value, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, goodwill of the reporting unit is considered impaired and step two of the impairment test is performed. The second step of the impairment test quantifies the amount of the impairment loss by comparing the carrying amount of the goodwill to its implied fair value. An impairment loss is recorded to the extent the carrying amount of the goodwill exceeds its implied fair value.

Intangible Assets: Intangible assets are acquired individually, which include patents and drug master files (“DMFs”), or through business combinations, which comprise of developed products, trade names, supply agreements, customer relationships and maintenance contracts which are capitalized at Matrix’s share of respective fair values on the date of acquisition and are stated at cost less accumulated amortization. The methodology used for valuation of these intangibles is as follows:

(i)

Developed Products, Patents and DMFs. Developed products are valued using the Multi-period Excess Earnings Method (“MEEM”) as these assets have been identified as key assets of the business. Developed products are amortized over the estimated useful life of 4 to 20 years on a straight-line basis. Patents and DMFs reflect the estimated fair value of the rights to technological or manufacturing processes from which the Company can expect to derive future benefits over the estimated life of such patent or DMF right. Fair value is determined based on replacement cost or the cost to replace the subject asset with a comparable asset with similar utility using current material and labor rates. Patents and DMFs are amortized over the estimated useful life of 4 to 18 years on a straight-line basis.

(ii)

Other Intangibles. Trade names are valued using the royalty relief approach and are amortized over the estimated useful life of 15 years. Supply agreements are valued using the MEEM approach and are amortized over the estimated useful life of the contract. Customer relationships reflect the estimated fair value of the customer accounts acquired from which the Company can expect to derive future benefits over the estimated life of such relationships. Customer relationships are valued based on the present value of the future residual cash flows attributable to the intangible asset after recognition of returns to complimentary assets such as net working capital, fixed assets, technology, the assembled workforce, as well as return on capital. The customer relationships are amortized over the estimated useful life of 10 years, which is in proportion to the estimated turnover of customers. Maintenance contracts are valued using the MEEM approach and are amortized over the estimated useful lives of 10 years.

Amortization of intangible assets is included in the cost of sales and selling, general and administrative expenses in the consolidated statements of operations.

The Company periodically reviews the original estimated useful lives of intangible assets and makes adjustments when events indicate that a shorter life is appropriate.

Impairment of Long-Lived Assets. The Company reviews the carrying value of its long-term assets which include property, plant and equipment and intangible assets with definite lives for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets.

Short-term borrowings. The Company has a financing arrangement for the sale of its accounts receivable with commercial banks. The commercial banks purchase the receivables at a discount and the Company records the proceeds as short-term borrowings. Upon maturity of the bill and receipt of funds, the short-term borrowings are reversed. As the banks have recourse on the bills sold, the bills are included under accounts receivables on the consolidated financial statements.

Employee Benefits.

(i)		Gratuity Plan. In accordance with Indian law, Matrix and its Indian subsidiaries provides for gratuity obligations through a defined benefit retirement plan (the “Gratuity Plan”) covering all employees located in India. The Gratuity Plan provides a lump sum payment to vested employees, upon death while in employment or on retirement or termination of employment in an amount equivalent to 15 to 30 days salary payable for each completed year of service based on respective employee’s salary. Vesting occurs upon completion of five years of service. Matrix provides for the Gratuity Plan based on actuarial valuations in accordance with SFAS No. 87, Employers’ Accounting for Pensions. Matrix recorded $ 116 and $ 213 as gratuity costs in fiscal years 2006 and 2005, respectively. The unfunded obligation at March 31, 2006 and 2005 was $ 150 and $ 197, respectively.
(ii)		Superannuation Plan. Certain employees of Matrix are entitled to superannuation, a defined contribution plan (the “Superannuation Plan”), which is administered through an insurance plan. Matrix makes monthly contributions at 15% of basic salary until retirement or resignation of the employee. Superannuation benefits are recorded as expense as incurred. Matrix has no further obligation beyond its monthly contribution. Matrix’s contributions towards the Superannuation Plan amounted to $ 268 and $ 182 for the fiscal years ended March 31, 2006 and 2005, respectively. The expense recognized includes $ 2 on account of consolidation of Concord Biotech Limited during the fiscal year ended March 31, 2006.
(iii)		Provident Fund and Employees’ State Insurance. In accordance with Indian law, all employees of Matrix located in India are entitled to receive benefits under the Provident Fund, which is a defined contribution plan. Both the employee and the employer make monthly contributions to the plan at a determined rate (up to 12%) of the employees’ basic salary. These contributions are made to the fund administered and managed by the Central Government. In addition some employees of Matrix are covered under the Employees’ state insurance plans, which are also defined contribution plans recognized by the Indian Revenue Authorities, and are administered through the Central Government. Matrix’s contribution to both these plans is expensed in the consolidated statement of operations. Matrix has no further obligation beyond its monthly contribution. Matrix’s contributions towards the Provident Fund amounted to $ 529 and $ 389 for the fiscal years ended March 31, 2006 and 2005, respectively. The expense recognized includes $ 4 on account of consolidation of Concord Biotech Limited during the fiscal year ended March 31, 2006.

Revenue Recognition. The Company recognizes revenue for product sales upon delivery when title and risk of loss of products are transferred to its customers and when provisions for estimates including discounts, rebates and returns are reasonably determinable, and when the following criteria are met:

	•		Persuasive evidence of an arrangement exists;
	•		The price to the buyer is fixed or determinable; and
	•		Collectibility of the sales price is reasonably assured.

Revenues from the installation of medical equipment and maintenance services are recognized when such services are rendered.

Consistent with industry practice, the Company maintains a return policy that allows customers to return products within a specified period. The Company’s estimate for the provision for returns is based upon historical experience and actual returns.

The Company periodically enters into various types of revenue arrangements with third parties, including agreements for the sale or license of product rights or technology, research and development arrangements and supply agreements. These agreements may include the receipt of upfront and milestone payments, royalties, and payment for contract manufacturing and other services. The Company recognizes all non-refundable payments as revenue in accordance with the guidance provided in the Securities and Exchange Commission’s (“SEC”) Staff

Accounting Bulletin (“SAB”) No. 104, Revenue Recognition, and Emerging Issue Task Force (“EITF”) No. 00-21, Revenue Arrangements with Multiple Deliverables.

Revenue from multiple element arrangements which usually involve a combination of (a) sale of products, (b) research and development arrangements and (c) supply or license agreements, is recognized in accordance with EITF 00-21. In case of arrangements where there is a right of return available to the customer, all revenue is deferred until the right of return expires. In cases where there are no rights of return, any upfront fees received is deferred and recognized over the term of the arrangement.

The Company’s consolidated net revenues are generated in the following therapeutic categories:

		Fiscal year ended March 31,
		2006				2005
Anti Retro Virals		$	81,259			$	35,951
Anti Bacterials			30,912				12,717
Central Nervous System			25,760				34,229
Anti Asthma			14,168				11,029
Cardio Vascular			—				16,689
Antifungal			—				4,899
Others*			78,171				25,789
Total		$	230,270			$	141,303

Research and Development. Research and development expenses, which comprise of the cost of materials used for research and development, salary of employees working on research and development, depreciation on assets used for research and development and other expenses like rent, consultancy, maintenance etc., are expensed in the consolidated statement of operations as incurred.

The Company periodically enters into co-development arrangements with third parties. These agreements may include the payment of upfront and milestone payments for development services. The Company expenses all payments for development in the period the development activity is performed. During fiscal 2006 such payments amounted to $ 1,905.

Business Promotion Costs. Business promotion costs are expensed as incurred and amounted to $ 492 and $ 477 in fiscal years ended March 31, 2006 and 2005, respectively, and are included under selling, general and administrative expenses.

Shipping and Handling Costs. Selling, general and administrative expenses for the years ended March 31, 2006 and 2005 include shipping and handling costs of $ 1,452 and $ 1,000, respectively.

Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the carrying amount of existing assets and liabilities in the financial statements and their respective tax bases and operating loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statement of operations in the period in which such change is enacted. Based on management’s assessment, the measure of deferred tax assets is reduced, if necessary, by a valuation allowance for any tax benefits for which it is more likely than not that some portion or all of such benefits will not be realized. Deferred taxes are not provided on the undistributed earnings of subsidiaries where it is expected that the earnings of the foreign subsidiary will be permanently reinvested. Under the Indian Income tax act, the Company is entitled to certain tax holidays and incentives. No deferred taxes are recognized for temporary differences that reverse during the period of such tax holidays to the extent of the income earned during this period on which the company is not liable to pay taxes.

The Company makes provisions for potential tax liabilities arising from uncertain tax positions if it is probable that the position will not be sustained and the amount of potential loss can be estimated.

Share Split and Share dividend. On January 22, 2005, Matrix’s Board of Directors approved a five-for-one Equity share split. The par value of each Rs.10 per share was reduced to Rs.2 per share and the number of shares was increased from 14,968,321 to 74,841,605. On the same day Matrix declared a one-for-one share dividend. A total of 74,841,605 shares were issued. In accordance with the Companies Act of India an amount of $ 3,424, being the par value of the shares issued as share dividend was transferred from Additional Paid-in Capital to Equity share account. The record date for the share split and dividend was January 20, 2005. The Equity share accounts, all share data and earnings per share data in these consolidated financial statements have been adjusted retroactively to give effect to the share split and dividend for all periods presented.

Earnings per equity Share. Basic earnings per equity share are computed by dividing net (loss) income by the weighted average equity shares outstanding for the period. Diluted earnings per equity share is computed using the weighted average number of equity shares outstanding during the period adjusted for the dilutive effect of stock options, using the treasury stock method except where the results would be anti-dilutive. (see Note 18).

A reconciliation of basic and diluted earnings per equity share is as follows:

		Fiscal Years Ended March 31,
		2006				2005
Net (loss) / income		$	(30,287	)		$	26,323
Weighted average equity shares outstanding			150,624,794				146,391,940
Assumed exercise of dilutive stock options			*				22,871
Diluted weighted average equity shares outstanding			150,624,794				146,414,811
Earnings per equity share:
Basic		$	(0.20	)		$	0.18
Diluted		$	(0.20	)		$	0.18

Stock Options. Matrix accounts for its stock option plans under the intrinsic-value-based method. The following table illustrates the effect on net earnings and earnings per share if Matrix had applied the fair value recognition provisions to stock-based employee compensation:

		Fiscal Year Ended March 31,
		2006				2005
Net (loss) / Income, as reported		$	(30,287	)		$	26,323
Add: Stock-based compensation expense included in reported net earnings, net of related tax effects			1,306				145
Deduct: Total compensation expense determined under fair-value based method for all stock awards, net of related tax effects			(3,503	)			(457	)
Pro forma net (loss) / income		$	(32,484	)		$	26,011
Weighted average equity shares outstanding			150,624,794				146,391,940
Assumed exercise of dilutive stock options *			—				—
Diluted weighted average equity shares outstanding			150,624,794				146,391,940
Earnings per equity share:
Basic— as reported		$	(0.20	)		$	0.18
Basic— pro forma		$	(0.22	)		$	0.18
Diluted— as reported		$	(0.20	)		$	0.18
Diluted— pro forma		$	(0.22	)		$	0.18

Contingencies. The Company is involved in various patents, product liability and, commercial litigation and claims, government investigations and other legal proceedings that arise from time to time in the ordinary course of its business (see Note 22). The Company assesses the need to accrue a liability for such contingencies and record a reserve when it determines that a loss related to a matter is both probable and reasonably estimable. Because litigation and other contingencies are inherently unpredictable, the Company’s assessment can involve judgments about future events.

Derivative financial instruments. The Company enters into derivative instruments, including foreign currency forward contracts, to manage foreign currency exposures related to its foreign currency denominated debt instruments.

All of the Company’s derivative contracts do not meet the requirements for hedge accounting and are accounted for at fair value at each period, recognizing any gain or loss in the consolidated statement of operations. Market values of the Company’s foreign currency derivative instruments are determined based on quoted market prices, traded exchange market prices or broker quotes and represent the estimated amounts that the Company would pay or receive to terminate the contracts.

Embedded derivatives that possess economic characteristics and risks that are not clearly and closely related to the economic characteristics and risks of the host contract are separated from the host contract, and carried at fair value.

Concentrations of Credit Risk. Financial instruments that potentially subject the Company to credit risk consist principally of interest-bearing investments and accounts receivable.

The Company performs ongoing credit evaluations of its customers and generally does not require collateral. Approximately 72% of the accounts receivable represents amounts due from eight customers at March 31, 2005. There are no individual customers who accounted for more than 10% of the accounts receivable for the fiscal year ended March 31, 2006.

Recent Accounting Pronouncements. In November 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 151 Inventory costs (“SFAS 151”), Amendment of Accounting Research Bulletin No.43, Chapter 4 on Inventory Costs. SFAS No. 151 amends and clarifies financial accounting and reporting for inventory costs. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005 or April 1, 2006 for the Company. The Company does not believe the impact of adoption of SFAS No. 151 on its consolidated financial statements will be significant.

In December 2004, the FASB issued SFAS No. 123(R), Share-Based Payment (“SFAS No. 123(R)”). SFAS No. 123(R) establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods and services. Under SFAS No. 123(R), companies will no longer be able to account for share-based compensation transactions using the intrinsic method in accordance with APB No. 25. Instead, companies will be required to account for such transactions using a fair-value method and to recognize compensation expense over the period during which an employee is required to provide services in exchange for the award. The Company will adopt SFAS No. 123(R) effective April 1, 2006. Based on the amount of options outstanding for which the requisite service has not yet been rendered by the employee, The Company expects to incur costs of approximately $ 3,500, net of tax, in fiscal 2007 as a result of the adoption of this standard.

In December 2004, the FASB issued SFAS No. 153, Exchanges of Non-monetary Assets an amendment of APB Opinion No. 29 (“SFAS No. 153”). SFAS No. 153 amends and clarifies the measurement of exchanges of non-monetary assets. The standard eliminates the exception from fair value measurement for non-monetary exchanges of similar productive assets and replaces it with an exception for exchanges that do not have commercial substance. SFAS No. 153 is effective for exchanges of non-monetary assets that occur during the fiscal years

beginning after June 15, 2005 or April 1, 2006 for the Company. The Company does not believe the impact of adoption of SFAS No. 153 on its consolidated financial statements will be significant.

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections (“SFAS No. 154”). SFAS No. 154 requires retrospective application to prior-period financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS No. 154 also redefines “restatement” as the revising of previously issued financial statements to reflect the correction of an error. This statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005 or April 1, 2006 for the Company. The Company does not currently believe that the adoption of SFAS No. 154 will have a material impact on the consolidated financial statements.

In June 2006, FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in the entity’s financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. FIN 48 provides a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 or April 1, 2007 for the Company. The Company is currently evaluating the impact that the adoption of FIN 48 would have on its consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007 or April 1, 2008 for the Company. The Company is currently evaluating the impact of SFAS No. 157 on its consolidated financial statements.

In September 2006, the FASB issued SFAS No. No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Benefit Plans (“SFAS No. 158”). SFAS No. 158 requires companies to recognize the over-funded or under-funded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position. This statement is effective for financial statements as of the end of fiscal years ending after December 15, 2006 or for the year ending March 31, 2007 for the Company. The Company is currently evaluating the impact of SFAS No. 158 on the consolidated financial statements.

In September 2006, the Securities and Exchange Commission issued SAB No. 108, Considering the effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB 108”). SAB 108 considers the effects of prior year misstatements when quantifying misstatements in current year financial statements. It is effective for fiscal years ending after November 15, 2006 or for the year ending March 31, 2007 for the Company. The Company is currently evaluating the impact of SAB 108 on its consolidated financial statements.

Note 3. Business Combinations

(i) Concord Biotech Limited. In February 2006, Matrix acquired 55% of the equity shares of Concord Biotech Limited (“Concord”), a limited liability company in India for $ 12,242 in cash (including directly related costs of acquisition amounting to $ 22), $ 89 non-compete fees and equity share warrants amounting to $ 627. As a part of the acquisition of Concord, Matrix subscribed to 200,000 partly paid equity shares of Concord for a total consideration of $ 1,345. Matrix paid $ 269 at the time of acquisition and the remaining amount is payable in two installments of $ 403 and $ 672 before March 31, 2007 and 2008, respectively. The present value of the consideration payable in future years amounting to $ 936 has been included in the purchase consideration stated above. The acquisition of Concord provided Matrix access to a research and development and manufacturing facility in the area of fermentation technology and a portfolio of products and patents.

Concord’s results of operations are included from the period beginning February 14, 2006.

(ii) Mchem Pharma Group. In January 2006, Matrix acquired 57.5% of the outstanding equity shares of Mchem Pharma Group, a company operating in the Peoples’ Republic of China, for $18,555 in cash (including directly related costs of acquisition amounting to $432). The acquisition gave Matrix access to anti-retroviral supplies and access to the Chinese market.

Mchem Pharma Group’s results of operations are included from the period beginning January 16, 2006.

(iii) Docpharma NV. In July 2005, Matrix acquired 22% of Equity shares in Docpharma NV, a Belgium based pharmaceutical and medical supply company operating in Europe. In September 2005 and November 2005, Matrix acquired the remaining 74% and 4%, respectively, shares of Docpharma NV. The total consideration for the three steps was paid in cash and amounted to $262,015 (including deferred consideration of $6,938 and directly related costs of acquisition amounting to $4,661). The primary objective of the acquisition was to achieve vertical integration of Matrix’s generic drug operations and gain access to European markets.

The investment was initially accounted for using the equity method of accounting for the period from July 8, 2005 to September 28, 2005. Matrix has consolidated Docpharma NV from September 29, 2005.

(iv) Vera Laboratories Limited. In October 2004, Matrix acquired 100% equity shares of Vera Laboratories Limited (“Vera Laboratories”), an Indian company, through an issuance of 291,213 Matrix shares (pre share split) valued at $9,406 , which was determined based on Matrix’s average share price of Rs.1,414 (pre share split) on the date of announcement and two days before and after the announcement date. The acquisition gave Matrix access to FDA approved manufacturing facilities as well as a portfolio of products and patents.

Vera Laboratories’ results of operations are included from the period beginning October 1, 2004.

(v) Fine Drugs and Chemicals Limited. In April 2003, Matrix acquired 100% equity shares of Vorin Laboratories Limited, which held 49% of the shares of Fine Drugs and Chemicals Limited (“FDC”), an Indian company. In October 2004, Matrix acquired the remaining 51% of the shares of FDC. The purchase consideration for the 51% acquisition was completed by issuing 128,238 shares of Matrix (pre share split) in exchange for the shares of FDC. The value of the shares issued was $4,142, which was determined, based on Matrix’s average share price of Rs.1,414 (pre share split) on the date of announcement and two days before and after the announcement date. The acquisition of FDC provided Matrix access to additional manufacturing facilities.

Matrix accounted for the investment in FDC using the equity method of accounting for the period from April 2003 until September 30, 2004. Matrix has consolidated FDC from October 1, 2004.

																		Fine Drugs
		Concord				Mchem								Vera				and
		Biotech				Pharma				Docpharma				Laboratories				Chemicals
Company acquired		Limited				Group				NV				Limited				Limited
Cash and cash equivalents		$	40			$	2,958			$	17,927			$	52			$	1
Investments			—				2,835				—				—				9
Accounts receivable, net			498				3,849				32,863				220				—
Inventories			1,023				2,644				49,885				343				72
Deferred tax asset			—				6				1,007				2,519				—
Prepaid expenses and other current assets			1,742				4,393				489				482				193
Property, plant and equipment, net			4,771				7,960				4,009				12,377				4,734
Intangible assets, net			7,902				9,484				57,350				9,020				—
In-process research and development			185				—				58,495				—				—
Other non-current assets			—				11,032				5,460				—				—
Total Assets		$	16,161			$	45,161			$	227,485			$	25,013			$	5,009
Trade accounts payable and accrued liabilities			—				15,868				12,836				952				1,815
Short-term borrowings			—				21,754				10,658				14,168				2,139
Deferred tax liability			3,462				481				16,994				—				1
Other current liabilities			1,313				4,515				—				59				—
Minority interest			—				2,888				—				—				—
Long-term debt			1,102				—				19,014				560				—
Other long-term liabilities			6				108				5,857				—				41
Total Liabilities		$	5,883			$	45,614			$	65,359			$	15,739			$	3,996
Fair value of net assets acquired		$	10,278			$	(453	)		$	162,126			$	9,274			$	1,013

The assets and liabilities acquired as a result of above business combinations were recorded at fair values, with the excess of the purchase consideration over fair value of the net assets acquired recorded as goodwill. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for the above business combinations.

The allocation of the purchase consideration is as follows:

																		Fine Drugs
		Concord				Mchem								Vera				and
		Biotech				Pharma				Docpharma				Laboratories				Chemicals
		Limited				Group				NV				Limited				Limited
Cash paid or equity stock issued at fair value		$	6,033			$	15,103			$	250,416			$	9,406			$	5,068
Deferred consideration (included in other current liabilities)			6,276				3,020				6,938				—				—
Acquisition costs			22				432				4,661				—				—
Total purchase consideration		$	12,331			$	18,555			$	262,015			$	9,406			$	5,068
Allocation of Purchase Consideration:
Fair value of net assets acquired		$	10,278			$	(453	)		$	162,126			$	9,274			$	1,013
Goodwill			2,053				19,008				99,889				132				4,055
Total		$	12,331			$	18,555			$	262,015			$	9,406			$	5,068

Goodwill from the acquisition of Concord, Mchem Pharma Group, Vera Laboratories and FDC is allocated to the pharmaceutical reporting segment. For Docpharma NV, the goodwill is allocated to the pharmaceuticals and medical supplies reporting segments at $74,917 and $24,972 respectively.

Intangible assets acquired and the value assigned to each of these assets is as follows:

		Concord				Mchem								Vera
		Biotech				Pharma				Docpharma				Laboratories
		Limited				Group				NV				Limited
In-process research and development		$	185			$	—			$	58,495			$	—
Developed products			7,902				9,484				35,935				9,020
Exclusive supply agreements			—				—				7,018				—
Trade names			—				—				10,406				—
Customer relationships			—				—				3,388				—
Other intangibles			—				—				603				—
Total		$	8,087			$	9,484			$	115,845			$	9,020

The following unaudited pro forma consolidated summary of operations presents information of the Company as if the above acquisitions had occurred as at April 1, 2004. These pro forma results are for illustrative purposes. They do not purport to be indicative of the results of operations which actually would have resulted had the acquisition of the above mentioned entities occurred as of April 1, 2004 or the future results of operations of the combined entity.

		(Unaudited)
		Fiscal year ended March 31,
		2006				2005
Revenues		$	378,952			$	293,170
Net (loss) / income after tax			(32,776	)			30,188
Basic earnings per equity share		$	(0.22	)		$	0.20
Diluted earnings per equity share		$	(0.22	)		$	0.20

Note 4 — Investment in Affiliates

In September 2005, Matrix entered into a joint venture agreement with Aspen Corporation for Astrix Laboratories Limited (“Astrix”) in which Matrix holds a 50% interest. Astrix produces APIs in India. As consideration for its 50% interest, Matrix contributed cash of $507 and a 50% interest in an API manufacturing facility located in India, know-how, licenses and intellectual property with a fair value of $36,510. Aspen contributed cash of $37,017 for its 50% interest in Astrix. Subsequent to the initial contribution of assets and cash, Astrix purchased the remaining 50% interest in the API manufacturing facility and certain intellectual property for $36,510 from Matrix resulting in a gain on sale of property, plant and equipment amounting to $1,195 and the sale of intangibles amounting to $24,137. Matrix accounts for its contribution of assets to Astrix at its historical book value from September 2005.

Also in September 2005 and in conjunction with the Astrix transaction, Matrix contributed $22,561 to acquire a 50% interest in Fine Chemicals Corporation (“FCC”), a company previously 100% owned by Aspen. FCC produces anti-viral APIs in the Republic of South Africa. Matrix was obliged to pay a further sum to be determined on the finalization of the Earnings Before Interest Tax Depreciation and Amortization (“EBITDA”) for the year ending on June 30, 2007, subject to a minimum of $4,163 . Matrix assumed 50% of such amount and its present value amounting to $3,796 has been included in the purchase consideration for FCC.

Matrix accounts for its share in the profits / (losses) of FCC and in Astrix in accordance with the equity method of accounting.

Note 5. Accounts receivable, net

		As of March 31,
		2006				2005
Accounts receivable		$	77,531			$	34,637
Less: Allowances for doubtful accounts			(5,046	)			(1,034	)
Total		$	72,485			$	33,603

The following table sets forth the changes in the allowance for doubtful accounts:

		Fiscal year ended March 31,
		2006				2005
Balance, beginning of the year		$	1,034			$	423
Add: Net movement during the year			4,012				611
Balance, end of the year		$	5,046			$	1,034

The Company’s allowance for doubtful accounts is included in selling, general and administrative expenses.

Note 6. Inventories

		As of March 31,
		2006				2005
Stores and Spares		$	1,035			$	855
Raw materials			17,397				15,808
Work-in-process			23,189				18,730
Finished goods			54,215				10,946
Total		$	95,836			$	46,339

Note 7. Prepaid expenses and other current assets

		As of March 31,
		2006				2005
Prepaid expenses and advances		$	14,084			$	3,234
Advance tax			16,489				11,844
Deposits			1,026				895
Indirect tax receivable			4,848				2,509
Insurance claim receivable			2,239				38
Other current assets			12,292				9,837
Total		$	50,978			$	28,357

Note 8. Property, plant and equipment, net

		As of March 31,
		2006				2005
Land and Buildings		$	41,035			$	34,756
Plant and Machinery			82,445				61,591
Office Equipment			2,656				1,109
Computers			2,467				1,317
Furniture and Fixtures			3,795				1,977
Vehicles			2,346				1,431
Construction in Progress			22,013				8,733
Less : Accumulated depreciation			(29,878	)			(21,871	)
Property, plant and equipment, net		$	126,879			$	89,043
Depreciation expense for the year		$	8,971			$	4,556

Depreciation is included as part of cost of sales, selling, general and administrative expenses and research and development expenses in the consolidated statements of operations.

Certain assets are pledged as collateral security for the borrowings of the Company. See Note 12 for details.

Note 9. Intangible Assets

Intangible assets, excluding goodwill, consist of the following components:

		Weighted
		Average												Net
		Life				Original				Accumulated				Book
		(years)				Cost				Amortization				Value
March 31, 2006
Amortized intangible assets:
Software			5			$	1,704			$	(551	)		$	1,153
Developed products, Patents and DMFs			4-20				79,187				(9,774	)			69,413
Trade names			15				10,406				(344	)			10,062
Supply agreements			10				6,897				(351	)			6,546
Customer relationships			10				3,388				(168	)			3,220
Maintenance contracts			10				484				(22	)			462
Total						$	102,066			$	(11,210	)		$	90,856
March 31, 2005
Amortized intangible assets:
Software			5			$	1,046			$	(381	)		$	665
Developed products, Patents and DMFs			4-20				23,373				(4,798	)			18,575
Total						$	24,419			$	(5,179	)		$	19,240

Amortization expense for fiscal years ended March 31, 2006 and 2005 was $3,558 and $2,473, respectively. The estimated amortization expenses for each of the five succeeding fiscal years are as follows:

For the fiscal year ended on March 31,		Amortization Expense
2007		$	12,343
2008			9,282
2009			9,187
2010			8,889
2011			8,734

Note 10. Goodwill

		As of March 31,
		2006				2005
Opening balance		$	4,187				—
Acquired during the year			120,950			$	4,187
Foreign currency translation adjustment			(78	)			—
Balance, end of the year		$	125,059			$	4,187

Note 11. Investment in Affiliates

Investment in affiliates comprise of the following as of March 31, 2006:

		Percentage of				Carrying value of
		Ownership				investment				Original cost
Astrix Laboratories Limited			50	%		$	840			$	507
Fine Chemical Corporation (Proprietary) Limited			50	%			16,840				22,561
Explora SA			43	%			2,762				2,928
Uteron Pharma SA			48	%			1,936				1,936
Total						$	22,378

Note 12. Short-term borrowings

		As of March 31,
		2006				2005
Working capital facilities		$	89,261			$	22,571
Current portion of long-term debt			106,266				—
Total		$	195,527			$	22,571

Working Capital facilities are availed from State Bank of India, Andhra Bank, The Bank of Nova Scotia, ABN Amro Bank, UTI Bank, HDFC Bank, ING, Fortis, KBC Bank Agricultural Bank of China, Import and Export Bank of China and Industrial and Commercial bank of China and are secured by first charge on the current assets and a second charge on property, plant and equipment. Working capital facilities from Export Import Bank of India are secured by first charge on property, plant and equipment. The working capital facilities carry interest rates of 4 to 14%.

Note 13. Other current liabilities

		As of March 31,
		2006				2005
Taxes payable		$	378			$	172
Payroll and employee benefit plan accruals			16,050				2,661
Advance received from customers			338				47
Deferred revenue			2,952				22,350
Deferred consideration (see Note 3)			16,234				—
Others			2,145				233
Total		$	38,097			$	25,463

Note 14. Long-Term Debt

A summary of long-term debt at March 31, 2006 is as follows:

		As of
		March 31, 2006
Long-term Loans		$	208,432
Less: Current portion			(106,266	)
Total long-term debt		$	102,166

The long term loans comprise of:

Facility A — Loan of Euro 82.50 million repayable in July 2006 (see Note 23)
Facility B — Loan of Euro 82.50 million repayable during 2008-11
Other long-term debts — US$8,785 repayable during 2007-10

The Company’s effective interest rate for Euro loan is Euro Interbank Offered Rate (Euribor) + 100 basis points for Facility A of Euro 82.50 million and Euribor + 129 basis points for Facility B of Euro 82.50 million for the fiscal year ended March 31, 2006. Facility A was originally repayable in July 2006 but was extended to January 2007 and then further extended by six months to July 2007(see Note 23). The Company did not have any long-term debt outstanding during the fiscal year ended March 31, 2005.

The Euro denominated loans are collateralized by the pledge of Docpharma NV shares held by Matrix Laboratories NV and shares of Matrix Laboratories NV held by Matrix Laboratories B.V. The loan is further collateralized by corporate guarantee by Matrix to ABN Amro Bank NV on behalf of Matrix Laboratories NV.

The fair value of the debt approximates its carrying value as the borrowing rate of the Company had not changed significantly at March 31, 2006 from its origination date.

Principal maturities of the long term debt for the next five years and thereafter, as of March 31, 2006, are as follows:

Fiscal year ending on March 31,
2007		$	106,266
2008			11,505
2009			37,804
2010			32,893
2011			19,964
Total		$	208,432

The total interest expense incurred during the period is $2,139 and $ Nil for the fiscal years ended March 31, 2006 and 2005, respectively.

The secured long-term loan agreements require Matrix and its various subsidiaries to comply with certain covenants, under which the approval of the lenders is required for certain transactions which include incurring additional indebtedness or guarantees; declaration or payment of dividends; entering into sale and leaseback transactions; sale of assets; engaging in transactions with affiliates; entering into acquisitions or mergers, joint ventures, consolidations or sales of the Company’s assets; and entering into new lines of business. The covenants also prescribe certain maximum ratios of debt to earnings or equity ratios and minimum levels of interest and debt service coverage ratios.

Unused lines of credit. Unused lines of credit aggregating $6,651 as of March 31, 2006 are immediately available and carry an interest rate of 3 to 8%.

Note 15. Other Long-Term Obligations

		As of March 31,
		2006				2005
Sales tax deferment		$	952			$	1,427
Advances			4,015				—
Others			195				74
Total long-term obligations		$	5,162			$	1,501

Note 16. Income Taxes

Income taxes consist of the following components:

		Fiscal year ended March 31,
		2006				2005
Income tax expenses / (benefit)
Domestic:
Current		$	3,651			$	9,387
Deferred			6,197				(2,218	)
Foreign:			—				—
Current			615				—
Deferred			(4,966	)			—
Total		$	5,497			$	7,169
Pre-tax (loss) / income		$	(23,172	)		$	33,840
Effective tax rate			(23.72	%)			21.18	%

Temporary differences and carry forwards that result in the deferred tax assets and liabilities are as follows:

		As of March 31,
		2006				2005
Deferred tax assets:
Tax loss carry forwards		$	5,735			$	—
Intangible assets			390				—
Accounts receivable allowances			4,983				4,441
Other timing differences			4,352				5,619
Less: valuation allowance			(4,578	)			—
Total deferred tax assets, net		$	10,882			$	10,060
Deferred tax liabilities:
Property, plant and equipment		$	19,097			$	18,235
Intangible assets			14,720				—
Inventories			2,846				2,562
Other timing differences			7,440				243
Total deferred tax liabilities		$	44,103			$	21,040
Deferred tax liability, net		$	(33,221	)		$	(10,980	)
Classification in the Consolidated balance sheets:
Deferred income tax asset — current			752				7,255
Deferred income tax liability — current			(2,646	)			—
Deferred income tax liability — non-current			(31,327	)			(18,235	)
Deferred tax liability, net		$	(33,221	)		$	(10,980	)

The Company has $5,735 and $0 in tax loss carry forwards as of March 31, 2006 and 2005, respectively; realization of which is dependent on the Company generating sufficient taxable income prior to the expiration of the tax loss carry forwards.

Matrix benefits from certain tax incentives provided to the pharmaceutical industry under Indian income tax laws for 100% Export Oriented Units. These incentives provide a deduction from taxable income of an amount equal to 100% of profits proportionate to export turnover for ten assessment years commencing from the assessment year when the commercial production starts. This incentive is available for Matrix up to March 31, 2009. Matrix also benefits from tax incentives provided for research and development units approved by specified authority under the Indian income tax laws. Pursuant to this incentive, a weighted deduction at 150% of the research and development expenses incurred is allowed. This incentive can be availed up to March 31, 2007.

Provisions for tax loss contingencies are made when it is probable that the Company’s tax position will not be sustained and the amount of loss can be reliably estimated.

A reconciliation of the statutory tax rate to the effective tax rate is as follows:

		Fiscal year ended March 31,
		2006				2005
Statutory tax rate		$	33.66	%		$	36.59	%
Tax benefit (expense) at India statutory income tax rate			7,800				(12,382	)
Change in statutory rate			864				(316	)
Effect of tax holidays			3,706				7,866
Impact of income taxed at different rates			4,528				—
Acquired — IPR&D			(20,073	)			—
Valuation allowance			(4,578	)			—
Nondeductible expenses			(385	)			(2,981	)
Exempt income			221				505
R&D			1,925				760
Other items			495				(621	)
Total income tax benefit (expense)		$	(5,497	)		$	(7,169	)

Note 17. Dividends and equity shares transactions

Dividends

Final dividends proposed by the Board of Directors are payable when formally declared by the shareholders, who have the right to decrease but not increase the amount of the dividend recommended by the Board of Directors. Interim dividends are declared by the Board of Directors without the need for shareholders’ approval.

Dividends payable to equity shareholders are based on the net income available for distribution as reported in Matrix’s consolidated financial statements prepared in accordance with Indian GAAP. Dividends can only be declared and paid in Indian Rupees and/or converted into foreign currency for an equivalent amount in cases where dividend is permitted to be repatriated.

Under the Indian Companies Act, dividends may be paid out of the profits of a company in the year in which the dividend is declared or out of the undistributed profits of previous fiscal years. Before declaring a dividend greater than 10% of the par value of its equity shares, a company is required to transfer to its reserves a minimum percentage of its profits for that year, ranging from 2.5% to 10%, depending on the dividend percentage to be declared in such year. Dividends can be distributed out of the general reserve in case of a loss or inadequacy of current distributable profits. Presently, Matrix is required to pay dividend tax on the total amount of the dividend declared, distributed or paid at the specified tax rate including surcharge.

Equity shares transactions

During the fiscal year ended March 31, 2006, Matrix issued 3,500,000 equity shares for $ 17,396 to the promoters of Docpharma NV. In addition 394,330 Stock options were exercised during the period for $ 1,272.

During the fiscal year ended March 31, 2005, Matrix issued 11,250,000 Equity shares to strategic financial investors for $ 74,980 (net of issuance cost). In addition, 2,102,175 shares were issued as consideration for business combinations (see Note 3).

Note 18. Stock Option Plan

Matrix has two stock option plans, Employee Stock Option Plan 2004 (the “2004 Plan”) and Employee Stock Option Plan 2006 (the “2006 Plan”). Under the 2004 Plan and 2006 Plan, five million and one million equity shares, respectively, are reserved for issuance to the employees of Matrix, excluding promoters and certain directors with holdings of over 10% of outstanding equity shares.

The options vest equally over a four year period after they are granted and are exercisable for five years from the date of vesting. Options are granted at a discount to the average weekly High and Low closing prices of Matrix equity shares, as quoted on the National Stock Exchange of India during the six month period prior to the date of grant of the option.

In February 2006, July 2005 and February 2005, Matrix granted 666,000, 1,088,000 and 3,000,000 options, respectively, as permitted under the 2004 Plan. The compensation expense arising from the issuance of options is recognized using the Intrinsic value method as per APB 25 over a period of four years using the graded vesting method.

The following table summarizes stock option activity:

						Weighted Average
		Number of Shares				Exercise Price
		Under Option				per Share (Rs.)
Outstanding at April 1, 2004			—				—
Options granted February 2005			3,000,000				143.14
Options exercised			—				—
Options forfeited			—				—
Options expired			—				—
Outstanding at March 31, 2005			3,000,000				143.14
Exercisable at March 31, 2005			—				—
Options granted July 2005			1,088,000				144.63
Options granted February 2006			666,000				171.00
Options exercised			(394,330	)			143.14
Options forfeited			(375,875	)			145.48
Options expired			—				—
Outstanding at March 31, 2006			3,983,795				147.98
Exercisable at March 31, 2006			295,570				143.14
Weighted average grant date fair value for options granted during the year at market value			—				—
Weighted average grant date fair value for options granted during the year at more than market value			—				—
Weighted average grant date fair value for options granted during the year at less than market value			1,754,000				154.64