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Auditor Report of Kernex Microsystems (India) Ltd.

Mar 31, 2016

INDEPENDENT AUDITOR''S REPORT

To

The Members of

Kernex Microsystems (India) Limited

1. Report on the Financial Statements

We have audited the accompanying financial statements of KERNEX MICROSYSTEMS (INDIA) LIMITED, (“The Company”), which comprise the Balance Sheet as at March 31, 2016, the Statement of Profit and Loss and Cash Flow Statement for the year then ended and a summary of significant accounting policies and other explanatory information.

2. Management''s Responsibility for the Financial Statements

The Company''s Board of Directors is responsible for the matters stated in Section 134(5) of the Companies Act, 2013 (“the Act”) with respect to the preparation of these standalone financial statements that give a true and fair view of the financial position, financial performance and in accordance with the accounting principles generally accepted in India, including the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014.

This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

3. Auditor''s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit.

We have taken into account the provisions of the

Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the Act and the Rules made there under.

We conducted our audit in accordance with the Standards on Auditing specified under Section 143(10) of the Act. Those Standards require that we comply with 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 the disclosures in the financial statements. The procedures selected depend on the auditor''s 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, the auditor considers internal financial control relevant to the Company''s preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Company''s Directors, 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 audit opinion on the financial statements.

4. Opinion

In our opinion and to the best of our information and according to the explanations given to us, the financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of the Company as at 31st March, 2016 and its loss and its cash flows for the year ended on that date.

5. Other Matters

We did not audit the financial statements/ information of Egypt Branch included in the standalone financial statements of the Company whose financial statements/information reflect total assets of Rs.12,65,92,013 as at 31st March, 2016 and total revenues of Rs.3,23,67,138 for the year ended on that date, as considered in the standalone financial statements. The financial statements/information of this foreign branch have been audited by the branch auditors whose reports have been furnished to us, and our opinion in so far as it relates to the amounts and disclosures included in respect of this branch, is based solely on the report of such branch auditors and the returns submitted at the branch.

The outstanding debtors amount of Rs.24.06 crores from Konkan Railway Corporation Limited is subject to confirmation and reconciliation.

Our opinion is not modified in respect of this matter.

6. Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor''s Report) Order, 2016 (“the Order”) issued by the Central Government of India in terms of sub-section (11) of section 143 of the Act, we give in the Annexure A, a statement on the matters specified in the paragraph 3 and 4 of the order.

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

(a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit;

(b) In our opinion proper books of account as required by law have been kept by the Company so far as appears from our examination of those books.

(c) The Balance Sheet, the Statement of Profit and Loss and the cash flow statement dealt with by this Report are in agreement with the books of account.

(d) In our opinion, the aforesaid financial statements comply with the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014;

(e) On the basis of written representations received from the directors as on 31st March,2016 and taken on record by the Board of Directors, none of the directors is disqualified as on 31st March, 2016 from being appointed to act as a director in terms of Section 164(2) of the Act;

(f) With respect to the adequacy of the internal financial controls over financial reporting of the company and the operating effectiveness of such controls, refer to our separate report in the “Annexure B” and

(g) With respect to other matters to be included in the Auditor''s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules,2014, in our opinion and to the best of our information and according to the explanations given to us:

I. the company has disclosed the impact of pending litigations on its financial position in its financial statements- Refer Note No. 27 to the financial statements;

ii. the company has made provision, as required under the applicable law or accounting standards, for material foreseeable losses, if any on long-term contracts including derivative contracts-Refer Note 27 to the financial statements;

iii. There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company.

1. a) The Company has maintained requisite records showing required particulars including quantitative details and situation of its fixed assets.

b) According to the information and explanation given to us by the management, most of the fixed assets of the company have been physically verified by the management during the year and the intervals of such verification had also been reasonable.

c) According to the information and explanations given to us and on the basis of our examination of the records of the Company, the title deeds of immovable properties are held in the name of the company.

2. As explained to us by the management and as observed by us, the inventory of raw material, finished goods stores and spares etc. has been physically verified during the year and specifically at the year-end by the management and no material discrepancies were observed in the inventories.

3. Based on our scrutiny and as per information and explanations provided to us by the management, the company has not granted any loans during the period under review covered in the registers maintained under section 189 of the Companies Act, 2013. Since there are no loans granted sub-clauses b, c and d are not applicable.

4. Based on our scrutiny and as per the information provided by the management, the company does not have any transactions in respect of loans, investments, guarantees and securities granted, to be complied with the provisions of Sections 185 and 186 of the Companies Act, 2013.

Name of the Statute

Amount (Rs. In lakhs)

Period to which the amount relates

Forum where dispute is pending

Income Tax Act, 1961

8.00

F.Y. 1997-98

A.Y. 1998-99High Court of Judicature at Hyderabad for the state of Telangana and State of Andhra Pradesh

APGST Act, 1957

4.13

F.Y. 2002-03

Sales Tax Appellate Tribunal

5. Based on our scrutiny and as per the information provided by the management, the company has not accepted any deposits during the year under review attracting the sections 73 to 76 of the Companies Act, 2013 and rules made there under.

6. According to the information and explanations given, the maintenance of cost records as specified under sub-section (1) of section 148 of the Companies Act, 2013 are not applicable for the year under review.

7. a) According to the books and records as

produced and examined by us in accordance with Generally Accepted Auditing Practices in India and also based on management representations, undisputed statutory dues in respect of provident fund, employee state insurance, income tax, service tax, sales tax, value added tax, excise duty, cess and other material statutory dues have not been regularly deposited by the company during the year with the appropriate authorities and the outstanding statutory dues as at the end of the financial year outstanding for more than 6 months are as follows :

Nature of Statutory Dues

Amount (Rs. in Lakhs)

Provident Fund Employees

State Insurance Tax

Deducted at Source

Service Tax

Professional Tax

Works Contract Tax

TOTAL

42.25

3.22

24.18

190.78

0.49

9.69

270.61

b) According to information and explanations given to us, disputed amounts payable in respect of Income Tax and Sales Tax were outstanding as on 31st March, 2016 are as follows:

8. As observed by us and as per the information and explanations given by the management, we are of the opinion that the company has not defaulted in repayment of dues to its financial institution or bank during the year under audit.

9. As observed by us, the company has not availed any Term Loans from Banks during the year. The company has not raised any monies by way of IPO or FPO during the year under review.

10. Based upon the audit procedures performed and information and explanations given by the management, we report that no material fraud on or by the company by its officers or employees has been noticed or reported during the course of our audit.

11. According to the information and explanations given to us and based on our examination of the records of the company, the managerial remuneration paid/provided during the year by the company is as per the provisions of section 197 read with Schedule V of the Companies Act, 2013.

12. In our opinion and according to the information and explanations given to us, the company is not a nidhi company. Accordingly, paragraph 3(xii) of the Order is not applicable.

13. According to the information and explanations given to us and based on our examination of the records of the company, transactions with related parties are in compliance with section 177 and 188 of the Act wherever applicable and details of such transactions have been disclosed in the financial statements as required by the applicable accounting standards.

14. According to the information and explanations given to us and based on our examination of the records of the company, the company has not made any preferential allotment or private placement of shares or fully or partly convertible debentures during the year.

15. As observed by us and as per the information and explanations given by the management, the company has not entered into any non-cash transactions with the directors or persons connected with him, during the period under review.

16. The Company is not required to be registered under Section 45-IA of the Reserve Bank of India Act, 1934.

For GMK ASSOCIATES,

Chartered Accountants

Firm Regn No.006945S

G. Satyanarayana Murty

Partner

Membership No: 29919

Place: Hyderabad

Date: 28th May, 2016


Mar 31, 2015

We have audited the accompanying standalone financial statements of KERNEX MICROSYSTEMS (INDIA) LIMITED ('the Company'), which comprise the Balance Sheet as at 31 March 2015, the statement of profit and loss and the Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management's Responsibility for the Standalone Financial Statements

The Company's Board of Directors is responsible for the matters stated in Section 134(5) of the Companies Act, 2013 ("the Act") with respect to the preparation and presentation of these standalone financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on these standalone financial statements based on our audit. We have taken into account the provisions of the Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the Act and the Rules made there under.

We conducted our audit in accordance with the Standards on Auditing specified under Section 143(10) of the Act. Those Standards require that we comply with 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 the disclosures in the financial statements. The procedures selected depend on the auditor's 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, the auditor considers internal financial control relevant to the Company's preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on whether the Company has in place an adequate internal financial controls system over financial reporting and the operating effectiveness of such controls. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Company's Directors, 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 audit opinion on the standalone financial statements.

Opinion

In our opinion and to the best of our information and according to the explanations given to us, the aforesaid standalone financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of the Company as at 31 March 2015 and its Loss and its cash flows for the year ended on that date

Other Matter

We did not audit the financial statements/information of Egypt branch included in the standalone financial statements of the Company whose financial statements/ information reflect total assets of Rs.14,64,52,805 as at 31st March,2015 and total revenues of Rs. 4,27,34,800 for the year ended on that date, as considered in the standalone financial statements. The financial statements/information of these foreign branch have been audited by the branch auditors whose reports have been furnished to us, and our opinion in so far as it relates to the amounts and disclosures included in respect of these branch, is based solely on the report of such branch auditors.

The outstanding Debtors amount of Rs 18.18 Crores from Konkan Railway Corporation Limited are subject to confirmation and reconciliation.

Our opinion is not modified in respect of this matter.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor's Report) Order, 2015 ("the Order") issued by the Central Government of India in terms of sub-section (11) of section 143 of the Act, we give in the Annexure a statement on the matters specified in the paragraph 3 and 4 of the Order, to the extent applicable

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

a. We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit.

b. In our opinion proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books;

c. The reports on the accounts of the foreign branch office of the Company audited under the provisions of Egyptian Laws by branch auditors have been sent to us and have been properly dealt with by us in preparing this report;

d. the balance sheet, the statement of profit and loss and the cash flow statement dealt with by this Report are in agreement with the books of account;

e. in our opinion, the aforesaid standalone financial statements comply with the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014;

f. on the basis of the written representations received from the Directors as on 31 March 2015 taken on record by the Board of Directors, none of the directors is disqualified as on 31 March 2015 from being appointed as a director in terms of Section 164 (2) of the Act; and

g. With respect to the other matters to be included in the Auditor's Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us:

i. the Company has disclosed the impact of pending litigations on its financial position in its financial statements - Refer Note 26 to the financial statements;

ii. The Company did not have any long term contracts including derivative contracts for which there were any material foreseeable losses ;

iii. There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company.

Annexure to the Independent Auditors' Report

The Annexure referred to in our Independent Auditors' Report to the members of the Company on the standalone financial statements for the year ended 31 March 2015, we report that:

(I) (a) The Company has maintained proper records showing full particulars, including quantitative details and situation of fixed assets

(b) As per information and explanations given to us by the management, physical verification of Fixed Assets has been carried out during the year and no material discrepancies are noticed.

(II) (a) The Inventory has been physically verified by the management at reasonable intervals.

(b) In our opinion and according to the information and explanations given to us, the procedures for physical verification of inventory followed by the management were reasonable and adequate in relation to the size of the Company and the nature of its business;

(c) On the basis of our examination of the inventory records, in our opinion, the company has maintained proper records of inventory. The discrepancies noticed on physical verification of inventory as compared to book records were not material.

(III) During the year, the Company has not granted any loans, secured or unsecured, to the companies, firms or other parties covered in the register maintained under Section 301 of the Companies Act, 2013.

Hence Clauses (iii) (a) & (b) of the Order are not applicable.

(IV) In our opinion and according to the information and explanations provided to us there are adequate internal control system commensurate with the size of the Company and the nature of its business with regard to purchase of inventory, fixed assets and for sale of goods and services. During the course of our audit, no major weakness has been noticed in the internal control.

(V) The Company has not accepted any deposits from the public during the year under review falls under section 73 to 76 of the Companies Act 2013;

(VI) Books of account to be maintained by the Company, pursuant to the Rules made by the Central Government of India for the maintenance of cost records, is not applicable for this company for the year under review.

(VII)(a) There have been delays in depositing undisputed statutory dues including Provident Fund, Employees State Insurance, Income Tax and Service Tax with appropriate authorities during the year. According to the records, information and explanations provided to us, there are undisputed amounts payable in respect of Provident Fund Rs 10,52,071/-, TDS Rs1852602/-, and Corporate Dividend Tax Rs 20,27,757 were outstanding at the yearend for a period of more than six months from the date they become payable ;

(b) According to the information and explanations provided to us, particulars of out-standing dues of Income tax and Sales tax have not been deposited on account of any dispute are given below:

Name of Statute Nature of the Period to Dues which the amount relates

Income Tax Act Income Tax A.Y 1998-99

APGST Sales Tax A.Y 2003-04

Name of Statute Amount Forum where (Rupees in Lakhs) dispute is pending

Income Tax Act 8.00 High Court

APGST 4.13 STAT



(VIII) The Company does not have any accumulated losses at the end of the financial year and has incurred a cash loss of Rs 5,51,64,254 during the year covered by our audit and has not incurred any cash loss in the immediately preceding financial year.

(IX) Based on our audit procedures and on the information and explanations given by the management, the Company has not defaulted in repayment of dues to any financial institution or bank;

(X) On the basis of our examination of the books of accounts and the information and explanation given to us the Company has not given any guarantee for loans by others from bank or financial institutions ;

(XI) According to the information and explanations given to us, the company has not availed any term loans during the year under review.

(XII) Based on the audit procedures performed and information and explanations given to us by the management, we report that no fraud on or by the Company has been noticed or reported during the course of our audit.

For GMK Associates Chartered Accountants Firm Regn No. 006945S

(G. Satyanarayana Murty) Place: Hyderabad Partner Date: 24th May, 2015 Membership No. 029919


Mar 31, 2014

We have audited the accompanying financial statements of KERNEX MICROSYSTEMS (INDIA) LIMTED("the Company"), which comprise the Balance Sheet as at March 31, 2014 and the Statement of Profit and Loss and Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management''s Responsibility for the Financial Statements

Management is responsible for the preparation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the Accounting Standards referred to in sub-section (3C) of section 211 of the Companies act, 1956 ("the Act") read with the General Circular 15/2013 dated 13th September, 2013 of the Ministry of Corporate Affairs in respect of Section 133 of the Companies Act, 2013 and in accordance with the accounting principles generally accepted in India. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditor''s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. Those Standards require that we comply with 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 the auditor''s 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, the auditor considers 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. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by management, as well as evaluating the overall 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 audit opinion.

Opinion

In our opinion and to the best of our information and according to the explanations given to us, the financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India:

(a) In the case of the Balance Sheet, of the state of affairs of the Company as at March 31, 2014

(b) In the case of Statement of Profit and Loss, of the profit for the year ended on that date.

(c) In the case of the Cash Flow Statement, of the Cash flows for the year ended on that date.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor''s Report) Order ,2003 ("the Order") issued by the Central Government of India in terms of sub-section (4A) of section 227 of the Act, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the Order.

2. 2. As required by section 227(3) of the Act, we report that:

a. We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit.

b. In our opinion proper books of account as required by law have been kept by the Company so far as appears from our examination of those books.

c. The Balance Sheet and Statement of Profit and Loss dealt with by this Report are in agreement with the books of account.

d. In our opinion, the Balance Sheet, Statement of Profit and Loss comply with the Accounting Standards notified under the Act read with the General Circular 15/2013 dated 13th September, 2013 of the Ministry of Corporate Affairs in respect of Section 133 of the Companies Act, 2013.

e. On the basis of written representations received from the directors as on 31st March 2014, and taken on record by the Board of Directors, none of the directors is disqualified as on March 31st, 2014 from being appointed as a director in terms of clause (g) of sub-section (1) of section 274 of the Companies Act,1956.

f. Since the Central Government has not issued any notification as to the rate at which the cess is to be paid under section 441A of the Companies Act, 1956 nor has it issued any Rules the under the said section, prescribing the manner in which such cess is to be paid, no cess is due and payable by the Company.

Annexure to the Auditor''s report of even date to the Members of Kernex Microsystems (India) Limited

(I) (a) The Company''s fixed assets register showing full particulars including Quantitative details and the situation of its fixed assets is to be updated.

(b) As per the explanations given to us by the management, physical verification of Fixed Assets has been carried out during the year and no material discrepancies are noticed.

(c) None of the major fixed assets of the Company are disposed off during the year.

(II) (a) The Inventory has been physically verified by the management at reasonable intervals.

(b) In our opinion and according to the information and explanations given to us, the procedures for physical verification of inventory followed by the management were reasonable and adequate in relation to the size of the Company and the nature of its business;

(c) On the basis of our examination of the inventory records, in our opinion, the company has maintained proper records of inventory. The discrepancies noticed on physical verification of inventory as compared to book records were not material.

(III) (a) During the year, the Company has not granted any loans, secured or unsecured, to the companies, firms or other parties covered in the register maintained under Section 301 of the Companies Act, 1956. Hence Clauses (iii) (b), (c) & (d) of the Order are not applicable.

(b) The Company has taken short term loans of Rs 485.85 Lakhs from 4 Directors during the year and the maximum and outstanding balance is Rs 485.85 Lakhs from other parties covered in the register maintained under Section 301 of the Companies Act, 1956. The Terms and conditions are not prejudicial to the interest of the company.

(IV) In our opinion and according to the information and explanations provided to us there are adequate internal control system commensurate with the size of the Company and the nature of its business with regard to purchase of inventory, fixed assets and for sale of goods and services. During the course of our audit, no major weakness has been noticed in the internal control.

(V) Based on the audit procedures applied by us and according to the information and explanations provided by the management, we are of the opinion that there have been no transactions that need to be entered into the register maintained under Section 301;

(VI) The Company has not accepted any deposits from the public during the year under review falls under section 58A and 58AA of the Companies Act 1956;

(VII) The Company has an in-house internal audit department, which, in our opinion the scope is commensurate with the size and nature of the business of the company;

(VIII) We have broadly reviewed the books of account maintained by the Company in respect of the products where, pursuant to the Rules made by the Central Government of India, the maintenance of cost records has been prescribed under clause (d) of Section 209 of the Act and are of the opinion that prima facie, the prescribed accounts and records have been made and maintained. We have not, however, made a detailed examination of the records with a view to determine whether they are accurate or complete.

(IX) (a) There have been delays in depositing undisputed statutory dues including Provident Fund, Employees State Insurance, Income Tax and Service Tax with appropriate authorities during the year. According to the records, information and explanations provided to us, there are undisputed amounts payable in respect of Provident Fund Rs 28,35,064/- Employees State Insurance Rs. 5,78,862, TDS Rs 52,57,692/-,and Corporate Dividend Tax Rs 20,27,757/-were outstanding at the yearend for a period of more than six months from the date they become payable ;

(b) According to the information and explanations provided to us, particulars of out standing dues of Income tax and Sales tax have not been deposited on account of any dispute are given below:

Name of Statute Nature of the Period to which Amount(Rupees in Dues the amounts relates Lakhs)

Income Tax Act Income Tax A.Y 1998-99 8.00

APGST Sales Tax A.Y 2003-04 4.13 Name of Statute Forum dispute is pending

Income Tax Act High Court

APGST STAT

(X) The Company does not have any accumulated losses at the end of the financial year and has not incurred any cash loss during the year covered by our audit and also in the immediately preceding financial year.

(XI) Based on our audit procedures and on the information and explanations given by the management, the Company has not defaulted in repayment of dues to any financial institution or bank;

(XII) Based on our examination and according to the information and explanations given to us , the Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities ;

(XIII) In our opinion, the Company is not a Chit Fund / Nidhi / Mutual Benefit Fund/ Society and Clause 4 (xiii) of the Order are not applicable to this company.

(XIV) In our opinion, the Company is not dealing or trading in shares, securities, debentures and other investments. Accordingly, the provisions of Clause 4(xiv) of the Order not applicable to the Company.

(XV) On the basis of our examination of the books of accounts and the information and explanation given to us the Company has not given any guarantee for loans by others from bank or financial institutions ;

(XVI) According to the information and explanations given to us, the company has not availed any term loans during the year under review.

(XVII) On the basis of our examinations of the books of accounts and the information and explanation given to us, in our opinion, the funds raised on short-term basis have not been used for long-term investment.

(XVIII) During the year, the Company has not made any preferential allotment of shares to parties and companies covered in the Register maintained under Section 301 of the Act ;

(XIX) The Company has not made any issue of debentures during the year;

(XX) During the year covered by our audit report the Company has not raised any money by way of Public Issue.

(XXI) Based on the audit procedures performed and information and explanations given to us by the management, we report that no fraud on or by the Company has been noticed or reported during the course of our audit.

For GMK Associates Chartered Accountants Firm Regn No. 006945S

(G. Satyanarayana Murty) Partner Membership No. 029919

Place: Hyderabad Date: 24.05.2014


Mar 31, 2013

Report on the Financial Statements

We have audited the accompanying financial statements of KERNEX MICROSYSTEMS (INDIA) LIMTED(‘''the Company''''), which comprise the Balance Sheet as at March 31, 2013 and the Statement of Profit and Loss and Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management''s Responsibility for the Financial Statements

Management is responsible for the preparation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the Accounting Standards referred to in sub-section (3C) of section 211 of the Companies act, 1956 (‘''the Act''''). This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditor''s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. Those Standards require that we comply with 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 the auditor''s 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, the auditor considers 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. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by 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 audit opinion.

Opinion

In our opinion and to the best of our information and according to the explanations given to us, the financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India:

a. In the case of the Balance Sheet, of the state of affairs of the Company as at March 31, 2013

b. In the case of Statement of Profit and Loss, of the profit for the year ended on that date.

c. In the case of the Cash Flow Statement, of the Cash flows for the year ended on that date.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor''s Report) Order ,2003 ("the Order") issued by the Central Government of India in terms of sub–section (4A) of section 227 of the Act, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the Order.

2. As required by section 227(3) of the Act, we report that:

a. We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit.

b. In our opinion proper books of account as required by law have been kept by the Company so far as appears from our examination of those books.

c. The Balance Sheet and Statement of Profit and Loss dealt with by this Report are in agreement with the books of account.

d. In our opinion, the Balance Sheet, Statement of Profit and Loss comply with the accounting Standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956.

e. On the basis of written representations received from the directors as on 31st March,2013, and taken on record by the Board of Directors, none of the directors is disqualified as on March 31st, 2013 from being appointed as a director in terms of clause (g) of sub-section (1) of section 274 of the Companies Act,1956.

f. Since the Central Government has not issued any notification as to the rate at which the cess is to be paid under section 441A of the Companies Act, 1956 nor has it issued any Rules under the said section, prescribing the manner in which such cess is to be paid, no cess is due and payable by the Company.

Annexure to the Auditor''s report of even date to the Members of Kernex Microsystems (India) Limited

(I) (a) The Company is in the process of updating the records showing full particulars including Quantitative details and the situation of its fixed assets.

(b) As per the explanations given to us by the management, physical verification of Fixed Assets has been carried out during the year and no material discrepancies are noticed.

(c) None of the major fixed assets of the Company are disposed off during the year.

(II) (a) The Inventory has been physically verified by the management at reasonable intervals.

(b) In our opinion and according to the information and explanations given to us, the procedures for physical verification of inventory followed by the management were reasonable and adequate in relation to the size of the Company and the nature of its business;

(c) On the basis of our examination of the inventory records, in our opinion, the company has maintained proper records of inventory. The discrepancies noticed on physical verification of inventory as compared to book records were not material.

(III) (a) During the year, the Company has not granted any loans, secured or unsecured, to the companies, firms or other parties covered in the register maintained under Section 301 of the Companies Act,1956. Hence Clauses (iii) (b), (c) & (d) of the Order are not applicable.

(b) The Company has not taken any loans, secured or unsecured, from companies, firms or other parties covered in the register maintained under Section 301 of the Companies Act, 1956. Hence Clauses (iii) (f) & (g) of the Order are not applicable.

(IV) In our opinion and according to the information and explanations provided to us there are adequate internal control system commensurate with the size of the Company and the nature of its business with regard to purchase of inventory, fixed assets and for sale of goods and services. During the course of our audit, no major weakness has been noticed in the internal control.

(V) Based on the audit procedures applied by us and according to the information and explanations provided by the management, we are of the opinion that there have been no transactions that need to be entered into the register maintained under Section 301;

(VI) The Company has not accepted any deposits from the public during the year under review falls under section 58A and 58AA of the Companies Act 1956;

(VII) The Company has an in-house internal audit department, which, in our opinion the scope is commensurate with the size and nature of the business of the company;

(VIII) We have broadly reviewed the books of account maintained by the Company in respect of the products where, pursuant to the Rules made by the Central Government of India, the maintenance of cost records has been prescribed under clause (d) of Section 209 of the Act and are of the opinion that prima facie, the prescribed accounts and records have been made and maintained. We have not, however, made a detailed examination of the records with a view to determine whether they are accurate or complete.

(IX) (a) There have been delays in depositing undisputed statutory dues including Provident Fund, Employees State Insurance, Income Tax and Service Tax with appropriate authorities during the year. According to the records, information and explanations provided to us, there are undisputed amounts payable in respect of Provident Fund Rs. 3,56,951/-, Employees State Insurance Rs. 6,64,147, TDS Rs 22,54,681/-,and Corporate Dividend Tax Rs. 20,27,757/- outstanding at the year end for a period of more than six months from the date they become payable ;

(X) The Company does not have any accumulated losses at the end of the financial year and has not incurred any cash loss during the year covered by our audit and also in the immediately preceding financial year.

(XI) Based on our audit procedures and on the information and explanations given by the management, the Company has not defaulted in repayment of dues to any financial institution or bank;

(XII) Based on our examination and according to the information and explanations given to us , the Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities ;

(XIII) In our opinion, the Company is not a Chit Fund / Nidhi / Mutual Benefit Fund/ Society and Clause 4 (xiii) of the Order are not applicable to this company.

(XIV) In our opinion, the Company is not dealing or trading in shares, securities, debentures and other investments. Accordingly, the provisions of Clause 4(xiv) of the Order not applicable to the Company.

(XV) On the basis of our examination of the books of accounts and the information and explanation given to us the Company has not given any guarantee for loans by others from bank or financial institutions ;

(XVI) According to the information and explanations given to us, the company has not availed any term loans during the year under review.

(XVII) On the basis of our examinations of the books of accounts and the information and explanation given to us, in our opinion, the funds raised on short-term basis have not been used for long-term investment.

(XVIII) During the year, the Company has not made any preferential allotment of shares to parties and companies covered in the Register maintained under Section 301 of the Act ;

(XIX) The Company has not made any issue of debentures during the year;

(XX) During the year covered by our audit report the Company has not raised any money by way of Public Issue.

(XXI) Based on the audit procedures performed and information and explanations given to us by the management, we report that no fraud on or by the Company has been noticed or reported during the course of our audit.

For GMK ASSOCIATES., Chartered Accountants

(Firm Regn No.006945S)

G.Satyanarayana Murty

Partner

Membership No.:29919

Place: Hyderabad

Date: 25th May, 2013


Mar 31, 2012

We have audited the attached Balance Sheet of Kernex Microsystems (India ) Limited, as at 31st March, 2012 and also the Statement of Profit and Loss and Cash Flow Statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An Audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An Audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

As required by the Companies (Auditor's Report) Order,2003,( the Order ) issued by the Central Government of India in terms of sub-section (4A) of section 227 of the Companies Act, 1956, we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order.

Further to our comments in the Annexure referred to above, we report that:

(i) We have obtained all the information and explanations, which to the best of our Knowledge and belief were necessary for the purpose of our audit;

(ii) In our opinion, proper books of account as required by law have been kept by the Company, so far as appears from our examination of those books;

(iii) The Balance Sheet, Statement of Profit and Loss and Cash Flow Statement dealt with by this report are in agreement with the books of accounts.

(iv) In our opinion , the Balance Sheet, Statement of Profit and Loss and Cash Flow Statement dealt with by this report comply with the accounting

standards referred to in sub-section (3C) of Section 211 of the Companies Act,1956 ;

(v) On the basis of written representations received from the directors as on 31st March, 2012 and taken on record by the Board of Directors, we report that none of the directors is disqualified as on 31st March, 2012 from being appointed as a director in terms of Clause (g) of sub-section (1) of Section 274 of the Companies Act,1956;

(vi) In our opinion and to the best of our information and according to the explanations given to us , they said accounts give the information required by the Companies Act,1956, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India ;

(a) In the case of Balance Sheet, of the state of affairs of the Company as at 31st March, 2012;

(b) In the case of Statement of Profit and Loss, of the Profit for the year ended on that date.

(c) In the case of Cash Flow Statement, of the cash flows of the Company for the year ended on that date.

Annexure to the Auditor's report of even date to the Members of Kernex Microsystems (India) Limited

(I) (a) The Company is in the process of updating

the records showing full particulars including Quantitative details and the situation of its fixed assets.

(b) As per the explanations given to us by the management, physical verification of Fixed Assets has been carried out during the year and no material discrepancies are noticed.

(c) None of the major fixed assets of the Company are disposed off during the year.

(II) (a) The Inventory has been physically verified by the management at reasonable intervals.

(b) In our opinion and according to the information and explanations given to us, the procedures for physical verification of inventory followed by the management were reasonable and adequate in relation to the size of the Company and the nature of its business;

(c) On the basis of our examination of the inventory records, in our opinion, the company has maintained proper records of inventory. The discrepancies noticed on physical verification of inventory as compared to book records were not material.

(III) (a) During the year, the Company has not

granted any loans, secured or unsecured, to the companies, firms or other parties covered in the register maintained under Section 301 of the Companies Act,1956. Hence Clauses (iii) (b), (c) & (d) of the Order are not applicable.

(b) The Company has not taken any loans, secured or unsecured, from companies, firms or other parties covered in the register maintained under Section 301 of the Companies Act, 1956. Hence Clauses (iii) (f) & (g) of the Order are not applicable.

(IV) In our opinion and according to the information and explanations provided to us there are adequate internal control system commensurate with the size of the Company and the nature of its business with regard to purchase of inventory, fixed assets and for sale of goods and services. During the course of our audit, no major weakness has been noticed in the internal control.

(V) Based on the audit procedures applied by us and according to the information and explanations provided by the management, we are of the opinion that there have been no transactions that need to be entered into the register maintained under Section 301;

(VI) The Company has not accepted any deposits from the public during the year under review falls under section 58A and 58AA of the Companies Act 1956;

(VII) The Company has an in-house internal audit department, which, in our opinion the scope is commensurate with the size and nature of the business of the company;

(VIII) We have broadly reviewed the books of account maintained by the Company in respect of the products where, pursuant to the Rules made by the Central Government of India, the maintenance of cost records has been prescribed under clause (d) of Section 209 of the Act and are of the opinion that prima facie, the prescribed accounts and records have been made and maintained. We have not, however, made a detailed examination of the records with a view to determine whether they are accurate or complete.

(IX) (a) There have been delays in depositing

undisputed statutory dues including Provident Fund, Employees State Insurance, Income Tax and Service Tax with appropriate authorities during the year. According to the records, information and explanations provided to us, there are undisputed amounts payable in respect of TDS Rs 7,20,600/-, Excise Duty Rs 5,31,388/- and Corporate Dividend Tax Rs 20,76,036/-were outstanding at the yearend for a period of more than six months from the date they become payable ;

(b) According to the information and explanations provided to us, particulars of outstanding dues of Income tax and Sales tax have not been deposited on account of any dispute are given below:

Name of statute Nature of the Period to which the Amount (Rupees Forum where Dues amounts relates in Lakhs) dispute is pending

Income Tax Act Income Tax A.Y 1998-99 8.00 High Court

APGST Sales Tax A.Y 2003-04 4.13 STAT

(X) The Company has no accumulated losses at the end of the financial year ended 31.03.2012 and it has not incurred cash loss during the year covered by our audit and also in the immediately preceding financial year.

(XI) Based on our audit procedures and on the information and explanations given by the management, the Company has not defaulted in repayment of dues to any financial institution or bank;

(XII) Based on our examination and according to the information and explanations given to us , the Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities ;

(XIII) In our opinion, the Company is not a Chit Fund / Nidhi / Mutual Benefit Fund/ Society and Clause 4 (xiii) of the Order are not applicable to this company.

(XIV) In our opinion, the Company is not dealing or trading in shares, securities, debentures and other investments. Accordingly, the provisions of Clause 4(xiv) of the Order not applicable to the Company.

(XV) On the basis of our examination of the books of accounts and the information and explanation given to us the Company has not given any guarantee for loans by others from bank or financial institutions ;

(XVI) According to the information and explanations given to us, the company has not availed any term loans during the year under review.

(XVII) On the basis of our examinations of the books of accounts and the information and explanation given to us, in our opinion, the funds raised on short-term basis have not been used for long-term investment.

(XVIII) During the year, the Company has not made any preferential allotment of shares to parties and companies covered in the Register maintained under Section 301 of the Act ;

(XIX) The Company has not made any issue of debentures during the year;

(XX) During the year covered by our audit report the Company has not raised any money by way of Public Issue.

(XXI) Based on the audit procedures performed and information and explanations given to us by the management, we report that no fraud on or by the Company has been noticed or reported during the course of our audit.

For GMK ASSOCIATES.,

Chartered Accountants

(Firm Regn No.006945S)

G. Satyanarayana Murty

Partner

Place: Hyderabad Membership No.:29919

Date: 28th May,2012


Mar 31, 2011

We have audited the attached Balance Sheet of Kernex Microsystems (India) Limited, as at 31st March, 2011 and also the Profit and Loss Account and Cash Flow Statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An Audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An Audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

As required by the Companies (Auditor's Report) Order,2003, (the Order) issued by the Central Government of India in terms of sub-section (4A) of section 227 of the Companies Act, 1956, we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order.

Further to our comments in the Annexure referred to above, we report that:

(i) We have obtained all the information and explanations, which to the best of our Knowledge and belief were necessary for the purpose of our audit;

(ii) In our opinion, proper books of account as required by law have been kept by the Company, so far as appears from our examination of those books;

(iii) The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books of accounts;

(iv) In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report comply with the accounting standards referred to in sub-section (3C) of Section 211 of the Companies Act,1956 ;

(v) On the basis of written representations received from the directors as on 31st March, 2011 and taken on record by the Board of Directors, we report that none of the directors is disqualified as on 31st March, 2011 from being appointed as a director in terms of Clause (g) of sub-section (1) of Section 274 of the Companies Act,1956;

(vi) In our opinion and to the best of our information and according to the explanations given to us, the said accounts give the information required by the Companies Act,1956, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India ;

(a) In the case of Balance Sheet, of the state of affairs of the Company as at 31st March, 2011;

(b) In the case of Profit and Loss Account, of the Profit for the year ended on that date; and

(c) In the case of Cash Flow Statement, of the cash flows of the Company for the year ended on that date.

Annexure to the Auditor's report of even date to the Members of Kernex Microsystems (India) Limited

(I) (a) The Company is in the process of updating the records showing full particulars including Quantitative details and the situation of its fixed assets.

(b) As per the explanations given to us by the management, physical verification of Fixed Assets has not been carried out during the year.

(c) None of the major fixed assets of the Company are disposed off during the year.

(II) (a) The Inventory has been physically verified by the management at reasonable intervals.

(b) In our opinion and according to the information and explanations given to us, the procedures for physical verification of inventory followed by the management were reasonable and adequate in relation to the size of the Company and the nature of its business;

(c) On the basis of our examination of the inventory records, in our opinion, the company has maintained proper records of inventory. The discrepancies noticed on physical verification of inventory as compared to book records were not material.

(III) (a) During the year, the Company has not granted any loans, secured or unsecured, to the companies, firms or other parties covered in the register maintained under Section 301 of the Companies Act,1956. Hence Clauses (iii) (b), (c) & (d) of the Order are not applicable.

(b) The Company has not taken any loans, secured or unsecured, from companies, firms or other parties covered in the register maintained under Section 301 of the Companies Act, 1956. Hence Clauses (iii) (f) & (g) of the Order are not applicable.

(IV) In our opinion and according to the information and explanations provided to us there are adequate internal control system commensurate with the size of the Company and the nature of its business with regard to purchase of inventory, fixed assets and for sale of goods and services. During the course of our audit, no major weakness has been noticed in the internal control.

(V) Based on the audit procedures applied by us and according to the information and explanations provided by the management, we are of the opinion that there have been no transactions that need to be entered into the register maintained under Section 301;

(VI) The Company has not accepted any deposits from the public during the year under review falls under section 58A and 58AA of the Companies Act 1956;

(VII) The Company has an in-house internal audit department, which, in our opinion the scope is commensurate with the size and nature of the business of the company;

(VIII) We have broadly reviewed the books of account maintained by the Company in respect of the products where, pursuant to the Rules made by the Central Government of India, the maintenance of cost records has been prescribed under clause (d) of Section 209 of the Act and are of the opinion that prima facie, the prescribed accounts and records have been made and maintained. We have not, however, made a detailed examination of the records with a view to determine whether they are accurate or complete.

(IX) (a) There have been minor delays in depositing undisputed statutory dues including Provident Fund, Employees State Insurance, Income Tax and Service Tax with appropriate authorities during the year. According to the records, information and explanations provided to us, there are no undisputed amounts payable in respect of Provident Fund, Investor Education and Protection Fund, Employee's State Insurance, Income-Tax, Sales-Tax, Wealth-Tax, Service Tax, Customs Duty, Excise Duty, Cess and other statutory dues which were outstanding at the year end for a period of more than six months from the date they became payable ;

(b) According to the information and explanations provided to us, particulars of out standing dues of Income tax and Sales tax have not been deposited on account of any dispute are given below:

Name of Statute Nature of the Period to Amount Forum where Dues which the (Rupees in Lakhs) dispute is amount relates pending

Income Tax Act Income Tax A.Y 1998-99 8.00 High Court

APGST Sales Tax A.Y 2003-04 4.13 STAT

(X) The Company has no accumulated losses at the end of the financial year ended 31.03.2011 and it has not incurred cash loss during the year covered by our audit. However the company has incurred a cash loss of Rs.9,17,54,483/- in the immediately preceding financial year ;

(XI) Based on our audit procedures and on the information and explanations given by the management, the Company has not defaulted in repayment of dues to any financial institution or bank;

(XII) Based on our examination and according to the information and explanations given to us, the Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities ;

(XIII) In our opinion, the Company is not a Chit Fund / Nidhi / Mutual Benefit Fund/ Society and Clause 4 (xiii) of the Order are not applicable to this company.

(XIV) In our opinion, the Company is not dealing or trading in shares, securities, debentures and other investments. Accordingly, the provisions of Clause 4(xiv) of the Order not applicable to the Company.

(XV) On the basis of our examination of the books of accounts and the information and explanation given to us the Company has not given any guarantee for loans by others from bank or financial institutions ;

(XVI) According to the information and explanations given to us, the company has not availed any term loans during the year under review.

(XVII) On the basis of our examinations of the books of accounts and the information and explanation given to us, in our opinion, the funds raised on short-term basis have not been used for long-term investment.

(XVIII)During the year, the Company has not made any preferential allotment of shares to parties and companies covered in the Register maintained under Section 301 of the Act ;

(XIX) The Company has not made any issue of debentures during the year;

(XX) During the year covered by our audit report the Company has not raised any money by way of Public Issue.

(XXI) Based on the audit procedures performed and information and explanations given to us by the management, we report that no fraud on or by the Company has been noticed or reported during the course of our audit.

For GMK ASSOCIATES.,

Chartered Accountants

(Registration No.006945S)

G Satyanarayana Murty

Place: Hyderabad Partner

Date : 13th August, 2011. Membership No.:29919


Mar 31, 2010

We have audited the attached Balance Sheet of Kernex Microsystems (India ) Limited, as at March,31, 2010 and also the Profit and Loss Account and Cash Flow Statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An Audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An Audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

As required by the Companies (Auditors Report) Order,2003,( the Order ) issued by the Central Government of India in terms of sub-section (4A) of section 227 of the Companies Act,1956, we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order.

Further to our comments in the Annexure referred to above, we report that:

(i) We have obtained all the information and explanations, which to the best of our Knowledge and belief were necessary for the purpose of our audit;

(ii) In our opinion, proper books of account as required by law have been kept by the Company, so far as appears from our examination of those books;

(iii) The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books of accounts;

(iv) In our opinion , the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report comply with the accounting standards referred to in sub-section (3C) of Section 211 of the Companies Act,1956;

(v) On the basis of written representations received from the directors as on March 31,2010 and taken on record by the Board of Directors , we report that none of the directors is disqualified as on March 31 , 2010 from being appointed as a director in terms of Clause (g) of sub-section (1) of Section 274 of the Companies Act,1956;

(vi) In our opinion and to the best of our information and according to the explanations given to us , the said accounts give the information required by the Companies Act,1956, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India ;

(a) In the case of Balance Sheet, of the state of affairs of the Company as at 31st March, 2010;

(b) In the case of Profit and Loss Account, of the Profit for the year ended on that date; and

(c) In the case of Cash Flow Statement, of the cash flows of the Company for the year ended on that date.

Annexure to the Auditors report of even date to the Members of Kernx Microsystems (India) Limited

(I) (a) The Company is in the process of updating

the records showing full particulars including Quantitative details and the situation of its fixed assets.

(b) The fixed Assets are physically verified by the management according to a phased programme designed to cover all the items over a period of three years, which in our opinion, is reasonable having regard to the size of the company and nature of its assets. Pursuant to the programme, a portion of the fixed assets has been physically verified by the management during the year and no material discrepancies between the book records and the physical inventory have been noticed.

(c) None of the major fixed assets of the Company are disposed off during the year.

(II) (a) The Inventory has been physically verified by the management at reasonable intervals;

(b) In our opinion and according to the information and explanations given to us, the procedures for physical verification of inventory followed by the management were reasonable and adequate in relation to the size of the Company and the nature of its business;

(c) On the basis of our examination of the inventory records, in our opinion, the company has maintained proper records of inventory. The discrepancies noticed on physical verification of inventory as compared to book records were not material.

(III) (a) During the year, the Company has not granted any loans, secured or unsecured, to the companies, firms or other parties covered in the register maintained under Section 301 of the Companies Act,1956. Hence Clauses (iii) (b), (c) & (d) of the Order are not applicable.

(b) The Company has not taken any loans, secured or unsecured, from companies, firms or other parties covered in the register maintained under Section 301 of the Companies Act, 1956. Hence Clauses (iii) (f) & (g) of the Order are not applicable.

(IV) In our opinion and according to the information and explanations provided to us there are adequate internal control systems commensurate with the size of the Company and the nature of its business with regard to purchase of inventory, fixed assets and for sale of goods and services. During the course of our audit, no major weakness has been noticed in the internal control.

(V) Based on the audit procedures applied by us and according to the information and explanations provided by the management, we are of the opinion that the transactions that need to be entered into the register maintained under Section 301 have been entered and the transactions are made at prices which are reasonable with regard to the prevailing market prices at the relevant time;

(VI) The Company has not accepted any deposits from the public during the year under review which falls under section 58A and 58AA of the Companies Act 1956;

(VII) The Company has an internal audit conducted by external auditors , which, in our opinion is commensurate with the size and nature of the business of the company;

(VIII) We have broadly reviewed the books of account maintained by the Company in respect of the products where, pursuant to the Rules made by the Central Government of India, the maintenance of cost records has been prescribed under clause (d) of Section 209 of the Act and are of the opinion that prima facie, the prescribed accounts and records have been made and maintained. We have not, however, made a detailed examination of the records with a view to determine whether they are accurate or complete.

(IX) (a) According to the records, information and explanations provided to us, the Company is generally regular in depositing with appropriate authorities undisputed amount of Provident Fund, Investor Education and Protection Fund, Employees State Insurance, Income-Tax, Sales-Tax, Wealth-Tax, Service Tax, Customs Duty, Excise Duty, Cess and other statutory dues applicable to it and no undisputed amounts payable were outstanding as at 31st March,2010 for a period of more than six months from the date they became payable ;

(b) According to the information and explanations provided to us, particulars of out standing dues of Income tax have not been deposited on account of any dispute are given below:

Name of Statute Nature of the Period to Amount Forum where Dues which the (Rupees in Lakhs) dispute is amount relates pending

Income Tax Act Income Tax A.Y 1998-99 8.00 High Court



(X) The Company has no accumulated losses at the end of the financial year and has incurred a cash loss of Rs. 9.18 Crores during the financial year covered by our audit, and no cash losses incurred in the immediately preceding financial year ;

(XI) Based on our audit procedures and on the information and explanations given by the management, the Company has not defaulted in repayment of dues to any financial institution or bank;

(XII) Based on our examination and according to the information and explanations given to us , the Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities ;

(XIII) In our opinion, the Company is not a Chit Fund / Nidhi / Mutual Benefit Fund/ Society and Clause 4 (xiii) of the Order are not applicable to this company.

(XIV) In our opinion, the Company is not dealing or trading in shares, securities, debentures and other investments. Accordingly, the provisions of Clause 4(xiv) of the Order not applicable to the Company.

(XV) On the basis of our examination of the books of accounts and the information and explanation given to us the Company has not given any guarantee for loans taken by others from bank or financial institutions ;

(XVI) According to the information and explanations given to us, the company has not availed any term loans during the year under review.

(XVII) On the basis of our examinations of the books of accounts and the information and explanation given to us, in our opinion, the funds raised on short-term basis have not been used for long-term investment.

(XVIII) During the year, the Company has not made any preferential allotment of shares to parties and companies covered in the Register maintained under Section 301 of the Act ;

(XIX) The Company has not made any issue of debentures during the year;

(XX) During the year covered by our audit report the Company has not raised any money by way of Public Issue.

(XXI) Based on the audit procedures performed and information and explanations given to us by the management, we report that no fraud on or by the Company has been noticed or reported during the course of our audit.

For GMK ASSOCIATES.,

Chartered Accountants

(Registration No.006945S)

G Satyanarayana Murty

Place: Hyderabad Partner

Date : 29th May, 2010 Membership No.:29919

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