Auditor Report of XL Energy Ltd.

Mar 31, 2015

We have audited the accompanying financial statements of XL Energy Limited ("the Company"), which comprise the Balance Sheet as at 31st March, 2015, the Statement of Profit and Loss, 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 in section 134(5) of the Companies Act, 2013 ("the Act") with respect to 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 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 the maintenance of adequate accounting records in accordance with the provision of the Act for safeguarding of the assets of the Company and for preventing and detecting the 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 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 thereunder.

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 misstatements.

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 financial control relevant to the Company's preparation of the financial statements that give true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose for expressing an opinion on whether the company has in place an adequate internal financial control system over financial reporting and the operating effectiveness of such controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by 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.

Emphasis of Matters

We draw attention to the following matters in the Notes to the financial statements:

Note 2.42 to the financial statements which, describes the balances appearing under other long term liabilities, short term borrowings, trade payables, other current liabilities, long term loans and advances, CWIP advances, trade receivables short term loans and advances and other current assets are subject to confirmation and / or reconciliation if any.

Note 2.28 in the financial statement which indicates that the Company has not provided for interest on borrowings from banks.

Our opinion is not modified in respect of these matters.

Opinion

In our opinion and to the best of our information and according to the explanations given to us, the aforesaid 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, 2015 and its loss and its 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, 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 paragraphs 3 and 4 of the Order.

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

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.

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

The Balance Sheet, the Statement of Profit and Loss, and Cash Flow Statement dealt with by this Report are in agreement with the books of account

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.

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

With respect to the other matters 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 does not have any pending litigations which would impact its financial position other than those mentioned in financial statements.

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

iii. The provisions relating to transferring any amounts to the Investor Education and Protection Fund is not applicable to the Company during the year

Annexure referred to in paragraph 1 of Our Report of even date to the members of XL Energy Limited on the accounts of the company for the year ended 31st March, 2015 Under "Report on other Legal & Regulatory Requirements"

On the basis of such checks as we considered appropriate and according to the information and explanations given to us during the course of our audit, we report that:

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

(b) As explained to us, some of the fixed assets have been physically verified by the management at reasonable intervals; as informed to us no material discrepancies were noticed on such verification.

(a) As explained to us, the Inventory has been physically verified during the year by the Management and in our opinion, the frequency of verification is reasonable

(b) In our opinion, the procedures of the physical verification of inventory followed by the Management are reasonable and adequate in relation to the size of the Company and the nature of its business.

(c) In our opinion, the Company is maintaining proper records of inventory and as explained to us, no material discrepancies were noticed on physical verification of stocks as compared to book records.

The company has granted any loans, secured or unsecured to companies, firms or other parties covered in the register maintained under section 189 of the Companies Act 2013 other than those disclosed in note no 2.34 of notes to audited financial statements.

In our opinion and according to the information and explanations given to us, the quantum of operation of the company is at low scale. This does not call for a comprehensive internal control systems and procedures at present.

The Company has not accepted any deposits from the public covered under Section 73 to 76 of the Companies Act, 2013.

The Central Government has not prescribed the maintenance of cost records under sub-section (1) of Section 148 of the Act, for any of the services rendered by company.

(a )According to the information and explanations given to us and based on the records of the company examined by us, the company is not regular in depositing the following undisputed statutory dues including Provident Fund, Employees State Insurance, Income tax, and other material statutory dues applicable to it.

Provident Fund Dues ' 15.16 Lakhs

ESI ' 2.05 Lakhs

T ax Deducted At Source ' 28.06 Lakhs

Total ' 45.27 Lakhs

(b) There were no undisputed amounts payable in respect of Service Tax, and other material statutory dues in arrears as at 31st March 2015 for a period of more than 6 months for the date they became payable.

(c) There are no amounts that are due to be transferred to the Investors Education and protection Fund in accordance with the relevant provisions of the Companies Act, 1956 [1 of 1956] and rules made there under for the financial year 2014-15.

In our opinion the accumulated losses of the company are more than 50% of its net worth. The company incurred a cash loss of ' 94.15 lakhs during the current accounting year. The cash loss during immediately preceding accounting year is ' 177.99 lakhs.

The company has defaulted in the repayment of dues to banks and financial institutions, for both term loans and working capital loans. The company has submitted a proposal to the banks for One Time Settlement (OTS). Reference is invited to note no 2.28 of notes to financial statements.

In our opinion, and according to the information and explanations given to us by the management, the terms and conditions of guarantees given by the Company for loan taken by others from bank or financial institutions in the form of Corporate guarantee to M/s Soft Projex (India) Limited are not prejudicial to the interest of the company.

In our opinion, and according to the information and explanations given to us, the term loans have been applied, on an overall basis for the purposes for which they were obtained.

To the best of our knowledge and according to the information and explanations given to us, no fraud by the Company and no material fraud on the company has been noticed or reported during the year.

FOR M/s V N R ASSOCIATES CHARTERED ACCOUNTANTS Firm Regn: 004478S

Sd/- Place: Hyderabad V N RAO Date: 05.06.2015 PROPREITOR M. No: 18492.

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Mar 31, 2014

We were engaged to audit the accompanying financial statements of XL Energy Limited ("the Company"), which comprise the Balance Sheet as at March 31, 2014, and 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 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 fair presentation of the financial statements that 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 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 judgement, 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 polices used and the reasonableness of the accounting estimates made by Management, as well as evaluating the overall presentation of financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion.

Basis for Qualified Opinion

1. Balances appearing under Long terms and Short Term borrowings, Trade Creditors, Long Term Liabilities and Other Current Liabilities, Capital WIP, Long Term Loans and Advances are subject to confirmation and / or reconciliation, if any.

2. Reference is invited to Note No.2.29 regarding non-provision of interest on borrowings from banks.

Qualified Opinion

In our opinion and to the best of our information and according to the explanations given to us, except for the effects of the matter described in the Basis for Qualified Opinion paragraph, 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 the Profit and Loss Account, of the Loss for the year ended on that date; and

(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

i. 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 Companies Act, 1956, we report that:

(a) Subject to the Basis for Qualified Opinion paragraph, 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) Subject to the Basis for Qualified Opinion paragraph, 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, Statement of Profit and Loss and Cash Flow Statement dealt with by this report are in agreement with books of accounts;

(d) Except for the effects of the matter described in the Basis for Qualified Opinion paragraph, in our opinion, the Balance Sheet, Statement of Profit and Loss and Cash Flow Statement comply with the accounting standards referred to in sub-section (3C) of section 211 of the Act;

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

(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 REFERRED TO IN PARAGRAPH (3) OF OUR REPORT OF EVEN DATE: i. Fixed Assets

(a) The Company is maintaining proper records showing full particulars including quantitative details and situation of fixed assets of the company.

(b) The physical verification of fixed assets is being carried out as per the program drawn up and to the extent the physical verification is carried out, no material discrepancies were noticed on such verification.

(c) There was no disposal of a substantial part of fixed assets during the year.

ii. Inventory

(a) The inventory has been physically verified by the management during the year. In our opinion, the frequency of verification is reasonable.

(b) The procedures of physical verification of inventories followed by the management are reasonable and adequate in relation to the size of the company and the nature of its business.

(c) The company is maintaining proper record of inventory. The discrepancies noticed on verification between the physical stock and the book records were not material.

iii. Loans taken/ granted

According to the information and explanations given to us, the company has not taken any loans secured or unsecured from / to companies, firms or other parties covered in the register maintained under sec.301 of the Companies Act, 1956. However, reference is invited to 2.34 of notes to the audited financial statements regarding monies advanced / equity invested.

iv. Internal Control

The quantum of operation of the Company are at low scale. This does not call for a comprehensive internal control systems and procedures at present.

v. Section 301

According to the information and explanations given to us, we are of the opinion that the transactions that need to be entered in to the register maintained under sec. 301 of the Companies Act, 1956 have been so entered.

vi. Public Deposits

The Company has not accepted any deposits from the public.

vii. Internal Audit

Since the operations of the Company are at a very low level, in our opinion, the company does not require a comprehensive internal audit system.

viii. Cost Records

We broadly reviewed the books of account relating to materials, labour and other items of cost maintained by the company pursuant to the rules made by the central government for the maintenance of cost records and sec 209 (1) (d) of the companies act, 1956 and we are of the opinion that prima facie the prescribed accounts and records have been made and maintained.

ix. Statutory Dues

(a) The Company is not regular in depositing with appropriate authorities the following undisputed statutory dues including Provident Fund, investor education protection fund, Employees State Insurance, Income tax, sales tax, Wealth Tax, Customs Duty, Excise Duty, Cess and other material statutory dues applicable to it.

Provident Fund Dues 30.86 Lakhs

ESI _ 24.87 Lakhs

Tax Deducted At Source _ 72.01 Lakhs

Service Tax _ 11.61 Lakhs

Total 139.35 Lakhs

(b) According to the information and explanation given to us there are no dues of sales tax, income tax, customs duty, wealth tax, excise duty and cess which have not been deposited on account of any dispute.

x. Accumulated losses / Cash Losses

In our opinion the accumulated losses of the company are more than 50% of its net worth. The company incurred a cash loss of Rs. 177.99 lakhs during the current accounting year. The cash loss during immediately preceding accounting year is Rs. 714.75 lakhs.

xi. Repayment of Dues

The company has defaulted in the repayment of dues to banks and financial institutions, for both term loans and working capital loans. The company has submitted a proposal to the banks for One Time Settlement (OTS). The details were mentioned in 2.29 of notes to audited financial statements.

xii. Loans & Advances

In our opinion and according to the information and explanations given to us the Company has not granted loans and advances against pledge of shares debentures and other securities.

xiii. Chit - Fund Companies/Nidhi/Mutual benefit societies

In our opinion the company is not a chit fund / a Nidhi / mutual benefit fund/ society. Therefore clause 4 (xiii) is not applicable to the company.

xiv. Financing Companies

In our opinion and according to the information and explanations given to us the Company is not dealing in or trading in shares and securities. In the case of the investment held by the company, the same are in the name of the company.

xv. Guarantee for Loans

According to the information and explanations given to us the company has given guarantee for loans taken by others to banks or financial institutions excepting corporate guarantee to M/s Soft Projex (India) Limited.

xvi. Term Loans

In our opinion and according to the information and explanations given to us the term loans have been applied for the purpose for which they were raised.

xvii. Usage of Funds

According to the information and explanations given to us and on an overall examination of Balance Sheet of the Company, we report that no funds raised on short-term basis have been used for long-term investment.

(a) The Company has not made any preferential allotments during the year. With regard to FCCB''s reference is invited to note no. 2.33 of notes to audited financial statements.

(b) The clause 4 (xiv) of the Companies (Audit Report ) Order 2003 relating to the creation of the security for the debentures is not applicable to the company as no debentures are raised by the company.

(c) The company has not raised any money by way of public issue during the year.

xviii. Preferential Allotments

The company has not made any preferential allotment of shares to parties and companies covered in the register maintained under section 301 of the Companies Act.

xix. Creation of securities

The company has not issued any debentures during the year, hence the question of creation of securities does not arise.

xx. Public Issue

The company has not raised any money through public issue.

xxi. Frauds

According to the information and explanations given to us, no fraud on or by the company has been noticed or reported during the year.

For V N R Associates Chartered Accountants FRN 004478S

Sd/- ( V N Rao) Place : Secunderabad Propreitor Date : 12.06.2014 Membership No. 018492

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Mar 31, 2013

Report on the Financial Statements

We were engaged to audit the accompanying financial statements of XL Energy Limited ("the Company"), which comprise the Balance Sheet as at March 31, 2013, and 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 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 fair presentation of the financial statements that 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 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 judgement, 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 polices used and the reasonableness of the accounting estimates made by Management, as well as evaluating the overall presentation of financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion.

Basis for Qualified Opinion

1. Balances appearing under Long terms and Short Term borrowings, Trade Creditors, Long Term Liabilities and Other Current Liabilities, Capital WIP, Long Term Loans and Advances are subject to confirmation and / or reconciliation, if any.

2. Reference is invited to Note No.2.30 regarding non-provision of interest on borrowings from banks.

3. The company has recognized a deferred tax income of Rs.543.93 Lakhs during the year because of the cash losses suffered by it over the past 3 years. We are unable to express any opinion on this matter.

4. The Company has borrowings from various banking and financial institutions as enlisted in the Balance Sheet to the tune of Rs. 83,901.42 Lakhs. We are informed by the management of the Company that the Company has made an application under the One Time Settlement Scheme (OTS) to the banks. We have not received any bank confirmation statements as regards to the principal outstanding & interest thereof.

Qualified Opinion

In our opinion and to the best of our information and according to the explanations given to us, except for the effects of the matter described in the Basis for Qualified Opinion paragraph, 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 the Profit and Loss Account, of the Loss for the year ended on that date; and

(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 Companies Act, 1956, we report that:

(a) Subject to the Basis for Qualified Opinion paragraph, 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) Subject to the Basis for Qualified Opinion paragraph, 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, Statement of Profit and Loss and Cash Flow Statement dealt with by this report are in agreement with books of accounts.

(d) Except for the effects of the matter described in the Basis for Qualified Opinion paragraph, in our opinion, the Balance Sheet, Statement of Profit and Loss and Cash Flow Statement comply with the accounting standards referred to in sub-section (3C) of section 211 of the Act; ''

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

(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 REFERRED TO IN PARAGRAPH (3) OF OUR REPORT OF EVEN DATE:

i. Fixed Assets

(a) The Company is maintaining proper records showing full particulars including quantitative details and situation of fixed assets of the company.

(b) The physical verification of fixed assets is being carried out as per the program drawn up and to the extent the physical verification is carried out, no material discrepancies were noticed on such verification.

(c) There was no disposal of a substantial part of fixed assets during the year.

ii. Inventory

(a) The inventory has been physically verified by the management during the year. In our opinion, the frequency of verification is reasonable.

(b) The procedures of physical verification of inventories followed by the management are reasonable and adequate in relation to the size of the company and the nature of its business.

(c) The company is maintaining proper record of inventory. The discrepancies noticed on verification between the physical stock and the book records were not material

iii. Loans taken/granted

According to the information and explanations given to us, the company has not taken any loans secured or unsecured from / to companies, firms or other parties covered in the register maintained under sec.301 of the Companies Act, 1956. However, reference is invited to 2.36 of notes to the audited financial statements regarding monies advanced / equity invested.

iv. Internal Control

In our opinion and according to the information and explanations given to us, the internal control procedures needs to be strengthened and streamlined so as to be commensurate with the size of the company and the nature of its business with regard to purchase of inventory, fixed assets and with regards to the sale of goods.

v. Section 301

According to the information and explanations given to us, we are of the opinion that the transactions that need to be entered in to the register maintained under sec. 301 of the Companies Act, 1956 have been so entered.

vi. Public Deposits

The Company has not accepted any deposits from the public.

vii. Internal Audit

In our opinion, the company has no internal audit system.

viii. Cost Records

We broadly reviewed the books of account relating to materials, labour and other items of cost maintained by the company pursuant to the rules made by the central government for the maintenance of cost records and sec 209 (1) (d) of the companies act, 1956 and we are of the opinion that prima facie the prescribed accounts and records have been made and maintained.

ix. Statutory Dues

(a) The Company is not regular in depositing with appropriate authorities the following undisputed statutory dues including Provident Fund, investor education protection fund, Employees State Insurance, Income tax, sales tax, Wealth Tax, Customs Duty, Excise Duty, Cess and other material statutory dues applicable to it.

Provident Fund Dues Rs.90.42 Lakhs

ESI Rs.27.09 Lakhs

Tax Deducted At Source Rs.201.47 Lakhs

Service Tax Rs.9.77 Lakhs

Total Rs.328.75 Lakhs

(b) According to the information and explanation given to us there are no dues of sales tax, income tax, customs duty, wealth tax, excise duty and cess which have not been deposited on account of any dispute.

x. Accumulated losses / Cash Losses

In our opinion the accumulated losses of the company are more than 50% of its net worth. The company incurred a cash loss of Rs. 714.95 lakhs during the current accounting year. The cash loss during immediately preceding accounting year is . 2,045.74 lakhs.

xi. Repayment of Dues

The company has defaulted in the repayment of dues to banks and financial institutions, for both term loans and working capital loans. The company has submitted a proposal to the banks for One Time Settlement (OTS). The details were mentioned in 2.30 of notes to audited financial statements.

xii. Loans & Advances

In our opinion and according to the information and explanations given to us the Company has not granted loans and advances against pledge of shares debentures and other securities.

xiii.Chit - Fund Companies/Nidhi/Mutual benefit societies

In our opinion the company is not a chit fund / a Nidhi / mutual benefit fund/ society. Therefore clause 4 (xiii) is not applicable to the company.

xiv. Financing Companies

In our opinion and according to the information and explanations given to us the Company is not dealing in or trading in shares and securities. In the case of the investment held by the company, the same are in the name of the company.

xv. Guarantee for Loans

According to the information and explanations given to us the company has given guarantee for loans taken by others to banks or financial institutions excepting corporate guarantee to M/s Soft Projex (India) Limited.

xvi.Term Loans

In our opinion and according to the information and explanations given to us the term loans have been applied for the purpose for which they were raised.

xvii. Usage of Funds

According to the information and explanations given to us and on an overall examination of Balance Sheet of the Company, we report that no funds raised on short-term basis have been used for long-term investment.

(a) The Company has not made any preferential allotments during the-year. With regard to FCCB''s reference is invited to note no. 2.32 of notes to audited financial statements.

(b) The clause 4 (xiv) of the Companies (Audit Report) Order 2003 relating to the creation of the security for the debentures is not applicable to the company as no debentures are raised by the company.

(c) The company has not raised any money by way of public issue during the year.

xviii. Preferential Allotments

The company has not made any preferential allotment of shares to parties and companies covered in the register maintained under section 301 of the Companies Act.

xix. Creation of securities

The company has not issued any debentures during the year, hence the question of creation of securities does not arise.

xx. Public Issue

The company has not raised any money through public issue.

xxi. Frauds

According to the information and explanations given to us, no fraud on or by the company has been noticed or reported during the year.

For Satyanarayana & Co

Chartered Accountants

FRN 003680S

(J. Jagannadha Rao)

Place: Secunderabad Partner

Date : 14.06.2013 Membership No. 6239

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Mar 31, 2012

1 We have audited the attached Balance Sheet of M/S XL Energy Limited, C-2, Pooja Plaza, Vikrampuri, Secunderabad - 500 009 as at 31st March 2012, and also the Profit and Loss Account and Cash Flow Statement for the period 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.

2 We conducted our audit in accordance with auditing standards generally accepted in India. These 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 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 the management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

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

4 Further to the above our comments are as under:

a) Reference is invited to note no. 2.43 of notes to audited financial statements regarding dues to Small, Medium and Micro Enterprises

b) Reference is invited to note no. 2.44 of notes to audited financial statements regarding confirmation of balances

c) The Company has not determined and provided for the amount of gratuity, liability for the employees on accrual basis as at 31st March 2012 which is required to be determined and provided for as per the accounting standard 15 on employees benefits issued by the Institute of Chartered Accountants of India and also as per the provisions of section 209 of the companies act, 1956 relating to preparation of books of account on accrual basis. In the absence of the value of such provision for gratuity, we are unable to determine quantum of such non provision and its impact of the understatement of the loss for the period ended 31st March 2012.

d) The balance appearing under the secured loans (other than the hire purchase loans) are arrived at after providing for interest at a lower rate than the original contract rate. The interest for the period is calculated based on the concessional rates of interest that are to be charged as per the corporate debt restructuring (CDR) scheme provided by the lenders to the Company on 30th December 2009. However during the current financial year despite restructuring of loans given by banks, the company could not meet its obligations for repayment of loans as per CDR Scheme. Further the promoter also could not bring in capital committed by them. As the company could not execute the CDR package, some of the banks have not charged interest on the outstanding loans during the current financial year. Hence the company has accounted for interest which has been charged by the banks and not made a provision in the books for the interest amount not charged by the banks amounting to Rs.5,149.16 Lakhs. Had this provision been made in the books of account the current year loss would be Rs. 7,368.71 Lakhs.

e) We are unable to comment on the carrying value of the investment in one of the subsidiary companies Viz. Khandoba Distilleries Limited in view of the non implementation of the project being executed in the said company and also the stipulations made by the secured lenders of the company as part of the corporate debt restructuring scheme requiring the company to dispose of the said project being implemented.

f) The balances appearing under the Trade Receivables, short Term loans & advances are subject to confirmation and reconciliation. We find no provision has been made in books for doubtful debts.

5 Subject to our qualifications mentioned paragraphs (3) and (4) above, 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 the law have been kept by the Company so far as it appears from our examination of those books excepting in relation to the accounting standard 15 on employee benefits.

c) The Balance Sheet, the Profit and Loss Account and cash flow statement dealt with by these report are in agreement with the Books of Account.

d) 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 excepting in relation to accounting standard 15 on employee benefits.

e) On the basis of the 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 Directors in terms of clause (g) of sub-section (1) of Section 274 of the Companies Act, 1956.

f) 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 excepting in relation to accounting standard 15 employee benefits.

i. In the case of Balance Sheet, of the state of affairs of the company as on 31st March 2012.

ii. In the case Profit and Loss Account, of the Loss for the period ended on that date and

iii. In the case of Cash Flow Statement, of the Cash Flows for the year ended on that date.

i)

a) The Company is maintaining proper records showing full particulars including quantitative details and situation of fixed assets of the company.

b) The Process of physical verification of fixed assets has been started by the company during the year and it is in progress

c) During the year the company has not disposed of any fixed assets.

ii)

a) The inventory has been physically verified by the management during the year. In our opinion, the frequency of verification is reasonable.

b) The procedures of physical verification of inventories followed by the management are reasonable and adequate in relation to the size of the company and the nature of its business.

c) The company is maintaining proper record of inventory. The discrepancies noticed on verification between the physical stock and the book records were not material.

iii. According to the information and explanations given to us, the company has not taken any loans secured or unsecured from / to companies, firms or other parties covered in the register maintained under sec.301 of the Companies Act, 1956. However, reference is invited to 2.37 of notes to the audited financial statements regarding monies advanced / equity invested.

iv. In our opinion and according to the information and explanations given to us, the internal control procedures needs to be strengthened and streamlined so as to be commensurate with the size of the company and the nature of its business with regard to purchase of inventory, fixed assets and with regards to the sale of goods .

v. According to the information and explanations given to us, we are of the opinion that the transactions that need to be entered in to the register maintained under sec. 301 of the Companies Act, 1956 have been so entered.

vi. The Company has not accepted any deposits from the public.

vii. In our opinion, the company has an internal audit system commensurate with the size and nature of its business.

viii. We broadly reviewed the books of account relating to materials, labor and other items of cost maintained by the company pursuant to the rules made by the central government for the maintenance of cost records and sec 209 (1) (d) of the companies act, 1956 and we are of the opinion that prima facie the prescribed accounts and records have been made and maintained.

ix.

a The Company is not regular in depositing with appropriate authorities the following undisputed statutory dues including Provident Fund, investor education protection fund, Employees State Insurance, Income tax, sales tax, Wealth Tax, Customs Duty, Excise Duty, Cess and other material statutory dues applicable to it

Provident Fund Dues Rs. 80.89 Lakhs

ESI Rs. 20.92 Lakhs

Tax Deducted At Source Rs. 189.99 Lakhs

Service Tax Rs. 9.64 Lakhs

Total Rs. 301.44 Lakhs

b According to the information and explanation given to us there are no dues of sales tax, income tax, customs duty, wealth tax, excise duty and cess which have not been deposited on account of any dispute.

x. In our opinion the accumulated losses of the company are more than 50% of its net worth. The company incurred a cash loss of Rs. 2,045.74 lakhs during the current accounting year. The cash loss during immediately preceding accounting year is Rs. 25,549.07 lakhs.

xi. The company has defaulted in the repayment of dues to banks and financial institutions, for both term loans and working capital loans. The company was granted restructuring of the payment of interest and principle dues under corporate debt restructuring scheme on 30th December 2009. As per the terms the company could not meet its obligations for repayment as per the terms of restructuring. The details were mentioned in 2.30 of notes to audited financial statements.

xii. In our opinion and according to the information and explanations given to us the Company has not granted loans and advances against pledge of shares debentures and other securities

xiii. In our opinion the company is not a chit fund / a Nidhi / mutual benefit fund/ society. Therefore clause 4 (xiii) is not applicable to the company.

xiv. In our opinion and according to the information and explanations given to us the Company is not dealing in or trading in shares and securities. In the case of the investment held by the company, the same are in the name of the company.

xv. According to the information and explanations given to us the company has given guarantee for loans taken by others to banks or financial institutions excepting corporate guarantee to M/s Soft Projex (India) Limited.

xvi. In our opinion and according to the information and explanations given to us the term loans have been applied for the purpose for which they were raise.

xvii. According to the information and explanations given to us and on an overall examination of Balance Sheet of the Company, we report that no funds raised on short-term basis have been used for long-term investment. However the borrowing made by the company for the working capital purposes is converted in to long term loans by the lenders under corporate debt restructuring package granted considering the losses suffered by the company.

xviii. The Company has not made any preferential allotments during the year. With regard to FCCBs reference is invited to note no. 2.33 of notes to audited financial statements.

xix. The clause 4 (xiv) of the companies (Audit Report ) order 2003 relating to the creation of the security for the debentures is not applicable to the company as no debentures are raised by the company.

xx. The company has not raised any money by way of public issue during the year.

xxi. According to the information and explanations given to us, no fraud on or by the company has been noticed or reported during the year that caused the financial statements to be materially misstated.

For Satayanarayana & Co

Chartered Accountants

FRN 003680S

(J. Jagannadha Rao)

Place : Secunderabad Partner

Date : 11.01.2013 Membership No. 6239

---

Mar 31, 2011

1 We have audited the attached Balance Sheet of M/S XL Energy Limited (Formerly XL Telecomm & Energy Limited), C-2, Pooja Plaza, Vikrampuri, Secunderabad - 500 009 as at 31st March 2011, and also the Profit and Loss Account and Cash Flow Statement for the period 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.

2 We conducted our audit in accordance with auditing standards generally accepted in India. These 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 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 the management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

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

4 Further to the above our comments are as under:

a) There are no dues to Small, Medium and Micro Enterprises under reference is invited to Note No. B (18) under Schedule No. 13

b) Reference is invited to Note No. B (19) under Schedule No. 13

c) The Company has not determined and provided for the amount of gratuity, liability for the employees on accrual basis as at 31s March 2011 which is required to be determined and provided for as per the accounting standard 15 on employees benefits issued by the Institute of Chartered Accountants of India and also as per the provisions of section 209 of the companies act, 1956 relating to preparation of books of account on accrual basis. In the absence of the value of such provision for gratuity , we are unable to determine quantum of such non provision and its impact of the understatement of the loss for the period ended 31st march 2011

d) The balance appearing under the secured loans (other than the hire purchase loans) are arrived at after providing for interest at a lower rate than the original contract rate. The interest for the period is calculated based on the concessional rates of interest that are to be charged as per the corporate debt restructuring (CDR) scheme provided by the lenders to the Company on 30 December 2009. However during the current financial year despite restructuring of loans given by banks, the company could not meet its obligations for repayment of loans as CDR Scheme. Further the promoter also could not bring in capital committed by them. The Company pursuing a second restructuring of the loans '

e) We are unable to comment on the carrying value of the investment in one of the subsidiary companies Viz. Khandoba Distilleries Limited in view of the non implementation of the project being executed in the said company and also the stipulations made by the secured lenders of the company as part of the corporate debt restructuring scheme requiring the company to dispose of the said project being implemented.

f) The balances appearing under the sundry debtors and loans & advances are subject to confirmation and reconciliation. We find no provision has been made in books for doubtful debts.

5 Subject to our qualifications mentioned paragraphs (3) and (4) above, 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 the law have been kept by the Company so far as it appears from our examination of those books excepting in relation to the accounting standard 15 on employee benefits.

c) The Balance Sheet, the Profit and Loss Account and cash flow statement dealt with by these report are in agreement with the Books of Account.

d) 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 excepting in relation to accounting standard 15 on employee benefits.

e) On the basis of the 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 Directors in terms of clause (g) of sub-section (1) of Section 274 of the Companies Act, 1956.

f) 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 excepting in relation to accounting standard 15 employee benefits

i. In the case of Balance Sheet, of the state of affairs of the company as on 31st March 2011.

ii. In the case Profit and Loss Account, of the Loss for the period ended on that date and

iii. In the case of Cash Flow Statement, of the Cash Flows for the year ended on that date.

ANNEXURE REFERRED TO IN PARAGRAPH (3) OF OUR REPORT OF EVEN DATE:

a) The Company is maintaining proper records showing full particulars including quantitative details and situation of fixed assets of the company.

b) The Process of physical verification of fixed assets has been started by the company during the year and it is in progress

c) During the year the company has not disposed of any fixed assets.

ii. a) The inventory has been physically verified by the management during the year. In our opinion, the frequency of verification is reasonable.

b) The procedures of physical verification of inventories followed by the management are reasonable and adequate in relation to the size of the company and the nature of its business.

c) The company is maintaining proper record of inventory. The discrepancies noticed on verification between the physical stock and the book records were not material.

iii. According to the information and explanations given to us, the company has not taken any loans secured or unsecured from / to companies, firms or other parties covered in the register maintained under sec.301 of the Companies Act, 1956. However, reference is invited to note B (16) of schedule 13 recording monies advance / equity invested.

iv. In our opinion and according to the information and explanations given to us, the internal control procedures needs to be strengthened and streamlined so as to be commensurate with the size of the company and the nature of its business with regard to purchase of inventory, fixed assets and with regards to the sale of goods .

v. According to the information and explanations given to us, we are of the opinion that the transaction that need to be entered in to the register maintained under sec. 301 of the Companies Act, 1956 have been so entered.

vi. The Company has not accepted any deposits from the public.

vii. In our opinion, the company has an internal audit system commensurate with the size and nature of its business.

viii. We broadly reviewed the books of account relating to materials, labour and other items of cost maintained by the company pursuant to the rules made by the central government for the maintenance of cost records and sec 209 (1) (d) of the companies act, 1956 and we are of the opinion that prima facie the prescribed accounts and records have been made and maintained.

ix. a The Company is not regular in depositing with appropriate authorities the following undisputed statutory dues including Provident Fund, investor education protection fund, Employees State Insurance, Income tax, sales tax, Wealth Tax, Customs Duty, Excise Duty, Cess and other material statutory dues applicable to it.

Provident Fund Dues Rs. 9.75 Lakhs

ESI Rs. 1.57 Lakhs

Tax Deducted At Source Rs. 157.11 Lakhs

Total Rs. 168.43 Lakhs

b According to the information and explanation given to us there are no dues of sales tax, income tax, customs duty, wealth tax, excise duty and cess which have not been deposited on account of any dispute.

x. In our opinion the accumulated losses of the company are more than 50% of its net worth. The company incurred a cash loss of 25,549. 07 lakhs during the current accounting year. The cash loss during immediately preceding accounting year is 28,343.19 lakhs.

xi. The company has defaulted in the repayment of dues to banks and financial institutions, for both term loans and working capital loans. The company was granted restructuring of the payment of interest and principle dues under corporate debt restructuring scheme on 30111 December 2009. As per the terms the company could not meet its obligations for repayment as per the terms of restructuring. The details were mentioned in schedule no 13 Paragraph B 1 to notes to accounts.

xii. In our opinion and according to the information and explanations given to us the Company has not granted loans and advances against pledge of shares debentures and other securities

xiii. In our opinion the company is not a chit fund / a Nidhi / mutual benefit fund/ society. Therefore clause 4 (xiii) is not applicable to the company.

xiv. In our opinion and according to the information and explanations given to us the Company is not dealing in or trading in shares and securities. In the case of the investment held by the company, the same are in the name of the company.

xv. According to the information and explanations given to us the company has given guarantee for loans taken by others to banks or financial institutions excepting corporate guarantee to M/s Soft Projex (India) Limited.

xvi. In our opinion and according to the information and explanations given to us the term loans have been applied for the purpose for which they were raise.

xvii. According to the information and explanations given to us and on an overall examination of Balance Sheet of the Company, we report that no funds raised on short-term basis have been used for long-term investment. However the borrowing made by the company for the working capital purposes is converted in to long term loans by the lenders under corporate debt restructuring package granted considering the losses suffered by the company.

xviii. The Company has converted part of the FCCBs in to equity shares during the year. Reference is invited to note no. B 4 under schedule 13.

xix. The clause 4 (xiv) of the companies (Audit Report) order 2003 relating to the creation of the security for the debentures is not applicable to the are raised by the company.

xx. The company has not raised any money by way of public issue during the year. However as per terms of CDR package 10,37,80,394 Preference shares of Rs. 10 each were issued at par to Banks during the year.

xxi. According to the information and explanations given to us, no fraud on or by the company has been noticed or reported during the year that caused the financial statements to be materially misstated.

For Satyanarayana & CO

Chartered Accountants

(J.Jagannadha Rao)

Place: Secunderabad Partner

Date: 24th October 2011 Membership No. 6239

---

Dec 31, 2009

1. We have audited the attached Balance Sheet of M/s. XL Telecom & Energy Limited (Formerly XL Telecom Limited), C2, Pooja plaza, Vikrampuri, Secunderabad - 500 009 as at 31st December2009, and Profit and Loss Account and Cash Flow Statement for the period 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.

2. We conducted our audit in accordance with Auditing Standards generally accepted in India. These 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.

3. As required by the Companies (Auditors Report) Order, 2003 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.

4. Further to the above, our comments are as under:

a) There are no dues to small, medium and micro enterprises and reference is invited to Note No. B-20 under Schedule 14.

b) Reference is invited to Note No. B-21 under Schedule 14.

c) The company has not determined and provided for the amount of the gratuity liability for the employees on an accrual basis as at 31st December2009 which is required to be determined and provided for as per the requirements of the Accounting Standard-15 on Employee Benefits issued by the Institute of Chartered Accountants of India and also as per the provisions of the section 209 of the Companies Acf 1956 relating to preparation of books of account on accrual basis. In the absence of the value of such provision for gratuity, we are unable to determine quantum of such non provision and its impact on the understate- ment of the loss for the period ended 31st December2009.

d) The balances appearing under secured loans (other than the hire purchase loans) are arrived at after providing for interest at a lower rate than the original contracted rates. The interest for the period is calculated based on the concessional rates of interest that are to be charged as per the Corporate Debt Restructuring (CDR) Scheme approved by the lenders to the company on 30* December2009. However the said CDR package is yet to be implemented and the secured lenders have not restated the interest rates as per the CDR package as on date. The provision of interest as per the rates approved under CDR as against original contacted rates has an impact of reduction in secured loan by Rs.2197.11 lakhs and understatement of loss to the same extent

e) We are unable to comment on the carrying value of the investment in one of the subsidiary companies viz. Khandoba Distilleries Limited in view of the non implementation of the project being executed in the said company and also the stipulations made by the secured lenders of the company as part of the Corporate Debt Restructuring Scheme requiring the company to dispose of the said project being implemented.

f) The balances appearing under sundry debtors and loans and advances are subject to confirmation and reconciliation. We find no provision has been made in books for doubtful debts.

5. Subject to our qualifications mentioned Paragraphs (3) and (4) above, 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 excepting in relation to the Accounting Standard-14 on Employee Benefits.

c) The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books of account.

d) 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, excepting in relation to Accounting Standard 15 on Employee Benefits.

e) On the basis of written representations received from the directors, as on 31st December 2009 and taken on record by the Board of Directors, we report that none of the directors is disqualified as on 31st December 2009 from being appointed as Directors in terms of clause (g) of sub-section (1) of section 274 of the companies Act, 1956.

f) 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 excepting in relation to Accounting Standard 15 on Employee Benefits.

(i) in the case of Balance Sheet, of the state of affairs of the Company as at 31st December 2009,

(ii) in the case of the Profit and Loss Account, of the loss for the period ended on that date and

(iii) in case of the Cash Flow Statement, of the cash flows for the period ended on that date.

Annexure referred to in paragraph (3) of our report of even date

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

(b) The process of physical verification of fixed assets has been started by the Company during the year and it is in progress.

(c) During the year, the company has not disposed off any fixed assets except some old vehicles.

(ii) (a) The inventory has been physically verified by the management during the year. In our opinion, the frequency of verification is reasonable.

(b) The procedures of physical verification of inventories followed by the management are reasonable and adequate in relation to the size of the company and the nature of its business.

(c) The Company is maintaining proper records of inventory. The discrepancies noticed on verification between the physical stocks and the book records were not material. Reference is invited to Note No. 18 under Notes to accounts under Schedule 14.

(iii) According to the information and explanations given to us, the Company has not taken any loans, secured or unsecured from/to companies, firms or other parties covered in the register maintained under Section 301 of the Companies Act, 1956. However, reference is invited to note no B-17 of Schedule 14 regarding monies advanced / equity invested.

(iv) In our opinion and according to the information and explanations given to us, the internal control procedures needs to be strengthened and streamlined so as to be commensurate with the size of the company and the nature of its business with regard to purchases of inventory, fixed assets and with regard to the sale of goods.

(v) According to the information and explanation given to us, we are of the opinion that the transaction that need to be entered into the register maintained under section 301 of the Companies Act1956 have been so entered.

(vi) The company has not accepted any deposits from the public.

(vii) In our opinion, the company has an internal audit system commensurate with the size and nature of its business.

(viii) We have broadly reviewed the books of account relating to materials, labour and other items of cost maintained by the company pursuant to the Rules made by the Central Government for the maintenance of cost records under section 209(1) (d) of the Companies Act, 1956 and we are of the opinion that prima facie the prescribed accounts and records have been made and maintained.

(ix) (a) The company is not regular in depositing with appropriate authorities the undisputed statutory dues including provident fund, investor education protection fund, employees state insurance, income tax, sales tax, wealth tax, customs duty, excise duty, cess and other material statutory dues applicable to it excepting income tax dues for the Asst. year 2007-08, 2008-09 amounting to Rs.1486 lakhs, provident fund dues to the tune of Rs.15.31 lakhs and the tax deducted at source of Rs.119.53 lakhs.

(b) According to the information and explanation given to us, there are no dues of sales tax, income tax, customs duty, wealth tax, excise duty and cess which have not been deposited on account of any dispute.

(x) In our opinion the, the accumulated losses of the company are more than fifty percent of its net worth. The company incurred a cash loss of Rs.28343.19 lakh during the current accounting year. There are no cash losses during the immediately preceding accounting year.

(xi) The company has defaulted in the repayment of the dues to Banks and financial institutions. Subsequently the company approached for the restructuring of the payment of interest and principle dues under Corporate Debt Restructuring Scneme. The working capital banker and term lenders have approved a package of restructuring under CDR scheme on 30* December2009. As per the terms of restructuring detailed in schedulel 4, paragraph B.1 to notes on accounts, the interest and principle dues the company are either funded or deferred as at 31st December2009.

(xii) In our opinion and according to information and explanation given to us ,the Company has not granted any loans and advances against pledge of shares, debentures and other securities.

(xiii) In our opinion, the company is not a chit fund or a nidhi / mutual benefit fund/society. Therefore the clause 4(xiii) is not applicable to the company.

(xiv) In our opinion and according to the information and explanation given to us , the company is not dealing in or trading in shares and securities. In the case of the investments held by the company, the same are in the name of the company.

(xv) According to the information and explanation given to us, trie company has not given guarantees for the loans taken by others to Banks or Financial Institutions excepting corporate guarantee to M/s.Softprojex (India) Ltd.

(xvi) In our opinion and according to the information and explanation given to us the term loans have been applied for the purpose for which they were raised.

(xvii) According to the information and explanations given to us and on an overall examination of the balance sheet of the company, we report that no funds raised on short-term basis have been used for long-term investment. However, the borrowings made by the company for the working capital purposes is converted into long term loans by the lenders under Corporate Debt Restructuring Package granted considering the losses suffered by the company.

(xviii) The company has converted part of the FCCBs into equity snares during the year. Further an amount of Rs.5,38,65,000 received as money towards the warrants from the parties covered in trie register maintained under section 301 of the Companies Act1956 during the earlier period is forfeited during the year. Reference is invited to note no. B-4 and B-5 under Schedule 14 of the Annual Accounts.

(xix) The clause 4(xix) of the Companies (Audit Report) Order 2003 relating to the creation of the security for the Debentures is not applicable to the company as no debentures are raised by the company.

(xx) The company nas not raised any money by way of public issue during the year.

(xxi) According to the information and explanations given to us, no fraud on or by the company has been noticed or reported during the year that caused the financial statements to be materially misstated.

For Satyanarayana & Co. Chartered Accountants

J. Jagannadha Rao Place: Secunderabad Partner

Date: 31-03-2010 (M. No 6239)