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Auditor Report of Silktex Ltd.

Mar 31, 2011

1. We have audited the attached Balance Sheet of M/s. Silktex Limited, as at 31 st March 2011, and also the Profit and Loss Account and the 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.

2. 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.

3. As required by the Companies (Auditor's 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 Paragraph '4' and '5' of the said Order.

4. Further to our comments in the annexure referred to above, we report that:

(i) Reference is invited to the following notes in Schedule '18'- Notes on Accounts :

a) Note No.: B (6): regarding long pending business advances given to suppliers, which have been classified as considered good by the management;

b) Note No.: B (I): regarding inventories valuation on the basis of costing records certified by cost accountant and at the general average rates.

5. Subject to the above :

(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, the Profit and Loss Account and the Cash Flow Statement dealt with by this report are in agreement with the books of account.

(iv) In bur opinion the Balance Sheet, Profit and Loss Account and the Cash Flow Statement dealt with by this report, comply with the accounting standards referred in Sub-Section (3C) of Section 211 of the Companies Act, 1956 subject to Clause 4 (i) (b).

(v) On the basis of representations received from the directors and the Company, which has been taken on record by the Board of Directors and on the basis of review of such representations by us, we report that none of the Directors prima facie as on 31 st March, 201 I are disqualified from being appointed as Directors of the Company in terms of Clause (g) of Sub-Section (I) 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 subject to Paragraph 4 (i) above, and read together with notes thereon 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 the Balance Sheet, of the state of affairs of the Company as at 31 st March, 201 I;

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.

ANNEXURE TO THE AUDITORS' REPORT:

ANNEXURE REFERRED TO IN PARAGRAPH '3' OF THE REPORT TO THE SHARE HOLDERS OF M/s. SILKTEX LIMITED, BANGALORE, ON THE ACCOUNTS FOR THE YEAR ENDED 31 st MARCH, 2011:

1. a) The Company has generally maintained proper records showing particulars of fixed assets including quantitative details and their location.

b) As explained to us, some of the fixed assets were physically verified by the management during the year in accordance with the program of verification of fixed assets. In our opinion the frequency of verification is reasonable considering the size and the nature of its assets. According to the information and explanations given to us no material discrepancies were noticed on such verification.

c) During the year the Company has not disposed off any major fixed assets.

2. a) According to the information and explanations given to us, the management has physically verified the stock of raw materials and finished goods twice during the year.

b) In our opinion the procedures and documentation standards of physical verification of all the inventories followed by the management needs to be strengthened to provide, adequate details and classification of inventories in the physical verification documentation. in relation to the size of the Company and nature of its business.

c) The Company has maintained proper records of inventories and production. In our opinion and according to information and explanations given to us the discrepancies noticed on physical verification of stocks were not material in relation to the operations of the Company and the same have been properly dealt with in the books of account.

3. a) The Company has not granted any loans, secured or unsecured to Companies, firms or other parties covered in the register maintained under Section 301 of the Companies Act, 1956. b) The Company has not taken any loans from parties covered in the register maintained under Section 301 of the Companies Act, 1956.

4. In our opinion, the internal control procedures for the purchase of inventory and fixed assets and sale of goods are commensurate with the size of the Company and the nature of its business except in the area of control over advance for purchases which needs to be strengthened. During the course of our audit, no other major weakness has been noticed in the internal control system.

5. a) In our opinion and according to the information and explanations given to us, the particulars of contracts or arrangements referred to in Section 301 of the Companies Act, 1956 have been entered in the register required to be maintained under that Section.

b) There are no transactions of purchases and sale of goods, materials and services made in pursuance of contracts or arrangements entered in the register maintained under Section 301 of the Companies Act, 1956, aggregating during the year to Rs.5,00,000/- or more in respect of each party.

6. In our opinion and according to the information and explanations given to us, the Company has not accepted any deposits during the year from the public within the meaning of the provisions of Section 58A and 58AA or any other relevant provisions of the Companies Act, 1956 and rules made thereunder.

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

8. According to the explanations given to us, the Central Government has prescribed maintenance of cost records under Section 209( I )(d) of the Companies Act, 1956 for the products of the Company. As per the certificate issued by a Cost Accountant, the Company has maintained adequate cost records as prescribed. However we have not carried out the detailed examination of such records.

9. a)According to the records of the Company, the Company is generally regular in depositing undisputed statutory dues including Provident Fund, Employee's State Insurance, Income-tax, Sales Tax, Wealth Tax, Service Tax, Customs Duty, Excise Duty, Cess and other Statutory dues. According to the information and explanations given and the records verified by us, as on the balance sheet date there were no arrears in respect of such statutory dues outstanding for a period of more than six months from the date they became payable as on 31 st March, 2011 except Service Tax k 2,82,865/- and Karnataka Value Added Tax Rs. 9,765/-. There is no unremitted and overdue unpaid dividends into the 'Investor Education and Protection Fund' as on 31st March, 2011.

b) According to the information and explanations given to us, there is disputed amount of entry tax dues Rs. 1,54,253/- relating to 2003-2004 which is under appeal at Assistant Commissioner of Commercial Taxes, City Division, Bangalore. There are no dues of Wealth Tax, Service Tax, Customs Duty, Excise Duty and Cess which have not been deposited on account of any disputes.

10. The Company do not have accumulated losses. The Company has incurred cash losses in the financial year and did not incur any cash loss in the financial year immediately preceeding the financial year under audit.

11. According to the information and explanations given to us there were no defaults in repayment of dues to financial institutions or banks.

12. The Company has not granted any advances on the basis of security by way of pledge of shares, debentures and other securities.

13. The Company is not carrying on any chit fund, nidhi and mutual benefit fund businesses.

14. The Company is not engaged in dealing or trading in shares, securities, debentures and other investments.

15. The Company has not issued any guarantees to any external parties for loans taken by others from bank or financial institutions.

16. The Company has applied the term loan for the purpose for which it is obtained.

17. 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.

18. The Company has not made any preferential allotment of shares during the financial year being audited.

19. The Company has not issued any debentures during the financial year being audited.

20. The Company has not raised any money by public issue during the financial year being audited.

21. On the basis of our examination and according to the information and explanations given to us, no fraud, on or by the Company, has been noticed or reported during the year under report.



For G. BAGRODIA AND COMPANY Chartered Accountants FirmRegn.No.:0003l2S

(G.B. BAGRODIA) Partner Membership No.: 14608

Place : Bangalore Date : 30-05-2011


Mar 31, 2010

1. We have audited the attached Balance Sheet of M/s. Silktex Limited, as at 31st March, 2010, and also the Profit and Loss Account and the 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.

2. 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.

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 Paragraph ‘4 and ‘5 of the said Order.

4. Further to our comments in the annexure referred to above, we report that : Reference is invited to the following notes in Schedule 18 - Notes on Accounts :

a) Note No.: B (6) : regarding long pending business advances given to suppliers, which have been classified as considered good by the management;

b) Note No.: B (1) : regarding inventories valuation on the basis of costing records certified by cost accountant and at the general average rates. Further old unsold traded goods are valued at cost but we are not able to comment on the carrying value of traded goods;

5. Subject to the above :

(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, the Profit and Loss Account and the Cash Flow Statement dealt with by this report are in agreement with the books of account.

(iv) In our opinion the Balance Sheet, Profit and Loss Account and the Cash Flow Statement dealt with by this report, comply with the accounting standards referred in Sub-Section (3C) of Section 211 of the Companies Act, 1956 subject to Clause 4 (b).

(v) On the basis of representations received from the Directors and the Company, which has been taken on record by the Board of Directors and on the basis of review of such representations by us, we report that none of the Directors prima facie as on 31st March, 2010 are disqualified from being appointed as Directors of the Company 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 subject to Paragraph 4 (i) above, and read together with notes thereon 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 the Balance Sheet, of the state of affairs of the Company as at 31st March, 2010;

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.

ANNEXURE TO THE AUDITORS REPORT:

ANNEXURE REFERRED TO IN PARAGRAPH ‘3 OF THE REPORT TO THE SHARE HOLDERS OF M/s. SILKTEX LIMITED, BANGALORE, ON THE ACCOUNTS FOR THE YEAR ENDED 31ST MARCH, 2010 :

1. a) The Company has generally maintained proper records

showing particulars of fixed assets including quantitative details and their location.

b) As explained to us, some of the fixed assets were physically verified by the Management during the year in accordance with the program of verification of fixed assets. In our opinion the frequency of verification is reasonable considering the size and the nature of its assets. According to the information and explanations given to us no material discrepancies were noticed on such verification.

c) During the year the Company has not disposed off any major fixed assets.

2. a) According to the information and explanations given to us, the Management has physically verified the stock of raw materials and finished goods twice during the year.

b) In our opinion the procedures and documentation standards of physical verification of all the inventories followed by the Management needs further improvement in relation to the size of the Company and nature of its business.

c) The Company has maintained proper records of inventories and production. In our opinion and according to information and explanations given to us the discrepancies noticed on physical verification of stocks were not material in relation to the operations of the Company and the same have been properly dealt with in the books of account.

3. a) The Company has not granted any loans, secured or

unsecured to companies, firms or other parties covered in the register maintained under Section 301 of the Companies Act, 1956. b) The Company has not taken any loans from parties covered in the register maintained under Section 301 of the Companies Act, 1956.

4. In our opinion, the internal control procedures for the purchase of inventory and fixed assets and sale of goods are commensurate with the size of the Company and the nature of its business except in the area of purchases which needs to be strengthened. During the course of our audit, no major weakness has been noticed in the internal control system.

5. a) In our opinion and according to the information and

explanations given to us, the particulars of contracts or arrangements referred to in Section 301 of the Companies Act, 1956 have been entered in the register required to be maintained under that Section. b) There are no transactions of purchases and sale of goods, materials and services made in pursuance of contracts or arrangements entered in the register maintained under Section 301 of the Companies Act, 1956, aggregating during the year to Rs. 5,00,000/- or more in respect of each party.

6. In our opinion and according to the information and explanations given to us, the Company has not accepted any deposits during the year from the public within the meaning of the provisions of Section 58A and 58AA or any other relevant provisions of the Companies Act, 1956 and rules made thereunder.

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

8. According to the explanations given to us, the Central Government has prescribed maintenance of cost records under Section 209(1)(d) of the Companies Act, 1956 for the products

of the Company. As per the certificate issued by a Cost Accountant, the Company has maintained adequate cost records as prescribed. However we have not carried out the detailed examination of such records.

9. a) According to the records of the Company, the Company

is generally regular in depositing undisputed statutory dues including Provident Fund, Employees State Insurance, Income-tax, Sales Tax, Wealth Tax, Service Tax, Customs Duty, Excise Duty, Cess and other Statutory dues. According to the information and explanations given and the records verified by us, as on the balance sheet date there were no arrears in respect of such statutory dues outstanding for a period of more than six months from the date they became payable as on 31st March, 2010 except Service Tax Rs.2,82,865/- and Karnataka Value Added Tax Rs.9,765/-. There is no unremitted and overdue unpaid dividends into the ‘Investor Education and Protection Fund as on 31st March, 2010. b) According to the information and explanations given to us, there are disputed amount of entry tax dues Rs. 1,54,253/- relating to 2003-2004 which is under appeal at Assistant Commissioner of Commercial Taxes, City Division, Bangalore. There are no dues of Wealth Tax, Service Tax, Customs Duty, Excise Duty and Cess which have not been deposited on account of any disputes.

10. The Company do not have accumulated losses. The Company has not incurred cash losses in the financial year and also in the financial year immediately proceeding the financial year under audit

11. According to the information and explanations given to us there were no defaults in repayment of dues to financial institutions or banks.

12. The Company has not granted any advances on the basis of security by way of pledge of shares, debentures and other securities.

13. The Company is not carrying on any chit fund, nidhi and mutual benefit fund businesses.

14. The Company is not engaged in dealing or trading in shares, securities, debentures and other investments.

15. The Company has not issued any guarantees to any external parties for loans taken by others from bank or financial institutions.

16. The Company has applied the term loan for the purpose for which it is obtained.

17. 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.

18. The Company has not made any preferential allotment of shares during the financial year being audited.

19. The Company has not issued any debentures during the financial year being audited.

20. The Company has not raised any money by public issue during the financial being audited.

21. On the basis of our examination and according to the information and explanations given to us, no fraud, on or by the Company, has been noticed or reported during the year under report.



For G. BAGRODIA AND COMPANY

Chartered Accountants

Firm No.: 000312S



(G.B. BAGRODIA)

PLACE : Bangalore Partner

DATE : 29-05-2010 Membership No.: 14608

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