1.  We have audited the attached Balance Sheet of ADHUNIK SYNTHETICS
 LIMITED as at 31st March 2008, the Profit & Loss Account and also 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 test basis, evidence supporting the amounts and
 disclosures in the financial statements. An audit also includes
 assessing the accounting principles 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 (Auditors Report) Order, 2003
 (hereinafter referred to as the CARO 2003) issued by the Central
 Government of India in terms of section 227(4A) of the Companies Act,
 1956, (hereinafter referred to as the Act) we enclose in the Annexure
 a statement on the matters specified in paragraphs 4 and 5 of the said
 order.
 
 4.  Further to our comments in the Annexure referred to above, we
 report that:
 
 (i) We have obtained all the information and explanations, except
 referred to elsewhere in the report, 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 & Loss Account and Cash Flow Statement
 dealt with by this report are in agreement with the books of account;
 
 (iv) In our opinion, the Balance Sheet, Profit & Loss Account and Cash
 Flow Statement dealt with by this report comply with the mandatory
 Accounting Standards referred to in sub-section (3-C) of section 211 of
 the Companies Act, 1956 except:
 
 (a) AS-1 as referred to in Note No. 12 of schedule 20 that the
 financial statements have been prepared on the concept that the company
 will continue as a going concern, though:
 
 aa) Manufacturing operations at Jalgaon unit of the company continued
 to stand suspended;
 
 ab) Plant and Machinery of Kim unit has already been sold in an earlier
 year;
 
 ac) Murbad and Umbergaon units of the company were not operating at
 full capacity;
 
 ad) The company is not in a position to honour its commitment towards
 various secured, even under One Time Settlement (hereinafter referred
 as to the OTS) and unsecured creditors;
 
 ae) The company has continuously incurred losses and thereby the
 accumulated loss has exceeded the net worth of the company and a
 substantial loss is carried forward as on 31st March 2008;
 
 af) On forwarding the matter by the BIFR, The Honourable High Court,
 Mumbai, issued notification to official liquidator for appointing him
 as provisional liquidator; the initial proceedings before official
 liquidator were commenced; and
 
 ag) Further impairment of the assets as reported in the following
 paragraphs and also in annexure to report, cannot be ruled out on
 realization / recovery, which may contribute to accumulated loss.
 
 Hence it cannot be said whether the company will continue to be so.
 
 Accordingly, financial statements for the year under consideration do
 not include any adjustments relating to recorded amounts and
 classification of assets; or to amounts and classification of
 liabilities that may be necessary if the company is unable to continue
 as a going concern.
 
 (b) AS-2 as referred to in Point No. 5 of schedule 19 of Significant
 Accounting Policies for valuation of inventories, the method of
 valuation is not as per Accounting Standard. Secondly, even in respect
 of fabric division of the company, in view of various qualities, as
 explained to us, of fabrics produced, valuation of grey and finished
 fabrics is based on the past experience and judgment of the management
 as regards to attribution of cost elements which is not fully
 verifiable for want of cost records.
 
 Thirdly, the comparative inventory holding levels, in view of
 continuous steep decline in the turnover in past few years, as compared
 to earlier years with turnover, in our opinion, are higher therefore
 there is a possibility of loss on sale / realization of slow moving
 /old items also.  The impact of the above remarks, presently not
 ascertainable and, therefore, cannot be commented upon;
 
 (c) AS-15 as referred to in Note No. 5 of schedule 20, the company has
 neither formulated any policy for employees benefits nor made
 provision for employees benefits, therefore for want of actuarial
 valuation , the amount of the same and consequential impact thereof on
 the profit /loss is not ascertainable;
 
 (d) AS-13 as referred to in Note no. 15 of schedule 20, no provision
 has been made for diminution in the value of investments in the equity
 shares of (a) Adhunik Yarns Ltd, a sick industrial undertaking within
 the meaning of Section 3 (1) (o) of the SICA, 1985 and BIFR formed,
 prima facie, an opinion that the company be wound up and forwarded the
 matter to concerned High Court, Rs 81.87 lacs and (b) Adhunik Fintrade
 Ltd., a company having substantial carried forward losses, Rs. 5.94
 lacs; and
 
 (e) AS-28, as referred to in Note no. 20 of schedule 20, the company
 has not measured and recognized the loss of impairment of its assets,
 which, in view of continuous suspension of manufacturing operations at
 its yarn manufacturing units and partly utilization of capacity of
 fabric manufacturing units and also long outstanding amount as referred
 to in note no. 14 of schedule 20, in our opinion, cannot be ruled out
 and therefore should have been recognized. Attention of the members is
 further invited to refer para no. (iii) of annexure to the Auditors
 Report.
 
 v) Attention of the members is invited to:
 
 (a) Note no. 2 of schedule 20, no independent confirmation of balances
 of Sundry Debtors, Sundry Creditors, Loans and Advances, loans from
 Financial Institutions & Banks and other balances have been produced to
 us and therefore consequential impact, if any, could not be
 ascertained;
 
 (b) Note no.6 of schedule 20, lower charge of depreciation, as a
 result, up to date depreciation charge is lower by Rs 13.44 lacs after
 taking into account Rs 12.76 lacs excess charge for the year under
 review;
 
 (c) Note no. 9 of schedule 20, no provision has been made for interest
 accrued and due on the unpaid instalments which have already become due
 pertaining to Special Capital Incentives and Sales Tax Incentives
 received in the form of unsecured loans, the amount could not be
 ascertained in absence of proper information available with the
 company; and
 
 (d) Note no. 16 of schedule 20, no provision has been made for interest
 on unpaid secured loans in view of the OTS with the said secured
 creditors, however till the final payments to such creditors and
 getting the no dues certificates from them the company should have
 provided the interest. The amount of interest, liquidated damages,
 overdue and compound interest, if any, on late payments/ defaults in
 payment of interest as well as repayment of instalments of loans &
 debentures, could not be determined / ascertained properly;
 
 vi) We, further report that, overall impact of the above referred
 remarks, without considering items mentioned at iv) a), b), c), d), e)
 and v) a), c), and d) above and para no (i), (ii) and (xv) of Annexure
 to the Auditors Report, the effect of which could not be determined,
 the loss for the year would have been lower by Rs.12.75 lacs and the
 debit balance in Profit & Loss Account would have been higher by Rs.
 13.44 lacs;
 
 vii) All the directors of the company, are disqualified as on 31 March
 2008, to be appointed as a director of any other public company, as the
 company has failed to redeem its debentures on due dates, as referred
 to in Section 274 (1) (g) of the Act on the said date;
 
 viii) As informed to us, the company has not complied with the
 conditions of the Corporate Governance as stipulated under Clause 49 of
 the Listing Agreement;
 
 ix) Minutes Books of Meetings of the Board of Directors and
 Shareholders and other Statutory Registers required to be maintained
 under the Act by the company, were not produced to us for our
 verification;
 
 x) Note No. 7 of Schedule 20, the company has paid managerial
 remuneration amounting to Rs. 2.48 lacs without satisfying the
 conditions of Schedule XIII of the Act;
 
 xi) Note No. 13 of Schedule 20 for non-availability of the relevant
 information with the company, the information of creditors registered
 as Micro, Small and Medium Enterprises under the Micro, Small and
 Medium Enterprises Development Act, 2006 could not be complied;
 
 xii) For want of proper evidence of expenses amounting to Rs. 530691.00
 included under the head Advertisement & Publicity, incurred through
 credit cards, the classification and reasonableness of the same could
 not be ascertained and hence the impact, if any, on the financial
 statement presentation (including disclosure of expenditure in foreign
 currency) cannot be commented upon;
 
 xiii) Expenses amounting to Rs. 256540/-, included under head of
 electricity expenses, are in nature of personal expenses; and
 
 xiv) In our opinion and to the best of our knowledge and according to
 the information and explanations given to us, the said accounts,
 subject to the forgoing and read together with the accounting policies
 and other notes thereon, give the information required by the Companies
 Act 1956, in the manner so required and give a true and fair view.
 
 (i) In the case of Balance Sheet, of the state of affairs of the
 Company as at 31st March 2008;
 
 (ii) In the case of Profit & Loss Account, of the profit for the year
 ended on that date; and
 
 (iii) In case of Cash Flow Statement, of the cash flows for the year
 ended on that date.
 
 ANNEXURE REFERRED IN PARAGRAPH (3) OF AUDITORS REPORT OF EVEN DATE ON
 THE ACCOUNTS FOR THE YEAR ENDED 31 MARCH, 2008 OF ADHUNIK SYNTHETICS
 LIMITED ON THE BASIS OF SUCH CHECKS AS WE CONSIDER APPROPRIATE AND IN
 TERMS OF THE INFORMATION AND EXPLANATION GIVEN TO US, WE STATE THAT:
 
 (i) a) The fixed assets register was not produced to us for our
 verification, however a statement was produced to us containing the
 broad particulars of the fixed assets on the basis of that it can not
 be said that the Company has maintained proper records showing full
 particulars, including quantitative details and situation of fixed
 assets;
 
 b) As informed to us, the management has, at reasonable intervals
 during the year, physically verified the fixed assets except the fixed
 assets of Units located at Jalgaon and Kim where manufacturing
 operations were shut down and found no discrepancies. Hence,
 discrepancies, if any, in the fixed assets situated on above locations,
 could not be ascertained. Further no fixed assets of the company were
 insured for any risk; and
 
 c) During the year the company has not disposed off a substantial part
 of its fixed assets.
 
 (ii) a) As informed to us, the inventory has been physically verified
 at the close of the year by the management except the stocks and other
 items of stores and spares lying at the units located at Jalgaon and
 Kim, where manufacturing operations were shut down and goods lying with
 third parties.  In our opinion, the verification of inventory only at
 the close of the year in respect of all the items cannot be said to be
 reasonable and also no confirmation /certificates have been produced to
 us for physical verification of the inventories, for the inventories
 lying with third parties;
 
 b) The procedures of physical verification of inventories, as
 explained, followed by the management are, in our opinion, needs to be
 strengthened in relation to the size of the company and the nature of
 its business as no records evidencing the physical verification were
 produced to us except confirming the same as done; and
 
 c) The company, for inventory, has maintained no specific records that
 can be said proper. As informed to us no material discrepancies have
 been noticed on physical verification of stock except the stocks and
 other items of stores and spares lying at the units located at Jalgaon
 and Kim, where manufacturing operations were shut down and goods lying
 with third parties as inventories at these locations were not
 physically verified, as compared to book records / statements and the
 same has been properly dealt with in the books of account. Hence
 discrepancies, if any, in the stocks lying at above locations and with
 the third parties, could not be ascertained. Further inventories of the
 company were not insured for any risk;
 
 (iii) a) As informed to us, the company has granted unsecured loans to
 3 parties covered in the register maintained under section 301 of the
 Act.  The maximum amount involved during the year was Rs. 370.30 lacs
 (including trade advances given in earlier years), the year end balance
 of such loans included in sundry debtors Rs. 330.37 lacs and in loans
 and advances Rs. 4.25 lacs ;
 
 b) The aforesaid advances in the nature of loans are interest-free and
 therefore, in our opinion, are prejudicial to the interest of the
 company;
 
 c) The payment of principal amount of the aforesaid loans, however it
 is informed that there was/is no stipulation, still, in our opinion,
 are not regular as the same are outstanding since long;
 
 d) As stated above, that there was no stipulation yet, in our opinion,
 the whole amount is, prudently, overdue as one of these company is a
 sick industrial undertaking declared by BIFR for which BIFR also
 formed, prima-facie, an opinion for wound up and other one is also a
 company having substantial carried forward losses. No Specific recovery
 steps, as informed to us, were taken by the company;
 
 e) During the year the company has, as informed to us, taken unsecured
 loans from the one party covered in the register maintained under
 section 301 of the Act. The maximum amount involved during the year was
 Rs. 30.28 lacs and year end balance of such loan was Rs. 30.28 lacs;
 
 f) The terms and conditions of the aforesaid loan taken are prima facie
 not prejudicial to the interest of the company as such loan were taken
 free of interest; and
 
 g) Since the aforesaid loan, as informed to us, is repayable on demand,
 the payment of principal amount of the aforesa loans was treated
 regular.
 
 (iv) In our opinion and according to the information and explanations
 given to us, internal control system, followed by the management, need
 to be strengthened commensurate with the size of the company and the
 nature of its business, for the purchase of inventory and fixed assets
 and for the sale of goods and services.  During the course of audit, no
 major weakness has been reported and noticed in these internal control
 systems.
 
 (v) a) The company has not produced the register required to be
 maintained under section 301 of the Act, for our verification, hence it
 can not be said whether particulars of contract or arrangements,
 referred to in said section, that need to be entered into such register
 have been so entered; and
 
 b) In our opinion and according to the information and explanations
 given to us, the transactions, exceeding the value of Rs. 5 lacs in
 respect of any party during the year made in pursuance of such
 contracts or arrangements, have been made at prices which are
 reasonable having regard to the prevailing market prices at the
 relevant time wherever such market prices are available.
 
 (vi) As informed to us, the company has accepted deposit from the
 public (from a firm in which relatives of the directors are partners),
 contrary to the directives issued by the Reserve Bank of India and
 provisions of section 58A of the Act and Rules framed there under. As
 informed to us, no order has been passed by the Company Law Board or
 National Company Law Tribunal or Reserve Bank of India or any Court or
 any other Tribunal;
 
 (vii) We are informed that the company has no internal audit system.
 
 (viii) We are informed that the accounts and records pursuant to the
 Rules made by the Central Government for the maintenance of cost
 records under section 209(1 )(d) of the Act, have not been maintained
 by the company.
 
 (ix) a) The company is not regular in depositing with the appropriate
 authorities undisputed statutory dues including Provident Fund,
 Employees State Insurance, Investors Education and Protection Fund,
 Income tax, Sales-tax, Service tax and other material Statutory Dues
 applicable to it.  There were no arrears as at 31st March 2008 for a
 period of more than six months from the date they became payable
 except:
 
 aa)Rs. 84752/-, Rs. 1385/-, Rs. 221954/-, Rs.  103386/-, Rs. 109679/-,
 Rs. 559832/-, Rs.  50856/-, Rs. 12249/-and Rs. 11992/- towards
 provident fund, E.S.I.C, sales tax, interest on sales tax, professional
 tax, income tax (TDS), Fringe Benefit Tax (FBT), property tax and
 Maharashtra Labour Welfare Fund respectively,
 
 ab)the company has also not credited Investors Education and
 Protection Fund by unclaimed dividend declared for the period ended
 30th June 1995 and unclaimed FCD application money which On allotment
 became due for refund, if any, as informed to us that necessary
 information are not with the company, and
 
 b) According to the information & explanations given to us, the
 statutory dues that have not been deposited with the appropriate
 authorities on account of dispute and the forum where the disputes are
 pending are given below:-
 
 Name of the Statute                  Amount
                                    (In Rupees)
 
 Bombay Sales Tax Act                    33044
 Central Sales tax Act                  137221
 Bombay Sales Tax Act                   657564
 Income Tax Act                          10000*
                                         20000*
                                      20118705
                                        194891***
 
 Period to which the     Forum where dispute is pending
 amount relates
 
 1999-2000             In appeal with Deputy Commissioner of Sales Tax
 1999-2000             In appeal with Deputy Commissioner of Sales Tax
 2000-2001             In appeal with Deputy Commissioner of Sales Tax
 AY 1999-2000          The Income Tax Appellate Tribunal
 AY 2004-2005          The Income Tax Appellate Tribunal
 AY 2004-2005          The Income Tax Appellate Tribunal
 AY 2005-2006          The Commissioner of Income Tax (Appeals)
 
 * Penalty u/s 271(1)(b)** Penalty u/s 271(1)(c)*** On regular
 assessment
 
 (x) The Company has not incurred cash losses in the year under review
 (considering the relief under OTS settlements with secured creditors)
 but incurred cash losses in the immediately preceding financial year
 and its accumulated losses at the end of the year under review is more
 than fifty per cent of its net worth.
 
 (xi) The Company has defaulted in repayment of dues to the financial
 institutions, banks and debenture-holders which, as per the information
 and explanation given and representation made to us, are given below:
 
 Lender                                             (Amount Rupees)
 
 Nature of credit facilities and Financial         Principal    Interest
 Institutions / banks
 
 (a) Long Term Funds:
 Bank of Baroda                                     5250000    13671696
 Debenture-holders                                 26250000    99595383
 (b) Cash Credit Limit (#):
 Central Bank of India                             64783542   167475603
 Bank of Baroda                                    51680240   125921382
 State Bank of India                               19683098    41047126
 (c) Incentives in form of unsecured loans:
 Capital Incentive-MIDC                             1320605
 Sales Tax Interest Free Loan-Sicon                15386035
 
 Total                                            184353520   447711190
 
 Period in which sums became due
 
 February 1998 to August 1999
 July 1998 to March 2007
 August 1997 to August 1999
 April 1997 to March 2007
 
 April 1998 to March 2008
 October 1998 to March 2008
 April 1999 to March 2008
 
 December 1995 to June 2003
 November 2000 to March 2008
 
 (xii) According to the information and explanations given to us, the
 Company has not granted any loans and advances on the basis of security
 by way of pledge of shares, debentures and other securities.
 
 (xiii) The company is not a chit fund or a nidhi mutual benefit fund/
 society. Therefore, the provisions of clause 4(xiii) of the CARO 2003
 are not applicable to the company.
 
 xiv) According to the information and explanations given to us, the
 Company is not dealing or trading (except for investments purposes) in
 shares, securities, debentures and other investments. Accordingly, the
 provisions of clause 4(xiv) of the CARO 2003 are not applicable to the
 company. The Company in its own name holds all the investments.
 
 (xv) According to the information and explanations given to us and we
 report that on prima-facie examination of information provided, the
 company has not given any guarantee for loans taken by a third party
 from financial institution(s) or bank(s).
 
 (xvi) The company has not obtained any term loans during the year and
 hence reporting requirements of para (xvi) of the CARO 2003 are not
 applicable.
 
 (xvii) According to the information and explanations given to us and on
 an prima-facie examination of the balance sheet of the company, we
 report that due to payment of OTS to secured creditors towards term
 loans by the company in the year under review and also heavy losses
 incurred in earlier years, the funds raised on short term basis have
 been used for long purposes to the extent of Rs. 4271.35 lacs at the
 end of the year including Rs. 85.28 lacs during the year.
 
 (xviii)The Company has not made preferential allotment of shares to
 parties and companies covered in the register maintained under section
 301 of the Act.
 
 (xix) According to the information and explanations given to us, the
 Company has created security in respect of debentures issued in an
 earlier year. No debentures have been issued during the year.
 
 (xx) The Company has not raised any money through a public issue during
 the year.
 
 (xxi) According to the information and explanation given to us,
 representation made to us and to the best of our knowledge and belief,
 no fraud on or by the Company, has been noticed or reported by the
 company during the course of our audit.
 
                         For and on behalf of R. S. AGRAWAL & ASSOCIATES
                                                   Chartered Accountants
 
                                                            R.S. Agrawal
 Mumbai                                                          Partner
 11th August 2008                                   Membership No. 33216